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August 01, 2012 at 05:09 AM
Asian millionaires are leaving behind wealth managers and others who seek to handle their funds for them as instead they take the reins themselves. They’ve lost confidence in not just private banks but also investment products amid low returns since the market woes of 2008, and instead would rather rely on their own acumen to keep and grow their money.
So said a Bloomberg report on Wednesday, which said that money managers at banks in Asia only had control over 4% of client funds. That, according to a Boston Consulting Group report in June, was down from 7% in 2006. Europe, on the other hand, relies on money managers to handle 23% of its wealth, up from 18% in 2006.
Report co-author Peter Damisch, a Zurich-based BCG partner and managing director, was quoted saying about the decline, “Asia’s wealthy lost a lot of trust in their private banks and private bankers during the 2008 financial crisis.”
That’s bad news for large wealth management firms that have expanded in Asia even as the wealthy are pulling away from them. Profits are down on a steadily falling pool of assets under management just as companies have spent considerable funds in an effort to attract larger clients and more AUM.
For HSBC Holdings, it has translated to lower earnings in 2011 than it had in 2007, despite the fact that its private bank managed 25% more assets in the Asia-Pacific region in 2011 than it did in 2007. Its annual reports have revealed that the private bank’s net operating income for local operations in 2007 was $748 million on $26.7 billion in assets. However, in 2011, its net operating income for local operations dropped despite a rise in AUM to $33.5 billion, coming in at only $712 million.
So HSBC’s private bank took in 25% less in 2011, excluding expenses, than it did in 2007, for earnings of $2.10 for every $100 in assets that it managed in the region.
Akbar Shah, head of Southeast Asia and Australia for Citigroup’s private-banking unit, said in the report that the Asia-Pacific region’s accumulation of wealth is one reason the high net worth want to control their own funds.
He was quoted saying, “The culture of Asia is such that clients are far more hands-on. Many of them have made a lot of money in the real estate markets in Asia, and these are hands-on markets,” he added. “Nobody can tell you—you need a feel for it.”
