With Asia poised to overtake North America as the world’s largest wealth-management market next year, the pressure is on for private banks to bulk up their presence and cement market share.
In the face of an increasingly competitive and crowded market, could consolidation be the way forward? This is what regional chief executive Olivier Gougeon of Societe Generale’s (SocGen) private-banking business in Asia believes.
SocGen, which is France’s second-largest lender by market value, has sold its Asian private-banking business to DBS Bank for US$220 million (S$275 million). According to a DBS statement released in March, this price represents 1.75 per cent of SocGen Private Banking Asia’s US$12.6 billion worth of assets as of Dec 31 last year. The transaction, which is on track to conclude in October, includes private-banking operations in Singapore and Hong Kong, as well as selected parts of the French bank’s trust business.
Following the sale, clients of both banks will gain access to each other’s services and products. This includes DBS’ digital banking facilities.
Gougeon, 48, tells The Peak: “I feel it’s very difficult to make sustainable money if you have less than US$50 billion of assets under management (AUM). Increment is volatile and cost base is high. In time to come, smaller banks with US$10 billion to US$30 billion of AUM may have to rethink their business models and perhaps look at partnerships to increase distribution channels.
“Not only will this acquisition accelerate DBS’ expansion, its private-banking business will also be more profitable in the long run.”
This is especially so in the current industry- wide profit squeeze exacerbated by high cost-to- income ratios (a key valuation measure which appraises a firm’s efficiency in minimising costs, while increasing profits) and hefty compliance costs. Furthermore, one needs to retain and attract new talent to service the growing industry.
Gougeon, who will move to DBS, adds: “You need to invest significantly to capture market share. On top of that, you need brand recognition. Not only do you need to offer good products, you need to give an overall client experience which is different from your competitors’.”
As Asia shifts from wealth creation to wealth transfer, Gougeon believes it makes sense for different banking arms to come under one roof.
He says: “We are now able to leverage on DBS’ connectivity between the different businesses of corporate, investment and retail banking which will expand our value proposition, especially in terms of wealth structuring and wealth planning. There is more incentive for a client to work with us and plan for the future.”