I’m writing this on a Swiss train en route from Zurich to Cologne after a relaxing few days with an old friend who has retired to his home town after decades as a private banker in Asia.
Over a beer at the Hauptbahnhof before my train departed – on time, of course – mein host gave me his view of the state of Swiss private banking, which is contracting while the industry in Singapore is expanding.
The old marques of the Swiss private bank, such as the anonymous numbered account and the “hold mail” account – the client would have his documentation held at the bank and swing by every few years to pick it up – are long gone.
Pressure from US regulators over the past decade has seen them off and ushered in an era of squeaky cleanliness, which has seen the Swiss private banking industry retooled and rebranded. No longer a haven for kleptocratic dictators, Swiss banking is an arena of stringent judicial oversight.
No clearer example of this can be found than with the billions of dollars supposedly embezzled from Malaysia’s 1MDB, which caught the attention of the Swiss attorney general earlier this year. Prosecutors elsewhere, including the US and Singapore, have followed Switzerland’s lead. Criminal investigations into the alleged laundering of 1MDB funds are ongoing.
But its demise as a money laundering centre is not the reason for the contraction of Swiss private banking. Numerous factors have played their part, including the rampant strength of the Swiss franc as well as negative yields on bank deposits and Swiss bonds, which have pushed a raft of assets into higher-yielding currencies.
And heightened risk aversion has stymied demand for the structured products that used to be a handy earner for the Swiss private banks. As a result, margins are down. Over the past year, according to my Swiss friend, private banking jobs in the country have contracted by around 10%. It’s hard to see what would turn this around as the Swissie continues to power to new heights and deeper negative interest rates beckon.
IT’S A DIFFERENT story in Singapore and Hong Kong. The volume of assets under management in Asia’s private banks continues to grow with each passing year and the industry is actively hiring. The emergence of a high net worth client base of “new money” has turbo-charged the process: huge fortunes in Asia can emerge in little more than a decade, while European families take more than a century to build that kind of wealth.
The received wisdom in the sector is that a Singapore or a Hong Kong will never be able to compete with the depth of talent and experience available in Switzerland. There may be some truth in that, but as private banks in Asia compete to grab a slice of the region’s estimated US$15trn of high net worth assets there is, unlike in Switzerland, no shortage of relationship manager jobs up for the taking.
I’ve been less than complimentary in this column in the past about the outsized presence of Asia’s private banks in the region’s debt markets.
The private bank bid has caused distortions, often courtesy of the provision of high levels of leverage by private banks to their clients. Orders are padded, producing gargantuan books and tighter new issues, only to lead to sogginess in the aftermarket as individual clients flip out.
Nevertheless that pile of high-net-worth cash has been instrumental in allowing Asia’s bond markets to develop. The breadth of issuer sectors, tenors, ratings and liquidity would have been unthinkable as recently as 15 years ago.
There is talk that other Asian countries are hoping to give Singapore and Hong Kong a run for their money in the private banking stakes. Kuala Lumpur, Jakarta and Bangkok are mentioned, but frankly that seems unlikely to happen any time soon given the poor corporate governance reputation and inconsistent legal backdrop of those countries.
HIGH NET WORTH Asian individuals want to park their cash in financial centres that have a reputation for being squeaky clean, hence the edge Singapore and Hong Kong have acquired in the private banking stakes.
Which brings me back to 1MDB. Singapore recently froze S$120m held by one of the scandal’s central players, Jho Low. In the process the Monetary Authority of Singapore voiced concern about compliance standards at the domestic banks that handled some of the 1MDB cash.
The 1MDB shenanigans has prompted the MAS in June to establish an anti-money-laundering department, which began operating earlier this month. It will be interesting to see just how this pans out in practice. It would take a rather naive view of the region to assume that all the fortunes built up in Asia in recent years came about without any laws being broken.
Nevertheless, the growth of Asia’s private banks seems to have an unstoppable momentum, about which the gnomes of Zurich are right to feel concerned. My friend never was one of those gnomes, having forged his career entirely in Asia. At least if he ever wanted to get back in the chair he would know where to resume. And it wouldn’t be in his own backyard.
