Wealth magnet Singapore challenges private banks

Singapur Keystone

Singapore is currently attracting foreign millionaires and banks in their droves. But new arrivals are finding out that while the streets appear paved with gold, it does not necessarily follow that the riches will transfer to the vaults of any bank that shows up.

Cushioned from the stifling heat and noise of the bustling banking district, the lobby of Swiss private bank Bordier’s new Singapore branch offers an oasis of tranquility.

On entering the building clients are greeted by the sight of a large, slightly battered ledger book dating back more than 100 years – with hand-written entries of deposits and loans to clients long since passed away. The exhibit stands in marked contrast to the glossy magazines impeccably arranged on nearby polished tables.

Managing partner Evrard Bordier personally instructed that the tome should be moved to Singapore from the bank’s Geneva headquarters. It speaks volumes both of the bank’s 169-year history in wealth management and the importance Singapore holds for its future.

Situated at the heart of the economically booming Asia-Pacific region, Singapore sucks in wealth from neighbouring countries such as China and Indonesia. Research group WealthInsight, which tracks the investment trends of the affluent, believes Singapore will catapult above Switzerland as the world’s largest manager of offshore wealth by 2020.

Plagued by tax evasion fights with the US and in Europe, coupled with economic woes battering profits in both regions, Swiss banks – world champions in the art of wealth management – have made a beeline for the Singaporean honey pot.

In the last two years, smaller banks Bordier and Gonet have joined such larger luminaries as UBS, Credit Suisse, Julius Bär, Lombard Odier and Pictet. And Union Bancaire Privée received a Singapore private banking license earlier this year.

Source:WealthInsight

*Approximate estimate

Demanding clients

The rate of global wealth flowing into Singapore has been impressive, with assets under management rising 22% last year to 1.63 trillion Singapore dollars (CHF1.15 trillion). Some S$550 billion of this wealth is being looked after by private banks (from S$50 billion in 2000).

But private banking in Singapore, a market crowded with a growing number of competitors, is harder than might be imagined. Asian clients demand faster, more spectacular results than in other parts of the world and shop around more aggressively for the best deal.

Relaxed and matter-of-fact in demeanour, Evrard Bordier freely talks about the challenges facing the small Swiss bank in this new chapter in its history.

“It’s not a walk in the park, people are not queuing outside to open accounts,” he told swissinfo.ch. “It’s not like the old days when you just had to open shop and the assets came flooding in (see related story for full interview).”

This can come as something of a shock to Swiss private banks, used to conservatively managing the assets of hands-off European clients for an annual fee.

“We looked at Singapore, but decided against it as clients only seem interested in discounts,” one prominent Swiss private banker, who did not want to be named, told swissinfo.ch. “Some expect business loans before they even deposit assets.”

Banks have to invest more heavily in technology to service trading-oriented clients, while staff costs have mounted astronomically with demand for the best talent outstripping supply. Costs have also been pushed up by tightening Singapore regulations designed to ward off tax-evaded assets.

Swiss-Singapore banking links

The major Swiss banks have been present in Singapore for decades, with UBS in particular establishing itself as one of the leading private banking operations in the city-state.

At the turn of the millennium, Singapore’s financial authorities are believed to have borrowed heavily from the Swiss model when revamping its financial sector. Among other measures, strict banking secrecy was enshrined into Singapore’s criminal code during this period.

Along with a growing list of commercial Swiss banks entering Singapore, Switzerland’s central bank opened its first overseas office in the city state earlier this year.

The Swiss National Bank said it needed a base in the Asia-Pacific time zone to better manage its growing reserves of foreign currencies, used to maintain its Swiss franc-euro exchange rate cap.

In 2000, Singapore’s private banking scene managed around S$50 billion in assets. This rose to around S$200 billion by 2005 and S$550 billion last year.

The Swiss Bankers Association does not believe that Singapore’s rapid rise of wealth will harm the Swiss banking sector.

“We have the necessary competency and infrastructure to top the quality scale of financial institutions in the future as we have done in the past. We will fight to keep this position,” SBA chairman Patrick Odier told swissinfo.ch.

Local competition

Zurich-headquartered consultancy group Solution Providers has helped European financial institutions open up operations in Singapore. At a cocktail party in their new waterside premises in Singapore, the view over the city’s container dockyards is impressive.

Both established banks and newcomers to Singapore will have to come up with innovative ways to survive in a market that is fast becoming overcrowded, according to Yves Roesti, head of banking consultancy services at Solution Providers’ Singapore office.

“Ten years ago the Swiss banking model was far more sophisticated and refined than local banks. But local players are now closing the gap and are motivated to overtake big foreign banks,” he told swissinfo.ch.

Roesti believes that the only way for many banks to survive is to outsource back office operations to third parties, allowing them to concentrate more fully on clients.

Home grown players, such as the Bank of Singapore (BoS), also have the advantage of high street retail outlets. These attract large client volumes, many of whom stay with the bank once they achieve riches.

BoS is one of the largest local banks in Singapore. Chief executive Renato de Guzman is a voice of caution amid the gold rush, prophesying that some foreign banks will wither and die in the face of cutthroat competition.

“Rising costs have dropped profit margins to record lows, making it increasingly difficult to compete in Asia,” he told swissinfo.ch. For de Guzman, size is a definite advantage, allowing bigger banks to more easily absorb the cost of expensive IT kit and the administrative burden of tightening regulations.

Survival strategies

Banks have adopted different strategies to overcome the cost problem. Julius Baer massively increased its Asian presence last year by buying the non-US wealth management arm of Merrill Lynch, saving itself the bother of finding and cultivating these clients themselves.

Vontobel has teamed up with the Australia and New Zealand Bank (ANZ) to distribute its products without having to set up its own expensive onshore operations.

Evrard Bordier says there is room for small boutique banks like his own, even though not all will survive due to the competitiveness of the market.

But he believes the maturing wealth management market is starting to show readiness for the kind of traditional Swiss values his bank offers.

“Not every client is focused solely on making more money,” he told swissinfo.ch. “There is a set of clients who value building a relationship with their banker, who are fed up with being product-pushed [aggressively sold products] by big banks.”

“For us, the client is not a money making machine. We are trying to build something that stands the test of time and carries on with their children.”