FinanceAsia spoke to Denis Antoine, BNP Paribas's Asian private banking boss and his Greater China head, Bertrand du Passage.
In terms of private bankning in Asia, the swiss firms are very well established. Is private banking a new business, for BNP in the region?
Denis Antoine: For BNP Paribas, it is not a new business. The first concept of dealing with private clients started in the early 70s in Hong Kong and Singapore. It was based on the retail network which BNP had in HK and based on the very deep and extensive commercial relationships we built with small and medium sized companies, when you would have to deal with the owners of these entrepreneurial businesses. The private client business was a classic and traditional business for BNP. Today, to put this into perspective, in terms of size of assets in Asia, we exceed $10 billion of private money and by that, I exclude institutional money. With about 300 direct staff in Asia, we probably rank in the top five or six in Asia. We come behind Citibank, UBS and Credit Suisse and HSBC.
How big is the Asian private banking pie overall?
Bertrand du Passage: It's around $300 billion.
Do you see it growing?
du Passage: The market is very fragmented. As far as the Asian market is concerned, we have 80 players doing private banking.
How many Private banks does Asia require?
Antoine: in terms of the institutions, there are different levels of banks and boutiques that are required. In terms of banks that have good credit standing, there is room for five or six key banks. That is the case for BNP Paribas, since we have a AA rating. There's definitely a need in the market for quality and today there are not a hundred banks that can offer a AA rating. When you deal with clients with $10 to $50 or $100 million of private assets - particularly today - we see a major concern among our clients to look at the credit rating of the institution in which they place their assets. With the current uncertainties, a quality credit rating is a big advantage.
Over the past five years, we have seen a lot of small, specialized boutiques which have sold either hedge funds or private equity funds which attracted the attention of private clients. These boutiques are good for selling one segment or one specific product, but today we notice that clients are entrusting the core of their wealth to banks with good credit standing and that offer stability and a diversified range of products under the same roof.
In 2001 and 2002, the market returned to basics. Stability and credit quality are back in fashion. We have seen a lot of boutiques selling high tech and exotic products. Clients were excited by making quick money in 1999, but these boutiques were mostly managed by brokers, and in some cases, the brokers have moved on. We see our clients coming back to conventional and classic service.
The traditional service does not have the connotation of being very appealing, but ultimately, the basics always survive. As most European Private Bank, we don't want to be viewed as a product pusher. We love to sell products, but we are relationship-driven and this remains the core principle of our business philosophy.
Why do you think your profile as a private bank in Asia is lower than the Swiss banks?
You probably look at CNN or read the FT but advertising is not the benchmark for profile in the Private Banking industry. We spend less on advertising than the Swiss banks, such as UBS and Credit Suisse. They probably spend twenty times more than us on advertising. The Swiss banks are mainly focused on their investment banking and private banking. They discontinued their corporate banking business, while BNP Paribas has kept a diversified and well balanced strategy in Asia. We have not pulled away from one business and have kept most of our business growing steadily.
Contrary to Citibank, we do not have a retail network so we are less visible. We are happy to have all-in 3000 clients in Asia. If these 3000 clients are the right clients we don't need to bombard the TV everyday to increase the number of clients. We grow our business through our good credit, our marketers and referrals. That means we want to have 30 clients per private banker, of which we have 100.
You source your clients through corporate relationships - knowing the entrepreneurs in Indonesia, China and so forth?
Antoine: That's the way it started but we have diversified our origination through our network and we do a lot of our own marketing. We recruit new staff and get referrals. Our 3000 clients expect discretion. When we take a big client from another bank, we don't want to talk about it.
du Passage: The wealthy families in Asia keep three to four private banking relationships and they are very price-sensitive and they like to compare the price and don't want to put all their eggs in the same basket. Generally speaking they will have an account with a Swiss bank, an American bank and with us or Deutsche Bank.
Antoine: You may get to know us better by the end of the year. We are in the process of setting up dedicated legal branches in Singapore and Hong Kong, which will be called the BNP Paribas Private Bank SA. In Singapore the new dedicated branch will be in operation this July and in Hong Kong we are starting our approach to the HKMA. So, just as what HSBC has done, we will have dedicated private banking entities in Asia.
What percentage of BNP Paribas's profits come from private banking?
Antoine: On a world-wide basis BNP Private Bank manages about $100 billion of assets. Around 50% is French-domestic and 50% is International. We rank number nine or 10 in the world wide ranking. In Asia, we represent 10% of these assets. In terms of return within the private banking, Asia represents slightly less than 10% because the return of assets is less in Asia than in Switzerland, where clients tends to pay more. Clients in Europe are less active but pay more for discretionary management, while in Asia clients are very competitive on pricing.
In Europe, the return on assets is about 100 basis points, for Asia it is about 70bp which is relatively acceptable. In the past two years, with low interest rates we have encouraged our clients to switch from deposits to investments.
What is your expectation for growth in Asian private banking assets for BNP Paribas?
Antoine: It will be selective according to the market. To our surprise, Hong Kong has been very resilient for us even though the overall wealth has not increased in Hong Kong over the past few years, because the stock market and property market came down. In our case, we have increase the assets from the Hong Kong-based clients, the on-shore clients. We did not expect that growth. We now are looking to see more money coming back to Hong Kong since most uncertainties have been dispelled.
I think the private banking Hong Kong market will grow by at least 5% per year in coming years. It is a profitable market, with good clients and families, and is a very resilient market. The market which has grown a lot, is Taiwan, which grew by 10% to 20% per year in the past few years. Last year, the growth was reduced because the Taiwanese economy generated less wealth. It's still a profitable market and it will continue to grow faster than Hong Kong. Although, I do think the wealth of Taiwanese is probably made more in China than in Taiwan increasingly and that means the money may not surface in Taiwan, but perhaps in Hong Kong. The Taiwan private banking market will continue to grow by 10% yearly.
One of the major markets that is growing very fast in Asia is South Korea. We are getting organized in Korea. So far there has been a very limited outflow of Korean private wealth but we see it more and more as the second generation are selling their companies, doing more IPOs. In addition, we notice more foreign exchange deregulations which enable private families to move their money abroad. Korea is a market which is going to grow in the next five years by 15% to 20% per year and we want to capture that market. We have a small team of Koreans who are commuting there.
The fastest growing market is China. We are getting organized to cover the market. But we know that a single accident or a wrong client in China could be very damaging for the whole bank. So we want to learn. We are very interested in the China market but we will do it within the acceptable rules of compliance. So maybe we will not capture the fastest growth of the market, which is certainly growing by 20% per year, but I know that if we go full speed on China, it will be at the expenses of our prudential Private banking policies and that could be very detrimental to the rest of the bank that does business in China.
We'd rather have quality business and not quantity. For us, it is clear that 10 years from now, we will have more clients from China than from the rest of Asia, with legitimate Chinese wealth. Of course, the wealthy Chinese entrepreneurs in the Mainland have so many opportunities to reinvest in their own local business. But we notice a natural attitude of families who want to see 5% to 10% of their assets secure and protected. We can never offer a return that is comparable to the return they obtain in investing in their own business and in the property market in China.
Phillippines is a stable market, but no growth. Southeast Asia is certainly less than 5% growth.
Japan is probably best serviced out of Switzerland rather than Asia. Some Japanese families come to Singapore but it is a slow growing source of business. There are wealthy Japanese families that travel a lot and who prefer to move their assets to BNP Paribas in Geneva rather than to Singapore and Hong Kong.
Do you cover China using Taiwanese private bankers?
It's the other way round. Our Taiwan team is managed by someone born in China. It is true that our Taiwanese team go to Shanghai regularly and meet their Shanghainese clients regularly and make contacts. There are also 600,000 Taiwanese in China who are main prospects.
What is the average size of the wealth of your 3000 clients?
This is a key question. The most attractive segment is the one of clients with between $1 to $10 million of assets. They agree to our standard pricing policy and still rotate their assets. The clients who have above $30 million tend to behave as small institutional investors. They benchmark themselves to financial institutions and have financial advisors in their families to compare prices and performance. It is a different kind of relationship.
But the main exercise we have started doing is segmentation. Segmentation for us is to offer services to clients which fits to the expected profitability. We used to have undifferentiated type of offer to all our clients whether they were worth $50 million or $1 million. For our affluent/priority segment, we standardize the products, limit the number of products and we service these clients in a more consistent way. The upper class then, yes, we can have exceptions.
But we really want to segment between the affluent type, the high net worth and the super high net worth. For the super rich, we have internal cooperation with our corporate investment banking since half of the 100 (HK$) billionaire tycoons in Hong Kong are already clients in our corporate banking/investment banking area. We want to combine corporate banking and private banking to service them together.
In the previous golden era of private wealth between 1850 and 1939, a host of affluent families got used to living on a coupon of 5% per year.
Are we returning to such a situation?
Antoine: A 5% coupon would be wonderful for many of our clients! Banks like BNP Paribas have been in private banking in Europe for a long time and we have serviced families for two or three generations, through wars and economic cycles. Our European clients are not focusing on the highest return/high risk ratio for their accounts in Switzerland because what they want is protection.
The entrepreneur clients make money by growing their own commercial or industrial businesses. In Asia, we see a similar situation. During the coming years, these entrepreneurs will be realistic about the financial returns from their accounts. They are saying let's focus on our business which we manage and let our Private Bank protect the assets we earned in our business. These clients are opening trusts, and are concerned to transfer money to the next generation. They are probably managing their illusions about high financial returns. They are not dreaming of a 20% financial returns, their priority is to protect their wealth.
