A slump in client business activity in Asia threatens to slow lucrative income for the world’s biggest wealth managers.
UBS and Citigroup are among the banks whose wealth earnings for the region likely fell by double digits in the first half, people familiar with the matter said, asking not to be identified as they were discussing private information.
Credit Suisse Group, which said last month that second-quarter results were affected by client withdrawals, is on course for a similar decline, the sources said.
The expected revenue shortfall contrasts with a strong performance last year, underscoring how weaker customer sentiment is overshadowing a key business for banks serving the world’s wealthy.
China’s crackdown on a slew of industries, including technology, education, gaming and real estate, has rattled Asian markets, leaving clients sitting on losses and reluctant to trade.
After leading the growth in the number and wealth of high net worth individuals over the past decade, Asia has lagged behind Europe and North America in 2021, according to a Capgemini report.
Some lenders are now becoming more cautious as a years-long hiring spree meets grimmer growth projections.
“Hiring has slowed markedly compared to last year,” said John Mullally, regional director for financial services in southern China and Hong Kong at Robert Walters.
“It’s not like 10 years ago where private banks hired people like hairdressers because they had a Rolodex of wealthy clients.”
Credit Suisse has given new relationship managers in the region more time to meet revenue targets given market conditions and travel restrictions during the Covid-19 pandemic, which made it difficult to meet clients in face to face, sources said.
The first half of the year was “a difficult time for all of us,” said Amy Lo, co-head of Asia-Pacific wealth at UBS, the region’s largest private bank, on the sidelines of an investment forum in Hong Kong earlier this month. “Volatility is here to stay.”
It’s a stark reversal from 2021, when governments pumped money into markets, supporting buoyant stocks as the pandemic sparked prolific trading among the wealthy. With interest rates rising, fears of a recession are looming and US stocks have seen the worst selloff in half a century.
Barclays said late last year it planned to recruit key wealth management people across Asia as the British lender considered a return to some of the world’s fastest growing economies. after restructuring in 2016. Other banks, including JP Morgan Chase and HSBC, have also made similar inroads into major private banking markets such as Singapore, Hong Kong and China in recent years.
Banks are becoming “more cautious” about hiring in Asia and controlling costs very carefully as revenues for most are down in the first half, said Serina Wong, Hong Kong-based managing partner of the staffing firm. of Dresden Green Consulting executives.
Growth has slowed significantly as it is more difficult to open new accounts for customers in China who face travel restrictions, she added.
Private bankers in Singapore and Hong Kong say their Asian desks are heavily exposed to income from clients who trade frequently, unlike hubs such as Switzerland, where banks handle wealthy money and collect regular fees.
Much of the wealth in Asia is in the hands of self-made entrepreneurs willing to make their own bets, while in Europe it is held by the second and third generation who want to preserve wealth and let private banks manage their money. In bull markets, transaction fees are a lucrative source of revenue, but in a market downturn, they can quickly dry up.
Citigroup added 10% more private banking customers in Asia in the first half of 2022 compared to a year ago, despite the challenging macroeconomic environment, a bank spokesperson said. The lender expects new momentum for its wealth management business in Asia in the second half, he said.
A Credit Suisse representative declined to comment on wealth earnings in Asia, saying the bank is committed to investing in the region regardless of near-term market volatility. A UBS representative declined to comment.
UBS and Citigroup are expected to post nearly flat global wealth management revenue in the second quarter, while Credit Suisse is expected to post a deeper decline of more than a third, analysts said.
Credit Suisse has experienced “significant deleveraging” in Asia and has also reduced client transaction activity, Francesco De Ferrari, the bank’s head of wealth management, said at an investor event last month. . The Zurich-based lender has outlined plans to expand its wealth management unit with a focus on markets such as Hong Kong and Singapore.
The number of Credit Suisse relationship managers in Asia-Pacific rose to 710 in the first quarter, an increase of 12.7% year-on-year. In contrast, the number of UBS advisors in Asia-Pacific fell 5.3% to 861 over the same period.
Still, there are signs the worst may be over in China following a series of Covid lockdowns, with authorities pointing to a crackdown on the tech industry. UBS expects a better second half, thanks to stronger performance in China, where it expects policymakers to support markets, Lo said.
Banks are still hiring selectively, including adding bankers to manage Chinese wealth in Singapore. Citigroup has hired this year for its family office in Asia, while UBS has strengthened its alternatives team.
Private banks have also advised their clients to look to private equity and alternative investments to hedge against volatility in listed stocks.
Updated: July 15, 2022, 2:27 p.m.