Pay increases for private bankers in Asia will slow this year as waning high-margin transactions and Europe’s debt crisis spur cost-cutting across the industry, Falcon Private Bank Ltd.’s chief executive officer said.
“I haven’t seen a slowdown in compensation increases so far, but it will slow given the global state of the private banking business,” Eduardo Leemann, who runs the Zurich-based firm, said in an interview yesterday. “You’ll see some slowdown by the end of 2011. In 2012 and 2013, we’re unlikely to see the 20 to 30 percent growth seen in Asian relationship managers’ compensation pay.”
Falcon and rivals including UBS AG (UBSN) and JPMorgan Chase & Co. (JPM) are competing to hire bankers and managers in Asia, where wealth outside of Japan over the next five years is expected to rise almost twice as fast as the global rate of almost 6 percent, according to Boston Consulting Group data. While Leemann plans to boost his Asian headcount, industrywide margin pressures will make managing personnel costs a priority, he said.
Before the global financial crisis, costs for private bankers in the Asia-Pacific region, including salaries, were about 57 percent of the revenue they generated in 2007, according to PricewaterhouseCoopers LLP. This year, cost-to- income ratios are forecast to be 82 percent in Singapore and Hong Kong, and about 70 percent in Switzerland, the firm said.
“Our clients have become more conservative since 2009,” Leemann said. “The bad news is that they are holding more cash and high-quality bonds now, meaning that the margins are less. The good news is they are much better prepared in the recent financial crisis when compared to the one in 2008.”
Average pretax profit margin of wealth managers increased 4 basis points last year to 23 basis points while growth in assets under management slowed to 7.5 percent from 12.8 percent in 2009, according to Boston Consulting’s 2011 global wealth report covering private banks and wealth management units of banks in Europe; Asia, excluding Japan; North America and Latin America.
Senior private bankers in Singapore earn between $160,000 and $410,000 a year, while the comparative range in Switzerland is $152,000 to $210,000, according to London-based recruitment firm EMA Partners International.
“It is conceivable that the bigger banks are unlikely to make this bonus package anymore,” said Leemann, whose firm manages about $12 billion in assets. “Some of our peers are seeing cost-to-income ratios of at least 90 percent in Asia.”
Growth in Asian wealth in recent years has boosted demand for financial advisory services among the region’s wealthy and driven banks to step up their presence in Asia, pushing top salaries in Singapore to almost twice the level of Switzerland, the world’s biggest offshore wealth manager, according to EMA.
UBS, Switzerland’s largest bank, is expanding regional headcount by more than 30 percent to 1,200 people, Kathryn Shih, regional head of wealth management, has said. JPMorgan intends to add 100 workers to the 140 it had in Asia last year, Andrew Cohen, CEO of its wealth management has said.
DBS Group Holdings Ltd. (DBS), Southeast Asia’s largest, said last week it plans to invest S$250 million ($193 million) to expand private banking operations over five years, including hiring in China and other emerging markets.
Falcon, owned by Abu Dhabi’s Aabar Investments PJSC, aims to grow its assets under management worldwide by at least two thirds to $20 billion to $25 billion in five years, of which at least $3 billion of assets will come from clients in Greater China without acquisitions, Leemann said.
The lender plans to increase its staff number in Hong Kong to 50 from 44 by the end of this year and boost its Singapore headcount to 15 from 10, he said. It has 300 employees globally.
“Asia is a huge market with enormous continent,” Leemann said. “We want to focus on Greater China and that includes China, Taiwan and Hong Kong.”
Falcon was purchased by state-owned Aabar from American International Group Inc. (AIG) in December 2008 after the insurer was forced to sell assets to repay a U.S. government loan that saved it from bankruptcy. The wealth manager has branches and representative offices in Geneva, Dubai, Hong Kong and Singapore.
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