UBS Group AG is set to expand in mainland China, shrugging off the country’s stock market implosion as it pursues plans to open a branch for the wealthy in Shanghai this year.
The Swiss bank sees huge potential for its private banking business in China, encouraged by government measures to open up the financial industry, said Kathryn Shih, the company’s head of wealth management in the Asia-Pacific region. Building a strong franchise in China is a priority as the world’s largest money manager to the rich endeavors to raise its profile.
“We need to get a foothold there first,” she said by phone from Hong Kong. “It’s really to establish our presence, establish our brand in China.”
Private banks are piling into Asia, where China is the big prize with the world’s second-largest pool of private wealth, after the U.S. China’s population of people with more than $1.6 million in cash or other investable assets swelled to more than one million in 2014, doubling from 2010, Bain & Co. said in a report in May. Most rich Chinese use domestic institutions, in part because foreign banks had long been shut out of the market.
China’s newly rich include entrepreneurs whose fortunes are tied directly to public shares and who are seeking advice on how to diversify and preserve their holdings. According to the Bloomberg Billionaires Index, China spawned about two billionaires a week in the first six months of 2015. The Shanghai Composite Index rose 60 percent before the bubble burst in mid-June.
The four-week rout wiped out about $3.5 trillion of share value, about a third of the combined worth of China’s publicly traded companies. Still, that’s only a fraction of the wealth created in China over decades of heady growth. The country’s private wealth market amounted to 112 trillion yuan ($18 trillion) at the end of 2014, according to the Bain study.
Yang Xia, head of China equities at UBS’s investment bank, said the bank remains optimistic about the future of the country’s financial markets and continues to work with clients at home and abroad to invest in value and “provide risk management solutions if needed.” The Shanghai Composite, which fell 1.6 percent Wednesday as of 10:04 a.m. local time, is still up 19 percent for the year.
Foreign banks and investors have gained wider access to China’s financial industry recently. Starting January, the government dropped some requirements for branch openings and transactions in the Chinese currency. In November, investors on the mainland and in Hong Kong began trading each other’s stocks on their own markets for the first time.
“There is a lot happening in China to deregulate it,” Shih said. “Definitely the market of the future is China.”
While the Swiss bank is the leader in the Asia-Pacific region, it is a relative newcomer in China, Shih said. UBS wealth management employs about 2,700 people in Asia Pacific, of whom only about 100 are based in the mainland. The bank currently has offices in three locations -- Guangzhou, Shanghai and Beijing -- and a store-front operation in the capital.
Shih said the branch in Shanghai would also be on the ground floor. Having the UBS brand visible at street level demonstrates UBS’s “commitment in expanding its presence in China and broadening its products and services to meet the needs of clients,” she said.
UBS is among initial bidders for a minority stake in Postal Savings Bank of China Co., people with knowledge of the matter said in April. Alibaba Group Holding Ltd.’s financial affiliate and Singapore’s state investment company Temasek Holdings Pte also have indicated interest in buying part of the bank, which has the most outlets of any Chinese lender.
The wealth management business in Asia is growing at about 7 percent to 8 percent annually in terms of assets under management, and UBS is targeting as much as twice that rate, Shih said. UBS is the biggest private bank in Asia with $272 billion in assets under management, according to Asian Private Banker. Citigroup Inc. comes second with $255 billion, ahead of Credit Suisse Group AG with $154 billion.
Competition for talent is stiff. UBS hired 200 people in the Asia-Pacific region last year and is looking to add more, Shih said. Half the new hires took place in Hong Kong, which rivals Singapore as the bank’s most important booking center.
“In the next few years a lot of foreign banks will be entering into the Chinese mainland,” Richard Cao, an analyst at Guotai Junan Securities, said from his base in Shenzhen. “Wealth management markets are expected to be very prosperous.”