UBS has cemented its spot at the largest private bank in the world in recent years. But unexpected new challengers are emerging.
Each with more than $2 trillion in assets, UBS, Bank of America Merrill Lynch and Morgan Stanley exist in a class of their own in wealth rankings. Of the top three, the Swiss bank is the only one who can truly say it is global – the Zurich-based bank is the only one with a large enough presence in every major wealth market.
The American heavyweights have edged away from their foreign engagements: Merrill Lynch sold its foreign private bank to Julius Baer for $882 million in 2012, and Morgan Stanley withdrew from European wealth management three years ago.
UBS' reach with the ultra-rich in virtually every corner of the earth sets it apart from Swiss rivals Credit Suisse and Julius Baer, but also from European competitors like Societe Generale, which has pulled out of Asia, Santander, or burgeoning firms in Asia or Latin America.
Megamerger Needed?
The balance of power among wealth brokers is such that UBS' rivals would need a huge acquisition or megamerger – a risky bet in the delicate business with wealthy clients at the best of times – in order to vault itself into striking distance of UBS, wealth consultantSebastian Dovey told finance portal «Professional Wealth Management».
As unlikely as such as step now seems, it isn't impossible: ten years ago, it certainly wasn't UBS or Credit Suisse dominating the league tables of wealth. Instead, British titans like HSBC and Barclays led the market.
Today, British firms play a secondary role in wealth management. Barclays has undergone several strategy zig-zags without clearly defining what role private banking plays in its wider business, and HSBC has grappled with numerous scandals including laundering money for drug cartels in Mexico and a painful Swiss data leaking scandal. Both have taken a serious toll on their respective private banking arms.
Vague «Swiss Banking» Imprimatur
To be sure, UBS was also beset by a series of scandals including helping wealthy Americans dodge their taxes and a near-death due in the financial crisis, but from 2011 on the Swiss bank consistently pushed private banking to the center of its strategy. The bank has defended its industry lead over rivals even as a wave of changes involving digitization, regulation stemming from the end of banking secrecy, and the far greater importance of advice-giving as opposed to simply taking deposits from the wealthy.
UBS' biggest challengers today aren't its North American or European peers. Instead they are firms in Asia, Latin America or Africa: regional champions who are already coping well with the competitive threat posed by foreign firms.
These include firms like DBS in Singapore, Investec or Standard Bank in Africa, or Itau, LarrainVial and BTG Pactual in Latin American. What can these firms offer that a wealth management giant like UBS can't?
For one, they have a direct line to clients through a wider regional distribution network. They also understand local culture as well as client preferences better than foreign providers, who often rely on the vague imprimatur of «Swiss banking» for credibility and offer similar products and services the world over.
Younger = More Agile
Further, the regional players often spend less running their business, giving them greater operational flexibility. Thirdly, the «upstarts» are, relatively speaking, young banks which have grown alongside the surge in purchasing power of the middle class. This in-sync growth means regional banks approach the question of digitization differently – not necessarily as an exotic threat from outside.
For example, DBS is simply leagues ahead of UBS, where the cultural shift to digitize is a Herculean task for the 155-year-old Swiss bank. UBS is a digital migrant which has to pour seemingly endless resources into equipping itself for the digital age. By contrast, regional players typically aren't sitting on so-called legacy information technology systems, and can develop their digital infrastructure from the ground up.
UBS and Credit Suisse will be able to assert their hegemony over the private banking industry for years, but the sector is transforming so rapidly that they have become vulnerable. In some markets, the local competition has already pulled ahead of the giants.
