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Famous five: the big banks and their UK wealth strategies
on Jul 31, 2012 at 12:24
The UK wealth management market has proved to be a fertile hunting ground in recent years, which has not gone unnoticed by some of the world's biggest banks.
Under fire Barclays
Even before the Libor scandal, it was no secret that Barclays was coming under pressure. After a strong first half in 2010, Barclays Plc was forced to report a 76% drop in profit to its shareholders for the third quarter, while its investment banking unit Barclays Capital suffered a slump of 24%.
But this picture is worlds apart from Barclays' wealth management unit, which in the same year announced plans to double its assets under management over the next five years and between 2006 and 2010 climbed from position 26 in the rankings of global discretionary managers to 10th. Moreover, in the first six months of 2010 Barclays' wealth management arm grew its profit before tax by 27%, and at the end of December 2011 it had £164 billion in client assets globally.
While some of this growth will have been driven by the acquisition of Lehmans’ core US business in 2008, the £1 billion deal primarily involved the collapsed bank’s investment and trading unit. Drilling down into Barclays’ balance sheet, the group splits out the performance of its individual arms detailing key measures of strength for each. Cost-income, considered by bank analysts as an important indicator of efficiency and future profitability, hardly fluctuates for Barclays' discretionary business - a positive sign. In its final results, reported in February, Barclays said that income from wealth clients had risen 13% over the year to 31 December 2011 and that transactions among its high net worth clients helped drive this rise. Barclays' private client division has continued to build on this progress, and in its latest half-year report said profit before tax stood at £121 million, up from £88 million, and that this growth had been driven by client assets, which had risen 7% from the end of the year to £176 billion, while client deposits grew 8%.
Investec Wealth & Investment was created out of two key acquisitions by the bank - Rensburg Sheppards in 2010 followed by Williams de Broe (WdB) the next year after a £230 million deal was struck with its parent broker, Evolution.
The newly integrated company is beginning to take shape, with Rensburg shedding its brand a short time after joining the Investec fold and WdB due to do the same in autumn this year. Murray Mackay (pictured) is taking charge of the combined Edinburgh office, while David Buteel leads the firm's London hub. Although it is hard to gain information on the success of the venture, bringing WdB into its fold gives Investec the regional network that Rensburg did not offer as extensively.
Lloyds: is it cracking the discretionary market?
Last June, Lloyds’ chief Antonio Horta-Osorio (pictured) unveiled a plan to use Scottish Widows and its investment engine Scottish Widows Investment Partnership to build a dominant wealth management offering for UK high net worths. It also wanted to target the mass affluent and hoped to increase income per customer by more than 50% by 2014.
Given the huge expansion that had already taken place in this market before last year, there was suggestion Lloyds may have come a little late to the party, particularly where its proposal to create an execution-only platform was concerned.[>
Before its report to investors last week, Lloyds said ‘good progress’ had been made with its plan, adding that the next phase of this strategy involved simplifying its offering by combining its UK and international entities.
But this simplification also marked a departure of Lloyds' wealth arm from roughly 15 countries.
While it is still early days for Lloyds' plan to break the wealth sector, the bank's six month update to the end of June offered some insight. While it reported a loss of £995 million for the stretch, affluent clients helped power a 3% rise in customer numbers. Its loss is also down 52% from the last update - driven by a cut in costs - and reflects the overall wealth and assets division. When wealth management is isolated in the Lloyds numbers, the bank made an underlying profit of £176 million, an increase of 17%.
JP Morgan - private bank chases HNW buck
As a private bank – which typically serves ultra high net worth (UHNW) individuals – JP Morgan has held its own, escaping the credit crisis unscathed and according to figures from research specialist Scorpio Partnership maintained its position in the global private bank league by growing its assets under management 2.4%, taking it to $291 billion (around £186 billion).
Building on this success, JP Morgan has made no secret of the fact it is looking to grow its footprint in the UK, and in April this year beefed up its UK team with three senior hires: Nick Lewington, Andrew Brock and Nicola Walden. These appointments came after the private bank's decision to roll out a service dedicated to the high net worth (HNW) community, in addition to its offering for UHNW individuals.
According to reports, Credit Suisse is considering selling JO Hambro Investment Management, its UK private client business.
Although the company has not confirmed this, it is a move which would chime with its strategy to streamline its business, signalled by the merger of five of its private banks in Switzerland in 2006.
Credit Suisse is also rumoured to be pairing back its wealth management in the US, favouring the Asia market instead.