Wealth Manager - the site for professional investment managers

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

'Loud wake-up call' for private banks as profits tumble

'Loud wake-up call' for private banks as profits tumble

European private banks suffered their first annual profit fall in eight years, according to a report from consultancy firm McKinsey. 

The study, which was cited in the Financial Times, showed the €11.5 trillion (£10.5 trillion) industry was hit by a 10% fall in profit last year, the first decline since 2009. 

It also revealed 40% of private bank branches posted net withdrawals in 2016, with one in every 10 losing money. 

Industry revenues — measured as a share of assets — dropped to 77 basis points in 2016, a fall of 20% from the pre-crisis high of 96bp registered in 2007.

According to McKinsey, low interest rates and trading activity, coupled with the shift into passive products resulted in profit margins slipping from 26bp in 2015 to 23bp. 

The report also suggested tougher regulation to stop private banks helping the wealthy evade tax has hit earnings. This has forced banks to invest heavily in technology, forcing up costs. 

UBS Wealth Management chief operating officer Dirk Klee told the Financial Times: 'The cost pressures on banks are enormous and they are not going away any time soon.'

Sébastien Lacroix, leader of McKinsey’s European private banking practice, said the performance represented 'a loud wake-up call' for the industry.

He warned banks they should prepare 'for several difficult years' as they overhaul their services, redesign product focus on the type of client they want to service as their historic 'one service model fits all'  becomes obsolete. 

'Private banks wanting to stay in the game in western Europe must radically upgrade their business models,' Lacroix said. 

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play On the Road Challenge: Clay pigeon shooting with Thesis' Lansdowne

On the Road Challenge: Clay pigeon shooting with Thesis' Lansdowne

Eleanor Mahmoud goes clay shooting at the National Clay Shooting Centre with Sam Lansdowne from Thesis Asset Management

Play AA-rated Flood on gov't bonds: 'the maths doesn't add up'

AA-rated Flood on gov't bonds: 'the maths doesn't add up'

He also addresses why his Newton Multi-Asset Income fund has such a high cash weighting and why he sees renewables as such a good opportunity.

Play AAA-rated Ali: Identifying the peripheral European plays

AAA-rated Ali: Identifying the peripheral European plays

Citywire AAA-rated Tawhid Ali thinks that plenty of good stocks in the European periphery are being thrown out with the proverbial bath water.

Read More
Your Business: Cover Star Club

Profile: 'for the first time since 1981, I have to watch politics'

Profile: 'for the first time since 1981, I have to watch politics'

James Hambro & Partners’ William Francklin says he is having to factor politics into his thinking for the first time in his 36-year career

Wealth Manager on Twitter