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Chinese private banks make inroads into global top 25

Bank of China has joined the list of the world's 25 biggest private banks, according to Scorpio Partnership.

Private banks worldwide are struggling to boost revenues, even as they manage to bring the costs of compliance under control, according to the latest Global Private Banking Benchmark report by Scorpio Partnership.

Regulations, lower fees and the rise of passive investing are straining profit margins, the cost-income ratios of the 200 wealth managers analysed by the consultancy fell below 80% for the first time since 2012. Assets under management grew by 4%, Scorpio said.

Firms in Asia, which is proving a major source of growth for global private banks, also have to contend with high staffing costs and an accelerating trend towards transparency. Tax amnesties and the adoption of the Common Reporting Standards for the exchange of financial information are raising costs and causing firms to rethink their offshore operations.

‘Not confined to Asia, but compliance and regulation is at the forefront [of costs] and that is going to continue for the foreseeable future. In Asia, you also have the shortage of talent and the continued costs of staffing, particularly your front office,’ Caroline Burkart, director at Scorpio Partnership told Citywire Asia.

‘So in the past, when clients might have spread their assets more, we see a trend for clients consolidating their assets with fewer institutions and in doing so, they will be examining the whole proposition more closely,’ she said.

Global firms also face increasing competition from local players, particularly in China, where domestic banks are rapidly building their wealth management businesses. Three Chinese private banks are now in the list of the 25 biggest wealth managers globally, Scorpio.

‘For the well-established private banks in Singapore and Hong Kong markets, obviously China is the next step. How it pans out, we will have to wait and see, but it’s clearly an opportunity banks will be very keen to develop,’ said Burkart.

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UBS Wealth Management, the biggest wealth manager in the region with CHF 319 billion ($327 billion) in AUM, held on to the top spot with a 3.4% growth globally year-on-year, managing $2 trillion in assets.

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The second biggest player in Asia, Citi, saw a marginal rise of 3% in global AUM to $452 billion.

The firm is a rare US presence on a list dominated by European-headquartered players. Citi’s US rivals do have relatively small wealth management arms in the region, but have historically focused their attention on their investment banking businesses.

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Credit Suisse Private Banking, the third biggest wealth manager in Asia, dropped by one ranking to the sixth spot globally, managing $719.33 billion.

The private bank currently manages CHF 177.8 billion ($183.6 billion) in Asia.

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Julius Baer, which calls Asia its ‘second home market’, climbed one spot after growing AUM by 8.86% to $323.9 billion by the end of 2016.

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Chinese private banks are proving worthy competitors in the global fight for assets under management.

The biggest gainer on Scorpio’s ranking was not a European or American wealth manager. China Merchants Bank added over CNY 400 billion to AUM in 2016 as it grew its offshore presence in Asia, launching private banking operations in Singapore.

The Chinese wealth manager’s AUM swelled by 23.85% year-on-year in USD terms, bringing total AUM to $238.96 billion. It climbed five spots to rank 15 as a result.

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The Industrial and Commercial Bank of China is the world’s largest bank by assets, the state-owned company has been pushing into wealth management for Chinese high net worth individuals at home and abroad, with branches in Hong Kong and Singapore.

Its AUM grew 6% in 2016 to $174.2 billion, putting it at number 22 on the global list.

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Bank of China’s 15% jump in AUM won it a spot on Scorpio’s table for the first time. At rank 24, the Chinese wealth manager handled $143.99 billion at the end of 2016.

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Deutsche Bank, which has been on a hiring spree in Asia over the past year, and is trying hard to build its presence in the region, slipped 5 places on Scorpio’s list as assets under management declined by more than 28% to $227 billion in 2016.

Confidence in the overall group was hit after the US Justice Department slapped the bank with a $14 billion fine for its alleged role in the 2008 financial crisis.

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