In the ‘eat or be eaten’ world of private banking in Asia, Citi Private Bank has become one of the fastest-growing players.
The bank is now ready to expand its reach even further, with a series of new hires tapping into the surging wealth in various countries across the region.
‘This is already under way,’ says Jyrki Rauhio, the newly appointed South Asia head at the private bank. He is also tasked with overseeing the overall franchise for the ASEAN, global India, Australia and New Zealand businesses.
‘We are hiring across South Asia, with new market heads and new bankers. We are also hiring people on the product side and some on the support side to scale up this growth,’ he tells Citywire Asia in his first interview since taking on the position.
A veteran of 23 years at Citi, Rauhio is originally from Finland, but over the course of his career he has worked in a number of markets and in various relationship and franchise management roles around the world.
He moved to the private banking division in 2010 as the global chief operating officer for investment finance in London.
The following year, he transferred to Hong Kong to become head of investment finance and banking in Asia-Pacific, before assuming his current role earlier this year.
The executive explains that one of the key competitive advantages of Citi versus other private banks operating in Asia is its enormous franchise.
‘We have more than 50,000 people working in this part of the world. We have onshore full service banks in all of the markets in which Citi operates, except Brunei,’ he says.
Citi in Asia
Citi’s private banking arm in Asia has proved to be the best-performing business for the group - both in the region and globally – with revenues growing steadily over the years.
Last year, Citi Private Bank Asia’s revenues increased by 23% compared with 2016 and achieved a healthy cost-to-income ratio at around 58%.
Global private banking assets under management hit $460 billion, and Asia contributed most to the positive performance with a staggering $256 billion – a 17% increase year-on-year.
Sitting within the firm’s Institutional Clients Group, Citi Private Bank serves ultra-high-net-worth (UHNW) clients who have a minimum of $10 million in investable assets.
It offers clients products and services covering capital markets, managed investments, portfolio management, trust and estate planning, investment finance, banking and aircraft finance, as well as art advisory and finance.
‘All of the markets are very important to us,’ Rauhio says. ‘South Asia includes the ASEAN markets such as the Philippines, Indonesia, Singapore, Thailand, Malaysia and Brunei, and in addition to that we have also added Australia, New Zealand and offshore and onshore India.
‘If I go around the region a little, obviously first of all Indonesia is a huge market. It has traditionally used, and continues to use, Singapore as a private banking base. So that clearly continues to be a very important market.’
Given the growth of Thailand and the Philippines over the past few years, Rauhio sees these countries as potential growth markets too.
Thailand is a good example of where things are changing, he says, and the Philippines’ fast-growing economy is creating a tremendous amount of wealth.
‘I think Thailand is going to be a strong market in the coming years. Thai funds are flowing out of the country again, and the Thais have been very active in investing.
‘Regulations are changing; they are in the process of relaxing some of the investment restrictions for locals to invest abroad.
'They have always been allowed to do so but there have been some dollar caps and volume caps. The regulators are in the process of revising those so it will be easier for Thais to invest abroad in future.’
The Philippines, on the other hand, is already a large market. ‘It has seen amazing growth in GDP. There are 100 million-plus people in the country. So that is clearly producing large amounts of potential target market clients.’
The new India
Citi Private Bank has two Indian businesses. It has an onshore presence in India and an offshore presence in Singapore, where the group serves the non-resident Indian (NRI) community based in other parts of the world, including in Indonesia, the Philippines, Thailand, Malaysia, Singapore, Hong Kong and even the Middle East.
According to Rauhio, investments from NRIs in the past few years have undergone a considerable change, with NRIs increasingly considering alternatives to Switzerland and London as investment hubs.
But now that the Indian economy is heating up, NRIs prefer their hometowns – not only as a way to stay closer to home, but also to invest.
‘They are very keen for us to come up with investment ideas that have an Indian component to invest back into India. So that’s something we have been working on, to allow our various clients to invest from offshore into onshore.
‘Basically, we team up with local investment houses or find other opportunities on the ground that are structured in ways that enable foreign investors to participate in India’s growth.
‘India’s regulatory restrictions are quite tight. Indian individuals cannot invest abroad, which is why we have introduced the onshore model,’ he says.
What’s more, some of the NRI clients are moving their funds from other banking locations to Singapore, and the Singapore government is facilitating that process in a transparent and safe manner.
‘Singapore is a great market and it continues to be the global wealth management hub. The Singaporean government is working very closely with banks including ourselves and we are happy to contribute to growing the industry,’ he says.
‘I believe we will see continued growth in private banking in this city. It will be driven both by local investors’ money and also by other sources of money coming into the country.’
Indonesia is hot right now. Its booming growth and increasing number of wealthy citizens demonstrates that the country is a great place to do business. For instance, GDP grew by 5.19% year-on-year in the fourth quarter of 2017 thanks in part to reforms by the Jokowi government.
Rauhio is very bullish on the country. He believes it will continue to be one of the powerhouses of Southeast Asia, with wealth continuing to grow.
‘Indonesia has gone through quite a few changes with the automatic exchange of information, starting with the whole tax amnesty process that it went through last year,’ he says.
‘This is good, as it is bringing transparency into the market. We want to acquire new clients from Indonesian markets and help them invest abroad. A lot of that money is already abroad. In fact, there are hundreds of billions of dollars in Singapore alone.
‘In the beginning, we structured it all together as a cluster, but now we are in the process of hiring individuals to run Indonesia in its own right,’ he explains.
The Australian banking sector has gone through quite a few changes over the past 10 years. Formerly a gold mine for several foreign banks, many European banks have exited the Australian market or slimmed down their operations in the country in recent years.
However, the exit pattern has been offset by the arrival of many Asian banks – mainly from China, Japan and Taiwan – that want to establish a more dominant presence in the Australian banking sector.
‘The private banking sector in Australia is basically divided into two,’ Rauhio says. ‘You have the high-end, retail kind of wealth manager, the brokerages that are usually connected to one of the big banks, or you have the very Australia-focused firms that serve the local market. A lot of Australians have their wealth in their superannuation funds and that kind of ties them to that system.
‘But if they are in the UHNW space, which is the only space we are in, they are also interested in investment opportunities outside of Australia because the local markets are simply too small for them. They start looking at global ideas.’
Australian clients are keen on the US stock and property markets, and Americans too are significant investors in Australia, driving two-way capital flows. The UK is another area of interest, as a significant number of wealthy Australians own properties there.
Citi Private Bank has also seen an increasing trend of Australian clients taking an interest in China in the past five years, given the economic and trade links between the countries. Similarly, the Chinese are also pouring millions of dollars into Australian property.
‘We do finance properties onshore in Australia and New Zealand for our clients. That has been an interesting asset class for our Asian clients,’ Rauhio says.
‘In New Zealand, we serve residents that are keen to diversify their investments abroad and foreign investors eager to tap into Kiwi markets – especially the hospitality sector, which has seen tremendous growth in the past five to 10 years. Investors have done extremely well out of those investments.’
Rauhio adds that clients are getting incredibly savvy, with high expectations when it comes to digital services. This doesn’t just apply to the younger generation, but to older clients too.
‘I think a lot of our clients like to do their banking through this [digital offering] as opposed to going into a bank branch. Bank branches are going to be history. They will build a museum out of them one day.’
Citi Private Bank is not new to the digital game. It runs a system called In view, which was introduced in 2014 and enhanced in 2016, serving as a client-banker engagement platform and offering a global view of all client accounts on one platform.
Then there is IDEA, an investment analytics platform developed in September 2014, which allows bankers to easily analyse their clients’ portfolios. The Investment Lab is another in-house tool that incorporates asset allocation analysis, modelling and holistic advice to create integrated wealth management strategies.
‘We are now trying to introduce transactional components to In view so clients can actually start transacting over that platform,’ Rauhio says. ‘This is an area where the private banking industry seems to be 10 years behind the retail industry.
‘At Citi, we have all the trading platforms in our markets and consumer businesses. So it’s a question of how we bring those best ideas from within Citi and tailor them for our private banking audience.’
On the topic of robo advisory, Rauhio says that it is more of a retail model than a private banking model. On the retail side, there is little choice but to go down the robo advisory route to stay competitive.
‘There is a lot of talk in the industry about it, but our clients are wary of making decisions based on that. So we don’t offer robo advisory to our clients, and I don’t see it happening in the near future. ‘But artificial intelligence (AI) is a very interesting area. We have offered ideas for clients to invest in AI.’
This article appeared in the March issue of Citywire Private Wealth magazine.