PCM comment: crystal vision at ten per cent CAGR in global private banking

A staff reporter

13 February 2005

Amid the current gloom in the financial services sector, there was a glimmer of optimism last month from three of the larger international wealth managers. HSBC Republic, Deutsche Bank and Merrill Lynch revealed that they expect asset growth in private banking to rebound to ten per cent by 2005. These estimates are also being backed up by current performance figures at many private banks. PricewaterhouseCoopers, in a confirmation of these institutions' optimism, has released a study of North American wealth managers suggesting more broadly that growth forecasts have slipped to ten per cent from 15 per cent a year ago. The data being released from international private banks correlates with statistical research undertaken by Scorpio Partnership at the start of 2001, which indicated that the long-term growth rate for the industry was just less than ten per cent. This estimate was based on the annualised growth of active assets under management reported at a selection of global institutions. At the time, most analysts queried this number. Underscoring this, Peter Braunwalder, HSBC Republic 's chief executive, forecast in the media that assets under management would grow by ten per cent annually at the bank. Despite the market downturn, he stated that the bank's assets grew 6.8 per cent in the first half compared with same period one year earlier. Braunwalder also said that the major market performers were in Asia. Braunwalder's press interview echoes a statement made by Deutsche Bank in May, expecting assets to grow ten per cent annually through to 2005. True to form, Merrill Lynch has released a sizeable study on the subject, projecting compound annual growth rates for wealth management on a regional basis. Merrill Lynch's headline global forecast is a little more pessimistic than those from HSBC and Deutsche. Merrill suggests that, on an international basis, the market will recover to an eight per cent growth rate by 2005. On a regional basis, Europe will see growth closer to ten per cent. Merrill's research also supports Braunwalder's view that Asia will be the private banking region of the future. Merrill forecasts a CAGR in Asia of 12 per cent by 2005. Merrill's estimates are based on forecasts for recovery in the equity markets. Merrill also makes regional forecasts for net new money in the coming years. The growth rates now being circulated among the senior echelons of wealth management appear to indicate a more measured attitude towards business development. Certainly, many firms are finding it difficult to acquire new assets in this tough market. Several are beginning to go back to basics and identify asset management needs and issues among their existing client base. In the current market, the forecast of ten per cent may still seem overly optimistic to some, given the continued criticism of many business models being employed in wealth management — particularly where businesses are considerably overweight on equity-based fund management products. However, the hangover and corporate soul searching following the bonanza years of 1998-2001 does now seem to be showing signs of having ended. Looking ahead, a measured strategy of consistent growth that will ride through bear and bull markets is the main objective — sound familiar?