27 May 2018

Financial Times: Wealth management most fragmented in global finance

The 32 biggest wealth managers in the world have a collective market share of just 50 per cent, making the industry one of the most fragmented in global finance and ripe for consolidation, a new report from JPMorgan has found.

The proliferation of wealth managers in some countries, particularly Switzerland’s 100-plus players, has been well-documented. The JPMorgan report highlighted the global dynamic of a business that is central to Credit Suisse and UBS and of importance to other big name banks including Citi, Morgan Stanley and HSBC.

The wealth management landscape contrasts starkly with other banking areas such as fixed income, currencies and commodities, where JPMorgan estimated the top six global participants had more than 60 per cent of all revenues.

“I could easily see some of the outstanding pure-play private banks being consolidated with another bank [in the next five years],” said Kian Abouhossein, head of European banking research at JPMorgan. “Private banking is the best business of all the banking businesses. It has stable cash flows, high return on equity, there’s no additional regulation that we know of … and it has relatively high growth rates.”

JPMorgan predicted assets under management (AUM) in the world’s private banks would grow at a compounded rate of 4 per cent a year between 2017 and 2020, a forecast Mr Abouhossein described as “conservative”.

“In the long term, consolidation could be a meaningful driver of margin improvement,” he said, explaining that the pressure to offer high pay to private bankers “will decline when less players are competing against each other”.

Mr Abouhossein said consolidation could come from large wealth managers buying smaller ones, or a big bank without limited private banking exposure buying a large wealth manager. He would not speculate on which wealth managers might be targets, but Switzerland’s Julius Baer has been mentioned as a takeover target in the past.

He argued that mergers were more likely now than in the past given “regulatory requirements [and] technology investments needed to remain relevant in the business” which could be hard for smaller players to finance. Additionally, the ultra-rich clients, who are becoming an important part of the overall market, want to book their wealth across many jurisdictions.

Full article on Financial Times (subscription required)

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