Private banking -- A shifting landscape

The legacies of the global financial crisis continue to permeate the global landscape. In many ways, that unfortunate period in our history has forged a new era in the way in which we conduct business today. This is the case in many aspects of business and is most certainly the case in the financial and banking sectors. “Business as usual” has taken on a different face, leaving the global financial community with little option but to adapt to the new status quo; one characterised by increased regulation and accountability and which has seen banking institutions around the globe take a strategic look inward at their operations as a whole with a view to focussing on strengthening and growing core businesses while cutting back on costs as much as possible.

The direct (though perhaps not immediate) effect of this on the private banking divisions of many of the world’s banks over the past several years has been the floundering of some of the smaller weaker private banks, while the larger banks have been able to bolster their operations; in many respects emerging from the process as stronger and more streamlined institutions. 

The private banking industry is one which is predicated on servicing the needs of wealthy individuals who require, amongst other things, specialised investment advice and wealth management services. Fortunately for those private banks which remain in the game, there appears to be no shortage of High-Net-Worth individuals (HNWIs) across the globe and despite the global financial crisis, there has, in recent years, been a notable increase in HNWIs as well as Ultra High Net Worth Individuals, particularly in the Asia-Pacific region. It should therefore come as no surprise, given what appears to be a bit of a global shift in wealth accumulation, that much of the banks’ private banking resources and services have been focussed in that region, resulting in the region’s ability to boast of the largest growth for private banking services across the globe in recent times. A marked increase in the number of wealthy persons in Asia was answered by the banking sector with either the introduction (in the case of those banks with no presence in the region) of or the fortification (in the case of those already present) of dedicated private banking divisions.

However, despite the surge in wealthy individuals, the rapid across the board expansion which at one time characterised the industry has arguably slowed somewhat over the past several years; a position owed in no small part to increasing regulatory requirements around the globe coupled with the pressure on banks to increase revenues while cutting costs. This has thrown up an interesting dilemma for private banks since the significant costs necessary for compliance with the increased regulatory obligations introduced during the past several years has meant that by and large only the strong have survived. Today we see the results of something akin to a process of natural selection; a fiercely competitive private banking industry which is essentially dominated by the large banks like UBS AG, Credit Suisse AG, Citibank, JPMorgan and HSBC; global banking giants with diverse global portfolios large enough to sustain the rising costs associated with dedicated private banking divisions and sufficient resources to operate them.

Traditionally, the banks have offered various private banking services to HNIs on a very personal basis and the focus has been on establishing and building relationships with them. This has been and will continue to be crucial to the survival of banks operating within this industry but as time goes on, that in addition to the various other challenges, has meant that private banks must also strive to remain relevant to customers. The ability to meet the challenges while gaining and retaining market share has not been easy for most and (perhaps) as a result there has been evidence in recent years of something of an emerging trend amongst private banks – consolidation, restructuring or diversification. This has been characterised by some banks acquiring the private banking divisions of competitors and the necessary converse, banks selling off their private banking divisions.

The private banking landscape continues to shift and change, with some taking larger market share while others divest. In recent years we have seen the likes of banks like DBS Bank Ltd take the strategic decision to expand their private banking division through the acquisition of Société Générale’s Asian private banking business in Singapore and Hong Kong. Another example of the emerging trend was the sale by HSBC Private Bank (Suisse) SA of a portfolio of its private banking assets in Switzerland to LGT Bank (Switzerland) Ltd, a subsidiary of the LGT Group Foundation.

Indicators are that this trend will likely continue. While it may not be readily evident what effects this would have on the offshore world, what this means for jurisdictions such as the British Virgin Islands, where many of those HNIs will have incorporated companies in order to conduct their business affairs, is that it will be necessary for any public security filings made previously against the relevant company (usually at the time of the opening of the account with the bank) in favour of the divesting private bank will need to be updated to reflect the change in security holder. The acquiring bank will wish to have the public register reflect its acquired security interest and so it will be necessary for any previously filed register entry to be updated to reflect the change.

Although on its face, it may seem that the largely administrative function of updating the register entry is one which an acquiring bank could well forego,  it would be well advised not to do so on the basis that, for British Virgin Islands companies, the public register provides notice to all the world and so it stands to reason that any bank possessed of a security interest in assets of a British Virgin Islands company will want not only to preserve the priority of its interest (which public registration in the British Virgin Islands protects) but will also want its interest to be a matter of public record.