A slump in client trading activity in Asia is threatening to slow a lucrative earner for the world’s biggest wealth managers.
UBS and Citigroup are among the banks whose wealth revenue for the region likely declined by double digits in the first half, people familiar with the matter said, asking not to be identified as they were discussing private information.
Credit Suisse Group, which last month said that results in the second quarter were affected by clients pulling back, is poised for a similar drop, the sources said.
The expected shortfall contrasts with a strong performance last year, underscoring how weaker client sentiment is overshadowing a key business for banks who service the global rich.
China’s crackdown on a large number of industries, including technology, education, gaming and property, has roiled Asian markets, leaving clients sitting on losses and reluctant to trade.
After dominating growth in the number and wealth of high-net-worth individuals over the past decade, Asia fell behind Europe and North America in 2021, a report from Capgemini showed.
Some lenders are now turning more cautious as a years-long hiring spree meets more gloomy growth projections.
“Hiring has definitely slowed down compared to last year,” said John Mullally, regional director for Southern China and Hong Kong financial services at Robert Walters.
“It’s not like 10 years ago where private banks hired people such as hairdressers because they had a Rolodex of wealthy customers.”
Credit Suisse has given new relationship managers in the region more time to meet revenue targets given market conditions and travel restrictions during the Covid-19 pandemic, which have made it hard to meet clients face to face, sources said.
The first half was “a tough time for all of us”, said Amy Lo, co-head of Asia-Pacific wealth at UBS, the region’s biggest private bank, on the sidelines of an investment forum in Hong Kong earlier this month. “Volatility is here to stay.”
It’s a sharp reversal from 2021, when governments pumped money into markets, supporting buoyant stocks while the pandemic prompted prolific trading among the wealthy. With interest rates rising, fears of a recession are looming, and US shares have experienced the worst sell-off in half a century.
Barclays said late last year it plans to make key hires in wealth management across Asia as the British lender plots its return to some of the world’s fastest growing economies after a 2016 restructuring. Other banks including JP Morgan Chase and HSBC have also made a similar push into major private banking markets such as Singapore, Hong Kong and China over the past few years.
Banks are becoming “more prudent” on hiring in Asia and are controlling costs very carefully as revenue for most is down in the first half, said Serina Wong, a Hong Kong-based managing partner at executive search firm Dresden Green Consulting.
Growth has slowed a lot as it is more difficult to open new accounts for clients in China who face travel restrictions, she added.
Private bankers in Singapore and Hong Kong say that their Asian desks are heavily exposed to revenue from clients trading frequently as opposed to hubs such as Switzerland where banks manage money for the rich and get a regular fee.
Much of the wealth in Asia is in the hands of self-made entrepreneurs keen to make their own bets, while in Europe, it’s held by the second and third generation who want to preserve the wealth and have private banks manage their money. In bull markets, transaction fees are a lucrative source of income, but in market downturns, they can quickly dry up.
Citigroup added 10 per cent more private bank clients in Asia in the first half of 2022 from a year ago, despite the challenging macro environment, a bank spokesman said. The lender is predicting further momentum across its wealth business in Asia in the second half, he said.
A Credit Suisse representative declined to comment on Asia wealth revenue, saying the bank is committed to investing in the region regardless of short-term market volatility. A representative for UBS declined to comment.
UBS and Citigroup are expected to post near flat global wealth management revenue in the second quarter, while Credit Suisse is expected to show a deeper decline of more than a third, analysts said.
Credit Suisse has seen “significant deleveraging” in Asia and also reduced client transactional activity, Francesco De Ferrari, the bank’s head of wealth management, said at an investor event last month. The Zurich-based lender outlined plans to grow its wealth unit by focusing on markets such as Hong Kong and Singapore.
Credit Suisse’s relationship managers in Asia-Pacific increased to 710 as of the first quarter, a 12.7 per cent rise from a year earlier. By contrast, UBS’s number of advisers in Asia-Pacific fell by 5.3 per cent to 861 over the same period.
Still, there are signs that the worst may be over in China as it comes out of a series of Covid lockdowns, with authorities dialling back a crackdown on the tech industry. UBS expects a better second half, on the back of a stronger performance in China, where it expects policymakers to support markets, Ms Lo said.
Banks are still hiring selectively, including adding bankers to manage Chinese wealth in Singapore. Citigroup has hired for its family office in Asia this year, while UBS had added headcount to its alternatives team.
Private banks have also been advising clients to move into private equity and alternative investments to shield against the volatility in listed stocks.