Private banks to cash in on region's pool of liquidity

Last year, management consultancy firm Oliver Wyman forecast that wealth held by high net worth individuals in the GCC – those with investable wealth of more than $1m (Dh3.67m) – will grow from $2.1 trillion in 2007 to $3.8trn by 2012 despite tougher markets.

Oliver Wyman's analysis showed an estimated 16 per cent of high net worth individuals wealth globally was held offshore in 2007.

However, this is countered by a strong trend amongst the GCC's richest to repatriate wealth and invest in regional assets.

It said that for a market that was historically served offshore, players have begun hiring teams to service clients onshore, with many foreign wealth management firms also increasing their coverage of the Middle East.

Overall, the report estimated that high net worth individual wealth to have reached some $50trn in 2007 and is expected to rise to $75trn by 2012.

This implies a slowdown in compounded annual growth rates from 11 per cent (2003-2007) to nine per cent per year (2008-2012).

"We expect growth rates to vary significantly by region, with the Middle East and Asia Pacific (except Japan) leading the pack," it said. However, with recession taking its toll on all kinds of assets, wealth destruction has become rather the theme of the day. Some experts estimate that top billionaires in the Gulf have lost at least 25 per cent of their wealth in the past year. Economist intelligence Unit in fact expects the average drop in wealth to be 50 per cent.

But despite the reports on wealth destruction, experts speaking to Emirates Business said there is still a big pool of liquidity in the region, which means there will still be wealth and job creation as well as continuous growth in the private banking sector.

"The trend today is that people are staying in cash, they are not making too much investments, just waiting, but there is cash in the system, plenty of it," Rohit Walia, Executive Vice-Chairman & CEO of Bank Sarasin-Alpen (ME) and Alpen Capital (ME) told Emirates Business.

"Compared to investment banking, private banking is less affected but it still depends on which banks are you working for. People tend to keep their money in the banks. They don't tend to take it out to buy real estate or in some of the businesses," he added.

According to Antoine Dréan, Founder, Chairman & CEO of Triago, the liquidity remains bountiful in the Middle East. "The region is rich," he said. "There is money coming out of the ground everyday. There was overleverage in some countries or companies, and this needs to be treated and that's what's happening now."

"But it doesn't mean people are completely broke, it means there is a mess that needs to be taken care of before they invest again.

"You're hearing a lot of overleveraging in this country because this place is probably loaded with debts, mostly in real estate but it will be taken care of."

"There is a large pool of liquidity in the Middle East, it is very present," said Nicholas Farah, Head of Banque Piguet's representative office in the Middle East. "In Dubai, there clearly was some overleverage in two asset classes – real estate and equity markets. That over-leverage has created a short-term liquidity problem but even in the context of Dubai, there is still wealth creation."

However, although there is liquidity, most people do not feel it because of the lack of trust, Dréan said. "There is liquidity, the missing factor is trust," he said. "People, especially investors, don't really understand what's going on. They may understand it but they are sceptical. What's missing is a sense of 'we're at the bottom'. Most investors feel that we are not yet at the bottom," he said.

The issue of trust or the lack thereof nevertheless has become over-generalised, Walia said. "That is a very generalised comment," he said. "I hear this all the time but I actually do not understand what people are saying. The money is still in the banks; you haven't taken it out and put it under your pillow so there is obviously trust in the system."

But Walia agreed that currently, people are indecisive. "People at the moment do not know what to do – buy stocks, buy real estate, gold, foreign exchange… because markets are very volatile."

Liquidity, he said, has always been coming to the market. The past few months may have seen a gap of liquidity because banks need to balance their books. But in any case, "there is enough liquidity here", he said.

"I think the banks are not lending at the moment because they are also worried on the quality of credit. A good borrower is still able to access cash," he added. Looking at the UAE specifically, Walia said the country is not in negative shape. "It's negative depending on which kind of chair you are sitting on," he said. "If you did couple of stupid things in the last two to three years then you are in the negative but if you haven't done that it's not looking so bad."

"The UAE [economy] is fine, it's not all doom and gloom in all the emirates. It all comes back to leverage; if you are overleveraged then there is some pressure but otherwise it is fine," he said, adding that Dubai is not overleveraged.

One of the drivers for growth is the people's increasing appetite to preserve their wealth. "There's a huge opportunity in wealth preservation. People had not been really looking at it in the last three to four years – they are much more into double your money – but that is changing and the kind of philosophy we have in the private banking side seems to find favour now," Walia said.

He said the bank plans to expand and is currently hiring more staff. Banque Piguet meanwhile, has seen a 40 per cent increase of enquiries from 2008 to 2009. The Swiss bank is also beefing up its team of relationship managers to focus on institutional investors.

"There is a trend for more people to go to private banking," Farah of Banque Piguet said. "Private banking has not been insulated from the crisis. People are becoming more cautious on their money but there are still good business that is still being done and money is still being generated."

"And this people are looking for private banks to help them safeguard their money for the future. Private banks have been benefiting from that," he added. "Today, clients want a level of service that private banks can provide where they have very immediate access to relationship managers who are knowledgeable, informed and closed to the assets. For example, in our bank we have relationship managers who are on call 24 hours a day at the disposal of their client."

Another factor is the region's increasing interest in confidential investments. Farah said due to culture, among other factors, Middle East investors are more cautious.

"They want to make sure that when we give business advise then it is given to them only," he said. "Clients here are concerned about confidentiality. They want to be sure their assets here are being looked after in a confidential manner.

"That is why they are looking at Switzerland as the repository of their assets."

Confidential banking, however, is confined to Swiss banks only, Walia said. "This whole secrecy business is only there in the Swiss private banks, it's not there in the private banks anywhere," he added. "I don't think it is a huge conduit for bringing in money, perhaps some pockets of money but not that big. Not in our business at least. Most of our businesses are institutional investors."

Indeed, Farah said Middle East investors are sophisticated and they understand the need to diversify. "Investors in the region would have a pocket that is reserved for the IPOs, for the onshore Dubai-based investments and also have a pocket that is reserved for more stable and private investments," he said.

 

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