Chasing wealth managers is a risky business
Private banks are fighting to advise billionaires who want a lot for their money
John Gapper
Zurich is a sober and orderly city, so a fierce altercation near the Swiss National Bank between a banker to the world’s billionaires and a private detective who was trailing him is worthy of John Le Carré. It is all the more lurid that Credit Suisse ordered surveillance of Iqbal Khan after he left abruptly for its rival UBS.
Credit Suisse was worried that Mr Khan, who led an expansion of wealth management there, could take valuable clients and colleagues with him. Cut to Germany, where Deutsche Bank is hoping to recruit several hundred “relationship managers” — financial advisers to the wealthy — to compete with Switzerland’s private banks.
Whenever banks get overexcited about a profitable and expanding area of finance and embark on an expensive talent war, it usually leads to trouble down the road. So it is a fair bet that there will be fallout from this battle over wealth management, the activity that includes private banking.
The stampede is understandable. Swiss private banks went through tough times after the 2008 financial crisis and a US crackdown on offshore tax evasion that led to banks including UBS being fined hundreds of millions and having to loosen traditional bank secrecy rules. But they never lost their grip on a business that many rivals envy.
Traditional retail banking has been less profitable in the era of low interest rates and digital insurgency. Investment banking has been squeezed by regulations and caused a lot of trouble at European banks, notably Deutsche. When boards of global banks gather for strategy days, it can get gloomy.
Wealth management feels like a profitable one-way bet, by comparison. It does not require much capital to advise clients on how to conserve and invest their wealth, and the returns on equity are high. The rise of billionaire entrepreneurs and the super-rich, particularly in China and the rest of Asia, keeps the market growing.
This makes private bankers, particularly relationship managers with clients they have served for years, desirable. It is hard for an institution without a long history in private banking to expand without hiring them from other banks — the rule of thumb at one Swiss bank is that one manager can advise clients with a total of $1bn in assets.
Hence the unruly scene on the streets of Zurich and the poaching of bankers that is occurring around the world. Boris Collardi, who led the expansion of Julius Baer as chief executive, is now heading a hiring drive at Pictet, including the appointment of Tee Fong-Seng as head of wealth management in Asia.
But as banks offer millions to lure private bankers with desirable clients, they should consider a few things.
First, a relationship manager may not bring clients with them. The personal touch helps: private banks advise clients not only on investments but on sensitive matters such as family succession and trusts. But the expertise (and credit rating) of the bank also counts: “Assets are sticky and they take time to transfer. Sometimes they do not come at all,” one Swiss banker says.
The danger is that the hiring war will prove an expensive zero-sum game in which costs grow faster than revenues. McKinsey & Co, the consultancy, this week sounded a warning that profits fell by 8 per cent at private banks in western Europe last year, as rising costs squeezed their margins.
Second, private banking to the emerging class of ultra-wealthy in Asia is not free of risk. Under Mr Khan, Credit Suisse targeted Asia entrepreneurs with assets of about $500m, whose wealth tends to be tied up in their own companies, and who often want to borrow against these assets to buy houses in Mayfair or large yachts.
So far, banks that lend to wealthy clients have made money — one banker estimates that loan default rates have only been about 0.1 per cent. But those loans have yet to be tested in a global recession, with falling asset valuations. Only then Will we discover how profitable the business really is.
Third, despite rivalry among private banks, their ultimate competitors are the clients themselves. Wealth managers pitch themselves as trusted advisers but the ultra-rich with more than $100m are different from you and me — many employ their own investment advisers and lawyers in family offices.
There are now more than 10,000 single family offices, according to the consultancy EY, and the number is rising as more of the merely rich band together in multifamily offices. When it happens, private bankers are often excluded from the inner circle, where the most profitable decisions are made, and must pitch for smaller bits of business.
It is not a mystery that the richer someone is, the harder the bargain he or she tends to strike. The days of millionaires depositing money with Swiss banks and only occasionally visiting Lake Geneva to catch up with their bankers are in the past. Billionaires do not hand over cash lightly.
Wealth management is still an attractive business, given the alternatives. But before they start following bankers around the streets of Zurich and Singapore, banks should realise what they are rushing into. In finance, one-way bets are rarely what they seem.
CHASING WEALTH MANAGERS IS A RISKY BUSINESS / THE FINANCIAL TIMES OP EDITORIAL
CHILE THREATENS VENEZUELA WITH BLOCKADE OVER CRISIS / THE FINANCIAL TIMES
Chile threatens Venezuela with blockade over crisis
Foreign minister demands free elections and warns refugee exodus could destabilise region
Benedict Mander in Santiago
The crisis in Venezuela has created a parallel refugee crisis that is affecting the whole region © AP
Chile’s foreign minister has vowed to work with allies to cut off Venezuela’s communications, shut down its air space and implement a naval blockade if Nicolás Maduro refuses to hold free elections.
Amid an escalating humanitarian crisis that is destabilising the region, causing more than 4m Venezuelans to emigrate, “ever stricter” measures must be taken to put pressure on Caracas to comply with demands to restore democratic order, Teodoro Ribera said.
“The solution to the crisis has to be soon . . . Venezuela is a problem for hemispheric security,” Mr Ribera told the Financial Times. He pointed out that some 400,000 Venezuelans now live among Chile’s 18m-strong population. “We have to make Maduro understand that it is preferable to call elections than not to call them.”
Sanctions have failed to persuade Caracas to heed calls for elections from the international community acting through the Inter-American Treaty of Reciprocal Assistance, whose members also include the US, Brazil and Argentina. Mr Ribera said that the “logical next steps” include blocking communications and access to the country by air and sea.
“All countries in the region have to advocate for forcing the Maduro government to call free, democratic elections, with international observers,” he said. Mr Ribera added that the opposition had to be pragmatic and recognise that democratic political transitions “demand reciprocal sacrifices. No one leaves power to go to hell voluntarily.”
Chile’s own transition to democracy after the 1973-90 dictatorship of General Augusto Pinochet was negotiated and drawn out, but also peaceful and did not harm the economy, said Mr Ribera. Human rights violators should be prosecuted, he said, but a “witch hunt” had to be avoided.
He warned that if the number of Venezuelan immigrants rose to 7-8m, as he fears could happen next year if action is not taken, “that will put very, very great pressure on countries in the region and it could have a destabilising effect”. The foreign minister emphasised that the solution had to be peaceful as military intervention could trigger “an explosion in immigration that we cannot cope with”.
Chile’s hardening stance towards Venezuela comes as Sebastián Piñera, the centre-right president, takes on a stronger leadership role in the region and beyond. Santiago is preparing to welcome delegates in December for the United Nations Climate Change Conference, known as COP25, after Brazil pulled out of hosting the event.
Chile, one of the countries most committed to free trade in the world, is also hosting the Asia-Pacific Economic Cooperation summit meeting next month amid fears expressed by Mr Ribera of a “deglobalisation” that threatens its open economy.
Observers expect the balance of power to shift in the region if the leftist Alberto Fernández is elected president in Argentina this month, as is widely expected, replacing the centre-right Mauricio Macri. Mr Macri has played a leading role in the region’s opposition to Mr Maduro and in supporting his rival Juan Guaidó.
In recent interviews, Mr Fernandez has resisted calling Mr Maduro a dictator and argued that his government was legitimate. Mr Fernandez did, however, express concerns about the Maduro regime’s authoritarian tendencies.
Mr Ribera suggested that a swing to the left in Argentina could be offset by the election of a centre-right government in Uruguay, which will also hold elections this month. Like Mexico, Uruguay’s leftist Broad Front, which has held power since 2005, has refrained from recognising Mr Guaidó as the interim president of Venezuela.
BANKS BOUNCE, BUT RATES STILL EXERT GRAVITATIONAL PULL / THE WALL STREET JOURNAL
Banks Bounce, but Rates Still Exert Gravitational Pull
Beneath the surface of banks’ decent quarter are some troubling trends
By Telis Demos
Some negative effects of falling interest rates were visible in quarterly results at JPMorgan Chase & Co. and other big lenders. Photo: Victor J. Blue/Bloomberg News
Beneath the surface of banks’ decent quarter are some troubling trends.
There were pockets of strength that helped drive a respectable kickoff to third-quarter earnings reports by big lenders.
JPMorgan JPM +4.33%▲ Chase & Co. recorded a jump in revenue from investment banking and trading, for example.
Citigroup C +1.87%▲ continued to benefit from a rise in revenue in its core U.S. card business.
Credit costs remain historically low.
But across three of the biggest banks—JPMorgan, Wells Fargo, WFC +3.55%▲ and Citigroup—many of the negative effects of falling interest rates and economic worry were visible.
Net interest income fell 2% across those banks in the third quarter from the second.
Total loans were essentially flat at those banks, and average net interest margin was 2.54%, down from 2.66% in the second quarter.
JPMorgan did raise its net interest income forecast slightly from when it last gave guidance, bringing up its full-year forecast to slightly below $57.5 billion from what it said in September, which was: “A lot closer to $57 billion.”
The bank told reporters that the improved forecast was predicated in part on moving from an expectation of two more Federal Reserve rate cuts this year to just one.
Given uncertainty about U.S.-China trade talks and the broader economy, that could easily change.
Consumers remain the bulwark for banks’ lending businesses.
Citigroup in particular is benefiting from the roll-off of promotional zero-interest offers on cards, which drove North American branded card revenue higher by 11% from a year earlier.
Revenue from JPMorgan’s card and auto-lending unit was up by 9%.
It remains to be seen how long the consumer can stay strong as business confidence falters.
Some of the improvement in investment banking may be temporary.
JPMorgan grew investment-banking revenue 8% from a year earlier, led by a 22% gain in equity capital markets despite the failure to launch WeWork’s big initial public offering in the quarter.
But the bank noted that it expected a decline for the fourth quarter both sequentially and year over year.
It is notable also that the bankers at Goldman Sachs GS +0.17%▲ didn’t have the same kind of quarter, with investment-banking revenue dropping 15% from a year ago.
Banks also already have made some big adjustments to their asset mix that they may not be able to do again regularly, or at the same magnitude.
At JPMorgan, for example, its average deposits with banks over the quarter dropped 35% from a year earlier, while it increased its average investment securities portfolio by 49%, capturing yields of 2.92% versus just 1.33% on that cash.
However, JPMorgan Chief ExecutiveJames Dimonacknowledged that fresh concerns about banks’ nimbleness with cash are well founded. He said that the bank’s required reserves prevented it from taking advantage of the spike in repo rates in mid-September.
“We could not redeploy [cash] in the repo market,” he said.
Overall, JPMorgan’s yield on interest-earning assets was up 0.03 percentage point from a year ago, even as Libor and other key borrowing rates moved lower.
Still, that was swamped by higher liability rates, in part due to corporate clients asking for better returns on their cash.
“We’re not going to lose valuable client relationships over a few ticks,” Chief Financial OfficerJennifer Piepszaksaid.
Despite it being a quarter in which many nonlending businesses outperformed, investors were bidding up shares of lenders JPMorgan, Citigroup and Wells Fargo on Tuesday morning, while selling Goldman Sachs, whose business is far more dependent on trading and investment banking.
That may be the wrong lesson for investors to take away from the quarter so far.
THE PEOPLE´S REPUBLIC OF CHINA AT 70: OF OPIUM AND 5G / GEOPOLITICAL FUTURES
The People’s Republic of China at 70: Of Opium and 5G
By George Friedman
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HONG KONG IN THE BALANCE / PROJECT SYNDICATE
Hong Kong in the Balance
After months of large-scale protests in Hong Kong, the city's future as a bridge between mainland China and the outside world is in serious jeopardy. Fortunately, all sides share an interest in pursuing more inclusive growth within the "one country, two systems" framework that has been critical to Hong Kong's success.
Michael Spence
MILAN – Hong Kong has long played an integral role in Asian and global economic development. But its future as a key nerve center for global business and finance is in serious jeopardy, as is its role as a bridge between mainland China and the outside world.
Hong Kong has long been a place where global companies are welcome, and disputes are adjudicated impartially, transparently, and according to the rule of law. If that is no longer the case, it represents a tremendous loss for China, for Asia, for global business and finance, and especially for Hong Kong citizens.
Hong Kong has experienced an unprecedented 17 weeks of mostly peaceful demonstrations (occasional episodes of violence have attracted disproportionate media attention). The trigger was a proposed extradition law that many feared would extend the mainland’s reach into Hong Kong’s judicial system. The absence of any plan to bring together various protest groups and the Hong Kong government has become a source of growing concern.
Such a plan would need to do at least two things. First, all parties (including China’s central government in this case), need to recommit to the “one country, two systems” framework.
Second, and perhaps more important, a coalition of representatives from government, business, and Hong Kong’s influential financial community should develop an aggressive plan for countering rising inequality and the disappearance of opportunities for those who are already struggling to make ends meet. Affordable housing for younger citizens is an especially urgent need.
Hong Kong is hardly unique in confronting the need to restore inclusive growth patterns. Many high-income economies have experienced years of rising economic inequality, which has been followed by social fragmentation and a broad rejection of established political parties and elites.
There is a striking similarity between the Hong Kong demonstrations and the “yellow vest” protests in France, which were triggered by a modest increase in tax on diesel fuel, but driven by a part of the population’s deeper anxieties about economic disparities and declining prospects.
Among the Hong Kong protesters’ demands are that the extradition law be formally withdrawn and that the rallies not be described as “riots.” They also want an independent inquiry into police tactics and brutality, the release of all detained demonstrators, and more control over the selection of their own leaders.
Notably absent from this list is any direct reference to the economic circumstances of Hong Kong’s people. The protesters most likely regard a greater role in choosing Hong Kong’s leaders as a step toward addressing inequality. The widely held perception among ordinary citizens is that Hong Kong’s political and economic elites have been more focused on pleasing the central government in Beijing than on achieving more inclusive growth patterns.
Under these tense conditions, some might view the Greater Bay Area (GBA) plan to develop an integrated regional economy in the Pearl River Delta as another potential encroachment on Hong Kong’s autonomy under the 1997 Basic Law, which established the city as one of two Special Administrative Regions for 50 years.
But the GBA could have a tremendous positive impact on Hong Kong and the already dynamic and innovative southern Chinese economy, and many believe that the plan can be implemented in a way that preserves the “one country, two systems” principle. Foreseeable obstacles, such as different rules governing data, should not be insurmountable.
For its part, China’s central government is justified in rejecting demands for full independence for Hong Kong. Only a small minority of the demonstrators supports those demands, which are inconsistent with the Basic Law and the principle of territorial integrity. The leadership in Beijing needs to maintain some role in the selection of Hong Kong’s political leaders, lest it end up having to deal with a vocally pro-independence government, as happens periodically in Taiwan.
China is also justified in worrying about foreign interference in Hong Kong, as any country would be. Requests for foreign support from the United States and Britain by a small subset of the protesters are counterproductive, at best. But China’s central government could help itself by voicing strong support for the principle of “two systems” and backing plans by the Hong Kong government to address distributional concerns and other economic issues.
There is no doubt that the Communist Party of China has exercised greater control over business, the economy, and society in mainland China in recent years. Some of those interventions may have spilled over into Hong Kong, exacerbating the tensions inherent in the “one country, two systems” framework. Chinese leaders now must be extremely careful not to undercut the authority of the Hong Kong government or the city’s fair and impartial judicial system, which has been a crucial asset in attracting business and finance from abroad.
Clear communication and responsiveness will be key to resolving the crisis. On this front, the Hong Kong government has underperformed. The millions of Hong Kong people who have taken to the streets need to know that their government is listening to them, understands their concerns and challenges, and is on their side, provided that their demands are consistent with the Basic Law. The Chinese authorities have exercised some restraint in their communications, presumably to avoid undercutting the authority of the Hong Kong government and its chief executive, Carrie Lam. But that makes it all the more important for the Hong Kong government to communicate effectively.
Finally, other countries, including the United States, should stay out of it. Hong Kong is far too valuable to be used as a pawn in a larger confrontation between great powers. And the people who live and work there deserve better.
Michael Spence, a Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution. He was the chairman of the independent Commission on Growth and Development, an international body that from 2006-2010 analyzed opportunities for global economic growth, and is the author of The Next Convergence – The Future of Economic Growth in a Multispeed World (Farrar, Straus and Giroux).
STIMULUS, INEQUALITY AND THE CHINESE DREAM / THE WALL STREET JOURNAL
Stimulus, Inequality and the Chinese Dream
China’s economy is slowing but, without reforms, stimulus may just help the rich get richer in an already unequal society
By Nathaniel Taplin
Deng Xiaoping, who launched China’s economic reforms, famously said that it was fine for some people to get rich first. As long as everyone got rich eventually, it was a price worth paying for the communist leader.
That narrative, call it the original Chinese dream, was borne out for a long time. China’s opening to the world generated many millionaires and billionaires but also remade China overall into an upper-middle-income society.
There are increasing signs, however, that those Chinese who haven’t yet gotten rich will face a far harder time doing so in the future.
Following steep falls in the early 2010s, inequality is rising again while real income growth has flatlined.
Not only will that make it tougher for Beijing to address today’s slowdown but it could spell trouble for the region and even the world.
Two subtle changes in China’s economy tell the story. Following a long fall from 2008 to 2015, China’s Gini Coefficient, a measure of income inequality, has begun rising sharply again.
Second, since 2016 housing prices have mostly grown much faster than incomes, the opposite of the situation from 2011 to 2015. Young home buyers in China have sources of support that Americans lack; parents often contribute.
But they still face a steepening path and moving onto the housing ladder increasingly requires taking on debt, further eating into incomes.
Gavekal Dragonomics estimates that debt service hit 8.1% of household income in 2018, up from below 5% in 2010 and comparable to U.S. levels.
As in the U.S. prefinancial-crisis bubble economy that pumped up housing prices but also stoked indebtedness and inequality, policy is partly to blame.
Chinese policy makers have repeatedly dodged tough reforms since 2012—particularly to the nation’s dysfunctional banking system, which tends to channel cash into property and state enterprise coffers rather than to entrepreneurs.
Stimulus efforts in 2015 and 2018 boosted housing prices, helping people who already own homes but stoking indebtedness and doing little to arrest the long-term slide in China’s growth.
Policy makers, aware of the ugly side effects, have been far more restrained responding to this latest slowdown.
Worryingly, however, they continue to duck bold measures to fix the banking system or slim down the state sector.
More export-led growth could provide a solution, but Beijing’s unyielding approach to trade disputes—and President Trump’s erratic deal making—have undermined that, too.
Beijing knows it can’t afford nonstop rapid house-price appreciation, but it can’t allow a real property downturn either because that would tank its financial system.
Barring some radical free-market reforms or an unexpected productivity boom, the next decade could witness continually slower income growth and a further widening of the divide between the already-rich and everyone else.
For investors, this is a worrying and volatile mix.
Unless housing prices start dropping or financial troubles at state companies significantly worsen, China’s central bank seems likely to continue its drip feed of support rather than aggressive easing.
Tax cuts may help shore up consumption on the margin, but also mean more government-debt issuance hogging already limited credit supply.
Over the longer run, Beijing may turn even more to nationalism to paper over the cracks in a slower-growing, less-equal society. That could have grave consequences for growth and stability throughout Asia and the world.
ANGLO AMERICAN SAYS COPPER MINE WILL PRODUCE FOR 100 YEARS / THE FINANCIAL TIMES
Anglo American says copper mine will produce for 100 years
Group says new project in Peru is a ‘licence to print money’
Neil Hume, Natural Resources Editor
Anglo American’s $5bn copper project in Peru has the potential to be a “generational” asset with enough reserves to supply a century of production, according to the executive leading its development.
The reserves at Quellaveco have only been defined to a depth of 400m but drill samples suggest mineralisation could extend to 1,000m, according to a company presentation.
“This is not going to be a 30-year mine. My personal opinion is that it is going to be closer to 100 years,” said Tom McCulley, the head of Anglo American in Peru, at a briefing in Lima on Monday. “It will be a licence to print money for a long period of time.”
Quellaveco is the first new mine sanctioned by Anglo American since Minas Rio, an iron ore project that ran billions of dollars over budget and ultimately cost the company’s former chief executive Cynthia Carroll her job.
With Anglo now led by Australian executive Mark Cutifani, analysts say Quellaveco is a chance for the London-listed company to show it can deliver big projects on time and on budget.
Mr Cutifani, who took Anglo’s helm in 2013 and has transformed its fortunes, has said he will not leave the company until he has delivered the project.
Two adjacent copper mines have been in production for more than four decades at much greater depths than Quellaveco, which is located in the Moquegua region of Peru.
“We know this will continue to get bigger,” said Mr McCulley.
Copper is tipped by analysts to be one of the beneficiaries from the global shift to low carbon power because of its use in electric vehicles and renewable energy.
Quellaveco is due to start production in 2022. Once it reaches full capacity, it will produce an average 330,000 tonnes a year of copper in its first five years.
“This is high grade ore — over 1 per cent copper — it’s soft [so] it will go through the mill very easily,” said Mr McCulley.
Exploration outside the main project areas suggested there could be another major deposit close to Quellaveco on Anglo’s tenements.
“We actually have done a few drill holes recently and come across some of the best ore we have outside the pit,” he said. “We’ve seen enough to know that there is probably another Quellaveco out there.”
Mr McCulley said a 95km water pipeline and community relations were two of the biggest risks facing the project.
MMG, the Chinese controlled miner, said last week it would be forced to halve production at its giant Las Bambas project in Peru if protesters continued to block roads. Activists have also disrupted access to Peru’s main copper port this month.
Residents of Peru’s so-called southern copper belt are protesting against the government’s granting of a construction licence to another miner, Southern Copper Corp, to build its Tía María facility, Reuters reported, amid concerns over local water resources.
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
Paulo Coelho

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