JPMorgan, Deutsche Bank Vie For Rich
(Bloomberg News) JPMorgan Chase & Co., Deutsche Bank AG and Citigroup Inc. are hiring bankers who cater to millionaire clients as more stringent capital rules reduce returns from investment banking.
JPMorgan, the biggest U.S. bank by market value, plans to increase its wealth management staff in Europe, the Middle East and Africa by as much as 20% a year until 2013.
Frankfurt-based Deutsche Bank is bulking up its Asia business after buying Sal. Oppenheim Group, Germany's biggest independent private bank, nine months ago, says spokesman Klaus Winker.
Citigroup and Goldman Sachs Group Inc., both based in New York City, also are building up their so-called wealth management divisions as Basel III rules are set to curb the risk-taking that led to a seizure of credit markets in 2008.
Leaders for the Group of 20 nations approved plans in November at a meeting in Seoul to more than double capital requirements for banks after the industry posted losses of more than $1.3 trillion from 2007 through 2009. The change provides renewed impetus for banks to focus on less risky and less capital-intensive units such as overseeing assets for wealthy clients, says Cedric Tille, a professor at the Graduate Institute in Geneva.
"It's a natural reaction for banks to go more and more toward fee-based advisory activities in response to capital requirements," says Tille, a former economist at the Federal Reserve Bank of New York. "If they make a mistake, it's only the clients who get upset."
As capital requirements increase, the companies' return on equity-a measure of profitability-will decline. UBS's investment banking unit reported a return on equity of 10.5% in the first nine months of the year, compared with 24% for the wealth management division.
Citigroup, which received a $45 billion taxpayer bailout in 2008 after losses on subprime mortgages and collateralized debt obligations, plans to double wealth management adviseos in North America to about 260. Goldman Sachs Chief Executive Officer Lloyd Blankfein said November 16 that "it's important to get bigger" in private wealth management.
"We've seen a massive uptick in the number of banks seeking to participate as global wealth managers," John Cryan, chief financial officer of UBS AG, Switzerland's biggest bank, told bankers in London on September 30.
The new Basel proposals will reduce the profitability of operations such as underwriting bond sales, lending to hedge funds and proprietary trading, said Professor Christoph Lechner of the Institute of Management at the University of St. Gallen in Switzerland. The lower-margin wealth management business will help plug part of the gap left by investment banking, he said.