Banks vie for rich clients as wealth soars

By Douwe Miedema

GENEVA (Reuters) - The battle for the favors of the world's ultra-rich is heating up as more banks seek a piece of what they see as the fastest growing sector in the financial industry.

Citigroup (C.N: Quote, Profile, Research, Stock Buzz), Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) and HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) all expect income from their wealth management units to rise as they invest heavily in attracting clients across the globe, encroaching on the domain of the private banks.

Market leader UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) from Switzerland -- the world's largest wealth manager by most measures -- holds only a 3.5 percent market share, which shows the scope for expansion either from organic growth or through acquisitions.

Senior executives from leading players across the globe are to discuss the market at the Reuters Wealth Management Summit on Tuesday and Wednesday, highlighting their corporate strategies.

Recent research by Bear Stearns showed that the global fee pool for catering to the needs of millionaires and billionaires could top $200 billion by 2010 -- more than three times the income available in investment banking.

One issue will be how wealth managers can access growth in Asia and the Middle East, where booming economies and stiff commodity and energy prices are creating new wealthy customers at double-digit growth rates each year.

Switzerland is the traditional home of private banking because of its banking secrecy laws, strong currency and stable political climate. But its leadership is being challenged by other financial centers such as Singapore, Hong-Kong and Dubai, which cater to clients in emerging economies.

Many traditional wealth managers still have most of their clients in Europe, where growth is tepid, and may find themselves in trouble should equity markets crash, because their income to a high degree is related to asset prices.

The rising popularity of hedge funds and other alternative investment instruments designed to survive a protracted bear market may, however, make the industry less vulnerable to a market downturn than it was only five years ago.

STAFF HUNT

Another risk may stem from efforts to find qualified staff at a time when all the biggest players are expanding and hiring, which could bring salaries more in line with those in investment banking and put pressure on margins.

Increasingly savvy customers may also make it harder for banks to make a living. The typical wealth management client is no longer the spoilt heir to an age-old fortune but rather an entrepreneur with ample financial prowess.

The industry is increasingly moving away from the traditional business model developed in Switzerland, where banks offer customers services ranging from finding a private school for their children to making dentists' appointments. Instead clients are focused on financial services and demand high investment returns.

The industry's lack of consolidation has long been a topic of discussion. While income from the sector is solid as global equity markets flirt with all-time highs, however, there is probably little need for wealth managers to sell out.

Banks such as UBS and Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) are both eager to buy, but few major deals have come about in recent years. Industry players say private banking is a sellers market, with high asking prices because of a lack of supply.

With little market share for sale, banks have started wooing European clients in their home countries and setting up branch networks as customers' need wanes to park capital abroad and they demand sophisticated banking services at home.