JPMor­gan, Deutsche Bank bat­tle for rich as cap­i­tal rules change

The Pak Banker - - Company& -

GENEVA: 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 per­cent 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, said spokesman Klaus Winker.

Lead­ers for the Group of 20 na­tions ap­proved plans last month 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 cap­i­tal­in­ten­sive units such as over­see­ing as­sets for wealthy clients, said 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," said 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."

Cit­i­group and Gold­man Sachs Group Inc., both based in New York, also are build­ing up their so-called wealth man­age­ment di­vi­sions as Basel III rules are set to curb the risk­tak­ing that led to a seizure of credit mar­kets in 2008.

Cit­i­group, which re­ceived a $45 bil­lion tax­payer bailout in 2008 af­ter losses on sub­prime mort­gages and col­lat­er­al­ized debt obli­ga­tions, plans to dou­ble wealth man­age­ment ad­vis­ers in North Amer­ica to about 260. Gold­man Sachs Chief Ex­ec­u­tive Of­fi­cer Lloyd Blank­fein said Nov. 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 Sept. 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.

"Pri­vate bank­ing of­fers a more sta­ble cash flow over the eco­nomic cy­cle and re­quires less cap­i­tal," Lech­ner said. "But it's tricky be­cause in­vest­ment bank­ing is in­cred­i­bly lu­cra­tive when the mar­kets are run­ning nicely, in a way that pri­vate bank­ing can never be."

As cap­i­tal re­quire­ments in­crease, the com­pa­nies' re­turn on eq­uity-a mea­sure of prof­itabil­ity-will de­cline. -PB News

LA­HORE: PML-N leader Dubai Chaudhry Faisal Altaf pre­sent­ing a cheque of 2.2 mil­lion ru­pees to PML-N Quaid Muham­mad Nawaz Sharif for rehabilitation of flood af­fectees. -App

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