JPMorgan, Deutsche Bank battle for rich as capital rules change
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
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