The war of the wealthy

Black em­pow­er­ment deals helped ex­pand the ranks of SA’s US dol­lar mil­lion­aires

Finweek English Edition - - Private banking -

AT THE TOP END of the re­tail bank­ing mar­ket sit the private banks – those that cater to the fi­nan­cial needs of the wealthy. It’s one of the most hotly con­tested are­nas in the colos­seum of bank­ing – and with good rea­son: the num­ber of wealthy South Africans has shot up over the past three years, lofted by ram­pant stock and prop­erty mar­kets and a bur­geon­ing black mid­dle class.

The wealth ef­fect is ev­ery­where in ev­i­dence. The JSE Alsi 40 in­dex is up nearly 250% since 2003, the Absa House Price in­dex is up 126% since Jan­uary 2003 and new car sales jumped nearly 16% to 714 000 units in 2006, the third suc­ces­sive year of record SA sales. SA is now one of the world’s fastest grow­ing ve­hi­cle mar­kets, though higher in­ter­est rates should dampen growth this year.

The wealth ef­fect isn’t con­fined to SA. Ac­cord­ing to the 2006 Mer­rill Lynch/Capgem­i­niWorld Wealth Re­port, the num­ber of high net worth in­di­vid­u­als (HNWIs) world­wide grew by 6,5% in 2005 to 8,7m peo­ple, each with more than US$1m in as­sets.

Africa as a whole saw the high­est growth in HNWI num­bers – 11,7% – re­flect­ing grow­ing pros­per­ity through­out the con­ti­nent. The Mid­dle East had 9,8% new mil­lion­aires, Latin Amer­ica 9,7%, the Asia-Pa­cific re­gion 7,3%, North Amer­ica 6,9% and Europe 4,5%. The ac­tual wealth of Africa’s high net worth in­di­vid­u­als rose by 14,5%, the sec­ond high­est in­crease in the world af­ter the Mid­dle East.

The re­port says black em­pow­er­ment deals helped ex­pand the ranks of SA’s US dol­lar mil­lion­aires by 5 880. That rep­re­sents a 15,9% growth rate – well above the global rate of 6,5%. It ranks SA fourth among the coun­tries with the fastest grow­ing mil­lion­aire pop­u­la­tions, just be­hind South Korea, In­dia and Rus­sia.

The re­port was con­cluded be­fore the rand weak­ened by 22% against the US dol­lar in May last year, which should slow the rate of growth in SA dol­lar mil­lion­aires this year – but prob­a­bly not by much: the JSE Alsi 40 in­dex is up more than 40% since May last year, more than com­pen­sat­ing for the drop in the rand.

Re­cent re­search by the Univer­sity of SA (Unisa), com­mis­sioned by Absa Private Bank, in­di­cates that there are 380 000 peo­ple earn­ing R500 000/year or more. That num­ber is likely to grow by 45% within the next five years.

The num­ber of su­per-rich – earn­ing in ex­cess of R4m/year – has grown 50% over the past five years to 25 000 and is ex­pected to grow a fur­ther 46% over the next five. And while blacks, coloureds and Asians ac­counted for less than 25% of the su­per-rich in 2001, the cur­rent fig­ure is 34% and fore­cast to grow to 42% by 2011.

“With a grow­ing mil­lion­aire pop­u­la­tion right on our doorstep, the com­pe­ti­tion for their busi­ness has def­i­nitely been turned up an­other notch,” says Za­rina Bassa, ex­ec­u­tive di­rec­tor, Private Bank­ing at Absa. Ac­cord­ing to Private Banker In­ter­na­tional, SA’s private bank­ing in­dus­try is en­joy­ing un­prece­dented growth and new wealthy in­di­vid­u­als are be­ing cre­ated at one of the world’s fastest rates. “Com­pe­ti­tion has grown to fever pitch as par­tic­i­pants jockey for po­si­tion in a mar­ket un­der­go­ing dy­namic change. Lo­cal private banks have been set­ting the bat­tle lines in a strug­gle for mar­ket share.”

All this is cheery news for SA’s private banks, all of which re­port strong in­flows of new clients and growth in as­sets of ex­ist­ing ones. The growth in wealth gen­er­ates in­creas­ingly mus­cu­lar fee in­come for the banks from as­sets un­der man­age­ment as well as fi­nan­cial ad­vice.

Nor is this con­fined to SA, which last year grew by roughly 5%. A re­cent re­port by Min­tel In­ter­na­tional says Bri­tish wealth man­agers ex­pe­ri­enced dou­ble-digit growth in 2005 and ex­pected the trend to con­tinue through 2006, due pri­mar­ily to the strength of stock mar­kets.

Half of rev­enues pro­duced by Bri­tish wealth man­agers in 2005 were based on fees linked to port­fo­lio val­ues. “While that means that wealth man­agers have en­joyed strong per­for­mance over re­cent years, it also means that the in­dus­try is sub­ject to the volatil­ity of the mar­kets. Though in­creases in op­er­at­ing profit have also been recorded, man­ag­ing that volatil­ity is a key chal­lenge for the in­dus­try; and that will be achieved by at­tempt­ing to di­ver­sify earn­ings through of­fer­ing a wider ar­ray of ad­vice-based ser­vices in wealth struc­tur­ing, fi­nan­cial plan­ning and bank­ing ser­vices,” the Min­tel re­port says.

Private bank­ing in SA was tra­di­tion­ally as­so­ci­ated with names such as BoE, Syfrets and In­vestec, but all banks are now pur­su­ing the top end mar­ket with vigour A snap­shot of private banks’ fi­nan­cial re­sults ex­plains why.

RMB Private Bank recorded profit be­fore tax of R84m for the six months ended 31 De­cem­ber 2006, a 53% in­crease on the same pe­riod in 2005. In­vestec Private Bank­ing di­vi­sion gen­er­ated op­er­at­ing profit of R1,2bn for the year to March 2006 – 52,7% up on the

The com­pe­ti­tion for a busi­ness has def­i­nitely been turned up. Za­rina Bassa

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