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