If you are a high net worth individual, you would certainly not want to take chances with your wealth. Usually wealthy individuals would choose private banking because of their specialized financial needs and the desire for discretion. In Singapore, there are many banks that offer private banking services and one of them is OCBC Bank’s private banking subsidiary – Bank of Singapore (BOS).
In my previous article, I touched on OCBC’s acquisition of Barclays Asia Wealth Management and highlighted it as a strategic move that allows OCBC to enhance its investment moat in the arena of private banking. Indeed, the real money to be made is actually from the rich and wealthy clients, not the mom-and-pop depositors.
Amidst the global economic downturn, OCBC reported strong results for 1Q16 private banking income. Operating profit from Global Consumer/Private Banking grew from $218 million to $253 million, an increase of year-on-year 16% for 1Q2016. This was OCBC’s best performing segment for 1Q16 and given the growing affluence of Asians, there are a lot of opportunities for growth in this banking niche.
In 2015, BOS was one of only 5 private banks in Asia to record more than 5% growth in assets under management (AUM). In fact, this segment has been growing steadily and the AUM has grown by compounded annual growth rate of 40% since 2010.
The private bank is also proactive in collaborating with partners to offer wealthy clients investment solutions that cater to their needs. For example, in 2015, BOS partnered with Blackstone to avail the latter’s investment platforms to wealthy clients, raising more than US$170 million.
To capture growth in the highly lucrative private banking segment, OCBC announced the hiring of several strategic talents in May 2016 to strengthen BOS’ product management capabilities. Among them is Mr Johan Jooste, who joined BOS to take on the role of Chief Investment Officer (CIO). He brings with him 20 years of financial markets experience which includes fixed income and asset management. He was previously Julius Baer’s CIO.
The biggest income contributor for OCBC group is from Global Corporate/Investment Banking but given the current weak economic climate, this segment has posted a weak growth of 4% for 1Q2016. Not surprisingly, the non-performing loans for the oil and gas sector have impacted the bank negatively and this caused many of its big corporate clients from this sector to restructure their loan repayment terms. The Global Corporate/Investment Banking achieved a year-on-year growth from $490 million to $507 million in 1Q2016.
Although CEO Samuel Tsien did not outline his strategy for OCBC’s growth in the latest financial results, it is clear that the bank is adopting a conservative approach for the corporate loan segment and is focused on growing the private banking capabilities. This approach is vindicated by recent hiring of talents from the private banks and acquisition of Barclay’s Asia Wealth Management.
While OCBC’s direction to grow its wealth management capabilities is a positive move, one should not expect this segment to overtake the income contributions from the corporate loans anytime soon. By and large, corporate loans still make up the bulk of OCBC group’s income. However, with the right branding and strategic hires, contributions from the wealth management may become a game-changer for OCBC group in the near future. Investors of OCBC should pay close attention on this development. Not vested in OCBC shares.
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SG Wealth Builder