London faces significant threats but also important opportunities as a global private banking centre

According to Booz & Company Private Banking Survey

London, 2 December 2009 —  UK private banks have faced a difficult period, but opportunities still exist for them to grow according to Booz & Company’s  private banking survey Private Banking Beyond the Perfect Storm which is published today.

  • Changing tax regulations and future tax uncertainty is unsettling high net worth individuals based in the UK leading them to reconsider London as their domicile
  • Private clients are demanding more from their private banks: particularly increased transparency and alignment of interests
  • Income for UK private banks dropped by 30%- 40% between 2007 and 2009.

But on the positive side:

  • G20 scrutiny on offshore banking, combined with tax amnesties may lead UK high net worth individuals to repatriate funds to the UK
  • London remains a major centre for investment management talent.

Over the past 2 years, private banking revenue in the UK has dropped by 30%-40%, as assets under management have declined (with the market), volumes decreased and margins came under increasing pressure.  Moreover, uncertainty about future tax regulations is leading some high net worth individuals (HNWIs) to consider moving their domicile and private banking business out of the UK.  Finally, private clients are demanding more from their private banks.  In particular, they expect private banks to put more effort into risk profiling, understanding their needs, providing greater transparency and ensuring that the interests of relationship managers are aligned with those of their clients.  All of this, along with increased regulation is putting pressure on the profitability of private banks in the UK.

On a more positive note for UK banks, continued pressure from the G20 and changes to the regulatory environment will result in a move from undeclared offshore to declared offshore, although client confidentiality in offshore accounts is likely to be maintained. As a result of this, there may be funds coming back onshore, increasing the market for private banks in the UK.  Moreover,  the high concentration of industry players, talent pool and excellent infrastructure will continue to provide a competitive advantage for London in the global private banking industry.

These are some of the key findings from Booz & Company’s survey of more than 20 of London’s leading wealth managers in early 2009 - part of a wider survey of European private banking.

“Fundamental changes in the environment, both negative and positive, present an important opportunity for UK private banks to enhance their position,” Alan Gemes, Senior Vice-President Booz & Company, said. “Private banks that are able to align their value proposition to the changing needs of private clients, structurally change their cost base and address the onshore / declared offshore issue stand to gain the most,” Gemes advised.  “ Moreover, there is a tremendous opportunity to strengthen London’s position as one of the world’s leading private banking centers.”

Strategic choices

In response to the changing environment, Booz & Company has identified a set of strategic issues which UK private banks need to address.  These include:

  • Develop strategies in response to changes in offshore / onshore dynamics
  • Define the role to be played as part of the UK private banking consolidation
  • Respond to new client needs by aligning relationship managers to specific target client segments and train private bankers to conduct comprehensive and rigorous risk profiling
  • Enhance value propositions by tailoring them to address client needs by source of wealth
  • Significantly lower the cost base to reflect diminished value pools and acquire assets to build economies of scale
  • Upgrade talent pool and enhance private banking culture by aggressively acquiring top talent and driving change through performance management.


Survey Methodology

Between February and June 2009 Booz & Company carried out over 20 in-depth interviews with top managers from leading private banks in the UK including Credit Suisse, Deutsche Bank, Barclays Wealth, Coutts, Private Banking Lloyds, HSBC, SandAire, Pi Capital Group, Weatherbys Bank, Butterfield Private Bank and C. Hoare & Co.