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European private banks continue to outperform their US rivals in the increasingly competitive wealth management arena, as a recent survey of key performance indicators shows. The US banks are trying to raise their game but seem to be falling behind
The European advisory model of private banking, as opposed to structures in wide use in the US and elsewhere that depend on transaction-based securities brokerage, continues to significantly outstrip its cross-Atlantic peers, based on a range of key performance indicators.
European players as a whole continue to enjoy superior gross and pre-tax margins. Indeed, with their full-service fee-based model, the European players are pulling away from their US rivals.
For example, pure play Swiss bank EFG International posted a gross margin on assets under management (AuM) of a class-beating 123 basis points in the first-half of 2007 (albeit with a slower performance in the third quarter as the subprime crisis unnerved investors). Among the majors, Credit Suisse reported a 116 basis point margin and HSBC 98 basis points. UBS posted a figure of 93 basis points.
Their nearest US rival by this measure, Morgan Stanley, recorded 89 basis points. Merrill Lynch (85), Bank of America (84) and Citigroup (72) trailed the Europeans, according to data compiled by Bear Stearns International. The latest edition of its annual study, by analyst Christopher Wheeler, is widely regarded as one of the most comprehensive research works into the inner finances of the global private banking business.
Credit Suisse, HSBC, UBS and Deutsche Bank have all enjoyed an improvement in their gross margins in recent months. This is despite a greater focus on the ultra high net worth segments, where there is a lower gross margin (generally 55 basis points to 45 basis points) and low cost-income ratio (40 percent or less), the study notes, saying: "However, we believe this improvement in gross margin reflects a continued shift of clients into higher-margin alternative asset classes."
Ranked by pre-tax margin, HSBC is the class leader at 45.4 percent in the first half of 2007, followed closely by Credit Suisse (41.8 percent). UBS (35.3 percent) and Bank of America (34.5 percent) also perform creditably. If UBS's lower-margin US wealth management operation is...