OCBC Bank's chief executive officer Samuel Tsien said surging compliance costs are one factor spurring him to expand his Asian wealth management business at a time when some overseas competitors are retreating.
That is because the rapidly expanding costs of complying with anti-money-laundering, tax compliance and other regulatory requirements - rising by 35 per cent annually across the whole bank - need to be spread out across as many fee-generating clients as possible, according to Mr Tsien.
"For us, it is very important to continue to build up the scale in this business," he said in an interview this week. "Even if you have a smaller scale of wealth management business, the extent of investment that you need to make sure that you are in compliance with all of the rules and regulation is as strong as when you have a large business."
Banks like OCBC, Credit Suisse Group and UBS Group are building up their private banking operations in Asia, attracted by the rapid increase in the number of millionaires in the region seeking wealth management services.
At the same time, the industry is consolidating rapidly as smaller players sell out, deterred in part by the huge increases in compliance costs that have followed the crackdown on money laundering and tax avoidance after the global financial crisis. INDUSTRY CONSOLIDATION The Monetary Authority of Singapore, meanwhile, has stepped up its supervision of local institutions following anti-money-laundering lapses at banks in Singapore linked to the troubled state investment fund 1Malaysia Development Berhad (1MDB). OCBC has not been implicated in the 1MDB investigations.
In the latest example of the consolidation, OCBC's larger Singaporean rival DBS Group Holdings said on Monday that it is acquiring the wealth and retail assets of Australia and New Zealand Banking Group in five Asian markets for S$110 million, cementing its position as the country's top wealth manager.
Mr Tsien said OCBC's compliance-related expenses have risen by 35 per cent in each of the past three years, and the bank views that level of growth as the "guiding pace" for future years as well.
If the higher costs are pushing some players to withdraw, for committed banks like OCBC it is a reason to continue growing, Mr Tsien said. "This is an infrastructure cost," he said. "So in the event that you are able to serve a larger client base, we are able to amortise the cost over a larger client base."
EUROPEANS RETREAT DBS and OCBC have been in the forefront of the consolidation of the private banking industry in Asia in recent years. OCBC's private banking arm, Bank of Singapore, agreed to buy the Barclays wealth management business in Singapore and Hong Kong, which had US$18.3 billion (S$25.3 billion) of assets as of December last year.
DBS bought Societe Generale's Asian wealth management division in 2014, and is one of the banks considering a bid for ABN Amro Group's private banking business in Asia, according to people with knowledge of the matter.
Mr Tsien did not rule out further acquisitions. "We will continue to build up our wealth management business both organically as well as, if opportunities arise, we will look at those market opportunities," he said.
OCBC's deal with Barclays also illustrates some of the pitfalls of an acquisition strategy. Standard Chartered has stepped up its hiring from Barclays ahead of the takeover, taking on more than 10 of the British bank's relationship managers in Hong Kong, according to people familiar with the matter.
Mr Tsien said more than 50 per cent of the Barclays' assets and more than half the 88 relationship managers will transfer to Bank of Singapore by the time the deal is completed before year-end - a level that he is "comfortable" with.
Q3 PROFIT Last week, OCBC reported higher-than-estimated profit for the third quarter, as wealth management and life insurance revenue offset a decline in interest income and a jump in provisions for soured assets. Net income rose to S$943 million in the three months to September 30 from S$902 million a year earlier, the bank said.
OCBC has been building up its wealth management operations since it acquired ING Group's Asia wealth business in 2009 and rebranded it as Bank of Singapore. Total assets under management at the private bank stood at US$62 billion as of September.