News analysis

StanChart's pursuit of wealth may be futile

CEO's plan to rebuild wealth-management franchise may not be worth the effort

Mr Bill Winters is trying, but it will not be easy for the Standard Chartered chief executive officer to rebuild a wealth-management franchise that became an object of archaeological curiosity on his predecessor Peter Sands' eight-year watch. It is not clear if it is worth the effort.

The challenge starts at the top, with acquiring clients' wealth, and gets tougher in the middle and at the bottom: garnering adequate revenue and earning a decent profit.

Mr Didier von Daeniken, the Swiss-born, Singapore-resident banker who came to run StanChart's private-banking business last year from Barclays, was candid in telling Bloomberg that the goal of adding US$25 billion in assets would miss the three-year deadline Mr Winters set in 2015. The current total of US$58.2 billion (S$80.9 billion) has grown by just US$1.2 billion from the end of 2015.

Lack of scale is already a problem. The bulk of StanChart's wealth business - US$45 billion, according to the Asian Private Banker's league tables last year- is in Asia-ex-China onshore markets, where big daddy UBS leads with US$286 billion in assets. StanChart is an also-ran at No. 13, just ahead of Singapore's United Overseas Bank.

DBS Group Holdings and OCBC Bank, the other two Singaporean entities, are both way ahead and growing at a pace that Mr von Daeniken will struggle to match.

So much for the top line. The middle of the barrel is all about getting clients to take risks with their and the bank's money. That is the advice game. Asian Private Banker estimates StanChart's relationship manager headcount in Asia at 341 - and Mr von Daeniken told Bloomberg he plans this year to hire between 40 and 60 staff, though some of them will be in London and Dubai. That is already an impressive commitment, considering UBS had only a little more than 1,000 managers to service Asia. More bodies alone, however, will not do the trick. In 2007, Mr Sands' first full year after his elevation from finance director to CEO, StanChart garnered net revenue of US$2.6 billion from wealth management and deposit income.

It will not be easy for Mr Bill Winters to rebuild a wealth- management franchise.
It will not be easy for Mr Bill Winters to rebuild a wealth- management franchise. PHOTO: BLOOMBERG

In 2014, his last year as captain of a wallowing ship, wealth - excluding deposit income - brought in US$1.7 billion. The take was below US$1.5 billion last year, less than the net revenue from cards and personal loans. As Gadfly has argued before, StanChart must unfreeze its tolerance for credit risk.

It will not be easy for Mr Bill Winters to rebuild a wealth- management franchise.
It will not be easy for Mr Bill Winters (above) to rebuild a wealth- management franchise. PHOTO: BLOOMBERG

Finally, the bottom line. This is where things get tricky for everyone. On one side, the regulatory and compliance burden is mounting. Those costs, plus the investment needed in cloud-based identity-management and security systems, require a global footprint to blunt the impact on profitability. The other option is to either acquire rivals or create an ever-larger team of expensive relationship managers to chase assets.

Then there are fees. As the consulting firm Oliver Wyman notes, asset and wealth managers are doing battle over their share of a shrinking wallet, with the latter increasingly bundling flows to extract greater discounts and creating simpler products around a core set of exchange-traded funds, to reduce client fees.

StanChart is taking a risk. Transaction banking, which fetched annual net revenue just shy of US$4 billion in 2013 and 2014, is now down to less than US$3 billion. The stolid but solid emerging-markets banker that went crazy making corporate loans of dubious virtue in Mr Sands' time is in danger of treading water as it chases redemption in wealth under Mr Winters.

  • This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
A version of this article appeared in the print edition of The Straits Times on May 20, 2017, with the headline 'StanChart's pursuit of wealth may be futile'. Print Edition | Subscribe