The climate for business in the US is getting tougher for foreign firms, which is why many international players are looking eastwards, this article says.

The following item is a commentary from Carlton Senior Appointments, an executive search firm that focuses on areas such as private banking and wealth management. It examines the recent trends of how, in its view, international banks headquartered outside the US have been shutting US operations, for a variety of reasons. The trend is not all one way and the world’s largest economy remains an important one for many firms. However, the issues associated with offshore banking, and increasingly stringent US rules to track down alleged tax dodgers, have made life less easy for firms seeking to do business in the US. Other regions, notably Asia, hold more promise and so there is a shift in that direction in terms of strategy. A recent case in point was the declaration by HSBC that it is intensifying its business focus on Asia, while spinning off businesses in Brazil and Turkey, among others. (Not all firms, it should be said, have found Asian business as easy to win as they had hoped.)

The opinions of the contributors to this article are a welcome addition to debate but as ever the editors of this publication don’t necessarily share all the views expressed, and invite readers to respond. 

Within the private banking sector a major shift is taking place. A number of international and foreign banks situated in the US are either shutting down completely or gradually closing different branches, reducing the number of people they have working for them in the region.

There is increasing concern in the US for "tier one" banks, specifically from the EU, as a number appear to be decreasing their mobility in the region. Credit Suisse recently announced it is to cease all of its private banking operations in the US; the news is just one example in many of European banks looking to cut back their business in the US. But these changes are no longer limited to international markets – some banks, specifically international and EU banks, are looking to scale back the scope of their domestic business in the US as well as international markets in the US.

One of the key drivers behind this is the current difficulties associated with offshore banking. As has been previously discussed, regulatory changes and a dramatic increase in the cost of compliance when dealing with offshore clients is leading to a rise in operating costs. Combined with the fact that problems associated with cross-border trading are making it harder for banks to conduct business with clients in emerging markets – areas typically seen as those with the most growth potential – and profits across the industry are being squeezed.

While some of the larger banks have the capital and scale to cover these costs, others are having to seek revenue from other areas. Smaller banks that are unable to do this are having to either merge with larger companies or sell off specific teams. Some are having to exit the market: Barclays, for example, has sold its US wealth and investment management domestic business division to Stifel; Royal Bank of Canada has shed its international business ties; and BNP Paribas has already exited Miami and the US. [Editor's note: BNP Paribas still operates in the US via its Bank of the West subsidiary, which has a substantial wealth management operation.]

Both the UK and France are becoming difficult markets in which to conduct business from the US, and a number of Latin American countries are also becoming harder to cover due to the aforementioned cross-border issues. Because of this Morgan Stanley and RBC have left the European markets. Morgan Stanley, whilst not discarding its European clients, has removed its physical presence in the continent; the bank is still actively seeking new European clients based in the US, just not with the aid of EU offices.
A decline in the development of wealth within the upper quartiles of the population in these regions is also contributing to the major shift taking place. With these factors in mind, a number of candidates are now looking to move to Registered Investment Advisers (RIAs): boutique firms that either operate a broker-dealer model or a private banking model, or firms that are independently licensed to service high net worth and ultra-high net worth individuals on their financial assets and investments. 

As European banks cut back, competitors including RIAs are able to pick up high-calibre, talented individuals who have strong international experience.

Asian banks building out
On the contrary, the opposite is seen to be true in Asia, where the number of new millionaires is growing at a much greater rate than their western counterparts. Although the costs are rising in relative terms to the global market, it is the vast untapped pools of wealth in the region that makes the Asian market an increasingly attractive business proposition for growth. For example, the cumulative assets under management across private banks in Asia are expected to grow at an annual rate of almost 30 per cent over the next few years, since at present it is estimated that only 17 per cent of UHNW individuals in the region hold existing private banking relationships.

Banks that already have a foothold in the Asian markets and those migrating to the region are actively looking to get to grips with this growth of new UHNWIs and what they want from their wealth management provider, with the hope to ultimately benefit from one of the few growing markets in wealth management.

Both local and international banks are increasing headcount in the region, and some Asian banks are even expanding their private banking divisions within the US in order to cater to their growing Asian clients based in the region. However, it is well known in the sector that the demand for private bankers is outstripping the talent pool in the region, creating a talent gap likely to continue for the years to come.

Key differences between the two regions
In the US, there are fewer opportunities due to the difficulty bankers are having covering EU markets, such as France and the UK. Fortunately, banks such as Morgan Stanley, Oppenheimer & Co, and Wells Fargo – as well as others – are keen to employ these bankers, but require the individuals to let go of a certain number of clients in these difficult markets. More specifically, in the US the current climate for those seeking new opportunities is very much vacancy-led. There is a surfeit of talent looking for roles but very few banks are looking to hire.

In Asia, however, there aren’t enough private bankers to meet the demand of this growing industry. This is causing some difficulties with hiring and achieving projected growth plans within the region, as the training and development of internal future talent can be a very costly process and can only yield success on a long-term stance, which very few banks in the region invest into. As a result of this shortage within the talent pool, when an individual seeks a new opportunity in the market they often find themselves being fought over by a number of prestigious businesses, creating a highly competitive market.

As the recently announced top private bank in Asia, with managed assets topping $272 billion, UBS has been extremely active in expanding its presence and is one of the few to invest in internal development programmes for young client advisors. The firm is looking to triple its assets in the region within the next two years, having already hired over 160 private bankers in 2014 alone. On a broader scale, assets under management at the top 10 banks in the region grew by 11 per cent in 2014, thanks to self-made entrepreneurs looking to increase their investments and secure more input from their chosen financial institution.

It seems that the only reason a bank would deliberately seek to exit the Asian market is in relation to the cost of the opportunity being too high, and thus being cost ineffective. This could be due to a number of factors, from the bank being a new entrant to the market or failing to generate enough money or a high enough revenue margin from the region. Coutts recently fell foul of the Asian market, selling its international arm to Union Bancaire Privée; likewise Societe Generale sold its Asian private banking business to Singapore-headquartered DBS for similar reasons.

The Asian region is producing millionaires faster than the banking industry can provide private bankers to serve them. This talent shortage is causing disruption to hiring in the region and looks likely to continue for the next few years. As a number of banks look set to expand in the region, the majority still house their main offices in the US and Europe. However, the shift to the East looks like it is already underway, leading to more recruitment opportunities in the near future.