In a joint presentation in a seminar in Madrid, José Manuel Dabrio, the director of Altae Banco Privado, and Javier Gefaell, the chief executive of Popular Banca Privada, forecast that entities linked with large retail banking networks will strengthen their domination of the Spanish market, eating into the shares held by specialist firms like foreign private banks and brokers.

The concentration is nothing new in Spanish private banking, with the two leading firms, La Caixa and Banif, owning a 26.2 per cent share of the market. The five largest players, two of which are part of the Santander Group (Banif and Santander Banca Privada), have a share of almost 55 per cent, they said.

“Private banking is dominated by entities that have strong links with retail banks that maintain a strong presence around Spain,” said Mr Gefaell. “The view in the market is that in the future the concentration will be even bigger.”

Both Altae and Popular BP are part of retail banking groups that rank among the five largest in Spain. Altae is the private banking unit of Caja Madrid, the second largest savings bank. Popular BP belongs to the Banco Popular Group, the third largest privately owned commercial bank. Both figure right outside the top ten private banking units in the country, according to data shown by the executives.

The 57 onshore private bank units in operation in Spain had €240 billion of assets under management by the end of 2008, according to them. The volume of assets under management had reached a record €284.3 billion in the end of 2007. The market posted strong rates of growth since 1999, when AuMs stood at less than €75 billion.

It is estimated that the total potential private banking market reaches about €600 billion. The 60 per cent of assets belonging to potential private banking clients is currently held in commercial banks, according to Mr Gefaell.

Mr Dabrio told the seminar that most Spanish banks will report deteriorating results in their private banking operations this year as the market deals with the consequences of an erosion of confidence in the industry and smaller income from the sale of investment products. Clients have migrated in large numbers toward conservative products in the past two years, noted Mr Gefaell.

“Clients' appetite at the current moment is mainly for conservative products, which makes it very difficult for private banks to make money,” Mr Dabrio said. He also warned that private banking units are set to struggle as they will have to rely ever more on administration fees as their main source of income, not the least due to requirements imposed by Spain's authorities.

“Spanish regulators have stressed that private banking operations have to survive from the fees we charge from services provided to clients,” he said. “But today, most of the revenues come from financial products.” On the other hand, a number of players are set to leave the market, they claimed due to the expected mergers of regional savings banks and the toughest business environment, they argued.

Mr Dabrio complained that regulators have not imposed a strict definition of what can be called private banking services.

“There are services marketed for clients who have from €50,000 to €1 million of investable assets. Any financial company thinks it can offer private banking. But many don't have the capabilities to do proper private banking.”