A report from ANZ says Australian firms can make big money expanding into Asia. Ironically, ANZ is the latest in a list of lenders to shutter wealth management operations in the region. Why do wealth managers find it so hard to capitalise on growth in Asia?

Of the seemingly contradictory features involved in writing about private banking, one of the most notable has been recording how Asia is said to be becoming the economic powerhouse of the world, while also noting that a string of foreign banks are pulling out.

In a period of about two years, Societe Generale, Barclays and, most recently, ANZ have sold private banking operations to local banks (SocGen to DBS, Barclays to OCBC and ANZ to DBS). Banque Internationale à Luxembourg has shuttered its Singapore operation. ABN AMRO’s private bank in Asia is up for sale. In such cases, the banks often say that for all their commitment to doing business with Asia in some way, maybe via joint ventures or partnerships, private banking has been insufficiently profitable to justify the expense and toil of building a business directly. (And that, of course, does not include the separate, unrelated cases of Switzerland-headquartered banks BSI and Falcon Private Bank being kicked out of Singapore for regulatory lapses. Citi Private Bank was similarly punished by Japan in 2004.)

In other words, Asia has been anything other than a happy experience for a fair number of Western banks. True, some firms, such as Zurich-listed Julius Baer, which calls the region its second home market, appear fully committed and are flourishing in Asia, as far as data shows. UBS and Credit Suisse are big players making Asia a key part of their strategy, while firms as varied as Citigroup, Standard Chartered (arguably an Asian bank in many respects, despite its UK listing) and BNP Paribas have significant footprints. HSBC, a bank with deep roots in Asia (a fact that sometimes surprises people who do not ask what its acronym stands for), is clearly strong in the region. Union Bancaire Privée, the Geneva-headquartered private bank, actually raised its Asia business further by the Coutts International acquisition of more than a year ago. 

But it is striking, nonetheless, that quite so many Western-based firms have pulled down the shutters when one reads about Asia’s economic ascent. A rising tide has not lifted all boats. Or maybe it depends on what sort of vessel is in the harbour.

High costs of hiring quality staff and a preference among the local HNW population for the largest brands or local lenders have played a part in forcing some of the exodus and restructuring. Maybe there has also been a recognition that building out a local presence in Asia, where the ways of doing business can be very different, takes considerable time. And where the bank in question might have impatient shareholders looking for improvements in return on equity, time is a luxury they do not have.

Such thoughts come to mind when, ironically enough, ANZ yesterday released a report saying “Australian businesses could gain $138 billion in annual revenue by expanding into Asia”. The ANZ Opportunity Asia report, based on a survey of 1,000 Australian businesses and their sentiments on international growth, found those already set up in Asia achieve on average a 16 per cent higher turnover than domestically-focused operations, with 57 per cent saying their operations in Asia make sustainable growth “far more achievable”. 

Of course, the business sectors covered in the ANZ report go far wider than financial services. But at the very least it does seem rather strange that a bank that has made a point of focusing more on its domestic strengths and cut its Asian retail/wealth management offering should have issued such a study at this time in its own business story.

ANZ, in its defence, may argue that there is no contradiction – a general class of businesses is going to benefit from an expansive, positive approach to Asia, but some sectors are much more likely to see this strategy bear fruit than others. It certainly does seem that for wealth management in general, Asia has been anything other than easy for foreign players to penetrate, and that to win takes a lot of resource and patience. For those firms that can get their strategy right, the rewards may yet be rich.