Swiss banking giant UBS (NYSE:UBS) has once again been crowned the largest of the largest — and in some ways, the best of the best. The 2013 Scorpio Partnership Global Private Banking Benchmark showed that assets under management at UBS grew 9.7 percent in 2012 to $1.7 trillion, bumping Bank of America (NYSE:BAC) out of the top slot and claiming the title of world’s largest private bank.
The Scorpio Partnership benchmark tracks more than 200 financial institutions. The average assets under management growth rate among all firms tracked in 2012 was 8.7 percent, up dramatically from 0.70 percent in 2011. Net new money in 2012 increased 23.7 percent, suggesting increased confidence in the stability of the financial system. In 2011, the survey reported net new cash of -27.9 percent and a 3.2 percent decline in industry income.
While the industry results speak to an increasingly healthy financial sector, Scorpio Partnership Managing Director Sebastian Dovey called attention to an interesting development — one that has probably been a long time coming, if you ask a regulator.
“In spite of numerous challenges — both economic and regulatory — we have seen the confirmation of a new champions league of global wealth managers,” he said in the report. “Collectively, these businesses have a role in managing three quarters of all HNW wealth. They are beginning to demonstrate very distinct mega-player characteristics which the rest of the competition will have to work out how to challenge.”
These “mega-wealth mangers” experienced 10.9 percent assets under management growth in 2012 compared to 8.7 percent growth among all of the institutions tracked. Collectively, they manage 76 percent of total industry assets.
Scorpio attributes much of the success of the top 20 and the formation of the champions league to a growing preference among high-net worth individuals for a single wealth manager that can perform a wide variety of functions. Clients want to work with the one person who can do everything they need, which is only really possible at large institutions.
Not only are top 20 players well-established in developed markets, but they have more reliable and stable access to and presence in emerging markets. Scorpio points out that assets currently booked in emerging markets has grown to 51 percent of total assets. Individuals who want access to the opportunities of emerging markets need to use banks that have a footprint there, which in most cases are the players in the champions league.
The Scorpio report casts a good light on the champions league and the financial industry at large, but the wounds of the financial crisis have not totally healed. Earlier in July, Standard & Poor’s lowered the credit ratings of Barclays (NYSE:BCS) (No. 15 by assets under management), Deutsche Bank (NYSE:DB) (No. 8), and Credit Suisse because new regulations and uncertain market conditions are expected to threaten business.
The ratings firm cut the long-term counterparty credit ratings for the three banks by one level. In comparison, the ratings firm reiterated its A long-term rating and A-1 short-term assessment on UBS. All four banks have a stable outlook.
The rating of Barclays, Britain’s third-largest lender by market value, was cut partly because of its dependence on investment banking revenue. S&P said that Deutsche Bank is experiencing “rising risks” in its investment-banking operations, while Credit Suisse generates about half its revenue from investment banking. The Zurich-based firm has made efforts to improve its risk and increase capital, but it still faces a “volatile revenue and earnings stream,” the ratings company said.
S&P left the ratings for UBS unchanged because it considers the Zurich-based bank to be “the most active bank in reducing its exposures to investment banking,” according to the statement. In October, the bank announced it would cut approximately 10,000 jobs in an effort wind down its capital-intensive trading business.
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