Wealth management gives banks an edge


Manpreet Gill (left), Chief Investment Officer, AMEE (Africa, Middle East and Eastern Europe) and Paul Njoki, Head of Affluent Banking and Wealth Management at StanChart Bank Kenya and East Africa during StanChart’s Half Two Global Market Outlook media briefing held on July 3, 2023 at Villa Rosa Kempinski Hotel in Nairobi. PHOTO | BILLY OGADA | NMG

Standard Chartered Bank Kenya announced that it had grown its assets under management to Sh148 billion at the close of 2022, representing a 13 percent year-on-year growth over the prior year.

Compared to the Sh155 billion (at the close of September 2022) in total assets under management by the 20 Collective Investment Schemes within the capital markets, this makes StanChart the single-largest promoter of pooled investments.

Of course, being Standard Chartered, wealth management comes with a stronger proposition: access to global markets, hard-currency asset classes and portfolio collateralisation.

Being a commercial bank, building a wealth management book offers three critical advantages over its competitors.

First, it offers an in-house sell-down platform for its investment banking underwriting activities. To provide some background, investment banks carry out two very different, and sometimes conflicting, functions in the financial markets.

There’s traditional investment banking, which refers to financial advisory work. For example, a big corporation might ask for an investment bank's help if it wants to borrow money in the bond markets, float itself on the stock market, or buy up another company.

In this capacity, the bank acts as an impartial adviser, sort of like a solicitor or an accountant - using its expertise to help its client in return for a fee.

They also do something else quite different. They deal directly in financial markets for their own account. The "markets" division makes money by buying financial assets from one client, and then selling them to another - often with a hefty mark-up.

But investment banks also underwrite capital raises. For instance, a blue chip might want to raise money either by selling new shares to the market or issuing a bond.

The investment bank will then offer to give the company the entire amount it is seeking and provides a portion of the money upfront (with the balance issued after the capital raise period).

In financial markets, this is known as primary issuance. Two activities happen in the background: (i) the investment bank taps into its own balance sheet to source the money (this balance sheet could also be either a booking vehicle moored in the high seas or affiliate banks); and (ii) cross-selling to wealth management who might decide, depending on the appetite levels, to take up the offer entirely or a (significant) portion of the offer. In essence, wealth management is a source of sticky liquidity for a bank.

For Standard Chartered, running a wealth book strengthens its underwriting proposition. Globally, Swiss banks ranked higher in wealth management.

A 2020 report by ADV Rankings) put UBS and Credit Suisse at first and second position with assets under management amounting to $2. 6 trillion and $1.25 trillion respectively.

Other top dogs include Morgan Stanley, Bank of America, JP Morgan and Goldman Sachs.

Another advantage of wealth management is that it boosts a commercial bank’s private banking offering.

Because private banking focuses on the affluent and emerging rich, it demands superior products, first-class ambience and very switched-on relationship management.

Essentially, a bank has to be very deliberate when it comes to private banking.

While the Kenyan market is not yet a big-ticket market for banks (you just need to look at the historical corporate issuances in the domestic bond market), it is gradually headed there.

Apart from the international banks that enjoy the advantage of booking vehicles and stronger affiliates, local banks must seriously look into building distribution platforms in readiness for big tickets.

The writer is a thought leader.

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