Private banks’ profit margins were squeezed hard by the market turmoil last year and assets under management fell by almost 16 per cent, while UBS has lost its top spot as the world's largest wealth management business, according to an annual survey of the industry by consultants Scorpio Partnership.

While the sector has not been battered as severely as investment banking, wealth management has not escaped the impact of double-digit percentage falls in global stock markets, a stampede for low-margin, safe-haven cash at the expense of equities, the worst-ever performance for hedge funds, and bruising legal battles over tax evasion and the huge Bernard Madoff Ponzi scheme fraud.

The report shows that Bank of America, which has taken over Merrill Lynch, has seized the top spot for the position of the world’s biggest wealth manager, with $1.5 trillion of assets under management. It overtakes the embattled Swiss firm UBS, with $1.39 trillion, and Citi, at $1.32, said Scorpio. However, UBS remains the dominant international player, as BoA/Merrill is predominantly a domestic US firm.

Defying impressions that the industry is highly fragmented, Scorpio said its data show that the top 20 global private banks run 63 per cent of the total market.

Profits in the industry shrank by 33 per cent in 2008, the report said, while cost/income ratios deteriorated to 72.4 per cent last year from 63.7 per cent in the year before, or a drop in efficiency of 13.7 per cent.

Net interest income increased to 31.2 per cent of total income, versus 26.1 per cent for benchmark banks last year. “However, many private banks were unable to take advantage of the cash inflows due to the effects of the credit crisis and the margin on banking business took a significant hit; although some banks were more successful,” the report said.

On a positive note, total headcount in the industry, however, rose by 6 per cent, the survey showed. Scorpio said an area of concern, meanwhile, was that the ratio of firms that were hiring in 2008 versus those that were shedding private banking staff was 4:1 but the net results of new assets to the business was not successful with a significant number of private client distribution channels performing well below the industry standard.

In total, Scorpio’s figures showed the industry collectively oversaw $14.5 trillion in assets; the median fall in firms’ assets was 16 per cent last year.

“2009-2010 will be a moment of truth for the global private banking model,” said Sebastian Dovey, managing partner at Scorpio.

“The way through will be an intelligent focus on profitable segments and efficiency drives. However, the traditional management tendency for slash and burn in such conditions will be much more damaging in the long term. This is a time for vision and leadership. Our view is firms must now use traditional consumer tools in branding and advertising to reclaim confidence and new business,” Mr Dovey said.

The survey was based on interviews with 7,000 high net worth and ultra HNW clients, and more than 14,000 wealth management staff.

Assets under management at the world’s top 10 private banks, in billions, are in descending order of size: 1, Bank of America $1,501;  2, UBS SFr1,393.48;  3, Citi $1,320;  4, Wells Fargo $1,000;  5, Credit Suisse SFr611.96;  6, JPMorgan $552.00;  7, Morgan Stanley $522;  8, HSBC $352;  9, Deutsche Bank €231.19;  10, Goldman Sachs $215.00.

Note: Wells Fargo integration of Wachovia is ongoing and this figure may yet be revised as the firm restructures its retirement services operations.

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