Banking Crisis

EXCLUSIVE: It's Been Tough, But Spain's Private Banking Sector Is Seeing Recovery - Part 1

Stephen Little Reporter London 27 November 2014

EXCLUSIVE: It's Been Tough, But Spain's Private Banking Sector Is Seeing Recovery - Part 1

Spain's economy has endured a torrid time since the financial crisis, but what is the state of its private banking sector? This publication spoke to some local players.

This is part one of a two-part feature examining the Spanish private banking and wealth management market; it is designed to shed light on a market that might not always get the attention it merits. We hope readers who have comments or insights of their own on this market send them to us.

Since the financial crisis erupted over six years ago, Spain’s banking system has undergone its biggest upheaval in modern history. After being hit hard by its exposure to toxic real estate assets following the collapse of the country’s property market, Spain’s banks were bailed out to the tune of €41 billion ($56 billion). One of the biggest banks to be hit was Bankia, formed from the merger of seven savings banks in 2010. Following a return to profit, the Spanish government announced it would start selling off its controlling stake in the nationalised lender earlier this year, signalling a turning point in the country’s banking industry.

Events, however, are starting to turn in the country's favour. The Spanish economy finally looks as if it is on the road to recovery. In October last year, Spain officially emerged from a two-year recession with economic growth of 0.1 per cent for the preceding three months and earlier this year it finally exited its bailout programme.

But what has been the impact on wealth management in Spain?

As a result of the financial crisis the sector has been through a period of unprecedented change. While some firms have fallen by the wayside, others have been swallowed up in the flurry of mergers and acquisitions encouraged by the Spanish government, leaving fewer players.

The wealth management industry in Spain is dominated by Spanish banks such as Santander, La Caixa, BBVA, Bankinter and Sabadell. International private banks have a small share of the market but are gradually losing their foothold in Spain, seen with the acquisition by La Caixa of Barclays’ operations earlier this year. There are also a number of other smaller players, such as Blevins Franks, catering to Spain’s large expat population, while the family office sector remains somewhat underdeveloped.

Francisco Gómez-Trenor y García del Moral, chief executive of Mirabaud in Spain, believes the new economic landscape provides a wealth of opportunities for private banks with the right model.

“The disappearance of more than 40 savings banks and the integration of a significant number of private banks within the sales networks of the large financial institutions has led to clients having the sense that they are not receiving the personalised service they expect and that these private banks are more about selling products than providing a service,” del Moral told this publication.

“Independence, quality of management and open architecture are all highly valued by private banking clients and are the reason why Mirabaud’s business model is proving so successful in Spain,” he said.

Spain is becoming an increasingly important market to the Swiss private bank, which is targeting a figure of €1 to €1.5 billion in assets under management in 2015.

“We are on the right path to reaching this target and are following a very positive trend, with high growth in tailor-made managed accounts for private clients, mainly using Spanish SICAVs,” said del Moral.

Alberto Calvo, head of BBVA Patrimonios, was also positive about the future of the Spanish wealth management market.

“We have had in recent years a growth in assets under management and coupled with the quality image of our brand in the market, this makes us very optimistic about the future, where we believe we can take advantage of the improvement of the economic cycle in Spain,” said Calvo.

According to the latest World Wealth Report from Credit Suisse, the number of millionaires in Spain hit 465,000 in 2014, up 24 per cent from 2013. The growth in the number of millionaires in Spain was nearly twice as high as in 2013, when the increase was 13 per cent. The report also revealed that there were now 1,766 ultra high net worth individuals (those with more than $50 million).

Despite this rise, del Moral said the market remains a challenging one due to the scarcity of new sources of wealth.

“In Spain there are scarce new sources of wealth and those that exist are arising from foreign investment and venture capital funds that buy Spanish companies. Consequently, we mainly win new clients who withdraw money that they already have in another bank to bring it to Mirabaud. The wealth that has remained in Spain asks for and demands a bank that prioritises the preservation of their assets and offers them liquidity,” said del Moral.

Jose Luis Jiménez, chief executive of March Gestión de Fondos, the wealth management arm of the March Group, said that on top of the wave of new regulations firms are having to cope with, one the biggest challenges the wealth management industry faces stemming from the financial crisis is the lack of trust in the sector.

“For us it has been a huge opportunity for growth. The crisis was a dividing point for investors who started to differentiate between the good and not so good players. Looking forward, it is important to regain that trust,” said Jiménez.

“The market is becoming more specialised and those players which have a strong brand culture and are aligned to their clients’ needs will be the ones in the strongest position in three to five years’ time,” he added.

CaixaBank Private Banking is the second largest private banking specialist in Spain by assets under management. The bank's current market share stands at 13 per cent, with average annual growth of 11 per cent in 2013, while AuM was €48.9 billion as at 30 June 2014.

Juan Gandarias, CaixaBank private banking general manager, said clients in the sector were progressively becoming more “risk conscious and demanding”, particularly in terms of diligence and transparency. He said that one way Caixa Bank has managed to remain competitive in the current environment is through its investment in technology and personalisation of services.

“Clients are becoming increasingly tech savvy in their personal lives, and private banks are learning that their services need to be aligned with this trend to meet changing expectations. We have invested heavily in our technological capabilities to address this which has helped us to attract and retain clients,” said Gandarias.

Amid the scandals and problems of the market following the financial crisis, Jiménez believes it is March Group’s conservative approach to risk that has helped its fortunes improve.

“It is this philosophy that does well in the Spanish market,” said Jiménez.

“With growing competition, margins are decreasing. The lack of differentiation is also important. The banking sector is going to experience difficulties in the next three to five years and if you specialise and can provide value to clients you will do well,” he added.

Calvo said that technology and the ability to adapt to the global financial environment had formed a key part of the BBVA's strategy since 2008.

“A strong balance sheet, rating and solvency, global presence and a well-diversified portfolio has allowed BBVA to remain competitive following the financial crisis,” said Calvo.

“We believe that alternative investments will recover an important role in our clients' portfolios as a way to diversify investments in this environment and we are analysing new opportunities in private equity and real estate,” he added.


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