There are signs that Barclays is planning a return to Asia. After the bank’s 2016 exit, it needs to show investors it is serious this time.
By Oliver Ward
The allure of Asian wealth will tempt Barclays back to Southeast Asia in the future. The British bank left the region in 2016. It sold its Asian wealth and investment management division to Singapore’s Oversea-Chinese Banking Corporation (OCBC) for US$227.5 million. It is now ready to return with a pared-back operating model.
Why would Barclays return?
Boston Consulting Group (BCG) estimated that Singapore and Hong Kong would provide the impetus for the Asia Pacific region to become the world’s wealthiest region by 2019. It estimated that private wealth levels would overtake North America by 2019 and reach US$77.8 trillion in 2021.
Chinese investors will drive the rapid wealth increase. Chinese offshore wealth currently contributes US$12 billion annually to private banks revenue pools in the Asia Pacific region. BCG predicts that this figure will rise in the next few years. It expects offshore assets in Singapore and Hong Kong to rise by 8% and 7% a year for the next four years. By contrast, BCG expects offshore assets in Switzerland to increase by 3% annually.
This flood of money into Singapore and Hong Kong has prompted several banks to consider re-entering the region, including Deutsche Bank. Currently, Barclays has 10 to 12 bankers flying in and out of the region serving private banking customers. Barclays cannot re-establish a permanent wealth and investment management presence in the region until 2019. This was part of the non-competition agreement in the terms of the sale to OCBC.
Barclays did this before, then left
Sources: Reuters, SCMP, crunchbase, CNBC, FT, EFC
Barclays and other major banks cut back on their Asian investment banking operations in 2016. The slowdown of China’s economy prompted uncertainty about the future flow of offshore assets into the region. There were also concerns over changed mortgage regulations in Hong Kong and uncertainty over future interest rates.
In the first three months of 2016, Barclays reported a drop in earnings. In 2016 pre-tax profits for investment banks in the region dipped to their lowest levels since 2008. Barclays decided to focus on its core US and UK markets. It was not the only bank to do so. Société Générale also sold its Asian private bank operations to Singapore’s DBS Group Holdings for US$200 million.
Barclays alienated staff and customers alike
Initially, OCBC was due to pay US$320 million for Barclays wealth and investment management holdings in Asia. It eventually paid the reduced figure of US$227.5 million. This was because a few clients stayed with Barclays, and a large chunk moved to other banks.
In its exodus from Asia, Barclays lost several high-profile staff members and their clients to rival banks. Vivian Chan, Didier von Daeniken, and Vishal Jain, all joined Standard Chartered after lengthy careers in Barclays Asian wealth units. Srinivas Siripurapu also joined Standard Chartered from Barclays. He took over responsibility for Standard Chartered’s private banking teams in the ASEAN and Southeast Asia region.
If Barclays left last time, why would this time be any different?
The company cannot officially begin permanent wealth and investment management operations until 2019. But the bank’s front offices in Singapore and Hong Kong have begun hiring. An anonymous recruiter said the bank would have “a handful” of advisory and capital market roles by the end of 2017.
This time around Barclays is using a different operating model. It wants to bring the opportunities it offers in the UK and the US to Asian clients, particularly in the mergers and acquisitions and debt capital divisions. These are the areas where it already has a competitive advantage in the UK and the US.
Eric Sim, a professor of finance at Hong Kong University of Science and Technology (HKUST) explained the rationale behind this. “Most global banks in Asia can no longer serve every type of client, so it’s natural to focus on specific groups, whose needs are in areas where banks have competitive advantages.”
Barclays will concentrate on a lean hiring model which follows the clients. This model is much more sustainable than its last model in Asia. It should prevent the need for future cutbacks.
There are other signs that Barclays is more serious about staying in Asia this time. Last time, Barclays managed its Asian operations as an extension of its European operations. This time the Asia Pacific region will report to global operations as its own group. Barclays is hoping this will help attract client investment. CEO Jes Staley has also visited Hong Kong twice in 2017. This is a signal of the company’s increased desire to gain a footing in the region.
But with pared back operations Barclays may struggle to attract the top talent
Adopting a lean model in Asia could backfire. Barclays may not be able to attract the best talent without an equities franchise. Another anonymous head-hunter said, “Barclays is now a third-tier firm in traditional IB [investment banking] here. It has a small M&A [mergers and acquisitions] business and a second-tier DCM [debt capital markets] one, which doesn’t pay much in fees”.
The bank is no longer in the top 10 banks for Asia investment banking fees outside Japan. Excluding China, it only comes in 9th place. Barclays is no longer a major player in Asia.
If it is unable to attract the top talent, it will also be unable to draw a significant client base. Asian investors will not forget Barclays’ past in a hurry. Re-entering the market with pared back operations will not be enough to show investors Barclays is here to stay. Barclays has more work to do in Asia then reorganise its business model. It needs to show its prospective clients it is serious this time around. This is where the challenge lies.