StanChart's Pursuit of Wealth May Be a Waste of Time

(Bloomberg Gadfly) -- Bill Winters is trying, but it won't be easy for the Standard Chartered Plc CEO to rebuild a wealth-management franchise that became an object of archaeological curiosity on his predecessor Peter Sands's eight-year watch. It's not clear if it's worth the effort.

The challenge starts at the top, with acquiring clients' wealth, and gets tougher in the middle and at the bottom: garnering adequate revenue and earning a decent profit.

Didier von Daeniken, the Swiss-born, Singapore-resident banker who came to run StanChart's private-banking business last year from Barclays Plc, was candid in telling Bloomberg that the goal of adding $25 billion in assets would miss the three-year deadline Winters set in 2015. The current total of $58.2 billion has grown by just $1.2 billion from the end of 2015.

Lack of scale is already a problem. The bulk of StanChart's wealth business -- $45 billion, according to the Asian Private Banker's 2016 league tables -- is in Asia-ex-China onshore markets, where big daddy UBS AG leads with $286 billion in assets. StanChart is an also-ran at No. 13, just ahead of Singapore's United Overseas Bank Ltd. DBS Group Holdings Ltd. and Oversea-Chinese Banking Corp., the other two Singaporeans, are both way ahead and growing at a pace that von Daeniken will struggle to match.

So much for the top line. The middle of the barrel is all about getting clients to take risks with their and the bank's money. That's the advice game. Asian Private Banker estimates StanChart's relationship manager headcount in Asia at 341 -- and von Daeniken told Bloomberg he plans this year to hire between 40 and 60 bankers, though some of them will be in London and Dubai. That's already an impressive commitment, considering UBS had only a little more than 1,000 managers to service Asia.

More bodies alone, however, won't do the trick. In 2007, Sands's first full year after his elevation from finance director to CEO, StanChart garnered net revenue of $2.6 billion from wealth management and deposit income. In 2014, his last year as captain of a wallowing ship, wealth -- excluding deposit income -- brought in $1.7 billion. The take was below $1.5 billion in 2016, less than the net revenue from cards and personal loans. As Gadfly has argued before, StanChart must unfreeze its tolerance for credit risk.

Finally, the bottom line. This is where things get tricky for everyone. On one side, the regulatory and compliance burden is mounting. Those costs, plus the investment needed in cloud-based identity-management and security systems, require a global footprint to blunt the impact on profitability. The other option is to either acquire rivals or create an ever-larger team of expensive relationship managers to chase assets.

Then there's fees. As the consulting firm Oliver Wyman notes, asset and wealth managers are doing battle over their share of a shrinking wallet, with the latter increasingly bundling flows to extract greater discounts and creating simpler products around a core set of exchange-traded funds, to reduce client fees.

StanChart is taking a risk. Transaction banking, which fetched annual net revenue just shy of $4 billion in 2013 and 2014, is now down to less than $3 billion. The stolid but solid emerging-markets banker that went crazy making corporate loans of dubious virtue in Sands's time is in danger of treading water as it chases redemption in wealth under Winters.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

To contact the author of this story: Andy Mukherjee in Singapore at amukherjee@bloomberg.net.

To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net.