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By John O'Callaghan and Saeed Azhar
SINGAPORE, June 3 (Reuters) - Asia's private banking sectorwill consolidate further as the costs of serving wealthy clientsmake the business profitable for only the big firms, the head ofAsia-Pacific private banking at Credit Suisse Group AG said on Monday.
With a cost-to-income ratio of at least 80 percent, mostprivate banks are losing money even as the ranks of the richexplode in fast-growing Asia, Francesco de Ferrari told theReuters Wealth Management Summit in Singapore.
The ratio, a key measure of profitability, shows privatebanks spend 80 cents on costs including salaries, office spaceand compliance for every dollar they bring in from clients.
"The industry at the current cost-to-income ratio is notreally sustainable," de Ferrari said. "So we will see a lot moreconsolidation in the private banking industry over the nextthree to five years in Asia for sure."
The shakeup in the region has accelerated.
Significant deals include Bank of America Merrill Lynch sold its overseas wealth management business toSwitzerland's Julius Baer Gruppe AG last year, andHSBC Holdings Plc sold its private bank in Japan toCredit Suisse in December 2011.
Standard Chartered Plc recently agreed to buy theIndian wealth management unit of Morgan Stanley, helpingthe British bank expand its private banking business in Asia'sthird-largest economy.
Asia has about 3.5 million people who are millionaires, manyof whose fortunes are relatively new and tied to familybusinesses.
Their need for a variety of products and services meansbanks must have investment and private banking operations that"are very focused on partnering together to service theseclients," de Ferrari said.
"It will be very hard to approach them with traditionalwealth management solutions," he said. "They are looking forwhat we call private-investment banking type of services."
Credit Suisse tracks how much business the private bankbrings to the investment bank, he said. The target is for this"collaboration revenue" to be 18-20 percent of overall group'snet revenue.
In Asia, de Ferrari said, collaboration revenue leapt 125percent in 2012 and is growing at more or less the same pacethis year because clients in Asia for Credit Suisse's privateand investment arms are often the same.
"The private bank in Asia is profitable. We have beengrowing extremely well over the past two years," de Ferrarisaid, declining to discuss profit figures.
Credit Suisse grew its asset base in Asia by 22 percent to107 billion Swiss francs ($111.5 billion) last year. That roseto 112 billion Swiss francs in the first quarter of this year.
"Right now we are focused on really scaling the business inthe five booking areas - Singapore, Hong Kong, Australia, Japanand Switzerland," he said.
The entire industry is now more selective with acquisitions,he said, but Credit Suisse would consider moves to expand itsonshore network if there were suitable opportunities in placeswhere Credit Suisse wants to grow, including Indonesia.
"We are growing north of 20 billion (Swiss francs) a year,"he said. "When you can generate organic growth in your businessof that size, you look at doing an acquisition very carefullybecause there are not a lot of players of that size."($1 = 0.9596 Swiss francs) (Editing by Daniel Magnowski)
