Bank and wealth management marriage in need of counselling
The National Australia Bank (NAB) is the latest to warn that its under-performing wealth management arm will bring lower than expected earnings when its interim results are announced. NAB says the slump in global equity prices will cause a writedown of $393 million.
Meanwhile, Westpac can expect to face questions concerning the recently acquiredBTand Rothschild wealth management businesses.
Net outflows for Westpac’s combined operations were $718 million — a dismal result but an improvement on the previous quarter's $1.6 billion retreat.
St George delivered positive results, maintaining fee revenue from its funds management arm at $86 million, steady on the March quarter but down from $92 million in the September half.
Managed fund assets across its Sealcorp andAdvance Asset Managementoperations rose to $17.7 billion, slightly lower than the $17.9 billion posted previously but an improvement on the September half.
Not faring so well is ANZ, despite reorganising its personal banking and wealth management arms, and having the smallest funds management and insurance exposure of any of the big banks.
Its net inflows and the value of its wealth management unit was not as affected by share markets, but the $7 million from its ING funds management joint venture was a meagre return on the $1.6 billion the bank has tied up.
The Commonwealth Bank (CBA) has also suffered. Funds management profit fell from $186 million to $135 million in the December half and the life insurance business lost $6 million, compared with a $35 million profit previously. Lower than expected profits from pricey wealth management businesses and volatility and lower quality fee-income streams were compounded by the fact most business acquired involved traditional insurance exposures.
CBA is, like its peers, well capitalised. It has, however, thanks to the Colonial deal, far more of its capital supporting its wealth management operations and their capital bases. If that capital is excluded, CBA has the weakest capital adequacy of the major banks.
There are also workplace culture issues at play for CBA, and the other banks, that do not have easy solutions. What the banks initially forgot was that the culture of funds management is far removed from that of banking. Banks lend people money, so bankers are risk-averse and look for the negatives. Funds want money, so fund managers are optimistic.
Merging these cultures is not easy. But it is essential the banks rise to the challenge because the funds management industry, despite its current hiccup, is on a growth path. The banks must get it right, and in an increasingly competitive environment.
The new conventional wisdom in banking is that the profit in wealth management will come from distribution, particularly to existing bank customer bases, and advice.
Wealth management is unlikely to deliver the level of returns envisaged at the height of the bull market when most of the bank acquisitions occurred. Banks seem to be moving into a new, more subdued and even more competitive era.
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