European private banks to face new regulatory challenges

LONDON (SHARECAST) - Private banks in Europe sustained their tepid recovery last year, helped by a rebound in the financial markets and cost cutting activities, according to a McKinsey & Co report, but said that profitability and net inflows were “well below” pre-crisis period.

The management consultancy’s European private banking survey showed that on average, assets under management last year grew by more than 9%, of which 2% represented net new inflows.

This was a “modest improvement on 2009,” the report said, and added this may signal that customers are only slowly regaining trust and returning to the industry. The survey included comments from more than 160 banks from 26 countries, of which more than 100 are from Western Europe.

Annual net inflows growth in 2010 remained low, while profit margins improved 4 basis points, albeit 11 basis points below the high of 2005-07. Banks blamed declined trading activity resulting in lower brokerage fee, greater risk aversion and a declining proportion of ‘affluents’ in the customer mix for the reduced margins.

Looking forward, the director of McKinsey’s European private banking practice Frédéric Vandenberghe said, “One of the industry’s key challenges will be increased and changing regulation: demands for greater transparency, the possible pressure on so-called retrocession commissions within some types of mandates, and other regulatory changes will require private banks to further strengthen their advisory processes and will create additional downward pressure on margins.”

Furthermore, the survey confirmed growing appetite for advisory mandates, with assets managed in this way increasing slightly more than the rise in private banking assets under management as a whole.