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Private investment banking

Financial newsPopular last summer when the big integrated banks were in full flow, the private investment banking model is looking a bit bedraggled.

Touted as the answer of the complex financial needs of ultra-high net worth individuals and families in the 21st century, the private investment banking model is looking tarnished by the current turmoil in world financial markets. Thought up by management consultants, the private investment banking concept was always a bit vague.

As an editorial in the Financial Times said back in July: "In the world's fastest growing markets, the development of capital markets and the increase in personal wealth are interlinked."

"Arranging an initial public offering then managing the proceeds for the seller has obvious synergies: UBS estimates that between 8 and 9 per cent of new referrals to its private bank come from its investment bankers."

But is this pipeline still so active, given the crises in many investment banking departments of the big integrated banks? Two of the main proponents of the private investment bank - UBS and Citibank - are in intensive care, both effectively requiring public-sector bailouts from emerging market governments.

Credit Suisse's "One Bank" approach might be looking more secure, as the bank is less exposed to the subprime mess. But it would be a surprise to hear that the bank's investment bankers are sending much business to their colleagues in the private bank right now.

Propaganda

The private investment bank model might have been seen as a bit of a propaganda tool by the big integrated banks to say to the small- and medium-sized they could provide a better service to the very rich.

It is probably no surprise then that a bit of schadenfreude was in order yesterday from one of the best examples of a pure private bank, Pictet.

One of its managing partners, Jacques de Saussure, told the Financial Times German edition that most clients know the difference between private banking and investment banking, but some might question the management of their money by banks which are having difficulties in their investment banking businesses.

Mr de Saussure said that the independent private bank might profit as a result of these concerns from clients. But proponents of the private investment banking concept still feel it has a place - although may be from a different perspective than it might have originally been intended.

"Private investment banking is alive and well but few can deliver on the promise. It is the by-product of a successful investment banking operation, not an offer in and of itself," said Ted Wilson, a consultant at Scorpio Partnership, the financial services consultancy.

And, as more news comes out about the record bonuses being handed out this year at Goldman Sachs - possibly the best examples of the private investment banking model - the concept, it would appear, still has much further to go.

Source: Financial Times
Date: 14.12.2007 [154]

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