ZURICH Stiff competition for top private bankers has kept a floor under pay even as low interest rates, flaccid client trading and tougher regulation squeeze industry profit margins.
Sky-high pay and bonuses for investment bank counterparts may once have turned private bankers green with envy.
But the drive to slash wage bills and rein in risk has made investment bankers expendable as many banks realign their business around more stable private banking.
“Pay was never extreme in private banking — it’s not as subject to a correction as in investment banking,” Deutsche Bank global head of private wealth management Pierre de Weck told the Reuters Wealth Summit this week.
Stricter rules on capital have curbed profits in many areas of investment banking and a number of large integrated banks like UBS and Bank of America have pledged to cut back on capital guzzling businesses and shrink staff numbers, piling downward pressure on pay.
But in private banking, competition remains hot for advisers who can bring in a good portfolio of clients, helping sustain pay, said James Fleming, head of international private banking at RBS unit Coutts & Co.
“The war for talent is not quite the 100 years war but certainly 15 years,” Fleming said at the Reuters Summit.
“Experience shows high compensation is a key part of retention, but also tools to do the job properly, and working for a brand that’s forward thinking and progressive and providing good service for the client base.”
Remuneration is by far the biggest cost center, well ahead of premises and technology, said Alexandre Zeller, head of Private banking, EMEA at HSBC, adding that banks have to put time and effort into finding the right people to serve its clients.
“The value of staff in our business is actually extremely high,” said de Weck. “When we make a new hire it takes 2.5 to three years for them to become productive. But the penalty for making the wrong pay decision in our business is very high.”
Bankers at the Reuters summit generally confirmed their commitment to their businesses in Switzerland, although they said the strong Swiss franc was limiting profitability.
As competition limits growth in developed markets, the fight for staff was intensifying in higher-growth areas like Singapore.
De Weck said these factors have pushed the cost of Asian bankers higher than in Switzerland, while in London staff costs are about the same.
The business remains centered around people and relationships and downward pressure on costs can have only a limited effect on pay scales, said Pablo Garnica, European head of JP Morgan’s private bank.
“You need to reward people to incentivize people to grow,” Garnica said.
“At the end of the day you need to have the people capable of dealing with clients and complex situations. At the end of the day you need a human being talking to a human being.”
(Editing by David Cowell)