Private bank profit to grow as margins pressured

GENEVA (Reuters) - Wealth managers are likely to show strong profit growth in coming years, even while they feel pressure on margins, as their assets grow and they add higher-value services.

Speakers at Reuters Wealth Management Summit on Tuesday and Wednesday almost all agreed that basic margins are likely to erode. But private bankers, like their counterparts in other areas of banking, have long complained of such pressure.

"Fifty years ago private bankers were talking about compressing margins. In 50 years (that would mean) margins would disappear, but I don't see that, I see people wanting to come in (to wealth management)," said Emilio Saracho, head of EMEA private banking for JP Morgan (JPM.N).

Wealth management has been the fastest growing profit arm for banks in recent years.

Despite anecdotal evidence that margins are in decline, private bankers reported record profits in the first half of this year, and both big and small players aim to tap potential for further strong growth.

Britain's Barclays Plc (BARC.L) is among the banks undeterred by the threat to margins and plans to spend heavily to accelerate wealth management growth in the coming years.

"There's always going to be margin pressure. There's always going to be the Wal-Mart pressure at the bottom end. You just always have to keep moving your business upscale, which is why I think the client benefits in the long run," said Thomas Kalaris, chief executive of Barclays Wealth Management.

GROWING, CHANGING MARKET

Wealth managers have shifted from acting as private client stockbrokers that earn revenue on trades to advising clients on asset allocation and risk appetite, which enables managers to charge higher fees.

"There will be pressure for sure, but I'm not worried that the pressure will be so great that we will lose a lot of our bottom line," said Bernard Coucke, head of ING's (ING.AS) European private banking.

He said ING's private banking margin averaged about 100 basis points globally and was higher and more stable in mature markets.

Private bankers may be relaxed about the pressure on fees given forecasts for rampant growth in assets under management.

The investable assets of high net worth individuals is forecast to rise to almost $45 trillion by 2010, up over a third from 2005, according to the 2006 World Wealth Report by Merrill Lynch and Capgemini.

Analysts at Bear Stearns said this could create an available fee pot of over $210 billion, based on an average gross margin of 50 basis points -- seen as conservative and half of some industry estimates -- which would dwarf the fee pot available to banks in other areas.