GENEVA, June 17 (For other news from the Reuters
Global Wealth Management Summit, click here)
The world's richest people are clinging to stockpiles of
zero-yielding cash despite a surge in financial markets and
increasingly sophisticated attempts by private banks to entice
them into investing.
Private banks have had to repair trust following the
financial crisis of 2008-09, which sent their wealthy clients
scurrying for cover and taking on ever larger positions of cash.
Nearly six years on, wealthy investors have a preference for
cash rather than risk big bets on stock and bond markets.
"The cozy and safe world we thought to live in before the
financial crisis not just from a financial point of view but
also from a geopolitical point of view has proven to be not that
cozy and safe," Georg Schubiger, the head of private banking at
Swiss bank Vontobel, said at the Reuters Global Wealth
Management Summit on Tuesday.
Cyprus's seizing of deposits above 100,000 euros
($136,200)last year and political tensions between Russia and
Ukraine are two of the major factors keeping wealthy clients
from putting their money into play.
The super-wealthy retained huge stockpiles of zero-yielding
cash throughout the recent surge in financial asset prices,
including a roughly 30 percent rise in the MSCI all-country
index over the past 18 months.
Investment advisors estimate up to 40 percent of their money
remains un-invested and is still parked in deposits.
A benchmark survey by CapGemeni and RBC Wealth Management
had average cash or deposit holdings among global wealth
investors at almost 28 percent - more than the 26 percent held
in equity or some 20 percent in real estate.
Private banks rely on transaction fees and commissions to
finance their spending, so their profit suffers when clients
shun securities markets.
Although periods of client inertia are not unheard of, it is
worse for private banks now because the inactivity coincides
with a sharp rise in spending to comply with tougher regulation.
Many larger players such as UBS and Credit Suisse
have spent years building up centres of investment
expertise in an attempt to better inform and advise their
clients, and to do so more quickly and effectively than in the
past. These so-called "machine rooms" are aimed at winning back
trust, but also coaxing clients back into investing.
"It is true we have disappointed many, that we have caused
an economic crisis, and we all have to bear the consequences of
it," said Juerg Zeltner, head of UBS' private bank.
"But what is also true is that these clients who are in need
our help, they need our advice," Zeltner said.
UBS has cautioned investors for nearly three years that it
is vulnerable to the lack of client activity, amid worries about
a host of issues from European and U.S. debt woes to Middle East
While large cash piles are a concern for private bankers,
they are also costly for the wealthy: between bank fees,
inflation and near-zero interest rates, cash is effectively
Even if the wealthy begin making larger bets in securities
markets again, this can pose a risk to private banks if trust
has been dented, according to experts.
"What is interesting is that we do see when a client has
lost with one firm and has rebalanced into cash, once they feel
the need to get back in the market, they often move the cash out
of the bank and into a new relationship," according to Seb Dovey
of London-based wealth consultant Scorpio Partnership.
The wealthy have dipped their toes back into equities, but
won't return in force until an "official thumbs-up" for Europe's
banks from the European Central Bank, according to Coutts & Co
Ltd investment officer Norman Villamin.
"We think as we transition past AQR and the ECB essentially
gives them their blessing that, 'we think your balance sheet is
fine, we think you've cleaned up nicely,' they're not going to
go gangbusters but will begin to release credit into the
economy," Villamin said at the summit, held at the Reuters
office in Geneva.
Many banks have been holding back credit ahead of the ECB's
review of their asset quality (AQR) later this year.
"I think that's going to the beginning of what I'll call a
more sustainable, self-generating recovery in Europe," Villamin
($1 = 0.7345 Euros)
(Reporting By Katharina Bart, editing by Louise Heavens)