The restructuring of the private banking industry is underway and the rate of consolidation will increase, according to a new survey.
Based on data from 160 banks in 40 countries, the McKinsey European Private Banking Survey found that while assets under management increased by 10% in 2009, the industry's operating profit pool was 25% below 2008 levels and profit margins went down to 20 basis points.
"Profit levels hit a low in 2009. Increasing competition for deposits as well as very low portfolio activity have been the main reasons for this. AUM growth was almost fully driven by investment performance," commented Frederic Vandenberghe, director and author of the report, which was launched today.
Net inflows were 1% across the board, but onshore banks saw an average net inflow of 3% while offshore banks saw a decrease to -2%.
There was a strong polarisation between private banks in Europe, where Belgium proved to be the most resilient with inflows of 2%. Private banks in France suffered heavily with a decline of -11 basis points in their revenue margin. Switzerland experienced outflows of 1% despite an 11% growth in AUM.
Overall, the gap between the best and worst performing private banks has also widened to 17 percentage points.
Nevertheless, the report concluded that the long-term outlook for private banks remains positive if the industry adapts to the demands of a changing customer and investment universe. In particular, the authors recommend that private banks need to provide greater transparency and tailored proactive advice.
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