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Agendas clash in Irish rescue ballet

Perils of banking on the young and careless

Gabriel Chen
697 words
20 November 2010
Straits Times

Rookie bankers blamed for fallouts between banks and rich clients
BANKS and rich clients go together like champagne and caviar, but there are times when the cosy relationship can sour.
Take the latest fallout between a private bank and its clients. It involves the Singapore arm of Swiss bank UBS taking legal action against two customers it alleges owe about $9 million.
Such cases have been more frequent in recent years because high net worth individuals are angry at the hit they have taken from the financial crisis.

Three months ago, for example, the Singapore High Court ruled that Merrill Lynch had been defrauded by a former private banking client. It ordered the client and his company to pay US$9.4 million (S$12.2 million) plus interest to the bank.
'When they lose money, they say they were given bad advice. When things go well, they are fantastic clients,' said the regional head of a private bank.

To partly account for how once silky smooth relationships can turn toxic, you need to go back to the hiring binge of the 2004 to 2007 boom. UBS and Credit Suisse alone have almost doubled their staff in the region since 2005.

One of the biggest news items in early 2007 was the infamous round of industry 'musical chairs' with private bankers hopping from one bank to another, lured by pay rises of 30 to 90 per cent.

Foreign banks with newly set-up operations here had aggressive poaching campaigns. In 2006, almost one-third of OCBC's Private Bank team were poached.

But the recruitment surge meant some banks hired armies of often inexperienced bankers to serve Asia's growing pool of millionaires - a move that industry insiders admitted could have led to 'a strong culture diluted, with more carelessness'.

These new private bankers were also young - in their late 20s or early 30s - and would likely have been junior bankers if they were based in Europe.

That accounts for the joke during those heady days when the stereotype of the private banker was said to be no longer the greying Swiss-style industry veteran but an attractive young charmer.

Charm or gravitas, it is a case of whatever works to snare the client in what is a hugely lucrative - and highly competitive - market for local and foreign banks.
Clients typically need at least US$1 million in investable assets to qualify as a private banking customer. Once one is identified, the personal pampering starts. He is courted by a senior relationship manager, who ropes in 'experts' such as investment consultants and foreign exchange specialists to meet and advise the client.
Advice is crucial given these clients can invest in anything, from stocks and bonds to art and wine. And while the bank may issue recommendations, the client makes the call to buy or sell unless he gives a 'discretionary mandate' to cede trading authority to the bank.
'It is possible that some relationship managers, in their zeal to sell a fund or stock, didn't highlight sufficiently what the risks were,' said a veteran private banker. 'Some relationship managers could also have traded without their clients' approval - in which case... they should have been fired.'
The same private banker cited a client who wanted to sue but the bank opted to settle out of court. 'Our bank did not want to be embroiled in a lawsuit as the reputation risk is terrible,' he added.
Banks usually protect themselves by ensuring that all recommendations and decisions are documented by the client's signature or telephone recordings.
A private banking chief said it is never just about the client and the relationship manager. 'It's a triangle relationship,' he said, referring to the bank as the third party. 'It depends on how aggressive and ambitious the bank is and how hard it pushes the relationship managers.
'But post-crisis... there has been more training for relationship managers and banks have put in more effort in making the private banker-client relationship more transparent. In a sense, this relationship has become closer today.'