UBS bites the dust in India

Just like all the other big banks.

"Another one bites the dust". UBS is the latest in line of big western banks to be exiting the Indian wealth management industry. UBS will also be winding down its foreign exchange business in India as part of its global strategy to conserve capital.

A UBS spokesperson told Private Banker International that, over a span of two years, the Swiss banking giant will shut its single branch in Mumbai and "concentrate on its core businesses" rather than on capital intensive businesses, even though it is keeping its corporate client service division (including M&A, equities and debt capital market services) intact in the country.

Quite recently, Morgan Stanley surrendered its wealth management unit in India by selling it to Standard Chartered. Previously, Goldman Sachs also exited India’s wealth management arena. 

What makes India such a difficult market to survive in for foreign players?

Like most countries across the globe – now more than ever – regulation is a key concern, one that is amplified when it comes to India. With high entry barriers and a wing-clipped approach to the product universe, the Reserve Bank of India only keeps tightening controls.

This year, in the annual monetary policy statement on May 3, the RBI proposed a new banking structure involving differentiated licencing regime for domestic and foreign banks instead of granting a universal banking licence.

Beyond regulation, however, a bigger factor may be the fact that nuances around how the wealth management business, particularly, works in India is actually quite local.

A market like India has a number of things going for it. According to the World Wealth Report 2013, released by Capgemini and RBC Wealth Management, India experienced 22.2 per cent growth in its HNIs population, second only to Hong Kong in the Asia Pacific region.

But the key to understanding and thriving in a market like India is to have a deep rooted view of the local sentiment and clients’ trust that local banks have.

Indian family offices have a bigger trump card having handled key rich families’ wealth over generations, but the trust factor that local private sector banks such as ICICI, HDFC, Axis Bank, Kotak Mahindra Bank, to name a few, have achieved is tough to compete with. And they are catching up with global best practices fast.

Another factor that gives local banks an edge, perhaps, is the fact that India is a completely onshore market, everything being rupee denominated, and the investment products on offer are still relatively basic, unlike Western mature markets.

When I spoke to Atul Singh, managing director and head of global wealth and investment management for Merrill Lynch in India, back in 2011 for a feature, he told me that foreign banks such as Merrill Lynch, Barclays, JP Morgan, Citibank, and Credit Suisse, being experienced players globally, have taken the lead in developing innovative products targeting the HNWI and UHNWI. But the challenge in India, as an industry, is "how to make money from assets" due to the product universe still being fairly vanilla.

It’s not just India that is difficult to deal with, though. Russia is even more notorious for western bank exits, with Barclays and HSBC quitting retail and commercial banking operations in the region over the last couple of years. Reason? Local banks’ dominance, with most of the market share taken by Russia’s largest lender by assets, Sberbank, followed by VTB.

French bank Societe Generale’s Russian subsidiary, Rosbank, has been in the limelight for the wrong reasons recently with its CEO, Vladimir Golubkov, being fired and acquitted on bribery charges. But SocGen, being one of the few foreign banks still holding its ground in the statedominated banking sector, has shown optimism with its chief executive, Frederic Oudea, saying the lender aims to deliver a "sustainable return on equity of over 15 per cent" in Russia by 2015. Let’s see.

As for India, it will be interesting to note how local banks up their ante with another Western lender exiting, mould themselves to further regulatory changes, and how the other remaining foreign banks make space for themselves and the global approach they offer. "Pressure on people - people on streets". Queen really has said it all.

Photograph: Getty Images

Meghna Mukerjee is a reporter at Retail Banker International

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Theresa May’s Brexit speech is Angela Merkel’s victory – here’s why

The Germans coined the word “merkeln to describe their Chancellor’s approach to negotiations. 

It is a measure of Britain’s weak position that Theresa May accepts Angela Merkel’s ultimatum even before the Brexit negotiations have formally started

The British Prime Minister blinked first when she presented her plan for Brexit Tuesday morning. After months of repeating the tautological mantra that “Brexit means Brexit”, she finally specified her position when she essentially proposed that Britain should leave the internal market for goods, services and people, which had been so championed by Margaret Thatcher in the 1980s. 

By accepting that the “UK will be outside” and that there can be “no half-way house”, Theresa May has essentially caved in before the negotiations have begun.

At her meeting with May in July last year, the German Chancellor stated her ultimatum that there could be no “Rosinenpickerei” – the German equivalent of cherry picking. Merkel stated that Britain was not free to choose. That is still her position.

Back then, May was still battling for access to the internal market. It is a measure of how much her position has weakened that the Prime Minister has been forced to accept that Britain will have to leave the single market.

For those who have followed Merkel in her eleven years as German Kanzlerin there is sense of déjà vu about all this.  In negotiations over the Greek debt in 2011 and in 2015, as well as in her negotiations with German banks, in the wake of the global clash in 2008, Merkel played a waiting game; she let others reveal their hands first. The Germans even coined the word "merkeln", to describe the Chancellor’s favoured approach to negotiations.

Unlike other politicians, Frau Merkel is known for her careful analysis, behind-the-scene diplomacy and her determination to pursue German interests. All these are evident in the Brexit negotiations even before they have started.

Much has been made of US President-Elect Donald Trump’s offer to do a trade deal with Britain “very quickly” (as well as bad-mouthing Merkel). In the greater scheme of things, such a deal – should it come – will amount to very little. The UK’s exports to the EU were valued at £223.3bn in 2015 – roughly five times as much as our exports to the United States. 

But more importantly, Britain’s main export is services. It constitutes 79 per cent of the economy, according to the Office of National Statistics. Without access to the single market for services, and without free movement of skilled workers, the financial sector will have a strong incentive to move to the European mainland.

This is Germany’s gain. There is a general consensus that many banks are ready to move if Britain quits the single market, and Frankfurt is an obvious destination.

In an election year, this is welcome news for Merkel. That the British Prime Minister voluntarily gives up the access to the internal market is a boon for the German Chancellor and solves several of her problems. 

May’s acceptance that Britain will not be in the single market shows that no country is able to secure a better deal outside the EU. This will deter other countries from following the UK’s example. 

Moreover, securing a deal that will make Frankfurt the financial centre in Europe will give Merkel a political boost, and will take focus away from other issues such as immigration.

Despite the rise of the far-right Alternative für Deutschland party, the largely proportional electoral system in Germany will all but guarantee that the current coalition government continues after the elections to the Bundestag in September.

Before the referendum in June last year, Brexiteers published a poster with the mildly xenophobic message "Halt ze German advance". By essentially caving in to Merkel’s demands before these have been expressly stated, Mrs May will strengthen Germany at Britain’s expense. 

Perhaps, the German word schadenfreude comes to mind?

Matthew Qvortrup is author of the book Angela Merkel: Europe’s Most Influential Leader published by Duckworth, and professor of applied political science at Coventry University.