Aiming to carve out an even bigger slice of the estimated $7.5 trillion worldwide market for private banking, Chase Manhattan Corp. says it can grow its share of the business by 10% annually over the next three years.
Chase already manages $68 billion for wealthy individuals.
Private banking earnings should go up by around 20% annually between now and 1997, says James W. Zeigon, the Chase executive vice president who heads the area. "There's a robust amount of wealth creation around the world," he adds. "And even if that slows down, there's still market share."
Before the year is out, Chase will have more than $70 billion of assets under management, including $4 billion in loans, $10 billion in deposits, and the remainder in trust and investment accounts.
That's up from $44 billion four years ago, putting it among the top ten banks worldwide in private banking and among the top five in the United States, according to estimates.
Chase is not the only financial institution out there targeting private banking for growth. Switzerland's big three banks -- Credit Suisse, Swiss Bank Corp., and Union Bank of Switzerland -- have traditionally dominated international private banking.
Meanwhile, big U.S. banks like Citicorp, Chemical Banking Corp., Republic New York Corp., and J.P. Morgan & Co. obtain as much as 10% of their total earnings from private banking. All have invested heavily in expanding their private banking networks, both in the United States and abroad in recent years.
Comparisons are difficult because banks toss different items into the assets they say are part of their private banking operations.
Nevertheless, analysts agree that Citcorp ranks as the biggest in private banking among U.S. banks. It boasts more than $80 billion of assets under management, revenues of around $1 billion, and 75,000 customers in 31 countries.
They add that Chase is not too far behind and that Chase's worldwide recognition gives it a powerful advantage over other competitors. "They've got a great name and that's a powerful draw," says Robert Albertson, a banking analyst with Goldman Sachs. "They've parlayed that, plus good people and products, to gain a leading edge."
"Chase has high international recognition and that's important," says Arthur P. Soter, a banking analyst with Morgan Stanley in New York. "This is a relationship business and safety and trust are extremely important."
Chase Manhattan's foray into the world of international private banking accelerated two years ago when Mr. Zeigon returned from London and was given a mandate to merge the bank's domestic and foreign operations into a single global unit.
The result to date is an integrated operation that employs 1,800 people in 20 countries. Hong Kong, Singapore, Geneva, London, the isle of Jersey, New York, San Francisco, Miami, Palm Beach, and Los Angeles are home to Chase's main private banking centers. There are smaller offices in other major cities around the world.
Mr. Zeigon declines to disclose specific earnings figures from private banking but cites Latin America, especially Mexico, Argentina, and Chile, as among the bank's fastest-growing markets, followed by Asia and Southern Europe.
He adds that Chase is now looking closely at developing operations in Brazil, China, South Korea, Thailand, and Malaysia as the economies of those countries gather steam.
Customers, he adds, break down into three categories: entrepreneurs, investors, and wealthy families. The bank sets a $1 million minimum in order to qualify for a private account, but prefers to have clients with at least $3 million to invest.
By far the fastest growing category of customer is the entrepreneur, who typically is over 45 years old, has developed his own business, and is "nervous about bad investments," Mr. Zeigon says.
"They've not only learned how to make money, they've learned how not to lose it," he observes.
Chase does not take just anybody. Politicians are out and U.S. citizens abroad are out, as is anyone whose money looks a little bit suspicious.
"If you don't deal with government officials, that keeps you out of 90% of possibilities for things going wrong," Mr. Zeigon says. "And if you've made your money legitimately and are known in your community, that's something that can easily be checked out."
Roughly 70% of what Chase earns from private banking comes from operations outside the United States.
The bank charges an annual fee of 1% to manage an account below $1 million and a variable amount above that. In return, customers get a range of services, including investment management, financial advice, foreign exchange, custody, and investment banking services.
Most funds are invested in a variety of equities and bonds and through Chase's Vista family of mutual funds.
The bank steers clear of dicey investments. "We stay away from derivatives at the speculative end of the market," Mr. Zeigon says. - "They're lethal and the risks are extremely high."
Significantly, Chase, like other big U.S. banks, pulled out of commercial banking outside the United States over the last decade, but kept its international private banking operations up and running.
Among the reasons: Private banking offers a profitable added source of revenues, the market is growing, and dealing with the wealthy often serves as a stepping stone to other banking business.
"It's a business that's fragmented and still up for grabs and the outlook for wealth creation is still very attractive," Mr. Soter remarks. "It's also a business that lends itself to global management."
Says Mr. Zeigon: "If there's one thing I've learned it's that there is a substantial amount of wealthy people around. The sleepy old world of private banking has changed fairly significantly over the last few years from deposit taking to investment management."
One of the biggest changes has been worldwide deregulation, including the lifting of foreign exchange controls. This has permitted money to move more freely around the world.
Deregulation, in turn, has spurred economic growth in developing countries, leading to the creation of even more wealth.
Combine the two factors with advances in technology and communications and you get a growing number of newly wealthy people looking for international asset management.
"The adoption of market-oriented policies has created new opportunities for a new set of billionaires," says David. S. Berry, an analyst with Keefe, Bruyette & Woods.
Observers note that much of the base for private banking today was laid in the 1970s and 1980s, when big U.S. banks took in billions of dollars in flight capital from the same countries that were defaulting on loans.
"If you back up 10 or 15 years, private banking was pretty much synonymous with flight capital," Mr. Berry observes.
Bankers are still reluctant to discuss the contradictions inherent in accepting deposits from customers who failed to make good on their borrowings.
They prefer instead to emphasize their ability to provide professional portfolio management. "What was once a business built around secrecy, tax evasion, and flight capital is now geared to creating wealth," says Mr. Soter.
"Clients are looking for banks that can meet their need for global diversification," adds Mr. Zeigon.
In the United States, where diversifying once meant shifting out of bonds into equities or vice versa, more and more wealthy individuals are moving money into foreign securities.
The same holds true for Europe and Japan, while in developing countries, local markets are simply not large or diversified enough to offer more than limited possibilities for investment.
"The notion that we live locally as part of a global village is really true," Mr. Zeigon observes.