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JPMorgan job cuts show challenges in targeting millionaire wealth in Asia

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JPMorgan job cuts show challenges in targeting millionaire wealth in Asia

Any opinions expressed in thispiece are those of the author and do not necessarily represent the views ofS&P Global Market Intelligence.

's move to cut jobs at itsAsia-Pacific wealth management business underscores challenges banks are facingin fighting for millionaire money in a supposedly promising market.

TheWall Street firm this week laid off some staff at its Asia-Pacific privatebanking unit as the company moves away from low-end millionaires, a person withknowledge of the matter said. The firm has bumped up the minimum assetrequirement for private banking clients to US$10 million from half the amount,the person said.

Newsoutlets including Bloomberg News and the FinancialTimes on April 13 reported that the company curtailed private-bankingheadcount in Asia-Pacific by approximately 5%, or about 30, mostly relationshipmanagers in Hong Kong and Singapore. A JPMorgan spokeswoman declined to commentand would only say Edwin Lim, who was head of high-net-worth clients in NorthAsia, had left the company.

JPMorgan is scaling back in a regionthat, according to Capgemini, in 2014 was home to the fastest-expanding pool ofindividuals with more than US$1 million in investable assets. The population ofaffluent investors is projected to continue to grow rapidly in Asia, withMcKinsey estimating that countries in the region excluding Japan will createUS$9 trillion of new millionaire assets by 2018, about 80% of wealth to begenerated by the U.S., Europe and Japan combined.

Yet,wealth management is not quite an easy business in Asia. Margins in the regionare low, because of demands from price-sensitive clients, accordingto an Ernst & Young report on the industry. Operating expenses, on theother hand, are boosted by high costs to employ relationship managers and front-linestaff, as well as technology investment and a growing financial burden to meettighter regulations.

Becauseof the difficulties, scale is critical; in Asia, only firms with AUM exceedingUS$20 billion can earn enough revenue to be profitable, E&Y said. That isnot a small volume. Even among top 20 private banks in the region, three werebelow the mark at the end of 2015, according to Asian Private Banker data.

Andprivate bank clients in Asia prefer even bigger firms, with AUM of more thanUS$50 billion, Liew Nam Soon, managing partner of financial services for ASEANat E&Y, previously said in an interview. That reduces the number ofcompetitive wealth managers to about 10 in Asia.

Assuch, consolidation in the sector is gaining speed, with some global banksselling assets. Earlier this month, Barclays Plc agreed to sell its private banking business in Singaporeand Hong Kong to Bank ofSingapore Ltd., the wealth management arm of No. 2 Singaporeanlender Oversea-Chinese BankingCorp. Ltd.

Inanother high-profile deal, Société Générale SA in 2014 sold its Asian privatebanking unit to DBS GroupHoldings Ltd.

ForJPMorgan, which held the No. 9 spot on AsianPrivate Banker's list of theregion's 20 biggest private banks, with US$65 billion in AUM at the end of2015, profitability should be a bigger concern than scale in Asia.

Underthe current market conditions, small-time customers in the world of privatebanking can give firms more hassle than profit. And JPMorgan should have littletrouble leaving them to others chasing volume.