For the past 18 months, the sovereign issuer has been at the centre of world attention due to the depth and severity of Europe’s largest fiscal drama in recent memory. Its roots and implications are affecting financial institutions at home and abroad in a very profound way and are already redefining the way both traditional and non-core financial services are provided, private banking being the most notable example of the latter.

The global financial crisis of 2008-09 had already served as an unmistakable wake-up call for the wealth management/private banking industries among many others, in stark contrast to the protracted ‘feel good’ era that had persisted for much of that decade. Asset allocation and sound risk management commanded huge attention almost overnight, the cost of credit increased dramatically and liquidity became a key parameter in any investment consideration. While a global financial meltdown was finally averted, the sovereign debt crisis currently gripping parts of the Eurozone’s periphery economies, due to its significant macroeconomic fundamentals, is here to stay for the medium run, hence presenting sometimes binary challenges as well as significant opportunities to all local and regional private banking providers that call any of these markets ‘home.’

The Greek fiscal drama, true to its name, is unique among its siblings in Ireland and Portugal. Chronic inefficiencies of an oversized and outdated public sector that eventually crowded out the private economy resulted in a liquidity crisis that required a massive bailout from a very diverse and at times poorly aligned group of bewildered international creditors. Soon enough, the local banking sector, despite being amongst the most solvent and well-capitalised across the continent, felt the pressure of tumbling credit ratings, loss of access to the international markets and was soon confronted with the herculean task of addressing a massive lack of confidence by its clientele across the product spectrum, in private banking notwithstanding. Trust, the bedrock of any investment relation, suddenly gave in and from that point on, the uphill battle to rebuild client confidence and go through the necessary industry changes in corporate setup and product offerings that will help minimise this trend, began in earnest and is continuing unabated.

The associated balance sheet risks and the development of a truly global product and services platform are the two most vital strategic priorities for the regional and Greek private banking providers going into the next decade. The transfusion of the sovereign credit risk degradation into commercial bank balance sheets, immediately brought to surface the risk of contingent credit risk implicitly assumed by private banking clients of major local providers, whose services are administered not by independent subsidiary companies but by businesses nested within the realm of the parent commercial bank. The ultimate strategic goal would be to completely separate the private banking business from the commercial bank balance sheet. The interim step that leading Greek and regional service providers seem to be favoring is the employment of convenient booking locations within the EU jurisdiction such as Luxembourg, Cyprus or the UK, where carefully ring-fenced balance sheets of subsidiary companies can provide private banking clients a very high degree of protection from most types of country and company-specific credit events. Such initiatives have already proven very effective in retaining client funds but would ultimately need to be supplemented by a corporate structure that stresses and ensures remoteness from unrelated credit events of the parent company.

The product platforms of most Greek or regional private banking providers in Europe were until recently characterised by a significant focus on local market risk, compared to the competing platforms of established European industry leaders that have traditionally offered a truly global market risk perspective. This cannot work anymore, especially in the case of the Greek market. Free movement of capital in the Eurozone and cascading economic developments that cast doubt on the prospects of at least some of the periphery markets, are driving private banking clients away from this type of equity or credit risk in scores, thus highlighting the need for an immediate re-orientation of the product platforms of regional service providers towards a truly global risk content. Examples of diversified product offerings of local and regional private banking providers can be found in product families such as third party funds of major asset managers, discretionary asset management services focused on international market risk, fiduciary deposits through European jurisdictions away from the troubled home markets and global cash traded assets like fixed income bonds or stocks that diversify client portfolio risk away from the local market proceedings.

Aside from the structural and longer term challenges that the European fiscal crisis has brought to the surface, private banking providers in periphery markets like Greece have recently had to cope with even more pressing short term issues like crisis management in the ranks of their clients and staff alike. The development of a rapid response to fast moving events and rumors affecting local asset prices has been of paramount importance and continues to feature to this day. The systematic dissemination of meticulously prepared information on market developments and product offerings is key to building a crisis war chest within the private bankers’ ranks that have to deal with panicking clients, field successful portfolio restructuring proposals and address intelligently issues of capital flight due to country or specific credit risk. Besides the quality of information, other key parameters in successfully solving the crisis management riddle include easy access of private bankers to internal pools of expertise, massive senior management engagement in client handling affairs along with a very high frequency of client contacts and related events, standardisation of troubleshooting mechanisms and very importantly a pragmatic and proactive problem-solving culture that celebrates entrepreneurship and learns quickly from setbacks.

Looking ahead
Can the future look bright for local and regional European private banking providers in today’s Europe? We think, conditionally, yes. Major global houses have had their fair share of misery in the hands of the outgoing global financial crisis and fraud once again reared its ugly head when greed and complacency were allowed to take hold. Today’s private banking clients are different in many respects: they demand convincing answers, look for personalised service and access to choice, execution and liquidity and are ready to review legacy relations in favor of splitting their wealth between the global industry behemoths and smaller regional quality houses if the wealth management/private banking offering is competitive. After all, the motto of ‘thinking globally and acting locally’ might not be far from the ultimate mission statement for the local and regional private banking providers of the next decade.

Alexandros Tsourinakis is Head of Private Banking Greece at Eurobank EFG. For more information Tel + 30 210 3668 324. www.visitgreece.gr