The good news first: Vontobel's strategy of building on three business pillars paid off. The bad news: it also exposed weaknesses that the Swiss bank has been grappling with for years.
Vontobel boss Zeno Staub (pictured below) repeats it like a mantra: even a relatively small bank like Vontobel can flourish with three different divisions: private banking, asset management and with structured products, which makes for a considerable portion of its investment bank.
Staub is unlikely to dramatically reverse course on the set-up when he discloses new targets on August 31, the CEO told investors and media on Thursday.
«We're small at practically everything that we do,» said Staub. The three pillars allow the bank more flexibility and is behind its success in recent years, he added.
Investors clearly disagree, and sent the stock sharply lower in high-volume trading following half-year results earlier on Thursday. Shareholders seem to view Vontobel with two and a half pillars – not three.
Small? Not a Strategy
Vontobel's wealth management arm is the chronic patient in the firm's efforts to diversify its revenue sources. The private bank's size and profits pale compared to the far larger and more successful asset management and financial products arms.
Wealth management – a lucrative business which tends to produce fat margins – contributed less than one-quarter to the bank's total operating profit in the first six months. For a bank with global ambitions, being small isn't beautiful.
Staub emphasized that net new fund growth at Vontobel's private bank of 3 percent, or 1 billion francs, means Vontobel is winning market share.
Inching Forward
That may be so, but Vontobel's private bank is merely inching forward at a snail's pace – unlike the asset management and structured products areas, which are growing by leaps and bounds.
In asset management, being small is a distinct advantage because the bank, a devotee off active management, is only partly exposed to the pressure on passive investments. Vontobel's structured products business has carved out and dominated a global niche for itself.
The private bank's 40 billion francs in assets aren't enough to compensate for hits like that suffered by asset management in the first half as a result of star fund manager Rajiv Jain's exit last year.
Deritrade as a Digital Asset
Instead, financial products rode to the rescue. The unit has built a platform, Deritrade, whose potential for scale is beginning to show. The bank is successfully tapping digital channels to quickly expand into new markets.
The unit should add considerable volume in the second half after Vontobel lists its leveraged products offering in Hong Kong, the world's top venue for the products.
To be clear, the problem isn't with the quality of Vontobel's wealth management: assets are growing faster thanks to performance gains than through net new money. Funds entrusted to the bank's discretion to manage have exceeded two-thirds of their performance benchmarks, the bank says.
More Gumption and Guts
Is this enough to get on top of the rapidly-changing private banking environment? Doubtful: pressure on margins will keep rising, interest rates are staying low to negative and clients remain difficult to coax out of cash and cash products. Meanwhile investments for digitization and a U.S. private banking expansion aren't yet providing the spark that Vontobel needs for meaningful growth.
The notoriously risk-shy CEO Staub, who has repeated the bank's willingness to splurge on deals, is more likely to spend on small deals such as a Notenstein La Roche portfolio, as our colleagues at finews.com reported exclusively on Wednesday, than on a deal for meaningful growth.
In view of the rising expense and resources needed to squeeze lucrative profits out of private banking, Staub would be well-advised to show more gumption on dealmaking. His far larger rival, Julius Baer boss Boris Collardi, is a nearby example of an gutsy and effective consolidator. Otherwise, Vontobel's private bank risks being the third, semi-formed half pillar of Vontobel's strategy.
