Based on our preliminary numbers, private bankers in Canada, like their investment counselor colleagues who sit next door, had a banner year in 2011 and, as a group, broke records in terms of total balances managed – $46.3 billion as at October 2011 – as well as revenue generated. Revenue for 2011 at $567 million was approximately $64 million ahead of the previous year thanks mainly to the addition of 24,000 new clients now able to claim membership of this elite group. As with retail banking, low interest rates discouraged investments in term deposits although, for the same reason, as well as booming real estate values, mortgage balances recorded an increase of $1.3 billion.
Despite good revenue growth (and low inflation), investment in professionals and spread compression kept the year-over-year increase in net income to a relatively modest 8.3%. What the banks gave up on the bottom line was appreciated by the clients and their private bankers who, for the first time in many years, will have more time to discuss high net worth finance thanks to a reduction, albeit slight, in the client load of the average private banker.
Some things are becoming clear. First, the business in Canada is dominated by three banks that currently control 70% of the business. Second, there is room to grow in terms of overall client growth as well as client penetration; only about 40% of clients have a credit facility of one sort or another. Third, profitability is reliant on the borrowers, not the depositors. Finally, the industry has reached a point of saturation in terms of network coverage and the focus in the immediate future will be bigger private banking offices, rather than more offices.
For more information on the new Private Banking Report and other private client research, contact Guy Armstrong or Keith Sjogren. Posted by Keith Sjogren Keith@iei.ca.