HSBC, Europe's biggest bank, is selling its private bank in Japan to Swiss peer Credit Suisse for an undisclosed sum, part of a strategy to cut $3.5-billion (U.S.) annual costs by quitting businesses or countries where it lacks scale.
HSBC's Japanese private bank arm fits that bill, having made a profit of just $2-million in the first half. The sale involves assets worth $2.7-billion out of a global private banking empire amounting to $416-billion in client assets at the end of June.
HSBC will remain in Japan, where it made a $25-million profit in the first half, mainly due to its investment bank.
Credit Suisse has a larger business in Japan than HSBC and should be able to benefit from cost synergies, one analyst said.
Junya Tani, Credit Suisse's head of private banking in Japan, said the deal showed its "commitment to build a leading private banking business in Japan".
Bruce Weatherill, chief executive of consultancy Weatherill Executive Consulting, said: "The Japanese market is difficult for western private banks to penetrate, largely because of the cultural issues".
Even outside Japan, private banking is a tough business because the super rich clientele is highly demanding and has considerable pricing power.
HSBC Private Bank limits its services to customers with least $5-million to invest, a threshold that is lower in some markets. The Japanese unit sought clients with more than ¥200-million ($2.6-million) in financial assets, according to an official at HSBC Japan, who spoke on condition of anonymity.
"Serving this level of client profitably is not a bed of roses. They are more demanding and expect bespoke service at institutional prices," said Bill Yelverton, executive director at London based specialist consultancy Scorpio Partnership.
Some 60 staff work in HSBC's Japanese private banking business, and will be offered positions at Credit Suisse.
HSBC will retain HSBC Premier, the premium service for affluent -- rather than super rich -- clients who hold more than ¥10-million in assets, the official said.
The sale is part of a strategy outlined by chief executive Stuart Gulliver in May to cut costs by $3.5-billion.
Asia is a battleground for global and local private banks competing for market share in a region outpacing the United States and Europe in economic growth.
Powered by China and India, Asia-Pacific's millionaire ranks rose 10 per cent to 3.3 million last year, just behind the 3.4 million in North America and ahead of Europe's 3.1 million, according to a Merrill Lynch/Capgemini Asia-Pacific report.
Asia's combined wealth rose 12 per cent to $10.8-trillion last year to overtake Europe and close in on North America, where wealth rose 9 per cent to $11.6-trillion. More than half the world's millionaires are still to be found in the United States, Japan and Germany.
Asia's private banking industry has seen consolidation recently as the market turmoil dampens growth, and rising regulatory and staffing costs hit profitability.
Swiss private bank Julius Baer said in October it was buying the Asian private wealth portfolio of Macquarie Group , Australia's top investment bank.
Credit Suisse said it planned to expand client coverage through integrating new offices in Nagoya and Osaka in western Japan and aims to boost profitability. The bank, which has targeted Japanese investors holding more than 1 billion yen in assets, currently has an office in Tokyo.
Japan has 1.7 million millionaires in dollar terms, by far the largest market for high net worth individuals in the Asia-Pacific region by accounting for 52.5 per cent of the region's millionaires and 38.2 per cent of its wealth at end-2010, according to the Merrill Lynch/Capgemini report.
Japanese millionaires had assets of $4.135-trillion at end-2010, the report said.
Credit Suisse said its private banking business in the Asia-Pacific region has been among the fastest-growing of its international wealth management businesses, with annual double-digit growth in net new assets.
While Swiss rival UBS has also been strengthening its business in Japan and Asia-Pacific, the Japanese private banking industry is dominated by local banks, analysts said.
HSBC also said on Wednesday that Dar Es Salaam Investment Bank, a 70.1 per-cent-owned subsidiary of HSBC Asia Holdings, sold its near-20 per cent interest in Iraqi insurer Dar Es Salaam Insurance to Gulf Insurance Co for about $1.3-million.