Private banking promises to bring new riches to Greek banks
Greek banks have been the darlings of non-resident investors over the last three years or so for producing double digit earnings growth underpinned by buoyant retail banking activities in Greece and the neighboring countries. If pundits are right though, local banks can count on another, still underexploited, source of income in the years ahead: growing fees from their still underdeveloped and relatively cheap private banking services in Greece. Non-resident investors, including all kinds of institutional portfolios from pension to hedge funds, appear to own more than 40 percent of shares in the National Bank of Greece and 30 percent or more in Alpha Bank and Piraeus Bank. It is estimated that they control more than 20 percent of EFG Eurobank without counting the stake of companies abroad controlled by the Latsis family. Retail banking is expected to continue dominating profits this year and next, but the rising number of Greeks with assets under management for investment in excess of 300,000 euros per family, leaves scope for growth in fees from private banking services. Of course, some banks put the barrier higher at 1.0 million euros and others at 400,000 euros. As far as the number of Greek families qualifying for private banking services is concerned, some put the number of Greeks having money onshore and offshore in excess of 300,000 euros at 50,000 families, while others estimate 25,000 households satisfy the minimum criterion with investable assets totaling some 65 billion euros onshore. According to study from the late 1990s at Citigroup Private Bank, there were at the time about 15,000 families with assets worth more than $1.0 million each. Although there are no official figures, consensus estimates put the total assets under management in the private banking divisions of the five major players in Greece at about 15 billion euros. Bankers such as Vangelis Dounias from Piraeus Wealth Management believe this can easily double in the next few years, enhancing bank revenues. According to Efthymios Bouloutas, general manager at EFG Eurobank, the number of private banking clients in Greece is growing by 1,000 to 1,500 every year. The same number is augmented by 6.0 to 7.0 percent on average in the European Union, with assets under management growing by 8.0 to 9.0 percent per year. Shipowners Shipping turned out to be a major source of clients for the wealth management divisions of Greek banks in the last few years thanks to skyrocketing fares and growing value of vessels. Shipowners and high-level officials of shipping companies, generally more sophisticated and international, sought investment services to beat the low returns offered by typical money market and fixed-income instruments. Still, it is not clear what kind of returns they enjoyed since some shipowners diversify their portfolios, taking into account the large sums they have invested in ships, a risky asset. In so doing, they opt for a more conservative asset allocation. According to directors and account managers at major private banks, there are other shipping tycoons with a much more aggressive style, showing a preference for more risky portfolio investments such as hedge funds and even private equity funds. If the shipping industry provided a good deal of clients for the private banking divisions of local banks, this was not the case with other wealthy Greeks such as industrialists. It is no secret that some attribute it to a policy of not investing in banks where they or their companies borrow money. But this may be due to the levels of private banking services available, something local bankers dispute, saying service may be similar or even better than the one offered by major private banks abroad, who tend to cater more to the interests of ultra-high net worth customers with investable assets in excess of 20 million euros. Greek bankers believe there is a lot of untapped potential in wealthy and generally affluent Greeks who are not fully aware of private banking services. In so doing, the latter keep on parking their money in low-yielding repos (repurchase agreements) or time deposits. The size of this pool of people is not known but may be significant and increasing at a healthy rate every year in a country whose official economy has expanded around 3.5 percent annually for many years. Add to this the size of the Greek underground economy, which different estimates put between 20 and 40 percent of the official GDP (gross domestic product), and one gets a better picture. The sharp rise in real estate prices may also have produced a new breed of Greeks with newfound wealth, assuming more than 80 percent of the population own their own home and some 18 percent have a second house as well. In addition, Greece’s fast-growing economy has also given rise to top and middle-level company managers who end up surpassing the 300,000- to 400,000-euro barrier, creating another pool of potential customers. Piraeus’s Dounias says there may be another potentially untapped source of customers: Greeks who have managed to send or keep tens of billions of euros in foreign bank accounts. The Greek government tried to lure them in, offering amnesty for a relatively small tax in 2004 and 2005, but this obviously did not work. Dounias says the new tax law on interest income effective as of July 1, 2005 may do it. Under the new law, banks in EU and some other countries do not withhold taxes on income earned in savings accounts and other investment accounts held by non-residents but they report the figures to the relevant authorities at the Finance Ministry, who notify the tax authorities at the non-resident’s country provided it is in the list. The small foreign exchange risk following the adoption of the euro and this new law may finally convince some Greeks to return a portion of their money here, and in so doing it is likely to seek wealth management services. So, there are good reasons to believe that assets under management of private banking clients in Greece can more than double to 30 billion euros or more in the years ahead. If one adds to this an expected rise in fees charged by banks located in Greece, generally thought to lag the fees charged by their peers in the eurozone and elsewhere in central Europe, one can look forward to another source of revenue enhancement for Greek banks in the future from private banking.
