Tuesday, 22 December 2009

Singapore, home of private bankers, minarets and Danish beer

Historically, wealthy Arabs have seen Switzerland as a friendly country. Many members of the Gulf elite, including the late president of the United Arab Emirates Sheikh Zayed, maintain lavish summer residences in the Swiss Alps.
The Swiss decision to ban the construction of new mosque minarets has lost Switzerland serious goodwill in the Islamic world.

Swiss companies such as Nestle may see a temporary drop in sales of their products in Arab Gulf countries following the recent Swiss referendum on mosque minarets

The reaction is not as severe as it was following the Danish cartoon incident. Nevertheless, the Swiss referendum result has not gone completely unnoticed.
After the publication of the cartoons, consumer groups organized boycotts of Danish products. For a while, the import and sales of Danish dairy products into the Gulf countries fell by over 50%. (Still, I don't believe the Danish brewery Carlsberg's poor third quarter corporate results were due to a sudden shift to non-Danish beer in the Islamic world!)
Today wealthy Arabs are talking about relocating their bank accounts away from Switzerland, changing holiday patterns and boycotting Swiss products.
Bank accounts and holiday homes are 'sticky' products. It is easy to replace Danish butter or cream cheese with non-Danish brands. Likewise, Swiss yoghurts and jams may be in for a turbulent time in the next few months as emotions remain high.
However, selling a luxury home in Geneva or replacing a long standing relationship with a private banker is a painful and time consuming process, especially in the Arab world, where business opportunities are typically relationship driven.
Trying to 'buy' your way into a relationship is not necessarily the best strategy. Ask the Development Bank of Singapore (DBS) which is saddled with USD 1.3 billion of debt to Dubai World. The loan will not win any favours from a cash strapped Dubai government.
Business relationships are built incrementally as mutual trust is earned. Singaporean banks have recently invested large sums in the area of private banking; most notably, OCBC's USD 1.5 billion purchase of ING's asset management business.

Singapore has all the attributes required to expand its role as a private banking center from Southeast Asia to the Middle East. It is time for Singaporean banks to leverage on their private banking franchises.
Additional investments to establish a presence in the Gulf may seem risky at a time when the banking sector in the Gulf is under stress. But asset management is not a lending business. It is a fee based annuity business with high upfront establishment costs and a long term gestation period. The payoff is in low risk revenues – few loans that may go bad.  
Arguably, the current competitive landscape in the Gulf is highly attractive. The local banks are not in expansion mode. They are conserving capital to shore up their balance sheets in light of expected loan losses from the local corporate sector. The Swiss banks, well, you know the story. The large international banks have suffered serious dents to their reputations due to questions concerning their solvency.
There is no reason why wealthy Arabs should not buy their Swiss Patek Philippe watches in Singapore and reside in luxury apartments around the Marina. Singapore is as good a private banking center as Geneva or Zurich, barring the weather.

One thing is for sure, Arab visitors to Singapore have a variety of mosques, complete with minarets, to visit for their Friday prayers.

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