How much potential is left? Future strategies in private banking and on the financial markets

  • Consolidation gaining momentum on the Austrian private banking market
  • Bank Austria Private Banking sees itself as benefiting from this development
  • The idea of security in asset management must constantly be redefined
  • Investors will have to accept more risk if they want to avoid declines in purchasing power
  • Buy-and-hold strategy is obsolete
  • Bank Austria Private Banking asset allocation in the first quarter of 2013
    o Portfolio continues to favour risk tolerance
    o Equities and corporate bonds "overweighted"
    o Government bonds from core markets less attractive

Austria continues to be an interesting growth market in private banking. However, regulatory requirements are leading to greater complexity and higher running costs. Taxation framework conditions are also making it more and more complex to provide private banking advice. Amidst these challenging conditions, Bank Austria's Private Banking division – represented by the brands Bank Austria Private Banking and Schoellerbank – did very well, increasing its total financial assets by 7 per cent to EUR 18.5 billion. As a result, Bank Austria Private Banking remains the undisputed market leader in Austria, with roughly 36,000 customers including 900 private foundations.

"I assume that the consolidation on the Austrian private banking market will gain momentum and that the sector will change in Austria in the coming years. The regulatory provisions will create additional burdens that especially small institutions will have a tough time dealing with. The future lies in our business model: a solid universal bank that is firmly anchored regionally and can rely on international expertise. In addition, a lot of customer funds are not yet managed in private banking departments. We see potential for growth here. Bank Austria Private Banking will clearly benefit from this development," said Robert Zadrazil, the Management Board member responsible for private banking at Bank Austria. "Another advantage of our bank is the wide range of products we have to choose from. We can select the best products on the market for our customers. This objectivity is invaluable and has contributed greatly to our success particularly in recent years. The best example of this is our 5Invest asset management service. With this proven concept, we combine risk minimisation through broad diversification with global access to our "Preferred Partners" , ten outstanding, globally active fund management companies. In recent months, our customers have entrusted us with an additional roughly EUR 321 million, and the performance of our portfolio with balanced risk came to 9.20 per cent in 2012," added Zadrazil.

The idea of security in asset management must constantly be redefined

In order to prevent declines in purchasing power, assets should be invested more actively in growth markets and more broadly diversified. This makes it possible to balance out fluctuations and benefit from value growth in various asset classes. The long-term buy-and-hold strategy is also a thing of the past: People who invested in the American S&P 500 around the year 2000, for example, would practically be at zero now.

"Many customers are not aware that – to put it bluntly – if they just stick with their safe savings account, their purchasing power will decline by almost half over a longer period like 10 years. So the idea of security in asset management needs to be redefined on an ongoing basis, and investors need to accept more risk again in order to preserve their purchasing power. In private banking in particular, we need to discuss this issue seriously with our customers and offer solutions like our 5Invest asset management, which completely mirrors our asset allocation," emphasised Zadrazil.

Bank Austria Private Banking asset allocation in the first quarter of 2013

Although the uncertainties on the markets have not yet fully dissipated, equities got off to an excellent start this year following a very successful year in 2012. However, as mentioned above, there are definitely still problems: The euro debt crisis is by no means over, so there is still a need for budget consolidation. This is becoming more and more of an issue in the US, as was made apparent by the fiscal cliff at the end of the year. The economy is recovering slowly from
the latest weak phase. Once again, the (Western) central banks are lending essential support to the markets by allowing funds to keep flowing freely and in that way supporting risky assets.

"We therefore remain overweighted on equities. Regionally speaking, we currently see the greatest potential in the emerging markets and Japan," said Monika Rosen, chief analyst at Bank Austria Private Banking. "Emerging markets offer good earnings and growth prospects, while Japan is expected to see fresh stimulus when its new government takes office. However, it is important to note that we have hedged the currency for Japanese equities, so we are not exposed to the decline of the yen. We are neutral on US equities because the positive conditions are already priced in to a large extent here. The debt crisis remains the dominant issue in Europe, so we are cautious when it comes to this region."

Summary: "In general, you could say that if risk increases, we would not hesitate to reconsider our relatively risk-tolerant strategy and reduce the equity portion," emphasised Rosen. "Our bond positioning remains cautious, and we are maintaining our investment advice to ‘underweight' government bonds. We are overweight on corporate bonds, even ones with higher risk (high yield bonds) and emerging markets bonds. They are an excellent way to diversify European bond portfolios," Rosen said in summary.

Background information about 5Invest asset management

5Invest asset management is a structured asset management service that is managed on a discretionary basis and that offers customers five different risk profiles to choose from, from "conservative" to "progressive". The professionals at Bank Austria manage their customers' assets according to a defined and dynamically adapted allocation of various asset classes. This is determined by an in-depth market assessment by the experts at Bank Austria based on their know-how, their experience and ongoing national and international research. Investments are currently made solely through the investment funds of our ten Preferred Partners. These Preferred Partners are analysed using a detailed due diligence process and are selected for asset management. With this proven concept, we combine risk minimisation through broad diversification with global access to the ten best globally active fund management companies. The performance of the balanced portfolio came to 9.20 per cent in 2012 (cumulative performance, before taxes).

Enquiries: Bank Austria Press Office Austria
Martin Kammerer, tel. +43 (0) 50505 - 52803
E-mail: martin.kammerer@unicreditgroup.at