Western European private banks saw record profits pools of EUR 15 billion in 2017, following a disappointing 2016.
The most profitable private banks were large banks with assets over EUR 30m or those attached to universal banks, according to McKinsey, the consultancy.
Private banks attached to universal banks that saw record profits include Investec’s wealth & investment division which reported an operating profit of £98.6m for the year ended 31 March 2018, a rise of 6%. Brewin Dolphin saw an increase of 20% for the same period. Independent private bank Reyl Group reported a profit surge of 84%.
However, in its European Private Banking in 2018 report, Mackinsey warns that these profits were mostly driven by a bullish market performance since 2013, and not from new business growth.
“Over the last five years, rising markets have allowed private banks to outgrow many of their problems,” the Report notes.
“Banks need to assert greater control over their profit growth in two ways. The first is by redoubling their efforts on building net inflows. The second is by exerting greater control over growth in fee margins and the cost base.”
In a warning, the Report notes that increasing AuM, which has been the bedrock of many private bank’s profits since 2013, cannot be relied upon in future market uncertainty.
A “more segmented value proposition” and an “omnichannel delivery” are among the report’s recommendations for improving profitability.