Banks take wealth management hit

The wealth management divisions of major banks languished over the 2002/03 financial year, with total earnings excluding appraisal adjustments increasing by a total of only $7 million.

According to theKPMGMajor Banks Survey for the period, released yesterday, this meant a flat earnings growth of just 0.85 per cent for these divisions of the major banks over the 12 months.

Overall, the KPMG survey says the level of funds under management for the major banks increased during the period, though this was predominately due to a market resurgence late in 2003 and the significant acquisition made by Westpac when it purchasedBT Funds Managementin 2002.

KPMG says the largely sluggish performance has been driven primarily by the weak state of equity markets and the general level of global economic uncertainty, causing banks to reassess the value of these businesses.

In total, appraisal adjustments to wealth management businesses in 2003 have resulted in a charge to after tax earnings of $372 million.

KPMG financial services partner John Teer says the market downturn led to a lack of fee income for banks in the 2002/03 financial year due to the funds that had flown out of their businesses in previous periods.

However, the survey says that in light of improving global economic conditions and a consequent upturn in equity markets, the environment for wealth management businesses is expected to improve.

Teer says while there will be competitive pressures on pricing for these businesses, once they achieve the resulting inflows from the upturn in markets their earnings would improve.

Teer says the banks see their wealth management areas as an integral part of growth over the next few years, largely due to the ability to cross-sell wealth management products to banking customers.