Swiss giant UBS tops The Banker's Top 50 Private Banking Brands ranking, with an increase of nearly one-third in its brand valuation in the past year giving it a clear lead over its nearest rival, Deutsche Bank.
Wealth management is undergoing a period of serious transformation. A number of private banks have been hit by heavy fines for failing to comply with tax rules, new banking regulation across the world is making global banks reconsider their international presence, and new technology and clients’ attitudes towards self-directed investment platforms have opened the door to new challengers. Nevertheless, when looking at the value of private banks’ brands, it is still the established names that dominate.
Compiled by consultancy Brand Finance, The Banker’s ranking of top 50 private banks analyses annual data up to January 1, 2015, and takes into consideration wealth management businesses only, excluding any asset management activities. This year's ranking shows Switzerland-based UBS as the clear leader of the list, with a brand value of about $6.17bn – a figure that is one-third higher than its previously recorded value in 2014, and $1.4bn higher than second placed Deutsche Bank.
The valuation represents the royalty fee that a third-party would have to pay to use the brand, and is based on historic and forecasted financial results, asset strength, market share, as well as on emotional factors such as familiarity and general brand satisfaction, as scored by clients and collected by independent data providers.
Winners... and winners
UBS's counterparts in Switzerland recorded flatter growth. Credit Suisse grew by 6%, which was nevertheless enough to maintain its third place ranking overall, while Julius Baer, another long-standing and pure-play Swiss private bank, which ranked 11th overall, grew by just 2%. “Results in Switzerland were lumpy: some of the brands are doing quite well, some others are not doing so well,” says Bryn Anderson, Brand Finance’s chief operating officer. He attributes UBS’s success to its focus on core markets and businesses.
Other Swiss brands that enjoyed double-digit growth were Banque Privée Edmond de Rothschild and J Safra Sarasin, both of which featured in the second half of the ranking, having recorded 27% and 28% valuation growth, respectively.
Elsewhere in the world, a handful of players increased their brand value by an even larger percentage than UBS. Commonwealth Bank of Australia, in 21st place, grew by 49% and is one of the three names in the ranking that expanded in value by more than 40%. Its brand rating also improved to AA- from AAA+; this is Brand Finance’s indication of brand strength and potential in relation to competitors and measured on a scale from AAA to D.
“Commonwealth Bank of Australia is clearly one of the ‘winners’ [of the rankings],” says Mr Anderson. “The [brand value] went up as a result of improved brand strength over the past year; it is perceived to be stronger than other operators in the market. Another contributory factor was its expansion into growth markets, namely the Asian markets.” Brand Finance has found that wealth management was among the fastest growing brands for the Australian bank; its retail and wholesale banking brands, for example, improved by a lower 30% and 40%, respectively.
All about context
Taiwan’s Taishin also improved its trademark value by 49%, securing it 44th place in the ranking. This increase can be explained by both the growth of its wealth management business, which has been helped by a favourable regulatory environment, as well as the bank's efforts to be perceived as a trusted name, according to Savio D’Souza, associate director at Brand Finance. “Taiwan has significantly deregulated the market for wealth management products. A mainland Chinese client can now bank with a Taiwanese bank, and that has helped [Taishin and other local banks] quite a lot in terms of revenue growth,” he says.
Also of note is Lloyds Bank's improvement, with its brand valuation increasing by 47%. The UK-based bank's wealth management division has benefited from a group restructuring, and from focusing on a profitable share of the local wealth management market, where its brand is highly recognisable. Mr Anderson says: “[Lloyds] has rationalised the business, focusing on the UK only, [typically on] business owners with high disposable income and older [customers], who are more likely to use wealth management services. It cross-sells much better from the retail base than other banks within the UK.”
The ranking predominantly features brands from developed countries, with only four emerging market names. The highest ranking is China’s ICBC, in 17th place, followed by China Construction Bank in 25th position and Singapore’s DBS in 27th. Singapore continues to offer fertile territory for wealth managers, says Mr D’Souza, in line with its ambitions to grow as an international financial centre serving Asia.
Methodology
How we value Private Banking/Wealth Management brands. Brand Finance employs a discounted cash flow technique to discount estimated future royalties at an appropriate rate to arrive at a net present value of a bank’s trademark and associated intellectual property – its brand value. The steps in this process are to:
1. Obtain brand-specific financial and revenue data. Revenue streams pertaining solely to Private Banking segment are isolated.
2. Model the market to identify market demand and the position of individual banks in the context of all other market competitors.
Three forecast periods were used:
- Estimated financial results for 2014 using Institutional Brokers Estimate System (IBES) consensus forecast.
- A five-year forecast period (2015 to 2019) based on three sources: IBES, historic growth and gross domestic product (GDP) growth.
- Perpetuity growth based on a combination of growth expectations (GDP and IBES).
3. Establish the royalty rate for each bank by:
- Calculating brand strength on a scale of zero to 100 according to a number of attributes, including asset strength, emotional connection, market share and profitability.
- Determining the royalty rate for each revenue stream mentioned in step one.
- Calculating the future royalty income stream.
4. Calculate the discount rate specific to each bank, taking account of its size, geographical presence, reputation, gearing and brand rating (see below).
5. Discount future royalty stream (explicit forecast and perpetuity periods) to a net present value – the brand value.
Royalty relief approach
Brand Finance uses a ‘relief from royalty’ methodology that determines the value of the brand in relation to the royalty rate that would be payable for its use, were it owned by a third party. The royalty rate is applied to future revenue to determine an earnings stream that is attributable to the brand. The brand earnings stream is then discounted back to a net present value.
This approach is used for three reasons: it is favoured by tax authorities and the courts because it calculates brand values by reference to documented third-party transactions; it can be done using publicly available financial information and it is compliant to the requirement under the International Valuation Standards Committee (IVSC) to determine Fair Market Value of brands.
Brand ratings
These are calculated using Brand Finance’s ßrandßeta analysis, which benchmarks the strength, risk and potential of a brand relative to its competitors, on a scale from AAA to D. It is conceptually similar to a credit rating. The data used to calculate the ratings comes from various sources including Bloomberg annual reports and Brand Finance research.
Brand ratings definitions
AAA Extremely strong AA Very strong
A Strong BBB-B Average CCC-C Weak
DDD-D Failing
Valuation date
All brand values in the report are for the year ending December 31, 2014.
