Counting the money: private banks have long ruled the domain of money handling for the ultra-rich But the game has changed as the Brickell Avenue financial district embraces new products and encounters new challenges

Latin CEO: Executive Strategies for the Americas,  Nov, 2001  

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WHEN CITIBANK VETERAN THOMAS NOONAN was offered a transfer from New York to run the bank's Latin America operations in Miami 16 years ago, he had reservations. After all, for many, New York was the financial capital of the world. Why leave? "They explained it to me this way: 'Miami is 100 percent Latin but with US sovereign risk.'" He took the job, and later went on to head his own institution, BAC Florida Bank, which deals in high-end real estate loans, trade finance and private banking.

It is stability and soundness that continue to attract the well-off to deposit money and invest in US-based institutions--a fact that hasn't escaped the many international private banks that have set up shop on Brickell Avenue, Miami's private banking alley "Anytime you see an economic downturn or political instability in the region, you see a flight to quality, and quality is American banks or banks operating in the US," says Jerry Haar, a senior researcher and director of the Inter-America Business and Labor program at the University of Miami's North-South Center. "That's why the private banking side is healthy"

Private banking is loosely defined as banking for the rich; US$1 million of investable assets is considered the common entry level. But the business has evolved over the past decade from a chummy club offering wealthy clients traditional deposit services and loans, to one of precision asset and risk management.

"What used to be called private banking is a rapidly changing industry" says Jaime R. Rivera, Bank of America's managing director for Latin America. The biggest shift has been a switch from traditional investment products, such as certificates of deposits, to mutual funds, stocks, bonds and hedge funds. "Private banking today is more managing private assets than it is banking, although not exclusively so," he says. "It's also one of the few segments in the financial services industry that is growing very fast and has proven to be quite profitable."

However, measuring that profitability is difficult. Private banking, as its name implies, is a cloaked affair often used by clients as much for asset preservation as tax avoidance, some bankers admit. A study conducted by Florida International University's department of finance estimates that foreign bank offices and US-based commercial banks in Florida (read: Miami) held more than US$39.2 billion of assets under management for private banking clients in 1999. Indeed, Miami remains the hub of choice for wealthy Latin Americans, along with New York. The cities of Los Angeles and Houston have also made inroads, but mostly with Mexican clientele.

The popularity of private banking as a business line is reflected by the abundance of wealth management units that have sprung up during the last decade at mainstream commercial banks such as Bank of America, First Union and SunTrust in the US, and Banco Santander and Banco Bilbao Vizczya Argentaria in Spain. In Miami, they have set up shop near such standards as Barclays Bank, Lloyds TSB Bank, Bankers Trust and Northern Trust, all which have a long history in the business. "What you've had since the 1990s is a class of super-rich that have emerged as well," says North-South Center's Haar. "Offit Bank, for example, doesn't take clients with less than US$20 million in investable assets."

Even so, private banks have not been immune to the economic malaise currently affecting the US and Latin America. Because revenue is generated from interest rate spreads on loans and fee income from securities trading--both of which have fallen off--the consensus among industry insiders is that private banking units will be hard-pressed to keep up with past performance.

"Interest rates have been lowered six times this year, and as a result the differential is rather small, margins are reduced," says Agustin J. Abalo, Banco Santander Central Hispano vice president and director of operations and information systems, in Miami. "In terms of clients, you're seeing that depositors from certain countries are starting to pull from the dollar reserves that they keep here," and are using the money to finance business or personal needs.

Akiva Segal, manager of the Miami agency for Bank Leumi LeIsrael, says that the money which is floating into bank coffers from Latin America is being invested in less liquid assets. "I do believe that if they are moving money to the US, they are doing a significant portion of it in real estate. You can see it in the way that Miami [property values are] flourishing."

BAC Florida Bank's Noonan says a large portion of his bank's business is done in commercial and residential real estate loans to clients from Central America and the Dominican Republic. "With the downturn in the equities markets, certainly a lot of people have wanted to diversify their portfolio and a lot of people buy second homes up here."