Getting personal
As Romanians sell up their self-made business and cash in on the real estate sector, private banking departments hope to clean up. Michael Bird and Alexandra Pehlivan examine the growing trade in personal services
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Romanians flush with a few hundred thousand Euro in cash have begun to emerge, as they make a quick buck from the real estate boom, sell out their business or land a top job at a local branch of a multinational.
This class of the new rich, mostly men in their forties and fifties, have made their money using hard work or through luck – rather than manipulating the network of connections that helped trigger the first wave of rich in the 1990s.
These guys know the real estate boom will not offer 100 per cent returns every year from now until 2014 and that investments in new enterprises begin to pose a higher risk, as competition across all sectors heats up.
They need instruments which offer security on the best terms possible and deposits which give a solid return.
Therefore all the leading banks in Romania are lining up to attract the cash-rich to their private banking departments. So popular is the trend that there are even plans to set up a private bank from billionaire extremist presidential candidate and financier of Steaua football club Gigi Becali.
In private banking, dedicated counsellors offer clients advice and products dependent on the risk appetite and the time periods clients wish to make deposits. Some banks offer asset management, including investment portfolios.
In western Europe private banking tends to serve wealthy octogenarian widows wondering which errant relative will receive their fading inheritance.
But in Romania the market targets entrepreneurs and managers rising to the top of local branches in blue chip companies.
“We are seeing a trend of businesspeople exiting businesses,” says Alex Dumitrescu, head of private banking, BCR Erste. “More people have started to sell their land or business.”
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Liquid assets are becoming more important, and therefore private banking has a key role. “It is a good period to assume wealth and there is a large boom for private banking,” adds Monica Ionescu, head of private banking, Unicredit Tiriac.
Total customers of private or preferred banking in Romania number around 10,000, while the potential market is between 50,000 and 100,000 according to different estimates from banks.
“We have very high expectations as it has picked up so fast in last four to five years,” says Liliana Coca Damianov, head of private banking, at Eurobank EFG Private Banking Romania, run through Bancpost.
Total assets size of Romania’s 300 most wealthy individuals was 22.5 billion Euro in 2007, according to Credit Europe Bank. This is an increase of 50 per cent on the 2005 figure. Around 15.6 billion Euro of this wealth is based in Bucharest.
“We expect 20 to 30 per cent growth in private banking in 2008,” says Paul Prodan, deputy vice-president, private wealth management, Credit Europe Bank.
While ING started private banking operations in Romania at the beginning of the decade, the two largest banks Banca Comerciala Romana (now BCR Erste) and BRD Groupe Societe Generale created departments in 2004.
By 2007 smaller banks in Romania, such as Credit Europe Bank, ABN Amro and MKB Romexterra, with its new status as part of the Bayern Lb Group, have entered the market. The latest entry is OTP bank, which began providing a private banking service last December.
Becali’s bank start-up plans to offer private and corporate banking departments, with a target of the wealthy, big businesses and sportspeople, especially football players.
As we went to press, staff from the potential bank was preparing to dispatch a request to the central bank (BNR) for approval to operate. This would take between two and four months. Then the bank would need a licence to function, before gaining final approval from the BNR.
“In 2008 or 2009 we will probably see true competition on the market and customers will really be able to choose the best services and products,” says BCR Erste’s Dumitrescu.
Those with between 40,000 Euro and one million Euro in cash are the target customers of exclusive banking, although ING has a portfolio of clients who deposit an average of over one million Euro in assets. However many of the super-rich in Romania prefer to go off-shore or to Switzerland.
Who are these people with money?
ABN Amro targets what it calls the “emerging affluent”, who are self-made businesspeople who are not sure what to do with their money. “Now many people in Romania have money but do not consider themselves rich,” says John Bell, head of retail banking, ABN Amro. “They do not know they can have a special service.”
For Unicredit Tiriac, one third of its private banking clients are entrepreneurs, one third top management and a third have inherited wealth. Due to the boom in real estate, many have made some quick cash in this sector. Raiffeisen private banking also counts among its customers lottery winners and those who have recovered their properties lost during Communism. Meanwhile BCR Erste and ING say they have few customers with inherited wealth.
In Romania, private banking is not the end of the road for those who have made their money and want to sit pretty. The most common private banking customers seem to be those over 30, with a university degree, mostly male, who have made money from, for example, an IT and telecom business, through real estate or a CFO or CEO in a Romanian branch of a blue chip company, as well as sportspeople and entertainers. This is unlike the West, where customers are closer to retirement age.
“Customers do not come and say I have 20 million Euro, I want you to manage it – give me the best deal possible,” says BCR Erste’s Alex Dumitrescu. “Make me 15 per cent and from this I will take five per cent and each year live off the interest. They have made one million Euro and want to spend some, reinvest some more in the business and put aside 100,000 Euro for safety. They do not want to live on the money they have made from investments yet.”
Credit Europe Bank’s Paul Prodan says he is seeing more interest among doctors, lawyers and surgeons, those from the so-called liberal professions, while BCR Erste witnesses a growing number of women interested in private banking.
BCR Erste says the latest trend for customers is people exiting from business. They want to keep their money safe and are looking for the best deal.
“They want double digit yield rates with no risk at all,” says Dumitrescu.
Such customers are placing their money in property, reinvesting in their own business and in time deposits. Some have sold out part of their company and are looking to place their money in a secure place. They are not looking for a risky investment from a bank, because their own business is their high risk venture. They want security from private banking because, overnight, a business can vanish. On the whole, customers are not yet thinking of trust funds for their kids. This is similar behaviour to the new rich of Russia – where private banking customers are not discussing, for example, school fees financing.
Right now they are thinking about themselves.
Bucharest base
The majority of private banking customers come from Bucharest, but a growing number have made money in the country at large. For Credit Europe Bank, 15 per cent are foreigners and 85 per cent Romanians. Nine per cent of Raiffeisen’s clients are non-Romanian, while ten per cent of Eurobank EFG’s private banking customers are foreign, from Arabian countries, western Europe and Romanians living abroad.
Less than one per cent of BCR Erste’s clients are foreigners. About half of these are from western Europe and the other half from the Middle East.
BCR Erste has some foreign diplomats and businesspeople as clients. For the past two years they have seen good opportunities in investing in the RON.
There are fewer per capita customers of private banking in Romania than in the majority of EU countries, with the market reflecting the realities of a developing country. “As the market is still undeveloped and there are very few complete private banking packages offered and financial institutions are very reluctant to publicly give details on their offer or the size of the assets they manage,” says Paul Prodan, Credit Europe Bank (CEB).
But some banks reveal figures. CEB has around 167 clients with a portfolio of 74 million Euro, while Unicredit Tiriac has over 1,000 customers. The bank plans to double this number in 2008. Eurobank EFG, through Bancpost, has up to 100 clients, while Raiffeisen Private Banking has about 1,000 clients with a portfolio of about 400 million Euro. BCR Erste has more than 2,000 customers, but expects this to boom. “I predict in two years time we will probably be ready to enter the threshold of 10,000,” says Alex Dumitrescu, BCR Erste.
The amount of liquid assets necessary for private banking in Romania starts at 40,000 Euro, from Raiffeisen Bank. This is far below the one million dollar barrier in the USA, and mirrors Romania’s optimistic development forecast. In 2004 the average amount deposited was around 200,000 Euro. This has increased to 400,000 Euro this year.
In comparison, Eurobank EFG has had a private banking service available in Greece for ten to 15 years for those with 400,000 Euro or above. This has 100,000 clients. The threshold in Italy for Unicredito’s private banking is around 200,000 Euro, while for Poland it is more or less the same as Romania, at 100,000 Euro.
Romania is lagging behind the Czech Republic and Poland in this sector. “CEE markets are slightly different,” says John Bell, ABN Amro. “Poland and Romania have similar consumer cultures, where people like to buy a lot. In Poland in 1998 we saw a similar beginning of a cycle – with consumer lending, spending and new wealth evident. In Poland now wealth management is strong.”
Competition: real estate
Romania has been seduced by the boom in real estate. Private banking managers can woo their customers with promises of double-digit returns, but these promises cannot compete with the 400 per cent returns on property hyped up by some real estate agents.
“We are in competition with real estate,” says Albert Roggemans, head of retail banking, ING. But he warns against placing all investment in real estate.
“100 per cent investment in real estate is not diversification. If there is a problem in the real estate market, it may take more than five years to gain investment back,” he adds. “No one knows when the real estate boom will finish.”
In the past customers were sure of returns and could even, in some cases, double their investment annually. “This has been true for the last 16 years,” says BCR Erste’s Alex Dumitrescu. “Now people are exiting the land business and don’t plan to reinvest everything in it.”
Monica Ionescu, Unicredit Tiriac, is also seeing customers leave real estate.
“They have got some good revenues and now they want to diversify their portfolio on the stock exchange and mutual funds, mostly in Romania,” she adds.
This spirit of diversification seems to be a growing trend.
“People do not want to invest all their money in the same domain and some of them even sell their real estate business to invest in other areas,” adds Octavia Cutus, private banking manager Raiffeisen Romania.
Service variety
Private banking offer services from bank deposits with negotiated interest rates, state bonds, municipal bonds and banking insurance products - they also put customers in contact with other branches of their bank that offer specialist services.
In BRD Groupe Societe Generale, for example, the management of the client investment portfolio also involves the capital market, managed through BRD Securities.
ING offers bonds, bills, shares and advice to individuals on where to invest. “We don’t say to customers that we can manage funds,” says Albert Roggemans, ING. For relationship managers the basic principal is to advise diversification. “We wouldn’t advise clients to put all their money in bonds, but to diversify risks,” adds Roggemans.
Most banks will not reveal the kind of returns they can guarantee, but these tend to be in double digits for RON. “The benchmark is the Bucharest Stock Exchange,” says Damianov. In the past this has given around a 20 per cent return for 500,000 Euro. Damianov says the return on investment for some customers can be as high as 40 per cent depending on the risk appetite.
Unicredit Tiriac presents portfolios based on risk profiles and expectations of customers. “Some investors are active on the stock market, know what they want and it’s easy, some are conservative, for them a portfolio mainly consists of bonds and long-term deposits and government securities and very few stocks,” says Ionescu.
For ABN Amro, a typical customer has sold out some land and has 200,000 Euro sitting in a time deposit. “We ask them how much do you need and what is it for?” says John Bell. “How much can you afford to lose? It will be different for a 20 year old and a 75 year old. A 20 year old may be willing to gamble up to 30 per cent.”
The clients of Raiffeisen usually invest around 70 per cent in safe products and 30 per cent in shares and deposits and products that have a higher risk. But in private banking, the majority of Romanian customers are still not taking the long-term view nor are they looking at complicated products.
“The offer of high end financial products as seen on developed markets is still in an infant stage in Romania,” says Prodan. “But the size of the demand for private banking services is increasing.”
For BCR Erste, around 90 per cent is in cash deposits in Romania as opposed to Austria where about 30 per cent is in cash. BCR Erste runs an asset management portfolio – but only around ten per cent of its private banking customers exploit this service.
Customers are still not saving for the future.
“Long-term savings very rare – people are not thinking about instruments for five to 15 years,” says Damianov. “Clients are still looking for facilities for under one and a half years.”
Requests from private banking managers can even stretch to property advice. Damianov says many top clients are looking to buy second homes in the south of France and Eurobank EFG has a partner office in Monaco. In Cap Ferrat and in Cannes her Romanian customers have bought sea-view properties with initial advice from private banking.
Big money
Among the large banks in Romania, Egnatia, savings bank CEC, Piraeus, Citibank, Banca Romaneasca, Volksbank and Alpha do not now offer private banking in Romania, while Banca Transilvania offers a service, but does not have a separate department.
Where are the branches?
Most private banking branches are based in the north of Bucharest. BCR Erste employs six people in its Bucharest branch and 24 people over the country covering cities such as Brasov, Timisoara, Craiova, Constanta, Iasi and Cluj-Napoca, while Raiffeisen has four branches in Bucharest and in Constanta, Iasi, Timisoara, Brasov, Cluj-Napoca and Ploiesti.
ABN Amro has a ‘preferred banking’ salon in the capital and may add another branch in Bucharest, as well as in other major cities.
Unicredit Tiriac’s private banking operations are only available in Bucharest at the moment, although the branch managers are ‘mobile’. But the bank has plans to cover the country and will make its first steps this year. Unicredit Tiriac has eight regions and, at the first stage, hopes to have at least one person in major cities.
High class location
When asking its customers what services they require for private banking, one Romanian bank’s research revealed that what clients want from a branch is not a high class location, a plush inter-war villa with exquisite furnishings, nor complementary champagne, biscuits and head massage from a staff of stylish and accommodating relationship managers. No - all they want near the bank is a space to park their car.
But nearly all the private banking branches are within a radius of two kilometres centred on Bucharest’s Piata Aviatorilor, meaning that a customer could shop around all the main private banks by foot.
ING has a dedicated branch on Aleea Modrogan, Unicredit Tiriac on Strada Grigore Mora, BRD - Groupe Societe Generale in Primaverii, Credit Europe Bank in Piata Dorobantilor, Raiffeisen Bank in Piata Charles de Gaulle and ABN Amro has a salon with plush designer interiors and free Internet, cappuccino and meeting rooms in the World Trade Center, Piata Montreal.
Meanwhile magnate Gigi Becali will transform his current residence in Primaverii’s Aleea Alexandru into a headquarters for his own private banking operation, Becali Bank. The former Ambassadorial residence, now redeveloped and gilded in gold paint, will showcase what Becali calls the ‘Roll’s Royce’ of Romanian banks.
