Private Banking: Death Valley or the Valley of Elah?

Conventional wisdom imparted by bankers (and by many of the consultants advising them) says that the Wealth Management sector will not only have to rapidly consolidate in the face of the structural changes besetting the industry, but will also polarize in two very distinct sorts of banks, each being entirely dependent on the type of clients being served.

According to this view, Private banks will have to choose between being either local and specialized institutions with a limited range of services tailored to the needs of local high net worth clients or being international banking behemoths serving the global super-rich.

As a consequence, pundits predict that Private banks unable to have positioned themselves resolutely at one or the other end of this spectrum by the end of the current decade will have died while trying. In other words, those caught out in the middle will succumb to the unforgiving conditions of Death Valley…

In considering the merits of this prediction, one might draw lessons from the realm of sociological and psychological non-fiction. In ‘David and Goliath: Underdogs, Misfits, and the Art of Battling Giants’ [1], author Malcolm Gladwell explores the nature of lopsided conflicts, confrontations and challenges. His central thesis is that what are ordinarily perceived as advantages may, in fact, be disadvantages, and vice-versa. He also argues that being in a situation of disadvantage may bring surprising benefits. In fact, we often tend to misjudge challenges by failing to look beyond the obvious. In the author’s own words:

“[…] we consistently get these kinds of conflicts wrong. We misread them. We misinterpret them. Giants are not what we think they are. The same qualities that appear to give them strength are often the sources of great weakness. And the fact of being an underdog can change people in ways that we often fail to appreciate: it can open doors and create opportunities and educate and enlighten and make possible what otherwise might have seemed unthinkable.” [2]

In his eponymous example of the legendary battle between David and Goliath in the Valley of Elah, the author examines the apparent forces at play as a giant warrior ensconced in protective armor is confronted by a small shepherd boy. He then delves into the reality of the conflict: the dominance of projectile warriors over heavy infantry, the accuracy and deadliness of a sling, the likely acromegaly of Goliath and his resulting vision problems and David’s speed, among other factors.

Thus, does the legend of the Valley of Elah carry any lessons for the Private Banking industry and for those banks considered to be facing the perils of Death Valley in particular?

We believe they do. In fact, as confidence in the financial markets revives, local wealthy clients’ needs are also likely to evolve, and the smaller sized “niche” banks may as a consequence have to broaden their range of service and product offerings. Likewise, while the “new wealth” generated by successful entrepreneurs pursuing supra-regional business opportunities requires a broader geographical footprint and a more diverse set of skills than those available in local banks, giant global banks may be considered by these same clients as being too big and complex to deal with.

The perceived advantages of being at either end of the spectrum may indeed prove to be tenuous at best when addressing the challenging requirements of certain Private Banking client segments, and many of the apparent mid-sized underdogs may well be ultimately better equipped to serve them.

We, at ValleyRoad Capital, therefore, think that a resilient Private banking “ecosystem” will in fact encompass a variety of sizes and shapes of organizations and that there will be room in the middle of the “Valley” spectrum for those banks which are adequately organized and capitalized, able to form strategic alliances and flexible enough to substitute quality of execution, speed of delivery and creativity for the perceived advantages of sheer size.

Bibliography

[1][2] Gladwell, M. (2013). David and Goliath: Underdogs, Misfits and the Art of Battling Giants. New York City: Little, Brown and Company.

Anderson, R., & Jõeveer, K. (2013, October 2). http://econ.sciences-po.fr/sites/default/files/file/Ronald%20Anderson%2002-10-13_0.pdf. Retrieved on 08.09.2014

Dominick Co. (2014). http://www.dominickco.ch/en/. Retrieved on 08.09.2014

Matthias Memminger. (2014, May 22). PwC Switzerland Publications: Surviving the Valley of Death. Retrieved July 3, 2014, from PricewaterhouseCoopers Switzerland Web site.