Creating an onshore Private Bank structure

How to build a platform that works

Taiwan case study

1
I. Review of the environment

2
 Commercial environment
Despite constraints of several natures…

z Some temporary hindrances, such as the upcoming new tax law

z Difficulty to transfer assets
z Constraining regulation, that has nonetheless loosened in the last years

… a high potential

AUM of households w ith a w ealth > USD 250,000

(USD Billions)

499 476

192*
245 94*
208 80 70 67 57
China S. Korea Taiw an India HK* Singap.* Thailand Indo. Malays. Philip.

Onshore assets Offshore assets Sour ce: Mc Kinsey 2002

BNPP PB Asia – May 2006 3

 Onshore potential
A growing market

z 55,400 HNWI (assets > USD 1Mio) in Taiwan with financial assets of USD
180Bn, 6.4% growth in number from 2004
z 500,000 affluent individuals above US$100,000
(Merrill Lynch & Cap Gemini June 2004)
z The Individual market estimated to reach $625M of revenues
Assets under Trust

60
50
USD Billion

40
30
20
10
0
2000 2001 2002 2003 2004 2005

Local MF Overseas Securities

BNPP PB Asia – May 2006 4

 Taiwanese fortunes
Forbes Asia 2006 “Greater China” fortunes ranking

Among the 40 richest families in Greater China

16 are from Taiwan.
3 Taiwanese families are in the top 10.

Æ It is a relevant sign of the potential of that 22 Mio inhabitants island

BNPP PB Asia – May 2006 5

 Legal environment (1)
Multiple legal structures

Æ Bank license: only allows us to deal with loans, deposits, FX transactions and DCOD. Other products
require specific licenses. No general Pledge (pledges are limited to a specific asset for a specific
amount).
Æ Trust: different from the Jersey Trust. It is the channel for overseas securities. A Trust cannot pledge
assets. It is a department of the Bank and reports to an independent regulatory entity, the Taiwan Trust
Association, that issues specific guidelines. The Trust has been absorbed in our organization.
Æ SICE: the SICE license is necessary for the issuing of investment recommendations
Æ SITE: the SITE is a distinct license that also allows discretionary advising, as well as dealing with
mutual funds

Deposits & Structured Deposits BANK

Loans with securities as collateral BANK BROKER
FX transactions BANK
Derivatives BANK
Overseas Securities TRUST BROKER
Mutual Funds TRUST SITE
Structured Notes TRUST BROKER
Domestic Securities BROKER
Discretionary Portfolio Disc.Trust SITE SICE

BNPP PB Asia – May 2006 6

 Legal environment (2)

Strict segregation of offshore business

Other constraints are less structuring

z Heavy reporting requirements. Dedicated staff.

z Constraints on Products, but ultimately the product range is similar to that of other
PB sites
z An official request to authorities in necessary to delocalize part of the activity
(booking, credit monitoring…)

BNPP PB Asia – May 2006 7

 Clients’ needs
Importance of the offshore business

Clients resort largely to offshore for their private banking services

PB has been associated with delocalization rather than service quality
NB: some offshore activities are prohibited under the Taiwanese legislation

A young market

For that reason, onshore PB is often confused with enhanced retail banking
Account officers are themselves more retail-oriented
Minimum AUM
1Mio
Except for one foreign
bank’s situation, there is a
clear separation between
the positioning of local and
Foreign Banks 500k BNPP foreign actors

200k
Local Banks 100k

Clients/officer
>200 >150 >100 >50

BNPP PB Asia – May 2006 8

 Summary on the environment

A very interesting market

that lacks maturity
but has huge potential

Need of solid structures

to handle regulation. Lack
of maturity of the market and,
as a result
unspecialized staff

BNPP PB Asia – May 2006 9

II. Response to that environment

10
 Questions to be asked (1)

Why do we want to enter that market?

Profit from the onshore

potential
Bet on possible
synergies
Other reasons?
(Training ground for China…)

What kind of legal structure do we need?

+ a Bank license? To do loans and deposits

+ a SICE license? To remain on the advisory
A Trust is a unavoidable side
+ a SITE license? To perform discretionary
management
+ a Broker license? To handle transactions
directly

BNPP PB Asia – May 2006 11

 Questions to be asked (2)
What marketing support do we get?

Do we have a middle-range
Do we have a retail network?
corporate coverage?

Do we have brand recognition?

In what way? Can be built through

In what circles? business magazines

Two basic rules

A structure as light as Take advantage of existing

possible local presence
BNPP PB Asia – May 2006 12
 Application to BNP Paribas
A light structure

Within BNP Paribas Use the Branch’s existing structure

previously existing
Taiwan Branch Support from local Legal & Compliance

Strong emphasis on
staff training

Strong support from HK

for credit and products

As a result, only 1 support staff

for every 3 front office staff

BNPP PB Asia – May 2006 13

 Leaning on past experience
All core businesses of the group are represented
with many of them over 20 years of presence.

Wealth
Wealth && Asset
Asset Management
Management
CIB
CIB-- Corp.
Corp. &&Investment
InvestmentBanking
Banking
„ Asset Management
„ Corp. & Financial Institutions „ Trust Services
(CTI) – 15 account officers
BNP
BNP „ Life Insurance & Annuities
„ Structured Finance Paribas
Paribas Æ Cardif is the 8th insurer, and is a
„ ECEP* Group
Group major player in Bancassurance
„ Fixed Income – very active with 1/3 of the market share after
dealing room 4 years development
„ Equities & Corporate Finance ** „ Private Banking ***

** Coverage
Coverage from
from offshore
offshore platform with no direct local headcount, except for Syndication
**
** BNP
BNP Paribas
Paribas Securities
Securities and
and Corporate
Corporate Finance
Finance activity
activity have
have started
started in
in May
May 2005.
2005. (within
(within the
the
branch)
branch)
***
*** Onshore
Onshore PB
PB activity
activity was
was launched
launched on
on April, 22nd
April, 22 nd 2005.(within
2005.(within the
the branch)
branch)

BNPP PB Asia – May 2006 14

 The making of success

The combination of…

A long presence in
Taiwan

A solid corporate
basis

A strong regional PB
platform…
leverageable locally

BNPP PB Asia – May 2006 15

III. Execution of the business plan

16
 Creation of working groups

Orga. / Admin. IT-Systems Front Office Workflows

Credit process Finance&Control Timing: 4 months

Every other week, a steering committee assesses the advancement of the project
The committee includes every area of the Bank

Crucial importance of Legal and Compliance

Took part in the three most important work groups as well as in others
Compliance also sits in the steering committee
External validation by a Legal consultant

BNPP PB Asia – May 2006 17

 Importance of the product range
Range
RangeNotes
Notes
Spot/forward
Spot/forward
Equity
EquityLinked
LinkedNotes
Notes
Options:
Options:plain
plainvanilla/exotic
vanilla/exotic
Knock
Knock in/ knockout
in/ knock out Target
Foreign
ForeignExchange
Exchange TargetRedemption
RedemptionNotes
Notes
DCOD
DCOD Hedge
HedgeFunds
FundsBased
BasedNotes
Notes
Notes
Notes
Commodities
CommoditiesBased
BasedNotes
Notes
Short
ShortTerm
TermInvestments
Investments
Deposits
Deposits FX
FXBased
BasedNotes
Notes
Mutual
MutualFunds
Funds
Structured
StructuredDeposits Credit
Deposits CreditLinked
LinkedNotes
Notes
Brokerage
Brokerage
Repo Sale/purchase
Sale/purchaseofofbonds:
bonds:
Repo
Overseas Bonds
Overseas Bonds
Credit
CreditFacilities
Facilities Taiwanese
TaiwaneseBonds
Bonds
Preferred Shares
Preferred Shares
ECB
ECB
Registered
RegisteredMutual
MutualFunds:
Funds:
overseas bond funds
overseas bond funds
overseas Sale/purchase
Sale/purchaseofofequities
overseasequity
equityfunds
funds Share
ShareFinancing
Financing
Credit
Credit equities
TW bonds funds Overseas Equities
Overseas Equities
TW bonds funds
TW Taiwanese
TaiwaneseEquities
TWequity
equityfunds
funds Equities
Issuance
IssuanceofofSBLC
SBLC

BNPP PB Asia – May 2006 18

 Conclusion: Taiwan’s challenge

z The Taiwanese market does have an interesting potential

z But the market is young and the regulation is such that the
best solution is:
Æ To use a pre-existing structure
Æ To capitalize on overseas support

A project prepared in 4 months, live for one year, that has

already positioned BNP Paribas as a prime player on the
Taiwan Private Bank onshore market

BNPP PB Asia – May 2006 19

THANK YOU

20