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Christine Tan: So, you have more than 30 years of experience in the financial and banking industry. You've seen institutions through the Asian Financial Crisis and the Global Financial Crisis. The industry has undergone tumultuous times. What are some of the important lessons learnt for you?
Edmund Koh: I think it's to assess each situation calmly, not to be so caught up emotionally but to rationally understand the opportunities that exist during each of the difficult periods. That's very important because amidst all the chaos, there are always a lot of opportunities. I was in Taiwan running a bank in 2008 just before the Financial Crisis. When it came, we actually did far better than before. The reason for that was, we were extremely calm, knew exactly what we set out to do and executed it as a team. I think we did very well during those three, four years from that period of the Lehman Financial Crisis in 2008. So, over these few cycles as well, it has given us or given myself a lot of confidence and also in many ways humility as well, to understand that each of the cycles brings with it a lot of challenges.
C: Well, it has certainly brought about stricter regulatory requirements and banks have come under a lot of scrutiny. UBS itself has not been immune to fines meted out by regulators for money laundering and tax evasion. As the new head of Asia Pacific for UBS, what are you doing to strengthen compliance of the bank here in the region?
E: It has been a journey, but clearly it is one of really understanding beyond the regulatory landscape. It's the change of business from being very opaque to very transparent. It is also important to educate our own people internally about new governance, new rules and new regulations, of doing what is always right. It's not as difficult as what this whole governance or changes in rules and regulations have been about these past few years. It's really about adopting it, it's really about understanding it and more importantly, it's really about accepting it. So for me, it has been pretty smooth. But when you put people through a bit of technical terms, like "first line of defense", "second line of defense", it needs a period of adjustment. I think we have adjusted very well. The whole industry has actually adjusted pretty well during these past six, seven years.
C: Are you happy with the compliance in the bank here in Asia Pacific?
E: I'm very happy with it. We aren't perfect because it's always changing, but I'm very happy because people are willing to do it, people want to do it and they're embracing it the right way. You always start with the first principles about people wanting to do what's right and do it very well on a daily basis, and that is important. We may never be perfect but the important thing is to understand where your flaws are and to find ways to remediate immediately and to recover. That's very important.
C: How exactly do you navigate the bank through the different rules and regulations in the different markets?
E: Actually, by keeping it simple. Amidst all the complexity, you have to find that simplicity, to understand and to tell the story for colleagues who have to adapt to the new regime. It's not so much of just putting the terms and conditions into place, but getting people to understand why this is needed and what will be their subsequent roles in carrying this out on a daily basis. That is priceless and that touch is always very important.
C: Market conditions have been challenging. UBS has reported a 27 percent drop in net profit for the first quarter of this year. But one bright spot was that Asia accounted for about three quarters of net new money, 22.3 billion dollars that the bank attracted in the first quarter. What's behind these fresh inflows into Asia?
E: Every time when we go through a very tough period where there are uncertainties in the market, Asia is quite unique because more than two thirds of our clients are entrepreneurs. A lot of them actually have direct investments. So, given the volatility, a lot of them would have stayed on the sidelines. I've always found this period a perfect time for the largest wealth manager in Asia, which is UBS, to actually further consolidate our market share and grow our market share. So, if you look at last year 2018, the whole year we did net new money of about 17.2 billion U.S. dollars. This year in quarter one alone, my successors did 16.3 billion U.S. dollars. I'm very proud of them.
C: That's a rebound after outflows we saw in the fourth quarter. Do you think the deleveraging we saw last year is over? Where do you see the second quarter?
E: It will be choppy. It will be very volatile. They have deleveraged last year quite a fair bit, took some gains while some of them took some losses. I think some of them made the right decision to come back in quarter one this year, which has gained about 15 percent. Some of them again have taken off some profits from the table. You will find this year a very volatile year as we move to quarter three and four. I won't be surprised if I see some numbers that are quite choppy. But it's all right. I think for most of our clients, they are well divested globally and across different asset classes as well. So, that should be okay.
C: But are the growth and the inflows we're seeing in Asia helping the bank to offset weakness you're seeing elsewhere?
E: Definitely. Asian wealth is growing. There are a few things that differentiate Asians from the rest of the world. One, Asians are still growing and very hungry. Most Asians today don't sleep long hours. They don't have very comfortable beds, so you sleep lesser and you're very hungry to get ahead to feed your family, to really make a name for yourself and to create a legacy. So, Asians are quite different that way. It is a lot of new rich, a lot of people with hunger for knowledge and development. I think the greatest invention which is communication - or the internet - has actually served Asians much better. I've always said this - in many Asian countries, it would be very silly selling wallets 20 years ago because most people won't have any money or credit cards to carry along with them. This is why the advancement of the mobile phone or PayPal and all the payments are working out very well in Asia. There is no need to convert in Asia as there is a direct application for such e-banking facilities or payment methods. So, this has served Asia well and I think Asians will continue to ride this wave for the next 20, 30 years.
C: Whether it's Brexit or U.S.-China trade talks, what event are you watching on the horizon that could trigger a big shift in the way your investors put their money?
E: Economics is not that tough. A trade war is really not about trade war because if it's about numbers, numerically you can rationalize it. But a lot of these trade wars are actually more on the political front and that's very difficult. It's very uncertain. So for us, the U.S.A. and China trade war situation is clearly very political as well. That's something which is always on our radar. Of course Brexit as well, how to get out or do you stay in has always been a very thorny issue.
C: It has implications on the currency markets, something your clients are invested in.
E: It has implications on the currency markets and some hedge fund companies long and short it as well. So, quite a fair bit of changes. We are also very sensitive to political elections and changes around the region because it brings about a lot of opportunities as well. So for example, for the U.S. and China trade war, as early as three, four years ago, we have been encouraging manufacturers to look for alternative sites as labor costs in China have been going up. If they're still in manufacturing and not using technology as much, we have been offering them alternatives like Indonesia or Philippines, for example. It has proven to be very successful for some of our clients who have heeded that call because today they are more diversified. So, I think for each of these episodes, or the multiple episodes we are seeing, it's good to remain calm, it's good to understand the players and it's good to be connected that way. I would say for myself, being connected that way and plugged in to both the wealth of the entrepreneurs and to the politicians has served us very well.
C: Do you think Brexit is going to be the next risky event for your private wealth client?
E: After a while, the same news gets played over and over again. You know, it has been discounted in many ways. That itch becomes a norm, the same patch and people will get used to it. I've always said when there's an episode, get used to it immediately, right now. Get used to it, understand the norm, calm down and look for the opportunities. So, Brexit has been too long a saga, too long a story and a very sorry one for that.
C: Do Asian private clients give you a harder time about the sort of fees you can charge them?
E: Oh yes. They are very good negotiators.
C: How good?
E: Excellent. But so am I. (Christine laughs) I try to use my charm and wit and sometimes I get things my way, sometimes I don't. 20 years ago, you relied more on affinity to do the business. Today, beyond affinity, you need to institutionalize your approach. UBS is unique because it's truly global. I used to be a lazy reader but today practically every morning, I have to read all the reports that come in so that I'm in a better position to advise our clients directionally where the markets in different asset classes are going and not just today, but outlook for the next six months to a year.
C: So, under your leadership, how much do you think you can grow your invested assets here in Asia? Do you have a target in mind?
E: Well, as a team since I joined, we have almost grown by around 70 percent, I think. I haven't been counting that much. Clearly from the 400 (billion US dollars) we are a short distance away to 500 (billion US dollars).
C: What sort of time frame are we looking at?
E: I don't run that business directly anymore, so it's easy for me to say. My 'Double A' team, which is Amy (Lo) and August (Hatecke), has taken over my portfolio. I would tell them if they are any good, it should be less than two years. That's how long I would give it myself.
C: No pressure.
E: No pressure. Look, they did 16.3 billion in a quarter, something which I'm very proud for the 'Double A' team. They are a great team and should be able to do it. There's never a day here working in UBS that there's a down time for me coming into work in the morning. It has been so enjoyable. Great bunch of people, very smart, very committed and yet very challenging in the sense that we always have a very open discussions and debates about what's the best way or the best solutions for our clients. So, we have a great team.
C: Reaching that 500 billion dollars in invested assets – are you open to acquisitions?
E: You know, when you are of our size, which is US dollars 400 billion or so, there isn't really that good a portfolio that you will want to acquire. I've always said, lions don't hunt for rabbits; lions go for at least a wildebeest to feed itself.
C: Is there a "wildebeest" here in the region you might like to acquire?
E: There are a couple, I think. If the opportunities are there, we are always on the dance floor. But it also depends. We are in five domestic countries today, operating in Japan, Taiwan, China, Singapore and Hong Kong. So in Japan, we're 20 over billion. If a portfolio comes out in Japan that is five to 10 billion, I'll be keen, but if it's a regional portfolio and I'm at 400, anything less than five percent of where we are is just not really worth the trouble. So, it really depends.
C: It's been reported that UBS is in serious talks to merge its asset management business with Deutsche Bank. Now, a deal would create a European champion worth 1.4 trillion euros in terms of assets under management. Can you confirm whether the talks are happening?
E: I truly can't comment about such speculative news, but it is hardly surprising that every time there are some movements in the market, our bank is always linked to them. Why? Because we generate a lot of cash and we've got a very strong Tier one capital position. So naturally, people will always link us to all kinds of possibilities. But I can't comment on that.
C: But any merger would give UBS Asset Management scale to fight off its U.S. rivals, correct?
E: It's not so much of fighting off the U.S. rivals. Any acquisition that we do obviously has to be accretive and strategic. So, there's never short of deals in the market. After all, we are also a very strong investment bank. So, as investment bankers, we will always sniff out deals. But to find a suitable partner is always a challenge.
C: China has been a key market for you, but you're not the biggest private bank in China because the Chinese players are the ones taking the lead. But with China further opening up its financial sector, you think that could change one day?
E: It will change. I'm glad you asked that question on your observation because if you look at Singapore and Hong Kong 20 years ago, wealth management was basically selling mutual funds or dual currency deposit. There wasn't much about financial planning. As much as all the retail banks were touting that they did a lot of financial planning, they never really carried it through. There was really no clear distinction in the wealth plan about knowing your source of wealth, knowing your customers and really tracking the investment. So, I think China is going through the same process Hong Kong and Singapore went through over the last 20 years but they will accelerate given the advancement of technology and also the internationalization of the Chinese population. So currently, it's dominated by the local banks through more of retail wealth management but not the sophistication that is needed for legacy planning.
C: So, do you think UBS has what it takes to be the number one private bank in China?
E: We never go into any country not wanting to be the best.
C: What sort of timeframe are you looking at for China?
E: For China, you have to be patient.
C: How patient?
E: I think amongst the foreign banks, to be number one is there for the taking because nobody is really dominating that area.
C: But overall?
E: Overall against the local banks, I think we'll be very happy to be in the top five. I give us a 10-year outlook. It will not be that short a play. It'll be longer because it's very simple, until their local banks are ready there's no way any regulators will allow a foreign bank to actually come in to act as a catalyst. You are likely to be a follower rather than a leader in these big domestic markets.
C: China has become increasingly challenging because Beijing has now stepped up curbs on capital outflows and placed more scrutiny on offshore investments. To what extent have these restrictions impacted and created new barriers for your wealth management business in China?
E: That's the rules of engagement, right. So, once you understand those rules of engagement, you just have to be patient. They have not impacted the way I brief, assess the market or strategize what we have to do. Not at all. A lot of Chinese entrepreneurs' wealth is also already offshore because of their business and that's clearly accepted by the government as well because they've expanded and gone overseas. I remember two years ago, the whole world, especially in Asia, instituted auto exchange of information and common reporting standards. We went to that regime by being very diligent and strict on all our clients' wealth declaration, tax declaration, third party audit declaration and everything. So, no, it's not really impacted us. In fact, the Chinese offshore wealth that is really offshore is very well managed by us. I think it'll go through that process, but China will continue to grow. MSCI for Asian inclusion of China stocks or A shares, will go from five percent to 20 percent this year by November. That's a big indication that it would have to internationalize.
C: But growing the onshore wealth business is going to be challenging because you clearly are telling your clients we can't help you diversify out of the country?
E: Not yet…
C: Not yet? You expect things to change?
E: It will change. It will change for a very simple fact – the Chinese regulators that I've been talking to fully subscribe to and understand that there's a need to diversify as well. There's a need to globalize. But because the country is so huge, they need time to adjust, they need people to understand and to adopt. So, it will come. You just have to be patient and it will be there. In all my conversations with them practically every month, with different sets of regulators, they have been nothing but very welcoming and very intelligent. They also understand that there will be a certain journey and certain steps to take for the market to change.
C: Let's talk more on the onshore wealth management business because last year there was news that a UBS banker that was detained and that prompted the bank to issue a warning to staff traveling to the Mainland. This is not the first time a private banker has come under scrutiny. What can you tell us about the incident?
E: Nothing much other than it's business as usual and it's not just in China. I think over the years, there have been various jurisdictions who have asked our staff for so-called conversations and discussions on some matters which they're investigating. Nothing happened, nothing came out of it.
C: But certainly this raises the question of what your private bankers are allowed to do in China. Where do you draw the line and what do you tell them?
E: We draw the line very simply. We are confident because our governance is very strict on such matters. We onboard the clients and monitor their transactions. We are dealing with over 400 billion dollars. We will not touch any clients and their wealth or assets that we are in any way having doubts about. I'm very clear on that. So when such news comes up, we are naturally concerned but calm at the same time. We dealt with it the right way which is full collaboration. Nothing came out of it. Nothing. In fact I'm very glad that maybe other banks would be more worried but for us, we were very calm about it and so was my colleague. I told her actually to take the time to enjoy the museums. (Christine laughs) I mean, really.
C: That was your advice?
E: That was my advice, enjoy the museums, and enjoy your meals. We are entirely confident as a firm. We do not practice anything that runs contrary to any jurisdiction requirements because I like to have a good night's sleep.
C: You're 59 years old, Singaporean, spent your entire career working in the banking and financial sector for institutions like DBS Bank and Ta Chong Bank in Taiwan, joined UBS in 2012 and you're now in charge of Asia Pacific with 23,000 employees. How would you describe your leadership and your management style?
E: It's always been about people. It's always been about data. Someone once asked me, what would you like to be remembered for? And I said, that I've created an environment that people come into work happy and they go back even happier. I remember her telling me, is that all? I said, try doing that. If you can do that, you'll win every strategic implementation battle that you have in your mind. That's very difficult. Let me come to my second point on data. Data is very important and a lot of people are talking about A.I. and everything. Data actually helps you to rationalize but you need to be intuitive. It is very important that you share data with everybody because it becomes your bank's common language. Once you establish a common language, it's easier to work.
C: So everything is open and transparent?
E: Open, transparent, measurable and not to shame but to motivate. That has actually been my mark all these years running successful businesses.
C: As the boss, I hear you have a special way of entering the lift. Is that true?
E: It's very funny. When you go inside a lift, I don't know if people notice it. It's such a small close-up area that maybe stands about 20 people for ours. And everybody's looking up and down because it's so close. I tend to face in and not out. So, I face in and look at everybody and say, how is it this morning? Oh, love your hair or you're too tall for me. And people start laughing and smiling. I enjoy that because that little moment of exchange means a lot to me. I hope that the energy actually rubs off on them. During lunchtime as well, I've always had this joke when I go in and say, oh we can stand two more but after lunch, three less. I like that people can approach me and I'm approachable. I think to be a leader, you've got to understand when to stand in front and when to stand behind. When the going gets tough, I lead by being in front to take a bullet if I need to or to show courage and strength. I use my head and my brain. But when we are celebrating, I tell them to use their heart and I tend to stand behind and let them have a good time. I think it's very important to know when to use your heart and when to use your brain.
C: Private banking is all about relationships with clients. There is the well-known risk that if bankers leave, they pull the clients along with them. How do you protect the bank from losing its clients this way?
E: When I joined, there were a few haughty bankers and I was told that if they leave, the clients will leave with them. No, I can tell you from my statistics the last three, four years, some of them left and it's the natural forces of competition, but only 14 per cent of the assets that they've managed on average left along with them.
C: You calculated it?
E: Oh, I track them religiously. I track everything and I've got an elephant memory coming to trends and numbers, all my colleagues will tell you that. I can remember numbers even way back in 1995 when I took over a business and how it performed to 1998. I think it's a curse sometimes. Some things you don't want to remember. But I tracked 14 percent. It used to be 80, 90 percent.
C: But you brought that down?
E: Not me. The whole group did it because we've institutionalized a lot of our approach to our clients. Like the Chief Investment Officer's view of the world, the production solutions, the loans, the leverage, the philanthropic avenues or revenues that they want to look at and succession planning – training their children to be more responsible for wealth and what it means to the family. That has helped a lot to institutionalize our approach and that's not on the account of worrying about attrition of some of my colleagues but more so about sustainability on a longer term basis for our clients so that it's not disruptive just because of personnel changes. Some will retire. Some will retire, but our clients' lives and their wealth has to go on. So, we started that process about five, six years ago and we have gained a lot of traction.
C: Finally, UBS has been in Asia Pacific for more than 50 years. It's now the leading private bank here in the region. With competition coming from Citigroup and Credit Suisse, do you think UBS has what it takes to be well ahead of its competitors for many more years to come?
E: Well, allow me once to be a bit arrogant. I'm two times ahead of them. I'm two times ahead. Ed Koh is not somebody who just sits there and rest. I'm trying to be two and a half times ahead with my 500 mark.
C: What's the secret?
E: Energy. Self-belief, energy and a purpose. My purpose, along with my colleagues, has been very clearly articulated. If we don't do well, people will be unemployed because we manage some of the biggest families that are huge employers around the region. That drives me. It's not the 50 basis points of loan spread or 75 basis points of investment. That is just part of the process. That is really not the goal; that is just the means. The goal has never changed which is, unless we do well, people suffer. So, that drives me every day.
C: Ed Koh, thank you so much for talking to me.
E: Thank you, Christine.
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