Wealth Management in the Baltics 2009

Introduction

International wealth managers are giving Latvia, Lithuania and Estonia the cold shoulder at the moment, but for those players willing to take a medium-term view, these countries do present opportunities. This report profiles the nature of high net worths (HNWs) in these countries, provides insights into the competitive environments and identifies where the strategic opportunities lie.

Scope

*Sizes, segments and forecasts the number of affluent invididuals across 10 liquid asset bands from EUR50k

*Primary research among domestic wealth managers, asset managers and regulators provides insight into HNWs and the private banking market

*Utilizes Datamonitor's proprietary Wealth Management Opportunity Index to score the attractiveness of the markets

Highlights

The Baltic countries are experiencing precipitous falls in their economies and markets, but the declines in the onshore liquid wealth have been relatively modest. In 2008, the number of affluents declined by 7% in Latvia, 2% in Lithuania and held flat in Estonia.

Baltic high net worths aren't particularly sophisticated or demanding; they do, however, want personal and frequent contact with their bankers, and are looking for an integrated service that also caters for their business needs.

The wealth management market is fairly concentrated, but there is the opportunity for international players to enter the market and rapidly take market share especially if they can provide much-needed credit. There is minimal bureaucracy for new players, and there are smaller domestic players who could be acquired or partnered with.

Reasons to Purchase

*Understand Baltic HNWs' attitudes and investment behaviour, and reasons for choosing/leaving their wealth service.

*Gain insights into the competitive characteristics of the Baltic wealth management markets, and learn the factors for success.

*See how the wealth management markets of Latvia, Lithuania and Estonia score against Datamonitor's Opportunity Index.

Report Highlights

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Overview 1
Catalyst 1
Summary 1
Methodology 2
Executive Summary 3
Baltic countries have seen precipitous falls in their economies and asset prices, but households have been insulated from the worst of these 3
Special feature: the future for the Scandinavian banks in the Baltics 3
Baltic HNWs are not particularly sophisticated or demanding in terms of wealth management 3
The wealth management market is under-developed, but has a number of attractive competitive features 3
Table of Contents 5
Table of tables 6
The Baltic's Wealth 7
In two short years, the Baltic economies have gone from fast forward into hard reverse, but the consequences for wealth in Latvia, Lithuania and Estonia have been limited 7
After years of escalating equity prices, Baltic stock markets went into sharp retreat in 2008 9
Real estate assets have tumbled in value across the Baltics in the past year 10
Baltic investors have generally benefited from higher interest rates 11
An historic preference for deposits has insulated Baltic investors fairly well from the asset price collapses 11
In 2008, more than 85% of Baltic investors' liquid assets were in deposits 11
The importance of deposits in the Baltic countries has insulated the wealthy against some of the more damaging asset prices falls 15
The numbers of wealthy individuals fell modestly in 2009, with Latvia being worst affected 15
Latvia 15
Lithuania 17
Estonia 19
Special feature: the future for the scandinavian banks in the baltics 22
The engine of growth has turned into an anchor 22
Latvia the worst hit 22
Estonia; little better than Latvia 23
Lithuania: the best of a bad lot 25
The future for Scandinavian banks in the Baltics 27
Despite public affirmation of commitment to their Baltic businesses, the Scandinavian banks will scale back their operations for the next few years 27
Lending will start to pick up again in 2010, but under very different criteria 27
The Scandinavian banks will not pull out of the Baltics 28
Nordic banks, however, will lose market share 29
The Baltic's Wealth Management Market 31
Despite the present economic situation in the Baltic markets, there are still some appealing aspects for international private banks 31
The Wealth Management Opportunity Index 31
Wealth management market features 34
Range of products and services: Latvia 2, Lithuania 1, Estonia 2 34
Level of consolidation: Latvia 0, Lithuania 2, Estonia 0 35
Ease of market entry: Latvia 1, Lithuania 2, Estonia 2 38
Level of international wealth management activity in the country: Latvia -5, Lithuania -4, Estonia -5 40
Wealth management client characteristics 40
Level of use of onshore services: Latvia 4, Lithuania 3, Estonia 3 40
Level of demand for high-quality service: Latvia -2, Lithuania -2, Estonia -2 41
Appendix 43
Datamonitor's Wealth Management Opportunity Index 43
There are five key parameters when assessing a market for its wealth management potential 43
There are 18 components to the five key parameters of the wealth management opportunity index 44
Institutional factors 44
Economic variables 44
Wealth management market size 45
Wealth management market features 45
Wealth management client characteristics 46
Definitions 47
The drivers of growth in the wealthy population 47
Income growth (combined with inflation, changes in GDP by sector, household savings rates and debt levels) 47
Investment returns (market capitalization, interest rates and bond yields) 47
The following measures are not, in themselves, drivers of wealthy population growth 47
Market capitalization 47
GDP 47
The following measures are not drivers of wealthy population growth except under very restricted circumstances 48
Primary residence value growth 48
Inheritance 48
Methodology 48
Global Wealth Model 48
The UK sub-model 48
Global sub-model (for all other countries) 48
Forecasting methodology 49
Continuous refinement to the understanding of liquid wealth distribution 49
Datamonitor's wealth numbers compared with other wealth numbers 49
Bibliography 50
Further reading 50
Ask the analyst 51
Datamonitor consulting 51
Disclaimer 51
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List of Tables
Table 1: Financial assets of Latvian retail investors (€m) 12
Table 2: Financial assets of Lithuanian retail investors (€m) 13
Table 3: Financial assets of Estonian retail investors (€m) 14
Table 4: Value of onshore liquid assets in Latvia in euro bands (€bn) 15
Table 5: Forecast value of onshore liquid assets in Latvia in euro bands (€bn) 16
Table 6: Number of individuals in Latvia in euro bands (000s) 16
Table 7: Forecast number of individuals in Latvia in euro bands (000s) 17
Table 8: Value of onshore liquid assets in Lithuania in euro bands (€bn) 17
Table 9: Forecast value of onshore liquid assets in Lithuania in euro bands (€bn) 18
Table 10: Number of individuals in Lithuania in euro bands (000s) 18
Table 11: Forecast number of individuals in Lithuania in euro bands (000s) 19
Table 12: Value of onshore liquid assets in Estonia in euro bands (€bn) 19
Table 13: Forecast value of onshore liquid assets in Estonia in euro bands (€bn) 20
Table 14: Number of individuals in Estonia in euro bands (000s) 20
Table 15: Forecast number of individuals in Estonia in euro bands (000s) 21
Table 16: Wealth Management Opportunity Index - Latvia, Lithuania and Estonia 32
Table 17: Wealth Management Opportunity Index with values - Latvia, Lithuania and Estonia 33
Table 18: Size of the equity and bond markets in the Baltics (as of July 2009) 35
Table 19: NASDAQ OMX Members' trading activity (July 2009) 36
Table 20: Number of notifications regarding the exercise of the freedom to provide services in Latvia 39
List of Figures
Figure 1: The rise and fall of Latvia, Lithuania and Estonia 7
Figure 2: The Baltic labor forces are feeling the economic pain in their wallets 8
Figure 3: 2008 was a bad year for equities, but the markets have leveled off in 2009 10
Figure 4: Interest rates have increased over the years 11
Figure 5: Latvian investors have a particularly large amount of assets tied up in deposits 12
Figure 6: The importance of direct equity investments fell markedly in 2008 in Lithuania 13
Figure 7: Estonian investors have proved to be the most adventurous with their assets 14
Figure 8: Lending fuelled Latvia's economy 23
Figure 9: Overdue loans accounted for over 11% of banks' lending portfolio by the end of July 2009 24
Figure 10: Lithuania's credit market boomed along with its neighbors in 2000-08 25
Figure 11: The largest three banks in Lithuania are Scandinavian, and hold more than 75% of the market (measured by number of clients) 26
Figure 12: Lending volume has been flat since mid-2008 in the Baltic region 28
Figure 13: The Scandinavian banks have amassed healthy operating profits in the Baltics 29
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