Banks Eat From Hands of the Filthy Rich

As banks shave down on money-losing housing business, they're also tapping into a lucrative, high-growth area: private-wealth management.

Low- and middle-income families are buckling under the pressures of debt burdens, declining home values, high costs and a weak job market. They have little excess money to throw onto banks' profit margins. On the other hand, the Astors, Rockefellers and Vanderbilts of the world may have lost some wealth amid the market turmoil, but they're still rich.

These clients want to protect and expand their wealth for generations to come, which can translate into a long-term relationship with their investment advisors. Furthermore, the market for private-wealth clients has grown -- both in the U.S. and abroad -- as baby boomers look to invest their assets wisely and emerging economies spawn new prosperity.

An annual survey by Euromoney found that private-wealth assets under management more than doubled last year, to $7.6 trillion from $3.34 trillion in 2006, pushing the industry's profit from such business up 44%. While Europe and North America comprised nearly 80% of the assets under management, the fastest profit-growth areas were China (135%), Russia (88%) and India (84%).

"There's no doubt that banks love providing an array of services ... to wealthy clients, because of the fat fee revenue they can earn," says Philip van Doorn, senior banking analyst for TheStreet.com. "Fee revenue always holds up, where banks' traditional business of earning money on interest-rate spreads is more risky."

"Prestige is also a factor," he adds.

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