Advantages vs. disdvantages of private banks?

[Verbatim]

I don't have any experience with private banks yet people seem to recommend them, particularly for cashing out crypto and such.
What are the benefits of doing your banking with a private bank? Are your assets more safe with them compared to commercial banks?
Are there lots of heavy fees usually associated with them?

 

[Gediminas]

Verbatim said:
What are the benefits of doing your banking with a private bank?
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The biggest benefit I would say is the customer support and tailor-made services for a particular client. They will also have a higher risk appetite, so in cases, when commercial banks shut the doors in front of your eyes, the private banks could be welcoming you.

Verbatim said:
Are your assets more safe with them compared to commercial banks?
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Nope. If the bank is "private", that doesn't mean it is safer.

Verbatim said:
Are there lots of heavy fees usually associated with them?
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Yes, exactly. Private banking will cost more than regular banking.

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[Martin Everson]

You can also find below my response I gave in another thread regarding use of private banks.

https://www.offshorecorptalk.com/th...-index-fund-etf-by-yourself.33166/post-169502
I would choose a private back 10 out of 10 times in every situation involving wealth management for the above reasons.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[uplana]

Martin Everson said:
I would choose a private back 10 out of 10 times in every situation involving wealth management for the above reasons.
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Totally agree. You will not want to open an EMI if you have a serious business and are able to bank in a real private bank.

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[desfo2000]

Financing is the most interesting thing about private banks in my opionion. They accept a lot of assets (funds, stocks...) to guarantee a loan, commercial bank only usually finance real estate throught mortgages.

If you negotiate properly, for > 1m/2m in invested assets, you can have only 0.10%/0.15% fees per year on the capital invested with them (if you only have stocks these are the only fees you will pay).

Depending on the amount you need, you can have financing for a 60/70 basis point spread vs usual benchmark (3 months LIBOR...).

Happy to listen other stories in this field.

 

[Martin Everson]

Yes Lombard loans are very attractive in private banking. Not simply because of the low rates if you take loan in Euros but because of some of the tax advantages of loading up with cheap debt if you live in a high tax country for example.

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[desfo2000]

Martin Everson said:
Yes Lombard loans are very attractive in private banking. Not simply because of the low rates if you take loan in Euros but because of some of the tax advantages of loading up with cheap debt if you live in a high tax country for example.
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Do you know if there are banks taking into account the negative rates on EUR for lombard loan? Or they have a floor at zero?

For instance, with Euribor @ -0.50% and with a spread @ 0.70%, are you finally paying 0.20% or 0.70% is the floor they use? Several commercial banks are taking into account negative rates for mortgages.

 

[JackAlabama]

Martin Everson said:
Yes Lombard loans are very attractive in private banking. Not simply because of the low rates if you take loan in Euros but because of some of the tax advantages of loading up with cheap debt if you live in a high tax country for example.
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Thats one of the keys to bank.
Accessing cheap debt and if they are extra nice they might let you pass one or two months before they liquidate you in case collateral goes underwater.

 

[Martin Everson]

desfo2000 said:
Do you know if there are banks taking into account the negative rates on EUR for lombard loan? Or they have a floor at zero?

For instance, with Euribor @ -0.50% and with a spread @ 0.70%, are you finally paying 0.20% or 0.70% is the floor they use? Several commercial banks are taking into account negative rates for mortgages.
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You can have a look at Swissquotes rates for example below.

https://en.swissquote.lu/pricing/interest-margin-rates

JackAlabama said:
Thats one of the keys to bank.
Accessing cheap debt and if they are extra nice they might let you pass one or two months before they liquidate you in case collateral goes underwater.
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Yes thats one of the advantages they offer discretion if you have a deep relationship with them and are a long term profitable client. Private banks do keep track of your profitability to them and factor this into any decision they take but ultimately the credit officer will make the call.

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[Silvio]

Martin Everson said:
Yes Lombard loans are very attractive in private banking. Not simply because of the low rates if you take loan in Euros but because of some of the tax advantages of loading up with cheap debt if you live in a high tax country for example.
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What kind of interest rates are we talking about in EUR? I am guessing lower than 3% quoted at SwissQuote?

Could be interesting to loan 20% of the portfolio at 1.5-2% and buy some dividend ETF that pay out 5-6%, effectively making extra income on the portfolio you already hold at the bank.
Apparently banks love this arrangement too as it leads to more assets being held at the bank, and better numbers on the balance sheet

 

[JackAlabama]

maxmmm said:
What kind of interest rates are we talking about in EUR? I am guessing lower than 3% quoted at SwissQuote?

Could be interesting to loan 20% of the portfolio at 1.5-2% and buy some dividend ETF that pay out 5-6%, effectively making extra income on the portfolio you already hold at the bank.
Apparently banks love this arrangement too as it leads to more assets being held at the bank, and better numbers on the balance sheet
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Yeah, banks do love that as well as it increases their fees a lot (more custody fees, extra interest income, extra fees for trading etc.)
The key is to just limit yourself and not go up too high on the leverage ladder as it is quite easy to get liquidated with liquid investments. 😉

It expands also to non-liquid/non-highly traded investments which then gives both parties to be more flexible in terms of avoiding liquidation if you make them enough $. 😉

 

[Martin Everson]

maxmmm said:
What kind of interest rates are we talking about in EUR? I am guessing lower than 3% quoted at SwissQuote?
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Yes I got 1.8% on 12 month Lombard back in 2016. Had I rolled it over after 12 months would have got around 1.5%.

maxmmm said:
Could be interesting to loan 20% of the portfolio at 1.5-2% and buy some dividend ETF that pay out 5-6%, effectively making extra income on the portfolio you already hold at the bank.
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For further portfolio investment you can get lower than published rates with a private bank. I know if you borrow to invest sometimes in the banks own funds it can be lower.

maxmmm said:
Apparently banks love this arrangement too as it leads to more assets being held at the bank, and better numbers on the balance sheet
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Yes private banks love NNA i.e Net New Assets. It brings a steady custody fee. It's a win for client and win for bank.

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[uplana]

Martin Everson said:
For further portfolio investment you can get lower than published rates with a private bank. I know if you borrow to invest sometimes in the banks own funds it can be lower.
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how much is the minimum to invest for this to be of interest for any small average Joe?

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[Martin Everson]

uplana said:
how much is the minimum to invest for this to be of interest for any small average Joe?
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No minimum. Its all dependent on prevailing interest rate and Lombard LTV you can get as to whether it is worthwhile for however much money you have to invest.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Martin Everson]

Btw if your in UAE look at the Lombard lending rates from SC bank. Is this right that their lending rate on the Euro is 0% i.e free? eek¤%&

I guess lending the money for free is cheaper for them than getting passed the ECB -0.5% negative rate perhaps.

https://www.sc.com/ae/investments/wealth-lending/#sc-lb-module-fee-and-rate
Interest Rate (%)
Rate updated on: 13 September 2021

CURRENCY	3 MONTH SCBLR
AED	0.3642
USD	0.1658
GBP	0.0629
EUR	0.0000

Note:

• SCBLR ”“ Standard Chartered Bank Lending Rate
• The interest rates stated herein are for reference only. If you have any queries, contact your Relationship Manager.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[fatcat]

Martin Everson said:
Yes Lombard loans are very attractive in private banking. Not simply because of the low rates if you take loan in Euros but because of some of the tax advantages of loading up with cheap debt if you live in a high tax country for example.
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Interactive Brokers does margin loans, but sadly they don't provide you with any contracts or agreements, they just direct you to their general ToS.

A cash transfer is just a cash transfer - how do you prove to a European commercial bank it is, in fact, a loan?

 

[BlueMist]

Martin Everson said:
Btw if your in UAE look at the Lombard lending rates from SC bank. Is this right that their lending rate on the Euro is 0% i.e free? eek¤%&

I guess lending the money for free is cheaper for them than getting passed the ECB -0.5% negative rate perhaps.
Click to expand...

I really wonder if it would be free. I spoke to my RM SC SG and he said they can offer to non residents loan value something like 50-60% of investment portfolio, which can be used for anything I want, so I can also withdraw it. The rates for EUR would be 0.25%, sometimes he said he is able to waive it. But even at 0.25% it sounds really cheap to me.

I wonder how does it work in practice, like for how long you can take such a loan and whether you can partially re-pay it or you need to re-pay in full. Also what happens if your portfolio drops (e.g. by 50%) and the loan taken won't be say 50% of your total portfolio but e.g. 100%.

 

[cypriot]

desfo2000 said:
Do you know if there are banks taking into account the negative rates on EUR for lombard loan? Or they have a floor at zero?

For instance, with Euribor @ -0.50% and with a spread @ 0.70%, are you finally paying 0.20% or 0.70% is the floor they use? Several commercial banks are taking into account negative rates for mortgages.
Click to expand...

From my experience you end up paying something in the range of 1,1-1,4%

These are the rates in 2022 for one year Lombard loan. For two years it can go up to 2,6%

 

[Martin Everson]

BlueMist said:
I spoke to my RM SC SG and he said they can offer to non residents loan value something like 50-60% of investment portfolio, which can be used for anything I want, so I can also withdraw it. The rates for EUR would be 0.25%, sometimes he said he is able to waive it. But even at 0.25% it sounds really cheap to me.
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Thats good news then thu&¤#. Still basically free money. Being able to borrow lets say 1m euros for 2,500 euro or free for a year is a good deal.

BlueMist said:
I wonder how does it work in practice, like for how long you can take such a loan and whether you can partially re-pay it or you need to re-pay in full.
Click to expand...

Normally in practice it comes in form of a 12 month credit line you draw down on as and when you wish. So your balance goes negative and you will see the interest rate being charged on the negative balance (i.e 0.25). Hence you only pay interest on what you draw down on. Don't know how SC will enact it however.

BlueMist said:
Also what happens if your portfolio drops (e.g. by 50%) and the loan taken won't be say 50% of your total portfolio but e.g. 100%.
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Margin Call time sadly 😕. Normally they won't give you a good LTV (Loan To Value) against i.e portfolio consisting of a load of Tesla and Coinbase stock and two Chinese automakers....lol smi(&%. In my experience with other banks they like diversified highly liquid instruments like S&P 500 Fund or US Treasury bonds.

P.S They can adjust LTV on your portfolio at anytime also sending you into Margin Call realm.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[bonox]

As far as I read everywhere, private banking requires large amounts to be deposited to the account. You will need much capital, or is there a bank for midsize people?