* MidEast, Asian firms to play role in sector consolidation
* Switzerland expected to be key battleground
By Sudip Kar-Gupta and Lisa Jucca
PARIS/ZURICH, June 26 (Reuters) - Cash-rich predators from the Middle East and Asia are set to become key dealmakers in the consolidation of a global private banking industry rattled by the financial crisis.
The downturn, which has seen fraud by U.S. businessman Bernard Madoff, rich clients withdrawing savings and a tax haven crackdown, has trained the spotlight on acquisition interest from players in the region, which analysts feel will intensify.
Despite recent blows to the sector, private banking and wealth management remains an attractive sector for many groups, with the offshore wealth management industry estimated to be worth some $7 trillion by the Boston Consulting Group.
"There are certain sets of players that are potentially interested in acquisitions: private equity firms, banks that are already focused offshore players and players that, out of geography, do not really have a proper private banking industry, like Middle Eastern players," said Stefan Jaecklin, who covers the wealth management industry for consultancy Oliver Wyman.
Indian conglomerate Hinduja Group has a private banking business in Switzerland through its Geneva-headquartered Hinduja Bank and sources familiar with the matter have said Hinduja Bank may consider small private bank acquisitions.
Last year, Abu Dhabi investment company Aabar acquired the Swiss private banking activities of troubled U.S. insurer AIG.
State-run Bank of China is also keen to expand in this area. It invested in Geneva-based asset manager Heritage Fund Management (HFM) last year and began operating a private bank and asset management firm in Switzerland.
While Bank of China was forced to drop a planned 2.3 billion yuan investment in France's La Compagnie Financiere Edmond de Rothschild due to regulatory issues this year, it added that it would continue to seek other forms of co-operation with Rothschild in areas such as private banking.
While it is hard to place a value on any likely deals, since many private banks are family-owned and unlisted, analysts say that transactions in the sector are more likely to be worth hundreds of millions of dollars rather than in the billions.
SWISS BATTLEGROUND
This week's Merrill Lynch/Capgemini World Wealth Report said the wealth management market was showing signs of a recovery..
The report also highlighted the growing importance of those present in the Asian market, saying the Asia-Pacific region was expected to surpass North America by 2013 as the top regional home for the world's rich.
The Swiss market remains the likely battleground for Middle Eastern and Asian players looking to increase their presence in the sector. And political pressure on Switzerland to relax bank secrecy rules has opened up opportunities for deals.
"This could be quite a valuable proposition for them," said Daniel Gresch, a partner at Zurich-based Ronald Berger Strategy Consultants who covers the private banking sector.
The world's biggest wealth manager, UBS, has been one of the major banks hit the hardest by the crisis and has had a series of losses, yet analysts said its scale would help it keep market share and that deals would centre on smaller firms.
SLEEPLESS NIGHTS
"I see the consolidation happening between the mid-tier private banks," said Wladimir Mollof, who heads up French boutique investment bank Arjil.
"In asset management and private banking, increasing your capital under management is key -- more so than cutting costs."
Other assets that could be sold include Swiss private banking units of struggling bulge-bracket European banks that have received state aid during the financial crisis.
Experts said Royal Bank of Scotland, Lloyds and Commerzbank may want to sell such assets to raise cash and shed businesses that could appear to be questionable in the face of the fight against tax evasion.
One major hurdle for private bank deals, however, remains the primacy of customer service quality, something Middle Eastern and Asian firms entering the fray for the first time would have to consider, said Roland Berger's Gresch.
"Customers want to be in a position to call up their private banker at 3 a.m. that night and say 'Look I can't sleep, I don't know where to send my daughter to school.' Private banking, at its heart, is about service and not just products," he said.
(Editing by Sitaraman Shankar)