More private banking M&A and consolidation of booking centres will happen due to cost pressures and profit squeezes, the consultancy says.

Wealth managers require at least $11.3 billion to viably operate a booking center, a fact that explains why there will be a cull of such centers amid broader industry consolidation, consultants McKinsey & Co say, according to a report by Bloomberg.

Pressures on profit margins will force private banks to review the shape of their footprint, the firm is reported to have said.

The report appears at a time when merger and acquisition activity in wealth management, while not happening at the pace sometimes predicted, has been a steady feature of the sector. For example, earlier this year Royal Bank of Scotland, the part state-owned banking group, sold its non-UK wealth management arm under the Coutts brand to Geneva-headquartered Union Bancaire Privee; Societe Generale has sold its Asia private bank to Singapore-headquartered DBS, while Barclays earlier this year sold its US private bank to Stifel, a US financial firm. There are also reports in the Swiss media that Credit Suisse intends to offload its US private bank although the Zurich-listed lender has declined to comment

Separately, banks such as HSBC, Royal Bank of Canada and Barclays, among others, have trimmed their booking centers to focus on markets where they think they have critical mass and quit centers seen as sub-scale.

This publication is in contact with McKinsey seeking further details.

The McKinsey report stated that one in six of the private banks it had surveyed reported a loss in 2014.

While profit margins at the private banking divisions of universal banks with a retail arm improved by 4 basis points to 36 basis points last year, the margin at independent onshore firms narrowed to 27 basis points from 32 basis points in 2010. A group of private banks described by McKinsey as “foreign onshore players” struggled with an average profit margin of 9 basis points, the study is reported to have said.

A 1 per cent increase in net client inflows at banks in offshore centres such as Switzerland, Luxembourg and Monaco lagged the 4 per cent advance enjoyed by firms which focus on domestic clients, according to the survey.

The average profit margin at offshore private banks dropped to 25 basis points, meaning managers of cross-border wealth in Europe are no longer more profitable than those that prioritize their local market.

An issue that has come up in private banking is that mergers and acquisitions, while they appear to have a strong logic due to concerns about scale and cost, are often difficult to execute smoothly because of fears that clients and senior staff will be unhappy at upheavals. And the industry is mindful of those studies, such as from Boston Consulting Group in 2010, that the average M&A deal can destroy value for acquirers.