Credit Suisse has for a long time been a global wealth management powerhouse, but the engine of the business recently has been in the Asia-Pacific region. Marcel Kreis, head of CS’s private bank in the region, says its one-bank model helps it stand out from the crowd. William Cain reports.
It is hard not to be impressed with the steady course charted by Credit Suisse in one of the most tumultuous periods in financial history.
And if Brady Dougan, the bank’s CEO, had to choose one department to underline its achievements in the past 12 months, it would undoubtedly be its Asia-Pacific private banking division, headed by Marcel Kreis. The Asia-Pacific business achieved net new money of 12.2 percent in 2008 and has started 2009 at an annualised rate of 22 percent, adding CHF5.5 billion in the first six months of the year.
Globally, Credit Suisse is acknowledged as the standard bearer for the one-bank model – arguably the only bank that has made it work. Within its peer group it is one of the leaders in attracting client money. But it still lags behind the pure play firms, the likes of Julius Baer, EFG International and Bank Sarasin, which all claimed business-wide double-digit growth in 2008. In Asia-Pacific, however, the business measures up as one of the best wealth managers anywhere in the world (see chart below).
“We have been very pleased with net new assets inflow in Asia-Pacific, certainly in the last year and since the beginning of this year, we have seen double-digit growth,” Kreis told Private Banker International. “That speaks volumes about the confidence and trust placed in Credit Suisse.
“We take every competitor very seriously, but my job is to grow our Asia-Pacific franchise based on the strengths and core competencies we have and I think we are peerless at the moment with the success of our one-bank model. We are peerless not just because many of our competitors have fallen by the wayside, but because Credit Suisse’s management has had the discipline and foresight to really take the bull by the horns, fix the balance sheet and improve the capital ratios.”
Globally, Kreis said the bank’s biggest achievement in the last 12 months has been the “consolidation and solidification of our position as a premier financial institution and leading wealth manager”.
“We have actively and successfully managed our business and our clients through one of the biggest crises in the last 100 years,” he added.
He said the bank’s ability to attract new talent in all departments showed it is seen as an attractive place to come for senior bankers. Another area the bank is a success is in its ultra high net worth (UHNW) business, where Tee Fong Seng was recently appointed as head in Asia-Pacific. It defines this as clients with more than CHF50 million invested at Credit Suisse.
UHNW programmes have been popular in private banking in 2009, despite evidence that the most profitable business is found in the $500,000 to $10 million threshold. There are some in the industry who feel playing the UHNW (see page 3) playing field is already overcrowded. But Kreis said the segment remained an important one for Credit Suisse.
“Many of our clients in Asia are first and second generation entrepreneurs, and their businesses, given the Asia growth story, continue to expand, contract and specialise, depending on what their individual strategies are,” said Kreis. “We are ideally positioned to support these clients, to offer services that go well beyond portfolio management. The UHNW client segment fits right into our strategy to be an effective and efficient user of capital. Rather than seeing it as a separate and lower yielding business opportunity, we see it as accretive to our private banking proposition. It enhances profitability and also deepens and strengthens relationships because in the lifetime of clients and their companies, there are opportunities to offer additional services and help them grow their businesses.”
While portfolio management services are increasingly common, access to lending facilities, corporate advisory, IPO management and investment banking is a combination which is still quite rare and even more rarely delivered effectively.
Credit Suisse calculated cross-divisional activity, effectively referrals within the business, generated CHF5.2 billion of revenue in 2008, equivalent to 56 percent of the bank’s net revenue for the year. In 2007, the activity added CHF5.9 billion to revenue.
The CS private bank gains a large number of clients following mergers and acquisitions, which are results of referrals from the investment bank. The process puts the bank in a position to prospect for clients and generate a strong business pipeline.
Achieving the delicate balancing act of improving referrals within the bank and at the same time maintaining a focus on relationship building is not an easy one. And it has not been accomplished without struggle and resistance in some quarters. Kreis has previously said a carrot and stick approach was necessary to change bankers’ behaviour and encourage the one-bank model to take hold.
Another Credit Suisse banker said that in 2006, at the outset of the project, investment bankers would rather “throw themselves out of a window than hand over clients to the private bank” and private bankers “would rather shoot themselves” than send clients the other way. But once the process started, employees found the referral system made their work more interesting and clients and staff found it more rewarding.
“If you look at our peer group, and the pure play private banks too, what we have is strong business banking networks, a one bank model – and that’s definitely a key competitive advantage for us,” said Kreis, who joined Credit Suisse from UBS in 2007.
Gentle rebalancing towards Asia
Credit Suisse has 8.6 percent of its assets under management in Asia-Pacific, a figure which has increased from 6.9 percent since 2006. Kreis said he does not want to specify targets for Asia-Pacific AuM growth in the next couple of years. He said movements in markets and currencies will have a major impact.
“We at Credit Suisse see Asia as a growth region and we are committed to further developing our resources there,” he said.
“We have an excellent investment service offering for our clients. Where the AuM will be is very much a function of our continuing success in developing the franchise and attracting new clients as well as growing the wallet share of existing clients. A big factor is the currency and market movements which impacts the AuM base, but we have grown by more than 20 percent in terms of net new assets in the first half of this year and I am confident we can maintain double digit growth rates in net new assets.”
The bank has increased its number of relationship managers (RMs) in the region from 230 in 2006 to the current level of 400. Those 400 RMs make up 11.8 percent of its total, up from 8.2 percent in 2006.
Kreis said there may be a rebalancing of relationship managers in favour of Asia when conditions start to improve, but said it was unlikely to change significantly.
Target of 4,000 RMs by 2010
Regarding a pledge the bank made in February 2008 to increase its total number of RMs by 1,000 to around 4,000 by 2010, Kreis said that in the past few years, the bank has managed to reach and even exceed its annual hiring targets. In the current and coming year, it expects a slowdown due to the market environment but remains confident of increasing the number of RMs by 1,000 compared to early 2007 by continuing to hire prudently and on an adequate cost level.
“We have said in the past the private bank will hire 1,000 additional relationship managers worldwide but the environment has changed including in Asia-Pacific – the earth has really moved, and not in a positive way,” he said.
“We will look to continue to invest and grow, particularly in Hong Kong and Singapore and the domestic markets where we have set up our business, most notably Australia, Japan and Indonesia.
“In Asia-Pacific currently, we have around 12-15 percent of our total relationship managers, and I do not envisage that number changing dramatically. When we see a positive growth trend again, it may increase in favour of Asia, though there is not an enormous supply of experienced private bankers available even now.”
Structured products came under fire during the financial crisis when issuers Lehman Brothers and AIG collapsed. The fall-out has engulfed private banks like Credit Suisse, as investment banks are heavily involved in the process of designing and creating the assets.
In May, Credit Suisse paid out CHF50 million to retail investors who lost money on Lehman Brothers’ capital protected products. It has paid out a total of CHF150 million so far. Despite the bad press structured products have attracted, Kreis maintains they have an important role to play in client portfolios.
“We continue to see structured products, but the complexity and the underlying investment have changed. It has become much more a currency play today than equity linked, although as a result of the last four to five months of very strong equity markets, there is a gradual return to equity linked notes,” he said.
There is also an increased emphasis on refining the framework for which types of investments are appropriate for particular types of investor. Kreis said the crisis obviously caused some serious fall-out and part of that was the tarnishing of complex structured products.
“Structured products were certainly temporarily not the investment vehicle of choice, and there has been a flight to cash. But the reality is structured products are here to stay,” Kreis added. “What has changed is clients want a clearer and more transparent picture of what they are investing in. The key issue was issuer risk, which was always properly disclosed, and as we go through the cycles of the investment business sometimes we focus on issuer risk, at others we focus on it less.
“Today, from a regulatory, political and client point of view, greater transparency is demanded and we have refined our investment suitability framework as a result.”