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May 27, 2011updated 05 Jun 2017 11:36am

Regulation ends ‘cushy’ era: Marcel Kreis

The sight of protests outside banks in Hong Kongs Central district remains an all too familiar reminder of the financial pain inflicted by the financial crisis in Asia

By Will Cain

Stricter regulatory and compliance requirements mean private bankers now have to possess increasing technical talents alongside first-rate people skills. Credit Suisse’s Asia-Pacific head Marcel Kreis speaks to Will Cain about the changing regulatory landscape, staffing targets and upping its ultra high net worth client numbers.

 

Photograph of Marcel Kreis, Credit SuisseThe sight of protests outside banks in Hong Kong’s Central district remains an all too familiar reminder of the financial pain inflicted by the financial crisis in Asia. Even in 2011, investors continue to march the streets to campaign for the reimbursement of losses on Lehman-linked products sold to them by banks as “low risk”.

It is an image that is likely to define the private banking industry for many years to come, according to Marcel Kreis, head of Asia-Pacific private banking at Credit Suisse.

“In Hong Kong, there are still demonstrations over Lehman and against other financial institutions,” he says.

“Yes, it has subsided a bit, but we are not back to the good old days where the banker could say, ‘Trust me this is a good idea.’ That’s not going to be sufficient anymore.

“I do not think that will ever come back because of the political backlash and the pressure put on regulators,” Kreis adds. “How could you allow an environment to exist where, particularly retail clients, lost their shirt? The political pressure on the regulators has been quite relentless.”

 

Lehman products sting Credit Suisse

For most politicians in countries across the world, greater regulation has been the price the banking industry has been forced to pay for bailouts, compliance breaches and tax dodging.

Credit Suisse has had its share of problems during the crisis years, though it was one of the select few large Western banks which did not require direct financial assistance from its central bank.

It made a CHF150m ($169.3m) payout to certain clients who had invested in Lehman-linked products. It has also been affected by the US tax authority’s investigations into wealthy individuals’ tax affairs, though to a much lesser degree than its main rival, UBS, which has been forced to pay heavy fines.

Regulation was a key theme in Credit Suisse’s first quarter results, with underlying pre-tax income down 17.9% to CHF2.24bn compared to the first quarter of 2010.

Private banking reported income before tax of CHF855m, down 4% compared to the first quarter of 2010, largely due to the weakness of the US dollar. Net new assets were CHF18bn.

 

Risk and regulation

Bar chart showing Credit Suisse net new assetsKreis says this regulatory squeeze is being felt in private banking through stricter regulatory and compliance procedures.

Product offerings need to be more transparent and client risk profiles need to be matched more closely to the risk profiles of products they are offered.

This is a common theme among private banks in Asia. For example, DBS has overhauled its technology platform to allow it to rate the risk profiles of products and clients within its system.

As well as an emphasis on process and procedure, Kreis says relationship managers (RMs) need to accept more accountability in the future.

“[RMs] need to know the client inside out and need to be able to manage the product with the client,” he says.

 

‘Private bankers in the past have had it relatively cushy ‘

“This is an industry which pays comparatively well to most other industries. Private bankers in the past have had it relatively cushy and I think that’s changed. Regulatory scrutiny and making people accountable for proper behaviour is making it more challenging.”

An increased emphasis on highly skilled relationship managers places greater strain on expansion strategies among private banks in Asia.

Demand for relationship managers in the region already outstrips supply – the so-called ‘war for talent’ has been a feature of Asian private banking for at least the last decade. If private banks raise their hiring standards, expanding staff numbers – and therefore revenues – becomes even harder.

 

Unrealistic hiring targets

Kreis doubts hiring targets set by some private banks in the region can possibly be met.

“We have not really grown our RM base aggressively in terms of absolute numbers [in recent years],” he says.

“If you add up all of the comments from every participant in the industry about how many private bankers they want to hire, you will soon find out there are a lot more in the numbers than in the actual people hired.

“We have been fortunate in having been able to attract senior bankers – a lot more experienced bankers than those we had in the past.”

Subdued growth in relationship managers in Asia-Pacific – the number is currently 360 compared with 410 in 2008 and 340 in 2007 – has not stopped the bank attracting new client funds.

Credit Suisse’s Asia-Pacific business has been consistently one of the most efficient asset gatherers in global wealth management helped by rising Asian wealth and the preservation of its brand through the financial crisis.

Net new assets, the figure most commonly used to measure private banking performance, was CHF12.4bn in 2010, CHF11.5bn in 2009 and CHF8.2bn in 2008.

Net new assets in the first quarter of 2011 were also strong, at CHF4bn, which means an annualised rate of more than 20%.

Bar chart showing net new assets at Credit Suisse

Boosting UHNW and Family Office offering

The bank is increasing the level of ultra high net worth (UHNW) individuals it banks. Around 40% of its total asset base are UHNW assets and 50% of net new money is from these clients.

The bank is attractive to these individuals because of its distinctive ‘One Bank’ offering, which ties wealth management services with its investment banking offering. This is particularly important in Asia where personal and business wealth are closely linked.

Many of the region’s wealthy individuals are first generation wealth creators – usually business owners and entrepreneurs – and wealth solutions need to span their personal and business requirements.

One of the few disappointments with Credit Suisse in the Asia-Pacific region under Kreis has been in the area of family office services. Some in the family office community feel the bank has failed to make much headway in this department so far.

Kreis says the bank’s family office hub, launched in December 2010, will complement the existing services on offer.

“We are happy with the progress made so far and offer assistance in setting family offices up,” he says. “It is always a bit of a question of timing.

“If you look at Australia, which is a very sophisticated and mature market that is very fragmented in terms of its offering, you have very advanced family offices and sophisticated financial services providers. [There are] not hundreds of them, but Australia has some very, very good ones.

“In South-East Asia, it is probably the most nascent with regard to family offices,” he says. “We can play a critical role in tying some of our largest relationships to the firm a bit more closely by offering office space and assisting them with family office governance.”

 

See also:

Kreis reorganises for Greater China push

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