The emergence of private investment banking in Asia is a reflection of where clients are in the economic cycle, but asset management will grow in importance as the intergenerational transfer of wealth takes place.
That is the view of Francesco de Ferrari, Asia-Pacific head of private banking for Credit Suisse, who is faced with tripling the size of the business in a testing climate and a competitive landscape.
The firm’s private banking franchise has about $814 billion in assets under management globally, of which $88 billion – or just under 11% – is sourced from Asia-Pacific.
But with the region estimated to have almost 30% of the world’s wealth, the challenge for De Ferrari is to better reflect that representation within a global firm.
“What was looked at in the past in Asia was assets, net new clients and potential to grow,” he tells AsianInvestor. “But there comes a point when a growth story has to bring a bottom line as well.
“Lately the pressures of the private banking model are increasing, so I think there has been a shift looking not only at bringing in volumes but making these profitable and the business sustainable. That is the extent of the challenge, and the opportunity at the same time.”
Credit Suisse’s approach to sustainability has been to focus on building in four markets: the hubs of Hong Kong and Singapore, and the domestic markets of Australia and Japan (the Swiss firm’s acquisition of HSBC’s private banking business in Japan is due to be completed next month).
From HK and Singapore it will serve neighbouring countries, having restructured its geographical coverage into Greater China*, Southeast Asia, Emerging Asia and Developed Asia. The strategy is to build a scalable business, with improved P&L management, while delivering sales volume at the same time.
De Ferrari says Credit Suisse delivered 50% more revenues through cross-divisional solutions to private banking clients last year than it did in 2010. He adds that ultra-high-net-worth clients (+SFr50 million in investible assets, or SFr250 million in net worth) accounted for 45-50% of private banking business in 2011.
But while wealth management has increased in importance as a revenue generator within integrated banks, these are high-touch, high-cost businesses. The inference is the sales pressure is back on to deliver revenue, meaning private banking is becoming a volume game again.
“When you pose the challenge [of growth] versus the size of the market, you understand you are not really competing against immediate competitors because today the size of the pie that private banks manage in this part of the world is extremely small compared to developed markets,” De Ferrari says.
In fact, during an hour-long interview he repeatedly stresses the importance of the firm’s investment banking business, but talks far less about the asset management side.
Asked whether the relationship between private banking and investment banking is more important than with the asset management business, he responds: “Today that is true. It is where clients are in the economic cycle.
"In Asia you are talking about first-generation entrepreneurs a lot of the time. Structured lending and debt and equity capital markets capabilities are extremely important to allow clients to monetise and grow their businesses, and that has spillover on the wealth that derives from that.”
The focus on this business is the biggest area of growth for Credit Suisse in the ultra-high-net-worth arena. “But that will change as wealth gets handed over to the second generation,” he adds.
The collaboration of the private bank with the asset management business is focused on the provision of private equity and alternative solutions for UHNW clients as well as discretionary mandates, with Credit Suisse having sold its traditional long-only business to Aberdeen Asset Management in 2009 in exchange for a 23.9% equity stake. It has since sold this down to 9.8%.
Its solutions team is separated into two parts: one for core clients (SFr2 million to SFR50 million in AUM with the bank) and the other for UHNW. Staff in the former focus on packaging products and ensuring they’re ready for delivery by relationship managers; those in the latter tend to leverage the investment banking capabilities to structure one-off solutions to the ultra-rich.
The core solutions team in Asia sources best-in-breed products on an open architecture platform, coordinated by head office in Zurich.
Credit Suisse says it has over 100 different third-party providers that undergo due diligence. Out of 9,000 investment funds offered via its fund lab, 4% are in-house and the rest are third-party. “We tend to negotiate global contracts with the big fund solutions providers,” says De Ferrari.
Asked how important having third-party solutions is, given the bank’s focus on discretionary UHNW business, De Ferrari describes it as critical.
He notes that the due diligence process of choosing funds to add to its platform is based on performance, fund manager ratings and stability of the fund management team.
Asked whether private banks tend to base their decisions too much on past performance rather than potential future outperformance, he replies: “We have a pretty elaborate selection process for our products, and if you can find me someone who can correctly assess future performance, please point him out to me. You need to look at the solidity of track record.
“But if you are not in this space [having an open platform with third-party providers], you better have very good technology because in time you are going to be left with execution only, and that isn’t really a private banking business.”
*Credit Suisse is set to announce today it has hired Eddy Sze from BNP Paribas Wealth Management as managing director and market leader for Greater China, effective from July 16. He will be based in Hong Kong and report to Anna Wong, market area head. Previously he was MD and China team head at BNP.
Richard Wong also recently joined from BNP as a director and team leader for Greater China, reporting to Sze. Further, sources say three relationship managers and four assistant RMs from BNP Paribas WM are set to join the CS Greater China team.
It comes after AsianInvestor reported earlier this year that An Hui Ling and a team of relationship managers covering Greater China for Credit Suisse out of Singapore had quit.
It is understood they are headed to Pictet, to join Credit Suisse’s former Asia-Pacific COO Anuj Khanna, who started at the Suisse boutique as head of wealth management for South Asia this January. A spokesman for Pictet has declined to comment.