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.
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The 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.
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By GlobalData“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
Kreis 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%.
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
