Editorial Analysis: Credit Suisse's Wealth Pivot

Tom Burroughes Group Editor London 1 December 2021

Editorial Analysis: Credit Suisse's Wealth Pivot

This news service looks back to the bank's Q3 results and strategy update. We look at the wealth management shifts being contemplated, and some of the growth and hiring ambitions of the Zurich-listed group.

Cutbacks to Credit Suisse’s “non-core” wealth management markets will mainly take place in sub-Saharan Africa, with details emerging in coming weeks as clients, advisors and regulators are engaged with, this news service understands. 

But while cutting out certain areas, the Zurich-listed bank is, as reported, steering SFr3 billion ($1.2 billion) to wealth management areas - such as those serving UHNW and upper-HNW clients - by 2024. This policy appears to continue the pivot to growth areas such as Asia while trimming businesses that for a variety of reasons aren't seen as contributing enough to overall results.  

During a webcast presentation and Q&A in early November, the bank said that sub-Saharan Africa (except South Africa) would be the main region affected by the “non-core” cutbacks. Some 10 markets in all are scheduled for the cuts.

This news service understands that as of the time of writing Credit Suisse hasn’t given more detail because it is going through the change process with clients, colleagues and regulators. Another point is that as there is the chance for employees to apply for roles internally; it does not have offices in many of these markets, which helps internal mobility.

These changes are taking place in what has been a turbulent period for Switzerland's second-largest bank. It has contracted part of its investment banking arm and tightened compliance controls after the Archegos and Greensill losses earlier in the year. It hopes that its repositioning will bolster profits at a time when banks remain pressured by ultra-low or, in the case of Switzerland, negative interest rates. (Interestingly enough, while there are flurries of speculation that some of the Alpine State's big banks might merge in a consolidation move, this hasn't yet come to pass.)

Like so many of its peers, Credit Suisse has been ramping up its Asia-Pacific private banking and wealth business, tapping into a secular growth story of a rising affluent middle class in the region. (See recent moves here.) Pandemic or no, that trend appears solid for the time being. 

In its Q3 results statement in early November, Credit Suisse said it was unifying all its wealth management businesses, aiming to reach about SFr1.1 trillion of assets under management by 2024, up by SFr200 billion from now. Assuming markets continue to improve - not always easy to imagine amid the covid fog - such a goal should not be excessively ambitious.

Repositioning the market footprint is hardly new for banks of Credit Suisse's scope. In recent years a number of banks have consolidated booking centres and switched out of markets in which the profits and revenues did not justify the overheads. A decade ago, a number of Western lenders such as Societe Generale and Barclays sold private banking businesses in Asia (although in Barclays’ case, it is getting back into the fray). In 2015, HSBC cut part of its business in Turkey and Brazil, for example.

The pandemic and the greater potential for remote working/client engagement through two-way video channels also mean that having boots on the ground might not be as vital, perhaps, as it was two decades ago. 

Here's a reminder of more of its ambitions: Credit Suisse wants to reach SFr234 billion in wealth management revenue (excluding the US) in 2024, amounting to a compound annual growth rate of 5 per cent from 2020; it expects to deliver incremental recurring revenues of more than SFr1 billion by 2024.

And hitting those numbers involves more people: a rise of about 500 relationship managers, or a rise of 15 per cent from this year by 2024, taking the total to about 3,300 RMs. IT spending will be another element: Credit Suisse wants to boost such spending by about 60 per cent over three years.

Other elements of the changes involved bolstering the wealth arm’s focus on ultra-high net worth clients and those in the higher reaches of the HNW spectrum. Credit Suisse reckons it can log a compound annual growth rate in assets among UHNW clients – outside the US – of about 6 per cent from 2020 to 2025.

CEO Thomas Gottstein and colleagues will be wishing that their measures bear fruit. Holders of the bank’s shares – down about 26 per cent since the start of January 2021 – will want to see results, particularly as and when economies fully re-open. Hopefully, the latest new COVID variant will not derail progress unduly. With a Common Tier 1 capital ratio – the usual way banks measure their capital buffer – of 14.4 per cent, Credit Suisse looks robust enough. Its managers must be hoping for better times after a bruising 2021. 

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