The private banking industry is unlikely to widely copy Credit Suisse’s move to ensure some clients are not left out of pocket as a result of losses in structured products, say figures in the banking industry.

As reported by WealthBriefing this week, Credit Suisse is in talks with clients who may have been hit by the bankruptcy of Lehman Brothers. Lehman has agreed to sell its North American business to UK-listed Barclays, a deal which is subject to approval by regulators and administrators handling Lehman's affairs.

A senior structured products financier at a large European bank in London said it was unlikely that other banks would follow Credit Suisse’s path, however, as it would represent writing a blank cheque on what could be a heavy bill, particularly if other banks which underwrite such products go bust.

“It would be extraordinarily expensive because they would have to cover the whole notional value of the product sold to clients. We certainly have not seen people doing this sort of thing,” the banker, who declined to be named, told WealthBriefing.

The demise of Lehman Brothers has cast a pall over the structured products business. These financial package deals typically offer clients the ability to profit from the movement in an index such as the S&P 500, while being able to get back all or most of their capital if markets drop. Investment banks such as Lehman Brothers have written and manufactured hundreds of such products. The capital guarantees in such products mean that an investor is effectively an unsecured senior creditor to the bank issuing these package deals.

A European banker working in structured products told WealthBriefing that Credit Suisse had acted to protect its image in its native retail market. Meanwhile, many banks were suggesting clients should wait for the financial turmoil to pass to ensure they had a chance of recovering a substantial share of their capital.

“I think CS is doing that to protect its retail franchise in Switzerland. As far as I know most private banks operating in the high net worth space are offering clients the opportunity to exit at 15-20 cents now or wait for recovery,” the banker said.

“Indeed, it is probably better for people to wait for recovery as one could get around 40-50 cents based on current estimates. Current bids on Lehman paper are from banks who are setting up distressed funds with a view to make money if the recovery is a lot higher,” the banker added.

WealthBriefing contacted a number of banks about whether their clients had significant exposures to Lehman's products. At HSBC Private Bank, a spokesman said the UK-listed firm's clients had relatively few clients with exposure to such products.

"HSBC has only a very small number of clients holding structured products issued by Lehmans. The nature and risk of these products were all clearly disclosed to clients and we are doing all we can to help them through the bankruptcy process as painlessly as possible," a spokesman said. 

Switzerland’s second-biggest bank says that although investors are solely responsible for the issuer risk of structured products, it has decided – with no acknowledgement of any legal obligation on its part – to accommodate those private clients who, as of 31 August 2008, had assets of up to SFr500,000 at Credit Suisse and had invested more than 50 per cent of these total assets in capital-protected Lehman products.

The Credit Suisse plan applies to all clients, not just those based in Switzerland.