Top management at the private bank of Credit Suisse in the UK set out its strategy as the bank pushes forward after a period of big change.

In an environment of tight margins and relentless pressure for results, a strategy that can sometimes pay dividends is to focus ruthlessly on the needs of an attractive client segment.

This the aim of Credit Suisse’s private bank in the UK as the firm explores how to get the most out of its presence and help the parent bank move on from a testing period.

Switzerland’s second-largest bank is going after professionals who make money running hedge funds, private equity firms, property businesses and commodities. As well as managing the money of such people, Credit Suisse wants to cement relations with such managers so they come to the bank for their financing needs.

This is the strategy spelled out recently to WealthBriefing by Philip Harris, chief executive of Credit Suisse’s UK private bank, and Karsten Le Blanc, head of the London-based ultra-high net worth individual team. This publication caught up with them at the firm’s offices in London’s Canary Wharf.

The potential client base from this alternative finance space is large, Harris said. “We believe there are 3000 such individuals and we will reach out to the largest 1,000,” he said.

Le Blanc added: “With the alternatives investment professionals we are taking more focus on the segment and creating a coverage team for private equity and hedge funds. The team will be staffed with relationship managers from HNW and UHNW world.”

Credit Suisse aims to look after these professionals’ own liquid wealth while also offering them a range of services such as lending, wealth planning and structuring. Several of these professionals are non-doms facing the new rules set by the UK. One differentiator for Credit Suisse, Le Blanc said, is that the bank has a prominent prime brokerage business that already serves areas such as hedge fund firms. “We are the only private bank offering prime services for private clients.”

In one example, Credit Suisse took on a client in the form of a hedge fund that converted to a family office and returned money to external investors. (This was in Switzerland.)

The private bank also looks after those “fallen angel” entities where, for example, a hedge fund has seen assets fall and no longer reaches the level eligible for institutional prime brokerage business, but can be catered for by the prime services part of the bank, Harris and Le Blanc said.

Besides alternative investment professionals, other client groups are entrepreneurs (first-generation wealth), families (old wealth) and their investment vehicles (including single family offices), endowments and charities.

Changes
Recent times have not been the easiest for the bank. It is going through a period of significant change and restructuring. Globally, there has been a big emphasis on the wealth management opportunities in Asia, while some booking centres and business units have been trimmed, as have those of many of its peers.

In February this year, the bank issued its 2015 results, showing a loss for the parent group. Unadjusted pre-tax private banking income at its Swiss universal banking arm – a newly-created and separate entity – fell by 29 per cent year-on-year to SFr869 million ($864.3 million) in 2015. On an adjusted basis, pre-tax income was SFr821 million, down from SFr790 million. Separately, at the newly-created international wealth management arm of the bank, covering activities outside of Switzerland, unadjusted pre-tax income in private banking dropped 34 per cent year-on-year to SFr526 million. In Q4, it posted a SFr56 million loss.
 
Under the helm of new group CEO Tidjane Thiam, a new structure has been created at Credit Suisse with five operating divisions: the Swiss universal bank; Asia-Pacific; investment banking and capital markets; global markets, and international wealth management (including the UK).

The international wealth management business of Credit Suisse covers Europe, emerging Europe, Middle East and Africa, and Latin America. Europe includes France, Belgium, Luxembourg, Spain, Portugal, Netherlands, Nordics, Germany and Austria, Italy, Netherlands, Belgium and Scandinavia, as well as UK on- and offshore business. (This means coverage includes locations such as the Channel Islands.)

Entry point
The UK-based part of the private bank is an “entrepôt” for domestic and international businesses with UK connections, such as those from China, Middle East and Russia, Harris said. “It’s a polyglot community with a lot of different coverage,” he continued.

Asked about how the UK business works in this context, Harris said: “We should be dealing with people that need to deal with a Swiss private bank and that obviously automatically takes out a lot of people lower down the financial spectrum. We have no 'affluent' business as such and we are targeting the high net worth and ultra-high net worth space. Ours is an internationally mobile community.”

Reporting lines are essential in making the structure work. Harris gave the example of how, if there are Italian clients in the UK, the RMs serving such clients would report to Harris as a location manager and also report to other senior managers in Italy.

“This change in structure has given us focus and greater clarity,” Harris said.

Targets and numbers
The minimum current size of investable assets for a client is £3 million. The minimum has been made explicit, Harris said. What targets exist? “Credit Suisse is aiming to increase pre-tax income by 50 per cent and grow its revenues by 30 per cent, while reporting a return on capital of above 30 per cent, by the end of 2018.” Another target the bank has is for RM numbers. It aims to increase RM headcount by 25 per cent to 1,400 by 2018, with most of these people (more than 200) in the emerging market space.

As far as certain targets are concerned, the new strategy and cost initiatives could, for illustrative purposes, produce a return on tangible equity of around 14 per cent with a cost/income ratio of about 66 per cent in the international wealth arm, Asia-Pacific and the Swiss universal bank. (In recent years, cost/income ratios among major wealth management firms have trended up to around the high 70s, according to reports from organisations such as Scorpio Partnership, the consultancy.)