Strategy

Credit Suisse v. UBS: Will They Both Last 15 Rounds?

Contributing Editor, 18 February 2005

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Credit Suisse and UBS continue to be the Swiss titans of global financial influence and prestige. Both banks generate a substantial part of ...

Credit Suisse and UBS continue to be the Swiss titans of global financial influence and prestige. Both banks generate a substantial part of their revenues from private banking and this proportion will only rise in the future. But how do they stack up against each other? WealthBriefing considers the evidence.

Credit Suisse released its full year 2004 results yesterday and what is apparent is the bank has come out of its corner fighting. Net profits up 28 per cent in private banking landed the first punch. But the real heavyweight blow was the 47.5 per cent rise in net new money in private banking in 2004.

A cost/income ratio of 58 per cent, an impressive 3.8 percentage point improvement on the 2003 ratio shows that Credit Suisse is looking a meaner and leaner fighter. Although there is still room for improvement as the bank had set a target of 55 per cent by the end of 2004.

Gross margins in private banking are looking good, too. “We were able to report a very strong gross margin of 134 per cent, going over our targeted 130 per cent,” Martin Somogyi, a spokesman for Credit Suisse in Zurich, told WealthBriefing.

Clearly, restructuring last December is beginning to pay off, particularly in private banking.

But some are more ambivalent, seeing a bit of flab hanging around the otherwise prize fighting machine of Credit Suisse. “The bank still has a higher cost/income ratio than UBS and that’s even taking into account the latter’s current high spending on its European wealth management initiative,” Christoph Ritschard, a senior analyst at Zürcher Kantonalbank, told WealthBriefing.

Mr Ritschard believes Credit Suisse is still in a restructuring phase, which means that its senior management is too preoccupied with internal matters. “UBS can concentrate on the markets and not have to concentrate unduly on internal factors.”

Many see the increasing influence of Michael Philipp at Credit Suisse, which could have important consequences for the bank in the future. Mr Philipp was brought in from Deutsche Bank and is in charge of Credit Suisse First Boston Europe. He has just been promoted to the executive board and is believed to be a favourite of Oswald Grübel, the bank’s chief executive.

“I see Mr Philipp having an increasingly powerful role within Credit Suisse,” said a former colleague of the American investment banker when he was at Merrill Lynch. “He has the ambition and the drive to take him to the top.”

So could this all point to a tougher opponent for UBS in the last five years of this decade? Last week’s results suggest Switzerland’s largest bank is still very much the heavyweight champion of the world when in comes to asset gathering abilities.

But the bank continues to dispense cash in large amounts to build its European wealth management business. Some analysts look at UBS’ costs in this respect, but few question its strategy.

“UBS has shown that a combination of ongoing organic development and selective onshore acquisitions have enabled it to become the leader in wealth management both onshore and offshore,” said Ray Soudah, head of the wealth management acquisition specialist Millenium Associates and an ex-UBS M&A specialist.

He added: “I can’t expect anything except ongoing success and determination from the bank. But always with a cautious approach.”

UBS still has plenty of appetite—and money—for bolt-on acquisitions, particularly in wealth management. Remarks last week from chief executive Peter Wuffli confirmed still looking for acquisitions.

All this adds up to a pretty impressive boxing pedigree, which might be making the contender in the Credit Suisse corner a little nervous.

But as that old sporting adage goes, never write off the underdog!

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