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INTERVIEW: Private Banking In US Bright Spot For Credit Suisse

Charles Paikert

2 November 2012

Editor’s Note: As part of a series interviewing some of the most senior people at the world’s best-known private banks, here Family Wealth Report contributing editor Charles Paikert sits down with Credit Suisse’s Anthony DeChellis.

In the wake of slumping third-quarter earnings and revenue at Credit Suisse, the Swiss bank’s private banking business in the Americas, led by chief executive Anthony DeChellis, has emerged as a bright spot for the global financial services giant.

Swiss banks are facing intense pressure as net inflows of money from offshore accounts come under increased legal scrutiny and are increasingly flowing to Asian competitors. In fact, a report last week by Dallas-based predicted that Singapore will overtake Switzerland as the largest global offshore wealth center by 2020.

What’s more, tightening credit spreads and increased pressure on profit margins, resulting from cut-throat competition for high-end clients, are taking a toll on all major banks with a private banking line of business.

As a result, Credit Suisse said its “cost saving measures” will exceed $3 billion next year, with additional long-term cuts set for 2014 and 2015.

While the bank has not yet publicly announced how the cuts will by divided by divisions, it appears unlikely Credit Suisse Private Bank Americas will be hard hit.

Since DeChellis took over in 2006, assets under management in South America have more than doubled, from $35 billion to approximately $80 billion today, and AuM in the extremely competitive US market have increased from $45 billion to approximately $100 billion today.

DeChellis sees continued growth in both markets. The less developed wealth centers south of the US border are expected to offer more opportunities, but DeChellis is confident Credit Suisse can also maintain its progress in the more challenging US market, where the private bank must compete not only against its peers in the form of  entrenched leaders like JP Morgan Chase and Citibank, but also against the industry’s hottest stars, breakaway independent advisors backed by powerful platforms from firms like HighTower and Dynasty Financial Partners.

Trust business, talent targeted

Growth in the US will include a planned acquisition of a trust company within five years, DeChellis said. “We want to get into the trust business, and believe it will round out our offerings in the US,” he said.

Otherwise, Credit Suisse plans to grow its private banking business organically, DeChellis said, hiring around 50 to 60 advisors a year, as it boosts the division’s current 430 US advisors to a goal of 650 advisors within three to five years.

High quality talent is considered one of Credit Suisse’s primary strengths, said wealth management consultant Jamie McLaughlin. “While smaller in number, they’ve always had some of the very best relationship management professionals,” McLaughlin said. “The question is have they learned any lessons from other broker-dealers in attracting and retaining senior talent? Or are they just another brokerage platform where brokers ‘rent a platform’? ”

“Aggressive” recruiting efforts

Credit Suisse is aggressively recruiting advisors from large wirehouses “who find it increasingly difficult to distinguish themselves in those firms,” DeChellis said. “We can offer them all the tools they need.”

But DeChellis also argued that because Credit Suisse only adds a relatively small number of advisors to its team, the bank is able to maintain its aura of exclusivity. “There’s a big difference between being one of 15,000 advisors and one of 430,” he said. “If you’re one of 430, the value of the franchise is more worthwhile, and you’re not tripping over each other.”

Credit Suisse private bankers are also expected to work with clients “on both sides of a balance sheet,” DeChellis said, and to be familiar with “softer” issues such as wealth transfer and family planning.

In addition, the bank is also working hard to differentiate itself by carving out a reputation as an industry “thought leader,” hosting wealth management conferences for clients in cities across the country; it sponsored a young investors program and is working with New York University to produce an innovative philanthropy educational event for ultra-high net worth clients (view here).

Trying to crack top tier

To crack the top tier of the US private bank market, Credit Suisse must also “leverage the mothership platform” of its Swiss parent, said Alois Pirker, research director for Boston-based Aite Group.

“Right now, Credit Suisse has more of a brokerage model and is not quite in the top tier, with true private banks like JP Morgan Chase, Citi, Bessemer and Northern Trust,” Pirker said. “But Credit Suisse is well-positioned. It has a great brand name and access to the best thinking, lending capabilities and huge operations of a leading international bank.”

The profitable European private banking model combining lending and investment management has had difficulty gaining traction in the US, according to McLaughlin. Credit Suisse, he said, is a test case for whether a “credit-led banking approach can still work in the US when most US banks, with the exception of JP Morgan, have struggled to develop any scale in their wealth management line of business.”

The integration of Credit Suisse private banking with the bank’s lending and investment banking arms is, in fact, “a strong suit,” characterized by  close coordination across business lines, DeChellis said.

Lending limits?

“We can assemble a team of experts for clients for any aspect of the bank that is both efficient and effective,” he said. The bank’s lending capabilities were a “significant portion” of the private banking business, DeChellis said. But he also made a point to note that Credit Suisse was “a conservative bank,” which did not position itself as “the most aggressive lender.”

According to a report in the Wall Street Journal last month, Credit Suisse is considering  restructuring its asset management unit and combining it with private banking to save costs.  Asked to comment on the report, DeChellis said the bank’s asset management unit is “currently under review.”

As for competition, DeChellis said although the bank has no stated minimum for a client’s investable assets, at least half of its current clients had at least  $30 million in investable assets, and the bank was targeting prospects with at least $10 million in investable assets and net worth over $25 million.

Despite the fiercely fought battle for those clients, DeChellis said high-quality, full service advice would win the day, not competing on price. Increased downward pressure on fees “hasn’t been a big issue” for Credit Suisse Private Bank Americas, he asserted. “We are very competitive, but price becomes a bigger issue in the absence of value. Our strategy is to provide high value add in our client relationships.”