Only The Big Banks Can Profitably Serve Asia's Clients - Credit Suisse Executive

Tom Burroughes

5 June 2013

Only the big firms can profitably serve wealthy clients in Asia at a time of rising costs even though the ranks of the wealthy in the region are rising fast, according to the head of Asia-Pacific private banking at Credit Suisse, Reuters reports.

With a cost-to-income ratio of at least 80 per cent, most private banks are losing money despite rising numbers of high net worth individuals in the region, Francesco de Ferrari told a wealth management summit hosted by the news service in Singapore.

"The industry at the current cost-to-income ratio is not really sustainable," de Ferrari said. "So we will see a lot more consolidation in the private banking industry over the next three to five years in Asia for sure,” he was quoted as saying.

His comments will stir debate about whether a bank needs to have sufficient scale to surmount challenges such as a rising regulatory burden and increasing demands from clients, or whether niche players, perhaps working with a partner, are also able to cater to the Asian market.

Among big deals has been the sale by Bank of America Merrill Lynch of its non-US wealth management business to Julius Baer, while HSBC sold its private bank in Japan to Credit Suisse in December 2011. Morgan Stanley has sold part of its international wealth arm to Credit Suisse. Standard Chartered recently agreed to buy the Indian wealth management unit of Morgan Stanley. Meanwhile, Vontobel, the Swiss bank, has entered a partnership with ANZ to provide services to Asian clients, a move that follows a similar partnership agreed by Julius Baer and Australia’s Macquarie.

Focus

Asian clients, due to their need for a variety of products and services, means banks must have investment and private banking operations that "are very focused on partnering together to service these clients," de Ferrari said. "It will be very hard to approach them with traditional wealth management solutions," he said. "They are looking for what we call private-investment banking type of services."

Credit Suisse tracks how much business the private bank brings to the investment bank, he said. The target is for this "collaboration revenue" to be 18-20 per cent of overall group's net revenue.

In Asia, de Ferrari said, collaboration revenue leapt 125 per cent in 2012 and is growing at more or less the same pace this year because clients in Asia for Credit Suisse's private and investment arms are often the same.

"The private bank in Asia is profitable. We have been growing extremely well over the past two years," de Ferrari said, declining to discuss profit figures.