Integrated model puts Credit Suisse on front foot in Asia

Credit Suisse’s aspiration to be hailed as “the bank of entrepreneurs” has found fertile ground in Asia, which has become the world’s largest wealth region, and where 85 per cent of wealth is held by these risk-taking individuals. 

The bank’s integrated approach, based on the strong collaboration between private and investment banking, allows the institution to meet entrepreneurial clients’ needs across every stage of their personal and business lifecycle, from the start-up phase to the expansion mode, enabling the bank to capture the “lion’s share” of their assets when a liquidity event takes place. 

“Our business model is our key differentiating factor and has allowed us to grow above industry average growth rates and faster than our peer group,” states Benjamin Cavalli, head of private banking south Asia.

A nine-year veteran of the bank and former investment banker, Mr Cavalli inherited a strong franchise last year, when Francesco De Ferrari left the top spot after 17 years with the firm. Singapore CEO, he also co-heads the wealth management business with Francois Monnet, who championed the bank’s fintech push in the region and oversees private banking in north Asia, from Hong Kong. 

In addition to the management structure, the decentralised organisational set-up has increased proximity to clients, speeding up decision-making. Since 2015, Asia-Pacific has operated as a distinct regional division, the other two being the Swiss Universal Bank and International Wealth Management. The three regions are supported by two investment banking divisions: Global Markets and Investment Banking and Capital Markets (IBCM).

Regionalisation has contributed to fuel growth. The proportion of total client assets the private bank sources from Asia has almost doubled over the past five years. Today, out of its global SF797bn ($809bn) client assets, 27 per cent (SF219bn) are booked in Asia, versus 14 per cent at the end of 2014. 

The ‘horizontal’ approach works well in a region where personal and corporate wealth are closely intertwined, unlike in Europe, where the patriarch or matriarch tends to create ‘Chinese walls’ between business and personal assets. In Asia, especially “passionate, successful entrepreneurs” look at their total wealth in a holistic way, says Mr Cavalli. 

Both European heads have operated in Asia for more than 20 years and it comes naturally to them to compare attitudes of rich Asian individuals towards investing, risk tolerance and purpose, versus the European wealthy.

“Asian entrepreneurs are very ‘street smart’. They were hardly anybody 10 to 15 years ago, and then they became billionaires,” adds Mr Monnet. Often lacking a university degree, Asian entrepreneurs are able to stomach concentration risk, which has enabled them to accumulate wealth in the first place through their business. This is in contrast with Europe, where wealth is in the hands of the fourth or fifth generation of individuals, who are generally very sophisticated and keen to diversify their investments with the goal of preserving wealth.

A key strategy provided to entrepreneurs is “monetisation”, which aims to “unlock their wealth” by offering lending against shares of their businesses. This scheme can help the entrepreneur to “dream bigger and faster”, if their aim is to reinvest into their firm.

The global bank offers lending against a variety of asset classes, including real estate, aviation, yacht and ship finance. Monetisation can also help clients diversify their assets out of their business. Increasingly, the proportion of clients who have started delegating the management of their portfolios to their private bankers has grown substantially over the years in Asia, “albeit from a low base”, with new generations driving the move.  

With many patriarchs in their seventies and over, succession planning has become a dominant topic. In Asia, around 80 per cent of new wealth is created by first or second generation entrepreneurs, mostly locked into family businesses. But only 50 per cent will be able to transition from the founder to the second generation, while only 20 per cent make it to the third, and 10 per cent to the fourth. More than 70 per cent of large family businesses across Asia feel uncertain they are prepared for generational wealth transfer, according to the bank’s research.

Unlike their European counterparts, who are more interested in lifestyle, Asian entrepreneurs are very focused on leaving a legacy.

 “A lot of Asians have become rich and want to take people out of poverty, because they may have come out of poverty themselves,” says Mr Cavalli. “Whereas traditionally, entrepreneurs would write a cheque and fund a specific cause, more and more clients want to professionalise their giving back to the society and have a proper governance structure set up for their philanthropic activities,” he adds.

Wealth in the region is expected to rise significantly. One element of concern in the short term is the ongoing US-China trade war, while disorder in Hong Kong is also a cause of deep concern.

Investors are a bit “more cautious, and in wait and see mode”, says Mr Cavalli, adding however that the private banking business has become “quite resilient and less dependent on market movements and sentiment swings”. Almost two-thirds of the private bank’s revenues are made up by recurring and net interest income.

Moreover, sentiment in Asia can turn very quickly. “Investors can fall into risk off mode very fast and then suddenly the risk appetite comes back. Investors tend to be more opportunistic than in the rest of the world.”

Finding the right mix of skills

Private bankers need to have a mix of ‘soft’ and technical skills to excel in serving entrepreneurs, explains Thomas Gottstein, CEO, Swiss Universal Bank (SUB) at Credit Suisse. “Private bankers need to be able to collaborate with other divisions, be they investment, corporate or institutional banking, bring the right experts to the table and provide holistic advice to take care of clients’ complex needs.”

He praises the bank’s policy of rotating employees across divisions, enabling them to gain experience and skills. Mr Gottstein himself started his career in investment banking, then moved to lead UHNW clients in Switzerland, and now heads the whole SUB division. 

He strongly disagrees with the notion that investment bankers are trade-oriented or “deal junkies”. “The investment banking business too is about gaining client trust and establishing a long-term relationship. This is true especially in the M&A space.” 

Bankers need to have the confidence to speak to senior executives, without overselling, need to get back to them fast and offer a quality service. “Entrepreneurs don’t usually have a lot of patience; you need to be responsive,” he adds.

Several pure-play private banking competitors, such as Julius Baer, Pictet, Lombard Odier, Vontobel or EFG, which aspire to be considered bank of entrepreneurs too, cannot offer “half of the services” that Credit Suisse provides, says Mr Gottstein. 

The only other “credible player” in this space and in the Swiss market is UBS. Clients, however, report that Credit Suisse RMs are “more entrepreneurial and more willing to go the extra mile”, he adds, conceding that UBS may be “better organised, at times”, because of its industrial scale.

In this highly competitive space, poaching or defection of private bankers to competitors is high on the agenda. It happens between all banks and is “part of the game,” believes Mr Gottstein.

But the latest defection got Credit Suisse into deep trouble. A corporate espionage scandal rocked the Swiss bank when Iqbal Khan, head of the bank’s International Wealth Management division, defected to UBS earlier this year. 

Recently it emerged that Pierre-Olivier Bouée, Credit Suisse’s COO had ordered the surveillance of the high-flying executive, fearing he was preparing to poach bankers and clients to boost UBS, where he started work in September. 

An independent investigation commissioned by UBS concluded that Mr Bouée had acted alone in ordering the surveillance and that Tidjane Thiam, the bank’s chief executive, with whom Mr Kham had had a turbulent relationship, was not involved. 

The COO resigned but the bank’s reputation has suffered, further aggravated by the suicide of a consultant, who acted as a middle man between Credit Suisse and the private investigation firm. UBS’s chairman Urs Rohner recently commented that many clients have “signalled their support” to the bank.