Major players cling to integrated model

While Europe’s politicians, consultants and banking analysts cast doubt on the continued viability of the universal banking model, major Swiss and global players continue to strengthen the ties holding together their ‘one-bank’ led structures.

As well as constant regulatory pressure to define their business and protect consumers, most banks are still unable to efficiently harness their capital markets capacity in a format which is welcomed by private clients, believes Seb Dovey, managing partner of wealth management think-thank Scorpio Partnership. “The spirit is certainly there, particularly for the private banks. But the issue is: which elements of investment banking can be packaged up or refined sufficiently to make them commercially viable?”

Increasing interdependencies between wealth management, asset management and investment banking makes these institutions reluctant to switch models, believes Amin Rajan, CEO of research consultancy Create. The integrated model, blamed for contagion from investment bankers’ freewheeling bets through commercial operations during the crisis, is increasingly in regulators’ sights, he says.

Of particular concern is how demand for structured products has been “artificially propped up by an unhealthy relationship” between wealth managers and their brethren in capital markets, looking for cheap and failsafe distribution channels. “There is no doubt that the one-bank model is under regulatory scrutiny and clients are also questioning its merits in the post credit crunch landscape,” confirms Mr Rajan.

But the wealth management majors, UBS and Credit Suisse, while subjecting themselves to the new “Swiss finish” regulations, demanding more capital to finance a broad range of services, are tightening links between units, making any eventual split harder to execute.

Jürg Zeltner, Zurich-based CEO of UBS Wealth Management, who famously apologised to delegates at a PWM conference for incorrect marketing of investment bank-led structured products at the time of the 2008 crisis, now talks about a “paradigm shift in the wealth management industry”.

In the post-crisis environment, clients have returned with higher expectations, despite aversion to risk, with focus shifting from “buy and hold” to dynamic portfolio restructuring, entailing closer involvement of clients in investment decisions.

One of the best ways to achieve this, he believes, is to further integrate the bank and emphasising investment banking solutions for private clients. “We need to offer a more customised product mix and we need client advisers who are knowledgeable about the markets and passionate about identifying market opportunities,” says Mr Zeltner.

This return to the pre-crisis mentality is mirrored at UBS’ key rival in Zurich.

The belief at Credit Suisse is that expertise in the fields of investment banking and asset management allows the bank to create unique solutions for private clients. Rather than being seen as a business harmful to the economy, leaders at Credit Suisse believe investment banking should be recognised as a key factor driving the future success of the financial sector, providing the investment banking activities are within the framework of a client-focused business model.