Credit Suisse opens pockets to super-rich
It gets strong demand from wealthy customers seeking loans
ZURICH: Demand from the wealthy for loans is so strong that Credit Suisse Group AG can’t keep up, according to its international wealth chief, Iqbal Khan.
“We couldn’t execute all the demand we had” in the first quarter, Khan said in an interview at the company’s headquarters in Zurich. “We have a very material lending pipeline.”
The Swiss bank is betting that it can attract wealthy customers by offering individual clients loans in the hundreds of millions of dollars as it pivots from investment banking to wealth management.
Under a strategy designed by chief executive officer Tidjane Thiam after he took the job in July, the bank wants to focus on services for entrepreneurs and personal fortunes as it vies with competitors such as UBS Group AG and JPMorgan Chase & Co to advise ultrawealthy families.
Promoted to run Credit Suisse’s international wealth-management unit in October, Khan, 40, said he’s building internal resources to meet credit demands in the regions he oversees, which include western Europe, Russia, the Middle East and Latin America. Thiam has tasked him with almost doubling lending volume to 56 billion Swiss francs (US$58bil) by 2018.
Net interest income from private banking loans and deposits at the unit increased 37% to 301 million francs in the first quarter from a year earlier, the company reported recently.
Khan said margins widened in the first three months, while the results show net loans were unchanged at 38.9 billion francs from the fourth quarter.
“On the one side you have clients with lending demand, and on the other side, you have clients who are deleveraging,” Khan said. The slowdown in China and a further drop in oil prices roiled markets at the start of the year, scaring off many wealthy investors and exposing others to losses.
Political uncertainty often appears to be a stimulus for increased credit requests as investors look to re-balance their positions, according to Seb Dovey, managing partner at Scorpio Partnership, a wealth consultancy based in London. The upcoming UK referendum on the European Union and the US elections may be on wealthy clients’ minds, he said.
To ensure Credit Suisse’s lending drive won’t crimp profitability, Khan has set an internal target for the minimum return on capital for lending, which he declined to disclose. Return on regulatory capital at the unit fell to 23.4% in the first quarter from 23.7% a year earlier, according to a company filing.
The private-banking branch of Khan’s unit recorded net new assets of 5.4 billion francs in the first quarter, “primarily related to lending and inflows into mandates and diversified portfolios,” the bank said. Emerging markets accounted for about two-thirds of the inflows, with Europe contributing the rest.
Joost de Graaf, a fund manager at Kempen overseeing investments that don’t include Credit Suisse, questioned the bank’s push to expand its loan book.
“You can try to be aggressive on the lending side, and that will work for a while, but then you’ll get the bill of higher credit losses later,” he said. “I can’t see how you can make that strategy work.”
UBS CEO Sergio Ermotti said earlier this year that his bank is turning away some money as it concentrates more on the quality of assets. Switzerland’s largest lender scaled back its investment bank more than three years ago to focus on wealth management.
Credit Suisse has a wide set of specialised lending services and is flexible on pricing for richer clients, according to Khan, whose unit managed 287 billion francs of client assets at the end of March. “We want to use that as an anchor strategically because it helps us gather assets,” he said. “It helps us bind the clients much more to our institution.”
While the capacity to lend can be the difference between winning and losing a major account with an ultra-wealthy family, banks that say they are open for business on specialised lending can be very selective, according to Dovey. “Only a very few clients will ever actually be let through the doors and on to the balance sheet ,” Dovey said. “This can be frustrating for those who are denied.” — Bloomberg