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Asia Private-Bank Boom Not What It Was in '07, Credit Suisse's Kreis Says
Source: bloomberg.com
Source Date: Wednesday, June 30, 2010
Focus: Information Access, Government Portal, Citizens’ Service Delivery, E-Government
Created: Jul 05, 2010

The past year’s expansion in Asia’s wealth management industry bears little resemblance to the boom of 2007, when firms were hiring indiscriminately and clients were less cautious, said the head of Credit Suisse Group AG’s private-banking unit in the region.

“In 2007, banks who were expanding organically hired everyone that could count to ten without using ten fingers,” Marcel Kreis said in a June 24 interview. “Certainly we’re not back: the investment environment, the client environment, the whole thing is not what it was in 2007.”

Credit Suisse, based in Zurich, and rivals such as UBS AG are adding private bankers in Asia as wealth managers replenish ranks depleted following the bust of 2008. This time, banks need to be more careful because rich clients who suffered losses during the global financial crisis haven’t fully regained their confidence, said Kreis, 58.

“If you fall off a cliff, you have a sharp recovery afterwards,” said Roman Scott, managing director of Calamander Capital and the former head of Boston Consulting Group’s Asia wealth management practice. “That’s called a dead cat bounce. But it doesn’t mean things are back to normal.”

Credit Suisse, ranked the world’s fifth-biggest wealth manager by Scorpio Partnership last year, trimmed its private- banking workforce in Asia-Pacific by 13 percent in 2009 to about 360, said Kreis. He plans to add about 60 managers in 2010.

‘Cynical’ Clients

Kreis joined Credit Suisse in 2007 from UBS, where he was head of global wealth management for the Asia-Pacific region. He has worked in the region’s private-banking industry since 1983, including stints at Citigroup Inc. and Merrill Lynch & Co.

Private banks face pressure to be more transparent in their dealings with customers, after wealthy investors got burned on complex securities that plummeted in value during the credit crisis, Kreis said.

“2008 has left a lot of private investors a lot more cautious, a lot more short-term oriented, a lot more focused on simple products than more complex ones,” he said. “Clients are more cynical today.”

The MSCI Asia-Pacific Index has lost 6.2 percent after rallying 34 percent in 2009. The gauge soared almost 150 percent in the five years through Dec. 31, 2007 before plummeting 43 percent in 2008.

Margin Drop

Industry profit margins have fallen by about 30 percent since 2007 as rich clients shifted their focus to investments like gold and real estate, said Calamander’s Scott.

Growth may also be hurt by cross-border restrictions on private bankers based in Singapore and Hong Kong who fly to neighboring countries to woo clients, according to the executive.

Credit Suisse, Switzerland’s second-biggest bank, attracted a record 11.5 billion Swiss francs ($10.6 billion) in net new money last year at its Asia-Pacific private-banking unit. Kreis said he aims to increase net new money to as much as 45 billion Swiss francs by 2012 from the end of last year.

Wealth in Asia outside Japan is expected to grow at twice the global rate from the end of 2009 through 2014, the Boston Consulting Group forecast this month.

Higher Demands

Credit Suisse plans to hire senior private bankers who can help bring in investment-banking work, since entrepreneurs control much of Asia’s wealth. The wealth management unit initiated 69 investment banking deals in the Asia-Pacific region in the first half of 2009, up from one in the same period of 2006, according to presentation slides from a conference Credit Suisse hosted in September.

“In a raging bull market where a rising tide lifts all boats, you were a lot more inclined to give junior bankers an extra year or so to prove they can deliver,” said Kreis. “In a market that’s more volatile and more uncertain, you tend to err on the side of the caution and that’s certainly what we do.”
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