The Wall Street Journal-20080118-Credit Suisse Plans to Expand Private Banking World-Wide
Return to: The_Wall_Street_Journal-20080118
Credit Suisse Plans to Expand Private Banking World-Wide
Credit Suisse Group of Zurich plans to expand its private-banking operations globally and hire about 1,000 bankers over the next two years to boost the lucrative business of managing money for wealthy clients.
The move is in sharp contrast to rivals such as UBS AG that are downsizing operations -- mostly in their investment-banking units -- in the wake of huge write-downs linked to the subprime-mortgage meltdown and under the threat of a U.S. recession.
"The long-term growth prospects for wealth managers remains intact," said Walter Berchtold, chief executive of the bank's private-banking division, at an investors' conference yesterday.
Despite continuing market jitters, emerging economies such as China, India and Russia offer potential to expand for the private bank, Mr. Berchtold said. The new hiring would bring the number of relationship managers to 4,100 in 2010.
Credit Suisse, which has booked only limited write-downs of about $902 million on its subprime holdings plus a charge of the same size for leveraged loan commitments, already has substantial private- banking operations. It expects to expand this business as it profits from its so-called One Bank strategy.
This strategy, which offers private- and investment-banking services to its clients, was launched under the bank's former chief executive, Oswald Grubel, and is being strongly backed by the new CEO, Brady Dougan, who sat on the Credit Suisse management board when the strategy was established in late 2005.
Credit Suisse had about 600,000 wealth-management clients and assets under management of about 835 billion francs, or about $760 billion, at the end of September. The bank expects net new-asset growth of above 6% annually in the years to come. Between 2004 and 2007 this figure hovered between 6% and 8%.
"The expansion allows Credit Suisse to reduce its dependence on the volatile investment-banking business and rely on more stable income from the private bank," said Javier Lodeiro, an analyst at Bank Sal. Oppenheim in Zurich, who rates the stock a "buy."
Investment banks, in contrast to private banks, have a cyclical earning stream as their income depends more on trading shares and bonds and on fees from services in the mergers-and-acquisitions arena. In times of recession or general economic weakness, investment banks often struggle to generate profit and are prone to post losses because of their often-inflated cost base, mainly stemming from the high salaries paid to investment bankers.
Private banks, meanwhile, are generally considered to better cushion the ups and downs of the economy. As the subprime-mortgage bubble started to burst last year, stocks of investment banks fared worse than their private-banking peers.
