Richest of rich are no longer Holy Grail for Credit Suisse

Clients with assets of around $20 million or less to be moved into newly created subdivision

Nov 26, 2019 @ 1:50 pm

By Bloomberg News

Iqbal Khan's successor at Credit Suisse Group AG's international wealth management unit is betting the richest clients aren't necessarily the most profitable.

Philipp Wehle, who took over after Mr. Khan's acrimonious split from the lender this year, is carving out a new entity to serve what he thinks could be the most lucrative layer of the wealthy: those who aren't yet rich enough to need the bespoke services demanded by its billionaire clients.

Mr. Wehle has begun by asking relationship managers to consider moving clients with assets of around $20 million or less into the newly created Private Banking International subdivision, according to people with knowledge of the matter. He wants the unit, which serves the least wealthy of the bank's rich clients, to make greater use of technology to cut costs and boost margins that have come under threat from cutthroat competition.

A spokeswoman for the bank, who originally declined to comment, said that Credit Suisse focuses primarily on client needs rather than the size of assets when determining which unit they are served by.

The shares pared gains to decline 0.7% in Zurich and have gained about 25% this year.

The explosion of private wealth over the past decade has spurred a race among global lenders to tap some of that money. While the wealth of billionaires is rising fastest and many banks set up special units to cater to their needs, they offer thin margins because the services they seek are complex and they often shop for the best terms or even have family offices to oversee their fortunes. That's leaving firms like Credit Suisse to take a fresh look at the lower ranks.

Private Banking International, led by Raffael Gasser, is expected to contribute a significant share of revenues and profit to the overall international wealth management division, the people said. The unit will combine digital money management tools and quicker account opening to boost profit, they said.

The new segment will initially cater to families with up to $20 million, often inherited wealth or fortunes accumulated by retired business professionals. It's the lowest of three classes in the bank's international wealth management business. Ultra and entrepreneurial high-net-worth clients are next, and strategic clients — mostly billionaires — sit at the top.

Smaller clients with complex demands could still end up in a higher bracket, while those with more than $20 million who just want investment advice could also end up in the new subdivision, the people said.

Second shakeup

Mr. Wehle's move marks the second big shakeup in as many years at the international wealth unit, which focuses on Latin America, Europe, the Middle East and Africa. In the last major reshuffle 15 months ago, client assets were split between a group of seven regional executives. They are now being asked to transfer funds and staff to the new unit. Politically exposed persons, company owners and family offices won't be moved, the people said.

Credit Suisse isn't alone in its new focus on the not-quite-fabulously rich. Rivals including Julius Baer Group AG and Vontobel Holding AG are ramping up competition for such clients across Europe and in emerging markets. It's all part of a push to increase profitability by automating more of the simpler tasks once performed by human advisers.

The sheer growth in numbers at the lower end of wealth management makes it an opportunity that banks can't afford to miss. Global millionaires could exceed 62 million in five years, an increase of 34% from today, according to estimates from the Credit Suisse global wealth report. The number of ultrahigh net worth individuals with wealth above $50 million is expected to grow faster, although the bank forecasts that their number will rise to just 234,000 over the same time period.

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