While there has been much soul-searching in the private banking world on whether such firms should sit inside a large group or stand alone, the head of Credit Suisse's ultra high net worth operation in the UK says its "One Bank" model works.

While there has been much soul-searching in the private banking world on whether such firms should sit inside a large group or stand alone, the head of Credit Suisse's ultra high net worth operation in the UK says its "One Bank" model delivers the goods.

Today, many ultra-wealthy clients are business owners and have the sort of corporate financing and advisory needs that can only be efficiently delivered by a large, integrated banking group such as Credit Suisse, Ian Dembinski, who joined the Zurich-listed bank in January from UBS, told this publication in a recent interview.

“I was attracted to Credit Suisse because, at the ultra high net worth level, you have to deliver a one-bank philosophy. These [UHNW] clients are often institutional in size and require sophisticated tailor-made solutions. The traditional private banking model only partially meets what these clients need,” Dembinski said.

Some universal-service bank models have come under strain amid the credit crunch, forcing restructurings and moves to put clear blue water between investment and private banking, as at UBS. But as far as Credit Suisse is concerned, a close relationship between private banking and investment banking is smart business, Dembinski said.

For instance, investment bankers can spot liquidity events, such as IPOs or M&A transactions, and refer newly-enriched corporate clients to the private bank. And this works the other way – wealthy clients have financing needs which can be handled effectively with the help of the IB.

The integrated banking model enables all Credit Suisse staff to track the amount of revenues referred from one side of the banking group to another, said Dembinski. As of last year, that figure stood at about SFr5.2 billion (around $4.6 billion).

Hard numbers

Dembinski argued that it was sensible to arrive at a hard number on such revenues, so that staff could see the merits of the One Bank model in which different parts of a banking group collaborate with each other.

“Our collaboration revenues are not just a management mantra but a core part of how we run our business. It is about how we refer business to each other. We measure that on an annual basis," he said.

“In our industry, we are going to be challenged by higher levels of competition, margins on asset management will fall, loan margins will fall and there will be an increased focus on regulation. The One Bank model ensures that everyone is motivated to leverage the entire business, which can help counter the combination of rising costs and weaker margins,” he said.  

Credit Suisse’s private bank has not been immune to recent economic turmoil, but it is in better shape than many of its peers. With a BIS Tier 1 ratio of 16.3 per cent at the end of 2009, it has the financial strength to reassure clients. The private banking division, of which the UHNW unit is a part, comprises wealth management and corporate and institutional clients. Wealth management serves about 2.25 million UHNW clients and HNW individuals worldwide (source: 2009 annual report). The private bank has total assets of SFr915 billion, as of the end of last year, logging SFr41.6 billion of new money in 2009.

The earning power of the private bank is a key reason, in fact, for why Morgan Stanley recently reiterated its “overweight” stock recommendation on the Swiss bank, even though it slightly trimmed a share price forecast on the group.

Structure

Within the private banking operation, is a team called Solution Partners. This is a private banking group that acts as the interface to investment banking and asset management, and represents an important strategic component of Credit Suisse’s bank model. It has 90 staff around the globe.

The team provides customized solutions for financing, managing and protecting clients’ private and corporate assets with institutional discipline. They originate, structure, and execute equity, fixed income, alternative, and real estate investments, advise on tax, and provide investment solutions such as private label funds.

Meanwhile, a dedicated corporate finance team delivers the full suite of investment banking products including mergers and acquisitions, restructuring, strategic advice, debt and equity private placements, private equity, and pre-IPO advice.

Thresholds

“A lot of private client corporate business is below the threshold of interest to investment banks,” Dembinski continued.

The private bank operates on an open-architecture basis – “we are not beholden to the investment bank [of Credit Suisse]”, he said. There is not a “product push” issue for the private bank, Dembinski argues. A significant part of Credit Suisse’s share price is driven by revenues of the private bank, so the latter part of the business is under no pressure to act as a conduit for investment bank products, he said.

Where do clients come from?

“We have a team that sits in the investment bank which makes sure that we source referrals from institutional transactions. For example, from any IPO, there is an early alert about the creation of new wealth,” Dembinski said.

The bank also carefully manages its relationships with intermediaries such as lawyers and accountants. “The strategy is very much about open channels of communication with intermediaries– this is extremely important,” he said.

There is also a focus on having a global presence, operating “multiple booking centres” for the private bank.

Given the changing nature of the industry, it is going to be “an uncomfortable place to be in the middle”, he said, citing the trend towards boutiques at one end and all-service, big firms, at the other.

As evidenced by a large number of big hiring moves between private banks in recent months, Dembinski said there remains intense competition for high-quality staff in the industry.

“We are fortunate in that we can invest in the marketplace because we have been through a period that showed how resilient we are. The strategy we need to address is not just to hire senior bankers but also to hire future young talent,” he said.

“We are hiring laterally into the organisation from professional services and investment banking. The challenge is to make sure that lateral hires have the skills required to move into a private banking culture, Dembinski continued.

Collaboration

The UHNW team also collaborates closely with existing relationship managers and their clients to see if more services can be provided. “We try to offer added value that might benefit an existing client,” he said.

Dembinski said, citing industry data, that it costs considerably more to manage a new client – due to the costs or prospecting for new business – than it does to manage an existing customer.

“We are seeing a real opportunity, from weakness in markets, to buy real economic assets. After the credit crisis, a lot of entrepreneurs have a preference to go back to their 'roots' and they want to own businesses that make tangible things. You have to be able to respond to such a trend. You have to be able to serve the business cycle," he said.

“It is incredibly important for us to be advisory-led and not product push. There is a real culture here of listening to the client to determine what is suitable for them," he said.

And on a final point, Dembinski stressed that Credit Suisse’s private bankers are remunerated in a way that works for the long term interests of the client.

“None of our bankers are rewarded from the quota of sale. Reward here is discretionary, and linked to behaviour rather than product sales,” he added.