Private banks are weathering the US subprime crisis better than are commercial and investment banks because the high-yielding assets that are the source of the turmoil usually only attract institutional investors, according to a Reuters report.

Shares in wealth managers were dragged down along with the banking sector last week, but analysts suggest their underlying business is sound. The reason for the drop was that private banking fees are based on assets under management, making their shares highly correlated to any move up or down in stock markets.

As for subprime investments, private banks are unlikely to lose much of their own money, because, unlike investment banks, they do not take risks on their balance sheets when investing for their clients.

"It is mainly a fee business; it is not a risk-taking business," Guido Versondert, an analyst at Moody's told Reuters. "As far as we can see, clients are not particularly exposed to that asset class."

Second-quarter results by the private banks have shown that wealthy investors have so far been unaffected by the crisis. Switzerland's Credit Suisse, Julius Baer and EFG International all posted healthy money inflows.

These figures, said Reuters, demonstrate that the private banking sector, which holds an estimated $37 trillion in worldwide assets, remains sound and they bode well for the private banking units of big banks such as HSBC, Citigroup and Deutsche Bank.

But the Financial Times is more circumspect, suggesting banks and their clients could be hurt if the subprime crisis turns into a longer-term bear market.

Wealth managers, it said, have traditionally generated resilient revenue across the cycle and insulated their clients from market swings. But data from Scorpio Partnership, the London-based wealth management consultancy, show that in the past four years, net assets under management at a sample of 190 private banks have closely tracked the MSCI World equity index.

During the most recent bear market, customers behaved like institutional investors, shifting out of riskier products. Client assets at market leader UBS, for example, started to ebb within three months of the March 2000 equities peak, causing a 19 per cent year-on-year fall in private banking earnings in the second quarter. Profits did not stabilise until 2003, after a reporting change. Credit Suisse, the other Swiss titan, was also hit.

Private bankers are saying that the next equities downturn will not be like the previous one, said the FT, and most client portfolios are now better constructed, spanning wider spreads of uncorrelated assets such as property, commodities and funds of hedge funds. But the newspaper believes that the supposed defensive qualities of private banking should at least be questioned.