Risk-taking billionaires offer rich reward for Credit Suisse

Zurich

CREDIT Suisse is banking on risk-taking billionaires to drive revenue growth at its wealth management division.

While most private banking clients are trying to shield their wealth from the coronavirus uncertainty by buying hedges or shifting into cash, the world's super-rich are using the market tumult as an opportunity to bargain-hunt for acquisitions and invest in higher-risk assets such as stock options and high-yield bonds.

Philipp Wehle, the head of Credit Suisse's international wealth management division, estimates this sort of activity could bring in around US$400 million in additional revenues between now and the end of 2022.

"My ambition for strategic clients is to double the growth contribution over the next three years," said the German native, who took over as Credit Suisse's top banker for international jet-setters last July after former boss Iqbal Khan left to head wealth at UBS.

"We, myself included, are now having more discussions with clients on how to invest or reinvest into the markets, how to build strategic positions," he said. "Some of our strategic clients are looking to go into more risky assets, after deleveraging before... This trend is visible from conversations with ultra wealthy clients but also from business activity we were seeing. The level of transactions in April was still above pre-crisis levels."

Mr Wehle's division grew revenues 6 per cent to 1.5 billion francs (S$2.2 billion) in the first quarter due to clients trading more. The division accounts for just under half of the bank's overall pre-tax profit.

Credit Suisse set aside US$1 billion to cover the impact of the coro-navirus, primarily to its corporate lending business, in the first quarter. Lending to wealthy clients, a business built up under previous CEO Tidjane Thiam, was reined in as markets went into freefall in March and some share-backed loans faced margin calls.

"At the peak of the crisis, there were some shortfalls and margin calls. They have been mitigated down to almost zero at this stage, without material losses so far," Mr Wehle said.

While single-stock lending - often deemed a more high risk business - had been more active before the crisis, Mr Wehle said such lending was still on offer, with the unit recently undertaking a major single stock transaction with a long-standing emerging market client.

As company valuations have dropped, ultra wealthy clients are also looking to build strategic stakes in companies. "There is more interest now in terms of conducting smaller acquisitions," said Mr Wehle.

"Our ultra wealthy clients across all regions are asking: are there good opportunities that are priced right? Are there undervalued companies where we can build a stake?" REUTERS