Credit Suisse’s disappointing earnings once again raise doubts about whether or not a wealth management business and an investment bank go hand in hand. The question requires some big thinking from CEO Brady Dougan.
While Credit Suisse’s private banking arm increased assets by 12% year on year, its investment banking unit’s revenues dropped 11%, the main decline being in its fixed-income business. The question for shareholders and for Dougan is: if the investment bank would not stand up as a stand-alone business, is it worth keeping?
The wealth management industry once argued that having an investment bank boosted the value of the wealth management business both from an earnings standpoint – cross-selling to clients – and in attracting wealth management clients. That argument now carries less weight.
Ultra-high-net-worth clients have their own direct relationships with investment banks. They do not need a relationship manager at their private bank to get them an ‘in’.
The tier of wealth below the UHNWs is of less interest to the investment banks and, after five years of dealing with investment banks’ capital restraints, those clients have found their solution in club deals with their peers or smaller investment banks.
Finally, consumer habits have evolved. Bank customers have such easy access to choice and have witnessed the economic value in assessing options via the internet that they are comfortable breaking up the services and products among sellers. Does it really matter that where one gets a loan might differ from where one gets the best deal on a stock trade, or advice on an M&A transaction? Not if there is one family office or private bank that is keeping it all centralized.
Shareholders of Credit Suisse must be scratching their heads and hoping Dougan pulls something out of the bag. Over the past five years UBS’s share price has risen 63% and Credit Suisse’s has dropped 18%.