Asia Private Wealth Boom Drives Credit Suisse Surge in Assets

(Bloomberg) -- Asia is getting richer and that’s fueling growth thousands of miles away at Credit Suisse Group AG.

The Zurich-based firm -- which reported better-than-expected first-quarter earnings and revenue -- added 6.2 billion francs ($6.3 billion) of new assets in its Asia Pacific business in the first quarter, the most in at least two years and accounting for more than 40 percent of new inflows at the bank. The results helped drive the shares up as much as 5 percent.

Asian countries are at the forefront of wealth creation, driving demand for private banking as rich individuals seek a haven for their assets. Wealth in India is predicted to pace gains over the next decade, with wealth tripling to about $25 trillion, the Global Wealth Migration Review said earlier this year, while China’s is set to increase 180 percent to $69 trillion.

Asia has been at the forefront of Thiam’s drive into wealth management, with the bank deepening a push recently into southeast Asia. Growth is quickening as the firm enters the final stages of a three-year turnaround plan that included tapping shareholders for more than 10 billion francs of fresh capital and paring back investment banking as it shifts to managing money for the rich.

Credit Suisse rose as much as 5.3 percent to 17.07 francs and was trading 4.5 percent higher at 16.94 francs as of 1:57 p.m. local time.

Rising Wealth

Rising wealth in emerging Asia is encouraging firms to look for more customers outside the traditional private banking hubs of Singapore and Hong Kong. Many Southeast Asian businesses are owned by rich families and entrepreneurs who may also need to tap capital markets by selling shares or bonds, providing a potential sweet spot for global banks including Credit Suisse.

Total private wealth held worldwide amounts to about $215 trillion, according to the Global Wealth report. While the average person has net assets of $28,400, there are some 15.2 million HNWIs in the world, defined as those with net assets of $1 million or more.

Net new assets at Credit Suisse’s combined wealth management businesses were 14.4 billion francs ($14.7 billion) in the first quarter, beating analyst estimates. Profit at the key international wealth business rose 66 percent to 484 million francs, while overall both earnings and revenue were better than expected.

“I’m reluctant to predict net new assets, it’s quite volatile,” Thiam, who’s led the Zurich-based bank for three years, said in a Bloomberg Television interview on Wednesday. “We had a 13 percent increase in Asia, that’s really extraordinary. But a single-digit to mid-single digit rate is achievable.”

Wealth Management

Thiam, a former insurance executive, is betting on rising affluence to help drive earnings in Asia and other emerging markets such as Latin America. The CEO is boosting collaboration between the firm’s wealth units and pared down trading businesses.

He’s also putting deal-makers alongside private bankers in client meetings with the aim of devising financing ideas for their companies as well as topics such as their personal wealth and succession plans. About 4 billion francs of the Asia inflows stemmed from referrals from investment bankers, Thiam said.

While wealth managers have been under pressure from negative interest rates and generally higher cash holdings of investors since the financial crisis, Swiss banks -- including Credit Suisse’s key competitors Julius Baer and UBS Group AG -- have sought to offset the challenges through cost cuts, recruiting initiatives and increasing loans.

Growth in net new assets of 7.5 percent is faster than at UBS, but its rival is still far bigger. UBS added 19 billion francs of net new money in the first quarter and has about 2 trillion under management, compared with 776 billion francs at Credit Suisse.

Solid Results

“The quality of the earnings is high driven by ongoing outperformance in wealth management,” Kian Abouhossein, an analyst at JPMorgan Chase & Co., wrote in a note to investors. Results “are very solid and better than expected.”

With the restructuring entering its final round, Thiam is focusing on growth and repaying shareholders who’ve stayed with the bank. Late last year he outlined plans to return half of the bank’s profit, mainly through buybacks or special dividends, once it strengthens capital generation. That’s not going to happen this year, it said at the time. UBS said this week it plans to start a program to buy back as much as 2 billion francs of stock this quarter.

Credit Suisse’s key trading business, which has negatively surprised in the past, also performed in line with expectations, though Thiam had to backtrack on bullish guidance from February after trading gains fizzled.

The global markets unit, led by Brian Chin and which includes credit trading and equities trading, reported 1.5 billion francs of revenue, in line with estimates. Still, profits fell seven percent at the unit with equity revenues flat and fixed income down slightly.

©2018 Bloomberg L.P.