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Credit Suisse PB’s Monnet, Cavalli: Innovative strategies buoyed APAC business performance despite muted risk appetite

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Credit Suisse Private Banking’s APAC business has enjoyed a modicum of insulation from a downturn in investors’ risk appetite which has seen wealth managers across the region urge clients to stay invested and wait out the storm, say François Monnet and Benjamin Cavalli, who this week celebrate their anniversary as co-heads.

The respective North Asia and South Asia private banking heads told Asian Private Banker that the bank’s APAC division — which saw Q2 pre-tax income rise 9% YoY and 30% QoQ to CHF 237 million — is weathering the storm by relying not only on traditional cost discipline and wealth-related revenues, but by developing timely innovative offerings, generating mid- to long-term trading ideas, and improving relationship manager productivity.

“It is certainly the case that client sentiment remains cautious and fragile,” they said, pointing to the “big disconnect” between the strong market rebound year-to-date and muted client risk appetite.

“Usually these are highly correlated, as was the case last year when clients became very cautious the more markets fell. This year, client investment performance has been very strong. It is also no secret that cash levels remain high across the board, and clients prefer to wait on the sidelines.”

To encourage clients to steer away from cash and back to the markets, the bank has emphasised innovative investment solutions tailored to the current market environment.

“Innovation in wealth management is always critical,” the private banking heads said, highlighting Credit Suisse’s recently launched supply chain offering, which combines defensive cash management with low correlation investments. Over the past 12 months alone, the solution has raised more than US$1 billion in APAC for the private bank.

“This solution is a cash alternative that helps clients tap into the emerging industry of supply chain and trade receivables with low sensitivity to interest/spread changes and in the process achieve both diversification and yield enhancement,” the bank explained.

Short-term market noise and volatility have also motivated clients to take a step back and adopt a more passive investment approach. Accordingly, the bank has devised mid- to long-term trading ideas as “building blocks” for clients’ core portfolios on the flow side, ensuring they remain active.

“As cash returns have been low, this strategy has paid off well for our clients. They are seeking more guidance in the current market and there are always ideas to benefit from,” Monnet and Cavalli said, adding that the bank’s ‘UHNW trading initiative’, which offers better connectivity to the global markets division, has also contributed to the bank’s tactical flow business.

On the longer-term front, the bank said private equity and hedge funds are also differentiating the lender from its peers, with “robust” client demand and appetite over the past six months.

Indeed, the private bank’s Q2 net revenue for the region totalled CHF 437 million (+6% YoY), predominantly driven by higher transaction-based revenues (+15%) and higher net interest income (+6%).

While higher transaction revenues do not necessarily imply that the discretionary business slowed, recurring commission and fees did drop slightly last quarter.

“On recurring revenues, while volumes have increased year-on-year, the recurring margins have remained flat due to changes in asset class mix where clients prefer lower-margin fixed income and cash alternative solutions — be it either mutual funds or discretionary mandates,” the bank explained.

“Having said this, we have seen good mandate volumes in the first half of 2019 and the trend continues — so with markets supporting or staying where they are, we believe the momentum will continue to be positive.”

Higher revenues and net new assets per relationship manager — headcount held steady QoQ at 600 — also supported the bank’s performance in Q2.

“Our distinct APAC division business model and integrated platform are key differentiating attributes for our success in the region as it facilitates an even higher level of collaborative activities for UHNW entrepreneurs, and increased activities across both Private Banking and Investment Banking,” the bank said, adding that innovative technology platforms are “equally important” in terms of enhancing relationship manager productivity.

“[Technological innovation] also facilitates multiple channels of connectivity and collaboration for clients with their RM and Credit Suisse team, bringing the RM and bank significant gains in efficiency and higher value-added productivity.”

The bank closed out the second quarter with CHF 219 billion in AUM — a 6% YoY increase, and a 9% rise since end-December 2018 when Credit Suisse placed second on Asian Private Banker’s Asia AUM League Table with US$205.1 billion.

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