The Gottstein saga is symptomatic of an industry facing a near-constant succession dilemma.
Conventional wisdom might have it that it should be easy to hire a top executive for a UBS or a Credit Suisse. The compensation, the bonus, the benefits - even the prestige. Who wouldn’t be willing to do it for that kind of money?
But there are hardly any candidates out there that have any specific industry expertise, and that is compounded by the fact that both major Swiss wealth managers are very big fish in a small pond.
The truth is that corporate and retail banking, in their different guises, forms the bulk of the world’s largest financial institutions. They may have significant investment banking or asset management franchises, but none have a wealth management business or private bank that is close to being material.
Wealth Management Can Mean Anything
The definition of wealth management itself has devolved to mean anything from a supercharged retail and card business for affluent clients to a mass investment distribution business. And that doesn’t help when you are looking for a senior executive with direct work experience.
The largest banks in the world have been from China for at least a decade now. ICBC, the biggest, does slightly more commercial banking (46 percent) than retail (40 percent). Its wealth management business? 3 percent of total revenues. China Construction Bank is next. Wealth management revenues? About 2 percent.
The picture is the same with the Agricultural Bank of China and Bank of China. The former indicates in its latest annual report that privately offered wealth management products comprise 0.4 percent of its total wealth management product balance. Bank of China says it has a significant private banking business with a customer base of 147,300 individuals. It does not seem to break out revenues although the level of AuM is about half that of the asset management business.
Hard to Notice
Judging from the numbers, it is hard to see how anyone in those businesses has even climbed up the ranks high enough to get noticed by anyone in the wider industry - notwithstanding the cultural and linguistic gap that might hinder a UBS or a Credit Suisse from appointing a senior banking leader from their ranks. The same can be said of sixth-placed Mitsubishi UFJ, which has a very specific private banking service that seems to cater to a select group of customers in its retail segment and managers of listed companies and entrepreneurs in its corporate segment.
In seventh place, we finally make it to HSBC, a bank that finews.com actually covers, even though most of that is on the finews.asia site. It has a specific Global Private Banking business whose annual revenue of 1.8 billion pounds sounds sizeable until you consider that it made up only 3.6 percent of the whole group in 2021 and just 8 percent of the Wealth and Personal Banking business it sits in.
The US banks are not much different. Eighth-placed JP Morgan has a Global Private Bank whose revenues comprise 6.3 percent of the group’s, Bank of America follows with 3.7 percent, and BNP Paribas rounds out the top ten with 7.3 percent.
The picture does not change when you trawl farther down the list. Credit Agricole’s Indosuez Wealth management forms about one-third of the Investment & Protection Services division but by revenues, it only makes up about 3 percent of total income.
Bottom Fishing
Let’s then take the two postal banks out of play, as it is hard to see a large western bank appointing a senior leader from Japan Post bank (12th) or China Postal Savings Bank (20th). The same can be said for 13th ranked SBMC Group whose asset management joint venture seems to comprise a fraction of revenues.
Citigroup follows, albeit its private bank makes up only 4 percent of its income. Wells Fargo, in 15th place, has a Private Bank, but the revenue number isn’t broken out. But its advisory assets encompass slightly less than a quarter of the Personal Banking and Wealth segment.
Both are followed by Mizuho Financial, which only has an asset management business. Societe Generale, ranking 17th, has a private banking business that makes up 2.7 percent of group revenues.
Barclays Leads the Pack
Barclay’s private bank, which is folded inside the Consumer, Cards and Payments division in Barclays International makes up 12 percent of all revenues. That is the highest rate seen among the top 20 but you would be hard-pressed to call it a core business. But if I were a head-hunter with a global mandate, I might start by scouring their ranks.
France’s Group BCPE brings up the rear of the top 20 world’s largest banks, with their private banking revenues making up 5.5 percent of the wider group, although it is hard to see any Swiss bank naming someone senior from a local Caisse d’Epargne branch. We would have to give an honorary mention to Deutsche Bank, which places 21st on the list. Its private bank almost makes up a third of revenues. Not only is it compatible culturally and linguistically, but it is also a close neighbor, making it an ideal poaching ground.
Although Switzerland’s major wealth managers don’t make the list of the world’s largest banks (UBS is 33rd in revenues and assets, 31st by market capitalization; Credit Suisse 41st and 91st respectively), the high scrutiny any appointee faces domestically and internationally means that appointees do have to come from an internationally recognized, reputable bank. That also might explain why many UBS and Credit Suisse managers are hired by small and medium-sized private banks in Switzerland although you rarely see appointments going in the other direction.
Revenues Show Business Profile
But why use revenues as a gauge? It is likely a better measure than profit, which tends to show how well a business is managed and is not necessarily indicative of size. And total assets do not say much about specific businesses, not least given that wealth managers typically don’t hold managed assets (typically AuM or invested assets) on balance sheets.
This all probably explains why new appointments for the two seem to come from a range of different sectors, including central banks - and seem to be so hit and miss. They have no choice. It is either that or each other.
Musical Chairs
As an example, Credit Suisse CEO Thomas Gottstein is a former investment banker who spent most of his career at the bank, although he was originally hired from UBS. Ralph Hamers, the man currently running the world’s largest wealth manager, hails from ING in the Netherlands. Besides digitalization, his experience seems to lie in retail and commercial banking.
At the board level, Credit Suisse chairman Axel Lehmann is originally from UBS while his counterpart at the latter, Colm Kelleher, is a career Morgan Stanley investment banker. The forced departure of António Horta-Osório, who came from Lloyds, only serves to confirm the same pattern, as does the previous generation of leaders. Axel Weber was a former central banker, Tidjiane Thiam ran Prudential and Sergio Ermotti was a Merrill Lynch and then UniCredit investment banker.
This pattern is not likely to change anytime soon. What it likely means is that the internal hiring and strategy departments are probably already keeping close tabs on anything and anyone in the industry who looks like they might have any potential to serve as leaders at a not too distant point in the future.
