Credit Suisse’s first quarter results show the potential pitfalls of building a bank too focused on high-net-worth clients. finews.asia takes a look.
When the time came, the wealthy and the ultra-wealthy got out, and fast. That is one of the takeaways from Credit Suisse’s abbreviated first-quarter earnings report replete with write-downs, outflows, and withdrawals.
Down Sharply
In the wealth management business, net asset outflows in the first quarter comprised a surprisingly large quotient of nine percent of all assets under management (AUM) at the end of last year. Credit Suisse said that this was not just from investment mandates changing hands. They further disclosed that deposits represented 57 percent of all outflows in that business, as well as that of the Swiss bank.
By comparison, similar outflows in its Swiss bank only comprised one percent of AUM. The same number in the asset management business? Three percent.
Voting With Their Feet
Looking at it from a different angle, it is apparent billionaires and centi-millionaires are voting with their feet en masse.
In wealth management, the level of assets under management fell 7 percent quarter-on-quarter to about $500 billion, but that decline includes several other factors, including market movements, which were substantially positive, and foreign exchange, which was modestly negative.
The net asset outflow number by itself is several times larger than the impact from all the other factors and is likely to have had a meaningful impact on the group-wide decline in customer deposits, which were down 29 percent over the same period.
Lessons for UBS
What does it mean? Theoretically, it shows that high-net-worth clients are likely to move money and assets quickly when they lose confidence in a financial institution. Given there are far fewer of them than general retail banking clients, their decisions can end up having an outsized impact.
By all appearances in Credit Suisse’s case, it looks like they managed to significantly worsen what had many of the trappings of a traditional bank run.
That will likely keep the combined UBS-Credit Suisse integration team awake at night as they consider, with the benefit of vivid and immediate hindsight, to what degree a large and financially stable global institution can and should be exposed to the whims of billionaires.
