Credit Suisse Group AG is betting it can turn around its unprofitable U.S. private wealth business with new loan products and a focus on the ultra-rich, a strategy greeted with skepticism by some securities analysts and former officials at the bank.
Bank executives say Credit Suisse Securities (USA) can make money by focusing on ultra-wealthy clients who use multiple investment banking and personal investment services, and by introducing products that generate relatively high and sustainable interest income even when rates are low.
Profit margins can rise by cutting compensation costs through layoffs, training brokers internally rather than through expensive recruiting, and better use of technology to lower back-office costs and improve sales, they say.
The U.S. wealth business is a small part of revenue at Switzerland's second-largest bank, but getting it into the black is becoming increasingly important to Credit Suisse. Wealthy investors worldwide have been closing their Swiss accounts as U.S. and European regulators investigate the complicity of financial firms in helping customers evade taxes, hurting the profitability of the private wealth business in Switzerland.
Gross margin on Credit Suisse's $1.44 trillion (1.3 trillion Swiss francs) of private banking assets worldwide is 1.1 to 1.15 percent, bank officials said. The take would be closer to 1.5 percent if not for the U.S. unit that oversees about $110 billion (99 billion Swiss francs) of those assets, said people familiar with the U.S. brokerage's returns.
Credit Suisse has given the U.S. private wealth business 18 months to turn around, at least temporarily sparing it from the death sentences it is handing down to small and unprofitable operations in 50 other markets, including in Africa, Central Asia and Europe.
The business has not been profitable since Credit Suisse bought it as part of its purchase of U.S. investment bank Donaldson, Lufkin & Jenrette in 2000, according to a former Credit Suisse chief financial officer, who said it was ignored for many years but considered essential.
As one of the largest wealth managers in the world, Credit Suisse needs "to have a presence in the world's biggest wealth market," the former CFO said.
Not Big Enough
Last March, the bank named Philip Vasan, a 53-year-old executive whom it credited with reversing the fortunes of the bank's prime brokerage, to head private wealth in the Americas. Bank executives said that despite his lack of experience in retail brokerage, Vasan knows how to work with the very wealthy and how to run businesses efficiently.