Wealth management is a product as emblematic of Switzerland as Toblerone. The chocolate is losing its emblem of the Matterhorn mountain as a result of offshoring. Swiss authorities do not want the branding of wealth management to weaken too. That is one reason they have pushed struggling Credit Suisse into a shotgun wedding with larger rival UBS.
Daily outflows of more than SFr10bn daily from Credit Suisse late last week chilled a wealth management and private banking sector that habitually tops global rankings. In 2021, Switzerland harboured assets of $2.5tn, followed by Hong Kong with $2.3tn and Singapore with $1.5tn, according to Boston Consulting.
Combining Credit Suisse and UBS should create a Swiss national champion in wealth management with $1.8tn in fee-paying pro-forma assets and 11,000 relationship managers. The onus is on UBS chief executive Ralph Hamers and divisional boss Iqbal Khan to integrate the businesses in a way that minimises capital flight. The latter’s familiarity with Credit Suisse’s relationship managers may well help UBS hold on to assets.
Their main problem is that a proportion of clients have accounts with both banks. Many will move money to other institutions to reduce concentration risk. They are likely to have baked in a loss of perhaps a fifth of client assets.
Gulf investors have extra reasons for pulling funds. Saudi National Bank owns nearly a tenth of Credit Suisse shares and worsened depositor panic last week by ruling out a capital injection. It has taken a savage haircut via the forced sale of the company.
But any fugitive money may stay in Switzerland. The country has a healthy ecosystem of smaller wealth managers and private banks. These include Julius Baer with around $460bn in year-end assets under management. The next tier are Pictet, with $280bn of wealth assets, Lombard Odier, Vontobel and EFG.
Without Credit Suisse, UBS will be the only Swiss bank with a big balance sheet from which the highest-rolling private clients might want to borrow. That matters when sophisticated margin lending is required.
Swiss authorities took hard, fast action to halt a collapse. That does not automatically strengthen wealth management credentials by reducing Switzerland’s top tier of banks from two to one. Business clusters benefit from scale and diversity. Both are diminished by the loss of Credit Suisse.