Probity in the board

The problems besetting a slew of corporates worldwide as a result of executive abuses and the surfeit of stories in the media about corporate indiscretions and executive overcompensation have sharpened a sense of cynicism among the public.

Hong Kong offers a fair sample of companies that have succeeded in establishing a strong corporate governance culture.

Edward Chow Kwong-fai has served as an independent non-executive director at Cosco Pacific for the last five years and is gratified to be serving on the board of a company that is the listed port and container leasing and manufacturing arm of one of the largest state-owned enterprises in China, even if it means putting in long hours.

The Hong Kong-listed and China-owned container-leasing company has been a busy outfit in recent years. Its major expansion has included taking control of the Greek port of Piraeus near Athens, and the purchase of a 10% interest from Maersk in the Yantian port in Shenzhen. Last year the company sold its 20% interest in Chong Hing Bank to a sister company.

The Yantian transaction was a connected transaction, which explains why the independent directors were asked to form a committee to determine whether (i) the price for the targeted asset was fair and reasonable and (ii) the deal would redound to the interest of all shareholders. What mattered in such deals such as Yantian, according to Chow, was that the conflicted directors did not play any part in the process.

Smooth operation

The board is committed to ensuring that all transactions remain above board and that often poses particular challenges in view of the short timetable for approving certain major transactions. “As the windows for approval of deals tend to be short, we often feel the strain,”

Chow admits. “Those not used to pressure cooker situations may buckle, while the right person and board may consider such demanding requirements to be more interesting and worthwhile. There is ever the danger that the board does not possess the ability to understand the gist and the content of the deal.”

He describes Cosco’s independent directors as high-calibre professionals. “We are there for the challenge, not the fees, and what is even more significant is that the company’s mission is part of China’s state policy for that industry.”

While there was an initial period of familiarization between him and the directors and senior management, Chow assures us that any hitches in the communication among board members have long since been ironed out. “The gears of our interaction are well synchronized.”

Heavy workload

The board has adopted quarterly reporting. Despite the resulting increase in their workload, the audit committee has never baulked.

“We readily accept the challenges and the duties that present themselves and we get things done.” What is most gratifying at the end of the day, he confides, is when independent shareholders vote overwhelmingly to approve a deal or measure vetted by his committee.

But given that he has his own business – and a myriad of commitments – how does he find the time to do all this? Chow acknowledges that the process and commitment eat up a lot of time. He pans his arms expansively around his office which is located near Hong Kong’s Central business district. “I can tell you this room is relatively clean now, but there were more Cosco and China Merchants Bank papers in this room than my own company materials. Stacks and stacks of board papers, and audit committee papers. Always a lot of things for me to look into.”

Governance is teamwork

In the last two decades Chow has been active in promoting good corporate governance. “I am keen to see Hong Kong grow more familiar and aware of good corporate governance practices.” Chow was in a good position to help along the agenda, since he used to chair the corporate governance committee at the Hong Kong Institute of Certified Public Accountants (HKICPA). When the HK Institute of Directors (HKIoD) was established more than ten years ago, Chow became involved with the leadership council and the HKIoD award is in fact his brainchild.

When he overheard late last year that he had been nominated, he let it be known that he did not want to be given the award in his personal capacity but, instead, in the name of the whole audit committee. The HKIoD overruled his wish, noting that his involvement in the organization had lightened already, and that it wanted to recognize the major role he has played in enhancing corporate governance across Hong Kong in general and in Cosco Pacific specifically.

Winning the award as a member of the non-executive board and as chairman of the audit committee, Chow expressed the wish that there should be recognition for audit committees as well, rather than individuals, considering that the practice of good corporate governance is all about teamwork.

Capitalism has had its days

Chow is of the the view that the traditional capitalist free market economy model started showing signs of decay up in 1997 and recounts the plethora of plagues that have confronted the system – the Asian financial crisis in 1997-1998, the dot.com bubble, Enron, Lehman Brothers, the subprime crisis. “The whole capitalist system might have worked for 30 to 40 years but it has been cracking up and since then we have seen widespread abuses that have spawned doubt about the future and stability of the capitalist model.”

State capitalism, he opines, offers an alternative model. “The model is not perfect but exists in major emerging markets such as China, India and Brazil and in fact in a few EU countries where a lot of state-owned companies have become listed companies.” Chow believes that China has proven to be quite successful and offers a fresh perspective on how the world economy should run. “There really is a need to provide a balance to the excesses of global capitalism.”

Chow notes how there has been much talk about the G2 offerings and of initiatives in blending both systems, and how this has made it convenient to be on the board of state-owned enterprises, observing how things are done. Cosco Pacific’s senior management has been highly transparent to the board, claims Chow.

“They keep things open to us. If we need specific information relevant to our duties we only need to ask and it is given to us. Though there was a period of learning from one another, eventually the management began to discuss with us what is really on their mind and it has been open and candid. Connected transactions, monitored by independent commitees and independent shareholders’ vote, have proved to be in the interest of all shareholders.” Composed of a high proportion of non-executive directors with a wide range of skills and expertise, the board of directors of The Link Management has been cited for its unfailing pursuit of good corporate governance.

George Kwok Lung Hongchoy is proud of his company’s board of directors. “It is good board with a diverse professional and business background,” the CEO of The Link says approvingly. The quality of its board of directors at The Link contrasts with some listed companies where CEOs may bring in a few of their friends and acquaintances to serve as directors even if those individuals lack the right qualifications for the position to which they were appointed.

In The Link’s case, the directors sitting on the board were all carefully considered and vetted by a nomination committee and a key consideration for their selection was their expertise in the various aspects of the real estate business.

A strong range of skills

“We have a top-notch architect, a banker, an accountant, a lawyer, a property surveyor, a politician, and ex-CEO of Hong Kong Land. The powerful cast of talent in the board includes ex- Hong Kong Land chief executive Nicholas Robert Sallnow-Smith; Wing Hang Bank chairman and chief executive Patrick Fung Yuk Bun; Ian Keith Griffiths, chairman of Aedas Limited, a leading architectural firm; Professor Richard Wong Yue Chim, the deputy vice-chancellor and provost of Hong Kong University; and legendary Hong Kong entrepreneur Allan Zeman.

Hongchoy recognizes the essential role the board plays in keeping senior management grounded. “They provide the check-and-balance mechanism that the company needs if it is to remain dynamic in its approach in building the business. The board has been extremely helpful to senior management in providing professional advice, he argues, attributing the high-quality discussions on the board to the stature and experience of the members. “The board constantly challenges us in the way we think.” Given the calibre of the board, the senior management cannot go to the board unprepared.

As such, the board performs an important role since The Link doesn’t have a controlling shareholder as other companies normally have.” The Link is listed on Hong Kong’s stock exchange and is wholly owned by unit shareholders.

Fresh insights

Hongchoy says the frequency of board meetings is much higher than that stipulated for the company in the Securities and Futures Commission (SFC) guidelines. In 2010, the board met 11 times. The nomination committee which is required only to convene once a year did it three times. Even better, the serving directors turn up regularly at board meetings.

Fresh insights and suggestions emanating from the board have proved invaluable to management. For instance, when the board suggested in 2010 that senior management look at transforming the company into becoming an employee of choice in Hong Kong, the company started allocating more resources to staff training. “Last year we started hiring trainees from universities and that was something we had not done before. We looked too at engaging more of our staff to build a company culture. The Link as a going concern, explains Hongchoy, is confronted with issues facing any large company – considering that it has enjoyed a major asset injection from the Hong Kong government in the form of shopping malls and car parks – yet it suffers too from problems facing start-ups as it is only five years old and lacks a distinct corporate culture.

Continuous enhancements

Hongchoy says the company is constantly enhancing its operation. The company’s success as an enterprise is evident from the strong financial performance year after year. The company which had 250 staff at the time of its IPO now has around 900. Hongchoy joined the company in January 2009 as CFO and was promoted last year to CEO.

The company’s business model is recession-proof, he notes, because most of its properties are small, are located in residential neighbourhoods and rely on non-discretionary spending that is less affected by the cyclical fluctuations. Revenues have much improved after significant renovations to shopping centres. “The upgrades made a major difference to the people who lived nearby and they now have a much better shopping environment. As a landlord, all that we can do is to provide a good operating environment for tenants . So people like to go and shop there.”

More improvements are on the way, he adds. “There are still a lot of shopping centres that we need to upgrade.”

This is a condensed version of three separate articles that run in the January 2011 issue of The Asset

Wealthy Koreans turn cautious

The 2008 global financial crisis had a major impact on Korea’s private banking market. As in Hong Kong and Singapore, the most tangible effect of the crisis was to considerably reduce the number of wealthy people in Korea. The crash in domestic and foreign stockmarkets brought vast losses to investors and prompted them to adopt a more conservative investment approach.

Lee Hyung Il, division head and executive vice-president for private banking at Hana Bank, says the numbers of Korean US dollar millionaires only began to recover in 2010, after consistently falling until the end of 2009.

Individuals with financial assets in excess of US$500,000 are considered by Korean banks as belonging to the high net worth individual (HNWI) category. By comparison, the Capgemini & Merrill Lynch World Wealth Report consider those with assets worth over US$1 million as HNWIs. In Korea, individuals with more than US$3 million in financial assets are placed in the ultra-HNWI bracket, which in Capgemini’s view only comprises those with assets of US$30 million.

Conservative attitude
Numerous HNWIs who got burnt in the stock crash still lack faith in the investment products in 2010 and prefer to park their money instead in less risky products, remarks Lee. “They are opting for stability, although it is not surprising that, in view of the low interest environment, the appetite for interest rate guaranteed products has yet to pick up.

Private banks have a relatively young history in Korea, explains Lee, and hardly a decade has passed since major banks in Korea began to roll out a full-scale service offering to private banking clients. "This probably explains the conservative attitude of most clients towards investment."

According to the 2010 Wealth Report, except for HNWIs in Australia – where there has been a sharp increase in house prices – Korean HNWIs showed the largest increase in their average exposure to real estate investment last year: an average portfolio having an exposure of 37%, although this is projected to decline in light of the cooling of the real estate market in Korea.

At the height of the financial crisis, Hana Bank responded to the clamour for safety by providing investment products that guaranteed slightly higher returns compared to regular term deposits. Clients, Lee asserts, have been flocking to the safety of bonds and to emerging-market equities, the latter gaining respect as an asset class offering high potential returns, in view of the pessimism still affecting developed markets such as the US and Europe. The popularity of emerging-market equities can only continue to grow in the near and medium term, believes Lee, considering the vast amount of liquidity flowing into Asian assets from cash-rich pension funds and sovereign funds, both from the region and the rest of the world.

Hana Bank has succeeded in doubling its number of HNWI clients this year from the previous year, Lee enthuses, by coming up with relevant private banking investment products and providing more skilled advice. "The bank has made major readjustments in the way it sells products in the aftermath of the global financial crisis," Lee points out, "because the crisis necessitated a stronger focus on the bank's role as a guardian of wealth." (It used to be common, with a promise of high returns, to push structured products that turned out to be toxic.) “The focus has been to retain the trust by the investors by emphasizing the advisory nature of the relationship and so help protect wealth rather than promising to aggressively grow it. Our emphasis has shifted to providing “guaranteed” and “safety” products.”

Limitless competition
With the implementation of the Capital Markets Consolidation Act (CMCA) in 2009, plenty of Korean financial institutions transformed themselves into megabanks to meet mounting competitive challenges at home and abroad, explains Lee. Key changes in the fund transfer system and bank investment systems too served to heighten the aggressive streak of various types of financial institutions to expand their business operations. This presents both danger and opportunity, according to Lee. “The volatility of markets, the intense competition, and a plethora of risk and compliance issues all combine to increase the vulnerability of private banks in Korea, which is why a broader perspective and lucid thinking are required in assessing the true risks facing the operation of private banking institutions in the country.”

Lee says the implementations of the Overseas Fund Transfer Act and Bank Investment Advisor Act further blurred the boundaries separating banks, securities firms and insurance firms in the servicing of HNWIs and sparked an even intenser competition.
“We have arrived in the age of limitless competition. With various reforms to ease financial regulations, we can only expect competition to accelerate. I believe that, as a bank, we are the most prepared to compete in this fierce environment,” Lee states confidently.

Investor protection has become essential to Korean private banks. “More attention has been given to the oversight and review of risk management policies and procedures. Most banks have redesigned their risk management systems to reduce incidents of fraud.” In addition, CCTV surveillance systems have been upgraded across branches at a fair number of private banks to monitor how relationship managers transact and behave with clients.

Below the surface
Korea has about 127,000 high net worth individuals and their total assets reached US$340 billion at the end of 2009, according to the 2010 Asia-Pacific Wealth Report. Hana Bank’s “Gold Club” private banking services, catering to individuals with account balances of more than US$500,000, currently has 16,000 clients with a total of US$21.3 billion in assets. While their number is a mere 0.2% of the bank’s customer base, they accounts for more than 40% of total assets held by the bank.

The private banking industry is still in a nascent stage, stresses Lee. The investments poured into personnel and infrastructure have been considerable, though, and Korea has consequently witnessed the proliferation of private banking centres that spoil clients with various perks. On the surface, it looks as though a host of banks indeed provide superior services. But if one looks deeper and examines the insides of internal branch operations, a different pictures emerges and the wide difference in the service quality becomes apparent.

Lee says Hana Bank is proud of being the first private bank in the country. It was the first Korean bank too that established a global private banking service at a branch in Hong Kong to provide diverse private banking services targeting regions in the Asia-Pacific. In 2007 the bank established a subsidiary in China, providing financial services to Korean companies and Chinese companies that have Korea-related trading business. Hana Bank (China), has been looking at upgrading its licence to be able to expand its customer base to the top Chinese companies and provide private banking services to HNWIs in China.

Lee believes that the quality of Hana Bank's service remains unparalleled. “We have the requisite tools and resources to design and customize the selection of talents and we have intensive training programmes, offering specialized solutions and products, professional tax advisory services and real estate advisory services, and unique life-care services.” In addition, Hana Bank offers discretionary investment management services, backed by in-house investment experts, a highly disciplined team of portfolio managers, real estate analysts, and tax specialists.
“As competition intensifies in the private banking market in Korea, the banks are naturally forced to extend their competitive advantage through better customer services, a broader range of investment products that meet the needs of clients and finally win both old and new clients.” Merely giving away free gifts or additional bonus interest rates on term deposits, asserts Lee, no longer suffices to retain clients.

The haunting

More than two years since the meltdown in the value of their assets, high net worth individuals (HNWIs) remain haunted by the trauma of the global financial crisis and approach investment markets with great caution.

Despite the lifting of gloom since 2008, asserts Marcel Kreis in an interview with The Asset, a substantial amount of client assets are parked in cash, instead of long-term securities. “We have not seen a broad-based streak of clients going after cash investments beyond six to nine months,” the Credit Suisse managing director and head of private banking for the Asia-Pacific points out. Kreis has more than 20 years’ experience in the field of private banking in Asia. He joined Credit Suisse in 2007 from UBS, and since 1990 has been based in Singapore.

Neither has there been much of a pickup in the volume of institutional money flowing back into discretionary portfolios with a long-term investment horizon. “The flow has not recovered from where it was before the financial crisis and insecurity among investors is prevalent.” With bond prices vulnerable due to the fluctuating fortunes of several European sovereigns and with cash rates at zero – which translates into a negative return once inflation is factored in – investors are starved of investment alternatives.

A more transparent future

The repercussions of the global financial crisis will continue to reverberate across the region and is reshaping the way the industry and its army of relationship managers work, according to Kreis. “As a result of the crisis, investment advisers have been subjected to much more intense scrutiny, sparked by the grave losses incurred by clients as a result of Lehman Brothers’ bankruptcy and share accumulators’ large exposure at the height of the financial crisis – to mention only a few of the events that have rocked the industry since 2007.”

“Given the impact on a host of private individuals, the debate became politicized and there was pressure on regulators to take a closer look at the advisory industry in the financial service sector. This has resulted in new guidelines and rules on how products are marketed and sold.” More transparency was demanded from the industry, Kreis adds, including disclosures in some cases on how much was being charged for services. “What has been made clear is that much of the burden of responsibility for advice has shifted to the advisers themselves and the institution that they represent.”

Banks have been forced to initiate processes that are regularly audited internally and externally, explains Kreis. Regulators, he points out, now require extensive audit trail to establish whether the bank has fully and accurately assessed a client’s risk profile and the suitability of an investment. Much attention has been brought to asking questions to ascertain that clients are aware of the risk they take when sinking their money into an investment product pushed by their banker.

“A lot of bureaucracy was created to ensure that such processes are not given temporary lip service and that they are here to stay.” He does not think this is merely cosmetics to ward off public wrath against lax private banking practices. “What we are seeing is what it will look like in the future. I don’t believe there will be much of a deviation of the current relatively strict interpretation of a bank’s responsibility in case investment advice backfires.”

All this makes a lot of sense, Kreis points out and is something that a good adviser would have done all along, even without the meltdown and regulatory backlash to prod him.


Shih: Compared to Europe and the US, Asia is a less mature wealth market
Kathryn Shih argues that the environment in which all parts of the financial services industry – including wealth management – operate has changed dramatically over the last 36 months. “It is an environment characterized by new liquidity requirements, product regulation, selling and suitability norms, more robust adviser certification coupled with more cooperative, uniform and consistent regulation of cross-border businesses,” remarks the CEO of UBS wealth management for the Asia-Pacific. “Rather than simply collecting assets, wealth managers will need to focus more on investment and product performance. Satisfying this demand will require wealth managers to make heavy investments in education, compliance and technology, because the new environment will prompt clients to demand much higher levels of technical and market competence from their advisers.”

Better risk absorption

The question remains whether tighter requirements and other regulatory developments can insulate people from market mishaps and meltdowns. Kreis says the more disciplined advisory process takes into consideration the product’s risk profile as well as the clients’ risk profile and their ability to absorb risk. By themselves, those considerations are no guarantee that investments will not backfire and that investors will not suffer potentially heavy losses. The only way for financial institutions to protect their reputation and regain the confidence of their clients is to become more transparent.” Kreis recalls that in the heydays of accumulators – when everything was going up – nobody really paid much attention to the potential downside.

“We have seen this with other investments as well. Consider gold which has been steadily climbing since it traded for less than US$300 an ounce, a long time ago.” The volatility of commodity prices has always been there, believes Kreis, and no one will ever be able to ring the warning bell when it’s time to get out and no one will ring the bell when it is time to get in.

“Investment advisers will simply have to make the necessary calibrations about the level at which clients are comfortable exposing themselves to fluctuations in commodities or currencies, but the debate about how much you can lose is an important one for them to explore with clients. The amount of risk taken is often directly correlated to the degree of leverage. If you buy stock and pay cash for it, the shares of the company can go up or down and you can lose a lot, but the maximum that you can lose is the cash you put in. It is an altogether different ballgame if you have leveraged your position. These are the kind of conversations that need to take place.” If you pursue an options strategy, there is a certain time when the option loses its value as you approach the strike date.

Kreis feels that since 2008 clients have become more aware of the potential downside of investments. “Investors are generally optimists who tend to look at the upside, but 2008 destroyed an enormous amount of wealth both with financial institutions and with private individuals. This has reshaped their investment behaviour.”

Wooing talent

A major challenge to UBS reaching its growth ambitions across the region, Shih agrees, is the war for talent. “Our major competitors have announced aggressive growth targets for the Asia-Pacific – which are normally coupled with aggressive hiring targets. But there is a limited supply of high-quality private bankers in the markets in which we collectively operate.” UBS experienced a flight of senior talent during and after the financial crisis, but has since begun a recruiting drive across all markets. The demand for talent has jacked up remunerations for experienced private bankers.

In countries such as China, the drive to recruit is reaching fever pitch with all the major banks keen on offering services catering to the wealthy segment of the population. China Merchants Bank, for instance, in 2010 began an all-out recruitment drive for talent. Unless there is a concerted effort to keep the talent pipeline flowing, Shih of UBS believes that there will be a shortfall of around 900 relationship managers around the region.

Kreis acknowledges the vast changes that have swept through the industry and have made private banking more challenging. But citing the region’s surging potential and accelerating growth in the number of HNWIs, he has nonetheless set ambitious goals for growing the business in the coming years.

Compared to Europe and the US, Asia is a less mature wealth market in which most of the wealth – which was created after World War II – remains in the hands of the first and second generation, notes Shih. “The typical client is an entrepreneur aged over 50 who runs/owns a business.” The bulk of a typical client’s wealth in the region is linked to the business and there is a tendency to reinvest heavily back into the business. In addition, there will be family and business succession issues to be addressed. Historically, the investment behaviour of HNWIs in Asia-Pacific has been characterized by a high risk appetite and straightforward asset allocation.

There is no great shift in the offshore and onshore private banking businesses on account of the strong domestic economies in the region, says Kreis. Credit Suisse recognizes that it is fully on board domestically and operationally in Japan and Australia in order to adequately manage the needs of clients. The franchise is growing because clients recognize the valuable contribution the bank is making to make them even wealthier. “One of the key differentiators between us and our key competitors is our ability to offer investment banking services as well as wealth management services,” Kreis points out.

An underserved market

Although there are regional differences, tangible domestic asset classes, such as direct investments in private equity and real estate, have been preferred sometimes with the use of leverage. Furthermore, in the liquid part of the portfolio, HNWIs have tended to focus on a limited number of asset classes, typically, cash, equity and forex (or structured products replicating these exposures).

In light of the entrepreneurial background of the majority of HNWIs in the region and the preference of most entrepreneurs to be “in charge of their own destiny”, they tend to be actively involved in the management of their investments. However, Shih asserts that the situation is changing and increasingly sophisticated clients in Asia demand that wealth managers maintain a wide range of products and services to cater to their specific needs. But the sharpest difference between the potential evolutions of wealth management in Asia relative to that in the rest of the world is the sheer scale of the market. “We believe that only between 10% and 15% of bankable assets held by HNWIs and ultra-HNWIs are currently managed by traditional private banks. In other words, the opportunity is immense.”

According to the Credit Suisse Global Wealth Report, economic expansion in the Asia-Pacific means that growth in the average household wealth per adult is up to 10 times the global growth rate. China stands out in particular having become the third-largest wealth generator in the world, with total household wealth of US$16.5 trillion, behind only the US with US$54.6 trillion and Japan with US$21 trillion. Household wealth in China is set to more than double by 2015. China’s wealth is 35% greater than that of France which has US$12.1 trillion, the wealthiest European country, and is almost five times that of India.

One major performer is Indonesia whose average wealth per adult has grown the fastest in the Asia-Pacific, by 384% to US$12.112 trillion since 2000. That is the fourth-fastest growth rate in the world.

Stefano Natella, global head of equity research at Credit Suisse, says global wealth could grow 61% to US$315 trillion by 2015. He says their study shows that the middle segment of global wealth has been replacing indebted US households as the global growth locomotive.

New loans reflect confidence

Kreis says the industry has learned its lesson from what happened to rivals. In Europe and in Switzerland, recognition has grown among private banking institutions to be more selective about the clients they work with. “For us to provide investment services, the clients must have met their financial obligations, including paying taxes and other obligations to their respective governments and taxation authorities. There is clearly some money leaving the banking system in Switzerland as a result, but “net net” the country continues to grow.”

Kreis credits this to Switzerland’s status as an international banking centre, driven mostly by tax-declared money rather than cash squirrelled away to be hidden from tax authorities. “You will be hard-pressed to find a location in the world that has such an expertise in international finance. Switzerland has always been cosmopolitan and the Swiss have always been confident about dealing with currencies.” The wall of money entering Switzerland with renewed vigour is coming from emerging markets such as Asia and the Middle East, explains Kreis, and not from mature markets. “It is coming from countries such as Russia that have benefited more recently from the resources and commodity boom. It is still growing.”

A fair number of clients borrow, he adds. “In 2008 we saw deleveraging across the board. Whatever could be sold was sold and whatever loans could be repaid were repaid. So clients in the Asia-Pacific deleveraged to a large degree in 2008, but two years on, our lending activities have grown beyond the original level we had in 2008.” The loan book of the private bank has regained momentum since then and now has more loans outstanding than it had in 2007. He is quick to assure that the bank has not adopted a more risky profile, pointing out that, in the case of the private banking clients, the loans are fully collateralized. “We don’t do cash flow lending but lend against stocks, bonds and property.”

Despite the cautious investing tack adopted by a majority of HNWIs, Kreis has seen confidence returning across all countries, driven more by fundamentals than by speculation.

“The borrowing clients tend to invest the proceeds in their own business and, in some cases, we want them to use the money to make investments with us as well,” notes Kreis.

“It has been quite entrepreneur-driven, because 2008 clearly did not destroy everybody. There were clients who were sitting on a pile of cash looking to take advantage of opportunities that arose and expand their business activities across markets. When they are a little bit cash strapped and have most of their wealth in stocks, depending on the liquidity of their stocks, we can assist them in monetizing the assets.”


A real private banking DNA

Credit Suisse’s managing director and head of private banking for the Asia-Pacific, Marcel Kreis, explains to The Asset what sets the bank apart in the private banking sphere.

Where do you see most of the wealth coming from?

It is virtually in all markets across the Asia-Pacific. With the exception of Japan, economic growth has resumed. Where you have economic growth, there is wealth creation.

Greater China remains a key growth market in the region. Look at the IPO pipeline for 2011: it looks quite strong and a lot of Chinese entrepreneurs are taking their companies public. Because China is such a growth engine for North Asia, the key beneficiaries have been Hong Kong and Taiwan.

There are strong cross-border business and investment flows from China to Taiwan and Hong Kong and back to China. It is becoming one major economic and investment theatre, irrespective of the fact that they are administratively distinct entities. China’s strong economic engine is helping generate a lot of the wealth flow into North Asia.

In addition, we look at Australia and Indonesia which are two of the main beneficiaries of the enormous demand for natural resources. Those countries are showing a strong potential for growth.

Wealth is being created in the mining sector. Last century you had the gold rush in Canada and Australia. Now, it is much broader based for industrial activity in a resource-rich country.

Are there differentiations in advisory fees?

Fundamentally, as clients become more active in their investments, they will pay for the private banking service they receive.

The increased regulatory pressure on compliant behaviour demands more resources and if these resources add cost, we need to find ways to defray the cost of those services through fees for services that are perceived as value-added. The counterargument to that is that fees will inevitably come under pressure with the numerous private banking newcomers expanding into Asia.

Credit Suisse is a financial institution that has been strong in wealth management and in the classic asset management area. We take a client’s money and we try to stretch it as much as we can within parameters that work with the client. We need to make the money work for the client.

In addition, we have a strong investment banking division helping clients raise money in the equity market and in the fixed-income area. If we can help them draw their business more successfully through corporate business activities, then this could be built into a private banking relationship.

Where lies your strength?

We have a strong platform. We continue to grow our footprint in Asia and make the necessary investments where we think clients want us to be better and stronger. We have probably one of the cleanest balance sheets of any financial institution and we are in the business of helping our clients thrive.

When I see how well we work together as a team in terms of analyzing and approving credit or getting an investment solution tailor-made for a client, we are not really sidetracked by internal managerial challenges as a result of the problems in 2008. There are few institutions with real private banking DNA. There are only two large international players that have private banking as part of their DNA – and that’s not badmouthing the competition at all.

The platform on which we operate and our business model are attractive to senior bankers. The career opportunities at Credit Suisse are pretty unlimited, really, which explains why we have been able to hire more senior bankers. The hiring comes from a diverse set of banks. It is quite a balanced picture.

We have reached a challenging stage. There are a number of strong institutions and most of our large and medium-sized clients have more than one institution that they deal with and that’s healthy because it keeps the industry honest. It forces everyone to excel and give clients a broader choice.
This article was published in the January 2011 issue of The Asset