Bringing Investment Banking to the World's Wealthy
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Bringing Investment Banking to the World's Wealthy

Many of the world's wealthiest individuals have complex finances, requiring solutions generally only accessible to businesses.

Very wealthy individuals typically have complex finances. Entrepreneurs, for example, may have most of their wealth tied up in businesses, possibly in several countries. These businesses may require funding in different jurisdictions and currencies, or advice on potential acquisitions. And their owner may want to tap some of this wealth without selling parts of the business.

Such complex needs call for a full array of financial services and products, from traditional wealth management activities such as lending and wealth planning, to top-tier investment banking services such as trading, underwriting of debt or equity, and advice on mergers and acquisitions. And over the past decade, an asset class straddling wealth management and investment banking has been gaining appeal among the wealthy: structured products.

Structured Products Bank of the Year 2017

Credit Suisse has a structured products business that has pushed innovation into multiple markets. It has won awards this year from GlobalCapital, Risk Magazine, and at the 2017 Structured Products Europe Awards. The business is built to thrive in the changing regulatory landscape and puts the emphasis on providing clients with customized and sophisticated solutions that are not available "off the shelf" in the general market.

Instead of investing directly in certain assets, investing in structured products allows the investor to allocate assets in a way that reduces risk and takes advantage of market trends. The main benefits they can provide are:

  • Participation in positive returns while protecting the invested capital
  • Participation in the performance of the underlying asset
  • Generating higher returns than if investing in the underlying asset
  • Hedging other investments.

Credit Suisse sees considerable potential to do more for its clients in this segment. The bank's wealthiest clients have just 2.7 percent of their assets in structured products. According to a 2016 McKinsey private banking survey,  the industry average is 4.5 percent, rising to 7.8 percent among the banks whose clients have the highest share of structured products.

Wealth management with strong investment banking capabilities

In 2017, Credit Suisse's Global Markets division entered into an agreement with Swiss Universal Bank and International Wealth Management to establish the International Trading Solutions (ITS) platform. This formalized cross-divisional collaboration enables the creation of investment products tailored not only to the needs of institutional clients, such as pension funds, but also to the needs of wealthy private clients.

These products can be an attractive addition to traditional securities for clients with the capacity to take on the higher risk that goes with most of them. They can also do a lot more, such as enable wealthy clients to significantly improve the balance between risks and returns in their portfolio.

"Many clients have up to 80 percent of their assets in a single country or region," said Bruno Daher, head of Credit Suisse's International Wealth Management business in the Middle East. "With ITS solutions, we can help them to diversify internationally without having to sell their assets."

Successfully meeting untapped client demands

One of ITS's first products this year was a capital protected note based on a leading financial credit fund. It was oversubscribed within one week. More than 100 private banking clients in eight European Union countries [collectively] invested almost USD 500 million in the product, which protects their investment at maturity while enabling them to participate fully in any positive performance of the underlying financial credit fund.

The product's success represents a "dramatic proof of concept" for ITS, the unit's co-head, Mike Stewart, told employees in November.

The creation of ITS is making it easier to develop investment products that reflect Credit Suisse's House View, the strategic asset allocation and investment themes recommended by the bank's Investment Committee. Client portfolios aligned with the House View have significantly outperformed those that aren't over the past three years, and the bank is renewing efforts to inform clients about the opportunity.

For ITS's Stewart, "the whole effort is to make client portfolios better, and to make investment products that do just that."