Private banking and investment banking: The problem with blurring the boundaries
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Private banking and investment banking: The problem with blurring the boundaries

It’s been an axiom of recent bank restructurings that more private banking and wealth management is better. Gather the substantial and sticky deposits of the wealthy, harness their investments, and skim fees off the top, using as little balance sheet as possible. Dodge the tax evasion fines, and it’s a good and stable business to be in.

UBS, which reported results on Tuesday, is a good example, but it’s not hard to find other examples of banks getting credit for a focus on wealth management. Even hapless Deutsche Bank, with all the products from the investment bank down this year, had a strong showing in wealth management.

Credit Suisse is the example par excellence. When the bank unveiled its new strategy in October last year, the idea was to make everything about private banking, "ultra high net worth individuals” (rich people) and wealth management.

The very first line of Tidjane Thiam’s presentation declared that Credit Suisse would be “a leading private bank and wealth manager with strong investment banking capabilities”. This got a little fuzzy around the edges by the time it worked through to global markets — Credit Suisse’s securitization business has to “focus on synergies with wealth management”, though the bank itself acknowledges these are, in practice, low. Credit Suisse just happens to have a strong securitization business which it wants to keep.

The bank took two steps forward in stitching its investment bank to its wealth businesses last week. Didier Denat, co-head of sponsors, is switching jobs to the 'Solution Partners' unit in Switzerland, offering investment banking products to private banker customers. In Asia, Carsten Stoehr has returned to the bank to build a new 'strategic financing' business for the bank’s rich private clients, pulling together emerging market financing, equity share-backed lending, corporate banking and private banking structured lending.

But the case for blurring the lines between private clients and investment banking has always seemed shaky to GlobalCapital.

Selling products to the super-rich is not the worst idea in the world — it tends to be high margin, at least — but it seems unlikely that such people are not well covered by the banks already.

The sorts of entrepreneurs, family offices or wealthy individuals that might have an interest in, say, share-based lending, can already count on the services of bankers who cover their businesses. GlobalCapital assumes that, if they were to wonder out loud about how they could invest their funds, their coverage banker would set them up a meeting before you could say “client service industry”.

It also seems to be trying to mine a considerably thinner seam than classic investment banking. Assuming tech billionaires and private equity heads have only a limited amount of time to meet their coverage, why talk to them about their personal affairs?

Yes, Stephen Schwarzman is extremely rich, but if you were banking him, wouldn’t you spend precious coverage time talking about what the bank can do for Blackstone, not what it can do for him personally?

If the plan is simply "do more coverage", then that’s fine, but it’s not exactly a differentiating strategy.

And that’s quite apart from extra compliance delights such an arrangement creates.

Some wealthy individuals have historically struggled to identify the line between personal wealth and the wealth of the corporations they control. Bankers pushing investment banking products to the individual as well as to the corporation could get messy fast.

It's too early into the new strategy to blame it for Credit Suisse's grim numbers on Thursday, but as chief executive Tidjane Thiam said to investors: "If you have a strategy that's innovative and different, there will be a lot of sceptics."

This newspaper is one of them.

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