Credit Suisse and the crazy, rich, anxious Asians
The Swiss lender needs to come up with a strategy or risk hemorrhaging more money from a key group of clients.
It seems like whenever there is a bit of jitter in the global banking world, Credit Suisse Group AG gets a beating. It needs to pre-emptively improve the public narrative before the crazy, rich, and anxious Asians pull all their money out of the Swiss bank.
After a record slump in its share price and a spike in its credit default swaps, Credit Suisse is trying to restore confidence Thursday. It said it would borrow up to $54 billion from the Swiss National Bank, which had offered to provide a liquidity backstop if needed. The lender also said it would repurchase senior debt securities for up to about 3 billion francs ($3.2 billion).
That's just a small bit of relief for its private banking clients in Asia, who have been amazed and mesmerized by the venerable Zurich-based lender's fast fall from grace.
How Asians view the Swiss bank matters. Between 2016 and 2020, the region contributed one-third of the profit growth in its wealth management division, and 48% cumulative growth in invested assets, according to HSBC Holdings Plc. Hong Kong, Beijing and Singapore are among the top 10 cities where the super-rich — or those with more than $30 million in net worth — live. Credit Suisse can no longer brand itself as a global wealth manager without its rich Asians.
In this region, Credit Suisse has faced a lot of hurdles lately. Wealthy Chinese clients have become much more worried about parking money in Swiss banks because of the nation's tough approach to applying sanctions. Its neutrality is now in question — the government has moved in lockstep with the European Union in penalizing Russian President Vladimir Putin's wealthy associates.
To make matters worse, SVB Financial Group's $42 billion withdrawal requests and its subsequent collapse is a fine reminder that Credit Suisse displays very similar problems. In the December quarter, customer deposits tumbled by 40% from three months earlier. Its top wealth managers were fleeing to competitors, taking their clients with them.
To stem outflow in Asia, the lender recently raised its three-month deposit rates for new deposits of $5 million and above to as much as about 6.5%. That's 1.5 percentage points higher than direct rival UBS Group AG offers, according to data compiled by Bloomberg.
This juicy rate smacks of desperation. Almost all the bank's deposits have contractual maturity of less than a year, according to Citigroup Inc. Because of its exposure to high-net-worth individuals, a big chunk is likely uninsured. Switzerland guarantees deposits of up to 100,000 francs only.
Further, the Chinese are particularly skittish and sensitive to negative news flow. After all, they have witnessed and suffered from Beijing's latest regulatory crackdowns. An entire after-school tutoring industry — which had been a venture capital hot spot — vanished overnight. Wealthy clients used to love buying dollar bonds issued by real estate builders such as China Evergrande Group, lured by their handsome coupon payments. That lucrative trade went up in flames after a record wave of developer defaults.
As the wealthy Asians are finding out, there's no point chasing after yield if you are not sure you can have your principal back. From sanctions risk to the safety of their deposits, Credit Suisse has a lot of client queries to address. It also does not help that its customers have been recently traumatized by China's sudden policy U-turns. To keep its Asian operation going, the Swiss bank has a lot more work to do than issuing press releases. It needs to appease its clients in Asia — its profit and growth center.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron's. She is a CFA charterholder.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.