The Gottstein saga is symptomatic of an industry facing an almost constant succession dilemma.
Conventional wisdom might dictate that hiring a senior executive for UBS or Credit Suisse is easy. Pay, bonus, perks – even prestige. Who wouldn’t do it for that kind of money?
But there are hardly any candidates who have specific sector expertise, and this is compounded by the fact that the two big Swiss wealth managers are very big fish in a small pond.
The truth is that corporate and personal banking, in their various guises, make up the bulk of the world’s largest financial institutions. They may have major investment banking or asset management franchises, but none have a wealth management or private banking business that comes close to prominence.
Wealth management can mean anything
The definition of wealth management itself has evolved to mean anything from a supercharged retail and card business for wealthy clients to a mass investment distribution business. And that doesn’t help when looking for a senior executive with direct work experience.
The biggest banks in the world have been Chinese for at least a decade now. ICBC, the largest, does slightly more commercial banking (46%) than retail (40%). Its wealth management activity? 3% of total turnover. The China Construction Bank is next. Income from wealth management? About 2 percent.
The situation is the same with the Agricultural Bank of China and the Bank of China. The former indicates in its latest annual report that privately offered wealth management products represent 0.4% of its total balance of wealth management products. Bank of China claims to have a large private banking business with a customer base of 147,300 people. It doesn’t appear to be bursting with revenue although the level of AuM is about half that of the asset management business.
Hard to notice
Judging by the numbers, it’s hard to see how anyone at these companies has even climbed the ladder high enough to be noticed by anyone in the wider industry – despite the cultural and linguistic divide that could prevent a UBS or Credit Suisse to appoint a senior banking executive from their ranks. The same goes for Mitsubishi UFJ, sixth, which has a very specific private banking service that seems to cater to a select group of customers in its retail segment and executives of listed companies and entrepreneurs in its business segment.
In seventh place, we finally come to HSBC, a bank that finenews.com actually covers, even though most of it is on the finenews.asia to place. It has a specific global private banking business whose annual turnover of £1.8bn seems sizable until you consider it was just 3.6% of the whole group in 2021 and only 8% of the Wealth and Personal Banking business in which it is located.
American banks are not much different. JP Morgan, eighth, owns a global private bank whose revenues represent 6.3% of those of the group, Bank of America follows with 3.7% and BNP Paribas completes the top ten with 7.3%.
The image does not change as you navigate further through the list. Crédit Agricole’s Indosuez Wealth Management accounts for around a third of the Investment & Protection Services division, but in terms of revenue, it only accounts for around 3% of total revenue.
So let’s put the two postal banks out of the game, because it’s hard to see a large Western bank appointing a senior manager of the Japan Post bank (12th) or the China Postal Savings Bank (20e). The same goes for 13e ranked SBMC Group whose asset management joint venture appears to account for only a fraction of revenue.
Citigroup follows, even if its private bank represents only 4% of its income. Wells Fargo, in 15e place, has a private bank, but the turnover is not broken down. But its advisory assets encompass just under a quarter of the Personal Banking and Wealth segment.
Both are followed by Mizuho Financial, which only has an asset management business. Societe Generale, 17th rankehas a private banking activity which represents 2.7% of the group’s revenues.
Barclays leading the pack
Barclay’s Private Banking, part of the Consumer, Cards and Payments division of Barclays International, accounts for 12% of all revenue. This is the highest rate seen among the top 20, but you’d be hard pressed to call it a core business. But if I was a headhunter with a global mandate, I might start by scouring their ranks.
French group BCPE brings up the rear of the world’s 20 largest banks, with their private banking revenues representing 5.5% of the group as a whole, although it is difficult to see a Swiss bank appointing a senior executive from a local branch. of the Caisse d’Epargne. An honorable mention should be given to Deutsche Bank, which places 21st on the list. Its private bank accounts for nearly a third of revenue. Not only is it culturally and linguistically compatible, but it’s also a close neighbor, making it an ideal poaching ground.
Although the major Swiss wealth managers are not on the list of the world’s largest banks (UBS is 33rd turnover and assets, 31st by market capitalization; Credit Suisse 41st and 91st respectively), the scrutiny that any appointee faces domestically and internationally means that appointees must be from an internationally recognized and reputable bank. It could also explain why many UBS and Credit Suisse managers are hired by small and medium-sized private banks in Switzerland, although appointments rarely go the other way.
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But why use income as a gauge? This is probably a better measure than profit, which tends to show how well a company is run and is not necessarily indicative of its size. And total assets don’t say much about specific companies, especially since wealth managers don’t typically hold assets under management (usually assets under management or invested assets) on balance sheets.
All of this probably explains why new appointments for both seem to come from a range of different sectors, including central banks – and seem so random. They do not have the choice. It’s either that or the other.
For example, the CEO of Credit Suisse Thomas Gotstein is a former investment banker who spent most of his career in banking, although he was initially hired at UBS. Ralph Hammer, the man who currently heads the world’s largest wealth manager, hails from ING in the Netherlands. Besides digitization, his background appears to be in retail and commercial banking.
At board level, Credit Suisse Chairman Axel Lehmann hails from UBS, while his UBS counterpart, Colm Kelleher, is a career investment banker at Morgan Stanley. The forced departure of António Horta-Osoriowho came from Lloyds, only confirms the same pattern, as did the previous generation of leaders. Axel Weber was a former central banker, Tidjian Thiam ran Prudential and Sergio Ermotti was a Merrill Lynch then UniCredit investment banker.
This pattern is not likely to change anytime soon. What this probably means is that the internal recruiting and strategy departments are probably already watching closely anyone and everything in the industry who seems to have the potential to serve as a leader at some point not too far off in the future.