Credit Suisse to review lending to clients at wealth unit
Credit Suisse is preparing a review of one of its most profitable business lines under new Chief Executive Officer Thomas Gottstein after the coronavirus pummeled markets and a key wealth unit executive departed.
Switzerland’s second-largest bank plans to reshape how it lends to billionaire clients at the international wealth management division, especially loans that are backed by hard-to-sell assets, according to people familiar with the matter. Management is also reviewing its risk appetite for lending to clients with exposure to the oil and gas industry as well as shipping at the unit, the people said, asking not to be identified because the discussions aren’t public.
“Credit Suisse follows a sustainable and profitable growth strategy for its International Wealth Management business,” said a spokeswoman for the bank. “To achieve this, we continually review our business model and set up with a long-term view to reflect where we see potential for growth and opportunities to offer unique solutions to clients.”
Gottstein and his head of international wealth management Philipp Wehle are taking a close look at the business after market dislocations in the wake of the coronavirus prompted a revaluation of risk. The move also follows decision by Remi Mennesson, who oversaw large loans at the unit, to join crosstown rival UBS.
Credit Suisse, under its former international wealth head Iqbal Khan, had driven an expansion of loans to rich clients. Khan, who left last year for UBS, has tapped Mennesson as UBS sets up a new team to boost lending to rich clients. Mennesson, who headed the strategic transactions group within the international wealth unit at Credit Suisse, will rejoin his old boss Khan in November, Bloomberg reported this month.
Gottstein, who took over three months ago, has warned that key profit targets and capital levels will be under pressure this year. The company's stock has lost 32% this year.
Credit Suisse replaced Mennesson, who was responsible for big ticket financings, in the interim with Jean-Marc Botteri and Abhishek Sudhir, the people said. The bank plans to eventually name one leader for the business and combine the teams that encompass structured transactions as well as real asset lending into one, they said.
Lending to rich clients is a lucrative business for wealth managers, and usually relatively safe because those clients pledge their assets as collateral. But those assets — stakes in companies, art collections, real estate or other possessions — can be hard to value, illiquid or exposed to big swings in value.
While the international wealth unit fared comparatively well in the first quarter, accounting for about $40 million of the provisions at Credit Suisse, the bank took a large hit in its separate Asian business. It set aside about $100 million for soured loans in the quarter, mostly related to three cases, the largest of which was Luckin Coffee. The bank is exposed to both corporate banking activity as well as loans to the billionaire owner of the Asian Starbucks rival, Lu Zhengyao.
Much of Lu’s wealth was wiped out when Luckin’s stock slumped following the disclosure that some of its employees may have fabricated billions of yuan in sales. Banks led by Credit Suisse have since targeted the family assets of Lu as they try to recoup losses.
The review of Credit Suisse’s exposure to oil and gas as well as shipping is related to market developments, the people said. Both industries have taken massive hits from the coronavirus lockdown, and Credit Suisse is now taking a hard look at some of its largest exposures, said the people.
--With assistance from Dan Reichl.