By Katharina Bart and Oliver Hirt
ZURICH (Reuters) - Credit Suisse (CSGN.VX) plans to lean more heavily on its private banking franchise, targeting a bigger share of lucrative ultra-rich clients as tougher regulation and volatile markets dent investment banking returns.
"We haven't systemically taken advantage of all the opportunities that we see with our clients globally," Robert Shafir, co-head of Credit Suisse's private bank, told Reuters in his first interview since taking over the unit a year ago.
The Zurich-based bank aims to harness its large balance sheet to lend more to wealthy individuals and increase its share of ultra-rich clients, typically with asset of more than $50 million, to roughly half of its overall assets under management, from 44 percent currently.
"We have a pretty ambitious set of plans in terms of expanding our wallet share on the liability side of the balance sheet with our clients," Shafir said.
To keep pace with the increasing number of millionaires, Shafir and his co-head Hans-Ulrich Meister are aiming for the private bank to account for half of the group's risk-weighted assets (RWAs), against around a third currently.
"You read and hear a lot of noise about our industry and its transformation, but what you don't hear so much about is the major growth potential it has," Meister told Reuters in a separate interview.
Many private banks have spurned lending to the wealthy, despite the potentially lucrative returns, in favor of focusing on winning new assets to manage.
"They simply did not understand the true and complete interests of global high-net worth individuals," says Sebastian Dovey, managing partner of London-based wealth consultancy Scorpio Partnership.
"For some high net-worth clients, it made them feel as if the bank did not consider them credit-worthy - these are the wealthiest people that the bank could wish to serve and their desire for lending is often just to make efficient use of their capital," Dovey said.
Encouraging rich clients to take on debt is also a way of kickstarting revenue, which has suffered under historic low interest rates and a prolonged lull in client activity.
Yet Credit Suisse's private banking customers are a risk adverse lot, currently holding an average of 28 percent of their assets in cash or cash-like products, earning almost no income for the bank.
While investment banking suffers from volatile post-crisis markets and curbs on risk-taking, the market for private banking is growing, with households having more than $100 million expected to account for $11.6 trillion of global private wealth by 2017, up from $7.5 trillion last year, according to Boston Consulting Group.
Credit Suisse's private bank has been a steadier performer than its investment bank, serving as a cushion to more volatile trading income. In the first nine months of this year, its wealth and asset management unit recorded 2.8 billion Swiss francs ($3.1 billion) in pretax profit, compared with the investment bank's 2.2 billion francs.
Like UBS, Credit Suisse is also putting its investment bank at the disposal of wealthy clients.
"One of the real advantages as a private bank is the fact that we have one of the top investment banking franchises," says Shafir. "Towards the ultra-high net-worth space, the line between what these clients need is very blurry from what an institutional one does.
"If we can build that bridge effectively to service that clientele on the investment banking side is a huge opportunity for us," Shafir said. "We've just scratched the surface."
The pair are seeking synergies between the investment bank and the private bank as they seek to chop 950 million francs of spending from the wealth and asset management arm by 2015.
The duo, who have run the private bank in tandem for nearly a year, reiterated existing targets, including taking in 6 percent net new money and a cost-income ratio below 65 percent.
The wealth unit achieved a 1.6 percent rise in net client inflows in the third quarter and the asset management component a 3.9 percent rise. The combined unit's cost-income ratio was 71.8 percent.
Shafir and Meister are counting on the lending push to make its U.S. private bank profitable in the next 12 to 18 months.
The banking and deposit-taking efforts are not entirely new, but Credit Suisse has also installed new management at the U.S. unit to squeeze out expenses.
In April, Shafir brought in Philip Vasan, who ran the bank's fast-growing prime brokerage business for hedge funds, for former head Anthony DeChellis.
U.S. authorities are investigating Credit Suisse and other banks in Switzerland over allegedly helping U.S. clients evade taxes via offshore accounts, complicating Shafir and Meister's efforts to turn around the unit.
Meister said he is confident Credit Suisse would reach a deal with U.S. authorities but declined to say when and what it might entail.
UBS was fined $780 million in 2009 and agreed to hand over the names of thousands of U.S. clients with secret Swiss bank accounts to avoid facing criminal charges.
(Editing by Carmel Crimmins and David Holmes)