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Squeezed middle: why Credit Suisse thinks the mid-tier is in trouble

Squeezed middle: why Credit Suisse thinks the mid-tier is in trouble

Wealth management firms need to be big or small as the middle ground is ‘an uncomfortable space’, according to Ian Dembinski, head of UK domestic private banking at Credit Suisse.

The Swiss bank acquired Morgan Stanley’s European wealth arm last year, in a deal that reportedly added $13 billion (£7.8 billion) of assets, and Dembinski says the company wants to use this as a springboard for growth in the UK.

The private bank is still be integrating the acquisition, but Dembinski says the need to spread compliance costs means the business is gearing for further expansion.

‘You either need to be pretty big or pretty small. Being in the middle is an uncomfortable space where you have all the regulatory focus but not enough assets to spread it across. You have seen people exit, because they are not big enough, or not core,’ he told Wealth Manager.

Dembinski said recent inflows have been boosted by an uptick in M&A and IPO activity, but a key growth area for Credit Suisse has been its discretionary UK resident non-domiciled service, which was launched at the end of 2012.

‘While the Anglo-Saxon market has been typically growing by 1% or 2% in asset terms a year, we see resident non-domiciled assets growing by 6% or 7%,’ he said. ‘So despite the complexities of that regime, we are heavily exploiting that.

‘Anyone can talk about accessing resident non-domiciled as a growth area but do they have the structure to deliver it? For us, it’s a growing segment,’ he added.

Investment in in-house systems

Over the next five years, the private bank will concentrate on investing in its in-house IT systems, an area Dembinski believes has been ‘chronically under-invested’.

‘That is the main area of operational leverage that we can produce in the next five years: generating the efficiency around technology. It’s obvious that if you are too small you can’t get the technology so you have to be pretty big, or niche, because these systems don’t come cheap.’

Dembinski pointed to credit services as another important driver of growth. ‘As banks in the UK have tended to withdraw their balance sheets, banks such as Credit Suisse, which have very strong capital ratios, still have a considerable appetite to provide mortgages and loans against client assets.

‘We are picking up a lot of business from a domestic bank environment where others seem to be retreating.

‘The bankers that have come over from Morgan Stanley have increased the wingspan of our client base in a way that is difficult to do with the same speed organically,’ he added.

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