Banking & Finance

China’s newly rich courted by international private banks

About 3.9 million mainland Chinese families will be classified as wealthy by 2020 Credit Suisse, survey says

PUBLISHED : Sunday, 10 July, 2016, 7:01pm
UPDATED : Sunday, 10 July, 2016, 10:38pm

Credit Suisse Chief Executive Tidjane Thiam emphasised the importance of China and east Asia for the bank, as it seeks to service the growing numbers of wealthy people in the region.

“We disagree with the thinking leading some players to withdraw from Asia,” Thiam said. “Whether China’s GDP grows at 5, 6 or 7 per cent, the majority of GDP growth in the world will come from emerging markets, and from entrepreneurs who are building businesses in those markets. We want to be a bank for those entrepreneurs,” he said.

“We are taking a long term approach, not competing head on with the Chinese banks, but rather focussing on segments of the market where we know we can create value,” he said.

Globally, Credit Suisse’s shares are down almost 50 per cent so far this year, and on July 3, Swiss newspaper SontagsBlick reported that there were rumours that the bank would break up or be taken over. Thiam dismissed the rumours, telling the Swiss newspaper: “The group will stay intact. A takeover is not a topic for discussion.”

One area in Asia Pacific where Credit Suisse is looking to expand its activities is private banking. Since the first quarter of 2015 the bank has recruited 100 wealth managersin the region, and aims to have a total of 800 wealth managers by 2018.

The opportunities in this sector are concentrated in China. According to research from China Industrial Bank and Boston Consulting Group the number of China’s high net worth families will reach 3.88 million by 2020.

“According to our survey, 80 per cent of the HNWIs [high net worth individuals] believe their household wealth will remain stable or rise during the economic transformation. So do 93 per cent of the ultra-high-net-worth individuals with investable assets of over 100 million yuan,” David He, co-author of the report, and head of BCG China’s financial services institute, said.

The survey also found that only about 30 per cent of HNWIs have invested overseas, while 56 per cent have not done so yet but say they would consider overseas investment in the next three years.

The types of services required by the nouveau riche are rather different from their equivalents elsewhere in the world. “If you look at the wealth in Europe, more than 60 per cent is controlled by people in what we call generation four or five, it is their great grandfather or their great great grandfather who made the money. It is a very different proposition in Asia,” said Thiam.

“In the former case it is really about wealth preservation and transmission and we have a long track record of doing that effectively, where as in Asia I would say it is still very much about investment banking as the entrepreneurs are building companies, and that overlaps with our investment banking capabilities.”

“Another difference is that a large proportion of the over three and a half trillion US dollars in assets owned by high net worth individuals in Asia are illiquid, they consist of assets like factories or retail chains. Helping such individuals to monetise their wealth sometimes needs a bit of financial engineering.”

The final step for managing the assets is preparing to pass it on to the next generation.

“Tremendous wealth has been created by family businesses in China in the last 20 years, but in many cases the succession planning is not really there,” says Randall Carlock, Berghmans Lhoist chaired professor in entrepreneurial leadership at INSEAD.

“There are a number of cases where the father has made a very successful manufacturing business in a third or fourth tier city, but where the son or daughter who has studied in the US or the UK, does not want to come back home to run things. Even at the level of the very largest companies there can be difficulties, as in China’s recent history, there is little tradition of passing on companies from one generation to another.”