Thursday, May 14, 2020

Pandemic - But Capitalism Prevails

When markets slumped in March as the spread of coronavirus gathered pace, wealth managers’ trading volumes soared as ultra rich clients reshuffled their portfolios. It was this market frenzy that helped Swiss banks UBS and Credit Suisse – the world’s biggest wealth managers – post bumper first-quarter profits.

The big wealth managers have found that banking for billionaires has swelled their own coffers with outsized transaction fees.

“Situations like this, while they pose risks and need to be very proactively managed, also provide opportunities, as we saw,” said Iqbal Khan, co-head of UBS’s $2.3 trillion global wealth business, which recorded its best first quarter since the financial crisis.  UBS’s net margins on managed money rose to 20 basis points, their highest in years. 

Credit Suisse managed double-digit profit growth in the quarter. U.S. lenders Goldman Sachs, JPMorgan and Bank of America also recorded jumps in wealth management revenue while private banks Pictet and Vontobel plan to open new branches and expand their teams. 

The question now, however, is how to sustain profits as market volatility and trading volumes subside. Many are focusing on finding clients’ investment opportunities outside public markets - often involving distressed assets - as well as lending more to those whose businesses need extra cash to tide them through the crisis. 

“If you’re a large family office today, you’re sitting on cash hopefully. You might loan that cash or provide it to a company you own, or you might deploy that cash to buy distressed assets that have long-term value,” said Claudio de Sanctis, Deutsche Bank’s global head of wealth management. 

Private equity - particularly in areas related to distressed assets, healthcare or technology - has become a focal point, senior managers from four leading lenders told Reuters.

“Our investor sentiment survey clearly showed that, around the world, wealthy investors still have liquidity available to commit to risk assets,” said Tom Naratil, Khan’s co-head of wealth at UBS. The bank’s survey found that 37% of wealthy investors wanted to increase their investments over the next six months.  And large banks are looking to help them do so through increased lending.

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