ZURICH/LONDON (Reuters) - 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 while much of the global banking sector was scrambling to make provisions to withstand the economic fallout from the pandemic.
UBS received up to 4 million quote requests a day from private clients in the quarter - double the December level of such enquiries about potential transactions - while its advisers conducted tens of thousands of portfolio reviews each month.
While banks that are more focused on commercial lending set aside billions in provisions, the big wealth managers have found that banking for billionaires has swelled their own coffers with outsized transaction fees even as the global economy takes a battering from the coronavirus crisis.
“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.
While plunging markets dented the overall level of managed assets and falling interest rates hit interest income, 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 despite bulking up on provisions for expected credit losses. 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 resilience of wealth management also serves to validate the strategic changes Switzerland’s biggest banks made over the past decade, placing greater emphasis on managing rich people’s money and less on wholesale trading.
“It’s a more profitable model than average peers in European banking,” said Citi analyst Nicholas Herman.
“The losses that you see through the cycle are much lower. Compared with other major lenders, the provisions for expected credit losses we saw in wealth management in the first quarter were small.”