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Credit Suisse Attracts Super-Rich Clients to Boost Profitability

Credit Suisse Group AG said it’s increasing the proportion of assets under management from super-rich clients, helping to boost profit margins at Switzerland’s second-largest wealth business.

Ultra-high-net-worth clients with at least $50 million of investable funds accounted for 42 percent of the 836 billion Swiss francs ($884 billion) of assets managed by the bank at the end of March, up from 37 percent a year earlier, Zurich-based Credit Suisse said in a presentation today.

“We’ve consciously shifted our business toward the ultra-wealthy high-net-worth clients,” Chief Financial Officer David Mathers told reporters on a conference call, adding that he expects this trend to continue. “It’s where we’re seeing a lot of growth in the wealth market.”

While the business of super-rich clients generates less revenue for each dollar of assets, it’s often more profitable because the funds can be managed by fewer bankers. Credit Suisse said first-quarter pretax profit rose 16 percent to 511 million francs at its wealth unit as the pretax margin climbed to 22.7 percent from 19.6 percent a year earlier.

“Gross margin has been the key metric for a lot of investors, but it’s increasingly important to look at how adding ultra-high-net-worth individuals improves the net margin,” said Andrew Stimpson, an analyst with Keefe, Bruyette & Woods in London. “You can manage more money with fewer relationship managers. That can help manage costs.”

Net Inflows

The wealth management unit’s gross margin, which reflects how much the bank makes in revenue on assets, dropped to 110 basis points in the first quarter, down eight points from a year earlier. That margin was above 140 basis points in 2008 and 2009. A basis point is one hundredth of a percentage point.

Credit Suisse said inflows from ultra-wealthy and emerging-market customers helped keep first-quarter net new money little changed at 5.5 billion francs even after western European clients withdrew 2.1 billion francs amid a crackdown on offshore tax evasion. Chief Executive Officer Brady Dougan said in February he expects as much as 20 billion francs of outflows from western Europe over the next two to three years.

Inflows were “better than expected,” though at 2.8 percent annualized growth were below Credit Suisse’s target of more than 6 percent, said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets with a strong buy recommendation on the stock. “They’ll probably never see 6 percent again.”

Credit Suisse said it expects to close the acquisition of Morgan Stanley’s wealth-management operations in the U.K., Italy and Dubai later this year in a deal that includes more than $13 billion of assets from mainly super-rich clients.

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