FRANCESCO de Ferrari, head of Asia-Pacific private banking at Swiss bank Credit Suisse, isn't the archetypal private banker. For a start, unlike many of his colleagues at Credit Suisse, he didn't begin his career in the banking or wealth management sectors. The former businessman, consultant, auditor and part-time social worker, who once worked for Mother Teresa's Missionaries of Charity in Calcutta, often jests that he ended up in private banking "by mistake".
After graduating from New York University's Stern School of Business with a degree in economics and international business in 1989, de Ferrari — like most of his cohort — wanted to work on Wall Street. Having secured an investment banking job in New York, de Ferrari, who was 20 years old then, didn't turn up for the job. Instead, prompted by a calling of a sort, he went off with a priest to visit leper homes in India. "My parents were contributing to fund some hospitals in the Missionaries of Charity's communities and I toured some of the leper homes in India with a priest," recalls de Ferrari in a recent interview with Personal Wealth. "I ended up meeting Mother Teresa. I was so struck by her that I had to stay to help." The devout Catholic attends the Church of St Ignatius in Singapore.
After the encounter with Mother Teresa, de Ferrari ended up spending six months in Calcutta, picking up dying people and abandoned children on the streets and bringing them to the various shelters run by the Missionaries of Charity, the organisation founded by the Albanian-born nun in 1950. Mother Teresa, who died in 1997, was renowned for her unconditional caring of the destitute in India "That six-month experience changed my life completely because I didn't want to become an investment banker after that," says de Ferrari, who is an Italian. "I discovered that my passion was helping people and building businesses." Ferrari went on to work at Deloitte & Touche, Nestlé and McKinsey before becoming an entrepreneur in the retail distribution and technology businesses before the age of 30. "I ran three businesses of my own for four years and then Credit Suisse called me," he recalls. When he was a consultant at McKinsey, de Ferrari had advised the Swiss bank on a business project.
"They said [the project] looked very good on paper, but the execution didn't turn out as expected and asked if I was willing to go back and fix it. I love challenges, especially impossible tasks. That was when I joined Credit Suisse [in 2002]," says the 43-year-old banker. "[The project] actually turned out okay." His private-banking career at the Swiss bank took off rapidly and he was chief operating officer for private banking in the Europe, Middle East and Africa region and CEO of Credit Suisse Private Banking in Italy before relocating to Asia last August. Based in Singapore, de Ferrari officially became Credit Suisse's head of private banking Asia-Pacific on Jan 1, succeeding Marcel Kreis, who took the role of chairman of private banking Asia-Pacific at the Swiss bank.
Coming to Asia to drive private-banking growth for Credit Suisse was an easy decision for the ambitious de Ferrari. "I believe that if you want to work for a company, you should try to work in the most important region, where the business needs to grow. This is how you learn the most. So, coming to Asia was a pretty easy choice," he says. The Credit Suisse managing director also loves the warm weather in the region. "My wife is half-Argentine and half-Swiss and we love the weather. Otherwise, we won't survive in Singapore." De Ferrari and his wife have five children. "I take human capital very seriously," he jokes.
Private banking contributes nearly 50% of Credit Suisse's revenues. The 156-year-old Swiss bank currently manages more than CHF800 billion (RM3.16 trillion) worth of private-banking assets, of which nearly CHF90 billion comes from clients in fast-growing Asia-Pacific. The region has generated double-digit growth in terms of net new assets for Credit Suisse's private-banking unit over the past few years.
Balancing costs and growth
To be sure, Asia's lucrative but increasingly crowded private-banking industry, which was once the playground of a handful of Swiss and US banking giants, is now a key area of growth for many wealth management firms around the world. Both big and small private-banking players, all vying to manage the burgeoning wealth of the region's millionaires, have aggressively ramped up their Asian operations in recent years with large-scale hiring in Singapore and Hong Kong, which are key booking centres for Asia's high-net-worth individuals.
Many private banks have even resorted to a "hire for growth" policy to enable a wealth management newcomer in the region to capture market share quickly. But there is a high price to pay for such a strategy. The shallow pool of private bankers in the region means that wealth management companies will have to pay through their nose to attract talents from their rivals to their organisations in the hope that the assets of wealthy clients will follow the bankers wherever they go.
"What surprised me when I moved to Asia were the high cost-to-income ratios of private banks operating in the region," says de Ferrari. Indeed, cost-to-income ratios of private banks in Asia have surged to lofty levels in recent years, according to a 2011 Asia Pacific Private Banking Survey by PricewaterhouseCoopers (PwC). The accountancy firm estimated that the average ratio in 2011 of private-banking operations in Singapore and Hong Kong could be 88% to 90%.
Looking at the average cost-to-income ratio of private banks in Asia, including big banks with shared networks and platforms for both their retail and private-banking operations that are able to "structurally run at a much lower cost basis", de Ferrari concludes that most of the other players are losing money from their Asian operations. He declines to reveal the cost-to-income ratio of his bank's regional operations, but insists that its ratio isn't as lofty as that of many of his smaller competitors. "Our size allows us to be well placed," says de Ferrari. He adds that his Asia-Pacific private-banking operation is a profitable one.
With the high operation costs and a decreasing revenue stream due to clients' inactivity in investments on the back of risk aversion, de Ferrari warns of an impending consolidation in Asia's private-banking industry. "Asia has been a very nice growth story, but at some point, shareholders and investors will start to ask for bottom-line returns. Some competitors are paying huge amounts of money for people, and it just doesn't make any sense. Things will turn pretty ugly [later]," he says.
"Our industry is going through pretty troubled times globally," adds de Ferrari. He has implemented various changes at Credit Suisse's Asia private-banking operations to ensure that the bank has a "scalable, efficient and sustainable" business model in the region.
Among the changes are the consolidation of Credit Suisse's private-banking operations in Hong Kong, China and Taiwan into one integrated Greater China business based in Hong Kong; the integration of subsidiary Clariden Leu's private-banking franchise and operations across Asia into Credit Suisse (as part of its global integration strategy announced in November 2011); and the launch of the "Grow our own" programme in Asia to develop a pipeline of relationship managers (RMs) by recruiting MBA graduates and undergraduates.
The creation of one integrated Greater China private-banking unit within Credit Suisse since March isn't all about cost savings, according to de Ferrari. He points out that the new structure also helps to align the needs and interests of clients with those of advisers in the three markets. "We used to run teams in Hong Kong, Taiwan and China. We now open the [Greater China] region up to all the teams." He explains that Credit Suisse private bankers from the Taiwan team, who used to service only Taiwanese clients, can now take on other clients such as those from China or Hong Kong. "Given that private banking is a business of trust and many new clients are referred by happy clients, we felt this change made a lot of sense."
Credit Suisse currently has four main private-banking regions in Asia: Southeast Asia (comprising Singapore, Malaysia and Indonesia); Greater China; emerging Asia (which includes markets such as the Philippines, Thailand, non-resident India and other Asia markets); and developed Asia, which covers the domestic markets of Australia and Japan. "We run Southeast Asia from Singapore, which is our booking centre, and Greater China from Hong Kong. We are also present in Japan and Australia — our two domestic franchises — and we use Switzerland as a booking centre as well for our Asian clients. That is our footprint," says de Ferrari.
Although the legal merger of boutique private bank Clariden Leu with Credit Suisse was completed in April, with the latter acquiring all of the former's assets and liabilities, the technical process of integrating all Clariden Leu's private-banking activities is still ongoing and should be completed by year-end. In Asia-Pacific, de Ferrari is still overseeing the amalgamation of Clariden Leu's assets, clients and RMs. "The Clariden Leu clients, at least the ones that I met, are happy to be part of a bigger platform. But there are a few RMs who decided not to join Credit Suisse. Our business model only fits certain types of RMs," he says. Credit Suisse expects to achieve annual cost savings of around CHF200 million as a result of the consolidation.
"For clients, the selling point of Clariden Leu was about being a boutique bank. Credit Suisse is a much larger bank, with a bigger platform in terms of investment solutions, products and capability. We will continue to explain to our Clariden Leu colleagues how they can serve their clients better at Credit Suisse," says de Ferrari. Since April, more than 70 Clariden Leu members of staff, including RMs, investment consultants and product specialists, have joined Credit Suisse Private Banking in Asia-Pacific.
Credit Suisse's recent absorption of Clariden Leu, a smaller private-banking player, is a reminder that size still matters in the cut-throat world of wealth management, according to de Ferrari. Clariden Leu, which managed around CHF90 billion in assets, isn't big enough to sustain a private-banking business with acceptable returns, he says. "It sent a message to the industry on how big you need to be if you want to be a standalone player. We think that there will continue to be an increase in regulations and cost of doing business in the private-banking industry. Therefore, it is a natural consequence for us to integrate this bank into our standard business."
Despite the "Grow our own" initiative to groom private-banking talent within Credit Suisse so as not to rely too heavily on external hiring for growth, which can be expensive, de Ferrari says his bank will continue to hire talented private bankers if they fit its criteria. "But hiring has to make sense for the bank, the employee and shareholders. You can't have people commanding very high salaries when you know from the beginning that they won't be able to generate the expected returns." To groom future RMs, Credit Suisse currently has a three-year associate programme that takes in talented graduates as well as MBA holders. "The grooming of talent within the organisation is going to be more and more important going forward," says de Ferrari.
To boost its talent pool further, investment bankers from Credit Suisse's investment banking division are also welcome to join its private-banking division, which is in need of experienced bankers with in-depth capital-market expertise to serve its ultra-high-net-worth (UHNW) clients. These sophisticated UHNW clients, defined as those with wealth of more than CHF250 million or those with more than CHF50 million of investible assets with Credit Suisse, often require intricate advice from the bank on capital-market fund-raising activities for their companies as well as complex investment solutions for their family offices, observes de Ferrari.
"For this segment, we need a different type of RM with different skill sets. The UHNW business is like a private-investment-banking business. This is where we start to take on lateral hiring from our investment bank. The investment bankers would have the necessary product and market experience to be able to advise UHNW clients not only on their wealth but also on their corporate affairs," he says.
To make Credit Suisse an attractive workplace for private bankers, de Ferrari has also established "separate management and client career tracks" for its 360 RMs in Asia-Pacific. RMs who enjoy servicing clients and have no intention of taking on a management role within Credit Suisse could take the "client career track", which will reward and promote them according to their client-servicing performance. Those who desire a role in management going forward could take the "management career track".
"People can actually choose what they like to do best, with very clear promotion and performance criteria for each track. With the establishment of the client career track, we can go out and hire the top producers, who are only interested in servicing clients, and promote them without asking them to be managers," explains de Ferrari.
High labour cost aside, private banks operating in Asia are also facing a "margin squeeze" on the range of investment products that are distributed, owing to intense competition in the industry. In recent years, the margins have been further eroded as risk-averse clients — spooked by the extreme volatility in global financial markets — are now flocking to safe-haven investments that generate near-zero fees for private banks.
But de Ferrari doesn't seem too worried about the recent low level of clients' investment activity. To be sure, smaller private banks, which operate on a "brokerage system" by attracting clients with the best transactional pricing on investment products, have been hit hard by the low level of investment activity by clients. He points out that private banking at Credit Suisse isn't about selling products. "We are not a brokerage firm. Our real business is giving advice and we think we can provide more holistic wealth management services. If you really understand your clients' needs and get into the role of a trusted adviser, then the question of getting the best pricing on a single transaction becomes less important."
De Ferrari insists that his private-banking business has multiple revenue streams that are not correlated with the markets. "Today, there are a lot of investment instruments that allow you to make money even in a down market. Furthermore, we actually make a lot of money by lending to our customers, who are mainly first-generation entrepreneurs. In times like these, we would partner them to help them grow their business. That is a revenue stream that is not correlated to [the ups and downs of the market]. I think over time, as the industry matures, private banks will be able to explain the value of their services."
At the same time, the growing Asia-Pacific UHNW private-banking business, which continues to gain momentum at Credit Suisse, helps to maintain profitability at the Swiss bank, he points out. "Our UHNW business has been growing very quickly over the past few years and it is now more than 50% of our total business in Asia. UHNW clients are generally more active in exploring investment opportunities, whether the markets are up or down," says de Ferrari, whose bank has been making money by helping Asian UHNW clients with their capital-raising activities, especially through the debt market.
"We are the No 1 global player in high-yield debt financing and No 1 in emerging markets in terms of structured financing," he points out. "Currently, we have a team within the UHNW solutions team, made up of ex-investment bankers, who help us structure the deals. This is something that is hard for our competitors to replicate."
To be able to truly tap the growth of Asia's burgeoning wealth, a private bank — given the increasingly sophisticated needs of Asian millionaires — would require support from an investment bank. Even integrated big banks such as Credit Suisse that have investment banking, asset management and private-banking businesses under one roof aren't finding it easy to make good money in the region, de Ferrari admits.
"If you want to be a part of the Asia growth story, not having an investment bank will be a big problem. Not being a truly global player will also be a big problem. That will shape the industry dynamics. I don't think everybody realised that until today," he says, adding that going forward, the weakest private-banking players will be weeded out of the increasingly crowded wealth management industry in the region.
"We are already seeing a consolidation today. Merrill Lynch and BSI are for sale. A lot of players will divest their private-banking business if it isn't their core business. There will always be space for niche players, but there are just too many in the market today. So, there will definitely be consolidation."
De Ferrari says his non-banking background certainly helps him get the right perspective in terms of balancing growth and managing cost at Credit Suisse. "When I was an entrepreneur, I always managed the business as if I was investing my own money. What I am driving through the organisation is to be able to run a more scalable and sustainable business model and to be closer to our clients. My goal is to make sure that we execute our strategies well over the next three to five years."
This story appeared in The Edge Singapore on July 30, 2012.