ZURICH Credit Suisse CSGN.VX may sell part of its private bank in Germany, a source close to the bank said on Thursday, part of efforts to improve profits by focusing on the mega-rich rather than a larger "mass affluent" client base.
Swiss banks have struggled with profitability in their European onshore operations, which have become more important as regulators crack down on Switzerland's lucrative status as an offshore banking and tax haven.
Larger banks like Zurich-based UBS UBSN.VX and Credit Suisse are responding by stepping up efforts to court the mega-rich, seen as better for business than the moderately rich because transaction volumes tend to be far larger, and may feed other business units such as investment banking.
Credit Suisse's sale deliberations are part of a plan to focus more on those wealthiest clients, with more than $50 million in assets, the source said. The German unit's client base is far broader and more scattered than the narrow, ultra high net worth focus Credit Suisse is seeking.
Credit Suisse declined to comment on its plans for Germany.
The Swiss bank estimates that there are 84,500 individuals across the globe with more than $50 million in net assets. Of these, it says that 29,300 are worth at least $100 million and 2,700 breach the $500 million mark.
"If you are successful in acquiring one of these clients, this will move the needle," Rolf Boegli, head of premium clients at Credit Suisse, told the Reuters Global Wealth Management Summit this week.
Switzerland's tradition of banking secrecy has helped to make it the world's biggest offshore financial center, with $2 trillion in assets. But its offshore status has come under fire since the 2008 financial crisis from cash-strapped governments clamping down on tax evasion. Authorities in Germany and France also investigating Swiss banks.
The sale deliberations also come as Credit Suisse cuts spending bank-wide by 4.4 billion Swiss francs ($4.71 billion) by the end of 2015 to bolster profitability. In December, Credit Suisse shrank its German private bank branch network to nine from 12 and said it would lay off 150 of 500 staff, which mirrored similar steps taken by crosstown rival UBS.
Analysts with Berenberg Bank estimate Swiss banks' gross margin will erode by 5 percent next year due to assets moving out of highly profitable Swiss offshore operations and into the less lucrative European onshore area.
But Credit Suisse and UBS are sticking with onshore banking as a hedge against the shrinking of the space left by regulators for the more lucrative offshore business.
"We believe the gross margin of the Swiss private banks will continue to decline because of the structural changes the industry is facing," Berenberg analyst Eleni Papoula wrote in a recent study.
(Reporting by Oliver Hirt and Kathrin Jones; Writing by Katharina Bart; editing by Patrick Graham)