February 11, 2009 / 4:37 PM / 11 years ago

Back to wealth basics give Swiss banks hope

ZURICH (Reuters) - After curbing their investment banking ambitions, Switzerland’s biggest banks are again luring rich clients and this could help them weather the financial storm as rivals struggle to find a new identity.

Both UBS UBSN.VX(UBS.N), Switzerland’s biggest bank, and No. 2 lender Credit Suisse CSGN.VX reported hopeful signs this week, saying they had attracted rich clients’ inflows at the start of 2009.

The wealth management business, for which the Swiss banks were renowned before they tainted their reputation with forays into investment banking, provides the steady cash-flow that banks are desperate to generate in time of high volatility.

For UBS, which came to the verge of collapse and suffered billions of dollars in client withdrawals, the announcement on Tuesday that it had managed to turn the tide and attract above 3 billion Swiss francs ($2.60 billion) of new client money in January was the single most important sign for analysts.

“We believe that UBS’ core franchise has survived the crisis, and we expect UBS to return to profits in 2009 at a time when the rest of the European banking sector is likely to struggle with the credit cycle,” Deutsche Bank analyst Matt Spick said in a research note.

UBS posted the biggest annual corporate loss in Swiss history in 2008 and while client withdrawals at the wealth management arm accelerated in the fourth quarter, it said net new money turned positive in both wealth and asset management in January and it aimed to return to profit in 2009.

Credit Suisse, which never suffered the same amount of damage at its wealth management unit, also said it had net new inflows in 2009 when it reported a fourth-quarter loss of 6 billion Swiss francs.

The bank reported a record full-year loss of 8.2 billion francs due to poor trading and restructuring charges, but said 2009 started strongly and all units were showing a profit in the year to date.

“The start in 2009, as at UBS, seems to be a success, but it is still not a guarantee of a sustainable recovery,” analysts at Wegelin said.

SWISS STRENGTH

Switzerland manages nearly one third of the world’s wealth abroad, an estimated $2.2 trillion, a solid base that has helped it avoid the worst of the economic downturn so far.

Analysts say this will help the two large players compared with rivals which either have a greater focus on investment banking or do not have the same long-standing tradition of nurturing rich clients.

Citigroup Inc (C.N), once the world’s largest bank, has been humbled by losses including $8.3 billion in just the fourth quarter, raising concerns it could be nationalized.

The bank, which is also one of the biggest players in wealth management, announced earlier this year it was joining forces with domestic competitor Morgan Stanley (MS.N) and combining the private banking businesses.

Other have found themselves in even deeper trouble: both Royal Bank of Scotland (RBS.L) and Lloyds Banking Group (LLOY.L) are now part-owned by the British government while listed Fortis FOR.BR FOR.AS has been carved up by the Belgian, Dutch and Luxembourg governments.

HORRIFIC

Nevertheless it has been a “horrific banking year”, Kepler Capital Markets analyst Dirk Becker said.

The Swiss government has had to bail out UBS and both Swiss banks are far from out of the woods.

Becker said Credit Suisse results were weak but not as bad as UBS, where he did not see good news even though shares rose up to 10 percent after the report.

JP Morgan analysts also cautioned that while UBS had positive wealth management inflows in January, they still saw further outflows of 44 billion Swiss francs ($38.06 billion) for 2009 as a whole.

The bank’s ongoing tax troubles with U.S. authorities, which are investigating offshore services provided by UBS advisers to U.S. customers from 2000 to 2007, also cast a shadow.

“Even if the worst might be over for UBS, the market environment remains very challenging and UBS additionally has to handle the reputational damage that has occurred, in particular in Switzerland,” said Rainer Skierka at asset manager Sarasin.

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