Credit Suisse Expands Private Wealth Reach In Eastern Europe & Middle East

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Late last week, Credit Suisse (NYSE:CS) announced its decision to acquire Morgan Stanley’s (NYSE:MS) Private Wealth Management in Europe and the Middle East, in a move that highlights the Swiss banking group’s continued focus on growing its wealth management business. [1] The deal struck at an undisclosed price, will boost Credit Suisse’s asset portfolio by about $13 billion, while adding High Net Worth (HNW) and Ultra High Net Worth (UHNW) clients from the U.K., Italy and Dubai to its existing business in the region.

As for Morgan Stanley, the sale will allow it to concentrate on its wealth management offerings in the U.S. with the investment bank already announcing plans to acquire the remaining 35% stake in Smith Barney by the end of the year (see Here’s Why Morgan Stanley Is In A Hurry To Own 100% Of Smith Barney).

We maintain a $32 price estimate for Credit Suisse’s stock, which is about 20% higher than its current market price. The negative sentiments harbored by investors against European banks, in view of the crisis in Cyprus is largely responsible for this difference.

See our complete analysis of Credit Suisse here

The capital requirements imposed by Swiss regulators for the country’s banking giants are the most stringent in the global banking industry, and over the last few quarters UBS (NYSE:UBS) and Credit Suisse have been quite busy shoring up their balance sheet while also making drastic changes to their business model. Last November, Credit Suisse announced a leaner organization structure which sought to focus equally on wealth management and investment banking operations (see Credit Suisse Announces Simpler Organizational Structure To Focus Business, Cut Costs). This reorganization largely hinges on sustainable growth for the wealth management business.

This is where the latest acquisition by Credit Suisse figures in the bigger picture. The banking group is a minor player in the wealth management industry for the EMEA region and would benefit from an increase in its market share there. Once it has successfully integrated Morgan Stanley’s 60-member strong business unit, it would find itself on the list of top ten wealth managers in the U.K., as more than 80% of the $13 billion in assets it will add comes from clients based in London. [2]

It should be noted that the $13 billion in assets Credit Suisse acquired as a part of this deal is but a fraction of the CHF 799 billion (~$850 billion) asset portfolio it managed at the end of 2012. But it is an important step forward towards the bank’s goal of increasing its international wealth management presence. The chart below captures Credit Suisse’s wealth management assets from international clients (outside Switzerland and the U.S.). You can understand the impact of a faster growth in these assets by making changes to this chart.

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Notes:
  1. Credit Suisse to Acquire Morgan Stanley’s Private Wealth Management Businesses in EMEA, Credit Suisse Press Releases, Mar 27 2013 []
  2. Credit Suisse bolsters wealth management, Financial Times, Mar 27 2013 []
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