«Investment banking is the DNA of Credit Suisse»

Credit Suisse should sell its private banking franchise, for example to Julius Baer, says Beat Wittmann, CEO of Swiss asset manager Dynapartners, in an interview with finews.ch.

Mr. Wittmann, the two major Swiss banks have different business models. While UBS is focusing on wealth management, the strategy of Credit Suisse (CS) remains rather vague and includes investment banking. How do you assess that?

When UBS relies on wealth management, it has a lot of potential. The market will reward it, in the long term. But the bank must actually implement this strategy. As it comes to Credit Suisse, I recommend a return to the ideas of its founders Alfred Escher.

What does that mean?

If Credit Suisse holds on investment banking, they should concentrate fully on it – like 150 years ago, so as to speak: «Back to the roots». What was Swiss Credit Bank in its origins actually, than an investment bank that financed the industrialization of Switzerland? Investment Banking is the DNA of Credit Suisse.

At the best they should sell their private banking – for example to Julius Baer, which would rise to number two in the market, and would get a highly advanced IT infrastructure – so desperately needed.

How realistic is this scenario?

If UBS already aligns on wealth management, it would be logical that Credit Suisse is focusing on Investment Banking. The firm has an excellent corporate and merchant banking, for which there is a huge demand in many SMEs in entire Europe. The stock markets would certainly reward such a step with a plus of 30 percent. I do not believe that the universal banking or integrated model of the last decade may have sustained success. The stock market valuation has shown this quite clearly.

«Asset Management receives a different status»

As an alternative to the more and more difficult private banking business the Swiss financial center wants to become an asset management hub. What do you think of this idea?

This initiative is basically good. But at the end of the day, success depends on individual players and less on branding or marketing activities. What is needed is entrepreneurship and a healthy business model.

Till now, the asset management in Switzerland enjoyed more or less of a wallflower existence.

Right. Asset Management was merely a factory for collective investments, which were then sold to retail and private banking. With the «open architecture» in the offer of financial products and  stringent regulatory requirements, the asset management shall get a completely different role. This opens up opportunities.

«The consolidation will accelerate massively»

Could you elaborate bit on that?

In boom times, smaller and medium sized asset managers have no chance to get hold of talented people. But now, with all the restructuring in the industry, it flushes out a lot of specialists free. This is unique

But there is little optimism in the industry.

The requirements for capital adequacy indeed rise. The Finma (Swiss financial authorities) demands a license for asset managers from mid-2013. It needs more training, improved procedures and processes. This consolidation will accelerate even more massively.

Then there is the zero interest rate environment, and the low risk appetite of customers. I assume that about two-thirds of independent asset managers will disappear over the next three years.

Will that happen to family offices in Switzerland too?

Of course. They are put under the same regulatory regime by the Finma and get as much pressure. As a consequence, the majority of whom will be consolidated or move away from Switzerland. Fundamental changes are overhanging.

But the financial center was always exposed to change.

Yes. But unlike in the past, there will be fewer acquisitions and sales. Many asset managers and banks will simply cease to exist. Smaller banks and asset managers overestimate their market value.

Why?

Because the price expectations of buyers and sellers are still too far apart. Many asset managers and smaller banks are still not aware of the profound changes that will come upon them in the next few years. Their market value will suffer.

«The consolidation provides great opportunities»

To what extent is Dynapartners affected?

We launched the company with regard to the emerging changes in the Swiss financial industry four years ago. Firstly, it was clear to us that the whole consolidation provides tremendous opportunities for good independent asset managers.

Secondly, we welcome the regulatory changes because they strengthen the financial sector. Third, in these times of change, the cards are reshuffled so that we can grow organically well. And fourth, there will be most interesting takeover opportunities in the next two years.

You describe Dynapartners as a «boutique». Is there a critical mass for such a definition?

Absolutely. The days are gone when you could lead an asset manager with five people. Even ten employees are not enough. Today you need to have processes, procedures, to meet the requirements of the Finma. Also you must be diversified, both in your offering and also form a customer's point of view.

And if you work with pension funds and other institutional clients, you must have as a serious counterparty likewise a certain size. For running a Finma-regulated asset manager today plus or minus 20 people are required. Therefore, the asset managers will be damned for growth in the next three years.

How many assets does Dynapartners manage?

As a private company, we do not communicate that number. We are employing 22 employees at our offices in Zurich-Zollikon and Geneva. We are interested in a long-term sustainable business success. Anyway, the industry is now too much fixed on the size of assets under management. This has led in some cases to extreme misallocations.

To what extent?

Some companies which wanted to demonstrate growing assets under management, have made concessions in margins and have thus often sacrificed much of their profitability. We do not want that. In addition, we generate some income via consulting mandates.

A major shareholder of Dynapartners is the Swiss Raiffeisen group, which is also represented in your board of directors. What is the background for this commitment?

We have already said about the company's foundation, that we want to have a financial partner on board who is not operating in the same business segment. In this regard, Raiffeisen is ideal. We have also studied other banks and discarded. The shareholders of Dynapartners also include a handful of private investors and family offices. Last but not least the management is involved.

Is a closer cooperation with Raiffeisen coming in 2013?

Maybe so. Raiffeisen is indeed linked in cooperation agreements with other banks, but once we will bring financial products on the market that might be of interest for Raiffeisen, we could certainly be interested to get to their distribution platform.

Where do you have your priorities this year?

Dynapartners is focussed on equity strategies with a total return approach. Benchmarks are not interesting for us because we want to stay fully operational also in stock downturns and disassociate certain positions with flexibly.

Which sectors have the greatest potential this year?

The luxury goods sector saw a lot of potential. With the recent commitment of the experienced fund manager Makiko Zürcher-Hosaka, we expanded our expertise in this area dramatically. In 2013 we will launch a luxury goods fund.

In addition, we are evaluating other themes, such as the shale gas issue and everything that in a zero interest environment has to do with «yield» – for example, dividend strategies for real estate investments.

What do you think of bank stocks?

We have set up a focus on the financial sector long back and have achieved a performance of 15 to 25 percent with banking stocks – depending on the mandate. This year I expect a return to the same extent. In the medium term I see great opportunities in this industry because due to the crisis we come from all-time-lows.

You surely have not achieved the 15 to 25 percent performance with Swiss bank shares.

Our focus was clearly on the United States in 2012, where the banking sector has been rehabilitated. But always bear in mind: There, where the «last war» has taken place, it does «hurt» most, to get involved again. That is why just a few investors have overweighted bank stocks last year.

When is the European banking sector going to be «rehabilitated» too?

The next steps in direction of a banking union should lead to a recovery in Europe. Above all, I would buy systemically important financial institutions at weak prices this year. But watch out, the market does not offer any premature praise.

If changes are announced, the price rises, as was the case at UBS in recent weeks and months. But if not implemented, the market punishes mercilessly.

Beat Wittmann studied economics (M.S.) at the University of Basle before joining UBS in 1985, where he worked in various functions in asset management for ten years. In 1995 he joined Clariden Bank (later Clariden Leu), where he acted as CEO Investments Products, Chief Investment Officer (CIO) and Member of the Executive Board of Clariden Leu (subsidiary of Credit Suisse).

A detour led him in 2007 to Bank Julius Baer, where he served as CEO of Investments Products and Member of the Executive Board. In early 2009 he started his own business. With several partners he founded the independent asset management company Dynapartners in Zollikon near Zurich.