Are the ultra-rich ready for Singapore after Credit Suisse's collapse?

By Andy Mukherjee

On a conference call last month, Piyush Gupta, the chief executive officer at DBS Group Holdings Ltd., said that he was hoping to garner at least 1 percentage point revenue growth by managing more money for the super rich. His wish may be about to be fulfilled. Now that Credit Suisse Group AG has been swallowed up, some of the ultra-high-net-worth individuals and their family offices will look beyond the default option of using its rescuer UBS Group AG for all their wealth management needs — especially if they’re already clients of the bigger Swiss bank.  
 

Asia is an obvious destination. But for Singapore’s DBS, its two smaller rivals, Oversea-Chinese Banking Corp. and United Overseas Bank Ltd., as well as large Hong Kong lenders such as HSBC Holdings Plc and Standard Chartered Plc, feasting on Credit Suisse’s misfortune comes with the risk of indigestion.

That’s because mopping up new money is only one part of the challenge. The wealthy must also feel sufficiently courageous to chase risk.

It’s still too early to say if the failure of three US banks and the collapse of Credit Suisse is the peak of panic. The turmoil at First Republic Bank, a US regional lender, shows that concerns of financial fragility haven’t exactly gone away.

A lot may depend on this week’s Federal Reserve rate-setting meeting. If it looks like the US is halting its monetary-tightening campaign because disinflation is on the horizon, risk sentiment may start improving. But if it appears that the financial crisis is deepening, or that the Fed is leaving an emerging wage-price spiral unattended, investors could turn even more fearful. And that’s going to take Singapore lenders right back to late 2022. Back then, the wealthy did give them a lot of money but kept it idle.

Even though OCBC’s fourth-quarter lending income benefited from rising interest rates, its non-interest income fell — partly due to lower wealth management fees.

“The strong inflows have not resulted in much investment activity as customers have mostly stayed in deposits,” DBS’s Gupta explained on last month’s earnings call with analysts and investors. “There was weak margin financing activity. However, if markets turn around we could see a pickup in wealth management loans. We are already seeing stronger activity in North Asia.”

China’s post-pandemic reopening does provide some counterweight to a synchronized global slowdown. StanChart’s Hong Kong unit doubled its wealth management income in January from December, when the mainland’s borders were still closed. Which makes now the perfect time for relationship managers in the financial hubs of Hong Kong and Singapore to get to work: If the rich want to get on the Asian private equity bandwagon, DBS can facilitate the deals via its investment banking division. Alternatively, if it’s crypto they’re after, the bank offers a digital exchange; the number of Bitcoin that customers have placed in the bank’s custody doubled last year. Its wealth division’s assets under management, or AUM, increased 3% in constant currency terms to S$297 billion ($221 billion) in 2022 from S$291 billion in 2021, according to S&P Global Market Intelligence.

However, the well-heeled may not be able to save the day. Even if risk appetite makes a strong return, the additional fee income from wealth management may only help offset some of the gains on loan-pricing that will no longer materialize. Last year, all three of Singapore’s lenders boosted their net interest margins by 30 to 35 basis points. A pause in Fed’s monetary tightening may put an end to the improvement, or even reverse it in the case of a global recession. That will focus attention on loan volumes, particularly in Singapore’s residential property market. (A sustained recovery in Hong Kong’s home prices may be unlikely this year.)

Credit Suisse’s departure from the scene after 166 years does make it more likely for some extra global wealth to land on the Asian city-state’s welcoming shores, helping its homegrown lenders in the long run. Whether those riches will benefit the banks this year remains an open question. Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper