Credit Suisse (
) provides advisory services and financial products to companies,
institutional clients and high-net-worth private clients worldwide,
as well as retail clients in Switzerland. It competes with UBS (
), JP Morgan (
), Morgan Stanley (
) and Goldman Sachs (
Our price estimate for Credit Suisse stands at
, nearly 20% ahead of market price.
CS did well vs. its peers during the downturn due to its more
conservative portfolio, geographic diversity and heavy reliance on
wealth management, which limited exposure to asset backed
securities. In general, across the financial services industry,
wealth management performed better than investment banking and
sales & trading during the downturn.
Wealth Management AUM Poised to Increase
We estimate that the Wealth Management division accounts for
around 47% of
our $47.46 price estimate for Credit Suisse's
. In 2009, the asset under management (AUM) for the Wealth
Management division totaled around $840 billion, of which around
$300 billion came from Swiss clients, $440 billion from
international clients (those outside Switzerland) and $100 billion
from corporate & institutional clients in Switzerland.
During the recent economic downturn, the AUM for Swiss clients
fell from $360 billion in 2007 to $280 billion in 2008 and that for
international clients fell from$460 billion in 2007 to $360 billion
in 2008. This was largely due to a fall in returns across asset
classes impacting the demand for wealth management services, with
investors pulling their money out and parking them in safe asset
classes (low yield sovereign treasury bonds, fixed deposits,
However, with the economic environment improving in 2009, the
AUM for Swiss clients and international clients increased to $300
billion and $440 billion respectively. We expect the AUM to further
increase, with the economic recovery stimulating investments and
Credit Suisse's continued expansion into Asia Pacific increasing
its customer base.
AUM - Swiss Clients
AUM - International Clients
Consumption and savings patterns are changing in the developed
and emerging markets. The West is more financially strapped while
emerging economies, particularly in Asia, are growing faster as
well as saving and spending more. As a result, we expect that the
demand for wealth management services should grow faster in Asia
than the West. We currently forecast the AUM for international
clients to increase to $600 billion by 2017.
Upside to CS Stock Value from Wealth Management Operating
Credit Suisse's operating margin on wealth management for
international clients decreased from 48% in 2007 to 26% in 2009,
largely due to falling returns during the global economic slowdown.
We forecast that by 2017, this metric could approach 45%, the
historical average before the global financial crisis.
However, the strong economic rebound in Asia Pacific is leading
to fast improving returns across riskier asset classes (like
equities, corporate bonds and other fixed income products of
emerging markets) in addition to increasing investor risk appetite.
These factors can lead to an upside to our current forecasts. If
Credit Suisse can restore its wealth management operating margin
for international clients to the historical average of around 45%
by 2013 and then slightly improve it to 50% by 2017, it would mean
an additional 5% upside to our current price estimate for Credit
Suisse's stock, which already stands about 20% ahead of market
Drag the trend-line in the chart below to see the impact of
various international client wealth management operating margin
scenarios on Credit Suisse's stock value.
See our full analysis of Credit Suisse here