Private banking a key route to Russian market, says Credit Suisse
Michael Knoll, head of Credit Suisse’s onshore private banking business in Russia, says that this is an easier area in which to maintain market presence than general retail banking.
Gaining entry into the Russian mutual fund market and retail banking may be difficult for foreign firms, but in the private banking universe they often have the upper hand. A good example of this is Credit Suisse.
Last year, foreign banks such as Handelsbanken, Barclays and HSBC were forced out of Russia’s retail banking sector, which is heavily dominated by local names.
In the mutual fund space, there is a divide between foreign and local providers. Foreign managers operating on the local market tend to have predominantly foreign clients, and vice versa. Not so in the private banking space. Onshore private banking in Russia is in the early stages of development, so only few companies have developed a strong wealth management business. Most of them follow a foreign model.
For example, Troika Dialog, now part of Sberbank, began developing lifestyle solutions earlier this year. Julia Petrova, its newly hired head of lifestyle, says experience working with foreign banks is raising client expectations towards local providers.
Credit Suisse is a good example of a foreign private bank with a success story in Russia. It has put two decades into building a local business and launched its onshore private banking arm in 2006, making it one of the first foreign banks with onshore private banking services in Russia.
A number of factors have contributed to its success in the local market. First, the long-term presence on the market has helped to create a recognised brand. Second, Russians are attracted to the superior Swiss quality associated with the name. Last but not least is the focus on specific client needs. As one Swiss-based financial adviser serving Russian clients explains, they are increasingly looking for full-blown advisory solutions to tackle tightening regulation and tougher market conditions.
Michael Knoll (pictured), who heads up the private banking onshore operations of Credit Suisse in Moscow, says this trend has made the firm’s integrated banking model particularly popular with Russian clients.
Knoll says: “While we offer private banking services, we also offer solutions for the corporate needs of our clients such as M&A advice or IPO advice. We launched our mid-cap M&A team this spring and it is off to a good start.”
Following the launch of the mid-cap M&A team, the firm plans to grow its offering and team on the ground further in the next few years, aware of the importance of being close to its local clients.
The private bank’s offering includes selecting funds on behalf of its clients. The firm has a predefined universe of funds. Knoll says that for an external fund provider, the hardest thing is to get on this list. Criteria for selection include reputation, track record, risk management and the fund’s size, since experience shows a certain size is necessary to provide liquidity.
“We do have a specific recommendation list tailored to Russian clients,” Knoll says. “There are certain regulatory restrictions for them. For instance, to invest in certain financial instruments clients need to have the qualified investor status, for which they require a certain amount of investment experience.”
But as Simon Fentham-Fletcher, chief of staff in the Moscow office of Renaissance Asset Managers, puts it: “Russians don’t just want a brand, they want someone who understands them. It’s important to remember that Russia is a sophisticated country in its own right.”
To succeed in the local market, it is necessary to put time and effort into building long-term relationships on the ground instead of expecting quick gains.
Fentham-Fletcher points out that Russians like to see commitment. “If you are not committed, don’t open an office in the country,” he says. Credit Suisse is aware of this need and says it is “highly committed to the Russian market”, with plans to further expand its business in the region.