Changing Allegiances

It was just a matter of time before it happened. With many big banks being stuck in the Subprime mess by taking large losses, and others being involved with lawsuits alleging unsuitable investments to municipalities which, after the collection of huge upfront fees, collapsed in value, private clients finally took notice.

The article “Ripe for the poaching” had this to say:

Credit Suisse, UBS, Merrill Lynch, and Citigroup, among other financial behemoths, are taking massive losses due to fallout in the credit markets. Credits Suisse Tuesday announced a write-down of nearly $3 billion that wiped a cool billion dollars from its profits.

Billions of dollars more have disappeared from the balance sheets of its conglomerate competitors, as we’ve seen and read about for months now. Meanwhile, high-end “Davids” that cater to the wealthy via small yet sophisticated firms are enjoying new business as high-net-worth individuals flee the “Goliaths” and land at their doors.

Private Banker International headlines: “Geneva private banking boutiques are back.” Fearful that banking losses will affect their positions and portfolios, high-net-worth individuals are moving assets to smaller firms that have largely avoided the subprime business because they aren’t involved in all the aspects — investment banking, trading, money management — the multinational players are. Private banking clients typically have $5 million or more in liquid assets.

To be sure, some larger banks have avoided the mortgage mess and are basking in the black of their financial statements.

Credit Suisse was also part of this group poised to capitalize on the woes of its rivals until its announcement of losses. Indeed, the Swiss bank had said it was staffing up, planning to add up to 1,000 new private bankers to its wealth-management groups. It had cited its strong balance sheet as a sign of success to potential new clients.

Hence the danger of dealing with wealth-management factories. According to Russ Alan Prince and Hannah Shaw Grove, two wealth-industry experts, the No. 1 thing that high-net-worth individuals demand from their institutions is communication. Then, in terms of importance, they want trust. If big banks can’t offer these two attributes to clients then they’re in for an additional falloff in business.

[Emphasis added]

Read that last paragraph again. Isn’t communication and trust the most important aspect for anyone dealing with a banker or an investment management firm? I would add integrity to that list, however, given many published articles that seems to have moved way down the totem pole of values in favor of the almighty dollar. I guess the old axiom “you reap what you sow” still holds true.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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