We are all fervent admirers of UBS, by far the dominating global private bank whose rescue during the 2007/08 financial crisis was the best few billion francs that the Swiss state ever spent. But we certainly wouldn’t like to be a minor client of this otherwise superb establishment.
When you have the equivalent of $2 trillion under management, then there can be rather a tendency to be neglectful or even disdainful of the small fry. Bowing and scraping before the clients at UBS apparently doesn’t start nowadays until they have at least $50 million in the bank.
So, very unfortunately, UBS clients have been effectively shown the door under its aggressive policy of introducing euro deposit fees in addition to the charges that it and its peers have to pay the Swiss National Bank on Swiss franc holdings at the central bank.
UBS alone saw CHF5.3 billion in customer outflows from euro charges and another CHF3.2 billion of cross-border outflows in first-half 2017. For the second half of 2017, it expects around CHF3 billion of outflows linked euro fees as well as cross-border outflows of around CHF 11 billion.
The bank’s CFO Kirt Gardner, questioned by analysts, observed that UBS had identified clients with a high concentration of euro deposits and had then repriced them.
“We offered them the opportunity to put their money at work”, he adds, in that very reasonable but sinister way the Swiss have. Indeed, rather like making them an offer they couldn't refuse.
Our Kirt continues, “A large percentage did put their money at work, some accepted the higher pricing, and some left. We were happy to see them leave because they were dilutive to the business overall.”
With perhaps a touch of under-statement, he goes on, “We are, I believe, much more aggressive than our competitors of giving up optics in favour of making sure that we focus on quality and that we focus on profitability.”
How very scary but to be fair, the Swiss private banks and their peers elsewhere still grapple with the issue of clients with between 20 to 30 percent of their holdings in cash – depriving the advisory industry of valuable fee and commission earning streams that being fully invested entail.
While UBS employs what could be termed the Cosa Nostra approach, we much prefer the genteel persuasion used by Coutts, which tries to get the client base to moderate cash positions through solid reasoning between us reasonable chaps.
Wealthy clients don't appreciate the cost of keeping cash, which they consider “safe”, Coutts folk argue. OK, you get that money to keep for a rainy day, just in case. But really how much do you need in reality for the unexpected?
Meanwhile, what's creeping inflation doing to this supposedly safe money? Normal inflation CPI is 2.9 percent but crucially, clients don't purchase the way the CPI is made up.
Indeed, Coutts boffins analysed the actual spending patterns of clients using its credit and debit cards and then measured the inflation on the items they are actually spending on rather than the 'theoretical' weightings of the CPI—so resulting in the creation of the Coutts Luxury Price Index.
Unsurprisingly, true inflation for the UHNW high-rollers is double to triple the CPI, depending on the clients spending patterns. In other words, it is at least six percent if not more towards 8-9 percent. Dash, that could frighten women and the horses somewhat.
For this means clients’ 'safe' money is going backwards in terms of purchasing power at a rate they don't appreciate sufficiently. Perhaps the whole industry should make the Coutts index its standard model when it comes to persuading clients over the illusion of too much cash in their portfolios?
Personally, however, we still maintain our very chunky cash position, not least because of those rising tensions between North Korea and America.
Who can really trust that tubby man with the bizarre ‘bad day’ haircut, who is given to such belligerent exhortations that threaten awesome destruction of enemies like a man who could literally do anything crazy?
And we reckon Kim Jong-Un is almost as bad, although it must be said that at least he doesn’t bloody well tweet morning, noon and night.