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We are reducing risk for sustainable earnings

We are reducing risk for sustainable earnings
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First Published: Thu, Aug 06 2009. 09 56 PM IST

Eyes on future: Kai S. Nargolwala says the company has a capital-efficient model that is working very well. Ashesh Shah / Mint
Eyes on future: Kai S. Nargolwala says the company has a capital-efficient model that is working very well. Ashesh Shah / Mint
Updated: Thu, Aug 06 2009. 09 56 PM IST
Mumbai: Indian shares are rising as risk appetite returns to global investors and liqudity courses back to the financial system. The 64% rise Since January in the Sensex, the country’s bellwether index on the Bombay Stock Exchange, places it among the top gainers in emerging markets. Against this backdrop, Swiss bank Credit Suisse Group AG held a conference for chief executives of financial services companies in Mumbai early this week, the first of its kind by the company in India.
Kai S. Nargolwala, chief executive officer, Asia-Pacific, Credit Suisse, who was in Mumbai to attend the conference, spoke with Mint on his firm’s plans for expanding in India, the outlook for Indian and global equity markets and investment behaviour of high net worth clients. Edited excerpts:
Eyes on future: Kai S. Nargolwala says the company has a capital-efficient model that is working very well. Ashesh Shah / Mint
Tell us about your India plans. How do you plan to grow business?
India is one of our key strategic growth markets in the Asia-Pacific. We have already expanded our presence substantially and we continue to grow. We have added people in wealth management, bringing over a group of talented individuals under Amit Khandelwal to help us provide high net worth individuals, entrepreneurs and family-owned businesses with a comprehensive range of investment products and services.
In securities brokerage, we are looking to add additional strength to our equities sales, trading, research and derivatives businesses in India. In investment banking, we have scaled up significantly and have now successfully executed a number of capital market transactions, including equity placements for Unitech Ltd, Suzlon Ltd and Lanco Infratech Ltd.
We have a very good pipeline of capital markets and M&A (mergers and acquisitions) transactions and we have developed a world-class platform to help us execute our India strategy.
Is it very different from your global strategy?
No. In fact, our strategy in India reflects our global strategy at Credit Suisse. We have a client-focused, capital-efficient model that is working very well. We have been pursuing this approach while consistently reducing risk, and it is providing the basis for more sustainable, higher quality, lower volatility earnings.
Any plan to bring in more capital?
Late last year we capitalised our recently-acquired non-bank financial company with $203 milion and have now completed a number of rupee-denominated financings under the NBFC.
Strategically, how are you different from other brokerages that have been operating in India? What’s your USP?
Credit Suisse distinguishes itself by providing a truly integrated offering of wealth management, investment banking, securities and asset management services to its clients. Our client-focused approach is accompanied by a continued and disciplined strategy on deployment of risk. In the second quarter, risk-weighted assets declined by 10% to Swiss Fr (CHK and convert) 139 billion, compared with the first quarter, and our average one day value-at-risk declined by 10%, compared with the first quarter.
We will continue to be judicious about how we deploy our risk weighted assets, and this is a strategy that is also evident for our businesses in India. We are focusing on client-driven activities across all our businesses in wealth management, investment banking and asset management, and we are particularly true to this approach in India.
We have a strong wealth management platform focusing on high net worth individuals, entrepreneurs and family-owned businesses. In investment banking and securities, we have established a very effective equities, advisory and fixed income platform, where we work closely with international and domestic institutional and corporate clients. In asset management, we have established a platform in India where we provide multi asset class solutions and alternative investment products. All our businesses in India have been making good progress.
Among three separate businesses—private banking, investment banking and brokerages—what will be the driving force for Credit Suisse in India?
The strength of Credit Suisse is in its ability to provide an integrated offering across these businesses and asset management. Our success lies in being able to provide holistic solutions and all our businesses play complementary roles in meeting our clients’ needs.
Have you shelved your plan of floating an asset management company?
There are no plans currently to float an asset management company. We see India as a market with potential for asset management and already have a local multi asset class solutions team which works closely with our wealth management business under our portfolio management license. We also continue to provide alternative asset management solutions to our clients.
The Sensex has risen substantially in 2009. Has it in any way changed your outlook on India?
The strength in the market simply confirms our long-held view that India offers excellent opportunities. Our analysts are forecasting that the market could rise even further, with the Sensex reaching 17,000 by mid-2010. The corporate sector is seeing earnings upgrades while the authorities are maintaining an accommodative policy environment. Credit Suisse wants to continue to build on its presence here.
What is the mood among high net worth clients?
Most private clients have doubled their money they keep in cash, from what they have held historically. Typically, they hold cash of around 25%. Now that level is around 50%. Risk appetite has gone down given the global crisis but that is slowly turning back. In a year or two, this will revert more to the long-term average.
What is your global market outlook?
The outlook for global equity markets is still strong. They have come up quite a lot since March. There is a case to make that, may be, they have got too far ahead of themselves. If you look at the US consumer, who are looking to rebuild balance sheets, inventories cycles in the US—inventories are low—restocking needs to take place, there is room for equity markets to improve further. There are a large number of fund managers who are waiting in the wings who haven’t satisfactorily participated in the current rally. If prices fall, people will come back.
Do you think there is excess liquidity?
I think there are a number of factors that create liquidity. Monetary policy has a a big impact. Quantitative easing has certainly pushed unprecedented amount of money into the economy. The second factor that creates liquidity is leverage. When you get assets that go up, you borrow more money on those. And you invest these funds. Hedge funds that used to be levered 2:1 are now a little north of 1:1. There is a huge contraction there.
The monetary easing has been mopped up by banks and they are holding on to the money; they are not lending. That still has to flow through. Finally, there is the money given to consumers, through tax rebates and other fiscal measures. Consumers have been rebuilding their balance sheets. So, while there have been many sources of liquidity, the actual impact has not been felt to the same impact. Its not 1:1.
Is Asian money looking at India as an opportunity?
Generally speaking, for financial investments, the Chinese see a big opportunity in their own country. Chinese investment flows are foreign direct investments into resources, manufacturing capabilities. Koreans are generating a large amount of pension funds. They are looking to diversify their investments away from Korean economy. The Middle East is looking towards Asia. We are doing lot of deals for Middle East into Indonesia, Thailand and they are bullish on China. The flows are more on the real economy side.
Ravi Krishnan contributed to this story
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First Published: Thu, Aug 06 2009. 09 56 PM IST