Private banks feel sting as crisis hurts the rich

By Douwe Miedema, European Wealth Management Correspondent - Analysis

ZURICH (Reuters) - An abundant flow of rich people's money into private banks is rapidly evaporating and dashing hopes it can balance out subprime damage in other parts of their businesses.

Stock markets have dropped some 10 percent so far this year, hurting assets of millionaire clients and reducing the fees they pay their banks -- and income at wealth managers could slip by a similar amount or even more.

"The growth story is over," said Christopher Wheeler, equity analyst at Bear Stearns. "What we're talking about are 5 to 15 percent declines in pre-tax profit."

"It isn't disastrous, but it is ... a small downturn, having had a very strong period of above-average growth," Wheeler said.

That would be bad news for UBS -- reeling from $37 billion in credit writedowns, the world's heaviest -- and for Credit Suisse, as private banking makes up roughly a third of income at the two Swiss banks.

Wealth managers -- who invest rich people's money -- have witnessed soaring growth rates in recent years, benefiting from stable fee income regardless of performance, balancing wild swings in investment banking income.

But the MSCI global index has dropped 7 percent so far this year and the FTSEurofirst 300 index 13 percent, and large banks will feel the impact not just in their private banking units but also on a group level.

"Our 2008-2010 EPS estimates decline by 4 to 6 percent, while our price targets fall 4 to 5 percent for the Swiss private banks," Goldman Sachs said in a recent note, referring to declining client assets.