Private banks hurt as wealthy pay back loans

By Douwe Miedema

ZURICH (Reuters) - As the credit crisis drags on, not even the world's millionaire investors are immune from its effects, and the private banks which manage their money could be next to feel the pain.

Rich investors are reducing leverage on their portfolios, robbing wealth managers of a lucrative income stream just as difficult financial markets cast a shadow over their results.

As the credit crisis eats away the value of their assets, millionaires are paying back cash they borrowed for investment purposes to reduce risk, private bankers say.

"We've seen leverage vanish completely almost overnight from the beginning of November," Nicolas Sarkis, a partner at wealth management boutique Alphaone Partners, told Reuters.

The credit crisis has so far had little impact on the wealth management industry, which manages an estimated $37.2 trillion (18.9 trillion pounds) in assets worldwide and which ranges from small boutiques to the private banking divisions of large wealth managers such as UBS (UBSN.VX), Credit Suisse (CSGN.VX) and Citigroup (C.N).

UBS is among the most dependent of large banks on wealth management earnings, which accounted for roughly a third of its operating income in 2006.

But while clients at London-based Alphaone previously borrowed money worth about 25 percent of their portfolio -- typically putting the money into illiquid assets such as hedge funds -- that number had now gone down to zero, Sarkis said.

"I think this is due to risk aversion spiking up and people paying off debts," Sarkis said.