How the very rich are leading in the crisis-induced flight to cash

Published on Monday 1 September 2008 22:08

MANY of the world's wealthiest people have moved their money out of stocks and bonds and into cash, the head of one of the world's leading private banking operations revealed yesterday.

Peter Braunwalder, chief executive of HSBC Private Bank (Suisse), the UK bank's affiliate business which caters for the ultra-rich, said: "The first half of 2008 has seen a notable change in client expectations and investment choices.

"Faced with inflation worries, volatile asset prices and sudden changes in exchange rates, a majority of investors have reduced their transaction volumes in equities, bonds, and structured products."

Speaking at a news briefing in Geneva, he said that the trend was particularly true for clients from Asia, whose demand for complex investment tools such as equity derivatives has "drastically decreased" in response to recent financial market upheaval.

Braunwalder added: "Concurrently, most clients increased their cash allocation and, for some, their leverage."

Investors worldwide have been scrambling to find a safe place for their savings this year in the face of a global economic slowdown, a credit crisis that has spooked markets, and an energy price spike spurring concerns about inflation.

Alexandre Zeller, who will replace Braunwalder as HSBC Private Bank (Suisse) chief next month, said that concerns about inflation would dominate many investing decisions ahead.

"My worry is that a lot of liquidity has been injected in the markets by central banks to solve the (credit] crisis," the former head of Banque Cantonale Vaudoise said, raising concerns about how that liquidity will be removed from the market, and whether interest rates would have to rise as a result.

HSBC Private Bank (Suisse), rated AA by Standard and Poor's and Aa3 by Moody's, has been more shielded from recent banking sector woes than its larger Swiss rivals UBS and Credit Suisse.

But the Geneva-based bank said the first six months of 2008 were necessarily arduous in light of "the most difficult financial markets for several decades".