This lesson explores the specialized credit services offered to wealthy clients, which are a key source of revenue and a tool for deepening relationships.
6.1 Credit as a Core Service
Private banks are not just for deposits and investments; they are also a significant source of credit. Loans are used to finance major purchases, investments, and provide liquidity without triggering a taxable sale of assets. The principle of credit is a core function . The ability to offer bespoke credit is a key differentiator from retail banking.
6.2 Types of Credit Products
Common lending products in private banking include:
-
Lombard Loans: Loans secured by a portfolio of liquid assets (stocks, bonds). This is a cornerstone product, allowing clients to access cash without selling their holdings .
-
Mortgages:Â Financing for primary and secondary residences.
-
Specialized Loans: Loans against art, aircraft, or other collectibles .
6.3 Underwriting and Risk Assessment
Private banks assess a client’s creditworthiness using the “5 C’s of Credit”: Character, Capacity, Capital, Collateral, and Conditions. A key difference is the focus on the client’s total relationship with the bank and the liquidity of the collateral. Underwriting is complex, especially when lending against illiquid assets like art or private equity stakes .