Report
Johann Scholtz
EUR 850.00 For Business Accounts Only

Morningstar | Wealth Management Business Earns Credit Suisse a Narrow Moat

The profitability of Credit Suisse’s core businesses comfortably exceeds its cost of capital; we estimate a midcycle return on equity of 12% compared with our cost of capital estimate of 10%. A few issues have concealed the company’s true profitability. As part of the process of derisking the business away from volatile sales and trading, Credit Suisse has run down a massive noncore book of EUR 130 billion to EUR 20 billion since 2015, incurring cumulative before-tax losses of EUR 15 billion in the process. To add insult to injury, Credit Suisse has incurred legal expenses of CHF 7 billion over the past four years. Credit Suisse has often been criticised that it was behind UBS in adapting its strategy to the new requirements for Swiss private banks. The market has hounded Credit Suisse to reduce its exposure to risky sales and trading and replicate UBS’ business mix, where wealth management dominates. However, there are many more similarities between Credit Suisse and UBS than there are differences. We believe that losses booked out of the noncore portfolio have led investors to overestimate the importance of sales and trading to Credit Suisse. Sales and trading contributed 27% to Credit Suisse’s revenue in 2017 compared with 23% of UBS’ revenue generated by sales and trading.
Underlying
Credit Suisse Group ADS

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Johann Scholtz

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