Credit Suisse (CS) and UBS (UBS) are occupied with a strategy of realigning their businesses toward wealth management and away from investment banking. Wealth management has historically been a rich area for us to identify moaty businesses. Wealth managers typically have good earnings visibility, and with low explicit capital requirements, they tend to be highly profitable and cash-generative. We believe both Credit Suisse and UBS have narrow economic moats.
UBS has been more successful than Credit Suisse in rearranging its business model. However, we see many more similarities than differences between the two. Substantial write-downs and legal costs have obscured Credit Suisse's true profitability; consequently, we believe the market overestimates the company's future exposure to volatile sales and trading.
Johann Scholtz, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.