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Stock Strategist Industry Reports

Risky Activities Have Narrowed Swiss Banks' Economic Moats

Investment banking adds unwanted volatility to private banking results.

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We see private banking as an attractive, wide-moat business, and with CHF 1.2 trillion and CHF 2.0 trillion, respectively, in assets under management, Credit Suisse (CS) and UBS (UBS) are two of the world's most powerful private banks. Returns in this business are high and fairly stable. Pretax returns on average equity regularly clock in at around 50%, and returns on assets are consistently above 1% and sometimes over 5%.

However, these two companies' large, narrow-moat investment banks pose significant risks to shareholder returns and to the private banks' reputations. In response, we recently reduced our economic moat ratings for Credit Suisse and UBS to narrow from wide.

Erin Davis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.