Analyst Note| Johann Scholtz, CFA |
We believe Credit Suisse has been a Poor capital allocator. We agree with Credit Suisse’s broad strategy to shift capital to its more profitable and less cyclical wealth management business, away from capital-intensive and volatile investment banking. The execution of this strategy has been abysmal. It is virtually impossible for a bank to successfully allocate capital in an environment where risk management has broken down. The additional investment in risk management from Credit Suisse is much needed, but it could potentially divert resources away from investments required to maintain Credit Suisse’s competitive position. Investment banking and wealth management are talent businesses, and banks need to invest in their staff. Credit Suisse runs the risk of losing its top bankers and relationship managers to rivals if these employees become dissatisfied with a lack of investment in them.