Effective Capital Allocation and Business Focus in Wealth Management

A bank's inability to cover its cost of capital signals operational issues, specifically due to misallocation of capital. In the case discussed, the bank faced challenges because it allocated excess capital to the investment bank, resulting in returns below the cost of equity. The bank's heavy reliance on credit for business relationships, including wealth management, was identified as a key issue. The focus should be on viewing lending as a client service tool rather than a means to enter into business. By emphasizing effective capital allocation and aligning business focus with wealth management goals, organizations can optimize profitability and sustainability in the market.