Morning Coffee: UBS and Credit Suisse, or not. Citi’s big banker reprimanded for his WhatsApps
Do Credit Suisse and UBS fancy each other, or do they not? Maybe they've been holding hands occasionally? Maybe one has scrawled the other's name on the wall? Perhaps one just wants to be in the other's milieu for a bit of social prestige? Either way, UBS is playing hard to get. If this going to go anywhere, it will probably only be in the form of an arranged marriage.
Relational metaphors exhausted, it's fair to say that a potential union of Credit Suisse and UBS is back on the table. But neither seems very happy about it.
Bloomberg has spoken to people who don't want to be identified, 'as the deliberations are private.' They say that UBS doesn't much like Credit Suisse because it's got its own plans for the future and they involve wealth management rather than merging with a problematic cousin. Credit Suisse doesn't like UBS because now that it has CHF50bn from the central bank, it believes it doesn't need to, and because it already has a restructuring plan that it's keen to get on with.
The protestations are one thing; the reality is another. Credit Suisse is an "untenable equity story" one of the bank's large shareholders tells the Financial Times. CS been bought some time, but private investors won't want to provide more cash. The Saudis are no longer on hand, no matter how much they like Michael Klein. “If any other unexpected things come along, they will be vulnerable," the large shareholder declares. Those unexpected things might simply take the form of rich clients pulling money out of the Swiss bank in the way they did late last year.
For UBS, meanwhile, having a large new appendage in the form of Credit Suisse risks creating complications and weakening Switzerland's biggest and healthiest bank. Kian Abouhossein at JPMorgan predicts that if UBS did take on Credit Suisse, it would IPO the CS Swiss business, wind down Credit Suisse's investment bank and retain the asset and wealth management arms. This would all be a considerable and costly distraction. Abouhossein says closing Credit Suisse's investment bank would entail CHF 9.7bn of restructuring charges, although the resulting CHF 64bn of risk weighted assets released would at least make the closure self-funding if UBS went ahead with it.
Much depends whether Credit Suisse can indeed muddle through. Bloomberg notes that the bank's new strategy of offering to buy back debt at distressed levels helped Deutsche Bank before. It could work by bringing down the price of insuring against default (in the form of credit default swaps - CDS), reducing the bank's risk and strengthening its balance sheet. Dixit Joshi, who did it for Deutsche Bank, is now Credit Suisse's CFO.
Overriding everything, though, may be the fact that a union of Credit Suisse and UBS could create problems for the Swiss National Bank in the future. The outcome would be a single Swiss behemoth that would be far, far too big to fail - although this maybe the trend of 2023, with the biggest US banks benefitting too from the troubles of regional banks in the wake of SVB.
Separately, Paco Ybarra, the big man at Citi's institutional client group (ICG), has fallen foul of the bank's messaging policy. It's not clear how many WhatsApps Ybarra sent or what was said, but Bloomberg reports that he received a 'downward adjustment' to his pay as a result. It wasn't that bad though: he still received $18.9m for last year, up from $18.4m the year before, even though profits at the ICG declined 25%.
Credit Suisse shares rose 40% upon news of the SNB bailout, then they fell again. They ended yesterday up 19%, but were still down 10% over the past two days. (Bloomberg)
Credit Suisse bankers would like to leave but they can't.“There has been some sense of relief [because of the SNB intervention], but the mood is very low. The job market is so bad right now that you can be a rock star here and there are still few options available to you.” (Financial News)
Credit Suisse isn't expanding in Madrid after all. (Financial News)
Asian wealth management clients are crucial to Credit Suisse. Between 2016 and 2020, the region contributed one-third of the profit growth in its wealth management division, and 48% cumulative growth in invested assets. (Bloomberg)
Credit Suisse CDS still aren't back to normal. Traders indicated one-year credit-default swaps at 19 to 25 points upfront, up from 10.5 to 17.5, previously. They were indicated between 20 and 30 points on Wednesday afternoon. (Bloomberg)
In a sign that things aren't going so well for hedge funds, Brevan Howard has 'grounded' three of its portfolio managers after they made large losses. They can't place trades anymore. (Bloomberg)
Systematic hedge funds have also been having a hard time, with one falling 7.4% in the past week. (Bloomberg)
Big banks are rallying around San Francisco-based First Republic by opening very large bank accounts. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit $5bn there. Goldman Sachs and Morgan Stanley will put in $2.5bn each; BNY Mellon, PNC Bank, State Street, Truist and US Bank are each depositing $1bn. (Financial Times)
Citi hired Peter Wikström to cover Nordic clients from auto manufacturer and mobility technology firm, Geely Holding. (Bloomberg)
People managing now-failed banks liked previously to philosophize about the source of their success. Always learn from your mistakes, said Silicon Valley co-founder Scott Shay. “They become part of you. And if you go in the wrong direction, you can become incapacitated by them.” (Bloomberg)
Stripe has a problem: its revenue per head seems to be $400k; big established payments competitors like Visa and Mastercard have revenues per head closer to $1m. (Financial Times)
How to get an internship at Goldman Sachs: don't pad your resume with multiple accomplishments or experiences that you participated in for a very short time; quantify your achievements in threes - "I started a student-run organization. I did A, B, and C to drive up membership." (Business Insider)
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