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☆ How Vodafone-Three can woo competition regulators
▼ + stars: | 2023-05-04 | by ( ) www.reuters.com time to read: +2 min

LONDON, May 4 (Reuters Breakingviews) - Vodafone (VOD.L) hopes that three will be its magic number. A merger of Vodafone’s domestic unit with Three UK, the Hong Kong conglomerate’s British business, would shrink the number of mobile operators to three from four. Mobile operators throughout Europe have long lamented antitrust authorities’ preference for keeping at least four players in a market to ensure price competition. Yet Vodafone’s case would be easier to defend if UK operators hadn’t hiked their tariffs in unison by about 11% last spring, a move they seem likely to repeat again this year. That would place the competition watchdog with a tougher choice: slick 5G networks, or four low-priced operators.

☆ BNP only partly earns title of Europe’s JPMorgan
▼ + stars: | 2023-05-03 | by ( ) www.reuters.com time to read: +2 min

LONDON, May 3 (Reuters Breakingviews) - Bank investors and analysts often like to say that BNP Paribas (BNPP.PA) is the closest Europe has to a JPMorgan (JPM.N), the goliath of U.S. banking that just bought First Republic Bank (FRC.N). Compare that with Deutsche Bank (DBKGn.DE), whose deposits fell by 4.7% over the same period. JPMorgan will earn a 19% return on tangible equity this year, using Visible Alpha consensus data, which is good even for a U.S. bank. There’s no shame in losing to a bigger stateside rival on returns, but BNP also risks falling behind regional peers. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ Slowing growth will crash European stock party
▼ + stars: | 2023-05-02 | by ( Francesco Guerrera | ) www.reuters.com time to read: +6 min

LONDON, May 2 (Reuters Breakingviews) - European shares have been on the rise for seven months, outshining their U.S. counterparts, and are now just 6% below their record high. Luck played a part in the recent European surge. Natural gas prices have fallen more than 80% since their August peak, boosting economic growth and reducing companies’ costs. Analysts currently expect a 0.4% fall in European companies’ earnings per share (EPS) in 2023, according to Barclays. European investors have had an unusually enjoyable, and profitable, ride.

☆ BP’s strategy risks pleasing no one
▼ + stars: | 2023-05-02 | by ( ) www.reuters.com time to read: +2 min

Investors had cheered its February decision to walk back previously targeted 2030 oil and gas production cuts: BP’s shares rose 12% from Feb. 6 to Friday, compared with Shell’s (SHEL.L) 2%. BP’s shares subsequently fell 5% on Tuesday morning, wiping $6 billion off its market value, despite otherwise rosy earnings. Chief Financial Officer Murray Auchincloss pointed out that the decision was consistent with BP’s commitment to allocate 60% of 2023 surplus cash flow to share buybacks. CEO Bernard Looney is getting heat from both sides, with some investors pushing for faster decarbonisation and others willing him to pump more oil. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ Resolving Credit Suisse: an alternative history
▼ + stars: | 2023-04-27 | by ( Liam Proud | ) www.reuters.com time to read: +8 min

Reuters GraphicsThe market shock will be all the more extreme because Credit Suisse doesn’t obviously need more capital. It seems perverse to put taxpayer money on the line while leaving the Credit Suisse bonds untouched. Of the 30 global lenders classed as systemically important by the Financial Stability Board, Credit Suisse is the third-smallest by total assets. It also enables the Swiss National Bank to offer Credit Suisse an open-ended credit line, hopefully ending the bank run. Credit Suisse is suffering from a crisis of confidence brought on by years of mismanagement, rather than a system-wide meltdown.

☆ Deutsche Bank shrugs off basket-case mantle
▼ + stars: | 2023-04-27 | by ( ) www.reuters.com time to read: +2 min

Some alighted on Deutsche Bank (DBKGn.DE), the erstwhile whipping boy of European banking. True, the bank’s total deposits fell by 29 billion euros, or roughly 5%, between Dec. 31 and March 31. In Banco Santander’s (SAN.MC) European business, customer deposits also fell roughly 5% over the same period. Meanwhile, three-quarters of corporate banking deposits either have a fixed term or are used as part of the customers’ operations, making them stickier. Deutsche, previously the basket-case of European banking, was always a likely target for investors hunting for the next weak link.

☆ Reckitt CEO switch may boost odds of a takeover
▼ + stars: | 2023-04-26 | by ( ) www.reuters.com time to read: +2 min

LONDON, April 26 (Reuters Breakingviews) - Reckitt Benckiser’s (RKT.L) decision to appoint an insider as CEO may help to entice prospective buyers, like U.S. giant Procter & Gamble (PG.N). Reckitt has been a perennial takeover target, as previous bosses struggled to deliver consistently strong revenue growth. It is still paying down a hefty debt pile following an ill-advised $17 billion takeover of baby food maker Mead Johnson in 2017. Net revenue grew by nearly 8% year-on-year in the first quarter – after excluding acquisitions, disposals and currency fluctuations. Reckitt’s shares trade at 17 times forecast 2023 earnings, compared with P&G’s multiple of nearly 25 times.

☆ New UBS investor pitch fits better than old one
▼ + stars: | 2023-04-25 | by ( Liam Proud | ) www.reuters.com time to read: +3 min

LONDON, April 25 (Reuters Breakingviews) - UBS’s (UBSG.S) old strategy under former CEO Ralph Hamers was safe but not particularly rewarding. True, the wealth business pulled in about $20 billion of new fee-paying assets in the first quarter. The revenue UBS generates in wealth management fell to 78 basis points of average fee-earning assets in the first quarter, from 82 basis points a year ago. The second Ermotti era, by contrast, at least offers the chance of some upside. UBS reckons it can eventually wring $8 billion of annual cost savings from the combination with Credit Suisse.

☆ Guest view: Why bank investors have it the hardest
▼ + stars: | 2023-04-21 | by ( Rupak Ghose | ) www.reuters.com time to read: +6 min

But what matters at least as much for shareholders is the risk of near or total wipe-out, as demonstrated by Silicon Valley Bank and Credit Suisse. No investor could have known that Credit Suisse allowed Archegos to fund its trades with insufficient cash collateral. More recently, U.S. authorities seemed to flip-flop on whether uninsured depositors at other banks would enjoy the same protection offered to Silicon Valley Bank’s customers. The upshot for bank investors is that seemingly low valuations might not be low enough. Previously, he was head of corporate strategy at UK-based brokers ICAP and NEX, and an equity research analyst at Credit Suisse focused on the financial sector.

☆ EQT tries tricky private-market fundraising puzzle
▼ + stars: | 2023-04-20 | by ( ) www.reuters.com time to read: +2 min

LONDON, April 20 (Reuters Breakingviews) - When one pot of cash seems to be running low, it’s rational to seek another. That’s why EQT’s (EQTAB.ST) boss Christian Sinding is right to try raising money from rich individuals, rather than just institutions. The $24 billion Swedish private equity and real estate investor said alongside first-quarter results on Thursday that it was preparing fund structures for private wealth investors. This usually refers to people who are well-heeled but not deep-pocketed enough to have a dedicated private wealth management firm, a family office, looking after their money. EQT itself spooked shareholders in January, when it said that the fundraising for its new 20 billion euro EQT X vehicle was not happening as fast as analysts had predicted.

☆ Wise’s tougher times raise risk of mission drift
▼ + stars: | 2023-04-18 | by ( ) www.reuters.com time to read: +2 min

He now has 6.1 million customers, results released on Tuesday showed, up 33% from a year ago. Wise’s volumes per retail customer dipped 7% year-on-year during the three months ending on March 31. Raising prices and tacking on other revenue-generating services could help to offset the hit to Wise’s top line. But pulling harder on those levers would arguably undermine one of the appeals of Wise’s business model for investors and customers: simplicity and ever-lower prices. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ SoftBank-Alibaba sale looks awkward for Prosus
▼ + stars: | 2023-04-13 | by ( Liam Proud | ) www.reuters.com time to read: +4 min

LONDON, April 13 (Reuters Breakingviews) - SoftBank Group (9984.T) and Prosus (PRX.AS) are two very different beasts. Prosus owned about 27% of the internet titan on Wednesday, based on Refinitiv data and the company’s portfolio tracker. Prosus and van Dijk, however, have a rock-solid balance sheet with more cash than debt, and no particular need to exit Tencent in a hurry. That’s down from its peak last year, when the share price was considerably less than half the company’s net asset value per share. Prosus, the Amsterdam-listed technology investor, on April 11 said it would deposit 96 million Tencent shares into the Hong Kong Central Clearing and Settlement System, a precursor to selling them.

☆ UBS can score a quick win with Swiss sale
▼ + stars: | 2023-04-12 | by ( Liam Proud | ) www.reuters.com time to read: +4 min

LONDON, April 12 (Reuters Breakingviews) - Credit Suisse’s (CSGN.S) Swiss business is theoretically the jewel in the bank’s tarnished crown. Hiving off the Credit Suisse local unit could save Kelleher and his Chief Executive Sergio Ermotti a lot of grief. By contrast, UBS is paying just $3.6 billion for all of Credit Suisse, based on the buyer’s most recent share price. Kelleher could in theory just hand the Credit Suisse local division to shareholders, but that could prove destabilising if they all cash out immediately. UBS will rescue Credit Suisse in a deal worth about 3 billion Swiss francs, Swiss authorities and the two banks said on March 19.

☆ Swiss mega-bank has scope to shrink to greatness
▼ + stars: | 2023-04-05 | by ( Liam Proud | ) www.reuters.com time to read: +3 min

In UBS (UBSG.S), which is rescuing Credit Suisse (CSGN.S) in a government-brokered deal, they almost have one. The combined Swiss mega-bank will start out with a $1.7 trillion balance sheet, making it the 10th largest Western bank, based on Refinitiv data. Credit Suisse was in the process of running down, selling or carving out trading and investment-banking businesses with risk-weighted assets (RWAs) of $68 billion. Credit Suisse CEO Ulrich Körner was hamstrung by large losses, which drained capital and limited how quickly he could shrink. The emergency combination of UBS and Credit Suisse has created a banking giant.

☆ UBS Credit Suisse rescue is messy but unstoppable
▼ + stars: | 2023-04-03 | by ( ) www.reuters.com time to read: +2 min

LONDON, April 3 (Reuters Breakingviews) - Very few people seem to want UBS (UBSG.S) and Credit Suisse (CSGN.S) to merge, but it’s unlikely that anyone will stop it. Switzerland’s Federal Prosecutor has opened an investigation into the state-arranged deal, the office of the attorney general said on Sunday. Credit Suisse’s share price is just 3% below the level where it should be based on the deal terms. A Credit Suisse 2033 bond , which could be converted to equity and potentially wiped out in a resolution, trades with a 6.4% yield, compared with 13% before the rescue. The lower return implies a high likelihood that it will be absorbed by UBS through the merger.

☆ How post-2008 bank rules led to a 2023 problem
▼ + stars: | 2023-03-30 | by ( Liam Proud | ) www.reuters.com time to read: +4 min

Here’s how that story applies to the collapse of Credit Suisse (CSGN.S) and Silicon Valley Bank. Silicon Valley Bank’s technology-heavy customers attempted to withdraw $42 billion in a day. Reuters Graphics Reuters GraphicsFollow @liamwardproud on TwitterCONTEXT NEWSUBS will rescue Credit Suisse in a deal worth about 3 billion Swiss francs ($3.3 billion), Swiss authorities and the two banks said on March 19. The smaller bank lost 138 billion Swiss francs of customer deposits between Sept. 30 and Dec. 31, a 37% decline. The lender had $173 billion of total deposits on Dec. 31, of which $81 billion were non-interest-bearing demand deposits.

☆ H&M’s targets may call the peak on cost inflation
▼ + stars: | 2023-03-30 | by ( ) www.reuters.com time to read: +2 min

On Thursday, the $20 billion fast-fashion retailer said its sales rose by 3% year-on-year in the three months that ended in Feb. 28. More importantly, she is now targeting a 10% operating margin in 2024. The retailer’s operating margin halved in 2022 to 3.2% as the price of cotton, freight, staff and energy costs ate up a larger share of its revenue. Delivering a 10% operating margin next year would imply that she expects the worst to be over in terms of commodity-price inflation and a wider economic slowdown. H&M’s share price rose by 15% on Thursday.

☆ Boomerang UBS boss ticks several important boxes
▼ + stars: | 2023-03-29 | by ( Liam Proud | ) www.reuters.com time to read: +4 min

That’s the best explanation for why Chair Colm Kelleher on Wednesday said the Swiss bank was replacing CEO Ralph Hamers with erstwhile boss Sergio Ermotti. Though the move violates several corporate-governance red lines, it improves the group’s chances of successfully absorbing stricken rival Credit Suisse (CSGN.S). Nor was his hesitant delivery in a call with analysts after announcing the Credit Suisse deal. During his previous spell in charge, UBS held talks with Deutsche Bank (DBKGn.DE) and discussed a merger with Credit Suisse. Ermotti, a Swiss national, led the Swiss bank for nine years, departing in late 2020, and is currently chair of Swiss Re.

☆ Easy Diageo succession belies new CEO’s hard job
▼ + stars: | 2023-03-28 | by ( ) www.reuters.com time to read: +2 min

On Tuesday, the 80 billion pound maker of Guinness and Don Julio tequila announced that Chief Operating Officer Debra Crew would replace CEO Ivan Menezes in July. Menezes has been gunning for 5%-7% annual revenue growth and a 6%-9% annual increase in operating profit over the next three years. The company operates with a 31% operating profit margin, higher than its closest rival Pernod Ricard (PERP.PA), which runs on 29%. With the price of staff, ingredients and packaging soaring, cost cutting will be hard to pull off. Diageo’s smooth succession may lay the path for a bumpy road.

☆ Credit Suisse bump trade looks over-optimistic
▼ + stars: | 2023-03-20 | by ( ) www.reuters.com time to read: +2 min

NEW YORK, March 20 (Reuters Breakingviews) - Investors in Credit Suisse’s bombed-out stock are getting a little ahead of themselves. At that level, they’re 7% above the implied value of UBS’s offer, and a wider 13% using the lenders’ U.S.-listed shares, which trade until later in the day. That deal, like UBS’s rescue of Credit Suisse, was also a government-arranged attempt to prop up an ailing bank. Unlike Credit Suisse, Bear Stearns’ shareholders got a vote, giving them leverage to argue for a higher price. Credit Suisse shareholders have little left but hope.

☆ UBS salvages most value from Credit Suisse wreck
▼ + stars: | 2023-03-19 | by ( Liam Proud | ) www.reuters.com time to read: +4 min

Meanwhile the government will cover up to 9 billion Swiss francs of losses, such as markdowns on Credit Suisse assets, past a certain threshold. A UBS takeover is preferable to the Swiss government nationalising Credit Suisse or winding it down. Follow @liamwardproud on TwitterCONTEXT NEWSUBS will rescue Credit Suisse in a deal worth about 3 billion Swiss francs, Swiss authorities and the two banks said on March 19. Shareholders in Credit Suisse will get one new UBS share for every 22.48 shares they currently hold. Based on UBS’s closing price on March 17 the offer values Credit Suisse shares at 0.76 Swiss francs each, well below the last closing price of 1.86 Swiss francs.

☆ HSBC turns Silicon Valley Bank calamity into gold
▼ + stars: | 2023-03-13 | by ( ) www.reuters.com time to read: +2 min

LONDON, March 13 (Reuters Breakingviews) - A crisis can be an opportunity for the prepared. That’s what HSBC (HSBA.L) may find with its acquisition of Silicon Valley Bank’s UK arm (SVBUK), announced on Monday morning. The Bank of London, a young clearing bank that also submitted a bid, said on Monday that the HSBC deal was a missed opportunity to promote competition. On that theory, the UK government and Bank of England should have handed SVBUK to a financial-technology startup or a challenger bank, rather than strengthening an established player. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ Big bank selloff rests on tiny kernel of truth
▼ + stars: | 2023-03-10 | by ( Liam Proud | ) www.reuters.com time to read: +3 min

LONDON, March 10 (Reuters Breakingviews) - The travails of Silicon Valley Bank (SIVB.O) are rippling across the global banking system, wiping billions off the market capitalisations of HSBC (HSBA.L), Deutsche Bank (DBKGn.DE) and JPMorgan (JPM.N). It’s nonetheless a useful reminder that rising interest rates bring risks as well as benefits. The trigger for the selloff seems to have been a $1.8 billion equity issue by SVB Financial, which does business as Silicon Valley Bank. Shrinking deposits saw Chief Executive Greg Becker sell down a $21 billion portfolio of Treasury and agency mortgage bonds. As interest rates rise banks are charging more for loans.

☆ Credit Suisse blunders undermine CEO’s repair job
▼ + stars: | 2023-03-09 | by ( Liam Proud | ) www.reuters.com time to read: +4 min

Credit Suisse said on Thursday it would not publish its 2022 annual report on the day, as previously planned, prompting its shares to fall by roughly 5%. The scarcest commodity at Credit Suisse right now is confidence, among both its clients and investors. Follow @liamwardproud on TwitterCONTEXT NEWSCredit Suisse on March 9 said it would delay the publication of its 2022 annual report. In the same annual report, Credit Suisse also changed the way it accounted for past share-based compensation, certain non-cash exchange rate movements and hedges. Shares in Credit Suisse were down 4.9% to 2.55 Swiss francs as of 0956 GMT on March 9.

☆ M&A bankers trip over their cracked crystal balls
▼ + stars: | 2023-03-08 | by ( Liam Proud | ) www.reuters.com time to read: +7 min

The M&A pipeline generally has three components: announced deals that are almost certain to happen; announced deals that may not get over the line; and deals that have neither been announced or perhaps even conceived. Reuters GraphicsThere’s a much tighter relationship between equity markets and M&A, implying that CEOs pursue corporate marriages when their share prices are high. One common way to get around this problem is to look at the value of announced deals as a percentage of total worldwide market capitalisation. WEAKNESS IN NUMBERSUnsurprisingly, given all the uncertainty, some bankers take their pipeline estimates with an appropriately large pinch of salt. Reuters GraphicsFollow @liamwardproud on TwitterCONTEXT NEWSCompanies announced $3.6 trillion of mergers and acquisitions in 2022, according to Refinitiv, compared with $5.7 trillion in 2021.

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