Victoria Scholar: Credit Suisse’s next move, luxury wins and a guilt-free sirloin steak
The Notebook is where interesting people say interesting things! Today it’s Victoria Scholar, the head of investment at Interactive Investor. Here’s what she has to say:
Credit Suisse released its final set of earnings for the period ahead of the CHF 3 billion takeover from UBS in March. The Swiss bank suffered a CHF 67 billion drop in customer deposits in the first quarter, CHF 61 billion in net assets outflows and a sharp drop in the size of its wealth management division from CHF 707 billion to CHF 502.5 billion year-on-year. The recent turmoil in the banking sector and existential concerns about Credit Suisse prompted a mass exodos from its clients in recent months. In March Credit Suisse said it found ‘material weakness’ in its financial statements and negative comments the Saudi National Bank, its biggest shareholder exacerbated the bank’s woes and its sliding share price.
However Credit Suisse’s problems began far earlier than 2023. Last year it reported a loss of CHF 7.3 billion, its worst annual profit slump since the global financial crisis and liquidity worries resulted in major clients outflows in the final quarter of 2022. This came after a series of scandals that embroiled the 167 year-old Swiss lender; Credit Suisse was linked to the collapse of Greensill Capital, as well as the failed US hedge fund, Archegos. The embattled Swiss lender was also found guilty in 2022 of involvement in money laundering relating to the Bulgarian mafia.
Prior to the UBS takeover, Credit Suisse has already been trying to reinvigorate its financial health through a major restructuring programme including slashing thousands of jobs, shrinking the investment bank, and focusing on wealth management. However bigger changes are likely to be around the corner.
While the deal is expected to complete this year, fully merging the two entities could take up to four years. Restoring confidence among shareholders and employees will be top of the agenda for returning UBS CEO Sergio Ermotti who expects ‘change and hard decisions’ ahead. According to Swiss newspaper, Tages-Anzeiger, up to 20%-30% of Credit Suisse’s workforce could be slashed as part of the tie-up. Plus there are many disgruntled investors to contend with, particularly Credit Suisse’s AT1 bondholders who saw their investments wiped out to zero.
Luxury still paying off
Luxury group Kering behind brands like Gucci is reportedly paying a record £13 million plus a year in rent for its Bond Street store in London. This is according to The Sunday Times which said Kering beat off stiff competition from other luxury conglomerates such as LVMH and Richemont. The deal surpasses the previous record paid by Ralph Laurent of £11 million for its Bond Street location. Despite the cost-of-living crisis, luxury has been faring well this year, boosted by China’s economic reopening post Covid-19.
Olives, squeezed
Olive oil prices have hit a record high as the lack of rainfall across Europe ruined supplies. According to the Financial Times, oil prices have surged almost 60 per cent since June to around 5.4 euros per kilogramme on the back of painful droughts in Spain and Italy. Spain is the world’s largest olive oil producer accounting for around 50 per cent of the global supply. It is expected to suffer the driest April on record this month, boosting prices for the versatile cooking accompaniment.
Easy as A,B,C for Alphabet boss
Alphabet’s CEO Sundar Pichai was awarded $226 million last year. According to a securities report, he was paid mostly through equities but also through his annual salary of $2 million. It comes at a time when Google’s parent company has been caught up in the ‘tech wreck’ across the sector on the back of rising interest rates which saw investors shift away from growth stocks last year. As a result, the tech sector has been awash with job reductions including at Alphabet which announced 12,000 cuts in January.
Guilt-free sirloin
Each week The Economist publishes a podcast called Editor’s Picks, reading aloud three essential articles from the latest issue of the magazine. This week, one of the articles discussed is about its new banana index, which is a novel way to measure the relative carbon impact of foods. It compares popular foods on three metrics – weight, calories, and protein – indexed to the humble banana with some surprising results. The Economist says that while it is obvious that a ‘juicy steak is worse for the environment than frying up some tofu’, when considering the level of calories and protein in plant-based foods versus meats, it becomes harder to compare emissions of meals which are equally nutritious.