UBS’s Credit Suisse challenge

This is an audio transcript of the FT News Briefing podcast episode: ‘UBS’s Credit Suisse challenge’

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, April 25th, and this is your FT News Briefing.

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Joe Biden is expected today to announce that he wants a second term in office. And Credit Suisse released its final earnings report ever. And the results could mean trouble for UBS. Plus, we’ll talk about the growing fortune of the conglomerate behind Gucci, Dior and Dom Pérignon.

Adrienne Klasa
LVMH is the king. I mean, the company has basically lapped the competition.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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There could be a Biden-Trump rematch next fall. Joe Biden is expected to announce as early as today that he’s running for a second term as US president. Former president Donald Trump has already put his hat in the ring and he’s currently the leading Republican candidate. Biden has been signalling for a while now that he’s gonna seek a second term. His official launch removes any doubt that he’d run again and also allows him to begin aggressive fundraising.

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Switzerland’s biggest bank, UBS, reports earnings today. We’ll get an idea of how the lender was affected by last month’s banking panic. Now, we do know it has a tricky road ahead. It has to integrate Credit Suisse into its business. Swiss authorities persuaded UBS to buy its smaller rival in a hasty rescue, all while wealthy clients were pulling their money out last month. Yesterday, we got a sense of how bad it was. Credit Suisse said last quarter, customers pulled out nearly $70bn from the bank. Here’s the FT’s Owen Walker.

Owen Walker
But if you just look at the wealth management business, which is really its strong point, that lost 9 per cent of assets in the first quarter and it lost about 10 per cent the three months previously. So I mean, that was really where the pain was felt. So to lose that much money from its main business, following on from the losses in the final quarter of 2022 was really catastrophic for it.

Marc Filippino
So Owen, what else did you glean from the earnings report? Did executives say anything interesting on the call?

Owen Walker
Well, this is quite surprising or a very strange calls result. In fact, there was no earnings call and there was no media call. It was literally a press release at quarter to six, my time. With the numbers on there, some brief commentary, no quotes from CEO or chairman or anything like that. It was literally “Here are the numbers and see you later.” This is essentially Credit Suisse’s final quarterly results before it gets taken over by UBS in the coming weeks. And so it was very strange from that perspective.

Marc Filippino
OK. So that’s bizarre and almost anticlimactic in a way, given that it was its last earnings report ever. But did that press release we’re talking about offer any new information about outflows from Credit Suisse even after UBS agreed to buy it? I guess what I’m asking here is, did the deal stop the bleeding?

Owen Walker
You know, the bank said outflows are continued after the agreed takeover was announced and has continued since then, even though it’s at a lower rate. Now, this I think, this is quite expected. And people weren’t surprised by that, but it does really underline the challenges UBS faces in taking over Credit Suisse.

Marc Filippino
So what are those challenges, Owen?

Owen Walker
Well, these are two banks which operate on a global scale and smashing together and, you know, laying off tens of thousands of people. It’s gonna be incredibly risky, incredibly time-consuming and quite expensive, and that’s gonna take several years. Now, that’s the main challenge facing UBS. But undoubtedly another very big one is making sure they hold on to as many of Credit Suisse’s clients as possible. And also, in fact, their own, because when you have wealthy clients, they will often diversify their risk. They will often have bank accounts with a number of different wealth managers. Now, a lot of these wealthy clients will have had accounts at both banks. Now, the fact they are soon to become the same entity will mean that actually they probably want to diversify their risk. And so UBS will also have been losing client assets in the month since the deal was announced. So we’ll get a bit of a flavour, I think, on Tuesday about how badly UBS has been affected so far.

Marc Filippino
Owen Walker is the FT’s European banking correspondent. Thanks, Owen.

Owen Walker
Thanks very much.

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Marc Filippino
Britain’s chancellor said UK corporate taxes are too high. Jeremy Hunt made that comment at a summit with corporate leaders yesterday. It was a Conservative party event meant to win back the business community after the damage done by Brexit. Prime Minister Rishi Sunak was there too. Businesses are upset over the government’s decision this month to increase the corporate tax rate from 19 to 25 per cent. Hunt said he would like to bring down the corporate tax burden, but he added the way to do that was, quote, “through growth”.

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The French luxury goods conglomerate, LVMH, yesterday became the first European company to hit $500bn in market capitalisation. Its earnings and its share price have risen partly because of the economic rebound in China. To find out more, I’m joined by our Paris correspondent, Adrienne Klasa. Hey, Adrienne.

Adrienne Klasa
Hi, Marc.

Marc Filippino
So what’s going on in China when it comes to luxury goods?

Adrienne Klasa
China is the biggest growth market for the luxury industry. There’s a huge growing middle class there. There’s a big culture of wanting to purchase luxury goods. So that was really the driver of growth over the past, let’s say, decade or so or the past few years anyway. End of 2022, zero-Covid measures as Covid spread across China, gave a lot of luxury groups a bit of a ding, including LVMH. Now, for 2023, it looks like if the China recovery is already starting to take off, we’re starting to see that boost from the return of Chinese consumers, you know, going back to normal lives and going out shopping and going out and purchasing luxury goods again.

Marc Filippino
Now, Adrienne, how does LVMH compare to other luxury brands? Where does it stand in terms of the broader industry?

Adrienne Klasa
(Chuckles) LVMH is the king. I mean, luxury in general has done incredibly well. It’s defied all expectations. I mean, even during the pandemic, in the early days of the pandemic, you know, March 2020, the world locks down, markets crash. There was a bit of a dip there. And then surprising to pretty much everyone, luxury actually accelerated its growth, but LVMH has really led everybody by leaps and bounds. So the company, which owns major brands like Louis Vuitton, like Dior, like Ruinart champagne, all kinds of other brands, has basically lapped the competition. It’s double the size of Hermès, which is its next biggest French competitor in the luxury sector. So this is just a group that is growing by leaps and bounds. It’s also the only European company that is in the top ten global rankings of companies by market capitalisation. So that kind of gives you a sense of the scale that we’re talking about here.

Marc Filippino
OK, so back to the industry as a whole. We know China has been a big boost for LVMH. What do analysts see for the broader industry? Will the good times keep going?

Adrienne Klasa
Yeah, I mean, so luxury overall is expected to still do very well in 2023. Some concern, though, about a slowing pace of growth in the US. The US is the biggest market overall and it while it’s still expected to grow, that’s expected to be at a slightly slower pace and more mid-market brands are expected to experience a little bit more pressure just because of, you know, inflation and all the other big economic trends that we talk about a lot at the FT. The luxury industry has been growing at just a crazy pace pretty much since March 2020. Most analysts expect that by start of 2024, 2025, it will be a little bit more normalised.

Marc Filippino
Adrienne Klasa is the FT’s Paris correspondent. Thank you, Adrienne.

Adrienne Klasa
Thanks so much.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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