FINANCIALS

One Year After Swiss Banking Drama, Credit Suisse’s Collapse Has Been UBS’s Gain

Who had the better deal: JPMorgan ($JPM) buying First Republic Bank or UBS’ ($UBS) Credit Suisse acquisition? Both have seen gains of over 40% since their respective deals, so it’s a close one. Last March, 167-year-old Credit Suisse failed as rumors and social media drama sparked a bank run at Switzerland’s second-largest bank. Billions fled, forcing the Swiss government to bail it out and sell it to the highest bidder.

Unreal deal: One year after acquiring Credit Suisse for just $3.2B (down 97% from its peak valuation) in what bankers now call “the deal of the decade,” UBS is reaping the benefits of its enormously lucrative acquisition. With a $1.6T balance sheet (double that of the Swiss economy) and over $5.5T in assets under management (AUM), UBS has become one of the world’s largest systemically important banks.

• It’s now the 19th most valuable bank, with its stock rising nearly 70% in the past year to a $100B market cap — far outperforming the iShares Global Financials ETF’s ($IXG) 32% return.

• And over the past five years, UBS’s return of nearly 200% has doubled that of even the S&P 500’s 85%.

UBS’s next big plan

With no other struggling Swiss banks to consume, UBS will have to look elsewhere. In 2023, UBS received the bulk of its revenue (52%) from wealth management — juiced up thanks to Credit Suisse’s rolodex of high-net-worth clients, which have added over $60B to the company’s AUM. Now, UBS hopes to grow even faster by becoming the bank of choice for wealthy US clients.

• Eyeing a US expansion, UBS aims to attract $100-200B in new assets annually over the next five years, surpassing $5T in invested assets.

• This would position UBS as a formidable competitor to Morgan Stanley ($MS), which the WSJ says has become the “highest-valued major bank in the world” thanks to its wealth management business.

All roads lead to America: While it aspires to become “the world’s leading global wealth manager,” the company will have to expand its investment banking business to compete in the US — where it hopes to become the sixth-largest player. However, other European banks have tried (and failed) to compete with JPMorgan and Goldman Sachs ($GS), which could complicate its big expansion dreams.

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LARGECAP RECAP

📈 Fund managers are moving their money abroad

Since October, the S&P 500 has rallied over 20% — and now, other global stock markets are starting to come along for the ride. According to Bank of America’s March fund manager survey, institutional investors are piling into Eurozone and emerging markets (EM) stocks in pursuit of cheaper alternatives to US equities.

• Investors increased their Eurozone and EM exposure by over 20% month-over-month — while investors grew their Japan exposure by 10%.

• With a 23x price-to-earnings (P/E) ratio, the S&P 500 trades higher than popular emerging markets (13.5x) and developed markets (14.6x) exchange-traded funds.

Wake-up call: Since the pandemic, Eurozone and EM stocks, which have underperformed compared to American equities, have been less popular. Even today, investors hold fewer global stocks than they have historically, leaving plenty of room for investors to fill. In the BofA survey, investors say they’re willing to take risks — which could benefit Chinese stocks, Europe’s Magnificent 7, and even Japan, which is experiencing post-negative interest rates.

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Markets & Economy

Fed keeps rates steady: Jerome Powell & co. are holding off on rate cuts to bring interest rates closer to the Fed’s 2% inflation target — which means that rates will remain higher for longer, with the Fed forecasting just three smaller rate cuts in 2024. [Read]

Investors rejoice as Nordstrom ($JWN) considers going private: Reports of the struggling retailer seeking private equity partners caused shares to surge — though it’s no sure thing, as a previous attempt to go private in 2018 fell through. [Read]

Kering ($PPRUY) shares plummet on gloomy Gucci outlook: The luxury brand anticipates a 20% sales decline for Gucci in Q1, mainly due to shifting preferences in China towards more understated fashion choices. [Read]

Business & Wealth

Boeing ($BA) foresees financial impact from MAX 9 issues: Cash outflows of $4-$4.5B are expected as the embattled plane manufacturer spends big to address mechanical failures. A backlog of orders is expected to lead to negative margins for the year. [Read]

Unilever ($UL) to spin off ice cream brands: Facing underperformance, the multinational consumer goods company plans to restructure under new leadership — potentially spinning off or selling its ice cream brands, including Ben and Jerry’s. Tensions have arisen over business activities in Israel. [Read]

Biden admin gives Intel ($INTC) ~$20B for chipmaking: Intel nabs the largest portion of CHIPS Act funding, as the White House relies on the US-based chipmaker to help them reach their goal of producing 20% of the world’s leading semiconductors by the end of the decade. [Read]

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DIGIT OF THE DAY

S&P 500 Hits $7T in Indexed And Benchmarked Assets, Still “Top Choice” For Investors

In the stock market, the S&P 500 isn't just the most popular index — for many, it’s the only way to go. Earlier this year, assets tracked and benchmarked by America’s largest index fund surpassed $7T — leaving competitors like the CRSP US Total Market Index and the Bloomberg US Aggregate Bond Index in the dust. But why is the S&P 500 the go-to for passive investors?

• Since 2015, passive ownership of the index has doubled thanks to the rise of index funds popularized by Vanguard, iShares (BlackRock), and State Street (SPDR).

• Another component is its success — over the past 20 years, the S&P 500 has outperformed 97% of US equity funds, making it one of the best-performing investments in history (FT).

America’s greatest investors: Although it’s considered a passive fund, the S&P 500 is surprisingly active. Index committee members meet every quarter to remove underperformers and add high-quality replacements. To be considered, companies must have been profitable for four consecutive quarters, be US-based, and have a market capitalization of at least $15.8B — but with only 500 spots in the index, competition to get in and stay in is fierce.