The Lex Newsletter: banks are hard to destroy even if you work at it

Dear reader,

Credit Suisse has lately resembled the masterwork of Swiss artistic eccentric Jean Tinguely. His self-destructing sculpture “Homage to New York” shook itself to bits in the garden of Manhattan’s Museum of Modern Art in 27 minutes flat in 1960.

An official then presented Tinguely with a document the artist imagined would be an expression of thanks for his efforts. Instead, it was a warning against disturbing the peace and violating the city’s fire code.

Credit Suisse’s own chaotic judderings are the consequence of reckless risk-taking in its investment bank and the failure of successive chief executives to make the group equal to the sum of its parts.

The worst malfunction revealed by full-year results this week was a SFr113bn ($122bn) outflow of client cash. The exodus was mostly from wealth management, which should be a reliable earner.

Historic banking franchises are much harder to destroy than sculptures. Lex believes Credit Suisse will shake down to a smaller, safer bank. No managerial brilliance is necessary. Only the absence of stupidity is required.

To comment on our coverage or suggest topics, please email me at Lexfeedback@ft.com.

BNP Paribas is an example of what a decent European universal bank should look like. Boss Jean-Laurent Bonnafé has increased the French lender’s annual growth target for net income by 2 percentage points to more than 9 per cent annually to 2025. He also promised payouts with an estimated value of about €10bn.

Bonnafé’s upbeat mood mirrored a growing conviction in the EU that the bloc can dodge serious economic damage from rate tightening. BNP still only trades at about 70 per cent of book value. But that is a lot better than lethargic domestic rival Société Générale.

An analogous pairs trade in independent investment banking would feature Lazard and Rothschild & Co. Both have French roots. But Lazard has been a transatlantic bridge since its early days. Rothschild has struggled to establish an effective presence on Wall Street.

The French branch of the Rothschild banking dynasty has succeeded in taking control of the main family franchise. The French bank absorbed its English counterpart a few years ago. The grouping led by patriarch David de Rothschild now plans to buy out minorities and cancel a listing on the Paris bourse.

Lex speculated that Rothschild & Co’s push into wealth management and private banking might someday make a merger with Swiss sister group Edmond de Rothschild attractive.

High-end wealth managers can make profits from restricted client numbers because they can charge steeply for the discretion and impeccable manners of their account managers. But mainstream asset management is now a scale game. You have to go big, go specialised or go home.

UK asset managers have been hampered by subscale asset bases and bad mergers. LGIM, part of insurer Legal & General, is the biggest with about $1.5tn. Schroders, Abrdn and Jupiter are smaller still. Net mutual fund outflows last year were the worst since records began at £50bn.

Lex is more impressed by Amundi, the funds arm of France’s Crédit Agricole. Assets under management were €1.9tn at the end of last year, despite market falls. And new fund inflows were €7bn.

Amundi is an assiduous asset gatherer, both through sales tie-ins with banks and through takeovers, including the €825mn purchase of Lyxor in 2021. Carlyle of the US has not shown the same expansionary zeal. Rivals led by Blackstone have pushed into real estate and debt. But the buyout group has stuck to its métier, which is now thoroughly mature.

Carlyle finally has a chief executive in the form of Harvey Schwartz. Now it just needs to firm up an identity. This requires the former Goldman Sachs executive to set a pathway for growth. His advantage is strongest right now, with meddling founders on the back foot and client confidence weak.

Nelson’s column

Hyperactive octogenarian activist Nelson Peltz managed to make not one but two appearances in Lex online on Thursday. Lex started the London day pulling apart Unilever results in an effort to understand what they might look like when he has been on the board for a while. Here, the superior margins of sometime investee company Procter & Gamble were our guide.

We ended up writing a second note after Peltz cancelled his bid to join the board of Walt Disney. Reinstated Chief Mouseketeer Bob Iger had promised to cut costs by $5.5bn and eliminate 7,000 jobs the evening before.

Conveniently, both sides can now claim victory. Peltz has garnered a tidy sum from his exposure, but Iger faces the challenge of making profits from streaming. This industry is turning out to be one of the great value massacre locations of all time, alongside Victorian railways and telecoms cabling in the 1990s.

Tech number trio

In homage to Sesame Street, Lex tech coverage was brought to you this week by the numbers 3.65 per cent, $1.7bn and 18 times

The percentage described short positions in Tesla as a proportion of the free float. Bears were inspired to pile in at the end of last year, inspired by chief executive Elon Musk’s loopy tweeting and the increasing availability of electric cars. They have lost about $6.75bn, so expect short positions to dwindle.

The $1.7bn is the annual adjusted ebitda of Uber. This excludes a laundry list of items, including stock-based compensation and impairments. The gap between GAAP and non-GAAP numbers is therefore particularly gappy at the tech group. This makes it hard to work out how the core ride-hailing business is doing. But perhaps that is intentional.

Meanwhile, 18 was how many times forward earnings fitted into Baidu’s future earnings on Wednesday. The ratio was 50 per cent higher than that of Alibaba. One reason was that the Chinese search giant is investing in artificial intelligence-driven chatbots, literally the most promising disruptive technology since whatever string of computer code enjoyed that status last month.

To be fair, Lex does believe natural language processing, which produces convincing replicas of human-generated wordage, is a big deal. We just doubt whether any of the rival programmes will be sufficiently superior to create competitive advantage and reward investors well.

The Chinese Communist party — with which Lex is proudly unaligned in all other respects — voiced similar doubts the following day. Dealers marked down shares accordingly.

Juice on the loose

Energy prices are locked into trading ranges that may be deemed a new normal, so we have been writing slightly less about the subject. Even so, BP results were an important UK story this week. Under pressure from shareholders, the oil major is extending its transition from dirty hydrocarbons to renewables.

Similarly, China is losing its enthusiasm for a push to make chemicals from coal. This has triggered project suspensions from the likes of Inner Mongolia Yitai Coal.

This populous country is scrambling to meet demand for hydrocarbons as fuels, notably for steelmaking and jet kerosene, as the country reopens from lockdowns and the likes of Air China fly more frequently.

Something for the weekend?

May I recommend two great FT magazine pieces? The first is Joshua Oliver’s eye-opening account of the chaotic doings of failed crypto platform FTX. The second is an article on Anglo-Greek wrangling over the return of Parthenon Marbles hoarded by the British Museum, written by George Parker et al.

I did not know Lord Byron had lambasted the removal of these chunks of the Greek patrimony when it was under oppressive Ottoman rule. Good for him.

You might also spend time this weekend:

I will have little better idea of what is going on than the socially awkward vampires of TV sitcom What We Do in the Shadows. They thought the Super Bowl was a “Superb Owl” contest staged by bird fanciers.

But the razzmatazz is always fun.

Enjoy your weekend,

Jonathan Guthrie
Head of Lex

Metric for TBV corrected after publication.