Big Banks Are Feeling the Love

Plus: Sega teams up Sonic with the Angry Birds. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

April 17, 2023

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TOGETHER WITH

Good morning and happy Monday.

We guess he can come out from behind the mask now.

After 35 years and more than 14,000 performances, the Broadway curtain fell on “Phantom of the Opera” for the final time Sunday night. Andrew Lloyd Webber’s simple little musical opened in 1988 and will go down in history as The Great White Way’s longest-running show, having survived 80’s New York City, multiple economic downturns, September 11th, COVID, and arguably its own mediocrity to gross a total $1.3 billion. But “phans” (as Phantom devotees self-identify) being fans, some ponied up as much as $4,000 a ticket to see it one final time. And, yes, that was American dollars.

Morning Brief

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Banking crisis? What banking crisis?

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The Angry Birds join Team Sonic.

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This could be sports finance history.

Banking

Big Banks Stumble and Soar Through Post-SVB Landscape

Americans putting their money in banks are trying on different sizes.

Last month’s bank runs had depositors running straight into the arms of the biggest banks, who are also discovering the flip side of higher interest rates: plumper profits.

Can I Interest You in a Loan?

Jamie Dimon, no doubt fueled by post-2008 PTSD, pulled out all the stops to organize an industry-wide effort to rescue First Republic Bank from the contagion. It turns out he may have been just sweating the small stuff. On Friday, JPMorgan announced its first quarterly earnings results of the year, one headlined by jaw-dropping profits of $12.6 billion, blowing past analyst expectations and marking a more than 50% increase from a year ago. On the same day, Citigroup and Wells Fargo reported increased year-over-year profits of $4.6 billion and $5 billion, respectively.

And while the small bank diaspora played an outsized role in fueling the unexpectedly strong first quarter, it’s Jerome Powell who may be receiving gift baskets from big banks this week. The Fed’s rate hikes have given banks plenty of cover to charge customers more for loans — all while increasing the interest they pay to depositors at a much slower rate. Still, Americans becoming reacquainted with actual interest rates and competition from below may be starting to change that calculus:

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While the Federal interest rate is currently 4.75% to 5%, JPMorgan is still only paying out 1.85% on interest-bearing deposits, while Wells Fargo is paying 1.22%, and Citigroup 2.72% (these all mark slight, but notable, increases from the end of last year).

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Regional banks, desperate to keep customers, are paying out much better. Merchants Bank of Indiana offers an introductory yield of roughly 5.4%, while LA-based PacWest Bancorp offers up to 5.5% for shorter-term CDs, according to recent reporting from The Wall Street Journal. Most small banks will report earnings later this month.

Over the Hedge: If the knockdown effects of Silicon Valley Bank’s collapse may be benefiting big banks, they are ushering in renewed scrutiny of a more shadowy corner of the financial services industry: hedge funds, which have globally quadrupled in size since 2009. On Saturday, SEC chair Gary Gensler told the Financial Times that the sector’s habit of speculative investing risks greater financial instability following the bond market upheaval last month.

“We just had Treasury yields move more significantly than they had in 35 years in three days in mid-March,” Gensler told the FT. “When you have that, it’s appropriate as a capital markets regulator to talk to folks and see whether that risk… propagates out.”

– Brian Boyle

M&A

Sega Looks to Buy Finnish Game Maker and ‘Angry Birds’ Creator Rovio

(Photo Credit: Jezael Melgoza/Unsplash)

Look out Mario and Luigi, the hedgehog is teaming up with some angry birds.

Video game giant Sega confirmed on Monday that it’s agreed to buy games studio Rovio for $775 million, a little under the $1 billion valuation that the Finland-based “Angry Birds” creator touted when it went public in 2017.

Flying and Falling

Rovio was once Finland’s unicorn. Its flagship mobile game, where players fling annoyed avians at sinful swine, has been downloaded more than 5 billion times. It’s also spun off into multiple games, comic books, TV shows, movies, and a handful of amusement parks. Who could be angry with that?

The problem is that Rovio has only ever really had one feather in its cap. A staggering 83% of its gaming revenue comes from Angry Birds titles, Bloomberg reported. When players began switching to games like Candy Crush and Clash of Clans, the Helsinki business didn’t have the most player-friendly plan B. To curb decreasing revenue, Rovio removed the original Angry Birds game from the Google Play store in February, claiming it was done to avoid confusion on the app store and direct players to other games in the Angry Birds portfolio. In reality, Rovio was saying “We want people playing the games that feature microtransactions, not the version you pay for once.”

Rovio has been shopping around for a buyer for a few months now:

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The Israel-based Playtika, which makes mobile games and slot machines, offered to buy Rovio for $735 million in January. When the talks of the sale emerged, Rovio’s stock jumped to a nine-month high, but the two businesses never came to an agreement.

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For Sega the acquisition gives it a foothold in the increasingly lucrative mobile gaming market. “Among the rapidly growing global gaming market, the mobile gaming market has especially high potential, and it has been SEGA’s long-term goal to accelerate its expansion in this field,” Sega CEO Haruki Satomi said in a statement.

Nintendo can stop gloating about beating Sega in the Console Wars of the 1980s, and start gloating about today’s cinematic landscape. The Sonic the Hedgehog film and its sequel may have earned a combined $725 million at the box office, but The Super Mario Bros. Movie has already taken in $678 million in just under two weeks, leading many to believe this could be the start of a Nintendo’s own cinematic universe. And don’t forget, it still hasn’t premiered in Mario-crazed Japan.

Going underground: In other game-related M&A news, Microsoft is still trying to complete its monumental $69 billion purchase of Activision Blizzard, and while Japan, Chile, Brazil, Saudi Arabia, and Serbia have OK’d the deal, regulators in the US and the UK are impeding the acquisition based on antitrust policies. The UK has given some signs lately that it might greenlight the deal, and Microsoft has gone all-out advertising the merger in the Financial Times, The Daily Mail, and most recently, London’s tube stations.

– Griffin Kelly

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Pro Sports

Man Utd. on the Verge of Sale, But Glazers Want More Money

The Glazer family must’ve read about Dan Snyder’s record-breaking $6 billion deal to sell the lowly Washington Commander American football team and said, “hold my lager.”

As the Glazers zero in on a sale of their English soccer club Manchester United, the incredibly wealthy US family is pressuring potential buyers to cough up more dough, the Financial Times reported.

Bidding Wars

In the center of the bidding ring, British billionaire and INEOS chemical group leader Sir Jim Ratcliffe is duking it out with Sheikh Jassim bin Hamad al-Thani, the son of a former Qatar prime minister. On the apron, as much as he can ever be, is Paul Singer and his private equity powerhouse Elliot Management, which proposed funding an external bidder or the Glazers if they choose to retain ownership of the team. Sources told the FT that the Carlyle Group has put forth a similar bid.

With pro sports franchise sales shattering records every few months it seems, the Glazers look to be holding out for a little bit more green… and someone they feel can complete the takeover in an efficient manner:

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Over the past decade or so, the price of soccer team purchases has shot up like crazy. In 2010, Boston Red Sox owner John Henry bought Liverpool FC for $477 million, and in 2018, Stan Kroenke acquired the remaining shares of Arsenal FC for $712 million.

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Man Utd competes in England’s Premier League, where US investors Clearlake Capital and Todd Boehly hold the record for the most expensive acquisition in the system: buying Chelsea FC for roughly $2.8 billion in 2022.

High score: Man Utd. is one of the most recognizable names in soccer and ergo the world. It’s the most dominant team in the most competitive league having won 13 championships since it entered the league in 1992. Ratcliffe’s previous bid valued the team at $5.5 billion. With the final bid deadline set for April 28, it looks like Manchester has a solid chance of outpacing the Commanders and making Snyder think he could’ve held out a little longer too.

– Griffin Kelly

Extra Upside

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Little less conversation, little more action: Hotel from Elvis’ ‘Blue Hawaii’ film will finally be restored after devastating hurricane

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There goes the bride: David’s Bridal will sell company and lay off more than 9,000 employees.

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All-expense vacation to the Rivera Maya? Say less. The Daily Upside is giving you (and a plus-one) a chance to win a four-night stay at the brand-new Margaritaville Island Reserve in Rivera Maya. Vamos a la playa — enter here.*

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