Tale of Two Bank Runs

Plus: LVMH is the real-life French spinoff of “Succession” but better dressed. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

April 25, 2023

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TOGETHER WITH

Good morning.

In February, future Hall-of-Fame quarterback Aaron Rodgers spent four days in total blackout isolation in an Oregon cave… it’s almost like he knew he was about to become a New York Jet.

On Monday, it was reported that the four-time NFL MVP would trade in his Green Bay Packers jersey for a Jets green one. Naturally, one of the most beleaguered fan bases in all of pro sports is thrilled by the prospect of Rodgers bringing his Super Bowl champion résumé to the swamps of New Jersey. But once the outspoken, often controversial quarterback takes the podium in front of the New York press, he might wish he were back in that darkness retreat.

Morning Brief

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What does a bank run actually look like?

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LVMH is the world’s most opulent family business.

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Weight-loss drug of the stars wants a place in Medicare.

Banking

Credit Suisse, First Republic Reveal Just How Bad Banks Are Bruised

Two banks. Same crisis. Different paths.

Earnings season continues apace this week, and Monday’s reports featured critical updates from two banks that were front and center in March’s banking panic. In the morning, Credit Suisse revealed just how dire its final days were before it was acquired by UBS. In the afternoon, the still-standing First Republic Bank showed just how scary things got during the stateside bank runs.

Bleeding Dry

Weirdly enough, Credit Suisse’s final quarterly earnings report proved to be the most profitable in company history, with a roughly $14 billion net profit realized in large part from an accounting gain tied to $17 billion worth of bond write-offs. But that figure obscures the hot mess that was bubbling under the hood: the bank’s wealthy clientele pulled $68 billion in deposits in the quarter, resulting in a 29% dropoff in assets under management.

Credit Suisse’s subsequent liquidity crisis triggered a Swiss government-backed $3.25 billion acquisition by UBS. First Republic, meanwhile, had a slightly different journey. Its problems apparently ran so deep, no other bank dared buy it outright. Instead, some of the sector’s biggest players orchestrated a collective $30 billion lifeline to keep the bank afloat. And, as the only US bank to survive a bank run and report this quarter, Monday’s results made clear just how big a hole the bank finds itself in:

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The run saw First Republic lose $72 billion in deposits during the first quarter, leaving its total assets under management depleted by over 40% at $104 billion.

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Remarkably, that figure includes the $30 billion in uninsured deposits from the 11 largest banks in the country. Without that figure, First Republic’s total assets would be down nearly 60% since before the banking crisis.

Don’t expect a UBS-like white knight to ride to the rescue of First Republic in the near future. “The only acquisition scenario that is possible for [First Republic], in our view, is through receivership, in which a would-be acquirer is able to take advantage of an FDIC-assisted bargain purchase,” Wedbush Securities wrote in a note earlier this month. “Therefore, we conclude that [First Republic] will attempt to grind it out as a stand-alone company for the foreseeable future.” That prediction seems to be holding up just fine.

Hobby Lobby: Every crisis is an opportunity… for regulation. And, rest assured, any hint of new regulation will be met with ferocious counter-lobbying. Case in point: Dozens of the largest US banks and associated trade groups increased Washington lobbying funds by nearly 20% in the past quarter, collectively dropping $22 million, according to a recent Bloomberg analysis. Mid-sized regional banks like PNC and KeyCorp — you know, those that are similarly sized to the banks that just imploded — increased spending the most to keep the regulators away. Bet they wish they had that money back right now.

– Brian Boyle

Luxury Goods

LVMH Tops $500 Billion Market Value

(Photo Credit: Emma Houghton/Unsplash)

Cheap beer might seem like an appropriate beverage for today’s economy, but there’s no suppressing champagne tastes.

LVMH, the luxury goods empire presided over by the world’s richest man, set a European record on Monday by surpassing the $500 billion milestone. In the US, that kind of market cap is usually reserved for Silicon Valley companies with visionary mission statements about changing the world for the better. Yet while Big Tech has suffered, LVMH is thriving with its old-world opulence.

Succession Sessions

LVMH CEO Bernard Arnault has never exactly been a pauper, but this year saw him overtake Elon Musk and Jeff Bezos to become the world’s richest man, with a net worth of $212 billion. That’s because LVMH’s stable of luxury brands including Moët, Christian Dior, and Louis Vuitton, have managed to continue booming while other industries have sputtered. Louis Vuitton alone doubled its sales revenue from $10 billion to $20 billion between 2018 and 2022.

China’s re-opening of its economy also played a significant role in helping boost LVMH’s market cap over the $500 billion mark. Lilia Peytavin, a European portfolio strategist at Goldman Sachs in Paris, told Bloomberg that luxury goods have exactly what tech is lacking at the moment: fat margins.

With the company’s fortunes so flush, the question of who will eventually take over from the 74-year-old Arnault is looming larger and larger. In distinctly Logan Roy-esque fashion, Arnault has installed his five children in LVMH’s upper echelons:

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Arnault appointed his daughter Delphine to head up Dior, LVMH’s second-biggest brand, in January. A month before that he promoted his son Antoine to run LVMH’s holding company.

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Meanwhile, Arnault’s three youngest sons, Alexandre, Frédéric, and Jean respectively run Tiffany & Co., Tag Heuer, and Louis Vuitton’s watch division. At 24 years old, Jean Arnault just about qualifies as Generation Z.

A recent Wall Street Journal profile on Arnault reported that once a month, he summons his children to a 90-minute private lunch at LVMH’s HQ and reads out pre-prepared questions about the business from his iPad. You gotta wonder what Christmas morning looks like chez Arnault.

Que Sera, Sera: Arnault’s children might have a few years to wait to find out whether one of them is the heir apparent, as Arnault told investors in January he’d raised the retirement age of LVMH’s CEO and chair position to 80. The WSJ profile does suggest that, unlike Logan Roy’s view of his TV brood, Arnault considers them to be des gens sérieux…

– Isobel Asher Hamilton

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Become a Monogram investor before their intended Nasdaq listing.

Pharmaceuticals

Weight-loss Companies Want Medicare Coverage

Big Pharma thinks Medicare should be paying for your weight-loss drugs.

Companies behind diet medications like Wegovy and Mounjaro are lobbying Congress to get their medications covered under Medicare, which would give a boost to already blockbuster sales.

Oh, Oh, Oh

Danish medical company Novo Nordisk debuted Ozempic in 2017 as a once-weekly diabetes treatment, but the medication quickly skyrocketed in popularity among Hollywood celebrities and viral TikTokers looking to maintain a beach bod year round. Doctors also began prescribing it to overweight patients who didn’t have diabetes, resulting in shortages for actual diabetics. But Novo Nordisk execs can sleep easy knowing the company’s stock has increased 125% in the past five years and the brand’s market cap sits at $380 billion.

In 2021, the US Food and Drug Administration approved the formula as a weight loss medication, a designation Eli Lilly is still trying to obtain for its product, Mounjaro. Novo Nordisk started distributing the drug under two names – Ozempic for diabetes and Wegovy for weight loss.

Never ones to skimp on lobbying, pharmaceutical companies are increasing their spending as the demand for their weight-loss drugs ramps up:

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Novo Nordisk has spent decades calling on Congress to approve Medicare coverage for weight-loss drugs. It has also spent an average of $3 million a year on those efforts since 2013, the WSJ reported. Last year, the company dropped $4.6 million on lobbying.

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Wegovy would cost uninsured patients more than $10,000, and Novo Nordisk argues that the potential health benefits to the 65 million senior citizens enrolled in Medicare should be enough for the program to cover weight-loss drugs.

Coverage For Some, But Not All: Unfortunately for Big Pharma, Congress doesn’t seem to be interested in giving the go-ahead for weight-loss drugs. Even lawmakers who support covering the medications are finding the cost difficult to bear. Sources told the WSJ that legislators like Sen. Bill Cassidy (R., La.) are working with the Congressional Budget Office to bring prices down and are proposing only limiting coverage to people with higher body mass indexes.

– Griffin Kelly

Extra Upside

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To the moon? FAA grounds SpaceX’s Starship program following explosion.

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Take that to the bank: Savings accounts are apparently worth it again.

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Peas and carrots, money and power. Some things just go together – and that latter pair especially. With Power Corridor, you can get an inside view on just how closely connected Washington and Wall Street really are – and how their relationship shapes all of our lives, not to mention the global economy. Get an inside view on the forces shaping the world around you — subscribe to Power Corridor here.*

*Partner.

Just For Fun

Not gonna make it.

Water hack.

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