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Good afternoon,

Regional banks have collapsed, Credit Suisse almost went insolvent and BRICS is promoting their new world reserve currency.

Yet the S&P 500 is somehow still above 4,000. The Nasdaq 100 just entered the technical definition of a bull market.

Let’s dive in.

Economy Heat Check

As of 3/29/2023 market close, unless otherwise stated.

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Briefings

• Google found to have violated order to save chat evidence in Epic Games antitrust case (Engadget)

• Warner Music to cut 4% of global staff (Reuters)

• Binance investors pull $1.6B after CFTC lawsuit (Reuters)

• Lucid to cut 1,300 jobs (BBG) 

• Microsoft patched a Bing vulnerability that allowed snooping on email and data (WSJ) 

• SES and Intelsat near deal to create a $10B satellite (BBG)

Performance Review

Firm updates your bank may be less inclined to disclose. 

• UBS names Ermotti to return as CEO in wake of Credit Suisse deal (BBG)

• Credit Suisse accused of aiding tax evasion during broader tumult (BBG) 

• JPMorgan and Goldman to start trading private credit loans (Reuters)

• FDIC faces $23B in costs from bank failures, expects big lenders to pay (BBG)

• FDIC hires Newmark to sell ~$60B of Signature Bank loans (CRE) 

• US consumer bankers tighten monitoring processes (Reuters)

Expectations Reset

The week in review.

The Swiss Shotgun Marriage Gets its Elvis Impersonator  

After over a decade on Wall Street, it appears all it takes is one Eight Ball to trigger incoming UBS CEO, Sergio Ermotti. We mentioned in Sunday’s preview that this week’s Swiss CPI print could impact some aprés ski champagne tabs. Apparently, one long powder weekend was all it took to convince Ermotti to don his Swiss bests once again and play hero to the Swiss economy. 

In a semi-shocking move, Ermotti has returned to take back the reins of UBS amidst its acquisition of struggling rival, Credit Suisse. He’s regarded by many to have remade UBS into one of Europe's strongest financial institutions. Guess it's not every day that one gets the opportunity to clean up someone else's mess, especially when that someone is a direct competitor.

Ermotti's previous restructuring of UBS involved cutting thousands of jobs and focusing mostly on wealth management. The strategy is said to have been so successful that it left Credit Suisse in the dust. Now, he has the chance to do it all over again – this time with a shotgun marriage of two rivals. 

But Ermotti is no stranger to difficult tasks. He previously oversaw UBS during a rogue trader scandal that cost the bank $2.3B and led to the resignation of the CEO. With Ermotti's track record of tearing down walls, Credit Suisse employees should strap in for a bumpy ride.

From 2010 to late last year, 22 CEOs at S&P 500 companies left their leadership posts only to come back later. Among the companies that permanently appointed their former CEOs, their stocks averaged an annual gain of 2% during the leader’s second go-round, compared with a 6% annual increase the first time. UBS shares rose around 4% on Wednesday and are around 8% above where they traded before the deal. 

The fact that Ermotti has been brought back to take charge of UBS is a testament to the sorry state of the bank it just bought. The merger with Credit Suisse is being portrayed as a project of national importance, but it remains to be seen whether Ermotti can repeat his previous success. Given that he’s already moved on from UBS once before, it's unclear how long he'll stick around this time.

Still to Come: US Core PCE

On Friday, the US Core PCE Price Index could unravel bets of a Fed pause in April. Fed Chair Jerome Powell’s preferred “supercore” inflation indicator – core PCE services excluding housing – will likely show underlying price pressures remained elevated in February

Economists anticipate the sticky component of inflation ran steadily at 4%-5% over the past few months. A persistently elevated inflation gauge would put officials in a precarious spot, as they seek to balance inflation-fighting resolve and stress on the banking system.

More specifically, the US personal consumption expenditures price index, excluding food and fuel, is forecast to have risen 0.4% from a month earlier, according to Bloomberg’s survey median. That would follow the largest advance since June. Compared with February 2022, the core inflation gauge is seen up 4.7%.

Overall PCE is projected to post a 5.1% advance — both more than double the Fed’s goal. Last Wednesday, Powell raised their benchmark interest rate for the ninth straight meeting. The fed funds rate is now the highest since 2007. Some worry rising borrowing costs risk adding to pressures on the financial system, which could tip the economy into a recession.

The government’s data on Friday is also expected to show inflation-adjusted personal spending declined in February after surging a month earlier. With the Fed turning on the taps for banks to access liquidity, tackling inflation may remain the priority.

Meme Bank

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Kept this one shorter after the intern's performance review. Let us know your thoughts on shorter and sans-Deep Dive.