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- Following the slump in profits in 2022, VARTA AG has drawn up a restructuring concept to enable a return to a growth path. In an expert opinion available in draft form from KPMG in accordance with IDW-S6, VARTA AG's future restructuring concept and a short-term financing requirement for the further stabilisation and restructuring of the company are certified. VARTA is in advanced discussions with its financing banks and the majority shareholder Montana Tech Components to secure long-term financing.

Traditional auction houses like Christie’s, Sotheby’s and Philips — known for selling Warhols, Picassos and antiques — are using Birkins and Jordans to cultivate their next generation of collectors.

As a former style editor at Vogue and the New York Times’ T magazine, Edward Barsamian has long been acquainted with auction houses like Christie’s, Sotheby’s and Phillips. But in 2019, while working for Victoria Beckham — after she partnered with Sotheby’s to display Old Masters paintings in her Mayfair boutique and host a New York dinner — he was newly intrigued.

He signed up for houses’ newsletters, and after receiving an email about a Christie’s handbag auction mid-pandemic, Barsamian went on to snag a Ralph Lauren Ricky bag in midnight blue for a tenth of its retail value.

“I’ve done the eBay thing before … but there was something exhilarating about winning at auction,” said Barsamian. Since, he’s purchased more, including ‘90s Chanel cashmere shirts and Space Invader and Kaws sculptures, all at auction.

Barsamian is exactly the type of shopper auction houses want in its next generation of collectors. The auction house core customer is traditionally older, hovering around aged 60, said Josh Pullan, Sotheby’s head of global luxury. To bring Millennials and Gen-Z into the auction universe, houses like Christie’s and Sotheby’s are using fashion and “buy now” formats in hopes that Chanel buyers will one day become Basquiat bidders.

It’s not just at the top: fashion orders are up 84 percent year-over-year at mid-market auction app 1stDibs, which primarily sells furniture, after putting renewed focus on the category.

“Maybe first they’re buying a bag, then they’re buying a photograph that’s $10,000, then the next thing you know, they’re coming into the saleroom and participating in a live auction,” said Rachel Koffsky, Christie’s international head of handbags and accessories.

It comes at a time when fashion auctions are seeing renewed public attention, too. Joan Didion’s Celine sunglasses fetched $27,000 via an auction on online auction platform Bidsquare, and Karl Lagerfeld’s much-publicised estate brought in over $18.5 million for Sotheby’s. At Christie’s, Andre Leon Talley’s estate fetched nearly $4 million last month, after it was displayed during a buzzy fashion month showcase in Paris and a party in New York. This week, Sotheby’s announced the auction of Michael Jordan’s “Last Dance’' sneakers — predicted to sell for between $2 million and $4 million.

“[Before] you would see fashion connoisseurs and the cognoscenti clamour for that … [now] you’re seeing a wider audience come,” said Barsamian, who attended the party prior to Talley’s auction.

Though fashion categories are becoming more important to auction businesses for most, they still only make up a fraction of sales. For Christie’s, luxury (which, beyond fashion, includes cars, wine and spirits, handbags, watches and jewellery) accounted for 12 percent of total sales: $998 million of its $8.4 billion. In 2019, Sotheby’s announced its intent to make luxury half of its business. Last year, luxury made up $2.3 billion of the group’s overall $6.8 billion in sales, nearly double the size of its luxury sales in 2021. Forced to rely more on digital — the pandemic helped lay further groundwork for growth in the category: online sales accounted for two-thirds of Sotheby’s luxury business in 2022.

“[The auction business] is a big oil tanker of a revenue channel. It’s not common that we see this sort of heat in the market,” said Mattew Rubinger, 1stDibs chief commercial officer and the former Christie’s global head of marketing. “What’s really exciting is that fashion is a bit of an outlier to that story.”

It was in the 2010s that houses started seeing handbags as marketing tools rather than just the “tail” tacked onto big lots. Existing handbag collectors bought in, according to Rubinger, as did newcomers and art collectors.

“Auction houses quickly realised their power,” said Sebastian Duthy, director of London-based data analysis firm Art Market Research. “We’ve seen that on steroids with social media and the noise you can produce has grown.”

Today, auction houses see the same interest that drives consumers to resale platforms like Depop and The RealReal for Tom Ford-era Gucci and Phoebe Philo-designed Celine as setting the stage for their own growth.

“The pandemic changed the way a lot of people do what we call shopping,” said Koffsky. “When they’re buying things they’re also thinking about the circular economy. ‘Is there a resale value, is this something that I could give to the next generation?’”

Consumers are increasingly looking at luxury fashion as an investment opportunity, said Federica Lovato, senior partner, EMEA fashion and luxury lead at Bain. Rising prices and product shortages in luxury have also made auction houses into a key channel for access to top-tier goods, said Lovato, adding that today, fashion is often “artified,” endowed with a similar status as a painting or sculpture.

“[People] like to show that they belong to the creative scene with the cool kids … Fear of being left out is driving it,” said Roman Kräussl, a professor of finance at University of Luxembourg and visiting fellow at Stanford University’s Hoover Institution think tank, whose research focuses on alternative investments and art.

Auction houses are also courting a new generation. Krussel points to the early frenzy around the NFT market as evidence that young people are craving new ways to invest. The aftershocks of the crypto crash, he theorises, could end up driving buyers to more tangible assets.

“People realised you can lose a lot,” he said. “I think a bit of a trend is to have it ... to really wear it, feel it and own it.”

Sotheby’s and Christie’s both launched streetwear divisions in 2021 and 2022, respectively. Along with accessories, it’s helping lure in young buyers: in 2022, 52 percent of Sotheby’s streetwear buyers and 33 percent of handbag and accessory buyers were under the age of 40. A strong indicator of demand, said Koffsky, luxury also has a high sell through rate of 88 percent, compared to 83 percent across Christie’s other categories.

Fashion, watches, jewellery and other wearables also represent a key aspect of houses’ expansion strategies in Asia — a region with big interest in luxury brands, and with a big potential market in its rising middle class.

Asian buyers already make up 35 percent of luxury sales for Sotheby’s and 43 percent for Christie’s. Sotheby’s is set to open a Maison in Hong Kong in 2024. Christie’s is opening a new headquarters in the city in Zaha Hadid’s Henderson Building, which will host its first year-round Asian saleroom in 2024.

To connect with these new consumers, houses are investing in their social strategies, which helps get consumers to sales, cocktail events or seminars, said Koffsky. Sotheby’s saw social engagement up 25 percent year-over-year after launching accounts on Asia’s Little Red Book and Douyin in 2022, as well as dedicated sneaker and style Instagram handles.

“At the end of the day, auction houses survive by moving a lot of products through the doors, and that’s what they will continue to do. They need to find those collectors,” said Duthy.

Still, Barsamian thinks there’s more to be done to reach plugged-in fashion consumers and accelerate business. He recommends auction houses tap more experts with built-in online audiences and lean into their archives and authority to create content.

“They’re not properly utilising their social channels and platforms in order to speak to [young, fashion conscious] audiences … there’s a huge demand for archive, you see it all over TikTok” he said.

Nike and On report results this week, and will likely take a more upbeat view of the sneaker market than their rivals. That, plus what else to watch for this week.

Earlier this month, two sneaker brands offered a bleak outlook for the once-hot category. Adidas, still struggling to get out from under a €500 million pile of unsold Yeezys, said it’s expecting its first annual loss in 30-plus years. Allbirds executives attributed disappointing sales to a misguided foray into activewear and said the brand would pivot from opening new stores to expanding its wholesale operations.

This week, we’ll hear from the brands that are partially responsible for those companies’ woes. Nike and On Holding both report quarterly results on March 21. Both have had a much smoother, if not entirely turbulence-free ride over the last couple years, often at the expense of their competitors.

Nike is fully leveraging its size to power through a host of problems that have dragged down its rivals. In China, it’s been among the most successful Western brands at shaking off the effects of the global dispute over the use of Xinjiang cotton, which Bernstein analysts attribute to the pre-crisis strength of its name there. Its pivot away from wholesale, while it may not have been as profitable as initially hoped, has given Nike the ability to shift its focus between sales channels as the economic outlook changes (such as when it needed to move extra inventory last year). And while it’s had its share of difficulties with brand ambassadors — toxic workplace allegations against the artist Tom Sachs are the latest — none are as valuable to the company as Ye was to Adidas.

On’s continued success can also be viewed in light of Allbird’s failings. The Swiss brand embraced wholesale from the start, betting correctly that it would be a cheaper way to acquire new customers. Its focus on tech-driven performance branding has also proven a more enduring lure for customers (and less easily copied) than Allbirds’ tech-driven sustainability branding. While not immune to shifting trends, and facing competition from brands like Deckers’ Hoka, On has managed to avoid the collapse in sales and stock price seen by digital-first rivals.

Deal would write down more than $17 billion of the bank’s riskiest bonds

Credit Suisse Group AG’s CS -6.94% emergency merger with UBS Group AG UBS -5.50% will wipe out the bank’s riskiest bonds, rattling investors in the quarter-trillion-dollar market for similar European bank debt.

About 16 billion Swiss francs, or about $17.3 billion, of the so-called additional tier 1 bonds will be completely written down, Switzerland’s financial regulator, Finma, said in a Sunday statement. Credit Suisse also referenced the decision in a statement, saying it was informed by Finma that the bonds would be “written off to zero.”

AT1 bonds—also known as contingent convertible bonds, or CoCos—were introduced after the financial crisis as a way to transfer banking risk away from taxpayers and onto bondholders. They also became a popular investment product that money managers and banks, including Credit Suisse, marketed to clients as a relatively safe way to boost yield on bond portfolios.

“What’s shocking is that it looks like equity holders will recover better than tier 1 bondholders,” said Justin D’Ercole, co-founder of ISO-mts Capital Management LP, a fund focused on bank securities. The resulting losses will likely prompt individual and institutional investors to sell similar securities of other European banks, he said.

Cracks spread in the AT1 market last week. Deutsche Bank AG’s $1.25 billion 6% AT1 bond fell 10% last week to about 79 cents on the dollar, according to Advantage Data Inc. UBS’s $2.5 billion 7% bond dropped about 5% to 95.50 cents on the dollar, according to MarketAxess.

There are about $254 billion AT1 bonds outstanding and the securities are often banks’ most actively traded bonds because of their large size, according to data from Lazard Frères Gestion. The AT1 bonds also pay higher interest rates than traditional debt because they can be converted to stock or written down if trouble at an institution emerges, paring down its liabilities in times of crisis.

Higher yields attracted buyers for much of the past decade when benchmark interest rates were low, dragging down the yield of most bonds.

“The CoCo market offers a yield of around 3.62%,” portfolio managers in Credit Suisse’s investment unit wrote in a January 2021 report. “Even European high-yield bonds come in at around 2.88%, so we definitely still see value in subordinated financial bonds.”

Demand was hot enough in August 2020 that when Credit Suisse launched a $1.5 billion AT1 deal with a 5.625% interest rate in August 2020, it received more orders than it had bonds and bargained the rate down to 5.25%, according to CreditSights.

Holders of CoCo bonds in Spain’s Banco Popular Español SA got wiped out in 2017 when the bank got bailed out through a merger with Banco Santander SA. Popular’s shareholders also took losses, but the restructuring was seen as an isolated event.

“The average European bank would need to lose almost two-thirds of its capital to breach contractual triggers,” the Credit Suisse fund managers said in their 2021 marketing report. “In our view, this is a relatively remote scenario.”

The bulk of the bonds are held by insurers and pensions or are sold to individual investors outside of Europe through investment funds, according to a 2017 report by De Nederlandsche Bank. European investors may also buy them indirectly through international funds, according to the report.

Invesco Ltd. launched an exchange-traded fund focused on AT1 bonds in 2018 that has grown to about $1.2 billion, according to data from Morningstar Inc. At the end of January, AT1 bonds issued by Deutsche and UBS were the two largest investments in a $4.5 billion Nuveen Asset Management mutual fund specializing in preferred securities, according to Morningstar.

The complete write-off by Credit Suisse, one of the largest issuers in the AT1 market, will likely hurt investor appetite for the bonds, fund managers said. It will also squeeze lending by banks, they said.

Ultimately, AT1 bonds will become more expensive for banks to issue, reducing their ability to make new loans, Mr. D’Ercole said. “That means banks will likely have to run smaller balance sheets,” he said.

It may have been the region’s problem child but other institutions are not necessarily immune to the turmoil

Banking is a massive, complicated and delicate confidence trick. Normally it works fine. But as soon as people worry that it could fall apart, it often does, sometimes spectacularly.

So, when an old friend, who is an entrepreneur in Geneva, messaged me last week to say he had moved his money out of Credit Suisse, having already taken his company’s account elsewhere, it was clear that Switzerland’s second-largest lender was in trouble.

The 167-year-old institution, with a SFr531bn balance sheet and more than 50,000 employees, was sold to its bigger Swiss rival for SFr3bn in a rescue deal at the weekend orchestrated by government authorities that almost completely wiped out its shareholders. By all accounts, Credit Suisse was not given much choice about whether to accept it.

What caused such a dramatic demise of what was until recently still one of Europe’s 25 biggest banks? Is this a sign of a wider crisis brewing in the European banking sector?

The first point to make is that Credit Suisse has been the problem child of European banking for several years after suffering multiple scandals, losses, management shake-ups and restructuring plans.

When three midsized US lenders, including Silicon Valley Bank, collapsed earlier this month following a rapid withdrawal of depositors’ money, investors started to fret about which other banks could be vulnerable.

Credit Suisse caught their eye. Having already seen rich clients pull more than 10 per cent of their money out of its wealth management unit in just a few months last year, the bank was still suffering outflows of cash, at one point topping SFr10bn a day.

The run on deposits only accelerated last week after the chair of the Saudi National Bank, which bought a 10 per cent stake in Credit Suisse last year, unhelpfully ruled out providing the Swiss lender with any more financial assistance.

European regulators have rushed to express their confidence in the strength of the region’s banks. Luis de Guindos, vice-president of the European Central Bank, said last week that the sector was “resilient”, with much higher capital than in the previous crisis a decade ago, robust liquidity levels and “quite limited” exposure to Credit Suisse or the failed US banks.

De Guindos added that rising interest rates were “positive in terms of the margins of European banks”. Increasing the interest they earn on loans faster than the rate they pay to depositors helped eurozone banks to achieve a 7.6 per cent return on equity last year, the highest for over a decade.

Bad loans, long the Achilles heel of eurozone banks, have fallen steadily from over €1tn eight years ago to below €350bn last year, equal to less than 2 per cent of total loans.

However, while Europe’s banks are undoubtedly in a stronger position than in the previous crisis, when several had to be bailed out by their governments, this does not mean they will be immune to the latest turmoil.

There are several reasons to worry. First, Credit Suisse also had healthy capital and liquidity ratios — both only slightly below eurozone averages last year — but that did not save it once confidence evaporated.

Second, eurozone banks are still not earning enough profit to cover their cost of capital, which is around 9 per cent for many of them, meaning they are effectively destroying shareholder value.

A further concern is the flipside of rising interest rates, which the ECB have increased at an unprecedented pace to tackle soaring inflation. This will hit the value of the banks’ vast holdings of government bonds, mortgages and other debt.

Banks mostly account for these loans as if they will own them to maturity, so they do not take losses when their value falls. And many insure themselves by hedging interest rate risk. But the ECB’s head of supervision Andrea Enria said recently that many lenders were unprepared for this new environment, which would “create winners and losers”.

More broadly, the whiff of fear in financial markets is likely to make lenders much more cautious, reducing the flow of credit, increasing the risk of a recession and raising stress in already vulnerable areas such as commercial property — none of which is good for banks.

Companies want incentives from $280bn support package to create jobs and stave off competition from China

Big Pharma has asked Joe Biden’s administration to extend generous tax breaks and subsidies contained in its $280bn semiconductor support package to drugs companies as part of an effort to build up the US biotechnology industry.

The president announced a national biotechnology and biomanufacturing strategy in September to strengthen supply chains, create American jobs and ward off competition, particularly from China.

It has allocated $2bn in initial funding to support the strategy and asked stakeholders in the health, climate and food industries to provide specifics on the type of federal funding, incentives and other policies required to support increased investment in biomanufacturing and research.

PhRMA, the main lobby group for industry, has asked the White House to offer companies an advance manufacturing tax credit of 25 per cent to help offset the cost of building and expanding biomanufacturing plants, according to a submission to the US Office of Science and Technology Policy seen by the Financial Times.

It proposes cutting taxes on manufacturing income for drugs produced in the US and federal funding to cover the cost of loans, arguing these incentives would help companies expand and prevent a reoccurrence of the type of coronavirus pandemic product shortages.

“Given the costs and timeframes for building, expanding or modernising domestic manufacturing capabilities and processes, the Chips Act [Chips and Science Act] suggests potential policies that could be applicable,” said PhRMA.

The lobby group said tax breaks and other incentives should be offered to all companies expanding manufacturing in the US, regardless of where they are headquartered. This might require exemption from a rule enacted in 2017 that sets a minimum tax of 10 per cent for certain multinationals, it said.

PhRMA said the measures are needed to offset some of the advantages available in other countries such as China, which has lower energy and water costs than the US. Labour costs are estimated to be 30-40 per cent less in China and India versus the US and European countries, it said.

The White House has identified several areas of concern regarding the US biomanufacturing industry, including a reliance on China for supplies of active pharmaceutical ingredients, the raw materials used in drugs. In 2019 almost three quarters of manufacturing facilities making APIs to supply the US market were based overseas, and 13 per cent were in China, according to the Food and Drug Administration.

Bio, a lobby group for biotech companies, said in its submission that onshoring API manufacturing in the US would be challenging and some materials would always need to be imported. It said rising environmental regulation in the US had led much of the API produced domestically to relocate abroad where it avoided US standards and could be produced more cheaply.

The US should strive to onshore as much API production as it can and what cannot be produced domestically should be sourced from allied nations in a “nearshoring” approach, said Bio.

A decision by the Biden administration to follow PhRMA’s recommendations and introduce tax cuts and subsidies for drugmakers could reignite tensions with allies. Brussels has warned that US policies offering hundreds of billions of dollars in subsidies for green energy investment in the Inflation Reduction Act will stoke global protectionism.

Paul Timmers, a research associate at the University of Oxford, said US industrial policy in the pharma/ biotech sector must avoid fuelling tensions with the EU by avoiding subsidy races, focusing on incentives that boost mutual trade and investment and early co-ordination with partners.

“The USA and the EU must see each other as strategic partners rather than zero-sum competitors in raising global competitiveness and tackling global challenges,” he said.

The US biotechnology policy aims to address security concerns, including economic competition from China and the acquisition of proprietary technologies by foreign adversaries through legal and illegal means. This includes ensuring the security of the biological data of US citizens.

Professor Sarah Kreps, director of the Tech Policy Institute at Cornell University, said the principle of “Made in America” would be a hallmark of the Biden administration’s polices. She said any new federal funding provided to the biotechnology sector could, as is the case of the Chips Act, be tied to policy shifts, such as lower prices.

Last year, the administration passed comprehensive legislation to reduce drug prices — a move bitterly opposed by industry.