FT : Credit Suisse securitises yacht loans to oligarchs and tyco

Credit Suisse securitises yacht loans to oligarchs and tycoons
Swiss bank used derivatives to offload risks from lending billions to its richest clients

Credit Suisse has securitised a portfolio of loans linked to its wealthiest customers’ yachts and private jets, in an unusual use of derivatives to offload risks associated with lending to ultra-rich oligarchs and entrepreneurs.

The Swiss lender, which has endured a bruising year marked by repeated scandal, quietly sold on a slice of the risk related to $2bn of its “ultra-high-net-worth” client loans at the end of 2021.

The securitisation of the portfolio of loans to tycoons and oligarchs backed by their “jets, yachts, real estate and/or financial assets” was made by a unit of the bank that has previously been plagued with sanctions-related issues.

An investor presentation for the deal, seen by the Financial Times, explains that one of the main goals of this division is to “create a positive brand impression of CS by financing the principals’ favourite business tools (business jet) and luxury toys (yachts)”.

While banks regularly engage in so-called significant risk transfer transactions to reduce the capital they hold against loans, the derivative deals usually involve staid corporate or mortgage portfolios that form the bread and butter of bank lending.

The nature of the underlying collateral meant Credit Suisse had to offer an eye-watering interest rate of more than 11 per cent to entice a handful of hedge funds into the $80mn transaction, an indication of the price the bank was willing to pay to improve its capital position without tapping public equity markets.


The deal’s investor presentation also lifted the lid on the Swiss bank’s private banking division, detailing some of the closely guarded business secrets of its international wealth management franchise.

One slide revealed that in 2017 and 2018, Credit Suisse experienced 12 defaults on its yacht and aircraft loans, with a third of these “related to US sanctions against Russian oligarchs. Press reports at the time indicated that Oleg Deripaska and brothers Arkady and Boris Rotenberg had to terminate private jet leases with the bank.

The same slide explained an increase in defaults on Credit Suisse’s’s mortgage loans in those years because some clients “were not particularly pleased with the bank” as it pulled back from certain markets.

While Credit Suisse has long provided loans to fund billionaires’ private jet purchases, its foray into yacht finance is relatively recent. The slides showed that it only began lending against yachts in earnest in 2014 but has rapidly expanded the business, with its outstanding loans exceeding $1bn last year.

The portfolio also includes loans against wealthy clients’ holdings of stocks and bonds, as well as their holdings in private equity and hedge funds. The slides showed that on the latter, the bank was sometimes willing to offer 80 per cent leverage on their positions, which it acknowledged was “above standard”.

The presentation added that “lending catalysts” for these clients can include a “change in personal situation” such as a “divorce”.

The $80mn notes are listed on the International Stock Exchange in the Channel Islands, a bourse that earned notoriety for its role in the Neil Woodford scandal but is often the venue of choice for niche debt deals.

Credit Suisse declined to comment.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • CRNC -26.1%, ZBH -6.5%, L -3.7%

Other news:

  • OBSV -4.2% (provides update on EU marketing authorization process for linzagolix)
  • AKTS -3.9% (files for $150 mln mixed securities shelf offering)
  • ULCC -3.9% (Spirit Airlines and Frontier Airlines (ULCC) to merge)
  • BCAB -1% (files mixed securities shelf offering)
  • LGV -0.6% (Longview Acquisition Corp. II and HeartFlow Holding mutually agree to terminate their previously announced business combination)

Analyst comments:

  • BLDP -4.4% (downgraded to Market Perform from Outperform at BMO Capital Markets)
  • FIGS -3.4% (downgraded to Market Perform from Outperform at Cowen)
  • NOV -2.3% (downgraded to Neutral from Overweight at JP Morgan)
  • APD -0.8% (downgraded to Neutral from Buy at BofA Securities)
  • CI -0.8% (downgraded to Sector Perform from Outperform at RBC Capital Mkts)

>>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • TSN +5.3%, ENR +4.8%, HAS +2.2%, BFLY +1%

Other news:

  • PTON +31% (drawing interest from suitors including Amazon according to WSJ; reports Nike (NKE) also interested in Peloton)
  • SAVE +11.4% (Spirit Airlines and Frontier Airlines (ULCC) to merge)
  • GOL +6.2% (GOL Linhas Aereas Inteligentes S.A. and American Airlines (AAL) sign definitive investment agreement)
  • EVLO +3.9% (announces highly significant reductions in clinically validated inflammatory cytokines in EDP1815 phase 2 psoriasis trial)
  • FTCI +3.7% (files for 37277987 share common stock offering by selling shareholders)
  • COIN +3.5% (tweets that is has confirmed full service has been restored)
  • PPC +2.5% (expects to provide an answer to PPC regarding JBS S.A.'s takeover offer by the end of February)
  • ENDP +1.6% (announced that its Par Sterile Products business has begun shipping VASOSTRICT in ready-to-use 100 mL pre-mix bottles)
  • CLVT +1.4% (Board of Directors has approved the purchase of up to $1.0 billion)
  • UL +1.1% (Shareholders want Unilever (UL) to split up the company)

Analyst comments:

  • NTLA +2.9% (upgraded to Outperform from Perform at Oppenheimer)
  • MTX +1.3% (upgraded to Overweight from Neutral at JP Morgan)
  • AWK +0.7% (upgraded to Neutral from Sell at UBS)
  • AINV +0.6% (upgraded to Neutral from Sell at Citigroup)

WSJ : Toshiba Looks to Split Two Ways Instead of Three

Toshiba Looks to Split Two Ways Instead of Three
Conglomerate, facing shareholder blowback, says it wants to spin off its device business

TOKYO— Toshiba Corp. TOSYY 0.92% revised its restructuring plan and said it wants to split into two parts instead of three, hoping to end a fight with foreign shareholders.

The Japanese conglomerate said Monday that under the revised plan, it would spin off its device business, which makes power semiconductors that have been sought-after during pandemic-era supply crunches. It said it aims to complete the split by March 2024.

Toshiba shares rose after the announcement and closed 1.6% higher in Tokyo trading.

In November, Toshiba had said it planned to split into three units, one focusing on infrastructure, a second on electronic devices and a third to manage the company’s stake in flash-memory company Kioxia Holdings Corp. and other assets.

Some shareholders publicly expressed dissatisfaction with that plan, calling for stronger measures to lift the value of the long-struggling technology conglomerate. Objecting shareholders have also said they want to make it easier to block any plan they find inadequate.

In an open letter sent in early January, a major Toshiba shareholder, Singapore-based 3D Investment Partners Pte., called the plan “the result of a flawed process” that failed to address the company’s underlying issues.

It asked Toshiba’s strategic-review committee to consider alternatives, including selling the whole company to a private investor.

Another shareholder, Farallon Capital Management LLC, said Toshiba should seek approval of two-thirds of its shareholders, rather than a simple majority, to go ahead with its separation plan.

“The core issue afflicting Toshiba is the lack of trust between management and its shareholders, resulting in four years of prolonged conflict,” the U.S. investment firm said Jan. 18. “The very need for a shareholder to raise such a self-evident point even after the repeated governance failures only exacerbates the situation.”

Paul Brough, a Toshiba independent director who heads its strategic-review committee, said Monday the two-way-split plan reflected shareholder input. He said the board was focused on increasing shareholder returns and selling noncore businesses.

Earlier Monday, Toshiba said it would sell a 55% stake in an air-conditioner joint venture to its partner, Carrier Global Corp., for about $868 million. The company also said it planned to sell its elevator and lighting businesses.

Toshiba has gone through repeated upheavals since an accounting scandal emerged in 2015, and foreign shareholders now hold big stakes.

Tensions between the company and shareholders grew after a report released in June 2021 found evidence of broad collaboration between the company and government officials to stifle foreign shareholders’ voices ahead of an annual shareholder meeting in July 2020. One executive wrote an email saying that the group’s way of dealing with those shareholders was to “beat them up,” according to the report.

FT : Business class: Amazon and Nike evaluate separate bids to buy Peloton

Business class: Amazon and Nike evaluate separate bids to buy Peloton
Activist investors have pushed for a sale of the maker of connected fitness equipment

Nike and Amazon are separately evaluating bids for Peloton, which has come under fire from an activist investor who has urged the board of the maker of connected fitness bikes and treadmills to sack its chief executive and explore a sale.

Amazon and Nike have not held any talks with Peloton and the considerations are preliminary, according to people briefed on the matter. They added that the decision to look at Peloton was opportunistic given its market value collapsed from nearly $50bn 12 months ago to less than $8bn this week.

Any deal would be hard to get done without the backing from John Foley, Peloton’s co-founder, and other insiders due to the company’s dual-class shareholder structure, which gives them veto power on all big decisions.

Other buyers are also likely to emerge, said those briefed on the matter, potentially including Apple and large private equity buyers.

Peloton was riding high at the peak of the coronavirus pandemic, when thousands of people started using its signature stationary bike amid lockdowns.

On Friday, its share price jumped 30 per cent in after-hours trading after The Wall Street Journal reported that Amazon was considering a bid for the company. The Financial Times first reported Nike’s decision to evaluate a deal.

An Amazon spokeswoman declined to comment on “rumours and speculation”. Nike did not return a request for comment. Peloton declined to comment.

Blackwells Capital, which owns less than 5 per cent of Peloton, has accused Foley of mismanagement, including misleading investors and hiring his wife in an executive role, a decision that the hedge fund claimed cost $40bn in shareholders’ wealth.

Foley told Peloton employees last month that the company was considering cutting its workforce and production output due to a drop in demand for high-end stationary bikes and treadmills. The move came after CNBC reported in January that it planned to halt production because of low demand, which led to the share price of Peloton falling about 25 per cent in a single day.

Although Wall Street has lost faith in Peloton’s future over the past year its finances are not in dire straits. When the company rushed out preliminary earnings almost three weeks ahead of schedule on January 20, it reported revenues of $1.14bn, in line with guidance of between $1.1bn and $1.2bn. Monthly churn — the number of subscribers leaving Peloton each month — was just 0.79 per cent, suggesting current users remain enthused.

Nike had considered a bid for Peloton before the company went public in 2019 but decided not to proceed with an offer, said two people briefed about the matter. If Nike were to buy Peloton it would reverse a decision to focus on tech software rather than hardware.

A Peloton deal could bolster Amazon’s broad ambitions in healthcare and wellness. In 2020 Amazon launched a fitness band, Halo, that monitors activity and sleep patterns. It added a second device, the Halo View, to the range late last year.

It offers a $3.99 per month health and wellness subscription that includes workout programmes, recipes and additional monitoring.

Any eventual deal would likely be Amazon’s biggest since its $13.7bn acquisition of Whole Foods Market in 2017, and follows last year’s $8.45bn swoop to buy movie studio MGM.

The MGM deal, yet to close, is the subject of a competition probe by the US Federal Trade Commission as part of broader concerns over the Seattle-headquartered group’s size and power.

FT : €800mn Westin Paris sale tests the market for high-end hotels

€800mn Westin Paris sale tests the market for high-end hotels
Historic French building has enviable address but sector has been battered by two years of Covid restrictions

One of the largest and most illustrious places to stay in Paris is up for sale for €800mn, testing investors’ appetite for such trophy hotels in a post-coronavirus world. 

The Westin Paris Vendôme hotel, which has hosted Napoleon III’s wife, Russian dukes and the Dalai Lama since it was built in 1878, is being discreetly marketed by owners Henderson Park, according to two people familiar with the deal. 

Henderson Park purchased the hotel, which is operated by the Marriott group and which occupies an entire city block, in 2017 for a reported €550mn from Singaporean sovereign wealth fund GIC. 

The hotel is currently being offered at around €800mn despite the impact of the pandemic on the sector — a “punchy” valuation, according to Kenneth Hatton, head of hotels in Europe, the Middle East and Africa at property company CBRE.

“This is an asset with a lot of reconfiguration that is required so redevelopment risk is always something to be considered,” Hatton said, adding that the 440-room hotel, which faces onto the Tuileries gardens, had become “old and tired”. 

The sale has drawn interest from a handful of bidders, according to one of the people, including sovereign wealth funds, very wealthy individuals and heads of state. But none is yet in exclusive talks to purchase the property, which houses retail space below its rooms.

“Given the footprint it will be very much of interest to a global pool of capital who will want to own forever real estate in the heart of Paris . . . particularly Middle East and Asian [buyers],” Hatton said.

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Travel sector braces for post-pandemic world

The sales process, first reported by property publication React, is a gauge of the willingness of investors to buy into high-end city centre hotels after two years in which the sector has been battered by ongoing and volatile travel restrictions. 

Luxury hotels have suffered particularly badly given their dependence on overseas visitors and the hefty overheads required to maintain their staff and services.

Henderson Park has cut costs in the hotel, where suites with a view of the Eiffel Tower are advertised at around €4,000 a night. 

With the pandemic eating into revenues, the Westin announced a large round of redundancies at the start of 2021. Around half of the 350 or so staff at the hotel were made redundant and their roles filled with subcontractors. 

The Parisian market had already faced a tough period coming into the pandemic with supply outstripping demand as travellers steered clear of the city in the wake of terrorist attacks in 2015 and 2017, followed by the gilets jaunes protests a year later.

Paris’ luxury and high end hotels have trailed rivals in London and Berlin with their highest occupancy levels since 2015 reaching 73 per cent compared to 81 per cent in London and 79 per cent in Berlin, according to the industry data provider STR.

Hatton said that the Westin would need between €175mn and €250mn spent on it to “bring it to true luxury” as well as a radical reduction in the number of rooms but said that a developer could give it a quick “lipstick and rouge” makeover for around €50mn to €100mn if they were less keen to commit capital.

The hotel has previously been heavily reliant on meetings and events such as high-end fashion shows, an area of travel that is likely to be among the last to recover from the pandemic.

Henderson Park declined to comment.

FT : Dolce & Gabbana to take beauty business in-house

Dolce & Gabbana to take beauty business in-house
Italian fashion group to make its own perfume and cosmetics as licensing deal with Shiseido ends

Three decades after it ushered its first fragrance into stores, Dolce & Gabbana is bringing its €476mn wholesale beauty business in-house, part of a plan to diversify its revenue streams beyond fashion amid a boom in high-end fragrance and cosmetics.

A new Dolce & Gabbana Beauty division will take over development, manufacturing and distribution of the brand’s fragrance and make-up products from Shiseido.

“We will be the first Italian fashion brand to manage the beauty category in-house,” Gianluca Toniolo, the new operating chief executive of Dolce & Gabbana Beauty and former managing director of global travel retail at LVMH, told the Financial Times.

Although luxury fashion brands have been part of the beauty market since Chanel introduced its first fragrance in 1921, they remain small players compared with sector leaders such as L’Oréal and Unilever.

Only a handful of fashion brands, including Chanel and Dior, manage the manufacturing and distribution of their beauty products. The vast majority license their names to third-party specialists.

Japanese cosmetics group Shiseido last year disclosed plans to terminate its licensing agreement with the Italian fashion house to focus on its prestige skincare business.

Taking a beauty business in-house can be costly and complex. Burberry briefly took ownership of its beauty business in 2013, shortly before the departure of then-CEO Angela Ahrendts, but reached a licensing deal with Coty in 2017.

Alfonso Dolce, Dolce & Gabbana’s chief executive and brother of co-founder Domenico Dolce, believes beauty can be a substantially larger business for the group.

The company forecasts annual beauty retail sales will grow by “more than €1bn” to €2.5bn in seven years, he said, generating about €1.25bn in annual wholesale revenue.

Dolce & Gabbana, whose roughly €1bn in revenues were down from €1.35bn in the year ending March 2019, is investing €300mn in the venture. The new company plans to hire 150 people by the end of the year, eventually building a global team of 350-500 people.

“It’s a very healthy and very exciting market they are going into,” said Larissa Jensen, beauty industry adviser at market research group NPD.

All big beauty categories grew in the US in 2021, but none faster than the $6.3bn fragrance industry, which was up 35 per cent from pre-pandemic levels.

“For the first time in [recent] history, the fragrance category is now the same size as skincare,” Jensen said. “There are more buyers spending more money . . . It’s the way consumers are treating themselves.”

She added that the more expensive products — larger bottles, highly concentrated eau de parfums, artisanal scents and products from designer brands — were performing best.

Toniolo said that made Dolce & Gabbana, which derives 95 per cent of beauty revenues from fragrance, well-primed for expansion.

The new company plans to introduce “very rare, Italian-quality” scents, with new launches costing about 50 per cent more than the Dolce & Gabbana fragrances currently on the market.

“We have to go at the very high end,” Toniolo said.

The company also plans to expand its range of colour cosmetics and enter into skin care, although Toniolo said it would avoid products such as anti-ageing because it was “not a technological company like Estée Lauder or Shiseido”.

FT : Metaverse ‘cannot escape’ UK online rules, say experts

Metaverse ‘cannot escape’ UK online rules, say experts
Virtual worlds being created by likes of Meta and Microsoft will be subject to forthcoming safety bill

The metaverse will be subject to stringent UK regulation, making tech giants behind the virtual worlds open to billions of pounds of potential fines, according to the experts whose work underpins the forthcoming Online Safety Bill.

The warning, which is supported by the British government, comes just days after Meta, the company formerly known as Facebook, flagged potential regulatory risks from its metaverse strategy to investors in a securities filing. Meta has already spent $10bn building its unprofitable augmented-reality division, seeking to create an avatar-filled virtual world.

“Technology companies can’t use the metaverse to escape regulation,” said Lorna Woods and William Perrin, the academics responsible for creating the model underpinning the Online Safety Bill. “The feeling is that Meta has moved the debate on to a new type of service that avoids regulation. But that isn’t the case at all in our view. The Online Safety regime applies.” 

UK ministers, including Chris Philp and Nadine Dorries, have also previously warned that the new law would apply in the metaverse, whatever future form it took.

Meta said that safety and privacy will be baked into its metaverse designs and that it had already committed $50mn into research in this area.

Microsoft chief executive Satya Nadella has also painted his company’s $75bn purchase of video games company Activision as central to the future of online interaction as people spend more time in the metaverse.

Meta said in its annual 10-K report on Thursday that its metaverse efforts may be subject to new laws in the US and worldwide “including in the areas of privacy and ecommerce, which may delay or impede the development of our products and services, increase our operating costs, require significant management time and attention, or otherwise harm our business”.

Virtual worlds, where users’ lifelike 3D avatars can express themselves in a fuller range of human speech and gestures, present an even greater content-moderation challenge than the hundreds of millions of written posts and images that flow through Facebook, WhatsApp and Instagram every day.

Meta’s virtual reality boss, Andrew Bosworth, has admitted that virtual reality can often be a “toxic environment” especially for women and minorities. He said in an internal memo from March seen by the Financial Times that moderating user behaviour “at any meaningful scale is practically impossible”.

“The big caveat is we don’t know what the metaverse is, so it’s based on our best guess of what it might look like . . .[but] we need to think about what mitigations or solutions look like that are different in the metaverse, particularly in real time, compared to text or image-based static platforms,” said Woods, who is a professor of internet law at the University of Essex.

Further complicating the path to the metaverse are Meta’s hopes of incorporating blockchain-based digital payments, which it has warned investors will also involve a high degree of legal uncertainty and technical risk.