Weber in an exclusive interview on Bloomberg TV blamed the lack of oversight particularly in family offices – entities typically established by wealthy families – which don’t have to disclose information about the firm to regulators, unlike hedge funds.
Weber urged regulators like the US Securities and Exchange Commission to enforce more transparency, adding that without action from official agencies, UBS itself would force more transparency at the bank.
“If it’s not enforced by regulators, we will enforce it because we need that information,” Weber told Bloomberg Wednesday. “If we finance activity, we want these disclosures and if clients are unwilling to give that, well there may be other banks that give them that same exposure, but it won’t be us.”
Given the “unusual” situation, Weber revealed that UBS is conducting an internal investigation to get to the root of the issue. The chairman did clarify that they are not subject to regulatory action.
“We’re not very happy with this event,” he said. “I’m hyper-focused on this …We’ve not changed our risk appetite. This was not within what should have happened. So we need to get to the bottom.”
Weber also clarified that no one will be stepping down at the bank as a result of the episode, adding that it was the process that needed improvement.
“I don’t see a single failure of a single part of the organization,” he said. “But what I do see is that the number of combinations that interacted wasn’t very good and so we need to improve each and every element of that so that those interactions don’t happen again.”
The Biden boom is in full swing and people like what they see.
Investors and business owners around the world are largely optimistic that the Biden administration’s economic policies will fuel a robust recovery and leave them on better footing, according to a recent UBS survey. Some 64% of respondents view the administration as having a positive impact on the global economy. Six in 10 believe the White House’s policies will support global markets.
Roughly 57% of investors and business owners said the Biden administration has benefitted their personal finances, and 54% of business owners said the policies benefitted their companies.
In just the first 100 days of his time in office, President Joe Biden has embarked on one of the most ambitious policy strategies in modern history. The president passed a $1.9 trillion stimulus measure – the second-largest in history – on March 11 and has since unveiled follow-up packages that include roughly $4.1 trillion in additional spending. Economists have largely linked soaring retail sales and stronger economic growth to the stimulus measure.
To be sure, President Joe Biden’s policies aren’t the only cause for optimism. New COVID-19 cases in the US sit at their lowest seven-day average since October, and state and local governments have been slowly rolling back lockdown measures for weeks. And while the vaccination rate has slowed, it still sits at an average 2.5 million doses per day. At the current rate, the US will reach herd immunity over the next three months, according to Bloomberg data.
In the US specifically, seven in 10 investors expressed hope about the path of the economy. That compares to just 52% three months ago and makes US investors the most positive globally, UBS said.
The share of US investors growing positive toward stocks rose to 71% from 59%. The shift underscores a broader move toward riskier assets as investors ditch the safe havens they held at the start of the pandemic and position for a swift recovery.
The responses join other sentiment gauges that have turned stronger in recent months. The University of Michigan’s consumer sentiment index rose to a fresh pandemic-era high in April, according to a Friday release. That level is the highest since March 2020. Separately, the Conference Board’s consumer confidence measure rose to its highest level since February 2020 as the healing labor market and latest round of stimulus checks boosted outlooks.
UBS interviewed 2,850 investors and 1,150 business owners around the world from March 30 to April 18. Responses were sourced from 14 markets including the US, the UK, Mexico, mainland China, Japan, Italy, Brazil, and Mexico.
Major banks from JPMorgan to UBS are increasingly keen on the Ethereum blockchain network, and it’s helping the system’s cryptocurrency, ether, soar to record highs.
Ether rose to an all-time high of $2,710 during Asian trading hours, before paring some gains to stand at around $2,672 on Wednesday.
The world’s second-most popular cryptocurrency had risen 15% over the week to Wednesday, according to data provider CoinGecko. It had gained around 260% in 2021 so far, compared to a 87% rise in bitcoin.
The interest from major banks and institutions around the world in the Ethereum network has boosted ether, which is the native cryptocurrency of the network and is used for transactions on it, analysts say.
On Tuesday, Bloomberg reported the European Investment Bank is planning to sell digital bonds using the network’s technology, offering $121 million of debt. The sale will be led by Goldman Sachs, Banco Santander, and Societe Generale, Bloomberg said.
It follows a rise in interest in the blockchain network, on which a range of applications can be built, including non-fungible tokens or NFTs and new technologies in the world of so-called decentralized finance.
JPMorgan, UBS and Mastercard were among the investors in Ethereum development company ConsenSys in a $65 million funding round earlier in April.
“Enterprise Ethereum is a key infrastructure on which we, and our partners, are building payment and non-payment applications to power the future of commerce,” Raj Dhamodharan, executive vice president of digital asset products at Mastercard, said.
ConsenSys has also worked with central banks in France, Australia and Thailand on central bank digital currency projects.
Analysts also say planned upgrades to the Ethereum network to make it more efficient, lower fees and start to destroy coins are helping the ether price.
Dallas Mavericks owner Mark Cuban told the Unchained podcast earlier in April that the move to a more efficient system will mean “the holdback of the impact on the environment will change immediately.”
He added: “That is going to give some people a reason to use Ethereum as a store of value over bitcoin, right there.”
Lex Sokolin, head economist at ConsenSys, said: “We think that Ethereum will become a global digital economy, settling the movement of all types of value across the world, including a meaningful portion of traditional financial services.”
It imploded in March when some of its highly levered bets on US media and Chinese tech companies started to go bad.
Its prime brokers – the banks which facilitate lending and sales to hedge funds and family offices – demanded it put up more collateral to cover potential losses. When Archegos failed to do so, the banks began to forcibly dump its holdings, leading tens of billions of dollars of selling.
Credit Suisse was the most badly burned by these fire sales. It eventually took a hit of $4.7 billion from Archegos in the first quarter after being slow to ditch its exposure. It pushed the bank to a $275 million loss in the first quarter.
Morgan Stanley took a $911 million loss from Archegos in its prime brokerage unit. But its profit nonetheless jumped 150% to $4 billion on the back of buoyant markets.
UBS chief executive Ralph Hamers said: “Our first quarter results also factored in a loss related to the default by a single US-based prime brokerage client. We are all clearly disappointed and are taking this very seriously.
“A detailed review of our relevant risk management processes is underway and appropriate measures are being put in place to avoid such situations in the future.”
UBS shares fell 2.73% in early trading to 13.74 Swiss francs ($15).
But UBS noted that there are increasing signs that Apple is working on autonomous vehicle technology. For example, Apple was recently granted a patent for VoxelNet, a technology that could be used for AVs, the analysts said.
“Although Apple has not made a formal announcement yet, we believe the series of patents granted around AV further demonstrates Apple is allocating significant resources to projects that have ‘optionality’ but not reflected in the shares,” they said.
UBS also noted that Apple’s Voxel patent file makes a brief mention that the technology involves processors that simulate a vehicle making a turn, a further hint that the company is diving into self-driving cars.
“Although the application could have a myriad of uses, we find the use of the word ‘vehicle’ in the patent claim along with prior research published by Apple as important clues around the company’s commercial intentions,” said UBS.
Apple rose as much as 1.6% on Thursday, though the stock is down roughly 2.5% year-to-date as investors have taken profits from mega-cap technology names that dominated in 2020.
“Apple currently trades at 28x NTM P/E, in-line with its trailing one year average,” said UBS. “However, we believe a sum-of-the-parts (SOTP) framework is more appropriate going forward given auto optionality. As such, our price target of $142 reflects not only a value for Apple’s “Core” of ~$128 but also an evenly-weighted probability value of Apple’s auto opportunity ($14/share) in our SOTP analysis.”
Central banks will soon need to issue digital currencies as the use of cash slowly becomes irrelevant, according to UBS chief economist Paul Donovan.
“Central bank digital currencies are likely to start becoming part of individual economies’ payment systems in the coming years,” he said in a note published this week.
People are using physical forms of money, like notes and cash, much less than before. Moreover, about half of Sweden’s banks no longer accept cash and its economy is expected to go cashless by 2023.
“We wave debit cards and mobile devices around with the reckless abandon of a first year student at Hogwarts trying out a wand, magically paying for things without ever having to touch cash,” Donovan said, referring to the boarding school in the “Harry Potter” series of children’s books.
Donovan laid out specific differences between how CBDCs would operate compared with cryptocurrencies. CBDCs would be interchangeable with notes and coins in circulation, accepted for tax payments, and wouldn’t have wild fluctuations in value – unlike typical crypto, such as bitcoin. Officially backed digital currency supply could change depending on the central bank’s ability to regulate the spending power of the currency, he said. Meanwhile, cryptocurrencies are decentralized and cannot be controlled by any one party.
He also said digital cash is a direct claim on the private bank to which its account is tied, and not on the government. This means government-produced money is becoming less significant, while digital money produced by the private sector is increasing in importance.
“If central banks want to stay relevant as cash becomes less relevant, they might have to consider entering the world of digital money,” he said.
China is among the leading economies looking closely at CBDCs. The People’s Bank of China aims to become the world’s first to issue a digital currency as part of a push to reduce its reliance on the dollar-denominated financial system, according to Reuters.
Federal Reserve Chairman Jerome Powell said last month a potential digital dollar is a “high priority” project for the US. But he thinks CBDCs should exist alongside cash and other forms of money, rather than replace them entirely.
Forget the pandemic. Inflation is the new issue haunting Americans, on Wall Street and Main Street alike.
Celebrations over vaccine approvals and falling COVID-19 case counts are giving way to concerns over just how quickly the economy will recover – and what that means for prices.
New stimulus signed earlier this month promises to send hundreds of billions of dollars directly to Americans and supercharge consumer spending. And shortly afterward, the central bank underscored that it will support a strong recovery this year, as the Federal Reserve reiterated that it plans to maintain ultra-easy financing conditions at least through next year.
The potent combination of monetary and fiscal support has many fearing a sharp jump in inflation. The eventual reopening of the US economy is expected to revive Americans’ pre-pandemic spending habits. Yet an overshoot of expected inflation could spark a cycle of increasingly strong price growth that leaves consumers with diminished buying power.
Worries of such an outcome are shared among both the investor class and the general public. Google searches for “inflation” surged to their highest level since at least 2008 last week, according to research by Deutsche Bank Managing Director Jim Reid. Dovish investors might highlight that similar spikes emerged after the financial crisis, but hawks can point to the unprecedented scale of pandemic-era relief for why today’s situation stands out, Reid said in a note to clients.
“Whether or not inflation ever materializes there is a rational reason why this time might be different. That’s reflected in the increased attention on inflation,” Reid added.
The theme that this time might be different was echoed by a UBS team led by Arend Kapteyn, who wrote in a March note that “pandemic price movements have been unusually large … and are historically difficult to model/predict.”
More recently, a survey from data firm CivicScience shows 42% of adults being “very concerned” about inflation, according to Axios. That compares to just 17% saying they’re “not at all concerned.”
Inflation worries investors more than Covid
Also, institutional investors are shifting their focus from the pandemic to the risk of rampant inflation. Higher-than-expected inflation is now the biggest tail risk among fund managers, according to a recent survey conducted by Bank of America, higher even than the pandemic itself. Snags to vaccine distribution fell from the top of the list to third place, while a potential bond-market tantrum was the second most-feared risk.
To be sure, younger Americans seem less perturbed. The gap in inflation expectations between the baby boomer generation and millennials is the widest its ever been, a team of Deutsche Bank economists led by Matthew Luzzetti wrote earlier this month.
The disparity is likely a product of vastly different circumstances, according to the team. Older investors lived through the “Great Inflation,” a period from the mid-1960s to the early 1980s during which inflation surged and forced interest rates to worrying highs.
Younger Americans have only known a quarter-century of inflation landing below the Federal Reserve’s 2% target, and millennial investors could have a massive influence on whether inflation expectations and real price growth trend higher as the economy reopens, the bank’s economists said.
“With memories of the Great Inflation possibly already lifting inflation expectations for older age groups today, a more material drift higher in expectations likely would require a lift from the younger age groups,” they added.
CivicScience’s newer data suggests that gap is quickly closing. More than half of respondents aged 18 to 24 said they’re “very concerned” about inflation, more than any other age group surveyed. By comparison, just 37% of Americans aged 55 and older said they’re “very concerned.”
Respondents aged 35 to 54 were still the most worried overall, with 48% saying they’re “very concerned” and 36% saying they’re “somewhat concerned,” according to CivicScience.
Kapteyn’s note for UBS highlighted that the conversation around inflation closely resembles the one following the Great Recession: “A decade ago, following the global financial crisis, we were having very similar conversations with clients as we are now.”
At that time, fears of a quick recovery fueling an inflation bubble were similarly strong, “but instead we wound up in secular stagnation,” the bank wrote, referencing the phrase made famous by prominent economist Larry Summers to describe prolonged low growth and low inflation.
This suggests that Americans’ worries about future price growth – including warnings from Summers himself – could starve the US economy of healthy growth and rehash the last decade’s plodding recovery.
Another massive tranche of fiscal stimulus is on the brink of passage, and UBS sees the measure fueling strong growth well into next year.
Economists led by Seth Carpenter expect US gross domestic product to grow 7.9% from the fourth quarter of 2020 to the fourth quarter of 2021. Growth on a calendar-year basis will total 6.6%, a larger-than-usual difference due to depressed first-quarter gains.
The economy will continue to expand at a robust pace in 2022 as a new fiscal support measure further boosts the recovery, the team projected.
The bank’s previous baseline scenario assumed Republican opposition would force President Joe Biden to shrink his $1.9 trillion stimulus plan, but that hasn’t taken place. With House Democrats poised to approve the measure in a final vote on Wednesday, the bill is set to lift the last pockets of the economy still struggling through lockdowns.
“The manufacturing sector is robust. The housing sector is surging. The part of the economy that is lagging is consumer spending on services,” the team said in a Tuesday note. Their updated forecast sees spending more evenly spread between goods and services.
Nearly all signs point to a healthy recovery in the coming months. The average rate of vaccination has stabilized above 2 million shots per day, according to Bloomberg data. At the same time, daily case counts are down significantly from their January peak and hospitalizations have similarly plummeted.
The pace of the rebound has raised questions as to whether Biden’s massive relief plan is necessary. Where Democrats claim the hole in the economy is large enough to warrant nearly $2 trillion in fresh aid, critics argue the proposal will overheat the economy and send inflation soaring.
UBS sees little risk of a lengthy inflation overshoot. April and May will likely see price growth sharply accelerate, but that rally will quickly give way to moderately higher inflation in line with the Federal Reserve’s target. The roughly 10 million jobs still lost to the pandemic are proof that there’s room for stronger-than-usual inflation, the bank said.
“We see sustained growth, well in excess of the long-run sustainable pace, but we also see a substantial amount of labor market slack,” the team added.
The outlook matches that outlined in recent weeks by Fed Chair Jerome Powell. The central bank expects reopening to lift prices at a fairly quick rate, but the decades-long trend of relatively weak inflation won’t “change on a dime,” Powell said in a late-February House hearing.
The Fed’s preferred inflation gauge will only trend at its 2% target by the end of 2023, UBS said. Rate hikes likely won’t arrive until 2024, though tapering of the central bank’s asset purchases could arrive as soon as October if the recovery surprises to the upside, the economists added.
UBS more than doubled its price target for Tesla on Tuesday, from $325 to $730, while keeping its neutral rating, citing the electric car maker’s emerging leadership in software.
“Tesla has the potential to become one of the most valuable software companies,” the team of analysts, led by Patrick Hummel, said in a note.”This is the next battleground and main driver of valuation from here, in our view.”
Tesla’s narrative, the analysts said, is no longer about winning in electric vehicles where it has already established market leadership, but rather in software.
They predict Tesla will become one of the largest and most profitable original equipment manufacturers globally by 2030, projecting an estimated $200 billion market value for that segment of its business.
“We think the lion’s share of this value can be generated by software, mainly autonomous driving,” UBS analysts said. “No other carmaker is closer to monetize fully autonomous driving for everyday use, and the scalability of Tesla’s technology creates the biggest software-driven revenue opportunity in the industry, in our view.”
Even as its competition in the electric-vehicle space heats up, Tesla will be its most profitable player for years to come, analysts at UBS said in a Wednesday report on the future of the auto industry.
The team of analysts, led by Patrick Hummel, project that Tesla and Volkswagen will easily be the two largest producers of EVs by 2025, but that Elon Musk’s automaker will vastly outperform every other electric car company in terms of profits.
They estimate that Tesla will sell 2.3 million EVs that year and turn an operating profit (OP) of $20 billion. Volkswagen, they project, will sell 2.6 million electric cars for a roughly $7 billion profit. The next closest competitor, by UBS’ estimation, will be General Motors with 800,000 EVs sold and approximately $2 billion in earnings from them.
In 2020, Tesla’s first full year in the black, it sold just shy of 500,000 vehicles and netted $721 million. But roughly $1.6 billion of its $31.1 billion in revenue came from selling regulatory credits to competing automakers that need them to meet emissions standards.
Tesla’s massive profitability advantage won’t come from its cars, but rather from its software offerings, the analysts said.
Tesla is the only automaker that is able to beam out meaningful software updates to its vehicles, and its Autopilot driver-assistance system – which can be continually improved via over-the-air updates – is among the best the industry has to offer. An even more advanced automated-driving feature, “full self-driving” mode (FSD), is on the way.
“We estimate that $9 billion of the $20 billion OP is directly related to the monetization of Tesla’s software capabilities (mainly full self-driving),” the analysts said. “VW should be well ahead of all other legacy OEMs, thanks to scale, but with a much smaller upside from software vs. Tesla.”
Although FSD isn’t capable of making cars fully autonomous yet, Tesla bulls say it has the potential to dramatically boost the company’s profits. For instance, Tesla could realize huge gains if it follows through on its promise to establish a network of autonomous taxis.
In Wednesday’s report, the analysts predicted that in the long term, EV-focused companies like Tesla will continue to widen their technology lead over traditional automakers. Legacy manufacturers will lose market share as consumers choose more advanced products, ultimately leading to consolidation.
“All large global OEMs including VW have accelerated software/digitization investments, but it remains to be seen if their strategies succeed. Tech companies and EV pure-plays are potentially in a better position to be the leading innovators,” they said, adding, “Players with a fully functional autonomous driving stack own the key to financial success.”