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‘It’s about reputation’: AAA-rated PM reveals Credit Suisse short.
Boutique boss and global macro outperformer Patrick Armstrong believes investment banking woes weigh too heavily on the financial giant.
By Chris Sloley, October 4th, 2022
The challenges facing Credit Suisse dominate financial media headlines, but for the likes of global macro investor Patrick Armstrong, reasons to short the Swiss financial giant are not new. Citywire AAA-rated Armstrong, CIO of boutique group Plurimi Wealth, said he is actively short the group and has been for the majority of 2022. ‘Credit Suisse has a strong wealth and asset management business, but its investment bank is a liability,’ he told Citywire Selector via email. ‘It has exited its prime brokerage, and more investment bank changes are likely. More legal issues remain and regulatory scrutiny lingers in the wake of losses with Archegos. ‘A bank’s value is its reputation and its stability. As clients question these things, they are seeing safer options elsewhere, which puts a strain on CS [Credit Suisse] revenue and financial and liquidity position. We think the bonds issued by CS are much better than the equity, even after the massive selloff this year.’
Armstrong made his comments on 3 October, the same day the Financial Times reported Credit Suisse was seeking to calm investor nerves as its credit default swaps (CDS) hit an all-time high. The CDS were effectively acting as insurance against Credit Suisse defaulting on its debts. Meanwhile, Citywire Selector’s sister site Citywire Americas reported senior members of the bank’s Latin American unit resigned at the end of last month. But, as Armstrong said, this isn’t a sudden occurrence. Citywire Global Private Banker conducted detailed research into investor sentiment around Credit Suisse over the summer. The research found financial equity specialists were concerned about the depth of cuts at the group, whereas deep-value investors said there could be potential if – and if was emphasised – the Credit Suisse leadership could correct its course.
Shopping smart
Another major short within both Armstrong’s Plurimi AI Global Short Strategy and Prosper Global Macro funds is UK online retailer Ocado. Armstrong said the strategy he runs with Eugen Fostiak targets expensive stocks that have built up to incredible size but lack long-term liquidity or profitability. Ocado, which has been the biggest contributor to their short book year-to-date, was singled out as the UK consumer market has come under increased pressure. Even after the stock sold off around 70%, Armstrong said it was still expensive by Plurimi metrics. ‘The UK consumer is being pinched by higher mortgage costs, petrol and utility bills, which will start to tighten purse strings elsewhere. Paying premium for groceries during lockdown made good sense to many, but the situation is much gloomier for many today. ‘The company plans to increase capital spending expected to £800m, while UK retail sales are stagnating. Its second-half Ebitda is declining. When liquidity was abundant and interest rates were near zero, a stock like this was valued on customer acquisition. ‘This is a garbage approach to valuation and has been very frustrating for me in years of QE. As we get back to a normal environment, stocks will be valued on earnings and cashflow, not on dreams of future customers with no path to profitability. There is still another leg down for no-earnings tech and consumer disruption stocks.’
On a three-year total return basis, the Prosper Global Macro fund returned 25.3% in euro terms over the three years to the end of August 2022, versus an Alt Ucits – Global Macro sector average of 1.8%.
Publication – Citywire Selector, October 4th, 2022
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