Still Treading Water

Today’s big news in banking was that First Citizens BancShares is acquiring $72 billion in Silicon Valley Bank (SVB) assets from the Federal Deposit Insurance Corporation (FDIC). But it’s doing so at a significant discount…let’s talk about it.

First off, the deal comes after the FDIC split the auction into two segments and opened up bidding to non-financial institutions. It did so because the appetite for the auction was low, and it could not find a suitable buyer for the entire company in a timely manner. As a result, it split the auction into two: one for the traditional deposits unit and one for its private bank. 🖖

The auction for its traditional deposits unit ended with First Citizens BancShares acquiring all the loans and deposits of SVB and 17 branches for about $55.5 billion. That represents a roughly 23% discount on the $72 billion in assets its acquiring. 

In addition to the steep discount, the FDIC agreed to an eight-year loss-sharing deal on the commercial loans it’s taking over and a $70 billion credit line for “contingent liquidity purposes.” The FDIC is also giving First Citizens a five-year, $35 billion loan to finance the deal. In exchange, they’re receiving equity rights in the bank that could be worth up to $500 million in the future. 😮

As for why so many incentives were offered…simply put, finding a suitable deal was taking too long. And time kills deals, especially in a market where confidence remains shaky at best. Additionally, with other banks on not-so-solid footing, more assets could be on the market soon. That would give suitable buyers more options and bargaining power.

Ultimately the FDIC decided taking the costliest loss in its ~90-year history ($20 billion) was the best outcome it could achieve under the current circumstances. That said, those losses could balloon further as it still has about $90 billion in assets in its receivership that it needs to find a home for. 🏠

$FCNCA shareholders were happy with the “sweetheart deal” it received. Shares rose over 50% today, closing back near their all-time highs. 🤩

The many pieces to this complex situation continue to fall in place. Regional banks experienced a small pop. However, uncertainty remains high, leaving many investors on the sidelines. 🙅‍♂️

It’s been anything but smooth sailing for cruise lines since the pandemic. And that trend is continuing today after Carnival Cruse Lines disappointed investors with its 2023 outlook. 😞

The company’s fiscal first-quarter adjusted loss per share was $0.55 on $4.43 billion in revenues. Both figures topped the expected $0.60 per share loss and $4.32 billion in revenues.

Driving the strong results was a “phenomenal wave season,” where it experienced its highest-ever quarterly booking volumes. Its effort to drive demand appears to be working, as it continues to close the gap relative to its pre-pandemic results (2019).  🛳️

Several other stats worth mentioning:

1. Passenger-ticket revenue rose 229% from 2019 to $2.87 billion;
2. Onboarding and other revenues rose 108% from 2019 to $1.56 billion;
3. Passenger cruise days increased 181% from 2019 to 20.2 million; and
4. Net per diems per passenger cruise day was up 4.89% from 2019 to $162.96

Cash flow from operations was positive during the current quarter. Executives expect continued growth in cash from operations to drive its debt pay down over time, and the company ended Q1 with $8.1 billion in liquidity.

With that said, the company’s guidance was slightly worse than expected. Executives forecast an adjusted loss of $0.28 to $0.44 per share for fiscal 2023, much wider than the $0.07 loss expected. Net per diems is also anticipated to be above 2019 levels by 1-2%. 🔮

They also expect adjusted non-fuel cruising costs to rise 6.5-7.5% from 2019 levels, up from previous guidance of 5-6%. On a constant-currency basis, estimates rose by 1% to 8.5-9.5%. 📈

While investors are happy to see revenues back on track amid solid travel demand, rising costs remain their primary concern. To pay down its debt and return cash to shareholders, the company must keep some of that record revenue as profits. But, apparently, the market is questioning just how well the company can manage those non-fuel costs if inflation remains elevated.

$CCL shares were down about 5% on the day and have traded in a range near all-time lows for the last nine months. 🔻

The owner of Calvin Klein, Tommy Hilfiger, and other fashion brands, PVH, reported better-than-expected fourth-quarter earnings. 👕

The company’s adjusted earnings per share were $2.38 on $2.49 billion in revenues. That topped the estimated $1.64 and $2.34 billion expected. 💪

Revenues in the fourth quarter rose 2% YoY (8% on a constant currency basis), well above executives’ original guidance. They were expecting a 4% decline and a 4% increase on a constant currency basis. Full-year revenues fell 1% YoY but again beat guidance of a 3% decline.

Driving the strength was the company’s continued execution of its PVH+ plan, focusing on its Calvin Klein and Tommy Hilfiger brands and investing heavily in its direct-to-consumer efforts. The company is prioritizing a digital-leg strategy to deliver value via the channels consumers use most. These channels also tend to have higher margins than wholesale partnerships, which is why many companies embrace them. 🛒

Those efforts look to be paying off, given digital penetration as a percentage of total revenue rose to 20%.

On the negative side, its gross margin fell by 240 bps YoY. Higher costs and increased promotional activity to reduce inventory levels from elevated levels offset gains from price increases and a favorable shift in channel mix. Executives acknowledged the challenging macroeconomic environment but noted that they remain cost-disciplined and well-positioned for a slowdown. 🔻

Looking ahead, the company expects full-year 2023 revenue growth of 3 to 4%, an operating margin of 10%, and $10 in earnings per share. It also has about $600 million remaining in the stock repurchase program it authorized in 2022. 🔮

$PVH shares are up about 10% on the news. 👍