In the United States, a class-action lawsuit has been filed against the Swiss bank Credit Suisse, alleging that the bank misled investors over business dealings connected to Russian oligarchs.

The people and entities behind the lawsuit, which are represented by the law firm Pomerantz LLP, all acquired Credit Suisse securities between March 19, 2021 and March 25, 2022.

“The complaint alleges that, throughout the class period, defendants made materially false and misleading statements regarding the company’s business, operations, and compliance policies,” Pomerantz said in the statement released on April 29, 2022.

The lawsuit has been filed in a New York district court.

Loans linked to oligarch yachts and jets

In its statement, Pomerantz accuses Credit Suisse of shortcomings regarding a securitisation deal where Credit Suisse – allegedly – securitised a portfolio of loans connected to yachts and jets owned by clients of the bank. Information regarding this deal appeared in a Financial Times story in February this year, where the securitisation was described as an unusual use of derivatives to offload the bank´s own risks associated with lending money to certain Russian oligarchs and entrepreneurs.

Back then, Credit Suisse responded to the Financial Times article by saying that the transaction was “priced in line with other significant risk transactions, offered competitive investment and hedging terms for our professional investor clients while increasing the capital flexibility of the bank.”

Potentially sanctioned individuals

In March this year, U.S. lawmakers asked Credit Suisse to hand over documents related to the financing of yachts and private jets owned by potentially sanctioned individuals. On March 3, the bank stated that no client data had been erased within the bank when it asked investors to destroy documents relating to a transaction last November.

A difficult time for Credit Suisse

So far, 2022 has been a difficult year for Credit Suisse, with net revenue down 42% in the first quarter and a net loss of 273 million Swiss francs (roughly 284 million USD) for the first three months of the year.

The decline in net revenue, which is chiefly attributed to the sectors of wealth management and investment banking, has triggered a management reshuffle within the struggling Swiss bank. Three of the bank´s longest-serving executives have announced that they are leaving their positions, and one of them is Chief Financial Officer David Mathers. After the reshuffle, the executive board will only consist of managers who assumed their current roles in 2020 or later.

Credit Suisse is not in great shape to handle further trouble, as the company is still reeling from billions in losses racked up in 2021, and a series of scandals and legal issues. So far, efforts to remedy the situation through multiple rounds of management reshuffles and internal investigations seem to have had little impact.

One of the issues plaguing Credit Suisse is a court case in Bermuda. In March, a Bermuda court ruled that a local unit owed the Georgian billionaire Bidzina Ivanishvili over 500 million USD as the result of a long-running fraud committed by a former adviser.

This Monday, the Brazilian central bank announced that Brazil´s public sector posted a primary surplus of 3.5 billion reais in February. The amount is equal to roughly 700 million USD. It is a public sector surplus excluding interest payments.

The announcement was surprising, as a Reuters poll of economists had predicted an 8.6 billion reais deficit.

Also, the government debt as a share of GDP decreased to 79.2% in February from 79.5% in January.

In the 12 months to February, the primary surplus as a percentage of GDP reached 1.4%, which is an increase from the 1.23% posted for the previous month.

Federal transfers – but that´s not the whole story

So, what is behind the sudden surplus? Partly, the public sector has been boosted by federal transfers to states and municipalities, but there has also been a higher than predicted revenue stream coming from fuel sales, and state-owned companies recorded a 2.5 billion reais surplus.

In February, Brazil´s states and municipalities had a combined 20.2 billion reais surplus. Simultaneously, the central government posted a 19.2 billion reais deficit.

According to the Economy Ministry, higher tax revenue from booming commodities is helping the fiscal situation in Brazil, while public expenses are kept under control thanks to a constitutional spending cap.

A weaker currency, higher inflation and dropping stock prices

While the public sector is publishing a surplus, the Brazilian economy is simultaneously dealing with a weaker currency, higher inflation and falling stock market prices.

USDBRL

On Monday 2 May 2022, a sharp decline in the Brazilian real (pl. reais; sign: R$; code: BRL) could be observed as the USD climbed ahead of an expected U.S. interest rate hike. The U.S. Federal Reserve is having a policy meeting this week, and the public is expecting to see the U.S. central bank up interest rates by half a percentage point on Wednesday.

The BRL shed 2.5% and is thus still well above the psychologically important five-to-the-dollar mark. This is the lowest point for the BRL in almost seven weeks.

According to Rabobank cross-strategist Christian Lawrence, not just Brazil but all Latin American countries will have their currencies impacted by dollar dynamics this week rather than by local issues.

Inflation in Brazil

Brazil´s inflation reached a 27-year-high in mid-April and Brazil´s central bank is under increased pressure to raise its key lending rate by one percentage point, something which would bring it up to 12.75%. A policy meeting will take place on Wednesday (May 4, 2022).

Falling stock prices

This week, the Bovespa Index (Índice Bovespa) fell to its lowest point in over three months, chiefly dragged down by lower oil prices. This drop in oil prices was in turn linked to concerns over weak economic growth in China, as China is the world´s main oil importer. On the international oil market, these concerns proved to be stronger than any fears of the European Union imposing a ban on Russian crude oil imports.

The Bovespa Index, also known as Ibovespa, is a weighted benchmark index comprised of about 84 stocks traded on the B3 (Brasil Bolsa Balcão). Combined, these stocks account for a majority of the market capitalization in the Brazilian stock market.

On Monday May 2, 2022, the board of Spirit Airlines (NYSE:SAVE) rejected JetBlue Airway Corp´s (NASDAQ: JBLU) takeover offer, citing anti-trust legislation as the reason behind the rejection.

The takeover offer was for $33-per-share, and on Friday JetBlue had sweetened the offer with a $200 million reverse break-up fee ($1.80 per Spirit share) if the deal could not go through due to anti-trust legislation.

According to Spirit Airline´s board of directors, the transaction had a low likelihood of being approved by governmental regulators.

Share price impact

Once the rejection had been announced, Spirit shares fell 9.4% to $21.40.

Why is Spirit worried?

In a letter to JetBlue, Spirit chairman H. McIntyre Gardner did not mince words, as he called JetBlue´s offer illusory, and explained that because of the substantial completion risks “Spirit´s board has not found it necessary to consider it”.

JetBlue is currently involved in an antitrust lawsuit with the U.S. Government, as they were sued by the U.S. Justice Department in September last year over the Northeast Alliance partnership between JetBlue and American Airlines.

“We believe a combination of JetBlue and Spirit has a low probability of receiving antitrust clearance so long as JetBlue’s Northeast Alliance (NEA) with American Airlines remains in existence,” Spirit said in the letter to JetBlue Chief Executive Officer Robin Hayes on Monday.

In the United States, the Biden administration is considered to be more negative to mergers than the Trump administration.

More than one suitor

JetBlue is not the only airline with its eyes on Spirit; the airline Frontier has also revealed a strong interest in the Florida-based low-cost airline. According to Frontier, a merger with Spirit would help them compete with the big four legacy airlines that currently account for almost 80% of the U.S. passenger market: United Airlines, Delta Air Lines, American Airlines, and Southwest Airlines.

In February this year, Frontier made a cash and stock bid offer to Spirit valued at roughly $21.66 per share.

JetBlue has not given up

After being rejected by Spirit on Monday, JetBlue is now offering Spirit a remedy package which aims to further decrease the risk of the U.S. government prohibiting the deal.

The package includes the divestiture of all Spirit assets in New York and Boston, to prevent JetBlue from increasing its presence in airports covered by the Northeast Alliance partnership. The package also includes gates and assets at certain other airports, including Fort Lauderdale, Florida.