Sep 8, 2020

DealBook: We Have Questions About SoftBank

12-15 minutes - Source: NYT

Credit...Kim Kyung Hoon/Reuters
What did SoftBank do?

Nasdaq futures are down sharply today, extending the rout in tech stocks. The rally before the reversal, it turns out, had a lot to do with outsize option bets made by SoftBank. The more investors learn about the Japanese conglomerate’s moves in the market, the more questions are raised — and the more fragile the recent run-up looks.
A quick catch-up: SoftBank aggressively bought billions of dollars' worth of call options on tech stocks, essentially betting that those shares would keep rising. That forced firms that sold SoftBank those options to hedge their risks by buying the underlying stocks — and as those stocks kept rising, they had to keep buying to stay hedged. (Want to sound like a trader? The dealers were buying because they were “short gamma.”)
• The investment giant was sitting on about $4 billion worth of paper profits as of yesterday, The Financial Times reported.
We have questions. Who were the counterparties on the trade, and how much do they stand to lose? How did this huge bet stay quiet for so long? Should policymakers consider changing disclosure rules for such large option purchases? How badly could SoftBank be hurt if this trade goes sour? Is it buying more as the market falls? Should SoftBank shareholders worry that they’ve put too much faith in the company’s chief, Masa Son? (We are working on getting answers, and will report back when we do.)
For their part, SoftBank investors appear uneasy. They sold tons of shares in Tokyo yesterday and today.
Today’s DealBook Briefing was written by Andrew Ross Sorkin in Connecticut, Lauren Hirsch in New York, and Michael J. de la Merced and Jason Karaian in London.
Credit...Mandel Ngan/Agence France-Presse — Getty Images
President Trump accused Pentagon officials of being beholden to the arms industry. As he faces criticism over reports that he mocked fallen American soldiers, Mr. Trump said yesterday that Defense Department officials “want to do nothing but fight wars so that all of those wonderful companies that make the bombs and make the planes and make everything else stay happy.”
Analysts are feeling more optimistic about corporate America. They raised their quarterly earnings estimates for S&P 500 companies for the first time since 2018, according to FactSet. It’s cautious optimism: Their third-quarter estimates are up 2.6 percent over the past two months; at this point in the previous quarter, they had slashed forecasts 36 percent.
Britain is threatening to walk away from trade talks with the E.U. Prime Minister Boris Johnson said that he would break off negotiations if the two sides did not reach a deal by Oct. 15, more than two months ahead of schedule. But economists believe that Mr. Johnson has plenty of incentives to pursue an agreement.
Anheuser-Busch InBev is reportedly searching for a new C.E.O. The world’s biggest brewer is looking for a new chief to succeed Carlos Brito, who over 16 years spearheaded the company’s multibillion-dollar acquisition binge, The Financial Times reports. Mr. Brito is planning to step down as soon as next year.
Novak Djokovic’s ouster from the U.S. Open cost him $267,500. Penalties that the tennis star faced after being disqualified for accidentally striking a line judge with a ball included forfeiting $250,000 in prize money from the tournament and fines of $10,000 for unsportsmanlike conduct and $7,500 for skipping a mandatory news conference.
Credit...The New York Times Magazine, Sept. 13, 1970.
Fifty years ago this week, The New York Times Magazine published a seminal Milton Friedman essay, “The Social Responsibility of Business Is to Increase Its Profits.” To observe the occasion, DealBook and our colleagues at the magazine have produced a special issue in which executives, economists, political leaders and others weigh in on the legacy of the so-called Friedman Doctrine.
The magazine comes out in print on Sunday, and until then we will highlight exclusive bonus material from the project in the newsletter. We are also holding a DealBook Debrief conference call on Thursday to discuss the purpose of companies, the tension between serving shareholders and stakeholders, and the state of free-market capitalism. We will be joined by Leo Strine Jr., the former Delaware chief justice, and Joey Zwillinger, the co-founder of the shoe brand Allbirds.
Mr. Strine, an outspoken corporate governance expert, recently wrote an essay for DealBook about how to restore strength and fairness to the economy. Mr. Zwillinger’s company is a certified B Corp. that considers its environmental impact “just as important as the bottom line.”
📞 R.S.V.P. here to join the call on Thursday at 11 a.m. Eastern.
Michelle Leder is the founder of the S.E.C. filing site footnoted*. You can follow her on Twitter at @footnoted.
Companies that have been hit particularly hard by the pandemic are turning temporary furloughs into permanent layoffs.
Take SeaWorld, which on Friday disclosed that it would take a charge between $2.5 million and $3 million in the current quarter to cover severance costs. The company, which operates SeaWorld parks in Orlando and San Diego as well as Busch Gardens in Tampa, said in the filing that it “has determined that it will transition certain park and corporate personnel from a furloughed status to a permanent layoff.”
The clothing firm Guess, which reported earnings last week, said that the pandemic “has had and is continuing to have a material impact” on its performance, and that it was undertaking permanent layoffs to rein in expenses. The luxury watch company Movado made a similar disclosure.
Royal Caribbean Cruises said last month that it had reduced its U.S. work force by about 23 percent, through a combination of furloughs and permanent layoffs. The reduction resulted in a $25.4 million charge for the second quarter. The company recorded an additional $1.5 million on termination costs in July.
There are more cuts in store. American Airlines sent a letter to employees warning of more job losses if Congress did not pass a new pandemic rescue package. American said it expected to cut an additional 19,000 employees by Oct. 1.
This is also showing up in economic statistics, with job growth slowing in August, as more people reported that they had lost their jobs permanently, rather than being temporarily laid off or furloughed. If recent corporate filings are anything to go by, this trend seems likely to continue.
Credit...John Lamparski/Getty Images
As Joe Biden works to unite the centrist and the progressive wings of the Democratic Party, many battles are breaking out, sometimes in unexpected ways.
Black Democrats are urging Mr. Biden to forego an anti-Wall Street “purity test” for potential appointments, Politico reports. Such a policy could hurt a Biden administration’s ability to hire prominent Black Democrats for top-level posts, they argue.
Among those who could be disqualified under such a rule, according to Politico, are Roger Ferguson of TIAA (a former Fed vice chair) and the financiers John Rogers and Mellody Hobson. (We’d add Deval Patrick, the former Massachusetts governor, who is now an executive at Bain Capital.)
• Progressive advisers to Mr. Biden played down any conflict between diversity and commitment to the party’s left.
Wall Street backers still think they have powerful perches within the Biden camp. One unnamed financial donor told The Washington Post that Biden officials had dismissed commitments to proposals like the Green New Deal as “an exercise to keep the Warren people happy.” And key names on the Biden transition team include the financier Jeff Zients and Bob McDonald, the Republican former C.E.O. of Procter & Gamble.
Credit...Melinda Sue Gordon/Warner Bros Entertainment, via Associated Press
The hotly anticipated Christopher Nolan thriller made its debut at the North American box office this weekend, collecting a so-so $20 million. Analysts and executives saw it as a crucial test for how movies will be released during the pandemic.
“For now, this is as good as it gets,” David Gross of the film consultancy Franchise Entertainment Research told The Times. The debut was the best since the pandemic forced U.S. theaters to close in mid-March — but about 35 percent of U.S. cinemas have yet to reopen.
Hollywood may pull back from movie theaters. The results have “likely helped accelerate the shift of movies away from theaters after a lackluster domestic opening illustrates consumers are not ready,” the media analyst Rich Greenfield tweeted yesterday. He predicted that the remaining hot tickets for 2020 — Disney’s “Black Widow”; the latest James Bond movie, “No Time to Die”; and Warner Brothers’ “Wonder Woman 1984” — would probably be delayed.
Another test for studios: “Mulan.” Disney chose to release the movie over the weekend exclusively on its Disney+ streaming service — for $30. Disney hasn’t disclosed sales, but data from Sensor Tower suggest that Disney+ downloads increased 68 percent this weekend compared with the previous weekend. That could be a further incentive for major studios to embrace a digital-first release strategy for their highest-profile projects.
• But “Mulan” faces criticism for being partly filmed in Xinjiang, the Chinese region where Uighur Muslims are being detained in internment camps. The movie’s star, Liu Yifei, has expressed support for the Hong Kong police, who have been criticized for their use of force against antigovernment demonstrators.
🗣 In a relatively quiet, holiday-shortened week, companies reporting quarterly earnings include Lululemon and Slack today; American Eagle Outfitters on Wednesday; Chewy, Oracle and Peloton on Thursday; and Kroger on Friday.
🇨🇦🇪🇺 The Bank of Canada and European Central Bank hold policy meetings on Wednesday and Thursday, respectively. No changes to interest rates are expected, but analysts will be poring over the post-meeting comments and statements for clues on the course of economic recovery.
📈 Economists will focus on U.S. inflation data, with producer prices out on Thursday and consumer prices on Friday. The Fed’s recent rethink of how it balances inflation with job growth will put extra attention on these monthly stats.
• Jamie Salter, the brand-licensing expert, and David Simon, the shopping mall mogul, are transforming the U.S. retail landscape by buying bankrupt brands like Brooks Brothers and Forever 21. (NYT)
• Citigroup is in a rare public feud with a hedge fund client, Brigade, over its work restructuring loans for Revlon — and a mistaken $900 million payment to lenders. (WSJ)
• Louis Dreyfus, the family-owned commodities trading giant, is reportedly in talks to sell a stake to the Abu Dhabi sovereign wealth fund ADQ. (Bloomberg)
Politics and policy
• President Trump’s re-election campaign had a huge financial edge over Joe Biden’s five months ago. But with lavish spending, a billion-dollar campaign has lost its advantage (NYT)
• Former employees at Postmaster General Louis DeJoy’s previous company said he pressured them to donate to Republican candidates. Mr. Trump said he would support an investigation into the allegations. (NYT, WSJ)
• The Trump administration is focused on TikTok a danger to U.S. national security, but the messaging app WeChat is more of a cornerstone for China’s surveillance state. (NYT)
• Samsung scored a $6.6 billion contract with Verizon to make 5G wireless network equipment, making an effort to join Qualcomm and Huawei as the top players in the sector. (Reuters)
Best of the rest
• Workplace pandemic policies have created a rift between parents offered more benefits and resentful workers who don’t have children. (NYT)
• “Airplane Cabins Could Look Different the Next Time You Fly” (Bloomberg)
• Looking to buy a used car in the pandemic? You’re not alone. (NYT)
Thanks for reading! We’ll see you tomorrow.
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