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Electronic Arts Inc. on Wednesday announced intentions to slash 6% of its workforce as the videogame publisher looks to cut costs.
“As we drive greater focus across our portfolio, we are moving away from projects that do not contribute to our strategy, reviewing our real estate footprint, and restructuring some of our teams,” Chief Executive Andrew Wilson said in a note to employees that was also shared publicly.
Wilson…
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The metaverse is among the first victims of Walt Disney Co.’s cost-cutting purge.
The Magic Kingdom is shutting down its next-generation storytelling and consumer-experiences unit, the small division that was developing metaverse strategies, as part of a plan to slash 7,000 jobs, according to a Wall Street Journal report on Tuesday.
Disney…
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Alibaba
stock was on track for its best day in months after the Chinese technology giant announced that it would split itself into six units, opening the door for its subsidiary businesses to go public.
Akin to Alibaba (ticker: BABA) shifting from conglomerate to holding company, the move is designed to unlock shareholder value and foster market competitiveness, said the group, which is one of China’s largest and most important companies. It’s a nod both to investors who have weathered years of losses for the stock—caused largely by regulatory pressures—as well as regulators who have hammered Alibaba and the rest of the Chinese tech sector over competition concerns since late 2020.
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The numbers: The U.S. economy accelerated in March, S&P Global surveys showed, but so did inflation as companies raised selling prices.
The S&P Global Flash U.S. services-sector index rose to an 11-month high of 53.8 from 50.5 in the prior month. Most Americans are employed on the service side of the economy.
The S&P Global U.S. manufacturing sector index, meanwhile, increased to 49.3 from 47.3. That’s a five-month high.
Any number above 50 points to expansion. Figures below that signal contraction.
The S&P Global surveys are among the first indicators each month to assess the health of the economy.
Key details: New orders, a sign of future sales, rose for the first time since last September at service-oriented companies.
Booking at manufacturers fell again, but at the slowest pace in six months. More positively, production increased for the first time since last September.
Employment rose across the economy as both service companies and manufacturers said they added new workers.
On the downside, the increase in demand allowed companies to raise prices at the fastest pace in five months.
Business leaders said rising costs, especially labor, contributed to their decision to raise prices.
That’s not good news for Federal Reserve officials who worry that rising wages could make it harder to get high inflation under control.
Big picture: The service and industrial sides of the economies are following different trajectories.
Americans are spending relatively more money on services such as travel and eating out and spending less on goods. As a result, service companies are still hiring and growing at a faster clip.
Manufacturers are basically treading water due to the shift in consumer spending patterns as well as the depressive effects of higher inflation and interest rates.
Adding it all up, though, the S&P reports paint the picture of a expanding economy that is not on the doorstep of recession.
What remains to be seen is how much the recent stress in the banking sector hurts lending and makes it harder for businesses to borrow and invest.
Looking ahead: “March has so far witnessed an encouraging resurgence of economic growth,” said Chris Williamson, chief business economist at S&P Global.
“There is also some concern regarding inflation,” he said. “The inflationary upturn is now being led by stronger service sector price increases, linked largely to faster wage growth.”
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
fell in Friday trades.
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Shortly after Silicon Valley Bank disclosed on March 8 that it was running short of cash and needed to raise capital, First Republic Bank’s epic stock slide began.
The stock
FRC,
has lost 90% of its value in less than two weeks, hitting an all-time low of $12.18 a share on Monday.
Supportive comments from Treasury Secretary Janet Yellen helped it snap back on Tuesday, but it’s hovering between positive and negative territory on Wednesday as investors await a key Federal Reserve decision on interest rates.
First Republic finds itself in a tough spot with a low share price and fresh debt downgrades and not even efforts to inject $30 billion into the company’s deposits in a scheme backed by JPMorgan Chase & Co.
JPM,
and a backstop from the U.S. Federal Reserve seem to be helping.
The bank’s troubles stem from its overlap both in clientele and parts of its balance sheet with doomed Silicon Valley Bank, which is being sold off this week by the Federal Deposit Insurance Corp. after it officially failed on Friday, March 10. Silicon Valley Bank suffered a classic run on a bank, when depositors, nervous that it needed to raise capital, yanked their deposits.
First Republic has suffered the same deposit flight.
As a San Francisco bank with a focus on serving high-end clients, First Republic has acted as wealth manager for the greater Silicon Valley region of executives, managing directors and startup CEOs, as well as their counterparts on the East Coast.
The list incudes Facebook
META,
Founder Mark Zuckerberg, who has a large mortgage courtesy of First Republic, as the Wall Street Journal has reported. Few of its loans ever sour — it had $213 billion in assets at the end of 2022 and $176 billion in deposits.
With its sophisticated lending products and access to the technology startup world, Silicon Valley Bank was also known for its a customer base from the venture capital and private equity world.
Also Read: 24 bank stocks that contrarian bottom-feeders can feast on now
Those well-heeled clients of both banks started running into problems as interest rates rose last year, pundits warned of an economic slowdown and investors switched to a risk-off strategy of conserving cash and containing costs.
The collapse of FTX and strain in the crypto world also fed the need for cold, hard government-backed currency. Rising interest rates made it more expensive to borrow and put a chill on the deal-making environment.
All of this and other factors led to a drain on deposits at Silicon Valley Bank and others as it faced “elevated client cash burn” at a rate that was double pre-2021 levels, even as venture capital and private equity funds were slowing down their capital raising activities, the company said in an ill-fated mid-quarter report.
On March 8 after the market close, Silicon Valley Bank said it planned to sell $2.25 billion in common stock and a type of preferred stock, with one of its major clients, private equity firm General Atlantic, in line to buy $500 million worth. Goldman Sachs Group Inc.
GS,
was handling the deal.
The company also disclosed that it had lost $1.8 billion on the sale of $21 billion in available-for-sale securities on its balance sheet to cover deposit withdrawals.
It was this last part that caused big trouble for First Republic. Not only did its clientele overlap with Silicon Valley Bank, its holdings included some of the same securities that Silicon Valley Bank sold at a loss.
Wall Street investors quickly started bidding down shares of First Republic and other regional banks and the credit rating agencies moved in, cutting the bank’s rating from investment grade deep into junk in just a few days.
None of this helped First Republic hold on to its deposits.
As one longtime banking official said recently, money from Silicon Valley types typically comes in the form of uninsured deposits, which means they’re in excess of the $250,000 that the FDIC will guarantee if a bank goes out of business. This so called hot-money is great for banks when times are good, but can move away quickly if the environment changes.
“When hot money gets nervous, it runs,” former FDIC chairman Bill Isaac told MarketWatch recently.
While an unprecedented effort on March 16 by 11 banks to inject $30 billion into First Republic’s deposits temporarily provided a lift to its stock, the move apparently wasn’t enough.
First Republic said last Thursday that it had borrowed between $20 billion and $109 billion from the Federal Reserve during that week. It also increased short-term borrowing from the Federal Home Loan Bank by $10 billion at a rate of 5.09%.
Jefferies analyst Ken Usdin said the numbers revealed that First Republic’s total deposits had dropped by up to $89 billion in the week ended March 17 past week—or about three times more than the $30 billion injection from the bank.
“With [First Republic’s] earnings profile clearly impaired, the new deposits effectively bridge the estimated $30.5 billion of uninsured deposits still on [the bank’s] balance sheet, providing time for [it] to likely explore a sale,” Usdin said.
Janney Montgomery Scott analyst Tim Coffey said First Republic’s stock drop in recent days reflects uncertainty around what a potential second bailout would look like, or how the bank’s balance sheet is faring after a steep run in deposits and the falling value of its long-dated securities.
Another unknown is the company’s latest Tier 1 capital Ratio, a key measure of a bank’s balance sheet strength.
Like Silicon Valley Bank, First Republic’s balance sheet has had more than the usual exposure to long-dated securities, which have been falling in value as interest rates rise.
A typical mix for a bank of comparable size is to hold about 72% of securities as available for sale. The remaining 28% are held to maturity. First Republic’s mix is reversed with 12% available for sale and 88% held to maturity.
The bank’s mix of longer-dated assets now commands a lower market value, given where interest rates are. The bank’s emphasis on long-dated securities provided a better return when interest rates were near zero, but they have been a liability in the current environment.
“They’ve had duration risk where the value of their securities started going down as interest rates rose,” Coffey told MarketWatch.
Another problem for First Republic is that many of those long-dated securities are in the mortgage business, which has been ailing as interest rates rise.
Plenty of questions remain about First Republic’s situation and whether it could have been avoided. The challenges facing First Republic as well as the demise of Silicon Valley Bank and Signature Bank will be the focus of hearings on Capitol Hill next week.
Wall Street is also awaiting comments from the U.S. Federal Reserve when it updates its interest rate policy later on Wednesday.
And JPMorgan Chase continues to work with First Republic on a potential bailout, even as the bank has reportedly hired Lazard
LAZ,
to weigh strategic alternatives.
All of these factors add to the uncertainty swirling around First Republic, giving investors little reason to go long on the stock for now.
Also Read: 24 bank stocks that contrarian bottom-feeders can feast on now
Related: Senate Banking Chair Sherrod Brown sees bipartisan support for changes to deposit insurance
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Amazon.com Inc. is eliminating another 9,000 jobs, the company announced Monday morning.
In a memo to staff, Amazon
AMZN,
Chief Executive Andy Jassy said the cuts would take place over the next few weeks and primarily affect Amazon Web Services, People Experience and Technology Solutions, advertising and Twitch. [Twitch CEO Dan Clancy broke the news of 400 layoffs to employees in a blog post later Monday.]
“This was a difficult decision, but one that we think is best for the company long term,” Jassy wrote.
“For several years leading up to this one, most of our businesses added a significant amount of headcount,” Jassy added. “This made sense given what was happening in our businesses and the economy as a whole. However, given the uncertain economy in which we reside, and the uncertainty that exists in the near future, we have chosen to be more streamlined in our costs and headcount.”
The news sent the retailer’s stock down 1% in trading Monday.
The latest layoffs, amid a challenging macroeconomic climate that has claimed tens of thousands of jobs in the tech industry, follow an earlier round at Amazon, announced in November, that affected more than 18,000 employees. Additionally, Amazon has paused construction of its second headquarters in Virginia.
At the same time, there are rumblings out of the Beltway that the Biden administration is preparing legal actions against Amazon stemming from investigations into its business practices, according to a report in Politico.
Amazon is the second Big Tech company this month to announce additional job cuts. Last week, Mark Zuckerberg, CEO of Facebook parent Meta Platforms Inc.
META,
wrote in a blog post the social-networking company would slash 10,000 more employees as it focuses on a “year of efficiency.” The move drove Meta shares up 7% and helped the company top $500 billion in market value for the first time since June.
In November, the company said it would cut 11,000 employees, or about 13% of its workforce, in the first layoffs in the company’s 18-year history.
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The numbers: A survey of consumer sentiment slid to 63.4 in March and fell for the first time in four months, reflecting angst among Americans about high inflation and the health of the economy.
The preliminary reading in March was down from 67 in February, the University of Michigan said. Most of the survey was completed before the collapse of Silicon Valley Bank.
Consumer sentiment helps gauge how Americans feel about their own finances as well as the broader economy.
The index had fallen to a record low of 50 last summer before partly rebounding. Sentiment is still well below a recent peak of 88.3 in 2021, however, and a pre-pandemic high of 101.
Inflation expectations tapered off a bit but remained fairly high. Consumers expect prices to increase 3.8% in the next year, down from 4.1% in the prior month. That’s the lowest reading since April 2021.
Key details: A gauge that measures what consumers think about the current state of the economy dropped to 66.4 in March from 70.7in the prior month.
Sentiment fell the most among lower-income and younger Americans who tend to suffer disproportionately from high inflation. Some wealthier people with large stock holdings were also less confident in light of a recent decline in equities.
Another measure that asked about expectations for the next six months declined to 61.5 from a prior 64.7.
Americans think inflation will persist for some time. In the longer run, consumers believe inflation will increase about 2.8% a year, down slightly from 2.9% in the prior month.
That’s still well above the Federal Reserve’s 2% target, however.
Fed officials pay close attention to inflation expectations because they could be a harbinger of future price trends.
The rate of inflation over the past 12 months is 6%, based on the consumer-price index. It’s fallen from a 40-year peak of 9.1% last summer.
Big picture: Consumer sentiment is still far below levels associated with a healthy economy and it’s hard to see a big improvement anytime soon.
The Fed is raising interest rates to tame high inflation, a strategy that typically slows the economy.
Higher rates have also destabilized parts of the U.S. financial system as witnessed by the sudden collapse of Silicon Valley Bank. That’s adding new stress on the economy.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
fell in Friday trades amid nagging worries about the U.S. financial system after the SVB failure
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Bank of America BAC, Citigroup C, JPMorgan Chase JPM and Wells Fargo WFC said Thursday that they are each making $5 billion in uninsured deposits into First Republic Bank FRC as part of a $30 billion backstop by 11 banks against the ravaged banking landscape of the past week.
However, First Republic stock fell 14.7% in after-hours trading after the bank said it would suspend its dividend to conserve cash. The bank last paid a quarterly dividend of 27 cents a share on Feb. 9 to shareholders of record as of Jan. 26.
It…
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The numbers: Mortgage rates are down for the first time in six weeks, as the U.S. economy deals with bank collapses and an uncertain road ahead.
The 30-year fixed-rate mortgage averaged 6.60% as of March 16, according to data released by Freddie Mac FMCC on Thursday.
That’s down 13 basis points from the previous week — one basis point is…
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U.S. bank stocks ended regular trading with solid gains on Thursday, as banks announced a $30 billion deposit capital infusion for First Republic Bank and as Treasury Secretary Janet Yellen cited the strength of the financial system.
The 11 banks confirmed a report from the Wall Street Journal and others about providing financial support for First Republic Bank FRC.
U.S….
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Diamond Sports Group, which operates regional sports networks that televise nearly half of all MLB, NBA and NHL games, filed for Chapter 11 bankruptcy protection Tuesday.
Diamond is owned by Sinclair Broadcasting Group Inc. SBGI, and operates its networks under the Bally Sports name.
In a statement Tuesday, Diamond said it was finalizing a…
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There’s a very real possibility the government will stop issuing Social Security payments after the debt limit is hit.
Scary as that prospect is, however, the alternative might be even worse: A little-known provision of a 1996 law could be interpreted to allow the Social Security trust fund to be used not only to pay Social Security’s monthly checks but also to circumvent the debt limit and pay all the government’s otherwise overdue bills.
If that happens, any short-term relief to Social Security recipients would come with a potentially huge long-term price tag: The Social Security trust fund could be exhausted much sooner than currently projected—in just a couple of years, in fact.
These dire possibilities emerge from an analysis conducted by Steve Robinson, the chief economist for The Concord Coalition, a group that describes itself as “a nonpartisan organization dedicated to educating the public and finding common sense solutions to our nation’s fiscal policy challenges.”
An issue brief he wrote, entitled “Social Security’s Debt Limit Escape Clause,” is available on the group’s website.
Let me hasten to add that Robinson is not advocating that the Social Security trust fund be used in this way. In an interview, he instead stressed that he wrote his issue brief because we need to be aware not only that this “escape clause” exists but that its use could have unintended consequences. Though hardly anyone outside Washington knows that it even exists, and relatively few on Capitol Hill, the Treasury Department and the Social Security Administration are very much aware of it.
Read: ChatGPT is about to make the business of retirement planning and financial advice profoundly human
Before reviewing the details of this escape clause, it’s worth focusing on the political dynamics that surround it. Because the escape clause lessens the pressure on Congress and the president to come up with a solution to the debt crisis, neither side has an incentive to publicize its existence. But if the government is otherwise pushed to the edge of the fiscal cliff, and it’s facing the potentially huge consequences of an outright default (including the nonpayment of monthly Social Security checks), the political pressure to use the escape clause could be intense.
The 1996 law that creates the escape clause was passed in the wake of the government hitting its debt limit in 1995 and 1996. Ironically, the intent of that law was to prevent the Social Security trust fund from being used for anything other than paying Social Security benefits. But, Robinson explains, that’s unworkable in the real world. That’s because Social Security checks are sent out by the Treasury’s general account, and if that account is in default the checks would bounce.
Read: These 3 things will bring you happiness in retirement — and life
If and when the debt limit is hit, therefore, the only way—in practice—for Social Security checks to continue being issued and cleared through the banking system would be for the Social Security trust fund to “lend” the Treasury sufficient funds that it could pay all the government’s unmet obligations. (I put “lend” in quotes because that’s not exactly how it works; the key is that the “loan” can be structured in ways that don’t count against the debt limit. If you’re interested in reading more about the complex logistics involved, you should read Robinson’s issue brief.)
Therefore, if the debt limit is hit, which it is projected to do perhaps as early as June, Congress and the president will be on the horns of a huge dilemma:
You can appreciate why Congress and the president don’t want us to know that this escape clause exists. Once we are aware of it, they are put in a no-win situation.
So fasten your seat belts for a wild ride in coming months as both parties play political brinkmanship over the debt limit and, by extension, Social Security. With both sides by the day hardening their stances, there’s a very real possibility that the debt limit will be hit.
If that happens, we’ll be hearing a lot more about the little-known provision of a nearly 30-year-old law.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
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The numbers: The U.S. created a robust 311,000 new jobs in February, raising the odds of another sharp hike in interest rates by the Federal Reserve later this month.
Economists polled by The Wall Street Journal had forecast 225,000 new jobs.
The increase in employment last month followed a revised 504,000 gain (initially 517,000) in January, the government said Friday.
The large back-to-back increases could force the Fed to raise interest rates higher than it had planned to slow the economy and loosen up the tightest labor market in decades. The central bank meets March 21-22 to plot its next move.
Scott Olson/Getty Images
Yet there were a few glimmers of hope for the Fed.
The unemployment rate rose a few ticks to 3.6%. Hourly wages rose just 0.2% to mark the smallest increase in a year. And the share of able-bodied people in the labor force climbed to a three-year high.
All of these are pressure valves on the labor market and the broader economy from high inflation.
Investors appeared to put more weight on those factors than another big increase in employment. Stocks rose and bond yields fell.
Big picture: An expanding U.S. economy has shown lots of resilience in the face of rising interest rates, but analysts doubt the good times can last. Higher borrowing costs typically slow the economy by depressing consumer spending and business investment.
Just look at the housing market, where soaring mortgage rates have crushed sales and new construction. The same could happen to the rest of the economy if the Fed has to jack up rates more than Wall Street expects.
Already, a robust U.S. labor market is showing signs of fraying. Job postings have declined, lots of large companies have announced layoffs and workers who lose a job are taking longer to find a new one.
It just might not be enough for the Fed.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
trimmed premarket losses in Friday trades. The yield on the 10-year Treasury fell to 3.78%.
Investors hope some signs of cooling in the labor market will encourage the Fed to keep raising interest rates in smaller increments.
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Asana Inc. on Wednesday reported and forecast narrower-than-expected losses, saying the figures reflected a firmer path to profitability, and its stock skyrocketed in after-hours trading.
The project-management software provider — whose chief executive is a co-founder of Meta Platforms Inc.’s
META,
Facebook — forecast first-quarter sales of $150 million to $151 million, with an adjusted net loss of between 18 cents and 19 cents a share. That’s better than FactSet forecasts for a 23-cent per-share loss with revenue of $150.4 million.
For the full year, Asana
ASAN,
said it expects revenue of between $638 million and $648 million, with an adjusted net loss of 55 cents to 59 cents. Analysts polled by FactSet expected a 79 cent-per-share loss, on sales of $645.8 million.
The company reported a fourth-quarter net loss of $95 million, or 44 cents a share. That compares with a loss of $90 million, or 48 cents a share, in the same quarter last year. Revenue rose 34% to $150.2 million, compared with $111.9 million in the same quarter last year.
Adjusted for stock-based compensation, restructuring and other costs, Asana lost 15 cents a share, compared with 25 cents a year earlier.
Analysts polled by FactSet expected Asana to reported an adjusted loss of 27 cents a share, on revenue of $145.1 million.
Shares soared 24% after hours.
The company reported earnings as other workplace-oriented cloud-services platforms, like Salesforce Inc.
CRM,
and Workday
WDAY,
scale back and lay off workers. The tech industry has tried to shrink, after hiring to meet digital demand brought by the pandemic that later fizzled as COVID restrictions lifted.
Shares of Asana have fallen 60% over the past two months. By comparison, the S&P 500 Index
SPX,
has lost 4.3% of its value over that period.
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This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.
https://www.barrons.com/articles/stock-market-movers-6acba64b
Stock futures traded mostly flat Monday as Wall Street kicked off a week that includes testimony before Congress from Federal Reserve Chairman Jerome Powell and the U.S. jobs report for February.
These stocks were poised to make moves Monday:
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Silicon Valley could use a reboot. The biggest players aren’t growing, and more than a few are seeing sharp revenue declines. Regulators seem opposed to every proposed merger, while legislators push for new rules to crack down on the internet giants. The Justice Department just can’t stop filing antitrust suits against Google. The initial public offering market is closed. Venture-capital investments are plunging, along with valuations of prepublic companies. Maybe they should try turning the whole thing on and off.
The only strategy that seems to be working is to lay people off. Tech CEOs suddenly are channeling Marie Kondo, tidying up and keeping only the people and projects that “spark joy,” or at least support decent operating margins. Layoffs.fyi reports that tech companies have laid off more than 122,000 people already this year.
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Analysts are increasingly upbeat about
Alibaba
stock in the wake of the group’s quarterly earnings, which supported the narrative that the Chinese tech company’s recovery is on track. But a familiar challenge may be returning.
Shares in Alibaba Group Holding (ticker: BABA) lost almost half their market value in 2021 as Beijing cracked down on the Chinese technology sector. Things were equally difficult in 2022. Regulatory pressure continued, while economic growth slowed on the mainland, battering Alibaba’s bottom line, as a result of broad lockdowns intended to stamp out Covid-19.
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