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In the wake of the collapse of Silicon Valley Bank, conventional wisdom has been that banks will cut lending, known as a credit crunch, that will damage the economy.
On Thursday, St. Louis Federal Reserve President James Bullard said he was “less enamored’ with this forecast.
“Only about 20% of lending is going through the banking system…
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Lyft Inc. is bringing in a new chief executive and removing its co-founders from running the ride-hailing company on a day-to-day basis, sending shares more than 3% higher in after-hours trading Monday.
Lyft
LYFT,
announced after markets closed Monday that board member David Risher will take over as CEO, replacing co-founder Logan Green. Green and Lyft’s other active co-founder — John Zimmer, who had been serving as president — will remain on the company’s board as chair and vice chair respectively, but not actively participate in running the company.
“I’m honored and humbled that Logan, John, and the board have trusted me to lead Lyft,” Risher said in a letter to employees. “And I’ll start by saying this: I want Lyft to lead, and I’m thrilled to lead Lyft.”
Risher worked at Microsoft Corp.
MSFT,
in the 1990s before becoming employee No. 37 at Amazon.com Inc.
AMZN,
according to Lyft’s announcement, which noted that he received a permanent thank you on the Amazon website from founder and former chief executive Jeff Bezos upon his departure in 2002. For the past 13 years, he has been in charge of a nonprofit focused on childhood literacy called Worldreader.
“Across all three organizations, I learned of the power of leading with purpose,” he wrote to employees. “Each organization derived tremendous energy through a singleness of purpose. It’s what attracted and retained great people, allowed us to make focused decisions and inspired our customers.”
In an interview with The Wall Street Journal, Risher — who has been on Lyft’s board since 2021 — admitted that Lyft faces competitive issues, seemingly referencing Uber Technologies Inc.
UBER,
He mentioned “a very aggressive — very aggressive — competitor,” while adding, “I think being a strong No. 2 is a good place to be.”
Lyft shares lost more than a third of their value in a single session in February after Green and Zimmer provided a forecast that missed expectations in what one analyst called “a debacle for the ages.” Monday’s announcement reiterated Lyft’s first-quarter guidance and said Lyft expects to report quarterly results in early May.
D.A. Davidson analyst Tom White told MarketWatch on Monday afternoon that the change at the top could be “a potential model positive.”
“A new leader with broader range of experiences could signal increased willingness to broaden Lyft’s strategic aperture a bit as it relates to other possible adjacent products (delivery?), partners, or ways to create value,” he wrote in an email.
Green and Zimmer began developing the company nearly 15 years ago, and launched the service in 2012, according to their separate letters to employees. They have jointly led the company since, including through a 2019 initial public offering that gave them special shares with stronger voting power.
From 2019: 5 things to know about the Lyft IPO
“To say I have loved leading Lyft is an understatement,” Green wrote in his letter to employees. “To say that I will miss working alongside you and this incredible team every day doesn’t even come close. This was an adventure of a lifetime, and I’ve loved every minute of it — the sweetness of the highs, and the pain of the lows that make you appreciate the next win that much more. I’m eternally grateful to this team.”
Lyft shares sold for $72 in its IPO, and closed Monday at $9.60 before moving closer to $10 in the extended session. Lyft stock has plummeted nearly 75% in the past 12 months, dropping 74.4% as the S&P 500 index
SPX,
has declined 12.6%.
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First Republic Bank shares have been hit hard over the past week following the failures of two large U.S. regional banks,
Silicon Valley Bank and Signature Bank. On Thursday, shares of the bank and many other financial firms rallied after the biggest banks in the U.S. swooped in to rescue the San Francisco lender. Under the plan, 11 banks including JPMorgan Chase & Co. placed $30 billion in deposits at First Republic, using their own funds, confirming an earlier report by The Wall Street Journal.But Friday, shares of First Republic dropped anew, sinking more than 30% and leaving analysts to wonder whether it has a future as a stand-alone bank.
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Moody’s Investors Service downgraded its credit rating on First Republic Bank to junk late Friday, citing a “deterioration in the bank’s financial profile.”
First Republic’s
FRC,
debt rating was cut to B2 from Baa1, Moody’s said. Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s debt earlier this week.
The downgrade reflects “the deterioration in the bank’s financial profile and the significant challenges First Republic Bank faces over the medium term in light of its increased reliance on short-term and higher cost wholesale funding due to deposit outflows,” Moody’s analysts said in a release.
They cited various recent developments with First Republic, including the company’s Thursday disclosure that over the previous week its Federal Reserve borrowings ranged from $20 billion to $109 billion. Also Thursday, the bank received a $30 billion deposit infusion from 11 major U.S. banks.
“Moody’s believes the high cost of these borrowings, combined with the high proportion of fixed rate assets at the bank, is likely to have a large negative impact on First Republic’s core profitability in coming quarters,” the analysts said. “In addition, the rating agency noted that while the news of the banking consortium’s deposits is positive in the short-run, the longer-run path for the bank back to sustained profitability remains uncertain.”
First Republic is reportedly looking to raise money from other banks or private-equity firms by selling additional shares, according to the New York Times.
Shares of the company have plunged 80% from the close of trading on March 8, just before Silicon Valley Bank spooked investors with an update on its business and a planned stock sale. First Republic lost 33% in Friday’s session despite the deposit arrangement with the large banks. Shares were down another 6% in the extended session Friday.
Moody’s said its outlook was maintained at “rating under review.” That review for downgrade, it said, “reflects the continuing challenges to the bank’s medium-term credit profile in light of its significantly eroded deposit base, increased reliance on short-term wholesale funding and sizeable volume of unrealized losses on its investment securities.”
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Shareholders of AMC Entertainment Holdings Inc. voted overwhelmingly in support of the company’s proposal to convert AMC Preferred Equity units into shares of common stock Tuesday.
AMC’s AMC stock, which was repeatedly halted for volatility Monday, fell 13.8%. APEs APE rose 9.3%.
In January, AMC announced the special meeting of shareholders…
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Hedge funds are offering to buy startup deposits at Silicon Valley Bank (SVB) for as little as 60 cents on the dollar, Semafor reported on Saturday, citing people familiar with the matter.
Bids range from 60 to 80 cents on the dollar, the report said adding that the range reflects expectations for how much of the uninsured deposits will be eventually recovered once the bank’s assets are sold or wound down.
Firms like Oaktree which are known for investing in distressed debt are contacting startup businesses after SVB’s
SIVB,
seizure by the Federal Deposit Insurance Corp (FDIC), the report said.
Traders from investment bank Jefferies are also contacting startup founders with deposits at the bank, offering to buy their deposit claims at a discount, The Information reported separately.
Jefferies is offering at least 70 cents on the dollar for deposit claims, the report said, citing several people with direct knowledge of the matter.
Oaktree declined to comment on the reports. Jefferies could not be immediately reached for comment.
Silicon Valley Bank was taken over by the U.S. Federal Deposit Insurance Corporation on Friday after depositors, concerned about the lender’s financial health, rushed to withdraw their their deposits. The two-day run on the bank stunned markets, wiping out more than $100 billion in market value for U.S. banks.
See: Silicon Valley Bank branches closed by regulator in biggest bank failure since Washington Mutual
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Heavy trading in SVB Financial Group’s
SIVB,
debt pulled its BBB-rated 10-year bonds as low as 31 cents on the dollar on Friday after subsidiary Silicon Valley Bank was closed by regulators, marking the biggest bank failure since the financial crisis.
The Santa Clara, Calif.–based financial-services company has been reeling in recent days, with both its stock and bond prices hit hard, after it on Thursday disclosed a $1.8 billion loss from a sale of about $21 billion in securities.
Its bond prices lost further ground Friday after the California Department of Financial Protection and Innovation closed Silicon Valley Bank, placing the Federal Deposit Insurance Corp. in control of its assets.
Silicon Valley Bank had an estimated $209 billion in total assets and about $175.4 billion in deposits as of Dec. 31, according to the FDIC.
SVB Financial’s 4.57% bonds due April 2023 traded as low as 31 cents on the dollar on Friday in heavy trading, according to BondCliq. Since the low, the debt traded up to 38.50 cents. A week ago it was fetching 90 cents. Prices on U.S. corporate bonds below 70 cents on the dollar are broadly considered distressed.
Worries about distress at Silicon Valley Bank, and potential risks in the broader distress in the banking system, have weighed on shares and the debt of financial companies.
Bonds in the financial sector were broadly under pressure Friday, including debt issued by Bank of America Corp.
BAC,
JPMorgan Chase and Co.
JPM,
Goldman Sachs Group Inc.
GS,
Morgan Stanley
MS,
and other major banks, according to BondCliq.
Shares of the Invesco KBW Bank ETF
KBWB,
were down 16% on the week through midday Friday, with some investors expressing concern about potential cracks in the financial system following a year of aggressive interest-rate hikes by the Federal Reserve.
Barclays analysts said Friday that they viewed the collapse of Silicon Valley Bank as an “isolated event, but that it still “raises risks of broader distress within the banking system” that could throw cold water on talk of a Fed interest-rate hike in March of 50 basis points vs. 25 basis points.
“Indeed, the possibility of capital losses at other institutions cannot be completely dismissed, with rising policy rates raising banks’ funding costs, more elevated longer-term rates exerting pressure on asset valuations, and potential loan losses related to idiosyncratic credit exposures.”
Shares of SBV Financial were halted Friday, but they are down about 54% on the year, according to FactSet. The S&P 500 index
SPX,
was down about 1.2% Friday afternoon, while the Dow Jones Industrial Average
DJIA,
fell 0.8% and the Nasdaq Composite
COMP,
was 1.7% lower.
Deep Dive: 10 banks that may face trouble in the wake of the SVB Financial Group debacle
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Shares of Silicon Valley Bank parent company SVB Financial Group plummeted Thursday toward the biggest one-day selloff since the dotcom boom, after the Santa Clara, Calif.-based financial-services company disclosed large losses from securities sales and a stock offering meant to provide a boost to its balance sheet.
The bank
SIVB,
which helps fund technology startups backed by venture-capital firms, said it took the “strategic actions” to strengthen its financial position as rising interest rates increase pressure on public and private markets and as clients face elevated cash burn levels.
SVB also cut its first-quarter guidance ranges for net interest income (NII) to $880 million-$900 million from $925 million-$955 million and for net interest margin (NIM) to 1.75%-1.79% from 1.85%-1.95%. The outlook for declines in average deposits was increased to the low-double-digit percentage range from mid single digits.
“While VC deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted,” Chief Executive Greg Becker wrote in a letter to shareholders. “The related shift in our funding mix to more, higher-cost deposits and short-term borrowings, coupled with higher interest rates, continues to pressure NII and NIM.”
The stock dove 41% in morning trading, outpacing the S&P 500’s
SPX,
losers by a wide margin. It was suffering the biggest one-day selloff since its record 42.3% decline on Sept. 10, 1998.
SVB said late Wednesday it sold about $21 billion worth of its available-for-sale securities. As of Dec. 31, the company had $26.1 billion in AFS securities.
The sale will result in a loss of about $1.8 billion in the first quarter of 2023, while the FactSet consensus for first-quarter net income was $274.8 million.
“The sale of substantially all of our AFS securities will enable us to increase our asset sensitivity, partially lock in funding costs, better insulate net interest income (NII) and net interest margin (NIM) from the impact of higher interest rates, and enhance profitability,” Becker wrote.
Separately, the company said it plans to offer for sale $2.25 billion worth of equity securities to bolster its financial position.
The offering includes $1.25 billion worth of common stock, which represents 13.4% of the company’s current market capitalization of $9.33 billion, and $500 million worth of mandatory convertible preferred stock. SVB has also entered into an agreement with private-equity investor General Atlantic to buy $500 million worth of common stock in a separate private transaction.
“Our financial position enables us to take these strategic actions, which are intended to further bolster that position now and over the long term,” the bank said in a statement.
JPMorgan analyst Steven Alexopoulos cut his stock-price target to $270 from $300 but reiterated the overweight rating he’s had on SVB for at least the past three years. The stock target is above Tuesday’s closing price of $267.83.
“While this is yet another setback that will result in another negative [earnings-per-share] revision, we continue to believe that it remains a question of when rather than if the war chest of dry powder on the sidelines starts to get deployed at a much more rapid pace,” Alexopoulos wrote in a note to clients.
The stock, which was headed for its lowest close since April 2020, has tumbled 28.3% over the past three months and plunged 70.7% over the past 12 months. In comparison, the Financial Select Sector SPDR exchange-traded fund
XLF,
has lost 7.1% over the past year and the S&P 500 has shed 6.6%.
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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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China has announced new rules on overseas IPOs, potentially sparking the resumption of Chinese companies listing in New York.
Under the new rules, the China Securities Regulatory Commission (CSRC) will vet any overseas listing applications, effective from March 31. The regulator has the power to block such IPOs, and the rules make clear listings must not endanger national security.
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Bed Bath & Beyond Inc.’s Canadian division will shut down its stores under court protection after the company received an unusual lifeline earlier this week to save its U.S. operations from bankruptcy.
The troubled retailer filed its Canadian division for protection under the Companies’ Creditors Arrangement Act, Canada’s rough equivalent of chapter 11 bankruptcy. Bed Bath & Beyond has “reluctantly concluded” that even with the lifeline of its recent equity raise, there isn’t enough capital available both to restructure its U.S. business and bring the Canadian business to profitability, the company said in filings with an Ontario court.
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Robinhood Markets Inc. accidentally sold short on a small stock as it went on a meme-like ride in December, costing the trading app more than the stock’s current market capitalization, executives disclosed Wednesday.
Cosmos Health Inc.
COSM,
shares nearly tripled and experienced record trading volume more than seven times any previous day on Dec. 16, as online traders looking for heavily shorted companies accused exchanges of not allowing them to sell their shares into the updraft. Robinhood
HOOD,
executives admitted Wednesday that their trading app actually became part of the frenzy, and ended up down $57 million because of it.
In an earnings call, Robinhood Chief Executive Vlad Tenev noted a “processing error on a corporate action” that was “really disappointing,” leaving Chief Financial Officer Jason Warnick to spell it out.
“A processing error caused us to sell shares short into the market, and although it was detected quickly, it resulted in a loss of $57 million as we bought back these shares against a rising stock price,” Warnick said.
When Cosmos Health effected a 1-for-25 reverse stock split that Friday morning in December, just hours after announcing its intentions, trading portals did not appear prepared. As MarketWatch reported on the day, TD Ameritrade publicly told Twitter users that the company had not received the newly issued shares to dole out to their clients as the stock spiked. A Charles Schwab Corp.
SCHW,
spokesperson emailed MarketWatch the next week to say that the distributions were all taken care of as of the end of the next business day, a Monday.
The stock gains didn’t last through that Monday, though — after reaching as high as $23.84 on the day that Robinhood was apparently buying, they lost it all in after-hours trading and headed even lower after Cosmos Health announced an equity offering.
Shares closed Wednesday at $5.04, which gives Cosmos Health a market cap of about $53 million, according to FactSet — less than Robinhood executives said they lost on the Dec. 16 trades.
Robinhood shares were up in after-hours trading Wednesday after the trading app reported a fourth-quarter miss, but said the company would seek to buy back shares sold to disgraced cryptocurrency-exchange founder Sam Bankman-Fried and executives would forego $500 million in stock compensation. Robinhood stock has declined 21.8% in the past 12 months, as the S&P 500 index
SPX,
has dropped 8.9%.
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Bed Bath & Beyond
‘s move to raise equity has depressed its stock and lifted its bonds as investors try to understand the terms of a dilutive and very complex offering.
The troubled retailer, which had said it faced the prospect of bankruptcy if it can’t raise $1.025 billion in the equity offering, said late Tuesday that it completed the deal. That brought in initial gross proceeds of approximately $225 million, while management expects to receive an additional $800 million in future installments, if certain conditions are met.
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Meta Platforms Inc. shares soared in after-hours trading Wednesday despite an earnings miss, as the Facebook parent company guided for potentially more revenue than Wall Street expected in the new year and promised more share repurchases amid cost cuts.
Meta
META,
said it hauled in $32.17 billion in fourth-quarter revenue, down from $33.67 billion a year ago but stronger than expectations. Earnings were $4.65 billion, or $1.76 a share, compared with $10.3 billion, or $3.67 a share, last year.
Analysts polled by FactSet expected Meta to post fourth-quarter revenue of $31.55 billion on earnings of $2.26 a share, and the beat on sales coincided with a revenue forecast that also met or exceeded expectations. Facebook Chief Financial Officer Susan Li projected first-quarter sales of $26 billion to $28.5 billion, while analysts on average were projecting first-quarter sales of $27.2 billion.
Shares jumped more than 19% in after-hours trading immediately following the release of the results, after closing with a 2.8% gain at $153.12.
Alphabet Inc.’s
GOOGL,
GOOG,
Google and Pinterest Inc.
PINS,
benefited from Meta’s results, with shares for each company rising more than 4% in extended trading Wednesday.
“Our community continues to grow and I’m pleased with the strong engagement across our apps. Facebook just reached the milestone of 2 billion daily actives,” Meta Chief Executive Mark Zuckerberg said in a statement announcing the results. “The progress we’re making on our AI discovery engine and Reels are major drivers of this. Beyond this, our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization.”
Read more: Snap suffers worst sales growth yet in holiday quarter, stock plunges after earnings miss
Facebook’s 2 billion-user milestone was slightly better than analysts expected for user growth on Meta’s core social network. Daily active users across all of Facebook’s apps neared, but did not crest, another round number, reaching 2.96 billion, up 5% from a year ago.
Meta has been navigating choppy ad waters as it copes with increasing competition from TikTok and fallout from changes in Apple Inc.’s
AAPL,
ad-tracking system in 2021 that punitively harmed Meta, costing it potentially billions of dollars in advertising sales. Meta has invested heavily in artificial-intelligence tools to rev up its ad-targeting systems and making better recommendations for users of its short-video product Reels, but it laid off thousands of workers after profit and revenue shrunk in recent quarters.
The cost cuts seemed to pay off Wednesday. While Facebook missed on its earnings, it noted that the costs of its layoffs and other restructuring totaled $4.2 billion and reduced the number by roughly $1.24 a share.
Meta executives said they now expect operating expenses to be $89 billion to $95 billion this year based on slower salary growth, cost of revenue, and $1 billion in savings from facilities consolidation — down from previous guidance for $94 billion to $100 billion. Capital expenditures are expected to be $30 billion to $33 billion, down from previous guidance of $34 billion to $37 billion, as Meta cancels multiple data-center projects.
In a conference call with analysts late Wednesday, Zuckerberg called 2023 the “year of efficiency” after 18 years of unbridled growth. He recommitted to Meta’s emphasis on AI and the metaverse, a platform for “better social experiences” than the phone, he said.
“The reduced outlook reflects our updated plans for lower data-center construction spend in 2023 as we shift to a new data-center architecture that is more cost efficient and can support both AI and non-AI workloads,” Li said in her outlook commentary included in the release.
Meta expects to increase its spending on its own stock. The company’s board approved a $40 billion increase in its share-repurchase authorization; Meta spent nearly $28 billion on its own shares in 2022, and still had nearly $11 billion available for buybacks before that increase.
“Investors are cheering Meta’s plans to return more capital to shareholders despite worries over rising costs related to its metaverse spending,” said Jesse Cohen, senior analyst at Investing.com.
“At first glance…Meta getting its mojo back,” Baird Equity Research analyst Colin Sebastian said in a note late Wednesday. “Results and guidance look particularly solid after Snap’s dismal report; however, further cuts to operating and capital expenditures announced this afternoon were perhaps the biggest surprise.”
UBS analyst Lloyd Walmsley said he anticipates double-digit revenue growth exiting 2023 and strong growth in earnings and free cash flow.
The results came a day after Snap Inc.
SNAP,
posted fourth-quarter revenue of $1.3 billion, flat from a year ago and the worst year-over-year sales growth Snap has ever reported. But they also arrived on the same day Facebook scored a major win in a California court. The company successfully fended off the Federal Trade Commission bid to win a preliminary injunction to block Meta’s planned acquisition of VR startup Within Unlimited.
Read more: Meta wins bid to buy VR startup Within Unlimited, beating U.S. FTC in court: report
Meta shares have plunged 53% over the past 12 months, while the broader S&P 500 index
SPX,
has tumbled 10% the past year.
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Marlboro maker
Altria
Group beat earnings and revenue estimates in the fourth quarter and announced a new $1 billion share buyback plan.
The cigarettes company reported adjusted earnings per share (EPS) of $1.18 on revenue of $6.1 billion in the final three months of the year. Analysts expected EPS of $1.17 on sales of $5.15 billion in the quarter, according to FactSet data.
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Shares of Alibaba Group Holdings are higher following news that co-founder Jack Ma is ceding control of affiliate company Ant Group Co., potentially paving the way to revive plans for an initial public offering by the fintech giant.
Alibaba’s Hong Kong-listed shares
9988,
advanced as much as 8.3% in early trade Monday, widening its year-to-date gains to 27%. Shares are outperforming a 1.7% gain in the city’s broader Hang Seng Index
HSI,
and helping lift the city’s tech index by 3.0%. Alibaba is a shareholder of Ant.
Ant, which owns China’s most widely used digital-payment platform, Alipay, has been overhauling its operations amid a government crackdown that began with Beijing calling off the company’s plans for an IPO in late 2020. The new change of control, announced by Ant over the weekend, moves the company a step closer to restructuring.
Alibaba added Sunday that its equity interest in Ant remains unchanged.
Shares of Alibaba were last up 7.6%. Shares of unit Alibaba Health Information Technology Ltd.
241,
were 8.0% higher.
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