Joachim Nagel, president of Deutsche Bundesbank, during the central bank’s “Annual Report 2023” news conference in Frankfurt, Germany, on Friday, Feb. 23, 2024.Â
Bloomberg | Bloomberg | Getty Images
Losses incurred by the German central bank rocketed into the tens of billions in 2023 due to higher interest rates, requiring it to draw on the entirety of its provisions to break even.
The Bundesbank on Friday reported an annual distributable profit of zero, after it released 19.2 billion euros ($20.8 billion) in provisions for general risks, and 2.4 billion euros from its reserves. That leaves it with just under 700 million euros in reserves, the central bank said.
Net interest income was negative for the first time in its 67-year history, declining by 17.9 billion euros year on year to -13.9 billion euros.
“We expect the burdens to be considerable again for the current year. They are likely to exceed the remaining reserves,” Bundesbank President Joachim Nagel said at a news conference.
The central bank will report a loss carryforward that will be offset through future profits, he said.
Nagel added: “The Bundesbank’s balance sheet is sound. The Bundesbank can bear the financial burdens, as its assets are significantly in excess of its obligations.”
The German central bank â and many of its peers â have significant securities holdings exposed to interest rate risk, which have been significantly impacted by the European Central Bank’s unprecedented run of rate hikes.
The ECB on Thursday posted its first annual loss since 2004, of 1.3 billion euros, even as it also drew on its own risk provisions of 6.6 billion euros. It follows the euro zone central bank’s near decade of financial stimulus, printing money and buying large amounts of government bonds to boost growth, which are now requiring hefty payouts.
Central banks stress that annual profits and losses do not impact their ability to enact monetary policy and control price stability. However, they are watched as a potential threat to credibility, particularly if a bailout becomes a risk, and they impact central banks’ payouts to other sources.
In the case of the Bundesbank, there have been no payments to the federal budget for several years and, it said Friday, there are unlikely to be for a “longer” period of time. The ECB, meanwhile, will not make profit distributions to euro zone national central banks for 2023.
Nagel further said Friday that raising interest rates had been the right thing to do to curb high inflation, and that the ECB’s Governing Council will only be able to consider rate cuts when it is convinced inflation is back to target based on data.
On the struggling German economy, he said: “Our experts expect the German economy to gradually regain its footing during the course of the year and embark onto a growth path. First, foreign sales markets are expected to provide tail winds. Second, private consumption should benefit from an improvement in households’ purchasing power.”
Correction: The Bundesbank is 67 years old. An earlier version misstated its age.
A Polestar Roadster concept electric vehicle during the Singapore Motorshow in Singapore, on Thursday, Jan. 11, 2024. The show runs through Jan. 14. Photographer: Lionel Ng/Bloomberg via Getty Images
Lionel Ng | Bloomberg | Getty Images
Shares of Volvo Cars dipped on Friday, after the company said it would dilute its stake in electric vehicle maker Polestar by distributing 62.7% of its holdings to its shareholders.
The move would “enable Volvo Cars to concentrate its resources on the next phase of its transformation,” the company said in a statement on Friday.
The company’s stock traded over 5% lower at around 10:00 a.m. London time, paring some of its earlier losses.
If approved during the company’s annual general meeting of March 2024, Volvo would retain around 18% of Polestar’s shares.
“As we have significant operational collaborations with Polestar and a financial relationship, it is logical for us to retain influence through a smaller 18.0 percent stake in Polestar,” said Jim Rowan, president and CEO of Volvo Cars.
The announcement comes after the company said earlier this month that it would stop funding ailing brand Polestar and is considering adjusting its holdings in the electrical vehicle maker. Rowan at the time said that the changes were part of a “natural evolution” in the relationship between the automakers.
Polestar was once touted as an up-and-coming electric vehicle company, but has since struggled to find success. Earlier this year, the company said it was planning to cut around 15% of its workforce, as it faced “challenging market conditions.”
Polestar in January said it had missed its delivery target for 2023, citing low levels of demand, persistent inflation and a price-war stoked by rival electrical vehicle maker Tesla as key factors. The company’s challenges have raised questions around its ties to Volvo among analysts.
Volvo Cars on Friday said its majority shareholder, Chinese automotive company Geely Holding, “would continue to provide operational and financial support to Polestar.”
Volvo Cars did not immediately respond to a CNBC request for comment.
Elliott Investment Management targeted Pershing Square Holdings in 2017, when Paul Singer’s firm privately tried to force fellow activist Bill Ackman to liquidate his listed company.
Ackman disclosed the details of the battle around the fund publicly for the first time during a three-hour interview on the Lex Fridman Podcast. The billionaire posted the discussion on X, the social media site formerly known as Twitter, on Tuesday.
Elliott took a big position in Pershing Square Holdings, a closed-end vehicle that traded at a discount to the value of its assets, while shorting the underlying securities held in the fund, Ackman said. It was a bet that the target would be forced to liquidate, allowing investors to profit from the shakeup.
“I envisioned an end where the permanent capital vehicle ends up getting liquidated and another activist in my industry puts me out of business,” Ackman said.
Ackman managed to fend off Elliott by snapping up shares in his own company, effectively buying control, he said. He borrowed $300 million from JPMorgan Chase & Co., to help him to do this.
“I give JPMorgan enormous credit in seeing through it,” Ackman said. “It’s a handshake bank and they bet I’d succeed.”
A representative for Elliott declined to comment.
Activist campaigns in the market for closed-end funds have picked up in recent years. Firms including Boaz Weinstein’s Saba Capital Management have pounced on historical dislocations in these funds’ pricing and have urged asset managers to take steps like buying back shares or liquidating assets to boost valuations.
Pershing Square Holdings is listed on European stock exchanges with $14 billion plus total assets and returned 27% in 2023. While its net asset value discount has narrowed from 2020’s record level, it is still hovering around 27%.
Earlier this month, Ackman said he plans to start a new fund with a similar structure called Pershing Square USA for retail investors.
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Robert Reffkin, Compass co-founder and CEO, joins ‘Squawk on the Street’ to discuss if real estate activity is what Reffkin wants to see heading into spring, Reffkin’s thoughts on the 30-year fixed mortgage rate, and if concessions to buyers will dissuade homeowners to sell.
CNBC’s Leslie Picker and Bank of America CEO Brian Moynihan join ‘Squawk on the Street’ to discuss the state of the economy, strength of the consumer, the Fed’s rate path outlook, the impact of Capital One-Discover deal, regional bank turmoil, and more.
Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Tuesday’s key moments. 1. U.S. stocks kicked off the shortened trading week lower on Tuesday. Investors took profits in Big Tech, weighing down the Nasdaq . Laggards after the opening include Club holding Nvidia . The chipmaker shed over 5.5% ahead of its quarterly earnings on Wednesday evening. Amazon , Apple and Meta Platforms were all down as well. It’s no surprise that tech’s selling off following the sector’s big run since the start of 2024. Elsewhere, it’s a good day for consumer staples like our Procter & Gamble . 2. Palo Alto Networks will report quarterly earnings after market close Tuesday. The portfolio name sold off last quarter on a billing miss. But CEO Nikesh Arora said it was a function of the high cost of money, which pushes customers to seek shorter-term deals versus longer-term contracts. Although the stock’s roughly double-digit gain since then sets a high bar into earnings, we’re upbeat on the company’s solid fundamentals and cybersecurity as a key secular theme. Demand for Palo Alto’s services, for example, will continue to rise as hacking threats intensify from overseas. 3. We trimmed our Wells Fargo position on Tuesday. Shares surged last week after positive updates around the bank’s recovery plan. The Office of the Comptroller of the Currency terminated a 2016 consent order for past misdeeds â signalling a move in the right direction for regulators to eventually lift Wells Fargo’s asset cap. This is great news for our investment thesis. Still, we made a small sale to right size the position and minimize risk. Wells Fargo’s rally swelled our position size near 5%, the largest in the portfolio. We don’t want any one position to get too big as we aim to keep the portfolio diversified. (Jim Cramer’s Charitable Trust is long WFC, PANW, NVDA, META, AAPL, AMZN, GEHC, PG. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Shortly after the opening bell, we will be selling 420 shares of Wells Fargo , at roughly $51.75 each. Following the trade, Jim Cramer’s Charitable Trust will own 2,670 shares of Wells Fargo, decreasing its weighing to 4.25% from 4.93%. Wells Fargo shares jumped roughly 8% last week to a new 52-week high after the bank said the Office of the Comptroller of the Currency terminated a 2016 consent order linked to its sales practice misconduct. There are eight consent orders still outstanding, CNBC reported last week, but this was an important one for Wells Fargo to get done because the issues tied to the consent order were a reason why the Federal Reserve put an asset cap on the bank in 2018. The end of the 2016 consent order is a clear-cut win for Wells Fargo. The sooner the bank can get the asset cap lifted, the greater confidence investors will have in management’s ability to drive a sustained 15% return on tangible common equity. The stronger a return Wells can generate, the higher the multiple investors will be paying for the stock. WFC 1Y mountain Wells Fargo 1 year We are pleased to see Wells Fargo take a big step toward getting past the legacy regulatory issues, which CEO Charlie Scharf has worked to fix since taking over in 2019. However, portfolio management reasons are why we are trimming into this recent strength, locking in gains of about 54% on stock purchased in January 2021. Due to its recent outperformance, our Wells Fargo position size has swelled to the largest in the portfolio at nearly 5%. For a bank whose stock tends to rally in fits and starts and continues to deal with an overhang from its commercial real estate exposure, we think it’s prudent to right-size the position and open up some room to buy in case the stock falls back to the mid $40-per-share range. Accordingly, we are downgrading our rating to a 2 . (Jim Cramer’s Charitable Trust is long WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
David George, Baird senior research analyst, joins ‘Squawk Box’ to discuss news of Capital One Financial acquiring Discover Financial Services in a $35.3 billion all-stock deal, what the deal means for consumers and the banking sector at large, and more.
Barclays Bank’s UK headquarters in Canary Wharf, London.
Matt Crossick/PA Images via Getty Images
LONDON â Barclays on Tuesday reported a fourth-quarter net loss of £111 million ($139.8 million) as the British lender announced an extensive strategic overhaul.
Analysts polled by Reuters had expected net profit attributable to shareholders of £60.95 million for the quarter, according to LSEG data, as Barclays embarks on a major restructuring program in a bid to reverse declining profits.
For the full year, net attributable profit came to £4.27 billion, down from £5.023 billion in 2022 and below a consensus forecast of £4.59 billion.
The bank also announced an additional share buyback of £1 billion, and will set out a new three-year plan designed to further improve operational and financial performance, CEO C.S. Venkatakrishnan said in a statement.
Barclays took a £900 million hit in the fourth quarter from structural cost-cutting measures, which are expected to result in gross cost savings of around £500 million this year, with an expected payback period of less than two years.
Here are some other highlights:
Fourth-quarter group revenue was £5.6 billion, down 3% from the same period last year.
Credit impairment charges were £552 million, up from £498 million in the fourth quarter of 2022.
Common equity tier one (CET1) capital ratio, a measure of bank’s financial strength was 13.8%, down from 14% the previous quarter.
Full-year return on tangible equity (RoTE) was 10.6% excluding fourth-quarter restructuring costs.
Momentum in Barclays’ traditionally strong corporate and investment bank (CIB) â particularly in its fixed income, currency and commodities trading division â waned in 2023, as market volatility moderated.
On Tuesday, the bank announced a huge operational overhaul, including substantial cost cuts, asset sales and a reorganization of its business divisions, while promising to return £10 billion to shareholders between 2024 and 2026 through dividends and share buybacks.
The business will now be divided into five operating divisions, separating the corporate and investment bank to form: Barclays U.K., Barclays U.K. Corporate Bank, Barclays Private Bank and Wealth Management, Barclays Investment Bank and Barclays U.S. Consumer Bank.
“This resegmentation will provide an enhanced and more granular disclosure of the performance of each of these operating divisions, alongside more accountability from an operational and management standpoint,” the bank said in its report.
This is a breaking news story and will be updated shortly.
Traders work on the floor of the New York Stock Exchange during morning trading on January 31, 2024 in New York City.
Michael M. Santiago | Getty Images
The so-called “Magnificent 7” now wields greater financial might than almost every other major country in the world, according to new Deutsche Bank research.
The meteoric rise in the profits and market capitalizations of the Magnificent 7 U.S. tech behemoths â Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla â outstrip those of all listed companies in almost every G20 country, the bank said in a research note Tuesday. Of the non-U.S. G20 countries, only China and Japan (and the latter, only just) have greater profits when their listed companies are combined.
Deutsche Bank analysts highlighted that the Magnificent 7’s combined market cap alone would make it the second-largest country stock exchange in the world, double that of Japan in fourth. Microsoft and Apple, individually, have similar market caps to all combined listed companies in each of France, Saudi Arabia and the U.K, they added.
However, this level of concentration has led some analysts to voice concerns over related risks in the U.S. and global stock market.
Jim Reid, Deutsche Bank’s head of global economics and thematic research, cautioned in a follow-up note last week that the U.S. stock market is “rivalling 2000 and 1929 in terms of being its most concentrated in history.”
Deutsche analyzed the trajectories of all 36 companies that have been in the top five most valuable in the S&P 500 since the mid-1960s.
Reid noted that while big companies eventually tended to drop out of the top five as investment trends and profit outlooks evolved, 20 of the 36 that have populated that upper bracket are still in the top 50 today.
“Of the Mag 7 in the current top 5, Microsoft has been there for all but 4 months since 1997. Apple ever present since December 2009, Alphabet for all but two months since August 2012 and Amazon since January 2017. The newest entrant has been Nvidia which has been there since H1 last year,” he said.
Tesla had a run of 13 months in the top five most valuable companies in 2021/22 but is now down to 10th, with the share price having fallen by around 20% since the start of 2024. By contrast, Nvidia’s stock has continued to surge, adding almost 47% since the turn of the year.
“So, at the edges the Mag 7 have some volatility around the position of its members, and you can question their overall valuations, but the core of the group have been the largest and most successful companies in the US and with it the world for many years now,” Reid added.
Could the gains broaden out?
Despite a muted global economic outlook at the start of 2023, stock market returns on Wall Street were impressive, but heavily concentrated among the Magnificent Seven, which benefitted strongly from the AI hype and rate cut expectations.
In a research note last week, wealth manager Evelyn Partners highlighted that the Magnificent 7 returned an incredible 107% over 2023, far outpacing the broader MSCI USA index, which delivered a still healthy but relatively paltry 27% to investors.
Daniel Casali, chief investment strategist at Evelyn Partners, suggested that signs are emerging that opportunities in U.S. stocks could broaden out beyond the 7 megacaps this year for two reasons, the first of which is the resilience of the U.S. economy.
“Despite rising interest rates, company sales and earnings have been resilient. This can be attributed to businesses being more disciplined on managing their costs and households having higher levels of savings built up during the pandemic. In addition, the U.S. labour market is healthy with nearly three million jobs added during 2023,” Casali said.
The second factor is improving margins, which Casali said indicates that companies have adeptly raised prices and passed the impact of higher inflation onto customers.
“Although wages have risen, they haven’t kept pace with those price rises, leading to a decline in employment costs as a proportion of the price of goods and services,” Casali said.
“Factors, including China joining the World Trade Organisation and technological advances, have enabled an increased supply of labour and accessibility to overseas job markets. This has contributed to improving profit margins, supporting earnings growth. We see this trend continuing.”
When the market is so heavily weighted toward a small number of stocks and one particular theme â notably AI â there is a risk of missed investment opportunities, Casali said.
Many of the 493 other S&P 500 stocks have struggled over the past year, but he suggested that some could start to participate in the rally if the two aforementioned factors continue to fuel the economy.
“Given AI-led stocks’ stellar performance in 2023 and the beginning of this year, investors may feel inclined to continue to back them,” he said.
“But, if the rally starts to widen, investors could miss out on other opportunities beyond the Magnificent Seven stocks.”
It will be an all-stock deal and Capital One, which already uses Visa and Mastercard networks, plans to keep the Discover brand, the Wall Street Journal said.
The news comes on the back of a Bloomberg News report on Monday that Capital One was considering an acquisition.
CNBC has reached out for comment from both Capital One and Discover.
The merger of the two companies, who are among the largest credit card issuers in the U.S., would expand Capital One’s credit-card offerings. The company bought digital concierge service Velocity Black, a premium credit card and luxury market platform, in June of last year.
Shares of Discover are down 1.7% lower for the year, putting the company at a $27.63 billion market cap. Capital One has a market cap of $52.2 billion and shares of the company are up 4.6% in 2024.
The Capital One-Discover merger would be one of the largest deals announced so far this year. Synopsys announced a deal to buy Ansys for $35 billion in January and Diamondback Energy‘s $26 billion deal to buy privately held oil and gas producer Endeavor Energy was announced on Feb. 12.
As consumers watch their wallets, companies have felt pressure from investors to do the same. Executives have sought to show shareholders that they’re adjusting to consumer demand as it returns to typical patterns or even softens, as well as aggressively countering higher expenses.
Airlines, automakers, media companies and package giant UPS are all digesting new labor contracts that gave raises to tens of thousands of workers and drove costs higher.
Companies in years past could get away with passing on higher costs to customers who were willing to splurge on everything from new appliances to beach vacations. But businesses’ pricing power has waned, so executives are looking for other ways to manage the budget â or squeeze out more profits, said Gregory Daco, chief economist for EY.
“You are in an environment where cost fatigue is very much part of the equation for consumers and business leaders,” Daco said. “The cost of most everything is much higher than it was before the pandemic, whether it’s goods, inputs, equipment, labor, even interest rates.”
There are some exceptions to the recent cost-cutting wave: Walmart, for example, said last month that it would build or convert more than 150 stores over the next five years, along with a more than $9 billion investment to modernize many of its current stores.
And some companies, such as banks, already made deep cuts. Five of the largest banks, including Wells Fargo and Goldman Sachs, together eliminated more than 20,000 jobs in 2023. Now, they’re awaiting interest rate cuts by the Federal Reserve that would free up cash for pent-up mergers and acquisitions.
But cost reductions unveiled in even just the first few weeks of the year amount to tens of thousands of jobs and billions of dollars. In January, U.S. companies announced 82,307 job cuts, more than double the number in December, while still down 20% from a year ago, according to Challenger, Gray and Christmas.
And the tightening of months prior is already showing up in financial reports.
So far this earnings season, results have indicated that companies have focused on driving profits higher without the tailwind of big price increases and sales growth.
As of mid-February, more than three-quarters of the S&P 500 had reported fourth-quarter results, with far more earnings beats than revenue beats. The quarter’s earnings, measured by a composite of S&P 500 companies, are on pace to rise nearly 10%. Revenues, however, are up a more modest 3.4%.
And the layoffs haven’t been contained to tech. UPS said it was axing 12,000 jobs, saving the company $1 billion, CEO Carol Tome said late last month, citing softer demand. Many of the largest retail, media and entertainment companies have also announced workforce reductions, in addition to other cuts.
Warner Bros. Discovery has slashed content spending and headcount as part of $4 billion in total cost savings from the merger of Discovery and WarnerMedia. Disney initially promised $5.5 billion in cost reductions in 2023, fueled by 7,000 layoffs. The company has since increased its savings promise to $7.5 billion, and executives suggested in its Feb. 7 quarterly earnings report that it may exceed that target.
JetBlue Airways, which hasn’t posted an annual profit since before the pandemic, is deferring about $2.5 billion in capital expenditures on new Airbus planes to the end of the decade, culling unprofitable routes and redeploying aircraft in addition to the worker buyouts.
Some cuts are even making their way to the front of the cabin. United Airlines, which also posted a profit in 2023, at the start of this year said it would serve first-class meals only on flights more than 900 miles, up from 800 miles previously. “On flights that are 301 to 900 miles, United First customers can expect an offering from the premium snack basket,” according to an internal post.
Several of the country’s largest automakers, such as General Motors and Ford Motor, have lowered spending by billions of dollars through reduced or delayed investments on all-electric vehicles. The U.S.-based companies as well as others, such as Netherlands-based Stellantis, have recently reduced headcount and payroll through voluntary buyouts or layoffs.
Even Chipotle, which reported more foot traffic and sales at its restaurants in the most recently reported quarter, is chasing higher productivity by testing an avocado-scooping robot called the Autocado that shortens the time it takes to make guacamole. It’s also testing another robot that can put together burrito bowls and salads. The robots, if expanded to other stores, could help cut costs by minimizing food waste or reducing the number of workers needed for those tasks.
Industry experts have chalked up some recent cuts to companies catching their breath â and taking a hard look at how they operate â after an unusual four-year stretch caused by the pandemic and its fallout.
EY’s Daco said the past few years have been marked by a mismatch in supply and demand when it comes to goods, services and even workers.
Customers went on shopping sprees, fueled by government stimulus and less experience-related spending. Airlines saw demand disappear and then skyrocket. Companies furloughed workers in the early pandemic and then struggled to fill jobs.
He said he expects companies this year to “search for an equilibrium.”
“You’re seeing a rebalancing happening in the labor markets, in the capital markets,” he said. “And that rebalancing is still going to play out and gradually lead to a more sustainable environment of lower inflation and lower interest rates, and perhaps a little bit slower growth.”
The auto industry, for example, faced a supply issue during much of the Covid pandemic but is now facing a potential demand problem. Inventories of new vehicles are rising â surpassing 2.5 million units and 71 days’ supply toward the end of 2023, up 57% year over year, according to Cox Automotive â forcing automakers to extend more discounts in an effort to move cars and trucks off dealer lots.
Automakers have also been contending with slower-than-expected adoption of EVs.
David Silverman, a retail analyst at Fitch Ratings, said companies are “feeling a bit heavy as sales growth moderates and maybe even declines.”
Cost cuts at UPS, Hasbro and Levi all followed sales declines in the most recent fiscal quarter. Macy’s, which reports earnings later this month, has said it expects same-store sales to drop, and there’s early evidence that may come to bear: Consumers pulled back on spending in January, with retail sales falling 0.8%, more than economists expected, according to the latest federal data.
Most major retailers, including Walmart, Target and Home Depot, will report earnings in the coming weeks.
Credit ratings agency Fitch said it doesn’t expect the U.S. economy to tip into recession, but it does anticipate a continued pullback in discretionary spending.
“Part of companies’ decision to lower their expense structure is in line with their views that 2024 may not be a fantastic year from a top-line-growth standpoint,” Silverman said.
Plus, he added, companies have had to find cash to fund investments in newer technology such as infrastructure that supports e-commerce, a resilient supply chain or investments in artificial intelligence.
Companies may have another reason to cut costs now, too. As they see other companies shrinking the size of their workforces or budgets, there’s safety in numbers.
Or as Silverman noted, “layoffs beget layoffs.”
“As companies have started to announce them it becomes normalized,” he said. “There’s less of a stigma.”
Even with rolling layoffs, the labor market remains strong, which may help explain why Wall Street has by and large rewarded those companies that have found areas to save and returned profits to shareholders.
Shares of Meta, for example, almost tripled in price in 2023 in that “year of efficiency,” making the stock the second-best gainer in the S&P 500, behind only Nvidia. After laying off more than 20,000 workers in 2023, Meta on Feb. 2 announced its first-ever dividend and said it expanded its share buyback authorization by $50 billion.
UPS, fresh from job cuts, said it would raise its quarterly dividend by a penny.
Overall, dividends paid by companies in the S&P 500 rose 5.05% last year, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, and he estimated they will likely increase nearly 5.3% this year.
â CNBC’s Michael Wayland, Alex Sherman, Robert Hum, Amelia Lucas and Jonathan Vanian contributed to this story.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Friday’s key moments. 1. U.S. stocks declined Friday as investors interpreted hot inflation data. Investors weighed the odds that the Federal Reserve may take even longer to deliver interest rate cuts in 2024, pushing bond yields higher. The p roducer price index (PCI) print came in hotter-than-expected, but that doesn’t mean the downward trend in inflation is over. More important economic data is on the horizon. We’re waiting for the central bank’s closely-watched personal consumption expenditures (PCE) report next week. 2. Wall Street made a huge call on Eli Lilly stock. Morgan Stanley bumped the healthcare name’s price target to a Street high of $950 apiece from $805 apiece. Analysts speculated that Eli Lilly could be the first $1 trillion biopharma stock, citing huge upside for sales in medicines like Mounjaro and Zepbound. We’re upbeat on research that highlights the company’s massive growth prospects. Shares climbed 3.62% after the opening, notching a new 52-week high. 3. We received some positive updates on Wells Fargo on Thursday. The Office of the Comptroller of the Currency terminated a 2016 consent order linked to the bank’s fake accounts scandal. This is the sixth consent order that regulators have terminated since 2019, which indicates the firm’s turnaround plan is working. Still, it’s too early to talk about Wells Fargo’s asset cap being lifted though â likely a 2025 story âbut it’s definitely a step in the right direction. Wells Fargo stock surged 7% on the announcement, hitting a new 52-week high on Thursday. Now that the financial name accounts for roughly 5% of the portfolio, we’re leaning towards right sizing and making a small sale of shares. (Jim Cramer’s Charitable Trust is long WFC, LLY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Layoffs could be coming to Morgan Stanley’s crucial wealth management business â a prudent step to improving the bank’s overall cost structure amid uncertainty over Federal Reserve interest rate moves. Morgan Stanley has plans to cut several hundred employees in the division as new CEO Ted Pick tries to keep costs in check, the Wall Street Journal reported on Wednesday. While impacting less than 1% of the division’s workforce, the cuts represent Pick’s first big move at the helm of the firm and Morgan Stanley’s need to drill down on expenses. Morgan Stanley declined CNBC’s request for comment. Pick, a veteran of the bank, officially took the reins from longtime CEO James Gorman on Jan. 1. During his tenure at the helm, Gorman pivoted Morgan Stanley to rely less on investment banking by building up wealth management, which has a more predictable revenue stream. MS YTD mountain Morgan Stanley (MS) year-to-date performance Possible layoffs in wealth management are important because it’s Morgan Stanley’s largest operating segment â making up roughly half of companywide revenue. Any reductions there can have an outsized benefit toward reducing costs to stay on track to meet, and hopefully exceed, Pick’s conservative reset guidance . Despite delivering in mid-January a better-than-expected fourth quarter, shares dropped more than 4% on earnings day as investors worried about the picture the new CEO was painting for the future. It didn’t help that Q4 results for all of the major banks were rather messy as they were forced to pay the FDIC back for rescuing regional lenders after last year’s failure of Silicon Valley Bank. On the post-earnings call, Pick said the bank was far from reaching management’s previously issued goal of 30% operating margins for wealth management. To make matters worse, he said that headwinds such as geopolitical conflicts and the state of the U.S. economy could weigh on profits. Elevated interest rates have continued to pressure margins. (And, Tuesday’s hotter-than-expected inflation data certainly hurt the case for a near-term start of Fed rate cuts.) At the time, we weren’t thrilled with the quarterly results. But Jim Cramer did say, “When you get this kind of cautious commentary from a new CEO, my gut says he’s simply trying to lower expectations to play the [under promise, over deliver] game.” He added the Club’s not throwing in the towel yet on the bank stock. “Morgan Stanley’s paying you to wait with that 4% yield, and they’re right in there buying with you thanks to their aggressive buyback.” Investors seem upbeat on word of cost-cutting efforts. Shares rose more than 2% on Thursday. Our other bank stock, Wells Fargo , rose more than 7% to a 52-week high Thursday on news the Office of the Comptroller of the Currency terminated a 2016 consent order linked to its sales practices. (Jim Cramer’s Charitable Trust is long MS, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Ted Pick, CEO Morgan Stanley, speaking on CNBC’s Squawk Box at the World Economic Forum Annual Meeting in Davos, Switzerland on Jan. 18th, 2024.
Adam Galici | CNBC
Layoffs could be coming to Morgan Stanley’s crucial wealth management business â a prudent step to improving the bank’s overall cost structure amid uncertainty over Federal Reserve interest rate moves.
The LeFrak Organization CEO Richard LeFrak joins ‘Squawk Box’ to discuss the state of the commercial real estate market, the stressors facing the sector, and more.
With the S & P 500 on Friday closing above 5,000 for the first time ever, recognizing the winners this year has not been difficult. But what about the ones that are still cheap â or less expensive â on a valuation basis? Those are not as easy to spot. We screened the 32 stocks in our portfolio late Monday and identified 10 that are undervalued based on traditional market metrics following their latest quarterly earnings reports. (The market was under heavy pressure Tuesday after a hotter-than-expected consumer price index.) To determine valuation, we reviewed two metrics â price-to-earnings (P/E) ratios and P/E-to-growth (PEG) ratios â and compared each to their historical five-year averages. P/Es and PEG ratios A stock’s P/E shows how much shareholders are paying in share price for earnings. We use forward P/Es in our analysis. A stock with a lower P/E is considered to be cheaper on a valuation basis. Sometimes, however, a low P/E could be a red flag â signaling earnings estimates are too high and need to come down, which usually leads to a drop in share price, or something is fundamentally wrong with the company, such as slowing growth. The PEG ratio, another valuation tool, starts with the price-to-earnings ratio and divides the P/E by estimated earnings growth. This metric helps investors determine whether they’re paying too much today for a company’s estimated growth in the future. A good PEG ratio is 1 or lower. There is a major consideration when analyzing five-year valuation average comparisons: interest rates. As inflation has cooled, there has been a debate recently over when central bankers should cut rates. If rates come down this year, as expected, then higher multiples could be supported. The 10 undervalued companies from our screen all have strong businesses. Some of these stocks, like the overall market, are trading at or near record-high prices. But price is what you pay and value is what you get. Stocks can have high prices based on historical trading patterns and still be considered cheap based on valuation. As a yardstick, the S & P 500 has a price-to-earnings multiple of 20.5 times the next 12 months’ earnings estimates. That’s above its five-year average of 18.9. The stocks we’re highlighting here are all trading below their five-year average. In other words, the overall market is more expensive compared to historical norms and these stocks are less expensive. All data is from FactSet as of Monday. 1. Alphabet Price-to-earnings ratio (P/E): 21.1 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 1.3 Alphabet ‘s forward P/E of 21.5 times is 10% cheaper than peers and below its five-year average of 23.4. The PEG of 1.3 is below the historical average of 1.5 â meaning you’re paying less for estimated growth, too. Alphabet shares have the cheapest valuation of all our Significant Six mega-cap tech stocks, which include Amazon, Apple , Microsoft , Meta Platforms and Nvidia. Alphabet’s attractive valuation comes despite multiple avenues for growth within Google Cloud and generative artificial intelligence through Gemini, the successor to Bard. Ongoing cost discipline should also benefit margin expansion. While advertising revenue came in softer than anticipated in Alphabet’s most recent quarter , we believe the tech firm’s use of gen AI in Google search can help improve results. GOOGL 5Y mountain Alphabet 5 years The stock would need to gain about 4% to reach last month’s all-time high. We have our wait-for-a-pullback 2 rating on shares because it’s not our style to chase moves higher even if the valuation is attractive. 2. Amazon Price-to-earnings ratio (P/E): 40.9 P/E vs. peers: flat P/E-to-growth ratio (PEG): 1.3 Amazon ‘s forward P/E of 40.9 times is relatively flat compared to peers and well below its five-year average of 62.7. The PEG of 1.2 is half its historical average. The bargain here is on growth versus what was paid for Amazon’s growth in the past. That’s significant. Amazon shows promise in delivering consistent revenue and earnings growth in the years to come. Profitability in retail is incrementally growing as management focuses on speeding up delivery times supported by the regionalization of its fulfillment network. Cost efficiencies also show the strength of its operating margin growth opportunity across segments. Amazon continues to exhibit strong advertising revenue growth, and the company’s Amazon Web Services cloud unit is back and presents a major multiyear growth opportunity. AMZN 5Y mountain Amazon 5 years Shares of Amazon hit a 52-week high Monday but would still have to increase 9% to hit their July 2021 all-time closing high. For the same reasons as Alphabet, we have a 2 rating on Amazon shares. 3. Constellation Brands Price-to-earnings ratio (P/E): 18.1 P/E vs. peers: flat P/E-to-growth ratio (PEG): 1.8 Constellation Brands ‘ forward P/E of 18.1 times roughly the same as peers and below its five-year average of 20.2. The PEG of 1.8 is well below its historical norm of 2.7. So again, cheaper all around. The maker of Corona, Modelo, and Pacifico delivered a largely positive third quarter last month, with its core Beer business delivering solid results during an off-season period. The company’s struggling Wine & Spirits segment continued to disappoint. Jim Cramer has said over and over that Constellation should concentrate on Beer and offload Wine & Spirits. Management reaffirmed its consolidated comparable earnings guidance while raising its full-year outlook for operating and free cash flow. Shares of Constellation would need to add 10% to match their record closing high of nearly $273 each back in July. We think the stock can get back to those levels. And with an attractive valuation to boost, we have the stock at our buy-equivalent 1 rating. 4. Disney Price-to-earnings ratio (P/E): 22.3 P/E vs. peers: 20% cheaper P/E-to-growth ratio (PEG): 1.2 Disney stock is undervalued even with shares rallying roughly 12% after the company reported an upbeat fiscal 2024 first quarter. The company’s P/E ratio of 21.5 times is about 20% cheaper than peers and below its historical average of 29.6. The PEG of 1.2 compared to its historical 2.6 also flashes bargain, too. Nelson Peltz sees “undervalued” as a problem here. That’s why the activist investor is fighting for Disney board seats. Jim has said he wants Disney’s board to have more “skin in the game,” meaning more share ownership among its members. Peltz would bring that and past success in creating more shareholder value. Disney doesn’t want Peltz on the board, saying outside distractions are not what the company needs. CEO Bob Iger was able to show strength in parks as well as some progress in the entertainment giant’s financials. Management delivered improved profitability, cut streaming losses, and issued guidance of earnings-per-share growing at least 20% for fiscal year 2024 compared to the prior year. However, advertising trends in Disney’s linear networks have been weak as customers migrate to streaming services and a series of the company’s recent films have been duds at the box office. Disney would have to nearly double to get back to its March 2021 all-time closing high of almost $202 per share. We know the turnaround at Disney is going to take a while. But with an inexpensive valuation and an emerging path to growth ahead, we have a 1 rating on the stock. 5. Honeywell Price-to-earnings ratio (P/E): 19.4 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 2.3 We like how Honeywell ‘s stock is valued post-earnings . The forward P/E of 19.4 times is 10% cheaper than peers and below its five-year average of 21.5. The PEG of 2.3 versus its average of 2.8. Shares pulled back about 3% after the company reported lower-than-expected organic sales. But what Wall Street didn’t credit was the company had better margins, cash flow and solid backlog. We bought shares on weakness on earnings day Feb. 1 because we still believe in the long-term for the industrial giant’s strong execution. While sales were disappointing. Honeywell’s historically strong Aerospace segment continued to deliver. However, the company is still dealing with softness in its Safety and Productivity Solutions as well as Building Technologies segments. HON 5Y mountain Honeywell 5 years Honeywell shares still need to gain nearly 20% to get back to its record close of just over $234 each back in August 2021. We have a 1 rating on the stock, appreciating its valuation and long-term prospects. 6. Nvidia Price-to-earnings ratio (P/E): 33.5 P/E vs. peers: 10% most expensive P/E-to-growth ratio (PEG): 0.8 After Nvidia ‘s stellar triple in 2023, shares still screen cheap even after its 40% year-to-date gain. In terms of valuation, Nvidia is attractive boasting a forward P/E of 33.5 times. That’s about 10% higher than peers but you could argue that it deserves it due to its utter domination of the market for semiconductors that can artificial intelligence. Not to mention, Nvidia’s P/E is still lower than its historical average of 39.6. Add in the PEG, at a reading of 0.8 versus the 2.2 five-year average, and that’s a dirt cheap cost for expected sky-high growth. NVDA 5Y mountain Nvidia 5 years As every day seems to bring a new high lately, we have a 2 rating on the stock in recognition that we don’t want to chase this runaway train higher. But we still believe Nvidia should be part of any long-term portfolio. We explain in a recent commentary how investors with no Nvidia position (or no positions in the rest of our Significant Six), might think about getting in. 7. Salesforce Price-to-earnings ratio (P/E): 30.3 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 1.4 Salesforce ‘s forward P/E of 30.3 times â 10% cheaper than peers and below its historical average of 46 âand a PEG of 1.4 versus its five-year average of 2.5 show how undervalued the stock is. Back in November , the consumer relationship management software company reported a solid fiscal 2024 third quarter. (The most recent quarter comes at the end of February.) Management at the time boasted solid deal activity even after the tech giant hiked prices on some of its products. The company’s guidance was also upbeat as it expects to grow revenue at a solid pace, accompanied by margin gains. CRM 5Y mountain Salesforce 5 years The stock has been on a tear and would need to add only 7.6% to reach its nearly $310 all-time closing high in November 2021. Shares hit a 52-week high last week. Acknowledging the run, we have a 2 rating on the stock. 8. Starbucks Price-to-earnings ratio (P/E): 22.5 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 1.3 Starbucks ‘ forward P/E ratio of 22.5 times is 10% cheaper than peers and below its 5-year average of 28.3. The PEG at 1.3 is below its historical average of 2. Both indicators reflect an undervalued stock. But similar to Disney, those low readings might also signal caution. We know from its fiscal 2024 first quarter results, out last month , that the company is facing headwinds such as a slowdown in business due to Middle East protests and sluggish economic activity in China. These are factors that could impact growth. SBUX 5Y mountain Starbucks 5 years However, even when we take this into account, the stock has fallen way too much. Starbucks would have to gain more than 30% to eclipse its July 2021 record close of $126 per share. If we consider growth may be a little slower due to the Israel-Hamas war protests and China rebounding slower than expected, we’re still seeing a good value in Starbucks shares. We have a 1 rating, accordingly. 9. Wells Fargo Price-to-earnings ratio (P/E): 9.9 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 0.7 Wells Fargo ‘s forward P/E of 9.9 is 10% cheaper than peers and lower than the 11.2 five-year average. The PEG under 1 â in this case 0.7 â is low, especially when you compare it to a historical average of 1.1. Are these low numbers a sign of trouble? We don’t think so. While Wells Fargo stock came under pressure following conservative guidance, the bank’s fourth-quarter earnings report was solid. It beat on both net interest income and noninterest income. We have come to expect CEO Charlie Scharf to set measured expectations, which can be beaten. We like how management is managing and reducing expenses on a year-over-year basis, which balances the softer outlook. Wells Fargo also expects to buy back more shares in 2024 compared to last year, which adds to shareholder value. While hitting a 52-week high at the end of January, Wells Fargo stock would need to gain roughly 35% to get back to its January 2018 record close of nearly $66. But a cheap valuation coupled with an industry getting further and further away from last year’s regional lender crisis after the collapse of Silicon Valley Bank in March 2023 leads us to our 1 rating 10. Wynn Resorts EV-to-EBITDA (enterprice value/earnings before interest, taxes, and amortization): 9.1 We’re mixing it up a bit with Wynn Resorts â focusing on the company’s adjusted EBITDA because this is the financial metric of choice on Wall Street when it comes to the best-in-class hotel and casino operator. With adjusted EBITDA being the key metric, the multiple we’re focused on is enterprise value to forward EBITDA. Before Covid, Wynn generally traded in a range of about 9 times to 13 times â with two very brief periods in late 2015 and late 2018 where the multiple was closer to 8 times EV/EBITDA. However, with shares now trading at roughly 9.1 times EV/EBITDA on a forward basis, we find them highly attractive given what we just heard from management. WYNN 5Y mountain Wynn Resorts 5 years Investors received a positive update on Wynn ‘s financials when it reported beats on its top and bottom lines in its fourth quarter . Macao is coming back, while Las Vegas is strong and Boston Harbor is resilient. It seems even cheaper when considering that China isn’t fully back online yet, but the company is already operating at structurally higher profit margins compared to historical norms. We added to our Wynn position with a small buy last Thursday after its stronger-than-expected quarter because we think the stock has more room to run. (Jim Cramer’s Charitable Trust is long GOOGL, AMZN, STZ, DIS, HON, NVDA, SBUX, CRM, WFC, WYNN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A trader works on the floor of the New York Stock Exchange
Michael Nagle | Bloomberg | Getty Images
With the S&P 500 on Friday closing above 5,000 for the first time ever, recognizing the winners this year has not been difficult. But what about the ones that are still cheap â or less expensive â on a valuation basis? Those are not as easy to spot.
We screened the 32 stocks in our portfolio late Monday and identified 10 that are undervalued based on traditional market metrics following their latest quarterly earnings reports. (The market was under heavy pressure Tuesday after a hotter-than-expected consumer price index.)
Carl Icahn at the 6th annual CNBC Institutional Investor Delivering Alpha Conference on September 13, 2016.
Heidi Gutman | CNBC
Activist investor Carl Icahn on Monday reported a nearly 10% stake in JetBlue Airways, saying the airline stock is undervalued. Shares of JetBlue spiked more than 15% in extended trading.
Icahn amassed the stake in a series of purchases in January and February, according to regulatory filings. He has had and plans to continue discussions with the company “regarding the possibility of board representation,” the records said.
JetBlue said in a statement, “We are always open to constructive dialogue with our investors as we continue to execute our plan to enhance value for all of our shareholders and stakeholders.”
Representatives for Icahn were not immediately available to comment.
This is not Icahn’s first investment involving the airline industry. In one of his more infamous activist campaigns, the corporate raider took TWA private in late 1980s, only to see the airline struggle and file for bankruptcy.
JetBlue has been cutting costs and working to improve operations in an effort to return to profitability after a post-Covid travel surge and a blocked merger with budget carrier Spirit Airlines. A federal judge last month ruled against a combination of the two airlines, citing reduced competition.
JetBlue had argued it needed the tie-up to help it compete against the largest American carriers. JetBlue and Spirit are appealing the judge’s ruling.
JetBlue’s new CEO, Joanna Geraghty, took the helm Monday, and the carrier has appointed a pair of airline veterans to get it back on track.
— CNBC’s John Melloy and Leslie Josephs contributed to this report.
This is breaking news. Please check back for updates.
Daryn Carr is no stranger to side hustles. After his mom died from Covid in 2020, he used funds from her pension to pay off some bills and buy a car. With the remaining money, he invested in crypto and started an ATM business.
One day in 2022, while scrolling through Instagram, he came upon another opportunity. Carr found a guy named Anthony Agyeman,who was promoting a type of arbitrage on Airbnb that involved taking listings from hotel booking and short-term rental sites and relisting them on Airbnb at a higher price, retaining the profit.
Agyeman claimed in marketing materials that his business, Hands-Free Automation, had “5-year exclusivity contracts” with thousands of property owners that gave it permission to relist their properties at a higher price.
Getting involved with Hands-Free Automation, or HFA, required a payment of between $20,000 and $30,000 to effectively own a piece of Airbnb listings. Agyeman described it as a “minimal to no risk” path to extra income with a guaranteed return in three to six months of investment, “then pure profit after.”
HFA has no affiliation with Airbnb but found a way to make money on the marketplace using a practice that Airbnb explicitly prohibits. Agyeman was following similar tactics that he’d used on Amazon and Shopify, where he promoted the opportunity for investors to passively own virtual storefronts.
The tech companies that own these marketplaces all say they use a combination of artificial intelligence and automation along with manual reviews to monitor vendor and customer activity for fraud and other misbehavior, but they’ve been ill-equipped to deal with the volume of complaints stemming from various sorts of scams.
The Federal Trade Commission and the Department of Justice have cracked down on companies similar to HFA, accusing them ofadvertising their products with false promises of profit and successandallegedly selling “automated” software that didn’t work. HFA and Agyeman haven’t been charged by the Justice Department, FTC or any law enforcement agency.
Airbnb told CNBC it was unaware of any contact from regulators regarding HFA.
For a clearer picture of HFA’s inner workings, CNBC spoke with investors in a lawsuit filed against the company in February 2023, as well as six former HFA employees, an Airbnb customer who unwittingly stayed at an HFA-listed property, and a property owner who said his listings were uploaded to Airbnb by HFA without permission. CNBC has granted anonymity to those who requested it because they weren’t authorized to speak publicly on HFA’s operations, or feared retribution from the company.
Brian Chesky, co-founder and CEO of Airbnb, Inc., speaks during an interview with CNBC on the floor of the New York Stock Exchange in New York City, May 10, 2023.
Brendan McDermid | Reuters
Carr, who lives in New York, wired HFA $1,000 through his crypto debit card at the urging of a salesperson and borrowed an additional $18,490 to pay for HFA’s entry-level package. In total, Carr paid HFA $19,497, according to the lawsuit, which Carr filed along with 11 other investors. The plaintiffs alleged that HFA falsely claimed it had relationships with the properties, and that HFA’s services violated Airbnb’s terms of service. The case is still proceeding.
Carr told CNBC that his investment with HFA disappeared, leaving him in debt and working a customer service job to make ends meet. He claims he got scammed and suspects that much of his money went toward subsidizing Agyeman’s lifestyle.
“I couldn’t believe that I lost $20,000 into thin air,” Carr said.
Thomas Hunker, an attorney for Agyeman and HFA, denied that customer money had been used for anything except the business.
“We have always honored our fiduciary obligations with respect to allocation of company money in the best interest of the company,” Hunker said in a written response to CNBC.
HFA admitted to customers that it was “continuously encountering problems with” Airbnb “due to the constant changes they have made to their terms and services,” according to the lawsuit.
Plaintiffs in the suit against Agyeman and other defendants are asking for at least $624,000 in damages from their lost investments. Meanwhile, the defendants continue to advertise and sell products to prospective investors under a new company called Wealthway. They’re deploying a team that aims to generate more than $3.5 million in monthly sales, Wessel Botes, a former sales employee who left the company in November, told CNBC.
Hunker said in an email to CNBC that HFA identifies properties to list from third-party websites used by hotels and other property owners to “increase bookings.” That gives HFA “indirect permission” through those third-party sites to relist rooms on Airbnb, he said, adding that the base price of the booking goes back to the property owner.
“Using a 3rd party to book a hotel or 3rd party accommodation and listing it on Airbnb at an inflated rate is not allowed,” the policy says.
Airbnb told CNBC that business practices such as Agyeman’s aren’t permitted. The company said it continues to improve systems that identify and remove fake or misleading listings, adding that it had blocked more than 216,000 suspicious listings as of September.
Hunker said HFA doesn’t have investors, but rather has clients who pay a “flat fee” for an arbitrage service. Yet, HFA says on its LinkedIn page that it helps “Airbnb investors add 300+ properties to their account without having to purchase the properties.”
Before connecting CNBC with his attorney, Agyeman said in an interview that he wasn’t involved in the day-to-day operations at HFA and he denied any financial improprieties.
Airbnb told CNBC it had no business relationship with Agyeman and had taken action to curtail his operations. The company said multiple accounts linked to Agyeman and HFA had been removed.
The opportunity for property owners to make money is fundamental to Airbnb’s business model. The company says that, since its founding in 2007, hosts have made more than $180 billion. En route to upending the hotel industry, Airbnb’s market cap has swelled to almost $95 billion, making it bigger than any hotel chain.
Airbnb acknowledged in its annual report that “perpetrators of fraud” use “complex and constantly evolving” tactics on the site and that “fraudsters have created fake guest accounts, fake host accounts, or both, to perpetrate financial fraud.”
Agyeman, who started HFA with co-founder Megan Shears, claims to have created proprietary software that would fully automate the arbitrage process by trawling the internet for properties to relist at a markup. HFA’s employees would take care of booking properties and handle guest inquiries and complaints.
Agyeman, 27, lives in Texas, as does Shears, 26, according to public records. Their social media posts show luxurious vacation spots next to screenshots of Airbnb bookings purportedly worth thousands of dollars. Several investors said in court filings that they first learned about Agyeman and Shears through Instagram.
“It’s proven and it works and you get higher returns than the stock market,” one HFA promotional video said.
Investors in the lawsuit say otherwise. And some customers who used the service to book travel say they lost money and were left scrambling for a place to stay.
In February 2022, a customer named Kathy booked a beachside Airbnb on Florida’s Sanibel Island for a five-night spring break vacation with her family. Kathy, who spoke on condition that CNBC not use her last name, paid $4,600 upfront for what she thought was a “fantastic” poolside one-bedroom apartment. CNBC identified Kathy as an HFA customer because her name and phone number were posted on HFA’s Instagram account.
Days went by without word from her host. Kathy, who lives in Texas, repeatedly reached out to Airbnb, but was told she’d have to engage directly with the host to cancel her booking.
Kathy looked up the property’s address on Google Maps. Rather than a tropical apartment building, she saw what appeared to be a vacant lot. “Please refund my money,” she recalled telling the host.
Desperate to make sure she had a place to stay, Kathy booked a room at a resort in Fort Myers, more than 40 miles from Sanibel Island. Ultimately, after days of back-and-forth messages, Airbnb refunded about half her money.
It ended up being “a super expensive vacation,” Kathy said. “I will never use it again,” she said of Airbnb.
For Agyeman and Shears, Airbnb was just one of their stomping grounds. They had an Amazon and Shopify automation business, a trucking business, and a line of vegan gummies. Agyeman also helped run a YouTube channel focused in part on swapping tips for running a successful business.
The duo broke into the arbitrage business in 2020. According to the lawsuit, Agyeman and Shears claimed in marketing material that they had more than 200,000 properties and had “proprietary relationships with Airbnb and Vrbo,” Expedia’s vacation rental site.
Agyeman relied on freelancers who would take data from other travel booking sites to use on their Airbnb and Vrbo listings, according to former employees and internal documents. An internal training video viewed by CNBC instructed copywriters on how to recycle the original listings’ details for Airbnb or Vrbo.
“PLEASE ANYWHERE IN THE LISTING DO NOT MENTION THAT THIS IS A HOTEL OR THE HOTEL NAMES OF THE HOTEL OR RESORTS,” a training document said.
HFA said its software algorithmically adjusted the price of a property in response to changes on the original listing. Agyeman said on social media that his employees were “the only ones tapped into Airbnb & Vrbo Arbitrage Automation.”
One spreadsheet listed 68 different clients as Airbnb investors. Going at least as far back as July 2022, HFA attracted 120-plus investors who collectively paid close to $3 million for “automated” Airbnb, Shopify, or Amazon businesses, according to internal payment tracking and financial records reviewed by CNBC.
Carr, who was listed as a property host, said that when it came to his experience with HFA, there was chaos on both sides of the marketplace. On one occasion, he said, he was contacted by the owner of a hotel who found one of its rooms on Airbnb.Another time, a woman messaged him 30 to 40 times when she couldn’t find her booking.
“People are going to the hotels saying I got an Airbnb, and they’re like, ‘What are you talking about?’” Carr said.
Carr and other HFA investors told CNBC their frustrations were dismissed or met with legal threats. But in a letter to investors cited in the lawsuit, HFA conceded that its Airbnb business had been disappointing.
“Due to Airbnb constant changes we believe this program will take much longer than anticipated to help you our client reach your goals,” HFA wrote.
Still, HFAdeclined to refund investors’ funds, instead offering them an Amazon or Shopify storefront, according to the letter and the lawsuit. Hunker said this was contemplated by the parties’ agreements.
Getting properties listed on Airbnb involved some finagling, because the company requires hosts to prove ownership. To get around Airbnb’s rules, HFA instructed its investors to list their own homes, a former employee and two investors told CNBC. Hunker denies that HFA gave those instructions. Once validated as a property owner, investors could then add more listings that HFA would pull from other websites.
Negative reviews flowed in from unhappy would-be vacationers, outraged investors and a business owner who’d discovered his property had been listed without consent.
An HFA investor told CNBC that one listing received a comment from a guest who said he paid $800 for a motel room that cost less than half that amount and described it as a “total scam.”
“Host does not own the property,” the reviewer said, according to a screenshot of the message seen by CNBC. “It is a standard motel room, no frills.”
On a hot September day in Las Vegas in 2022, another guest showed up at an MGM hotel only to discover there was no reservation through Airbnb. Neither the guest nor Airbnb could get in touch with the listed host for hours. Carr, the HFA investor host on record for the property, provided CNBC with screenshots of the messages.
“I had my family double parked on the Vegas strip for three hours wasting gas while I was running back and forth between the three MGMs in 103 degree weather being told each time after waiting in line that there was no reservation in my name,” the guest wrote.
Eventually MGM found the room had been booked through Expedia, which is where HFA turned after receiving the reservation request on Airbnb.
An Expedia spokesperson declined to comment.
Collin Ballard was shocked in May 2022, when he saw photos from his Dallas hostel advertised on Airbnb. Most alarming was the price: $1,760 a night vs. his starting nightly rate of $40.
Collin Ballard found a room from his Dallas hostel listed on Airbnb without his permission.
Collin Ballard
Ballard wrote to the host, telling him he was the owner and asking him to remove the listing.
“I just figured it was someone scamming,” Ballard said in an interview, adding that he knew nothing about Airbnb arbitrage.
Ballard said nobody ever responded to his message, but the listing was eventually taken down.
Airbnb ultimately removed most if not all of HFA’s listings over the course of several months in 2022, according to the lawsuit, though employees and investors told CNBC they weren’t sure why.
Several investors told CNBC that they encountered verification problems because it was impossible to prove they owned their listings. HFA responded by forging bills or other documents with the stolen listings’ address, according to investors, the lawsuit,an HFA training video, and a former employee.
If the allegations are true, HFA was sidestepping a key safety feature. False information can make it difficult for Airbnb to respond in an emergency or a situation that calls for the involvement of its safety team.
Airbnb told CNBC that it was rolling out a more robust verification process in the U.S. and elsewhere beginning as early as 2024.
Hunker denied allegations that HFA forges documents, and said Airbnb doesn’t require the lister to be the property owner.
By the end of last year, HFA’s investors realized that their promised gains were not materializing. Dozens unsuccessfully pressed for refunds of their deposits, according to a former employee, an internal HFA document, and the investor lawsuit.
A month after HFA’s then-counsel wrote to two dozen investors in January 2023 declining to provide refunds, investors filed their lawsuit, with 22 plaintiffs saying they received fewer than five bookings each, including 16 who said they had no bookings at all.
Hunker said HFA could present records showing its clients profited from the company’s services on the condition that CNBC sign a nondisclosure agreement. CNBC declined.
Agyeman continues promoting his businesses on social media. In his Instagram bio, he includes a new private equity venture called OKU Capital. Agyeman is its only member, according to Florida state filings and the firm’s LinkedIn profile.
Agyeman’s Wealthway advertises “fully managed,” “automated” vacation rental businesses with “minimal to no risk.” It’s similar to HFA, down to the branding on its website.
On its website, Wealthway has a video appearing to show a meeting between Agyeman and an Airbnb executive named David Levine, whose LinkedIn profile says he’s Airbnb’s head of API and enterprise partnerships for North America.
“What you guys have been doing at Wealthway is incredible and you guys have been following our partner guidelines,” Levine says in the recording.
In November, Botes, the former HFA salesman, became suspicious of the clip and sent it to Levine in a LinkedIn message.
“That video appears to have been taken out of context and altered,” Levine replied, according to screenshots of the messages viewed by CNBC. “Neither I, nor Airbnb, have any affiliation with Wealth Ways Vacation Rentals.”
Airbnb said it believes the clip is inauthentic. Levine didn’t respond to CNBC’s LinkedIn message. Hunker didn’t respond to a question about the video’s authenticity.
A once-bustling group of companies, backed by billions in venture capital funding, saw a record year for IPOs in 2021. Now, three years later, most of those direct-to-consumer, or DTC, companies still struggle with profitability.
“It’s that profitability angle now that demarcates the winners in DTC from the losers,” said GlobalData Retail’s managing director, Neil Saunders. “One of the problems with a lot of direct-to-consumer companies is they’re not profitable and a number of them don’t really have a convincing pathway to profitability. And that’s when investors get very nervous, especially in the current market where capital is expensive.”
Allbirds, Warby Parker, Rent the Runway, ThredUp and others once represented a new era of retail. These digital-first, ultra-modern companies rose to prominence in the 2010s, boosted by the rising tide of social media ads and online shopping. With the cohort came a huge wave of venture capital funding, propped up by low interest rates.
In just under a decade, venture capital funding exploded, from $60 billion in 2012 to an eye-watering $643 billion in 2021. Thirty percent of that funding was funneled into retail brands, and more than $5 billion went specifically to companies that intersected e-commerce and consumer products. As the Covid-19 pandemic moved most shopping online, venture capital funds were all-in on digital native direct-to-consumer companies.
According to a CNBC analysis of 22 publicly traded DTC companies, more than half have seen a decline of 50% or more in their stock price since they went public. Notable companies in the space, such as SmileDirectClub, which went public in 2019, and Winc, a wine subscription box, have declared bankruptcy. Casper, a direct-to-consumer mattress company, announced it was going private in late 2021 after a lackluster year-and-a-half of trading. Most recently meal kit subscription service Blue Apron exited the U.S. stock market after being acquired by Wonder Group.
Now many of these so-called DTC darlings are being forced to reevaluate their business model to survive a shifting consumer landscape.
Watch the video above to find out what happened to the DTC darlings of the 2010s and how the direct-to-consumer cohort is pivoting in the new decade.
