Author: Finance Staff

Credit Suisse prepares for senior management changes after a year of crisis

Business

Ian Krysztofiak, Staff

Header Image: CNBC
Credit Suisse building in Zurich Switzerland.

The Swiss investment bank Credit Suisse (NYSE: CS) reportedly has plans to replace some of its senior management positions in the coming months after the chief financial officer, general counsel and Asia-Pacific head are set to step down. Chairman of the board, Axel Lehmann, is hoping to put the bank back on stable ground after recent losses and scandals. Credit Suisse was founded in the 1800s to fund the Swiss railway system, but has since grown into a double digit billion dollar holding company with reaches into nearly every international market.

Credit Suisse is planning to replace Chief Financial Officer David Mathers, Chief Legal Officer Romeo Cerutti and the CEO of the Asia-Pacific region Helman Sitohang. Mathers has been in this role since 2010 and Cerutti has been the bank’s top lawyer since 2009. The board has yet to make any decisions. 

Credit Suisse is expected to take a loss in the first quarter of 2022 after recent litigation provisions and losses on loans through Russia’s invasion of Ukraine. Credit Suisse is looking to scale back its investment banking division and sharpen its focus on wealth management. They are also looking “to stabilize the bank through cultural and strategic changes,” said chairman Axel Lehmann.

Lehmann has only been at the helm of the board since January, as the former chairman Antonio Horta-Osorio resigned due to breaking COVID-19 quarantine requirements by attending football and tennis matches. Hort-Orsorio was at Credit Suisse for less than a year before he resigned from the board. 

Credit Suisse reported a net loss of 1.57 billion Swiss francs ($1.7 billion) for 2021. This comes after a 5.5 billion loss resulting from its risky exposure to the hedge fund Archegos Capital, which resulted in the firing of nine executives and disciplinary action against another 24 executives. They also suffered fines of $475 million for their role in the “tuna bond” scandal in the Republic of Mozambique. The firm helped arrange loans to Mozambique that were said to be used for a state owned tuna fishery and maritime commerce and security projects, but were aware that portions of he money would be used for military projects. Credit Suisse received $50 million worth of kickbacks for their bankers in exchange for better loan terms, while Mozambique officials used the funds to finance military expansion instead of the promised fishing fleet. 

Credit Suisse was unable to make a profit in 2021 during the most profitable years for financial institutions. Though with an increased focus on cultural changes, decreased investment banking activities and new management changes, only time will tell if they can rebound from their calamities.

Elon Musk buys Twitter for a whopping $44 billion

Business

Jason Ryan, Staff

Shortly after becoming a majority shareholder with a 9.2 percent stake in the social media platform, Elon Musk has bought Twitter for $44 billion. Source: NPR

On Monday, Elon Musk, CEO of Tesla, Inc. and founder of SpaceX, purchased social media platform Twitter for $44 billion. Musk, the outspoken CEO, and the richest man on Earth, according to Forbes, plans to take the social media company private, and has said that he wishes for Twitter to adhere more closely to the principles of free speech, which, in a statement, Musk called, “the bedrock of a functioning democracy.” 

This deal caps off a hasty episode in which the billionaire became one of Twitter’s largest shareholders, buying a 9.2 percent stake of the company. Afterwards, Musk was offered and turned down a seat on its board and decided to bid to buy the entire company all in less than a month.

Under the terms of the deal, shareholders will receive $54.20 in cash for each share of Twitter stock they own, matching Musk’s original offer and marking a 38 percent premium over the stock price the day before Musk revealed his stake in the company.

The offer became more concrete once Musk announced in a Securities and Exchange Commission filing that he received commitments for $46.5 billion to help finance the potential deal. This included about $25.5 billion in debt financing from Morgan Stanley Senior Funding and other firms. He said he committed about $21 billion in equity financing.

Though Musk has indicated that his primary interest in Twitter has to do with what he views as the company’s censorship of free speech, Musk’s critics are concerned that the billionaire’s control over the platform could result in the silencing of their voices and others with whom he may disagree, given that he’s often blocked critics from his personal account.It is too premature to say what Musk is to do with Twitter, but it is obvious he clearly intends to make his presence felt and heard around the social media platform. Musk has repeatedly stressed in recent days that his goal is to bolster free speech on the platform and work to “unlock” Twitter’s “extraordinary potential.” We will be following this story in the coming week if there are any major updates.

Yen tumbles, as the Bank of Japan announces the purchase of 10-year bonds

Business

Ian Krysztofiak, Staff

The Yen has hit a seven-year record low of ¥124 when compared to the dollar on foreign exchange markets. Just 10 months ago, it was valued at ¥109. The Euro gained 1.17 percent to €135.79, a four-year high. The Yen is on track to be the worst performer in 2022 in the foreign exchange markets, next to the Swedish krona — while the U.S. dollar and the Australian dollar are currently the best performers of this year. The Yen has been commonly viewed as a “safe haven” currency when things are going wrong in markets.

On March 28, the dollar hit USD $125.09 against the Yen; it has since dropped two percent to around $122 on April 1. A weak Yen caused by low rates can make cost increases even worse for imports, but it should help Japan’s exporters. 

As the Bank of Japan (BOJ) moves to contain rising bond yields, they have announced the purchase of unlimited 10-year Japanese bonds for four straight days to curve bond yields. Inflation remains relatively quiet in Japan, as their estimate for 2022 is two percent, while they are currently at 0.9 percent. 

While Japan’s economy is already facing economic problems from surging energy costs and raw materials imports, confidence among Japan’s largest manufacturers declines as the Yen weakens. Japan has been primarily an export-driven economy, but in recent years production has been shifting overseas. Wage growth also remains relatively low and might not be able to keep up with overall inflation if the weak Yen pushes Yen-denominated energy prices up even higher.

Currently, the Yen is the third most heavily-traded currency, being used in trillions of dollars of highly leveraged trades. Hedge funds are fans of the Yen because they use it to invest in high yield bonds, and they use it to arbitrage differences in interest rates. These highly leveraged trades have the potential to fall apart quickly when the Yen makes upward or downward moves, forcing hedge funds to make margin calls and liquidate their safe bets.

While most central banks have been hiking interest rates to fight inflation, or at least discussing it, the BOJ has no plans to do either. Given Japan’s low inflation rates relative to the rest of the world, especially the United States, it makes sense that they wouldn’t need to hike interest rates to compensate. However, due to surging energy costs and raw materials imports, the Bank of Japan will likely have to exercise some type of monetary policy to strengthen the Yen back to its previous state.

Elon Musk is now Twitter’s largest shareholder

Business

Jason Ryan, Staff

Elon Musk’s newly disclosed 9.2 percent stake in Twitter Inc. has made him the largest shareholder of the social media-company, topping out numerous financial institutions. To put into perspective, Musk’s shareholding is four times greater than that of Jack Dorsey, who stepped down as chief executive in November.

Musk’s purchase comes after a bout of criticism aimed at the social media company. The outspoken Tesla CEO polled people on Twitter last month about whether it adheres to free speech principles. He later said he himself was considering building a new social media platform. It is evident that was not the case. 

The news that Musk would be joining Twitter’s board of directors after becoming the platform’s largest shareholder sparked immediate speculation over how much the billionaire tech entrepreneur might shake up the social media company. Moreover, people speculated about how receptive the current board might be to having him on the team.

That being said, hours after his holding in the company was set public, Musk sought to launch a poll asking whether people want an edit button, something that has been long called for and perhaps something he personally wanted. In a tweet on Tuesday, Twitter Chief Executive Parag Agrawal said, “through conversations with Elon in recent weeks, it became clear to us that he would bring great value to our Board”, it seems Elon is already doing just that. 

Elon Musk

Elon Musk takes a 9.2 percent equity stake in the social-media company Twitter, exceeding large institutions and former CEO Jack Dorsey. Source: BBC News

On April 5, Twitter announced that it has been working on an edit button and that it will be rolled out soon to certain testers of the social media platform. In a later statement, Twitter executives announced that this feature and rollout are unrelated to Musk joining the board, although business critics and social media analysts are skeptical of this statement’s honesty.

Musk reported owning almost 73.5 million shares of Twitter as of March 14, according to a security filing Monday. Shares in the platform soared following Monday’s revelation that the Tesla founder had become the largest shareholder in the company. This means that stake has already grown in value and is now worth more than $3 billion.

According to a filing with the SEC, Musk’s term is set to expire in 2024. For his entire board term or 90 days after, Musk cannot be the beneficial owner of more than 14.9 percent of the company’s common stock outstanding.

It’s too soon to think about how much influence Musk will have as a director; however, social media expert Casey Newton points out that it is not the first time a big tech firm has gained a stance on Twitter. Microsoft chief executive Steve Ballmer once bought a four percent share of the company “and essentially did nothing with it”.

Yes, it is too premature to say what Musk is do with this stake, but he recently called out Twitter for allegedly falling short of “free speech principles” and very recently asked users if they want an edit button feature. It is obvious Musk clearly intends to make his presence felt and heard around the social-media platform. It will be interesting to see what comes in the coming weeks. Will Musk push for more features within the platform? Or will he push for free speech and try to allow certain people back on twitter? Only time will tell.

La Salle resorts to raising funds via a MLM scheme | Foolegian

Foolegian, Satire

YoungBoy Never Broke Again, Staff

“Hey girl!”

It’s the Instagram DM everybody dreads. “You’ve clearly got a LOT going on, LOVE your posts by the way… but I sense something special about you so I wanted to reach out.” You can probably guess where this is going next.

“Have you ever heard of La Salle University? It’s the cutest little school in Philly ranked #1 for earnings on its MBA program! My name is McKayleighanne and the reason I’m reaching out is because I’m looking for people to join our team where you can earn above and beyond what you’re currently making. I’d love to connect with you on a business level, is this an opportunity you’d be interested in?”

Um, what? I’m a little unclear on the “opportunity” here, but hey, she said it’s the “cutest little school,” that sounds nice… I’ll bite. I shoot back a message:

“Can I get a little more information?”

That was the single worst mistake of my life. McKayleighanne was the fisherman and I was a fifty-pound bass in open water, begging to be reeled in. And, I’m ashamed to admit, she got me, hook, line and sinker, with this message: “Here’s what we do. We recruit stellar girlies like you to join our team and spread the message about La Salle. By joining our team of girl bosses, you will have access to marketing materials that will help you recruit other dreamers and believers. Together, we comprise La Salle University and with your help, we can continue making more money than you can even dream of!”

In my defense, I wanted to make money. I admit, the details of her goal and execution strategy here were a bit unclear, but I felt as though I’d be joining a welcoming community. Little did I know, she wanted to make money off of me.

It wasn’t until I was already four years into the business that I figured that out. Four years of grinding and toiling away with this community of girl bosses, recruiting every poor sucker who fell victim to our trap. Ultimately, the scheme worked like this: first, reach out like McKayleighanne did to me. Second, get the potential recruit to invest a small sum of $1. Third, promise that they’ll get a return on their investment the more people they recruit. Fourth, ask them for another investment a month later, this time at a rate twice the initial investment. And then the next month. And then the next. And then the next.

Before you know it, you’re four years and $281 quadrillion in the hole. Granted, I made back about 10 percent of that by recruiting other girlies. But still, it took me quite some time to realize that this was an extremely effective method of fundraising for La Salle — and an awful investment on my part. I have to give them credit where credit is due; they really cornered the market on vulnerable wannabe girl bosses like me.

As for what they’re doing with all that money, I’m out of the business so I’m not too sure. I did hear rumors that La Salle just got a $1 billion grant and they’re finally using some of that money on their School of Arts & Sciences, but who knows… it is a business at the end of the day, so perhaps Founders’ will get ten more basketball nets because that would be really wise. With all that being said, what I do know is that they really got me. On the bright side, at least they have a lot of funds! And that’s all that matters at the end of the day.

I am in crippling debt, though. So it goes.

Global stocks decline as more firms cut ties with Russia

Business

Jason Ryan, Staff

Global financial stocks tumbled on Monday, March 7 with increasing investor fears about the potential for economic damage and pressure on consumer spending as the price of oil soars following Russia’s invasion of Ukraine.

Lenders, investors and dozens of payment companies with links to Russia have been cutting ties with the country. These moves and news come amidst Western sanctions against Russia. While the United States’ sanctions have been aimed at limiting the flow of Western money and damaging Russia’s economy, Ukraine has called for the boycott of Russian energy exports.

Major accounting firms Deloitte and EY said on Monday they are cutting ties with Russia, mirroring moves by fellow Big Four accounting and consultancy firms KPMG and PwC. These firms and their work are often key to businesses obtaining international investor backing. 

Global stocks drop more than two percent, hitting a bear market as oil prices briefly rise to $130 a barrel. 

U.S. stocks fell in morning trading after oil prices burst above $130 a barrel Sunday night, threatening to upset calculations for company costs, consumer behavior and the overall course of inflation. The losses for major indexes deepened on Monday afternoon as investors dialed back on risk by selling shares of companies across much of the economy, with the tech-heavy Nasdaq Composite falling into a bear market by declining to 20 percent below its November high.  

S&P 500 banks (.SPXBK) fell 4.8 percent on Monday and the broader S&P 500 financial sector (.SPSY) closed down 3.7 percent as the yield curve — the difference between longer and shorter-dated U.S. Treasuries — narrowed, suggesting pressure on U.S. banks’ profitability. The bank index has fallen more than 10 percent since the conflict escalated on Feb. 24.  

Shares in U.S. payment companies tumbled on Monday with American Express Co. (AXP.N) closing down 8.0 percent after it said on Sunday it was suspending all operations in Russia and Belarus, joining Visa Inc. (V.N), which fell 4.8 percent and Mastercard Inc. which fell 5.4 percent after their similar announcements the previous day. Payments company PayPal Holdings Inc. (PYPL.O) is also down 6.3 percent.
Investors are growing fearful that the consequences of the war in Ukraine, now in its 14th day, could become increasingly dramatic for financial markets. This conflict has already  upset commodity markets, increased tensions between Moscow and the Western world and led to Russia being unplugged from much of the global financial system. It is also evident more economic sanctions are to come.

Oil nears $100 a barrel amidst Russia-Ukraine tensions

Business

Jason Ryan, Staff

Header Image: Financial Times

On Monday evening, Russian President Vladimir Putin ordered forces into two regions of Eastern Ukraine. The rising tensions have sent jitters through markets. Oil, natural-gas and agricultural prices rose as pressures threatened to disrupt flows of natural resources from Eastern Europe to world markets.

Russia was the largest supplier of natural gas and oil to the European Union last year, and one of the world’s largest producers of oil and natural gas, accounting for 17 percent of the world’s natural gas and 12 percent of its oil. These tensions are contributing to increases in oil prices.

Crude prices recently crossed $90 per barrel, representing an increase of more than 20 percent this year and a pickup of more than 80 percent since the beginning of 2021. These gains, however, can also be credited to other factors such as tight supply. For instance demand for oil has surged since the early pandemic lows. Production, however, has not kept pace.

Moreover, U.S. crude surged more than three percent at one point to a high of $96. The contract ended the session 1.4 percent higher at $92.35 per barrel. Brent traded as high as $99.50, before settling at $96.84 per barrel for a gain of 1.52 percent.

Wall Street’s benchmark S&P 500 ended the day down one percent to its lowest closing level since late 2021, led lower by energy and consumer discretionary stocks. The decline on Tuesday brought the index into a correction, or 10 percent below its recent peak in January. Surging oil prices will benefit oil producers, but those producers will raise costs for everyone else. This will certainly depress economic activity, as consumers and companies alike respond to higher prices by cutting back. Gasoline prices in the U.S. are averaging more than $3.50 a gallon, the highest average since 2014. If crude prices should rise higher, gasoline prices would almost certainly climb more.The biggest burden for Americans would fall on lower-income families, since they spend a larger percentage of their household budget on gasoline (American Council for Energy Efficient Economy). In addition, rising natural gas prices could raise electricity and home heating bills. The increasing costs for transportation, power and heat would all contribute to inflation, which is already at its highest rate in 40 years in the U.S., though there is debate about how long the impact would be. All and all, it is clear that any rise in oil prices will affect the world markets in a negative manner.

Texas suing Meta over facial recognition technology

Business

Gibson McMonagle, Staff

Header Image: Forbes.com

Texas is seeking hundreds of billions of dollars in penalties due to Meta’s Facebook collecting facial recognition data. 

Facebook is falling into problems with the government again for violating privacy terms with their customers. Facebook’s parent company, Meta, is taking the heat due to selling data of people’s faces to third parties. The problem comes because they did not destroy the data in a timely manner. 

Facebook and Meta have both been using facial recognition for a while now to help support their programs. Meta has a budding virtual reality system and Facebook’s social media supports facial recognition to increase protection on accounts. 

One of the complaints in the files reads “Facebook repeatedly captured Texans’ biometric identifiers without their consent not hundreds, or thousands or millions of times — but billions of times, all in violation of CUBI and the DTPA.” CUBI is the Capture or Use of a Biometric Identifier Act. This act requires privacy for participants using the technology. DTPA stands for the Deceptive Trade Practices Act. Facebook is being accused of violating this act by selling data captured from the users of their products. 

What is interesting about this lawsuit is that Facebook shut down its facial recognition feature in November. They wanted to weigh the positives of using it while also thinking about the growing concerns of holding users’ data. 

Not too long ago, Facebook was in a major lawsuit for how they handled the data that they have been collecting. The previous lawsuit had Facebook paying $650 million for not informing their users of the data they were collecting. 

Texas Attorney General Ken Paxton states, “Facebook will no longer take advantage of people and their children with the intent to turn a profit at the expense of one’s safety and well-being.” Texas is in full swing to stop “yet another of Big Tech’s deceitful business practices,” said Paxton.

Right after the lawsuit was announced, Meta stated that they would delete the data of over one billion users. The company seems to be fully prepared to deal with the lawsuit and plans to fight against the claims made against them. Not many states have been focusing on biometric privacy, and now Texas is stepping into the ring on this problematic feature.

Virgin Galactic stock surges as reservations open for space travel 

Business

Jason Ryan, Staff

Header Image: BARRON’s

Virgin Galactic Stock jumps almost 30 percent as spaceflight ticket sales open Wednesday that require a $150,000 deposit. 

Space tourism company Virgin Galactic is getting closer and closer to commercial operations. The company announced Tuesday that it will open ticket sales to the public for the first time on Wednesday. This announcement should excite aspiring astronauts and thrill-seeking investors. 

For the soon-to-be astronauts that are seeking passage to space, the process is as simple as going to virgingalactic.com and starting the application. To book a reservation spot, Virgin Galactic requires a $150,000 deposit, so those interested will have to put a pretty penny into the experience.

Additionally, Virgin Galactic ticket prices start at $450,000 each. The company revealed, last year, three different sales offerings: a single seat purchase, packaged seats for couples, friends or family or opportunities to book entire flights. The company has said previously that, of the $150,000 deposit, $25,000 is nonrefundable. 

These flights consist of a 90-minute journey, including the launch and boost into space. Virgin Galactic also states, however, they are only going to sign up 1,000 customers on board to start its commercial service later in 2022.

As for investors, shares of Virgin Galactic stock jumped almost 30 percent in trading to $10.56 by midday. The stock has been beaten over the past 12 months, dropping 80 percent, with the company having delayed the beginning of commercial space flights to late this year. The S&P 500 Index and the Dow Jones Industrial Average percent were up 1.2 percent and 1.1 percent, respectively.

The stock is jumping because the start of commercial operations has been a long time coming. To explain, numerous delays due to spacecraft testing sent shares plummeting shortly after they soared, just around the time the company sent founder Sir. Richard Branson into space. 

This is certainly positive news for the company. Until now, Virgin Galactic has essentially been a pre-revenue business, and 1,000 customers paying $450,000 each in 2022 translates into $450 million of actual revenue for the business. Moreover, Tuesday’s announcement can be considered a relief for investors. It is estimated that just the deposits themselves will generate about $150 million in working capital for the company. 

It will be interesting to see how Virgin Galactic’s stock price acts in the coming weeks as more and more people participate in the hype of open reservations for commercial space travel.