Business

Study finds nearly 200 banks could suffer same fate as SVB

Business

Jorden McVeagh, Editor 

On the morning of Friday, Mar. 10th, Silicon Valley Bank collapsed. This collapse results in the second-largest banking collapse since the 2008 financial crisis. Regulators out of California closed the bank putting it under the control of the FDIC, which is responsible for formulating a plan of action. Many believe that they will liquidate most of, if not all, the bank’s assets in order to pay back customers. 

A recent study conducted and published by the Social Science Research Network found nearly 200 other banks, 186 to be exact, are at risk of suffering the same fate. All that would need to happen is for depositors to withdraw their funds, leaving the bank with very little capital. Exactly how much money is at risk here? $300 billion to be exact. The big question at hand is how did this happen? It all comes back to interest rates. The FED has been increasing interest rates over the past months, and as of Feb. of this year, they have jumped to 7.17% for a 30-year fixed rate. Money deposited into a bank is typically then invested in low-risk government bonds. Interest rates influence government bond performance, and since they continue to increase, bonds are negatively impacted. The issue with SVB is that a good amount of their assets were in long-term bonds, meaning that they mature in 10 years or more. The SVB collapse occurred when they posted a massive $1.8 billion loss to match the number of customer withdrawals. In addition, the bank also announced $2.25 billion in new shares in order to recover some of the losses. This loss scared depositors into withdrawing whatever amount of money they had from the bank.

Higher interest rates lower the value of treasury securities as I mentioned above. Many regulators in the industry feel good about the tools in place to help fight further incidents from happening. In an interview with CNN Business, Deputy Treasury Secretary Wally Adeyemo tried to inform the public that they are on top of monitoring the banking system to prevent further collapses. In this interview, Adeyemo stated, “Federal regulators are paying attention to this particular financial institution and when we think about the broader financial system, we’re very confident in the ability and the resilience of the system… we have the tools that are necessary for incidents like what’s happened to Silicon Valley Bank” Whether he is saving face here or not we will see in the coming months. However, it was smart on his end to at least try to capture some trust back from the public. It will take some further research and analysis to get the full picture of what led to the collapse of SVB, but it is vital to the banking sector that it is done quickly before more depositors lose trust in the banks. As the US economy signals it is edging closer to a recession, losing trust in the banks going in is the last thing the public wants to happen.

Why Kanye could cost Adidas billions

Business

Jorden McVeagh, Editor 

Adidas CMO Eric Liedtke and Kanye West. Photo: Adidas

https://fashionista.com/2016/06/adidas-kanye-west-expansion

Another week, another news update on Kayne West. This time, however, it is his former business partners Adidas who are creating headlines. As it is known, Kanye has been dropped by many of his former sponsors and business partners in the past months based on some comments and statements West has made publicly. These comments were what made Adidas decide to terminate their partnership with Kayne and his Yeezy brand together. While the public image is important, Adidas has recently said that if they can not offload inventory from the Yeezy line they could stand to lose at least $1.07 billion. The initial estimate believed this move would cost the company a mere $533 million in operating profit. Why is this move such a big deal for Adidas? Kanye and Yeezy generated nearly $2 billion worth of business for Adidas. The line made up 10% of the company’s total revenue. Meaning that by dropping Kanye they are losing money and market share to competitors. As mentioned above, his remarks have cost him other deals as well. Since October companies such as Gap, Balenciaga, Footlocker and TJ Maxx have all terminated deals with the superstar. While these moves are significant, none of them hurt more than Adidas. There have been talks of Adidas repurposing the line and just not using the name Yeezy, but this could be met with some backlash from consumers. Regardless of what your ideas of the man are, most people are going to want to buy something from his line to wear instead of wearing a knockoff version of the same shoe. In addition to the $1.07 billion they lost; they could stand to lose another $213 million in one-off costs. Adidas CEO Bjorn Gulden made a recent statement to NBC News about their 2022 performance when he said, “The numbers speak for themselves. We are currently not performing the way we should… 2023 will be a year of transition to set the base to again be a growing and profitable company.” As sort of the icing on the cake, Adidas stock dropped 11% on the German Stock Exchange on Friday alone. While I won’t get into the politics behind the issues let’s look at what Adidas stands to lose. They will lose large amounts of revenue, future market share, and more costs by continuing in a different direction. The company has its values and I respect that. I am interested to see if they will decide to partner with another big-name artist in order to get back some of that lost revenue in 2023. They need to make a decision quickly because other organizations in their sector are growing at an alarming rate and will be urgent to jump on that new market share. Lululemon for example is a company looking to capitalize on this. For the first time in its 20-year history, outselling Under Armour last year. This is a trend they will look to continue this year and make a dent in the positions of companies like Adidas and Nike who hold a larger portion of the market. I will be following what Adidas does with the one-off line in the coming months. As for Kanye, losing these deals will hurt his pockets. I will too be following what he does in the fashion industry in the coming months. Plus let’s not forget a big thing here. He made “Graduation.”

Premier League Soccer team accused of breaching financial rules

Business

Jorden McVeagh, Editor 

A logo on a blue surface Description automatically generated with low confidence

https://www.zettapic.com/2021/03/18-manchester-city-logo-wallpaper-png.html

One of the top soccer leagues announced today that one of their clubs had a major violation of their league’s financial rules. I am speaking of the Premier League and one of their most well-known teams, Manchester City. The league opened Monday with the announcement the club had misrepresented the club’s current financial situation, and that it doesn’t provide a “true and fair view of the club’s financial position.” All of this relates back to their revenues from the 2009-10 up to the 2017-18 seasons. This was not the only lagging factor in their reports. It was also stated that Man City had failed in their duty to provide both manager and player pay for the 2009-2012 seasons and 2010-2016 seasons respectively. As if this wasn’t enough, they also failed to help or assist the legal investigations in this matter over the past four years which breaches the Club Licensing and Financial Fair Play Regulations between 2013 to 2018 under the Union of European Football Associations. As a result of the allegations there will be a private commission appointed by the chair of the Premier League. According to a statement the club gave the BBC, they are surprised over the current issues that the allegations are accusing them of breaking given what the club has turned over to the rules committee thus far. However, this is not indicative of the ruling of the case. Throughout history we have seen multiple people and companies in the same position who have said things like Man City. They also said that they are welcoming the idea of a private commission reviewing the materials they provided for review. Once again, something countless people and companies have said before. Now that all the legislative stuff is out of the way, what could this mean for the team and the Premier League? Man City has worn the crown in the Premier League in four of the past five seasons making them one of the most popular clubs in the world, not that they weren’t already. They are also carrying some of the most popular players in the world in Erling Haaland and Jack Grealish. The pairing of these two would mean a tremendous amount of revenue being generated by the club in both ticket sales, championship merchandise and regular team merchandise. It will be interesting to see what happens to these numbers as the findings of the committee come out in due time. If I were to throw my two senses in I don’t think either will be negatively impacted. Man City is a historic organization with a diehard group of fans. I would have a hard time believing they would lose fans through these allegations or findings, but you never know. What sets one person over the edge and what sets someone else over the edge are two different tipping points, so it is hard to tell what will happen regarding sales of tickets and jerseys

Bed bath and beyond defaults on credit line, closing more stores.

Business

Jason Ryan, Staff

https://www.axios.com/2023/01/30/bed-bath-beyond-closing-stores-2023

Bed Bath & Beyond said Thursday it does not have enough cash to pay down its debts and it has defaulted on its credit line with JPMorgan, warning once again of a potential bankruptcy. Shares of Bed Bath plunged Thursday afternoon, prompting brief trading halts. The stock closed 22% down with a market cap of about $295 million, although it traded slightly higher Friday morning.  

In a securities filing, Bed Bath & Beyond said it “does not have sufficient resources to repay the amounts under the Credit Facilities and this will lead the Company to consider all strategic alternatives, including restructuring its debt under the U.S. Bankruptcy Code.” Bed Bath is attempting to cut costs by lowering capital expenditures, closing stores, and negotiating lease deals with its landlords but personally warned “these measures may not be successful”.

Bed Bath’s debt load also includes $1.2 billion in unsecured notes, which have maturity dates spread across 2024, 2034 and 2044, and have been trading at extremely distressed levels. The company said previously it was not able to refinance portions of that debt less than a month after it told investors it planned to take out more credit to pay down its obligations. The company has been burning through cash in recent quarters. It used $890 million in cash during the nine months ended Nov. 26, the company reported Thursday. As of that date, Bed Bath said it had $225.7 million remaining in cash.

As of late November, the company had 949 stores, including 762 Bed Bath & Beyond stores, 137 buybuy Baby stores and 50 stores under the names Harmon, Harmon Face Values or Face Values. In September, the company announced only 56 Bed Bath & Beyond stores would be closing; however, earlier this month, the company posted a list with 62 Bed Bath closures, six buybuy Baby and two Harmon stores. The original closings announced in September were also on the list.

This news comes only a few months after the CFO of Bed Bath & Beyond leapt to his death from a Manhattan skyscraper where he had faced pump and dump allegations less that two weeks earlier. 

All and all, Bed Bath & Beyond has been distressed for years, having failed to reinvent itself in the digital age despite efforts to declutter its stores and remake its coupon strategy. The company will likely end in liquidation if it does not find a buyer soon.

ryanj21@lasalle.edu

Bad news for the EV industry as companies continue to cut prices

Business

Jorden McVeagh, Editor 

https://www.motorbiscuit.com/wp-content/uploads/2021/12/2022-ford-mustang-mach-e-ice-white-edition.jpeg

The electric vehicle industry has been on the rise as consumers look to shift to a more sustainable and environmentally friendly mode of transportation. Tesla was the industry leader in terms of their design, pricing and distribution as we all saw its cars popping up all over the place in the last year or two. Companies have been following their lead and creating their lines of electric vehicles. Whether this is due to the creation of vehicle lines or an extension of already existing models, they are becoming a far more popular option than they were in the past. The problem with the industry is that it is still new, so product design, safety and pricing are still metrics that are being played around with from the manufacturer. Ford is one of the companies doing this today. They released a product called the Mach-E which was created to be one of the top competitors for Tesla’s Model Y. Last week, Ford announced that it would be cutting the price of their car after Tesla announced a price reduction for the Model Y in early January. For Ford, the price reduction fluctuates between $600 up to $5,900. This is not as much as Tesla’s $13,000 price cut, but at the same time, the price of Ford’s model is not as expensive as Tesla’s. Most of the time, when we hear about the price reduction of a product, it is usually associated with a negative impact. This may not hold true in this case. Wall Street investors are applauding these cuts as they can be used to drive up demand and sales of the product. As we inch closer and closer to a recession, consumers are tightening their wallets and a high-priced electric car may not be what people want to be spending money on right now. Tesla is acting as a regulator in the current market. If the industry leader cuts their prices, other companies will follow. Not many people would pay for another brand when Tesla is the lowest in terms of cost. When you pair this with the brand image Tesla has generated up to this point, other companies need to cut prices to stay competitive. The expected increase in sales will reflect Ford’s vehicle output. The quantity produced of the Ford Mach-E is expected to jump from 78,000 to 130,000 units annually produced. The Mach-E is the second-best selling EV in the US behind Tesla. Ford’s model comes in between the prices of $46,000 and goes all the way up to $64,000 while Tesla averages between $53,500 to $57,000. Tesla however outsold Ford with more than 522,000 units sold just in the US alone in 2022. To increase production, Ford has moved outside the US for the mass construction of their vehicles. They have a plant in Mexico that is currently under construction for upgrades but will be operational in the coming months. It will be interesting to see how these price cuts benefit those in the industry. Will they see an increase in revenue? Drop in sales still? Time will tell, but as more consumers shift to EV, this will surely increase their appetite to buy in the current trending economic conditions.

Streaming services band together to fight slowing growth

Business

Jorden McVeagh, Editor 

A picture containing text, electronics Description automatically generatedhttps://www.forbes.com/sites/siladityaray/2022/08/12/heres-how-much-more-you-have-to-pay-for-streaming-services-compared-to-last-year/?sh=223777796dfe

Streaming services have grown immensely since the start of the pandemic and even in the years leading up to COVID-19. As a result of this, it has left companies such as Netflix, Disney+, Hulu, and many more fighting over viewers and precious market share in order to get their share of the pie. As we are slowly coming out of the other side of the pandemic and seem to be entering an economic recession in the coming months, this war may turn into a partnership to keep their companies afloat. Last year marked the first time ever that Netflix’s number of subscribers dropped, with their share price falling by over 60%. They were not the only ones either. As the world turns more to streaming services companies did what they do and adapted to this new method of entertainment. Most companies that did so saw a decrease in their stock price over the past year. With this happening, we may see something that is uncommon in the modern business world. We may see competitors team up to slow and reverse the current trend. According to their most recent quarterly reports, Netflix added 7.7 million new subscribers in the fourth quarter of 2022 with the stock price rising 6%. In the past, news like this would be deadly for competing companies, however, not this time. Netflix competitors also saw a slight increase in their share price after the reports were published. It will be interesting to see what happens in the coming months as Netflix will soon implement a fee for password sharing. According to Netflix, they expect first quarter numbers to be lower than the fourth of 2022 as a result. On the other hand they expect numbers to increase again going into the second quarter as more customers sign up for the service. As we recently flipped the page into 2023, it will all be about banding together in order to fight subscriber fatigue. As the world goes more and more digital by the day companies will be in a constant fight to keep up with the times, and streaming services will be at the forefront of that fight. The number of services has increased drastically over the past couple of years and has saturated the market giving the consumer the option to choose who they want. I myself am interested to see what the services working together will look like. If they can work together in order to keep the market in good standing, then it will be of great benefit to the consumer over time. They can’t get into a pricing war because at the end of the day the consumer will go with what may be cheaper, especially with a recession looming. 

Senate approves railroad labor agreement before strike deadline

Business

Jorden McVeagh, Editor 

A group of people standing in front of a white building Description automatically generated with medium confidencehttps://vaisaagro.com/fehopabe/2022/12/01/schumer-senate-cannot-leave-until-rail-strike-bill-is-passed/

In a follow-up to my recent article regarding railroad union strikes, I bring you the news that the US Senate has approved an agreement that will pass on to President Joe Biden. This agreement is major as it prevents the rail unions from going on strike. At the final act there was an effort to include seven days of paid sick leave that didn’t end up making the final draft. This was an important bill for the US economy as any strike would hinder the transportation of goods raising their market prices, and the importance of this was reflected in the Senate’s voting. The bill passed through with 80 in favor and a mere 15 against. President Biden has already stated that he will sign the bill if it were to make it across his desk. Now, as for what the final bill looks like, it is similar to what was discussed in my previous article. Railroad workers will see a pay increase of 24% over the next five years with the dates of this arrangement going from 2020 to 2024, payouts will average $11,000, and an extra paid day off. The passing of this bill was accepted by the union. They even went as far as to release a statement saying, “our members are forced to work more hours, have less stability, suffer more stress, and receive less rest… No American worker should ever have to face the decision of going to work sick, fatigued or mentally unwell versus getting fired by their employer.” While no worker should go to work sick in any way, I get what they are saying. Hopefully, the terms of the agreement will be sufficient for long term stability in terms of pay and worker treatment on the railroads. Now how does this benefit the average consumer? It will mean that we won’t have to pay higher prices as the Christmas and New Year’s holidays roll around the corner. Products will be imported and exported easily and without delay which won’t create a shortage of the products on the market. While this is big for the current time of year the more important figure is that gas and the chemicals used in making it will be easily transported. This means gas prices will hover around the same prices that they sit at currently instead of potentially jumping up. This will save the consumer money on gas from traveling all over the place for their shopping. Overall, the union coming to an agreement is good for both parties. Workers get a pay structure and work environment they feel safe and happy in, and the consumer’s wallet doesn’t have to suffer because of the shortage that would have come from the strike.

Rail Union disputes may lead to an increase in consumer spending

Business

Jorden McVeagh, Editor

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https://www.ibtimes.com/nationwide-rail-strike-imminent-after-union-rejects-labor-proposal-3638645

This past week in Omaha, Nebraska, a major deal was offered that could determine consumer spending for the foreseeable future. This deal was offered to railroad engineers that saw an offer of a 24% raise to conductor salaries that was ultimately rejected. The rejection of the offer has raised many concerns regarding whether the dispute will be settled before next month’s deadline. Before Monday three of the smaller unions had already rejected the offer with a split vote on Monday between the two largest unions which led to the result of the offer. However, seven smaller unions were able to accept and approve a deal with the terms of a 24% raise with an additional $5,000 in bonuses. The unions will go back to the drawing board and will renegotiate the terms of the agreement. This time they will look at adding paid sick time to their contracts. Much to the disliking of the railroads resulting in the negotiations going into deadlock between the two parties. All 12 of the unions need to approve of the offer to prevent a strike. This is where this issue would really hurt the general economy and the American consumer. It would further tighten the supply chains and as I mentioned before, increase stress in a post pandemic economy both in the US and globally. If this were to continue it is likely that Congress would step in at some point in order to impose a contract between the railroads and the unions assuming they cannot come to an agreement. The main problem that workers have with the railroads is the lack of consideration for quality-of-life. Many feel as if the demanding schedules hinder their ability to live life away from the rails, something that is supposed to be improved in the negotiations. So, why does this matter to the typical consumer? Because we will experience supply chain issues like those seen during the pandemic due to 30% of the nation’s freight being moved via the railroad. Gas prices could again increase as a result of oil refineries having trouble producing the current gas volumes they are. Recently harvested crops took longer to move and fertilizers for upcoming plants will not reach their destination in time. Finally, consumer goods will be impacted due to the inability to import goods. This comes at the worst time of the year with the holiday season upon us. Consumers may see a severe shortage in their favorite goods resulting in the prices to increase. As the Thanksgiving and Christmas holidays come closer, it will be interesting to see how this dispute ends. Hopefully for consumers both in the US and globally they settle, and people can move forward without having to worry about higher costs during the biggest spending period of the year.

Global Stocks all over the place due to Inflation and Virus Concerns

Business

Jorden McVeagh, Editor

https://www.medicaleconomics.com/view/positioning-in-a-chaotic-stock-market-with-key-sectors

Stocks on the Asian market have declined as of Mon., November 14, 2022, while European and American stocks open higher due to the optimistic views on inflation in the US and virus cases spanning over China. Last week, US inflation reported at a lower rate than in the prior weeks which caught the attention of investors all over the world. They hope that this hints that the FED will rethink its plan to continue to raise interest rates to help fight rising inflation. However, industry workers such as Venkateswaran Lavanya of the Mizuho Bank believe this is not an accurate measure as to what is coming. In an article published by US News, Lavanya said, “It is far too hasty to declare a decisive conclusion to inflation risks.” Meaning, that reports can come in on a daily, but we cannot assess these as true indicators as to what the FED will do with interest rates in the future. This still did not stop the various markets from around the world from responding to this news. Exchanges such as the FTSE in London saw a 0.8% gain, the DAX in Frankfurt just behind them at a positive 0.7% gain, and Paris’s CAC 40 jumping 0.5%. However, not all markets responded in a way that would reflect this optimism. In the US, the S&P 500 dropped 0.2%, with the Dow Jones dropping 0.1%. These numbers still should not be looked at as a representative value for the entire US stock market. While the markets did see a slight drop, the S&P jumped 5.5% on Friday alone. This ends a great week for the US markets, which saw all three exchanges ending in the green. Last week was also a big week for the US political economy with the congressional elections being held, which found Republicans likely to take control of the House of Representatives, and the Democrats taking the Senate. In Asia, concerns of COVID are still high. The Nikkei 225 out of Tokyo dropped by 1.1% while the Hang Seng in Hong Kong went up 1.7%. With the news of the Chinese government making the decision to reduce the economic cost of their Zero COVID policy are primarily the reason behind the major shift of the markets. Finally, in Seoul, the Kospi dropped 0.3% with the S&P-ASX 200 following with a 0.2% drop. The FED will meet again in December once again to discuss interest rates. Investors expect another rate hike however this time only by half a percent in comparison to three fourths of a percent that was seen with the last four hikes. It will be interesting to see what the markets continue to do in the coming weeks leading up to the meeting. As talks of recession creep into the conversations in America more often, it may get worse before it gets better, but we will not know until more plays out in the coming weeks.

Elon Musk looks to rehire some of the staff he booted last week.

Business

Jason Ryan, Staff

Twitter Inc. is heading into its second full workweek under Elon Musk with half its workforce, mounting losses and a couple of expected reversals to its plans\

The social-media company, Twitter Inc. laid off close to 3,700 people on Friday, only to reach out soon thereafter to dozens of employees where it was decided they were either fired in error or are just too essential to the changes the billionaire businessman, Elon Musk, wanted to make. 

The layoffs hit across many divisions, including the engineering and machine learning units, the teams that manage content moderation and the sales and advertising departments.

These stroke events, as described by people familiar with the situation or in an internal company memo posted on Slack, follow Musk’s own acknowledgment in a tweet that the company he and wealthy partners bought for $44 billion is losing $4 million a day.

Twitter Inc. decided to go after its workforce  to trim costs following Musk’s acquisition, which finally closed in late October. Many employees learned they lost their job after their access to companywide systems, like email and Slack, were suddenly suspended. The sudden requests for employees to return to office demonstrate how rushed and disorganized the process was.

Some regions were hit harder than others. For example, the company fired more than 90% of its staff in India over the weekend, severely depleting its engineering and product staff. The job cuts left the company with a little over a dozen staff in the growth market.

That being said, Twitter is rolling out new features such as its Twitter Blue subscription plan. To elaborate, Twitter will issue the new blue verification check marks to users who pay $7.99 a month for the service starting on Nov. 9. The company had previously planned to roll out the subscription feature Nov. 7, the day before the election; however, one of Musk’s early goals for the company is  delayed until Wednesday to avoid potential chaos during the U.S. midterm elections.

The company received internal and external feedback that the verification process for its Twitter Blue subscription program could be prepared for abuse. This has raised concerns that candidates and other political figures might be impersonated on site in the days before the US election. 

Late Sunday, Musk said Twitter would ban accounts that impersonate others, after several high-profile users changed their names and pictures to match the billionaire. Any name change at all will cause a temporary loss of a verified check mark.

Though the company needs some technical staff to return, the platform is not likely to be forgotten about. They surely need to figure out a way to get out of this mess and control Musk’s short temper.

  ryanj21@lasalle.edu