The report by government-controlled Anadolu Agency comes a week after the country’s central bank announced it was banning the use of crypto for payments.
Parts of the bank had not fully implemented systems to keep pace with Archegos' fast growth when Archegos bets on a collection of stocks swelled leading up to its March collapse, the report said, citing unidentified people familiar with the matter. Chief Executive Thomas Gottstein and Lara Warner, the bank's recently departed chief risk officer, became aware of the Archegos exposure in the days leading up to the forced liquidation of the fund, the report said. Credit Suisse declined to comment on the WSJ report.
(Bloomberg) -- American Industrial Partners has bought most of the senior debt of two of Sanjeev Gupta’s European aluminum assets, putting it in position to take them over, people familiar with the matter said.The New York-based private equity firm in recent days bought debt linked to Gupta’s Dunkirk smelter in France as well as refinancing the senior debt of the Duffel rolling mill in Belgium, said the people, who asked not to be identified as the deals weren’t public.Gupta has been searching for new financing as the industrialist scrambles to save his metals empire after the collapse of its biggest lender, Greensill Capital, last month. AIP’s move to buy out other creditors at par could signal its intention to purchase the aluminum assets -- either directly from Gupta or after an insolvency process.Gupta’s GFG Alliance, a loose group of metals and commodity trading companies, warned in February it would face insolvency without Greensill’s funding, according to court documents. Its aluminum assets are grouped under the name Alvance.“GFG Alliance can confirm Alvance Aluminium Duffel is enjoying the benefits of recent strong aluminum markets and its excellent relationships with customers. We have now completed the refinancing of its external debt facilities, with a large international lender, which will position the business for continued growth,” a spokesperson for GFG said, without elaborating.The GFG spokesperson declined to comment on Dunkirk and potential talks to sell the plants. Representatives for AIP didn’t immediately reply to calls and emails seeking comment.AIP’s move caps a frenetic period of trading in debt linked to the Dunkirk plant, Europe’s largest aluminum smelter, which Gupta bought from Rio Tinto Group in 2018.Several lenders including BNP Paribas SA, Morgan Stanley, Natixis SA, Industrial & Commercial Bank of China Ltd. and ICBC Standard Bank Plc have sold or sought to sell their portions of the loan in recent weeks, Bloomberg has reported. The loans were then bought at a discount by distressed debt investors including Davidson Kempner Capital Management and Triton Partners, before AIP came in to buy them out at par, the people said.Still, Trafigura Group has not only retained its portion of the Dunkirk loan but also added to it in recent days, several of the people said, potentially indicating that the trading house could play a role in a future deal for the smelter. Rival trader Glencore Plc has also expressed interest in the smelter, according to separate people familiar with the matter.Trafigura and Glencore declined to comment.At the same time, a senior loan of around 50 million euros ($60 million) to the Duffel plant from Tor Investment Management has also been repaid, two of the people said.AIP is focused on buying industrial businesses and has raised approximately $7 billion of capital across seven investment funds, according to its website. In December, it bought a former Aleris Corp. aluminum rolling mill in Lewisport, Kentucky from Hindalco Industries Ltd.Gupta’s aluminum assets could have an enterprise value of just over $1 billion, including $637 million in debt, according to a GFG presentation seen by Bloomberg News. The assets’ earnings before interest, tax, depreciation and amortization totaled $103 million last year, the presentation showed.(Adds context on AIP in penultimate paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- China is considering a plan that would see the central bank assume more than 100 billion yuan ($15 billion) of assets from China Huarong Asset Management Co., helping the state-owned company clean up its balance sheet and refocus on its core business of managing distressed debt, people familiar with the matter said.Under a proposal that’s still being finalized and could change, a unit of the People’s Bank of China would assume assets from some of Huarong’s unprofitable operations, the people said, asking not to identified as the discussions are private. Further details on how the arrangement would work couldn’t immediately be learned.Separately, China Huarong International Holdings Ltd., the offshore unit that issues or guarantees most of Huarong’s dollar bonds, is in the process of transferring distressed assets worth tens of billions of yuan into a separate offshore entity called China Huarong Overseas Investment Holding Co., one of the people said. The move is aimed at improving the financial health of China Huarong International, the group’s main link to overseas funding, the person said.Bloomberg has previously reported that Huarong proposed an overhaul plan to Chinese regulators that would involve offloading its money-losing, non-core businesses.If the PBOC proposal comes to fruition, it would mark a significant show of government support for a company that has faced intense investor scrutiny after missing a deadline to report earnings at the end of March. Speculation about a looming debt restructuring sent Huarong’s dollar bonds to record lows last week, stoking fears of market contagion and prompting some investors to reconsider assumptions about implicit government guarantees that have underpinned China’s credit market for decades. Huarong’s bonds have swung wildly in recent days amid conflicting signals about the company’s fate.While the China Banking and Insurance Regulatory Commission said last week that Huarong was operating normally and had ample liquidity, authorities have remained quiet about whether the government will offer any financial support. It’s unclear whether Chinese regulators have given Huarong any specific guidance related to its offshore bonds.The PBOC said it couldn’t immediately comment when contacted by Bloomberg on Wednesday. The CBIRC and Huarong didn’t immediately respond to requests for comment.“The news suggests that the central government is examining options to provide bail-out solutions to Huarong,” said Dan Wang, an analyst at Bloomberg Intelligence in Hong Kong. “The potential involvement of the PBOC, which is experienced in handling distressed financial institutions, also gives the market more hope that the Huarong saga will be dealt with in an orderly way that is less likely to incur losses for offshore bondholders.”The company’s 4.5% perpetual bond gained 6.4 cents on the dollar to 79.8 cents on Wednesday, while its 3.75% dollar bond due in 2022 climbed 5 cents to 87.7 cents.With nearly 1.6 trillion yuan of liabilities and a vast web of connections with other financial institutions, Huarong is among China’s most systemically important companies outside the nation’s state-owned banks. It’s also majority-owned by China’s finance ministry, making it a closely watched barometer of the government’s willingness to backstop debt of troubled state-owned enterprises.Policy makers have been trying to dial back support for unprofitable SOEs to reduce moral hazard in recent years, but they’ve yet to allow a default by a company controlled by the central government. While Chinese SOEs reneged on a record 79.5 billion yuan of local bonds in 2020, most of the defaulters were linked to regional governments and none were considered as systemically important as Huarong.Worries about the company’s fate have been most acute among offshore bondholders, in part because most of Huarong’s dollar debt contains a form of credit protection called a keepwell agreement that has yet to be fully tested in court. It’s unclear whether Huarong would be compelled to make good on more than $20 billion in dollar bonds if its offshore units -- especially China Huarong International -- were unable to repay.Huarong and China’s three other main bad-debt managers have nearly $50 billion in outstanding dollar bonds, or about 8% of China’s overseas investment-grade credit market, data compiled by Bloomberg show. Huarong is the third largest Chinese financial issuer in international markets, according to S&P Global Ratings.The plan being discussed for Huarong has some similarities with the one enacted for troubled Chinese lender Bank of Jinzhou Co. in 2020. Two state-run entities, including one backed by the PBOC, injected 12.1 billion yuan of capital into the bank and assumed 150 billion of its distressed assets. The support package was widely viewed as an attempt to minimize ripple effects on the financial system, after authorities jolted markets in 2019 by seizing control of Baoshang Bank Co. and forcing some corporate creditors to take haircuts.Among the other Huarong measures under consideration by regulators is the transfer of the Chinese government’s stake from the finance ministry to a unit of the nation’s sovereign wealth fund that has more experience resolving debt risks, a person familiar with the matter said in mid-April. Regulators have held several meetings to discuss Huarong’s fate, people familiar have said.The PBOC plan is the latest development in a saga that has enthralled China watchers since 2018, when Huarong’s then-chairman Lai Xiaomin was accused of bribery in one of the country’s biggest-ever financial scandals. Under Lai, who was executed earlier this year, Huarong moved far beyond its original mandate of helping banks dispose of bad debt. The company raised billions of dollars from offshore bondholders and expanded into everything from trust companies to securities trading and illiquid investments.Despite Huarong’s history of mismanagement, some market observers have said the costs of allowing the company to suffer a major default probably outweigh the benefits.“We see little for the government to gain in letting such a major crisis happen in an effort to eliminate moral hazard in SOEs,” Citigroup Inc. analysts including Eric Ollom wrote in a recent research report. “A financial crisis would likely result in a return to substantial monetary stimulus to counter any financial instability. The more likely policy outcome seems to be to remind investors of these risks but keep the fallout well contained.”(Adds analyst quote and bond reaction in eighth and 9th paragraphs.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Wall Street is skeptical President Joe Biden's expected proposal to hike capital gains taxes could pass the Senate, but investors see risks that tax-motivated selling could still weigh on technology and other sectors that skyrocketed during the pandemic. While any tax increase will likely be lower than Biden's initial proposal given the Democrat's small advantage in the Senate, individual investors who are concerned about rising rates may start to unload shares in order to lock in current rates.
Credit Suisse will raise over $2 billion to strengthen its capital base after flagging a further hit from the collapse of U.S. investment fund Archegos and a shrinking of the prime brokerage unit responsible for the multi-billion dollar debacle. The demise of Archegos and another major client, British finance firm Greensill, have plunged Credit Suisse into crisis, triggering losses, sackings and bonus cuts at a time when rivals are revelling in bumper profit from trading and dealmaking. In a further blow for Chief Executive Thomas Gottstein, Switzerland's financial regulator has opened enforcement proceedings against the bank over how it handled the risks around Archegos and Greensill.
Adding to the bearish sentiment was the progress on negotiations between Iran and world powers to resurrect the 2015 nuclear accord.
Stock futures opened slightly higher Thursday evening, steadying after selling off sharply following a report that President Joe Biden was eyeing a proposal to increase the capital gains tax rate on wealthy individuals.
(Bloomberg) -- The Australian central bank’s bond-buying program is set to become more influential as 10-year high iron ore prices combined with a hiring spree narrow the budget deficit and reduce government debt financing needs.Iron ore was trading over $180 a ton this week, reflecting China’s massive demand as its economy leads the global recovery from Covid-19. The Australian government based its revenue projections on expectations prices would to fall to $55 a ton by the end of September. Unemployment was expected to average 7.25% over the fiscal year, yet in March it had already fallen to 5.6%.The fiscal shortfall for the 12 months ending June 30 could be half the A$198 billion ($153 billion) deficit forecast in December, due to the better-than-expected revenue receipts and less expenditure on welfare. Treasurer Josh Frydenberg is due to announce his fiscal 2022 blueprint on May 11, which will contain the latest estimates for the current year.The stronger position of Australia’s books means that the government won’t need to issue as many bonds to bridge the fiscal shortfall. That also aids the Reserve Bank of Australia as its A$200 billion program will see it hold a greater proportion of debt, making monetary policy more effective.“It’s more bang for your buck,” said Phil Odonaghoe, an economist at Deutsche Bank AG. “For every bond that the RBA is now buying, it’s more influential on the yield curve and the currency than it otherwise would be because you’re buying that fixed amount from a smaller supply of bonds in the market.”Odonaghoe last month -- before the latest leg up in iron ore prices and leg down in the jobless rate -- estimated the budget could narrow to as little as A$100 billion in the current fiscal year. The relentless rise in the iron ore price is also likely to see the resource-rich Western Australia state record a budget surplus, he said.James McIntyre, economist for Australia and New Zealand at Bloomberg Economics, reckons the prevailing prices could add an additional A$40 billion to government revenue, accelerating the pace of fiscal consolidation.“A stronger than expected labor market recovery, coupled with a boost to profits from surging commodity prices, could see a major reduction in expected issuance, potentially amplifying the effectiveness of the RBA’s bond purchases,” he said.Stimulus DebateThe increased potency of monetary policy comes as debate emerges on whether the RBA will roll over its yield curve control on the three-year note to November 2024 from the current April 2024. Similarly, whether it will announce another round of quantitative easing once its second A$100 billion tranche ends in October.These questions were reignited after the central bank in Canada this week took the biggest step yet by a major economy to reduce emergency levels of monetary stimulus in response to a stronger than expected performance.“The Bank of Canada’s taper is partly a reflection of lower bond issuance in their next fiscal year -- they had their budget delivered Monday night -- and there’s going to be a similar dynamic in Australia,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Bain Capital is looking at formulating a bid to acquire Toshiba Corp, two people familiar with the matter said, making it one of several firms said to be interested in taking the Japanese conglomerate private. The U.S. firm has entered into discussions with Japanese banks including the core units of Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc to secure funding, one of the people said. A preliminary $20 billion buyout offer from CVC Capital Partners this month put Toshiba in play.
(Bloomberg) -- As the global economy rebounds and commodity prices hit multi-year highs, emerging-market investors are seeking refuge in the one area that offers protection from inflation concerns.While this year’s global bond rout and the prospect of accelerating inflation have inflicted pain across markets from Brazil to Russia, debt securities that are linked to the pace of consumer-price gains have weathered the storm better than their nominal counterparts.Surging price pressures have long been a scourge eroding the appeal of developing-market bonds and currencies. Now, data across the world is flashing warning signs again. U.S. inflation for March came in higher than estimates, while CPI also picked up in Peru, Brazil, South Korea and India due to a surge in energy and food costs. On Thursday, inflation in Mexico rose to the fastest pace in over three years. Meanwhile, central banks face pressure to keep rates low to contain the economic fallout from the coronavirus pandemic.“The quickest way for EM policy makers to stimulate the economy is via monetary policy,” said Michael Roche, a strategist at Seaport Global Holdings in New York. “This activity builds inflation expectations, which leads fixed-income investors to seek protection in CPI-linked securities.”Inflation expectations are likely to keep climbing as emerging-market central banks take the lead from the Federal Reserve, Roche said. The Fed has signaled that it will continue with expansionary monetary policy for an extended period. Five-year Treasury breakevens -- a bond-based measure of inflation expectations in the world’s biggest debt market -- have climbed to nearly 2.6%, hovering close to the highest in over a decade.Pace SetterAmong emerging markets, South Africa leads the charge, with five-year breakeven rates to 4.4% on expectations the central bank will fail to contain prices amid rising energy costs. While concern is high, inflation quickened less than forecast in March as underlying pressures remain muted for now. South Africa’s 2033 inflation-linked bonds have gained 6.1% so far this year, handily surpassing the 1.9% loss in equivalent-maturity, nominal bonds.Inflation expectations in Brazil are almost as high, with one-year breakeven rates climbing to 5.1%, the upper bound of the central bank’s target range for 2022, amid increased government spending. As a result, Brazilian inflation-linked bonds maturing in 2030 have weakened just 6.8%, even as their fixed-rate counterparts cratered 9.6%.In Turkey, rising oil prices and a weak currency are set to fuel a surge in consumer costs, even as President Recep Tayyip Erdogan -- who fired the last central bank chief -- pushes for interest rate cuts. Inflation accelerated to 16.2% in March from 14.6% at the start of the year. Turkish inflation-linked bonds maturing in 2028 have lost 2.1% this year, while the nominal benchmark bonds plunged nearly 21%.In Asia, South Korea’s inflation-adjusted bond yield curve flattened across all tenors, as demand picked up to take into account the potential return of higher consumer prices. Inflation in the North Asian nation returned to its pre-pandemic level in March amid higher oil prices and as consumer demand started to recover.Philippine bonds lost 4.2% this year in nominal terms as inflation breached 4%, the upper end of the central bank’s target, for three straight months on the back of higher food prices.The RisksThere are risks to the strategy. Edwin Gutierrez, a portfolio manager at Aberdeen Asset Management in London, says that while the trade may hold up for another month or so, food and fuel prices seem to have peaked.“You switch out of fixed-rate paper into linkers and you lock in some big losses,” Guttierez said. “It’s a bit late for the trade.”Gennadiy Goldberg, a rates strategist at TD Securities in New York, also stresses the need to be watchful.If inflation doesn’t materialize, “we could see some investors taking profit on their inflation hedge and that could lead the move to reverse” later this year, he said.For the moment though, with inflation fears on the rise across the world, investors may still look for a hedge.“We’ll continue to see some strength in the near-term” in inflation-linked bonds, Goldberg said. “Markets are betting loose central bank policy, pent-up demand, and accelerating growth expectations will create a perfect storm for inflation.”(Updates to include Mexican inflation figures in third paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Asian stocks fluctuated and futures rallied Friday following broad-based declines in U.S. benchmarks as investors weighed a proposal for higher taxes on the wealthy to help pay for President Joe Biden’s social plan.Shares were steady in China and rose in Hong Kong. MSCI Inc.’s regional gauge rose despite weakness in Japan. U.S. contracts edged up after the steepest decline in five weeks for the S&P 500 Index on a Bloomberg News report that the Biden administration is considering raising the tax on capital gains to 39.6% for those earning more than $1 million a year.Oil pared a weekly loss as traders considered signs of recovery in the U.S., alongside spikes in virus cases that threaten to further constrain activity in other key markets. Treasuries and the dollar dipped.“We don’t think it derails the equity market recovery,” said Nupur Gupta, portfolio manager at Eastspring Investments, said of the tax proposal on Bloomberg TV. “Equity sentiment does appear to be stretched, which is why any negative news that you get can lead to a consolidation in markets in the short term.”Investors are weighing the implications of higher taxes against the potential growth benefits of a U.S. spending program focused on infrastructure. While loose central bank policy is helping support stocks near record highs, these levels look precarious given worsening news about the spread of Covid-19 in parts of the world.Traders are also following a mixed batch of earnings reports. AT&T Inc. jumped Thursday after beating estimates, while Intel Corp. -- the biggest chipmaker -- slid after hours on a slump in gross profit margin.Elsewhere, Bitcoin slid below $50,000, headed for its seventh loss in eight days. Investors already face a capital-gains tax if they hold the cryptocurrency for more than a year.The U.S. releases new home sales data later on Friday.These are some of the main moves in markets:StocksS&P 500 futures climbed 0.2% as of 3:00 p.m. in Tokyo. The index fell 0.9%.Japan’s Topix Index was down 0.4%.The Shanghai Composite was steady.The Hang Seng climbed 0.7%.South Korea’s Kospi Index edged 0.2% higher.Australia’s S&P/ASX 200 Index was flat.CurrenciesThe Bloomberg Dollar Spot Index was down less than 0.2%.The euro was 0.1% higher at $1.2024.The Japanese yen was little changed at 107.89 per dollar.BondsThe yield on 10-year Treasuries rose two basis points to 1.56%.Australia’s 10-year yield was four basis points higher at 1.74%.CommoditiesWest Texas Intermediate was up 0.7% at $61.85 a barrel.Gold was 0.1% higher at $1,786 an ounce.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The direction and the price action will ultimately be determined by whether investors will continue to be willing to chase the market higher.
(Bloomberg) -- Credit Suisse Group AG is raising $2 billion from investors and cutting the hedge fund unit at the center of the Archegos Capital Management losses as Chief Executive Officer Thomas Gottstein seeks to recover from one of the most turbulent periods in the bank’s recent history.Credit Suisse, which has exited about 97% of its exposure to Archegos, expects a related 600 million-franc ($654 million) loss in the second quarter, taking the total hit from the collapse to about $5.5 billion. In response, it’s cutting about a third of its exposure in the prime business catering to hedge fund clients, while strengthening capital with the sale of notes converting into shares.Gottstein is battling to rescue his short tenure as chief executive officer after Credit Suisse was hit harder than any other competitor by the collapse of Archegos, the family office of U.S. investor Bill Hwang. The timing of the blowup could hardly have been worse, coming just weeks after Credit Suisse found itself at the center of the Greensill Capital scandal, when it was forced to suspend investment funds. While seeking to placate investors hurt by the losses, he also now faces the fresh challenge of navigating enforcement proceedings announced by Swiss regulator Finma on Thursday.The double whammy wiped out a year of profit and left Gottstein fighting to demonstrate to incoming Chairman Antonio Horta-Osorio that he’s of the right mettle to carry the bank through the volatility which has left investors nursing losses and questioning its strategy and controls. Having taken on the position more than a year ago, the CEO had stumbled over other hits before Greensill shattered what was supposed to be a new era of calm.The two scandals have left the CEO standing while many once powerful members of his management board had to leave. Gone are investment banking head Brian Chin and Chief Risk Officer Lara Warner, along with a raft of other senior executives including equities head Paul Galietto and the co-heads of the prime brokerage business. Asset management head Eric Varvel is also being replaced in that role by ex-UBS Group AG veteran Ulrich Koerner.The bank has also suspended its share buyback and cut the dividend.Credit Suisse fell as much as 6.9% in Zurich trading and was 6.1% lower as of 11:19 a.m. local time, taking this year’s losses to about 23%.The bank plans to reduce risk at the investment bank, including cutting about $35 billion of leverage exposure at the prime brokerage unit -- which services its hedge fund clients, Gottstein said in an interview with Bloomberg Television. That’s about a third of its total exposure.“Although capital has been mainly addressed, we still see questions remaining in terms of strategy and risk management,” JPMorgan Chase & Co. analysts wrote in a note to investors. “Capital has been clearly the main focus.”The bank said the convertibles notes were sold to core shareholders, institutional investors and high net worth individuals and will help bring the bank’s CET1 ratio -- a key metric for capital -- nearer its target 13%. That number had dropped to 12.2% at the end of the first quarter.In addition to the enforcement proceedings, Credit Suisse said that the Swiss regulator has told it to hold more capital to guard against losses by taking a more conservative view of its risk. The bank increased its assets weighted according to risk for both Archegos and Greensill. While the capital raise came after Finma raised the bank’s capital requirements, Gottstein said the decision was the bank’s own.“This was not as a reaction to any request by Finma or any other regulator,” Gottstein said on a call with analysts. “It was our proactive view that, together with the board, we decided to issue these two mandatories and that will really help us also against any possible market weakness over the coming months.”The Greensill debacle is also far from over. Credit Suisse has so far returned about half the $10 billion in investor money held by the funds at the time of their suspension. While the bank marketed the funds as among the safest investments it offered, investors are left facing the prospect of steep losses as the assets are liquidated. Credit Suisse is leaning toward letting clients take the hit of expected losses in the funds, a person familiar with the discussions said earlier this month.“We have good visibility for a large portion of the remaining positions,” Gottstein said. “There are three more distinct positions which we will work through in the next months and quarters. We are not planning to do any form of step-in. We are very clearly focused on getting the cash back to our investors.”The impact for Credit Suisse from both Archegos and Greensill could add up to $8.7 billion, according to JPMorgan analysts Kian Abouhossein and Amit Ranjan.First Quarter Highlights:International wealth management pretax profit 523m francs vs 442m estimateCET1 ratio 12.2% vs 12.1% estimateProvisions for credit losses 4.4b francsNet revenue 7.6b francsSwiss Universal Bank pretax profit 665m francs vs 548m estimateAPAC pretax profit 524m francs vs 304m estimate(Adds Gottstein comment on capital raise in 12th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Technology giants led by Apple Inc. and Microsoft Corp. disclosed more than $100 billion in profit outside the U.S. in their last fiscal years, making them prime targets of President Joe Biden’s proposals to boost taxes on earnings stashed overseas.The tax proposals, unveiled this month to help foot the bill for massive infrastructure plans, target common tactics used by U.S. multinationals such as stashing income-generating assets in low-tax offshore jurisdictions. The tech industry is particularly adept at shifting profits to tax-friendly locales because its main assets -- software code, patents and other intellectual property -- are relatively easy to move around compared to factories and other physical assets.Former President Donald Trump’s 2017 Tax Cuts and Jobs Act was supposed to crack down on offshore tax maneuvering, but Republicans neutered the rules by adding extra deductions and other benefits, according to Andrew Silverman, a tax policy analyst at Bloomberg Intelligence.Big Tech will find it harder to dodge Biden’s plan because, if turned into law, it would close most of the loopholes left by Trump’s 2017 legislation. The move threatens to leave the industry further at odds with Washington, where lawmakers are already scrutinizing the spread of misinformation on online platforms and regulators are embarking on antitrust investigations into large tech companies.“Biden’s proposals may accomplish what the Tax Cuts and Jobs Act promised but failed to deliver: higher taxes on large U.S. technology companies,” said Silverman, who has previously advised corporations on these strategies. “For some companies there will be a huge impact.”One yardstick to estimate possible exposure, according to Silverman, is examining the regulatory filings of large U.S. tech companies such as Apple, Microsoft, Amazon.com Inc., Facebook Inc., Intel Corp. and Alphabet Inc. Those six corporations disclosed more than $100 billion in overseas pretax income in their most-recent financial years. On Thursday, the first of these companies, Intel, reports first-quarter earnings that are expected to top $4 billion.The tax plan has divided opinion among executives: Amazon Chairman Jeff Bezos says he supports higher corporate taxes, while Intel boss Pat Gelsinger criticized Biden’s plan after a recent meeting at the White House to discuss bringing semiconductor manufacturing back to the U.S. “We’re trying to step forward in a dramatic way, a decade-shaping way,” Gelsinger said. “Now is not the time to tell me I’m going to give you a buck over here and take two bucks over there.”Three specific Biden proposals have the potential to add billions of dollars to the annual tax bills of U.S. tech companies, based on the analysis of regulatory filings. All of the companies declined to comment on the proposed tax measures when contacted by Bloomberg.Global Minimum RateTrump’s 2017 U.S. tax law included a levy on global intangible low-taxed income, or Gilti, which taxes profits made in many foreign countries generated from intangible assets such as IP and software code.This targeted a common tactic among large tech companies: They transfer their IP to Bermuda or other low-tax locations, and then the companies’ subsidiaries in high-tax locations, such as France, are charged by the Bermuda entity for using the IP. This way, the “high-tax” units of the company technically make no profit and so pay very little tax.“It’s simpler to move your intangible asset than machinery,” according to Daniel Bunn, vice president of global projects at the Washington-based Tax Foundation.Biden wants to raise the Gilti tax rate to 21% from 10.5% and limit the use of foreign tax credits, according to Silverman. The Tax Foundation, a right-leaning think tank, estimates the proposed changes to Gilti could increase corporate tax bills by almost $300 billion over a decade. Much of that cost would likely fall on the tech sector.For example, Microsoft’s annual Gilti tax bill would potentially more than double to $2 billion under Biden’s proposal, Silverman estimates. In its 2020 fiscal year, Microsoft got 86% of its foreign pretax income from operations in Ireland and Puerto Rico, which have lower corporate tax rates than the U.S., according to the company’s annual report.Deduction RepealThe 2017 tax law also offered a tax deduction for foreign derived intangible income, or FDII. It was designed to encourage American companies to keep intangible assets, such as IP, in the U.S. or bring these assets home from overseas. Alphabet did just that at the end of 2019 when it started licensing IP in the U.S. that had been previously licensed in Bermuda. Facebook made a similar change.Now, Biden is proposing to repeal FDII, which would likely increase the tax bills of tech companies, according to Bunn. Amazon took total FDII deductions of almost $500 million combined in 2018, 2019 and 2020, according to its latest annual report. “You might see some companies rethink holding in intellectual property in the U.S. if this tax break goes away,” said Bunn.Minimum Book TaxFinally, there’s a proposal in Biden’s plan to introduce a 15% “minimum book tax” on large corporations that report high profits, but have little taxable income. Big U.S. tech companies often have low effective tax rates due to a slew of available deductions for items including research and development, foreign credits and stock-based compensation.“The biggest impact for tech companies is this minimum tax on book income,” said Bunn. “This would likely hit some companies much harder than the current tax system.”If Biden’s book tax existed in 2020, Google’s bill would’ve been $847 million higher. Amazon would’ve owed an additional $1.2 billion and Apple another $3.8 billion, according to Silverman’s estimates.Tech companies are also facing scrutiny from outside the U.S. Global talks, led by the Organization for Economic Cooperation and Development, are trying to address many countries’ concerns that tech giants -- and other multinationals -- aren’t being properly taxed under the current system. The OECD effort seeks to replace the digital services taxes a growing number of countries are enacting to capture more revenue from companies like Google and Facebook. However, Amazon, which would likely escape the new rules as its margins are so thin, is becoming a roadblock in those negotiations.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Credit Suisse Group AG moved to contain the fallout from two of the worst hits in its recent history with a surprise capital increase and a sweeping overhaul of its business with hedge funds.Switzerland’s second-largest bank is raising $2 billion from investors to shore up capital depleted by $5.5 billion in losses from the collapse of Archegos Capital Management. Chief Executive Officer Thomas Gottstein, who until recently had brushed off concerns that Credit Suisse was taking excessive risks, struck a humble tone Thursday, vowing to slash lending in the hedge fund unit at the center of the losses by a third.Gottstein, in the role for little more than a year, is trying to persuade incoming Chairman Antonio Horta-Osorio that he’s the right person to lead Credit Suisse, after the bank was hit harder than any competitor by the collapse of Archegos, the family office of U.S. investor Bill Hwang. The timing could hardly have been worse, coming just weeks after the lender found itself at the center of the Greensill Capital scandal, when it was forced to freeze a $10 billion group of investment funds.“Clearly this loss came as a big surprise,” Gottstein said about Archegos. “Is it an isolated case? I definitely hope it is and I think it is, but we are obviously reviewing the entire bank now just to make sure that our risk processes and systems are where they should be.”Credit Suisse fell as much as 6.9% in Zurich trading and was 5.3% lower as of 1:54 p.m. local time, taking this year’s losses to about 22%. It’s the worst-performing major bank stock this year and has also suspended a share buyback and cut the dividend.Having taken on the position more than a year ago, the CEO had stumbled over other hits before Greensill shattered what was supposed to be a new era of calm. While seeking to placate investors hurt by the losses, he also now faces the fresh challenge of navigating enforcement proceedings announced by Swiss regulator Finma on Thursday.The scandals have left the CEO standing while many once powerful members of his management board had to leave. Gone are investment banking head Brian Chin and Chief Risk Officer Lara Warner, along with a raft of other senior executives including equities head Paul Galietto and the co-heads of the prime brokerage business. Asset management head Eric Varvel is also being replaced in that role by ex-UBS Group AG veteran Ulrich Koerner.The bank now plans to reduce risk at the investment bank, including cutting about $35 billion of leverage exposure at the prime brokerage unit that services hedge funds, Gottstein said in an interview with Bloomberg Television. That’s about a third of the leverage its extends in that business. Going forward, the bank plans to only service clients in that unit if they do business with other parts of Credit Suisse as well, such as the wealth management unit.Bloomberg reported earlier that Credit Suisse was planning a sweeping overhaul of the prime business in an effort to protect other parts of the investment bank, which just had a banner quarter. Yet even as Gottstein was explaining steps to prevent future losses, analysts revived a discussion that has haunted Credit Suisse for the past decade, and which executives had hoped to have put to rest with a painful restructuring under Gottstein’s predecessor -- whether it needs such a big investment bank.“Although capital has been mainly addressed, we still see questions remaining in terms of strategy and risk management,” JPMorgan Chase & Co. analysts wrote in a note to investors. “Capital has been clearly the main focus.”The bank said Thursday it expects to raise more than 1.8 billion francs by selling notes convertible into stock to core shareholders, institutional investors and high net worth individuals. The sale will help bring the bank’s CET1 ratio -- a key metric for capital -- nearer its target 13%. That number had dropped to 12.2% at the end of the first quarter.In addition to the enforcement proceedings announced by Finma, Credit Suisse said that the Swiss regulator has told it to hold more capital to guard against losses by taking a more conservative view of its risk. The bank increased its assets weighted according to risk for both Archegos and Greensill. While the capital raise came after Finma boosted capital requirements, Gottstein said the decision was the bank’s own.“This was not as a reaction to any request by Finma or any other regulator,” Gottstein said on a call with analysts. “It was our proactive view that, together with the board, we decided to issue these two mandatories and that will really help us also against any possible market weakness over the coming months.”The Greensill debacle is also far from over. Credit Suisse has so far returned about half the $10 billion in investor money held by the funds at the time of their suspension. While the bank marketed the funds as among the safest investments it offered, investors are left facing the prospect of steep losses as the assets are liquidated. Credit Suisse is leaning toward letting clients take the hit of expected losses in the funds, a person familiar with the discussions said earlier this month.“We have good visibility for a large portion of the remaining positions,” Gottstein said. “There are three more distinct positions which we will work through in the next months and quarters. We are not planning to do any form of step-in. We are very clearly focused on getting the cash back to our investors.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The plan would increase US capital gains taxes and the top marginal income tax rate.
(Bloomberg) -- Netflix Inc. credited the pandemic with delivering record growth in 2020. Now it’s blaming the pandemic for the worst first quarter in eight years.The streaming service added far fewer new customers than Wall Street expected in the first three months of 2021, even missing its own forecast by millions of subscribers. And the current quarter will be more challenging, Netflix said Tuesday, predicting a gain of just 1 million new customers -- or a fraction of the 4.44 million projected by analysts.The dismal growth sent Netflix shares down as much as 8.4% in New York trading on Wednesday. They were off 7.5% to $508.24 at 9:57 a.m.Netflix has been warning for months that growth would slow after customers emerged from their Covid-19 hibernation, but few expected the company to stall so dramatically. The first quarter of 2020 was the strongest in its history, reeling in 15.8 million new customers, and Netflix’s pace was still brisk in the fourth quarter.“We had those 10 years where we were growing smooth as silk,” Executive Chairman and co-Chief Executive Officer Reed Hastings said on a webcast for investors. “It’s a little wobbly right now.”Netflix added 3.98 million subscribers in the first quarter, compared with an average analyst estimate of 6.29 million and its own forecast of 6 million. That marked the weakest start of a year since 2013, when Netflix added about 3 million customers. If the company’s forecast for the current quarter holds, it will be the worst three-month stretch for Netflix since the early days of its streaming service.Netflix blamed a “Covid-19 pull-forward” effect, meaning the pandemic accelerated its growth in 2020 while everyone was stuck at home and needed something to watch. Now that surge is taking a toll on the company’s 2021 results.“It really boils down to Covid,” Spencer Neumann, the company’s chief financial officer, said on the webcast.A lack of new shows also contributed to the slump, the company said. While there were popular hits available, like “Bridgerton” and “Cobra Kai,” fresh releases tailed off after mid-January and growth faltered.To boost subscriptions, Netflix should consider reaching new customers by signing more bundling and integration deals with pay-TV and broadband companies, Omdia analyst Maria Rua Aguete said by email.“Having exhausted the pool of new households to sell to, subscription video-on-demand services must brace themselves for a much slower 2021,” she added.Production SnagsThe pandemic has pushed the release of many of the company’s key titles into the back half of this year. Production was interrupted in 2020 due to fallout from the pandemic. Netflix was able to sustain its release schedule for the first several months of Covid lockdowns because it had already finished many projects. But most movies and programs that were supposed to be in shooting last year were either postponed or canceled.“There was nothing to watch this quarter,” said Michael Nathanson, an analyst with MoffettNathanson LLC.What Bloomberg Intelligence Says“It’s important not to confuse near-term noise in user gains with Netflix’s longer-term thesis, which we believe, remains stronger than ever.”--Geetha Ranganathan, senior media analystClick here to read the research.Netflix rejected the idea that competition factored into its results, noting that its growth slowed globally -- not just in the crowded U.S. streaming market. Disney+, HBO Max and Peacock don’t yet compete with Netflix in many parts of the world. Still, the company is facing more rivals than ever, and some of the services are less expensive than Netflix, which raised its U.S. prices in October. While production has resumed in every country but Brazil and India, that won’t help Netflix until later this year. Its slate in the current quarter is also light.Better ShapeThe company’s answer to the challenges remains the same as ever: produce more shows. Netflix plans to spend $17 billion in cash on programming this year, up from $12.5 billion last year and $14.8 billion in 2019. It’s prioritizing investments in programming outside the U.S., where most of its new customers live.Europe continues to be a bright spot for Netflix. The streaming service added 1.81 million customers across Europe, the Middle East and Africa, making it the leading region for the company. “Lupin,” a French heist thriller, was the service’s most popular new series in the quarter. Asia is the company’s second-fastest growing region.Even with growth decelerating, Netflix is in the strongest financial position in its history. It reported net income of $1.71 billion, more than double a year ago, and generated free cash flow of $692 million during the quarter. While some of this is due to the curbs in production, it also reflects a stronger foundation. The streaming service is profitable in many new markets, such as South Korea. Earnings amounted to $3.75 a share last quarter, ahead of the $2.98 estimate.Stock BuybackAfter years of borrowing to fund production, Netflix has said it no longer needs to raise outside financing to fund day-to-day operations. The company plans to reduce debt and will buy back up to $5 billion of shares.Neither executives nor investors can be certain whether the trajectory in the first half of the year is temporary, or a sign of a maturing business. Netflix fell as much as 13% to $480 in extended trading, which would be a 2021 low. The stock had risen 1.6% this year through the close Tuesday in New York.When asked if it was time for the company to expand into a new business, executives insisted that plenty of growth remained in entertainment. But they did tease two potential areas of expansion in the years ahead: consumer products and video games.In any case, the main focus will be on streaming more hit shows, said co-CEO and content chief Ted Sarandos.“What we have to do, week in and week out, is deliver programming our members love,” he said.(Updates with shares in third paragraph. A 2013 subscriber figure was corrected in an earlier version of this story.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The IRS is sending out "plus-up" payments — see if you can expect one.
Stocks were only moderately lower until a report that President Joe Biden was considering raising capital-gains taxes. The three major U.S. stock indexes ended materially lower.