After Hours Summary: FIVE -8.8% falls on lowered Q2 guidance, CEO steps down; AEHR +12.6%, FULT +2.1% higher on earnings; GTES +6.3% to join S&P SmallCap 600
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: AEHR +12.6% (also to acquire Incal Technologies), FULT +2.1%, WAFD +1.9%, IBKR +0.7%
Companies trading higher in after hours in reaction to news: BE +12.7% (forms partnership with CoreWeave to meet AI energy demands), GTES +6.3% (to join S&P SmallCap 600), ORIC +3.9% (announces multiple collaborations to support ongoing trial evaluating ORIC-944), FTK +1.9% (EPA has designated the JP3 system as an approved measurement tech), DG +1.2% (in sympathy with FIVE guide down), PRIM +0.3% (announces several awards with combined value of ~ $1.2 bln)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: FIVE -8.8% (lowers Q2 guidance; CEO steps down; searching for new CEO), HWC -5.6%, SAVE -4.9% (lowers Q2 revenue guidance), OMC -3.5%, JBHT -2.6%, NIC -0.1%
Companies trading lower in after hours in reaction to news: PRI -2.1% (to exit its senior health business by relinquishing ownership of e-TeleQuote Insurance), USM -1.5% (files $1 bln mixed shelf securities offering), RLAY -1.4% (Genentech and F. Hoffmann-La Roche terminate collaboration), ANF -1.2% (to move to S&P MidCap 400 from SmallCap 600), ALSN -0.6% (provides 10K+ transmissions for Hyundai Mighty in 4 yrs), OLLI -0.5% (in sympathy with FIVE guide down), CPK -0.3% (receives approval for new infrastructure to support three renewable natural gas projects in Florida), DLTR -0.3% (in sympathy with FIVE guide down), ARMN -0.2% (reports 1H24 production; reits FY24 guidance)
Three Major Takeaways From Big Banks’ Earnings
Wall Street businesses boomed while some consumers felt the pinch of higher rates
Wall Street businesses boosted the earnings of big banks in the second quarter.
Investment-banking and trading revenue rose at major U.S. banks including Goldman Sachs GS 2.25%increase; green up pointing triangle and JPMorgan Chase JPM 1.04%increase; green up pointing triangle. More stable economic conditions gave corporate-banking clients the confidence to use bread-and-butter banking services such as deal advisory and debt offerings.
Conditions remain fragile, though. An unexpected turn in the economy or geopolitical upheaval could halt progress. And the picture is more complex for big banks with large consumer-lending businesses, such as Bank of America BAC 5.53%increase; green up pointing triangle and Wells Fargo WFC 3.55%increase; green up pointing triangle, as higher interest rates and inflation hurt lower-income customers.
Here are the main takeaways from big banks’ earnings reports.
Investment Banking Is Rebounding
Goldman Sachs, JPMorgan Chase, Bank of America, Morgan Stanley MS 1.35%increase; green up pointing triangle, Citigroup C 3.22%increase; green up pointing triangle and Wells Fargo all posted double-digit increases in investment-banking revenue.
A clearer outlook on interest rates is giving bankers hope that dealmaking is emerging from a two-year slowdown. Goldman Chief Executive David Solomon said the bank is seeing “the early innings of a capital markets and M&A recovery.”
Global mergers-and-acquisitions volumes, while up about 8% in the second quarter from a year earlier, are still below those of the deal boom coming out of the pandemic.
M&A activity is unlikely to kick into full gear until interest rates come down, bringing the private-equity firms that typically power dealmaking back into the fold. Bankers including Solomon say they are seeing signs this year of their re-emergence.
Equity-underwriting volumes are up but are still way off their peaks. On Friday, ticketing-platform StubHub delayed its plans to go public for several months because of a choppy market for initial public offerings, The Wall Street Journal reported.
Stock Market Highs Help Asset and Wealth Management
Many banks also got a lift from their asset-and-wealth-management businesses thanks in large part to the stock market, which has set repeated highs. These businesses handle investment funds and oversee accounts for institutions and wealthy individuals. Goldman reported a 27% revenue jump from a year ago in its asset-and-wealth-management business. Bank of America, JPMorgan and Wells Fargo each posted 6% increases.
Revenue in Morgan Stanley’s wealth-management business increased just 2% from a year ago and showed signs of weakness, including a 17% decline in net interest income.
Wall Street-heavy banks such as Goldman and Morgan Stanley are increasingly relying on these types of businesses to generate steady fee revenue to offset lulls in dealmaking and trading. They can also provide an extra boost even when those businesses do well, as they did for Goldman in particular in the second quarter.
Lower-Income Consumers Are Under Pressure
Consumers have continued to spend and borrow, helped by a strong job market and wage gains. But higher inflation and interest rates have increasingly pressured budgets, especially for lower-income households, some of the largest commercial banks said.
At JPMorgan, Wells Fargo, Bank of America and Citi, there were signs that more borrowers carried credit-card balances over from month to month in the second quarter. More also fell behind on payments. JPMorgan and Bank of America stashed away funds for potential consumer-loan losses.
There has been particular pressure on the consumers who are already on shaky financial ground. JPMorgan said some lower-income consumers have shifted spending toward nondiscretionary products. Citi said consumers with lower credit scores had seen sharper declines in payment rates and borrowed more.
Bank of America said Tuesday that loan losses on credit cards flattened out during the period from earlier this year and should continue improving. The banks said the figures reflected a return to normal after years of low credit-card balances and delinquency rates.
The big picture, JPMorgan Chief Financial Officer Jeremy Barnum said, “is still consistent with quite a healthy consumer.”
Eurozone household loan demand rises for first time in two years
Falling house prices and lower borrowing costs drive increase in take-up for mortgages and consumer credit
Demand for loans has increased from households in the Eurozone for the first time in two years as consumers react to falling house prices, lower borrowing costs and rising confidence in the economy.
The European Central Bank said “improving housing market prospects” — particularly in Germany, Europe’s biggest economy — were the main driver of the rebound in demand for mortgages and consumer credit, according to its quarterly survey of banks released on Tuesday.
The rebound in household loan demand gives support to the Eurozone economy’s tentative recovery but a pick-up in borrowing could also help to keep inflation high, increasing policymakers’ caution on interest rate cuts.
The ECB, which is expected to keep rates on hold this week after starting to cut them last month, has identified the extent to which bank lending is restricted by higher borrowing costs as one of the big factors that will determine the pace of monetary policy easing.
“If more evidence of stronger than expected loan demand emerges, the governing council may have to hold policy rates or cut at a much slower pace than markets expect,” said Tomasz Wieladek, economist at investor T Rowe Price.
Swap markets are pricing in two more quarter-percentage point cuts in the ECB’s deposit rate of 3.75 per cent before the end of this year.
Claus Vistesen, economist at consultants Pantheon Macroeconomics, doubted that a pick-up in household borrowing would be enough to deter the ECB from cutting rates in September and again in December. But he added: “A firming credit cycle chimes with our view that the ECB will cut less than markets expect next year.”
The ECB survey showed that loan demand from businesses continued to fall for the seventh consecutive quarter because of reduced investment activity and higher rates on corporate loans.
Banks slightly eased terms and conditions for household loans in the second quarter, while tightening them for businesses — particularly on commercial property loans, it said.
But it found that banks expected loan demand to rise from both household and corporate borrowers in the third quarter.
The increased demand for mortgages was particularly strong in Germany, it said, adding this was “consistent with improvements in housing affordability due to a relatively strong decline in residential real estate prices in recent quarters”.
German house prices fell 8.4 per cent last year, one of the biggest drops in the Eurozone, where prices on average declined 1.1 per cent from the previous year.
There have recently been signs of a stabilisation in parts of the Eurozone housing market. Residential property prices fell at a quarterly rate of 0.1 per cent in the first three months of this year — a slower decline than the 0.8 per cent drop in the previous quarter.
The ECB said the pick-up in demand for mortgages also reflected falling borrowing costs — as banks lowered borrowing rates in anticipation of rate cuts this year — and improved consumer confidence.
A composite indicator of mortgage rates across the Eurozone compiled by the ECB has fallen from 4.05 per cent late last year to 3.75 per cent in May.
Major Stripe investor Sequoia confirms $70B valuation, offers its investors a payday
Payments giant Stripe has delayed going public for so long that its major investor Sequoia Capital is getting creative to offer returns to its limited partners.
The venture firm emailed LPs in funds raised between 2009 and 2011 with an offer to buy up to $861 million worth of shares in Stripe, Axios reported. Sequoia has declined to comment but the buyers would be other, newer Sequoia funds, according to the email sent to LPs, that was shared by Axios.
The move is notable for two reasons. For one, it’s evidence that LPs are increasingly antsy for liquidity in this dry IPO market. (2024 thus far has delivered just four venture-backed tech IPOs — Reddit, Astera Labs, Ibotta and Rubrik — in March and April.)
But perhaps more telling is that Sequoia’s gesture reflects that the firm is confident not only of Stripe’s future, but in its ability to eventually exit in a way that will reward investors handsomely. In the letter to LPs, Sequoia wrote that it remained “highly optimistic about Stripe’s future” and that the company is “durable across economic cycles.”
Remember, in March of 2021 Stripe was valued at $95 billion, making it one of the highest-valued private startups in the world, and appeared to be steamrolling toward a big, highly-anticipated IPO. In January of 2023, it was reported that Stripe had set a 12-month deadline for itself to go public or it would pursue a transaction on the private market, such as a fundraising event and a tender offer.
It obviously opted for the latter.
Last summer, Stripe was valued at $50 billion when it raised $6.5 billion in Series I funding, a big haircut from its heyday $95 billion. In February, TechCrunch reported that Stripe had inked deals with investors to provide liquidity to current and former employees through a tender offer at a $65 billion valuation. While that meant it is climbing back to that peak valuation, it was still far below the high mark.
Yandex founder to build AI business in Europe after Russia exit
Arkady Volozh tells the FT he will launch artificial intelligence venture Nebius mostly staffed by former Yandex employees
The co-founder of Russian tech group Yandex is launching an artificial intelligence venture in Europe mostly staffed with the company’s former employees after its parent this week concluded a deal to exit the country.
Arkady Volozh, one of only two prominent Russian businessmen to condemn Moscow’s invasion of Ukraine, will head up Nebius Group, an AI infrastructure company and formerly Yandex’s Nasdaq-listed, Netherlands-based parent company.
The move marks Volozh’s efforts to salvage some of Yandex’s former international operations after Russia’s war in Ukraine roiled the company and prompted thousands of its staff to flee the country.
“It was obvious that not only [can we not] build anything out of Russian technology, but also the Russian technology business itself will continue by itself,” Volozh said in an interview with the Financial Times. “When it all happened, half of Yandex’s top management and 10 per cent of the developers found themselves outside Russia.”
He added: “We saw a new opportunity . . . Finally we are free to do something new.”
Volozh is leading 1,300 employees, mostly ex-Yandex staff, to build Nebius, whose core business is developing a cloud computing platform specifically designed to support the training and running of large-scale AI models by start-ups.
Nebius is already working with Europe’s best-known AI start-ups in France and Germany, according to Volozh, with 500 of its engineers focused on developing its specialised cloud infrastructure.
“We have engineers who have built big tech infrastructure [at Yandex] . . . we know how to do it very efficiently,” he said. “We know how to interconnect into supercomputers . . . and we know how to build really big clusters.”
The $5.4bn sale of Yandex’s core Russian assets, the largest western corporate departure from the country during the conflict, came after a protracted two-year negotiation that required President Vladimir Putin’s personal approval over an asset the Kremlin considers strategically important.
The company hammered out the deal with the help of Alexei Kudrin, a former finance minister with long-standing ties to Putin, whom it enlisted to negotiate with Sergei Kirienko, the Kremlin’s domestic policy chief.
The war in Ukraine dashed Volozh’s ambitions to make Yandex, which had a market capitalisation of $30bn at its peak, a global internet giant, prompted key technology partners to distance themselves from the company, and led Nasdaq to suspend trading in its shares.
Yandex’s core Russian business, which accounted for 95 per cent of the group’s revenue, assets and employees, is now owned by a consortium including members of the company’s management and several Kremlin-approved investors.
The EU imposed sanctions on Volozh in 2022 over what it described as Yandex’s complicity in the war.
Volozh resigned as chief executive, transferred the voting rights from his controlling stake to the board, and released a statement a year later saying the invasion “is barbaric, and I am categorically against it”.
He has reassumed control of voting rights in Nebius following the split with Yandex.
The EU agreed this year not to renew sanctions against Volozh, making him the first person to be removed from its list after speaking out against the war.
“I’m still in the same place . . . I was there from the beginning,” Volozh said when asked about his anti-war statement.
“A lot of people have changed their lives. And they just didn’t want to stay, for a reason,” he said. “It’s not because they were running from the army . . . they left because they didn’t want this to be done in their name. They didn’t want to stay with that.”
Volozh, who moved to Israel in 2014 and is an Israeli citizen, hopes the venture will allow Nebius to harness the former Yandex employees’ engineering talent without facing the severe restrictions on any Russian company seeking to do business in the west.
“We have zero connection, which means zero,” he said. “There is no byte or bit going between us and our previous company. It’s a new company, new infrastructure, new corporate entity.”
The Nasdaq-listed company has built up clusters of tens of thousands of Nvidia chips in its existing data centre in Finland, which it plans to triple in size, in an effort to take on big cloud providers including Microsoft, Amazon and Google in the area of AI applications.
Nebius is touting a “strong long-term relationship” with leading AI chipmaker Nvidia to help it procure powerful new processors even amid soaring demand. Its data centre is home to a supercomputer it says is the most powerful in Europe.
“It’s in [Nvidia’s] interest to diversify their client base; they’re interested in growing guys like us,” Volozh said. “We’ve had a working relationship with them for years. They know and trust us.”
Nebius has commissioned an audit from a Big Four auditor to certify it no longer has any ties to Russia, he added.
“You own basically the same stock, but it’s a different company [that has] completely pivoted. We cannot offer you exposure to the Russian IT ecosystem any more, but probably we can provide you with something much more interesting,” he said.
“We used to be big tech, it meant you have . . . a very big ecosystem around you, lots of users generating lots of data. This is a different world,” Volozh said. “Then we appeared outside with nothing, like any other start-up . . . this was a new, refreshing feeling.”
Nebius has retained three other internationally focused businesses from Yandex in the split, focusing on data annotation and generation, education and self-driving cars, as well as the data centre in Finland and some intellectual property licences.
Developers were forced to reinvent large aspects of the projects on the fly, Volozh said, rushing to keep up with rapid AI-driven technological change while simultaneously grappling with the split from Yandex.
“It was a perfect storm,” Volozh said. “They were moving people outside Russia and trying to rebuild the business and, in parallel, the business model has changed.”
The rebranded Nebius holds $2.5bn in cash following the sale of Yandex’s Russian business and has no debt, allowing the company to invest some of it in expanding the business and return “a substantial proportion” to shareholders.
Nebius will continue to report to the US Securities and Exchange Commission, plans to launch a new board and hopes it can resume trading on the Nasdaq “in due course”, with a view to attracting more funding.
“We have an opportunity to build something bigger than there was,” Volozh said. “The scale of what we are building assumes there will be multibillion-dollar investments in the future through debt, through equity. What we have now . . . gives us a scale which I think doesn’t exist in Europe, outside of the big tech sector.”
UK ministers to reject £200mn loan backing for Titanic maker Harland & Wolff
Labour government said to have decided granting debt guarantee would be ‘deeply irresponsible’
The Labour government is set to turn down a £200mn loan guarantee request from Harland & Wolff, removing a crucial lifeline from the troubled shipbuilder as it seeks much-needed funding.
The company, which built the Titanic, employs more than 1,000 workers at its four UK shipyards and had been in talks with Conservative ministers for more than a year for a loan guarantee needed to help lower interest payments on its borrowings.
But the new Labour government has decided that to sign-off the guarantee would be an inappropriate use of public funds, according to people close to the situation.
No formal announcement has yet been made, and people close to the company insisted that discussions were still live. But one Whitehall figure said: “Giving the loan guarantee would be deeply irresponsible.”
The decision means the lossmaking company could be forced to refinance on its own terms, and raises questions about the viability of the business that has seen its shares suspended after failing to file audited accounts two weeks ago.
It is also awkward timing for the Labour administration, as it launches a strategic military review that aims to use the defence manufacturing sector to revitalise the UK’s regional economies.
Defence secretary John Healey said on Monday that the sector would form “one of the cornerstones of a new industrial strategy” under the Labour government, highlighting its high-wage jobs and its ability to spread wealth creation beyond London and the South East.
H&W is involved in a £1.6bn contract led by Spain’s Navantia to build new ships for the Royal Navy.
H&W did not immediately respond to a request for comment.
The business already has a $115mn credit facility with New York-based Riverstone Credit Partners that pays 14 per cent interest and matures at the end of December.
H&W had been hoping to secure a £200mn loan from a group of commercial banks at a lower interest rate, with the government acting as guarantor.
In theory the business — which collapsed in 2019 and was bought out of administration by its current management for £6mn — could seek fresh financing from its existing lender by increasing the current facility or rolling it over.
John Wood, H&W chief executive, has insisted that failure to secure the guarantee would not spell the end for the company, and that other options remained on the table.
There have been concerns about whether the support would be challenged on state aid grounds and unease within government about the extent to which a government guarantee would end up benefiting the company’s Wall Street lender.
Former Tory defence and business secretaries had wanted to approve the £200mn loan guarantee but were blocked by then chancellor Jeremy Hunt.
The incoming Labour administration has privately accused the previous government of “negligence” for giving outline approval to the loan guarantee in December, but then leaving the company in “limbo”.
“There is a lot of frustration that the Tory government sat on this decision for months, it was selfish and irresponsible for them to duck the decision and just leave it for the incoming Labour government,” said one official.
But a Conservative party official said: “This is desperate briefing from a Labour party that doesn’t know how to run anything and is just hoping to shout “blame the Tories” for the next five years.”
Riverstone declined to comment. The business department refused to comment, citing commercial sensitivities.
Union leaders have contacted the MoD and were urgently seeking clarification. Officials from Northern Ireland’s government had no immediate information and the region’s investment agency declined to comment.