TheChek News Flow

Putin’s Corporate Takeover of Wagner Has Begun

Attempts to grab the reins of companies will be a test of his power

In the wake of a mutiny that almost reached Moscow, Vladimir Putin is facing a new test—managing one of the most complex corporate takeovers in history.

Inside the Wagner Group’s sealed-off glass tower headquarters in St. Petersburg, agents from the Federal Security Services, or FSB, have been scouring the offices for evidence against Yevgeny Prigozhin, the Wagner chief who led last month’s insurrection. New Kremlin-backed military contractors are launching recruiting drives on Russian social-media networks with recruitment ads to poach some of Wagner’s 30,000 mercenaries, hackers and moneymen, whom the longtime ally of President Putin deployed to Ukraine, the Middle East and Africa.

Across St. Petersburg, Russian law enforcement took computers and servers at Prigozhin’s Patriot Media Group, a key piece of a communication empire that once included the Internet Research Agency, the social-media organization that pumped millions of pro-Kremlin messages onto social-media channels and caused mayhem in the 2016 U.S. presidential election, according to staff and text messages reviewed by The Wall Street Journal. A likely new owner of Patriot Media, the messages say, is National Media Group, chaired by Alina Kabaeva, the Washington-sanctioned rhythm gymnast the U.S. government believes to be the mother of at least three of Putin’s children.

Not since the British crown began liquidating the East India Company in 1858 and assumed direct rule over its far-flung colonies, has the world seen a government try to swallow a corporate empire comparable to Wagner.

The Wagner Group helped the Kremlin amass international influence and collect revenues, all managed by Prigozhin’s main holding company Concord. Putin is now trying to take control of a corporate monster he helped create, according to Western, Middle East and African officials alongside Russian defectors and documents detailing more than 100 Wagner-controlled companies.

The Kremlin on June 24 blocked the social-media channels of Wagner Group and Concord. Several Concord subsidiaries have been raided by the security services, which said they found items including pistols, fake passports, detailed charts listing hundreds of companies, the equivalent of $48 million in cash and gold bars.

Social-media accounts that once blasted out the Kremlin viewpoint from behind the smokescreen Prigozhin built for Putin have largely gone dark. His own social-media network YaRUS said Thursday it was suspending service and looking for new investors, “due to the political situation.” In a video posted on social media Friday, Yevgeny Zubarev, director of Prigozhin’s news agency RIA FAN, said the agency was shutting down.

Governments in Africa and the Middle East that outsourced their security to Wagner mercenaries have been told by Russian officials those guns-for-hire will no longer operate independently.

Neither the Kremlin, Concord or Patriot Media responded to emailed questions. Prigozhin’s location is unclear.

Belarussian President Alexander Lukashenko, who brokered the deal between the mercenary chief and the Kremlin, said he had arrived in the country on Tuesday.

News of the raid of the Patriot Media Group in St. Petersburg and possible sale to a pro-government outlet was first reported by independent Russian news website The Bell and verified by the Journal. Svetlana Balanova, National Media’s chief executive, didn’t respond to a WhatsApp message and the Patriot Media Group didn’t respond to a request for comment.

Before Prigozhin fell from the Kremlin’s favor, he built one of the world’s most complicated and unaccountable corporate structures, a heavily-sanctioned spidergram of hundreds of companies in Russia and other jurisdictions that often paid their thousands of workers, mercenaries, line cooks, mining geologists, and social-media trolls in cash.

Many of the deals Wagner-linked companies struck with African governments were informal, reliant on smuggling and illicit transfers and personally negotiated by Prigozhin himself, Western, Arab and African officials say.

One company employee said in text messages reviewed by the Journal that Prigozhin had transferred some of his holdings to employees in the weeks before the mutiny, potentially making them even more complicated for the government to requisition.

In May, Prigozhin was replaced as the head of the supervisory board of Patriot Media Group, by Abbas Juma, a company employee. Juma confirmed he was appointed but he hadn’t asked to be and wasn’t sure why. “[Prigozhin] is a very smart and prudent person who never does anything for nothing,” he said.

Putin’s attempts to grab the reins of those companies will be a test of how much control he retains over the system he built and has used to rule Russia for 23 years. For years, the autocrat, surrounded by a shrinking circle of hardline advisors, confided more and more of the work ordinarily given to the state to the network of companies run by Prigozhin, the ex-convict turned caterer he trusted to ensure his food wasn’t laced with poison.

Line cooks and kitchen staff Prigozhin employed for sumptuous New Year’s Eve and national holiday dinners with guests that included Putin and defense minister Sergei Shoigu and Chief of General Staff Valery Gerasimov—the military leaders he would one day launch a mutiny to detain—had to first pass a polygraph test.

There was a question: “Have you ever wanted to harm the president of the Russian Federation,” said Aleksandr Karamyshev, one of his former waiters. Prigozhin personally served Putin’s meals, and never spoke with him, melting into the background as an obedient courtier.

Prigozhin’s company paid his waitstaff their salaries on the spot, in cash from a large bag, Karamyshev said. In the kitchen, Prigozhin threatened to break the teeth of waiters who dropped a fork or missed some cue, and would summarily fire cooks for small infringements.

At a Defender of the Fatherland Day event he tasted a ladle of soup that was about to be served, and found it wanting. He approached the cook responsible and punched him repeatedly in the face. “He was never seen again,” Karamyshev said.

As he turned against his former chef, Putin announced Tuesday that Concord’s finances would be investigated, and said the company, alongside Wagner, received almost $2 billion in military contracts and to pay salaries between May 2022 and May 2023. State TV anchor Dmitry Kiselyov later said that Wagner Group and Concord Holding have received contracts totalling 1703 billion rubles, or roughly $20 billion.

“I hope nothing was stolen, or, at least, not so much,” Putin said, in a June 27 address to the military. “We will certainly deal with all this.”

Alexander Beglov, St. Petersburg governor and longtime opponent of Prigozhin, told Russian television on Friday that the state wouldn’t take the assets but also accused the Wagner boss of being behind a dirty business that was trying to take control of the city economy.

“Now everyone has seen who is really with our president, and who wants a bloody civil feud for our country,” he said.

Prigozhin’s business empire is mostly known for its mercenary operations but also included companies in finance, construction, supply and logistics, mining and natural resources, even a firm, Sporthorses Management, which was controlled by Prigozhin’s daughter Polina. Through corporate entities owned by Polina, his son, Pavel, and his wife, Prigozhin controlled some 180,000 square feet of property in a gated community at Lakhta, an upscale St. Petersburg Lakeside suburb, according to corporate records.

He is connected to Broker Expert LLC, a trading house in Russia that has dispatched excavators to a Wagner-controlled gold miner in Sudan, and tractors to Bois Rouge, another company that owns a redwood timber concession in the Central African Republic as well as Sudanese gold holdings, according to additional corporate and customs records.

The companies he uses to send mercenaries into foreign civil wars are within chains of other companies, according to organizational charts reviewed by the Journal. They include Sewa Security Services, which has deployed security operatives, and is a subsidiary of M-Invest, a St. Petersburg-based financial firm.

Evro Polis, another mercenary firm which guards the largest gas fields in Syria and is estimated by Western officials to receive up to a quarter of production profits, is inside a company chain that leads to Service K LLC, a human-resources company. In Mali, the government has paid Wagner companies more than $200 million since late 2021, to try to defend the country from Islamist rebels, John Kirby, spokesman for the National Security Council, said Friday.

More than six Wagner-controlled companies also deal in mining, which is facilitated by another network of supply and logistics companies also owned by the group.

In the Central African Republic, Wagner-controlled Midas Resources SARLU has taken control of much of the production at the Ndassima gold mine, with unexploited resources estimated as high as $1 billion, the U.S government says. In turn, the gold and diamond Wagner is mining in the country is exported by another Prigozhin firm, Diamville SAU, to markets in the United Arab Emirates and onto Europe, it says.

Although Prigozhin admitted he had founded the Wagner private military company in October after a decade of denying the group’s existence, much of the broader corporate network that makes up his holdings remains covert, or unacknowledged, said analysts and U.S. and European officials who have closely studied the group.

“The question is whether the many separately established but coordinated entities operating across Africa and beyond will continue to function as a network absent the guidance and, perhaps, the fear of Prigozhin to keep them together,” said one former senior U.S. official who closely watched Wagner’s rise.

In Central African Republic, Mali and Syria, security and mining executives at Wagner-linked companies appeared to be lying low and waiting for signals from Moscow according to All Eyes On Wagner, an open source research group that said it had checked the corporate registries of 30 Wagner companies since the mutiny and found no changes in ownership.

One company named Retail, which was used to buy and develop Wagner’s soaring St. Petersburg headquarters, changed its address and registry number in May, although Prigozhin remains its sole director, corporate records show.

Shortly after the insurrection began, employees at Patriot Media were at their keyboards when law enforcement broke down the door and ordered them into a canteen. The officers began to haul away computer equipment and data servers. Staff haven’t returned to work but are discussing which government entity would now take over.

On Saturday, a giant Wagner sign was removed from the company headquarters and the group confirmed on its Telegram channel that it was moving out. “PMC Wagner Center will continue to work for the benefit of our country,” it said. “But in a new format and at other sites.”

The FTC’s new filing demands will give the agency more time and ammunition to block tie-ups.

Say this for Federal Trade Commission Chair Lina Khan, she is keeping antitrust attorneys fully employed. Last week the FTC proposed new merger filing requirements that aim to mire tie-ups in red-tape and give the agency more ammunition to block deals.

Federal law requires companies proposing mergers valued at more than $111.4 million to notify the FTC and Justice Department and wait 30 days before closing deals. Most are waved through because they don’t present significant competition concerns. Only 2% of transactions in 2021 underwent more thorough reviews.

Ms. Khan says 30 days isn’t enough time to screen complex deals. So the FTC wants to require merging companies to submit reams more paperwork before deals can close. Companies would have to provide all drafts of their deal documents and identify potential business overlaps and acquisitions in the past 10 years. They would also have to list their creditors, minority shareholders, non-controlling entities and “certain other interest holders that may exert influence, as well as officers, directors, and board observers.”

Ms. Khan is seeking to shift the focus of merger reviews from the consumer welfare standard that has prevailed for four decades. She also wants to broaden the regulatory analysis beyond market concentration. Her implication is that mergers might be challenged if companies have too many creditors or shareholders in common.

Ditto if they employ similar workers. The FTC wants businesses to identify the occupations and locations of their workers because they “may compete in the same labor market even when they do not compete in the same product or input market.” This is true of most tech companies and drug makers and the start-ups they seek to buy.

Businesses would also have to identify “any penalties or findings” against them by the Labor Department and National Labor Relations Board during the five years before their merger filing. “If a firm has a history of labor law violations, it may be indicative of a concentrated labor market where workers do not have the ability to easily find another job,” the FTC says.

The FTC provides no evidence to support this claim. Unions often file labor complaints to pressure businesses to surrender to organizing campaigns. Under the proposed merger rules, businesses that resist unions may have a harder time getting deals approved, which is no doubt one of Ms. Khan’s motives.

She has others. The FTC says its “changes would improve the efficiency and effectiveness” of initial reviews, but its transparent goal is to slow mergers and expand the scope of deals that will get more scrutiny. The FTC estimates the new requirements in its 133-page rule would quadruple the time it takes companies to prepare merger filings.

Antitrust experts say businesses currently need about 10 days to submit a filing and that the FTC’s new demands could add several months to the process. The agency hilariously claims it has “requested input on ways to lessen the burden of collecting this information” and has “tried to lessen the burden where possible.” If you believe that, you must be an antitrust lawyer savoring all the new billable hours. No one else will benefit from this ideological rewrite of antitrust law by regulatory fiat.

Jigar Shah, who runs the Energy Department’s loan program, is trying to hand out a lot of money for green-technology projects, while navigating an unforgiving political environment

Jigar Shah is living an investor’s dream, one with more strings attached than a symphony orchestra.

Shah has $400 billion of government funds to pour into businesses touting green-energy projects. But he has to do it under the eye of critical lawmakers, cautious bureaucrats and the White House, which has already clashed with him on the politics of his lending juggernaut. Losses are likely and will be frowned on by Congress.

The line for Shah’s cash stretches to 150 companies seeking $127.7 billion in loans, ranging from new companies with unproven products to giants such as General Motors and PG&E, the California utility blamed for deadly wildfires. Funneling that much money to climate startups in a short time would be near impossible. Shah has begun writing bigger checks, including a record $9.2 billion commitment to a Ford joint venture making batteries in Tennessee and Kentucky.

The source of Shah’s financial firepower is the Energy Department’s Loan Programs Office, an overlooked piece of the Biden administration’s strategy to address climate change. Largely quiescent for almost a decade, the office is designed to finance businesses that are important to the country’s energy transition but unable to borrow from traditional lenders, often because their technology is seen as too risky or because the terms are too onerous.

“We would absolutely look at investing alongside them,” said Jehangir Vevaina, a managing partner at Brookfield Asset Management who helps oversee the private firm’s $15 billion energy transition fund. That fund, one of the largest of its kind, typically invests in a company’s equity, which can become less risky when government loans give businesses a stamp of approval, as well as lower borrowing costs than commercial banks.

Climate-related provisions in last year’s Inflation Reduction Act gave Shah’s office a windfall, multiplying its lending capacity 10-fold. That pile of cash is at least 20 times as big as most private green-energy funds, giving Shah and the Loan Programs Office a major role in shaping the American energy landscape.

That is how Shah found himself in early 2021 calling hundreds of clean-energy executives to pitch the loans his office could provide. Primary targets were clean-energy startups that had raised at least $100 million in equity financing. He also wooed big businesses with the resources to pay back large loans.

Some were reluctant to apply, worried about the complicated approval process and the risks of taking a government loan. Shah, eager to get funds out the door, can be impatient. In September, he pressed a startup company that has a plan for recycling batteries to borrow hundreds of millions of dollars from the federal government to construct a plant.

The company’s chief executive, Ajay Kochhar, was hesitant, unsure how quickly it could repay. “Get your ass to Pittsburgh,” where a clean-energy conference was about to start, Shah told the executive, according to people familiar with the conversation.

At a coffee shop soon after, Shah told Kochhar, of Li-Cycle Holdings, that its recycling plant could easily generate enough revenue for repayment. Five months later, the two announced a $375 million federal loan.

Shah’s office is “the clean-energy bank of the United States,” said Peter Davidson, who led it from 2013 to 2015.

With its burst of funding, “the floodgates have really opened,” he said.

The loan program is part of the reason the Inflation Reduction Act’s tax credits and spending represent one of the largest outlays of taxpayer-financed industrial stimulus since the 1930s New Deal.

In early June, Shah’s office committed $850 million to startup battery maker Kore Power. The loan would fund what the company calls the KOREplex, a giant battery manufacturing facility in the desert about 35 miles west of Phoenix.

Shortly after, the Loan Programs Office announced the record commitment to the Ford battery venture. The $9.2 billion agreement is bigger than the $5.9 billion Ford borrowed from the office starting in 2009, when it was struggling through the financial crisis.

Solyndra PTSD

Hanging over the Loan Programs Office’s every move is what Shah called “Solyndra PTSD.” Despite the office’s successes, which include backing Tesla, it remains dogged by a busted loan to solar-panel startup Solyndra.

Solyndra failed in 2011 after China flooded the market with low-price panels. In addition, an investigation by the Energy Department’s inspector general found Solyndra had misrepresented facts and omitted key information in getting the loan. The $535 million loan that went sour made staffers cautious, borrowers nervous and critics of the program aggressive.

Rep. Cathy McMorris Rodgers (R., Wash.), chair of the House Energy and Commerce Committee, has called the expanded funding “Solyndra on steroids” and said the Inflation Reduction Act’s new spending and lending “has heightened the risk for waste, fraud and abuse.”

She said her committee is in regular contact with the loan office.

Shah’s first loan deal after taking over in 2021 was a $1 billion commitment to Monolith, a company that aims to produce hydrogen from natural gas. The company’s technology will capture the carbon that the process yields and turn it into a material for everyday products such as tires.

Clean hydrogen is an alternative to oil and gas.

Several members of Shah’s staff worried the deal was too risky, people familiar with the matter said. Shah argued it was safe because it required Monolith to set aside revenue and meet rigorous requirements before getting the money, such as showing its production process would work at scale. Monolith hasn’t yet met them.

Last summer, Monolith raised more than $300 million in equity from investors including BlackRock and NextEra Energy, the most valuable power company in the U.S.

Staff members raised concerns about a potential loan to a company called Syrah Resources, a producer of graphite, which is used in rechargeable batteries, people familiar with the matter said. Raw material for its Louisiana processing facility would come from a mine in Mozambique, the scene of terrorist attacks, raising concerns that disruptions would threaten Syrah’s project. Shah pushed ahead, on the grounds that the program was protected in the deal and the U.S. needed to lessen its dependence on China for graphite. The office issued a $102 million loan last summer.

When Shah supported granting a loan for an Occidental Petroleum project, White House officials told him it could backfire. The project involved removing carbon from the atmosphere via a new technology, then injecting it into the ground to extract more oil. Administration officials worried about a backlash from environmentalists, a person familiar with the discussion said.

Shah argued it was worth exploring as a way to develop carbon-removal technology. The loan application is still working its way through the office. Occidental’s first big carbon- removal plant is under construction.

Despite having lived for decades around Washington, D.C., Shah seems more like a creature of Silicon Valley’s high-tech culture than a Beltway denizen. He co-founded a solar-energy company, SunEdison, in 2003 with a home-equity line of credit. It revolutionized the way businesses and homeowners paid for rooftop solar panels. Under its financing concept, which Shah drew up for a business-school class project at the University of Maryland, the panels are typically paid for over a 20-year stretch, in part with buyers’ savings from generating their own power, making the panels almost free in the long run.

Installations exploded, and SunEdison became North America’s largest rooftop-solar provider. Shah left in 2008, the company was sold in 2009. Years later it went bankrupt after an aggressive growth strategy backfired.

Shah co-founded clean-energy investment firm Generate Capital about nine years ago. His effusive personality and list of contacts helped build Generate into one of the largest clean-energy investment firms. At Generate’s San Francisco office he would hold court in a cavernous space known as the “Jigar-torium.”

When approached by the Biden transition team about leading the Loan Programs Office, Shah was reluctant. On a podcast he used to co-host called, “The Energy Gang,” he once called the office “irredeemable” because it was doing so little.

Patti Poppe, now the CEO of PG&E, listened to the podcast in the mornings while exercising on her treadmill. “It would make me run faster because he’d make me mad,” she said. Shah often criticized utilities for moving too slowly. Poppe eventually invited Shah to talk to the management team at her previous job in Michigan and became convinced the industry needed to be more aggressive.

At PG&E, she is seeking a roughly $7 billion loan to upgrade and bury the utility’s outdated power lines, to reduce wildfire risk and keep up with rising electricity demand driven by electric vehicles.

‘Damn you!’

Before Shah took the job, his Generate colleagues told him accepting was a dumb idea unless he could make the office more efficient, he said in an interview at his Energy Department office, clad in his blue fleece vest and Stan Smith tennis shoes.

He outlined his demands, including provisions that would make it easier to lend to companies in the electric-vehicle supply chain. On a call with DOE officials, they agreed to all of his conditions, he said.

“I was like, ‘Damn you!’ ” he recalled.

He tripled the agency’s staff to roughly 250 and recruited debt experts from banks. He sought energy specialists such as Bill Magness, a former CEO of the Electric Reliability Council of Texas, that state’s power grid operator.

According to Magness, Shah invited him to meetings even before he agreed to join. “How could you not do it?” Shah told him, Magness said. Magness was a consultant for the office for a year before departing in 2022.

In April, Shah expanded on the rooftop-solar financing model he developed for his first company by improving access to loans for people with below-average credit scores. Through a $3 billion commitment to home-solar company Sunnova, the office would guarantee that even if some users default, many investors would be repaid. Shah is confident defaults will be low, and the backstop won’t be needed.

“If you have a normal government person coming into this spot, they’ll never think of something like that,” said Sunnova’s chief executive, John Berger.

The Loan Programs Office had largely been dormant since the second Obama term. The bulk of the office’s loans in the last decade went to utilities building the Vogtle Electric Generating Plant, a nuclear power project in Georgia.

Shah’s tenure and the program’s aggressive lending could prove short-lived if Republicans win back the White House next year. In Congress, McMorris Rodgers has criticized the loan office’s high funding level and promised greater oversight.

Shah says the government is more protected with today’s deals, through provisions that ensure the government will get some money back even if a borrower fails. The program has beefed up goals companies must meet before receiving funds.

The office’s default rate of 3% is comparable to the performance of loan portfolios of commercial banks, Shah has said. It has made money for the government over its lifetime.

All the loans need a series of approvals from a committee of senior Energy Department staff, as well as Energy Secretary Jennifer Granholm, the White House Office of Management and Budget and the Treasury Department.

“If anyone can crack through some of the red tape, it’s a force of nature like Jigar,” said Scott Jacobs, who co-founded Generate Capital with Shah and one other person. “Yet I’m not sure anyone can get through all of the bureaucracy.”

Millions of US borrowers brace for the return of student debt payments

End of a pandemic-era pause and debt-forgiveness scheme will ripple through the US economy as bills come due

This October, after a three-year break, 27mn Americans with student debt will once again have payments due.

One of them is Jacque Adams, a Dallas public school teacher who owes $103,000 in student debt. “I’m an underpaid teacher,” said Adams, 45. “I have three kids; one is starting on her own college [degree]. I’m going to take these loans to the grave with me.”

The Department of Education paused student loan repayments when the Covid crisis began in March 2020, and extended it nine times in an effort to provide financial relief to US households throughout the pandemic.

But that is now ending, after Congress put a halt to the programme as part of an agreement resolving the debt ceiling stand-off earlier this year. Some economists fear that the resumption of payments, combined with a softening labour market and rising interest rates, could dampen consumer spending and raise balances on other consumer debts, weighing on the broader economy.

In yet another blow to student borrowers, the Supreme Court ruled Friday that US President Joe Biden’s $400bn student loan forgiveness plan, which would have cancelled up to $10,000 of debt for borrowers making up to $125,000 — and up to $20,000 for those who received a Pell Grant, a type of loan for those with the greatest financial need — was unconstitutional.

The programme would have completely eliminated the student debts of 20mn Americans, the White House said.

Biden said on Friday that his administration was exploring other legal pathways to help borrowers.

“I will not stop fighting to deliver relief to borrowers who need it the most,” he said.

Some 43mn Americans have students loans, though 6mn are not paying because they are still in school, 4.6mn have defaulted, 3.1mn have deferred payments, and 1mn are in a grace period before payments begin.

Before the pause, the average student borrower paid between $200 and $299 each month on their loans, according to Federal Reserve data. 

In a Morgan Stanley consumer survey, only 29 per cent of respondents said they would be able to make payments on their student loans without adjusting their spending.

Many borrowers have used their extra cash on things such as investing, saving for retirement, or paying down other debts. Others took it as an opportunity to splurge on experiences they knew they would not be able to afford while paying down their loans, said Zenith Wealth Partners managing partner Chelsea Ransom, a financial planner who primarily advises millennials, many of whom have student debt.

Adams, who has not received a bill or accumulated interest on her loans for the past three years, said the forbearance allowed her to save for a down payment on a home.

“People have been thinking ‘we’ll be fine, we’ll get through this’, but I think once you actually see it coming out of your pay cheque, that’s when the real reality bites and when we do see a shift coming through in terms of consumer attitudes,” said James Knightley, chief international economist at ING. “I think it will be quite a painful story unfortunately, because 43mn Americans is a big chunk of the population.”

Estimates vary on the ultimate impact, but based on calculations from the Bureau of Economic Analysis, a full resumption of related payments would be equivalent to about 0.2 percentage points of disposable income, said Aditya Bhave, senior US economist at Bank of America.

“A lot of people really enjoyed the pause and forgot how much they were paying and never thought that payments would return,” Ransom said. Her clients plan to cut back on dining out, travel, and investing in order to fit their loan payments back into their budgets.

“This is a very sobering moment,” Ransom added.

While consumer balance sheets on the whole are healthy — buoyed by a savings buffer and a robust labour market — strains have begun to emerge on the margins. More Americans are falling behind on payments for credit card debt and auto loans, and that pressure could build once the payments pause ends: “$20,000 is not going to help me,” Adams said.

“There could be knock-on effects to other components of household debt,” said Bhave.

“People who struggled to pay their student loans might end up going delinquent on their credit card loans or their auto loans.”

He estimated that so-called “serious” delinquency rates, which are 90 days late or more, could rise nearly 70 per cent over time as a result.

Should the labour market crack more meaningfully, especially as the Federal Reserve’s efforts to tame inflation by rapidly raising borrowing costs start to bite, vulnerable populations could be pushed further to the edge. Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, said some degree of economic cooling should be welcome, with consumer spending and the labour market still “unsustainably strong”.

Ending student loan relief could help that process in some capacity.

“This actually in a business-cycle management sense goes in the right direction because it is yet another force that would reduce spending,” she said, noting that the “crisis” backdrop that prompted these policies had long passed.

Some borrowers say that they still need help to repay their loans amid rising prices, and that the forbearance alone did not provide enough relief.

Adams said that her recent application for a mortgage had been denied because the lender factored her roughly $500 monthly payment into calculations of her debt to income ratio despite the forbearance, preventing her from purchasing a home. She said she has applied for a federal loan forgiveness programme for public servants, but has yet to be approved. 

Joanna Kearns, 42, of Broward County, Florida, said the end of the pause was “unfair.” She echoed complaints shared by many borrowers that the education department did not properly inform them about student debt before offering them loans as teenagers. 

Kearns, who works as a full-time caregiver for her elderly father as he undergoes cancer treatments, owes roughly $60,000 from two degrees.

“I’m trapped and really deserved this break,” Kearns said. “They trapped us for the rest of our lives over one mistake.”

US streaming service introduced ad-supported subscriptions last year

Netflix will develop increasingly targeted and tailor-made advertising formats to win over marketing bosses as it seeks to boost revenues in its recently launched advertising supported service.

The US streaming service held talks with global advertising executives about new plans at this year’s Cannes Lions festival in the south of France after launching the ad-supported service last year.

Advertising executives said innovations could include “episodic” campaigns that would see a series of different but related sequential ads to consumers, which would avoid the common complaint of consumers of being shown the same ad multiple times when watching a series. These could be shown during related shows — for example, light entertainment — but not others.

Netflix was a prominent presence at the vast festival of advertising in its first year at the event, hosting a party in a branded hotel on the seafront and an event with ex-footballer David Beckham. 

Netflix co-chief executive Greg Peters and Jeremi Gorman, president of worldwide advertising at Netflix, spent the week in France courting advertising bosses and brands, according to multiple advertising executives.

They said that their counterparts at Netflix outlined how the US media giant would introduce sophisticated ways for brands to advertise as part of a long-term strategy to redefine how streamers can use their platforms for commercial purposes. This includes allowing brands to more directly target advertising to consumers in ways not possible on linear TV channels.

One Hollywood marketing executive said that the partnership to use Microsoft’s technology was also likely to come to an end next year, which would allow Netflix greater ability to innovate. 

“They’re building [their own technology] in the background. Once they have their own they’ll do free standing. Microsoft is the interim ad server, but that’ll change when they build their own,” he said.

“The plan for Netflix was just to get to market quickly last year. This is not the final way they’re going to do it. They are going to be very creative. There’s going to be a better, a different experience.”

One advertising boss said Netflix would be able to use its data on customers to create more bespoke marketing, albeit in ways still safeguarding customer data protections.

“They’ll know what you’ve seen,” he said. “So the old days of making episodic work may be back because before you could never guarantee what people have seen already. Now you can write 15 episodes of an advert and guarantee that the viewer will see them in the right order. So that’s really interesting.”

Another advertising chief said Netflix now made more money per user on its advertising plans than in the standard tier. He said brands had been positive on the idea of using Netflix to market their products, although he added that the size of the audience was still small.

“Streaming services thought it would devalue their offer. But actually, it’s massively expanded the reach. Brands are extremely keen to be associated with the Netflix content and now they’re starting to think about much more innovation around the format, much more strategic partnerships.”

Another advertising executive said: “What level of targeting that they start to apply could get really, really interesting. We were keen for some of our brands to use it so that we could see what was coming [but] we can’t correlate exposure to Netflix to sales — it’s just too small. But you can get learning about who saw your ads.”

Netflix is also seeking to build out its gaming business to include advertising, noted another ad executive.

Others added that they expected Apple to follow Netflix and introduce advertising alongside its shows and products.

Netflix and Microsoft declined to comment.

Initial hopes of 1mn shipments in 2024 launch year dashed by manufacturing problems

Apple has been forced to make drastic cuts to production forecasts for the mixed-reality Vision Pro headset, unveiled last month after seven years in development and hailed as its most significant product launch since the iPhone.

The complexity of the headset design and difficulties in production are behind the scaling back of targets, while plans for a more affordable version of the device have had to be pushed back, according to multiple people with direct knowledge of the manufacturing process.

Apple has already flagged that the $3,500 “spatial computing” headset device will not go on sale until “early next year”, a lengthy gap from its June 5 launch.

Analysts have interpreted this as being more to do with supply chain problems than allowing developers time to create apps for the Vision Pro.

Two people close to Apple and Luxshare, the Chinese contract manufacturer that will initially assemble the device, said it was preparing to make fewer than 400,000 units in 2024.

Multiple industry sources said Luxshare was currently Apple’s only assembler of the device.

Separately, two China-based sole suppliers of certain components for the Vision Pro said Apple was only asking them for enough for 130,000 to 150,000 units in the first year.

Both projections imply a significant cut to production from an earlier, internal sales target of 1mn units in the first 12 months. The forecasts for low volumes reflect Apple’s lack of confidence in being able to scale production, according to analysts and industry experts, following years of missed deadlines in launching the device.

Apple, whose market valuation closed above $3tn on Friday, three weeks after the announcement of the headset, declined to comment on the Vision Pro.

Luxshare did not respond to a request for comment.

Among the major hurdles being faced is the manufacturing of the sleek screens for the device. They consist of two micro-OLED displays — one per eye — and an outward-facing, curved “lenticular” lens. The inward displays offer a resolution exceeding anything currently on the market, while the outward lens projects the headset wearer’s eyes to the outside world.

The micro-OLED displays for the prototypes in the June demonstration were supplied by Sony and the chipmaker TSMC, according to two people familiar with the situation. Sony and TSMC declined to comment on any role in the Vision Pro.

Apple has been unhappy with suppliers’ productivity, said those people, especially with the yield of micro-OLEDs that are free of defects. The displays are the most expensive component in the Vision Pro.

“A lot of this is normal growing pains,” said Jay Goldberg, founder of tech consultancy D/D Advisors. “This is the most complex consumer device anyone has ever made.”

Goldberg said the higher than expected $3,500 price point already implied that Apple had baked in the cost of production inefficiencies, knowing that manufacturing yields were especially low compared with the mature products in Apple’s portfolio.

“Someone has to pay for that,” he added. “I think Apple went into this with a lot of ‘bad yield’ built into the model. There is a lot of technology in the Vision Pro and they knew it would take a while to scale up. Apple knows they won’t make money on this in the first year.”

Sony was cautious about how much the mixed-reality headset market would expand and was reluctant to step up production significantly, said Terushi Shimizu, head of Sony’s semiconductor unit, in a recent media roundtable.

“We will be watching to see how much demand [for micro-OLED displays] will increase,” he said. “But I don’t think we will be aggressive [in producing] in the same scale as image sensors”, for which Sony is building a new plant to boost production for the chips used in smartphone cameras.

Meanwhile, Apple is already working on later generations of the headset, including a more affordable version that is expected to appeal more to mass-market consumers, said two people with direct knowledge. 

Apple is working with Korean display makers Samsung and LG on this second-generation headset. In order to drive the price lower, the iPhone maker has explored using other display technologies, including mini-LED, but two people said Apple was insisting on using micro-OLED even for the non-Pro headset, even though all suppliers had so far failed to match its expectations.

The cut to 2024 forecasts has disappointed Luxshare, which has been gearing up its capacity to be able to build nearly 18mn units annually in the coming years, according to one person close to the assembler. 

Analysts said the whole headset supply chain in Asia was not getting much of a boost from the Vision Pro. “Apple has not made a better product than the industry imagined . . . the manufacturers’ confidence is not high,” said Eddie Han, an analyst at Taiwan-based Isaiah Research. 

Despite the setbacks, market intelligence group Canalys believed Apple would surpass a user base of 20mn within five years of launch.

“Given the limited production numbers, it will be flying off the shelves, pre-ordered by Apple’s loyal fans and high net worth users in the US,” said Canalys analyst Jason Low. His projection was currently for Apple to produce 350,000 units next year, increasing to 12.6mn units five years later.

It was a very busy week in the world of fintech, which certainly kept us on our toes. We covered a couple of notable M&A deals (including one of the biggest of the year so far), a different kind of financial services startup aimed at undocumented immigrants, Brex’s official recommitment to the startup community and more.

End-of-quarter frenzy

As the generative AI craze rages on, Ramp acquires customer support startup Cohere.io

We started the week with some M&A news out of corporate spend management company Ramp. The team shared with us exclusively that it had scooped up an AI-powered customer support called Cohere.io, which had raised $3.5 million in seed funding over its lifetime from backers such as Initialized Capital, Y Combinator and…Ramp co-founders Eric Glyman and Karim Atiyeh. Notably, Ramp (and companies like Deel and Rippling) were also customers. Glyman told us that it was evident from early on that once his company started using Cohere.io, “suddenly the majority of tickets were being answered properly in an automated fashion. […] It actually really worked,” he said. “The technical sophistication of the team was far beyond anything we had ever seen.”

Visa acquires Brazilian fintech startup Pismo in $1B blockbuster deal

Then later in the week came confirmation of one of the biggest, if not the biggest, fintech M&A deals of the year.

It was rumored for months that Visa, Mastercard and potentially a bank and private equity firm were all courting Brazilian payments infrastructure startup Pismo. The acquisition was definitely a coup for the Latin American startup community, considering that Visa could have likely considered companies from all over the world. Pismo has apparently seen some explosive growth in recent years — jumping from 10 million accounts at the end of 2020 to 80 million today. Also, at the beginning of 2021, Pismo was doing less than $1 billion per month in transaction volume compared to processing $40 billion in transaction volumes annually today.

However, as noted by KBW managing director Sanjay Sakhrani, the $1 billion purchase price is roughly 30% below the $1.4 billion that Visa was rumored to have offered for Pismo earlier this year.

We don’t know what Pismo was valued at when it raised $108 million in a round co-led by SoftBank, Amazon and Accel in 2021.

But Accel partner Ethan Choi told us the sales price was “a very strategic multiple.”

Sakhrani also said in a report that in addition to beefing up Visa’s issuer processing capabilities across card products, Pismo also brings “differentiated core banking capabilities and will allow Visa to provide connectivity and support to emerging payment rails like Pix in Brazil.”

The last week in recent memory where we remember seeing such a flurry of fintech M&A activity was in mid-January, when Jonah Crane, partner at Klaros Group, predicted we would continue to see more acquisitions in 2023 thanks to the continued venture slowdown and practically dead IPO and SPAC markets. And according to CB Insights, fintech M&A exits rebounded in the first quarter, but not as much as one might have expected. They were up 15% QoQ to 172 deals. Most of Q1’23’s top M&A deals involved fintechs based outside of the U.S. For the first time in the previous year, the top M&A valuation fell below $500 million.

Side note: The acquisition represented a rare win for SoftBank, which has had a number of high-profile disappointments in recent years with investments in the likes of WeWork, the now defunct Katerra and FTX. Alex and I talk more about that on Friday’s episode of Equity Podcast here.

Brex refocuses on startups with hire of SVB veteran, ex-a16z operating partner

Last summer, Brex made headlines for announcing it would stop serving SMBs and non-funded startups. This summer, it’s making headlines for pledging its recommitment to the startup community. After Silicon Valley Bank imploded in March, Brex (along with the likes of Arc and Mercury) saw an influx of new customers.

Specifically, the company says it opened 4,000 new accounts and received $2 billion in deposits in the first week after the SVB shutdown alone.

That obviously led the company to rethink its strategy. Last week, Brex told us exclusively that it had hired Jason Mok, a former operating partner at Andreessen Horowitz (a16z) and 16-plus-year veteran of Silicon Valley Bank to serve as its head of startups. I talked with Mok about his previous experience and how he thinks that will help him in his new role, which includes providing more “Brex ambassadors” who can serve as the face of the brand that founders, operators and VCs can go to for advice, perspective and connections to other founders.

No SSN, no problem, says Maza, a fintech startup aimed at undocumented immigrants

I also wrote about Maza, a fintech startup that raised $8 million in a seed-funding round led by a16z to help undocumented immigrants get an ITIN (individual tax identification number) and access the U.S. financial system. TechCrunch has previously reported on a number of startups focused on the immigrant community — including Welcome Technologies, Fair, Majority and TomoCredit. (It’s unclear whether Fair is still around considering its website appears to no longer exist or is down.) But what makes Maza different is its focus on undocumented immigrants specifically. “We’re doing much more than just providing a bank account — we’re really giving immigrants a stable and legal financial foundation from which to build credit and wealth indefinitely,” said co-founder and COO Robbie Figueroa.

Fun fact: The name Maza came from a song about perseverance called “La Maza” that co-founder and CEO Luciano Arango used to listen to with his mom growing up.

Nubank’s CEO explains what the US could learn from LatAm fintech

In one of the Equity podcasts this week, I spoke with David Vélez, the co-founder and CEO of digital bank giant Nubank.

(Did you know it has a market cap of $37 billion?!)

Digital banking is always top-of-mind over here at TechCrunch, so we quickly got into discussing Nubank’s strategy for achieving profitability and how the company has been able to maintain that in a challenging macroeconomic environment.

Vélez also compared and contrasted the Latin American and U.S. fintech markets and dished on how he sees banking evolving in the next few years. One particularly interesting part of the conversation, as one Equity listener pointed out: Vélez’s reasoning for only expanding Nubank in three markets over 10 years: “‘I am extremely wary of any deck where people tell me ‘18 markets in 2 years.’”

Fidelity Investments valued its stakes in Discord and Reddit slightly lower than it had previously, according to new public disclosures reported by TechCrunch.

The asset manager marked down the value of its Discord holdings by 13% at the end of May, compared to the previous month. At the same time, it marked down its Reddit stake by about 7%. Those declines come after larger markdowns last year amid a steeper slump in public tech stocks.

Twitter, on the other hand, got better news. Fidelity marked up its stake by about 5% in May compared to April.