Hedge funds make $7bn from betting against banks during turmoil
Short sellers’ March haul was their largest from the banking sector since 2008
Hedge funds made more than $7bn in profits by betting against bank shares during the recent crisis that rocked the sector, their biggest such haul since the 2008 financial crisis.
The bumper gains came during a bleak month for banks, with the collapse of Silicon Valley Bank and the emergency sale of Credit Suisse affecting the wider sector. Amid plunging share prices, German chancellor Olaf Scholz was forced to dismiss fears about the health of Deutsche Bank and California-based First Republic was bailed out by larger rivals.
Short sellers — who borrow stock and sell it, hoping to buy it back at a lower price — made estimated total profits of around $1.3bn from short positions taken against SVB, according to data firm Ortex. A further $848mn in gains came from bets against First Republic, whose shares fell 89 per cent in March.
Investors made $684mn from shorting Credit Suisse, as a crisis of confidence in the Swiss lender sent its shares tumbling 71 per cent, according to the data. Profits from short positions across the US and European banking sector as a whole totalled $7.2bn.
“March was the single most profitable month for short sellers in the banking sector since the 2008 financial crash,” said Ortex co-founder Peter Hillerberg. While bank stocks also fell sharply in early 2020 during the onset of the coronavirus pandemic, fewer funds were shorting the sector at the time, limiting gains, he said.
Barry Norris, chief investment officer at Argonaut Capital, said he had enjoyed a “stellar” month, thanks to bets against banks including Credit Suisse and First Republic. His Argonaut Absolute Return fund gained more than 6 per cent.
London-based Marshall Wace, one of the world’s biggest hedge fund firms, was also among those placing bets, shorting 0.7 per cent of Deutsche Bank’s shares. Funds netted gains of around $40mn from bets against the German lender.
Many hedge funds responded to the growing turmoil by increasing their short positions.
Bets against Credit Suisse, for instance, were running at just 3.5 per cent of the bank’s outstanding shares at the start of March, according to S&P Global Market Intelligence, as measured by shares out on loan, but had jumped to 14 per cent by March 20, the day after Credit Suisse was sold to UBS.
Short interest in First Republic rocketed from just 1.3 per cent at the start of the month to 38.5 per cent by March 30.
Other managers who benefited include Ravi Chopra’s US-based hedge fund firm Azora Capital, which profited from bets against US regional banks, according to a person familiar with its positions. Azora did not respond to a request for comment.
Short sellers’ gains on Deutsche Bank, however, were more muted. While bets against the bank were quickly raised from 1.4 per cent at the start of the month to as much as 6.1 per cent by March 28, the bank’s shares had already bottomed on March 24 — the day of Scholz’s comments — and have since recovered some ground, eroding funds’ gains.
Hedge funds appear to be expecting further problems to emerge in the sector. Short interest in First Republic remains only marginally below the March high at 37.3 per cent, while bets against Deutsche have also fallen only slightly.
Argonaut’s Norris highlighted the US Federal Reserve’s liquidity assistance programme announced last month. This, he said, reduces the risk of weaker US regional banks going bust owing to a lack of liquidity, but the high rate of interest being charged could lead to “a catastrophic impact on net interest margins, creating a solvency risk”.
“The liquidity crisis is probably over, but the solvency crisis is about to begin,” he said.
After Hours Summary: Relatively quiet after-hours session; FOXF +2% on reaffirmed guidance; LITE -10% down on lowered Q3 guidance; COST -2.1% slipping on March data; ABBV -0.8% edging lower on lowered FY23 EPS outlookAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: FOXF +2% (guidance)
Companies trading higher in after hours in reaction to news: PL +5.7% (executive purchases $1.9 mln of stock), TGB +0.3% (files $600 mln mixed shelf)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: LITE -10% (guidance; increases repurchase program), SLP -2.6%, ABBV -0.8% (guidance)
Companies trading lower in after hours in reaction to news: COST -2.1% (reports March data), AMPL -0.6% (reducing workforce by 13%), DIS -0.2% (naming new head of streaming, according to Variety), TSLA -0.2% (adopted amendments to bylaws), CBOE -0.1% (reports March trading volume)
Le classement FORBES FRANCE 2023 des 43 milliardaires français
CLASSEMENT | Comme chaque année, Forbes France vous propose le classement de référence des milliardaires français, extrait du top mondial de Forbes US. Fait remarquable, les deux premières personnalités de ce palmarès, Bernard Arnault et Françoise Bettencourt Meyers, sont devenus pour la première fois l’homme et la femme les plus riches du monde.
CE CRU 2023 EST HISTORIQUE. L’homme le plus riche du monde et la femme la plus riche du monde sont français et pèsent à eux deux plus de 270 Mds d’euros. Certains pousseront des cocoricos, d’autres des cris d’orfraie, mais la réalité est incontestable et inédite : Bernard Arnault, président fondateur de LVMH, et Françoise Bettencourt Meyers, héritière de L’Oréal, sont chacun numéro un mondial. Un résultat concomitant dont Forbes France ne peut que se réjouir car il témoigne de la vigueur de l’économie française malgré les crises successives que notre pays traverse, directement ou indirectement.
Le secteur du luxe et de la cosmétique se porte d’ailleurs comme un charme puisque, derrière les deux personnalités citées, les trois suivants qui complètent le quintette de tête en sont aussi de puissants représentants : François Pinault (3), fondateur de Kering, et Alain et Gérard Wertheimer (4 et 5), propriétaires de Chanel SA. Le premier milliardaire du classement venu d’un autre horizon est Emmanuel Besnier (6), patron de Lactalis, qui arrive assez loin derrière les deux frères incarnant l’élégance hexagonale, à la tête d’une fortune estimée à 20,4 Mds d’euros.
Autres enseignements de ce palmarès, il y a deux sortants, Francis Holder, président des boulangeries/pâtisseries Paul, et le vigneron Clément Fayat, et pas vraiment de nouveaux entrants. On reste cependant sur un total de 43 membres du club, car la fortune de la famille Saadé aux manettes du groupe éponyme, troisième compagnie de transport maritime de la planète, s’est répartie sur les têtes des trois enfants du fondateur Jacques Saadé, Rodolphe, Tanya et Jacques Jr, respectivement aux 8e, 9e et 10e places. On s’intéressera aussi aux performances des deux frères ennemis de la téléphonie mobile, Xavier Niel et Patrick Drahi, patrons de Free et SFR, pour constater qu’ils sont tous les deux en baisse dans notre top (18e et 22e). Être des tycoons des médias ne protège donc pas des revers – relatifs – de fortune…
Pour le reste, il semblerait que l’effet Covid qui avait boosté des entreprises liées à la santé se soit atténué, même si Stéphane Bancel, directeur général de Moderna Therapeutics, le laboratoire qui fut l’un des premiers à mettre au point un vaccin contre le coronavirus, s’installe dans notre palmarès (21e), détenteur d’une fortune estimée à 4,1 Mds d’euros.
Notons enfin qu’en 2023, le palmarès Forbes des milliardaires français compte sept femmes, pour la plupart des héritières.
Debt, graft and mismanagement: Greek train crash was ‘waiting to happen’
International creditors found €11bn debt on the books of Greece’s railway company
Greece has resumed passenger traffic on the railway destroyed in the country’s deadliest crash more than a month ago. But the nation is still struggling to identify those responsible for the years of neglect, mismanagement and corruption that led to the accident.
The collision between a passenger train and a freight train in February claimed the lives of 57 people and has turned into a moment of reckoning about the failure of successive governments and international creditors to transform a railway operator that had accumulated €11bn in debt. Former executives said the company had a culture of mismanagement, political favours, and lack of interest in improving the safety of the network.
With the accident front and centre in every public discussion, the government of Kyriakos Mitsotakis last month decided to postpone parliamentary elections by a month to May 21.
“I’m lucky to be alive in this country. I’m embarrassed that I live in Greece,” said Vasiliki Economaki, a 19-year-old studying physiotherapy in Thessaloniki and one of the survivors of the crash. “We are all to blame, as we did nothing all these years,” she said a few days after the collision.
Passenger traffic between Athens and Thessaloniki resumed on Monday for the first time since the crash, with transport minister George Gerapetritis giving assurances that safety has been restored to the line. He said authorities were rushing to complete a new signalling and remote control system by September, in line with international safety standards.
That system was due to be installed in 2016, but it was postponed seven times. Experts argue that if the system had been in place the crash would have been avoided. “If the system existed, the possibility for an accident would be one in a million,” said Christos Retsinas, former head of security for Trainose, the company that owned the trains in Greece until it was privatised in 2017 as part of bailout conditions.
Because the system was in part funded by EU money, the European public prosecutor in 2021 launched an investigation into the tender, suspecting the bloc’s financial interests might be at risk.
The causes of the accident are not fully known and the investigation continues. The stationmaster on duty has been charged with negligent homicide and his case is being handled in Greek courts.
The crash was a disaster waiting to happen, according to former executives and transport experts, given the poor state of the infrastructure and the mountain of debt accumulated by the state-owned railway operator, OSE, in the years leading up to the 2010 sovereign debt crisis.
The picture painted by former officials and executives involved with the state railway is one of successive governments that spent millions of EU and Greek funds on overpriced investments that were never completed, appointed some executives without proper qualifications, and left the railway with unfit equipment and poor maintenance.
“It is the worst version of the state, the last vestige of a state-run Soviet system, ruled by vested interests,” said Thanasis Ziliaskopoulos, the former chief executive of Trainose. “Investments were made based on political criteria and not on what the market needed.”
In 2010, officials representing the country’s creditors went through public accounts and found a railway company saddled with €11bn of debt. Their mandate was to make it financially viable. And even though to some extent they did, the company was never truly reformed.
In the years preceding the economic meltdown that hit the country, the railway company’s debt was rising by 55 per cent annually. When Ziliaskopoulos took over as chief of Trainose in 2010, “the company was facing financial chaos”, he said. He was faced with an annual deficit of €240mn euros just to keep operations going.
At one of the first meetings with IMF representatives in the spring of 2010, Ziliaskopoulos remembered one of them shouting “shut it down!” — because it was deemed a hopeless case.
“A railway company with €11bn of debt means that there was severe mismanagement,” said Thomas Wieser, who was the euro area’s chief official during much of the sovereign debt crisis. “You need politicians who really want to do something about it. [I’m] not sure that was the case in Greece and that is why a shock therapy was needed.”
When Greece’s bailout conditions were drafted, the “troika” of international creditors called for the railway’s operational activities to become profitable.
One of the measures was to cut back on staff. Greece’s railways employed 12,500 people in 2010. After the troika’s involvement, just 2,600 remained employed by OSE and in 2021 numbers had further reduced to 2,000.
Takis Theofanopoulos, who took over as president of OSE in 2010, said that as experienced train and railway station workers reached retirement age, “I knew we would soon face shortages that would be hard to deal with.”
Other restructuring measures included slashing the generous pay deals trade unions had secured for railway workers and cutting back on train connections with few passengers. The culture was slow to change, however. Fuel was routinely stolen from the company’s stock and free tickets were handed out as political favours, with the company struggling to make any profits, according to Ziliaskopoulos.
Well aware of the deteriorating infrastructure, he sought to compensate by appointing extra safety personnel onboard and in all main stations. “I did not sleep peacefully at night,” he said.
A further challenge to the safety of the network was frequent raids by copper thieves. “It was impossible to safeguard 2,500km of rails without an organised plan by the police and secret services,” said Theofanopoulos, who said the problem persists. Even if a modern signalling system were to be placed in the rails, it would end up being stolen, he said.
Soon after Greece exited its reform program in 2018 the extra layers of security that were put in place in previous years started being eliminated.
Trainose was sold to Italy’s state-owned railway company, renamed Hellenic Train in 2022 and given control of passenger and freight operations, while OSE kept control of the network.
“The supervisor of the train master was stripped of his responsibilities, while the control centre in Athens was split into two,” said Retsinas. “With these changes, an accident was waiting to happen.”
Hellenic Train said it operates “in full compliance” with railway sector rules, adding that it has “two train drivers in the cockpit, and a master conductor in the coaches”.
Tiger Global Tried to Sell VC Fund Stakes in Latest Sign of Strategy Shift
THE TAKEAWAY
- Tiger Global has tried to sell some stakes in VC funds that specialize in young startups, as the once-prolific startup investor backs away from a strategy designed to increase exposure to these fledgling firms.
Tiger Global Management, the most prolific investor in private tech companies during the recent boom, also invested in dozens of venture capital firms as it sought to forge closer ties to the young startups those funds backed. But in recent months, the New York–based investment firm has been looking to dump some of those VC fund stakes.
The firm has been working with banks to sell some of its VC fund investments to firms that specialize in the secondary market for private tech stocks and venture funds, according to a person with direct knowledge and two others who were briefed about it. Tiger partners last year committed at least $80 million to the VC funds, one of these people said, including Better Tomorrow Ventures, Chapter One Ventures and Moxxie Ventures.
The specific stakes Tiger is looking to sell and whether it completed any sales couldn’t be learned.
The VC-stake sale discussions follow a bruising year for the firm, which has invested more than $24 billion in private startups since early 2020. Last year, as stock markets collapsed, Tiger slashed the value of its private tech portfolio, according to its fundraising documents, which were reported by The Information.
While it’s not uncommon for investors in VC firms—known as limited partners—to sell their stakes, Tiger’s attempt may reflect the tougher fund-raising environment for venture capital. The sale of venture fund stakes by LPs tends to be more common during bear markets when they don’t believe their investment returns will increase or because they need cash sooner than expected. Wealthy individuals and endowments also may sell VC stakes to balance their portfolio after finding themselves overexposed to private tech startups after the severe drop in public stocks last year.
LPs in VC funds are free to sell their stakes unless the LP agreement they signed prohibits it. Still, some venture capitalists say they frown upon such stake sales.
The VC fund stakes are from a fund Tiger raised, Crescent, which pooled personal capital from Tiger staff to invest in the VCs, according to a person familiar with the matter. Because tech valuations have declined, Tiger may have to sell the VC stakes at a discount to the original commitment amount.
Nonetheless, Tiger could use the proceeds to invest in its new venture fund, which it is currently raising. Tiger previously told at least one founder it needed to pare back its commitments to seed investors because the partners wanted to instead use some of their personal capital for the firm’s next fund, The Information earlier reported. Tiger’s employees usually invest a large sum in the firm’s own funds.
Strategy Change
For Tiger, the move away from VC funds comes as the investment firm pulls back from rapid-fire dealmaking, particularly in mature startups. After inking more than 300 deals in 2022, Tiger has participated in just 12 deals so far this year, according to financial data firm PitchBook.
The firm also has lowered the target size of its current venture fund to $5 billion from $6 billion, The Wall Street Journal reported in February, after closing a new $12.7 billion fund last year.
The strategy of investing in small VC funds arose early last year as Tiger and other large VC investors turned from backing startups on the cusp of an initial public offering to investing more in young startups for whom public offerings might be years in the future—when stock markets will presumably have recovered. In backing funds that specialize in seed investments for startups, Tiger aimed to increase its access to promising young companies.
Tiger’s partners had planned to invest just over $300 million in these sorts of funds every year, The Information reported. But during the course of 2022, the souring stock market and a negative response from Tiger’s own LPs prompted the firm to curb those ambitions. Tiger called several of the fund managers to whom it had given verbal or written promises and said it wanted to reduce those commitments, The Information previously reported. In several instances, Tiger proceeded with the seed-fund investments as planned and did not attempt to scale back, some fund managers said.
Norway’s long-term energy dilemma
While its gas exports rise in importance, Oslo faces pressure to expand greener sources of power
The helicopter carrying the heads of Nato and the European Commission flew in thick cloud off the Norwegian coast, right until it reached the Troll gas platform when the sky brightened up almost miraculously.
Troll, Norway’s largest gasfield, has certainly proved its worth to Europe in recent months, providing about 10 per cent of the gas needs of the continent, including the UK. Ursula von der Leyen, president of the commission, and Nato secretary-general Jens Stoltenberg came as much to thank Norway for increasing the flow of gas to get through a difficult winter as send a message to Russia not to try to sabotage any North Sea infrastructure.
The hosts on the platform — Norwegian prime minister Jonas Gahr Støre, and Equinor chief executive Anders Opedal — were all smiles as they took their two guests 300 metres below sea level to the bottom of one of the platform shafts. But behind the bonhomie, there are also big differences in emphasis on what the energy future might look like.
Since the start of the Ukraine war, Norway has displaced Russia as Europe’s biggest source of gas. Along with its main oil and gas group, state-controlled Equinor, Norway has argued increasingly that it is the democratic supplier of choice to the continent. For years, it had sought to position itself as being able to deliver barrels of oil with one of the lowest carbon footprints in the world (if that is not an oxymoron). Now, it has hit on this new argument to stand out from more autocratic suppliers such as Qatar and Saudi Arabia.
“It’s a reality, it speaks for itself,” said Støre as the North Sea wind buffeted the platform, pointing to figures showing Norway now supplies 30 to 40 per cent of Europe’s gas. “Norway is a Nato ally, a democratic partner and that brings stability and predictability both to Europe and the UK.”
Equinor may be investing in wind power and other green technology, but it also sees a decent future for gas and oil. Opedal pointedly said on the platform that Troll would continue producing beyond 2050, which is the target date for the EU to be carbon neutral.
Oil and gas exploration in Norway continues almost unabated despite a government agreement with a small leftwing party to not open up any new areas during this parliamentary term. In January, Oslo offered a record number of blocks in existing areas in the Arctic for companies to explore.
Europe is grateful in the short term for Norway’s increased gas production in the past year. Von der Leyen repeatedly gave thanks to “our friends” in Norway while on the platform. But the EU’s overarching current goal is to achieve net zero emissions and so it wants to accelerate its push towards green technologies, putting an emphasis on the likes of wind power and hydrogen rather than gas in the mid to long term. “Of course, the future is renewables,” said von der Leyen.
That leads to some tensions in the discussions. People involved in negotiations between Norway and Europe say the EU appears reluctant to commit to large gas volumes for a long period. Norway would ideally also like to get an EU imprimatur for its aggressive petroleum plans in the Arctic, recognising that now might be its time of maximum leverage given Europe’s thirst for gas.
Støre is keen to present a different side of Norway, too. His government speaks warmly about offshore wind, even though Norway hugely lags behind other North Sea countries such as the UK and Denmark on this.
He also talks up the prospects for carbon capture and storage. An early Norwegian attempt at this failed. But several efforts including one involving Equinor in the North Sea are now taking place. Finally, Norway is pushing hydrogen. Eventually, it will be so-called green hydrogen made using renewable energy. But, before that, Oslo is heavily backing blue hydrogen where gas is used and the carbon captured and stored.
“All that will be the future; gas is the transition technology,” said Støre. Within a few years, he added that it might be possible to spy offshore wind farms within a kilometre or two of Troll while carbon might be injected into the seabed a similar distance away.
But standing on a platform that still earns about $80mn a day at current gas prices, there is a sense that Norway has little incentive to turn its back prematurely on the industry that made it rich, even as interest in green energy rises. There is little doubt that this sector will stay lucrative in the short run but questions abound over whether Norway is moving fast enough for its longer-term future.
Research Calls
- Upgrades:
- Accenture (ACN) upgraded to Buy from Hold and added to Stock Focus List and Equity Income Buy List at Edward Jones
- Clean Energy Fuels (CLNE) upgraded to Outperform from Mkt Perform at Raymond James; tgt $6
- Commercial Metals (CMC) upgraded to Buy from Neutral at BofA Securities; tgt raised to $60
- ConocoPhillips (COP) upgraded to Hold from Sell at Societe Generale; tgt $105
- Douglas Emmett (DEI) upgraded to Overweight from Neutral at Piper Sandler; tgt raised to $15
- Dutch Bros (BROS) upgraded to Outperform from Neutral at Wedbush; tgt $37
- First Citizens BancShares (FCNCA) upgraded to Buy from Sell at UBS; tgt raised to $1206
- Fluence (FLNC) upgraded to Buy from Neutral at Guggenheim; tgt $25
- H&M (HNNMY) upgraded to Equal-Weight from Underweight at Morgan Stanley
- InflaRx (IFRX) upgraded to Outperform from Market Perform at LifeSci Capital
- Livent (LTHM) upgraded to Buy from Neutral at BofA Securities; tgt lowered to $27
- Sallie Mae (SLM) upgraded to Overweight from Underweight at Morgan Stanley; tgt raised to $15
- Meta Platforms (META) upgraded to Buy from Hold at Argus; tgt $270
- Outotec Oyj (OUKPF) upgraded to Buy from Neutral at Citigroup
- Secure Energy Services (SECYF) upgraded to Outperform from Sector Perform at National Bank Financial
- Sealed Air (SEE) upgraded to Buy from Neutral at UBS; tgt $59
- The Cigna Group (CI) upgraded to Strong Buy from Outperform at Raymond James; tgt $350
- Trimble (TRMB) upgraded to Buy from Hold at Edward Jones
- UnitedHealth (UNH) upgraded to Strong Buy from Outperform at Raymond James; tgt raised to $630
- Wartsila (WRTBY) upgraded to Overweight from Equal-Weight at Morgan Stanley
- Zions Bancorp (ZION) upgraded to Outperform from Neutral at Robert W. Baird; tgt $60
- Downgrades:
- AbbVie (ABBV) downgraded to Hold from Buy at Argus
- Albemarle (ALB) downgraded to Underperform from Neutral at BofA Securities; tgt lowered to $195
- Ascendis Pharma (ASND) downgraded to Perform from Outperform at Oppenheimer
- Assa Abloy (ASAZY) downgraded to Sell from Neutral at Citigroup
- Bloom Energy (BE) downgraded to Outperform from Strong Buy at Raymond James; tgt lowered to $25
- European Wax Center (EWCZ) downgraded to Neutral from Outperform at Robert W. Baird; tgt $21
- Kinross Gold (KGC) downgraded to Underperform from Buy at BofA Securities; tgt $4.70
- On (ONON) downgraded to Neutral from Outperform at Robert W. Baird; tgt $33
- Steel Dynamics (STLD) downgraded to Neutral from Buy at BofA Securities; tgt lowered to $123
- Xponential Fitness (XPOF) downgraded to Neutral from Outperform at Robert W. Baird; tgt $34
- Others:
- Aker Solutions (AKRTF) initiated with an Outperform at RBC Capital Mkts
- Arhaus (ARHS) initiated with an Outperform at TD Cowen; tgt $11
- Ascendis Pharma (ASND) removed from Focus List at Citigroup; tgt lowered to $146
- CymaBay Therapeutics (CBAY) initiated with an Outperform at William Blair
- Edgewell Personal Care (EPC) initiated with a Neutral at UBS; tgt $47
- Fox Factory Holding (FOXF) initiated with a Neutral at ROTH MKM; tgt $126
- GCM Grosvenor (GCMG) initiated with an Overweight at Piper Sandler; tgt $10
- Old Second Bancorp Inc. (OSBC) initiated with an Overweight at Stephens; tgt $18
- SolarEdge Technologies (SEDG) initiated with a Buy at Janney; tgt $351
- Subsea 7 SA (SUBCY) initiated with an Outperform at RBC Capital Mkts
- The Vita Coco Company (COCO) initiated with a Buy at Craig Hallum; tgt $25
- United Airlines (UAL) placed on 30-day Catalyst Watch at Citigroup
- VICI Properties (VICI) initiated with a Buy at Mizuho; tgt $35
- Wyndham Hotels & Resorts (WH) initiated with a Buy at Deutsche Bank; tgt $79