FT : French football club PSG prepare for a summer revamp

French football club PSG prepare for a summer revamp

PSG: changing guard, changing business model

The GOAT era at Paris-Saint Germain is drawing to a close. Having assembled the highest paid team in football history, the superstar lineup is breaking up.

Argentina’s World Cup winning captain Lionel Messi looks set to be the first to quit the Qatar-owned team. He was recently suspended and fined for missing training — instead hopping over to Saudi Arabia, where he is a tourism ambassador. He may end up becoming a more permanent resident, with Riyadh-based Al-Hilal one of his potential next destinations. Barcelona and Inter Miami are both also in the mix.

Brazilian forward Neymar, still the most expensive signing in football history, is expected to follow Messi through the exit, with other high profile — and high paid — departures likely to follow.

France’s most successful club is in transition, and hopes to replace some outgoing players with talent from its youth academy — a way to cut costs and reconnect with the increasingly disgruntled fans.

Uefa’s new spending rules have helped force PSG’s hand. Starting next season, clubs competing in European competitions must limit spending on players and coaching staff to 90 per cent of revenue, a figure that will gradually drop to 70 per cent.

Across Europe, PSG is the club most in need of belt tightening. The wage bill hit 109 per cent of revenue last year, according to figures from data provider Football Benchmark.

In return, the club is on track to win another French title — its 9th under Qatari ownership — but failed to reach the quarter finals of the Champions League. Stars have come and gone, but victory in football’s top club competition has remained elusive.


The overhaul at PSG has major implications for French football. According to estimates from sports intelligence provider Twenty First Group, PSG’s chances of winning the league next season drop from 59 per cent to 42 per cent without Messi and Neymar. That introduces a level of competitiveness sorely lacking in Ligue 1, making it more exciting and potentially boosting interest over the long-term.

However, PSG is the only French club with global reach and household names on the team sheet. Just as Ligue 1 puts its broadcast rights out to tender, French football is about to lose some of its greatest marketing assets.

The exodus also raises questions about PSG’s plans to raise new capital. The Qatari owners have been in talks to sell a stake in the club since last year, with a target valuation of over €4bn.

The club still doesn’t own its stadium, and with a dwindling roster of big brand players, investors might wonder what exactly they are buying into.

FT : ECB too lax in supervising Europe’s largest banks, watchdog warns

ECB too lax in supervising Europe’s largest banks, watchdog warns
European Court of Auditors seeks assurances that credit risk is being ‘properly managed’

The European Central Bank is too lax in supervising the eurozone’s largest lenders, the EU’s external auditor has said, as it called for greater assurances that “credit risk is properly managed and covered”.

The auditor hit out at the ECB for being insufficiently aggressive in pushing eurozone banks to reduce high levels of non-performing loans.

Friday’s detailed critique by the European Court of Auditors also accused the ECB of being too slow to decide capital requirements and lacking sufficient staff.

Banks on both sides of the Atlantic have come under increased scrutiny in recent weeks after the failure of several US lenders and the forced rescue of Credit Suisse.

The European auditor, which focused on the supervision of 10 lenders with high levels of bad debt, said ECB officials were too hesitant to use their full powers and applied them unevenly.

“Those with a higher share of non-performing loans were given more time than the others, and banks could choose a coverage approach that was most advantageous to them,” the report stated.

An ECB official said the auditors “didn’t understand that the disposal of NPLs consumes capital, as the banks have to accept a price below book value.

“Hence if we raised too much the capital requirements they would have made less disposals not to breach the requirements, and NPL volumes would have been slower to drop. The calibration at the bottom of the range was based and conditional on the banks’ plans to reduce NPLs.”

It maintained that it had ultimately achieved its objective, as toxic debts had fallen steadily from more than €1tn eight years ago to below €350bn last year, equal to less than 2 per cent of total loans.

In response to the auditor’s criticisms, the ECB said it would set banks’ capital requirements more speedily — a process the watchdog found took 13 months from the end of the relevant reporting period.

It also committed to address staffing shortfalls that left it unable to carry out a quarter of its prioritised investigations of banks’ internal risk models and 10 per cent of on-site inspections.

However, the central bank rejected some of the recommendations and said others had already been addressed since a team of external auditors examined the central bank’s supervision of lenders in 2021.

Its methodology for setting bank capital requirements “ensures that all material risks to which an institution is exposed are appropriately covered”, it said.

The ECB was given responsibility for overseeing the most important eurozone lenders after a banking meltdown and sovereign debt crisis that ripped through the region more than a decade ago. This led to the creation of its Single Supervisory Mechanism in 2014 as a separate unit from the central bank’s monetary policy operations.

“Our overall conclusion is that the ECB [has] stepped up its efforts in supervising banks’ credit risk, and in particular non-performing loans,” the European Court of Auditors said in its 121-page report. “However, more needs to be done for the ECB to gain increased assurance that credit risk is properly managed and covered.”

The auditors issued three main recommendations for the ECB: to streamline its supervisory process, strengthen its risk assessment of banks and use more effective measures to make banks manage risks better.

The central bank accepted the first recommendation, saying it was “considering ways to reduce” the time it takes to set bank capital requirements. But it only partly accepted the other two recommendations, rejecting a call for it to lift a hiring freeze imposed across all the ECB’s existing activities this year.

The ECB said some staff had been added in place of external consultants.

It would review next year if “more formal escalation processes” were needed to push national central banks to provide more staff to joint teams. It said there was still a 4 per cent staff shortfall at the supervisor, which employs about 1,600 staff.

Some concerns had already been addressed, after a review last year of its methodology for assessing credit risk and the addition of an “independent supervisory risk function” that acts as a second line of defence on setting banks’ capital requirements.

FT : The relative decline of the M&A banker

The relative decline of the M&A banker
The pay and prestige of deal advisers at the big firms have slipped

Once upon a time, if you wanted high pay and high prestige on Wall Street, you aspired to be a mergers and acquisitions banker, the person who advised corporate chief executives on their most important strategic deals.

And if you wanted the highest pay and the highest prestige, you aspired to be an M&A banker at groups such as Goldman Sachs, Morgan Stanley, Lazard and First Boston, the places where the biggest and most exciting M&A deals were happening.

In those days, it was nothing for a first-year M&A managing director at Morgan Stanley to be paid $1.5mn, or more. And if you were a rainmaker such as Felix Rohatyn, at Lazard, or Bruce Wasserstein, at First Boston, your pay was easily in the tens of millions of dollars a year, back when that was still considered real money.

No more. A host of factors have conspired in the past 25 years to reduce the pay and the prestige of the M&A adviser and other investment bankers — such as those who specialise in executing debt and equity underwritings — to levels that once would have been considered unacceptable.

What used to be first-year managing director pay of $1.5mn is now more likely to be $800,000, bankers tell me. That is still a lot of money but not quite what it was when M&A bankers were the alpha males of Wall Street. “And it’s not coming back,” one top longtime M&A banker told me.

There are myriad impediments to investment-banking specialists getting paid like they used to. At most of the big Wall Street banks, investment banking is no longer a driving force of the business — in fact, it is increasingly subordinated to less flashy areas such as wealth and asset management, trading, traditional lending and credit-card receivables.

With the overall volume of investment banking revenues down considerably from the absurdly high pandemic levels, lowering investment banking remuneration is the easiest way to cut expenses quickly. And the big banks are reducing compensation-to-revenue ratios without apology. Where once the compensation expense ratio was in the low 50 per cent of revenue in investment banking, the percentage is now in the 30s.

Back in 2012, James Gorman, then as now the chief executive of Morgan Stanley, bluntly told employees unhappy with the prospect of smaller paychecks: “If you’re really unhappy, just leave. Life’s too short.”

I suspect Gorman could say the same thing today. JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup are all cutting banking jobs, as is my old firm, Lazard. Even William Blair, the Chicago-based boutique investment bank, is reducing headcount. And European banks by and large are still trying to recover from the 2008 financial crisis.

All hope is not lost. There are big paychecks still to be had in some corners of the Wall Street investment banks, explains Gary Goldstein, chief executive of Whitney Group, a longtime Wall Street recruiter. “It’s all about relationships now,” he tells me.

The bankers getting paid the most on Wall Street these days — as much as $5mn a year, or more — are those responsible for maintaining and nurturing the relationships with the big alternative asset management groups, such as Blackstone, KKR and Apollo, which are collectively the biggest fee payers to Wall Street. Or the bankers working with the buyout groups on leveraged finance deals. “The guys that have real deep sponsor relationships are still getting paid well,” Goldstein says, agreeing that the execution-oriented investment bankers are no longer at the top of the Wall Street heap.

Still, the very best M&A bankers — those that combine execution skills and enduring relationships — can be paid extremely well, although they may have to leave Goldman or Morgan Stanley and head to successful M&A boutiques such as Centerview Partners, Evercore, Moelis & Co, PJT Partners, Guggenheim Partners and Perella Weinberg Partners. Here, profit margins are still high and the risks of capital losses are low, or non-existent.

Of course, the new Kings of Wall Street are not the Wall Street banks, big or small. That title belongs, rightly, to the Blackstones and the Apollos of the world. These groups — growing rapidly, lightly regulated, nimble and diversified — are where the really big money on Wall Street can still be made. At last check, Steve Schwarzman, the co-founder of Blackstone was worth about $30bn. It is no wonder then that the best and the brightest on Wall Street are flocking to work with him.

>>> US Close Dow -0,03% S&P -0,16% Nasdaq -0,35% Russell -0,22%

Closing Stock Market Summary

The stock market started the day on a more upbeat note. For most of the session, though, index level price action was negative. There was a late afternoon bounce after the S&P 500 briefly slipped below the 4,100 level, leaving the major indices with only modest losses on a lightly traded day. 

Mega cap stocks had been supporting the broader market for most of the week, yet money flows reversed somewhat today. The Vanguard Mega Cap Growth ETF (MGK) fell 0.3% while the Invesco S&P 500 Equal Weight ETF (RSP) closed flat and the market-cap weighted S&P 500 fell 0.2%.

There was not a lot of conviction on either side of the tape today. This followed news that the scheduled meeting between President Biden and congressional leaders to discuss the debt ceiling on Friday had been postponed until early next week as staff members continue to negotiate. Also, it followed a preliminary University of Michigan Consumer Sentiment Survey for May that featured a drop in sentiment and an increase in five-year ahead inflation expectations to 3.2% from 3.0%. That is the highest reading since 2011.

Market breadth showed somewhat mixed action under the index surface. Decliners had only a slim lead over advancers at both the NYSE and the Nasdaq.

S&P 500 sector performance was also mixed with many of the sectors closing near their flat lines. The consumer discretionary (-0.9%) sector was the worst performer due to losses in Amazon.com (AMZN 110.26, -1.92, -1.7%) and Tesla (TSLA 167.98, -4.10, -2.4%). Meanwhile, lingering growth concerns led to the relative outperformance of the defensive-oriented utilities (+0.4%) and consumer staples (+0.3%) sectors. 

Regional bank stocks remained in focus today. The SPDR S&P Regional Banking ETF (KRE) had a rollercoaster day. It was up as much as 1.1% and down as much as 1.1%, but ended the session on an upswing with a 0.6% gain.

Treasury yields turned higher in response to five-year ahead inflation expectations rising. The 2-yr note yield, at 3.91% shortly before the release, settled up seven basis points to 3.98%. The 10-yr note yield, at 3.38% shortly before the release, settled the session up seven basis points to 3.46%.

  • Nasdaq Composite: +17.4% YTD
  • S&P 500: +7.4% YTD
  • Dow Jones Industrial Average: +0.5% YTD
  • S&P Midcap 400: +0.1% YTD
  • Russell 2000: -1.2% YTD

Reviewing today's economic data:

  • April Import Prices 0.4%; Prior was revised to -0.8% from -0.6%
  • April Import Prices ex-oil 0.0%; Prior -0.5%
  • April Export Prices 0.2%; Prior was revised to -0.6% from -0.3%
  • April Export Prices ex-ag. 0.2%; Prior was revised to -0.5% from -0.2%
    • The key takeaway from the report is that it follows suit with the April CPI and PPI reports from earlier in the week, which showed a moderation in inflation pressures on a year-over-year basis.
  • May Univ. of Michigan Consumer Sentiment - Prelim 57.7 (consensus 62.9); Prior 63.5
    • The key takeaway from the report is that consumer sentiment has weakened amid concerns about the economic outlook, which threatens to curtail discretionary spending activity that, in turn, would weigh on growth.

Looking ahead to Monday, market participants will receive the following economic data:

  • 8:30 a.m. ET: Empire State Manufacturing for May (prior 10.8)
  • 4:00 p.m. ET: Net Long-Term TIC Flows for March (prior $71.0 billion)

Barrons : How Elon Musk Could Solve His Tesla-Twitter Puzzle

How Elon Musk Could Solve His Tesla-Twitter Puzzle
A Starlink IPO could raise billions of dollars and mean less selling of Tesla in the years ahead.

SpaceX is the most valuable space company in the world—and it might offer Elon Musk the key to unlocking his empire.

It’s hard to feel pity for the world’s second-richest person. Musk is estimated to be worth about $180 billion, the combined value of his stakes in Tesla TSLA -2.38% (ticker: TSLA), SpaceX, Neuralink, the Boring Co., and Twitter, among other investments. The problem, though, is that all but Tesla are privately held, and therefore illiquid. When Musk needs money, his only option is to sell Tesla stock. That was the case from April to December 2022, when Musk was forced to sell some $23 billion in Tesla shares to keep Twitter afloat, one of the reasons the stock tumbled more than 50% during that period. What Musk really needs is another publicly traded company that would allow him to unlock some of his wealth—and take the pressure off Tesla.

And that’s where SpaceX comes in. To call the company wildly successful would be an understatement. SpaceX has been sending astronauts to the International Space Station and surrounding the Earth with its Starlink satellites, and has even revived the U.S.’s moribund space program and restored it to global launch dominance. Its businesses are starting to make money, too. Each launch could bring in from $150 million to $300 million in sales, and Starlink was sporting one million subscribers at the end of 2022. An initial public offering isn’t out of the question, and it might be just what Musk and Tesla shareholders need.

“I am confused [as] to why the board of directors allowed Elon to crash Tesla’s stock price,” says Leo Koguan, Tesla’s third-largest individual investor behind Musk and Larry Ellison. “Why not sell shares of SpaceX?”

Why not, indeed. Don’t let the recent explosion of SpaceX’s Starship fool you—SpaceX is light-years ahead of the competition. Right now, the focus is on its Starship launch system, the largest ever built, with more than double the payload capacity of the National Aeronautics and Space Administration’s Space Launch System, or SLS, which is part of the Artemis program to return U.S. astronauts to the moon. Starship is the first system designed to be fully reusable, moving beyond the current SpaceX system, where only the lower stage gets reused. Success would mean larger payloads and lower costs, making Starlink and other space-based businesses more competitive.

“We believe that a successful orbital launch of SpaceX’s Starship vehicle could be the most important event in the formation of the space economy since Sputnik launched in 1957,” notes Credit Suisse analyst Scott Deuschle, adding that a combination of size, reusability, and ease of manufacturing could drop the cost of reaching a low Earth orbit by a factor of 30.

The first integrated test with both halves of the unmanned Starship ended with a “rapid, unscheduled disassembly” event, SpaceX lingo for when something blows up. But failure isn’t a bad thing. SpaceX has launched more than 220 rockets in its 21-year history, and blown up several of them before the technology to reuse rockets was mastered. The reusability and development strategy is far different from the strategy used by United Launch Alliance, jointly owned by Boeing BA -0.56% (BA) and Lockheed Martin (LMT), which aims for perfection, adding costs and slowing development. The traditional space industry still doesn’t reuse rockets, and the United Launch Alliance still primarily serves the U.S. government.

The strategy of actively courting failure has worked for SpaceX. Over its life, SpaceX has spent something in the range of $10 billion, and it has a constellation of roughly 4,000 satellites, reusable spacecraft, reusable rockets, and its own launch complex in Boca Chica, Texas, to show for it. NASA, on the other hand, has spent more than $20 billion and 11 years developing SLS, which started around the time that the famously expensive Space Shuttle was mothballed. SLS is more powerful than the rocket that took the first astronauts to the moon, but it has had just one launch since starting development in 2011. SpaceX launched 61 rockets in 2022.

“SpaceX showed that failing and trying again was far cheaper and more effective than traditional space development,” says Hélène Huby, co-founder of the Exploration Co., which is working on reusable spacecraft.

The upstarts are having trouble keeping up. Richard Branson’s Virgin Orbit Holdings (VORBQ), a satellite launch company, filed for bankruptcy in April, and shares of Virgin Galactic Holdings SPCE -1.23% (SPCE), his space travel company, have tumbled 92% since peaking in February 2021. Companies such as Momentus (MNTS), Astra Space (ASTR), and Spire Global (SPIR), which came public via special purpose acquisition companies in 2021, all trade for less than $1 a share. Even Amazon.com AMZN -1.71%(AMZN) founder Jeff Bezos’ Blue Origin, founded in 2000 with the motto gradatim ferociter—Latin for “step by step, ferociously”—hasn’t conducted an orbital flight. Blue Origin was also late delivering engines to United Launch Alliance, and the Vulcan rocket they will be used on has yet to make an orbital flight. The company doesn’t act with the same sense of urgency as SpaceX, multiple industry professionals tell Barron’s.

Blue Origin points out that it has conducted 23 launches of its New Shepard fully reusable vehicle that has carried more than 100 payloads and 31 people to space. And while it may be lagging behind SpaceX, there is room for more than one player, says Micah Walter-Range, co-founder of space consulting firm Caelus Partners. “Governments like to avoid monopolies,” he says.

It isn’t all about launches. Starlink, SpaceX’s space-based Wi-Fi business, has thousands of satellites orbiting the Earth, providing high-speed internet service for about $110 a month. The scale and growth of Starlink have the business on pace to generate sales of about $1.8 billion in 2023, double that of 2022. And of all Musk’s privately held businesses, Starlink is the one that looks most ready to stand on its own. Even Musk acknowledged as much in 2021, when he said that he might take Starlink public when cash flows are predictable—and cash flow now appears to be getting predictable.

Whether Musk should IPO Starlink comes down to how much it would fetch from investors. The private markets aren’t much help. Though SpaceX was valued at $137 billion in its last funding round, its shares haven’t been changing hands on platforms that specialize in facilitating private transactions as frequently. Rainmaker Securities, for instance, has traded more than $4 billion in SpaceX stock in transactions stretching back more than five years. Rainmaker CEO Glen Anderson has seen a troubling trend in shares recently—they aren’t trading. “Six months ago, if we got a SpaceX block, it sold in two, three days,” he says. “Now, we’ve had SpaceX blocks on the books for two months.”


It’s tough to know exactly why that’s the case. The easiest thing to point to is the market. The Nasdaq Composite COMP -0.35% is off more than 20% from its peak, as the Federal Reserve has raised interest rates in an attempt to lower inflation. Rising rates tend to hit richly valued stocks harder than most. SpaceX might not be publicly traded, but it is a growth company, and even private-market valuations aren’t immune to the Fed.

That makes figuring out how much Starlink would be worth in an IPO even more difficult. At about $140 billion, SpaceX is worth less than Boeing’s value of roughly $170 billion, including debt and equity. It’s a lofty valuation, even for a company that has perfected reusable rockets, driven down the cost of reaching space, restored America’s space-launch leadership lost to China, ferried NASA astronauts to the International Space Station, and started a space-based Wi-Fi business that now has an estimated 1.2 million subscribers.

Comparables to Starlink are hard to find. There’s HughesNet, which is owned by EchoStar (SATS) and has 1.2 million Wi-Fi subscribers. The entire EchoStar business, which also includes satellite services sold to news organizations and the government, is valued at $1.3 billion, and the stock trades for about 23 times estimated 2023 earnings. HughesNet isn’t growing, though—a big difference from SpaceX, which wouldn’t be worth $140 billion if Starlink subscribers were hitting a peak.

Verizon Communications (VZ) might be a better comparison. The company, which has 143 million subscribers, is valued at $335 billion including debt and equity, or roughly $2,300 a subscriber. By that math, Starlink needs to get to 50 million or 60 million subscribers to justify the total SpaceX valuation. Even that is an imperfect comparison, however, because it doesn’t consider the cost of building out the Starlink network, how profitable Starlink could become, or if the company will be able to substantially lower the cost of providing high-speed internet.

Despite the uncertainty, Starlink is the business that investors are most likely to be able to purchase sooner rather than later. SpaceX is planning to build a constellation of roughly 30,000 satellites to offer its Wi-Fi service, which could take up to $10 billion just to build based on estimates of current pricing, and a capital raise seems likely. SpaceX hasn’t responded to multiple requests for comment. An IPO, even at a valuation of $70 billion—assuming Starlink is worth half of SpaceX’s total value—would help Starlink raise that money without having to go to another round of private funding.

It would also allow Musk, who owns an estimated 42% of SpaceX, to free up some $30 billion and give him another company’s shares to sell when it’s time to pay taxes or buy a social-media platform. For Tesla shareholders, that would be a successful IPO, no matter the valuation

Barrons : China Is in the AI Game. How Tech Giants Will Have to Play by Beijing’

China Is in the AI Game. How Tech Giants Will Have to Play by Beijing’s Rules.

What will artificial intelligence with Chinese characteristics look like? The past month or so has given us a better idea.

E-commerce giant Alibaba Group Holding (ticker: BABA) and facial-recognition pioneer SenseTime Group (0020.Hong Kong) joined search champion Baidu (BIDU) in releasing generative AI products, albeit in limited distribution. The Beijing government laid out draft regulations giving AI developers a green light, so long as their training data sets are “truthful, accurate, and objective”—quite a conundrum for the industry to bear in mind.

Investors aren’t looking for a Chinese equivalent to OpenAI, the proto-garage company that upended the U.S. tech establishment by unveiling ChatGPT half a year ago. In China, the establishment wins.

Retail investors have gone wild for domestically listed stocks with a whiff of AI, such as Cambricon Technologies (688256.China), whose shares have more than tripled this year.

The pros from abroad are staying away. “The current leading companies are the ones who can afford to be successful in AI,” says Sharukh Malik, a portfolio manager for Asian equities at Guinness Asset Management.

Markets were underwhelmed by Baidu’s Ernie bot. The company’s shares have slumped 6% since its March 6 release. Baidu nevertheless retains some first-mover advantage, says Charlie Chai, vice head of research at 86 Research in Shanghai. “Baidu has been investing in AI for the past decade, with hundreds of Ph.Ds,” he says.

Its in-house Kunlun semiconductors are also the best among China’s internet elite, which could be important as the U.S. squeezes chip exports to China.

The competition looks stiff, however. Tencent Holdings (700.Hong Kong), which dominates Chinese social media and online gaming, and TikTok parent ByteDance, are expected in the artificial intelligence ring soon, leveraging their enormous data troves and customer bases.

“All the first-tier players could end up as winners in their own focus area,” says Vivian Lin Thurston, an emerging markets portfolio manager at William Blair.

They’ll have to deal with the government first. Beijing’s AI push is a sort of ad hoc rehabilitation for China’s Big Tech, which was in the regulatory doghouse for the past two years. But the industry will have to leap forward Beijing’s way.

“The U.S. model is to learn from all the data sets, so the system can argue one way or another,” says Dylan Patel, chief analyst at SemiAnalysis.

That won’t be the Chinese model. The new regs make technology companies potentially liable if their bots produce answers that officials consider wrong, Chai says. “This will slow down releases as companies very carefully test their products,” he adds. No kidding.

Would-be Chinese AI champions need to keep an eye on Washington, too.

“The semis challenge is very real,” say AB Bernstein analysts, led by Robin Zhu. Advanced AI systems largely depend on microchips from a single U.S. designer, Nvidia (NVDA). Washington banned sales of that company’s A100 chip to China last year. Nvidia substituted the A800, which is one-third slower.

All these obstacles will slow, but not stop, Chinese companies’ march into AI. Patel estimates they are two years, at most, off OpenAI’s pace. “Baidu’s product is not as good as ChatGPT, but it’s pretty good,” he says.

Two years is too long, in tech time, to place bets on any horse race between the Chinese giants, Guinness’ Malik says. “I would give it a year to see who’s the most competent,” he says.

But the training laps will be worth watching. b