WSJ : Cotton-Price Decline Could Cushion Apparel Margins

Cotton-Price Decline Could Cushion Apparel Margins
Unwinding of a surge in cotton prices is welcomed as outlook for clothing demand seems uncertain

Rising cotton and freight costs didn’t unravel the apparel industry on the way up. The reversal of those costs could help pad their margins on the way down next year.

Cotton prices, which surged through 2021 and reached an 11-year high in May of this year, have been on a steady decline and are now 47% below that peak. Unfavorable weather—severe flooding in Pakistan and drought in the U.S.—badly hit cotton-harvest forecasts this year, helping push cotton prices up initially. But a worsening consumption outlook has pulled prices back down. In the nine months through September, China’s cotton yarn imports, which the U.S. Agriculture Department views as a bellwether for global cotton-consumption growth, have fallen by nearly half from the same period a year earlier. Meanwhile, ocean shipping rates from East Asia to the U.S. West Coast were down 87% in the week ended Nov. 27 compared with a year earlier, according to data compiled by Goldman Sachs.

Apparel companies managed costs well on the way up, partly because supply-chain snags last year—worsened by factory shutdowns in Vietnam—meant lower inventory across the board. That, and a healthy consumer with an appetite for dressier clothes, made it easy for clothing brands to raise their prices, more than offsetting higher cotton and freight costs. But they face a lot of uncertainty next year as inflation continues to shift consumers’ spending priorities away from discretionary purchases.

Clothing brands are counting on those easing costs to help pad margins starting next year. Cotton comprises roughly 10% to 20% of the cost of goods sold for Levi Strauss, North Face-owner VF Corp. and Michael Kors-parent Capri Holdings, according to a research note from equity analyst Omar Saad at Evercore. Gap, American Eagle Outfitters, Abercrombie & Fitch, Ralph Lauren, Children’s Place and Hanesbrands all called out a decline in cotton prices in their most recent earnings calls. Both Gap and Abercrombie & Fitch said they would begin to see benefits of lower cotton prices starting in the second half of next year, lagging behind the movement of cotton prices somewhat because companies tend to make cotton purchases in advance.

Sharply declining cotton prices following the early 2011 price surge helped clothing makers recover margins. Gross margins at American Eagle Outfitters and Gap declined 3.4 percentage points and 3.8 percentage points, respectively, in 2011. When cotton prices came back down to earth in 2012, Gap recovered most of its margins while American Eagle Outfitters regained the decline and then some.

The margin-cushion assumption could still come undone next year. China, which is both a key manufacturer of clothes and a consumer of them, looks to be easing its lockdown policy. That could move cotton prices up again, according to Jack Scoville, market analyst at Price Futures Group. Secondly, if consumer demand fades next year, apparel companies could be tempted to discount heavily, giving up their price gains. Clothing prices are already on their way down: Apparel inflation in October moderated to 4.1% from a year earlier, down from a peak of 6.8% in March, according to the U.S. Bureau of Labor Statistics.

Input costs are moving in the right direction today, but that is no guarantee of a soft landing for all apparel sellers.

WSJ : China Braces for Deadly Covid Wave After Loosening Controls

China Braces for Deadly Covid Wave After Loosening Controls
Country didn’t prepare sufficiently to live with virus, experts say, citing strained hospitals, poor vaccination rates

China’s easing of its zero-tolerance Covid-19 restrictions is likely to open the door to a wave of infections that could cause chaos and upwards of a million deaths, public health experts said, with some warning of ramifications beyond the country’s borders.

China’s National Health Commission on Wednesday said it was dropping many of its quarantine and testing requirements, in addition to limiting the use of lockdowns—an acceleration of plans to dismantle the zero-Covid controls amid social unrest and escalating concerns over the health of the country’s economy.

The promise of regained freedom sparked celebration among some Chinese, but health researchers cautioned that the consequences for public health could be dire as the country tries to shift resources that had gone toward mass testing and quarantines toward treatment of severe cases.

“It will put unprecedented strain on the Chinese health system,” said Xi Chen, a public health scientist at the Yale School of Public Health, adding: “It is expected that at least in the next couple of months, things will get chaotic and painful.”

Despite subjecting itself to some of the world’s strictest Covid controls for three years to buy itself time, China didn’t prepare sufficiently to live with the virus, public health experts said, citing an undervaccinated elderly population and not enough intensive-care units to handle serious cases.

On Thursday, China’s National Health Commission reported around 21,000 new infections—a drop from the country’s all-time high of around 38,000 in late November that likely reflects reduced testing amid the easing of Covid-control measures.

Both online and bricks-and-mortar pharmacies in major cities were quickly running low on supplies of cold and pain medication, as well as rapid antigen test kits, as people anticipated getting infected.

While experts agree that the real case count will inevitably rise, there is no telling how big a wave China will be facing as it continues to relax Covid restrictions.

About 60% of the Chinese population might be infected when the first wave of large-scale infections reaches its peak, before the infection rate gradually plateaus, said Feng Zijian, former deputy director of the Chinese Center for Disease Control and Prevention, at a forum Monday, citing computer-modeling forecasts, according to an article by the state-run newspaper China Youth Daily.

Eventually between 80% and 90% of China’s population of 1.4 billion will be infected, Mr. Feng, a member of the central government’s advisory panel for Covid control, was quoted as saying.

To public-health officials and experts trying to forecast what the loosening of restrictions means, the example of Hong Kong looms as a cautionary tale. An Omicron outbreak in the former British colony at the start of the year caused nearly 6,000 deaths, with a Covid-19 death rate of 37.7 per million population in the first three months of 2022, among the highest anywhere.

The vaccination rate among the elderly in Hong Kong at the time was worse than in mainland China, where currently more than 20% of people over 80 are completely unvaccinated and only 40% have had the three shots deemed necessary for robust protection.

But Hong Kong’s hospitals were better equipped to handle serious cases. The mainland had 3.6 critical-care beds per 100,000 people compared with 7.1 in Hong Kong in 2020, according to a study published in the journal Critical Care Medicine.

Using Hong Kong as a proxy, London-based health analytics firm Airfinity estimated in late November that a lifting of zero-Covid measures in China could lead to anywhere between 1.3 million and 2.1 million deaths.

Overwhelmed hospitals and unacceptably high numbers of deaths in the coming weeks could cause further distrust and anger in the population, which in turn could spur local governments to hide or underreport Covid deaths, said Donald Low, a public policy expert with the Hong Kong University of Science and Technology.

Researchers disagreed over the threat posed to the rest of the world by a large wave of new infections in China. Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, said a surge in cases could have significant ramifications beyond China’s borders by giving the virus new opportunities to mutate.

“It could tip the balance globally with large numbers of cases and new variants,” said Dr. Osterholm. “If we’ve learned nothing else about Covid, we know these new variants are 210-mile an hour curveballs that keep coming at us.”

Others say the virus has little incentive to evolve to evade immunity because most of the population hasn’t been exposed to the most recent variant of the virus.

The National Health Commission asked local health officials across the country to form a first line of defense against the disease, speed up the expansion of intensive-care capacity and closely monitor the health conditions of vulnerable groups, including pregnant women and the elderly, according to guidelines it released to medical workers late Wednesday.

The commission gave local health officials until Dec. 20 to equip hospitals to handle a wave of patients.

Moving forward, China needs to try to establish a medical triage protocol, so that advanced medical resources are available for high-risk patients, said Yale University’s Mr. Chen.

On Thursday, Zhang Wenhong, one of China’s top infectious disease experts, told Chinese state media that 99.5% of all positive cases didn’t have to seek treatment in hospitals and should consult a medical professional in their residential compound, via phone or video instead. The story garnered 520 million views on Weibo within six hours.

Given a lack of natural immunity and low vaccination rates among the elderly, health officials last week refreshed the push for vaccinations—especially among the older population—and shortened the minimum interval between initial shots and boosters to three months from six for the elderly.

A hospital designated for Covid treatment in Hangzhou said it has stocked up three months of reserves of medicine to treat severe cases. “Medical workers have rich experience following three years of experience of battling Covid,” said Huang Jinsong, deputy Commuminist Party chief of the Xixi Hospital of Hangzhou. “We have confidence and must succeed in coping with [the wave].”

Some experts said the worst scenarios may not come to pass, as some pandemic control measures will stay in place. Even if China completely abandons its zero-Covid policy, many people who are accustomed to daily prevention measures, such as wearing masks, will continue to do so, potentially reducing the infections, said Yi Fuxian, a scientist at the University of Wisconsin-Madison.

Despite the reassurances from officials, many Chinese still have mixed feelings. Hongshen Zhu, who studies China’s Covid-19 policies at the University of Pennsylvania, said China’s Covid controls had largely benefited places that were less connected with the outside world and well-equipped.

“Reopening is the reverse: the outbreak risk will spread from large cities to other places, and the worst hit places will be those that have fewer medical resources and are less affluent,” he said.

Mr. Zhu said his 71-year-old grandmother, who lives in a county-level city in the central Chinese province of Anhui and had only undergone two PCR-tests in the past three years, still believed the virus to be deadly and was opposed to the recent relaxations.

But no matter whether one opposes or supports a loosening of controls, they will need to deal with the “hard cold reality” of China opening up, he said.

CrunchBase : Defense Tech Startup Anduril Raises Massive $1.5B Round At $8.5B Va

Defense Tech Startup Anduril Raises Massive $1.5B Round At $8.5B Valuation

In a year where venture funding has slowed, defense and security firm Anduril helped close it with a big bang — and raise.

The Costa Mesa, California-based startup locked up a Series E worth nearly $1.5 billion that values the company at $8.5 billion. That nearly doubles the company’s previous valuation in June 2021.

The funding round was led by Valor Equity Partners, with participation from Founders Fund, Andreessen Horowitz, General Catalyst, 8VC , Lux Capital, Thrive Capital, DFJ Growth, Elad Gil, Lachy Groom, Human Capital, Marlinspike, WCM Investment Management, MVP Ventures, Lightspeed Venture and US Innovative Technology Fund.

The funding round was rumored late this spring.

Big round
The round is one of the largest this year by a U.S. company. In April, Tencent-backed Epic Games raised $2 billion from Sony and Kirkbi. Then in June, Elon Musk’s space company, SpaceX, raised nearly $1.7 billion in June.

Anduril was founded in 2017 by Palmer Luckey, most famous for selling virtual reality company Oculus to Meta — then called Facebook — for $2 billion.

His newest venture promises to be even bigger.

Anduril builds software and hardware enhanced with artificial intelligence and machine learning for their military and defense industry. It works with the U.S. and its allies to create drones, underwater vehicles and different operating and control systems.

“Anduril is a technology partner, not an equipment provider,” said co-founder and CEO Brian Schimpf in a blog post. “Security threats are evolving faster than the DOD can keep pace. In order to really outmaneuver emerging threats we need to move past just efficiencies and create clear step changes in capability, quickly.”

Doing something different
Luckey has said he started Anduril because many big tech firms were turning their backs on doing business with the U.S. Department of Defense, hurting the U.S. military’s ability to modernize as U.S. defense needs change.

However, the military and defense sectors can be hard to navigate for startups. Just getting started in the sectors can be extremely difficult and long sales cycles can crush a startup’s cash flow.

“Anduril has proven that our model — recruiting talented engineers, building quickly and efficiently using venture dollars, and selling next-generation technology off the shelf to the government — works,” Schimpf said. “And that with the right technology and incentives the government can be a nimble customer.”

The company certainly has seen significant growth. Just earlier this year, the company closed a 10-year, $967 million contract with the U.S. Special Operations Command. In the last 12 months the company has grown its employee count from 700 at the start of 2022 to more than 1,100 employees.

All of that is not to say the company has not had its critics. It has been criticized for possibly enabling the enforcement of border security policies and government surveillance.

Anduril plans to use the new cash infusion to accelerate its research and development and bring new products to market.

The company has now raised more than $2 billion, per Crunchbase data.

Challenges : Le coup de gueule de l'industrie de défense contre les banques

Le coup de gueule de l'industrie de défense contre les banques

EXCLUSIF - Dans une lettre adressée à Sébastien Lecornu, le patron du Conseil des industries de défense françaises (Cidef) et PDG de Dassault Aviation Eric Trappier alerte sur "les difficultés croissantes" de l’industrie de l’armement à se financer. Et donne des noms de banques qui ne jouent pas le jeu.

Le torchon brûle entre la finance et l’industrie de défense. Dans une lettre adressée au ministre des Armées Sébastien Lecornu datée du 22 novembre, dont Challenges a obtenu copie, le président du Cidef (Conseil des industries de défense françaises) Eric Trappier, également PDG de Dassault Aviation, alerte sur les "difficultés croissantes" de l’industrie de l’armement "dans sa relation avec les banques et les fonds d’investissement". Ces difficultés, explique Eric Trappier, sont liées à l’"application par le secteur financier des règles spécifiques" liées à la politique de l’UE pour "orienter les investissements vers des activités qualifiées de durables". En clair, à la fameuse taxonomie européenne.

Quel est le problème? "De manière systématique, écrit Eric Trappier, ces travaux rassemblent sous le même vocable "d'industrie de défense" la production d'équipements autorisés par les Etats et les organisations internationales et ceux dont la production est interdite (mines anti-personnel, bombes à sous-munition, armes chimiques, armes biologiques)". Cette approche conduit, selon Eric Trappier, à la "stigmatisation" de l’industrie de défense, "et donc aux difficultés dans la relation avec les banques et les fonds qui tendent de plus en plus à exclure les industriels du secteur de leur portefeuille."

Selon une étude Barclays basée sur les données de Morningstar, 20% des fonds actions qui promeuvent les critères environnementaux et sociaux (dits "article 8", en jargon financier) excluent les entreprises impliquées dans des contrats militaires, souligne le patron du Cidef. Le chiffre passe à 40% pour les fonds qui ont pour objectif l’investissement durable ("article 9"). Pire, souligne le PDG de Dassault Aviation, "la production d'équipements au service de la dissuasion nucléaire représente une circonstance aggravante pour beaucoup de banques et fonds".

Bpifrance et la Caisse des dépôts montrés du doigt
Cette mise à l’index apparaît inacceptable au Cidef, "au moment où l'actualité internationale remet de façon durable les questions de défense au cœur des politiques des Etats européens, et que l'Union européenne engage des sommes importantes pour aider l'industrie de défense à répondre aux besoins des armées européennes". Le patron du Cidef, citant un document de l’ASD (Aerospace and Defense Industries Association of Europe), le lobby européen de l’armement, donne même des noms d’organismes qui pratiquent, dans certains de leurs produits, des "exclusions systématiques" des investissements dans la défense. Sont ainsi pointés du doigt en France la Caisse des dépôts, Bpifrance, la Banque Postale AM, et le régime de Retraite additionnelle de la fonction publique (RAFP).

En Allemagne, le document cite certaines banques des Länder (Landesbanken) et caisses d’épargne (Sparkassen) locales, notamment en Bavière (Bayern Invest), au Bade-Wurtemberg (LBBW), dans les Länder de Hesse et Thuringe (Helaba), dans la région de Hambourg (Warburg Invest), et de Francfort (Deka AM). La liste intègre également la caisse des dépôts italienne (Cassa Depositi e Prestiti), les fonds néerlandais APG AM, Pensione, fonds Tail, et ABN Amro IS, de même que les norvégiens Norges Bank IM et KLP et le suédois AP-Fonden.

Comment améliorer la situation? La lettre du Cidef à Sébastien Lecornu suggère un plan d’action, élaboré au sein de l’ASD. Ce plan appelle notamment les Etats à prendre leurs responsabilités sur les organismes publics ou semi-publics qui ne jouent pas le jeu du soutien à la défense. "En tant qu'actionnaires et propriétaires, les États membres pourraient exiger de ces investisseurs qu'ils suppriment les exclusions systématiques de la défense là où elles existent, et/ou les inciter à accroître leurs investissements dans les entreprises européennes de défense", détaille le plan d’action de l’ASD.

Réformer la BEI
Le document préconise également la publication d’un "document stratégique de référence de haut niveau" qui "pourrait prendre la forme d'une communication conjointe de la Commission et du Haut Représentant (de l’UE pour les affaires étrangères et la politique de sécurité, NDLR) et devrait être préparé en étroite coopération avec les États membres et l'industrie". Ce document clarifierait le fait que, pour se conformer à la législation européenne sur la finance durable, les investisseurs devraient limiter leurs exclusions aux entreprises impliquées dans les quatre catégories d'armes citées plus haut (mines anti-personnel, bombes à sous munition, armes chimiques, armes biologiques).

Le plan d’action de l’ASD, relayé par le Cidef, appelle aussi à la modification des critères de l’écolabel, un label écologique européen pour les produits financiers de détail. SI le projet paraît pour l’instant suspendu, la dernière version du projet de la Commission européenne exigeait l'exclusion des entreprises réalisant plus de 5 % du chiffre d'affaires dans la défense. Enfin, l’industrie de défense réclame une refonte des critères d’investissement de la Banque européenne d’investissement (BEI). "À l'heure actuelle, la BEI n'est autorisée à soutenir que des projets à double usage (civil et militaire, NDLR). L'ASD appelle donc à nouveau les États membres à modifier la politique de prêt de la BEI et à éliminer l'exclusion incongrue existante de la défense."

Le double discours de l’Europe sur la défense est dénoncé depuis des mois par l’industrie militaire. Dans une tribune publiée fin septembre, le patron de Thales Patrice Caine pointait la schizophrénie de l’UE sur le sujet: "D’un côté, sous la pression des tensions géopolitiques grandissantes et notamment de la guerre en Ukraine, l’Europe entreprend de renforcer ses capacités de défense et de souveraineté, écrivait-il. De l’autre, elle tend à fragiliser ses entreprises dans ce secteur en ne les intégrant pas spontanément dans le périmètre de la finance durable."

Choix "simpliste"
Certes, expliquait le PDG de Thales, la défense n’est pas formellement exclue des critères ESG. Mais le résultat est le même. "Les acteurs financiers doivent décider eux-mêmes de l’intégration ou non des entreprises de défense dans leurs portefeuilles labellisés "verts" ou "responsables". Pour ce faire, ils en sont réduits à étudier les signaux faibles envoyés par l’Europe. Or, depuis plusieurs années, tout porte à croire que, tôt ou tard, l’UE finira par conclure à une incompatibilité entre industrie de défense et finance durable (…) Forts de ces constats, bon nombre de financiers ont "logiquement" conclu que le choix le plus simple – certains diront simpliste – et le moins risqué était d’exclure la défense des fonds durables."

Les conséquences de cette exclusion sont multiples. "Ces menaces sur le financement pèsent sur les efforts de transition écologique entamés par le secteur et compromettent les objectifs d’indépendance technologique et industrielle fixés par la Boussole stratégique européenne", indiquaient Amélie Férey et Laure De Roucy-Rochegonde, chercheuses au Centre des études de sécurité du think-tank IFRI, dans une note intitulée “Don’t Bank on the Bombs”. L’industrie de défense face aux nouvelles normes européennes", publiée le 22 septembre.

En février 2021, la mission flash des députés Françoise Ballet-Blu et Jean-Louis Thiériot sur le financement de l’industrie de défense faisait état de refus d’ouverture de comptes bancaires pour des start-up et des PME du secteur défense, y compris pour des produits tels que des gilets pare-balles. Dans sa tribune, Patrice Caine soulignait que l’exclusion des industriels de défense des critères ESG pèse sur les valorisations des sociétés européennes, sur leur attractivité RH, et "restreint progressivement leur accès aux marchés de capitaux et en détourne les investisseurs européens au profit d’investisseurs étrangers". L’actionnariat flottant du groupe Thales a ainsi vu la part des investisseurs issus d’Europe continentale (hors France) chuter de 20% à 8% entre 2017 et 2021.

>>> US Research Calls

Research Calls

  • Upgrades:
    • Apartment Income REIT Corp. (AIRC) upgraded to Buy from Sell at Goldman; tgt raised to $43
    • American Homes 4 Rent (AMH) upgraded to Buy from Neutral at Goldman; tgt raised to $39
    • DTE Energy (DTE) upgraded to Outperform from Peer Perform at Wolfe Research; tgt $125
    • Hershey Foods (HSY) upgraded to Buy from Neutral at UBS; tgt raised to $269
    • Mid-America Aptmt (MAA) upgraded to Buy from Neutral at Goldman; tgt raised to $194
  • Downgrades:
    • AppLovin (APP) downgraded to Neutral from Buy at BTIG Research
    • AvalonBay (AVB) downgraded to Neutral from Buy at Goldman; tgt lowered to $187
    • Anglo American (NGLOY) downgraded to Underweight from Equal-Weight at Morgan Stanley
    • Assicurazioni Generali (ARZGF) downgraded to Underweight from Neutral at JP Morgan
    • BMW Group (BMWYY) downgraded to Underperform from Neutral at BofA Securities
    • Casey's General (CASY) downgraded to Neutral from Buy at Northcoast
    • Fulgent Genetics (FLGT) downgraded to Neutral from Overweight at Piper Sandler; tgt lowered to $40
    • Invitation Homes (INVH) downgraded to Neutral from Buy at Goldman; tgt lowered to $35
    • KVH Industries (KVHI) downgraded to Mkt Perform from Strong Buy at Raymond James
    • Mercer Intl (MERC) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt lowered to $14
    • Mirati Therapeutics (MRTX) downgraded to Market Perform from Outperform at BMO Capital Markets; tgt lowered to $59
    • Mirati Therapeutics (MRTX) downgraded to Neutral from Overweight at JP Morgan; tgt lowered to $65
    • Mondelez Int'l (MDLZ) downgraded to Neutral from Buy at UBS; tgt raised to $71
    • Ollie's Bargain Outlet (OLLI) downgraded to Accumulate from Buy at Gordon Haskett; tgt $53
    • Salesforce (CRM) downgraded to Neutral from Outperform at Robert W. Baird; tgt lowered to $150
  • Others:
    • Altice USA (ATUS) resumed with an Underperform at BofA Securities; tgt $3.50
    • Bank of America (BAC) initiated with a Neutral at Piper Sandler; tgt $36
    • Boeing (BA) assumed with a Buy at Citigroup; tgt raised to $222
    • Ballard Power (BLDP) initiated with a Market Perform at BMO Capital Markets; tgt $5.50
    • Bilibili (BILI) initiated with a Buy at UBS
    • Bumble Inc. (BMBL) initiated with a Neutral at UBS; tgt $24
    • Citigroup (C) initiated with a Neutral at Piper Sandler; tgt $48
    • DigitalOcean (DOCN) initiated with a Buy at Needham; tgt $36
    • Full House Resorts (FLL) initiated with a Mkt Outperform at JMP Securities; tgt $13
    • General Dynamics (GD) initiated with a Buy at Citigroup; tgt $298
    • Gracell Biotechnologies (GRCL) initiated with a Buy at H.C. Wainwright; tgt $6
    • JPMorgan Chase (JPM) initiated with an Overweight at Piper Sandler; tgt $150
    • L3Harris (LHX) initiated with a Neutral at Citigroup; tgt $250
    • Leidos (LDOS) initiated with a Buy at Citigroup; tgt $130
    • Lockheed Martin (LMT) initiated with a Buy at Citigroup; tgt $546
    • Northrop Grumman (NOC) initiated with a Neutral at Citigroup; tgt $544

TechCrunch : Binance’s bitcoin reserves are fully collateralized according to a

Binance’s bitcoin reserves are fully collateralized according to auditing firm Mazars

Auditing firm Mazars has released a report about Binance’s BTC reserves. The auditing firm has reached the same conclusion as Binance itself. As of November 22 at 23:59 UTC, Binance held enough bitcoins and wrapped bitcoins to cover all users’s balances on the exchange.

Binance had already launched a proof-of-reserves website nearly two weeks ago to reassure its users following the collapse of FTX. Today’s audit just confirms that Binance doesn’t appear to be lying, according to Mazars.

As always, there are some limitations with these proof-of-reserves exercises. The biggest caveat is that Binance is only focusing on BTC assets for now. If you hold other cryptocurrencies, there is no proof-of-reserves system just yet.

While bitcoin is still the most popular cryptocurrency, Binance offers hundreds of different crypto assets. So let’s hope this is just a first step.

Similarly, both Binance and Mazars looked at the BTC reserves on November 22 at 23:59 UTC. While it’s hard to provide an instant snapshot, Binance hasn’t committed to a timeline for its proof-of-reserves reports. For instance, the crypto exchange could share data every week or every month.

Now that you are aware of all that, let’s talk about what’s in Binance’s proof-of-reserves system and the Mazars auditing report. Binance uses a Merkle tree to include all individual user accounts and generate a cryptographic seal. This Merkle tree covers user balances across several Binance products — Spot, Funding, Margin, Futures, Earn and Options Wallet.

Binance also listed all the wallets that hold customer assets. Blockchain explorers let you obtain the balance of crypto wallets just by looking at the public addresses of those wallets.

Binance found that its users collectively held 575,742.4228 BTC ($9.7 billion at today’s exchange rate) and that it has enough BTC and wrapped BTC to cover 101% of these funds. It then contacted Mazars so the auditing firm could independently verify what the crypto exchange was saying.

Mazars asked Binance to perform tiny transactions at a specific time to show that the wallets were indeed under the control of Binance. For some wallets, it used a different method. In that case, Mazars used Etherscan and BSCscan to check that the ETH and BSC wallets belong to Binance.

The auditing firm checked the scripts that Binance is using to extract the total value in user accounts. Mazars checked that there wasn’t any duplication of user IDs and constructed its own Merkle tree using this open source script developed by SilverSixpence.

Some users have a negative BTC balance because they have been using the margin and loan service with other crypto assets as collateral. “Binance’s margin and loan products are always over-collateralized and subject to additional risk controls (such as auto liquidation). These products ONLY utilize funds from customers actively using Binance Earn products such as savings whose terms permit this,” Binance said as a comment in the auditing report.

If you take everything into account, Mazars and Binance reach the same conclusion when it comes to BTC reserves. This is a good step when it comes to transparency. Now, let’s hope there will be more announcements in the coming weeks.

FT : Trafigura’s shareholders and top traders to split $1.7bn in payouts

Trafigura’s shareholders and top traders to split $1.7bn in payouts
Commodities group reaps record net profit on the back of energy crisis despite distancing its business from Russia

Trafigura is handing more than $1.7bn to its top traders and shareholders after its net profit more than doubled from already record levels last year, fuelled by the energy crisis stoked by Russia’s invasion of Ukraine.

The Swiss-based commodities trading company, which is owned by 1,100 shareholders mainly made up of executives and traders at the privately held firm, reported that net profit soared to $7bn in the year ended September 30.

The $1.7bn payout illustrates how trading houses have been among the biggest beneficiaries of an energy crisis that has roiled the world economy and stoked a cost of living crisis in many countries.

Trafigura has long been highly profitable but its earnings have ballooned over the past three years, as energy market volatility has soared. In 2019, the last year before oil and gas markets were hit by the coronavirus pandemic and the following energy crisis, it posted net profit of less than $900mn.

One of the world’s most powerful trading houses, Trafigura moves raw materials around the globe, with assets ranging from mines and ports to energy infrastructure across 150 countries.

Chief executive Jeremy Weir said 2022 had been marked by “unprecedented market volatility” and “big structural shifts” because of the war in Ukraine and Europe’s energy crisis, in which natural gas prices have soared after Russia cut supplies.

The coming year “is likely to be at least as challenging as 2022, with further market turbulence as the war in Ukraine continues and central banks lift interest rates to try and quell inflation”, he said in the annual report.

The group traded lower volumes of oil and petroleum products, but with a higher overall margin of 3.8 per cent compared with 3 per cent the previous year, as it pulled back from business with Russia because of international pressure and sanctions.

Before the war Trafigura was one of the biggest traders of crude and refined products from Rosneft, the state-backed Russian oil champion, a relationship it had spent many years cultivating.

But after the invasion it moved to distance itself rapidly from the company and from Russia more widely, including selling off its stake in a Rosneft-backed Arctic oil project known as Vostok which it had acquired a little over 18 months earlier. The sale was made to an obscure Hong Kong trading company called Nord Axis, which had only been incorporated the week before Russia launched a full-scale invasion of Ukraine.

Trafigura said in its annual report that “no loss was recorded at the exit from the investment structure”.

Weir said that in the past year the company’s traders had performed “exceptionally well, adapting quickly to changing trade flows and identifying supply bottlenecks”. He highlighted that crude oil, diesel and liquefied natural gas trading were among the very strong areas of performance.

FT : Jack Ma quits as head of leading China business group

Jack Ma quits as head of leading China business group
Alibaba founder continues to slide out of public view after offending Beijing

Alibaba co-founder Jack Ma has stepped down as president of an important business group in his home province, as the Chinese billionaire continues to shun the limelight while spending time abroad.

Before running afoul of Chinese president Xi Jinping’s crackdown on tech companies, Ma often gave lively speeches at the annual year-end bash of the General Association of Zhejiang Entrepreneurs, which he helped found in 2015.

The association is China’s most prominent networking group for founders, helping Zhejiang’s legions of entrepreneurs connect with each other throughout the country and around the world. The eastern province is known as China’s hotbed of capitalism.

But on Wednesday the Zhejiang group said it had transitioned Ma to a new role as “adviser”, replacing him with Nan Cunhui, chair of Chint Group, an energy solutions provider.

Ma has recently been living in Tokyo as he rides out stricter Covid-19 control measures at home and Beijing’s tougher stance on tech groups. He did not attend the Zhejiang event this year, two people involved with the group said.

The Chinese billionaire has mostly disappeared from public view since giving an ill-timed speech in Shanghai two years ago, criticising the country’s state-owned banks and lobbying for regulators to show a lighter touch on overseeing new financial players like his own Ant Group.

The speech led Xi to cancel Ant’s blockbuster $37bn initial public offering and demand a complete overhaul of the fintech group, which remains in process. It also triggered the crackdown on China’s tech giants and influential businessmen such as Ma.

The moves extended to Ma’s elite business school Hupan University, which has been forced to largely curtail its activities.

The two people close to the Zhejiang business group said the association had been weighing replacing Ma ever since Ant’s troubles began, but had decided to wait until the furore around him settled down. One of the people said the local government had increased its control and oversight of the business group, to the point that it was now just an “arm of the government”. 

The irreverent tone of its annual meeting has also been tempered. “Even without Alibaba, a lot of the traditional retail industry would have collapsed — we just sped up your fall,” Ma told his fellow entrepreneurs at the group’s third annual meeting.

Another year, he told his peers his epitaph should read: “Hangzhou guy, loved Taichi, did a lot of things and set up an enterprise on the way.”

In contrast, the headline speaker for Wednesday’s affair was Qiu Qiwen, a top Communist party official in Zhejiang.

The group must “completely implement the spirit of General Secretary Xi Jinping’s important exposition on the development of the private economy,” he lectured attendees, according to a post on the Zhejiang Entrepreneur’s WeChat social media account. “You must strengthen your political understanding and lead the broad masses of Zhejiang entrepreneurs to follow the party.”

>>> US Gapping down

Gapping down
In reaction to earnings/guidance
:

  • KFY -6.4%, SPWH -6%, GEF -5.9%, GTE -4.8%, VRNT -2.4% (also authorizes new $200 mln share repurchase program)

Other news:

  • RLMD -37.5% (announces top-line results from Phase 3 RELIANCE I Trial for REL-1017)
  • DSGN -25.5% (reports data from trial of DT-216)
  • CUTR -13.4% (pricing of $100 mln aggregate principal amount of 4.00% convertible senior notes due 2029)
  • CHEF -6.9% ($250 mln convertible notes offering)
  • NEP -5.2% ($500 mln convertible notes offering)
  • UNIT -3% (RVMD to regain global rights to RMC-4630 following SNY's termination of collaboration)
  • SNY -2.6% (RVMD to regain global rights to RMC-4630 following SNY's termination of collaboration)
  • TIL -2.5% (announced a reprioritization of its clinical programs to focus on development of its CoStAR-TIL product candidates; Reducing U.S. headcount by approximately 60%)
  • CABA -2% (offering of 6,213,776 shares at a price of $5.52/share for aggregate proceeds of $35 mln)
  • BVS -1.8% (announces restructuring)

Analyst comments:

  • APP -0.9% (downgraded to Neutral from Buy at BTIG Research)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance
:

  • MOMO +12.4%, HCP +6.7%, GMS +5.4%, BZFD +4.8%, OXM +4.2%, NAPA +3.6% (also CFO to retire), KMI +0.5%

Other news:

  • RXDX +12.2% ($250 mln stock offering)
  • RAPT +4.8% (presents update from its phase 1/2 clinical trial for FLX475 as monotherapy and in combination with pembrolizumab in patients with advanced cancer)
  • CARG +4.4% (announces $250 mln repurchase program)
  • AKRO +4.3% (announces that efruxifermin has received a Breakthrough Therapy Designation from the FDA for the treatment of nonalcoholic steatohepatitis)
  • MT +3.2% (inaugurates flagship carbon capture and utilisation project at its steel plant in Ghent Belgium)
  • SFM +3.2% (announced that Alisa Gmelich has joined as Senior Vice President Chief Marketing Officer effective December 5)
  • PBYI +2.4% (Presents Updated Findings from the TBCRC-022 Trial at the 2022 San Antonio Breast Cancer Symposium)
  • HHC +1.6% (Pershing Square disclosed the purchase of ~657K shares)
  • XOM +1.5% (provides corporate plan update; expects to double earnings and cash flow potential by 2027)
  • PDCE +1.3% (declares special dividend of $0.65/sh)
  • GTHX +1.3% (reports Initial Results from Phase 2 Mechanism of Action Trial in Early-Stage Triple Negative Breast Cancer Show that a Single Dose of Trilaciclib Favorably Alters the Tumor Microenvironment)
  • CRTO +1.3% (announces the extension of its share repurchase authorization from $280-480 mln)
  • JWN +1.2% (names interim CFO)
  • CVX +1.2% (announces 2023 CapEx budgets)

Analyst comments:

  • AIRC +2.1% (upgraded to Buy from Sell at Goldman)
  • BA +0.7% (assumed with a Buy at Citigroup)