FT : SEC raised concerns over hedge fund Rokos after losing bond bets

SEC raised concerns over hedge fund Rokos after losing bond bets
US regulator contacted UK authorities after large collateral calls

The US Securities and Exchange Commission has raised concerns over Rokos Capital Management after the hedge fund was forced to hand over large amounts of cash to its banks as collateral when an outsized bet on US government bonds backfired earlier this month.

SEC chair Gary Gensler brought up the hedge fund during calls with UK regulators this week after it faced larger margin calls than peers, according to people familiar with the conversations.

The US regulator does not supervise London-based Rokos but is on high alert for tensions in financial markets after a spate of recent blow-ups in the banking sector. UK regulators agreed to keep an eye on the hedge fund, one of the people said.

The conversation points to regulatory fears that the rapid unwinding of concentrated hedge fund bets could exacerbate strains in the US government bond market, which forms the bedrock for asset prices around the world.

The episode stems back to the failure of Silicon Valley Bank earlier this month and concerns around the broader health of the US regional banking system. After SVB collapsed, investors snapped up Treasuries, as they bet that the US Federal Reserve would slow the pace of interest rate raises to shore up financial stability.

When bond prices climbed, many hedge funds were wrongfooted in the rally, but industry participants say Rokos was one of the biggest short-term losers. The fund, which manages about $15.5bn, was down by 12.5 per cent for the month, the Financial Times reported on March 17, when multiple counterparties requested that it put up more assets to meet margin calls, said two people familiar with the matter.

However, counterparties contacted by the FT said they were not concerned about Rokos’s ability to meet the margin calls.

Unlike many other macro hedge funds, which tend to be more diversified, the vast majority of Rokos’s leverage is in government bond markets.

Billionaire Chris Rokos, who co-founded hedge fund Brevan Howard before striking out on his own, hit the headlines in late 2021 when he was caught out by a huge sell-off in short-term government debt. He subsequently reduced the amount of market risk he was taking and made more than 50 per cent last year, before this month’s losses.

Rokos, the UK Financial Conduct Authority, the Bank of England and the SEC declined to comment.

Barron’s : How FreshDirect Is Benefiting From Lower Inflation

How FreshDirect Is Benefiting From Lower Inflation

The rising cost of food, the impact of Covid-19, and a price war in Belgium weighed on Dutch retailer Koninklijke Ahold Delhaize in 2022, dragging its stock down almost 8%.

But the grocer, which owns Stop & Shop, Hannaford, Food Lion, and online grocery-delivery operator FreshDirect in the U.S., is a strong defensive play because it is well-placed to combat a recession after posting an upbeat outlook. Its shares (ticker: AD. Netherlands) are up 14.4%, to 30.71 euros ($32.91), this year and could rise further.


While inflation is a key worry for European food companies, Ahold is in a better position than most because up to 63% of its sales—and 70% of its operating income—come from the U.S. (The grocer has American depositary shares that trade under the ticker ADRNY.)

The U.S. saw lower inflation than Europe in February. Profit margins at grocers are some of the thinnest in retail, so lower inflation will drive down costs.

“Cost inflation seems to have peaked at last in the U.S., which is the most important region,” Clément Genelot, an analyst at investment bank Bryan Garnier, wrote in a note. “Oil prices are flowing back, and the freight trucking index is falling.”

Analysts at Berenberg estimate that cost-saving could go some way toward offsetting increased expenses caused by inflation and other costs, but Ahold will still have to pass on some price hikes to customers.


The company has a cost-reduction target of €1 billion ($1.08 billion) for 2023, which seems achievable after it trimmed €979 million in 2022—€100 million more than forecast. Berenberg lead analyst Fulvio Cazzol wrote in a February note, “This suggests that management will need to implement average price increases of around 5% in 2023 to maintain comparable operating profit at the 2022 level. “We continue to believe that this will be achievable, owing to the company’s portfolio position (its geographic profile, store format, and competitive price points on everyday products).”

Genelot estimates that the stock could rise 13.52%, to €34, while ING has a €32.50 price target.

Ahold, which dates back to 1867, has a market value of €28.5 billion and employs more than 400,000 workers. It fetches a multiple of 11.5 times this year’s expected earnings and is valued in line with its peers.


The company posted net annual income of €2.5 billion for the year to Jan. 1, 2023, up from €2.2 billion for the same period in 2021. Net sales increased to €87 billion from €76 billion. Ahold has previously announced a €1 billion share-repurchase program for 2023.

CEO Frans Muller said in a statement this month that the company had made “substantial progress” in e-commerce and digitalization. He tells Barron’s that “we have a healthy outlook for 2023, with good momentum, and I am confident we will navigate whatever challenges and opportunities come our way.”

Ahold was a pioneer of ready-made meals in the Netherlands, and the scale and quality of its European private-label business adds value to its stock. A key advantage to having its own well-developed brand label is the flexibility to cut prices or make higher profit margins.

Cazzol wrote, “We think that the company can defend its market share through its smaller store formats and competitive pricing in its private label.”

Meanwhile, Ahold has put plans on hold for an initial public offering of its Bol.com e-commerce site, citing market conditions. Bol.com serves 13 million customers in the Netherlands and Belgium, says Ahold’s website. Much of the upside of a potential IPO had been priced into the stock, despite the pause.

>>> US Close Dow +0,41% S&P +0,56% Nasdaq +0,31% Russell +0,85%

Closing Stock Market Summary

The stock market closed out the week on an upbeat note, but things didn't start out that way today. Initially, investors were weighing concerns about the banking industry, again, after reports indicated that Deutsche Bank's (DB 9.35, -0.30, -3.1%) cost of default insurance jumped to a four-year high.

German Chancellor Scholz and European Central Bank President Lagarde both attempted to calm markets after the DB news, but stocks were still under pressure this morning despite their efforts. The S&P 500, which fell below its 200-day moving average (3,932) right after the open, was down 1.0% and hit 3,909 at its low for the day. The Nasdaq and Dow were down 1.0% and 0.9%, respectively, at their lows for the day. 

The tone in the market shifted markedly, however, around the time that European markets closed despite Germany's DAX (-1.7%), the U.K.'s FTSE 100 (-1.3%), and France's CAC 40 (-1.7%) all registering sharp declines. The tonal shift also coincided with panicky buying interest in the Treasury market subsiding.

The 2-yr note yield, which fell to 3.56% this morning, settled at 3.77%. The 10-yr note yield, which declined to 3.29% at its low, settled the session at 3.38%.

Many stocks moved higher with today's rally, which saw the S&P 500 close above its 200-day moving average (3,932). The Invesco S&P 500 Equal Weight ETF (RSP) was up 0.9% while the market-cap weighted S&P 500 had a gain of 0.6%. Even Deutsche Bank, which was down as much as 8.3%, pared its losses to close down 3.1%. 

Nine of the 11 S&P 500 sectors closed with a gain. Utilities (+3.1%), real estate (+2.6%), and consumer staples (+1.6%) led the pack while the consumer discretionary (-0.4%) and financial (-0.1%) sectors were alone in negative territory. 

  • Nasdaq Composite: +13.0% YTD
  • S&P 500: +3.4% YTD
  • S&P Midcap 400: -1.1% YTD
  • Russell 2000: -1.5% YTD
  • Dow Jones Industrial Average: -2.7% YTD

Reviewing today's economic data:

  • Durable goods orders fell 1.0% month-over-month in February (consensus 1.6%) following a downwardly revised 5.0% decrease (from 4.5%) in January. Excluding transportation, durable goods orders were unchanged month-over-month (consensus 0.3%) following a downwardly revised 0.4% increase (from 0.7%) in January.
    • The key takeaway from the report is that it could invite questions about the strength of the manufacturing sector since it showed an unexpected decrease in headline orders while the January decrease was revised even lower.
  • The IHS Markit Services PMI rose to 53.8 in the preliminary March reading versus the prior reading of 50.6. The IHS Markit Manufacturing PMI rose to 49.3 in the preliminary reading versus the prior reading of 47.3.

There is no notable U.S. economic data on Monday. 

WSJ : Crypto Faces Legal Reckoning as SEC Prepares Action Against Coinbase

Crypto Faces Legal Reckoning as SEC Prepares Action Against Coinbase
Potential lawsuit against largest U.S. crypto trading platform could upend investors’ access

WASHINGTON—The Securities and Exchange Commission and Coinbase COIN 1.69% Global Inc. appear headed for a legal showdown that stands to have outsize consequences for both sides.

The SEC notified Coinbase that it plans to sue the firm for allegedly violating a range of investor-protection laws, the firm said this week. An eventual SEC lawsuit against the largest U.S. crypto exchange could help determine the future shape of the business of exchanging dollars for digital tokens such as bitcoin, ether or polkadot.

It would also be the SEC’s most significant move yet to rein in an industry that Chair Gary Gensler has described as rife with noncompliance—and one that would leave the agency with a black eye should it fail in court.

Coinbase has taken an increasingly defiant stance, publicly criticizing the SEC and urging regulators to write new rules for crypto rather than enforce existing ones. Coming into SEC compliance, the firm says, would effectively mean shutting down its business.

“The implications for the crypto business are very significant,” said Neel Maitra, a partner at Wilson Sonsini Goodrich & Rosati who previously served at the SEC as a crypto specialist. “Much will depend on the precise form that the SEC’s potential action takes.”

Regulators have come under intensifying pressure to crack down on crypto since the collapse of FTX, whose founder, Sam Bankman-Fried, aggressively lobbied policy makers last year. Crypto-friendly lawmakers blasted the SEC for failing to spot the problems in FTX before it blew up—though some of them had also criticized the agency’s investigations earlier last year.

Since 2021, Mr. Gensler has warned platforms such as Coinbase that they were breaking the law by letting investors trade cryptocurrencies that should have been registered as securities, the legal category that includes stocks and bonds. He has demanded the firms comply with SEC rules by registering as securities exchanges and separating parts of their business that create potential conflicts of interest.

Now, the SEC is preparing to test Mr. Gensler’s view in court. While a lawsuit could still be many months away—or averted entirely—the formal process that began this week could potentially end in a court’s ordering Coinbase to shutter or restructure key parts of its business in the U.S.

SEC staff say they could seek remedies including injunctions, cease-and-desist orders and fines—penalties that could threaten the company’s ability to operate in its current form. If it registered as a securities exchange, as Mr. Gensler has demanded, Coinbase would be able to list only SEC-registered securities. Yet no major cryptocurrencies—nor any of the 242 assets currently listed on Coinbase—are currently registered with the agency.

Chief Legal Officer Paul Grewal said Wednesday that Coinbase representatives had met with the SEC more than 30 times over nine months and spent millions of dollars working on proposals to register parts of its business. That process appeared to end when the SEC canceled a meeting with Coinbase in January and shifted to enforcement, he said.

After disclosing the Wells notice on Wednesday, Coinbase executives expressed disappointment but said they had been preparing for litigation.

“We’re very, very confident that we’re going to be able to defend these claims, not just for Coinbase but for crypto as a whole,” Mr. Grewal said Thursday.

The firm has accused the SEC of stifling innovation and spent millions of dollars lobbying Congress in hopes of bypassing regulators through new legislation. It has also stepped up its political organizing, seeking to rally its users to write lawmakers and donate to pro-crypto candidates.

Fighting the SEC could be expensive at a time when Coinbase’s business is already under pressure from a downturn in crypto markets. Ripple Labs Inc., a crypto firm that is defending itself against an SEC lawsuit filed in late 2020, expects to rack up $200 million in legal bills before the case is decided, according to people familiar with the matter.

The first cryptocurrency, bitcoin, was designed to be a peer-to-peer payment system. But so-called centralized exchanges—platforms operated by firms such as Coinbase, Binance and the now-defunct FTX—have become the keystones of the crypto industry. By using a combination of bank accounts and blockchain addresses, they serve as the main access points for individual investors to trade dollars for cryptocurrencies, or vice versa. That is why Mr. Gensler shifted the SEC’s enforcement focus to such intermediaries shortly after taking the helm.

“This is the largest target that the SEC could go after,” said Kristin Smith, head of the Blockchain Association, a trade group of which Coinbase isn’t a member. “Your average American who buys or sells cryptocurrencies, they tend to do that through Coinbase.”

To date, the SEC’s enforcement actions in crypto have been more incremental. It has brought dozens of cases against individual token issuers for offering unregistered securities. In the past year or so, it has sued or settled with several crypto lenders, and in February the SEC settled with Coinbase rival Kraken over the firm’s so-called staking product.

The SEC notice comes as disparate parts of the federal government—from the White House to the Federal Reserve—have signaled growing skepticism of crypto as an asset class following the sudden collapse of FTX in November.

On Tuesday, President Biden’s annual economic report to Congress included a 35-page section focused heavily on crypto’s risks to investors and the industry’s noncompliance with regulations. “Crypto assets currently do not offer widespread economic benefits,” the report said. “They are largely speculative investment vehicles.”

FT : EU leaders remain deadlocked on classification of nuclear energy

EU leaders remain deadlocked on classification of nuclear energy
France and Germany clash over whether atomic power should be treated as equal to renewables

The EU remains deadlocked over whether to recognise nuclear power as equal to renewable energy, as France and Germany sparred over new allies at a summit on Friday.

French president Emmanuel Macron, whose government has led a push for more favourable treatment of nuclear energy, discussed the handling of the fuel with German chancellor Olaf Scholz at a breakfast meeting on Friday as the two sides clash over the treatment of the fuel.

Following the meeting, the French president told journalists that he was hopeful of finding an agreement with Germany, which is one of several countries opposing French efforts to have nuclear recognised in multiple legislative files related to the green transition.

“I think we’ll find an agreement, we’re in the process of finding one on hydrogen and on other topics in order to preserve technological neutrality,” Macron said.

The recognition of nuclear power as a low-carbon energy source is a key fight for France as it tries to ensure more funding can be directed towards its existing nuclear fleet. Almost half of its 56 reactors had to be closed last year for extensive maintenance work to mend cracks. Nuclear power plants generated close to 70 per cent of France’s electricity in 2021.

Ursula von der Leyen, European Commission president, said on the first day of a two-day EU leaders’ summit in Brussels on Thursday, that nuclear could “play a role” in Europe’s decarbonising effort, adding that only “cutting edge” nuclear technology might get access to simplified rules and incentives in the EU’s recently launched draft net zero Industry Act and that it would not be eligible for all the benefits of the legislation.

The kind of technology she was referring to are the small modular reactors that are under development in several countries including France.

Germany is similarly cautious. It is not opposed to the use of nuclear in the production of hydrogen — which was the topic of a joint declaration with French ministers on January 22 — but Berlin is not willing to treat nuclear energy as equivalent to renewables such as wind or solar, which would give it privileged access to EU funding.

Belgian’s prime minister Alexander De Croo told the Financial Times that countries should take a “pragmatic” approach, but Austria and Luxembourg are ideologically opposed to nuclear power and are suing the commission for giving nuclear power a “green” label in its framework for sustainable investments.

In France’s camp, Polish prime minister Mateusz Morawiecki told the FT that nuclear power should be eligible for EU financing.

Nuclear energy “absolutely should be given the same status [as solar and wind power] because we do not have technology to store energy from renewables”, he said.

Warsaw last year discussed partnering with the US and France to develop nuclear power in Poland in line with its plans to commission its first nuclear plant in 2033.

He slammed the EU’s efforts to decarbonise its economy, however, saying that the bloc should slow down its efforts to reach net zero emissions in line with countries such as Russia and China.

“Europe’s emissions of CO₂ is approximately 8 per cent of the entire globe. And if we reduce it by 1 per cent with huge effort, and there is a carbon leakage and lots of jobs lost from Europe. And at the same time, in India and China and in Russia, new coal power plants are being opened . . . It’s not making huge sense.”

The EU has set itself a target of reaching net zero emissions by 2050, while both Russia and China have committed to reaching the same goal 10 years later.

A senior German official said this week that the Franco-German joint declaration in January, while acknowledging the role of low carbon sources of energy such as nuclear, stressed how important it was to “safeguard . . . the overall ambition level of the renewable target”.

“In other words, if we were to make nuclear energy equivalent to renewables, we’d reduce the ambition level of renewables,” he said. Nuclear could, he said, contribute to decarbonisation efforts, “but it’s just not a source of renewable energy. And France signed up to that.”

FT : Germany’s Olaf Scholz dismisses fears over Deutsche Bank

Germany’s Olaf Scholz dismisses fears over Deutsche Bank
German chancellor rejects Credit Suisse comparison as EU leaders seek to reassure markets after share slide

Olaf Scholz has rejected comparisons between Deutsche Bank and Credit Suisse as a slump in the German lender’s shares sparked a further day of turmoil for the banking sector.

Speaking after Deutsche shares fell as much as 14 per cent on Friday, the German chancellor sought to shore up confidence in the country’s biggest bank, with investors still nervous after the forced takeover of Credit Suisse last weekend.

“Deutsche Bank has fundamentally modernised and reorganised its business and is a very profitable bank,” Scholz said at a summit in Brussels after being asked if the lender was the new Credit Suisse. “There is no reason to be concerned about it.”

He added that “the capital adequacy of European banks is robust, thanks to the work [we’ve put in] over the past few years and also thanks to the efforts of the banks themselves.”

Scholz’s comments came as part of a concerted bid by European leaders to calm market nerves as shares slid in the region’s biggest banks.

European Central Bank president Christine Lagarde told the eurozone summit the banking sector was “strong” and that the ECB was fully equipped to provide liquidity to the euro area financial system if needed, according to an EU official.

Like many of its European peers, Deutsche shares have fallen this year, losing more than a fifth of their value amid investor worries about rapidly rising interest rates and global financial stability. Concerns about the sector’s health have been heightened by Credit Suisse’s travails, as well as the collapse of Silicon Valley Bank in California and the struggles of other US regional lenders.

Deutsche shares closed down 8.5 per cent in European trading, while German rival Commerzbank ended 5.4 per cent down and France’s Société Générale 6.1 per cent, leaving the Stoxx 600 banks index 3.7 per cent weaker.

Analysts said there was no fundamental reason for the hefty downturn in Deutsche’s shares.

“Investors are worrying about the health of the bank. We are relatively relaxed in view of Deutsche’s robust capital and liquidity positions,” Stuart Graham, of Autonomous Research, said in a report. “We have no concerns about Deutsche’s viability or asset marks. To be crystal clear — Deutsche is NOT the next Credit Suisse.”

Andrew Coombs, analyst at Citigroup, said investors were trying to make sense of the share price move, adding: “We view this as an irrational market.”

Deutsche went through years of scandal and controversy. But its fortunes improved after a major restructuring programme in which it slashed back its investment bank and ringfenced billions in toxic assets for sale.

Revenues and profits hit 15-year highs in 2022, largely due to its fixed-income trading unit.

However, the bank’s domestic retail lender is barely profitable and its assets management business has suffered outflows after a greenwashing scandal. It has a market capitalisation of just €17bn and trades at a more than 70 per cent discount to the book value of its assets.

French president Emmanuel Macron suggested speculators were behind the share price falls but that the fundamentals of the banking sector in Europe were solid.

Leaders called for the completion of the EU’s banking union project, which aims to harmonise European rules alongside greater centralisation in regulation, saying the project had “significantly strengthened” the banks following its creation in 2014.

Dutch prime minister Mark Rutte said the underlying fundamentals of the European banking union and its system of oversight were strong, giving “absolute clarity that our European banks are safe”.

FT : Tui: shareholders to benefit from highly discounted capital increase

Tui: shareholders to benefit from highly discounted capital increase
Largest shareholder is sanctioned Russian oligarch whose stake will be heavily diluted, transferring value to others

Tui is battling its own version of long Covid. The travel and leisure group has launched a fully underwritten and highly discounted €1.8bn rights issue. It will use the new capital to pay back German state aid and reduce debt. That will leave it on a sounder footing as summer travel plans heat up.

The fact that Tui needed to raise equity, again, was well-flagged. What may be more surprising is the discount that the group is offering. New shares will be priced at €5.55. The closing price on Thursday was €16. To raise €1.8bn, the group is issuing many more shares than exist at present: 328.9mn, on a current count of 178.5mn. 

In theory, the discount makes no difference to existing shareholders. The value of the rights should compensate for the dilution. But it does make a difference, in this case.

Tui’s largest shareholder, with 30.1 per cent of the company, is sanctioned Russian oligarch Alexei Mordashov. He is not receiving rights and so will be heavily diluted, to 10.9 per cent. This reduces a source of uncertainty for Tui.

It also transfers value to the other shareholders. At Thursday’s closing price, Mordashov’s stake was worth €885mn, which is 30.9 per cent of its market value of €2.85bn. Absent any other change, the recapitalised Tui should be worth its market cap on Thursday plus the new money that is being put in, or €4.65bn. Mordashov’s newly diluted stake of 10.9 per cent is worth about €510mn The difference is to the benefit of the other shareholders.

The other constituency that benefits from the high discount is the consortium of underwriting banks. The bigger the discount, the likelier it is that the stock trades above the new issue price, and the less likely it is they will have to put up any money. Given the jitters in the market — and the tremors within banks themselves — getting stuck with unsold equity would be a bad look. Avoiding in-flight turbulence looks smart.