WSJ : How McDonald’s Lost Its Value Edge—and Is Trying to Claw It Back

How McDonald’s Lost Its Value Edge—and Is Trying to Claw It Back
The chain that staked its name on affordability found itself on the wrong end of a shaky economy

When Americans hit hard times, McDonald’s MCD -1.22%decrease; red down pointing triangle has relied on a simple recipe to keep sales humming: being fast and cheap.

For many people these days, McDonald’s is just fast.

“Bro what happened to McDonald’s dollar menu?!?!” a Seattle woman asked on TikTok earlier this year, sharing images of a $12 McDouble meal and $3 fries.

The once-golden formula faltered. The number of fast-food customers who said the restaurant chain offered good value fell to its lowest point in a decade last year, according to a UBS Evidence Lab survey. Lower- and middle-income households have cut back on visits, contributing this year to the biggest drop in McDonald’s quarterly U.S. sales since 2020.

The burger giant’s leaders are all too aware there’s a problem. Competition for the food dollar is stiff, with fast-food outlets fighting each other as well as higher-ticket options like Chipotle and Chili’s, and even customers’ own kitchens.

“There are better options,” said Kyle Elliott. The 30-year-old music producer from New York tends to visit Chick-fil-A, Shake Shack or the neighborhood food cart for a quick meal rather than McDonald’s.

But the chain that pioneered the modern fast-food industry is caught between a corporate office that wants beefier, more attractive deals and many restaurant franchise owners who say their bottom lines can’t absorb much lower prices.

Some operators warn that the kind of deals McDonald’s is now promoting to draw in customers—some of which chop between 40% and 50% off the regular price—are eroding their already shrinking profits. Profit margins for the chain’s U.S. restaurants started to decline last summer and haven’t snapped back since, securities filings for McDonald’s show.

McDonald’s is on a mission to claw back sales—and its value edge.

In the middle of last year, it took a fresh shot at appealing to stretched consumers: a $5 meal deal that included a McDouble or McChicken sandwich, small fries, small soft drink and a four-piece Chicken McNuggets. Earlier this year it launched a new McValue menu, including options to add a second menu item for $1 after buying one for full price.

The $5 meal deal boosted visits. The add-an-item offer hasn’t brought in as many customers so far.

McDonald’s is now mulling other value options, recently testing a $3-and-less menu in some restaurants, according to company documents. A new round of Snack Wraps debuted at $2.99.

“We’re probably still in the first inning” of the new value approach, McDonald’s U.S. President Joe Erlinger said in an interview.

alue in the inflation era
At McDonald’s corporate offices in Chicago, strategists analyze billions of dollars’ worth of customer transactions to figure out what deals will entice repeat visits. Marketers and finance employees review promotions that franchisees use locally and test whether they could be replicated nationally. Effective deals typically need a discount of at least 30%, depending on how long they run, executives said.

Working with franchisees to test and implement the deals is a delicate dance, often requiring lengthy discussions. Franchisees own and operate 95% of the roughly 13,500 McDonald’s locations in the U.S. They largely set their own prices and have raised them in recent years to compensate for higher hourly wages and more expensive supplies. They can, and at times have, voted against promotions advanced by the company.

In January 2024, McDonald’s pitched franchisees in Kansas and Oklahoma on acting as a testing ground for new deals. Customers would be able to buy one item and get another for a dollar as well as obtain drinks for $1 or $2, according to an internal presentation viewed by The Wall Street Journal. Some U.S. franchisees had locally run versions of the buy-one-item deal prior.

The franchisee group voted against the proposal, fearing it didn’t make financial sense. McDonald’s executives started lobbying individual operators to reconsider. The group later reversed course.

Another test would come with a different meal deal. When franchisees in upstate New York ran a promotion starting in 2023 offering a bundle of food for a flat $5, McDonald’s spotted a chance to take the deal nationwide. First, though, the company had to convince a national group of franchisees helping to oversee a roughly $1 billion advertising fund to back the promotion.

After a franchisee board committee voted against the proposal in April 2024, McDonald’s leaders directly pitched franchisees for their support. Eventually the meal bundle made it out of committee and went up for wider approval.

McDonald’s helped sweeten the deal by negotiating with Coca-Cola, its beverage supplier since 1955, to provide nearly $5 million in marketing funds. Restaurants would receive some reimbursement per meal, according to an internal message to franchisees asking for their support.

But pressure was building. Labor costs and wholesale prices on everything from beef to eggs continued to rise for operators, while economic uncertainty kept more Americans’ purse strings tied. Angry consumers had gone after fast-food companies since prices started to escalate through the pandemic—and kept climbing afterward.

Executives warned about the inflation fatigue and the need to offer more affordable meals.

“Our relative superiority on affordability has declined,” CEO Chris Kempczinski said during an earnings call in April 2024.

A year earlier, the brand had become an inflation punching bag. A social-media post showing a Connecticut restaurant’s menu—items included roughly $18 Big Mac and McCrispy meals—went viral, fueled by consumer rage over sharply rising prices.

“We got offsides” on prices, said Erlinger, the company’s U.S. president.

The average cost of a large Big Mac meal in the U.S. crossed the $10 mark for the first time last year, according to market-research firm Technomic. Prices for the signature burger meal rose 27% between 2019 and 2024, McDonald’s said.

With some people online saying Big Mac prices had doubled in that time, Erlinger decided to write an open letter to “our U.S. fans” in May 2024 to shoot down that math. He denied the chain was gouging consumers and said most U.S. franchisees sold meal bundles for $4 and less. He also teased coming deals.

That same month, McDonald’s gathered enough operator support to offer the $5 meal deal nationally for roughly a month. Some franchisees pushed to keep the promotion limited, arguing it was too expensive to run long-term and that McDonald’s needed to provide more financial backing.

“To provide the consumer with more affordable options, they must be affordable for the owner,” the National Owners Association, an independent advocacy group of McDonald’s franchisees, wrote to its hundreds of members.

Mark Kalinowski, an industry analyst who surveys McDonald’s franchisees, said operators remain concerned about the value approach as it relates to their profits.

“Great sales cures a lot of ills, at least temporarily, and great sales are hard to come by these days,” Kalinowski said.

The $5 meal deal carries a discount of around 40% to 50% of the cost of the items purchased a la carte, said Tom Dillon, finance chief for McDonald’s U.S. operations. However, he added, the promotion is a moneymaker for operators. It’s been extended and is driving some of the highest increases in customer visits in company history.

“The total check is still very profitable from a franchisee perspective,” Dillon said.

Discounts, dollar menus and divisions
McDonald’s has staked its name on affordability since Richard and Maurice McDonald in 1948 devised an assembly line-style cooking system that allowed them to sell 15-cent burgers to San Bernardino, Calif., families.

Longtime leader Ray Kroc’s rapid expansion through franchising supercharged the formula. “A McDonald’s bought more buns, more catsup, more mustard, and so forth, and this gave it a terrific position in the marketplace,” Kroc wrote in his book on the company, “Grinding It Out.”

McDonald’s low-cost position was challenged in the late 1980s when an expanding Taco Bell released a menu of 59- to 99-cent options. McDonald’s responded with its own range of $1 items.

In the 2000s, New York City McDonald’s franchisees were looking for a way to prop up sagging sales in the wake of the Sept. 11 terrorist attacks. Jim Lewis, then a franchisee, backed a controversial idea: a dollar menu of about a dozen items sold across the day.

“We fought like crazy,” Lewis said. “Some of this we could afford, but how long can we sell stuff for a dollar?”

Instead of a slow boost in sales, the new dollar menu delivered results within months, Lewis said. President Trump, then a real-estate developer and New York celebrity, appeared in ads in 2002 hawking the Big N’ Tasty burger’s turn on the dollar menu. McDonald’s later rolled it out nationwide, boosting sales and winning new fans.

Around 2008, with the U.S. economy headed into another recession, McDonald’s started promoting $1 cold drinks in some locations. The deal expanded to beverages of all sizes in 2010.

The discounts helped McDonald’s sales rise between 2008 and 2011—growth that outpaced the overall fast-food industry, Technomic said.

But franchisees were having a harder time affording it. By 2012, inflation had driven consumer-goods prices up by 28% compared with 2002.

Other chains were facing similar issues. In 2009, Burger King franchisees sued the Miami company over its $1 double-cheeseburger promotion, saying they lost money on it. Burger King pushed up the price in 2010. Three years later, Wendy’s bumped up some prices on its 99-cents menu.

In November 2013, McDonald’s followed suit, rebranding its offering as a “Dollar Menu & More” with items ranging from a buck to $5.

“We knew we couldn’t maintain the $1 price point,” Peter Bensen, then McDonald’s chief financial officer, said in 2014.

‘Three-legged stool’
Kroc, who continued to be involved in McDonald’s until his death in 1984, described his corporate philosophy as a “three-legged stool.” One leg stood for McDonald’s franchisees, the second its suppliers and the third the company’s employees. The stool was only as strong as its legs.

The fast-food industry’s brutal economics mean those factions don’t always get along.

McDonald’s and its franchisees have tussled over the past decade as the chain has asked operators to invest millions of dollars in restaurant upgrades and scrutinized their operations.

After escalating costs for wages, ingredients, utilities and materials prompted franchisees to raise prices in 2021 and 2022, operators said they couldn’t afford to sell dollar drinks anymore. McDonald’s eventually relented. Restaurant worker salaries at McDonald’s had ballooned around 40% since 2019, while costs for food, paper and other goods were up 35%, McDonald’s said last year.

As franchisees’ expenses continued to climb, corporate employees coached operators to limit price increases to less visible parts of the menu like sauces, cheese or other extras, and to particular locations rather than across all of their restaurants, one former executive said. But McDonald’s affordability image suffered.

“Fast-food in general and McDonald’s specifically no longer feels like the good value that it once did, the kind where you can get a filling meal for $5 to $8,” said Terry Wu, 36.

The healthcare worker, who lives in Pittsburgh, said the price increases don’t seem as bad when compared with other living expenses such as groceries and rent. But, he added, that’s mostly because of the new discounts. Still, Wu consciously reduced his visits to McDonald’s after the jump in prices—and the habit stuck.

By last fall, a few months after launching its $5 meal deal, McDonald’s said the promotion was helping improve the brand’s perception among consumers. That was crucial as the company worked to recover from an October E. coli outbreak that resulted in one death and over 30 hospitalizations.

McDonald’s wanted to broaden the offering to include the buy-one, add-one for a dollar deal it had tested earlier in the year. Franchisees voted to back the expanded McValue menu, and this January, the promotion debuted with actor John Cena sitting down in ads with trays of breakfast sandwiches, hash browns and fries.

But even the WWE champion hasn’t been strong enough to cut through customers’ concerns around continued economic uncertainty. McDonald’s in May reported its U.S. same-store sales in the recent quarter declined 3.6% from last year. Burger King and Wendy’s also reported U.S. declines for the three months, though by lesser degrees.

In a January survey of 400 McValue customers, 44% said they planned to go to McDonald’s regardless of the value menu’s presence, market-research firm Numerator said. Eight percent of those surveyed said they hadn’t planned to eat fast-food until they heard about the deals menu.

“Most customers are looking for the next deal with very little brand loyalty,” said Jana Zschieschang of Revenue Management Solutions, a consulting company that is telling restaurant clients to better tailor deals so they stand out.

Mansur Shaheen, a 27-year-old New Yorker, eats out several times a week and regularly turns to McDonald’s deals. Compared with a Cava bowl or Just Salad in Manhattan, a $7 McDonald’s sandwich is a better deal, he said. “It isn’t cheap but not expensive,” he said.

Erlinger said McDonald’s has put its consumer-science acumen behind McValue in a way that makes it distinct.

Some McDonald’s operators say the company is showing increased urgency in working with franchisees to draw in more customers in other ways, too.

A Happy Meal tied to “A Minecraft Movie” this spring sold out weeks earlier than anticipated. The company in July brought back chicken tenders rolled in tortillas after customers lobbied for them, and some operators said initial sales were so strong they ran low on toppings to dress them. New beverages, particularly cold ones catering to Gen Z, are on tap for testing.

“It’s a tough environment, and we are going to step up,” said Danielle Marasco, a Texas-based McDonald’s owner who heads the chain’s official U.S. operators group, the National Franchisee Leadership Alliance.

McDonald’s is still pushing for discounts. Corporate officials also want franchisees to continue selling the existing $5 meal deal at the current price.

In July, some franchisees intended to push up prices on some of their premium meal deals to $6. The costs, particularly on the McDouble burger, have gotten too high, they said.

WSJ : Israel’s 12-Day War Revealed Alarming Gap in America’s Missile Stockpile

Israel’s 12-Day War Revealed Alarming Gap in America’s Missile Stockpile
During conflict, Thaad operators burned through nearly a quarter of interceptors ever purchased by Pentagon

  • During the 12-day war with Iran, two U.S. Thaad systems were deployed in Israel, but the U.S. and Israel quickly depleted missile interceptor stockpiles.
  • The conflict exposed a shortage of U.S. missile-defense systems and interceptors, prompting calls for increased production and procurement.
  • U.S. Navy ships had to leave the area to reload, highlighting the need for at-sea reloading capabilities and more interceptors.

TEL AVIV—The U.S. has seven high-end Thaad missile-defense systems. During the 12-day war with Iran in June, two were deployed to Israel—and it wasn’t enough.

Operating alongside Israeli systems, Thaad operators burned through munitions at a furious clip, firing more than 150 missiles to shoot down the waves of Iranian ballistic missiles, according to U.S. officials. That is nearly a quarter of the interceptors ever purchased by the Pentagon.

The demand was so staggering that at one point, the Pentagon considered a plan to divert interceptors purchased by Saudi Arabia to the systems in Israel, one official said. The discussions were sensitive, because the kingdom’s cities and oil installations were also considered at risk during the conflict.

It wasn’t just the Thaad. The U.S. ran through large numbers of shipborne interceptors as well, and Israel quickly drained stockpiles for its own systems. Dozens of Iranian missiles got through anyway.

While Israeli officials credited the American systems for saving thousands of lives, the war revealed an alarming gap in U.S. supplies. The U.S. also discovered inefficiencies in the way it fired its antimissile systems and is scrutinizing the performance of some interceptors.

Some Pentagon planners say America’s missile defenses—designed to protect U.S. troops and assets from targeted attacks by Russia, China or North Korea—are inadequate for a world where cheap, voluminous ballistic missiles have become the aerial weapon of choice.

The U.S. Navy fought this spring with Yemen’s Houthi militants, who have made missiles a centerpiece of their arsenal. Ukraine has been repeatedly bombarded by Russia, which is using missiles and drones rather than putting its pilots at risk. China has made heavy investments in missile development and is rapidly building weapons it could use to keep the U.S. at bay in any future conflict over Taiwan.

“We are at long last waking up to the need for massive defensive munitions procurement,” said Tom Karako, director of the Missile Defense Project at the Center for Strategic and International Studies.

Vice Adm. Brad Cooper, soon to take the helm of the U.S. Central Command, which is responsible for U.S. military operations in the Middle East, told Congress in June that officials need to move with a sense of urgency.

“I’m concerned about everything, but one of the concerns would be munitions and magazine depth,” Cooper said.

Each Thaad—which stands for Terminal High Altitude Area Defense—can hold 48 interceptors between six launchers and needs about 100 U.S. soldiers to reload, analyze data, perform maintenance and shoot interceptors around the clock.

“To my knowledge the U.S. has never deployed two Thaads in one country before,” said Dan Shapiro, who led Middle East policy at the Pentagon in the Biden administration and is now a senior fellow at the Atlantic Council think tank. “It’s an extraordinary commitment of U.S. technology and personnel to Israel’s security.”

The Pentagon sent a replenishment of interceptors during the war, but supplies were tight.

Each Thaad interceptor costs about $13 million, according to budget documents, and the Pentagon has purchased around 650 since 2010. Officials have sought to buy 37 in the next fiscal year.

Lockheed Martin, which makes the systems, says it can make about 100 interceptors this year and is working with the government on options to increase production for new orders.

It would likely take more than a year and cost between $1.5 billion and $2 billion to replenish the Thaad interceptors fired during the 12-day war, according to Wes Rumbaugh, a CSIS fellow who researches Pentagon missile procurement and budget details.

The deployment to the Middle East has strained U.S. readiness and signaled a growing need not just for interceptors, but also for more launchers, analysts say.

Army officers say that in a perfect world, two Thaads should be in the U.S. for every one deployed. Under this concept, one system is deployed, another is returning for maintenance and upgrades, and a third is involved in training for the next deployment.

Of the U.S.’s seven operational Thaads, two are currently on the front lines in Israel. Two others are pledged long term to Guam and South Korea, another is deployed to Saudi Arabia, and two are in the continental U.S. An eighth system has been manufactured but isn’t fully operational.

With five of seven Thaads deployed, the U.S. will likely run into “dwell” issues where units don’t get needed downtime between deployments, according to an Army officer who helps train air defenders.

Although Israel has its own sophisticated, multilayered defense, which includes systems like Arrow, David’s Sling and Iron Dome, the country was running low on its own interceptors and was husbanding resources by the time the conflict ended. Had Iran fired a few more large volleys of missiles, Israel could have exhausted its supply of top-tier Arrow 3 munitions, one of the U.S. officials said.

The Israeli military said it doesn’t disclose the number of interceptors or operational details related to its air-defense systems. However, it added that “throughout the war, the IDF had had the necessary means to defend its sovereignty and protect its civilians.”

As the war progressed and Iranian barrages continued, the U.S. rushed Navy destroyers equipped to shoot down ballistic missiles toward Israel, sending seven into the eastern Mediterranean and Red Sea.

Most of America’s Arleigh Burke-class guided-missile destroyers are armed with a range of Standard Missile interceptors, known as SM-2, SM-3 and SM-6, which can shoot down ballistic missiles and other aerial threats.

Those warships also went through interceptors at an alarming rate, the acting chief of naval operations, Adm. James Kilby, said on Capitol Hill in June. During the 12-day war, the ships shot about 80 SM-3s at Iranian threats, according to a U.S. official.

SM-3s, which are made by defense contractor RTX, cost between $8 million and $25 million depending on the variant.

There also are concerns in the Pentagon that the SM-3s, first used in combat last year, also to counter an Iranian attack, didn’t destroy as many targets as expected, according to two defense officials.

The military now is carefully looking through each launch to better understand what happened. A Navy officer involved in the process said it is premature to judge SM-3 engagements.

“Testing and operational data from combat use consistently demonstrates that SM-3 are highly effective interceptors that have demonstrated the ability to defeat complex threats in the most stressing environments,” an RTX spokesman said.

Two Navy officers who have operated in the Middle East said sailors likely struggled with deconfliction, because the U.S. and Israel rely heavily on voice communications to sort out which systems will take out which missiles. In the fog of war, it is possible several ships fired at the same threats.

Along with dozens of warheads, operators can also see debris, decoys and rocket boosters flying through the air. While sailors are trained to pick up on the differences, the airspace in the war was so saturated that they may have struggled to identify the correct target, the officers said.

“Achieving successful lethal object kills in dense raid environments becomes significantly more complicated as the number of ballistic missiles increases,” said Tri Freed, a chief engineer in the air and missile defense sector of Johns Hopkins Applied Physics Laboratory.

Adding to the challenges posed by the heavy volumes of attacking missiles, U.S. ships had to head to port in the Mediterranean or the Red Sea after shooting all of their interceptors, because the Navy doesn’t yet have a reliable way to reload at sea.

The tight fit for a 30-foot-long missile canister to slide into a vertical launch tube means sailors can’t have a ship rocking back and forth during reloading—which could be a major problem for the U.S. in the event of a potential conflict with China.

“Reloading missiles at sea is a challenging task due to the sheer weight and size of the encanistered missiles,” Freed said.

But the biggest problem is still quantity. Karako, the missile-defense analyst, said the war and the possibility of other conflicts showed the U.S. needs huge numbers of additional interceptors.

“The other worry is that the Iranians are going to do this again,” he said. “And we can’t afford to do it again.”

FT : UK households prioritise saving more than at any point since 2008 crash, su

UK households prioritise saving more than at any point since 2008 crash, survey finds
Results reflect concerns over tax rises in the autumn and impact of inflation, analysts say

“Anxious” British households are prioritising saving money over spending more than at any point since the global financial crisis, according to a survey that underlines concerns about the lack of a rebound in consumer activity.

Some 34 per cent of consumers deemed July “a good time to save”, up from 27 per cent in June and the highest reading since November 2007, before the 2008-09 financial crash, research company GfK said on Friday.

Neil Bellamy, consumer insights director at GfK, said the jump in the savings index suggested “people are anxious” and that those able to “put money aside are building contingency funds”.

Between 2008 and the end of 2020, the savings index averaged minus 2 per cent but it rose sharply with the cost of living crisis, as Britons grappled with rising prices, rents and mortgage costs.

Wages have been rising faster than prices since mid-2023, helping household finances. But real household disposable income per head — the inflation-adjusted amount of income available for a household after taxes and subsidies — fell 1 per cent in three months to March, owing to the impact of higher taxes and price growth.

With analysts predicting that chancellor Rachel Reeves will have to raise taxes in the autumn Budget to fill a fiscal hole of £20bn or more and inflation rising more than expected in June, “some people may be sensing stormy conditions ahead”, Bellamy added.

GfK’s separate overall consumer confidence index — a measure of how people view their personal finances and broader economic prospects — fell one point to minus 19.

The survey, conducted in the first half of July, is closely monitored as an indication of how much consumers are willing to spend, which accounts for about 60 per cent of UK GDP.


Households’ assessments of the UK economic situation over the past year and over the next 12 months both deteriorated by one point in July.

Official data last month showed that the household saving ratio — the proportion of disposable income put away by households — fell to 10.9 per cent in the first three months of 2025.

The figure was down from 12 per cent in the three months to December 2024, but still well above the 5.5 per cent average in the three years to 2019, before the Covid-19 pandemic and upsurge in inflation.

Historically higher savings contributed to disappointing household spending throughout 2024 and the first three months of this year.

Households put an extra £14bn into ISAs in April, the highest amount since data collection began in 1999, according to the Bank of England. A further £3.9bn went into the tax-free savings products in May.

The surge in deposits came after Reeves was expected to cut the annual tax-free cash Isa allowance in an effort to shift some of the £300bn held in this product into UK companies. But this month she shelved the plans, after a fierce backlash from building societies and consumer champions.

Philip Shaw, economist at the bank Investec, said increased speculation about tax rises in the autumn — following U-turns by the government on cuts to welfare and winter fuel payments — was likely “the biggest driver” behind weakening consumer confidence.

Companies have also been hit by lacklustre spending and rising costs, with the S&P Global purchasing manager survey pointing on Thursday to weakened business sentiment in July as the recovery in the dominant services sector lost momentum.

Bellamy said it was “difficult to see what will lift consumer confidence meaningfully higher in the months to come. It has drifted quietly downwards over the past year, and any fresh challenges or shocks could easily push confidence sharply lower.”

FT : Wall Street banks strike capital deals to lend into hedge fund boom

Wall Street banks strike capital deals to lend into hedge fund boom
Deal between Morgan Stanley and Blackstone shows how the credit risk transfer market is expanding to riskier assets

Wall Street banks are expanding their use of complex risk transfer deals to offload exposure from prime brokerage divisions, freeing up cash to lend to hedge funds in pursuit of a bigger share of a booming market.

Morgan Stanley last year struck a deal with Blackstone to transfer a portion of the risk on loans made by the bank’s prime brokerage unit and release capital for more lending, people familiar with the transaction said.

The deal, which required Morgan Stanley to retain a portion of the risk, provided the US investment bank regulatory capital relief and gave the unit responsible for lending to hedge funds added firepower.

US banks have increasingly turned to credit risk transfers — also known as synthetic risk transfers (SRTs) — to reduce the amount of capital they must use to guard against losses on the loans they have underwritten since domestic regulators blessed the deals in 2023.

But the use of SRTs for margin loans marks a jump from the relatively vanilla corporate and consumers loans that have traditionally underpinned the capital relief trades.

Banks have been searching for ways to gain that same relief for their prime brokerage units, which have been a major profit centre as trading activity has surged.

“The way to think about SRTs is not strictly about protecting the downside,” said Michael Shemi, the head of North America structured credit at Guy Carpenter. “It’s the other way around: they are designed to unlock the upside for banks. Banks pursue these transactions to improve profitability and to facilitate growth in specific asset classes.”

Morgan Stanley and Blackstone declined to comment.

Other than Morgan Stanley’s deal with Blackstone, however, banks across Wall Street have mostly struggled to complete SRTs on margin loans, according to more than half a dozen people who transact in the credit risk transfer market.

Margin loans allow hedge funds to supercharge their trading, using the financing from banks’ prime brokerage divisions to buy stocks and bonds or enter into swaps and derivatives transactions on borrowed money. Banks are exposed if a big hedge fund fails to meet a margin call and suffers large losses, inflicting losses on their prime brokerage units.

Prime brokerage can be a particularly risky business, and has attracted political scrutiny since Archegos Capital Management’s implosion in 2021.

Banks including Credit Suisse, Nomura and Morgan Stanley suffered more than $10bn of combined losses tied to Archegos, which had used margin loans to buy up shares of more than a dozen technology and media stocks, including ViacomCBS, Baidu and Tencent Music. The episode spurred Nomura to shut down certain parts of its prime brokerage business, which it has only recently rebooted.

Banks have found it hard to complete SRTs on prime broking loans in part because they often agree to strict confidentiality terms with their clients and cannot reveal the underlying positions of the hedge funds.

Even describing them could reveal trade secrets, one person added. Positions also can change rapidly — given a hedge fund’s typical trading patterns — meaning the collateral underlying the credit risk transfer when it is first struck may change days or weeks later.

“The biggest risk and challenge is that the collateral pool is dynamic . . .[it] can completely turn over in a day,” one SRT investor said.

Instead, an investor must rely on their own view of a bank’s prime brokerage business and its risk management policies.

“You are betting on financial infrastructure not crumbling,” a second SRT investor said. “These [banks] have all these loans out to multi-managers, out to all sorts of [funds], and you’re just hoping that the margin call mechanism works and that these guys have liquidity. It’s just hard for us to understand the screw that ties this together.”

Banks that have struck these prime brokerage risk transfer trades have instead offered so-called “white lists” to would-be investors and often described which hedge funds make up the bulk of their exposure. The list includes the names of hedge funds that could be included in the risk transfer.

For some money managers, that can be enough, especially if they are separately invested with the hedge funds included on those white lists. In those cases, the money manager can then assess the risks of the hedge fund’s trading book.

Even so, people familiar with the discussions said some banks had found the transactions too expensive to complete.

FT : Can Lamborghini’s new Temerario eclipse the Huracán?

Can Lamborghini’s new Temerario eclipse the Huracán?
A first drive of the Italian marque’s latest supercar



In step with Lamborghini’s programme to hybridise its line-up, the successor to the petrol Huracán supercar first launched in 2014 combines a V8 engine with three electric motors. The Temerario, as it is called (like all recent Lamborghinis after a famous fighting bull of the late 19th century, this one meaning “reckless”), may be less raucous in voice than the V10 Huracán, but is arguably even better in terms of performance.

A high-revving 10,000rpm, 4.0-litre V8 engine produces 789bhp, boosted by twin turbochargers and a trio of 148bhp electric motors that together elevate the power to a mighty 907bhp. Supercars capable of 10,000rpm are normally £1mn-plus: the Czinger 21C and Aston Martin Valkyrie among them. The Temerario is priced from £260,035, goes from 0-62mph in 2.7 seconds and has a top speed of around 210mph.

The complex three-motor system is effectively the same as the one Lamborghini used in its 2023 V12 Revuelto, now its flagship model at £452,000. One electric motor is shoehorned in between the eight-speed transmission and the Temerario’s V8 mid-mounted engine, with two more applied to the front axle for all-wheel drive. The tiny 3.8kWh battery pack is fitted between the front seats. If you want to leave home in the morning without disturbing neighbours, the system is good for about five miles of electric-only range. Not that the Temerario is designed for stealth. The shark-nose front is menacing, while Lamborghini’s hallmark hexagonal styling cues extend to the exhaust, rear clusters and new daytime running lights.


Testing it out on the fast curves of the Estoril Circuit in Portugal, the Temerario was able to carry speed around the bends and show intimidating pace down the home straight. It is agile, stable and easy to handle; expect zero turbo lag and striking forward thrust.

The hybrid offers 13 driving modes, ranging from two-wheel drive Città for urban motoring, to Corsa for track days. Drift allows the car to generate three levels of controlled oversteer to slide around corners. Note the appropriate warning flashed onto the dashboard: “driver skills needed”.

Aerodynamics have been key to design, with a muscular rear end increasing downforce by 103 per cent compared to a Huracán EVO. Add an optional, lightweight carbon-fibre Alleggerita Pack and this rises to 158 per cent, while features such as underbody vortex generators and motorsport-inspired diffusers help keep Temerario’s 21in tyres glued to the road.

Inside, apart from a few extra centimetres of head and leg room over the Huracán, the central infotainment hub looks rather like an alien mask. Lamborghini’s trademark switchgear looks as though it was borrowed from a fighter jet, including the iconic red flip-top starter button, as cool to flick open as 007’s Dunhill lighter.

As for practicalities, unlike early Lamborghinis that would struggle to store a credit card, the Temerario has a modest array of nooks and crannies. The new sports seats are more comfortable, with 18-way adjustment, while the frunk luggage space is slightly larger. Bespoke luggage will also, they say, squeeze behind the passenger seats.

The Huracán sold some 29,000 units in a decade and is one of Lamborghini’s greatest hits. The Temerario has big boots to fill.

FT : The steep hurdles facing a rail megamerger

The steep hurdles facing a rail megamerger
Talks over a $200bn megamerger to create the US’s first-ever coast-to-coast rail network have gone full steam ahead just a week after media reports first surfaced about discussions.

In an unusual move, railroad operator Union Pacific confirmed it was in “advanced discussions” with Norfolk Southern over a possible megamerger to create a transcontinental US railway, DD’s Oliver Barnes reported. 

Union Pacific has floated the merger as a project that would resolve congestion in Chicago, the biggest US rail interchange, as well as improving operational efficiencies as fuel and labour costs rise.

It’s the kind of deal Jay Gould, one of America’s original rail barons, dreamt of a century ago. If it came to fruition the tie-up would be the sector’s biggest ever — and the first since the $31bn merger of Canadian Pacific Railway and Kansas City Southern in 2023.

Jim Vena, the Union Pacific CEO, has been on a hype tour for the deal long before talks became a reality. 

“Bottom line is, do I, Jim Vena, think that a merger would be beneficial for the country? Absolutely,” he told investors last month. 

“I think it would be fantastic for our customers, fantastic for competition, fantastic politically, and I think the regulators would have to deal with it, if somebody went forward,” he said.

Vena might be a fanatic about the possibility of the rail colossus, but the deal must overcome some steep political hurdles if it’s to go ahead.

First, it would have to get past the Surface Transportation Board, headed up by the Trump appointee Patrick Fuchs. The STB has said previously that the industry would never allow the Union-Norfolk merger.

After that, the operators would probably need to get the president himself on board.

The rail industry has been rocked by tariff threats as well as rising labour and fuel costs under the Trump administration.

“There can be no assurances as to whether an agreement for a transaction will be reached or as to the terms of any such transaction,” said Union Pacific.

FT : Blackstone greases the hedge fund world

Blackstone greases the hedge fund world

Prime brokers’ new best friend: Blackstone
Bankers have been reluctant to talk about their three-letter deals recently. While SRTs are all the rage, details of them have been sparse. 

US banks have turned to credit risk transfers as a way to reduce the amount of capital they must use to guard against losses on loans they’ve underwritten.

(More recently, these have become known as synthetic risk transfers, or SRTs, because there are never enough acronyms in finance.)

The FT has covered their rise extensively: huge private capital players such as Blackstone have got in on the action, Bank of America is helping regional banks issue them and some regulators have raised concerns.  

Now, banks’ prime brokerage businesses, which give leverage to hedge funds, are angling for a foothold in the market.

These are not your run-of-the-mill SRTs. Historically, SRTs have been issued with relatively vanilla corporate and consumer loans serving as collateral.  

Instead, these deals are backed by margin loans, the financing that banks give hedge funds to trade with. With those loans, funds buy stocks and bonds or enter into swaps and derivatives transactions on borrowed money, supercharging their returns.

Morgan Stanley last year struck a deal with Blackstone to transfer a portion of the risk on loans made by the bank’s prime brokerage unit to help release capital for more lending, DD’s Eric Platt, Amelia Pollard and Ortenca Aliaj report.

So far, it looks like the deal’s paid off. Prime brokerage desks have been among the most lucrative business units for big banks, and Morgan Stanley even gave the group’s returns a shout-out in its earnings report last week.  

But other than Morgan Stanley, banks on Wall Street have mostly struggled to pull off SRTs on margin loans. 

One problem is just how opaque these loans are. Hedge funds are famously private, and banks often agree to strict confidentiality terms with clients that don’t let them reveal where the funds are investing their money.

On top of that, those positions can often change rapidly — the collateral that backs the credit risk transfers when they’re first struck may change days or weeks later.

The stakes are high. One SRT investor was blunt: “You are betting on financial infrastructure not crumbling.”

>>> US After Hours Summary: INTC -1.2% lower on earnings; COUR +19.9%, SCHL +14.

After Hours Summary: INTC -1.2% lower on earnings; COUR +19.9%, SCHL +14.7%, FIX +11.5%, DECK +8.8%, SAM +7% higher on earnings; VCYT +8.1% to join S&P SmallCap 600; SNV and PNFP to combine

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: COUR +19.9%, SCHL +14.7%, FIX +11.5% (also increases dividend), DECK +8.8%, BWMX +7.7%, SAM +7%, UVE +6.4%, EW +6.2%, ALEX +5.6%, MTX +5.2%, ENSG +4.7%, OVV +4.3%, CUBI +4.2%, NEM +3.8% (also authorizes new $3 bln share repurchase program), COKE +3.7%, COLB +3.6%, MC +3%, MGRC +2.4%, BHRB +2%, BYD +1.7% (also increases share repurchase authorization by $500 mln), MHK +1.7%, FFBC +1.1% (also increases dividend), SKYW +1.1%, SSB +1%, VRSN +1%, LBRT +0.5%, WY +0.4% (also authorizes new $1 bln share repurchase program), PPBI +0.2%, ASB +0.1%

Companies trading higher in after hours in reaction to news: VCYT +8.1% (to join S&P SmallCap 600), USM +6.2% (expects to approve a special dividend following sale of wireless ops to TMUS), DC +2.3% (files for $250 mln mixed securities shelf offering), SWK +1.3% (increases dividend), SCHW +1.3% (authorizes new $20 bln share repurchase program), PBA +1.2% (reaches settlement with shippers), HTBK +1.1% (names new CFO), STM +1% (STM to acquire NXPI's MEMS sensor business for $950 mln), EXEL +0.8% (IPSEY receives EC approval for CABOMETYX), ELAN +0.8% (Zenrelia receives approval by European Commission), SUN +0.1% (increases dividend), FLG +0.1% (announces reorganization, co will merge into the Bank, with the Bank as the surviving entity)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: SLM -4.2%, MOFG -4%, KNSL -2.6%, DOC -2.4%, GLPI -2.1%, TBBK -1.9%, PECO -1.3%, INTC -1.2%, ENVA -0.8% (also CEO to become exec chairman, names new CEO and new CFO), HXL -0.7%, DLR -0.6%, BYD -0.2%, HTH -0.1%

Companies trading lower in after hours in reaction to news: IXHL -50.6% (files prospectus supplement to increase existing ATM offering by additional $100 mln), ABSI -14.5% ($50 mln share offering), ASTS -8.2% ($500 mln convertible notes offering; to repurchase a portion of its convertible notes), SNV -7.4% (SNV and PNFP to combine in an all-stock transaction), PNFP -5.9% (SNV and PNFP to combine in an all-stock transaction), ADT -3.5% (71 mln share offering by selling shareholders; includes concurrent repurchase by ADT of 11 mln of these shares), UNIT -2.1% (obtains regulatory approvals to complete Windstream merger), JANX -1.8% (highlights pipeline progress), IOBT -1.6% (stock offering by selling shareholders), NTST -1.4% (commences 9 mln share offering), CVLT -1.2% (to acquire Satori Cyber), CELC -1% (first patient has been dosed in VIKTORIA-2), RSG -1% (increases dividend), VAL -1% (issues fleet status report), AMSF -0.4% (authorizes new $25 mln share repurchase program), ET -0.1% (increases dividend), NXPI -0.1% (STM to acquire NXPI's MEMS sensor business for $950 mln), BKH -0.1% (receives approval for new rates in Kansas)

FT : JD.com in talks to buy German electronics retailer Ceconomy for €2.2bn

JD.com in talks to buy German electronics retailer Ceconomy for €2.2bn
MediaMarkt owner in ‘advanced negotiations’ with Chinese ecommerce group

Chinese ecommerce giant JD.com is in “advanced negotiations” to buy Ceconomy in a deal that would value the German electronics retailer’s equity at about €2.2bn.

The German owner of MediaMarkt and Saturn said JD.com was considering a cash offer of €4.60 per share in a statement on Thursday confirming an earlier report by Bloomberg.

The bid would represent a 23 per cent premium to Ceconomy’s closing share price on Wednesday. The German company’s shares rose 14 per cent following the statement on Thursday afternoon.

Ceconomy said “no legally binding agreements” had yet been signed, adding that it remained unclear whether an offer would ultimately be made. JD.com declined to comment.

The potential acquisition would mark a renewed effort by JD.com to expand outside of China, where it faces fierce competition from domestic rivals Alibaba and Meituan, and weakening consumer demand. JD.com explored a bid for UK-listed electronics retailer Currys last year, before ultimately walking away in March 2024.

JD.com has previously expressed early-stage interest in Ceconomy, according to people familiar with the matter.

One of the people said Ceconomy could benefit from JD.com’s knowhow in logistics and supply chain management to boost its own ecommerce strategy. JD.com already operates logistics hubs in several European countries including France, Poland and Germany.

Ceconomy runs more than 1,000 stores across Europe under its MediaMarkt and Saturn brands, and generated sales of €5.2bn in the three months to the end of March.

Major shareholders of Ceconomy include the holding company of the Kellerhals family, who founded MediaMarkt, as well as Germany’s wealthy Haniel family. In May, Ceconomy’s former chief executive Karsten Wildberger became Germany’s first federal minister for digital affairs.

This article has been amended since publication to correct Ceconomy’s quarterly sales figure.