#54 Daily Financial News Round Up - Dec 24,2021
Market Snapshot
As everybody is getting ready to celebrate Christmas, the New York Stock Exchange and the Nasdaq are closed today on Christmas Eve. U.S. bond markets and the U.S. over-the-counter markets are closed as well. Happy Christmas Eve, everybody!
How’s crypto-market?
Bitcoin is down by 0.12% in the last 24 hours to the price $50,719.59. XRP, Terra and Shiba Inu are the top three traded cryptocurrencies in the last 24 hours. The top 3 gainers are Aave, Aragon and Algorand. The top 3 losers are Ren, XRP and Polygon.
What news caught my attention?
SPACs have flourished in recent years and more particularly during the pandemic. A particular category of SPACs is celebrity SPACs, where a celebrity either sponsors the SPAC or invests in it. Some celebrities who own a SPAC are Shaquille O’Neal, Sammy Hagar, Alex Rodriguez, Danny Meyer, Paul Ryan, etc. Another on the list is Colin Kaepernick. His SPAC was interested in acquiring Change Co., a California lender who focuses on lending to traditionally underserved communities. However, the deal seems to have fallen through after the deal required Kaepernick to make television appearances.
What is a SPAC?
Special Purpose Acquisition Company (SPAC) is a company that’s formed to raise capital through an IPO for the sole purpose of getting acquired or merged with an existing company. It has also come to be known as a blank check company. Even though SPACs have been around for decades, their popularity soared in the past couple of years. In 2020, $80 billion was invested through 247 SPACs, and in 2021 $96 billion has been invested so far through 295 SPACs.
Supply chain shortages hit all industries, from iPhones to Ford trucks. In this digital age, the most sought after components are analog semiconductors, and the supply chain choke issues intensely hit these. While companies who demand these components had to pay increased costs to acquire them, the supplies of analog semiconductors gained immensely from it. Specifically, Texas Instrument saw its market capitalization increase to $170 billion as it dominated the analog chips market. It holds 17 to 20% of the world market in 2021. While the supply chain shortage helped boost TI’s market capitalization, the executives are aware of the fluctuating cycles of demand which might eventually bring down the prices when they have excess inventory in the future.
Credit Suisse fund filed a lawsuit against SoftBank, accusing the company of engaging in transactions that made a $440 million investment worthless. The centre of this lawsuit is a supply-chain finance company called Greensill.
What is the issue?
Greensill made loans to companies that served as advanced on expected payments from those companies’ customers. Greensill packaged the loans into securities and sold them. Credit Suisse’s investment funds bought the securitized loans packaged by Greensill. One of the loans packaged by Greensill involved a US construction startup known as Katerra. Katerra ran into financial trouble during the pandemic, and Greensill forgave the loan. SoftBank was an investor both in Greensill and Katerra. SoftBank invested money into Greensill at the end of 2020, which went into Greensill’s German banking unit and not into Katerra’s accounts. If the money went to Katerra’s accounts, Credit Suisse’s funds would have received it. However, since the investment made by SoftBank ended in Greensill’s banking unit and Greensill forgave Katerra’s loans, it might seem like SoftBank orchestrated a strategy that would prevent Credit Suisse’s fund from receiving a payoff. This is the crux of the lawsuit.
My Questions/Take-aways:
Celebrity endorsement does not necessarily make an investment good or bad.
If supply chain issues don’t persist, would the valuations stay the same? Probably NOT. Yet, other factors might influence the valuation, and time will only tell.
Antitrust is at the core of most investments. If company C invests in both A and B, can that company strategically influence either company to do what’s best for company C? Is Credit Suisse’s fund’s $440 million investment worthless because of SoftBank’s investments in Greensill and Katerra? Or is the $440 million useless without any intervention from SoftBank?