18th March 2023 – 24th March 2023 | Another week in the markets
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This week, the Federal Reserve raises interest rates by 0.25%, Hindenburg Research goes after its next target, and Credit Suisse gets a rescue deal.
- Hindenburg Research releases a report on Block Inc., formerly known as Square, accusing the company of fraudulent activity, including fake accounts and lax regulations.
- Swiss National Bank persuades UBS to offer Credit Suisse a rescue deal of 3 billion Swiss francs, with shareholders getting 0.76 Swiss francs per share but bondholders losing out on their money.
- Tech layoffs continue, with Accenture doing away with 19,000 employees, over 7,000 of them in India. Indeed, eBay, and Zoom too announce significant workforce cuts.
- New Starbucks CEO Laxman Narasimhan to work as a barista once a month in stores to stay connected with the company’s culture, customers, and challenges.
- Toshiba to go private with a $15.2 billion acquisition deal from Japanese investors and companies after a year of talks with potential buyers.
Taking stock | Chopping Block | Debit Suisse | Irony Indeed | Luxman Narsimone | Toshiback | Invest wisely
The Federal Reserve, in its policy meeting this week, raised its key interest rate by 0.25 percentage points to a range of 4.75% to 5%. Despite this, and fears of Deutsche Bank going bust next, US stocks ended the week in the green. S&P500 rose 1.39%, Nasdaq climbed 1.66%, and the Dow gained 1.18%.
After US short-seller Hindenburg Research released a sensational report on the Adani Group in January, its next report targets the payment company Block Inc. Formerly known as Square, Block is run by Twitter’s co-founder Jack Dorsey and uses financial technology to empower the underbanked and unbanked.
The report released on Thursday accuses Block of overstating its user accounts, understating customer acquisition costs, and facilitating criminal activity. Former employees of the company revealed that as many as 40% to 75% of the accounts are either fake, fraudulent, or additional accounts linked to one individual.
The report accuses Block of taking advantage of the very demographic it claims to help with billions of fraudulent transactions through its Cash App. After the report was released, Block’s stock plunged almost 15% on Thursday, and Dorsey’s net worth fell by $526 million.
Swiss National Bank (SNB) persuaded UBS Group AG to buy its rival bank Credit Suisse to prevent a banking crisis. On Sunday, Swiss authorities announced that UBS would buy Credit Suisse for 3 billion Swiss francs (around $3.25 billion). After this rescue deal was announced, central banks in the US, UK, and European Union tried calming markets by reassuring that the banking system was safe.
However, the 3 billion Swiss francs deal, almost 60% less than the bank’s value just days earlier, nearly wipes out Credit Suisse’s shareholders, who will receive around 0.76 Swiss francs per share. This deal also rattled the Additional Tier One (AT1) bond market as it includes a complete write-down of Credit Suisse’s $17 billion worth of AT1 bonds.
AT1 bonds come with higher risk. But that’s not what’s shocking the bond market. The issue is that shareholders will be receiving compensation and not bondholders. Typically, bondholders are prioritised over shareholders during bankruptcy, but since Credit Suisse hasn’t followed a traditional bankruptcy, the same rules don’t apply.
After its pandemic-induced boom started to wane off, 2022 was only the beginning of layoffs in the tech industry. Since January 2022, more than 2,83,402 employees have been laid off in the tech/startup sector.
This week, several other tech companies, including Indeed, Accenture, eBay, and Zoom, announced layoffs.
- Indeed, one of the leading job search companies, announced its plan to cut 2,200 jobs or 15% of its workforce across teams and regions — perhaps causing many employees to update their resumes on Indeed. CEO Chris Hyams said he would be taking a 25% cut in his base salary.
- Accenture announced that it would lay off 2.5% of its workforce globally, which is about 19,000 employees. This has sent a wave of panic and anxiety among Indian IT professionals as Accenture has one of its biggest offshore centres in India — at least 7,000 employees in India will be laid off.
- eBay will be laying off about 4% of its workforce globally, which is about 500 employees.
- Zoom, a company that boomed in 2020, announced this week that it would lay off about 15% of its workforce or about 1,300 employees. CEO Eric Yuan said he would forego 98% of his salary for the upcoming fiscal year, and his executive leadership team’s base salary would be reduced by 20%.
After serving as interim CEO of Starbucks for six months, Laxman Narasimhan officially took the reins from Howard Schultz this Monday. In a letter to the employees, he stated his plan of working as a barista in Starbucks stores for half a day once a month — he earned a barista certification, which required 40 hours of training in stores while serving as interim CEO. Also, word is that he can spell.
Narasimhan plans to pull these barista shifts to stay close to the company’s culture, customers, and challenges. He also plans to continue the reinvention plan that Schultz laid out last year, which includes updating training programs, upgrading equipment, increasing wages, and adding more benefits for non-union employees.
After a year of talks between Toshiba and potential acquirers, the Japanese conglomerate finally accepted a deal this Thursday — a $15.2 billion buyout offer from a group of Japanese investors and companies. This deal would not only take the company private but also put it back under complete Japanese control after years of conflict with foreign shareholders. Toshiba was able to negotiate the offer price to 4,620 yen a share — 10% above the stock’s closing price on Thursday.
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