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Goldman job cuts hit investment banking, global markets hard -source

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  • Mass redundancies, spending review beckons for Wall Street giant
  • Cuts to all major divisions expected, globally
  • Restructuring in Asian wealth unit kicks off Wednesday’s layoffs

NEW YORK/LONDON/HONG KONG, Jan 12 (Reuters) – Goldman Sachs (GS.N) began laying off staff on Wednesday in a sweeping cost-cutting drive, with around a third of those affected coming from the investment banking and global markets division, a source familiar with the matter said.

The long-expected jobs cull at the Wall Street titan is expected to represent the biggest contraction in headcount since the financial crisis. It is likely to affect most of the bank’s major divisions, with its investment banking arm facing the deepest cuts, a source told Reuters this month.

Just over 3,000 employees will be let go, the source, who could not be named, said on Monday. A separate source confirmed on Wednesday that cuts had started.

“We know this is a difficult time for people leaving the firm,” a Goldman Sachs statement on Wednesday said.

“We’re grateful for all our people’s contributions, and we’re providing support to ease their transitions. Our focus now is to appropriately size the firm for the opportunities ahead of us in a challenging macroeconomic environment.”

The cuts are part of broader reductions across the banking industry as a possible global recession looms. At least 5,000 people are in the process of being cut from various banks. In addition to the 3,000 from Goldman, Morgan Stanley (MS.N) has cut about 2% of its workforce, or 1,600 people, a source said last month while HSBC (HSBA.L) is shedding at least 200, sources previously said.

Last year was challenging across groups including credit, equities, and investment banking broadly, said Paul Sorbera, president of Wall Street recruitment firm Alliance Consulting. “Many didn’t make budgets.”

“It’s just part of Wall Street,” Sorbera said. “We’re used to seeing layoffs.”

The latest cuts will reduce about 6% of Goldman’s headcount, which stood at 49,100 at the end of the third quarter.

[1/3] A trader works at the Goldman Sachs stall on the floor of the New York Stock Exchange, April 16, 2012. REUTERS/Brendan McDermid/File Photo

The firm’s headcount had added more than 10,000 jobs since the coronavirus pandemic as markets boomed.

The reductions come as U.S. banking giants are forecast to report lower profits this week. Goldman Sachs is expected to report a net profit of $2.16 billion in the fourth-quarter, according to a mean forecast by analysts on Refinitiv Eikon, down 45% from $3.94 billion net profit in the same period a year earlier.

Shares of Goldman Sachs have partially recovered from a 10% fall last year. The stock closed up 1.99% on Wednesday, up around 6% year-to-date.

LAYOFFS AROUND GLOBE

Goldman’s layoffs began in Asia on Wednesday, where Goldman completed cutting back its private wealth management business and let go of 16 private banking staff across its Hong Kong, Singapore and China offices, a source with knowledge of the matter said.

About eight staff were also laid off in Goldman’s research department in Hong Kong, the source added, with layoffs ongoing in the investment banking and other divisions.

At Goldman’s central London hub, rainfall lessened the prospect of staff huddles. Several security personnel actively patrolled the building’s entrance, but few people were entering or leaving the property. A glimpse into the bank’s recreational area just beyond its lobby showed a handful of staffers in deep conversation but few signs of drama. Wine bars and eateries local to the office were also short of post-lunch trade, in stark contrast to large-scale layoffs of the past when unlucky staffers would typically gather to console one another and plan their next career moves.

In New York, employees were seen streaming into headquarters during the morning rush.

Goldman’s redundancy plans will be followed by a broader spending review of corporate travel and expenses, the Financial Times reported on Wednesday, as the U.S. bank counts the costs of a massive slowdown in corporate dealmaking and a slump in capital markets activity since the war in Ukraine.

The company is also cutting its annual bonus payments this year to reflect depressed market conditions, with payouts expected to fall about 40%.

Reporting by Sinead Cruise and Iain Withers in London, Selena Li in Hong Kong, Scott Murdoch in Sydney and Saeed Azhar in New York; Editing by Josie Kao and Christopher Cushing

Our Standards: The Thomson Reuters Trust Principles.

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Bankman-Fried, FTX execs received billions in hidden loans, ex-Alameda CEO says

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NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives received billions of dollars in secret loans from the crypto mogul’s Alameda Research, the hedge fund’s former chief told a judge when she pleaded guilty to her role in the exchange’s collapse.

Caroline Ellison, former chief executive of Alameda Research, said she agreed with Bankman-Fried to hide from FTX’s investors, lenders and customers that the hedge fund could borrow unlimited sums from the exchange, according a transcript of her Dec. 19 plea hearing that was unsealed on Friday.

“We prepared certain quarterly balance sheets that concealed the extent of Alameda’s borrowing and the billions of dollars in loans that Alameda had made to FTX executives and to related parties,” Ellison told U.S. District Judge Ronnie Abrams in Manhattan federal court, according to the transcript.

Ellison and FTX co-founder Gary Wang both pleaded guilty and are cooperating with prosecutors as part of their plea agreements. Their sworn statements offer a preview of how two of Bankman-Fried’s former associates might testify at trial against him as prosecution witnesses.

In a separate plea hearing, also on Dec. 19, Wang said he was directed to make changes to FTX’s code to give Alameda special privileges on the trading platform, while being aware that others were telling investors and customers that Alameda had no such privileges.

Wang did not specify who gave him those directions.

Nicolas Roos, a prosecutor, said in court on Thursday that Bankman-Fried’s trial would include evidence from “multiple cooperating witnesses.” Roos said Bankman-Fried carried out a “fraud of epic proportions” that led to the loss of billions of dollars of customer and investor funds.

Bankman-Fried has acknowledged risk-management failures at FTX but said he does not believe he has criminal liability. He has not yet entered a plea.

Bankman-Fried founded FTX in 2019 and rode a boom in the values of bitcoin and other digital assets to become a billionaire several times over as well as an influential donor to U.S. political campaigns.

A flurry of customer withdrawals in early November amid concerns about commingling of FTX funds with Alameda prompted FTX to declare bankruptcy on Nov. 11.

Bankman-Fried, 30, was released on Thursday on $250 million bond. His spokesperson declined to comment on Ellison and Wang’s statements.

Lawyers for Wang and Ellison declined to comment.

Ellison told the court that when investors in June 2022 recalled loans they had made to Alameda, she agreed with others to borrow billions of dollars in FTX customer funds to repay them, understanding that customers were not aware of the arrangement.

“I am truly sorry for what I did,” Ellison said, adding that she is helping to recover customer assets.

Wang also said he knew what he was doing was wrong.

The transcript of Ellison’s hearing was initially sealed out of concern that the disclosure of her cooperation could thwart prosecutors’ efforts to extradite Bankman-Fried from the Bahamas, where he lived and where FTX was based, court records showed.

Bankman-Fried was arrested in the capital Nassau on Dec. 12 and arrived in the United States on Wednesday after consenting to extradition.

A magistrate judge ordered him confined to his parents’ California home until trial.

On Friday evening, Abrams recused herself from the case, saying in a court order that the law firm Davis Polk & Wardwell LLP, where her husband is a partner, advised FTX in 2021.

The firm also represented parties that could be adverse to FTX and Bankman-Fried in other proceedings, the judge said, and while her husband had no involvement in these matters, which “were confidential and their substance is unknown to the Court,” she was recusing herself to avoid a possible conflict.

Reporting by Luc Cohen in New York; Writing by Tom Hals in Wilmington, Del.; Editing by Noeleen Walder, Matthew Lewis and Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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Business

Goldman to cut thousands of staff as Wall Street layoffs intensify -source

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NEW YORK, Dec 16 (Reuters) – Goldman Sachs Group Inc (GS.N) is planning to cut thousands of employees to navigate a difficult economic environment, a source familiar with the matter said.

The layoffs are the latest sign that cuts are accelerating across Wall Street as dealmaking dries up. Investment banking revenues have plunged this year amid a slowdown in mergers and share offerings, marking a stark reversal from a blockbuster 2021 when bankers received big pay bumps.

Goldman Sachs had 49,100 employees at the end of the third quarter after adding significant numbers of staff during the pandemic. Its headcount will remain above pre-pandemic levels, the source said. The workforce stood at 38,300 at the end of 2019, according to a filing.

The number of employees that will be affected by the layoffs is still being discussed, and details are expected to be finalized early next year, the source said.

The bank is weighing a sharp cut to the annual bonus pool this year, a separate source familiar with the matter said. That contrasts with increases of 40% to 50% for top-performing investment bankers in 2021, Reuters reported in January, citing people with direct knowledge of the matter.

“GS needs to show that its costs are as variable as its revenues, especially after a year when it provided special rewards to top managers during the boom times,” wrote Mike Mayo, a banking analyst at Wells Fargo.

“Goldman Sachs now needs to show that it can do the same when business is not as good and that they live up to the old Wall St. adage that they ‘eat what they kill,'” he said in a note.

The company’s stock fell 1.3% in afternoon trading alongside shares of JPMorgan & Chase Co (JPM.N) and Morgan Stanley (MS.N), which fell 0.6% and 1.3%, respectively.

Goldman shares have slumped almost 10% this year. But they have outperformed the broader S&P 500 bank index (.SPXBK), which is down 24% year to date.

[1/2] The logo for Goldman Sachs is seen on the trading floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., November 17, 2021. REUTERS/Andrew Kelly/File Photo

CONSUMER BANK STRUGGLES

The latest plan would include hundreds of employees being cut from Goldman’s consumer business, a source said.

The bank signaled it was scaling back its ambitions for Marcus, the loss-making consumer unit, in October. Goldman also plans to stop originating unsecured consumer loans, a source familiar with the move told Reuters earlier this week, another sign it is stepping back from the business.

Chief Executive Officer David Solomon, who took the helm in 2018, has tried to diversify the company’s operations with Marcus. It was placed under the wealth business in October as part of a management reshuffle that also merged the trading and investment banking units.

Trading and investment banking — the traditional drivers of Goldman’s profit — accounted for nearly 65% of its revenue at the end of the third quarter, compared with 59% in the third quarter of 2018, when Solomon took the top job.

Semafor earlier on Friday reported that Goldman will lay off as many as 4,000 people as the bank struggles to meet profit targets, citing people familiar with the matter.

Goldman Sachs declined to comment.

The latest plans come after Goldman cut about 500 employees in September, after pausing the annual practice for two years during the pandemic, a source familiar with the matter told Reuters at the time.

The investment bank had first warned in July that it might slow hiring and reduce expenses.

Global banks, including Morgan Stanley (MS.N) and Citigroup Inc (C.N), have reduced their workforces in recent months as a dealmaking boom on Wall Street fizzled out due to high interest rates, tensions between the United States and China, the war between Russia and Ukraine, and soaring inflation.

Reporting by Saeed Azhar and Lananh Nguyen; Additional reporting by Noor Zainab Hussain and Mehnaz Yasmin in Bengaluru; Editing by Mark Porter

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In sweltering Bahamas courtroom, Bankman-Fried fights incarceration

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NASSAU, Dec 13 (Reuters) – Cordoned-off roads, a sweltering courtroom and numerous delays marked Sam Bankman-Fried’s first in-person public appearance since his crypto company collapsed.

The Bahamas courtroom hearing, conducted over the course of six hours, saw Bankman-Fried, dressed in a suit rather than his typical t-shirt attire, seeking bail to dispute his extradition to the U.S. He was ultimately refused and faces possible extradition to the United States.

It was a stunning fall from grace for the crypto boss, once estimated by Forbes as worth as much as $26.5 billion.

“I’m not waiving,” Bankman-Fried said when asked if he would seek to waive his right to an extradition hearing.

It was a rare comment in a hearing that was largely taken up with lawyers discussing process. In another comment, Bankman-Fried referred to the night of his arrest as “hectic.”

There was high anticipation ahead of the appearance by Bankman-Fried, who has done numerous media interviews since his firm collapsed but not been widely seen in public.

The day started with Bankman-Fried ushered into court away from the main entrance and photographers and reporters who crowded to get a shot.

Bahamas Chief Magistrate JoyAnn Ferguson-Pratt contributed witty asides that often left the courtroom chuckling, once quipping “I wasn’t born yesterday” at the defense counsel’s interpretation of the law.

Ferguson-Pratt’s repeatedly forgetting the defendant’s last name led to laughter.

“Samuel,” she said before trailing off, with the once-billionaire crypto magnate reminding her of his name: “Bankman-Fried.”

People in the courtroom fanned themselves to keep cool in the tropical heat as sun shone through the windows.

The hearing was adjourned twice, once to consult about the court’s jurisdiction to grant bail, and again in the afternoon.

It also included an extensive discussion of Bankman-Fried’s medication, which his lawyer said was for conditions including depression, insomnia and attention deficit disorder.

At the start of the proceedings, Bankman-Fried asked to change an Emsam patch, a medical strip applied to the skin that is used to treat adult depression. He asked to briefly leave the court room to take the medication.

Bankman-Fried acknowledged that he had not taken his medications with him when he was arrested, which he attributed to having had a “hectic night”.

His parents, Joseph Bankman and Barbara Fried, at times seemed frustrated with the arguments made by the prosecution, which described him as a flight risk.

Bankman-Fried’s defense counsel pointed out that Bankman-Fried had spent weeks in The Bahamas after his business collapsed without attempting to leave the country.

At the end of the hearing, his head lowered, he hugged his parents. A van outside the court waited to take him away.

Reporting by Jared Higgs in Nassau and Brian Ellsworth in Miami; editing by Megan Davies, Noeleen Walder and Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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Exclusive: Goldman Sachs on hunt for bargain crypto firms after FTX fiasco

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LONDON, Dec 6 (Reuters) – Goldman Sachs (GS.N) plans to spend tens of millions of dollars to buy or invest in crypto companies after the collapse of the FTX exchange hit valuations and dampened investor interest.

FTX’s implosion has heightened the need for more trustworthy, regulated cryptocurrency players, and big banks see an opportunity to pick up business, Mathew McDermott, Goldman’s head of digital assets, told Reuters.

Goldman is doing due diligence on a number of different crypto firms, he added, without giving details.

“We do see some really interesting opportunities, priced much more sensibly,” McDermott said in an interview last month.

FTX filed for Chapter 11 bankruptcy protection in the United States on Nov. 11 after its dramatic collapse, sparking fears of contagion and amplifying calls for more crypto regulation.

“It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that,” McDermott said. “FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform.”

While the amount Goldman may potentially invest is not large for the Wall Street giant, which earned $21.6 billion last year, its willingness to keep investing amid the sector shakeout shows it senses a long term opportunity.

Its CEO David Solomon told CNBC on Nov. 10, as the FTX drama was unfolding, that while he views cryptocurrencies as “highly speculative”, he sees much potential in the underlying technology as its infrastructure becomes more formalized.

Rivals are more sceptical.

“I don’t think it’s a fad or going away, but I can’t put an intrinsic value on it,” Morgan Stanley (MS.N) CEO James Gorman said at the Reuters NEXT conference on Dec. 1.

HSBC (HSBA.L) CEO Noel Quinn, meanwhile, told a banking conference in London last week he has no plans to expand into crypto trading or investing for retail customers.

Goldman has invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data and blockchain management.

McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and rose to run its digital assets business after serving as head of cross asset financing.

His team has grown to more than 70 people, including a seven-strong crypto options and derivatives trading desk.

Goldman Sachs has also together with MSCI and Coin Metrics launched data service datonomy, aimed at classifying digital assets based on how they are used.

The firm is also building its own private distributed ledger technology, McDermott said.

‘TRUSTED’ PLAYERS

The global cryptocurrency market peaked at $2.9 trillion in late 2021, according to data site CoinMarketCap, but has shed about $2 trillion this year as central banks tightened credit and a string of high-profile corporate failures hit. It last stood at $865 billion on Dec. 5.

The ripple effects from FTX’s collapse have boosted Goldman’s trading volumes, McDermott said, as investors sought to trade with regulated and well capitalized counterparties.

“What’s increased is the number of financial institutions wanting to trade with us,” he said. “I suspect a number of them traded with FTX, but I can’t say that with cast iron certainty.”

Goldman also sees recruitment opportunities as crypto and tech companies shed staff, McDermott said, although the bank is happy with the size of its team for now.

Others also see the crypto meltdown as a chance to build their businesses.

Britannia Financial Group is building its cryptocurrency-related services, its chief executive Mark Bruce told Reuters.

The London-based company aims to serve customers who are eager to diversify into digital currencies, but who have never done so before, Bruce said. It will also cater to investors who are very familiar with the assets, but have become nervous about storing funds at crypto exchanges since FTX’s collapse.

Britannia is applying for more licenses to provide crypto services, such as doing deals for wealthy individuals, he said

“We have seen more client interest since the demise of FTX,” he said. “Customers have lost trust in some of the younger businesses in the sector that purely do crypto, and are looking for more trusted counterparties.”

Reporting by Iain Withers and Lawrence White, Editing by Lananh Nguyen and Alexander Smith

Our Standards: The Thomson Reuters Trust Principles.

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Sam Bankman-Fried says he ‘didn’t ever try to commit fraud’

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NEW YORK, Nov 30 (Reuters) – Sam Bankman-Fried, the founder and former CEO of now-bankrupt crypto exchange FTX, attempted to distance himself from suggestions of fraud in his first public appearance since his company’s collapse stunned investors and left creditors facing losses totaling billions of dollars.

Speaking via video link at the New York Times’ Dealbook Summit with Andrew Ross Sorkin on Wednesday, Bankman-Fried said he did not knowingly commingle customer funds on FTX with funds at his proprietary trading firm, Alameda Research.

“I didn’t ever try to commit fraud,” Bankman-Fried said in the hour-long interview, adding that he doesn’t personally think he has any criminal liability.

He also denied knowing the full scale of Alameda’s position on FTX, claiming that it caught him by surprise.

The liquidity crunch at FTX came after Bankman-Fried secretly moved $10 billion of FTX customer funds to Alameda Research, Reuters reported, citing two people familiar with the matter. At least $1 billion in customer funds had vanished, the people said.

Bankman-Fried told Reuters in November the company did not “secretly transfer” but rather misread its “confusing internal labeling.”

FTX filed for bankruptcy and Bankman-Fried stepped down as chief executive on Nov. 11, after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

“That week, so much happened,” he said.

Bankman-Fried said he was speaking from the Bahamas and that the interview was against the advice of his lawyers. He was seen in the video link talking from a room, dressed in a black T-shirt and occasionally drinking from a mug.

FTX faces a flurry of investigations. The U.S. Attorney’s Office in Manhattan in mid-November began investigating how FTX handled customer funds, a source with knowledge of the probe told Reuters. The Securities and Exchange Commission and Commodity Futures Trading Commission have also opened probes.

When asked if he could come to the United States, Bankman-Fried replied that to his knowledge he could, and that he wouldn’t be surprised if he traveled to Washington for upcoming congressional hearings on the company’s collapse.

The implosion of FTX marked a stunning fall from grace for the 30-year-old entrepreneur who rode a cryptocurrency boom to a net worth that Forbes pegged a year ago at $26.5 billion. After launching FTX in 2019, he became an influential political donor and pledged to donate most of his earnings to charities.

He said Wednesday that he now has “close to nothing” left and is down to one working credit card with “maybe $100,000 in that bank account.”

Since FTX filed for bankruptcy, Bankman-Fried has distanced himself from the image he projected in media interviews and on Capitol Hill, telling a Vox reporter his advocacy for a crypto regulatory framework was “just PR” and his discussions on ethics within the industry were at least partly a front.

Bankman-Fried said he was “confused” as to why FTX’s U.S. entity, which was included in the bankruptcy filing, is not processing customer withdrawals. Redemptions are currently paused for both U.S. and international customers.

“To my knowledge all American customers and all American regulated businesses here are, I think at least in terms of client assets, are okay,” he said, adding that derivatives contracts at one of its U.S. subsidiaries were “fully collateralized.”

WHAT HAPPENED

Bankman-Fried said that Alameda had built up a substantial position on FTX and that as digital asset prices plummeted this year, Alameda became increasingly more levered to the point of no return earlier this month.

“Realistically speaking, (there was) no ability for FTX to be able to liquidate that position and generate everything that was owed,” he said.

He added that he “wasn’t trying to commingle funds,” but said that when FTX didn’t have a bank account, some customers wired money to Alameda and were credited on FTX, which likely led to discrepancies.

Bankman-Fried stepped down as CEO of Alameda in October 2021, four years after founding the company, and ceded the role to Caroline Ellison and Sam Trabucco, who acted as co-CEOs until Trabucco departed the firm in August.

For his part, Bankman-Fried said he regretted focusing on the bigger picture at FTX at the expense of risk management, which he said he paid less attention to over “the last year or two.”

His companies “completely failed” on risk management, he said.

“There was no person who was chiefly in charge of positional risk of customers on FTX, and that feels pretty embarrassing in retrospect.”

Reporting by Carolina Mandl and Lananh Nguyen in New York and Manya Saini in Bengaluru; writing by Hannah Lang in Washington; editing by Megan Davies, Deepa Babington and Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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Crypto lender BlockFi files for bankruptcy, cites FTX exposure

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  • Filing follows weeks after FTX collapse
  • FTX listed as BlockFi’s No.2 creditor
  • Bitcoin down over 70% from 2021 peak

Nov 28 (Reuters) – Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection, it said on Monday, the latest crypto casualty after the firm was hurt by exposure to the spectacular collapse of the FTX exchange earlier this month.

The filing in a New Jersey court comes as crypto prices have plummeted. The price of bitcoin , the most popular digital currency by far, is down more than 70% from a 2021 peak.

“BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem,” said Monsur Hussain, senior director at Fitch Ratings.

New Jersey-based BlockFi, founded by fintech executive-turned-crypto entrepreneur Zac Prince, said in a bankruptcy filing that its substantial exposure to FTX created a liquidity crisis. FTX, founded by Sam Bankman-Fried, filed for protection in the United States earlier in November after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

“Although the debtors’ exposure to FTX is a major cause of this bankruptcy filing, the debtors do not face the myriad issues apparently facing FTX,” said the first day bankruptcty filing by Mark Renzi, managing director at Berkeley Research Group, the proposed financial advisor for BlockFi. “Quite the opposite.”

BlockFi said the liquidity crisis was due to its exposure to FTX via loans to Alameda, a crypto trading firm affiliated with FTX, as well as cryptocurrencies held on FTX’s platform that became trapped there. BlockFi listed its assets and liabilities as being between $1 billion and $10 billion.

Renzi said that BlockFi had sold a portion of its crypto assets earlier in November to fund its bankruptcy. Those sales raised $238.6 million in cash, and BlockFi now has $256.5 million in cash on hand.

In a court filing on Monday, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a loan extended earlier this year. It said it owes money to more than 100,000 creditors. The company also said in a separate filing it plans to lay off two-thirds of its 292 employees.

Under a deal signed with FTX in July BlockFi was to receive a $400 million revolving credit facility while FTX got an option to buy it for up to $240 million.

BlockFi’s bankruptcy filing also comes after two of BlockFi’s largest competitors, Celsius Network and Voyager Digital , filed for bankruptcy in July citing extreme market conditions that had resulted in losses at both companies.

Crypto lenders, the de facto banks of the crypto world, boomed during the pandemic, attracting retail customers with double-digit rates in return for their cryptocurrency deposits.

Crypto lenders are not required to hold capital or liquidity buffers like traditional lenders and some found themselves exposed when a shortage of collateral forced them – and their customers – to shoulder large losses.

BlockFi’s first bankruptcy hearing is scheduled to take place on Tuesday FTX did not respond to a request for comment.

CREDITOR LIST

BlockFi’s largest creditor is Ankura Trust, a company that represents creditors in stressed situations, and is owed $729 million. Valar Ventures, a Peter Thiel-linked venture capital fund, owns 19% of BlockFi equity shares.

BlockFi also listed the U.S. Securities and Exchange Commission as one of its largest creditors, with a $30 million claim. In February, a subsidiary of BlockFi agreed to pay $100 million to the SEC and 32 states to settle charges in connection with a retail crypto lending product the company offered to nearly 600,000 investors.

Bain Capital Ventures and Tiger Global co-led BlockFi’s March 2021 funding round, according to a press release issued by BlockFi at the time. Both firms did not immediately respond to a request for comment.

In a blog post, BlockFi said its Chapter 11 cases will enable the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interest of our clients is our top priority and continues to guide our path forward,” BlockFi said.

In its bankruptcy filing, BlockFi said it had hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel.

BlockFi had earlier paused withdrawals from its platform.

In a filing, Renzi said that Blockfi intends to seek authority to honor client withdrawal requests from its customer wallet accounts, in which crypto assets are held in custody. However, the company did not disclose its plans for how it might treat withdrawal requests from its other products, including its interest-bearing accounts.

“BlockFi clients may ultimately recover a substantial portion of their investments,” Renzi said in the filing.

ORIGINS

BlockFi was founded in 2017 by Prince, who is currently the company’s chief executive officer, and Flori Marquez. Though headquartered in Jersey City, BlockFi also has offices in New York, Singapore, Poland and Argentina, according to its website.

In July, Prince had tweeted that “it’s time to stop putting

BlockFi in the same bucket / sentence as Voyager and Celsius.”

“Two months ago we looked the ‘same.’ They shut down and have impending losses for their clients,” he said.

According to a profile of BlockFi published earlier this year by Inc, Prince was raised in San Antonio, Texas, and financed his college education at the University of Oklahoma and Texas State University with winnings from online poker tournaments. Before starting BlockFi with Marquez, he held jobs at Orchard Platform, a broker dealer, and at Zibby, a lease-to-own lender now called Katapult (KPLT.O).

Marquez previously worked at Bond Street, a small business lending outfit that was folded in to Goldman Sachs (GS.N) in 2017, according to Inc.

Reporting by Hannah Lang in Washington, Niket Nishant and Manya Saini in Bengaluru and Elizabeth Howcroft in London
Additional reporting by Dietrich Knauth, Editing by Megan Davies, Conor Humphries, Matthew Lewis and Anna Driver

Our Standards: The Thomson Reuters Trust Principles.

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Business

Banks forced to hold on to Twitter deal debt, sources say

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NEW YORK, Oct 21 (Reuters) – The banks providing $13 billion in financing for Tesla CEO Elon Musk’s acquisition of Twitter Inc (TWTR.N) have abandoned plans to sell the debt to investors because of uncertainty around the social media company’s fortunes and losses, people familiar with the matter said.

The banks are not planning to syndicate the debt as is typical with such acquisitions, and are instead planning to keep it on their balance sheets until there is more investor appetite, the sources said.

The banks, which include Morgan Stanley , Bank of America , and Barclays Plc (BARC.L), declined to comment. Representatives for Musk and Twitter did not immediately respond to requests for comment.

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Musk agreed to pay $44 billion for Twitter in April, before the Federal Reserve started raising interest rates in a bid to fight inflation. This made the acquisition financing look too cheap in the eyes of credit investors, so the banks would have to take a financial hit totaling hundreds of millions of dollars to get it off their books.

Also preventing the banks from marketing the debt was uncertainty around the deal’s completion. Musk has tried to get out of the deal, arguing Twitter misled him over the number of spam accounts on the platform, and only agreed to comply with a Delaware court judge’s Oct. 28 deadline to close the transaction earlier this month. He has not revealed details on Twitter’s new leadership and business plan, and many debt investors are holding back until they get more details on that front, the sources said.

The debt package for the Twitter deal is comprised of junk-rated loans, which are risky because of the amount of debt the company is taking on, as well as secured and unsecured bonds.

Rising interest rates and broader market volatility has pushed investors to stay away from some junk-rated debt. For example, Wall Street banks led by Bank of America suffered a $700 million loss in September on the sale of about $4.55 billion in debt backing the leveraged buyout of business software company Citrix Systems Inc.

In September, a group of banks canceled efforts to sell about $4 billion of debt that financed Apollo Global Management Inc’s deal to buy telecom and broadband assets from Lumen Technologies after failing to find buyers.

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Reporting by Anirban Sen and Shankar Ramakrishnan in New York; Additional reporting by Sheila Dang, Abigail Summerville and Matt Tracy; Editing by Josie Kao

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Banks financing Musk’s Twitter deal face hefty losses

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Oct 5 (Reuters) – Elon Musk’s U-turn on buying Twitter Inc (TWTR.N) could not have come at a worse time for the banks funding a large portion of the $44 billion deal and they could be facing significant losses.

As in any large acquisition, banks would look to sell the debt to get it off their books. But investors have lost their appetite for riskier debt such as leveraged loans, spooked by rapid interest rate hikes around the world, fears of recession and market volatility driven by Russia’s invasion of Ukraine.

While Musk will provide much of $44 billion by selling down his stake in electric vehicle maker Tesla Inc (TSLA.O) and by leaning on equity financing from large investors, major banks have committed to provide $12.5 billion.

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They include Morgan Stanley , Bank of America Corp and Barclays Plc (BARC.L).

Mitsubishi UFJ Financial Group Inc (8306.T), BNP Paribas SA (BNPP.PA), Mizuho Financial Group Inc (8411.T) and Societe Generale SA are also part of the syndicate.

Noting other recent high-profile losses for banks in leveraged financing, more than 10 bankers and industry analysts told Reuters the outlook was poor for the banks trying to sell the debt.

The Twitter debt package is comprised of $6.5 billion in leveraged loans, $3 billion in secured bonds, and another $3 billion in unsecured bonds.

Twitter logo and stock graph are seen through a magnifier displayed in this illustration taken September 4, 2022. REUTERS/Dado Ruvic/Illustration

“From the banks’ perspective, this is less than ideal,” said Wedbush Securities analyst Dan Ives. “The banks have their backs to the wall – they have no choice but to finance the deal.”

Leveraged financing sources have also previously told Reuters that potential losses for Wall Street banks involved in the Twitter debt in such a market could run to hundreds of millions of dollars.

Societe Generale did not respond to a request for comment while the other banks declined to comment. Twitter also declined to comment. Musk did not immediately respond to a request for comment.

Just last week, a group of lenders had to cancel efforts to sell $3.9 billion of debt that financed Apollo Global Management Inc’s (APO.N) deal to buy telecom and broadband assets from Lumen Technologies Inc .

That came on the heels of a group of banks having to take a $700 million loss on the sale of about $4.55 billion in debt backing the leveraged buyout of business software company Citrix Systems Inc.

“The banks are on the hook for Twitter — they took a big loss on the Citrix deal a few weeks ago and they’re facing an even bigger headache with this deal,” said Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital.

Banks have been forced to pull back from leveraged financing in the wake of Citrix and other deals weighing on their balance sheet and that is unlikely to change anytime soon.

The second quarter also saw U.S. banks start to take a hit on their leveraged loans’ exposure as the outlook for dealmaking turned sour. Banks will begin reporting third-quarter earnings next week.

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Reporting by Anirban Sen, additional reporting by Megan Davies, Lananh Nguyen, Sheila Dang and Hyunjoo Jin; Writing by Paritosh Bansal; Editing by Edwina Gibbs

Our Standards: The Thomson Reuters Trust Principles.

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Barclays hit by $361 million U.S. penalty for ‘staggering’ blunder

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Sept 30 (Reuters) – British lender Barclays (BARC.L) agreed a $361 million penalty with U.S. regulators on Thursday for “staggering” failures that led it to oversell $17.7 billion of structured products, racking up further costs for an error that has blighted CEO C.S. Venkatakrishnan’s first year in charge.

The bank said after London market close on Friday that its own review led by external lawyers into the error had also concluded, adding it would consider individual accountabilities and whether to take disciplinary action or dock pay packets based on the findings.

Barclays’ shares closed down 0.2% on the day.

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The conduct concerned dates back to March this year when Barclays disclosed that it had accidentally oversold complex structured and exchange-traded notes, overshooting by about 75% a $20.8 billion limit on such sales it had agreed with the Securities and Exchange Commission.

The bank had failed to implement any internal controls to track such transactions in real time, the SEC found.

“While we acknowledge Barclays’ efforts to identify, disclose and remediate this conduct, the control deficiencies and the scope of the conduct at issue here was simply staggering,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a statement.

Barclays will pay the penalty without admitting or denying the SEC’s findings, it said.

Barclays said its review found the over-issuance happened primarily because of a failure to identify and escalate to senior executives the consequences of a change in its issuer status and because of a decentralised structure for securities issuances.

The error was not due to “a general lack of attention to controls by Barclays”, the bank said its review concluded.

Buyers of the notes, considered “unregistered securities,” had the right to demand Barclays buy back the products at the original price plus interest. The bank took a charge of 1.3 billion pounds in the second quarter to cover the costs of buying back the securities, denting its profits. read more

On Thursday, the SEC said Barclays had agreed to pay a $200 million civil penalty for the control lapses. In addition, it agreed to pay disgorgement and interest of more than $161 million, although the regulator said that additional charge was satisfied by the buyback offer.

While the SEC settlement helps draw a line under the incident, which has been an embarrassment for Venkatakrishnan – known at the bank as ‘Venkat’ – it still faces private litigation relating to the incident. read more

Barclays also still has to outline the final costs of its so-called rescission offer to buy back the securities it sold in error. The bank said on Friday the full financial impact would be “materially in line” with that disclosed in its half-year financial results, with further details in its third quarter results on Oct 26.

Barclays said this month that investors had submitted claims for $7 billion out of the $17.7 billion worth of securities it over-sold. read more

WELL-SEASONED ISSUER

Under a previous enforcement settlement Barclays agreed with the SEC in 2017, the bank was stripped of its “well known seasoned issuer” status that had allowed it to sell notes in the United States with flexible filing requirements.

As a result, Barclays had to quantify the total number of securities that it anticipated offering and selling and pay registration fees for those offerings in advance. In August 2019, the bank and the SEC agreed Barclays could offer or sell approximately $20.8 billion of securities, for a period of three years.

Given this requirement, staff knew they had to keep close track of actual offers and sales of securities against the amount of registered offers and sales on a real-time basis, but the bank failed to establish a mechanism to do this, the SEC said.

Around March 9, staff realized that they had oversold the agreed amount of securities and alerted regulators a few days later, the SEC said.

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Reporting by John McCrank in New York, Kanishka Singh in Washington and Iain Withers in London; editing by Deepa Babington, Jason Neely and Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

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