In a recent poll of video streamers, 16% of respondents admitted to using a non-household member’s Netflix account. 16% is much lower than I would’ve expected, but it appears that Netflix has had enough.
Netflix recently started notifying some users that they were in violation on Netflix’ terms of service and needed to get their own accounts. While the company claims the messages were only a test, industry observers expect real, more stringent enforcement to follow.
As my freeloading days come to an end, I’d like to take a minute to thank my wife’s cousin, Sean. Though we only met once and I probably couldn’t pick you out of a lineup, you gave me Tiger King and, for that, I forever owe you a debt of gratitude.
It’s Saturday March 20, 2021.
Greensill
If Wirecard was 2020’s fraud of the year, Greensill Capital is an early contender for this year’s award.
Earlier this month, the SoftBank-backed lending group filed for administration - the UK equivalent of bankruptcy. This week, things didn’t quite improve.
On Monday, Bluestone Resources - the mining company owned by West Virginia governor Jim Justice - filed suit accusing Greensill of perpetrating a continuous fraud.
Then, on Tuesday, German courts declared the company’s banking subsidiary insolvent and the country’s financial watchdog (BaFin) filed a criminal complaint accusing management of balance sheet manipulation.
So what is Greensill Capital?
Greensill specializes in supply-chain finance, which is a popular cash management tool used by many CFOs.
Say Kellogg wants to order a million dollar’s worth of widgets from Acme Corp. and wants to pay in 90 days, but Acme may wants to get paid in 10 days. The buyer (here, Kellogg) might reach out to Greensill and have them front the payment to Acme, who will agree to a slight discount in order to get money sooner. Kellogg will then continue to carry the payable on its balance sheet and pay back Greensill at a later date.
While Greensill does (or did) count Kellogg as a customer, the bulk of its clients aren’t exactly blue chips. Greensill has $5B of exposure to GFG Alliance, an embattled group of steel-related companies, $435M to distressed construction company Katerra, and $850M to coal miner Bluestone. Greensill was also a primary source of capital for three businesses that went bust in the last year: NMC Health, BrightHouse, and Agritrade.
While Bluestone marked the first major US suit against the company, Greensill’s recent troubles have already garnered much publicity abroad.
After raising $250M in equity capital from General Atlantic in 2018 and a further $1.5B from SoftBank at a $7B valuation in 2019, Greensill quickly ramped up its lending operations, with 2020 originations exceeding $50B. As on-lookers (namely, Financial Times and Bronte Capital’s John Hempton) began digging, however, cracks began to appear.
First, there was the high concentration of originations with high-risk businesses. Next, a $74M loan to a company that didn’t exist. And then, aggressive expansion into new, unsecured products:
In the case of Bluestone, the mining group had borrowed $70m using supply chain finance, according to its lawsuit. But it had also borrowed $780m against “receivables that have not yet been generated by Bluestone” from “prospective buyers” which included “entities that were not and might not ever become customers of Bluestone”.
When a KPMG audit was unable to verify the existence of invoices, Greensill’s downfall accelerated. Tokio Marine, an insurance underwriter with $7B of exposure to the company, refused to renew policies protecting Greensill against defaults.
Credit Suisse followed suit, refusing to renew a $4.6B insurance policy and putting a freeze on financing and loan purchase agreements with the company. This was a major blow to Greensill; CS’ wealth management division had purchased $10B of Greensill loans and the bank lent the company another $160M.
Greensill Capital also financed its growth with non-arm’s length loans from a German banking subsidiary, Greensill Bank AG. The insolvent banking arm had $4B in deposits, $200M of which was lent directly to its also-insolvent parent and the remainder of which was invested, in part, in other Greensill projects.
With depositors losing money, lenders and insurers facing staggering losses, and companies’ cash management plans suddenly disrupted, regulators fear a cascade of defaults that could threaten north of 50,000 jobs, mostly across Europe and Australia.
Perhaps most concerning and reminiscent of the 2008 financial crisis - albeit at a smaller scale - no one really knows the full magnitude of potential losses or who will bear the brunt of those losses.
In Japan, Tokio Marine has $7B of exposure, but claims the insurance policies were fraudulently obtained and are thus void.
In Switzerland, Credit Suisse has recovered about 40% of the $10B it invested on its clients’ behalf, but it is unclear how much of the remaining $6B is recoverable and the bank - who presented the Greensill funds as some of its safest investments - may have to share in those losses. CS is budgeting for a $2B loss.
In the UK, GFG Alliance and its Liberty Steel subsidiary are desperately scrambling to secure new financing. Liberty alone employs 5,000 people and British taxpayers have already guaranteed over £1B of Greensill x GFG debts.
In the US, Bluestone’s complaint alleges that Greensill pressured the West Virginia mining company to sell coal to GFG Alliance, Greensill’s biggest client, despite GFG already being in dire straits. GFG has yet to pay for the deliveries.
In Germany, 85% of Greensill Bank’s deposits belong to retail investors, whose losses will ultimately be borne by the country’s deposit insurance regime. Another $250M belongs to a dozen small German towns, who, faced with negative interest rates at bigger national banks, were drawn to Greensill’s de minimis (but positive) rates. Their deposits are not insured.
Back to Japan, SoftBank has now filed a $1.1B claim against Greensill in bankruptcy court. In addition to its $1.5B equity investment, the conglomerate had also poured $500M in Credit Suisse’s Greensill-related funds.
Meanwhile, during the SoftBank fundraise, the start-up’s founder cashed out $200M.
So yeah… things are pretty bad for Greensill.
So bad, in fact, that only three weeks into its bankruptcy, Wikipedia already refers to the company in the past tense!
RIP.
Flex Pricing
On Sunday, Major League Baseball’s Oakland Athletics announced an interesting change to its pricing schedule: beginning this season, fans (or companies) can lock-in a full-season six-person suite for… one Bitcoin!
While other sports franchises also accept payments in Bitcoin, the Oakland Athletics’ approach is different in one key respect: the cost of the suite, as denominated in both USD and Bitcoin, is fixed.
In other words, patrons desiring to pay cash for the suite will have to fork over $64,000, while those desiring to pay in Bitcoin will have to pay 1 BTC, regardless of the exchange rate.
Last evening, Bitcoin traded at $58,000 and, after a career in law and newsletter writing, I finally found my calling… as a baseball suite arbitrageur.
New Kids On The Top
Move over SpaceX, there’s a new a king among privately held companies.
On Sunday, payments provider Stripe announced the close of a $600M funding round, valuing the company at $95B and making it the most valuable venture-backed business in America. In addition to passing SpaceX, Stripe is now also valued higher than Facebook and Uber had ever been prior to hitting the public markets.
Limited financial information is available about the company, but it did reveal that it handled 5,000 payment processing requests per second and added 200,000 new corporate customers in 2020 alone.
Similar to Square, which we discussed earlier this month, Stripe also started a lending arm to support its small business clients. In addition to this, Stripe also launched a platform - Atlas - that allows entrepreneurs to seamlessly found and register new businesses.
The biggest winners here are Stripe’s cofounders, Irish brothers Patrick and John Collison, who started the company at 21 and 19 years old, respectively. Now 32 and 30, the Collison brothers’ net worth now exceeds $11B… each.
If WallStreetBets is to be believed, the biggest loser in this deal is Bill Ackman, whose SPAC ($PSTH) had been rumored to target Stripe as a merger partner.
Elon Musk was another candidate in the loser category, but the SpaceX founder is also an early Stripe investor, so his winning streak continues.
Toppy Things
On Thursday, Texas Southern and Mount St Mary’s men’s basketball teams battled in the opening game of the March Madness tournament.
Fans of college sports know that the biggest advertisers are typically the schools themselves, Copper Fit, and USAA. This year, however, the tournament will also have its own official… ETF?
With March Madness just around the corner, Invesco has been named as the official asset management partner of the NCAA while the Invesco QQQ ETF (QQQ) has been named the NCAA's official ETF this year.
I guess weirder things have happened this year than a NASDAQ 100-indexed ETF sponsoring college basketball games?
Instead of another rant about “passive” investing, this time, let’s play along...
It is now The Saturday’s official and irrefutable belief that the QQQ sponsorship isn’t an invitation to blindly purchase a basket of stocks; it’s a call to do a deep dive into the 100 underlying companies and that is exactly what every investor will do. During March Madness, flows in and out of QQQ will solely reflect investors’ true and informed opinions on the underlying stock values. Hear! Hear!
So, with that in mind, sentiment traders ought to take note: QQQ is down over 1% since the tournament began. College basketball fans are bearish.
