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SoftBank takes $10 billion hit after being unmasked as Nasdaq 'whale'

SoftBank takes $10 billion hit after being unmasked as
Nasdaq 'whale' 1
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.
The losses have wiped roughly $10 billion off the market value of SoftBank.
How big are the bets? SoftBank bought $4 billion worth of options tied to underlying shares it had earlier purchased in tech firms like Amazon (AMZN), Microsoft (MSFT) and Netflix (NFLX), according to the Wall Street Journal. The newspaper said that the options generated an exposure of about $50 billion.
The size of the bets means that SoftBank (SFTBF) CEO Masayoshi Son is now being called a “whale” — a heavy hitter with the power to move markets on his own. But investors in his company are nervous.
The options could pay off for SoftBank. According to the Financial Times, which was first to report on the position, the company is sitting on trading gains of about $4 billion. But such trades are also risky, since they could lead to big losses if equity markets keep falling.
Remember: The Nasdaq plunged more than 6% in two days last week before the Labor Day weekend. Futures are down sharply on Tuesday.
Why worry: Son had been preaching a defensive strategy after his company reported a record 1.36 trillion yen ($12.7 billion) operating loss in May caused almost entirely by his $100 billion Vision Fund, which invests in tech startups.
Last month, SoftBank announced that it would sell more than 1 million shares in its mobile carrier affiliate SoftBank Corp., worth 1.47 trillion yen (nearly $14 billion). That asset sale came on top of plans the firm announced in March to raise some 4.5 trillion yen ($42 billion) by selling assets.
What’s next: Analysts are questioning the rationale behind the options purchases, and wondering how they fit into a defensive strategy. SoftBank has so far declined to comment, but some investors have seen enough.
After all, if investors want to purchase options on US tech stocks, they are able to do so without buying shares in SoftBank.

One final Brexit deadline

Remember Brexit? The saga is nearly at an end.
British and EU officials start an eighth round of negotiations Tuesday on a new trade agreement that’s needed if UK companies are to avoid significantly higher trading costs and other hurdles next year.
The United Kingdom left the European Union in January, but trade has continued as before during a transition period that expires on December 31. Negotiations have not yet produced a breakthrough, with disagreement over access to fishing waters and rules on government aid to companies.
“The lack of progress in the negotiating room is feeding a growing concern in Brussels and EU capitals about the lack of time,” Mujtaba Rahman, managing director for Europe at the Eurasia Group, said last week.
Why it matters: The coronavirus pandemic has devastated the UK economy, which was already suffering from years of uncertainty over Brexit.
The UK economy contracted by 20.4% in the second quarter of 2020, the most of any major developed economy. About 730,000 jobs have been shed since the country was locked down in March.
Without a new EU trade deal, British exporters would be hit with taxes. Car manufacturers, for example, will face tariffs of up to 10% on vehicles, which was the second most valuable category of goods Britain exported to the European Union in 2019, according to customs data.
Even if EU and British negotiators reach agreement, the movement of goods and services will be subject to customs checks and added regulation, adding billions of dollars of cost to British and European businesses.
The latest: UK Prime Minister Boris Johnson is threatening to walk away from trade talks if a deal isn’t reached next month.
Market insight: Investors are taking notice of the risks. According to fund network Calastone, £1.2 billion ($1.6 billion) has flooded out of UK-focused equity funds between June and August. That’s the biggest three-month period of outflows since Calastone began tracking them in 2015.
The British pound is taking a hit, too. The currency dropped 1% against the dollar on Tuesday, bringing losses so far in September to 2.5%.
Kit Juckes, a strategist at Societe Generale, said that the pound could lose more ground if the government doesn’t change course. The currency is trading at $1.30, more than 8% below its post-referendum high from 2018.
“It’s easier to avoid getting knocked down where you’re already on the canvass,” said Juckes.

Trump threatens break up with China

President Donald Trump is intensifying his criticism of China as he seeks a second term in the White House, raising the prospect of severely restricting trade with the world’s second largest economy.
“When you mention the word decouple, it’s an interesting word,” Trump said during a speech on Monday. ‘We lose billions of dollars and if we didn’t do business with them we wouldn’t lose billions of dollars. It’s called decoupling … you’ll start thinking about it. You’ll start thinking.”
The United States and China have sparred recently over trade, Hong Kong, media access, human rights, intellectual property, tech firms and the coronavirus pandemic. But an economic “decoupling” would further restrict the ability of US companies to do business in China and lead to a sharp drop in trade.
Some of Trump’s campaign rhetoric is likely just that — rhetoric. But it suggests that relations with China might not improve should he win in November.
“China is purchasing more corn than they’ve ever done, record purchase of corn and soybeans, beef because they know I’m not happy with them,” Trump said. “They know I’m not happy at all.”
Lululemon Athletica (LULU) and Slack (WORK) report after the closing bell.
Also today:
  • US consumer credit numbers for July are on tap.
Coming tomorrow: China inflation data; Bank of Canada meeting; GameStop earnings

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