What to do about short selling?
As the shares of another regional bank tumbled on Thursday, Jamie Dimon, the JPMorgan Chase chief, ratcheted up the pressure on regulators to “finish” the crisis at small and midsize lenders, and joined the chorus calling for an investigation into short sellers as part of any solution.
Short sellers are making huge returns on regional bank stocks. These traders, who profit from the falling share price of companies they target, have made more than $7.5 billion in 2023 going after smaller lenders, according to S3 Partners, a financial data provider. They likely added to that tally on Thursday as shares in PacWest, the most shorted regional bank, closed nearly 23 percent lower after it announced a new flight of deposits last week.
Mr. Dimon wants regulators to step up their scrutiny. The banking boss has been at the heart of efforts to resolve the crisis, and JPMorgan bought the struggling First Republic this month. “The S.E.C. has the enforcement capability to look at what people are doing by name in options, derivatives, short sales,” he told Bloomberg. “If someone’s doing anything wrong, people are in collusion or people are going short and then making a tweet about a bank, they should go after them and vigorously,” Mr. Dimon added.
His intervention echoes calls by the American Banking Association, a trade group, which called for the Securities and Exchange Commission to act against “market manipulation and other abusive short selling practices.”
The S.E.C. isn’t planning to ban short selling. But DealBook hears that there is growing pressure on the regulator to implement short-seller rules that were required under the Dodd Frank Act. Section 929X of the act requires the S.E.C. to adopt rules around the disclosure of short positions. The S.E.C. never fully followed through with that mandate, and there is some debate over whether it means revealing individual short positions or aggregate investments.
Proponents say this would add much needed transparency to the market, because other investors, the management of targeted companies and policymakers need to understand what is really happening when a stock is under attack.
Opponents say short sellers aren’t the real problem. They say disclosing who was shorting a stock would give companies a reason to avoid communicating with those investors, preventing important conversations. “There’s always been a worry that if you had short-sale disclosure, companies would use that as a weapon to not talk to people,” Jay Clayton, the former head of the S.E.C., told DealBook.
And, critics say, disappearing deposits are the real issue in the current crisis.
“Asset values decline when buyers are not willing to pay as much as they previously were willing to pay for an asset,” Chester Spatt, a finance professor at Carnegie Mellon’s Tepper School of Business, told DealBook. “This argument does not depend upon whether short-selling is allowed or disclosed.”
Even Mr. Dimon admitted his call was at odds with his own bank’s research. JPMorgan’s analysts say that short selling isn’t to blame for the slide in shares. “I think they may partially be wrong,” he said.
HERE’S WHAT’S HAPPENING
Ron DeSantis blocks his travel records from public view. The Florida governor approved a law on Thursday that bars state agencies from sharing security and travel information. Critics say the move is designed to prevent damaging information about his trips from being revealed as he is set to join the Republican race for president.
The Biden administration warns migrants wanting to cross the U.S.-Mexico border. Alejandro Mayorkas, the Homeland Security secretary, reiterated that the “border is not open” after Title 42, a pandemic-era policy that allowed the government to expel migrants before they could apply for asylum, expired on Thursday.
Senior U.S. and Chinese officials hold rare talks. Jake Sullivan, the national security adviser, met Wang Yi, China’s top foreign affairs official, in Vienna this week in a bid to reset high-level contacts between Washington and Beijing. The discussions follow a period of limited senior communication after the U.S. shot down a suspected Chinese spy balloon.
SoftBank is reportedly pitching an I.P.O. of up to $10 billion for Arm. The Japanese tech conglomerate is testing investor interest for a New York listing of the chip designer that could be the biggest globally this year, according to Bloomberg.
Musk says he will finally replace himself at Twitter
Elon Musk delivered on his promise to answer the big succession question hanging over Twitter, saying on Thursday that his social media platform would have a new C.E.O. to replace him within a matter of weeks.
There are still plenty of questions about what this means for the company, its profit outlook and the regulatory challenges it faces. But the announcement was greeted with huge relief in another corner of Musk’s business empire: Tesla shares rallied as weary investors hoped the move would free him up to spend more time running the electric vehicle maker.
Who is the mystery C.E.O.? Linda Yaccarino, NBCUniversal’s head of advertising, is Mr. Musk’s choice, The Wall Street Journal first reported. The two have been in discussions for weeks, according to The Times. An added twist: Ms. Yaccarino interviewed Musk onstage at an industry event in Miami last month.
Who is Ms. Yaccarino? She played a big part in the launch of Peacock, NBCUniversal’s rapidly growing streaming service, and is a specialist in data-targeted advertising — long seen as a deficiency at Twitter.
Wooing back advertisers is job one for any Twitter chief. Big brands have abandoned the platform since Musk took Twitter private in a $44 billion deal, and the digital advertising market is slumping amid a slowing economy. (When Twitter was a publicly traded company, roughly 90 percent of its revenue came from ad sales.)
Regulators, cash flow and debt payments remain a big focus. The company’s content moderation operation, which Mr. Musk slashed to cut costs, faces regulatory scrutiny on both sides of the Atlantic. And making the company cash-flow positive again is paramount, with Mr. Musk facing $1.5 billion in interest payments on the debt he raised to buy Twitter. He has said he expects to hit that milestone this quarter.
Nobody is expecting the outspoken Mr. Musk to take a back seat. He said he will become “exec chair & C.T.O.” — presumably, chief technology officer — “overseeing product, software & sysops.” Mr. Musk has said for months that he would step down as C.E.O. because running the company had become “painful,” punctuated by the occasional night sleeping on the couch in his office.
NBCUniversal faces succession questions of its own. The company is still seeking a permanent replacement for Jeff Shell, the chief executive who was fired last month after an internal investigation found he used his position to pressure a CNBC anchor for sex.
“People woke up, and they know what the stakes are in this election in a way that they didn’t the day before. And if someone was going to ask tough questions and have that messy conversation, it damn well should be on CNN.”
— Chris Licht, the chairman of CNN, defending the network’s decision to broadcast a live town hall event on Wednesday featuring Donald Trump, in which the former president unloaded a fresh torrent of election lies.
A glimmer of hope in debt-ceiling talks
Stock futures were gaining on Friday on a sliver of good news coming from Washington: signs that talks on the debt-ceiling impasse had taken a positive turn.
The official news doesn’t seem like much. President Biden and top congressional leaders postponed a second meeting that had been planned for today. The reason: Senior White House officials and congressional aides had found some common ground.
“The last 48 hours have given us some more reason for hope,” said Representative Dusty Johnson, Republican of South Dakota and the leader of the Main Street Caucus, an influential group of mainstream conservatives who have dug in on spending cuts.
A breakthrough on energy permits could be key to a deal. Negotiators are close to a proposal that would speed up fossil fuel production and clean energy projects, pleasing both Republicans and Democrats, according to Bloomberg. An aide for Speaker Kevin McCarthy sees “better than 50/50” chances that this would be part of a deal. There’s also been progress on clawing back unspent Covid-19 funding.
Wall Street has been on edge about the prospect of a no-deal scenario. Jamie Dimon said on Thursday that a default would be “potentially catastrophic,” echoing the assessment made in recent days by Treasury Secretary Janet Yellen. “The closer you get to it, you will have panic” in the stock and Treasuries markets, he added. “It could affect other markets around the world.”
At 7:30 a.m. Eastern, S&P 500 futures were trading up nearly 0.4 percent, and stocks in Europe were gaining as well. On Thursday, the benchmark index fell as investors continued to fear a crisis involving regional banks and a slowdown in the economy. Investors are holding out hope that some progress will emerge ahead of June 1, Yellen’s “X-date” forecast for when the country will run out of money to pay its bills.
“We look for a last-minute deal, but not without significant drama resulting in further economic and market volatility,” John Lynch, chief investment officer for Comerica Wealth Management, wrote in an investor note this week.
THE SPEED READ
Takeover talks between Apollo and THG, the struggling online retailer, have broken down, sending shares in THG tumbling on Friday. (Bloomberg)
Carl Icahn’s holding company has authorized buying up to $500 million worth of shares as the firm tries to fend off a short-seller campaign that’s sent its stock into a nosedive. (Bloomberg)
“A Swaggering Clean-Energy Pioneer, With $400 Billion to Hand Out” (NYT)
A federal judge has declared unconstitutional laws that bar authorized firearm dealers from selling handguns to customers aged 18 to 20. (WaPo)
Citigroup is reportedly in talks with Texas officials about allowing the bank to resume selling municipal bonds there, after a 2021 state law against “woke” companies shut it out of the market. (Fox Business)
Best of the rest
Foreign travelers headed to the U.S. no longer need to show proof they’re vaccinated against Covid to get into the country. (NYT)
New filings show that an organization headed by Leonard Leo, the conservative activist, has spent big on various groups and causes on the right. (NYT)
“Workers Are Happier Than They’ve Been in Decades” (WSJ)
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