BlackRock’s Profit, Assets Under Management Fall

If you look back at my posts about pension funds over the last year or so you will see that I predicted that they will not be able to honor their commitments. I have been watching private equity firms overpaying for assets, which will result in a fall of value, and then pension funds will have to sell liquid assets like stocks. Well lets watch this over the next year as we have not seen the bottom of the stock market, not even close ...Aivars Lode

Plummeting markets from coronavirus pandemic dragged assets under management below $7 trillion

Money management giant BlackRock Inc.’s profits fell by 23% in the first quarter, as a global pandemic and waves of selling gripped the investment world. 

Investors added a net $35 billion in new money to the firm’s coffers, down by about half from the prior-year period. Most of the money coming into the firm went to cash, a sign heightened investor caution is driving money into less profitable businesses for the investment industry.

Flows into other investment products were negative for the quarter, an aberration for the firm. 

Asset managers are confronting the most acute pressures the industry has faced since 2008. Many customers—which include pensions, endowments and individuals—have turned to forced selling in a rush for cash as more businesses close and jobless claims rise. Money managers also had to grapple with seizing bond markets that had ripple-effects across fixed-income mutual funds and ETFs.

Measures of BlackRock performance, such as adjusted earnings, beat analyst expectations in a quarter expected to be more painful for smaller rivals. BlackRock’s shares rose 3.6%.

“The world is facing a challenge that is truly unprecedented in our lifetimes,” said BlackRock Chief Executive Laurence Fink in a call with Wall Street analysts.

Mr. Fink said the firm has had record calls and outreach to clients in recent weeks. He added that tough times give the firm a chance to differentiate itself.

Pandemic shows investment fund vulnerabilities, G20 watchdog says

For a while now I have been talking about the risk that pension funds faced from deals that they and other investment funds had been making that financially did not make sense. Now it appears these same funds are making excuses and looking for a bail out.... Aivars Lode

LONDON (Reuters) - Non-bank financial firms such as investment funds have exhibited vulnerabilities during the coronavirus crisis that may need fixing to help economies recover, a global regulatory watchdog said on Tuesday.

The Financial Stability Board (FSB), which coordinates financial rules for the Group of 20 (G20) economies, said that although an initial wave of volatility has ebbed, markets remain under great strain and in some cases illiquid. 

FSB Chair Randal Quarles said the impact of the coronavirus pandemic on credit markets and investment funds has highlighted potential vulnerabilities and the need to understand the risks and resulting policy implications. 

“It is more important than ever to ensure that we can reap the benefits of this dynamic part of the financial system without risking financial stability,” Quarles said in a letter to G20 finance ministers and central banks, who are holding a virtual meeting this week. 

SoftBank expects $24 billion in losses from Vision Fund, WeWork and OneWeb investments

Boy oh boy, every day more bad news. "Rooster to feather duster" comes into mind.... Aivars Lode

The Japanese technology conglomerate SoftBank Group said it would lose a staggering $24 billion on investments made through its Vision Fund and bets on the co-working real estate company WeWork and satellite telecommunications company OneWeb.

Ultimately, the company expects the losses to help generate a $7 billion total loss for the technology giant for the year as its ambitious bets on early-stage companies come up short.

Over the past two years SoftBank and its founder Masayoshi Son have staked billions of (other people’s) dollars and its own fortunes on a vision that investments in machine learning technologies, robotics and next-generation telecommunications would reap hundreds of billions in financial rewards.

While that was the vision that Son and his team sold, the reality was multiple billions of dollars invested into real estate investment plays like WeWork, OpenDoor and Compass, and companies with direct-to-consumer merchandising plays like Brandless, pet supply businesses like Wag and the food delivery business DoorDash. Add the hotel chain Oyo to the mix and the investment selection from the Vision Fund looks even less visionary.

JPMorgan warns of ‘fairly severe recession,’ increases credit reserves by $6.8 billion

I have been asking the question for a while now: What should JP Morgans share price actually be? They took in fees from WeWork (at minimum 250m) and others so what will their real revenue and earnings be? If their revenue and earning would be at 2016 levels this would mean that there is still nearly 50% of their value to be lost. That begs the next question: If the revenue is lower than 2016 then how far will the valuation fall?  ....Aivars Lode

JPMorgan Chase, the largest U.S. bank by assets, kicked off earnings season for the big banks on Tuesday by announcing that it set aside billions in anticipation of loan losses.

“In the first quarter, the underlying results of the company were extremely good, however given the likelihood of a fairly severe recession, it was necessary to build credit reserves of $6.8B, resulting in total credit costs of $8.3B for the quarter,” CEO Jamie Dimon said in his commentary.

Here were the key figures versus the expectations for the first quarter, according to analysts polled by Bloomberg.

• Revenue (adjusted): $29.07 billion vs $29.52 billion expected
• Earnings per share (adjusted): $0.78 vs $2.14 per share expected

The market isn’t putting much weight into how the actual results performed against analysts’ expectations as the impact of coronavirus pandemic has been extremely difficult to measure. To be sure, a key reason EPS was much lower than a year ago is because of the bank building its credit reserves.

The $6.8 billion in reserve builds “reflect deterioration in the macro-economic environment as a result of the impact of COVID-19 and continued pressure on oil prices,” the bank said in its release. Breaking that down further, the consumer reserve build was $4.4 billion, while the wholesale reserve build was $2.4 billion across multiple sectors, especially in oil and gas, real estate, and consumer and retail.

In its outlook, JPMorgan said to expect net reserve builds in the second quarter.

WeWork Skips Some Rent Payments as Coronavirus Undermines Revenue

 The slow drawn out death of something we knew would happen years ago... Aivars Lode

WeWork has stopped paying rent at some U.S. locations, in the latest sign that the co-working company is aggressively trying to cut costs as the economic downturn eats into its revenue.

People briefed on the matter said WeWork has yet to mail in its April rent check at numerous properties while it tries to renegotiate leases.

The New York-based company recently hired brokerage firms JLL and Newmark Knight Frank to negotiate rent relief or convert lease deals into profit-sharing agreements in a bid to drive down its fixed monthly expenses.