Wall Street’s AI wobbles

{"text":[[{"start":2.8,"text":"One scoop to start: Britain’s Labour government sought to persuade UBS to shift its headquarters and stock market listing to London in the event of the bank relocating out of Switzerland because of strict new capital rules. "}],[{"start":15.899999999999999,"text":"And another thing: Bankers and advisers on Apollo’s £5.7bn takeover of easyJet are set to receive £334mn in fees, making the airline deal one of the City’s most lucrative acquisitions this year."}],[{"start":null,"text":""}],[{"start":29.049999999999997,"text":"In today’s newsletter:"}],[{"start":30.599999999999998,"text":"Warning signs in the AI trade"}],[{"start":33.099999999999994,"text":"Josh Wander pleads guilty"}],[{"start":35.349999999999994,"text":"Football player-backed loans"}],[{"start":37.599999999999994,"text":"The ARR fears gripping public and private markets "}],[{"start":40.949999999999996,"text":"Last week the FT published a story about OpenAI’s revenues that shaved tens of billions of dollars off the market caps of tech stocks such as Nvidia and Oracle."}],[{"start":51,"text":"Apparently the entire market was trading on OpenAI’s annualised revenue, which was about $20bn less than the company had previously signalled. Annualised revenue metrics are famously hazy, and fast-growing tech start-ups use them to attempt to convey their financial trajectories. "}],[{"start":67.95,"text":"On Wednesday the FT revealed that Anthropic told its investors that its blistering pace of growth had slowed, even as third-quarter revenue had swelled nearly 50 per cent to $16.8bn, which nonetheless roiled tech stocks. "}],[{"start":84.4,"text":"ARR-related worries also gripped Wall Street at the beginning of the year during the SaaSpocalypse, as private markets took stock of software buyouts in which credit funds had lent hundreds of billions of dollars based on companies’ recurring revenues and not cash flows. Suddenly, the spectre of AI cast doubt on whether ARR would become cash flow. "}],[{"start":104.95,"text":"The wobbles are sure to continue. Many of the companies fuelling the AI boom remain private and offer a limited view of their performance, causing edgy markets to trade violently on slivers of information. A wave of IPOs could calm markets as AI giants raise fresh capital and give a deeper view of their finances. But there’s been little progress on that front in recent months."}],[{"start":129.1,"text":"Anthropic plans to lead the pack but the clock is ticking for the group to IPO before the end of the year, while OpenAI has pushed its listing to 2027."}],[{"start":138.1,"text":"Abandoned listings are piling up. Last week the Nvidia-backed data centre operator Firmus pulled its $5bn listing in Australia. The group had struggled to convince investors of its $30bn valuation and attributed its decision to “recent market volatility and prevailing market conditions”. Others slow-walking IPOs include the SoftBank-backed data centre developer SB Energy. "}],[{"start":163.15,"text":"Meanwhile, the edgier players in the AI space, so-called neocloud companies such as the Nvidia-backed CoreWeave, are seeing investor confidence wane. "}],[{"start":172.6,"text":"CoreWeave, whose co-founder told the FT it was chasing “unlimited” pools of insurance capital, has seen its shares fall more than 15 per cent this week as some worry it overestimates the cash available to finance its heavy spending. CoreWeave rival Nebius’s shares are also down about 15 per cent."}],[{"start":192.7,"text":"The pain has also spread to the bonds issued to fund prominent data centres. Prices of bonds issued to finance projects where Meta, Nvidia, Oracle and others will become tenants have fallen well below par in recent weeks."}],[{"start":null,"text":""}],[{"start":205.1,"text":"This all amounts to rising uncertainty about what the returns will be like from trillions of dollars in AI spending, much of which is highly circular as customers and suppliers finance each other. "}],[{"start":216.2,"text":"In past eras of finance-fuelled growth, many of the warning signs emerged in the credit markets. One need not look very hard to find them now."}],[{"start":225.14999999999998,"text":"777 Partners’ Josh Wander pleads guilty"}],[{"start":228.84999999999997,"text":"In years gone by, Josh Wander, co-founder of Miami-based investment firm 777 Partners, was partying with LeBron James and building a reputation as a prolific sports investor whose firm bought stakes in teams in Italy, Brazil, Germany, Belgium, France, Spain and Australia. "}],[{"start":246.04999999999995,"text":"He even came close to buying Everton FC, the Premier League football club. "}],[{"start":251.94999999999996,"text":"On Thursday, as he appeared in a Manhattan federal courtroom and pleaded guilty to wire fraud and securities fraud, the picture was looking somewhat different. "}],[{"start":260.4,"text":"“I knew what I was doing was wrong and I am deeply sorry,” he said in court, reading quickly from a prepared statement. "}],[{"start":268.09999999999997,"text":"Jury selection for the trial had been scheduled to begin today. In an indictment, prosecutors said he defrauded lenders and investors of almost $500mn, including by sending them documents that had been doctored using Microsoft Paint. "}],[{"start":282.65,"text":"Their other allegations include that he told investors that 777 Partners owned assets that it did not, pledged the same collateral to multiple lenders and attempted to hide a collateral shortfall by temporarily shifting assets when a lender carried out due diligence. "}],[{"start":298.59999999999997,"text":"The indictment raised some questions about lending standards in opaque corners of private credit. "}],[{"start":303.99999999999994,"text":"It said, for example, that Wander sent a lender a fake screenshot that an analyst had prepared using Paint to show that 777 had $8mn in cash in its collection accounts when in fact it had less than $500,000. "}],[{"start":320.54999999999995,"text":"How to squeeze cash from a football player"}],[{"start":323.84999999999997,"text":"Go to most stadiums in the Premier League and the traditions of football hark back many decades, but the sport has recently begun to grapple with its newer elements, such as the high-octane pots of Middle Eastern and private equity cash that are fuelling its global expansion."}],[{"start":339.79999999999995,"text":"In recent weeks Manchester City was found to have artificially inflated its financial position by more than £900mn, and then the beautiful game’s regulator warned that rising debts were putting English football “on the edge of financial disaster”."}],[{"start":355.69999999999993,"text":"Much of this follows the growing financial institutional ownership of teams, which has led to hair-raising structures such as borrowing against receivables due from players who have been sold."}],[{"start":367.74999999999994,"text":"Now DD brings you the latest financial sorcery that private credit funds are looking to bring to the game: so-called squad-value loans. "}],[{"start":376.69999999999993,"text":"The novel loans are sized according to the value of a club’s playing squad and sometimes involve the lender only taking security over hypothetical receivables from potential future player sales."}],[{"start":388.19999999999993,"text":"A lender with security over hypothetical receivables would not be able to force a club to sell a player, people involved in the talks said, but credit firms believe the security is sufficient because clubs facing financial difficulty would be forced to sell players anyway."}],[{"start":403.8499999999999,"text":"London-based sports finance firm 23 Capital, which was wound down during the Covid-19 pandemic, has relaunched with squad-value loans as a core part of its offering, according to people familiar with the matter."}],[{"start":416.8499999999999,"text":"“We’re definitely seeing more [interest],” said one leading football finance adviser. “People are getting their heads round it.”"}],[{"start":423.94999999999993,"text":"Job moves"}],[{"start":425.79999999999995,"text":"White & Case has elected 47 new partners from offices including London, New York and Paris."}],[{"start":433.24999999999994,"text":"Long Harbour has hired Louise Evans as director of asset management. She joins from Franklin Templeton Investments."}],[{"start":440.59999999999997,"text":"The digital mortgage lender Better has named Linda Yaccarino, former CEO of X, to its board as an independent director."}],[{"start":448.59999999999997,"text":"Smart reads"}],[{"start":450.09999999999997,"text":"Succession plans Former McKinsey chief financial officer Eric Kutcher is considered the frontrunner to be the firm’s next leader, the FT reports. But he faces a byzantine election and will have to overcome an unhappy tenure as CFO."}],[{"start":464.79999999999995,"text":"Political manoeuvres Donald Trump’s crypto adviser Bo Hines worked hard to shepherd stablecoin legislation through Congress. The Wall Street Journal reveals just how much Hines gained personally amid his work on the bill."}],[{"start":477.65,"text":"AI revolution Blackstone’s data centre empire is just one part of the private capital group’s huge bet on AI, Bloomberg reports. “We’re gonna continue to see demand grow,” the group’s president Jon Gray says, “and that is justifying this enormous investment.”"}],[{"start":493.45,"text":"News round-up"}],[{"start":495.09999999999997,"text":"Private equity interest endangers London float of former DS Smith business (FT)"}],[{"start":500.74999999999994,"text":"Thames Water’s senior creditors near deal with rivals to avoid court challenge (FT)"}],[{"start":506.6499999999999,"text":"Credit Suisse secured $800mn from insurers in Greensill settlement (FT)"}],[{"start":513.8999999999999,"text":"Harvard’s endowment returns surge on back of AI and SpaceX investments (FT)"}],[{"start":519.6999999999998,"text":"Second activist pushes for sale of UK self-storage company Big Yellow (FT)"}],[{"start":524.8499999999998,"text":"Credit Suisse bankers lose bid to win back stripped bonuses following takeover by UBS (FT)"}],[{"start":null,"text":""}],[{"start":null,"text":""}],[{"start":537.6999999999997,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1792209545_4480.mp3"}