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Your Quiver | Monday, May 22, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Conversations Continue

Biden and McCarthy will meet again today. We don’t expect any big moves unless it seems clear that there’s an outcome (good or bad). Yellen is warning that the US can’t pay all of its debt by June 15. GS is forecasting June 8-9 as the problem date.

Tit for Tat

China banned Micron over the weekend, saying that it failed a cybersecurity review. But, in reality, this is just retribution for the US’ earlier moves. Micron gets 11% of its revenue from China. Qualcomm, AMD, and Nvidia are down in sympathy, and rivals Samsung and SK Hynix are up.

That's Amore

Moody’s is not going to cut Italy’s investment grade status—which is a positive since investors were concerned that they would revise downward the rating to junk.

Green Hills

Mizuho Finl is moving further into US investment banking by buying Greenhill for $550mm, including debt. This comes on the heels of Sumitomo’s further investment in Jefferies. Mitsubishi UFJ has an alliance with MS. Greenhill’s market became more competitive over time with firms like Houlihan Lokey and Moelis in the boutique space.

Privacy Tour

Meta was hit with a $1.3bn European Union privacy fine for taking EZ data and bringing it back to the US to process. US’ surveillance laws infringe on EZ customers’ privacy. The company will have to become compliant within 6 mo. The US and the EZ are negotiating a new data transfer agreement, which would supersede the current ruling. But if the sides don’t iron it out in time, then Meta will have to try to remove the data of hundreds of millions of people from its system, which is basically not going to be possible. The company already has a big legal accrual on its balance sheet ($5.5bn), so it’s not a new hit to financials.

SVB Pay Clawbacks

The Senate Committee on Banking wants executives to pay back 2 years of comp, given their role in the failure of bank SVB. The CEO (that Congresspeople called “bone deep, down to the marrow, stupid” made $38mm in the past 4 years, with around $12mm of that in cash, and sold stock weeks before its collapse and authorized cash balances on the day it did.

Debt Debacle

GS estimates China’s total gov debt at $23 trn, not including hidden borrowing of thousands of financing companies set up by provinces and cities. BBG has a good piece out today shining a light on the massive impacts of this debt. A significant portion of regions have a debt-to-income ratio above the gov’s threshold of 120%. Local govs have to cut spending and refocus payments to debt servicing, which causes massive impacts on residents and lowers growth. BBG profile’s a city called Hegang, whose hidden debt nearly matches its official borrowing on its balance sheet.