According to the New York Post. According to the New York Post, creating “a modern-day Berkshire Hathaway” is no mean feat, but that’s exactly what billionaire investor and hedge fund manager Bill Ackman intends to do. The Pershing Square CEO plans to increase his stake in real estate company Howard Hughes Holdings and take the company private.
Ackman said in a letter to investors that Pershing currently holds a 37.6% stake in HHH and plans to offer $85 a share to buy out the rest of the firm.
Don’t Miss:
Emulating The Buffet Playbook
“With apologies to Mr. Buffet, HHH would become a modern-day Berkshire Hathaway that would acquire controlling interests in operating companies,” Ackman, 58, who has a net worth of $9.2 billion, wrote.
Following the news, Howard Hughes shares increased 9.5% to $78.62. Ackman has been involved with the real estate company for a decade and only stepped down from its board in April after serving as its chairman since 2010.
“We, like other long-term shareholders and this board, have been displeased with the company’s stock price performance,” Ackman said in the letter, according to Reuters. When the deal is complete, it would increase Pershing Square’s stake in Howard Hughes to somewhere between 61% and 69%, depending on how many investors agree to be bought out from the 38% it currently holds.
Howard Hughes was an offshoot of real estate investment trust General Growth Properties, forming its own entity in 2010. It owns and manages various types of US real estate, including commercial, residential and mixed-use. It has a market value of $3.6 billion.
Ackman formed Pershing Square in 2004. One of his most notable moves was the rescue of mall operator General Growth Properties, from which he became involved in Howard Hughes. According to Forbes, Pershing Square’s stock portfolio is concentrated in seven companies, including Chipotle, Hilton and Google parent Alphabet, the latter of which he has over 20% of its stock invested, according toThe Motley Fool. Ackman is notable amongst other fund managers because of his large social media following with over a million followers on X.
Ackman has been bullish on Google’s parent company, Alphabet. When Google’s answer to ChatGPT, Bard, stumbled and the share price dropped, Ackman began aggressively buying stock. His Pershing Square hedge fund owns class A and class C shares of the tech giant worth roughly $2.1 billion as of June 30, 2024. It was a prescient move. In the second quarter of 2024, Google Cloud revenue increased 29% to $10.3 billion. Its operating income almost tripled year over year to $1.17 billion. Alphabet CEO Sundar Pichai said in the Q2 earnings call that his company’s generative AI solutions “have already generated billions in revenues and are being used by more than 2 million developers.”
In emulating Berkshire Hathaway with his Howard Hughes purchase, Ackman is again carefully treading in Warren Buffet’s footsteps. Preferring to look at a company’s enduring competitive advantage over short-term stumbles is a classic Berkshire Hathaway move. Ackman has been quite open about sticking to the Buffet playbook. “I’ve been a kind of Warren Buffett devotee,” he told CNBC in 2023. “He’s been my unofficial mentor for many years.”
The stock market has been volatile to kick off 2025, with many top tech stocks well off their highs as some investors question their lofty valuations and an uncertain economic environment. However, even in an uncertain market, there are still many things investors can rely on, like beverage and snack company Pepsi (PEP) and its steady dividend growth. I’m bullish on Pepsi stock based on its attractive dividend yield, its long and proud history of consistently growing its dividend for many decades, its modest valuation, and the durable demand for its products.
There’s little question Pepsi is a blue-chip stock since it is an iconic American company with a name and logo that are instantly recognizable to billions of people around the world. However, that doesn’t mean the stock trades at a premium, blue-chip valuation.
In fact, after declining 12.8% over the past year, shares of Pepsi fetch just 17.8 times 2024 full-year earnings estimates and an even cheaper 16.9 times December 2025 consensus earnings estimates. These numbers make Pepsi significantly cheaper than the broader market, as the S&P 500 (SPX) currently trades for 24.8 times earnings. Interestingly, Pepsi is also cheaper than its archrival Coca-Cola (KO), which trades for 20.9 times 2025 earnings estimates.
This inexpensive valuation should give Pepsi a strong degree of downside protection in a volatile market and leave plenty of room for a multiple expansion in a bullish market environment, especially since the stock has frequently traded at higher P/E ratios over the years.
In addition to this inexpensive valuation, Pepsi is a top dividend stock. It starts with the dividend yield — Pepsi currently yields an enticing 3.7%, which is nearly triple the S&P 500’s 1.3% yield.
Beyond the above-average yield, Pepsi is an appealing dividend stock based on its multi-decade commitment to paying and growing its dividend. Pepsi has paid dividends to its shareholders for 52 years in a row, and it has increased the size of its payout in each of these 52 years. This consistency makes Pepsi a “Dividend King,” placing it in the rare company of stocks that have raised their dividend payouts for at least 50 years in a row. Other notable Dividend Kings include Coca-Cola, Target (TGT), Johnson & Johnson (JNJ), AbbVie (ABBV) and Walmart (WMT).
In a market where few things are certain, it’s nice to be able to ‘set it and forget it’ with a Dividend King like Pepsi that increases its dividend payout like clockwork every year.
There is some concern among investors that consumer demand for carbonated soft drinks will fall in developed markets like the United States, but Pepsi is fairly well-positioned for this risk. Carbonated soft drinks have plenty of runway for growth in international and emerging markets. Plus, Pepsi’s brand portfolio features plenty of beverage options for developed-market consumers looking for healthier beverages, like Bubly sparkling water, Pure Leaf iced tea, and Tazo tea.
Lastly, it’s important to remember that there is much more to Pepsi than just beverages — it is also the number one player in the lucrative savory snacks market, worth over $250 billion annually, with leading brands like Doritos, Cheeto’s, Lay’s, Fritos, and Ruffles all in its arsenal.
Late last year, the company also announced a deal to acquire the 50% of Sabra (best known for its hummus as well as other dips and spreads) that it didn’t already own, as well as a $1.2 billion deal for tortilla chip maker Siete, illustrating that the company has its sights set on long-term growth in this area.
Another nice thing about Pepsi is that it is a consumer staples company making products that enjoy durable demand from consumers. Even in a challenging macroeconomic environment, most customers who enjoy Pepsi or Diet Pepsi will continue to pick it up on their weekly grocery trips. In an inflationary environment, consumers may be forced to delay or forgo bigger ticket purchases, but a six-pack or case of Pepsi or Diet Pepsi still represents just a small percentage of their budget that they are unlikely to cut.
The same can be said about the aforementioned savory and salty snacks that Pepsi sells or staples like Quaker Oats oatmeal.
Turning to Wall Street, analysts have a Moderate Buy consensus rating on PEP stock based on four Buys, three Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 9% decline in its share price over the past year, the average PEP price target of $167.86 per share implies 13.6% upside potential.
I’m bullish on Pepsi based on its attractive, above-average 3.7% dividend yield and its long and proud history of growing its dividend payout for over five decades. In a market that runs hot and cold and where trends can be fleeting, this type of long-term reliability is something to celebrate.
I’m also constructive on Pepsi stock based on its below-average valuation–which should give investors decent downside protection and plenty of exposure to the upside–and its strong business of selling consumer staples with durable demand. This gives the stock a strong defensive backbone.
Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below.
Often, investors find themselves at a turning point: Should they keep playing it safe with low-risk ETFs or risk it all and chase huge returns with aggressive high-risk ETFs?
These high-risk investments are usually designed to take advantage of arising industries, speculative trends or leveraged practices that promise higher returns than conventional ETFs.
Some investors think that allocating a small share to these high-risk ETFs can increase the overall performance of their portfolio without jeopardizing their entire nest egg.
Don’t Miss:
Conversely, low-risk ETFs, like the Vanguard S&P 500 or VOO, are a must-have acquisition for many investors. These funds offer broad stock exposure, lower fees and more controlled growth. VOO, for instance, tracks the S&P 500 index, making it a go-to choice for those investors who prefer the “set it and forget about it” strategy.
This brings us to one investor’s predicament, recently shared on Reddit, an online discussion forum with plenty of investing communities. The poster, a saver in his early 30s, has built a portfolio of almost $150K in VOO.
“Right now, I’m in my early 30s and am 100% VOO and chill, with roughly $150K at this point. That’s spread across retirement accounts and brokerage accounts,” he says.
However, now that his portfolio has grown so much, he’s considering allocating a portion of his wealth to high-risk, high-reward ETFs.
“Any suggestions for aggressive, high-risk/high-reward ETFs that make sense to supplement VOO with? I’d be looking to do no more than 5-10% of my portfolio into something with a little more upside like this. Alternatively, would it be better to just stay the course and keep throwing extra money into VOO?” he asks.
Because he isn’t sure which of these two options is a good strategy, he asked Reddit’s r/ETFs community for advice. Let’s see what Reddit’s investors recommended to the young poster.
Many Redditors have suggested the investor diversify beyond VOO by allocating a portion of his portfolio to small-cap value funds and international ETFs.
A few commenters mentioned funds like AVUV or VIOV because they target smaller, undervalued companies that, if invested in, can offer high growth over time.
“VIOV or AVUV (small-cap value – considered a compensated risk – I have 15% here myself),” a commenter suggests.
Some Redditors recommended certain funds like VXUS or VWO for U.S. international and emerging markets exposure.
“Small allocation to VXUS as well for international diversification,” a comment reads.
“You already have U.S. large caps covered. So what you’re looking for is either mid/small caps to cover the rest of the U.S. market and/or international,” another comment suggests.
Stick With VOO and Complement it With High-Risk Bets
Many Redditors in the thread mentioned that the VOO core is as solid as possible but can be supplemented with a couple of high-risk, high-reward ETFs.
“QQQM or VUG or SCHG (large-cap growth – considered an uncompensated risk because it further concentrates rather than diversifies away from high growth holdings in VOO – but I have 15% here myself),” says a commenter.
Another Reddit member suggested a small allocation to a Bitcoin-related ETF.
“Grab FBTC for 5% or another bitcoin ETF. Roll with it for a few decades,” he said.
A commenter who seems risk-tolerant shared his allocation, implying that investing in high-risk, high-reward ETFs is a good strategy.
“I’m 42 and basically my only positions are IVV and VGT/IYW. My risk tolerance is 11/10 and I ain’t changing,” the Redditor wrote.
Nvidia stock has been one of the biggest winners of the artificial intelligence (AI) revolution in the past couple of years, clocking remarkable gains of nearly 800% over the past two years on account of the red-hot demand for its data center graphics cards, but the past three months have been difficult for the chipmaker.
Shares of the semiconductor giant are down 1% over the past three months. That’s a bit surprising considering that Nvidia delivered an outstanding set of results during this period that beat Wall Street’s expectations. What’s more, Nvidia’s guidance was also better than what analysts were looking for.
However, concerns about Nvidia’s ability to sustain its outstanding growth, its valuation, and the short-term margin pressure that will be created by the ramp-up of its latest generation of Blackwell processors seem to be weighing on the company’s stock price. Meanwhile, two other little-known chip companies have received a big boost in the past three months thanks to the positive impact of AI on their businesses: Ambarella(NASDAQ: AMBA) and Lumentum Holdings(NASDAQ: LITE).
While Ambarella stock has jumped 25% in the past three months, Lumentum has appreciated nearly 23%. Their gains have been better than what Nvidia has delivered during this period, and the good part is that the AI-focused growth drivers of both of the smaller chipmakers are just kicking in.
Let’s check out how AI is turning out to be a catalyst for Ambarella and Lumentum.
The chips that Ambarella designs are deployed in automotive and Internet of Things (IoT) applications. The company is primarily known for its computer vision chips that process images and video, and it is now finding applications in the field of AI as well. According to one estimate, the size of the AI computer vision processor market could grow from $17.2 billion in 2023 to $45.7 billion in 2028 thanks to the growing demand from multiple verticals such as automotive, security and surveillance, and consumer electronics applications.
Ambarella’s product portfolio already includes chips capable of processing AI workloads in these applications. For instance, the company’s CV5 processor that’s based on an advanced 5-nanometer (nm) process node can run AI-based algorithms in automotive cameras, consumer cameras, and even robotics. Not surprisingly, the company is witnessing an increase in demand for this processor.
CEO Fermi Wang remarked on the company’s November 2024 earnings conference call that its new higher-priced AI inference processors, such as the CV5, are driving record AI revenue and also contributing toward a higher average selling price (ASP). The good part is that Ambarella expects the robust demand for CV5 to continue in fiscal 2026, which will begin next month. Additionally, the company estimates that the demand for its CV7 family of AI vision processors will pick up from the new fiscal year.
More importantly, this solid demand is translating into outstanding growth for Ambarella. Its revenue in the third quarter of fiscal 2025 (which ended on Oct. 31, 2024) increased an impressive 63% year over year to $82.7 million. The chipmaker also swung to an adjusted profit of $0.11 per share from a loss of $0.28 per share in the year-ago period.
Ambarella’s fiscal Q4 guidance of $78 million would translate into a 51% increase in its revenue from the year-ago quarter. The company is on track to finish fiscal 2025 with total revenue of $279 million, which would be a 23% improvement from the previous fiscal year. Its loss is expected to shrink to $0.30 per share from $0.83 per share in fiscal 2024.
As the following chart shows, Ambarella’s top and bottom lines are on track to improve further over the next couple of fiscal years, with the company expected to report an adjusted profit per share in fiscal 2027.
The overall AI computer vision market is set for impressive growth over the next three years, so it won’t be surprising to see Ambarella deliver the healthy growth that Wall Street is expecting from it. The company could be able to sustain its positive momentum for a longer period as well since it claims to have an automotive revenue pipeline of $2.2 billion through fiscal year 2031.
If you throw in the prospects of AI computer vision processors in other areas such as consumer cameras and security applications, Ambarella may have enough room to grow its business significantly in the long run.
The growing demand for high-speed data transmission in AI servers is driving robust growth in the networking equipment market. According to Morningstar, the spending on generative AI networking equipment could increase at an annual rate of 34% between 2023 and 2028, generating $34 billion in annual revenue at the end of the forecast period.
Lumentum Holdings is already benefiting from this trend, witnessing a nice turnaround in its financial performance last quarter. The company’s revenue in the first quarter of fiscal 2025 (which ended on Sept. 28, 2024) increased 6% year over year to $337 million. While that may not seem very impressive at first, investors should note that Lumentum’s top line was down 23% in fiscal 2024 owing to soft demand from the cloud and networking and industrial segments.
However, things have started changing for the better thanks to AI. Its cloud and networking revenue jumped 23% year over year in fiscal Q1 2025, offsetting the weakness in the industrial business. With cloud and networking now producing nearly 84% of Lumentum’s top line, this business is set to drive stronger growth for the company.
Lumentum points out that its cloud customer base is growing with the addition of new hyperscale customers that are placing orders for its lasers that are used in fiber-optic cables to enable high-speed data transmission in AI servers. What’s more, Lumentum is busy expanding its manufacturing capacity so that it can fulfill more orders.
These favorable developments explain why Lumentum’s revenue estimate of $390 million for the current quarter would again be an improvement of 6% over the prior year. Even better, analysts are expecting the company’s growth rate to improve as the year progresses. Consensus estimates are projecting a 17% jump in Lumentum’s revenue for fiscal 2025 to $1.59 billion, which is expected to be followed by even stronger growth in the next fiscal year.
The robust top-line growth is expected to filter down to the bottom line, with Lumentum’s earnings expected to jump by 56% in the current fiscal year to $1.58 per share followed by healthy growth in the next couple of years as well.
It won’t be surprising to see the market rewarding this tech stock with more upside thanks to its improving earnings power. That’s why it isn’t too late for investors to buy Lumentum Holdings as its cloud and networking business seems set for better times ahead thanks to AI.
Before you buy stock in Ambarella, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Ambarella wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $843,960!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Lumentum. The Motley Fool has a disclosure policy.
Billionaire entrepreneur Mark Cuban has shown interest in funding a TikTok alternative. This move comes in light of the potential shutdown of TikTok this weekend, with Cuban considering leveraging the protocol developed by microblogging site Bluesky.
What Happened: Cuban is contemplating this step in response to legislation requiring TikTok to sell its platform or face a nationwide ban. ByteDance, the Chinese parent company of TikTok, has continually asserted that it is not for sale.
In a TikTok video on his account Tuesday, Cuban proposed this alternative version of the video-sharing app.
He said, “There’s an app called Bluesky and it’s built on the AT Protocol. I would be open to investing in supporting anybody — or somebody who creates a TikTok replacement built on the AT Protocol.”
Bluesky, a decentralized social media platform, enables users to host their data on servers not owned by the company. The platform, created by Twitter founder Jack Dorsey in 2019, has expanded to a user base of over 27 million people, reports Gizmodo.
However, the fate of TikTok’s U.S. app remains uncertain. Reports suggest that the company is seeking a last-minute reprieve from incoming President Donald Trump. TikTok CEO Shou Chew is scheduled to attend Trump’s inauguration, and Trump is reportedly contemplating an executive order to save the platform.
Why It Matters: The potential shutdown of TikTok in the U.S. has sparked interest in alternatives to the popular video-sharing platform. Cuban’s proposal of a TikTok alternative based on Bluesky’s protocol could potentially offer a new avenue for social media users, especially with the growing concerns over data privacy.
The move also highlights the increasing interest in decentralized social media platforms, which offer users more control over their data.
The unfolding events surrounding TikTok’s future in the U.S. will undoubtedly have significant implications for the social media landscape.
ALTADENA, Calif., Jan. 18, 2025 /PRNewswire/ — Summerkids Camp, a family-run business in the hills of Altadena, announced that its camp property that hosted generations of children over five decades was destroyed by the Eaton Fire.
While the camp is closed, the camp community is rallying around each other, said Summerkids Camp Director Cara DiMassa, a member of the family that has run the camp since its founding. “We are grieving all that we have lost in Altadena, including many of our camp families’ homes,” DiMassa said. “But I am heartened by the way members of the Summerkids community are supporting one another.”
DiMassa has spent the last week compiling a database of Summerkids Camp families who lost their home to the Eaton Fire, including the camp’s caretaker, who lived on site. At last count, DiMassa said, more than 50 Summerkids Camp families had lost homes in the Eaton Fire, including several families in which both parents and children attended the camp.
“In some cases, families who lost their own homes have been donating to other Summerkids Camp families in similar situations,” DiMassa said. “It shows how much we value each other as a camp community and come together in crises like this.”
Summerkids, which began in 1978 and was located at the Altadena site since 1980, is owned and operated by the DiMassa family. Tens of thousands of campers from Altadena and surrounding communities have attended the camp, which served campers in grades K-9.
The summer camp operated on a 55-acre site originally built for the Camp Fire Girls in the late 1940s. The site included a historic and architecturally significant lodge designed by famed local architect Boyd Georgi. In addition, all structures – including four cabins, a caretaker’s house, playgrounds, an amphitheater, archery ranges and more – were lost in the fire.
Major players in the cryptocurrency industry have made substantial donations to President-elect Donald Trump‘s inaugural fund.
What Happened: Companies such as Ripple, Coinbase, Kraken, Robinhood, and Circle have collectively donated a minimum of $10 million to the inauguration fund since Election Day.
According to a report by Politico, these contributions will be used to finance official events related to the inauguration, symbolizing the industry’s support for Trump, who is anticipated to be the first U.S. president with a clear pro-crypto stance.
The cryptocurrency industry also hosted a sold-out unofficial inaugural ball on Friday night at the Andrew W. Mellon Auditorium in Washington. The event, which included Snoop Dogg as a musical guest, was partly organized by David Bailey, who manages a Bitcoin conference where Trump was a speaker last summer.
Ripple, currently facing enforcement action from the SEC, has donated $5 million in digital tokens to the inaugural committee. U.S. crypto exchanges Coinbase and Kraken, as well as stablecoin company Circle, each donated $1 million. Online brokerage Robinhood made a contribution of $2 million.
Why It Matters: These donations have sparked controversy, with Democrats and watchdog groups accusing the president of trading influence. However, the crypto industry perceives this as a celebratory moment and a chance to interact with the incoming administration.
Amid ongoing regulatory uncertainties, these firms are likely seeking to build a strong relationship with the new administration, hoping for a more favorable regulatory climate for cryptocurrencies.
A woman going through a divorce thinking about dividing tax debt.
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.
Dividing tax debt during a divorce depends on when the debt was incurred, state laws and other factors. Responsibility for back taxes may be shared or assigned to one spouse, often based on whether the debt arose before or during the marriage. However, IRS rules may not align with a divorce court’s decision. A financial advisor can help clarify tax obligations and prepare you for potential financial impacts.
When dividing debt in a divorce, courts look at the type of debt and when it was incurred. Debts taken on during the marriage are typically considered shared, making both spouses liable.
Debts from before the marriage are usually treated as separate, with each spouse responsible for their own obligations.
Tax debt is often treated the same way. Whether the debt was accrued jointly or individually, and whether it occurred during the marriage, are important factors in determining responsibility.
In community property states, courts may decide that both spouses share the responsibility for any tax debt incurred during the marriage. This means the debt is typically divided equally, regardless of income differences or contributions.
In equitable distribution states, tax debt is divided based on what the court considers fair, not necessarily equal. Factors like each spouse’s financial situation, earning potential and contributions to the household are considered. As a result, one spouse may be assigned a larger share of the tax debt. This approach applies in all states except the nine that follow community property laws.
A divorce settlement may assign tax debt to one spouse, but the IRS can still hold both spouses jointly liable for tax debt if they filed jointly during the marriage. Even if a divorce decree states otherwise, the IRS can pursue payment from either party.
To reduce this risk, individuals can seek innocent spouse relief from the IRS. This provision relieves a spouse of responsibility for tax debt if their ex-spouse improperly reported or omitted income on a joint tax return without their knowledge.
To qualify, the requesting spouse must show they were unaware of the errors and that it would be unfair to hold them liable. The IRS considers factors like financial involvement, personal benefit and financial circumstances.
To apply, individuals must file IRS Form 8857, explaining their situation and including supporting documents. The IRS will review the application, considering the couple’s financial details and communication during the marriage.
A woman researching tax laws for divorce settlements.
Separation of liability relief allows joint filers to divide responsibility for understated tax liabilities between themselves and their ex-spouse.
The IRS assigns each spouse a portion of the tax debt based on their individual contributions and circumstances, offering a way to separate financial responsibility after a divorce or separation.
Unlike innocent spouse relief, this option is only available to those who are divorced, legally separated, or have lived apart from their spouse for at least 12 months.
To apply for separation of liability relief, individuals must submit IRS Form 8857. The IRS will review the application, considering factors such as each spouse’s financial contributions and their involvement in the tax reporting process.
Equitable relief is available for individuals facing unfair tax liability due to their spouse’s or ex-spouse’s actions, even if they were aware of the errors. This type of relief covers both understated tax liabilities and unpaid taxes, offering broader protection compared to other forms of relief.
This is different from separation of liability relief, which splits tax debt between spouses. Equitable relief applies when holding one spouse responsible would be unfair.
To qualify, the requesting spouse must demonstrate that holding them responsible for the tax debt would be unfair under the circumstances. The IRS considers factors such as financial hardship, the current financial situation of the requesting spouse and any evidence of abuse or deceit by the other spouse.
To apply for equitable relief, you must file IRS Form 8857. This form will allow you to explain your situation and provide evidence supporting your case.
A man comparing community property vs. equitable distribution states.
Dividing tax debt in a divorce can be difficult, especially with joint tax returns and IRS rules. Options like innocent spouse relief, separation of liability relief and equitable relief can help avoid unfair responsibility for a former spouse’s tax debt. A tax professional can guide you through these options.
A financial advisor can help optimize your investments for taxes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s tax return calculator with updated brackets and rates to see how your income, withholdings, deductions and credits will affect your next refund or balance due.
(Bloomberg) — US Treasury yields have trended up since late last year, and commercial real estate distress risk is straining regional banks’ balance sheets again.
Most Read from Bloomberg
Stocks are already reacting to the higher borrowing costs. Smaller bank shares have fallen about 8.2% since late November after the 10-year Treasury yield began trending up. The risk of default by borrowers who bought office buildings before the pandemic sent values plummeting also increases when the cost of credit rises.
“Rising long-term yields certainly leave the banking system more fragile in the short run, if more profitable in a base case economic scenario,” said Steven Kelly, associate director of research at the Yale Program on Financial Stability.
A surge in 10-year yields last year likely reversed most of the decline in unrealized losses on banks’ available-for-sale and held-to-maturity securities in the third quarter, Federal Deposit Insurance Corp. Chairman Martin Gruenberg said in a Dec. 12 speech. Even after this past week’s rally after better-than-expected inflation data, the benchmark has since risen about 0.3 percentage points to around 4.58%, adding to the pain for lenders.
If borrowing benchmarks remain high, regional banks risk higher losses on commercial real estate because borrowers will struggle to refinance, said Tomasz Piskorski, a finance and real estate professor at Columbia Business School. He and fellow researchers estimate about 14% of the $3 trillion of US CRE loans are underwater, rising to 44% for offices.
Click here to listen to the Credit Edge podcast
Smaller lenders are more vulnerable to CRE defaults after demanding lower down payments from borrowers than their larger counterparts in the run up to the interest-rate hikes that began in 2022. Now that office and multifamily values have crashed, the lenders have less of a buffer before taking losses.
The office market has yet to stabilize “which is why we remain concerned and remain well-reserved,” PNC Financial Service Group Chief Executive Officer Bill Demchak said on an earnings call this week. The bank increased the reserves it set aside to cover soured office loans to 13.3%, up from 8.7% at the end of 2023, although it’s a small proportion of their overall book.
On the plus side, the declining cost of deposits, thanks to lower Federal Funds rates, helps stability. Steady deposit flows in the fourth quarter suggest that the odds are low that they could quickly be moved to other banks, reducing the risk that lenders have to sell underwater bonds. Duration risk is also reducing as the securities move closer to maturity.
For now, “investors are a little less concerned about the unrealized losses, because it doesn’t look like there’s going to be forced sales like there was with Silicon Valley Bank,” said Scott Hildenbrand, head of depository fixed income at Piper Sandler.
Terry McEvoy, a bank analyst at Stephens Inc., concurs. The firm has met at least 30 bank investors in recent days and it was not a major area of discussion or concern, he said. The incoming Trump administration may also boost bank margins through deregulation, said Piskorski at Columbia Business School.
Still, with borrowing benchmarks trending up even as the Fed cuts interest rates, “we are entering into a very precarious position” and “instead of escaping this area of bank fragility, we are moving toward an increasing area of bank fragility,” Piskorski said.
Week In Review
The six biggest US banks issued corporate bonds or preferreds this week, after posting results. Issuance could pick up in the coming sessions thanks after yields have fallen, following an inflation report that implied that price increases may be coming under control.
It’s never been this cheap to trade corporate bonds, thanks to a boom in electronic trading that’s enabling a wider swathe of investors to buy and sell large volumes of securities faster and more efficiently.
The first loan this year to fund a leveraged buyout arrived on Thursday, with JPMorgan Chase & Co. supporting Silver Lake Management’s purchase of Endeavor Group Holdings Inc., the talent agency and controlling investor in WWE and the Ultimate Fighting Championship.
China Vanke Co. rebounded from record lows in credit markets, as people familiar with the matter said the distressed developer had previously told some creditors it had enough cash prepared to repay a local note.
Repeat corporate bankruptcies in the US are running at the fastest pace since 2020, as some companies still can’t recover even after slashing debts.
Software maker Databricks Inc. clinched more than $5 billion of financing from lenders including Blackstone Inc., Apollo Global Management Inc. and Blue Owl Capital Inc. in its largest debt raise to date.
At least eight major distressed Chinese firms, including a China Evergrande Group unit, are set to defend themselves in court cases relating to their debt problems over the next two weeks, in one of the busiest stretches ever for such hearings.
Blackstone’s flagship private credit fund withdrew a planned $500 million investment-grade bond sale expected to price Tuesday due to administrative delays.
Goldman Sachs Group Inc. pulled out of a $1 billion deal to help Ecuador refinance debt, due to internal risk-management controls.
Altice France’s creditors are demanding the return of shuffled assets and a say in future board appointments as part of negotiations with the company over its €23.7 billion ($24.4 billion) debt pile.
Prospect Medical Holdings Inc., once an active buyer of cash-strapped hospitals, filed for bankruptcy after struggling with debt piles and soaring costs.
On the Move
Paul Goldschmid, who was one of the longest-tenured partners at King Street Capital Management before leaving the $26 billion hedge fund firm last year, announced on LinkedIn the launch of his own long/short credit firm, Harvey Capital Partners.
Goldman Sachs Group Inc. promoted several key executives and combined teams to form a capital solutions group, a move recognizing the growing importance of private markets. Pete Lyon, global head of the financial institutions group and the financial and strategic investors group, and Mahesh Saireddy, global head of mortgages and structured products, will lead the new group.
Lloyds Bank has appointed James Brown as managing director, head of leveraged finance & project finance syndication. Brown joins from Mizuho in London where he led the leveraged debt capital markets business for five years.
Ares Management Corp. promoted finance industry veteran Kevin Alexander as co-head of alternative credit. He’ll work alongside current co-heads Keith Ashton and Joel Holsinger.
Banco Bilbao Vizcaya Argentaria SA has hired UBS Group AG’s Americas head of structured credit and sustainable credit products, Estanislao Fidelholtz, as a managing director and head of its structuring team for credit solutions in the US.
Man Group has consolidated its European and US CLO groups into a global syndicated loan business. Portfolio managers Joshua Cringle and Jonathan Newman will lead the new platform from the US with capacity to issue CLOs.
Credit investor SC Lowy Financial HK Ltd. has laid off several staff members, according to the company’s chief executive officer, as the firm pivots away from trading public securities and toward private credit.
WHY: Rosen Law Firm, a global investor rights law firm, reminds purchasers of common stock and sellers of puts of Celsius Holdings, Inc. CELH between February 29, 2024 and September 4, 2024, both dates inclusive (the “Class Period”), of the important January 21, 2025 lead plaintiff deadline.
SO WHAT: If you purchased Celsius common stock or sold Celsius puts during the Class Period you may be entitled to compensation without payment of any out of pocket fees or costs through a contingency fee arrangement.
WHAT TO DO NEXT: To join the Celsius class action, go to https://rosenlegal.com/submit-form/?case_id=31677 or call Phillip Kim, Esq. at 866-767-3653 or email case@rosenlegal.com for more information. A class action lawsuit has already been filed. If you wish to serve as lead plaintiff, you must move the Court no later than January 21, 2025. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation.
WHY ROSEN LAW: We encourage investors to select qualified counsel with a track record of success in leadership roles. Often, firms issuing notices do not have comparable experience, resources, or any meaningful peer recognition. Many of these firms do not actually litigate securities class actions, but are merely middlemen that refer clients or partner with law firms that actually litigate the cases. Be wise in selecting counsel. The Rosen Law Firm represents investors throughout the globe, concentrating its practice in securities class actions and shareholder derivative litigation. Rosen Law Firm achieved the largest ever securities class action settlement against a Chinese Company at the time. Rosen Law Firm was Ranked No. 1 by ISS Securities Class Action Services for number of securities class action settlements in 2017. The firm has been ranked in the top 4 each year since 2013 and has recovered hundreds of millions of dollars for investors. In 2019 alone the firm secured over $438 million for investors. In 2020, founding partner Laurence Rosen was named by law360 as a Titan of Plaintiffs’ Bar. Many of the firm’s attorneys have been recognized by Lawdragon and Super Lawyers.
DETAILS OF THE CASE: According to the lawsuit, during the Class Period, defendants made false and/or misleading statements and/or failed to disclose that: (1) Celsius materially oversold inventory to PepsiCo, Inc. (“Pepsi”) far in excess of demand, and faced a looming sales cliff during which Pepsi would significantly reduce its purchases of Celsius products; (2) as Pepsi drew down significant amounts of inventory overstock, Celsius’ sales would materially decline in future periods, hurting Celsius’ financial performance and outlook; (3) Celsius’ sales rate to Pepsi was unsustainable and created a misleading impression of Celsius’ financial performance and outlook; (4) as a result, Celsius’ business metrics and financial prospects were not as strong as indicated in defendants’ Class Period statements; and (5) consequently, defendants’ statements regarding Celsius’ outlook and expected financial performance were false and misleading at all relevant times. When the true details entered the market, the lawsuit claims that investors suffered damages.
No Class Has Been Certified. Until a class is certified, you are not represented by counsel unless you retain one. You may select counsel of your choice. You may also remain an absent class member and do nothing at this point. An investor’s ability to share in any potential future recovery is not dependent upon serving as lead plaintiff.
Attorney Advertising. Prior results do not guarantee a similar outcome.
——————————-
Contact Information:
Laurence Rosen, Esq. Phillip Kim, Esq. The Rosen Law Firm, P.A. 275 Madison Avenue, 40th Floor New York, NY 10016 Tel: (212) 686-1060 Toll Free: (866) 767-3653 Fax: (212) 202-3827 case@rosenlegal.com www.rosenlegal.com
View original content to download multimedia:
