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Accenture backtracked on cutting its real-estate footprint — and now it's warning companies about ditching offices and going all-remote

Thu, 06/25/2020 - 12:46pm

  • As millions of white-collar employees continue to work remotely, companies are reassessing their real estate needs for the long term. 
  • Accenture could provide one precedent for the unintended consequences companies may find when they cut their real estate. 
  • CEO Julie Sweet explained that the company moved to more remote work in the 1990s and cut its real estate, but then added offices back in recent years to bring employees together.
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As millions of white-collar employees work from home offices and kitchen tables, companies are reassessing what the mass move to remote work means for corporate offices.

Some companies, including Twitter, are already allowing employees to work remotely forever, while others that have prioritized in-person work, like WeWork, are newly giving staff one day a week to work from home. Coupled with public health concerns about packing thousands into a corporate headquarters, companies are rethinking their real estate needs, which could include slashing their real-estate footprint, relying more on flexible-office solutions, and adding more satellite offices. 

Accenture, which has 55,000 employees in the US, offers a case study in the unintended real-estate consequences of moving to more remote work, its CEO highlighted on a Thursday earnings call.

See more: Accenture is cutting US staff and top execs just warned of more pain to come as the consulting giant promotes fewer people and looks to control costs

In the 1990s, the company, along with some of its peers, adopted "hoteling" – more recently called hot-desking – in which employees reserve workspaces, rather than having assigned desks. Because consultants often work at client sites, they may not need a fixed desk or office, and the company can have fewer desks than employees.

"Particularly in the US, we took out a lot of real estate because we said 'Oh, our people are at client sites or they could be at home,'" CEO Julie Sweet said on Thursday's earnings call. 

In 2001, Accenture said it saved $10 million in the first two years of the hoteling program. 

She said CEOs, often "excited" about the idea of getting rid of real estate, are asking her for advice, since Accenture did what many executives are assessing now. But Accenture's experience shows the move to all-remote work and fewer offices could be more complicated than leaders expect. 

"What we found, in fact, over the last five years when I was running North America, we started gradually to expand that footprint again because there is a benefit of bringing people together as well," Sweet said. 

Accenture currently has 84 offices in the US. 

In a recent webinar with Reuter's Breakingviews, the CEO of Brookfield Asset Management, which owns billions of dollars of offices, said companies need offices for culture, Business Insider reported earlier this month. 

"Our view is that it is ludicrous to think that companies will not return to offices," Flatt said. "You can maintain by video conference a business for a while, but you can't build a culture, and over the longer term you can't maintain a company by video conference." 

Read more: 

SEE ALSO: Companies from banks to tech giants are looking to shed huge chunks of office space. Here's a look at 8 key sublease offers — and what they mean for rents in big-city markets.

SEE ALSO: Deloitte just laid off 200 people in Toronto, with cuts to AI, consulting, and auditing — showing the knock-on effects as clients reassess their budgets for big projects

SEE ALSO: IBM is ditching a big WeWork office in NYC, revealing the risks of the popular flex-space model as the pandemic prompts Blue Chip companies to rethink real estate

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Citi just poached a top operations and anti-fraud exec from Wells Fargo as it continues to build out its consumer bank

Thu, 06/25/2020 - 12:30pm

  • Citigroup poached a top exec from Wells Fargo as it continues to shake up its consumer bank and chase growth.
  • Titi Cole is joining Citi in August as head of global operations and fraud prevention in Global Consumer Banking. 
  • Cole previously headed up operations in the consumer and small business division at Wells. 
  • It's the latest in a string of changes implemented by Citi president and GCB CEO Jane Fraser to spur growth in the consumer division since she was promoted in October. 
  • For more stories, sign up for our Wall Street Insider newsletter.

Citigroup has poached a top exec from Wells Fargo to run operations and anti-fraud within its Global Consumer Banking division — a unit that has been remodeled over the past year with ambitions of growing revenues and better competing with other top US banks. 

Titi Cole, previously EVP and head of operations and contact centers for the consumer and small business division at Wells Fargo, will join Citi in August as head of global operations and fraud prevention in the consumer bank, according to memo from Jane Fraser, president of Citi and CEO of GCB. 

"Titi is a dynamic, results-driven leader and 27-year industry veteran with a breadth of Consumer Banking and Operations experience across products, lending and customer-centric transformation," Fraser said in the memo. "Importantly, Titi is a skilled people leader with a track record of developing and leading high performing teams."

Prior to joining Wells in 2015, Cole spent five years at Bank of America, departing as an SVP leading retail products and underwriting. She worked at BMO Harris Bank and McKinsey & Company before that. 

Cole will report to Fraser, who has been shaking up the firm's consumer bank to spur growth since taking the No. 2 role at Citi last October. 

The most recent appointment follows a slew of changes in the consumer bank announced by Fraser in March — including the hiring of Pam Habner, and ex-JPMorgan Chase and mastermind of the Sapphire Reserve credit card, as its head of US branded cards. 

Read more: 

SEE ALSO: Citigroup just poached the mastermind behind JPMorgan Chase's Sapphire Reserve to run its credit-card division

SEE ALSO: Wells Fargo CEO Charlie Scharf just hired another JPMorgan alum — this time, to run wealth management. Here's how Jamie Dimon's one-time protege has been building up his team.

SEE ALSO: We identified the 70 most powerful people at JPMorgan. Here's our exclusive org chart.

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At a virtual town hall, a top UBS Americas wealth exec shed light on how white the firm's adviser force is and promised to hire hundreds of Black FAs (UBS)

Wed, 06/24/2020 - 7:23pm

  • 1% of the nearly 6,500 financial advisers in UBS's wealth management business in the Americas are Black or African American, division co-head Tom Naratil said at an internal town hall on June 18. 
  • Less than 2% of employees at the director level or above in the Americas are Black or African American, Naratil said. 
  • Naratil said the business was now accelerating its investment in diverse talent in the workplace.
  • For more stories like this, subscribe to our Wall Street Insider newsletter.

1% of the nearly 6,500 financial advisers in UBS's wealth management business in the Americas are Black or African American, division co-head Tom Naratil said at a virtual internal town hall held on June 18, a company spokesperson told Business Insider. 

Naratil, who is also president of the Americas and co-heads the wealth division with Iqbal Khan, said that less than 2% of employees at the director level or above in the Americas are Black or African American.

The figures, which have not been previously reported, come as financial services firms and companies across industries commit themselves to more diverse workplaces amid a global outcry over racism. 

Business Insider reported earlier on Wednesday that the largest US wealth managers, which are UBS, Morgan Stanley, Wells Fargo, and Bank of America's Merrill Lynch unit, would not publicly disclose the racial diversity of their advisers.

UBS has been holding weekly virtual town hall meetings each Thursday during remote work in recent months.

The virtual town hall last week came two days after lawyers representing Marilyn Booker, Morgan Stanley's former global head of diversity from 1994 until 2011, filed suit against her former employer and a wealth management executive there for racial discrimination and retaliation. Morgan Stanley rejects Booker's claims. 

People of color represent some 19% of Americas employees at the director level or above, which encompass executive director, managing director, and group managing director, Naratil also said at the internal meeting. Advisers who are people of color comprise some 10% of financial advisers in the Americas. 

Naratil also said the business is accelerating its investment in diverse talent in the workplace, a spokesperson said.

He is also aiming to achieve a representation of 26% among people of color at the director level and above by 2025 in the Americas, with a goal of about 19% representation among financial advisers.

That includes a net increase in headcount of 300 Black or African American employees at the director level or higher, and adding 200 more Black or African American advisers. 

UBS advisers in the Americas manage some $1.2 trillion, and its force of nearly 10,000 advisers globally manage some $2.3 trillion in assets as of March 31. 

"Black Americans are clearly the ones that are least represented and that is where we clearly see opportunity to improve," Naratil told Reuters at the time of a diversity report the firm released in February

At the time, he said the bank hoped it would hold itself more accountable on matters of internal and external diversity if it voluntarily disclosed its figures at the firm level. He also said more work was required to improve diversity among its force of some 10,000 advisers, who are "primarily" white and male. 

SEE ALSO: Morgan Stanley, UBS, and Merrill Lynch execs explain how to nab a spot in their next-gen adviser programs and make it through the ultra-competitive, years-long training process

SEE ALSO: 6 up-and-coming financial advisers managing hundreds of millions explain how they nabbed wealthy clients in a fiercely competitive field

SEE ALSO: UBS is rolling out the red carpet for ultra-rich people and family offices who want in on private-market deals

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These are the winning strategies for AI in banking

Wed, 06/24/2020 - 6:02pm

Artificial intelligence (AI) applications are estimated to save banks $447 billion by 2023, and front- and middle-office AI improvements could represent more than 90% of these savings.

Leveraging AI tools like chatbots, voice assistants, and personalized insights can transform the customer experience by enabling frictionless, 24/7 interactions. Additionally, in middle-office banking, AI can be used to improve anti-money laundering efficiency and payments fraud prevention.

A recent OpenText survey found that 80% of banks are highly aware of the potential benefits presented by AI, but much fewer have taken the dive into implementation. When mindfully executed, AI can enable cost cuts, risk mitigation, and a better user experience, but what does winning execution look like?

In the Winning Strategies for AI in Banking report, Business Insider Intelligence looks at several effective strategies used to capture AI's potential in banking, and details how financial institutions like Citi and US Bank have successfully implemented some of these strategies.

This exclusive report can be yours for FREE today.

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The 6 biggest US banks granted over 5,000 H-1B visas last year. Here's how firms like Goldman Sachs and Wells Fargo are reacting to Trump's shutdown.

Wed, 06/24/2020 - 4:58pm

  • President US Donald Trump suspended a variety of visa programs, one of which big banks use for hiring, particularly on tech teams.
  • In 2019, JPMorgan, Morgan Stanley, Goldman Sachs, Bank of America, Wells Fargo, and Citigroup were approved for over 5,000 H-1B visas.
  • Sign up here for our Wall Street Insider newsletter.

Big banks have leaned on a visa that has now been suspended as part of an executive order signed by President Donald Trump this week. 

On Monday, Trump suspended a variety of visa programs for the remainder of the year, an extension of what was a 60-day freeze on work visas established back in April. The move elicited strong reactions from executives in the tech industry, where the "highly-skilled" H1-B visas are relied on to recruit talent. 

Tech companies, however, aren't the only ones likely to be impacted by the suspension of the program. Big banks, which have continued to put more resources toward their tech teams, have also granted thousands of H-1B visas. 

Read more: Trump's shutdown of H-1B visas is a huge hit to the Silicon Valley tech giants that employ tens of thousands of affected workers

According to data from the US Citizenship and Immigration Services, JPMorgan, Goldman Sachs, Bank of America, Wells Fargo, Morgan Stanley, and Citigroup accounted for over 5,000 new or renewed H-1B visas in 2019. In total, there are only 85,000 H-1B visa spots open in the US each year. 

To be sure, these numbers don't indicate the total number of employees on H-1B visas at the banks, only the ones that either received or renewed visas in 2019. 

JPMorgan, the second-largest of the six banks by headcount, had the highest total number H-1Bs approved in 2019, totalling 1,697 between new (433) and renewed (1,264) visas. A spokesperson for the bank declined to comment. 

Despite being the smallest bank of the six in terms of number of employees, there was a total of 1,036 H-1B visas approved in 2019 at some Goldman Sachs entities.

"We consider all qualified candidates for positions at Goldman Sachs regardless of whether they may need a visa for their work authorization," a Goldman Sachs spokesperson told Business Insider via email.  "The firm and our advisors are providing assistance and advice to any employees impacted by the latest Executive Order."

See also: Amazon criticizes Trump's temporary ban of immigrant working visas: 'We oppose the Administration's short-sighted action'

Citigroup and Bank of America had 748 and 733 approved H-1B visas in 2019, respectively. Spokespeople at both banks declined to comment.

Morgan Stanley had 619 approved H-1B visas in total in 2019. A spokesperson for the bank declined to comment. 

Wells Fargo, the largest of the five banks, had the lowest number of H-1B visas approved in 2019, totalling 217.

"Wells Fargo sponsors a limited number of employees with specialized skill sets on H-1B and L-1 visas," a spokesperson for the bank said via email. "Where applicable, we are working with those employees to help them understand and limit the impact of travel restrictions resulting from the executive order."

To be sure, Wall Street's use of the H-1B visa still pales in comparison to Silicon Valley. Google and Amazon were granted 9,078 and 8,937 H-1B visa applications in 2019, respectively. Microsoft, meanwhile, had 5,925 applications, while Facebook had 2,657. 

Read more:

Amazon, Google, Apple, and other tech companies are speaking out against Trump's freeze on immigrant work visas

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SEE ALSO: Goldman Sachs' summer internship is going virtual, joining the likes of Bank of America and Morgan Stanley who are running remote programs

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Goldman Sachs CEO warns of even more job losses across industries through the next year (GS)

Wed, 06/24/2020 - 4:25pm

  • David Solomon, CEO of Goldman Sachs, says the US economy still has jobs to shed. 
  • The comments come after May unemployment figures showed a slight uptick in employment after mass layoffs due to the coronavirus. 
  • "All businesses are learning and seeing ways where there are efficiencies," he said, speaking of companies broadly and not just banks. 
  • Visit Business Insider's homepage for more stories

The May jobs report was a bright spot for the United States as it struggles with the ongoing coronavirus outbreak, but the head of one of the largest Wall Street banks says the job losses may not yet be over.

David Solomon, chief executive of Goldman Sachs, said Wednesday that there are likely two main time periods for the pandemic: "a period of crisis and then a period of normalization."

"One of the things that's going to be a drag on the economy broadly," he told a virtual conference hosted by Bloomberg, "and one of the reasons I think there's going to be a headwind, is all businesses are learning and seeing ways where there are efficiencies.

"I think that's going to have a toll," he continued, "and an adjustment on workforces more broadly as we get into 2021. That's not something that's specific to financial services, I think that's across industry broadly. I do think this is something that as an economy we'll have to manage as we go forward."

Earlier this month, unemployment numbers for May surprised economists by adding 2.5 million jobs and decreasing the unemployment rate to 13.3%. In previous years pre-pandemic, the unemployment rate had sunk as low as 3.6%.

There are already rumblings that Solomon's likely correct, too.

A survey of small businesses that received funding from the federal government's Paycheck Protection Act by the National Federation of Independent Businesses found as many as 14% of PPP loan borrowers anticipate having to lay off employees after the funds run dry. Congress and the White House have yet to signal any agreement for a follow-up round of business relief or an extension of unemployment funds.

Goldman Sachs' research division has also warned that the stock market recovery that's helped equity prices return to barely below their January levels could get hit with a second selloff if there's a resurgence of the virus.

As for the firm specifically, it's also slowing down certain investments to protect its bottom line too.

"We have some longer term or medium term goals that we laid out at our investor day where we think there are opportunities to run the firm more efficiently," Solomon said, "and we're still committed to those, but obviously the timeline has changed a little but on some of that."

Carmen Reinicke contributed to this report.

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Hertz skyrockets more than 100% after Jefferies suggests CarMax or AutoNation could 'swoop in' (HTZ)

Wed, 06/24/2020 - 4:19pm

  • Jefferies analyst Hamzah Mazari suggested that auto dealers such as Avis, CarMax, and AutoNation may be eyeing bankrupt Hertz in a Wednesday note. 
  • Shares of Hertz skyrocketed more than 100% in intraday trading Wednesday, before paring some gains. 
  • The most obvious way for auto dealers to swoop in on Hertz would to be to bid for 150,00 of the company's used cars, which are likely to be sold off to shore up cash, according to the note. According to Mazari, selling the cars could raise $3 billion for Hertz. 
  • Watch Hertz trade live on Markets Insider. 
  • Read more on Business Insider. 

Hertz shares spiked as much as 101% Wednesday following a Jefferies note that suggested other auto dealers could "swoop in" on the battered company. 

"Our channel checks suggest that KMX and AN among others could be eyeing HTZ in bankruptcy," wrote analyst Hamzah Mazari in a Wednesday note.

Hertz shares jumped following the report, snapping a four-day streak of losses for the company. Later in the day, shares pared some of their gains but still were up roughly 40%. 

The most obvious way for auto dealers to swoop in on Hertz would to be to bid for 150,00 of the company's used cars, which are likely to be sold off to shore up cash, the note said. According to Mazari, selling the cars could raise $3 billion for Hertz. 

Read more: Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future.

According to the note, the $1 billion in liquidity Hertz held at the end of March likely fell to $365 million by June 30, meaning that the company needs at least $900 million of debtor-in-possession financing. 

"We think the longer HTZ takes to re-emerge from bankruptcy with a cleaner capital structure, the more opportunity there is for rivals to pick up share," said Mazari. Bankruptcies typically last six months to two years, according to Jefferies — the Hertz one "could end up being toward the longer end of that range."

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Dow plunges 710 points amid surging COVID-19 cases and oil-market skid

Wed, 06/24/2020 - 4:05pm

  • US equities slid on Wednesday as rising coronavirus case counts around the world renewed fears of a slow economic recovery.
  • COVID-19 cases have increased in California, Texas, and Florida, driving concerns that economic reopenings will fuel a second wave of the pandemic.
  • Investors also braced for a new tariff announcement after a late-Tuesday notice said the Trump administration was mulling duties on $3.1 billion worth of European exports.
  • Oil fell, with West Texas Intermediate crude sliding back well below $40 per barrel at intraday lows.
  • Watch major indexes update live here.

US stocks slid on Wednesday as surging COVID-19 case counts in the US fueled concerns of a protracted economic downturn.

California, Arizona, Texas, Florida, and other states have recently seen large coronavirus outbreaks, leading some to question whether economic reopenings will be extended or reversed. Rising case counts in Germany and China suggest economic pain will last abroad as well.

Investors also braced for a new tariff announcement from the White House. The Trump administration is mulling duties on $3.1 billion worth of exports from France, Spain, Germany, and the UK, according to a notice from the Office of the US Trade Representative published Tuesday evening. Such action could place fresh pressure on US trade relations and spark a new conflict.

Here's where US indexes stood at the 4 p.m. ET market close on Wednesday:

Read more: Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future.

"I imagine there will be significant resistance to restrictions being reimposed but the fear is that they are left with no other option and the recent trends we're seeing in the data is a worry," said Craig Erlam, a senior market analyst at Oanda Europe.

Travel stocks were among the session's biggest losers. Airlines declined, led by Delta, Southwest, and United. Carnival Cruise Line and Royal Caribbean plunged further. Retailers including Gap and Macy's also declined.

The International Monetary Fund added to investors' stressors. The organization forecast an even deeper global recession than it did in April, calling for a 4.9% contraction in global gross domestic product in 2020. It had previously forecast a 3% slide through the year.

Read more: A CEO overseeing $147 million outlines his 4-part strategy for identifying which stocks to buy — and shares 2 he sees primed to explode higher right now

The IMF also expects the recovery to be worse than initially expected, cutting its 2021 growth estimate to 5.4% from 5.8%. The coronavirus pandemic will leave behind severe economic scarring, particularly in marginalized communities, the organization said.

"The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s," the IMF said.

Oil fell amid concerns of prolonged demand weakness and rising inventories. The American Petroleum Institute reported an increase of 1.75 million barrels in US inventories last week, bringing the total to 545 million barrels. Economists had expected a buildup of just 299,000 barrels, Reuters reported. An oversupply shock could flood the market with unwanted oil and drive prices sharply lower.

Read more: Morgan Stanley handpicks 10 stocks to buy now for the richest profits as travel and outdoor activities transform in the post-pandemic world

West Texas Intermediate crude fell as much as 7.6%, to $37.31 per barrel. Brent crude, the international benchmark, slipped 7%, to $39.63, at intraday lows.

Wednesday's decline came after moderate gains on Tuesday. Soaring tech names pushed the Nasdaq composite to a record high. Bank stocks followed close behind as investors received positive signs from new home sales data and IHS Markit's US purchasing managers' index.

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Goldman Sachs CEO David Solomon sees V-shaped recovery into 2021 before comeback slows

Wed, 06/24/2020 - 3:31pm

  • The US economy is still on track for a V-shaped recovery at least through 2020, Goldman Sachs CEO David Solomon said Wednesday.
  • The nation is "somewhere in the middle" of its rebound and reopenings are slated to sharply boost economic activity, he said during the Bloomberg Invest Global virtual conference.
  • Yet as the V-shaped bounce ends sometime next year, "it's very open-ended as to what kind of economic friction we're going to see as we get through the end of the year and into 2021," the chief executive added.
  • Visit the Business Insider homepage for more stories.

Goldman Sachs CEO David Solomon still sees a V-shaped recovery ahead even as coronavirus cases are increasing throughout the US.

It just might not bring the economy back to its pre-pandemic levels as quickly as hoped.

Appearing in the Bloomberg Invest Global virtual conference, Solomon said the US is "somewhere in the middle" of its turnaround. Just as economic activity nosedived in the second quarter, the CEO sees reopenings driving a similar turn higher through the end of the year.

"This crisis has had a profound impact on the economic environment that we're operating in," he said on Wednesday. "My guess is when you look at the shape of the recovery, the initial shape is going to look quite like a V."

Read more: A CEO overseeing $147 million outlines his 4-part strategy for identifying which stocks to buy — and shares 2 he sees primed to explode higher right now

Solomon added that uncertainty still clouds such forecasts and second shocks could endanger the nation's long-term trajectory. The healthcare industry represents a major variable, as an effective coronavirus vaccine is largely viewed as the best bet for boosting consumer confidence. Human behavior can also deviate from expectations and either accelerate or halt reopening measures.

These factors will likely slow the US economic bounce-back after 2020 and push a full rebound further down the road, Solomon said.

"I do think we're going to see a sharp V to start with, but it's very open-ended as to what kind of economic friction we're going to see as we get through the end of the year and into 2021," the CEO said.

"I think it's going to take quite a while for us to get back to where we were before this started"

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Morgan Stanley sees Tesla falling 35% from current levels, says rally to $1,000 ignores a host of risks (TSLA)

Wed, 06/24/2020 - 2:55pm

  • Tesla at more than $1,000 per share is plausible but ignores a host of market and execution risks, Adam Jonas of Morgan Stanley wrote in a Monday note. 
  • Shares of Tesla have been trading around the key level since closing at an all-time high of $1,025 per share on June 10. On Tuesday, Tesla again closed above the level, at $1,001 per share. 
  • Morgan Stanley's price target of $650 implies a 35% drop from that level. 
  • Watch Tesla trade live on Markets Insider.
  • Read more on Business Insider.

Tesla might be overvalued at $1,000 per share, according to Morgan Stanley. 

"We understand the attraction of the Tesla story," Adam Jonas of Morgan Stanley wrote in a Monday note, adding "we think investors may have a chance to revisit the stock at a more attractive price." 

He continued: "We believe $1,000/share discounts outcomes that, while plausible, may ignore a host of execution/ market risks." 

Shares of Tesla have been trading around the key $1,000 level since June 10, when the stock closed at an all-time high of $1,025. On Tuesday, Tesla closed at $1,001 per share, beating the level again before paring some gains Wednesday. 

There could be further pain ahead for Tesla stock, according to Morgan Stanley. The firm reiterated its $650 price target, which implies the stock could fall 35% from the key $1,000 level. Morgan Stanley also has the equivalent of a "sell" rating on Tesla. 

Read more: Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future.

Tesla interest is coming from tech-oriented investors that see the Elon Musk-led company's valuation as "reasonable and in the framework of discussion amongst large/ tera-cap tech names" such as Amazon, Google, and Apple, said Jonas. 

"However, one would have to consider (or ignore) significant inherent differences in Tesla's business model and capital intensity" compared to other tech names, according to Jonas.

In addition, "one must also take into account many of Tesla's business objectives face a degree of execution risk that may be significantly higher than many of the more proven/ mature companies in this analysis." 

Morgan Stanley's Tesla target price is based on slightly more than 2 million units of annual deliveries by 2030 at a roughly 16.5% Ebitda margin, according to the note. At $1,000 per share and the same margin forecast, Tesla is discounting roughly 4 million units  — double its estimate, said Morgan Stanley. 

Read more: Morgan Stanley handpicks 10 stocks to buy now for the richest profits as travel and outdoor activities transform in the post-pandemic world

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Oil plummets 8% on 2-pronged threat from COVID-19 resurgence and inventory increase

Wed, 06/24/2020 - 2:51pm

  • Oil prices slumped on Wednesday as investors stared down a larger-than-expected jump in US crude inventories and surging COVID-19 case counts in several states.
  • The American Petroleum Institute said inventories last week leaped by 1.75 million barrels, to 545 million barrels, Reuters reported. Economists had expected a buildup of just 299,000 barrels over the period.
  • Meanwhile, a surge in coronavirus cases in several US states threatens to halt travel activity and stifle a demand rebound.
  • West Texas Intermediate crude futures sank as much as 7.6%, to $37.31.
  • Brent crude, the international benchmark, plunged 7.1%, to an intraday low of $39.62.
  • Watch oil trade live here.

Oil futures plummeted on Wednesday after new industry data and coronavirus case counts pointed to an aftershock in the critical commodity market.

The American Petroleum Institute said inventories jumped by 1.75 million barrels in the week ended on Friday, to 545 million barrels, Reuters reported on Tuesday. Economists had expected an increase of just 299,000 barrels. The larger-than-expected buildup threatens to flood the market with unwanted inventory as demand remains well below pre-pandemic levels.

West Texas Intermediate crude contracts slid as much as 7.6%, to $37.31 per barrel, before paring some losses. Brent crude, oil's international standard, fell 7.1%, to $39.62 at intraday lows.

Read more: Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future.

The three straight weeks of inventory increases echoed a trend that ultimately pushed oil prices into negative territory in late April. WTI contracts nosedived in their last days before expiration as oil storage reached its limit and demand failed to offset the buildup. The moves haven't been repeated since, though Wednesday's price action pulled contracts sharply lower from their three-month highs.

Soaring COVID-19 case counts throughout the US further rattled investors hoping for a smooth oil-market rebound. Several states including California, Florida, and Arizona have reported spikes in cases throughout the week as reopenings continue. A surge in cases could further tank oil demand as lockdown measures drag on.

Read more: A CEO overseeing $147 million outlines his 4-part strategy for identifying which stocks to buy — and shares 2 he sees primed to explode higher right now

Growing fears of a new trade conflict also hammered the market. The White House is weighing fresh tariffs on $3.1 billion worth of exports from the UK, France, Spain, and Germany, the Office of the US Trade Representative said late Tuesday. Any slowdown in global trade stands to stifle a bounce-back in crude prices.

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The Fed's unprecedented relief measures could form the greatest financial bubble in history, Ed Yardeni says

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Bank of America says these stocks will be supported as people opt for 'staycations' during the coronavirus crisis

Wed, 06/24/2020 - 2:47pm

  • As the coronavirus pandemic wears on, "staycations" should support stocks tied to solitary leisure, Bank of America analysts led by Robert Ohmes wrote Monday. 
  • Credit card data suggests that spending solitary activities such as golf accelerated in June. 
  • In addition, travel and Google Mobility data show that consumers are staying closer to home and increasing visits to parks and beaches over restaurants and malls. 
  • Here are three stocks that Bank of America upgraded as they're poised to gain from the "staycation" trend. 
  • Read more on Business Insider.

Even as the US economy reopens, many Americans are still practicing social distancing rules that are even impacting how they vacation, according to Bank of America. 

"We believe COVID-19 is accelerating the consumer spending shift away from traditional entertainment (e.g. amusement parks, movie theaters, & tourist attractions) and international travel to 'solitary' leisure activities (e.g. golf, marine, hiking, camping) and 'staycations'," a group of analysts led by Robert Ohmes wrote in a Monday note. 

There are a few data points that back up the claim, according to the note. First, travelers are holding back and choosing to stay local as the coronavirus still presents a health threat, Bank of America said.

Google mobility data through mid-June suggests that visits to parks, beaches, and marinas are growing, and tracking nearly 70% above pre-COVID levels. At the same time, visits to restaurants, shopping centers, theme parks, museums, libraries, and movie theaters are 16% below pre-COVID levels. 

Read more: A CEO overseeing $147 million outlines his 4-part strategy for identifying which stocks to buy — and shares 2 he sees primed to explode higher right now

Credit and debit card data also suggests that consumers are spending more money on solitary leisure activities, according to the report. Through mid-June, spending on entertainment such as movie theaters and amusement parks is down nearly 90% from a year ago, while spending on activities such as golf and marine activities are up double-digits on the year and continuing to gain. 

This trend will support three stocks that "should benefit from a potential sustained change in consumer habits due to rising consumer demand for active social distancing & contactless leisure experiences," according to Bank of America.

In addition, the "solitary leisure" stocks will especially gain with fears of a potential second wave of coronavirus cases mounting, Ohmes wrote. 

These are the three "solitary leisure" stocks Bank of America recommends. 

1. Dicks Sporting goods

Ticker: DKS

Price target: $50 (from $45) 

Rating: Buy 

"We believe DKS is the best positioned retailer to benefit from the increasing popularity of golf as one of the largest equipment retailers in the U.S.," Ohmes wrote. 

 

Source: Bank of America



2. Columbia Sportswear

Ticker: COLM

Price target: $90 (from $82) 

Rating: Buy 

"COLM should see momentum from more participation in Camping, Hiking, and Fishing as visits to national parks continue to increase," Ohmes wrote Wednesday.

"Columbia Sportswear apparel, including its PFG line, should be a beneficiary," he said, adding, Columbia Brand Footwear "should see momentum especially in hiking & trail running categories."

Source: Bank of America



3. Yeti

Ticker: YETI

Price target: $42 (from $35) 

Rating: Buy 

"We also see YETI as a key beneficiary of the shift towards solitary leisure activities as its coolers & drinkware are used across marine, fishing, park, and beach activities," wrote Bank of America analysts led by Ohmes. 

Source: Bank of America



Morgan Stanley, UBS, Wells Fargo, and Bank of America's Merrill Lynch won't disclose the racial diversity of their financial advisers

Wed, 06/24/2020 - 2:34pm

  • The largest US wealth managers have renewed their commitments to promoting racial diversity as the deaths of Black men and women at the hands of police in recent weeks spurred a national outcry. 
  • At the same time, Morgan Stanley, Wells Fargo, and Bank of America's Merrill Lynch business won't disclose the racial diversity of their advisers.
  • JPMorgan meanwhile said last year that less than 5% of its 3,700 advisers are Black.
  • Last week, a former Morgan Stanley executive filed suit against the firm and one of its wealth management executives for racial discrimination and retaliation.
  • Contact this reporter on the encrypted app Signal at (631) 901-5340 or at rungarino@businessinsider.com.
  • For more stories like this, sign up for our Wall Street Insider newsletter.

As a historic reckoning with systemic racism grips the US in recent months, most of the country's largest wealth managers and their big-bank parent firms have made vows recommitting themselves to promoting diversity internally and in the communities where they operate.

But the industry's effort is limited by the information firms choose to disclose to the public. As companies like Wells Fargo, Morgan Stanley, and Bank of America publicize their efforts, they won't break out how many of their thousands of financial advisers are Black and people of color. 

The disconnect between commitments and a general lack of transparency into more granular race data — even within a notoriously secretive business — does little to instill confidence in the wealth management industry's efforts to make itself less white and male, something it's said it's improved in recent years. 

Four days after Minneapolis police killed George Floyd and protests started sweeping the US, Wells Fargo chief executive Charlie Scharf sent an email to all employees committing that "our company will do all we can to support our diverse communities" and foster an inclusive culture.

"As a white man, as much as I can try to understand what others are feeling, I know that I cannot really appreciate and understand what people of color experience and the impacts of discriminatory behavior others must live with," he wrote in the email later posted to the firm's website.

Wells Fargo, the fourth-largest US bank by assets, does not provide numbers around diversity for each line of business, only at the corporate level, a spokesperson said. It operates one of the largest US wealth management businesses, with 13,450 advisers overseeing some $1.4 trillion.

As of 2019, 44% of its US workforce is ethnically and racially diverse, according to the latest figures in the company's business standards report. The firm, which employs 263,000 people globally, does not break out its US headcount. 

Within financial services, it's typical for a firm to disclose gender and racial diversity figures at the firm level though not offer more detailed data, said John Streur, the president and chief executive of Calvert Research and Management, the investment management firm owned by Eaton Vance that specializes in responsible investing. 

A firm may not disclose figures because "the numbers aren't where they'd like them to be," or there may be a risk management-related reason a firm may not disclose figures at the business segment level, he said. 

"But we have to get past that," Streur said in a phone interview. "I think getting the industry into a transparency and a reporting groove would be really healthy and important."

Outsiders got a rare glimpse into a large wealth operation's racial diversity when JPMorgan said in January that less than 5% of its nearly 3,700 financial advisers are Black, the New York Times first reported.

The firm's disclosure came after Congressional Democrats questioned JPMorgan over a Times report on racism at some of the bank's Arizona branches. A spokesperson defended the bank's treatment of a former financial adviser and a client at the center of the report, the Times reported. 

Read more: 'Diversity' and 'inclusion' are the emptiest words in corporate America. Here's what we really need to dismantle systemic racism in the office.

"The leaders of the new US Wealth Management business are all-in, dedicated to make meaningful progress hiring more Black advisors," a JPMorgan spokesperson said in a statement to Business Insider.

Of 271 participants in the firm's Advisor Development program, a two- to three-year program focused on recruiting and developing new advisers who have little or no traditional financial services experience, more than 20% have identified as Black, the spokesperson said. 

Some advisers have made career moves around the lack of representation they felt in the workplace.

After growing frustrated with the lack of racial diversity at legacy firms where she previously worked, Anna N'Jie-Konte, who identifies as Afro-Latin, founded a registered investment adviser last year catering to "single millennial women of color in their 30s and 40s," according to a recent report from the website ThinkAdvisor. 

"The lack of diversity in both the staff and client base is abysmal. It's the elephant in the room," said N'Jie-Konte, whose firm has a dozen clients and some $5 million in client assets, ThinkAdvisor reported.

A disconnect between commitment and transparency

Morgan Stanley, the New York investment bank and wealth manager, said earlier this month that it would allocate $25 million toward establishing an internal group to oversee the mentoring, development, and promotion of diverse employees, chief executive James Gorman said in a June 5 post. It also plans to donate $5 million to the non-profit NAACP Legal Defense Fund.

Though it's made commitments, a spokesperson for Morgan Stanley declined to disclose figures showing the racial diversity of its 15,432 financial advisers. The firm's elite wealth unit is the world's largest, with some $2.4 trillion in client assets as of late March. 

The spokesperson said half of participants in the firm's financial adviser training program are "diverse candidates," referring to both gender and racial diversity, and declined to disclose the size of its program. 

Last week, lawyers representing Marilyn Booker, Morgan Stanley's former global head of diversity from 1994 until 2011, filed suit against her former employer and a wealth management executive there for racial discrimination and retaliation. 

Read more: 10 diversity leaders who are fighting inequality in corporate America

Booker believes she was fired last December because she "pushed too hard" for initiatives geared toward advancing Black employees and people of color within the firm and specifically within its financial adviser and adviser trainee ranks, according to the complaint filed in federal court in Brooklyn. A company spokesperson said in a statement that the firm rejects Booker's allegations and intends to defend itself.

Other wealth management giants have provided just as little transparency into their financial adviser forces.

While Bank of America discloses its diversity figures on a firm-wide level (roughly half of its US workforce is racially or ethnically diverse, the company says), it does not do so for individual business lines, including its Merrill Lynch Wealth Management business. Merrill reported 17,646 advisers and other wealth representatives through March, and manages some $2.2 trillion. 

"At Bank of America, and within the Merrill business specifically, diversity and an inclusive workplace are core to our culture," a spokesperson said.

Currently, the firm's financial adviser training program is the most diverse class of advisers in its history, the spokesperson said. Nearly 30% of the program's group of some 3,000 adviser trainees are women, and more than a third are people of color.

Bank of America said on June 2 that it would allocate $1 billion over four years to help communities address economic and racial inequality, with one focus on recruiting and retaining employees in low- to moderate-income communities. 

After Business Insider published this article, a UBS spokesperson said global wealth management co-head Tom Naratil disclosed to employees in an internal town hall last week that 1% of its financial advisers in the Americas are Black, and disclosed other details about how it aims to improve diversity in its ranks. UBS is among the largest wealth managers with $2.3 trillion in assets and roughly $1.2 trillion managed in the US. 

In February, the firm released a workforce diversity report that showed 25% of its employees at the end of 2019 were people of color.

"Black Americans are clearly the ones that are least represented and that is where we clearly see opportunity to improve," Tom Naratil, co-head of the global wealth management division and president of the Americas, told Reuters at the time of its report

Naratil said at the time that the bank hoped it would hold itself more accountable on matters of internal and external diversity if it voluntarily disclosed its figures, and that more work was required to improve diversity among its force of some 10,000 advisers, who are "primarily" white and male. Nearly 6,500 advisers of the firm's advisers operate in the US through March. 

Do you have a tip about these firms or the wealth management industry? Contact this reporter on the encrypted app Signal at (631) 901-5340 or at rungarino@businessinsider.com.

Read more:

SEE ALSO: 'Diversity' and 'inclusion' are the emptiest words in corporate America. Here's what we really need to dismantle systemic racism in the office.

DON'T MISS: Wells Fargo CEO Charlie Scharf just hired another JPMorgan alum — this time, to run wealth management. Here's how Jamie Dimon's one-time protege has been building up his team.

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Read the letter a fintech-focused VC sent investors laying out why 'hype rounds' that drove ballooning valuations just won't work anymore

Wed, 06/24/2020 - 2:29pm

  • Financial Venture Studio's cofounders and managing partners, Ryan Falvey and Tyler Griffin, believe momentum investing and "hype rounds" will no longer be a sustainable strategy for VCs. 
  • The lack of social gatherings post-pandemic will make it too hard for VCs to coordinate investments and pick winners, they wrote. 
  • They argued that thesis-driven investing will prevail in the coming months.
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A venture-capital investor is predicting the end of momentum investing and "hype rounds." 

Financial Venture Studio, a San Francisco-backed fintech investor who's backed the likes of personal finance app Dave and student-loan app Pillar, believes big-money rounds fueled by interest in charismatic founders will slow.

Part of the issue lies in the inability of VCs to coordinate and network with each other at social gatherings to identify potential winners, as was the case previously.

Ryan Falvey and Tyler Griffin, the cofounders and managing partners of the firm, explained why the strategy will suffer in a letter penned to their LPs and shared with Business Insider. 

"This fundraising technique (and the underlying GP strategy that enables it) relies on frequent communication and networking among VCs to develop a consensus around such winners," Falvey and Griffin wrote. 

"Scheduling a call with a competitor to discuss what one is seeing in-market is an awkward and unpleasant distortion of casual deal-flow gossip over drinks, and it turns out that "pattern matching" is extremely difficult when managers can't watch other investors play the game as well," they added.

It's still early days, but 2020 has remained a year marked by big rounds, a continuation of a trend that picked up in 2019. Unicorn startups Robinhood and Brex both raised significant amounts of capital in May. Meanwhile, Stripe raised $600 million to value it at $36 billion in April.

Instead, Falvey and Griffin predict thesis-driven models will succeed. Betting on high-skilled founders who fall in line with the investor's long-term vision "has been remarkably effective," and will continue to be the case, they wrote.

To be sure, the prediction is self-serving to the VC, as it's a process Financial Venture Studio specializes in, a point Falvey and Griffin acknowledge. 

"We believe that this return to thesis- driven investing will benefit smaller specialist funds like ours, which can find and support compelling teams, complete thorough early diligence, and telegraph quality to larger multi-stage funds. In short, we expect broad investing trends to break in our favor," they wrote.

Read the full section of the letter here:

Being a "Post-COVID Fund" Similarly to our founders, we believe our own orientation should reflect this new reality. Our view is that the current crisis will last for an extended period of time. We obviously cannot know exactly how long, but we expect that the future is going to look more like today than the period before the virus hit. Significant parts of the venture capital ecosystem seem to have been seriously disrupted, and we expect that disruption to continue. 

The biggest and most obvious impact is to momentum investors. Over the past decade, "hype rounds," in which a major driver of equity value is other funds' interest, grew to be a mainstay of the venture community. Contemporaneously, a certain type of founder has become highly prized in our industry, namely those with a personality that inspires venture capitalists to write large checks and compete aggressively with each other at the early stages. It is important to note that this strategy can be effective, especially with cash-burning businesses for which access to capital is a significant and often decisive advantage. Choosing and lavishly funding a "winner" in a category can effectively become a bet on the category itself, as there is less likelihood that competitors will even get funded in the first place. 

This fundraising technique (and the underlying GP strategy that enables it) relies on frequent communication and networking among VCs to develop a consensus around such winners. Remote work has slowed down interactions among managers and also eliminated spontaneous discussions at networking events, replacing them with calls or videoconferences with enumerated agenda items. Scheduling a call with a competitor to discuss what one is seeing in-market is an awkward and unpleasant distortion of casual deal-flow gossip over drinks, and it turns out that "pattern matching" is extremely difficult when managers can't watch other investors play the game as well. 

Consequently, we expect many talented managers to revert to the earlier, thesis-driven model of investing that has been the core VC strategy since the industry's founding. From the early Fairchild Semiconductor days when investors realized that semiconductor-based businesses would have outsized economic value to Marc Andreessen's famous thesis from 2011 that "software is eating the world," investing in highly skilled founders who match the investor's long-term vision has been remarkably effective. We believe that this return to thesis- driven investing will benefit smaller specialist funds like ours, which can find and support compelling teams, complete thorough early diligence, and telegraph quality to larger multi-stage funds. In short, we expect broad investing trends to break in our favor. 

The other industry that has been seriously disrupted is financial services. The current crisis has highlighted the inadequacy of our existing financial system and the financial fragility of huge swaths of the American middle class. From the chaotic deployment of Payroll Protection Funds to unprecedented unemployment levels, we are experiencing a recession that is fundamentally financial and that will create unparalleled demand for innovative financial services businesses. As such, we predict fintech as a sector to see resurgent interest from both investors and entrepreneurs. 

We believe current circumstances will create a permanent shift towards consumer and business adoption of technological solutions. Social distancing is forcing even reticent consumers and small businesses to use digital products to move money, manage account balances, and pay bills as bank branches reduce hours or close completely and call centers remain overwhelmed. Initial onboarding is by far the highest hurdle for most fintech products, and once configured, the workflows are far more efficient than the analog alternatives. In the same way that many workplaces will be transformed permanently by accommodations for remote work, consumers' and businesses' engagement with fintech products will prove to be very sticky. 

For all of the same reasons, we expect heightened founder interest in this sector. As the best innovators look for challenging problems to solve, financial services will be difficult to ignore. While we do not expect to see genuinely new post-COVID business models for the next few months, we are incredibly excited for what is to come. When they do come, our model of broad national sourcing, focused industry expertise, and intensive founder support will position the fund for success. 

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SEE ALSO: An IPO for mortgage giant Quicken Loans could make or break fintech valuations. 5 VC investors lay which startups may get the biggest boost.

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Dow slips 650 points as spiking virus cases revive economic-recovery worries

Wed, 06/24/2020 - 1:22pm

  • US equities slid on Wednesday as rising coronavirus case counts around the world fueled fresh fears of a slow economic recovery.
  • COVID-19 cases have increased in California, Texas, and Florida, driving concerns about economic reopenings.
  • Investors also braced for a new tariff announcement after a late-Tuesday notice said the Trump administration was mulling duties on $3.1 billion worth of European exports.
  • Oil fell, with West Texas Intermediate crude sliding back below $40 per barrel at intraday lows.
  • Watch major indexes update live here.

US stocks slid on Wednesday as surging COVID-19 case counts in the US fueled concerns of a protracted economic downturn.

California, Arizona, Texas, Florida, and other states have recently seen large coronavirus outbreaks, leading some to question whether economic reopenings will be extended or reversed. Rising case counts in Germany and China suggest economic pain will last abroad as well.

Investors also braced for a new tariff announcement from the White House. The Trump administration is mulling duties on $3.1 billion worth of exports from France, Spain, Germany, and the UK, according to a notice from the Office of the US Trade Representative published Tuesday evening. Such action could place fresh pressure on US trade relations and spark a new conflict.

Here's where US indexes stood at 1:20 p.m. on Wednesday:

Read more: Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future.

"I imagine there will be significant resistance to restrictions being reimposed but the fear is that they are left with no other option and the recent trends we're seeing in the data is a worry," said Craig Erlam, a senior market analyst at Oanda Europe.

Travel stocks were among the session's biggest losers. Airlines declined, led by Delta, Southwest, and United. Carnival Cruise Line and Royal Caribbean plunged further. Retailers including Gap and Macy's also declined.

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Oil fell amid concerns of prolonged demand weakness. West Texas Intermediate crude fell as much as 3.6%, to $38.90 per barrel. Brent crude, the international benchmark, slipped 3.6%, to $41.10, at intraday lows.

Wednesday's decline came after gains on Tuesday. Soaring tech names pushed the Nasdaq composite to a record high. Bank stocks followed close behind as investors received positive signs from new home sales data and IHS Markit's US purchasing managers' index.

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Major Silicon Valley VCs are slamming Trump's immigration restrictions as 'short-sighted' and 'very dangerous' to long-term technical innovation

Wed, 06/24/2020 - 1:19pm

It doesn't happen often, but Silicon Valley CEOs, founders, investors, and employees have found something they can all agree on — President Donald Trump's ban on visas for foreign workers is bad news for tech

On Monday, Trump issued an executive order freezing new work visas until the end of the year. In the announcement, Trump said the ban would help out-of-work Americans find jobs in the beleaguered economy by closing off competition from international candidates.

Silicon Valley insiders said it would do the opposite. 

The region's network of startups, entrepreneurs, and venture-capital firms, which has produced companies like Google, Apple, and Uber, will be deprived of an important ingredient in its recipe for success, they said. And the absence will be felt in both the short term and the long term.

"Startups are a huge driver of the American economy, and 55% of America's billion-dollar startups have an immigrant founder," said Geoff Ralston, the president of Y Combinator, one of Silicon Valley's most famous startup accelerators. 

"In the short term, the new restrictions on H-1Bs and other non-immigrant visas will disrupt the creation of more startups based in the US — which will ultimately impact the creation of American jobs," Raslton told Business Insider in an email.

The H-1B visa is of particular concern for tech companies in Silicon Valley because it applies to highly skilled immigrants with specific technical talent and was singled out in Trump's Monday order. Many tech companies and startups have relied on this category of visa to hire some of the top experts in highly competitive fields, such as machine learning and data analytics.

"Undoubtedly this will have long-term implications on the ability of US-based companies to attract talent and maintain a competitive edge at a global level," Index Ventures partner Mike Volpi told Business Insider.

Some venture-capital investors say that Silicon Valley is shutting the door on smart, technical talent at precisely the wrong time.

Economic recessions have a special place in Silicon Valley lore: Airbnb and Uber were created amid the wreckage of the 2008 financial crisis. Hewlett-Packard got its start during the late 1930s.

"This is when the next big tech companies will be created, now, in the opportunities that exist in this post-COVID moment," Jennifer Neundorfer, the cofounder and managing partner of January Ventures, said.

'A very dangerous message to be sending'

One doesn't need to look very far to see the role of immigrants in the tech industry. Google cofounder Sergey Brin's family emigrated from the Soviet Union in the 1970s. Alphabet CEO Sundar Pichai and Microsoft CEO Satya Nadella both moved to the US from India.

There are parallels to the experiences of an immigrant and an entrepreneur that make the group particularly well-suited to thrive in Silicon Valley, Battery Ventures general partner Neeraj Agarwal said.

By cutting off immigration at earlier stages — such as when an entry-level engineer comes to the US to work for a big company — the country is jeopardizing the "pipeline" of talent that could create the next big thing, he said.

"When that talent pool doesn't show up, that's my primary target audience 10 years later," Agarwal told Business Insider. "They show up here at age 18 to go to university, but when they are 30 years old and have been here on an H-1B, those are the people that disproportionately start companies. This is a very dangerous message to be sending to the technical community around the world."

A related concern is international founders who have historically relocated to the US with a "beachhead" headquarters to better facilitate conversations with US investors, consumers, and regulators. With the Trump administration's new restrictions, it's possible that founders will choose to remain in their home countries or relocate to places like Canada or Australia, which have been more welcoming to entrepreneurial immigration.

"We cannot take for granted that we as a nation are the destination of choice for the next Sergey Brin, Elon Musk, or Sundar Pichai," Haystack VC founder and general partner Semil Shah told Business Insider. "The people who have benefited from the current paradigm — all of us, really — need to pay it forward by clearly organizing against this type of policy, as well as ensuring the unalienable rights of other individuals. Tech cannot cherry-pick an issue when it's convenient or focused on them. We have to be holistic in approach."

Silicon Valley has been undergoing its own reckoning lately, as it grapples with the underrepresentation of people of color and women in its ranks. Employees at companies like Pinterest have spoken out about the tech industry's glaring shortcomings and called on companies and venture-capital firms to do more. 

At a time when the tech industry needs to improve existing problems, the Trump administration's freeze on foreign workers strikes many as a clear step backward.

"Immigrants have always played a vital role building great businesses and communities across the United States and especially in Silicon Valley," Moxxie Ventures founder and general partner Katie Jacobs Stanton told Business Insider via email. "Trump is using this erratic tactic to please his racist and nationalistic base, as opposed to being a true leader who uses data, logic and thoughtfulness to serve the interests of the American people." 

SEE ALSO: Routine anti-bias training didn't boost diversity in Silicon Valley, so this biracial female CEO uses virtual reality to expose VCs and founders to the emotional toll of discrimination and harassment

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Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future.

Wed, 06/24/2020 - 12:58pm

  • Fund manager Aram Green specializes in finding promising companies that are about to start getting a lot more attention. He shared with Business Insider a series of surprising post-coronavirus bets.
  • Green says he's buying or building positions in companies that have either fallen too far as a result of temporary problems, or which turned have escaped the harm that investors once expected. 
  • His ClearBridge Select Fund has long been one of the strongest performers in the space, as it's doubled its benchmark over the last five years and won a five-star rating from Morningstar.
  • Click here to sign up for our weekly newsletter Investing Insider.
  • Visit Business Insider's homepage for more stories.

There has to be more to the future than working from home and shopping online, right?

Over the last few months Wall Street has fallen hard for companies that could benefit from the growing acceptance of remote work and faster growth in e-commerce. There are a lot of reasons to believe in those themes these days, but there have to be other things to invest in.

That's where Aram Green comes in. He specializes in finding small- and medium-sized companies that are getting ready to blow up — ones getting ready to go from under-the-radar to attracting a lot of attention. 

Over the past five years, Green's Legg Mason ClearBridge Select Fund has returned 18.3% a year to investors, a total that more than doubles its benchmark, the Russell 2000 Mid-Cap Growth Index. It's also in the 99th percentile of comparable funds on a trailing three- and five-year basis, according to Bloomberg data.

An investor who put $10,000 into the fund at its inception in September 2013 would have $41,305 today, a gain of more than 300%. The S&P Mid Cap Growth Index has climbed 98% over that stretch, which would have turned a $10,000 investment into $19,860.

The Select Fund has earned five-star ratings from Morningstar for its performance over the last three and five years, and Kiplinger says it's among the best in the industry over the last one, three, and five years.

While he added some post-pandemic "winners," including high-recurring revenue businesses like Wix, Shopify, and DocuSign, Green says he sees a lot of unappreciated potential in two other areas that have been punished too severely.

"There were thoughts that the businesses would be impacted on the margin and the growth rates were going to be slower than what people forecast, and now having gone through at least the first couple of months of the crisis, that hasn't been the case," he said in an exclusive interview with Business Insider. "I've seen a sharp snapback there."

He also bought stock in companies that lost business during the pandemic — when he was convinced those losses were temporary.

"It's not a secular concern or a company that is less relevant in the future than it was in the past," he said. "Eventually we're going to see volumes return back to the levels that they were at before, and the share prices were substantially discounting those levels to maintain for many years to come."

Here's a series of six companies that Green has bought this year in the hope to take advantage of errors by other investors:

(1) Performance Food Group

Green bought stock in the food distributor early in the second quarter. He told Business Insider that Performance will be able to ride out a very tough time for the restaurant industry and should emerge stronger as it either buys smaller competitors or takes their market share after they fail.

"Some of their customer base is going to go out of business," he said. "But the frequency of people eating out is eventually, over the next 12 to 18 months ... is going to return back to where it was before."

(2) XPO Logistics

In the first quarter Green began building a position in logistics services company XPO, which has roughly doubled in price since dipping under $40 a share in late March.

"Supply chains are kind of out of whack right now, and certain products needs to be accelerated to the end customer. I think that they are going to become and showing that they are a vital part of the solution," he said.

(3) Surgery Partners

Like a lot of healthcare facility operators, Surgery Partners stock has suffered because non-vital procedures were halted during the pandemic. Green says those operations can't be delayed forever, and that eventually, the pandemic will ultimately bring more patients to its centers. As a result, he increased his position during the first quarter.

"A lot of people don't want to go to a hospital to get those procedures done," he said. "You're seeing more surgeries that are going to take place in ambulatory surgery centers away from the hospital."

He explains that insurers will encourage that shift because it's cheaper for them if surgical procedures are done in those types of facilities instead of hospitals. All of that adds up to a trend that will outlast the pandemic, and as a result, he increased his investment in the company during the first quarter.

"We believe that you're going to see continual shifting of procedures out of hospitals and ambulatory surgery centers and Surgery Partners is going to benefit from that."

(4) Expedia

There's no big mystery about why Expedia stock has plunged this year, and why a big rally over the last three month hasn't come close to erasing its February losses. Green acknowledges that the travel website operator is in a world of pain, but he thinks its customers' desperation will eventually work to its advantage.

"When the economy is good, people feel like they don't need a middleman or a broker to clear inventory because people are coming directly from their website," he said. "When times are choppier, they give more inventory to the online travel agencies like Priceline and Expedia."

(5) Trex

Trex has been part of Green's portfolio for almost six years, and he built on his position this year because he sees it as a major beneficiary of the growing interest in home improvement that the pandemic has brought about. 

"We think that they're going to continue to gain share as more and more people understand what the product does and its benefits," he said of the company's alternative decking product. "It's a great in its space in terms of building products for ESG friendly and more and more people are, think are putting more money into their home."

(6) IntercontinentalExchange

Green doesn't buy a lot of financial stocks, but he says ICE was a perfect fit when he wanted to add more exposure to that sector. That's because its business is more involved with technology and intellectual property than with credit and lending.

Not only that, he says the market turbulence of the last few months created huge benefits for two parts of its business 

"Half of ICE's business is the exchanges," he said. "Given the high velocity of the markets in March and April, they were putting up huge numbers."

That was also true for its market data unit, he adds.

"We thought given the increase in volatility, the increase amount of hedging activity that was taking place, that they were going to be a beneficiary. The stock had sold off to a reasonable valuation. We've been watching it for years, and we started a position in the first quarter."

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The IMF now sees an even deeper global recession as economies struggle to recover from COVID-19

Wed, 06/24/2020 - 12:48pm

  • The International Monetary Fund on Wednesday again slashed its forecast for the global economy, saying it sees a deeper recession and longer recovery from the shock of the coronavirus pandemic.
  • The fund now expects global gross domestic product to contract by 4.9% this year, down from its April forecast of a 3% contraction.
  • It also cut its 2021 expectations to forecast growth of 5.4%, a step down from its previous estimate of 5.8% growth.
  • Read more on Business Insider.

The International Monetary Fund on Wednesday slashed its forecast for the global economy again, predicting a sharper recession and longer recovery from the coronavirus pandemic.

The IMF now sees global gross domestic product shrinking by 4.9% in 2020, a worse contraction than the 3% decline it forecast in April. The fund also foresees a slower-than-expected recovery — it cut its expectations for global growth in 2021 to 5.4% from 5.8%.

"The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast," the IMF said in its World Economy Outlook update.

The IMF said in April that the shock of the coronavirus pandemic and sweeping lockdowns to contain the spread of the disease would form the worst economic meltdown since the Great Depression. The IMF said its latest forecast reflected "greater scarring" from a larger-than-anticipated hit to activity and continued lower demand because of social-distancing guidelines.

"The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s," the IMF said.

Read more: Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future.

Overall, the new forecast for 2021 GDP is more than 6 percentage points lower than the IMF's pre-pandemic projection in January, it said. The IMF said that, as in April, the latest forecast comes with a "higher-than-usual degree of uncertainty" because of the pandemic.

The IMF also said that it sees a severe hit to the global labor market and that the loss of work hours in the second quarter was likely equivalent to more than 300 million full-time jobs.

"The hit to the labor market has been particularly acute for low-skilled workers who do not have the option of working from home," the IMF said. "Income losses also appear to have been uneven across genders, with women among lower-income groups bearing a larger brunt of the impact in some countries."

There are some bright spots, according to the IMF. Financial conditions have eased in advanced and, to a lesser extent, emerging economies, forestalling worse near-term losses. Announced fiscal measures are now about $11 trillion globally, up from $8 trillion in April, the report said.

Read more: Morgan Stanley handpicks 10 stocks to buy now for the richest profits as travel and outdoor activities transform in the post-pandemic world

Still, significant downside risks to the forecast remain without a medical breakthrough such as a vaccine or a sharp rebound in business activity. More lockdowns, tightening financial conditions, prolonged unemployment, and wider firm closures could lead to more economic pain.

"This could tip some economies into debt crises and slow activity further," the IMF said.

The IMF sees advanced economies experiencing sharper declines in GDP, forecasting an 8% contraction in 2020 compared with a 3% decline in emerging economies.

US GDP is expected to decline by 8% in 2020 — worse than the IMF's April forecast of 5.9% — and grow by 4.5% in 2021, the report said. Euro-area GDP is expected to slump by 10.2% in 2020 and grow by 6% in 2021. The IMF forecast that China's economy would grow by 1% this year and 8.2% next year.

Read more: A CEO overseeing $147 million outlines his 4-part strategy for identifying which stocks to buy — and shares 2 he sees primed to explode higher right now

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Simon Property is at the center of 3 big legal battles as stores finally begin to reopen. Here's what the future holds for the biggest US mall REIT.

Wed, 06/24/2020 - 12:23pm

  • Simon Property Group is suing Taubman Properties to back out of its $3.6 billion deal to acquire the mall company.
  • It's also suing Gap, its largest tenant, and Brooks Brothers for withholding rent.
  • Here's what analysts think the future holds for the biggest US mall REIT. 
  • Visit Business Insider's homepage for more stories.

Brick-and-mortar retail has been reopening across the country, punctuated Monday morning by the reopening of non-essential retail stores in coronavirus hotspot New York City. 

Even so, retailers and their landlords are looking to ride out a period where regulation, a shutdown of international tourism, and consumers' fear about virus transmission and a second pandemic wave will likely keep retail foot traffic subdued for months. 

In the midst of this, the largest US mall landlord, the Simon Property Group, has filed three major lawsuits: two to get paid rent from struggling retailers, and one to get out of a deal to buy a competitor.

In recent years, it's also been on a streak to buy up struggling tenants to help keep it malls stable. 

Simon's first-quarter profits fell about 20%, and it's laid off or furloughed workers while cutting exec salaries. CEO David Simon was optimistic on an earnings call in May that the company's tenants and their customers were eager to reopen. 

Outlook for Simon

The real estate investment trust (REIT) has sued Gap for $65.9 million and Brooks Brothers for $8.7 million in unpaid rent during the coronavirus closings. Meanwhile, it's also looking to get out of a $3.6 billion acquisition of mall REIT Taubman Properties, saying the acquisition target took an outsized hit from the pandemic. 

We spoke to retail experts and analysts about the future for the company as brick-and-mortar retail opens nationwide. They told us that Simon is not immune to the headwinds facing the mall sector, and that these lawsuits highlight some of the major challenges for the company — and malls in general.

However, they were clear that if any retail REIT can successfully operate shopping centers right now, it would be Simon because of its billions in dry powder and long track record of success. 

"The challenges that malls have are still there," Alexander Goldfarb, a managing director and senior research analyst for Piper Sandler, told Business Insider, highlighting how the coronavirus pandemic has exacerbated long-term secular changes to brick and mortal retail. "Simon is the only one positioned to win."

Simon declined to speak with Business Insider for this story. 

The Simon-Taubman deal collapse

Pre-pandemic, Simon had been on an expansion streak rare in the mall REIT world, using its relatively strong financial position to pick off smaller players as their share prices sank. 

Its all-cash deal for fellow mall REIT Taubman was announced on February 10,  just a month before the pandemic prompted a massive drop in US retail sales. Now, the prospects for Simon hinges on its ability to get out of — or at least renegotiate, that arrangement. 

Since the deal was originally announced, mall REITs have plummeted. A June 10 note from Green Street Advisors projects that Taubman would likely trade at less than $14 a share without the deal bolstering its stock price, an 80% reduction from the original deal price. Before the deal was announced and the pandemic hit mall REIT equity hard, Taubman was trading at $34.28 at the close of market on February 7.

"Their move to say that they don't want to make this acquisition strengthens their liquidity and leverage," Ranjini Venkatesan, a senior analyst at Moody's, told Business Insider.

Simon has roughly $4.5 billion in cash on hand, which would increase to $7 billion if the deal is cancelled, an industry-leading amount of dry powder. Still, the deal could still be forced through in various ways.

Legal experts have noted that it's tricky to prove that a material adverse change should be the basis of breaking a deal — and that there's not much encouraging legal precedent, especially for short-term hiccups that don't post a drastic underlying change in the business itself. 

A JPMorgan note from June 10 said that share prices after the deal cancellation was announced made it appear that "the market seems to be viewing the Simon press release as more of a 'next step' in re-pricing the transaction rather than a final nail in the coffin on the deal."

The key will be if Simon is able to "compel a judge that Taubman is disproportionately affected," Goldfarb from Piper Sandler, told Business Insider.

Read more: M&A fine print that prompted lawsuits after the financial crisis is back in the spotlight as mega-deals like Simon Property-Taubman crumble

Plotting a way forward, Taubman or no Taubman

To be sure mall properties are not a monolithic asset class. Simon has whittled down its inventory to the highest-performing shopping centers and malls over the last few years, something analysts say will help it outperform other mall REITs. 

In contrast, CBL Property Group, a mall REIT that Fitch Ratings said had a high concentration of not so high performing regional malls, posted a 27% rent collection rate in April. In the company's most recent 10-K filing, the company said it had "substantial doubt about our ability to continue as a going concern within one year," because the company failed to make an interest payment on June 1, and projects it will have similar problems over the next three quarters.

If the deal goes through, Simon takes on Taubman's 27 property portfolio, which includes many enclosed malls that rely on tourist traffic, such as the Short Hills Mall in New Jersey.  

Some of Simon's own 200 plus properties are similarly indoor-enclosure focused, like Copley Place in Boston, but the company is also a leader in outdoor outlet centers, which customers may view as safer post-pandemic.

 Still, outlet malls have their own drawbacks post-pandemic, as many are destinations that depend heavily on free-flowing travel of customers. 

"A negative for Simon's outlet malls is that a lot of them are dependent on tourist trade," Craig Johnson, owner of retail consultant group Customer Growth Partners, told Business Insider.

In legal filings on June 18, Taubman said that pandemic-related "buyers remorse" is not enough reason to cancel the deal, and that Simon was aware of the pandemic's potential effects when the deal was signed in February. 

The company "clearly understood that the coronavirus and the deteriorating retail market would severely impact the shopping mall industry when they made their strategic judgment to acquire the Taubman Parties — despite the brewing pandemic — so as to achieve a long-term business objective they had held for many years," Taubman's filing argued. 

The first hearings in the case are scheduled for Wednesday.

Read more: Inside a 'big short' bet against malls: Investors are claiming wins, and a research analyst who said the wagers were misguided is out

Buying tenants — or taking them to court 

Mall REITs also need to keep retailers in their malls and continue collecting rent. 

In the case of struggling mall staples, Simon has already shown it's willing to simply buy them in Chapter 11. In February, Simon; retail operator Brookfield Property Partners; and the Authentic Brand Group acquired retailer Forever 21 for $81 million. Brookfield and Simon acquired Aeropostale in 2016.

The Wall Street Journal reported Tuesday that Simon and Brookfield were also exploring a bid to buy JCPenney, which filed for Chapter 11 bankruptcy in May. This strategy allows Simon to keep its mall business stable and prevents co-tenancy clauses in leases from creating a cascading wave of vacancies. JCPenney is Simon's second-largest anchor tenant, and rents 5.6% of the company's total US space.

Read more: A flagship Neiman Marcus store in the glitzy Hudson Yards mega-mall is being marketed as office space, showing how developers are making a big pivot as retail bankruptcies mount

But for tenants who aren't bankrupt, Simon has been more litigious. The company is suing Gap, its largest tenant by number of stores for $65.9 million, after Gap publicly announced in April that it wouldn't pay rent on shuttered stores. Simon filed suit against Brooks Brothers claiming nonpayment of $8.7 million in rent on Friday. 

"It is important for the industry to hold the line and say a contract is a contract," Haendel St. Juste, an analyst at Mizuho Securities, told Business Insider about the nonpayment lawsuits.

Simon has not disclosed how many tenants have paid rent during the coronavirus crisis, but rent collection rates in April have been as low as 26% for mall operator Macerich with the National Association of Real Estate Investment Trusts' average for shopping center retail REITs in April at a 47.1%. 

Read more:

SEE ALSO: A flagship Neiman Marcus store in the glitzy Hudson Yards mega-mall is being marketed as office space, showing how developers are making a big pivot as retail bankruptcies mount

DON'T MISS: Inside a 'big short' bet against malls: Investors are claiming wins, and a research analyst who said the wagers were misguided is out

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Renowned VC Marc Andreessen says he gets no emotional rush when he wins big on an investment, and that keeps him from making irrational bets. 'I actually don't have the gambling gene'

Tue, 06/23/2020 - 7:33pm

  • On June 13, legendary venture capitalist Marc Andreessen told angel investor Sriram Krishnan about his approach to building a firm and evaluating potential investments, for Krishnan's newsletter, The Observer Effect.
  • Andreessen said that he doesn't have the gambling gene in that he doesn't feel a dopamine rush when he gambles and wins.
  • Although many people outside venture capital have compared the practice to gambling, Andreessen said it's actually those who are detached from the emotional aspects of it that perform the best.
  • He likened his industry to poker players who make increasingly large bets on mundane outcomes, like how many blue cars show up in a parking lot, to emotionally distance themselves and gain an edge on the competition.
  • Click here for more BI Prime stories.

Venture capital is regularly compared to gambling because of its incredibly high stakes and the essentially unknown outcomes years down the line. Wall Street financiers and hedge fund managers trade quickly on publicly available knowledge. Venture capitalists go with their gut.

But one of venture capital's most prominent figures disagrees. His trade might be compared to gambling, sure, but there's a lot more to it than outsiders think.

On June 13, Marc Andreessen told angel investor Sriram Krishnan about his approach to building a firm and evaluating potential investments for Krishnan's newsletter, The Observer Effect. In that conversation, Andreessen said that he doesn't feel elated when he wins at the poker table or in the boardroom, a process that has helped him methodically approach all his investment decisions.

"Honestly, this also goes a little bit to my psychology — I actually don't have the gambling gene," Andreessen said. "I get no rush from the bet or the result. I sit down for one of those and nothing happens. My pulse chemistry is just flat. And then the mathematical part of my brain is like, well, the expected return for this exercise is negative, what the f--- am I doing? And so it becomes unfun in the first 10 seconds and then I just walk away."

Naturally, Andreessen's psychology has seeped into the culture at his firm, Andreessen Horowitz. He admitted that the team doesn't necessarily celebrate their "wins" as often as they should, but it's part of a process of objectively measuring the firm's success on the typical 10-year cycle within which most venture firms operate. 

"It's really hard to get good metaphors but it's poker, right? It's really, really, really hard to be a good poker player," Andreessen said. "And if you're kicking yourself every time you have a bad hand, the bad habits just simply happen. You just need to be able to have a system that lets you think through the process."

Andreessen's system, then, could be compared to professional poker players, although more in theory than in practice. He said that many professional poker players gamble by night, but during the day they make increasingly large bets on mundane outcomes to help soften the emotional effect of the dopamine rush most people naturally have when gambling.

"It's literally a side bet of sitting in a diner and betting on whether there are going to be more red cars than blue cars passing by," Andreessen said. "What they're doing is 'steeling' their own psychology to be able to pull the trigger on bets like that with a purely mathematical lens and with no emotion whatsoever. They're trying to steel themselves to be able to be completely clinical."

That's similar to how Andreessen sees investing, he said. It's all a set of probabilistic outcomes, and so his success or failure is nothing more than a mathematical equation that needs to be solved. 

"What they then hope for that night when they sit across the table from someone is to hope they're dealing with somebody who's super emotional. Because the clinical person is going to just slaughter the emotional person," Andreessen said.

SEE ALSO: Two CFOs from Brex and Rippling advise these financial moves for startups reopening after a shutdown. One tip: Make the office desk a perk, and work-from-home the staffers' norm

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