SoftBank to Book Loss of up to $7 Billion on WeWork, Uber, Others, after Showering $1.7 Billion on Neumann and Hanging his Employees Out to Dry

However many billions of other people’s money your outfit burns, just make sure you walk away a billionaire.

SoftBank – the Japanese conglomerate that is the late-stage investor superstar behind imploded WeWork, bleeding Uber, and others – is planning to take a $5 billion to $7 billion write-down of its investments in these startups, sources told Bloomberg.

From the last round of funding in January this year, when SoftBank invested $2 billion in WeWork, until it imploded, WeWork was “valued” – by SoftBank in a deal decided behind closed doors – at $47 billion. This act inflated the price of all the shares that SoftBank and SoftBank’s Vision fund had acquired in prior rounds to the same level, creating instant paper profits for SoftBank and the Vision Fund.

Between the two, they have fed over $10 billion into this monster with the plan of selling it to the public at an even higher valuation.

Now SoftBank, as part of its throw-good-money-after-bad rescue effort, is buying $3 billion of the shares at a price that values WeWork at $8 billion, a smackdown of 83% from the last valuation – just months after wanting to sell this fiasco to the stupid public in a rip-off IPO for over $47 billion.

The sources told Bloomberg that the amount of the write-down has not been finalized yet and could change. SoftBank plans to announce the write-down on November 6 along with its quarterly earnings, according to the sources.

The primary factors in the write-down are SoftBank’s and the Vision Fund’s holdings of WeWork, of which SoftBank will own 80% after the bailout, and Uber, of which SoftBank owns 13%.

The rotten performance of the ride-share giants Uber and Lyft in the stock market – Uber is down about 25% from its already sharply lowered IPO price and Lyft is down 39% from its IPO price – “has influenced the way SoftBank is thinking about valuing its investments in the sector, the people said,” according to Bloomberg.

The value of SoftBank’s investment in Uber has plunged by about $3.5 billion between June 30 and September 30, according to Bloomberg. The Vision Fund’s investment in the rideshare sector, beyond Uber, include Didi Chuxing and Grab Holdings. Their paper valuations are now being reassessed as well.

SoftBank’s exit strategy with WeWork is to feed some more billions to this monster in the hope of putting some meat on it to allow it to hobble to the nearest IPO window. If the public isn’t stupid enough to go for this program, SoftBank will become the end user of its WeWork shares.

In terms of real estate investments, in addition to WeWork, SoftBank’s Vision Fund is also a big late-stage investor behind real estate brokerage Compass, whose unique business model is to buy other brokerages; and behind real estate non-brokerage Opendoor whose business model is to flip homes. Everyone is doing that now, including Zillow.

While SoftBank is engaged in some navel-gazing to figure out what happened to its billions, WeWork is laying off up to 4,000 of its 15,000 employees, and founder Adam Neumann, after blowing up the company, or rather after blowing up investors’ illusions and hype about the company, is walking away a billionaire.

This will teach all current and future startup founders a valuable lesson that will be taught over and over again in endless case studies in the best business schools around the world: Whatever the heck happens, and however many billions of dollars of other people’s money your outfit burns, just make sure you personally walk away a billionaire.

That’s the exit strategy. Create a cash-burn monster with zero chance of making it, blow it up at an opportune moment after you conspire to give it the maximum possible unicorn “valuation,” and walk away a billionaire, while others get to sort through the debris.

Neumann showed the world how to do it, how to leverage the CEO of a Japanese conglomerate who was blinded by reckless greed and a sense of infallibility after two enormously successful investments – Yahoo Japan and Alibaba – and who, based on this record, was trusted by equally blinded Saudi pension fund managers, and other investors. It’s not easy to pull this off so flawlessly.

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  136 comments for “SoftBank to Book Loss of up to $7 Billion on WeWork, Uber, Others, after Showering $1.7 Billion on Neumann and Hanging his Employees Out to Dry

  1. Tom Stone
    Oct 24, 2019 at 9:52 pm

    Adam Neumann is my Hero!

    • Michael
      Oct 24, 2019 at 10:17 pm

      No he should be in jail.

      • JM
        Oct 24, 2019 at 10:37 pm

        I agree, scammer everyone trust him.

        • Harrold
          Oct 25, 2019 at 11:41 am

          He’s not a scammer, he just disrupted the IPO market. Why bother taking your company public when you can get a huge payout without the hassel and paperwork of an IPO.

          CEO founders of dotcom companies are not doubt eager to emulate Neumann in the coming years!

        • GP
          Oct 25, 2019 at 12:05 pm

          We all should thank him to highlight the absurdity of the current situation?

          Investors will get smarter about investing without vetting a company?

          Questionable accounting practice by Wework: better transparency rules for non-public companies?

          People will be skeptical in future about believing in pie-in-the-sky, get-rich-quick opportunities?

          As long as public money is not on the hook, I will just watch it unfold with some popcorn.

        • go-away easy money
          Oct 26, 2019 at 1:39 am

          People need to realize its always been this way, back in the 1980’s we just to join as many startup’s as you could. Often 1/2 the team would be paid by the seed-investor to ‘go-away’, it was easy money.
          The VC community has always been a scam, now SV build’s teams internally, it used to be techies would do a ‘startup’ come to a VC and ask for cash. Now a few rich VC’s have their own incubators, this is where the unicorns come from.
          Go-Way money often made more than stay money in the long term of things, as most startups failed, and have always failed.

      • grumpy
        Oct 25, 2019 at 4:43 am

        The people, bankers, who facilitated this should be in jail.

        • a citizen
          Oct 25, 2019 at 9:52 am

          I suspect SoftBank will soon be deluged with investor lawsuits. It may have already started.

          As for We? Based on the possibly fraudulent valuation activities leading up to the filing of the IPO, if the regulators are doing their jobs, criminal investigations are in order.

        • Anthony Aluknavich
          Oct 25, 2019 at 3:53 pm

          That won’t happen and everyone will forget about this in a few years. Then it will be back to “business as usual”.

      • Sandy Toes
        Oct 25, 2019 at 6:03 pm

        Accountability is crucial for our system to properly work.

        I also agree that all WeWork’s officers and entire board of directors should be held personally liable for their actions.

        It is reprehensible that these individuals grossly profit so much, while imparting hurt on their employees and investors.

        In addition, every “expert” in the investment community and media that recommended WeWork and otherwise enabled be called out and be held accountable.

        I hope that SoftBank investors and employees do not suffer similar outcome.

        I appreciate that folks like Wolf are exposing these kinds of risks and cautioning us against following the crowd.

      • Jessy S
        Oct 26, 2019 at 4:35 pm

        I think Tom Stone is just being sarcastic.

        • Erle
          Oct 26, 2019 at 7:48 pm

          It is a rotten thing that he lost the Gulfstream.

        • Tom Stone
          Oct 26, 2019 at 8:28 pm

          Jessy, I admire Chutzpah, and Neumann has it in spades.

          The WeWork business plan was a more obvious scam than the guy at the Farmer’s Market who sells “Magic Beans”.

          When I first read their business plan I started laughing, it is fantastic, literally.
          So I’m enjoying the show and wondering what will come down the pike that will be even more absurd.
          It’s a heck of a show, enjoy it.

    • Harvey Cotton
      Oct 25, 2019 at 1:32 am

      Should probably avoid going to Saudi Arabia or any Saudi consulates, tho’.

      • BaritoneWoman
        Oct 25, 2019 at 7:33 am

        Yeah, he better be looking over his shoulder from now on, lest his investors get some “ideas”.

      • char
        Oct 25, 2019 at 10:58 am

        Traveling on an Israeli passport to Saudi Arabia is always problematic.

    • raxadian
      Oct 25, 2019 at 8:04 am

      I think you are confusing this scammer with John von Neumann. Now that man was a true hero.

      • MD
        Oct 25, 2019 at 9:29 am

        A name from the days when engineers and scientists held social standing (society’s ‘innovation’ phase), to the current days where in the spiv and the smooth-talking, get-rich-quick chancer are revered (society’s decadence/degeneracy phase) in a few short decades…

        • intosh
          Oct 25, 2019 at 11:32 am

          Tell me about it.

          Much of the modern economy is based on BS-ing unsuspecting busy consumers (this includes investors) into parting ways with their money.

          We are in the last stage of capitalism, which is all about taking someone else assets/resources with the least effort. Innovation is hard and expensive, hustling and legal scams are more efficient.

      • Lisa_Hooker
        Oct 25, 2019 at 1:56 pm

        Brilliant mathematician, knew more about shock waves than anyone. Without JVN the 1945 implosion gadget might not have happened. I had a wonderful scrappy Airedale I named Von Neumann that enjoyed fireworks.

    • gary
      Oct 25, 2019 at 9:27 pm

      I agree Tom Stone.

      To all the other sore losers here, did Adam Neumann every actually LIE about anything?

  2. DR DOOM
    Oct 24, 2019 at 10:31 pm

    If SoftBank continues this “success” We Work can sud-divide Soft bank corporate digs into to let spaces.Uber and Beyond Meat can circulate the cash one more cycle before the burn. Perpetual Motion may not apply to cash burners as it does mechanical systems.

    • ru82
      Oct 25, 2019 at 2:05 am

      Don’t forget Softbanks great investment in Sprint. They better hope the TMobile merger goes through.

      • ru82
        Oct 25, 2019 at 2:08 am

        Sprint has pretty much lost money every year. Softbank basically used all the Spectrum as collateral on loans to keep Sprint going.

        ———————————————————————————————
        SoftBank CEO Masayoshi Son plans to create another subsidiary that will lend Sprint money by holding its spectrum as collateral, according to the Overland Park-based wireless company’s third-quarter earnings report. The new unit plans to accept the carrier’s wireless equipment and spectrum, similar to “borrowing against the tires to make car payments,” according to Bloomberg, which also reports that Sprint’s spectrum is worth more than $115 billion.

        Sprint doesn’t plan to give up control of its airwaves, but it does hope to get $3 billion to $5 billion this year from the loans. CTO John Saw has referred to Sprint’s three-band spectrum in a blog as “a powerful weapon” in the company’s arsenal. Sprint has holdings in the 800 MHz, 1.9GHz and 2.5GHz bands, and owns the largest piece of the high-frequency 2.5GHz band.

        This new strategy is similar to the phone leasing company, Mobility Leasing Solutions LLC, the Japanese telecommunications company created in November that financed Sprint with $1.2 billion in cash.

        Sprint laid out the plan in its third-quarter earnings report:

        • Sprint continues to use its assets to help fund the business and fuel future growth.

        • Together with SoftBank and its partners, the company is establishing a network-related financing entity that could provide $3 billion to $5 billion of incremental funding in fiscal 2016.

        • Iamafan
          Oct 25, 2019 at 6:49 am

          I wonder what could go wrong with this story. Did you essentially say that the company leases/buys a frequency spectrum from the PUBLIC then turns around and rents them to other companies?

        • Kasadour
          Oct 25, 2019 at 8:11 am

          Imafan: We Work’s long term liability/short term income stream business model is a contradiction and a recipe for failure because We Work assumes an unknown risk that is artificially suppressed by central banks: risk is a service now.

          This psycho business model is totally dependent on zero risk-zero time value of money via FED expansionist policy.

          Btw JP Morgan tried to hoist this crappola on the public.

      • Brant Lee
        Oct 25, 2019 at 8:09 am

        Regardless, all the CEO’s, even Softbank’s, will come out just fine.

  3. Jack
    Oct 24, 2019 at 10:52 pm

    Great Article,

    Should call for an oversized beer Mugs ( German size since its Oktober fest!). and lots and lots of pretzel :)

    The Arsonists of Sofbank are having their pile of hay lit and this will enhance the Oktoberfest atmosphere:)

    All this thanks to the sleeping at the wheel SEC ! How do you pass those atrocious prospectuses?!

    How does the Three big rating agencies purport to have credibility when they don’t award such scams a well earned -c rating?!

    When are you going to wake up Mr and Mrs citizens?

    Enjoy the fest though !

    Hopefully we’ll follow up this with an article on JPM and my Favorite one “GS”.

    The call is your Wolfie.

    • Iamafan
      Oct 25, 2019 at 12:23 pm

      Re: Should call for an oversized beer Mugs.

      There is a solution. I bought two mugs. One for the left, and one for the right. Fits the large cans of IPA.

      Now if only Wolf sold whisky shot glasses !!!

      • Oct 25, 2019 at 4:50 pm

        Just think of the two mugs as large shot glasses for dire market situations :-]

  4. Setarcos
    Oct 24, 2019 at 10:52 pm

    Adam Neumann said their mission was to “elevate the world’s consciousness”. What word can be used when hubristic is insufficient?

    • roddy6667
      Oct 24, 2019 at 11:39 pm

      Urban Dictionary: Douchebag
      The term “douchebag” generally refers to a male with a certain combination of obnoxious characteristics related to attitude, social ineptitude, public behavior, or outward presentation.
      Though the common douchebag thinks he is accepted by the people around him, most of his peers dislike him. He has an inflated sense of self-worth, compounded by a lack of social grace and self-awareness. He behaves inappropriately in public, yet is completely ignorant to how pathetic he appears to others.
      He often talks about how cool, successful, and popular he is, yet never catches on to the fact that he comes across as a total loser. Nevertheless, he firmly believes that he is the smartest, most desirable, and most charming person in the room… and will try to bad-rep anyone who would threaten to expose this facade.
      He fancies himself a ladies’ man, yet tends to be a joke to all but the most naive of women. He tries to portray himself as part of the in-crowd (a fashionista, an upwardly mobile professional, the life of the party, etc.) but only succeeds in his own mind.

    • BaritoneWoman
      Oct 25, 2019 at 7:36 am

      “Yogababble” as NYU professor Scott Galloway says.

      Also known as “psycobabble”.

    • Kasadour
      Oct 25, 2019 at 7:41 am

      What words can be used when hubristic is insufficient?

      May I have contracts and agreements for $2000, Alex?

    • Paulo
      Oct 25, 2019 at 9:22 am

      You guys, sheessh. It isn’t Adam Neumann running things. It’s Alfred E Newman of, “What me worry”? fame. Get it now?

  5. Alex
    Oct 24, 2019 at 10:53 pm

    Matt Levine has an interesting tongue-in-cheek take on Adam: The guy deserves credit for figuring out how to short the unicorn bubble. He saw the crazy valuations, created a bunch of “unicorn” shares out of thin air, and sold them for big bucks.

    • MD
      Oct 25, 2019 at 9:34 am

      Well yes I suppose in the same way one would ‘credit’ the Russian oligarch, or the African failed-state dictator because they worked out how they could game the system and walk away rich, too.

      It’s all third-world thinking and behavior (ie plunder), so let’s celebrate the fast cash and be thankful we no longer have to get dirt under our finger nails doing any real work…

      • Harrold
        Oct 25, 2019 at 11:43 am

        Oligarchs and dictators would be broke if it wasn’t for the help of democratic governments and big banks.

      • char
        Oct 25, 2019 at 2:32 pm

        Not game the system. Follow the rules of the system. If they wouldn’t they would end up dead, see African rulers that try to do different and end up in a ditch because of the West.

  6. Old-school
    Oct 24, 2019 at 11:13 pm

    David Stockman I think in the end will be proven exactly correct. He said Fed easy money was just going to lead to speculation aka gambling instead of real economic investment. You just can’t have a hurdle rate of near zero and expect smart things to be done.

    Some are saying it even contributed to the Boeing disaster. Instead of designing a new plane from scratch they bought back stock and ended up killing a lot of people

    • rhodium
      Oct 25, 2019 at 8:32 am

      A lot more than stockman have been saying this awhile. I wonder though, if you were a business, wouldn’t you rationally want to invest in profitable endeavors? Perhaps one can become richer selling hype with a ponzi, but I think most of these businesses want or wanted to become long-term profitable. Regardless of how expensive or cheap money is, a smart person would take the lowest hanging fruit and would seek what you call “real economic investment.” I think in theory the Fed thought this would happen. By making money cheap, demand would shoot up and you’d get all kinds of investment at the margin and the only trade-off would be inflation, which being low was argued to be a good thing especially to devalue old debts win-win. What we got was only asset inflation, and most of the credit impulse went into stock buybacks, real-estate, risky start-ups, and risky junk rated companies etc. as the hunt for yield kicked off. Why low interest rates would inherently favor trashy investments makes no sense. No, it’s more like there just weren’t good investment opportunities available in the first place so people just went with the best they could get. It’s making less sense for businesses to invest in providing consumer products and services though, when consumers cannot pay the prices necessary to justify the capital expenditure to provide those goods and services. It all comes back to the broken labor markets imo. The greatest conundrum of this last decade has been the lack of strong wage growth which I believe has held back inflation and created the paradox of why qe1234 didn’t create more cpi inflation. Just look at these companies and their revenue per employee and there’s obviously already a ton of deployed capital out there. Wages are up though just not much, while raw material costs aka commodities are cheaper than they were in the 90s which means everything should be way more affordable. There’s an old school concept that explains this, which I believe is the relative monopolization of many industries in our economy (although things like our massive aggregate healthcare spending also contribute). They buy each other out and squash competition, charging higher prices while giving fewer work opportunities. This is all evidenced strongly in the rapidly growing amount of income inequality. The system needs trust busting to fix it, but I guarantee you one party that speaks well of capitalism doesn’t want to do that. Their idea of capitalism is to become a plutocracy. When Warren speaks of busting monopolies and encouraging competition, one might think she’s one of the only people trying to save capitalism…

      • RD Blakeslee
        Oct 25, 2019 at 11:09 am

        “They buy each other out and squash competition, charging higher prices while giving fewer work opportunities.”

        They also cheapen their products. For example, try and find an indoor-outdoor thermometer that is accurate and lasts a year, anywhere on earth.

        Or they buy out and dismantle superior small competitors. Smithfield Hams are not Smithfields (a place name) anymore and some of the excellent producers that used to be there and supply us with good quality hams, are no more.

    • GP
      Oct 25, 2019 at 11:52 am

      Stockman? Hazlitt told the same about this in the 1940s. Many probably even earlier. Quoted from his book:

      “So inflation turns out to be merely one more example of our central lesson. It may indeed bring benefits for a short time to favored groups, but only at the expense of others. And in the long run it brings disastrous consequences to the whole community. Even a relatively mild inflation distorts the structure of production. It leads to the over-expansion of some industries at the expense of others. This involves a misapplication and waste of capital. When the inflation collapses, or is brought to a halt, the misdirected capital investment—whether in the form of machines, factories or office buildings—cannot yield an adequate return and loses the greater part of its value.”

      To clarify, he was talking about inflating the currency with the cheap/easy money.

  7. Mira / R Davis
    Oct 24, 2019 at 11:18 pm

    It sounds great !1
    Money to burn, money to burn …
    So, the printing presses printing good money after bad are gouing full throtte ??
    The market is saturated in an over supply of money then ??
    Oh, am I wrong here ………… ??

    • Vegasdude
      Oct 25, 2019 at 1:25 am

      Neumann is also getting paid $185 Million to be a consultant for We, after he is paid the $1.7 Billion for his stock.

      • Zantetsu
        Oct 25, 2019 at 10:51 am

        That is the part that truly seems like a scam. I understand that he gets to sell his share in the company to get his billion+ buyout. But why in the world did SoftBank agree to pay him $40+ million per year to “consult” for the company.

        I suspect the knobs at the top make these deals so that when they need/want a similar deal, it seems justified.

        • Harrold
          Oct 25, 2019 at 11:45 am

          I assume that money is hush money.

        • Javert Chip
          Oct 25, 2019 at 8:21 pm

          The fundamental advantage Neumann had was his investors allowed him to retain super-voting classes of stock giving him absolute control even though WeWork was selling shares for billions. Neumann’s super-voting shares (I’ve read 10-to-20 votes per share), out-voted everybody else.

          SoftBank needed control of WeWork to attempt to mitigate losses and salvage at least some of their investment; apparently a $1B buy-out and a $185M consulting gig for Neumann did the trick.

          Dual stock classes with (among other things) differently weighted voting power used to be verboten; it’ll be interesting to see if VCs allow this to happen again.

      • Mike G
        Oct 25, 2019 at 11:22 am

        So glad we live in a meritocracy where hard work with integrity is rewarded.

    • Kasadour
      Oct 25, 2019 at 7:36 am

      The repo market doesn’t think there is excess liquidity.

      The FED intervened AGAIN last week with $205Bb injection in the repo market. When will the FED openly and honestly acknowledge they’ve resumed QE? Or are we supposed to blindly accept that there is no risk value and no time value when considering asset (bonds) prices? It appears that Krugman’s attempt to explain away the repo market situation as an anomaly is wearing thin.

      • Brant Lee
        Oct 25, 2019 at 8:15 am

        The real FED QE coming this time is Helicopter money, making the last QE pale in comparison.

        • Kasadour
          Oct 25, 2019 at 8:36 am

          ^^^^this

        • polecat
          Oct 25, 2019 at 8:09 pm

          So whose hell-copter is to be fueled THIS time ? …

          I sure don’t envision $$$ from Fed Heaven drifting MY way …. but then again, I’m not a Bullshit Artist, in the mould of the likes of this Neumann dude .. or the psychopaths that supposedly pass for ‘Federal Regulators’ …

          WHY are ANY of these people still amoungst the living ?? …

      • Oct 25, 2019 at 12:05 pm

        Because the Fed is monetizing cash for the banks to speculate, and because they are also monetizing government paper, in the same process, the current account at Treasury is linked inexorably to the stock market. This is a confluence of forces which makes Repo far more dangerous than QE, USG places Tbills in reserves and banks turn them into cash, if they lose the money in a poker game they can’t redeem the bills. So EVERYTHING blows up. The financial crisis last event will be a government crisis this time.

      • Erle
        Oct 26, 2019 at 11:55 pm

        You are doing the useless exercise in the attempt to make any sense of this. They will run it over the lemming stage on the old Disney moovies.
        Save yourself with some hard assets or go to Buenos Aires to buy their stuff on the cheap.

  8. Mira / R Davis
    Oct 24, 2019 at 11:20 pm

    Sorry about spelling just had eye surgery am still foggy.

    • Iamafan
      Oct 25, 2019 at 12:25 pm

      I hope you feel better. All the best.

  9. DawnsEarlyLight
    Oct 24, 2019 at 11:28 pm

    Wash, Rinse, and Repeat! Even chocolate Easter bunnies are hollow!

  10. raxadian
    Oct 25, 2019 at 12:24 am

    From the Guardian website:

    [Employee (n) People who work for a tech company and are eligible for health insurance and retirement benefits. Importantly, this does not necessarily include the vast majority of people who perform work for the company and create its value, such as the people who drive for transportation companies, the people who deliver for delivery companies, and the cooks, cleaners, security guards and parking attendants on tech campuses. Less than 50% of Google’s global workforce. See Uber,sharing economy, disruption, scale.]

    [IPO (n) Initial public offering – when a company begins allowing regular people to buy shares. A way for everyone, not just venture capital firms, to lose money, as in Uber’s recent disappointing IPO.]

    [Sharing economy (ph) A system in which working does not mean being employed. See employees.]

    [Unicorn (n) – A startup valued at at least $1bn. At one point, rare. Increasingly, not even that exciting.]

    [Venture capital (ph) A system by which wealthy individuals can invest in startups before they go public. A legal and surprisingly respectable form of gambling. An alternate retirement plan for fortysomething multimillionaires who never developed hobbies.]

    Yeah…

    • IPO
      Oct 25, 2019 at 1:03 am

      IPO’s the private-sector FIAT, a way for individuals to print and/or create their own money out of thin air. No real assets required, just a good story (hype)

      Venture Capital – The devil, you take his money he owns you. A form of slavery, where return is most often less than employment. This gets back to why Neumann is/was cashed out, you sign a document you can’t sue later for lost wages.

      Unicorn – a non-existent critter, not unlike 4d-chess, something that doesn’t exist that people can hang their hat on. Much of todays argumentation revolves around referencing non-existant objects and/or games as reality.

      There is only one reality here, the IPO is a mechanism for creating wealth out of nothing. Berkshire has to pay real cash for their assets, but in this world Softbank is able to create ‘shares’ out of nothing, and sell to a bag-holder.

      How many of the IPO’s in the past 5 years are still floating above IPO price? I can only think of one of 1,000’s

  11. OPM
    Oct 25, 2019 at 12:54 am

    Just one word here “OPM”, Other Peoples Money.

    Some of the biggest cash money I ever got was ‘walk away’ money, in startup’s its quite often that a seed-guy doesn’t like your team, so early majority holders are paid huge sum’s to go-away, does the team-member care? Hell no, I didn’t care.

    The thing is like start-ups, and this case, nobody is using their money to make Neumann go away, he’s toxic and disliked, so they’re using OPM to send him, and he’s smart enough, not to fight and take the money, and then do his own gig ‘solo’ and then become a 100% owner is his next deal.

    Neumann is/was the fall-guy here, he took that roll, and what’s his face at softbank has a scape-goat, and can say ahh-shucks about one of his investment-pools. Remember folks, only OPM was lost here.

    • RagnarD
      Oct 25, 2019 at 9:34 am

      @OPM

      Exactly. That’s my view of people like Bernanke and Yellen. Who are these people? Where did they come from? And how did they gain power? And do they actually have power?

      That is, do Phd economic wonks have the power to put themselves in position of manipulating the most important market price? Or are they simply the monkey put in the position to drive the bus, by power people who picked that monkey, because they know that monkey will do what they want it to do?

      In the case of Adam, he’s the vehicle through which SB ran it’s scheme.
      Not that Adam/Bernanke/Yellen are innocents, but they aren’t holding guns to people’s heads forcing them to give them power / money.

      Complaining about Adam/Bernanke/Yellen is akin to screaming at an Avatar.

      • RagnarD
        Oct 25, 2019 at 10:14 am

        BTW, in a supposed democracy. how do we have 330 million people complaining about one or a bunch of Phds controlling / manipulating the interest rate / financial markets?

        How is it that these millions are powerless to stop this?

        What does voting do?

  12. Lou Mannheim
    Oct 25, 2019 at 1:19 am

    If I were Neumann, I would walk/run and never look back. Although he may need some money for the lawsuits.

  13. Rat Fink
    Oct 25, 2019 at 1:50 am

    I am still not clear as to why SB paid the founder such a massive amount of cash.

    Surely they could have played brinkmanship and offered a token number and told him to take it or leave it otherwise the shares go to zero.

    But then I suppose that is a reflection on Softbank’s management i.e. they are clueless fraudsters.

    Their business model is to pump up the valuations of their own book by feeding cash into dumpsters at higher and higher valuations.

    But then isn’t this the business model of a huge swathe of listed companies including Apple?

    Buy back your shares with tens of billions of dollars to push your share price higher.

    The entire market is a %$$#$%$ joke.

    • Rat Fink
      Oct 25, 2019 at 4:16 am

      Carrying on from there. I believe that much of the $700M that Neuman extracted from the company before this fiasco is in the form of a loan from JPM against his shares in the company.

      If SB says to Adam sorry mate, if you don’t take what we are offering the shares go to zero and JPM will be seizing all those awesome homes you and the wife have been purchasing.

      • Javert Chip
        Oct 25, 2019 at 8:35 pm

        Hopefully, some smarter dude will review my comment for accuracy:

        I think “stock loan” is a non-recourse loan. If this is accurate, when things blow up, the only collateral a bank can go after is the original pledged stock.

        Again, if this is accurate, the bank wouldn’t be able to go after Adam’s (many) houses.

        • Rat Fink
          Oct 25, 2019 at 11:11 pm

          If that is the case then ‘wow’ If JPM made the loan on that basis and they don’t get paid back then that’s the price they pay for drinking too much kool aid.

          Excuse my crocodile tears boo hoo. booo hooo hooo.

    • Petunia
      Oct 25, 2019 at 9:34 am

      One of the dirty secrets of VC investing is the exit premium. Just because an investor buys or owns 10% of a venture, doesn’t mean they get 10% when they exit. In fact, the exit premium may be many multiples of the initial investment. An initial investment of 10% may be 20%, 30%, 40%, or more on exit day. Usually exits are IPOs but they could also be buyouts by the other investors/suckers.

      I would be interested in finding out the exit premiums allocated to the parties in the initial WW deal. I’m betting some investors are more equal than others.

    • Dept. Zero
      Oct 25, 2019 at 12:38 pm

      The SoftBank/WeWork scam is part of a multi-pronged strategy to inject increasingly worthless USD back into the US economy. It is a sick %$$#$%$ joke on all of us. One can only hope that Mr. Neumann will reap some of the negative Karma he is sowing.

      • Rat Fink
        Oct 25, 2019 at 11:36 pm

        Recall the scene in the Matrix movie where the character is offered the opportunity to choose a new life. If I recall if he changed sides he’d be rewarded with options that included rock star, famous actor etc…

        From what I have observed of Adam, and his previous track record, and given he walks around New York barefoot murmuring nonsense, and his freak for a wife, I cannot help but wonder if the Matrix is a real thing.

        And he, decided to betray his cause and take the option of ‘billionaire’.

        It makes sense. Who really wants to be an actor or a rock star. Or even a pro athlete. Much more relaxing to just take the money and take it easy.

        I know this conjecture all sounds a bit crazy, but for the life of me I cannot come up with a better explanation for what has transpired here.

  14. TownNorth
    Oct 25, 2019 at 2:09 am

    Clawbacks?

    Surely SoftBank is familiar with this concept, otherwise WeWork was just a wealth transfer, sold with new age speak.

  15. Hotairmail
    Oct 25, 2019 at 3:02 am

    I hear the Saudis are trying to get Neumann on board to float Aramco. ;-)

  16. Kasadour
    Oct 25, 2019 at 5:41 am

    Behold! innovation and research is supplanted by central bank fiat, then eliminated in real time. Thanks, FED.

    • Iamafan
      Oct 25, 2019 at 10:36 am

      There is one more innovation by the Fed that can help here.
      As far as I know, the current Fed Repo is only done with primary dealers (just 24 of them).
      Therefore, we are dependent on the increase of reserves of these bank/brokers to flow into cash liquidity (the so-called broken pipes) for some non-dealers who need to borrow cash at repo. Some transformation and intermediation is definitely required.

      But what if the Fed simply Repo with the expanded list of counterparties they already accept for REVERSE repo (presumably the Fed may have to use a cash account since not everyone is a bank with reserve accounts) This will open repo DIRECLTY to a much wider audience and perhaps improve liquidity better.
      Here’s the much large list: https://www.newyorkfed.org/markets/rrp_counterparties.html
      click on current list tab

      Since non-dealers are bidding and buying an enormous amount of Treasuries DIRECTLY, the least the Fed can do is actually help them directly without depending on the dealer’s kindness.

      • Oct 25, 2019 at 1:53 pm

        The charter banks are basically zombies, investment banks with GSE status and trading desks connected to ME. The Fed has a plan to use them to implement the next QE. RRPO is useful to keep a bid under overnight rates and sure enough they are having trouble keeping Repo rates under the upper Fed limit. I agree I think they want to repress they just aren’t sure how to do it? When the treasury paper that was borrowed then sold back to the lender, is on the other end of a busted Repo deal SHTF. Some have said it will take a trillion for the Fed to plug that leak with their primary digit.

      • DealerKindness
        Oct 26, 2019 at 1:50 am

        Dealer kindness is locked up in their net OI short UST futures up and down the curve, and as long as those “non-liquid” non member bank/dealers dont pay back their loans, and have to keep rolling over onto more loans, you can expect dealer more dealer kindess to be locked up in larger net short UST futures.

        If the Fed wants to RRP more directly, dealers will close out their positions, and let everyone else figure out if they want to be on side of rehypothicated assets unheged.

  17. Iamafan
    Oct 25, 2019 at 6:12 am

    I suppose we are interested to find out how deep, if any, the contagion is. Sure the laid off employees will suffer, that’s a given. But what will happen to Softbanks’s creditors, and the building owners that probably won’t get paid. Are some fund investors gonna blow up? How about lenders? How deep is the entanglement?

  18. unit472
    Oct 25, 2019 at 6:46 am

    Ken Fisher is another guy you have to wonder how in the hell did he ever get to manage $100 billion of OPM. Making crude remarks as part of your speech at a public forum is beyond stupid. It was unnecessary and didn’t even make sense.” If you can’t discuss ‘genitalia’ you don’t belong in finance”. What the hell does that even mean?

    • Mike G
      Oct 25, 2019 at 11:25 am

      What it means is “I’m an emperor with a massive ego, watch me break all the rules and norms because I can.” Not a prescient mindset for managing money.

    • Javert Chip
      Oct 25, 2019 at 8:46 pm

      You would be amazed at the percentage of wealthy (say $1M+) people who have no real idea how to manage their own money.

    • californiawoman
      Oct 26, 2019 at 9:02 pm

      Touch of Alzheimer’s

  19. RagnarD
    Oct 25, 2019 at 7:46 am

    Loved the “meat/hobble” comment. :)

  20. Endeavor
    Oct 25, 2019 at 8:33 am

    Got it figured out. Softbank is offering interest free interest only payment loans to insiders. The rest of us live with the weakening currencies,

  21. Just Some Random Guy
    Oct 25, 2019 at 8:43 am

    What’s a few bil between friends? :)

  22. Unamused
    Oct 25, 2019 at 9:25 am

    Jack:

    All this thanks to the sleeping at the wheel SEC !

    Nonsense. They’re doing exactly what they’re paid to do.

    Other do-nothing jobs pay better, but they’re not qualified for those either.

    Old-school:

    Some are saying it even contributed to the Boeing disaster. Instead of designing a new plane from scratch they bought back stock and ended up killing a lot of people

    Boeing executives will be quick to point out that none of their so-called victims have made a complaint.

    unit472:

    Making crude remarks as part of your speech at a public forum is beyond stupid.

    Not if it gets you elected.

    • unit472
      Oct 25, 2019 at 4:04 pm

      No guess you aren’t ‘amused’ because your comment is not funny , witty or clever. It is just boring.

      • Unamused
        Oct 25, 2019 at 6:44 pm

        That one really tingled, didn’t it?

  23. Mike Earussi
    Oct 25, 2019 at 9:25 am

    Never give a sucker an even break. Adam Neumann is the exemplar of this. Others should learn from his success. Is it really the fault of the conman if others are stupid enough to fall for his BS?

    • Unamused
      Oct 25, 2019 at 9:32 am

      Is it really the fault of the conman if others are stupid enough to fall for his BS?

      Congratulations on your discovery of the foundations of human civilization.

    • Mike G
      Oct 25, 2019 at 11:27 am

      Conmen and cheats have existed throughout history. What’s distressing is the failure of institutions to identify and reject them.

      • Mike Earussi
        Oct 25, 2019 at 11:02 pm

        That’s because the institutions are quite often owned by them.

  24. Charlie
    Oct 25, 2019 at 9:37 am

    And then people wonder why the ‘west’ if falling behind China. A billion here a billion there, sooner or later it adds up to real money.

    So, this is the free market’s wonderful system for efficiently allocating resources?

    My advice to anyone young …. learn to speak Chinese. In the long term, that’s where this trend leads.

    • RD Blakeslee
      Oct 25, 2019 at 11:22 am

      My advice to the young:

      Arrange your life (nobody I know of says it’s easy) to live in a low-population area and spend time exploring the record about your culture. Books (mostly!) old graphic and audio media. Enjoy worthwile culture and your own independence.

    • California Bob
      Oct 25, 2019 at 11:27 am

      I have a nephew who taught himself Mandarin. Then he went to law school–majored, if that’s the correct term, in international law–and passed the bar. He can write his own ticket now.

  25. Unamused
    Oct 25, 2019 at 9:43 am

    The problem with ‘disruption’ as a business model is that it is prone to hangfires.

    The problem with The Greater Fool theory of investing is that practitioners quickly run out of Greater Fools. While it’s clear that the supply of Fools is infinite, the number of available Greater Fools is inversely proportional to the quantity of Investor Egoism.

    Don’t worry about Softbank. It’s not like it’s their money, and besides, if they run short, they can always arrange to have yours confiscated to bail them out.

  26. Iamafan
    Oct 25, 2019 at 9:55 am

    After I read Zoltan Pozsar’s work when he worked for the U.S. Treasury (he is at Credit Suisse now), there was something he said that got tattooed to my mind. That is that many institutions protect themselves from an unsecured position by moving into a better hierarchy of secured by public money position (even if done overnight, repeatedly).
    https://www.financialresearch.gov/working-papers/files/OFRwp2014-04_Pozsar_ShadowBankingTheMoneyView.pdf

    With such high amounts of risk and debacle involved at WeWorks, I can only imagine how large investments in high risk endeavors like this can end up intertwined in the Repo markets where institutions try to get some “protection”.

    I am wondering if the craziness (Yes, the amounts the Fed pours in daily is crazy) in the Repo market today is an offshoot of the froth in other markets. There’s got to be a connection somewhere. Liquidity is fungible, right?

    • Petunia
      Oct 25, 2019 at 10:27 am

      The cheap money offered by the fed repo operation is also free protection on the rest of the borrower’s marks. If borrowers go to the private repo market they are opening themselves up to repricing than entire class of debt with new market prices. The fed is front running this possibility by offering cheap repo up front. This way borrowers don’t try to sell the dogs and find out they are dog poop instead.

      • Iamafan
        Oct 25, 2019 at 10:41 am

        Petunia, are you suggesting that the Fed is buying non-marked-to market crapoodle? Just like they did with MBS.

        • Petunia
          Oct 25, 2019 at 11:02 am

          No, I am not suggesting they are buying the crap. By making borrowing cheap with treasuries, they are helping borrowers not sell or repo other stuff nobody wants to have repriced at much lower valuations. When repo rates went to 10% that is what was happening. Bear Stearns all over again.

  27. Mean Chicken
    Oct 25, 2019 at 10:34 am

    Make up some misleading cock and bull story and become expert at stealing from investors like mom and pop especially, this way you can avoid the headaches caused by actual creation, innovation and comprehensively researching opportunities.

    • Petunia
      Oct 25, 2019 at 11:05 am

      That’s so last century.

  28. CreditGB
    Oct 25, 2019 at 11:07 am

    WeWork, Uber, Lyft, Tesla, SoftBank, Mr. Son, and Mr. Neumann all make Bernie Madoff look like a petty shop lifter.

    This is like “Though the Looking Glass” mixed with, “Friday the 13th”, and “Wall Street”.

  29. twitter_lurker
    Oct 25, 2019 at 12:05 pm

    I’ve read some stuff on twitter that thinks Japan’s NIRP can be used to get free money from the Federal Reserve if you have access to Federal Reserve alphabet-soup programs. Involved something like 10 basis points spread so would require very large loans to be worthwhile. If true that might explain why SoftBank is so freely paying out over a billion when they could contest it. SoftBank might have something in play that they don’t want exposed.

  30. Phoenix_Ikki
    Oct 25, 2019 at 12:07 pm

    From government to stock market…looks like Con-man rules the world. Sad state of affair. Let those Ponzi scheme continue…

  31. R2D2
    Oct 25, 2019 at 12:13 pm

    To be fair, the “investors” here are to blame.

    A quick 10-minute Google, looking for benchmark rivals, would have told them WeWork was a sham!

    For example, Regus UK has been doing the same thing since the last century (flexible office space), and its marcap sits at roughly 1.5 x current revenue.

    WeWork should have been valued at 2-3times revenue, at most. That suggests a valuation for 2019 around $5-10 billion max. Certainly not the insane $47 billion hype.

    The “investors” obviously did not do their research.

    Caveat emptor.

    • MC01
      Oct 25, 2019 at 12:46 pm

      I keep on getting the feeling WeWork’s crazy valuation was a dry run for Aramco: the Saudi government wanted to test how much they could push gullible and greedy Westerners with a valuation decided behind closed doors by a handful of insiders, most likely on nothing more than a whim.

      After Asian markets lost their enthusiasm for the much-anticipated Aramco IPO, the Saudi government has been shopping around for an American or European stock exchange to float Aramco, so far with no luck. Even the London Stock Exchange has so far refused to touch Aramco, and that’s despite the usual well-funded lobbying and PR campaign by Riyadh.
      The only way Aramco can be floated at the conditions the Saudi government want (which include no voting rights for external shareholders and divulging only the financial and industrial information Riyadh wants) is if Western financial markets are whipped into a frenzy similar to the one which led the common garden slugs heading the US Federal Reserve to cut rates for no other reason than to appease the crybullies.
      And what better way to whip the crybullies into a frenzy than an insanely high IPO valuation?

      Unfortunately there are still a few sane persons around these days: they may be powerless to stop the central bank madness (chiefly because most people profit from it) but they can ask a lot of good questions, just like they did with WeWork.

      It’s the Butterfly Effect: a butterfly flaps its wings in Sanya and a storm breaks out in Rio de Janeiro. And I want a whole lot of storms to break out. ;-)

      • Kasadour
        Oct 25, 2019 at 2:23 pm

        id like to comment on KSA’s notoriously circumspect approach to Aramco’s proven and probable reserves. The giant fields of KSA were discovered before 1970 yet Aramco is all over the map on how much proven is left. IF the estimate is correct, there are ~70 years of oil waiting to be drawn out. On the other hand, why does the KSA appear to be cash strapped to the point of paying its foreign workers in IOUs? I personally do not believe the KSA’s official numbers on its proven reserves. There’s just too much uncertainty surrounding the Aramco IPO hype.

      • Javert Chip
        Oct 25, 2019 at 9:05 pm

        Well, the same banks that brought you Uber & Lyft are beating each others brains out to bring you Aramco.

        I’ve also read wealthy Saudi families are expected to buy large chunks of the Aramco IPO. For the record, this is roughly the same crowd that was rounded up 2-3 years ago, imprisoned in the Ritz Carlton, tortured and shaken down.

        Interesting sales technique.

        • Jack
          Oct 26, 2019 at 3:01 am

          “Interesting sales technique.”

          ( I have an offer that you can’t refuse). :}

        • nhz
          Oct 26, 2019 at 6:07 am

          just the Saudi version of what Mr. Draghila at the ECB was doing: we will fine your savings at 1-5% yearly (percentage varying between EU countries due to wealth taxes and real inflation) until it is completely gone. Better spend it or invest in the stock market or real estate (that have appreciated beyond crazy thanks to ECB policy, so huge losses at some future date are assured). And Ms. Lagarde wants to provide EU savers with an even better water drop torture experience; maybe she should consult with MDB about efficient monetary policy…

    • R. Wright
      Oct 25, 2019 at 6:19 pm

      R2D2 is being too kind. Can any business appraisers explain why WeWork should be allowed a gross revenue multiplier higher than that of Regus UK? It is more reasonable to use a lower gross revenue multiplier.

      WeWorks offers a higher level of amenities to attract its tenants. It offers superior T.I.s, more staff, and more afternoon beer service. These amenities all cost extra money per sq.ft.

      For the same gross revenue, WeWorks should achieve a lower level of net revenue. That means a lower gross revenue multiplier should be used, not a higher one. And that means WeWorks business value may be much lower than SoftBanks’ latest speculative estimate.

      Until a couple of months ago, Softbank claimed a WeWorks value of $47 billion. Now it claims a value of $8 billion. On what evidence does the new Softbank valuation have any more credibility than the old one, which now has no credibility at all?

      • Javert Chip
        Oct 25, 2019 at 9:26 pm

        I can’t find any 2018 Regus annual reports, but the 2017 report showed a non-EBITDA net profit for 2017 & the previous 4 years.

        Valuations of a money-losing, never-ever-made-a cent-of-profit pig with lipstick based on multiples of revenue is the road to Perdition. Could probably get there quickly in an Uber Tesla.

  32. Iapetus
    Oct 25, 2019 at 12:41 pm

    The Softbank Vision Fund has an unusual structure that funds its $100 billion pool with approximately $60 billion in equity, and $40 billion in debt, where Softbank has committed approximately $28 billion of this equity.

    https://www.ft.com/content/b6fe313a-4add-11e7-a3f4-c742b9791d43

    So a $5 billion write-down by only Softbank due to WeWork and Uber suggests an 18% loss of the Vision Funds equity, while a $7 billion write-down by Softbank for WeWork and Uber suggests an 25% loss of the Vision Funds equity. That’s assuming none of this loss is attributable to their yet to be completed bailout, which I doubt would be possible with an assumption of immediate loss. This means the Saudi’s and Abu Dhabi are looking at an 18% – 25% loss on their equity in the Vision Fund next month, and who knows what implications for the 7% annual coupon they expect to receive for Vision Fund debt.

    My guess is this will be the first of many severe write-downs of the Vision Funds portfolio of companies.

    • Iapetus
      Oct 25, 2019 at 2:05 pm

      I would watch to see what happens on November 6th, the date Softbank is set to formally report their second quarter earnings – write-downs and all. November 6th is also the day when Uber’s shareholder lock-up expires, meaning Softbank along with all its other investors will stampede for the exits and probably magnify their losses in this company.

      https://www.forbes.com/sites/oliviergarret/2019/09/19/why-uber-could-crash-on-november-6/

      • Jack
        Oct 26, 2019 at 3:06 am

        Great observations.

        The probability of a Dow going down by 20% by Christmas is REAL now.

    • Javert Chip
      Oct 25, 2019 at 9:31 pm

      Couple days ago, Matt Levine was discussing how SoftBank Vision fund will pay the upcoming 7% interest to qualifying investors…it had a very Ponzi smell about it.

  33. Bobber
    Oct 25, 2019 at 2:00 pm

    Given the size of Neumann’s exit package, it appears Neumann was a pawn and Softbank’s Son was driving the whole mess. There are articles out there describing how Son encouraged/ordered Neumann to “be crazy” and not hold anything back.

    In my opinion, Son was the key scam artist. Neumann was his towel boy.

    • Javert Chip
      Oct 25, 2019 at 9:45 pm

      Not quite.

      At all times, Neumann maintained voting control of WeWork because of his super-voting class of stock. In order to gain control, allowing SoftBank to attempt salvaging some of their investment, SoftBank had to get Neumann out of the way, which required a payday of over $1B.

      Unless Son pulls off a miracle (which we won’t know for another year or so), it’s looking like two equally-matched con-men (Son & Neumann) sat in a room and effectively got buried in each other’s bullshit.

      Hard to tell who was the cause and who was the effect…but right now, Neumann is walking away with Son’s $1B.

      • Bobber
        Oct 26, 2019 at 12:32 pm

        Yes, but Neumann had voting control over nothing. WeWork was nothing without Softbank’s heavy support. For some reason, the arrangement reminds me of the 89 year-old doofus billionaire who married Anna Nicole Smith at age 26.

        • Javert Chip
          Oct 26, 2019 at 5:00 pm

          Neumann had complete voting control over SoftBAnk’s legacy $10B investment – that’s huge leverage.

          As long as Neumann had super-share voting control, SoftBank couldn’t touch WeWork. You may not like that, but that’s the way it works.

          SoftBank’s legacy investment in WeWork was somewhere around $10B. SoftBank will now pay an additional total of about $9.5B to Neumann for control, plus buying out some employee stock options/grants, plus providing cash to WeWork.

          SoftBank’s Son is in the unenviable position of now having paid a total of about $19.5B for a firm that is currently worth $8B (probably less).

          Neumann walks away with $1B+ (plus his hundreds of millions of personal loans are paid off). You tell me who the doddering old fool is.

  34. timbers
    Oct 25, 2019 at 2:57 pm

    The internets are saying DOW 650,000. Eventually. As HAL 9000 said: “I can feel it. I can feel it. I can feel it” as computer chips were being removed from brain.

  35. alex in San Jose AKA Digital Detroit
    Oct 25, 2019 at 10:45 pm

    What I don’t understand is why I can’t buy a $1000 bicycle, sell $3000 worth of raffle tickets and hold a raffle, with someone actually winning the real bicycle.

    Yet these tech scammers can scam huge amounts of money with more and bigger bets that pay nothing and it’s all OK.

  36. Oct 26, 2019 at 7:00 pm

    FYI, Softbank is about to be the largest owner of U.S. newspapers. In 2017 it bought Fortress Investment, which owns New Media, which controls Gatehouse, which on Nov. 14 will get shareholder approval to acquire Gannett and become the largest single newspaper owner in the country. In an industry that continues to downsize and suffer significant layoffs. What could go wrong?
    https://www.niemanlab.org/2017/02/newsonomics-softbank-fortress-trump-and-the-real-story-of-gatehouses-boundless-ambition/

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