Robinhood Stock Sale Soured By Investor Confusion, Valuation | Sidnaz Blog


Robinhood Markets Inc.’s

HOOD 3.45%

bid to revolutionize IPOs has created losses for investors instead, after one of the year’s most highly anticipated listings fell flat.

In a regulatory filing in early July, the trading platform’s co-founders said they would open their initial public offering to customers on equal terms with institutional investors. They said they recognized it may be the first IPO many would participate in, and pledged to “never sacrifice the safety of our customers’ money.”

It now appears Robinhood’s commitment to “democratizing” the IPO process played a role in the offering’s big initial stumble Thursday. An innovative auction system sowed some confusion among investors, many already suspicious of the valuation of a business that has drawn scrutiny from regulators and criticism from customers, people involved in the process said.

The stock, initially priced at $38, the bottom of the target range, sits below that. It is a disappointing result at a time when IPOs are booming and investor appetite for new issues is robust.

Robinhood proudly tore up the traditional IPO playbook. It insisted a large chunk of its stock—in the end up to 25%—go to its individual-investor customers compared with the normal retail allocation of well under 10%. It said employees could sell a portion of their stock right away instead of being locked up for six months. And when it came to determining the price of its IPO, Robinhood decided to use a hybrid-auction process, which attempts to assign shares to investors based on what they are willing to pay, regardless of who they are.

Robinhood co-founder Baiju Bhatt, in gray suit, and CEO and co-founder Vladimir Tenev in the Wall Street area of New York City on Thursday.

The hybrid auction has worked in other IPOs in the past year. In typical listings, underwriters give their investor clients updates throughout the roadshow—the seven- to 10-day period in which a company pitches its stock. These updates typically include guidance on how much demand bankers are seeing for the shares and the rough price they ultimately expect to set.

In this case the company and lead underwriters

Goldman Sachs Group Inc.


JPMorgan Chase

& Co. gave few such updates, people familiar with the matter said. When some large investors called the other underwriters on the deal, some of those bankers pleaded ignorance.

The opaqueness of the process sowed suspicion among some investors who assumed the deal was going poorly and adjusted their orders accordingly, investors and bankers said.

Many had already expressed concern about how much of Robinhood’s revenue comes from a controversial practice called payment-for-order-flow, which the Securities and Exchange Commission is reviewing, people who attended the roadshow said. Others questioned what they saw as the high valuation the eight-year-old company was seeking—in excess of $30 billion.

Another concern: whether Robinhood’s controversial decision earlier this year to stop users from buying meme stocks like

GameStop Corp.

would prompt some to eschew the offering.

Wednesday night, as bankers met with Robinhood Chief Executive

Vlad Tenev

to set the price, some investors said they were only told it would be within the $38 to $42 target range. This surprised many large institutions, who are used to more guidance heading into a pricing meeting.

A Robinhood IPO event in Times Square.

An unusually large percentage of shares were set to be allocated to hedge funds, which are more likely to “flip” IPO stock on the first day of trading, according to people close to the deal. To bring in more of the biggest institutional funds who are viewed as “buy-and-hold” investors, Robinhood chose $38 a share instead of the higher price some funds were willing to pay.

The company and Goldman felt comfortable that the lower price was conservative enough that the shares would rise on their first day of trading, especially given the buzz around Robinhood in the lead-up to the listing, according to people close to the deal.

Instead, the stock opened at $38 a share, unusual at a time when big initial pops for hot IPOs are more the norm. It rose higher briefly, touching $40 before dropping through the IPO price. It closed down 8.4% Thursday.

The shares fell further still Friday morning before regaining some ground in the early afternoon.

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges. Photo illustration: Jacob Reynolds/WSJ

Robinhood’s Stock Market Debut

Write to Corrie Driebusch at [email protected]

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Should You Be Buying What Robinhood Is Selling? | Sidnaz Blog


In rare cases, such pitches have paid off big time. More often, you’d have done yourself a favor by taking roughly half your money and lighting it on fire instead.

Just as Robinhood isn’t the first brokerage to offer commission-free trading, it isn’t the first to seek to “democratize” investing or to sell a piece of itself to its own customers.

On June 23, 1971, Merrill Lynch, Pierce, Fenner & Smith Inc. became the first New York Stock Exchange firm catering to individual investors to offer its shares to the public.

Thirsty for fresh capital in a struggling stock market, Merrill flogged its shares to its own customers, tapping the firm’s “awesome recognition among that vast segment of the population,” reported The Wall Street Journal the next day. “Primarily small investors, the type long championed by Merrill Lynch, quickly purchased the entire amount.”

Nearly 400 insiders at the firm unloaded a total of 2 million shares in the offering. From its initial $28 per share, the stock shot to about $42—a 50% pop—then closed around $39. That valued Merrill at 30.5 times its prior-year earnings, much higher than the overall stock market’s price/earnings ratio of 18.7.

Less than three weeks later, Merrill announced that its net earnings had fallen nearly 50% from the prior quarter.

For the rest of 1971, Merrill’s stock lost 9.4%; the S&P 500 gained 4%, counting dividends.

In 1972, when the S&P 500 rose nearly 19%, Merrill sank 7.7%. And in 1973-74, when the S&P 500 lost 37%, Merrill’s stock slumped by 61%. In its first three full years, Merrill’s stock lost three-quarters of its value; the S&P 500 fell only 5%.

Here in 2021, Robinhood’s offering is one of several trading and investing IPOs:

Coinbase Global Inc.,

the cryptocurrency exchange, went public in April, and

Acorns Grow Inc.,

which helps users invest in tiny increments, said in May that it expects to go public later in the year. Since its Apr. 14 debut, Coinbase is down about 27%. Robinhood fell 8% on its first day of trading Thursday.

One of Wall Street’s oldest and frankest sayings is “When the ducks quack, feed ‘em”—meaning that whenever investors are eager to buy something, brokers will sell it like mad.

Back in 1971, that was the brokers’ own shares. Roughly half a dozen major firms sold stock to the public soon after Merrill, including Bache & Co. and Dean Witter & Co. By 1974, according to data from the Center for Research in Security Prices LLC, several of them had dealt losses at least as devastating as Merrill’s.

In 1987, Jane and Joe Investor got invited to join in on the fun of Charles Schwab Corp.’s IPO, when roughly three million of the offering’s eight million shares were reserved for employees and customers of the firm.

Unlike Merrill, which was rescued from the brink of failure in 2008 when

Bank of America Corp.

bought the firm, Schwab went on to generate spectacular long-term performance. Over the full sweep of time since its 1987 IPO, Schwab is up more than 26,500%, or 17.9% annualized. The S&P 500 gained less than 3,500%, or an average of 11.3% annually.

However, Schwab went public in late September 1987. Only 18 trading days later, on Oct. 19, the U.S. stock market took its biggest one-day fall in history, plunging more than 20%.

Schwab’s stock got brutalized. In their first year, Schwab’s shares fell 59.1%. After three years, the market as a whole had gained 0.6% annually; Schwab’s stock lost an annualized average of 6.9%, according to CRSP.

How many of the original buyers in 1987 stuck around long enough to reap the giant rewards that came much later? That’s impossible to know, but the likeliest answer has to be: very few.

Every once in a while, outside investors in a brokerage IPO do well.

Goldman Sachs Group Inc.

began trading on May 4, 1999. If you’d bought Goldman stock in the IPO and held it ever since, you’d have earned 9.1% a year, versus 7.6% in the S&P 500, according to FactSet.

Yet Goldman was a giant then, as it is now; it was late to the IPO party because it had held on to its partnership structure for so many years. Most brokerage IPOs, like Robinhood’s, occur when the firms are younger and smaller.

That makes them typical. Companies selling shares to the public for the first time tend to be small, with minimal profits; they also require additional invested capital to sustain their rapid growth.

That’s what Savina Rizova, global head of research at Dimensional Fund Advisors, an asset manager in Austin, Texas, calls “a toxic combination of characteristics that points to low expected returns.”

On average, IPOs have severely underperformed seasoned stocks in the long run. And, history suggests, brokerages doing IPOs are better at timing the market for themselves than for you.

Write to Jason Zweig at [email protected]

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The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges. Photo illustration: Jacob Reynolds/WSJ

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Robinhood IPO Is No Giveaway | Sidnaz Blog


Robinhood Markets likes to give away free shares to attract new customers. Its public offering to investors is a different matter.

The offering bears some similarity to recent IPOs such as

Coinbase Global


Rocket Cos.,

which made their debut in the midst of crypto and mortgage booms, respectively. Investors had the challenge of trying to chart out a normalized earnings and revenue path. So far, neither of those prior examples have worked out for initial public investors.

Robinhood derives the vast majority of its revenue from trading by its customers, including in cryptocurrencies like Dogecoin. In this topsy-turvy market, it will be quite difficult to forecast what that activity level looks like a year from now. Plus, its primary trading revenue source is payment for order flow, one of the most hotly debated topics in finance and in Washington.

Amid that uncertainty, there is one measure that cuts through a lot of the noise: how much an investor would be paying at the IPO valuation per funded account. That is a way to benchmark Robinhood to established peers in the retail brokerage business.

At the proposed IPO price range set on Monday, a funded Robinhood customer account is worth about $1,500 to $1,600. Contrast that to a long-term average of about $2,000 for E*Trade over the past 15 years, before it was acquired for about $1,800 by Morgan Stanley, according to figures compiled by Christian Bolu of Autonomous Research. Charles Schwab, a much broader wealth- and asset-management business, has traded around $3,600 historically, and is closer to $4,000 today.

Vlad Tenev, co-founder and chief executive officer of Robinhood Markets. It will be Robinhood’s broad appeal that is most vital to justifying the IPO price.


Daniel Acker/Bloomberg News

So that multiple isn’t by itself wild and suggests that, even if Robinhood has to alter its revenue model, it could still be a viable business just by virtue of the number of customers it has. But it also is giving Robinhood credit for a lot of growth it has yet to achieve. Consider that Robinhood’s typical funded account had about $4,500 worth of assets in custody at the end of the second quarter. The established retail brokers’ typical accounts are well into the six figures.

Yes, Robinhood’s accounts on average trade more. But overall, Robinhood still generates much less revenue out of its customers, in part because they are smaller. In the first quarter, average revenue per user was $137 at Robinhood. By contrast, TD Ameritrade and E*Trade were generating more than $500 around the time they were acquired, according to Autonomous. Charles Schwab was above $600 in the first quarter.

So the per-account price implies that Robinhood will either far better monetize its customers in the future, grow them at a much faster rate, or some combination thereof. Faster growth is much more likely, based on recent history: Schwab added 1.7 million net new brokerage accounts in the second quarter, while Robinhood added 4.5 million funded accounts on net. “Expanding the universe of investors has been, and we expect will continue to be, a significant driver of our market-leading growth,” Robinhood writes in the IPO prospectus.

Meanwhile, per-user revenue trends are already slowing. Preliminary second-quarter results given by Robinhood imply a drop-off in average revenue per user to under $120, with Robinhood noting that, while cryptocurrency and options trading are growing, equities trading activity in the second quarter was lower than it was a year ago.

The company can build on other revenue streams, which include margin loans to customers and cash management. But low pricing is a vital part of the company’s mission to expand its customer base. The company is still building out its securities lending platform, which could generate incremental revenue. In the face of slowing trading activity, though—and that includes crypto in the third quarter, according to the company—it is hard to bank on significant per-user revenue growth in the near future.

So it will be Robinhood’s broad appeal that is most vital to justifying the price. That makes the IPO itself a pivotal moment. Robinhood will be distributing potentially over 20 million shares to its own customers via its own platform. If the deal doesn’t perform well out of the gate for any reason, that could frustrate some of its most engaged customers.

Investors might have to wait for the dust to settle on this offering before thinking about nabbing any Robinhood stock for themselves.

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges as it looks forward to its IPO. Photo illustration: Jacob Reynolds/WSJ

Write to Telis Demos at [email protected]

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Robinhood IPO Expected to Value Trading App at About $33 Billion | Sidnaz Blog


Menlo Park, Calif.-based Robinhood Markets operates a stock-trading platform for individual investors.


olivier douliery/Agence France-Presse/Getty Images

Trading app Robinhood Markets Inc. said it expects to raise about $2 billion in its initial public offering, which would give it a market value of about $33 billion, according to a securities filing Monday.

Robinhood would sell about 52.4 million shares in the offering, and other stockholders would sell about 2.6 million. At the $40-a-share midpoint of the offering range, Robinhood would raise about $2 billion.

The Menlo Park, Calif.-based company operates a stock-trading platform for individual investors.

In the first quarter of 2021, Robinhood recorded revenue of $522.2 million, the company said in a regulatory filing. It posted a loss of $6.26 a share. In the first quarter of 2020, the company’s net loss was 23 cents a share on revenue of $127.6 million.

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges as it looks forward to its IPO. Photo illustration: Jacob Reynolds/WSJ

Write to Matt Grossman at [email protected]

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Morgan Stanley Requires Employees to Get Vaccinated Before Going | Sidnaz Blog


Morgan Stanley headquarters in New York.


Jeenah Moon/Bloomberg News

Morgan Stanley

has told its employees they must get Covid-19 vaccines before returning to its New York offices.

Staff are required to disclose their vaccination status to the bank by July 1, the Wall Street firm said in a memo to employees. Starting July 12, employees, contingent workers, clients and visitors will be required to confirm that they have been vaccinated before entering Morgan Stanley buildings in New York City and Westchester County.

Unvaccinated employees will work remotely, a person familiar with the matter said. At a conference last week, Chief Executive

James Gorman

said that well over 90% of employees in its offices had been vaccinated.

Morgan Stanley Chief Executive James Gorman said that well over 90% of employees in the bank’s offices have been vaccinated against Covid-19.


House Committee on Financial Services

Companies are pressuring employees to get vaccinated before their offices fully reopen, but few have gone so far as to require it. The Equal Employment Opportunity Commission last month said U.S. employers can require staffers entering a workplace to be vaccinated against Covid-19, although they must accommodate those who are unvaccinated for disability or religious reasons.

Getting workers vaccinated is especially important to Wall Street firms eager to end the work-from-home era.

Goldman Sachs Group Inc.,

which has brought thousands of employees back to its Manhattan headquarters, is requiring U.S. employees to disclose whether they have received a Covid-19 vaccine.

Wells Fargo

& Co. has asked employees to voluntarily register their vaccination status. Employees are expected to return to the bank’s offices after Labor Day.

Mr. Gorman said he expects a small percentage of Morgan Stanley staffers to eschew vaccines for health or religious reasons. “We’ll deal with that when we get there,” he said at the conference. “Right now, I’m focused on the 98%, not the 1% or 2%.”

Companies are working on coronavirus booster shots, as some early studies suggest antibody levels against Covid-19 wane with time, making boosters more necessary. We explore what that means for individual consumers. Illustration: Laura Kammermann/The Wall Street Journal

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SoftBank Latin America Fund Leads $28 Million Atom Finance | Sidnaz Blog


SoftBank Group Corp.

9984 -0.18%

is investing in startup investing platform Atom Finance, in a bet by the Japanese conglomerate that a retail trading boom is here to stay.

Atom Finance, founded in 2018, lets individuals track investments and research holdings. In addition to SoftBank, existing investors General Catalyst and Base Partners also took part in the latest $28 million funding round. The investment values Atom at around $150 million, said a person familiar with the matter.

Atom was founded by

Eric Shoykhet,

who covered financial services firms and other sectors from 2015 to 2018 at hedge fund Governors Lane. He believed falling trading costs would prompt more individual investors to trade. This meant that they would need new kinds of tools to guide them.

‘The narrative we never bought into was that active investing was dead,’ said Atom Finance founder Eric Shoykhet.


Atom Finance

In 2019, major brokerages launched no-commission stock trading to stave off the threat from digital upstart Robinhood Markets Inc. Now, all kinds of brokerages compete against each other for retail traders with free trading having become a booming business. It has been particularly transformative in the past year as more investors with free time during the pandemic have wielded growing power over markets, sending meme stocks such as

GameStop Corp.


Atom isn’t a trading platform but it has still been a beneficiary. Hundreds of thousands of users have signed up since its platform launched in 2019. Paying customers increased in the past year, though the firm declined to provide exact details about user numbers.

“We think a lot of that increase in investor participation in markets is here to stay,” said Mr. Shoykhet, 29 years old. “The narrative we never bought into was that active investing was dead.”

Mr. Shoykhet hopes his firm will grow as individuals seek cheap tools to help them invest. A full Atom subscription goes for $9.99 a month, a fraction of how much a Bloomberg Terminal costs.

Atom also plans to license its product to banks and brokerages.

SoftBank led the Series B funding round in Atom through a $5 billion fund it created to focus on Latin America. It reflects SoftBank’s wager that the rise of individuals in U.S. markets will take off in that region too.

This year, Atom pursued a deal on its own to provide products for Banco Inter, a digital bank in Brazil that SoftBank’s Latin America fund has also invested in.

Shu Nyatta,

managing partner for SoftBank’s Latin America fund, said SoftBank later introduced Atom to other portfolio companies in hopes of fueling similar deals.

“The whole idea is to bring high-quality data to people who wouldn’t have access to them,” he said.

Mr. Nyatta said he was drawn to Mr. Shoykhet’s opportunism and willingness to make Latin America a strategic focus. Mr. Shoykhet recently moved to Miami and is planning to open an office there, in part to make it easier to do business with Latin America.

But there is one thing Atom Finance isn’t planning to do for now: It doesn’t want to become a trading application.

Mr. Shoykhet is skeptical about many e-brokerages’ practice of routing trades to big trading firms in exchange for payments. The industry has defended this practice, known as payment for order flow, arguing that it lowers the cost of trading for individuals. Others argue it hurts investors as firms will encourage heavy trading by users to maximize profits—even if those investors take too much risk.

“We don’t think it has users’ best interests in mind,” he said.

Write to Dawn Lim at [email protected]

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J.P. Morgan Asset Management Acquires Timberland Investment Firm | Sidnaz Blog


One of the biggest names on Wall Street is getting into the timber business, and a big part of its plan to make money involves less logging.

J.P. Morgan Asset Management said Monday that it has acquired Campbell Global LLC, a Portland, Ore., firm that manages $5.3 billion worth of timberland on behalf of institutional investors, such as pensions and insurance companies.

The deal gives the $2.5 trillion asset manager a position in the booming market for forest-carbon offsets, tradable assets that are created by paying landowners to not cut down trees and leave them standing to sponge carbon from the atmosphere. Offsets are used by companies to scrub emissions from their internal carbon ledgers, which track progress toward pollution-reduction goals.

Terms of the deal with Campbell’s seller,

BrightSphere Investment Group Inc.,

weren’t disclosed.

Many of the world’s largest companies, including

Apple Inc.,

Microsoft Corp.


Royal Dutch Shell

PLC, have promised investors they will reduce their carbon footprints. Many emissions are unavoidable for global businesses, which has made standing timber a hot commodity.

J.P. Morgan

JPM 1.51%

is betting that carbon markets will add value to timberlands beyond the income they generate as a source for building products, said

Anton Pil,

the firm’s head of alternatives.

“We wanted to play an active role in carbon-offset markets as they’re developed,” Mr. Pil said. “We want to be viewed as a global leader in the carbon-sequestration market.”

Other big names are angling for similar status.


PLC last year bought a controlling stake in Finite Carbon, the country’s largest forest-offset producer. Inc.

Chief Executive

Marc Benioff,

Microsoft and others recently invested in NCX, a firm that matches offset buyers with timberland owners willing to defer harvests for a fee.

Campbell Global oversees about 1.7 million acres of forestland in the U.S., New Zealand, Australia and Chile. About two-thirds of its 150 employees are involved in managing the forests, while the others are investment professionals, said

John Gilleland,

the firm’s chief executive.

Campbell Global for more than three decades has managed timberland to produce logs for lumber and pulp mills, but has moved into carbon markets in recent years.


Campbell Global

Campbell for more than three decades has managed timberland to produce logs for lumber and pulp mills. In recent years, it has moved into carbon markets, selling offsets in California’s regulated cap-and-trade market as well as in the unregulated voluntary markets that have boomed with the rise of green investing.

“We do believe this is the future for this asset,” Mr. Gilleland said.

Timberland investing became popular in the 1980s after the tax code was made more favorable to owners of income-producing real estate, Congress allowed pensions to diversify beyond stocks and bonds and Wall Street analysts convinced forest-products companies to sell off their timberlands.

Investors reasoned that trees would grow, and thus gain value, no matter what the stock market did. Timberland was viewed as a good hedge against inflation.

Demand for lumber has skyrocketed during the pandemic, sending prices to all-time highs. This video explains what’s driving the lumber boom, who’s profiting, and why those growing the trees aren’t reaping the benefits. Illustration: Liz Ornitz/WSJ

But it hasn’t always been a good investment: At the same time timberland investing was gaining momentum, the federal government was paying landowners in the South to plant pine trees on worn-out farmland to boost crop prices. Decades later, the resulting surfeit of pine has pushed log prices to their lowest levels in decades even as the resurgent housing market has lifted prices for lumber and other wood products to records.

Investors such as the California Public Employees’ Retirement System have suffered big losses on southern timberland in recent years. Though log prices in the West still move in unison with those of lumber, timberland there is threatened by fires and wood-boring beetles. In the North, mills have closed and rendered many wood lots uneconomical to log and worth more leased to companies as carbon sinks.

Write to Ryan Dezember at [email protected]

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Morgan Stanley Hires Greg Weinberger Away From Credit Suisse | Sidnaz Blog


Greg Weinberger most recently oversaw Credit Suisse’s global mergers and acquisitions practice.


Patrick T. Fallon/Bloomberg News


Morgan Stanley

MS -0.74%

has hired longtime investment banker

Greg Weinberger

away from

Credit Suisse

CS -0.98%

Group AG, according to people familiar with the matter, the Swiss bank’s highest-profile departure yet as it deals with losses tied to the meltdown of Archegos Capital Management.

Mr. Weinberger, a Credit Suisse veteran, has most recently overseen its global mergers and acquisitions practice.

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Robinhood and Didi to Kick Off a Hot IPO Summer | Sidnaz Blog


The IPO market is set to be scorching hot this summer.

Public filings are looming for Chinese ride-sharing company Didi Chuxing Technology Co. and Robinhood Markets Inc., two of the most hotly anticipated initial public offerings of 2021, people familiar with the matter said. Their stocks are likely to begin trading in July. Fund managers, venture capitalists, bankers and lawyers said they are busier than they have been in decades at this time of year, which is usually quieter. Some claim business is even crazier than during the dot-com boom of the late 1990s.

Some bankers estimated that from June through August, U.S.-listed IPOs could raise upward of $40 billion. That would eclipse the previous record of $32 billion over those three months, set last year, according to Dealogic data going back to 1995. That doesn’t include money raised by special-purpose acquisition companies, or SPACs, which were going gangbusters earlier this year but have slowed.

Vlad Tenev, chief executive of Robinhood, which could be valued at $40 billion or more in its IPO, testified at a congressional hearing in February.


Daniel Acker/Bloomberg News

Some bankers said they are working with more than two dozen companies that have confidentially filed for IPOs and are considering starting roadshows to pitch investors in coming weeks.

“As prolific as issuance was last summer, we believe this year will exceed that,” said Jim Cooney, head of Americas equity-capital markets at

Bank of America Corp.

“It’s on track to be the busiest yet.”


Do you think July will kick off a hot IPO summer and perhaps an extended boom? Join the conversation below.

Didi Chuxing, which beat out

Uber Technologies Inc.

to claim ride-hailing dominance in China, could fetch a valuation upward of $70 billion, a person familiar with the matter said. Robinhood, the app empowering the individual traders who fueled the meme-stocks revolution, could be valued at $40 billion or more in its IPO, according to people familiar with the matter. Car-battery company Clarios is also likely to go public in July, people familiar with the matter said, aiming for a roughly $20 billion valuation.

A swath of companies are on tap in the coming weeks, including Krispy Kreme and cybersecurity firm SentinelOne.

The expected surge in IPO activity comes after SPACs’ popularity has slipped and the soaring IPO market hit a speed bump in May. Investors, fearing inflation and volatility, moved away from technology stocks. Recent IPOs fell below their offer prices, and several debuts were postponed.

But instead of a long-term chill taking hold, the situation stabilized. Tech shares rebounded, volatility subsided and some high-profile IPOs went off without a hitch. Through Tuesday, traditional U.S.-listed IPOs have raised more than $63 billion, on pace for the biggest year ever, according to Dealogic.

Swedish oat-milk maker

Oatly Group

OTLY -2.52%

AB priced its IPO in mid-May at the high end of its range, giving it a valuation of roughly $10 billion, far above its valuation less than a year earlier. Shares jumped 19% on their first day of trading, and the stock is up more than 50% from its IPO price. Construction-management-software company

Procore Technologies Inc.

PCOR -1.88%

priced its May IPO above expectations and made its debut with a valuation of nearly $10 billion.

On Tuesday, payments company

Marqeta Inc.

MQ 13.04%

priced its IPO higher than anticipated, valuing the company at $15 billion. Its stock jumped 13% in its trading debut Wednesday.

Other recent IPO stocks have picked up steam. Shares of companies that did a traditional IPO in 2021 were up an average of 6.9% through Tuesday, according to Dealogic. A month ago they were up 2.1%.

The tech-laden Nasdaq Composite, which was briefly negative for the year in early May, is up 7.9% in 2021 and sits less than 2% from a record.

Some bankers and investors attribute the turnaround to some conservatism around offerings. Deal size has come down, which helps bolster demand and buoy prices. In the first three months of the year, U.S. IPOs raised an average of $428 million. Since then, companies have raised 16% less on average, according to Dealogic.

Also helpful for traditional IPOs: a slowdown in the SPAC market. As some SPAC shares have fallen and deals have sputtered, fewer companies are looking to go public through blank-check-company mergers. That has added to the traditional IPO pipeline, according to bankers and lawyers. Fewer SPAC mergers shopping around for private investments in public equity free up time and cash for large fund managers to put to use in traditional IPOs.

The flood of companies turning to public markets is unlikely to slow down after Labor Day. Grocery-delivery giant Instacart Inc. is considering going public through direct listing in late 2021, according to people familiar with the matter. One consideration for the company, one of the people said, is that year-over-year growth comparisons are tough for the spring quarter because of the robust business Instacart did during the early days of the pandemic.

“The world is changing rapidly,” said Marc Jaffe, managing partner of Latham & Watkins LLP’s New York office. “Good ideas are going from good ideas to ringing the bell in record time.”

Didi Chuxing beat out Uber Technologies to claim ride-hailing dominance in China.


Jason Lee/Reuters

Write to Corrie Driebusch at [email protected]

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Banks in Archegos Aftermath Tighten Credit Lines, Scrutinize | Sidnaz Blog


Banks across Wall Street are looking to tighten the lending terms of some of their hedge-fund clients on the heels of Archegos Capital Management’s collapse.

Firms including

Credit Suisse Group AG

CS -1.54%


Morgan Stanley

MS 0.22%


UBS Group AG

UBS -2.34%

are reviewing their businesses that offer financing to hedge funds and family offices for potential vulnerabilities to safeguard against another Archegos-style event, said bankers and hedge-fund managers.

Archegos is the New York family office of the one-time hedge-fund manager

Bill Hwang.

Its March collapse triggered one of the biggest sudden trading losses in Wall Street history. Archegos took huge bets on a few stocks using a mix of cash and swaps with money borrowed from banks. It was unable to meet margin calls as some of its biggest positions started reversing, and the fallout from its collapse is still unfolding.

“You’re seeing a lot of maneuvering by banks to adjust how they determine what the margin is for a portfolio,” said Michael Katz of Quadrangle Consulting, which advises clients including hedge funds on financing agreements with dealers.

Wall Street’s losses—$5.5 billion for Credit Suisse alone but also affecting

Nomura Holdings Inc.,

NMR -0.18%

Morgan Stanley and UBS—are particularly surprising because prime-brokerage and swaps desks demand collateral in return for their lending.

In recent earnings calls, banks have talked about what they are doing in the wake of Archegos. Credit Suisse said it would reduce its prime-brokerage operations. Morgan Stanley said it was reviewing its stress-testing methodology, although it didn’t plan to scale back its dealings with hedge funds or family offices. UBS said that it was reviewing its prime-brokerage relationships and that the business remained strategically important for the bank.

Nomura has been conducting a review of its prime brokerage, the bank said in April. It has frozen client balances but hasn’t reduced leverage, said a person familiar with the matter.

Banks including

Goldman Sachs Group Inc.,

Morgan Stanley and UBS are focused on hedge funds with very concentrated positions, including those that attempt to increase their returns by borrowing a significant amount of money, fund managers said. Some are running stress tests to see where they could have shortfalls if some of a fund’s positions precipitously drop. Newly empowered credit-risk departments are reviewing clients with portfolios that are far more diversified than Archegos’s.

Several banks are starting to rework agreements with a number of clients to change the terms of equities total-return swaps, said prime-brokerage executives and advisers to funds. Total-return swaps are derivative contracts that helped Archegos anonymously amass huge positions across multiple lenders, without the knowledge of those lenders and with little money upfront. Archegos’s collapse has sparked calls for tougher regulation of such swaps.

Morgan Stanley said it was reviewing stress-testing methodology, although it didn’t plan to reduce dealings with hedge funds or family offices.


Jeenah Moon/Bloomberg News

Swaps give their holders exposure to the profits and losses of the securities underlying the agreements but not ownership. In the case of Archegos, for example, the family office had swap agreements with multiple banks giving it exposure to

ViacomCBS Inc.

But the banks actually held the shares.

As things stand now, some margin requirements are fixed. Going forward, some clients will be regularly required to post additional collateral based on the changing market value of their portfolios or factors such as increases in volatility or concentration. Many swaps agreements already have such a margin requirement, though some larger clients with more negotiating power don’t.

Elizabeth Schubert, a partner at Sidley Austin LLP who advises hedge-fund clients on negotiating their trading relationships with dealers, said she has seen several banks recently move to look at a client’s cash and swaps positions together when determining the collateral required.

The change comes with trade-offs, she said.

For dealers, “it gives them more control from a risk-management perspective—but clients lose a lot of control and transparency about the margin they have to post,” Ms. Schubert said. She added that fund managers who lived through the failure of Lehman Brothers, which tied up some funds’ assets for years, remain wary about posting more than a minimal amount of margin.

Several banks, including Morgan Stanley, have spoken with clients about fully or partly terminating swaps, said people briefed on the conversations. Such moves could help lower the lenders’ exposure to swaps and in instances reduce the leverage a fund is using.

As Archegos has caused Credit Suisse to retrench in prime brokerage, it has set off a jockeying for clients by others.

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One fund manager said Credit Suisse’s tightening of leverage gave him a reason to move balances elsewhere. Other managers shrank or moved their balances to other counterparties.

London-based Pelham Capital has talked of pulling its business from Credit Suisse, according to people briefed on the matter. Pelham executives considered the bank’s embroilment in Archegos and Greensill Capital, which collapsed into insolvency in March, to be concerning, the people said. Pelham didn’t return requests for comment.

Other prime brokers, including Goldman, have been trying to take business away from Credit Suisse. Goldman has said it was able to avoid losses related to Archegos’s collapse partly because it was among the first to unload Archegos’s assets.

Goldman brokers have been calling Credit Suisse clients in recent weeks to emphasize its risk-management practices, said fund managers. Goldman Chief Financial Officer

Stephen Scherr,

on a recent earnings call, described growth of its prime-brokerage business as “a strategic imperative” for the firm and not tied to Archegos.

JPMorgan Chase

& Co. and


PLC, whose prime brokers didn’t have exposure to Archegos, are among those that have attracted new clients or more business from existing clients, said people familiar with the banks.

Write to Juliet Chung at [email protected], Gregory Zuckerman at [email protected] and Julie Steinberg at [email protected]

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