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One thing to start: An investor group led by Saudi Arabia’s sovereign wealth fund has agreed a £300m deal to buy Newcastle United FC from UK retail tycoon Mike Ashley. Get the full details here.

Now back to the show . . .

In Silicon Valley, Benchmark Capital usually gets what it wants. 

The venture capital outfit — an early investor in companies such as Uber and Twitter — has stayed small and largely avoided the spotlight, earning it begrudging respect from its peers.

Japan’s SoftBank and its audacious chief executive, Masayoshi Son, have thrown that narrative for a loop.

Twice, SoftBank and Benchmark have met across the table on deals involving billions of dollars in share sales. Both times — at Uber and the troubled office property group WeWork — the discussions have turned contentious, spilling out into public battles of will.

In the latest face-off, a WeWork special committee partly led by Benchmark’s Bruce Dunlevie has sued SoftBank after the Japanese group walked away from an offer to buy $3bn in stock from other shareholders.

DD readers should already know that SoftBank has a rocky relationship with the insular world of Silicon Valley venture capitalists. In private, some grumble that SoftBank has impaired their investments by giving companies too much money and setting unreachable financial targets.

But the WeWork dust-up has taken anti-SoftBank rhetoric to new levels. 

After SoftBank first notified shareholders that it could back out of the tender offer last month, WeWork’s special committee fired back with a combative statement, calling the investor “unethical” and vowing to take “all necessary actions” to complete the tender.

At one point, tensions ran so high that both sides came together and agreed to tone down the dialogue, DD’s Miles Kruppa, Eric Platt and Arash Massoudi report.

Meanwhile, WeWork has prepared its staff for another round of layoffs, which as DD’s Eric Platt reported, could affect more than one-tenth of the company’s staff. 

Son’s scrapes with Silicon Valley are the least of his worries at the moment. SoftBank has warned investors of a $12.5bn annual operating loss — its highest ever — stemming from a likely near-$17bn blow to its Saudi-backed technology fund on a “deteriorating market environment”. 

It is far from the kind of news someone who is looking to shore up their company’s share price wants to deliver and marks another big setback for Son. This isn’t his first rodeo, of course. The Japanese billionaire is famous for losing his fortune in the dotcom bubble, then making it back with a spectacularly good call on Alibaba

But as Lex points out, the bad investments have started to outweigh the good. Maybe it’s time to just call the whole thing off?

Wall Street banks warn the worst is (probably) yet to come

Bank CEOs have long touted the strength of the American consumer as a cause for optimism. 

At the World Economic Forum meeting in Davos back in January — which now feels like the distant past — Bank of America’s chief executive Brian Moynihan said “the real question for the world now is what is happening to the American consumer and the consumer seems fine”.

© Bloomberg

Fast forward just a few weeks and American consumers are looking increasingly fragile. The spread of the coronavirus has wreaked havoc on the global economy and sent the unemployment rate soaring. And as we know from the last crisis, when people lose their jobs, they tend to stop paying mortgages, car loans, credit card bills and so on.

That’s why JPMorgan Chase has set aside $8.3bn for potential defaults in the first quarter, its highest loan-loss provisions since 2009. The bank said it expected a 20 per cent unemployment rate and a 40 per cent decline in GDP. 

Announcing JPMorgan’s earnings on Tuesday, chief executive Jamie Dimon — who has just recovered from heart surgery — said net income fell 69 per cent to $2.9bn in the first three months of the year as a result. 

© AFP/Getty Images

The banks also took a $1bn charge for widening spreads on its derivatives books, and a $900m charge for marking down the value of short-term bridge loans. 

Wells Fargo, which also reported first-quarter results on Monday, saw a 89 per cent drop in profit to $653m. The fourth-largest bank in the US said it added an “unprecedented” $3.1bn of loan loss reserves and took a $950m hit on its securities’ portfolio.

DD expects Bank of America, which reports results on Wednesday morning, to suffer from the same trends as JPMorgan and Wells. Citigroup’s global bent may provide some insulation, especially its exposure to Asia. Check out the full story from the FT’s Laura Noonan and Rob Armstrong. 

Story in charts: Chinese VCs re-emerge 

Hope springs eternal in China as green shoots of recovery have started to appear in the country’s venture capital sector. 

March activity was up sixfold to $2.5bn with investors on the hunt for bargains now that valuations have fallen to more reasonable levels.

Top 10 sectors for new investments in Q1 2020

Online education start-up Yuanfudao led the way with a $1bn raise from investors that included Chinese technology company Tencent, while biotech and pharma emerged as the most popular sector. 

Green shoots in China’s VC sector as March fundraising surges

“Meetings are happening, some term sheets are coming through, but what matters is cash in the bank, and we are only seeing that with start-ups that got a boost from Covid-19,” said William Bao Bean, a partner at SOSV Investments in Shanghai.

Full tale here.

Job moves

  • Centrica, owner of British Gas, has named its finance director Chris O’Shea as chief executive to replace Iain Conn.

Smart reads

Remote AGMs Travel restrictions and widespread bans on gatherings have forced companies to do their annual general meetings online. But investors have expressed concerns that shareholder meetings without shareholders physically present will shift the balance of power and make it easier for chief executives to avoid tough questions. (FT)

A historic deal The inside story on how the Opec+ alliance came to an agreement on the largest ever co-ordinated cut to oil production, with Donald Trump forced to step in as a mediator between Mexico and Saudi Arabia. (Bloomberg)

Ad slump Media companies have been hit hard by the fall in ad sales this year as companies cut non-essential costs. Google and Facebook, which account for half of ad spending, are no exception. Though they are expected to fare better than the rest of the digital advertising world. (New York Times)

News round-up 

Saudi Arabia says price war was ‘unwelcome departure’ from oil policy (FT)

Andreessen Horowitz aims to raise $450m for second cryptocurrency fund (FT)

General Atlantic, Tripp Smith to launch roughly $5bn distressed-investing fund (WSJ)

Former Goldman banker accused in foreign bribery scheme (FT)

Bloomberg News killed investigation, fired reporter, then sought to silence his wife (NPR)

Norwegian Air shares drop 60% after proposed debt-for-equity swap (Reuters)

Hedge fund managers are claiming bailouts as small businesses (BBG)

Advertising slump leads to cuts at digital and print media alike (FT)

Former Barclays banker cleared of fraud hits out at SFO’s powers (FT)

Cash-strapped US companies ramp up sales of discounted shares (FT)

Wizz Air cuts fifth of workforce and reduces wages (FT)

KKR-backed power company files for bankruptcy after tapping stimulus funds (WSJ)

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Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt and Mark Vandevelde in New York, Miles Kruppa in San Francisco and Don Weinland in Beijing. Please send feedback to due.diligence@ft.com



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