Fintech Headlines: December 19 - 25, 2022

Mastercard is ordered to stop blocking competing networks, bankrupt FTX wants Sam Bankman-Fried's stake in Robinhood, dLocal refutes short-seller report, announces share buyback program

This Week in the Markets

This was supposed to be a quiet week, but it surely wasn’t. On Tuesday, the Bank of Japan shocked the markets by doubling the cap on 10-year bond yields from 0.25% to 0.50%. Technically, it wasn’t a rate hike, but the central bank’s move temporarily sent the yield on Japan’s 10-year bonds from 0.25% to 0.48% (the yields finished the week at 0.38%). Apparently, Japan is the world’s largest creditor with the country’s investors owing over $3 trillion in overseas assets. A concern that the rising rates in Japan might trigger a return of investor capital to the country, sent the market across the globe down. It is unbelievable how intertwined the global markets are (remember the Bank of England intervention in September?).

On Thursday, the U.S. Commerce Department revised Q3 2022 GDP growth to 3.2% from the previously reported 2.9%. The revision was primarily driven by the revised personal consumption data. On the same day, the U.S. Labor Department published data on weekly unemployment insurance claims. Compared to the previous week, the unemployment claims increased by 2,000 to 216,000, but remained at historically low levels. Finally, on Friday, the U.S. Commerce Department reported a slowdown in the PCE-price index from 6.1% in October to 5.5% in November. The report also indicated a slowdown in personal spending growth from 0.9% in October to 0.1% in November. U.S. inflation is cooling down.

S&P 500 and Nasdaq Composite posted their third consecutive week of losses, while The Dow Jones Industrial Average posted a weekly gain.

🟢 Brazil’s stocks advanced after the country’s Congress approved the incoming president’s $32 billion spending plan, which, per Bloomberg, “will mostly be used to finance cash handouts to the poor and other social programs”. Shares of Banco Inter (NASDAQ: INTR 0.00%↑), PagSeguro (NYSE: PAGS 0.00%↑), XP Investimentos (NASDAQ: XP 0.00%↑), and Stone (NASDAQ: STNE 0.00%↑) advanced 17.68%, 11.95%, 10.94%, and 6.79% during the week respectively. Shares of Nubank (NYSE: NU 0.00%↑) declined 0.26% during the week.

🔴 Blend (NYSE: BLND 0.00%↑): shares of Blend Labs Inc., a software company that helps mortgage lenders digitize their lending processes, declined 14.69% following uninspiring data about the state of the U.S. real estate market that was released during the week. Thus, residential permits declined 11.2%, housing starts declined 0.5%, and existing-home sales declined 7.7% in November compared to October, while the U.S. home-builder confidence fell for the 12th straight month to the lowest level since April 2020. Existing-home sales were down 35.4% from a year earlier.

✔️ Yen Surges as Kuroda’s Yield Cap Shock Sparks Normalization Bets
✔️ Global Markets Jolted as BOJ Surprises With Yield Policy Change
✔️ US Third-Quarter GDP Revised Higher to 3.2% on Firmer Spending
✔️ U.S. Jobless Claims Tick Up, Economy Grows Faster Than Previously Thought
✔️ Key Inflation Gauge Cools, US Consumer Spending Misses Forecasts
✔️ U.S. Household Spending Rose Sightly in November as Inflation Eased
✔️ Tech Stocks Head for Worst December Since 2002 as Fed Optimism Fades
✔️ S&P 500 and Nasdaq close higher Friday, but fall for a third straight week
✔️ Brazil’s Congress Approves Lula’s $32 Billion Spending Plan
✔️ Brazil’s Incoming President Lula da Silva Wins Approval to Spend Big
✔️ U.S. Home Sales Post Record 10th Straight Month of Declines
✔️ US Housing Starts, Permits Fall on Slide in Single-Family Homes

Mastercard is Ordered to Stop Blocking Competing Payment Networks

The Federal Trade Commission ordered Mastercard to provide competing payment networks, such as Pulse, Shazam, and Star, with the information required to process debit card transactions. In a nutshell, the regulator’s order, which is a result of a years-long investigation into the practices employed by Mastercard and VISA, will allow merchants to select a different network for processing debit cards that carry the Mastercard logo, aiming to lower the card-acceptance costs. The order applies to debit card transactions only, and it is not clear, whether the Federal Trade Commission will follow up with a similar order to VISA.

Card schemes, such as VISA and Mastercard, do not issue cards themselves, and instead, generate revenue by charging various fees to card issuers and acquirers. For example, when a card carrying the Mastercard logo is used to pay in a store, the scheme, typically, makes money from both the issuer (that issued the card) and the acquirer (that services the store). Technically, the merchant could choose another network to process this transaction; however, this process became more complicated due to the introduction of card tokenization technology. Thus, the schemes would abstract the card data (“tokenize”), which requires the merchant to turn to the respective network to “detokenize” the card before processing it. The FTC essentially ordered Mastercard to help competing networks with the “detokenization” of card data, so they can process transactions.

In case you missed my writeup on the rivalry between VISA and Mastercard during the last ten years 👉🏻 “VISA vs. Mastercard: visualizing the might of the payment giants”

✔️ Mastercard Ordered by FTC to Help Rivals Route Transactions
✔️ U.S. orders Mastercard to stop blocking competing payment networks
✔️ FTC’s Mastercard Ruling Is A Victory For Merchants, Consumers And Dodd-Frank
✔️ FTC Orders an End to Illegal Mastercard Business Tactics and Requires it to Stop Blocking Competing Debit Card Payment Networks

Bankrupt FTX Wants Sam Bankman-Fried's Stake in Robinhood

In May, Sam Bankman-Fried, the founder of now-bankrupt cryptocurrency exchange FTX, acquired a 7.6% stake in Robinhood for around $648 million (the shares were worth around $586 million on the date of the SEC filing). The acquisition of 56.3 million shares was handled through a special-purpose vehicle, Emergent Fidelity Technologies Ltd, owned directly by Sam Bankman-Fried, rather than FTX. The stake triggered speculations of FTX acquiring Robinhood, which Vlad Tenev, the CEO and co-founder of Robinhood, denied during the company’s earnings calls.

Seven months later, FTX filed for bankruptcy, Sam Bankman-Fried was charged with defrauding investors, and the Robinhood stake become the subject of claims by various creditors. In November, (also bankrupt) cryptocurrency lender BlockFi, claimed the rights to the shares arguing that those were pledged as collateral. Last week, FTX itself asked the U.S. bankruptcy judge for help in getting the ownership of those shares before they are seized by BlockFi. In the meantime, Sam Bankman-Fried tried to get hold of the shares himself to pay legal bills before getting arrested on fraud charges. The stake was worth $447.4 million at market close on Friday.

✔️ FTX Seeks Referee for Fight Over $440 Million Robinhood Stake
✔️ FTX opposes BlockFi's claim to Bankman-Fried's Robinhood shares
✔️ FTX Asks Judge for Help in Fight Over Robinhood Shares Worth About $450M
✔️ BlockFi Suing FTX Founder Over Robinhood Shares Promised as Collateral
✔️ FTX Had Plans For Its Robinhood Shares
✔️ FTX CEO Sam Bankman-Fried Buys 7.6% Stake in Robinhood

dLocal Refutes Short-Seller Report, Announces Share Buyback Program

In mid-November, the shares of the Uruguayan payment processor dLocal took a plunge after the hedge fund manager Muddy Waters disclosed its short position and accused the company of fraud (see that big red candle on the chart below?). Thus, Muddy Waters found several discrepancies in dLocal’s disclosures, including inconsistency in reported TPV numbers, conflicting inter-company transactions, corrections made to the reported dates for exercising options by the founders, as well as the alleged use of clients’ funds to fund dividends. The short seller continued to argue that the company’s Take Rates are unsustainable and rely primarily on currency fluctuations and that the founders have been selling the stock following the IPO.

Last week, dLocal addressed Muddy Water’s allegations in a press release, as well as announced a share buyback program by the company, its management, and major shareholders. Thus, dLocal involved PwC Argentina to assert that the client funds have been properly segregated and never used to issue loans to the management or fund dividends. Further, the company pointed out a change in methodology in reported TPV, which lead Muddy Waters to believe manipulation in TPV numbers. dLocal argued that the change in methodology was properly disclosed to investors. Finally, the company addressed the allegation that the founders have been selling their shares after the IPO by announcing the intention of the company’s management and its major shareholders to buy back shares in an open market transaction. dLocal share price advanced 11.29% during the week, but Muddy Water’s short position should still be in the green (if they haven’t covered it yet).

✔️ dLocal Refutes Short-Seller Report and Announces Share Buyback Program
✔️ Uruguay's dLocal unveils $100 million share buyback plan
✔️ We are concerned that payment processor dLocal is a fraud, says Muddy Water
✔️ Muddy Waters' Block shorts payments firm dLocal; shares halve in value
✔️ Muddy Waters doubles down on allegations of dLocal balance sheet discrepancies
✔️ Under fire for weak regulation, dLocal CEO says seeking UK license

In Other News

✔️ Coinbase secures regulatory approval, welcomes new Country Director in Ireland
✔️ Coinbase Stock Hits an All-Time Low. Where the Company Goes From Here
✔️ Latest SEC Lawsuit Shows Crypto’s Troubles Might Not Be Contained To FTX
✔️ Jamie Dimon Is More Crucial Than Ever to the Bank He's Run for 17 Years
✔️ The Two-Word Mantra That Changed Bank of America’s Risk Culture
✔️ Goldman Is Banking on Apple Partnership in Consumer Push
✔️ LendingClub’s New CFO Tasked With Preparing Its Balance Sheet for a Downturn
✔️ Wells Fargo to pay $3.7 billion for illegal conduct that harmed customers
✔️ Wells Fargo Shares Keep Rolling
✔️ Buy Now, Pay Later—and Discount Never
✔️ Wealthfront extends partnership with Green Dot
✔️ Brazil’s Bolsonaro Signs Cryptocurrency Regulatory Framework into Law
✔️ Latin American Inflation Begins to Cool, But Outlook Still Complex for Some Nations
✔️ Bradesco Wants to Speed Up Its US Expansion With Fintech Deals
✔️ Microsoft Tech to Boost London Stock Exchange’s Quest for Data Dominance

Disclosure & Disclaimer: I own shares in several companies that I write about in this newsletter, as I am bullish on the transformation in the financial services industry. However, the information contained in this newsletter is intended for informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.