Collapsed crypto exchange platform FTX has far more cash on hand than initially expected, according to lawyers helping the company with its massive restructuring. The company allegedly had around $1.24 billion in cash reserves after amassing money from its various “silos,” but it notably is still billions of dollars short of paying back its creditors.
In other financial news, the stock market is edging higher this morning after spending much of Monday slipping downward. These shifts come ahead of some planned Fed remarks later in the day and after the central bank’s leadership noted that it’s “premature” to commit to a 75-basis point interest rate hike for December. Time will tell how the US’s central bank reacts to the market reports once we know how bad inflation was in November.
Finally, Disney’s stock is resurgent after former CEO Bob Iger returned to the role in a surprising reversal of his earlier commitment never to take the job again. He replaces Bob Chapek, who oversaw the company as its stock price sank dramatically against the rallying Dow Jones index. This time, Iger’s new contract notes that he’ll have more selection over the next CEO, allowing him to shape the company for the foreseeable future.
FTX Has Cash Reserves, But Not Enough
FTX apparently has more cash on hand than previously thought, but it’s still far less than creditors are owed. Consulting firm Alvarez & Marsal North America is helping FTX with its restructuring and drummed up $1.24 billion from the company’s various subsidiaries. However, creditors are still owed over $3 billion, and there’s no clear path for FTX to raise the money to make lenders whole.
This entire episode has played havoc with the price of bitcoin and other cryptocurrencies. As such, it’s difficult to see a future in which FTX can use its role as a crypto trading platform to make over $1.5 billion, let alone find a way to liquidate enough assets to fill that shortfall.
Given that crypto has no inherent value outside of what buyers are willing to pay for it, FTX has no realistic path to raising significant capital. John Ray III, the interim CEO who is overseeing the company’s bankruptcy filing, told courts that under founder Jonathan Bankman-Fried FTX “did not have appropriate corporate governance.”
Stocks Rise Ahead of Fed Remarks
The FTX fiasco has, thankfully, had little impact on the broader market. In fact, stocks are performing well this morning, with the three major indexes opening higher after a muted start to the shortened week yesterday. The S&P 500 posted a modest increase of 0.4%, and the Dow Jones Industrial Average led the way up by spiking 0.5%. The tech-focused Nasdaq Composite barely increase, adding only 0.1%.
San Francisco’s Fed President Mary Daly recently told reporters that the central bank is still mulling over economic data and that it’s “premature” to discuss interest rate hikes for the December policy meeting. When pressed, she informed reporters that “nothing is off the table.” The Fed has implemented four back-to-back 75-basis point interest rate hikes, bringing borrowing costs close to an all-time high in the US.
The Fed’s single-minded pursuit of a 2% inflation rate target has led it to squeeze the economy to try to curtail demand. These moves have only recently started showing any signs of slowing the economy–inflation finally eased up slightly in October. If the trend continues in November, the economy might be able to stabilize without the Fed crushing demand enough to spark a recession.
Iger Gets to Pick His Replacement This Time
A critical line in Bob Iger’s new contract as Disney’s CEO is that he’ll get a lot more say over who replaces him this time around. His new contract notes that “Mr. Iger… has agreed to serve as Disney’s CEO for two years, with a mandate from the Board to set the strategic direction for renewed growth and to work closely with the Board in developing a successor to lead the Company at the completion of his term.”
Some analysts have noted that Bob Chapek can’t be fully blamed for Disney’s struggles throughout 2020 and 2021. Lockdown mandates completely rewrote how the company could operate its theme parks, and the parks were largely closed throughout 2020. That’s a lot of revenue being left on the table, and it’s hard to imagine any theme park CEO making a profitable year out of 2020.
“Given Iger’s track record and experience at the company and industry, we believe this announcement will be well received by investors,” writes Jessica Ehrlich, an analyst with Bank of America. “However,” she adds, “we now expect Iger to fully re-evaluate several of the recent strategic initiatives and corporate restructurings over the past two years, which could create some near-term uncertainty on [the] direction of the company.”