Raphael Stevens

Goldman Sachs just closed its second billion-dollar blank-check deal as a sponsor, with the Wall Street firm aiming to change the struggling SPAC market.
The deal fully defers the so-called sponsor promote, and sponsors will only start getting paid when shares rise more than 20%.
“At the firm, we are trying to build a franchise doing this. In order to do that, we want to have strong relative performance over time,” said Tom Knott, head of the SPAC business at Goldman.

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, Sept. 20, 2021.
Michael Nagle | Bloomberg | Getty Images

Goldman Sachs just closed its second billion-dollar blank-check deal ever as the Wall Street firm seeks to change the struggling SPAC market by building a sustainable franchise that aligns investor interests with insiders.
Nuclear measurement and analytics company Mirion Technologies started trading Thursday on New York Stock Exchange after merging with GS Acquisition Holdings Corp. II, which values the combined company at about $2.6 billion including debt.

Unlike most of the SPACs on the market where sponsors are entitled to 20% of the total shares outstanding following the IPO for free, or at a big discount, Goldman’s Mirion deal fully defers this so-called sponsor promote and sponsors will only start getting paid when shares rise more than 20%.
“If you earn the promote upfront, there is always a bias towards stretching a little bit more on price and a little bit more on projections because you are incented to get the deal done,” said Tom Knott, head of Goldman’s emerging SPAC business. This division falls under the asset management arm of the Wall Street bank.
Special purpose acquisition companies raise money on the public markets sometimes without a vision of which companies they will eventually take public within two years. They have come under scrutiny for disproportionate insider benefits and lucrative incentives, oftentimes at the expense of retail investors.
Elizabeth Warren and other Democratic senators recently sent open letters to a few high-profile SPAC leaders to question how they are compensated. SEC Chairman Gary Gensler has repeatedly warned of the misaligned interests between sponsors and shareholders and said greater disclosure is needed.
Goldman is seeking to bridge the gap between the returns that insiders get versus average shareholders. The bank also invested $200 million in the Mirion deal, which makes it the biggest private investment in public equity, or PIPE, investor.

“At the firm we are trying to build a franchise doing this. In order to do that, we want to have strong relative performance over time,” Knott said. “Sponsors who structure their transaction responsibly and bring really good businesses to market will always have a place to play.”

Arrows pointing outwards

After a blockbuster 2020 and the first quarter of 2021, now a record amount of SPAC capital — more than $135 billion — is seeking target companies to take public, according to Barclays Research.
The first deal Goldman Asset Management did was Vertiv Holdings at the end of 2019, which valued the data center equipment company at more than $5 billion. The shares have since more than doubled.
Goldman has registered additional SPACs with the SEC, including GS Acquisition Holdings Corp. VIII and IX.
“I sit down with 1,000 companies with each deal we buy, and I tell everyone of them the statistical probability of us doing a deal with pretty low, but our hope is at the very least, the next SPAC that comes through your door, I hope the first thing you ask them is why are you not willing to fully defer your promote because Goldman Sachs is,” Knott said.
“We are really focused on changing the market,” he added. More

Life Changes

Nineteen percent of all gig drivers (for online ride-hailing and food-delivery services) were collecting unemployment benefits in July 2020, according to a JPMorgan Chase Institute report.
By comparison, receipt among other gig workers peaked between 13% and 15%, and at roughly 9% for non-gig workers, according to the report.
The report suggests lawmakers should consider gig drivers when designing the U.S. safety net.

hxyume | E+ | Getty Images

About 1 out of every 5 drivers in the gig economy was collecting unemployment benefits at the pandemic’s peak, according to a new analysis published by the JPMorgan Chase Institute.
These drivers worked for “online platforms” offering services like ride hailing (Uber and Lyft, for example) and food delivery (like Instacart and DoorDash).

Nineteen percent of all gig drivers were receiving jobless benefits in July 2020, according to the report, published Tuesday. That’s the highest monthly share among drivers during the Covid pandemic. (The report analyzed anonymized personal checking accounts for 30 million Chase customers.)
It’s also a higher share than other categories of gig workers and more than twice that of non-gig workers.

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Here’s a look at other stories offering a financial angle on important lifetime milestones.

The data suggests lawmakers should consider gig workers — especially drivers — when designing the U.S. safety net, according to Fiona Greig, co-president of the JPMorgan Chase Institute.
Drivers tend to live in low-income households and account for the biggest share of gig workers, according to the report.
“Of all platform workers, drivers appear to be the group of biggest concern for policymakers from a welfare perspective, the report said. “They are the most numerous group, have the lowest family incomes and were the most likely to have received unemployment insurance during 2020.”

Unemployment benefits

Gig workers, generally treated as independent contractors, are typically ineligible for state unemployment benefits.
Congress authorized them (and others like freelancers and part-timers) to collect benefits via a new federal program, Pandemic Unemployment Assistance, during the Covid crisis. (The program ended on Labor Day.)
“There was no one to drive to the airport because no one was traveling,” Greig said of work conditions for drivers during the pandemic. “There was a demand shock and income shock.”
Worker advocates have called for aspects of the PUA program — which supported millions of people — to be a permanent fixture of the unemployment safety net.

Benefit receipt peaked at between 13% and 15% for non-driver gig workers (services like house repair, dog walking, online selling and short-term leasing of housing or cars) during the pandemic, according to the JPMorgan report.
The share peaked at 9% for non-gig workers (like W-2 employees), even when accounting for differences in factors like age and income.
In 2019, the typical take-home pay for drivers was $49,000 — the lowest among all categories of gig workers, the report found. (By comparison, people who offer short-term leases — like an AirBnb owner, for example — made $102,000 that year.)

Low earners throughout the U.S. economy were unemployed at much higher rates than other workers during the pandemic. Jobs in the service sector, which tend to be in-person and pay lower wages, were hit particularly hard by the health crisis.
In mid-August, employment for the bottom third of wage earners (who make less than $27,000 year) was still down 26% from pre-pandemic levels, according to Opportunity Insights, a joint economic project of Harvard University and Brown University. Meanwhile, jobs were up 10% for the highest third of earners, who make over $60,000 a year.
The report doesn’t specify how the rate of unemployment receipt among gig drivers compares with other low-paid groups outside the gig economy, such as those in leisure and hospitality.   More

Cryptocurrency exchange FTX has raised $420 million in a new round of funding valuing the company at $25 billion.
The firm raised the fresh cash from a total of 69 investors including the Ontario Teachers’ Pension Plan Board, Singapore’s Temasek, BlackRock and Sequoia.
The numbers “420” and “69” are a nod to meme culture.

Sam Bankman-Fried, CEO of cryptocurrency exchange FTX, at the Bitcoin 2021 conference in Miami, Florida, on June 5, 2021.
Eva Marie Uzcategui | Bloomberg | Getty Images

Cryptocurrency exchange FTX says it has raised $420 million in a new round of funding, valuing the company at $25 billion.
The Bahamas-based firm said Thursday it raised the fresh cash from a total of 69 investors including the Ontario Teachers’ Pension Plan Board, Singapore’s Temasek, BlackRock and Sequoia.

Specifically, the company said it attracted a total of $420,690,000 in its latest round, with the “420” and “69” being a nod to meme culture.
The investment is a top-up to FTX’s series B financing round in July, in which it raised $900 million at an $18 billion valuation.
FTX is one of the world’s largest digital currency exchanges, competing with the likes of Coinbase, Binance and Kraken. It specializes in derivatives and trading on leverage, the use of borrowed funds to amplify trades.
“We founded FTX two years ago with the idea of creating a better financial marketplace,” said FTX CEO Sam Bankman-Fried.
“Today we are focused on establishing FTX as a trustworthy and innovative exchange by regularly engaging with regulators around the world, and constantly seeking opportunities to enhance our offerings for digital asset investors.”

The new round comes a day after bitcoin hit a record high above $66,000. Investors are cheering the launch of the first U.S. exchange-traded fund tracking bitcoin futures, a landmark move that pushes crypto deeper into the realm of Wall Street.
Bankman-Fried is something of a celebrity in crypto circles. He is also co-founder of Alameda Research, a quantitative trading firm, and has invested in a number of start-ups. According to Forbes, Bankman-Fried is worth $22.5 billion, making him the richest person in crypto.

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FUEL PRICES over the past month show the same vertiginous upward slope as a covid-19 case count during a particularly brutal wave. Coal and gas prices have touched all-time highs. Asian spot prices for gas have jumped by nearly 1,000% in the past year. The cost of oil has soared as shortages of other fuels have pushed up demand for crude.Surging energy costs are in many respects an expression of the same phenomenon driving supply-chain backlogs all over the world. An unexpectedly strong rebound in demand has run headlong into stagnant supply. Disruptions, such as shortfalls in hydroelectric-power production caused by droughts, have exacerbated the shortages. So has the rush to boost low inventories in response to the energy crunch. But surging fuel prices are also more ominous than supply-chain woes. Past energy shocks have been associated not only with inflation, but deep recessions, too, as exemplified by the economic travails of the 1970s. What does the latest crunch hold in store?The inflationary consequences of costly energy are already apparent. In the euro area, headline annual inflation jumped to 3.4% in September, thanks to a 17.4% leap in energy costs. Underlying “core” inflation (which excludes food and energy prices) rose by a more modest 1.9%. In America underlying inflation ran hotter in September, at 4%. But a 24.8% increase in energy costs pushed the headline rate up even higher, to 5.4%. These figures are likely to rise further in coming months, since rocketing fuel prices in October have not yet made their way into the statistics.The contribution of energy to inflation will begin to fade once prices plateau—as they may in coming months, and even sooner if winter proves no colder than usual. Recent analysis by economists at Goldman Sachs, a bank, suggests that the effect of energy costs on America’s year-on-year inflation rate stood at 2.15 percentage points in September and will likely rise to 2.5 percentage points by the end of this year—taking the headline rate to 5.8%, holding other components constant—before eventually turning slightly negative by the end of 2022.What about the damage to growth? The predominant factor, in the near term at least, is the effect on consumption and investment. Over short time horizons, households and firms cannot easily cut energy use in response to rising costs, leaving less to spend on other goods and services. This effect, according to work by Paul Edelstein of State Street, a bank, and Lutz Kilian of the Federal Reserve Bank of Dallas, is concentrated in the consumption of durable goods; a rise of 10% in the price of energy is associated with a 4.7% decline in spending on durables (and a particularly large drop in purchases of vehicles).Yet the researchers also note that consumption tends to fall by more in response to rising fuel costs than you might expect given the share of energy in budgets. That seems to be because energy shocks tend to depress sentiment. James Hamilton of the University of California, San Diego, studies historical oil shocks and finds that a 20% rise in the real price of energy is associated with a 15-point drop in an index of consumer confidence. (A gauge of American sentiment collected by the University of Michigan has fallen by nearly 17 points since April 2021.)An energy-induced slump could be mitigated if consumers meet higher bills by drawing on savings. By the end of 2020, households across large rich economies had accumulated “excess”, or above-normal, savings equivalent to more than 6% of GDP. Nonetheless, analysts at Goldman reckon that costly energy will reduce the growth rate of consumption in America by 0.4 percentage points this year, and by 0.5 points in 2022. Those inclined to see the petrol tank as half full may note that slower consumption growth could help ease strains on supply chains, which have been stressed by especially strong demand for durable goods. Those who grumble that it is half empty may worry that power cuts in places like China could result in still more shortages.Crucially, the toll of the shock will depend on how central banks respond. Fuel prices tend to feed through to households’ expectations of inflation. That will be unwelcome news for central bankers, who are already worrying about high inflation. Research by Mr Kilian and Xiaoqing Zhou, also of the Dallas Fed, suggests that energy prices mainly influence short-term expectations, rather than those further out. Those expectations could adjust just as quickly when energy prices fall. Some central banks, such as the Bank of England, may nevertheless worry that the energy shock worsens the risk that inflation expectations become unmoored from their targets. But the dilemma is that, if they overreact, they depress consumption further and induce deflationary pressure, just as energy prices return to earth.A pity, the fuelsThe longer prices stay high, the more their effects evolve. Households and firms will become better able to reduce their exposure to energy. Indeed, work by John Hassler, Per Krusell and Conny Olovsson of the Institute for International Economic Studies in Stockholm suggests that costly energy affects the nature of innovation. Firms direct inventive efforts so as to economise on scarce inputs. When energy is abundant, they focus on capital- or labour-saving innovation. When energy is scarce, by contrast, firms do more to improve the energy-efficiency of production, and innovation suffers—as it did in the 1970s.The extent to which history repeats, however, also depends on what governments do. They could shield customers from higher energy prices, which would be politically popular but delay the moment of transition from dirty fuels. Or they could encourage more investment in renewable-power capacity, so that energy constraints bind less. Such bold action could end the threat posed by expensive coal, gas and oil, once and for all. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Tanks for nothing” More

THE PAEANS that followed the recent retirement of KKR founders Henry Kravis and George Roberts, formerly private equity’s barbarians-in-chief, are a reminder that the story of Wall Street is one of big deals, bold trades and the people behind them. Those further behind them, in the “back offices” of banks, brokers and buy-out firms, barely get a look in. Understandably so: their world is colourless compliance and “post-trade” processes, like clearing and settlement. They are the plumbers of finance, toiling behind the scenes to ensure that the pipework, well, works. Every so often, however, there’s a gurgling noise loud enough to unsettle even those cocksure colleagues out front.The system for settling stock trades—ensuring the buyer gets her security and the seller his cash—came under strain during the covid-induced volatility of March 2020. It creaked again early this year amid the meme-trading frenzy in GameStop shares. A report by regulators into that episode, published on October 18th, noted drily that post-trade processes, “normally in the background, entered the public debate”. It was thanks to spiking margin calls and volatility-induced settlement risks that Robinhood, a retail broker, restricted trading in GameStop stock, causing uproar.Risk is a function of time. The longer between trade execution and completion, the bigger the “counterparty” risk, or the chance that one side or the other fails to pony up—as anyone caught mid-trade when Lehman Brothers or Archegos Capital collapsed can attest. And, therefore, the heftier the margin payments that brokers and investors have to post with clearing-houses.Hence the long-running push to bring down trade-processing times—from 14 days (“T+14” in the parlance) in the 18th century, when certificates were carried on horseback and ship; to under a week following reforms in the wake of the 1968 Wall Street paperwork crunch, when a trading boom forced exchanges to close one day a week for months to allow the backroom boys to catch up; to T+5, then T+3, and, four years ago, T+2.Still, a lot can happen in two days on Wall Street, so why stop there? Spurred by the market gyrations of last year, a group representing banks, investors and clearers has been studying a move to T+1 and is expected within weeks to unveil a plan for how to get there. The signs are that the Securities and Exchange Commission will bless it. If so, the halving of settlement time could kick in as early as 2023. Europe, for one, would probably follow suit.Lest anyone think the titans of finance are going soft, it should be pointed out that they are not pushing this solely for the greater good. They are as interested in cutting their own costs as systemic risks. During last year’s market turmoil, overall margin demanded by the DTCC, America’s clearing agency for stocks, jumped five-fold, to more than $30bn daily. Hundreds of billions more a year are tied up by “fails-to-deliver”, delays owing to settlement failures (the causes of which range from mistyping errors to more sinister practices such as failing deliberately in order to manipulate the price of a stock). Freeing up this capital would leave financial firms with a lot more to invest profitably.Why then stop at one-day settlement? Evangelists for so-called distributed-ledger technology are touting the possibility of going to T+0, known as “atomic” settlement. This looks technically feasible; indeed, some broker-to-broker trades at the DTCC are already settled on a near-instantaneous basis.But is it desirable? There is a big difference between reducing settlement time and eliminating it. In the latter, the buyer would have to be pre-funded and the seller immediately ready to swap. Every bit of a complex process would need to be synchronised, with no room for error. It may also require a wrenching restructuring of the giant securities-lending market, which is designed to fit with settlement with a time lag.Cue cries of “Luddite!” But Buttonwood is in good company in advocating keeping some redundancy in the process. Ken Griffin, boss of Citadel, one of America’s largest marketmakers, and thus no techno-slouch, has described real-time settlement as “a bridge too far” because it requires “everything [to] work perfectly in a world where there’s still people involved”. The message is clear: pushing things too far could replace one set of risks with another, scarier one, in which a small number of failed trades set off a chain-reaction across back offices worldwide. Atomic indeed.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “When the pipes creak” More