Finance

A lawsuit against Sam Bankman-Fried alleges the indicted former FTX CEO has been financing his criminal defense with $10 million in company funds.
Bankman-Fried engineered a gift of that amount to his father, legal scholar Joe Bankman, FTX lawyers say.
Bankman-Fried has pleaded not guilty over his role in what federal prosecutors allege was a multibillion-dollar fraud that led to the bankruptcy of his crypto exchange.

Indicted FTX founder Sam Bankman-Fried exits United States Court in New York City, June 15, 2023.
Mike Segar | Reuters

Sam Bankman-Fried, co-founder of failed crypto exchange FTX, was sued in Delaware bankruptcy court on Thursday by his ex-company’s lawyers, who accuse him and members of his leadership team of stealing hundreds of millions of dollars.
The lawyers are seeking to recover funds from Bankman-Fried and former executives of FTX and sister hedge fund Alameda Research. One way the attorneys for the bankrupt exchange say Bankman-Fried pilfered money was through a $10 million gift to his father, distinguished legal scholar Joe Bankman.

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Much of that $10 million gift from was routed from FTX to Bankman-Fried’s Morgan Stanley and TD Ameritrade accounts around January 2022, the lawsuit alleges. The complaint claims those proceeds are now paying for Bankman-Fried’s criminal defense bills.
A representative for Bankman-Fried declined to comment.
Bankman-Fried was indicted on fraud and bribery charges as well as campaign finance violations after FTX filed for bankruptcy late last year. His exchange, once valued at $32 billion, collapsed almost overnight after liquidity dried up and customers demanded withdrawals that the company couldn’t meet.
Bankman-Fried pleaded not guilty. His trial is expected to begin later this year.
Lawyers for FTX have been in search of the company’s remaining assets in an effort to recover as much money as possible for creditors.

FTX and Alameda executives Caroline Ellison, Gary Wang, and Nishad Singh are co-defendants in the case, alongside Bankman-Fried.
WATCH: Taylor Swift agreed to FTX partnership, but the crypto exchange bailed More

A CSX freight train is seen in Orlando, Florida.
Paul Hennessy | Lightrocket | Getty Images

Check out the companies making headlines in after-hours trading.
CSX — The transportation company dropped 5% after missing Wall Street expectations for revenue in the second quarter, coming in at $3.7 billion against a $3.74 billion estimate from analysts polled by Refinitiv. Earnings per share for the quarter were in line with expectations at 49 cents.

Capital One — The financial stock was near flat following a mixed earnings report. The company posted adjusted earnings of $3.52 per share on revenue of $9.01 billion for the second quarter. Analysts polled by Refinitiv were anticipating $3.23 per share on revenue of $9.12 billion. Total deposits decreased 2% at the end of the period, while average deposits grew 1%.
PPG Industries — Shares slid 2.2% despite the paints manufacturer posting a strong quarterly financial report. The company reported $2.25 in earnings per share excluding items on $4.87 billion in revenue, while analysts polled by FactSet forecast earnings of $2.14 per share and $4.84 billion. The company also raised current-quarter and full-year earnings expectations.
Intuitive Surgical — The health-care stock dropped 4.7% after posting systems unit revenue that came in lighter than anticipated. Systems revenue was $392.7 million, compared with analysts’ estimates of $415.9 million, according to FactSet. Overall, the company beat Wall Street expectations in its second quarter. Intuitive posted adjusted earnings of $1.42 per share and $1.76 billion in revenue, beating expectations of $1.33 in earnings per share on $1.74 billion in revenue, according to consensus estimates from Refinitiv.
Knight-Swift Transportation — The transportation company tumbled 3% after missing analysts’ consensus estimates on earnings in the second quarter and giving weak guidance. Knight-Swift reported adjusted earnings of 49 cents per share and $1.55 billion in revenue. Analysts were expecting 55 cents in earnings per share and a quarterly revenue of $1.60 billion, according to Refinitiv. The company also lowered its full-year earnings guidance to a range that falls short of what analysts estimated. Management said soft demand and modest increases in driver turnover hurt volume and utilization. Werner Enterprises, another transportation stock, fell 2.7%.
Scholastic — The publisher advanced 8% after beating expectations for earnings per share and announcing it would increase its share repurchase amount by $100 million. Scholastic reported $2.26 earned per share, higher than the forecast of $1.70 from the one analyst FactSet surveyed. But revenue came in at $428.3 million despite the analyst anticipating $541.8 million.
— CNBC’s Darla Mercado contributed reporting. More

The U.S. Federal Reserve Building in Washington, D.C.
Win Mcnamee | Reuters

The Federal Reserve launched its FedNow instant-payments service Thursday, following several years of developing a system officials say will allow the faster flow of cash for businesses and individuals.
Whether it’s providing instant access to paychecks, allowing for last-minute bill payments or sending government payments out to individuals, the system is expected to improve the flow of money through the U.S. economy.

“The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient,” Fed Chair Jerome Powell said. “Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling a person to immediately receive a paycheck, or a company to instantly access funds when an invoice is paid.”
So far, 35 early adopters, including JPMorgan Chase and Wells Fargo, two of the four largest banks in the U.S., have signed up.
There are an additional 16 institutions providing services for banks and credit unions.
The American Bankers Association said it welcomes the FedNow developments, noting that the central bank joins the Clearing House, which put its payments service online in 2017, as two major providers in the space.
“We will continue to educate our members on the two systems and the benefits they offer consumers and businesses,” ABA president and CEO Rob Nichols said.

There are still some outstanding questions about FedNow, such as whether banks will charge for the service.
The central bank expects that as the system is developed further, it will be integrated into the apps and websites of banks and credit unions.
As FedNow goes online, Fed officials are studying the implementation of a central bank digital currency, with some saying they think FedNow could mitigate the need for a CBDC. More

Johnson & Johnson Covid-19 vaccines are seen on a table in Los Angeles, May 7, 2021.
Frederic J. Brown | AFP | Getty Images

Check out the companies making headlines in midday trading.
Netflix — Netflix dropped more than 8% after reporting mixed quarterly results Wednesday. The streaming giant beat on earnings per share for the second quarter, but its revenue of $8.19 billion fell short of the $8.30 billion expected from analysts polled by Refinitiv.

Tesla — Tesla shares tanked more than 9%. The electric-vehicle maker topped Wall Street’s top-and-bottom line expectations but showed a drop in operating margins due to recent price cuts and incentives.
American Airlines — The airline shed more than 6% even after posting strong quarterly results and lifting its profit outlook for 2023. American Airlines reported adjusted earnings of $1.92 a share on $14.06 billion in revenue. Analysts had expected earnings per share of $1.59 on revenue of $13.74 billion.
IBM — The tech stock climbed more than 2% after the company reported earnings in the second quarter that topped analysts’ estimates as the company expanded its gross margin. However, IBM did post a revenue miss, caused partly by a slump in the infrastructure division.  
Johnson & Johnson — The stock jumped 6%, lifting the 30-stock Dow Jones Industrial Average, after Johnson & Johnson posted second-quarter revenue and adjusted earnings that topped Wall Street’s expectations. Johnson & Johnson also lifted its full-year guidance as sales from the company’s medtech business jumped.
Abbott Laboratories — Shares of the health-care products company rose 4.2% after Abbott beat estimates on the top and bottom lines for the second quarter. The company reported $1.08 in adjusted earnings per share on $9.98 billion of revenue. Analysts were looking for $1.05 per share on $9.70 billion of revenue, according to Refinitiv. The company’s sales did decrease more than 11% year over year as customers bought fewer Covid-19 tests.

Discover Financial Services — Shares tumbled 15.9% after the company’s second-quarter results missed analysts’ estimates on both top and bottom lines. The company also disclosed it is undergoing a probe from the Federal Deposit Insurance Corporation due to a “card product misclassification issue.” 
Zions Bancorporation — Shares of the regional bank jumped nearly 10% after its second-quarter earnings matched estimates. Zions posted $1.11 in earnings per share, in line with a Refinitiv forecast. The bank’s net interest income came below expectations. 
Travelers — The insurance company gained 1.8% following its second-quarter earnings announcement. Its adjusted earnings came in at 6 cents per share. Meanwhile, its revenue of $10.32 billion topped expectations of $10.02 billion.
Estée Lauder — The cosmetics giants’ shares dropped 4.5% after Barclays downgraded them to equal weight from overweight. The firm cited concerns of a muted China recovery and pressure on medium-term margins. 
Freeport-McMoRan — Shares gained 3% after the company announced its quarterly earnings Thursday morning. The mining company posted 35 cents in earnings per share on $5.74 billion in revenue. Analysts polled by StreetAccount had estimated 36 cents in earnings per share on $5.61 billion in revenue. 
Genuine Parts — The auto replacement parts company lost 7.6% after posting its second-quarter results. Although the company’s earnings and revenue beat analysts’ expectations, its revenue across its automotive and industrial segments missed Wall Street’s estimates.
MarketAxess — The electronic trading platform rose 2.2% after releasing its second-quarter results. While revenue and earnings per share came in higher than expected, its adjusted earnings were lower than analysts’ estimates.
Equifax — Shares plunged almost 9% on the back of the company’s quarterly earnings report announcement Wednesday after the bell. While earnings per share came above analysts’ estimates, revenue fell short of expectations.
— CNBC’s Yun Li, Jesse Pound, Samantha Subin and Michelle Fox contributed reporting. More

The Netflix logo is shown on one of their Hollywood buildings in Los Angeles, California, July 12, 2023.
Mike Blake | Reuters

Check out the companies making headlines before the bell.
Netflix — The streaming giant shed nearly 7% after reporting mixed quarterly results. Netflix posted earnings of $3.29 a share on $8.19 billion in revenue. Analysts surveyed by Refinitiv anticipated earnings o of $2.86 per share and $8.30 billion in revenue. Netflix also said it’s too early to break down revenue from its new ad-supported tier and password crackdown.

Tesla — Shares lost about 4% before the bell. The electric vehicle maker reported second-quarter earnings that topped Wall Street’s expectation on the top and bottom lines, and record quarterly revenue. Operating margins, however, fell to the lowest level in at least the past five quarters as a result of recent price cuts.
IBM — The tech stock dipped about 1% after the company reported a revenue miss for the second quarter, caused partly by a slump in the infrastructure division. However, IBM reported earnings that topped analysts’ estimates as the company expanded its gross margin. 
Johnson & Johnson – The pharmaceutical giant saw shares rise more than 1% after it posted better-than-expected earnings and hiked its full-year guidance after seeing a surge in sales in its medtech division, which provides devices for surgeries, orthopedics and vision. J&J posted adjusted earnings of $2.80 per share on revenue of $25.53 billion, beating the Refinitiv estimate of $2.62 per share on revenue of $24.62 billion.
Las Vegas Sands — The resort-and-casino stock fell 2% despite beating analyst expectations for its second quarter. Las Vegas Sands posted 46 cents in adjusted earnings per share on $2.54 billion in quarterly revenue, while analysts polled by Refinitiv forecasted 46 cents in earnings per share and revenue at $2.39 billion.
Taiwan Semiconductor – Shares of the chipmaker slid more than 2% after the company posted its first profit drop in four years as demand for consumer electronics continued to slump. Taiwan Semi posted net income of 181.8 billion New Taiwan dollars, which was higher than the Refinitiv estimate of NT$172.55 billion. Revenue for the quarter beat expectations too.

Discover Financial — The financial services company shed more than 12% after reporting second-quarter results that fell short of Wall Street’s expectations on both the top and bottom lines. Discover Financial reported earnings of $3.54 a share on $3.88 billion in revenue. Analysts expected earnings of $3.67 per share on revenue of $3.89 billion.
United Airlines — Shares rose 3% after United Airlines reported record quarterly earnings and said it expects a strong third quarter as travel demand surges.
Zions Bancorp — The regional bank jumped more than 7% after posting second-quarter earnings. During the period, the company reported a rebound in customer deposits. Earnings came in line with analyst expectations at $1.11 a share.
American Airlines — The airline stock lost 1% even after posting second-quarter results that surpassed analyst expectations. American Airlines also lifted its profit forecast for the year amid the ongoing travel boom.
D.R. Horton — The homebuilding stock rose 4% as strong demand in new home construction helped it top quarterly expectations. D.R. Horton reported earnings of $3.90 per share on $9.73 billion in revenue. Analysts polled by Refinitiv expected earnings of $2.79 per share on revenue of $8.39 billion.
Blackstone — Blackstone lost 3% after second-quarter revenue fell short of expectations. The company reported earnings of 92 cents a share on $2.35 billion in revenue. Analysts polled by Refinitiv expected earnings per share of 92 cents and $2.43 billion in revenue.
Anheuser-Busch – Shares of the beleagured beermaker rose less than 1% in premarket trading after Morgan Stanley upgraded Anheuser-Busch to overweight. The stock presents a “very favourable risk reward” after a controversy around Bud Light caused shares to slide, according to Morgan Stanley.
— CNBC’s Tanaya Macheel, Alex Harring, Jesse Pound and Yun Li contributed reporting More

America’s financial plumbing is overdue a spot of maintenance. The current payment “rails” on which it is based—built by a group of the country’s biggest banks to replace paper cheques—are more than half a century old and run on antiquated code. Although robust, the system is painfully slow. American payments are less sophisticated than those in the rest of the rich world, and indeed those in much of the poor world, too.Listen to this story. Enjoy more audio and podcasts on More

America’s financial plumbing is overdue a spot of maintenance. The current payment “rails”—built by a group of the country’s biggest banks to replace paper cheques—are more than half a century old and run on antiquated code. Although robust, the system is painfully slow. American payments are less sophisticated than those in the rest of the rich world, and indeed those in much of the poor world, too.It is a problem the Federal Reserve is trying to fix with a centralised instant-payments system. Aptly called FedNow, this will soon allow Americans to ping money to their compatriots, via their existing financial institutions, and for payments to settle straight away. The Fed is gearing up for the launch of its new scheme in late July, with 41 banks and 15 payment providers all set to use the service once it goes live. At the moment, bank transfers are cheap but processed in batches, often taking days to settle. Peer-to-peer networks, like Cash App, appear much quicker to customers but, beneath the surface, rely on the old system. Regulators have warned that funds held on such apps might not qualify for deposit insurance in the event of a failure. Credit cards, which offer juicy rewards at the cost of even juicier fees, also use existing rails. According to the San Francisco Fed, nearly a third of payments last year were made using plastic.Typically, Americans use different methods for different types of payment: a water bill is paid via bank transfer; $100 owed to a friend is sent through a payment app; a purchase on Amazon is made with a credit card. A single, real-time payments solution could improve the quality of all.JPMorgan Chase and Wells Fargo, two heavyweight banks, have signed up to FedNow. But Wall Street is not entirely on board: a longer list of institutions, including Bank of America, Citigroup and Goldman Sachs, is absent. Although the current system is slow, it is also profitable for those involved. Financial institutions can take advantage of slow settlements to park cash in interest-bearing short-term securities overnight, or merely keep the money at the Fed to accrue interest. They also pocket late-payment fees and some make money from their own instant-payment systems, such as The Clearing House, which is run by a group of banks.Some observers, recalling the banking turmoil this spring, worry that FedNow might destabilise the financial system. A report by Moody’s, a credit-ratings agency, warns that the new scheme could make bank runs more likely by making it easier for depositors to flee. Such worries are likely to prove overblown, however. The current system, where weekends are closed for business, provided little relief to Silicon Valley Bank and others a few months ago. Moreover, since FedNow is a back-end system, participating institutions are able to set limits in line with their risk appetite. They can, for instance, cap payments or limit transactions. Other countries are also light years ahead of America—and do not appear more vulnerable to bank runs. In India, for example, instant payments are the norm, accounting for 81% of domestic electronic transactions last year (see chart). In Thailand and Brazil they accounted for 64% and 37% respectively. Emerging markets have embraced instant payments in part because of demography (consumers are younger and more open to change), in part because of a crackdown on cash (policymakers are keen to shrink the size of grey markets, and increase tax takes) and in part because, unlike in America, new payment systems did not have to push aside existing ones, and those who benefited from them.FedNow is unlikely to transform payments immediately. The scheme will only support “push” transfers—ones that consumers initiate themselves. By contrast, FedNow’s counterparts in Europe and India also have “pull” capabilities that businesses may use when given permission (which enable, say, regular payments for electricity). Fed officials claim to have no plans to extend the system for such uses, but bankers suspect it is the next step. Mass adoption will face one more hurdle: the American consumer, over whom paper-based payments retain a particular hold. According to aci Worldwide, a payments firm, around a fifth of all cash transfers in the country happen via cheque. Still, it will be nice for them to have the option, just like the rest of the world. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

“Don’t look for the needle in the haystack. Just buy the haystack!” So wrote Jack Bogle, who founded Vanguard Asset Management in 1975 and brought index investment to a mass market. Subsequent decades proved him right. “Passive” strategies that track market indices, rather than trying to beat them, now govern nearly a third of the assets managed by global mutual funds. Since a stockmarket index weighted by company size is just the average of underlying share owners’ performance, it is impossible for investors, in aggregate, to beat it. In the long run, even professional fund managers do not.Yet today’s haystack has grown unusually top-heavy. Since the start of the year, America’s seven biggest corporate behemoths—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—have left the rest of the stockmarket in the dust. Giddy on ai optimism, investors have raised these firms’ combined value by 69%, a much larger increase than that seen in broader indices. The “magnificent seven” now account for 29% of the market value of the s&p 500, and a whopping 61% of the Nasdaq 100, up from 20% and 53%, respectively, at the start of the year.That leaves index investors in a tight spot. On the one hand, owning shares that have done so blisteringly well that they dominate your portfolio is a nice problem to have. On the other, it is somewhat awkward. After all, part of the buy-the-haystack logic’s appeal lies in the risk-lowering benefits of diversification. Now, buying the Nasdaq 100 appears less like spreading your bets and more like placing them on a few hot companies whose prices have already soared. A supposedly passive investment strategy has come to feel uncomfortably similar to stock-picking.Nasdaq is therefore stepping in to alleviate the discomfort. As Cameron Lilja, who runs its indexing operations, notes, the Nasdaq 100 is a “modified market-capitalisation weighted” measure. This means the weights assigned to firms’ shares are usually in proportion to each company’s total market value, but that those of the biggest firms can be scaled back if they come to represent too much of the index.In particular, if the combined weight of shares that each account for more than 4.5% of the index exceeds 48%, as is now the case, Nasdaq’s methodology prescribes a “special rebalance” to cut this to 40%. This is designed, says Mr Lilja, to ensure funds tracking the index comply with regulatory diversification rules. And so on July 24th Nasdaq will reduce the sway of its seven biggest firms (and, conversely, increase that of the other 93 constituents).The result will be a more balanced index, but also some difficult questions about just how passive “passive investing” really is. The biggest fund tracking the Nasdaq 100, Invesco’s “qqq Trust”, invests more than $200bn (roughly the value of Netflix, the index’s 14th-largest firm). Following the rebalancing, it will need to quickly sell large volumes of shares in its biggest holdings and buy more in its smaller ones. It is hard to argue that such a move simply tracks the market rather than—at the margins, at least—influencing it.The need for rebalancing also highlights a criticism of index investing: that it is really a form of momentum play. Putting money into a fund that allocates it according to firms’ market value necessarily means buying more of the shares that have done well. Conversely, keeping money in such a fund means not taking profits from the outperformers, but continuing to hold them as they grow bigger. Even if chasing winners is often a lucrative strategy, it is not an entirely passive one.Meanwhile, as America’s stockmarket grows ever more concentrated, some spy an opportunity. On July 13th Invesco announced an “equal-weight” nasdaq 100 fund, investing 1% of its assets in each of the index’s constituents. This sort of strategy will mainly appeal to private investors, who, unlike professional fund managers, can afford to be “index agnostic”, says Chris Mellor, one of those overseeing the launch. This year, the outperformance of the biggest companies would have left investors lagging behind. But trends like this periodically reverse—as in 2022, when the giants plunged (see chart). Mr Mellor guesses that the new fund could garner perhaps a tenth of the assets of its mainstream counterpart. Its administrators, at least, will still be making hay. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More