Finance

IF ECONOMIES WERE measured by their natural capital, as well as the physical and human sort, Belize would be a richer country than it is. What the tiny Caribbean state lacks in cold, hard cash, it makes up for in warm, tropical biodiversity. The Belize Barrier Reef, the second largest expanse of coral in the world, is packed with turtles, manatees and other threatened species. Holidaymakers flock to its coast to dive, snorkel or simply gaze at its waters from the comfort of a hammock. Or at least they did before the pandemic. Last year tourism dried up, growth contracted sharply and public debt jumped from just under 100% of GDP in 2019 to over 125%.That forced Belize, not for the first time, into a debt restructuring—one in which it is seeking to exchange one sort of riches for another. As part of the deal, concluded on November 5th, Belize bought back its only international bond, a $553m liability misnamed the “superbond”, at 55 cents on the dollar. It funded that with $364m of fresh money, arranged by The Nature Conservancy (TNC), an NGO, which is insured by the International Development Finance Corp, an American agency. The transaction is backed by the proceeds of a “blue bond” arranged by Credit Suisse, a bank. The payback is due over 19 years with a coupon that begins below that of the superbond but rises above it over time.It is called a blue bond because Belize has pledged to invest a large chunk of the savings into looking after the ocean. That includes funding a $23m endowment to support future marine-conservation projects and promising to protect 30% of its waters by 2026.It might be argued that Belize should do this anyway to support tourism, which accounts for 40% of economic activity. But at a time when governments and investors are looking at novel ways of funding environmental clean-ups, Belize was able to use its natural patrimony to gain leverage over bondholders. Whether it will be enough to stop it defaulting again in the future is another matter.Debt-for-nature swaps are nothing new. Lenders have been offering highly indebted countries concessions in return for environmental commitments for decades. But these transactions have historically involved debt owed to rich countries, not commercial bondholders. As Lee Buchheit, a lawyer who specialises in sovereign-debt restructurings, points out, they were “negligible in size”. In total, the value of debt-for-climate and nature-swap agreements between 1985 and 2015 came to just $2.6bn, according to the United Nations Development Programme. Of the 39 debtor nations that benefited from the swaps, only 12 negotiated debts of over $30m. “It was really an exercise in public relations,” Mr Buchheit says.A lot has changed since then. Governments are now under immense pressure to make ambitious commitments on climate change and biodiversity. And investors are eager to show they can make money as well as being committed to environmental, social and governance goals.Other poor countries are trying to move in the same direction. At the COP26 climate summit in Glasgow Ecuador’s president Guillermo Lasso proposed enlarging the country’s Galapagos nature reserve through a debt-for-nature swap. And TNC is in talks with other poor countries interested in doing something similar. Once a blueprint is in place, agreement gets simpler. The last restructuring of the same sort that it took part in, which involved $21.6m of debt owed by the Seychelles to the Paris Club of creditors, took four years to thrash out. Negotiations in Belize lasted a year and a half.Yet no amount of creative dealmaking can distract from the grim truth: many emerging markets still suffer from crushing debts. The pandemic has pushed half of the world’s poorest countries into debt distress or heightened the vulnerability to it. And debt-for-nature swaps only help at the margin. Last week’s restructuring reduced Belize’s external debt by $250m, or 12% of GDP. The success is for coral reefs more than debt relief. ■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 “Reef relief” More

THE HONG KONG office of FTX, a cryptocurrency exchange, is a place where basic needs come second to business. Food and booze lie around desks fitted with six screens each. Sam Bankman-Fried, its boss, says he sleeps four hours a night on a bean bag next to his desk—if he’s lucky. He sees little difference between breakfast and dinner, apart from “which restaurants are open for delivery”.His restlessness mirrors that of crypto markets, which never sleep. But it also reflects the speed at which the two-year-old firm is growing. Last month FTX announced a $420m funding round that valued it at $25bn, just three months after investors gave it a price tag of $18bn. The deal featured the crème de la crème of the investment universe, including BlackRock, the world’s largest money manager, OTPP, a $170bn Canadian pension fund, and Temasek, a sovereign fund from Singapore.FTX’s funding feast is symptomatic of investors’ growing appetite for crypto startups, especially those that are creating the tools to build a blockchain-based future. In the first nine months of 2021 they raised $15bn in venture capital (VC), five times their tally for the whole of 2020. In the third quarter 12 crypto unicorns—startups valued at $1bn or more—were born, a record. The heady times remind some venture capitalists of the dotcom era. But they’re not sure whether they are partying like it’s 1994—or 1999.One trigger for the capital flows is the rising demand for digital monies from retail speculators. That is influencing VCs to back crypto wallets and exchanges. Investors are also betting that, as regulation becomes clearer, institutions will take it more seriously, stirring demand for crypto tax advisers, analytics firms and asset custodians, says Matt Burton of QED, a VC firm. Red-hot indicators such as the bitcoin price, which flirted with a record $69,000 this week, are turbocharging excitement.The industry’s boundaries are expanding, too. Blockchain startups are promoting new forms of financial services (decentralised finance), digital ownership (non-fungible tokens, or NFTs) or incentive models (as in gaming, where users can earn crypto as they play). NFT ventures have raised $2bn so far this year, up from $31m in 2020. Four-fifths of VC deals have been early-stage rounds.Most intriguing is the entry of new investors. Successful crypto firms are reinvesting cash into younger ones. The most prolific is Coinbase Ventures, the investment arm of America’s largest crypto exchange, which sealed 24 deals in the past quarter. On November 5th FTX and other firms launched a $100m gaming fund.Deep-pocketed investors from mainstream finance are also pitching in. They include well-known venture funds, such as Andreessen Horowitz, an early backer of Facebook and Skype. SoftBank, a trigger-happy Japanese group, made six crypto deals in the past quarter. They also feature some hedge funds and asset managers. Such investors helped complete 15 rounds of more than $100m in the last three months. Together these accounted for two-thirds of total VC money spent.Shan Aggarwal, who runs Coinbase Ventures, says the craze recalls the dotcom boom of the 1990s, when investors rushed to back the firms that would form the foundations of the web economy. In one respect the current era is even more impressive: while the internet bubble was mostly nurtured in Silicon Valley, the “bitcom” boom spans Asia ($1.4bn raised this quarter) and Europe ($1.1bn) in addition to America ($3bn). Crypto unicorns are cantering ahead in Africa and Latin America, too.Whether it will produce successes like today’s tech giants is still an open question, though. It’s early days. The bounty garnered by crypto firms in 2021 amounts to 16% of the sum raised by fintech firms and 3% of that raised by startups at large. Big deals have buoyed the average size of investment rounds to $21m, triple the level of 2020, but the median, at $4m, is small.Some valuations look silly: in September Sorare, a fantasy-football game played on the blockchain, closed a $680m round that valued it at $4.2bn, or 22 times sales—more than Facebook’s multiple when it did its initial public offering. All of which suggests that some investors will make out like bandits, while others will get their fingers burned. For good or ill, more sleepless nights beckon. ■This article appeared in the Finance & economics section of the print edition under the headline “The bitcom boom” More

THE TIMING was apt. On November 2nd, just two days after Americans celebrated their scariest annual holiday, news of a suspicious death shocked the stockmarket. Zillow, a giant property and technology firm, said it would shut down its huge instant-buying, or i-buying, business, which uses big data and algorithms to make offers on homes in dozens of cities in America and then swiftly sells them on. The firm expects to lose in excess of $500m in the second half of 2021 after it overpaid for thousands of homes. It will lay off a quarter of its 8,000 employees. It seemed like a business that should be in rude health. By and large it has been a fantastic time to buy a home almost anywhere in America—if you can only snag one: house prices have climbed between 16% and 25% during the past 18 months. So why is Zillow’s i-buying business in the morgue? And whodunnit?Finding the right suspect matters for reasons bigger than the fate of Zillow itself. The i-buying business is one of many examples of firms using a platform to collect big data, analyse it using advanced techniques and empower their algorithms to enable a market to work more smoothly. This trend has pushed down transaction costs in many asset markets, from stocks and bonds to camera equipment and clothing. The fate of Zillow’s i-buying business might indicate that using technology to buy and sell something as idiosyncratic as a house is a flip too far.Consider the most serious suspect first: the housing market. It has been in an unusual state of flux. At first the covid-19 pandemic caused a freeze in all property transactions. Then prices went berserk, rising at record levels year on year in April. Undoubtedly, volatile prices do no favours to algorithms trained on historical data. Still, in theory rising prices should help i-buyers by making it harder to sell a house for less than was paid for it. The reverse, falling prices, could be a more likely culprit but as yet the data are mixed. A house-price index compiled by the National Association of Realtors (NAR) finds that values peaked in June 2021, at 19% above pre-pandemic levels, and have since dropped by 2.8 percentage points. Another by S&P CoreLogic Case-Shiller suggests prices are still galloping ahead. Both are published with a lag (the NAR runs to the end of September, Case-Shiller to the end of August), which means the evidence is inconclusive.The next suspect is the mathematical models. A handful of firms offer i-buying services, the first and biggest of which is Opendoor, founded in 2014. They charge a fee for the services they provide: buying and selling homes immediately, with zero fuss. The quick in-and-out makes them more like marketmakers than property investors, who buy to hold. To succeed, i-buying firms need two critical pieces of information: the current value of a home and a forecast of the price at sale time, typically two to three months in the future. To figure these out they need troves of data, ranging from the precise location of a home, to how many rooms it has, to whether it has a pool or not. They compare these with the closest comparable homes that have sold recently and look at recent trends to make a forecast. That enables them to make an “instant” offer to a homeowner. In the past the algorithms appear to have worked pretty well. Mike DelPrete, of the University of Colorado, found they offered homeowners about 1.4% below market value—not a bad outcome for a quick, hassle-free sale.Zillow’s boss, Rich Barton, said the big problem was with the firm’s forecasts. He claimed it had found itself unable to predict prices three-to-six months into the future. In particular Zillow seems to have projected much rosier conditions than materialised. In Phoenix, where house-price appreciation has been particularly rapid but seems to be slowing, Zillow is listing homes for an average of 6.2% less than it paid for them.This problem is exacerbated by the fickle economics of adverse selection. Even if the algorithms of i-buying firms are excellent at pricing homes at a fair value on average, they only need to be a little off for the risk to skew to the downside. Homeowners will probably not sell their home for much less than they think it is worth, but they will happily settle for a higher-than-expected price. Mr Barton revealed in a shareholder letter on November 3rd that “higher-than anticipated conversion rates” were part of the problem. One former Zillow employee has claimed that the company wanted around 50% of homeowners who sought an offer to take it, but as many as 74% of offers made in recent months were taken up. Zillow bought almost 10,000 homes in the third quarter, more than double the amount from the prior three-month period, which itself was more than double the amount in the first quarter. The suspicion is that Zillow’s algorithm was making overly generous offers, and homeowners were rushing to take advantage.This may have been a Zillow problem, not an i-buyer one, however. Some of Zillow’s competitors seemed to realise before Zillow that the market was losing steam. OpenDoor and Offerpad, an i-buyer founded in 2015, both began making more conservative offers relative to their models’ valuation around July as price appreciation began to cool. When they reported their earnings on November 10th neither Opendoor nor Offerpad exhibited anything like the problems suffered by Zillow.Inside jobPerhaps the fatal blow was, in fact, self-inflicted. Zillow expanded its i-buying business aggressively. Opendoor expanded gradually. It offered i-buying services in only six markets after three years, taking its time to refine its algorithms. It is now operational in 44 markets. Zillow added almost as many markets in half as much time. A former Zillow employee told Business Insider that management had been hellbent on catching up with Opendoor, the front-runner. In order to compete, the employee alleged, the company pushed to offer generous deals to potential clients. It called this “Project Ketchup”. Now it has its own fake blood on its hands. ■This article appeared in the Finance & economics section of the print edition under the headline “Home-icide” More

Check out the companies making headlines before the bell:
Tesla (TSLA) — Shares of Tesla got a roughly 2% boost after CEO Elon Musk sold about $5 billion worth of shares this week, according to financial filings submitted Wednesday. He still holds more than 166 million shares.

Rivian (RIVN) — Electric vehicle maker Rivian’s shares rose more than 6% in early morning trading after the company made its trading debut on the Nasdaq Wednesday. The IPO pulled other EV stocks up with Rivian. Nio and Fisker shares gained about 2%.
Beyond Meat (BYND) — The alternative meat company’s shares tumbled almost 20% after reporting a wider-than-expected loss of 87 cents per share for the third quarter, compared with expectations of 39 cents per share loss. It also missed revenue estimates, bringing in $106.4 million versus the $109.2 million forecasted by Wall Street.
SoFi (SOFI) — Digital bank SoFi’s shares jumped 13% after reporting better-than-expected quarterly results Wednesday evening. SoFi reported a loss of 5 cents per share, compared to analysts’ estimates for a loss of 9 cents per share, according to Refinitiv.
Affirm (AFRM) — Buy-now-pay-later darling Affirm’s shares rallied 25% in early trading after announcing an expansion of its partnership with Amazon and reported a quarterly revenue beat, recording $269.4 million versus estimates of $248.2 million. Affirm also reported a quarterly loss, according to Refinitiv.
Marqeta (MQ) — Shares of Marqeta, the card-issuing platform behind buy now pay later brands like Affirm and Klarna, jumped 11% after reporting strong quarterly results and a 60% increase in processing volume from the previous year.

The Honest Company (HNST) — Shares of the cosmetics company increased about 8% after announcing quarterly earnings that came were in line with expectations and revenue that topped Wall Street’s forecasts, according to Refinitiv.
Walt Disney (DIS) — Disney shares fell nearly 5% in early morning trading Thursday after missing top and bottom-line estimates for its third-quarter results. The media giant reported a profit of 37 cents per share on revenue of $18.53 billion, compared with analyst estimates of 51 cents per share on revenue of $18.79 billion, according to Refinitiv. Subscriptions for Disney+ also feel short of estimates.
Bumble (BMBL) — Shares of the dating app fell nearly 9% after reporting a loss of 6 cents per share, 6 cents below analyst estimates, according to Refinitiv. Revenue, however, came in better than expected.

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A major Wall Street firm is piling into stocks near record highs.
Wilmington Trust’s Meghan Shue reveals her firm has one of its largest stock market overweights ever.

Shue, who oversees $152 billion in assets, attributes a strong economic backdrop and seasonal tailwinds for the bullish move.
“The near-term disruptions and the near-term concerns over inflation and supply chain disruptions could create some real opportunities,” the firm’s head of investment strategy told CNBC’s “Trading Nation” on Wednesday. “We see this supply chain disruption as delaying not destroying the demand from consumers and businesses alike. And, we think that will be a tailwind particularly as companies restock shelves and rebuild very, very low levels of inventories.”
Shue also expects stocks will benefit from strong capital spending.
“Capex has rebounded to pre-pandemic levels quite quickly. But we still see a lot of demand and interest from companies to spend,” said Shue. “Companies are going to resort to capex to diversify their supply chains as well as to accommodate some of these labor [shortfall] issues.”
According to Shue, the biggest winners should be U.S. small caps, developed international and emerging markets versus U.S. large caps, which appear a little frothy.

On Wednesday, the S&P 500, Dow and tech-heavy Nasdaq closed lower after October consumer prices surged to more than three decade high. The S&P 500 and Dow are less than 2% from record highs. The Nasdaq is 2.7% away.
Shue, a CNBC contributor, views weakness as an opening to buy even more stocks.
“There’s an opportunity to potentially increase our equity exposure,” said Shue, who believes inflation is transitory.
It’s key reason why she cut the firm’s overweight exposure to commodities two weeks ago.
“We’ve been overweight to commodities for the better part of this year, and it’s been a great trade,” she noted. “We felt like the time was right to sell into that strength and trim that exposure a little bit.”
Shue was using commodities as a hedge against inflationary risks.

‘Commodities could really get hurt’

“Commodities do very well when inflation is increasing,” said Shue. “But if we just remain at these elevated levels or even decrease from here, commodities could really get hurt.”
For now, Shue is sitting on profits made from the commodities sale. Her plan is take advantage of market choppiness. She lists persisting supply chain backlogs and Federal Reserve rate hike jitters as chief catalysts that could drive volatility.
“We’re holding slightly elevated levels of what we would refer to as tactical cash,” Shue said. “We do really hope to deploy that in the coming months as we see opportunities.”
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A trader works on the floor of the New York Stock Exchange (NYSE) November 8, 2021.
Brendan McDermid | Reuters

U.S. stock futures were steady in overnight trading on Wednesday following a tech-driven sell-off on Wall Street.
Dow futures fell just 25 points. S&P 500 futures were flat and Nasdaq 100 futures rose 0.02%.

Disney shares fell 4% in after-hours trading after the media giant missed on the top and bottom lines of its quarterly results. Disney+ subscribers also came in short of estimates.
The major averages dipped on Wednesday after a hot inflation report pushed up bond yields. The rise in yields especially pressured growth pockets of the market.
The Dow Jones Industrial Average lost 240 points, dragged down by roughly 3% losses in Salesforce and Nike. The S&P 500 fell 0.8%. The Nasdaq Composite was the relative underperformer, dipping 1.7% as Facebook-parent Meta Platforms, Amazon, Apple, Netflix, Microsoft and Google-parent Alphabet all closed lower.
The small-cap benchmark Russell 2000 dropped 1.6% on Wednesday.

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Persistent inflation data was released on Wednesday. The consumer price index, which is a basket of products ranging from gasoline and health care to groceries and rents, rose 6.2% in October from a year ago, hitting its highest level in three decades. On a monthly basis, the CPI increased 0.9% against the 0.6% estimate. 

“Inflation remains stubbornly high, to the surprise of many that expected prices to come back to earth sooner,” said Ryan Detrick, chief market strategist for LPL Financial. “The truth is you can’t shut down a $20 trillion economy and not feel some bumps as it restarts, but we are hopeful the supply chain issues will resolve over the coming quarters and inflation should calm down as well.”
Following the CPI data, traders moved up their expectations for when the first Fed rate hike would occur. The Fed funds futures market now sees greater odds of the central bank’s first full rate hike coming in July 2022.
Investors also took refuge in inflation hedges on Wednesday, like gold and bitcoin.

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The New York Stock Exchange welcomes The Walt Disney Company (NYSE: DIS), on Tuesday, May 4, 2021, in honor of Star Wars Day.
Source: NYSE

Check out the companies making headlines after the bell:
Disney — Shares of the media giant dropped more than 4% in after hours trading after missing on the top and bottom lines of its quarterly results. Disney reported earnings of 37 cents per share on revenue of $18.53 billion. Wall Street expected earnings of 51 cents per share on revenue of $18.79 billion, according to Refinitiv. Disney+ subs also came in short of estimates at 118.1 million, compared to the forecast of 125.4 million.

Beyond Meat — Shares of the alternative meat company tanked 13% in extended trading after reporting a wider-than-expected quarterly loss. Beyond Meat reported a GAAP loss of 87 cents per share, lower than the expected loss of 39 cents per share, according to Refinitiv. The company made $106.4 million in revenue, missing estimates of $109.2 million. The company’s fourth-quarter outlook also fell short of Wall Street’s expectations.
Affirm Holdings — Shares of Affirm, the digital “buy now, pay later” company, soared more than 21% in after-hours trading on Wednesday, after the company said it would expand its partnership with Amazon. Affirm made $269.4 million in revenue, topping estimates of $248.2 million, according to Refinitiv. The company reported a loss of $1.13 per share.
AMC Entertainment — Shares of the movie theater chain ticked 3% lower in after hours trading on news that AMC Entertainment CEO dam Aron sold $25 million in shares on Tuesday.
Bumble — Shares of the dating app stock fell 8% lower in extended trading after reporting a loss of 6 cents per share, 6 cents below analyst estimates, according to Refinitiv. Revenue, however, came is better-than-expected.
Honest Company — Shares of the cosmetics company Honest jumped 6% in after hours trading following its quarterly results. Earnings came in in line with expectations and revenue topped Wall Street’s forecasts, according to Refinitiv.
Sofi — Shares of Sofi rallied 14% in after hours trading after reporting better-than-expected earnings. The fintech company reported a loss of 5 cents per share, topping estimates by 9 cents, according to Refinitiv.

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McKinsey partner Puneet Dikshit, 40, exploited information about his client Goldman Sachs’ pending takeover to buy profitable call options in GreenSky, a complaint unsealed Wednesday in federal court said.
Dikshit was fired by McKinsey and faces two counts of securities fraud, each with a maximum sentence of 20 years in prison.
CNBC was the first to report, in September, that suspicious trades were made in GreenSky options in the weeks ahead of the deal.
It’s likely that others besides Dikshit had access to deal information and traded off it, people with knowledge of the situation said.

Puneet Dikshit
Elizabeth Williams

A McKinsey partner was arrested Wednesday after being criminally charged with insider trading ahead of Goldman Sachs’ recent $2.2 billion acquisition of fintech lender GreenSky.
A complaint unsealed Wednesday in federal court alleged that Puneet Dikshit, 40, exploited information he gained about his client Goldman Sachs’ pending takeover to buy profitable call options in GreenSky.

Dikshit, who had a lead role advising Goldman on the deal, dabbled with purchasing small amounts of options in the months ahead of the transaction, authorities alleged. After learning that a deal was imminent, however, Dikshit bought about 2,500 call options in the two days before the Sept. 15 announcement, according to the complaint. He ultimately netted about $450,000 through trades made in accounts at an unnamed commission-free brokerage, the U.S. alleged.
It’s the latest example of a highly compensated professional allegedly succumbing to the temptation to trade off material nonpublic information. Former McKinsey CEO Rajat Gupta was convicted of insider trading in 2012 and spent two years in prison. Partners at the consultancy can make more than $1 million in total annual compensation, according to recruiters.
While Dikshit may be the most high-profile person ensnared in the GreenSky episode, it’s likely that others had access to deal information and traded off it, according to people with knowledge of the situation. CNBC was the first to report, in September, that suspicious trades were made in GreenSky options in the weeks ahead of the deal.
Dikshit faces two counts of securities fraud, each with a maximum sentence of 20 years in prison, the Department of Justice said Wednesday in a release.
McKinsey fired Dikshit from his job, the company said.

“We have terminated the employment of a partner for a gross violation of our policies and code of conduct,” McKinsey said in a statement provided to CNBC. “We have zero tolerance for the appalling behavior described in the complaint, and we will continue cooperating with the authorities.”
Goldman said it was “deeply disappointed by the insider trading allegations” and is also cooperating with the investigation, a spokesperson said.
Dikshit’s lawyers at Kramer Levin didn’t immediately respond to requests for comment.
Despite Dikshit being a senior advisor on financial transactions, his browser history on McKinsey computers indicates he had basic questions as he researched his trades, authorities alleged.
On Sept. 14, according to the complaint, Dikshit Googled “what happens to options when company is acquired.”
The complaint said that Dikshit failed to get preapproval for the GreenSky trades but that in late September, after CNBC publicized the suspicious activity, he attempted to get his trades retroactively approved.
The final Google search listed in the complaint: In early October, Dikshit ran searches related to Gupta’s insider trading conviction.
This story is developing. Please check back for updates.
— CNBC’s Jim Forkin and Dan Mangan contributed to this report.

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