Crypto crashed. Wall Street won.

How Wall Street’s Biggest Banks Circumvented the Crypto Crash

As Bitcoin prices have plummeted and cryptocurrency startups have failed, Wall Street’s biggest banks and their wealthiest clients have barely taken a hit. Some have even managed to cash in on the collapse. In the great cryptocurrency carnage of 2022, writes The Times’ Emily Flitter, Wall Street will win.

Unlike in the 2008 crisis, the fortunes of Wall Street and Main Street have diverged. Falling digital asset prices have left some retail investors with heavy losses. Lured by the promise of quick returns and astronomical wealth, many individuals bought new digital currencies or stakes in funds that contained these assets. That’s not the case for most banks, which typically don’t own crypto or operate funds that invest in it. Nor have they borrowed much into the emerging market for new money. That’s not to say the big banks are without problems: Rising interest rates and falling stock prices have limited the number of companies looking to do deals, leaving bankers on the sidelines. But when it comes to crypto, few see a risk of contagion – the chance of losses from digital money markets undermining banks.

Wall Street Banks wanted to get into cryptobut international regulators would not allow them. Last year, the Basel Committee on Banking Supervision, which helps set capital requirements for major banks around the world, proposed giving Bitcoin and other cryptocurrencies the highest possible risk weighting. If the banks wanted to put these assets on the balance sheet, they had to offset the risk with at least an equivalent value in cash.

US regulators also warned banks. It prevented Wall Street from participating in the bubble in the same way it did in the past – by providing loans so people could buy more houses or stocks, or by making it easier to buy and sell the rising asset.

But the suffering of some individuals who bought crypto still raises questions for regulators. Jacob Willette, a 40-year-old delivery driver in Mesa, Arizona, stashed all his savings in an account with crypto lender Celsius that promised high returns. As crypto prices began to slide, Willette looked for reassurance from Celsius executives that his money was safe, but got none as the company froze more than $8 billion in deposits. “I just don’t see how what they did is not illegal,” Willette said.

Black American investors are particularly hard hit due to higher exposure to digital assets, The Financial Times reports. A survey by Ariel Investments and Charles Schwab found that a quarter of black investors owned crypto investments at the start of the year, compared to 15 percent of white investors.

HERE’S WHAT HAPPENS

Police arrest a “person of interest” after a fatal shooting at a Fourth of July parade. Gunfire rained down from a rooftop at the parade in Highland Park, Illinois, killing six and wounding dozens. Celebrations were canceled across the region due to fears of more violence.

Airlines are canceling more than 1,400 US flights over the holiday weekend. Airlines struggled to keep up with more than seven million weekend travelers in the United States. Adding to the problems was a flaw in American Airlines’ scheduling system that allowed pilots to ditch flights. Southwest, American Airlines and United delayed more than a fifth of their flights on Saturday.

Germany has its first monthly trade deficit in 30 years. Exports have suffered as German companies raise prices to cope with a sharp rise in energy costs caused by Russia’s move to limit natural gas supplies and disrupted supply chains. It is the latest sign that Europe’s biggest economy is under stress.

The Biden administration is reportedly considering cutting federal home loan premiums. Industry officials are asking the Federal Housing Administration for cuts that would save borrowers $50 to $70 a month, according to The Wall Street Journal. The move comes as house prices are at record highs and inflation is exacerbating homelessness.

Nuclear power is getting a new push in the US With challenges in meeting clean energy goals and new electricity requirements, politicians in both parties are seeking to extend the life of nuclear reactors and build new ones. But critics of the nuclear industry say waste disposal remains a challenge and fixes for aging facilities are costly.

A twist in the Archegos saga

A former employee of Archegos, the investment firm that caused a brief market panic when it lost more than $10 billion in a few days last year, is suing the firm and its founder, Bill Hwang, plus five former executives for $550 million. The lawsuit was filed today in federal court in Manhattan.

The case against Archegos: Brendan Sullivan, a technology equity analyst who joined the firm in 2014 and resigned shortly after it exploded, said he lost $50 million, which was part of a $500 million deferred compensation plan that disappeared along with Archegos’ other assets then its highly leveraged options. strategy failed. The suit seeks to compel Hwang and others to cover the employees’ losses. Hwang was charged with fraud by federal prosecutors this year on suspicion of misleading lenders and market manipulation, and has pleaded not guilty to the lawsuit filed by authorities; last week, lawyers for Archegos filed motions to dismiss other lawsuits against the firm from the Commodity Futures Trading Commission and the SEC

Fund employees were told that the deferred salary scheme was guaranteed, it says in the suit, and that it was invested in highly liquid shares. Neither claim was true, according to the lawsuit. Also, it says, employees were forced to contribute at least 25 percent of their annual bonus to the plan, and declare how much they would defer before knowing the details of the bonus. “The message was crystal clear,” the suit claims. “No contribution. No bonus.”

“Hwang and these executives lied to their employees like they lied to the banks,” Sullivan’s attorney, Michael Bowe of Brown Rudnick, told DealBook. DealBook contacted an attorney for Hwang and a spokesman for Archegos, neither of whom immediately responded for comment.

The fund tried to dissuade employees from quitting, and casts doubt on deferred compensation payments if they did, the lawsuit states. Sullivan, who left anyway, has not received any money from the plan, but as recently as January of this year, the company continued to promise former employees that it would, according to a letter seen by DealBook that Archegos sent to former employees.

Archegos was run as a “cult”, says the suit. Job interviews “revolved around religion and an inquiry into the candidate’s religious upbringing,” according to the lawsuit. During performance reviews, it says, Hwang, who is a Christian, asked employees to “devote more time to their faith.” At company retreats, employees were praised for publicly declaring gratitude to “God, Hwang and Archegos,” according to the lawsuit.

“Liberals or even most moderates never listen to it, they don’t notice it, they don’t see it, they don’t hear it. So you don’t know it exists, you don’t know how widespread and how powerful it really is .”

— Lewis A. Friedland, a professor who studies radio at the University of Wisconsin-Madison, at how heavily conservative radio promotes allegations of election fraudarouses distrust in the results of the coming interim periods.

The outlook for the company’s results remains free of decline

If a recession is coming, someone forgot to tell the stock market analysts. Wall Street analysts, a normally optimistic bunch, seem far more optimistic than investors as a whole.

Companies begin reporting second-quarter results next week. At least for now, analysts don’t even expect the start of an earnings recession, which is when corporate profits fall for at least two consecutive quarters, according to a recent report from FactSet Research. Analysts expect companies in the S&P 500 to report profits in the second quarter that are 4 percent higher on average than in the same period a year ago. For all of 2022, analysts believe the average bottom line at S&P 500 companies will rise just over 10 percent.

Analysts lowered expectations for earnings in the quarter, but only slightly. Economists, on the other hand, have struggled to lower their expectations in recent months. Last week, JPMorgan Chase’s top economists more than halved their forecast for USBNP growth in the second quarter, to just 1 percent, down from 2.5 percent. Combine that with labor shortages and inflation, both of which drive up costs, and you’d expect analysts to be much more pessimistic. For now, most of them seem to believe that companies will be able to absorb higher costs by raising prices. At some point, however, these expectations of continued double-digit earnings growth, at least for the year, could set investors up for disappointment.

Amazon and Target have seen their expected revenue growth fall the most. In May, Target reported that many of the items on its shelves were not selling as quickly as expected. In general, retailers have seen the biggest drop in expectations of any sector. The profit for so-called consumer shares is expected to fall by just over 9 per cent during the quarter. Consumers closing their wallets is not a good sign for the economy. But does that mean we are heading into a recession? At least for now, Wall Street analysts are still saying no.

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