It's not every day a judge cuts a CEO's pay. Then again there aren't that many CEOs earning Elon Musk's level of dough.
This week, a federal judge voided the $56 billion pay package that Musk was due to receive as CEO of Tesla after a shareholder challenged it as excessive. In the ruling, the judge chastised the board of directors for ultimately passing on its responsibility to prove "that the compensation plan was fair" — or even negotiating with Musk at all in the first place. With his pay package now in limbo, Musk's net worth could drop to around $154 billion, which would see him tumble down the billionaire leaderboard all the way to — gulp — third place. Duck! He's tweeting now!
FINANCE
US Treasury Preps for Massive Bond Auction
The Fed needs to offload some merch.
On Wednesday, the US Treasury announced it would increase the size of upcoming bond auctions to unusually high levels, including a $70 billion five-year bond sale in April that will mark the biggest sale ever for debt with a maturity of two years or more. The news comes just as the Federal Reserve told the world to hold its horses and bronze bull memes – interest-rate cuts may not be as fast and furious as some may think.
Going Once, Going Twice
The federal government has increased its borrowing through the past few quarters, adding to the ever-larger disparity between spending and tax revenue. So far in fiscal 2024, the government has spent about $510 billion more than it has collected, and, at the end of 2023, the overall federal deficit sat at $1.7 trillion. To offset that gap, the US Treasury has stepped up its quarterly bond sales, with this upcoming quarter marking the third such boost in a row. The auction sizes for two-year and five-year notes are increasing by $3 billion each per month, the same pace of increase seen last quarter — though now bringing both categories to record highs. The Treasury did note that it expects this to be the last increase in auction sizes this year, likely soothing concerns of oversupply.
Complicating matters slightly has been the Fed, whose interest rate hikes ballooned debt interest costs. And while many an optimistic trader has started pricing in rate cuts sooner rather than later, Jerome Powell & Co. spent Wednesday bluntly telling everyone it's more a matter of later than sooner:
Wednesday's unanimous decision marks the fourth straight Fed meeting in which the rate-setters opted to keep the benchmark federal funds target between 5.25% and 5.5%, with the central bank urging that it needs "more confidence" inflation is falling to its 2% target before rate slashing can begin.
While most still see up to 75 basis points worth of cuts throughout this year, it now seems unlikely those cuts will begin at the next Fed meeting in March. A statement from the Fed Wednesday did, however, confirm that the group is much more likely to cut rates next than raise them again.
America Decides: The confluence of news helped treasuries continue their rally on the market, though some see a considerable shakeup to the government debt market on the horizon — not from the Fed rate, but the upcoming election. "Supply dynamics are set to increasingly appear on investors' radar in the lead up to the US election, not least because of the deficit increase on the back of [presidential hopeful Donald] Trump's plans to take the corporate tax rate from 21% to 15%," Mike Riddell, a bond fund portfolio manager at Allianz Global Investors, told the Financial Times.
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Can't they just settle this with a cage fight the way they do in Big Tech?
Universal Music Group, one of the world's biggest music labels whose artists include Taylor Swift, Drake, and Adele, released an extraordinary public statement saying it couldn't reach a licensing agreement with TikTok, even accusing the social-media platform of trying to "bully" UMG into a worse deal. TikTok released a similarly feisty statement accusing UMG of putting "their own greed above the interests of their artists and songwriters." How long until the official diss track is released?
Universally Loved
Music has been a big part of TikTok's success, starting with the larval stage of its lifecycle. TikTok's parent company ByteDance in part forged TikTok out of a lip-syncing app called Musically, which ByteDance acquired in 2017. But while TikTok grew, UMG faced a world where new tech services were quickly eroding the value of licensed songs.
UMG said it has pressed TikTok on three issues: artist compensation, the effects of AI, and TikTok user safety. UMG said TikTok only offered to pay artists a "fraction" of what "similarly situated platforms" offer — exactly what platform has the same clout as TikTok is a mystery.
UMG added that TikTok licensing normally represents 1% of its total revenue, and said that TikTok not only tried to low-ball the label, it also scrubbed the music of lesser-known artists from the platform as a sort of hostage-taking tactic.
Christine Osazuwa, chief strategy officer at music events company Shoobs, told The Daily Upside it will be hard for UMG to enforce its threat to withdraw from TikTok. "While in theory UMG can remove their music, issue takedown notices for tracks and deploy other methods to protect their rights, controlling whether or not their artists leak their own music or users continue to create sped up and slowed down versions of tracks may prove more challenging," Osazuwa said.
I'll Make You a TikTok Stahh: TikTok didn't address UMG's accusations specifically, but it did say Universal had chosen to "walk away" from a "platform with well over a billion users that serves as a free promotional and discovery vehicle for their talent." That sounds too much like someone asking you to work "for the exposure," which doesn't normally go down great with creative-industry types. Still, Osazuwa believes smaller artists may still post their work straight to TikTok. "For better or worse, I'm sure they know they likely were making very little from the platform regardless but recognize the power of marketing," she said.
Written by Isobel Asher Hamilton
BANKING
New York Community Bank's Nosedive Has Regional Banks on Shaky Ground
No good deed goes unpunished.
Shares of New York Community Bank plunged 37% on Wednesday after the company posted an unexpected fourth-quarter loss and cut its dividend by about 80% to shore up capital. The news sent tremors throughout the regional bank sector, knocking the KBW Regional Banking Index down 6%.
Commercial Crunch
An ironic part of Wednesday's fallout for "small" banks is that New York Community has left them behind, which is part of the problem. Welcome to the big leagues, NYCB. After stepping in to buy the assets of collapsed Signature Bank last year, New York Community's own assets crossed the unofficial "large bank" threshold of $100 billion, and CEO Thomas Cangemi was quick to point out that its new status had subjected the company to increased demands, such as "enhanced prudential standards, including risk-based and leverage capital requirements, liquidity standards," and more.
But becoming a bigger bank doesn't entirely explain the swing to a quarterly loss of $252 million:
A report in American Banker noted that the company cited "weakness in the office sector," including charging off two large real-estate loans, one on an office building and the other on a multifamily property. It also boosted its reserve for loan losses, which doesn't necessarily suggest the company sees defaults becoming more rare.
The bank slashed its dividend to 5 cents a share from 17 cents a share. RBC Capital markets analyst Jon Arfstrom referred to the cut as "highly unusual," because there was little prior warning for investors.
Borrowers have had difficulties refinancing commercial real estate loans as property values have fallen while interest rates remain historically high. That's not great news for regional or smaller lenders, which hold 70% of CRE loans, according to Citigroup research.
Help Line Disconnected: This new shot to regional bank resilience comes as the Federal Reserve offered a virtual "all-clear" signal last week, announcing that its Bank Term Funding Program, a pipeline created last year in the wake of Silicon Valley Bank's collapse, would wind up as scheduled on March 11. While the program had become something of a deposit-arbitrage play for banks that weren't in dire straits, removing this backstop could hit smaller banks with more at risk if commercial real estate goes south.
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America Decides: The confluence of news helped treasuries continue their rally on the market, though some see a considerable shakeup to the government debt market on the horizon — not from the Fed rate, but the upcoming election. "Supply dynamics are set to increasingly appear on investors' radar in the lead up to the US election, not least because of the deficit increase on the back of [presidential hopeful Donald] Trump's plans to take the corporate tax rate from 21% to 15%," Mike Riddell, a bond fund portfolio manager at Allianz Global Investors, 
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