What went on inside SoftBank-backed Fair as it burned through cash - plus fresh proptech funding and JPMorgan's new VC coverage group

SoftBank is in a "rough sea" - or at least, that's how its CEO, Masayoshi Son, describes it.

That may be putting it lightly - SoftBank Group this week reported a $6.4 billion quarterly operating loss thanks to massive writedowns on WeWork, Uber, and other investments by SoftBank and its Vision Fund.

And as we're reporting, the factors creating this storm are not unique to the high-profile IPO implosion (and subsequent bailout) at WeWork. Just this morning, we published a deep dive from Meghan Morris into Fair, the auto rental startup that raised $385 million in a December Series B round led by SoftBank's Vision Fund.

Meghan talked to company insiders who told us how Fair's breakneck growth meant it lost track of millions of dollars in inventory as it burned through funding. And speaking of rough seas, insiders told us that Fair's co-founder and now ex-CEO often used sailing analogies to explain his vision.

SoftBank has stepped in at Fair with an extra $25 million and installed an interim CEO. Fair meanwhile has laid off hundreds and is reevaluating its business model.

It's worth mentioning that Fair bought Uber's money-losing leasing program this January as Uber was gearing up to go public. That brings us to another big source of pain for SoftBank.

Uber's stock suffered a one-two punch this week. On Monday Uber reported a $1.1 billion third-quarter loss and its shares tumbled 10% the next day. On Wednesday, the expiration of its post-IPO lockup allowed investors and employees to cash out, and its shares tanked another 4% to mark a record low.

Still, Uber CEO Dara Khosrowshahi dangled the goal of the 10-year-old company reaching profitability (on an adjusted EBITDA basis) by full-year 2021, and on the earnings call pledged to be "disciplined and efficient " with capital. Just a few day earlier, smaller rival Lyft, which was founded in 2012, said it would deliver positive adjusted EBITDA by Q4 2021.

Financial discipline and sustainability are terms that popped up a lot this week. On Thursday, we published an internal memo to WeWork's staff from its new chairman Marcelo Claure (who's also SoftBank's COO) laying out the coworking company's priorities for the next five years. No sailing comparisons, but it opened with an anecdote about Claure's recent New York City Marathon run and mentioned sustainable growth twice (the word "profit" did not appear.)

WeWork this week also released a 49-slide investor presentation, and a "key principle" it flagged was prioritizing "disciplined growth with profitability."

We've written plenty already about insiders concerned about bloated valuations and wide losses. And this week, we added another voice to the mix. Our hedge fund reporter, Bradley Saacks, attended the Greenwich Economic Forum on Tuesday, where billionaire Bridgewater founder Ray Dalio told the crowd that years of ultra-low interest rates that sent investors scrambling for yield has created an environment where companies "sell dreams instead of earnings."

Against this backdrop there's still plenty of VC appetite on the proptech front, where our real estate reporter, Alex Nicoll, had a busy week covering another flurry of fundraisings. More links below, but one was real estate data company Reonomy's $60 million Series D. SoftBank Capital had made earlier bets on the company, but didn't partake this time around. The latest funding was led by SaaS-specialists Georgian Partners, and other investors included bank venture arms Wells Fargo Strategic Capital and Citi Ventures.

I'll wrap up with two JPMorgan hiring stories from Shannen Balogh. JPMorgan's commercial bank has hired four execs away from Silicon Valley Bank for a new coverage team to manage VC relationships alongside middle-market bankers in groups with names like "technology and disruptive commerce." Meanwhile, it also appears JPMorgan's consumer and community banking arm is building a"recession readiness team."

We know there's still plenty of unpacking to do when it comes to the web of money and influence that ties back to SoftBank. As always, we're eager to hear your feedback on the coverage, and to learn what you'd like to see more of!

Have a great weekend,

Meredith

Citi is targeting big markets like Seattle and Dallas as battlegrounds to snatch deposits from rivals like JPMorgan Chase and Bank of America

In its bid to win more consumer deposits and grow revenues in the US, Citigroup is targeting new territory for expansion.

On the list are cities across roughly a dozen states outside Citi's current retail bank footprint where it has large caches of credit-card customers and ATMs.

Citi's push into new banking markets like Washington, Texas, and Minnesota, laid out by US consumer banking chief Anand Selva at a financial conference on Tuesday, may include a "light physical presence" with new storefronts.

READ MORE HERE »

Merrill Lynch just overhauled client-retention incentives for retiring advisers. An internal memo said it will hike payouts and subsidize handovers starting in 2021.

Merrill Lynch is sweetening the pot for financial advisers primed to retire in the coming years and boosting incentives for remaining colleagues to pick up their clients.

The firm is bumping up its payout rate for its senior consultants - meaning veteran advisers - regardless of production levels, by up to 75 percentage points. But the updated payouts to retiring advisers, which they get for five to seven years based on how much business they've brought in, don't go into effect until November 2021, meaning they have to hang around at least that long to take advantage.

Merrill will also subsidize 20% of the cost to the inheriting adviser, meaning the remaining adviser has the chance to be fully credited for revenues from their new book more quickly, particularly if they grow the business more themselves.

READ MORE HERE »

Green Dot's bread-and-butter businesses have been undercut by VC-backed neobanks. It's turning to techy partnerships with the likes of Uber to restart growth.

It seems everyone wants to be a bank these days, or at least do bank-like things. There are the obvious players like challenger banks, digital wealth managers, and payment processors.

Then, there are some less-expected entrants, like ride-hailing giant Uber, or global retail chain Walmart.

Green Dot, a bank known for its prepaid debit cards, has seen that long-standing business come under pressure and its stock has lost roughly have of its value this year - its execs have blamed a loss of active accounts on a rush of VC cash into digital banks. Now, it's leaning more on partnerships with companies that want to offer their own bank-like services without the hassle of actually being a bank.

READ MORE HERE »

Goldman Sachs' new CTO shares his strategy for attracting outside developers to work more closely with the bank, giving a glimpse into the future of how Wall Street will work

That's at least how Atte Lahtiranta, the Wall Street firm's new chief technology officer, is thinking about his new role, he said in an exclusive interview with Business Insider. Lahtiranta, introduced as the incoming chief technology officer in September, joins the firm after stints at Verizon's media group, Yahoo, and Nokia.

Lahtiranta said his years of experience working in big tech taught him about the importance of wooing third-party developers. As chief technology officer, he will encourage his engineers to make it as easy as possible for outside developers to interact with the bank - treating them as some of the firm's "most valued customers."

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Some cannabis stocks now have the green light from US wealth managers like Morgan Stanley, Merrill Lynch, and Wells Fargo. We have details on firms' policies.

Financial advisers at some of the biggest US wealth managers are slowly opening their doors to cannabis.

Wealth-management firms including Wells Fargo, Merrill Lynch, and Morgan Stanley have started permitting their clients to access some Canadian cannabis stocks, Business Insider has learned. In some cases across these firms, the client has to come to their adviser to ask about an investment, or the adviser has to seek approval from the firm before making a recommendation.

The changes have come in recent months. Wells Fargo Advisors in August changed the way it responded to client queries about cannabis investments, while Merrill Lynch started allowing recommendations of cannabis shares with "buy" ratings after Bank of America launched research coverage on a group of cannabis companies in April.

READ MORE HERE »

The CEO of the exchange backed by Bank of America and Morgan Stanley sees 2 ways it can succeed where others have failed in disrupting an industry dominated by NYSE and Nasdaq

The CEO of an upstart stock exchange vying for regulatory approval believes the low costs offered by the venue will help to break the tight grip of big players on the market - and he wants the firm to be an advocate for its members and their investors in Washington.

Jonathan Kellner, the CEO of the Members Exchange, told Business Insider the startup's selling point to the market was that its success would encourage incumbents to reconsider their approach to market-data fees and regulatory market-structure issues.

The entire market, Kellner said, could stand to benefit from additional competition. That includes MemX's backers, which are some of the biggest names in banking and high-speed trading and would certainly appreciate seeing a drop in fees for trading and data.

READ MORE HERE »

The business of offering transparent hedge-fund-like strategies is booming, even as the hedge-fund industry itself struggles

A receding tide is not sinking all ships for hedge-fund-like strategies.

The $3.2 trillion subset of the asset-management space has had six straight quarters of investor outflows, according to the latest data from the industry tracker eVestment, with $77 billion more assets leaving hedge funds this year than going into them. Underwhelming returns compared with the market coupled with high fees have soured investors on the space they once clamored to get into.

But some structures offering hedge-fund-like strategies are booming. Managed-account platforms, which let investors set up an individualized account with a manager, continue to grow, with BNY Mellon's HedgeMark platform, on which a hedge-fund manager runs a pool from a third-party investor who gets to customize the strategy, growing assets by nearly a third in the first half of this year to $21 billion.

Fintech and proptech news

• Emil Alon sold his last startup to Facebook for $60 million. Now he's back with an augmented reality startup that turns buildings into digital "platforms"
• Here's the pitch deck that fintech dv01 used to nab $15 million from the likes of George Soros and Pivot Investment Partners. The startup's founder called it the easiest round he's ever raised.
• Electronic trader DRW's venture arm is jumping into flex-offices by leading $16 million in funding for real-estate startup SquareFoot
• Mortgage tech startup Snapdocs just raised $25 million from Fidelity's venture arm, Sequoia Capital, and Peter Thiel's Founders Fund
• Bridgewater founder Ray Dalio is sharing the apps behind the hedge fund's 'radical' culture with the public. They feature real-time employee ratings and a 'pain button.'