Tuesday 19th September
Disruption among retailers claimed its largest victim yet yesterday, with Toys ‘R’ Us filing for bankruptcy protection. The company said it received a commitment for over $3 billion in debtor-in-possession financing that will support its operations during the court-supervised process. Operations outside the U.S. and Canada are not part of the filing.
The Toys ‘R’ Us bankruptcy is just the latest and largest of a string of bankruptcies that have hit the retail sector this year, including well-known companies like Gymboree, Payless Shoes, Gordmans Stores, Radio Shack, The Limited and Gander Mountain. The filings show that online shopping, and the steady advance of Amazon, is taking its toll.
In an interview with Fortune’s Susie Gharib last year, Toys ‘R’ Us CEO David Brandon said of Amazon: “We don’t live in fear of those guys. We know who we are, and what we are good at.” He argued that physical stores actually help digital sales. “The two work hand in glove. The customer likes the safety net of having a store down the road that they can go interact with, take things back, try things out. They may want to order online, but they think that local store is a safety net.”
But in the end, it wasn’t enough of a safety net. The company had a huge debt burden from being taken private in a buyout in 2005.
Expect more retail bankruptcies to come (can Sears be far behind?) News below.
• The Fed Prepares to Unwind
U.S. stock markets hit new record highs in anticipation of the Federal Reserve’s Open Market Committee meeting, with financial stocks leading the way. That’s due to a return in confidence that the Fed can unwind its policy of ‘quantitative easing’—the injection of trillions of dollars into the banking system through bond purchases—without disrupting a global economy that looks in better shape than at any time in the last few years. Treasury bond yields hit their highest in a month yesterday, as investors braced for the Fed to announce a firm timeline for shrinking its balance sheet. Market sentiment was also helped by crude oil rising to over $50 a barrel as U.S. refineries resumed purchases after the disruption of Hurricane Harvey. Bloomberg
• The FBI Tapped Manafort’s Conversations with Trump
Paul Manafort, who briefly ran Donald Trump’s election campaign last year, was wiretapped under a foreign intelligence warrant in connection with concerns that he was communicating with Russian operatives who wanted to influence the American election, CBS reported. Earlier CNN had said the FBI had begun surveilling Manafort in 2014, due to his work with the pro-Russian President of Ukraine Viktor Yanukovych. CBS said the FBI had listened to “multiple conversations” between Manafort and Russian individuals, and noted that conversations between Manafort and Trump continued after Trump took office—until lawyers representing both of them “insisted that they stop,” according to CNN. CNN
• Equifax’s Insider Deals Look Worse After New Revelations
The Department of Justice confirmed it had launched a criminal investigation into stock transactions by Equifax executives in the context of its data breach. Bloomberg reported Monday that Equifax had been aware of a security breach already in March (four months before the July breach that it revealed earlier this month) and had hired Mandiant, a cyber security consultant, to investigate it. In other hacking-related news, it emerged that millions of people had downloaded malware onto their computers through CCleaner, an app designed to tidy up hard disks. Fortune
• Every Second Counts as AWS Reacts to Competition
Amazon raised the stakes in the battle for mastery of the Cloud. It said it would start offering per-second pricing for its Cloud-hosting services starting next month. Amazon Web Services has traditionally offered per-hour pricing, even after Microsoft and Google started to offer minute-based pricing in 2013. The initiative promises to deliver the supposed benefit of the Cloud model, in allowing customers to pay only for the resources they use. The flipside of that is margin pressure for the suppliers. Amazon, Microsoft, and Google shares all fell on the news. There was better news elsewhere in tech as chipmaker NVidia hit another record high after a sharp upgrade from Evercore. Rival Intel also got a boost, getting its chips into a key pilot project for Waymo’s self-driving car business. Fortune
Around the Water Cooler
• The Great IPO Market Comeback
The IPO market is making a comeback, as the memory of Snap and Blue Apron’s disappointing launches fades. Smart TV maker Roku increased the size of its planned offering to $252 million from $100 million. SMCP, the Chinese-owned fashion group behind brands including Sandro, Maje and Claudier Perlot, filed to list in Paris, while ChemChina confirmed it would cede control of tiremaker Pirelli as it returns to the public market in Milan. Issues announced last week had included Rovio, the company behind the Angry Birds video game, and BP, which is putting its U.S. pipelines into a master limited partnership. Fortune
• Maria Devastates Dominica, Heads for Puerto Rico
The Eastern Caribbean was devastated by yet another hurricane, as the storm front Maria lashed Dominica with winds of up to 155 mph. Dominica’s Prime Minister Roosevelt Skerrit doubled up as frontline reporter with a series of increasingly apocalyptic updates about the destruction of his house. The National Hurricane Center said the storm’s eye would approach the U.S. and British Virgin Islands and Puerto Rico later Tuesday. Fortune
• Who Are You Calling a Fraud?
The Bitcoin Rally is back on. After falling nearly 40% in two weeks, the digital age’s putative store of value rebounded to over $4,000 at one point Monday, before falling back to just under $3,900 overnight. China’s decision to close all Bitcoin exchanges is still weighing on sentiment but, as long as it remains the preferred means of exchange for sites offering illegal goods and services, its dollar value is unlikely to collapse. The mood was lightened yesterday by the news that JPMorgan was still happy to sell its clients Bitcoin-related instruments despite Jamie Dimon’s scathing attack on it last week. Fortune
• No Country for Unsecured Creditors
Mattel shares fell 6.2% and Hasbro fell 1.7% after it emerged that they are two of the chain’s biggest unsecured creditors to Toys ‘R’ Us, owed $135 million and $59 million respectively. Mall owner Simon Property Group didn’t like the news either, losing 2%. Fortune
Summaries by Geoffrey Smith; email@example.com