SoftBank abandons its ‘Nasdaq whale’ bets

SoftBank has decided to unwind its large US equity options trades, pulling back from a controversial strategy that has cost the group $2.7bn in derivatives losses and earned it the nickname “Nasdaq whale”. 

The move comes after both investors and employees raised questions about the governance of the unit, which allows Masayoshi Son, SoftBank’s founder, to have a personal stake in trades that deploy cash from the company’s coffers.

The group will continue investing in large US tech stocks such as Amazon and Facebook, using $80bn in cash raised from its recent asset sales, but will reduce its derivatives exposure by letting its options expire, according to two people with knowledge of the trades.

SoftBank declined to comment on the shift in its trading strategy, which was first reported by Bloomberg. 

When the Financial Times revealed in September that the company was the mystery “whale” that had driven US technology stocks to record highs, shares in SoftBank initially fell 14 per cent. 

The stock has since climbed to a new 20-year high, but concerns about the trades resurfaced as SoftBank revealed last month that its trading arm had suffered losses of $3.7bn, including $2.7bn in derivatives losses, for the July to September quarter. 

The options trades have been carried out via a Cayman Islands-based entity called SB Northstar, one-third of which is owned by Mr Son himself. As of the end of September, the unit had purchased almost $17bn of shares in US tech companies and invested another $3.4bn in equity derivatives.

Several large investors have in recent weeks raised concerns about the options trades with SoftBank’s management, according to people briefed on the discussions. 

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Some investors have questioned why the group was engaged in short-term trading and how it aligned with Mr Son’s vision of investing in the long-term future of artificial intelligence and other leading technologies. “We should not be day traders,” a SoftBank employee said.

Others have questioned the highly leveraged structure of Northstar, which uses loans of cash and publicly traded securities from SoftBank’s vast balance sheet to make investments in publicly listed stocks. In October, it borrowed $6bn against SoftBank’s shares in Alibaba.

The trading arm has also raised governance concerns, since it effectively allows Mr Son to take out loans from SoftBank via Northstar, while he enjoys 33 per cent of the profits from a division inside the group. 

The company has said Mr Son would guarantee any remaining debt linked to his ownership at the end of the fund’s life cycle in 2034, but it has not disclosed the exact terms of the loans. 

“If he has created a box where he gets to keep 33 per cent and he decides to call it an asset management unit, that’s just lipstick on the pig. It’s using SoftBank’s cash,” said a person with knowledge of the fund’s structure. 

David Gibson, an analyst at Astris Advisory, said: “The structure where the CEO takes 33 per cent of the profits of one division should not be occurring from an ESG (environmental, social and governance) point of view.” 

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