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(Bloomberg) — A Republican senator urged her colleagues to scrutinize the role played by President Joe Biden’s nominee to be Federal Reserve vice chair for supervision when she was a director of a financial-technology company that subsequently gained access to the central bank’s payments system.

Wyoming Republican Cynthia Lummis, during a confirmation hearing before the Senate Banking Committee Thursday, confronted Sarah Bloom Raskin over what she’d done on behalf of fintech firm Reserve Trust when she was on its board of directors between 2017 and 2019. 

Raskin, who served as a Fed governor between 2010 and 2014, was a member of the board of directors of Reserve Trust between 2017 and 2019. She joined it after leaving the U.S. Treasury in 2017, where she was its No. 2 official.

Lummis questioned whether Raskin had used her influence to help Reserve Trust gain a master account at the Fed — a vital step that any financial institution needs to gain access to the Fed’s payment system — and that she called the Kansas City Fed in August 2017 in regard to the application. The company is based in Colorado, which lies in the regional Fed bank’s district.

The Kansas City Fed declined to comment. Reserve Trust didn’t immediately respond to requests for comment.

Raskin didn’t answer the questions in detail but did say she followed all the rules.

“I want to make very clear that I have, first of all, had the honor to serve in various public capacities and each time I left I have been very mindful of the rules regarding departure,” Raskin said.

White House spokesman Chris Meagher later said Raskin had complied with ethics requirements, adding “Senator Lummis engaged innuendo with no facts presented to back up her false claims.”

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(Bloomberg) — The work of creating a possible U.S. digital dollar inched ahead Thursday with initial research by the Federal Reserve Bank of Boston into the code that eventually could support such a currency.

The Boston Fed, in collaboration with the Massachusetts Institute of Technology’s Digital Currency Initiative, released a 35-page white paper on the findings of its technological research, which focused on developing software to process transactions. The researchers created and examined two possible code bases, including one that was capable of handling 1.7 million transactions per second. 

“Both architectures met and exceeded out speed and throughput requirements,” the central bank branch said in an executive summary of the report. The researchers wanted to be able to process 100,000 transactions per second and settle them in less than 5 seconds. The two code bases beat those projections.

The joint research project is separate from the work being conducted by the Federal Reserve to study the possible benefits and risks of a U.S. central bank digital currency, or CBDC. The Fed, led by Chair Jerome Powell, has indicated it doesn’t plan to move forward with a government-backed coin unless it has the support of the White House and Congress. 

The MIT and Boston Fed researchers released their transaction processing software, OpenCBDC, under an open-source license, allowing anyone to inspect, modify, and enhance the code. 

“We believe that this is the best way to ensure that OpenCBDC is vetted by a large number of people–all of whom will bring unique knowledge, skills, and ideas for improvement,” Neha Narula, director of MIT’s Digital Currency Initiative, said on a call with reporters.

Thursday’s release concludes the first phase of the multiyear research initiative, known as “Project Hamilton,” that was announced in August 2020. A second phase will explore more complex capabilities and examine key issues, such as cybersecurity and how to balance user privacy with the need for transparency to deter criminal activity. 

Private-sector intermediaries will also impact the technology that could be used in a U.S. CBDC, Boston Fed Executive Vice President and Interim Chief Operating Officer Jim Cunha told reporters. The Fed has indicated that it would likely rely on intermediaries, which could include commercial banks or other types of regulated financial service providers, to offer accounts and facilitate digital dollar payments. 

There’s “uncertainty about what those intermediaries may look like and how the information may flow,” Cunha said. 

Pursuing a U.S. CBDC could help ensure the U.S. dollar’s dominance, especially as other countries like China move forward with their own digital currencies. But the Federal Reserve has also pointed out a range of potential risks, including possible runs on financial firms and a reduction in the amount of deposits in the traditional banking system. 

Strategists at Bank of America Corp. have said they think a U.S. digital dollar is inevitable, predicting that issuance would likely occur between 2025 and 2030. 

Cunha said he expects the technological research into a possible CBDC will continue over the next couple of years, at a minimum.

“There’s a lot of work to do here,” he said. 

(Updates with comments from Boston Fed and MIT officials starting in sixth paragraph.)

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(Bloomberg) — Activision Blizzard Inc. reported earnings and revenue that missed analysts’ estimates just weeks after Microsoft Corp. announced its $69 billion acquisition of the video game publisher. 

Adjusted revenue was $2.49 billion in the fourth quarter, Activision said in a statement Thursday. Analysts had expected $2.84 billion, according to an average of estimates compiled by Bloomberg. Adjusted earnings per share were $1.25, compared with analysts’ forecasts for $1.31. The shares were little changed after the results.

Microsoft swooped in at a crucial time for Activision, which is behind hit games such as Call of Duty, Candy Crush and World of Warcraft. The company, based in Santa Monica, California, has been rocked by allegations of rampant sexism and harassment, spurred by a lawsuit from California’s Department of Fair Employment and Housing last July. The controversy caused executive-level shake-ups and broad discontent among employees. 

Some 2,000 workers have signed a petition to remove Chief Executive Officer Bobby Kotick after The Wall Street Journal reported that he was long aware of some of the allegations of sexual misconduct at the company, and neglected to inform the board. Three employee walkouts and the beginnings of union organizing — at Activision Blizzard and subsidiary game studio Raven Software — have punctuated six months of persistent upheaval among a swath of developers. Kotick has apologized publicly for the behavior reported at Activision Blizzard and has promised to make the company a more inclusive place to work. 

“As we look to the future, with Microsoft’s scale and resources, we will be better equipped to grow existing franchises, launch new potential franchises and unlock the rich library of games we have assembled over 40 years,” Kotick said in the statement.

Microsoft’s offer may have been a saving grace, analysts said, given that the cultural turbulence and ensuing attrition has taken a toll on the company’s ability to stick to its game release schedule, including delaying the highly-anticipated titles Diablo IV and Overwatch 2 to 2023 or later. Diablo Immortal is expected to be released early this year, although there is no set date yet. 

On Thursday, Blizzard nodded to new experiences in the Warcraft franchise in 2022, including “all-new mobile Warcraft content.” In 2018, Kotaku reported that a Warcraft take on Pokemon Go may be in the works.

The turmoil also contributed to Microsoft’s move to purchase Activision, whose stock had plunged. Xbox head Phil Spencer, now CEO of Microsoft Gaming, approached Kotick late last year. 

Kotick, who has headed the company for 30 years, is expected to continue as CEO until Microsoft’s acquisition closes, which could take until mid-2023 as the Federal Trade Commission and other regulators review the deal. Kotick said in an interview with Bloomberg last month that the deal had nothing to do with the controversy surrounding Activision or the pressure on him as CEO.

The merger also gives analysts something more positive to focus on, rather than Activision Blizzard’s fundamentals which, right now, are shaky. “The long-term prospects of Activision are much softer,” said Joost van Dreunen, former CEO of gaming research firm SuperData Research and a professor at New York University’s Stern School of Business. “Better to add themselves to a platform like they did for Microsoft. That solves the problem of their lack of content strategy.” Van Dreunen says Microsoft’s oversight may also help “ameliorate a lot of the cultural problems they had,” due to historically higher scrutiny applied to the $3 trillion tech giant.

Microsoft plans to incorporate Activision Blizzard’s treasure trove of games into its Game Pass subscription service, which boasts 25 million subscribers. The deal also gives Microsoft a boost in mobile gaming with Activision Blizzard subsidiary King, developer of hit game Candy Crush, acquired by Activision in 2015 for $5.9 billion. Activision mainstay Call of Duty will remain available on Sony’s competing PlayStation consoles for at least two years, Bloomberg has reported.

This year is already shaping up to be a blockbuster year for mergers in the gaming industry, with acquisition activity in the sector hitting an all-time high in the first month. Including Microsoft’s offer for Activision, Take-Two Interactive Software Inc. said it will buy Zynga Inc. in a deal valued at $11 billion and Last week Sony Group Corp. agreed to buy Destiny developer Bungie Inc. for $3.6 billion.

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(Bloomberg) — Snap Inc. and Pinterest Inc. rallied in late trading Thursday after their quarterly results eased fears that a slowdown at rival Facebook reflected a broader slump for social media. 

Snap’s fourth-quarter sales increased 42% to $1.3 billion, compared with the $1.2 billion average analysts’ estimate. Snapchat, the mobile app for sending disappearing messages and watching videos, had 319 million daily active users in the period. That beat analysts’ expectations for 316 million, according to data compiled by Bloomberg.

Pinterest, meanwhile, posted adjusted earnings of 49 cents, excluding some items. That handily beat the average estimate of 42 cents. Revenue also topped predictions.

Snap gained as much as 43% in extended trading, while Pinterest climbed 29%.

Shares of both companies had plunged earlier Thursday after Facebook owner Meta Platforms Inc. reported disappointing earnings. Apple Inc.’s change to its data-collection rules has made it harder for social media networks to sell advertising — their main sourcing of revenue.

But the latest results suggest that Snap and Pinterest weren’t dealt as hard a blow. In Snap’s case, the company benefited from augmented-reality tools that are attractive to marketers. At Pinterest, Chief Financial Officer Todd Morgenfeld said there hasn’t been a material impact on revenue from Apple’s changes. 

But it’s possible that Pinterest could be impacted at some point in the future, he said.

“The changes in the privacy and regulatory environment are generally unhelpful in our ability to deliver performance advertising results,” he said in an interview with Bloomberg. “We’re not immune to these issues impacting our business over time.”

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(Bloomberg) — Ford Motor Co. reported fourth-quarter earnings that missed analysts’ estimates despite a surge in prices for its vehicles, and warned of higher commodity costs in the year ahead.

The automaker on Thursday posted earnings of 26 cents a share excluding some items, less than the 45 cents analysts predicted on average. Adjusted earnings before interest and taxes of $2 billion were less than the $2.77 billion analysts expected.

For 2022, Ford forecasts earnings of $11.5 billion to $12.5 billion before interest and taxes, up 15% to 25% over 2021.

Investors have cheered Chief Executive Officer Jim Farley’s effort to accelerate Ford’s switch to electric vehicles, sending the shares up 136% last year and making the company the top automotive gainer. Ford’s market briefly topped $100 billion.

In recent weeks, that valuation has fallen back to around $81 billion. The stock fell as much as 7.9% to $18.32 in extended trading. It’s down 4.2% this year through Thursday’s close.

“Financial performance is obviously critical,” Farley said in a statement.  “We’re also proud that customers see how Ford is taking EVs mainstream.”

Bloomberg News reported on Feb. 1 that Ford is considering adding up to $20 billion to its EV spending over the next decade to convert factories to battery powered models. Farley has already tripled output of its electric Mustang Mach-E in Mexico and doubled production of the F-150 Lightning going on sale this spring.

“Ford has been really aggressive going electric in some very iconic vehicles, which is a bold move the market appreciates,” David Whiston, an analyst with Morningstar Inc. in Chicago, said before the earnings were released. “Rather than putting out some ugly econobox that only gets 100 miles on a charge, they came out with a great-looking Mustang Mach-E and now this year the F-150 Lightning, its most important vehicle.”

Automotive revenue in the fourth quarter totaled $35.3 billion, surpassing the $34.6 billion analysts expected.

Dearborn, Michigan-based Ford has seen car buyers pay up for its models as the pandemic and a shortage of semiconductors slashed inventory on dealer lots, causing discounts to dry up. Average sale prices for Ford models in the U.S. reached almost $51,000 in the fourth quarter, up from $46,211 a year earlier, according to automotive researcher Edmunds.com.

Crosstown rival GM earlier this week reported fourth-quarter earnings that beat analysts’ estimates but its forecast for the year was little changed from 2021.

Read more: GM sees high costs, budget cars capping profit

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(Bloomberg) — One of Meta Platforms Inc.’s biggest bulls on Wall Street has finally capitulated.

JPMorgan Chase & Co. analyst Doug Anmuth downgraded his rating on the Facebook parent to neutral from overweight after Meta reported disappointing growth. Its shares plummeted 26%, the most on record, and erased about $252 billion in market value.

Read more: Meta Faces Historic Stock Rout After Facebook Growth Stalled

The company is “seeing a significant slowdown in advertising growth while embarking on an expensive, uncertain, multiyear transition to the metaverse,” Anmuth said in a Feb. 3 report. “We move to the sidelines as we believe shares will be under further pressure or range-bound in the coming month.”

Anmuth has had a buy-equivalent recommendation on Meta since the company first went public in 2012, according to data compiled by Bloomberg. He also slashed his share price target to $284 from $385. Anmuth didn’t respond to requests for comment.

JPMorgan wasn’t the only one to downgrade Meta after the company gave a revenue forecast that fell short of expectations amid stagnating user growth and increasing competition from TikTok. At least three other firms cut their recommendations. 

On the other end of the spectrum, Simon Baker at Societe Generale has had a sell rating on the stock since at least 2015. Baker didn’t respond to requests for comment.

(Updates share price moves throughout.)

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(Bloomberg) — Amazon.com Inc. is raising the annual fee for its Prime subscription service in the U.S. by $20 to $139, the first such increase since 2018.

For new Prime members, the price change will go into effect on Feb. 18 and will apply to current subscribers who renew after March 25, the company said Thursday in a statement as it reported fourth-quarter results. Amazon also raised its Prime monthly subscription to $14.99 from $12.99. 

The shares surged post-market on the news. 

The increases were widely expected because the Seattle-based company has incurred billions in margin-eating costs to ensure packages get to customers amid supply-chain bottlenecks and an acute labor shortage.

Prime, which offers subscribers shipping discounts, video streaming and other perks, helps Amazon convert occasional shoppers into loyal customers. Prime subscribers typically spend more on Amazon than non-members.

Amazon signed up a combined 60 million U.S. Prime members in 2020 and 2021, according to Consumer Intelligence Research Partners, bringing the total number to 172 million. The research firm attributes the surge in sign-ups to consumers’ stampede online during the pandemic. 

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(Bloomberg) — Semiconductor stocks slumped on Thursday, with Qualcomm Inc. slipping even after the biggest maker of smartphone chips reported earnings and forecasts that beat estimates.

Qualcomm fell short of projections in certain categories, including chips for cars, the Internet of Things and radio-frequency components. Supply woes also hampered its ability to take advantage of booming demand for phones. 

Qualcomm shares fell 4.8% on Thursday, while the Philadelphia Stock Exchange Semiconductor Index dropped 4.6%.

“The numbers/guide are both pretty solid and there’s not much to complain about,” wrote Vital Knowledge analysts, who cited recent gains in the stock as a possible factor behind the negative reaction to the report. Such a rally “makes for a high bar.”

Read more: Qualcomm Falls, But Analysts See Long-Term Strength: Street Wrap

Cowen analyst Matthew D Ramsay said that while Qualcomm’s beat and raise was “significant,” the results contained “a couple of nit-picks” with guidance for a below-seasonal June quarter potentially curbing enthusiasm.

Among other semiconductor names, Nvidia Corp. fell 5.1% and Advanced Micro Devices Inc. slid 2.2%. Micron Technology Inc. dropped 3% while Intel Corp. fell 2.5%. Qorvo Inc. shares sank 10% after its own results and forecast.

The tech-heavy Nasdaq 100 fell 4.2% on Thursday, dragged down by a record drop in shares of Meta Platforms Inc. after Facebook’s user base stalled last quarter.

(Updates to market close.)

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(Bloomberg) — Meta Platforms Inc.’s one-day crash now ranks as the worst in stock-market history.

The Facebook parent plunged 26% in U.S. trading Thursday on the back of poor earnings results, and erased about $252 billion in market value.

That’s the biggest collapse in market value for any U.S. company. But there’s no certainty the losses will hold in the coming days, especially given the recent volatility that’s whipped across technology shares. 

Still, analysts were bleak in their assessments, pointing out that Meta faces stiff competition from rivals like Tiktok and revenue was far lower than expected. Michael Nathanson, an analyst at brokerage Moffett Nathanson, titled his note “Facebook: The Beginning of the End?” 

“These cuts run deep,” he wrote. The results were “a headline grabber and not in a good way.” 

The sheer size of Facebook’s collapse illustrates just how tech companies have ballooned in size to become behemoths with unprecedented market power, and the drama that can ensue when they stumble.

“Lots of U.S. megacaps are priced as growth stocks. They may suffer more in a rising yield environment, especially if growth becomes more questionable,” said Frederic Rollin, senior investment advisor at Pictet Asset Management.

Another way of illustrating the decline: Meta’s decline would be more than the market value of over 460 of the S&P 500’s members.

Meta Slumps With Targets Slashed on TikTok Threat: Street Wrap

Meta “finds itself in the middle of a perfect storm” wrote Youssef Squali, an analyst at Truist Securities. 

Twitter Inc., Snap Inc. and Pinterest Inc. all closed lower Thursday and dragged the Nasdaq Index down 4.2%, its worst selloff since September 2020.

Meta’s market cap as of Wednesday’s close stood at roughly $900 billion. The company makes up one of the original Faang cohort of tech megacaps, including Google’s parent Alphabet Inc., Amazon.com Inc. and Apple Inc. 

 

It’s not the first time Meta shares have dropped dramatically. The stock plunged 19% in July 2018 on a slowdown in user growth, translating to a about $120 billion decline in market capitalization. At the time, it set the record for the largest-ever loss of value in one day for a U.S. traded company.

“We’re hopeful the company kitchen-sinked the outlook,” said Shyam Patil, an analyst at Susquehanna Financial Group. 

(Update share price moves throughout.)

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