SoftBank paid $1.5B to WeWork lenders days before bankruptcy | Hacker News Reader

SoftBank paid $1.5B to WeWork lenders days before bankruptcy

ft.com

I thought at first from the headline that the article was trying to imply there was something wrong with this, e.g. that Goldman Sachs was getting money that should otherwise be going to other creditors in bankruptcy.

But from reading the actual article, that doesn't seem to be it at all. The article just seems to be describing what a terrible investment decision this was for SoftBank -- that this letter of credit isn't protected from bankruptcy.

Because SoftBank co-signed a letter of credit, guaranteeing $1.75B of loans in case WeWork couldn't pay -- because lenders considered WeWork too risky. Now WeWork can't pay, but SoftBank still has to.

Glad I'm not SoftBank.

According to the Wikipedia page on Masayoshi Son, Softbank invested $20M in Alibaba, which grew to $50B, a return of 2,500%.

But it looks like he has been wrong about everything since then.

It's just the normal process of how insurance and guarantees work. If they never needed to be paid out, they wouldn't exist in the first place.

I'm getting all this from a Patrick Boyle video [1], but it doesn't appear that SoftBank did anything even approaching "due diligence" when handing out tons of money to WeWork; the way Boyle describes it, it almost seems like the SoftBank president was having something akin to a manic episode but it's tough to tell without context.

[1]https://youtu.be/n3Q_4vjPMSE Honestly a pretty good channel if you're interested in the investment world.

Son is one of the most luckiest and, at the same time, worst investors of all time.

Jesse Livermore reborn?

It's too bad even the Financial Times is susceptible to click bait headlines. As professional writers, I'm sure they're aware of the misleading nature of the headline. Not just a mistake.

And good for the banks for doing their due diligence.

At this point, why doesn't SoftBank just use WeWork as a physical presence outlet to expand offering their core business services internationally? Like cell phones?

This question implies that you might think that SoftBank is something like a bank with branch locations where people can go deposit money and have a checking account. Not so! SoftBank is basically just a Japanese investment fund and probably doesn’t need 800 points of presence.

But some of the companies they own might benefit from it.

Most WeWork locations are not in retail type places. Many are on higher floors in office buildings, etc.

Further the bankruptcy is a restructure and the truth is that WeWork will likely emerge from it a continuing operation.

They invested in DoorDash and Uber but they don't own DoorDash and Uber.

GP's point is that in Japan, SoftBank is a telecom company with branch locations, offering phones and phone plans.

I was wondering something similar recently when my father-in-law was visiting us in SV from their home in Northern Virginia and asked whether there were any Capital One branches nearby. I didn't know but would have been surprised if the answer was "no", so I googled it. Turns out they've converted a bunch of their old physical branches into cafes. You can't bank in them, but you can ask banking questions (a la Genius Bar), and you can use their wifi and hangout.

Who knew! https://www.capitalone.com/local/

I think I saw someone comment about the finances of bank branches...

Its something like, each branch office is a $10-million/year investment into making the customer feel slightly more secure about their money.

I just see more branches as less money that could be paid to me in interest.

In 2017 I had an issue with my capital one credit card and went to a physical branch and they just said to call the main helpline. To the credit of the employee, he offered to sit with me while I was on the phone.

The real reality distortion field is Masa continuing to raise funds for some truly dogshit investments.

This shows how woefully unprepared I am to have wealth. It is crazy that at some level of wealth, you will run into someone like Masa Son, who has the ability to talk his way out of destroying generational wealth. What do you even do to prepare for people with skills like that?

Don't worry about it. If you don't chase greed and don't try to beat the markets, you'll do fine with low cost index funds. Investing should be boring.

Maybe they're just trying to get rid of expensive leases and debt. Then - a new chapter!

Either they are trapped in Sunk Cost Fallacy. Or Worse - They are keeping up the charade so current investors can dump Wework/Softbank on someone.

It doesn't really seem like a sunk cost.

If you assume with the right management, a coworking space CAN be a viable business, wework as a brand is still highly valuable.

Now if we assume coworking spaces are completely non-viable, then yeah close up shop. But the various successful coworking spaces around the world suggest that isn't true.

Why is SoftBank so bad at investing

scale. producing that level of return on that amount of capital is nigh on impossible. this makes them structurally worse investors, combined with a fixation on bubbles and unfortunate timing.

they’re far worse than much larger sovereign wealth funds who also take moonshots

dont make excuses for these degenerates, we can appreciate their economic stimulus without the window dressing

SoftBank or its investors might view WeWork as a hedge against something else. The overall portfolio might make sense even when some individual investments go south.

For WeWork to be a hedge, Softbank would have had to hold a very big short position on a company whose creditors it owes billions to.

The $100 billion they made from AliBaba gave them a lot of headroom to fail.

By now SoftBanks only saving grace is setting tons of Saudi money on fire...

Have they even lost money in aggregate? Like I know WeWork and others ended up being worthless but didn't they also have some homeruns?

They have lost tens of billions on ~150 billion invested, much of that during boom years.

On the other hand, they might be on the verge of profitability depending on how some of their investments go.

https://en.wikipedia.org/wiki/SoftBank_Vision_Fund#Notable_i...

For example: Arm, ByteDance, Mapbox, Nvidia, Slack. All real companies with real businesses that have huge potential.

> they might be on the verge of profitability depending on how some of their investments go.

Just like everyone else.

There's a whole post there. It's not just one out of context sentence. Maybe focus on the examples I gave to support that sentence.

Sure, let's take an example. Nvidia might be a real company with real products but that has little bearing on your investment value if if you sold it all in 2019. Even less if you invested with a different fund than you sold it as part of so it looks more successful than it was. ("Successful" being an awful word, since they lost 400 million.)

I don't have any context for other funds, but I have a really hard time believing that it's hard to do better than break even at that scale of capital.

https://www.macrotrends.net/stocks/charts/SFTBY/softbank-gro...

I wonder why those numbers are so different than the ones on this website:

https://companiesmarketcap.com/softbank/earnings/

I was surprised to see Adam Neumann as a keynote speaker at the Future investment conference in Riyadh a few weeks ago. I thought perhaps he'd be persona non-grata due to burning so much in saudi $.

NEOM is a $500B project. Neumann barely registers.

My understanding is that the best thing you can do in finance is make loads of money, but the second best thing you can do is set loads of money on fire.

This. Nothing succeeds like failure.

I've actually heard of VCs who prefer founders who have had high-profile failures because their theory is those founders will have learned a bunch of valuable (expensive) lessons. The null hypothesis for me is those founders may not have learned those lessons and may just not be that great.

This seems to me like expecting that someone indicted for a crime will learn their lesson and be less likely than average to commit crimes in the future. It makes some sense in the abstract, except that we have tons of empirical evidence that those people are more likely to commit future crimes.

Or perhaps expecting someone who committed crimes and got caught to have learned how to not get caught.

Neumann still retains an incredible level of confidence and respect from many of the people who know him. never met the man personally but it's kind of a trip. even from people who i suspect are less clouded by whatever world-class charisma he works. i'm not sure what's true and not but i'm also not surprised he's the keynote.

If I was Neumann or Son, I wouldn't be visiting Saudi Arabia.

Why? It's one thing to dismember journalists (The despots running that country don't want them anywhere around them), but when you start doing that to businessmen, nobody is going to do business with you.

The only message it will send is that they are roughly on the level of El Chapo, or some other cartel leader, when it comes to 'Should I work with these guys?'

Dude, in 2017 King MBS turned the Ryadh Ritz-Carlton into a torture chamber for ~400 of the wealthiest and most powerful Saudis. Maybe you don't remember, maybe you don't care. Either way, that should tell you something.

That was a local political purge, not a business one. They also use slave labour to build stadiums, and nobody gives a shit, but the second some visiting CEO gets impressed into a worksite is a red-line they aren't going to be crossing.

Local businesses and politicians have no choice when it comes to working with those animals, foreign businesses absolutely have a choice. That's the difference.

It's a country run by people who are happy to murder and torture people they don't like. The chance that someone like Neumann gets dismembered is incredibly low, but it's certainly higher than the chance of it happening in, say, Sweden.

Sadly, this is a pittance for the Saudis.

They’re blowing away trillions building stupid mega projects in the desert. A few billion is small potatoes

How is that legal?

Why would it not be?

Even if it was illegal, I suspect the pittance fine attached for it would do little to dissuade anyone.

> if it was illegal, I suspect the pittance fine attached for it would do little to dissuade anyone

You’d let shareholder lawsuits sort it out. They’re the injured party, after all.

No, other debtors could also be the injured party.

Shareholders are not the injured party here, they take risk when investing in companies.

> Shareholders are not the injured party here

To the extent anyone is injured by this payment, it’s Softbank’s shareholders.

I mean in the bankruptcy...

In a bankruptcy, you can clawback illicit payments made prior to the bankruptcy. It's actually very common that when a debtor goes under, they attempt to pay their preferred creditors as much as they can, without any regard to the priorities of other creditors.

> you can clawback illicit payments made prior to the bankruptcy

SoftBank isn’t going bankrupt. WeWork is. If WeWork wired money to SoftBank right before going under, it’s fraudulent transfer. This is just SoftBank continuing to pay for its stupidity.

The only way for other creditors to argue that money should be theirs is if SoftBank owed WeWork that money. But these creditors appear to have specifically struck the guarantee with SoftBank directly.

Lawsuits beat fines for incentives and made whole-ness.

Jail doesn't make anyone whole after fraud, but it would make the next person thing twice, so of course, it's pittance fines, paid with other people's money.

smh.

If bankruptcy is imminent, you're generally not allowed to show preference to a particular creditor right before a bankruptcy process. It depends on the jurisdiction, but in many countries the other creditors can petition the court to claw back the payment and put it back in the pot of assets so it gets fairly distributed.

Obviously, if Softbank was the only creditor first in line it wouldn't be an issue, but if there are other creditors with equal seniority they would be rightfully upset. I can't read the FT article behind the paywall though, so I don't know which case applies here.

SoftBank made a promise on $1.75B of loans to WeWork from banks and is legally obligated because the latter going bankrupt just makes it fall to the former.

SoftBank is likely to end up owning a significant percentage of the post-bankruptcy WeWork through a debt-equity swap, through which the company will have likely renegotiated most of its abhorrent leases (the overwhelming bulk of WeWork's debt was longterm lease obligations).

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