Morning Brew Daily - Regional Bank Stocks in Free Fall, Hindenburg Targets Icahn & Pornhub Blocks Utah

Episode Date: May 3, 2023

Episode 52: Neal and Toby discuss the future of regional banks amidst the failure of First Republic and stock free fall of Western Alliance and PacWest. They also breakdown the Hindenburg report on Icahn Enterprises that erased a fifth of the company's value. Plus, why Pornhub blocked access to it's site in Utah and why the US Surgeon General is declaring loneliness the new epidemic. And finally, Forbes released the list of the highest paid athletes in 2023, why a surprising number of them have a connection with... the Middle East. Learn more about our sponsor, Fidelity: https://fidelity.com/stocksbytheslice Listen Here: https://link.chtbl.com/MBD Watch Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

Many employees can't afford a hefty medical bill that pops up out of the blue, but it happens. And employees who are financially stressed are, understandably, more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, AFLAQ plans help with out-of-pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more at aflac.com slash morning brew daily. That's aflac.com slash morning brew daily. Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. Today on the podcast, why the fourth most popular website in the country has shut down in Utah, and the U.S. Surgeon General declares a new epidemic that has nothing to do with coronaviruses.

Also, the hits keep coming and they don't stop coming for regional banks. We'll give you the rundown on the latest struggles there. Then we'll head to the sports world where Forbes dropped its annual richest athletes list. Spoiler alert, soccer players dominate. Neil, it's Wednesday, May 3rd. try. All right so today, right after the show, Morning Brew, is providing us with some free breakfast burritos. And I just revert back to my college self. Whenever there's free food, I feel like an animal. It's never not exciting. I don't even think that's a college thing. It's just very fun.

Usually we have bagels to today's breakfast burritos. I love office culture. We've talked about this before, but we get some free food. It's great. It's funny for me seeing all these new Gen Z people experience the office for the first time. Yeah. And there's a lot of this. We've been. And there's just loving it, all of these new things. They're like in a toy store. I know. I'm ready to dig in after the show today. Okay, let's head to our first story.

So remember when I asked on Monday, Neil, if the banking crisis was over after First Republic was acquired? Well, now we can definitely say it's not. Yesterday, shares of regional banks got hammered. So I'm going to give a quick rundown of the banks that did not do so well. Pack West finished the day down 28%. Western Alliance dropped 15%. And other banks like Zions, Commercia, and Key all fell between 9 and 12%.

Sounds like Big East Congress. Why are these banks named like college basketball conferences? I don't know. When Pack West was falling, I was like, did Gonzaga leave? I know. Like, are they collapsing? It's truly funny. So what caused this route?

These banks have kind of been struggling with the same issue that plagued First Republic. All the banks I mentioned experienced net out. outflows in deposits in the first quarter of the year. Pack West saw the most with a 16% drop in deposits. Western Alliance had an 11% drop. Compare that to First Republic, though, who had a 40% drop, and these actually start to look a little okay by comparison. But what's interesting to me is that none of these banks actually reported earnings yesterday. It was more just a broad reaction to the general state of the banking industry. And so the question that people are asking is, do regional banks like have the wherewithal to survive like the coming months?

Maybe not. I mean, Jamie Diamond went kind of viral for saying that on Monday or Tuesday after he bought First Republic Bank is that pretty much resolves all of the banking crisis. And everyone was like, all right, well, if he said it, then maybe it's over. But he actually said something before that that no one else clued it on, which is that there may be another smaller failure on its way. So it just seems like investors are going from the weakest bank. and then they're like, okay, we cause that one to fail. Let's go to the next one. Which one looks fragile? Like, let's yank all our money from that because it could be the next one to fail.

Right. It does feel like people were looking for who's the next in line. And so the general consensus has been that the current state of the banking industry, banks with over $500 billion in assets, the big banks, they're going to do fine. We've already seen it. JP Morgan is coming out of this stronger than ever before. Bank of America, same thing. But then you also have the banks with under $60 billion in assets who will also actually do okay.

These are the really small banks who aren't subject to as stringent of regulations as like these mid-sized banks. But that $80 billion to $100 billion assets under management, they are the ones getting wiped out because they have the double trouble of getting regulated because of course there's going to be tighter laws about how they can loan their money out after their recent crisis. and they just don't have the size to compare with the big boys. It's your favorite term. Yeah, the messy middle. The messy middle. It keeps coming back to it. Can I pose a theory here?

What if the U.S. has too many banks? I know. They do. I gathered some data that shows just how many banks we have, okay? The U.S. has 4,700 banks and savings institutions. That's one for every 71,000 residents. So one for, like, a medium-sized town. Canada has fewer banks than North Dakota.

does. Japan has 4% the number of banks of the U.S. And this is largely the result of these laws where many states restricted banks from operating across state lines. And that was repealed in 1994. There's been some consolidation since the 80s and 90s. But, you know, we might just have too many banks. It's like it's like unbundling and bundling, like with cable and streaming where we're now re bundling all the banks back up. I know people are afraid of concentration and, you know, monopoly. But, you know, But we're not even close to that. And it reminded me a little bit of what JetBlue was saying when it acquired spirit,

which is that we need to compete with the big boys. There's United, you know, American and Delta. And we're just here in this messy middle. Why don't we combine together and create better, you know, it might be better for consumers if we just have, you know, six or seven mega airlines. And maybe that's kind of what we need in the banking sector. I like your theory.

I always like your theory. It's not particularly my theory is, you know, Some economists have been. But you came with data, which I appreciate. Just looking forward real quick, there's a big Fed announcement this afternoon. Are they, will they, or won't they raise rates again? This is also going to affect the outlook on these regional banks because if the Fed decides to raise interest rates again, which it looks like they will, it's going to become even

tougher for these banks to hold on to their depositors. It's going to cost more. They're going to have to raise the interest rates they are offering. So today, this afternoon, we're going to see another fallout, I think, on regional banks. So obviously an ongoing situation. Okay, let's move on. I love this next story, Neil. It's very, very dear.

I'm excited to hear what you have to say. I know. So I have a relatively long explanation. So our favorite short sellers, Hindenburg, are back with another report. So Hindenberg research, they're the people who went after the electric truck company, Nikola Motors, India's Adani group and most recently blocks cash app. So if you know that name, those are probably where you've seen it before. So yesterday, it published a report targeting ICON enterprises,

the holding company of the famous activist investor, corporate raider, Carl Icon. So I love digging into these reports, and I did so over the last few days. I'll do my best to walk you all through it. So Icon Enterprises, it's this $18 billion market cap company. It's a holding company. Carl Icon and his son actually own 85% of the company, which is an important detail. The rest is owned by retail investors, the other 15%. So Icon Enterprises offers this gigantic dividend.

Their current dividend is 15.8%. It's the highest dividend yield of any U.S. large cap company by far. The next closest is 10%. So this massive, massive dividend. So Hindenberg was like, how is this possible? How can they offer this massive, massive dividend? is the underlying assets. It's a holding company after all. Are these cash flowing in such a way that they can return cash to investors like that? So Hindenberg did some research. Turns out that is not the case. Icon Enterprises is trading at a 218% premium to its net asset value. So that means it's trading the sum of the parts is trading at 218% more than what the individual parts are. So they're like, okay, that's not checking out. So where's this dividend coming from? They found that they're essentially really, running a Ponzi scheme. And so remember how I said that ICON owns 85% of the company. The other 15%

are these retail bagholders. And basically Hindenberg said, in brief, ICON has been using the money taken in from new investors to pay out dividends to old investors. That's a classic, classic Ponzi scheme. So the market reacted, fell 20%. This Hindenberg looks like they've uncovered another kind of shady business. Shady business model. Yeah. Find somebody to look at you the way Toby looks at a Hindenberg shortseller. It's crazy. Once they lay it all out, you're like, how did no one else see this? Maybe Hindenberg is pointing a bowl of it?

Are they the best, like, investigators in the business? Truly, like they have a sterling reputation because they really haven't missed so far, and it looks like they're on to another one. We should bring them on the pod. I would love to hear their strategy. Yeah. As you mentioned, yeah, Icon Enterprises slump 20%, which was the, you know, biggest fall on record. and Carl, poor Carl, he lost 41% of his fortune.

He went from 58th richest person in the world to 119th, and he lost more than $10 billion on his net worth on a single day after this report. And we saw this happen to Adony, too, after Hindenberg went after them or him. He lost more than $100 billion. Yeah, his net worth is cut in half, and it's basically stayed that way. Yeah, it kind of goes to show. I really do think that once they laid this out, it does seem like Icon has been artificially inflating like the book value of its investments

and then just trying to he has a good reputation he's like very vocal goes on TV and he uses that kind of flywheel to bring in new retail investors the interesting tidbit is icon enterprises has no institutional investors it's literally just Carl Icon and his son and then you and me like retail bagholders so he can kind of manipulate the stock a little bit by saying, hey, invest like me, invest like the best. But it kind of, this dividend is perpetrated on the idea that you can just bring in more retail investors. The reason this story is juicy and even got a lot of publicity is that Carl Icon himself is an activist investor. So it's kind of this one investor going after another investor who has done something similar in his career.

So Carl Icon came to prominence in 1980s known as this corporate raider who would target companies buy up shares and then kind of oust the CEO for major changes, put his own guys on the board. So he was this, you know, big activist investors. Now he's getting a taste of his own medicine. Bill Ackman, who is this other billionaire investor, tweeted, there is a karmic quality to this report. And that's due to this fight that Ackman and Icon had over Herbalife. Ackman took out a short against Herbalife. That was worth $1 billion, betting on the stock to go down.

Icon bet on the stock to go up. and they kind of like had a brawl on CMBC in 2014, I think. Yeah. So like I don't, I was not at morning brew at time. I was not really paying attention to business news, but that was kind of the, that was kind of like the Elon Musk of the early aughts was, or the early 2010s was Ackman and Icon going after it.

So he, Icon, you know, big activist investor, the OG corporator, now is getting taken down. I, this is, I mean, sign-no, but this is why I love Twitter is the fact that Bill Ackman can weigh in and quote treat and like sub-tweet. These are billionaires like sub-tweeting each other. So, pretty fun. Despite all the problems Twitter has, you got to love that still. All right, the corporate raider has been outrated.

That is the first half of our show. Before we jump into the next story, we're going to take a quick break. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179, like the next grill three-burner gas grill, or get $50 off the select Weber Spirit Grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together.

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Pornhub and others, other adult sites owned by this company Mind Geek shut down this week for people with the Utah IP address. Why? And it's a protest of new age restrictions that Utah just put on porn sites. They now need to verify that users are over the age of 18, and they're worried about compliance and being held liable. So they're just shutting down and saying, it's not worth it. So if you fire up Pornhub in Utah right now without a VPN that says you're firing it up from elsewhere,

then you'll be directed to a page where an adult performer issues a statement from Mind Geek criticizing this law. Why does this matter big picture? Because it's part of a wave of states led by Utah, which is very conservative, that are putting tighter restrictions on kids' use of the internet and social media to protect them from what lawmakers consider harmful effects on mental health and misinformation, all of that bad. stuff. Yeah, this story has a lot of layers to unpack because, yeah, the Utah law, it's aimed at making the internet safer, but Pornub is basically saying you're going about it in the wrong way. The mechanism that the Utah law has for verifying users, they say, is not the right way to do it. They want you to like manually upload a picture of your ID, which is just kind of a clunky way of doing age verification. And so Pornhub is basically saying that if you make it so hard to, you make it so hard to

access our site, what you're going to do is push these pringes, these people who are trying to access this content to kind of the fringes of the internet. So they're basically saying you're actually making it more unsafe for kids because kids will find a way. They'll just go somewhere else. And so they're just saying, like, work with us. Let's get a better age verification system in place. Like Pornhub already tries a little bit of age verification, but they just say this is not their way to do it. So like, let's find a better way because Pornhub obviously wants people to still be able to access their site. So they don't want to have it shut down indefinitely.

So it's going to be weird. Like, Mind Geek and Utah lawmakers working together. I can't wrap my head. I can't picture it. I have not seen the musical on that. Yeah. That's the sequel to the Book of Borman, I think. Can we just talk about how the Pornhub putting up numbers?

Oh, my gosh. So more than 76 million people a day visit in the U.S. Visit Pornhub. It's the fourth most popular website in the country in the 13th most trafficked one, overall in the world. Two point five billion U.S. visits per month. Like unbelievable numbers right there.

Yeah. So let's move on to the social, like the other aspect of this, which I mentioned at the top, was that states everywhere, not red, not just red states, red states and blue states, California, New Jersey, Texas, all of them are are passing and pushing through bills that limits kids' use of the internet. Utah is kind of leading the pack and they signed two first of its. kind bills that will go into effect next year. This is one of them bans kids from using social media between 10.30 p.m. and 6.30 a.m. So there's this social media curfew. It requires age

verification for anyone who wants to use social media, requires that parents have access to their kids' social media accounts. So I thought friending my mom on Facebook was bad. Now that she has to, you know, have her. This reminds me of prohibition, does it not? We're like, again, it's coming from a place of technically. We're protecting you. Yeah, we're protecting you. But it just feels like it's going to have these unintended consequences. And like, especially kids, they're going to find a way like around these things. Right.

They find like life finds a way. Kids find a way. So even though like on the surface, like, yeah, I'm on board with banning social media. Like I'd love to ban myself from using social media between those hours. But I just do think that we're going to see some nasty side effects from this that we can't foresee right now. I didn't know this, but social media companies already are supposed to ban people 13 and under from accessing their platforms. TikTok has, remember, they rolled out some of those things where it's, if you're under 13, you can only, like, watch only. It limits your screen time. So there are some in place already, but, yeah, people can lie about their ages.

Like, it's not a perfect system by any chance. You seem like a kind of guy that just skirt, who does not play by the rules. I know, well, I'm glad I'm not 13 right now because I probably would be being a little naughty online. I don't know. Oh, God. Oh, God. Mom. Remember that you're on a podcast, Debbie.

All right. So this kind of dovetails with our next story, which is that the U.S. Surgeon General Vivek Murthy released this advisory yesterday, warning about an epidemic of loneliness. So about half of U.S. adults say they've experienced loneliness. And you might be wondering, why is a doctor warning of? about loneliness. And that's because he laid out the very serious health risks of just being by yourself all the time. So the risk of premature death from being socially disconnected,

he says is equivalent to smoking 15 cigarettes a day. Sounds like a lot. And it's actually higher than the mortality risk from obesity and a lack of physical activity. So what Murphy is saying is that being alone for an extended period of time can literally kill you. And it costs the health care system billions of dollars, each year.

Crazy. I mean, I also love that they always frame these reports in terms of cigarettes, like 15 cigarettes a day. It is the comparison. Dejure. Also, I do want to just, like, say that this has been met with a little bit of skepticism from the medical community because it's a correlation for causation thing.

Is loneliness actually causing these adverse health effects? Or are people with health issues tend to self-isolate more than healthy people? So there has been a little bit of pushback. But I mean, loneliness is definitely something that spiked during the pandemic. Like the pandemic really caused a lot of isolation. And now we were kind of discussing before the show, like, what do you do about this? Like, how do you fix loneliness? And I always go to you need these third spaces.

And third spaces are basically anything that's not your home or not your work. Those are places like parks, cafes, gyms, coffee shops. And then we have to talk about it. but the biggest third space, typically in American society used to be like places of worship churches, and that has obviously fallen over the last decade or so. In 2020, only 47% of Americans said that they belong to a church,

synagogue or mosque. That's down from 70% in 1999. So clearly those numbers are falling. Yeah. But maybe anecdotally, are you hearing people going back to church or temple and being like, I don't really know if I believe in God or whatever,

but I just want to be with people. Yeah. You know, it provides a community, you know, reliably every week for, I don't know about like-minded people, but it's just people. And at a time when there's not so many other things to do as a group, I mean, playing sports is a big one. For sure. Yeah. I mean, the Wall Street Journal did run this article two weeks ago saying that young people are

returning to faith a little bit. Yeah. It was a little bit anecdoted. Like, they didn't have a ton of hard evidence, but their, like, the headline news was in 2021, only a quarter of young people said that they believed in some higher power, and that went up to a third, a few years later. So maybe we're seeing some of that, yeah, post-pandemic stuff shake out where people are believing God a little bit more.

Damn, we started this with regional bank collapse, and now we're at Divinity. There we go. Get you a podcast that I can do both. All right, let's move on to the sports world. Forbes' list of the highest paid athletes in the world came out yesterday, and a lot of the usual suspects were on it. soccer players, Christian Leonardo, Leonel Messi, and Killian Mbapé,

top the list, bringing in 136, $100 million, and $130 and $100 million, respectively. Then you had LeBron and boxer Canello Alvarez, and then we get into some live golfers, Dustin Johnson, and Phil Mickelson at 6 and 7, Steph Curry, Roger Federer, and Kevin Durant round out the list. But I actually want to talk about the big elephant in the room when it comes to this year's list, the presence of Middle Eastern money. there's a lot of different angles we can take into this. First of all, the two golfers on the list, Dustin Johnson and Phil Mickelson,

they're part of Live Golf, which is backed by Saudi Arabia. They have no business being on this list. I know. They got a little chunk of change, though, because they got paid, and this is only half what they got paid, by the way, half of what's up front. And then Saudi Arabia also kind of bankrolls Christiano Ronaldo's salary. He plays for Al-Nissar in the Saudi League. and then Qatar owns PSG, which Messi and Mbapé play for.

Messy's also a paid ambassador for Saudi Arabia. So pretty much anywhere you look on this list, you'll kind of find some sort of Middle Eastern oil money. I think five out of ten. Yeah, we've talked a lot on this program about how Gulf states are getting into sports, whether you want to call it sports washing or diversifying the economy. I mean, they hold, you know, Abu Dhabi holds a lot of the UFC fights, right? and Saudi Arabia is bringing in WWE as well, and now those two companies are the same.

I know. And then you have Saudi Arabia spent $60 million on a horse race just alone. That has a $20 million prize pool, the biggest in the world. They have a $650 million $10-year deal with Formula One to get a race in the city of Jeddah. And then also Qatar spent, I mean, this number is a little disputed, but $200 billion on the World Cup. So sports washing, everywhere you look, it's kind of crazy, especially when you look at this year's list. And we have to mention before we leave this story that Messi was just suspended for two weeks by PSG for his role as being an ambassador to Saudi Arabia.

Basically, he ditched town. Yeah. He ditched practice to go do this ambassador trip to Saudi Arabia without telling anyone. Yeah. But apparently he makes $30 million a year from this ambassadorship. And PSG is in this big title race in France. and he just did not show up to practice because he was doing tourism stuff for Saudi Arabia.

Come on, Messi. You're better than that. We love you, but you can't be missing practice for that. All right, final story. Toby, I have to ask you a question. If Morning Brew built housing, would you rent from them? It's not totally existential. There was a new NPR report that we saw that explained how a bunch of employers, including Disney, META, schools, hospitals,

and even Elon Musk are building houses or entire neighborhoods for their employees to live in as the cost of housing skyrockets because there's no availability or affordability. There are a number of implications here, but one of them is that you'll be living next to your coworker. How do you feel about that? I feel great about it. I don't know. I would live with you. You're my coworker. I do see how it's definitely a awkward and a little bit of a complicated situation because what happens if you leave the company, if you get fired, do you still want to live in like Tesla City if you no longer work at Tesla? It's very interesting.

But honestly, like, these sound fun to me. Like, wouldn't it be fun to be surrounded by like-minded people? Like, what if we have like a little business podcast? You work at Morning Brew where everyone is, you know, most people are young and you along with them. If you work at another company that, you know, maybe you don't, the people you don't have a lot in common with, you probably wouldn't think of it as quote-unquote fun. You're right. But I mean, I would tend to think that the companies that are building these cities are doing this because they think that their employees would want to live near each other.

Like, it's not something with horrible morale. Like you don't see better.com or whatever Herman Miller. You have not seen much of the world with my young lad. It's true. Hey, I enjoy your company. I think they're only doing this because they need workers. So say you're like the company they profiled was this medical company, medical manufacturer in a rural. I forgot the state, but rural Midwest, there's not a lot of workers out there. There's not a lot of employees. So if you need to recruit workers, then you're going to say, okay, well, look, come out

to live in the middle of nowhere here and we're actually going to subsidize housing for you. Yeah. That makes it a little more compelling to say, okay, I guess I'll move there and work here. And yeah, they're offering below market rates. But the criticism here is that this is very kind of Mr. Beast, I cured 200 blind people kind of thing. It's like, look, we don't have a system in which people can afford houses and we need companies to provide insurance and educational opportunities and kind of stepping in where the government isn't and you got people being like, I don't, like this is my employer is, I just go there to work. You know, like I don't need them to be a part of my life like that. Yeah. Don't give Mr. Bees any ideas, by the way, because the next video

we're going to get, I built a city to house every 1,000 people. Yeah, wild that we went from Google offering like free lunch as a perk to now. Right. We got houses as like an employment perk because, yeah, you need workers. You need to hold and retain these workers. Yep. All right, that is our show. If you're feeling lonely, you can always reach out to us

at Morning Brew Daily at morningbrew.com or call Toby's cell phone at... Don't tell my cell phone number. Please. I don't have that on top of my head. I don't know anyone's cell phone number. Not even my mom's. Big thanks to everyone who made this show possible.

The show's producer and editor is Emily Milliron. Our technical director is Euchenawa Ogu. Samantha Velas and Raymond Liu, our associate producers. Billy Minino is on audio. Hair and makeup mixed up the AMPM on their alarm clock this morning. Classic mistake. Devin Emery is our chief content officer.

Our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow. Pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly Big Board Buck slot machine by Aristocrat Gaming, Yamava Resort and Casino at San Manuel is giving one person a $1.6 million dream package.

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