Business

➚ BUY: Charming. Elon Musk, who memorably told off advertisers that had fled X, is at the industry’s annual gathering in Cannes this week trying to repair the damage. He’ll be interviewed tomorrow by WPP’s chief executive.

➘ SELL: Farming. Two years of drought, inflated seed costs, punishing interest rates, and lower crop prices have created a crisis on the US prairie, where Reuters says “small cities are at risk of becoming ghost towns.” Corn, wheat, and soybeans are virtually the only commodities whose prices aren’t soaring these days.

Apple shuts down its buy-now-pay-later service… Nobody wants to be Boeing’s CEO… The “Queen Bee” of Bidenomics… Exxon’s suit against climate agitator tossed… Miami condos are booming… Defense contractors are hiring… FTC’s top trial lawyer goes private…

Greg Tusar runs Coinbase’s trading business aimed at institutional investors.

Liz Hoffman: I understand the appeal of crypto to retail. Why would a pension fund or an endowment want it?

Greg Tusar: At the end of the first quarter, we had $170 billion of total institutional assets in our custodian. Thirty-three of the top 100 hedge funds are our clients and directly own crypto on our platform. The state of Wisconsin is one of the largest holders of [BlackRock’s bitcoin ETF]. The next group that’s coming is the quant community. These assets can be traded in a way that looks and feels enough like prime brokerage at a traditional bank that it’s possible to bring over some of those quantitative strategies.

Six months after bitcoin ETFs got approved, where are we? After an initial rush, total assets haven’t grown meaningfully.

The ETF has been a great catalyst. It’s brought more interest into the space. Inflows did slow, and that’s probably a good thing, for the market to digest. But it has picked up again recently, and I think that’s due to the approval of ethereum ETFs.

We bought a small asset manager last year and the reason we’re excited about the asset management side of the business is that it feels very young today. It has largely meant venture or ETFs and we think there’s a lot of room for actively managed strategies, structured products with a floor, a cap, those sorts of things.

Can I borrow against my bitcoins to buy more bitcoins? That’s a pretty core feature of prime brokerage.

As a retail customer, no. For institutional investors, if somebody has bitcoin and wants to borrow dollars, we’ll do a collateralized loan. We’ve distinguished ourselves from a risk management perspective relative to some who have come and gone who didn’t do that.

And if you want to be long bitcoin and short ethereum, we have a risk model that suggests what the appropriate haircuts are in the same way that if you were long Pepsi and short Coca Cola.

What about indexes?

None have established themselves yet. You need good asset selection that filters out undesirable [tokens]. So if you just go purely based on market cap weighting, you would probably catch a lot of things that you might not want to include.

Doesn’t the fact that market cap is a bad indicator of quality suggest some real problems in the market? That the popular stuff is garbage?

There are going to be GameStops in crypto. There’s nothing we can do about it. People should have the ability to buy and sell things that they want. But with an index, you’re selecting those on behalf of the user. It’s really no different than having an S&P 500 index committee.

I think the primary reason is we don’t have indexes today is regulatory clarity around what is or isn’t a security. That’s why we’re fighting so hard for regulatory clarity. The passage of FIT21 in the House, the approval of the ethereum ETF — put together it’s an indication that as a country, we’re moving in the direction of embracing crypto.

Why is that a good thing? Bitcoin has turned out not to be a great store of value or useful in payments. If it’s just a commodity now, why is it better than, I don’t know, soybeans?

There are commodities use cases, there are stablecoin use cases, there are utility use cases and securities use cases. But none of those things can happen inside of the US without clear rules of the road.

My general rule is people don’t like reading about cool parties they weren’t at, but the fate of a $1 trillion industry is being debated on the French Riviera. The official theme of Cannes (the advertising one, not the movie one) this year is making ads funny again but my colleagues on the ground, Ben Smith and Max Tani, report that “everyone is too afraid of generative AI to laugh.”

AI-generated images, ideas, and taglines threaten to upend the creative side of advertising much the way that the social-media platforms upended its financials. It’s already starting: This week, TikTok launched a new tool that generates AI influencers to hawk products. Google, Meta, and Pinterest all have AI-powered ad services called, naturally, Performance Max, Advantage+, and Performance+. (And they say the streaming wars are waning.)

Ahead of Cannes, one of the world’s biggest ad agencies, Publicis, launched a “BSBot” to call out nonsense AI pitches, prompting rivals to grumble to Campaign. The company’s Scott Hagedorn told Ben that Publicis is focused instead on “big, unglamorous projects, like helping retailers figure out when their competitors are out of inventory.”

That’s the homepage today of Fisker, the EV maker that filed for bankruptcy this morning. The company had its own problems — a deal with Nissan fell through, its stock was booted from NYSE, it snagged an emergency loan in March at usurious rates, and its founder had already driven one luxury electric car company into failure — but EV makers everywhere are slashing prices in the face of flagging demand.

Tesla, Volkswagen, Ford, and Hyundai are all offering major discounts right now. Nearly half of all car shoppers aren’t even considering an EV, and the next wave of dedicated buyers is at least three years away, according to Cox Automotive. Legacy carmakers can wait that long, but startups birthed in the fundraising boom can’t: Fisker is at least the fifth venture-backed EV company to fail in the past two years.

Regulatory redux: Banking regulators are set to ding Citi for weaknesses, again. The Wall Street Journal reports that the FDIC will downgrade Citi’s emergency wind-down plan — an annual exercise put in place after 2008 to make sure that future bank failures will be orderly — from “shortcoming” to “deficiency.” Sometime in the 2010s, Citi took the industry-basketcase mantle from Morgan Stanley, and since 2020 has been operating under strict federal oversight after it accidentally sent $900 million to the wrong customer, among other blunders.

Three years into CEO Jane Fraser’s tenure, the size of Citi’s business problems are just now coming into view. After a major restructuring last fall that cut 20,000 jobs, the bank is trying to woo back investors to a stock that hasn’t traded above book value since 2008. In bank math, that means shareholders think Citi’s management adds negative value to all of the things it owns and the businesses it runs. Fraser’s plan is to simplify: “We are no longer the financial supermarket of the past,” she said at an investor event this morning that is highlighting Citi’s crown jewel: A business nobody understands.

Le Pen is mightier: French markets have tanked heading into national elections that may hand power to the far right. Assurances from Marine Le Pen, whose National Rally party is leading in the polls, that she’ll seek “cohabitation” with centrist President Emmanuel Macron did little to calm nerves. Paris’s stock market fell behind the London Stock Exchange in total market capitalization — particularly stiff given the LSE’s fortunes of late — and investors are demanding extra interest to hold French government bonds. The trading has been wild enough for a European Central Bank official to field questions about an emergency intervention (that’s a no from Brussels for now).

Last week it was the prospect of a left-wing government that rattled investors in Mexico. Markets like the middle of the road.

Michael Garland is New York City’s assistant comptroller for corporate governance, helping to direct its $242 billion in pension funds. He explained the city’s vote against Toyota’s chairman, who kept his board seat yesterday despite shareholder concerns over the company’s admissions that it cheated on certification exams.

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