HomeBlogFinanceInside FTX’s $32bn collapse

Inside FTX’s $32bn collapse

One scoop to start: Saudi Arabia’s sovereign wealth fund is helping bankroll what’s set to be the winning bid for a stake in Vodafone’s €14.8bn towers business led by private equity groups KKR and Global Infrastructure Partners.

In today’s newsletter:

The $32bn crypto collapse heard round the world 

Earlier this year DD asked whether crypto billionaire Sam Bankman-Fried was the John Pierpont Morgan of his era, after almost single-handedly bailing out the crypto market.

Now we have the answer. No, he isn’t. Not even close.

SBF just went from crypto hero to zero in a matter of days after he was forced to strike a deal on Tuesday to sell his digital currency exchange FTX to major rival Binance for what we believe is likely zero.

Let’s take a step back to appreciate the magnitude of what happened: FTX was valued at $32bn in January in a funding round led by the likes of SoftBank, Tiger Global and the Ontario Teachers’ Pension Plan.

Months later, SBF appeared to command the most powerful position not just in crypto but in the world of finance. Dressed in cargo shorts and a T-shirt he appeared onstage in the Bahamas, where his company is based, alongside Bill Clinton and Tony Blair. (Soon after, he had Lunch with the FT.)

Left to right: former UK prime minister Tony Blair, former US president Bill Clinton and Sam Bankman-Fried
Left to right: former UK prime minister Tony Blair, former US president Bill Clinton and Sam Bankman-Fried

But the 30-year-old just learned an important lesson: life comes at you fast. On Monday Binance chief Changpeng “CZ” Zhao sowed a seed of doubt as to the financial viability of SBF’s empire. The FTX founder responded with “FTX is fine. Assets are fine.” It turns out, it wasn’t.

“This afternoon, FTX asked for our help,” CZ tweeted on Tuesday. “There is a significant liquidity crunch. To protect users, we signed a non-binding [letter of intent], intending to fully acquire FTX.com.”

It was a jaw dropping moment and sent panic through the entire crypto industry — FTX would essentially collapse without a rescue from Binance.

“This is a historical moment . . . a bit of a ‘what the f***’ moment,” said Pascal Gauthier, chief executive of digital wallet provider Ledger. “It shows that no one is too big to fail. FTX seemed untouchable.”

Indeed it did. In a market filled with dubious figures, SBF got a level of respectability and celebrity that’s usually reserved for Wall Street titans.

It wasn’t too long ago that Goldman Sachs chief executive David Solomon tried to woo SBF during a meeting in the Caribbean.

Even celebrities like supermodel Gisele Bündchen wanted in on the action. She became the face of FTX as well as its head of environmental and social initiatives, appearing in an advert alongside SBF that said “The future of investing is FTX. You in?” 

Well known investors such as Millennium Management’s Izzy Englander, Third Point’s Dan Loeb and private equity billionaire Orlando Bravo were.

Until a few days ago, FTX was the paragon of stability in the crypto market and helped legitimise it as an asset class. That view was endorsed by the who’s who of the investment world and now it has all come undone. The real question is what happens if the deal falls through?

Carlyle’s botched succession came at a terrible time

Carlyle Group entered the year on an acquisition push with its shares near record highs.

Nine months later, the firm, founded by billionaires David Rubenstein, William Conway and Daniel D’Aniello, has to manage a fumbled succession in a quickly souring market for private equity deals.

In its first earnings report since former chief executive Kewsong Lee resigned this summer after he was told his contract would expire at year-end, Carlyle reported a steep slowdown in fundraising and its overall assets under management fell, DD’s Antoine Gara reports.

Carlyle co-founder William Conway
Carlyle co-founder William Conway was made interim chief executive in August © Bloomberg

The $6bn in new investor commitments Carlyle drew in the third quarter was less than the $10bn it raised in the second quarter and well below the amounts gathered by US private equity rivals. Blackstone raised $45bn, Apollo Global Management raised $34bn and KKR raised $13bn this quarter.

The fundraising slowdown masked strong investment results and caused shares to slide close to multiyear lows, Lex notes.

Conway, who has been acting as interim chief executive since August, was peppered by analysts who asked if the leadership upheaval had affected fundraising.

“[The] short answer would be no, in terms of the impact of the CEO change on fundraising,” Conway said. “[I] don’t see any long-term damage at all in this.”

About finding a new leader, Conway had few additional details to offer. “Before I close, let me comment on our search for a permanent CEO. In short, the search continues,” he said.

Sources familiar with the matter say internal and external candidates remain in the mix.

Three Carlyle business unit leaders, Mark Jenkins, head of credit; Ruulke Bagijn, head of investment solutions; and Peter Clare, a longtime partner who chairs the firm’s private equity business, were on the call with shareholders. Carlyle shares fell over 7 per cent.

Whoever Carlyle’s triumvirate of founders picks has a tough challenge ahead.

Job moves

  • Adidas has hired Puma boss and former Norwegian professional footballer Bjørn Gulden to lead the world’s second-largest sportswear maker from January following three profit warnings in the past five months and the end of a lucrative tie-up with Kanye West.

  • UBS’s chief risk officer, Christian Bluhm, has resigned from the Swiss bank to become a full-time professional photographer.

  • Kohl’s chief executive Michelle Gass is stepping down in December to eventually become chief executive of Levi Strauss following pressure on the retailer from Ancora and other activist investors.

  • A group of PwC partners has launched a breakaway firm in Cyprus to take on work from Russia-linked clients that the Big Four accountants will no longer touch.

  • TikTok has transferred North America general manager Sandie Hawkins to run its US ecommerce channel, according to five people with knowledge of the changes, and cut a number of senior roles, including former global head of ads business systems David Ortiz as part of a major US restructuring.

Smart reads

Hotel Qatar In Doha, hotels act as havens for sex, booze and even activism. But staggering wealth inequality means that foreign workers are breaking their backs to provide a safe space for the rich. The situation is worsening as the country prepares to host the Fifa World Cup, John McManus writes in FT Magazine.

Extra shot Beijing-based hedge fund Snow Lake Capital helped expose a massive fraud at China’s Luckin Coffee. Now, it’s betting the chain could make an explosive comeback, its founder Sean Ma told The Wall Street Journal.

And here’s a smart watch: DD’s Ortenca Aliaj chronicles the spectacular rise and fall of special purpose acquisition companies.

News round-up

Brookfield quits insurer’s board in dispute over Josh Harris’s venture (FT)

British financier Evelyn de Rothschild dies aged 91 (FT)

Lars Windhorst’s bank reported to regulator by Hertha Berlin (FT)

Alden Global Capital has abandoned its bid for Lee Enterprises (Axios)

Retailer Next set to snap up online furniture firm Made.com (Bloomberg)

Coinbase censured over business structure by German watchdog BaFin (FT)

Apple’s bargain with Beijing: access to China’s factories — and consumers (FT)

Renault paves way for electric vehicle listing to boost profits (FT)

Big hedge funds shop for bargains in corporate debt markets (FT)

Musk’s Bride of Reverse Frankentwitter (Alphaville)

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