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SoftBank Takes $10 Billion Hit after Being Unmasked as Nasdaq 'Whale'

The Japanese financial powerhouse has spent billions of dollars buying shares in technology companies such as Amazon as it parks cash generated by a massive asset sale programme.

The Japanese financial powerhouse has spent billions of dollars buying shares in technology companies such as Amazon as it parks cash generated by a massive asset sale programme.

SoftBank bought $4 billion worth of options tied to underlying shares it had earlier purchased in tech firms like Amazon (AMZN), Microsoft (MSFT) and Netflix (NFLX). The options generated an exposure of about $50 billion.

Shares in SoftBank retreated again on Tuesday, bringing losses in Japan to 7.7% over two days following reports that the conglomerate had been making huge and risky bets on tech stocks. The losses have wiped roughly $10 billion off the market value of SoftBank.

How big are the bets? SoftBank bought $4 billion worth of options tied to underlying shares it had earlier purchased in tech firms like Amazon (AMZN), Microsoft (MSFT) and Netflix (NFLX), according to the Wall Street Journal. The newspaper said that the options generated an exposure of about $50 billion.

The size of the bets means that SoftBank (SFTBF) CEO Masayoshi Son is now being called a "whale" — a heavy hitter with the power to move markets on his own. But investors in his company are nervous.

The options could pay off for SoftBank. According to the Financial Times, which was first to report on the position, the company is sitting on trading gains of about $4 billion. But such trades are also risky, since they could lead to big losses if equity markets keep falling.

Remember: The Nasdaq plunged more than 6% in two days last week before the Labor Day weekend. Futures are down sharply on Tuesday.

Why worry: Son had been preaching a defensive strategy after his company reported a record 1.36 trillion yen ($12.7 billion) operating loss in May caused almost entirely by his $100 billion Vision Fund, which invests in tech startups.

Last month, SoftBank announced that it would sell more than 1 million shares in its mobile carrier affiliate SoftBank Corp., worth 1.47 trillion yen (nearly $14 billion). That asset sale came on top of plans the firm announced in March to raise some 4.5 trillion yen ($42 billion) by selling assets.

What's next: Analysts are questioning the rationale behind the options purchases, and wondering how they fit into a defensive strategy. SoftBank has so far declined to comment, but some investors have seen enough. After all, if investors want to purchase options on US tech stocks, they are able to do so without buying shares in SoftBank.

first published:September 08, 2020, 18:40 IST