Wall Street is handing Amazon $13.7 billion to buy Whole Foods

• Matt Turner
 

• Jun. 16, 2017, 9:25 AM
• 6,720

Goldman Sachs CEO Lloyd Blankfein.REUTERS/Gary Cameron

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Amazon is buying Whole Foods.

The online giant is buying the high-end grocer for $42 a share, valuing the company at $13.7 billion.

Shares of the grocer were trading at $33.06 a share before the deal was announced, so the deal represents a 27% premium on its closing price yesterday.

In a filing on Amazon's website, the company revealed that it expects to pay for the merger with debt financing from Goldman Sachs and Bank of America Merrill Lynch. 

Here's the relevant extract:

"The Company expects to finance the Merger with debt financing, which could include senior unsecured notes issued in capital markets transactions, term loans, bridge loans, or any combination thereof, together with cash on hand. In connection with entering into the Merger Agreement, the Company has entered into a commitment letter (the “Commitment Letter”), dated as of June 15, 2017, with Goldman Sachs Bank USA, Goldman Sachs Lending Partners LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Bank of America, N.A. (collectively, the “Commitment Parties”), pursuant to which, subject to the terms and conditions set forth therein, the Commitment Parties have committed to provide a 364-day senior unsecured bridge term loan facility in an aggregate principal amount of up to $13.7 billion (the “Bridge Facility”), to fund the consideration for the Merger."

Goldman Sachs will have the "lead left" role, giving it the lead role on the financing. The bank is lending $6.85 billion, with the bank itself committing $3.5 billion, and GS Lending Partners putting in $3.35 billion. Bank of America is signed up to lend $6.85 billion. 

The filing also said that Goldman Sachs will be the only firm to receive any "brokerage fees, commissions or finder's fees" for the merger.

Get the latest Bank of America stock price here.

SEE ALSO: Amazon is buying Whole Foods for $13.7 billion

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MORGAN STANLEY: Bitcoin isn't a currency

• Graham Rapier
 

• Jun. 15, 2017, 7:11 AM
• 9,281

Bitcoin may have appreciated 300% in the last 12 months, but Morgan Stanley still isn't convinced the cryptocurrency will be a viable currency in the long run. 

In new research published this week, analysts at the bank say that bitcoin (and its counterparts like ethereum) are still more like investment vehicles than fiat currency that you could spend on goods and services. In addition, it said there are few reasons to use bitcoin instead of a debit or credit card, as it represents a "marginally more inconvenient way to pay."

Here's Morgan Stanley:

Most regulators and investors view cryptocurrencies more as assets than actual currencies. Their values are too volatile and too hard to actually use for payment for most to consider them currencies. Our conversations with some merchants indicate that, while cryptocurrencies might actually be attractive for them to operate their businesses, they find that the cryptocurrencies are far too volatile to be used.

The price of bitcoin has exploded in the past year. Markets Insider

The huge rise in the price of bitcoin is perplexing to the bank, which says other factors should have brought bitcoin's value down. These include the SEC's rejection of a bitcoin ETF proposed by the Winklevoss twins, declining trading volumes, and a Chinese crackdown on bitcoin miners, without which "transaction time for Bitcoin could increase substantially," says Morgan Stanley. 

"It is not clear why cryptocurrencies are appreciating so rapidly (apart from the appreciation itself drawing in more speculation against a potentially inefficient ability to sell)," the bank said in a note. 

Still, Morgan Stanley has some guesses as to why bitcoin has seen such a catastrophic rise:

1. ICO's, or Initial Coin Offerings: Instead of traditional public offerings or funding rounds, a handful of companies have begun offering investors digital tokens in exchange for cash. In on high-profile case, a tech startup called Aragon raised $12.5 million in less than 15 minutes in its ICO. 
2. China: There are strict limits on currency outflows in the country, and Morgan Stanley assumes many people are using cryptocurrencies as a way to bypass the limits. 
3. Korea and Japan: Bitcoin was just legalized by the Japanese government, so it makes sense that it would be gaining popularity in the country. "In Korea, however, there is not a clear explanation for the surge," the bank writes. 

Get the latest Bitcoin price here.

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More people now subscribe to Netflix than cable TV in the US

• Jeff Dunn
 

• 17h
• 3,834

 More Charts

 
•  
 

Netflix is becoming as much a staple of the American home as cable TV — even more so.

In the first quarter of this year, the number of US Netflix subscribers overtook the number of American cable TV subscribers for the first time, according to a recent study by Leichtman Research Group charted for us by Statista. While Netflix has rapidly gained new subscribers, cable has been slowly losing them. 

To be sure, Netflix has a ways to go to outpace all traditional multi-channel pay TV services. If you added subscribers to satellite services like DirecTV and phone-based systems like Verizon's FiOS to cable subscribers, Netflix would trail far behind. 

Even setting that aside, Netflix's gain isn't necessarily cable's loss. Netflix and cable offer access to different things, so plenty of people subscribe to both. And it’s worth remembering that many of the same firms that offer cable TV also provide the internet connections consumers use to tune in Netflix.

But Netflix's milestone is yet another sign of the growing appeal of streaming video.

Mike Nudelman/Business Insider/Statista

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Here's the Fed's plan to unwind its massive $4.5 trillion balance sheet

• Bob Bryan
 

• 12h
• 11,031
 

The vault at a Wells Fargo bank. AP

During the financial crisis, the Federal Reserve built up a store of roughly $4.5 trillion in Treasurys and other assets, like mortgage-backed securities, on its balance sheet.

Since then, when these assets have come due the Fed has turned around and reinvested the principal back into new assets, maintaining the size of its balance sheet.

Now, nearly a decade after the start of the financial crisis, the Fed has announced its plan for shrinking the size of its balance sheet.

The basic idea is that the Fed will stop reinvesting the principal of securities when they mature.

Put another way, when a 10-year Treasury on the Fed's books comes due, the money it gets back from that investment will not be used to go out and buy another Treasury.

The slowing of reinvestment will be phased in over time. To start, the Fed will invest money back into the market only if it gets back more than $6 billion in principal returned a month. From there, the "cap" will increase by $6 billion every three months over the course of a year until it hits $30 billion a month.

The Fed said it would ultimately have a balance sheet "appreciably below that seen in recent years but larger than before the financial crisis" in part because the Fed expects banks to maintain higher demand for reserves supplied by the central bank. But that is a pretty broad end point given that the Fed held roughly $800 billion in assets before the financial crisis and $4.5 trillion now.

Here's the full plan via the Fed:

All participants agreed to augment the Committee's Policy Normalization Principles and Plans by providing the following additional details regarding the approach the FOMC intends to use to reduce the Federal Reserve's holdings of Treasury and agency securities once normalization of the level of the federal funds rate is well under way.

• The Committee intends to gradually reduce the Federal Reserve's securities holdings by decreasing its reinvestment of the principal payments it receives from securities held in the System Open Market Account. Specifically, such payments will be reinvested only to the extent that they exceed gradually rising caps.
  • For payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month.
  • For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month.
  • The Committee also anticipates that the caps will remain in place once they reach their respective maximums so that the Federal Reserve's securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.

• Gradually reducing the Federal Reserve's securities holdings will result in a declining supply of reserve balances. The Committee currently anticipates reducing the quantity of reserve balances, over time, to a level appreciably below that seen in recent years but larger than before the financial crisis; the level will reflect the banking system's demand for reserve balances and the Committee's decisions about how to implement monetary policy most efficiently and effectively in the future. The Committee expects to learn more about the underlying demand for reserves during the process of balance sheet normalization.
• The Committee affirms that changing the target range for the federal funds rate is its primary means of adjusting the stance of monetary policy. However, the Committee would be prepared to resume reinvestment of principal payments received on securities held by the Federal Reserve if a material deterioration in the economic outlook were to warrant a sizable reduction in the Committee's target for the federal funds rate. Moreover, the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.

SEE ALSO: Fed raises interest rates, lays out plan to unwind its massive balance sheet

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One of the world's top central bankers warns digital currencies like bitcoin could worsen future financial crises

• Will Martin
 

• 17h
• 4,372

BUNDESBANK/ REUTERS/Kai Pfaffenbach

Jens Weidmann, the head of Germany's Bundesbank and one of the most powerful figures in European finance, has warned that digital currencies like bitcoin have the potential to make financial crises in the future even more devastating.

Speaking in Frankfurt on Wednesday, Weidmann said he believes that central banks will eventually create their own digital currencies to reassure average citizens that such currencies are safe and stable, but in doing so could increase the risk of bank runs in future crises.

"Allowing the public to hold claims on the central bank might make their liquid assets safer, because a central bank cannot become insolvent," Weidmann said in a speech largely focused on the European Central Bank's QE programme.

"This is a feature which will become relevant especially in times of crisis – when there will be a strong incentive for money holders to switch bank deposits into the official digital currency simply at the push of a button. But what might be a boon for savers in search of safety might be a bane for banks, as this makes a bank run potentially even easier."

Weidmann's basic point is that by making currencies fully digital in future, withdrawing money from a bank would become much more simple. Instead of physically having to visit a cashpoint or bank branch to withdraw cash, customers could do it online. In times of crisis, when people tend to take money out of their accounts so they can have the perceived safety of cash, causing the phenomenon of the bank run.

At its simplest level, a bank run occurs when customers lose faith in the stability of the bank and the safety of their money, so decide to take out their cash. This, in turn, makes the bank's problems even worse, because they lose cash liquidity, making it more difficult for them to fulfil their obligations.

A famous example of a bank run came in 2007 when British lender Northern Rock saw a run after it was revealed that it had to seek emergency assistance from the Bank of England. Northern Rock collapsed shortly afterwards.

Digital currencies have hit the headlines in recent months after the price of bitcoin — the best-known cryptocurrency — began to increase rapidly.

Bitcoin's price has climbed from around $750 per coin in late 2016 to around $3,000 per coin today, a gain of 400% in just over six months. That has caused other currencies like Ether to spike higher as well.

Get the latest Bitcoin price here.

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More: Bitcoin Bundesbank Jens Weidmann

Alphabet, Facebook Dominate As Digital Ad Revenue Climbs 23%

Digital ad sales jumped by 23% in the first quarter, which is good news for Google. (Google)

• BRIAN DEAGON
• 4:32 PM ET

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Revenue from digital advertising in the U.S. rose an estimated 23% to $19.6 billion in the first quarter, with Google parent Alphabet (GOOGL) and Facebook (FB) dominating the landscape with a combined 71% share.

The $19.6 billion is the second-highest quarter recorded, following the $21.6 billion in the fourth quarter of last year, according to data from the Interactive Advertising Bureau and accounting firm PwC. It was the seventh straight first quarter to have double-digit growth, year over year.

Brian Wieser, an analyst at Pivotal Research, estimates that Google accounted for about 51.5% of the total and 19.5% for Facebook, or 71% combined. That's up from 69% in the year-ago quarter of 2016 and 64% in the first quarter of 2015.

If these estimates are correct, he wrote in a research note, "digital advertising that did not go through Facebook or Google performed reasonably well in the first quarter," growing by 14%, vs. the 7% growth rate observed during all of 2016. But the bigger point, he wrote, is that Alphabet, Facebook and other owners of digital media properties are gradually approaching the point of saturating available digital budgets.

"This helps explain why digital media owners – and Facebook in particular – have become more aggressive in finding ways to capture television advertising budgets," he wrote. For similar reasons, Alphabet is also counting on YouTube to help capture growth from TV ad budgets, he wrote. International markets provide ongoing opportunities for growth as well.

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IBD'S TAKE: Both Alphabet and Facebook have pulled back from record highs they set last week. IBD currently has an "uptrend under pressure" designation on markets, suggesting that investors should be more cautious about buying, cutting losses quickly and taking some profits to raise cash.

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Wieser has a hold rating on Facebook and a price target of 140. He also has a hold rating on Alphabet and a price target of 990.

Facebook stock slipped 0.3% to close at 150.25, on the stock market today. Alphabet stock was down 0.3%, near 967.93.

Wieser said three core risks for all digital advertising companies relate to the high degree of rivalry given an absence of barriers preventing new competition from emerging, overly high and increasing capital needs to remain competitive, and government regulations and consumer pushback related to the management of consumer data and respect for privacy.

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• BRIAN DEAGON |  Facebook |  @IBD_BDeagon