How SoftBank CEO, Masayoshi Son lost $3.7 billion on bearish day trading

(Markets Insider) – SoftBank’s new trading arm, SB Northstar, posted $3.7 billion in losses as bearish derivatives bets on tech stocks floundered, the Financial Times reported Wednesday.

The arm was mostly kept secret until the FT revealed it was making multibillion-dollar bets on tech giants through the summer’s market rally.

SoftBank CEO Masayoshi Son leads the division, and the move into risky day-trading has raised concerns at Elliott Management Corp, a hedge fund expected to be SoftBank’s second-biggest shareholder.

Elliott helped guide SoftBank’s rebound from spring losses by urging asset sales and share buybacks. Yet Son’s focus on day-trading is butting heads with Elliott’s more conservative investing style, The Wall Street Journal reported.
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SoftBank’s new tech-focused trading unit is already down $3.7 billion. The company’s second-largest shareholder is now stepping in to offset the losses.
SB Northstar, the unit led by SoftBank CEO Masayoshi Son that trades the daily moves of tech stocks, revealed its losses for the first time on Wednesday, the Financial Times reported. The arm was kept in the shadows until the FT revealed it was the “Nasdaq whale” trading billions of dollars worth of options contracts on tech stocks through the summer.

While a former Deutsche Bank trader heads the unit now, Northstar’s trades are approved by a three-person panel that also includes Son and Ron Fisher, Softbank’s vice-chairman.
The trading arm bought nearly $17 billion of shares in tech giants and another $3.4 billion in stock derivatives by the end of September, according to the FT. While some of Northstar’s more bullish positions gained as tech stocks rallied through the summer, short bets fueled the bulk of the quarter’s multibillion-dollar loss.

Son’s focus on day-trading marks a shift from his past investing styles. Though SoftBank founder is known for his riskier investments – including a stake in floundering shared-workspace startup WeWork – his past successes hinged on long-term gains and profiting on secular growth trends. Where SoftBank’s famous $100 billion Vision Fund invests in private tech companies, Northstar actively trades shares of public firms.
The riskier investing style and Northstar losses sparked concern at hedge fund Elliott Management Corp., according to a Wednesday report by The Wall Street Journal. The activist fund has slowly built up a stake in SoftBank that likely makes it the company’s second-biggest shareholder.

When SoftBank shares nosedived in the spring, Son and other executives at the company reached out to Elliott for counsel. The hedge fund’s executives advised SoftBank to buy back shares and improve governance, The Journal reported. SoftBank exceeded Elliott’s buyback target and sold more than $92 billion in assets to build a healthy cash buffer.

Yet some at the hedge fund fear that Son’s move into day-trading can plunge SoftBank into another risky position, according to The Journal. A few Elliott executives are so concerned they’ve even hedged against Northstar’s positions with put options on tech stocks. If Northstar’s bullish tech bets fail, Elliott’s bearish positions would counter the losses.
In recent calls with SoftBank, Elliott has emphasized the need to stay disciplined instead of pursuing another multimillion-dollar tech bet, according to The Journal. The hedge fund already helped SoftBank recover from its spring plunge, but the two still boast investing styles that butt heads. Whether SoftBank follows Elliott’s more cautious approach or returns to its make-or-break investing style remains to be seen.

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