who will win the stock trading crown?

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In today’s newsletter:

• Morgan Stanley vies for equity trading market share

• Temu’s owner refuses to pay dividends or make buybacks

• ‘The game is on’: bid for 7-Eleven upends Japan M&A 

The fight for the US stock trading crown

In the lucrative business of stock trading, clients and rivals agree that Morgan Stanley is back in the game.

After sustaining a $1bn loss from the default of family office Archegos three years ago, the Wall Street bank is now redoubling its efforts to regain the equity trading crown from rival Goldman Sachs.

The collapse of Bill Hwang’s family office caused a lot of soul-searching at Morgan Stanley, including a review of client relationships and risk management governance. The bank became more cautious about the type and size of business it would do with clients.

In the fallout, Goldman was able to leap ahead in market share. But last quarter, Morgan Stanley brought the revenue gap with its rival to its narrowest margin since 2022.

In the prime brokerage division — which lends money to hedge funds to make bets on stocks — some Morgan Stanley clients have detected a big increase in the bank’s willingness to extend credit.

Backing the charge is chief executive Ted Pick, who took over at the start of this year and was once head of the equities business.

“They are doing everything they possibly can to capture back [market] share,” one Goldman executive said of Morgan Stanley. One of the bank’s focuses is winning new business from quant hedge funds such as AQR and Two Sigma.

Morgan Stanley has run into some other bumps in recent years: the US government’s investigation into its block trading equities team also contributed to its relative decline in stock trading.

And after Archegos’s collapse, some banks such as Credit Suisse and Nomura pared back or exited their prime brokerage businesses. But there’s been a slow return.

European banks such as Barclays and BNP Paribas have also identified equity trading as a growth area and have made some inroads, but the biggest players remain Goldman Sachs, Morgan Stanley and JPMorgan.

Temu owner’s mysteriously large cash pile

When public companies amass enough cash, investors typically expect a reward for sticking around — either by receiving dividends or the company buying up its own shares.

But not Temu owner PDD Holdings. The Chinese ecommerce group is sitting on a staggering $38bn net cash position, and isn’t doing either.

Of all listed companies that don’t pay out a dividend or buy back shares, PDD sets the record for the biggest cash pile. It holds more than double its nearest contender, Elon Musk’s Tesla.

While PDD has become a darling of Wall Street — growing explosively over the past two years, expanding to at least 49 markets — its hoarding of cash is a “red flag” for some investors, the FT’s Dan McCrum reports.

The US-listed group, which is based in Shanghai, is shrouded in secrecy. Even though the company has ballooned in size and stock market valuation compared to Alibaba, its financial disclosures remain limited, keeping investors in the dark.

It’s rare for such a cash-rich company to withhold dividends or share buybacks. Even the dividend-averse conglomerate Berkshire Hathaway has repurchased billions of dollars in stock this year.

McCrum analysed global companies with more than $5bn in net cash that don’t pay dividends or buy back stock. And it turns out, there are only five of them: PDD, Tesla, Chinese electric-car maker Li Auto, European payments group Adyen and electric turbine group GE Vernova.

PDD told the FT: “Each company makes decisions based on its unique circumstances and strategic considerations. To imply that there is a ‘red flag’ simply because Company A does not follow the same approach as Company B is, quite frankly, absurd.”

How the bid for 7-Eleven could reshape Japan

At the site of the first 7-Eleven in Tokyo, which opened in 1974, one customer poses a question that is also being asked by Wall Street bankers and CEOs in Japan.

“I probably spend more money in 7-Eleven than in any other shop . . . I heard they might be sold, but I don’t think that can happen, can it?” The answer is yes, it probably can. And to a foreign company at that.

Canadian convenience store giant Alimentation Couche-Tard — best known for its Circle K brand — has approached 7-Eleven’s parent company Seven & i Holdings with an unsolicited buyout bid.

While there isn’t a formal proposal for shareholders to consider yet, bankers, investors, lawyers and government officials are already saying it is the most important and transformative M&A deal Japan has ever seen.

Once the issues of price, competition and corporate strategy are settled, the deal, at its heart, comes down to a single question: is the government ready to countenance a non-Japanese owner of Seven & i?

Ironically, 7-Eleven began life in Texas before being licensed in Japan and then bought out of bankruptcy by what became the holding company Seven & i.

Since then, convenience stores — known as konbini — have evolved into Japan’s most powerful conduit of consumption, temptation and retail innovation.

After years of consolidation, the country now has three significant competitors: 7-Eleven, Family Mart and Lawson, which together control more than 50,000 stores. But almost half of those are run by Seven & i.

That makes Seven & i a crucial part of Japan’s social fabric and quasi-infrastructure by providing payment, banking and even emergency services when necessary.

And it means, with this foreign bid in the air, that other companies across Japan are almost certainly growing concerned they could find themselves in a similar position.

“I think the Couche-Tard bid accelerates and exposes everything,” said the manager of one of the world’s biggest event-driven investment funds and now a shareholder in Seven & i.

“The game is on now, and there is a good chance that Japan becomes the M&A deal centre of the world for the next 10 years.”

Job moves

• JPMorgan has promoted Cassander Verwey to co-head of M&A in Emea alongside Dwayne Lysaght. Verwey has worked as the bank’s senior country officer and head of investment banking in the Netherlands for the past five years.

• Coatue Management’s founder Philippe Laffont has left the board of TikTok’s parent company ByteDance. The board has added French telecom billionaire Xavier Niel as a director. 

• Wiktor Sliwinski and Marc Hersheson have founded Torma Capital. Sliwinski, who was previously chief investment officer of NNS Advisers, will hold the same role at his new firm.

• Bahrain’s Investcorp is eliminating its co-CEO structure with Hazem Ben-Gacem leaving the business and Rishi Kapoor becoming vice-chair and chief investment officer. Executive chair Mohammed Alardhi will take on additional responsibilities that previously fell to the co-CEOs.

• A&O Shearman has hired Dan Graham and Paul Dunbar as partners for private equity and M&A in London. They previously worked for Sidley Austin.

• Tikehau Capital has appointed Christoph Rinnert as head of private equity in Germany. He was most recently a director at 3i.

Smart reads

Exodus fears Private equity executives warn that overhauling the UK’s capital gains tax regime could push dealmakers to leave the country, the FT reports.

Tapestry tie-up A pro-business group in New York is pushing lawmakers to allow fashion groups Tapestry and Capri to combine. They’re also signalling to Kamala Harris that it’s time to lighten up antitrust regulation, DD’s Sujeet Indap writes.

Coin dysfunction The New York Times Magazine asks: why on Earth is the United States government still producing worthless pennies?

News round-up

Nigerian fintech chief fined $250mn after holdings described as a ‘fiction’ (FT)

Blackstone agrees €1bn deal for European warehouse assets (FT)

Rightmove shares surge after Murdoch-backed rival considers bid (FT)

Brookfield puts London Citypoint tower up for sale (FT)

Hong Kong property developer warns of first annual loss in 20 years (FT)

Canary Wharf in talks to raise debt against shopping mall (FT)

VW considers closing factories in Germany and cutting jobs (FT)