How Does $8 Billion Disappear? The Unraveling of the FTX Empire.

 There was an $8 billion hole in FTX’s balance sheet.

It’s what Sam Bankman-Fried told investors this week as sounded them out for funds to keep his firm from sinking. Worth $32 billion less than 10 months ago, the high-flying crypto exchange has now tumbled into Chapter 11 bankruptcy and US regulators and authorities including the Department of Justice are investigating.

In addition to large investors including Sequoia and SoftBank expecting to take hundreds of millions of losses as they mark their stakes to zero, about 1 million FTX customers may never get their money back.

“Every arbitrageur, every market maker, liquidity provider, had money on the exchange,” said Mike Novogratz, whose firm was able to pull some of its money off the FTX exchange as worries mounted over the weekend. “There is no punishment in a civil society that seems worthy of the anger in this community.”

SBF has stepped down as FTX’s CEO, and his $16 billion fortune has tumbled to zero in a matter of days. The liquidator hired to handle Enron’s assets in the wake of its accounting scandal is taking over management of FTX. More than 100 entities tied to FTX are entering into bankruptcy.

Here’s just one explainer of how the hellish week in crypto unraveled. Of about $16 billion worth of customer funds at FTX, more than half was lent to SBF’s separate trading firm, Alameda, according to a Wall Street Journal report this week.

The explosive turn of events has drawn references to financial calamities from Enron to MF Global. FTX has exposure to hundreds of companies in the venture world. SBF himself had invested more than $500 million into funds of Sequoia and other venture capital firms, the Information reported this week. An FTX unit had recently also agreed to take a 30% stake in Anthony Scaramucci’s SkyBridge, and the fund manager is trying to buy back that investment. The FTX US unit had sought to buy assets of other crypto firms -- where the future is now in flux.

It’s unclear how far the contagion goes as far as FTX-related firms that may face more financial troubles. One by one, counterparties have begun to disclose their exposures. At one point in the week, the largest stablecoin lost its peg to the US dollar before rebounding to regain stability.

But does the crypto struggle matter to the market more largely? “This is financial contagion risk,” Mike Wilson, Morgan Stanley’s chief US equity strategist, told Bloomberg Television on Friday. “I would argue that the crypto collapse is directly a result of tighter financial conditions.”

Wilson’s thoughts about this stock market jump of late: “It’s still a bear market, so it can rip you apart.”

Credit Suisse First Boston

“Many of the people at the firm have lived through hell, and this is for them a new lease on life,” Bennett Goodman said of the Swiss investment banking giant. The Hunter Point co-founder spent about five years at Credit Suisse in the 2000s before starting his own firm, one of the many titans of Wall Street to graduate from the bank to become a leader in the investing world.

For Bloomberg Businessweek, we explored the chance for Credit Suisse to revive First Boston -- a pioneering firm in the M&A business that became a leveraged finance behemoth. The idea has been met with both hope and skepticism.

It’s a tall order for Michael Klein, the former Citigroup star and whisperer of sovereign wealth, who’s becoming the CEO of CS First Boston and merging his own boutique investment bank into the larger firm. It will have about 2,000 employees and a $10 billion balance sheet, according to people familiar with the plan. But does the world need another investment bank? It’s being built as dealmaking has been stifled across the globe and rivals are beginning layoffs by the dozens, and even the hundreds.

Goodman is one of a few CSFB alumni who can see the new firm as successful. But first, he said, Klein has to win the confidence of his employees and “go out and win mandates -- quickly.”

• Elon Musk warned Twitter employees that bankruptcy is a possibility if the firm doesn’t start ginning up more cash. Meanwhile, Wall Street banks face the steepest markdowns in a decade on parts of the loan package for the buyout. Funds have offered 60 cents on the dollar for parts of the debt, my Bloomberg colleagues reported this week
• Big tech bankers come to the table. Hear from Goldman’s Matt Gibson from an exclusive television interview this week, and Citigroup’s Phil Drury just as technology stocks bounced back on the heels of promising inflation data.
• SBF and one of his FTX deputies, Ryan Salame, had been two of the biggest donors in the US in the latest political cycle -- each bankrolling the Democrats and Republicans respectively at the same rate as George Soros, Steve Schwarzman and Peter Thiel. They both had hinted they would keep giving into 2024. That’s now fading.
• And ICYMI: Blue Owl’s Marc Lipschultz joined us late last week for Bloomberg Television as private credit firms boomed on the back of earnings. Here’s his view on markets and the hiring outlook on Wall Street -- as big banks pull back, firms like Marc’s could dip into adding more people.