(Bloomberg) -- SoftBank Group Corp.’s Masayoshi Son said he plans widespread cost cutting at his Japanese conglomerate and its Vision Fund investment arm after a record $23.4 billion loss on plunging portfolio valuations and foreign currency losses. Shares dropped.
The Tokyo-based company lost the vast majority of that money -- $17.3 billion -- in the Vision Fund, as it marked down the value of holdings such as Coupang Inc., SenseTime Group Ltd. and DoorDash Inc. SoftBank also reported a $6.1 billion foreign exchange loss because of the weaker yen.
The 64-year-old struck a darkly somber tone after the results Monday, taking responsibility for buying into startups at the height of the market and pledging to slash expenses to get back on track. Son said he will review “everything” for potential cuts without any “sacred cows.” SoftBank will scrutinize senior and junior employees in both front and back offices to an extent never experienced before.
“The loss is the biggest in our corporate history and we take it very seriously,” Son said during a press conference in Tokyo. “We have to resort to big cost-cutting efforts at Vision Fund. The cost cutting efforts will have to include a reduction in head count - something I’ve made up my mind to do.”
SoftBank shares fell as much as 8.1% in Tokyo on Tuesday, their biggest intraday slump since April.
Son detailed extensive problems and missteps in his portfolio, unusual for a self-made billionaire who tends to emphasize the positive. He said SoftBank had marked down 284 companies in its portfolio in the latest quarter, while only 35 went up in value. The markdowns included publicly traded portfolio companies, but also hundreds of private companies whose estimated values had dropped because of weak performance or lower comparisons.
A quarter earlier, SoftBank still had profits of about 3 trillion yen ($22 billion) in its investment arm, which includes the first and second Vision Funds as well as Latin American funds. As of June, essentially all of those profits had disappeared.
“We really believed we could do it and we had our heads in the clouds,” Son said. “Of course, the market was bad, there was a war, and there was the coronavirus. We can point to a lot of reasons, but these are all excuses. We have to self-reflect about the fact that if we’d been more selective and had invested more properly, it wouldn’t come to this.”
Asked about what lessons he has learned from the experience, Son said, “There are too many to count.”
With the first Vision Fund, Son said he was trying for home runs and struck out with companies like WeWork Inc. In Vision Fund 2, he tried a more modest approach of getting on base, but valuations were too high. Now, he will sharply scale back. “We’re currently strictly suppressing new investments,” he said.
SoftBank approved about $600 million in investments in the June quarter, compared with $20.6 billion a year earlier.
“With SVF losses expanding and no sign of a turnaround, management’s balance sheet-focused strategy is becoming clearer,” Citigroup analysts Mitsunobu Tsuruo and Tailai Qiu wrote in a report.
SoftBank raised a huge slug of capital by selling forward contracts on Alibaba Group Holding Ltd., the Chinese e-commerce company that made Son’s reputation as a startup investor. He took in $10.5 billion during the June quarter and then procured another $6.8 billion through such contracts on and after July 1.
Son also said SoftBank has begun talks to sell asset manager Fortress Investment Group, confirming a Bloomberg News report. The Japanese company bought Fortress for $3.3 billion in 2017, but it had to cede day-to-day control of the company to win US approval of the deal.
“They have to sell what they can, and invest only in the good ones,” said Mitsushige Akino, a senior executive officer at Ichiyoshi Asset Management Co. in Tokyo. “It’s clear they’re still facing headwinds.”
SoftBank is also selling part or all of its 9% stake in SoFi Technologies Inc., according to a Monday filing with the US Securities and Exchange Commission.
To bolster SoftBank’s share price, Son unveiled a fresh program to buy back as much as 400 billion yen of its own stock. The company has turned to such repurchases repeatedly in recent years, including a 1 trillion yen program announced in November.
SoftBank’s Vision Fund, the world’s largest technology investment vehicle, holds large stakes in hundreds of unlisted technology startups. But low valuations have been draining SoftBank’s ability to turn public listings of its portfolio companies into liquidity to fuel further big bets.
SoftBank said the Vision Fund losses included 293.4 billion yen for Coupang, 235.9 billion yen for SenseTime and 220.7 billion yen for DoorDash. It was also hit by drops at AutoStore Holdings and WeWork. SoftBank exited its holding in Uber Technologies Inc., the US ride-hailing giant that was supposed to be a star in its portfolio.
SoftBank and Son are now trying to wait out the technology slump so that they can extract a return on their $32 billion purchase of chip designer unit Arm Ltd. The CEO is planning an initial public offering for Arm next year and has said he aims to make the offering the biggest-ever for a chip company.
Son is facing perhaps the steepest challenges of his career and he is taking more of the responsibility on his own shoulders. Chief Operating Officer Marcelo Claure left earlier this year, while former Chief Strategy Officer Katsunori Sago resigned in 2021.
Rajeev Misra, long-time head of the Vision Fund, is stepping away from most of his responsibilities and will start his own investment fund. Son said he will take over as chief executive of the second Vision Fund.
Son, known for his eccentric presentations, began the press conference by showing an illustration of Tokugawa Ieyasu, one of the heroic figures in Japanese history. The image, however, shows the warrior after a defeat in battle, grim and dejected. Son said he was going to look at the image of the shogun-to-be to force himself to learn from his mistakes.
“I’m sorry what we shared today was depressing,” he said near the end of the event. “I wanted to be honest and transparent.”
(Updates with shares from the first paragraph)
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