WeWork: Neumann redefines key man risk as IPO looms
WeWork’s pre-IPO financial disclosures have done little to quell disquiet over the company and its high-spending CEO.
Adam Neumann, co-founder and CEO of WeWork, is understood to have cashed out roughly $700 million from the company
Lending money to charismatic chief executives of valued clients has long been an important business line for the world’s investment banks, but it is a risky business.
For several US investment banks, this was made brutally apparent in 2018. The now notorious $1.6 billion margin loan they extended to former Steinhoff chairman Christo Wiese in 2016 blew up following the $17.4 billion accounting fraud uncovered at the South African conglomerate. The episode saw Bank of America take a $292 million charge against its exposure, JPMorgan $143 million and Citi $130 million.
Although the losses were down to fraud, the episode highlighted how risky margin lending can be. It is interesting to note, therefore, the extent of personal loans and credit that have been extended by many of these same banks to workspace sharing company WeWork’s colourful co-founder and CEO, Adam Neumann.
JPMorgan, which has been awarded the lead role on WeWork’s upcoming $3.5 billion IPO, is Neumann’s most generous creditor. The bank, together with UBS and Credit Suisse, has lent Neumann $500 million, using his privately held shares as collateral.