Levine on Wall Street: Expensive League Table, Expensive Whistleblowing
How much is league table credit worth?
Here is just an utterly delightful story about what investment banking is. Morgan Stanley and Goldman Sachs had engagement letters with Forest Laboratories that entitled them to a fee if Forest was sold. Forest was sold, with JPMorgan advising. Forest went to MS and GS and said, hey guys, sorry for blowing you off, but here's your money. MS and GS said, in effect, no thanks, we'd rather have you pretend that we advised you on the deal. So Forest saved several million dollars in fees -- Morgan Stanley was probably owed around $10 million and "accepted less than half of that" -- in exchange for giving its banks league table credit. A professor is quoted calling league table "macho bragging rights," though it is perhaps better understood as straightforward marketing: It is very hard for prospective clients to measure the quality of your merger advice, but easy to measure your market share. Corporate treasurers, if you are reading this, there are important money-saving lessons in this story, though you probably already knew them.
Vladimir Putin, bond structurer.
Here is Duke law professor and sovereign debt expert Mitu Gulati writing about the clever structuring of Russia's recent loan to Ukraine. The loan can accelerate if Ukraine's debt exceeds 60 percent of its gross domestic product, which seems likely if Ukraine loses Crimea, and is structured as a Eurobond, so Russia can sell it to an innocent buyer who will have a better case for accelerating than would, you know, the country that is in the process of taking away a bunch of Ukraine's GDP.
Why wouldn't you want banks to service mortgages?
There is I guess a lot I don't understand about the mortgage servicing business, including why it is so capital intensive. Like: "The Fed and other bank regulators intended for new capital and other rules to push some servicing business out of banks, which they worried weren't able to adequately assess their exposure to mortgage assets." Okay! When you push mortgage servicing out of banks, guess where you push it to? Non-banks, is the answer. "The shift is fueling concern among federal and state regulators about the level of oversight and capital requirements in the industries now servicing a growing share of these loans," and that feels like a "duh." There are probably (maybe?) real gains to be had by pushing risky capital-intensive non-core businesses out of regulated and insured banks into non-banks. But you'd sort of think that the business of monitoring someone's mortgage and maybe foreclosing on their house would be done better by a regulated entity with incentives to make more mortgages?
Bill Ackman doesn't like Herbalife.
So he's spending a lot of money on lobbying and stuff. I guess you knew that? Or maybe not; in either case this is a good look at how the sausage is made. "Mr. Ackman also retained the Dewey Square Group, a Washington-based firm that specializes in 'grass-roots advocacy,'" and you can see why those words are in quote marks. Of course the fact that they are getting money from Bill Ackman may or may not mean that his allies are motivated by money from Bill Ackman. Maybe they think Herbalife is a giant scam. Also, maybe Herbalife lobbies too, and maybe its own allies' motives are mixed. In modern American life, the marketplace of ideas is not really all that separable from, you know, the marketplace.
The SEC is nervous about mutual funds pretending to be hedge funds.
"Alternative funds are the bright, shiny object. But they're a sharp object," says SEC regulator Andrew Bowden, in enjoyably revealing language. The SEC thinks mutual fund investors are children, or birds! And, sure, why not. The investing advice of these linkwraps is increasingly "don't invest in anything," though that has its problems too.
The SEC is looking into forex rigging.
Does the SEC have jurisdiction over foreign exchange trading? Meh, only sort of, but the thing is that if you rig FX trading then you're effectively manipulating the price of every foreign-priced stock, meaning that you're manipulating U.S. ETF prices too. Really, don't rig FX trading, it has a lot of repercussions and will make a lot of people mad.
"Whistle-Blower Gets $63.9 Million as a Result of JPMorgan Settlement"
Oh. Oh! "Keith's a courageous guy," says his lawyer, and $63.9 million probably buys a lot of courage. If I were a University of Chicago economist I would tell you that the existence of $63.9 million rewards for whistleblowing means that there are no more important bank scandals left to uncover; all those $63.9 million rewards have been picked up by now.
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(Matt Levine writes about Wall Street and the financial world for Bloomberg View.)
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