Today is my last day at Dealbreaker. All the obvious things are true: this is the best job I’ve ever had, it’s been an incredibly fun two years, and I will always be grateful to Bess and Breaking Media for giving me this opportunity. Also to all of you: thanks for reading, for commenting, for emailing, and for generally being the best audience on the internet, financial or otherwise. I will miss it here.
After some vacation I’ll be moving on to another opportunity, which will be announced shortly after Labor Day. I can’t tell you much about it yet, but I will still be writing about finance on the internet, and I’m excited for it.1 I hope you’ll keep reading. Also I hope you’ll follow me on Twitter, if that’s your thing.
I started reading Dealbreaker as a junior M&A lawyer in 2006, so I’ve been a fan from the beginning. It’s still a little hard to believe that I got to actually help make Dealbreaker for a while. It’s been a great privilege, and I’m looking forward to being a fan again.
1.Also there will probably be footnotes. This is a bit of a throwaway but it is also my last Dealbreaker footnote so let me take a moment here. Okay.
Yesterday Moody’s put the debt of four of the six big U.S. banks – GS, JPM, MS, and WFC – on review for downgrade, and the other two – C and BAC – on the amusing “review direction uncertain,”1 because Moody’s is becoming increasingly convinced that, if those banks blew up, the government would not bail out their holding company unsecured debt. Not entirely convinced – it’s just “consider[ing] reducing its government (or systemic) support assumptions to reflect the impact of US bank resolution policies” – but more convinced, anyway. More convinced than it was in March, when it announced “that it would reassess its support assumptions for bank holding companies in the US and that it would consider whether to revise these assumptions by the end of the year.”
It’s a boring cliché at this point to point out that credit ratings are a lagging-to-contrarian indicator, but still: Read more »
Here’s a neat little story from Bloomberg: Charlie Munger, Warren Buffett’s long-time right-hand man at Berkshire Hathaway, moonlights as the chairman of the board of a wee newspaper company called Daily Journal. Daily Journal owns a collection of newspapers so dull that they “specializ[e] in public notice advertising,” particularly notices of foreclosure sales. It also owns $128 million in marketable securities, virtually all of it ($121mm) in common stocks. This is noteworthy because, one, Charlie Munger is the one picking the stocks, and two, Daily Journal’s total book assets are only $173.8mm, its book equity is $106mm, and its market cap is around $190mm. For every dollar you invest in Daily Journal, you’re getting around 33 cents of foreclosure notices and 67 cents of Charlie Munger’s stock-picking. Charlie Munger’s stock-picking: pretty good, as it happens, and in any case a commodity that some people desire.1
Is there like a five-minute rule for equity traders and Nasdaq shutdowns? I suppose if you are at a bar now and not reading this because you took off after the first hour of Nasdaq down time, the joke is on you because it got better and all your more diligent competitors are making money while you’re not. Today’s session ended with about half an hour of what I will guess was some fairly drunken trading.
But for three hours this afternoon, not a lot of shares traded on Nasdaq. Here is Apple:
You could wonder about the substance of some of these investigations. JPMorgan’s electric boogaloo, while intensely naughty, also seems pretty clearly to have followed FERC/ISO rules to the letter, so it’s hard to imagine charging anyone with a crime, as the FBI is apparently contemplating.2 And while I don’t know much about the SEC rules re: electronic options trading, the actual thing that Goldman did was sell options really cheaply, and it would be pretty weird if there were a rule against that, so I don’t know where the SEC is going with its enforcement investigation.3 (The Whale, I’ll give you, that stuff seems bad.) But basically, yeah, sure: bad things happened, rules might have been violated, market safeguards were shown to be less robust than had previously been thought, it is altogether fitting and proper that someone look into it. Or a lot of someones I guess.
Still the stories carry a whiff of looking for the keys under the lamppost: Read more »
Yesterday the computer at Goldman Sachs responsible for trading options whose symbols start with the letters H through L traded a bunch of options at the wrong prices and put Goldman out by a hundred million dollars or so. Today various exchanges are sitting down and pondering whether to give Goldman that money back. This strikes some people as unfair because, y’know, hahaha Goldman you screwed up, but also because someone was on the other side of those trades, made a profit, hedged it out, and will now be sad and possibly screwed when it is unwound.1
Which all seems pretty justified, and the image of a bunch of exchange operators getting together and being all “better cancel these trades, it’s Goldman, don’t want to make them mad” is in fact disturbing. However! That is not apparently what is happening. From Bloomberg:Read more »
It is not every day that the Wall Street Journal has a front-page article about “happy meal” convertible offerings with registered stock borrow facilities so I’m going to tell you about them. Here is what they are:1
A company sells a convertible bond to convertible arbitrageurs.
At the same time, it lends shares of its own stock to the arbs so they can establish their hedge for the convertible.
As the Journal points out, these deals go pear-shaped with horrific frequency – a third of them go bankrupt within five years, versus 7% of all convertible issuers.2 And now people are all mad and suing and stuff, and there are insinuations that evil hedge funds made lots of evil money on these evil deals. All of this is very confused so let’s talk about it in excruciating detail shall we?
First of all: are these deals bad for companies, or are bad companies doing these deals? The Journal: Read more »
Today the Fed released a paper making fun of banks for their lame responses to the Fed’s stress tests, both on prudential-regulatory and on literary grounds. For instance, the banks were supposed to come up with their own stress scenario and see how they’d do in that scenario, and a lot of banks apparently phoned in that effort. The Fed was unimpressed:
A BHC [bank holding company] stress scenario that simply features a generic weakening of macroeconomic conditions similar in magnitude to the supervisory severely adverse scenario does not meet [the Fed's] expectations.
BHCs with stronger scenario-design practices clearly and creatively tailored their BHC stress scenarios to their unique business-model features, emphasizing important sources of risk not captured in the supervisory severely adverse scenario. Examples of such risks observed in practice included a significant counterparty default; a natural disaster or other operational-risk event; and a more acute stress on a particular region, industry, and/or asset class as compared to the stress applied to general macroeconomic conditions in the supervisory adverse and severely adverse scenarios.
At the same time, BHC stress scenarios should not feature assumptions that specifically benefit the BHC. For example, some BHCs with weaker scenario-design practices assumed that they would be viewed as strong compared to their competitors in a stress scenario and would therefore experience increased market share.
Oh sure you get points for, I don’t know, having a lot of capital or whatever the ultimate point of all of this is, but what really distinguishes a B+ from an A bank, stress-test-wise, is creative scenario design. Read more »