Matt Levine

Posts by Matt Levine

Nostalgia can be a surprisingly powerful force in marketing financial products, and without knowing much about it I have high hopes for this new Canadian stock exchange? It’s like a regular stock exchange (in Canada), only they won’t allow high-frequency trading. I mean, they will allow it, but not the bad kind:

Aequitas plans to challenge “certain predatory high frequency trading strategies which have impacted the quality of existing equity markets,” Greg Mills, chairman of Aequitas and co-head, global equities at Royal Bank’s asset management unit, said in a statement. “Marketplaces in Canada and around the globe are increasingly out of sync with their traditional users as they attract and cater to volume and revenue-generating trading over traditional investors.”

You can read their position paper here if that’s your thing. It seems very worthwhile and Canadian, with an interesting mix of old-timey things (market makers would have performance obligations for their securities of responsibility) and concessions to current high-speed trading realities, but with a general emphasis on being a market for Investors and Issuers as opposed to Speculative Jerks.

I feel like that will go well? Read more »

  • 24 Jun 2013 at 11:50 AM
  • M&A

Who Else Wants To Weigh In On How Much Dell Is Worth?

There are people who think that a stock is worth what someone will pay you for it, but that’s sort of a boring conversation. Talking about fundamental, long-term, present-value-of-future-cash-flows type values gives much more scope for debate, analysis, and fantasy. See, this company is just trading at four dollars a share. It’s worth hundreds.

Normally you make those sorts of arguments in the usual way – you buy some stock, and if others agree with you they buy some stock too, and the stock goes up, and you have yourself a Keynesian beauty contest. But Gretchen Morgenson had a fun column this weekend about an exception, the appraisal-rights process. In this process, if you don’t like what you’re getting paid for your shares in a merger, you can go to a Delaware judge and ask him to decide how much your shares are worth, and he tells you, and then you get paid that amount (plus interest). You don’t have to convince the market that you’re right about the future cash flows. Just the judge.

This is normally a pretty boutique-y thing. Read more »

  • 21 Jun 2013 at 5:01 PM

Congressmen Have Some Advice For Ratings Agencies

The ideal financial regulatory regime would go like this:

  • Regulators would tell market participants not to screw up.
  • Market participants would not screw up.
  • Peace and harmony would reign throughout the land.

This is ideal not only because of the peace and harmony but also because it omits any work by the regulators. Why choose whether to set capital ratios based on risk-weighted or total assets when you can just tell banks not to lose any money? If they never lose money then it doesn’t matter how thinly capitalized they are.

These guys know what I’m talking about: Read more »

  • 21 Jun 2013 at 11:58 AM

Banks Might Be Undercapitalized, Depending How You Count

If you think that capital regulation is a good way to make banks safer then a pretty good form of capital regulation would go something like:

Regulator: You should have a lot of capital relative to your assets.
Banker: Okay, got it. Now how are you measuring assets?
Regulator: Oh, you know, different ways. Whatever makes sense.
Banker: Umm. Well … what counts as capital?
Regulator: I dunno. Capital-y things. Maybe stressed capital-y things.
Banker: I see. And what counts as a lot?
Regulator: Some number. Definitely a percentage. I guess a pretty high one?

Does that sound dumb? The thing is that most games have explicit clear rules, so some people just assume that any set of explicit clear rules constitutes a game, and then try to game it. Those people often work at banks. Kling’s Law of Bank Capital Regulation holds “that the capital measure used by regulators will, over time, come to be outperformed by a measure that the regulators are not using,” which suggests that the best capital measure for regulators to use is “all of them.”0 Actually using an infinity of measures is impossible but can be approximated through confusion. Read more »

I submit to you that Michael Dell’s “presentation to investors” filed today will tell you everything you need to know about Dell, even if you don’t read it. Just look at it! Here, for instance, is the slide justifying the $13.65 price that Michael Dell and Silver Lake are paying to LBO the company:

Why is this a PowerPoint presentation? It’s all like this – 8 pages of dense bullet-point text, no graphics, no charts, no tables, no nothing. Just words. In complete sentences. Write a letter, man! You run a computer company. You have made a serious error in choosing the right software for your purposes.

The message of the presentation is the same mildly confusing message that Dell has been pushing for a while: Read more »

This is a not a phrase that you see a lot in the M&A context:

We want to thank Goldman Sachs for their interest in acquiring Ebix and we are naturally disappointed that we could not complete a transaction at this time.

Thanks guys! Really enjoyed getting to know you but it just didn’t work out. Because of the fraud.

Maybe? This Ebix situation is pretty weird. Ebix is a $400mm market-cap company ($800mm yesterday!) that makes, I don’t know, insurance software, or software insurance, or something. Also it may or may not be committing massive accounting fraud. In July 2011, a bunch of people sued it, either because it was committing massive accounting fraud or because they’re manipulative short sellers or just because of a big misunderstanding. The jury is still out,1 though the SEC is looking into it, so maybe there’s something to it?2 Read more »

  • 20 Jun 2013 at 11:40 AM
  • M&A

Smithfield Didn’t Want To Be Piggish In Its Merger Negotiations

I guess when you’re negotiating a merger you always think you’re being clever but when it’s reduced to the affectless blow-by-blow in a merger proxy it can sound a little silly:

On April 19, 2013, Parent [Shuanghui International] sent a revised non-binding written proposal to Smithfield increasing the price per share Parent was willing to pay to $33.50 per share in cash [from $33.00]. Contemporaneously with the delivery of this written proposal, representatives of Parent’s advisors communicated to representatives of Smithfield’s advisors that, while Parent had decided to increase its price by $0.50, the impact of the expected fourth quarter financial results was negatively viewed by Parent. In particular, Parent’s advisors noted that a transaction at this price would be more challenging from a financing perspective and that the expected weakness in Smithfield’s fourth quarter results had significantly limited Parent’s willingness to increase its proposed price and, in fact, that Parent even considered reducing the original proposed price of $33.00 per share in cash.

Oh? “We raised our bid, but JUST SO YOU KNOW, we wanted to lower it, so don’t push us.” Obviously they ended up at $34. Read more »

  • 19 Jun 2013 at 4:29 PM

Let’s Talk About: Putting Banksters In Prison

A bank is basically a collection of thousands of random variables, squirming around. Sometimes they squirm themselves over a boundary beyond which the assets are worth less than the liabilities, or whatever, and then your bank fails. That sucks! But it happens; random variables will do that to you. Sometimes.

Is that description kind of bullshit? Oh, sure, I mean, you get to pick your assets and decide on your leverage and your mix of businesses and your risk limits and so forth, and in most conditions a modestly competent banker should be able to avoid bankruptcy with a high degree of certainty. But it’s not entirely bullshit; even the most careful banker really is always sitting on top of a squirming pile of random variables and, while they’re probably pretty far away from the insolvency boundary, there’s always a chance that they’ll squirm their way right over it before he can stop them. That, again, is what they do. Sometimes.

Anyway “British lawmakers are calling for criminal prosecutions of senior bankers who cause the collapse of financial institutions,” which is sort of charming? Read more »