Matt Levine

Posts by Matt Levine

  • 18 Jul 2013 at 6:41 PM

Carl Icahn Gets Another Week To Screw Around With Dell

You have to be a little nuts to go to a shareholder meeting, though I suppose when the meeting is to vote on a hotly contested proposal to merge the company out of existence you might have business reasons for doing so. So if you’re a merger-arb analyst following Dell closely, I hope you didn’t fly to Austin last night! If on the other hand you’re just, like, a general retired crackpot, I’d love to hear what your plans are for the next week:

Dell Inc. announced that today’s Special Meeting of Stockholders was convened and adjourned to provide additional time to solicit proxies from Dell stockholders. No vote was taken on the proposed transaction prior to the adjournment.

The Special Meeting will reconvene on July 24, 2013 at 5:00 p.m. Central Daylight Time at the Dell Round Rock campus, Building No. 2, Houston-Dallas conference room, 501 Dell Way, Round Rock, Texas 78682. The record date for stockholders entitled to vote at the Special Meeting remains June 3, 2013.

I hope someone will make a touching romantic comedy about two Dell shareholders stuck in Round Rock for a week waiting for the meeting to re-convene. Read more »

You might not remember this but there’s a bank called JPMorgan and that bank invests its excess cash in a portfolio of available-for-sale securities and a year ago this week it announced that a certain cetacean had lost $5.787 billion hedging those securities. Man, that pissed people off. There was a hearing and everything. Good times.

So:

Bank of America Corp’s balance sheet suffered from rising bond yields in the second quarter, suggesting that the second-largest U.S. bank may be more exposed to interest-rate risk than some of its major rivals. … Bank of America appears to have used mortgage bonds in an investment portfolio to bet yields would stay stable and relatively low, say analysts who studied the size and composition of its holdings.

It lost that bet. U.S. bond yields surged after Federal Reserve Chairman Ben Bernanke said the bank would taper its latest bond buying programs. Bank of America booked some $5.73 billion of paper losses from these securities in the quarter, and still held about $170 billion as of June 30.

Those losses and others were in a portfolio, known as the “available-for-sale” book, which affects a bank’s balance sheet but does not affect earnings.

Are you not tickled by the coincidence? Read more »

Bloomberg has an absolutely amazing story this morning about political economy and going the extra mile to build a successful business. Specifically it’s about a guy who

  • worked as a mortgage banker,
  • left to be a senior banking consumer-protection regulator,
  • wrote regulations prohibiting big banks from providing certain kinds of mortgages because they were too predatory, and
  • then left to start his own company to provide those mortgages.

That’s pretty much the American dream is it not?

The story is unimprovable so go read it; I have exaggerated but only slightly.1 The guy is Raj Date, a former Capital One and Deutsche Bank2 banker who became deputy director of the Consumer Financial Protection Board, wrote rules making it hard for banks to make mortgages that don’t satisfy certain bright-line requirements, and then left to start a company called Fenway Summer LLC that will do what banks can’t: Read more »

Over drinks!

In testimony Wednesday, Paolo Pellegrini, the former Paulson & Co managing director, said he made clear to ACA Capital Holdings Inc that Paulson wanted to bet against the deal.

“As I told all collateral selection agents, we were interested in shorting a CDO, shorting subprime securities in a CDO,” said Pellegrini, one of the architects of hedge fund manager John Paulson’s bet against subprime mortgages in 2006 and 2007. …

Pellegrini, one of two people who worked on Paulson’s strategy to take the stand so far, testified Wednesday he believed he told the principal employee at ACA working on Abacus, Laura Schwartz, about Paulson’s strategy over drinks during a “shindig” for people in the CDO industry.

“I think there was some discussion of the portfolio and what we were trying to accomplish by shorting the market,” he said.

That’ll liven up the murderous boredom of the Fabrice Tourre trial! Read more »

The judge hearing the Justice Department’s CDO-rating lawsuit against S&P refused to dismiss it yesterday, rejecting S&P’s much-mocked theory that its pre-crisis claims of independence and objectivity and, like, plausible ratings were just “puffery” that no one should have taken seriously. Here is the story, and here is his opinion, and here is a rhetorical question:1

At the hearing on this matter, Defendants repeatedly asserted that no reasonable investor would have relied on S&P’s claims of independence and objectivity. Regarding the question of materiality, S&P argued that, since the issuer banks had access to the same information and models that S&P analysts did, they could not have been fooled by faulty credit ratings. This begs the question: if no investor believed in S&P’s objectivity, and every bank had access to the same information and models as S&P, is S&P asserting that, as a matter of law, the company’s credit ratings service added absolutely zero material value as a predictor of creditworthiness?

Well so I mean do you want an answer? How much value do you think they added?

The S&P case is a pretty weird beast because it’s brought under the FIRREA, a law designed to protect federally insured banks, and so the government has to assert that: Read more »

Yesterday the Federal Energy Regulatory Commission ordered Barclays and four of its traders to pay $488 million for manipulating energy prices by doing basically this:

  • (1) Buying electricity with medium-term swaps,
  • (2) Selling electricity with short-term forward contracts, and
  • (3) Buying electricity in the spot market.

And vice versa (switching buys and sells). The idea is that since the swaps in step (1) settled based on the spot price in step (3), Barclays can manipulate the value of its swaps arbitrarily high by just overpaying in the spot market. Like, buy 100 whateverowatts of swaps at $1 per WW, then buy 5 WWs physical, pushing up the price to $3/WW, and you’ve spent $15 (5 WW physical x $3/WW) to make $200 (100 WW swap x [$3 - $1]).

This is nonsensical on first principles, though that doesn’t make it wrong; lots of true things are nonsensical on first principles; that’s like a feature of first principles. When you lay it out like that, though, you can see the oddity, which is that FERC thinks step (3) (buying physical) pushed up the price, but thinks step (2) (selling like next-day electricity) did not push down the price. If this worked then you could replicate it in any market, like: Read more »

  • 16 Jul 2013 at 1:44 PM
  • Banks

Goldman Avoided Talking About Leverage A Lot This Morning

GS had earnings today and I guess they weren’t that good but all anyone ever wants to talk about on earnings calls these days is leverage ratios. That I suppose is a sociologically interesting fact: is banking a business of selling stocks and bonds and loans and whatnot, or is it a business of optimizing yourself around regulation? You can tell what the analysts think, though I suppose that’s like a second derivative; they want to add value to whatever was already obvious to the market. The stock price dropped on, like, not selling enough stocks and bonds and whatnot. Or rather: on making too much money from owning stocks and bonds with Goldman’s own capital, and too little on doing more obviously Volcker-compliant-y things. So: still sort of a regulatory question I guess.

But, yeah, all the analysts want to talk about is leverage ratios, and you know who does not want to talk about leverage ratios is Harvey Schwartz. Delightfully someone at Reuters counted the number of times he was asked to quantify Goldman’s leverage ratio (eight1) and the number of times he did (zero). He said he was “comfortable” with it, which presumably means that GS will be above 5% by 2018 assuming some rates – possibly at, above, or below the current rates – of capital generation and capital return. But they haven’t done the math yet.

Which is curious? Read more »

Labaton Sucharow is a law firm whose business consists of getting disgruntled financial industry employees to sue their employees for various bits of naughtiness, and taking a cut of whatever money those disgruntled employees can get from a lawsuit or settlement. One of their clever marketing techniques is to hire a survey firm to identify financial services employees willing to talk shit about their employers on the internet,1 because those employees are a promising source of money for Labaton Sucharow. In fact only about a quarter of those employees actually have anything negative to report, and presumably not all of that is lawsuit-worthy, but marketing is hard and you shouldn’t expect a particularly high hit rate. The trick is to just get a lot of at-bats and something will eventually pan out.

Also the PR is amazing? Here is an Andrew Ross Sorkin column titled “On Wall St., a Culture of Greed Won’t Let Go” that sort of takes this survey as a fact about the world rather than a marketing document, so is all like “oh you and your greed, Wall Street!” Read more »