Matt Levine

Posts by Matt Levine

Europe has big plans to micromanage bankers’ bonuses and the first step of those plans is to figure out how big those bonuses are. And here is the answer! For 2011, anyway, and for bankers who made more than €1mm. It’s a report from the European Banking Authority based on their data collection project, in which national regulators were asked to collect data on all bankers within their borders who made more than €1mm.

I’ve had a go at putting it into a spreadsheet, which you should play with; you might find more interesting things than I did. But given that fixed vs. variable comp for high earners is the main focus, here’s the fixed/variable breakdown in various countries:
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Every few days or so the SEC or CFTC brings a lawsuit against some small-time, or I guess medium-time, fraudster and today’s, a joint SEC/CFTC effort, is a representative example. It’s about Kevin G. White, his company KGW Capital, “one of the world’s leading private investment firms,” and its “$1 billion highly specialized currency hedge fund,” the Revelation Forex Fund, and they’re up to the usual sorts of no good. Per the SEC, the billion-dollar Revelation actually only raised $7.1 million, and lost some $2 million of that trading forex. Another $1.7 million was allegedly swiped by White “to, among other things, pay for personal expenses, finance other businesses, and for other undisclosed purposes unrelated to the Fund’s investment activities.” Such as:

White used the misappropriated funds for personal expenses, including a gym membership, retail purchases, meals, travel, a dog training service, vehicle maintenance, and alimony payments as well as business expenses including furniture, electronic equipment, and marketing services.

I feel like the bulk of the $1.7 million went to marketing? Or else that’s a very well-trained dog. But the marketing included: Read more »

There are enough absurdities on the surface of Carl Icahn’s pseudo-proposal for Dell that you don’t need to think deeply to find more but I guess you could. One thing that might bother you if you let it is the old slicing-the-pie-to-make-more-pie thing. Why should funding Dell with more debt and less equity, and running it with less cash, make it more valuable? Icahn’s plan involves paying shareholders $16 billion in cash in exchange for reducing Dell’s net asset value by $16 billion; the total value of what the shareholders own (Dell shares -> cash + shares) should really stay the same.

This is an argument against all corporate finance structuring and nobody really believes it, though some people come close. Obviously you can make a company more valuable by financial engineering!1 There’s some debate, though, over which sorts of engineering actually work. LBOs? Definitely. (I mean, probably.) Levered recaps? Sometimes, sure. Preferred-stock-funded recaps? Umm. Maybe!

Just some random warrants? No come on that’s nuts.

Anyway here is Icahn’s proposal to throw in some random warrants on top of his random tender offer. It is … random? Here it is, be warned, it’s shouty: Read more »

  • 12 Jul 2013 at 10:13 AM
  • Banks

JPMorgan Talked About Leverage A Lot This Morning

One of the pleasures of every JPMorgan quarterly earnings call is hearing Jamie Dimon’s, and now Marianne Lake’s, authoritative-sounding pronouncements on proposed regulations. You sometimes get the sense that regulations can’t be adopted without Dimon’s approval, so his views on these calls provide some sort of indicator of which of the proposals might actually happen. Plus, general amusing orneriness.

So how’d everyone do? Well, they think Nouveau Glass-Steagall is pretty silly, for one thing: in response to an analyst question about it, Lake said “we don’t spend much time thinking about it.”1 Oof! Get outta here with your Glass-Steagalls.

But the theme of the call was mostly “could you tell us more about your leverage ratio?” Here, JPMorgan is not so fond of the new Basel III leverage ratio proposals. The earnings deck walks through how JPMorgan will comply with the new U.S. leverage ratio rules, but it does not do any math on the effects of the new Basel proposals to do creepy things like disallow derivatives collateral netting. When asked to quantify the leverage under those proposals, Lake and Dimon declined, saying that there are “fundamental problems” with those proposals. So they have chosen to ignore them and, presumably, they will go away. Read more »

Elizabeth Warren introduced a bill today to split nice old-timey banking (taking deposits, making loans to people and corporates) from investment banking and other assorted eeeeevil activities (trading, derivatives, etc.) and it comes with a poster. It also comes with a throwback name, “The 21st Century Glass-Steagall Act of 2013,” after the guys who last split commercial and investment banking from 1933 until their Act’s repeal in 1999ish. Some people are calling the new proposal the Warren-McCain bill, because John McCain is a co-sponsor of this/every bill. I will compromise and refer to it as “The Warren-McCain 21st Century Glass-Steagall Act of 1933 of 2013.”

That’s roughly all I have to say about it? It probably won’t happen, and the goal of keeping depositors safe by limiting depository institutions to boring regular banking is mostly a silly one.1 Mortgages! Mooooooooooooooooortgages! The boring, take-deposits-and-make-real-estate-loans banks in Spain and Ireland and Cyprus and Bedford Falls and 1989 managed to blow themselves up just fine without any help from investment banking.

But you knew all that, gah. This bill is not really about depositor safety in any sort of empirical way. It’s a more ancient and anthropological theory of the dangers posed by banking: there are pure activities and impure activities, and the danger comes from mingling the pure and the impure. You build two buckets and you keep them apart, not because one bucket is riskier than the other but because things just belong in their own buckets: Read more »

  • 11 Jul 2013 at 3:05 PM

Deutsche Bank Did Some Accounting Stuff

I used to work in a business that, among other things, helped clients get financing against securities. One thing that you learn quickly in that business, and then spend the rest of your career trying to forget, is that the simplest way to get financing against securities is to sell them. You’ve got $100 of stock and want to borrow $80 of cash against it? Just sell the stock, now you have $100, you’re welcome.1

This is not a perfect solution, of course, because you presumably owned the stock for a reason, and that reason was presumably that you thought it would go up.2 And if you sell it you lose the chance to participate in that upside. So one thing you could do is (1) sell your stock for $100 today and (2) enter into some sort of transaction that gives you some or all of the upside in the stock over some period of time. Like, you could buy a call option struck at $100, giving you all the upside and none of the downside, though at the cost of having to pay premium for the call option. Or you could enter into a total return swap struck at $100, giving you all of the upside and all of the downside at a zero-ish cost. Or you could enter into a forward contract to buy back the stock, which is the same as the swap, more or less. That last one – sell stock today, enter into a forward to buy it back in the future – is so common that it has a name, and the name is “repo.” Read more »

I guess this Bloomberg Businessweek cover story is very real and we have to talk about it. So, here you go, tell us in the comments how you feel about how Businessweek feels about your manhood. Be sure to reference the fact that the title of the story is “Hedge Funds Are for Suckers.” My own reaction seems best suited for a footnote.1

The story seems weirdly timed to alienate hedge funds just as they’re being allowed to start buying advertising, though I guess that doesn’t matter because they were all going to spend 100% of their advertising budget on Dealbreaker and give Businessweek a miss anyway. And it tells a pretty familiar story: once, hedge funds were small smart places that produced steady uncorrelated returns with significant positive alpha. Now, every idiot who wants to tweet lies about hurricanes or be an asshole on online dating sites is a “hedge fund manager,” and a lot of them don’t manage very well: Read more »

That was my takeaway from this chart in the Wall Street Journal this morning.

Oh, I mean, sure, their takeaway is that a lot of insiders were selling just before bankruptcy, and that’s also true, but: I can understand that. The company’s going bankrupt! You want to get out of the stock! But some – fewer, but a nontrivial amount – were buying: hundreds of buys in the six months before the bankruptcy filing, and at least a handful in the company’s last month alive. You could take this chart as a rough way to measure how much in-hindsight-incorrect CEO optimism is cynical bullshit, to cover for the CEO’s frantic efforts to get out of Dodge, and how much is genuine self-delusion, with the CEO himself doubling down on his doomed company. Depending on the timeframe I’d say, like, half and half.

Now while economically you can see why corporate insiders would be selling stock as the company nears bankruptcy, nonetheless you could imagine why they might be hesitant to do so. Being that (1) it’s generally illegal to trade on material nonpublic information, (2) corporate insiders have some tendency to have nonpublic information about what’s going on at their companies, (3) an imminent bankruptcy filing tends to be the sort of thing that people consider “material,” and (4) jail is terrible and people who sell their stock just before bankruptcy have some track record of going to jail for decades.1

So you can understand why both insider buying and insider selling taper off just before bankruptcy filing: buying, because it’s dumb, and selling, because it’s illegal. But why don’t they taper off more? Why are some insiders still trading the month before a bankruptcy filing? Read more »