The basic thing about investing in big banks’ unsecured debt is that once upon a time it was a pseudo-risk-free proposition because, like, it’s a bank, what could possibly go wrong,1 and now it’s like,2 hi, you are buying the mezzanine (call it 10-to-30%-loss3) tranche in an actively traded and extremely opaque CDO full of goofy stuff and, hey, put a price on that.
I don’t know who’ll be good at putting a price on that but it stands to reason that Jes Staley, the former head of JPMorgan’s investment bank who left for BlueMountain shortly after several billion dollars of JPMorgan’s money made the same voyage, would. He thinks so anyway:
On a panel at the Bloomberg Hedge Funds Summit in New York, Mr. Staley discussed what is known as resolution authority, in which regulators help wind down failing banks. The process of adapting to these new rules, he said, would give banks a “more clearly defined capital structure,” and thereby create opportunities for investors.
“There’s going to be tremendous mis-pricing between the different levels of the capital structure in these banks,” Mr. Staley, who is known as Jes, said on the panel.
One imagines that, if all goes according to plan, then at some point between now and the end of time:
- There will be some bank debt (deposits!) that is bail-outable and more or less government guaranteed;
- There will be some other bank debt (repo!) that is collateralized and more or less money-good, ish;
- There will be some other other bank debt that is bail-inable and more or less clearly mezzaniney and going to be toasted in any bank failure; and
- People will believe that.
For Valentine’s Day this year, Fortune put together a slideshow of various executives, analysts, fund managers, and disgraced AIG CEOs posing with their one true loves– their dogs. For the big names who missed the deadline to submit photos, fear not– this feature is clearly going to become an annual thing. For those already mentally directing a photoshoot of yourself and Jamie the Younger, maybe running down Park Ave or shooting hoops at the Garden, you might first consider looking to this year’s pioneering efforts for inspiration.
For instance, in addition to putting your love for each other on display, why not use the opportunity to showcase your credentials, as “Fortune All-Star Analyst” Mike Mayo does here? Read more »
In a report that references: “A certain short’s recent presentation on the St. Joe Company.” Read more »
“I read his St. Joe short analysis, which is quite extensive. And he makes some very good points. And I’ve taken them all into account.” [Bloomberg]
If you’re going to commit financial fraud, you probably don’t want to find yourself sitting at a table across from David Einhorn, who will know what you’re up to and share it with the world. Similarly, if you’ve never played poker and have only ever had a 15 minute tutorial on the game, you probably should avoid playing with the Greenlight Capital founder, whose vastly superior skills will demonstrate just how much you suck. As I like to live on the edge, yesterday in an undisclosed location, I choose not to heed the wisdom of the latter. Over several hands, Einhorn and I discussed the new edition of his 2008 book, “Fooling Some Of The People, All Of The Time.”
The latest version includes an epilogue, and concludes the story of Allied and Einhorn’s years of trying to get other people to listen when he said something was up. As we now know, Allied’s shares collapsed, Greenlight collected $35 million, and the hedge fund made another big (and correct) call on a bank called Lehman Brothers, whose failure was, according to Einhorn, “the Allied story all over again,” just on a bigger scale, with more resounding consequences. Even after the last crisis, which should have been a wake-up call, Einhorn doesn’t think we’ve changed much and if anything, the reforms passed only “encourage poor behavior and will likely foster an even bigger crisis.” He and I chatted about that exciting event, Quantitative Easing, Steve Eisman’s illicit pleasure of choice and more, plus poker tips for people who really, really need them.**
BL: You mentioned an unexpected and tremendous response from readers of the book the first time around. What’s the craziest piece of fan mail you’ve gotten- has anyone sent you their undergarments in the mail?
DE: [laughs] No, do you think they should?
DE: You’re hysterical.
BL: I mean, people do that. Musicians, rock stars get sent that sort of stuff. You’re like a rock star…of investing.
DE: Well, the thing is, my following [for the most part] is with 20 to 35 year old men. So, you know. I definitely don’t want their undergarments. Read more »
Money Manager Bruce Berkowitz Was Just Kidding When He Said He Wants People To Tell Him When/Why He’s WrongBy Bess Levin
As you may have heard, at the Value Investing Congress on Wednesday, David Einhorn revealed (in a 139-slide PowerPoint presentation) that he and Greenlight Capital are shorting real-estate developer St. Joe Co. This was at odds with investor Bruce Berkowitz who, through Fairholme Capital Management, owns a 29 percent stake in the company (having purchased an additional 0.1% following Einhorn’s presentation). When asked by audience members about taking the other side of the trade, Einhorn, because he has manners, said that he had sent Berk a letter stating his intent to short St. Joe, and asked if the two could debate the issue, which Bruce never responded to and as recently as today, Berkowitz told Reuters, “Why would I want to talk to him?”
Which is interesting! Given that less than two months ago, Berkowitz said this: Read more »