U.S. regulators proposed new rules Wednesday that would require public companies to disclose the pay gap between chief executives and rank-and-file employees, a controversial requirement that thrusts executive compensation into the spotlight. A divided Securities and Exchange Commission voted 3-to-2 to float a less onerous measure than what the SEC was ordered to adopt in the 2010 Dodd-Frank financial law, giving companies flexibility in how they calculate the ratio to cut back on its expected costs. [WSJ]
SEC Proposes New Rule That Would Make Companies Disclose The Fact That CEO’s Make More In An Hour Than Rank And File Employees Make In 7 LifetimesBy Bess Levin
So he had Mary Jo and Gary and Co. over for tea yesterday, just to make sure they knew that he wasn’t playing a big joke on everyone when he signed Dodd-Frank three years ago, and that he’s not paying them to not write the rules they’ve been mandated to write. Read more »
The constitution does not protect small Texan banks from hypothetical but non-existent damages that might be one day be perpetrated by a federal agency that has done precisely nothing yet. Read more »
My favorite financial news story of 2013 so far might be the Reuters story last Friday about how NYSE and Nasdaq each listed more IPOs than the other during the first quarter. A normal human might find that odd: listing an IPO is the sort of thing that you tend to notice and keep a record of, so you could pretty easily just add up the IPOs you listed and compare. But to a banker, it’s obvious that everyone would claim, with some sort of semi-plausible justification, to be first in every league table. In fact the explanation is perfectly, almost paradigmatically natural: Nasdaq excludes REITs, spin-offs, and best efforts deals.1 I remember when I used to exclude REITs! Excluding REITs is, like, 20% of what a capital markets banker does.
A deep tension at the heart of the financial industry is that it attracts a lot of quantitative logical evidence-oriented people and then puts them to work in essentially sales roles, and a lot of what it sells is unsubstantiated mumbo-jumbo. You wrote your senior thesis on geometric Brownian motion in the prices of inflation-linked Peruvian bonds from 1954 to 1976? Great, go make a page telling clients why Bank X is so much better at underwriting commoditized debt deals than Bank Y. Or: your thesis took for granted the truth of the efficient markets hypothesis? Great, go market a hedge fund that charges 2 and 20 to beat the market. You have to be quantitative enough to manipulate the data to get it to say what you want (“This fee run is 0.2% higher if we exclude REITs” “Well, do that then”), but not so quantitative that you find the whole process revolting. It’s a hard line to walk, and it’s not surprising that Eric Ben-Artzi or Ajit Jain or the quant truthers at S&P end up disgruntled and either blowing whistles or writing regrettable emails.2
Does that explain Lisa Marie Vioni? I dunno, her economics degree came with a side of French, she became a hedge fund marketer, and she’s done it for over 20 years, so I’d have pegged her as pretty comfortable in the gray areas. But in January 2012 she went to work for Cerberus as an MD selling its RMBS Opportunities Fund, and in February 2013 they fired her, and now she’s suing them. She’s suing in part for gender discrimination, which is hard to evaluate from her complaint but sure, maybe.3
But she’s also suing as a Dodd-Frank whistleblower, because she complained about what she thought were misleading marketing materials and was more or less told to go pound sand. And those accusations go like this: Read more »
John Paulson Pretty Sure Dodd-Frank, New Hedge Fund Disclosure Rules Are The Most Fakakta Thing He’s Seen In A Long TimeBy Bess Levin
“I couldn’t even read the whole application,” he said to guffaws from several hundred young Jewish professionals gathered sipping on spirits and kosher wine at event space Chelsea Pearl to hear his advice on how to make it in finance. “I did review part of the application, about 40 pages [out of 500], and the information we provided doesn’t make any sesne to me. How could it possibly make sense to the SEC? It’s a complete waste of time,” he added. “They don’t know what they’re looking for, the just asked for everything in every possible way…I don’t believe the Dodd-Frank law is a positive piece of legislation,” he said dryly, understating his distaste. “I ordered the bill; there are 2,000 pages. I couldn’t read the table of contents. I don’t know anyone who has read it. I think it has retarded the recovery…it’s complete gobbledygook.” [AR]
Deutsche Bank Is Not Above Shuffling a Few Pieces of Paper To Keep Nosy Regulators From Demanding $20bn in New CapitalBy Matt Levine
Two things always worth talking about are bank regulation and path dependency so here’s this Journal story about Deutsche Bank that is like ooh-evil-Germans but also kind of meh:
Deutsche Bank AG changed the legal structure of its huge U.S. subsidiary to shield it from new regulations that would have required the German bank to pump new capital into the U.S. arm. … Taunus [the sub] — which at the end of last year had about $354 billion of assets and 8,652 employees, making it one of the largest U.S. banking companies — won’t have to comply with a provision of the U.S.’s Dodd-Frank regulatory-overhaul law that essentially forces the local arms of non-U.S. banks to meet the same capital requirements that American banks face.
Deutsche Bank has two main U.S. units. One is a trust company that has a banking license and must adhere to stringent U.S. bank-safety rules. The other is an investment-banking arm that isn’t technically a bank. Until recently, both units were housed under Taunus, which didn’t need to meet U.S. capital requirements, thanks to a waiver provided by the Fed a decade ago.
A provision of the Dodd-Frank Act, designed to prevent a repeat of the financial crisis, repealed the law under which that waiver and others were granted. That change was going to require Deutsche Bank to infuse Taunus, which for years operated with thin capital cushions, with what executives feared could be as much as $20 billion, according to people familiar with the matter.
Deutsche Bank responded last month by moving the trust company out of Taunus, named for a mountain range near Frankfurt. That means Taunus is no longer a bank-holding company and won’t have to comply with the new, tougher capital rules, even though Taunus still houses Deutsche Bank’s U.S. investment bank.
Instead it will be SEC regulated, like … well, every other US holding company that houses only an investment bank and not a bank bank. Bank. The bank bank subsidiary, on the other hand, will be owned directly by Deutsche Bank, which as the Journal previously explained gets to follow German but not US capital regulation. The bank sub will be a US trust company, so not quite true that it won’t have to meet the same capital requirements that American banks face. It will have to meet the same capital requirements that American banks face. Its just that its holding company will not be a US bank holding company, but will rather be a German thing regulated by Germans. Read more »