And management is going to fire you without pay over it, realize they did so in error, not show any remorse and tell you to shoot HR a cover letter and résumé if you’d like the opportunity to try and get your old job back. Read more »

  • 22 Oct 2012 at 4:22 PM

Timberwolf Continues To Stalk Goldman Sachs

Financial product salespeople, if they know what’s good for them, should be thankful for car dealers. Not used car dealers, either, new car dealers: because of the world’s familiarity with their business model, if you sell a client a product at 100 and then tell them the next day that it’s worth 95, you have at least some outside shot at pacifying them by explaining, slowly and patronizingly, “it’s like buying a car: the price drops as soon as you drive it off the lot.”

I mean, that’s true of buying a toaster or a bunch of carrots, too, but nobody marks those to market, so. I guess people do mark their cars to market? That seems to be a thing. In any case, “mumble mumble mumble drive it off the lot” sounds much better than the alternative, which goes something like “yeah, we thought it was worth 95 but we sold it to you at 100, problem?”

Remember Timberwolf? Timberwolf was an RMBS CDO that Goldman Sachs marketed. It was also “one shitty deal,” in Tom Montag’s immortal words, and some of it was sold it to some Australians with the buzzword-salad name Basis Yield Alpha Fund (Master), and Tom Montag was right, so, that worked out poorly for Basis Yield Alpha Fund (Master). Working out poorly was a feature of a lot of Basis Yield Alpha Fund (Master) investments; before they bought Timberwolf they bought another MBS CDO called Point Pleasant, also from Goldman, and whereas a Timberwolf will of course rip your face off – that’s just evolution – the face-ripping they experienced from a Point Pleasant seems to have come as some surprise.1 Anyway, they sued, and while Goldman has engaged in marvelous jurisdictional kerfufflery that got it tossed from federal court, they are still in New York state court, which refused to toss it late last week.

Here, from the opinion refusing to toss the case, is Basis Yield Etc.’s core allegation: Read more »

A probably important and genuinely difficult question is: all that Libor stuff, did it affect your mortgage? Probably important in that in expectation (1) you have a mortgage and (2) honestly you don’t really care about what banks do otherwise1 so you need to know how mad to get at them. Genuinely difficult at least because it is hard to measure how much banks manipulated Libor, or even in which direction, though overall it seems to have been mostly down, implying that floating-rate mortgage borrowers paid lower rates in the aggregate than they would have in an unmanipulated world.2

But lawyers abhor a vacuum so now there is this lawsuit, in which the homeowners are suing banks for manipulating Libor up, costing them (the homeowners) money by making their adjustable-rate mortgage payments higher. Now you might think that this sits uneasily with the widespread assumption that the banks mostly manipulated Libor down, at least during the crisis, to make themselves look better, but in fact the complaint has a super-simple way of measuring homeowner screwedness that sort of refutes your objection: Read more »

One thing that most people probably agree on is that having their instant messages, e-mails, and phone call transcripts end up court would be cause for at least a little embarrassment. Everyone’s thrown in an emoticon they aren’t proud of, some of us have used company time to chat with significant others about undergarments, and the vast majority of workers have spent a not insignificant amount of the workday talking shit about their superiors. Of course, the humiliation gets ratcheted up a notch in the case of people who ‘haha’ (and in extreme circumstances ‘hahahah’) their own jokes* which, just for example, involve habitual Libor manipulation. Tan Chi Min knows what we’re talking about:

“Nice Libor,” Tan said in an April 2, 2008, instant message with traders including Neil Danziger, who also was fired by RBS, and David Pieri. “Our six-month fixing moved the entire fixing, hahahah.”

And while having such an exchange become public would be tremendously awkward for most, you know what’s really ‘hahaha’ about this whole thing? That 1) Tan was the one who wanted people to read the above, which was submitted as part of a 231-page affidavit earlier this month and 2) He’s trying to use it as evidence that he didn’t deserve to be fired. Read more »

If you’re Blackstone or KKR, are you on balance pleased or not pleased that Bain Capital’s favorite son is running for president? On the one hand, millions more people now think that they know what “private equity” is – and that they don’t like it – than did a year ago, and that loosely coagulated hostility has led to attempts to ban carried interest and dividend recaps and management fee conversions and the Cayman Islands. On the other hand, when a lawsuit accuses the entire private equity industry of antitrust violations and rampant corruption, now you get headlines like “Equity Firms Like Bain Are Depicted as Colluding,” and so I guess KKR employees can tell the folks back home “we are not an equity firm like Bain.” If Bain is a metonymy for Everything Bad in your industry, you can’t help but look good by comparison. Goldman Sachs once played this role for another industry, or still does, but at least Goldman is genuinely evil;1 boring Bostonian Bain is a weird choice to be the poster boy for badness. Did you know that Cerberus – an “equity firm like Bain” – is named after an actual hell hound?2

Anyway! Today’s unflattering depiction of Bain & ilk comes from a long-running class action lawsuit accusing those firms of price-fixing on a series of club LBOs in the go-go five-years-agos; the theory is that every private equity firm was in a conspiracy not to bid up each other’s deals, and to split the profits. The court recently released a heavily redacted complaint in that case that claims to draw on PE firms’ internal emails basically saying “let’s collude to drive down prices on all these deals.”

Presumably the redacted bits all say “let’s do lots of crimes!” but the unredacted bits tell a … pretty unsurprising story. Private equity firms wanted to buy companies cheap. They did so in part by not getting into tooth-and-nail bidding wars over any individual target, either by just not bidding for the target or by trying to club up with other bidders to split the deal. When this worked and PE Firm A got a deal cheap because PE Firm B passed on it, Firm A was like “yaaaay” and Firm B was like “you totally owe us, man,” which I feel like is in exact equipoise between “evidence of criminal antitrust collusion” and “just a bluffy/jokey thing you say when your competitor lands a deal.” Read more »

Citi settled a CDO case for $590 million today, and if you are following along at home you’ll note that that is more than 2x as much as it settled its last CDO case for. There are a number of reasons for that but a big one is: in this case, Citi is in trouble for buying the CDOs, whereas in the last one it was in trouble for selling them. You can’t win, of course, but you can minimize your losses, and the method is clear: next time you find yourself with billions of dollars of assets that you’ve got marked at par but that you’re pretty sure will quickly decay into a pool of oozing crap, you should sell them quickly and deceptively. You’ll get sued less.

Also you won’t lose billions of dollars on the actual CDOs, which is arguably better.

I kid I kid this is different and Citi will probably be whacked repeatedly and in creative ways by shareholders over the fraudulent selling of the CDOs – that $285mm it’s paying to the SEC is really just a down payment – so there really is no way to win (except to accurately mark your assets and disclose your exposure clearly and accurately but who would do that?). Like: CDO investors will sue over the fact that Citi sold them crappy CDOs. Citi shareholders will sue over the fact that Citi was going around selling crappy CDOs without disclosing in its 10Q “we are in the business of selling crappy CDOs.” The advanced move will be when people sue because Citi didn’t tell them that other people were going to sue it, which sounds very silly until you remember that that exact thing is happening to BofA right now. Read more »

  • 27 Aug 2012 at 2:02 PM

Not Everything Is Libor

It’s been a while since we checked in with the infinity thrillion dollars of Libor lawsuits, but the Journal has a good roundup today and, yeah, eep, this is sort of interesting:

Firms facing the biggest potential payouts, according to Morgan Stanley, based on the financial business they do rather than their assumed culpability, include Deutsche Bank AG, Royal Bank of Scotland PLC, Barclays, Bank of America and J.P. Morgan.

It seems almost unfair: you can very easily put a whole lot of leverage on your employees’ lame criminality; if you’re really really good at selling rate product even a tiny wee bit of criminality can be a disaster.* Shades of this chart – shouldn’t you get more points for being more criminal, not just for being bigger?

But this was the most jarring part:

Fund manager Charles Schwab has alleged it deserves damages related to billions of dollars in fixed-rate investments held by its funds, as well as investments with returns pegged directly to Libor. Schwab alleges in lawsuits it filed last year that the fixed rates were set in relation to Libor.

This is actually true; here is the Schwab complaint, which I’ve seen before but somehow didn’t register this: Read more »