• 20 Nov 2013 at 3:03 PM

Life At JP Morgan Is Looking Up

Yes, the bank just agreed to pay $13 billion to settle only one of the many investigations into its practices. Yes, #AskJPM didn’t exactly go off as planned. Yes, the public outrage reserved for Goldman Sachs has all but turned to 270 Park. Yes, the firm’s headquarters are visited regularly by an exorcist.

And yes, on the surface, all of that looks pretty bad. But none of it matters. Not when a dating website proclaims your (male) employees to be the 4th hottest in New York based on the results of a study that real science went into it doesn’t. Read more »

[Marvin] Bower enforced an unyielding dress code: dark suits, hats, and garters. Long socks were required because Bower abhorred the sight of “raw flesh.” Maurice Cunniffe, who worked at the firm from 1963 to 1969, could remember the protocol as if it were yesterday. “Definitely long socks,” he said. “And a feather on your hat only if it was barely peeking over your hat band.” “You would wear garters and you would wear a hat,” recalled McKinsey consultant Jack Vance. “You didn’t wear bow ties and lord knows you didn’t have a mustache.” Or argyle socks. In one heralded piece of McKinsey lore, Bower is said to have attended a client meeting in 1966 with a young associate who had the audacity to reveal a flash of argyle under his pants cuff during the meeting. Upon returning to the office, Bower whipped off one of his signature blue memos on appropriate sock wear, and he even held a Saturday clinic on the right way to dress. [The Firm via WSJ]

There’s a lot of The Future Of Banking in the news today and we should talk about it but first a proposition. Where are you more likely to lose money on a mark-to-market basis: buying 5-year PIK-toggle holdco Petco bonds at 8.6%, or buying 30-year UPS bonds at 3.625%? I say your odds of losing on UPS are higher; if you disagree, you take Petco, and we’ll meet here in 30 years to settle up.

Here is a grab-bag of other numbers related to UPS:

Things to think here include:

  • lending money to UPS is not profitable for banks2;
  • underwriting UPS’s 30-year bonds isn’t exactly a bonanza either; and
  • UPS would be nuts to borrow from its banks – so it doesn’t, and borrows more cheaply in the market.3

Bank lending to high-investment-grade companies is (1) a loss leader, (2) used to attract not especially profitable business, and (3) not competitively priced. I feel like other industries do loss leaders better.

While you ponder that, also ponder this IMF working paper on banks and trading. A quick takeaway is “banks shouldn’t trade, urgh, trading bad,” and Mark Gongloff and Felix Salmon take that takeaway away, but as far as I can tell the more interesting bit is this: Read more »

What motivates people to share material non-public information with a person they know will use it for profit? For some, it’s simply about greed. For others, it’s about the thrill. For yet others, it’s about pillow talk. For Rajat Gupta, the McKinsey director currently on trial for allegedly passing inside information to Raj Rajaratnam, it’s about friendship, according to prosecutors who are trying to make the case that Raj and Rajat were the best of buds and that’s what buds do. They they back each other up when they drunkenly hit on the girlfriend of the wrong guy at the bar, they stand up as best men at each others’ weddings, they pick up the phone and say “Buy GS” when they know for a fact Warren Buffett is about to do so, too. And although attorneys representing Gupta don’t deny the two were thick as thieves, they argue that while perhaps back in the day Rajat would have provided useful information to Raj, there is no way he would have done so after Big R twice violated the bonds of friendship. In the first instance, there was this:

Defense attorneys have argued that Messrs. Gupta and Rajaratnam had a falling out in fall 2008 after Mr. Gupta lost his entire $10 million investment in a fund managed by Mr. Rajaratnam and therefore wouldn’t have passed along inside information…The precise timing of their relationship’s deterioration could be crucial in proving Mr. Gupta’s guilt or raising doubts in the minds of jurors about whether he conspired to commit securities fraud…Defense attorneys have said Mr. Gupta was furious at Mr. Rajaratnam in the fall of 2008, when Mr. Gupta’s $10 million investment in a fund called Voyager Capital Partners Ltd. evaporated. According to Mr. Kumar’s testimony, Mr. Gupta felt Mr. Rajaratnam’s negligence had allowed Voyager to collapse.

And then this happened: Read more »

  • 08 Dec 2011 at 7:38 PM
  • Banks

CDOs To Buy European Bank Stocks And Other Silly Ideas

Someone hit F9 on the random number generator that decides how much capital European banks need and now it’s $115 billion, which I guess is more than it used to be, so that’s a thing. As you might imagine this is a problem because who in their right mind would buy equity of a European bank? Or, in diplomatic terms:

One analyst questioned [Commerzbank’s] ability to make up the deficit through shrinkage or other means. “It certainly seems hard for them to come back with another equity raise from the market, so if all else fails it looks like the government is the answer.”

But the bank insisted this was not part of its plan. Eric Strutz, finance director, said: “We stand by our intention not to make use of additional public funds.”

So that’s nice. But if you’d rather look at it in world-historical-demographic terms, it turns out you can. Because this little consulting outfit called McKinsey occasionally sends out musings to its friends and supporters, and today they’ve got a mammoth, slightly odd financial markets study, which the Journal has written about, concluding that nobody will buy stock anymore, especially from Commerzbank (though I may have just made that part up).

Read more »

As you may have heard, yesterday morning, former McKinsey managing director Rajat Gupta was charged with insider trading. Is he worried he might be headed to jail in the not too distant future? Not in the slightest. Because 1) As previously mentioned, that time he took part in a fall 2008 conference call with GS management and fellow board members and after hanging up, made himself wait exactly twenty three seconds before getting Raj Rajaratnam on the horn with the details? Wasn’t with the intent for the Galleon manager to actually trade on the material non-public information Rajat was sharing. And 2) Even if a court of law should interpret the evidence otherwise, someone’s got his back. Read more »

Markets got you down? Can’t seem to keep up with your benchmark this year? Not sure you’ll ever figure out this whole buy-low, sell-high thing that you keep hearing rumors about? Cheer up, you’ve got good company. Company anyway. Specifically, corporate America, whose overall market timing ability is much worse than that of a chimp who watches Art Cashin.

That’s what McKinsey coldly concluded, noting that from 2004 to 2010, “Only 31 percent of the [S&P 500] companies earned a positive return from buying back shares—less than you would expect from a random throw of the dice.” And not only did two out of three companies underperform putting cash under a pillow; three out of four underperformed dollar cost averaging:

Read more »

According to Reuters, the only reason the SEC put its case against the former McKinsey exec/Goldman board member on hold is because federal prosecutors intervened, which “suggests continuing interest by U.S. Department of Justice prosecutors in Gupta,” who in one instance was so excited to pass inside information to Raj Rajaratnam that he rang up the Galleon founder 23 seconds after getting off with the Goldman board. [Reuters]