Honestly bank earnings week has been a little boring, no? It’s been quarters since anyone announced a six billion dollar trading loss, and the recent news is pretty much modest beats from a diverse mix of businesses and where is the fun in that I ask you. Financial-market memories are short and … have negative serial correlation, or something … which might explain why Goldman is down today despite announcing a $4.29 EPS vs. analysts’ $3.87, with strength in principal investments and debt underwriting making up for so-so FICC revenues.
The call: variations on boring. Goldman CFO Harvey Schwartz painted a picture of Goldman clients who are deterred from strategic activity by macro uncertainty – “oh we can’t do that merger, because, uh, Cyprus” – and so spend their time refinancing their loans every six months to get lower interest rates.1 I suppose their bankers have to make fees somehow. And there don’t seem to be many conclusions to draw from the numbers: FICC revenues are down because there is noise in FICC revenues, not due to any change in business mix or performance. VaR is down because market vols are down, not because of any change in risk appetite. Private equity gains in investing & lending reflect stronger public equity markets because private equity is just beta. I guess.
Nor is Harvey your go-to guy to fulminate about regulation, though these days really no one is. He said various nice things about how the regulators are working hard and getting it right, and how Goldman doesn’t act in anticipation of regulations but only responds to them when they’re final. Others have phrased this less charitably. Thus Goldman’s new BDC is not a preemptive effort to fit prop traders into the Volcker Rule, but just a client-driven part of Goldman’s asset management strategy – “deploying our competencies into opportunities we feel like our clients would benefit from.”
So what’s left? There’s comp, of course: comp accruals were 43% of revenue ($4.34bn), versus 44% in 1Q2012 ($4.38bn), and headcount is down 1%. Analysts tried to push Schwartz to extrapolate a trend there, but again he mostly resisted. Keep enough people to serve clients, etc. Read more »
They said it couldn’t be done. They said it didn’t matter if it was $4.5 million or $2.5 million or if they were giving it away. They said potentials buyers wouldn’t be swayed by the pitch to “sleep where Angelo Mozilo hath slept, after a few too many troughs of Boone’s farm” (AKA “The Mozilo Bedroom”), or to impress guests with the cocktail party fodder that “that chair you’re sitting in right now the very one Ken Lewis was sitting in when he decided to buy Merrill Lynch, can’t get better investing karma than that.” They said the vomit stains on the rug would not be a selling point. They were wrong. Read more »
…a growing number of self-flagellating New Yorkers who treat — then beat — themselves post-holidays by temporarily giving up vices such as alcohol and sweets, sometimes replacing them with liquid diets (blue-green algae juice and garlic-oregano shots, among them). According to Denise Mari, owner of Organic Avenue, the uber-popular NYC-based juicing mecca, business has doubled year over year since 2006, with an explosion in volume in 2012. And there’s always a spike in sales this time of year with those desperate to cleanse away their sins. “People tend to go extreme — they need to be kicked in the ass,” says Danielle Pashko, a longtime NYC nutritionist who guides high-rollers from Citibank, J.P. Morgan and Merrill Lynch. “It’s kind of like a bipolar attitude — splurging with mayhem and nonstop debauchery for weeks, and then total self-deprivation.” “These people are highly successful, competitive and stressed out. They’re cosmopolitan and social and mostly men,” says Pashko…John Cholish may look like any other ripped stud to an outsider: The smoking-hot energy options broker who boasts 6 percent body fat could intimidate most superheroes. “I’ve always been competitive, and like to challenge myself,” says the 29-year-old from Long Island City who has detoxed regularly for more than a decade. But he’s no match for his 110-pound feather of a girlfriend, Brianna Cole, 24. “My girlfriend and I will do a little competition, but she tends to beat me; I’m probably 0 for 4,” he admits sheepishly of their fasts — during which they give up sugar, caffeine, alcohol and simple carbs for a minimum of several days. [NYP]
Time was, Bank of America loved buying companies. Bonus points if there was a not-so-subtle suggestion by the target’s CEO that BofA would one day be very sorry for doing so, or that they would’ve been better off picking up an asbestos manufacturer, or that they were looking at roughly $40 billion (and counting) in legal fees associated with fuck-ups that were to become Bank of America’s problem, or that they would have night terrors for the rest of their lives about signing those papers. As it’s been a while since BofA went shopping, some in the financial services industry have been wondering if we can expect any announcements re: big deals anytime soon or if Ken Lewis’s unsolicited suggestions (Groupon, Sino Forest, The Thirsty Beaver, and most recently: “a P&C insurer with outsized exposure to the Northeast”) are or have ever been under consideration. Read more »
A surprising percentage of conversations at Dealbreaker HQ go like this:
Bess: Can you really sue someone for [thing someone is suing someone else over]?
Matt: Anyone can sue anyone for anything.
Bess: Did you even go to law school?1
What you don’t learn in law school, though, is that “what the law says” and “what you can settle a case for” are two different things. One thing people love to sue about is “doing stupid shit with shareholder money.” Weirdly, though, the state law that governs who can do what with shareholder money not only allows but actively encourages doing stupid shit with shareholder money; if you go to Delaware state court and say “hey the CEO of my company did stupid shit with my money and now it’s gone” they will LAUGH AND LAUGH AND LAUGH at you and then make you go away.2
If you go to federal court and say “the CEO did stupid shit with my money” you will also be kicked out of court, but for purely technical reasons: that is not technically a thing federal courts care about. But you can fix it easily; all you have to do is say “the CEO did stupid shit with my money and then didn’t tell me about it.” This is called “securities fraud,” and it is something federal courts care deeply about. And a moment’s reflection should tell you that those sentences are essentially equivalent: how many companies have you seen issue press releases that say “hey, FYI, we did some stupid shit this quarter, but no one’s noticed yet”?
There are two big pieces of federal securities class action news today. The bigger one is that BofA settled a lawsuit over its acquisition of Merrill Lynch for $2.43 billion. There are many things worth saying about this, including: Read more »
After he was unceremoniously fired from his post at the newly formed Bank of America Merrill Lynch, for reasons that included paying out big bonuses to ML executives and decorating his office with $1,500 garbage cans, John Thain understood that he would have to recede from the limelight for a bit. Take a job at a smaller firm and keep his head down for a while. Spend more time with his honeybees. Get back to his fighting weight. Drink a raw egg for breakfast every day. Run up and down the stairs of the Met. Work in a hideously decorated space, no matter how much it hurt. Win some awards. Get his confidence back. Let people miss him. Well, Thain did all that. And now? He’s ready for you to make him an offer. Read more »
If I want to buy a million shares of Facebook, I could call my broker and tell him “go buy me a million shares of Facebook.” What I would like him to then do is:
- tell everyone who is looking to sell Facebook that he’s got a buyer, to try to find the best price possible, and
- tell no one else, so that no one steps in front of me to buy some of those shares and push up the price I have to pay.
And it would be great if he did that. But we live in a fallen world where brokers sometimes fail to find every last seller for big orders and thus miss out on getting potentially better prices for their clients, and sometimes disclose big orders to others on the same side who end up front-running them, and mostly manage to do both. This problem is unavoidable – unless he knows everything about the portfolios and desires and honesty of everyone else in the world, even the most honest broker can’t get the order exposure decision perfectly right – though its impact can be reduced by using brokers who are smart and honest rather than the reverse.
In this fallen world, though, it’s hard to know whether your broker is honest, because you can’t always tell what he’s up to when he discloses an order. If I tell him I want a million shares of Facebook and he calls up Fidelity and says “I need a million shares of Facebook, you selling?” and Fidelity then buys Facebook in front of my order, I’ll usually never know if he called Fidelity because he genuinely though wrongly thought Fidelity would sell me some shares, or because he’s friends with Fidelity and wanted to help them front-run me.
But sometimes you can tell! When a bunch of brokers “placed phone receivers up to their respective squawk boxes and transmitted squawks [about pending client orders for specific blocks of securities] over open phone lines directly to [day trading firm A.B.] Watley, where traders then placed trades in the squawked securities before the brokerage firms executed the squawked customer orders,” and when “in exchange for providing access to the direct feeds of squawks, Watley placed ‘wash trades’ with the [brokers] in which Watley traders simultaneously bought and sold the same security at the same price through different accounts,” you can be pretty pretty sure that they were up to no good.
Apparently not sure beyond a reasonable doubt though. Read more »
Are your pants getting a little tight? Have you become convinced mirrors have a personal vendetta against you? Are you too distracted by the rolls spilling over your belt to trade? Do you find yourself veering off course in your letters to investors to talk about your love handles? Is it only a matter of time before you lose your firm billions and/or take down the entire market because your fingers are so big they span four keys each on the keyboard?
Do you want to do something about it but are repulsed by the idea of healthy eating and exercise and also know yourself well enough to realize that there is no way you’re going to be able to stay strong if everyone around you is eating solid food at lunch and sooner or later you, a usually pretty mild-mannered guy, will be leaping across a row of Bloomberg terminals and threatening to kill a coworker (and meaning it) unless he hands over Ho Ho now? Then round up your similarly tubby colleagues and tell them they’re in for a real treat. Read more »
There are two competing theories of how companies should be governed; one says that management should have a lot of leeway to do what it thinks is best and shareholders should keep quiet and, if they’re unhappy, maybe sell their shares; the other says that shareholders own the company and anything that stands in the way of their replacing inept or corrupt management is bad. The pro-shareholder side has I guess been having a good run lately, what with Chesapeake bowing to Carl Icahn’s demands to be less evil, and with the performance of the Facebook IPO giving evil governance a bad name, but the let’s-say-anti-shareholder position is pretty well entrenched. And the leading exponents, or at least my favorite exponents,* of that view are the law firm of Wachtell Lipton, which invented the poison pill so that managers wouldn’t have to lose their jobs just because someone else wanted to buy their company and their shareholders wanted to sell it.
So let’s say you’re a CEO, and you want to buy a company, and you negotiate to buy that company for stock so your shareholders have to approve the merger. And let’s say juuuuuust hypothetically that, after you agree on the deal and mail the proxies and set up the vote and are about to complete your grand plan, you find out that the company you’re buying is sort of a piece of shit, and that you didn’t know that when you agreed to buy it. Embarrassing for you. What do you do?
Well presumably you ask your lawyers and when those lawyers happen to be Wachtell Lipton they tell you their favorite thing to tell you, which is, “you have lots of options but FOR GOD’S SAKE LEAVE THE SHAREHOLDERS OUT OF IT.” And if you were Ken Lewis in late November / early December 2008, that’s what you did. You can read here his [new lawyers'] defense of his decision not to tell Bank of America shareholders that Merrill had some massive upcoming losses before they voted to approve the acquisition of Merrill; it basically goes like this: Read more »
Remember in 2008, when Ken Lewis was all, “Oooh, wait, I don’t know about this Merrill Lynch thing, it looks kinda bad, I don’t think I want to buy it anymore, I’m nervous [bites nails, shifts weight from one foot to the other like he has to pee]” and tried to back out of the deal? And Hank Paulson threatened to stuff him in a meat locker if he did so Lewis said okay, fine, I’ll buy it and then did, without mentioning anything to shareholders about Merrill’s impending losses? Well 1) People are still upset about it but 2) Ken was under the impression shareholders were on a need to know basis. Read more »