Walgreens has been losing a lot of greenbacks lately: a whopping $8.6 billion of them in fiscal 2024. Its foray into primary care has been a challenge forcing it to close a series of VillageMD clinics nationwide. Even its pharmacy business has faced competition from nimble, online pharmacy retailers like Amazon Pharmacy and Mark Cuban’s Cost Plus Drugs and fallen casualty to drug prices being negotiated.

And investors have paid attention to its missteps. Over the past five years, the stock price of the retail giant, if we can even use that term anymore, has floundered — it is currently trading at less than $10 down from a high of nearly $40 at the end of 2019.

So, when the Wall Street Journal reported last week that Deerfield, Illinois-based Walgreens is exploring a sale, the struggling retailer’s shares jumped by about 17% that day.

 If a deal were to take place, there could be a potential buyout of about $9.2 billion to $10 billion, wrote Erin Wright, an equity analyst with Morgan Stanley, in a research note following the WSJ report. It’s slim pickings given that the global investment firm KKR made a $70 billion offer to buy Walgreens in 2019, according to the Financial Times. A report from Pitchbook showed that the deal reportedly stalled because KKR and its prospective financiers couldn’t agree on Walgreens’ valuation.

Given its diminished status, is selling to a private equity buyer a good move for Walgreens?

The answer appears to be “yes” for some experts.

“At this point, some fresh thinking is needed to reconceptualize how the company’s assets can be more fruitfully employed,” said Michael Abrams, managing partner of Numerof & Associates, a consulting firm.

Walgreens and Sycamore Partners declined to comment.

Why Walgreens May Want to Sell Itself

The rumors about Walgreens considering a sale come after nearly a decade of efforts to restore growth, according to Abrams. During that time, its market value fell from over $100 billion to below $8 billion, he said.

He added that the company has attempted numerous strategies to turn things around, including expanding into Europe with its acquisition of Alliance Boots and buying a stake in primary care provider VillageMD for about $5.2 billion.

“The fact of the matter is that the pharmacy business is a mature one with flat margins in the core function of dispensing prescription drugs,” Abrams said. “Add to that growing pressure from pharmacy benefit managers who negotiate drug prices on behalf of insurers and employers, and Walgreens’ extraordinary network of over 12,000 stores is less an asset than a liability.”

He added that sales for retail products have faced increased competition from Amazon and other e-commerce sites.

The hope is that selling to a private equity firm could help Walgreens make operational improvements and grow, according to Keith Campbell, the leader of West Monroe’s merger & acquisition practice. West Monroe is a consulting firm.

“By closing underperforming locations and leveraging sale-and-leaseback transactions, Walgreens could reduce debt and streamline operations,” Campbell said. “Once the retail business is stabilized and cash flow positive, the focus could shift to high-growth segments like home care and rare/orphan drug compounding.”

But why Sycamore Partners? After all, the company doesn’t have much experience in healthcare. It has historically done smaller deals than Walgreens and would probably have to sell off parts of its business or bring in partners to get the deal through, Abrams pointed out.

The key attraction could be that the New York-based firm specializes in retail and consumer investments. Abrams stated that its portfolio includes office supply store Staples and clothing stores Hot Topic, Ann Taylor and Chico’s.

The fact that Sycamore Partners is more retail-oriented and consumer-focused is interesting to Hal Andrews, president and CEO of Trilliant Health. He noted that the beauty business at Boots stores in London is just as prominent as the pharmacy business, if not more.

“Boots, from just an experience standpoint, is much more of a consumer business around health and wellness and beauty. … But healthcare is a very different thing,” he said. “The fact that Sycamore is interested suggests that they see an opportunity to really focus on the retail side, the consumer side, the health and beauty part of the business, and not so much on the healthcare side, whether that’s VillageMD or Shields or anything else that’s really hands-on medicine as opposed to retail health.”

Is this the right move?

At this point, selling to a private equity buyer like Sycamore Partners may be the right call for Walgreens, Abrams said.

“Walgreens missed the opportunity to diversify into the PBM or insurance space years ago, and so has been at the mercy of others like CVS who did,” he declared. “Their effort to enter the primary care space made sense, but the company underestimated the cost and effort involved in changing the public’s expectations to see the local drug store as a care provider.”

Another consultant echoed Abrams’ comments, noting that the faltering retail giant needs to make a strategic change in order to avoid “further decline.”

“I think right now a private equity owner could potentially drive the needed changes, such as a greater focus on e-commerce, rethinking the retail footprint, and pursuing M&A to expand into adjacent healthcare services,” said Howard Gutman, private equity strategy and coverage lead for MorganFranklin Consulting. “However, successfully executing this transformation would require Walgreens to develop new capabilities around digital operations, M&A integration, and managing a more diversified business model. This is another reason I think the move towards finding the right private equity partner makes sense.”

Andrews of Trilliant Health stated that he can’t say for sure whether this is the right move for Walgreens. As an executive, however, he did note that when a company needs to restructure a business, it’s much easier to do that when you’re privately held and not reporting to Wall Street every 90 days.

“It allows the management team to just focus on the objectives and not worry about what Wall Street’s gonna say every 90 days and whether the stock is gonna go up or down,” he said. “It allows for clarity, and clarity allows for more focus on executing the plan, as opposed to worrying about what people think about it.”

Although a private equity deal seems like the smart decision for Walgreens to some, Wright of Morgan Stanley doesn’t seem to think the deal will go through.

“While we acknowledge the context around a potential sale in a challenging pharmacy backdrop, a buyout is harder to contemplate given its already sizable debt burden and paltry cash flow, making the value creation pathway harder to decipher,” Wright stated in the analyst note.

Andrews added that Sycamore Partners may not be the only interested party in Walgreens and there could very well be additional potential buyers down the road with competing offers.

“This is really just step one, and it’ll be interesting to see whether another private equity firm steps in,” he said.

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The next time rival Disney gets around to opening some new features at its now-safe-from-Ron-DeSantis central Floridian empire, it may rely on some older, possibly antipodean IP. Perhaps Crocodile Dundee World and A Walk Through Erinsborough.

Disney has tapped James Gorman to replace Mark Parker as the company’s next chairman, effective in January…. Gorman joined Disney’s board less than a year ago….

Well, since Jamie Dimon remains stubbornly unavailable, we guess Disney could do worse. And now that it’s successfully prevented Nelson Peltz from forcing it to come up with one, Disney has decided to announce that it has concepts of succession plan.

Disney said it would name Chief Executive Bob Iger’s replacement in early 2026…. The announcement Monday marked the first time the company had formally given a time frame for when it aims to name Iger’s successor…./Gorman’s elevation to chair is a sign to some observers that Disney wants to give more authority to an outsider with a strong record in high-stakes succession planning. Disney’s board has been criticized in the past for succession-planning failures, while Gorman was praised for navigating Morgan Stanley through its successful CEO search.

Disney will name Bob Iger’s replacement in early 2026; James Gorman to become board chair next year [CNBC]
Disney to Name Bob Iger’s Successor in Early 2026 [WSJ]
Universal Orlando announces opening date for highly anticipated Epic Universe theme park [CNN]

What has definitely survived Lynch’s untimely demise is HP’s antipathy for the man, and also its $4 billion lawsuit against him.

The US company said in a statement it would follow the legal proceedings “through to their conclusion” despite Lynch’s death last month when his yacht sank off the coast of Italy…. HPE won a civil claim against Lynch in the English high court in 2022....

A ruling on damages is expected soon, although the judge presiding over the case, Mr Justice Hildyard, wrote in 2022 that he expected final damages to be “substantially less than is claimed”….

“They are a publicly traded company and they have a fiduciary duty to their shareholders. Legally they are obliged to act in their shareholders’ best interests, but morally continuing the claim is questionable. And from a publicity perspective it could backfire on them. Effectively they would be suing his widow and that does not look good optically,” [Wedlake Bell partner Oliver Embley] said.

Lynch’s widow, Angela Bacares, was onboard the Bayesian when it sank but was among 15 people who were rescued.

On the other hand, we think we’d be mad enough to face the bad publicity if someone swindled us for $11 billion so….

Hewlett Packard to pursue Mike Lynch’s estate for up to $4bn [Guardian]

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And a gigantic mistake it was: Musk paid $44 billion for a platform that’s now worth, according to one of his backers, just $12.5 billion. But misery loves company, and Musk’s got a lot of it among those who now deeply regret financing one of the greatest boondoggles in history.

Seven banks involved in the deal, including the likes of Bank of America and Morgan Stanley, gave Musk’s holding company about $13 billion to take the social media giant private in 2022…. Banks haven’t been able to sell the debt without taking huge losses, predominantly because of the company’s poor financial performance. That means the loans have remained “hung,” or stuck, on banks’ balance sheets….

“Twitter loans have been hung longer than every similar unsold deal since the 2008-09 financial crisis for which the research firm has complete records,” the report says.

While the lenders have been able to receive large interest payments on the X loans, some of the banks have marked down the value of the loans to the tune of hundreds of millions of dollars.

I mean, we know Elon was high when he made the deal, but what’s your excuse Brian Moynihan?

Anyway, in spite of his full-throated support and self-abasement, Musk’s preferred presidential candidate (and nominal competitor in the social media space) seems pretty well set on destroying the source of the cash flow that allows Elon to burn money operating Twitter, SpaceX, xAI, etc.:

The Republican nominee also said he would consider getting rid of a $7,500 tax credit for certain new electric vehicles. That could affect business for Tesla, which sells EVs.

On the bright side, President Trump would be willing to give Elon another federal handout.

Former President Donald Trump on Monday said he would offer Tesla and SpaceX CEO Elon Musk a Cabinet position or an advisory role in his administration if he wins a second term in the White House./Trump told Reuters in an interview that he would tap Musk for such a position “if he would do it….”

Musk, in an apparently tongue-in-cheek reply on his social media platform X, said, “I am willing to serve.”

We’re sure he’ll give whatever job it is the full attention he’s paid to all of the other jobs he’s got, given the generous $246,400 annual salary.

Elon Musk’s Twitter Buyout Is Officially the Worst Deal Since Financial Crisis [Daily Beast via Yahoo!]
Trump says he would offer Tesla CEO Elon Musk a Cabinet slot, but might end EV tax credit [CNBC via Yahoo!]

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Across the Alps, well…

Shares in Deutsche Bank tumbled after it dashed hopes for a stock buyback and set aside $1.4 billion related to a longstanding takeover dispute.

The provision in the bank’s second-quarter earnings, first flagged three months earlier, totaled €1.3 billion, or about $1.4 billion. That erased almost all of the profit the bank recorded in the first quarter.

Ah, Deutsche Bank: Je mehr sich die Dinge ändern, desto mehr bleiben sie gleich.

Nor is it only legal woes that are trying the Teutons: Its flagship fixed-income and consumer businesses are feeling a bit schlecht, and then there are all of those commercial property loans in the U.S. on its books.

Credit provisions for the asset class rose to a peak for data going back to 2022, almost doubling from a year earlier… While Deutsche Bank is “seeing some stabilization” in the broader US commercial real estate market, the office part of that will likely “continue to be impacted” for the rest of the year, Chief Financial Officer James von Moltke said….

Even though its US CRE exposure accounts for only about 3% of its total loan book, it was the source for more than a quarter of the bank’s credit provisions in the last three-months period.

Man, even U.S. community banks—the perceived epicenter of commercial real-estate troubles—aren’t doing that bad.

Executives at these firms — which number about 4,100 in total — say there is an important distinction, and some industry analysts concur. They caution that small banks are being lumped in with lenders to the owners of half-empty towers in Manhattan, San Francisco and Chicago, which are in the most trouble.

Instead, a majority of commercial building loans by community banks are for smaller buildings — like those housing doctors and local businesses — that tend to be fully leased. And while there are concerns about financial pressure on apartment building landlords if interest rates remain high, missed payments on those types of mortgages have not risen substantially.

Well, we suppose Deutsche could take a page from Ally Financial, Morgan Stanley and others by just pretending those bad loans aren’t there anymore.

Ally Financial has joined the ranks of banks doing deals known as synthetic credit-risk transfers. These deals—for a price—might make lenders look less risky for certain purposes. They don’t transfer any loans off their books…. So why bother with all this complexity? Mainly to optimize Ally’s regulatory capital ratios.

Deutsche Bank Stock Drops on Concern Over Buyback Halt [WSJ]
Deutsche Bank’s US Commercial Property Loans Are a Growing Drag on Its Profits [Bloomberg via Yahoo!]
BNP Paribas Posts Earnings Beat, Backs Guidance [WSJ]
Spanish Bank Santander Raises 2024 Guidance After Earnings Beat [WSJ]
UniCredit Lifts Revenue Goal as Fee Strategy Starts Pay Off [Bloomberg]
Real Estate Crisis? Small Banks Say Their Loans Are Fine. [NYT]
Lenders Tout a New Way to Transfer Risk, but Why Bother? [WSJ]

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The cuts, which include a small number of managing directors as well as non-customer-facing employees, are expected to hit less than 1% of the wealth unit’s employees, which number less than 40,000 in total.

Among those facing the ax are E*Traders made redundant now that the trading platform has been fully integrated and those working in stock-plan services, and business management and development. Financial advisers and support teams will not be penalized for the wealth management business’ anemic performance.

The wealth division has been showing signs of slowing down in recent quarters, however, with revenue coming in flat in the fourth quarter from a year ago. Net new assets totaled $47.5 billion in the period, down 8% from a year ago, after a 45% decline in the third quarter.

Morgan Stanley Is Laying Off Several Hundred in Wealth-Management Division [WSJ]

Individual penalties at Morgan Stanley range from a few thousand dollars to more than $1 million, based on a points system that considers factors including seniority, number of messages sent and whether they were issued prior warnings….

The funds have either been clawed back from previous bonuses or will be docked from future pay….

Morgan Stanley Fines Its Bankers Over Messaging Breaches [Bloomberg]
Morgan Stanley hits bankers with $1mn penalties for messaging breaches [FT]

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But which white dude? Would it be wealth-management impresario Andy Saperstein? Sweary trading chief Ted Pick? The rising investment-management head Dan Simkowitz?

Well, it’s probably gonna be one of them, because it’s not going to be COO Jon Pruzan.

Mr. Pruzan, 54, will step down on Jan. 31, the Wall Street firm said in a Securities and Exchange Commission filing Monday…. Mr. Pruzan has spent most of his career at Morgan Stanley, having joined the bank in 1994 after a stint at PaineWebber.

Morgan Stanley CEO Contender Jonathan Pruzan to Retire [WSJ]

The hard-charging boss — who said Tuesday he may slim down the “footprint of the organization” — has stressed-out workers griping about Goldman’s “Strategic Resource Assessment.”

Now the buckets are “you are great, you are average, or you stink,” one source told The Post.

“The firm changes the review structure so frequently it’s hard to keep up,” the source added. “It’s like they can’t figure out how to get it right internally.”

Well, however freaked out the Elect are now, just wait until the ball drops.

Big bank shareholders will want executives to keep a tight rein on costs and preserve capital against the possibility of loan losses to come when recessions hit. That impetus will mean more job cuts next year too if there is no big recovery in listings, bond sales and takeovers.

Of course, there’s one bank where the worry, apparently, isn’t about losing your job, but about having to keep it.

“We don’t lay off people, but we have an ability to reshape our headcount pretty quickly just by the turnover that occurs,” Moynihan said Tuesday during a financial conference.

In other words, Moynihan will allow positions to go unfilled as employees voluntarily depart, moving people around and retraining them as needed, he said.

Big Bank Job Cuts May Just Be Getting Started [Bloomberg]
Goldman Sachs warns of cuts amid fears over job review process [N.Y. Post]
‘We don’t lay off people’: This is how Bank of America’s CEO plans to reduce employee levels [CNBC]

You can blame the ongoing or upcoming recessions, the absence of deals to be made, or the tens of billions in hung deals—hi, Elon!—hanging around the bank’s neck. CEO James Gorman, in his inimitable Aussie way, has a different explanation.

“Some people are going to be let go,” Gorman said. “In most businesses, that’s what you do after many years of growth.”

Perhaps someone can slip a copy of John Mack’s new book to the survivors as security escorts the departed to the doors, as an additional reminder that there are worse things than a shit bonus.

Morgan Stanley cut about 2% of global staff on Tuesday, sources say [CNBC]

It has many of the elements that made the ultimate Wall Street book, Liar’s Poker, sparkle — rivalry, camaraderie, japes and high stakes — but sadly told without the style or irony of Michael Lewis.

Does it include that time he told New York Fed Chair and future Treasury Secretary Tim Geithner to “get fucked” during the global financial crisis? Of course it does. How about the one where he got so drunk at the Waldorf that a future president of the United States had to carry him out “on his back”? Well, we haven’t read it, but we’re guessing probably not. Does it include any doubts about how he conducted himself leading up to and during said global financial crisis, which required an emergency $9 billion cash infusion from the Japanese to keep Morgan Stanley afloat? Definitely not.

Mack’s own account shows how his hunger to catch up with other firms meant that he missed the signals leading up to the financial crisis. He recounts how he didn’t realise Merrill Lynch was so vulnerable until the Sunday before Lehman failed. Moreover, Mack says that unlike Goldman he had not studied the benefits of becoming a bank to take advantage of the Fed being the lender of last resort…. friend and former Morgan Stanley colleague Steve Eisman — of Big Short fame — was literally shouting at top management that things were going down…. The Thursday before the weekend Lehman went bust, I met with hedge fund manager John Paulson in New York to discuss the best shorts among European financials. At the close of an intense hour he said thanks but then asked me why I wasn’t writing up my resume as Morgan Stanley would probably be bankrupt in a month or two. In my debrief later that day, I told Mack about the tone of my meetings and some investors’ conviction of Morgan Stanley’s imminent failure. Mack had absolutely zero doubts that his bank would somehow be fine….

“I have fucking killed it. I knocked the cover off the ball in the financial world,” Mack says in the epilogue.

In other words, don’t waste a valuable Christmas ask on Mack’s tome if you’re looking for anything approaching insight or introspection. But if you’re an afficionado of the finer points of Wall Street frivolity—and, dear reader, we know you are—then it’s worth every bit of the $28.99 cover price.

He is a self-confessed “incorrigible prankster”. One time he puts a piece of salmon sushi into the mouthpiece of a trader’s phone for several days so he and the floor could see the trader getting “worried sick” about halitosis. “Every desk is a place to hide under” he recounts.

Mack is all too aware of his non-Ivy League background…

Oh, the plight of the Duke scholarship boy!

…lacking the “Mayflower manners of previous hires” and delighted to put the fear of God into “frat-house charm balls who needed a motivated kick in the ass”.

Mack knifed [FT]

Unless you’re Jamie Dimon, that is.

JPMorgan Chase & Co. has avoided most of 2022’s so-called hung deals that have cost competitors billions of dollars in paper losses. Whether by luck or by design, the biggest U.S. bank didn’t make loans backing takeovers of companies such as Twitter Inc., Citrix Systems Inc. and Nielsen Holdings PLC, which fell in value as markets turned choppy…. “There are no real leveraged loan write-downs this quarter and that market isn’t yet cleared,” Mr. Dimon said on an October conference call with Wall Street analysts. “Our share of it is very small, so we’re very comfortable….”

JPMorgan dialed back its appetite for buyout loans in the autumn of 2021, people familiar with the matter said. [Global head of corporate debt Kevin] Foley and his team thought the price inflation then cropping up in the U.S. would last for years because of supply disruptions and wage inequality, the people said. They also thought that risk was climbing in buyout deals as rising valuations were forcing buyers to borrow excessively to make winning bids, the people said.

So, how are you enjoying hurricane season, Mr. Moynihan?

JPMorgan’s record contrasts with that of Bank of America Corp., which made large loans for buyers of Twitter, Citrix, Nielsen and others. Bank of America Chief Executive Brian Moynihan has consistently sounded an optimistic note about the U.S. economy, clashing with JPMorgan head Jamie Dimon’s gloomier warnings…. The strategy backfired this year for firms such as Bank of America, Barclays PLC, Goldman Sachs Group Inc. and Morgan Stanley, which committed in the winter and early spring to bankroll large takeovers. Interest rates subsequently rose, turning debt investors cautious and sending the price of leveraged loans tumbling. Now the banks must choose between liquidating the loans at a loss or keeping them on their balance sheets at marked-down prices.

JPMorgan Dodges a Buyout-Loan Bullet [WSJ]

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The Nobel Memorial Prize in Economic Sciences was awarded on Monday to Ben S. Bernanke, the former Federal Reserve chair, and two other academics for research into banks and financial crises…. Mr. Bernanke in 1983 wrote a paper that broke ground in explaining that bank failures can propagate a financial crisis rather than simply be a result of the crisis.

And while others may think he didn’t do a particularly good job applying those insights, the Beard says he’s sure glad he had them, and not just because of the $300,000 or so they’ve won him (he makes about as much for giving a dinner speech, after all).

“I strongly believed that if [a financial meltdown] happened, that would bring down the rest of the economy,” he said, adding of his research, “it did help me to think about these issues in 2008.”

And, he added, thanks in part to that B-plus work, Jay Powell’s got one less thing to worry about in the upcoming recession he’s causing. And the banks agree.

“We’re not in anything like the dire straits we were in 14 years ago,” Mr. Bernanke said of the state of the U.S. financial system.

The anticipated provisions will be far smaller than the ones made by lenders at the start of the coronavirus pandemic in 2020, when they increased reserves by tens of billions of dollars to brace themselves for an economic shock that was largely avoided thanks to unprecedented monetary and fiscal stimulus…. The six largest US banks by assets — JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Wells Fargo and Morgan Stanley — will collectively provision about $4.5bn in loan-loss reserves in third-quarter earnings….

Nobel Economics Prize: Ex-Fed Chair Bernanke Among Winners for Work on Financial Crises [NYT]
US banks to set aside $4bn for potential losses from bad loans [FT]

Weinstein didn’t understand it. But since he had only a flimsy fishing net at the time—and because, as he says, he loves puzzles and “the market to me is the ultimate puzzle”—he decided to study the great stricken beast, to try and understand its habits. And since we’re not actually talking about giant sea creatures but banks, he did this by giving them a call.

There was another incident that’s never been reported on, as far as I know. It was a year before the London Whale, and it was Morgan Stanley that took the hit…. I went to go see Morgan Stanley to warn them. The head of risk for the bank said: “I don’t get it. MBIA has wrapped [guaranteed] exposures for every bank on the Street. Are you telling me none of the other banks have bought MBIA protection? We’re the only ones?”…

From there, as a thank-you, they worked with me for weeks to help them unwind as much as they could. It was our most profitable investment in 2011—garnering more than $75 million for us that year.

Which was a great haul, but not as great as it could have been. However, this understanding of how banks think about and trade CDS would be priceless, as would the industrial-sized harpoon Weinstein bought as he continued to trawl the net open interest seas.

I was very primed to find the London Whale a year later. That being such a successful trade for us emboldened us to continue to look at the changes in NOI that added detail to our London Whale thesis.

Boaz Weinstein Reveals the Secret Trade That Helped Make Him Famous [Bloomberg]

Of course, there are also nefarious reasons, specifically that no one is looking at what you’re saying or doing on those devices. Allow one Bank of America trader explain:

"We use WhatsApp all the time but we delete convos regularly."

Which, if you were wondering, is the sort of convo you should be deleting regularly, because if you don’t and the SEC and CFTC find it, it sort of blows the whole game away. As it has done.

U.S. regulators on Tuesday fined 16 financial firms, including Barclays, Bank of America, Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley and UBS, a combined $1.8 billion after staff discussed deals and trades on their personal devices and apps….

The head of a trading desk routinely directed traders to delete messages on personal devices and to use Signal, including during the CFTC's probe.

In another example, a Nomura trader deleted messages, which included incriminating statements about trading, after the CFTC sent a request to preserve documents, her office said.

U.S. fines 16 Wall Street firms $1.8 billion for talking deals, trades on personal apps [Reuters via Yahoo!]
Wall Street to Pay $1.8 Billion in Fines Over Traders’ Use of Banned Messaging Apps [WSJ]

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Oh, Cryan tried, imploring his underlings to use the app only on a traceable platform that no one uses. But, like just about everything else from the Cryan era (and, to be fair, at Deutsche Bank generally), it didn’t work. And, in further fairness, it didn’t work for the much-better-run JPMorgan Chase, either. Or, you know, for anyone else.

The roster of banks poised to pay $200 million each includes Bank of America Corp., Barclays PLC, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc., and Morgan Stanley and UBS Group AG, the people said. Jefferies Financial Group Inc. and Nomura Holdings Inc. are nearing settlements with regulators but will pay lower fines, reflecting their smaller size, the people said…. The SEC’s push for big fines has irked many defense lawyers and legal executives at the banks, according to people familiar with the negotiations. That’s because the investigations don’t allege any fraud or harm to clients.

Not that Gary Gensler cares what defense lawyers and bank leaders think, but he’s got to make an example here because….

The record-keeping enforcement initiative likely won’t end with the big banks, some of the people said, because the SEC is now probing whether regulated money managers broke the same rules.

“The fines are high to try to serve as a deterrent,” Mr. Berman said. “On the other hand, Democrats like to increase the amount of fines. In this case it is probably more of the former, because they have to send a really strong message.”

Banks Nearing $1 Billion Settlement Over Traders’ Use of Banned Messaging Apps [WSJ]

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[Treasurer Riley] Moore said those contracts would be wound down by the end of the year and that the state would begin looking for new service providers that did not have policies targeting the coal industry…. “We’re handing money over to a financial institution that is generated from the fossil fuel industry,” he said. “At the same time, they’re trying to diminish those funds. There’s a clear conflict of interest there.”

This seems like a good use of time for the treasurer of a state with a 17.4% poverty rate, reducing competition for state contracts and eliminating some of the most competitive and presumably cheapest players from its market. That definitely won’t increase the tax burden on the roughly 1.8 million (out of 1.81 million) West Virginians who don’t work in the coal industry. (We’re sure JPMorgan will really miss that $46 million.) And, of course, Moore isn’t totally opposed to conflicts of interest when it comes to making sure those West Virginian’s pensions aren’t even more underfunded than they currently are.

The law does not affect the holdings of the West Virginia pension system.

Notably, Credit Suisse is still permitted to do business with West Virginia, which means losing the governor $700 million is still an OK thing to do.

West Virginia Punishes Banks That It Says Don’t Support Coal [NYT]
West Virginia bars five financial firms for deemed fossil fuel 'boycotts' [Reuters]

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Well, the most important economic voice and next president of the United States if this braindead country could get out of its own way Jamie Dimon cannot fail to weigh in on the great issues of our time. So he went down to North Carolina and picked a regionally-appropriate way to express his own trepidation about the future.

Jamie Dimon, the chief executive of JPMorgan Chase, warned of a coming storm caused by a combination of “unprecedented” factors: fiscal stimulus during the pandemic, Federal Reserve policy and the war in Ukraine. “It’s a hurricane,” said Mr. Dimon, who leads the nation’s largest lender. “Right now, it’s kind of sunny, things are doing fine. Everyone thinks the Fed can handle this. That hurricane is right out there, down the road, coming our way. We just don’t know if it’s a minor one or superstorm Sandy.”

Well, for some reason Brian Moynihan was really feeling himself at the Bernstein Strategic Decisions Conference and decided to try to clown on his betters. You don’t come to BriMoy’s house (well, second house) and start spreading this defeatist garbage. Everything’s gonna be fine, Jamie! Don’t be such a freakin’ crybaby.

Alas, as you might expect from a man with Moynihan’s track record, the idea was better than the delivery.

“We’re in North Carolina,” he said. “You’ve got hurricanes that come every year.”

Incredibly, Dimon did not stop Moynihan right there with a cutting, “Yea, we know you have hurricanes every year, Brian.” But it might have been better for all involved if he did.

In a bit of a rambling response, Moynihan made the point that the Fed’s challenge to hike rates is because of a strong underlying economy. What makes the Fed’s job tough right now is “actually a good thing — low unemployment and good wage growth and good consumer spending,” he said….

“The spending is strong and then customers have more money in their accounts than they did prepandemic by multiples,” Mr. Moynihan said. “They’ve got plenty of money to spend….”

Goldman Sachs Group Inc.’s President John Waldron called the economic forces among the most complicated he has seen. But, he added, “I’m going to try not to use any weather analogies.”

Good call, John.

Brian Moynihan dismisses Jamie Dimon’s warning on the economy: ‘You’ve got hurricanes that come every year’ [MW]
Fink, Dimon and Musk have the blues. And one forecaster says they’re not gloomy enough [MW]
Jamie Dimon Says U.S. Consumers Still Have Six to Nine Months of Spending Power [WSJ]
‘It’s a hurricane’: Bank chiefs warn of a weakening economy. [NYT]

German prosecutors are carrying out a raid on the Frankfurt offices of Morgan Stanley as part of their wider probe into the controversial Cum-Ex scandal that robbed tax payers of billions of euros…. More than 75 officers are taking part in the action…. They raided Barclays Plc’s Frankfurt offices in March days after Bank of America Corp.’s Merrill Lynch premises were hit.

Morgan Stanley Raided in Frankfurt in Tax Fraud Investigation [Bloomberg]

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Here's the thing, though: Hwang & co. didn’t allegedly do any insider-trading or pumping-and-dumping or resorting to nefarious schemes to hide their more than 50% (!) stake in ViacomCBS and smaller but still-eyewatering interests in a whole host of other large companies. They didn’t have to: As a family office, Archegos isn’t subject to any particularly onerous disclosure requirements, and since those stakes were composed mostly of swaps arranged by essentially every major bank on earth, he wouldn’t have had to, anyway. None of which is illegal, any more than moving markets by making large purchases, criminalization of which would land every single person on Wall Street in jail tomorrow. So Williams, the Securities and Exchange Commission and the Commodity Futures Trading Commission have to find a way to make them illegal, and their theory is it was all illegal because Hwang, et. al., took to stretching the truth a bit with the banks only too eager to extend them all kinds of leverage.

Archegos made swaps deals with a number of banks including Credit Suisse, Nomura, Morgan Stanley and UBS, and prosecutors said Mr. Hwang, Mr. Halligan and others at the firm had made “materially false and misleading statements” to conceal the extent of its bets…. “They lied about how big Archegos’s investments had become; they lied about how much cash Archegos had on hand; they lied about the nature of the stocks that Archegos held,” Mr. Williams said. “And we allege that they told those lies for a reason: so that the banks would have no idea that Archegos was really up to a big market-manipulation scheme.”

Not that they seemed to care enough to put any effort into checking into the validity of those statements, but it’s nice to know some prosecutors still think lying to banks shouldn’t be allowed. Of course, Hwang and his alleged co-conspirators (well, his one remaining alleged co-conspirator, anyway) aren’t having any of it.

“We are extremely disappointed that the U.S. Attorney’s Office has seen fit to indict a case that has absolutely no factual or legal basis; a prosecution of this type, for open-market transactions, is unprecedented and threatens all investors,” said Lawrence Lustberg, a lawyer at Gibbons who is representing Hwang.

The indictment names two former Archegos employees, Scott Becker and William Tomita, as part of the scheme. Both have pleaded guilty and are cooperating with the federal prosecution, said Mr. Williams….

Also cooperating is Archegos biggest “victim,” Credit Suisse, albeit in an entirely different matter, one that continues to cast a pall on an already very pallid bank.

Credit Suisse told CNBC on Wednesday that U.S. authorities will “absolutely not” find any evidence of wrongdoing as it faces a probe of its compliance with sanctions on Russian oligarchs…. CEO Thomas Gottstein said Wednesday that the letter received by investors had “nothing to do” with sanctions or loans belonging to members of President Vladimir Putin’s inner circle.

″[It] has nothing to do with destroying materials related to sanctions,” Gottstein told CNBC’s Geoff Cutmore.

The bank posted a $284 million net loss for the first quarter, mainly because of $730 million in provisions for lawsuits./At the end of the quarter, its main capital ratio slipped to 13.8%—from 14.4% at the end of December—and below a bank-set 14% target. Unless the bank returns to profitability, the drop in its capital could weigh on its ability to conduct buybacks and pay dividends./Results for the same quarter a year earlier were saddled by $5 billion in losses from exiting stock positions of family office Archegos Capital Management.

Archegos owner Bill Hwang and former CFO Halligan plead not guilty to U.S. fraud charges [CNBC]
Archegos stock manipulation scheme was ‘historic,’ U.S. attorney says. [NYT]
Archegos Founder Bill Hwang, Former CFO Charged With Securities Fraud [WSJ]
Credit Suisse says U.S. authorities will ‘absolutely not’ find any wrongdoing amid probe into Russian oligarch record shredding [CNBC]
Credit Suisse Loss Eats Into Capital Buffers [WSJ]

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“I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced,” he wrote. “My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder….”

The news comes just days after Twitter CEO Parag Agrawal warned investors of “distractions ahead.”

Can’t imagine what might have given you that ominous feeling, Parag. Anyway, given that Musk would presumably have to offload a rather large portion of his $170 billion stake in Tesla to raise the cash, still think it’s meaningless, Ron Baron? Actually, wait: You’re probably right, although you’re probably also not happy about what it currently appears to be doing to your own rather sizeable slug of Tesla shares, because for all of Musk’s hifalutin talk of free speech, there’s also this. And, you know, some other stuff.

The offer price also includes the number 420, widely recognized as a coded reference to marijuana. He also picked $420 as the share price for possibly taking Tesla private in 2018, a move that brought him scrutiny from the SEC.

“There will be host of questions around financing, regulatory, balancing Musk’s time (Tesla, SpaceX) in the coming days,” said Dan Ives, analyst at Wedbush.

Elon Musk offers to buy Twitter for $43 billion, so it can be ‘transformed as private company’ [CNBC]
Elon Musk Makes $43 Billion Unsolicited Bid to Take Twitter Private [Bloomberg]

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Last year it lost 8.3 per cent, after a bruising fourth quarter, according to numbers sent to investors, and this year it is down 15.7 per cent.

Anyway, that’s some lucrative business. Maybe not Adelphi’s, but, you know, other family offices. And Morgan Stanley—possibly looking for something to replace another lucrative business—wants in.

The bank has spent the last four years developing a suite of products geared toward family offices… “They’ve fallen between the cracks of what had existed before,” [COO Jed Finn] said. “It’s a $5.5+ trillion segment where nobody has significant share because there’s no single offering that really can fit the various needs of the different families….”

The bank took its fund services platform for hedge funds, which custodies and tracks values across asset classes and geographies, and adapted it for the family office, creating a clean interface showing holdings and performance…. “That has become a huge source of demand from these families. They want to be shown more and different types of non-correlated investments,” Finn said.

Win-win! What could possibly go wrong?

Morgan Stanley aims to serve the richest of the rich as family offices grow to $5.5 trillion in assets [CNBC]
Adelphi Capital to become a family office after run of poor performance [FT]
Hedge fund Adelphi scrambles to close short positions with 53 reductions in three months [FN]

Late on the afternoon of Feb. 17, 2021, Disruptive said, it provided Mr. Passi with the number of shares it planned to sell the following day before the stock market opened. “Immediately following that communication, Palantir’s share price went into a free fall,” Disruptive wrote. Palantir’s stock, at one point that day trading at around $29 per share, closed at $27.08.

Disruptive sold its block of Palantir stock to Morgan Stanley at $26.05 a share, for total proceeds of more than $343 million.

At the time, Disruptive apparently didn’t think much of the whole thing. Just bad luck, perhaps, or the price one pays for making a mint from an early investment in dystopia. After all, lock-up dates for big investors is public knowledge, and the so-called “Morgan Stanley fade”—a stock price dropping just ahead of a Passi-led block trade—was so common as to have a Wall Street nickname.

And well might one, until one heard that the powers that be suddenly consider such alleged shenanigans to be insider-trading, and that Morgan Stanley’s operation was smack in the middle of that probe. Then one might remember Passi allegedly promising to keep all information about the planned trade secret, and suddenly no longer think of it in the same way as one might when one hears a banker promise to put a client’s interests ahead of his own. Now, one might think that the $30 million or so less one received than might have been expected is less the cost of doing business and the result of something far more nefarious and, helpfully, actionable.

Disruptive alleges that Morgan Stanley and a senior executive there leaked information ahead of the fund’s sale of more than $300 million of Palantir shares in February 2021, resulting in “tens of millions of dollars in damages.” Disruptive is seeking compensatory and punitive damages…. Disruptive alleges that Morgan Stanley either tipped off clients or its own proprietary-trading desk—or both—to the coming block. Disruptive doesn’t present evidence aside from the stock-price move and media reports of the government investigations.

At the time, Passi “vociferously denied” having anything to do with the alleged Morgan Stanley fade. But even if he did, Morgan Stanley might yet beat this thing: After all, it’ll be heard by a FINRA arbitration panel, and those have a way of working out for the banks that pay FINRA’s bills, if you know what Wells Fargo’s saying.

Investment Firm Files Finra Arbitration Demand Against Morgan Stanley [WSJ]

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As it turns out, however, it was probably not a very good idea, because unbeknownst to Fu, the year before he left Laurion the Securities and Exchange Commission and Justice Department began taking a little look at the world of block trades to see if, say, shorting the hell out of a name that the equity syndicate desk at, say, Morgan Stanley just floated as one that might just potentially be on the block might well just constitute insider trading, and that said powers that be would one day be diligently plowing through everything ever said to or by Fu in conversation with a block-trading banker. Then starting a block-trading-based hedge fund would seem rather a bad idea, and this sales pitch even worse.

“Due to the breadth and strength of these relationships, CaaS has earned a reputation in the market as the firm that receives an early, if not first, call,” the firm wrote in a recent marketing presentation.

The King of Block Trades Is Entangled in a U.S. Probe of Morgan Stanley [Bloomberg]

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A number of the banks have threatened legal action against Archegos to recoup some of the money they lost on its soured bets last March.

However, Archegos has warned the banks that it would reject their claims, which could result in a lengthy and public legal process, according to one of the people.

Archegos has also said it could mount its own legal claim that the banks behaved unlawfully in their dealings with it, the person said. It would claim that the banks were “negligent” when they allowed the family office to build up vast amounts of leverage and that prime brokers “induced it” into borrowing as much as $50bn of shares, they added./“By the time a judge has [ruled on the matter] it’s five years later and the whole thing has been raked through publicly in the courts,” the person said.

And, crucially, not only the courts in which the banks and Archegos are variously suing each other, but in the courts and regulatory hearing rooms that are taking a very close and skeptical look at block trading in general, and the block trading around Archegos’ collapse in particular. Much better to sweep this all under the carpet then before getting anything put on the record that might perk up the earns of the Justice Department or Securities and Exchange Commission.

“The settlement negotiations basically come down to ‘we have no money but if we find some we will pay you’,” said one of the people involved in the discussions. They added that it was unlikely any of the banks would attempt to force the involuntary bankruptcy of the family office. “There is no point in doing so. Assets are being recovered and contracts unwound and proceeds distributed as appropriate,” the person added.

Certainly, the wisdom of such a path—cutting a deal in the face of a federal fraud investigation—is apparent to Allianz as regards its own massive hedge-fund losses.

A group of investors suing Allianz SE over losses tied to the collapse of its U.S.-based hedge funds asked a judge to dismiss the lawsuit after agreeing to settle with the insurance giant…. Allianz, which owns bond giant Pacific Investment Management Co., had also said the ongoing probes by the U.S. Securities and Exchange Commission and Department of Justice are at a “sensitive” stage and that it couldn’t yet estimate the final price tag to resolve those matters.

Archegos and banks in settlement talks amid block trades probe [FT]
Allianz Settles Suits Over Multibillion-Dollar Fund Blowup [Bloomberg]

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It's less great to be on said equity syndicate desk chief’s Rolodex, however, when the powers that be decide that block trading may be insider-trading, and that Rolodex gets subpoenaed and the conversations flowing from it get picked over by prosecutors and the Securities and Exchange Commission.

The list of people whose communications are being sought ranges from executives at prominent Wall Street hedge funds, such as Andrew Liebeskind at Citadel’s Surveyor Capital and Jon Dorfman at Element Capital Management, to money managers at smaller firms focusing on block trades, including executives at CaaS Capital Management and Islet Management, and a former employee at Segantii Capital Management, the people said.

Bankers include Felipe Portillo, a risk executive within Credit Suisse Group AG’s equity capital markets group, Michael Daum, a partner at Goldman Sachs Group Inc., and Michael Lewis, the head of U.S. equities cash trading at Barclays Plc, the people said…. Authorities have been going over recordings of [Morgan Stanley equity syndicate desk head Pawan Passi’s] phone calls, Bloomberg reported earlier this week. They’re also scrutinizing communications involving at least three of his colleagues at Morgan Stanley: Evan Damast, its global head of equity and fixed-income syndicate, John Paci, a senior equities trading executive, and Charles Leisure on the syndicate desk.

Morgan Stanley Relationships on Wall Street Snared in Probe [Bloomberg]

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Still, there were rumblings as 2021 drew to its miserable close that 2022 wasn’t a year for Left to look forward to. And things have, in their way, gotten a whole lot worse for him.

The U.S. Justice Department has seized hardware, trading records and private communications in an effort to prove a wide-ranging conspiracy among investors who bet against corporate shares, the people said. One tactic under investigation is “spoofing,” an illegal ploy that involves flooding the market with fake orders in an effort to push a stock price up or down, they said. Another is “scalping,” where activist short sellers cash out their positions without disclosing it.

Carson Block, the fiery short seller behind Muddy Waters, was served with a search warrant by an FBI agent in October, said people familiar with the matter, one of whom added that the warrant extended to Mr. Block’s phones. Federal agents took computers belonging to Andrew Left, another prominent short seller….

Not great. And speaking of those having a not great couple of years, the growing federal probe into whether banks got a bit fast-and-loose with information about upcoming block trades with hedge find clients now has a name.

Pawan Passi, who ran Morgan Stanley’s U.S. equity syndicate desk and led the firm’s communications with investors for equity transactions, is among individuals whose activities are facing scrutiny, the people said, asking not to be identified describing the confidential inquiry. Bloomberg reported in November that the company had put Passi on leave.

Anyway, back to kicking someone when they’re already down, the Securities and Exchange Commission has a few more uncomfortable questions to ask the already very heavily questioned cryptocurrency exchange Binance.

The two trading firms, Sigma Chain AG and Merit Peak Ltd., act as market makers that trade cryptocurrencies on the Binance.US exchange. One area of focus for regulators is how Binance.US disclosed to customers its links to the trading firms, the people say…. Corporate documents from 2019 tie Changpeng Zhao, Binance’s founder and chief executive officer, to the two trading firms, and former executives say that as of late last year Mr. Zhao controlled them both…. The former executives said Binance.US’s legal and compliance teams worried that they didn’t have a clear understanding of where the funds the two firms used to trade were coming from.

(While we’re on the subject of ailing cryptocurrencies, let’s just note that things are going exactly as well for Anthony Scaramucci with them as we expected.)

Anthony Scaramucci’s SkyBridge fund of funds fell 8.3 percent during January’s market turmoil and crypto pullback, according to letters sent to investors.

“We believe investors should approach 2022 with humility,” SkyBridge executives Scaramucci, Brett Messing, and Ray Nolte wrote in the firm’s year-end letter.

“Humility” is not usually a word associated with the Mooch. Nor, for that matters, does it describe Father Emmanuel Lemelson, God’s own hedge fund manager. Lemelson moonlights as an “unabashed” priest in his spare time, and it’s good that he’s got that hobby, because he may soon have a good deal more of it, on account of the lying.

A federal judge on Tuesday suggested an “unabashed” Green Orthodox priest and hedge fund manager may face a securities industry ban following a mixed verdict on fraud claims but pushed back on the U.S. Securities and Exchange Commission’s bid for a seven-figure financial penalty.

Justice Department Targets ‘Spoofing’ and ‘Scalping’ in Short Seller Investigation [WSJ]
Morgan Stanley’s Passi Faces U.S. Block-Trading Probe [Bloomberg]
SEC Probes Trading Affiliates of Crypto Giant Binance’s U.S. Arm [WSJ]
Defiant Priest May Face Ban After Verdict In SEC Fraud Case [Law360]
Scaramucci’s SkyBridge Gets Dinged by Bitcoin [II]
Bakkt, Once Wall Street’s Hot Crypto Play, Has Cooled [WSJ]

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The Securities and Exchange Commission sent subpoenas to firms including Morgan Stanley and Goldman Sachs Group Inc. as well as several hedge funds, asking for trading records and information about the investors’ communications with bankers, some of the people said. The Justice Department also is investigating the matter, some of the people said…. Investigators are looking at whether bankers improperly alerted favored clients to the sales before they were publicly disclosed and whether the funds benefited from the information—for example by shorting the shares in question.

As ever with securities law, however, there’s a rather key question underlying these investigations, one which will be rather fully aired and litigated should either Garland or Gensler decide to act upon them, which is to say, is any of it actually illegal?

The rules governing when and how Wall Street firms can tell clients about coming block trades are murky. In some cases, there are questions around whether divulging certain information or acting on it is improper or illegal, lawyers say.

And that is, after all, what they are paid to say and do.

Regulators Probe Block Trading at Morgan Stanley, Goldman, Other Wall Street Firms [WSJ]

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The World Economic Forum will defer its Annual Meeting in Davos, Switzerland, in the light of continued uncertainty over the Omicron outbreak.

Really serious.

A divided panel of the Sixth U.S. Circuit Court of Appeals dissolved a stay issued by another court that had blocked the rules. The majority, in a 2-to-1 ruling, said legal challenges to the administration’s vaccination-and-testing requirements were likely to fail…. “OSHA has wide discretion to form and implement the best possible solution to ensure the health and safety of all workers, and has historically exercised that discretion,” Judge Jane Stranch wrote for the court.

Really, really fucking serious.

“I have Covid. I came down with Covid on Thursday night,” [Jim] Cramer said on “Squawk on the Street.” He added he’s been triple vaccinated: two shots of Moderna and a Moderna booster…. “I got it that night from someone who was tested that day,” he said. “The problem is it works so fast. You can’t stop it.”

Well, maybe not that serious….

Moderna, of Cambridge, Mass., said the authorized dosage of its booster shot increased levels of immune-system agents known as neutralizing antibodies against Omicron about 37 times pre-boost levels…. “What we showed is when you boost, you get a good brisk increase in antibody levels and they would be correlated with protection,” Moderna Chief Medical Officer Paul Burton said in an interview.

No wonder no one has any idea what the hell is going on.

“My clients are totally confused as, quite frankly, am I,” Erin McLaughlin, a labor and employment lawyer at Buchanan, Ingersoll & Rooney, said on Saturday. “My sense is that there are a lot of employers scrambling to try and put their mandate programs in place….” Adding a layer of confusion, many states and cities have created their own vaccine rules — some more stringent than the federal government’s, as in New York City, where an option to test out of vaccine requirements isn’t allowed, while some, like Florida, have sought to undermine OSHA’s rule.

The rapid spread of the virus’s Omicron variant continues to upend companies’ plans and force changes to policies…. Citigroup sent a memo to its staff in New York and New Jersey giving them the option to work from home through the holidays given the surge in cases in the New York metropolitan area. JPMorgan Chase and Morgan Stanley haven’t changed their policies, but staff are being given the flexibility to work from home, according to people familiar with the situation who declined to be identified discussing personnel matters…. Goldman Sachs reportedly told teams in New York to cancel holiday parties. The bank has already held several parties over the past few weeks. JPMorgan and Morgan Stanley are reportedly allowing individual teams and departments to go ahead with holiday parties (for now).

World Economic Forum’s Annual Meeting 2022 Deferred [press release]
Plans to return to the office grow murkier by the day. [NYT]
Whiplash on U.S. Vaccine Mandate Leaves Employers ‘Totally Confused’ [NYT]
Appeals Court Reinstates Biden Covid-19 Vaccine Rules for Large Employers [WSJ]
‘I have Covid,’ Jim Cramer says. He says he’s been triple vaccinated and has a mild case [CNBC]
Moderna Says Covid-19 Booster Dose Works Against Omicron Variant in Lab Tests [WSJ]

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Unsurprisingly, Gary Gensler & co. are taking it a bit more seriously.

JPMorgan Chase & Co. is nearing a deal to pay a $200 million fine and admit that it failed to properly monitor employees’ messages, the first settlement to emerge from a regulatory sweep into how banks oversee traders’ chats…. In recent months, regulators have questioned a number of big banks, including Bank of America Corp., Citigroup Inc., Morgan Stanley and Credit Suisse Group AG , about how they track employee communications, some of the people said. The status of that regulatory effort, and whether other entities would face fines, couldn’t be determined…..

The SEC deal would be the first to involve an admission of misconduct since agency officials said in October that they would deviate from “no admit, no deny” settlements in some cases…. A $200 million fine is large for a record-keeping violation. Such investigations are often conducted by the Financial Industry Regulatory Authority, a self-regulatory organization overseen by the SEC, according to securities lawyers.

Indeed, as far as the SEC is concerned, not monitoring traders texting on their iPhones is nearly as serious as not monitoring potential money-laundering.

A NatWest Group PLC subsidiary was fined £264.7 million, equivalent to $351.3 million, in a London court over anti-money-laundering offenses for its failure to follow-up on red flags associated with the cash deposits of a customer.

In fairness, though, keeping tabs on those kinds of things are just as hard as keeping tabs on what people do on their own laptops, right?

Beginning in late 2013, the bank’s branches began receiving millions in cash from [gold dealer] Fowler Oldfield, in sums so large, for instance, that they would break the black garbage bags in which they arrived and wouldn’t fit in the bank’s safes.

Often, the cash was in Scottish bank notes—unusual for a business based so far from the border between Scotland and England, according to the court—and carried a noticeably musty smell—indicating that the notes had sat in storage instead of being put to business use.

What’s not so serious, as it turns out, is helping Frenchmen evade French taxes.

The court upheld the guilty verdict against the Swiss banking giant, in a case tried under French criminal law. However, it slashed an earlier fine of 3.7 billion euros, equivalent to around $4.2 billion, to 3.75 million euros, all but eliminating the largest chunk of penalties. It ruled that UBS must still pay 800 million euros in damages and interest, and ordered the confiscation of 1 billion euros.

JPMorgan in Talks to Pay $200 Million Fine Over Employee Text Messages [WSJ]
NatWest Fined $351 Million for Overlooking Money-Laundering Risks Posed By Client [WSJ]
UBS Penalties Slashed by Around $3 Billion in French Tax Case [WSJ]

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On Labor Day, I’ll be very disappointed if people haven’t found their way into the office. Then, we’ll have a different kind of conversation…. If you want to get paid New York rates, you work in New York. None of this, ‘I’m in Colorado and work in New York and am getting paid like I’m sitting in New York City. Sorry, that doesn’t work.

Well, your Jim’s got to admit he’s made a bit of a barry of the whole situation, and in light of this whole “Great Resignation” nonsense, has to do that rarest of Australian things: apologize.

“I was wrong on this,” he told CNBC’s Wilfred Frost Monday on “Closing Bell.” “I thought we would have been out of it past Labor Day and we’re not….”

“I think we’ll still be in it through most of next year,” Gorman said. “Everybody’s still finding their way and then you get the omicron variant; who knows, we’ll have pi, we’ll have theta and epsilon, and we’ll eventually run out letters of the alphabet. It’s continuing to be an issue.”

Morgan Stanley CEO says he was wrong on return-to-office push: ‘Everybody’s still finding their way’ [CNBC]

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Of course, one can’t get investigated for allegedly conspiring with and ultimately getting screwed by one’s fellow banks to minimize losses without alleged co-conspirators. And now it is their turn to plow through some unpleasant paperwork.

The suit, which was filed in a New York federal court by Vipshop Holdings Ltd. investors, alleges that [Goldman Sachs and Morgan Stanley]sold several large blocks of shares in companies in which Archegos held positions after confidentially learning that Bill Hwang’s family office was likely to fail in meeting margin calls. The sales sent Vipshop shares into “a complete tailspin,” the investors say…. Goldman sold $6.6 billion worth of shares of Baidu Inc., Tencent Music Entertainment Group and Vipshop before the market opened in the U.S. on March 26, Bloomberg News reported earlier, citing an email to clients. That move was followed by the sale of $3.9 billion of shares in ViacomCBS Inc., Discovery Inc., Farfetch Ltd., iQiyi Inc. and GSX Techedu Inc., the email said.

Goldman, Morgan Stanley Sued Over Archegos-Tied Sales [Bloomberg]

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Thiago Melzer, who oversaw trading in currency derivatives known as FX options, was “discharged” in June because of allegations concerning the valuing of certain trades and using communication methods not approved by the firm…. Melzer is now starting a new investment fund in Sao Paulo called Upon Global Capital, where he will be chief investment officer…. This will seek to profit from macroeconomic trends, the people said, and take advantage of record inflows into Brazilian hedge funds.

Rodrigo Jolig, a decade-long veteran of the investment bank, is one of the owners of Sao Paulo-based asset manager Alphatree Capital funded by the family of Brazilian property tycoon Elie Horn…. The bank hasn’t disclosed any disciplinary events concerning him, the Finra data show.

Jolig’s former boss, Thiago Melzer, left Morgan Stanley in recent months after the firm disclosed allegations concerning the valuing of trades and the use of unapproved communication methods….

If you find yourself not quite so daring, however, fear not: Two former traders at a former hedge fund would also welcome your support.

Jack Land and Akbar Rafiq, two money managers at York Capital Management, are spinning out their own separate hedge funds with money from their billionaire boss Jamie Dimon.

Former Top Morgan Stanley FX Trader Leaves After Lengthy Probe [Bloomberg]
Second Morgan Stanley FX Trader Linked to Probe Starts New Fund [Bloomberg]
York Capital’s Dinan Backs Hedge Fund Spinouts From His Firm [Bloomberg Law]

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He could have used his platform to do something that [would] really make a difference, like promoting diversity or doing away with the billable hour. Instead, he makes a big deal about how we should be chained to our desk. Doesn’t he realize what we’ve been through this year?

— An anonymous third-year associate at a New York Biglaw firm, in comments given to Bloomberg Law’s Vivia Chen, regarding Morgan Stanley GC Eric Grossman’s implied mandate that lawyers return to the office, lest they lose the bank’s business.

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A month ago, Morgan Stanley CEO James Gorman issued an ultimatum to his employees that remote working is over and they must return to the office. “If you can go into a restaurant in New York City, you can come into the office,” he said, mercilessly murdering a straw man. Last week, he doubled down on this claim on an earnings call, this time adding some boilerplate about the limits of telecommuting when it comes to mentoring, forgetting that on a typical day, most professional workers only interact with supervisors over the phone even when inside the office. Apropos of nothing, Morgan Stanley profits are booming right now while employees continue to work remotely.

On Thursday, Morgan Stanley Chief Legal Officer Eric Grossman sent a memo to the bank’s stable of law firms and legal service providers encouraging that they buck the emerging 3- or 4-day office work week trend and bring everyone back full-time… with a heavily implied “or else.” “Our profession cannot long endure a remote work model,” he said, noting “I strongly believe that firms that return to the office will have a significant performance advantage over those that do not,” despite the top law firms Morgan Stanley works with achieving record profits in 2020. In his defense, firms do owe a chunk of that profitability to cost-savings from a year without travel, but revenue was still up roughly in line with recent trends.

So we have empirical proof that working remotely isn’t hurting the bottom line at law firms. If Grossman believes his outside counsel have delivered sub-par work for the past year, he’s seemingly not rushing to fire firms. So why is there a lockstep commitment among the bank’s senior leadership to pushing workers — its own and those of its outside vendors — back into the office? And why is Morgan Stanley more or less alone on an island making a public — or at least consciously leakable — spectacle about returning to the office?

Not to get all “follow the money,” but when a bank is making huge profits working from home, and its law firms are making huge money working from home, there aren’t too many angles left but to conclude that Morgan Stanley must be really, really worried about the commercial real estate market.

And that’s not totally crazy. To some extent, every bank is dabbling directly or indirectly in commercial real estate and the sort of short-term collapse that could hit when companies realize they can eliminate a floor or two will burn a lot of folks. But Morgan Stanley’s aggressiveness here suggests they have it worse than some of their peers if things go sideways.

Of course, there’s also the possibility that Gorman and Grossman are just sincerely concerned about professional mentorship. If they are, I think they’d be pretty shocked to learn how many partners are already working from home during the work week. Because I’ve covered office redesigns over the years and “we shrunk these rooms because our head of X group only comes in three days a week” is something I’ve heard more than once.

But Morgan Stanley’s leaders are savvy enough to know this, which is why this mentorship talk is just another manufactured canard. Putting aside the “virtual law firms” out there doing high-end work and landing in the Am Law 200, the law firms that Morgan Stanley works with aren’t talking about a 100 percent remote workforce. The firms taking tentative steps into flexible office models are talking about lawyers working from home one or two days of the traditional work week. Do these guys honestly think that mentorship is impossible when everyone’s in Tuesdays-Fridays? If the profession requires permanent in-person mingling, then why stop at a five-day week? Why not seven?

Which, of course, Biglaw already has. The dirty secret of these 3- and 4-day office work week models is that all it does is create an additional Saturday where you bill from home. Biglaw attorneys presume at least one weekend day is going to be spent billing, now there’s going to be one where it’s mandatory too. That’s it. And, just like those Saturdays and Sundays, there will come a time — sooner rather than later — when the client meeting or the deposition or the closing is going to happen on the lawyer’s work from home day and you know what will happen then? They’ll come in to the office.

If you’re going to try and push people back into the office, at least put some work into it and air some vague concerns about confidentiality or cyberattacks. That’s the sort of thing that people fear and fail to understand in equal measure. But appealing to productivity amidst record profits and mentorship against the backdrop of one additional day working from home is not cutting it.

Morgan Stanley Top Lawyer Demands Law Firms Return to Office [Bloomberg]
‘Our Profession Cannot Long Endure a Remote Work Model,’ Morgan Stanley CLO Tells Law Firms [Law.com]

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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“At the height of the market, we were managing just over $200 million,” [Raees] Cajee said…. Mr. Cajee said he and Ameer Cajee are in hiding because they have received death threats….

“We dealt with a lot of high-level South Africans, a lot of politicians, a lot of high-level businessmen within South Africa, as well as celebrities,” Raees Cajee said in the interview. “Some particularly very, very dangerous people—that we had not actually known were clients—have started to come out of the cracks.”

And, hey, we have even better news, albeit not for the brothers Cajee. You haven’t lost even that $200 million. By the standards of bitcoin breaches, you’ve lost the equivalent of nothing at all, although in real-world terms it’s still quite substantial.

He added that no more than $5 million is unaccounted for.

And maybe you’ll even see it someday.

Raees Cajee said that he and his brother plan to return to South Africa to attend a July 19 court date tied to the liquidation proceedings for Africrypt.

Obviously, good news like this should reassure the institutions and trigger a rally (in a way bad news never seems to do the opposite), and so it has!

Bitcoin prices rose for the second straight day in part due to news Morgan Stanley bought 28,289 shares of Grayscale Bitcoin Trust through its Europe Opportunity Fund…. Additionally, noted stock picker Cathie Wood's ARK Invest is entering the Bitcoin ETF race….

And, hey, wouldn’t you know that the Fed’s number two has something to say touching on that, although he uses it to draw a conclusion arguably favorable to the cryptoverse.

Citing America’s “susceptibility to boosterism and the fear of missing out,” Mr. Quarles warned that the nation has a habit of falling victim to a “mass suspension of our critical thinking and to occasionally impetuous, deluded crazes or fads.”

This man was appointed by Donald Trump.

He invoked the parachute pants of the 1980s as a parallel to the current currency craze, noting that sometimes fads are just silly…. Mr. Quarles said he does not want to prejudge the process, but he thinks there’s a “high bar” for central bank-issued digital money….

“In my judgment, we do not need to fear stablecoins,” Mr. Quarles said. He argued that the Fed has a history of fostering private sector innovation and “a global U.S. dollar stablecoin network could encourage use of the dollar by making cross-border payments faster and cheaper. And it potentially could be deployed much faster and with fewer downsides” than a central bank version.

Raees Cajee, Blamed by Investors for Billions of Dollars in Crypto Losses, Says Fraction Is Missing [WSJ]
Bitcoin price pierces $35,000, ETF race heats up [Fox Business]
A top Fed official says digital currency may be the money equivalent of parachute pants. [NYT]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

The Justice Department’s antitrust division…. has been seeking information from Hwang’s biggest backers on Wall Street, who had discussed the possibility of moving in concert to unwind the portfolio and sever ties with his busted family office…. Top prime brokers including Credit Suisse Group AG, Morgan Stanley and Goldman Sachs Group Inc. held hasty meetings that month to discuss an orderly way to unwind the positions and minimize billions of dollars in losses. But the talks soon devolved into a race to dump the shares, and behind the scenes, bankers were left bickering and pointing fingers over who broke ranks.

Archegos’s Banks Facing DOJ Antitrust Probe Into Collapse [WSJ]

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“Make no mistake about it. We do our work inside Morgan Stanley offices, and that’s where we teach, that’s where our interns learn, that’s how we develop people,” Chief Executive James Gorman said during the firm’s annual U.S. Financials, Payments & CRE conference from the bank’s Midtown office, which was held virtually this year.

“If you can go into a restaurant in New York City, you can come into the office….”

“On Labor Day, I’ll be very disappointed if people haven’t found their way into the office. Then, we’ll have a different kind of conversation,” the head honcho warned.

And that conversation will very much be about compensation if you’ve decided, like itinerant New Yorkers past, that those Aspen schools are simply unbeatable. Jim Gorman, after all, is a man who likes to economize where he can.

“If you want to get paid New York rates, you work in New York. None of this, ‘I’m in Colorado and work in New York and am getting paid like I’m sitting in New York City,’” Gorman barked.

"Sorry, that doesn’t work.”

And if you happen to be considering your options in light of the above, perhaps at a high-paying hedge fund, well, allow Gorman to introduce his enforcer, newly-minted co-president Ted Pick.

The diminutive Pick was known on the trading floor for his outsized personality and a fanatical devotion to Morgan Stanley. It wasn’t uncommon to see him loosen his tie and run up and down among the desks, seldom shy of getting in people’s faces.

One underling recalled briefly entertaining a job offer from a rival firm after failing to make managing director. Pick snuck up behind his workstation and whispered: “If I hear you speak to them again, I’m going to crack your head.”

See you all in September!

Morgan Stanley chief to bankers: If you want NYC salary, you need to be in NYC [N.Y. Post]
Barely Hired at Morgan Stanley, Trading Savior Nears CEO’s Perch [Bloomberg]
Billionaire’s Hedge Fund Offers Hefty Pay to Combat Talent Squeeze [Bloomberg]
People Are Returning to Restaurants, Stores and Hotels. But Not Yet the Office. [WSJ]
Andrew Cuomo lifts COVID rules as New York hits 70% vaccinated [N.Y. Post]

“FINMA imposed a temporary add-on of CHF 5.8 billion (USD 6.1 billion) to the Group’s credit risk RWA (risk-weighted assets) in relation to its exposure in the US-based hedge fund matter, which was included in movements in risk levels,” it said in a first-quarter regulatory filing.

Nor, unfortunately for old CS, is FINMA the only one to have noticed.

Federal prosecutors in New York have requested information about Archegos Capital Management from banks across Wall Street, according to people familiar with the matter.

Banks that lent to Archegos, including Credit Suisse Group AG, UBS Group AG, Goldman Sachs Group Inc. and Morgan Stanley, have been contacted for information, the people said.

And in the U.K., the Prudential Regulation Authority has been asking firms including Credit Suisse, Nomura and UBS Group AG to hand over information related to their lending to Archegos, people familiar with the matter have said.

Credit Suisse details Swiss watchdog action after Archegos blow up [Reuters]
Federal Prosecutors Have Asked Banks for Information About Archegos Meltdown [WSJ]
Justice Department Opens Probe Into Archegos Blowup [Bloomberg]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Morgan Stanley is going in a slightly different direction, but which we mean, the same direction all major banks had gone until earlier this year.

Ted Pick, the architect of Morgan Stanley’s trading revival, and Andy Saperstein, who built the company into a wealth-management powerhouse, were tapped as co-presidents and given expanded roles atop the Wall Street bank that’s been gaining ground on rivals.

Among a slate of others changes: Investment management chief Dan Simkowitz will gain clout as co-head of strategy alongside Pick, and Chief Financial Officer Jon Pruzan will become chief operating officer.

Don’t worry, though: The plans and machinations of those men will be communicated in a female voice.

Morgan Stanley’s CFO role will pass to investor relations head Sharon Yeshaya, giving her a more prominent voice among investors and analysts.

In any event, as with Jamie Dimon, our time with the Eeyore of Wall Street isn’t done just yet: James Gorman plans to stick around for at least another three years. Apollo Global Management co-founder Josh Harris, though? His job is now well and truly done.

Apollo Global Management said on Thursday co-founder Josh Harris has decided to step down from his day-to-day role as managing director on completion of the private-equity giant’s deal with Athene Holding…. The change comes after co-founder Leon Black in March stepped down from his executive roles at the private-equity firm, a surprise move that capped a series of corporate governance changes triggered by a review of his ties to the late financier and convicted sex offender Jeffrey Epstein.

Morgan Stanley CEO Shakes Up Leadership With Eyes on a Successor [Bloomberg]
Pension fund CalSTRS gets first woman CEO [Reuters]
Apollo co-founder Josh Harris to step down from his day-to-day role [Reuters via CNBC]

The bank aims to begin offering investments in the emerging asset class in the second quarter, according to Mary Rich, who was recently named global head of digital assets for Goldman’s private wealth management division…. Goldman is looking at ultimately offering a “full spectrum” of investments in bitcoin and digital assets, “whether that’s through the physical bitcoin, derivatives or traditional investment vehicles,” she said….

The move means that soon, clients of two of the world’s preeminent investment banks – Goldman and Morgan Stanley – will have access to a nascent asset class that has intrigued billionaires and digital currency believers alike.

Of course, most of you don’t have the $25 million lying around to become a Goldman private wealth client. Luckily, someone else is offering exposure to bitcoin with a side of guacamole and only a slightly elevated risk of diarrhea and life-shattering regret.

Chipotle is giving away $100,000 worth of bitcoin on Thursday to celebrate National Burrito Day….

As part of the campaign, Chipotle is partnering with Stefan Thomas, the San Francisco man who famously lost $220 million worth of bitcoin because he couldn't remember the password to his digital wallet…. "If players are unsuccessful in their ten attempts and endure the same fate as Thomas, they may be surprised and delighted with a special offer from Chipotle," the company said in a press release.

Not as surprised and delighted as they would be with $25,000 worth of fractional bitcoin, or even probably one of the 10,000 free burritos also on offer, but there’s only one way to find out.

Goldman Sachs is close to offering bitcoin and other digital assets to its wealth management clients [CNBC]
Chipotle is giving away $100,000 in bitcoin [CNN Business]

The investments were announced last Monday, and then quietly on Tuesday, Point 72 began to approach brokers at Morgan Stanley stating that it has reopened the fund to new investors, and they could offer to their clients…. Wall Street executives say Cohen may be looking to replace his lost capital with new cash because of the heavy losses he incurred through investing in Melvin. A person close to Point 72 tells FOX Business that the fund is not facing a crisis of any type and Cohen believes now is an opportune time to raise new cash amid a market upheaval over the GameStop issues.

GameStop snarls billionaire Steve Cohen who re-opens hedge fund, Robinhood IPO halts [Fox Business]

With GameStop Corp. falling as much as 68%, the most-shorted shares lost 9% in its sharpest drop since March, paring gains this month to 39%, a Goldman Sachs Group Inc. basket shows. Meanwhile, an exchange-traded fund tracking hedge funds’ favorite names (GVIP) jumped 4%.... Thursday’s reversal still looks minor relative to this week’s seismic moves spurred by day traders besieging the popular positions of the smart money. But the shift in trading fortune may signal a peak in deleveraging pressures on the institutional crowd….

“Those worries in relation to hedge funds have faded,” wrote David Madden, an analyst at CMC Markets, in a note. Restrictions on trading apps have “helped bring down the fear factor as the battle won’t be as intense now,” he added.

Which is a strange way of predicting that GME would almost immediately soar $150 by lunchtime, but they did close the day below $200, with that big assist from Robinhood, et. al. Still, the damage was definitely done, and there’s carnage to be counted. So let’s do that.

Morgan Stanley said in a note to clients that Monday and Tuesday were among the top five heaviest days for so-called de-grossing over the past decade. Funds have not only been covering their short positions — the bets they placed against individual shares — but also selling shares in companies to cut their leverage and reduce their gross exposure to the market.

Goldman Sachs said Monday saw the largest unwinding in equities by hedge funds since August 2019.

Viking Global Investors, Andreas Halvorsen’s $44 billion firm, is down about 7% so far this year in its hedge fund, according to a person familiar with the matter.

Cohen’s Point72 Asset Management declined 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of last year’s top-performing funds, is down about 20%. Melvin Capital, Plotkin’s firm, had lost 30% through Friday…. Jack Woodruff’s $2.8 billion Candlestick Capital has fallen 10 to 15% in January on its short wagers, while the $3.5 billion Maplelane Capital lost about 33% through Tuesday in part because of a short position on GameStop, according to investors. By end of day Wednesday, Maplelane was down 45%.

Mets fans, meanwhile, can’t believe it’s happening again.

“Explain to me like I’m 5 with what’s going on with GameStop/amc and how will this affect the Mets,” a Twitter user named @Metsochist4Life wrote.

A user named @AreolaBorealis wrote directly to Cohen saying: “Is this Gamestop business [affecting] the Mets payroll? I mean that’s the main story in all of this.”

Cohen replied: “Why would one have anything to do with the other?”

Earlier Cohen — who’s gone from being the billionaire behind the curtain to interacting with people on Twitter — suggested that he’s been getting it from all sides in the wake of his Melvin investment.

“Rough crowd on Twitter tonight. Hey stock jockeys keep bringing it,” he wrote.

Well, Big Guy, one such self-appointed stock jockey did just that.

“PRISON TIME,” [Barstool Sports founder Dave] Portnoy said in a tweet that linked to Cohen, founder of Point72 Capital, as well as Citadel, a hedge fund run by billionaire Ken Griffin./“Dems and Republicans haven’t agreed on 1 issue till this. That’s how blatant, illegal, unfathomable today’s events are. It also shows how untouchable @RobinhoodApp @StevenACohen2C Citadel Point72 all think they are. Fines aren’t enough. Prison or bust.”

Cohen snapped back: “Hey Dave , What’s your beef with me. I’m just trying to make a living just like you.Happy to take this offline.”

“I don’t do offline. That’s where shady s*** happens,” Portnoy said.

He then accused Cohen of having a hand in controversial restrictions on trading apps like Robinhood that are hurting novice investors behind the spectacular rally in small stocks like Gamestop…. “I think you had strong hand in todays criminal events to save hedge funds at the cost of ordinary people. Do you unequivocally deny that?,” Portnoy said….

Cohen defended himself saying, “What are you talking about? I unequivocally deny that accusation. I had zero to do with what happened today…chile out.”

Portnoy continued: “Then in your professional option why was trading halted on $amc $gme $nok $sndl $nakd ? I’d be very curious?”

“Good question,” Cohen shot back. “Those questions should be directed at Robin Hood etc. I’m a trader just like your like you are . When you find out give me a holler.”

(And don’t worry, Mets fans: Thornton says everything’s going to be just fine.)

Sources tell The Post that most of Cohen’s pain is coming from his investment in Melvin Capital, a fund run by his former protege Gabe Plotkin, which became the first high-profile victim of the social media-fueled market revolt against hedge funds who make billions by shorting stocks…. “If he’s bailing out Plotkin I’m not too concerned for him,” a fellow hedge fund manager said of Cohen. “Plotkin didn’t have adequate risk management for something he couldn’t have seen coming and Steve got hit by a guy who made him billions two years ago. It sucks but he’ll get over it.”

Plus, he’s got too much studying to do.

In the past few days numerous institutions and large hedge funds have been in touch asking for additional real-time data about discussions happening on Reddit forums, said James Kardatzke, Quiver chief executive and co-founder…. The head of one of the world’s biggest hedge fund firms told the Financial Times it was planning to start using natural language processing to scour forums such as Reddit to avoid being caught in pile-ons against negative bets. “Reddit is definitely a risk management issue. It’s at the top of our agenda,” the person said.

Leon Cooperman? Not so much. He’s retired, and therefore free to indulge in his favorite pastime: Cranky recriminations on television.

“The reason the market is doing what it’s doing is, people are sitting at home, getting their checks from the government, basically trading for no commissions and no interest rates. I’m not saying they’re stupid. Show me a guy with a good record consistently, and I’ll show you a smart guy….”

“I hate that expression with a passion,” said Cooperman, who has said he voted for Biden in the November election despite disagreeing with him over certain economic issues, such as taxes…. “I’m willing to work six months a year for the government and six months for myself, which means a marginal tax rate of 50%,” said Cooperman…. “This fair share is a bullshit concept. It’s just a way of attacking wealthy people, and I think it’s inappropriate,” Cooperman said Thursday. “We’ve all got to work together and pull together.”

Hedge funds retreat in face of day-trader onslaught [FT]
Hedge Funds Slashing Equity Exposure at Fastest Pace Since 2014 [Bloomberg]
Hedge-Fund Titans Lose Billions to Reddit Traders Running Amok [Bloomberg]
Hedge Fund Maplelane Loses About 33% on Short Bets This Month [Bloomberg Quint]
Viking Hedge Fund Down About 7% in Stock Market Tumult [Bloomberg]
Hedge Funds’ Trades Are Working Again After Worst Day in History [Bloomberg]
Mets fans worried over Steve Cohen’s GameStop involvement [N.Y. Post]
Mets owner Steve Cohen can’t escape GameStop stock fallout amid Reddit revolt [Thornton/N.Y. Post]
Steve Cohen and Dave Portnoy feud over GameStop on Twitter [Thornton/N.Y. Post]
Hedge funds rush to get to grips with retail message boards [FT]
Leon Cooperman on GameStop Reddit speculators: ‘I’m not damning them’ but it will ‘end in tears’ [CNBC]

So just how awkward are the bonus conversations going to be among Wall Street’s best? Pretty fucking awkward!

Morgan Stanley said fourth-quarter profit rose 51% from a year earlier…. With its focus on wealthy Americans and big corporations and money managers, Morgan Stanley is less exposed to mass unemployment and small-business closures than more Main Street banks….

Stock- and bond-trading revenue at Morgan Stanley rose 32% to $4.22 billion, a bigger jump than any other bank. Investment-banking fees increased 46% to $2.30 billion mostly due to $1 billion in revenue Morgan Stanley generated for underwriting initial public offerings and other stock offerings. Those fees more than doubled from the fourth quarter of 2019.

Goldman generated $44.56 billion in annual revenue, the most since 2009, harking back to the last time the bank successfully navigated a crisis and its aftermath. Trading revenue for 2020 reached a 10-year high.

The $4.51 billion in fourth-quarter profit that the Wall Street firm reported on Tuesday, or $12.08 per share, was more than double Goldman’s profit from the same quarter a year earlier. Both quarterly net income and quarterly revenue of $11.74 billion were much better than the expectations of analysts….

Speaking of awkward, here’s the world’s most morose Australian explaining why the general underemployed and disease-wracked populace shouldn’t converge on 1585 Broadway with pitchforks and torches, and also why those barricading themselves therein shouldn’t get too excited about the above.

Chief Executive James Gorman said on a conference call with analysts that continuing at last year’s pace likely isn’t sustainable.

“There’s a lot of market activity, I think, in the reasonable near term,” Mr. Gorman said. “Whether it is at the level of 2020, I mean, you’d have to bet against that just on pure odds.”

Morgan Stanley Profit Shoots Higher, Fueled by Wall Street [WSJ]
Goldman Sachs, With Big Earnings Jump, Is Having a Profitable Pandemic [WSJ]

At Bank of America Corp. the bonus pool is likely to be flat, according to people familiar with the bank’s plans. Bonuses for some JPMorgan Chase & Co. traders are expected to rise, according to a person familiar with the situation, but not as much as the 39% increase in trading revenues at the New York-based bank in the first nine months of 2020. Morgan Stanley has said it would pay $1,000 bonuses to most employees making less than $150,000, but hasn’t given any guidance on payouts for higher-earning staff…. Even the best performers may find their bonuses curtailed because of this public-perception problem.

“Executives are rightly super-concerned about the optics,” said Nick Miller, a partner at London-based recruitment firm Odgers Berndtson whose clients include global banks. “They’re very wary of the fine line between keeping staff motivated and respecting the broader picture of what it looks like to be paying bonuses.”

And for god’s sake, whatever it is you do with that second meager and inadequate bonus in a row, keep keeping it fucking quiet.

“Investment bankers on average are going to get paid more,” said Alan Johnson, head of the consulting firm. “It’s uncomfortable in the middle of a pandemic. Some of these people are not beloved to begin with and then we’re going to have stories about people going out and buying fancy cars, and fancy apartments, and that’s going to make a lot of people angry.”

For Bankers, 2020 Was a Bad Year to Have a Good Year [WSJ]

Yesterday was a big day. Just over three-quarters of a year since the start of the pandemic, the inoculation process began in the U.S.

Wall Street analysts predict a significant haul for Pfizer and Moderna, anticipating the firms will earn a collective $32 billion from the vaccines in 2021 alone. Talk about a shot in the arm.

Shot-Makers, Profit-Takers
Morgan Stanley projects Pfizer will reap $19 billion in Covid-19 vaccine revenue in 2021. That blows away its best-selling product – a pneumonia vaccine that brought in $5.8 billion in sales last year.

And looking ahead, Morgan Stanley expects Pfizer to collect another $9.3 billion in revenue in 2022-23 as its vaccine rolls out worldwide.

Unlike Pfizer, an established pharmaceutical maven, Moderna’s Covid-19 vaccine put the company on the map. Moderna has never brought a drug to market and had just $60 million of revenue in 2019 (from grants and collaborations).

With its shot on the cusp of FDA approval and shares up almost 700% in 2020, Morgan Stanley says Moderna investors expect $10 to $15 billion of Covid-19 vaccine sales in each of the next two years.

Taking Shots
Not everyone is over the moon about the economic spoils. Eli Zupnick of progressive watchdog Accountable.US called it “absolutely wrong” for drug companies to profit on vaccines “so heavily subsidized and supported by American taxpayers.”

• Moderna received $955 million in federal grants to support its vaccine development.
• Pfizer did not accept federal funding for the R&D of its vaccine, but struck a $1.95 billion advance purchase agreement with the U.S. government for 100 million doses.

Still, others defended the companies as enterprises that have invested heavily in building their technology platforms.

The Takeaway: Pfizer said its vaccine development has been “entirely self-funded, with billions of dollars already invested at risk."

No one likes passive-aggressive behavior. Except for most investors in 2020.

Net inflows into exchange-traded funds, many of which are passively managed, have jumped 40% so far this year.

Exchange-Traded Bonanza
Welcome to the land of many commas.

Through the first nine months of the year, investors have plowed $488 billion into ETFs compared with $349 billion during the same period in 2019, according to data provider ETFGI.

• Leading the pack is Vanguard with a haul of $134 billion, up 73% vs. the same period in 2019.
• BlackRock, the world’s largest asset manager, added a modest $106 billion to its iShares ETF war chest.
• State Street nearly tripled net inflows to $21 billion as investors sought refuge in its physically-backed gold ETFs.

Why It Matters
The wave of investor interest in low-cost, index-tracking vehicles has been steadily climbing since the financial crisis.

Winners Are Winning: BlackRock, sometimes called the "Amazon of investing," reported blockbuster earnings yesterday: total assets under management swelled to a record $7.8 trillion, revenue climbed 18%, and operating margin reached a hefty 47% (another record).

Battle For Scale: Traditional "active" managers are bulking up to better compete in an increasingly passive world. Last week Morgan Stanley agreed to acquire Eaton Vance for $7 billion and earlier this year Franklin Templeton paid $6.5 billion to buy Legg Mason.

Innovation Nation: Last year, regulators simplified and streamlined the approval process for new ETFs. That has caused an explosion of over 200 new ETFs in 2020, already the most in 5 years. Amidst the banner year, Invesco announced yesterday it is introducing four new ETFs to the popular "QQQ" family of ETFs.

The Takeaway: Speaking on CNBC yesterday, Blackrock CEO Larry Fink said he believes there could be more upside in the market. He added, "we have a strong conviction that the average investor still is under-invested.” Perhaps not a surprising opinion from his perspective.

CEO James Gorman, however, is not one to be satisfied with success and, on the whole, he’d rather be running an entirely different bank. And so, having just achieved a career-long ambition to buy, uh, an online retail brokerage, and an employee stock plan business, Gorman is dropping another $7 billion to turn his white-shoe Wall Street power broker into a nice, safe, boring little Main Street shop.

“We wanted to make sure that in very difficult times Morgan Stanley is steady in the water,” Gorman said Thursday in a call with analysts. “A decade ago, our asset management and wealth management businesses had bright spots in them, but they weren’t big enough, they weren’t at scale enough where they can provide real stability to the rest of the organization.”

Bulking up these businesses even more, Mr. Gorman hopes, will persuade analysts to view his firm less like an investment bank and more like Charles Schwab, which despite its staid reputation trades at about 20 times earnings, double the multiples of Morgan Stanley and Goldman.

If Morgan Stanley’s multiple rises halfway to Schwab’s, Mr. Gorman said, the bank’s stock should be worth twice its value today. The C.E.O. acknowledged that such a rerating is a challenge: “I hope it happens in my career, let alone in my lifetime.”

Morgan Stanley to Buy Eaton Vance for $7 Billion [WSJ]
With $20 billion in deals this year, Morgan Stanley pivots further away from risky Wall Street [CNBC]
Morgan Stanley’s Makeover [DealBook]
Morgan Stanley Finds Money in the Cushion [WSJ]
Morgan Stanley Fined $60 Million in Failed Data-Center Oversight [Bloomberg]

Palantir’s debut was mired by technical issues with Morgan Stanley software that prevented some existing investors in the company from unloading shares for much of the afternoon…. Palantir employees use Morgan Stanley’s stock-plan business, called Shareworks, which suffered from technical difficulties Wednesday…. The problems eased late in the day, and the system was fully functional by 3:30 p.m. ET, according to a person familiar with the matter. Some individuals’ sell orders were able to be executed on the platform before the close of trading. Others said they struggled to sell their stock through the closing bell and were also unable to sell by phone.

Of course, by then Palantir’s non-IPO bump had dissipated. Still, the NYSE must be relieved to not only have pulled off two direct listings at once—Asana also used the new system yesterday—but to have the technological snafu be someone else’s fault for once. And, of course, it could have been so much worse.

Japanese shares remained suspended at midday break on Thursday after the Tokyo Stock Exchange earlier halted trading in all stocks citing technical problems….

“The timing is really just bad,” Takashi Hiroki, chief strategist at Monex in Tokyo, said about the trading halt, adding many market participants were hoping to buy back their stocks or increase their holdings following an overnight rise on Wall Street.

Palantir Grabs $21 Billion Valuation, but Debut Comes With a Hiccup [WSJ]
Palantir Shares Go Up in Wall Street Debut [NYT]
AOC called for investigation on Palantir before it went public [CNET]
Japan stocks trade halted due to technical glitch; Nikkei futures rise [Reuters]

Today, only one of 21 politically appointed financial regulators at eight agencies is Black…. Since the founding of the agencies in the 19th and 20th centuries, only 10 of 327 people appointed to the most senior jobs at financial watchdogs—such as the Federal Reserve and Federal Deposit Insurance Corp.—have been Black… The Securities and Exchange Commission, founded as part of the government’s New Deal programs in 1934, has had two Black commissioners in its history. The Federal Reserve, established in 1913, has had three Black governors.

But, please, by all means, make room for these two, especially Judy Shelton, who just a few months ago had the Republicans who just voted to send her nomination to the full Senate wondering whether her “beggar-thy-neighbor mutual currency devaluation” plans and “fatal attraction to nutty ideas” might not make her the perfect person to serve in a leading capacity at a central bank. Surely she’s better than any person of color this president could find (a depressingly true statement, it turns out).

The Senate banking committee on Tuesday approved controversial Federal Reserve nominee Judy Shelton as well as Christopher Waller for two vacancies on the central bank’s board of governors…. She faced persistent and at-times hostile questions about her support for the gold standard, her beliefs on whether bank deposits should be insured and whether the Fed should be independent of political influences.

Anyway, getting back to the people Shelton will soon be pretending to regulate, let’s talk about the bank that’s fixed its race problems so comprehensively that it no longer needs a chief diversity officer. (You know, the one with the Australian CEO.)

At least six former employees are asking Morgan Stanley to release them from confidentiality agreements so they can tell their stories of alleged racial discrimination at the investment bank…. Christensen, the lawyer acting for former employees requesting release from non-disclosure agreements, countered on Tuesday that Morgan Stanley “must disclose the percentage of black employees and persons of color that were part of the [layoffs] as compared to white employees”.

The lawyer said the bank should “welcome greater transparency, including about who is selected for termination” if it has “nothing to hide about the racial composition of its workforce, including data about hiring, retention, promotion and pay”.

Black Regulators Rarely Appointed to Oversee Wall Street [WSJ]
Key Senate committee approves Shelton, Waller for Fed positions [CNBC]
Morgan Stanley: ex-employees seek contract to allege racial discrimination [Guardian]