Levine on Wall Street: Million-Euro Bankers
Calpers and Calstrs liketellingcompanies what to do
The corporate-governance role of big public pensions -- especially the big California retirement systems -- is fascinating. They're really into good governance, so they go around yelling at boards and voting against directors who do various flavors of unpopular things. You can sort of imagine three eras of corporate governance. In the first, boards did what they wanted, and shareholders voted with their feet, or dollars I guess, buying shares of well-run companies and selling shares of badly-run companies. In the second, activist hedge funds and corporate raiders and so forth realized that there was an arbitrage -- they could buy a big concentrated stake in a badly-run company for cheap, vote out the bad management, and find themselves the owners of higher-valued shares of a well-run company. In the third, everyone just owns a market-cap weighted slice of the entire stock market so governance is not about valuation or arbitrage, it's just about owning a lot of shares, complaining a lot, and voting for the stuff you like. We're almost there. "Because Calpers indexes much of its stock market investments, it owns 0.5 percent or more of most public companies," and throws its weight around.
European bankerscan mark their self-worth
The European Banking Authority just released its annual report on banker pay, which is most notable for its tally of bankers in Europe who earned at least 1 million euros in 2012 (which ended eleven months ago, so sort of weird timing). The answer is 3,529, almost all of them in Britain (2,714), and most of them in investment banking (2,188, though that includes trading and stuff). Germany took second place with 212. Sweden had twenty. Romania had one. Slovakia had one. Obviously they know who they are, but it's fun to wonder whether, like, every banker in Slovakia knows who the one million-euro earner is. It's also maybe fun to wonder whether this exercise has a deflationary ("sorry the bonus isn't what you'd hoped, but it's not like anyone else in Romania made any more") or inflationary ("you're telling me that twenty other Swedish bankers make more than me?") effect on pay. The number of million-euro earners is up 11 percent from previous year's survey, for whatever that's worth.
Banks don't want to hold on to loans
U.S. regulators want the managers or arranging banks of collateralized loan obligations to retain at least 5 percent of the underlying loans on their books to have "skin in the game" on the stuff that they securitize. Banks and CLO managers disagree: CLO managers are not really capitalized to own a bunch of loans, while banks argue that lending money to corporate borrowers without selling or hedging the loan "is generally inconsistent with prudent lending practices." I have a lot of sympathy with the banks on this debate generally: CLOs are a major source of financing for real businesses, and unlike various other flavors of C-something-Os are mostly on the up-and-up, didn't cause the financial crisis, aren't really looking likely to cause the next financial crisis, etc. etc. They just got swept up in the otherwise understandable anti-C-whatever-O fervor of recent years. That said: It's sort of weird for banks to argue that lending money to companies and holding 5 percent of the loans on their books is "inconsistent with prudent lending practices." If banks aren't in the business of lending money to companies and people and holding on to the risk, what are they for?
Last year Barclays fired a trader named Dong Kun Lee for "communications involving inappropriate requests relating to Libor," and this month he won a Finra arbitration for contract and labor law violations and was awarded $2.2 million in compensation. I don't know what to tell you here. On the one hand, I guess the message is: Banks, don't be too hair-trigger in firing employees who look like they're part of terrible criminal activity that gets you investigated and vilified and fined hundreds of millions of dollars. On the other hand, I mean, $2.2 million is rounding error on the fines that Barclays has paid and being hair-trigger about firing everyone probably earned them some goodwill. I bet they'd make that trade again.
UBS is reshuffling its investment bank bits
UBS, which has been restructuring and downsizing its investment bank for a while, "is rolling its foreign-exchange and precious-metals business into another unit," barely a week after UBS's chief executive, Sergio Ermotti, told the Journal that the investment-bank restructuring was completed at the beginning of this year. Presumably UBS is reopening that restructuring because of "a burgeoning investigation into potential manipulation of currency markets," by UBS among others. UBS's global co-head of foreign exchange and precious metals has stepped down and is "exploring other opportunities in the bank," according to UBS's internal memo, which is pretty cold. It's not like the investment bank at UBS is a huge growth opportunity, and if they haven't found him a job by the time they put out this memo, he's probably not going to like wherever he ends up.
If bitcoins are too expensive, there's a lot of othergarbage you can buy
Izabella Kaminska's roundup of alternative cryptocurrencies -- litecoins, feathercoins, namecoins, peercoins, novacoins -- at FT Alphaville somehow omits my favorite cryptocurrency, the Mattcoin, which is up 1,276 percent just this month and has lots of terahashes and block chains and I don't know, the rest of the things, you should buy some, just send me a check, it's all totally anonymous. I can only assume that its omission from the Alphaville roundup is part of a conspiracy by the establishment to keep the world ignorant of the real cryptocurrencies, but don't be fooled, the truth is out there.
Citi'slooking at the bank in the mirror
Here you can listen to employees from Citigroup's London office sing in their office choir and talk about it. This is very important.
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Matthew S Levine at email@example.com