Levine on Wall Street: Short Selling for Charity

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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Happy Ira Sohn!

Yesterday some rich people got together in a big room and told each other how to become richer, for charity. Here are recaps from Josh Brown (James Grant: "If it's obvious, it's obviously wrong, the traders say"; "What could go right? I don't know" -- this is his bull case for Gazprom; David Einhorn on athenahealth: "Jonathan Bush likes to compare Athena Health to Amazon because they both have websites"), Peter Eavis ("Mr. Ackman is still talking about [Fannie and Freddie's] earnings power, not legal subjects"), and the MoneyBeat team (also here; Zach Schreiber's bear case for WTI crude: "I'm sure that will be a smooth exit when all those clowns try to get out of the Volkswagen"; Ackman: "It's time to get off our fanny," come on). Also the 25 top-earning hedge fund managers made $21.15 billion in 2013, 50 percent more than in 2012.

Goldman Sachs is still good at investment banking.

Here's an interesting Bloomberg Markets triple profile of Goldman's co-heads of investment banking, John Weinberg, David Solomon, and Richard Gnodde. There's a posed picture of them looking important. Which they are:

The co-heads say reported revenue at the investment bank understates its importance. The unit often generates the highest return on equity of any division, and some revenue it produces is reported in trading, more than $1 billion some years, they say. ... “It’s a much more important business to the firm than the 15 percent to 20 percent of revenue it historically generates because it helps other parts of the business produce higher revenue,” says Devin Ryan, an analyst at JMP Group Inc. in New York.

Also they are expanding in debt capital markets, and in strange analogies:

“It’s like we added a third leg to the stool and then a fourth leg,” Solomon says. “We had M&A and equity, and now we have debt underwriting and risk solutions. Four-legged stools are pretty solid.”

UBS has too much capital.

I bet you didn't see that coming?

UBS will pay out at least 25 centimes a share after reorganizing to satisfy regulators’ demands for separate legal entities in different regions, the Zurich-based bank said today. The structural changes will reduce its capital requirements, said UBS, which reached a common equity ratio above its 13 percent goal at the end of March.

You could imagine this as a regulatory methodology: "Do these X things to make yourself safer, and we'll let you return a giant gob of capital." Shareholders like risk, and they like cash in their pockets, but forcing them to choose might lead to interesting results. Meanwhile Barclays' earnings were disappointing, which is more like it.

Too big to arghhhhh.

Eric Holder is all excited to bring criminal charges against a big bank (Credit Suisse) so he can compete with Preet Bharara, who wants to bring charges against a big bank (BNP Paribas), because everyone in the Justice Department has decided that the cool thing to do is get a criminal guilty plea from a big bank. This remains a stupid charade, and one that prosecutors don't seem to have actually thought through. Peter Henning: "there is the nagging feeling that prosecutors are trying to have it both ways in deciding whether to file charges against banks by taking steps to ensure they do not cause too much collateral damage." That nagging feeling is correct.

"Do the Securities Laws Matter?"

This is clever:

Long viewed as contrasting forms of debt, corporate loans and corporate bonds are rapidly converging into a single asset class. Yet bonds are treated as securities under the federal securities laws, while loans are not. The existence of these two functionally equivalent markets, one subject to mandatory disclosure and the other not, amounts to a near-perfect natural experiment testing the effects of the federal securities laws.

The author, Elisabeth de Fontenay of Duke law school, says no: "Purely through private ordering, the loan market appears to be providing sufficient information for investors to treat syndicated loans as they do bonds -- that is, as largely passive investments that do not require intensive monitoring on their part."

There's a gold fix lawsuit.

It sure sounds meritorious:

Over the last few weeks, so many plaintiffs have joined Mr. Maher with copycat complaints that a hearing was held to consolidate the cases and to appoint a lead lawyer. The fourth-floor courtroom was so full of lawyers that it took nearly 15 minutes for all of them to introduce themselves. “I want to do this in an organized way to figure out who’s who,” said Valerie E. Caproni, the presiding judge. “Not,” she added, “that I’ll remember.”

Don't be a foodowner.

Most people want to go home to the same house most days, which is convenient because houses are long-lived expensive fixed capital assets. Most people want to eat different food most days, which is convenient because food comes in small inexpensive portable perishable packages. It would be weird if food and housing were financed in the same way, so they aren't. The lesson is, once again, that you should avoid analogies in economic reasoning.

Things happen.

Professional Investment Management (allegedly) wasn't. Twitter Amazon something something. Elite Colleges Don't Buy Happiness for Graduates. "'The man wore a sombrero and poncho and said he wasn’t going to lie. The man admitted to drinking a large quantity of alcoholic beverages during a pub crawl in Boston,' police said." How to write. Not Steven A. Cohen though. "Mr. Klarman declined to comment on how he chooses names for his horses."

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Matthew S Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Toby Harshaw at tharshaw@bloomberg.net