Levine on Wall Street: Banking Tantrums

The private equity fee disclosure investigations seem to have turned up some juicy stuff. Also FHFA sounds dysfunctional but you probably could have guessed that.

Alibaba filed for its IPO.

Here's the Form F-1 for Alibaba's initial public offering, along with other goodies like the voting agreement that gives the Alibaba Partnership control of the board. Here's the Wall Street Journal (and MoneyBeat), DealBook, Bloomberg, the Financial Times, and Fortune on the filing. Here are what-is-Alibaba explainers from Bloomberg QuickTake and the Wall Street Journal. Here are headlines using the word "windfall" from DealBook and Bloomberg. Elsewhere in IPO news, 1347 Capital may be the best name for an IPO company since Great Idea Corp.

JPMorgan didn't want to bank those diplomats anyway.

JPMorgan's response to increased financial regulation is ... robust. This is a pretty wild story:

JPMorgan said it was closing the Chase accounts and stopping the credit cards of all current and former non-US senior government officials because of increased compliance costs. Banks are obliged to subject the accounts of such “politically exposed persons” to added scrutiny. The ban affects 3,500 accounts.

So any time a regulation imposes increased compliance costs, the banks go around saying that it will hurt customers and force them to stop providing services. But then they go figure out a way to comply with the regulation as efficiently as they can, and life goes on. They don't just throw a big tantrum and take their credit cards and go home. JPMorgan did, in a small and risky (but ... you'd think kind of worthwhile? 1 ) segment of its business. Obviously one possible outcome here is that regulators will walk back the rules -- and JPMorgan's got the attention of some connected people now -- or at least take future this-will-hurt-customers threats more seriously. But don't you get the impression that that isn't even the goal? This sounds like just JPMorgan really savoring its pique.

Speaking of tantrums.

This is an even wilder story about the Federal Housing Finance Agency:

Richard Hornsby, the agency's chief operating officer, was charged last Wednesday with one felony count of threatening to kidnap or injure a person, court records show. He was ordered to stay away from the FHFA and from former director Edward DeMarco, who retired from the agency last week, court documents state.

Okay! Here's Bill Ackman's presentation about how and why Fannie Mae and Freddie Mac should be privatized, and it's fun to imagine the FHFA sitting down to read it and then being distracted by the violent threats (allegedly!) made by its COO.

The SEC is not happy about private equity fees.

I'm looking forward to these settlements because this actually sounds kind of shady?

Another similar observation is that there appears to be a trend of advisers shifting expenses from themselves to their clients during the middle of a fund’s life — without disclosure to limited partners. In some egregious instances, we’ve observed individuals presented to investors as employees of the adviser during the fundraising stage who have subsequently being terminated and hired back as so-called “consultants” by the funds or portfolio companies. The only client of one of these “consultants” is the fund or portfolio company that he or she covered while employed by the adviser.

There's tons more in this speech by Andrew J. Bowden, the Securities and Exchange Commission's director of compliance inspections and examinations, who's been inspecting and examining the compliance of big private equity firms and seems to be unimpressed. Obviously the key questions are what was disclosed to limited partners, what was allowed by the agreement, but also what was viewed as customary by the LPs. If the investors are all "yeah, we figured they were going to fleece us in every imaginable way" then who is the SEC to interfere with their fun?

"More than you wanted to know."

In related news, here is a law professor criticizing mandatory disclosure as a regulatory regime, and flogging his forthcoming book, which glories in the title "More Than You Wanted to Know: The Failure of Mandated Disclosure." A sample:

Mandated disclosure aspires to help people making complex decisions while dealing with specialists by requiring the latter (disclosers) to give the former (disclosees) information so that disclosees choose sensibly and disclosers do not abuse their position. It is seductively plausible. (Don’t people make poor decisions because they have poor information? Won’t they make good decisions with good information?) It alluringly fits all ideologies. (Thaler and Sunstein like it because it is “libertarian paternalistic”; corporations would “rather disclose than be regulated”). So mandates are enacted unopposed.

But, in his view, no one can possibly pay attention to all the disclosure that there is, so each new disclosure regime makes things worse. Meanwhile John Cochrane is deeply unimpressed by efforts to designate BlackRock and Fidelity as "systemically important" and I can't say I disagree with him.

Morgan Stanley messed up some IPOs.

"These procedures were imported from Citi" is the beginning of a story that does not end well for the procedures, but you can understand why Morgan Stanley Smith Barney wasn't crisp on the distinction between an "indication of interest" and a "conditional offer to buy" for retail accounts who wanted to invest in initial public offerings. Do retail investors who say they want to buy an IPO draw that distinction? And do they change their minds that often before pricing? Also no one seems to put much stress on the difference: Morgan Stanley was fined $5 million for treating both IOIs and conditional offers as conditional offers (not reconfirming before pricing), so now it just treats them both as IOIs (reconfirming before pricing), out of an abundance of caution and also because come on let's not insanely split hairs.

Voxsplaining telecom.

I'm a little late to this, but I enjoyed this Timothy B. Lee article about net neutrality and peering. It's an excellent explanation of the issue, and the best case I've yet seen against the Time Warner/Comcast merger:

Defenders of the merger have argued that it won't reduce competition because Comcast and Time Warner don't serve the same customers. That's true, but it ignores how the merger would affect the interconnection market. A merged cable giant would have even more leverage to demand monopoly rents from companies across the internet.

Stunt repeated.

Look, here is the deal: Journalists are going to keep living on Bitcoin for a week until people actually start living on Bitcoin and it stops being notable. That's as good a reason as any to adopt Bitcoin.

Things happen.

Check out Steve Schwarzman's fancy medals. Check out Steve Cohen's art loans. Time to read a journalist predicting a bubble? You can't reason with the market, says Jeremy Stein. There'll be a no-doubt-informative Senate hearing on high frequency trading. Business plan: Start website, sell ads to big names like Kenshoo and Nanigans, make billions. There's coffee in midtown now. Applebee's keeps hitting the reset button. Double Down tattoo. Harvard honor code. Dog acting strange.

Lion cub swim test.

Lion cub swim test!

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
  1. I mean, for the same reasons that it's risky. In related news, "Regulators Step Up Probe Into Bank Hiring Overseas."

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

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