Levine on Wall Street: Capital Raises and Stress Tests

Q. How do you sell structured credit products to German utilities? A. Strippers.

Deutsche Bank is raising some money.

Yesterday it announced that it's raising about 8 billion euros of common equity capital, mostly from an underwritten rights offering but also 1.75 billion euros from Qatar's Paramount Holdings at about a 5 percent discount to Friday's close. This accelerates its literally named Strategy 2015+ plan of becoming well capitalized, but somewhat delays its plan of becoming sufficiently profitable; "The bank said it will probably reach its 12 percent return on equity goal in 2016, a year later than originally planned, and reduced a profitability target for the investment bank." The stock is down this morning; the last time Deutsche Bank raised capital, in April 2013, its shares shot up, and really if your share price goes up when you sell more shares that means you haven't sold enough. Now I guess they have?

Happy Merger Monday.

AT&T is buying DirecTV, but Pfizer is apparently not buying AstraZeneca, making this sort of a negative-P&L Merger Monday for bankers overall.

Tim Geithner's book is still out.

Here are Tyler Cowen, Felix Salmon, Gretchen Morgenson, Cathy O'Neil. Salmon thinks that Geithner is dishonest about his pre-crisis prescience, but I'm finding him surprisingly candid about his own biases. The early part of the book -- Geithner's work on the Mexican and Asian financial crises in the '90s -- is like an intellectual history of Tim Geithner, explaining how he developed his view that bailouts are good, moral hazard isn't a big deal, and a crisis is the wrong time to punish bad actors. Obviously you might disagree but it's a good explanation of where he's coming from, and probably more books about policy should be more explicit about how their biases came about.

How do you sell structured credit products to German utilities?

Like this, probably:

A German water utility alleged a former UBS AG banker had an “inappropriate” relationship with consultants advising on disputed swap deals, the latest lawsuit to highlight how complex financial instruments backfired on municipal agencies during the 2008 financial crisis. Kommunale Wasserwerke Leipzig GmbH said in court documents that Steven Bracy, the banker at the center of the allegations, booked strippers for consultants at Swiss firm Value Partners and went on an African safari with them.

There's some argument that municipal agencies should have third-party advisers to help them negotiate derivatives trades with banks. But of course then the advisers become repeat players and have incentives to play nice with the banks. And then there you are with the strippers.

Fannie and Freddie remain controversial.

Matt Yglesias gives perhaps too little respect to arguments that the government illegally confiscated Fannie and Freddie's profits from shareholders, but he's right to question the policy argument that allowing Fannie and Freddie to re-capitalize themselves by building retained earnings would reduce risk to taxpayers:

This is as if I tried to persuade you that your current retirement fund is too risky, so you should just hand the money over to me. Once you have no money there's no more risk of loss!

Things happen.

Jérôme Kerviel made it to France. Banamex was bananas. Facebook built its own Snapchat, again, because if there's one company you trust to make sure your information disappears from the internet it's Facebook. The Mets might be for sale. Deadspin vs. Zero Hedge. "Former IMF chief Dominique Strauss-Kahn has instructed lawyers to sue the makers of a movie in which veteran French star Gerard Depardieu plays a sex addict who commits a sexual assault on a hotel maid." Free Bitcoin for college students.

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    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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