Levine on Wall Street: French Banks, Dutch Taxes, Ecuadorean Gold

Also dark pools, invisible market share, Buffett lunches and Ponzi houses.

Ecuadorean gold swaps.

Ecuador, like many other countries, keeps some of its reserves in the form of a pile of gold. Piles of gold are not revenue generating, as Warren Buffett has memorably and NSFW-ishly pointed out. ("You can fondle the cube, but it will not respond.") Selling your gold and using the proceeds to buy bonds is revenue generating, but it makes central banks nervous, so Ecuador's central bank is swapping its gold with Goldman Sachs for three years. So at least it'll get its gold back. It's basically borrowing against the gold to buy "instruments of high security and liquidity," and "expects to earn a profit of $16 million to $20 million over the term of the accord." Now you might naively think that a swap is a zero-sum transaction, so ponder in your heart what Goldman's profit will be. Here is what I wrote when Venezuela did something similar last year. Here is a Zero Hedge take.

France wants to protect BNP Paribas.

No surprise really but this is an interesting angle:

For BNP, a bank deemed too big to fail in France, the French officials warned that such a huge settlement could eat into the bank’s capital, according to the people briefed on the matter. The bank’s capital levels, the officials complained, could drop below an important threshold for financial strength.

I mean, it's not interesting at all; of course if you just hand over $10 billion in cash you have $10 billion less capital. But you can see the appeal; you could say that the priorities of the last five years or so of bank regulation have been (1) capital, (2) stop banks from doing bad stuff, with 1 given much greater weight than 2. So "you can't fine our favorite bank, it will leave them inadequately capitalized" might be a winning argument.

Dutch hybrid taxes.

The Dutch government is suspicious about whether additional tier 1 securities should be treated as equity for bank regulatory capital purposes but debt for tax purposes. And why shouldn't they be suspicious? Really it's weird that everyone else is so cool with it.

Some light on dark pools.

Finra yesterday started releasing volume data from alternative trading systems; the biggest dark pools (by number of shares traded over the week of May 12-18) are run by Credit Suisse, Barclays, UBS, Bank of America Merrill Lynch, and Morgan Stanley, in that order. Goldman Sachs's Sigma X is seventh; Michael Lewis's favorite dark pool IEX comes in at number 11, though give them time. Unfortunately this data is self-reported, and not everyone is great at self-reporting. Bank of America's Instinct X was briefly listed as the biggest dark pool, but that's only because BofA reported twice as much volume as it actually traded. "This wasn’t Bank of America’s first data error this year," ha.

Some light on dark market share.

Goldman Sachs president Gary Cohn "insisted at a conference last week that his firm was expanding market share in fixed-income, currency and commodities trading," despite revenue-share numbers not really supporting that. "Goldman's traders are winning more trades, he said, but 'it's tough to see.'" We all had a good laugh but, I mean, sure, market share is tough to quantify accurately, that's why junior bankers spend their first two years re-cutting league tables. If trading success were easy to measure on a single scale, compensation discussions would be much less pleasant. Meanwhile in debt underwriting the fight for market share is absolutely brutal, with 144 underwriters splitting $4.2 billion in fees so far this year.

More on Goldman market share.

"Goldman Sachs is planning to increase the size of its commercial bank and wealth management division as part of a quest for growth" is actually sort of a surprising thing to read isn't it? That will be the mandate of Stephen Scherr, previously the head of the financing group 1 and now chief strategy officer.

People familiar with Mr Scherr’s appointment said it did not herald a strategy about-face, with senior executives firm in the belief that existing weak trading conditions are largely a cyclical phenomenon – a contrast to the view at rivals.

That's my impression too: As everyone else retreats into their differentiated core businesses, Goldman seems to think that the world is its oyster, so why not expand commercial banking and wealth management? Elsewhere, Barclays is firing a lot of investment bankers.

Things happen.

Jamie Dimon clarifies. Vox explains that it's better to be attractive than unattractive. Some Bitcoin users are married, apparently. Park Slope is Park Slope; Bushwick is Bushwick. On schlock. It's "buy lunch with Warren Buffett" article season; don't miss the correction on this one. Or buy a replica Kanye polo. Or save your money for the Ponzi House.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
  1. And thus formerly my boss, or my boss's boss's boss's boss anyway.

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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