Levine on Wall Street: Bank Scapegoats, and Goats

As BNP Paribas and BofA negotiate eleven-figure payments for breaking old rules, other banks are doing cost-benefit analyses about whether to break new rules. It's the circle of life.

Today in Bank of America settlements.

Did you know that Bank of America "is in talks to pay at least $12 billion to settle probes by the Justice Department and a number of states into the bank's alleged handling of shoddy mortgages"? You probably could have guessed; a good rule of thumb is:

  • Imagine a number.
  • Bank of America is always in talks to pay at least that number of dollars to settle probes into the bank's handling of shoddy mortgages.

I think we last discussed this round of talks in April, when it was just "multibillion-dollar settlement talks," though that was before BNP Paribas raised the stakes. Also if you told me, no, those April talks actually ended in a multibillion-dollar settlement that I missed, and these talks are an entirely unrelated set of multibillion-dollar settlement talks to settle different investigations into different shoddy mortgages, I wouldn't be the least bit surprised. Exhausted, but not surprised.

Today in financiers' extracurricular activities.

Mark Spitznagel, who runs black-swan-protection hedge fund Universa with the advice of Nassim Taleb, is going to let loose a bunch of adorable baby goats (there are pictures) to graze in Detroit, where they will provide jobs for unemployed residents and keep the vacant lots from becoming too unkempt. Then, at the end of the summer, he's going to kill them. This will teach the goats about black-swan risk. Elsewhere in work/life balance this summer, Bank of America doesn't want its interns to work more than 60 hours a week, and a law firm intern, like Spitznagel, would rather be farming.

Today in BNP controversy.

Here's a Bloomberg News story about how BNP Paribas is facing criminal charges and a $10 billion fine because prosecutors are deeply insecure. I mean, the claim is that U.S. Attorney Preet Bharara got mad because JPMorgan gave Jamie Dimon a raise after he avoided criminal charges, and Bharara doesn't want anyone else getting raises for outwitting him, so BNP has to go. This is hard to believe, but really not that hard to believe. Also Bharara and New York bank regulator Benjamin Lawsky have some horrible turf battle where whoever blows up more of the turf wins, so that's another motivator. (Lawsky's latest is that he wants some executive firings.) It's all sort of depressing. Here is Felix Salmon being depressed by it, pointing out that prosecutions of foreign banks for doing things that are legal in their home countries are a particularly nasty way to pursue U.S. foreign policy interests, and that "criminal prosecutors seem more interested in prosecuting US foreign policy than in protecting the American people from the malefactors who were responsible for vaporising trillions of dollars in household wealth and adding tens of millions to the unemployment lines." I basically agree with this, though I don't know that it's obvious a priori that packaging bad mortgage-backed securities is worse than supporting terrorist states financially. You gotta pick your battles somehow.

You're not supposed to lend money at more than 6x EBITDA.

But you can, you're just not supposed to. Here is a pretty entertaining story about how banks are expecting the rules against over-leveraged leveraged lending to be enforced. "Inconsistently," would be one way to characterize it:

"For any deal underwritten in breach of any of the guidelines, banks will have an approval memo explaining how they have justified underwriting that deal,” said another debt capital markets banker, who also declined to be named. ...

Others say banks are grappling with tactical decisions, such as trying to guess how big the fines could be -- and weighing that up against the fees for underwriting such deals.

Yep, that's bankers calculating how much they'll get fined for breaking the rules, and then weighing that up against how much they'll get paid for breaking the rules. You gotta pick your battles somehow.

Metals financing in China sounds fun.

When I bought my apartment I sat in a conference room with some people and signed a bunch of papers and handed over a giant cashier's checks, and then we all left, and I spent probably a week wondering if I'd actually bought an apartment, or if I'd just given some con men a ton of money for some worthless bits of paper. I was pleasantly surprised when I was actually able to move in. Anyway some bankers and trading houses who finance metal in Qingdao are getting unpleasant surprises:

"Now the banks are all flying down to the port and literally, together with the warehouse people and the traders, are physically counting the stocks," said a source at a global trading company who visited the port this week.

"When we were there we did hear a couple of traders holding the same title. One was saying that one (cargo) belongs to me the other trader said it belongs to him. They had the same document."

What percentage of global finance is just total fraud, just taking money for stuff that doesn't exist? Certainly under, like, 10 percent, right? Sometimes I'm amazed that it's not much higher.

Is Mathew Martoma negotiating a deal to rat out Steve Cohen?

No, is the answer to that question. "Martoma’s lawyers requested in a letter to U.S. District Judge Paul Gardephe last week that the June 10 sentencing be postponed for more than a month, citing a late report by the court’s Probation Department," and prosecutors argued for a shorter delay. No one would comment on whether they were discussing a cooperation deal, but if a deal was actually in the works Martoma wouldn't have been requesting the delay on his own. Whatever -- if anything! -- he's got on Steve Cohen is going to prison with him, is my guess.

Things happen.

Happy birthday SEC! Chesapeake Energy is consistently entertaining. Lloyd Blankfein, "very smart, diligent great athlete." Here's a bunch of squiggles about the job market. A Few Goodmen. General Catalyst backs Super Evil Megacorp. The Road to Serfdom in Cartoons.

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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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