Levine on Wall Street: AIG Bosses, Allergan Defenses, Apple Taxes
So long, Bob Benmosche.
It could not have been fun to take over AIG in 2009, unless you were Bob Benmosche, who always seemed to be having an unseemly amount of fun. (Here is Bob Benmosche having a lot of fun indeed; here is a greatest-hits roundup.) But now he's stepping down, presumably to spend slightly more time at his Croatian villa. DealBook has his departure memo, which includes the sentence "You often thank me for the role I played in our turnaround." He'll be replaced by Peter Hancock, who "established the derivatives group" at JPMorgan, so at least AIG's priorities remain clear.
So long, Jane Mendillo.
It really could not have been fun to take over managing the Harvard endowment in July 2008, though I guess the lesson of Bob Benmosche is that none of us can know what it is like to be another person based on macroeconomic conditions. But seriously her first-year performance review was like, "well, you're down 27 percent, but it could have been worse." It could have! Mendillo stuck it out until this year, averaging 11-12 percent returns after that first year. Hopefully she has a Croatian villa to retire to.
Allergan says no again.
Of course it does. Valeant and Pershing Square will hold a shareholder meeting, in November or whenever, to throw out Allergan's board and push through their acquisition proposal. So why should the board say yes to that deal now? They've got until November to convince shareholders that Allergan is worth more on its own; if they can't, they've got a free put option and can just accept the deal a week before the meeting. Or maybe the horse will talk. Their latest anti-Valeant presentation remains punchy. And here is a story about how Valeant fires the research and development employees at companies they acquire by handing them black envelopes, which seems a little cartoon-evil for my tastes; if I were Allergan I'd put a black envelope around my next anti-Valeant investor deck.
Bank of America might say no to a multibillion-dollar mortgage settlement.
Ha, I mean, not really, if there's one thing that BofA can't resist it's paying $12 billion to settle claims that it sold shoddy mortgages. But $12 billion "fell far short of prosecutors' demands"; they want $17 billion, because what is the point of a settlement if it is not the largest ever? So "the Justice Department moved to put the finishing touches on a civil complaint against the bank," but a lawsuit "is not imminent." You would think that the filing of a complaint would focus BofA's mind on reaching a settlement, but apparently the rules of this game are that you have to do your settling before bringing a case, not afterwards. There are other strange rules, some of them put in place by acting associate attorney general Tony West:
Mr. West is fond of reminding bank lawyers that to be meaningful, settlements must have a huge penalty. Otherwise, one person who has negotiated with him said, they will simply “be the cost of doing business.”
Imagine if the rules were, like, that the settlements should be related to the magnitude of the wrongdoing and the harm it caused.
Are Apple's taxes too low?
The European Commission thinks they might be, but whose fault would that be? Ireland, the answer would appear to be; Apple keeps lots of boxes and arrows in Ireland to avoid paying taxes elsewhere, or in Ireland for that matter. This seems to be conscious Irish policy; "The move by Brussels opens the question of whether companies received rulings that breach the EU’s rule book on state aid – a regime that bans tax breaks to favoured businesses that would create serious distortions of competition." On the other hand, "Ireland is confident that there is no state aid rule breach," says Ireland.
Can you get around the leveraged loan regulations with holdco PIK bonds?
Intuitively the answer should be yes, right? U.S. regulators sort of halfheartedly forbid banks from lending to companies at more than 6x EBITDA. So:
As a result, banks are exploring whether they can arrange more of special kinds of bonds for companies that should not be taking on more loans under the guidelines, according to banking sources who spoke on condition that neither they nor the banks they work for or with are identified. These bonds would help to split the overall debt load between a holding company and its operating subsidiary. The guidelines are aimed at curbing risky loans and do not directly address bonds. ...
Many holding company bonds are structured as payment-in-kind (PIK) notes that pay interest by adding to the outstanding principal rather than returning cash to the bond's holder – an even riskier proposition.
Your model could sort of be that there's a fixed amount of risk, and that regulatory efforts to make bank lending less risky will make bond investing more risky. Which is probably fine! Still I feel like it would be funny for the Fed to be all "yeah what we're really trying to do is get more holdco PIK-toggle junk bonds." Especially since the Fed has been known to worry about PIK-toggle bonds.
Vol vol vol vol.
I don't give a lot of investment advice but I can tell you this: Don't have bought the VelocityShares Daily 2x VIX Short Term ETN in 2010. Too many X's and V's for comfort; also "A $10,000 investment at its inception in 2010 would be worth around $3.00 today." As for 2014, maybe it's not a great idea to buy volatility products at a historic low for volatility, or maybe it's the greatest idea. Elsewhere in low volatility, low beta stocks are outperforminghigh beta stocks in this rising market, so that's something for your capital asset pricing model to chew on. "All Everyone's Talking About Is How Boring Everything Is," says Joe Weisenthal, and he is not kidding.
"A good day is when no one shows up and you don’t have to go anywhere," correct. M&A bankers are going to accounting firms, but then you're at an accounting firm. England has a regulatory revolving door too you know. "This kind of relentless, lawless, manipulative, rigged gold manipulation will continue unless we demand that the regulators do something about it." The Mark Spitznagel goat story does not end well. GQ does some bitcoin gonzo. Fetal position desks.
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