Levine on Wall Street: Sovereign Immunities

Argentina is nearing the end of one phase of legal wrangling. Russia is at the start of another. And a ten-year-old M&A case is going to trial.

Argentina will probably default this week.

I mean, who knows I guess, maybe there'll be a last-minute compromise in the next couple of days. But unless Argentina reaches a settlement with its holdout creditors (unlikely), or convinces New York federal judge Thomas Griesa just to give it some extra time (even less likely), it's going to be in default on its exchange bonds this week. Here is Floyd Norris on the shakiness of the process. Here is the Financial Times on the consequences of default -- "a setback for investment," "a boon for lawyers," but all in all "few believe the consequences of a default would be as dire as 13 years ago," when Argentina defaulted on its old bonds for the traditional not-having-any-money reason rather than this week's odd legal technicalities. And here is Felix Salmon being very cheery indeed about the consequences of default: "loss of market access isn’t really a cost of default, since Argentina doesn’t have market access anyway," and "there might even be a benefit to default: Argentina could stop making its coupon payments for a while, and use the money instead on desperately-needed projects back home." You can see why the holdout bondholders are sad that Argentina won't negotiate -- and why Argentina won't.

And then there's Russia.

If you miss the international legal wrangling and seizure of military ships that came with the Argentina bond dispute, have I got a new international asset-seizure dispute for you. It's about Yukos, the former Russian oil company; "Putin’s government dismantled Yukos from 2004-2007 after imposing $27 billion in tax charges," and most of its assets are now owned by state-controlled OAO Rosneft. Yukos was formerly owned by some guys who -- well, "Mr Khodorkovsky and associates acquired Yukos for a knockdown price in a controversial round of post-communist privatisations in 1995 and built it into Russia’s biggest oil producer," so those guys. Those guys sued the government over the re-nationalization (except Khodorkovsky, who "transferred his Yukos stake to fellow shareholder Leonid Nevzlin to protect the company when he became a target of the Russian courts"), and have now won a $50 billion damages award in the Permanent Court of Arbitration in The Hague. Don't count on them seizing any Russian military ships, both because that is a really terrible idea and because the award doesn't let them:

Because it will be hard to seize Russian government assets, which are mostly protected by diplomatic immunity, state companies such as Rosneft and natural gas exporter OAO Gazprom could be targeted, he said.

Anyway. You think Argentina's full-page ads in U.S. newspapers are aggressive, wait until courts start seizing Russian assets.

Deutsche Bank is getting good at wealth management.

I've often wondered about the extent and value of these synergies but you keep hearing about them:

Jain had been frustrated when he took over the reins to learn that while his investment bankers advised large companies including Oracle, Japan's SoftBank Corp. or Twitter Inc. on deals worth billions of dollars, the wealth-management team often didn't have contact with these companies' leaders.

The bank created a corporate finance partnership team that combs through the investment bank's deal list and selectively offers it to wealth managers. The team increased revenue by over 160% last year to more than €100 million ($134 million), a person familiar with the matter said.

Isn't it just sort of unseemly to be the chief executive of a company and roll straight from your meeting with the bankers advising you on the initial public offering to a meeting with the bankers advising you on what to do with all the money you're getting from the IPO, and they're the same bankers? Wouldn't you worry about conflicts of interest? I guess no one does:

The idea of tapping a vast network of corporate executives and investment banking contacts for wealth-management services isn't new or unique to Deutsche Bank. The business lines are intertwined at several other major global banks. Deutsche Bank executives also privately acknowledge that its rivals are further ahead in capturing this type of collaboration revenue synergy.

Elsewhere the European Central Bank's opaque asset review "could require Deutsche Bank, BNP Paribas and other firms to restate the value of assets, driving down equity and slowing efforts to boost capital levels to meet demands set by regulators," so you can see why wealth management would be a more attractive business than, you know, using balance sheet for "less-actively traded loans and securitized products."

Speaking of wealth management and conflicts of interest.

JPMorgan is getting questions "about whether the firm steers private-banking clients to its own investment products," and is responding by giving clients yet more disclosure, but it is basically incomprehensible to me that a bank would be indifferent whether its customers buy products that make the bank a lot of money or instead buy products that make the bank less money. I mean, have you ever been to a store? People who are in the business of selling things like to sell things that make them money, because really making money is the point of selling things.

Regulators including the Securities and Exchange Commission have long monitored whether brokers sell their clients the right product for them, or push the ones that make their firm the most money.

And they will continue to long monitor that question. You could imagine various substantive solutions (require only flat-fee advising, ban integration of asset management products and brokerage services, fiduciary duties for advisers), but realistically the solution will always be more disclosure of conflicts of interest, and that will never leave anyone completely satisfied.

Here's an M&A deal from 2004.

I just about remember the bidding war between Johnson & Johnson and Boston Scientific to buy Guidant. Apparently there'll be a trial over whether Guidant breached the terms of its no-shop with J&J, allowing Abbott Laboratories to do due diligence on a Guidant business that it ultimately bought from winning bidder Boston Scientific. It's all very complicated. The point is that it happened in 2004. J&J took its nine-digit breakup fee and went on with its life, and Boston Scientific and Guidant and Abbott all went on with theirs. But the lawyers also went on with their lives, which are strange lives, and which for the last ten years have consisted of constructing an alternate reality where Guidant didn't let Abbott do diligence and Abbott didn't help Boston Scientific bid for Guidant so J&J ultimately bought Guidant. And now a jury is going to hear about that alternate reality. Don't you envy that jury?

OneWest was really just so-so.

Here is John Carney with a good reminder that a 235 percent five-year return sounds pretty good, but for a private equity buyout of a bank in 2009 it's not all that hot: "Since the founding of OneWest in March 2009, Citi's stock has risen 385% and Bank of America's is up 397% -- beating the OneWest return." This is a good metric to keep in mind whenever you hear about people making out like bandits in the aftermath of the financial crisis: Did they make out better than, say, the public shareholders of Citigroup?

Things happen.

Family Dollar Tree. Virgin America filed for an IPO. A new banking kiosk. Yuan trading in Luxembourg. The paper clip memo. "If you grew up wealthy or through some other means can write detailed blog posts on this topic, please get in touch."

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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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