Levine on Wall Street: Stock Buybacks and Coffee Bars

Also: Family Dollar General Tree, the criminalization of business (and everything else), new costs to short sellers, Eric Cantor's new job, and Richard Nixon's mysterious signature.

Dollar General found some more dollars.

Dollar General's bid for Family Dollar was bigger than Dollar Tree's bid, but now it is even bigger -- raised from $78.50 to $80, versus Dollar Tree's $74.50. Tree did not raise in between, but Family rejected General's bid anyway, on antitrust concerns. The new bid addresses those, offering more divestitures and a $500 million ($4.40ish a share) reverse breakup fee if the deal does not go through for antitrust reasons. Again, you have to ask: Could Family Dollar's board have gotten this deal by negotiating with Dollar General to begin with, plus an extra buck or two by avoiding a breakup fee to Dollar Tree? Or was a Dollar Tree bid in hand the only way to convince Dollar General to get serious?

The criminalization of American business.

"Most cases of corporate malfeasance are to do with money and belong in civil courts," says The Economist, with sweet European naivety. And America's vast network of federal crimes "undermines the predictability and clarity that serve as the foundations for the rule of law, and risks the prospect of a selective -- and potentially corrupt -- system of justice in which everybody is guilty of something and punishment is determined by political deals." This is true -- pretty much everyone is committing a federal felony all the time -- though I doubt it will win much sympathy for the banks who keep paying fines. Elsewhere, a bitcoin guy is pleading guilty to "one count of aiding and abetting the operation of an unlicensed money transmitting business." And here is an essay on corporate noir.

Are share buybacks bad?

Here is a Harvard Business Review article (via Josh Brown) about the rise of share buybacks over the last few decades, and how companies no longer invest in building things but instead focus on giving money back to shareholders to prop up the stock price and reward executives compensated with stock. From 2003 through 2012, S&P 500 companies spent 91 percent of their earnings on dividends and stock buybacks, for instance, which "left very little for investments in productive capabilities or higher incomes for employees." One thing you could say about this is that there's no a priori reason that the stock market as an extractive mechanism has to be bad. Perhaps most of the investment in productive capacities these days is done by entrepreneurs (er, by venture capital funds backed by public pensions), and then public markets exist solely to reward them when they cash out. This model could conceivably work just fine for non-capital-intensive businesses, and as American businesses become less capital-intensive you might expect to see a shift away from public equity financing markets and toward public equity, um, de-financing markets. The question is whether the American economy has so much Google and Facebook because of stock buybacks, or whether there are so many buybacks because there's so much Google and Facebook. Elsewhere start-ups are raising money just in case, and the S&P 500 is trading at a near-record narrow valuation range.

The New York Stock Exchange is getting a coffee bar.

Stocks are traded on computers, and have been for years, and will be at all points in the future, and you just don't need a big fancy historic Lower Manhattan building to house those computers. New Jersey is fine for those computers. This generates perennial news coverage about what the New York Stock Exchange will do with itself, and while the answer is of course "put its computers in New Jersey like everyone else," here is a Wall Street Journal article that features a diagram of the NYSE's historic Lower Manhattan building with little notes about all the big changes that are coming. To that building. Like: "Building a coffee bar designed to make employees interact more."

Man gets job.

Eric Cantor will be a vice chairman at investment banking boutique Moelis & Co., and wouldn't you be just a little annoyed if you worked there and now all of a sudden he's your boss? Especially if you disagree with his politics, of course, but just in general it's a reminder of how much the upper echelons of investment banking reward schmooziness and political, not financial, skills. "Mr. Cantor worked for his family's real-estate development firm before going to Congress" but you would not expect that he was hired for his industry expertise or financial acumen. Nor do you hear a lot of people going around saying "hey a guy who has had a lot of success at negotiating things is Eric Cantor." But, yeah, the guy knows a lot of people.

New Basel rules will hurt short sellers.

Banks are complaining that proposed net stable funding ratio rules will make it much more expensive for banks to use their balance sheets to facilitate customer equities trades like swaps and short sales. I am moved by this -- I think short selling is useful and I think there are lots of legitimate purposes for equity swaps -- but then I am a weird guy, and I used to sell equity derivatives. For everyone else, the PR benefit of saying "if you make banks fund themselves more robustly, short selling will get more expensive!" eludes me. "Which of these things is bad again?" seems like a plausible response.

Everyone was involved in the Espírito Santo collapse.

The latest is Goldman Sachs, which was involved in an $835 million loan to the collapsing bank in July. "For Goldman, what started out looking like a lucrative opportunity became a money-loser," and that is pretty much always the way with money-losers; not many of them were planned as money-losers from the start.

Richard Nixon and multilevel marketing.

John Hempton at Bronte Capital has quite a story about how multilevel marketing company Nu Skin seems to have filed with the Securities and Exchange Commission an amendment to its credit facility with what sure seems like a fake signature block. Specifically, the signature of Richard M. Nixon.

Things happen.

The private equity antitrust lawsuits are all settled. Banks are hiring junior employees. Citi is paying allowances, which are like bonuses, but allowed. Argentina's stock market is up 85 percent this year in pesos (27-43 percent in dollars, depending on which exchange rate you use), because default is great. Millennials are horrible. Are Bank of America's Countrywide woes about branding? Get your AK-47 while you still can. A Financial Model Comparing Car Ownership with UberX (Los Angeles). (Via.) Grover Norquist Goes to Burning Man. Warren Buffett got a fancy cake for his birthday.

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    To contact the author on this story:
    Matthew S Levine at mlevine51@bloomberg.net

    To contact the editors on this story:
    Toby Harshaw at tharshaw@bloomberg.net
    Toby Harshaw at tharshaw@bloomberg.net

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