Levine on Wall Street: Strong Brew Is in the Air

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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There are no take-privates.

There are a lot of mergers this year, but no private equity leveraged buyouts of more than $5 billion, and only $3 billion of leveraged buyouts total (vs. $80 billion last year) which is just an insanely low number. "A chief cause of the extended hiatus may be the soaring stock market, which makes companies more expensive to buy," but of course when assets are expensive that's the best time to lever them up more. Right? Or that is Citi's thesis about junk bonds, as reported in this Bloomberg News article delightfully titled "Don’t Hate Credit, Just Use Leverage for 10% Returns, Says Citi." And in fact here is another Bloomberg News article about how investors in leveraged buyout funds, lacking for leveraged buyouts, are just levering their investments in the LBO funds, because finance is inexpressibly wonderful though also something of an ouroboros.

Bill Ackman is still mad at Allergan.

Is Allergan's battle with Valeant and Pershing Square unusually nasty? Umm well yes. Is it "the most shareholder-unfriendly, hostile defense process perhaps in the history of corporate America"? I don't know, I feel like the history of corporate America includes a certain amount of hostility. Anyway here is a letter from Bill Ackman rattling some sabers a bit at Allergan's board, to make them feel bad about suing everyone in sight and generally trying to prevent shareholders from voting on the Valeant deal. (Here is a DealBook article.) Sadly it ends on a metaphor:

I had expected that at some point one or more directors would have woken up and smelled the coffee. ... The smell of strong brew is in the air. Now is the time to wake up.

I don't know, saying "I thought you'd have agreed with me by now, but now it's really time to agree with me" is not necessarily the most persuasive approach. Elsewhere Dollar General has gone hostile against Family Dollar, and Carl Icahn made a typo.

Some fun from Basel.

Here is a report from the Bank for International Settlements titled "Analysis of the trading book hypothetical portfolio exercise." Basically the BIS is trying to calibrate its risk-based capital regime by asking a bunch of big banks to run their capital models on a series of standardized hypothetical portfolios and report back what answers they got. They did this in 2013 with value-at-risk and got amusingly different answers, with some banks reporting ten times as much VaR as others for the same portfolios. The current version looks at new risk measures, like "expected shortfall" and "incremental default risk," and finds that their variability "is similar to the measures in the current regulatory capital framework," although it seems that they would require increased capital. And here is another BIS report titled "Developments in collateral management services," which is about developments in capital management services, and if you want to understand what banks actually do all day this seems like useful reading.

A theory of the permabear.

There's this, and this, and just imagine being the last well-known bear to capitulate. Like, equity markets go up, and they go down. In the future they will certainly do some of each. Obviously someone will be the last person to buy before the fall. Someone else will be the last person before the fall to publicly change his or her recommendation from Sell to Buy, and that person will be wrong. So you're a bear for years, as stocks go up and up and up, and finally you have the courage to come out and say "I was wrong, I misjudged how things work, you should buy," and then ... stocks promptly (or promptly-ish) go down. You're wrong both ways! It's maddening. It is statistically certain to happen to somebody.

The lesson you could draw from this is: If you've been a bear for a long time, wrongly, the only thing to do is to continue being a bear, because at least then (1) you'll only be wrong one way and (2) you'll eventually be right, at least for a little while. I've depressed myself. Also fashion is bearish.

Some fraud.

"The Securities and Exchange Commission [yesterday] charged two individuals managing an offshore business intended to help clients evade U.S. securities laws with concealing the ownership of certain microcap stocks." And here is the criminal case, which throws in some money laundering. I love the idea that there are offshore service providers to assist you with your securities fraud, because really why shouldn't there be? It's a business like any other. This business seems to have been located in Belize City, and the obvious question -- did it have anything to do with Cynk? -- is not addressed in the documents, so I guess the answer is no.

Rate your boss.

Apparently Barclays will ask junior bankers "to identify the senior colleagues who display best and worst practice in dealing with those with less experience," and then adjust senior bankers' pay based on the results. By a small amount I would guess? I feel like it would be a point of pride to say "I was supposed to get a $25 million bonus, but it was only $24.9 million because I keep screaming at associates."

Apple did a thing.

Here I memorialize the fact that I'm aware that Apple did a thing, and even what the thing was, but honestly there is no need for us to talk about it here. Izzy Kaminska is a human dynamo though.

Things happen.

Are Subprime Mortgages Coming Back? New rules haven't made swaps trading transparent. Obviously Harvard has too much money but in a world where everyone just publicly competed to donate like nine figures for research on one rare disease it's weird to criticize a $350 million donation to a school of public health. Jamie Dimon is "shockingly present." Jerome Kerviel has a new job. Citi is planning to improve its Mexico operations. The Brent crude contango trade. Why aren't more bankers in jail, part eleven thousand. There's another mortgage settlement (Morgan Stanley, $95 million). "If you fancy a slice of beef blood squeezed between two burgers with cheese," a former Wall Street lawyer will sell you that thing. 30somethings are as bad as 20somethings. Eat more Pop-Tarts. Bank Of America Introduces New $50 Underdraft Fee. When Your Prey’s in a Hole and You Don’t Have a Pole, Use a Moray.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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