Levine on Wall Street: Twitter Bonds and Missing Forms

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.
Read More.
a | A

Twitter is raising some money.

As a former Goldman Sachs convertibles and equity derivatives banker, I can't help but applaud the fact that, a couple of months after hiring a Goldman Sachs banker as its chief financial officer, Twitter has decided to do a $1.3 billion convertible with a call spread overlay. For general corporate purposes. Here's an analyst:

“This is Noto’s first real impact on the company,” said Robert Peck, an analyst at SunTrust Robinson Humphrey Inc. “He’s smart, he’s financially savvy, and understands that whenever the markets give you an opportunity to raise capital that cheaply, you’ve got to either stuff your coffers for a rainy day or make an acquisition.”

That sort of understanding -- that attractive financing rates basically require that you raise lots of money to expand out of your core business -- does seem to be found mostly at public companies, and particularly concentrated in public companies that employ ex-bankers as CFOs.

More on the Dollars.

Here is Ronald Barusch pointing out that Dollar Tree can "require Family Dollar shareholders to decide long before Dollar Tree has completed its own regulatory process and is ready to close," never mind the even more interesting question of Dollar General's regulatory process. As a matter of Delaware law and fiduciary duty he is not a fan of this result, though you can see why companies negotiating deals want to get a little certainty wherever and whenever they can find it. And the fate of the Family Dollar General Tree may be in John Paulson's hands.

Some Argentina.

Argentina's congress has passed legislation to swap its New York bonds into local-law bonds, but even the government at this point knows the plan is dead:

"It is not the wish of a majority of bondholders, as far as I know, to have a big change in the jurisdiction," Economy Minister Axel Kicillof told a number of Congressional committees.

I suppose that leaves open the possibility of a little change in jurisdiction, like keeping the New York bonds but paying them via an Argentine trustee or a Swiss trust. Meanwhile, Elliott won't be able to discover what if any threats Argentina has made against Citigroup, because this case is all about causing collateral pain for third parties in the hopes of influencing the principals.

Some Basel.

Here's the Basel 3 monitoring exercise, which finds that "most large internationally active banks now meet the Basel III risk-based capital minimum requirements," with a total shortfall among 227 sampled banks of just 24.5 billion euros (15.1 billion for the biggest banks) as of December 2013, versus 75.8 billion (57.5 billion) as of June 2013. And the average common equity tier 1 capital ratio among the sample banks is over 10 percent, meaning that for every dollar of assets-the-way-Basel-measures-them, the average bank has at least 10 cents of equity-the-way-Basel-measures-it. Obviously some people want that number to be 15, or 20, or higher, and many of those same people would prefer for the measurements to be different. Still, improvement is improvement.

Some broker preferencing.

What should I think about broker preferencing? It's the thing at popular-darling dark-pool-and-maybe-soon-to-be-stock-exchange IEX where, if Broker X has a client buy order resting at IEX, and then comes in with a client sell order, Broker X's buy order gets priority to interact with that sell order. I don't have particularly strong views either way, and I think the basic idea of it -- get brokers to send their orders to IEX, knowing they'll have priority to interact with their own orders, rather than fragmenting into their own dark pools and internalization operations -- seems appealing. But here is an argument that it will make markets worse, though the main complaint seems to be that "Electronic market makers will have less incentive to post and maintain better prices," and I find that that line of argument rarely moves people these days.

A roundup of disclosure dopes.

When corporate insiders buy or sell stock they have to promptly disclose their transactions with the Securities and Exchange Commission on Form 4. There are a lot of Form 4s filed -- something like a thousand filed just yesterday, for instance. Let's say there's a one percent error rate: Then thousands of Form 4s are messed up every year. And by "messed up" I probably mean mostly "someone forgets to file them," though there are other ways to get them wrong.

Here is a delightfully embarrassing SEC action against various officers, directors, shareholders and companies who did especially bad jobs of disclosing their trading:

“Using quantitative analytics, we identified individuals and companies with especially high rates of filing deficiencies, and we are bringing these actions together to send a clear message about the importance of these filing provisions,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “Officers, directors, major shareholders, and issuers should all take note: inadvertence is no defense to filing violations, and we will vigorously police these sorts of violations through streamlined actions.”

Obviously demanding small fines from people who accidentally messed up these filings is not, like, the highest and best imaginable use of the SEC's sophisticated quantitative analytics. But it's still pretty good! Certainly better for the SEC's computer to catch people who forget to file their forms than for enforcement agents to do it by hand. And if you're not catching the people who forget to file their forms, why would they file their forms?

Things happen.

JDS Duophase. Santander's succession. Big bank bankruptcy revisions. Credit Agricole is nearing a sanctions settlement. "The two least meaningful jobs are fast-food cooks and lawyers." "Like most of the journalists I know, I spend about a third of my workday writing articles, another third making bad jokes on Twitter, and another third deleting press releases." Charlie Munger copies Warren Buffett's "penchant for mixing folksy business wisdom with aberrant sex fetish."

  1. Really? He did that presentation that was like "hi we're becoming Facebook, sorry jerks," which I at least found impactful. Related: Our coming dystopia.

  2. The SEC's crude search tool counts 1,465 if you search on "4," but that includes lots of forms -- 424b5, etc. -- that start with 4 but are unrelated.

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