Levine on Wall Street: Beer Bids and Bond Contracts

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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Read your bond contracts!

A rule of thumb for investors' rights is that companies owe shareholders fiduciary duties because they have incomplete contracts, but they have no fiduciary duties to creditors because creditors can carefully negotiate complete contracts. This is not a very good rule of thumb, honestly. The list of outrages committed against shareholders is long, but meanwhile it's not like bondholders really go around reading and negotiating their indentures. Here is Gretchen Morgenson on a Caesars Entertainment exit consent that does not exactly sound like it meets the fiduciary duty standard. But of course it doesn't have to! We've talked about these bonds before; Caesars is so excited to strip its parent guarantee from its subsidiaries' bonds that it's trying multiple avenues -- exit consents, stock issuance, quibbling over words -- to get there.

The BIS Quarterly Review is out.

Every quarter the Bank for International Settlements puts out an interesting review of international economic and financial conditions, and here's the latest. One of the special features is on asset managers in emerging market economies; the BIS authors track how herding behavior among asset managers "accentuat[es] both booms and busts" in those economies. The authors note the concentration of the asset management industry:

In 2012, the share of the largest 20 AMCs was about 40% of the total AUM of the largest 500 companies, or $28 billion. Furthermore, the top five accounted for 18% of total AUM, with the largest player representing nearly 6% of the total. ... The large size and concentration of AUM of asset managers in relatively small and illiquid EME asset markets are a potentially important source of concern. Any decision by asset managers with large AUM to change portfolio allocation can have a major impact on EME asset markets that are relatively small.

The case for counting asset managers like BlackRock as too big to fail probably goes something like that: Because they're so big and concentrated (and herded), if they decide to dump the assets of Economy X then that will be a crisis for Economy X. If Economy X is sufficiently small, there's some fretting in a BIS report; if it is, say, the United States, then there's a too-big-to-fail problem.

How's Eike Batista doing?

Former billionaire Eike Batista ran Brazilian oil company OGX. It went bankrupt. He sold a bunch of shares shortly before it went bankrupt. You do the math. The Brazilian public prosecutor's office did, and now it's charging him with insider trading, though this isn't so bad because "no one in Brazil, where the justice system is seen as lenient on white-collar crime, has ever gone to jail for insider trading." Still. (Actually he has a pretty good defense: "Mr. Batista only sold shares that he was legally required to, since he had pledged them as security on loans that came due." Though I guess margining your stock ahead of bankruptcy can also be insider-trading-y.) Also in 2012 he "issued a put option in which he promised to use his personal fortune to buy $1 billion worth of OGX stock if the company requested it," but then when OGX filed for bankruptcy "it contained a clause specifically releasing him from this commitment," which does not exactly sound great to me. Nor to the prosecutor's office, which describes the put option as "bad faith and fraud."

How's Hank Greenberg doing?

Hank Greenberg, remember, is suing the United States for taking AIG away from him during the financial crisis. But here's a fun fact: "AIG indemnified the Federal Reserve Bank of New York for any payouts from litigation tied to the emergency loans." So if Greenberg wins his lawsuit as an AIG shareholder, the money might come not from the government but from AIG itself -- meaning its current shareholders. That would be ... well that's how almost all shareholder litigation works, so it's not that big a surprise. If he wins, that will be a surprise.

How's Alibaba doing?

Great, so glad you asked. It's planning to raise the price range on its initial public offering to "just below $70," though still with the goal of pricing a bit conservatively; apparently the lines of people everywhere the roadshow goes have converted into a lot of offers. Books are closing tomorrow afternoon in the U.S. and Wednesday elsewhere. Right now the roadshow is in Asia, touting among other things Alibaba's plans to expand in the U.S. and Europe.

Some beer wars.

It's always a little depressing to read about the conglomeration of the drinks industry; I imagine in five years all beer will come either from one global megacorp or from an amateur backyard brewer in Brooklyn. Anyway SABMiller (Miller, Foster, etc.) is worried about a potential takeover bid from AB InBev (Budweiser, Corona), so it's trying to buy Heineken (Heineken, Amstel Light, "the tequila-infused Desperados"). Heineken is not so interested, and since it is family-controlled I guess that is that? Leaving SABMiller open to AB InBev's beery advances I suppose.

Another mortgage settlement.

Don't lie, was HSBC even on your list of companies that would have to settle U.S. mortgage-backed securities cases? How many MBSes could it possibly have sold to Fannie Mae and Freddie Mac? A lot, it turns out; on Friday it reached a $550 million settlement with the Federal Housing Finance Agency. "HSBC is the 18th financial institution to reach a settlement with F.H.F.A.," and where is the over-under for the total? 25? Who's left?

Is McKinsey doomed?

It's probably a little unfair to conclude that based on the "sorry exercise in windy platitudes" that is the McKinsey Quarterly's 50th-anniversary summing-up, but this Lucy Kellaway article is pretty enjoyable anyway.

Things happen.

Bill Ackman is going to list Pershing Square Holdings in Amsterdam. London is heading for a record IPO year. "US$5.6bn HSBC CoCo thrills market." Are startups too silly? Greece was upgraded to B. "Hopes of a bipartisan deal on US tax inversions fade," heh. Vending machine salad. The future might be "Azure, the Cross Saltire of St Patrick Gules, fimbriated Argent, surmounted by the Cross of St George Gules, fimbriated of the third."

Corrects to show Alibaba plans to raise price range for its IPO to "just below $70."

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