Levine on Wall Street: Medicare Leaks and Quiet Periods

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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Deutsche Bank lost some money last quarter.

"It’s very clear that litigation, legacy -- coping with all of that has proven to be more challenging for us and the industry than we would have thought," said Anshu Jain, and indeed the usual litany of foreign exchange, etc., manipulation weighed down Deutsche Bank. Also I mean the European economy isn't great? I suppose stress tests to enhance confidence in banks and get them lending again sort of work at cross-purposes with constant multibillion-dollar fines because banks manipulated everything, but that is the world we live in. Meanwhile Deutsche Bank's chief financial officer is being replaced by Marcus Schenck, a Goldman Sachs partner and former CFO of E.ON AG.

Here's a political insider trading investigation.

The Centers for Medicare and Medicaid Services, which for some reason is abbreviated "CMS" and which "controls more federal spending than the Pentagon," seems to be a bit leaky, and is being investigated for those leaks. One problem is that if you're allocating health spending, you need to talk to the companies who will sell drugs and stuff, and to the insurance contractors who buy them, so you can't live in pristine seclusion. So when you read stuff like "a medical-device-company executive complained that Wall Street was finding out about rules before companies," remember that the companies were supposed to find out about the rules before everyone else. Really, if you're gonna leak to a drug company, leaking to a hedge fund doesn't seem like that big a jump. Another problem, though, seems to be that former CMS employees would go work at outside contractors and then more or less continue to act like CMS employees, which is just weird.

How securities regulation works.

Well here's a dumb story. RBC Capital Markets, a unit of Royal Bank of Canada, was mandated as one of many many junior underwriters on the Alibaba initial public offering, where its job would basically be to collect a $2.5 million check. But a guy at RBC Wealth Management, a different unit of RBC, gave a talk about the fiduciary standard for broker-dealers during the "quiet period" for the IPO, during which the underwriters aren't allowed to talk about the deal. He wasn't an underwriter -- he was just a guy at a different unit of a bank that was nominally an underwriter -- and he didn't really talk about the deal, which he knew nothing about, except as an example in an unrelated discussion. The quiet period rules are meant to prevent the actual marketers of a deal from marketing the deal to unsuspecting investors while the prospectus is being reviewed. This is not that. Nonetheless! Underwriting must be above suspicion, so RBC had to withdraw from the deal and give up its $2.5 million check. Remember Daniel Tarullo's remarks about how "regulators can unwittingly reinforce what I have termed a mere compliance mentality"? What does this story tell you about investor protection? About mere compliance?

Detroit's pension plan was bad.

Here's a sad story of a Detroit municipal employee suing the consultant, Gabriel Roeder Smith & Company, who advised her pension fund. The basic problem is that the pension once had plenty of money, and just gave it away to employees and retirees without worrying about, you know, saving for later, which is after all the purpose of a pension:

Records for her pension plan show a number of anomalies. Not only was pension money spent on off-the-books benefits like “13th checks” and ad hoc death payouts, but some of the actuarial assumptions clearly conflict with reality. For example, Gabriel Roeder assumed that Detroit’s total payroll was growing by 4 percent a year. But in fact, Detroit’s payroll has been shrinking at 5 percent a year since 2003.

All of this resulted in overpayments that Detroit is now trying to get back: The plaintiff here, for instance, was told that she'd have to forfeit $25,000 upon retirement. But those overpayments went to Detroit municipal employees and retirees -- her, and her colleagues and former colleagues -- so it's a little weird that the consultant would have to pay them those amounts again, no matter how inept the pension actually was.

Valeant and Pershing Square and Allergan continue to disagree.

This week was the hearing on Allergan's efforts to get a California federal court to prevent Pershing Square and Valeant from voting their shares -- 10 percent of Allergan -- in their proxy fight to throw out Allergan's directors. The argument is that Pershing acquired those shares after Valeant had taken substantial steps to launch a tender offer, which is a no-no. Valeant/Pershing's response is that they acquired the shares as co-bidders, which makes it not a no-no, and anyway they had no tender offer plans when they bought the shares:

“The record is undisputed that there was an affirmative decision not to pursue a tender offer,” Ackman said in the filing. “This was not some smoke screen -- everyone, including Allergan and its bankers, fully understood that a tender offer was not a viable vehicle to complete an acquisition because Allergan would put in place a poison pill preventing additional stock purchases.”

That would be a better argument had Valeant and Pershing not then launched a tender offer despite Allergan's poison pill. Elsewhere, here are some Bill Ackman-y things that Bill Ackman has said over the years.

Here's the funniest joke in the world.

It goes like this:

"Countries don't owe money to each other, countries owe money to banks," says Ismo Leikola. "If the countries owe money to banks how stupid are the countries to pay. Like the country has an army. The bank has four cashiers and a cleaning lady."

Huh.

Things happen.

A research bibliography on the effectiveness of quantitative easing. Europe's transaction tax is being held up by disputes over what to do with the revenue. Fannie Mae is selling more credit risk to private investors. It's a good time to be an information security officer at a bank. More on copper. Arthur Levitt will be advising two bitcoin companies, BitPay and Vaurum, but nobody's really donating bitcoins to politicians. Matt O'Brien on Peter Thiel on the gold standard, and Matt Klein on the European stress tests. Steve Randy Waldman on rational regret. Harvard is the best university in the world, and the second-best in the U.S. Sororities are expensive. Congrats to the FBI on its millionth Twitter follower. Banksters and vampire squids may be safe from Matt Taibbi for a while. The Eight Types Of People You Meet In Every Office.

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:
Zara Kessler at zkessler@bloomberg.net