Breakups, Mergers and Parody Videos

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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JPMorgan had an investor day.

The financial stuff at yesterday's JPMorgan investor day was to some extent overshadowed by Jamie Dimon being Jamie Dimon, and advocating for things like dogs in branches and 3:30 p.m. cocktails. (Disclosure: I have taken my dog into a Chase branch, and I have had cocktails at 3:30 in the afternoon.) But there was financial stuff too, including news of a "very strong" start to the year in trading revenue, and rousing defenses of JPMorgan staying together both from Dimon and from chief financial officer Marianne Lake. I basically agree with that case, which you can find on pages 8 and 9 of the investor presentation: If you separate JPMorgan into multiple businesses, you lose $3 billion of cost synergies (you need more headquarters staff, etc.), $15 billion of revenue synergies (because there is really quite a ton of cross-selling, including "360+ U.S. Private Bank clients from CB referrals over the last 3 years"), and the lurking but unexpressed cost savings from being too big to fail or whatever. And all you gain is $15 billion of lower capital requirements (meh: Even at a 20 percent cost of capital, that's only worth $3 billion a year, offset by just the cost synergies) and an "Upside driven by multiple expansion," which is more psychological than financial.

I do like that the case for staying together includes the risk to "Retaining management and top talent" if JPMorgan splits up, the implied message being something like: If we were a smaller bank, our managers would quit to go work at bigger banks. It's of course entirely possible that it's efficient for JPMorgan shareholders to pay their executives partly in the non-monetary pleasure of running a giant bank. Also, here is a story about how JPMorgan made $9 (nine American dollars) in Iran-related transactions, which I found irresistible.

Oh a corporate parody video those always go well.

So my first piece of advice to you is, if anyone asks you to appear in a corporate parody video or skit or song or anything, always say no. I know, I know: The person asking you is charming and fun, and your workplace isn't stuffy and humorless, and you will be the ones who finally crack the code of corporate parody and pull off an entertaining and non-awkward video. But, no, you won't. It will be awful. And then it will be on the Internet, and you will regret it so much.

My second piece of advice to you is, if you decide to watch this 10 minute long "Hunger Games" parody video produced by and for Morgan Stanley branch managers, you'll find the first eight minutes or so pretty grim. For one thing, there are no jokes for like the first half of it; it's just straight plot. And then even when there are jokes, matters don't improve much. But then at around the 8-minute mark you will break through the pain and find yourself in a place of deep unreasoning enjoyment, a place where you laugh uproariously at jokes like "Cormley's down. Now that's a shocker," and "What'd you kill him with? Branch Readiness Guide. It finally came in handy." Or that was my experience, anyway, but it probably won't be the same for you, what do I know.

Meanwhile at Goldman.

Footnoted found a new risk factor in Goldman Sachs's 10-K, saying that "our businesses ultimately rely on human beings as our greatest resource, and from time-to-time, they make mistakes." Disclosure: I used to work at Goldman, still own a little bit of restricted stock for a little longer, and when was there the SEC filings didn't say anything about employees making mistakes. Just saying. There's a brief catalog of possible mistakes -- "calculation errors, mistakes in addressing emails, errors in software development or implementation, or simple errors in judgment" -- and what do you think is the story behind "mistakes in addressing emails" making it into the 10-K risk factors? If you received a misdirected e-mail that created a material risk to Goldman Sachs's financial performance, do let us know in the comments. Elsewhere, here is a lovely story about a woman who sold derivatives at Goldman Sachs while being an undocumented immigrant.

Executive comp.

Here is a story with the headline "This CEO May Get $100 Million for Getting Fired" that I guess we should talk about. The chief executive officer is David Pyott of Allergan, who has change-of-control agreements that would result in him getting over $100 million worth of stuff if his job is terminated after Actavis closes its acquisition of Allergan. "The payment would include about $89 million in cash and stock he’d receive in exchange for equity awards that haven’t yet vested," and only about $12 million of it is actual new money. (Here's the filing; the relevant table is on page 105.) The rest is just vesting of stuff he'd sort of already earned, or at least staked a claim to. So another way to put it -- less accurate? more accurate? more psychologically relevant to him? -- is that, without these arrangements, if he were fired after a takeover, he'd lose $89 million of money that he'd thought was already coming to him. Plus the chance to earn a lot more money by continuing to be the CEO -- a chance that is probably worth a lot more than $12 million.

Which, I mean, he'd be fine, but if you stood to lose $89 million on a takeover, wouldn't you try to prevent the takeover? And, as CEO, mightn't you have some success? Yes, Pyott fought tooth and nail to fend off a takeover offer from Valeant, but he did that in part by negotiating the Actavis deal at a higher price. Shareholders are $28 billion richer because Allergan is selling (I mean, that's debatable, but they're $28 billion richer since Valeant announced its first offer, anyway), and that's partly because they gave their CEO the right incentives to agree to a sale. This is all very much a cliché of executive compensation, but that doesn't make it wrong. Meanwhile in less shareholder-friendly incentives, here is the story of how GFI shareholders lost 10 cents a share because the board preferred to go with a deal that favored management.

Some small business news.

Here is just an astonishing story from Steven Davidoff Solomon about how Dish Network saved $3.25 billion on wireless spectrum by taking advantage of a 25 percent discount for "very small businesses." One obvious thing to say is: The Federal Communications Commission shouldn't give "very small businesses" a 25 percent discount on billions of dollars worth of wireless spectrum, come on. But another obvious thing to say is: Dish Network is a very big business! What gives? Well, Dish bid through an 85-percent-owned vehicle; the other 15 percent is owned by an Alaska Native corporation that is also quite large, but that gets to exclude most of its businesses under FCC rules applicable only to Alaska Native companies. Or it did most of its bidding that way; some was even worse:

The rest of Dish’s winning bids — worth about $5.5 billion — were done under a partnership with John Muleta, the former chief of the F.C.C.’s wireless telecommunications bureau, and relied on similar loopholes. As a former government official, Mr. Muleta has no real revenue and so meets the test of being a “very small business.”

Hahaha, just a government official, no real revenue, sure. Anyway, the moral continues to be, any time anyone says anything about small businesses, they are lying. Elsewhere in former government officials, what's Eric Cantor up to?

“I will tell you what he’s contributed has been super,” Ken Moelis said. “The reason is our clients want to get every bit of what they can -- judgment. What you really want is judgment, what do you think will happen in the world. And the world is a big thing.”

Oh!

Productivity advice.

I'm a little late to this, but Lucy Kellaway's excellent productivity advice is to be clever and lazy, and while it is hard to become clever it is easy to be lazy, so you can at least improve on that. Here is a story about baseball that reinforces her message: Players are making themselves worse by always lifting weights and taking batting practice and otherwise doing baseball-y things; the trick is to stop doing that. And here is an article that I'm pretty sure recommends lucid dreaming as a productivity tip:

But what if we could harness the two or three hours a night when we actively dream? What could we achieve if we could take back 10 years of productivity time by learning to lucid dream, so when our bodies are resting our minds are still actively exploring, learning, and growing?

Why would you want to work in your sleep? That doesn't sound lazy at all.

Speaking of learning, and sports, here is a delightful article about how sports video games decide on player ratings, which features Cam Newton visiting an Electronic Arts employee's cubicle to demand a higher speed rating. That employee is described as having "unwittingly adopted a sort of ad hoc Bayesian updating process" to develop his ratings, which is a great way to say "sometimes he learns stuff and changes his mind," though he didn't change his mind about Cam Newton.

Things happen.

A preview of the Berkshire 50th anniversary letter. Capital-regulatory turf warfare. "Barclays analysts led by Jeffrey Meli warn that regulators may have traded extra safety in the repo market and banking system for a new type of 'fire sale' risk in ETFs and bond funds as investors make increasing use of the alternative trading vehicles." Claims about biased credit ratings. "The insider-trading trial of the troubled Brazilian businessman Eike Batista could be thrown into disarray after the judge in charge of his case was found to have been driving one of Mr. Batista’s seized cars." The RadioShack CDS auction procedures. "It allows an investor to set up an encrypted listening station inside a banks’ bond dealing room," which seems cool. "Fifty Shades of Grey" as a parable of late-stage capitalism (see also). Bankruptcy in European soccer. A trip to Mars. Jeffrey Lederer is suing the Daily News for using his photograph on stories about Jeffrey Epstein. "A shoeshine station so you can share a porterhouse with an escort in your socks."

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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:
Matt Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Zara Kessler at zkessler@bloomberg.net