Bored Bankers and Hate-Based Investing

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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RBS is boring.

Here's Bloomberg News:

Rory Cullinan, appointed to dismantle Royal Bank of Scotland Group Plc’s securities unit last month, is leaving the government-owned lender after a dispute with other executives, according to a person with knowledge of the matter.

He disagreed about how to implement Chief Executive Officer Ross McEwan’s strategy to scale back the corporate and institutional bank, said the person, who asked not to be identified because the information is private. 

Here is the Telegraph:

The chairman of Royal Bank of Scotland’s investment bank is leaving just weeks after messages he sent to his daughter were revealed, showing he was “bored” at work.

Rory Cullinan used photo-sharing app Snapchat to send images featuring captions that read: “Not a fan of board meetings xx”, “Boring meeting xx” and “Another friggin meeting”.

The pictures then ended up being posted on Instagram around Father’s Day last year by the investment banker’s daughter, but only revealed in a national newspaper early this month. Mr Cullinan's daughter had uploaded the photos with the message: “Happy Father’s Day to the indisputable king of Snapchat.”

She added -- this is true -- the hashtag #daddylikestoselfie to the pictures. Anyway each of those stories is phrased as "Cullinan will leave RBS after _____," not "because _____," so they can both be simultaneously true. My money is mostly on the Bloomberg version: There was a lot of very fake-seeming public outrage over Cullinan's Snapchatting (meetings are boring!), but surely RBS was more interested in having a clear strategic direction than it was in punishing unauthorized Snapchat use. Still I imagine this happened a lot in his last few weeks:

Banker #1: Here's how I think we should implement the strategy to scale back the CIB.

Cullinan: No I think we should do it this other way.

Banker #1: Oh hey thanks for your input Rory, so glad we're not boring you.

Speaking of board meetings.

Here is a story about how bank supervisors at the Federal Reserve are getting more involved in banks' board meetings:

A bank executive referred to the Fed’s increased focus as “Occupy Board Meetings,” saying supervisors had become a regular presence at director gatherings.

And the Fed is requiring GE Capital to add two independent directors to its board. Independent directors are the norm at public companies, but GE Capital is a wholly-owned subsidiary of General Electric, and it's a little weird to have it managed by independent directors. (Who are they responsible to? The shareholders? The only shareholder of GE Capital is GE.) There is a whiff of good-governance box-checking here that is a bit troubling. The tradeoff with boards is always that they need to work hard enough to provide effective oversight, but not so hard that they're not attractive to the fancy semi-retirees who normally fill them. If board service is no fun, who will serve on boards?

How Carl Icahn invests.

Lumber Liquidators is a company that makes wood floors and that has come in for some controversy lately. Short sellers, and "60 Minutes," say that if you grind up its floors you get lots of formaldehyde; the company responds, well, just don't do that then. Both interesting points. Apparently now Carl Icahn is weighing coming into the stock, though it's not yet clear whether he would be long or short: According to Fox Business's Charlie Gasparino, "Sometimes it comes down to, when Carl makes a move, who does he hate less -- does he hate the longs or the shorts?" This fits well with my view of Carl Icahn that he is no longer constrained by the need to make money on his investments and is just in it for fun. He can't resist the big short-seller controversies -- they're fun -- but he wants to choose the most enjoyable side, which is not necessarily the most profitable. That surely explains Herbalife, where Icahn felt the need to announce that he had "conducted significant analysis with respect to the Issuer" in order to justify going massively long a stock that his then-enemy Bill Ackman was massively short, and then go on television a lot to make fun of Ackman.

Reaction times.

Here's a Bloomberg News article about a research paper finding that algorithmic traders make about $100,000 trading the SPDR ETF and the E-mini S&P 500 futures contract each time new economic data comes out. "They’re not able to make a lot of money from exploiting slow investors following macroeconomic news," says one of the authors. This does not seem likely to change anyone's mind about anything but I pass it along to you as a data point.

And yesterday we talked a little about the trader who made a fortune trading short-dated out-of-the-money Altera call options on Friday, moments before the price spiked on merger news. CNBC's explanation, which I find persuasive, is that this is not a story of advance knowledge but one of lightning-fast reaction to the news. In this case, the news was a Wall Street Journal reporter's tweet shortly before the story came out, and the speedy reaction could well have involved a bot. One thing to think about is: What difference does it make -- in terms of fairness or faith in the capital markets or whatever -- if that trader (1) used a speedy computer program to react faster to public information or (2) had the information a minute before the market did?

Argentina.

Here's the latest on Argentina's troubles paying its local-law bondholders: Citigroup is allowed to pass the payments on from Argentina to Euroclear and Clearstream, "the European-based central securities depositories," but that's where the chain ends: "Euroclear says it will comply with Argentina’s request to make payments only if given authority to do so by US courts." As we've discussed before, sometimes with a map, Argentina's main hope for evading New York federal Judge Thomas Griesa's order to pay its holdout creditors before its other bondholders was to route payments through Europe: European laws and securities depositories have historically been more friendly to sovereign-debt restructuring -- less strict about enforcing pari passu clauses -- than Judge Griesa has been. But Euroclear and Clearstream -- which are basically European, but which have some ties to New York -- seem to fear Judge Griesa enough that the European route is no longer an option for Argentina.

Bernanke blog blogging blogging.

Lorcan Roche Kelly points out that Ben Bernanke's first substantive post at his new blog goes after a two-year-old criticism of his interest-rate policy, and that "if Bernanke is to use his blog to blast all of his former critics, he will have much to write about." But Matt Klein points out that Bernanke's current modesty about the Fed's ability to affect long-term real interest rates does not quite fit with his comments while in office that quantitative easing "significantly lowered long-term Treasury yields." One possible explanation is that bloggers think that the Fed is less powerful than the Fed thinks it is, though my casual assumption was always that bloggers think that the Fed is more powerful than it thinks it is. Elsewhere, Paul Krugman notes that Bernanke's first topic -- "Why are interest rates so low?" -- indicates "what the people he talked to as Fed chair complained about most: not the failure to hit the inflation target, not the persistence of high unemployment, but disappointing returns for rentiers." And Neil Irwin and Tyler Cowen ask what Bernanke should write about.

Me yesterday. 

I wrote about the two federal agents who were charged with fraud and money laundering in connection with the investigation of Silk Road, but I feel like I did not fully convey how outrageous this case is. Ross Ulbricht was convicted of being the criminal mastermind behind Silk Road. His defense was, in part, that he was framed, that someone else was the criminal mastermind behind Silk Road. And now we learn -- what prosecutors knew during Ulbricht's trial, but what the jury did not -- that the government thinks that two of its own agents were assuming other people's identities in order to run criminal schemes on Silk Road. That just really seems like something that would have been relevant to Ulbricht's defense.

Things happen.

"We find that entering the CDX index translates to a spread increase of the underlying single-name CDS." Point72 Asset Management is starting a technology venture capital unit called Honeycomb Ventures. "Most hedge funds aren’t any good, but if you can identify talent early, when they are hungry, you have the potential to generate outsized performance." Some hungry traders made back their money and reputations on the oil crash. "Blackstone Group LP has taken less than four months to raise a record $14.5 billion to buy properties around the globe." YooxNet. Deepak Chopra: Why Wall Streeters need to meditate. Every TV news report on the economy. Last Tuesday it was warmer in Antarctica than in New York. The Queen's palace staff may go on strike. Dill relish.

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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