Voicemail, Waivers and Culture

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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Voicemail is terrible.

But don't get too jazzed about stories of banks eliminating it: They're not really. "JPMorgan Chase & Co. is eliminating voice mail for consumer-bank employees," sure, but it retains its hold in client-facing investment banking. (That hold is a death grip at Goldman Sachs, where I used to work, which might partially explain how Goldman has mostly avoided its competitors' billion-dollar fines for sending dumb instant messages.) This just isn't a story about banks improving the lives of their valued employees by eliminating terrible voicemail, and you can tell because they're not eliminating voicemail for their most valued employees.

Instead this is a story about which customers are valued: JPMorgan's goal is "to save money by cutting staff at branches and nudging customers to automated channels," and cutting the $10 a month cost for tens of thousands of retail employees helps. Making it impossible for customers to speak to a human banker also helps, because then you can get rid of those human bankers. None of these words would make any sense in the context of investment banking, where if a client wants to speak to a human banker, four of them hop on a plane and fly to the client's office the next day, never mind paying $10 for voicemail. 

In a sense this is about inequality, and the diverging fortunes of different bank employees: At the high end, banking remains a human enterprise of valued professionals interacting face-to-face with clients, including, if the clients want, by using terrible terrible voicemail. But at the low end, clients are foisted off on machines and employees' roles become increasingly mechanical and administrative.

Meanwhile, don't sign your e-mails. A broader theme here is: Communicate less. It's fine. Shhh.

Warren v. White.

I mean, it's a thing and I guess we should talk about it, but doesn't it just make you tired? Elizabeth Warren sent a letter to Mary Jo White saying, you know, banks are bad, be more tough, etc. etc. The letter is 13 pages long; the main topics of criticism are (1) that the Securities and Exchange Commission has not yet produced rules requiring companies to disclose the ratio of CEO pay to median worker pay, (2) that the SEC still does some "neither admit nor deny" settlements, (3) that the SEC still gives "well-known seasoned issuer" waivers to big banks that violate rules, and (4) that White frequently recuses herself from enforcement actions because her husband is a lawyer at a firm that represents big banks. The fourth topic is, I mean, personally awkward, but kind of legitimate. ("Get Mary Jo White recused from your SEC case!" could be in Cravath's advertising.) The other three are just pure, dumb symbolism. "Neither admit nor deny" doesn't matter, WKSI waivers don't matter, the CEO-to-median-pay disclosure thing doesn't matter. Banks will not be better behaved, capital markets will not be safer, and workers will not be paid more if the SEC comes around to Warren's views on these matters. These are just expressive concerns, ways to demonstrate that you are Real Mad at the Bad Banks and Rich CEOs. It's fine, I mean, people are mad, expressive concerns are important, but I just cannot believe that excessive granting of WKSI waivers is among America's top 50,000 problems. Politico asks "Did Elizabeth Warren go too far this time?" though the answer is obviously no; people love this stuff for reasons that are entirely beyond me. Meanwhile, here are the SEC's WKSI waivers for the banks who got in trouble for manipulating foreign exchange rates.

Herbalife vs. Ackman.

This also makes me pretty tired, honestly, but there is some good stuff in the latest news about Herbalife and Bill Ackman hating each other. Herbalife is trying to get regulators and prosecutors interested in investigating Ackman for market manipulation, and while there is a lot of blather (both Ackman and Herbalife seem to have been astroturfing some of their respective allies), the central claim seems to be that Ackman knew in advance about a letter that now-Senator Edward Markey wrote to regulators urging them to investigate Herbalife. Herbalife's lawyer "implied that Pershing Square may have altered its bet against Herbalife before the letter’s public release, saying that Herbalife discovered a series of trades that were 'consistent with Mr. Ackman’s ongoing efforts to manipulate Herbalife’s stock.'" Pershing Square denies this. Here's the presentation, noting active trading in Herbalife puts before the letter came out, with "four super-size trades, all in year-ahead contracts." The idea seems to be that Ackman put on big bearish trades on Herbalife just before the letter came out, and then ... what? The Times says, "Whoever placed the trades most likely reaped millions of dollars in paper gains," but it's a bit odd to manipulate markets to create paper gains. If you're knowingly lying about a company to drive its stock down, when you're done, the rational thing to do is to close your short position and take profits. If you just buy puts and hold onto them for a year, it doesn't look like manipulation; it looks like belief. 

Vanguard in China.

The other day we talked about the possibility of index-y global stock funds buying mainland Chinese shares at what look like rather excited prices, and here it is:

Vanguard, the world’s largest fund provider, has chosen to add Chinese stocks listed on the mainland to its flagship emerging market fund.

"There is no doubt that this is a bold move especially given the level at which China’s A shares are currently trading," say analysts. Meanwhile Tyler Cowen's alter ego Tyrone argues that the Chinese stock market is not a bubble: "Did you not know that the Chinese debt-equity ratio is too high? Well, higher equity prices will help lower that ratio, as the government intends." 

Ethics, whistleblowers, and culture.

Here's an interview with Jessica Kennedy, a Vanderbilt business school professor (and former investment banker) (via David Zaring): 

Previous research has often traced ethical misconduct to high-ranking people’s orders. It shows that power leads to bad behavior, in essence. Other studies have shown that the behavior of high-ranking people sets the tone in their groups — that it trickles down.

But I don’t think that presents a complete picture of how unethical practices emerge. In fact, such practices often emerge from groups. For example, prior research has found that people making decisions as a group are more willing to lie than when they are making decisions as individuals. What I found in multiple studies was that high-ranking people are more inclined than low-ranking people to accept what their group recommends to them, even when it represents a breach of ethics. That is, higher-ranking people are less likely to engage in principled dissent and actively oppose such recommendations than are lower-ranking individuals.

Consider questions like "why have no high-ranking bankers gone to jail," "are all the bank scandals about isolated bad apples or pervasive bad cultures," etc. 

Lloyds lost its coco case.

"State-backed Lloyds Banking Group will not be allowed to buy back bonds sold to thousands of retail investors before they are due to mature, Britain's High Court ruled on Wednesday." Those bonds were contingent convertible bonds issued for capital purposes, and Lloyds had a right to call them if, due to ever-shifting capital rules, they became not good capital. Now they are not good capital for current British stress tests, but the court ruled that that wasn't enough, because "they may still be taken into account in future stress tests." Hmm. I mention this because I wrote about these bonds last year and I was rather sanguine about Lloyds's ability to call them at par, so, um, that was obviously wrong, sorry! Elsewhere, "Santander breathes life into CoCo market with total wipeout bond."

Things happen.

People are worried about bond market liquidity. (Also.) Jamie Dimon is a billionaire. Greek debt tracker. There will be new clawback rules for restatements. Cliff Asness: If you're still arguing that smart beta and factor-based quantitative investing "were the result of data mining, you have been completely defeated on the field of financial battle, and you must stop." "Williamson assured investors there was no risk involved and they would receive annual returns of 8 to 12 percent," and guess how that ended up. These New Petrobras Bonds Tell You a Lot About the State of Markets. "Argentine officials said they were probing whether someone logged onto the computer of prosecutor Alberto Nisman hours after his mysterious death in his apartment but before his mother discovered his body." What Drives Interest Rate Spreads in Pacific Island Countries? An Empirical Investigation.  Prosecco manipulation. Chicken murders. "Want a stronger penis? Drink more coffee." Let's Take This Open Floor Plan to the Next Level.

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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