Banker Politicians and Academic Activism

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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Bush on Wall Street.

Here is a generally glowing portrait of Jeb Bush's time working for Lehman Brothers and then Barclays from 2007 through 2014. 

Unlike most former politicians in finance, Mr. Bush was seen as a “commercial,” almost a term of endearment on Wall Street meaning he understood how bankers prepared for meetings, advised clients and made money. He frequently reminded clients he was part of a team and ended meetings with a “thank you for letting us work for you,” or a direct appeal to hire the bank, recalled one former Barclays banker.

I would take out the "almost" there; "commercial" is some of the highest praise in finance, especially for classes of people -- lawyers, compliance, technologists, out-of-work politicians collecting paychecks for their star power -- with reputations for impracticality. But the story is full of adorable moments of Bush playing at being a real banker: flying commercial, walking through midtown talking on a BlackBerry, adding value, talking about adding value. He was doing this not as an employee but as a "senior adviser," spending "about 40%" of his time working for the bank and earning "about $1.3 million a year at Lehman and some $2 million from Barclays," and I have to say that 40 percent of your time seems like a pleasant amount of time to work for an investment bank, particularly for a seven-digit paycheck. Of course Bush was working at Lehman in interesting times; he pitched Carlos Slim on an investment in Lehman in July 2008, which did not succeed. There was someone else whom Bush could have pitched on rescuing Lehman in 2008, but he held off:

Mr. Fuld had weighed asking Mr. Bush to call his brother, the president, and raised the idea to some of his executives, people familiar with the matter said. They urged their boss against it, arguing it would put the Bush brothers in an awkward position, the people said, and they doubted it would help.

There are limits to "commercial."

Activists in the academy.

Here is a story about how all business-school students have crushes on Bill Ackman, which is obviously true. ("There are students at Columbia with the singular goal of getting hired by Pershing Square," says a Columbia professor.) Here's what struck me as weird though:

In 2006, when Harvard Business School professor Robin Greenwood first taught a case study on a 2005 campaign by activists Barry Rosenstein and Carl Icahn against oil-and-gas firm Kerr-McGee Corp., “the overwhelming sentiment in the room was that activist investors were harassing the company and they’re just in it to make a short-term buck,” Mr. Greenwood said.

Now, he said, “a larger portion of students come in with the perspective of the activist,” with students quickly pointing out mismanagement, such as misallocation of resources or underused assets. 

In 2006? Really? I was in law school in 2004, and I feel like back then the corporate-academic consensus was very solidly pro-activist. Like the basic model is separation of ownership and control, agency costs, empire-building, activism and the market for corporate control as the only disciplining force for managements, etc. If anything I feel like academia is now more skeptical of activism than it was a decade ago. Perhaps the students are taking longer to catch up.

This matters:

Activist ideas—chiefly, a focus on maximizing shareholder profits—have found supporters even among students bound for careers as corporate managers.

One aspiring banker says: "'If I invest in this company, how can I make the biggest returns?' Whatever career I end up going into, I’ll always have that in the back of my mind." That feels like the traditional academic consensus, and that consensus is perhaps slipping a bit. There is Lynn Stout, and whatever the ban-index-funds crowd is up to. But that academic consensus is what trains the investment managers and corporate executives and bankers of the future, and it still seems to be pretty pro-shareholder-value.

Elsewhere, "AAC Plunges After President Charged With Murdering Patient," and I suppose the consensus would be that if murdering your customers is bad for the stock price then you shouldn't do it.

Wells Fargo is watching you.

I don't understand anything that is going on here

The lender bought a small stake in Context360 Inc., a startup that makes behavior-predicting technology used by game-makers to retain mobile players. For Wells Fargo, similar technology could help it pitch car loans on Saturday mornings when customers visit dealerships, for example, or block a suspicious credit card transaction, according to Stephen Burke, Context360’s chief operating officer.

Like, one, why do you need to own equity in your marketing or fraud-prevention service provider? Like, this Context360 thing helps companies market stuff. It has customers. Why do the customers also have to be owners? Also one thing that distinguishes banking as a consumer business is that it is not exactly full of impulse-shopping opportunities, unless Wells Fargo is planning to get into payday lending. Like, who takes out a car loan just because his phone tells him to? Or: "Customers may be more receptive to offers or notifications if phone sensors show they are commuting by train, watching soccer practice or otherwise in a place where they can look at their phone." I guess there are some parents watching soccer practices who would jump at the distraction offered by a mortgage-refinancing pitch, but it all feels like the sort of fake ooh-we're-a-tech-company-too stuff I've come to expect from banks talking about technology. "When bankers try to move in these circles it’s like the old stodgy guy trying to be at the hip party," says a guy, and while I don't exactly see what's "hip" about a company that noodges video-game players to keep playing, you know what he means.

People are worried about bond market liquidity.

On Monday the Brookings Institute had a event on bond market structure and U.S. Treasury counselor Antonio Weiss had this to say about electronic trading of Treasuries:

“The constant pursuit to save one more millisecond not only consumes resources potentially better invested elsewhere, but increases the pressure on the plumbing of the system to handle ever-increasing speeds and messaging traffic,” he said in a speech.

And the Fed's Jerome Powell said:

“If trading is at nanoseconds, there won’t be a lot of 'fundamental' news to trade on or much time to formulate views about the long-run value of an asset; instead, trading at these speeds can become a game played against order books and the market rules.”

I feel like equity markets have sort of gotten over these issues? Like, trading on order-book information usefully propagates "fundamental" information into prices. And the arms-race problem -- where building high-speed communications systems "consumes resources potentially better invested elsewhere" -- seems to be in decline, plus, it is not obvious that research into high-speed communications systems is socially useless. But all these conversations are just getting started in the bond market, so look forward to that.

Things happen.

Here is Sujeet Indap's fascinating look at the Merrill Lynch investment banking analyst class of 2000. Puerto Rico is heading toward trouble on its general obligation bonds. More criminal Libor charges are coming. ‘Pete the Greek’ will not face Libor action. StanChart earnings. SocGen earnings. British Government Raises $3.3 Billion in Its First R.B.S. Share Sale. IMF signals doubts on renminbi as reserve currency.  Twitter May Be a Takeover Target, but Google Is Unlikely to Take It Over. R.R. Donnelley is breaking up. "Scott Bessent, who’s been overseeing George Soros’s $30 billion fortune for the last four years, will leave at the end of 2015 to start his own hedge-fund firm." JPMorgan Questioned on Private Bank’s Hedge Fund Disclosures. Rome vs. Milan. Lexus hoverboard. Montauk clamps down on hipsters having sex in public. This 110-Year-Old Woman Says The Secret To Her Long Life Is Drinking Three Miller High Lifes Every Day.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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