Bank CEOs and Merger Contests

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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Congrats, Jes Staley!

Former Jamie Dimon lieutenant Jes Staley will finally be the chief executive officer at a big bank:

The wrinkle is that it’s at Barclays, a firm where performance is dragging, Chairman John McFarlane has suggested competing with U.S. rivals is futile, the last two CEOs were pressured to leave, and bankers have jokingly revised “RISES,” a company motto, to “CRISES.”

That was a terrible motto to begin with, honestly. Staley will start on December 1, and he apparently plans to go ahead with Barclays's previous plan to shrink the investment bank and stop having so many scandals:

“We will complete the necessary transformation and repositioning of the investment bank to a less capital-intensive model,” as well as “the cultural transformation of the group,” the 34-year veteran of JPMorgan Chase & Co. wrote in a memo to staff Wednesday. “There can be no retreat from becoming a values-driven organization which conducts itself with integrity at all times.”

"He’s got to sell himself to the investment bank as one of the boys, whilst cutting it back and reforming the culture, so it’s going to be a difficult balancing act," says an investor. Elsewhere: John Cryan's Biggest Challenges at Deutsche Bank in Five Charts.

M&A collusion.

"At least three big Chinese companies are competing to" buy Starwood Hotels, but not in the traditional way, by each putting in a bid and letting Starwood pick the best one. Instead they "are competing to win Beijing's approval to bid":

Given the potential size of the deal, the Chinese government wants only one domestic company to make a bid, the people said, so that Chinese companies don’t drive up the price by bidding against one another. Beijing is expected in the next few weeks to make its selection.

You may recall that, a while back, there were some rather hazy accusations that big U.S. private equity firms were doing something like this. If they were, it would have been an antitrust problem: A "conspiracy, in restraint of trade" is illegal, and conspiring with your competitors not to compete on price -- by, say, agreeing not to bid against each other for a company -- seems like a classic antitrust violation. The Justice Department investigated, though nothing came of it, plaintiffs' lawyers sued, and there were settlements totaling almost $600 million. The alleged collusion in the private-equity cases was nod-and-wink stuff, though, insinuations rather than explicit agreements not to bid. China is ... different. I assume you can't incur antitrust liability just by seeking a required government approval to make a foreign investment, but I'm sure that some enterprising plaintiffs' lawyer will have a theory if Starwood is actually sold to one of these Chinese bidders.

Elsewhere in M&A, "SABMiller and Anheuser-Busch InBev will get another week to try to seal a potential takeover deal," and I assume that deal will get a fair amount of antitrust scrutiny. Also, it's hard to make a 10 percent risk-free profit in merger arb these days. 

St. Joe.

Remember five years ago when David Einhorn gave a pretty funny short-selling presentation about how publicly traded Florida real estate developer The St. Joe Company was overvalued? Well, five years later, the Securities and Exchange Commission agreed, and yesterday settled with St. Joe and five former executives and accountants for "improperly accounting for the declining value of its residential real estate developments during the financial crisis." Here is the SEC order, which mentions Einhorn's presentation seven times. Einhorn put on his short position in 2006 and closed it out, at a significant profit, last quarter, just missing that sweet sweet SEC vindication. "After being short for almost 10 years, we decided to declare victory and move on, even though the shares remain somewhat overvalued," his investor letter says. I feel like there are a lot of noisy short sellers these days who might admire his patience.

Health care.

Speaking of noisy short sellers, did you know that Andrew Left of Citron Research, who kicked off Valeant's recent troubles, is sometimes wrong about his short theses? To be fair, he seems to have been wrong about a lot of his Valeant thesis -- "even Left now admits that some of his accusations were off base" -- but it's still more or less working out for him. Meanwhile, "the Federal Trade Commission is examining whether Valeant’s recent acquisition of a company that makes a key component of rigid contact lenses violates anti-trust laws." And Valeant "has become one of the largest source of fees for investment banks among North American companies," having "paid out roughly $703 million in fees to investment banks" since 2010.

Meanwhile, blood-test startup Theranos is also having a rough couple of weeks. "Theranos Device Validation Is Flawed, FDA Inspection Finds." "FDA Inspectors Call Theranos Blood Vial 'Uncleared Medical Device.'" That sounds bad? If you were short Theranos, you'd probably have made a lot of money. But of course you can't short Theranos, because it is not public, and its $9 billion valuation comes from private investments. Relatively small private investments:

In his annual letter to shareholders this year, Prem Watsa, boss of insurer and investment manager Fairfax Financial, compared the touted valuations of unicorns to the capital actually raised. With a price tag outstripping its $400 million of funding more than 22-fold, Theranos was second only to China’s Xiaomi.

Elsewhere: Thanatos. And Turing Pharmaceuticals is hiring!


Speaking of unicorns, here is a story about how Goldman Sachs (and its president Gary Cohn) is spending a lot of time courting Uber (and its founder Travis Kalanick), for fairly obvious reasons (initial public offering fees, improving "Mr Cohn’s personal credentials as a trusted adviser") and in fairly obvious ways (underwriting private fundraising, "investing small amounts of its own money," general hanging out). More generally, many senior bankers are spending a lot of time with tech startups, because massive private companies are an obvious future source of massive fees, and because finance operates as a Maussian gift economy where banks fling free things at potential clients in the hopes that the clients will one day reciprocate by overpaying to raise money. Of course they might not:

Cosying up to young start-ups with unpaid work and other favours can also create “awkward situations”, notes another rival banker, if there is no obvious reward at the end of it. “People will have extended themselves but then they might not get what they hoped,” he says.

Elsewhere in Goldman and tech, "The New York investment bank said it is spinning out a collection of mobile-phone software it developed in-house into a new venture," why not. (Disclosure: I used to work at Goldman, but not, obviously, as an app developer.)

Elsewhere in unicorns, it's "Homejoy at the Unicorn Glue Factory," and imagine telling a class of children that today's arts and crafts project will be done using unicorn glue. It sounds so magical! Yet so sad. And: "The Increasingly Crowded Unicorn Club."

Elsewhere in the language of tech, here's a story about conference room names:

One of the early employees had an idea to name meeting rooms after locations of revolutions, and the CEO broadened the criteria to include any place where collective action happened. Among the 12 conference rooms is a space named Bastille and another dedicated to Liberty Island, where tourists collectively gaze upon a statue. It's unclear if meetings held in Robben Island, a room named after the infamous prison where Nelson Mandela spent 18 years, feel as if they drag on. 

And: "Meet the Startup Designing Breathtaking Office Plant Displays for Tech Giants."

Elsewhere, Twitter's earnings are a good reminder that the public stock market can be a cold and lonely place for any company that is bold enough to leave the enchanted forest of the unicorns. Apple's earnings were good, though.

SEC waivers.

I find arguments about the Securities and Exchange Commission's automatic bar provisions silly and tiring, but the SEC obviously feels differently:

J.P. Morgan has already agreed to pay more than $200 million to resolve allegations by the Securities and Exchange Commission and other regulators that it didn’t make proper disclosures when touting its own investment products to clients over those offered by its competitors, the people said. But the settlement has been held up for several weeks by the SEC’s demands that J.P. Morgan also accept limits on its ability to sell stock or bonds via private placements for several years, the people said.

Hey super whatever. Here is what I wrote about the SEC's automatic bars last time I could muster the energy for it:

It just seems like there is an economy of attention with these things. SEC enforcement is not free. Focusing on one thing makes it harder to focus on other things. Attention to symbolism distracts from effectiveness. An automatic punishment is a convenient time-saver if you usually think the punishment is appropriate, but a wasteful distraction if you often don't.

If you think that the right way to punish JPMorgan for steering clients to its own products -- besides the $200 million fine -- is to shut down its private placements business then, sure, go right ahead. But if that idea would never have occurred to you on your own, it is a bit silly to shut down a big and useful business just because that's what it says on a list of automatic consequences.

Insider trading.

Here's my law school classmate Patrick Radden Keefe on the Newman insider trading decision:

But to anyone who is at all acquainted with the anthropology of the contemporary hedge fund it also represented, unmistakably, a license to cheat. Company insiders share tips for many reasons, not just financial compensation: the person they share the information with may be a friend or a family member, someone they want to impress, someone they owe a favor. And once they pass the tip along it often circulates through a network of people in the investment community.

Or they might share tips because they work in investor relations and are tasked with talking to the investment community! The line between acceptable and unacceptable conversations with companies is hard to draw, and the court, figuring that you should only go to prison for knowingly doing something wrong, drew it carefully. Which, yes, will probably make it easier for professional investors to "cheat," but will also make it easier for them to do their jobs.

People are worried about the debt ceiling.

It looks like a budget bill will get passed just days before the Treasury runs out of money. The bill includes plans to raise money by selling more than 8 percent of the U.S. Strategic Petroleum Reserve, which seems both un-strategic and ill-timed, given the price of oil. There will be a similarly random sale of airwaves. Bloomberg's Joe Weisenthal points out that "funding the government by selling ultra-cheap oil rather than borrowing at ultra-cheap rates" is "completely insane." Things are not so dire as to require a fire sale of random government assets! Debita impendiorum maximorum vendenda sunt!

Also, here is a summary of the bill, which includes a provision to rename the small House rotunda as the "Freedom Foyer."

People are worried about bond market liquidity.

Here's a paper on "The Best Execution of Corporate Bonds":

Using an extensive sample of bond trades by insurance companies, we find that an insurance company entering a trade of similar size and on the same side for the same bond on the same day with the same dealer will receive a better price if it is a more active investor than if it is a less active investor. Trading with the dominant dealer or underwriter worsens these differentials, while greater transparency and smaller trading networks lessens these effects. Our results provide strong evidence of best execution failures in corporate bond trading.

Maybe someone should build an electronic platform with price transparency etc. 

Things happen.

Globo is having a rough week. Glenview had a few months. Carlyle-Owned Hedge-Fund Firm Hands Investors a Big IOU. The WSJ's Hedge Fund Priest Has A Terrible Trade Under His Robe. "Fantasy Sports Control Agency" is just a great name. Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry. Inside the Secretive World of Tax-Avoidance Experts. Ex-ICAP Broker Paid $920,000 in 2010 With One Client: Tom Hayes. IBM discloses SEC revenue recognition probe. Felony debt collection. Commodity Traders Helped Spark the War in Syria, Complex Systems Theorists Say. GWAR covers Cyndi Lauper. "Lobsters are much kinkier than you’d think." Dogs in bars. Drunk utilitarians. Vampire math. Awful poems. Awful burger. Titanic biscuit.

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

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Matt Levine at

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