Social Finance and Broker Complaints

Also more Chan Zuckerberg, boring banking, Uber, etc.

Social finance.

If you click on only one link in today's Money Stuff, you might as well make it this one, which goes to a photograph of SoFi chief executive officer Mike Cagney sitting in his shorts on a leather couch next to big Harvard and Dartmouth pennant pillows in an otherwise sparsely furnished and strangely lit room. I could stare at it for hours. It's attached to this Bloomberg Businessweek article about SoFi, or Social Finance, the ... social ... finance ... company that wants, in Cagney's words, to "kill banks." In the picture, Cagney looks like he has killed some banks and stored them in his freezer. No one could look at that picture and confuse SoFi with a traditional bank, even with the Harvard pennant.

The rest of the story is about how SoFi "is betting that by making millennials feel as if they belong to an exclusive club," it can make a lot of money lending to them. It sounds nice, though in sort of a boom-time and hard-to-scale way:

When borrowers lose their jobs, SoFi allows them to stop making payments temporarily and lands them interviews with potential employers. If a customer wants to start a business, SoFi provides a six-month break from loan payments—and makes introductions to venture capitalists.

Also there are cocktail parties and bowling. At FT Alphaville, Kadhim Shubber is skeptical of SoFi's claim that it is "happily not a bank," pointing out that its originate-to-distribute model is not really all that different from what banks do.

Broker grievances.

Meanwhile in traditional finance, here is an amazing story from Nathaniel Popper about a former JPMorgan broker who "complained in 2013 that JPMorgan was pressuring brokers like him to sell the bank’s own mutual funds even when the offerings from competitors were more suitable," and went public with those accusations (and secret recordings backing them up). But then "complaints from some of his former clients in Arizona began showing up on his disciplinary records." But at least some of the clients didn't write the letters. JPMorgan did:

Carolyn Scott, the ostensible author of one of the letters complaining about Mr. Burris, said in a recent interview with The Times that she had not written the document, but had signed it without knowing the contents after a JPMorgan employee had told her it was something that could help her “get some money back.”

“I was stupid enough I didn’t read it myself,” Ms. Scott said. “I had no problems with Johnny. No problems whatsoever.”

Another man who supposedly wrote a letter of complaint was, it turned out, essentially unable to read or write, and said in an interview that he had never had an issue with Mr. Burris.

JPMorgan has an explanation, but it is not what I would call wholly compelling. I frequently mention that it is hard to tell whether any given whistleblower is a righteous warrior for the truth, a paranoid crank, or someone who tends to witness fraud because of his own particularly affinity for fraud. But once a bank is caught smearing a whistleblower with fake customer complaints, you kind of have to give the whistleblower the benefit of the doubt.

The Zuckerbaby takes continue.

Here is Mark Zuckerberg's own explanation of why his strangely controversial Chan Zuckerberg Initiative is structured as an LLC rather than a foundation: "By using an LLC instead of a traditional foundation, we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively." But for Zuckerberg's critics, the tax benefit thing remains a sticking point. Here is Jesse Eisinger:

Zuckerberg didn’t create these tax laws and cannot be criticized for minimizing his tax bills. If he had created a foundation, he would have accrued similar tax benefits. But what this means is that he amassed one of the greatest fortunes in the world — and is likely never to pay any taxes on it. Any time a superwealthy plutocrat makes a charitable donation, the public ought to be reminded that this is how our tax system works. The superwealthy buy great public relations and adulation for donations that minimize their taxes.

This is not untrue, exactly, but especially in cases like Zuckerberg's, they also give away a lot more than they'd have paid in taxes. You have to keep this straight. If you have $50 billion and give away $45 billion, you have saved yourself (say) $20 billion in taxes, but you have also given away $45 billion, which is more. Zuckerberg is not somehow pulling a fast one that makes him richer. He is making himself much, much poorer, albeit still very, very rich (and only very gradually poorer). Eisinger is right that Zuckerberg will be allocating his money himself, rather than letting President Trump decide how to spend it, and there is some reason to object to that on political-procedural grounds. I see less of an objection on substantive grounds, even if Zuckerberg's own record of charitable success so far might be spotty. Here is an optimistic take from Felix Salmon:

When Eisinger asks about the kind of good that Zuckerberg’s billions would do if they were ploughed into job creation or infrastructure spending, he’s essentially saying that philanthropies have a quasi-statal role. And maybe some of them do. Non-profit universities, for instance, do almost exactly the same thing that state-run universities do. But that can’t be the limit of what philanthropy does. Zuckerberg has a bigger vision, as befits someone who already managed to change the world while he was still in his 20s. He wants to make big, long-term investments of the kind that governments can’t or won’t make. After all, even if he just donated the entire $45 billion to the US government, to be used as society sees best, that would be barely one percent of the $4 trillion federal budget. And then it would be gone.

And here is the Harvard Business Review at its Harvard Business Reviewiest, explaining "Why Mark Zuckerberg and Priscilla Chan Should Use Their Money for Fundraising":

Venture philanthropy taught us that innovation was the big lever. It said, “Go find the most innovative social enterprises – the ones with the best approaches to ending hunger, illiteracy, etc. — and fund their programs.” That is tragically short-sighted. Innovation is not the big lever. It’s an important lever, but it is dwarfed by the real lever — multiplication. 

Banking is boring.

Here is a story about how a bank is making loans to energy companies secured by those companies' commodity inventories. That is ... that is just what a bank does. That is just business lending. That's not news. Except that the bank is Goldman Sachs, and its commodities business used to look a bit different:

Known as inventory financing, the arrangement, while profitable for Goldman, typifies its new lower-risk, lower-return approach for commodities. Before the financial crisis, the firm’s traders used the bank’s capital to make big wagers on the direction of commodity prices. Now, tougher capital rules, along with the Dodd-Frank financial overhaul law, have chilled that trading business, leaving banks to pursue less-profitable lines of work.

“We’re replacing market risk” with the credit risk of making loans, said Gregory Agran, a global co-head of commodity trading at Goldman. “Commodity finance is part of traditional banking activity.”

It is hard to measure in any definitive way how much more boring banking has become in the post-crisis regulatory environment, but the anecdotal evidence, judging by this boring anecdote, is compelling.

People are worried about unicorns.

Of course no one is worried about Uber, which "is close to completing the raising of a $2.1 billion round of venture capital" at a $62.5 billion valuation, and I have to say that "venture capital" feels like a bit of a misnomer at a $62.5 billion valuation. Especially since the investors include Tiger Global Management and T. Rowe Price. It's just, you know, an equity offering. Bloomberg's Julie Verhage points out that "Uber Is Now Valued Higher Than 80% of the Companies in the S&P 500," bigger than BlackRock, Ford, General Motors, MetLife or, for that matter, T. Rowe Price

Jessica Lessin reports that "the process is being run like an IPO," with a comprehensive roadshow and a range of valuations, although also with "serious" nondisclosure agreements. The distinction between a $2.1 billion round of private financing from a broad range of investors including hedge funds and mutual funds, on the one hand, and an actual initial public offering, on the other, does not strike me as all that substantive, though there is a difference. Lessin:

Mr. Kalanick isn’t keen on going public soon, people tell me, in part because he thinks that the private markets value growth more than the public markets. So going public doesn’t make sense when Uber is still growing quickly, he has said in private conversations.

I suppose a valuation of more than $60 billion makes Uber a sexaginticorn, and I remember back when Uber was a mere quinquagintacorn, just months ago. It has now "raised more than $10 billion and counting," and I still don't entirely know what it needs all that money for, though part of me hopes that the answer will be stock buybacks.

People are worried about stock buybacks.

That was a joke, you don't sell stock to fund stock buybacks. Usually. 

People are worried about bond market liquidity.

Euromoney is unimpressed by the rise of high-frequency trading in the Treasury market:

Just because HFTs do more business on electronic market places does not make them good providers of a customer market-making service to real money or leveraged asset managers. In their investigation of the flash rally in US treasuries last October, US regulators concluded that while HFTs commonly act as short-term liquidity providers, buying and selling frequently in small amounts, they rarely take significant, unhedged intraday positions and are too thinly capitalized to end the day with much net exposure.

This liquidity provision is prop trading by another name and is provided primarily on the basis of immediate profitability, rather than as a service offered in the context of existing customer relationships that are intended to be profitable over time. 

Me yesterday.

I wrote about a pair of alleged spoofing twins

Things happen.

Morgan Stanley Said to Start Cutting Fixed-Income Jobs in London. Corporate debt downgrades reach $1tn. At Yahoo, Pressure for Change Tests Board’s Loyalty to Mayer. BTG seeks buyer for private banking arm. Wachtell Lipton discusses Staggered Boards, Long-Term Investments and Long-Term Firm Value. Carney Backs Effort for Standard Company Disclosures on ClimateDon Blankenship was convicted of a mine-safety misdemeanor. RushCard Called Uncooperative in Debit Card Inquiry. "The evidence suggests that unconventional policy lowered the effective stance of policy below zero." Financial engineering to save the planet. Gun Industry Executives Say Mass Shootings Are Good for Business. At Jewish Summit, Trump Says He's A Good Negotiator Like 'You Folks.' Jia Tolentino on the Pope's album. Men’s Locker Room Designers Take Pity on Naked Millennials.

If you'd like to get Money Stuff in handy e-mail form, right in your inbox, please subscribe at this link. Thanks!

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

    To contact the author of this story:
    Matt Levine at

    To contact the editor responsible for this story:
    Zara Kessler at

    Before it's here, it's on the Bloomberg Terminal.