Banking alliance There is a powerful impulse in modern investment banking toward completism. If you are a good investment banker, and you have a good investment banking client, and they call you up and ask you to do some sort of investment banking thing, your instinct is to do it. More specifically, your instinct is to say "we have the best experts in the world at that thing, and they will drop everything to get right on your project." The main reason you do this is just that you have been trained and socialized to do everything that the client wants you to do; it's a competitive business, and you are always trying to provide the best possible service.[1] Another important reason to say yes is that doing the thing for the client will probably be profitable, and you might get a cut of the profits in your bonus. But a third reason is just that it is generally in your interests to promote the belief that your bank is good at everything. "We have the smartest experts and the best franchise for that," good investment bankers will say about anything, whatever it is, even if they have never heard of it before. You want clients to come to you with their biggest and most challenging and most lucrative assignments, and they're not going to do that if they don't think you can handle anything they throw at you. Obviously this is not a universal impulse, and there are plenty of boutique banks that make a nice living specifically by not doing everything. The current state of European investment banking, in particular, involves a retreat from generalism. We talked last month about Deutsche Bank AG's decision to cut back a lot of services that weren't particularly profitable for it, but that were just sort of a necessary part of being all things to all clients, until Deutsche decided that was no longer the goal. Still it just feels icky, for long-time bankers at (what was) a universal bank, to tell clients that they don't have the capacity to handle something. But there are possible compromises! Deutsche Bank AG and UBSGroup AG this year explored ways to combine their businesses, including talks as recently as mid-June to form an unusual alliance of investment-banking operations, according to people familiar with the discussions. ... The mid-June discussions, held near Milan, included the finance chiefs of both banks, senior investment-banking executives and advisers, some of the people said. The executives discussed ways to swap some operations and intertwine parts of their investment banks but keep the parent companies separate, according to the people familiar with the talks. The people said a concept behind an alliance was to play to the strengths of both lenders, as Deutsche Bank, which remains a big player in its fixed-income trading and structuring business, would get referrals from UBS, which pulled back from some of those business lines several years ago. Deutsche Bank would feed business into UBS's more successful equities franchise, the people said. UBS was interested in some of Deutsche Bank's deal-advisory teams in the U.S., a person briefed on the discussions said. It's like an airline codesharing alliance: We don't fly to equities, and our partner doesn't fly to fixed-income, but between us we can get you anywhere you need to go. And while, historically, referring a customer to a competitor for some necessary expertise would hurt any good banker's pride, now that everyone is shrinking it hurts less. Plus at least you get to keep it in Europe: Better for Deutsche to send customers to UBS and vice versa than for both to lose customers to an American bank that can do everything. Purposes of corporations, etc. Never mind "the purpose of a corporation," there are roughly three basic models of who gets to tell corporate executives and directors what to do: - There is a "shareholder primacy" model that says that directors (and executives) are answerable to the shareholders. On this model, the shareholders are more or less the owners of the corporation. They get to vote to elect the directors, so they're the bosses, and the directors should try to make them happy. This is a very standard and popular model with a lot of intuitive basis in the ordinary facts of corporate life.
- There is a "director primacy" model that says that executives are answerable to the board of directors, and the directors are answerable to themselves. The corporation is its own thing, and the directors are the only people who speak for that thing, and they have to put the interests of the corporation as they conceive them ahead of the demands of anyone else, even shareholders. This sounds very weird to a lot of people when they first hear it, but it actually has some strong support in law and practice. The corporation really is a separate legal entity; it doesn't just do whatever its shareholders want. (Think of a nonprofit organization, which has no shareholders but which does have a board: Whom would they answer to, if not themselves and their own view of the organization's mission?) And the legal regime does in fact give directors a ton of leeway to manage the company however they want, even if shareholders dislike it. The "business judgment rule" insulates most of the directors' decisions from second-guessing by shareholders or courts. Directors can frequently modify corporate bylaws to limit shareholders' ability to nominate new directors, and can implement poison pills to prevent activist shareholders from acquiring too many votes. The law gives directors a lot of independence from shareholders, which must mean something. If the directors aren't really answerable to shareholders, maybe it's because they're not supposed to be.[2]
- There is a "stakeholder capitalism" model that says that directors and executives are answerable to shareholders, and customers, and employees, and society, and so forth, in various hard-to-reconcile ways.
You can, and people do, coherently believe in any of these three models. But they have different implications; you can tell which model people believe in by what they do. If you believe in shareholder primacy, you will want shareholders to have more control of companies. You will want more disclosure, you will want more voting rights, you will want things like "proxy access" and declassified boards that give shareholders more power and directors less. If you believe in director primacy, on the other hand, you will want to reduce direct shareholder democracy and give more power to boards. You will want more limits on activist shareholders, who try to take decision-making authority away from boards and give it to shareholders. You will love the "poison pill," the 1980s corporate-finance tool that allowed boards to reject takeover offers (and that, in its 2010s form, allows boards to reject activist shareholders) without a shareholder vote. If you believe in stakeholder capitalism, you will want to reduce shareholder democracy and unrestricted director power, and give more power to other stakeholders. This is a distinctly minority view in American corporate governance, and stakeholders are more diverse and vague than the other categories, so there is no single unified list of what this might involve. But there are some obvious things. When Elizabeth Warren calls for workers at a company to have representation on its board of directors, that is clearly about stakeholder capitalism: It takes some power away from existing directors and shareholders, and gives it to workers.[3] Last week the Business Roundtable, an organization of chief executive officers of big U.S. companies, announced that it had changed its views on "the purpose of a corporation." The purpose, it said, is no longer just to serve shareholder value; now corporations are supposed to serve customers, employees, society and other stakeholders. It sounded like the Business Roundtable was endorsing stakeholder capitalism. Was it? No, of course not, I said immediately. Obviously the CEOs of the biggest U.S. companies were endorsing director primacy, but by another name. They were saying that they, the CEOs, should have more leeway to prioritize other issues besides shareholder value. "The managers and the board," I wrote, "are the only ones representing all of the constituencies, so they are the only ones qualified to evaluate their own performance." Since then there has been more evidence that I was right. For instance, yesterday a bunch of public benefit corporations came out with a letter to the Business Roundtable saying, effectively, prove it: Outdoor-apparel retailer Patagonia Inc. and 29 other firms challenged multinational companies in a New York Times advertisement Sunday to "walk the walk" and change their legal incorporation status if they are serious about a new way of doing business that treats all stakeholders equally. … Companies that are serious should enshrine those goals by reforming as a so-called benefit corporation, according to the Sunday letter that in addition to Patagonia included Ben & Jerry's ice cream and insurance company Lemonade. That legal structure makes it clear to investors that long-term goals, often including support for environmental and social causes, are on par with, or in some cases ahead of, other goals such as a short-term return for stockholders. If you wanted to be responsible to all stakeholders, you could try to sign up for rules that made you actually responsible to other stakeholders,[4] instead of just deciding for yourself what is in stakeholders' interests. And the Business Roundtable replied basically "lol sure we'll get back to you": In a statement Sunday, the Business Roundtable said it's "gratified by the number of nonprofits," including B Lab and the Just Capital foundation, that have reached out to enage the organization on such issues. "We look forward to working with all of them on next steps." So gratifying, next steps, right. Second, the Council of Institutional Investors came out with a statement last week criticizing the Business Roundtable's change of heart. This is not surprising, really; the CII represents institutional shareholders, so of course it should prefer the shareholder-primacy model. But it makes one really good point: Accountability to everyone means accountability to no one. BRT has articulated its new commitment to stakeholder governance (which actually resurrects an older policy view) while (1) working to diminish shareholder rights; and (2) proposing no new mechanisms to create board and management accountability to any other stakeholder group. "Proposing no new mechanisms to create board and management accountability to any other stakeholder group" is the key point there. If the CEOs said "shareholders will get less of a say because workers will get more," then that would be interesting. But instead they said that shareholders will get less of a say so that CEOs can paternalistically consider the interests of workers, communities, etc., with no new constraints on what the CEOs can do. Third, Marty Lipton applauded the Business Roundtable. Marty Lipton is (my former boss and) the most prominent proponent of the director-primacy view, someone who has spent much of his career protecting boards and directors from shareholder interference. The man invented the poison pill. And he very clearly recognizes that the Business Roundtable announcement is about beating back shareholder primacy in favor of director primacy: The BRT principles are critical to preserving our corporate system which relies on the integrity of managements and boards of directors and on free and open markets. Shareholder primacy was ill-conceived in the first place and has utterly failed to provide for the needs of all stakeholders. The alternative is state corporatism in the form of legislation like Senator Warren's Accountable Capitalism Act. Not many members of the CII would prefer that. "The integrity of managements and boards of directors" will protect the corporation. Making the corporation accountable to shareholders is "ill-conceived"; making it accountable to other stakeholders by law would be "state corporatism"; making it accountable to no one, other than the benign dictatorship of CEOs, is the only path forward. Safety fees (1) My Bloomberg colleague Joe Weisenthal has been trolling people recently with the idea that negative interest rates are in some sense "natural": For most of human experience with most kinds of stuff, you need to pay people to hold on to your stuff for you, so you shouldn't be surprised if you now need to pay banks, or Germany, to hold on to your money for you. This strikes me as pretty sensible. Pimco also recently endorsed natural negative rates, arguing that "in affluent societies where people can expect to live ever longer and thus spend a significant amount of their lifetimes in retirement, more and more people demonstrate negative time preference," which should be reflected in negative interest rates. Scott Sumner points out that negative real interest rates are pretty common in recent history. And here are my Bloomberg Opinion colleagues Brian Chappatta, Karl Smith and Mark Gilbert on the matter. But whatever you think of this as a matter of macroeconomics, it has clear lessons as a matter of marketing. It is a bit of a shift, I suppose, for banks to go from "we pay the highest interest rates around" to "keep your money safe with us for the low rate of 0.1% per month" or whatever, but it's not that much of a shift. I am constantly pitched on "no-fee checking" accounts, which strongly suggests that other people are paying fees to have checking accounts. Why not? The bank keeps your money for you and gives it back on demand, and you pay for that service. Anyway: The ECB's deposit rate of minus 0.4 per cent already costs German banks €2.4bn a year. Some German lenders contacted by the Financial Times, including the country's biggest savings bank Hamburger Sparkasse, said they had started passing on some of this cost to their largest depositors. ... Berenberg, the Hamburg-based wealth manager and investment bank, told the FT that it had negotiated a "safekeeping fee" for any sight deposits that were not covered by asset management mandates. "Safekeeping fee," yes, that is how you do it! Wouldn't you be willing to pay the bank a small fee for keeping your deposits safe? In a pure free market, without the constraints of bank regulation, the bank would allow customers to decline the fee but, then … well, you know. The money gets invested entirely in high-yielding risky securities, and if the bank loses all of it the depositor is out of luck. "Don't look at us," the bank will say, "you didn't pay the safekeeping fee; what did you expect?" But German banks are subject to the constraints of bank regulation, so instead that article is about how the banks are pushing back against suggestions by German politicians that they should be prohibited from passing negative rates on to small retail depositors. "Legal prohibitions are alien to the system, do not help the customer any further and can ultimately lead to dangerous instability on the financial markets," says the Federal Association of German Banks. Safety fees (2) You know what company is entirely unconstrained by regulation, and exists in a pure and unfettered free market? Uber Technologies Inc. I mean, not really—Uber's business is subject to plenty of regulation—but it has a long history of ignoring regulations because Ayn Rand told it to or whatever. Anyway Uber also hit on the idea of charging a safekeeping fee, for amazingly cynical reasons: Some Uber passengers worried about safety, so Uber started charging them a safety fee to make them feel better. It didn't use the money from the safety fee to make anything safer, mind you, but presumably just paying the fee made the passengers feel better? I don't know. There are deep lessons in marketing here: It was April 2014, and Uber was announcing a new $1 charge on fares called the Safe Rides Fee. The start-up described the charge as necessary to fund "an industry-leading background check process, regular motor vehicle checks, driver safety education, development of safety features in the app, and insurance." But that was misleading. Uber's margin on any given fare was mostly fixed, at around 20 to 25 percent, with the remainder going to the driver. According to employees who worked on the project, the Safe Rides Fee was devised primarily to add $1 of pure margin to each trip. Over time, court documents show, it brought in nearly half a billion dollars for the company, and after the money was collected, it was never earmarked specifically for improving safety. … "We boosted our margins saying our rides were safer," one former employee told me last year, as I was reporting a book about Uber. "It was obscene." That's from a New York Times excerpt from Mike Isaac's book about Uber, "Super Pumped"; I should say that Isaac sent me a copy of the book, I read it, and it is excellent, somehow filled with amazing information about Uber that I didn't know already. Iron condors Here's a sentence you never want to hear from your broker: Ms. Pellini, 60 years old, and several other UBS clients said their brokers told them the investment strategy had a lengthy and solid record. Ms. Pellini said her broker, Robert Perlman, told her the strategy had a 17-year history of no losses. "He said: 'If the world came to an end tomorrow, you'd be the only one with any money left,'" Ms. Pellini recalled. Nope nope nope nope nope nope nope! Is he selling you a comfortable spacecraft that will carry you off the planet to a better life when the world ends? No, he is selling you some dumb financial product; if the world ends it will not keep you alive, never mind rich. Also in this particular case the product—it seems to have been an "iron condor" fund, the sort of silly name that brokers generally do not give to truly risk-free products—was pretty vulnerable to market swings and lost lots of money for its customers, who are complaining a lot, but even if it was a totally risk-free asset it wouldn't protect you from the end of the world, come on. As is generally the case in these things, there is nothing really wrong with the product itself; it sounds silly, but it is a way to express a particular set of views about near-term future volatility, etc. The problem is whether the customers who bought it actually had and meant to express that particular set of views, and so the real dispute is over how it was marketed: Were UBS's (quite rich but not necessarily "sophisticated") customers told what the thing was, how it worked, and how it might go wrong, or were they just told "don't worry about the details, you can never lose money"? "Do Immigrants Threaten U.S. Public Safety?" That is the title of this paper by two economists, and the answer is "no," which is not particularly surprising. What is surprising is that it is a Federal Reserve Bank of Dallas working paper, which seems like kind of a bold move in the current political environment. Things happen How Elon Musk Fooled Investors, Bilked Taxpayers, and Gambled Tesla to Save SolarCity. Carney's Libra Idea Shows How the Dollar Is Everyone's Problem. Bankers Head to Saudi Arabia to Compete for World's Biggest IPO. Clients Want to Work With Female Advisers, and Firms Are Taking Notice. The New Pay Gap: What Firms Report Paying CEOs Versus What They Take Home. The case for perpetuities. European Commission plans to simplify eurozone budget rules. Qatari Regulator Fines U.A.E.'s Biggest Lender $55 Million. Asset Managers Say They're Drowning in RFPs. Japan's land of dreamers, robots and folding start-ups. Phantom Knights: A Powerful Catholic Group Is Facing Allegations of Insurance Fraud. "Ms. McClain acknowledged that she had accessed the bank account from space." Every Baseball Team Has a "Wet Guy" Now. "The tragedy of digital media isn't that it's run by ruthless, profiteering guys in ill-fitting suits; it's that the people posing as the experts know less about how to make money than their employees, to whom they won't listen." If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] If the client asks you to do something that isn't an investment banking thing, like hire his nephew, you'll probably do that too. [2] Or maybe it's because corporate managers have historically been more concentrated and focused on these matters, and better at lobbying, than dispersed public shareholders. [3] Some disclosure rules and proposals also look a lot like this. Rules requiring companies to disclose information about CEO/worker pay ratios, or conflict minerals, or the long-term costs of climate change, all seem aimed less at shareholders and more at empowering other stakeholders, though you could argue (unconvincingly) that these are all really about shareholders. [4] This actually seems harder than it sounds, and I am not sure how much "benefit corporation" rules really constrain corporate decisions, but still the idea is nice. |
⇉〖OpenLoad〗 2020 Superintelligence Película Completa En Línea released 2020. story: La vida de Carol Peters se trastorna cuando es selecci...
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