How do you become chief executive officer of Goldman Sachs Group Inc.? Well here is how you don't, from a 2017 anecdote about former second-in-command Gary Cohn: The board consensus was that Cohn wasn't well rounded enough to lead the firm. "We'd talk about how we'd 'crossed the Rubicon' and he wouldn't know what we were talking about," says a former Goldman board member. And here is how you do, from Sonali Basak's Bloomberg story this morning about how banks have been courting WeWork Cos. founder Adam Neumann: Goldman's efforts were publicly visible in December, when the firm's former CEO, Lloyd Blankfein, palled around with the entrepreneur at a charity event. Taking the podium, Neumann told an audience packed with Wall Street leaders about getting to know Blankfein, marveling at his ability to hold court on any topic. "We have been having so much fun," Neumann said, gesturing to the banker. One time, over dinner, "Lloyd said, 'Ask me anything,' and I said, 'Spanish Inquisition -- go!' And you said so many names and so many things I didn't even know existed. It was amazing." Stay in school, kids! Because there's always a chance that, after years of increasing managerial responsibility, strong revenue generation, aggressive business expansion and prudent risk management, you will be up for the biggest job at the most famous investment bank, and you will go before the board of directors to present your case, and they'll be like "name the leading figures of the Spanish Inquisition and distinguish their motivations." "I didn't expect the Spanish Inquisition," you will say nervously, and everyone will take a moment to appreciate the Monty Python reference before dismissing you in disgrace. How can you advise CEOs on mergers or peddle derivatives or court tech-company founders without a broad humanistic education? There are other possible interpretations. (Also, disclosure, I used to peddle derivatives at Goldman, and I was an undergraduate classics major, so I am doubly biased in favor of the view that running Goldman is good and should be reserved for people with classical educations.) The stereotype is that successful investment bankers must be able to talk confidently but not necessarily knowledgeably about anything that is thrown at them. Notice that Blankfein "said so many names" that Neumann had never heard of. How did he know they were real? I am not saying that Lloyd Blankfein improvised an alternative fantasy history of the Spanish Inquisition in order to impress a tech/real-estate founder who didn't know any better, but it is at least theoretically possible, and also it would be hilarious. The rest of the story is mostly about how Goldman and Morgan Stanley and especially JPMorgan Chase & Co. have competed for WeWork's business in more traditional ways, by giving it (and Neumann) lots of money. They have variously invested in WeWork's earlier funding rounds, committed to its credit facility, bought or securitized mortgages on buildings that lease space to WeWork, loaned money to Neumann secured by his stake, given him mortgages on "his collection of luxury homes," really any possible way of getting money into WeWork's/Neumann's hands, the banks have competed to do it. The traditional reading of this sort of thing is that the banks are jockeying for position in WeWork's initial public offering. The idea is that the IPO is a high-profile and lucrative event for WeWork and also for its bankers, and that all of their hard work and sacrifices and cheap loans and extemporaneous discourses on early modern European history lead up to that big payday (and league-table credit). But I am not sure that is the right way to read this story. After all, one thing that Goldman and JPMorgan did to win favor with WeWork was invest their funds in its stock a while ago at a much lower valuation. That stock is now worth much more than they paid for it, and their clients are happy. That is a win even if they get stiffed on the IPO mandate). Also WeWork has big goofy plans for the future. It's raising a real-estate fund to get into owning its own buildings, but in a structured way. It has sold bonds. "It's a multifaceted financing arbitrage," I have written.[1] A lot of big tech companies have a post-IPO business model that goes roughly like: (1) use your big equity raise to achieve scale, (2) become enormously profitable, (3) the end. Once your company is a gusher of money from zero-marginal-cost products, there's only so much an investment bank can do for you. Facebook and Apple and Alphabet will sell bonds or do structured stock buybacks from time to time, but they are not, for their size, particularly big users of the capital markets.[2] WeWork looks different. A successful public WeWork will constantly be doing stuff in the capital markets, weird stuff, structured stuff, complicated and interesting stuff. Lucrative stuff: Complicated financings are where the money is for banks; WeWork's deals will be competitive but still probably more profitable than boring commoditized financing. Also fun stuff, though: If you're a banker, wouldn't you want to work with a company that is always willing to try strange new ideas and push the boundaries of the possible, rather than a company that just wants to do standard vanilla transactions? You got that broad humanistic education for a reason; don't you want your work life to be challenging and creative too? Weird CDS stuff One thing that I find frustrating, as a person who sometimes writes about weird things going on with credit default swaps, is that there is no good generic term for those things. "Weird things going on with CDS" is appropriately general, but inelegant. There are shorter terms—"manufactured defaults," "net short debt activism"—that roll off the tongue, but they each cover only a small subset of the weird trades that have gotten a lot of attention recently.[3] Regulators sometimes use the term "opportunistic strategies," which is both short and general, but probably too general: Really "opportunistic strategies" describes most of finance, and just buying CDS because you think a company is going to default is, in a sense, opportunistic. This is not just a stylistic problem. If we were talking about one thing, we could describe what it is, and say why it is bad, and discuss how it should be fixed. But we are talking about lots of different things, and if they are bad it is for different and sometimes opposite reasons, and fixing one of the things will not necessarily do anything to fix the other things. Last month the International Swaps and Derivatives Association announced some changes to the CDS documentation to eliminate "manufactured defaults," when a hedge fund that owns CDS on a company bribes the company (usually in the form of a cheap loan) to default on its debt and trigger CDS payouts. I wrote about these changes: One thing I will say is that this covers only a very small subset of the stuff that we talk about around here when we talk about weird CDS trades. Strategically orphaning or un-orphaning CDS to get improved financing terms: not covered. Strategically delaying default in coordination with CDS sellers: not covered. Strategically issuing new bonds to increase the CDS payoff on a default, or strategically buying up those bonds to reduce that payoff: not covered. Net-short debt activism, when you buy some debt, buy more CDS, and then find a technical default that lets you push the company into bankruptcy so your CDS pays out: not covered. Almost the whole range of CDS tricks is still available; one specific trick — one that I am fond of, but that has gotten bad press from regulators and Jon Stewart — is going away. This situation is unsatisfactory to a lot of people because, basically, they don't love tricks. So here is a Bloomberg News article about how regulators want less weird CDS stuff. It features this wonderful passage: Representatives for Wall Street firms say they get it that regulators are concerned. But some tied to the industry want authorities to explain precisely what they don't like and what should be changed. "If regulators want to improve the market -- and I applaud their efforts -- I would really encourage them to share their specific concerns, including concrete examples of transactions they see as potentially harmful to the markets, so we can roll up our sleeves and get to work together," said John Williams, a law partner at Milbank who represents clients who are active in the swaps market. On the one hand, yes, absolutely, my sympathies are entirely with him; if there are things that the regulators don't like, it is really the regulators' responsibility to say what they are. On the other hand, the basic problem here—the "weird CDS stuff" problem—is not one particular set of economic harms. Sometimes weird CDS stuff involves companies defaulting on their debt in unnatural and inefficient ways, and sometimes it involves them avoiding default in unnatural and inefficient ways; sometimes it keeps companies alive in ways that seem unfair to derivatives traders, and other times it kills companies in ways that seem unfair to bondholders. If you care about economic efficiency or bondholder protections or innovation or stability or workers' rights or any other substantive thing, you will like some weird CDS trades and not others; none of those substantive concerns will lead you to want a blanket ban on weird CDS trades. No, the problem here is basically just that there is some group of credit derivatives investors who are really good at reading documents—CDS contracts but also bond and loan documents and judicial decisions—and who use their superior reading-comprehension skills to extract value from other market participants in ways that the other participants did not expect. This seems unfair to some people (the worse readers, regulators, a lot of outside commentators) though not, I should say, to other people; I am more or less fine with it, and I have talked to smart hedge funds who were on the losing end of some of these trades and who were like "yeah, well played, we'll get 'em next time." But if your basic problem with these trades is that some hedge funds are too good at finding loopholes, then John Williams's request will sound suspicious to you. Asking regulators for a specific list of concerns sounds like a way to get into another creative-reading competition: The regulators will write down a detailed description of what they don't like, and the hedge funds (and lawyers) that are best at reading will get to work finding strategies that aren't on the list. My model of all of this is that there is no model, there is no "this," there are just a bunch of different trades that all happen to involve CDS in different ways, and that specific objections to specific trades will have to be addressed by specific actors in specific ways. "Manufactured defaults" seem bad to a lot of CDS sellers, because they break the connection between CDS prices and the creditworthiness of the underlying company, and so CDS market participants got together to lobby ISDA, more or less successfully, to ban them. "Net short debt activism," meanwhile—the situation in which a hedge fund accumulates a position in a company's debt and a larger position betting against that debt via CDS, and then uses its position as a creditor to try to push the company into default—is mainly a threat to companies, and so it is being addressed by companies, which have started to write their credit agreements in ways that prevent net-short creditors from calling defaults. Mary Childs reports at Barron's: Issuers have tried different approaches, including disenfranchisement provisions in loan documents, which disqualify any net-short lender—one whose position might motivate it to push the borrower into distress—from voting its interests. Such lenders must disclose their status. Issuers are also tightening time limits on creditor objections to actions, something that generally wasn't proscribed in the past. … Some documents now mandate a longer "default cure period"—more time for the issuer to fix a problem or ask lenders to waive a breach. What about regulators? What are their concerns? It is sometimes hard to tell, though Childs points out this "truly excellent video"—it really is—from the U.S. Commodity Futures Trading Commission criticizing "opportunistic strategies" in CDS markets and suggesting that the problem is the damage these trades do to the reputation of the CDS market. Sometimes regulators talk in terms of "market manipulation," which is a particularly vague term and one that I don't think really applies to any of this stuff. If I were a regulator interested in weird CDS situations, one place I would start would be with the law of insider trading.[4] A lot of weird CDS trades—manufactured defaults but also "orphaning," where a CDS seller bribes a company to change its debt structure to make CDS worthless—are negotiated between the management of a company, on the one hand, and buyers or sellers of CDS, on the other. Often—always?—the way this works is that (1) the CDS trader accumulates a position in the company's CDS and bonds, (2) the CDS trader calls up the company and says "hey you want to do a thing?," (3) the company says yes, and (4) the CDS trader makes a lot of money. But you could imagine those things happening in a different order. Like, you might buy some CDS after calling the company and suggesting that they do a quickie default on their debt, but before they announce it. It is an oddity of many of these transactions that they are simultaneously (1) material corporate transactions done between CDS participants and corporate managers and (2) arm's-length market transactions done between CDS buyers and sellers. Maybe those things are always kept carefully separate, but a regulator who wanted to crack down on these trades could probably start by asking questions about who knew what when. Payments I write, in this column, about finance, and sometimes about technology, and there is one financial and technological mystery that has troubled me for years and that I can't even begin to figure out. It goes like this: - U.S. dollars are, in essence, a set of computer entries maintained by banks reflecting their customers' bank balances, and another set of computer entries maintained by the Federal Reserve reflecting the banks' own balances.
- The Fed has a computer system that allows banks to transfer dollars to each other (and, thus, to each other's customers) by updating their respective entries at the Fed, subtracting dollars from one bank's account and adding them to another's.
- It takes a long time and is closed on weekends.
It's … on a computer? Like … email … doesn't shut down on nights and weekends? Or take multiple days to deliver messages? The electrons, they just keep showing up at work, they don't need sleep. Why give them any time off? I am sure I could call someone and ask about this, and they would explain it, but I have not done this because the mystery feels so profound and I am a little afraid of the explanation. I am not alone in being baffled; there are payments startups—Venmo is maybe the most famous—whose whole thesis is just "what if we could just pay people immediately?" And while there are a lot of unrelated arguments for cryptocurrency (anonymity, censorship-resistance, etc.), clearly one big part of the early case for Bitcoin was "now you can do payments without going through the traditional U.S. dollar system that takes days." It seems fair to say that "what the heck is up with dollar payments taking so long" is a popular question in modern financial culture. I am sure that many of you are right now typing emails to me explaining how this all makes perfect sense, but please don't bother, because it is going away: The Federal Reserve plans to develop a faster payments system for banks to exchange money, providing a public option to another real-time network built by big banks. The new system would allow bill payments, paychecks and other common consumer or business transfers to be available instantly and round-the-clock, a change from the government's current system that is closed on weekends and can at times take days to settle a transaction. The Fed said it anticipates that the new service will be available in 2023 or 2024, and will support payments of up to $25,000. Yep, in 2024 at the latest, the computer will work weekends, though don't ask it to handle too many digits. Comedy We talked yesterday about a recent paper discussing "analysts' and managers' use of humor during public earnings conference calls." The broad takeaway is that humor is an effective strategy: "Analysts who use humor on conference calls are allowed to speak for a longer period of time and receive longer responses from managers," and "when managers use humor, abnormal returns surrounding the call are higher, and analysts' stock recommendation revisions following the call are more positive." But my readers suggested two important caveats. First of all, one reader asked by email: "Yes, but how did they account for the bad jokes that no one laughed at?" The answer is they didn't! The authors selected for humor "by searching conference call transcripts for editorial tags indicating instances of laughter," tags like "(LAUGHTER)" and "(ALL LAUGHING)." As far as I know conference calls don't have tags for "(AWKWARD SILENCE)"; in any case they didn't search those tags. So they necessarily only got successful jokes, not failed ones. Now this is not as big a caveat as you might think, because, based on the jokes that the paper actually quoted, there is probably no joke so bad that it won't get laughs on an earnings call. These calls are boring and awkward and everyone is inclined to laugh at everything. Still, if the managers tell a joke that, even in those incredibly favorable circumstances, doesn't get a laugh, I am going to assert without evidence that that's a bad sign. Short that stock! That company's going bankrupt tomorrow. Second, there is a possible hidden gender dynamic here. Here is a report in the Harvard Business Review finding that "Making Jokes During a Presentation Helps Men But Hurts Women." Here is a Bloomberg News report noting that "In a study of more than 155,000 company conference calls over the past 19 years, Prattle found that men spoke 92 percent of the time." Earnings-call comedy might generally be a good strategy, because humor generally helps men and most people on earnings calls are men, but that doesn't mean that it works for everyone, and further research might be required to identify when it does. An event Tomorrow I will be doing a conversation with Patrick McKenzie of Stripe Inc. about tech and finance topics. It will be livestreamed on Bloomberg Opinion's Periscope, and on the Bloomberg Terminal at LIVE, starting at 3pm Eastern time tomorrow, August 7. (A recorded and edited version will eventually follow.) Things happen America Needs an Independent Fed. Wall Street Bonuses to Take a Hit From This Year's Trading Slump. U.S. Designates China as Currency Manipulator. U.S. Expands Sanctions Against Venezuela Into an Embargo. The Fall of Barneys Burns a Hedge-Fund Star. 'Brics bank' seeks move away from dollar funding. NYSE Aims to Speed Up Trading With Core Tech Upgrade. Blackstone Unit to Buy Stake in Rival Buyout Firm BC Partners. UBS to Charge Wealthy Clients for Euro Accounts Above 500,000. Robots Are Solving Banks' Very Expensive Research Problem. A 'Wake-Up Call' for Private Fund Investigators? Supercentenarians and the oldest-old are concentrated into regions with no birth certificates and short lifespans. What's going on between Lindsay Lohan and the crown prince of Saudi Arabia? What's Up With '30-50 Feral Hogs'? Was E-Mail a Mistake? 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] Plus it's a favorite of SoftBank's. Basak: "And then there is WeWork's biggest backer, SoftBank Group Corp.'s $100 billion Vision Fund. Bankers have long seen WeWork's IPO as an opportunity to cozy up with the deep-pocketed investment vehicle, potentially gaining the opportunity to cater to its stable of startups for decades." [2] Fine yes some of them have huge investing arms. [3] To take some famous ones: Hovnanian was a manufactured default but not net short debt activism, Windstream was net short debt activism but not a manufactured default, McClatchy was neither. [4] I feel like I have occasionally heard a theory that insider trading in CDS is legal. (This theory might be related to the fact that loans are not securities.) The Securities and Exchange Commission, at least, does not agree. | 
⋗≗⋄〖Film!〗 2020 Rosas do Asfalto PelÃcula Completa En LÃnea released 2020. story: Rosas do Asfalto PelÃcula Completa En LÃnea. △∴∻Rosas do...
Post a Comment