A bank is a magical place that
transforms risky illiquid long-term loans into safe immediately accessible
deposits. Like most magic, this requires a certain suspension of disbelief. We
live in skeptical times, though, and people who would once have gazed with
childlike wonder on the magic
being worked by banks are now all like, well,
that is kind of a risky mismatch, you should really hold a lot more capital
against all those flighty demand deposits. And so you get stories like "Big
Banks to America’s Firms: We Don’t Want Your Cash":
Many businesses have large sums on
hand and opportunities to profitably invest it appear scarce. But banks
don’t want certain kinds of cash either, judging it costly to keep, and some
are imposing fees after jawboning customers to move it.
The banks’ actions are driven
by profit-crunching low interest rates and regulations adopted since
the financial crisis to gird banks against funding disruptions.
Corporate demand deposits are viewed
as risky funding for a bank, which of course they are; have you seen that
movie? And so regulators, who want to
make banks less risky, discourage banks from taking that flighty short-term
funding and investing it in risky loans. But the exact and only purpose of
a bank is to take flighty short-term funding and invest it in risky loans.
Everything else is ancillary.
Fund advisers.
On Friday, the Securities and
Exchange Commission "published
a report that provides private fund industry
statistics and trends, reflecting aggregated data reported by private fund
advisers on Form ADV and Form PF," and it is kind of a delight. I mean,
I struggle a little to find much meaningful information in the
aggregates: The hedge fund industry (the majority of the assets covered by
this report are in hedge funds, though private equity, venture capital and
real estate funds are also represented) is too heterogeneous for
generalizations to be all that useful. (The New
York Times struggles too, pointing out as
highlights that "The use of derivatives by funds rose to $14.8 trillion
from $13.6 trillion, but derivatives made up a smaller portion of total net
assets, 221 percent versus 256 percent," and that very very few hedge
funds "use high-frequency trading strategies.")
But the
report at least points to that
heterogeneity. The SEC finds $3.4 trillion of net asset value in 8,635 hedge
funds as of the last quarter of 2014, with $2.7 trillion of that in 1,541
"qualifying hedge funds," that is, funds with at least $500
million under management that are managed by advisers with at least $1.5
billion under management. Of about $2.7 trillion in qualifying funds,
on my reading, 20.8 percent is managed by the top 10 advisers, and 30.2 percent
by the top 20. So by my math the average top-10 hedge fund adviser has about
$56 billion under management, while non-qualifying hedge funds -- the large
majority of the funds reporting to the SEC -- average something like $100
million.
Deutsche Bank.
I used to work at Goldman
Sachs, where the cultural and structural divide is pretty clearly between investment
banking, on the one side, and sales and trading, on the other, so it always
puzzled me that the big universal banks tend to have divisions that are like
retail banking, commercial banking, credit cards, mortgages, etc., and then
investment-banking-and-sales-and-trading as one big unit. Investment banking
and sales and trading seem so different! I suppose they are more like each
other than they are like credit cards, but still.
I guess Deutsche Bank was never that
big on credit cards, but now it
will split its Corporate Banking and
Securities business into two units, more or less Corporate Banking (and
investment banking) and Securities (sales and trading). This comes as part of a
bigger
management reshuffling under new
co-Chief Executive Officer John Cryan:
As part of the reorganization
announced Sunday, Deutsche Bank will abolish its 19-member group executive
committee as well as 10 of its 16 management board committees while expanding
the board to 10 members from eight and supplementing it with four general
managers.
“We want to create a better
controlled, lower cost, and more focused bank that delivers long-term value to
shareholders,” Cryan said in a statement.
Here is a guide
to the changes, which also include splitting asset
and wealth management in two (dividing high-net-worth clients and
institutions/funds) and lots of personnel shuffling (including the departure
of "several longtime executives
close to recently departed co-CEO Anshu Jain" and the
probable addition
of "the first women on
Deutsche Bank’s board since Ellen Ruth Schneider-Lenne’s death in 1996").
Elsewhere, Credit
Suisse's strategy under Tidjane Thiam may follow
the example of UBS, with "cost cuts, a sharpened
investment bank focused more on equities and less on credit and currencies, and
the possible disposal of Credit Suisse’s subscale U.S. private bank."
A story about equity derivatives.
I found this
story a little hard to understand, and I
used to sell equity derivatives for a living, but the gist of it seems to be
that the government of Papua New Guinea bought a big chunk of shares in a
company called Oil Search, funded and collared by UBS, in a deal that delighted
bankers but is otherwise controversial:
Through a series of leaked documents
and interviews Fairfax Media has reconstructed what UBS insiders describe as
one of the "most amazing deals" the bank has ever done. Others,
however, say the amazing part is that the bank was able to get away with it.
They see a cash-strapped government getting stitched up.
Bankers often find
that outsiders don't fully appreciate their most beautiful derivatives
deals.
Speaking of unappreciated beauty,
here is another somewhat hard-to-follow
story about a banker who "claims he
was fired so his boss could take the credit for his idea to save Barclays £51.5
million and boost his own bonus." Barclays Capital Services had done a
551.5-million-pound deal with an Italian bank that was then rejected by the
Bank of Italy, which "left the Italian bank desperate to reclaim the fee
they were in the process of paying to Barcap," apparently 51.48 million
pounds. But "Barcap refused to give up their fee leaving the two
banks in a standoff and staff desperate to rescue the long-standing profitable
relationship." And in swooped our hero, whose "genius solution"
was "an 'unwinding' or undoing of the original transaction which had
caused the problem." I ... don't understand why that is genius? Like, one,
that seems obvious, but two, I am not sure how it gets Barclays paid? Anyway
now he's suing, so perhaps we'll find out.
A story about training quizzes.
Don't cheat
on them? "Goldman Sachs Group
Inc. is dismissing about 20 analysts globally in offices including London and
New York after discovering they had breached rules on internal training
tests," and JPMorgan "fired 10 employees for similar offenses last
month." The question is whether this shows that trading is an
industry full of cheaters, or whether it shows that trading is an
upstanding business with zero tolerance for cheating. That is kind of a boring
question though.
People are worried about the debt
ceiling.
Look, people are incessantly,
noisily worried about bond market liquidity, but I like to flatter
myself that my sheer persistence in chronicling those worries in
every single edition of Money Stuff has helped to get them attention
in the corridors of power. Now we have a problem with the debt ceiling. The
problem is that Congressional Republicans may
refuse to raise the debt ceiling, leading to a catastrophic and pointless
default by the U.S. on its obligations. On Friday, the Treasury announced
that "There is Only One Solution to
the Debt Limit," which is for Congress to raise the debt limit.
Treasury specifically ruled out a couple of tricks to get around the
debt limit:
Some commentators have suggested
that the President could invoke the Fourteenth Amendment of the Constitution as
a justification for issuing debt in excess of the debt limit. Others have
suggested that Treasury could mint and issue a large-denomination platinum coin
to obtain cash without exceeding the debt limit. But as we’ve said
before, the Fourteenth Amendment does not give the President the power to
ignore the debt ceiling. And neither the Treasury nor the Federal Reserve
believes that the law can or should be used to produce platinum coins for the
purpose of avoiding an increase in the debt limit.
But another trick goes strangely
unmentioned: There are those who believe that Treasury can issue
super-high-premium bonds to raise money
that is not subject to the debt ceiling. It's a little weird, and would require
Treasury to change some of its own plumbing, but as an emergency measure it
seems workable, and the time to change the plumbing is before the
crisis. (I know, I know: That is bad game theory.) I don't know why Treasury
didn't address this trick, but my worry is that it's just not on
Treasury's radar. So if I can do my part to solve the debt ceiling
crisis by ending every Money Stuff with "Debita
impendiorum maximorum vendenda sunt," then that's what I'll do.
People are not worried about China
selling Treasuries.
I keep reading articles about how no
one is worried about China dumping all of its Treasury holdings, which
makes me think I'm missing something. Here's the
latest, from Bloomberg. Here are previous
iterations from Bloomberg, FT
Alphaville, the Wall
Street Journal, Barron's, Slate, CNBC, and Noah
Smith here at Bloomberg View. Of
course Zero
Hedge is worried.
People are worried about stock
buybacks.
My toy
theory of stock buybacks is that the
public equity markets are for returning cash to investors, and that those
investors can then re-allocate that cash to earlier-stage, more innovative
companies that need money in private markets. So if S&P 500 companies are
spending almost all of their income on buybacks, that is not a sign that
American capitalism is out of ideas; it is just a sign that the ideas are
elsewhere. But here
is J.W. Mason with a systematic demolition of
that toy theory:
IPOs in 2014 raised a record $90
billion for newly listed firms. (Over the past ten years, the average annual
funds raised by IPOs was $45 billion.) Secondary offerings by listed firms
totaled $180 billion, but some large fraction of these involved stock-option
exercise by executives rather than new funding for the corporation. Prior to an
IPO, the most important non-bank source of external funding for new companies
is venture capital funds. In 2014, VC funds invested
approximately $50 billion, but only $30
billion of this represented new commitments by investors; the remaining $20
billion came from the funds’ own retained profits. (And there is some
double-counting between VC commitments and IPOs, since one of the main
functions of IPOs today is to cash out earlier investors.) Net commitments to
private equity funds might come to another
$200 billion, but very little of this represents
funding for the businesses they invest in — private equity specializes, rather,
in buying control of corporations from existing shareholders. All told, flows
of money from investors to businesses through these channels was probably less
than $100 billion.
Meanwhile, total shareholder payouts
in 2014 were over $1.2 trillion. So at best less than one dollar in ten flowing
out of publicly-traded corporations went to fund some startup.
People are worried about bond market
liquidity.
Ugh, they just aren't this morning,
sorry, though I'm jaded enough to expect that they will be again tomorrow.
The rule of thumb is that if I can't find a bond market liquidity story on
Monday, Beyoncé will release an album about bond market liquidity on Tuesday. Meanwhile,
though, people are worried about bond
market income. There isn't much of it, is the
worry, and it creates weird dynamics for investors and issuers alike.
Things happen.
Morgan Stanley Misses
Estimates on Drop in Bond Trading Revenue.
Wave of Megadeals Tests Antitrust
Limits in U.S. Puerto Rico Governor’s Fiscal
Oversight Plan Raises Doubts. China Economic
Growth Falls
Below 7% for First Time Since 2009. Report
Warns of Chinese
Hacking. Hedge Fund Saba Capital Calls Redemption
Lawsuit A Malicious Attack, Denies
Impropriety. South African Probe Finds Currency
Traders Shared Details. Detention of
networker extraordinaire Sam
Pa creates shockwaves. Here at
Bloomberg View, Antonio Weiss argues
against re-privatization of Fannie Mae and
Freddie Mac. Four Ways of Looking at a TBTF
Subsidy. You don’t really need 8 hours of sleep. Abolish
prison. Wealth
therapy. ‘Pizza
Rat Boulevard’ Briefly Comes to Brooklyn. Is the world real?
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 mlevine51@bloomberg.net To contact the editor responsible for this story: Zara
Kessler at zkessler@bloomberg.net
http://www.bloombergview.com/articles/2015-10-19/unwanted-deposits-and-bank-reshufflings?AID=7236
No comments:
Post a Comment