Wells Fargo Sent People Free Money Too

(Bloomberg View) -- Good work Wells Fargo!

Banks mess up a lot. Often they mess up in ways that are not clever and devious but just dumb; the computers won't work or they'll forget to carry a two or they'll lose track of where they put the money. Sometimes something like this will happen, and I will say "hahaha this is not clever and devious but just dumb," and then inevitably people will email and tweet at me to argue that no, that is just what the banks want me to think: Really even their most comical stupid errors are intentional, and you can tell because the errors are always in the bank's favor. The banks often mess up in ways that charge customers more fees; they rarely seem to mess up in ways that give the customers free money. I am not convinced by this, exactly -- some mistakes seem so dumb that they can only be dumb -- but I acknowledge the force of the argument.

So I found it charming that Wells Fargo & Co., which messed up by forcing thousands of customers to buy unnecessary insurance, has now also messed up by sending the wrong people refunds:

In some cases, according to two people briefed on the matter, Wells Fargo has also sent refunds to people who weren’t the bank’s customers; notified those who were harmed of incorrect amounts to be paid; and told people of coming refunds though they had never gotten the insurance.

It's only fair! Wells Fargo became infamous for creating fake customer accounts that damaged the customers' credit and, in some cases, charged them fees. Now it is also creating fake accounts and sending them money. That's how it should be. The penalty for incorrectly taking money from 38,000 accounts should be giving it back, yes, but also incorrectly giving money to 38,000 more accounts. If you're going to get a fake Wells Fargo account, sometimes there should be money in it. 

Good work Uber!

Traditionally the time to settle an embarrassing lawsuit is just before the trial starts and the embarrassing testimony comes out, but Uber Technologies Inc. has never been a traditional sort of company, and so it settled its intellectual-property-theft case with Alphabet Inc.'s Waymo unit shortly after former Uber Chief Executive Officer Travis Kalanick had to explain in court what he meant by telling his subordinates to find "cheat codes" to win the race to develop a self-driving car. Sarah Jeong argues that the settlement -- in which Uber will agree not to use any of Waymo's technology, and will give Alphabet about 0.3 percent of its stock -- "points to Waymo knowing it had a dud on its hands": Sure Uber had said tons of embarrassing things in pursuing former Waymo engineer Anthony Levandowski, but there's not a lot of evidence that it actually used any technology that Levandowski brought with him from Waymo. Perhaps everyone just agreed that Kalanick's testimony would be entertaining -- Waymo's lawyers got to show the "greed is good" clip from "Wall Street" in court -- and that they'd wait until it was over to call off the trial.

There's a well-known phenomenon in which a new CEO who comes into a company has an incentive to announce huge losses immediately. If you write off bad investments, book losses, etc., in your first quarter, everyone will understand that your predecessor is really responsible. And then going forward you will have a clean slate and an easy comp: Everything good that happens will be attributed to you, and will look even better when contrasted against your predecessor's failings. 

You can sort of imagine new Uber CEO Dara Khosrowshahi doing that, but for public relations. "Go ahead, Travis, embarrass yourself as much as possible," he might reasonably think. "Defend your dumbest text messages in open court, why not. There's nowhere for our reputation to go but up." The trick is to clean things out as dramatically as possible, to get the reputation as low as possible right at the start.

Some people like volatility.

Here is a story about a small Colorado hedge fund called Ibex Investors, which bought $200,000 worth of puts on the ProShares Short VIX Short-Term Futures exchange-traded fund back in January. That ETF, which is usually called SVXY, had an accident last week, and Ibex made about $17.5 million on the trade. Good for them! (It's a $350 million fund, so that's like a 5 percentage-point boost to their returns right there.) Eyeballing it, it seems like they bought puts struck somewhere in the $40s in January, when SVXY was trading in the $130s; they closed the position last Tuesday, when SVXY was trading in the $12s. We talked on Friday about SVXY's collapse, and I pointed out that it hadn't collapsed nearly as much as it should have: In the crazy trading of VIX futures last Monday, SVXY's managers failed to track its underlying index, with the result that instead of losing 95 percent of its value over two days, it lost 89 percent of its value. I suppose Ibex isn't complaining too much, but really they should have made a few million more dollars if SVXY had worked as intended. 

Elsewhere, here is an interview with Peter Tuchman, whose job is to be on television when the stock market moves around a lot -- he's a white-haired New York Stock Exchange floor trader who "is known as the most photographed person at the NYSE" -- and who is happy that the stock market is moving around a lot:

A trader likes market movement. It’s like a basketball game. Some are more boring. You want excitement. It’s what you want in a daily confrontation between humans and their money — excitement, anxiety, movement.

The floor of NYSE is the greatest office on Earth. It has energy, people. These are hallowed floors. It’s 120 years old, and every president, every head of state, celebrities have walked this floor. What goes on on this floor will affect world finance on a daily basis. And I’m in the middle of it. I love that. And once my face became what it’s become, I love that part of it, too.

Oh no fine fine his job is to trade stocks, sure, obviously it is very important that he be on the much-televised NYSE floor:

Electronic markets are all fine and good, to a point. What makes what I do so powerful and meaningful and still so important is the human factor on the floor of the stock exchange. We have brokers, human beings, market makers, the human safety net set in place to protect against unruly volatility, artificial intelligence. People see us here and they know a human being is watching over their money and their market. That’s what makes a difference. That’s why I’m still here.

I see this stuff all the time, but no one ever clearly articulates what "the human factor" actually means. Unless, as Tuchman hints here, it means that people like to see other people on television, milling around and gesticulating and generally creating the impression that stock trading is a human business. It's like putting a nature documentary on the television when you leave your dog at home alone: Sure the world is controlled by powers that are vastly beyond his comprehension, but on the other hand, look at the doggies on the TV! Eventually U.S. stock markets will be entirely electronic, and the NYSE floor traders will have no trading whatsoever to do, and they will keep showing up at work anyway and will just get paid by the TV networks instead of by the trading firms.

The plunge protection team.

After last week, you have to sort of admire the Chinese stock exchanges' approach to crashes, which is apparently that if companies don't like it when their stock prices go down, they can just tell the exchanges to stop it:

As of Friday, some 342 stocks listed on the Shanghai and Shenzhen stock exchanges were suspended from trading, up more than 100 from a week ago, according to data from Wind Information Co. The suspended stocks represented close to a tenth of China’s listed companies. ...

This time, the bulk of the trading halts have been voluntary. Some analysts say a likely reason is that big shareholders in many companies have pledged some of their shares towards loans—and suspending trading prevents declines that would trigger margin calls on those loans. Those calls in turn could force shareholders to cough up cash or sell more shares to fund the margin call.

Last Wednesday, Guangdong Golden Glass Technologies, a supplier of building glass, requested a trading halt for up to 5 trading days after its shares dropped 29% the previous week. The company said its biggest shareholder—a private equity fund manager called Luo Weiguang—had pledged over 21 million shares, or 88% of the stake he owns, towards a loan. It also said the share price of the stock had dropped below the level that could trigger margin calls on that loan.

You can see the appeal of a system that lets companies halt trading when their stocks go down. Honestly someone should build a stock exchange around a stronger version of that principle. You could have a rule that stocks can never trade on a down-tick: If you want to trade a stock, the price has to be at least as high as the previous price, or you have to wait. For some companies this might mean waiting forever, but the benefit is that you have a stock exchange that never goes down. I feel like a lot of people would be into that.

Meanwhile I am not sure I can see the appeal of writing margin loans on companies that can just turn off trading when their stocks go down? The way a margin loan works is, you give someone money, she pledges you her stock, and if the stock goes down and she doesn't pay you back, you can sell the stock and use the proceeds to repay yourself. But if she can just ban trading in the stock whenever it drops, then you can't seize and sell the stock exactly when you need to. Instead you just need to hang out for five days and hope that the stock reopens up, or she pays you off in the meantime. I doubt the margin lenders are enjoying the wait.

The circle of life.

Here, fill in these blanks:

Wall Street bankers gorged on fees from [company] as they helped the debt-laden [nationality] conglomerate clinch $[number] billion of acquisitions around the world. They’re set for another bonanza as the company offloads some of those same purchases to stave off a liquidity crisis.

The answers happen to be "HNA Group Co.," "Chinese" and "55," from this article yesterday about how "HNA doled out as much as $200 million in advisory fees during a three-year investment spree" and is now looking to offload $16 billion of assets. 

But it is a perennial complaint. Companies hire bankers to get bigger, and they get too big, and then they hire bankers to get smaller. The bankers are often criticized for this but, you know, they are just doing their jobs. The companies are the ones who are constantly trying to get bigger or smaller; the bankers just execute. Investment bankers are like traders, but slower. They get paid transactionally and thrive on volatility: Up is good, down is fine, boring is the enemy. A buy-and-hold strategy doesn't pay the brokers; churn does.

On the other hand I was struck by this passage in a story about how "Saudi authorities expect to raise SR50bn ($13.3bn) for the state’s finances by the end of the year as they complete settlements with the princes and tycoons rounded up in Riyadh’s corruption crackdown":

Seized assets are being overseen by a group of government officials and private-equity specialists hired to manage the portfolio, the official said.

Assets inside and outside the kingdom, including large amounts of real estate, will need to be sold off over time, he said. “With assets, we need to be careful with the liquidation as we need the market to remain stable,” he said.

It would be a bit awkward to be the outside manager hired to manage billions of dollars' worth of assets squeezed out of Saudi tycoons by imprisoning them at the Ritz-Carlton until they agreed to sign away their fortunes. Generally in a transactional business it is most pleasant if the selling is voluntary.

The crypto.

Here is what I am going to choose to interpret optimistically as a story about how cryptocurrency is reorganizing human society around cheaper and cleaner electricity:

Home to hydroelectric dams that harness the flow of the Columbia River, north central Washington has some of the cheapest power in the U.S.

That has made the largely rural area best known for its apple orchards a magnet for bitcoin miners, who use powerful specialized computers to generate new units of cryptocurrencies—a process that requires vast amounts of electricity to run and cool thousands of machines.

Imagine in 20 years -- and I am not predicting this, but imagine -- if cryptocurrency is central to our economy, and Wenatchee, Washington, has replaced New York City and London as a world financial capital, and it has a population of millions and they all get cheap clean hydroelectric power. Then the fact that Bitcoin wastes a lot of electricity might not seem so important, right? Not if it moves the people and activity to where the clean power is? A while back I quoted Nic Carter arguing that "Bitcoin is a colossal battery that absorbs energy and then releases it anywhere, whenever. Far from being a waste of energy, it's a tremendous opportunity for society to build a better, more efficient energy grid." I still do not exactly believe this, but it is a tempting interpretation of Wenatchee's Bitcoin boom.

Meanwhile, in a nice the-way-we-live-now story, L.L. Bean Inc. is abandoning free lifetime returns policy and is adopting the blockchain instead. The old approach was rugged durability; the new approach is blockchain blockchain blockchain. The trend for 2018 is, replace all business words with "blockchain." "We've gotten rid of lifetime free returns and replaced them with a blockchain." "Our produce is no longer organic but it is on the blockchain." "We are phasing out free checking accounts and adding a blockchain." "You won't have your own desk any more, but you will have a blockchain." "There are no bonuses this year but instead there is a blockchain." "You're being laid off but your job is being moved to the blockchain." 

Things happen.

Barclays Bank Unit Charged by SFO Over 2008 Qatar Loan Deal. Deutsche Bank to Recruit Rookies in Bid to Revive Equities Unit. Glitch Exploited by High-Speed Traders is Back at CME. Comcast Considers Reviving Pursuit of Fox After Higher Bid Was Rejected. Broadcom Secures as Much as $100 Billion of Debt Funding for Qualcomm Bid. Shareholders win a new legal tool to challenge M&A deals. New Tax Law Haunts Companies That Did ‘Inversion’ Deals. "The practice of spending more on variable pay than on permanent raises took root in the 1990s, when growing competition from abroad increased pressure on companies to keep a lid on prices and production costs." What Big Hedge Fund Fees Pay For. ETF market smashes through $5tn barrier after record month. "The SPDR S&P 500 exchange-traded fund (ticker SPY) suffered a record $23.6 billion in outflows last week." Sears Canada Creditors Zero In On Lampert Payments. Drillers turn to big data in the hunt for more, cheaper oil. "The more intelligent and educated people are, the less aggressive they are," says Vladimir Putin. The parents who pay for their child’s MBA. A heartwarming story from r/wallstreetbets. Teens Are Running Away from Home and Spending the Night in Dressers at IKEA. Bisexual Polyamorous Goose Love Triangle Ends In Tragedy.

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

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.

To contact the author of this story: Matt Levine at mlevine51@bloomberg.net.

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net.

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