Like most of you this week, I was captivated by the college admissions scandal. Some of the details that emerged were stunning: for example, wealthy parents Photoshopping their kids heads to make it appear like they were lightweight crew stars.
And the fall-out from what started as a criminal case is beginning to take shape at places like Stanford, where students are suing the school, saying that their degrees are now less valuable because prospective employers will always wonder if they were admitted to the university on their own merits (seriously?!) And just three days after the scandal broke, one journalist already got a book deal about it. Now that is hustle.
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And speaking of scandals, it’s deja vu all over again in the banking world.
Wall Street firms spent the last few years repairing the damage they suffered to their reputations during the financial crisis.
All seemed to be going smoothly until, well, the banks couldn’t help themselves. First, it was Wells Fargo’s fake account scandal (followed by issues with other consumer businesses such as auto, wealth management, and mortgage). Then it was Goldman’s 1MDB case and Deutsche Bank’s involvement in a money laundering investigation stemming from the Panama Papers (and way too many other examples of wrongdoing to mention).
I guess it should come as no surprise that when Axios and Harris Poll released their annual list of the brands with the worst reputations in the US, three banks ranked in the top 10 – Wells Fargo, Bank of America and Goldman. In fact, Wells was ranked so low that the other four brands with worse rankings were embattled retailer Sears, the Trump Organisation, tobacco company Phillips Morris, and of course, the US Government.
The bad news for Wells continued this week, with CEO Tim Sloan facing a grilling in front of the House Financial Services Committee for the bank’s inability to curb the consumer-related scandals. Maxine Waters, Chairman of the US House Committee on Financial Services, responded that the bank was “too big to manage” while one federal banking agency said it was “disappointed” in the bank for its risk management program and poor corporate governance.
Yet, despite all this bad press, Wells’ board seems tone deaf. Just a day after Sloan testified, the board voted to increase his pay by 5% to $US18.4 million in 2018. Of that amount, $US2 million was a bonus for Sloan’s “continued leadership” in helping rebuild trust in the bank.
“Mr. Sloan shouldn’t be getting a bonus, he should be getting shown the door,” Waters said.
I’m not sure I disagree. Wells hasn’t made many tough decisions in the last year that will help repair their brand. Instead, the bank taken completely superficial steps such as their recent rollout of more “welcoming” ATM alcoves with cushy seating and mood lighting.
As Wells and others face increasing threats from fintechs who have built their brands around consumer discontent with Main Street banks, it’s going to have to do a lot more to win back the hearts and minds of every day people.
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Thanks for reading! Olivia
A 257-year-old asset manager profited from Ariana Grande’s hit single ‘7 Rings,’ and it’s a business Wall Street’s getting excited about
Ariana Grande wanted it. She got it. And a private-equity firm owned by a major asset manager benefitted.
In the fall, the Grammy-nominated pop star went on a Champagne-fuelled New York City shopping spree at Tiffany’s, buying rings for her friends, including her songwriter, who told her they needed to turn the experience into a musical number. Grande’s single “7 Rings” starts by detailing that day and borrows from the 1959 song “My Favourite Things,” which Julie Andrews sang in “The Sound of Music.”
Tiffany & Co. wasn’t the only company to benefit from the song, which spent multiple weeks atop Billboard’s Hot 100 chart. Grande’s managers worked with the Beverly Hills, California-based Concord Music Group to licence the rights to “My Favourite Things,” one of nearly 400,000 copyrights the group owns.
Concord is backed by Barings’ alternative-investments arm, a $US48.5 billion platform that invests in real estate, private equity, energy, and other strategies. Private equity has increasingly set its sights on music licensing, as investors seek strong, dependable revenue streams: No matter the economic climate, advertisers, movie producers, songwriters, and a host of other groups still need to licence songs for their works.
Citigroup is considering working with pot companies as banks figure out ways to chase a $US75 billion market
Citigroup has held talks in recent weeks about how closely it should work with cannabis companies or clients in other industries who want a loan to invest in the marijuana market, according to people with knowledge of the talks.
One particular meeting earlier this year involved Bradford Hu, the bank’s chief risk officer, Ed Skyler, global head of public affairs, and Jamie Forese, the firm’s president and head of the unit that houses the investment bank, according to one of the people. All three sit on the firm’s operating committee.
The executives had seen competitors participating around the edges of the industry, such as by financing purchases of stakes in cannabis companies, and wanted to be proactive in considering how they’d respond if a client came to them with a similar request, one of the people said.
As more states legalise cannabis, more and more banks are looking for reasons to work with an industry that’s projected to reach $US75 billion in the US alone by 2030. More than 430 US banks count cannabis companies as clients in one way or another, according to a December report from the Treasury Department. Another 113 credit unions work with the industry, according to the report.
Citadel’s most recent cuts including two hedge fund managers whose past performance nearly won an Academy Award.
Vincent Daniel and A. Porter Collins, who were featured as characters in the Michael Lewis-inspired movie “The Big Short,” were cut as part of Citadel’s closure of its Aptigon stock-picking unit last week, sources tell Business Insider. They were portrayed respectively by actors Jeremy Strong and Hamish Linklater in the 2015 film about the collapse of the US housing bubble.
Citadel’s performance for the year has been solid, with the flagship Wellington fund returning 4.55% through the end of February, sources say. Last year, when the average hedge fund declined, Wellington returned more than 9%.
Stock-picking has been falling out of favour with investors, however. Managers like Jana Partners and BlueMountain Capital Management have cut long-short strategies this year, Carlson Capital’s stock-picking fund has been bleeding assets, and investors have pulled billions from the space.
Goldman Sachs’ internal idea factory hatched a plan for the Google of Wall Street, and it’s now looking for the next big thing to disrupt the bank
When Goldman Sachs launched an internal idea factory last year, execs didn’t know what they would get. The guidelines were kept vague, in part to spur out-of-the-box thinking.
But one of the winning submissions tells you all you need to know about Wall Street these days.
Goldman selected a project called Neon, a search engine built by the compliance division to find data, conduct surveillance, and detect pattern anomalies. Overwhelmed by the amount of data they had to sort and process and underwhelmed by other off-the-shelf tools, employees created their own.
A future use may be for investment bankers to search for a client’s name (e.g., a big technology company) to get a complete list of colleagues talking to the company on other projects across the bank, learn what meetings are planned, and see which pitch decks or presentations had been prepared in the past.
A top BlackRock exec says it’s struggling to crack the data conundrum, and the process is full of ‘headache and heartache’
Even the world’s biggest asset manager is struggling to crack the data conundrum.
Firms eager to integrate traditional and alternative data in their investment processes to outperform their peers are struggling with data intake and processing.
“The amount of headache and heartache that we spend on this is unbelievable,” Amer Bisat, BlackRock’s head of sovereign and emerging markets alpha portfolios, said at a New York conference on Monday. “It remains a holy grail. It remains something that’s more a promise than a reality.”
BlackRock isn’t the only major financial institution struggling with getting data into a usable format and then using it to augment the investment process.
According to a July 2016 McKinsey article, about half of the time spent by employees in finance and insurance is used for collecting and processing data. That and the large amounts of data involved in the industry make it one of the area’s most ripe for disruption, according to the consultant.
The explosive growth of quant investing is paving the way for ‘super managers’ in the hedge-fund industry
More than a quarter of the hedge-fund industry’s $US3 trillion in assets are run by the 20 biggest firms, according to a new study from Barclays, and that proportion is expected to go only up.
The biggest funds – run by Ray Dalio, Cliff Asness, and Ken Griffin – accounted for 26% of the industry’s assets at the end of 2018, compared to 21% of the industry’s assets at the end of 2013.
The growth has been in an area that all hedge funds are trying to recruit more talent for. Quant funds offered by these managers have grown from 6% of the industry’s assets to 11%, while discretionary strategies – in which investing decisions are by a person or a team of people instead of a machine – have dropped from 9% of the industry’s assets to 6%.
There’s a clear divide in the industry between the biggest and just the big. While the largest hedge-fund managers have gained market share over the last five years, the hedge funds outside of the top 20 that still have more than $US5 billion in assets saw their market share recede.
Quote of the week:
Wall Street move of the week:
- ‘Obscenely overvalued’: Stocks are far more fragile than most people realise – and one expert says traders are making the same mistake they did before the past 2 crashes
- ‘Another break point may be coming’: On the 10th anniversary of the last stock market bottom, a $US160 billion investment chief explains why traders should be getting very worried
- A new ETF is actually paying investors to hold it and it’s the latest sign in how insane the fee war has gotten
In tech news:
- Google has told dozens of employees in its laptop and tablet division to find new jobs at the company, raising questions about its hardware plans
- Car-bomb fears and stolen prototypes: Inside Facebook’s efforts to protect its 80,000 workers around the globe
- ‘Our value proposition goes beyond the Amazons and Nikes of the world’: Snap is going on the charm offensive with a splashy presence at SXSW
Other good stories from around the newsroom:
- Canadian marijuana companies are quietly pushing the Toronto Stock Exchange to allow them to invest in the lucrative US market and it could be transformative for the $US75 billion industry
- A startup that claims to reverse diabetes using Silicon Valley’s favourite diet just hired a healthcare veteran to lead its expansion
- UBS is now sounding the alarm on Amazon taking on UPS and FedEx – and analysts say the logistics giants have ‘limited’ tools to fight back
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