Maximizing the Value for Shareholders
Suing a company for not following its code of ethics and therefore misleading investors doesn’t fly, but Signet Jewelers settled for $240m . Signet’s 70k female employees sued for discrimination, but the class action is yet to be resolved.
Index funds have a lending-voting tradeoff to make. They can lend their shares to brokers (who lend it to short sellers) and earn fees. However, loaned out shares don’t have a vote. found out that after the SEC relaxed restrictions, index-funds made more shares available for lending. This leads to cases like activists at Gamestop winning board seats with only 7.3% of shares. presents this scenario as one argument for why index-funds do not have as much control over the companies as suggested by their holdings.
Activist investors can also fight for social issues. For example, prodding oil companies to put more atttention on green alternatives. This involves buying millions of shares at said companies, and putting forward motions (e.g. proposing new directors aligned to activists' viewpoint) to be voted upon in shareholder meetings.
To match returns of the broader market, some ESG funds, e.g. BlackRock’s, pick the highest ESG-rated companies in each sector. 8/10 of the biggest U.S. sustainable funds are invested in oil and gas companies.
Criticism of ESGs: Some fund managers use ESG! to sell portfolios as virtue signalling devices. The conversation moves away from fees and performance, to values: Don’t you want to make a difference?
The Chouinards transferred their ownership of Patagonia to the 501(c)(4) Holdfast Collective, which will use company profits (~$100m a year) to combat climate change, and protect undeveloped land. The Chouinards embody the notion that every billionaire is a policy failure.
Look Ma, No Transaction Fees
BNY Mellon had a “standing instruction” forex product. Customer makes an order during the day. At the end of the day, BNY Mellon does the conversion at the [worst] interbank rate [of the day], and the bank doesn’t add any extra spread/commission. Say the euro traded as high as $1.135 and as low as $1.125. BNY’s rate for the standing instruction would be $1.135 for $ -> £, and $1.125 for £ -> $. BNY pockets more money, customers cared about not having explicit fees. The SEC and DoJ termed this as fraud because BNY Mellon’s marketing materials claimed to give customers “best execution”.
Stonks Only Go Up!
Hertz [rental car company] was going bankrupt, and had announced it, but people were still buying its stock. It pocketed around $29m, but of the Hertz shares being traded around, it was responsible for only 8% of it.
Intel’s Premature Earnings Report:
We Were Hacked
Generally, companies make announcements outside trading hours to give traders time to digest the news. Intel announced Q4 earnings ~15min before markets closing at 4pm because the info leaked out. However, it was really a hack. Their Q3 earnings were at a sequential URL ending with “Q3_2020_Infographic.pdf”. Instead of waiting for the press release, why not chill at the probable URL of “Q4_2021_Infographic.pdf”?
On the Value of Things
JPMorgan acquired Frank, a fin-tech company that helps students fill out financial aid forms, for $175m. Frank was valuable to JPMorgan as it boasted 4.25m users, which JPMorgan would have access to and sell financial products that are lucrative. Turns out Frank had ~ 300k real users!
- It Doesn’t Pay to Be Too Ethical. Levine, Matt. www.bloomberg.com . May 1, 2020.
- Codes of Ethics and Securities Litigation. Davis Polk. alerts.davispolk.com . Apr 30, 2020.
- ESG Stocks Are Graded on a Curve. Levine, Matt. www.bloomberg.com . Nov 11, 2019.
- ESG Funds Enjoy Record Inflows, Still Back Big Oil and Gas. Akane Otani. www.wsj.com . Nov 11, 2019.
- Kobayashi Maru. www.epsilontheory.com . Jan 29, 2019.
- A Whistle-Blower Gets a Big Payday. Also PPP fraud, rent and Magic. Levine, Matt. www.bloomberg.com . Jun 5, 2020.
- Maybe the Index Funds Don't Vote. Levine, Matt. www.bloomberg.com . Jan 19, 2021.
- The Index-Fund Dilemma: An Empirical Study of the Lending-Voting Tradeoff. Hu, Edwin; Mitts, Joshua; Sylvester, Haley. New York University. papers.ssrn.com . Dec 22, 2020.
- Goldman Loves a Good Crisis. Levine, Matt. www.bloomberg.com . Aug 11, 2020.
- The GameStop Game Never Stops. Levine, Matt. www.bloomberg.com . Jan 25, 2021.
- The Little Hedge Fund Taking Down Big Oil. Jessica Camille Aguirre. www.nytimes.com . news.slashdot.org . Jun 23, 2021. Accessed Jun 27, 2021.
- Patagonia Has No More Owners. David Gelles; Matt Levine. www.nytimes.com . web.archive.org . www.bloomberg.com . Sep 14, 2022. Accessed Sep 17, 2022.
- JPMorgan Says Frank Was Fraud. Matt Levine. www.bloomberg.com . Accessed Jan 21, 2023.
Tom Toro’s New Yorker cartoon : Yes, the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders.