Wells Fargo Sent People Free Money Too - Bloomberg

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OPINION MONEY STUFF

Wells Fargo Sent People Free Money

Too

Also Uber, SVXY puts, foor traders, margin loans, busy

bankers and crypto.
By Matt Levine

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:

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Wells Fargo Sent People Free Money Too - Bloomberg

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; notifed 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 Offcer Travis Kalanick had to explain in court
what he meant by telling his subordinates to fnd "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 frst 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

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Wells Fargo Sent People Free Money Too - Bloomberg

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 foor 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

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Wells Fargo Sent People Free Money Too - Bloomberg

boring. You want excitement. It’s what you want in a daily confrontation between
humans and their money — excitement, anxiety, movement.

The foor of NYSE is the greatest offce on Earth. It has energy, people. These are
hallowed foors. It’s 120 years old, and every president, every head of state,
celebrities have walked this foor. What goes on on this foor will affect world
fnance 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 fne fne his job is to trade stocks, sure, obviously it is very important that he be on the
much-televised NYSE foor:

Electronic markets are all fne and good, to a point. What makes what I do so
powerful and meaningful and still so important is the human factor on the foor of
the stock exchange. We have brokers, human beings, market makers, the human
safety net set in place to protect against unruly volatility, artifcial 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 foor 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 frms.

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:

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Wells Fargo Sent People Free Money Too - Bloomberg

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 beneft 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 fve 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.

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Wells Fargo Sent People Free Money Too - Bloomberg

Here, fll 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 offoads 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 offoad $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 fne, 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 fnances 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 offcials and private-
equity specialists hired to manage the portfolio, the offcial 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.

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Wells Fargo Sent People Free Money Too - Bloomberg

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 fow 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, Wash. has replaced New York City and London as a world
fnancial 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 effcient 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.

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Wells Fargo Sent People Free Money Too - Bloomberg

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 outfows 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 refect 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:

James Greiff at jgreiff@bloomberg.net

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