Where others flee, Barclays boldly doubles down.

Seemingly all are agreed: Mortgages are a bad business to be in right now, what with the rising rates and inflation and generally pervasive sense of economic anxiety ringing the world. And the Bank of England has made clear that it doesn’t look to kindly on the growing concentration of the U.K. mortgage market in the hands of big banks. Which means, on both counts, Barclays is right on cue.

The British bank said it would acquire a roughly $2.4 billion loan portfolio and a servicing business for Kensington [Mortgage Company]’s target clientele of self-employed and other people with unconventional credit profiles…. Kensington’s business model has been to securitize its mortgages and issue bonds to investors, while Barclays said it intends to keep the loans on its books.

Nope, that doesn’t sound at all problematic or like history repeating itself at all.

Barclays Spends $2.8 Billion to Beef Up Mortgage Business [WSJ]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

The economic impact of the end of Roe v. Wade; actually Zendesk will take private equity’s money (just a lot less of it); John Paulson has a new job; and more!

The Controversial Economics of Abortion Law [WSJ]
A group of 240 female researchers who oppose abortion have filed an amicus brief saying that abortion access sets women back. They argue that the legalization of abortion coincided with more women falling into poverty, women reporting lower levels of happiness in surveys and fewer women saying they were in satisfying, long-term relationships.
An opposing group of 154 economists filed their own amicus brief in response, stating that “there is a substantial body of well-developed and credible research” contradicting the anti-abortion brief. They argue that in giving women more control over their child-bearing preferences, abortion legalization led to a range of social and economic benefits for women, including higher educational attainment and more job opportunities.

JPMorgan midyear outlook shocker sees S&P 500 roundtrip to new record [CNBC Pro]
The stock market will likely erase its 2022 losses in the second half as inflation declines and the U.S. economy skirts a recession, according to a top strategist at JPMorgan.

Zendesk drama concludes with $10.2 billion private equity acquisition [TechCrunch via Yahoo!]
It turned down a $17 billion acquisition in February believing it was worth more…. But the SaaS market has shifted dramatically over the last few months, and Zendesk has been caught in the middle of it in a maelstrom of investor drama. Earlier this month, the company concluded it would stay independent, a move that caused the stock price to plunge.

Juul’s Hedge Fund Investors Avoid Disaster [II]
Despite the huge valuation hit taken by the e-cigarette maker, most funds that invested early have avoided the pain suffered by Altria.

Bausch Health Names Hedge Fund Billionaire Paulson Chairman [Bloomberg]
Paulson, who is also the company’s second-largest shareholder, starts immediately…. Once known as Valeant Pharmaceuticals, the company rebranded in 2018 in the wake of a public outcry over drug price hikes and the conviction of a former executive for accepting a bribe.

Republican draft bill would tighten rules for finance firms using customer information [CNBC]
The discussion draft would require the financial institutions to tell customers when their nonpublic personal information is being collected, not just when it’s being disclosed to third parties.
It also would allow consumers to tell financial institutions and data aggregators to stop collecting their data or delete the data they have. In addition, it would expand the definition of personally identifiable nonpublic information subject to the law and companies covered by the bill would have to give consumers the ability to opt out of data collection if it isn’t necessary to provide service.

If you can do something other than mortgages, great. If not…

Jamie Dimon’s pretty pessimistic these days. He sees a hurricane over the horizon that his underlings just haven’t made out yet, with the U.S. economy about to swamped like so many Florida beach houses by the cyclone.

Oh, and speaking of those maybe-soon-to-be-uninsured Florida homes: People aren’t buying as many of them—or any others—as they were thanks to the chill winds of inflation and soaring rates ahead of those ominous spinning clouds. And so the hurricane has already come for JPMorgan’s mortgage business.

The total affected will be more than 1,000 US workers, with about half moved to different divisions within the bank…. “Our staffing decision this week was a result of cyclical changes in the mortgage market,” a JPMorgan spokesperson said in a statement Wednesday. “We were able to proactively move many impacted employees to new roles within the firm, and are working to help the remaining affected employees find new employment within Chase and externally.”

Meanwhile, Wells Fargo’s mortgage business was already not allowed to get bigger, on account of the bank’s singular inability to fix, well, anything, but specifically said much-maligned and much-fined home lending operation. But it can get smaller.

Wells Fargo & Co., the biggest mortgage lender among US banks, has also been laying off and reassigning employees in its home-lending division….

Well, at least unlike their peers they didn’t get canned on a mass Zoom call and then slagged off by their former boss online, or learn via premature severance check. Then again, we are talking about Wells Fargo’s human resources department, so who knows?

JPMorgan Lays Off Hundreds in Home Lending After Rate Surge [Bloomberg]
JPMorgan lays off hundreds of employees in mortgage division as rates spike [CNN]

Bankman of last resort; of crypto and cowrie shells; academics for sale; and more!

Crypto exchange FTX bails out lending platform BlockFi [FT]
[FTX CEO Sam Bankman-Fried] announced on Tuesday that his crypto trading platform FTX has extended a $250mn loan to BlockFi. Just last week, Bankman-Fried helped crypto broker Voyager Digital pull back from the brink with a loan that totalled about $485mn in cash and bitcoin…. “If you have a few ‘Lehman’ events at the same time, concentrated, then it could impose crypto winter for a very extended period of time. FTX has the balance sheet to support these businesses, and it’s in their long-term vested interest to see this ecosystem survive.”

The Fire Burning Beneath Crypto’s Meltdown [WSJ]
The cryptocurrency implosion currently under way followed rampant creation of new digital money, something that never ended well in the traditional world either.
The question for crypto enthusiasts is which lesson they should take from history. Are bitcoin and other crypto tokens crashing because of the usual excesses that accompany advances in finance? Or do they have the sort of fundamental flaws that will see them join cowrie shells and Sweden’s 20 kg (44 pound) copper coin as historical relics?

Stock Rally Follows Biggest Hedge-Fund Shorting Binge Since 2008 [Bloomberg]
There are signs that short covering may be at work during Tuesday’s market bounce. As the S&P 500 climbed more than 2% as of 12 p.m. in New York, a Goldman basket of the most-shorted stocks surged by almost twice that…. “Managers increased micro and macro hedges amid the sharp market drawdown,” Goldman analysts including Vincent Lin wrote in a note. “With the sole exception of staples, all sectors saw increased shorting.”

The Ferocious, Well-Heeled Battle Against the SEC’s New Rules on Hedge Fund Activism [II]
That effort is the brainchild of Frank Partnoy, a law and finance professor at the UC Berkeley School of Law, who decided the SEC’s new aggressiveness was a good reason to create a nonpartisan, nonprofit institute — he named it the International Institute of Law and Finance — that could influence policy by convincing other professors to sign on to comment letters that he, and his colleague Robert Bishop, would draft…. The chairman of the institute’s board is Stephen Fraidin, a corporate attorney and partner at Cadwalader who has also long worked for Pershing Square. He serves on the hedge fund’s advisory board and was the firm’s vice chairman between 2015 and 2018…. Ackman told II that he has donated to the institute — which is not required by law to disclose its backers — but had no role in its creation.

Apple Isn’t Priced for a Recession [WSJ]
Apple’s shares are currently valued at 21 times forward earnings, a 38% premium to the S&P 500. That is 29 percentage points above Apple’s five-year average premium to the index—a wider gap relative to history than any of its trillion-dollar tech peers, Microsoft, Amazon and Google-parent Alphabet…. Apple may not be as immune to a sharp global downturn as many seem to think…. Morgan Stanley… warned last week that 55% of high-income respondents in its most recent consumer survey expect to cut back spending on electronics in the next six months because of inflation.

South Korea puts crypto company Terraform Labs’ staff on no-fly list [Reuters via CNBC]
TerraUSD’s paired token, Luna, plunged in value last month, sparking a sell off and igniting a chain reaction that has pushed some major institutions in the crypto sector into severe difficulties…. An official at South Korea’s Supreme Prosecutors’ Office, who declined to be named as is customary in South Korea, said multiple Terraform Labs staff had been put on a no-fly list.

Boris has a little pre-byelection present for you.

Brexit hasn’t exactly been much of a boon to the City of London. Quite the opposite, actually. But one thing those bankers not being forcibly removed to Frankfurt or Dublin or Luxembourg had to look forward to from the whole mishigas was an end to those hated bonus caps that then-Prime Minister David Cameron’s government opposed as ineffectually as it did Brexit. But while Brexit mess-cleaner-upper-in-chief Mark Carney, then still the governor of the Bank of England, suggested their end as perhaps the only tangible benefit of taking back control, Chancellor of the Exchequer Rishi Sunak has steadfastly opposed changing that bit of legacy European Union regulation. Sunak, after all, is a former hedge fund manager and therefore doesn’t care that bankers are limited under most circumstances to a mere doubling of their pay at Christmas; his former colleagues are doing just fine out of Brexit, thank you very much.

But, well, bankers have to cope with rising food prices just like everyone else, and maybe there are just enough of them in Tiverton and Honiton to allow Prime Minister Boris Johnson’s party to stave off a career-ending, humiliating defeat in a constituency his party has never lost and most recently won by more than 40 points. Or, if not, because then Johnson won’t have a ton of time left to give his buddies in the Square Mile a “sorry about relegating you to financial backwater status” parting gift. So Rishi’s reservations, like his dignity and future as a prime minister in waiting before it, will simply have to go.

Chancellor Rishi Sunak should review "deregulatory measures to reduce the overall burden on business", he was told in a private letter from Prime Minister Boris Johnson's chief of staff Steve Barclay, including restrictions on City bosses' pay and perks…. Amid a record boom in dealmaking, bonuses have surged since the pandemic, and the issue has been thrust back into the spotlight./As revelling bankers start spending on luxuries again at the same time as a wider cost-of-living crisis hits the headlines, any move to up payouts is likely to raise eyebrows politically.

UK may scrap banker bonus caps in post-Brexit rules push [FN]

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Sleep where people once worked.

The venture, which includes Silverstein Properties and Metro Loft, has agreed to pay $180 million for the 30-story building that opened in 1967 and has housed numerous technology and financial-services tenants over the decades. The new owners plan to convert it into 571 market-rate apartments, ranging from studios to three bedrooms, during the next three to four years…. [Metro Loft founder Nathan] Berman estimated that converting 55 Broad will cost about one third less than what it would cost to build a new apartment building on the site.

So that’s how Eric Adams can bring life back to the formerly vibrant and buzzing, uh, Financial District?

Nope.

Office pricing would have to drop 25% to 50% lower than it is today for a conversion wave to have more than a marginal impact on housing production and commercial property use, according to Jeffrey Havsy, an analyst at Moody’s who tracks commercial real estate. Office-to-residential conversions “will not be something that will A.) solve our housing crisis or B.) be such a dramatic trend that it will significantly change our cities,” he said.

Empty Wall Street Offices to Be Revived as Apartments [WSJ]

Nothing like runaway inflation to take the joy out of seeing your signature on the greenback.

More than a year ago, the Treasury Department announced that then-newly-minted Treasury Secretary Janet Yellen had provided her signature to the Bureau of Engraving and Printing to give Louise Linton one fewer reason to have sex with her husband, Yellen’s predecessor Steve Mnuchin. The Treasury said it would unveil Yellen’s Jack Lew in a matter of weeks, ahead of its arrival on the 2021 series of U.S. banknotes.

Well, 2021 has passed, and neither the revelation not the new bills have seen the light of day. But now that President Joe Biden has gotten around to taking a break from not making decisions to actually appoint a treasurer—a historic one, as well, albeit one that could presumably have come less than 17 months into his presidency—Yellen’s husband, George Akerlof, will find out if seeing his wife’s name on a C-note has the same effect on his nethers as it did on Linton’s.

While Ms. Yellen sat for her official currency signing more than a year ago, her name could not appear on the greenback until a U.S. treasurer was in place. Under arcane rules, both signatures must be added to new series of currency in tandem…. Ms. Yellen’s name likely won’t appear on any bills for several weeks. A representative for Treasury said that while she provided her signature to the Bureau of Engraving and Printing on March 10, 2021, it can take up to four to five months to update printing plates for each denomination.

Yellen may soon get her name on the greenback. [NYT]
Biden to appoint first Native American treasurer of the United States [CNN]
Biden’s Long Deliberations Over Some Key Policy Decisions Frustrate Democrats [WSJ]

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JetBlue is serious; Twitter’s board is, too; Asian SPACs few and far between; stocks set for short-lived surge; and more!

JetBlue raises offer for Spirit to $33.50 a share [Reuters]
Spirit said last week it was in talks with JetBlue over its offer and expected to decide on the proposal by June 30. JetBlue said its proposal represents a 68% premium to the implied value of the Frontier stock and cash transaction.
The new proposal includes what JetBlue termed a “stronger divestiture commitment” to complete the Spirit deal but does not include abandoning JetBlue’s Northeast Alliance with American Airlines.

Board unanimously approves Elon Musk’s $44B Twitter takeover bid [N.Y. Post]
The regulatory filing comes just days after Musk held a virtual, all-hands meeting with Twitter employees — the latest sign that the world’s richest man is serious about following through on his acquisition plans…. If the deal were to close now, investors in the company would pocket a profit of $15.22 for each share they own.

SPAC Slowdown Tests Asia’s Fledgling Market for Blank-Check Firms [WSJ]
Nine months after SPACs were allowed in Singapore, just three such listings have taken place. In Hong Kong, where rules took effect in January, only two have gone public…. Most of those 12 applicants, all of which are backed by mainland Chinese or Hong Kong investors, rushed to file in the first three months of 2022 and the majority are still awaiting approval. No new applications have been lodged in Hong Kong in the past two and a half months.

Swedish EV Maker Polestar Says It Expects to Complete SPAC Merger [WSJ]
The deal will result in less cash for Polestar than originally planned, after around one-quarter of Gores Guggenheim investors requested a refund…. EV startups in particular made a splash on Wall Street with lofty sales projections and promises to upturn the automotive industry, despite many never having built or sold a vehicle. But in recent months, investor sentiment has soured as they pulled back on sales plans amid production issues.

Wall Street set for bounceback but recession risk keeps investors cautious [Reuters]
World stocks have edged higher so far this week, recovering from last week's sharp selloff which saw global equities tumble to their lowest since November 2020 as expectations for central bank policy tightening to combat high inflation prompted investors to ditch risky assets…. Still, analysts expect the bounceback to be short-lived. Timothy Graf, head of macro strategy for EMEA at State Street Global Markets, said the move higher was likely a result of markets being oversold in recent weeks and relief that event risks, such as the Bank of Japan and Swiss National Bank meetings, have passed.

Biden says he's nearing decisions on gas tax holiday and student loans as he tries to tame costs [CNN]
A pause in the 18.3-cent-per-gallon federal tax would require Congress to act, and there has been little traction among lawmakers on the idea so far…. Biden said he is also weighing whether to back sending Americans gas rebate cards: "That's part of what we're considering, that's part of the whole operation," he said.

Freedom; firsts; foreboding; and more!

Global Stocks Gain Ground; Crypto Steadies [WSJ]
U.S. stock and bond markets were shut for the first time Monday for the Juneteenth public holiday. The S&P 500 last week endured its biggest percentage decline since the Covid-19-driven crash of March 2020 after the Fed’s decision to raise interest rates by a three-quarter-point spooked investors./Cryptocurrencies steadied after volatile weekend trading. Bitcoin changed hands at $20,795, 1.4% higher than its Sunday 5 p.m. level. Digital currencies have slumped in recent weeks and major cryptocurrencies have laid off staff.

First Short Bitcoin ETF to List on NYSE [Coindesk via Yahoo!]
ProShares was the first firm to list a bitcoin futures ETF in October, a factor which saw the world's largest crypto hit an all-time high of around $68,900 in the subsequent weeks. Bitcoin investors will be hoping the listing of a short bitcoin futures ETF does not have a similar effect on the world's largest crypto in reverse.

Bitcoin whale Michael Saylor urges governments to step in and regulate crypto’s ‘parade of horribles’ [Fortune via Yahoo!]
Microstrategy CEO Michael Saylor argues the over 19,000 cryptocurrencies and digital tokens in circulation must be viewed as “unregistered securities” that cannot be likened to a hard commodity like Bitcoin—which has no issuer, no management, no employees, no product cycle and only a finite supply…. He added mainstream financial institutions often won’t touch an asset like Bitcoin “because of the slime that gets onto the asset class from all the unregistered securities."
Nouriel Roubini, a respected economist and one of the few to predict the 2008 global financial crisis, branded crypto a ponzi scheme collapsing upon its own weight on Saturday.

Someone paid $19 million for a steak lunch with Warren Buffett [CNN]
This year's huge sum is more than four times the winning bid of $4,567,888 in 2019 — the last auction before a hiatus due to the Covid-19 pandemic…. Unfortunately for aspiring investors hoping to top this year's record, this is the last year of the "power lunch" with Buffett.

‘The Dirty Secret of Covid’: Scott Galloway on the Postpandemic Economic Turmoil [NYT]
“There’s a constant notion that if the economy does well, the middle class will restore itself. That is not true. What happens over time in all economic history is that the wealthy weaponize government, lower taxes on them, resist competition — the biggest, most powerful companies entrench themselves, and you end up with an erosion of the middle class. You end up with income inequality. It gets worse and worse, and then the same thing happens with income inequality. The good news is income inequality, when it gets to these levels, always self-corrects. The bad news is that the mechanisms for self-correction are war, famine and revolution.”

Manhattan Luxury Sales Just Had Their Slowest Week Since December 2020 [Mansion Global]
Just 12 contracts were signed for luxury Manhattan apartments priced above $4 million in the week from June 13-19, a steep drop from the 25 contracts the previous week, according to the weekly report from Olshan Realty released Monday…. The highest-priced deal was a $26 million unit at 15 Central Park West on the Upper West Side, which had listed for $28 million in April, and which the seller had purchased for $30 million in 2014.

While some doubt Revlon will screw over its erstwhile ally, the company hasn’t hesitated to do it before.

Less than two years after narrowly avoiding it, cosmetics dinosaur Revlon finally succumbed to the COVID-19 pandemic and bankruptcy. This, of course, is bad news for all holders of Revlon’s $3.31 billion in debt—the company was worth just $123 million before the bankruptcy filing—but it is the worst news for one which may or may not even be a Revlon creditor, that ultimate magnet for bad news banking: Citigroup.

Even with Citi suffering the side effects of its latest fat finger fuck-up, it’s hard to forget its most embarrassing: The time it, in its role as Revlon’s loan agent, apparently panic-repaid nearly $1 billion to the hedge funds and others suing the bank and Revlon over the 2020 restructuring that saved it from bankruptcy (and (allegedly) got Revlon owner Ron Perelman paid in full on the bonds he (allegedly) didn’t tender in that deal) for another 19 months.

Citi is still fighting to get a mistakenly-paid half-billion dollars back from those who refused to return it, but after it’s courtroom defeat on the matter, Citi presumes to stand in its adversaries’ stead as the true and rightful owner (pending an appeal in which it claims that the hedge funds are the true and rightful owners) of the $500 million in Revlon debt.

The bank’s two-year-old blunder -- in which it wired the balance of a $900 million loan rather than just the interest, and then failed to get most of it back when investors claimed Revlon was in default and should have repaid them anyway -- will likely impede the company’s restructuring plans, court papers show. The problem: it’s not clear who, if anyone, has the rights to the repayment of the remaining $500 million of loan principal caught up in an ongoing court battle over the accidental transfer…. The so-called subrogation rights that Citigroup claims it has over the $500 million loan principal are a common concept in insurance law, but are relatively untested in the world of finance, according to [Columbia University law professor Eric] Talley.

The bonds Citi claims (for now) as its own represents almost 15% of Revlon’s current outstanding debt, and Talley suggests that the (admittedly limited) precedent on the matter is probably on the bank’s side. Plus, others note that Revlon might not want to screw over a bank that was so very helpful in arranging the (alleged) game of dirty pool that kept it out of bankruptcy in November 2020. Of course, those people seem to have forgotten that the very investors that Citi helped Revlon screw over then (the hedge funds first suing and then sued by Citi) were also the investors who helped keep Revlon out of bankruptcy during its previous financing bind back in 2016, and so loyalty doesn’t appear to be the company’s strongest suit.

In its latest quarterly report, Revlon said it hasn’t taken a stance on Citigroup’s rights as creditor. It went a step further this week, saying that if Citigroup ultimately loses its battle to reclaim the money, Revlon “reserve all rights and defenses with respect to any claim Citibank may assert against” the company.

A successful challenge of Citigroup’s claim could erase almost 15% of Revlon’s $3.4 billion debt load in an instant, easing the company’s path out of bankruptcy….

“Through a series of unfortunate mistakes and luck, Citi finds itself potentially the owner of those loans,” [Bloomberg Intelligence analyst Phil] Brendel said. “Do Revlon and its likely new owners now add insult to injury? I don’t think the answer is obvious.”

No, Phil, although I doubt that’s as much cause for comfort at 388 Greenwich Street as you think it is.

Citi’s $900 Million Revlon Gaffe Risks Getting Even More Painful [Bloomberg]
Cosmetics giant Revlon files for Chapter 11 bankruptcy protection [CNBC]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Well that was fun while it lasted; Elon’s meet-and-greet; Dalio down on lots of stuff; and more!

Stocks Fall After Post-Fed Rally [WSJ]
The stock rally prompted by the Federal Reserve's biggest rate increase since 1994 reversed course Thursday morning, with U.S. indexes falling sharply in early trading. All three benchmarks retreated, with the Dow Jones Industrial Average shedding about 800 points and all 11 of the S&P 500's sectors falling into the red.

Elon Musk Expected to Reiterate Desire to Own Twitter in Meeting Thursday [WSJ]
The billionaire Tesla Inc. chief executive is slated to answer pre-submitted employee questions for roughly an hour at a virtual Twitter all-hands meeting Thursday morning West Coast time, the person said…. The plans of the always unpredictable Mr. Musk could still change and the question-and-answer format could prompt him to expand on these and other topics. Other issues employees have been focused on include how Mr. Musk plans to police harassment if he reduces censoring on Twitter as he had said he wants to, as well as potential job cuts.

Cosmetics giant Revlon files for Chapter 11 bankruptcy protection [CNBC]
Revlon is the first major consumer-facing business to file for bankruptcy protection in what has been a yearslong pause of distress in the retail sector…. Revlon had long-term debt of $3.31 billion as of March 31, a securities filing shows. The company’s market cap was nearly $123 million as of the close of trading Wednesday.

Ray Dalio’s Bridgewater Builds $5.7 Billion Bet Against European Stocks [Bloomberg]
The investment by the world’s biggest hedge fund firm includes a $1 billion position against semiconductor manufacturer ASML Holding NV and a short wager on TotalEnergies SE worth about $752 million…. Dalio said in an interview with La Repubblica newspaper published Thursday that he is buying assets offering protection against inflation while steering clear of debt assets and countries at risk of domestic strife or international war.

Investors Bet One of the Biggest Trades on Wall Street Will Unwind [WSJ]
“Everybody is joining the hawkish central banks, everybody except the BOJ. The chances are that it will have to adjust as well,” said Lorenzo Di Mattia, chief investment officer at Sibilla Capital, a macro hedge fund. “With the yen dropping this much, it makes inflation worse.”
Known in bond markets as the widowmaker trade, investors have gotten burned for decades betting against the Bank of Japan, which has been resolute in keeping policy extremely loose. But some believe this time is different.

BitMEX Co-Founder Sentenced to Probation on U.S. Compliance Charge [WSJ]
[Benjamin] Delo, who was sentenced Wednesday in federal court in New York, has also paid a $10 million penalty as part of a deal with prosecutors and the U.S. Commodity Futures Trading Commission…. BitMEX itself entered into a $100 million settlement with U.S. regulators in August.

Perhaps now the regulatory gods will show the bank favor for once.

Among the very last things in the world Credit Suisse needs at the moment (admittedly a very long list) is yet another legal or regulatory investigation. These probes generally turn up evidence that Credit Suisse has done something wrong, because if a bank that’s issued six profit warnings in seven quarters is doing something it’s probably doing it wrong.

So CEO Thomas Gottstein & co., already busy dealing with the fallout from the latest embarrassing revelation of what he and others in his position desperately like to call “legacy issues,” as well as a board shakeup resulting from those legacy (and also more recent) issues, and a need to (allegedly) ask clients to start shredding to avoid further headaches from further legacy issues (which went about as well as the last such alleged effort), and having just been swept up into the U.S. investigation into block-trading, cannot have been thrilled to find out that they’d also been drawn in to another of Securities and Exchange Commission Chairman Gary Gensler’s obsessions, bankers’ use of unmonitored messaging apps to communicate with clients. So it must have been a relief when Credit Suisse’s usually hapless Keystone Kops were able to pin it on one guy. Sure, Anthony Kontoleon had been with the bank for 28 years and ran its equity capital markets syndicate, and sure he hadn’t actually done anything nefarious in those improper communications, but his was a scalp Gottstein could present, prostrate, to Gensler in a grisly plea for mercy.

Credit Suisse’s management hoped that a high-profile departure such as that of Kontoleon would be seen by US regulators as a sign that the bank was taking the matter seriously…. In a further sign of Credit Suisse’s worries over the record-keeping issue, the bank in December asked its employees to let it access their personal mobile phones and other devices if they used them to communicate with clients or colleagues.

Credit Suisse banker removed from role for unauthorised messages to clients [FT]
Credit Suisse Banker Exits Over Unauthorized Message App Use [Bloomberg]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Recession talk; Fed forecasting; commodity hedge funds do well in commodities rally; and more!

Wall Street Stabilizes in Bear Market Territory as Fed Decision Approaches [WSJ]
The index rose 0.3 percent in early trading, even as European markets reversed their own gains and sunk deeper into the red. Markets in the Asia-Pacific region had recovered from the worst of their declines Tuesday, but still ended lower…. [JPMorgan Asset Management strategist Hugh] Gimber said he also expected the Fed to raise rates by 0.75 percentage point on Wednesday. The policymakers’ “message is going to be that nothing is off the table until we see signs that the inflation path is improving,” he said.

Wall Street’s Favorite Recession Signal Is Back as Curves Invert [Bloomberg via Yahoo!]
Key sections of the Treasury curve have inverted after Friday’s US inflation shock drove traders to boost bets on the pace of Fed tightening. Two-year yields exceeded 10-year rates for the first time since April on Monday, while five-year yields soared as much as 17 basis points above 30-year rates in the widest inversion in over two decades…. Swaps traders see more than 70% odds that US policy makers will deliver a 75-basis point hike this week -- the steepest increase since 1994 -- and there’s also talk of a one-percentage-point move.

JPMorgan’s Marko Kolanovic Says US Will Avoid Recession [Bloomberg]
“Friday’s strong CPI print that led to a surge in yields, along with the sell-off in crypto over the weekend, are weighing on investor sentiment and driving the market lower,” Kolanovic and his team wrote in a note to clients on Monday. “However, we believe rates market repricing went too far and the Fed will surprise dovishly relative to what is now priced into the curve.”
Kolanovic expects the Fed to lift interest rates by a half percentage point on Wednesday.

Wharton professor Jeremy Siegel is one of the best stock watchers alive. He says the S&P 500 is already pricing in a recession and bear market [Fortune via Yahoo!]
“I actually think the market is already discounting a recession in 2023,” he said. “It’s being priced at that level today.”
Siegel noted that the S&P 500 is now trading at roughly 17 times forward earnings, and if you exclude tech stocks, the figure is even more impressive at just 13 times earnings.
“You rarely see it that low,” Siegel said.

Andurand’s Biggest Hedge Fund Surges 162% on Commodities Rally [Bloomberg]
The advance by the Andurand Commodities Discretionary Enhanced Fund, which holds half of the trader’s $2 billion in managed assets, follows a gain of 87% in 2021. His older Andurand Commodities Fund, which holds $750 million, closed up 41.5%. The Andurand Climate and Energy Transition Fund, launched last summer, returned 14%.

Elon Musk to answer Twitter employee questions at company meeting on Thursday [The Verge]
Employees will be able to submit questions in advance of the meeting. It will be the first time Musk has addressed Twitter’s nervous employees directly since announcing plans for the $44 billion takeover.
The meeting has the chance to be fractious. In Twitter’s internal Slack channels, the Tesla CEO’s attempt to buy the company has reportedly been met with a negative response, and employees are concerned about the effect a privately-owned Twitter could have on their culture and compensation….

Your funds don’t actually have to help save the world, but they do have to live up to their marketing materials.

For regulatory purpose, the inflow magnet term “ESG” is essentially meaningless. Those bandying it about merely have to define “environmental, social and governance,” put that definition and the many, many exceptions you’re allowed to make in spite of it in the small print, and watch the money roll in.

Seems simple enough. And yet those rules—the very rules that the money managers write for themselves—are somehow impossible to follow in practice. And not, it seems, just when malfunctioning robots are doing the work, or when Deutsche Bank is predictably fucking up.

It’s a “real wake-up call,” says Desiree Fixler, the former DWS executive who blew the whistle on her company for allegedly making misleading statements about ESG investing in its 2020 annual report (DWS denies wrongdoing). “I still believe in sustainable investing, but the bureaucrats and marketers took over ESG and now it’s been diluted to a state of meaninglessness,” she says.

Still, even then, Goldman Sachs (possibly, allegedly) can’t get the simple (and legal!) act of greenwashing right.

The SEC’s civil investigation is focused on Goldman’s mutual-funds business, the people said, and the firm manages at least four funds that have clean-energy or ESG in their names…. Because the SEC doesn’t yet have rules that dictate what ESG investing means or requires, any enforcement action would need to focus on a fund’s past disclosure, and whether its investing practices materially deviated from what it advertised to shareholders.

If, in fact, Goldman did that, it’s a pretty impressive feat, because a drunk, chain-smoking driver could drive a gas-guzzling truck filled with coal and loaded AR-15s through the loopholes GSAM carved into its ESG standards.

Goldman says in regulatory documents that its ESG fund aims to keep 80% of its net assets in stocks issued by companies that meet the fund manager’s criteria…. Goldman says holdings in the U.S. Equity ESG Fund undergo an ESG analysis but reserves the right to invest in some companies without such a screening. It can also invest up to 20% of its net assets in stocks that deviate from its ESG standards.

Of course, given the lucrative nature of the ESG market, the industry is eager to prove that it does, well, something. And the hippies at the Managed Funds Association think they've done just that, and for short-selling, to boot.

A study published by the Managed Funds Association indicates that targeted short-selling campaigns could slash up to $140 billion in capital expenditure at the biggest carbon emitters in the S&P 500 Index by pressuring them to clean up their acts…. The analysis found that the increase in the supply of a stock caused by short-selling would result in a lower share price and an average relative increase in a company’s weighted average cost of capital of between 1% and 3%.

That in turn would prompt companies to shift their capital expenditure by as much as 8%, equivalent to $140 billion, the study found.

SEC Is Investigating Goldman Sachs Over ESG Funds [WSJ]
RIP ESG? [FT]
Hedge Funds Chasing ESG Billions Get Help From Researchers [Bloomberg]

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If you don’t leave, you still won’t make as much as your peers elsewhere, but the gap won’t be quite as embarrassing.

Even discounting the discomfiting feeling aroused by having cops routinely sniff around your place of work, there are lots of good reasons to perhaps be considering an exit from Deutsche Bank. This is apparently especially true if you happen to be a member of its strats team, which had seen a number of senior people put in their walking papers and can’t seem to find anyone to replace them. And there’s more to it than just not wanting to have to live with the shame of having “Deutsche Bank” appear on your résumé for the rest of your life.

Sources internally say the exits were spurred by poor pay, overwork, and a decision to place the strats under the central risk officer, meaning they weren't classified as front office employees and received smaller bonuses as a result.

Well, it’s apparently more expensive to lose anyone worth a damn on your strats team than it is to pay them, even for Deutsche Bank, so we’ve got good news for those who haven’t yet found an exit.

We understand that the salary rises of 10%-20% are being dispensed in a targeted manner, implying that the people DB can least afford to lose will get the most bountiful increases.

Well, maybe it’s more like OK news.

One DB strat says that even after the most recent increase, pay is still below rivals. "DB strats were given no annual pay rise of inflation adjustment for the past few years," he claims.

Deutsche Bank just hiked salaries for its strats by 10-20% [efinancialcareers]

Bears! Crypto crises! Seventy-five basis point surges! And more!

Dow slumps 800 points to start the week, S&P 500 falls back into bear market territory [CNBC]
The S&P 500 hit a new intraday low for the year and its lowest level since March 2021. The benchmark is off nearly 22% from its record, back in bear market territory after trading there briefly on an intraday basis about three weeks ago…. “The odds of a ‘June Swoon’ straight to 3,400 have gone up significantly, in our view,” wrote Jonathan Krinsky, technical analyst for BTIG. The S&P 500 closed Friday at 3,900.86.

Coinbase and ARK Tumble as Crypto Crash Spills Over Into Stock Market [Barron’s]
Shares in Coinbase Global (ticker: COIN), a major cryptocurrency exchange, tumbled 16% in early trading, immediately shedding $1.5 billion in market capitalization to open at $46.17, down from $58.71 on Friday…. Fintech group Block fell 8% while Silvergate Capital, which is positioning itself as a crypto bank, lost 15%. MicroStrategy, a software group with major holdings of Bitcoin on its balance sheet, plunged 25%. Bitcoin miners Riot Blockchain and Marathon Digital both dropped about 12%.

Bitcoin slides after crypto lender Celsius Network freezes withdrawals [Reuters via Yahoo!]
Celsius said on its website on Monday that customers who transfer their crypto to its platform can earn an annual return of up to 18.6%.... In a blog post, the company said it had frozen withdrawals, as well as transfers between accounts, "to stabilise liquidity and operations while we take steps to preserve and protect assets."
"We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations," the New Jersey-based company said.

Bond Yields, Dollar Surge With Fed Bets as Recession Risk Grows [Bloomberg]
Traders see 175 basis points of tightening by the Fed’s September decision, implying two half-point and one 75 basis-point hike, according to interest rate swaps tied to FOMC policy outcome dates…. “The combination of collapsing consumer sentiment, unexpectedly intense price pressures and expectations of Fed activism are conspiring to create a particularly toxic cocktail for risky assets,” said Rabobank strategists including Richard McGuire. The yield curve inversion “resonates with the notion that the need to tackle elevated price pressures will see the Fed tip the economy into recession.”

IPOs in Mainland China Jump as Global Issuance Plummets [WSJ]
IPOs in China raised more than $33.8 billion so far this year, up from more than $30.4 billion a year earlier, according to Dealogic. This year’s tally is the highest figure since at least 2009…. In contrast, the global dollar value of IPOs fell 71% to more than $90.2 billion over the same period. In Hong Kong, IPO volumes have tumbled 92% from a year ago to nearly $2.2 billion, the lowest point since 2009.

Some M.B.A.s Are Getting Job Offers Before They Step Onto Campus [WSJ]
Major consulting firms including Bain & Co. and McKinsey & Co. say they are offering some 2023 internships to students who don’t start business school until this fall. Some offers come with the promise of a full-time job after graduation in 2024…. Some students say mixing with companies before school allows them to focus on coursework and build relationships once the academic year starts. Yet pursuing a job before they explore other opportunities could be limiting, schools say, and some worry that early accepters might later renege when other offers come in, potentially denting campuses’ relationships with recruiters.

As you’d expect from the flaming stagecoach.

To a large extent, it seems, Wells Fargo had already fixed its whole alleged “interview a Black guy for a job he has no chance at getting” problem even before CEO Charlie Scharf put it on ice temporarily. Back in February, it decided to try doing away with the whole “posting a job and interviewing a diverse slate of candidates for positions you’ve already decided to promote someone internally for,” which will undoubtedly go a long way (although not all of the way) to saving applicants and managers the hassle (and, in the former case, false hope) that comes with the fake interview scheme (although it doesn’t seem to get any closer to what the Wells Rooney Rule was designed to achieve, which is a more diverse workforce).

Alas, this very un-Wellsian quick and simple fix came too late for the bank.

Federal prosecutors in New York have opened a criminal investigation into whether Wells Fargo violated federal laws by conducting sham interviews of minority and female job candidates…. The civil rights unit handling the Wells Fargo inquiry was created in November by Damian Williams, the U.S. attorney for the Southern District of New York.

Under federal law, for instance, it is a crime to interfere with “an applicant for private employment” in a way motivated by the applicant’s “race, color, religion or national origin.”

Of course, as ever, this is all the employees’ fault for not calling the “please fire me” whistleblower line.

In an interview on Monday, Bei Ling, Wells Fargo’s head of human resources, said she did not believe the fake interview practice was “a systematic issue.” Employees had not complained about it, she said.

“During these past eight months I can tell you I have never heard such a thing from the recruiting community,” Ms. Ling said. “I have never even heard the words ‘fake interview.’”

She added that there was no way for the bank to understand the scope of the problem unless employees spoke up. “We can’t act on things that we don’t know,” she said.

That attitude will no doubt do wonders during the anti-union drive to come.

Federal Prosecutors Open Criminal Inquiry of Wells Fargo’s Hiring Practices [NYT]

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Turns out rumors sometimes are just rumors.

Would you like to buy a bank that’s issued six profit warnings in the last seven quarters? One nursing not one but two multi-billion dollar risk-management disasters, to which it responded with a bit of alleged collusion (that didn’t work) and the apparently shocked realization that a major global bank needs someone looking after counterparty risk, especially in not-especially-profitable business lines? One that’s essentially headquartered in court, where its track record is no better than its quarterlies? One where new executives are greeted on their first day by the police? One that does loads of spying, just not on the right people (despite a client list chockful of unsavory spymasters)? Whose reaction to the Russian sanctions was (allegedly) to kindly ask clients to shred everything? Whose shareholders are itching to sue the pants off of everybody involved? Whose own CEO thinks that buying it would be "really stupid"?

Yea, State Street doesn’t, either. Even at this price.

Shares fell as much as 6.3% to 6.18 Swiss francs, hovering close to the lowest level since data going back to 1989. State Street, which had earlier declined to comment on the merger, later changed tack to say that it’s not pursuing any acquisition or business combination with Credit Suisse…. Swiss finance blog Inside Paradeplatz on Wednesday sparked a 15% rally in Credit Suisse shares from an intraday low. But the boost didn’t last long as the shares got roiled Thursday after the bank’s Chief Executive Officer Thomas Gottstein said he would not comment on the topic and dismissed the question as “stupid.”

Credit Suisse Flirts With 30-Year Low as State Street Denies Talks [Bloomberg]
Credit Suisse CEO Calls Takeover Talk ‘Really Stupid’ [WSJ]

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Inflation back on the increase; What Yellen worry?; crypto careers crater; King Larry of Lanai; and more!

US inflation hit a new 40-year high last month of 8.6% [AP]
On a month-to-month basis, prices jumped 1% from April to May, much faster than the 0.3% increase from March to April. Behind that surge were much higher prices for food, energy, rent, airline tickets and and new and used cars…. Some evidence in recent weeks had suggested that inflation might be moderating, particularly for long-lasting goods that were caught up in supply chain snarls and shortages last year. But that trend appeared to reverse itself in May, with used car prices rising 1.8% after having dropped for three straight months.

Janet Yellen says the U.S. is likely to avoid a recession. [DealBook]
“There’s nothing to suggest a recession is in the works,” Ms. Yellen said…. Although Ms. Yellen expressed optimism that the United States would be able to avoid a recession, the economy faces some serious headwinds including the war in Ukraine, higher energy prices and the continuing Covid lockdowns in China. It will be up to the Fed, she added, to achieve a so-called soft landing where it raises borrowing costs enough that it reduces demand and tames price gains without causing a recession./“It’s an art,” Ms. Yellen said of the Fed’s job.

Ending Payment for Order Flow: Easier Said Than Done [WSJ]
In some theoretical scenarios, making market participants vie for the best price improvement might compete away the ability to also pay the broker for the order. However, much would likely depend on how auctions are structured, who participates in them and on accompanying price measurement or fee changes.
Wholesalers might not bid on some orders that today would be routed to them for price improvement; what happens to those? The options market features retail auctions, but payment for order flow is still present. Mr. Gensler said the SEC should look to learn from the options market.

Coatue, JPMorgan Weigh Funds to Buoy Capital-Hungry Startups [Bloomberg via Yahoo!]
Philippe Laffont’s Coatue has begun discussing its planned Tactical Solutions Fund with potential investors, some of the people said. The firm is targeting $2 billion for the effort and already has raised $1.2 billion from anchor investors, a presentation shows. While it will mostly provide capital to publicly traded companies, about 20% will be earmarked for closely held startups, potentially including those the hedge fund has previously backed, one of the people said…. The alternatives arm of JPMorgan’s asset-management unit is in the early stages of exploring whether to raise a fund that would pursue a related strategy, some of the people said….
More companies may seek capital in part because of a slowdown in the market for initial public offerings as well as scarcity of private funding, the presentation shows. Coatue intends to make a “significant” capital commitment to the fund and invest the war chest within two years, though it has an option to extend that period by an additional year.

Crypto Firms Cut Back on Hiring During Market Slump [WSJ]
In the past few weeks, Coinbase Global Inc., the largest American crypto exchange, rescinded offers to employees who accepted jobs and said it would slow its hiring pace. Another crypto exchange, Gemini Trust Co., cut 10% of its staff, citing the effects of the market downturn…. At the hiring website CryptoJobs, the number of job listings has fallen by 20% over the past two months, according to project manager Evy Lee.

Larry Ellison’s Lanai Isn’t for You—or the People Who Live There [WSJ]
Over the past decade, and especially since the pandemic began and Ellison moved to Lanai full time, Gima and his neighbors have begun to see what $90 billion can do. Their once-sleepy island is now a common destination for yachts and private jets, as Ellison buddies such as Elon Musk drop by to visit. (Ellison sits on Tesla Inc.’s board and is one of the biggest outside backers of Musk’s rocky effort to buy Twitter Inc.) Tom Cruise has visited, which still gets people talking, and former Israeli Prime Minister Benjamin Netanyahu took a Pilates class at the Four Seasons last year…. Eight residents… say Cruise flipped and totaled one of Ellison’s cars while driving on some of Lanai’s mostly unpaved roads.

What will come first? The cannings or the unsolicited offer?

Things looked pretty bad for Credit Suisse after announcing its fifth profit warning in six quarters. They look a good deal worse after a sixth in seven, and they’re absolutely dire if you happen to work for the bank.

The Swiss bank is considering headcount reductions across divisions including investment banking and wealth management in multiple regions…. The dismissals are likely to come as the bank prepares to update investors on risk, compliance, technology and wealth management on June 28, said the people. The final tally of cuts is still to be decided, they said.

Of course, by then Credit Suisse could be on its way to not being Credit Suisse anymore, per this rather buried lede.

Swiss blog Inside Paradeplatz reported State Street Corp. could make a bid for Credit Suisse, citing a single “insider….” Inside Paradeplatz said that an offer for Credit Suisse at about 9 francs a share could come within days. A State Street representative said the firm is preparing a response to the report, while analysts were skeptical about a deal, citing the lack of strategic rationale for the US firm.

Credit Suisse Weighs New Job Cuts Round After Loss Warning [Bloomberg]

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