One thing to start: Billionaire hedge fund manager Ken Griffin is moving his firm Citadel to Miami from Chicago, following his earlier threats to leave the city over rising crime rates.
In today’s newsletter:
Deutsche Bank takes action on WhatsApp
EU regulators test Broadcom’s M&A plans
Revlon becomes a meme stock?
Bankers show just how worried they are about their text messages
Deutsche Bank’s chief executive Christian Sewing and his top executives are waiving a fraction of their 2021 bonuses. Why? They want to show they’re taking some responsibility for the use of unauthorised messaging apps at the bank.
In what is perhaps the clearest sign yet of just how scared bankers are of the regulatory crackdown on unauthorised messaging, Deutsche’s supervisory board accepted an offer from Sewing and nine other members of the bank’s executive board to forego €75,000 each in variable pay, four people familiar with the matter told the FT’s Olaf Storbeck and Stephen Morris.
Readers will no doubt be familiar with the “text messaging bullshit”, as a US banker put it to DD last week, that has rocked lenders from Wall Street to Europe’s top financial hubs.
Deutsche is one of several financial institutions under investigation by US regulators over employees’ use of personal messaging apps, which ramped up during lockdowns.
Sewing has previously exchanged friendly WhatsApp messages with the controversial businessman Daniel Wruck, who had been dropped by the bank as a client after a number of potentially suspicious payments. Paul Achleitner, the bank’s chair, used WhatsApp to discuss bank-related topics, according to people familiar with the matter.
The voluntary clawbacks by Deutsche executives were first discussed after JPMorgan Chase agreed in December to pay $200mn in fines for messaging-related incidents.
Credit Suisse this month removed a senior investment banker after he was found to have used unapproved messaging applications with clients, as DD’s Ortenca Aliaj and the FT’s Joshua Franklin revealed. A London-based HSBC trader met a similar fate around the same time.
It isn’t clear how far the moves will go towards avoiding more serious repercussions from US and EU regulators.
Deutsche’s board has decided to charge the same penalty to all board members, so as to not single out any individual for the misuse of messaging applications and instead send a “signal” to the supervisory board, said one person familiar with the matter.
Still, the fines are hardly ruinous. The €75k fine equates to just 1.4 per cent of Sewing’s €5.2mn bonus, part of an €8.8mn total pay package. Chief transformation officer Rebecca Short will suffer the biggest hit, relinquishing 3 per cent of her bonus.
We are interested to hear about how the industry is responding to the communication crackdown. No need to text us — send your thoughts to [email protected]
Broadcom’s dealmaking ambitions face EU test
Hock Tan, the aggressive dealmaker who built Broadcom into one of the world’ largest technology companies, negotiated his $69bn takeover of VMware in a whirlwind two-week push this May that culminated with a private meeting at VMware chair Michael Dell’s Austin mansion.
Actually completing the deal, which would transform Broadcom from predominantly a semiconductor company into a technology conglomerate, will take far longer, if Tan can get it done at all.
The takeover is set for a lengthy antitrust investigation in Brussels. Customers of VMware in Europe, including Germany, France and Belgium are worried that the deal will lead to the US chipmaker raising prices.
Broadcom is already in preliminary discussions with EU officials, three people with direct knowledge of the transaction said. The company will argue that because it isn’t a merger between competitors, it doesn’t pose a threat of increased market power.
Still, it shouldn’t claim victory too quickly, according to those directly involved. “Billions are involved. This is too hard to ignore,” said one of the people.
Brussels isn’t the only jurisdiction where the transaction is facing lengthy probes. The UK and China may also end up opening processes.
The antitrust challenge has similarities to Nvidia’s failed effort to purchase UK-based chip designer Arm for $66bn.
Regulators feared that Nvidia would limit the ability for competitors to license Arm’s designs. Though Nvidia denied those intentions, the deal was blocked and ultimately collapsed.
When the Malaysian-American executive pressed a $142bn takeover of chipmaker Qualcomm, he sought help in Washington by redomiciling Broadcom to the US and participating in photos at the White House supporting then-president Donald Trump’s corporate tax cuts.
But Washington stymied the deal weeks later, a humiliating setback that pushed Tan into software deals.
Known on Wall Street as a cost-cutter who loathes what he calls “shiny new objects”, or the launching of new products that steal corporate resources, Tan must uncover added dealmaking finesse.
While his first two software targets were stagnant businesses ripe for cuts, VMware is a crown jewel that was vital to the massive windfall Michael Dell and Silver Lake generated by buying its parent company EMC in 2017.
Unlike with Qualcomm, Tan isn’t going at his VMware deal alone and facing a hesitant seller. In Dell and Silver Lake, which own a combined 50 per cent of VMware, Tan has powerful and highly-supportive backers.
Winning global antitrust approvals will be a test of whether Tan’s M&A model can work at scale.
Untangling the Revlon meme stock mystery
After his investment in beauty group Revlon took a turn for the worse earlier this year, New York’s tabloid-famous billionaire Ron Perelman sold his oceanfront East Hampton estate for $84.5mn as he moved to tackle his debts.
Now that the cosmetics company has filed for bankruptcy, an army of retail traders has been happy to turn the squeeze on Perelman’s personal finances into their gain by cornering the small amount of Revlon shares that trade on public markets.
Revlon’s share price catapulted in recent days from about $1 to more than $7, the latter implying a current market capitalisation of nearly $400mn. That’s not too bad for a company that has spent the past week in bankruptcy court, as DD’s Sujeet Indap points out.
The obvious comparison here is the car rental company Hertz, which, after being crushed by lockdowns and filing for Chapter 11 bankruptcy in May of 2020, charted a miraculous comeback after frenzied retail traders set in motion one of the most remarkable corporate restructurings in American history.
But the market mayhem that birthed “meme stocks” such as Hertz and GameStop is ancient history. Revlon would not only have to confront its ballooning debts, but soaring inflation and a looming recession.
And if a retail trader is to dismiss all that, as Sujeet explains, there’s the fact that it remains almost certainly insolvent beyond its current money troubles. Its creditors are likely to own the company after bankruptcy. Perelman owns about 85 per cent of the 54mn shares outstanding, meaning that there’s not much Revlon stock left to short in the first place.
All that is to say that DD has been left scratching our heads over why Redditors have chosen Revlon as their meme stock du jour. Unless the answer is the most obvious one: because it’s fun.
Morgan Stanley’s head of external affairs Shelley O’Connor plans to retire after nearly four decades at the investment banking group.
Britain’s former top civil servant, Lord Mark Sedwill, is joining BAE Systems as a non-executive director as geopolitical tensions prompt governments to review their defence budgets.
Barclays has hired Arif Vohra as co-head of investment banking financial institutions group in Europe, Middle East and Africa. He joins from Bank of America where he held the same position.
Houlihan Lokey has appointed Zili Shao, chair and founder of Chinese private equity fund MountVue Capital Management and the former chair and chief executive of JPMorgan China, as a senior adviser.
Citigroup has hired Joseph Bonanno as global head of data, digital and innovation for securities services. He previously served in a similar role at Morgan Stanley.
Feeling the pinch As the era of easy access to cash comes to an end, European dealmakers are finding it increasingly difficult to get funding for their takeovers, Bloomberg reports.
The new Hong Kong The plight of Hong Kong pro-democracy activist Claudia Mo is also a tale of China’s increasingly draconian rule over the city, this FT magazine piece chronicles.
Bad break-up In a move that would have been unthinkable just two years ago, Alibaba and Ant Group have begun untangling their operations, competing for clients and even striking alliances with respective rivals as Beijing increases its corporate crackdown, Reuters reports.
BC Partners acquires Havea for $1.16bn (Reuters)