Matt Levine, Bloomberg, Barclays Is Still Paying for Qatar’s Bad Advice, here. Whatever Bloomberg is paying Levine, it is not enough. Time for a raise. Why does he have to use asterisk strings for footnotes in his Bloomberg publications? Is it still 1995?
Okay, fine, so you give him a discount. But you don’t want to give everyone who buys shares in the offering the same discount. The investor who took a chance on you when no one else would, who put in a big order to anchor the book, who loaned you his halo so you could get the deal done: Sure, give him a discount. The schlub who bought 100 shares because he heard the deal was going well? He can pay full price.*
This tends not to work though; there are exceptions but frequently the schlubs want the same deal as the anchor investor, fair or not.
Financial engineering is not powerless in the face of this problem. What you gotta do is, you build a structure where Investor X is not obviously buying shares at a big discount, because the thing he’s buying is more complicated than “just a bag of shares.” So, for instance, Investor X could buy a perpetual preferred stock callable at 10 percent over par after five years with at-the-money-ish warrants to buy common shares. You can translate that into “common stock at a ___ percent discount,” but the translation is debatable and not immediately intuitive to the schlubs.
That particular thing happens to be the thing that was done a lot during the financial crisis, starting with Warren Buffett’s investment in Goldman Sachs.**
This is the right way to do it. There are other right ways but the important elements are:
- it’s complicated,
- you disclose it, and
- nobody can quite figure it out even once you’ve disclosed it.
There are loads of wrong ways to do it too! The simplest is just:
- Investor X buys shares from you at $100 per share.
- You write Investor X a check for $20 per share.
- You tell everyone about thing 1 but not thing 2.
Heyyyyy that’s pretty much what Barclays did:***
Phys.org, Brazil hackers mistake NASA for NSA in spying payback, here. You can only take so much.
Hackers have hit back in retaliation for US cyber-spying on Brazil but mistook the US space agency NASA for the National Security Agency (NSA), a news website reported here Tuesday.