That BoE audio feed

Well, now I’m not so sure. Because the reporting of how much money was being made etc:

On the foreign exchange blog, Forex Flow, a glowing endorsement of a trading news service claimed it had “direct access” to the bank’s press conferences that ran “five to eight seconds faster than any news service or video feed, which in this industry and trading, is a lifetime”.

The foreign exchange trader added that the founder Harry Daniels “and his team have not only made me (and others in our room) plenty of pips [percentage points] by being the fastest to a headline, they’ve saved me plenty of pips too in helping me being able to react to something that’s negative for a position I may have been in. That’s cost me a fair few lunches with Harry but that has been a grateful price to pay.”

That’s an advertisement for the system. Not an analysis of it.

Seriously, it’s like evaluating washing powders by believing the TV ads.

Another excellent hack

Hedge fund traders have been eavesdropping on the Bank of England’s press conferences before they have been officially broadcast, it has been reported.

One of the Bank’s suppliers has been leaking an audio feed of press conferences to high-speed traders, giving them the opportunity to act on Mark Carney’s comments before the rest of the world, The Times said.

Quite how high speed it was I’m not sure. Taking the audio feed directly might shave a second or two? Summat? Off the time it takes to get to the TV station, then be broadcast out, received? For I assume the press conferences are live and that live really is live. But then even live isn’t instant, is it?

Now, if someone wanted to be truly useful they’d hack into the bit where they draft the press releases…..


WeWork’s ousted founder Adam Neumann will land a $1.7bn (£1.3bn) pay day as part of a rescue deal from investor SoftBank – while thousands of the company’s ordinary staff face an uncertain future.

The business decided on Tuesday to accept funding from SoftBank in a move that cut its valuation to just $8bn and removed Mr Neumann as chairman. The firm had previously hoped to float for as much as $47bn.

As part of the deal, he relinquished his voting shares in the firm along with his board seat.

Mr Neumann will be given a $185m consulting fee and will also sell $1bn of stock to SoftBank, and will also get $500m in credit so he can pay off existing loans, The Wall Street Journal reported.

So, he gets to pay off the loans he’d taken out back by the value of that now collapsed stock. Phew for him, eh?

Because if he didn’t there would be bankers calling to ask for their money back. This also explains this:

A rival debt package offered by JPMorgan was rejected by WeWork’s board. JPMorgan’s proposal was seen as more risky because it had not underwritten the debt and was seeking banks and other investors to back the deal.

Getting the refinancing deal requires Neumann’s consent as the major (or a?) shareholder. A deal that didn’t get him off the hook for those loans isn’t going to be attractive now, is it?

Of course, this is merely suspicion but my bet is that JPM’s offer didn’t buy him out and therefore was rejected.

There are stupid forms of greed too

Mark Denning departed Capital Group five days after the asset manager was approached with claims that he had used a “secretive fund” to personally invest in some of the same businesses supported by funds he helped to manage on behalf of clients, according to a documentary to be screened tonight.

The claims, which suggest ordinary investors were exposed to serious conflicts of interest, are the latest blow to the fund management industry, which is under close scrutiny after the scandal surrounding Neil Woodford, the former star stockpicker.

The BBC’s Panorama alleged Mr Denning, 61, used a fund based in Liechtenstein, called Morebath Fund Global Opportunities, to buy the shares. The fund appeared to be named after the village of Morebath in Devon, where he owns a nine-bedroom house, Panorama said.

Front running your book is a bad idea in the first place. But to then provide such obvious evidence linking you to it is just stupid.

On the subject of shorting

Yes and no. Clearly some of the positions taken by Odey and Marshall Wace will pay off if there is a crash-out Brexit and UK-facing stocks are hit hard. Fund managers say the sectors most vulnerable to a no-deal Brexit are companies that make most of their profits in the UK rather than abroad – such as housebuilders and retailers – and Odey is in a lot of them.

Odey has big short positions against Intu Properties, which runs 17 shopping centres across the UK, the retailer Debenhams, and the housebuilders Berkeley Group and Cairn Homes.

Being short Intu and Debenhams as the High Street crumbles under the internet is a bet on Brexit now, is it?

Talking his own book or actual believer?

One of the interesting problems out there is that we do get cases like this. Where if the guy’s a crook he’ll be doing the one thing and if he’s honest as the length of an Icelandic summer day he’ll be doing exactly the same thing. So, how to decide which he’s being?

A Hargreaves Lansdown investment expert who held shares in Sirius Minerals urged savers to stick with the mining business just months before it was plunged into a financial crisis that saw 75% wiped off its share price.

In an article on the website of Britain’s largest do-it-yourself investment service, Nick Hyett urged people to be patient as Sirius scrabbled to secure finance for its mine in Yorkshire, which will extract the fertiliser polyhalite.

Hyett said that although 2018 had been a “painful year”, with Sirius’s share price dropping, the company had had “significant successes” and “construction was well under way” on the mine. He added that thanks to research showing the benefits of polyhalite in agriculture, there “should be plenty of demand for what Sirius will eventually be producing”.

The share price jumped 2.7% on May 14 — the day the article was published. Since then it has plunged 75%, and closed last week at 2.9p. At their height, the shares were worth 15 times as much.

So, was he just talking his own book? Or did he really believe and have his money where his mouth was?

An interesting way to tell would be to ask what’s his position in the stock today….

Anyone seen this FCA letter?

a href=””>The City regulator has warned Britain’s peer-to-peer lending industry to “act now” to clean up poor practices or face a “strong and rapid” crackdown.

The Financial Conduct Authority told chief executives of platforms which arrange billions of pounds worth of loans to address concerns and accused some lenders of exposing ordinary investors to undue risks.

In a seven-page letter seen by The Times and sent to 65 firms, the authority highlighted problems including weaknesses in disclosure of information to clients, opaque charging structures and inadequate record keeping.

I find this cum-ex difficult to believe

Cum-ex and its variant cum-cum were highly complex share deals with no economic purpose other than to receive tax ‘reimbursements’ from the state – but for tax that had never in fact been paid. This is how it went. The participants would lend each other shares of major corporations, creating the appearance for the tax authorities that there were two owners of the shares when in fact there was only one. The bank which settled the trades would then issue a ‘confirmation’ to the investor that tax on the dividend payment had been paid to the tax office – when in fact it had not. With this confirmation in hand, the investors were then ‘reimbursed’ by the state. It’s a bit like parents claiming a child benefit for two – or more – children when there is only one child in the family.

I always seriously doubt the ability of journalists to understand financial markets. So I’m not sure I believe this.

The trick seems to be that because the shares were traded on the ex-dividend date then there are two owners of record? Is that right?

Then someone who is righteously dividend tax free – a pension fund say – applies for a rebate?

Is that it? That simple?

Or is it actually not quite that simple. Is it more like dividend washing into tax exempt recipients?

According to Frey, an equity trader at a US investment bank came across the trade accidentally. He had bought shares that were delivered four days later. This interval covered the dividend payment day of the company whose shares he had purchased. This profit is taxed in the domicile of the company (say, Germany). German shareholders can ask for this tax to be reimbursed because they have already paid corporation tax.

The report is long on who went where, who was disguised as what and all that. And very short on actual descriptions of the deals being done. Look at that. That make sense? A dividend isn’t a profit. A shareholder can’t ask for it to be repaid because they’ve paid corporation tax.

A shareholder that is a corporation might gain a credit against a dividend, maybe. But that’s the sort of crucial detail that is important, no?

The trader suddenly realised he had this tax payable in his book without actually owning the shares. The amount was £50 million. It was a very large trade.

The trader wanted to get rid of these funds that were not his. He approached the seller of the shares who had also been reimbursed his tax. The bank’s legal department sought professional tax advice to find out how to return the money to the tax office. The answer came back: “You can keep it.”

If he owes tax then how can he keep it?

I’m just not getting it.

What really worries is that the reporting on how the deal worked is so confused that I’m not sure those doing the reporting grasp it. Which means, well, if they don’t understand it well enough to explain then how can we be sure of what happened?

The general tenor seems to be that if there are two owners on the ex-div date then two tax refunds can be applieed for and they’ll be paid. If so, whose fault is that?


 Investor A (e.g. an asset manager) owns shares worth 20m in listed company X.
 Investor B now buys shares worth 20m from company X as well, just a few days prior to
company X paying out dividend to its shareholders. The shares bought by investor B are
characterized as cum-dividend shares, because these shares will provide the buyer with
dividend. Investor B buys these shares from investor C, who- critically- does not own these
shares himself yet. Investor C is ‘short-selling’, and promises investor B to deliver the shares
at an agreed time.
 Now company X pays out the dividend- worth 1m- to investor A, who receives €750.000,-
directly from company X and a certificate from his own bank to reimburse €250.000,- worth
of dividend tax which has been collected by the German tax authority. As a result, investor
A’s shares are now worth 19m (20m – 1m dividend).
 Investor A now sells these reduced-value shares, characterized as ex-divided shares, to
investor C.
1) Simplified figure representing the German cum-ex scheme
 As agreed before, investor C now delivers these shares to investor B. However, because they
are worth 1m less, investor C pays investor B a dividend compensation worth €750.000,- and
investor B’s bank provides him with a certificate to reimburse €250.000,- of dividend tax.
 Finally, investor B sells his shares (worth 19m) back to investor A. As a result, both investor
A and investor B now own a certificate to reimburse the dividend tax, even though the
German tax authority collected the tax only once.
 The additional reimbursed dividend tax is shared between investors A, B and C.

That does make sense. And now the lovely question – is it illegal?

Not that I’m a lawyer or anything but I would have thought in a common law jurisdiction then yes. But in a Roman Law one? Where they’re not working from general principles but only from the details written down?

During and after the cum-ex scandal was exposed, a so-called cum-cum scheme was used by investors
in Germany and beyond as well. For a cum-cum scheme, a minimum of two parties is needed,
although the traders cooperating in the scheme are often supported by a bank. Below a simplified
example how the cum-cum scheme works in practice.
 Investor A owns 20m in shares in company X but has no legal right to reimburse dividend
tax, e.g. because he is resident in a different country.
 Investor A temporarily sells his cum-dividend shares to investor B who does have the right to
reimburse the dividend tax. Such a temporary sale is known as a ‘loan’.
 Investor B then receives €750.000,- in dividend payments from company X and a certificate
to reimburse €250.000,- worth of dividend tax.
 Investor B sells the shares ex-dividend, now worth 19m, back to investor A, who retained the
contractual right to buy back his shares. Through this construction, investor A retains his
shares, without suffering the negative consequence of losing €250.000,- on the total value of
his shares because he cannot reimburse the dividend tax. Investor A pays investor B a
compensation for his help.

And can’t see that as being illegal at all. Nor even immoral to be honest.

Doesn’t this just sound horribly dangerous?

Victorian England was not known for its progressive views. But one element of that strait-laced society was highly advanced in its thinking.

The finance industry, even then, was helping companies to raise money by issuing bonds and Law Debenture Trust, founded in 1889, was a key part of that nascent market.

The group was established to ensure that bonds were administered properly and that, if companies fell into problems, investors were treated fairly.

OK, old established, know what they’re doing, almost certainly some regulatory protection against competition as well. Now this:

Law Debenture still performs that task today. Over the past 130 years, however, the group has evolved considerably, not least in the past 15 months, during which time it has acquired a new chairman, chief executive and finance director.

The top team are determined to galvanise growth at Law Debenture and the shares, at 576p, should respond.

Anything like that reminds me of Willy Hutton at The Industrial Society. No, obviously not the same etc. But, you know, can’t help thinking of eager new management in to shake up old established expertise….

The positive money fools

So, why did Northern Rock go bust then?

Because it expanded its loans faster than its deposit base. That’s what we’re told at least:

Had Northern Rock instead expanded its lending – and created the type of money used by the public – at the same rate as other banks, it would have found that its daily inflows of central bank reserves roughly matched its outflows (since the payments from its customers to other banks would be cancelled out by payments from other banks to customers of Northern Rock). It is unlikely that it would have become so dependent then on interbank lending to be able to make its payments. The very reason why Northern Rock went bust was the sheer speed at which it was creating money through issuing loans, which created a massive outflow of deposits which had to be settled by securing the reserves from somewhere.

Well, no, not really, because those deposits created by its own lending, they were heading out the door too – recall those lines waiting for their money back?

Still, their correction of my argument does end up confirming my argument.

Banks don’t create money, they create credit. It’s central banks that create money. The entirety of their confusion coming from money pus credit equals one measure of the money supply.

As a guide to their level of accuracy:

It’s worth considering who’s most likely to be accurate: a Daily Telegraph journalist and the commenters on his blog, or the Deputy Governor of the Bank of England and other banking officials quoted here.

They think I work at the Telegraph. Hmm…..

But convertible into what?

Patisserie Valerie’s management snubbed a £30m deal that would have protected small investors, it has been revealed, as furious shareholders rounded on the company last night.

Investment fund Crystal Amber was plotting a convertible debt deal to rescue the firm which would have meant investors would not have seen their stakes diluted by the emergency fund raise that offered up new shares at a huge discount.

Convertible into equity. Which means dilution, doesn’

Well, why not?

Ten years after Lehman Brothers collapsed, high-octane products like those which led to the destruction of the American banking giant are making a comeback.

A decade ago Lehman heavily pursued subprime mortgage-backed loans, which were put into complex bundles obscuring their risk and value. This left the firm highly exposed to movements in the housing market and eventually triggered the biggest bankruptcy in US history.

These mortgage-backed securities which have become the most identifiable trigger for the financial crisis are now attracting fresh interest among investors. This is despite some market experts describing the housing market as a “bubble on a bubble”.

Nowt wrong with sub prime mortgages as long as they’re priced right. And as long as the holders aren’t leveraged banks.

What’s the problem?


Lehman Brothers went bust 10 years ago – can it happen again?

Lehman Brothers remains bust, is not operating, and so cannot go bust gain.

From our series Questions in the Guardian we can answer.

Willy Hutton doesn’t understand the word “cost”

The bill for all these mistakes would be picked up by wider society, with perpetrators suffering nothing – nationalising losses and privatising gain. The whole effect was to transmute capitalism into a system of value extraction rather than value creation, with knock-on effects that depressed wages and contractualised work into short-term and zero-hour contracts. The financial system, based in London and New York, had become damnable – the nightmare of our times.

The cumulative costs of this have become so large they can scarcely be comprehended. The total cost across the west of recapitalising bust banks, offering guarantees and making good disappeared liquidity is estimated at $14tn.

No, that’s the outlay. What was returned? For example, we taxpayers made a stonking profit – as we should – on the liquidity provision.

We live in a world in which the price of US Treasury bonds – a market of multi-trillion dollars – can move 10% in 10 minutes.

Eh? Absent a change in base rates (or Fed Funds) is that really true? Is it me just not noting or has Hutton managed to get something terribly wrong?

Note that price is price, that’s what he says, not yield.


One final note that makes me chuckle. Elon made his big announcement on Twitter. He has also blocked a lot of people on Twitter–including me in 2013 or 2014. Well, selective disclosure of public information–giving it to some people earlier than others–violates Reg FD (“Regulation Fair Disclosure”). So by (a) blocking me (and many others) on , and (b) running his big brain waves through Twitter, Elon might have committed other securities violations.


Never fails, The Guardian and numbers

But does it mean cheaper holidays? Yes. According to cost-of-living website Numbeo, the price of a beer in Bodrum has fallen by £2.60 to £1.60,

It’s fallen from, to, not by.

The Turkish lira hasn’t fallen that much, Jeebus. Well, yet, wait ’till Spudda advises Erdogan. Maybe taxes should rise by 10% of GP instead of interest rates going up. You know, monetary policy doesn’t work, only fiscal does, that’s the lesson of MMT.

Oh Aye?

Tesla shares climbed as much as 13pc on Tuesday night after its mercurial co-founder Elon Musk announced he was considering taking the electric car maker private.

In a series of tweets Mr Musk, who has repeatedly complained about Tesla’s treatment on the public market and clashed with analysts, said he had already secured funding for the plan.

The company later released a statement, in which it said a final decision had not yet been made on whether to take Tesla private.

Well, that’s one way to boost the share price ahead of a capital raising. You know, say you’re going private, but haven’t quite decided, stock price jumps, have a rights issue instead claiming circumstances have changed.

What would be interesting to know is what the bond covenants say. Do holders have a change of control put on them? That would mean they’ve got to refinance all the debt at the same time. No, I don’t know. But it would, to me at least, indicate that the going private is less likely than the public capital raise.

And onto entire speculation. I don’t think – not that I’ve particularly studied it – that Tesla can get to mass market without more capital. But I also think that it’s only one more decent slug and they could. Thus it’s actually worth, for the long term perspective, destroying the current share price with a screw the fanbois massive rights issue. One that’s fully underwritten of course so they’re guaranteed the money.

But then there is a reason why I didn’t become a banker…..

All most amusing

The growth of modern capitalism is being charted at the National Theatre in London in the swashbuckling, immigrant-entrepreneurial tale of the Lehman brothers. They sold overalls in 1850s Alabama, bought farmers’ raw cotton to sell to factories, diversified into coffee, rail and oil, and finally gave up on solid objects to deal only money.

In the final moments of the play the last family board member (40 years before the financial crash) prophesies that the next stage in banking is to exploit credit, “break the barrier of need” and make buying as routine as breathing: “Anyone can buy anything, and everything is a bargain!”

And so the mass-consumption society was born, and skidded all the way to the modern subprime mortgage crisis.

Well, no. Actually, entirely the wrong way around. Lehman went bust – truly, properly, bust – as a result of investments in real assets. Property in the Inland Empire if memory serves, but it might not. The bank run, the subprime mortgage crisis, these were to denouement, not the cause.

So this stuff that everyone knows about what happened is entirely, wholly, wrong. Which is going to cause certain problems when people try to apply the lessons, isn’t it?