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Money Stuff: Investment Banking Is Cheap If You’re Rich

Matt Levine
Money Stuff
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Saudi Banking

  • Despite attracting $125 billion in orders from investors for an IPO of Saudi Telecom Co.’s internet-services unit, banks are set to share only about $12 million in fees (1.3% of the offering value).
    • If banks are flocking to you because you have so much money, the best thing to do is not give them any of it.
    • Banks nowadays bank on relationships rather than fees.
    • Because of this, companies with a lot of money will naturally enjoy discounted investment banking services as banks try to flock to them to build a relationship.

Tax Rules

  • Tax lawyers at big accounting firms who work on various corporate tax issues go to the IRS for a few years to write industry-favorable rules, and then go back to the accounting firms to keep working on those issues with the more favorable rules.
    • These new rules will allow for a lot of corporate tax inversions, therefore making the job of the tax lawyer more valuable.
    • Dilemma: If you want to craft good corporate tax regulations, you need to hire tax lawyers. It just so happens that these tax lawyers primarily work to minimize taxes for corporations.

Debt-for-nature swap

  • Belize agreed to buy back its only international bond from investors at a huge discount using lent cash from Nature Conservancy. As a part of the deal, Belize will pre-fund a $23.4m endowment to support marine conservation projects on its coastline.
    • Creditors will get valuable ESG points for lending money for conservation efforts while the debtors get to pay back less.

Will the Index funds save us?

  • Roberto Tallarita of HLS said large asset managers can force companies to reduce their impact on climate change because index fund portfolios mirror the entire economy and, therefore, internalize climate risk.
    • Because climate change is a quintessential market failure, index fund managers will be incentivized to reduce it.
    • They care less about company-specific matters because the only way they can improve returns is to improve market-wide outcomes.

Spreading Comps

  • Target firm advisors strategically select peers with high valuation multiples for their comparable companies analysis to negotiate higher takeover prices.
    • Investment banks pick companies with high EV/EBITDA ratios to get high valuations.
    • Bankers may use high-value peers when negotiating the deal, and then low-value peers when writing the fairness opinion to try to get the deal approved.
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