December 6, 2023

Investment Banking

Let Your Investment Banking Do The Walking

An investment plea to the private sector- POLITICO

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DAY 2 AT THE MILKEN CONFERENCE — Good morning, MM readers. We’re here at the Milken Institute Global Conference in Los Angeles for the second day, catching up with public and private sector leaders about regulation, crypto, housing, infrastructure, the labor market and more.

We sat down briefly with Deputy Treasury Secretary Wally Adeyemo before his panel Monday, and after an event he held in Compton highlighting efforts to expand affordable housing. Some of the highlights:

On emphasizing private investment in job creation and housing:

“The reality is that in places like Compton, there are people who would love to find jobs, and how do you invest in job training and how do you invest in housing in these communities? Because ultimately doing that is going to be critical to our economy going forward.”

On other examples of successful public-private partnerships:

In Orlando, Fla., “they’re investing the [American Rescue Plan] money in two things: One is a job-training program, two is affordable housing. Because they know they’re both related. … Lockheed Martin is hiring people who are going through a job training program where they’ve learned to make circuit boards … And now they’re able to afford the housing that the city is helping to build. So it’s all about how they’re building this ecosystem. And a big piece of it is getting big companies and big investors to come in to help with some of the financing.”

On a dinner he co-hosted with Ukraine’s finance minister, Serhiy Marchenko:

“A lot of U.S. companies have made pledges to provide humanitarian relief, or to do different things to support Ukraine or have pulled out of Russia in total. But the finance minister’s call was really to think about what does it look like for your companies to invest in Ukraine? To make investments in their country, so that people in Ukraine have jobs going forward.”


Your MM host moderated a panel on infrastructure investment with Nevada State Treasurer Zach Conine, Siemens CEO Barbara Humpton, Edison International President Pedro Pizarro and ClearPath founder and American Flood Coalition President Jay Faison.

The takeaways: Public-private partnerships are essential to help stretch the government’s $1 trillion in infrastructure investments; we need better data to help drive better infrastructure investment decisions; permitting is a disaster — ditto for supply chains; we need more skilled workers.

Big thought from Conine: “We are starting to move away from projects that are ‘shovel ready’ to projects that are ‘shovel worthy.’”

Our Ryan Heath, who is covering the conference with a special edition of his Global Insider newsletter, sat down with former National Economic Council Director Gary Cohn, now a vice chair at IBM.

What’s the biggest economic issue today in America? Cohn says: “It’s hard to figure out what our economic growth strategy is, because I don’t understand how our energy policy, our climate policy, and our industrial policy intersect. How is anyone — whether it be Washington, or in the corporate world — supposed to make a decision, not understanding those and how they work together?”

News from Milken:

— Citi CEO Jane Fraser said the company is in “active dialogue” with potential buyers of its consumer and commercial banking operations in Russia, in an interview with Bloomberg TV on the sidelines of the conference.

MEANWHILE IN WASHINGTON … regulators have restarted efforts to overhaul the Community Reinvestment Act. The Federal Deposit Insurance Corp. will meet Thursday to vote on a long-awaited proposal to update the landmark anti-discrimination law, the result of years of interagency work, your other MM host reports.

“This would be the second recent attempt by bank regulators to modernize anti-redlining rules, which were designed to ensure that banks serve lower-income borrowers in the places where they take deposits, particularly people of color. The previous effort, under former President Donald Trump, led to a rule that was only finalized by then-Comptroller of the Currency Joseph Otting, without sign-on from the Federal Reserve or the FDIC. (That rule was officially rescinded by Acting Comptroller Michael Hsu in December.)”

This proposal has been a long time coming. Staff at the three agencies had already done quite a bit of legwork under the Trump administration, though this final stretch is spearheaded entirely by Democratic appointees (Lael Brainard has been the CRA point person at the Fed for years). There are a number of big, looming questions, such as the extent to which any rule might explicitly direct lending toward Black or Hispanic borrowers (race, believe it or not, is never mentioned in the law), whether climate change will feature more prominently, and how any quantitative metrics for measuring CRA activity might work.

But ultimately, a CRA overhaul is about responding to the evolution of financial services technology. Because the rules are currently focused on where physical branches are located, when so much banking now happens online, the status quo could eventually lead to a law that is effectively obsolete.

JUST IN: SEC TO NEARLY DOUBLE CRYPTO ENFORCERS — Our Sam Sutton: “The SEC is bringing in reinforcements to beef up its oversight of crypto markets.

“The agency on Tuesday announced it was creating 20 new positions within its enforcement division to investigate securities law violations involving crypto exchanges, lending and staking products, decentralized finance platforms, non-fungible tokens and stablecoins, among other offerings. The new hires will bring the headcount of the SEC’s cyber unit, now rebranded as the ‘Crypto Asset and Cyber Unit,’ to 50 dedicated professionals.”

EU PREPARES BAN ON RUSSIAN OIL — WSJ’s Laurence Norman and Bojan Pancevski: “The European Union is likely to propose ending purchases of Russian crude oil by the 27-country bloc before the end of 2022, and a ban on purchases of Russian refined-oil products by year-end, according to two senior diplomats.

“The proposals, set to be circulated on Tuesday to EU member states, would be the centerpiece of a sixth package of EU sanctions on Moscow over its invasion of Ukraine. Slovakia and Hungary would get additional time to implement the embargo because of their particularly high dependence on Russian oil. A decision by EU member states could come this week.”

10-YEAR U.S. GOVERNMENT DEBT HITS 3 PERCENT — WSJ’s Sam Goldfarb and Heather Gillers: “The worst bond rout in decades hit a new milestone Monday, with the yield on the 10-year Treasury reaching 3% for the first time since late 2018.

“The yield on the benchmark 10-year Treasury note, which rises when bond prices fall, surged at the start of U.S. trading and reached as high as 3.008% in the afternoon, as traders braced for the outcome of this week’s Federal Reserve meeting. It then slipped below 3% to settle at 2.995%, according to Tradeweb, up from 2.885% Friday.”

WHAT WE’RE LISTENING TO: RANDAL QUARLES GETS A LITTLE SPICY — The former Federal Reserve vice chair for supervision is in a new podcast episode from IntraFi’s Rob Blackwell, covering topics from inflation to partisanship. On a central bank digital currency, he said “the argument that ‘everybody else is doing it, so we have to’ is “an argument that you expect from a 17-year old, but not from a central bank.”

He also had some advice for his successor (which will be former Treasury official Michael Barr if he is confirmed): “Part of your job, the reason that this position exists, is for you to be on the basis of that technocratic analysis, to be able to go to the folks who wear your own political jersey and say, ‘This isn’t going to happen.’”

MUSK IN TALKS ABOUT NEW FINANCING FOR TWITTER BUY — Reuters’ Chibuike Oguh and Krystal Hu: “Elon Musk is in talks with large investment firms and high net-worth individuals about taking on more financing for his $44 billion acquisition of Twitter Inc and tying up less of his wealth in the deal, people familiar with the matter said.

“Musk is the world’s richest person, with Forbes estimating his net worth at about $245 billion. Yet most of his wealth is tied up in the shares of Tesla Inc, the electric car maker he leads. Last week, Musk disclosed he sold $8.5 billion worth of Tesla stock following his agreement to buy Twitter.”

CITADEL’S GRIFFIN SEES PATH TO AVOIDING RECESSION — Bloomberg’s Katherine Doherty, Chris Anstey and Katherine Burton: “Citadel founder Ken Griffin said the Federal Reserve will be able to ease off monetary tightening if inflation drops to 4% by year-end. That ‘will give the Fed much more latitude in policy,’ Griffin said Monday in a wide-ranging interview with Bloomberg’s Erik Schatzker at the Milken Global Conference in Beverly Hills. But if it remains near or above the current 8.5%, the central bank ‘will have to the hit brakes pretty hard,’ tipping the economy into recession.

“The billionaire also highlighted the big disconnect in the labor market, noting there are twice as many job openings than unemployed people seeking work. That will put even more upward pressure on wages, further exacerbating inflation, he said. That the economy isn’t pulling more people off the sidelines of the job market is a ‘real problem,’ he said.”

EUROPEAN FLASH CRASH CAME AFTER CITI SALES — WSJ’s Anna Hirtenstein and David Benoit: “Several European stock markets suffered a ‘flash crash’ on Monday morning following sell orders by Citigroup Inc., C 1.04% according to people familiar with the matter.

“Trading was halted momentarily in several markets after major stock indexes plunged for a few minutes just before 10 a.m. Central European time. Stocks in the Nordic region were hit the hardest, though other European stocks also tumbled briefly on a day when share prices around the globe declined. Nasdaq and Euronext NV, which operate stock exchanges across the region, said they are investigating the cause. Nasdaq said it hasn’t seen any reason to cancel trades.”

ARCHEGOS INDICTMENT RAISES NEW QUESTIONS ABOUT BANKS — Reuters’ Elizabeth Dilts Marshall: “New details revealing how Archegos Capital Management founder Bill Hwang hid his fund’s extreme exposure from its lenders raise fresh questions about the risk management policies at these global banks, former regulators and risk experts said.

“Hwang and Archegos Chief Financial Officer Patrick Halligan were arrested Wednesday on charges they lied to banks to increase Archegos’ credit lines and used the money to ramp up their exposure to a handful of stocks, which they also manipulated, according to a Justice Department complaint. The pair vigorously deny all the charges.”

AFTER THE PANDEMIC, A BLACK BUSINESS BOOM — WaPo’s Tracy Jan: “In the early months of the pandemic, Black-owned small businesses closed at twice the rate of other businesses, with 41 percent shutting down, according to April 2020 census data. Concentrated in the retail, restaurant and other service industries, Black owned-businesses had a harder time pivoting given pandemic restrictions. They operated on thinner margins, lacked relationships with banks and were shut out of the federal government’s relief program for small businesses.

“Then Black business ownership rebounded, soaring higher than it had been pre-pandemic, a Washington Post analysis of Bureau of Labor Statistics showed. In 2021, Black-owned small businesses were created at the fastest clip in at least 26 years.”

A PLAN TO HELP KIDS WITHOUT INCREASING INFLATION — Former Treasury Secretaries Robert Rubin and Jacob Lew in an NYT op-ed: “As the White House and Congress negotiate economic legislation, they should prioritize making the Child Tax Credit available to families with low or no earnings through a provision known as refundability, and expanding support for child care.”

“ … It will most likely be too costly to include a full Rescue Plan expansion of the credit. But even a partial increase would help. The most critical step, where benefits to families and society far exceed the comparatively low costs, is permanently making the entire credit available to the lowest income children. For example, just making the current $2,000 credit refundable would reduce child poverty by roughly 20 percent.”