Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I'm really jealous that you're taking two weeks off.
Speaker 1: Yeah, I'm pretty you're already.
Speaker 2: I was going to say that, but I was going
Speaker 2: to say you're already pretty tan. Yeah, I feel like
Speaker 2: so I'm excited to see you after two weeks.
Speaker 1: I'm gonna work very rigorously.
Speaker 2: On my good I mean, were SPF please do it responsible.
Speaker 1: You come back and be like the colorless table for.
Speaker 2: Those table listening at home. It's a handsome mahogany o.
Speaker 1: Plastic.
Speaker 2: It's not real wood.
Speaker 1: It's maybe it is, I don't know what. But yeah,
Speaker 1: So I'm out for the next two weeks.
Speaker 2: I'll be here.
Speaker 1: Yeah, keep me up to date on the gossip.
Speaker 2: Yeah, plenty of tea. I'll keep the tea flowing.
Speaker 1: So this episode is coming on this Friday. You will
Speaker 1: have a mail bag.
Speaker 2: Mail bag.
Speaker 1: I'm gonna say we're gonna have a mail bag the
Speaker 1: following week.
Speaker 2: We're recording it directly after this episode, so it's actually
Speaker 2: still up in the air. Good to see if we.
Speaker 1: Right, we'll cut the enjoy it potentially, but like probably
Speaker 1: we're gonna have this episode out on August eighth and
Speaker 1: the mail bag out on August fifteenth, and then on
Speaker 1: August twenty second, you'll be alone with your thoughts.
Speaker 2: Money Stuff will go dark, but it'll be okay. I
Speaker 2: think we all need that.
Speaker 1: Recent twenty second.
Speaker 2: Yeah, you know. Actually I won't even be on air
Speaker 2: that day because it'll be our chick, our jackson Hole special.
Speaker 2: So let's all just enjoy jackson Hole together. You know,
Speaker 2: take a look at some central bankers in front of mountaintops.
Speaker 2: And we don't need to listen to a podcast that day.
Speaker 1: But you do need to listen to a podcast.
Speaker 2: Today, and we're going to really try hard to make
Speaker 2: this one good.
Speaker 1: You might Hello, and welcome to the Money Stuff Podcast,
Speaker 1: your weekly podcast where we talk about stuff related to money.
Speaker 1: I'm Matt Levian, and I write the Moneys Doff column
Speaker 1: for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: Kitty. I feel like I follow Elon must pay more
Speaker 1: than he does more than I don't think that's true.
Speaker 1: Way I believe you must pay. It is rumor that
Speaker 1: he follows my vacation schedule schedules his most insane activities
Speaker 1: for when I'm supposed to be on vacations that I
Speaker 1: have to write about them. I don't think this is true.
Speaker 1: I don't think he consciously going to find out, but
Speaker 1: we're gonna find out here. I am talking on a
Speaker 1: podcast about taking two weeks off. So if Elon does
Speaker 1: something really egregious in the next two weeks, you'll know why.
Speaker 2: Well, he should be happy or right now he got out?
Speaker 1: Or do you think thirty billion dollars makes him happy?
Speaker 1: I'm fine, it's.
Speaker 2: You know, I have to imagine. Maybe he's not completely happy,
Speaker 2: but he he's a degree happier than he was perhaps.
Speaker 1: So the news is that Tesla's board announced that it's
Speaker 1: going to give Elon Musk an interim award of twenty
Speaker 1: eight billion dollars worth of I was going to say
Speaker 1: stock options slightly Morgan's like restricted stock units with a
Speaker 1: strike price, but it's stock options whatever. They also giving
Speaker 1: him that as basically a good faith payment, because, as
Speaker 1: we've talked about on this pot a lot, he was
Speaker 1: awarded a bunch of options in twenty eighteen. They were
Speaker 1: all contingent on him making Tesla the giant company. He
Speaker 1: made Tesla the giant company he got the options. They're
Speaker 1: worth something like eighty seven billion dollars today, and then
Speaker 1: last year at Della Recurt said, no, those weren't valid.
Speaker 1: They go away. And so now Tesla's in this weird bind.
Speaker 1: They're like appealing the decision and stuff. They're trying to
Speaker 1: get him back that money, but there are various governance
Speaker 1: and tax and accounting and legal complications around getting him
Speaker 1: back that money, and they're still kind of figuring out
Speaker 1: how to do it. But as a good faith down
Speaker 1: payment on there desire to give him back those options,
Speaker 1: they gave him back twenty eight billion dollars of them
Speaker 1: this week. So you're asked if that made him happy.
Speaker 1: One thing I wonder is was it a surprise, because
Speaker 1: like the previous set of options, like he sort of
Speaker 1: negotiated with the board, you know, in twenty eighteen, and
Speaker 1: like there was obviously like you know, this is an
Speaker 1: incentive package that you know, we're giving you these targets
Speaker 1: that are super ambitious, but you know you think you
Speaker 1: can meet them. So that was like an employment deal
Speaker 1: that he struck with the board. Right, this is like
Speaker 1: this could have just been like surprise some of your
Speaker 1: money back. It's possible the board did it without him,
Speaker 1: which would be kind of funny. If he just woke
Speaker 1: up one day and, like, you know, at a twenty
Speaker 1: eight billion dollar transfer in his bank account, that'd be
Speaker 1: pretty cool.
Speaker 2: Why twenty eight billion? Why not just make it eighty
Speaker 2: seven billion.
Speaker 1: Part of it is like they're still figuring out what's happening, right,
Speaker 1: So this is like a down payment on figuring out
Speaker 1: the whole answer to this question. Right. If they win
Speaker 1: the appeal, this award goes away, and it's really easier
Speaker 1: to have given him less while they're on appeal. I
Speaker 1: think it's possible that part of the answer is that
Speaker 1: funny that this is to say that Tesla's board of
Speaker 1: directors and the special committee that gave him this award
Speaker 1: are independent and are thinking about their friduciary duty to
Speaker 1: Tesla's minority sholders or outside shoolders, and are thinking not
Speaker 1: only what would be nice for Elon, but also how
Speaker 1: do we motivate him to maximize the value of the company.
Speaker 1: And it's possible that giving him all of the options
Speaker 1: right now is not the answer to that question. It's
Speaker 1: possible that, like the ultimate structure they'll come to is
Speaker 1: something like, you get thirty billion dollars of this stuff
Speaker 1: and a new award with new targets that requires you
Speaker 1: to do new stuff. But for now, they give him
Speaker 1: this award and it has essentially two contingencies. One is
Speaker 1: that he has to say there for two years, which
Speaker 1: who knows, and the other one is that it goes away.
Speaker 1: If they win the appeal, he gets all the previous
Speaker 1: options back.
Speaker 2: He doesn't get these options twenty eighteen options.
Speaker 1: Yeah, so if he gets that, like nineteen thirty seven
Speaker 1: billion dollars, this is not additive to that.
Speaker 2: Like, so no double dipping, no double dipping. Isa, you
Speaker 2: talk about this a little bit in your column that Okay,
Speaker 2: it has these strings attached. It's contingent on him staying
Speaker 2: there for two years.
Speaker 1: Very few strings. Well, like, sure he has to say
Speaker 1: there for two years, but it's like a fourteen billion
Speaker 1: dollars a year payback.
Speaker 2: But isn't I don't know. Isn't a little weird that, Okay,
Speaker 2: you have to stay here another two years, but also
Speaker 2: this is making good on our promise for things you
Speaker 2: already Yeah, I.
Speaker 1: Agree with you. It's a little weird if their mentality
Speaker 1: is truly like we owe you this and we're giving
Speaker 1: it to you no matter what. Then you're right, he
Speaker 1: shouldn't have this there for two years. But I don't
Speaker 1: think they can really do that. I think they really
Speaker 1: have to be like in a posture of like, we
Speaker 1: are maximizing value for the shareholders, and we have to
Speaker 1: get something going forward from it. And if we're just
Speaker 1: giving Elon Musk twenty eight billion dollars on his way
Speaker 1: out the door, then that is not a good use
Speaker 1: of shareholder resources, even if it's in some sense fair true.
Speaker 1: Also like it doesn't seem like that big an ask
Speaker 1: like years, it's like, you know, his main source of
Speaker 1: wealth more or less. And also like it's not that
Speaker 1: big an asking in the sense that, like you and I,
Speaker 1: if we got like a great job opportunity, we would
Speaker 1: have to sadly quit this job to pursue that great job.
Speaker 1: That is not a problem for Elon Musk. He can
Speaker 1: have as many jobs as he wants. Like, they're not
Speaker 1: requiring him to only work at Tesla for two it's
Speaker 1: just like to have it.
Speaker 2: You know, have his name on the door for continuously
Speaker 2: right intermittently.
Speaker 1: Yeah, an alternate two days so I think it's fine.
Speaker 1: I think he's like not a big ass, right, Like
Speaker 1: he can spend one hundred percent of his time elsewhere
Speaker 1: for two years and still be the CEO of Tesla.
Speaker 2: So yeah, which is so would argue that's what's been happening.
Speaker 1: Many would argue.
Speaker 3: Quo.
Speaker 1: And I think, you know, again, like the board, like
Speaker 1: they're doing two things right. They're trying to be fair
Speaker 1: to Elon, which I think is like a legitimate concern.
Speaker 1: Like I think the board things and Elon things. I
Speaker 1: think they have a real point that he earned this
Speaker 1: eighty seven billion dollars of options, and so you should
Speaker 1: get them and just retroactively, he should get them for
Speaker 1: his prior work. Right, So they're trying to be fair,
Speaker 1: But they're also trying to you know, do good things
Speaker 1: for the company and situate the company well going forward.
Speaker 1: And so you know, their announcement is not just like
Speaker 1: literally like yes, I have a name there for two
Speaker 1: more years. It's like we need him to focus on
Speaker 1: building AI and like attracting talent to this company because
Speaker 1: we're in an arms race for AI and Tesla is
Speaker 1: an AI company. You know, Kittie's rolling rys. It's reasonable
Speaker 1: because like Elmos does have an AI company that's not Tesla.
Speaker 2: Yeah, but like Tesla is, you know, it's valued like
Speaker 2: an AI.
Speaker 1: It's not valued like a car company that sells as
Speaker 1: many cars as itself. Right, It's valued like the future
Speaker 1: of life, robotics, AI something, some thing something, And so
Speaker 1: to you know, live up to that valuation, they need
Speaker 1: to keep him around to be their futurist in residence.
Speaker 2: Yeah. I anchor a television show with Matt Miller. Yeah,
Speaker 2: and he's a car guy, So talking about Tesla makes,
Speaker 2: you know, smoke come out of his ears. When we
Speaker 2: talk about the fact that it's a trillion dollar company,
Speaker 2: you add up the market caps of the big three Stilantis, Ford,
Speaker 2: and GM and it comes out to less than one
Speaker 2: hundred and fifty billion dollars, which shocked me. Actually, I
Speaker 2: didn't realize it was that low. So a trillion dollars, Yeah,
Speaker 2: I wanted to talk a little bit more about the
Speaker 2: fact that, Okay, if we're talking about this options package,
Speaker 2: the thirty billion dollar one, so Tesl would take an
Speaker 2: enormous tax hit if this happens.
Speaker 1: Well, Elon Muss would take a tax hit.
Speaker 2: Elon Muss would take a tax hit, Tesla would take
Speaker 2: a hit to their earnings.
Speaker 3: Correct.
Speaker 1: Yeah. Basically, the way it works is that when they
Speaker 1: granted the options in twenty eighteen, they were, for accounting purposes,
Speaker 1: kind of worthless because they were at the money, so
Speaker 1: they were not like a gift of stock that day.
Speaker 1: And because they had these really aggressive conditions where you know,
Speaker 1: it's like a sixty billion dollar company, you would have
Speaker 1: to grow it into a six hundred and fifty billion
Speaker 1: dollar company to get all the options, and so you
Speaker 1: can go to your accounts and say, that's not very
Speaker 1: likely to happen. So the value of this grant day
Speaker 1: one is not very much. When they do it retroactively, now,
Speaker 1: the value of the grant day one is kind of
Speaker 1: twenty eight billion dollars. But they apparently this is a
Speaker 1: disclosure and it's at a little unclear while though I
Speaker 1: have my assumptions. They apparently went to the accounts and
Speaker 1: said it's very unlikely that he'll get these options, and
Speaker 1: so they're worth nothing, and the accounts a great and
Speaker 1: so they say right now that they plan to not
Speaker 1: incur any expense for the options because it's unlikely that
Speaker 1: the performance conditions of the options will be met, but
Speaker 1: there are no performance conditions. So we talked about the
Speaker 1: two conditions, which are one he has to say that
Speaker 1: for two years, and two these go away if he
Speaker 1: gets back the previous charge, like basically, if they win on.
Speaker 2: Appeal court case, it's a Delaware decision is overturned returned.
Speaker 1: Yeah, And so what I think they're saying is that
Speaker 1: there is a less than like twenty five percent chance
Speaker 1: of both of those conditions being met. That is, either
Speaker 1: they're very confident that the Delaware decision will be overturned,
Speaker 1: or they're very confident that he lends going to quit
Speaker 1: in the next two years, or they believe like the
Speaker 1: joint probability of neither of those things happening is very low, right,
Speaker 1: Like they think if the decision is not overturned, hell
Speaker 1: quit something like that. So this is a funny little
Speaker 1: like I don't know what those conversations with their accountants
Speaker 1: were like, but I found it amusing that, Yeah, they
Speaker 1: would not have a high degree of confidence of him
Speaker 1: meeting these very limited performance.
Speaker 2: Conditions, but it seems like, I don't know, listening to that,
Speaker 2: that they seem somewhat confident that the Delaware decision.
Speaker 1: Beeve weird to go to your accountant and be like,
Speaker 1: this one hundred page opinion by the Delaware chancellor is
Speaker 1: obviously wrong in the accounts, Like, yeah, it's obviously wrong.
Speaker 1: That's going to be overturned. Like, you know, I don't
Speaker 1: think they got a legal opinion saying this is definitely
Speaker 1: going to be overturned. Maybe they did. I don't think
Speaker 1: it's crazy, by the way, Like it's kind of a
Speaker 1: weird opinion. It's kind of a weird outcome. Like there's
Speaker 1: this weird political environment where Delaware is losing companies. You
Speaker 1: could imagine it being there's the reasons it would be overturned,
Speaker 1: but it's not like, oh, it's definitely going to be overturned.
Speaker 2: History in real time and we are chronicling it.
Speaker 1: Not for the next two weeks or not that's true.
Speaker 2: Who knows. I didn't say anything about his political activities,
Speaker 2: Like you think about the the serious overhand over the stock.
Speaker 1: No, you're the Tesla board and you're like, OKAYLN, in
Speaker 1: order to get your twenty eight billion dollars of options,
Speaker 1: you have to not do a list of bad things, right,
Speaker 1: we're the list of bad things, Like Okay, sure it
Speaker 1: starts with like enraging customers by doing political activities and
Speaker 1: then go out to like Ketamane and like, you know,
Speaker 1: running seven other companies. Like no, he would much rather
Speaker 1: have his complete freedom to do whatever he wants. And
Speaker 1: then twenty eight billion dollars. I mean, I'm speculating that.
Speaker 2: I talked to him this morning.
Speaker 1: I don't know, Like it's easy for me.
Speaker 2: We're just talking about plenty of money at this point.
Speaker 1: Right, He's like, right, we are talking about funny money. Yeah,
Speaker 1: Like he lives in a state in which if he
Speaker 1: wanted any number of dollars to do anything, he could
Speaker 1: snap his fingers and it would like magically appear. So
Speaker 1: like there is a sense of fairness. There is a
Speaker 1: sense of like, you know, wanting to have a certain
Speaker 1: ownership of Tesla. There's all this stuff that goes into
Speaker 1: him wanting to have tens of billions of dollars of
Speaker 1: Tesla actions. But if he needs money to do something,
Speaker 1: he'll find money to do something.
Speaker 2: He's going to be all right, Gus, he wants to
Speaker 2: be okay, how about corporate actions?
Speaker 1: About corporate access?
Speaker 2: Bradley Sacks over a business insider Bloomberg along great peace
Speaker 2: out about.
Speaker 1: Like the big hedge funds and corporate access. I love
Speaker 1: corporate access because it's like it makes no sense, No,
Speaker 1: it makes total sense, but like it makes people insane.
Speaker 1: Corporate access is like investors largely big you know, institutional investors, hedgehunds,
Speaker 1: and like mutual fund matters. Investors like to meet with
Speaker 1: the companies who shares they own and the companies who
Speaker 1: shares their considering buying. And they will sit down with
Speaker 1: the CEO and be like, so, how's business, And they
Speaker 1: learn things in these meetings. Theoretically, No, theoretically they don't,
Speaker 1: right because, like you know, the US has rules saying
Speaker 1: that regulation FD says that companies can't disclosed material and
Speaker 1: public information to some investors without disclosing it publicly to everyone.
Speaker 1: And yet these meetings happen, and you know that they
Speaker 1: learn something because one they keep doing the meetings, right. Sure,
Speaker 1: you know, people don't waste their time for no reason, right,
Speaker 1: Like they think they're learning something. And then it's like
Speaker 1: a little hard to study. But there are some empirical
Speaker 1: studies where academics like look at these meetings and they
Speaker 1: find that investors who have meetings with management then make
Speaker 1: more informed trading decisions than they do if they don't
Speaker 1: have the meetings. So it's clear that these meetings have
Speaker 1: some value. And you know, it's like this gray intermediate
Speaker 1: area between. They can't get material on public information, right,
Speaker 1: Like the company can't be like, oh, our earnings are
Speaker 1: going to be really good next quarter if they haven't
Speaker 1: already given guidance on the earnings. They can't be like, oh,
Speaker 1: we're getting acquired next week.
Speaker 2: Right.
Speaker 1: They can't give like big material information, but they can
Speaker 1: talk about how they think about the business. They can like,
Speaker 1: you know, talk through the model. They can do a
Speaker 1: lot of helpful stuff for the investors where the investors
Speaker 1: come away learning something without being spoon fed next quarter's earnings.
Speaker 3: Yeah.
Speaker 1: The thing that people always say about this to make
Speaker 1: themselves feel better is that the investors can get a
Speaker 1: read on the executive's tone and body language. On its face, absurd, yes,
Speaker 1: but people keep saying it. They're like, oh, yeah, they
Speaker 1: don't say anything that they haven't already said, but the
Speaker 1: body language tells you something.
Speaker 2: So I can tell you it probably lost its edge
Speaker 2: during the pandemic when you were all on zoom. And
Speaker 2: it's a lot harder to see.
Speaker 1: Oh, that's an interesting question. I feel like there are
Speaker 1: studies and I don't know them, because like that would
Speaker 1: tell you something, right, Yeah, if it in fact lost
Speaker 1: its edge on the pandemic, then that would tell you
Speaker 1: that tone and body language mattered a lot. Yeah, and
Speaker 1: when people are only getting zoom calls, they got less information,
Speaker 1: whereas my thesis is that in fact they're being told
Speaker 1: information and tone in body language is just a euphemism.
Speaker 1: And so in the pandemic, as you get on a
Speaker 1: zoom call and you're like, so, walk me through how
Speaker 1: you're thinking about strategy, and the executive tells you they're like,
Speaker 1: still informative.
Speaker 2: Yeah, someone should do that. I guess I come at
Speaker 2: it from a skeptical lens as a journalist who talks
Speaker 2: to a lot of CEOs. Not to besmirch any CEOs,
Speaker 2: but a lot of them just follow the script. And
Speaker 2: I mean you listen to them speak at conferences, and
Speaker 2: you know, it's hard to get new news out of
Speaker 2: someone in the C.
Speaker 1: Suite maybe three answers that one you don't five percent
Speaker 1: of their stock. It's possible that a conversation with an
Speaker 1: investor is a different framework from a conversation at a
Speaker 1: conference with a journalist, right, Like, they're media trained, but
Speaker 1: they're trained differently to talk to investors. Right. Two, you
Speaker 1: do not have CIA interrogators to understand their body language.
Speaker 1: Apparently some edge ones that do. And then did I
Speaker 1: have a third?
Speaker 2: You said you had three, so you got to think
Speaker 2: of something. Okay, I'm reading your body language right now,
Speaker 2: and it seems like you're really trying to think. Okay.
Speaker 1: The third point is like you could imagine the investors
Speaker 1: asking different questions because they're not trying to make news.
Speaker 1: That's like like they're trying to make very incremental news, right,
Speaker 1: They're trying to find out like like update their model.
Speaker 2: Well, that was part of the piece. Bradley wrote a
Speaker 2: out how one of the complaints is that the questions
Speaker 2: that are being asked or like becoming so niche to
Speaker 2: the point that they're not useful anymore.
Speaker 1: Oh, I know what my third point was. Okay, My
Speaker 1: third point was that actually in this piece, several investors
Speaker 1: complain that in fact, they have the same point you do,
Speaker 1: which is that the CEOs are now so scripted that
Speaker 1: these meetings have become less useful than it used to be. Yeah,
Speaker 1: not just because the questions are very granular, which is
Speaker 1: like their questions are granular because hedge funds are competing
Speaker 1: to like add extremely granular information to like the information set,
Speaker 1: and so they have very detailed questions, which sometimes annoy
Speaker 1: CEOs who want to talk about like the big pictures.
Speaker 2: Make sure, come on, here's my strategy. Isn't it great?
Speaker 1: Right? I mean the THESS Like the point of this
Speaker 1: piece and what I read about it is that like
Speaker 1: in my role, do you think of like the prestige
Speaker 1: and importance of investment firms and like right now, the
Speaker 1: big four multi strategy hedge funds like the Citadel Millennium
Speaker 1: point seventy two vali Asnis of the world are really
Speaker 1: like on the ascendant, Like they're really prestigious, really sort
Speaker 1: of top employers and the asset management business. But when
Speaker 1: you think about what a CEO wants, they don't want
Speaker 1: to meet with those guys. They want to meet with
Speaker 1: Fidelity and Wellington. They want to meet with long arming
Speaker 1: managers for a number of reasons, one of which is
Speaker 1: that the long only managers have longer tenure, both like
Speaker 1: they hold the stock for decades and also like the
Speaker 1: portfolio managers for decades, whereas like you know, the big
Speaker 1: hedge funds, they're constantly churning through portfolio managers, and they're
Speaker 1: constantly turning through stocks, and so like if you talk
Speaker 1: to Citadel because they own your stock this week, they
Speaker 1: made it own it next week or maybe a different person.
Speaker 1: But there are other reasons, one of which is that
Speaker 1: the hedge funds have these really granular questions, like they're
Speaker 1: really interested in, like what's going to drive the stock
Speaker 1: in the next couple of weeks, and so they're not
Speaker 1: going to ask you about your strategy. And if you're
Speaker 1: the CEO and you're like want to pontificate about the
Speaker 1: big picture for a while, you'd much rather talk to
Speaker 1: a long term, long only investor than to a hedge
Speaker 1: fund who has like very specific questions about margins. And
Speaker 1: then the other reason that they're all twenty seven and
Speaker 1: wearing T shirts and the people at Fidelity know how
Speaker 1: to dress.
Speaker 2: To meet with the CEO just amazing.
Speaker 1: Yeah, it's like literally true that like point seventy two
Speaker 1: now mandates blazers because like they were having trouble booking meetings.
Speaker 2: Because they twenty seven year olds and whatever. Yeah, that
Speaker 2: was a fun to bit. I also, and this was
Speaker 2: partly addressed in the article and in your column, I
Speaker 2: feel like part of the reason that these meetings are
Speaker 2: in such high demand is just because time is finite,
Speaker 2: you know, and anything that's scarce is going to be valued,
Speaker 2: and time is scarce, and time with these CEOs is scarce. Yeah,
Speaker 2: so even if it doesn't add that much of an edge,
Speaker 2: you still have it right.
Speaker 1: I think there's an enormous culture in finance and business
Speaker 1: generally of like, if you think that doing a thing
Speaker 1: has a one percent chance of adding one percent to
Speaker 1: your returns, you're just like hardcore and you do it anyway.
Speaker 2: I gotta get it right, Like.
Speaker 1: I have transcended that. But like, you know, you're in
Speaker 1: that seat because you work really hard and like sort
Speaker 1: of do everything you possibly can to get edge. And
Speaker 1: so even though the meeting will probably be worth less,
Speaker 1: peel got it anyway. But the other thing about scarcity
Speaker 1: is that at these firms, you know, like the big
Speaker 1: hedge ones have multiple teams trading the same sector, and
Speaker 1: so you know, if you're the CEO and you book
Speaker 1: a meeting with Citadel, there's like five pms at Citadel,
Speaker 1: who are fighting each other tooth and nail to be
Speaker 1: the one in the meeting or like the two in
Speaker 1: the meeting.
Speaker 2: You know, honestly, it reminded me so much of working
Speaker 2: in a large newsroom.
Speaker 1: I know, I was gonna see right yeah, right.
Speaker 2: Like it's very you have a beat, and you're pretty
Speaker 2: protective of your beat, and it's funny to read about
Speaker 2: it becoming like part of a recruiting perk is that
Speaker 2: you're the only person covering this. You don't have to
Speaker 2: fight for your lane. This is only your lane, or
Speaker 2: it's even worse.
Speaker 1: It's like Bradley Sacks writes that like the most tenured
Speaker 1: pms will often get the best meetings. Like you know,
Speaker 1: if Citadel has a meeting with a company, they'll be like,
Speaker 1: the guy's been here the longest and like does the
Speaker 1: best work gets to have the meeting. But like sometimes
Speaker 1: they'll hire someone and like the new guy gets the
Speaker 1: meeting because that's like a recruiting perk, and then the
Speaker 1: long tenured person doesn't get that good at the meeting.
Speaker 1: And it's it's just like there's a lot of parallels, right, no, right,
Speaker 1: Like I've been in meetings with like many other journalists
Speaker 1: where one it's competitive to get into the meeting, and
Speaker 1: then too everyone's like, you know, it's competitive to get
Speaker 1: your question answered.
Speaker 2: Yeah, and it seems.
Speaker 1: Similar in this case.
Speaker 2: That's so funny.
Speaker 1: The other thing I wanted to say, yeah, because I
Speaker 1: wrote about this, and I wrote about broadly speaking, CEOs
Speaker 1: would rather meet with like Fidelity or Wellington than with
Speaker 1: State a point seventy two. And then it's a throw
Speaker 1: I was like, and they probably won't meet with you, know,
Speaker 1: if you want a hundred shares and you're a retail industrial,
Speaker 1: they probably won't be with you. And I found the
Speaker 1: academic paper I wrote about Wednesday where they basically tested
Speaker 1: that out by sending cold emails to a lot of
Speaker 1: investor relations departments. And the cold emails, some of them
Speaker 1: were from like a Yahoo dot commumail address like like
Speaker 1: a high I'm an individual investor, I'd like to buy
Speaker 1: your stock? Could you meet with me? And some of
Speaker 1: them are from fake investment firms like like I work
Speaker 1: at Blue Willow Capital and I'd like to meet with you.
Speaker 2: It sounds right.
Speaker 1: Yeah. They found, first of all, that about sixteen percent
Speaker 1: of these messages resulted in meetings, which is higher than
Speaker 1: I would have thought. Not bad, right, And second, well,
Speaker 1: there's no distinction between retail investor and Blue Weellow capital,
Speaker 1: Like retail people could get the meetings just blue. Well
Speaker 1: they did find racial discrimination though.
Speaker 2: Yeah, don't love that. This reminds me. We were talking
Speaker 2: about Hymns and HER's earnings on air this week, and
Speaker 2: the Hymns and Her CEO has made sort of a
Speaker 2: big show of like giving questions in the earnings call
Speaker 2: to retail investors.
Speaker 1: Yeah, right, Like my perception of it being hard for
Speaker 1: retail is kind of an old school perception, and now
Speaker 1: with like memeslags, it's a different game.
Speaker 3: Yeah.
Speaker 2: Also somewhat related to this, I was talking to a
Speaker 2: CEO who reported earnings this week, and the CEO said that, Okay,
Speaker 2: if you're report in the afternoon, then you do the
Speaker 2: earnings call. But then this CEO was answering questions from
Speaker 2: analysts until like ten pm that night. Like, you have
Speaker 2: the earnings call and they asked the questions and the
Speaker 2: transcript goes out and you can see it is public.
Speaker 2: But then like the real questions come after the earnings call.
Speaker 2: So you have the earnings call and then you have
Speaker 2: all your individual calls.
Speaker 1: This is the thing that people naively think regulation FD prevents, right,
Speaker 1: everything has to be public, But no, And you see
Speaker 1: it on like public earnings called transcripts. You know, people
Speaker 1: ask questions and the CFI will be like, follow up
Speaker 1: with me afterwards and we'll walk through that, right, and like,
Speaker 1: you know, like obviously the case that companies talk to
Speaker 1: analysts and investors outside of the you know, one hour
Speaker 1: public earnings call, and it seems to be obviously the
Speaker 1: case that those conversations are useful, but they exist in
Speaker 1: this weird regulatory limbo.
Speaker 2: I find that frustrating because as a journalist, I'm not
Speaker 2: allowed to sit in on those one on one leadings.
Speaker 3: Yeah.
Speaker 2: Should we check in on the state of on cycle recruiting.
Speaker 2: Let's check in Bank of America. Yeah, well, Bank of America,
Speaker 2: the news came out this week, written by Catherine Doherty
Speaker 2: that their junior bankers face reassignment if they accept other jobs.
Speaker 2: Just the latest in a string of the big banks
Speaker 2: pushing back against on cycle recruiting. Right, so the busy summer.
Speaker 1: One thing I wonder about is like why are they
Speaker 1: pushing back?
Speaker 2: Why are they pushing back in general, like the dynamics.
Speaker 1: Here are like JP Morgan led the charge of saying
Speaker 1: we're not going to allow recruiting, we're mad about it,
Speaker 1: we'll fire you, and then a number of big private
Speaker 1: equity firms announced they would wait to do on cycle.
Speaker 2: Recruiting led by Apollo. It feels like.
Speaker 1: Most banks did not join in saying where we're going
Speaker 1: to fire you, and most private acuity firms did not
Speaker 1: announce we're not going to do encycle recruiting for two years,
Speaker 1: but also didn't happen. Like everyone is like quietly tacitly
Speaker 1: going along with this process started by JP Morgan, and
Speaker 1: it's like a two side like the banks and the
Speaker 1: priority from every seems like to have. There's like a
Speaker 1: possibly fragile equilibrium where they're not doing the recruiting, and
Speaker 1: so there's not really a need I don't think for
Speaker 1: the banks to say we'll fire you if you do it,
Speaker 1: because it's not happening. But you know, you got to
Speaker 1: get ahead of it. So some of the banks are
Speaker 1: joining in, and so this week Bank of America said
Speaker 1: except an offer elsewhere, you'll be reassigned, which is very
Speaker 1: ominous because they don't say where, and like, well, Bank
Speaker 1: of America has tellers a lot of possibilities.
Speaker 2: Yeah, that was more tired than I was thinking I do,
Speaker 2: I don't say yeah.
Speaker 1: And it's you know, like the idea of on cycle
Speaker 1: recruiting is so strange, right, but it essentially it's you
Speaker 1: will at the beginning of your investment making analyst job
Speaker 1: except an offer at a private equity job. But that
Speaker 1: private equity job is contingent on you spending two years
Speaker 1: being an investment banking analyst, because you do need to
Speaker 1: learn the stuff that you do as an investment banking
Speaker 1: analyst to be an effective private equity associate. And so
Speaker 1: you have two years of working in you know, an
Speaker 1: industry group or an m and A group or a
Speaker 1: Leffin group at a bank where you like learn enough
Speaker 1: to become a useful associate at a PE firm. And
Speaker 1: if you get fired at your bank, the PE firm
Speaker 1: will probably rescind your offer because you haven't done the
Speaker 1: training that they require, And if you'd reassigned to being
Speaker 1: a teller, then like also not the training they would
Speaker 1: have wanted.
Speaker 2: Yeah, you can kind of feel for these analysts because
Speaker 2: also they're probably not having a lot of fun in general, sure.
Speaker 1: And like one thing reassigned could mean is like if
Speaker 1: you work in the tech group and you get a
Speaker 1: job at like a tech focused private equity firm, then
Speaker 1: Bank of America will say, Okay, we're gonna reassign you
Speaker 1: because there's conflict of theventswers there, so we're going to
Speaker 1: move you to like the natural resources group. Like that
Speaker 1: would be like appairly benign interpretation that this one doesn't
Speaker 1: get the sense that's what's happening, right, You get the
Speaker 1: sense that it's like a punitive reassignment.
Speaker 2: Yeah, going by what the story said, this is according
Speaker 2: to people familiar with the matter, junior bankers are being
Speaker 2: asked by their managers to divulge whether they have a
Speaker 2: new employment opportunity and if future offers are accepted, those
Speaker 2: individuals will likely be moved to another area within the bank.
Speaker 2: So searching for detail there. But they have a week.
Speaker 2: Apparently those who fail to disclose accepted offers within a
Speaker 2: week would be deemed in violation. It's interesting to see
Speaker 2: how different banks are approaching this. Apparently Goldman has you right,
Speaker 2: Goldman has.
Speaker 1: The chart approach where they're like most are they do have.
Speaker 2: Well, you have to restate your loyalty every three months
Speaker 2: or something.
Speaker 1: Yeah, every three months you have to say you haven't
Speaker 1: taken a job elsewhere. Yeah, But they also have like
Speaker 1: you know, there's like three tiers of prestige. Right, there's
Speaker 1: like private equity, and then there's investment banking, and then
Speaker 1: there's like operations back office tellers. Right, and Goldman says,
Speaker 1: if you stay here for two years, we're going to
Speaker 1: try to move you into our own I was gonna
Speaker 1: say private equity division. Yeah, their own like alts division, Yeah,
Speaker 1: private area is. And then Man of America says, if
Speaker 1: you don't stay here for two years, we're going to
Speaker 1: move you into being a teller.
Speaker 2: So yeah. So Jamie Diamond, it feels like he started
Speaker 2: this all off a couple months ago. I do wonder
Speaker 2: like if it had been Wells Fargo who led the charge,
Speaker 2: would we be seeing this cascade of other banks lining
Speaker 2: up and saying we're also not okay with this, this
Speaker 2: is what we're gonna do. Or is it uniquely like
Speaker 2: Jamie Diamond and JP Morgan are doing this and all
Speaker 2: the other big banks feel pressure to follow.
Speaker 1: I think Jamie Diamond has a lot of like moral
Speaker 1: leadership I don't even know about the other banks feeling
Speaker 1: pressure to follow. Yeah, the other banks feel cover to follow, right,
Speaker 1: because like this is a competitive market. And if one
Speaker 1: bank says, and this has happened before, if one bank
Speaker 1: says we're going to fire you if you take a
Speaker 1: private equity job too early, and no other bank says that,
Speaker 1: then people won't go to work at that bank because
Speaker 1: they will want their private equity job. But JP Morgan says,
Speaker 1: Abymary is pretty big, and so you have cover. But
Speaker 1: the other thing is like, also like the people who
Speaker 1: run private equity firms care about what Jamie Diamond thinks. Yeah,
Speaker 1: not even like as a market's and competitive matterage. So
Speaker 1: they're like, oh yeah, they respect that guy, and so
Speaker 1: when he says it, they're like, oh yeah, he's right
Speaker 1: because probably everyone knows he's right. Like it's not super controversial,
Speaker 1: Like no one's like that up said about it. And
Speaker 1: I think if you, like, if you're talking to private
Speaker 1: ay people, they are not thrilled with the current process.
Speaker 1: The current process does not do a good job like
Speaker 1: the old process, the process where they you know, interview
Speaker 1: before people started banks does not do a good job
Speaker 1: of finding people who are knowledgeable does not do a
Speaker 1: good job of finding people who are really motivated because
Speaker 1: you don't know anything yet they worked as bankers yet, Yeah,
Speaker 1: if you interview them after a year and a half
Speaker 1: in banking and they're like dead eyed and have both
Speaker 1: a thousand models, like, it's easy to find out who
Speaker 1: really wants to be there, who's really interested, who's like
Speaker 1: learned a lot, and so it's a better system for them.
Speaker 1: And then the other thing is we live in a
Speaker 1: very uncertain world about the hiring needs of private equity
Speaker 1: firms two years out.
Speaker 2: That's true. Robots are coming, Robots are coming, the death
Speaker 2: of the universe, the.
Speaker 1: Deal flow situation is, and there's less need for associates
Speaker 1: right now than people might have predicted two years ago.
Speaker 1: And so why why predict two years out? You can
Speaker 1: just wait and if everyone can wait, then everyone can wait.
Speaker 2: So you called it the old system, and that I'm.
Speaker 1: Sorry, the system as of six months ago.
Speaker 3: Right.
Speaker 2: Well, I was going to ask, do you think that
Speaker 2: this changes anything? Like have we seen the end of
Speaker 2: this cycle? Is this a lasting fragile what did you
Speaker 2: call it? I liked that fragile equilibrium.
Speaker 1: I think that between the AI stuff and the relative
Speaker 1: slowdown pe no one is desperate to hire the best
Speaker 1: possible twenty two year olds to start in two years.
Speaker 1: Those are separate points from like Jamie Diamond's moral authority.
Speaker 1: I think in five years. In two years, if private
Speaker 1: equity is booming and they're desperate for people to do
Speaker 1: deals and the A thing was just the hype, and
Speaker 1: they think, how do I get the best possible forty
Speaker 1: bodies and seats, they'll be interviewing earlier. These things always
Speaker 1: break down.
Speaker 2: But I guess that's what it's psychled does because.
Speaker 1: Of competitive pressures, right, And if there are no competitive
Speaker 1: pressures for them to break down, they won't break down.
Speaker 1: So I don't know when that'll be.
Speaker 2: So watch this space, all right, comebey, Okay, all right, Matt.
Speaker 3: Bye.
Speaker 1: And that was the Money Stuff Podcast.
Speaker 2: I'm Matt Livian and I'm Katie Greifeld.
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Speaker 1: The Money Stuff podcast that is produced by Ana Mazerakus
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