January 17, 2025 • 31 mins
Matt and Katie discuss how hard it is to make money as a short-focused researcher, how not to get the best rate on a savings account, and whether ESG is about doing good or doing well.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
The Money Stuff Podcast, your weekly podcast where we talk
about stuff related to money. I'm Matt Levin and I
write The Money Stuff com for Bloomberger Pain.
Speaker 2 (00:20):
I'm Katie Greifeld, a reporter for Bloomberg News and an
anchor for Bloomberg Television.
Speaker 1 (00:25):
What are we talking about today?
Speaker 2 (00:27):
We're going to talk about the slow death of shorts
and specifically the retirement of Nate Anderson. We're going to
talk about evil bankers, my favorite cut. We're going to
talk about ESG Evil ESG, Hindenburgh, Nate Anderson. This was surprising,
was it? I was surprised. I mean, I don't know.
(00:49):
You think about Jim Chainos retiring in twenty twenty three,
he had a pretty rough run towards the end. Nate Anderson,
I feel like has had a lot of wins. And
also he only started Hindenburg in twenty seventeen.
Speaker 1 (01:03):
Yeah, I mean it's a hard business, you know, running
a short. So Nate Anderson, the founder of short focused
research from Hindenburg Research, announced that Hindenburg Research is no
more and he's going to tend to his garden or.
Speaker 2 (01:15):
Something, listen to some medium, listen to some.
Speaker 1 (01:18):
Medim I don't know. It's a hard job. And I
was trying to think about, like why now. And one
thing that occurred to me is if you read his letter,
a lot of these people, a lot of people who
like run these short research firms, sort of style themselves
as hedgehund managers, in part because that's like a cool
thing to say, I'm a Hedgehong manager. And like, actually
the SEC case against Andrew Left is hilarious because they
(01:41):
like actually claimed that it was fraud for him to
call himself a hedgehond manager. Yeah, like imply that he
had clients because he was like talking about his clients
when he was just the third person, right, which I
thought was like a little nasty of the sec Yeah,
it was like, I good enough, it is the kind
of a Hedgehne manager. But like you know, it's called
Hindenburg Research, and when you read his life, he like
describes it as a research firm. It's not a hedge fund.
(02:02):
It's not like in the business and making short trades, right,
it's in the business of discovering bad stuff at companies,
discovering fraud or accounting malfeisms or whatever, and then generating
money from that somehow. And I don't know exactly how
Hindenburg generates money. Like the original way I think he
was generating money was by going to the SEC and
(02:23):
submitting like whistleblower, what's the word quast step steps yes,
And so he would like say to the SEC, hey,
there's front of this company and they would be like, oh, well,
there is run at that company. They'd find the company
a lot of money and they'd give him some of
the money. Or that was the idea. And I think,
you know, I don't really know what Hindenburg does, but
like a lot of these firms will sell research ideas
to hedge funds, will then, you know, do the short trades.
(02:44):
They have more capital and more diversification than a short
only hedge fund would have. And like you know, we've
talked about Hunter Brook. Hunter is in the business of
finding bad stuff at companies and publishing them and then
among other things, bringing securitieslawaw suits. And they team up
with plaintiffs lawyers to bring lawsuits against these companies. And
(03:06):
if you were as in the business of like monetizing
fraudit companies by like having your own capital or your
investor's capital and doing short sales. Like that's a hard business, right, Yeah,
that's a lot of ways to blow up. Whereas if
you're in the business of like monetizing whistleblower rewards, that's
less capital intensive. It takes kind of a long time. Yeah, uncertain.
Speaker 2 (03:25):
I mean it just seems like a hard way to
pay the bills.
Speaker 1 (03:28):
What whistle lawer awards, Yeah, yeah it is. It's it's lumpy,
but like people have kind of professionalized it, more lawyers
than researchers, but some researchers have professionalized that made up
money in any case, Like if you think about like
the landscape of these short research frames, like you kind
of need all of those options. You read his letter,
he talks about we've led to more than one hundred
(03:48):
prosecutions and like investigations, like he is measuring his success
in getting regulatory and prosecutorial attention on the companies he targets. Right,
it's not like we've caused stock prices to go down.
It's we have brought fraud to light and how to
be investigated. And when I think about what is happening
(04:09):
right now, Yeah, I've written a lot in the last
couple of weeks about how there have been a lot
of like sec prosecutions, sec cases, a lot of other stuff.
There's a big Justice Department anti trust case against KKR
filed this week. We're going to talk today about the
CFPP case against Capital One nice Tia. So a lot
of stuff that is happening now because it won't happen
(04:33):
next week, right, Yeah, Like if you were in the
business of like alerting regulators through fraud, you might think
that's going to be a bad business starting next week
and going for four years.
Speaker 2 (04:41):
Yeah.
Speaker 1 (04:42):
I don't know that that's actually his calculation, but it
just feels like a week ago, if you said, oh,
this company is a fraud, that would have a big effect,
and like starting in a week saying oh, this company
is a fraud might not have a big effect.
Speaker 2 (04:51):
Well. Yeah, the thing is like there's no guarantee that
the stock will actually go down and your short will work.
You think about their last report was on Carvana alleging fraud,
and Carvana stock has done really well so far in January.
Speaker 1 (05:05):
Yeah, they could be wrong, right, They always be wrong.
They are specifically in the business of waving their hands
and saying to regulators, Hey, look at this company over here,
this is a fraud. Right, Sometimes they will be wrong
and the regulators won't look at it. But like sometimes
they'll be right and the regulators won't look at it.
And like, my suspicion is that the incidents of that
will go up soon because like you will have a
(05:26):
much less enforcement intensive regulatory regime everywhere in the US
economy starting next week.
Speaker 2 (05:33):
That's interesting.
Speaker 1 (05:34):
That could be like way off base.
Speaker 3 (05:35):
But I don't know.
Speaker 2 (05:36):
It's like my little sp but perhaps there's a political
angle here.
Speaker 1 (05:41):
I don't know that he's thinking that. I just think
I think it like I would, like, you know, i'd
be worried if my business model was calling regulatory attention
to frauds because like I don't know, Like I don't
want to say the name. Never mind, I'm gonna move
right along. We're not gonna say, like some companies.
Speaker 2 (05:57):
That I don't know, you even name some names. You
can do anything once anyway, you know, well really don't don't.
Speaker 1 (06:08):
I don't need that matter, all right.
Speaker 2 (06:10):
Well, moving softly along firs all In terms of how
they make money, there was an FT article talking about
this small New York based firm called Kingdon Capital that
works with Hindenberg on a number of its trades.
Speaker 1 (06:22):
So, right, like you sell ideas to or a partner with, yeah,
somebody who is not.
Speaker 2 (06:28):
And then you're the public face.
Speaker 1 (06:30):
Yeah, you're the public face of the short idea. But
also like they're the people who have like long short
capital because like just being a short seller, as Jim
Chaina has found, is hard because slacks mostly go up.
Speaker 2 (06:39):
Yeah, that is painful. Well related to this. So he's
winding up the firm, he's working through the last of
the ideas, and then they're handing off the tips on
suspected PAZI schemes to regulators. So there's probably some investable
ideas in there. And also maybe they'll get some of
these whistleblower rewards.
Speaker 1 (06:55):
Yeah, I assume there's some tell where like like the
whistleblowers thick, really long time to come.
Speaker 2 (07:00):
How much can you make I'm interested.
Speaker 1 (07:03):
I mean they've given out I believe, several nine digit awards.
Don't They've hid out hundreds and hundreds of millions of dollars.
Speaker 2 (07:10):
I wonder what the average award is.
Speaker 1 (07:12):
You know, they paid out press basis for the big ones.
I don't know, but like they're not small. Like this
sort of the way it works is kind of like
the sort of the rack rate is kind of fifteen
to thirty percent of what the SACI covers.
Speaker 2 (07:22):
That's wild.
Speaker 1 (07:23):
Yeah, you always get that and takes a long time
and it's like controversial. But like if you bring them
a big fraudt they get a big fund, you get
a big check.
Speaker 2 (07:30):
Yeah, lumpy, Like you said, it kind of reminds me
of being a freelance journalist if that's how you make
your living. I'm too risk averse to ever just rely on.
Speaker 1 (07:38):
Oh but compared to like shorting stocks, yeah, capital.
Speaker 2 (07:44):
Intensive, Yeah, I think I'd rather just be a TV anchor.
In any case, what I'm excited about is that over
the next six months, Anderson plans to work on a
series of videos and materials on Hindenberg's models so that
others can learn how the firm conducted its investigations. That
sounds like some good viewing and I don't know, maybe
more people will be inspired to take up the mantle
(08:05):
now that they have the tools.
Speaker 1 (08:07):
Is it a Barnes and Noble This weekend go on
and I went to the business section and they're still
these like for dummies books like investing for dummies, and
I was like picking them up and leaving through them.
I really want like a Nate Anderson activist short selling
for dummies. It sounds like you, you know, it's like
he's a good expert to record a series of YouTube
tutorials on how to be a short seller.
Speaker 2 (08:27):
Well soon, so the firm has eleven employees, and also
in his letter, he said that for now I will
be focused on making sure everyone on our team lands
where they want to be next. So the alumni class
of Hindenburg Research, I mean, who knows if all of
them will go into short selling, but it'll be interesting
to follow that.
Speaker 1 (08:45):
Yeah, I think the letter suggested that I've read between
the lines a little bit to suggests that like there
will be a continuation of Hindenburg. It won't be called
Hindenburg and he won't work there, but like several of
the people there will continue to kind of do the
same work in a similar format.
Speaker 2 (08:59):
Yeah, I want to know what he does next. Again,
only he.
Speaker 1 (09:02):
Suggested like like literal gardening.
Speaker 2 (09:05):
And did he I read the part where he said
this has been really hard. I'm tired. And also I
want everyone to go get jobs. Now you think he's
really gonna get down in the dirt plant some petunias. Yes,
we should.
Speaker 1 (09:21):
Ask him, Yeah, we should have him. Nate, come on
the pot. I met him once at a book party.
Speaker 2 (09:25):
Huge. I feel like there's he's at least the fifth
person I've mentioned and Matt has said, yeah, I saw
them at a book party. It seems like book parties
are sort of where you spent your free time. Barnes
and Nobles and this.
Speaker 1 (09:38):
Podcast and book parties are my social life.
Speaker 2 (09:40):
Wow.
Speaker 1 (09:41):
The Barnes and Noble is like party is like my
actual social life is children's birthday parties. But like, but
now I'm in like the drop off phase of children's
birthday parties. So it's like I go to the children's
birthday party, I'm angle for two minutes. I leave. Yeah,
I sit in my car and read a book. I
drafted Bardes and Noble and read a book.
Speaker 2 (09:57):
You know it's gonna say so if you're looking to
find Matt out in the wild Capital one, Matt, I
knew you were a banker, but I didn't know you
(10:18):
were evil.
Speaker 1 (10:19):
I worked at Goldman at like the peak of Goldman
is a great vampire squid wrapping its blood funnel around
humanity or whatever the line is. I was pretty evil,
but like you know, I was like evil adjacent and
I always had a soft spot for evil.
Speaker 2 (10:34):
Yeah, I could. It really came through in this column,
of course, we're talking about the Consumer Financial Protection Bureau.
It alleged that Capital One cheated customers out of two
billion dollars by keeping them in the dark about a
savings program that offered higher interest rates on their deposits.
Speaker 1 (10:51):
There's like really no dispute about what happened. Heret okay.
There's like three kinds of bank accounts whatever the treat
guns are like floating red bank acount. There's check accounts
pay basically you're interested. There's savings accounts which exists which
also seemed to pay zero interest. Like when I go
to my bank and I like click on the they're like, oh,
to open a savings account. I click on it, and
it's like you could get interest as much as zero
(11:12):
point zero three percent with a million dollar bounce right.
And then there's a thing called the highield savings account,
which is distinguished from a regular savings account by paying
like something more than nominal interest. And in like twenty thirteen,
Capital One opened highield SAVIS account called three sixty Savings
and they were like, this is a highield Savis account.
You'll get the best interest rate, and so people open
(11:34):
their accounts and they did this for like seven years,
and the rate would go up and down with like
you know, interest rates, and then in twenty twenty, in
twenty twenty, they like quietly deprecated it, where they basically
said everyone who was in that account stayed in that account,
their rate dwindled to like zero point three percent, so
like a lot more than my bank is offering on
(11:56):
like regular SAVIS account, but a lot less than like
fed funds or like yeah, you know, really a lot less.
And meanwhile they launched a different product called three sixty
Performance Saving, which is difference from three sixty Savings, and
three sixty Performance Savings is the new product that they
marketed to new people, and they're like, oh, this will
have the highest right and it did in fact have
(12:17):
like a you know, PID like four percent or whatever.
And so if you were like looking to open a
highield Saves account at Capital One in like twenty twenty three,
they were like, oh, yeah, here's our four percent rate
opened three sixty performance savings and you did, and they
got your money. But if you already had a three
sixty saves account, your rate dwindled to nothing and nobody
called you to be like, hey, you should move your
(12:40):
money to the higher yielding exact similar product. And so
they got a lot of money. They had a lot
of deposits from people who just didn't notice and kept
their money at the low yielding thing. And the CFPB
says they saved two billion dollars in interest sixpence by
doing this.
Speaker 2 (12:56):
So you seemed pretty sympathizic.
Speaker 1 (12:58):
I'm like, giggling now is.
Speaker 3 (13:01):
Such a good Yeah?
Speaker 2 (13:03):
Well, I mean your position seems to be like dah,
this is how banking works.
Speaker 1 (13:07):
The point of a bank is like they take cheap deposits, right, yeah,
Like I don't want to call it my bank. I
have no problem with them. But they offer me zero
points zero three percent on savings. Well, you know, because
like they can do that, I.
Speaker 2 (13:19):
Will say, okay, So this is how banking works. You
talk about how like the deposit franchise system is based
on people not knowing what the not checking.
Speaker 3 (13:28):
The interest rates.
Speaker 1 (13:28):
Like banking theory is that when interest rates go up,
the cost the deposits of banks doesn't go up as
fast because there's a thing called deposit beta. Like some
people just don't move their money out or don't ask
for a higher interest rate, and certain banks can save money.
And it's like really important to the stability and health
of banks that people don't demand every last basis point
(13:50):
of market interest rates on their savings accounts because loosely speaking,
the collapse of like Silicon Valley Banking twenty three is
like because people like demands of market rates on their
interest on their bank deposits.
Speaker 2 (14:01):
I mean you still see the after effects of that,
because you take a look at money market funds and
I think they're still close to seven trillion dollars depending
on what you look like.
Speaker 1 (14:09):
And I like exaggerating when I say because SPV was
like had like solvency problems. Yeah, but like the aftermath
of that was very much. People are like, ooh, my
regional bank, that's weird. And then they're like, oh wait,
I can get more on a money market fund and
it's all on treasuries and it's safer than my regional banking. Yeah,
So like everyone moved their money to money market funds,
and so the cost of funding for regional banks went
up so much because like basically all these deposit franchises
(14:32):
got like rerated to market interest rates. Yeah, and Capital
One it's not getting rerated to market interest rates because
it was paying zero point three percent to all these
people who weren't paying attention.
Speaker 2 (14:41):
Well, quick segue. It seems like that is the dynamic
that's going to exist for a while because Okay, there's
seven trillion dollars in money market funds and it's just
not coming out, even though the FED has lowered rates
by like one hundred basis points. There's a bunch of
bullish people in the stock market who are saying that's
cash on the sidelines that belongs to the market. But
then you have people on the other side saying, like,
(15:02):
no trillions of that came in the wake of sb
BE collapsing because people realize that's a much better way
to earn interest on their savings.
Speaker 1 (15:09):
I think that's right, and like anecdotally, like that is
my experience. I had my saviors and accounts, and eventually
someone was like, you should really put that in the
money market, but like I'm not, that's not going into equities.
Speaker 2 (15:18):
No, No, that would probably go back to banks.
Speaker 1 (15:21):
But we'll go to the money market plans.
Speaker 2 (15:24):
You're just going to stay there for the rest of
your life.
Speaker 1 (15:26):
Cool power to unless Capital One or someone else offers me.
Speaker 2 (15:30):
A higher rate on not going to be capital one.
My question, So what you were saying this I like
a good trade. This is how banking works. And it
sounds like they weren't necessarily lying.
Speaker 1 (15:44):
When they were lying at all, They just weren't calling
their customers proactively to be like, hey, we have a
better rate elsewhere.
Speaker 2 (15:50):
But doesn't this doesn't this sound bad? It sounds like
they were basically told to keep this secret because you
put in block quotes that the bank this is according
to the cfp BE, the bank told frontline ambassadors associates
who work in the bank's physical branches, they must they
must not proactively mention the ability to convert three sixty
savings accounts to three sixty performance saving accounts to customers. Similarly,
(16:14):
the bank forbade its ambassadors from forwarding three sixty saving
account holders to Bank Voice, the bank's units that handles
account conversions, unless the account holders asked directly about the
ability to convert accounts. That seems bad, Matt.
Speaker 1 (16:27):
It's like converting to judaism. You have to ask three times.
It's bad customer service. Yeah, there's no doubt about it.
Is it fraud?
Speaker 2 (16:37):
Why did they launch three sixty performance Savings in the
first place?
Speaker 1 (16:40):
It's a great question. I assume the answer is because, like,
you do want to gather deposits, and the way to
do that online as a bank is you do, like
legitimately advertise the best rate. Right, if you say our
highield save as account, you'ld four point three percent, come
join us, right, and then people do so. They would
advertise this new product to get new deposits in, and
(17:02):
they had to pay a market rate to do that.
But like, well, I raise the rate on the old deposits.
So you launched a new product and then the old
product can pay less and less than less. I was
also shady, right.
Speaker 2 (17:14):
It seems it smells so stinky, Matt. And I was
gonna say it seems like false advertising. But you do
point out that you know they advertise this is the
best and the highest interest rate.
Speaker 1 (17:23):
I think it was like it's false advertising because in
twenty nineteen they said it was the best rate and
then in twenty twenty three, I was like, well, this
is different.
Speaker 2 (17:28):
Years, I guess, but if you know that, you know
the vast majority of deposits and who knows if it
was the vast majority are in there because you advertised
it as having the higher rates straight and then that changed.
Shouldn't you tell them?
Speaker 1 (17:42):
Yes, the CFPP says, and yes, if you're like a
good upsetting vide you're a bank, you know, it's like
a different story. I had a friend when I was
at Goldman. I had a friend who managed his family's
cash balances. He would like put money at Hyta and
every like month he would check the rates on hoyotav
And there's always someone who is better than someone else, right,
because like this is what you do. You advert has
(18:03):
a high rate, you draw in money, and then you
figure people aren't going to pay close attention, so you
could have like not quite the highest rate right now.
Usually they were all kind of fairly close to each other,
but like each month someone had a like essentially promotional
rate to get in money. And so if you move
your money every month, you could earn a higher rate
every month. But you had to be kind of weird
(18:23):
to do that and the banks for keep banking on
people mostly not being that weird and mostly like leaving
their money there even if they didn't offer the highest
rate all the time. And Capital One did a sort
of extreme version of them. Yeah.
Speaker 2 (18:34):
Well, they report earnings next week. It'll be interesting to
see if there's any commentary on this on the call.
Speaker 1 (18:40):
Yeah. I'm gonna say two other things about Capitol one.
On one is that before the pandemic, I would meet
people for coffee and they'd be like, where can we
meet for coffee near Bloomberg? And I had a whole
list of places, and they all close during the pandemic.
And now when people say where can we meet for
coffee near Bloomberg, I'm like, well, there is a Capital
One cafe in our building, and that is the only
(19:00):
place I meet people for coffee. And it used to
have the advantage that it was kind of like large
and quiet and so you could always find a seat.
But then that stopped having that. Everyone meets at the
Capitol One cafe.
Speaker 2 (19:12):
Oh my god, So it used to be in h
and M. It's literally in the Bloomberg building. I love
the Capital One And I met your brother for coffee
isn't that bizarre. Yeah, we have a memory together at
the Capital One Cafe. Uh Viil Donna Hirich was also
there and my brother Greg and some other guy. That
was quite a strange meeting of the mines. Capital One Cafe.
It's a great place to get a kind of soggy sandwich.
Speaker 1 (19:34):
You don't have to bank there, but I believe you
get a disc of you do great stuff. I feel,
you know, in addition to loving a good trade, I
sympathize at the Capital One because they provide me my
meeting space. The other thing I want to say is
that what happened is the CFP brought a case right
and like next week you'll be a new CFPV. This
(19:54):
is like they are rushing to get everything out the
door before the new administration comes in. And you know
a lot of the defendants in these cases are kind
of saying that they're like, ah, this is the last
ditch effort by the CFPB to bring a politically motivated
case and like it won't really stand up and there
might be something to do to that. Like, I think
this is a this is kind of a novel theory here,
because like the CFPB is not really alleging that they lied.
(20:17):
They should have been proactively telling customers about it. And
we'll see like what the new CFPB does and and
sort of where this goes. But like this might go nowhere,
and Capital one on the call might say this is nothing,
and they might be right.
Speaker 2 (20:29):
Wow, Perhaps Nate Anderson had some political considerations in mind.
Perhaps CFPB did as well.
Speaker 1 (20:36):
We're not going to talk about the SEC case against
the Elon Musk no on this podcast.
Speaker 3 (20:40):
Thanks, we're short out time, but yeah, well you know
what we.
Speaker 2 (20:58):
Are going to talk about ESG, Yes and American Airlines.
Speaker 1 (21:02):
Turns out if I had did an AUTO like we're
gonna talk about Elon.
Speaker 2 (21:05):
Would be crazy. I would just stare at you, slackshod
and walk out of the room. So American Airlines pilots
are assuming American Airlines in Texas for ESG. As you
point out, this plan by black Rock didn't have any.
Speaker 1 (21:25):
American Airlines runs like a four O one K fund
Yes pro one K plan for its pilots. Right and
one pilot brought a class action saying that this plan
violates its fiduciary duties to the beneficiaries to the pilots
because it is ESG and ESG environmental, social and governance
(21:47):
investing is not putting the financial best interests of the
pilots first. It is enacting Americans or black Rocks like
evil social goals rather than caring only about financial returns
the pilots. As I pointed out in my column, there
are no ESG funds.
Speaker 3 (22:03):
Yeah, this four on K plan.
Speaker 1 (22:05):
They's just like, at no point does anyone make any
investment decision that's like, oh, we can't buy coal plants
because like they're not ESGA. Right, no ESG funds. But
what there is, though, is that there's regular index funds,
and the index ones are managed by black Rock and
Blackrock for a while not anymore. For a while, Larry
think the CEO of Blackrock would send like a yearly letter,
like a public letter to CEOs of public companies saying
(22:29):
you need to care about your impact on communities and
we're going to be very focused on climate change and
all these things that seemed in the very different days
of like twenty twenty one to be like really good
marketing for Blackrock. Yeah. Oh, look at Blackrock. It's like
a socially responsible long term steward of capital, and it
thinks about things like climate change and social impact of
businesses and like, now that's all not allowed. And so
(22:53):
these pilots, you know, sued and the argument was that
by Blackrock out these letters and thinking about ESG and
sometimes of voting like in favor of like climate proposals
at portfolio companies, it threw its beneficiaries under the bus
and it wasn't putting their interests first. And also American
(23:15):
by hiring Blackrock and by not yelling at them to
stop doing ESG violated its duties of loyalty to its pilots,
and therefore, you know, is liable for like not running
its four h one k plan under the law. And
they brought this case in like this federal court in
Texas with like a sort of famous conservative judge who like,
you bring your conservative cases in Texas because he'll ruin
(23:38):
your favor. And he said, that's right. ESG by definition
doesn't prioritize investors' financial returns and so it's not allowed.
And uh, an American violated its duty of loyalty.
Speaker 2 (23:48):
Yeah, that's really interesting. I mean we've talked about ESG
on the podcast before obviously, and the question that I
always ask is like, what are the motivations of ESG.
Are you investing to do good or because you think
that if you don't invest to do good eventually things
will happen to your business that are bad.
Speaker 1 (24:05):
I think that most mainstream ESG investors, certainly including black Rock,
would say it's the latter. They would say, formally, what
we are doing is considering long term risks to the
businesses that we invest in. Climate change, and like the
transition away from fossil fuels is a giant long term
risk that we are analyzing and predicting, and so we
(24:27):
want companies to be positioned for it. We want airlines
to think about how to you just feel more efficiently.
We want oil companies to think about transitioning to cleaner
energy because like that's the long term future. Yeah, And
like similarly with like social issues, right, it's like diverse
companies perform better, and diverse companies, like in a more
diverse world will perform better. And so when we take
(24:48):
the long view, we think that diversity is important, even
if it's like expensive. Now, I think that this has
always been the mainstream of how people who work in
ESG have described. Now there are two big cavists that
one is that a lot of people don't believe that.
And the judge talks about this, he's like, yeah, they
pay lip service to the idea that it improves financial returns,
but it's not real. And I think that, you know,
(25:11):
there is kind of evidence both ways, and like the
performance of ESCH funds is hard to untangle from like
influence into es CHI funds. You know, he cites like
ESG funds underperformed the S and P like in twenty
twenty three or whatever. Again, no ESG funds in this portfolio,
so it's an irrelevance iation but whatever, ye yah, yeah.
But the other problem with this is that I think
everyone who worked in ESG, if you like pressed them
(25:34):
on this issue, would say it's about considering long term
risks to the portfolio. They also definitely benefited from, like
creating the impression that they were investing to do good. Right.
I think as an advertising matter, as a you know,
accumulating of assets matter, blackrock positioning itself as like a
steward of the environment was appealing to some people, whether
(25:55):
or not it improved their returns, right, Like they wanted
the world to you know, they wanted like to fight
against climate change, and they had like the vague impression
that putting their money at Blackrock would help in the
fight against climate change. And I think that like confusing
those two issues, confusing like are you investing for social good?
Are you considering long term risks to your portfolio? Was
like really beneficial to ESG investors during the rise of ESG. Yeah,
(26:19):
And like there's really bad for them now because they're
getting lawsuits like this and they're getting pushed back from
like politicians saying, well, you're not actually putting your clients
interest first, You're like only trying to do, you know,
achieve your social goals, which I think is not what
they would have like officially said, but it's kind of
what they implied a little bit, So it's not on
them in trouble now.
Speaker 2 (26:36):
I do want to go back to the lip service thing,
because that just don't I don't, I don't know. So
the judge said that oftentimes Blackrock couched its ESG investing
in language that specifically pledge allegiance to an economic interest,
but Blackrock never gave more than lip service to show
how I mean, how do you distinguish what is actually
a lip service. What if they were giving lip service
to the ESG part but actually only cared about the
(26:58):
economic impact. I feel like we can't know that.
Speaker 1 (27:02):
Yeah, And like what I wrote is the Black cair
complex has a lot of skin in this game, right, Yeah,
Like Blackrock and plays a lot of investment professionals who
are like rewarded for doing well, right, And so if
like they were constantly undermining the economic interests that they're
trillions of dollars of funds, they might stop doing that, right.
Blackrock also like has a lot of clients, right, And
(27:22):
like it's clients range from you know, individuals to like
very sophisticated pension funds who have like you know, principle
Asian problems, to like you know, big endowments, like all
sorts of clients who you know, it's the biggest asset
manager in the world. Presumably those clients like think it's
helping them make money, right, Like, like maybe they're all deluded,
but it's weird to be like, you know, the people
(27:43):
who invested like trillions and trillions of dollars to the
black crack are all wrong about it trying to make
them money. And I a judge in Texas am right,
and I know that those people are all that like
Blackrock is actually not looking after them. It's a strange
like like, what's the evidence that that it was only
lip service? Well, he doesn't really say, you know, there's
like test the money in a trial. Maybe he heard
something very convincing. But to me, like if Blackrock was
(28:06):
not trying to make money for its investors, it's kind
of weird that it's got so many investors.
Speaker 2 (28:10):
I do wonder what this means reputationally for Blackrock going forward,
especially the thing like on.
Speaker 1 (28:15):
That point, like Blackrock is not involved in this lawsuit. Yeah,
it's like a weird because it's like, right, like black
Rock is getting its name drive through the mud and
it's not even still.
Speaker 2 (28:23):
I mean, you you raise the point that it's possible
in twenty twenty one corporate managers who might have been
afraid to be critical of ESG might have you know,
hired Blackrock for four one ks to curry favor with Blackrock.
Speaker 1 (28:36):
A point in this lawsuit that's important. It's like Blackrock
is one of the biggest shareholders of American and so
like can American criticized BlackRock's THEESGV.
Speaker 2 (28:43):
Is I mean you. You could on the flip side,
see a company considering, you know, who to hire for
their for one k, see what's happening in Texas and
be like, maybe we should just go with Vanguard or
like Fidelity or something because we don't want this rhcstoria or.
Speaker 1 (28:57):
Like the anti woke right right? Who I really like?
You know, there's all these people like springing up to
like oh up this pie right, get all the.
Speaker 2 (29:05):
Anti Yes, But yeah, I don't know. I would love
to talk to Larry Think. Just sometimes I think about
who are the people I would love to talk to
in a completely honest setting like this? Yeah, I come on,
just like, do you regret it? I know that black
Rock is backed away ESG.
Speaker 1 (29:25):
I could answer for that. Heats it. Yeah, he regrets
it because he's a businessman, you know.
Speaker 2 (29:31):
Like he's a business common man.
Speaker 1 (29:34):
Yeah. Like the story in this case that like Larry
Think is like a crusader for my environmental justice. Who
will put that over the interests of money is like crazy?
Speaker 2 (29:43):
Yeah.
Speaker 1 (29:44):
I know, back leaned into ESG because it was great
marketing and now they're leaning way out of ESG because it's.
Speaker 2 (29:49):
Terrible market But you know, if we asked Larry on
this podcast or in any other public forum, he would
be like, he wouldn't say that he regrets it necessarily,
he would say fancy words.
Speaker 1 (29:58):
He would say, I think we are stewards of our investors' capital,
and we consider the long term risks of that capital.
We thought and think that, like things like social contribution
and climate change are material long term risks, and so
as sensible stewards of capital, we considered those risks, and
(30:18):
I tried to convey that financial motivation and some letters
and people are misinterpreting those letters. So I think it's
all true, but like those letters are kind of written
to be misinterpreted.
Speaker 2 (30:29):
Larry Fink, come on the podcast, Go do It.
Speaker 1 (30:36):
And that was the Money Stuff Podcast.
Speaker 2 (30:38):
I'm Matt Livian and I'm Katie Greifeld.
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Thanks for listening to The Money Stuff Podcast. We'll be
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Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
The Money Stuff Podcast, your weekly podcast where we talk
about stuff related to money. I'm Matt Levin and I
write The Money Stuff com for Bloomberger Pain.
Speaker 2 (00:20):
I'm Katie Greifeld, a reporter for Bloomberg News and an
anchor for Bloomberg Television.
Speaker 1 (00:25):
What are we talking about today?
Speaker 2 (00:27):
We're going to talk about the slow death of shorts
and specifically the retirement of Nate Anderson. We're going to
talk about evil bankers, my favorite cut. We're going to
talk about ESG Evil ESG, Hindenburgh, Nate Anderson. This was surprising,
was it? I was surprised. I mean, I don't know.
(00:49):
You think about Jim Chainos retiring in twenty twenty three,
he had a pretty rough run towards the end. Nate Anderson,
I feel like has had a lot of wins. And
also he only started Hindenburg in twenty seventeen.
Speaker 1 (01:03):
Yeah, I mean it's a hard business, you know, running
a short. So Nate Anderson, the founder of short focused
research from Hindenburg Research, announced that Hindenburg Research is no
more and he's going to tend to his garden or.
Speaker 2 (01:15):
Something, listen to some medium, listen to some.
Speaker 1 (01:18):
Medim I don't know. It's a hard job. And I
was trying to think about, like why now. And one
thing that occurred to me is if you read his letter,
a lot of these people, a lot of people who
like run these short research firms, sort of style themselves
as hedgehund managers, in part because that's like a cool
thing to say, I'm a Hedgehong manager. And like, actually
the SEC case against Andrew Left is hilarious because they
(01:41):
like actually claimed that it was fraud for him to
call himself a hedgehond manager. Yeah, like imply that he
had clients because he was like talking about his clients
when he was just the third person, right, which I
thought was like a little nasty of the sec Yeah,
it was like, I good enough, it is the kind
of a Hedgehne manager. But like you know, it's called
Hindenburg Research, and when you read his life, he like
describes it as a research firm. It's not a hedge fund.
(02:02):
It's not like in the business and making short trades, right,
it's in the business of discovering bad stuff at companies,
discovering fraud or accounting malfeisms or whatever, and then generating
money from that somehow. And I don't know exactly how
Hindenburg generates money. Like the original way I think he
was generating money was by going to the SEC and
(02:23):
submitting like whistleblower, what's the word quast step steps yes,
And so he would like say to the SEC, hey,
there's front of this company and they would be like, oh, well,
there is run at that company. They'd find the company
a lot of money and they'd give him some of
the money. Or that was the idea. And I think,
you know, I don't really know what Hindenburg does, but
like a lot of these firms will sell research ideas
to hedge funds, will then, you know, do the short trades.
(02:44):
They have more capital and more diversification than a short
only hedge fund would have. And like you know, we've
talked about Hunter Brook. Hunter is in the business of
finding bad stuff at companies and publishing them and then
among other things, bringing securitieslawaw suits. And they team up
with plaintiffs lawyers to bring lawsuits against these companies. And
(03:06):
if you were as in the business of like monetizing
fraudit companies by like having your own capital or your
investor's capital and doing short sales. Like that's a hard business, right, Yeah,
that's a lot of ways to blow up. Whereas if
you're in the business of like monetizing whistleblower rewards, that's
less capital intensive. It takes kind of a long time. Yeah, uncertain.
Speaker 2 (03:25):
I mean it just seems like a hard way to
pay the bills.
Speaker 1 (03:28):
What whistle lawer awards, Yeah, yeah it is. It's it's lumpy,
but like people have kind of professionalized it, more lawyers
than researchers, but some researchers have professionalized that made up
money in any case, Like if you think about like
the landscape of these short research frames, like you kind
of need all of those options. You read his letter,
he talks about we've led to more than one hundred
(03:48):
prosecutions and like investigations, like he is measuring his success
in getting regulatory and prosecutorial attention on the companies he targets. Right,
it's not like we've caused stock prices to go down.
It's we have brought fraud to light and how to
be investigated. And when I think about what is happening
(04:09):
right now, Yeah, I've written a lot in the last
couple of weeks about how there have been a lot
of like sec prosecutions, sec cases, a lot of other stuff.
There's a big Justice Department anti trust case against KKR
filed this week. We're going to talk today about the
CFPP case against Capital One nice Tia. So a lot
of stuff that is happening now because it won't happen
(04:33):
next week, right, Yeah, Like if you were in the
business of like alerting regulators through fraud, you might think
that's going to be a bad business starting next week
and going for four years.
Speaker 2 (04:41):
Yeah.
Speaker 1 (04:42):
I don't know that that's actually his calculation, but it
just feels like a week ago, if you said, oh,
this company is a fraud, that would have a big effect,
and like starting in a week saying oh, this company
is a fraud might not have a big effect.
Speaker 2 (04:51):
Well. Yeah, the thing is like there's no guarantee that
the stock will actually go down and your short will work.
You think about their last report was on Carvana alleging fraud,
and Carvana stock has done really well so far in January.
Speaker 1 (05:05):
Yeah, they could be wrong, right, They always be wrong.
They are specifically in the business of waving their hands
and saying to regulators, Hey, look at this company over here,
this is a fraud. Right, Sometimes they will be wrong
and the regulators won't look at it. But like sometimes
they'll be right and the regulators won't look at it.
And like, my suspicion is that the incidents of that
will go up soon because like you will have a
(05:26):
much less enforcement intensive regulatory regime everywhere in the US
economy starting next week.
Speaker 2 (05:33):
That's interesting.
Speaker 1 (05:34):
That could be like way off base.
Speaker 3 (05:35):
But I don't know.
Speaker 2 (05:36):
It's like my little sp but perhaps there's a political
angle here.
Speaker 1 (05:41):
I don't know that he's thinking that. I just think
I think it like I would, like, you know, i'd
be worried if my business model was calling regulatory attention
to frauds because like I don't know, Like I don't
want to say the name. Never mind, I'm gonna move
right along. We're not gonna say, like some companies.
Speaker 2 (05:57):
That I don't know, you even name some names. You
can do anything once anyway, you know, well really don't don't.
Speaker 1 (06:08):
I don't need that matter, all right.
Speaker 2 (06:10):
Well, moving softly along firs all In terms of how
they make money, there was an FT article talking about
this small New York based firm called Kingdon Capital that
works with Hindenberg on a number of its trades.
Speaker 1 (06:22):
So, right, like you sell ideas to or a partner with, yeah,
somebody who is not.
Speaker 2 (06:28):
And then you're the public face.
Speaker 1 (06:30):
Yeah, you're the public face of the short idea. But
also like they're the people who have like long short
capital because like just being a short seller, as Jim
Chaina has found, is hard because slacks mostly go up.
Speaker 2 (06:39):
Yeah, that is painful. Well related to this. So he's
winding up the firm, he's working through the last of
the ideas, and then they're handing off the tips on
suspected PAZI schemes to regulators. So there's probably some investable
ideas in there. And also maybe they'll get some of
these whistleblower rewards.
Speaker 1 (06:55):
Yeah, I assume there's some tell where like like the
whistleblowers thick, really long time to come.
Speaker 2 (07:00):
How much can you make I'm interested.
Speaker 1 (07:03):
I mean they've given out I believe, several nine digit awards.
Don't They've hid out hundreds and hundreds of millions of dollars.
Speaker 2 (07:10):
I wonder what the average award is.
Speaker 1 (07:12):
You know, they paid out press basis for the big ones.
I don't know, but like they're not small. Like this
sort of the way it works is kind of like
the sort of the rack rate is kind of fifteen
to thirty percent of what the SACI covers.
Speaker 2 (07:22):
That's wild.
Speaker 1 (07:23):
Yeah, you always get that and takes a long time
and it's like controversial. But like if you bring them
a big fraudt they get a big fund, you get
a big check.
Speaker 2 (07:30):
Yeah, lumpy, Like you said, it kind of reminds me
of being a freelance journalist if that's how you make
your living. I'm too risk averse to ever just rely on.
Speaker 1 (07:38):
Oh but compared to like shorting stocks, yeah, capital.
Speaker 2 (07:44):
Intensive, Yeah, I think I'd rather just be a TV anchor.
In any case, what I'm excited about is that over
the next six months, Anderson plans to work on a
series of videos and materials on Hindenberg's models so that
others can learn how the firm conducted its investigations. That
sounds like some good viewing and I don't know, maybe
more people will be inspired to take up the mantle
(08:05):
now that they have the tools.
Speaker 1 (08:07):
Is it a Barnes and Noble This weekend go on
and I went to the business section and they're still
these like for dummies books like investing for dummies, and
I was like picking them up and leaving through them.
I really want like a Nate Anderson activist short selling
for dummies. It sounds like you, you know, it's like
he's a good expert to record a series of YouTube
tutorials on how to be a short seller.
Speaker 2 (08:27):
Well soon, so the firm has eleven employees, and also
in his letter, he said that for now I will
be focused on making sure everyone on our team lands
where they want to be next. So the alumni class
of Hindenburg Research, I mean, who knows if all of
them will go into short selling, but it'll be interesting
to follow that.
Speaker 1 (08:45):
Yeah, I think the letter suggested that I've read between
the lines a little bit to suggests that like there
will be a continuation of Hindenburg. It won't be called
Hindenburg and he won't work there, but like several of
the people there will continue to kind of do the
same work in a similar format.
Speaker 2 (08:59):
Yeah, I want to know what he does next. Again,
only he.
Speaker 1 (09:02):
Suggested like like literal gardening.
Speaker 2 (09:05):
And did he I read the part where he said
this has been really hard. I'm tired. And also I
want everyone to go get jobs. Now you think he's
really gonna get down in the dirt plant some petunias. Yes,
we should.
Speaker 1 (09:21):
Ask him, Yeah, we should have him. Nate, come on
the pot. I met him once at a book party.
Speaker 2 (09:25):
Huge. I feel like there's he's at least the fifth
person I've mentioned and Matt has said, yeah, I saw
them at a book party. It seems like book parties
are sort of where you spent your free time. Barnes
and Nobles and this.
Speaker 1 (09:38):
Podcast and book parties are my social life.
Speaker 2 (09:40):
Wow.
Speaker 1 (09:41):
The Barnes and Noble is like party is like my
actual social life is children's birthday parties. But like, but
now I'm in like the drop off phase of children's
birthday parties. So it's like I go to the children's
birthday party, I'm angle for two minutes. I leave. Yeah,
I sit in my car and read a book. I
drafted Bardes and Noble and read a book.
Speaker 2 (09:57):
You know it's gonna say so if you're looking to
find Matt out in the wild Capital one, Matt, I
knew you were a banker, but I didn't know you
(10:18):
were evil.
Speaker 1 (10:19):
I worked at Goldman at like the peak of Goldman
is a great vampire squid wrapping its blood funnel around
humanity or whatever the line is. I was pretty evil,
but like you know, I was like evil adjacent and
I always had a soft spot for evil.
Speaker 2 (10:34):
Yeah, I could. It really came through in this column,
of course, we're talking about the Consumer Financial Protection Bureau.
It alleged that Capital One cheated customers out of two
billion dollars by keeping them in the dark about a
savings program that offered higher interest rates on their deposits.
Speaker 1 (10:51):
There's like really no dispute about what happened. Heret okay.
There's like three kinds of bank accounts whatever the treat
guns are like floating red bank acount. There's check accounts
pay basically you're interested. There's savings accounts which exists which
also seemed to pay zero interest. Like when I go
to my bank and I like click on the they're like, oh,
to open a savings account. I click on it, and
it's like you could get interest as much as zero
(11:12):
point zero three percent with a million dollar bounce right.
And then there's a thing called the highield savings account,
which is distinguished from a regular savings account by paying
like something more than nominal interest. And in like twenty thirteen,
Capital One opened highield SAVIS account called three sixty Savings
and they were like, this is a highield Savis account.
You'll get the best interest rate, and so people open
(11:34):
their accounts and they did this for like seven years,
and the rate would go up and down with like
you know, interest rates, and then in twenty twenty, in
twenty twenty, they like quietly deprecated it, where they basically
said everyone who was in that account stayed in that account,
their rate dwindled to like zero point three percent, so
like a lot more than my bank is offering on
(11:56):
like regular SAVIS account, but a lot less than like
fed funds or like yeah, you know, really a lot less.
And meanwhile they launched a different product called three sixty
Performance Saving, which is difference from three sixty Savings, and
three sixty Performance Savings is the new product that they
marketed to new people, and they're like, oh, this will
have the highest right and it did in fact have
(12:17):
like a you know, PID like four percent or whatever.
And so if you were like looking to open a
highield Saves account at Capital One in like twenty twenty three,
they were like, oh, yeah, here's our four percent rate
opened three sixty performance savings and you did, and they
got your money. But if you already had a three
sixty saves account, your rate dwindled to nothing and nobody
called you to be like, hey, you should move your
(12:40):
money to the higher yielding exact similar product. And so
they got a lot of money. They had a lot
of deposits from people who just didn't notice and kept
their money at the low yielding thing. And the CFPB
says they saved two billion dollars in interest sixpence by
doing this.
Speaker 2 (12:56):
So you seemed pretty sympathizic.
Speaker 1 (12:58):
I'm like, giggling now is.
Speaker 3 (13:01):
Such a good Yeah?
Speaker 2 (13:03):
Well, I mean your position seems to be like dah,
this is how banking works.
Speaker 1 (13:07):
The point of a bank is like they take cheap deposits, right, yeah,
Like I don't want to call it my bank. I
have no problem with them. But they offer me zero
points zero three percent on savings. Well, you know, because
like they can do that, I.
Speaker 2 (13:19):
Will say, okay, So this is how banking works. You
talk about how like the deposit franchise system is based
on people not knowing what the not checking.
Speaker 3 (13:28):
The interest rates.
Speaker 1 (13:28):
Like banking theory is that when interest rates go up,
the cost the deposits of banks doesn't go up as
fast because there's a thing called deposit beta. Like some
people just don't move their money out or don't ask
for a higher interest rate, and certain banks can save money.
And it's like really important to the stability and health
of banks that people don't demand every last basis point
(13:50):
of market interest rates on their savings accounts because loosely speaking,
the collapse of like Silicon Valley Banking twenty three is
like because people like demands of market rates on their
interest on their bank deposits.
Speaker 2 (14:01):
I mean you still see the after effects of that,
because you take a look at money market funds and
I think they're still close to seven trillion dollars depending
on what you look like.
Speaker 1 (14:09):
And I like exaggerating when I say because SPV was
like had like solvency problems. Yeah, but like the aftermath
of that was very much. People are like, ooh, my
regional bank, that's weird. And then they're like, oh wait,
I can get more on a money market fund and
it's all on treasuries and it's safer than my regional banking. Yeah,
So like everyone moved their money to money market funds,
and so the cost of funding for regional banks went
up so much because like basically all these deposit franchises
(14:32):
got like rerated to market interest rates. Yeah, and Capital
One it's not getting rerated to market interest rates because
it was paying zero point three percent to all these
people who weren't paying attention.
Speaker 2 (14:41):
Well, quick segue. It seems like that is the dynamic
that's going to exist for a while because Okay, there's
seven trillion dollars in money market funds and it's just
not coming out, even though the FED has lowered rates
by like one hundred basis points. There's a bunch of
bullish people in the stock market who are saying that's
cash on the sidelines that belongs to the market. But
then you have people on the other side saying, like,
(15:02):
no trillions of that came in the wake of sb
BE collapsing because people realize that's a much better way
to earn interest on their savings.
Speaker 1 (15:09):
I think that's right, and like anecdotally, like that is
my experience. I had my saviors and accounts, and eventually
someone was like, you should really put that in the
money market, but like I'm not, that's not going into equities.
Speaker 2 (15:18):
No, No, that would probably go back to banks.
Speaker 1 (15:21):
But we'll go to the money market plans.
Speaker 2 (15:24):
You're just going to stay there for the rest of
your life.
Speaker 1 (15:26):
Cool power to unless Capital One or someone else offers me.
Speaker 2 (15:30):
A higher rate on not going to be capital one.
My question, So what you were saying this I like
a good trade. This is how banking works. And it
sounds like they weren't necessarily lying.
Speaker 1 (15:44):
When they were lying at all, They just weren't calling
their customers proactively to be like, hey, we have a
better rate elsewhere.
Speaker 2 (15:50):
But doesn't this doesn't this sound bad? It sounds like
they were basically told to keep this secret because you
put in block quotes that the bank this is according
to the cfp BE, the bank told frontline ambassadors associates
who work in the bank's physical branches, they must they
must not proactively mention the ability to convert three sixty
savings accounts to three sixty performance saving accounts to customers. Similarly,
(16:14):
the bank forbade its ambassadors from forwarding three sixty saving
account holders to Bank Voice, the bank's units that handles
account conversions, unless the account holders asked directly about the
ability to convert accounts. That seems bad, Matt.
Speaker 1 (16:27):
It's like converting to judaism. You have to ask three times.
It's bad customer service. Yeah, there's no doubt about it.
Is it fraud?
Speaker 2 (16:37):
Why did they launch three sixty performance Savings in the
first place?
Speaker 1 (16:40):
It's a great question. I assume the answer is because, like,
you do want to gather deposits, and the way to
do that online as a bank is you do, like
legitimately advertise the best rate. Right, if you say our
highield save as account, you'ld four point three percent, come
join us, right, and then people do so. They would
advertise this new product to get new deposits in, and
(17:02):
they had to pay a market rate to do that.
But like, well, I raise the rate on the old deposits.
So you launched a new product and then the old
product can pay less and less than less. I was
also shady, right.
Speaker 2 (17:14):
It seems it smells so stinky, Matt. And I was
gonna say it seems like false advertising. But you do
point out that you know they advertise this is the
best and the highest interest rate.
Speaker 1 (17:23):
I think it was like it's false advertising because in
twenty nineteen they said it was the best rate and
then in twenty twenty three, I was like, well, this
is different.
Speaker 2 (17:28):
Years, I guess, but if you know that, you know
the vast majority of deposits and who knows if it
was the vast majority are in there because you advertised
it as having the higher rates straight and then that changed.
Shouldn't you tell them?
Speaker 1 (17:42):
Yes, the CFPP says, and yes, if you're like a
good upsetting vide you're a bank, you know, it's like
a different story. I had a friend when I was
at Goldman. I had a friend who managed his family's
cash balances. He would like put money at Hyta and
every like month he would check the rates on hoyotav
And there's always someone who is better than someone else, right,
because like this is what you do. You advert has
(18:03):
a high rate, you draw in money, and then you
figure people aren't going to pay close attention, so you
could have like not quite the highest rate right now.
Usually they were all kind of fairly close to each other,
but like each month someone had a like essentially promotional
rate to get in money. And so if you move
your money every month, you could earn a higher rate
every month. But you had to be kind of weird
(18:23):
to do that and the banks for keep banking on
people mostly not being that weird and mostly like leaving
their money there even if they didn't offer the highest
rate all the time. And Capital One did a sort
of extreme version of them. Yeah.
Speaker 2 (18:34):
Well, they report earnings next week. It'll be interesting to
see if there's any commentary on this on the call.
Speaker 1 (18:40):
Yeah. I'm gonna say two other things about Capitol one.
On one is that before the pandemic, I would meet
people for coffee and they'd be like, where can we
meet for coffee near Bloomberg? And I had a whole
list of places, and they all close during the pandemic.
And now when people say where can we meet for
coffee near Bloomberg, I'm like, well, there is a Capital
One cafe in our building, and that is the only
(19:00):
place I meet people for coffee. And it used to
have the advantage that it was kind of like large
and quiet and so you could always find a seat.
But then that stopped having that. Everyone meets at the
Capitol One cafe.
Speaker 2 (19:12):
Oh my god, So it used to be in h
and M. It's literally in the Bloomberg building. I love
the Capital One And I met your brother for coffee
isn't that bizarre. Yeah, we have a memory together at
the Capital One Cafe. Uh Viil Donna Hirich was also
there and my brother Greg and some other guy. That
was quite a strange meeting of the mines. Capital One Cafe.
It's a great place to get a kind of soggy sandwich.
Speaker 1 (19:34):
You don't have to bank there, but I believe you
get a disc of you do great stuff. I feel,
you know, in addition to loving a good trade, I
sympathize at the Capital One because they provide me my
meeting space. The other thing I want to say is
that what happened is the CFP brought a case right
and like next week you'll be a new CFPV. This
(19:54):
is like they are rushing to get everything out the
door before the new administration comes in. And you know
a lot of the defendants in these cases are kind
of saying that they're like, ah, this is the last
ditch effort by the CFPB to bring a politically motivated
case and like it won't really stand up and there
might be something to do to that. Like, I think
this is a this is kind of a novel theory here,
because like the CFPB is not really alleging that they lied.
(20:17):
They should have been proactively telling customers about it. And
we'll see like what the new CFPB does and and
sort of where this goes. But like this might go nowhere,
and Capital one on the call might say this is nothing,
and they might be right.
Speaker 2 (20:29):
Wow, Perhaps Nate Anderson had some political considerations in mind.
Perhaps CFPB did as well.
Speaker 1 (20:36):
We're not going to talk about the SEC case against
the Elon Musk no on this podcast.
Speaker 3 (20:40):
Thanks, we're short out time, but yeah, well you know
what we.
Speaker 2 (20:58):
Are going to talk about ESG, Yes and American Airlines.
Speaker 1 (21:02):
Turns out if I had did an AUTO like we're
gonna talk about Elon.
Speaker 2 (21:05):
Would be crazy. I would just stare at you, slackshod
and walk out of the room. So American Airlines pilots
are assuming American Airlines in Texas for ESG. As you
point out, this plan by black Rock didn't have any.
Speaker 1 (21:25):
American Airlines runs like a four O one K fund
Yes pro one K plan for its pilots. Right and
one pilot brought a class action saying that this plan
violates its fiduciary duties to the beneficiaries to the pilots
because it is ESG and ESG environmental, social and governance
(21:47):
investing is not putting the financial best interests of the
pilots first. It is enacting Americans or black Rocks like
evil social goals rather than caring only about financial returns
the pilots. As I pointed out in my column, there
are no ESG funds.
Speaker 3 (22:03):
Yeah, this four on K plan.
Speaker 1 (22:05):
They's just like, at no point does anyone make any
investment decision that's like, oh, we can't buy coal plants
because like they're not ESGA. Right, no ESG funds. But
what there is, though, is that there's regular index funds,
and the index ones are managed by black Rock and
Blackrock for a while not anymore. For a while, Larry
think the CEO of Blackrock would send like a yearly letter,
like a public letter to CEOs of public companies saying
(22:29):
you need to care about your impact on communities and
we're going to be very focused on climate change and
all these things that seemed in the very different days
of like twenty twenty one to be like really good
marketing for Blackrock. Yeah. Oh, look at Blackrock. It's like
a socially responsible long term steward of capital, and it
thinks about things like climate change and social impact of
businesses and like, now that's all not allowed. And so
(22:53):
these pilots, you know, sued and the argument was that
by Blackrock out these letters and thinking about ESG and
sometimes of voting like in favor of like climate proposals
at portfolio companies, it threw its beneficiaries under the bus
and it wasn't putting their interests first. And also American
(23:15):
by hiring Blackrock and by not yelling at them to
stop doing ESG violated its duties of loyalty to its pilots,
and therefore, you know, is liable for like not running
its four h one k plan under the law. And
they brought this case in like this federal court in
Texas with like a sort of famous conservative judge who like,
you bring your conservative cases in Texas because he'll ruin
(23:38):
your favor. And he said, that's right. ESG by definition
doesn't prioritize investors' financial returns and so it's not allowed.
And uh, an American violated its duty of loyalty.
Speaker 2 (23:48):
Yeah, that's really interesting. I mean we've talked about ESG
on the podcast before obviously, and the question that I
always ask is like, what are the motivations of ESG.
Are you investing to do good or because you think
that if you don't invest to do good eventually things
will happen to your business that are bad.
Speaker 1 (24:05):
I think that most mainstream ESG investors, certainly including black Rock,
would say it's the latter. They would say, formally, what
we are doing is considering long term risks to the
businesses that we invest in. Climate change, and like the
transition away from fossil fuels is a giant long term
risk that we are analyzing and predicting, and so we
(24:27):
want companies to be positioned for it. We want airlines
to think about how to you just feel more efficiently.
We want oil companies to think about transitioning to cleaner
energy because like that's the long term future. Yeah, And
like similarly with like social issues, right, it's like diverse
companies perform better, and diverse companies, like in a more
diverse world will perform better. And so when we take
(24:48):
the long view, we think that diversity is important, even
if it's like expensive. Now, I think that this has
always been the mainstream of how people who work in
ESG have described. Now there are two big cavists that
one is that a lot of people don't believe that.
And the judge talks about this, he's like, yeah, they
pay lip service to the idea that it improves financial returns,
but it's not real. And I think that, you know,
(25:11):
there is kind of evidence both ways, and like the
performance of ESCH funds is hard to untangle from like
influence into es CHI funds. You know, he cites like
ESG funds underperformed the S and P like in twenty
twenty three or whatever. Again, no ESG funds in this portfolio,
so it's an irrelevance iation but whatever, ye yah, yeah.
But the other problem with this is that I think
everyone who worked in ESG, if you like pressed them
(25:34):
on this issue, would say it's about considering long term
risks to the portfolio. They also definitely benefited from, like
creating the impression that they were investing to do good. Right.
I think as an advertising matter, as a you know,
accumulating of assets matter, blackrock positioning itself as like a
steward of the environment was appealing to some people, whether
(25:55):
or not it improved their returns, right, Like they wanted
the world to you know, they wanted like to fight
against climate change, and they had like the vague impression
that putting their money at Blackrock would help in the
fight against climate change. And I think that like confusing
those two issues, confusing like are you investing for social good?
Are you considering long term risks to your portfolio? Was
like really beneficial to ESG investors during the rise of ESG. Yeah,
(26:19):
And like there's really bad for them now because they're
getting lawsuits like this and they're getting pushed back from
like politicians saying, well, you're not actually putting your clients
interest first, You're like only trying to do, you know,
achieve your social goals, which I think is not what
they would have like officially said, but it's kind of
what they implied a little bit, So it's not on
them in trouble now.
Speaker 2 (26:36):
I do want to go back to the lip service thing,
because that just don't I don't, I don't know. So
the judge said that oftentimes Blackrock couched its ESG investing
in language that specifically pledge allegiance to an economic interest,
but Blackrock never gave more than lip service to show
how I mean, how do you distinguish what is actually
a lip service. What if they were giving lip service
to the ESG part but actually only cared about the
(26:58):
economic impact. I feel like we can't know that.
Speaker 1 (27:02):
Yeah, And like what I wrote is the Black cair
complex has a lot of skin in this game, right, Yeah,
Like Blackrock and plays a lot of investment professionals who
are like rewarded for doing well, right, And so if
like they were constantly undermining the economic interests that they're
trillions of dollars of funds, they might stop doing that, right.
Blackrock also like has a lot of clients, right, And
(27:22):
like it's clients range from you know, individuals to like
very sophisticated pension funds who have like you know, principle
Asian problems, to like you know, big endowments, like all
sorts of clients who you know, it's the biggest asset
manager in the world. Presumably those clients like think it's
helping them make money, right, Like, like maybe they're all deluded,
but it's weird to be like, you know, the people
(27:43):
who invested like trillions and trillions of dollars to the
black crack are all wrong about it trying to make
them money. And I a judge in Texas am right,
and I know that those people are all that like
Blackrock is actually not looking after them. It's a strange
like like, what's the evidence that that it was only
lip service? Well, he doesn't really say, you know, there's
like test the money in a trial. Maybe he heard
something very convincing. But to me, like if Blackrock was
(28:06):
not trying to make money for its investors, it's kind
of weird that it's got so many investors.
Speaker 2 (28:10):
I do wonder what this means reputationally for Blackrock going forward,
especially the thing like on.
Speaker 1 (28:15):
That point, like Blackrock is not involved in this lawsuit. Yeah,
it's like a weird because it's like, right, like black
Rock is getting its name drive through the mud and
it's not even still.
Speaker 2 (28:23):
I mean, you you raise the point that it's possible
in twenty twenty one corporate managers who might have been
afraid to be critical of ESG might have you know,
hired Blackrock for four one ks to curry favor with Blackrock.
Speaker 1 (28:36):
A point in this lawsuit that's important. It's like Blackrock
is one of the biggest shareholders of American and so
like can American criticized BlackRock's THEESGV.
Speaker 2 (28:43):
Is I mean you. You could on the flip side,
see a company considering, you know, who to hire for
their for one k, see what's happening in Texas and
be like, maybe we should just go with Vanguard or
like Fidelity or something because we don't want this rhcstoria or.
Speaker 1 (28:57):
Like the anti woke right right? Who I really like?
You know, there's all these people like springing up to
like oh up this pie right, get all the.
Speaker 2 (29:05):
Anti Yes, But yeah, I don't know. I would love
to talk to Larry Think. Just sometimes I think about
who are the people I would love to talk to
in a completely honest setting like this? Yeah, I come on,
just like, do you regret it? I know that black
Rock is backed away ESG.
Speaker 1 (29:25):
I could answer for that. Heats it. Yeah, he regrets
it because he's a businessman, you know.
Speaker 2 (29:31):
Like he's a business common man.
Speaker 1 (29:34):
Yeah. Like the story in this case that like Larry
Think is like a crusader for my environmental justice. Who
will put that over the interests of money is like crazy?
Speaker 2 (29:43):
Yeah.
Speaker 1 (29:44):
I know, back leaned into ESG because it was great
marketing and now they're leaning way out of ESG because it's.
Speaker 2 (29:49):
Terrible market But you know, if we asked Larry on
this podcast or in any other public forum, he would
be like, he wouldn't say that he regrets it necessarily,
he would say fancy words.
Speaker 1 (29:58):
He would say, I think we are stewards of our investors' capital,
and we consider the long term risks of that capital.
We thought and think that, like things like social contribution
and climate change are material long term risks, and so
as sensible stewards of capital, we considered those risks, and
(30:18):
I tried to convey that financial motivation and some letters
and people are misinterpreting those letters. So I think it's
all true, but like those letters are kind of written
to be misinterpreted.
Speaker 2 (30:29):
Larry Fink, come on the podcast, Go do It.
Speaker 1 (30:36):
And that was the Money Stuff Podcast.
Speaker 2 (30:38):
I'm Matt Livian and I'm Katie Greifeld.
Speaker 1 (30:40):
You can find my work by subscribing to the money
Stuff newsletter on Bloomberg.
Speaker 2 (30:44):
Dot com, and you can find me on Bloomberg TV
every day on Open Interest between nine to eleven am Eastern.
Speaker 1 (30:50):
We'd love to hear from you. You can send an
email to moneypot at Bloomberg dot net, ask us a
question and we might answer it on air.
Speaker 2 (30:57):
You can also Subscribe to our show wherever you're listening
right now, and leave us a review. It helps more
people find the show.
Speaker 1 (31:03):
The Money Stuff Podcast is produced by Ana Mazerakus and
Moses and On.
Speaker 2 (31:07):
Our theme music was composed by Blake Maples.
Speaker 1 (31:09):
Brandon Francis Newdham is our executive.
Speaker 2 (31:11):
Producer, and Stage Bauman is Bloomberg's head of podcasts.
Speaker 1 (31:14):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with Mors Time
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