July 20, 2020—Previously Jilted Merger Target Forescout Sees its Stock Surge After it Strikes a New Deal with Private Equity Acquiror Advent. What Led to the Parties Making Amends?

SPAC Fortress Acquisition Clinches Deal with Rare Earths Producer MP Materials. How Did the Market React?

Qiagen Stock Hits New Highs After Acquiror Thermo Fisher Sweetens Bid by €1 Billion. Why Are Some Investors Saying it’s Not Enough?

Bank Trading Revenue Surges in Q2 as Volatility Spikes. Is the Dramatic Increase in Trading Sustainable?

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Transcript: Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com.

Julian Klymochko: Welcome ladies and gents to episode 78 of The Absolute Return Podcast. I am Julian Klymochko.

Michael Kesslering: And I am Mike Kesslering.

Julian Klymochko: Today is July 17, 2020. Another week of the markets wrapped up. We have a few things to chat about. Really cool things happening in the market this week, whether it be M&A, SPACs and investment banking news specifically on the trading side. Whereas some banks just absolutely knocked it out of the park on fixed income trading.

    • What we wanted to chat about on the M&A side was previously Jilted merger target Forescout of which we have chatted about on the podcast previously. They sought stock price surge. After it struck a new deal with its private equity acquiror Advent. What led to the parties, making amends here?
    • More M&A news. Qiagen stock it’s new highs after acquire a Thermo Fisher sweeten their bid by 1 billion Euro. Why are some investors saying that is not enough?
    • Onto some SPAC news. Special purpose Acquisition Company, Fortress acquisition cling a deal with rare earth producer, MP Materials. How did the market react? You know, everyone is pulled up on the SPACs these days.
    • And lastly, going to chat about bank trading revenue that surged in the second quarter as volatility spiked. Is the dramatic increase in trading revenue sustainable?

PERVIOUSLY JILTED TARGET FORESCOUT SEES ITS STOCK SURGE AFTER IT STRIKES A NEW DEAL WITH PRIVATE EQUITY ACQUIROR ADVENT

Julian Klymochko: But let’s start things off with Forescout which we previously chatted about. I believe a couple months ago on the podcast. What happened here was private equity firm, Advent International, chose to come back to the table, cease their litigation and strike a new deal with its merger partner Forescout Technologies after these parties agreed on re-cut deal at a $29 cash per share price. This is down 12% from the initial price at 33 bucks per share. What we discussed on the podcast in May about two months ago, is Forescout tried to back out. That is right; they got cold feet after Forescout announced poor Q1 results.

Advent is a private equity shop supposedly long-term investor, but they chose to try to wriggle out of the deal after being spooked on Forescout, poor Q1 results. And what happened just a couple of weeks ago was Forescout came out with a really good preliminary Q2 numbers. And I suppose Advent had another change of heart and came back to the table, so it is really interesting situation. What I wanted to comment here is one aspect of M&A that we have been focused on throughout the pandemic and the accompanying recession is that certain clauses within a merger agreement in which buyers have chosen to try to walk away and litigate out of the deal specifically, there’s the material adverse effect clause. That was going to get tested in court on the Forescout- Advent deal. It had only been utilized successfully once in the history of M&A, which was of course Fresenius acquisition of Akorn, I believe in 2018. The judge actually did determine that a material adverse effect had occurred for the first time ever and allowed the acquiror to walk from that deal. So we’re going to get a chance to see more precedent set, however, not going to happen on Forescout, Advent because right before the trial was about to start, which was July 20th on Monday, when this podcast is going to come out. The trial was going to happen, so these guys got together right before, basically on the steps of the courthouse, struck a new deal. Down 12%, which is really in line with the repricing comps. Typically, what we have seen on dealer pricing’s between 5 to 15%. If we look at other Repricing’s in this cycle, there has been a Delphi and their acquisition by BorgWarner, they repriced down 5%. Of course, that was an all-share deal here on Forescout, Advent, it’s all cash.

Another repricing was not within the context of litigation, but within the context of a deal extension. Was Waste Management acquisition of Advanced Disposal, and they repriced down 8%. So all of these have come within the range of down 5 to 15% as expected. Lowering the deal price on this one will save Adven, nearly $500 million, ignoring legal costs, but one thing to mention is that it is not surprising. I think we will see more repricing as opposed to litigation, because no one really knows how this litigation is going to end up. There is risks to both sides and typically, both parties want to mitigate that risk. Yeah sure, Forescout wanted to get full value of 33 bucks a share, but taking a 12% haircut is certainly better than losing in that litigation. And I’m sure Advent kind of felt the same way, so they came to a table. Came to an agreement at the 29 bucks per share, plus shareholders and the board of directors of Forescout notice that the stock was trading in the low to mid-twenties and figured 29 bucks at the end of the day was better than a broken deal. Nonetheless, Forescout stock up 16.1% this week on the news, which is great because the Accelerate Arbitrage Fund is a shareholder of Forescout. Right, Mike?

Michael Kesslering: Right, yeah. Absolutely, and so this was a really good

Scenario to play out. In terms of when we have discussed last week, the probability tree, the probability of a re cut in this range in the $29 range is a very favourable outcome given where the stock was trading. And as well as where most ARBs got into the deal, that’s a favourable price. Just to go back to our episode in May.

Julian Klymochko: Its episode 69, I just checked.

Michael Kesslering: Yeah, yeah, exactly and so looking back to our episode in May, when we were talking about where we had the expectations for a recut. I believe my estimate was in the 23 to $26 dollar range. So very conservative, and then Julian was in the $25 to $30 dollar range. This $29 dollar is at the upper part of the range, and so that is really a win. And I mean, just overall it’s great to see as a shareholder. Just going back into some of the details into why they came to this agreement is one of Advent arguments near the end, as this was playing out in the courts and it was not in trial, this was all pre-trial, the trial was, I believe that it was supposed to actual court proceedings were to begin at. I believe it was July 21, but Advent’s main argument was that they are lending commitments because a portion of this deal was being financed by debt.

Julian Klymochko: Yeah. $400 million of the $1.9 billion was going to be debt finance. So yeah, I think the equity check was in the 1.3 to 1.5 billion-dollar range, I believe.

Michael Kesslering: Yeah. Yeah, so the lending commitments had expired. Now that is a valid point. When a deal like this is struck at the onset is the creditors will have an expiry date as to when they have committed to provide the debt financing in this deal. So it had moved past the expiry date, so that is a valid point. But their argument was that they were no longer able to get at debt financing.

Julian Klymochko: Ridiculous.

Michael Kesslering: Which is a ridiculous comment because yes, if this was in May or especially in April, That would be a very valid comment, as debt markets were difficult to tap. There was a lot of uncertainty, but right now, we are in a very strong rebound in capital market.

Julian Klymochko: They are on fire.

Michael Kesslering: Exactly.

Julian Klymochko: Credit markets are absolutely wide open for deal financing.

Michael Kesslering: Exactly and so that really, was not a very valid point. And specifically Forescout came back and said that they had some parties reach out to them that willing to provide that financing. Where then Advent, came back and said that, well, no, that is an activist shareholder, and they’re not going to provide good terms, but ultimately I believe what some of the notes from the proceedings over the, I believe it was the day before this re cut deal. It was mentioned that ultimately Advent would have to testify as to the validity of whether they could get debt financing. And I don’t believe any CFO would be able to go on the stand and say on the record in a deposition that they were not able to get debt financing.

So that provided some incentive, I am sure to get this deal done, but back to what you had mentioned on this deal being $500 million cheaper, that is really a good investment from Advent standpoint. I mean, there is some reputational damage by attempting to walk on a deal, as they are a private equity firm. But if you just look at it from the monetary easy to quantify standpoint. It is a cheaper deal by $500 million dollars; they probably paid. What would you expect maybe a couple of million dollars of legal fees? I think that is being fairly conservative. It was likely even less than that.

Julian Klymochko: Yeah.

Michael Kesslering: So a couple million dollars to save $500 million dollars. Hey, that is a good Investment on advent standpoint. And so really kind of a win, win all around. And for Forescout shareholders just some uncertainty in this deal, merger arbs in general,

Julian Klymochko: You make a good point with respect to the trade-off that Advent made. Obviously, they are saving a ton of money on the deal price. As for reputational damage, who knows? It is more subjective, but at the end of the day, they wanted to save 500 million. So kudos to them. As for the merger arbitrage, I mean, we made out of this one a pretty good. We hate to see a deal break, so we’re always in favour of priorities getting back to the table and negotiating, and that’s a significantly better result than saying the deal fall apart, and the stock just be in freefall.

 

QIAGEN STOCK HITS HIGHS AFTER ACQUIROR THERMO FISHER SWEETENS BID BY €1 BILLION

Julian Klymochko: So another similar, but kind of opposite situation and M&A, really interesting case study happened this week was on Qiagen. So what happened here was the coronavirus pandemic, as we know, has been tough for many companies, recent financial performance, one of these being Forescout’s Q1. However, some businesses have thrived.

We have chatted a number of times on the podcast regarding this work from home type companies whose share prices have just been skyrocketing, whether it is Zoom or Netflix or companies of that nature. But one company that has been benefiting from the coronavirus that’s not a work from home type company is Qiagen, who is a supplier of medical laboratory equipment. They have actually seen earnings per share rise by 68% in the second quarter and this happened in the midst of a deal in which Thermo Fisher had a friendly deal to acquire a Qiagen at 39 bucks per share, which they struck in early March. Now, what happened after these tremendous Q2 results came out was Thermo Fisher was forced to raise their bid. We had some activist shareholders sort of rattling cages, making some noise about how the deal price was now too low.

Cause Qiagen business has just picked up pretty dramatically into the whole pandemic, not just that, but I was looking at the deal docs and Qiagen board was actually going to recommend against the offer after analysing their Q2 results. So not surprising that Thermo Fisher came out, raised the bid from 39 to 43 euros, that is up 10.2%. So it kind of counteracts what happened on Forescout. Yeah, you had a repricing down 12%, but on the other side, the concept of running a diversified merger arbitrage book, some deals get cut, some deals get increased. So we had the opposite of a cut here up 10.2%, bringing it to a 35% premium to Qiagen’s unaffected price. Nonetheless, some shareholders still are not happy with this one. Mike we heard some more noise from activist Davidson Kempner, they think, and perhaps we think the same, cause we are long Qiagen as well. Top five, holding in the accelerate arbitrage fund, this might be too low. Don’t you think? What are your thoughts on the price here on the 43 euros for Qiagen from Thermo Fisher?

Michael Kesslering: Yeah, so Davidson their European division which is the shareholder here. They own 3.6% of Qiagen. They have had a couple of letters to the board of Qiagen basically wanting higher consideration and they had mentioned prior to this bump that they were not going to be tendering into this offer. Well, this still has not appeased them. They believe that the proper range is in the 48 to 52 year euro range. The revised offer at 43 year euros would represent based on their estimate of Qiagen at EPS would be 19.3 times P multiple. And their rationale is that this is below the historical trading range of Qiagen up 20 to 23 times.

Julian Klymochko: To me, what that means is that. Say if there were no deal. Qiagen unaffected price would at least be $43 and the current takeover does not reflect any sort of control premium.

Michael Kesslering: Yes, that is their exact rationale is that there is really no control premium being offered. I mean, there call is very legitimate. Their thesis on what it should be worth, as a shareholder we would tend to agree with that. It remains to be seen if a further bump will happen because one thing that Qiagen’s board did do was decrease the acceptance rate required of the tender offer from 75% down to 66 2/3. So that does lower the bar a little bit, and Davidson Kemp, they themselves cannot impact this deal being 3.6%, but if they are able to convince other shareholders.

Julian Klymochko: Yeah.

Michael Kesslering: That would represent, you know over 33% of shareholders, then something can be done here in perhaps if they do have enough traction, perhaps that will push, Thermo Fisher to bump it further, which would be welcome to the ears of arbs.

Julian Klymochko: Yeah, certainly and something that we would certainly welcome as well. This is a situation that’s going to play out pretty quickly over the next few weeks. The tender does expire August 10 and why we really like it. I mean, I tweeted last week, how I thought Qiagen was one of the best risk rewards out there. And over the short term, obviously shareholders rewarded this week, but nonetheless, I mean, it’s still a very attractive merger arbitrage situation because it’s trading roughly 42 euros. So a discount to the deal that’s on the table, plus you could make the argument for more upside and the 42 Euro price represents roughly 3% annualized return, assuming that it can close early next year. So still, a relatively decent return, plus you have upside optionality on a further increase bid and basically if you go along here, there’s kind of a put at 43 euros. So it’s still a really good risk reward scenario and you do have upside if its comps continue to rally. So on that we like, a top five position in the fund that we have held basically since the deal got announced in early March.

Michael Kesslering: Now Julian, do you think part of the reason for the discount here to the terms is because it is a, like, Qiagen is a U.S. listed company. So many ARBs would be getting their exposure through U.S, but the consideration is in euros. Do you think that is factoring in here at all? Is just some arbs and perhaps especially retail investors, but even some arbs. Just may not want to deal with a year old position for the year or consideration.

Julian Klymochko: Yeah, who knows? This deal is just really flown under the radar. It is an $11.5 billion deal. Oh, and that was prior to being bumped. So now, it is north of $12 billion, so it is certainly a high profile deal. But has not gotten a lot of news flow, it’s always traded at a very attractive spread and continues to do so. So I don’t know exactly why and a lot of investors have shied away from this one. Really has not been one of those high profile deals, but nonetheless, yeah. I mean, that is kind of a gift to investors. If you can find something that is inefficiently not pricing and whether it be upside optionality or the correct risk profile, if the annualized return is significantly higher than it should be priced efficiently, then that is a gift that investors should capitalize on here and this is certainly one of those situations. So it will be really interesting to see how it develops over the next few weeks and if more activists can involve, it could make for a very interesting outcome.

SPAC FORTRESS ACQUISTION CLINCHES DEAL WITH RARE EARTHS PRODUCER MP MATERIAL

Julian Klymochko: But on SPACs, there was a big SPAC deal this week. What happened here was Fortress’s value, which is a special purpose acquisition, backed by Fortress, the alternative asset manager and hedge fund firm. They actually announced a business combination with MP Materials, which is a producer of rare earth materials used in electric cars, wind turbines, defence systems, and other technologies. If investors have been around for, you know, 5-10 years, you would remember a rare earths bubble happened a number of years ago. And there was perhaps the poster child of the rare earth bubble was Molycorp, which went on to at its peak reach a $6 billion market cap. And that’s basically MP Materials got its hands on Molycorp assets.

So this is basically a recreation of the whole Molycorp, so we’ll see if we go through another rare earths bull market. Certainly all the ingredients are in place with the drive for, you know, green investing, renewable energy and say cars like Tesla and other renewable energy technologies do use a significant amount of rare earths. So bull market and sustainable and ESG type stocks, bull markets, certainly an electric vehicle star stocks, such as Tesla and Nicola, and definitely a bull market that continues in a blank check companies. Some stats on this deal, the proforma entity will have a market cap of about 1.5 billion, so that is significantly lower than the old Molycorp used to trade at and I mean, investors love this deal. Didn’t they bid up Fortress as much as 30%? But settled up in the plus 10% range this week, got to disclose where long this one as well. You know, we have been pounding the table on pre deal SPACs and they continue to work out tremendously well for our arbitrage fund. So it is kind of the thesis is playing out great and we still have a portfolio of, you know, nearly 40 SPACs in the book. And we definitely look forward to more deals being announced, don’t we?

Michael Kesslering: Yeah, exactly and this one was an interesting deal. As you had mentioned, there is a history with MP Materials with their mountain pass mine being the only rare earth material mine in North America, as we have discussed on the podcast before. How China is basically dominating that market specific to this deal as well. You had a $200 dollar million pipes or private investment in public equities from some parties and quitting Chamath Palihapitiya, and then Leon Cooper Omega advisors. So some big names involved in that investment that will go into the company. As well, so the interesting aspect is sometimes a critique and this has been very topical as Bill Gurley is kind of the, one of the main VCs that has venture capitalists that has been discussing the, basically just arguing a gate side IPOs.

And he is a big fan of direct listings which makes sense, but he’s also quite a fan of SPACs. And one of the main arguments against SPACs is the sponsor promote, so the sponsor shares that are typically given to the sponsor of the SPAC at deal completion that will typically, and this varies on a deal to deal basis, but on the average SPAC. It would be about a 20% stake in the proforma entity. Well, in this situation for Fortress value is they actually have an out for the sponsor shares for vesting, which would include 50% at $12 dollars a share. 25% out 14 and another 25% at $16 dollar a share. So it is aligning the interests of the investors of the company with the sponsors of this SPAC, Bill Ackman SPAC that is, will be likely listed next week.

It has similar structure for an earn out of the sponsor shares. Now, one other thing that I did want to mention is at the of this section, Julian. You mentioned that this was a big deal this week. Well, this is actually just being a really crazy week in general for SPACs and that may sound like a bit of a broken record as we have been talking about how crazy the SPAC market for issuance and deals have been.

Julian Klymochko Yeah.

Michael Kesslering: But that is really just a function of it generally is a crazy market. This week, there was a number of IPOs and listings.

Julian Klymochko: Yeah.

Michael Kesslering: Which was very good for the market, but something that Julian you had discussed in weeks prior on the podcast. Is that there is a certain level of importance to investing across SPAC vintages and trying to get your exposure to pre deal SPACs in that way. This week really provided confirmation for that, so if you look at Fortress value. They actually just IPO at the end of April 2020, so it is only two and a half months old, that they already found a deal.

Julian Klymochko: Yeah, you typically don’t see them happen that fast.

Michael Kesslering: No, that is extremely fast. And then as well, so there was four deals announced this week, FVAC being one of them. Another deal that was announced this week was with Churchill Capital III, which is Michael Klein. He is a former investment banker with city group, very well regarded in the industry, but this is his third SPAC. And the first one, he had a very good deal that I believe it’s up three or four times since that deal closed. So investors into his second deal, it was very well oversubscribed, but the second SPAC is actually still looking for a deal, but it was a much smaller SPAC. I believe it was in the $600 million dollar range where this Churchill Capital III, which announced a deal this week. It was in over a billion dollars for their money in trust.

Julian Klymochko: And what is crazy is he, once again filed an S1 this week for Churchill Capital IV. Can’t stop, won’t stop. And you know, if it’s working, you keep doing it, right?

Michael Kesslering: Yeah and Churchill Capital III. They had just IPO and in February 2020, so another SPAC that found a deal quite quickly, but the other two deals. You had Haymaker Acquisition, which had IPO in June of 2019. Now they signed a non-binding LOI this week, so it is not quite the same as a definitive merger agreement being signed, but it still is a positive in the space, and then lastly. You had Spartan Energy Acquisition, which also got into the electric vehicle game with other SPACs such as Nikola and some others. Where they had IPO back in August of 2018, so you really see of these deals that were announced this week. Just a wide variety across the spectrum of vintages. So it does lend a lot of credence to, if you are going to invest in SPACs, building out a basket that includes SPACs from a variety of different vintages, so that you don’t just have exposure to, you know, a deal environment that began in since Coronavirus. You have exposure to many other SPACs.

Julian Klymochko: Yeah, and the other thing to keep in mind. Some of them, the non-brand name ones. Like you look at Bill Ackman that will be super high profile and the Churchill ones by Michael Klein. Those are all typically oversubscribed shipping at a large premium to NAV. Chamath his social capital SPACs create a huge premiums to NAV, but a lot of the best deals came out of sort of no brand named ones. If you look at Vector IQ and Nikola. That deal, which seems to be an absolute home run, you know, that was not a hot deal at all. So don’t ignore the non-hot deals. I believe that Tortoise deal was trading at a big discount as well and then they announced that Hyliion business combination and the stock just absolutely skyrocketed. That is perhaps the hottest deal on the table right now. One question Mike, who do you think is going to be crowned king of SPACs here? We have seen a number from Chamath Palihapitiya. We have seen obviously four now from Michael Klein and a number from William Foley. So a bunch of these entrepreneurs keep going back to the well and hitting it up for more SPACs. Who do you think is going to have the most and the biggest ones?

Michael Kesslering: Well I really would have to go with Chamath here just because not only has he proven—especially with the Virgin Galactic deal he knocked it out of the park for investors with that deal— but as well, he’s really just in public doubling down on the SPAC model and he did have an interview this week that really went into his rationale as a VC investor. And so what that’s doing is just providing a lot of publicity for the SPAC as an actual tool to go public. And since he himself is a VC investor, that just really provides a lot of credibility for other VCs that are looking for exits and looking at SPACs as no longer just this backwater place when in the nineties, when they are viewed as very, very sketchy, and even in the 2000s, when they were just viewed as sketchy vehicles. I mean all the top institutions are involved in these, so people really can’t ignore these any more. How about yourself Julian, what do you think?

Julian Klymochko: Yeah, I think that is a good call. One I forgot to mention he is a bit lower profile Chinh Chu of CC capital. One of the original guys from Blackstone, he’s done a number of SPACs as well. So it’s still a rapidly emerging space. I looked at the stats today. The asset class of SPAC is almost up to 40 billion and it is up 60%, six, zero percent over the past three months. So rapidly growing in the space is only going to explode with the $4 billion plus Pershing Square SPAC that is coming out soon.

BANK TRADING REVENUE IN Q2 AS VOLATILITY SPIKES

Julian Klymochko: Last thing I wanted to chat about on the podcast this week was bank-trading revenue from certain Wall Street investment banks, absolutely surged, crushed expectations due to a massive gain in revenue from largely fixed income trading. If you look at JP Morgan, Goldman Sachs, Morgan Stanley. Their traders were able to generate revenue not seen in over a decade.

What I am talking about there is the good old days by capitalizing on just huge stock and bond market volatility through this whole pandemic, specifically in the second quarter. Now for some of these banks, some of these bigger banks with large loan books, it did not necessarily result in huge excess profits because it was mostly just offsetting increases in loan losses on the other side of the bank’s operation. So one theme of this podcast is the recession and pandemic has been, you know, super harmful for many businesses. Many are facing down term, hard times, bankruptcies banks on the loan losses, their loan book going through really tough times. But then if you look on the other side, certain businesses really just reporting record results, whether it be fixed income trading or healthcare or work from home type companies, that’s something to keep in mind, is that a recession and pandemic isn’t necessarily negative for all business models. You really got to look at the underlying drivers because this pandemic has been certainly very, very good for certain business lines and none more perhaps than investment banks, fixed income trading divisions, right?

Michael Kesslering: Fixed income trading that is what has grown the most over the second quarter and where the biggest revenues have come from. Where you saw both Morgan Stanley and JP Morgan, they saw their fixed income trading revenues increase in the triple digits of percentages. I believe between 120% to 160% numbers, which are crazy numbers.

Julian Klymochko: If I can interrupt here? I got some numbers here that I just want to quickly go over. JP Morgan, fixed income trading doubled year over year. Equity market up 30% for Goldman Sachs trading revenue up 93% fixed income. More than doubled to 4.2 billion, highest in nine years. Equity had their best at Goldman Sachs, their best showing in 11 years; Morgan Stanley fixed income-trading revenue, almost tripled, which is just massive. And at Bank of America fixed income trading was up 50% to 3.2 billion, so those are some facts and figures just highlighting the massive surge in trading revenue at some of these banks.

Michael Kesslering: Absolutely and that adds some really good context for what we’re discussing here in that what you can see through those numbers is that the banks that really thrived with this were the banks that are more heavily geared towards investment banking and trading. So that would be when you’re looking at the American Banks: Morgan Stanley, Goldman Sachs and JP Morgan and then comparing that to Bank of America and Wells Fargo, where in terms of their overall business, the revenues that come from investment banking and trading are just lower proportionally than those three after mentioned banks. And when you’re looking at Morgan Stanley, JP Morgan and Goldman Sachs, not only was their trading revenue, just soaring, especially on the fixed income side, but their investment banking, the traditional advisory. M&A advisory was actually increasing pretty substantially in Q2 as well. Most of those banks, their investment banking revenue is up over 30% as well.

Julian Klymochko: That is surprising because we saw not too many M&A deals get announced. There is a big slowdown down there, so I wonder if there is more restructuring mandates. It must have been.

Michael Kesslering: Yeah, exactly and as well, I mean, I believe a lot of that would come from issuance as well.

Julian Klymochko: SPAC IPOs, baby.

Michael Kesslering: Yeah, exactly, SPAC IPOs. I mean, Goldman Sachs would be the biggest player in spec IPOs. And those, I believe in the league tables, you see Credit Suisse and Deutsche Bank ranked fairly highly up there in, for SPAC.

Julian Klymochko: You can’t forget about early bird securities and I-Bankers.

Michael Kesslering: Yeah, exactly, But yeah, so it really just goes to show in a situation like this, where the banks in general did have a lot more. That were more geared to investment banking. They made out a lot better during this coronavirus crisis. Now an interesting stat actually from Michelle Davis, a Bloomberg reporter. She had tweeted out the other day that with JP Morgan fixed income numbers where they had generated $7.3 billion dollars in revenue in the quarter. Even if the equities trading group had not generated a single penny, that the bank still would have set a record for their total trading revenue for a quarter. Now that is just absolutely insane but as well, what you had mentioned as well were the loan loss provisions. Now with JP Morgan in particular, they had about $10.5 billion dollars in loan loss provisions that they had had in the quarter.

Now, so really that these trading revenue just goes to offset that. That is where a bank like Wells Fargo or Bank of America, just because they’re a little less elaborate towards these trading revenues, that they would still have a proportionally large loan loss provision that they would take in the quarter, but they weren’t able to get those offsets on the trading net. And that just really lends credence to on the banking side, having quite a bit of diversification in terms of their business lines. Similar, as we were talking about merger ARB, building a merger arb book, building a SPAC book, looking for diversification across that. Even the big banks are practicing, not as well with their business lines and having offsets to do other areas of the business that are experiencing quite a bit of difficulty.

Julian Klymochko: And there you have it diversification, I like it. To that about wraps it up for us folks on episode 78 of The Absolute Return Podcast. Tell your friends, family, check out more at absolutereturnpodcasts.com, leave a review if you want. And definitely follow us on Twitter, tweeting a ton of stuff on these same types of situations. M&A, multifactor investing, hedge fund, SPAC, et cetera, all the good stuff, you know where to get it. Well, they are going to know because Mike you will tell them your handle, right?

Michael Kesslering: Yup, so it is M_Kesslering

Julian Klymochko: You can find me at @JulianKlymochko. K-L-Y-M-O-C-H-K-O and that about wraps it up for us. Hope you enjoyed the episode, wish you all the best in your trading, investing, speculating, and we will chat with you next week. Cheers.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.

 

 

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