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Bankers, text at your own risk

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In today’s newsletter:

  • Credit Suisse banker removed over text to clients

  • Private equity experiments with sharing the profits 

  • Thoma Bravo recuts Anaplan buyout price

WhatsApp and Signal: a nightmare for bankers

On top of sky-high inflation and a looming recession, there’s something else causing bankers on Wall Street a lot of anxiety: messaging services such as WhatsApp and Signal.

It’s not uncommon for bankers to use messaging apps for quick and easy communications with clients, a practice that has become more common since the coronavirus pandemic when a vast majority of people started working from home.

The problem is that banks have to keep records of dialogue between employees and clients to help prevent wrongdoing. Regulators have amped up the pressure with a widespread record-keeping investigation across Wall Street that is putting many bankers on edge. 

Yesterday DD’s Ortenca Aliaj and the FT’s Joshua Franklin revealed that Credit Suisse had removed a senior investment banker from his position after he was found to have used unapproved messaging applications with clients. 

A sign of Swiss banking group Credit Suisse
Credit Suisse in March disclosed it was co-operating with an SEC investigation into its US subsidiary’s compliance with record-keeping requirements © AFP via Getty Images

The banker is Anthony Kontoleon, known as “AK” to colleagues, who had been at the bank for almost three decades. Kontoleon was Credit Suisse’s global head of equity capital markets syndicate in New York. 

His departure has been a source of consternation for his peers. “People are terrified of this text messaging bullshit,” one banker at a rival company said. 

Banks have been forced to take the investigation seriously after JPMorgan Chase was compelled to pay $200mn in fines for failing to keep records of staff communications on personal devices.

One person with knowledge of the matter said Credit Suisse hoped a high-profile departure such as that of Kontoleon would be seen by regulators as a clear sign that the bank was taking matters seriously.

It isn’t difficult to see why Credit Suisse might want to please regulators following a number of scandals, including its $5.5bn loss from Archegos Capital Management’s collapse and investments in funds tied to Greensill Capital

It’s also no surprise that bankers at rival groups are feeling nervous. Who else will be on the line to show regulators the message has been received loud and clear?

KKR ‘barbarians’ now say the worker is king

When KKR sold an Illinois-based garage door manufacturer for $3bn last month, the private equity firm locked in a return of 10 times its 2015 investment.

It was a stunning result, which the firm hasn’t hit since the 1980s, when founders Henry Kravis and George Roberts were hailed (and derided) as Wall Street’s barbarians.

But this time there’s a twist: 800 employees at CHI Overhead Doors, including truck drivers and people who man assembly lines, got to join the barbarians’ feast as well.

For years, KKR has touted a programme under which it awarded equity, that supplements regular pay, to ordinary employees at its industrial portfolio companies. 

Henry Kravis and George Roberts
Henry Kravis and George Roberts © Kent Meister

Ordinary workers at the company received a few thousand dollars in dividends during KKR’s tenure. Now that it has been sold, a total of 800 employees will collectively net $350mn. 

KKR has helped start a non-profit group to evangelise employee ownership, signing up McKinsey & Company, Apollo Global Management, and “others not previously celebrated for their humanity”, DD’s Sujeet Indap writes in his column.

Private equity’s interest in wellbeing and fairness comes amid pressure over the industry’s labour policies, preferential tax treatment and business practices. 

The firebrand Democratic senator Elizabeth Warren has even proposed a Stop Wall Street Looting Act which would make it much harder for a private equity firm like KKR to load a company with debt to finance an acquisition.

Private equity has long bridled at the suggestion that their market-beating returns come largely from leveraging their portfolio companies to the hilt, insisting that they are actually much better at running them.

Pete Stavros, the KKR executive responsible for the CHI investment, insists on sharing the credit, as well as the financial spoils. 

“It’s a huge collection of a lot of little things the workforce did; again they did it,” he told the FT. “They earned it, they made this company more than triple, almost four times their profits, and so shouldn’t everyone participate? That’s the simple philosophy.”

Thoma Bravo engineers a cut on its software deal

Orlando Bravo hasn’t been shy about tweeting of the “new normal” in software investing where valuations and enthusiasm have become much more muted.

Orlando Bravo photographed at Thoma Bravo
Orlando Bravo has made his name buying software companies cheap and pushing them to grow faster © Jason Henry/FT

His limited partners must wonder where his realism was a few months ago.

Bravo’s eponymous firm, Thoma Bravo, has struck two of the largest leveraged buyouts of the year. In April, there was SailPoint, bought for $7bn. And just a few weeks before that was Anaplan, taken out for $11bn.

Both deals were agreed just before the massive sell-off in tech stocks accelerated. And undoubtedly both companies are worth far less than Bravo agreed to pay for them.

Normally, buyers would be stuck if valuations moved down between signing and closing a deal. But that’s where the lawyers come in.

In an otherwise ordinary phone call between Thoma Bravo executives and the chief executive of Anaplan in May, the company told its future owners that it would need to pay out $137mn in employee bonuses, $32mn more than had been designated in the merger agreement.

Anaplan said the job market was red hot and that the pay was unremarkable in the big picture and ultimately necessary for the company to grow.

Still, Thoma Bravo’s lawyers at Kirkland & Ellis believed the overrun was a violation of the contract and might affect its ability to raise the financing to complete the deal.

As DD’s Sujeet Indap described earlier this week, Anaplan decided that a legal fight wasn’t worth the headache and agreed to lower the purchase price by more than $400mn, or about 3 per cent.

The parallels to Twitter are obvious, where Elon Musk clearly seems to feel badly about striking a $44bn deal for the social network and is agitating on the issue of bot and spam accounts a way to reopen negotiations.

Thoma Bravo has tried to present itself as a co-operative, management-friendly partner for software entrepreneurs. Nickel-and-diming the Anaplan shareholders will cause future buyout targets to take notice.

As for the institutions that have entrusted their billions with Bravo, they are probably feeling a little better about that choice.

Job moves

  • FedEx has named Amy Lane and Jim Vena to its board after activist pressure from hedge fund DE Shaw. Lane is a director of NextEra Energy and TJX Companies and Vena has worked at Union Pacific as a senior adviser. A third board member is also set to be added in conjunction with DE Shaw. 

  • Brett Pallin has joined White & Case in New York as a partner in its global debt finance practice. He joins from Kirkland & Ellis. Separately, Linda Sim has joined as a Los Angeles-based partner in its M&A practice from Loeb & Loeb

Smart reads

Another China failure Walmart is struggling to maintain relevance in China against competition that understands the Chinese consumer better than it does, The Wall Street Journal reports

Engineering hope Thanks to the $19bn cash pile amassed after developing a successful Covid vaccine, Germany’s BioNTech is now looking to transform oncology for its next act, the FT reports

Explicit content MindGeek, a little-known company headquartered in Canada, owns some of the most visited websites in the world. Among them is Pornhub, a porn site where women and girls say explicit videos of them have been uploaded without their consent, The New Yorker reports. To go deeper into the money behind the porn industry, listen to the FT’s Hot Money podcast

News round-up

US defence group L3Harris in talks to buy spyware group NSO (FT)

Chinese banks cut investment banking staff in Hong Kong during IPO drought (FT)

American Industrial Partners seizes control of Sanjeev Gupta’s Belgian plant (FT) 

Prologis/Duke: warehouse deal flies against recession fears (FT Lex)

Meta fails to overturn Giphy sale order by UK competition regulator (FT)

JPMorgan Chase defeats Nigeria in $1.7bn High Court case (FT) 

Hamm launches bid to take Continental Resources private (FT) 

Elon Musk to address twitter staff for first time since deal (BBG)

Schwab’s robo-adviser hid some fees (BBG)

Coinbase to cut almost a fifth of staff as crypto crunch worsens (FT)

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