Banks, lawyers and churches

SANTANDER is raising money from shareholders to give it back to them. Nobody believes in Modigliani-Miller but do you understand the Santander news? Banco Santander SA raised 7.5 billion euros ($8.9 billion) in an accelerated bookbuilt stock offering to shore up its capital position, and that is sensible enough. (Dan Davies on Twitter argues that Santander was undercapitalized due to its size, lack of non-common-equity capital, and consolidated group structure, and probably still needs to raise subordinated debt.) And Santander also announced a dividend cut, from 60 euro cents a year (per share, or around 7.6 billion euros total on the new share count) to 20 (2.5 billion), and, again, sensible enough: If you badly need to raise capital you probably shouldn't also be paying "more than 100 percent of available profit" in dividends to your shareholders. But Santander's old dividend was paid mostly (86 percent) in stock, and a dividend paid in stock doesn't actually decrease your capital. (Also: A dividend paid in stock is a nothing! It's just a small share split!) The new dividend will be paid mostly (75 percent) in cash. So Santander was formerly paying effectively 8.4 cents a share in cash (14 percent of 60 cents, or around 1 billion euros a year total), but will now be paying about 15 cents a share in cash (75 percent of 20 cents, or about 1.9 billion euros a year total). Paul Murphy:

Skirting the requirement to offer pre-emption rights to its shareholders, Santander is raising €7.5bn in cash from shareholders so as to send almost €2bn in cash back to shareholders later this year. That first part is about the fact that European bank investors seem to prefer rights offerings to accelerated bookbuilt offerings for their capital raises, unlike U.S. investors. But the second part seems hard to argue with: Why raise all that money just to give it back over the next four years? I suppose the point of a capital raise is to signal strength, and the point of a cash dividend is to signal strength, and the point of cutting the dividend is to make it sustainable in cash, so all of that argues in favor of the move. But it is not, like, a banner day for market efficiency.

Elsewhere, the Financial Times Lex column issued a statement of its beliefs, which are worth considering as you read about Santander ("Dividends do not change the intrinsic value of a company," #6), though also just in general. Which do you disagree with? I am probably more of an efficient-markets believer than they are (#14), though that's partly just our different lines of work. And I more or less entirely disagree with the statement that "Control and ownership should go together" (#7); I'm a structure-contracts-howyou-like kind of guy. And I like quarterly reports (#13), though they're probably right on the merits of that one. Otherwise I mostly buy this.

So I mean look. Like I just said, I'm an efficient-markets guy. I put most of my money in index funds. If I had $31 million, I might get a bit more creative, but would I be paying 8 percent fees for a "fund of fund of funds," or buying structured notes with built-in edge to the issuers of up to 11 percent? No. A story about some church trust funds advised by JPMorgan who did exactly that, and who are now suing JPMorgan for not being a very good trustee. JPMorgan's defense includes that the trusts actually did pretty well, all in all, with a positive return over 2006-2013 despite the financial crisis, and that the church is cherry-picking the losing investments while ignoring the winning ones. I am sympathetic to those arguments, but I am also just kind of not a believer in structured notes or funds of funds (of funds). Do you sell structured notes or funds of funds of funds? I assume that there are good client-centric reasons why unsophisticated and trust clients get put into those investments, that's not just "they have big fees"? I would love to hear what those reasons are.

The opportunity in representing a company in an M&A sell-side assignment is that your client doesn't really pay your bill: You get paid after the deal closes, so your client is effectively spending the buyer's money. (Yes I know the incidence of investment-bank fees is debatable, but with law firm bills this feels mostly correct.) The problem is that your client doesn't really pay your bill: You get paid after the deal closes, so the buyer has to sign the check, and the buyer has no reason to love you, since you've just been trying to get it to pay more for your now-vanished client. So the buyer could always make trouble for you. This is not exactly a usual occurrence, but Carl Icahn is an unusual guy, and after taking over CVR Energy he went to court over both Goldman's financial-adviser bill and Wachtell Lipton's legal bill. (Disclooooosure: I worked for both! ) This may have had something to do with the fact that Goldman and Wachtell fought pretty hard against Icahn's takeover, though there are other factors at play too.