Is Apollo a pal or foe to banks? | USAEMALL.com

One scoop to start: Bennett Goodman’s Hunter Point Capital has taken the novel step of tapping debt markets to return cash to its investors, as it and rival investment firms look for ways to allay the pressure on clients that have been starved of profit distributions.

And a music deal: Pink Floyd, the British rock band, has agreed to sell the rights to their vast catalogue of songs including hits such as Wish You Were Here and Money to music label Sony for about $400mn.

In today’s newsletter:

• Marc Rowan’s grand ambitions

• How to covertly build a big bank stake

• Jay-Z quits accounting firm BDO

Marc Rowan’s new vision of Wall Street

On Tuesday, Marc Rowan made a new pitch to the public as to how Apollo Global will further its conquest of Wall Street.

At the moment when Rowan was selling hard, he surprisingly offered veiled praise for a rival. The architect of Apollo’s mighty insurance business said one competitor had “taken the time to build something of substance”.

It was a reference to KKR’s insurance unit. The gossip in private capital circles has long been that the two firms are fierce opponents and rarely come together on deals. But times are changing.

Since Rowan took the reins of Apollo in 2021, he has moved away from its reputation as a ruthless stalker of assets. Instead, he has fuelled Apollo’s growth by striking complex partnerships across finance.

Rowan outlined its push towards $1.5tn in assets and its origination of $275bn in debt annually within five years, making it one of the most important lenders globally.

He laid out a vision in which Apollo would straddle different markets and alliances, with the group blurring what a bank and an investment company can finance. And in the process, what makes an investment public or private.

Apollo has recently inked partnerships with large banks such as Citigroup and BNP Paribas — critical relationships to balance as it builds up its own origination teams, who call on companies and speciality finance providers offering their own loans.

As evidence of Apollo’s new mentality, Rowan said he bought a soft-serve ice-cream machine for dealmakers that is only turned on to celebrate a big win.

“It turns out people prefer frozen yoghurt to money,” Rowan joked. DD, now you’ve heard it all.

However, Rowan was also quick to point out that people who arrive at Apollo are often “escaping a larger institution. We should be very careful not to become that.”

It’s not a bullish view on the investment banks that train many of Apollo’s fresh faces, and the remark also points to the brain-drain in banking. (Awkward territory given the banks also feed Apollo’s debt machine.)

Apollo’s private equity team, meanwhile, has taken to memes to diss its rivals.

That’s not to say Apollo doesn’t value lending money to these groups, or could soon call with a “capital solution”.

Andrea Orcel’s stunning Commerzbank trade

When Porsche disclosed a large stake in Volkswagen that it had built over several months through derivatives back in 2008, it unleashed a panic among hedge funds that were caught in the short squeeze.

The debacle prompted regulators to shore up disclosure rules, which put an end to corporations covertly snagging sizeable stakes in their competitors.

But Andrea Orcel, the chief executive of Italian lender UniCredit, has evidently found a way to use those changes in his favour.

He’s built up a 21 per cent stake in German rival Commerzbank in recent weeks by taking advantage of regulatory gaps.

So, how did Orcel do it? The trade relied on an arbitrage between two rule books.

While companies are prohibited from buying more than 10 per cent of a lender without first getting approval from the European Central Bank, there are some caveats. 

The ECB blessing is only required to take control of voting rights attached to the shares. The rules don’t stop UniCredit from gaining economic exposure to the target’s stock, nor from signing the contracts now to receive shares after the ECB approval. 

“Think what you may but this is just beautifully done,” said one Frankfurt-based banker.

The new securities laws after the Porsche trade require investors to reveal their positions — directly or indirectly through derivatives — when their economic interest reaches 5 per cent, or at higher thresholds like 20 per cent.

But the gaps between those marks leaves wriggle room for someone like Orcel to reveal a huge jump in his position. In UniCredit’s case, it was able to go from minority investor to leapfrog the German government as the single biggest shareholder.

Barclays and Bank of America are on the other end of the contracts, which are so-called total return swap agreements — instruments that replicate the performance of Commerzbank’s stock. 

As the bank waits for final approval from the ECB to own more than the 10 per cent threshold, its position is basically like a Schrödinger’s cat thought experiment.

The famous theoretical cat is both dead and alive at the same time — much like how Orcel both owns and doesn’t own 11.5 per cent of shares. 

As the landscape of European banks remains fragmented, DD will be keeping an eye on whether other lenders will try to mimic Orcel’s tactics.

Theft accusations plague BDO’s business in Florida

There is a Jay-Z-sized hole in the accounting firm BDO’s business in Florida, the FT’s Stephen Foley has revealed, after accusations that a former employee had stolen money from customer accounts.

The star is one of a number of rappers that used BDO to manage their personal and business affairs but who cut ties after becoming upset over how the firm has handled the accusations, according to people familiar with the events.

Megan Thee Stallion has also left, along with Fat Joe, who was the first to go public with claims against the firm in 2022.

Fat Joe alleged that a BDO employee had used his credit cards and bank accounts to take out thousands of dollars in cash and pay school fees.

The situation was so chaotic, his lawsuit claimed, that mortgage payments were often late and it appeared his credit card bills were sometimes paid from accounts belonging to other clients, including Major League Baseball players.

The suit was settled quietly on undisclosed terms earlier this year and BDO denied those claims. But it has still cast a pall over one of the company’s major recent acquisitions.

In January 2021, BDO bought Morrison, Brown, Argiz & Farra, which was the largest accounting firm in Florida and had signed Fat Joe, Jay-Z and others as clients about a decade ago.

The former employee, Vanessa Rodriguez, has been indicted in Miami on four counts of fraud, accused of spending on credit cards that did not belong to her.

She appeared in court yesterday and pleaded not guilty. She told the FT she also denied the claims in Fat Joe’s suit. The full details of the charges, which have been kept under seal, could be aired in a trial scheduled for November.

For BDO’s part, it said the firm “does not comment on pending litigation or matters related to current or former clients”.

Job moves

• Charles Schwab’s longtime chief executive Walt Bettinger will retire at the end of the year and be replaced by the company’s president, Rick Wurster. The bank has been trying to turn round its fortunes after a difficult period of outflows in the fallout from the US regional banking crisis last year. 

• Paul Weiss has hired Joseph Glatt as a partner in its corporate department in New York. He was previously a partner and general counsel for the credit arm of Apollo.

• Sidley Austin has hired a group of lawyers from Latham & Watkins for its global finance team in London. The partners include Jay Sadanandan, Sam Hamilton, Fergus O’Domhnaill, Joe Kimberling and Ben Wright.

• Barclays has promoted Brad Rogoff to global head of research, where he will also join the investment bank’s management team and US executive committee.

• Kirkland & Ellis has promoted 200 lawyers to partners, including in debt finance, M&A and private equity. 

Smart reads

Economic carnage China’s beaches in Hainan were once a symbol of its economic riches, the FT’s Eleanor Olcott writes. Today, the region is scattered with signs of trouble.

‘Break it up’ Rolling Stone has the inside story of how the US justice department mounted its campaign to break up the live music and ticketing behemoth Live Nation.

Pharmacy woes CVS has spent more than $88bn in the past six years buying up major companies, The Wall Street Journal reports. Its latest plan to split it all up could prove difficult.

News round-up

Barclays details plans to revamp investment banking returns (FT)

US economy faces ‘paralysis’ before election as dockworkers go on strike (FT)

Mulberry rejects £83mn takeover bid from Mike Ashley’s Frasers (FT)

Abu Dhabi targets largest-ever foreign takeover with €14.7bn offer for Covestro (FT)

SAP chief warns EU against over-regulating artificial intelligence (FT)

Boeing weighs raising at least $10bn selling stock (Bloomberg)

LVMH bets on booze-free bubbles at $100-plus a bottle (WSJ)