Reminder for Tuesday's event; Should have known better: the write-down of Credit Suisse AT1s; TikTok faces uncertain future after 5-hour congressional thrashing; A crazy 30-hour trip

1) An 82-year ban on one highly profitable asset class has finally been lifted... And now you can get access.

It's an asset that has been responsible for some of the biggest fortunes in history... but it's not gold, bonds, options, warrants, or any kind of leverage.

It could be so profitable for you that I'm sitting down with an expert in this asset class to show you everything about it. Just keep an eye on EmpireBackdoor.com until we go live on Tuesday, March 28 at 1 p.m. Eastern time.

2) Last weekend, Swiss regulators engineered a deal to stave off a potential collapse of investment bank Credit Suisse (CS) by having its larger Swiss peer, UBS (UBS), acquire it.

As part of the shotgun marriage, Credit Suisse shareholders received $3.3 billion, less than half of where the stock had closed last Friday. That's a bummer for them, but it's far better than the holders of the bank's $17.4 billion of additional tier 1 ("AT1") capital securities, who got nothing.

AT1 holders are, not surprisingly, complaining loudly – saying that the Swiss regulators overturned well-established precedent by giving some recovery (however small) to the equity while zeroing out a class of bonds (however junior) because bonds are always senior to the equity.

Their argument doesn't hold water, as three commentators explain...

First, here's Bloomberg's Matt Levine with his usual trenchant insights. Excerpt:

So as a matter of rough justice, the AT1s going to zero while the common stock went almost-but-not-quite to zero seems very fair and expected to me. On the other hand, as a legal reading of the documents, this argument doesn't really work.

Instead, the AT1s got zeroed through a more ad hoc regulatory determination that it was necessary to zero them to save the bank. And the problem there is (1) you can second-guess that determination and (2) you can argue that, if it was necessary to zero the AT1s, then it was also necessary to zero the common stock, so preserving value for the common undermines the case for zeroing the AT1s.

I am not super-sympathetic to those arguments, but they are not trivial, and they are the sort of arguments that come out of an ad hoc desperate weekend rescue of a big bank. And in particular, the Swiss regulators' insistence that Credit Suisse was well capitalized both last week (when they were trying to calm markets) and this week (when they don't want to leave UBS with a giant capital hole) makes it harder for them to argue that the AT1s needed to be triggered. There is a real tension between the standard regulatory responses of (1) insisting that everything is fine and also (2) taking drastic emergency actions.

And here's Prasad Gollakota, who was co-head of the global capital solutions group at UBS in the aftermath of the 2007 to 2008 financial crisis: Should have known better: the write-down of Credit Suisse AT1s. Excerpt:

It has been fascinating to watch the uproar around the apparent breach of the so-called creditor hierarchy since the announcement of the write-down of Credit Suisse's AT1 securities – and the talk of class action litigation that followed. It's not new for investors to cry over spilled milk, but they can't say they weren't warned.

This topic is close to my heart, as I was involved in the early development of Additional Tier 1 securities and recall the conceptual discussions with regulators and policymakers, bank issuers, industry bodies, and investors. I am keen to ensure past mistakes don't repeat themselves...

In summary, across 30-plus pages of documentation, the risk factors state that the risk of a write-down is material and may subordinate holders to ordinary shareholders, and the trigger for this is unpredictable and is outside the control of Credit Suisse. They reinforce that under the Swiss Banking Act, Finma has broad powers to execute resolution powers, outside the scope of the terms of the securities, including permanent write-down. It could not be clearer.

Finally, here's Australian hedge fund manager John Hempton, who has no sympathy for his peers who failed to do their due diligence – and nothing but scorn for those who are now pointing fingers rather than looking in the mirror: AT1 Bonds: when to abandon your fund manager. Excerpt:

It is absolutely clear. Low-trigger AT1s are further down the capital stack than equity capital. They clearly ranked below equity capital.

If you invested in AT1s thinking they were an ordinary preference share you were wrong. And you were wrong because you did not read the documents. The documents were readily available and spelled out the order of creditors in plain English.

So what is wrong with being wrong?

Being wrong is a problem. You lose money. That alas happens to all of us in this game. If I were at all interested in AT1s I would have been wrong – I would have thought they were senior to common equity even though the documents made clear that they were not.

Being wrong is normal.

What is not healthy for a fund manager is being wrong and blaming it on someone else.

If you think the Swiss Government stepped in to muck up the order of creditors and thus inflict losses on you then you are delusional.

The Swiss Government followed the order of creditors as disclosed both in the prospectus and in Credit Suisse presentations.

They did nothing wrong.

But you made a mistake. You did not read the documents. And most importantly you made a mistake for which you are responsible and you are not admitting it.

Fund managers blaming the Swiss Government

The press is full of angry fund managers saying that the Swiss Government has mucked around with the order of creditors (which is their excuse for losing money). They are predicting dire consequences for capital markets all over Europe as a result of reckless Swiss Government action.

This is all bullsh*t.

These fund managers made a mistake. They did not read the documents.

And they are not admitting their mistake.

They are blaming others – in this case the Swiss Government – for their mistake.

It not the mistake that bugs me – and it is not the mistake that should bug you. It is the denial, the blaming of others.

So I have a piece of advice for you. If you are a client of a fund manager that is blaming the Swiss Government for their loss then do not go into denial yourself. Respond appropriately.

Fill in a redemption request now and redeem your full investment. It is your money. Do not leave your money in the hands of the reckless and deluded.

Hempton makes an extremely important point – one that I've repeated many times here...

You're going to make mistakes. Everyone does. The key – and what makes good investors (and well-functioning humans) – is whether you can learn the right lessons so you don't repeat the same mistakes over and over. Only then can you put a mistake behind you and move on.

Complaining about how someone else did you wrong is rarely the true cause of misfortune. My rough guess is that at least 80% of the time, it's that person's fault (myself included)!

So when (not if) this happens to you, resist the urge to point fingers and instead go look in a mirror...

3) The CEO of TikTok took a beating yesterday during five hours of Congressional testimony: TikTok faces uncertain future after 5-hour congressional thrashing. Excerpt:

Biden administration officials acknowledge they do not have the legal authority to ban the popular app without congressional action, according to one person with knowledge of discussions

TikTok CEO Shou Zi Chew tried to allay mounting national security concerns about the Chinese-owned video app but encountered open hostility Thursday in his first appearance before Congress, a five-hour thrashing that underscored the popular app's precarious future in the United States.

Lawmakers from both parties sought to tie Chew personally to the Chinese Communist Party, frequently interrupted him and called him "evasive." While he pledged to safely steward the data of American users and shield TikTok from foreign manipulation, lawmakers from both parties criticized TikTok, without evidence, as a tool of China's Communist government.

"TikTok is a weapon by the Chinese Communist Party to spy on you, manipulate what you see and exploit for future generations," said Cathy McMorris Rodgers, the Republican chair of the House Energy and Commerce Committee. The Washington state congresswoman said she supported banning the app outright.

I have no sympathy, for reasons I've outlined many times before in my daily e-mails. TikTok is a clear national security threat, it's only fair to ban it since China bans our tech giants, and it's a ridiculous time-suck for our nation's youth. A friend just e-mailed me this yesterday:

It's amazing how many young adults are addicted to TikTok. I recently had to fire a 28-year-old gal from my business, as she could not get off TikTok. It's an addiction beyond anything I've witnessed. Even when threatened with being let go, she couldn't quit.

The free speech argument that appears to be tying the government's hands is beyond stupid. In what universe does any country permit one of its biggest rivals to have unfettered access to half its population?

Just ban it and be done with it!

4) I've done some crazy travel in my day, but the trip I took the last two days may top it all...

A week ago, I flew to Punta Cana, Dominican Republic with my family for the most needed vacation of my life.

Over the previous month, I had averaged only five hours of sleep per night thanks to raising $5 million for Ukraine – using it to purchase 27 ambulances, 4,100 tourniquets, 1,000 Hot Hands, 90 pieces of children's art, and more... and then making two trips to the country to personally deliver it all (see my slide deck about it right here).

But, smack in the middle of my 10 days here, was the annual gala in Washington, D.C. of my Ukrainian charity partner, TAPS (Tragedy Assistance Program for Survivors), plus there were three potential donors I wanted to meet with in New York City, two of whom wouldn't be there when I was back in town the next week. So, I decided to make a 30-hour trip back to D.C. and New York...

On Wednesday, I flew straight to Dulles Airport outside D.C. I waved to my family as I jetted off:

When I landed, I took a taxi into the capitol and attended the TAPS gala. Here's a picture of me with my dear friend, Bonnie Carroll, who founded TAPS 29 years ago after her husband, a major general in the Air Force, died in a plane crash:

Here's a picture of the beautiful event, which took place at the National Building Museum:

During the gala I caught up with some friends who are also on missions to help Ukraine, and then I took the last flight to New York at 10 p.m. and got to sleep in my own bed – a rarity these days!

Another nice benefit of my quick trip was seeing my babies, Rosie the Wonder Dog and Phoebe the Wonder Pup:

My meetings yesterday morning went well – one guy committed $120,000 – and then I raced to JFK to catch a flight back to Punta Cana, arriving just in time to join my family for dinner. Phew!

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.