Money Stuff Podcast: Learn to Perch: WFC, BBB, TOPS

Release Date: June 6, 2025
Hosts: Matt Levine and Katie Greifeld
Source: Bloomberg

1. Wells Fargo's Asset Cap Lifted

[02:24 - 10:57]

The episode opens with a significant update on Wells Fargo (WFC), marking the lifting of the asset cap imposed by the Federal Reserve in 2018. Host Matt Levine delves into the history and implications of this regulatory restraint.

• Background on the Asset Cap:
  Matt explains, “The asset cap was a direct limitation on Wells Fargo’s ability to grow its balance sheet, serving as a punishment for past scandals and mismanagement” (05:14). He highlights how the cap was intended to force the bank to stabilize its operations before expanding further.

• Leadership Transition:
  Katie Greifeld recalls the challenges faced by CEO Charlie Scharf, who was brought in under the cloud of the asset cap. “They couldn’t inform him about the bank’s progress in addressing the cap due to confidentiality,” she notes (03:57). This lack of transparency initially hampered his ability to steer the bank effectively.

• Market Reaction and Performance:
  The hosts compare Wells Fargo’s performance to peers like JP Morgan and Goldman Sachs. Katie observes, “Wells Fargo’s share price is up 43% since February 2018, while JP Morgan and Goldman soared by 178% and 160% respectively” (09:45). This underscores the restrictive impact of the asset cap on Wells Fargo’s growth compared to its competitors.

• Regulatory Implications:
  Matt emphasizes the rationale behind the asset cap, stating, “A balance sheet cap directly addresses the issue of managing a large institution, ensuring that Wells Fargo can run its business safely before scaling up” (07:58). He views the removal of the cap as a validation of improved risk management and governance within the bank.

2. Egan Jones Rating Company and Credit Ratings

[14:05 - 22:44]

The discussion shifts to the Egan Jones Rating Company, a key player in the private credit space operating out of King of Prussia, Pennsylvania.

• Business Model and Founding:
  Matt provides an overview of Egan Jones, founded by Sean Egan who criticized traditional rating agencies for their conflicts of interest during the financial crisis. “They get paid by consumers, not issuers, aiming to reduce bias in ratings” (14:44).

• Conflict of Interest and Rating Practices:
  Katie and Matt debate the legitimacy of Egan Jones’s model. Matt argues, “Ratings agencies ultimately serve the regulators more than the issuers or lenders, providing a baseline for investment decisions” (18:21). They discuss a controversial National Association of Insurance Commissioners report that suggested Egan Jones rated private investments three notches higher on average than traditional firms, though the report was rescinded due to backlash (20:14).

• Performance and Criticism:
  Katie highlights an example where Egan Jones maintained a BBB rating on Chicken Soup for the Soul until its bankruptcy in 2023, questioning the agency’s accuracy. Matt counters by explaining the inherent risks in credit ratings, noting, “A BBB rating is meant to be investment grade, but defaults are statistically inevitable” (24:25).

• Industry Impact:
  The hosts conclude that while Egan Jones aims to offer unbiased ratings, skepticism remains regarding their methodologies and the potential for rate-padding in the private credit sector. “There’s some evidence that they might be more generous, but it’s part of a larger debate within the insurance and credit industries” (20:51).

3. Marshall Waste Hedge Fund and Innovative Strategies

[27:26 - 36:43]

The podcast transitions to a fascinating profile of Marshall Waste, a hedge fund co-founded by Paul Marshall and Ian Wace, as featured in a recent Wall Street Journal article.

• Unique Investment Approach:
  Matt explains Marshall Waste’s strategy of monetizing sell-side research. “They aggregate and analyze stock recommendations from sell-side analysts, using quantitative models to extract actionable signals” (28:40).

• Operational Efficiency:
  Katie notes that Marshall Waste operates with significantly fewer employees compared to giants like Citadel, attributing their efficiency to outsourcing trade ideas and leveraging technology. Matt adds, “Their automated systems provide a better audit trail and reduce the risk of information leaks compared to traditional hedge funds” (31:06).

• Controversies and Skepticism:
  The hosts discuss industry skepticism surrounding Marshall Waste’s methods, particularly concerns about the legality and ethical implications of aggregating analyst recommendations. Matt reflects, “When this model started in the late ‘90s, there was considerable doubt about its viability, which persists today” (33:44).

• Team Dynamics and Success:
  Katie highlights the strong partnership between Marshall and Wace, contrasting it with other high-profile hedge fund partnerships. “Their 30-year collaboration exemplifies a stable and effective professional relationship, unlike the recent discord seen at firms like Two Sigma” (36:17).

• Future Prospects:
  The episode wraps up with reflections on the sustainability of Marshall Waste’s model in the evolving financial landscape. Matt suggests that their blend of quantitative analysis and efficient operations positions them well for continued success, despite ongoing industry debates (35:31).

Notable Quotes

• Matt Levine:
  “A balance sheet cap directly addresses the issue of managing a large institution, ensuring that Wells Fargo can run its business safely before scaling up.” (07:58)

• Katie Greifeld:
  “Wells Fargo’s share price is up 43% since February 2018, while JP Morgan and Goldman soared by 178% and 160% respectively.” (09:45)

• Matt Levine:
  “Ratings agencies ultimately serve the regulators more than the issuers or lenders, providing a baseline for investment decisions.” (18:21)

• Katie Greifeld:
  “There’s some evidence that they might be more generous, but it’s part of a larger debate within the insurance and credit industries.” (20:51)

• Matt Levine:
  “Their automated systems provide a better audit trail and reduce the risk of information leaks compared to traditional hedge funds.” (31:06)

Conclusion

In this episode of "Money Stuff: The Podcast," Matt Levine and Katie Greifeld provide an in-depth analysis of significant developments in the banking and financial services sectors. From the strategic lifting of Wells Fargo’s asset cap to scrutinizing the practices of emerging rating agencies like Egan Jones, and exploring innovative hedge fund strategies exemplified by Marshall Waste, the hosts offer listeners a comprehensive understanding of the intricate dynamics shaping Wall Street and beyond. Their balanced discussion, enriched with insightful quotes and timely analysis, makes complex financial topics accessible and engaging for both seasoned investors and curious newcomers.