Good Friday. Here’s what we’re watching:
• Will businesses reconsider their links to the N.R.A.?
• Britain wants its cake in Brexit talks.
• What happens now that China controls Anbang Insurance?
• General Mills has bought the pet-food maker Blue Buffalo.
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Will Wall Street act if Washington won’t?
A series of companies has severed their relationship with the National Rifle Association after the school shooting in Parkland, Fla., following pressure from customers. Andrew highlighted how financial companies could limit the sale of guns in his column on Tuesday, causing debate on both sides and prompting petitions to begin circulating.
On Thursday, the First National Bank of Omaha said it would not renew its agreement to issue an N.R.A.-branded Visa card. “Customer feedback has caused us to review our relationship with the N.R.A.,” the bank said.
And Enterprise, which owns two other rental car brands, Alamo and National, said it would stop offering a special discount for N.R.A. members.
Andrew notes:
It took real leadership for Clark Lauritzen, First National Bank’s president, to make this decision. Will other C.E.O.’s who talk about social responsibility follow suit? Mr. Lauritzen’s bank is privately held by his family, so it may have been easier for him to take such a stand.
Visa tried to distance itself from all of this by saying, “Visa co-branded cards do not represent an endorsement by Visa of that cause or organization.” But it also appears unwilling to sign on to the idea I proposed that it prevent customers from using its network to buy assault weapons, high-caliber magazines and bump stocks when it said in its statement about First National Bank ending its deal with the N.R.A., “We strive to make our payment services available to all people in all places, for uses consistent with local, national, and international laws.”
The context
Groups have previously pushed the investment industry to dump gun stocks, with limited impact.
Pension funds, including those for public-school teachers in at least a dozen states, own shares in gun makers. And major money managers such as BlackRock and Vanguard are indirectly some of the biggest holders of gun stocks through exchange-traded funds. BlackRock says it can’t divest shares of a company in an index, but with $6 trillion under management, it is often effectively the biggest investor in such businesses.
Lawmakers in New Jersey moved this week to restrict the state’s public pensions from investing in the shares of gun manufacturers. BlackRock said it planned to reach out to weapons makers “to understand their response” to the shootings.
More on gun controls
• Two gun safety groups are joining with Tom Steyer, the billionaire Democratic activist, in a drive to register high school students to vote. (Politico)
• President Trump embraced an N.R.A. position to arm some teachers. (NYT)
• Democratic governors from four northeastern states joined forces to restrict the movement of illegal guns and share information about residents barred from owning firearms. (WSJ)
Britain wants its cake in Brexit talks.
Top members of the British government met Thursday to agree on what sort of relationship they want to have with the European Union after Britain leaves the bloc. The B.B.C. has details of the meal that was served at the meeting, held at the official country retreat of Prime Minister Theresa May: A cream of sweetcorn soup with a ham hock croquette, a Guinness short rib of Dexter beef with onions and parsnip mash, and a lemon tart with raspberry sorbet and fresh raspberries.
The menu is a reminder of how often food is used to help understand Brexit.
Cherries: The British government’s position seems to be that it wants to abide by some European Union rules that would be advantageous for trade, while discarding others. In the Brexit debate, Britain’s attempts to pick and choose is commonly described as cherry-picking, and top officials of the European Union have said they won’t let Britain take this approach. And for Britain to ask for three baskets of cherries is likely just too much for the European Union to stomach.
Why?
Cake: The rationale for not letting Britain take an à la carte approach is that it allows the country to have its cake and eat it. Underpinning the European Union is the belief that the benefits of being more closely integrated are often obtained through compromises that all member countries must make. And to supporters of the bloc, Britain’s desire to opt in for some things and not others corrodes that community spirit.
The cake and cherries rhetoric thrown around in the Brexit debate suggest there is little middle ground between the European Union and Britain. But an alternative way to view the tensions is that so much trade goes on between Britain and the bloc, and others ties are so deep, that both sides will ultimately strike a new relationship that retains much of the existing one. As analysts at Nomura wrote earlier this week:
In terms of the bespoke deal issue, we think it is not credible to say the U.K. can only take an off-the-shelf Norway / Switzerland / Turkey / Ukraine / Canada / Mexico deal. They were all bespoke deals when they were made. The idea that the world’s seventh largest economy, an ex-member and a country that will still have strong institutional, economic and geographic ties to the E.U. should not get a bespoke deal is not reasonable, in our view.
And the Sun newspaper is reporting that some in European Union may actually want to throw Britain a few cherries. . The Sun’s Nick Gutteridge, who often has fresh insights from Brussels, has details of a paper drafted by the Belgian government:
The paper, produced by the Belgian government for a meeting of diplomats last week, will prove a huge boost to British negotiators and gives new insight into E.U. thinking.
— Peter Eavis
One reason the Treasury balked on Dodd Frank’s bank resolution regime.
President Donald Trump’s “America First” agenda seems to have met its match in the obscure world of international financial regulation.
On Thursday, we wrote about the Treasury Department’s decision to retain the process for winding down a failing bank that was introduced under the Obama administration.
A big reason the Treasury held back: The concerns of foreign regulators.
As the Treasury’s proposal stated, an alternative to the Obama-era wind-down is a new form of bankruptcy for large financial firms, called Chapter 14. The Treasury favors using Chapter 14 where possible, but it opted to keep the current resolution mechanism. This disappointed Republicans who want Chapter 14 to replace the the current process. But foreign regulators pushed back against a bankruptcy-or-nothing approach. Specifically, the Treasury noted, foreign regulators have expressed doubts about whether they could coordinate effectively with a United States bankruptcy judge when winding down a big American bank that has large amounts of business overseas.
On that point, the Treasury could have pushed back. It could have told foreign governments that Chapter 14 judges would, in fact, be up to the task of handling international cases. Indeed, the Treasury in its paper said it expected the judges to have such competency:
Further, these judges, once designated, could engage in planning and coordination exercises, including cross-border efforts (e.g., the crisis management groups discussed above).
Instead, fearing higher costs for United States banks, the Treasury apparently gave the concerns of foreign regulators considerable weight and took an internationalist approach.
— Peter Eavis
China now controls the Waldorf Astoria
The government in Beijing seized control today of Anbang Insurance Group, the troubled Chinese company that owns the iconic New York hotel.
The details
• The Chinese insurance regulator said Anbang had violated regulations, putting into question its ability to pay claims.
• A group that includes China’s central bank, its securities and banking regulators, the country’s foreign exchange regulator and other government agencies will oversee Anbang for a year.
• The takeover could be extended if Anbang fails to complete an equity restructuring and resume operations.
• The company’s former chairman was charged with financial crimes.
The context
Anbang came under scrutiny for its opaque ownership structure and for the political ties of its former chairman as it embarked on a period of frenzied deal making.
But, “Anbang is too big to fail,” as an unnamed senior Anbang executive told The FT. “Even though it has no real value, they will have to restructure it very carefully.”
From Keith Bradsher and Alexandra Stevenson of the NYT:
China was shaken three years ago by a surge of money out of the country and concerns that its economy had been layering on too much debt. Anbang and the other Chinese deal makers, which had borrowed heavily to fund their shopping sprees, soon drew attention from officials. State media labeled them “gray rhinoceroses” — big problems that are ignored until they start moving fast.
Critics’ corner
• Quentin Webb of Breakingviews writes that the seizure is the boldest move yet in Beijing’s battle against financial excess, and the new precedent could be a worrying omen.
• Anbang’s size and entanglements are comparable to Lehman Brothers or A.I.G. before the global financial crisis, and the insurer was always going to crash and burn if left untouched, writes Nisha Gopalan in Bloomberg Gadfly. Beijing’s intervention deserves a round of applause, she adds.
More on Chinese dealmakers
• Financial strains at another buyer, HNA, have prompted its subsidiary, the Irish aircraft leaser Avolon, to rewrite its bond documentation to try to reassure investors. (FT)
• Fosun has acquired Lanvin, France’s oldest surviving couture house, after a fierce bidding war. (NYT)
General Mills is to buy pet-food maker
The deal values Blue Buffalo at about $8 billion and bolsters an area for General Mills, which owns brands including Cheerios, Lucky Charms and Yoplait, that has become increasingly popular: natural foods for pets
The transaction is the latest as food makers, such as Mars and Danone, seek to acquire more organic and natural brands.
The deals flyaround
• Standard Life Aberdeen has agreed to sell what was left of its insurance business to Phoenix Group for about $4.5 billion. (The Times of London)
• Swiss Re said it was still considering Softbank’s partnership approach. (FT)
The policy flyaround
• In the wake of the new tax law, many business owners are asking: Will changing a company’s structure cut tax bills? (WSJ)
• European banks with significant operations in the U.S. have seen multibillion dollar hits on their fourth-quarter results because of tax changes, but most say they expect to benefit from a lower rate in the future. (NYT)
• Treasury Secretary Steven Mnuchin believes policies introduced by the Trump administration will raise wages but not inflation. (Bloomberg)
• Regulators are looking to ease rules that restrict the ability of companies to speak with investors before announcing plans for initial public offerings, according to unnamed sources. (WSJ)
• Attorneys general in several states and a number of companies have filed lawsuits challenging the Federal Communications Commission’s repeal of net neutrality rules. (Axios)
• The U.S. Citizenship and Immigration Services dropped language from its mission statement that characterized the country as a “a nation of immigrants.” (NYT)
• When he was working as President Trump’s campaign manager, Paul Manafort lied to banks to secure millions of dollars in loans as part of a long-running money laundering scheme, according to an indictment unsealed on Thursday in the investigation of Robert Mueller, the special counsel. (NYT)
How one tweet cost Snap $1.4 billion.
Shares of the social media company tumbled 6 percent on Thursday after Kylie Jenner tweeted that she no longer opened Snapchat.
The tweet comes as Snap faces growing criticism from users about the redesign of its app.
Critics’ corner
For tech companies like Snap and Twitter, Jennifer Saba of Breakingviews argues, celebrities “ought to be included as an intangible asset, to be written down when the celebrity stops being a customer — or stops being a celebrity.”
Related
Evan Spiegel, Snap’s chief executive, received $638 million in total compensation in 2017. (CNNMoney)
The tech flyaround
• Altered images used by Russians to spread disinformation ahead of the 2016 U.S. election have exposed flaws in efforts by social media companies to stop such practices. (WSJ)
• British authorities are examining changes to the taxation of technology companies, potentially leading to higher bills for internet giants like Facebook and Google. (BBC)
• Spotify’s listing will put pressure on the music-streaming company to to reduce its reliance on music labels. (FT)
• Airbnb unveiled its Plus service, which features properties that are guaranteed to meet a 100-point quality checklist. (NYT)
• The lesson of the video-game company Rovio’s profit warning: Companies in high-risk industries with volatile earnings should think hard before going public. (Lex)
I.C.O.s create a headache for virtual currencies
What rights do shareholders get if a company goes for an initial coin offering?
Here’s The Information’s Alfred Lee:
Concerned about potential threats to share value and regulatory risks, venture capitalists are asking for rights to receive or buy cryptocurrency in the event of an offering.
In some cases, several prominent investors and attorneys told The Information, venture capital firms are seeking to veto cryptocurrency offerings altogether.
Related
• The crash in cryptocurrencies hasn’t dented the popularity of initial coin offerings. (WSJ)
• Bitcoin is at $10,234.30. (coinmarketcap.com)
Why do college endowments keep hold of poorly performing investments?
With their average returns dragged down by the weak performance of hedge funds, venture capital and private equity, you would think endowments would be fleeing these so-called alternative investments, which are costly and mostly illiquid, as some large pension funds have done.
That’s the NYT’s James Stewart, who tries to unpick the puzzle.
Separately, a group of Harvard graduates has a plan to bolster the university’s straggling endowment.
Changes are afoot for failing banks
The Treasury Department has proposed a regulatory move that would increase the likelihood that a failing bank would end up in bankruptcy rather than going through a resolution process overseen by the government.
The tweak would still keep the emergency structures introduced as part of Dodd-Frank as an option.
From the NYT’s Peter Eavis:
Crucially, the Treasury also wants to keep the emergency government loan. But the Treasury’s proposal does introduce an important and innovative change. It calls for a special type of bankruptcy regime for large financial firms, called Chapter 14. This new regime envisions having a set of specialist judges, working with regulators in the United States and around the world, who could plan for and oversee the bankruptcies of large banks.
The banking flyaround
• Royal Bank of Scotland reported its first annual profit in a decade, after a grueling turnaround effort. That could make it easier for the British government to sell down its stake. (LSE)
• Behind John Flint’s bookish image lurks a ruthless streak that has helped him to rise to the role of chief executive at HSBC. (FT)
The revolving door
• Dina Powell is talking to Goldman Sachs about returning to the firm in a global role, according to unnamed sources. (WSJ)
• Kumar Galhotra, who has been running marketing and the Lincoln brand for Ford, will take over as head of North American operations after the abrupt departure of Raj Nair. (WSJ)
The speed read
• Hidden in rising bond yields, there could be good news for shareholders. (WSJ)
• A federal judge criticized deferred prosecution agreements, which allow companies to avoid prosecution by paying a fine. (Bloomberg)
• The Japanese airbag maker Takata reached a $60 million deal to settle consumer protection claims in the U.S. (NYT)
• Hewlett Packard Enterprise’s sales of storage and networking devices did well enough over the holiday quarter that it raised its annual profit targets. (WSJ)
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