Good Tuesday morning. Here’s what we’re watching:
• More potential limits on gun sales
• Facebook’s growing political troubles
• Uber’s self-driving travails
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Will Wall Street’s Top Regulator Keep Going After Bad Bankers?
A vigorous debate is taking place over who should become the next head of the Federal Reserve Bank of New York, a powerful regulator on Wall Street’s front lines.
Contenders for the post should address one question: What will you do to clean up the culture at banks?
William C. Dudley, the outgoing president of the New York Fed, had made improving the culture at the firms he oversaw a key initiative of his tenure of at the institution.
When Mr. Dudley took the helm in 2009, the financial crisis had left the New York Fed’s reputation as a regulator damaged. The institution had not done enough to address the severe weaknesses at the banks it oversaw, like Citigroup. Early on, Mr. Dudley commissioned a review of the New York Fed’s bank supervision department and then overhauled it. But in 2012, JPMorgan Chase, also overseen by the New York Fed, suffered huge trading losses in what was known as the London Whale scandal. The New York Fed was faulted.
Following the embarrassing London Whale imbroglio, Mr. Dudley used his bully pulpit to focus on bankers’ ethics. Banks were stronger financially, but recent scandals showed that the culture of their firms still needed to improve, he observed. And if a cleanup didn’t occur, it may be a sign that they needed to be reduced in size, Mr. Dudley said in a 2014 speech that rattled Wall Street.
The next big banking scandal — Wells Fargo’s widespread mistreatment of customers, which came to light in 2016 – strongly supported Mr. Dudley’s arguments. Wells Fargo was considered one of the most stable “too big to fail” banks, with its focus on plain vanilla lending, but in fact, its retail sales culture had degraded. The Fed earlier this year slapped relatively harsh sanctions on the bank, including a limit on its size.
The example of Wells Fargo is pertinent for John C. Williams, a top candidate to replace Mr. Dudley. Mr. Williams is head of the San Francisco Fed, which oversees Wells Fargo.
And there is still work to do to fulfill Mr. Dudley’s initiative. He proposed a “database of banker misconduct,” similar to the one for brokers, that would track a banker’s record on ethics and compliance. Banks could consult it before hiring. But this idea has not taken off. In a speech at the U.S. Chamber of Commerce on Monday, Mr. Dudley explained why: “Understandably, firms are concerned about legal risk if they share information about banker misconduct, but there may be ways to address these concerns through legislation.”
Mr. Dudley had also pressed banks’ boards of directors to focus on ethical culture. On Monday, he said the boards had set up separate committees to focus on culture and conduct. “We’ve made part of the journey but I think more could be done,” Mr. Dudley said. Whether it will, depends on who steps into his shoes.
— Peter Eavis
How else banks can limit gun sales
Citigroup became the biggest Wall Street firm thus far to take actions to limit gun sales. Others, like JPMorgan Chase, Bank of America, Visa and Mastercard, are studying options. (Bank of America and JPMorgan are two of the bankruptcy lenders to Remington Outdoor, along with Wells Fargo, which is the N.R.A.’s bank of choice.)
In his latest column, Andrew suggests these new tactics:
• Credit-card issuers and banks could give gun sellers who have announced restrictions on sales, like Walmart and Dick’s Sporting Goods, a special merchant category code. That could help financial firms decide with whom they want to do business.
• Payment processors could geofence gun shows and enforce restrictions on transactions coming from those GPS coordinates.
Here’s what Citi’s C.E.O., Mike Corbat, told Andrew about his firm’s actions:
The heat on Facebook is rising, but do shareholders care?
Where to begin? The company faces inquiries from the Federal Trade Commission, the Senate Judiciary Committee, several state attorneys general and the watchdog group Common Cause. And Britain’s Parliament asked Mark Zuckerberg to testify (he’s sending a deputy).
Facebook’s stock overall is headed for its worst monthly performance in nearly five years. Yet the company’s shares recovered from another beating, closing up slightly yesterday. And just two analysts have “sell” ratings on the stock, compared to 44 who have “buy” ratings.
In Cambridge Analytica news: Did a Brexit campaign group violate election laws by not declaring some of its spending with AggregateIQ, a digital marketer with ties to Cambridge Analytica?
Critics’ corner: Nir Kaissar of Gadfly thinks that the big question is how many users value privacy more than having a Facebook account. Charlie Warzel of BuzzFeed argues the Cambridge Analytica scandal could lead to “a full-scale personal and public reckoning that looks at the way we’ve used the internet for the last decade.”
Is Amazon behind another health care deal?
Bankers and deal lawyers may want to send some of their bonus to Amazon this year. M.&A. activity is running at record levels and concerns about the e-commerce giant have played a role in driving a number of the largest deals.
The latest? GlaxoSmithKline’s decision to buy out Novartis’s stake in their consumer health joint venture, which includes Sensodyne toothpaste, for $13 billion.
Amazon may not have been the main reason, but its impact on the pricing of consumer health products likely played a role.
Historically, such products have lower margins than prescription drugs, but customers that keep coming back. Sales, though, are slowing, up just 3 percent over the past two years, half the rate of the previous two, according to Morgan Stanley. Price competition from online retailers like Amazon has some worried it could decelerate further.
That partly helps explain why Novartis was willing to exit the business.
So why was Glaxo willing to pay up for the business?
1) Starting this month Novartis had the right to require Glaxo purchase its stake in the joint venture. Doing the deal now removes uncertainty.
2) The deal will allow its new chief executive to “get on with fixing GSK’s pharmaceutical division, which suffers from a relatively lackluster pipeline of new drugs,” writes Neil Unmack of Breakingviews.
Shares of Glaxo have gained 6.3 percent.
A reality check on the White House’s tariff tactics
The S.&P. 500 rose 2.7 percent yesterday, its best day in nearly three years (as President Trump would be happy to tell you). Maybe it’s because, as Peter Eavis writes, the president’s threats of a trade war with China might be merely negotiating tactics.
More from Peter: According to this view, the tariff proposal was a jarring move partly aimed at getting China to see that the U.S. was serious about shifting trade terms. If China doesn’t show real signs that it will do more to open its markets, Mr. Trump could up the ante — roiling the markets again. But the White House’s more conciliatory tone yesterday after last week’s sell-off suggests there is not a strong desire for a full trade war.
But remember that Beijing is firmly committed to its industrial policy, while the U.S. is equally adamant about letting American companies operate more freely in China. (Even if G.M. and Ford, who have joint ventures with Chinese companies, wouldn’t benefit from a lower tariff on U.S. car imports.) And Stephen Roach of Yale thinks that the U.S.-China trade deficit will keep widening.
Elsewhere in trade: The U.S. is near a deal with South Korea, after winning concessions on steel exports and imports of U.S. cars. Betting on trade wars is risky. Hedge funds are taking refuge in southern European stocks. And the Western world’s economic institutions are being attacked from within.
The political flyaround
• White House lawyers are examining whether more than $500 million of loans to Kushner Companies may have violated criminal laws or federal ethics regulations. (WSJ)
• Democrats and progressive groups aren’t happy with the possibility of John C. Williams taking over the New York Fed. (NYT)
• Stormy Daniels’s interview with “60 Minutes” drew 22 million viewers, the program’s highest ratings in almost a decade. She’s suing President Trump’s personal attorney, Michael Cohen, for defamation.
• The White House’s criterion for judicial nominees: favor shrinking the federal government. (NYT)
Arizona cracks down on Uber
The state’s governor, Doug Ducey, ordered Uber to halt self-driving car tests there after the death of a pedestrian in Tempe.
Uber’s repeated problems — even after a change in leadership — have led the journalist Steven Hill to argue that limits should be placed on the company, including caps on the number of vehicles and rules against subsidizing rides.
Elsewhere in tech
• Crown Prince Mohammed bin Salman and Masa Son of SoftBank met in New York. (@spagov)
• The F.C.C. is another regulator wary of Huawei. (NYT)
• Google, Tesla and Qualcomm are banding together to challenge SoftBank’s ARM Holdings. (The Information)
• Bitcoin fell below $8,000 after Twitter banned some cryptocurrency ads. (CNBC)
• A.I. is now coming for Hollywood special-effects producers. (NYT)
• IBM faces accusations of age discrimination. (ProPublica)
Today in shareholder activism
Third Point: Dan Loeb’s hedge fund has built a position in United Technologies, according to an antitrust filing, following Pershing Square Capital Management. They’re both betting that the industrial conglomerate will split up.
Elliott: The firm has reportedly taken a stake in Travelport Worldwide and plans to push the company to consider selling itself.
D.E. Shaw: The hedge fund scored another win yesterday when Lowe’s said that its chairman and C.E.O., Robert Niblock, would retire. D.E. Shaw has been pressuring the retailer to expand sales more quickly and will have a say in choosing the new C.E.O. .
Barington Capital: To settle a proxy fight, the embattled cosmetics company Avon gave the activist fund a seat on its board. The fund has been pushing for a sale.
The deals flyaround
• Meet HNA’s quiet power broker: Wang Wei, younger brother of the Chinese conglomerate’s chairman. (NYT)
• Akzo Nobel has reached a deal to sell its specialty chemicals unit to the Carlyle Group and GIC of Singapore for €10.1 billion, including debt, or $12.6 billion. (FT)
• Brookfield Property Partners agreed to buy the 66 percent of GGP that it doesn’t already own for about $9.25 billion. (WSJ)
• Spotify is paying I.P.O.-level fees for its non-I.P.O. SmartSheet, a cloud-based business software company, reportedly plans to go public. Both Yeti, the maker of upscale coolers, and Gategroup, the Swiss airline catering business owned by HNA, have pulled their offerings.
• Lightspeed Venture Partners is raising $1.8 billion for new funds. Lerer Hippeau is taking over most of the portfolio companies of the embattled Binary Capital.
• How Alibaba and Tencent became Asia’s biggest deal makers. (FT)
• Why private equity hasn’t helped smaller grocery chains struggling against Walmart and Amazon. (NYT)
• Deutsche Bank is reportedly seeking to replace its C.E.O., John Cryan, according to The Times of London and Financial News.
• Harry Keogh, the Coutts & Company banker accused of sexual harassment, has resigned. (WSJ)
• JPMorgan Chase has named James Roddy as the co-head of its global diversified industrials investment banking team. (Reuters)
• Shell Oil plans to name Gretchen Watkins, the former C.E.O. of Maersk Oil, as president and U.S. country chair. (Houston Business Journal)
• Nickelodeon has cut ties with Dan Schneider, the producer of “iCarly” and “Kenan and Kel.” (WSJ)
The speed read
• Goldman Sachs began an investigation after a former employee wrote to Lloyd Blankfein saying that a group of colleagues attempted to rape her in 1994. (Financial News)
• Goldman is deploying investment banking partners to hubs like Atlanta, Dallas, Seattle and Toronto. (Business Insider)
• The average Wall Street banker’s bonus last year was the highest since before the financial crisis. (WSJ)
• How a tiny Latvian bank became a haven for the world’s dirty money. (WSJ)
• Cisco Systems promised to donate $50 million over five years to fight homelessness in Santa Clara County, Calif. (WaPo)
• Royal Dutch Shell has set out what it thinks it would take for the world to control climate change — including using far less oil by 2070. (WaPo)
• G.M. said its South Korean unit would file for bankruptcy if a labor union rejected a restructuring plan. (Bloomberg)
• Imagine if Gordon Gekko bought news empires. Heath Freeman is like that, only worse, writes Joe Nocera. (BloombergView)
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