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Dimon, Schwarzman and Fink show that business leaders are now diplomats
The Saudi government’s so-called Davos in the Desert investment conference took a serious hit over the past 48 hours when three Wall Street executives withdrew over the disappearance and possible killing of the Saudi journalist Jamal Khashoggi. Andrew has the back story on how Jamie Dimon of JPMorgan Chase, Steve Schwarzman of Blackstone and Larry Fink of BlackRock decided to bail.
Their decision gave other executives cover to withdraw. But as the WSJ points out, plenty still plan to attend. And pulling out of the conference doesn’t mean cutting business ties with the Saudis altogether. (The talent agency Endeavor is an exception, trying to unwind a $400 million deal with the Saudis.)
The U.S. government’s response so far has been inaction. The Treasury secretary, Steven Mnuchin, is still scheduled to attend the conference. And President Trump floated the idea of “rogue killers” being responsible for Mr. Khashoggi’s apparent death (though the Saudi government is reportedly weighing admitting he died). That has left a void that Andrew says business leaders are starting to fill:
How a conference known as the Davos in the Desert turned into a crucible for these executives and others demonstrates the curious change the world has seen under a businessman president: America’s moral compass being steered by the C-suite, rather than the Oval Office.
More Saudi news: The Khashoggi controversy is giving deal makers pause. Saudi threats to retaliate against any punishment may break a 45-year taboo. And while Saudi Arabia is the biggest buyer of U.S. arms, it doesn’t spend as much as Mr. Trump says.
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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.
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Trump’s tax overhaul increases U.S. deficit
The federal government’s budget deficit grew to $779 billion in the 2018 fiscal year. That’s a 17 percent increase from a year ago and the deficit’s highest level in six years.
The Treasury Department attributed the increase to higher government spending on the military. But that expenditure actually fell as a percentage of the overall (and rapidly growing) economy.
Jim Tankersley of the NYT points out that the growing deficit is actually due in large part to corporate America paying less in taxes because of the Trump administration’s tax overhaul:
Corporate tax revenues have fallen by a third from a comparable period a year ago, a direct consequence of the tax law signed last year, which reduced the top corporate rate to 21 percent from 35 percent.
For the full 2018 fiscal year, corporate tax receipts were nearly $205 billion. That figure is a drop from $297 billion in fiscal year 2017.
And because the tax law change didn’t take effect until January, its full effect won’t be known until the 2019 fiscal year.
Silicon Valley defends its China and defense work
At a conference yesterday celebrating Wired magazine’s 25th anniversary, two of the biggest names in tech addressed some of their divisive business strategies:
• Sundar Pichai of Google defended his company’s plans to create a new Chinese search engine. “It’s very early, we don’t know whether we would or could do this in China, but we felt like it was important for us to explore,” he said. “I think it’s important for us, given how important the market is and how many users there are.”
• Jeff Bezos of Amazon explained why it was important for large tech firms to work with the U.S. military. (His company is a front-runner for a $10 billion contract to run the Pentagon’s cloud computing operations.) “If big tech companies are going to turn their back on the Department of Defense, this country is in trouble,” he said.
Coming up
A big day for earnings reporting. BlackRock, Goldman Sachs and Morgan Stanley report quarterly figures, which are expected to be healthy because of lower taxes and higher interest rates. Netflix will also publish results, and investors hope it didn’t miss subscriber goals as it did three months ago.
The Fed will publish industrial production data. Analysts predict that the measure of manufacturing, mining and utilities output will have risen 0.2 percent in September, less than the 0.4 percent increase of the previous month.
Prime Minister Theresa May of Britain has a busy two days. She will meet with her cabinet today about a strategy for Brexit negotiations with E.U. leaders on Wednesday. She intends to ask European leaders to drop a proposal for the Irish border.
How the Myanmar military used Facebook to incite genocide
Burmese military officials were behind a systematic campaign on Facebook to incite ethnic cleansing in the country, according to an investigation by the NYT. Posing as fans of pop stars and national heroes, hundreds of military officers flooded Facebook pages with incendiary comments that targeted the country’s Rohingya Muslims.
More from Paul Mozur of the NYT:
The military exploited Facebook’s wide reach in Myanmar, where it is so broadly used that many of the country’s 18 million internet users confuse the Silicon Valley social media platform with the internet. Human rights groups blame the anti-Rohingya propaganda for inciting murders, rapes and the largest forced human migration in recent history.
Facebook has since removed accounts with a total of 1.3 million followers that supposedly focused on entertainment, but that instead appeared tied to the military.
This is the latest in a series of disinformation campaigns — including from Russia and Iran — to plague Facebook. But as Mr. Mozur points out, it is “among the first examples of an authoritarian government’s using the social network against its own people.”
More Facebook news: The company widened its ban on the distribution of false election information.
Paul Allen is dead at 65
The Microsoft co-founder, who helped popularize personal computing with Bill Gates and later used his wealth to transform Seattle, died yesterday. The cause was complications of non-Hodgkin’s lymphoma, which returned years after he had been treated for it.
Steve Lohr of the NYT recounts one of the biggest achievements of the man who started a personal computing revolution:
Mr. Allen was instrumental in putting together a deal to buy an early operating system from a programmer in Seattle. He and Mr. Gates tweaked and massaged the code, and it became the operating system that guided the IBM personal computer, introduced in 1981. That product, called Microsoft Disk Operating System, or MS-DOS, was a watershed for the company. Later would come Microsoft’s immensely popular Windows operating system, designed to be used with a computer mouse and onscreen icons.
In a statement, Mr. Gates said that he was “heartbroken by the passing of one of my oldest and dearest friends,” adding that “personal computing would not have existed without him.”
Carl Icahn takes on a Dell deal. Again.
In 2013, Carl Icahn fought to stop Michael Dell and the investment firm Silver Lake from taking Dell private. This time, the billionaire investor will oppose their effort to take the company public. But he will use the same argument: that Mr. Dell and Silver Lake are paying too low a price to buy out other investors.
Mr. Icahn said in a letter yesterday that he owns 8.3 percent of a special Dell stock that tracks the company’s holdings in the publicly traded company VMware. Dell announced this summer that it plans to buy out owners of that stock, known by its ticker symbol, DVMT, for $21.7 billion. The deal would result in Dell becoming a publicly traded company again.
That price, Mr. Icahn argues, is well below DVMT’s fair value and would give Mr. Dell “an economic windfall.” Given the size of Mr. Icahn’s stake, and that other large DVMT shareholders also dislike the buyout plan, Mr. Dell and Silver Lake may be in for another big deal fight.
Revolving door
Bruce Gordon reportedly stepped down as CBS’s lead independent director because he was displeased by the decision to name Dick Parsons as interim chairman.
Sacha Romanovitch quit as Grant Thornton’s C.E.O. after unidentified colleagues criticized her “socialist agenda.”
Amit Singh, a veteran Google executive, joined Palo Alto Networks as its president.
The speed read
Deals
• The latest on Sears: Its restructuring plan follows a familiar retail playbook. Its bankruptcy filing came as the American retail industry began improving. And President Trump says the company has been mismanaged for years, though his Treasury secretary, Steven Mnuchin, was a longtime board member there.
• Bank of America’s investment banking fees fell 18 percent in the third quarter, as its M.&A. and underwriting work fell short. (Bloomberg)
• Twilio, a cloud communications software platform, said it would buy the email service SendGrid for $2 billion in stock. (WSJ)
• Chinese M.&A. isn’t dead. It’s just more modest. (Bloomberg Opinion)
Politics and policy
• The former Fed chairwoman Janet Yellen said that President Trump’s attacks on the central bank were unproductive. (WSJ)
• Democrats outraised Republicans in 32 of 45 close House races by a total of $46 million. (NYT)
• President Trump’s campaign more than doubled its spending in the third quarter. Peter Thiel donated $250,000 to a fund-raising committee tied to the campaign.
• Infosys, which was built on outsourcing, is trying to “hire American” to survive in the Trump era. (NYT)
• A Department of Homeland Security report warned of increased attempts to hack election infrastructure. (NBC News)
Trade
• Investors and economists are resigned to a lengthy U.S.-China trade fight. (CNBC)
• The U.S. may be weakening China’s currency, while Beijing tries to prop it up. (WSJ)
• Financial firms are considering moving billions worth of derivatives contracts outside of Britain before Brexit. (WSJ)
• The E.U. was not created to take advantage of the U.S. on trade, despite President Trump’s claims. (NYT)
Tech
• A deep dive into Waymo and Uber’s battle over intellectual property, and why Waymo decided to settle. (New Yorker)
• M.I.T. is setting up a new $1 billion A.I. initiative, with a $350 million gift from Steve Schwarzman of Blackstone. (FT)
• Fidelity will start trading Bitcoin for hedge funds. (WSJ)
• Jack Dorsey of Twitter says that his social network “does contribute to filter bubbles.” (CNBC)
• Only 47 percent of Americans are “somewhat confident” they can tell a social media bot from a real human. (Pew Research Center)
Best of the rest
• Tech stocks dragged the stock markets lower yesterday. Meanwhile, here’s how the emerging markets sell-off is different from its predecessors.
• The head of a powerful Chinese lender has been kicked out of the Communist Party amid an anti-corruption campaign. (NYT)
• The U.N. Development Program’s chief says that sustainability will become fundamental to business success by 2050. (CNBC)
• Almost half of the revenue at Robinhood, the no-fee stock trading start-up, comes from a controversial deal with high-speed traders. (Bloomberg)
• Climate change might make beer more expensive. (But here’s a way to use the market to fix the climate.)
• You might want to buy a lottery ticket: The combined jackpots of Mega Millions and Powerball are worth almost $1 billion this week. (Fortune)
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