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Sep 8, 2016

DealBook | Today's News - September 8, 2016: The Tech Reformation, Low Caliber Credit, China’s Debt Burden

The New York Times

By Amie Tsang

Thursday, September 8, 2016

The cloud is looming and the technology industry is scrambling for cover.
In just one day:
• Dell completed its giant merger with EMC
• Hewlett Packard Enterprise, or H.P.E., announced that it would hew off another part of its once-mighty empire, and
Intel said it had offloaded a stake in McAfee.
Why the rush?
For one, businesses are not buying computers anymore. They can rent them on the cheap and instead rely on cloud computing services, which have dominated growth in the industry, leaving little for the old guard. Intel is still reeling from the shift away from PCs — it has struggled to drum up business in chips for cloud-type data centers.
At the same time, the many smartphones, tablets and laptops reliant on the cloud all need one feature: security. Traditional virus scans are insufficient for modern threats. McAfee has said it will refocus on identifying potential threats on cloud networks.
Dell and H.P.E. can, however, take some solace in the fact that they make some of the infrastructure necessary for the cloud-connected world. But it’s hard to make money from selling that.
The results of their bets will be interesting — is the response to a changing market a huge merger (à la Dell), or whittling down (like H.P.E. and Intel)?
Embracing Low Credit Histories
Mortgages are increasingly being given to borrowers with spotty credit histories by Caliber Home Loans, a mortgage business owned by the private equity giant Lone Star Funds.
For the most part, these include “legacy” loans issued before the housing bust. But as banks have stuck to issuing loans to customers with more pristine histories, Caliber and other lenders are beginning to issue mortgages afresh to people with less-than-stellar records.
Mortgages to borrowers with shaky credit histories account for nearly a fifth of the $93 billion in mortgages that Caliber manages.
It’s hardly a redux of the financial crisis. But when Fitch reviewed the first securitization of nonprime mortgages Lone Star brought to market, it noted that the “credit quality of the borrowers is weaker than prime.” Lone Star will not, however, be deterred. It is planning an even larger bond offering, backed mainly by nonprime mortgages written by Caliber.
China’s Debt Burden
We should keep an eye on borrowing in other parts of the world too. In one country, a mountain of debt has even the International Monetary Fund and George Soros worried.
China’s borrowing binge has pushed up its debt load to about $26.6 trillion, stoking fears of a crisis that could spill across borders and affect the rest of the world.
The country’s borrowing is mostly done by companies that will have to hold back on investing and hiring in an effort to pay it back. This could create a vicious cycle if the whole economy slows, and debt becomes harder to pay off.
In a vision of the debt apocalypse, banks would then stop lending, leading to a full-fledged crisis and pulling down the rest of the world as China slams the brakes on global growth.
Of course, not everyone is a doomsayer and China has defied predictions of a crash so far. But Beijing has to limit the increase in its debt load and maintain growth, or it will become a worry for all the world, as well.
Coming Up
• All eyes will be on the European Central Bank. It is expected to maintain its benchmark interest rate at zero, but it could extend its stimulus program.

Formula One racers twisting through a course at the 2015 Russian Grand Prix in Sochi. Formula One’s viewership in the United States has grown 40 percent since 2013.
Liberty Media Buys Formula One for $4.4 Billion
Liberty Media, based in Colorado, purchased the immensely popular racing series, whose viewership in the United States has grown rapidly.
Shakiness of Giant Deals Poses No Threat to 2015 Record
More than $750 billion worth of acquisitions proposed last year have been abandoned, and more hang in the balance, but $4.4 trillion in deals were made.
Street Scene
AOL and Yahoo will report to Marni M. Walden, an executive vice president at Verizon.
No Clear Logic in Verizon’s Digital Media Venture
Verizon’s acquisitions of Yahoo and AOL raise legitimate questions about the judgment of Verizon’s management.
Société Générale Said to Be in Talks to Sell Stake of Chinese Asset Manager
Société Générale is in talks to sell its 49 percent stake in a mutual fund joint venture to the private equity firm Warburg Pincus, according to people familiar with the matter.
T. Rowe Price Opposes Sale to Oracle
T. Rowe Price Group wrote a letter to NetSuite saying that it would not tender its shares in the company because the $9.3 billion that Oracle proposed paying was too low.
Are You a Rich Lawyer? You May Not Be Rich Enough for JPMorgan
Lawyers, who often work closely with JPMorgan Chase on deals and other matters, are among the clients most affected by the private bank’s recent decision to double its minimum to $10 million in investible assets.
Wells Fargo Said to Be Subject of Enforcement Action Over Cross-Selling Practices
The Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and Los Angeles City Attorney plan to announce the civil action and a related settlement on Thursday, according to people familiar with the matter.
Apple and the New iPhone
As the company updates its most popular product, Apple removed a familiar feature: the headphone jack.
Stuart Goldenberg
State of the Art
The iPhone 7 doesn’t have a place to plug in headphones, but that is far from its worst shortcoming. The new device is an example of how Apple’s aesthetics have gone stale.
For the latest updates:
Go to
Legal and Regulatory
Ruling Tips Uber Drivers Away From Class-Action Suits
A federal appeals court ruled private arbitration agreements are enforceable in a case over Uber’s background checks, which the company may use to fight other class-action cases.
S.E.C. Eyes Contempt for Wyly Estate’s Failure to Pay $101 Million
Securities regulators said that they wanted the executor of Charles Wyly’s estate held in contempt for not paying the $101.2 million owed as a result of the businessman’s fraud.
The Surreal Politics of a Billionaire’s Tax Loophole
Top private equity titans are giving all their campaign money to Hillary Clinton, even though she has gone further than Donald J. Trump in promising to get rid of a tax break that benefits some of the wealthiest people in finance.
<strong>ITT Technical Institutes around the country shut down this week after the chain of for-profit colleges announced it was closing for good.</strong>
Sandy Huffaker for The New York Times
More than a decade ago, students found themselves locked out as federal agents searched for evidence of fraud.
Peter Graves (as Jim Phelps) and Barbara Bain (as Cinnamon Carter) in the “Mission Impossible” television show.
CBS, via Photofest
In Debt
ITT has already been sued for violations of the federal WARN Act, and it has telegraphed its intent to sue the Education Department.
Maria Murillo mopping a floor at Singularity University, one of Squiffy Clean’s first clients.
A Cleaning Start-Up Wielding Mops, Buckets and 700 Data Points
Squiffy Clean in Silicon Valley takes a tech-minded approach to cleaning offices, using analytics to set prices and improve efficiency.
A sign outside the Trump International Hotel, Washington D.C. which is set to open next week.
Win or Lose, Donald Trump Is Coming to Pennsylvania Avenue (With His New Hotel)
The new hotel is set to open in the capital, and like Mr. Trump’s presidential campaign, it has been a polarizing proposition.