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Oct 15, 2018

DealBook Briefing: BlackRock’s Fink and Blackstone’s Schwarzman Turn Their Backs on Saudi Arabia I Business I DealBookBriefing I DealBook I NYT




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Larry Fink of BlackRock.CreditCreditShannon Stapleton/Reuters
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Steve Schwarzman of Blackstone and Larry Fink of BlackRock are said to be dropping out of Saudi Arabia’s big investment conference, according to people with direct knowledge of the matter. They follow Jamie Dimon of JPMorgan Chase, who withdrew last night, as the meeting known as Davos in the Desert becomes politically toxic.
More from Andrew and Kate Kelly of the NYT about how this played out:
Over the weekend, Mr. Dimon consulted by telephone with two other powerful Wall Street executives, the head of BlackRock, Laurence D. Fink, and Blackstone Group’s chief, Stephen Schwarzman, said two people familiar with the conversations. All three depend on the kingdom for revenue.
Mr. Dimon, Mr. Fink and Mr. Schwarzman pressed Saudi officials to postpone the event, the two people said. The three executives and their staffs reached out to the Treasury Department and urged Treasury Secretary Steven Mnuchin to press for the event to be postponed or to publicly make his attendance conditional on more disclosure from the Saudis about Mr. Khashoggi’s disappearance.
Mr. Dimon’s decision follows those of Dara Khosrowshahi of Uber, Bill Ford of Ford Motor and other C.E.O.s. At issue: the disappearance and possible murder of the Saudi exile Jamal Khashoggi at the kingdom’s consulate in Istanbul. Saudi officials deny any involvement.
President Trump said there would be “severe punishment” if the royal court were found responsible. Saudi officials have threatened to retaliate against any punitive measures, noting that its position as the world’s top oil exporter gives it “an impactful and active role in the global economy.”
Jim Rutenberg of the NYT notes that American businesses were eager to court Mohammed bin Salman, the Saudi crown prince, as a deep-pocketed investor six months ago. But the deepening controversy has tainted the kingdom’s wealth and darkened the prospects of Prince Mohammed’s economic dreams for his country.
The heightened tension between the U.S. and Saudi Arabia drove Saudi stocks down yesterday. And shares in SoftBank, whose Vision Fund counts the Saudis as its biggest investor, fell 8 percent today.
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CreditShannon Stapleton/Reuters
Early this morning, Sears filed for Chapter 11 protection. “It’s a sad day for American retail,” Craig Johnson of the consultancy Customer Growth Partners told the NYT.
The original everything store, Sears has struggled to compete against Amazon and other online retailers in the past decade. Its C.E.O., the financier Eddie Lampert, has tried several strategies to revive its fortunes. All have failed. Mr. Lampert has also faced criticism for not investing enough in the company’s physical stores.
Alongside the bankruptcy filing, Mr. Lampert stepped down as Sears’s C.E.O. but will remain chairman. The retailer will close at least 142 stores, and lenders have given it $300 million in loans to keep operating through bankruptcy proceedings, with the aim of preserving the company at least through the holidays.
But that lifeline may not be enough for Sears to fix itself and avoid liquidation.
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CreditDrew Angerer/Getty Images
Stock markets around the world took a battering last week, as a confluence of factors — nascent inflation, rising interest rates, tightening fiscal policy and trade tensions — spooked investors. Overnight, Asian markets dropped, while European ones held their ground.
But over the coming days, the markets will either be shored up or shaken further, as companies report quarterly earnings results. As Matt Phillips of the NYT puts it, they will “either give credence to investors’ fears — that rising borrowing and operating costs, along with trade tensions, could hurt growth — or ease them.”
What to look out for:
• Bank earnings are expected to be strong, rising by as much as 41 percent, according to numbers from Refinitiv.
• Energy companies are expected to do well, with profits potentially more than doubling from a year ago.
• Industrial companies may fare worse, as their supply chains take a hit from the extra costs of tariffs.
More on the markets: Last week’s fall may have simply been global trends catching up with America. And here’s why more scares may be ahead.
More big banks report earnings. Bank of America reports today, and Goldman Sachs and Morgan Stanley will tomorrow. Bank stocks rallied on Friday when Citigroup, Wells Fargo and JPMorgan Chase reported healthy earnings.
The Census Bureau will release monthly retail sales results for September. Analysts expect an improvement from the 0.1 percent increase recorded from July to August, suggesting that consumers are optimistic about the economy heading into the holidays.
Tesla customers may scramble to purchase cars. The automaker said that orders placed by today will be delivered by the end of 2018 and will receive a $7,500 federal tax credit. Later purchases will receive just half that credit, as Tesla has now sold more than 200,000 vehicles in the U.S.
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Jared Kushner, center.CreditLeah Millis/Reuters
Confidential documents reviewed by the NYT suggest that Jared Kushner, President Trump’s son-in-law and adviser, appears to have paid little or no income tax from 2009 to 2016. That’s despite his family’s company spending billions of dollars buying real estate, helping quintuple his net worth to almost $324 million.
How did he do it? By deducting a portion of the cost of his buildings from his taxable income every year as depreciation — a common tax-minimizing maneuver that allows paper losses to offset earnings. An example: In 2015, Mr. Kushner took home $1.7 million in salary and investment gains. But those earnings were swamped by $8.3 million in losses, largely because of “significant depreciation.” (Here’s a step-by-step explanation.)
Nothing in the documents suggests Mr. Kushner broke the law, and a spokesman for his lawyer said that he “paid all taxes due.”
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CreditNicholas Kamm/Agence France-Presse — Getty Images
President Trump quietly signed a bill this month to create a new government agency. Backed by $60 billion, it will invest in infrastructure products around the world to fight China for the loyalties of emerging markets.
It’s the latest tactic by the administration in what some officials now view as a Cold War with Beijing. Though Mr. Trump initially opposed the initiative, which began under the Obama administration, his White House has come to see it as an important counterweight to China’s $1 trillion Belt and Road Initiative.
Not everyone is convinced it will work. As Derek Scissors of the American Enterprise Institute told the NYT: “We’ve finessed the public relations problem. But we aren’t really competing with the Chinese.”
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Dominc Raab, Britain’s Brexit ministerCreditTolga Akmen/Agence France-Presse — Getty Images
Discussion about Britain’s withdrawal from the European Union hit an impasse last night. Dominic Raab, the country’s Brexit secretary, told his European counterpart, Michel Barnier, that his government could not agree to the bloc’s current terms, with Prime Minister Theresa May having called a draft a “nonstarter.”
Mr. Barnier said that “despite intense efforts, some key issues are still open.” Among them is the highly contentious issue of a hard customs border between Ireland and Northern Ireland. No further negotiations between the E.U. and Britain are scheduled before European leaders meet on Wednesday.
The FT explains what could come next:
E.U. leaders may conclude there is not sufficient progress to justify proceeding to a special Brexit summit in November to seal a deal, leaving talks in limbo and Britain heading towards an economically damaging “no deal” exit next March.
Gary Cohn joined the board of Spring Labs, a cryptocurrency start-up.
Anthony Ambrosio, who led CBS’s human resources division under Les Moonves, will step down.
A Canadian judge stripped Brandon Truaxe, the co-founder of the cosmetics company Deciem, of his C.E.O. title and board seat.
Deals
• Harris agreed to buy L3 Technologies, a fellow military contractor, for more than $15 billion in stock. (WSJ)
• SoftBank’s talks to invest again in WeWork show how the Japanese giant loves to help start-ups stay private. Meanwhile, it has reportedly picked Goldman Sachs, Nomura and Deutsche Bank to lead the I.P.O. of its domestic telecom unit.
• The scooter start-ups Bird and Lime are reportedly in talks for another round of fund-raising. (Bloomberg)
• Bank of America’s new investment-banking chief is expected to put pressure on the firm’s M.&A. bankers to get deals. (FT)
Politics and policy
• President Trump drew speculation about the future of Defense Secretary Jim Mattis, calling him “sort of a Democrat.” (WSJ)
• Mr. Trump reportedly plans to name Pat Cipollone, a veteran Washington lawyer, as his next White House counsel. (CNN)
• Democrats worry that they have not done enough to shore up support from Latino voters. (Politico)
Trade
• President Trump’s tariffs are hurting the factories that he wanted to help. (WSJ)
• Chinese officials say they don’t know who is driving the Trump administration’s policy on trade. (CNBC)
• “Tariffs are like a knife in a gunfight.” (WSJ op-ed)
• Joseph Stiglitz, the Nobel Prize-winning economist, explains why he thinks globalization is under threat. (Baron’s)
• China’s next steps in the trade war. (Axios)
• President Trump’s Iran sanctions may hit a snag: the international bank messaging service known as Swift. (DealBook)
Tech
• Facebook’s recent data exposure affected fewer people than first thought — but more of their data was found to have been leaked. (NYT)
• Silicon Valley’s inequality is getting worse. (Recode)
• China might be on the brink of a dot-com bust. (WSJ)
• Tencent is still suffering from a Chinese regulatory clampdown. (FT)
• The possible consequences of Elon Musk’s criticism of the S.E.C. (NYT)
• The Silicon Valley veteran Jeff Hawkins says he has decoded a basic building block of brain function that could help improve A.I. (NYT)
Best of the rest
• The message from the World Bank’s and I.M.F.’s annual meetings? Don’t expect a synchronized uptick in growth. (Bloomberg Opinion)
• How Europe became the champion of luxury goods. (FT)
• Why family offices are chasing after young impact investors. (FT)
• Bridgewater says the Fed could make the economy “mediocre.” (FT)
• What’s a monopsony? A reason for slow wage growth, perhaps. (Bloomberg)
• A bet that the Chinese liquor baijiu takes off in the West. Meanwhile, Elon Musk hopes that you may enjoy a shot or two of Teslaquila.
Thanks for reading! We’ll see you tomorrow.

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