Sep 18, 2019

DealBook Briefing: Facebook Has a ‘Supreme Court’ Now

12-15 minutes - Source: NYT

CreditCreditJosh Edelson/Agence France-Presse — Getty Images
Good Wednesday morning. On the agenda: The Fed will conduct another market operation today to control short-term interest rates, and it is expected to announce another cut to its benchmark rate. More below. (Was this email forwarded to you? Sign up here.)
Facebook announced several efforts to limit hate speech and extremism on its site, Davey Alba, Catie Edmonson, and Mike Issac of the NYT report. The moves were announced before a hearing today in the Senate Commerce Committee on how Big Tech is handling violent content.
Facebook plans to expand its definition of terrorist organizations, which could include people and groups that attempt violence toward civilians, and not just those who intend to achieve political or ideological goals.
It also plans to update its A.I. to better identify and remove live videos of shootings. And it will block the sharing of links from 8chan and 4chan, two websites criticized for hosting extreme content.
Facebook will also create a new oversight board that will monitor and interpret how the company’s community standards are being enforced. (Outsiders have dubbed it a “Supreme Court.”) The panel can order Facebook to allow or remove content, reverse designations on content removals and issue “prompt” written explanations for its decisions.
Lawmakers will be sure to pepper Facebook with questions about the moves at today’s hearing, which is to start at 10 a.m. Eastern.
Today’s DealBook Briefing was written by Andrew Ross Sorkin, Michael J. de la Merced, Lindsey Underwood and Stephen Grocer.
CreditT.J. Kirkpatrick for The New York Times
The central bank is expected to lower interest rates at its policy meeting today to keep the economy stable. But an unexpected need to intervene in a crucial lending market suggests that it might need to overhaul the way it operates, Jeanna Smialek and Matt Phillips of the NYT write.
The New York Fed jumped into the market for “repos” yesterday to keep short-term lending rates from rising. A shortage of cash helped contribute to a surge in the costs of repos, which are a kind of short-term loan used by companies and investors. (Borrowers in the repo market paid as much as 10 percent yesterday, compared to recent rates of 2 percent.)
That surge pushed up the effective fed funds rate to 2.25 percent, which if left unchecked could cause damage throughout the U.S. economy, according to Bloomberg.
But the operation to calm the market ran into technical difficulties, which caused a 25-minute delay. Ultimately, the Fed injected $53 billion into the financial system.
Some analysts think that shows the Fed needs to be more aggressive in how it controls interest rates, saying that letting the supply of excess reserves shrink too much amplified short-term stresses in the repo market. Others said that the Fed should conduct market operations more regularly to prevent this from happening again.
The Fed is expected to do another market operation today, and it will announce whether it will cut interest rates. Expect the markets to pay close attention.
CreditWaleed Ali/Reuters
The Saudi energy minister, Prince Abdulaziz bin Salman, said yesterday that his country would return to normal oil production levels within weeks, after devastating attacks on a crucial processing plant and oil field. But what that means is unclear.
Half of the production lost to the attacks has been restored, Prince Abdulaziz said, though that has required dipping into the kingdom’s oil reserves. Normal production, which amounts to 9.8 million barrels a day, is to resume by late September.
He also said that planning for Aramco’s I.P.O. was back on track, and that it would happen within the next 12 months. The deal’s fate was clouded by the drone attacks, as prospective investors may have become spooked.
However, unnamed Saudi officials seemed more pessimistic in private. “The damage is severe,” one told the WSJ, suggesting that Prince Abdulaziz’s estimates are too rosy.
Any recovery could be affected by a rejoinder to Iran, which Saudi and U.S. officials say had a role in the attack. The Saudi government is expected to reveal today what it says is evidence of Tehran’s role. But it’s unclear how aggressive a response will be from the Saudis and the Trump administration — especially since other countries don’t yet appear willing to trust their assertions about Iranian responsibility.
More: The attacks represent a big test for Prince Abdulaziz only weeks into his tenure as energy minister. And a surge in oil prices could hurt the U.S. economy.
Now that the co-working company has delayed its I.P.O. — perhaps for good — it faces some difficult questions. Will it try to go public again? Will it change its business model? And how will it find money to keep the lights on?
WeWork’s C.E.O., Adam Neumann, said yesterday that he had been “humbled” by the I.P.O. process, according to the FT. He told employees on a company webcast that he needed to learn how to be a leader of a public company, but pledged that the stock sale would happen this year.
Yet there’s little sign of investor appetite for that deal. Mr. Neumann called off the listing plans after prospective investors balked at WeWork’s business model and corporate governance — even after the company reduced his power over the business.
WeWork may need to rethink its business. The company, which made breakneck growth one of its most prominent business goals, may have to slow or stop its expansion, the NYT notes. And its ventures beyond office space, including apartment buildings, education and an indoor wave pool, haven’t been successful, according to the WSJ.
But it will have to find another way to finance itself. In a signal of investor pessimism, the company’s bonds sunk to 95 cents on the dollar, while their yield rose to 8.5 percent. That makes any plan to raise money through junk bonds look unrealistic, meaning that WeWork might have to turn to an existing backer like SoftBank or renegotiate financing from its banks to get extra cash.
CreditJustin Sullivan/Getty Images
The Trump administration is expected today to formally revoke California’s authority to set auto emissions rules that are stricter than federal standards, Coral Davenport of the NYT writes. It’s a big step in what has become a wide-ranging attack on government efforts to fight climate change.
• “Lawyers said the action takes the administration into uncharted legal territory in its battle with the state, which has vowed to fight the change all the way to the Supreme Court,” Ms. Davenport writes.
• “A revocation of the California waiver would have national significance. Thirteen other states follow California’s tighter standards, together representing roughly a third of the national auto market.”
• “Legal experts said that if Mr. Trump’s move were ultimately held up by the Supreme Court, it could permanently block states from regulating vehicle greenhouse gas pollution. If it were rejected by the Supreme Court, it would allow states to set separate tailpipe pollution standards from those set by the federal government.”
CreditPatrick Semansky/Associated Press
The Treasury Department introduced new rules yesterday that would give the federal government more say on transactions involving tech and real estate companies on national security grounds, Alan Rappeport of the NYT writes.
• “The rules, which would not take effect until next year, would give the Committee on Foreign Investment in the United States, or CFIUS, greater power to stop foreign investment in areas the United States deems protected.”
• “While the rules would apply to any foreign investment, the effort is primarily aimed at preventing China from gaining access to sensitive American technology and other valuable assets.”
• “The rules offer new details on the red flags that CFIUS will look for when it reviews foreign deals. These include transactions involving ‘critical’ technology and infrastructure, such as telecommunications, utilities and energy.”
• “Another category includes companies that are involved in collecting sensitive personal data, such as financial or health information, of at least a million individuals or of federal employees involved in national security matters.”
• One provision that’s likely to garner interest is an exemption from some rules for investors from certain unidentified countries. It could invite complaints that the national security review system is biased against American adversaries, Mr. Rappeport writes.
George Schweitzer is stepping down as CBS’s marketing head.
The health insurer Oscar has hired Meghan Joyce, who was the general manager for Uber’s operations on the East Coast and in Canada, as its C.O.O.
Giovanni Castellucci will step down as the C.E.O. of Atlantia, the owner of a bridge in Genoa, Italy, that collapsed last year, killing 43 people.
Sergei Frank will step down as the C.E.O. of the Russian shipping giant Sovcomflot. He’s expected to become chairman, while Igor Tonkovidov will replace him as C.E.O.
• 3G Capital, the investment firm that helped orchestrate the creation of Kraft Heinz, has sold down its stake in the embattled food company. (FT)
• The I.P.O. of the fashion brand Madewell shows how much better positioned it is than its parent company, J. Crew, for the current retail environment. (NYT)
• Amid pressure from the hedge fund Elliott Management, the AT&T C.E.O., Randall Stephenson, defended his business strategy and his likely successor. (WSJ)
• The British government will investigate the proposed sale of Cobham, an aerospace and defense contractor, to the private equity firm Advent International on national security grounds. (FT)
• JPMorgan Chase has reportedly been snatching many of the top hedge fund clients from Deutsche Bank’s prime brokerage business. (Business Insider)
Politics and policy
• Senators pushed for assurances that the F.T.C. and Justice Department would provide vigorous oversight of tech companies. (NYT)
• The Trump administration argued to the Supreme Court that the Consumer Financial Protection Bureau was unconstitutional because of congressional limits on the president’s ability to remove the agency’s director. (WSJ)
• President Trump attended a fund-raiser in Silicon Valley yesterday, which was reportedly hosted by the former Sun Microsystems C.E.O. Scott McNealy. (WSJ)
• The vaping industry has cultivated close ties to the Trump administration. It was still caught off guard by a ban on flavored e-cigarettes. (WaPo)
• Ed Buck, a Democratic donor, was arrested and charged after a third man overdosed in his West Hollywood home. (LAT)
• President Trump hopes to reach trade “minideals” with Japan and India by the end of the month, as his fight with China continues. (NYT)
• FedEx forecast lower profits for the year, citing economic uncertainty from the trade war. (WSJ)
• Streaming services have spent more than $2 billion in recent weeks to buy the rights for classic shows like “Seinfeld” and “Friends.” Meanwhile, NBC unveiled its online video offering: Peacock. (WSJ, LAT)
• Snapchat is reportedly in talks with publishers about aa dedicated news section on its platform. (Information)
• Facebook is reportedly creating smart glasses in partnership with Luxottica, the parent company of Ray-Ban. (CNBC)
• Facebook’s former policy chief, Elliot Schrage, announced his resignation last year. He’s still at the company. (Bloomberg)
• France wants to raise 5 billion euros, or $5.5 billion, to invest in tech start-ups. (Reuters)
Best of the rest
• Mary Barra, the General Motors chief, is in the hot seat as a workers’ strike drags on. (NYT)
• The S.E.C. charged the former C.E.O. of Viking Energy Group with fraud, accusing him of lying about the existence of a C.F.O. (WSJ)
• “The key to disrupting the flow of carbon into the atmosphere may lie in disrupting the flow of money to coal and oil and gas.” (New Yorker)
• The highs and lows of office life. (NYT)
• On that topic, NBC wants to reboot “The Office.” (Business Insider)

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