Just about every day now in D.C., lawmakers seem eager to show their might against Big Tech. Yesterday gave them the opportunity to flex their muscles in two high-profile events at the Senate: the confirmation hearing for Lina Khan, a “progressive trustbuster” who was nominated for a seat at the F.T.C., and a judiciary committee hearing about Apple and Google’s control over their app stores. For good measure, a group of seven House Republicans yesterday announced a pledge to no longer take donations from major tech companies.
Here’s what you may have missed on a busy, and bruising, day for Big Tech — and what it means.
Lina Khan said she’d bring her tough-on-tech stance to the F.T.C. Ms. Khan referenced a “whole range of potential risks” she sees in the tech giants, including how they could parlay their dominance in one market into adjacent spaces. She said that when it comes to online advertising, which is fueled by consumer data, “companies may think it’s worth the cost of doing business to risk violating privacy laws.” The Democratic nominee received little pushback on her views during questioning.
At the other hearing, companies complained about Apple and Google. Spotify, which is suing Apple in Europe, said the company blocked it from telling customers that they could find cheaper subscription prices outside its iPhone app. Match Group testified that it now paid nearly $500 million a year to Apple and Google in app store fees, its single largest expense. Tile said Apple boxed out its products and then copied them, referencing the AirTag product Apple unveiled Tuesday.
Google made a questionable call. Match Group’s chief legal officer, Jared Sine, said Google had called the company the night before, after its planned testimony became public, wondering why the comments appeared to be tougher than what Match had said on a recent earnings call. “It looks like a threat, it talks like a threat, it’s a threat,” Senator Richard Blumenthal said. Wilson White, a government affairs official at Google, told senators that Match was an important partner and that Google would never aim to intimidate the company.
sweeping antitrust bill, but a more targeted piece of legislation focusing on app store conduct could go through more easily.
In a trial next month, Apple is set to face off against Epic Games, which is suing Apple over the payment terms for its iPhone app, potentially providing more fodder for the critics of Big Tech who are looking to rein it in.
HERE’S WHAT’S HAPPENING
The E.U. plans to clamp down on A.I. Draft rules would set tight limits on the use of the technology, including in self-driving cars, hiring decisions, bank lending, school enrollment and more. It’s one of the most ambitious efforts to regulate A.I. before it becomes mainstream.
India suffers a surge in Covid-19 cases. The country recorded 312,731 new infections in a 24-hour period, the highest one-day level since the onset of the pandemic, raising concerns about its ability to control the coronavirus. Separately, Pfizer said it had identified counterfeit versions of its vaccine in Mexico and Poland.
Credit Suisse is raising nearly $2 billion after two trading scandals. The Swiss bank has been forced to rebuild its balance sheet following the collapse of Greensill Capital and the meltdown of Archegos. Meanwhile, it faces a new inquiry by Switzerland’s financial regulator over potential risk-management faults in its handling of Archegos.
Janet Yellen calls on corporate America to help the U.S. reach its climate goals. The Treasury secretary said the private sector would bear much of the burden of greening the American economy, and said the Biden administration was devising a financial reporting framework to make it easier to invest in assets like green bonds.
barred from the OTCQB over-the-counter market for failing to comply with listing rules. The investor David Einhorn had flagged the penny stock’s puzzling market cap as a sign of a “fractured” market.
Is the SPAC boom over?
Around 100 blank-check funds went public each month in the first quarter of the year. So far in April, you could count the number of those I.P.O.s on two hands. The sudden drop in debuts of special purpose acquisition companies, or SPACs, has market watchers asking whether this is a pause for breath — or a more permanent plunge in popularity.
a statement at the end of last month highlighting “the key considerations related to the unique risks and challenges of a private company entering the public markets through a merger with a SPAC.” Not long after, another note offered “guidance” on some of the trickier accounting issues related to blank-check funds. Neither statement suggested any rule changes, but with Gary Gensler, the S.E.C.’s new enforcement-minded chairman, taking over this week, SPAC sponsors have slowed their roll.
Today in Business
SPACs’ recent performance has also been lousy. Analysts at Goldman Sachs note that a stock price index of 200 SPACs (pre- and post-merger) has badly underperformed the market this year, down 17 percent versus a 10 percent gain in the S&P 500. SPACs have also lagged an index of unprofitable tech stocks, suggesting that investors have particular concerns about SPACs, since plenty of them have acquired other unprofitable tech companies.
But we haven’t heard the last of SPACs. The amount of money these shell companies have raised to date could drive $900 billion in M.&A. activity over the next two years, according to the Goldman analysts. And more than 25 SPACs filed I.P.O. registration documents this month, per SPAC Research, adding to a pipeline of more than 200 others that have disclosed plans to go public but haven’t yet sealed the deal, for whatever reason.
reassessing his approach to life and work has been shared more than 200,000 times.
players, coaches, fans and politicians — as an effort to import American-style competition and economics. Frank McCourt, the American owner of the storied French soccer team Olympique de Marseille, told DealBook that the league — which he publicly denounced — never made sense.
The Super League would have created a closed competition with guaranteed places for 15 clubs, and would have introduced revenue sharing and spending caps. That more closely resembles U.S. leagues like the N.F.L. than the more freewheeling system of European soccer.
“It felt like imposing an American flavor on a different culture,” said Mr. McCourt, who previously owned the L.A. Dodgers before buying control of Marseille (l’OM to its fans) in 2016. JPMorgan Chase’s role in financing the Super League bolstered this notion, though its architect was Florentino Pérez, the Spanish president of Real Madrid.
to drop out. “There is no football without fans,” Mr. McCourt said. “What is their perspective?” (Fan demands are something that he knows well: He met with several earlier this year after supporters stormed Marseille’s training grounds to protest the club’s performance.)
Mr. McCourt said he favors plans by UEFA, the European soccer overseer, to expand its Champions League tournament, a much-debated move that gained new urgency as the Super League became a threat. “There’s a process that UEFA is going through with all of the stakeholders,” he said, contrasting the approach with the more limited decision-making behind the Super League.
As Rory Smith of The Times put it: “It was all, in some way, unserious: There was a cobbled-together website, an uninspiring logo and an American banker, but no broadcaster, no suite of sponsors and, in the end, no commitment to see any of it through.”
THE SPEED READ
U.S. start-ups raised $69 billion in the first quarter, 40 percent more than the previous quarterly record; and private equity firms are more willing to fund mega-leveraged buyouts. (WSJ)
Shares in UiPath rose 23 percent in their trading debut, in one of the biggest public offerings by a software company on record. (Bloomberg)
Maybe the day traders were right: Hertz unveiled a bankruptcy reorganization plan that provides some value to pre-Chapter-11 stockholders. (MarketWatch)
Politics and policy
The White House is weighing options for overhauling opportunity zones, a Trump-era tax break meant to drive investment in poorer areas — but largely used for development in wealthier ones. (NYT)
The S.E.C. is reportedly weighing stricter disclosure rules for investment firms, which may require more frequent reports on a wider variety of holdings. (Bloomberg)
A jury ruled that Intel did not infringe patents held by an affiliate of the investment firm Fortress; at stake was $3 billion in requested damages. (Reuters)
The electric vehicle maker Arrival says it can replace huge assembly lines with much smaller factories. (NYT)
Apple reportedly plans to expand its ad business — just as it rolls out privacy rules for its devices that would hurt rivals like Facebook. (FT)
Best of the rest
Nike’s contract with the estate of Kobe Bryant has ended. What happens next is complicated. (NYT)
“Welcome to the YOLO Economy” (NYT)
The hottest investment in commercial real estate right now: the humble car wash. (Commercial Observer)
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The latest update on the labor market is scheduled to arrive Thursday morning when the government releases its weekly report on jobless claims.
The unexpectedly sharp drop announced last Thursday took Wall Street by surprise and fueled hopes that the economic recovery was gaining momentum. About 613,000, it was the lowest weekly total of initial claims for state unemployment benefits since the pandemic began, though still high by historical standards.
This time, analysts surveyed by Bloomberg expect the figure to climb. Even so, most forecasters maintain that the labor market is improving.
“We know from experience that weekly claims bounce around from one week to the next,” said Gregory Daco, chief U.S. economist at Oxford Economics, and reports from states like California tended to spike and drop. What matters is the longer-term trend, he said, and since January, there has been consistent progress.
Warmer weather, more extensive coronavirus vaccination efforts and a stream of government assistance that has enabled consumer spending have all contributed to recent gains.
Still, the labor market remains encumbered by anxiety about coronavirus infections and the demands of child care when regular school schedules have been disrupted.
According to the Census Bureau’s weekly Household Pulse Survey, more than four million people who were unemployed in March said they were not working because they were afraid of catching Covid-19.
“It’s important to keep in mind that the trend is going in the right direction,” said Heidi Shierholz, director of policy at the left-leaning Economic Policy Institute, “but we’re still at crisis levels of unemployment claims.”
Credit Suisse said on Thursday that it suffered a loss in the first quarter stemming from loans it made to the collapsed investment fund Archegos Capital Management, a debacle that has prompted Switzerland’s financial regulator to investigate whether the bank was doing a poor job monitoring the riskiness of its investments.
The loss of 252 million Swiss francs, about $275 million, from January through March, came after a loss of 4.4 billion francs from Archegos wiped out a big increase in revenue and forced the departure of some top executives. Credit Suisse also said on Thursday that it had sold bonds to investors to shore up its capital.
The bank, based in Zurich, has suffered a series of calamities this year that have severely damaged its reputation and finances. Swiss regulators are also investigating a spying scandal and Credit Suisse’s sale of $10 billion in funds packaged by Greensill Capital. The funds were based on financing provided to companies, many of which had low credit ratings or were not rated at all. Greensill collapsed in March, and its ties to former Prime Minister David Cameron of Britain have caused a political scandal.
The Swiss regulator, known as Finma, said it would “investigate in particular possible shortcomings in risk management” at Credit Suisse. Finma also said that it would “continue to exchange information with the competent authorities in the U.K. and the U.S.A.”
If not for the Archegos loss, Credit Suisse would have made a pretax profit of 3.6 billion francs, the bank said. Revenue for the quarter rose 30 percent to 7.6 billion francs as Credit Suisse raked in fees from lively trading on stock and bond markets.
The quarterly loss, described as “unacceptable” in a statement by the bank’s chief executive, Thomas Gottstein, compared to a profit of 1.3 billion francs in the first quarter of 2020.
Tile said Apple boxed out its products and then copied them. Spotify said Apple blocked it from telling customers that they could find cheaper prices outside its iPhone app. And Match Group testified that it now paid nearly $500 million a year to Apple and Google in app store fees, the dating company’s single largest expense.
That testimony came Wednesday at a Senate hearing on Apple’s and Google’s control over their app stores, held by the Judiciary subcommittee on antitrust. The hearing was the latest example of the growing scrutiny of Big Tech and the increasing agreement among Democrats, Republicans and smaller companies that the world’s biggest tech companies have become too powerful.
At the hearing, representatives from Apple and Google defended their companies’ practices, saying that they don’t copy competitors, that few apps pay their commissions and that they charge the commissions to fund the security of their app stores.
Both Democratic and Republican senators were skeptical of those explanations. “Google and Apple are here to defend the patently indefensible,” said Senator Richard Blumenthal, a Democrat from Connecticut. “If you presented this fact pattern in a law school antitrust exam, the students would laugh the professor out of the classroom, because it is such an obvious violation of our antitrust laws.”
Apple and Google have long had a stranglehold on the business of mobile apps. But that position, which has earned them hundreds of billions of dollars, has increasingly led to regulatory, legal and public-relations headaches.
Federal and state lawmakers are holding hearings and considering legislation to weaken the companies’ app-store controls. The Justice Department is investigating the issue. And in a trial next month, Apple is set to face off against Epic Games, the Fortnite maker, which is suing Apple for forcing it to use Apple’s payment system in its iPhone app.
Jared Sine, the chief legal officer at Match Group, said on Wednesday that Google had called his company the previous night when his planned testimony became public. He said Google wondered why his testimony appeared to be tougher than what Match had said on a recent earnings call.
Mr. Blumenthal called that intimidation, and Senator Amy Klobuchar, the Minnesota Democrat who is the subcommittee’s chairwoman, suggested that the senators would investigate.
Wilson White, a government affairs official at Google, said that Match was an important partner and that Google would never aim to intimidate the company.
“There are many, many ways they could hurt our business,” Mr. Sine said. “We’re all afraid, is the reality, Senator. We’re fortunate you’re listening to us today.”
“Well,” Ms. Klobuchar replied, “I hope the Justice Department is, too.”
Andrew here. Yesterday’s guilty verdict against George Floyd’s murderer, a former Minneapolis police officer, was a symbol of something profound: a demonstrable shift in the way this country, increasingly supported by business, has strived for civil rights.
As we ponder the meaning of this decision, it is worth recalling a moment in 1965, in the middle of that era’s civil rights movement.
A Wall Street bond firm, C.F. Securities, told Alabama that it would “no longer buy or sell bonds issued by the state or any of its political subdivisions.” Gov. George C. Wallace, who objected to desegregation, had said the state shouldn’t pay for the National Guard to protect Martin Luther King Jr. and protesters in the Selma-to-Montgomery march.
The investment firm’s executive vice president, Donald E. Barnes, wrote to the governor that his failure “to protect the citizens of Alabama in their exercise of constitutional rights” amounted to “discouragements to Alabama’s economic future.” He insisted that the move was based on economic risk, but the letter made clear it was about more than that.
paid time off on Juneteenth; the N.B.A. emblazoned the words “Black Lives Matter” on courts; Netflix steered its cash into local banks that serve Black communities; Wall Street banks announced programs worth billions to support Black communities; and just last week, in perhaps the greatest demonstration of the new responsibility business is feeling, 700 companies and executives signed a letter opposing laws that make it harder for people to vote.
“The murder of George Floyd last Memorial Day felt like a turning point for our country. The solidarity and stand against racism since then have been unlike anything I’ve experienced,” Brian Cornell, the C.E.O. of Target, wrote in a note to employees of the Minneapolis-based retailer yesterday. “Like outraged people everywhere, I had an overwhelming hope that today’s verdict would provide real accountability. Anything short of that would have shaken my faith that our country had truly turned a corner.”
You know what? Justice is good for business.
HERE’S WHAT’S HAPPENING
The European Super League has collapsed. Plans to create a closed competition of top soccer clubs fell apart yesterday when six English teams withdrew, bowing to outrage from fans and threats by lawmakers. Shortly after, an official at the Super League said the project had been suspended, ending an effort to upend soccer’s multibillion-dollar economics.
outweigh a small risk of blood clots, but wants a warning added. U.S. regulators will decide whether to end a pause on the vaccine in the coming days.
Goldman Sachs releases worker diversity data. The Wall Street bank disclosed for the first time how many of its senior U.S. executives are Black: 49 out of more than 1,500. Banks agreed last year to publish more information about their work forces; Morgan Stanley has an even smaller share of Black executives than Goldman.
Apple’s new products raise competition concerns. The tech giant unveiled new iPads and iMacs, and a revamped podcast app. But its new AirTags, which attach to items to help find them, was criticized by the C.E.O. of Tile, which makes a similar product. Apple also said it would roll out new iOS privacy features — criticized by Facebook and other app makers — next week.
Understanding the ‘antimonopolist’ Lina Khan
Lina Khan’s nomination to the Federal Trade Commission is one of the clearest signs of progressive influence in the Biden administration. A Columbia University scholar who worked on a major congressional report about Big Tech and antitrust last year, Ms. Khan is a star in the constellation of competition law experts known as “antimonopolists.” Her confirmation hearing with the Senate Commerce Committee is today.
power of internet giants, which could win her some conservative support. Having a “strong” perspective probably isn’t an obstacle to confirmation, Mr. Hoffman said.
“Antimonopoly is more than antitrust,” Ms. Khan wrote in 2018. It shifts away from a “consumer” take on mergers managed by antitrust agencies to a broader approach using “policy levers” across the government and keeps workers, voters, the environment and more in mind.
Big Tech will be a likely focus at the hearing. But this would be a “disservice” to Ms. Khan, according to Mr. Hoffman. “At the F.T.C., a lot of the agenda is reactive,” he said. Companies file merger paperwork and regulators respond, whatever the industry. Ms. Khan has a broad perspective on competition law, Mr. Hoffman said, and today would be “a fair time” to ask what “objective standards” she’d apply.
“You have to have some morals.”
— Ari Emanuel, the outspoken C.E.O. of the entertainment conglomerate Endeavor, speaking in a New Yorker profile about returning an investment from Saudi Arabia after the killing of Jamal Khashoggi. Separately, Endeavor disclosed yesterday that it hopes to be valued at more than $10 billion in an I.P.O.
These ‘Roaring Twenties’ have railroad battles, too
Canadian National Railway yesterday offered to buy Kansas City Southern for $33.7 billion, topping a $29 billion bid last month by its rival Canadian Pacific. They’re jockeying over the chance to create the first railroad connecting major ports from Canada to Mexico. The bidding war reflects bullishness about an industry poised for growth if a post-pandemic boom ushers in this generation’s “Roaring Twenties.”
antitrust concerns made the counterbid “illusory and inferior.” Kansas City Southern said it would evaluate the new bid in accordance with its agreement with its original suitor.
mixed reception from freight shippers, who suffered in the last round of consolidation. And we haven’t yet heard from Senator Amy Klobuchar, who heads the antitrust subcommittee and represents key industrial interests in Minnesota.
Giving Coinbase a run for its (digital) money
The public listing of Coinbase, the largest crypto exchange in the U.S., generated a wave of excitement that competitors aim to ride. Among them is Binance.US, the third-ranked domestic crypto exchange, which yesterday named Brian Brooks — formerly Coinbase’s chief counsel and most recently acting U.S. comptroller of the currency — as C.E.O., beginning in May. “There’s a lot of buzz about my former employer, which is well-deserved,” Mr. Brooks told DealBook about Coinbase. “But it’s in everybody’s best interest if there’s more competition.”
Mr. Brooks’ first task is building trust with regulators. He says “managing reputation” is his biggest concern. Binance has shifted its operations throughout Asia since it was founded in 2017, and some say it played fast and loose with rules. The C.F.T.C. was reportedly investigating the company for allowing U.S.-based customers to trade crypto derivatives, which is banned (the agency declined to comment). Mr. Brooks insists he did “a lot” of due diligence on his new employer and dismisses “loose talk” about the exchange flouting regulations.
Binance’s group C.E.O., CZ Zhao, says he embraces regulation. Hiring Mr. Brooks is one way the company is trying to make the point. Binance also hired Max Baucus, the former Montana senator and ambassador to China, last month, along with other former regulators.
Binance.US sees potential to lead in undeveloped areas of the American crypto landscape, like derivatives and lending. Mr. Brooks said the company can learn from competitors like Coinbase and Kraken — and challenge them. That is, if he can convince regulators to bless its efforts to bring crypto into the financial mainstream, a preoccupation of players across the industry.
JPMorgan wants to end banker burnout, for real this time
Yesterday, JPMorgan Chase’s co-heads of investment banking, Jim Casey and Viswas Raghavan, announced policies aimed at improving working conditions amid record deal volume and banker burnout. The company has attempted similar things before. DealBook spoke with Mr. Casey about the latest plan — and whether this one will stick.
JPMorgan has recently hired 65 analysts and 22 associates, and plans to add another 100 junior bankers and support staff, Mr. Casey said. It’s targeting bankers at rival firms, as well as lawyers and accountants interested in a career switch.
similar efforts to protect junior bankers’ hours in 2016, but “it wasn’t stringently enforced,” Mr. Casey said. Why not? “Laziness.” This time, junior bankers’ hours and feedback will figure in senior manager performance evaluation and compensation.
“It’s not a money problem,” Mr. Casey said, so there won’t be one-time checks or free Pelotons after a rush.Junior bankers will get their share of the record $3 billion in fees JPMorgan earned in the first quarter.
Some things won’t change. Because banking is a client-service job, managers sometimes have limited control over workloads and hours. “You might do 100 deals a year, but that client only does one deal every three years,” Mr. Casey said.
How the bank will measure success: “Ask me what our turnover ratio has gone to and I will tell you,” Mr. Casey said. The goal, he said, is “lower.”
THE SPEED READ
Politics and policy
Senator Bernie Sanders is co-sponsoring a bill that would impose a financial transaction tax on Wall Street to drastically expand tuition-free access to community colleges and trade schools. (CNBC)
Twelve megadonors accounted for nearly $1 of every $13 raised by federal candidates and political groups since 2009, a new study found. (NYT)
Best of the rest
The Sacklers, the family that founded the maker of OxyContin, are worth about $11 billion, according to documents released by a Congressional committee. (WSJ)
“Behind the Mysterious Demise of a $1.7 Billion Mutual Fund.” (WSJ)
Amazon is opening a hair salon in London. It isn’t called Prime Cuts. (WaPo)
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