An uncertain future for Britain after a staggering defeat
Prime Minister Theresa May of Britain suffered a crushing defeat yesterday, after Parliament rejected her plan to withdraw the country from the European Union.
The result thrusts the country further into political chaos 10 weeks before it is scheduled to leave the bloc, write Stephen Castle and Ellen Barry.
The response: Jeremy Corbyn, the leader of the opposition Labour Party, called the defeat “catastrophic.” The European Union said it was stunned by the defeat but said there was no option to renegotiate. “Time is almost up,” said the European Commission president, Jean-Claude Juncker.
The markets: The uncertainty of a deal will weigh on investors. Analysts say some sectors will be especially sensitive, including homebuilders, commercial real estate, banking, retail and leisure.
What’s next? Mr. Corbyn called for a no-confidence vote, which will be debated today. The measure is expected to fail, but Mrs. May has little time to regain momentum, and must present new plan by Monday.
Lawmakers may opt for a softer exit, the FT’s Robert Shrimsely writes:
The fear will be that Britain is now careering towards a no-deal Brexit, but in fact Tuesday night’s vote may yet prove the high-water mark for the Brexit hardliners. Having thrashed Mrs May’s plan they must now watch her reach out towards Remainers. A softer Brexit or even no Brexit at all, now looks more likely than the no-deal they crave.
Today’s DealBook Briefing was written by Andrew Ross Sorkin and Stephen Grocer in New York, and Tiffany Hsu and Gregory Schmidt in Paris.
“Talking ourselves into a recession”
The partial government shutdown has been marked by theatrics. Democrats spurned an invitation by President Trump to a lunch of steak and potatoes at the White House. Legislators marched across the Capitol to confront a top Republican — who was not in his office. Kraft Heinz announced that it would distribute free food to federal workers.
But as the stalemate enters its 26th day, economists are warning that the damage is real and growing, writes Jim Tankersley. The Council of Economic Advisers said that each week of the shutdown reduces quarterly economic growth by 0.13 percentage points as furloughed employees and contractors sit idle, steadily scaling back their spending.
Business and consumer confidence — already burdened by signs of slowing global growth, trade tensions with China and the waning effects of the 2017 tax overhaul — could suffer. With no end to the standoff in sight, the economy could slip from what appears to be the strongest year of growth since the financial crisis into a stall, or worse. According to Michael L. Corbat, the chief executive of Citigroup:
“Right now, we see the biggest risk in the global economy as one of talking ourselves into a recession.”
Other shutdown news:
• The Trump administration said it would call tens of thousands of employees back to work, without pay, to prepare for the tax-filing season, oversee air travel safety, and sell oil and gas drilling leases.
• Unpaid federal workers said that they deserved to be paid immediately for working during the shutdown or be allowed to take jobs elsewhere. A federal judge disagreed.
• The Liberty Bond program appealed to Americans’ sense of patriotism to raise funds during World War I. Two Republican lawmakers hope a similar tactic would pay for a border wall.
Sacklers tied to plan to hide OxyContin risk
Members of the Sackler family, which owns the company that makes OxyContin, were accused in court documents of being directly involved in efforts to mislead doctors and patients about the dangers of the painkiller.
The evidence, revealed a Massachusetts lawsuit filing, appears to tie the Sacklers to decisions made by the company, Purdue Pharma, about the aggressive marketing of OxyContin, Barry Meier writes. The promotion of the drug helped set off the opioid epidemic.
The Sacklers are one of the richest families in the U.S., with much of their wealth derived from OxyContin sales. In a statement, Purdue Pharma, rejected suggestions of wrongdoing by the company or members of the Sackler family.
Apollo nears $10 billion deal for Arconic
Apollo Global Management is close to a deal to buy Arconic, an aerospace-parts maker, for more than $10 billion, the WSJ reports.
The news: Apollo would pay $21 to $22 per share for Arconic, which has a market value of about $9.3 billion. The price would represent a premium of 5 percent to 10 percent above the closing price of Arconic’s shares on Tuesday. The deal is likely to be announced this week.
The back story: Several buyout firms have shown interest since last summer in acquiring Arconic, which was formed from the break up of Alcoa in 2016.
The context: A deal would be one of the largest leveraged buyouts in recent years and another sign of a thaw in debt markets. Last week, Targa Resources became the first issuer to sell junk bonds since November, ending a 40-day stretch without a high-yield bond sale.
A proposed media deal lands another in a tangle
A takeover bid for Gannett could complicate its pursuit of Gizmodo Media, which owns Deadspin and Jezebel as well as its namesake technology website.
The news: Gannett is a serious bidder for Gizmodo Media in an auction that has also drawn attention from the owner of Gawker.com, the WSJ reported, citing anonymous sources. Univision put Gizmodo Media up for sale in July.
Why it’s complicated: In an open letter to the Gannett board, MNG Enterprises, a major Gannett shareholder, offered on Monday to pay $12 cash per Gannett share. MNG which is owned by the hedge fund Alden Global Capital, accused Gannett of damaging the company’s financial position by making several “aspirational digital deals” that haven’t paid off. It demanded that Gannett postpone all digital acquisitions and hire bankers to review strategic alternatives.
Bank earnings show weakness in the economy
Fourth-quarter results released on Tuesday by JPMorgan Chase and Wells Fargo pointed to concerns about the credit and housing markets.
• Revenue at both banks missed Wall Street’s estimates, and both announced underwhelming loan growth. At JPMorgan, commercial and industrial loans increased 1 percent, down from 4 percent in the prior quarter. Jamie Dimon, the chief executive, said the bank will pull back lending even more if necessary, saying, “We are not going to be stupid.” Wells Fargo said its mortgage originations fell 28 percent year over year.
• JPMorgan said its revenue from fixed income trading declined 16 percent from a year earlier, mirroring a similar slump reported on Monday by Citigroup. But net interest income, the gap between earnings from loans and payouts to depositors, rose 10 percent for JPMorgan and 3 percent for Wells Fargo.
• Bank of America and Goldman Sachs are to release their own reports today.
• In the airline industry, United Continental beat expectations as fourth-quarter revenue soared 11 percent. The airline said its earnings for this year could be as high as $12 per diluted share. The results lifted the shares of United and rival airlines alike.
Santander balks at price tag for new C.E.O.
Andrea Orcel, a top investment banker who seemed set to become the chief executive of Banco Santander, is now without a job.
Santander decided not to pay him more than $50 million in deferred compensation Mr. Orcel was owed by his previous employer, UBS.
Ana Patricia Botín, the bank’s executive chairwoman and part of the family that controls the lender, said that Santander had underestimated how expensive it would be to hire Mr. Orcel.
Santander, she said, had to “balance the respect we have for all of our stakeholders — the millions of people, customers and shareholders we serve — with the very significant cost of hiring one individual, even one as talented as Andrea.”
Adam Moss said he would step down in March after 15 years as editor of New York magazine. (NYT)
Indra K. Nooyi, the former chief executive of PepsiCo, is in contention to become president of the World Bank. (NYT)
Another candidate for the World Bank presidency is Ray Washburne, the property developer who runs the U.S. government’s development finance institution, the Overseas Private Investment Corp. (FT)
The Snap exodus continues, with its chief financial officer, Tim Stone, leaving less than a year after assuming the position. (Reuters)
Rakesh Kapoor, one of the highest-paid chief executives in Britain, plans to step down from his role at the consumer goods group Reckitt Benckiser by the end of the year. (FT)
The hedge fund group DE Shaw appointed Ruvim Breydo as co-chief investment officer of its fast-growing institutional asset management group. (FT)
The speed read
• Payless ShoeSource hired an adviser to help it look into a sale, a restructuring, store closures and other strategic alternatives less than 18 months after the discount retailer emerged from bankruptcy. (Reuters)
• The European Court of Justice overruled a 2013 European Commission decision that blocked UPS’s planned acquisition of its Dutch peer TNT Express. (Reuters)
• Advent International, Bain Capital and Clessidra hired Evercore to advise on a potential initial public offering this year for Nexi Group, the Italian payment services firm they own. (Bloomberg)
• Boeing’s investment branch led a $14 million fund-raising round in Isotropic Systems, whose technology could revolutionize satellite antennas. (FT)
• Netflix is raising prices 13 to 18 percent, depending on the subscription plan, the largest increase since the streaming service started 12 years ago. (NYT)
• Apple replaced 11 million iPhone batteries during its yearlong battery replacement program It had expected to replace no more than two million. (CNBC)
• Data from a pilot program that limited e-scooters in Portland, Ore., show that the scooters often replaced short car trips and led to fewer injuries than expected. (NYT)
• Verizon Communications said it would offer free Apple Music subscriptions to its U.S. customers with top-tier data plans. (Reuters)
• PagerDuty, which makes tools for software developers, filed confidentially for an initial public offering. (Bloomberg)
Politics and policy
• Several recently elected progressive Democrats, including Alexandria Ocasio-Cortez of New York, Rashida Tlaib of Michigan and Katie Porter of California, are expected to join the House Financial Services Committee, where they would oversee Wall Street. (Bloomberg)
• Senator Kirsten Gillibrand, Democrat of New York, announced on Stephen Colbert’s show that she was running for president in 2020. (NYT)
Best of the rest
• Most board members at large public firms in the U.S. are white men, but minorities and women now occupy a growing share of the seats, according to a new study. (NYT)
• Ford and Volkswagen are planning a broad alliance to help both companies cut costs and make inroads into autonomous and electric vehicles. But investors are still waiting for details. (NYT)
• Global debt is near a record, hovering at $244 trillion. That’s more than three times the size of the global economy, according to one analysis. (Bloomberg)
• Two men believed to be Ukrainian nationals are accused of trying to hack into the S.E.C.’s database and steal potentially market-moving information, federal prosecutors revealed. (NYT)
• Colgate Total toothpaste is relaunching without triclosan, an ingredient that has raised concerns about its potential links to cancer. (Bloomberg)
• The yield curve in the government bond market is signaling traders’ concerns about the U.S. economy. (NYT)
• China is experimenting with ways to bolster shopping, including giving workers Friday afternoons off and asking stores to stay open later. (Bloomberg)
• To win France’s approval to buy Alstom’s energy business, General Electric made a commitment to create jobs or pay a hefty fine. G.E. did not deliver, and France wants up to $60 million. (Bloomberg)
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