By Alan Murray
October 24, 2016

I wish I had been a fly on the wall when AT&T Chief Randall Stephenson and Time Warner boss Jeff Bewkes were deciding that a merger of their companies was a good idea. What were they thinking?

It’s easy to see what Stephenson likes about this deal. His wireless phone business is stagnating. His customers are consuming ever more video content on their mobile devices. Meanwhile, rival Comcast, which bought NBC Universal in 2011, appears to be thriving. He must have thought that, unlike his company’s attempted purchase of T-Mobile in 2011, this one would pass regulatory muster, since AT&T and Time Warner compete in different markets.

But he somehow forgot the maelstrom of 2016 – a strong populist wind that is blowing across this country, and won’t stop for reason. At the same speech in Gettysburg this weekend where he called for a roll back of federal regulations, Donald Trump said the AT&T deal would “destroy democracy.” Bernie Sanders instantly called on government to “kill the deal.” Hillary Clinton was more cautious, but has said her administration would tighten antitrust enforcement. And if you are wondering what theory they might use to block the merger of two companies that don’t compete with each other, try this.

Meanwhile, Jeff Bewkes has to be patting himself on the back for turning down 21st Century Fox’s offer of $85 a share to get this hefty bid of $107.50. Still, I wonder: How could the man who sold off Time Warner Cable in 2008 because he felt content and distribution didn’t belong together, now decide they do? Or are the synergies with a phone company somehow greater than those with a cable company? (Fortune‘s Stephen Gandel is skeptical, given Time Warner’s previous record with mergers. Click here to read his take.)

But Bewkes’ shareholders are happy. So too are the investment bankers, who get their cut coming and going. And with interest rates near zero, what’s the harm in trying?

More news below.

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

Metlife vs U.S., Round Two

The U.S. government today is challenging a ruling that allowed life insurer MetLife to escape the designation of “Systemically Important”, and thus avoid a big increase in capital requirements and its broader regulatory burden. The Financial Stability Oversight Council is appealing a district court ruling from March that said it used an “arbitrary and capricious” process in judging the threat posed by MetLife to the financial system. The appeal is basically a test of whether the administration and Congress cut too many corners in their rush to prevent another AIG-like meltdown after 2008. The initial ruling suggests they did.
Fortune

Stocks Lifted By Japan, Eurozone PMIs

Stock markets are opening the week on a strong note after better-than-expected purchasing manager surveys from Japan and the Eurozone. Strong results from Dutch giant Philips and optimism over the mining sector are also helping. Research firm Markit’s composite PMI for the Eurozone hit a 10-month high on its preliminary ‘flash’ reading, due mainly to a big rebound in Germany. That may have flattered the rest of the region a bit. In Japan, the manufacturing PMI hit a nine-month high. Taken together with last week’s signs that the ‘profit recession’ in the U.S. may have ended, the data suggest that fundamentals for business are improving after a soft spell in the middle of the year.
Bloomberg

Rockwell Collins to Buy B/E Aerospace

Rockwell Collins said it will buy B/E Aerospace for $6.4 billion in an eye-catching act of consolidation among suppliers to the aerospace industry. Rockwell concentrates on electronics for cockpits, while B/E makes everything from oxygen masks to seats. The deal comes as the long boom for aircraft makers appears to be slowing down. Rockwell reckons it can squeeze $160 million in annual savings out of a combination. The cash and share offer is around 22% above B/E’s market value as of Friday.
Fortune

Court Opens Another Can of Worms for Deutsche

A California court ruling at the end of last week could expose Deutsche Bank to billions more in possible litigation risks related to its activities with mortgage-backed securities, the Financial Times reports. A court in Orange County ruled to allow a suit led by Blackrock, PIMCO and other investors accusing Deutsche of negligence in its administration of trusts that held such securities in the years after the crisis. The plaintiffs argue that Deutsche failed to return poor-quality securities to their originators in order to avoid exposing its own misconduct. Deutsche had originated around $155 billion in securitizations between 2005 and 2008, and had also served as trustee for over 20% of RMBS deals between 2003 and 2009, according to the suit.
FT, metered access



Around the Water Cooler

Microsoft Does a Unilever

Flush with confidence after its shares hit their first all-time high in 16 years, Microsoft decided it wasn’t going to pay for Brexit. The company is raising local prices for its cloud-based enterprise software solutions by 22% in the U.K., to offset foreign exchange losses caused by Sterling’s decline since the June 23 referendum. Prices for on-premises software will go up 13%. Consumer products won’t be affected. Unilever had tried the same trick earlier this month, only partially backing down after a public spat with supermarket chain Tesco. Look out for future doctoral theses on price elasticity comparing cloud-based computing with yeast-based spreads and deodorant. 
Fortune

Banks Bring Blockchain to Trade Finance

The first cross-border transaction between banks using multiple blockchain applications took place Monday, financing the shipment of 88 bales of U.S. cotton from Texas to Qingao in China. The two banks involved were Commonwealth Bank of Australia and Wells Fargo (which will be glad to get something nice into its press digests). It’s a milestone for a consortium of over 70 banks, called R3, looking to strip costs out of the still labor-intensive function of transaction processing. It suggests that banks have managed to crack one of the biggest challenges of the new technology: managing to keep both clients and law enforcement agencies happy.  The latter are acutely sensitive to blockchain’s role in illicit cash flows.
Reuters

A Tale of Two Settlements

Life after the bust takes many forms for national oil and gas giants. The Financial Times reports today that Russia’s Gazprom may escape without a fine from the EU for its abuse of a dominant position in the European gas market, a move that will raise eyebrows at places like Alphabet and Intel. It will, however, agree to end all the sales practices that the EU doesn’t like and submit to EU jurisdiction in the single market in future, which would be an important shift. Elsewhere, scandal-plagued Petrobras also set a precedent by settling a claim for damages arising from the ‘Car Wash’ corruption scandal, filed by PIMCO, Janus Capital and others, for $353 million. That decision  may affect over 20 other outstanding legal actions against Brazil’s national champion. 
WSJ, subscription required

Spain Gets a Government at Last

Ten months and two elections later, Spain is set to see its new government confirmed in power. The center-left PSOE party withdrew its objections to caretaker Prime Minister Mariano Rajoy’s government, calculating that to force a third election in a year would be the worst of the choices facing it. Spain has been a symbol of the growing political crisis in Europe this year, its traditional two-party system fragmented by populists, regionalists and others protesting at the corruption of the two entrenched major parties. One of those, Rajoy’s Partido Popular, now has to run a government without a solid parliamentary majority, while the PSOE (like many European center-left parties) faces a fight for relevance. Thankfully, the reforms imposed by its 2011 bailout have led to real structural reforms. But the Eurozone’s peripheral weak spots still have problems: Portugal last week only just escaped being consigned to junk status and, most likely, a new bailout.
BBC

Summaries by Geoffrey Smith, geoffrey.smith@fortune.com,

@geoffreytsmith

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