CEO Daily: Wednesday, 3rd May

Good morning.

President Trump is pushing to get a health care bill through the House this week, but ended the day Tuesday without sufficient votes. Even if he succeeds in getting the bill passed, it will be rewritten in the Senate. And even if it becomes law, it will be re-litigated in next year's congressional elections, with even moderate Republicans fearing Democrats will use it successfully to bludgeon them. In short, we are still nowhere near a stable solution to our health care problem.

But while Washington chases its tail, the private sector races ahead. I'm at the Fortune Brainstorm Health conference in San Diego, and it is bracing to hear of the rapid pace of innovation driven by the collision of traditional health care with digital technologies, big data, and cognitive computing. The rapid advance of diagnostics, the onslaught of genetic technologies, the rise of telemedicine, etc., are rapidly remaking clinical health care.

What's most striking about this year's dialogue, however, is how much of it is not about clinical care. As Aetna CEO Mark Bertolini, who I am interviewing here tomorrow, told me recently, clinical care is only responsible for about 10% of health care outcomes. Much more important are behavioral and environmental factors.

That's why Campbell's CEO Denise Morrison and Tyson's Food CEO Tom Hayes were on the stage today, talking about the role of food in health care. Or why there is a session on sleep tomorrow morning. Or why Arianna Huffington moderated a panel with Levi Strauss CEO Chip Bergh, IBM Watson chief Deborah DiSanzo, and JPMorgan Wealth Management CEO Barry Sommers talking about vacations, martial arts, and meditation as keys to good health. It all made me happy to be spending this coming weekend at Health magazine's Total Wellness Weekend at Canyon Ranch.

Former Vice President Joe Biden ended the day, talking about the Biden Cancer Initiative. Asked by Dr. David Agus why he was doing it, Biden answered: "A purpose-driven life solves a lot of problems. It just seems like...what Beau would want me to do. And it matters." He also said the fight against cancer "is the only non-partisan initiative left out there."

You can read more coverage of Brainstorm Health here. The news is below.

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

When $50 Billion of Capital Returns Isn’t Enough

Shares in Apple fell 1.5% after the bell, more than reversing earlier gains, as it reported a drop in iPhone sales volumes in the first three months of 2017. The market chose to ignore the fastest rise in average selling prices for the iPhone in over a year, as well as a 450% rise in transactions using Apple Pay. CEO Tim Cook shed a little more light on the Apple Watch, hinting that the wearables division in total (including headphones and air pods) had generated over $5 billion in revenue over the last year. The company also raised its dividend by 10% and increased its buyback program as its cash pile topped $256 billion. Fortune

All the President’s Son-in-Law’s Partners

The Wall Street Journal unearthed a number of investments that Jared Kushner, President Trump’s son-in-law and senior adviser, failed to declare as part of his government financial disclosure form. The investments include Cadre, a real-estate tech startup also backed by Goldman Sachs, George Soros, and high-profile Trump supporter Peter Thiel. According to the WSJ, Cadre markets properties to prospective investors, who can put their money into specific buildings or into an investment fund run by Cadre, which collects fees on each deal. Other items not disclosed include loans totaling over $1 billion from more than 20 lenders and personal loan guarantees of over $300 million. WSJ, subscription required

The U.S. Auto Market Is in Trouble

The slowdown in the U.S. auto market is getting much worse, and more quickly than expected. GM reported sales fell 5.8% in April, while Ford’s fell by 7.1% and Fiat Chrysler’s and Honda’s by 7%. Discounts at dealers are now averaging nearly $4,000 per vehicle, according to J.D. Power, and GM’s unsold inventory alone stands at nearly 1 million vehicles across the U.S.. Various reports have suggested that rising interest rates for lease plans, coupled with a glut of used vehicles, are to blame for the slowdown. Across the Atlantic, VW said its operating profit surged in the first quarter as long-overdue cost cuts boosted margins at its core brand. WSJ, subscription required

CVS Pushes Back Turnaround Target

CVS showed no sign of being able to stem the decline in its business in the last quarter, as comparable sales fell 4.9% on the year. CEO Larry Merlo acknowledged that the turnaround would likely not come during 2017, which he called a “rebuilding year.” Competition from Walgreens and Target, notably in the beauty area, has stopped it from making up in beauty products what it lost three years ago when it dumped tobacco products. Also, the rising popularity of drive-through prescription pick-ups is making it harder to get people into its stores. The shares fell 3.6%. Fortune

Around the Water Cooler

Brexit Enters the Screaming Phase

The divorce talks between the EU and U.K. are going as well as can be expected—that is, somewhere between passive-aggressive defiance and high-volume screaming. EU Commission head Jean-Claude Juncker and Theresa May had a tense first talk about separation terms last week, in which both presented their opening gambits. These are naturally as far apart as any set of opening gambits. There is a real discussion to be held over apportioning the U.K.’s share of the EU’s assets and liabilities. For now, though, there is nothing but election-related scare-mongering in the U.K. and transparent attempts by the EU to dress up money-grubbing as a matter of high political principle. It ought to cool down at the latest after the U.K.’s election on June 8, but attitudes on both sides will need to change. FT, metered access

HNA Closes Its Eyes, Opens Its Mouth and Swallows

The ultra-acquisitive Chinese conglomerate HNA raised its stake in Deutsche Bank to just under 10%, making it the biggest shareholder in Germany’s largest bank, ahead of Qatar’s sovereign wealth fund. As ever, there is no telling what HNA actually wants to do with its investment, but the fact that Deutsche still only trades at less than two-thirds of its tangible book value at a time when asset quality is improving across Europe makes it a $4 billion bet with considerable upside potential—albeit on the assumption that Deutsche’s cupboard is now a skeleton-free zone. Reuters

•  Finita la Commedià 

Italy’s government agreed to have flag carrier Alitalia put into administration, after unions and employees voted against a last-ditch plan to slim it down and recapitalize it. UAE-based Etihad Airways, which owns 49% of the company, had been prepared to throw another 2 billion good euros after the 1.7 billion bad ones it spent in 2014. With an inflexible cost base and a pig-headed refusal to accept changing business models, Alitalia (and, some would argue, Italy in general) is a litmus test for how long Europe is prepared to subsidize a model that has failed time and again over recent decades. Anything short of liquidation will be an insult to all competing airlines in the region. BBC

Hedge Fund Pressure Ends Dickerson’s Reign at Etsy

Shares in Etsy, the online retailer of handmade goods, fell nearly 12% after the bell after it said that CEO Chad Dickerson would step down. He’ll be succeeded by board member Josh Silverman, while board member Fred Wilson will take over the chairman’s position. The company appeared to be responding to pressure from hedge fund Black and White Capital, which urged it yesterday to split the chairman/CEO position and explore a sale. Etsy’s share price has fallen over 30% since its IPO in 2015. Black and White Capital, which put the blame for poor performance on flaws in the company’s search algorithm, estimates it could be worth double its current level if sold immediately. Fortune

Summaries by Geoffrey Smith; geoffrey.smith@fortune.com @geoffreytsmith

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