Good morning from Davos.
There has hardly been a conversation in Davos this week that hasn’t turned at some point to concern about the new U.S. president, his unconventional approach to foreign policy and his attacks on much of what this global gathering holds dear – including a united Europe, a strong U.S.- European relationship, and global free trade.
The exception has been U.S. business leaders, who have surprised others with their optimism. Bank of America CEO Brian Moynihan, who I met with this morning for coffee, is an example. Moynihan is co-chair of this year’s meeting – a position he accepted last summer, he says, because the forum’s theme of “responsive and responsible leadership” fit with his goals for the U.S. bank.
He’s not worried about Trump’s protectionist threats. If the new president “wants America to grow at a faster rate, you have to use the world’s demand to do it.” He and other U.S. CEOs here are more focused on prospects for regulatory and tax relief. And they say they’ve found the president-elect to be more reasonable in private conversations than his Twitter feed might suggest.
“The optimism of the business community is palpable,” he said. “Consumer confidence is up, small business confidence is up. This is a time for optimism.”
Let’s hope the optimism is justified.
More news below.
• Mnuchin Weathers Hearing Storm
Donald Trump’s pick for Treasury Secretary, Steve Mnuchin, weathered a five-hour battering from Senators who chastised him for failing to disclose nearly $100 million in real-estate assets as well as some investments held in the offshore tax haven of the Cayman Islands. Mnuchin said it was an administrative error. Sen. Elizabeth Warren drew a harsh contrast with his request for understanding and the record of his bank, OneWest, in foreclosing on homeowners for similar failings. In the hearing, Mnuchin also argued for extra staff at the IRS and hinted that he expected Trump to carry on weighing in with comments on the dollar’s exchange rate. Fortune
• China Pumps Hard to Keep the Bubble Inflated
Chinese GDP data, the favorite recurring fake news story of economists worldwide, fell to 6.7% in 2016, its slowest pace in 26 years, but still – to no-one’s great surprise – in line with Beijing’s target. Of more importance is the fact that the country’s debt-to-GDP ratio rose by 23 percentage points – to 277% from 254% according to Reuters – in order to sustain that growth, driven in part by what may be a last hurrah in the housing sector. The odds of a financial crisis have thus risen further, albeit one that the country would still be confident of absorbing with its $3 trillion in foreign reserves. Fortune
• IBM Still Can’t Turn the Corner
IBM reported a 19th straight quarter of falling revenues as declines its legacy hardware business once again more than offset growth in cloud-based services and other hopes for the future such as AI project Watson. “Strategic imperatives”, as IBM terms its newer businesses, posted an 11% rise in revenue to $32.8 billion last year, and now account for 41% of overall revenue. But overall sales still fell 2% to $80 billion. CFO Schroeter didn’t help the mood music by telling an analyst call he didn’t know what inning the IBM turnaround was in. “I don’t think the transformation of IBM ever ends, quite frankly,” Schroeter said. IBM shares fell 2.4% in after-hours trading. They’re down 23% from their 2014 peak but have risen by over 30% in the last year as faith in the turnaround has strengthened. Fortune
• Investigation Exonerates Tesla Autopilot, and Then Some
The National Highway Traffic Safety Administration closed its investigation into a fatality involving Tesla Motors’ controversially-named “Autopilot” system, having found no defects that would require a recall and much to validate Elon Musk’s claims that the software actually makes the cars safer. Investigators found that Tesla vehicles crash rate dropped by almost 40% after Autosteer—one component of the Autopilot system—became available. It’s a huge shot in the arm for Musk, who was forced to defend the driver assistance software repeatedly after the incident. Musk recently hired Apple veteran Chris Lattner to take over control of the Autopilot project. Fortune
Around the Water Cooler
• Uber Settles Claims of Misleading Drivers
Uber agreed to pay $20 million to settle claims that it misled drivers with ads promising them inflated estimates of what they could earn. Uber had advertized on Craigslist that an UberX driver could earn over $90,000 in New York and $74,000 in San Francisco. The Federal Trade Commission found that the median income for those working a 40-hour week was less than a third of that. The FTC also said that Uber was taking more in lease payments for cars than it claimed in its ads. The settlement didn’t include any admission of guilt and Uber disputed the FTC’s methodology. BBC
• Paramount Goes Chinese
Viacom’s Paramount Pictures is to get a $1 billion cash investment from two Chinese movie companies, Shanghai Film Group and Huahua Media, a deal that gives the studio needed cash and stability as it attempts to grow. The agreement marks the first major move by new Paramount CEO Brad Grey since former Viacom boss Philippe Dauman tried to sell a 49% stake in the movie studio to Wang Jianlin’s Wanda Group conglomerate. The two Chinese companies will finance a combined 25% of all Paramount’s movies for the next three years, with a one-year option to extend, according to Reuters’ sources. Grey told Reuters Paramount also could use the partnership as an entry into China, noting that the studio would “love” to produce movies there. Fortune
• Anthem-Cigna Deal to be Blocked
The New York Post reported that the merger between health insurance giants Anthem and Cigna is set to be blocked on antitrust grounds. The government sued to stop the merger late last year, and the trial ended on Jan. 4. Anthem is expected to appeal against the ruling, and yesterday extended its deadline for the acquisition by another three months. Fortune
• Avaya Files for Chapter 11 Bankruptcy
Telecoms company Avaya filed for Chapter 11 bankruptcy protection while it tries to cut a $6.3 billion debt load, the legacy of a misjudged buyout by private equity groups Silver Lake and TPG Capital in 2007. It’s not clear whether Avaya’s pensioners will be asked to write down their $1.7 billion in claims. The company said it doesn’t intend to sell its call center business, which it had unsuccessfully tried to sell last year for $4 billion. Citigroup has agreed to provide $725 million in financing while the company restructures. Avaya lost $750 million in its last fiscal year. Reuters
Summaries by Geoffrey Smith Geoffrey.firstname.lastname@example.org;