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CEO Daily: Friday, 24th March

Good morning,

Nothing livens up a good evening’s poker like someone going all in on the first hand. It gives you a proper feel for the mettle of your opponents, even if that comes at the cost of an unwelcome buy-in.

President Donald Trump is threatening rebel GOP Congressmen that he’ll leave the Affordable Care Act in place and move on to the issue of tax reform if they don’t pass his proposed replacement—the American Health Care Act—today. Speaker Paul Ryan was forced to postpone a scheduled vote last night, apparently due to resistance from the GOP’s Freedom Caucus.

On one level at least, Trump’s action should be music to the ears of business, which needs tax reform to move front and center as fast as possible.

If the gambit succeeds, the President will have stamped his authority on a party that has been slow to accept his leadership, and will have put down an important marker for his presidency. And he will have taken a big step towards delivering an election promise of bringing quick, effective, business-like execution to Washington, a welcome contrast to the shenanigans over travel bans. That’s irrespective of the fact that many long-term problems related to demographics and pricing will continue to dog the provision of health care in the U.S. whatever the outcome.

Away from the Hill, there was a sharp reminder yesterday of another big health problem that Trump was elected to fix. Updated research by Nobel prize-winner Angus Deaton and his fellow Princeton professor (and wife) Anne Case showed a sharp rise in “deaths of despair”—alcohol and drug poisoning, suicide, and alcoholic liver disease and cirrhosis—among middle-aged, white Americans in nearly every part of the company since 2000 (read Annalyn Kurtz’s take on it here).

Finally, please accept my apologies for the confusion around yesterday’s newsletter delivery. In my haste to correct myself, I added to the problem by calling Theo Epstein the Cubs’ owner, rather than their President. Journalism has many rules. The one about not letting Englishmen within 100 yards of a baseball story is there for a reason.

I wish everyone a pleasant weekend. Alan Murray will be back on Monday.

Geoffrey Smith

Top News

Amazon Defeats the IRS

Amazon defeated the Internal Revenue Service in a $1.5 billion lawsuit over the way it shifted profits to the low-tax jurisdiction of Luxembourg. Amazon had shifted software, trademarks, and customer lists to ensure that “the vast bulk” of the income from its European business was taxed at a very low rate, according to Tax Court Judge Albert Lauber. However, he said the IRS had been arbitrary and had abused its discretion. Amazon still faces an EU probe as to whether the company’s deal with Luxembourg represents illegal state aid. In separate news Thursday, Jeff Bezos’ company said it would buy Dubai-based e-commerce company, in an effort to bolster its presence in the Middle East. Fortune

Ford’s Profit Warning

Ford issued a profit warning, reviving fears that the long expansion enjoyed by the sector is finally going into reverse. CFO Bob Shanks said per share earnings would be around 30% below analysts’ expectations in the first quarter, due to pricing pressures, volume declines, and exchange rates. The company is being hurt as vehicles bought on leasing plans come back onto the used car market (used car prices are down 5% on the year). Rising interest rates will also raise the cost of lease deals that have been a powerful marketing tool in recent years. Another worrying factor is that Ford expects sales to drop in China this year. Fortune

Disney Takes Another Year to Find Its Prince

Walt Disney Co., as expected, extended the contract of CEO Robert Iger by a year to July 2019. Iger has also agreed to stay on a consultant for a further three years, which should ease concerns about having to rush the selection process to get the new CEO in early. The succession question has been worrying Disney since the departure last year of COO and heir apparent Tom Staggs. Disney’s shares edged to a 15-month high on the news. Fortune

The Price of Being Right Too Early

PriceWaterhouseCoopers settled a $3 billion negligence lawsuit with the administrators of MF Global bankruptcy, ending the biggest outstanding piece of litigation related to the collapse of Jon Corzine’s investment firm in 2011. The settlement was “to the mutual satisfaction of the parties,” but terms weren’t disclosed. Corzine had bet $6.3 billion on Eurozone sovereign debt that was under severe stress, but was ultimately repaid in full. As such, he arguably paid for being “Right Too Early.” Sadly for him, in the context of Generally Accepted Accounting Principles and of financial markets more broadly, that equates to being “wrong.” Reuters

Around the Water Cooler

Drilling Boom Not All It’s Fracked up to Be

Those bailing out of oil in fright at the sight of a fresh surge in U.S. drilling may have been “right too early” too. Shale producers have been leaving a record number of drilled wells unfinished, delaying the day when the wells actually start to produce. As such, there is an increasing amount of capacity, chiefly in Texas, that can be brought online reasonably quickly to respond to higher prices. The development illustrates how U.S. shale may, over the long term, challenge Saudi Arabia’s traditional role as the world’s “swing supplier,” with all that that means for the power to set world prices. Fortune

• ‘Intel Insiders’ at Mobileye

The Securities and Exchanges Commission charged two Israeli residents with insider trading ahead of Intel’s acquisition of Mobileye. The defendants were linked to insiders at the hot Israeli startup, which makes sensors and cameras that enable autonomous driving. Neither company has been charged, according to a complaint filed in a Manhattan District Court Thursday. Elsewhere in the chip business, shares in Micron Technology, which supplies largely to the PC and Cloud server market, rose 7% in after-market trading after it reported a 58% annual leap in sales in the first quarter. It also returned to profit and posted a second straight quarterly rise in sales after nearly two years of declines. Fortune

Credit Suisse Bucks the Trend in Europe

Last year was a miserable one for European investment bankers, with bonuses being slashed almost across the board. However, one bank has bucked the trend: Credit Suisse raised its bonus pot by 6%. CEO Tidjane Thiam got a tidy 11.9 million Swiss francs ($12 million) for his first full year as CEO, a year in which the bank cut over 7,000 jobs. Another 5,500 are set to go this year as Thiam refocuses the business on wealth management. Thiam, who got a raise of around 22% on a pro rata basis, is still a bit behind rival Sergio Ermotti at UBS, who took home 13.7 million francs. Fortune

Holmes to Offer Theranos Shares in Peace Deal

Theranos’ board of directors has approved a plan under which it would offer shares to investors who promise not to sue it or CEO Elizabeth Holmes, The Wall Street Journal reported. The shares would come from Holmes’ own stake, and if the take up is big enough, it would mean Holmes loses majority control of the company she founded. Theranos’ early backers included people who are not dedicated investors in startups, such as News Corp’s Rupert Murdoch and Riley Bechtel, chairman of the construction group. Earlier this week, venture capitalist Robert Colman filed suit against Theranos for misleading investors while raising money. It’s the third suit of its kind to hit the company in the last six months. WSJ, subscription required