Clueless in Corporate America

From: POLITICO's Morning Money - Wednesday Apr 27,2022 12:01 pm

Apr 27, 2022

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QUICK FIX

CEOs fret about economy’s landmines — Corporate America may be raking in profits, but “some executives are sounding deeply uncertain about the country’s economic future,” our Ben White reports . Whether it’s on conference calls about first-quarter earnings reports or in private conversations, executives of companies “from Goldman Sachs to Tesla are voicing caution about the economy in ways that should unnerve Democrats already facing brutal midterm elections. If CEOs grow even more wary about the burgeoning set of risks, they could pull back on hiring and spending, denting the Covid-19 recovery.”

There are just too many unknowns about the near-term economic future: how high interest rates will go amid spiking inflation, the stability of a wild housing market, the recovery of still-snagged supply chains, Covid. “Senior management is out there just as clueless as we are as to which way things are going to go,” said Jack Ablin, founding partner at investment firm Cresset Asset Management.

“Some of the country’s biggest executives don’t deny it,” Ben reports: "'Look, no one knows,’ JPMorgan Chase CEO Jamie Dimon said on the bank’s recent earnings call, referring to the path of interest rates — perhaps the biggest unknown hanging over the economy. ‘And obviously, everyone does their forecast.’ Dimon sounded bullish at times, as have other corporate titans, reflecting the best case — one Democrats are counting on — that could materialize. ‘The consumer has money. They pay down credit card debt,’ he said. ‘Confidence isn’t high, but the fact that they have money, they’re spending their money.’”

IT’S WEDNESDAY — The Senate confirmed Lael Brainard as vice chair of the Federal Reserve in a 52-43 vote yesterday. Kate Davidson is back tomorrow — send tips to her kdavidson@politico.com or @KateDavidson. And you can always reach me at kodonnell@politico.com or @KatyODonnell_.

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Driving The Day

CHOPRA HEADS BACK TO THE HILL — CFPB Director Rohit Chopra appears before the House Financial Services Committee this morning at 10 a.m. for an oversight hearing, his first before the committee since late October, shortly after he was sworn in. A few takeaways from Round 1 before the Senate Banking Committee on Tuesday:

No timeline on tech review: In his second week on the job, Chopra ordered six major technology firms — Google, Apple, Facebook, Amazon, Square and PayPal — to turn over information on how they handle customer payments data as part of an “inquiry into Big Tech.” When Sen. Mark Warner (D-Va.) asked on Tuesday when the review would be finished, Chopra stayed mum. “We look forward to reporting to all of you on our findings,” he said.

Republicans are still furious over the FDIC dustup: GOP lawmakers aren’t over the brouhaha last December, when Chopra and two other Democratic appointees on the board overseeing the FDIC sidestepped its Republican chair, Jelena McWilliams, in an attempt to launch a review of bank mergers. McWilliams announced her resignation weeks later. Sen. Pat Toomey (R-Pa.), the top Republican on the banking panel, likened Chopra to Louis XIV after accusing him of “recklessly destroy[ing] institutional norms built up over the FDIC’s 88-year history and severely damag[ing] the longstanding principle that financial regulators should operate free from partisan politics.”

Chopra repeatedly defended his actions. He has maintained that the Democrats who make up the majority of the board had no choice but to go around McWilliams after she refused to consider their motion to review the bank merger approval process. “The law is clear, the bylaws are clear, and the precedent is clear,” Chopra said Tuesday. “The chairperson does not have the right to simply nullify the supermajority of the board.”

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Disparate impact remains a partisan lightning rod: Republicans hammered Chopra over the bureau’s decision last month expand the way it goes after unintentional discrimination, commonly known as disparate impact. “Do you think human beings can racially discriminate without intending to racially discriminate?” Sen. John Kennedy (R-La.) asked, prompting Chopra to respond, “I think that’s a philosophical — I don’t really understand the question.”

“I have not heard any suggestion that discrimination based on someone’s race or the like does not violate the unfairness prohibition,” Chopra said at another point. Other Republicans took issue with the process, noting that Chopra simply announced a change in exam policy rather than proposing a rule that would be subject to public comment. “It’s almost as if you had the solution and didn’t need to seek [comment on its] impact,” Sen. Thom Tillis (R-N.C.) said.

U.S., U.K. VOW TO PROTECT WORLD FROM UKRAINE FOOD SHORTAGES — The U.K. and U.S. are pledging to head off global food shortages in the wake of the Russian invasion of Ukraine, POLITICO Europe’s Emilio Casalicchio reports: “British International Trade Secretary Anne-Marie Trevelyan and her U.S. counterpart Katherine Tai said in a joint statement that the two nations would work together to ‘support open, predictable, rules-based agricultural trade to mitigate supply chain disruptions and restore global food security imperiled by Russian aggression in Ukraine.’” It comes after a U.K. defense official warned this week that the Ukrainian grain harvest is set to be a fifth lower in 2022.

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CRYPTO CORNER

From our Sam Sutton:

MAD-MO-ZELLE — Sens. Elizabeth Warren (D-Mass.) and Bob Menendez (D-N.J.) on Tuesday blasted the retail payments service Zelle for failing to assist customers who’ve been scammed out of thousands of dollars by fraudsters. The lawmakers are demanding that Zelle — which is owned by a consortium of banks that includes Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo — answer questions about their policies for rooting out illicit activity and making whole those who’ve fallen victim to fraud on the platform. “Alarmingly, both your company and the big banks who both own and partner with the platform have abdicated responsibility for fraudulent transactions, leaving consumers with no way to get back their funds,” the lawmakers wrote to the company on Tuesday. “The policies of your company and the banks that own and operate on it create a confusing and unfair environment for consumers.”

“We are reviewing the letter and will provide a response in due course,” Zelle’s parent company, Early Warning Services, said in a statement.

FIDELITY — Institutional adoption of Bitcoin and other crypto assets got a big boost on Tuesday when The Wall Street Journal reported that Fidelity, the country’s largest administrator of retirement plans, would soon make Bitcoin an investment option for 401(k) plan sponsors. As with all things crypto, the announcement might attract more attention than the outcome. The Department of Labor issued guidance last month cautioning 401(k) plan fiduciaries to "exercise extreme care ” before adding crypto options to a plan’s investment menu. “It can be extraordinarily difficult, even for expert investors, to evaluate these assets and separate the facts from the hype,” the department wrote in its advisory. Fidelity pushed back on that guidance when it was first announced, claiming it might be inconsistent with prior guidance, and eventually submitted a letter on April 12 demanding DOL withdraw or clarify its instructions.

With Bitcoin and other crypto assets poised to become an important part of Fidelity’s retirement offerings, the letter asks DOL to “take a step back and work with the industry to issue guidance that is helpful,” Fidelity Investments spokesman Eric Sandwen said in a statement to POLITICO on Tuesday. “Digital assets are becoming increasingly mainstream, and we should lead, anticipate the needs of employers.”

COIGN OF THE REALM — Are you a conservative who has been desperate for a credit card that aligns with your values? Well, the wait is over. Former National Republican Senatorial Committee Executive Director Rob Collins launched a new credit card company — Coign — that pledges to donate a portion of every swipe to right-leaning charities (charities to be named later). The card is being issued through MRV Banks, a Missouri-based community bank whose only other card offering — Revvi — is a high-interest product for sub-prime customers.

As for who’s backing the venture, The Washington Examiner reports that Coign’s advisers includes former Sen. Cory Gardner (R-Colo.), former NRSC executive director Chris Hansen as well as financial backers that include “at least one billionaire family steeped in conservative politics.” Coign, MRV Banks and Collins did not respond to requests for comment.

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Fly Around

BERNIE PRESSES BIDEN ON AMAZON UNIONS — From our Burgess Everett and Eleanor Mueller: “The Vermont senator sent Biden a Tuesday letter, obtained by POLITICO, asking the president to cut off federal contracts to Amazon until the massive company stops what he calls its ‘illegal anti-union activity.’ As the Senate Budget Committee chair, Sanders will also hold a hearing next week dedicated to calculating how many federal contracts go to companies that are fighting back against unionization efforts, with a focus on Amazon…He’s urging Biden to create a new executive order that prevents companies that violate labor law from being eligible for government contracts.”

REDFIN: 81 PERCENT OF FLOOD INSURANCE HOLDERS TO SEE RATE HIKE — From Bloomberg’s Leslie Kaufman: “When the Federal Emergency Management Agency rolled out a major overhaul to its beleaguered National Flood Insurance Program last April, it promised that bigger, richer homes would bear the brunt of premium increases, while almost 90 percent of policyholders would see their costs stay stable or decrease. But as the program goes into effect this month for existing policyholders, more than 80 percent of those homeowners are set to see rates climb and those gains will be spread largely evenly among rich and poor areas, according to a new report from the real estate firm Redfin.”

GLOBAL REGULATORS WARN OF ‘OPAQUE’ COMMODITY MARKETS — From POLITICO Europe’s Hannah Brenton: “Commodity markets are ‘lightly supervised’ and ‘opaque,’ global financial regulators warned Tuesday, after Russia’s invasion of Ukraine created a spike in volatility. The surge in commodity prices, such as for oil and precious metals, has created a knock-on impact for derivatives markets and clearinghouses, in which banks have to stump up more cash for margin calls if the price moves against their position. That was particularly apparent at the London Metals Exchange, which is now under scrutiny from U.K. authorities after it was forced to suspend trading in nickel markets.”

GE: OUTLOOK PRESSURED BY SUPPLY-CHAIN DISRUPTIONS — From WSJ’s Thomas Gryta: “General Electric Co. warned that its business would be pressured by supply-chain disruptions this year after reporting strong quarterly growth for its jet-engine unit as commercial air traffic recovers from a pandemic-fueled decline. The Boston conglomerate said Tuesday that its full-year results were on track to come in at the low end of predictions it issued in January. The manufacturer continues to face pressure from supply-chain disruptions and rising raw-material and freight costs, and impact from Russia’s invasion of Ukraine. Executives said on a conference call that they anticipate these pressures to continue into the second quarter.”

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