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BlackRock Inc. CEO Laurence Fink. (AP Photo/Mark Lennihan)
Some of the tax cut’s most ardent fans work on Wall Street, where the new law has helped turbocharge the stock market rally and is set to deliver a major boost to the bottom lines of the biggest banks.
So, investment titan Larry Fink sounded like a wet blanket Tuesday when he called on top CEOs to spell out how they plan to use their tax windfall, while bearing in mind that his firm, BlackRock — the largest asset manager in the world, overseeing more than $6 trillion — will now insist that they contribute to the broader social good rather than just maximize profits.
Fink, in his annual letter to more than 1,000 global chief executives, signaled his firm wants to see the tax cuts produce more than just stock buybacks or dividend payments. “What will you do with increased after-tax cash flow, and how will you use it to create long-term value?” Fink wrote. “This is a particularly critical moment for companies to explain their long-term plans to investors.”
The missive comes as business leaders are navigating a potentially tricky path in the wake of enactment of the GOP tax package. Republicans are eager to see them hand out bonuses, wage gains and other new benefits to workers as evidence that the deep cut to the corporate tax rate is proving its value to average Americans.
Democrats, meanwhile, are deriding those benefits as crumbs, no more than a rolling public relations campaign by corporate giants to thank the GOP for the windfall
(a new poll shows it may be working, with support for the tax overhaul nine points, to 46 percent, over just a month ago). Executives and shareholders, Democrats say, will still claim the lion's share.
Among the big banks themselves, the fate of their surprisingly large tax breaks remains an open question. Citigroup, in announcing its fourth-quarter earnings on Tuesday, reported taking a one-time, $22 billion hit from the reconfigured tax code. But the bank expects to see a significant lift. “Tax reform not only leads to higher net income and increased returns,” CEO Michael Corbat said in a statement, “but also serves to strengthen our capital generation capabilities going forward.”
As the New York Times’s Jim Tankersley notes, more than 70 financial institutions have announced higher wages and bonuses for workers, accounting for about half of all companies that have promised to share the wealth from the cuts with employees. But, he writes, those goodies “reflect a small slice of the windfall that banks large and small are in line to receive.”
People pass the JP Morgan Chase & Co. Corporate headquarters in Manhattan. (Reuters/Mike Segar)
Take JPMorgan Chase and Wells Fargo, which announced their earnings Friday and revealed they stand to collect a combined $7 billion in tax relief. Bloomberg News's Hugh Son and Laura J. Keller summarize the competing demands on that haul: “Borrowers including small businesses and big corporations will want better pricing. Employees from tellers to rainmakers will press for raises and bigger bonuses. And then there’s the political pressure banks face to invest more in communities, particularly those with the least access to credit.”
JPMorgan’s chief financial officer, Marianne Lake, pledged to unveil a plan in the next few weeks to support local investment — “really constructive, thoughtful things for all of our constituents” — but added that most of the windfall will end up elsewhere, with much of it going to the bank’s bottom line this year and later.
It’s hardly clear that Fink, for all the pull that BlackRock’s size would seem to confer, is going to meaningfully reshape conversations in boardrooms on Wall Street and beyond.
For one, BlackRock is still working through what to do with its own tax windfall. On its earnings call last week, the firm’s chief financial officer projected it will make $1.2 billion in stock buybacks this year, plus more divided payments, in addition to evaluating “our ability to more aggressively seed and co-invest in new products.”
So, could Fink’s letter be its own public relations maneuver? Bloomberg Gadfly’s Stephen Gandel suggests as much, noting the investment chief has used the annual message to call for greater corporate social responsibility before, with little apparent follow-up. “Fink's bark is always going to be louder than his bite,” he writes. “BlackRock does nearly all of its stock market investing through index funds. So, no matter how much it disapproves of a company's stance on the environment or whatever, it can't actually sell.”
I asked BlackRock on Tuesday how it intends to follow up on Fink’s letter and didn’t hear back. Fink and Barbara Novick, a BlackRock cofounder he’s named to oversee the firm’s investment stewardship efforts, will both be in Davos next week, and I will, too, so I’ll do my best to get an answer then.
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MONEY ON THE HILL
House Speaker Paul Ryan (R-Wis.) speaks during a news conference. (AP Photo/Pablo Martinez Monsivais)
Shutdown watch. The Post's Erica Werner and Mike DeBonis: "House Republican leaders presented their rank and file with a one-month spending bill Tuesday aimed at keeping the government open ahead of a Friday night deadline, as hopes for a deal on young undocumented immigrants faded. The bill would extend existing spending levels through Feb. 16 and include an extension of a popular children’s health insurance program — aimed at winning Democratic votes — and a new sweetener for conservatives and Democrats alike in delaying several taxes included in the Affordable Care Act. Few lawmakers were enthusiastic about the legislation, but several described it as a necessary evil to avoid the first government shutdown since 2013... [Leaders] planned to test support Wednesday and bring the bill to a vote Thursday, according to multiple members. It was not immediately clear whether they would be successful."
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Chamber to push gas tax. The Post's John Wagner: "With President Trump and Congress turning their attention to infrastructure in the coming weeks, the U.S. Chamber of Commerce is preparing for an uphill battle: a push to raise the federal gas tax by 25 cents per gallon to help pay for the initiative.
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Former Minnesota Gov. Tim Pawlenty. (AP Photo/Charles Dharapak, File)
No Sen. T-Paw. Politico's Kevin Robillard: "Former Minnesota Gov. Tim Pawlenty said Tuesday he won't run in a special election for the Senate later this year. Pawlenty, now the CEO of the Financial Services Roundtable, a powerful bank lobbying group, ruled out a run during an appearance on Fox Business Network. 'I'm interested in continuing to serve,' Pawlenty said. 'There's a variety of ways to do that, [but] running for U.S. Senate this year won't be one of them.'...
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Ovetta Wiggins and Josh Hicks
A man watches a screen showing the prices of bitcoin at a virtual currency exchange office in Seoul, South Korea on Tuesday. (AP Photo/Ahn Young-joon)
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Beyond the bubble. NYT's Steven Johnson: "You may be inclined to dismiss these transformations. After all, Bitcoin and Ether’s runaway valuation looks like a case study in irrational exuberance. And why should you care about an arcane technical breakthrough that right now doesn’t feel all that different from signing in to a website to make a credit card payment? But that dismissal would be shortsighted. If there’s one thing we’ve learned from the recent history of the internet, it’s that seemingly esoteric decisions about software architecture can unleash profound global forces once the technology moves into wider circulation... The Bitcoin bubble may ultimately turn out to be a distraction from the true significance of the blockchain. The real promise of these new technologies, many of their evangelists believe, lies not in displacing our currencies but in replacing much of what we now think of as the internet, while at the same time returning the online world to a more decentralized and egalitarian system."> The Antitrust Case Against Facebook, Google and Amazon Facebook, Google and Amazon dominate their worlds just as Standard Oil and AT&T once did. Critics say they should get the same treatment. The answer to the antitrust question depends on a narrow test: Are consumers worse off?
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General Motors CEO Mary Barra meets with Trump last February. (AFP / Brendan Smialowski)
Barra to Trump: Don't blow up NAFTA. NYT's Neal E. Boudette: "General Motors’ chief executive urged the Trump administration on Tuesday not to scrap the North American Free Trade Agreement, and said any changes in the pact should account for the effect on American automakers and workers. 'There could be unintended consequences, changes made, that would directly impact jobs in the United States,' the G.M. chief, Mary T. Barra, said at an investor conference on the sidelines of the Detroit auto show. 'Nafta needs to be modified,' she added, but she rejected the idea that 'we need to walk away from it.'"
Former White House strategist Steve Bannon leaves a House Intelligence Committee meeting where he was interviewed behind closed doors on Capitol Hill yesterday. (AP Photo/Jacquelyn Martin)
Mueller subpoenas Bannon. The Post's Karoun Demirjian, Carol D. Leonnig and Roz Helderman: "Special counsel Robert S. Mueller III’s office has subpoenaed former White House chief strategist Stephen K. Bannon to appear before a grand jury, a move that indicates his broad investigation into Russia’s interference in the 2016 campaign is far from wrapping up. The subpoena was issued last week, according to a person familiar with the situation, who said that Bannon expects to be able to persuade the special counsel’s office to accept a voluntary interview of Bannon by prosecutors in place of a grand jury appearance. The news of Mueller’s action, which was first reported by the New York Times, came on the same day that the House Intelligence Committee issued a subpoena to Bannon for refusing to answer a range of questions from investigators during a combative closed-door interview, frustrating members of both parties who are probing the Trump campaign’s alleged Russia ties."
— Manafort trial in Sept. The Post's Spencer S. Hsu: "Former Trump campaign manager Paul Manafort will face trial no sooner than September, the judge hearing his case indicated after an hour-long hearing Tuesday in which prosecutors and defense attorneys sparred over his continuing house arrest and a separate lawsuit challenging the appointment of special counsel Robert S. Mueller III. Prosecutors told the court Friday that they intended to ask for a May 14 trial date for Manafort, 68, and his former business partner, Rick Gates, 45, whose Oct. 30 indictments on fraud, conspiracy and money laundering counts were the first disclosed in Mueller’s probe of Russian influence in U.S. political affairs."> Politics ‘We’re not going anywhere.’ Trump’s company fights efforts to shed the president’s name The Trump Organization is using warnings and legal threats against properties seeking to end their affiliation with the brand.
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Mick Mulvaney, acting director of the Consumer Financial Protection Bureau. (AP Photo/Jacquelyn Martin)
CFPB reviews payday lending rule. WSJ's Yuka Hayashi: "The Trump administration’s acting head of the Consumer Financial Protection Bureau plans to reconsider federal restrictions on high-interest payday loans, a step that could lead to the easing of a rule opposed by the industry and some Republicans. The rule, completed last year when the bureau was still under Obama-era leadership, clamped down on small, short-term consumer loans that can have interest rates as high as 400%. Among other things, it would require lenders to limit loan rollovers and assess whether borrowers can repay the short-term loans.
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CFPB short-lister stirs controversy. American Banker's Ian McKendry: "National Credit Union Administration Chairman J. Mark McWatters has not even been announced as President Trump's pick to run the Consumer Financial Protection Bureau, but his potential nomination already is uniting several diverse groups in opposition. Since news of McWatters’ potential pick first broke in American Banker in December, banking industry representatives have criticized the idea of appointing him to the CFPB post over concerns that his past backing of the credit union industry poses a problem. As NCUA chairman, McWatters has publicly stated support for credit unions getting preferential regulatory treatment over banks, due to what he suggests is a safer business model."
- The House Financial Services Committee holds a markup of various bills.
- The Senate Finance Committee holds a hearing on United States Trade Representative nominees.
- The Senate Banking, Housing and Urban Affairs committee holds an executive session to vote on Jerome Powell to be chairman of the board of governors of the Federal Reserve System and Randal Quarles to be reappointed as a member of the board of governors of the Federal Reserve System.
- The American Enterprise Institute holds an event on “New thinking about poverty and economic mobility” on
- The Cato Institute Policy Perspectives 2018, including a discussion on “A Fiscal Rule to Tame Federal Debt?”, takes place on
- The SEC-NYU Dialogue on Securities Markets – Shareholder Engagement will be held in New York on
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