DealBook Briefing: SoftBank’s Big Saudi Problem

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SoftBank wrestles with its Saudi problem

The Japanese company became the most powerful tech investor in the world when Saudi Arabia pledged $45 billion to its Vision Fund. But outcry over the disappearance and suspected killing of a Saudi journalist has cast a cloud over SoftBank’s alliance with the country.

Many prominent businesses, including JPMorgan Chase and BlackRock, have tried to distance themselves from a big Saudi investment conference. But SoftBank has not. The NYT explains the fine line that SoftBank’s chief, Masa Son, must walk:

It is a delicate balance for Mr. Son, who is on the one hand receiving investment capital from a conservative nation that built its vast wealth with oil and on the other hand using that very wealth to fund progressive young companies with a different set of values.

The Saudis seem aware of the power they hold over SoftBank. Crown Prince Mohammed bin Salman, who led the country’s investment in the Vision Fund — and whom U.S. officials increasingly suspect was involved in the death of the Saudi journalist Jamal Khashoggi — told Bloomberg earlier this month that without his money, “there will be no SoftBank Vision Fund.”

But SoftBank is considering a worst-case scenario: It may have to refuse any more Saudi money.

More Saudi news: Why President Trump appears keen to protect the Saudis. Siemens’s C.E.O. waffled in public over whether to attend the Saudi conference. And the final column by Mr. Khashoggi laments a lack of free press in the Arab world.

The Fed plans to keep raising rates

The U.S. central bank intends to continue raising rates, according to the minutes of its latest policy meeting — despite Mr. Trump’s frustrations.

The Fed raised its benchmark interest rate by a quarter percentage point last month, to a range between 2 percent and 2.25 percent. And it’s broadly expected to raise it again by a quarter of a point in December.

A majority of Fed officials predicted in September that the central bank would raise its benchmark interest rate to a mildly restrictive level, above 3 percent, by the second half of next year. Beyond that, things are less certain, writes Binyamin Appelbaum of the NYT:

The Fed remains uncertain about its plans for the coming year, and one reason is that Fed officials also are concerned that Mr. Trump’s trade policies could impede economic growth, the minutes said. The Fed has said Mr. Trump’s policies, including tariffs on steel, aluminum and a wide range of Chinese goods, have not yet dented aggregate measures of economic growth.

Rising rates are prompting investors to rethink where they put their money: The WSJ reports that the recent market slump may be the start of a so-called rotation, where funds are reallocated from risky assets like tech stocks into safer ones like bonds.

Trump tries to weaponize international shipping

The White House said yesterday that the U.S. would pull out of a 144-year-old postal treaty that governs shipping rates across borders. It’s an unexpected new weapon in Mr. Trump’s trade war with China.

The president wants to clamp down on extremely low shipping rates that Chinese companies pay to send goods to America, which he has argued have been unfair to their U.S. rivals. (The White House doesn’t need permission from Congress to withdraw, though it could rescind the move if it negotiates new postal rates within the next year.)

The White House has, however, shied away from opening another, more controversial front in the trade war: The Treasury Department chose not to label Beijing a currency manipulator, though it said that movements of the renminbi needed greater scrutiny.

More trade news: The U.S. is trying to strike bilateral agreements with signatories of the Trans-Pacific Partnership treaty (that the Trump administration withdrew from last year) to limit China’s economic influence in Asia.

Coming up

Steven Mnuchin reportedly to decide if he will attend Davos in the Desert. The Treasury secretary has said that he still plans to attend the now-controversial investment conference in Saudi Arabia, but Bloomberg reports that he will “revisit” that decision today.

Another day of earnings. American Express and Blackstone will both publish quarterly results, and both are expected to have performed well.

The European Council summit kicks off. Trade will be high on the agenda, along with migration, climate change and other issues. Meanwhile, 50 European and Asian countries will convene in Brussels for a two-day summit to talk trade, the denuclearization of Korea, the Iran nuclear deal and more.

Has the D.N.C. done enough to be hack-proof?

The Democratic National Committee was hugely unprepared for a series of Russian hacks during the 2016 campaign that stole emails, strategy documents and other internal records from its servers. With the midterms approaching, Politico reports on how the committee’s chief technology officer, Raffi Krikorian, has tried to protect the organization this time:

Krikorian’s team regularly discusses emerging threats with experts at Microsoft, Facebook, Google and other tech firms. They chat via the encrypted messaging apps Signal and Wickr with cyber experts from the DNC’s sister committees and third-party vendors, discussing suspicious incidents and other information. The DNC also works with Facebook and Twitter to ensure the committee learns when candidates contact social media firms about possible account takeovers.

But Alex Stamos, Facebook’s former security chief, is skeptical that campaigns have done enough. “We have not seen the kind of massive upgrade in campaign infrastructure that you would need to stand against a professional hacking agency like that,” he told NBC News.

Dan Loeb takes a big hit in his Campbell’s campaign

The Third Point chief suffered a blow yesterday: Descendants of Campbell’s founder said they would vote for the company’s current board at next month’s annual meeting. They hold 41 percent of the soup maker’s shares, while Mr. Loeb and his allies own just under 10 percent.

That’s a tough margin for Mr. Loeb to overcome in his effort to oust the company’s entire board. The activist investor has said that Campbell’s poor performance shows it needs new oversight — and a plan to sell itself.

All hope isn’t lost for Mr. Loeb. Campbell’s corporate bylaws state that whichever board candidate receives the most votes wins, so some of Third Point’s nominees could still be elected. But the odds of replacing the entire board just got much worse.

Prudential is no longer too big to fail

American financial regulators removed Prudential from the list of “systemically important financial institutions” — the last nonbank firm to exit that grouping. It’s the latest sign of relaxing financial rules under the Trump administration. As the WSJ notes, however, Prudential shed its label at an odd time:

Prudential, whose shares rose about 2 percent Wednesday, has more total assets today than when it was designated a SIFI. Regulators acknowledged Wednesday it also has greater derivatives exposures and a complex legal structure that could make it hard to unwind in a crisis.

Jeremy Kress, a University of Michigan professor who opposed the move, told the WSJ that regulators had signaled that “other firms can grow with impunity without having to worry about this type of regulation.”

A big Brexit summit achieved little

Prime Minister Theresa May of Britain briefed her fellow E.U. leaders yesterday on the state of Brexit talks, before her peers discussed what they had heard over dinner. Their verdict? They plan to delay a special Brexit meeting next month because not enough progress has been made. More from the FT:

Angela Merkel, the German chancellor, noted that talks had hit a “deadlock” and other leaders expressed frustration at political paralysis in Westminster, according to diplomats briefed on the meeting.

Michel Barnier, the E.U.’s chief Brexit negotiator, reportedly said: “We need time, we need much more time, and we will continue to work in the next weeks calmly and patiently.”

More Brexit news: Mrs. May will brief 150 British C.E.O.s on her plans tomorrow.

Revolving door

Rob Sands will step down as C.E.O. of the beer brewer Constellation Brands next year.

New York City’s comptroller and other state investment officials want to strip Mark Zuckerberg of Facebook’s chairman role.

Wan Ling Martello, the Nestlé executive who turned around its Asian operations, will leave the Swiss food giant.

Gilbert Passin reportedly left his post as vice president of manufacturing at Tesla earlier this year.

The speed read

Deals

• The owner of Golden Nugget Casinos reportedly proposed merging his company with Caesars Entertainment. (CNBC)

• Uber raised $2 billion in its first-ever bond offering. Here’s the back story.

• The billionaire Shahid Khan withdrew a £600 million, or about $790 million, offer to buy London’s Wembley Stadium. Meanwhile, fans of the Arsenal soccer team don’t want to sell their shares to the club’s majority owner, Stan Kroenke.

• SoftBank reportedly secured a $9 billion loan for the Vision Fund. (Bloomberg)

• How hedge funds will profit from a collection of Titanic artifacts. (NYT)

Politics and policy

• A Treasury Department official was charged with leaking banking regulatory reports about Paul Manafort to a journalist. (NYT)

• President Trump asked cabinet officials to consider cutting their departments’ budgets by 5 percent to help reduce the federal deficit. (WaPo)

• Rod Rosenstein, the deputy attorney general, defended Robert Mueller’s investigation in an interview. (WSJ)

• Senate Republicans are trying to rush through more judicial nominations during a recess. (NYT)

• Mr. Trump is stockpiling campaign cash, upsetting some Republicans who think endangered G.O.P. candidates need it. (NYT)

Trade

• The Commerce secretary, Wilbur Ross, criticized E.U. officials over slow progress on trade issues. (Bloomberg)

• The U.S. plans to triple the size of its credit line to Mexico, to as much as $9 billion. (WSJ)

• Alcoa said that aluminum tariffs gave a boost to its third-quarter revenue. (WSJ)

• China could relax its sanctions on North Korea as the trade war with the U.S. drags on. (CNBC)

Tech

• EBay sued Amazon over claims that it illegally poached sellers from its marketplace. (WSJ)

• Tesla bought a plot of land in Shanghai, where it plans to build its first Chinese factory. (WSJ)

• Facebook says its recent hack was the work of spammers, and not a foreign state. (WSJ)

• Twitter will soon tell you why tweets were deleted. It also released an archive of 10 million tweets from troll accounts for researchers to study.

• How Google alumni are shaping China’s tech scene. (Information)

Best of the rest

• HSBC may become the first foreign company to be listed in China. (FT)

• Edward Lampert, Sears’s former C.E.O., is unrepentant even after the retailer filed for bankruptcy protection. (WSJ)

• China’s currency has fallen to its lowest level since January 2017. (Bloomberg)

• Two former Deutsche Bank traders were found guilty of conspiracy and wire fraud over their involvement in the Libor-rigging scandal. (Bloomberg)

• China is a living laboratory for the retail sector. And Europe’s luxury brands are nervous about losing customers there.

• America has too much milk — but a shortage of Tab.

Thanks for reading! We’ll see you next tomorrow.

k.

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