fortune--2020-05-16--How a property developer is making money by taking housing vouchers

Joseph Asamoah was shocked when a potential renter with a Section 8 voucher came to look at his turn-of-the-century Washington, D.C., row house and snubbed him.
It was 1996; D.C. was in a recession. Crime, a drug epidemic, and dysfunctional government services sent thousands fleeing the District. After a neighbor was murdered on their doorstep, Asamoah and his wife joined the mass exodus and moved to the Maryland suburbs. Born in Ghana, Asamoah had moved to D.C. a decade prior from England, where he was raised. Believing the capital city would eventually “come back,” he listed the house for rent.
“She said, ‘Well, it doesn’t have a jacuzzi. It doesn’t have stainless steel appliances. Where are your hardwood floors?’” says Asamoah, recalling the conversation with the voucher holder at his row house in Columbia Heights, an enclave of D.C. where single-family homes are now selling in the millions. Asamoah purchased the house in 1989 for $47,000. “A voucher holder with a net worth of zero was telling me that where I lived was not worthy of her and her family.”
His rental property was competing with high-end renovations. These renovations were intended to be house flips, but no one was buying, so the properties were put on the rental market. Renters got used to bells and whistles.
The encounter led Asamoah to develop a real estate strategy that has inoculated the 59-year-old from economic shocks, like the current downturn caused by the pandemic. It’s earned him a nice portfolio—32 single-family homes in the Washington, D.C., area, one of the highest-priced housing markets in the U.S.
Asamoah rents to tenants with Section 8 vouchers, now called Housing Choice Vouchers. Depending on their income, they pay him from zero to $1,000 a month in rent. The Department of Housing and Urban Development (HUD) pays the balance. Despite the current unemployment numbers, reported at more than 33 million, Asamoah has experienced few issues collecting rent from his tenants. HUD pays him on time and in full; for those tenants who have been laid off because of the pandemic, HUD has adjusted down their portion of the rent.
Renting to those with Section 8 vouchers might just save his business. Most landlords don’t have the HUD safety net that Asamoah created as the cornerstone of his real estate strategy, and, with millions of Americans furloughed or laid off, many won’t be able to make their rent payments. Economist Jenny Schuetz, a housing expert at the Brookings Institution, says those landlords are playing a forbearance waiting game because it’s not clear if the CARES Act will save them. The act puts a temporary halt on required payments of federally backed mortgages. In a statement, the Mortgage Bankers Association expects “that the share of loans in forbearance will continue to grow, particularly as new mortgage payments come due in May.”
Creating ‘geographies of opportunity’
Asamoah has been through four market cycles, thriving with his niche strategy that melds vouchers holders with a business model commonly referred to as BRRRR—Buy, Renovate, Rent, Refinance, Repeat.
For more than 25 years, Asamoah has purchased distressed, single-family homes in emerging neighborhoods and transformed them into “HGTV grade” properties so he can rent them to voucher holders. From purchase to move-in, the cycle takes about eight months, including replacing short-term financing with permanent financing, visits to landlord-tenant court, and offsite visits to the homes of potential renters. He calls it “Big City BRRRRing.”
Economist Belinda Archibong calls it creating “geographies of opportunity.” An economics professor at Barnard College, Columbia University, Archibong says that in these transforming neighborhoods “poorer children can thrive. And it’s not just safety they are getting. It’s also access to better-funded schools and nicer grocery stores that offer healthier options. It is this larger cumulative impact—not just on their psychological health and their physical safety—but on their biological health and their ability to focus on school and attain more education.”
The front of one of Asamoah’s properties after renovation. Courtesy of Joseph Asamoah
“What I find so interesting about what Asamoah is doing is [that] it’s not low-income families moving to rich, suburban neighborhoods,” says Richard Kahlenberg of The Century Foundation, a D.C.-based nonpartisan think tank.
Properties that accept vouchers are typically subpar housing in unsafe neighborhoods in the cities where tenants’ families have lived for generations or nicer properties in the suburbs where housing and opportunities are better, but where they also may feel out of place. Asamoah presents a third option.
“I think this is a very exciting example of what is possible if we allow low-income families the opportunity to be in strong neighborhoods that are different but not startlingly different,” Kahlenberg says. “They are familiar neighborhoods.”
Being able to choose to live in a neighborhood that feels familiar is a key ingredient to successful outcomes, says Kathryn Howell, a professor of urban and regional studies and planning at Virginia Commonwealth University. It’s not “always positive for children when they feel like they don’t fit in, out in the middle of nowhere. [They] may be one of the 10 black people in [their] school and disproportionately targeted by police; where transit can be challenging, and walkability is poor; where parents have left behind generations of family history and relatives who may be their only childcare options.”
Joseph Asamoah now has 32 single-family homes in the Washington, D.C., area. Courtesy of Joseph Asamoah
Only 18 states have made “source-of-income discrimination” illegal, meaning in most of the U.S., landlords can refuse to rent to someone because his or her rent money comes from a voucher, not a paycheck.
“The tragedy is that the housing voucher program, which is meant to open up opportunity, has in most instances led low-income families to live in high-poverty neighborhoods where they get the least opportunity,” says Kahlenberg. “It remains culturally acceptable to discriminate against low-income people.”
In the Moving to Opportunity (MTO) Project, Harvard economist Raj Chetty determined that motivation plus environment is necessary for the children of an impoverished family to rise out of poverty—in other words, personal attitude is not enough.
Asamoah’s tenants have seen these economic theories play out. Lashan Smith has been renting from Asamoah since 2009. All six of her children graduated from high school, and her two youngest, 18-year-old twins, are college freshmen, at Smith College and Morgan State University.
“Having my children attend college is such a major accomplishment for me,” says Smith, who “barely finished high school” and never thought any of her children would go to college. “I have no doubt that being in a stable housing environment had a positive influence on my children. In addition to hard work and focus, it was clearly one of the main reasons that my twins were able to attend college.”
Before moving into one of Asamoah’s renovated rentals, Shawnita Resper says she lived in an apartment complex riddled with guns and violence. “The statistics aren’t great over there. Pregnancy and incarceration,” notes Resper, who has been renting from Asamoah since 1997. “Being around positive people with good work ethics left a lasting impact on my children.” Resper’s children are all college graduates.
“I’ve been gaining. The family is gaining. You’re bringing a quality family to the neighborhood, so the neighborhood is gaining. The kids are gaining,” Asamoah says. “There are no losers in his formula.”
Asamoah calls his properties “HGTV grade.” Courtesy of Joseph Asamoah
Flowers on Mother’s Day
When Fortune met with Asamoah, he was in the middle of fixing up a three-bedroom, one-bath 1910 row house on a quiet, treelined street in northeast D.C. Flanked by an elementary school at one end and a renovated recreation center on the other, the street bragged a few colorful, updated, single-family homes. He’d popped out the back of the house, which enabled him to increase the size of the master bedroom on the third floor and the kitchen on the main floor. He dug out the basement to add two bedrooms—the number of bedrooms increases the value of the voucher. In the end, his investment cost him $630,000; his rental income is more than $5,000 a month. His strategy requires that he’s “in it for the long game.”
“If your rent is $5,000, a turnover will cost you $10,000 at least, after all is said and done,” says Asamoah of his motivation to keep his tenants happy. “Most landlords don’t get it.”
So, not only is he quick to fix reported issues, each Mother’s Day Asamoah brings flowers, each Christmas he delivers presents, and, when report cards come around, children who earn A’s receive gifts. Plus, every year each family gets a weekend away at Asamoah’s Virginia time-share. Many of Asamoah’s tenants have been with him for more than a decade.
“You just have to be there in that room when you offer the house to a family,” says Asamoah. “You see the joy, the cries, the screams, the shouting. I mean these are life-changing opportunities. It’s a fork in the road.”
When he lists a newly renovated property on rental sites, Asamoah receives 15 to 20 applications, from both voucher holders and those without, which he says is far higher than what most rentals in the area get. Asamoah puts all of his potential tenants through the same screening, which includes an eight-page application and a 20-page rental agreement, as well as a home visit. “Most non-voucher-holders are not used to a screening process as intense as mine,” says Asamoah. And while he does have a few non-voucher tenants, most are deterred by a system they may feel is “intrusive” but, according to Asamoah, does not violate any housing statutes.
Keeyonna Musgrove recently beat the odds. Earlier this year, Asamoah accepted her application to move into his latest house flip in northeast D.C.; the ribbon cutting was in February. She had been living in a “neighborhood [that] was crime-ridden,” says the mother of six, whose children range in age from 1 to 18. “Broad daylight was as dangerous as nighttime…I just felt trapped.”
Musgrove now lives in a five-bedroom, 3.5-bath house right down the street from her old elementary school; her relatives live nearby. “It’s quiet. It’s peaceful,” she says of her new neighborhood. “When I wake up and step out my door, things changed drastically…Neighbors are courteous…I have Caucasian neighbors. I’ve never had Caucasian neighbors. I have Asian neighbors. I have all different types of neighbors on the street.”
Musgrove’s experience, Asamoah says, is an example of how his strategy is also an antidote to the negative effects of gentrification. He points to the transformation that’s taken place in Columbia Heights, where he was snubbed back in the ’90s. The woman who has been renting from him there for more than two decades is the only African-American resident on the street. “When we lived there, it was 100% black,” says Asamoah. “If it weren’t for me, she wouldn’t be there. No way, zero chance.”
Since he can’t even meet the demand now, Asamoah worries what will happen when he stops his “Big City BRRRRing.” So he’s teaching his strategy to interested property managers; those in D.C. meet with him in person and follow him through his entire process (for now, that’s been moved to virtual meetings because of the pandemic). He’s also joined an online real estate platform, BiggerPockets, to teach his tactics to a national audience.
Asamoah’s tenant Lashan Smith hopes his students and other landlords will adopt Asamoah’s strategy. “Take note,” she says. “Look at what this person is doing. Look at how he interacts with people…He cares about the people that rent from him.”


fortune--2020-05-16--Biden campaign to hire at least 600 staffers despite financial gap with Trump

How a property developer is making money by taking housing vouchers

Presumptive Democratic presidential nominee Joe Biden will hire by June at least 600 field staffers dedicated to an “expanded map” of battleground states, his campaign manager said Friday, despite a continued financial gap with President Donald Trump’s reelection behemoth.
Biden’s campaign manager, Jen O’Malley Dillon, said the growth would target not only states such as Wisconsin, Michigan, Pennsylvania and Florida that Trump flipped in his 2016 victory, but also states that Democrats must protect, along with traditionally GOP ones, including Arizona, Texas and Georgia.
O’Malley Dillon, who outlined Biden’s approach in a video conference with reporters, said she expects the new workers to be “on the ground” and reaching out to voters face to face as social distancing guidelines during the coronavirus pandemic change before Election Day in November.
But she made no commitment for when that will be, and she reaffirmed that the campaign has no established timeline for when Biden will return to regular campaigning.
“We will never make any choices that put our staff or voters in harm’s way,” O’Malley Dillon said. “Our expectation is we have people on the ground in this campaign doing the traditional work of organizing, but we will do that when safety allows, and we will not do that a day sooner.”
O’Malley Dillon said that the timing of when such campaigning would be safe “might mean different things in different places” and that, in the meantime, Biden will continue online events and outreach.
Asked whether Biden had been tested for the coronavirus, O’Malley Dillon said, “there’s no testing that’s happened now. There’s no plan for that.”
The organizing hires will be the most visible sign of the buildup since Biden hired O’Malley Dillon as campaign manager in March. Her hiring came as Biden took command of the primary and as the pandemic brought the campaign and much of American daily life to a halt.
The hiring of new staffers is the latest push from Biden’s campaign to counter criticisms from some Democrats and progressive allies that the campaign isn’t ramping up quickly enough.
Besides the personnel moves, Biden aides pointed to an increase in fundraising as evidence of expansion.
The campaign said Friday that it had $103 million cash on hand at the end of April when combined with the Democratic National Committee. The April fundraising total was almost $61 million between the two entities.
Trump and the Republican National Committee said this week that they had more than $250 million on hand, continuing their financial juggernaut as Trump has raised money throughout his term without any serious primary opposition.
On the bright side for Biden, the GOP operation barely outraised Biden in April, as Democrats say they will have enough money to run a winning campaign against Trump, even if they never match him dollar for dollar.
O’Malley Dillon, Biden senior strategist Mike Donilon and deputy campaign manager Kate Bedingfield said Friday that Trump’s handling of the coronavirus, the turbulence of his presidency before the pandemic and voters’ familiarity with Biden give the former vice president a wide path to the 270 electoral votes necessary to win the White House.
“One of the things that I think has been underestimated about the vice president from the beginning is how strong an image he has with the American people,” Donilon said, alluding to Biden’s comeback to become the presumptive nominee despite an uneven campaign and months of attacks from Trump.
Donilon pointed to recent polls suggesting Trump has a narrower advantage over Biden among older voters than Trump did in 2016 and said the disadvantage Republicans had with suburban women in the 2018 midterms has widened. O’Malley Dillon said demographic changes in states such as Arizona offer an opportunity for Biden.
But she said the pandemic could change the methods of voting. “We know we’re going to prioritize education and mobilization,” O’Malley Dillon said, “but the enthusiasm is there.”


fortune--2020-05-16--Is the stock market experiencing the dreaded ‘dead cat bounce’?

Biden campaign to hire at least 600 staffers despite financial gap with Trump

On March 23 the S&P 500 closed down nearly 34% from all-time highs seen just the month before. It was the fastest 30% bear market from all-time highs in stock market history.
Then without warning the market snapped back in a big way, rising nearly 18% in just three days and 31% through the close this past Monday.
The swift decline in stocks was painful but understandable. The virus closed off most of the economy on the spot in March. Nothing like this had ever happened before.
The snapback rally is more of a head scratcher for most investors. How could stocks continue rallying in the face of the worst economic data since the Great Depression? Tens of millions are unemployed. Thousands of businesses are gone. Many more will follow.
One explanation would be the 34% drop from late-February through late-March was pricing in those economic numbers. The simplest explanation would be the trillions of dollars of support from both the federal government and Federal Reserve. This was the fastest, sharpest bear market in history but also the fastest, biggest stimulus package ever assembled.
There is, however, a third possibility. Many of history’s great crashes have exhibited head-fake rallies that offered investors a false sense of hope that proved to be fleeting.
During the Great Depression stock market crash there was a 47% rally from late-1929 until the early Spring of 1930. It did not last of course. Before that rally stocks had fallen 45%. After rising almost 50%, they would go on to fall by more than 80%.
Ouch.
That crash also included monthly gains of 8%, 9%, 12% and 14% before all was said and done along with rallies of 23%, 27% and 35%. I cannot imagine the amount of false hope each of these rallies must have given investors.
The nasty 1973-1974 bear market that cut the market in half saw a 20% bounce before it was over. Even the 2007-2009 market crash gave investors a false glimmer of hope with a gain of more than 25% in the midst of the crash that was eventually relinquished.
The bear market from 2000-2002 saw three separate rallies of around 20% before finally settling in at a bottom more than 50% lower than the peak. On a spreadsheet, it often looks like market crashes are a straight line down but that’s typically not the case:
The Great Depression is always the worst-case scenario but the dot-com crash may be second on that list. It included not only the bursting of the tech bubble but also the Enron scandal and 9/11.
Even after bottoming in October of 2002 and quickly rising more than 20%, there was yet another 15% decline before finally taking off until 2007.
There’s a good reason why it’s so difficult to tell the difference between a dead cat bounce within the context of a bear market and an actual market bottom. When stocks do eventually bottom, they tend to see strong gains coming out of the gate.
Here are the 3 and 6-month returns from the bottom of past S&P 500 bear markets:
I am sure every one of these recoveries was called a dead cat bounce at the time. It’s hard to trust the market to give you gains when all it’s done recently is take them away.
The stock market can move hard and fast in both a dead cat bounce and a bear market bottom. There are people who will tell you with certainty that they know for sure whether this bounce or the next is the true bottom of this market crash. There are always backtests or historical parallels to back any market stance.
It will only look clear with the benefit of hindsight. This crash has been so swift and severe that it will likely play by its own set of rules. That means no warning ahead of time before it bottoms and no certainty about the difference between a dead cat bounce and an actual end of the bear market.
The only trade I’m certain about at the moment is going long humility and short hubris.
Ben Carlson, CFA, is the director of institutional asset management at Ritholtz Wealth Management. He may own securities or assets discussed in this piece.


fortune--2020-05-16--The CEO who keeps animal pharm growing

The CEO who keeps animal pharm growing

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When Kristin Peck became CEO of Zoetis in January, the animal health company was growing rapidly, thanks in part to steady growth in spending on pets. Just a few weeks later, coronavirus lockdowns turned the global economy upside down. But they also prompted Americans to adopt pets in record numbers, enabling Zoetis and Peck to face their first big crisis with what you might call a tailwind.
Zoetis, which makes medicines, vaccines, and other products, was spun off from Pfizer in 2013 and joined the Fortune 500 in 2019. It’s the market-share leader in “companion” animal health, with 22% of the market, and in several livestock categories too. With the pandemic doing only minor damage so far to commercial livestock or pet spending, Zoetis’s business has held up relatively well. The company’s stock is down roughly 5% this year, while the S&P 500 has fallen more than 9%.
The drugmaker has an “incredibly diversified business,” says James Tierney, chief investment officer of concentrated U.S. growth at AllianceBernstein. Its portfolio is split roughly 50/50 between companion and livestock, with about the same split between U.S. and international sales. And unlike many human drug companies, notes Tierney, it isn’t dependent on blockbusters. Zoetis’s bestselling product, dog itch medication Apoquel, generated less than 10% of its total sales of $6.3 billion in 2019.
Peck, who grew up in Connecticut around animals (“We had horses, four dogs, two cats, birds,” she recalls), was an executive at Pfizer before joining Zoetis to shepherd it through its IPO. She’s adjusting to the new reality in part by boosting advertising for pet products and building veterinary telemedicine partnerships.
Kristin Peck, center, along with members of the Zoetis Board of Directors visits a poultry hatchery. Courtesy of Zoetis
Peck says the newly minted pet owners of the pandemic era “engage differently”: They’re largely digital-first millennials, she says, and are more likely to heavily research products before buying. That’s already giving a boost to some of Zoetis’s specialty products like its dermatology line (Apoquel and Cytopoint), as well as products for pet pain like Rimadyl. Another promising product expected to add hundreds of millions in sales: a new combination flea, tick, and heartworm medicine for dogs, Simparica Trio—currently the only such combo product available in the U.S.
Like pet spending itself, Zoetis isn’t entirely recession-proof, and the company recently lowered its growth forecasts for the year. Amid the pandemic, its livestock business faces short-term challenges, especially in beef and dairy, where supply chain problems involving plant closures and interrupted processing of beef have caused hardship, even leading to some animals getting euthanized. But Peck says she doubts the coronavirus will curb the long-term trend toward eating more protein. And if lean times lead consumers to focus on cheaper meats, Zoetis could benefit from products like Zoamix, an additive that takes the place of antibiotics in chicken feed—one more example of diversification feathering the company’s nest.
A version of this article appears in the June/July 2020 issue of Fortune with the headline “The CEO who keeps animal pharm growing“


fortune--2020-05-17--‘Revenge’ buying vs. rational consumption: How China is spending after coronavirus lockdowns

On May 5, Shanghai city officials launched the “Double Five” shopping festival, offering hefty discounts and extended store hours for the next two months in an attempt to boost spending and make up for the losses caused by the coronavirus pandemic.
Combined sales—at both online and offline retailers—reached $2.2 billion in the first 24 hours of the “Double Five” shopping event (named for the date it started), according to the Shanghai Commerce Commission.
Shanghai has China’s most prolific shoppers—it ranked No. 1 in the country for per capita consumption expenditure during the first quarter of 2020.
As China eases out of coronavirus-induced travel restrictions and as shops and restaurants begin to reopen, local governments are pushing to get consumer spending—which makes up nearly 60% of gross domestic product growth in China—to pre-pandemic levels.
Provincial governments issued $2.69 billion in coupons and discount vouchers to stimulate spending during the Labor Day holiday in the first week of May. Wuhan’s deputy mayor even held a live-streaming event urging residents to patronize his favorite noodle shop.
“Now the lockdown is lifted and restaurants are opening, we can go out and have a nice breakfast,” he said.
But brief spurts of spending—like the “Double Five” event and the $2.7 million that luxury retailer Hermes earned on the day it reopened in Guangzhou in April—may not translate to an immediate, sustained recovery for the world’s largest consumer economy. In fact, experts predict economic uncertainty, rising unemployment, and lingering fears about the spread of the virus will keep China’s consumer economy from returning to pre-pandemic levels until at least the first quarter of 2021. The wary, newly thrifty attitude is a stark departure for shoppers who, until the coronavirus hit, had been among the world’s most confident.
The rise to the top
In the last ten years, rising household incomes expanded China’s urban middle class. More people gained more purchasing power, and in 2019 China overtook the U.S. to become the world’s largest consumer market, to the delight of Beijing.
“Because of the China-U.S. trade dispute, China has already lost a lot of GDP in terms of export, so to try to compensate for this deficit, the Chinese government really wants to boost local consumption,” said Michael Cheng, consumer markets leader for Asia Pacific, Hong Kong, and mainland China at professional services firm PwC.
Even as China’s year-on-year retail sales slowed with the advent of the U.S.-China trade dispute in 2018 and 2019, consumer confidence increased between the start of the feud and Sep. 2019, according to data compiled by McKinsey from China’s National Bureau of Statistics.
China’s consumer confidence score, based on the Organization of Economic Co-operation and Development’s index, dipped due to the coronavirus but remained above 100 in March (China’s data for April is not yet available), a threshold that indicates consumers are more inclined to spend. U.S. consumers, by comparison, contribute around 70% of economic activity, and saw their confidence score drop from 101.47 in December to 98.60 in April.
“Notwithstanding that there might be a second round or revival of the virus, China is the first country to start to recover,” Cheng said. “That’s why I think the consumer [confidence] index will still be high.”
But Chinese consumers’ more positive outlook doesn’t mean their spending will automatically rebound with the speed and force of its drop-off.
Coronavirus’s threat to consumption
The coronavirus, and the subsequent mass lockdowns of business and society, arguably represent the biggest-ever modern-day threat to China’s consumer economy. Retail sales fell 7.5% year-on-year in April, higher than the forecast 7% decline as the official urban unemployment rate rose to 6%, compared to March’s 5.9% and the 4% to 5% rate of normal years.
China’s GDP contracted for the first time since 1976 this year because of the pandemic, and a March survey by China’s Southwestern University of Finance and Economics found that over 40% of households planned to reduce their consumption in 2020, while per capita consumption expenditure dropped 12.5% from the year before.
“Consumption [in China] will bounce back, but it won’t be revenge consumption, [it will be] recovery consumption,” said Ashley Dudarenok, founder of Alarice, a Hong Kong-based digital marketing firm that focuses on mainland China.
Revenge consumption refers to the idea that once businesses reopen in China, consumers will rush to make up for lost time by spending even more.
“For most people, it is inevitable that there will be anxiety about income reduction or even unemployment,” leading to more “rational consumption,” Dudarenok said.
Cheng said goods like disinfectant products and cooking supplies will see growth in China, as people spend more time at home and continue to worry about the spread of the virus. Beauty products, wine, and clothing, Cheng said, will have a U-shaped recovery—a gradual return to previous consumption levels. Daily necessities like pet food, toilet paper, baby food, and health products likely won’t be affected.
Indeed, data from Tmall, an online retailer operated by Alibaba Group, showed that sales of home appliances and cooking appliances respectively increased by 196% and 89% in early May compared to the same period last year, and book sales increased by 24%. E-commerce sales, meanwhile, climbed 5.9% year-over-year in the first three months of 2020, when almost everyone was at home under lockdown; physical stores saw sales decline by more than 20%.
Restrictions had eased across most of China by April, but during the Labor Day holiday in early May, when many people were still at home, online shopping orders increased by 45% compared to the same period in 2019, according to data from Alibaba-owned logistics company Cainiao.
Cheng said consumer spending in the first week of May—bolstered by local government incentives and e-commerce company discounts—brought business “80–90% back to normal.”
But, Cheng said, consumers might not continue spending at these levels for a sustained period of time, and depending on the state of the global economy, “business will start to go down a little maybe in June or July again.”
“We do need a little bit of recovery time, maybe up to the last quarter of this year, then we’ll start to see more of a back-to-normal stage—if we don’t see any second round of the pandemic,” Cheng said. “But I do think China is sitting in a much better position to weather this.”
More must-read international coverage from Fortune:
—Subscribe to Fortune’s Eastworld newsletter for expert insight on what’s dominating business in Asia.
—Inside China’s reopening: 7 personal stories of life after lockdown
—Photo essay: What life looks like in Europe as the continent starts to reopen
—Reopening of Shanghai Disneyland is a proving ground for pandemic-era theme parks
—Trump’s demand that China pay coronavirus reparations evokes an ugly history
—PODCAST: How Marc Benioff is helping out during the coronavirus pandemic
—WATCH: The global crisis in recycling
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fortune--2020-05-18--Uber’s new plan: Slim down to get ahead

Uber’s new plan: Slim down to get ahead

What to do if your stimulus check is for the wrong amount

Uber’s big spending on far-out bets like self-driving cars and artificial intelligence research may be over. With its latest cost-cutting on Monday, the company made clear that it plans to slim down by focusing on rides and deliveries, and jettisoning most everything else.
On Monday, Uber announced it would lay off 3,000 employees, along with closing or consolidating nearly 40 offices. The cutbacks come on top of the company slashing 3,700 jobs earlier this month. The measures, which reduce Uber’s headcount by 25%, are expected to help save $1 billion annually.
For both layoff rounds and in a conference call with investors earlier this month, Uber CEO Dara Khosrowshahi stressed his new plan to prioritize revenue-generating services over risky bets. His comments marked a huge change in direction for Uber, which, for years, has hemorrhaged cash.
“We have decided to refocus our efforts on our core,” Khosrowshahi said in a letter to employees on Monday. He added, ominously: “We need to fundamentally change the way we operate.”
Analysts say the new strategy will help Uber emerge from the coronavirus pandemic, which has decimated its rides business, as a leaner and more financially responsible company. The cuts, including exiting “money-losing markets and business lines,” are unlikely to be revisited after the pandemic is over, said Tom White, an analyst at investment bank D.A. Davidson.
Even before the pandemic, Uber had planned to tighten its belt after losing $8.5 billion in 2019. James Cordwell, an analyst at brokerage firm Atlantic Equities, said the pandemic has given Uber still more of a reason to make the cuts it arguably already needed but had so far avoided. “You could argue this crisis is a great thing for Uber’s business,” he said. “It enables them to slim down…and emerge stronger than most of their competitors.”
While Uber’s ride-hailing business has suffered recently, the outbreak has helped to accelerate the growth of its food delivery service, Eats, after many cities limited restaurants to selling meals for takeout. And while the gains in food deliveries help bring in extra revenue, they don’t make up for the decline in its rides business, which dropped 80% in April alone.
In recent months, Uber has been tweaking its Eats business by exiting unprofitable markets and expanding into grocery delivery. The company is also in talks to acquire food-delivery rival Grubhub, Bloomberg reported last week. “We no longer need to look far for the next enormous growth opportunity,” Khosrowshahi said in Monday’s note to employees, referring to the Eats business. “We are sitting right on top of one.”
As part of Monday’s cuts, Uber said it would shutter its internal incubator, which was responsible for partnerships with public transit agencies. It’s also closing its AI Labs, a group created in 2016 for artificial intelligence research, while also looking for “strategic alternatives” for Uber Works, a project that debuted last year to help temporary employees find jobs.
While it’s more focused on being smaller and nimbler, the company also faces challenges with its food delivery businesses and declining rides business, Cordwell said. Although growing rapidly, the Eats business still loses money, and it’s unclear whether rides will ever return to pre-pandemic levels. It also means, at least in his opinion, continuing to push ahead in some side businesses like freight, in which Uber matches truck drivers with shipping companies.
“They have to be careful not to throw the baby out with bathwater,” Cordwell said.
But many of the cuts may be determined by when the pandemic ebbs, over which Uber has no control. And while Khosrowshahi regularly boasts about Uber’s $8 billion in cash, that safety net could quickly disappear during a prolonged pandemic.
If more cuts are needed, Uber’s self-driving unit, unmentioned in association with the latest cuts, could be a potential target, said White of D.A. Davidson. Last year, the unit, which has received some funding from Toyota, Denso, and SoftBank, lost $499 million, excluding certain expenses. “That’s particularly an area they could reduce overhead and expense,” White said.
Either way, it’s safe to say growth at any cost is now a thing of the past.


fortune--2020-05-18--What to do if your stimulus check is for the wrong amount

The Fed ’ s economists are worried that stock prices are inflated—and they are right

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The good news? Your stimulus check arrived. The bad news? It’s not for the amount you were expecting.
Last week the IRS released new guidance laying out a few of the reasons your check might be a bit leaner than what you were hoping for, noting that “some Americans may have received a payment amount different than what they expected.”
The primary culprits? The agency was relying on your most recent filing (which may differ from your information for the most recent year); you have added a dependent since your IRS information was updated; or your check was reduced owing to past-due child support or garnishments. As of last week the agency reported that it had “successfully delivered nearly 130 million Economic Impact Payments to Americans in less than a month, and more are on the way.”
What should I do if my stimulus check was less than expected?
There is a way to receive the correct amount—but you’ll need to wait until you file your 2020 return, says Nathan Rigney, lead tax research analyst with H&R Block’s Tax Institute. The IRS has already confirmed this will be an option, and Rigney guesses they will either add a line on the 1040 credits schedule where you will be able to apply the missing amount, or the agency will issue other instructions for how to claim the correct amount closer to next year’s filing deadline.
Rigney says there are a few different scenarios that could have led to an incorrect check amount.
The first is that you have not yet filed your 2019 returns, so the agency was relying on your 2018 information to calculate your check. If you have added a dependent since then, or if your income in 2019 was substantially different than in 2018, it would affect your total.
Another issue, says Rigney, is that for people who don’t normally have filing requirements, such as some veterans or Social Security recipients, the IRS would have calculated their checks based on their information alone but would not have had information if they had dependents to claim. So, for instance, if they had custody of a grandchild they should be able to file for the missing credit(s) in 2020.
Finally, in cases of divorce and shared custody, there may be confusion, as only one spouse is allowed to claim the credit.
Will my stimulus check count as income on my tax return?
No. The government stimulus payments are tax-free and will not count as income on your 2020 returns. However, if you feel your payment was for the wrong amount, Rigney recommends keeping any paper correspondence from the IRS, as well as any records that pertain to income and dependents in order to claim the correct amount on your 2020 return.
And, in the meantime, two bright spots to consider: Round two stimulus checks could soon be in the works, and the IRS has begun to add 3,500 phone operators to field inquiries from taxpayers with questions about economic stimulus payments and other tax issues.


fortune--2020-05-18--TikTok taps Disney streaming chief Kevin Mayer as CEO

Disney streaming chief Kevin Mayer, who was one of the top candidates for Disney’s top job earlier this year, has been named chief executive of the popular short-form video app TikTok.
Mayer, who oversaw the launch of the Disney+ streaming service, will start at TikTok on June 1. He will also serve as the chief operating officer of ByteDance, the Chinese tech conglomerate that owns TikTok.
Rebecca Campbell, a 23-year Disney veteran who most recently served as president of Disneyland Resort, will succeed Mayer as chairman of the company’s direct-to-consumer and international business.
Mayer is joining TikTok at a time when the app’s popularity has exploded in the midst of the novel coronavirus pandemic. At the end of April, the app passed 2 billion downloads globally—just five months after it hit 1.5 billion downloads—according to mobile app measurement firm Sensor Tower. TikTok’s first quarter of 2020 saw the most downloads for any app ever in a quarter, garnering more than 315 million across Apple’s App Store and Android’s Google Play, the firm reported.
TikTok’s story over the past few months hasn’t just been about explosive growth, however. The app’s success has been clouded by concerns over privacy and censorship, and its growing influence in the United States as a Chinese-owned platform. U.S. politicians have called for formal investigations into TikTok in response to national security concerns.
Mayer is quite a coup for TikTok. He was viewed by many within Hollywood as the favorite to succeed former Disney CEO Bob Iger (who remains at Disney as executive chairman, leading the company’s creative endeavors). Mayer gained a reputation for his dealmaking, playing an important role in helping Disney acquire Pixar, Lucasfilm, Marvel, and online video company BAMTech, which creates the streaming technology utilized by Disney’s online platforms. Given the importance of streaming for Disney’s future, Mayer was seen by many as a natural choice.
But the 58-year-old was ultimately passed over for the job when Iger abruptly resigned in February, with Disney instead naming parks and cruises chief Bob Chapek as CEO.
“Kevin has had an extraordinary impact on our company over the years,” Chapek said in a statement Monday. “He has done a masterful job of overseeing and growing our portfolio of streaming services, while bringing together the creative and technological assets required to launch the hugely successful Disney+ globally.”
More must-read stories from Fortune:
—Drive-in theaters are back. These are the movies you can see, and where you can see them
—What to expect on network TV during the 2020–21 season
—3 reasons why Quibi is “losing the attention game”
—Another Star Trek series is coming to CBS All Access
—Snowpiercer showrunner, production designer: We didn’t want a “carbon copy” of the movie


fortune--2020-05-18--FBI: “We received effectively no help from Apple” in accessing Pensacola Shooter’s iPhones

The FBI was able to unlock encrypted iPhones belonging to the shooter in December’s attack at the Naval Air Station in Pensacola, Florida, and discovered he had contact with a suspected al-Qaeda operative, Attorney General William Barr said Monday.
“The FBI finally succeeded” and found that the phones “definitively established” the shooter’s “substantial ties” to the terrorist organization, Barr said at a news conference with FBI Director Christopher Wray.
Success getting into the two phones heads off a legal confrontation — at least for now — with Apple in a continuing fight that pits the needs of law enforcement against the privacy of phone users — but Barr and Wray hit hard at the company.
“We received effectively no help from Apple,” Wray said, an assertion that Apple has previously denied. He said the delay in accessing the phones’ information means conspirators could have destroyed useful evidence.
The alleged link to al-Qaeda is also significant because it suggests the terrorist organization is still able to encourage, and possibly direct, operations in the U.S. almost two decades after the Sept. 11, 2001 attacks.
The Trump administration asked Apple in January for help unlocking a pair of iPhones belonging to the shooter, Mohammed Alshamrani, a 21-year-old 2nd Lieutenant in the Royal Saudi Air Force. Alshamrani was killed by law enforcement responding to the attack.
Barr previously said the shooting rampage that killed three sailors was an act of terrorism. The attack frayed U.S. relations with Saudi Arabia, which removed 21 of its cadets from military training in the U.S. in response.
Alshamrani and his associates in al-Qaeda in the Arabian Peninsula “communicated using end-to-end encrypted apps, with warrant-proof encryption, deliberately in order to evade law enforcement,” Barr said in a statement Monday. “Alshamrani’s preparations for terror began years ago. He had been radicalized by 2015, and having connected and associated with AQAP operatives, joined the Royal Saudi Air Force in order to carry out a ‘special operation.’”
After accessing evidence on the phone, the U.S. recently carried out a counterterrorism operation targeting an overseas al-Qaeda operative that Alshamrani associated with, Barr and Wray said. However, the officials stopped short of asserting that al-Qaeda directed the Pensacola attack.
Shot Phone
The attorney general said that Alshamrani viewed the data on one of his iPhones as so valuable that he interrupted his rampage to fire a bullet into it.
Wray told lawmakers in February that the bureau had reconstructed an iPhone belonging to the shooter but still couldn’t access the encrypted data on the device.
Apple declined to comment on Monday but previously has said it gave the Federal Bureau of Investigation cloud data it held related to the iPhones and works “tirelessly” to assist the bureau. The Cupertino, Calif.-based company continues to insist that it won’t provide a backdoor around encryption to access information on its devices.
“We have always maintained there is no such thing as a backdoor just for the good guys,” the company said in a statement in January. “Backdoors can also be exploited by those who threaten our national security and the data security of our customers.”
While the government had been pressing Apple to help it unlock the devices, experts in cybersecurity and digital forensics say the FBI has shown it has the ability to get into mobile phones when necessary without Apple’s help, as it eventually did with the one belonging to the shooter behind an attack in San Bernardino, California, five years ago.
“Every time there’s a traumatic event requiring investigation into digital devices, the Justice Department loudly claims that it needs backdoors to encryption, and then quietly announces it actually found a way to access information without threatening the security and privacy of the entire world,” said Brett Max Kaufman, an attorney with the American Civil Liberties Union.
“The boy who cried wolf has nothing on the agency that cried encryption,” he said in a statement.


fortune--2020-05-18--The Fed’s economists are worried that stock prices are inflated—and they are right

The Fed rang an alarm for investors: Equities just got a lot more expensive, so that unless the U.S. stages a quick, extraordinary, V-for-victory recovery, you risk losing lots of money in these frothy markets. The Fed’s being too mild. The raging run-up makes equities way overpriced regardless of the how long the economy takes to rebound.
In its biannual Financial Stability Report published Friday, May 15, the Federal Reserve provided two notes of caution on where asset prices stand now and where they could be headed. The first holds that buying real estate, equities, or other investments on hopes that the pandemic will be short-lived could prove a bad bet. “Asset prices remain vulnerable to significant declines should the pandemic worsen, the economic fallout prove more severe, or financial system strains reemerge,” wrote the central bank’s economists.
The Fed also specifically addressed the dangers posed by the S&P 500’s more than 30% jump since hitting its March lows. “Prices relative to earnings have risen since late March to levels seen before the outbreak,” stated the report. “Prices have increased a fair bit since the trough, and analysts’ firm-level earnings forecasts have fallen in response to the economic deterioration.”
The Fed’s analysis, however, makes it difficult to decipher just how expensive stocks really are. The problem is that the “prices relative to earnings” metric, or the P/E multiple, has two moving parts––prices and profits––so the combination of fast-dropping earnings forecasts and a booming S&P index has sent valuations careening from depths not seen in many years to beyond the heights scaled in late 2019, all in a matter of weeks. In the report, the Fed references data from Refinitiv, the firm that polls buy-side analysts and provides extensive data based on their forecasts. At the close of 2019, the Refinitiv survey predicted that the S&P would post GAAP reported earnings per share of $163 for 2020, for a “forward” P/E of around 19.
Amazingly, when the S&P hit the lows in late March, the analysts, always overly optimistic, were even farther behind than usual: They expected profits to fall just a shade to $160 12 months hence. As a result, the obviously overwrought profit forecast hoisted the denominator, just as the 34% drop in prices was crushing the numerator. The result: a P/E that cratered in late March to 14, a number not witnessed since the Great Recession.
Then both of the moving parts shifted into reverse: Prices soared, and earnings estimates collapsed. In Refinitiv’s most recent report, analysts project profits over the next 12 months of just $129.5, 19% less than the outlook six weeks earlier. The swoon in earnings estimates and explosion in prices has lifted the the P/E cited in the Fed report from 14 to 19, right where it finished in 2019.
It was that roundtrip that spooked the Fed. But wait. The central bank’s numbers are based on prices at the end of April. Since then, the S&P has kept soaring, lifting the forward P/E, as of midday May 18, to 22.8: 20% higher than the end of last year.
Wall Street would argue that the 23-plus reading that looks so outrageously pricey doesn’t tell us much, because it’s based on earnings getting hammered by the sweeping lockdown, and that profits will strongly rebound in the recovery. So where do the pros think earnings will rebound to, and is that estimate reasonable?
A good test is my “Tully 20” rule. It takes the S&P 500 index, the “price,” and divides by a P/E of 20, a multiple that’s well been the average for the past 50 years. Folks buying S&P stocks obviously expect the index to rise from here, so let’s assume that prices rose just a modest 10% in two years, getting us to the second quarter of 2022. In that case, the index would reach 3,250. At a rich, 20 P/E, reported earnings per share would need to be $163 (the price of 3,250 divided by the P/E of 20).
That’s 17% higher than record earnings posted at the end of 2019—and it just won’t happen. America’s big cap companies will not be almost 20% more profitable in mid-2021 than they were in the glory days of 2019. In a best-case outcome, operating margins shrink from their elevated levels of last year to closer to the long-term average of between 8% and 9%. That would put earnings at no more than $130. By the Tully 20 rule, at a 20 P/E a reasonable forecast for the S&P two years from now would be 2,600 (20 multiplied by $130), 12% below where it is today. And given the extreme uncertainty clouding the economy’s future, that’s optimistic.
Speaking of uncertainty, it’s never been harder to predict where profits will be two years from now than it is today. But we do know approximately where they will need to go in order for the S&P to be reasonably priced. It’s anything but. While the reality on the ground is a grim story of crumbling profits, surging joblessness, and Great Depression–style shrinkage in the economy, the markets have entered a parallel universe that might be called fantasyland.


fortune--2020-05-18--ViacomCBS: Why Shari Redstone sees ‘significant growth’ ahead

New York City media conglomerate ViacomCBS beat Wall Street estimates for first-quarter revenue and profit earlier this month. Now chairwoman Shari Redstone says “significant growth” lies ahead, despite strong competition and an ongoing coronavirus pandemic that has increased media consumption but decreased ad revenue across the media industry.
“These are extraordinary times,” Redstone said Monday during the ViacomCBS annual shareholder meeting that was, naturally, webcast. But the company has “significant growth opportunities we are moving quickly to capture,” she added. Redstone said the company’s “content has never been in greater demand among audiences around the world” and touted the recent combination of the once-discrete CBS and Viacom brand portfolios as a “global multi-platform content powerhouse.”
CEO Bob Bakish, also present on the shareholders call—the first since Viacom and CBS merged in December—said Pluto TV, the company’s free, advertising-supported streaming service, is functioning as a “massive free front door” for customers to find and pay for subscriptions to the CBS All Access and Showtime streaming platforms. “Our growing scale, audience reach, and earnings power will become even more evident as the market rebounds,” Bakish said, echoing similar comments he made before the merger at Fortune’s Brainstorm Tech conference in 2018.
During the company’s first-quarter earnings call earlier this month, ViacomCBS reported more than 13.5 million domestic streaming subscribers, a 50% increase year over year. It was enough to offset a 19% decline in advertising revenue to $2.48 billion, exacerbated by the cancellation of the NCAA March Madness basketball tournament.
On Monday, Bakish said ViacomCBS is now “seeing some green shoots in advertising—but we continue to need to manage through it.”
Because of these strides, as well as the streaming gains thanks to what Redstone described on Monday as “unmatched content assets,” the chairwoman argued that ViacomCBS’s stock has upside.
“We totally believe the stock is dramatically undervalued,” said Redstone, who also serves as president of theater and mass media holding company National Amusements, which holds about four-fifths of ViacomCBS’s voting stock. “The market is looking for us to prove that we can execute on our strategy. I’m confident we will do so more quickly than anyone expects.”
Shares of ViacomCBS increased about 10% by midday, trading to around $19. Shares are down roughly 64% for the year to date.
More must-read stories from Fortune:
—Drive-in theaters are back. These are the movies you can see, and where you can see them
—What to expect on network TV during the 2020–21 season
—3 reasons why Quibi is “losing the attention game”
—Another Star Trek series is coming to CBS All Access
—Snowpiercer showrunner, production designer: We didn’t want a “carbon copy” of the movie


fortune--2020-05-18--J.C. Penney is planning to close 242 stores

J.C. Penney has filed its business plan in bankruptcy court, and it calls for a much slimmer department store chain in the future.
The company, which filed for Chapter 11 bankruptcy protection last week, said Monday it would close 242 stores, or 29% of its pre-bankruptcy fleet, and bank on e-commerce growth to help make up the shortfall.
Penney has not reported an annual profit since 2010 and has seen its revenue fall 80% since then, as it has lost market share to the likes of Target and T.J. Maxx, and, to a lesser extent, more direct rivals like Macy’s and Kohl’s. Only a few years ago, Penney had 1,100 stores, so the upcoming closures will only be the latest in the company’s efforts to find the right number of stores.
In its plan, filed with the court and with regulators, Penney did not identify which stores would close, but said 192 would shutter this year and another 50 would close in 2021. Penney also said that 116 smaller markets made up only 7% of sales, so those areas would be the focus for closures.
The company, based in Plano, Texas, said in its plan that the 604 remaining stores were its “highest sales generating, most profitable” and represented 82% of store sales last year.
Penney is hoping that e-commerce will help make up for the drop from store closures within a few years. In 2019 14% of its sales came from online orders, well below the rate at Kohl’s and Macy’s where the category represented about a quarter of sales. By 2024, Penney thinks it can hit $2.3 billion in sales online, or 26% of sales, and gradually get close to the $10 billion total net sales mark in a few years.
The company, which for decades had a catalog business that initially gave it a head start in the department store e-commerce wars, has fallen way behind rivals in recent years, hurt by weak search capabilities for items and poor integration of inventory management systems.
Given how rarely retailers with chronically declining sales pre-bankruptcy filing reemerge from Chapter 11 protection rather than liquidate, Penney is under the gun to convince lenders it can make a go of it as a leaner, more focused retailer. The Wall Street Journal reported on Saturday that Penney’s bankruptcy lawyer warned the court that not proceeding quickly could be “disastrous” for the company.


fortune--2020-05-18--Some CEOs are keeping those massive bonuses—even after cutting thousands of jobs

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Even CEOs are starting to get squeezed by the economic realities of this pandemic.
But compared to their employees, a growing number of critics still say it’s not nearly enough.
So far, top executives of many major U.S. corporations—including some at the very epicenter of the crisis—have mostly held on to their outsize pay packages after giving up some of their salaries. And even as rank-and-file jobs vanish, some still have a distant shot at collecting bonuses for 2020, albeit smaller than last year’s.
How things play out will depend on the economy, financial markets and ultimately the coronavirus itself. But as the pain grows for ordinary workers, executive pay—a divisive issue in an age of extraordinary inequality—has come to the fore once again.
Consider, for example, Tenet Healthcare Corp., which has furloughed thousands in the wake of the coronavirus. Chief Executive Officer Ronald Rittenmeyer vowed to give up three months’ pay—roughly $390,000—to a fund set up years ago to help employees struggling to make ends meet. In a letter to investors in April, he wrote the donation was made “in honor” of the hospital chain’s 113,000 doctors, nurses and others, many of whom work on the front lines in the fight against COVID-19.
Explore: The Fortune 500 list for 2020 is out
Yet even after the pay cut, Rittenmeyer will still rake in over a million dollars in salary. That’s not counting at least a $875,000 bonus, stock awards worth $11.3 million through 2022 and a contract that entitles him to millions of dollars more in the future. Total compensation figures have yet to be finalized for the current year, but the $390,000 that Rittenmeyer is forgoing would only amount to 2% of what he received last year.
What’s more, Tenet still pays Rittenmeyer’s predecessor, who left three years ago, roughly $245,000 each month as part of his severance package.
It’s little wonder one of the largest U.S. unions criticized Tenet’s executive pay and said Rittenmeyer’s donation amounted to little more than “a gesture.”
In a letter to Tenet’s investors, Ken Hall, general secretary-treasurer for the International Brotherhood of Teamsters, said the payouts were “particularly inappropriate” when resources are sorely needed to support Tenet’s front-line workers. He asked shareholders to vote against the pay package at the company’s annual meeting on May 28.
A Tenet spokesman said executive-pay decisions were made before the outbreak and payouts are tied to long-term goals. He added the furloughs were carried out to focus resources on COVID-19 care and some employees are back on the job.
Rittenmeyer, who declined to be interviewed, isn’t the only CEO facing scrutiny. Grocery store chain Kroger Co., under fire from employees and unions over its plan to scrap its extra $2 per hour in hazard pay this weekend, disclosed that CEO Rodney McMullen was awarded $21.1 million in compensation for 2019. Compare that to a typical worker, who got less than $27,000 in pay and benefits.
A Kroger spokeswoman pointed out the company’s average wage is $15 an hour and that it offers a range of safety precautions, from testing to emergency leave, to employees.
All across the country, as millions of Americans are thrown out of work, tough questions are once again being asked about executive pay.
Airlines like United Airlines Holdings Inc. and Southwest Airlines Co. began announcing CEO pay reductions in March, and dozens of companies across industries have followed. Some, including General Electric Co.’s Larry Culp, will forgo their entire salary for the rest of 2020.
On one hand, the moves are a conscious, if symbolic, display of solidarity and shared sacrifice, an effort by the bosses not to appear tone deaf. But on the other, they lay bare the gaping economic disparities between those at the very top of corporate America and everyone else.
“If you’re going to ask your staff to give up salary, so should you,” said Charles Elson, director of the University of Delaware’s center for corporate governance. “The question is, how will the rest of the pay package play out?”
CEOs at S&P 500 companies receive on average $1.3 million in salary, roughly 20 times the median U.S. household income. But that sum only accounts for 10% of their total compensation. The rest comes in bonuses and stock-based incentives typically tied to measures like equity returns or profits. Those payouts are adjusted based on how goals are met.
For many executives in the hardest-hit industries, that means making do with perhaps $1 million instead of $10 million. But others still have a shot at hefty payouts, regardless of cuts to base pay, if stocks recover.
Of course, the stock market isn’t the economy. But it can often magnify and distort—in a fun-house mirror sort of way—the winners and losers in it.
After plummeting in March, stocks last month jumped the most since 1987. The rebound came as U.S. companies cut a record 20.5 million jobs, causing the jobless rate to reach 14.7%.
And as the post-crisis years showed, the market tends to reward capital over labor. In the past decade, public-company executives have reaped billions of dollars in gains from stock-based awards, some of which were granted at the depths of the Great Recession, while millions of people have struggled for years to regain their footing.
“There’s just the general view that we need to pay attention to all stakeholders,” said Robin Ferracone, CEO of Farient Advisors, which gives boards advice on executive pay. “It can’t just be that some are getting richer and the rest are taking it on the chin.”
It’s part of a longer-term trend. Chief executives at the largest U.S. companies saw their pay skyrocket 940% between 1978 and 2018, a study showed last year, largely helped by stock gains. Worker wages, meanwhile, increased by just 12%.
In some instances, hefty stock awards have arguably made sharing the pain an exercise in virtue signaling. In April, Greg Case, CEO of global insurance and consulting firm Aon Plc, said he would give up 50% of his $1.5 million salary for the rest of the year as part of broader pay cuts. Roughly 70% of Aon’s workforce will see their salaries reduced by a fifth.
However, Aon still will pay about $100 million in dividends to shareholders on May 15. Like many other CEOs, Case has amassed a sizable ownership stake since he started in 2005, roughly 1.2 million shares. His cut of the quarterly payout—about $531,000—will more than make up his lost salary.
Other employees who hold shares will benefit, too. But unlike Case, few also have tens of millions of dollars in unvested stock awards outstanding.
Aon declined to comment beyond Case’s open letter to employees. In it, Case wrote “paying a regular dividend is consistent with maintaining an investment grade rating and fundamental to accessing the capital markets.”
The pandemic has also brought into stark relief the lucrative golden parachutes given to corporate executives. In March, MGM Resorts International furloughed tens of thousands of workers and began layoffs. Days later, it gave outgoing CEO Jim Murren, who left to head Nevada’s coronavirus task force, a $32 million exit package. The payout sidestepped the terms of his original contract, which entitled him to nothing if he left voluntarily.
MGM didn’t directly address the exit package but said at the time that the board sped up the transition, announced the prior month, because it “believes continued steady, skilled leadership is needed in this time of great upheaval and uncertainty.”
Whatever the case, companies must weigh past promises against public perception, says Aalap Shah, a partner at Pearl Meyer, an executive-pay consulting firm.
“If you don’t react in a way of camaraderie,” he said, “that’s going to be very telling about the kind of company you are.”


fortune--2020-05-18--Can Jason Blum figure out a way to restart Hollywood movie production?

It’s a great irony: At a time when most movie-watchers are stuck on their couches seeking more films to watch, Hollywood can’t continue making new ones.
That’s all thanks to the novel coronavirus pandemic, which has virtually shuttered (along with the rest of the global economy) the moviemaking industry. After all, how do you make a movie without calling actors, producers, and other visual pros to the set?
Two months into shelter-in-place orders in Hollywood’s home state of California, film producers are getting itchy that their pipelines are drying up. Enter producer Jason Blum. As Los Angeles County begins to relax some restrictions related to the coronavirus pandemic, the man behind Blumhouse Productions (The Gift, Split, Happy Death Day, Us) is said to be working on plans with Universal Pictures to film a small project on the company’s L.A. lot.
According to The Hollywood Reporter, the $6.5 million production’s “cast and crew would live in a hotel nearby, and a set of safety protocols would be in place.” The report adds: “Forget about insurance that would cover a shutdown due to a coronavirus-related outbreak of illness.”
It’s evident that Blum has been thinking about the situation for some time. In an interview with the Los Angeles Times last month, he said he believes “smaller productions will start sooner” but expected “big expensive movies” like Marvel’s superhero films to wait until 2021. “It’s all about when testing will be in this country as good it is in other places, which it isn’t yet,” he added.
If it comes to pass, this new Universal-Blumhouse project would be far from straightforward—preproduction work would have to be conducted remotely, for example. The filmmakers would have to ensure that the project wouldn’t run afoul of the myriad city, county, and public-health restrictions governing activity in the region, which continue to change every few weeks. And the entire group would have to take every conceivable step to ensure that the coronavirus remains offsite.
But it would be an early data point in the broader effort to get Hollywood filming again—responsibly, of course.
More must-read stories from Fortune:
—Drive-in theaters are back. These are the movies you can see, and where you can see them
—What to expect on network TV during the 2020–21 season
—3 reasons why Quibi is “losing the attention game”
—Another Star Trek series is coming to CBS All Access
—Snowpiercer showrunner, production designer: We didn’t want a “carbon copy” of the movie


fortune--2020-05-18--J.K. Rowling was drinking old-fashioneds and asked Twitter to explain Bitcoin. Here’s what happened

J.K. Rowling was drinking old-fashioneds and asked Twitter to explain Bitcoin. Here’s what happened next

The cryptocurrency world received a jolt on Friday when one of the world’s most famous women expressed interest in Bitcoin. J.K. Rowling, the author of the Harry Potter series, responded to a reporter’s tweet and asked for an explanation of the famous digital currency.
I don’t understand bitcoin. Please explain it to me. — J.K. Rowling (@jk_rowling) May 15, 2020
It didn’t take long for a band of cryptocurrency enthusiasts on social media—known colloquially as “crypto Twitter”—to flood Rowling’s account with thousands of replies. The respondents included Vitalik Buterin, founder of the popular digital currency Ethereum, who tried to explain crypto credos like decentralization and store of value:
Basically global digital payments, plus the store of value properties of gold, all with 21st century cryptographic tech to keep the whole thing running safely. — vitalik.eth (@VitalikButerin) May 15, 2020
Alas, Rowling remained entirely unpersuaded, despite attempts by many Twitter users to invoke Harry Potter analogies such as Gringotts bank and the magic transport device known as the Floo Network. After reading hours of such explanations, she declared the whole Bitcoin business to be mumbo jumbo—receiving support from Tesla CEO Elon Musk, who also added that currency issued by central banks isn’t much better.
Pretty much, although massive currency issuance by govt central banks is making Bitcoin Internet 👻 money look solid by comparison — Elon Musk (@elonmusk) May 15, 2020
Rowling also revealed that she had undertaken her Bitcoin research while knocking back multiple old-fashioneds—a cocktail of whiskey, sugar, and bitters.
I know you mean to help, but full disclosure: I’m only allowing myself alcohol at weekends during this lockdown and I’m on my fourth very strong Old Fashioned and honestly, you might as well send me a scroll written in Sanskrit. pic.twitter.com/baMCaB1mEW — J.K. Rowling (@jk_rowling) May 15, 2020
Some suggested Rowling take another crack at learning Bitcoin without the help of old-fashioneds—but to no avail:
I’ve got far more chance of grasping it drunk. — J.K. Rowling (@jk_rowling) May 15, 2020
The whole discussion descended still further when the CEOs of the world’s two most prominent crypto companies, Brian Armstrong of Coinbase and Changpeng Zhao of Binance, encouraged Rowling to embrace Bitcoin. The latter tweeted, “Give a woman a fish and you feed her for a day; teach a woman to fish and you feed her for a lifetime. Not that you still need feeding, but…”—a message that came across to many as both sexist and bizarre.
Armstong’s attempted outreach to Rowling went no better. The Coinbase CEO got duped by a scam Twitter account that popped up to exploit the situation, exhorting the fake Rowling to buy other types of crypto (derided by skeptics as “shitcoins”) besides Bitcoin. Armstrong deleted the tweet but not before it was screenshotted:
The CEO of Coinbase responded to a fake JK Rowling tweet and encouraged it to buy shitcoins pic.twitter.com/cy1zo2yCZZ — Joe Weisenthal (@TheStalwart) May 16, 2020
By Saturday, the old-fashioneds had worn off, and Rowling was back on Twitter—and her view of Bitcoin was even dimmer than before:
Morning, all. People are calling each other simps in my mentions and a fake JK Rowling account has made a purchase of Bitcoin. How’s your Saturday shaping up? — J.K. Rowling (@jk_rowling) May 16, 2020
By Monday, Rowling had apparently decided to wash her hands of the cryptocurrency crowd, dispensing advice on Twitter about writing—though she couldn’t resist one final dig at Bitcoin:
On point 3: my mentions are still full of people trying to get me to buy Bitcoin or to explain it to me. It’s very kind of you, but I swear, I now feel fully educated on the subject. — J.K. Rowling (@jk_rowling) May 18, 2020
Rowling is presumably done with Bitcoin for good—leaving the crypto crowd to rue a missed opportunity. As trade publication Decrypt noted, “The geeky kids from the economics class tried their best to woo the literary type from the book club. It didn’t go well.”
The news isn’t all bad for Bitcoin believers, however. On Sunday night, Bitcoin served as a central plot point in the hit TV show, Billions, while the price of the cryptocurrency headed toward a three-month high of $10,000.
More must-read finance coverage from Fortune:


fortune--2020-05-18--Moderna releases promising—but early—new coronavirus vaccine data

Moderna Therapeutics’ first approved treatment may wind up being a coronavirus vaccine.
The Cambridge, Mass., biotech announced positive early-stage data from a Phase I clinical trial of its experimental COVID-19 vaccine candidate, mRNA-1273. The study is being led by the National Institute of Allergy and Infectious Diseases (NIAID), which is housed within the National Institutes of Health (NIH).
All 45 patients given three different dosing levels of mRNA-1273 developed COVID-19 antibodies, according to Moderna. These antibodies are present in the blood of patients who have recovered from a coronavirus infection and may help confer immunity to the disease. Moderna stock soared as much as 30% in early Monday trading on the news.
The biotech specializes in a treatment platform called mRNA therapeutics. In essence, its drug candidates harness messenger RNA, a type of RNA that can transform cells into drugmaking factories by instructing them on what kinds of biological materials, such as antibodies, to create. The company is attempting to devise such treatments for conditions ranging from infectious diseases to cancer.
Patients in Moderna’s trial were given two doses of the vaccine over the course of 43 days at 25-microgram, 100-microgram, and 250-microgram dosing levels via injections in the upper arm. Strikingly, Moderna says that mRNA-1273, at the 100-microgram level, elicited an immune response that created a significantly higher number of coronavirus antibodies than you’d see in a typical patient who has recovered from COVID-19.
The million-dollar question is, Just what does that mean? Only time will tell the strength and staying power of immunity conferred from COVID-19 antibodies, though the hope is they will provide at least some protection.
Moderna has several ongoing studies of mRNA-1273, including a Phase II trial that will include different dosing levels to determine which ones are most appropriate and effective. CEO Stéphane Bancel said in a statement the company also plans to launch Phase III trials in July—and that depending on how the data play out, a vaccine could theoretically reach the market by early 2021.
More coronavirus coverage from Fortune:
—The Rebuild Program: A project to help small businesses reopen amid a pandemic
—What France’s “patient zero” doctor wants you to know about COVID-19
—McConnell focuses Senate on conservative judge appointments rather than coronavirus
—Photo essay: What life looks like in Europe as the continent starts to reopen
—Trump’s demand that China pay coronavirus reparations evokes an ugly history
—To reopen safely, the private and public sectors need to ramp up collaboration
—Uber’s food delivery helps cushion the blow of COVID-19 on rides business
—PODCAST: How Marc Benioff is helping out during the coronavirus pandemic
—WATCH: Fortune’s top 10 heroes of the coronavirus pandemic
Subscribe to How To Reopen, Fortune’s weekly newsletter on what it takes to reboot business in the midst of a pandemic


fortune--2020-05-18--Charles Koch: How individual actions can make a difference during the coronavirus pandemic

The coronavirus pandemic has upended lives, shuttered businesses, and profoundly altered our expectations for the future. The situation is so overwhelming that individually we might feel powerless to make a difference. But America has always overcome challenges because seemingly ordinary people have risen to meet them.
This crisis is no different. The sum of our individual actions can create the innovation and momentum necessary for our country to come through this crisis stronger than before.
We all have a role to play. Finding yours depends on your unique talents and circumstances. The pandemic has given rise to many urgent needs, from food to medical equipment. Different people can creatively apply their distinct abilities to meet these needs. As they do, they will set an example for others to do the same. This can spur a virtuous cycle in which all of us continually increase and improve our efforts to help those around us.
Millions of people are already showing what’s possible. The medical professionals on the front lines of the pandemic. The grocery store workers who manage to keep a smile on their face as they ensure we have food to eat. The delivery drivers who stepped up when restaurants had to close their doors. Workers at factories critical to the supply chain. Law enforcement. Pharmacists. The list goes on. This is the best of America on full display.
My own perspective on the importance of individual initiative is partially shaped by my experience in business. At Koch Industries, each of our 130,000 employees has aptitudes and knowledge they can creatively apply in this crisis, and a large percentage are doing so. The same is true of companies in every industry.
A personal contribution can take many forms. It may be an employee finding a way to make machinery more efficient, enabling more consumer goods to be produced. It may involve a junior staffer making a suggestion that helps a small business remain open and its workers employed. Or it could mean running a laboratory experiment that brings us closer to a coronavirus treatment or cure. No action is too small; combined, they can make an enormous difference.
This is the reality behind every positive story coming out of businesses now. Behind clothing companies like Gap and Eddie Bauer shifting their production lines to make masks and paint manufacturers like True Value making hand sanitizer are the suggestions and efforts of people motivated to contribute. In countless industries, if you look beneath the surface you will find people of all backgrounds applying their unique skills to make a difference.
These examples show how meaningful each of our actions can be when directed to solving the pressing problems around us. Your opportunity could be through the workplace or in the neighborhood. Maybe it’s in your church or at a local charity. Wherever it is, and whatever it may be, it’s just a matter of finding where you can help the most.
We all urgently need to find our role. Given the widespread damage wrought by the coronavirus, our task will be daunting. But so were the challenges faced and overcome by those who preceded us. If we each dedicate ourselves to where we can best contribute, we can do the same, and come through this crisis even stronger than we were before.
Charles Koch is chairman and CEO of Koch Industries and founder of the philanthropic community Stand Together.


fortune--2020-05-18--SoftBank is back with another set of Microsoft Paint-level graphics

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Even if SoftBank disappoints its investors with its earnings, it has consistently done entertainingly well on one thing: earnings presentations with early-2000s formatting and Microsoft Paint-level Photoshopping, featuring graphs ending up and to the right.
The company lately decided to explain its projections around startups with more of its (in)famous charts during its earnings report Monday. Portfolio companies including ride-hailing company Uber and space-sharing company WeWork have struggled amid the coronavirus.
Here are a few startups galloping up a hill, fine as can be:
But suddenly, they come across a coronavirus trough:
One of the three survives, not as a unicorn, but as a flying pegasus—with no details on how exactly it plans to achieve that.
The idea isn’t completely out of wack, even if the graphics are atypical of a multibillion corporation. Venture capital investors expect most startups to fail as long as one gold star rises to exceed losses. It’s just that few have gone as far as SoftBank, plowing nearly $100 billion into the space through such a short period of time—nor is it common for a single fund to take a near ETF-like approach to investing in competing companies, such as three competing Latin American food delivery companies.
From inception to March 31, 2020, SoftBank’s losses are exceeding its gains. SoftBank’s Vision Fund portfolio has roughly 88 companies—and made money on 26 investments and marked down 47, according to the company, posting an unrealised loss of nearly $18 billion in the year to March.
The wider SoftBank Group meanwhile is shoring up cash: The telecom giant plans to sell billions of shares in Alibaba and is now reportedly in talks to sell part of its T-Mobile stake to controlling shareholder Deutsche Telekom. Under pressure from Elliot Management, SoftBank has said it plans to sell as much as $41 billion in assets.
The new world order: The annual Fortune 500 list published today, and leading the FAANGs is Amazon. The e-commerce and cloud titan leapt past Apple and Exxon Mobil in the rankings to reach No.2 on the list—its highest ranking ever after revenues grew by some $48 billion during the year while Apple struggled with profits in China.
But overtaking the leader on the list, Walmart, could take a few years yet if Amazon continues to grow at its pace. Walmart earned $524 billion in 2019 compared to Amazon’s $264.9 billion.
Uber meanwhile joined the list for the first time after debuting in public markets last year, ranking at No. 228.
People are lonely: And new social media players see an in. Gamer-centric chat startup Discord is reportedly seeking a fresh round of funding amid soaring demand that would value the company at above $3 billion, according to Bloomberg. Another red-hot though less-proven company, Clubhouse, is raising $10 million in Series A funding from Andreessen Horowitz, per Forbes. Both connect communities through spontaneous voice chat—and both are likely seeking to break out of their molds in order to grow in the mainstream. Discord, known for its gamer-centric base, is increasingly being used for dance classes or study groups. And while Clubhouse attracted the tech community early on, it is now apparently seeking celebrities to join.
Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com
VENTURE DEALS
- Monzo, the U.K.-based fintech, plans to raise funding at a valuation of £1.25 billion ($1.5 billion), compared with the more than £2 billion ($2.5 billion) valuation it last achieved, per the Financial Times citing sources. Accel, Y Combinator Continuity and Goodwater Capital back the firm. Read more.
- Sensetime, a Hong Kong-based facial-recognition company, is weighing a $1 billion funding round, per the Wall Street Journal citing sources. Read more.
- Wolt, a Finnish food delivery startup, raised €100 million ($108.2 million) in funding. Existing investors ICONIQ Capital, Highland Europe, 83North and EQT Ventures invested, as did new investor: Goldman Sachs’ Growth Equity unit.
- SQZ Biotech, a Watertown, Mass.-based developer of cell-based therapies, raised $65 million in Series D funding. Temasek led the round, and was joined by investors including GV, Illumina Ventures, Invus, JDRF T1D Fund, NanoDimension, and Polaris Partners.
- Fly Now Pay Later, a U.K.-based travel fintech, raised £35 million (42.5 million) in Series A equity and debt funding. Revenio Capital led the round,and was joined by investors including Shawbrook Bank and BCI Finance.
- Quartz Systems, a San Francisco, Calif.-based construction tech company, raised $7.8 million in pre-seed and seed funding. Baseline Ventures led the round, and was joined by investors including Felicis Ventures, Lemnos, and Bloomberg Beta.
- Pennylane, a Paris-based fintech real-time management accounting fintech, raised €4 million ($4.3 million) in funding from Global Founders Capital, Partech and Kima Ventures.
- Mindset Health, an Australia-based hynotherapy startup, raised $1.1 million in funding from investors including Fifty Years, YC, Gelt VC, and Giant Leap VC.
PRIVATE EQUITY
- ArchiMed acquired ActiGraph, a Pensacola, Fla.-based developer of wearable, remote monitoring for academic studies and drug trials. Financial terms weren't disclosed.
- Net Health, a portfolio company of The Carlyle Group, Level Equity, and Silversmith Capital Partners, acquired Tissue Analytics, a Kansas City, Mo.-based developer of automated mobile wound and skin imaging. Silversmith invested additional equity. Financial terms weren't disclosed.
- CVC Capital Partners and Guodong Group are among those shortlisted in a deal for Irrawaddy Green Towers, Myanmar’s biggest telecommunications tower company. The could be worth as much as $800 million, per Reuters citing sources. Read more.
- Archibus + Serraview, a portfolio company of JMI Equity, acquired SpaceIO, a provider of workplace management and operations software. Financial terms weren't disclosed.
- TA Associates invested in Honan Insurance Group, a commercial insurance broker in New Zealand and Australia. Financial terms weren't disclosed.
OTHERS
- Saudi Arabia's sovereign wealth fund is seeking a $10 billion loan by pledging some of its investment in SoftBank Group’s Vision Fund, Bloomberg reports citing sources. The wealth fund denied the reports. Read more.
- General Atlantic will invest $870 million in Jio Platforms, the Indian telecom giant backed by the likes of Facebook and Silver Lake, taking a 1.34% stake. The company is valued at $65 billion.
- Templafy agreed to acquire Denmark-based Napp, a Denmark-based B2B sales enablement platform. Financial terms weren't disclosed.
- Accenture (NYSE: ACN) acquired Byte Prophecy, an Indian automated insights and data analytics firm. Financial terms weren't disclosed.
BANKRUPTCIES, PAUSES, AND BREAKUPS
- Gavilan Resources, a Houston-based oil-and-gas company formed by Blackstone Group, filed for bankruptcy protection. Read more.
- Total (EPA: FP) called off a plan to acquire Occidental Petroleum’s assets in Ghana. Read more.
- First Abu Dhabi Bank put on hold discussions to acquire the Egyptian assets of Lebanon’s Bank Audi, per Reuters citing sources. Read more.
IPOS
- Inari Medical, a Irvine, Calif.-based medical device company focused on venous diseases, plans to raise $110 million (18% insider bought) by offering 7.3 million shares priced between $14 to $16 apiece. It posted $51 million in revenue for the year ending December, and income of $801,000. USVP (20% pre-offering), Coöperatieve Gilde Healthcare (19.6%), and Versant Ventures (14.9%) back the firm. It plans to list on the Nasdaq as “NARI.” Read more.
- Shift4 Payments, a Allentown payment processing company focused on the hospitality sector, filed to raise up to $100 million in an IPO. It posted revenues of $731.4 million in 2019 and losses of $58.1 million. Searchlight Capital Partners backs the firm. It plans to list on the NYSE as “FOUR.” Read more.
- SelectQuote, an Overland Park, Kan.-based which provides an online DTC insurance platform, plans to raise $450 million in an offering 25 million shares (28% insider sold) priced in the range of $17 to $19. It posted $337.5 million in revenue for the year ending June, and income of $72.3 million. Brookside Equity Partners backs the firm. It plans to list on the NYSE as SLQT. Read more.
- Saudi Arabia’s sovereign wealth fund is considering an IPO of Elm, its Riyadh-based information technology company, per Reuters citing sources. Read more.
EXITS
- Facebook agreed to acquire Giphy, a New York-based platform for gifs, valuing the company at $400 million, per Axios citing sources. Firms including Betaworks, Lerer Hippeau, IVP, DFJ Growth, GGV Capital, and Lightspeed Venture Partners backed the firm. Read more.
- The Czech government could buy up to 100% of Smartwings, the owner of Czech Airlines, or offer state-guaranteed loans. Read more.
F+FS
- EIG Global Energy Partners closed Global Project Fund V with total commitments of $1.1 billion.
- Cohere Capital Partners closed its debut fund, Cohere Capital Fund I, with $200 million.
- Iron Pillar raised $45 million to top up its first fund.
PEOPLE
- KKR has picked Gaurav Trehan, a partner from TPG, to head its private equity business in India, per Bloomberg citing sources. Read more.