fortune--2020-07-24--A deep dive into Bank of America financials yields evidence of the economy’s big disconnect

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Bank of America at this juncture epitomizes a never-before-seen disparity between an economy that just underwent the fastest, deepest dive ever, and consumers who keep paying their bills as if the good times never stopped rolling. Like all of the nation’s lenders, BofA is tasked with forecasting the trend, that more than any other, will determine the course for the recovery: how high the coming wave of losses on credit cards, car loans, mortgages, and the like will rise once the government’s unprecedented support in the form of cash payments, extra jobless benefits, and big subsidies to small business run out.
BofA’s second-quarter report, released last week, indeed forecasts a big wave of defaults to come. In the first half of 2020, America’s second largest bank by assets to JPMorgan Chase took by far the largest loan loss provisions for any six-month period since the first two quarters of 2011, when the aftermath of the financial crisis was still pummeling its credit and capital. Those additions to its reserves hammered what had been a run of stellar earnings through 2019.
But BofA’s projections are more a shot in the dark than at the onset of any other steep recession. The reason is twofold. First, the origins of this downturn are so unusual that its length and depth are far harder to forecast than for previous recessions. Second, BofA is trying to project a deterioration in credit that, five months into the crisis, hasn’t started yet––in part thanks to the never-before-seen level of government support to families and businesses, as well as forbearance on payments from the banks. So far, the consumer is defying 11.5% unemployment and the quickest, sharpest drop in GDP since the Great Depression, to keep making payments on loans just as regularly as before the crisis erupted. If you’d gone to sleep on Valentine’s Day, and just awoke to see BofA’s still terrific second-quarter numbers for bad loans, you’d never know that the economy was in free fall.
That disconnect is flummoxing CEO Brian Moynihan, who stated on the conference call, “We are seeing nothing that is consistent with an 11% unemployment rate in actual consumer payment behavior. And that has to do with the stimulus…That’s helping substantially.” Moynihan also notes that BofA is navigating “the most tumultuous period since the Great Depression,” and that the dizzying crosscurrents pose huge challenges in forecasting consumer credit.
Although it’s never been more difficult to foresee where the consumer is headed, BofA provides one of the best guides in its second-quarter report. Its view is also a reasonable road map for the overall economy, since its course depends, more than anything else, on the credit performance of America’s families, and companies in airlines, hospitality, and other industries that rely on their spending.
BofA is reckoning that the wage and salary earners will endure a long voyage on rough seas. It’s taking big provisions based on that conservative outlook. A sweeping new accounting rule should make the estimates for loan losses that BofA and other big banks are making right now the most comprehensive forecasts ever on consumer and corporate credit. The regime requires that the banks predict losses much farther into the future than under the previous rules, and take the entire hit upfront instead of spreading out the pain quarter after quarter.
So let’s examine where BofA is building reserves, and by how much, and what that tells us about how it’s handicapping the fate of the consumer.
Big provisions for losses, decent profits
Until March of this year, the banks were experiencing a golden period of profitability––chiefly because consumers were making their credit card, mortgage, and other payments more reliably than ever before, and corporate borrowers were just as steady. Then, the COVID-19 outbreak in March transformed the credit outlook overnight from sunny to dark, hammering their earnings. BofA’s profits dropped 45% in the first quarter versus the first quarter of last year, from $7.3 billion to $4 billion. In the second quarter, it suffered a steeper, year-over-year slide of 52% to $3.5 billion, slashing total earnings in half so far this year. The biggest driver by far was an explosion in provisions for bad loans. That burden rose from minuscule $1.9 billion in the first two quarters of last year to $9.9 billion.
Still, BofA managed to book $7.5 billion in profits through the June quarter, or $15 billion on an annualized basis. The Fed’s emergency rate reductions curbed its interest income to $11 billion, an 11% drop from the second quarter of 2019. But its deposits soared as customers poured cash into their checking balances in a flight to safety, and its Global Markets franchise boosted profits by 96% to $2.18 billion as traders profited from a surge in investors’ growing hunger for the relative security of bonds. In recent years, BofA’s tight expense management has helped surmount super-low rates to keep profits growing. That discipline delivered again in the second quarter, as costs barely budged from the same period a year ago.
The metric Moynihan most stresses is pretax, pre-provision income, since it measures the bank’s long-term earning power across good and bad periods for credit. Those are also the profits available for bolstering reserves in tough times like today. The bigger the pretax, pre-provision earnings, the greater the strength for weathering the COVID-19 hurricane. For the first half, BofA booked $18.2 billion in that category, only 7% below the $19.6 billion recorded in the same period last year. In other words, excluding the big new provisions, BofA’s underlying profits remained almost as strong in the pandemic as in the flush times that extended through early spring.
A new rule makes BofA front-load the hit from future defaults
Those new provisions are the result of a rule change the Financial Accounting Standards Board quietly implemented on Jan. 1, 2020. Previously, when it came to credit card loans, the rules didn’t require estimating losses on current but endangered loans (i.e., customers regularly paying interest but likely to default) beyond a year ahead.
The current expected credit losses (CECL) standard transformed that methodology by mandating that banks forecast potential losses for the entire life of the loan. “Now they’re provisioning not just for the loans that have gone delinquent, but the ones that are current and may go bad at any time in the future,” says David Fanger, a senior VP at Moody’s Investors Service. For example, if a card loan is now current but BofA projects a high probability that it will default in 18 months, BofA is required to book a loss now, whereas under the “incurred” model, it would have booked the provision a few quarters hence, when the borrower actually stops paying interest. The idea is to front-load all the provisions based on the best estimate of all losses to come for current and delinquent loans alike.
As Fortune previously reported, under the old rule based on the accrual model, provisions tended to build gradually as a deepening recession caused more and more defaults. “But the new regime means that banks are taking much larger provisions based on their best guess at the moment of what total losses will be on still current loans,” says Bain Rumohr, senior director of North American banks at Fitch Ratings. CECL’s arrival coincided with the COVID-19 crisis, and the combination is forcing banks to take the entire hit right now for all estimated future losses on all their loans caused by the crisis.
That’s a tall order for two reasons. First, the pandemic started as a health and not an economic crisis so the shape of the recovery is far harder to predict than the comeback from a normal recession. Second, it’s extremely difficult to predict how much of the consumer’s excellent performance so far stems from the big waves of government support, and how much that gold star record will deteriorate once the federal dollars stop flowing. “What the banks are attempting to do is figure out what level of loss comes through when the programs phase out,” says Rumohr.
It’s remarkable that BofA’s portfolio as of the second quarter is looking almost as strong as during the flush times that lasted until February. In part, that’s because it’s been offering broad forbearance to its customers. Since March 16, it has extended 1.8 million payment deferrals, mostly on credit card loans, to its customers. In a good sign, requests for deferrals pretty much ceased by late June. BofA reports that 60% of credit card holders who’ve gotten forbearance have made at least one payment since. But since the cardholders with deferrals owe $7.6 billion, that still leaves a large number of customers, and large balances, at risk.
“There’s a notable disconnect between what you see so far in their delinquency and charge-off rates, and what you would typically see with high unemployment,” says Rumohr. In its consumer lending book, which includes $84 billion in credit card loans, its nonperforming credit has actually dropped from $3 billion to $2.2 billion in the past year, lowering the share from 0.67% to 0.49%. In commercial lending, the nonperformers total $2.2 billion, or just 0.41% of the portfolio.
It’s the same story with charge-offs, loans that have previously been expensed but are recognized as uncollectible and removed from loan loss reserves. That number for the entire bank was just $1.1 billion in the second quarter, a mere $200 million more than in the second quarter of 2019 when the credit outlook was terrific. “Looking at those delinquencies and charge-off levels, you wouldn’t think there’s a crisis going on,” says Fanger.
Looking ahead
It’s hard to imagine a starker contrast than the divide between customers’ current performance, and how BofA sees the future. Since the close of 2019, it has doubled allowances for loan losses from $9.4 billion to $19.4 billion. The biggest increase came in cards, where reserves mushroomed two-and-a-half times from $3.7 billion to $9.25 billion, rising from 3.8% of the portfolio to 11%. The second biggest jump came in commercial real estate. “That’s another area where the virus is causing a lot of uncertainty because it’s damaging the retail and hospitality market,” says Fanger. Real estate reserves more than doubled to $2.2 billion. That category and cards account for two-thirds of the total increase in allowances for credit losses.
The question is whether BofA is making assumptions that truly reflect the extent, and probable duration, of the downturn. Moynihan last week shared the assumptions on the economy that the bank is employing to estimate loan losses. He’s assuming that unemployment ends the year at 10%, just a one-point improvement from the current rate, and joblessness remains high at 9% through the first half of 2021, easing to 7.5% by year-end.
It’s instructive to compare that outlook with the “most adverse” scenario that the Fed used in the latest stress test, completed in June. That test is based on conditions that prevailed before the outbreak, but is consistent with a V-shaped recovery from the crisis. The Fed’s recession scenario posits that the unemployment rate rises to 10% over six quarters, then drifts back to 8% over the next 18 months, meaning that joblessness remains elevated well beyond mid-2023. Under that scenario, BofA would have sufficient reserves today to cover 45% of future losses. The Fed deems that level BofA is holding sufficient capital to cover the projected charge-offs and still maintain a strong capital buffer.
BofA is betting that although the COVID-19 downturn is more sudden and severe than the Fed’s pre-pandemic, worst-case test, it will cause less long-term damage because it will pass much faster. In effect, BofA is saying that it’s already taken all the reserves it will need to cover damage from the pandemic, and that the hit will be about half as severe as the Fed’s test case where joblessness remains stubbornly high three years hence.
Keep in mind that CECL requires BofA to front-load all the loan losses it anticipates going forward. If BofA’s forecasts are correct, that’s great news for the bank and the U.S. economy. But the pandemic crisis is the ultimate in moving targets. “So if the COVID crisis is extremely long-lasting, it’s possible that the reserves won’t be big enough, and BofA will be forced to keep increasing provisions,” says Fanger. Whether BofA indeed has big enough allowances to get through the crisis will also depend on how many more consumers default once the banks end forbearance, and the government stimulus ceases.
It’s encouraging, however, that BofA has increased reserves dramatically, in theory to the point where current allowances will cover all future losses, and still booked over $7 billion in profits in the past two quarters. It has also suspended all share buybacks, so it’s replenishing capital at the same time that it’s adding to reserves. BofA also deserves credit for keeping its credit card portfolio at much more modest levels than its rivals, potentially limiting the extra reserves it will need to take if the recovery is slower than the already lengthy comeback it predicts. Moynihan proudly noted that BofA is now carrying half the loans to cardholders it did at the start of the Great Recession.
BofA is heading into this recession a lot stronger than the last time and, in part because of CECL, is being what looks like extra prudent in bracing for future losses. Here’s the problem: We’re in dangerous, uncharted waters, where the dragons that no model can predict may be lurking.


fortune--2020-07-24--Americans are not ready to reopen, Fortune Analytics survey shows

Airlines have been waiving change and cancel fees during the pandemic .
How long will that last ?

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
Are Americans ready to reopen? A survey by Fortune Analytics, done in conjunction with SurveyMonkey, makes it pretty clear most are not. The survey found:
–Only 43% of Americans are comfortable to return to dine-in restaurants;
–Only 27% of frequent flyers are ready to board a flight again;
–Only 26% are willing to return to bars;
–And only 20% would feel comfortable attending a large public gathering.
Meanwhile, mask-wearing is up. Some 67% now say they wear masks when in public, compared to 54% back in May.
Separately, if big business is serious about preventing plastics from polluting the oceans, they have a big job ahead of them. A new study from The Pew Charitable Trusts and SYSTEMIQ, published in the journal Science, found that the annual amount of plastics entering the ocean will triple by 2040 if major changes aren’t made. The report identifies eight measures that, using today’s technology and available solutions, could eliminate about 80% of that waste.
“Throwaway business models and throwaway culture continue to dominate our lives, and damage our oceans,” said Alan Jope, the CEO of Unilever, who is scheduled to speak today at an event launching the report. The new study “should remove any doubt about the urgent need for a rapid transition to a circular economy.”
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
Fortune Analytics is our exclusive newsletter for Premium subscribers that brings you weekly business insights based on timely data analysis and exclusive polling. Sign up for Fortune Premium here.
TOP NEWS
Consulate closure
China's government has ordered the closure of the U.S. consulate in Chengdu. The consulate serves the economically vibrant Southwest region, and has a couple hundred personnel. The move is retaliation for the U.S. government's closure of the Chinese consulate in Houston. Markets are down on the news. Fortune
Airbus subsidies
Airbus, the European plane-making consortium, is finally giving up the subsidies ruled illegal by the World Trade Organization following complaints by the U.S. Airbus has amended its state-support agreement with France and Spain in a way that, it says, "removes any justification for U.S. tariffs." Meanwhile, the EU is still waiting on a WTO decision regarding the level of tariffs it can lob at the U.S. over illegal Boeing subsidies. Financial Times
Facebook bias
Last year, some Facebook researchers found that proposed new Instagram moderation practices were biased against Black people, who were around 50% more likely than white people to have their accounts automatically disabled. According to a new report, managers then told the researchers not to share their findings with anyone else, and not to probe any further. The new rules were instituted in a slightly modified form, which the researchers were not allowed to test. NBC News
Amazon tactics
Dozens of entrepreneurs claim Amazon has been using investments in their startups–and in some cases just deal-making talks that led to nothing–to develop and launch competing products and services. Bessemer Venture Partners VC Jeremy Levine: "They are using market forces in a really Machiavellian way. It’s like they are not in any way, shape or form the proverbial wolf in sheep’s clothing. They are a wolf in wolf’s clothing." Wall Street Journal
AROUND THE WATER COOLER
Eurozone bounceback
The Eurozone's economic activity has grown for the first time since February. IHS Markit chief business economist Chris Williamson: "Companies across the euro area reported an encouraging start to the third quarter, with output growing at the fastest rate for just over two years in July as lockdowns continued to ease and economies reopened. Demand also showed signs of reviving, helping curb the pace of job losses." CNBC
COVID-19 liability
Some employers in California and elsewhere have been forcing workers to sign waivers that state they agree not to sue if they catch COVID-19 at work. The fired employees' workers say the waivers are not only unfair to workers, but also illegal and unenforceable. Fortune
Breath test
A French hospital is testing what is effectively a giant, very expensive breathalyzer that can detect COVID-19 within seconds. The device is a mass spectrometer that is more commonly used in atmospheric science to measure clean air. The trial will show what level of sensitivity is required for coronavirus testing–the lower the better, because this thing is way too big and pricey for a mass rollout. Fortune
IAG and Amex
IAG, the parent of British Airways, has renewed an air-miles deal with American Express. The new deal, worth $955 million, comes at an opportune time for a firm that is currently preparing thousands of layoffs, in the context of the unprecedented aviation slump. Bloomberg
This edition of CEO Daily was edited by David Meyer.


fortune--2020-07-24--Beijing orders the U.S. consulate in China’s fastest growing economic region to close

On Friday, China’s Ministry of Foreign Affairs ordered the closure of the U.S. consulate in Chengdu, the capital city of Sichuan province in southwestern China. In a statement, Beijing said the move was a direct retaliation for the U.S. abruptly closing the Chinese consulate in Houston. The statement did not specify a timeframe to leave the consulate, but the Chinese state media outlet the Global Times reports that the consulate must close within 72 hours, similar to the order given by the U.S. government regarding China’s Houston consulate.
“The measure taken by China is a legitimate and necessary response to the unjustified act by the U.S. [in Houston],” the statement said. “We once again urge the US to immediately retract its wrong decision and create necessary conditions for bringing the bilateral relationship back on track.”
The announcement sent stock markets reeling across Asia on Friday. At closing, the Shanghai composite index had fallen nearly 4% from opening bell, while Hong Kong’s Hang Sang index was down over 2% and the Shenzhen composite index had declined 5%. Indexes in South Korea, Japan, and Australia similarly reported losses.
The tit-for-tat measures over the consulates mark a low point in deteriorating U.S.-China relations, and also threaten the functional economic ties that each of the embassies play in promoting trade between the two countries.
The Chengdu consulate was opened in 1985 and has grown to a staff of nearly 200 personnel, according to the U.S. State Department. In addition to performing functions like processing visa requests and facilitating cultural exchange programs, the Chengdu consulate also has specific offices to promote U.S. business in China. The Foreign Commercial Service, for example, promotes the growth of U.S. exports to the region while the Agricultural Trade Office specifically works on enhancing U.S. agricultural trade.
The U.S consulate in Chengdu has been responsible for covering a wide swath of China’s Southwest, a region that holds nearly 200 million people across Sichuan, Guizhou, and Yunnan provinces, as well as Chongqing Municipality and the Tibet Autonomous Region.
In recent years, this region has experienced some of the highest growth levels in all of China. In 2019, Yunnan, Guizhou, and Tibet were the fastest growing economies in China, as each reported nearly 9% GDP growth rates, nearly three percentage points higher than the national average of roughly 6%. In 2019, Sichuan Province also named the U.S. as one of its top trade partners.
If the closure of the U.S consulate in Chengdu will make it more difficult for Chinese businesses in the region to connect with U.S. suppliers, the general state of U.S.-China relations won’t make trade any easier.
On Thursday, U.S. Secretary of State Mike Pompeo delivered a speech saying that “We must not continue… the old paradigm of blind engagement with China.” Central to this disengagement, Pompeo said, was reevaluating how American business operates and trades with China. Pompeo also quoted a speech made by U.S. Attorney General William Barr last week to explain why the U.S. needs to challenge China on a number of different economic fronts.
“The ultimate ambition of China’s rulers isn’t to trade with the United States. It is to raid the United States,” Barr said.
For its part, China decried the U.S.’ actions for allowing relations to reach this point in its statement on Thursday regarding the consulate closure.
“The current situation in China-U.S. relations is not what China desires to see, and the U.S. is responsible for all this,” the Ministry of Foreign Affairs said.


fortune--2020-07-24--President Trump to American neighborhoods: Actually, segregation is good

Are you middle-class ?
This calculator will tell you

This is the web version of raceAhead, Fortune’s twice weekly newsletter on race and culture. Sign up to get it delivered free to your inbox.
Trump changes housing policy and ramps up his stump speech dog-whistling, and Facebook’s under fire for allegedly ignoring data showing that Black Instagram users were more likely to sanctioned than white ones. Black founders got nowhere to turn when faced with racist venture investors, and oh, white folks? San Francisco Mayor London Breed would like a word.
But first, here’s your cognitively amazing week in review, in Haiku.
Person. Woman. Man.
Camera. TV. Nothing
short of amazing!
Person. Woman. Man.
Camera. TV. Nothing
short of amazing!
Person. Woman. Man.
Camera. TV. Nothing
short of amazing!
Person. Woman. Man.
Camera. TV. Nothing
short of amazing!
Person. Woman. Man.
Camera. TV. Something
short of amazing.
Have a truly amazing weekend.
Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com
On point
Trump administration scraps a rule designed to foster more diverse neighborhoods The U.S. Department of Housing and Urban Development announced this week that it planned to end an Obama-era rule that encouraged cities to address segregation in their communities via federal housing aid incentives. The plot thickens: Trump is playing on legacy fears of integrated neighborhoods in his current stump speeches. He recently claimed that Democrats want to “abolish our beautiful and successful suburbs by placing far-left Washington bureaucrats in charge of local zoning decisions.” Further, he's been saying that any such zoning moves will “[bring] who knows into your suburbs, so your communities will be unsafe and your housing values will go down.”
Los Angeles Times
White liberals: San Francisco Mayor London Breed thanks you for trying She’s been up against it from the beginning of her term, grappling with rampant income and housing disparities, an urgent homelessness crisis and social safety net issues — now all compounded by the coronavirus pandemic. In a candid interview, Breed acknowledged the robust if overdue presence of white people in the movement for Black Lives. That said, she wants them to do better. “I have a real problem with the takeover of the movement by white people,” she told Vogue. She cites, specifically, white critics of her plan to divert some police funding to serve the city’s Black community. “I want people to respect the opinions and feelings of Black people and allow us to decide what is in our best interest.”
Vogue
Facebook ignored warnings about bias on the Instagram platform Last year, researchers began studying the impacts of new rules on Instagram designed to curb bullying and bad behavior on the site. Their conclusions raised flags: Black users based in the U.S. were 50% more likely to have their accounts flagged and disabled for problematic activity than white users. Their findings were mirrored by internal interviews with Facebook employees, who also detected bias in the moderation system. Yet insiders say when presented with the findings, Facebook officials shut down the research and directed the researchers to keep the findings to themselves. Part of the issue is the way Facebook's automated content monitoring systems assess hate speech. In an attempt to be neutral, the company doesn’t distinguish between the lived experiences of white and Black people on the platform. “The world treats Black people differently from white people,” one employee told NBC News. “If we are treating everyone the same way, we are already making choices on the wrong side of history.”
NBC News
No legal remedies for Black company founders facing racist VCs The racist remarks and biased feedback that Black entrepreneurs seeking investment experience have long been well documented behind the scenes. But defanged civil rights laws make it impossible for those who believe they were discriminated against to seek redress out loud, via the courts. “You almost need a smoking gun, an email that says, ‘I have discriminated against you, and I’m not investing with you because of your race,’” a professor at Tulane University Law School tells the Washington Post. More than a dozen Black founders shared their stories on background. “Tone down the Black,” one was told. Others have learned to bring white people with them to pitch meetings, which almost always helped their cause.
Washington Post
On background
How diverse is your personal network? This foundational research from Harvard’s Herminia Ibarra established two decades ago that the lack of diversity in the informal networks of white managers were important factors in the lack of advancement reported by anyone who wasn’t white. It was, at the time, an important corrective to the idea that members of “minority” groups should work harder to assimilate into the personal networks of majority culture leaders. Guess what? Things haven’t changed much since 1995! Inclusion expert and author Ruchika Tulshyan recently broke the phenomenon all the way down. Speaking of which, who do you know? Not a rhetorical question.
Academy of Management Journal
In search of shared (intersectional) sisterhood at work This is the poignant quest identified by Beth A. Livingston and Tina R. Opie, both researchers and management professors. (Opie’s name may be familiar for her work on natural hair and identity.) The idea of alliances or meaningful connections between women in the workplace, “allows us to share struggles together, realize that we’re not alone, that the pain we’re going through is something bigger than us,” says Opie. But when they created a survey to explore the theme of sisterhood, they found a significant difference in how “inclusive” environments were experienced by white and Black women. “You can’t build meaningful connections between women of different races and ethnicities, let alone ask them to advocate for their collective advancement, if Black and Hispanic women report being excluded from the relationships required to make an organization run.” A must read and share.
HBR
How the discovery of the Tuskegee study impacted the health of Black men The full name of the study was the “Tuskegee Study of Untreated Syphilis in the Negro Male,” a forty-year experiment of cruelty and neglect in the name of science that has become synonymous with racist medical mistreatment. In a paper in the Oxford Quarterly Journal of Economics, two researchers found that the news of the study had a devastating effect on the lives of Black men. “We find that the disclosure of the study in 1972 is correlated with increases in medical mistrust and mortality and decreases in both outpatient and inpatient physician interactions for older Black men,” say the authors. As a result, life expectancy for Black men who lost faith in the medical system fell by 1.5 years. It accounted for some 35% of the life expectancy gap between Black and white men in 1980. (Subscription required.)
The Quarterly Journal of Economics
raceAhead is edited by Aric Jenkins.
Today's mood board
Two of America's pastimes are back: baseball and kneeling for the national anthem.


fortune--2020-07-24--Markets end the week on a bearish note as gold breaks $1,900

Good evening, Bull Sheeters. This is Fortune finance reporter Rey Mashayekhi, filling in one last time this week for Bernhard Warner.
The weekend couldn’t come soon enough for the global markets, which were in the red virtually across the board. Tech stocks again led the way down, while the coronavirus pandemic and U.S.-China tensions continued to weigh on the minds of investors.
Markets update
U.S. 🌎
The Dow felt the drag of a -16% drop in Intel shares and ended the day down -0.7%. The S&P 500 shed -0.6%, and the Nasdaq lost -0.9%.
felt the drag of a -16% drop in shares and ended the day down -0.7%. The shed -0.6%, and the lost -0.9%. Notable earnings reports out today include Verizon , American Express , and Honeywell .
reports out today include , , and . The much-hyped Big Tech antitrust congressional hearing —featuring the CEOs of Apple , Amazon , Facebook , and Google —has been postponed to a TBD date. The hearing was slated for Monday, but has been delayed to accommodate memorial services for the late Rep. John Lewis .
—featuring the CEOs of , , , and —has been to a TBD date. The hearing was slated for Monday, but has been delayed to accommodate memorial services for the late . Bridgewater Associates , the world’s largest hedge fund, has laid off dozens of employees .
, the world’s largest hedge fund, has . President Trump signed a series of executive orders that aim to lower prescription drug prices in the U.S. Pharmaceutical stocks were nonplussed.
Europe 🌍
The European bourses were not spared from Friday’s bearish mood. London’s FTSE fell -1.4%, Frankfurt’s DAX dropped -2%, the CAC 40 in Paris slid -1.5%, and the pan-European STOXX 600 lost -1.7%.
fell -1.4%, Frankfurt’s dropped -2%, the in Paris slid -1.5%, and the pan-European lost -1.7%. The European Union is demanding that the U.S. lift $7.5 billion worth of tariffs imposed last year.
is demanding that the lift $7.5 billion worth of imposed last year. There’s evidence that the U.S. and Europe are on diverging paths economically, due to their varying approaches to containing the coronavirus. Meanwhile, EU ’s united economic strategy for recovering from the pandemic—and the euro ’s recent rally—is turning Euroskeptic doubters into believers.
and are on diverging paths economically, due to their varying approaches to containing the coronavirus. Meanwhile, ’s united economic strategy for recovering from the pandemic—and the ’s recent rally—is turning Euroskeptic doubters into believers. Russia has cut interest rates to a record low as the pandemic batters the country’s economy.
has cut to a record low as the pandemic batters the country’s economy. Bond investors are fleeing Turkey’s market by the billions.
Asia 🌏
The Asian markets felt the pain of worsening U.S.-China relations. Markets in Japan were again closed for a holiday on Friday, but those that were open were down across the board. Hong Kong’s Hang Seng lost -2.2% and South Korea’s KOSPI fell -0.7%. Mainland China bore the worst declines, with the SSE Composite in Shanghai down -3.9% and the SZSE Component in Shenzhen losing -5.3%.
lost -2.2% and South Korea’s fell -0.7%. Mainland China bore the worst declines, with the in Shanghai down -3.9% and the in Shenzhen losing -5.3%. Goldman Sachs has struck a settlement with the government of Malaysia for the investment bank’s role in the 1MDB scandal . Goldman will pay $3.9 billion in reparations, while Malaysia will drop criminal and regulatory charges against the bank.
has struck a settlement with the government of for the investment bank’s role in the . Goldman will pay $3.9 billion in reparations, while Malaysia will drop criminal and regulatory charges against the bank. Back to U.S.-China tensions : China has retaliated against the U.S.’s decision to close the Chinese consulate in Houston by ordering the closure of the American consulate in Chengdu , in Sichuan province.
: China has retaliated against the U.S.’s decision to close the Chinese consulate in Houston by , in Sichuan province. Huawei CFO Meng Wanzhou—who’s at the center of an extradition dispute between Canada, China, and the U.S.—has accused the U.S. government of misleading Canadian authorities in the case.
Elsewhere 📈
Gold continues to trade at historic highs.
continues to trade at historic highs. The dollar kept slumping, with the euro now at more than $1.16.
kept slumping, with the now at more than $1.16. Crude oil was virtually flat, with Brent settling at more than $43 per barrel.
By the numbers
Per tradition, let’s end the week with some stats:
80.5%
Of the 128 S&P 500 companies that had released their second-quarter earnings reports as of Friday morning, that’s the percentage that beat analysts’ earnings expectations, according to Refinitiv data. While it’s not uncommon for most companies to beat analysts’ targets in a given quarter—an average of 65% of firms have done just that since 1994—this quarter has seen more earnings beats, and by larger margins. On aggregate, companies are reporting earnings that are 11.9% above expectations, per Refinitiv, compared to an average of 3.3% above estimates since 1994.
$1,900
That’s the vaunted price-per-ounce barrier surpassed by gold today. I covered gold’s extraordinary rally earlier this week, highlighting the macroeconomic anxieties that have seen investors flock to the “safe harbor.” Those anxieties haven’t faded over the course of this week; if anything, they’ve grown, and now both spot gold and gold futures are trading at record (or near-record) levels not seen since 2011.
2.87%
That’s the current, record-low average interest rate on a 30-year fixed mortgage, according to Mortgage News Daily. While Freddie Mac said this week that mortgage rates had actually climbed slightly, to just over 3%, the mortgage industry publication says some homeowners are finding rates well below that—and roughly a full percentage point below where mortgage rates stood a year ago.
***
That’s all from me this week—it’s been a pleasure, as always. Bernhard will be back on Monday. Until then, have a wonderful weekend.
Rey Mashayekhi
@ReyM12
Rey.Mashayekhi@Fortune.com
Today's reads
What does Bank of America say about America? Fortune’s Shawn Tully dives into Bank of America’s second-quarter earnings report to find out what the financial services behemoth’s books reveal about the state of the U.S. economy.
What the hell, Intel? Over at Fortune’s Data Sheet newsletter, tech writer Aaron Pressman examines why Intel’s earnings report this week raised alarm bells around Wall Street—and sent the company’s stock plummeting 16% on Friday.
Stuck in the middle with you. Are we witnessing the demise of America’s middle class? What does "middle class" even mean in 2020? The Pew Research Center recently updated its online middle-class calculator; give it a try and see where you fall in America’s class divide.
Some of these stories require a subscription to access. You can use this link to sign up. Thank you for supporting our journalism.
Market candy
“Another government stimulus package is not in the best interests of the people imo”
So says Elon Musk, who took to Twitter to voice his opinions on why he believes Congress’s plans for another coronavirus aid bill are ill-advised. Elon did go on to clarify that he’s in favor of direct payments to individuals, à la universal basic income—but described government stimulus packages as “jammed to the gills with special interests earmarks.”
Elsewhere in Teslaworld, Musk’s company saw its stock fall closer to Earth Friday, shedding another -6% in the wake of Thursday’s -5% decline. Still, Tesla shares are up more than three-fold this year to date.


fortune--2020-07-24--A different pandemic: The mental health crisis among LGBTQ youth

This is the web version of The Capsule, a daily newsletter monitoring advances in health care and biopharma. Sign up to get it delivered free to your inbox.
Happy Friday, readers.
Earlier this week, I wrote about mental health and Kanye West, noting that one in five Americans suffers from a mental illness. But depression and suicidal tendencies disproportionately affect LGBTQ youths, according to a new survey from the Trevor Project.
This is the second annual study that the LGBTQ-focused organization has released on the mental health of these Americans. And it lays out a long list of inequities for young LGBTQ people.
It wasn’t a small survey, either. The Trevor Project reached out to more than 40,000 LGBTQ youth across America and claims that it is “the largest study of its kind” ever conducted.
The study encompasses a diverse community of transgender, nonbinary, gay, lesbian, and queer individuals who all face their own unique problems. For instance, 86% of those surveyed overall said that recent politics have negatively impacted their well-being; 40% of all respondents seriously contemplated suicide within the past 12 months. The number rises to more than 50% for transgender and nonbinary youth.
Job and housing discrimination, physical threats, and societal pressure to “change” their sexual orientations or gender identities are also rampant, according to the survey.
But there are some nuggets of good news, too. The study found that 86% of LGBTQ youth had high levels of personal support from at least one person. It’s a start. But there’s still considerable room for improvement.
Read on for the day’s news, and see you next week.
Sy Mukherjee
sayak.mukherjee@fortune.com
@the_sy_guy
DIGITAL HEALTH
Telehealth firm Hims reportedly considers going public. Telemedicine startup Hims (which has a prominent roster of backers, as we've reported) is reportedly considering going public, according to Reuters. It's all very hush-hush so far, but the company would ostensibly reach a deal with a special purpose acquisition company (SPAC) in order to become a public firm. Hims started as an online source for treatments catered towards men, such as generic Viagra and hair loss product, but has since expanded its footprint to include mental health virtual visits. Demand for such remote services has exploded during the coronavirus pandemic. (Reuters)
INDICATIONS
Biogen's new CFO comes from a data-driven background. Drug giant Biogen has a new chief financial officer—Michael McDonnell, who currently holds the same post at the pharma-focused data analytics company IQVIA. The switch in such a key executive role coincides with Biogen's bold gambit to win the first-ever Food and Drug Administration (FDA) approval for an Alzheimer's drug that treats the disease's underlying causes, rather than just symptoms. (Wall Street Journal)
THE BIG PICTURE
Dr. Anthony Fauci to receive private security after death threats against family. Dr. Anthony Fauci, one of the country's top infectious disease specialists and in many ways the face of the Trump administration's response to the COVID crisis, says that he and his family have received "serious threats" on their lives and have had to beef up their personal security. "Back in the days of HIV when I was being criticized with some hate mail, it was, you know, people calling me a gay-lover and ‘what the hell are you wasting a lot of time on that’ … things that you would just push aside as stupid people saying stupid things," Fauci said during an appearance on The Axe Files podcast. But it's risen to a different "magnitude" now he continued. "There are people who get really angry at thinking I’m interfering with their life because I’m pushing a public health agenda."
REQUIRED READING
Calculating the middle class, by Jeff John Roberts
These big companies have cut the most daily ad dollars during the Facebook boycott, by Danielle Abril
Intel has fallen behind again on its next big chip manufacturing improvement, by Aaron Pressman
Sign up for other Fortune newsletters.


fortune--2020-07-24--Are you middle-class? This calculator will tell you

Elon Musk opposes second stimulus package—even after taking a $ 465 million government loan during the Great Recession

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The Pew Research Center has released an update to its online calculator that quickly informs you about the income category to which you belong: lower income, middle income, or upper income.
According to Pew, 52% of Americans lived in middle-class households as of 2018, which is defined as earning over $48,500. That dollar figure is adjusted, however, based on where you live and the size of your household.
For instance, a household in Jackson, Tenn., can earn $39,500 and still qualify as middle-class thanks to that city’s low cost of living. Conversely, a family in San Francisco, where prices are notoriously high, would need to take in $63,800 to be counted as middle-class.
If you want to find out your own income bracket, here is the calculator:
The calculator also includes a second segment enabling you to see the income distribution of those with a background similar to yours—taking into account the factors of age, race, education, and marital status.
The Pew data on which the calculation is based is from 2018, so it does not take into account the massive economic disruption caused by the pandemic. Pew, however, does cite a recent survey in which it found the economic fallout has disproportionally hurt lower-income Americans.
“The survey found that 36% of lower-income adults and 28% of middle-income adults said they had lost a job or taken a pay cut due to the coronavirus outbreak, compared with 22% of upper-income adults,” the think tank reports.
The new report also noted that nearly three in 10 Americans (29%) were in lower-income households, while 19% were in upper-income households.
More must-read finance coverage from Fortune:


fortune--2020-07-24--Elon Musk opposes second stimulus package—even after taking a $465 million government loan during th

Elon Musk opposes second stimulus package—even after taking a $465 million government loan during the Great Recession

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Elon Musk, whose Tesla Inc. was a major beneficiary of government stimulus in the wake of the last global financial crisis, has soured on the concept.
The outspoken chief executive officer of both Tesla and U.S. government contractor SpaceX tweeted Friday that “another government stimulus package is not in the best interests of the people,” in his opinion.
Another government stimulus package is not in the best interests of the people imo — Elon Musk 🌹 (@elonmusk) July 24, 2020
A decade before Tesla became the world’s most valuable automaker by market capitalization, the company survived the Great Recession by the skin of its teeth—in Musk’s own words—thanks in part to a $465 million federal loan to design electric vehicles and build them in Fremont, California. The company then went public, repaid the loan early and now employs about 20,000 people in the Bay Area alone.
Before Tesla obtained the federal loan, Musk was clear: without government support, the company—then a boutique maker of a $109,000 sports car—would have to delay the rollout of a less expensive electric sedan.
“We can’t move forward with that without a major amount of capital,” the CEO said in a December 2008 interview. “If we don’t get any government funding then what we need to do is we need to wait until the capital markets recover, which could be a year or two years from now.”
Congress is now working on another stimulus package to help revive a U.S. economy ravaged by the coronavirus pandemic.


fortune--2020-07-24--Photo essay: What unemployment looks like in pandemic America

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The numbers tell one story. Following an almost unimaginable spike to 6.9 million new unemployment claims in late March, the number of unemployed Americans has gradually settled to around 1.4 million new claims per week.
Prior to the pandemic, claims had never been above 700,000. But that still puts the unemployment rate at 11.1%—higher than the Great Recession peak. While some states have been spared the worst (Montana and Wyoming), others that depend heavily on tourism (Nevada, Florida, and Hawaii) have sustained brutal economic trauma that have many wondering when—and if—the jobs will ever come back. We know already that the pain has not been spread evenly, with Black Americans seeing a much higher spike in unemployment than other groups. Meanwhile with the extra $600 in weekly federal unemployment benefits scheduled to expire (Congress is weighing options for an extension or replacement), and the federal moratorium on evictions ending July 25, many economists fear American families are about to fall off a financial cliff.
And that’s a story the numbers don’t tell. The worry, and fear, and hope, and sense of loss facing those Americans who plunged from one of the tightest job markets in history, into one of the most bleak. They’re braving long lines to register for unemployment. Navigating slow and faulty state systems. Risking their own health to look for work. Wondering whether they’ll be able to work at all if schools don’t reopen in the fall. Joining protests to implore legislators to extend extra federal benefits. They are worried about their future, they’re worried about their health, they’re worried about their kids, and they’re worried about their country. Here’s what that looks like, as the pandemic of unemployment spreads across the country. Special events workers who were forced out of their jobs because of the COVID-19 pandemic march in Salt Lake City on July 21. Rick Bowmer—AP Images Protesters ask senators to support the continuation of unemployment benefits on July 16 in Miami Springs, Fla. Joe Raedle—Getty Images Jmal Adame (at right) hands out information packets on open positions at a drive-thru job fair in Omaha on July 15, 2020. Nebraska reinstated a job-search requirement for most people claiming unemployment benefits. Nati Harnik—AP Images Micah Barnett (left), a former cook left jobless in the wake of the COVID-19 pandemic, is helped by Jim Polly (bottom right) from the Oklahoma Employment Security Commission at Expo Square in Tulsa, on July 15. Matt Barnard—Tulsa World/AP Images A man fills out paperwork while waiting for his number to be called at a job fair in Tulsa on July 15. Nick Oxford—The Washington Post/Getty Images Volunteers prepare boxes of food for the Second Harvest Food Bank of Central Florida at City of Destiny church on July 6. The demand for food persists in the Orlando area, owing to the large numbers of service workers and others who have lost their jobs as a result of the pandemic. Paul Hennessy—SOPA Images/LightRocket/Getty Images People line up outside the Kentucky Career Center in Frankfort prior to its opening to get assistance with their unemployment claims on June 18. Bryan Woolston—Reuters Hundreds of unemployed Kentucky residents wait in long lines outside the Kentucky Career Center in Frankfort on June 19 for help with their unemployment claims. John Sommers II—Getty Images Gail Norman participates in a die-in protest on May 22 in Miami Beach, asking the State of Florida to fix its unemployment benefits system. Joe Raedle—Getty Images Signs hang from the Meridian Heights apartment building in Washington, D.C., on May 18, 2020. Caroline Brehman—CQ-Roll Call, Inc/Getty Images Tatiana Fernández distributes unemployment documents to residents of Miami-Dade County in Hialeah, Fla., on April 7. Matias J. Ocner—Miami Herald/Tribune News Service/Getty Images Text by Lee Clifford. Photo editor: Alex Scimecca. Additional reporting by Lance Lambert. More must-read finance coverage from Fortune : How the U.S. economy is doing in 8 charts
Why is there a coin shortage in the U.S.?
Subprime lending giant CardWorks offers a glimpse into consumers’ wallets—and some surprising clues about the economy
4 ways businesses can adapt to a changing supply-chain environment
Howard Hughes CEO Paul Layne on why suburban real estate will thrive in a post-COVID world
How one toy store owner used his PPP loan to pivot online—and saw sales soar


fortune--2020-07-24--Winning the peace: The role of business in forging a post–COVID-19 recovery

In our previous article earlier this week, we noted that after World War II, international organizations and the public and private sectors worked together to create the conditions for two decades of strong, broad-based economic growth in Western Europe, Japan, and the United States. This record, we argued, offered lessons for the world today, and we suggested some specific ways to reshape globalization and renew the public sector. In this article, we turn to the role of the private sector.
In the immediate aftermath of war, governments concentrated on cleaning up the rubble, and then creating a stable political and social environment. In economic terms, that meant establishing the basics, such as stable currencies, freer trade, antitrust laws, workforce training, and land and labor reforms.
With that done, business was able to get back to business. In 1948, for example, when West Germany scrapped price controls and created the deutsche mark, industrial production rose 50%. With investment coming in, and liberalized trade rules fostering technology transfer and structural change, the stage was set for sustained growth.
To win the post–COVID-19 peace, we need to channel the optimism and imagination of the postwar era and apply them to our own times. The private sector has a critical role to play. For one thing, as individuals assume more responsibility for their careers, benefits, and retirement, the role of the workplace is becoming more important. But the public appears to be dubious that business is willing to do its part. In January, the Edelman Trust Barometer found that more than half (56%) of respondents in 28 markets agreed that “capitalism as it exists today does more harm than good in the world.”
Even so, the pressure on businesses to serve their communities in ways that go beyond the bottom line will only build, given the role that governments have played as payer, lender, insurer, and even owner of last resort during the COVID-19 crisis. Just as business stepped up after the war, so must it do now, but in different ways. Here are three areas of direct relevance.
Building digital infrastructure
After the war, countries built physical assets, such as Japan’s high-speed railways or deepwater ports in Europe and the United States, to accelerate their economies. In the 21st century, digital capabilities are likely to be the most important infrastructure investment. In four sectors alone—mobility, health care, manufacturing, and retail—McKinsey has identified ways to boost global GDP by as much as $2 trillion by 2030. Connectivity also has ramifications for equity and society—something that has been proved emphatically true during the pandemic, in which the use of online education and telemedicine has skyrocketed.
However, even in advanced economies, not everyone has access to high-speed Internet—21 million in the United States in 2019. Those without digital connectivity will have less access to economic opportunity. Business should work with government to ensure universal high-quality access and to establish a regulatory framework that ensures privacy, security, ownership, and interoperability. One possible analogy is the Global Financial Innovation Network. Comprising more than 50 regulatory agencies from around the world, it enables companies to test new products and services across multiple jurisdictions, encouraging both innovation and transparency.
Reskilling the workforce
As automation accelerates and concerns about inequality and job insecurity increase, reskilling—that is, equipping existing workers to do higher-level jobs—would appear to be an area where the role of business is straightforward. The GI Bill and other postwar education reforms helped to create a workforce capable of excelling in a sophisticated industrial economy. Now the need is to work with business to invest in a workforce that can do the same in Industry 4.0, the use of advanced technology in manufacturing and other sectors. But the record is patchy. In a 2017 survey of executives, about twice as many said they were “somewhat” or “very” unprepared to address skill gaps as those who thought they were prepared.
True, reskilling can be expensive, and sometimes employees take their new skills elsewhere. But it typically takes less than $10,000 to reskill an employee; that is often much less than the cost of turnover, which can frequently be a third of the starting salary. Working with other institutions—community colleges, government agencies, even companies in the same sector—can spread the costs, as winemakers have done in Washington State. And as labor forces grow more slowly, a company’s existing pool of workers can be a source of new talent. Finally, it’s worth remembering that while reskilling carries costs—so does having a less adept and discouraged workforce.
Improving productivity and innovating faster
The most important thing business can do, of course, is to be innovative, productive, and profitable—the characteristics that defined the sector after the war. During the COVID-19 crisis, companies have used technology in new ways, often with a speed and success that surprised them. In 2019, a major U.S. retailer envisioned launching a curbside-delivery business; it figured it would take 18 months. During the lockdown, it went live in less than a week. Airlines and car-rental companies quickly developed contactless consumer journeys. On the whole, however, there are big gaps between what is being done and what could be done to deploy new, productivity-enhancing technology. Although the number has no doubt gone up, it’s telling that in 2019, McKinsey estimated that China, Europe, and the United States, had tapped into only 20% of their digital potential. That matters, because just as technological diffusion powered postwar growth, digital capabilities could well fuel post-COVID growth.
There will be no return to the pre-coronavirus status quo—but that does not have to be a source of regret. Rather the opposite. Perhaps the most important lesson of the postwar era is this: With optimism, imagination, and commitment, the world can indeed be made anew.
Kevin Sneader is the global managing partner of McKinsey & Co., where Shubham Singhal is a senior partner.


fortune--2020-07-24--Is a new steroid treatment a miracle solution for COVID-19—or is it snake oil?

Everything’s bigger in Texas, as those of us who grew up there like to say, and we’ve been known to enjoy telling the occasional tall tale. Is a recently discussed potential treatment for COVID-19 one of those, or is the fast-talking Texan behind the claim really onto something?
Richard Bartlett made waves in a July 2 interview that already has racked up 4.1 million views online. In the interview, Bartlett, who has practiced medicine for 28 years and was part of former Texas Gov. Rick Perry’s Health Disparities Task Force, boasted a 100% survival rate for his patients since March by using his treatment strategy, centered around an inhaled steroid called budesonide.
“We have cracked the case,” the doctor said. He emphatically doubled down in an interview last week: “The cat is out of the bag. We have an answer for this. We don’t need another answer.”
Well, with COVID-19, nothing has been that simple. But the “silver bullet,” as Bartlett called it, isn’t new at all, which is part of what makes it so intriguing. And despite very reasonable pushback from some sectors of the medical community, it’s worth a closer look.
For more than 20 years, doctors have prescribed budesonide, an anti-inflammatory, as preventive medicine for asthmatics. Inhaled corticosteroids, in fact, have been used for some time in patients of all ages, and very safely. On a theoretical basis, employing steroids to fight COVID-19 makes practical sense.
Here’s why: Scientists have learned that the morbidity from this disease occurs not only because of the devastating effects of the virus, but also from an inflammatory state that begins about a week or so into the illness. If physicians can interfere before this cascade of inflammation begins, the theory goes, we might prevent the disease from progressing in severity, and keep patients out of hospitals, intensive care units, and morgues.
Besides the budesonide, Bartlett’s cocktail includes an antibiotic called clarithromycin, along with zinc (to enhance immune function) and low-dose aspirin (to help prevent clotting issues seen with the disease). He recommends beginning twice-daily treatments early—even before a COVID-19 test result has been returned—via a nebulizer machine. A nebulizer deposits the medicine directly into the lungs, specifically targeting tissue locally, and thus prevents many of the systemic side effects that come from taking steroid medicines by mouth or intravenously.
We use steroids to treat many diseases, like rheumatoid arthritis and lupus, as well as allergic reactions, precisely to reduce inflammation. And a recently published study noted significantly lower death rates both in seriously ill COVID-19 patients and in patients needing oxygen when they were given intravenous steroids.
The supporting science for inhaled steroids, though, remains sketchy. Bartlett has written a paper with case reports describing favorable outcomes for two of his patients with the regimen, and he associates low COVID-19 death rates in South Korea, Japan, Taiwan, and Singapore partly with their purported use of inhaled corticosteroids. But evidence of that is scant, and other news sources attribute the successes to aggressive action on travel restrictions, mask wearing, testing, and contact tracing with strict quarantining—not budesonide.
As for inhaled steroids in the treatment of COVID-19, we mostly have case reports and lab data rather than human trials. Japanese and Chinese physicians have each published case reports on three patients with confirmed COVID-19 who improved after receiving an inhaled steroid called ciclesonide. In the U.S., in a lab study, researchers showed that budesonide inhibited the ability of a different coronavirus (one of the causes of the common cold) to replicate itself and inflame the airways. But the truth is that we do not have any randomized studies yet of inhaled steroid use in actual COVID-19 patients. Several such randomized control trials—the gold standard—are underway in France, Sweden, Spain, and the U.K.
Assessing risk is critical here. The primary concern is that if one suppresses the body’s immune response with steroids too early in the course of COVID-19, the viral aspect of the disease may worsen. That could lead to more severe pneumonia, among other possibilities. Studies have shown that patients with chronic obstructive pulmonary disease (COPD) who received inhaled steroids had higher incidences of pneumonia, and both asthmatic and COPD patients were more prone to upper respiratory infections when inhaled steroids were given.
So did Richard Bartlett find a silver bullet, or is it snake oil? We’ll know with more certainty in several months, when some of these trials conclude. In the meantime, though, it’s important to remember that doctors do sometimes use medicines “off label,” or for conditions other than what they are intended to treat. That’s exactly what Bartlett is doing, and he says he will continue.
A new and lethal virus like COVID-19 requires us as physicians to follow the science, of course, but we are also duty bound to listen to doctors on the front line and around the world. Their work with experimental treatments, especially while using medications with long track records of safety, may well prove critical in the interim.
Carolyn Barber has been an emergency department physician for 25 years, is cofounder of the homeless work program Wheels of Change, and is a nationally published author.


fortune--2020-07-24--Verizon is enrolling COVID-affected customers in extended payment plans

Verizon Communications Inc. has enrolled its Covid-affected customers in extended payment plans after the pledge to keep them connected expired at the end of June.
Chief Financial Officer Matt Ellis was asked on the company’s second-quarter earnings call about customers who face financial hardship due to the pandemic. He said about 1.5 million people are signed up under the pledge. Of those customers, about 300,000 haven’t made payments. AT&T Inc. said Thursday that it had 338,000 nonpaying customers.
With phone connections an essential lifeline, the nation’s top wireless carriers, including Verizon and AT&T, agreed to keep serving customers even if they couldn’t make their bill payments.
The Keep Americans Connected pledge expired June 30. AT&T said it was working to retain its customers. Verizon is taking the payments owed by its customers and spreading them out over several months on top of the regular bills.
There’s always a portion of customers that don’t pay their bills, and the numbers due to Covid “are not too dissimilar to what we’ve always seen,” Ellis said. “The numbers we have don’t concern me.”
Verizon set aside a $220 million cash reserve in the first quarter to cover nonpayments due to Covid, and the company didn’t add to that total in the second quarter, even as the spread of the coronavirus has accelerated.
“Our business is performing well,” Ellis said. “The macroeconomic environment will be the biggest determiner of whether we have to adjust those reserves. We’ll just have to wait to see how it plays out.”
Verizon shares were up 1% to $56.40 at 11:33 a.m. in New York. The stock is down 8.2% this year, compared with a 24% fall for AT&T and a 34% rise for T-Mobile US Inc.
For more on Verizon’s earnings, click here for the TOPLive blog.


fortune--2020-07-24--What to watch this weekend on Amazon Prime, Netflix, and more

Between traditional television, video-on-demand releases, and a growing number of streaming services, it can be hard to keep up with what one should watch week to week. Fortune is here to help you keep track of new releases as well as the occasional older title worth checking out. Take a look at this weekend’s notable arrivals, a couple you may have missed earlier in the week, and what else is coming soon:
Amazon Prime Video
Jim Gaffigan’s “The Pale Tourist” is on Amazon Prime July 24. Coutesy of Amazon Prime
Jim Gaffigan: The Pale Tourist: The comedian’s second special comes to Amazon July 24, and was filmed in Ontario and Barcelona, where Gaffigan met with locals and learned their history before performing in stand-up sets.
Netflix
Netflix’s “The Kissing Booth 2” starts streaming July 24. Marcos Cruz—Netflix
The Kissing Booth 2: The sequel to the YA favorite, starring Joey King as Elle, arrives on the streamer July 24.
Season 10 of Showtime’s Shameless will also appear on the streaming service later this weekend on July 26.
On TV
Room 104’s fourth and final season premieres on HBO July 24 at 11 p.m. ET.
Wynonna Earp returns for its fourth season on Syfy at 10 p.m. ET.
Six-part docuseries Helter Skelter: An American Myth, about the Manson family, includes previously unseen footage and interviews. It premieres July 26 at 10 p.m. ET on Epix.
On VOD
Josh Hartnett stars as Canadian journalist Victor Malarek in “Most Wanted.” Saban Films
The Rental: This horror flick, directed by Dave Franco and starring Alison Brie and Dan Stevens, is getting some strong reviews and is available on VOD starting July 24.
Most Wanted: The film, starring Josh Hartnett as Canadian journalist Victor Malarek (with Jim Gaffigan in a supporting role), is based on a 1989 investigation of an undercover operation that landed a civilian in a Thai prison. It will be available on demand starting July 24. Read Fortune’s interview with Hartnett and writer-director Daniel Roby here.
Coming soon
Jamie: Keep Cooking and Carry On: Home cooking has been big during the coronavirus pandemic, and Jamie Oliver’s latest series addresses the need to be resourceful in the kitchen during this time. Having already aired on Channel 4 in the U.K., the show comes to Hulu on July 27.


fortune--2020-07-24--Democrats for Life warn abortion policies could alienate religious voters

A group of more than 100 Christian pastors, religion professors and other advocates is urging the Democratic National Committee to adopt a party platform that’s friendlier to abortion opponents.
In a letter organized by the anti-abortion group Democrats for Life and set to be sent Friday, the group of Christians calls on the Democratic Party to rescind its platform’s support for ending restrictions on federal funding for abortion. That language was added to the party’s 2016 platform, to the frustration of anti-abortion Democrats. Last year, Joe Biden, the Democrat’s presumptive presidential nominee, shifted his position to back an end to restrictions on government funding for abortion.
“We call upon you to recognize the inviolable human dignity of the child, before and after birth,” the group wrote in its letter to the Democratic platform committee, shared in advance with The Associated Press. “We urge you to reject a litmus test on pro-life people of faith seeking office in the Democratic Party.”
Among the signatories of the letter are the Rev. Gabriel Salguero, president of the National Latino Evangelical Coalition and a member of former President Barack Obama’s faith-based advisory council; and John DeBerry, a longtime Tennessee state representative and pastor who was recently removed from the Democratic primary ballot due in part to votes against the party’s position.
Democrats for Life Executive Director Kristen Day said that her group had sent a letter opposing the Democratic platform’s 2016 inclusion of language backing the repeal of limits on federal funding for abortion that drew far fewer signatories. This week’s letter, which includes registered Democrats as well as independents, is “a much bigger effort,” she said.
Day also warned that the addition of another position Biden has backed — codification of the Supreme Court’s Roe v. Wade ruling — would alienate anti-abortion religious voters.
Biden is “a little bit ahead” of where Hillary Clinton was in 2016 in terms of faith-based voter outreach, Day said, but the prospect that the Democratic platform would back codification of Roe “would just massively damage relationships with religious voters who don’t necessarily want to see that.”
While Democrats have shifted leftward on abortion in recent years, there’s some evidence that abortion opponents are still open to supporting the party. Minnesota Democratic Sen. Amy Klobuchar, despite her strong abortion-rights voting record, won unlikely praise from some abortion critics in February for saying that anti-abortion Democrats “are part of our party.”
Day recalled Obama’s work toward “common ground” on abortion, as the former president put it in 2008, and noted that the Biden campaign has hired a faith adviser who worked on Obama’s reelection bid.
“It’s hugely important for the campaign and Vice President Biden to understand the importance of this vote,” Day said of anti-abortion Democrats who may be motivated by their faith. “It shouldn’t be taken for granted.”
A draft Democratic platform released this week will be voted on by mail before the party’s mostly-virtual convention, which is set to start Aug. 17.


fortune--2020-07-24--Neiman Marcus bows out of Manhattan, showing limits of NYC luxury market

Neiman Marcus for years craved having a store in luxury’s global capital, New York City. The high-end department store chain finally reached that goal last year, but it proved to be fleeting.
The company, which filed for bankruptcy protection in May under the weight of massive debt obligations and shriveling sales, will permanently close the store—located in the sprawling Hudson Yards development on Manhattan’s West Side—after only a year in operation, according to federal bankruptcy court documents filed on Thursday.
The store, whose glitzy opening party in March 2019 featured a special performance by Liza Minnelli, was meant to give Neiman a horse in Manhattan’s luxury race and enable the Dallas-based chain to go toe-to-toe with Saks Fifth Avenue, Bloomingdale’s, the defunct Barneys New York, and Nordstrom, which also opened its first New York City department store last year.
The hope for the 188,000-square-foot Neiman store was that it would draw tourists and office workers from a sprawling new $25 billion multiuse development with office towers, apartment buildings, a luxury hotel, and even a cultural venue. But given the COVID-19 outbreak that first hit in March, tourists are largely absent from New York, and most office workers are working from home. According to CNBC, the developer, Related Cos., is planning to repurpose the store to create more office space in the development.
Neiman pointed to that as a reason for exiting Hudson Yards, even though the retailer spent years developing the store. “A physical location in Hudson Yards is no longer an ideal space for us given the preponderance of restaurants and future office space in that mall,” a Neiman spokesman told Fortune.
Neiman, whose stores are well-appointed and luxurious, had already been forced to rein in its New York ambitions—the three-floor store had originally been meant to have five stories. And the company’s financial problems impeded its ability to make the store a true standout by its own standards and compared with its rivals. Saks has spent hundreds of millions of dollars on remodeling its flagship, while Nordstrom’s New York City store is similarly state-of-the-art.
But well before the pandemic, there were signs that the market for luxury department store shopping had reached a saturation point. Last year, Saks Fifth Avenue, owned by Hudson’s Bay Co., closed its Lower Manhattan outpost after only two years, while Barneys New York went out of business altogether in February.
Neiman Marcus is also closing stores in Fort Lauderdale, Palm Beach, and Bellevue, Wash., according to the court filing. That will leave it with 39 department stores. Neiman operates four stores in the New York City area as well as the Bergdorf Goodman store in Manhattan.


fortune--2020-07-24--Trump-backed postmaster general plans to slow mail delivery

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“Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.” So goes the unofficial motto of the United States Postal Service (USPS), adapted in 1912 from The Persian Wars by Herodotus and inscribed in the stone atop the main USPS building in New York City.
The inscription, however, leaves out the quest for profit, which is currently threatening the “swift” delivery of mail.
Americans have come to depend on the modern iteration of the Postal Service to quickly deliver lifesaving medicines, election ballots, bills, checks, and other goods through rough weather, world wars, natural disasters, and pandemics. Nearly 6,190 USPS employees, deemed essential workers, have tested positive for COVID-19, and more than 60 have died.
But now, as the cash-strained Postal Service faces what union leadership is calling “Christmas every day for package delivery” and an impending November presidential election that will likely necessitate an unprecedented increase in vote-by-mail ballots, it appears that the 108-year-old credo may have met its match in new Postmaster General Louis DeJoy.
“These changes are happening because there’s a White House agenda to privatize and sell off the public Postal Service,” said Mark Dimondstein, president of the American Postal Workers Union. “But there’s too much approval for the organization right now. They want to separate the service from the people and then degrade it to the point where people aren’t going to like it anymore.”
The end of overtime work and other changes come as the Postal Service staff finds itself stretched thin. Nearly 40,000 workers have had to quarantine for two weeks after exposure to the virus, according to sources close to the USPS.
Data obtained by the American Postal Workers Union, which represents about 200,000 postal workers, shows that nearly 20% of all work by mail handlers, city carriers, and postal drivers is done in overtime.
There are no plans to hire more employees to make up for the cut in hours. Because the Postal Service is required by law to pre-fund 75 years’ worth of retiree health benefits for new hires, it is generally thought of as more cost-efficient to increase overtime rather than hire new employees.
“Overtime will be eliminated…If the plants run late they will keep the mail for the next day,” reads an internal memo reviewed by Fortune. “If we cannot deliver all the mail due to call offs or shortage of people and you have no other help, the mail will not go out.”
The memo warns that “this is the first wave of changes that will be coming to USPS this year,” and that “we all must have a different mindset to keep the USPS alive.” The memo points to Bethlehem Steel, GM, and Packard Electric (all corporations, not public services) as companies that faltered because they “did not want to change and be profitable.”
Another memo, entitled, “Pivoting for Our Future,” warns that “one aspect of these changes that may be difficult for employees is that—temporarily—we may see mail left behind or mail on the workroom floor or docks, which is not typical.” But, the memo explains, “this is a critical time for us, when decisive, quick, and meaningful action is needed.” The mail left behind would presumably be delivered at a later date, though the document doesn’t clearly state that.
Critics of the changes say they don’t see how minimizing mail delivery efforts will lead to an increase in revenue. Empirically, the opposite has occurred. In late 2011, the USPS announced nearly $3 billion in service cuts that slowed first-class mail delivery for the first time in 40 years. It ended the 2012 fiscal year with a record net loss of $15.9 billion, compared to a net loss of $5.1 billion for the same period the year before.
“Every time we’ve slowed down mail, we’ve lost revenue,” said Dimondstein. The new postmaster general, he said, instituted sweeping policy change after just one month in his position and without consulting any unions or representatives with deep institutional knowledge.
“These seem to be arbitrary decisions. If you slow down mail and packages, people are going to go elsewhere to get deliveries,” he said.
The Postal Service was losing money at an unsustainable pace before the COVID-19 crisis, but it has seen a precipitous drop in revenue since. For this fiscal year, which ends Oct. 1, the USPS is predicting a revenue loss of $13 billion due to COVID-19. That’s on top of the nearly $9 billion the USPS had been losing annually before the pandemic.
In order to keep the Postal Service afloat, advocates are asking Congress for $25 billion in immediate assistance, a $25 billion modernization grant to overhaul infrastructure, and $14 billion in debt forgiveness. The Postal Service Board of Governors, which consists of three Republicans (all appointed by President Donald Trump) and two Democrats, unanimously approved of the ask in April.
But Trump has repeatedly said that he refuses to sign any legislation with a USPS bailout provision. “The Postal Service is a joke,” said the President in May. His administration nixed a bipartisan attempt to provide $13 billion to the Postal Service in March and previously recommended measures to privatize parts of the service.
The Trump administration’s efforts have been met with backlash: The USPS is the most well-liked government agency in the country according to Pew, with a 91% favorability rating. Another poll found that 92% of American voters said they supported direct financial aid for USPS as part of the next coronavirus relief bill.
Dimonstein took particular umbrage with comparisons to private institutions like Bethlehem Steel.
“A private business can make arbitrary business decisions, but we’re not a private business. We’re a service,” he said, adding that even during the best of times the USPS wasn’t run with the goal of bringing in a big profit. “I guess that the postmaster general must think it’s the Wild West, and he’s the new sheriff.”
The Postal Reorganization Act of 1970, he pointed out, requires “prompt, reliable, and efficient services to patrons in all areas,” in its first paragraph.
The Postal Service is required by the Constitution to serve everyone in the country equally and with uniform rates. The USPS is the only universal provider of mail service and has been a low-cost anchor for the mailing industry, helping to keep private mail service rates down. A recent analysis by the Institute for Policy Studies found that, without the USPS, 70 million more Americans would have to pay hefty surcharges for deliveries.
But the agency has been rapidly losing money since a 2006 law, passed with the support of the George W. Bush administration, required USPS to pre-fund employee retiree health benefits for 75 years in the future. That means the Postal Service must pay for the future health care of employees who have not even been born yet. The burden accounted for an estimated 80% to 90% of the agency’s losses before the pandemic.
Critics call the law “draconian” and say that it was created with the intention of leading the Postal Service toward privatization. No other federal agency bears this burden.
In a statement to Fortune, the Postal Service said that it was currently “developing a business plan to ensure that we will be financially stable,” which will be presented to the Board of Governors once finalized and will “focus on the Postal Service’s strengths to maximize our prospects for long-term success.” But for now, it is “taking immediate steps to increase operational efficiency by reemphasizing existing plans that have been designed to provide prompt and reliable service within current service standards.”
Union leaders say they don’t understand how plans to slow mail delivery services lead to an increase in efficiency.
Dimonstein points to a decision to cancel extra truck trips from processing stations to post offices. Each mail truck, he said, can only hold so many containers of mail. When volume goes up, as package volume has during shelter-in-place orders, workers will make an extra trip to make sure everything gets delivered on time. Without those extra trips, packages and mail will sit at the station for at least an additional day. But as volume continues, a snowball effect occurs where days can grow into weeks.
“It’s outrageous. It’s an arbitrary act,” said Dimonstein.


fortune--2020-07-24--When the U.S.-China fight disrupts U.S.-China financing

Happy Friday, Term Sheet readers.
Yesterday, I wrote of the rise of blank-check companies—a way of financing companies that was associated with penny stock frauds in the 1980s, but has since seen regulatory reform and a boom in interest as private companies seek new ways of going public.
It’s not the only thing getting a new dose of legitimacy in recent days. China’s contender to the Nasdaq, the tech-heavy STAR market in Shanghai, is set for a major milestone after Alibaba’s fintech giant, Ant Group, said it would list concurrently in Hong Kong and on the STAR market. On top of that, Tencent and Baidu-backed Chinese electric vehicle maker WM Motor Technology is reportedly also considering an IPO on the STAR board.
When it launched a year ago, the new Shanghai bourse received a heavy dose of skepticism. China launched a tech-focused exchange in Shenzhen a decade earlier, dubbed the ChiNext, that fell short of expectations. Companies still preferred to list in the U.S. for several reasons, chief among them: The U.S. is home to perhaps the most liquid markets in the world. Alibaba itself is listed on the New York Stock Exchange.
But now, geopolitical tensions between Washington and Beijing are coinciding with greater cynicism over the success of Chinese companies in the U.S. following the Luckin Coffee accounting fraud debacle, as well as a greater push for listings from the Chinese government. More and more Chinese tech companies are seeking dual listings in China as insurance amid threats of delisting in the U.S. (Already listed on the Nasdaq, gaming company NetEase and e-commerce firm JD.com also opted to list in Hong Kong in June.)
It is key to note Ant, known for Alipay, did not choose New York at all. Its valuation could be upwards of $200 billion, per analysts.
While lines are fraying between the U.S. and China, there’s another thread to follow: China has invested heavily in India in recent years. But lately, clashes between the two nations have also impacted India’s startup community as Chinese funding has cut off for some companies.
Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com
VENTURE DEALS
- MissFresh, a Chinese online grocery delivery startup, raised $495 million in funding. Investors included China International Capital Corporation, ICBC International Securities, and Tencent. Read more.
- The Not Company, a Latin American plant-based meat and dairy substitute company, is about to close on an $85 million round that would value it at $250 million, per TechCrunch. Read more.
- Talkdesk, a San Francisco-based provider of a cloud contact centers, raised $143 million, valuing it at over $3 billion. Investors included Franklin Templeton, Willoughby Capital, Skip Capital and Lead Edge Capital.
- Quantexa, a London-based decision intelligence software company, raised $64.7 million in Series C funding. Evolution Equity Partners led the round and was joined by investors including Dawn Capital, AlbionVC, HSBC, British Patient Capital, ABN AMRO Ventures, and Accenture Ventures.
- Riiid, a Seoul-based AI education start-up based in Korea, raised $41.8 million in pre-Series D funding. Investors included the state-run Korea Development Bank, NVESTOR, Intervest, and IMM Investment.
- Religion of Sports, a sports media company co-founded by Gotham Chopra, Tom Brady and Michael Strahan, raised $10 million in funding. Investors included Elysian Park, Advancit, Courtside Ventures and LinkinFirm.
- iObeya, a France-based provider of enterprise visual management software, raised $17 million in funding. Red River West led the round and was joined by investors including Atlantic Bridge Capital and Fortino Capital Partners.
- Mira, a Los Angeles-based augmented reality startup, raised $10 million. Sequoia Capital and Happiness Ventures led the round and were joined by Blue Bear Capital.
- Vive Organic, a Venice, Calif.-based maker cold-pressed wellness shots, raised $13 million in Series B funding. Monogram Capital led the round and was joined by investors including Cambridge SPG and Powerplant Ventures.
- Levitate, a Raleigh, N.C.-based marketing platform, raised $6 million. Investors include Tippet Venture Partners, Bull City Venture Partners and angel investor Peter Gassner. Read more.
- Sotero, a Burlington, Mass.-based maker of a data protection platform, raised $5 million in funding. Gutbrain Ventures led the round and was joined by investors including Boston Seed Capital and PBJ Capital.
- Arrive Outdoors, a Santa Monica, Calif.-based outdoor travel company, raised $4.7 million in seed funding. Freestyle Capital led the round and was joined by investors including Science Inc., Corigin Ventures, Narrative Fund, AVG Basecamp Fund, and James Reinhart and John Voris, CEO and former COO of thredUP.
- Turbo Systems, a Campbell, Calif.-based no-code engagement platform, raised $3.5 million in extended Series A funding. Mayfield led the round and was joined by investors including B Capital and Nassau Street Ventures.
- Matik, a San Francisco-based startup focused on business reports, raised $3 million in seed funding. Menlo Ventures led the round and was joined by investors including BoxGroup and Oceans Ventures. Read more.
- Buzz Solutions, a Palo Alto, Calif.-based ai image analyzation maker for detecting infrastructure flaws, raised $1.2 million. Blackhorn Ventures led the round and was joined by investors including Ulu Ventures, Vodia Ventures, and Advisors.fund.
PRIVATE EQUITY
- Sovos, backed by Hg, acquired Keane’s unclaimed property consulting services and reporting technology. Financial terms weren't disclosed.
- Tenex Capital Management invested in Consolidated Label & Online Labels, a Sanford, Fla.-based maker of custom printed pressure sensitive labels, shrink sleeves, and blank labels on sheets. Financial terms weren't disclosed.
- E Source, backed by Align Capital Partners, acquired StrategyWise, a Birmingham, Ala.-based provider of predictive analytics services and artificial intelligence consulting. Financial terms weren't disclosed.
- Clayton, Dubilier & Rice invested in Cheney Brothers, a Riviera Beach, Fla.-based regional food distributor. Financial terms weren't disclosed.
- Alimentation Couche-Tard, Japan's Seven & i Holdings Co and TDR Capital are preparing to bid for Marathon Petroleum Corp’s gas station network Speedway, per Reuters. Speedway could fetch between $15 billion to $17 billion. Read more.
- DC Capital invested in PBK Architects, an architectural planning and design firm. Financial terms weren't disclosed.
- Parthenon Capital recapped Nuvem Health, a Mount Laurel, N.J.-based provider of pharmacy claims administration. Financial terms weren't disclosed.
OTHERS
- Groupe SEB (Paris:SK) agreed to acquire a majority stake in StoreBound, a New York-based - company behind the Dash brand of kitchenware. Financial terms weren't disclosed.
- PetroChina plans to sell its major oil and gas pipelines and storage facilities to China Oil and Gas Pipeline Network for 268.7 billion yuan ($38.36 billion). Read more.
- Amazon is in talks to buy a 9.9% stake in the retail arm of Reliance Industries, the Indian conglomerate. Read more.
BREAKUPS, HANGUPS, AND BANKRUPTCIES
- Ascena Retail Group, owner of Ann Taylor and Lane Bryant, filed for Chapter 11 bankruptcy protection on Thursday. Read more.
-Brooks Brothers entered a $305 million “stalking horse” purchase agreement with SPARC Group, a retailer, amid the former’s bankruptcy proceedings. Read more.
IPOS
-Junlebao Dairy, a Chinese dairy company, is weighing a dual listing in Hong Kong and mainland China, per Bloomberg. Ping An Capital, Primavera Capital and Sequoia China back the firm. Read more.
F+FS
-Pomona Capital is seeking $2 billion for its tenth fund, per an SEC filing. Read more.
-TikTok launched a $200 million content creator fund.
-Longwood Fund closed its fifth fund with $170 million.
PEOPLE
-Kensington Capital Partners appointed Win Bear as one of the firm’s managing directors. Bear was previously at Silicon Valley Bank.


fortune--2020-07-24--Beijing partially reopens movie theaters as coronavirus threat recedes

Beijing partially reopened movie theaters Friday as the threat from the coronavirus continues to recede in China’s capital.
Cinemas in parts of the city deemed at low risk of cross-infection began admitting moviegoers under social distancing rules. Tickets must be booked in advance, attendance is capped at 30% of capacity and no eating or drinking is allowed during the show.
As with most venues in China, a temperature check and online travel record were required for entry. Cinemas have been closed for around six months but began reopening this week in major cities throughout the country.
Volunteers with the Blue Sky Rescue team prepare to disinfect a cineplex before it reopens for business in Beijing Friday, July 24. Theaters in China, the world’s second largest movie market, this week reopened from the coronavirus shutdown with theaters limited to 30% capacity. AP Photo—Ng Han Guan
China reported just 21 new virus cases on Friday, six of them imported, with the rest in the Xinjiang region and Jilin province. Beijing has gone more than two weeks without any cases of local transmission, spurring authorities to lift many restrictions on activities.
Tickets at Poly International Cinema’s branch near Tiananmen Square were sold out Friday, with the marquee boasting the comedy Dolittle and superhero attraction Bloodshot. China’s domestic movie industry has also been generating major ticket sales while audiences have warmed to features from India and other foreign countries.
Movie poster designer Liu Jingyu managed to grab tickets for both Hollywood films shown at the Poly cinema, rekindling his hopes after seeing his earnings dry up over the past half-year.
“For us who make a living on movies and who are movie enthusiasts, without movies, our life is full of pain,” Liu said.
Chinese are enthusiastic moviegoers and the country was expected to surpass the U.S. this year as the world’s biggest box office before the pandemic hit.
Li Xu, manager of the Poly cinema branch, said he is looking forward to the October National Day holiday when he expected the movie market would return to normal. The weeklong vacation is typically huge for ticket sales, with Chinese cinemas generating a record 5 billion yuan ($708 million) from Sept. 30 to Oct. 7 last year.