In Brief: CLO Edition
2018 Jul 18
Today's Top Story
United States Suing EU, Canada, and Others at WTO for Retaliating Against Tariffs
The United States is suing the European Union, Canada, and several other countries at the World Trade Organization (WTO) for retaliating against new U.S. tariffs on steel and aluminum. Robert Lighthizer, the United States Trade Representative, says that U.S. tariffs "are justified," but the retaliation of other countries is "completely without justification." The five parallel WTO complaints target the European Union, Canada, Mexico, China, and Turkey, reports the Toronto Globe and Mail (16 July, Morrow, Keenan). The United States imposed tariffs of 25 percent on steel and 10 percent on aluminum on China and other countries in March, then on Canada, Mexico, and the EU in June. On 1 July, Canada fired back with levies on CA$16.6 billion worth of American goods. The Trump administration says it has to keep foreign imports out of the country in order to build up the domestic metal-making capacity so it can make its own steel and aluminum in the event of a war. The other countries' retaliation is illegal, the administration claims, because they imposed tariffs without going through the WTO.
Ford Agrees to Pay US$299.1 Million to Resolve Air-Bag Lawsuit
To resolve a class-action lawsuit over its use of defective Takata Corp. airbag inflators, Ford Motor Co. has agreed to pay at least US$299.1 million. The proposed settlement was reached after several weeks of negotiation, according to Peter Prieto, the lead attorney for the plaintiffs in the case. The plaintiffs included owners and lessees of Ford vehicles that were equipped with the Takata airbag inflaters. Judge Federico Moreno of the U.S. District Court for the Southern District of Florida in Miami must approve the plan, reports the Wall Street Journal (16 July, Maidenberg). The proposed settlement covers only economic issues discussed in the class-action lawsuit and does not resolve personal injury or property damage claims or those brought by auto recyclers.
U.S. SEC Charges Energy XXI Founder With Fraud
The U.S. Securities and Exchange Commission (SEC) has charged Texas-based Energy XXI founder John Schiller with fraudulently obtaining more than US$10 million in personal loans and perks from corporate vendors and board members in return for contracts and appointments. The federal government is alleging Schiller engaged in pay-for-play with vendors as far back as 2014, personally receiving US$7.5 million in undisclosed loans with firms that were awarded business contracts with Energy XXI. In addition, Schiller was given a US$3 million loan from an ex-Energy XXI board member and major shareholder. Schiller departed Energy XXI in last year's first quarter after it emerged from bankruptcy. He agreed to pay a US$180,000 penalty and submitted to a five-year ban from servicing as an officer or board director of a public company, reports the Houston Chronicle (16 July, Blum). Schiller neither admitted nor denied fault, the SEC said.
Lowe's New CEO Eliminates Four Top Positions
Lowe's new CEO Marvin Ellison has eliminated four of the most high-profile positions in the C-suite, starting with COO Richard Maltsbarger. Ellison also eliminated the roles of chief customer officer, chief development officer, and corporate administration executive. In place of these eliminated positions, he has created three new executive vice president (EVP) roles, including EVP of Stores and EVP of Supply Chain. The new EVP of merchandising post is William Boltz, former CEO of tool company Chervon. In his last role as J.C. Penney's CEO, Ellison instituted a similar top-level shake-up, reports Inc.com (16 July, Zetlin).
Labor and Employment
Uber Faces U.S. Investigation Over Alleged Gender Discrimination
The U.S. Equal Employment Opportunity Commission (EEOC) is reportedly investigating Uber Technologies after receiving a complaint about gender inequity. The inquiry began last August and has not been previously reported. Those familiar with the situation said the EEOC is interviewing former and current Uber employees, as well as seeking documents from Uber officials related to its hiring practices and pay disparity. The company noted it has made a "lot of changes in the last 18 months," including overhauling its review and compensation practices, but is currently involved in a series of federal probes and working to move past a string of scandals. The EEOC did not comment on the probe, reports the Wall Street Journal (16 July, Bensinger).
U.K. Technology Firm Revolut Reports Suspected Money Laundering on its System
The U.K.'s fastest growing financial technology company Revolut told the National Crime Agency and the Financial Conduct Authority about a spate of suspected money laundering on its digital payments system a few months ago. Reporting the criminal activity shows how seriously Revolut takes its legal obligations; however, the company's critics may seize the opportunity, asking whether it can maintain strong enough defenses against financial crime while pursuing its growth strategy. Revolut was launched three years ago and recently more than doubled its customers to two million in six months, reports the Financial Times (17 July, Arnold).
Rio, Vale Output Soars as Big Miners Grow Share
Brazilian miner Vale has announced plans to grow production by 18 percent over the next six months. Meanwhile, Rio Tinto promised to achieve the higher end of its target range for iron ore exports in 2018, and BHP is expected to report on 18 July what many believe will be its strongest-ever quarterly iron ore export statistics. Vale produced 96.8 million tonnes and sold 86.5 million tonnes during the three months to 30 June, and said it would grow production in order to meet its target of producing 390 million tonnes of iron ore in 2018, reports the Australian Financial Review (17 July, Ker). Rio has vowed to ship between 330 million and 340 million tonnes of iron ore from Western Australia in 2018, and is on track to achieve that goal.
FCC Chair Pai Rejects Sinclair-Tribune Merger
On 16 July, Federal Communications Commission (FCC) Chairman Ajit Pai reported he has "serious concerns" about the proposed merger between the Sinclair Broadcast Group and Tribune Media. "The evidence we've received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law," Pai said in a statement. "When the FCC confronts disputed issues like these, the Communications Act does not allow it to approve a transaction," he added. Pai recommended the US$3.9 billion merger be sent to an administrative law judge for review, saying that "the law requires the FCC to designate the transaction for a hearing in order to get to the bottom of those disputed issues." AT&T and T-Mobile in 2001 withdrew a merger application after then-FCC Chairman Julius Genachowski circulated a similar proposal to the commission. Opponents of this latest mega-deal had expressed concerns the FCC was giving Sinclair special treatment, reports The Hill (16 July, Neidig).
Strong U.S. Retail Sales in June Brighten Economic Outlook
U.S. retail sales increased last month as households boosted purchases, further raising hopes for robust economic growth in this year's second quarter. Signs of a strengthening economy, coupled with firming inflation and a tightening labor market, will likely keep the Federal Reserve on track to continue raising interest rates in the second half of 2018, reports Reuters (16 July, Mutikani). Fed Chairman Jerome Powell recently offered an upbeat assessment of the economy, informing Capitol Hill legislators that "over the first half of this year, overall economic activity appears to have expanded at a solid pace." On 16 July, the Commerce Department confirmed that retail sales rose 0.5 percent in June. Meanwhile, data for the month prior was revised higher to show sales climbing 1.3 percent rather than the previously reported 0.8 percent gain.
Australia CEO Pay Hits a Record
A report by the Australian Council of Superannuation Investors found the pay of chief executives in Australia hit a record last year as workers' wages flatlined. According to the pensions group's report, median realized pay for ASX 100 chief executives rose 12.4 percent to AU$4.36 million (US$3.24 million) in 2017, with bonus payments increasing 18 percent. All but six of the 80 chief executives eligible for a bonus received one, reports the Financial Times (16 July, Smyth). In Australia, wages growth is stuck near record-low levels and household debt is among the highest in the world. The pensions group warned that boards' sanctioning of big bonus payments without sufficient scrutiny is destroying trust in business.
Netflix Reports Weaker-Than-Expected Number of New Subscribers
Shares of Netflix more than doubled in 2018, but fell 14 percent in after-hours trading 16 July. The streaming-video site missed its own forecasts by more than a million subscribers in the second quarter, blaming it on faulty internal forecasting instead of its recent price increases, reports the Wall Street Journal (16 July, Ramachandran). In the second quarter, the company added 4.47 million international customers, short of its guidance of 5 million, and 670,000 streaming customers in the United States, less than its estimate of 1.2 million subscribers. The company has missed forecasts three times in the past 10 quarters.
Corporate Social Responsibility
Adidas Will Only Use Recycled Plastics by 2024
On 16 July, Adidas committed to using only recycled plastic by 2024. The sportswear maker's pledge to eliminate the use of so-called "virgin" plastic includes polyester, a material popular in sportswear. In addition, Adidas has vowed to cease using virgin plastic in its offices, retail outlets, warehouses, and distribution facilities, a move that would save an estimated 40 tons of plastic annually beginning this year. The German company is expecting an increase in sales of its Parley shoes, which are made with plastic waste that has been intercepted before it reaches the ocean, reports CNNMoney (16 July, Kottasová).