DealBook Briefing: Wells Fargo Faces Another Huge Fine. Is That Too Much?


Elsewhere in banking: British financial regulators fined Barclays’s C.E.O., Jes Staley, over his efforts to identify a whistle-blower. Deutsche Bank mistakenly paid $35 billion to Deutsche Börse. (It got the money back.)

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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York and Michael J. de la Merced and Amie Tsang in London.

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Carlos Barria/Reuters

AT&T’s C.E.O. defends his ‘vision deal’

On the stand yesterday, Randall Stephenson argued that his company’s planned takeover of Time Warner would create a business no different from the Silicon Valley giants AT&T sees as its rivals. “The FAANG are all focused on premium video,” Mr. Stephenson said. “All of them are vertically integrated.”

The Justice Department, which wants to block the deal, argued that AT&T is different because it’s also a broadband internet provider, and that relations with Silicon Valley are chummier than Mr. Stephenson asserts.

Andrew says: If you read one smart thing today, make it this thread by Matthew Ball, the former head of strategy at Amazon Studios. This point is especially insightful:

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Elsewhere in big media: CBS investors can continue their lawsuit over whether Sumner Redstone improperly received more than $13 million in bonuses after becoming incapacitated.

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Suzanne Plunkett/Reuters

The bidding war for Shire that wasn’t

After what briefly looked like a potential bidding war between Takeda and Allergan — until Allergan dropped out — the question now, Michael writes, is what price will Shire fetch? (Takeda has informally offered over $60 billion.)

A big takeover would give Takeda more scale — the combined company would have some $30 billion in annual sales — and a bigger international footprint. But it would also be the company’s biggest takeover by far, and perhaps too expensive.

The Japanese drug maker said it intended to maintain its credit rating, which could be difficult if it bids too high — or is pressured to do so by yet another suitor.

Critics’ corner: Neil Unmack and Robert Cyran of Breakingviews say Takeda needs a deal, but risks overpaying. Chris Hughes and Max Nisen of Gadfly aren’t sure a bidding war for Shire is warranted.

Elsewhere in deals: WPP pushed back against calls to break itself up. Qualcomm needs a better Plan B if its NXP takeover fails. Connecticut Water has rejected a $748 million takeover bid by Eversource. Saudi Arabia’s solar project deal with SoftBank exposed infighting between the kingdom’s energy ministry and its sovereign wealth fund.

Is the E.U. bending to Trump on trade?

With its $16 trillion economy and reputation for tough negotiating, the E.U. could have been the immovable object in President Trump’s trade fight. But that is looking less likely, Peter Eavis writes.

Why? The WSJ reports that the E.U. is prepared to offer concessions to avoid Mr. Trump’s threatened tariffs on imported steel and aluminum that Mr. Trump has threatened — perhaps reducing tariffs on American cars and industrial parts, and joining the U.S. in pressuring China on trade and investment rules.

Among the lessons if the E.U. concedes: The U.S.’s large trade deficits can give it leverage.

Beijing appears keenly aware of the risks here and is sure to press its case at a China-E.U. summit in July.

Elsewhere in trade: Global policymakers in Washington for I.M.F. and World Bank meetings appear worried about a trade war. The Export-Import Bank has been sidelined despite its potential usefulness in trade fights. And how a Chinese boycott of U.S. goods could backfire.

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Carolyn Kaster/Associated Press

The political flyaround

• Rudy Giuliani and two other former federal prosecutors have joined President Trump’s legal team to “quickly” resolve Robert Mueller’s investigation. Rod Rosenstein reportedly told Mr. Trump that he’s not a target in either the Mueller investigation or the case involving Michael Cohen.

• The F.B.I. has released James Comey’s memos about his interactions with Mr. Trump, one of which recorded the president expressing frustration with Michael Flynn. The Justice Department’s internal watchdog referred its findings about Andrew McCabe to prosecutors.

• The Republican fund-raiser Elliott Broidy pushed for Mr. Trump to meet with the Malaysian prime minister, who was under investigation from U.S. prosecutors — and had business dealings with Mr. Broidy. (NYT)

• The Kushner Companies has been subpoenaed in an investigation into its treatment of rent-regulated tenants. (WSJ)

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Bloomberg Businessweek

Palantir wants to go more mainstream

The sometimes controversial data consultant cut its teeth working for the Pentagon and the C.I.A. Now it’s hoping that its latest product will attract more commercial clients.

But here’s the company’s biggest problem, according to Bloomberg’s Peter Waldman, Lizette Chapman and Jordan Robertson:

The company needs to figure out how to be rewarded on Wall Street without creeping out Main Street. It might not be possible. For all of Palantir’s professed concern for individuals’ privacy, the single most important safeguard against abuse is the one it’s trying desperately to reduce through automation: human judgment.

How will a Russia-focused V.C. firm fare?

Now might not seem the ideal time to start a venture capital firm that aims to help U.S. start-ups break into the Russian market. But Fort Ross Ventures, which has opened for business in the U.S. with a $200 million fund, is making a go of it.

Victor Orlovski, Fort Ross’s founder and managing partner, told Michael that the current state of U.S.-Russian political relations should not affect his firm’s ability to operate. “The nature of start-ups is all about risk,” he said. “There is a political tension, but not when you’re talking to start-ups.”

The tech flyaround

• A PWC audit of Facebook last year found sufficient data privacy protections, despite the Cambridge Analytica incident. New European privacy rules could eliminate the book-length user agreements that most people don’t read.

• G.E. is scaling back its digital ambitions. (NYT)

• A.I. salaries are skyrocketing, even at nonprofit organizations. (NYT)

• Venture capitalists and entrepreneurs have lobbied regulators not to classify virtual currencies as securities. (NYT)

• Iceland’s cool climate and geothermal steam have made it a home for data centers, but its environment is under stress. (WSJ)

• Disappointing sales forecasts from TSMC, one of Apple’s main chip suppliers, weighed on Asian tech stocks. (Bloomberg)

• Vitalik Buterin, Ethereum’s creator, on recently minted cryptocurrency millionaires: “It’s the luck of the draw, where everyone who won the draw seems to feel like they deserved it for being smarter.” (FT)

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Drew Angerer/Getty Images

‘Fearless Girl’ is moving — and the bull may follow

The girl statue is set to move to a new spot facing the N.Y.S.E., out of concerns for the safety of crowds that gather around her. And if N.Y.C. has its way, the totemic bull statue she faces could move as well.

The only potential obstacle: Arturo Di Modica, the artist who made the bull, doesn’t want it moved.

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Andy Kropa/Invision, via Andy Kropa/Invision/Ap

Revolving door

Warren Buffett will step down from the board of Kraft Heinz next week, citing a desire to travel less. (FT)

• Mattel named Ynon Kreiz, the former head of Maker Studios, as its C.E.O., replacing Margo Georgiadis. (WSJ)

• Macerich’s chairman and C.E.O., Arthur Coppola, plans to step down at year end. (Bloomberg)

The speed read

• The F.A.A. had been considering rules that might have affected the Southwest Airlines flight in which engine failure led to a passenger’s death. And there are fears that increasingly powerful and complex engines may be becoming more vulnerable to faults.

• The F.D.A. has recommended the approval of a cannabis-based drug for epilepsy. (NYT)

• Opioid prescriptions are declining. Prescriptions to tread opioid addiction are increasing. (NYT)

• Lance Armstrong will pay $5 million to settle claims that he defrauded the federal government by doping when the United States Postal Service sponsored his cycling team. (NYT)

• Donte Robinson and Rashon Nelson, the two black men whose arrests at a Starbucks prompted protests and bias training at the company, have spoken about what happened. (NYT)

• The E.U. is set to reject a U.K. idea about how to handle the Irish border after Brexit. (Bloomberg)

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Common Sense: Punishing Wells Fargo: Just Deserts, or Beating a Dead Horse?


But with the new $1 billion penalty, which is expected to be announced as soon as Friday, even I have to wonder: Has Wells Fargo been punished enough?

After all, the bank’s bad management is gone. Whether they’ve paid adequately for their multiple transgressions is an open question — no one has gone to jail, or even faced criminal charges. But Wells Fargo shareholders have been battered, with the company’s stock down about 16 percent this year, while shares of banking rivals like JPMorgan and Bank of America have fared much better, both with slight gains.

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“We cannot tolerate pervasive and persistent misconduct at any bank,” said the former Fed chairwoman, Janet Yellen, as she announced curbs on Wells Fargo on her last day in the job.

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Joshua Roberts/Reuters

Over the past five years, a period that spans Wells Fargo’s fake accounts scandal, the comparison is even more dramatic: shares in JPMorgan and Bank of America have more than doubled. Wells Fargo’s stock has gained just about a third.

“People did this, not the bank,” said Charles M. Elson, a professor and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “The behavior was reprehensible and they should have paid the price. But putting the onus on the corporation is a double whammy for shareholders. They were harmed by the actions of management and now they’re paying again.” (As a shareholder himself, Mr. Elson has felt the pain.)

The cost to Wells Fargo of the various scandals and related lawsuits and investigations isn’t limited to the billions it has had to set aside for penalties and other liabilities. The bank has also had to defend itself in regulatory proceedings and various civil lawsuits, including class actions filed by wronged customers, and it has had to conduct multiple internal investigations that revealed even more wrongdoing.

In a windfall for the legal sector, the bank has had to hire a horde of expensive lawyers, consultants and others to handle the fallout, an enormous management task in its own right. Wells Fargo recruited Allen Parker, one of the country’s most highly regarded (and highly paid) banking lawyers — who recently completed his tenure as presiding partner at Cravath, Swaine & Moore, and — as its new general counsel to oversee the sprawling legal problems.

Wells Fargo hasn’t said how much it has spent in legal fees and related expenses, but it has clearly had a material impact on the bank’s results. The costs show up in its efficiency ratio, which is overhead divided by revenue. Wells Fargo has traditionally aimed for between 55 and 59 percent.

At the end of last year, Wells Fargo’s ratio was 76.5 percent.

Stripping out a $3.25 billion charge the bank took in the fourth quarter last year, it was still an elevated 61.5 percent. Wells Fargo’s chief executive, Tim Sloan, called the ratio “completely unacceptable.”

A Deutsche Bank managing director and bank analyst, Matt O’Conner, has been pressing Mr. Sloan at earnings conferences for more clarity on expenses and legal liability, but the bank’s chief executive has resisted. “I’d love to live in a world where I can give you an absolute guarantee and certainty, but it’s just not the world we live in,” he said during an earnings call last year.

Mr. O’Connor told me this week that there’s no question the bank’s expenses, driven by litigations costs, “are bloated,” which shows up in the weak efficiency ratio.

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As for Wells Fargo’s management, some individuals have paid a price for the company’s scandals. The board fired the former chief executive, John Stumpf, as well as Carrie Tolstedt, who led the community banking division responsible for the fake accounts.

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Susan Walsh/Associated Press

He also pointed to intangible costs, such as management distraction. “It’s hard to optimize the rest of your costs when all this is going on,” he said.

There may be light at the end of the tunnel for battered shareholders. Mr. O’Connor has a “buy” rating on the stock, arguing that at this point potential legal liabilities are already reflected in the share price, and eventually costs will come down as the litigation and regulatory issues are resolved.

The Fed is also expected to lift its cap on Wells Fargo’s assets at some point. It gave the bank 60 days to submit evidence that it had reformed its risk controls and compliance mechanisms. Still, the new Fed chairman, Jerome Powell, said the bank should expect to have its growth constrained for “a significant period.”

As for the individuals involved, many have paid a price. At the top, the board fired the former chief executive, John Stumpf, as well as Carrie Tolstedt, who led the community banking division responsible for the fake accounts. The bank clawed back $69 million from Mr. Stumpf and $67 million from Ms. Tolstedt (though both are still enormously wealthy — Mr. Stumpf left with deferred compensation and stock valued at over $130 million, even after the clawbacks. Ms. Tolstedt left with over $124 million before clawbacks.)

Several midlevel managers were also fired along with more than 5,300 employees at the branch level, where most of the fake-account misconduct took place.

The board itself has been purged (or “refreshed,” as the bank puts it). Four longtime directors will depart later this month, reducing the board size to 12 members. The former board chairman, Stephen Sanger, retired last year, along with two other board members. At this point, only two directors have served longer than five years. Last year, the bank hired Mary Jo White, the former chairwoman of the Securities and Exchange Commission, to assess the board’s self-evaluation program.

Wells Fargo has initiated a raft of other reforms intended to protect its customers and rebuild its battered reputation, detailed on its website.

At this point it’s hard to imagine what more Wells Fargo can do (or how much more it can spend) to make amends.

“The government shouldn’t view a crippled institution as a piggy bank to generate revenue,” Mr. Elson said. “I’ve been a vocal critic of prior management, and the transgressions were serious. But at some point, you have to say enough. A healthy, viable bank is in everyone’s interests.”

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Wells Fargo Said to Be Target of $1 Billion U.S. Fine


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An expected $1 billion penalty against Wells Fargo would mark the toughest action that the Trump administration has taken against a major bank.

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Daniel Tepper/Bloomberg

Federal regulators are poised to impose a $1 billion penalty on Wells Fargo for a variety of alleged misdeeds, including forcing customers to buy auto insurance policies that they didn’t need, according to people briefed on the regulatory action.

The expected penalty, levied by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, is likely to be announced Friday.

It would mark the toughest action that the Trump administration has taken against a major bank. And it is the latest blow to Wells Fargo, which for years was regarded as one of the country’s best-run banks but lately has been reeling from a string of self-inflicted crises.

President Trump has advocated a rollback of regulations on the banking and other industries. He has nominated industry-friendly officials to oversee key government agencies, including the consumer bureau, which is being run on an interim basis by Mick Mulvaney. Mr. Mulvaney has pledged to defang the agency, criticizing it for wasteful spending and overzealous oversight that is strangling banks and other lenders.

At the same time, though, Mr. Trump has pledged to be especially tough on San Francisco-based Wells Fargo. “I will cut Regs but make penalties severe when caught cheating!” Mr. Trump wrote on Twitter in December.

The C.F.P.B.’s portion of the $1 billion penalty is likely to represent the largest fine the agency has ever levied. The bureau was created as part of the Dodd-Frank law enacted in response to the global financial crisis.

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The Week Ahead: AT&T and Time Warner Chiefs to Testify, and New China Tariffs Brew


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Randall Stephenson, chief executive of AT&T, left, and Jeffrey Bewkes, chief executive of Time Warner, in 2016. Both men are expected to testify in support of the proposed merger of their two companies, which has been challenged by the Justice Department.

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Patrick T. Fallon/Bloomberg

Here’s what to expect in the week ahead:

CABLE TELEVISION

AT&T and Time Warner C.E.O.s will take the stand.

As the Justice Department’s suit to block AT&T’s merger with Time Warner enters its fifth week, the top executives of both companies will take the stand in federal court. Jeff Bewkes, the chief executive of Time Warner, will go first, followed by Randall Stephenson, the chief executive of AT&T. They are both expected to testify early in the week. The executives will vigorously defend the $85 billion merger, which they say will create a stronger competitor to ascendant streaming video services. The Justice Department is expected to pose tough questions to the executives on how the combined companies could try to raise prices on rival cable and satellite firms — increases that would trickle down to consumers. Cecilia Kang

FINANCE

The I.M.F. and the World Bank discuss the economy.

World leaders will travel to Washington, D.C., for the spring meetings of the International Monetary Fund and the World Bank, which run from Monday through Sunday. The organizations are likely to repeat their message of recent months, cautioning governments to make tough reforms to increase their economic productivity now, while global growth remains strong. They have also urged countries to avoid trade protectionism. Ana Swanson

ECONOMY

Bad weather may have cooled sales in March.

The Census Bureau is scheduled to release data on Monday on retail sales in March, providing another marker of the economy’s health and stability. Cold weather across much of the country may have led to a decline in discretionary shopping in March. Sales fell slightly in February, a typically quiet time for shoppers after the holiday rush. Michael Corkery

BANKING

More big banks will report first-quarter earnings.

Bank earnings reports continue next week, with Bank of America reporting first quarter results on Monday, followed by Goldman Sachs on Tuesday and Morgan Stanley on Wednesday. Each could see a boost from recent stock market volatility, but a breakout performance on loan or deposit growth would be a surprise. Emily Flitter

RETAIL

High court hears arguments on taxing online retailers.

Internet retailers will face a reckoning at the Supreme Court on Tuesday, when the justices hear arguments about whether to reconsider a 1992 ruling that helped spur the rise of online shopping. That decision barred states from forcing companies to collect sales taxes if they do not have a local physical presence. Some justices have signaled that they are ready to overrule the decision, which costs states billions in tax revenues and puts brick-and-mortar stores at a competitive disadvantage. Adam Liptak

TRADE

President Trump and Prime Minister Abe meet at Mar-a-Lago.

President Trump will host Prime Minister Shinzo Abe of Japan for two days at Mr. Trump’s Florida estate starting Tuesday. While Mr. Abe has spoken with Mr. Trump more than any other foreign leader, the president’s decision not to exclude Japan from tariffs on steel and aluminum has strained their relationship. Both American and Japanese officials expect Mr. Abe to confront the president on trade, which may include a conversation about Mr. Trump’s recent announcement that he would consider rejoining the Trans-Pacific Partnership. Also on the table are Mr. Trump’s plans to meet with North Korea’s leader, Kim Jong-un, a decision that stunned Mr. Abe. Will Dudding

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A Public Outcry Against a Wall Street Titan’s Name on a High School


Stunned by the public outcry, which included an online petition that has now garnered nearly 1,500 signatures, the district amended its decision to rename the school the Abington Schwarzman High School. Instead, Mr. Schwarzman’s name would merely grace the new science and technology center.

The school board president, Raymond McGarry, accepted responsibility. “I was so focused on the positive aspects of this that, frankly, I was blinded,” he said.

Christine Anderson, a spokeswoman for Mr. Schwarzman’s private equity firm, the Blackstone Group, who attended the meeting, insisted that Mr. Schwarzman was all right with his name not being on the school. “The naming was inconsequential,” she said.

Under the amended agreement, the Stephen A. Schwarzman Center for Science and Technology will feature plaques or photos of him. It is unclear if his portrait also will hang in the building.

A decade has passed since the global financial crisis. The economy is growing; unemployment is low. But emotions are still running hot about the role that big banks and other Wall Street firms — and their millionaire and billionaire leaders — play in America. Yawning inequality has cemented the feeling that just about everything is available for purchase by the very, very rich.

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Stephen Schwarzman, chief executive of the private equity firm Blackstone Group, attended Abington Senior High School in the 1960s, which he credited with kick-starting his future.

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Jason Lee/Reuters

Mr. Schwarzman, with an estimated $12 billion fortune, is the embodiment of that caste. He has become a public supporter of President Trump. That helped him land a major international investment last year, but it also made him a polarizing figure in Abington, which voted more than 2-to-1 for Hillary Clinton in 2016.

Naming-rights deals are common, but they increasingly risk provoking fierce reactions — sometimes leading to embarrassing retreats by the wealthy patrons and the recipients of their largess.

In 2015, former Citigroup chief executive Sanford I. Weill and his wife, Joan Weill, abandoned a $20 million donation to a small college in Paul Smiths, N.Y., after alumni fought their demand that the school modify its name to include Mrs. Weill’s. That same year, on a far smaller financial scale, a quarrel erupted in Beverly Hills, Calif., over an elementary school courtyard that was named after a local real estate agent who had donated tens of thousands of dollars.

Mr. Schwarzman has used his wealth to get his name attached to stuff near and far.

In 2007, he gave $100 million to the New York Public Library, which renamed its grand Fifth Avenue flagship the Stephen A. Schwarzman Building. The Schwarzman Scholars, a $550 million international scholarship program in Beijing, was launched in 2013. And in New Haven, Conn., a $150 million gift established the Schwarzman Center at Yale University, a futuristic student building to feature new dining halls, meeting rooms, and performance space.

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The Rose Main Reading Room in the New York Public Library’s Stephen A. Schwarzman Building in Manhattan.

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Willie Davis for The New York Times

Mr. Schwarzman’s cash-for-naming-rights frenzy was underway as early as 2004, right here in Abington, when he donated $400,000 to the high school to build a new football stadium. It was named in his honor.

During his youth, his family moved to Abington from downtown Philadelphia. Abington was known for its good schools, and his mother wanted a better education for her children.

At Abington, Mr. Schwarzman ran track and cross-country, once logging a record time despite breaking his wrist partway through a race, and was elected student body president. After graduating in 1965, he attended Yale and then Harvard Business School. In 1985, he helped start Blackstone, which became the world’s largest private equity firm. He has credited Abington Senior High School with kick-starting his future.

By this decade, the high school needed an upgrade. Its main building dated back to the 1950s. It lacked anything resembling cutting-edge computer or science facilities.

Amy Sichel, the longtime Abington School Superintendent, started searching for a benefactor to help bankroll a renovation project that the school board estimated would cost roughly $100 million. Mr. Schwarzman, one of the school’s most famous alumni, was an obvious target.

Dr. Sichel approached him about a new contribution in January 2017. Two months later, the Abington school board incorporated the Foundation for Abington School District, a tax-exempt nonprofit organization that could manage the potential gift, according to The Philadelphia Inquirer.

During the ensuing months, Dr. Sichel, a former school psychologist who is one of the highest-paid superintendents in Pennsylvania, discussed her high school’s needs with Mr. Schwarzman and his philanthropic team. He was especially interested in having the school embrace technology.

Talks were so cordial that Dr. Sichel was invited to Mr. Schwarzman’s 70th birthday celebration last February. The party, in Palm Beach, Fla., featured camels and a performance by the rock star Gwen Stefani.

By the following January, Mr. Schwarzman had committed $25 million to the renovation, which would feature improved science labs, a new laptop for each student and coding classes available to all.

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Mr. Schwarzman donated $400,000 to the high school in 2004 to build a new football stadium. It was named in his honor.

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Mark Makela for The New York Times

Mr. Schwarzman announced his donation at a gathering of 3,000 school superintendents in Nashville on Feb. 14. There was no mention that Mr. Schwarzman’s name would be plastered all over the school.

That was because that detail was still being discussed, said Dr. Sichel. So were other requirements contained in the original agreement, which was finalized on March 22 but never signed. The deal also stipulated that the renovated building should feature a portrait of Mr. Schwarzman that he commissioned and that his twin brothers, Mark and Warren Schwarzman, should have spaces named for them.

In a phone interview on Friday, Dr. Sichel said that given the size of the gift, she and the board “were sure that it would come with some kind of naming opportunity.”

She said she was shocked by the visceral objections the name change inspired.

The outcry, raised by the school board’s ratification of the deal on March 27, started with social media posts. It culminated in angry emails to school officials and a petition to oppose the renaming.

School board meetings in Abington are normally dull affairs that sometimes last less than 15 minutes. But the gathering on Tuesday immediately took on a circuslike atmosphere.

Officials first gave an exhaustive presentation about the planned renovations. “This is a punishment!” shouted a woman in the audience, filled with locals in pressed khakis or Eagles jerseys. One woman clicked away on knitting needles.

When the floor was finally opened to the audience, it was nearly 9 p.m. Dozens of people queued for their three minutes at the microphone. Some read from prepared notes. Others cross-examined Dr. Sichel and the school board’s nine members.

The anger was not just about the school being renamed for Mr. Schwarzman. It was that the school board forged the deal in secret.

David Brooks, who graduated from the high school in 2000, said the board was one of three things: “brazen,” “sneaky” or “stupid.” If the school’s name could be auctioned for $25 million, he added, “what else is for sale?”

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The Little Bank That Could


It got its start after Manufacturers Hanover Bank — now part of JPMorgan Chase — closed its Lower East Side branch in 1984, creating a financial services desert in the neighborhood. In response, Cliff Rosenthal, then the chief executive officer of the National Federation of Community Development Credit Unions, suggested that the community begin assessing whether it could raise the capital to start a credit union.

“The community was struggling to save itself,” Mr. Rosenthal said in a recent interview.

During the 1970s and 1980s, landlords who wanted to get out of the drug-infested neighborhood would go so far as to hire someone to torch their buildings.

“There were buildings burning on a nightly basis,” said Lisa Kaplan, a founding member of the credit union.

In early 1986, the credit union received its charter from the National Credit Union Administration and took its first deposits that May.

The space on Avenue B was not a glamorous one. The floors of the credit union were covered with dirty rugs, and the lighting was dim. The windows were boarded, and the doors were sheets of plywood, with a padlock to secure them.

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The credit union serves a mostly low-income population, using deposits to make loans for things like affordable housing and small businesses.

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Jeenah Moon for The New York Times

But one day, soon after to moving to the neighborhood, Ms. Levy noticed that the name of the credit union had been spray-painted on the side of its building, reflecting the graffiti art that was beginning to emerge at that time.

“I thought, ‘Well, that looks really cool,’” she recalled.

Ms. Levy was working in food cooperatives in Brooklyn. Earlier, while attending the University of Pennsylvania, she had protested the Vietnam War and participated in hunger marches.

Ms. Levy was interviewed by the board in the middle of June and was given the position in July despite having no background in finance. (Her acquaintance with Mr. Rosenthal through their mutual work at food banks apparently helped in her interview.)

At the time, the credit union had only one other employee. Helen Scalia, a 22-year-old who had just graduated from New York University with a degree in marketing and an interest in community development finance.

“It was a total start-up,” Ms. Scalia said.

Ms. Levy and Ms. Scalia split the labor evenly. Both women opened accounts, balanced the books and washed the floors, while Ms. Levy also spent much of her first year attending daily training sessions organized by the National Federation of Community Development Credit Unions.

“Her fighting spirit was dedicated to the survival of this fragile community-based credit union,” Ms. Scalia said of Ms. Levy. “We had to figure out how to open checking accounts, learn how to work with cash on site in a dangerous neighborhood and how to work with safe deposit boxes.”

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An employee helping a customer at the credit union. In the early days, the space on Avenue B was not a glamorous one. The floors were covered with dirty rugs, the windows were boarded, and the doors were sheets of plywood, with a padlock to secure them.

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Jeenah Moon for The New York Times

There have been struggles, as well as successes, over the years. During the financial crisis that began a decade ago, the credit union was hit with a rise in delinquencies, and some of its grant funding was lost. The staff took a 10 percent salary cut for a full year. The credit union instituted a hiring freeze. Some members lost jobs and homes.

“Even if our institutions aren’t engaged in predatory lending, it doesn’t mean that our communities aren’t harmed by these broader problematic practices,” said Deyanira Del Rio, chairwoman of the credit union’s board of directors.

Now, more than 30 years after its start, the credit union’s next challenge is finding a chief executive to succeed Ms. Levy, who is retiring at the end of the month.

“Working at a community-based, nonprofit financial institution comes with resource constraints and other challenges — though we also are fortunate to be in a strong financial position and to serve a broad field of membership that includes several underserved neighborhoods, low income people citywide, dozens of nonprofit and business partners, and low income housing cooperatives,” Ms. Del Rio said.

The search began in the fall, and the board hopes to have someone in place by the time that Ms. Levy leaves.

The position requires an “extraordinary combination of being very focused on the business aspect and yet being in tune with the political and social aspirations of that community,” Mr. Rosenthal said. “Those things are not easy to find.”

Continue reading the main story

A Trade War Could Leave Investors With Few Places to Hide


Around the same time, President Trump began to impose tariffs intended to protect American industries from foreign competition. Solar panels and washing machines were his first targets. Then came steel and aluminum.

Tariffs may or may not help the targeted industries, which in these cases are not significant segments of the economy, anyway, and the taxes are almost universally viewed as harmful to consumers, who have to pay more for the affected goods. And then there’s the impact of tariffs imposed by foreign governments in retaliation, which came swiftly from China, the main target of the trade war that Mr. Trump has threatened to wage.

The potential impact of the back-and-forth trade moves, and the ones that yet may come, helped send stocks on one of the swiftest plunges on record starting in late January — 11.8 percent in less than 10 trading days for the Standard & Poor’s 500-stock index.

That was followed by a rally that recouped most of the loss, and then another decline that took the index close to a fresh low, leaving it down 1.2 percent in the first three months of the year, the first quarterly decline since 2015. The early days of April have been rocky as well.

If a trade war really has begun, some household names in corporate America could become casualties, Andy Rothman, an investment strategist at Matthews Asia, warned.

“There are already a lot of U.S. companies doing really well in China,” he said. “G.M. sells more cars in China than in the U.S., Boeing sells more planes in China than in any other market, and Apple derives 20 percent of its revenues in China. Those are big listed names.”

The impact would go beyond sales in China, he added. American companies that obtain parts and supplies there could see that conduit disrupted.

Mutual Funds

Highlights of mutual fund performance in the first quarter.






Among general domestic stock funds.

Average returns, by fund category.

Virtus KAR

Mid-Cap Growth

34.1

20.3

36.8

36.0

35.9

29.9

29.5

28.1

12.0

11.9

11.5

9.8

9.7

9.7

9.6

9.2

Primecap Odyssey

Aggr. Growth

Transamerica

Capital Growth

Morgan Stanley

Inst. Growth

Returns in the first quarter.

Touchstone Sands

Cap. Inst. Gr.

Touchstone Sands

Cap. Select Gr.

Virtus Rampart

Enh. Core Eq.

7.4

23.5

0.0

9.8

15.5

29.0

2.8

7.9

8.0

8.7

9.3

10.3

11.5

14.2

16.1

18.4

30.2

13.1

15.1

1.2

17.7

9.1

2.9

6.2

2.8

1.4

+

+

+

+

6.0

1.3

0.3

0.2

1.0

1.4

2.8

4.4

5.9

6.6

Kinetics Internet

No Load

MarketGrader

100 Enh. Index

Average returns, by fund category.

Returns in the first quarter.

30.2

13.1

15.1

1.2

17.7

9.1

2.9

6.2

2.8

1.4

+

+

+

+

6.0

1.3

0.3

0.2

1.0

1.4

2.8

4.4

5.9

6.6

Among general domestic stock funds.

Virtus KAR

Mid-Cap Growth

34.1

20.3

36.8

36.0

35.9

29.9

29.5

28.1

12.0

11.9

11.5

9.8

9.7

9.7

9.6

9.2

Primecap Odyssey

Aggr. Growth

Transamerica

Capital Growth

Morgan Stanley

Inst. Growth

Touchstone Sands

Cap. Inst. Gr.

Touchstone Sands

Cap. Select Gr.

Virtus Rampart

Enh. Core Eq.

7.4

23.5

0.0

9.8

15.5

29.0

2.8

7.9

8.0

8.7

9.3

10.3

11.5

14.2

16.1

18.4

Kinetics Internet

No Load

MarketGrader

100 Enh. Index






As for the Chinese economy and stock market, Mr. Rothman said, they are mostly immune.

“Very few listed Chinese companies export stuff to the United States,” he said. “Even if Trump disrupts U.S.-China trade, the impact should be negligible.”

A trade war, therefore, “will hurt us more than them,” he said. That’s why he expects the president’s protectionist tendencies to be reined in.

“The odds of a full-blown trade war are extremely low,” Mr. Rothman said. Not only is the Chinese leadership eager to avoid one, but “Trump must be coming under a lot of pressure not to do this for the damage it will do to the U.S. equity market.”

Tobias Levkovich, chief United States equity strategist at Citi Research, also foresees limited damage to the economy and stocks from an unraveling in trade relations. He pointed to the exemptions on steel and aluminum tariffs offered to big trading partners like Canada and Mexico, and he expressed hope that Mr. Trump’s words and actions merely reflected his penchant for eccentric deal making.

“Trump has a unique negotiating style,” Mr. Levkovich said. But “if he takes it further, it could be a problem and hurt growth in a more meaningful way.” As for the impact of the president’s tactics on investments, he added, “it doesn’t help.”

Mr. Yardeni said he thought a trade war could be forestalled, although the mere prospect of one could depress the stock market. He agreed that “this could be Trump’s art of the deal — take an extreme negotiating position and wait for people on the other side to say, ‘Let’s talk about this.’”

Tighter monetary policy is a more run-of-the-mill concern. But investors should not underestimate the potential it has to harm their portfolios with valuations elevated across the board and inflation threatening to return.

“Prices across just about every asset class look high historically,” said Ben Inker, head of asset allocation for the asset management firm GMO. “What they all have in common is that when you squint, they make sense if you assume cash rates are going to stay low for some time. If inflation is up, then you need significantly tight monetary policy. That’s bad for bonds and also stocks.”

Mr. Inker is concerned about a trade war, like many other investors, but he emphasizes the risk of higher prices on goods — inflation — that it might cause.

“The nightmare scenario is a general rise of economic nationalism and the mercantilist view that trade has winners and losers,” he said. “Then you get a retreat from globalization, which has helped the economy grow without experiencing significant inflation.”

When stocks fall, so usually do yields on high-quality bonds, sending prices higher in a so-called flight to safety. But one ominous development during the first leg of the decline in stocks, from Jan. 26 to Feb. 8, was that the yield on 10-year Treasury securities rose to 2.85 percent from 2.66 percent. Yields were steady during the second wave of selling in stocks, but they rose overall during the first quarter, to 2.74 percent from 2.4 percent.

That means that bond prices, as well as stock prices, fell.

Terri Spath, chief investment officer of Sierra Investment Management, warned in a note to clients that the traditional balanced portfolio, split 60/40 between stocks and bonds, might not provide the protection through diversification that it used to if the bond bull market that began in the early 1980s is over, as she believes.

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A view of Wall Street in February, which was a stressful month for investors.

Credit
Sam Hodgson for The New York Times

“Tightening Fed policy, inflation, rapidly growing deficits and their impact on rates can sometimes move bond prices violently,” Ms. Spath wrote. “July 2016 marked the lowest level in rates I will likely see in my lifetime,” with the 10-year Treasury yield reaching 1.33 percent. “If interest rates continue the climb up from that level, traditional bonds and the 60/40 will continue to die, as foreshadowed during the first correction of 2018.”

Ms. Spath is not alone in disdaining bonds. The latest Bank of America Merrill Lynch survey of global fund managers, released in late March, showed bonds to be the second-least-favorite of 22 asset classes — behind only British stocks — relative to how managers have rated them throughout the survey’s 17-year history.

Bond funds and domestic and international stock funds all fell in the first quarter, though not by that much. The average taxable bond fund declined 0.5 percent, according to Morningstar, led lower by portfolios specializing in longer-term issues.

The average domestic stock fund fell 0.4 percent, with consumer defensive and natural resources groups faring worse than most and technology being one of the few clear winners, up 6 percent. International funds declined 0.3 percent, although specialists in China and Latin America recorded gains.

With interest rates rising, stock market valuations still high and protectionist impulses threatening to ignite a full-blown trade war, advisers encourage investors to indulge protectionist impulses of a different sort when it comes to their portfolios. They recommend keeping less money in stocks or being more selective about the ones investors own.

“You’re better off investing pretty much anywhere other than the U.S.,” Mr. Inker said about stocks, although he prefers Treasury bonds to foreign bonds.

The only type of investment he recommends outright, rather than in comparison to others that he deems even worse, is “the cheap half of emerging” markets, in particular technology stocks in places like Taiwan and elsewhere in Asia.

“Other than emerging market value, we don’t see assets that deserve to go up a lot,” he said.

Citi’s analysts prefer emerging markets and Europe, where stocks are cheaper and central banks are doing more to prop up the markets. Mr. Levkovich counters that stocks are cheaper abroad for good reasons: American businesses have higher returns on equity, and American benchmark stock indexes are heavier in technology and lighter in the financial industry.

Mr. Levkovich recommended that investors prune their portfolios to enhance return prospects. In particular, he would be cautious on tech and usually defensive areas like utilities, consumer staples and telecoms, and emphasize traditional industrial companies and the materials industry, including chemical producers.

Mr. Yardeni remains optimistic about stocks, but he’s in no hurry to buy.

“You have to recognize that if you’re thinking of buying stocks, you’re not exactly getting in early,” he said. “We could have a shakeout here until we get clarity on protectionism.”

His advice is to be patient in the likelihood that stocks can be bought at lower prices. When the time feels right, he said, he would look at exporters and other companies that would be on the front lines in a trade war, which he expects to be averted.

“You’re probably going to find some good opportunities in blue-chip stocks with exposure to tariff issues,” Mr. Yardeni said. But for now, he cautioned, risks in the market have risen.

“This probably will turn out to be a panic attack, like before,” he said, “but it has the potential to be a more serious correction than we’ve had in some time.”

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British Banks Will Have to Cut Ties to Sanctioned Oligarchs, U.S. Says


Ms. Mandelker said there has been great unity on Russia among European nations since March 4, when Sergei V. Skripal, a former Russian double agent, was found poisoned in southwestern England. She said the United States was consulting intensively with British financial institutions and oversight agencies as it prepared to impose the latest round of sanctions.

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The ruble plunged for the second day in a row following new American sanctions against Russia.

Credit
Alexander Zemlianichenko/Associated Press

“We have very strong and close allies and partners in the U.K.” she said. “They understand clearly what the risks are. We continue to communicate those risks to them.”

The ruble slid sharply in value for a second day on Tuesday. The mining giant, Glencore, which is based in Switzerland, began loosening its ties with Mr. Deripaska’s company, Rusal, which is one or the world’s largest aluminum producers. Glencore announced it had canceled a planned swap of its stake in Rusal for shares in another Deripaska company, and Glencore’s chief executive, Ivan Glasenberg, who has served on Rusal’s board since 2007, said that he would step down.

The new American sanctions expose financial institutions outside the United States to penalties if they “knowingly facilitate significant financial transactions” on behalf of the listed Russian oligarchs.

The wording is similar to secondary sanctions imposed against Iran. These “essentially prohibit the individuals involved from taking part in the dollar economy,” said Daragh McDowell, an analyst for Europe and Central Asia at Verisk Maplecroft, a consulting firm based in Bath.

It is likely to compel risk-averse British banks to cancel the Russians’ accounts altogether, said Brian O’Toole, a former senior official at the Treasury Department’s Office of Foreign Assets Control, which administers and enforces American sanctions.

London’s real estate market might also be affected, having benefited from waves of investment from Russians with ties to the Kremlin, some of it routed through shell companies registered in overseas territories like the British Virgin Islands. Banks and estate agents might take steps to increase financial transparency, including trying harder to identify the source of funds used by foreign buyers of real estate.

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The mining giant Glencore has begun loosening ties with Oleg Deripaska’s company, Rusal, one of the world’s largest aluminum producers. Mr. Deripaska is on the American sanctions list.

Credit
Maxim Shipenkov/EPA, via Shutterstock

“The amount of Russian real estate in Mayfair is well known, it’s kind of a running gag in the financial industry,” said Mr. O’Toole, now a senior fellow at the Atlantic Council. “This is something London should have a done a while ago, to clean this up. I think London knows that, and 10 Downing Street knows it as well. I think that’s the next thing to come.”

He added that the United States has similar vulnerabilities, having allowed many foreigners to purchase valuable properties without having to identify themselves as the owners.

British officials have not always been enthusiastic about the American sanctions, but British businesses have tended to comply, largely out of fear of being penalized by the United States, said Ian Bond, director of foreign policy at the Center for European Reform.

“The reality is that, for most companies dealing with the United States, the U.S. is much more important than dealing with Russia or Cuba or Iran or Libya,” he said.

Bill Browder, an investor based in the United Kingdom who has led international campaigns to impose sanctions on Mr. Putin and his associates, described the sanctions imposed by Washington last week as the most forceful “by orders of magnitude” to hit Russia in years.

If Mr. Deripaska, for example, wanted to buy a house in Europe now, he would be hard-pressed to find a seller willing to accept money from him, Mr. Browder said.

“There is no safe haven when this type of stuff happens,” he said. “They can buy houses in China if they want. They can buy houses in Dubai, if they want to transfer rubles and convert it into local currency. What this does is end their ability to operate anywhere in the West.”

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The Week Ahead: New Long-Term Economic Forecast and Facebook Founder Testimony


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Mark Zuckerberg, the chief executive of Facebook, was scheduled to appear for two days of congressional hearings to discuss data privacy.

Credit
Stephen Lam/Reuters

Here’s what to expect in the week ahead:

GOVERNMENT

After delay, release of annual U.S. budget forecast.

The Congressional Budget Office will release its annual Budget and Economic Outlook on Monday afternoon, revealing 10-year projections on a variety of economic indicators including growth rates and the national debt. The report was delayed by several months because of the tax cut legislation approved by Congress late last year. The budget office needed additional time so that it could more accurately assess the effects of the new law.

The figures from the budget office will be closely watched and compared with the economic projections that have been made by the Trump administration. Most economists have concluded that Mr. Trump’s projections are overly optimistic, and the report from the nonpartisan budget office will most likely underscore that point. Alan Rappeport

ECONOMY

China’s president will speak on economic reforms.

China’s president, Xi Jinping, will address the Boao Forum in the southern Chinese island province of Hainan on Tuesday. Mr. Xi is expected to unveil new reforms, including economic measures, something he has highlighted as a priority. The forum, which has positioned itself as an Asian rival to Europe’s World Economic Forum in Switzerland, will include panels and discussions with business leaders like the Indian tycoon Ratan Tata, of Tata Sons, and Jack Ma, the billionaire founder of the Chinese online shopping giant Alibaba. A handful of foreign leaders will also be there, including Rodrigo Duterte, the president of the Philippines, and Singapore’s prime minister, Lee Hsien Loong. The forum, with the theme, “An Open and Innovative Asia for a World of Greater Prosperity,” begins on Sunday and finishes up on Wednesday. Alexandra Stevenson

TECHNOLOGY

Mark Zuckerberg will testify before Congress.

Facebook’s chief executive, Mark Zuckerberg, will face two days of congressional hearings over the company’s mishandling of user data. Facebook said the sensitive data of an estimated 87 million of its users had been improperly harvested by the political consulting firm Cambridge Analytica, which was connected to the Trump campaign. Mr. Zuckerberg’s marathon testimonies on Capitol Hill will begin on Tuesday at 2:15 p.m. with a joint hearing by the Senate Judiciary and Commerce committees. An estimated 44 members of those committees will take turns asking questions of the 33-year-old executive. Then on Wednesday, Mr. Zuckerberg will appear before the House Energy and Commerce Committee at 10 a.m. for further questions. Cecilia Kang

ECONOMY

Meeting minutes will reveal Fed’s thinking.

The Federal Reserve last month raised interest rates for the sixth time since the financial crisis 10 years ago. On Wednesday, the Fed will provide a clearer picture of what led to that decision when it releases minutes from its March meeting, Jerome Powell’s first as Fed chairman. Investors will be looking for hints that policymakers have become more concerned about inflation, which could lead the Fed to raise rates faster than currently expected. The minutes could also reveal how Mr. Powell and his colleagues view recent trade tensions, although the meeting preceded the most recent round of tariff announcements. Ben Casselman

Inflation probably rose in March.

The unusual combination of tax cuts, government spending increases and low unemployment has touched off fears in recent months that the American economy may begin to overheat. So far, those concerns have been largely theoretical — inflation has mostly stayed below the Federal Reserve’s 2 percent target. Data released by the Labor Department on Wednesday, however, will most likely show that consumer prices rose 2.4 percent in March from a year earlier, according to economists surveyed by Bloomberg. That increase would result partly from a decline in prices last March. But it could nonetheless rattle investors who are already jittery after last week’s market turmoil. Ben Casselman

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Tip: How to Clean Paper Currency


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Credit
Illustration by Radio

“No one wants soiled or limp bank notes,” says Peter Balke, a senior policy adviser for De Nederlandsche Bank, the central bank of the Netherlands. Balke’s work has nothing to do with money laundering, which is the bailiwick of law enforcement; for much of the last decade, he has studied how cash gets dirty and methods for keeping it cleaner. Globally, governments spend nearly $10 billion annually replacing grimy or crumpled cash (some half a billion euros are shredded each month for this reason). After Balke published research finding that people’s waxy skin oils are mainly to blame, he and his colleagues began investigating what could be done about it. “To clean money,” he says, “you need to remove that built-up sebum.”

“Bleach bank notes in the sun,” Balke says. One scientist has suggested letting ultraviolet light do the work by laying out the cash on the central bank’s roof. (“We’d rather keep it in the vault,” Balke says.) Most bills will remain intact in the washer and dryer. But while a wash cycle may make your money look untainted, it nonetheless ruins the bills; hot water can damage security features, and detergents change the way cash reflects light, which currency-sorting machines detect. Banks shred washed money.

At the microscopic level, because cash is so highly trafficked, it becomes a sort of palimpsest that records all the hands and back pockets and piggy banks it has passed through, accreting a kind of monetary microbiome. A study of $1 bills in New York identified a total of 397 bacterial species. Swiss researchers discovered that when they smeared bills with mucus from children with the flu, the virus lived for up to 12 days. Bank notes also retain evidence of our recreational habits. Ninety-five percent of the currency researchers tested from Washington showed traces of cocaine; in Macao, 98 percent contained ketamine.

There is a cleaning technique that works without damaging your dollars. It requires highly pressurized and heated carbon dioxide. “You basically dry-clean it,” Balke says. After studying the method, the European Central Bank opted to use a sebum-repelling varnish on euros instead. Despite dozens of online tutorials on how to clean cash at home, Balke doesn’t think you should bother: If you end up with a particularly nasty (or mangled) bill, most banks will let you exchange it.

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