a14 eZ su the washington post.saturday, february 22 , 2020
iPhone production in the coun-
try was moving along more slow-
ly than expected.
“Work is starting to resume
around the country, but we are
experiencing a slower return to
normal conditions than we had
anticipated,” the company said.
“These iPhone supply shortages
will temporarily affect revenues
worldwide.”
Chinese demand for Apple
products a lso has slumped, the
company said.
Swonk and others have said
the threat of coronavirus has
been too quickly dismissed by
some because the economies
proved relatively resilient during
the SARS 2003 outbreak in 200 3.
“Back in 2003, China was
more of an island. Now it’s
integrated into every economy
in the world. It’s pivotal in the
supply,” Swonk said. “The na-
ture of the coronavirus is not
something you can put in a
traditional [economic] model.
There are nonlinear implica-
tions.”
[email protected]heather long contributed to this
report. more at washingtonpost.com/
businessest rates paid by long-term
bonds.
“It’s historically been a fool-
proof leading indicator of reces-
sion,” Zandi said. “What it means
is that people are so worried
about the near-term future that
they are piling into long-term
investments — and it’s been
inverted over t he last w eek or so.”
Complicating all these fore-
casts, the good and the bad, are
the uncertain effects of the coro-
navirus on China and other ma-
jor trading partners.
U.S. policymakers have at
times dismissed the epidemic
as a problem in China, not here.
But more recently, some have
acknowledged it could damage
U.S. growth outlooks. Federal
Reserve Board Chair Jerome H.
Powell said earlier this month
that there will “very likely be
some effects on the United
States” from the epidemic,
which has closed thousands of
Chinese factories supplying
American companies.
Earlier this week, for example,
Apple warned that it expects to
fall short of revenue goals in the
current quarter because of the
coronavirus outbreak.
In a statement to investors,
Apple said that while factories in
China were reopening, restartingroughly 2 percent.
“This is hardly exuberant,”
according to the panel’s report,
which also named the coronavi-
rus epidemic as a risk. But “ there
is little evidence in these num-
bers of any expectation of disrup-
tive shocks.”
But to other economists, the
historic levels in bond yields
reflect just one more potential
fault line in a U. S. economy that
has had a good run since the last
recession, but one that won’t last
forever. In this view, the econom-
ic effects of the coronavirus
could be the shock that exposes
any economic weaknesses.
“I know there are economists
out there saying there is no
chance of a recession,” Swonk
said. “But I know that hubris is
your enemy late in the business
cycle.”
Indeed, economists, while not-
ing how hard it can be to predict
a downturn, pointed to several
signs of stress in the economy
that may be leading indicators of
a recession.
Stock prices are relatively
high, and have surged in recent
months. Measured in terms of
the ratio of price to earnings of
stock in the S&P 500 , they have
risen substantially in recent
years.
Corporate debt, too, has
jumped. Since 2012, the amount
of long-term debt at industrial
companies on the S&P index has
more than doubled, to $4 tril-
lion, a ccording to Howard Silver-
blatt of S&P Global.
Finally, Mark Zandi, chief
economist at Moody’s Analytics,
noted the occurrence of a long-
standing indicator of imminent
recession: the “inverted yield
curve.” These occur when the
interest rates on short-term
bonds are higher than the inter-BY PETER WHORISKEYThe yields of U.S. Treasury
bonds, a fundamental marker of
the U.S. economy, ticked Friday
to a historic low.
This is usually a sign that
investors are uncommonly ner-
vous.
But what exactly the new low
foretells for the U. S. economy has
divided the world into two re-
markably contrary camps: those
who see the new lows as another
sign of relative U.S. strength, and
those who see it as an unmistak-
able augury of tough economic
times ahead, and possibly, reces-
sion.
Maybe most perplexing, mas-
sive market wagers have been
made in support of both views:
The optimists have pushed the
stock market ever higher, while
the pessimists have driven bond
yields ever lower.
As a result, for those who look
to the stock and bond markets
for clues to the U.S. economy, the
picture it presents alternates be-
tween exuberance and, increas-
ingly, deep gloom.
“It’s getting so the dissonance
between the bond market and
stock market is deafening,” said
Diane Swonk, chief economist at
Grant Thornton.
On one side of the divide is the
enthusiasm of the stock market.
Though it dipped F riday, the S&P
500 -stock index average is up
20 percent from its close a year
ago. The trouble caused by the
coronavirus, and the disruptions
at countless Chinese factories,
appears to have had little effect
on these investors.
“We should be very c alm about
the U.S. side of the story, which is
actually looking pretty good,”
National Economic Council Di-
rector Larry Kudlow said Friday
on CNBC. “On the other hand,
the Chinese side of the story is
very difficult — it’s a human
tragedy.”
In this view, the unusually low
bond yields c an be taken a s a sign
of U. S. strength. They dropped
not because of any weakness in
the U.S. economy, but because
investors in the overseas econo-
mies most affected by the coro-
navirus are looking for safe in-
vestments — and for that they
turn to U. S. Treasury bonds.
“I just think, in general, I
would be very careful to put too
much emphasis on what bond
rates are doing,” Kudlow said. “I
think you have a lot of mood
swings here and I don’t think it
affects the fundamentals.... I
think the fundamentals of this
economy are very solid, all right?
Very solid.”
In a speech earlier this month,
Federal Reserve Vice Chair Ran-
dal Quarles said: “There is much
to be encouraged by in the na-
tion’s current economic perfor-
mance even as some notable
risks require careful monitor-
ing.”
Many analysts agree. A panel
of economists known as the Blue
Chip Economic Indicators fore-
cast panel, for example, predict-
ed two weeks ago that the econo-
my would continue to grow at
Economy & Business
PHarMaceuticals
Blockchain to track
prescription drugs
Some of the industry’s largest
pharmaceutical companies,
including Pfizer and Eli Lilly,
have developed a blockchain-
based system to track
prescription d rugs across the
supply chain to better halt t he
flow of counterfeit medicines,
company officials said Friday.
Some two dozen companies in
the industry, i ncluding
drugmakers, distributors,
retailers and delivery f irms,
created the blockchain-based
MediLedger Network, which they
have been testing in the
verification o f drug returns. They
said they intend to expand the
system this year.
Blockchain, which first
emerged as the technology
underlying bitcoin, is a shared
database maintained by a
network of computers.
The MediLedger group
submitted a report to the Food
and Drug Administration laying
out the benefits of blockchain for
this specific issue, Susanne
Somerville, chief executive of the
technology company Chronicled,
told Reuters.
Chronicled is MediLedger’s
custodian, providing
administration of the network.
S omerville said counterfeit
drugs are a big problem i n
developing countries, where it is
estimated that half of all drugs
are counterfeit.
Among the 24 p articipating
companies are Amgen, FedEx,
GlaxoSmithKline, Novartis,
AmerisourceBergen, Sanofi,
Walgreens Boots Alliance and
Walmart.
— ReuterstecHnologyWhite House to confer
with Huawei rivalsThe White House plans to hold
a conference with Huawei
Te chnologies rivals to try to
accelerate the development of
affordable competing 5G wireless
technology, President T rump’s
top economic adviser said Friday.
“We’re working carefully,
closely with Nokia and Ericsson,”
National Economic Council
Director Larry Kudlow told
reporters. “We’re going to beholding some kind of a
conference in about a month. I’m
sure the president w ould join us
in part; that would include
Samsung, that will i nclude all of
our guys.”
The United States has tried to
persuade o ther countries not to
use Huawei equipment in
emerging 5 G networks. But the
effort has faltered because of a
lack of competing technology.
Attorney General William P. Barr
suggested recently that the U.S.
government or American
companies should consider
investing in Huawei competitors
Nokia of Finland and Ericsson of
Sweden to try to prevent the
Chinese company’s technology
from being widely adopted.
Kudlow in particular called the
British government’s a ttitude
toward Huawei “suboptimal.”
Trump has spoken repeatedly
this month with British Prime
Minister Boris Johnson, berating
him in at l east one phone call for
refusing to ban Huawei gear.
The United States alleges that
the Chinese government will use
Huawei equipment t o spy on
nations that install it in their
networks. Huawei denies that the
Chinese government controls thecompany or has access to its
products.
— Bloomberg Newsalso in Business
T-Mobile US a nd Sprint agreedto new terms for their p ending
merger that take account of the
deterioration in Sprint shares
since the transaction was agreed
upon, putting the industry-
altering d eal a step closer to
completion. T-Mobile stockowners will get roughly 11 shares
of Sprint for each of their T-
Mobile shares, the companies
said Thursday. That’s a n increase
from a ratio of 9.75 and is more
favorable f or T-Mobile’s G erman
owner, Deutsche Te lekom.U.S. home sales fell in January
amid a dearth of houses, but the
supply squeeze is likely to ease
because building permits and the
number of homes under
construction are at l evels last
seen nearly 13 years ago. The
National Association of Realtors
said Friday that existing-home
sales declined 1.3 percent last
month to a seasonally adjusted
annual rate of 5.46 million units
as purchases of multifamily
dwellings and single-family
homes fell.The $35 bag fee is gaining
traction as U.S. airlines contend
with the financial fallout of the
grounding of Boeing’s 7 37 Max jet
and a viral pandemic that has
decimated travel to China. United
Airlines Holdings will increase
the charge for passengers’ first
and second checked bags by $5,
to $35 and $45, respectively.
— From news servicesdigestclemens Bilan/epa-eFe/shutterstock
Logs are stacked at the site near Berlin where electric-car-maker
Te sla is building a plant. The project had faced delays after a German
court issued a temporary injunction against clearing the forest at the
site, citing environmental concerns. The injunction was lifted Friday,
sparking protests by environmental activists.BY RENAE MERLEWells Fargo agreed Friday to pay
$3 billion to settle potential feder-
al criminal and civil charges that,
for more than a decade, the bank’s
aggressive sales goals led to wide-
spread consumer abuses, includ-
ing millions of accounts opened
without c ustomers’ consent.
Under its settlement with the
Justice Department and the Secu-
rities and Exchange Commission,
Wells Fargo acknowledged that it
had collected millions o f dollars in
fees as employees f alsified records,
forged signatures and misused
customers’ personal information
to open fake accounts to meet un-
realistic sales goals. Bank leaders
knew of the misbehavior, includ-
ing “violations of federal criminal
law,” as early as 2002 but didn’t
stop it until 2016, according to the
settlement agreement.
The $3 billion fine, which is
about 15 percent of Wells Fargo’s
$19.5 billion in profits last year, is
among the largest corporate penal-
ties handed down during the Trump
administration but not a record.
Friday’s settlement, which in-
cludes a deferred prosecution
agreement, does not cover any in-
dividual employees. No senior
bank employees have been crimi-
nally charged.
“This case illustrates a complete
failure of leadership at multiple
levels” within Wells Fargo, said
Nick Hanna, U.S. attorney for the
Central District of California, in a
statement. “Simply put, Wells Far-
go traded its hard-earned reputa-
tion for short-term profits, and
harmed untold numbers of cus-
tomers along t he way.”
Charlie Scharf, the bank’s chief
executive, said in a statement:
“The conduct at the core of today’s
settlements — and the p ast culture
that gave rise to it — are reprehen-
sible and wholly inconsistent with
the values on which Wells Fargo
was built. While today’s announce-
ment is a significant step in bring-
ing this chapter to a close, there’s
still more work we must do to
rebuild t he trust we l ost.”
The settlement comes as Wells
Fargo, one of the country’s largest
and most profitable banks, strug-gles to repair its image. Its prog-
ress has been slowed by its admis-
sion of other consumer abuses
over the past few years, including
mistakenly foreclosing on hun-
dreds of clients and repossessing
the cars of thousands of others.
Friday’s settlement does not cover
that conduct.
And the bank still faces signifi-
cant regulatory hurdles. The Feder-
al Reserve has banned Wells Fargo,
which has nearly $2 trillion in as-
sets, from growing any bigger until
it fixes its systemic cultural issues.
Last month, the Office of the
Comptroller of the Currency (OCC)
went further, taking the rare step
of filing cases against specific
Wells Fargo employees. It banned
former chief executive John
Stumpf from working in banking
again and fined him $17.5 million,
and filed civil cases against five
other employees, including Carrie
To lstedt, the former head of com-
munity banking. It is seeking a
$25 million fine from To lstedt.
The bank imposed unrealistic
sales goals on employees, who
were “intimidated and badgered”
to comply, the OCC l awsuit says. In
2010, one employee told senior
executives, “The noose around our
necks ha[s] tightened: we have
been told we must achieve the
required solutions goals or [we]
will be terminated.” Another em-
ployee wrote to the chief execu-
tive’s office and another senior
leader in 2013, saying: “ I was i n the
1991 Gulf War.... This is sad and
hard for me to say, but I had less
stress in the 1991 Gulf War than
working f or Wells Fargo.”
Between 2011 and 2015, “tens of
thousands of employees were the
subject of allegations of unethical
sales practices” and more than 5,
were fired, according to a statement
of facts agreed to by Wells Fargo.
About $500 million o f the $ 3 bil-
lion settlement will go to the SEC,
which alleged that the b ank misled
investors about its “cross-selling”
business strategy. “ This settlement
holds Wells Fargo responsible for
its fraud,” Stephanie Avakian, co-
director of the SEC’s enforcement
division, said i n a statement.
Wells Fargo has repeatedly apol-
ogized for the sales scandals, over-
hauled its board and gone through
three chief executives in three
years, hiring an industry veteran,
Scharf, t o take the h elm last year.
[email protected] more at washingtonpost.com/
businessWells Fargo settles
in fake-account scandal
$3 billion penalty is one
of the largest handed
down under TrumpB ond drop reveals tale of two markets
Treasury yields flirt with historic lows in a sign that investors are becoming uncommonly nervous
○
dow 28,992.
Down 227.57, 0.8% ○nasdaQ 9,576.
Down 174.38, 1.8% ○s&P 500 3,337.
Down 35.48, 1.0% ○gold $1,648.
up $28.30, 1.7% ○crude oil $53.
Down $0.50, 0.9% ○10-year treasury
up $4.00 per $1,000; 1.47% yielDcurrencies
$1=111.58 y en, 0.92 eurosSource: Tradeweb THE WASHINGTON POSTU.S. 30-year Treasury yield
1.2.2.2.2.2.3.3.2%April
2019July
2019October
2019January
2020Feb 21
1.917%spencer platt/getty imagesOptimists have been pushing
the stock market ever higher,
while the pessimists are driving
bond yields ever lower.J. lawler Duggan For the washington post
CEO Charles Scharf said Wells Fargo is working to rebuild trust.