The Washington Post - 17.02.2020

a16 eZ re the washington post.friday, february 21 , 2020

Economy & Business

Media industry

ViacomCBS revenue

down after merger

ViacomCBS on Thursday said
its earnings fell short of revenue
and profit expectations in its
first quarterly earnings results
since closing its merger.
The company’s revenue and
free cash flow guidance for 2020
was “a bit shocking” and lower
than Wall Street expected, said
Daniel Kurnos, an analyst at
Benchmark.
ViacomCBS said it expects
revenue to improve by mid-
single-digit percentages during
2020 or about $29.2 billion if
revenue were to rise by
5 percent. Wall Street analysts
expected 2020 revenue to reach
$29.74 billion.
Viacom and CBS completed
their merger in December in
their third attempt since 2016,
aiming to gird against
competition in a rapidly
consolidating media universe
while partnering with and
battling the likes of Netflix and
Walt Disney.
The merger reunited media
mogul Sumner Redstone’s
entertainment empire and
brought Showtime Networks
and CBS News under the same
roof as Nickelodeon, Comedy
Central and Paramount.

ViacomCBS also revealed

plans to create a streaming

video service built off of its

existing CBS All Access service

that will offer free, paid and a

premium-tier subscription

service.

Fourth-quarter revenue fell to

$6.87 billion from $7.09 billion a

year ago in the fourth quarter

ended Dec. 31, missing analyst

expectations of $7.36 billion,

according to IBES data from

Refinitiv.

— Reuters

tecHnology

N.M. sues Google

over children’s

privacy

New Mexico’s attorney

general sued Google on

Thursday over allegations that

the tech company is illegally

collecting personal data

generated by children in

violation of federal and state

laws.

The lawsuit filed in U.S.

District Court in Albuquerque

claims Google is using its

education services package that

is marketed to school districts,

teachers and parents as a way to

spy on children and their

families.

Attorney General Hector

Balderas said that while the

company touts Google

Education as a valuable tool for

resource-deprived schools, it is a

means to monitor children

while they browse the Internet

in the classroom and at home

on private networks. He said the

information being mined

includes physical locations,

websites visited, videos

watched, saved passwords and

contact lists.

The state is seeking

unspecified civil penalties.

Google did not respond to

questions about the state’s

allegations.

Unlike Europe, the United

States has no national law

governing data collection and

privacy.

— Associated Press

also in Business

The U.S. Department of

Agriculture on Thursday

announced a goal for biofuels

to make up 30 percent of U.S.

transportation fuels by 2050, a

move that could bolster an

industry that has been

otherwise battered by the

Trump administration.

Refineries are currently

required to blend 20.09 billion

gallons of biofuel in 2020,

about 10 percent of projected

crude oil production,

according to the U.S. Energy

Information Administration.

Walt Disney unveiled dozens of

new products tied to its hit

show “The Mandalorian” and

the breakout character

popularly known as Baby Yoda

ahead of New York’s big To y Fair

trade show this weekend. The

products ranged from Hasbro’s

$30 black-bladed lightsaber to

Funko bobbleheads based on

the show’s bounty hunters. The

big draw, however, is expected

to be Baby Yoda, a cuddly green

character who may or may not

be related to the wise Jedi from

the Star Wars films.

The number of Americans

filing for unemployment

benefits rose modestly last

week, suggesting sustained

labor market strength that

could help to support the

economy amid risks from the

coronavirus and weak business

investment. There was

encouraging news on the

struggling manufacturing

sector, with other data on

Thursday showing factory

activity in the Mid-Atlantic

region accelerated to a three-

year high in February, possibly

as tensions in the U. S.-China

trade war diminished.

Washington state lawmakers

moved on Wednesday to remove

a key tax break for Boeing and

other aerospace firms in a bid to

head off possible European

tariffs on U.S. goods and ease a

transatlantic trade dispute over

aircraft subsidies. The United

States last week toughened its

tariffs on aircraft built by

Boeing’s archrival, Europe’s

Airbus, after winning approval

last year from the World Trade

Organization to penalize

European goods over Airbus

subsidies.

The United States and India

are unlikely to reach a limited

trade agreement in time for

President Trump’s visit to India

next week as proposed new

Indian tariffs have complicated

negotiations, the head of a U.S.-

based business group said

Thursday. Nisha Biswal,

president of the U.S.-India

Business Council, told reporters

that hopes were fading for the

two sides to quickly bridge

gaps.

— From news services

digest

mohamad torokman/reuters

A Palestinian man buys vegetables at a market in Ramallah in the

Israeli-occupied West Bank on Thursday.

BY TAYLOR TELFORD

AND RENAE MERLE

Morgan Stanley is acquiring

E-Trade in a $13 billion, all-stock

deal that brings more consolida-

tion to the brokerage world and

gives the investment bank to the

rich a foothold with a more

mainstream clientele.

The deal announced Thursday

is the biggest takeover by a major

U.S. bank since the 2008 finan-

cial crisis, blending Morgan Stan-

ley’s prowess and client-facing

resources with E-Trade’s more

than 5 million customers and

$360 billion in assets. It also

intersects Wall Street with Main

Street: Morgan Stanley’s tradi-

tionally wealthy clients and in-

vestment management business

representing $2.7 trillion in as-

sets to E-Trade’s younger, mom-

and-pop investors and online in-

vesting platform.

“Wall Street banks continue to

covet Main Street customers,”

Greg McBride, chief financial an-

alyst for Bankrate.com, said in

comments emailed to The Wash-

ington Post. “Morgan Stanley’s

acquisition of E*Trade gives

them access to brokerage cus-

tomers, employees w ith company

stock, and the lifeblood of finan-

cial services — low cost retail

bank deposits.”

Morgan Stanley’s stock price

fell 4.55 percent, to $53.75 per

share Thursday, while E-Trade

skyrocketed 21.8 percent, to

$54.73 per share.

The deal, which is expected to

close in the final quarter of 2020,

comes after Charles Schwab and

TD Ameritrade announced their

$26 billion combination in No-

vember. The discount brokerage

giants had revolutionized the in-

dustry by making stock trading

more affordable and accessible to

the masses. Their merger sig-

naled the industry’s shift from a

commission-heavy revenue

stream to one more reliant on

interest income and client servic-

es, and raised questions about

how E-Trade would survive in

their shadow.

The Schwab-Ameritrade deal

could still stall on antitrust is-

sues. But if it wins approval, it is

expected to close late this year.

Similarly, Thursday’s merger

will probably come under intense

scrutiny from regulators and con-

gressional Democrats skeptical

of large banks growing any big-

ger.

“This is not going to be an easy

deal to move through the Federal

Reserve,” Jaret Seiberg, a policy

analyst with Cowen Washington

Research Group, said in a re-

search note. “We would not be

surprised if it spilled into 2021

simply because of the need to

address the systemic risk aspects

of the transaction.”

Some analysts had predicted

E-Trade would become a target

for Morgan Stanley or Goldman

Sachs. The digital brokerage firm

has been a leading force in the

industry since its founding in

1982, enjoying household recog-

nition thanks to its goofy com-

mercials. In addition to trading

services, E-Trade also provides a

full suite of digital banking ser-

vices, including direct integra-

tion with brokerage accounts and

checking and high-yield savings

accounts. E-Trade brings with it

about $56 billion in low-cost

deposits e ach year, a major bonus

for Morgan Stanley as it moves

into consumer finance.

“E-Trade’s products, innova-

tion in technology, and estab-

lished brand will help position

Morgan Stanley as a top player

across all three channels: Finan-

cial Advisory, Self-Directed, and

Workplace,” James Gorman,

chairman and chief executive of

Morgan Stanley, said in a news

release. “In addition, this contin-

ues the decade-long transition of

our Firm to a more balance sheet

light business mix, emphasizing

more durable sources of reve-

nue.”

The brokerage industry has

been dramatically reshaped by

the race to zero commissions,

which started in October when

Schwab slashed its online com-

mission fees. Fidelity and E-Trade

soon followed suit, raising ques-

tions about how the industry

would pivot from its commis-

sion-driven business model. The

competition has been heightened

by retail investors choosing low-

and zero-cost index funds and

leaving the stock-picking market.

“Between zero trading com-

missions and competitive yield-

ing savings accounts and cash

management products, the com-

petition for consumers’ cash and

investments is as fierce as ever,”

McBride said.

Mike Pizzi, E-Trade’s chief ex-

ecutive, will stay on after the

merger to helm E-Trade within

the Morgan Stanley franchise.

“Since we created the digital

brokerage category nearly 40

years ago, E-TRADE has consis-

tently disrupted the status quo

and delivered cutting-edge tools

and services to investors, traders,

and stock plan administrators,”

Pizzi said in a news release. “By

joining Morgan Stanley, we will

be able to take our combined

offering to the next level and

deliver an even more comprehen-

sive suite of wealth management

capabilities.”

E-Trade stockholders will re-

ceive 1.0432 Morgan Stanley

shares for each E-Trade share, a

per-share consideration of $58. 74

based on Morgan Stanley’s share

price at close Wednesday.

[email protected]

[email protected]

 more at washingtonpost.com/

business

E-Trade deal shakes up

the brokerage market

Morgan Stanley takeover

is biggest by major U.S.

bank since 2008 crisis

BY HEATHER LONG

President Trump’s top econo-
mists predict the U.S. economy
will not grow at a rate of 3 percent
or higher this year unless Con-
gress enacts a major infrastruc-
ture package and additional tax
cuts.
Passage of legislation address-
ing either area a ppears unlikely in
the run-up to the presidential
election because Democrats con-
trol the House of Representatives.
Instead, many economists fore-
cast that the economy will grow
around 2 percent this year.
In t he annual Economic Report
of the President released on
Thursday, Trump’s C ouncil of Eco-
nomic A dvisers predicts that if the
president and Congress do not
make further policy changes, the
U.S. economy will grow at a
2.4 percent annual pace this year
and at a 2.3 percent pace in 2021.
That kind of growth is well below
what Trump p romised and similar
to what occurred under President
Barack Obama.
The report is the latest ac-
knowledgment by the Trump ad-
ministration that the economy is
unlikely to grow at 3 percent or
faster, a goal Trump has yet to
achieve in his presidency.

The economy grew 2.3 percent

last year, 2.9 percent in 2018 and

2.4 percent in 2017, according to

the Commerce Department.

T rump’s large tax cut and his

increase in federal spending lifted

growth in 2018, but it has since

moderated, especially after the

president escalated his trade

wars. Business leaders were

spooked by Trump’s fondness for

tariffs on goods from China and

other nations and pulled back

sharply on investments in facto-

ries and equipment, creating a

drag o n growth.

To achieve faster growth,

Trump’s Council of Economic Ad-

visers s ays, t here would need to be

more deregulation, immigration

reform, passage of an infrastruc-

ture plan, more trade d eals, i ncen-

tives to get more Americans work-

ing and permanent tax cuts for

American households (the corpo-

rate tax cuts that Republicans

passed at the end of 2017 are

permanent, but the individual tax

cuts are set to expire after 2025).

Most of these policy changes re-

quire Congress’s help, an unlikely

scenario as long as Democrats

control at least one chamber of

Congress.

Many of the policy changes

would also come with high price

tags. Trump’s economists predict

that the federal deficit will top

$1 trillion this year. The deficit has

risen nearly 50 percent since

Trump took o ffice.

Still, growth at around 2 per-

cent is likely to be enough to keep

the economy healthy and keep

businesses steadily adding jobs

every month. Goldman Sachs pre-

dicts that the unemployment rate

will fall this year to 3.25 percent, a

level not seen in more than 65

years.

The vast majority of Americans

say this is the best economy since

the l ate 1990s. Independent voters

and less-affluent voters are in-

creasingly likely t o give t he econo-

my h igh marks, which should help

Trump a s he seeks reelection.

“Growth has accelerated since

the election in 2016, more than

seven years into the r ecovery. T his

acceleration occurred despite

monetary policies,” said To mas

Philipson, the acting head of

Trump’s Council of Economic Ad-

visers.

The White House has repeated-

ly accused the Federal Reserve of

hurting growth, although most

economists say the central bank’s

interest rate cuts last year helped

prevent a major slowdown.

Trump and top White House

officials argued that the faster

growth seen in 2018 would last,

but many independent forecast-

ers characterized i t as a temporary

sugar high from the s timulus mea-

sures. The White House also pre-

dicted a boom in business invest-

ment after the tax cuts, but that

has not materialized. Business in-

vestment outside of home build-

ing shrank for m uch of last year.

“Initially, we saw a huge surge

in investment. Once we got a rene-

gotiation of trade agreements, we

saw uncertainty in the market,

and investment took a hit,” Philip-

son said.

Philipson predicted a jump in

business investment this year, but

that is likely to hinge on trade

policy and better global growth.

Last year brought the slowest

global growth since the Great Re-

cession, another factor making

business leaders nervous. Many

big banks foresee a rebound this

year, but the novel coronavirus is

causing a substantial drag on the

Chinese economy that is spilling

over to nations including Japan,

South Korea and Singapore.

This latest White House eco-

nomic forecast does not take into

account the impact of the corona-

virus.

[email protected]

Trump advisers: 3% growth unlikely

Major policy action by president and Congress is needed or U.S. will again miss target, economists say

○

dow 29,219.

doWn 128.05, 0.4% ○

nasdaQ 9,750.

doWn 66.22, 0.7% ○

s&P 500 3,373.

doWn 12.92, 0.4% ○

gold $1,620.

uP $8.70, 0.5% ○

crude oil $53.

uP $0.49, 0.9% ○

10-year treasury

uP $4.70 Per $1,000; 1.52% Yield

currencies

$1=112.14 Y en, 0.93 euros

chamila karunarathne/ePa-eFe/shutterstock

Oceanfront fare

A Sri Lankan food vendor awaits customers at dusk Thursday along the Galle Face Green seafront park in Colombo, the Indian Ocean

island nation’s commercial capital. The 12-acre park is an especially popular spot on weekends, when tourists join natives along the surf.

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