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The Morning Ledger: CFOs Applaud Tax Cut, But Wary of Spending |
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Wells Fargo & Co. Chief Financial Officer John Shewsberry, to the right, at the CFO Network 2018 Annual Meeting. PHOTO: TATYANA SHUMSKY
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Good morning. Finance chiefs are pleased with the reduction of the corporate tax rate, but are still concerned about regulatory and economic uncertainty. That was the sentiment Tuesday at the CFO Network 2018 Annual Meeting in Washington.
Only 21% of CFOs polled in the audience said their company is increasing investment and capital spending following the tax cut. Another 21% said it has led to buybacks and dividend increases. More than half -- 58%-- said "neither."
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Recent trade frictions could be cooling the desire to invest.
“There are businesses that are holding back taking risks they might have before, investing in growth that they might have otherwise invested in until they know what the demand for their products [is]," said John Shrewsberry, finance chief for Wells Fargo & Co.
He said those kinds of decisions are "highly reliant" on the outcome of trade rules. "And until the dust settles, people just definitely have to stand back and wait for that to happen.”
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But Kevin Hassett, chairman of the White House Council of Economic Advisers said the drop in the corporate tax rate is "clearly leading to a capital spending boom," writes CFO Journal's Nina Trentmann.
"When we do surveys with CFOs, they say they don't plan to make changes, which is inconsistent with their actions," said Mr. Hassett.
A 9.2% rise in nonresidential fixed investment recorded in the first quarter indicates that the administration's estimate of a 10% decline in the cost of capital after the tax overhaul was accurate, said Mr. Hassett onstage at the CFO Network. Wages also picked up because of the tax-law change.
"The corporate tax break is happening at exactly the right time," said Mr. Hassett.
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| Highlights from the CFO Network |
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National Trade Council adviser Peter Navarro. PHOTO: ANDREW HARNIK/ASSOCIATED PRESS
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Navarro says Trudeau comments were 'mistake.' Peter Navarro, the top trade aide to U.S. President Donald Trump, apologized Tuesday for saying that there was a “special place in hell” for Canada's Prime Minister Justin Trudeau amid escalating trade tension between Washington and Ottawa, reports CFO Journal's Ezequiel Minaya and WSJ's William Mauldin.
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“In conveying that message I used language that was inappropriate and basically lost the power of that message. I own that, that was my mistake, those were my words.”
| — Senior Trade Adviser Peter Navarro |
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“My mission was to send a strong signal of strength,” Mr. Navarro said about his appearance on “Fox News Sunday,” a day after Mr. Trump and Mr. Trudeau closed the Group of Seven leaders’ summit at loggerheads.
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SEC has no standard comment letters on revenue recognition. The U.S. Securities and Exchange Commission already has sent comment letters to some companies regarding their compliance with the new accounting rules, but the agency doesn’t have a fixed agenda, said Bill Hinman, director of the SEC’s Corporation Finance Division.
“We’re approaching revenue recognition [compliance] as let’s see what people are doing, we understand it’s a complex rule,” Mr. Hinman said.
“We don’t have a particular agenda or standard comments,” he said. “We don’t expect to repeat the same comment for five different companies.”
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Yahoo's former CFO weighs in on dual-share class structures. Many technology startups have tried to structure initial public offerings with dual-class stock. Some investors have complained this setup leaves them with less sway over corporate decisions by granting certain shareholders extra voting power. Others say this structure protects founders from the demands of short-term investors.
A dual-share structure “creates better alignment between the mission of the company and what the founders want to accomplish,” said Kenneth Goldman, president of Hillspire LLC, the family office that manages tech mogul Eric Schmidt’s money. He spoke to Dawn Lim of WSJ Pro Private Equity on the sidelines of the annual CFO Network meeting in Washington on Tuesday.
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Otsuka America Pharma to invest more in cybersecurity. Otsuka America Pharmaceutical Inc. has recently made changes to its cybersecurity policies in response to a "couple of attacks" in the past four months, said Chief Financial Officer Ed Stelmakh on Tuesday.
The damage caused by these attacks was not material, but has raised the management's awareness of the issue, Mr. Stelmakh told CFO Journal's Nina Trentmann.
"We are paying a lot more attention to cybersecurity," he said, adding that the U.S. subsidiary of the Japanese drug maker plans to potentially invest more money into its cyber defenses. "We don't disclose the actual amount, but it is growing."
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How to deal with a cybersecurity breach. It is important to have a strategic “resilience” plan on how to address cyberattacks, said Phyllis A. Schneck, former deputy undersecretary for cybersecurity and communications for the U.S. Department of Homeland Security.
It is better to “understand that you’re going to get attacked” and have a plan that involves multiple departments, including legal and communications, so that a company can recover quickly, said Ms. Schneck.
Kevin Mandia, chief executive of FireEye Inc., suggested that CFOs form “red teams,” consisting of cybersecurity experts, that can attempt to hack internal systems such as stealing the CEO's emails, credit-card and customer data, and attack industrial control systems. This will show what the company’s weaknesses are, he said. “The best thing to do is test it.”
Mr. Mandia said FireEye responded to more than 600 computer intrusions last year, where the hackers were mostly nation states, including North Korea, China and Russia, reports Sara Castellanos.
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There are a number of ways finance chiefs can incorporate blockchain even though the distributed database technology is still relatively new. There are still some misconceptions, but the hype eventually leads to education.
Caitlin Long, former president and chairman of Symbiont, said one company is aiming to do a bond offering via blockchain. The company will be able to continuously track who holds the bonds. “That’s going to blaze a trail,” she said. She declined to name the company.
Having a “baseline” of who you can trust in a bond trade or other transactions that typically have many layers of compliance and reconciliation is “really powerful,” said Michael Casey, senior advisor for the digital currency initiative at the MIT Media Lab.
Blockchain could also be used to expedite issuance of securities and therefore proxy voting, Ms. Long added. Currently, it can be difficult to get exact counts on close proxy votes she said.
Only one-third of the finance chiefs polled in the the audience said they were experimenting with blockchain. Ms. Long said companies who are early adopters will have a stake in setting standards around blockchain usage, and will have the first-mover advantage.
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The infrastructure needed to support electric vehicles could eventually double growth in consumer demand for Duke Energy Corp., according to Steve Young, the power utility's chief financial officer.
He estimated that in 10 years, electric vehicles could add about half of a percentage point of growth to consumer demand. The company's current projection for the growth of energy consumption over the next five years is 0.5%, writes CFO Journal's Ezequiel Minaya.
"The general growth rate is pretty flat," he said. Reasons include a growing focus on energy efficiency in products such as light bulbs.
Electric vehicles are "not a significant part of our profile now," Mr. Young said. "However, this is a fast-growing area."
He estimates that an electric vehicle can increase the energy consumption of an average home by 25% to 30%. "That's an opportunity for us," Mr. Young said.
Duke is building 500 charging stations in Florida and another 200 in North Carolina, he said. The company has also recently submitted a proposal to invest another $40 million in electric-vehicle infrastructure in North Carolina.
Between 2030 and 2050, electric vehicles could provide a tailwind of 2% to 4% growth in consumption, he added. Duke will have to make investments in building charging stations and upgrading the power grid. As electric cars become more common, the utility will likely design new rates to get consumers to charge their vehicles overnight and at other times when power usage is low.
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An AT&T store sign. PHOTO: GETTY IMAGES
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A federal judge ruled Tuesday that AT&T Inc. can proceed with its planned acquisition of Time Warner Inc., rejecting the Justice Department’s allegations that the deal would suppress competition in the pay-TV industry. AT&T CEO Randall Stephenson gambled his career on the deal. The decision could also encourage other big media and tech deals.
Tesla Inc. on Tuesday said it will cut about 9% of its workforce in an effort to deliver its first profit during a make-or-break period building a mass-market electric car.
Facebook Inc. said it will crack down on e-commerce businesses that flood users’ feeds with ads for products that are unsatisfactory or don’t arrive on time.
AstraZeneca PLC and Eli Lilly & Co. on Tuesday scrapped two late-stage trials of an experimental Alzheimer’s drug they were codeveloping, the latest blow in the long quest to find a break-through for the memory-robbing disorder.
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PHOTO: AFP/GETTY IMAGES
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The New York Court of Appeals handed Credit Suisse Group AG a major victory in a 4-to-1 ruling that said the New York attorney general’s office was too late in pursuing a financial crisis-era lawsuit regarding its underwriting of residential mortgage-backed securities.
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China’s promise to liberalize access to its fast-evolving securities markets comes with a new hurdle for Wall Street firms, leaving them uncertain about meeting hefty asset requirements to do business in the world’s second largest economy.
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The U.S. Treasury Department issued a warning to banks about human-rights abusers accessing the financial system, and imposed sanctions on two new targets. Both moves come as the Treasury highlights its role in combating corruption and human rights abuse.
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Competition for the most elite law students is ratcheting up, with several national law firms boosting starting salaries for recent law school graduates to $190,000 in recent days.
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U.S. consumer prices rose a seasonally adjusted 0.2% in May, the heftiest annual growth since the beginning of 2012 and a further sign price pressures in the economy are solidifying.
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