IPOs, Inflation Data and More Are at Risk in a Shutdown
The unintended economic consequences of a shutdown
We’re less than 48 hours before the federal government shuts down, and Congress appears no closer to breaking an impasse over funding. Hard-right Republicans in the House are more focused on scoring political points, while their moderate (and electorally vulnerable) colleagues try to work with Democrats on a solution.
As Washington and Wall Street gird themselves for an increasingly likely shutdown, it’s worth considering what might happen in that event.
Government data: Statistics agencies, including the Bureau of Labor Statistics and the Bureau of Economic Analysis, will suspend operations. Even a short shutdown will delay important releases, including the jobs report set for Oct. 6 and the Consumer Price Index set for Oct. 12.
A brief delay wouldn’t do much economic damage. But Fed officials have been closely scrutinizing official data as they weigh changes to interest rate policy, and longer disruptions could mean they will make decisions based on inaccurate or incomplete information. “It’s like a pilot trying to land a plane without knowing what the runway looks like,” Ben Harris, a former Treasury Department official, told The Times.
I.P.O.s and mergers: A shutdown would reduce the S.E.C. to a skeletal staff, rendering the regulator unable to fulfill most of its responsibilities. That means officials wouldn’t be able to review filings related to initial public offerings or to mergers, both of which require agency approval. The F.T.C. and the Justice Department would also face similar staffing constraints.
It’s unclear whether a shutdown would affect the I.P.O. of the sandal maker Birkenstock, the next big offering, scheduled to begin trading within the next two weeks. (The company’s advisers reportedly believe the company can proceed as planned, according to Reuters.) Other companies further behind in the process, however, are likely to have to wait.
Housing: Some would-be home buyers in flood-prone areas won’t be able to get mortgages, because funding for the National Flood Insurance Program will lapse. (Federal regulations require lenders offering mortgages in those regions to ensure that flood insurance is in place.) The National Association of Realtors estimates that as many as 1,300 home sales a day could be thrown into uncertainty.
Officials plan to suspend the flood insurance requirement in case of a shutdown, although it will still be up to lenders to decide whether buyers must have that coverage.
HERE’S WHAT’S HAPPENING
The eurozone’s “core” inflation dips to a one-year low. Data released this morning showed that prices, excluding energy and food costs, grew 4.5 percent in September. The reading sent European stocks higher, as investors bet that the European Central Bank will hold steady on interest rates. Next up: the Fed’s preferred measure for tracking U.S. inflation, the Personal Consumption Expenditure index, set for release at 8:30 a.m. Eastern.
The U.A.W. is said to be lowering its pay demands for autoworkers. The union would accept a pay raise of at least 30 percent, Bloomberg reports, below the 40 percent it initially proposed. Members of the United Automobile Workers are about to enter a third week of strikes against the Big Three carmakers and could expand their actions as soon as Friday.
Tesla is sued over claims of racial discrimination and harassment. The Equal Employment Opportunity Commission accused the company of failing to address Black employees’ complaints that they were the subject of racial epithets, given worse work assignments than white workers and fired when they complained.
A court rejects Donald Trump’s attempt to delay his fraud trial. The trial of the Republican presidential front-runner could start in New York on Monday, on charges he inflated the value of his business properties by billions of dollars. Letitia James, the state’s attorney general, is seeking to recover $250 million in ill-gotten gains. Trump has denied all wrongdoing.
Linda Yaccarino will reportedly present a turnaround plan for X to lenders next week. The C.E.O. of the social media platform formerly known as Twitter will lay out her strategy to seven banks holding $13 billion of debt tied to Elon Musk’s acquisition of the company, The Financial Times reports. The talks will include how she plans to revive the advertising business.
What’s next for the PGA Tour
As the clock ticks down to a New Year’s Eve deadline for the PGA Tour and the Saudi-backed LIV Golf to agree to a tie-up, potential new bidders have emerged.
They include Ari Emanuel’s Endeavor, the entertainment giant that owns W.W.E. and Ultimate Fighting Championship; Fenway Sports Group, owners of the Red Sox; and a consortium led by Henry Kravis, the co-founder of KKR. Bloomberg first reported on the bidders on Thursday.
Their interest is in the early stages, DealBook understands, and may not alter the PGA Tour’s plan to join forces with LIV, which is backed by the Public Investment Fund, Saudi Arabia’s sovereign wealth fund. Here’s what DealBook knows, and what could happen next.
A potential PGA Tour-Saudi alliance is in flux. It’s a framework deal, so the tour can talk to other suitors. In August, the players hired Raine Group, a boutique investment bank, to advise and represent their rights in any deal; the players, who hold a majority of PGA Tour seats, get the final say. Among the sticking points are players’ compensation, how a deal with the Saudi fund would be structured, and at what valuation for the PGA Tour.
The tour says it remains focused on the Saudis. “Our focus continues to be on finalizing an agreement with the Public Investment Fund and the DP World Tour,” a spokesman told DealBook, referring to the European branch of the sport. He added that “negotiations have resulted in unsolicited interest from other investors.”
U.S. investors could ease political opposition to a PGA-LIV deal. They would probably not be able to compete with the P.I.F.’s vast finances, but lawmakers who are concerned about Saudi money infiltrating the sport may welcome the American investors being part of any deal.
It’s about more than money. Investors like Fenway and Endeavor also bring media relationships and experience building and operating leagues. One possibility is that the PGA Tour could strike a deal that involves the best of both worlds: P.I.F. money and a U.S. investor.
Would that solve its antitrust problems? The Justice Department’s scrutiny of the tour predates the P.I.F.’s interest. U.S. investors wouldn’t necessarily resolve concerns about the tour’s interlocking boards and some of the forceful tactics it used to combat LIV before the two started discussing a tie-up.
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In other sports news: ESPN is reportedly close to clinching a broadcast deal with TGL, the start-up golf league backed by Tiger Woods and Rory McIlroy. And Dynasty Equity, a private equity firm, bought a minority stake in Liverpool F.C. from Fenway, and will reportedly invest up to $200 million in the Premier League soccer club.
“From playing chess to piloting drones — machines have become much smarter and play a role in many areas of our lives. So why not use artificial intelligence for central banking?”
— Myriam Moufakkir, chief services officer of the European Central Bank. She announced that the E.C.B. would experiment with using generative A.I., starting with basic functions like summarizing data, translation of documents and writing software code. But she stressed that those efforts were at an early stage.
How China squeezes executives who fall out of favor
The tally of corporate leaders under Chinese officials’ close watch appears to have gone up again. The authorities have imposed an exit ban on a senior executive at Kroll, according to The Wall Street Journal, a day after Evergrande, the Chinese property giant, said its founder was under police investigation.
Another foreign firm is targeted. Michael Chan, a Hong Kong-based managing director for Kroll, the American advisory firm, was barred from leaving mainland China and was said to be helping with an official investigation, according to The Journal.
The report comes just days after a senior executive at Nomura, the Japanese bank, was said to also be blocked from leaving the country. And a number of due-diligence firms with foreign links have been targeted in recent months, with the authorities raiding offices and detaining staff.
The moves have sent a chill across local and Western companies operating in China, despite officials’ efforts to persuade companies that it’s business-friendly.
Evergrande’s chairman is the latest executive in the cross hairs. Hui Ka Yan was accused of “illegal crimes” on Thursday, after shares in the company were suspended in Hong Kong. The property developer was the country’s biggest, turning Hui into China’s richest man.
The list of executives investigated, missing or imprisoned is growing. Hui is the latest high-profile business leader to fall out of favor with the authorities, and Evergrande’s former C.E.O. and C.F.O. are also reportedly under investigation.
Other high-profile corporate leaders have vanished or been imprisoned in the years since Xi Jinping took control of the Chinese Communist Party. They include:
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Bao Fan, the founder of the investment bank Renaissance Capital and one of China’s top tech deal makers, vanished in February.
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Chen Fang, chairman of HNA, the acquisitive Chinese conglomerate that owned stakes in Hilton Hotels and Deutsche Bank, was detained in 2021 on suspicion of committing crimes.
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Ren Zhiqiang, a real estate tycoon and a public critic of Xi, vanished in March 2020 and was later sentenced to 18 years in prison.
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Wu Xiaohui, former chairman of Anbang Insurance Group, which owns the Waldorf Astoria in New York, was detained in 2017 and sentenced to 18 years in prison.
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Xiao Jianhua, a Chinese-Canadian billionaire, was seized from a luxury hotel in Hong Kong in 2017 and jailed on corruption charges last year.
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Whitney Duan, a property developer said to be China’s richest woman, disappeared in 2017.
THE SPEED READ
Deals
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GIC, Singapore’s sovereign wealth fund, reportedly sold its stake in the investment firm Vista Equity Partners after its founder, Robert Smith, was ensnared in a tax scandal. (FT)
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Shares in the women’s wear retailer Chico’s soared 63 percent after the private equity firm Sycamore Partners agreed to buy it for $938 million. (Reuters)
Policy
Best of the rest
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How Palantir, the data giant chaired by Peter Thiel, is pursuing a deal with Britain’s national health care system to create one of the world’s biggest caches of health data. (NYT)
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Inside the debate in Canada over whether to extract $67 billion worth of minerals needed for electric vehicle batteries from underneath vast peat bogs that capture greenhouse gasses. (WSJ)
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“What C.E.O.s Mean When They Talk About ‘Moats’” (NYT)
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