As Congress steps into a familiar snarl over gun restrictions, Sen. Elizabeth Warren is calling on deep-pocketed investors in gun companies to use their leverage to demand change from the weapons industry.
The Massachusetts Democrat sent letters Monday to investment funds with the biggest stakes in three publicly traded gun makers, urging them to pressure the manufacturers to self-regulate, The Finance 202 has learned.
“Now it’s time to put your money where your mouth is,” Warren wrote in one such note to BlackRock chief Larry Fink, who declared in his annual letter to CEOs last month that companies need to contribute a social good to keep the $6 trillion investment firm’s support.
For its part, BlackRock — the largest shareholder in both American Outdoor Brands Corporation, which owns AR-15 maker Smith & Wesson and Sturm Ruger, and is the second-largest shareholder in Vista Outdoor, another gun manufacturer — announced last week that it would be “engaging” with weapons makers to “understand their response to recent events.”
But Warren wants specifics. She’s asking firms to pressure gun companies to impose their own age restrictions and waiting periods on buyers and invest in developing safer guns. In addition to BlackRock, she sent missives to Vanguard, Fidelity, Invesco and five other firms with major positions in gun companies and asked for reports on their plans by March 9.
The push comes as Wall Street giants seek to get ahead of a new wave of consumer activism demanding that corporations of all stripes cut ties to gun interests. Bank of America, for example, pledged over the weekend to work with its gun-making clients “to understand what they can contribute to this shared responsibility;" MetLife ended its discount program for NRA members; and the Blackstone Group asked its fund managers to detail their ownership of gun companies.
Precisely how much leverage the investment managers can claim over the companies is arguable. Fink in his annual letter wrote that as policymakers fail to address pressing problems, “society increasingly is turning to the private sector and asking that companies respond to broader societal challenges.” But BlackRock invests through index funds, limiting its ability to sell its stakes in individual companies that run afoul of its standards.
“Given our inability to sell shares of a company in an index, even if we disagree with management, we focus on engaging with the company and understanding how they are responding to society’s expectations of them,” BlackRock spokesman Brian Beades said in a statement. He added the firm is working with clients who want to exclude from their portfolios weapons manufacturers or other companies “that don’t align with their values,” and currently manages $200 billion in assets in such funds.
Other firms on the receiving end of Warren’s letters indicated that whatever actions they take with gun companies will unfold behind closed doors. A Vanguard spokesman said the fund characterizes its approach as “quiet diplomacy focused on results.” Likewise, a Fidelity spokeswoman said that “while it is our general practice not to comment publicly on individual companies or investment decisions, we meet regularly with companies we invest in and will engage and debate them on a number of topics including social responsibility when appropriate.”
A Warren aide tells me the senator’s effort isn’t meant as a substitute for legislative action — rather it’s an attempt to use “every tool available to push for change.”
On Monday, one legendary investor who’s proven a frequent ally of Democratic causes dismissed the notion of mixing political judgments with investing decisions. “I don’t believe in imposing my views on 370,000 employees and a million shareholders,” Berkshire Hathaway CEO Warren Buffett said in a CNBC interview. “I’m not their nanny on that.”
|You are reading The Finance 202, our must-read tipsheet on where Wall Street meets Washington.|
|Not a regular subscriber?|
ALL EYES ON POWELL:
— Powell faces test. Bloomberg's Craig Torres: "Since Powell accepted President Donald Trump’s nomination almost four months ago, the near-term outlook has changed significantly. Financial volatility has awakened, and a booming stock market has shown it can also go down. A $1.5 trillion tax package is adding stimulus to the U.S. economy at a time of very low unemployment and solid growth, a trend that could red-line demand and kick up a central banker’s worst enemy -- inflation. The government wants to test the limits of the world’s appetite for its debt, a boost in supply that’s putting upward pressure on market interest rates. For Powell, who delivers his first congressional testimony as Fed chairman on Tuesday, there’s suddenly a lot more political and economic risks testing the new leader from the outset."
Investors laser focused. CNBC's Patti Domm: "Whether stocks can keep rallying may depend on how well Fed Chair Jerome Powell handles Congress on Tuesday. Powell makes his first major appearance as head of the Federal Reserve before the House Finance Committee on Tuesday at 10 a.m. ET. He will provide the Fed chair's semi-annual testimony on the economy again before the Senate on Thursday. The markets have been anxious about what Powell will say on inflation. The worry is that if the Fed expects an acceleration in inflation, it could see that as a reason to raise interest rates more than the three times it currently has forecast. The Fed's next official forecast is released after its meeting March 21, where it is expected to raise rates for the first time this year."
Powell's debut comes after stocks rallied Monday, with the Dow and S&P 500 now gaining back half of their correction losses, though global stocks slid Tuesday... Goldman Sachs is warning that if the 10-year Treasury yield rises above 4.5 percent this year, stocks could tumble by more than 20 percent.
— Quarles sees more hikes. CNBC's Jeff Cox: "Further interest rate increases are likely forthcoming as the U.S. economy revs up, Federal Reserve Governor Randal Quarles said Monday... Quarles noted that GDP has been growing around 3 percent since the second quarter of 2017, "a considerable step-up" from the previous eight years. In that environment, he said more rate hikes are reasonable. 'With my current economic outlook, I anticipate that further gradual increases in the policy rate will be appropriate to both sustain a healthy labor market and stabilize inflation around our 2 percent objective,' he said."
— Trump leans tough on trade. The Post's David J. Lynch and Damian Paletta: "Trump appears to be tilting toward hard-line trade advisers as he weighs imposing new tariffs on an array of imported goods — defying warnings from fellow Republicans and risking large costs to the U.S. economy. Trump is expected soon to name hard-liner Peter Navarro as an assistant to the president, a senior post that will afford him greater access to the Oval Office and direct input on pending trade decisions involving South Korea, Mexico, Canada and China, according to four people familiar with the matter."
CEOs ready for NAFTA implosion. Bloomberg's Andrew Mayeda and Josh Wingrove: "In describing what life would be like without Nafta, some business groups have stopped just short of predicting a plague of locusts. Listen to American CEOs, though, and the potential collapse of the continent’s trade framework doesn’t sound quite so scary. As talks on reshaping the pact drag into a seventh month, executives are getting asked -- on earnings calls and at conferences -- how their businesses would fare in the event of a breakdown. Words like 'well-positioned' and 'manageable' keep cropping up in their answers."
Hope for a NAFTA auto breakthrough. Reuters's Anthony Esposito, Sharay Angulo: "The U.S. negotiator for regional content requirements in autos flew back to Washington from a NAFTA round in Mexico on Monday to talk with car companies, officials said, in a development some hoped would lead to progress on the contentious issue. Four Mexican, Canadian and U.S. trade officials said the negotiator, Jason Bernstein, had been called back, with two of the officials saying he was there to meet U.S. automakers."
— Mystery surrounds Trump Org's foreign profits. The Post's Dave Fahrenthold and Jonathan O'Connell: "The Trump Organization announced Monday that it donated the profits from “foreign government patronage” at its hotels last year to the U.S. Treasury, but declined to identify those foreign customers or the amount of the contribution... [The Post] asked for more details: How much was donated? Which Trump properties were included in this accounting? Which foreign entities had paid money to Trump’s businesses? 'We have nothing further to share at this time,' Amanda Miller, a Trump Organization spokeswoman, wrote in an email."
— GOP eyes expanding banking deregulation bill. American Banker's Ian McKendry: "A top House lawmaker said Monday that there are bicameral discussions with the Senate to see if a narrowly tailored bill to roll back the Dodd-Frank Act can be expanded before the Senate votes on the deal. 'Lot of conversations happening between House members and Senate members on expanding the package' before the Senate takes it up, Rep. Patrick McHenry, R-N.C., told reporters on the sidelines at an event here sponsored by the law firm Jones Walker."
— Dems struggle on taxes. The Post's Erica Werner, writing from Kokomo, Ind.: "Democrats predicted a political backlash for Republicans in December when the GOP pushed through a deeply unpopular tax cut that added more than $1 trillion to the federal deficit and disproportionately helped the wealthy. But at the outset of the 2018 campaign season, Democrats’ early optimism appears less well founded here, where Democrat Joe Donnelly is facing a tough Senate reelection fight. The new law is rising in popularity as businesses in Indiana and elsewhere trumpet bonuses and bigger paychecks. And while Donnelly and fellow Democrats struggle to craft a consistent attack on the law, Republicans — boosted by outside spending from groups backed by the billionaire Koch brothers and others — are united in touting the tax cuts and slamming moderate Democrats who voted against them."
Counterpoint: A new poll from the liberal Not One Penny coalition shows the law is still underwater with voters; and, per a CNN poll, Democrats have widened their advantage over Republicans on the generic ballot, which now stands at 54 percent to 38 percent.
— Companies spoil themselves, spurn wage hikes. NYT's Matt Phillips: "In the fourth quarter, American companies’ investments in things like factories and business equipment grew by 6.8 percent. That was the fastest growth rate since 2014, but far from the giant surge in capital spending that was promised ahead of the tax overhaul. But the buying back of shares is also at record levels. Almost 100 American corporations have trumpeted such plans in the past month. American companies have announced more than $178 billion in planned buybacks — the largest amount unveiled in a single quarter, according to Birinyi Associates, a market research firm."
The buybacks softened the correction. CNBC's Jeff Cox: "February's stock market correction probably would have been worse if companies had not stepped in to the fray... As the month nears a close, companies have bought back $113.4 billion of their own shares, good for the highest total since April 2015, according to market data firm TrimTabs. That's part of an overall strong trend for buybacks, which stand at $5.8 billion a day during the current earnings season, a record."
Georgia GOP threatens Delta's tax cuts. NYT's Matthew Haag and Tiffany Hsu: "The lieutenant governor in Georgia threatened on Monday to kill a proposed lucrative tax cut for Delta Air Lines after the company eliminated a discount fare program for the National Rifle Association over the weekend. The move by Lt. Gov. Casey Cagle, who presides over the State Senate, immediately put the legislation in jeopardy and put him at loggerheads with other top state officials, including the governor, who had championed the tax deal. The showdown between one of Georgia’s most powerful politicians and one of the state’s largest employers was the latest clash in a national debate around guns after the deadly school shooting in Florida this month."
The LG posted this, sparking bitter Twitter backlash:
I will kill any tax legislation that benefits @Delta unless the company changes its position and fully reinstates its relationship with @NRA. Corporations cannot attack conservatives and expect us not to fight back.— Casey Cagle (@CaseyCagle) February 26, 2018
— Conservatives pitch Fannie, Freddie elimination. Washington Examiner's Joseph Lawler: "Conservatives who are pushing for the elimination of Fannie Mae and Freddie Mac on Monday gave President Trump a blueprint for phasing out the government-sponsored enterprises by himself. Analysts with the American Enterprise Institute and other right-of-center think tanks began rolling out a guide for how the Trump administration could “eliminate” Fannie and Freddie over the course of several years without any action from Congress. AEI also plans a conference Tuesday morning to discuss the paper, which could influence GOP lawmakers."
— CFTC steps up. WSJ's Gabriel Rubin: "U.S. derivatives regulators are expected to file “more than 10” fraud and market-manipulation cases in the next weeks as the Commodity Futures Trading Commission chairman implements his back-to-basics approach, according to a person familiar with the CFTC’s enforcement operation. The stepped-up enforcement comes after the CFTC recorded a big drop in fines and enforcement actions during the fiscal year that spanned the transition from the Obama administration to the Trump administration."
— Quarles: No major rollback. American Banker's John Heltman: "The Federal Reserve’s top regulator said Monday that he did not view the agency’s review of post-crisis regulations as an exercise in relaxing rules or reducing capital levels, emphatically pushing back against claims that certain proposals could lead to weaker supervision. 'It’s not just semantically that I want to stress this: As we are looking at enhancing the efficiency of regulation, we are not looking to relax regulation,' said Federal Reserve Vice Chairman for Supervision Randal Quarles. 'We are not looking to significantly reduce the level of risk-weighted capital in the [banking] system.'"
— SEC Dem: No curbing shareholder suits. WSJ's Dave Michaels: "Public companies hoping that regulators will show them a shortcut to stifling shareholder lawsuits should instead have to go through a long slog, a Democratic member of the Securities and Exchange Commission said Monday. The SEC shouldn’t let a company doing an initial public offering restrict possible class-action lawsuits by its shareholders, Commissioner Robert Jackson Jr. told a New York investment conference. Such a move should only follow a rulemaking process through which the SEC gets public comments and studies the costs to investors of forcing disputes into private arbitration hearings, Mr. Jackson said."
— Obama-era labor rule survives. NYT's Noam Scheiber: "First, it reversed an Obama-era rule helping workers challenge the labor practices of big chains. On Monday, the National Labor Relations Board reversed its reversal. The move will make it easier to hold companies responsible for labor law violations committed by franchisees and contractors. Labor advocates and business groups alike were surprised by the turnabout, but it did not reflect any ideological shift. Rather, it followed a determination that a member of the board’s Republican majority had a conflict of interest in the earlier vote."
From The Post's Christopher Ingraham: "Nobody knows how many members the NRA has, but its tax returns offer some clues:"
- The National Association for Business Economics conference continues.
- Fed Chairman Jerome Powell will testify before the House Financial Services Committee.
- The Brookings Institution holds an event with former Fed chairs Janet Yellen and Ben Bernanke.
- The House Ways and Means committee holds a markup.
- The American Enterprise Institute holds an event on “Eliminating Fannie Mae and Freddie Mac without legislation.”
- The U.S. Chamber of Commerce holds the 2018 Invest in America summit.
- The House Small Business Committee holds a hearing on “How Red Tape Affects Community Banks and Credit Unions: A GAO Report."
- The Center for Strategic and International Studies holds an event on “Deepening U.S.-India Trade Ties: Focus on States” on Wednesday.
- The Hamilton Project holds an event on “How to Get American Workers a Raise: Policies to Revitalize Wage Growth” on Wednesday.
- The Brookings Institution holds an event on Trump’s trade policy in Asia on Wednesday.
- The Senate, Health, Education, Labor and Pensions committee holds a hearing on the nomination of John F. Ring to be a member of the National Labor Relations Board on Thursday.
From The Post's Tom Toles:
President Trump told governors the NRA are "great people," but that "we have to fight them every once in a while:"
Sanders said President Trump supports the idea of raising the age to purchase semiautomatic rifles “in concept:"
Melania Trump says Parkland students "deserve a voice:"
Jimmy Fallon says he plans to march with the Parkland students in Washington next month: