The week in GRC: Genstar Capital to buy ISS and Mars CEO urges companies to tackle climate change
– The New York Times reported that the Trump administration is examining the labeling of large non-bank financial institutions as ‘too big to fail’, with a US Department of the Treasury report on the issue expected next month. It is unclear whether the government will entirely eliminate the label, a product of the Dodd-Frank Act, but analysts and industry officials predict that its use will most likely be severely curtailed. ‘This is probably a tool that goes dormant for the time being,’ said Edward Mills, a financial policy analyst with FBR Capital Markets.
– Bloomberg said that, according to Marc Andrews, a manager on IBM’s Watson financial services team, banks have asked the company if it were possible to use surveillance technology that already monitors traders to also watch retail banking salespeople, loan officers and other workers. Several of the biggest US banks, as well as some regional banks, are testing the software, Andrews said.
IBM has trained Watson to collect information that could have helped detect problems at Wells Fargo, which said recently that employees opened as many as 3.5 million potentially unauthorized checking and credit card accounts for unsuspecting customers, even more than its original estimate when the issue arose last year. ‘Banks hadn’t been investing as much into this area until there was a big incident last year,’ Andrews said, referring to the Wells Fargo scandal.
– United Technologies reached a deal to buy airplane parts maker Rockwell Collins for $23 billion, in the biggest aerospace deal in history, The Wall Street Journal reported. Both companies’ boards approved a deal in which United Technologies will pay $140 a share in cash and stock, the companies said. Rockwell investors will get $93.33 a share in cash and the remaining $46.67 in United Technologies stock.
– The WSJ reported that Novartis CEO Joe Jimenez is stepping down in January after leading the Swiss pharmaceutical company for eight years marked by big patent expiries and intensifying scrutiny on drug pricing in the US. He will be replaced by Vas Narasimhan, Novartis’ global head of drug development and chief medical officer. Jimenez will remain available to Novartis in an advisory capacity until the end of August next year, when he will retire, the company said. Jimenez said Novartis was on a ‘strong path to the future’ and that it was the ‘right moment’ to hand over the reins. ‘A CEO should not stay much longer’ than eight years, he added.
– The WSJ noted that, as law firms feel continued pressure to expand, more mergers are coming together. In the face of stagnant demand for legal services, many firms have turned to mergers to boost market share and stay competitive. Chicago-based Arnstein & Lehr is merging with East Coast-based Saul Ewing, the firms said Tuesday, forming an operation with more than 400 attorneys and strengths in bankruptcy, litigation, finance and real estate work.
Philadelphia-based Ballard Spahr, with more than 500 lawyers, also said Tuesday that it plans to take on 110 lawyers from Lindquist & Vennum, a Minneapolis-based firm specializing in private equity and M&A work. Dennis O’Malley, managing partner of Lindquist, said the firm had been looking for a larger merger partner to position it for the future. ‘The mid-size law firm today I think in the long term is going to be at risk,’ he said.
– According to the Times, the EU Court of Justice ordered that a $1.3 billion antitrust fine levied against Intel almost a decade ago be revisited, a ruling that could give hope to Google and other US technology companies facing challenges to their dominance in the region. The decision sends the Intel case back to a lower court for re-examination. It could embolden US technology companies, which have long complained that antitrust officials in Europe target them unfairly, to challenge rulings and investigations against them. The European Commission gave a cautious response when asked what the ruling would mean for other technology companies under investigation in Europe.
– Grant Reid, CEO of Mars – the maker of Snickers, Twix and M&Ms – urged companies to step up their efforts to tackle climate change, warning that existing plans are ‘nowhere near’ enough to meet targets set by the Paris accord, the FT reported. ‘Most scientists are saying there’s less than a 5 percent chance we will hit Paris agreement goals… which is catastrophic for the planet,’ Reid said. Mars has pledged to invest $1 billion over the next few years in renewable energy and other programs as part of a call to action for companies to step up efforts in reducing emissions, he added.
– Some members of Toshiba’s board are pushing to accept Foxconn Technology Group’s bid for Toshiba’s memory chip unit, but face an uphill battle against Japanese government pressure to choose a bidder with fewer Chinese ties, according to the WSJ. The Foxconn consortium is getting a boost from some board members, according to people familiar with the matter. These board members say Toshiba would be better off keeping the chip unit, as it is the company’s biggest profit generator, but they argue that if it must be sold, Toshiba needs to get a maximum price. Representatives of Toshiba, Foxconn and Japan’s Ministry of Economy, Trade and Industry declined to comment.
– The FT said that, according to disclosures that show some of the world’s largest asset managers voted in favor of ranking China’s Communist Party above the boards of state-owned companies, BlackRock and Fidelity backed the party writing itself into company law this year. More than 30 Hong Kong-listed state-owned enterprises (SOEs) have so far amended their articles of association to embed the party, rather than the Chinese state, at the heart of each group. More are expected to do so as part of a push by Beijing to improve productivity and transparency at SOEs.
Pru Bennett, head of BlackRock’s Asia-Pacific investment stewardship team, said the firm’s voting decision was part of its efforts to engage companies. ‘We vote in the best interests of our clients to protect long-term shareholder value,’ she said. Kirsty Mactaggart, Asia-Pacific head of equity capital markets and corporate finance for Fidelity, said the group reviewed all amendments on a case-by-case basis. ‘Our general view is that we are supportive of proposed amendments that can potentially improve the overall transparency of a company’s decision-making process and are also in line with the government’s agenda on SOE reform,’ she added.
– The Senate Banking Committee voted to advance the nominations of Randal Quarles to serve as the Federal Reserve’s vice chairman for supervision and Joseph Otting to be Comptroller of the Currency, taking key steps toward President Donald Trump’s goal of reshaping Wall Street regulation, Bloomberg reported. If confirmed by the full Senate, Quarles and Otting will have extensive influence over bank capital and liquidity rules and the enforcement of regulations such as the Volcker Rule.
– Law firm Constantine Cannon, founded by Lloyd Constantine, the former chief of the New York attorney general’s antitrust unit, has started a whistleblower practice in London, the Times reported. The firm’s aim is to build cases in the US with the help of whistleblowers in Britain and Europe. Unlike in the UK and continental Europe, whistleblower cases can net big money in the US, both for the government and the individuals who expose wrongdoing.
– Equifax said hackers gained access to some of its systems, potentially compromising the personal information of roughly 143 million US consumers in one of the biggest data breaches of recent years, according to the WSJ. The credit reporting company said intruders gained access to systems containing customers’ names, Social Security numbers, birth dates and addresses. The incident comes at a time of heightened sensitivity to cyber-attacks in the political, commercial and personal realms.
‘This is clearly a disappointing event for our company, and one that strikes at the heart of who we are and what we do,’ Equifax CEO Richard Smith said. ‘I apologize to consumers and our business customers for the concern and frustration this causes.’ The company said that it ‘has found no evidence of unauthorized activity on Equifax’s core consumer or commercial credit reporting databases.’ Equifax said it reported the intrusion to law enforcement and contracted a cyber-security firm to conduct a forensic review.
– Reuters reported that State Street will pay more than $35 million to settle SEC allegations that it charged secret mark-ups for transition management services and hid details from clients about the trading of US Treasury securities. The figure includes $32.3 million State Street had previously agreed to pay to the SEC to settle fraud charges for the secret mark-ups. The SEC said State Street agreed to pay a $3 million penalty without admitting or denying findings that its disclosure failures related to its GovEx government securities trading platform violated the law.
The firm said its settlement with the SEC ends all government investigations of the overcharging for its transition management services. ‘We deeply regret that our clients were impacted and that a small number of our employees failed to meet our expectations,’ State Street said. ‘The impacted clients were fully reimbursed and over the past several years we have taken significant steps to strengthen our controls for our transition management business, and more broadly to enhance our compliance program, culture and operating environment.’
– The FT reported that private equity firm Genstar Capital said it would acquire proxy advisory firm Institutional Shareholder Services (ISS) from Vestar Capital for $720 million. ISS and Glass Lewis are the two primary proxy advisers that institutional money managers take their cues on for shareholder votes. ISS has more than 1,000 employees and more than 3,000 clients. Its management team, including CEO Gary Retelny, will participate in the buyout.
– The SEC named Bridget Fitzpatrick chief litigation counsel for the agency and said David Gottesman will continue to serve as deputy chief litigation counsel. Since December 2016, Fitzpatrick and Gottesman have served as co-acting chief litigation counsel. In her new role, Fitzpatrick will oversee the agency’s national litigation program and, as deputy, Gottesman’s responsibilities will include oversight of all trial lawyers in the SEC’s Washington, DC headquarters.