Securities Attorney Briefing for 30 June 2016

Securities Attorney Tom Krebs


Boris Johnson Won’t Seek to Succeed David Cameron as Prime Minister

LONDON — The race to succeed David Cameron as prime minister of Britain was turned upside down on Thursday when Boris Johnson, widely seen as the leading candidate, chose at the last minute not to run, after his close ally Michael Gove challenged him for the job. The unexpected turn of events was the latest political aftershock from Britain’s vote last week to leave the European Union, and it could benefit another candidate, Theresa May, the home secretary, who laid out her case on Thursday for why she should lead the party. Mr. Johnson said, “Last week, the people of this country voted to take a new path and a new direction for Britain, in a decision that I passionately support.” “It is vital now to see this moment for what it is,” he continued. “This is not a time to quail, it is not a crisis, nor should we see it as an excuse for wobbling or self-doubt, but it is a moment for hope and ambition for Britain. A time not to fight against the tide of history, but to take that tide at the flood, and sail on to fortune.” But Mr. Johnson, 52, said he was not the person to unite the party and the country. “Having consulted colleagues and in view of the circumstances in Parliament, I have concluded that person cannot be me,” he said. “My role will be to give every possible support to the next Conservative administration, to make sure that we properly fulfill the mandate of the people that was delivered at the referendum, and to champion the agenda I believe in.” The emerging competition between Mr. Gove, 48, and Ms. May, 59, is now the dominant dynamic in Britain’s fast-moving political upheaval. Ms. May, who supported staying in the European Union but was a relatively quiet voice in that debate, is considered a candidate of continuity who is farther to the right of the party than Mr. Cameron. She had been thought to have the best chance of derailing the flamboyant and popular Mr. Johnson. Only on Wednesday, Mr. Gove, who had said he was not interested in becoming prime minister, was thought to have made a deal to support Mr. Johnson. But in a statement Thursday morning, Mr. Gove said that over the last few days, he had “come, reluctantly, to the conclusion that Boris cannot provide the leadership or build the team for the task ahead.” Last Friday, the day after the British referendum, Mr. Cameron announced that he would resign by October. The turmoil in the Conservative Party is following a script, with friends betrayed and secret deals, that sounds as much like something from “Game of Thrones” as it does contemporary British politics. Several candidates are running to raise their profiles and increase their bargaining power with the prospective victor, for example, Stephen Crabb, a young Welsh lawmaker and the work and pensions secretary, who entered the leadership contest on Wednesday; Andrea Leadsom, a minister for energy, who declared her candidacy on Thursday; and Liam Fox, a former defense secretary who has vied for the party’s leadership in the past.


3 banks tagged in latest Fed ‘stress test’

On Wednesday, the Federal Reserve challenged three banks’ capital plans in round two of its annual stress test. Thirty other banks tested got the green light giving investors and consumers greater faith in the strength of the financial system and set off a round of dividend and stock buyback announcements.

All 33 banks passed the first round of tests announced last week, but the Fed took issue with the capital plans of two banks, Deutsche Bank Trust and Santander Holdings USA, in round two. Both have been working to shore up their reserves and build systems to manage their risk, but have more to do in the eyes of the Fed. The Fed’s stress tests measure banks’ preparedness for a major financial shocks.

Morgan Stanley (MS) was the only major U.S. bank to get negatively singled out by the Fed. While the Fed didn’t object to Morgan Stanley’s capital plan, it is forcing the bank to resubmit its plans by the fourth quarter of this year “to address weakness in its capital planning processes,” the Fed’s release stated. Morgan Stanley passed the first part of the stress test, which looked at the company’s reserves on an objective, not subjective, basis. Since it passed the first part of the stress test, Morgan Stanley announced plans late Wednesday to boost its quarterly dividend by 33% to 20 cents a share.  The firm also authorized a $3.5 billion stock buyback program. Wednesday’s stress test is the second part of an annual review of banks that’s required as part of the Dodd-Frank reforms following the financial crisis of 2008 and 2009. The first test, reported last Thursday, is mostly a mathematical exercise that quantifies whether the banks have the adequate resources to withstand a serious economic shock. Wednesday’s stress test has more qualitative variables that go in the formula to determine who passes and who doesn’t. In this test, the Fed is looking for banks to be strong in the area of capital planning, risk management, oversight and proper checks and balances. The fact that all 33 banks passed the first test shows just how much stronger the financial sector is now, says Ernie Patrikis, partner of law firm White & Case. “In terms of safety and soundness, these banks are safe and sound,” he says. The moves by the Fed opens the door for many large banks to boost their plans to return cash to investors in the form of dividends and stock buybacks. The average dividend yield of six of the largest U.S. banks is 2.1%, which is only slightly higher than the roughly 2% yield on the entire Standard & Poor’s 500 index. That’s already changing quickly as some of the banks that got a clean bill of health from the Fed are cleared to return money to investors as dividend hikes and buybacks. Many banks didn’t waste any time in boosting their returns to investors. Bank of America (BAC) for instance late Wednesday said it was boosting its quarterly dividend by 50% to 7.5 cents a share and committing $5 billion to buying back its own stock. Prior to this move, Bank of America was yielding just 1.6%, which is less than what the broader market. Shares of Bank of America are down 22% this year. Citigroup (C) was another bank investors were eager to see boost returns, and they got what they expected. The bank announced late Wednesday it was increasing its dividend to 16 cents a share, more than triple the 5 cents a share it paid in the first quarter. Prior to the dividend increase, Citigroup was yielding just 0.5%, the lowest of the major U.S. banks.

Since Bank of America and Citigroup’s yields were so low, those were the banks investors expected the biggest dividend increases from, says Erik Oja, analyst at S&P Global Markets. But Oja doesn’t expect most banks to boost dividends by as much as they might be able to. Wells Fargo (WFC), for instance, left its dividend untouched as it’s already yielding 3.3%, which is more than any other major U.S. bank. JP Morgan Chase (JPM) also didn’t increase its dividend but it did late Wednesday authorize a $10.6 billion stock buyback program. Oja says that the bank stress tests will likely get more challenging each year so the banks will not boost dividends too quickly.  “I expect they (the banks) will be very conservative,” he says.

General Electric Wins O.K. to Shed ‘Too Big to Fail’ Label

General Electric is no longer “too big to fail.” The conglomerate’s financial arm said on Wednesday that it had shed a government designation earmarked for the country’s biggest finance companies, one that imposes additional regulations. The announcement comes after an aggressive campaign by General Electric to sell off billions of dollars worth of assets in its GE Capital division, aimed at shrinking the lending business to the point where it could no longer pose a threat to the American financial system. Behind the move to lose the designation as a “systemically important financial institution” was a longstanding desire by G.E. to shrink and become more focused on its industrial roots. Moreover, GE Capital weighed heavily on the conglomerate during the financial crisis, as market upheaval hurt the lender’s ability to borrow. When the “too big to fail” designation came about with the passage of the Dodd-Frank financial regulation overhaul, owning a giant lending arm became viewed increasingly as a liability. The objective of the sell-off of GE Capital assets, which began in the spring of 2015, was to reduce the financial division’s size to much more manageable levels — and eliminate the heavy capital requirements and other regulations that the label imposes. “This decision is a result of the transformation of GE Capital into a smaller, safer financial services company that meaningfully contributes to the success of GE’s industrial businesses,” Keith S. Sherin, GE Capital’s chairman and chief executive, said in a statement. General Electric’s chairman and chief executive, Jeffrey R. Immelt, added: “Going forward, GE Capital will continue to be part of the ‘G.E. Store,’ supporting the growth of our industrial businesses.” More:

Shedding ‘Too Big to Fail’ Label Was Worth $50 Billion to G.E.

What is the cost of being labeled a systemically important financial institution? In the case of General Electric, the magic number looks to be about $50 billion. The American industrial conglomerate, led by Jeffrey R. Immelt, officially shook off the designation on Wednesday that had been applied by the Financial Stability Oversight Council to its GE Capital finance unit. The market capitalization benefits of reduced financial significance have been accruing for some time. The council, America’s top financial watchdog, made the designation three years ago, and the company decided to break the shackles in April last year. In what will go down as a swift exercise in dismantling a lending business, G.E. has jettisoned $200 billion of assets. It seems to have achieved the fire-sale pace while avoiding singeing shareholders with low prices. Since G.E. announced its plans to offload almost all of GE Capital’s assets – it is keeping a few operations involved in financing big-ticket items like energy turbines – the company’s stock has added about $5.25 a share, or roughly $50 billion in overall market capitalization. G.E.’s stock is up more than 20 percent, but the Standard & Poor’s 500-stock index has gone nowhere. Shares of United Technologies, with which G.E. competes in aerospace, are around 15 percent less valuable. There are other factors involved in G.E.’s performance, but escaping the “too big to fail” label is the biggest. As G.E. has rebounded, Morgan Stanley, Citigroup and Goldman Sachs have all lost more than 20 percent of their former value. Shedding the label would be harder for these institutions without breaking themselves up. But G.E.’s example offers 50 billion reasons their shareholders should do the arithmetic.

Drug and Device Makers Find Receptive Audience at For-profit, Southern Hospitals

Where a hospital is located and who owns it make a big difference in how many of its doctors take meals, consulting and promotional payments from pharmaceutical and medical device companies, a new ProPublica analysis shows. A higher percentage of doctors affiliated with hospitals in the South have received such payments than doctors in other regions of the country, our analysis found. And a greater share of doctors at for-profit hospitals have taken them than at nonprofit and government facilities. Doctors in New Jersey, home to many of the largest drug companies, led the country in industry interactions: Nearly eight in 10 doctors working at New Jersey hospitals took payments in 2014, the most recent year for which data is available. Nationally, the rate was 66 percent. (Look up your hospital using our new tool.) For the past six years, ProPublica has tracked industry payments to doctors, finding that some earn hundreds of thousands of dollars or more each year working with drug and device companies. We’ve reported how the drugs most aggressively promoted to doctors typically aren’t cures or even big medical breakthroughs. And we recently found an associationbetween payments and higher rates of brand-name prescribing, on average. Accepting even one inexpensive meal from a company was associated with a higher rate of prescribing the product to which the meal was linked, another study showed. This analysis shows profound differences among hospitals, but it’s uncertain why that is. It could be that hospitals play a role in shaping affiliated doctors’ acceptance of payments or that like-minded physicians congregate at particular hospitals. Those who support limits on such payments say patients may want to know how prevalent industry money is at a hospital before choosing it for care. “Maybe they’re prescribing or treating you as a patient not based on evidence but rather based on markets or industry gain or personal gain,” said Dr. Kelly Thibert, president of the American Medical Student Association, which grades medical schools and teaching hospitals on their conflict-of-interest policies. Patients, she said, “need to be aware that this could potentially be an issue and they need to speak up for themselves and their loved ones who may be in those hospitals.” ProPublica matched data on company payments to physicians in 2014 with data kept by Medicare on the hospitals with which physicians were affiliated at the time. We only looked at each doctor’s primary hospital affiliation and only at doctors eligible to receive payments in the 100 most common medical specialties. The payments included speaking, consulting, meals, travel, gifts and royalties, but not research. To be sure, the data is not perfect. Companies must report their payments to the federal government, and some doctors have found errors in what’s been attributed to them. Companies can face fines for errors, and doctors have a chance each year to contest information reported about them. Also, Medicare’s physician data may not capture doctors who do not participate in the program and it may not accurately reflect the status of doctors who have moved. (Read more about how we conducted our analysis.) As might be expected, hospitals with tougher rules, such as banning industry reps from walking their halls and bringing lunch, tended to have lower payments rates. For example, at Kaiser Permanente, a giant California-based health insurer that runs 38 hospitals, fewer than three in 10 doctors took a payment in 2014. Since 2004, the system has banned staff from taking anything of value from a vendor. “Our intent was to disrupt the strategy of using what industry calls ‘food, friendship and flattery’ to develop relationships with prescribers and influence the choice of drugs, the choice of devices, implants, things like that,” said Dr. Sharon Levine, an executive vice president of the Permanente Federation, which represents the doctor arm of Kaiser Permanente. “Passing a policy alone doesn’t make anything happen. There’s a fair amount of surround-sound in the organization around reminding people about this and reminding them why we took this step.” Levine said she believes many of the payments attributed to Kaiser doctors were for meals and snacks at professional meetings, even if they didn’t eat them. ProPublica’s analysis found distinct regional differences in comparing where industry payments were most concentrated. After New Jersey, the states with the highest rates of hospital-affiliated doctors taking payments were all in the South: Louisiana, Mississippi, Florida, South Carolina and Alabama had rates above 76 percent. At the other end of the spectrum, Vermont had the lowest rate of industry interactions (19 percent), followed by Minnesota (30 percent). Maine, Wisconsin and Massachusetts had rates below 46 percent. Some of these states had laws requiring public disclosure of payments to doctors that predated the federal government’s. More:


Why is Troy Professor Blasting RSA? (August 2015)

MONTGOMERY—Under the headline “RSA is a poor steward of our retirement resources,” Daniel J. Smith, an associate professor of economics at the Johnson Center at Troy University, recently took aim at the Retirement Systems of Alabama (RSA). Smith, a recent addition to the State, is making a name for himself by issuing dire warnings of the impending collapse of the retirement fund, warnings that RSA Chairman Dr. David Bronner has labeled “demonstrably false.” In the movie “All the President’s Men,” screen writer William Golden coined the phase “Follow the money.” No it was not Woodward or Bernstein. In all politics and policy, this is always a useful admonition. Daniel J. Smith’s seat at Troy University’s Johnson Center is funded by a Foundation backed by the ultra-conservative Charles and David Koch (pronounced Coke). Smith often cites a 2014 report by Eileen Norcross, M.A., for Troy University’s Manuel H. Johnson Center for Political Economy. Norcross is on staff at The Mercatus Center at George Mason University, which is also funded by the Koch brother as well other industrialists. The Mercatus Center is not an official part of George Mason University, but a 501(c)3 non-profit which is funded through donations, including corporate donations from ExxonMobil. This type of agenda-driven academia has become more prevalent with conservatives in recent years, with the Koch brothers alone having funded 163 universities (according to a report by the Center for Public Policy). Smith is fond of quoting other studies to support his gloomy predictions for the RSA. Recently, he wrote, “Three independent studies from the Alabama Policy Institute, Pew, and the Johnson Center agree that the RSA is disconcertingly underfunded.” Each group mentioned is heavily funded by those who oppose public pensions. More:

Black Warrior Riverkeeper intends to sue Drummond Co. over abandoned coal mine

The Maxine Mine near Praco, Ala. hasn’t produced coal since the 1980s, but conservation groups are looking to force Drummond Company to clean up the abandoned site, which they say continues to leak harmful pollutants into the Locust Fork of the Black Warrior River. Environmental group Black Warrior Riverkeeper — in coordination with legal groups the Southern Environmental Law Center and Public Justice — filed a formal notice of intent to sue Drummond under the Clean Water Act and the Resource Conservation Recovery Act on Wednesday, regarding pollution from the abandoned mine. The Riverkeeper says that acidic drainage from the underground coal mine continues to be discharged into the Locust Fork without an appropriate permit, and that tons of mining waste called geologic over burden has completely filled a tributary to the larger waterway. “Leaving this site without cleaning up piles of mining waste and polluted sediment, and without taking appropriate measures to stop the flow of acid mine drainage from the basins and ditches left behind is simply unacceptable,” Barry Brock, senior attorney at the Southern Environmental Law Center said in a news release. “Until the ongoing pollution at the Maxine Mine site is adequately addressed, it continues to pose a threat to water quality, and the communities and wildlife in the area that depend on clean water.” In addition to those issues, the Riverkeeper group says a dam which is currently holding back piles of mining waste is deteriorating and could breach, which would release large amounts of pollutants into the Locust Fork, one of the main tributaries of the Black Warrior River and a popular area for fishing, boating and other forms of outdoor recreation. Messages left requesting comment from Drummond Co. were not immediately returned Wednesday. To address the ongoing pollution and storage of coal mine waste on the Locust Fork, the groups are seeking removal of the mining waste, excavation and/or remediation of contaminated streams, and any other appropriate measures by Drummond to immediately stop all illegal discharges at the site. “Polluted water from Maxine Mine’s old underground mine and coal waste piles has been flowing into the Locust Fork of the Black Warrior River for far too long,” said Nelson Brooke of Black Warrior Riverkeeper. “The acidic runoff at this long-ignored site is laden with high concentrations of heavy metals unfit for fish and aquatic wildlife and human health.” The groups’ claims include violations of the Clean Water Act through ongoing discharges of pollutants into the Locust Fork and its tributaries, and illegal stream filling; and violations of the Resource Conservation and Recovery Act for improper management of solid wastes. A news release from Black Warrior Riverkeeper calls the Maxine Mine site “one of the worst of hundreds of abandoned mines in the Black Warrior basin, many of which continue to degrade streams and contaminate groundwater with unpermitted discharges containing high levels of sediment, heavy metals such as iron and aluminum, and other pollutants.” The full text of the Riverkeeper’s letter to Drummond is embedded below.  Black Warrior Riverkeeper files notice of intent

Shannon Waltchack buys The Shops at the Colonnade

The Shops at the Colonnade, a retail property at the intersection of U.S. 280 and Interstate 459, has a new owner. Colonnade Partners LLC, a partnership led by Birmingham firm Shannon Waltchack, announced it has purchased the property. Financial terms of the deal were not disclosed. The Shops at the Colonnade is an 18-acre,127,000-square-foot retail center with tenants such as Cracker Barrel, Taziki’s Mediterranean Cafe, Edgar’s Bakery, Gold’s Gym and many others. “We have invested in the immediate area of the Colonnade for the last 15 years and have had our eye on the Colonnade for quite some time. It’s a prime location for consumers, convenient to many office buildings, neighborhoods and surrounding shopping,” said partner Andrew Patterson, in a press release. “This is a significant purchase for our firm, and we are excited to be the new owner of this fantastic Birmingham asset.” Shannon Waltchack has previously announced a few other projects in the area, including a 20,000-square-foot mixed-use building on Blue Lake Drive. The Shops at the Colonnade sits at the center of one of Birmingham’s biggest growth areas. More:


Brexit is a net plus, and George Will can’t leave

All the hyperventilating surrounding last week’s Brexit vote has probably overstated the impact of the decision and mostly overlooked the political dynamics that produced the voter dissatisfaction in the first place. Two news articles from The Post perfectly illustrate the state of governance in the United Kingdom that made voters pull the trigger in the first place. First, Rick Noack detailed how, following Brexit, the county of Cornwall, located in southwestern England, stands to lose approximately 60 million pounds in E.U. subsidies — an “investment” that keeps the municipality afloat. Noack explained the sad state of things in Cornwall, stating that, “the county with more than 500,000 inhabitants is considered one of Britain’s poorest regions, and experts say further funding cuts could be catastrophic.” Next, The Post’s Max Ehrenfreund wrote that, “the people who will suffer the most severe impact of Brexit don’t live in the U.K.” The most vulnerable victims of Brexit are those who could lose British foreign aid as a result of the vote changing the E.U. foreign-aid formulary under which Britain must give, Ehrenfreund wrote. He went on to explain that Great Britain “has committed to spending 0.7 percent of national income on foreign aid — about 12.2 billion pounds.” Ehrenfreund gives the specific example of Ethiopia, which received 322 million pounds from the U.K. in 2014, or about 0.8 percent of Ethiopia’s economy, and argues that this money is now at risk. Well, let’s think about that. Let it sink in. Cornwall, which is located in the U.K., may lose its E.U. subsidy — and the U.K. might stop shipping some of its money to Ethiopia. Do you suppose British subjects in Cornwall wonder why they have to depend on a subsidy from the E.U. in Brussels while their government in London is sending more than five times that amount to Ethiopia? Maybe U.K. voters would prefer that Cornwall look to London for assistance and Ethiopia could take a haircut on what they receive from British taxpayers. It makes sense that British voters would want these decisions made by their government in London. Do you think any British politician has campaigned on a promise to secure subsidies from the E.U. while simultaneously pledging an increase in the amount of British money that would be sent to foreign capitals? Probably not, but this is what has become of life in the E.U.: Contorted logic, indefensible regulations and unaccountable bureaucrats doing things no reasonable, accountable British politician would agree to. The madness had to stop before it was too late. The status quo had to be disrupted. And that is the lesson for our political leaders in the United States. Those who defend the status quo are in peril. To state the obvious, the Democrats have nominated the most status quo-friendly candidate ever in Hillary Clinton. With all due respect to Fleetwood Mac, her campaign song should be “Don’t Stop Thinking about the 90’s.” Both she and President Obama weighed in as opponents of change in Great Britain, underestimating what British voters wanted. They wanted change, 2016 will be a change election, and Clinton embodies more of the same.  It’s not a good place to be. That said, George Will does us all a favor by putting the Brexit vote in perspective. He reminds us that doomsday predictions before the vote were “warning that Britain, after more than a millennium of sovereign existence, and now with the world’s fifth-largest economy, would endure myriad calamities were it to end its 23-year membership in the E.U.” – predictions that he says ignored that voters would want to choose “the optimism of Brexit . . . when Brussels no longer controls 60 to 70 percent of the British government’s actions.” Speaking of Will, I do not accept his resignation from the Republican Party. Will doesn’t want to be part of a political party lead by The Donald, and he is not alone. Suffice it to say, Donald Trump has not embraced his new role as leader of the Republican Party, and there is a case to be made that Trump doesn’t want to be leader of the party. But the bottom line is that people who care about the issues do not have to abandon the party to escape Trump’s leadership, or lack thereof. In fact, we need them to stay. Over the weekend, it was revealed that Rep. Mia Love (R-Utah) will not participate in or even attend the GOP Convention in Cleveland, along with many other Republican leaders who are skipping the whole thing. But Love is a great symbol for the Republican Party’s “big tent” appeal, and her absence says a lot. If Trump were truly the leader of our party, he would have done everything he could to ensure her participation. He would have personally called her and convinced her to participate. Did he do so? I doubt it. Likewise, if Trump were really leading the party, he would be aggressively raising the money the party needs for the fall campaigns. If he wanted to lead the party, he would not be hawking his private business ventures during the campaign. The fact that he does so, and does not care what criticism those running with him on the ticket must face as a result, means he doesn’t really care about embracing the party leadership role that traditionally comes with the nomination to be president. So let’s accept that Trump isn’t the leader of the GOP. He doesn’t care. Why shouldn’t we decouple support for the party and the candidates who uphold our party’s values from his candidacy? Since he doesn’t want to lead the party, no one should try to make him. The nominee for president does not have the be the leader of the party if he doesn’t want to be. We need substantive, clear thinkers like Will to stick around and articulate to a wider audience what I’m trying to say. George Will and others like him need to stand up and show us how we can still be loyal Republicans without accepting Trump as party leader. We need to give Republicans who don’t support Trump a way out that minimizes damage to our other candidates this election cycle. Don’t give up Will, we need you.

Morning Money

HEDGE FUND TITAN RIPS TRUMP — Paul Singer, one of the heaviest hitting GOP donors in the hedge fund world, has made it clear in the past he’s not fan of Donald Trump. But at Aspen Ideas on Wednesday he took things much further. According to a CNBC account of his remarks, the Elliott Management head said of Trump: “The most impactful of the economic policies that I recall him coming out for are these anti-trade policies … And I think if he actually stuck to those policies and gets elected president, it’s close to a guarantee of a global depression, widespread global depression.”

Singer’s evisceration of Trump will get noticed by other Wall Street donors. Several hedge fund execs emailed MM on Singer’s comments on Wednesday to suggest that they would keep a number of fence sitters off the Trump train for good. It’s one thing to quietly decline to back Trump or even give money to the Stop Trump movement. It’s quite another to suggest the presumptive GOP nominee could crush the world economy.

MM MAIL BAG, IVANKA EDITION — Lisa Rice emails: “It was interesting to read today’s MM and references to Trump and his wavering stances on outsourcing. Just wanted to note that, while shopping at Tyson’s Corner this weekend, every single item that I looked at with an Ivanka Trump tag was made in China.”

FTSE REBOUNDS FROM BREXIT — FT’s Dave Shellock: “Another day of stabilisation in global markets saw UK blue-chip stocks recover all the losses incurred after last week’s shock EU referendum result and sterling briefly rally back above the $1.35 level against the dollar. …

“On Wall Street, the S&P 500 index returned to positive territory for the year as Brent oil regained the $50 a barrel mark, while German government bonds were steady — and the dollar and the yen retreated — as a Brexit-fuelled ‘flight to safety’ abated”

ASIA RISES — Reuters: “Asia stocks rose across the board on Thursday, tracking an overnight rally on Wall Street, while the safe-haven Japanese yen stopped rising as global markets regained a semblance of calm after last week’s Brexit shock. …

“Following the market’s initial panic over Brexit, ‘it doesn’t look like it is spreading to a financial crisis or something serious, at least at this moment,’ said Hikaru Sato, senior technical analyst at Daiwa Securities in Tokyo”

STRESS TEST SUCCESS — From a senior Wall Street exec: “Seems like the Fed is finally at the point where they can turn the page on the stress tests. They’ve forced banks to more than double the amount of capital they had and dramatically reduce leverage. They deserve a lot of credit for the work they have done to make the system much more resilient.

“Contrast Europe where banks look severely undercapitalized and can’t provide support just when the economy there needs it most. Might be time for Dan Tarullo to head to Frankfurt or Brussels!”

EXPERTS HIT TRUMP TRADE — POLITICO’s Adam Behsudi and Doug Palmer: “Some of … Trump’s biggest applause lines come when he’s threatening to scrap free-trade agreements or block Chinese goods from U.S. markets. But American global economic relationships are now so complicated — and deeply intertwined — that many economists insist his goal of saving manufacturing by shutting open markets will backfire.

“In an era when a single car can cross between the U.S. and Canada a half-dozen times before it’s completely built, working-class jobs in one country now depend on those in another. Critics of the seven-point trade plan Trump unveiled in front of a Pittsburgh aluminum plant this week say he’s hearkening back to a time before technology eroded jobs and made it easier to jump borders”

GE GETS OUT FROM UNDER SIFI TAG — NYT’s Michael J. de la Merced: “General Electric’s lending arm is no longer ‘too big to fail.’ The conglomerate said on Wednesday that its GE Capital unit had shed a government designation for the country’s biggest finance companies, one that imposes additional regulations and capital constraints.

“With the declaration that GE Capital was no longer a threat to the nation’s financial stability — or, what regulators call a ‘systemically important financial institution’ — G.E. has completed a roughly yearlong quest to sell nearly $200 billion of assets and shrink what had been the engine of its profit for decades”

Main Street Growth Project’s Kyle S. Hauptman emails: “While it’s good to see that a company can actually shed the SIFI label, this decision doesn’t mean the process is transparent enough. The whole thing reminds me of China’s internet restrictions, in that since the government doesn’t spell out exactly what the parameters are, people do more than is required. This isn’t the kind of regulatory regime Americans deserve.”

STRESS TEST WRAP — Via Cap Alpha: “The Fed failed the U.S. units of Deutsche Bank and Santander for the second straight year in the CCAR stress tests … Regional bank M&T passed after changing its plan, and Morgan Stanley received conditional approval to increase payouts, but must resubmit its capital plan by the end of the year. … Overall, the Fed gave the banking sector, especially the largest lenders, a thumbs up. None of the banks had their capital plans rejected on quantitative grounds, essentially a strong endorsement of their financial condition …

“But these tests are still tricky for even the biggest banks. Morgan Stanley ‘exhibited material weaknesses in its capital planning process,’ the Fed said. These weaknesses warrant further near-term attention but do not undermine the quantitative results of the stress tests for the firm. … The qualitative part of the tests is still a big challenge for foreign banking firms.”

Fed CCAR release: “U.S. firms have substantially increased their capital since the first round of stress tests led by the Federal Reserve in 2009. The common equity capital ratio — which compares high-quality capital to risk-weighted assets — of the 33 bank holding companies in the 2016 CCAR has more than doubled from 5.5 percent in the first quarter of 2009 to 12.2 percent in the first quarter of 2016. This reflects an increase of more than $700 billion in common equity capital to a total of $1.2 trillion during the same period.”

GUESS WHO WROTE THIS OP-ED about Pat Buchanan in 1999: “It’s time to stop patting Patrick J. Buchanan on the head and dismissing him as a good-hearted eccentric. It’s time to start taking this man seriously as a political threat. … He not only is seeking to rewrite history but to have his shabby and dangerous views ratified by popular vote. … On slow days, he attacks gays, immigrants, welfare recipients, even Zulus. When cornered, he says he’s misunderstood …

“Buchanan is rewriting history and spreading fear for one purpose: To gain political power. That makes him a very dangerous man. Unfortunately, Buchanan is very much with us. He has remained a major media presence throughout these scandals, and he has high hopes of hijacking the Reform Party presidential nomination.” If you guessed Donald Trump, you’d be right!

HOT CLICK: WHARTON BUDGET TOOL — The Wharton School of the University of Pennsylvania “launched the Penn Wharton Budget Model, a new interactive economic model that allows lawmakers … to analyze how different policy proposals will impact the U.S. economy, all free and from the tap of a smartphone or tablet.”

EU TO UK: NO SWEETHEART DEAL — FT’s Alex Barker, Jim Brunsden and Guy Chazan: “Europe’s leaders have dug in their heels over uncontrolled migration in the single market, scotching UK hopes for a favourable deal in a direct snub to prime minister David Cameron’s plea to recognise British voters’ concerns. The move to damp Westminster expectations to curb free movement came after the EU’s remaining 27 members met in Brussels for the first time without the UK ..

“‘There will be no single market à la carte,’ said Donald Tusk, the EU Council president, as the group met to set out the terms of engagement for any divorce talks following the Brexit referendum. Diplomats said the joint statement was deliberately toughened up after Mr Cameron said he would have avoided Brexit if European leaders had let him control migration”

SPERLING ON TRUMP TAX PLAN — Gene Sperling in HuffPo: “Earlier in the campaign, Trump boldly tried to distance himself from Republican orthodoxy on cutting taxes even for the most well-off Americans, by stating that ‘hedge fund managers get away with murder’ when it comes to taxes and the very well-off like himself ‘will pay more.’ … After receiving some initial media praise for his proposals, follow-up news reports started to explain that this proposal might be more of a nothing-burger: some in the press started to report that hedge fund and private equity managers receiving carried interest income would in fact see their rates raised from 23.8 percent to only 25 percent — Trump’s stated top income rate.

“But even here, too many failed to read the finer print that revealed that Trump’s tax plan called for virtually all business income — even outside of corporations — to be taxed at only a 15 percent rate. This would apply to any and all ‘business income’ ranging from so-called Schedule C income to S-Corp income to partnership income.”

CLINTON HOPES TO SHIFT THE MAP — POLITICO’s Gabriel Debenedetti: “Wisconsin is out. North Carolina is in. When President Barack Obama and Hillary Clinton take the stage for their symbolic joint rally on July 5, it will send a subtle but unmistakable signal about the evolving outline of the swing state map.

“By announcing Wednesday that the rescheduled event will take place in Charlotte, North Carolina, rather than Green Bay, Wisconsin — the original plan several weeks ago — the presumptive Democratic nominee’s campaign telegraphed that it sees newfound promise in a battleground state that narrowly rejected Obama in 2012”

CHINA BOUNCING BACK? — Via Political Alpha: “Our friends at China Beige Book have shared with us a handful of key highlights from their new Q2 2016 advance data … In the aftermath of the Brexit vote, this represents some welcome macro news. Major points include the following: Q2 growth bounced back following two very weak quarters. This represents clear on-quarter improvement that more closely resembles growth and labor market levels from a year ago.”

LEW ON GE CAPITAL — “Today’s decision clearly demonstrates that the Council’s designation of nonbank financial companies is a two-way process. The Council will remove a designation when that company no longer poses risks to U.S. financial stability … The Council follows the facts: When it identifies a company that could threaten financial stability, it acts; when those risks change, the Council also acts.”

“The Council’s rescission of GE Capital’s designation is the result of a methodical analysis of risks that is in keeping with the law and the lessons of the financial crisis. The Council designated GE Capital in 2013 after identifying a number of key concerns, including the company’s reliance on short-term wholesale funding and its leading position in a number of funding markets. Since then, GE Capital has made fundamental strategic changes”

OBAMA: TRUMP TRADE WOULD HIT US WORKERS — POLITICO’s Nolan D. McCaskill: “Obama on Wednesday took not-so-subtle swipes at Donald Trump’s trade views, suggesting that the real estate mogul’s anti-trade views would make America poor. The presumptive Republican presidential nominee on Tuesday stood in front of a heap of garbage and trashed U.S. trade deals … Obama on Wednesday said everyday Americans are right to have concerns over trade … The prescription, Obama said, isn’t to withdraw from trade deals, and nation’s focusing only on their local markets is the wrong medicine.

“‘First of all because it’s not feasible, because our auto plants, for example, would shut down if we didn’t have access to some parts in other parts of the world,’ he said. ‘So we’d lose jobs, and the amount of disruption that would be involved would be enormous. Secondly, we’d become less efficient. Costs of our goods in our own countries would become much more expensive.’”

PUERTO RICO BILL HEADS TO OBAMA — POLITICO’s Colin Wilhelm and Seung Min Kim: “With a day to spare, the Senate passed a bill to rescue Puerto Rico from a $73 billion debt crisis, sending it to President Obama’s desk to be signed into law before the commonwealth defaults on Friday. The final vote was 68 to 30.

“Following a Wednesday morning cloture vote of 68-32, lawmakers objecting to the measure, particularly Sens. Bob Menendez (D-N.J.) and Bernie Sanders (I-Vt.), continued to push to amend or replace the bill. That push yielded a vote on a motion to table the legislation to clear the way for amendment votes and a budgetary point of order from Sanders, who wants to scrap the bill and have the Fed … bail out Puerto Rico.”

FED GIVES BANK BIG BLESSING — WSJ’s Ryan Tracy and Donna Borak: “Overall, the 2016 stress tests reflect the Fed’s view that the banking sector is much stronger than it was leading up to the 2008 bailouts. … The changes have forced banks to fund themselves with less borrowed money and more investor funds, such as common equity that can’t flee when market turmoil strikes, and many analysts said those changes helped contain the damage from the Brexit market rout.

“The stress-test result could prove a tonic for bank stocks, which have been wilting of late. Falls in long-term bond yields earlier this month promised to further pressure profits, and additional declines following the Brexit vote made the outlook worse. Fears of a hit to global growth after the U.K. vote, along with the prospect of market turmoil, cast an even darker cloud over banks”