All is not Wells

MARKETS

• U.S. markets: Stocks ended the week on a down note, especially tech. Apple dropped 4.1% after an analyst said iPhone sales would come in lower than expected. The stock is now negative for the year.
• Crypto: Bitcoin is back to pushing $9,000, and some altcoins are doing even better.
• Notable earnings today: Alphabet, Halliburton, Hasbro.

REGULATION

Wells Fargo Fined $1 Billion

Wells Fargo is whipping out its phone to Venmo the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) about $500 million each.

What happened this time? The bank is settling federal claims against its auto and mortgage lending businesses. For years, it sold unnecessary insurance policies to customers in addition to charging extra fees.

We know, it's not great. Which is why the Trump administration steamrolled Wells with its largest fine to date.

Wells Fargo has had others?

That's right. At this point, Wells Fargo might as well change its colors from red and yellow to black and blue.

• In 2016, it was fined $185 million for opening 3.5 million new accounts without customers' permission. Seeing a trend here?
• In 2017, regulators downgraded its CAMELS score—a bank's risk score card that determines how much it pays in insurance premiums and how closely it's regulated.
• Earlier this year, the Fed capped Wells Fargo's AUM at last year's total ($1.95 trillion). And let's just say, it's not great being a business that can't grow...

But Wells brought this on itself

For years it built up a culture where upper management set unreachable goals for sales reps. And some say it left employees with a tough choice: impress the boss by meeting new account quotas, or risk losing your job.

From one worker in 2013: "We were constantly told we would end up working for McDonald's if we did not make the sales quotas ...we had to stay for what felt like after-school detention, or report to a call session on Saturdays."

The Crew's take: (1) The Trump administration's $1 billion fine shows it's not afraid to crack down on big banks (2) Wells has paid its dues and is taking steps forward.

+ Top quote: "At best you were incompetent, at worst you were complicit. Either way you should be fired."—Senator Elizabeth Warren to CEO Timothy Sloan in 2017.

+ The piece that started it all: LA Times in 2013.

EARNINGS

Yearning for an Earnings Recap

The only thing more complex than the Westworld Season 2 premiere is making sense of earnings season. So let's clear things up with 3 major storylines.

• Big banks loved the tax cut: The six big Wall Street banks saved $3.6 billion thanks to the tax cut, per the AP. JPMorgan paid an 18.3% tax rate and Goldman paid 17.2%.
• GE downsizes: The Dow's favorite punching bag didn't have any more bad news to share, and is adjusting to life as a mini version of itself. CEO John Flannery expects the company to earn $5-10 billion from asset sales this year.
• All eyes on Facebook: On Wednesday, we'll find out how its finances weathered the Cambridge Analytica scandal. Facebook's stock is down 10% since the news, while Zuck vs. Congress memes have surged 40%.

And the rest of the week is a doozy: Get ready for Alphabet, Microsoft, Amazon, Boeing, ExxonMobil, PayPal, and so many more (see below for the full calendar).

MANAGEMENT

Buffett Leaves Kraft Heinz Board

After five years, Warren Buffett will pack up his briefcase today and step down from Kraft Heinz's board. And even though he had a good run, Buffett's leaving at a critical time: since Unilever rejected its $143 billion takeover bid, Kraft Heinz stock is down roughly 35%.

Krafting a picture of Heinz

Ketchup: Berkshire still owns ~27% of the food conglomerate, so Buffett will still have a say. The other major shareholder? 3G Capital, run by Brazil's richest man, Jorge Paulo Lemann.

Mustard: Kraft Heinz has struggled to innovate, not bringing nearly enough new products to market. Instead, it's been aggressively cutting costs to boost margins to 30%.

Relish: Buffett and Lemann are close friends, but have two wildly different personalities. Buffett is the easygoing, patient dealmaker who amicably retreated from Unilever when it wasn't interested. Lemann is the cut-throat, come-for-your-board and leave-with-your-shares type of dealmaker.

Translation? Some say with Buffett off the board, 3G Capital will look towards other aggressive acquisitions. Mondelez and PepsiCo could be targets.

TECH

ZTE Desperately Tries to Make Things Right with the U.S.

After getting banned from doing business with American companies for seven years, Chinese telecom equipment maker ZTE is hoping to smooth things over with the U.S...

...not that it has much of a choice. An analyst told Bloomberg: "Even if this doesn't kill them, ZTE will be half-dead." After all, it's hard to put together a respectable smartphone without chips from Qualcomm or operating systems like Android.

Why ZTE is in a pickle: It pleaded guilty to shipping American tech to Iran, which violated U.S. sanctions. Then, it didn't fully comply with the terms of its punishment, wasn't particularly truthful about it, and the U.S. called its bluff.

Now, ZTE is scrambling to make things right:

• It established a compliance committee directly under the CEO.
• ZTE "has continuously reflected on lessons from its past experience" and "will not give up its efforts to resolve the issue."

It's unclear if the U.S. will accept ZTE's mea culpa. But there appears to be some progress: it has allowed ZTE to submit more evidence

WHAT ELSE IS BREWING

• The U.S. is investigating AT&T and Verizon for possibly colluding to make it tougher for customers to switch wireless carriers (NYT).
• Southwest Airlines is sending a $5,000 check and a $1,000 travel voucher to passengers on last week's fatal flight.
• Walmart could buy a controlling stake in Flipkart to battle Amazon in India as early as this week, per Reuters.
• Flickr is hoping life will be better under a new parent company. SmugMug bought the image hosting website from Oath.
• The one thing Jeff Bezos left out of his annual letter to shareholders (Morning Brew).

WATER COOLER

A CLOSER LOOK

Having trouble staying up-to-date in every industry? We got your back.

Here's a pro tip: when global politics starts to resemble a high-stakes game of Risk, you know it's time to check in on oil prices.

Just checked in. Oil is surging.

• Supply cuts instituted in 2016 by Russia, OPEC, and other major producers appear to be working. On Friday, they said those cuts could extend into 2019, capping a run that pole-vaulted Brent crude (the global benchmark) above $74.
• Geopolitical tensions in the oil-rich Middle East, where the U.S. recently led a bombing strike, are also driving prices higher.

How it affects you: You're paying more at the gas pump. On Friday, the average price for a gallon of regular was $2.75—up 33 cents from last year (AAA). And the president is taking notice. Like many presidents before him, he took aim at OPEC. Unlike other presidents, he did it on Twitter.

The backdrop: The power dynamics in oil are changing, and the U.S. is on the rise. Thanks to the shale boom, it'll account for 80% of global supply growth over the next decade.

THE BREAKROOM

PRODUCTIVITY TIP
Write memos instead of using PowerPoint—courtesy of Jeff Bezos. Amazon employees write "narratively structured six-page memos," which all meeting participants read silently before it kicks off. Yeah, it's pretty strange, we know. Even Bezos admits it's the "weirdest meeting culture you will ever encounter."

But here's the point: Because everyone in the room will read the memo, the writer will take plenty of time (sometimes weeks) producing the best work possible. That'll "set up the meeting for a high-quality discussion."

THE WEEK AHEAD
Monday: Earnings (Alphabet, Halliburton), 23rd Annual Sohn Investment Conference

Tuesday: Earnings (Verizon, Coca-Cola, 3M, Lockheed Martin, Caterpillar)

Wednesday: Earnings (Facebook, Visa, AT&T, Boeing, Comcast, GSK, PayPal, Chipotle)

Thursday: Earnings (Amazon, Microsoft, Intel, Shell, PepsiCo, GM), Take Your Child To Work Day

Friday: Earnings (ExxonMobil, Chevron, Sanofi), New Orleans Jazz Fest

TRIVIA
Which one of these business magnates was not on Time’s 100 Most Influential People list for 2018?

Jeff Bezos, Tim Cook, Oprah Winfrey, Satya Nadella

(Answer located at bottom of newsletter)

Breakroom Answers