Shrinkage

MARKETS

• Jobs report: It provided a nice accompaniment to fireworks. Manufacturing was a bright spot as the U.S. economy added a higher-than-expected 224,000 jobs in June.
• Iran: The country's officials are treating aspects of the 2015 nuclear deal like a speed limit in Montana. Iran said it will boost uranium enrichment beyond agreed-upon levels.
• Sovereign debt: For the first time ever Thursday, France issued a 10-year bond with a negative yield. There’s now a pile of over $13 trillion in negative-yielding debt as investors anticipate more stimulus from central banks.

BANKING

Deutsche Bank Rips Off the Band-Aid

Deutsche Bank, once the pride of European lending, is being reduced to a scooped out bagel. CEO Christian Sewing announced a seismic restructuring plan Sunday intended to boost profitability at the expense of the bank’s ambitions to compete on a global scale.

Where you can expect shrinkage

• The business units: DB will ditch its global equities sales and trading business entirely by 2022. It’ll also cut back on investment banking activities, which account for about half of revenue.
• The jobs: About 18,000 jobs will be eliminated by 2022, many of which are expected to be in NYC and London. Also on the way out are executives like the head of retail banking and the investment banking chief.
• The jobs: About 18,000 jobs will be eliminated by 2022, many of which are expected to be in NYC and London. Also on the way out are executives like the head of retail banking and the investment banking chief.
  The cost of the plan: DB will take an estimated $3.1 billion net loss in Q2 and a total charge of $8.3 billion by the end of 2022.

Deutsche Bank will also establish a “bad bank,” aka a separate unit to store more than $300 billion of high-risk assets before they’re wound down or sold.

Then and now

Deutsche Bank had volunteered as Europe’s tribute to Wall Street, eager to spar with New York's banking heavyweights on the global stage. But under the bright lights, it forgot its lines and wet its pants. DB suffered from years of scandal, regulatory scrutiny, a plummeting stock price, and brutal competition...so it's back to community theater.

• The restructuring means DB is returning to its bread-and-butter of 1) serving European corporate clients and 2) retail banking in its home country of Germany.
• It’s identified asset management, currency trading, and trade finance as potential growth areas, per the WSJ.

Bottom line: Sewing said the plan is “the most fundamental transformation of Deutsche Bank in decades,” but it also represents one of the most significant transformations of the entire banking sector since the financial crisis.

2020

The Essence of the Essence Festival? The Racial Wealth Gap.

Using her time in New Orleans more productively than 99% of visitors, Democratic presidential candidate Kamala Harris introduced a $100 billion program to shrink the racial gap in homeownership.

Harris revealed the proposal at the Essence Festival, an annual, mostly musical event geared toward black women. The details:

• The government would give grants of up to $25,000 to help black families living in districts that have been historically redlined.
• Redlining is the discriminatory lending practice of denying loans to certain neighborhoods because they're home to mostly minority residents.

Zoom out: Home ownership is considered a meaningful way to generate wealth. And according to a Harvard University study, in 2017 the black homeownership rate was 43%. The white homeownership rate was 72%.

While we’re here...other 2020 hopefuls were also slinging policy plans like they were Mardi Gras beads this weekend. Cory Booker talked about his proposal to give every U.S.-born child a savings account.

+ Want to learn more about housing segregation? Read Richard Rothstein’s book The Color of Law.

TRANSPORTATION

Five Things We Learned About Amtrak

Source material: A WSJ report on Amtrak’s (somewhat) new boss, Richard Anderson.
1. Over the next year, Amtrak expects its annual adjusted operating loss will shrink to zero, something the passenger railroad’s never before accomplished.

2. Not all routes are created equal. Amtrak’s big moneymaker is the Northeast Corridor between Boston and D.C., where the speedy Acela line brought in $319 million in adjusted earnings alone last fiscal year. But Amtrak lost over half a billion on its 15 long-distance trains during the same time.

3. As you can see on the map, there is a route (called the Southwest Chief) that runs between Chicago and Los Angeles. Anderson has signaled he wants to alter routes like the Southwest Chief, but some lawmakers are pushing back, arguing those trains are the only viable long-distance transportation option for rural residents.

4. Anderson used to be the CEO of Delta Air Lines, where he was known for loving confrontation.

5. This may frustrate many of you, but to trim costs, Anderson scrapped a plan that would improve wi-fi service along the Northeast Corridor.

STARTUP

Venture This: Shotty Top Bunk

Welcome to “Venture This,” where we introduce you to a startup generating buzz. Then you decide: would you invest?

When you’re having trouble sleeping at night, direct your thoughts to the customers of PodShare, a “co-living” company renting out bunk beds for up to $1,200 a month. PodShare is responding to the California housing crunch in a drastic way, offering 220 beds across five hostel-esque locations in LA and, most recently, one in San Francisco.

• What comes included at PodShare Venice: Showers with toiletries, some food, wi-fi, computers, a hammock, and stimulating pillow talk.
• What’s not included: Any privacy or the ability to bring in non-registered guests.

The company’s website describes its ethos. “Millennials don’t own a gym at home, they buy a membership. We don’t subscribe to cable television, we watch Netflix. We don’t buy CDs we stream music. American car sales are on the decline because we Lyft or Uber. ”

Now we throw it to you. Does PodShare make...any sense at all? Would you invest? Vote here.

CALENDAR

The Week Ahead

Last week, Southern California experienced several earthquakes along fault lines and foul lines. Dear tectonic plates and the NBA: This week, let’s take it easy.

Monday: National Pretend You Care What Coworkers Did For July Fourth Day; MLB Home Run Derby

Tuesday: Small business optimism; earnings (Levi’s, PepsiCo)

Wednesday: Jerome Powell begins two days of testimony on the Hill; Fed minutes; wholesale trade data; earnings (Bed Bath & Beyond)

Thursday: CPI inflation data; Treasury budget; earnings (Delta Air Lines); get a brain freeze with a free Slurpee from 7-Eleven

Friday: Producer price index

WHAT ELSE IS BREWING

• Billionaire fund manager Jeffrey Epstein was arrested on sex trafficking charges related to his alleged abuse of minors for over a decade. He’s expected to appear in federal court on Monday.
• Boeing said that Saudi airline flyadeal canceled a provisional order for 30 737 Max aircraft.
• Mad magazine, which hit a circulation peak of 2.8 million in 1973, will stop printing new material.
• Chris Cline, a West Virginia coal magnate, died in a helicopter crash in the Bahamas.

BREAKROOM

Greater Than or Less Than

1. Xerox stock year-to-date performance // Microsoft stock year-to-date performance
2. Average monthly job growth in 2019 so far // Average monthly job growth in 2018
3. Distance from NYC to London // Length of the Nile river
4. Number of Bed Bath & Beyond stores // Number of Nordstrom stores

Breakroom Answers

Greater than. Xerox stock is up over 80% in 2019.
Less than. At 172,000 jobs created/month, 2019 is a step behind the 223,000 jobs/month created in 2018.
Less than. The Nile is longer than the distance from NYC to London.
Greater than. There are less than 400 Nordstrom locations while Bed Bath & Beyond has over 1,000.