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Wells Fargo Is About to be Hit With $1 Billion Fine: DealBook Briefing

Credit...Matt Rourke/Associated Press

Good Thursday. Here’s what we’re watching:

• Regulators are about to hit Wells Fargo with a $1 billion penalty.

• The European Union is prepared to offer some trade concessions.

• Two big drug makers have shown interest in bidding for Shire.

• How the Time Warner C.E.O. did on the stand yesterday.

• Dates to watch in the U.S.-China trade fight.

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Regulators are about to hit Wells Fargo with a $1 billion penalty, according to a report by our colleagues Emily Flitter and Glenn Thrush. The action, and the wide range of misdeeds at the bank, is a sobering reminder of how much can go wrong beneath the surface at a company with a strong reputation.

The basics:

• It would be the most stringent action taken against a bank by the Trump administration.

• The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency are the regulators levying the penalty. Notably, the bureau is led by Mick Mulvaney, who wants the agency to take a softer approach toward the financial industry.

• The action is said to punish Wells Fargo for forcing customers to buy auto insurance they didn’t need, improperly charging mortgage customers and for having inadequate compliance practices.

The misdeeds at Wells Fargo showed that the bank’s sales culture had degraded. Bank employees, eager to meet sales goals, had been opening accounts for customers without their consent. Other misdeeds were revealed as well.

The scandals were particularly surprising because Wells Fargo, with its focus on traditional lending, was widely viewed as a worthy alternative to the Wall Street-focused institutions at the center of the financial crisis of 2008. Wells Fargo’s steady revenue growth and its habit of invariably beating earnings forecasts lulled investors into a false sense of confidence and led them to pile into Wells Fargo’s stock.

Given that the misconduct of the bank’s sales force mostly took place in the lower ranks and did not lead to large immediate losses, it was hard for outsiders to detect the misdeeds. Regulators eventually acted when evidence of the misconduct trickled out. The $1 billion penalty brings some closure. But the lingering lesson of the Wells Fargo scandal is that abuses can go on for a long time at large, hard-to-police banking institutions.

— Peter Eavis

Critics’ corner

The NYT’s James Stewart has been “a harsh critic of Wells Fargo’s previous management for fostering a culture of rule-breaking and customer abuse, and for marginalizing as disloyal and even firing anyone at the bank with the courage and integrity to try to stop the illegal practices.” But with the new fine, he writes: “Even I have to wonder: Has Wells Fargo been punished enough?”

Now would not seem like the ideal to start a venture capital firm that aims to help U.S. start-ups break into the Russian market, given the political tensions between the two countries.

But Fort Ross Ventures is making a go of it.

The firm said on Thursday that it has opened for business in the U.S. with a $200 million fund, its second, for investing in a variety of industries, from A.I. to fintech. And it has hired a veteran of Silicon Valley, Anurag Chandra, to help in that mission.

Victor Orlovski, Fort Ross’s founder and managing partner, said in an interview that the current state of U.S.-Russian political relations should not affect his firm’s ability to operate. Declining to comment on politics broadly, he said that Russia — which remains one of the biggest markets for apps worldwide — will remain a compelling destination for start-ups.

“The nature of start-ups is all about risk,” he said. “There is a political tension, but not when you’re talking to start-ups.”

Cracking the Russian market can be difficult, Mr. Orlovski said, with that country’s culture differing significantly from that in the U.S. or western Europe. Uber (which Mr. Orlovski said his firm is a small investor in) folded its Russian operations into a joint venture with that country’s leading tech giant, Yandex, after finding it hard to compete there.

Fort Ross’s team is betting its contacts in Russia and knowledge of the market will help attract U.S. start-ups. Mr. Orlovski was previously the chief digital officer at Sberbank, Russia’s biggest bank, and maintains connections in that region, including through his former employer.

For one of Fort Ross’s existing investments, the social trading start-up eToro, the investment firm introduced the portfolio company to a local player in Russia to help it crack that market.

Fort Ross began raising its latest fund in the fall, drawing investors from Russia and the Middle East. (Mr. Orlovski said that the investors are primarily family offices and wealthy individuals, though he does eventually want to branch out into traditional money sources like U.S. pension funds.) But the goal, he added, was to make the firm better-known in Silicon Valley, a task he argued would not be hampered by his background or focus.

“I don’t feel like we are a second- or third-tier venture firm just because I’m personally from Russia or because we have connections to Russia,” he said. “One year, or a couple of years ahead, we want to be a bigger player in the community of V.C.s here.”

— Michael de la Merced

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Credit...Yves Herman/Reuters

The European Union, with its $16 trillion economy and its reputation for toughness in trade negotiations, could be the immovable object that stymies President Trump’s combative trade agenda.

But that outcome is looking less likely.

The Wall Street Journal on Wednesday reported that the European Union is prepared to offer some concessions to avoid the steel and aluminum tariffs that the United States has threatened to impose. The European Union’s exemption to the tariffs expires on May 1, which means any negotiations would have to progress quickly.

According to the Journal, the European Union is prepared to reduce tariffs on United States cars and industrial machinery, among other goods. The newspaper also reported that the bloc might offer to join the United States in pressuring China to relax its trade and investment rules. (In return, the European Union is reportedly asking for European companies to be given access to United States government procurement contracts.)

The Trump administration apparently proposed the punitive tariffs as a way to secure compromises from trading partners, and bring them into an alliance against China. If the European Union bends to this strategy, rather than rejecting it outright, it would be a notable gain for Mr. Trump.

A compromise by the European Union would also suggest that the United States’ large trade deficits are an advantage in its trade battles. Last year, the European Union exported $151 billion more to the United States than it imported from the U.S. If the United States raised barriers to the bloc’s exports, it’s economies, particularly that of Germany, with which the United States last year had a $64 billion deficit, could suffer.

— Peter Eavis

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Shire’s manufacturing plant in Lexington, Mass.Credit...Brian Snyder/Reuters

Takeda Pharmaceutical disclosed on Thursday that it has bid for more than $60 billion for the Irish drug maker Shire, though the offer was rejected. But it may have competition in the form of Allergan, which said on Thursday it was considering an offer for Shire.

Later on Thursday, Allergan decided to drop its pursuit.

Still the disclosures, following weeks of speculation, again raises the prospect of consolidation within the pharmaceutical industry. Drug makers have long looked to big takeovers to broaden their product portfolios.

For Takeda, which is based in Osaka and whose products include treatments for acid reflux and for cancer, a big takeover would give it both more scale — the combined company would have some $30 billion in annual sales — and a bigger international footprint.

But Shire, which is headquartered in Dublin and is best known for producing Adderall, would be its biggest takeover by far. (Its next-biggest acquisition was the $13.7 billion purchase of Nycomed seven years ago.)

Takeda’s main competitor may be Allergan, the maker of Botox, is a veteran acquirer, having been built up through numerous mergers over the years.

Takeda said in a statement that on April 12 it had informally offered £46.50, or about $66, a share for Shire, made up of both cash and newly issued shares. That represented a roughly 30 percent premium to where the target company’s shares had closed on the prior day.

Under the terms of that offer, Shire shareholders would own just over half of the combined company.

Shire said in its own press release that Takeda had bid three times, culminating in last week’s offer. But the Irish company rejected each offer as too low.

Takeda and Shire said that they are in discussions, which could lead to yet another revised bid.

Yet for both Takeda and Allergan, a deal for Shire could prove financially risky, since each company would need to borrow significant amounts of debt to finance a transaction.

Under British takeover rules, Takeda has until April 25 to decide whether to continue pursuing Shire. Allergan has until May 17 to do the same.

Advising Takeda are Evercore Partners, JPMorgan Chase and Nomura. Advising Shire are Citigroup, Goldman Sachs and Morgan Stanley.

— Michael de la Merced

No old-line company embraced the digital wave with more gusto than General Electric. The industrial giant spent billions, hired thousands of software engineers, and even created image-morphing television ads to recast itself as “a digital-industrial company,” writes the NYT’s Steve Lohr.

Today, there are no such ambitions. The spending at GE Digital is being slashed, amid layoffs and sharply narrowed aims at G.E. under John Flannery, who became chief executive last August.

From Mr. Lohr:

The rethinking of GE Digital, with its future still under review by Mr. Flannery, points to the difficulty of producing modern software for industrial businesses as they adopt digital technology.

No one disputes the overarching vision of the so-called industrial internet of things — which includes low-cost sensors and a flood of data and clever software that should deliver insights to cut costs, conserve fuel and design better products, faster. But the company greatly underestimated the challenges of creating all the software needed to achieve that grand vision, said analysts and former G.E. managers.

Mayor Bill de Blasio announced on Thursday that the statue known as “Fearless Girl” will soon be moved from its spot at the southern tip of Broadway to a spot facing the New York Stock Exchange.

And if the city has its way, the bull will eventually go with her.

J. David Goodman of the NYT writes:

“Though visitors had posed with the bull for years, larger crowds had gathered since the ‘Fearless Girl’ statue, commissioned by State Street Global Advisors, a Boston-based financial firm, was placed in front of the bull at the narrow corner atop Bowling Green in Lower Manhattan last March.

“So after deciding to allow the sculpture — placed temporarily at the spot — to remain for a year, city officials came to the conclusion that the number of pedestrians spilling into the streets created a safety hazard.”

However, the artist that created the bull, who was not pleased when “Fearless Girl” was placed in front of it, is considering going to court to keep the bull in place.

During his court testimony in Washington yesterday, the Time Warner C.E.O. argued that his company’s proposed $85.4 billion sale to AT&T was necessary, given the “tectonic changes” in the media world wrought by Netflix and Amazon.

More from Cecilia Kang of the NYT:

Among the biggest problems for Time Warner as a stand-alone television and movie producer is that it does not have access to viewer data to target advertising and other valuable customer information the same way that Amazon and Netflix do, Mr. Bewkes said. “We don’t have emails, contact information, billing information … any of these things,” he said.

Lawyers for the Justice Department, which has sued to block the deal, grilled him about an internal document from last year showing plans to create digital products even without AT&T.

Randall Stephenson of AT&T could take the stand today.

Elsewhere in big media deals: Comcast’s bid for 21st Century Fox assets was 16 percent higher than Disney’s, but Rupert Murdoch turned it down because of antitrust worries.

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William Hejl, a farmer worried by the threat of Chinese tariffs.Credit...Dan Koeck for The New York Times

As the U.S. and China continue to posture over trade — alarming U.S. farmers, many of whom are in key electoral districts in the Midwest — it’s worth noting three upcoming dates, Peter Eavis writes.

On May 1, exemptions to the tariffs on imported steel and aluminum expire.

On May 22, the public comment period ends for another $50 billion worth of tariffs, and the Trump administration can announce a final list of targets.

And Aug. 18 is potentially the deadline for the administration to act on an investigation into Chinese trade practices. But there’s a provision for a 180-day delay after that.

Key caveats: President Trump has the power to pursue trade policy almost at whim. And a W.T.O. proceeding against China could take years.

Elsewhere in trade: How Qualcomm became collateral damage in the fight (China says its takeover of NXP Semiconductors has “hard to resolve” issues), while Washington continues to fret about Chinese tech. Rusal is betting on China for relief from U.S. sanctions. What worries the Fed about trade. And why Wall Street and trading allies increasingly ignore presidential statements.

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Assembling a rifle at the Sturm, Ruger & Co. factory.Credit...Eric Thayer/Reuters

The politically minded bank already adopted principles for limiting firearm sales laid out by the advocacy group Everytown for Gun Safety. Now it’s using its position as a (small) shareholder in Sturm, Ruger to urge the gun maker to adopt six Everytown principles.

Among them: Supporting mandatory background checks for all sales; binding sellers to a code of conduct; and adopting smart-gun tech. If Ruger doesn’t support those principles, Amalgamated would withhold votes for Sandra Froman, a Ruger director who’s also on the N.R.A.’s board.

Elsewhere in gun sales: Dicks’s Sporting Goods plans to destroy its stock of assault-style rifles.

• Attorney General Eric Schneiderman of New York wants to change state law to allow repeat criminal charges against offenders granted a presidential pardon. An adviser to President Trump warned that Michael Cohen could flip. And meet the judge in his case, Kimba Wood.

• Karen McDougal and the publisher of the National Enquirer have settled. She can now publicly discuss her claim to have had an affair with Mr. Trump, who is spared the risk of legal proceedings. (NYT)

• A resolution demanding that Scott Pruitt quit the E.P.A. attracted signatures from 170 Democratic lawmakers. (The Hill)

• Ted Cruz’s Democratic challenger, Beto O’Rourke, is within 3 points in the latest Quinnipiac poll. (Axios)

• The Senate voted to overturn an Obama-era rule restricting car lenders from discriminating against minorities. (NYT)

• The S.E.C. voted to move ahead with public consultations on a rule requiring brokers to put clients’ “best interest” first. (Bloomberg)

• The rise and fall of the lobbyist Tony Podesta. (WSJ)

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Credit...Jason Redmond/Agence France-Presse — Getty Images

It’s the disclosure that Prime now has over 100 million members. These are Amazon’s stickiest and most valuable customers, who order often and can access its streaming service. The company had $9.72 billion in revenue from subscription services, including Prime fees.

Mr. Bezos also talks about the importance of “high standards” for his digital behemoth. (And about yoga handstands.)

Elsewhere in Amazon: The company is moving its entertainment division to the Culver Studios, where “Raging Bull” and “E.T.” were made.

The tech flyaround

• Facebook is reportedly designing chips, and working to move 1.5 billion users worldwide beyond the reach of European data privacy rules. An Irish watchdog still has qualms about its facial recognition. And ad agencies are seeking substitutes for its hoard of personal data.

• Uber is reportedly in talks to hire VMware’s Zane Rowe as C.F.O., to help prepare an I.P.O. next year. The last of Otto’s founders, Don Burnette, has left Uber.

• Qualcomm has begun cutting about 1,500 jobs. (Bloomberg)

• Intel is closing its wearable tech group. (CNBC)

• Tencent, JD.com and others will put $437 million into a unit of the embattled tech conglomerate LeEco. (FT)

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Credit...Lucas Jackson/Reuters

As the firm moves more into consumer businesses — pushing its Marcus online lending platform, buying Adam Dell’s budget-planning app — it is looking less like a traditional investment bank and trading house and more like a one-stop shop. Like the universal banks JPMorgan Chase, Bank of America and Citigroup.

But the shift carries plenty of risk. “It goes against their history as a firm; they’ve no track record of expanding consumer, commercial or corporate banking,” the analyst Brian Kleinhanzl of KBW told the FT.

Elsewhere in banking: Credit Suisse and UBS are reportedly in talks to combine some of their back-office operations. The activist investor Edward Bramson has built a 5 percent stake in Barclays and wants to wind down its trading division, unnamed sources told the London Evening Standard.

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Credit...William P. O'Donnell/The New York Times

• Bankers for Meredith have reportedly ruled out the National Enquirer owner A.M.I. as a bidder for Time, Fortune, Inc. and Sports Illustrated, rejecting a $300 million offer. (Vanity Fair)

• P.&G. agreed to buy Merck of Germany’s consumer health business for $4.2 billion. (WSJ)

• Total of France agreed to buy Direct Energie, a utility focused on clean energy, for $1.7 billion. (NYT)

• Lloyd Blankfein of Goldman Sachs and Jon Gray of Blackstone butted heads over a potential debt deal at a recent lunch. (Bloomberg)

• The U.K. will reportedly approve Melrose Industries’ bid for GKN. (FT)

• Avenue Capital is reportedly planning a social-impact debt fund. (Reuters)

• Bon-Ton Stores is going out of business. (WSJ)

• Grail, a cancer-detection start-up backed by Jeff Bezos and Bill Gates, is reportedly working to raise $1 billion. RealSelf, an online hub for cosmetic surgery information, has raised $40 million. And Green Bits, which makes software to help cannabis dispensaries stay legal, has raised $17 million from Tiger Global Management and others.

• Cerberus Capital Management has hired the former JPMorgan Chase C.O.O. Matt Zames as president. Frank Bruno, a Cerberus veteran, will become co-C.E.O. alongside Stephen Feinberg. (WSJ)

• Wynn Resorts has added three women to its board: Dee Dee Myers, who was a White House spokeswoman in the Clinton administration; Betsy Atkins, an advocate of stronger corporate governance; and Wendy Webb, a former investor-relations chief for Disney. (Bloomberg)

• Deutsche Bank’s C.O.O., Kim Hammonds, and investor-relations chief, John Andrews, are leaving. (WSJ)

• GlaxoSmithKline has hired Kevin Sin from Genentech as a top internal deal maker. (Reuters)

• Jana Partners has hired Dan Hanson, once of BlackRock, and Pulkit Agarwal, formerly of the International Finance Corporation, to work on its social impact investing fund. (Reuters)

• The highest-ranking civil servant in Japan’s Finance Ministry resigned after accusations that he had sexually harassed female journalists. (NYT)

• Starbucks will become a test case for training to combat unconscious bias; its effectiveness is still a matter for debate. (NYT)

• Coastal communities are no longer the only ones suing fossil-fuel companies over the costs of climate change. (NYT)

• Porsche’s headquarters in Germany were raided by the police yesterday as part of an investigation into emissions cheating. (NYT)

• The departing editor of Harper’s Magazine, James Marcus, said he had been fired for opposing the publication of a contrarian essay on #MeToo. The magazine disputes that. (NYT)

We’d love your feedback. Please email thoughts and suggestions to bizday@nytimes.com.

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