Daily Business Briefing
Navient, once one of the country’s largest student loan servicing companies, reached a $1.85 billion deal with 39 states to settle claims that it had made predatory student loans that saddled millions of borrowers with billions of dollars in debt that they were highly unlikely to repay.
The deal, announced Thursday, requires Navient to cancel $1.7 billion in private student loan debts for nearly 66,000 borrowers and pay $95 million in restitution.
“Navient repeatedly and deliberately put profits ahead of its borrowers — it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back, and placed an unfair burden on people trying to improve their lives through education,” said Josh Shapiro, the attorney general of Pennsylvania, one of several states that had sued Navient.
The settlement corrects Navient’s past behavior, provides relief to borrowers and establishes safeguards to ensure that such behavior does not recur, Mr. Shapiro said in a statement.
Navient, which did not admit any fault in the settlement, said it did not act illegally.
“The company’s decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court,” said Mark Heleen, Navient’s chief legal officer.
The deal ends a major portion of a set of linked legal actions that began five years ago, when federal and state prosecutors sued the company that was then at the heart of the student debt collection system.
The Consumer Financial Protection Bureau sued in federal court over what it called mistakes and tactics by Navient that inflated borrowers’ bills by billions of dollars. Several state attorneys general also filed state lawsuits claiming that Sallie Mae — Navient’s predecessor company, from which it split off in 2014 — made private, subprime loans to borrowers it knew were likely to default.
Those claims are the focus of Thursday’s settlement, but it also resolved the states’ charges that Navient inflated borrowers’ bills by steering federal loan borrowers into costly long-term forbearances instead of guiding them toward more affordable income-based repayment plans. The consumer bureau’s lawsuit, which centers on those claims, is continuing.
Delta Air Lines said on Thursday that it lost $408 million in the final three months of last year, as the Omicron variant of the coronavirus, which emerged late in that period, interfered with holiday operations and pushed back the airline’s recovery.
About 8,000 Delta employees — more than one in 10 — had called out sick in recent weeks, Delta’s chief executive, Ed Bastian, said on CNBC on Thursday. That, combined with bad storms, forced the airline and its peers to cancel tens of thousands of flights over the busy holiday travel period, with carriers only just beginning to recover in recent days.
“While the rapidly spreading Omicron variant has significantly impacted staffing levels and disrupted travel across the industry, Delta’s operation has stabilized over the last week and returned to preholiday performance,” Mr. Bastian said in a statement. “We are confident in a strong spring and summer travel season with significant pent-up demand for consumer and business travel.”
The Omicron variant has delayed the airline recovery by about 60 days, Mr. Bastian said. Delta alone scrubbed more than 2,000 flights over the two weeks starting on Christmas Day, the fourth most flight cancellations among U.S. airlines.
United Airlines, which canceled more than 2,500 flights over that period, said this week that about 3,000 employees, more than 4 percent of its staff, recently tested positive for the virus. At one point over the holidays, nearly a third of United Airlines employees called out sick at Newark Liberty International Airport, a major hub for United. Almost all employees at both airlines are vaccinated.
Despite the airline’s difficult year, Delta said it would spend about $100 million to distribute bonuses of $1,250 to each of its 75,000 employees.
“It’s going to be our recognition and our gesture of thanks to you for the hard work and the sacrifice and the service you’ve made on behalf of our company and on behalf of our customers,” Mr. Bastian said in a video message to employees announcing the bonuses, which will be distributed on Feb 14.
Shortly before Christmas, Delta had warned the Centers for Disease Control and Prevention that the virus could disrupt holiday travel and asked the agency to shorten its recommended isolation time for people who test positive for the virus, a move also supported by some public health experts. The agency made that change days later, setting off a feud between Delta and one of the nation’s most prominent airline labor unions, which said that shortened isolation periods put workers and travelers at risk.
Although carriers finally recovered from the holiday disarray this week, Omicron is expected to weigh on travel in the coming months, Delta’s president, Glen Hauenstein, said in the statement.
“The recent rise in Covid cases associated with the Omicron variant is expected to impact the pace of demand recovery early in the quarter, with recovery momentum resuming from Presidents’ Day weekend forward,” he said.
The airline expects losses in January and February and a return to profitability in March, with revenue over those three months expected to be about 72 to 76 percent of the level in a similar period in 2019. The airline’s revenue in the final quarter of last year was about 74 percent of that in the last quarter of 2019.
Despite an expected loss in the first quarter of this year, the airline said it expected to report a profit over the rest of 2022.
Delta also said that it eked out a small $208 million profit for 2021, a feat that would have been impossible without $4.5 billion in federal relief to pay workers. The airline lost nearly $12.4 billion in 2020 and had a profit of about $4.8 billion the year before.
Delta is the first major airline to report its fourth-quarter financial results. American Airlines and United are expected to announce next week, followed by Southwest Airlines the week after.
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Continue reading the main storyThe private equity firm TPG is set to begin trading on the Nasdaq on Thursday morning, after pricing its initial public offering at a $9 billion valuation. Going public is the latest milestone for the 30-year-old firm — but now it must convince investors that it can compete with its publicly traded rivals.
TPG’s listing is the first big stock market debut of the year, with bankers closely watching its performance to monitor the health of the business of initial public offerings. (The software company Justworks on Wednesday postponed its offering, citing market conditions.) TPG sold shares at $29.50, the midpoint of its expected price range.
Going public will help prepare the firm for the future, its leaders told the DealBook newsletter. Having a publicly traded stock will give the firm a new way of compensating employees and a currency for buying new businesses. TPG is also using proceeds from the offering to buy out minority stakes held by outside investors. (Its leaders are not selling any of their holdings.)
It is going public at an auspicious time for publicly traded private equity. Rivals like Blackstone and KKR have outpaced the S&P 500 over the past year, though TPG executives say they began planning the firm’s offering before the surge in those stocks.
But TPG must prove it can grow. Critics say that TPG is smaller than its peers — it manages $109 billion, a fraction of the $731 billion that Blackstone oversees — and more dependent on traditional leveraged buyouts, a lumpy business, for revenue. The firm’s executives counter that TPG was among the first firms to push into growth equity, including early investments in Uber and Airbnb, and that it was ahead of the curve on investments with environmental, social and governance, or E.S.G., credentials.
“We have always been builders and innovators,” Jim Coulter, the firm’s co-founder and executive chairman, said in an interview. “We are very proud of what we have built.”
Executives acknowledge that TPG has scope to diversify. Jon Winkelried, the firm’s chief executive, said in an interview that “we don’t need to do anything,” but he added that there were “certain parts of the market that we’re currently not in” that made sense to enter.
That may include credit investment funds, a big business for the other publicly traded private equity firms that TPG will now be compared with more directly.
Jack Dorsey has announced the creation of a nonprofit group, the Bitcoin Legal Defense Fund, to help developers of the original cryptocurrency facing “legal headaches.”
In an email sent to the developers’ mailing list on Wednesday, Mr. Dorsey, a Bitcoin evangelist, wrote that “litigation and continued threats are having their intended effect; individual defendants have chosen to capitulate in the absence of legal support.”
A founder of the payments company Block, formerly known as Square, Mr. Dorsey is deeply invested in Bitcoin’s development, the DealBook newsletter reports. He stepped down as chief executive of Twitter in November to advance Block’s cryptocurrency ambitions, and he has said that Bitcoin is the most important thing he can work on in this lifetime. Block holds more than $350 million worth of Bitcoin in its corporate treasury.
Mr. Dorsey’s fund will provide free legal advice and rely primarily on part-time and volunteer lawyers. Board members, including Mr. Dorsey, will review cases and decide who gets the group’s help.
First up on the docket: Tulip Trading, a Seychelles-based firm run by Craig Wright, a litigious Australian computer scientist who claims to be Satoshi Nakamoto, the pseudonym of Bitcoin’s creator. He has sued core Bitcoin developers after losing a fortune in a hack, claiming breach of fiduciary duty, adding that a small team of people control the Bitcoin network and have a duty to protect users and help recover tokens lost to theft.
A loss for developers in this case could have a chilling effect on cryptocurrency, which is probably why Mr. Dorsey said that the new fund would “take over coordination of the existing defense.” If developers are held liable for losses caused by hackers, the risks of contributing to the Bitcoin network could outweigh the rewards.
The fund is not seeking contributions for now, and Mr. Dorsey did not disclose how much money it had.
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Continue reading the main storyInvestors are increasingly worried that inflation may derail the economic recovery. Inflation data released on Wednesday provided new cause for concern: The government reported that consumer prices rose at their fastest pace in 40 years.
That is hitting people’s wallets, but has done little to slow corporate America’s profit boom. “We’re going to have the best growth we’ve ever had this year, I think since maybe sometime after the Great Depression,” Jamie Dimon, the chief executive of JPMorgan Chase, told CNBC this week, speaking of the economy in general.
Earnings season is about to begin, with four of the nation’s largest financial firms — BlackRock, Citigroup, JPMorgan Chase and Wells Fargo — all publishing their latest quarterly results on Friday before the market opens, the DealBook newsletter reports. Investors will listen for what executives have to say about the effect of inflation, supply chain disruptions and other pandemic issues.
Here’s some of what you can expect in the next few weeks:
Omicron is not yet hitting bottom lines.
Earnings reports covering the fourth quarter won’t capture the full effect of the recent surge in coronavirus cases. Analysts say that the current quarter is when the coronavirus variant will do the most damage to corporate finances.
Fourth-quarter earnings for the S&P 500 are expected to show growth of 22 percent versus the same period in 2020, but growth in the first quarter of this year is expected to be around 6 percent, according to FactSet. Delta Air Lines reported higher-than-expected revenue for the fourth quarter, but said it expected to record a loss in the first quarter.
Higher prices have been good for some companies’ profit margins.
Executives spent last quarter warning about higher wages and shipping costs. In the end, many companies were able to raise their prices by as much, or more, than the increase in costs, and holiday sales came in stronger than anticipated. So, even with the highest inflation in decades, reported profit margins are expected to be high — and rising.
“The Wall Street consensus is that profit margins will break above prior peeks this year,” Ohsung Kwon, a U.S. equity strategist at Bank of America, told DealBook. “What that implies is that analysts expect supply chain problems and labor shortages will moderate soon. We don’t think those issues will go away so quickly.”
As margins expand, expect more talk about raising corporate taxes.
Corporate profits have become a political issue in the debate about the causes of inflation. If this earnings season features a series of reports showing expanding margins at a time when consumer prices are surging, the voices calling for companies to pay more tax could grow louder.
As natural gas prices in Europe continue to hit record highs, utility companies in Germany are scrambling to secure millions of euros in extra liquidity to ensure they can meet future contracts.
Steag, Germany’s fifth-largest utility, said on Wednesday that it had organized financing in the “low triple-digit-million euro” range through an investing partner.
“We needed to gain more liquidity to secure future contracts,” said Daniel Mühlenfeld, a spokesman. He stressed that the financing was not a credit from a bank, but had been organized through another business partner. Steag operates several coal- and gas-burning power plants in western Germany, and generates power from renewable sources including wind, biomass and geothermal.
Last week, another leading German utility, Uniper, announced that high energy prices had forced it to seek extra credit worth 10 billion euros ($11.4 billion). Most of the money, €8 billion, came from Uniper’s parent company, Fortum, based in Finland. The rest is from Germany’s state-owned development bank, KfW, and was secured as a backup to mitigate future price swings, the company said.
Other German energy companies, including RWE and EnBW, said that they had taken similar steps to ensure they had sufficient credit to weather the volatility in the European energy market, but declined to give details. They all face the same challenge of needing to hedge their sales of gas and electricity to cover price differences across different markets.
In a statement explaining the decision to provide Uniper with extra financing, Fortum said that European gas prices reached “unprecedented levels” in December. In Germany, the price for energy to heat and power homes in November rose more than 101 percent from a year earlier, the country’s official statistics office, Destatis, said.
In Britain, the sudden price rise has led to the collapse of several smaller energy suppliers.
Global demand for energy jumped last year, after the world economy reawakened from widespread shutdowns aimed at slowing the spread of the coronavirus pandemic. When many economies started up again last spring, the need for natural gas shot up. Natural gas is crucial for generating electricity, running factories and heating homes across the continent.
European countries normally stock up on gas in the summer, when prices are relatively cheap, but the pandemic and a cold winter last year drew down levels of stored gas, leading to the wild swings in prices.
Prices for natural gas have risen about sixfold, to record levels. The surge means the wholesale price of electricity has reached stratospheric levels, making headlines across Europe as consumers, battered by the pandemic, are now hit by big increases in their home energy bills. Many European countries have tried to buffer the shock to consumers with price caps, subsidies and direct payments.
These high costs are also undermining the economics of companies that make fertilizer, steel, glass and other materials that require a lot of electricity.
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Continue reading the main storyElizabeth Holmes, the Silicon Valley start-up founder convicted of fraud this month, will be sentenced on Sept. 26, according to a court filing on Wednesday.
Ms. Holmes, who was found guilty on three counts of wire fraud and one count of conspiracy to commit wire fraud, faces a maximum sentence of 20 years in prison for each count. She is expected to appeal the verdict, and the court ordered any “post-trial motions” to be filed by March 4.
The length of time before the sentencing will allow prosecutors to handle a trial against Ms. Holmes’s alleged co-conspirator, Ramesh Balwani, an earlier court filing said. Mr. Balwani, also known as Sunny, was the chief operating officer of Theranos, the start-up that Ms. Holmes founded in 2003 and that she claimed would revolutionize health care with highly advanced blood tests. The blood tests ultimately did not work as advertised.
The U.S. government also said in a filing on Tuesday that it would dismiss three of its fraud charges against Ms. Holmes after a jury failed to reach a verdict on them.
Ms. Holmes, 37, was found guilty of lying to investors about Theranos’s abilities so she could raise money for the company. Jurors acquitted her on four fraud charges related to patients who took Theranos’s blood tests. They deadlocked on three additional counts related to investments in the company.
Her trial, which began in September, became a high-profile spectacle that was viewed as a referendum on Silicon Valley’s culture of hype and chutzpah.
Judge Edward J. Davila, who is overseeing the federal case in California’s Northern District, has significant discretion in sentencing Ms. Holmes. Her convictions were tied to more than $140 million in investments in Theranos, and the high dollar amount could be a factor in her sentencing, as could the message the verdict sends to others in Silicon Valley.
Judge Davila is also overseeing the trial of Mr. Balwani, who was indicted alongside Ms. Holmes on identical charges in 2018. The pair, who were business and romantic partners, had their cases severed after Ms. Holmes accused Mr. Balwani of emotional and sexual abuse. He has pleaded not guilty to fraud and has denied the abuse accusations.
Mr. Balwani’s trial has been delayed by surging coronavirus cases in the Bay Area, where the case is being heard. Jury selection is set to begin on March 9.
Until September, Ms. Holmes remains free on a $500,000 bond secured by property. During the trial, she reportedly lived on a 74-acre estate in Woodside, Calif., a wealthy Silicon Valley town, with her partner, Billy Evans, and their baby son.
Lael Brainard, a Federal Reserve governor who President Biden has nominated to be the central bank’s new vice chair, told lawmakers that the central bank will use its policies to wrestle inflation under control in prepared remarks for her confirmation hearing Thursday.
Ms. Brainard, who is facing vetting before the Senate Banking Committee, is likely to garner considerable support among Democrats and may pick up some Republican votes, though how many are unclear at this point.
Her nomination — and her new role at the Fed if the Senate confirms her — comes at a challenging economic moment. Although unemployment is falling rapidly, inflation has taken off, with a report on Wednesday showing that a key price index rose in December at the fastest pace since 1982.
“We are seeing the strongest rebound in growth and decline in unemployment of any recovery in the past five decades,” Ms. Brainard said. “But inflation is too high, and working people around the country are concerned about how far their paychecks will go.”
Ms. Brainard also told lawmakers that the Fed’s policies are “focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone,” calling that the central bank's “most important task.”
After nearly two years of propping up a virus-stricken economy by keeping interest rates at rock bottom and buying government-backed debt, Fed officials began to slow their large bond purchases late last year. That program is on track to end in March. Officials have signaled in recent weeks that they also expect to lift interest rates to make borrowing more expensive, slowing demand and helping to cool the economy.
Markets increasingly expect four rate increases in 2022, which would put the Fed’s short-term policy interest rate just above 1 percent.
“Today the economy is making welcome progress, but the pandemic continues to pose challenges,” Ms. Brainard said. “Our priority is to protect the gains we have made and support a full recovery.”
Ms. Brainard has been at the Fed since 2014, spanning the Obama, Trump and Biden administrations. Before that, she was a top international official at the Treasury Department. An economist and a Democrat, she had been seen as a potential contender to be Treasury secretary or Fed chair during the Biden administration.
She has a good working relationship with Jerome H. Powell, the Fed chair, who Mr. Biden has renominated for a second term. She used her prepared statement to emphasize that she has worked for many administrations in Washington — Democrats and Republicans alike — while pledging to take the Fed’s mission to fight inflation and its independence from partisan wrangling seriously.
“I will bring a considered and independent voice to our deliberations,” she said.
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Continue reading the main storyAs the Omicron variant of the coronavirus surges across the country, tests are in short supply. But for a select group of employees at corporate America’s largest firms, tests are free and often readily available.
These companies have been buying tests in bulk, some as part of their return-to-office protocols and others as a perk to offer workers peace of mind — even for those not yet coming into the office, Emma Goldberg, Lauren Hirsch and David McCabe report for The New York Times.
Unlike other company perks, like free snacks, virus tests are a vital public health tool. Some large corporations are sending out free weekly shipments to employees, while other small businesses, like restaurants, are struggling to safely stay open.
Tests, like personal protective equipment and vaccines, have become the latest example of how a means to manage the coronavirus crisis can aggravate social and economic inequality.
The federal government has been slow to authorize rapid antigen tests, because it has held them to a high standard for medical devices. Other places, like Britain, were quicker to approve rapid tests as a public health tool, leading to faster production.
The result is a testing shortage, and a decentralized system in which schools, hospitals and companies are competing to get tests. “It doesn’t surprise me that many organizations who were recognizing they need these tests to stay in business were buying them,” said Joseph Allen, an associate professor at Harvard. “A smart testing strategy would have flooded the market with these, so they don’t have to be hoarded.”
With testing kits scarce, some health experts are questioning the distribution of tests. “There’s a few better targets than at-home white-collar workers,” said Dr. Benjamin Mazer, a pathologist in Connecticut specializing in laboratory medicine.
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