Stocks Fall After News of Biden Tax Plan

By: Ella Koeze·Data delayed at least 15 minutes·Source: FactSet

Stocks on Wall Street tumbled on Thursday as investors reacted to reports that the Biden administration was weighing new tax increases on wealthy investors to fund its spending plans.

Among the increases on the table, The New York Times and other media outlets reported, is an increase in taxes on capital gains for people earning more than $1 million, effectively raising the rate they pay on that income to 39.6 percent from 20 percent. Capital gains taxes are levied on profits from investments in stocks and other assets.

President Biden is set to outline the increase, along with other changes, as he unveils his so-called American Family Plan next week. Its details remain a work in progress and could change in the days before the announcement.

“Some traders are looking for an excuse to lock-in profits and they might choose to use this tax story as their catalyst,” Edward Moya, senior market analyst for the Americas at brokerage firm Oanda, wrote in a note to clients. The S&P 500 is up more than 10 percent so far this year and trading close to its record highs.

The index and the Nasdaq composite fell 0.9 percent on Thursday, giving up earlier gains soon after Bloomberg News flashed a headline about the capital gains tax increase.

Renewable Energy

Shares in renewable energy companies rose as President Biden’s two-day climate summit began on Thursday, with the announcement that the United States intends to cut greenhouse gas emissions in half by the end of the decade.

Ahead of the virtual summit with dozens of world leaders, Britain has also sped up its own climate change targets. On Tuesday, it set a new target of cutting emissions by nearly 80 percent by 2035, compared with 1990 levels. On Wednesday, the European Union agreed to a new target to reduce net emissions at least 55 percent by the end of the decade.

“As governments around the world look to kick-start their recoveries as well as reach climate goals, green spending has become one avenue for doing so,” strategists at UBS Global Wealth Management wrote in a note. “We think the sustainable investment universe will continue to expand rapidly.”

Shares in Orsted, a Danish wind energy company, rose 6.1 percent on Thursday, ending a eight-day streak of losses. Shares in Siemens Gamesa Renewable Energy jumped 6.7 percent.

In the United States, shares of First Solar rose 4.2 percent, and SunPower rose 1 percent, extending gains from Wednesday. The iShares Global Clean Energy exchange-traded fund, which has $5.6 billion in assets, gained 2.4 percent.

ABC has sold out its advertising inventory for the pandemic-delayed Academy Awards on Sunday, with companies like Google, General Motors, Rolex and Verizon spending an estimated $2 million for each 30-second spot, according to media buyers — only a slight decline from last year’s pricing even though the television audience is expected to be sharply smaller.

Rita Ferro, president of Disney Advertising Sales, which sells ads on Disney-owned ABC, announced the sellout. She declined to comment on pricing or say how much revenue Disney will generate from the telecast. Last year, the Oscars pulled in about $129 million across 56 ads, according to Kantar Media, a research firm. (A red-carpet preshow attracted $16.3 million across 42 ads.)

Additional revenue comes from “integrations” and other sponsorships. For the first time, for instance, ABC will have a sponsor for closed-captioning (Google). The upshot: ABC’s revenue for the telecast is estimated to have declined only 3 to 5 percent from last year — a tiny drop compared with the expected 50 to 60 percent decline in viewing.

The ceremony is “one of those big cultural moments,” Andrew McKechnie, Verizon’s chief creative officer, said of the company’s decision to buy ad space. “The broadcast this year will be a bit different,” he acknowledged, “but the event will still be an impactful one and an important one for us to show up in.”

Last year, about 23.6 million people watched “Parasite” win the Academy Award for best picture, according to Nielsen data. That was a 20 percent drop from the previous year and a record low. On Sunday, nine million to 12 million people are expected to tune in.

Audiences have been turning away from awards telecasts for years, but ratings have nose-dived during the pandemic. Without live audiences, the shows have been drained of their energy. Big studios have also postponed major movies, leaving this year’s awards scene to downbeat art films.

ABC does not guarantee an audience size to Oscar advertisers, thus removing any potential for so-called make-goods — additional commercial time at a later date — if ratings tumble.

ABC has been able to keep ad rates high in part because of the fragmentation of television viewing. Oscars night is a shadow of its former self — it attracted 57 million viewers in 1998 — but still pulls in one of the largest audiences on broadcast television, certainly for a nonsports telecast. New advertisers this year include Apartments.com and Freshpet dog and cat food. Expedia and Adidas have bought commercial time to introduce new campaigns.

“We’re very pleased with where we are,” Ms. Ferro said, citing “the quantity, the caliber and the diversity of the advertisers in the show.”

A Houston tax lawyer pleaded not guilty on Thursday to charges that he helped the private equity billionaire Robert F. Smith hide $225 million in capital gains income from the Internal Revenue Service.

Federal prosecutors in San Francisco announced an indictment against the lawyer, Carlos Kepke, 81, last week on charges of conspiracy to defraud the I.R.S. and aiding and assisting in the filing of false tax returns.

Mr. Kepke was charged nearly six months after federal prosecutors agreed not to prosecute Mr. Smith, the founder of Vista Equity Partners, in return for his cooperation and $139 million in fines and penalties. Some lawyers have criticized the deal in light of the amount of money Mr. Smith sought to hide from federal tax authorities and the fact the scheme ran for more than a decade.

The authorities contend that Mr. Smith paid Mr. Kepke more than $1 million for his services, including creating and maintaining offshore entities and foreign bank accounts.

Mr. Kepke, who appeared in court on Zoom with his lawyer, Grant Fondo, by his side, is free on a $100,000 bond.

In October, prosecutors charged Robert T. Brockman, a billionaire Texas businessman, with tax fraud in connection with the same investigation. Prosecutors say Mr. Brockman, 79, sought to conceal $2 billion in income from the I.R.S., including money he made from sinking $1 billion into Vista’s first private equity fund.

The tax-evasion investigation is one of the largest ever by federal prosecutors. On Tuesday, prosecutors said in a court filing that the charges involving Mr. Kepke and Mr. Brockman are related and involve the “the same private equity funds.” Prosecutors previously said Mr. Brockman recommended Mr. Kepke to Mr. Smith.

Mr. Smith, who is a generous benefactor to historically Black colleges and universities and is the chairman of Carnegie Hall, has sought to put the tax scandal behind him. He remains at the helm of Vista, which manages more than $75 billion for investors. Emily Hughes, a lawyer for Mr. Smith, said that her client “resolved his situation last year with the government” and that the case against Mr. Kepke “in no way affects that resolution.”

Snap, the maker of Snapchat, reported revenue and user growth above Wall Street expectations in the first quarter, suggesting that the app continues to attract users even as pandemic restrictions lift and users look up from their phones.

Snap said on Thursday that revenue in the first three months of the year was $770 million, a 66 percent increase from the same period last year. Losses decreased 6 percent, to $287 million. And daily active users increased 22 percent, to 280 million.

Snap’s revenue dipped from the last three months of 2020, however, when the company brought in $911 million.

“We began 2021 by achieving our highest year-over-year revenue and daily active user growth rates in over three years,” Evan Spiegel, Snap’s chief executive, said in a statement.

Snap saw a sharp spike in users at the outset of the pandemic, and Mr. Spiegel said he expected use of Snapchat to continue to grow as lockdowns lifted. He also noted that usage of Snapchat is growing rapidly outside the United States and Europe.

Gary Gensler, just days after taking over as chairman of the Securities and Exchange Commission, is moving fast to fill out top jobs at the regulator with the naming of Alex Oh, a former federal prosecutor who specializes in foreign bribery cases, to serve as the new director of enforcement.

Ms. Oh is a partner in the Washington office of Paul, Weiss, a big law firm based in New York, and serves as co-chair of its anti-corruption and Foreign Corrupt Practices Act group. She joined Paul, Weiss in 2000 after working for four years as a federal prosecutor in Manhattan, where she focused on securities fraud investigations.

The director of enforcement at the S.E.C. is often seen as the most important job behind the chairman, overseeing the day-to-day operations of investigations and the roughly 1,000 lawyers in the commission’s enforcement arm. There is a long history of the heads of the S.E.C. looking to lawyers who were once federal prosecutors in Manhattan to serve as enforcement directors.

In tapping Ms. Oh, Mr. Gensler, who is not a lawyer, bucked the recent tradition of naming co-directors of enforcement.

“With her work as a prosecutor, pro bono experience and time in private practice, she has the expertise as a highly respected lawyer to ensure that the S.E.C. protects investors,” Mr. Gensler said in a prepared statement.

In the past, enforcement directors who come to the S.E.C. from private practice have had to recuse themselves from some matters if the cases involve former clients. Ms. Oh’s biography page on the Paul, Weiss website said she had done work in the past for Bank of America, Fannie Mae, Exxon Mobil, UBS and Pfizer.

Ms. Oh, who was born in South Korea, will be the first woman of color to head the enforcement group.

The market may already be dictating some of the agenda for Gary Gensler, who started as chairman of the Securities and Exchange Commission on Saturday.

Mr. Gensler already has a lot on his plate, Matthew Goldstein reports for The New York Times:

• One of the first things he will probably have to weigh in on is whether to assert more control over the red-hot market for special purpose acquisition companies, or SPACs, those speculative businesses that have raised well over $100 billion from investors.

• He must also decide whether the S.E.C. should do more to protect small investors, who have recently become a major force in the stock markets.

• Then there’s Archegos Capital Management, the $10 billion fund whose implosion last month spotlighted the loosely regulated world of family offices.

“Gensler is going to be confronted with a range of enforcement issues, and he is going to have to determine what his priorities are,” said Daniel Hawke, a former chief of the S.E.C.’s market abuse unit and now a partner with the law firm Arnold & Porter.

Dennis Kelleher, chief executive of Better Markets, a nonprofit organization, said he expected Mr. Gensler to focus on reforming the rules around corporate disclosures — including seeking more transparency from companies and big investors on their risks from climate change and contributions to it, as well as diversity on company boards — because it affected much of his agenda.

“Disclosure writ large will be a common thread through all the issues,” Mr. Kelleher said. “The S.E.C. is fundamentally a disclosure agency, and through better disclosure, you are supposed to be able to empower investors and enable enforcement.”

Credit Suisse said on Thursday that it suffered a loss in the first quarter stemming from loans it made to the collapsed investment fund Archegos Capital Management, a debacle that has prompted Switzerland’s financial regulator to investigate whether the bank was doing a poor job monitoring the riskiness of its investments.

The loss of 252 million Swiss francs, about $275 million, from January through March came after a loss of 4.4 billion francs from Archegos that wiped out a big increase in revenue. Credit Suisse also said on Thursday that it had sold bonds to investors to raise $2 billion to shore up its capital.

The bank expects additional losses from Archegos of about $655 million as it finishes winding down its exposure to the firm, Thomas Gottstein, the chief executive of Credit Suisse, said during a conference call with reporters Thursday.

The bank, based in Zurich, has suffered a series of calamities this year that have severely damaged its reputation and finances. Swiss regulators are also investigating a spying scandal and Credit Suisse’s sale of $10 billion in funds packaged by Greensill Capital. The funds were based on financing provided to companies, many of which had low credit ratings or were not rated at all. Greensill collapsed in March, and its ties to former Prime Minister David Cameron of Britain have caused a political scandal.

Mr. Gottstein promised Thursday that Credit Suisse would overhaul its systems for tracking risk to avoid future disasters. Several top executives have already left the bank as part of a management shake-up, including Lara Warner, the chief risk and compliance officer.

Credit Suisse also plans to pare back the size of a unit that serves hedge fund clients and was involved in the Archegos losses. Mr. Gottstein declined to say whether the debacle would lead to major changes at Credit Suisse’s investment bank, which has a large presence in New York.

But he suggested that Credit Suisse would not retreat from investment banking. “The underlying results show that the strategy is working,” he told reporters. “I wouldn’t say that because we had two disappointing incidents we should throw the whole strategy overboard.”

If not for the Archegos loss, Credit Suisse would have made a pretax profit of 3.6 billion francs, the bank said. Revenue for the quarter rose 30 percent to 7.6 billion francs as Credit Suisse raked in fees from lively trading on stock and bond markets.

The bank is certain to face intense official scrutiny in months to come. The Swiss regulator, known as Finma, said it would “investigate in particular possible shortcomings in risk management” at Credit Suisse. Finma also said it would “continue to exchange information with the competent authorities in the U.K. and the U.S.A.”

Mr. Gottstein acknowledged Thursday that the bank had received inquiries from regulators in the United States and Britain, but did not give details.

He declined to confirm a report in the The Wall Street Journal that Credit Suisse’s exposure to Archegos had reached more than $20 billion before the fund collapsed in late March. Mr. Gottstein conceded that Credit Suisse was one of the banks most exposed to Archegos.

The quarterly loss, which Mr. Gottstein described as “unacceptable,” compared with a profit of 1.3 billion francs in the first quarter of 2020.

Around 100 special purpose acquisition companies, or SPACs, went public each month in the first quarter of the year. So far in April, you could count the number of those initial public offerings on two hands, the DealBook newsletter reports.

The sudden drop in debuts of the blank-check funds, which are created with the sole purpose of finding an unspecified private company to acquire, has market watchers asking whether this is a pause — or a more permanent plunge.

The slowdown coincides with increased scrutiny by the Securities and Exchange Commission. The regulator issued a statement at the end of last month highlighting “the key considerations related to the unique risks and challenges of a private company entering the public markets through a merger with a SPAC.” Not long after, another note offered “guidance” on some of the trickier accounting issues related to blank-check funds. Neither statement suggested any rule changes, but with Gary Gensler, the S.E.C.’s new enforcement-minded chairman, taking over this week, SPAC sponsors have slowed their roll.

The recent performance of SPACs has also been lousy. Analysts at Goldman Sachs note that a stock price index of 200 SPACs (pre- and post-merger) has badly underperformed the market this year, down 17 percent versus a 10 percent gain in the S&P 500. SPACs have also lagged an index of unprofitable tech stocks, suggesting that investors have particular concerns about SPACs, because plenty of them have acquired other unprofitable tech companies.

But we haven’t heard the last of SPACs. The amount of money these shell companies have raised to date could drive $900 billion in acquisition activity over the next two years, according to the Goldman analysts. And more than 25 SPACs filed I.P.O. registration documents this month, per SPAC Research, adding to a pipeline of more than 200 others that have disclosed plans to go public but haven’t yet sealed the deal, for whatever reason.

The European Central Bank on Thursday maintained a stimulus program intended to counteract the economic effects of the pandemic, as expected, while promising to make sure that eurozone businesses and consumers have an ample supply of credit.

Following a monetary policy meeting, the bank’s Governing Council said in a statement that it would continue buying government and corporate bonds to prevent “a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic.”

Christine Lagarde, the president of the European Central Bank, said that there were signs that the eurozone economy had hit bottom. Output is expected to increase in the second quarter of the year after declining in the first quarter, she told reporters.

But Ms. Lagarde added, “We have a long way to go before we have crossed the bridge of the pandemic.” The eurozone economy will not recover its prepandemic strength until the second half of next year, she said.

At its last meeting, in March, the central bank stepped up the pace of the bond purchases, a form of printing money that helps keep market interest rates low. The bank has also been funneling money directly to commercial banks at negative interest rates, provided they lend the money to customers.

The central bank said Thursday that it had seen “a high takeup” of the money, which is essentially free to lenders.

• New claims for unemployment benefits fell last week to the lowest level of the pandemic, the government reported on Thursday, offering fresh evidence of the labor market’s recovery. A total of 566,000 workers filed first-time claims for state benefits during the week that ended April 17, the Labor Department said, a decrease of 57,000 from the previous week’s revised figure. In addition, 133,000 new claims were filed for Pandemic Unemployment Assistance, a federal program that covers freelancers, part-timers and others who do not qualify for state benefits.

• AT&T added 2.7 million new customers to HBO and HBO Max in the first quarter, a boost for the company’s new streaming effort in an increasingly crowded field. The company’s WarnerMedia division, which includes HBO, recorded $8.5 billion in revenue for the first three months of the year, a 9.8 percent jump over a year earlier, when theater sales and advertising revenue plummeted during the pandemic. HBO is the cornerstone of AT&T’s media strategy, and the company sees HBO Max as a way to keep its mobile customers from fleeing, offering the streaming platform at a discount to its phone subscribers.

Today in the On Tech newsletter, Shira Ovide explores why Europe is the global capital of tech backlash.