Advertisement

SKIP ADVERTISEMENT

Highlights From Zuckerberg’s Day 2 Testimony: DealBook Briefing

Credit...Tom Brenner/The New York Times

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

• Mark Zuckerberg is back on Capitol Hill.

• Why would a trade war with China be good for the United States economy?

• Has Facebook opened itself up to regulation?

• Bank of America’s move on gun sales.

• Why did the U.S. attorney for the Southern District of N.Y. recuse himself from the Michael Cohen raid?

Want this in your inbox each morning? Sign up here.

Mark Zuckerberg’s second day of Congressional grilling lifted its shares again.

The stock rose 0.8 percent, even as the broader market dropped 0.6 percent.

While it remains to be seen whether Mr. Zuckerberg’s performance will keep regulations at bay, his testimony was certainly a tonic for investors. Facebook’s two-day rise of more than 5 percent added over $24 billion to its market capitalization, according to Bloomberg data.

Ali Mogharabi, a Morningstar analyst, offered this takeaway from the two-days of testimony:

“Zuckerberg appears willing to work with lawmakers on possible regulations, which may create a barrier to entry in the social network space and help Facebook maintain its market leadership.”

— Matt Phillips

Mark Zuckerberg is back on Capitol Hill for a second day of congressional testimony.

Here are some highlights :

• Representative Greg Walden, Republican of Oregon and chair of the Energy and Commerce Committee, kicked off the hearing by declaring that “while Facebook has certainly grown, I worry it has not matured.” Mr. Walden floated the prospect of regulation, saying that “I think it is time to ask whether Facebook may have moved too fast and broken too many things.”

• Mr. Walden also asked: “What exactly is Facebook?” The definitions matter. If Facebook is viewed as a telecommunications service that is more like a utility, it may be regulated by the Federal Communications Commission. If lawmakers define Facebook as a publisher, it could also fall under regulations at that agency. “I consider us to be a technology company,” Mr. Zuckerberg answered. “The primary thing we do is have engineers that write code and build services for other people.”

• Representative Frank Pallone, a New Jersey Democrat, pressed Mr. Zuckerberg on whether Facebook would agree or refuse to change Facebook’s default settings to minimize collection and use of users’ data. “This is a complex issue that deserves more than a one-word answer,” Mr. Zuckerberg answered. “That’s disappointing to me,” Mr. Pallone responded.

• California Democrat Anna Eshoo put it more bluntly, asking Mr. Zuckerberg: “Are you willing to change your business model to protect users’ privacy?” Mr. Zuckerberg was noncommittal, saying: “Congresswoman, I’m not sure what that means.”

• Representative Joe Barton, Republican of Texas, pressed Mr. Zuckerberg on why Facebook has been allegedly censoring content from conservative organizations and Trump supporters such as Diamond and Silk. Mr. Barton also asked Mr. Zuckerberg if he would agree that Facebook would work to ensure it is “a neutral public platform.” “I do agree that we should give people a voice,” Mr. Zuckerberg said.

• Rep. Gene Green, a Texas Democrat, and Jan Schakowsky, an Illinois Democrat, pressed Mr. Zuckerberg’s promise to give users worldwide the same privacy controls required by a tough new data protection law which will go into effect in the European Union next month. Mr. Green also asked Mr. Zuckerberg if Facebook planned to comply with the provision in the European law that allows individuals to obtain a copy of the data companies hold about them.

• A number of lawmakers have tried to draw a comparison between the Obama campaign’s use of a Facebook app to scrape data from users and their friends in 2012 and Cambridge Analytica. Those lawmakers have failed to mention one very important distinction between the Obama campaign’s app and Cambridge Analytica’s app: The Obama app was actually on Facebook itself, and it was very clear about who and what the data would be used for. The app used to scrape data for Cambridge Analytica was accessed through a personality questionnaire hosted on a site outside of Facebook, and it appeared to users to be for academic research, not for a political data company owned by a wealthy Republican donor and dedicated to reshaping the American electorate.

Elon Musk, the chief executive of Tesla, made an appearance on “CBS This Morning” and weighed in on the Facebook controversy.

Mr. Musk told co-host Gayle King:

“I think whenever something is – whenever there’s something that affects the public good then there does need to be some form of public oversight. … I do think there should be some regulations on AI. I think there should be regulations on social media to the degree that it negatively affects the public good. We can’t have like willy-nilly proliferation of fake news, that’s crazy. You can’t have more types of fake news than real news. That’s allowing public deception to go unchecked. That’s crazy.”

Andrew writes: These were the most important words from Mark Zuckerberg’s five-hour testimony: “I agree we are responsible for the content.” They may come back to haunt him, given his previous rejection of calling Facebook a publisher. He later backtracked and called his business a tech company, but his acknowledgment may fundamentally shift the conversation — and how the company operates. (All in all, Mr. Zuckerberg did better than anyone had expected.)

More from Peter Eavis:

Lawmakers now seem much more aware of how much power large technology companies have. This was encapsulated in questions posed by Senator Lindsey Graham, Republican of South Carolina. He framed Facebook as a monopoly and brought up the possibility of regulating Facebook, asking Mr. Zuckerberg: “But you as a company welcome regulation?”

And Facebook may now only be one big scandal away from a more stringent government response.

Critics’ corner

Paul Pendergrass writes, “If Mr. Zuckerberg can convince lawmakers and users that he is the most capable and determined person to fix his company’s problems, then the company can start turning the corner on this crisis.”

Kara Swisher of Recode tweeted that Mr. Zuckerberg won yesterday’s hearing “not because he was so good (he was fine if a little flat), but because the senators really dropped every single ball possible.”

Sara Fischer and Dan Primack of Axios write, “Mark Zuckerberg on Tuesday morphed from a shy tech nerd into a confident business executive who ran circles around lawmakers.”

Shira Ovide of Gadfly writes: “Zuckerberg believes he’s giving users control, but he’s giving them the illusion of control. And that means the consent of Facebook users is not informed.”

Elsewhere in Facebook: Robert and Rebekah Mercer have tried to mend fences with the tech giant on behalf of Cambridge Analytica. Some user data obtained by the quiz app behind the scandal included private messages. Facebook collects more info about you than you realized. And could Instagram help bail out its parent company?

Image
Jack Ma, the founder of Alibaba, arrived to meet with Donald Trump at Trump Tower in early 2017.Credit...Kevin Hagen for The New York Times

That’s the question Jack Ma, the founder of Alibaba, said he is struggling currently to understand.

“Under a symbiotic U.S.-China relationship, America became a preeminent technology leader, and its brands are today the envy of the world. China improved the standard of living of its citizens with a tenfold increase in per capita gross domestic product over the past 20 years.”

But that relationship will change over the next two decades, Mr. Ma said:

“China is shifting its economy from the world’s largest exporter to the world’s largest consumer. Chinese citizens now have the wealth and income to pursue discretionary spending. They want to buy high-quality imported food, cosmetics, fashions and health and wellness products for themselves and their children.”

Mr. Ma goes on to write:

“It is therefore ironic that the U.S. administration is waging a trade war at a time when the largest potential consumer market in the world is open for business. Is America going to forfeit this opportunity?

Instigating a trade war is the wrong solution because it will only provoke retaliation. The Chinese government responded to U.S. tariff threats with its own tariffs on American agricultural products, such as soybeans. China is the largest export market for American soybeans, worth $14 billion annually and accounting for 65 percent of all U.S. soybean exports.

The U.S. has been a consistent defender of free and open markets, but this time it is resorting to protectionism that will not improve American competitiveness. Any country seeking to increase exports would do better to focus on developing good products and channels to access foreign markets rather than putting up trade barriers.”

Shares of CBS are down 1.9 percent and Viacom’s stock is off nearly 1 percent after CNBC reported that Shari Redstone is likely to replace Les Moonves, the chief executive of CBS, if a deal isn’t reached with Viacom.

Shari Redstone, whose National Amusements controls CBS and Viacom, is seeking to combine the two media companies.

From Reuters:

“Her longtime friend and business ally, powerful CBS Chief Executive Les Moonves, has emerged as one of the biggest obstacles to a potential CBS-Viacom tie-up, according to people familiar with the matter. Concerns are that his objections could either doom the transaction or that he might not lead the new entity, the people said.

“Moonves is chafing at Redstone’s insistence on installing Viacom’s CEO as his second-in-command and likely successor of a merged company, the people say.”

Image
Credit...Mark Lennihan/Associated Press

Add the U.S.’s second-biggest bank to the list of financial firms wading into the gun control debate. Bank of America said it would stop lending money to companies that make military-inspired firearms for civilians, such as AR-15-style rifles.

Bank of America works with “just a handful” of such manufacturers, according to its vice chairwoman Anne Finucane. Their reactions? “Mixed,” she said.

(Still unclear: how this affects Remington Outdoor, which owns Bushmaster and is getting through Chapter 11 bankruptcy proceeds with the aid of an asset-backed loan from Bank of America and several other institutions.)

The DealBook tally of financial firms that have taken steps to limit gun sales: Citigroup, Amalgamated, BlackRock, Bank of America. (Know of another? Do tell us.)

Image
Michael CohenCredit...Amir Levy/Reuters

Why did Geoffrey Berman, the Trump-appointed interim U.S. attorney for the Southern District of New York, which oversaw the F.B.I. searches, recuse himself from the case? DealBook readers might recall that Mr. Berman was a longtime lawyer for Deutsche Bank, one of the few major banks that lent money to Trump in recent years.

On the legal issues behind the raid: Though President Trump has complained on Twitter that “attorney-client privilege is dead” after the F.B.I.’s searches at his personal lawyer’s office and hotel room, DealBook’s Peter Henning explains why that’s not the case. (So does George Conway, the husband of Kellyanne Conway.)

More on Mr. Cohen: The F.B.I. sought records related to payments to Stormy Daniels and Karen McDougal, who claim to have had affairs with Mr. Trump. And how the lawyer attracted federal attention.

• Robert Mueller corner: President Trump is still seething about the special counsel, and advisers worry he will try to fire him or the deputy attorney general, Rod Rosenstein. He sought to shut down Mr. Mueller’s investigation in December, the NYT has reported, though it’s disputed whether he could fire him directly. Republican leaders in Congress still oppose legislation to protect the special counsel.

• What the tariffs on imported metal have cost a Pennsylvania manufacturer. And how China may be working around them, legitimately or otherwise. (It also seems to have returned to intellectual-property hacking.)

• Tom Bossert was forced out as the Trump administration’s homeland security adviser days after John Bolton became national security adviser. (NYT)

• The E.P.A. is reviewing threats to Scott Pruitt on social media to see if his costly security detail is justified. (NYT)

• Mr. Trump is skipping the Summit of the Americas this weekend and, critics say, missing an opportunity to mend fences with Latin America. Vice President Mike Pence will go. (Axios)

Image
Credit...Ruben Sprich/Reuters

Mr. Deripaska in particular is suffering from the U.S. sanctions against associates of President Vladimir Putin and their companies. According to analysts, traders and bankers , he may soon need Russian government support to stay afloat: Shares in Rusal, the aluminum producer he controls, have fallen 55 percent since Friday, when the sanctions were unveiled.

It’s a humbling blow to Mr. Deripaska, who has sought Western acceptance. A former State Department official told Bloomberg he “had it coming.”

The pain isn’t likely to end. A top U.S. Treasury Department official has warned of “consequences” if British firms continued to do business with sanctioned companies.

Image
Masa Son of SoftBank, which controls Sprint.Credit...Yuya Shino/Reuters

After the two companies failed to reach a deal last year (and in 2014, and 2011), they’re back in talks, Michael hears. Shares in both companies jumped — Sprint 17 percent, T-Mobile 5.7 percent — after the WSJ reported on the restart.

It’s not exactly a surprise. SoftBank’s Masa Son bought control of Sprint planning to merge it with T-Mobile, the better to fight Verizon and AT&T. And most analysts agree that both companies need to become bigger to survive.

Image
Credit...Win Mcnamee/Getty Images

• The F.C.C. is reportedly pushing back on part of Sinclair’s plan to win approval of the $3.9 billion acquisition of Tribune — selling Tribune TV stations in New York City and Chicago to companies affiliated with the broadcaster’s founding family. (WSJ)

• Saudi Arabia agreed to a flurry of investments in France after Crown Prince Mohammed bin Salman’s three days there. The kingdom also sold $11 billion worth of bonds — just as Qatar was lining up its own debt sale.

• Carl Icahn agreed to sell Federal-Mogul to Tenneco for $5.4 billion, in an apparent blow to his dreams of an auto-parts empire. (Bloomberg)

• Aviation corner: Global Infrastructure Partners is reportedly considering selling its 42 percent stake in London Gatwick Airport. easyJet, Air France-KLM and Cerberus Capital Management have reportedly approached Alitalia about buying it together. Qatar and JetBlue have invested in JetSuite, a private jet company. And Google is reportedly in talks to buy Nokia’s in-flight broadband business.

• A group led by Patrick Soon-Shiong, owner of The L.A. Times, is reportedly close to buying the D.C. United soccer team. (FT)

• The investment firm Altaris agreed to buy Analogic, which makes M.R.I. and luggage-screening equipment, for $1.1 billion. (WSJ)

• Vitol and the Carlyle Group have scuttled an I.P.O. of Varo Energy, a fuel refiner and distributor. (FT)

Image
Matthias MüllerCredit...Sean Gallup/Getty Images

• Volkswagen plans to oust its C.E.O., Matthias Müller, as it works to move past the diesel emissions scandal. He’s likely to be replaced by Herbert Diess. (NYT)

• The head of Britain’s Serious Fraud Office, David Green, is to step down; the C.O.O, Mark Thompson, will be interim director. (WSJ)

• A.P. Moeller-Maersk wants a female C.F.O., its first, to combat a widening gender gap in its senior management ranks. (Bloomberg)

• The European Commission raided the London offices of 21st Century Fox as part of an antitrust investigation into sports programming. (Bloomberg)

• Martin Shkreli must pay a defrauded hedge fund investor $388,000 in restitution, a federal judge ruled. (CNBC)

• A fat-finger error at Samsung Securities involving more than $105 billion of accidentally issued shares has prompted South Korea’s National Pension Service to cut ties. (WSJ)

• Theranos reportedly laid off most of its remaining workers to put off bankruptcy. (WSJ)

• Bank loans to nonbank financial firms increased sixfold between 2010 and 2017 to a record high as banks tried to avoid direct exposure to riskier loans. (WSJ)

• Farmers are hitting the road to reach shoppers before Amazon does. (NYT)

• Norway’s sovereign wealth fund cannot invest in private equity, but may be allowed to put money into renewable infrastructure. (FT)

• China ordered Beijing Bytedance Technology to shut a popular joke-sharing app and delete its WeChat account as part of a censorship campaign. (Bloomberg)

• China’s central bank chief filled in details on President Xi Jinping’s promise to open up the financial sector. (Bloomberg)

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

Advertisement

SKIP ADVERTISEMENT