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The State of Play on Airline Bailouts



Good morning. Amid all the other news and analysis in today’s edition, we have the inside scoop on how SoftBank’s $40 billion deal to sell the British chip designer Arm came together — check it out below. (Was this email forwarded to you? Sign up here.)

Airlines are staring down a Sept. 30 deadline that could determine winners and losers in the beleaguered sector. By then, they must decide whether to take out dilutive government-backed loans or try to raise funds in some other way. At the same time, all are coming to the realization that the rescue aid they’ve used to pay their idled workers will soon run out, and it looks unlikely that more is in store.

What airline executives decide to do is based on bets on how strongly (or not) they expect travel to recover, and the stakes couldn’t be higher.

This is the state of play:

Airlines were offered two sources of money as part of the CARES Act: $25 billion in loans to cover general costs and $25 billion in payroll grants to keep workers employed. The terms of the loans were significantly more onerous — including restrictions on executive pay and dividends — than the conditions attached to the grants. (After all, the Treasury Department didn’t want the loans to be seen as bailing out an industry that had spent billions on stock buybacks before the pandemic.) Airlines have until the end of the month to decide whether to tap those loans, while the payroll-linked grants won’t be extended if Congress doesn’t pass another stimulus bill.

Airlines are trying to avoid taking the government loans — if they can.

Delta announced plans yesterday to take out $6.5 billion in bonds and loans backed by its frequent flier program, in lieu of the rescue loans on offer. Southwest has said it won’t take up the loans, either.

United raised $5 billion this summer in a loan backed by its frequent flier miles, but it hasn’t said whether it will also tap government funds.

American, which raised about $2 billion privately this summer, expects to take out a $4.75 billion Treasury loan.

Airlines that were already weaker than their rivals could become even more so by accepting the Treasury loans, with all the restrictions they entail. “Absolutely, I think it puts them at a disadvantage,” Southwest’s CEO Gary Kelly told CNBC.

Regardless of what they do, without more grants there will be furloughs. Delta has warned it might have to furlough more than 1,900 pilots, American said it might have cut up to 19,000 workers and United could furlough as many as 36,000 employees. Outside the U.S., where airlines have had less support from the government, there have already been bankruptcies, including Avianca and Aeromexico.


Today’s DealBook Briefing was written by Andrew Ross Sorkin in Connecticut, Lauren Hirsch in New York, and Michael J. de la Merced and Jason Karaian in London. And introducing Ephrat Livni in Washington, who joins the DealBook team this week.


ImageMr. Met has a new boss.
Credit…Adam Hunger/Associated Press

Steve Cohen agrees to buy the Mets (again). The hedge fund billionaire is taking a 95 percent stake in the team at a $2.4 billion valuation, The Times reports. The sale, which follows a failed agreement in January, doesn’t include SNY, the regional sports TV network run by the team’s current owners, the Wilpon family.

The U.S. blocked some Chinese imports over accusations of forced labor. Restrictions on imports of clothing, hair products and tech goods from the Xinjiang province were tied to claims that they were produced by Uighur Muslims and others held in internment camps.

A Nissan executive goes on trial, but it isn’t Carlos Ghosn.Greg Kelly, a longtime lieutenant to the ousted Nissan chairman, is accused of helping Mr. Ghosn hide tens of millions of dollars of pay. Unlike his former boss, who fled to Lebanon, he remains in Japan.

Citigroup may be hit by regulators over risk controls. The Office of the Comptroller of the Currency and the Fed are said to be planning to reprimand the bank for failures of its risk management systems, The Wall Street Journal reported. The issue reportedly accelerated plans for the bank’s C.E.O., Mike Corbat, to retire.

Nikola is facing an S.E.C. inquiry over a short-seller’s claims. The examination comes days after an investment firm, Hindenburg Research, published a lengthy report accusing the electric truck maker of exaggerating the capabilities of early vehicles. Nikola denied the claims and asked the S.E.C. to investigate … Hindenburg.

Credit…Kim Kyung Hoon/Reuters

The roughly $40 billion sale of Arm to Nvidia is one of the biggest tech deals of the year, and completes the transformation of SoftBank from a tech owner and operator into a risk-taking investor. Here’s how it came together, which DealBook’s Michael de la Merced pieced together from interviews with sources familiar with the talks.

Selling Arm to Nvidia was on SoftBank’s mind when the tech conglomerate began thinking about options for the chip designer in March. Putting Arm and Nvidia together, executives believed, would create a dominant force in the computer chip industry, combining Arm’s designs for chips that power smartphones — and soon, Macs — and Nvidia’s graphics chips, which are mainstays of cloud computing and A.I. applications. (Of course, antitrust regulators and Arm customers like Apple will scrutinize the deal, so its contours may change.)

SoftBank executives approached Nvidia in April, relying on a relationship they had built with the chip-maker’s founder and C.E.O., Jensen Huang, during a previous investment in his company. The next month, Nvidia said it wanted to proceed with what would be the biggest semiconductor deal on record.

Suggestions of a potential I.P.O. of Arm were a red herring. One of the people with knowledge of the talks described them as a way to maintain negotiating leverage with Nvidia. Meanwhile, the deal talks were restricted to a small group of executives: For SoftBank, that included Masa Son, its founder, and the executives Akshay Naheta and Spencer Collins; at Nvidia, that group included Mr. Huang and its C.F.O., Colette Kress.

A handful of banks worked on certain aspects of the transaction. SoftBank hired the boutique banks Zaoui & Company and Raine Group, as well as Goldman Sachs, while Nvidia used Morgan Stanley. But the key negotiations were handled by company executives over video calls.

By SoftBank’s own reckoning, the deal was good — but not yet a home run. Executives have argued that the Arm deal fetched a “good” price, not a high one. (Excluding earnouts and a stock payment to Arm employees, SoftBank is taking home $33.5 billion to start, versus the $32 billion it paid for Arm in the first place.)

• Historically, SoftBank has had lofty ambitions for valuations for itself and its investments — it is reportedly considering taking itself private because of frustration over its market cap. Here, it’s counting on the 6.7 percent to 8 percent stake it will take in Nvidia to boost the value of the deal: Executives argue that the combined company could grow into a $1 trillion valuation, from around $300 billion today. To which, we say: We shall see.

A deal to bring on Oracle as an American technology partner for the Chinese-owned app has been submitted for government review, ahead of a Sept. 20 deadline. The question now is whether the proposal — a far cry from the complete sale of TikTok’s U.S. operations originally envisioned — is enough to assuage President Trump’s concerns about national security.

What we now know about the transaction: Oracle would most likely oversee TikTok users’ data, potentially worldwide, The Times reported. Oracle and some existing ByteDance investors, including Sequoia and General Atlantic, may also have voting control over the app despite owning only a minority stake. TikTok would move its headquarters to the U.S., which the parties say could create more than 20,000 jobs. And TikTok’s Chinese-based parent, ByteDance, would maintain control of the app’s crucial algorithms.

Where do key Trump advisers stand? In the pro-deal camp are Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross. Arguing against the proposal are the White House trade adviser Peter Navarro (who isn’t playing a big role in the discussions) and Senator Josh Hawley of Missouri, an influential Republican who demanded TikTok’s “total separation” from Beijing.

Where does Mr. Trump stand? That’s the big unknown. He had previously rejected proposals for TikTok that didn’t involve an outright sale of its American business, and has threatened to shut down the app if there’s no such deal. (For more on the political optics of the Oracle agreement, see the Deal Professor’s take below.)

A final thought: In her latest “On Tech” newsletter, our colleague Shira Ovide writes that the whole drama has been a wasted opportunity:

The fight about TikTok wasn’t only about TikTok. It should have been a moment for engaged debate about what Americans should expect out of our technology and our government. Instead, the big questions went unasked and unanswered.

Credit…Hayoung Jeon/EPA, via Shutterstock

Steven Davidoff Solomon, a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School of Law and a faculty co-director at the Berkeley Center for Law, Business and the Economy. Here, he considers the message that a TikTok’s partnership with Oracle would send about the White House’s political priorities.

The Committee on Foreign Investment in the United States, or Cfius, is the governmental body charged with deciding whether Oracle’s deal with TikTok passes muster.

Cfius administers the Exon-Florio law, which gives it the power to block deals if they “impair national security.” There is no real judicial review of this process, and any resolution is allowed to be confidential.

This means that the Oracle-TikTok deal will be assessed deep in the bowels of the government. And during that time, it seems that politics is now the primary determinant of TikTok’s fate. This is, after all, an election year.

Although President Trump had called for an American owner to take over TikTok, this deal is nothing of the sort. While the details are not yet public, what is likely is that ByteDance’s U.S. venture capital and private equity shareholders will mirror their ownership in TikTok’s U.S. business by flipping their shares in the parent into shares of the American subsidiary.

For Oracle, it looks mostly like a data-hosting deal, and the tech giant may even give TikTok discounts to do it. That is a nice reversal of fortune for TikTok.

After all the drama over ownership, will simply housing the data in the U.S. be enough to assuage the regulators? It wasn’t been enough in other divestitures involving Grindr, the dating app, and StayNTouch, a hotel-key management system. In those cases, the U.S. was not satisfied that data could be shielded from China by the companies’ Chinese owners. How is that not the case here?

Normally, this type of deal would be dead on arrival. But China has put the U.S. in check by blocking the export of TikTok’s algorithms. The U.S. could hold out and demand stricter concessions — or just shut TikTok down. But this is a political process, and we don’t know if there are side deals with China to push this through. Again, this is an election year.

Perhaps no clean “win” was ever going to result for the U.S. in this battle, but it would be nice to know what exactly the White House was fighting for.

Credit…Dia Dipasupil/Getty Images

Macy’s and New York City yesterday announced a “reimagined” Thanksgiving Day Parade. Instead of the usual one-day affair over a 2.5-mile route, floats will show in and around Herald Square over two days with 75 percent fewer spectators, no one under 18 participating and other pandemic-era limitations.

It’s another hit to New York City’s tourist industry. Held since 1924, one estimate last year found that the department store’s costs to put on the parade were around $10 million to $12 million annually. “That’s just conjecture,” Orlando Veras of Macy’s told DealBook, declining to comment on the economics of this year’s coronavirus-related changes. “We have never disclosed any costs associated with the parade,” he said, and the company considers it a “gift” to the city. “When you give a gift, you take the price tag off.”


• UBS’s chairman, Axel Weber, has reportedly been studying the possibility of a merger with Credit Suisse. (Bloomberg)

• Verizon is buying the TracFone prepaid wireless brand from the Mexican telecom America Movil for up to $7 billion. (CNBC)

Politics and policy

• Donors from Wall Street feel their influence has waned in this election cycle. (Reuters)

• Gary Cohn, the former Trump economic adviser, said he hasn’t decided whether to vote for President Trump or Joe Biden. (CNBC)


• Palantir’s latest offering documents suggest the data analytics company could be valued at about $25 billion when it goes public. (Reuters)

• Amazon plans to hire 100,000 workers in the U.S. and Canada for its warehouse operations. (NYT)

Best of the rest

• Making a case for disposable products. (City Journal)

• How Hershey is trying to promote safe Halloween trick-or-treating during the pandemic. (WSJ)

• Behind the scenes of New York’s first pandemic-era fashion show. (NYT)

Thanks for reading! We’ll see you tomorrow.

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


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The Trump campaign celebrated a growth record that Democrats downplayed.



The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.


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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.



The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.


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Ant Challenged Beijing and Prospered. Now It Toes the Line.



As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.


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