WSJ : Dimon Led Bank CEOs to Fend Off Tougher Capital Rules

Dimon Led Bank CEOs to Fend Off Tougher Capital Rules
Regulators discuss slashing proposed capital requirements in sign of banks’ increasing clout

WASHINGTON—JPMorgan Chase’s JPM 1.15%increase; green up pointing triangle Jamie Dimon and other big-bank CEOs played hardball with the Federal Reserve over proposals that the lenders hold more capital. Now, it looks like those tactics are paying off.

The Fed and two other federal regulators are moving toward a plan that would significantly lessen a nearly 20% mandated increase in capital for the biggest U.S. banks, according to people familiar with the matter.

Required increases in capital for banks like JPMorgan and Goldman Sachs GS 0.69%increase; green up pointing triangle—meant to ensure they have sufficient buffers to absorb potential losses—would on average be about half as much as originally floated.

It would be a big win for the banks and Dimon. Banks say the rules as originally proposed would have cut into profits and crimped lending. It also represents a shift in the balance of power between big banks and their regulators, turning the page on an era in which the Fed held the upper hand.

Dimon at a meeting in Washington last fall told his fellow CEOs to bypass Michael Barr, the central bank’s vice chair for banking supervision and the main architect of the original plan. Dimon urged his fellow bankers to instead press other Fed governors, in particular Chair Jerome Powell, to alter the proposed capital rules.

By doing so, the bankers hoped to capitalize on internal disagreement and concern on the seven-member Fed board over the regulatory proposals.

Dimon has characterized Barr’s proposal as “flawed and poorly calibrated” and publicly pushed for other Fed governors to speak out. “What person, in what ivory tower thinks that that is a rational thing to do?” Dimon said at a conference last September. “I’d like to know what the other governors think.”

He also expressed frustration with regulators in general, saying in his annual shareholder letter that banks’ relationships with them “have deteriorated and…are increasingly less constructive.”

Big U.S. bank CEOs met with Powell more than a dozen times between last July and March, according to the central banker’s public calendar. Those included four meetings or calls with Dimon.

On Friday, the Fed released calendars for Barr showing he met 15 times with the CEOs of the largest U.S. banks during the same period. He also met with Dimon in April and in May, a Fed spokesman said.

“I have not felt bereft of attention from the banking lobby,” Barr said in a statement.

Top officials from all three agencies involved in the pending capital rules—the Fed, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency—are still negotiating substantive and technical revisions, and there is no guarantee that a deal will come together. It also could be late this year before any plan is ready.

The pending rules are the last in a series of steps global regulators agreed to in the wake of the 2008-09 financial crisis, which are aimed at boosting the resilience of the banking system and guarding against taxpayer-backed bailouts. The latest proposal also seeks to protect against a variety of other risks, including the potential to lose money from cyberattacks.

Its July release kicked off the biggest regulatory fight in at least a decade, featuring fierce lobbying from big banks as well as pushback from a bipartisan chorus of lawmakers and others including affordable-housing advocates. Unlike other fights over financial regulation, the campaign involved a series of pricey television ads during National Football League games warning of dire economic consequences.

Goldman Sachs spent millions on its own advocacy campaign. The Financial Services Forum, which represents the eight largest U.S. banks, also asked its members to chip in $2 million apiece on another ad campaign.

Among those leading the charge was Dimon, who urged bank executives to bypass Barr during a fall board meeting of the Bank Policy Institute, a Washington lobbying group. In addition to Powell, banks have also viewed Philip Jefferson, the Fed’s vice chair, as a key swing vote.

Barr is still in charge of shepherding the plan day-to-day, but is now closely coordinating with Powell, who is playing a more active role.

In March, Powell said that the new rules won’t be finalized without broad and material changes. He also said any plan would have broad support on the board and opened the door to scrapping the existing plan and starting over again with a fresh proposal. The FDIC and OCC are resistant to starting over.

Even if the agencies eventually reach an agreement to finalize the rules this year, the banks could still challenge them in court.

One recent wrinkle in the negotiations revolved around the way banks account for the value of their trading positions and other capital-markets activities. The issue is likely to have an outsize effect on five of the largest Wall Street firms, which besides Goldman and JPMorgan include Morgan Stanley, Bank of America and Citigroup C -0.11%decrease; red down pointing triangle.

Powell and other Fed officials support reducing the amount of capital reserves tied to such activities, relative to the proposed rule. The issue accounts for a significant amount of the overall increase in capital envisioned for the largest banks. Officials at the two other agencies involved in drafting the rules were resistant to watering down market-risk provisions, worried it would undermine a key pillar of the new framework.

If the FDIC and OCC convince the Fed to leave the provisions largely untouched from the proposal, Fed officials have indicated they want to compensate with cuts elsewhere in the plan.

WSJ : Want to Buy SpaceX Stock? You Have to Know Someone

Want to Buy SpaceX Stock? You Have to Know Someone
Shares in Elon Musk’s rocket and satellite company are a hot ticket for investors, but SpaceX tightly controls access

SpaceX has become one of the investing world’s most exclusive clubs.

Invites circulate via group chats, word of mouth and emails marked confidential. Investment vehicles providing access to Elon Musk’s closely held rocket and satellite company have generated hefty demand, and fees for those arranging them. For years, the company’s value has only gone in one direction—up.

Hawthorne, Calif.-based SpaceX—which flirted with bankruptcy not long after Musk founded the company more than two decades ago—now dominates the launch business.

And it has built its satellite-internet division, Starlink, into an industry and geopolitical force.

Current and former employees, venture capitalists and creators of SpaceX investing vehicles have all benefited from the intense investor appetite for the company. Gaining access to SpaceX shares can mean sizable costs. SpaceX also carefully tracks its investor base, and not everyone gets in.

As a private company, SpaceX isn’t required to report financial results. The Wall Street Journal reported last year that the company in 2022 doubled its revenue compared with the previous year’s total as Starlink gained customers, and global attention, for its role in Ukraine. Many investors are betting that growth will continue for years to come.

“You can argue about where it’s trading in terms of valuation, whether that’s the right place to buy. But there’s a whole lot of believers in this stock,” said Glen Anderson, chief executive of Rainmaker Securities, which operates a marketplace where investors can trade investment interests in private companies such as SpaceX.

Investor demand has been a factor in SpaceX’s steadily climbing valuation over the past decade, providing executives and other staff the chance to cash out company stock at ever-higher prices. That is a benefit akin to programs used by publicly traded companies to attract talent.

It has also enabled SpaceX’s longer-term investors to mark up the value of their stakes, bolstering their portfolios’ performance.

SpaceX has raised $9 billion in primary funding over time, and investors who have participated directly in the company’s traditional funding rounds include blue-chip firms such as Fidelity and Alphabet’s Google. SpaceX hasn’t raised money for itself in a couple of years, a sign of its improving financial performance and strong cash position.

For many other investors, fresh batches of shares now often come from former and current SpaceX employees, who have the opportunity to sell during so-called liquidity events the company sets up. Securing access isn’t easy: Opportunities can bubble up informally, through phone calls or via online lists that don’t circulate widely, people familiar with the deals say.

Shares of SpaceX were valued at $97 each during the most recent employee stock sale, implying a $180 billion valuation for the company, according to people familiar with the matter. That was up from a $12 billion valuation in 2015.

Some of the strongest demand comes from wealthier people who meet financial requirements to purchase slices of special investment companies set up to hold SpaceX stock. Investors can also purchase interests in vehicles that own shares in those special investment companies—a nesting-doll effect.

Musk, SpaceX’s chief executive, has grappled with challenges involved in operating Tesla, the one public company he leads. At the electric-car maker, he has battled securities regulators and faced government probes.

In January, Musk lost a shareholder lawsuit over his pay package. Last year, he recommended that companies go public only if they absolutely need to.

Musk is both a draw and a risk for investors at SpaceX, according to investors and documents viewed by the Journal.

A recent investment offering for SpaceX listed Musk as a factor they should account for. “Mr. Musk has become an increasingly public personality and makes public statements regularly, with many of those statements causing controversy,” a document viewed by the Journal shows.

Musk and a SpaceX spokesman didn’t respond to requests for comment.

“I think investors in SpaceX know exactly what they are doing. And they are lucky to be investors in SpaceX,” said Tim Draper, a longtime venture investor and an early backer of SpaceX.

Hank Medina, an investor behind Litquidity who has been dubbed the “meme lord” of Wall Street, said in an interview that the syndicate sold about $2 million worth of exposure to SpaceX, or double its original allocation. The minimum check size to get in: $50,000.

In December, Litquidity Syndicate, an investment group that usually focuses on early-stage companies, emailed a list of investors, saying they had the chance to get access to SpaceX by purchasing interests in a special investment vehicle. That vehicle would be exposed to SpaceX shares through another investment vehicle, according to the email, a copy of which was viewed by the Journal.

Investors who bought access would pay a 4% management fee for the first year, split between two other firms involved in the deal. Litquidity itself would get 5% of potential future profits, with another partner taking 20%, according to the email. Medina said the fees partly reflected pent-up demand for SpaceX and investor conviction in the company.

“I wouldn’t have done this if I didn’t think there wasn’t more room to run,” Medina said.

Demand for SpaceX-linked investments is part of how the rocket launcher ensures there are buyers for current and former employees looking to sell holdings. Still, SpaceX has worked to keep a tight grip on who ultimately owns its stock.

A Hong Kong subsidiary of Leo Group, a China-based company with businesses such as pump manufacturing and digital marketing, in 2021 said it contributed $50 million into a vehicle that would invest in SpaceX, according to securities and legal filings.

Shortly after Leo disclosed the investment in a securities filing in China, the investment vehicle’s managers moved to cancel the deal, according to a lawsuit the subsidiary filed in the U.S.

They sought to disqualify Leo’s subsidiary because SpaceX’s chief financial officer “was unhappy with media coverage of Leo Group’s disclosure of its investment in SpaceX,” the lawsuit alleged.

The suit is pending in Delaware state court. Aaron Marks, a lawyer at Kirkland & Ellis representing the defendants, who have contended in court their actions were appropriate, declined to comment. Leo Group couldn’t be reached. Andrew Stern, a lawyer at Sidley Austin representing the Leo subsidiary, declined to comment.

SpaceX documents viewed by the Journal unrelated to the case say employees can’t transfer shares to other holders without company and board approval. Transfers to potential competitors, non-U.S. holders or entities the company considers unfriendly are unlikely to ever be permitted, according to the documents, which relate to a stock-purchase program.

SpaceX also says in the documents that it doesn’t plan to approve transfers of employee stock arranged through “any public posting, message board, trading portal, internet site or similar manner.”

The company has another reason for keeping close tabs on its shareholder base: U.S. securities law.

Private companies are typically required to make periodic disclosures of their financial performance once they hit certain milestones, such as having more than $10 million in assets and 2,000 official owners. Those thresholds generally exclude so-called beneficial holders, or those who have an indirect interest in the company’s shares.

The regulatory limits are the reason SpaceX cannot offer stock to anyone who wants to buy it, Musk said on X last year.

SpaceX executives have spoken publicly about potentially spinning off Starlink as a public company, but they have also voiced confidence in their ability to continue cashing out staffers seeking money for their shares.

“I think the reason to take any company public is to give employees liquidity,” SpaceX President Gwynne Shotwell told reporters at a conference in early 2023. But at SpaceX, “We have been able to give employees liquidity.”

WSJ : U.S. Fears Undersea Cables Are Vulnerable to Espionage From Chinese Repair

U.S. Fears Undersea Cables Are Vulnerable to Espionage From Chinese Repair Ships
Google, Meta Platforms and others partially own many cables, but they rely on maintenance specialists, including some with foreign ownership

WASHINGTON—U.S. officials are privately delivering an unusual warning to telecommunications companies: Undersea cables that ferry internet traffic across the Pacific Ocean could be vulnerable to tampering by Chinese repair ships.

State Department officials said a state-controlled Chinese company that helps repair international cables, S.B. Submarine Systems, appeared to be hiding its vessels’ locations from radio and satellite tracking services, which the officials and others said defied easy explanation.

The warnings highlight an overlooked security risk to undersea fiber-optic cables, according to these officials: Silicon Valley giants, such as Google and Meta Platforms, partially own many cables and are investing in more. But they rely on specialized construction and repair companies, including some with foreign ownership that U.S. officials fear could endanger the security of commercial and military data.

The Biden administration’s focus on the repair ships is part of a wide-ranging effort to address China’s maritime activities in the western Pacific. Beijing has taken steps in recent decades to counter U.S. military power in the region, often by seeking ways to stymie the Pentagon’s communications and other technological advantages in case of a clash over Taiwan or another flashpoint, officials say.

U.S. officials have told companies, including Google and Meta, about their concerns that Chinese companies could threaten the security of U.S.-owned cables, a person familiar with the briefings said. In some cases, the conversations have included discussion of Shanghai-based S.B. Submarine Systems, the person said.

Senior Biden administration officials have also received briefings in recent months about the risks posed by Chinese companies, including SBSS, working on repairs to undersea cables, according to the person.

The security of undersea cables “is rooted in the ability of trusted entities to build, maintain, and repair” them “in a transparent and safe manner,” the National Security Council said in a statement, noting that satellite ship tracking “is one such measure that supports vessel monitoring and safety.”

The administration declined to comment on SBSS. Google and Meta declined to comment about the Biden administration’s concerns related to SBSS. SBSS didn’t respond to requests for comment.

The gaps in the company’s ship-location data could be explained by spotty satellite coverage rather than as an effort to hide their positions, according to another person who is familiar with the company. The cable owners often have representatives aboard repair ships at sea, which would make any potential meddling with cable gear hard to hide, the person added.

The vessels—named the Fu Hai, Fu Tai, and Bold Maverick—periodically disappeared from satellite ship-tracking services, sometimes for days at a time, while operating off Taiwan, Indonesia and other coastal locations in Asia, according to a Wall Street Journal analysis of shipping data.

The data gaps were unusual for commercial cable ships and lacked clear explanation, the officials and industry experts said.

Hundreds of thousands of miles of underwater fiber-optic cables carry almost all the world’s international internet traffic. Dozens of lines lace the Pacific Ocean floor, shuttling data between the Americas, Asia and many island chains.

SBSS is part of a regional consortium of companies that provides ships to fix undersea cables, including some belonging to major U.S. companies, by winching them to the surface, resplicing broken fibers that carry internet data and returning the lines to the sea floor.

U.S. and congressional officials who disclosed their concerns about SBSS wouldn’t say whether their worries stemmed from classified intelligence about maritime espionage or only potential threats to internet infrastructure. But commercially available satellite tracking data showed numerous gaps while the company’s ships were at sea, they said.

Underwater cables are vulnerable to tampering when they are brought to the surface for repairs, U.S. officials say. Tapping global data flows is still far easier on land, industry experts say. But at-sea repair could still offer an opportunity to install a device to remotely disable a cable or to study the technology in advanced signal repeaters installed by other companies.

U.S. officials said that cable repair ships pose a security threat because they could engage in clandestine tapping of undersea data streams, mapping of the ocean floor to conduct reconnaissance on U.S. military communication links, or theft of valuable intellectual property used in cable equipment. The ships could also lay cables for the Chinese military, they said.

Liu Pengyu, a spokesman for the Chinese Embassy in Washington, said he wasn’t aware of U.S. concerns about SBSS.

“It is nothing wrong for Chinese companies to carry out normal business in accordance with the law,” he said. “We firmly oppose the U.S. to generalize the concept of national security and attack and smear Chinese companies.”

The SBSS vessels’ location-tracking beacons have been inoperative periodically over the past five years, according to radio and satellite data from commercial data provider MarineTraffic that was reviewed by the Journal.

In early February 2021, the Fu Hai left its berth near Shanghai and sped north up the coast into the Yellow Sea. Then the 340-foot, red-hulled vessel stopped broadcasting its location signal for two days before it popped up back near Shanghai. The signal went on and off for a few more days back near Shanghai before the ship docked again, tracking data show.

It wasn’t clear whether the vessel’s automatic identification systems—satellite and radio transponders that ships use to broadcast their location—were turned off or suffered an unintentional outage.

The Fu Hai has seen other significant gaps in reporting its tracking data at least a dozen times over the past five years, according to the MarineTraffic data.

A gap in transponder data alone isn’t necessarily a red flag, a senior U.S. government official said. “But it would raise suspicions if it happens repeatedly, especially if they are operating in the vicinity of a cable that might have strategic significance,” such as those ferrying military communications, the official said.

The U.S. intelligence community has warned for years about the security of undersea cables, noting in a 2017 report that industry consortia that maintain cables might “present vulnerabilities” and could be “susceptible to threats from insiders.” Cable integrity has long been a U.S. concern in the event of a direct conflict with China, former intelligence officials said.

SBSS was formed in 1995 as a Chinese-British joint venture. State-owned China Telecom has long held 51% of the business and is in the process of buying the remainder from U.K.-based Global Marine Systems, according to people familiar with the matter. A member of the Chinese Communist Party serves on the SBSS management team, according to the company’s website. He didn’t reply to a written message seeking comment.

The U.S. in 2021 stripped China Telecom’s licenses, arguing that it was subject to “exploitation, influence and control by the Chinese government.” The move didn’t affect U.S. companies’ ability to use the repair consortium that includes SBSS.

Safeguarding underwater cables has been a focus of U.S. national-security officials since the Cold War, when fears of Soviet espionage were paramount. In the 1970s, the U.S. secretly placed wiretaps on underwater Soviet lines in an intelligence coup known as Operation Ivy Bells.

Beijing’s rapid military buildup in the South China Sea in recent decades has heightened American government worries about the cables’ vulnerability to disruption or tampering.

U.S. officials say they are especially concerned about the security of cables that carry sensitive data to American bases and other military assets in the Pacific and around the globe. Though encrypted, that data can pass through commercial internet lines.

To prevent interruptions from damaged lines, the U.S. government is funding several Pacific cable projects along with American internet companies, such as Google. Google this year said it was investing $1 billion in new cables and other infrastructure projects in the region.

SubCom, a cable ship company owned by private-equity giant Cerberus Capital Management, receives $10 million in annual U.S. government payments for participating in the Cable Security Fleet, a program partly overseen by the Pentagon. It requires the ships to be available for critical cable repair or other emergencies.

At a congressional hearing in January, Rep. Ann Wagner, a Missouri Republican, said she was “very concerned about Chinese companies repairing or even having access to undersea cables that are owned by U.S. carriers.”

Nathaniel Fick, the State Department’s top cybersecurity official who was testifying at the hearing, said he shared her concern. “I believe when our adversaries tell us what they intend to do, we should believe them,” he said.

Fick said in a statement to the Journal that undersea cable security can’t be assured if the lines “are built, maintained, or repaired by suppliers who are subordinate to or are beholden to authoritarian governments.”

SBSS is one of three maintenance shipowners that are members of Yokohama Zone, a consortium used by internet cable owners in the northwest Pacific. The group keeps ships on standby, based in China, South Korea and Japan. SBSS parent China Telecom hosted a meeting of Yokohama Zone companies in Wuhan, China, in March, according to people familiar with the event.

In response to questions about SBSS, Yokohama Zone Chairman Masanori Araki, a submarine cable expert from Japanese telecom company and shipowner KDDI, said the Chinese company is in compliance with the consortium’s performance standards.

“Cable owners are receiving and enjoying assured service quality, whichever service provider they may use,” he said.

Industry analysts say that shifting responsibility for fixing Asian cables away from Chinese vessels could pose a tougher challenge. Cable owners have few choices among an aging fleet of roughly 50 ships around the world, according to Mike Constable, who runs telecom consulting firm Infra-Analytics and previously led China’s Huawei Marine Networks, now known as HMN Technologies.

“You’ve got a Chinese asset repairing U.S.-invested cables,” Constable said. “No one had really thought about that before.”

WSJ : Deck Maker’s $450 Million Bet on America’s Renovation Boom

Deck Maker’s $450 Million Bet on America’s Renovation Boom
Home-improvement spending is forecast to fall, but Trex is expanding

WINCHESTER, Va.—High-interest rates have squeezed the housing market, but a leading maker of weatherproof decking is betting $450 million that Americans will add on to their homes rather than try to move to new ones.

Trex TREX -1.13%decrease; red down pointing triangle, which makes composite boards with sawdust and old plastic bags, is building a factory in Little Rock, Ark., that will greatly boost its manufacturing capacity and give the firm a foothold in the South. It is also rolling out new lines of premium decking. One mimics hardwoods, like redwood and ipe. Another, for the Sunbelt expansion, is cooler on the feet.

It might seem like an untimely wager for a massive expansion given that renovation spending is forecast to sputter and home-improvement stores are reporting declining sales. Few expected deck-building to boom during the pandemic lockdown, though, and Trex could hardly keep up with demand that summer four years ago.

“The biggest risk is doing nothing,” said Trex Chief Executive Bryan Fairbanks. “If we have a recession in between now and when we launch it, or even a year after, fine.”

Trex sits at crosscurrents in the economy. Wall Street has been fearing recession since the Federal Reserve began raising interest rates in 2022. Yet the highest borrowing costs in a generation have hardly fazed consumers, whose spending has kept inflation up and delayed interest-rate cuts.

The construction and remodeling sectors have been especially resilient, given that they are usually among the first to decline and suffer job loss when borrowing costs are high.

Lately, however, cracks are beginning to show, particularly around the house.

A widely cited barometer of the remodeling market is pointing to the first annual decline in home-improvement spending since the housing bust of the late 2000s. That would follow a run up to last year’s record $481 billion, threatening a reliable source of economic growth and stock-market gains.

Companies usually try to avoid expanding into economic downturns. But if growth continues, or if Americans renovate through recession, firms like Trex risk not meeting demand and being replaced on store shelves and in blueprints. That is where the Arkansas plant comes in.

“The long-term value will be having that asset on the ground so that we can build into growth,” Fairbanks said.

Trex’s inventor is Roger Wittenberg, a Tampa, Fla., tinkerer who piled up plastic bags making animal feed with stale bread. Mobil, the oil company now part of Exxon Mobil, bought the business hoping to offset criticism of its plastic production by owning a recycler. The oil company lost interest, though, and executives running Trex bought the business and sold shares a few years later, in 1999.

Trex is betting it can win market share from wood and that homeowners locked into cheap mortgages will add outdoor living space rather than move.

“You see couches, pergolas, TVs, kitchens, all being built on these decks,” Fairbanks said. “It’s an efficient way for people to build on to their existing homes.”

Trex competes with Southern yellow pine, which is pressure-treated with chemicals to improve durability. Pine boards have tumbled from their pandemic highs to trade this spring at some of the lowest prices in nearly a decade. Sawmills are curtailing production.

At current prices, entry-level Trex boards cost about 50% more than pressure-treated pine. Customers interested in the company’s highest-level offerings aren’t very price sensitive, Fairbanks said.

A problem for the overall remodeling market is low turnover in the housing market. Much is spent sprucing up houses before they are listed for sale. Buyers practically run to the hardware store once they get keys. Millions of Americans are locked into some of the lowest home-loan rates ever. They might have to pay twice the rate of their current note for a mortgage these days.

Another issue is that a lot of people have just built decks and renovated their kitchens.

At Home Depot, business is down from contractors and do-it-yourselfers alike.

First-quarter sales declined 2.3%, and executives said there were 6.5% fewer big-ticket sales, or those of more than $1,000.

The prospect of the Fed cutting rates has customers putting off projects that they would have to finance or borrow against their home to pay for, said finance chief Richard McPhail.

“It’s not the inability to fund projects, it’s a deferral mindset,” he told investors this month.

What used to be a month of back and forth with drawings and emails has stretched to two or three with customers, said Ed Pacylowski, owner of ProBuilt Construction, which uses Trex’s composite boards to build elaborate decks around Baltimore and Washington, D.C. Still, business is steady for projects that usually cost between $80,000 and $100,000 and often involve swimming pools and outdoor kitchens.

“There’s a huge hesitation on the customers’ end,” Pacylowski said. “I’m having to go back to work a lot more as far as meeting the customers, answering their questions, trying to convince them to do it now rather than later.”

Yet there are powerful forces in favor of remodeling. Rising property values have given Americans $31.8 trillion of home equity. That mountain of money has become more expensive to tap, but it is viewed in C-suites and on Wall Street as dry powder to reignite the remodeling boom once rates decline.

Meanwhile, the American home, on average, keeps getting older. Many are in need of upkeep and upgrades. A lot of wood decks are worn out.

Wesley Brawner, in Kennesaw, Ga., said his company’s five decking crews are booked up for summer, though it took a little longer than usual. Clients rarely finance or borrow against their homes to pay for the decks, which can cost six figures.

It was a tough pitch when he started selling Trex deep in the pine belt, with its cheap and abundant wood. But composite lumber, which never needs staining or sealing, has caught on. Buyers who tend to be in their 50s or older and retired want decks without much maintenance. High rates typically don’t factor into their spending decisions—except in the sense that investment returns have yielded cash to pay for their dream decks.

“They’ve made their money,” Brawner said. “They’re on deck No. 2 or 3.”

At Trex’s plant in Winchester, Va., bales of pallet wrap and recycled grocery bags are piled onto conveyor belts that feed the polyethylene into grinders. The plastic is melted and mixed with wood dust made from scraps Trex gets from flooring and furniture makers.

A Trex board is roughly half wood, half plastic. A 400-square-foot deck contains more than 1,500 pounds of recycled material. Beyond that, Trex guards details of its manufacturing process like the recipe for Coca-Cola, prohibiting photography in its plants and rarely filing patents to protect its methods or machinery.

“Most of what we do, we don’t want on a piece of paper,” said Adam Zambanini, chief operating officer.

The Little Rock facility, being built on 300 acres with room to expand, probably won’t be producing decking until 2026. Until then, Trex is filling shelves east of the Rockies from Winchester.

Originally a record-pressing plant, the factory was expanded during the pandemic along with the company’s facility in Nevada, which supplies the West Coast. All together, the work cost about $200 million and boosted Trex’s manufacturing capacity by about 70%. That too was a big bet made amid economic uncertainty that has paid off, Fairbanks said.

“In 2020 we basically sold out,” he said. “I can’t imagine what the story about Trex would have been if we didn’t have this building coming online.”

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Energy has been a focal point of global events

Cover:
-Energy has been a focal point of global events, including the Israel-Hamas war and the growing electricity consumption of artificial-intelligence applications. Investing in these events has proven challenging. A roundtable of industry experts, including Natasha Kaneva from J.P. Morgan, Stephen Byrd from Morgan Stanley, Stan Majcher from Hotchkis & Wiley, and Lucas White from GMO, discuss oil prices, geopolitics, and the green energy transition. The group also shared their favorite stock picks, including a few stocks that could potentially double or triple. The geopolitical risk premium in the oil market is zero due to three reasons. Firstly, the main players in the Middle East have strong incentives to prevent the conflict from expanding beyond their geographical positions. Gulf states, such as Saudi Arabia, are attempting to re-establish diplomatic relationships with Israel and Iran, but are aware that these transitions are impossible with a militarized Iran.

Interview:
-no interview this week

Tech Trader:
-Alphabet's shares have risen as investors believe it has not fallen behind ChatGPT developer OpenAI and its partner Microsoft. Alphabet's stock has risen 30% since early March when fears of AI rivals eroding its 90% share of search activity peaked. Google's annual developers conference began on May 14, and OpenAI demonstrated its next-generation technology, which provides quick written or spoken answers when prompted in audio, visual, or text input. Google's CEO Sundar Pichai and colleagues demonstrated their own multimedia abilities through its AI engine, Gemini. AI assistants and advisors will be embedded across Google's ecosystem, offering advice on projects and tracking user information. Google's travel tool, which draws on data on flights, hotels, local attractions, and weather, is a good case study for this. Other companies, such as Expedia and Booking.com, have also built AI travel assistants using OpenAI's platform. These tools could create new placements for search ads that bring Alphabet $200B a year.

The Trader:
-Uber Technologies' recent announcement of buying Foodpanda, Delivery Hero's Taiwan-based food-delivery business, for $950M in cash and investing $300M into the company for a 3% stake in the German company, has caused a 16% drop in Uber stock since its peak in March. The acquisition could weigh on Uber's near-term profits, as Delivery Hero is expected to see a $377M net loss this year. If Uber owned Foodpanda, around $11M of its net loss would be attributable to Uber, or about 0.5% of its expected $1.89B of net income this year. However, the market seems to be overreacting, as the deal is strategic and small losses are a short-term blip on the radar that will ultimately boost Uber's earnings substantially. Uber aims to establish itself in Asia, where it gets just over a tenth of its $38B of revenue, which is the highest growth market for food delivery.
-The stock market has seen gains this week, with the S&P 500 index rising 1.4%, the Nasdaq Composite up 2.1%, and the Dow Jones Industrial Average gaining 0.9%. The gains come after the April consumer price index release, which showed a 3.4% year-over-year increase in inflation, down from March's 3.5%. The market was concerned that the Federal Reserve would have to raise rates to bring prices down, but rate cuts are back on the table. The core CPI, which strips out food and energy, increased by 3.6%, and shelter prices, which comprise almost half of the core index, rose 5.5%. Core inflation remains too strong, and if inflation does start trending up again, many pillars of the current rally would fall. Bond yields, which slipped from nearly 5% in April to just over 4.3% this week, have certainly helped stocks rally, but a reversal could send the S&P 500 lower, as has happened in the recent past.

Features:
-Walmart's reliance on wealthier customers, defined as those with household incomes over $100,000, has contributed to its success in the past two years. However, former Walmart CEO Bill Simon warns that this reliance could be a double-edged sword. While attracting affluent shoppers during high inflation and a volatile economy is easy, retaining them once economic conditions improve is harder. Walmart has been gaining market share among wealthier shoppers, which make up about a third of its overall customer demographic. This is important as higher-income shoppers tend to buy more discretionary items, which carry higher margins than groceries. Both investors and company executives want share gains to improve and push revenue higher.
-Nestlé, the world's largest food company, has been experiencing a decline in its stock over the past five years. The company, which generates over $100B in annual revenue, has reported weak sales volume in recent quarters, causing a shift in sentiment towards the company since 2022. Nestlé's U.S. shares have fallen 15% to $105.47 over the past year, lagging behind the S&P 500 index, which has gained over 25%. However, CEO Mark Schneider believes that first-quarter sales were affected by one-time factors and that volume will rebound in the coming quarters. Nestlé's adjusted EPS were up 8% in 2023 and are expected to be at the lower end of the 6% to 10% range this year. Despite missed expectations and a loss of its premium, the company has a good opportunity to recover by delivering decent results in the second quarter and second half of 2024.

Europe:
-The Bank of England is set to become the first major central bank to have a majority of women voting on interest rates. Clare Lombardelli will join the Monetary Policy Committee in July, bringing the number of women on the panel to five. This diversity puts the BOE at the cutting edge for diversity, which psychologists say is important for high-quality decision-making. The change comes as central bank banks worldwide are under scrutiny after failing to see the surge in inflation following the Covid-19 pandemic. Research suggests that greater diversity guards against groupthink, and poor forecasts and ill-considered moves can have big consequences when setting interest rates.

Emerging Markets:
-Vietnam, once an economic tiger and manufacturing rival to China, has been plagued by political infighting. The country's president and parliamentary speaker have both resigned amid concerns of impropriety. Investors are concerned that Nguyen Phu Trong, head of Vietnam's Communist Party, could follow the example of China's President Xi Jinping, purging rivals to forge a quasi-dictatorship. Gregory Poling, director of the Southeast Asia program at the Center for Strategic and International Studies, or CSIS, believes that Trong will at best limp to the next Party Congress in 2026. Vietnam’s economic growth is expected to return to 6%-plus this year after a dip to 5% in 2023 on diminishing global trade. President Joe Biden's visit to Vietnam last autumn and a $250M from Nvidia have helped. Vietnamese talent is ideally suited to the semiconductor and AI sectors. This spells bargains in underappreciated Vietnamese stocks, with top picks such as FPT, an information-technology services pioneer, and Mobile World Investment, a retail chain expanding from its base in electronics to groceries. Still, corruption-linked purges at the top have a chilling effect on lower-level Vietnamese officials, delaying vital infrastructure improvements. The political stalemate may also delay important regulatory upgrades for banking and real estate, sectors highly prone to crisis and scandal. Fallen property tycoon Truong My Lan was sentenced to death last month after bilking a bank she controlled.

Commodities:
-Copper and gold have seen significant gains this year, with front-month futures in New York pricing copper around $5/lb., up over 25% since the start of the year. Gold is up around 16% and traded over $2,400/oz. on Friday, up 0.9%. Factors fueling copper's run include demand trends like utilities upgrading grids, electric vehicle usage, and home-building, as well as energy demand for data centers running AI apps and servers. A supply squeeze with the U.S. awaiting shipments of copper from South America and Australia may keep copper prices rising until shipments arrive. Technical factors are also lifting copper, with commodity traders scrambling to buy physical copper on US exchange CME 0.19%. However, futures markets don't see demand holding up in the near term, as copper futures trading about 6% lower than front-month futures contracts, suggesting demand is expected to fall.

Streetwise:
-McDonald's reported a 2.5% growth in US same-store sales for the first quarter, but its second quarter started flat. The company is set to launch a limited-time $5 meal starting June 25. Shares are down 8% year to date, despite an 11% gain for the S&P 500 index. This could be a sign of consumer stress, as Oreo maker Mondelez International has criticized increasing price sensitivity and Kraft Heinz has seen a pullback by low-income shoppers. UBS expects more promotional activity in the second half of this year, with chains with the most low-income exposure faring worse. Jack In the Box and Chipotle Mexican Grill have seen their shares sink and rise respectively. Starbucks, which skews posh, has seen its shares down 20% this year, including a one-day, 16% plunge after quarterly results. BofA Securities sees little sign of economic stress in average check sizes or add-ons, but Starbucks is likely affected by social-media boycotts related to Israel and Gaza.

>>> Weekend Papers Summary

Weekend Papers Summary

FINANCIAL TIMES
-A St Petersburg court has seized €463M worth of assets belonging to Italy's UniCredit, the European lender with the second-biggest exposure to Russia. This seizure marks one of the biggest moves against a western bank since Moscow's invasion of Ukraine prompted most international lenders to withdraw or wind down their businesses in Russia. The seizure was equivalent to about 4.5% of UniCredit's assets in the country, including shares in subsidiaries of UniCredit in Russia and stocks and funds it owned. The seizure follows a claim from Ruskhimalliance, a subsidiary of Gazprom, a Russian oil and gas giant, demanding UniCredit pay bank guarantees under a contract with German engineering company Linde.
-The European Central Bank (ECB) has instructed Eurozone lenders with Russian operations to expedite their withdrawal plans due to concerns about potential US sanctions. The ECB has written lenders asking for detailed exit strategies and an "action plan" for their Russian business as early as June. Last week, Austria's Raiffeisen Bank International abandoned a deal to swap assets in Russia for ones in Europe due to US intervention. The letters highlight Washington's increasing pressure over European groups supporting Russia's war in Ukraine.
-Google and OpenAI have launched multimodal AI tools that can interpret voice, video, images, and code in a single interface. Google's prototype AI assistant Astra, powered by its Gemini model, responded to voice commands using phone cameras or smart glasses. It successfully identified code sequences, suggested improvements to electrical circuit diagrams, and recognized London's King's Cross area. OpenAI's GPT4o model can perform voice translation in live conversations and interact with users using an anthropomorphized tone and voice to parse text, images, video, and code.
-Workers at a Mercedes-Benz plant in Alabama rejected joining the United Auto Workers union, a significant setback in labor's campaign to organize foreign-owned carmakers in the US south. The National Labor Relations Board reported 2,642 votes against union representation, compared to 2,045 in favor. The plant assembles luxury sport utility vehicles, including electric and ultra-luxe Maybach models. The defeat is a reversal for the UAW, which had hoped the vote would mark a wave of labor gains across the US south. The union plans to continue organizing efforts at the plant.
-Boeing investors have voted against CEO Dave Calhoun's pay package and board re-election at the company's annual meeting, marking one of the biggest revolts this year against a CEO in the Dow Jones Industrial Average. Over a third of investors withheld approval in an advisory vote on executive remuneration. Calhoun is expected to receive $32.8M this year, a 45% raise, but 35% of shareholders objected. Additionally, 22% voted against keeping him as a director of the aircraft manufacturer as it struggles to address safety and quality lapses. Boeing did not immediately comment on the vote results. Boeing shares have declined 27% this year.
-Dutch Labour MP Ronald Plasterk admitted in an open letter to Telegraaf newspaper that he was wrong to discuss events involving Pieter Omtzigt, leader of the centre-right New Social Contract party. Omtzigt has agreed for the NSC to join the new government but has yet to endorse Plasterk as prime minister. This highlights tensions within the four-way coalition led by the Freedom party (PVV) of anti-Islam firebrand Geert Wilders, which took six months to form after Wilders agreed not to become prime minister.
-Taiwan's incoming president, Lai Ching-te, is set to begin his first term on Monday, facing pressure to raise social spending, address economic inequality, and meet US demands to defend against China. The US has been communicating guidelines about Lai's inaugural address with Taiwan, and is keen to ensure he adheres to the China policy line of his predecessor, Tsai Ing-wen. The US has been in contact with officials in Taiwan about Lai's inauguration speech and to underscore long-standing US policy on cross-Strait issues. The US is keen to ensure Lai adheres to the China policy line of his predecessor.
-Moderna has won a case at the European Patent Office in its dispute with Pfizer and BioNTech over its Covid-19 vaccine. The EPO's Opposition Division upheld the validity of one of two disputed patents, a boost for Moderna, which has faced setbacks in its legal battle over Pfizer and BioNTech's Comirnaty vaccine. Pfizer and BioNTech have two months to lodge an appeal, which Pfizer may do. BioNTech said the EPO decision does not change its stance that the patent is invalid and will continue to defend its innovations against patent infringement allegations.
-The first humanitarian aid to reach Gaza by sea via a US-built floating pier arrived on Friday, following a two-month work by US forces at a cost of about $320M. The new aid route has drawn criticism from aid groups, who claim it is costly and limited in capacity to help Gazans facing acute food shortages compared to more efficient land routes. The pier was designed solely for the delivery of humanitarian assistance, with over 300 pallets of food assistance delivered on Friday. A senior UN official called the project a "wasteful distraction" and noted that aid waiting outside Gaza is already available.
-Slovak Prime Minister Robert Fico has regained consciousness after a second surgery, but remains in a "serious" condition two days after being shot multiple times in an assassination attempt. Deputy Prime Minister Robert Kalinák said surgeons had carried out a second operation and it would take several days to determine Fico's recovery. Fico was shot while meeting supporters in Handlová, and authorities apprehended a 71-year-old suspect charged with attempted murder. Fico underwent a five-hour emergency operation at Banská Bystrica, aiming to remove dead tissue from his body.
-Nickel prices reached their highest level in nine months due to political violence in New Caledonia, a French overseas territory with significant mineral deposits. Future contracts for nickel, crucial for electric vehicle batteries and steelmaking, jumped by nearly 7% on the London Metal Exchange to $21,150 a tonne. The price surge coincided with the International Energy Agency's report predicting robust demand for nickel and other minerals critical for cleaner energy transition. Pro-independence protests in New Caledonia left at least four people dead, and French President Emmanuel Macron declared a state of emergency in the territory. Nickel prices have dropped by about 32% from $31,000 at the start of 2023 due to weaker than expected electric vehicle sales in Indonesia.

THE NEW YORK TIMES
-Former President Donald Trump and President Biden have been working to revive American factories by increasing the cost of buying Chinese goods. They have taxed imports in both legacy industries like clothes and appliances and newer ones like solar panels. Biden's decision to increase tariffs reflects the end of a decades-long era of trade with China, favoring lower-cost products over concentrated manufacturing jobs. A single tariff rate on Chinese electric vehicles represents this closure.
-The Pentagon is aiming to increase its space warfare capabilities due to China and Russia's rapid advances in space-based operations. This move is seen as a significant shift in military operations as space becomes a battleground. The Pentagon is now seeking to acquire new ground and space-based tools to defend its satellite network from attack and disrupt or disable enemy spacecraft in orbit. This strategy differs from previous military programs in space by expanding offensive capabilities, unlike the Strategic Defense Initiative proposal in the 1980s, which focused on using satellites to protect the US from nuclear missile strikes.
-A protest group occupied a building in Chicago to protest the University of Chicago's ties to Israel. Video showed protesters climbing through windows to leave, while others remained outside. The protesters attempted to block the entrance, damaged property, and ignored law enforcement orders. The university held a board meeting in the building, including its founder, David Axelrod, who was a senior adviser to President Barack Obama.
-Dmitri A. Medvedev, a former Russian president, compared the assassination of Slovakian Prime Minister Robert Fico to the young man who ignited World War I. He suggested Europe was on the brink of war, with the European Union of 27 members, including Slovakia, aiming to make war impossible on a long-ravaged continent. The association between the assassination of Fico and the assassination of Archduke Franz Ferdinand in Sarajevo in 1914 was a wild association, as the Europe of empires and Auschwitz is long gone. However, with elections to the European Parliament just three weeks away, ominous indications of brewing violence continue.
-A 71-year-old former coal mine worker, onetime stone mason, and lifelong malcontent, has been charged with opening fire at point-blank range on Slovakia's Prime Minister Robert Juraj C., (widely reported to be one Juraj Chintula) a retired coal miner, is believed to be responsible for the shooting. The incident, the worst attack on a European leader in decades, sent shock waves across Europe. Slovakia's prosecutor has placed an embargo on information relating to the case and banned the police from disclosing the man's name. However, the prosecutor's office has reportedly identified the man as Juraj C., the name widely reported by Slovakian news media. It is unclear if the suspect has a lawyer.
-The US military has built a temporary pier to send humanitarian aid into Gaza, marking the first sea-bound aid shipment in two months. However, the new aid shipments are far short of what humanitarian groups say is needed to address the high levels of hunger and deprivation in the enclave. The US military has anchored the floating pier and causeway to the beach in Gaza, a key step in completing a maritime corridor announced by the Pentagon in March. The war-torn territory of 2.2M civilians is increasingly reliant on aid due to Israeli bombardment, strict inspections, and restrictions on crossing points.
-Houston experienced a severe storm on Thursday, causing widespread damage to the city. The Astros continued playing baseball despite rain and wind, while many people were unaware of the storm. By Friday, the city was littered with debris, including decades-old oak and pecan trees, fences, and roadways. Stop signs and highway billboards buckled, and local lawyers' signs were flattened into empty lots. The storm was as strong as some hurricanes that have hit the city in recent years.
-Republican vice-presidential contenders and party officials were confronted with testimony accusing Trump of writing checks for bogus legal expenses to hide hush-money payments to a porn star. Despite this, none of the conservatives in the courtroom flinched or raised an eyebrow, including Gov. Doug Burgum of North Dakota and Representative Byron Donalds of Florida, who are under consideration for Trump's running mate. Their stoic, protective presence underscores the biggest political quandary facing ambitious Republicans: how to fiercely defend Trump without stealing his spotlight.
-A state ethics panel dismissed a complaint against a New York judge over the criminal trial of Donald Trump, warning him about small donations he made to Democrats, including the Biden campaign. The judge, Juan M. Merchan, donated $35 to these groups in 2020, including a $15 donation for the Biden campaign and $10 to "Stop Republicans." Political contributions are prohibited under state judicial ethics rules. A caution was issued, which can be considered in future cases reviewed by the state's Commission on Judicial Conduct.

THE NEW YORK POST
-Former President Donald Trump is set to hold a campaign rally in the South Bronx next week, marking his first major gathering of supporters in his native state since his first White House bid. The rally, scheduled for May 23 in Crotona Park, will feature Trump discussing the Empire State's economy, crime rate, and migrant crisis. The event follows a record-breaking event at the Jersey Shore. Team Trump criticized Biden's failed policies, stating that New Yorkers have suffered greatly.
-IRS whistleblowers have requested a judge to dismiss a lawsuit filed by Hunter Biden, who sued the IRS over alleged leaks of his tax information. Biden, 54, claimed the whistleblowers violated his privacy rights and attempted to embarrass him. The IRS, not Shapley and Ziegler, is the only defendant in the lawsuit, and they fear conflicts of interest may result in the IRS failing to defend their protected disclosures.
-OpenAI has eliminated its "Superalignment" team, which was created to create safety measures for advanced general intelligence systems, less than a year after its formation. The team was tasked with preventing the disempowerment of humanity or even human extinction. The departure of executives Ilya Sutskever and Jan Leike came just days after the team's dissolution, highlighting the company's focus on product development over safety.

FT : Russian court seizes assets worth €700mn from UniCredit, Deutsche Bank and

Russian court seizes assets worth €700mn from UniCredit, Deutsche Bank and Commerzbank
Move against western lenders follows dispute with a subsidiary of Gazprom

A St Petersburg court has seized over €700mn-worth of assets belonging to three western banks — UniCredit, Deutsche Bank and Commerzbank — according to court documents.

The seizure marks one of the biggest moves against western lenders since Moscow’s full-scale invasion of Ukraine prompted most international lenders to withdraw or wind down their businesses in Russia. It comes after the European Central Bank told Eurozone lenders with operations in the country to speed up their exit plans.

The moves follow a claim from Ruskhimalliance, a subsidiary of Gazprom, the Russian oil and gas giant that holds a monopoly on pipeline gas exports.

The court seized €463mn-worth of assets belonging to Italy’s UniCredit, equivalent to about 4.5 per cent of its assets in the country, according to the latest financial statement from the bank’s main Russian subsidiary.

Frozen assets include shares in subsidiaries of UniCredit in Russia as well as stocks and funds it owned, according to the court decision that was dated May 16 and was published in the Russian registrar on Friday.

According to another decision on the same date, the court seized €238.6mn-worth of Deutsche Bank’s assets, including property and holdings in its accounts in Russia.

The court also ruled that the bank cannot sell its business in Russia; it would already require the approval of Vladimir Putin to do so. The court agreed with Rukhimallians that the measures were necessary because the bank was “taking measures aimed at alienating its property in Russia”.

On Friday, the court decided to seize Commerzbank assets, but the details of the decision have not yet been made public so the value of the seizure is not known. Ruskhimalliance asked the court to freeze up to €94.9mn-worth of the lender’s assets.

The dispute with the western banks began in August 2023 when Ruskhimalliance went to an arbitration court in St Petersburg demanding they pay bank guarantees under a contract with the German engineering company Linde.

Ruskhimalliance is the operator of a gas processing plant and production facilities for liquefied natural gas in Ust-Luga near St Petersburg. In July 2021, it signed a contract with Linde for the design, supply of equipment and construction of the complex. A year later, Linde suspended work owing to EU sanctions.

Ruskhimalliance then turned to the guarantor banks, which refused to fulfil their obligations because “the payment to the Russian company could violate European sanctions”, the company said in the court filing.

The list of guarantors also includes Bayerische Landesbank and Landesbank Baden-Württemberg, against which Ruskhimalliance has also filed lawsuits in the St Petersburg court.

UniCredit said it had been made aware of the filing and “only assets commensurate with the case would be in scope of the interim measure”.

Deutsche Bank said it was “fully protected by an indemnification from a client” and had taken a provision of about €260mn alongside a “corresponding reimbursement asset” in its accounts to cover the Russian lawsuit.

“We will need to see how this claim is implemented by the Russian courts and assess the immediate operational impact in Russia,” it added.

Commerzbank did not immediately respond to a request for comment.

Italy’s foreign minister has called a meeting on Monday to discuss the seizures affecting UniCredit, two people with knowledge of the plans told the Financial Times.

UniCredit is one of the largest European lenders in Russia, employing more than 3,000 people through its subsidiary there. This month the Italian bank reported that its Russian business had made a net profit of €213mn in the first quarter, up from €99mn a year earlier.

It has set aside more than €800mn in provisions and has significantly cut back its loan portfolio. Chief executive Andrea Orcel said this month that while the lender was “continuing to de-risk” its Russian operation, a full exit from the country would be complicated.

The FT reported on Friday that the European Central Bank had asked Eurozone lenders with operations in the country for detailed plans on their exit strategies as tensions between Moscow and the west grow.

Legal challenges over assets held by western banks have complicated their efforts to extricate themselves. Last month, a Russian court ordered the seizure of more than $400mn of funds from JPMorgan Chase following a legal challenge by Kremlin-run lender VTB. A court subsequently cancelled part of the planned seizure, Reuters reported.