Last week two companies became the first public filers to cite the incoming Trump Administration as a risk worth disclosing in the Risk Factors section of their quarterly reports. We haven’t seen any more since then, although we will in the future.
Several people wrote to me after that post last week, essentially saying—well, so what? The disclosures from those first two companies didn’t offer any specifics, and companies cite political risk in their Risk Factor disclosures all the time. Plus, these people said, Corporate America knows hardly anything about President-elect Trump’s priorities; the risks that a filer discloses today are premature.
That’s fair criticism. By next spring, however, the Trump Administration will be moving ahead with its agenda (whatever that might be) and companies will be filing their reports for first-quarter 2017. So we should see a much broader collection of Trump risk disclosures by then. Some might even transcend the boilerplate that companies usually paste into their risk factors and, you know, say something.
Which companies are most worth watching for what they say about the Trump Administration? I have five picks, in alphabetical order.
Apple is one of the companies Trump mentioned by name during his campaign, saying it should bring production of its products back to the United States. If not, he threatened, a Trump Administration could impose a tariff on those products (of anywhere from 33 to 45 percent, depending on which Trump tirade you’re quoting) as they re-enter the U.S. market for sale.
Do I believe Trump will make good on that specific threat? No, but he’s likely to dragoon born-again protectionists in Congress into changing U.S. trade law somehow. And Apple reportedly has asked some suppliers about whether moving some manufacturing back to the United States might work.
Regardless, Apple more than any other company today embodies the ideas of the modern supply chain. So any disclosure of how a Trump Administration might affect its supply chain strategies, risks, and benefits would be worth reading.
We all know that last month AT&T proposed an $85 billion takeover of Time-Warner. Trump immediately railed against that deal, calling it exactly the concentration of corporate power that he wants to prevent. I’m sure Trump would rail at other mega-mergers, too, if given the chance, but this one is the largest we’ve seen in a while and had the headlines to catch his attention.
In theory, Trump will have more power to act here since he gets to appoint the Justice Department officials who will perform the required antitrust review. Who will that assistant attorney general for antitrust be? We don’t know. And Trump just fired Kevin O’Connor, a highly respected former Justice Department official managing the transition team for that department.
Still, sometime next year this politically volatile merger will come up for antitrust review. And despite the Federal Reserve edging toward higher interest rates, and Trump’s infrastructure spending plan to revive organic growth in the economy—the macro-economic environment will still be ripe for mega-mergers for a while yet. So what happens with AT&T is another item to watch closely.
Deutsche Bank is interesting because it is one of the largest lenders to the Trump Organization—and now the head of the Trump Organization will oversee numerous U.S. investigations into possible misconduct at the bank.
According to one Wall Street Journal estimate, DB has participated in loans of more than $2.5 billion to Trump or his business interests since 1998. Meanwhile, the bank is currently under investigation by the Justice Department for mortgage securities fraud. In September word leaked that the Justice Department wanted a settlement of $14 billion, high enough to jeopardize DB’s capital reserves and cause heartburn in Europe. By last month a new number of $5.4 billion emerged.
Now, I never expect DB to disclose, “We are in considerable regulatory enforcement trouble with the United States, but the president knows we could cut off his company’s access to liquidity tomorrow.” Still, that inherent conflict of interest will always be present during the Trump Administration. The bank should at least acknowledge that the relationship exists, and ideally it would give investors some sense of the extent of that relationship.
And Deutsche Bank is only one of many companies that will now have potential conflicts of interest with the United States.
United Technologies Corp.
UTC might face more pressure than any other company on this list. UTC is the parent of Carrier Corp., which Trump singled out for criticism after Carrier announced it will move 1,400 jobs from Indiana to Mexico. As of this week, those Carrier workers still expect Trump to save their jobs, and UTC has no plans to change Carrier’s course.
Presumably that means UTC will face the same international trade risks that Apple might face, but with more pointed political significance. UTC did not name any specific political risks in its third quarter report (filed at the end of October). In its 10-K filed earlier this year one can find the usual boilerplate about “changing political conditions,” but that’s about all.
One hint: UTC does list U.S. government contracting as a risk, since that’s a lucrative line of business for the company. Could Trump try to cut a deal, where he threatens to cancel other contracting work if Carrier proceeds with its relocation? Or offer more contracting if Carrier cancels its plans? That sounds like the sort of deal Trump would like to make, although it violates any number of good government and good business principles.
The Bigger Picture
Any other number of companies will face uncertainty and risk because of the Trump Administration. So why do these four matter so much? Because we don’t yet know how much Trump might try to use the executive branch for his personal vendettas and political score-settling—with Corporate America as the victim. Any of these four companies could demonstrate that Trump sees his judgments and interests as paramount, institutional history and integrity be damned.
Quarterly reports for first-quarter 2017 will start hitting our desks in about five months. Should make for some interesting reading.