The Morning Risk Report: Regulators Cite Big Banks Over Living Wills

Good morning. Federal regulators on Friday raised doubts about how some of the biggest banks in the country would try to wind themselves down in the event of a failure.

• Who’s being cited? The Federal Reserve and the Federal Deposit Insurance Corp. said wind-down plans from JPMorgan Chase, Bank of America, Goldman Sachs and Citigroup all had weaknesses, raising questions about their feasibility. The plans, known as living wills, detail how they would wind down operations and repay creditors if they went bust.
   
• More on Citi: The regulators were divided on Citi’s plan, with the FDIC giving it a failing grade as “not credible” and the Fed listing it as a less-severe falling short. The Wall Street Journal previously reported that the FDIC planned to fail Citi, which has a list of issues regulators have already ordered it to fix. The other three banks were all given shortcoming ratings.
   
• What’s next? The banks have a year to address the problems when they submit their next living wills to the government in 2025.
   
• The background: The eight largest banks in the country have been required to submit plans to regulators since the collapse of several large banks during the 2008 financial crisis, including Lehman Brothers, which fell into chapter 11 bankruptcy without a plan of reorganization. Regulators can issue serious penalties over living will deficiencies, such as forcing the banks to hold more capital or limiting their ability to grow assets.

U.S. sanctions Kaspersky executives following ban of its software.

U.S. officials have imposed sanctions on much of the top leadership of Kaspersky Lab after a recent move to ban its antivirus software, billing the new measure as a response to continued cybersecurity risks.

Treasury Department officials Friday placed sanctions on 12 senior leaders at Kaspersky, but chose not to sanction the company itself nor its chief executive, Eugene Kaspersky.

The action follows an announcement from the Biden administration Thursday that it would bar Kaspersky Lab from selling to U.S. businesses or individuals over concerns that the firm poses a national-security threat. The ban was the first of its kind imposed by the Commerce Department on a foreign company.

U.S. advances rule on investment in China.

The Treasury Department took another step toward completing rules on investment in China, part of a Biden administration effort to maintain a competitive technological edge amid growing economic competition between the two countries.

The rule proposed Friday would create what officials characterized as a “narrow and targeted” national security program under which the Treasury could prohibit transactions by U.S. persons involving sensitive technologies such as artificial intelligence, semiconductors and quantum computers.

The proposal would allow the Treasury to specifically prohibit investments in countries that pose a national security concern. For now, the Biden administration has named China as the sole focus of the program, according to an executive order issued last year.

Click here to read more about the new rule. Comments on the proposal are due by Aug. 4, the Treasury said.

• Under Armour said it has agreed to pay $434 million to settle a yearslong lawsuit into claims that co-founder Kevin Plank misled investors about the company’s health.
   
• The European Union has charged Apple with failing to comply with a new digital-competition law, alleging the iPhone maker’s App Store isn’t allowing developers to freely direct customers to alternative ways to make purchases. The charges announced Monday are the first to be issued under the EU’s Digital Markets Act.
   
• Apple said it likely won’t roll out artificial-intelligence features to millions of customers in Europe this year because of concerns over the European Union’s technology-industry regulations.
   
• A trio of super political-action committees championing the crypto industry is sitting on more than $100 million in cash for its pursuit of electing a friendlier Congress.
   
• The Supreme Court ruled Friday that U.S. citizens don’t have a fundamental right to have their noncitizen spouses admitted to the U.S.
   
• A jury on Friday convicted Terren Peizer, the former chairman of healthcare company Ontrak, of insider trading despite his use of a prearranged, executive trading plan, a strategy that usually shields executives against suspicions of insider trading.
   
• Australia plans to tighten regulations on supermarkets, including strengthening a code of conduct and introducing new penalties, amid concerns that big grocery chains have too much leverage over their smaller suppliers.

Putin and Kim bring back Cold War-era military alliance to tense region.

The revival of a Cold War-era military pact between Russia and North Korea has unnerved the U.S. and its main Asian partners, stirring uncertainty and concern that the agreement could undermine regional security.

The clause. The accord signed by Russian President Vladimir Putin and North Korean leader Kim Jong Un on Wednesday includes a clause under which if one country is attacked, the other would provide “military and other assistance with all means in its possession without delay.”

Car, truck dealers assess fallout from CDK cyberattack.

The auto industry was trying to size up, and minimize, damage from a cyberattack this week that disrupted how dealers operate.

CDK Global software customers Sonic Automotive and Penske Automotive Group both reported in federal filings Friday that the outage affected some business dealings.

The fallout. Like many dealerships, Sonic lost access to its dealer management system, and its dealerships are operating with workaround solutions, the filing said. Penske said its commercial truck dealership business used CDK Global systems and that it was using manual or other workarounds.

• When war erupted in Gaza last year, the Biden administration hoped to keep the conflict short, stay closely aligned with Israel and stem the war’s spread to Lebanon and other parts of the Middle East. Eight months later, achieving those goals is proving increasingly difficult, highlighting a political vulnerability for President Biden.
   
• Ship backups that plagued seaports during the Covid pandemic are making a comeback, as vessel diversions because of attacks in the Red Sea trigger gridlock and soaring costs at the start of the peak shipping season.
   
• Business activity in the U.S. continued to grow rapidly this month, according to surveys of purchasing managers released Friday, but there were signs of a surprise slowdown in Europe.
   
• Sentiment at German companies has become more pessimistic on weakening expectations for business conditions ahead, according to a monthly survey.
   
• China’s foreign direct investment fell further in May, extending a streak of declines for the 12th straight month, official data showed.
   
• Certain words that many companies use in their annual reports—words like ethical, integrity and responsibility—are meant to convey trustworthiness. But new research suggests that companies that use such words in annual filings known as 10-Ks are associated with a variety of negative outcomes.
   
• Food-delivery apps have responded to cities’ new wage-increase requirements for gig workers by ratcheting up fees. Now, they are contending with frustrated consumers, plunging restaurant orders and an exodus of delivery drivers.
   
• Rising healthcare prices have long eroded American wages. They are doing that by eating into jobs.
   
• Artificial intelligence is making scammers tougher to spot.

• Chicago’s ills—from the migrant crisis to pockets of violent crime to shuttered business—threaten to cast a shadow over the August convention in this Democratic-run city. Republicans plan to make sure they do.
   
• A General Dynamics facility slated to make artillery shells is part of the Pentagon’s push to produce more weapons domestically.
   
• Israeli Prime Minister Benjamin Netanyahu on Sunday said Israel is close to shifting to a less-intense phase of fighting in Gaza.
   
• In its hustle to catch up on AI, Apple has been talking with a longtime rival: Meta.
   
• Meta Platforms won’t be training its artificial-intelligence models using data from European Instagram and Facebook users anytime soon. But it’s already tapping into information from U.S. accounts and using it to make its chatbot smarter.
   
• Can U.S. startups improve their chances of success by moving to a tech hub? A recent paper suggests the answer is often yes, but certain locales offer bigger benefits than others.