Apple's Tax; Twister Hits; Dimon Wins
Recapping the day's news and newsmakers through the lens of CNBC.
Taking a Tax Bite Out of Apple
Apple CEO Tim Cook faced a testy bunch of politicians on Capitol Hill on Tuesday, called in to testify about Apple's use of international domiciles for tax purposes. While the Apple CEO said that the tech giant pays every dollar of tax it owes, the Senate Permanent Subcommittee on Investigations released a damning report ahead of Cook's testimony accusing Apple of taking advantage of international subsidiaries and discrepancies in country-to-country tax codes to create what is in effect "shell" corporations hiding billions of dollars in taxes.
Cook's testimony put a spotlight on Apple's tricky tax situation, but the bigger issue for business is corporate tax reform and the impact of taxes on business and economic growth.
Will Duff-Gordon, research director at Markit, told CNBC that falling corporate tax has been a critical driver of profitability over the past two decades.
Other multinational corporations, in particular, will be watching the events closely as the Senate continues to explore corporate tax reform. Congress previously grilled Microsoft and Hewlett-Packard about the issue.
Sen. Rand Paul (R-KY) took exception to the premise of the hearing, getting into an argument with committee Chairman Sen. Carl Levein (D-Mich.) and calling on Congress to apologize for "bullying" Apple.
"I'm often asked if Apple still considers itself an American company. My answer has always been an emphatic yes. We are proud to be an American company and equally proud of our contributions to the American economy."—Tim Cook, Apple CEO
The government "is bullying, berating and badgering one of America's greatest success stories. If anyone should be on trial here it's Congress. I frankly think the committee should apologize to Apple. The Congress should be on trial here for creating a bizarre and byzantine tax code."—Sen. Rand Paul
"A CEO would come under a lot of fire for not being as clever as he or she can be about optimizing their tax. These are the rules that are in place. There are incentives to put your sales where you get good discounts and to put your cost base where you get good grants. Governments haven't kept up with globalization."—Will Duff-Gordon, research director at Markit
Multibillion-Dollar Tornado Damage
The devastating tornado in Oklahoma could result in as much as $2 billion in damages, according to estimates by Kinetics Analysis shared with CNBC on Tuesday.
The area around Oklahoma City remains vulnerable to tornadoes in the weeks to come.
"Seeing that moisture moving up from the Gulf [of Mexico] in the Midwest, we're probably in for a few pretty tough weeks here."—Chuck Watson, director of research and development at Kinetic Analysis
Yahoo's Mayer Tumbles
A day after her billion dollar gamble on Tumblr, Yahoo CEO Marissa Mayer dished on the deal on CNBC.
Mayer said the $1.1 billion deal was supported by all traditional valuation methodologies, countering skepticism about the price for a company that has no profit and no clear and proven monetization strategy. She also dismissed the idea that the "cool" factor played any role in the deal.
The company will try to pull some of Tumblr's content into Yahoo's core properties, but Tumblr will remain independent, Mayer said, adding that idea exchange and collaboration are key to making the acquisition work.
"We bought a growth opportunity. We've been very clear that our goal is to grow, to grow with the market and eventually to grow faster than the market. Tumblr is hypergrowth. The massiveness of that user base is amazing, so growing our audience by 50 percent to more than 1 billion users per month that is huge."—Marissa Mayer
"I have no idea what Marissa's expectations are, but this is still my baby and where I'm giving all of my heart and attention."—David Karp, Tumblr CEO
JPMorgan's Dimon Seat(s) Secure
A proposal to cleave the roles of chairman and CEO at banking giant JPMorgan Chase was defeated in a shareholder vote Tuesday, strengthening the hand of the embattled Jamie Dimon. The vote was seen as a referendum within corporate America on the issue of one executive serving in both capacities, a common practice that has come under increasing scrutiny from shareholders.
Thirty-two percent of JPMorgan shareholders supported the split, down significantly from last year's tally of 40 percent on the same issue, a reversal that will embolden companies that still embrace having one person serve as both chairman and CEO.
"We do believe the current governance structure, with Jamie Dimon serving as both chairman and CEO, and an independent-minded board, has served the shareholders well and is right for the company at this time. All you need to know is that the board can fire management and management cannot fire the board."—Lee Raymond, JPMorgan Chase's presiding director and the former CEO of Exxon Mobil
"This was a victory for Dimon, clearly, but you wonder if it was a loss, too, because of all the attention focused on him. You have to think that 32 percent stays energized for next year."—Charles Elson, a corporate governance expert and a business professor at the University of Delaware
More Fed Speak
A day before Federal Reserve chairman Ben Bernanke will appear on Capitol Hill and the Fed will release the notes from its most recent Open Market Committee meeting, the "ultimate Fed watcher," Wall Street Journal Fed columnist Jon Hilsenrath, told CNBC that the Fed hasn't figured out the "when" but has an idea of the "how," when it comes to the big question: ending quantitative easing.
Hilsenrath said metaphorically he thinks it's going to be a dial as opposed to an on/off light switch. In past rounds of QE, the Fed just turned off the switch, but right now there is a lot more uncertainty on how the economy is doing and how QE policy is affecting the economy, so the central bank wants to dial QE back slowly. The Fed watcher said the program will be turned off in increments that could play out over several months. But Hilsenrath stressed that the Fed and Bernanke wouldn't want to give the markets any certainty right now because they themselves don't know the exact answer.
The big wildcard in Bernanke's Capitol Hill testimony would be any unexpected comments on concerns about the lack of inflation—inflation is currently below the Fed's target of 2%. Hilsenrath said his sense of Fed thinking is that they are not too worried, but if they are worried, that would suggest a dialing up of bond buying, rather than a winding down.
"They haven't pinpointed when they are going to do it…Bernanke does not like to get out in front of his committee. He will tell us this is something they are studying and it really, really depends on how the economy does in the next few months."—Jon Hilsenrath, Wall Street Journal