The Week in Breakingviews: When fines are fine

1. Alibaba’s AI capex splurge implies a “mid-teens” return on invested capital, Morgan Stanley analysts calculate. (Time to deliver) 2. U.S. and Canadian cinemas sold $4.4 billion of tickets between May and August 23, about 6% ahead of 2019. (Thanks to higher prices) 3. Absolut vodka owner Pernod Ricard’s sales fell 19% year-on-year in China in the financial year to June. (Time for a dividend cut) 4. Nvidia had struck $70 billion of direct equity investments as of August 17. (Plus $230 billion of backstops) 5. Unitree and its rival Chinese robot makers may ship 100,000 units this year. (But its CEO is not smiling) Of all the so-called Trump trades that rose to prominence at the start of the U.S. president’s second term, prison stocks have been arguably the most enduring. GEO and CoreCivic together oversee approximately 165 correctional facilities, with space for roughly 160,000 inmates. As Jeffrey Goldfarb writes, they’ve trounced the benchmark S&P 500 Index since November 2024, even though violent crime has been falling for years. An enlarged and emboldened Immigration and Customs Enforcement agency is keeping wardens busy, but it doesn’t look politically or financially sustainable. Beijing has been tightening its grip on Chinese wealth held outside of the mainland, particularly in Hong Kong. It’s not great news for insurers like AIA and Prudential. Policies bought in the financial centre have long been a popular channel for mainland visitors to diversify their assets offshore. But as Katrina Hamlin showed in this chart on Thursday, which was published alongside a piece about Prudential’s results, the underlying demand is still strong. And some types of policies seem less vulnerable than others. In India, meanwhile, Shritama Bose dug into a decision by the local regulator to bar a JPMorgan entity and another Mumbai-based broker. It’s part of a wider crackdown on what the watchdog sees as market manipulation in the country’s $6 trillion equity derivatives market. The financial penalty in this case? Just a few hundred thousand dollars. That won’t trouble JPMorgan boss Jamie Dimon much. More broadly, it’s notable that fines and other similar penalties don’t seem to have kept pace with soaring stock markets in recent years. Good Jobs First, a non-profit that “promotes corporate and government accountability in economic development”, keeps a database that tracks regulatory punishments and other payouts related to corporate misconduct, including many legal cases like those brought by state attorneys general. Total annual U.S. penalties peaked at $84 billion in 2024, but that figure was not much bigger than the previous high of $81 billion in 2015. For comparison, the total value of the benchmark S&P 500 Index almost tripled over the same period. In other words, the drag to shareholders from corporate misconduct seems to be fading as a percentage of overall market capitalisation. No CEO wants to be in the position that Mark Zuckerberg found himself in this week. His tech giant Meta Platforms on Wednesday agreed to pay up to $18 billion to settle claims, made by nearly all U.S. states, that the company designed Facebook and Instagram to keep children addicted to social media. Still, its shares ended the day up 1%, indicating either that investors didn’t care or perhaps that the sum was smaller than they feared. As Jonathan Guilford pointed out, it’s a tiny amount relative to the roughly $80 billion of net income that analysts expect Meta to generate this year. The legal payments are also spread over a decade, which means they’re lower in today’s money than the headline figure suggests. For the sake of simplicity, assume 10 equal installments starting immediately and discounted at a 10% rate. The present value would be $12 billion, or 0.8% of Meta’s almost $1.5 trillion market capitalisation. True, in both cases the real punishment is arguably non-financial. Zuckerberg, for example, pledged meaningful changes to Meta’s apps, including age verification, limiting 14-to-17-year-olds to two hours of usage and restricting night-time notifications. Yet Jonathan is sceptical that these tweaks will amount to much, concluding that Meta has ultimately paid a small price to secure its industry status. None of this is to say that Zuckerberg can rest easy. He will have a lot of other things on his mind this weekend. Robert Cyran, drawing on a Reuters investigation, on Wednesday examined why Meta’s efforts to remake itself around artificial intelligence have run into repeated setbacks. The takeaway is striking. Technological revolutions are always tough for incumbents, and Meta is now one of them. That’s a far bigger problem for the company than a legal bill that failed to dent the share price.

The Week in Breakingviews: When fines are fine

Other notes from the week

China wealth controls and Hong Kong insurers

Fines and penalties look smaller beside market gains

Meta settles legal claims at a cost investors barely noticed

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