Donovan dropping out as Trump's nominee for deputy Treasury secretary

NEW YORK — Jim Donovan is dropping out as President Donald Trump’s nominee to serve as deputy Treasury secretary.

The Goldman Sachs executive, nominated in March to serve as Treasury Secretary Steven Mnuchin’s No. 2, informed the White House this week that he could not take the job due to family concerns. He was expected to play a critical role in helping shape the administration’s tax reform policy through Capitol Hill.

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"I am deeply honored by President Trump's decision to nominate me as Deputy Secretary of the U.S. Department of the Treasury,” Donovan said in a statement. “However, at this time I want to focus on my family, and I can no longer accept it. I hope to be able to serve this administration in the future and fully support President Trump and Secretary Steven Mnuchin's ongoing work to reform the tax system and grow the U.S. economy.”

Donovan’s departure will come as the administration struggles to push the focus back to its major policy initiatives and away from a series of revelations about the administration and Russia.

“Secretary Mnuchin offers Jim his support and friendship as he focuses his attention on his family,” Treasury spokesman Tony Sayegh said in a statement Friday. “Jim has been an enormous asset to the department helping recruit and fill many of the senior jobs at Treasury. He appreciates Jim’s continued support of the President and his administration.”

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Donovan, a Goldman partner and managing director, is close to Mitt Romney and served as one of the 2012 GOP nominee’s top fundraisers. He was also a top fundraiser and economic adviser for Jeb Bush in the 2016 campaign. He joined Goldman in 1993 and covered major clients in both investment banking and investment management.

Donovan’s loss will be keenly felt inside the Treasury building, since he helped hire all of the political appointees. He was also seen throughout Washington as one of the administration's incoming “grown-ups” meant to bring order and management skills to the department's staff, many of whom have no government or economic policy expertise, said one lobbyist close to the administration.

“His job was going to involve breaking down the secrecy and walls currently in place in the building and to help forge a team that could advocate for the best policies,” the lobbyist added.

Mnuchin now must fill his slot, as well as the key position of the undersecretary for domestic finance, at a time when the administration is weighed down by multiple investigations and scandals.

Nancy Cook contributed to this report.</s>WASHINGTON — Goldman Sachs banker James Donovan has dropped out of the running for deputy Treasury secretary. Donovan was nominated in March to become Treasury Secretary Steven Mnuchin's right-hand man.

But he withdrew his name as nominee this week over family concerns, he said in a press release. The news was first reported by Politico.</s>Jim Donovan, a Goldman Sachs executive, has withdrawn his name from consideration for Deputy Treasury Secretary, according to Politico's Ben White.

Donovan was nominated on March 14 and was one of a handful of Goldman alums named to administration positions, including Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn.

According to Politico, Donovan told the White House he was removing his name from consideration this week due to family concerns. Donovan provided a statement to Politico:

"I am deeply honored by President Trump's decision to nominate me as Deputy Secretary of the U.S. Department of the Treasury. However, at this time I want to focus on my family, and I can no longer accept it. I hope to be able to serve this administration in the future and fully support President Trump and Secretary Steven Mnuchin's ongoing work to reform the tax system and grow the US. economy.”

The Treasury Department spokesperson Tony Sayegh told Business Insider Donovan was an "enormous asset" to Mnuchin since he was nominated but the secretary understood his decision to leave.

"Secretary Mnuchin offers Jim his support and friendship as he focuses his attention on his family," Sayegh said. "Jim has been an enormous asset to the department helping recruit and fill many of the senior jobs at Treasury. The Secretary appreciates Jim’s continued support of the President and his administration."

Donovan is a long-time GOP fundraiser, helping to gather donations for Mitt Romney in 2012 and Jeb Bush in 2016.

At Goldman, Donovan has held various roles in the investment banking and investment management divisons.</s>Goldman Sachs Group Inc banker James Donovan who was nominated by U.S. President Donald Trump as deputy Treasury secretary, has withdrawn his name, according to a person familiar with the matter.

Donovan will return to Goldman, the person added, asking not to be named because the matter is private. He withdrew from the position for personal reasons, the person said.

Donovan could not be reached immediately for comment but a Treasury Department official confirmed he was withdrawing.

“Secretary (Steven) Mnuchin offers Jim his support and friendship as he focuses his attention on his family,” Treasury Assistant Secretary of Public Affairs Tony Sayegh said in a statement. “Jim has been an enormous asset to the department helping recruit and fill many of the senior jobs at Treasury. The Secretary appreciates Jim’s continued support of the President and his administration.”

Donovan joined Goldman in 1993 and has worked in investment banking, investment management and corporate strategy since then.

Donovan has given a lot of money to Republican candidates over the years, including his longtime client Mitt Romney who ran for president in 2012.

He is just one of several Goldman executives who were tapped for positions in the Trump administration, including top economic advisor Gary Cohn.</s>WASHINGTON (AP) — President Donald Trump’s choice to be deputy treasury secretary, bank executive Jim Donovan, is withdrawing from consideration to be second in command to Treasury Secretary Steve Mnuchin.

Treasury spokesman Tony Sayegh says Donovan withdrew to focus “his attention on his family.”

Sayegh said in a statement Friday: “Jim has been an enormous asset to the department helping recruit and fill many of the senior jobs at Treasury. The Secretary appreciates Jim’s continued support of the president and his administration.”

Donovan is a managing director at Goldman Sachs and an adjunct professor at the University of Virginia School of Law. He would have helped Mnuchin, who also once worked at Goldman Sachs, in the administration’s push to overhaul taxes and crack down on terrorist financing.</s>In my youth, the brokerage firm E.F. Hutton had a famous series of television ads with the tag line, "When E.F. Hutton talks, people listen."

The ads are now period pieces, and E.F. Hutton was long ago merged into Smith Barney, which was owned first by Citi (NYSE:C) and now by Morgan Stanley (NYSE:MS).

Is there a financial institution today that causes people to perk up and listen when it speaks? Well, of course, there are several such institutions, but the one I regard as preeminent is Goldman Sachs & Co. (NYSE:GS).

Like every large institution, Goldman Sachs has its share of employees whose greater skills are in the realm of the political rather than the financial. But, partner for partner, employee for employee, few if any firms can match its overall high level of quality.

I offer these kind words even though, in the past, I have been scathingly critical of Goldman Sachs' relationship with Tesla (NASDAQ:TSLA). If you don't believe it, take a look at what I wrote in Tesla, Goldman Sachs And Lenin or Goldman Sachs Plays A Rotten Role In Tesla-SolarCity Deal.

Why so scathing? Because I hold Goldman Sachs to a much higher standard than the minor leaguers at, for instance, Dougherty & Co., Cowen & Co., or Robert W. Baird & Co.

Moreover, Goldman Sachs has been a lead underwriter for Tesla since Tesla's initial public offering. While this creates an obvious danger of pro-Tesla bias, it also gives Goldman Sachs an incentive to give straight information to its investor clients who buy the stocks and bonds it helps peddle. (And, yes, I know about the Chinese wall between the investment banking side and the equity research side, but I also know about human nature.)

One other huge factor: ever since David Tamberrino replaced Patrick Archambault as the lead equity research analyst covering Tesla, Goldman Sachs' Tesla research has jumped up several notches on the quality scale.

As Tesla research goes, it is now approaching the gold standard of Tesla research analysts: Barclays Capital, Inc. (NYSE:BCS), with its research team led by Brian Johnson (who, one might note, manages to ask the most penetrating and useful questions in conference call after conference call).

In a related vein, Goldman Sachs' role gives it an inside edge in gathering information. A recent example of Goldman's inside track is the meeting it recently arranged with Aaron Chew, Tesla's Vice President of Investor Relations, about which more in a moment.

For all these reasons, when Goldman Sachs talks about Tesla, I listen. And I listen carefully.

Goldman Sachs was talking about Tesla again when it published its latest note on Tesla on May 15, after that meeting with Mr. Chew.

I've seen reports about how Goldman's May 15 note cut its forecast for Q2 deliveries by 1,000 cars because of a potential pull-forward of China demand. The implications of that finding, though, have not been explored, and they are significant.

Moreover, several other aspects of the Goldman Sachs note appear not to have been reported at all. Yet they seem far more important than the delivery adjustment.

Here, I discuss five key features of the Goldman Sachs note that have gone unnoticed.

1. Does Goldman See Another Capital Raise This Year?

As part of its note, Goldman Sachs updated its forecast financials. Take a look at this part of the cash flow statement:

Goldman Sachs sees a total of $3.8 billion in cash flow from financing in 2017.

Some of that cash, of course, has already flowed, primarily from Tesla's capital raise in March. Tesla's most recent 10Q shows net cash flow from financing activities of $1.6 billion through March 31.

The difference between Goldman's $3.8 billion for the full year and the $1.6 billion that had occurred as of March 31 suggests Tesla will experience another $2.2 billion in net cash flow from financing activities for the balance of the year.

Some of that $2.2 billion, no doubt, will be from collateralized lease borrowings, and some may arise from transactions in the SolarCity debt stack. On the other side of the equation, $75 million in Solar Bonds held by SpaceX come due in June, and there will be other debt repayments as well.

My rough math leaves a gap of anywhere from $800 million to $1.5 billion. To me, that means Goldman Sachs expects another Tesla capital raise this year of that magnitude.

That surmise is supported by Goldman Sachs' forecast balance sheet, which shows an increase in long-term liabilities this year of $3.22 billion (going from $10.93 billion to $14.15 billion).

Tesla's 10Q shows an increase as of March 31 of $1.8 billion from the issuance of convertible and other debt. So, that leaves a gap of about $1.4 billion.

Does Goldman Sachs foresee more convertible debt? Hard to say. Plainly, though, it foresees a capital raise of some sort this year (along with further raises in 2018 and 2019).

I hope Bill Cunningham, notasmidgeon, Bryce_in_Texas, robiniv and others who are astute students of the Tesla financial statements will weigh in with their theories, and so would recommend that interested readers check the comments for some refinements to or disagreements with my own surmise.

What is Tesla's most recent forecast for Model 3 production? I realize its 2018 forecast is a total of 500,000 vehicles, and its most recent 2017 promise is a production rate of 5,000 per week exiting the year.

So, how many Model 3 cars does Tesla forecast it will deliver in 2017? 50,000? 30,000? 10,000? I'm not sure.

Regardless of what Tesla says, Goldman Sachs forecasts only 2,025 Model 3 deliveries in 2017.

Yes, 2,025. I didn't leave any zeroes off.

Why so few? Goldman Sachs does not say directly, but it dropped two hints: (1) the general assembly facility for Model 3 production is not yet fully installed, and (2) disruptions in the supply chain are always a risk.

The 2,025 delivery figure for 2017 would seem to imply a run rate of less than 5,000 cars per week at year end. A run rate which, Goldman believes, is necessary "to justify valuation levels."

Make of that what you will. Whether 5,000 cars a week can justify current valuation levels obviously depends upon profitability per car. Goldman Sachs obviously has a profit margin in mind.

I continue to doubt the Model 3 can be profitable. But, hey, that's just me, and there are no doubt many good reasons why I don't work in Goldman Sachs' equity research department.

Goldman noted that Tesla has guided for lower gross margins as the Model 3 launches. Goldman agrees, and then some. Whereas the "street consensus" calls for 25% gross margins in H2, Goldman foresees only 17%.

And, as we all know, large indeed is the gap between Tesla gross margin and Tesla net margin.

CoverDrive has in the past told me he sees Tesla operating losses of $1 billion this year. Goldman Sachs sees $1.4 billion in losses, but then shrinks that considerably by deducting $975 million attributable to the SolarCity minority interests.

4. Make up your mind, Tesla. Is LIDAR needed, or not?

Goldman's note discussed the setback Tesla experienced in its switch to AutoPilot 2.0, and the advantage Tesla believes it is gaining with ongoing data collection from Tesla cars on the road. It then dropped this line:

Either LIDAR is or is not required (in conjunction with the equipment Tesla cars now have) to achieve the Full Self Driving capability Tesla promises. I'm not qualified to say, but I've read opinions from many knowledgeable engineers who are convinced LIDAR is an indispensable element of an equipment suite that aspires even to Level 4 autonomy (never mind Level 5).

So, what does it mean when Tesla says "it is not ruling out the use of LIDAR?" Is Tesla acknowledging LIDAR is, indeed, necessary or, at least, desirable?

If so, that seems like an important point of disclosure to Tesla buyers, who are being told their cars have hardware that will eventually make the cars FSD-capable. My understanding is that one cannot add LIDAR to existing Tesla vehicles.

Again, all opinions from knowledgeable commenters are welcome.

5. What's Going on in Hong Kong?

Goldman Sachs believes Tesla's higher China deliveries in Q4 2016 and Q1 of this year resulted from expiration of Hong Kong's EV tax incentive. It believes the incentive expiration has pulled forward demand, and consequently expects a fall-off in China deliveries for the balance of the year.

Meanwhile, though, there are reports of some possible monkey business with the Q1 Hong Kong deliveries. The report in Sing Tao Daily, Hong Kong's second largest newspaper, is here (unless you speak Cantonese, you'll need a translation program).

Here is electrek's take on it.

Not surprisingly, electrek puts the best possible pro-Tesla spin on the matter. However, Tesla itself is being mum, at least for now. From the electrek account:

If Tesla won't confirm it's behind the apparent chicanery, doesn't that mean Tesla won't deny it, either?

Let's remember this exchange from May 3 conference call:

Hmmm. For some time, Andreas Hopf, Bonaire, and CoverDrive have suspected something was up in Hong Kong.

Whether they were right all along, how this ends, and whether it requires a restatement of the Q1 financials, is all TBD.

Thanks for the help...

Much thanks this time to Bonaire and CoverDrive.</s>James Donovan, President Trump’s pick to be the second-in-command at the Treasury Department, is withdrawing from consideration, senior administration officials said Friday.

The announcement comes two months after the administration announced Donovan's selection.

Donovan, in a statement, said "at this time I want to focus on my family, and I can no longer accept" the job. "I hope to be able to serve this administration in the future and fully support President Trump and Secretary Steven Mnuchin's ongoing work to reform the tax system and grow the U.S. economy.”

Donovan is a longtime Goldman Sachs executive who was slated to join several other Goldman veterans in the Trump administration and serve as Treasury’s deputy secretary.

[Trump picks another Goldman banker for senior post, in sharp break from campaign bashing]

“Secretary Mnuchin offers Jim his support and friendship as he focuses his attention on his family,” Treasury assistant secretary Tony Sayegh said. “Jim has been an enormous asset to the department helping recruit and fill many of the senior jobs at Treasury. The Secretary appreciates Jim’s continued support of the President and his administration.”

There have been a number of people who have withdrawn from consideration for top jobs following their selection by Trump. Many departments — including Treasury — are missing top political appointees four months into the administration. The White House has named several other top nominees for senior Treasury jobs, but they have not yet had hearings in the Senate.

The White House has blamed Senate Democrats for what they allege is slow-walking confirmation hearings, but Democrats have said the White House simply hasn’t submitted paperwork or, in some cases, even made the picks.

The Treasury Department has a huge workload, and Treasury Secretary Steven Mnuchin is the only Senate-confirmed appointee. Treasury officials are working on an overhaul of the tax code, a review of financial regulations, and they are also trying to urge Congress to raise or suspend the debt ceiling.</s>Jim Donovan is dropping out as President Donald Trump's nominee to serve as deputy Treasury secretary.

The Goldman Sachs executive, nominated in March to serve as Treasury Secretary Steven Mnuchin's No. 2, informed the White House this week that he could not take the job due to family concerns. He was expected to play a critical role in helping shape the administration's tax reform policy through Capitol Hill.

"I am deeply honored by President Trump's decision to nominate me as Deputy Secretary of the U.S. Department of the Treasury," Donovan said in a statement. "However, at this time I want to focus on my family, and I can no longer accept it. I hope to be able to serve this administration in the future and fully support President Trump and Secretary Steven Mnuchin's ongoing work to reform the tax system and grow the U.S. economy."

Donovan's departure will come as the administration struggles to push the focus back to its major policy initiatives and away from a series of revelations about the administration and Russia.

"Secretary Mnuchin offers Jim his support and friendship as he focuses his attention on his family," Treasury spokesman Tony Sayegh said in a statement Friday. "Jim has been an enormous asset to the department helping recruit and fill many of the senior jobs at Treasury. He appreciates Jim's continued support of the President and his administration."

Donovan, a Goldman partner and managing director, is close to Mitt Romney and served as one of the 2012 GOP nominee's top fundraisers. He was also a top fundraiser and economic adviser for Jeb Bush in the 2016 campaign. He joined Goldman in 1993 and covered major clients in both investment banking and investment management.

—Ben White is Politico's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet Politico Morning Money [politico.com/morningmoney]. Follow him on Twitter @morningmoneyben.</s>Canada's housing market is among the world's most likely for a correction, Goldman Sachs says. U.S. investment bank Goldman Sachs says there's an almost one in three chance of Canada's housing market going bust in the near future.

Start the conversation, or Read more at CBC News.</s>The Trump Administration's nominee for the No. 2 spot at the Treasure Department is dropping out.

James Donovan, a private banker at Goldman Sachs Group Inc., had been nominated for the post of deputy Treasury secretary.

The department continues to operate with few Senate-confirmed appointees for senior positions.

It wasn't immediately clear why the decision was made. A Treasury spokesman said in a statement that Treasury Secretary Steven Mnuchin "offers Jim his support and friendship as he focuses his attention on his family."

"Jim has been an enormous asset to the department helping recruit and fill many of the senior jobs at Treasury," the statement also said.

WASHINGTON -- The Trump Administration's nominee for the No. 2 spot at the Treasury Department is dropping out.

James Donovan, a private banker at Goldman Sachs Group Inc., had been nominated for the post of deputy Treasury secretary.

The department continues to operate with few Senate-confirmed appointees for senior positions.

It wasn't immediately clear why the decision was made. A Treasury spokesman said in a statement that Treasury Secretary Steven Mnuchin "offers Jim his support and friendship as he focuses his attention on his family."

"Jim has been an enormous asset to the department helping recruit and fill many of the senior jobs at Treasury," the statement also said.

Mr. Donovan in a written statement said: "I am deeply honored by President Trump's decision to nominate me as Deputy Secretary of the U.S. Department of the Treasury. However, at this time I want to focus on my family, and I can no longer accept it."

"I hope to be able to serve this administration in the future," he added.
Goldman Sachs banker Jim Donovan withdraws from consideration as Deputy Treasury Secretary in order to have time for his family.