Private Prisons Were Supposed to Thrive Under Trump — Then Came a Backlash

By Rachel Layne, CBS News

An ICE detainee lies in his cell in the segregation wing at the Adelanto immigration detention center, which is run by the Geo Group Inc (GEO.N), in Adelanto, California, U.S., April 13, 2017. REUTERS

An ICE detainee lies in his cell in the segregation wing at the Adelanto immigration detention center, which is run by the Geo Group Inc (GEO.N), in Adelanto, California, U.S., April 13, 2017. REUTERS

Business was looking good for private prison companies soon after President Donald Trump took office in 2017. Within weeks of his inauguration, then-Attorney General Jeff Sessions signed an order reversing an Obama-era directive to phase out private prison use. 

That caused shares of the two largest private prison companies — CoreCivic and GEO Group — to soar, with each reaching a post-election peak in April 2017. Since then, however, both companies have lost roughly half their stock market value amid mounting public and investor concerns, while at least eight banks have moved to distance themselves from the private prison business. Here's a look at what's behind that shift in the companies' fortunes.

Rising population means more ICE contracts

A year ago, executives from both companies touted a rising need from Immigration and Customs Enforcement (ICE) to house a growing number of detainees.

"We've seen a steady increase in our ICE populations throughout the country, and we expect this trend to continue as ICE seeks additional capacity," said David Donahue, senior vice president of GEO's Corrections and Detention division, on an August 2018 call with Wall Street analysts.

That same month, CoreCivic CEO Damon Damon Hininger told investors that more ICE contracts would "contribute meaningfully to earnings growth to 2019."

Their comments came as reports gained widespread attention about the mistreatment of migrants seeking entry to the U.S. at the Mexican border and children separated from their parents, as well as squalid conditions. That prompted outrage from many quarters, including lawmakers and American citizens, and raised questions among some investors about the ethics of investing in private prisons.

Both Geo Group and CoreCivic said they've been wrongly caught up in the backlash surrounding child separation and other controversies at the Mexican border. The companies have repeatedly said they don't manage centers that house unaccompanied immigrant minors or operate border patrol facilities.

Investors rethinking industry

But for some investors, that distinction matters less and less. So far this year, at least eight banks have either said they will no longer lend to private company prison operators or are limiting their engagement with the industry. As a result, some investors are thinking twice about where to put their money.

CalPERS, California's $356 billion pension fund, may need to reconsider an earlier decision to keep its money in the public prison companies, California Comptroller and CalPERS ex-officio board member Betty Yee told CIO Magazine last week. Investment in the private prison industry is getting riskier as banks withdraw, Yee told the magazine.

"As more information comes to light regarding the egregious conditions at U.S. border facilities, it elevates the larger issue of private prisons housing migrants," Yee said in an e-mailed comment through her office to CBS MoneyWatch.

Activist pressure spurs action

Public pressure is spurring action, too. More than 100 organizations known as the Families Belong Together Corporate Accountability Committee have lobbied banks, companies and public officials to divest, Kristin Rowe-Finkbeiner, the executive director of MomsRising.org, told CBS MoneyWatch in an interview. MomsRising.org, which focuses on creating family-friendly policies, has more than 1 million members.

"It's a unique moment where a wave of organizations are hearing from their members and that greater pressure is having an impact," Rowe-Finkbeiner said. "So for our members, we're hearing that it's a priority to take the profit out of causing pain."

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Olivia McDowellComment