News Archive

Trick or Treat? Grain hedgers haunted by the ghost of MF Global

Wed Oct 30, 2013 6:05pm EDT

CHICAGO (Reuters) – Two years ago on Halloween thousands of U.S. grain farmers got the scare of their lives when broker MF Global collapsed and more than a billion dollars of their money went missing.

MF Global customers have now, through a court-appointed trustee, recovered about 98 percent of the money, which had been in supposedly “safe” margin accounts. The balance is expected by year’s end.

The U.S. futures industry has also stepped up its audit trails of customer accounts at brokerages and banks and required more regulatory paperwork.

All that has been a treat for MF Global customers. But looking back at Thursday’s anniversary of the debacle, U.S. grain hedgers fear there is little assurance they won’t be tricked again. What is haunting them is that, lacking realistic alternatives, they must still use the U.S. futures market and futures commission merchants (FCMs)to hedge price risks.

“They really don’t have an alternative,” said Dave Smoldt, vice president of grains and oilseeds business for Intl FCStone, one of the firms that has picked up some former MF Global customers. “If you take in 13-14 million bushels of grain in 30 days, somebody has to hold on to it. So you’re going to have to hedge it.”

Jim Berg, an Ohio farmer and veteran commodities broker, agrees.

“Nobody is doing anything different. Maybe keeping the amount of excess margin down at houses,” Berg said. “We need the markets. We’re alright until the next violation. The next time, the trust is broken.”

That makes many farmers and brokers who trusted MF Global very nervous.

They say little has changed fundamentally to prevent another mega-broker bankruptcy. There has been no reform of the bankruptcy laws that protect customer funds. The futures industry has yet to establish an insurance fund to reimburse customers in cases of malfeasance or fraud by brokers. And no one at MF Global, they point out bitterly, has ever been charged with any wrongdoing.

“Customers still don’t have 100 percent of their funds yet from MF Global,” said John Roe, one of the founders of the Commodity Customer Coalition, which works to recover MF funds.

“While there are additional protections to customers and regulations that will make this more difficult to do, that doesn’t mean it can’t be done again, and it certainly doesn’t mean it won’t happen again.”

Confidence in regulators got another blow on Wednesday, when the Commodity Futures Trading Commission voted new rules to protect customers, but included a provision that will likely mean a doubling in the margin required for “safe” segregated funds, the very type diverted by MF Global two years ago.

“By requiring farmers and ranchers to pre-fund their margin requirements, they would be forced to do something they would rather not do, which is put more money at an FCM rather than less,” Gerry Corcoran, chief executive of RJ O’Brien, the largest independent U.S. commodities brokerage, said in an interview.

The Commodity Customer Coalition’s Roe echoes that sentiment.

“What the CFTC has basically done through the residual interest rule is ask customers to double down on a system they don’t trust,” said Roe, who was also an MF Global customer.


On October 31, 2011, the global commodities brokerage run by Jon Corzine, a former New Jersey governor and U.S. senator, and a former Goldman Sachs Group Inc (GS.N) chairman, suddenly filed for bankruptcy, freezing more than 150,000 accounts worldwide.

Investigators later discovered that, in order to cover exposure to risky European sovereign debt, MF Global had in its hectic final days improperly tapped segregated customer funds. This was money put into accounts by MF Global customers as good faith deposits to settle their own trades.

The collapse raised questions about not just government regulators, but the clearing houses of the markets themselves, centered on the CME Group Inc (CME.O) markets. It was an unprecedented loss of “safe” customer funds.

Agricultural hedgers – country grain elevator operators, livestock producers, ethanol makers, farmers and ranchers – were among the hardest hit since MF Global, which had grown through acquisitions, including such major players as Refco, cleared the bulk of their business.

“MF was one of the biggest. We thought it couldn’t go down. When it did, it created a lack of trust in any other house you cleared through,” said J.B. Daughenbaugh, a merchandiser with Alliance Grain in Gibson City, Illinois.

The good news since the collapse is that the futures industry has beefed up regulations on how segregated funds are invested. Brokerages must now have written rules governing the maintenance of such funds. Top executives at brokerages must personally approve withdrawals of 25 percent or more from customer funds. Banks must also confirm daily segregated funds in cross checks with brokerage accounts.

But despite all the improvements, grain hedgers are still haunted by the ghost of MF Global.

“The number one thing that has not been done is to insert the Commodity Exchange Act verbiage into the bankruptcy code so segregated fund restoration to customers comes first in an FCM liquidation,” said Jeff Hainline, head of Advance Trading, which cleared hundreds of customer accounts through MF.

(Editing by Andre Grenon)

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Lululemon hires Kmart executive as product chief

Wed Oct 30, 2013 5:45pm EDT

TORONTO (Reuters) – Lululemon Athletica Inc (LULU.O), the fast-growing retailer of premium workout clothes, has hired an executive from U.S. discount chain Kmart to lead its global merchandising and design team, but offered no news on its hunt for a chief executive.

In the wake of a costly and embarrassing recall of overly sheer yoga pants this spring, Lululemon has hired a handful of new senior managers, but its CEO search, begun in June, continues.

The Vancouver-based company announced on Wednesday the appointment of Tara Poseley, a yoga fan and a 25-year industry veteran who was most recently president of Sears Holdings Corp’s (SHLD.O) Kmart apparel division, as its new chief product officer (CPO). Poseley also spent 15 years at Gap Inc (GPS.N).

Lululemon’s volatile stock dropped more than 3.5 percent after the news on concerns about the appointment and on investor disappointment that the company has not yet found a replacement for CEO Christine Day.

“I thought they were interviewing them both simultaneously and the new CEO would have to sign off on the new CPO. That didn’t happen,” said Sterne Agee analyst Sam Poser.

“Hopefully, the new CEO thinks as highly of her as the existing management. That would be the scary part.”

The appointment of an executive from a discount chain does not suggest that Lululemon cannot attract top-tier talent, several analysts said.

While cultural fit is viewed as critical at Lululemon, Poser pointed out that Day’s background, at coffee chain Starbucks Corp (SBUX.O), was also considered unconventional when she was hired.

Alex Arifuzzaman, a partner at Toronto retail consultancy InterStratics Consultants Inc, said Lululemon may need executives with mass merchandise experience as it seeks expansion in the United States and elsewhere.

“They’re not going to convert into a Kmart, but some of the techniques used to appeal to a broader market may be relevant, may be skills that are brought to the table here,” he said.

Lululemon carved out a niche for high-end yoga wear and built up a passionate clientele that helped the company regularly achieve quarterly sales growth of more than 20 percent.

It suffered its biggest stumble in March, when it was forced to pull overly sheer black yoga pants off store shelves, a recall that is likely to dent 2013 sales by $57 million to $67 million.

Cowen and Co analyst Faye Landes said in a client note that she views Poseley’s appointment as positive after a “highly reliable industry source, who is a tough grader,” said Poseley was “very good”.

After Lululemon’s former chief product officer left in April the company split the product officer position into two jobs. It recently hired industry veteran Jennifer Battersby as senior vice president of sourcing, the other half of the position.

Steve Berube was also brought on this summer, for the newly created position of senior vice president of global distribution and logistics.

Shares of Lululemon, which reports quarterly results on November 21, shed $2.58 to close at $70.67 on the Nasdaq on Wednesday.

(Reporting by Solarina Ho and Susan Taylor; Editing by Janet Guttsman, Leslie Adler and Peter Galloway)

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NSA intercepts Google, Yahoo traffic overseas: report

Wed Oct 30, 2013 5:06pm EDT

SAN FRANCISCO (Reuters) – The National Security Agency has tapped directly into communications links used by Google and Yahoo to move huge amounts of email and other user information among overseas data centers, the Washington Post reported on Wednesday. It was unclear how the NSA accessed the links.

The report, based on secret NSA documents leaked by former contractor Edward Snowden, appears to show that the agency has used weak restrictions on its overseas activities to exploit even major U.S. companies’ data to a far greater extent than previously realized.

Previously reported programs included those that allowed easy searches of Google’s, Yahoo’s and other Internet giants’ material based on court orders. But because the interception in the newly disclosed effort, code named MUSCULAR, occurs outside the United States, there is no oversight by the secret intelligence court.

Google, which recently said it is speeding its efforts to encrypt internal traffic, told Reuters: “We’re troubled by allegations of the government intercepting traffic between our data centers, and we are not aware of this activity.”

Like other major companies, Google and Yahoo constantly send data over leased and shared or exclusive international fiber-optic telecommunication lines as they sync information.

The newly disclosed program, operated jointly with the United Kingdom’s Government Communications Headquarters (GCHQ), amassed 181 million records in one recent 30-day span, according to one document reported by the Post. It could not be learned how much of that included material from U.S. residents, how the agency redacted data on them or how much of the information was retained.

An NSA spokesperson said in a statement that the suggestion in the Post article that the agency relies on a presidential order on foreign intelligence gathering to skirt domestic restrictions imposed by the Foreign Intelligence Surveillance Act and other laws “is not true.”

“The assertion that we collect vast quantities of U.S. persons’ data from this type of collection is also not true,” the statement said. “NSA is a foreign intelligence agency. And we’re focused on discovering and developing intelligence about valid foreign intelligence targets only.”

Asked at an event in Washington about the latest report, NSA Director General Keith Alexander said that he had not read it but that the agency did not have unfettered access to the U.S. companies’ servers.

“I can tell you factually we do not have access to Google servers, Yahoo servers,” Alexander said at a Bloomberg Government conference. “We go through a court order.”

He did not directly address whether the agency intercepts such traffic in transit. The NSA is known to tap undersea cables.

A Yahoo spokeswoman said: “We have strict controls in place to protect the security of our data centers, and we have not given access to our data centers to the NSA or to any other government agency.”

The report is likely to add to growing tensions between the U.S. intelligence establishment and the tech companies, which have been struggling to assure customers overseas that they needn’t fear U.S. spying.

(Reporting by Joseph Menn in San Francisco; Additional reporting by Deborah Charles and Mark Hosenball in Washington; Editing by Warren Strobel and Cynthia Osterman)

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Facebook tops analyst revenue targets as mobile ads surge

Wed Oct 30, 2013 5:05pm EDT

SAN FRANCISCO (Reuters) – Facebook Inc posted strong growth in its mobile advertising business, driving a 60 percent increase in revenue that beat Wall Street’s targets.

Shares of the world’s No. 1 online social network rose 9.4 percent to $53.60 in after-hours trading.

Revenue from mobile ads, which appear on smartphones, represented 49 percent of Facebook’s total advertising revenue in the third quarter, or roughly $880 million. Mobile ads generated roughly $150 million in the year-ago period, when Facebook was just beginning to develop its mobile ad business.

“It looks like they’re firing on all cylinders,” said JMP Securities analyst Ronald Josey.

He said that Facebook’s strong mobile advertising revenue in particular has put to rest the worries that many investors had at the time of the company’s 2012 IPO.

“They clearly have the product, they have the traffic and now they have the advertising solution,” said Josey.

Facebook said the number of its monthly active users increased to 1.19 billion as of the end of September, up from 1.15 billion at the end of June. Facebook said it counts roughly 507 million daily active mobile users.

Shares of Facebook has doubled in the past three months, as Wall Street has warmed to the Internet company’s ability to thrive as consumers increasingly access the Web on smartphones and other mobile devices.

Facebook’s total revenue in the third quarter was $2.016 billion, ahead of the average analyst expectation of $1.911 billion, according to Thomson Reuters I/B/E/S.

Facebook said it earned net income of $425 million, or 17 cents a share, in the three months ended September 30, compared with a net loss of $59 million, or 2 cents a share in the year-ago period. (

(Reporting by Alexei Oreskovic; Editing by Bernard Orr)

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S&P 500’s rally ends after Fed; Facebook soars late

Wed Oct 30, 2013 5:04pm EDT

NEW YORK (Reuters) – U.S. stocks fell on Wednesday, with the SP 500 snapping a four-day streak of gains after the Federal Reserve said it had a weaker growth outlook for the economy, even as it held steady with its stimulus program for the time being.

Trading was volatile following the release of the statement, with the major U.S. stock indexes cutting losses to turn flat and dropping to session lows. Almost 70 percent of stocks on both the New York Stock Exchange and Nasdaq declined, while all 10 SP 500 sector indexes fell.

While it had been widely expected that the U.S. central bank wouldn’t announce any adjustments to its bond-buying program, the statement wasn’t enough to extend a rally that has driven both the Dow and the SP 500 to repeated record highs, including in early trading on Wednesday.

“While there were essentially no changes between this statement and previous ones, it is clear that even this wasn’t as dovish as some investors were expecting, especially with the bull market getting a bit long in the tooth,” said Michael Mullaney, who oversees about $10.7 billion as chief investment officer of Fiduciary Trust Co in Boston.

While the Fed’s stimulus has kept a floor under stock prices this year, there have been signs that growth is slowing, including weak economic data and an earnings season marked by tepid revenue growth.

In trading following the market’s close, Facebook Inc (FB.O) soared 9.7 percent to $53.78 after the social networking company reported revenue that was stronger than expected. Expedia Inc (EXPE.O) surged 18 percent to $58.50 after reporting its results.

On the downside, Starbucks Corp (SBUX.O) shares fell 2.8 percent to $78.60 after the bell because the world’s biggest coffee chain gave a 2014 profit outlook that was below expectations.

The Dow Jones industrial average .DJI slipped 61.59 points, or 0.39 percent, to end at 15,618.76. The Standard Poor’s 500 Index .SPX dropped 8.64 points, or 0.49 percent, to finish at 1,763.31. The Nasdaq Composite Index .IXIC fell 21.72 points, or 0.55 percent, to close at 3,930.62.

The Dow industrials hit a record intraday high of 15,721 shortly after Wednesday’s opening bell, while the SP 500 also reached a lifetime intraday high of 1,775.22 early in the session.

Many analysts expect the Fed to delay until at least March in easing the stimulus measures that have encouraged investors to buy riskier assets, like stocks, contributing to the SP 500’s gain of more than 20 percent this year.

The central bank has held interest rates near zero since late 2008 and quadrupled the size of its balance sheet to more than $3.7 trillion through three rounds of bond buying.

Private-sector employers hired the fewest workers in six months in October, according to a report released on Wednesday, while the U.S. consumer price index showed benign inflation. Both indicators supported the Fed’s stimulus policy.

In the latest batch of earnings, General Motors Co (GM.N) rose 3.2 percent to $37.23 after the U.S. automaker reported stronger-than-expected quarterly profit because of strength in its core North American market and a smaller-than-anticipated loss in Europe.

On the downside, Yelp Inc (YELP.N) dropped 2.6 percent to $67.05 a day after it reported a wider third-quarter loss, while Western Union (WU.N) shares slid 12.4 percent to $16.85 after the company posted a steep drop in third-quarter earnings. ID:L3N0II3TR

“Earnings haven’t been amazing, but they’ve been steady and sustainable, which the market likes enough to help us reach all-time highs,” said Andres Garcia-Amaya, global market strategist at J.P. Morgan Funds in New York, which has $400 billion in assets under management.

“When the season ends and we focus on the macro again, that probably won’t be good for the market.”

Of the 313 companies in the SP 500 that had reported earnings through Wednesday morning, 68.4 percent have topped Wall Street’s expectations, above both the 63 percent beat rate since 1994 and the 66 percent rate for the past four quarters, according to Thomson Reuters data.

Revenue performance has been mixed, however, with 53.7 percent of SP 500 companies beating expectations, well below the 61 percent average since 2002, but slightly above the 49 percent rate for the last four quarters.

(Editing by Jan Paschal)

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BOJ eyes slight upgrade in forecast, to maintain policy

Wed Oct 30, 2013 5:03pm EDT

TOKYO (Reuters) – The Bank of Japan is expected to slightly revise up its economic growth forecast to around 1.5 percent for the next fiscal year at a policy review on Thursday on hopes a government’s stimulus package will offset slowing exports to Asia.

No change is expected to the massive stimulus the central bank launched in April of doubling base money by asset purchases to meet its goal of lifting inflation to 2 percent in roughly two years.

The BOJ may raise its for forecast core consumer inflation to 2 percent for fiscal 2015, effectively the first formal recognition that its target is within reach, although that is a close call as some board members are skeptical on whether price growth will pick up so quickly.

Tepid exports to emerging Asia are also sapping the BOJ’s confidence that a recovery in overseas markets will take up the slack when consumers are hit with a higher sales tax next April.

That will temper the extent to which the BOJ might raise its economic forecasts in a quarterly review of its long-term projections, said people familiar with the BOJ’s thinking.

“Risks from overseas have heightened somewhat from three months ago, delaying a pick-up in the global economy,” said a source familiar with the central bank’s thinking.

The economy expanded for a third straight quarter in April-June as Prime Minister Shinzo Abe’s stimulus policies boosted business sentiment and household spending.

But a slump in exports has cast doubt on the central bank’s view that global growth will pick up in time to offset an expected downturn in household spending when the sales tax rises to 8 percent from 5 percent next April.

That will shave off some of the boost to the economy from a 5 trillion yen ($51 billion) stimulus package planned by Abe to cushion the impact of the tax hike.

The BOJ is expected to revise up growth for the fiscal year beginning in April 2014 to around 1.5 percent from the current 1.3 percent, said the sources, who declined to be identified.

Given the impact on inflation would take longer to be seen, some board members may revise up their fiscal 2015 core consumer inflation forecast. That could push up the bank’s median projection to 2 percent from the current 1.9 percent.

Private-sector economists think the BOJ’s inflation forecasts are already very ambitious, and some in the BOJ share the market’s doubts.

The range of the BOJ’s latest forecasts, made in July, showed one board member projected core consumer inflation in fiscal 2015 of 0.7 percent and another 0.9 percent. The highest was for inflation of 2.3 percent, underscoring the difference in views within the board on how fast prices will rise from here.

The BOJ issues a semi-annual report with long-term projections on gross domestic product and the core consumer price index in April and October of each year. It reviews the projections in January and July.

($1 = 98.0900 Japanese yen)

(Editing by John Mair)

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US Airways, American drawing up proposed settlement: report

Wed Oct 30, 2013 4:53pm EDT

WASHINGTON (Reuters) – US Airways (LCC.N) and American Airlines (AAMRQ.PK) will offer to give up some take-off and landing slots at Reagan National Airport near Washington, D.C. as part of a deal to get the U.S. Justice Department to allow them to merge, Dow Jones reported on Wednesday, citing people familiar with the process.

In a complaint aimed at stopping the proposed transaction, the Justice Department focused on the airport, which is used by many members of Congress to travel to their home districts.

The two carriers control a combined 69 percent of takeoff and landing slots at Reagan National. It also listed more than 1,000 routes between two cities where the two airlines dominate the market.

Dow Jones reported that one of the two people familiar with the proposed settlement said that the airlines still expected to go to trial.

The airlines and the Justice Department have said that they are open to a settlement agreement. Trial in the case is set to begin November 25.

The case at the U.S. District Court for the District of Columbia is No. 1:13-cv-1236.

(Reporting by Diane Bartz; Editing by Ros Krasny and Bob Burgdorfer)

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Allstate profit beats Street as premiums grow

Wed Oct 30, 2013 4:48pm EDT

(Reuters) – Allstate Corp (ALL.N), the largest publicly traded home and auto insurer in the United States, reported a quarterly profit that beat Wall Street estimates as it wrote more premiums across its businesses.

Allstate has been raising rates across businesses over the last two years to offset higher catastrophe losses and low interest rates on its investments.

Allstate’s net income fell to $310 million, or 66 cents per share, in the third quarter from $723 million, or $1.48 per share, a year earlier.

The fall in profit was due to an estimated $475 million after-tax loss on the sale of Lincoln Benefit Life Co, which it sold to Resolution Life Holdings for $600 million in July.

On an operating basis, Allstate reported earnings of $1.53 cents per share, while consolidated revenue rose 4 percent to $8.47 billion.

Analysts on average expected the company to earn $1.39 per share on revenue of $7.30 billion, according to Thomson Reuters I/B/E/S.

Total property-liability insurance premiums rose 4 percent to $6.97 billion.

The company’s shares, which have gained about a third of their value this year, closed at $52.96 on the New York Stock Exchange on Wednesday.

(Reporting by Aman Shah in Bangalore; Editing by Maju Samuel and Don Sebastian)

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Visa profit falls 28 percent due to higher tax provision

Wed Oct 30, 2013 4:46pm EDT

(Reuters) – Visa Inc (V.N), the world’s largest credit card company, reported a 28 percent fall in quarterly profit due to a higher income tax provision.

Visa shares traded 2.4 percent lower in after-hours trading.

Net income attributable to Visa fell to $1.19 billion, or $1.85 per Class A share, from $1.66 billion, or $2.47, a year earlier.

Total operating revenue rose 9 percent to $2.97 billion.

Analysts on average, had expected the company to earn $1.85 per share, on revenue of $3.02 billion, according to Thomson Reuters I/B/E/S.

The company maintained its full-year forecast for percentage growth per share in 2014 in the mid-to-high teens.

Visa’s results were hit by a $574 million income tax provision, compared with a benefit of $74 million a year earlier. The company gave no reason for the bigger tax provision.

Visa’s payment volumes rose 13 percent to $1.1 trillion in the quarter.

The company also announced a new $5 billion share buyback.

Shares of the company traded at $199 in after market trading. They closed at $203.82 on the New York Stock Exchange.

(Reporting by Tanya Agrawal; Editing by Don Sebastian)

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