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Morgan Stanley CEO awarded $12 million for 2013

NEW YORK (Reuters) – James Gorman, Morgan Stanley’s (MS.N) chief executive and chairman, was awarded total compensation of $12 million for 2013, double what he got the previous year, the bank said in its proxy filing on Friday.

Gorman’s compensation for 2013 could rise to $18 million under a long-term incentive plan, if he meets certain performance targets in the future, the filing said.

But Gorman, whose performance was cited by Morgan Stanley’s board of director as “exceeding expectations,” could have reaped total compensation of $20 million or more if the board had determined that the bank had “substantially exceeded expectations.”

The board’s compensation committee based Gorman’s pay on its finding that “Morgan Stanley’s performance was strong, with room for continued progress, and Mr. Gorman’s individual performance as exceeding expectations,” the bank said in its filing.

Of Gorman’s total compensation package, only his $1.5 million base salary and $316,000 cash bonus were awarded immediately.

Morgan Stanley was one of the best-performing financial stocks last year, up 64 percent, as investors saw signs of progress in the bank’s years-long turnaround plan engineered at the height of the financial crisis.

Although still less profitable than rivals, Morgan Stanley finished its acquisition of the Smith Barney business from Citigroup Inc (C.N), whittled down more of a big book of problematic fixed-income trades, and laid out plans to hit a return-on-equity of 10 percent in the near term.

In describing its rationale for Gorman’s pay, the board cited those factors, as well as cost-cutting, a narrowing of Morgan Stanley’s credit-default swap spreads — indicating the bond market views the bank as less risky — and the start of a stock repurchasing program for the first time since the financial crisis.

This week, Morgan Stanley said it would build on that program after the Federal Reserve approved its plan to buy back $1 billion worth of more stock and raise its dividend.

The bank still has work to do.

Its return-on-equity last year was less than half of Gorman’s target, and rivals including Goldman Sachs Group Inc (GS.N) and JPMorgan Chase Co (JPM.N) are more profitable and further along in plans to return excess capital to shareholders.

Goldman’s board awarded its CEO, Lloyd Blankfein, an estimated $23 million compensation package, while JPMorgan Chase CEO Jamie Dimon received $20 million.

Under Gorman’s pay package, he will also receive $10.2 million worth of deferred compensation, half in cash and half in stock, and up to $6 million worth of long-term incentive compensation that he can receive if Morgan Stanley hits the 10 percent return target and shareholder returns above the SP Financials Index.

(Reporting by Lauren Tara LaCapra; Editing by Leslie Adler)

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BlackBerry revenue plunges 64 percent, shares drop

TORONTO (Reuters) – BlackBerry Ltd reported a smaller-than-expected loss on Friday as new chief executive John Chen slashed costs, but a 64 percent drop in revenue underscored the challenge Chen faces in turning around the struggling smartphone maker.

The Canadian company, which has lost most of the smartphone market to Apple Inc’s iPhone and gadgets powered by Google Inc’s Android operating system, has laid off thousands and agreed to sell most of its real estate.

Chen said he expects to be cash flow positive or neutral by the end of the current fiscal year, which runs to early March 2015. He does not expect to turn a profit until sometime in the following fiscal year. At a round table with media on Friday afternoon, Chen said he also does not expect revenue growth until some time that fiscal year.

“John Chen did what John Chen is known for. He came in and he’s cut the cost base,” said BGC Partners technology analyst Colin Gillis, who noted the company’s “precipitous” revenue drop. “He’s buying himself some time.”

Research and development expenses fell 24 percent in the fourth quarter from a year earlier, while selling, marketing and administration costs dropped 35 percent.

Shares of BlackBerry, whose share of the global smartphone market was below 1 percent at the end of 2013, rose in early trading but closed down 7.1 percent at $8.41.

BlackBerry’s Nasdaq-listed shares were trading above $60 in early 2011 but dropped sharply that year, and have not risen above $20 since.

Morningstar analyst Brian Colello said BlackBerry’s operating expense reductions were encouraging, to a point.

“The big question still remains what BlackBerry can do on the demand side,” he said. “A lot of their moves have been supply related and internal, but we’re still looking for strong signs that demand is improving.”

Under Chen, the Waterloo, Ontario-based company is focusing on its services arm, which manages mobile devices on the internal networks of big clients.

The share of BlackBerry’s revenue from hardware continued to decline in the quarter, to 37 percent from 40 percent in the third quarter and 61 percent in the fourth quarter of last year.

Ross Healy, a portfolio manager at MacNicol Associates, which has a small stake in the company, said BlackBerry is becoming a more attractive acquisition target.

“You can’t cut your way to revenue, but what you can cut your way to is profitability,” he said.


The company’s newer BlackBerry 10 phones have not lived up to high expectations, and after heavily promoting several devices with touch-screen keyboards, it is returning to its roots, emphasizing the physical keyboards its most loyal fans covet.

Last month BlackBerry unveiled a new “classic” model with a keyboard. Chen told Reuters in an interview that BlackBerry was designing three new keyboard-centric devices and would probably introduce them in the next 18 months.

On Friday’s conference call, Chen said the company was set to begin a new production run of its Bold devices that run on the older BlackBerry 7 platform as demand for them remains strong.

The company said it had recognized hardware revenue on about 1.3 million BlackBerry smartphones during the fourth quarter, compared with about 1.9 million devices in the third quarter.

It also said about 3.4 million devices were sold through to end customers, and this included shipments made and recognized before the fourth quarter. The company said 68 percent of these devices were BlackBerry 7.

Its net loss was $423 million, or 80 cents a share, for the fourth quarter ended March 1. That compared with a year-earlier profit of $98 million, or 19 cents a share.

Revenue fell to $976 million from $2.68 billion. Analysts on average had expected $1.11 billion, according to Thomson Reuters I/B/E/S.

Excluding restructuring charges and other one-time items, the company reported a loss of 8 cents a share. The analysts’ average estimate was a loss of 55 cents.

(Additional reporting by Leah Schnurr in Toronto; Editing by Chizu Nomiyama, Jeffrey Hodgson, Sophie Hares, Meredith Mazzilli; and Peter Galloway)

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Caterpillar to face U.S. Senate panel on offshore taxes

WASHINGTON (Reuters) – Caterpillar Inc’s offshore tax strategies will come under scrutiny on Tuesday at a U.S. Senate hearing expected to examine dealings by the world’s largest mining and construction equipment maker in Switzerland, Bermuda and Luxembourg.

With many multinationals being criticized for tax avoidance, veteran tax sleuth Senator Carl Levin will chair another session of his Permanent Subcommittee on Investigations, with three current and former Caterpillar executives slated to testify.

Levin’s panel dives deeper than any other on Capitol Hill into the minutia of tax law and accounting, with its Caterpillar probe expected to center on the tax aspects of Caterpillar’s corporate restructurings in the late 1990s and early 2000s.

Big Four accounting firm PricewaterhouseCoopers LLP, which advised Caterpillar on its tax strategies, is also sending three officers to the hearing as witnesses.

A Caterpillar spokeswoman declined to answer questions about the company’s tax strategies. A spokeswoman for Levin declined to comment. PricewaterhouseCoopers also declined to comment.

Levin’s panel has not detailed its findings, but a lawsuit involving the restructurings that was settled in 2012 may offer clues about the hearing’s focus, said Richard Harvey, a former Internal Revenue Service official who reviewed court records from the lawsuit that detailed some of Caterpillar’s dealings.

“One would hope the IRS took a very close look at these transactions,” said Harvey, now a tax professor at Villanova University. He testified before Levin’s committee last year.

Beginning in 1999, Caterpillar shifted a “replacement parts” division from the United States to Switzerland and executives said one purpose was to reduce taxes, according to the records.

In 2005, Caterpillar set up units in low-tax Bermuda and Luxembourg, according to the court filings.

In a memo dated November 21, 2006, Caterpillar chief tax officer Robin Beran said: “Two internal reorganizations were completed, leveraging the Bermuda/Lux structure, allowing repatriation of nearly $1.5 billion cash to the U.S. without incremental U.S. tax.”

Beran is one of the Caterpillar officers set to testify. He declined to comment on Friday.

Daniel Schlicksup, a former Caterpillar tax official, sued the company in 2009, alleging he was retaliated against by executives for raising concerns internally about its tax dealings.

Schlicksup said Caterpillar’s offshore tax structures helped it avoid more than $2 billion in U.S. taxes, according to his complaint. A lawyer for Schlicksup declined to make his client available for comment.

(Editing by Kevin Drawbaugh and Ken Wills)

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BMW to invest $1 billion to expand U.S. production by 50 percent

SPARTANBURG, SOUTH CAROLINA (Reuters) – BMW (BMWG.DE) will expand production capacity in the United States by 50 percent and introduce another new offroad model, the German luxury carmaker said on Friday, in what amounts to a $1 billion bet on sport utility vehicles (SUVs).

BMW said that as well as the new X4 SUV, its U.S. factory would make a new X7 SUV. Ramping up production capacity at Spartanburg, South Carolina to 450,000 cars by 2016 will make it BMW’s largest factory, the company said.

The red X7, which was rolled out from a cloud of white smoke before a crowd of workers and dignitaries including U.S. Commerce Secretary Penny Pritzker, is part of a strategy to help the German automaker cut it’s dependence on fragile European markets, which accounted for 44 percent of group sales in 2013.

Raising U.S. production with new models and greater manufacturing capacity increases BMW’s bet on the U.S., a market which is fast recovering to levels seen before the 2007 financial crisis, helped by the popularity of SUVs.

“With the BMW X7, we are developing another, larger X model, which we will produce at our U.S. plant,” Chief Executive Norbert Reithofer said, explaining that customers had demanded such a vehicle from BMW.

Reuters last week reported BMW planned to build the X7 in South Carolina.

“We think it will be a success in the U.S. and China, we cannot just ignore the market,” Reithofer said. During the financial crisis, BMW mothballed a previous generation X7 on the grounds that there was little demand for it and that it may not sit well with BMW’s image as a maker of low-emission cars.

But SUVs have grown more popular in recent years, accounting for 32 percent of total U.S. vehicle sales last year, up from around 19 percent in 1999, statistics supplied by LMC Automotive show.

Spartanburg started out making BMW’s 3-series sedans but today makes mainly offroaders, producing 300,000 X3, X5 and X6 offroader vehicles in 2013 of which 70 percent were exported.

Gas-guzzling offroaders have proved particularly popular in the United States, thanks in part to the low fuel prices that have resulted from its booming shale oil and gas industry, a trend that is expected to continue.

In 2019, U.S. domestic production of crude oil will account for 63 percent of total supplies, according to the Energy Information Administration, a significant increase from 2011 when it barely covered 38 percent of the country’s needs.

By contrast the International Energy Agency has warned that Europe’s high energy prices risk driving away a big share of its energy-intensive industries.

With sales of its BMW, Mini and Rolls-Royce branded cars climbing to 375,000 units in 2013, the United States has become the second-largest market for the company, accounting for 19 percent of its global sales.

China accounted for 20 percent of its sales while Germany, BMW’s home market, accounted for only 13 percent.

BMW said the U.S. will be a key driver of group sales in 2014, expecting overall market to grow to 16 million cars, almost rebounding back to pre-crisis levels last seen in 2007.

By contrast it sees only a slight uptick in Europe.

This year BMW aims to achieve a significant rise in sales volume to 2 million or more, after it delivered a record 1.96 million cars in 2013.

The latest investment will see the number of people employed at the Spartanburg plant rise by about 800 to 8,800, BMW said, adding there were no plans to create a German-style works council.

BMW’s investment was welcomed by local dignitaries who were full of praise for Reithofer’s bet on America.

“He was on the ground floor of the decision making. If this plant had failed, he wouldn’t be chairman,” South Carolina Republican U.S. Senator Lindsey Graham said on Friday.

(Additional reporting by Ben Klayman; Writing by Edward Taylor; Editing by Chris Steitz, Maria Sheahan and Mark Potter)

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Fed’s George wants end to zero rates, does not say when

KANSAS CITY, Missouri (Reuters) – A top Federal Reserve official who has often warned of the risks of keeping U.S. interest rates too low for too long said on Friday she wants to see how winding down the Fed’s massive bond-buying stimulus goes before setting out any path for rate hikes.

“I don’t think it would be fair to say I have a date in mind or a path in mind,” for the appropriate timing of the Fed’s first rate increase, Kansas City Federal Reserve Bank President Esther George told the Central Exchange, a group of women professionals. “We are in a place now where we have to be very careful and think about how we are beginning to withdraw stimulus.”

George’s reticence on her preferred path for rate hikes sets her apart from her peers, who in recent days have shown an increased willingness to voice their views. St. Louis Fed President James Bullard, for instance, said he would want to see rate hikes begin in early 2015; Chicago Fed President Charles Evans suggested he was gunning for early 2016.

Indeed Fed Chair Janet Yellen started the ball rolling last week, when she suggested there could be around a six-month gap between the end of the Fed’s bond-buying program and the start of rate hikes.

But with the Fed on track to keep buying bonds until the fourth quarter, George told reporters, it is too early to set any schedule for raising rates.

“I don’t think you can do that. I don’t know what will happen in six months. We don’t control the whole path,” George told reporters. “We are making a decision on asset purchases right now. Depending on how that goes will determine the lift off in rates.”


The Fed has kept rates near zero since December 2008, and more than quadrupled its balance sheet to over $4 trillion with an asset-purchase program aimed at spurring borrowing, spending and hiring.

Many Fed officials believe those policies have helped bring the unemployment rate down from a recession high of 10 percent to its current level of 6.7 percent.

In December the Fed took a first step toward unwinding its super-easy policies, paring its bond-buying program and signaling it would end it altogether later this year.

George is not usually one to hold back on her views. When it was her turn to vote on the Fed’s policy-setting panel, she used every one of her votes to dissent from the Fed’s policy easing, voting with the majority only in December when the Fed began paring its bond purchases.

On Friday she said she continues to support the Fed’s reductions in bond-buying, and she also supports the decision to base any raise rates on a “wide range” of factors rather than use a specific unemployment rate benchmark.

But she also made clear that she differs from the majority of her Fed colleagues in wanting to keep rates near zero for a “considerable time” after bond-buying ends, and below normal even once employment and inflation reach healthier levels.

“The risk I see is being too low for too long,” she said.

George said she believes the economy is growing steadily and the job market is “moving in the right direction.”

She expects U.S. GDP to grow around 2.5 percent this year and closer to 3 percent after that, fast enough to continue to bring down the unemployment rate.

Companies, she said, are already finding it harder to hire qualified workers, and upward pressure on wages should help bring inflation back up towards the Fed’s 2-percent target.

(Reporting by Carey Gillam; Writing by Ann Saphir; Editing by Chizu Nomiyama)

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SEC says shuts cloud computing scam targeting Asians, Hispanics

(Reuters) – The U.S. Securities and Exchange Commission on Friday said it has shut down a worldwide pyramid scheme that falsely promised fast gains to tens of thousands of Asian-American, Hispanic and foreign investors from cloud computing services.

A federal judge on Thursday granted the regulator’s request for an asset freeze over entities operating as WCM and WCM777, which are based near Los Angeles and in Hong Kong and run by Ming Xu of Temple City, California.

WCM and WCM777 allegedly raised more than $65 million since March 2013 by promising people they could double their money in 100 days by investing between $399 and $1,999 in cloud services such as website hosting, data storage and software support.

According to the SEC, investors were told they could parlay “points” they got for making investments or enrolling other investors into stakes in initial public offerings of 300 high-tech companies that the WCM entities were incubating.

The SEC said the defendants were also creating a “secondary market” where about $890 million of points had been traded, and even sought to allay concerns by writing on WCM777’s website: “We are not a Ponzi game company.”

But instead, according to the SEC, Xu and the WCM entities would use some new money to pay older investors, and spent other funds on two California golf courses and other properties, and to play the stock market. Xu is also known as Phil Ming Xu.

“They were operating a pyramid scheme that preyed on investors in particular ethnic communities, leaving them with nothing left to show for their investment,” Michele Wein Layne, director of the SEC’s Los Angeles office, said in a statement.

Wellman Warren, a Laguna Hills, California-based law firm representing the defendants, had no immediate comment.

U.S. District Judge Christina Snyder in Los Angeles imposed the asset freeze and ordered a temporary receiver over the defendants’ assets. The SEC is also seeking to recoup illegal gains and impose civil penalties.

The case is SEC v. World Capital Market Inc et al, U.S. District Court, Central District of California, No. 14-02334.

(Reporting by Jonathan Stempel in New York; Editing by Bernard Orr)

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French watchdog calls for more transparent SFR bid talks

PARIS (Reuters) – French market regulator AMF has asked Vivendi, cable firm Numericable, its parent Altice and rival bidder Bouygues for more transparency in their talks over a takeover of Vivendi’s telecom unit SFR.

The bidding war for SFR, France’s second-largest mobile operator, has been raging for over a month. It will reshape the competitive landscape of Europe’s third-biggest telecoms market after two years of price war sparked by the arrival of low-cost upstart Iliad’s Free Mobile service.

Vivendi has already begun exclusive talks with Numericable that are due to last until April 4, but Bouygues hit back last week with an improved offer for SFR. Sources familiar with the talks told Reuters that Vivendi would examine this new offer while respecting the exclusivity period.

Although SFR is not listed on the Paris stock exchange, its parent Vivendi and the bidding companies are listed, which obliges them to provide the market with “exact, precise and sincere” information, AMF said in a statement on Friday.

It reminded the parties they are liable to sanctions if they do not comply with market regulation. AMF has the power to investigate companies and fine them, but its probes are generally very lengthy and the penalties it can hand out are often criticized as too small to be dissuasive.

The head of AMF told Le Figaro newspaper the regulator had asked all four companies for details on the financial compensations planned in the event that their takeover talks on SFR failed, as well as on the conditions in which Vivendi could exit the capital of the future merged company.

“I understand that for the various players, giving information or not is part of a strategy. But we want to ensure that the market has full and precise information,” AMF chief Gerard Rameix said in an interview on Le Figaro’s website.

A spokesman for Bouygues, whose bid is backed by France’s state fund CDC and has the outright support of firebrand Industry Minister Arnaud Montebourg, said the company was surprised by the AMF’s comments.

Bouygues has commented on the talks several times – even calling journalists directly – and has repeatedly complained that Altice-Numericable are not showing their cards in the same way.

“Bouygues has regularly communicated on the content of its offers, in contrast with Altice-Numericable,” the spokesman said.

A spokesman for Altice had no immediate comment to either AMF’s comments or those of Bouygues.

A spokesman for Vivendi could not immediately be reached for comment.

(Reporting by Natalie Huet; Additional reporting by Noelle Mennella; Editing by Alexandria Sage and Sophie Walker)

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LME tightens ‘Chinese Wall’ rules on warehouses, traders

LONDON (Reuters) – The London Metal Exchange (LME) pressed on with reforms to its warehousing network on Friday, unveiling tighter “Chinese Wall” restrictions a day after a court ruling forced the LME to halt a plan to cut delivery backlogs.

The LME said it would bolster rules on firms that both trade on the exchange and own metals warehouses to ensure there was no improper flow of information or conflict of interest.

It aims to carry out a consultation regarding the proposed changes and to introduce them in January 2015.

The rules apply to parties such as bank Goldman Sachs and commodity group Glencore, which both trade metals and own metals storage facilities.

The LME, owned by Hong Kong Exchanges and Clearing, said in a statement that an external review found current restrictions between traders and warehouses were generally adequate.

“The review has, however, helpfully recommended certain modifications to the existing requirements which the LME believes will further enhance certain aspects of the information barrier requirements,” it said.

This would “protect confidential information held by warehouse companies, the possession of which by third parties (including trading companies) could otherwise give rise to conflicts of interest and, potentially, market abuse”.

It proposed strengthening a rule requiring people to notify the exchange if there were any reasonable grounds to suspect that the barriers were being violated.

It also aims to introduce requirements which would ensure employees returned confidential information when they stopped working for warehouse firms.

The moves are part of a sweeping reform plan launched last November by the world’s biggest marketplace for industrial metals such as copper and aluminum to cut queues for metal and protect against market abuse.

On Thursday, the LME was forced to halt a plan to speed up delivery of metals, however, after Russian aluminum producer Rusal won a court decision which deemed the LME’s consultations “unfair and unlawful”.

(Reporting by Eric Onstad; editing by Jason Neely)

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Italy to seek pay cut for Eni, Enel, Finmeccanica managers

ROME (Reuters) – Italy said on Friday it will back cuts of at least 25 percent to top managers’ salaries at oil producer Eni (ENI.MI), utility Enel (ENEI.MI) and defense contractor Finmeccanica (SIFI.MI) at coming shareholders’ meetings.

All three companies are controlled by the state but listed on the stock market, with government stakeholdings ranging from 30.2 percent in Finmeccanica and 31.2 percent in Enel to 44.3 percent in Eni.

The economy ministry said in a statement its representatives at the shareholder assemblies would vote for the proposals but added the result would depend on a vote by the majority of shareholders.

The proposed cuts were already foreseen in a law passed last year, but do not take effect until April 1, 2014.

Separately, the government also announced compulsory 25 percent cuts in top management pay at rail operator Ferrovie dello Stato FRSTO.UL, Poste Italiane PSTIT.UL, the post office group which is due to be partially privatized, and state investment holding Cassa dei Depositi e Prestiti CDP.UL.

With Italy suffering the highest unemployment seen since the 1970s, Prime Minister Matteo Renzi has vowed to bring down the salaries of Italy’s public sector managers.

There will be no absolute management pay limit at any of the companies but the reductions from last year’s salaries bolster Renzi’s attack on waste and elite privilege.


The move could also fuel criticism that the heads of Italian multinationals will earn less than foreign competitors.

Last week, the head of Ferrovie dello Stato, Mauro Moretti drew furious criticism after threatening to walk away from his 850,000 euro ($1.17 million) job, complaining that the head of German rail group Deutsche Bahn earned three times his salary.

According to annual accounts, Fulvio Conti, chief executive of electricity group Enel, earned 2.1 million euros last year. His counterpart at oil group Eni, Paolo Scaroni, earned 6.4 million euros while Finmeccanica chief Alessandro Pansa earned just over 1 million euros.

While those pay levels are not especially high by international standards, the pay of managers at lower level public companies can be very high in comparison with most countries, with some earning more than Italy’s president.

Under the new rules, management pay in other public sector companies, including state broadcaster RAI and air traffic controller ENAV, will be measured against the head of the Court of Cassation, Italy’s top appeals court, who earns a gross annual salary of 311,658.53 euros.

Managers of the larger groups such as RAI will earn the same salary, while heads of the smaller companies will earn proportionately lower packages based on the size of their operations and workforces.

($1 = 0.7278 euros)

(Reporting by Steve Scherer and James Mackenzie; Editing by Tom Heneghan)

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