News Archive

Wyly calls ex-lawyer’s SEC settlement ‘deal with the devil’

NEW YORK (Reuters) – Texas tycoon Samuel Wyly said Wednesday his former lawyer cut a “deal with the devil” in agreeing to testify against him in the U.S. Securities and Exchange Commission’s fraud trial accusing him of concealing stock trades in offshore trusts.

Wyly, who took the stand for the fifth and final time during his trial in New York federal court, criticized the regulator’s settlement with Michael French, Wyly’s longtime lawyer who agreed in March to pay nearly $795,000 and admit wrongdoing rather than face trial himself.

“Mr. French made his deal with the devil,” Wyly said, according to a transcript. “I mean, he has agreed to testify to the things you wanted him to testify to, and he has done so.”

The remarks came shortly before the SEC finished questioning its last live witness, Robert Estep, a former partner with the law firm Jones Day who also advised the Wylys and their companies.

The SEC has accused Wyly, 79, and Charles Wyly, his brother, of earning more than $550 million in undisclosed gains by using a maze of offshore trusts and entities to conceal stock trading in four companies on whose boards they sat on from 1992 to 2004.

The companies included Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc, and Scottish Annuity Life Holdings Ltd, now called Scottish Re Group Ltd.

The Wylys have denied wrongdoing, arguing they were not legally the beneficial owners of securities held in the trusts and had no duty to disclose them. An executor for Charles Wyly’s estate has been substituted as a defendant after he died in a 2011 car crash.

The settlement agreement with French came amid a push by the SEC under a new policy unveiled in June 2013 by SEC Chair Mary Jo White to seek admissions of wrongdoing in some of its cases.

The SEC before the trial had disclosed also demanding an admission of wrongdoing during settlement talks with Samuel Wyly, but no deal emerged.

On Tuesday, French, who testified as the SEC’s star witness over four days of trial proceedings, was questioned by a lawyer for Wyly, Harry Susman, about the deal he cut with the SEC.

French as part of the settlement admitted to assisting the Wylys in asserting control over the Isle of Man trusts. He also told them that by serving as a conduit between the Texans and the trustees, he helped them hide their control over the trusts.

But Susman asked French if it was correct the SEC did not require him to admit he did anything improper with regards to his own use of offshore entities to make undisclosed stock trades.

“As I say, I don’t remember anything like that in the admissions,” French said.

Defense lawyers are expected to call four witnesses before the case heads to the jury. Closing arguments are expected to begin May 5.

The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760.

(Reporting by Nate Raymond in New York)

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Dow ends at record high as Fed upbeat on economy

NEW YORK (Reuters) – The Dow closed at its first record high of 2014 on Wednesday after the Federal Reserve gave an upbeat view of the economy’s prospects as it announced another cut to its massive bond-buying program.

Investors brushed aside data showing weak first-quarter economic growth, which was tied to the severe winter that hampered exports and hit investment spending.

The Fed said in a statement it would reduce its monthly bond purchases to $45 billion from $55 billion, as expected. That will keep it on track to end the program as soon as October.

That the Fed looked past a dismal reading on first-quarter growth reinforced the view that weather was to blame for the weakness, analysts said.

“They are seeing some economic activity pick up after the slowdown during the winter,” said Joe Bell, senior equity analyst at Schaeffer’s Investment Research in Cincinnati. That “is one positive sign.”

Nine of the 10 SP 500 sectors ended in the black, led by the economically-sensitive SP materials sector .SPLRCMA, up 0.8 percent. Exxon Mobil (XOM.N), up 0.9 percent at $102.41, led gains on the SP 500.

The Dow Jones industrial average .DJI rose 45.47 points or 0.27 percent, to 16,580.84, a record high close. It was the first record close of the year for the Dow.

The SP 500 .SPX gained 5.62 points or 0.3 percent, to 1,883.95 and the Nasdaq Composite .IXIC added 11.013 points or 0.27 percent, to 4,114.556.

For the month, the Dow and SP 500 posted slight gains, while the Nasdaq dropped 2 percent following weeks of heavy selling in tech and biotech “momentum” stocks. The Dow was up 0.7 percent in April; the SP 500 was up 0.6 percent.

Stocks were near steady for most of the session, then slowly edged to session highs following the Fed announcement.

EBay (EBAY.O) was among the biggest negative influences on both the SP 500 and Nasdaq. Its shares fell 5 percent to $51.83, a day after it forecast lower-than-expected earnings this quarter.

Twitter (TWTR.N) shares fell 8.6 percent to $38.97 and hit a record intraday low of $37.25, a day after posting lackluster user and usage growth.

Early in the session, data showed gross domestic product expanded at a 0.1 percent annual rate in the first quarter, the slowest since the fourth quarter of 2012, as exports and inventories weighed, but activity already appears to be bouncing back.

In another report, however, U.S. private employers beat expectations by adding 220,000 workers in April, the most since November, and gains in the prior month were revised up.

After the bell, shares of Yelp Inc (YELP.N), the operator of consumer review website, rose 4 percent to $60.67 as it reported a 66 percent rise in quarterly revenue.

About 6.8 billion shares changed hands on U.S. exchanges, above the 6.6 billion April average, according to data from BATS Global Markets.

(Editing by Bernadette Baum and Nick Zieminski)

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CEO Barra leans on small circle of GM veterans

DETROIT (Reuters) – In the midst of General Motors Co’s (GM.N) biggest crisis since bankruptcy, new Chief Executive Mary Barra is turning to an inner circle dominated by company “lifers,” believing the team is up to handling a massive recall and reinvigorating the company without much outside help, former and current GM executives say.

Barra’s every move is being dissected in the wake of the recall of 2.6 million cars for an ignition switch defect linked to at least 13 deaths.

One question is whether the “New GM” that emerged from bankruptcy in 2009 is a different company from the old one.

Barra’s inner circle includes one relative newcomer, and GM has hired three outside consultants for help with the switch crisis, but most of her core team, like Barra, are long-time GM veterans.

Products chief Mark Reuss may be her closest ally, even though the two vied to become CEO, according to a consensus of eight current and former executives, who asked not to be identified. He’s a “car guy” and she’s a “car gal,” an accolade in Detroit for true driving enthusiasts.

The second close advisor is chief counsel Michael Millikin, who has risen in influence as he has helped guide the company’s guarded response to the ignition switch defect. He is co-leading the internal probe of the switch.

GM declined to comment on Barra’s closest team.

Barra has said she meets with her team daily by phone or in person. She also makes nearly daily calls to non-executive Chairman Tim Solso, the 67-year-old former Cummins (CMI.N) CEO, who was chosen by the board as chair at the same time Barra was named CEO, in order to mentor her. Solso is not part of the core team running the company’s day-to-day operations, though.

When Barra, 52, went to Congress for a grilling, Milliken and Reuss sat behind her as she repeatedly apologized, promised to take care of customers and offered limited details of what actually happened.

The inner team is rounded out by Human Relations head John Quattrone, Alan Batey, the company’s point person with U.S. dealers, and former Wall Street banker Dan Ammann, who as chief financial officer reworked the company’s opaque financial systems after bankruptcy. All of the five but Ammann have been at GM for more than three decades.

“She’s not looking for personal advisors who would be separate from the management team,” said a person familiar with GM’s operations. Barra, a 34-year GM veteran, believes that looking outside the GM executive ranks and board room is not necessary, given the management team’s crisis experience surviving the U.S. economic meltdown in 2008 and the company’s bankruptcy the following year, the person added. Most have worked around the world for GM.


Barra’s team was assembled to rebuild the company from the inside, not to take on the switch crisis.

They are a legacy of former CEO Dan Akerson, who anointed Barra and set the key elements of the company’s post-bankruptcy strategy: launch better cars and trucks for which the automaker could charge higher prices, while repairing overseas operations, especially in money-losing Europe.

Millikin, 65, was “connected at the hip with Akerson” and North American chief Batey, 51, was also a confidant, sources said. Quattrone, 61, though, is a former lieutenant of Barra, when she ran HR following the company’s 2009 bankruptcy.

“Your inner circle has to include product development, because that’s where most of the people are; customer sales and service, because the dealers are the face of the company; and HR, because it’s recruiting, promoting and rewarding the right people,” a second person familiar with GM’s operations said, referring to jobs held by Reuss, Batey and Quattrone.

Reuss, 50, is a fellow engineer who succeeded Barra as GM’s global product development chief and speaks the same language.

“They have similar backgrounds, are about the same age and obviously have spent a lot of time together the last few years,” one of the former GM executives said. The two together faced reporters in March for the first time after the recall.

Sitting next to each other at a table with several journalists at the company’s Detroit riverfront headquarters, Barra fielded most questions, occasionally calling on Reuss, who explained how GM tracked potential defect issues, for instance.

Relative newcomer Ammann, 42, was recruited from Wall Street in April 2010 to be treasurer and manage GM’s reintroduction to the public stock market that fall. Now president and charged with running GM’s regional operations, he was the third prominent executive considered along with Barra and Reuss for GM’s top job.

Ammann advised GM during its bankruptcy reorganization as head of industrial investment banking at Morgan Stanley, and sources said the New Zealand native is seen as representing an outsider voice given his shorter history at GM. But he has an insider’s approach to cars: he spent his first bonus from Morgan Stanley on a light blue 1961 Cadillac Series 62 convertible.

Barra and GM have turned to outsiders in some cases to help in its handling of the recall. Former U.S. Attorney Anton Valukas is co-leading the company’s internal probe, attorney Kenneth Feinberg has been hired to examine what step GM might take for families of crash victims, and crisis consultant Jeff Eller was recruited to help in the company’s overall response.

There is room for a sixth adviser as well. Public relations chief Selim Bingol stepped down earlier this month, one of a small flurry of executive departures sources saw as giving Barra room to pick her own team. HR chief Melissa Howell left, replaced by Barra’s old lieutenant, Quattrone.

(This story corrects Ammann job description in paragraph 19 to “charged with running GM’s regional operations” from “charged with running GM’s operations outside North America” because his regional responsibilities include North America)

(Reporting by Ben Klayman in Detroit, editing by Paul Lienert and Peter Henderson)

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Exclusive: Curbing tax-driven business moves abroad a priority

(Reuters) – The Obama administration is seeking ways to curb tax-dodging by U.S. businesses that reincorporate overseas, a U.S. Treasury official told Reuters on Wednesday, highlighting growing concern about deals known as “inversions.”

“Cracking down on companies that reincorporate overseas to reduce their U.S. taxes is a priority for the administration,” the official said in an email responding to questions about a pending administration proposal and recent events.

U.S. drugmaker Pfizer Inc (PFE.N) said on Monday it has made takeover bids for UK rival AstraZeneca Plc (AZN.L) in a possible

deal to merge the two into a UK holding company with a UK tax domicile. Like many other inversion structures, Pfizer’s operational headquarters would remain in the United States.

About 50 U.S. companies have done similar transactions in the past 30 years, relocating their tax residences to lower-tax countries via mergers or other restructuring arrangements, but making few changes to their core U.S. business operations. About half of these transactions have occurred since 2008.

President Barack Obama’s 2015 budget, introduced in early March, includes a proposal to crack down on inversions by making them more difficult to do with higher minimum levels of foreign ownership required.

With the U.S. Congress deadlocked over tax-and-spending policy, the chances of an inversion crackdown becoming law soon were slim, said analysts, though it could not be ruled out.

“The most effective way to reduce inversion incentives is through fundamental tax reform, which we don’t see Congress taking up until 2015 at the earliest,” said Terry Haines, head of political analysis at private macro research firm ISI Group.


Another vehicle for tightening the inversion rules as Obama proposes could be measures moving through Congress to renew dozens of unrelated temporary tax laws known as “extenders,” though analysts said this was only a remote possibility.

“While some might try and attach this proposal to a tax extenders bill, it could complicate an already delicate situation,” said policy analyst Brian Gardner at investment firm Keefe, Bruyette Woods. “The tax committee chairmen probably want to keep the extenders bill as clean as possible.”

The potential Pfizer-AstraZeneca tie-up is not the only big inversion deal in the works. Omnicom Group Inc (OMC.N), the largest U.S. advertising company, is trying to merge with French rival Publicis Groupe SA (PUBP.PA) into a Netherlands-based holding company with a UK tax domicile, though the deal has encountered delays.

“Inversion transactions illustrate the need for comprehensive business tax reform that would lower corporate tax rates and limit the ability of multinationals to shift income outside the U.S.,” the Treasury official said, noting that the administration knows such deals “are occurring and aren’t being caught by the current rules.”

The U.S. Internal Revenue Service on Friday issued a notice limiting shareholders’ tax-free treatment in inversions.

Greg Valliere, chief political strategist at Potomac Research Group, said: “I just don’t see this moving unless it’s part of comprehensive tax reform – and that’s going nowhere this year.”

(Reporting by Kevin Drawbaugh; Editing by Howard Goller, Leslie Adler and Tom Brown)

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U.S. economy stalls in first-quarter, but fundamentals still sound

WASHINGTON (Reuters) – The U.S. economy barely grew in the first quarter as the severe winter hampered exports and led businesses to curtail investment spending, but activity already appears to be bouncing back.

Gross domestic product expanded at a 0.1 percent annual rate, the slowest since the fourth quarter of 2012, the Commerce Department said on Wednesday.

“This quarter was impacted heavily by the weather. Growth is down, but not out, not by a long shot, and we look for it to quicken later on in the spring,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

The slowdown, which also reflected the slowest inventory accumulation in nearly a year, was much sharper than Wall Street had braced for. Economists expected a 1.2 percent growth pace.

It suggested the economy could struggle to achieve the 3 percent break-out growth that had been widely anticipated this year, but did little to alter forecasts for coming quarters.

Federal Reserve officials, who concluded a two-day policy meeting just hours after the government released its first snapshot of first-quarter growth, brushed aside the slowdown. They focused instead on other data that have suggested strength at the tail end of the quarter.

In its statement, the Fed said “growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.”

The U.S. central bank announced a further reduction in the amount of money it is pumping into the economy through monthly bond purchases.

Separate reports on Wednesday showed private employers added 220,000 workers to their payrolls in April, while business activity in the Midwest hit a six-month high, with new orders surging and employment rising.

U.S. stocks were trading higher, but the dollar fell against a basket of currencies. Prices for U.S. government debt rose.


“Our bet is that the weakness we are seeing is still more transitory than fundamental,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

Economists estimate severe weather could have chopped off as much as 1.4 percentage points from GDP growth. The government, however, gave no details on the impact of the weather.

Businesses restocked inventories to the tune of $111.7 billion in the final three months of last year, but added only $87.4 billion more to stocks in the first quarter, the smallest amount since the second quarter of 2013.

The slowdown in restocking subtracted 0.57 percentage point from GDP growth in the first quarter, but inventories should be a boost to second-quarter growth.

“It looks like most of the inventory correction will be contained in the first quarter,” said Daniel Silver, an economist at JPMorgan in New York.

Trade lopped off 0.83 percentage point from growth, partly because of the weather, which left goods piling up at ports. Exports fell at a 7.6 percent rate, the largest quarterly decline in five years, after growing at a 9.5 percent pace in the final three months of 2013.

A measure of domestic demand that strips out exports and inventories expanded at a 1.5 percent rate and there were virtually no signs of inflation pressures.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 3.0 percent rate, reflecting a spurt in spending on services linked to demand for heating and the Affordable Healthcare Act, which expanded healthcare coverage to many Americans.

Spending on services grew at its quickest pace since the second quarter of 2000, with healthcare contributing a solid 1.10 percentage points to GDP growth.

Spending on goods, however, slowed sharply, indicating that the frigid temperatures had reduced foot traffic to shopping malls. Consumer spending had increased at a brisk 3.3 percent pace in the fourth quarter.

Harsh weather also undercut business spending on equipment, which fell at its fastest pace in nearly five years. While investment in nonresidential structures, such as gas drilling, rebounded, the increase was minor.

Investment in home building contracted for a second straight quarter, another sign of the hit from the weather, although a rise in mortgage rates over the past year has also hurt.

A second quarter of contraction in spending on home building suggests a housing recession. A bounce back, however, is expected in the April-June period.

“The technical recession in housing is a major yellow flag in terms of the strength of the domestic economy. It will be a while before the Fed starts raising interest rates,” said Brian Bethune, chief economist at Alpha Economic Foresights in Boston.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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UAW can still unionize Volkswagen Tennessee plant after failed drive: experts

DETROIT (Reuters) – The United Auto Workers still has several options to unionize Volkswagen AG’s (VOWG_p.DE) Tennessee car plant, labor law experts said on Wednesday, after it failed to win enough support and last week dropped its challenge to the election results.

The UAW faces a one-year waiting period, under U.S. labor law, before it can hold another official secret ballot election at the Chattanooga facility after workers at the plant voted 712-626 on February 12-14 not to join the union.

The UAW challenged the results, saying the election was poisoned by the anti-union groups. But last week, it unexpectedly abandoned its appeal to the U.S. National Labor Relations Board, minutes before a hearing was scheduled to begin, saying the challenge could drag on for years.

Experts said the UAW could instead try to organize a smaller, specialized unit of workers, work with VW to hold a private election, or gain recognition through a process called card check.

Organizing only some workers, perhaps those in the union-friendly body shop, would be an unusual approach for the UAW, but it could work if the union could show that most workers in the sub-unit wanted union representation.

“I wouldn’t be shocked if a scenario like that were to unfold,” speculated Larry Drapkin, a labor attorney at Mitchell Silberberg Knupp in Los Angeles, adding he had no direct knowledge of plans at the UAW or at Volkswagen.

If the UAW tried a sub-unit election, it would still have to wait a year, under NLRB rules.

On Wednesday, union and Volkswagen officials offered no comment on speculation that the UAW might be able to find an alternate route into the VW plant.

The UAW’s narrow defeat was a stinging rebuke to the union, setting back its years-long effort to organize workers for the first time in a foreign-owned auto assembly plant in the U.S. South, a traditionally anti-union region.

The loss was even more surprising as VW did not oppose the UAW. But VW’s neutrality enhanced the role played in the election campaign by assorted anti-union forces, including Republican politicians and pressure groups from Washington, D.C.


The option of a “private” election that does not involve the NLRB could include all plant workers or just some of them, said Wilma Liebman, former chair of the NLRB.

This approach would not be subject to the year-long waiting period and would be conducted by a neutral third-party, such as the American Arbitration Association. The UAW would have to show that the majority of workers in the proposed bargaining unit favor joining the union.

“Through a private election, the UAW might want to carve out a group of workers among whom it has considerable support. That’s a possible strategy,” said Gary Chaison, professor of industrial relations at Clark University in Massachusetts.

Under the “card check” option, a union presents an employer with cards signed by workers expressing union support.

Drapkin said VW’s desire to make Chattanooga’s workers part of the manufacturer’s Global Works Council, a German-style management-labor committee, could motivate VW to accept a card check. Most experts agree that U.S. workers would need union representation to join the council.

VW officials have said they would prefer a secret ballot election, however.

Any of these scenarios would require VW and the UAW to void a January agreement that the union would refrain from organizing the plant’s workers for a year after the February election, unless another union tried to do so.

“The issue is do you use the government NLRB route, which the employer can insist on, or do you, as an employer and a union, agree to do some other method that legally may be used to determine the wishes of the employees,” said Ron Meisburg, a former NLRB member and one-time general counsel.

Meisburg said a secret ballot election, particularly one conducted by the NLRB, has “the highest degree of integrity” in determining workers’ desires.

Meisburg declined to comment on the possibility of the UAW seeking to organize a portion of the Chattanooga workers.

(Additional reporting by Amanda Becker in Washington, D.C.; Editing by Kevin Drawbaugh and Richard Chang)

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GE’s Alstom bid shows limits of French state intervention

PARIS (Reuters) – General Electric’s (GE.N) overtures to the power business of France’s former industrial beacon Alstom (ALSO.PA) have shown again how the French state, for all its interventionist zeal, has limited room for maneuver against big business.

Citing “patriotic concern” over loss of jobs and control of a group with a history stretching back 86 years, President Francois Hollande’s government leapt into action to find ways of countering the offer after news of it emerged last week.

While Germany’s Siemens (SIEGn.DE) – billed by Paris as a possible white knight – still has a month to make its intentions clear, Alstom’s decision to review GE’s $16.9-billion bid makes the U.S. giant the clear favorite to secure the turbine and grid assets that make up the bulk of Alstom revenues.

If GE succeeds, it will mark the latest climb-down for a two-year-old government which has already ended up on the losing side of public stand-offs in the telecom and steel industries.

“This is the end of an era. The state no longer has the means to protect weak companies in sensitive sectors,” left-leaning Le Monde said in a front-page editorial entitled “The state can’t do it all”.

Such views are not widely held in a country where the state holds stakes in dozens of blue-chip companies and governments of all stripes see it as their duty to intervene in corporate matters. A conservative government bailed out Alstom in 2004, five years before the economic crisis tore through the firm’s order books.

Yet the saga of the past week shows Hollande’s Socialists unable or unwilling to get out the big guns of state weaponry to ward off the U.S. giant.

France’s move in 2005 to name dairy group Danone (DANO.PA) a concern of strategic importance to shield it from a feared takeover by U.S. drink-maker PepsiCo is now regarded as a textbook classic of “economic patriotism”.

But GE’s offer to ring fence from the Alstom deal the turbines used by France’s nuclear industry – which generates some 75 percent of the country’s power – has meant the state has not played the strategic concern card this time.

Unions are urging the government to purchase a 29 percent stake in Alstom held by industrial group Bouygues, which is seeking an exit to be able to invest in its telecom unit. Economy Minister Arnaud Montebourg said on Wednesday that he would study the option.

But such a move was swiftly knocked down by the official government spokesman, while a source close to Hollande said it would run up against European Union antitrust laws.

“Even if the state took on Bouygues’ stake, it wouldn’t be able to keep it for very long because the European Commission would tell us to get rid of it,” said the source.

Even the emergence of Siemens as a possible savior had an unlikely air about it.

One industry insider told Reuters that no one at Alstom wanted a deal with Siemens because everyone – from the low-level worker to chief executive Patrick Kron – recalls how Siemens lobbied against state aid for Alstom back in 2004.

Sector analysts noted that overlaps between the two groups made the risk of job losses among Alstom’s 18,000 French staff high and questioned whether there was any logic in Siemens’ pursuing the matter now that GE was in the driving seat.

“We have a slightly critical view of this because it seems that this is more a reaction to GE’s move,” Tim Albrecht, fund manager at DWS Investment, said of Siemens’ general expression of interest over the weekend.

In taking a share in PSA-Peugeot-Citroen PSA.PA alongside China’s Dongfeng (0489.HK), Hollande last month hailed a move aimed at ensuring the turn-around of the ailing auto-maker.

But other efforts to intervene have fallen flat.

Despite his 2012 promise to protect steelworkers from a plan to close two blast furnaces in northern France, Hollande’s government ultimately proved unable to stop owner ArcelorMittal (ISPA.AS) from doing just that one year ago.

It was humbled again this month when cable group Numericable (NUME.PA) won the battle to buy Vivendi’s (VIV.PA) telecoms arm SFR despite overt state backing for a rival offer from Bouygues.

A more sympathetic narrative is that the government – usually in the strident shape of Economy Minister Montebourg – is holding out for jobs and other key interests against forces that would put the quest for shareholder value above all else.

Montebourg told parliament on Wednesday that his efforts had won a month’s more time for negotiations on what he urged should be a “partnership of equals rather than a takeover”.

He pointed to the fact that GE boss Jeffrey Immelt had provided guarantees that the deal would boost employment in France and the group would locate global headquarters of several businesses in the country, from grids to hydropower.

However, one source close to the discussions said it was likely that GE would have made the same concessions without Montebourg’s intervention. Trade unions were equally skeptical of whether it had made a difference.

“Promises are only for those who believe in them,” said Dominique Gillier of the CFDT union, one of those who held crisis talks with Montebourg late on Tuesday.

“What we need are guarantees on specific sites.”

(Additional reporting by Nicholas Vinocur and Matthieu Protard; Editing by Peter Graff)

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Fed shows faith in U.S. economy with bond-buying reduction

WASHINGTON (Reuters) – The Federal Reserve is expected to cut its bond-buying program by a further $10 billion on Wednesday, confident that the U.S. economy will pull away from its sharp winter slowdown.

Janet Yellen’s second policy-setting session as Fed chair should confirm the U.S. central bank’s plan to wind down its purchases of Treasuries and mortgage-backed securities by year-end, a sign of its confidence the economy is gaining traction.

That decision is unlikely to be shaken by new data showing the economy grew at a disappointing 0.1 percent annual rate at the start of the year. The Fed has already said it anticipated a poor first-quarter result because of a harsh winter in many parts of the United States.

The reduction likely to be announced at the end of the Fed’s two-day meeting would bring the total monthly purchases down to $45 billion, split between $25 billion of Treasuries and $20 billion of mortgage-backed securities. Analysts expect little more out of the session as the Fed enters what may be a sort of holding pattern as it transitions from an era of crisis response to one of more normal monetary policy.

The meeting “will probably be a quiet one,” with the reduction in purchases “a foregone conclusion,” and no fresh economic forecasts from the members of the Fed’s policy-making committee, said Goldman Sachs senior economist Kris Dawsey.

A statement outlining the policy decision and the Fed’s view of the economy will be issued at 2 p.m.

Little or no change is expected in the Fed’s guidance on its key overnight interest rate, which it has kept near zero since the depths of the financial crisis in December 2008.

The Fed changed its guidance in March when it dropped language that said the target rate would not be increased until the unemployment rate fell to at least 6.5 percent.

Unemployment has been steadily approaching that threshold, and now stands at 6.7 percent. But with little sign of inflation, Yellen has said she feels there is still ample “slack” in the economy and a need to keep rates low to continue to support economic growth.

During an April 16 speech in New York, she said the United States may still be more than two years away from what the Fed now regards as the “longer-run normal unemployment rate” of between 5.2 percent and 5.6 percent.

“Thus far in the recovery and to this day, there is little question that the economy has remained far from maximum employment,” she said.

The last Fed statement said rates would likely remain near zero “for a considerable time after the asset purchase program ends.”

If anything, the latest report on gross domestic product growth “is going to give Janet Yellen’s camp a lot more ammunition to remain on the more neutral to dovish side,” said Richard Cochinos, a currency strategist at Citi in New York.

Investors have construed the Fed’s current guidance to mean a rate increase is not likely until the middle of next year. That, however, will depend on the performance of an economy that is expanding, but not generating much upward pressure on wages and prices.

With inflation well below the central bank’s 2 percent objective, “We continue to see the Fed erring on the side of caution and moving on the policy rate later rather than sooner,” Millan Mulraine, deputy chief economist at TD Securities in New York, wrote in a preview of the Fed meeting.

“Indeed, the elevated level of economic slack, both in the labor market and other sectors of the economy, will ensure that wage pressures stay weak and pricing power among firms remains contained,” Mulraine said.

A poor first-quarter gross domestic product estimate was widely expected by economists because of the snowy winter and an anticipated drop in the pace of business inventory investment.

The underlying trend is much stronger, said Ben Herzon, senior economist with consulting firm Macroeconomic Advisers.

Consumer spending held up, increasing at an annualized 3.0 percent rate, and a separate report showed private employers added a higher than expected 220,000 jobs in April.

“The economy is continuing to progress,” Herzon said. “Not blockbuster, but decent … The pace of GDP growth is sufficient to keep the unemployment rate moving down.”

(Reporting by Howard Schneider; Additional reporting by Daniel Bases in New York; Editing by Ken Wills and James Dalgleish)

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Fannie Mae, Freddie Mac may need $190 billion in big downturn: regulator

WASHINGTON (Reuters) – U.S. mortgage financiers Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) may require as much as $190 billion in additional taxpayer aid if the economy suffers a severe downturn, their regulator said on Wednesday.

The Federal Housing Finance Agency, which oversees the two taxpayer-owned companies, offered the estimate as the worst-case scenario in an analysis modeled on the stress tests conducted on the nation’s biggest banks. The analysis relies heavily on U.S. home price projections.

The stress tests, required by the Dodd-Frank Act, are designed to show if regulated entities have enough capital to weather a financial collapse similar to the 2007-2009 crisis.

A worst-case scenario would require total aid ranging from $84.4 billion to $190.0 billion, depending on certain accounting assumptions, for the two companies through 2015. So far, Fannie Mae and Freddie Mac have drawn $187.5 billion in bailout funds, while returning $202.9 billion in dividends to the U.S. Treasury after posting record profits.

“It is important to remember that the stress test results are modeled projections based on hypothetical economic conditions prescribed by FHFA,” said Freddie Mac spokesman Tom Fitzgerald. “Actual outcomes may be very different.”

Under their bailout agreement with the government, Fannie Mae and Freddie Mac must sweep their profits into the Treasury and cannot rebuild capital that would cushion any sudden shock to the financial system.

Regulators took control of Fannie Mae and Freddie Mac in 2008 after losses stemming from subprime mortgage investments pushed them to the brink of insolvency.

“These results of the severely adverse scenario are not surprising given the company’s limited capital,” Fannie Mae Senior Vice President Kelli Parsons said in a statement.

The two largest suppliers of mortgage funds are operating under conservatorship while Congress considers an overhaul of the mortgage-finance system. The Senate is considering taking action to wind down the two taxpayer-owned companies, but the measure faces an uncertain future.

Fannie Mae posted earnings of $84 billion for 2013, and Freddie Mac reported a profit of $48.7 billion, both setting records. Executives of both companies have said they expect to see some profitable quarters in the future.

“The system today continues a flawed dynamic where taxpayers must support future losses at Fannie Mae and Freddie Mac should there be another downturn in home prices,” Treasury Secretary Jack Lew told a congressional committee on Tuesday.

“We need to start reform now,” Lew said, “and we need legislation to achieve the fundamental reforms that protect both consumers and taxpayers.”

Fannie Mae and Freddie Mac own or guarantee about 60 percent of all U.S. home loans.

(Editing by Bernadette Baum and Lisa Von Ahn)

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