News Archive


‘The Lego Movie’, HBO shows boost Time Warner results


(Reuters) – Time Warner Inc (TWX.N) raised its full-year earnings forecast after the box-office success of “The Lego Movie” and the popularity of HBO shows such as “Game of Thrones” and “True Detective” led to a near-doubling of quarterly profit.

The company, owner of the Warner Bros. movie studio and cable channels such as HBO and CNN, said its full-year adjusted profit would likely grow in the low to mid-teen percentage range, or better, for at least the next three or four years.

Time Warner, which is in the process of divesting its underperforming Time Inc publishing unit, is pinning its future on the booming filmed entertainment market.

The company had previously forecast 2014 adjusted earnings per share to increase by low double digits on a percentage basis over last year’s $3.51 per share.

Time Warner also said it would accelerate its share buybacks in coming quarters.

Time Warner’s shares were up 1.2 percent at $65.55 in early afternoon trading on the New York Stock Exchange on Wednesday after rising as much as 6.4 percent.

The company said it expects a “significant bump” in HBO content revenue in the second quarter as a result of its deal with Amazon.com Inc (AMZN.O), under which the e-commerce company will stream some older HBO shows.

Time Warner also plans to invest more to boost HBO’s original programming and to develop online streaming service HBO Go as younger viewers increasingly watch movies and TV shows on online services such as Netflix Inc (NFLX.O).

The company confirmed it was in talks with Dish Network Corp (DISH.O), which has plans to launch an Internet-based TV-like network.

“We are not philosophically opposed to that kind of structure but we have to believe it will be additive and sustainable,” Chief Executive Jeff Bewkes said on a post-earnings conference call.

HBO SHINES

HBO revenue rose 9 percent to $1.33 billion in the first quarter ended March 31.

“The Turner Networks and Warner Brothers continue to perform well but we believe HBO could be the real growth story,” ISI Group analyst Vijay Jayant said in a note.

Time Warner broke out financials for HBO for the first time last quarter to show investors how it stacks up against Netflix.

Netflix’s revenue jumped 36 percent to $1.07 billion in the first quarter as the company improved its original content with such programs as the critically acclaimed Kevin Spacey hit “House of Cards.

The Season 4 premiere of “Game of Thrones” on April 6 drew HBO’s largest audience since “The Sopranos” finale in 2007, Time Warner said.

Warner Bros. revenue jumped 14 percent, helped mainly by strong performance of “The Lego Movie”, “300: Rise of an Empire” and “The Hobbit: The Desolation of Smaug”.

The company said Warner Bros. is already working on another Lego movie for release in 2017.

Revenue at Turner, which includes CNN, TBS and TNT, increased 5 percent as domestic subscription rates and advertisement revenue rose.

Time Warner’s net income from continuing operations rose to $1.29 billion from $754 million a year earlier.

Excluding Time Inc and other items, the company earned 97 cents per share. Wall Street was expecting 88 cents per share.

Revenue rose 9 percent to $7.55 billion. Analysts had expected $6.61 billion, according to Thomson Reuters I/B/E/S. Excluding Time Inc, revenue rose 10 percent.

(Reporting by Soham Chatterjee in Bangalore; Editing by Maju Samuel, Don Sebastian and Saumyadeb Chakrabarty)

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U.S. economy stalls on inventories, trade


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 gain.

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.

U.S. stocks were little changed after opening lower on the report. Prices for U.S. government debt were up, while the dollar fell against a basket of currencies.

The government’s first snapshot of first-quarter growth was released just hours before the Federal Reserve wraps up a two-day policy meeting.

With growth pinned down by temporary factors, Fed officials are likely to brush aside the slowdown and focus on other data that has suggested strength at the tail end of the quarter.

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

Still, the magnitude of the slowdown could complicate the U.S. central bank’s message as it sets to announce a further reduction in the amount of money it is pumping into the economy through monthly bond purchases.

NO FUNDAMENTAL WEAKNESS

“Our bet is that the weakness we saw in the first quarter is more transitory than fundamental, with a heavy dose of weather distortions,” 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 little 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; Additional reporting by Richard Leong; Editing by Andrea Ricci)

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U.S. government says it lost $11.2 billion on GM bailout


WASHINGTON (Reuters) – The U.S. government lost $11.2 billion on its bailout of General Motors Co, more than the $10.3 billion the Treasury Department estimated when it sold its remaining GM shares in December, according to a government report released on Wednesday.

The $11.2 billion loss includes a write-off in March of the government’s remaining $826 million investment in “old” GM, the quarterly report by a Treasury watchdog said.

The U.S. government spent about $50 billion to bail out GM. As a result of the company’s 2009 bankruptcy, the government’s investment was converted to a 61 percent equity stake in the Detroit-based automaker, plus preferred shares and a loan.

Treasury whittled down its GM stake through a series of stock sales starting in November 2010, with the remaining shares sold on December 9, 2013.

At the time of the December sale, Treasury put the total loss at $10.3 billion but said it did not expect any significant proceeds from its remaining $826 million investment in “old” GM, the report by the Office of the Special Inspector General for the Troubled Asset Relief Program said.

The U.S. bailout of GM and Chrysler, which received about $12.5 billion, saved 1.5 million jobs in the United States, according to the Center for Automotive Research.

Last week, GM posted its 17th consecutive profitable quarter. Earnings, however, were hurt by a $1.3 billion charge for the costs of various recalls, including for faulty ignition switches on 2.6 million cars.

GM is under investigation by the Justice Department, U.S. auto safety regulators and Congress over its failure to detect the faulty ignition switch for over a decade. The U.S. Securities and Exchange Commission is also investigating GM.

(Reporting by Eric Beech; editing by Matthew Lewis)

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Wall St. little changed after data, Fed eyed


NEW YORK (Reuters) – U.S. stocks were little changed on Wednesday after data showed the economy grew at a sharply lower-than-expected pace in the first quarter, but gains in private payrolls kept the market near break-even.

Gross domestic product expanded at a 0.1 percent annual rate, the slowest since the fourth quarter of 2012, as exports and inventories weighed, but activity already appears to be bouncing back. It was a sharp pullback from the fourth quarter’s 2.6 percent pace.

U.S. private employers, however, beat expectations by adding 220,000 workers in April, the highest amount since November, and gains in the prior month were revised up. Chicago business activity also rose more than expected in April, jumping to its highest since October 2013.

Despite the large miss on GDP, the SP 500 remained within 1 percent from its record closing high set early this month.

“There’s no hiding the fact the GDP number is a disappointment, but even though it came much lower than expectations it’s getting a hall pass because we are expecting to have a better second quarter,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

“The market is focusing on what economic data is telling us about Q2 and there’s a reason to believe the demand loss was more weather-related than anything,” he said.

Hogan cited the Chicago PMI, internals of the GDP report, and ADP as evidence the second quarter will be stronger.

The Dow Jones industrial average .DJI rose 12.33 points or 0.07 percent, to 16,547.7, the SP 500 .SPX gained 0.66 points or 0.04 percent, to 1,878.99 and the Nasdaq Composite .IXIC dropped 8.818 points or 0.21 percent, to 4,094.725.

The SP was up 0.3 percent for the month so far. It could be the third consecutive month of gains for the SP 500 and Dow, while the Nasdaq was on track to post its second straight month of losses.

Markets will have their eyes on the Federal Reserve’s policy-setting meeting, with a statement due at 2:00 p.m. EDT (1800 GMT). The Fed is expected to cut its bond-buying program by a further $10 billion, confident the U.S. economy will pick up steam after a winter slowdown.

Twitter (TWTR.N) shares fell 10.1 percent to $38.28 and hit a record low intraday level at $37.25, a day after it posted lackluster user and usage growth for the second consecutive quarter.

EBay (EBAY.O) shares fell 4.7 percent to $51.95, weighing the most on the Nasdaq 100 .NDX, after it forecast lower-than-expected earnings this quarter.

Nuclear power producer Exelon (EXC.N), which reported earnings earlier on Wednesday, said it would buy Pepco Holdings (POM.N) for $6.83 billion. Pepco shares jumped 17.4 percent to $26.75 and Exelon fell 3.5 percent to $34.90.

French engineering group Alstom (ALSO.PA) said it would study a $16.9 billion offer from General Electric (GE.N) for its energy arm but left the door open for a rival bid from Germany’s Siemens (SIEGn.DE). GE shares were up 0.5 percent at $26.89.

(Reporting by Rodrigo Campos; Editing by Bernadette Baum and Nick Zieminski)

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Charter withdraws slate for Time Warner Cable’s board


(Reuters) – Charter Communications, which lost out to Comcast Corp in a bid to acquire Time Warner Cable Inc, has withdrawn its slate of nominees to Time Warner Cable’s board.

As part of a deal with Comcast announced on Monday to swap customers, Charter had withdrawn its slate a Charter spokesman said on Wednesday.

Charter had said in February that it was nominating a slate of 13 candidates for election to Time Warner Cable’s board as part of its push to take over the larger company for $38 billion, shortly before Comcast swooped in with a winning offer of $45 billion.

Time Warner Cable said in a filing to the Securities and Exchange Commission on Tuesday that Charter had withdrawn the slate April 25.

It also said in the filing that it had scheduled its annual shareholder meeting for June 5 in New York.

However, Time Warner Cable said shareholders will not be asked to vote on the merger with Comcast at that time. The deal is subject to regulatory approval.

The company plans to set a special meeting for a vote on the transaction later in 2014.

(Reporting By Nicola Leske; Editing by Chris Reese)

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BNP warns U.S. fine may ‘far exceed’ $1.1 billion provision


PARIS/WASHINGTON (Reuters) – French bank BNP Paribas (BNPP.PA) has warned it might be hit with a fine far in excess of the $1.1 billion that it set aside last year to cover litigation costs linked to potential breaches of U.S. sanctions on countries including Iran.

An eventual settlement is likely to be closer to $2 billion, and also will likely involve a guilty plea, a person familiar with the matter said.

The person declined to say whether the bank itself or one of its units would be required to plead guilty to criminal charges. A plea at the parent company level could more severely constrain the bank’s ability to do business in the United States.

A settlement could come in the next month, the person, who spoke on condition of anonymity, said.

The warning from France’s biggest bank comes as the global banking industry faces mounting legal woes due to investigations into a string of alleged misdeeds, including fixing benchmark interest rates and manipulating foreign-exchange markets.

A big U.S. fine could have ramifications for BNP beyond the immediate financial hit, as the bank is targeting expansion in North America as a key plank of a new strategy to raise revenue and profits outside traditional European markets.

“There is uncertainty with respect to the amount and the nature of penalties the U.S. will impose,” Chief Financial Officer Lars Machenil told Reuters Insider television. “It’s not impossible that the fine is far in excess of the ($1.1 billion) provision.”

Asked if the fine could reach $2 or $3 billion, BNP’s Machenil told Reuters Insider: “There is nothing more to say.”

Machenil told analysts on a conference call that the bank had already set aside around 2.7 billion euros ($3.73 billion) for litigation costs, including the specific $1.1 billion provision.

His comments came after BNP posted a higher-than-expected 5.2 percent rise in first-quarter net income.

Shares in the bank were down 3.8 percent at 53.80 euros by 1434 GMT, having fallen as low as 53.55 euros, not far from their lowest of the year so far. The European banking sector .SX7P was down 0.8 percent.

U.S. federal prosecutors are considering criminal charges against BNP for doing business with countries subject to U.S. sanctions, such as Iran, Sudan and Cuba, a second person with knowledge of the matter has said. The New York Times first reported the potential charges.

Regulators may consider suspending the bank’s ability to conduct dollar clearing in New York – the process by which transactions are quickly settled and cleared within the banking system – and are looking at possible penalties for individual employees, the person said.

The head of the New York Department of Financial Services, which is investigating BNP over sanctions violations, said last month his office is, in general, considering penalties including banning certain banks from dollar clearing transactions for specific time periods, but declined to name specific banks. id:nL2N0MG16N

BNP declined to comment. The bank has said it wants North America to account for 12 percent of revenue by 2016, up from 10 percent in 2013, and wants to improve cross-selling between its U.S. investment bank and retail bank unit BancWest.

OPERATIONAL SANCTION

“The risk is that some form of operational sanction may undermine the bank’s ability to meet these targets,” analyst Jean-Pierre Lambert at brokerage Keefe, Bruyette Woods said.

“There does not seem to be a serious likelihood that BNP will lose its banking license outright, but there may be consequences for its current activities if its ability to clear U.S. dollar transactions is limited,” Lambert said.

Past U.S. settlements have ensnared rivals such as Standard Chartered (STAN.L), which agreed in 2012 to pay $327 million to resolve allegations that it violated U.S. sanctions against Iran, Sudan, Burma and Libya. The bank was separately fined $340 million by New York’s banking regulator over Iranian sanctions.

Meanwhile BNP’s results showed the effects of its full takeover of Belgian subsidiary Fortis last year, which helped offset writedowns on assets exposed to the Ukraine crisis and rising loan losses in Italy.

The bank has a robust capital base relative to peers, with a core Tier 1 ratio of 10.6 percent at end-March. Machenil said BNP has “excess capital” but would not use this to buy back shares at their current valuation.

($1 = 0.7237 Euros)

(Additional reporting by Supriya Kurane in Bangalore; Editing by Erica Billingham; editing by Andrew Hay)

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GE eases ahead in race for Alstom power assets


PARIS (Reuters) – Cash-strapped French engineering group Alstom said on Wednesday it would explore a $16.9 billion offer from General Electric for its energy arm while leaving the door open to a rival bid from Germany’s Siemens.

Alstom gave Siemens until the end of May to propose its own deal after the government of President Francois Hollande balked at the U.S. group’s overtures last week, insisting any outcome must safeguard jobs at the one-time champion of French industry, while ensuring the nation’s energy independence.

But GE led the race to secure assets which would boost its position in producing steam turbines for power stations and technology for electricity grids. Economy Minister Arnaud Montebourg – furious when news of the deal emerged last week – softened his tone towards GE, calling it a “a serious company”.

“We have a good relationship with GE,” Montebourg told a parliamentary committee after Alstom confirmed in a statement it was reviewing the GE offer.

“We are ready to discuss alliances, not an absorption. We prefer an equal alliance,” he said, citing GE’s 40-year-old CFM jet engine venture in France with a unit of Safran as a good example of Franco-U.S. cooperation.

Reuters reported on Tuesday that GE Chief Executive Jeff Immelt had relied on the success of the engine supplier, whose existence dates back to a deal between the late presidents Georges Pompidou and Richard Nixon, as a possible trump card in presenting the bid.

GE said its all-cash offer for Alstom’s thermal power, renewable power and grid businesses – valued at 7.9 times pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) – was based on an enterprise value of $13.5 billion and $3.4 billion of net cash.

In a slide presentation, GE said it would fund the deal with $9.5 billion in cash and $4 billion in debt and that the accord, if it went through, would complete the allocation set aside for merger and acquisition activity this year.

MOVE TO TRAINS

Alstom’s power assets account for around 70 percent of turnover, which was 20.3 billion euros ($28 billion) last year.

Considered by many analysts too small to survive alone in the energy sector, Alstom said a GE deal would allow it to re-focus on transport including making TGV high-speed trains.

“Alstom would use the sale proceeds to strengthen its transport business and give it the means of an ambitious development, pay down its debt and return cash to its shareholders,” the group said in a statement.

Alstom shares, suspended since last week, were up 9.5 percent at 29.55 euros at 1330 GMT after trading resumed. They had halved in value over the last four years on concerns about its cash flow since the 2008 economic crisis hit order books.

Immelt said talks with the French government on GE’s offer had been productive. “We think we’ve got a good deal and it’s going to be executed,” he told reporters in Paris. “We think net employment in France will grow around the Alstom assets.”

Industry sources note Alstom is strong in steam turbines used by the nuclear industry, while GE is a top player in gas turbines. A deal would enable GE to expand into grid technology.

With the Alstom deal, GE expects its industrial businesses to contribute about 75 percent of company operating earnings by 2016, up from about 55 percent last year.

NO SOLICITING

Alstom was bailed out by the French state in 2004 and relies heavily on orders from national rail operator SNCF and utility EDF. It employs 18,000 people in France, half of them in the power business, out of 93,000 worldwide.

Alstom said its board also noted a declaration of interest from Siemens on an alternative deal and that the German company would have access to information needed to make a binding offer.

It added that French group Bouygues, which has a 29 percent stake in Alstom, had promised not to sell its shares until the deal had won final approval of shareholders.

The agreement means Alstom cannot solicit offers from third parties to purchase all or part of its energy business, but can respond to unsolicited offers for the entire energy arm. If it recommends GE’s offer, Alstom would pay a fee of 1.5 percent of the purchase price if it then backed another offer.

Siemens said it had decided to make an offer provided it was given access to Alstom’s data, as well as “permission to interview the management during a period of four weeks”.

Industry veterans say Alstom and Siemens have very different corporate cultures, and have competed aggressively against one another for decades, while analysts questioned whether there was any real sense in Siemens going up against a binding bid.

“It makes sense (for Siemens) to take this opportunity to learn about Alstom’s activities,” said analyst Pierre Boucheny of financial services group Kepler Cheuvreux. “This position doesn’t imply necessarily the offer will be made.”

Siemens declined to comment on Alstom’s statement on the GE offer. German magazine Der Spiegel reported that Siemens had written to Alstom to complain about a lack of cooperation on the part of its chief executive Patrick Kron, who they said was not interested in direct talks.

Montebourg told parliamentarians his objections had halted what he called an over-hasty rush by GE and Alstom to clinch a deal. But he was more circumspect on how the government would seek to influence the review period for the U.S. offer.

He noted explicitly Alstom’s promise that the review would take into account “all stakeholders’ interests including the French state” and said it would examine a request by unions to raise its small 1 percent stake in the group – an option which the government spokesman later said was not on the table.

However, he said the readiness of GE to leave under French control turbine assets vital to France’s nuclear sector – which generates 75 percent of the country’s power needs – meant France could not invoke strategic interests to block the deal.

Hollande, whose poll ratings are at record lows due to his failure to tackle unemployment stuck at above 10 percent, has said the government will place a priority on preserving jobs.

But unions remained unconvinced. “This dismantling is totally unacceptable,” said Laurent Santoire, a delegate for the CGT trade union among those protesting outside Alstom’s HQ near Paris. “We are asking for the state to increase its stake in Alstom.”

($1 = 0.7237 Euros)

(Additional reporting by Lewis Krauskopf in New York, Maria Sheahan in Frankfurt,; Nicholas Vinocur in Paris; Writing by Mark John; Editing by Tim Hepher, Gareth Jones and David Stamp)

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GSK says staying on sidelines in Astra, Pfizer fight


LONDON (Reuters) – GlaxoSmithKline (GSK.L) is just an “interested observer” as U.S. drugmaker Pfizer (PFE.N) battles to win British rival AstraZeneca (AZN.L) in a potential $100 billion deal, GSK’s chief executive said on Wednesday.

Andrew Witty said he hoped Pfizer would take a “rational” decision to keep drug research in Britain if the deal went through, but he played down the idea that GSK might intervene as a “white knight” counterbidder.

“It’s not appropriate for me to get into commentary on this particular transaction that is potentially going on around us, but obviously if there was anything specific that we were thinking of I would absolutely be obliged to tell you about it,” he told reporters on a conference call for first-quarter results on Wednesday.

Witty has insisted for several years that he has no desire to engage in mega-mergers, which he sees as disruptive, and he reiterated that he much preferred targeted transactions, such as last week’s asset swap with Novartis (NOVN.VX).

“What we’re focused on is ensuring that our organization is not distracted in the core RD business,” he said.

AstraZeneca, Britain’s second-biggest drugmaker behind GSK, is an important part of Britain’s life sciences sector, employing nearly 7,000 staff in the country, and the prospect of it being acquired by Pfizer has sparked political concerns about big job cuts.

Pfizer has made two approaches to AstraZeneca, both of which have been rebuffed. The company is widely expected to come back with a revised offer before a May 26 deadline for it to “put up or shut up” under UK takeover rules.

The U.S. firm says it views Britain as an attractive location for both pharmaceutical research and manufacturing – helped by recent government tax incentives – but cannot make any firm commitments on future investment or jobs.

Witty, a long-time cheerleader for British science, who has also advised Prime Minister David Cameron on the country’s university system, said Britain had established a particularly attractive environment for life sciences companies.

Part of that reflects efforts to reduce overall corporation tax rates, but the pharmaceuticals sector also enjoys a further boost thanks to the so-called “patent box” system, which came into effect last year and offers a special 10 percent tax rate on profits earned from patents.

“I would really hope that rational people under any circumstance would choose to invest or continue to invest where there is great talent and there is a great environment for that investment,” Witty said.

“That’s why we invest in Britain. We don’t just invest because Andrew Witty has a British passport.”

(Editing by Erica Billingham)

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Pimco’s Gross sees low returns, no bubbles in assets: letter


NEW YORK (Reuters) – Bill Gross, manager of the world’s largest bond fund at Pimco, said Wednesday his firm estimated the Federal Reserve’s long-term neutral policy rate at 2 percent, which would indicate lower returns on assets but a lack of financial bubbles.

Gross, whose Pimco Total Return Fund has $232 billion in assets, said the focus on the future “neutral” federal funds rate would be critical for finding value in all assets.

“At PIMCO, we believe that this focus on the future ‘neutral’ policy rate is the critical key to unlocking value in all asset markets,” Gross said in a monthly letter to investors titled, “Achoo!”

Gross’s prediction of a 2 percent neutral long-term fed funds rate is half the 4 percent median forecast of Federal Reserve policymakers for the rate in both March and December.

The co-founder and chief investment officer at Pimco said that while a 2 percent neutral long-term fed funds rate would result in lower returns on financial assets in future years, it would also suggest lower volatility in bonds and a lack of financial bubbles across asset markets.

“PIMCO believes 2 percent neutral is closer to the mark,” Gross said. “If so, asset markets are not bubbly, just low returning.”

Financial bubbles are created when asset prices surge above their underlying fundamentals, risking a freefall as the bubbles burst.

He said bonds would be “attractively priced” rather than “artificially priced” if the long-term neutral policy rate is 2 percent.

Bond investors, in particular, could draw comfort from the likelihood of a 2 percent neutral long-term policy rate, Gross said, partly because such a rate would keep inflation fears muted.

“Instead of facing a nearly 100-percent certain bear market currently forecast by market mavens, bond investors could draw some comfort from a low returning yet less volatile future,” he said.

Investors with an appetite for higher returns should seek alternative assets, hedge funds, levered closed-end funds, and a higher proportion of stocks versus bonds in a personal portfolio, Gross said. He added Pimco could also turn a total return bond portfolio into a higher-returning asset.

“Portfolio managers at PIMCO who understand this can also transform a total return bond portfolio into a higher returning asset,” Gross said.

The Pimco Total Return Fund is up just 1.85 percent this year, trailing 83 percent of its peers, according to Morningstar data. Analysts have said the fund’s overweight position in shorter debt and its underweight position in long-dated bonds have hurt performance this year.

The Federal Reserve will announce its latest policy decision at 2:00 p.m. EDT (1800 GMT). It is expected to maintain its reduction in monthly bond purchases that have kept rates low for several years, and signal that rate increases are still far off in the future.

Pacific Investment Management Co, a unit of European financial services company Allianz SE, had $1.94 trillion in assets as of March 31, according to the firm’s website.

(Editing by Chizu Nomiyama and Bernadette Baum)

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