News Archive


Airbus takes flight with investors, media after order snub


NEW YORK/TOULOUSE (Reuters) – Europe’s Airbus (AIR.PA) mounted a transatlantic charm offensive on Thursday to boost sales of the world’s biggest jetliner, the A380, and shine the spotlight on its brand-new A350 – a day after its shares were hit by a record order cancellation.

Airbus teamed up with the same airline that canceled 70 A350s on Wednesday, Dubai’s Emirates, and leasing company Amedeo to sell potential buyers on the merits of the A380 superjumbo.

Emirates is by far the biggest customer of the A380 but is disappointed that more airlines do not share its vision for the double-decker and shares an interest with Airbus and leasing partner Amedeo in developing a market for the $400 million jet.

But the pitch was not made directly to airlines. Instead, the companies went to New York to convince financiers and Wall Street analysts that the massive aircraft will not threaten industry profit margins and in fact would make economic sense.

If U.S. airlines don’t use the A380, “they are leaving profits on the table for others to take,” said Mark Lapidus, chief executive of Amedeo, speaking on the sidelines of a briefing at New York’s John F. Kennedy International Airport.

“We are a little concerned with how the Street will react to enlarging capacity,” he said, noting that the executives of Airbus, Emirates and Amedeo are here to “broaden their knowledge” of how the airplane can make money.

By flying 500, 600 or more passengers into airports such as London Heathrow or Hong Kong, airlines can accommodate growing demand for air travel without adding additional flights.

“We’re able to use it to grow revenue in a way that we wouldn’t be able to do with any other aircraft type,” said Nigel Hopkins, an Emirates executive vice president.

The major U.S. carriers, American Airlines Group (AAL.O), United Continental Holdings (UAL.N) and Delta Air Lines (DAL.N), do not currently use the A380 but are facing growing competition in the United States from Emirates and other carriers that do.

With many airports “slot constrained” – at or near the limit of number of takeoffs and landings they can handle – airlines face limited scope for revenue growth. But U.S. planemaker Boeing (BA.N) says there is a more promising market for smaller airplanes that open up new secondary routes, bypassing hubs.

FLIGHT

The briefing came a day after Emirates canceled 70 orders for Airbus’ brand-new A350 aircraft, which is smaller than the A380 but has newer technology. It also comes as Amedeo seeks lease customers for 20 Airbus A380s it agreed to buy in February.

As part of the New York briefing, Airbus, Emirates and Amedeo were due to take some 150 analysts and journalists on a special A380 demonstration flight over Manhattan, showing off the A380’s quiet cabin and ability to climb quickly to altitude.

Separately, Airbus took another 150 journalists on a special flight onboard an A350 in Toulouse, France, earlier on Thursday, a day after Emirates said it was canceling its entire order for the airplane, worth $16 billion at list prices.

Airbus officials said the A350 flight, coinciding with an annual media seminar, was first mooted before the Emirates move.

Lightly loaded and carrying no bags, the A350 climbed steeply but quietly on take-off and took journalists 31,000 feet above the Pyrenees for just over an hour.

To the surprise of the A350’s first passengers, the flight was accompanied at one point by a French Rafale fighter practicing intercept maneuvers with the agreement of Airbus test crew. It is a common if little publicized piece of co-operation involving Airbus test flights carried out in French military airspace. Because passengers were on board, the French fighter was ordered to stay well away from the carbon-fiber jet.

“This is a very quiet flight. In some parts of the airplane, up in first and business, you hear wind noise more than the engines, so I was very impressed by that,” said Scott Hamilton of Leeham News, an aerospace analyst from the Seattle area.

Analysts said Airbus would be able to sell the A350s at higher prices than launch prices offered to Emirates in 2007.

“It was more bad headlines than substance. Deliveries are in 2019, five years away, and that gives Airbus plenty of time to resell those slots,” Hamilton said.

Still, JP Morgan said in a note that while the cancellation would not seriously dent Airbus’s overall order book, it raised questions over the European planemaker’s product strategy as a revamped version of Boeing’s 777 will fly more people further.

(Reporting by Alwyn Scott and Tim Hepher; Editing by Steve Orlofsky, Geert de Clercq)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/p1OY23ddBAs/story01.htm

Intel raises outlook on stronger PC demand


SAN FRANCISCO (Reuters) – Chipmaker Intel Corp (INTC.O) on Thursday raised its outlook for the second quarter and the full year, citing stronger-than-expected demand for personal computers used by businesses.

Shares of Intel jumped more than 4 percent in extended trade as the chipmaker’s improved forecast lifted hopes for a PC industry that been shrinking due to consumers’ preferences for tablets and smartphones.

Intel said it now expects second-quarter revenue of $13.7 billion, plus or minus $300 million. Intel had previously forecast revenue of $13 billion, plus or minus $500 million.

The chipmaker said it expects “some” revenue growth for the full year, compared with its previous forecast of flat revenue.

The Santa Clara, California company also raised the mid-point of its gross margin forecast range for the second quarter, which ends at the end of June, by 1 point to 64 percent.

With personal computer shipments falling for eight straight quarters through March, some analysts have suggested the industry’s decline is close to hitting bottom, potentially giving Intel breathing room as it struggles to develop better processors for mobile and wearable devices.

Demand from companies for PCs likely received a boost recently due to Microsoft’s (MSFT.O) winding down of support in April for its Windows XP operating system, analysts say.

“PCs have been getting less bad for a while,” said Bernstein analyst Stacy Rasgon. “But if it’s all business PCs then the question is going to be sustainability.”

Intel’s revised revenue and gross margin forecasts for the June quarter could translate to earnings per share of 52 cents, RBC analyst Doug Freedman said in a note to clients.

For the second quarter, analysts on average had expected EPS of 47 cents and revenue of $13.02 billion, according to Thomson Reuters I/B/E/S.

Intel is expected to report its second-quarter results on July 15.

Shares of Intel jumped 4.97 percent in extended trade after closing up 0.11 percent at $27.96 on Nasdaq.

(Reporting by Noel Randewich; Editing by Cynthia Osterman)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/6oauENK4Yg8/story01.htm

Intel raises outlook on stronger PC demand, shares jump


SAN FRANCISCO (Reuters) – Chipmaker Intel Corp (INTC.O) on Thursday raised its outlook for the second quarter and the full year, citing stronger-than-expected demand for personal computers used by businesses.

Shares of Intel jumped more than 4 percent in extended trade as the chipmaker’s improved forecast lifted hopes for a PC industry that been shrinking due to consumers’ preferences for tablets and smartphones.

Intel said it now expects second-quarter revenue of $13.7 billion, plus or minus $300 million. Intel had previously forecast revenue of $13 billion, plus or minus $500 million.

The chipmaker said it expects “some” revenue growth for the full year, compared with its previous forecast of flat revenue.

The Santa Clara, California company also raised the mid-point of its gross margin forecast range for the second quarter, which ends at the end of June, by 1 point to 64 percent.

With personal computer shipments falling for eight straight quarters through March, some analysts have suggested the industry’s decline is close to hitting bottom, potentially giving Intel breathing room as it struggles to develop better processors for mobile and wearable devices.

Demand from companies for PCs likely received a boost recently due to Microsoft’s (MSFT.O) winding down of support in April for its Windows XP operating system, analysts say.

“PCs have been getting less bad for a while,” said Bernstein analyst Stacy Rasgon. “But if it’s all business PCs then the question is going to be sustainability.”

Intel’s revised revenue and gross margin forecasts for the June quarter could translate to earnings per share of 52 cents, RBC analyst Doug Freedman said in a note to clients.

For the second quarter, analysts on average had expected EPS of 47 cents and revenue of $13.02 billion, according to Thomson Reuters I/B/E/S.

Intel is expected to report its second-quarter results on July 15.

Shares of Intel jumped 4.97 percent in extended trade after closing up 0.11 percent at $27.96 on Nasdaq.

(Reporting by Noel Randewich; Editing by Cynthia Osterman)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/BxgWy66_EKU/story01.htm

Wall St. slides on concerns about Iraq


NEW YORK (Reuters) – U.S. stocks fell on Thursday as concerns escalated about Iraq and after disappointing economic data on retail sales and jobless claims.

The three major U.S. stock indexes ended off their session lows. With the day’s decline, though, the SP 500 was down for three straight sessions for the first time since early April.

The Dow Jones industrial average lost more than 100 points for the second day in a row.

Hours after ethnic Kurdish forces took control of the oil hub of Kirkuk after the Shi’ite-led government’s troops abandoned their posts, President Barack Obama was asked if he might order drone strikes or other action to halt the insurgency that has seized much of northern Iraq this week.

Obama told reporters that he refused to rule out U.S. action in Iraq against Sunni Islamist militants who have surged out of the north toward Baghdad, threatening to divide the country and establish their own jihadist state.

The stock market’s losses quickly accelerated following Obama’s comments, with industrials and consumer discretionary sectors leading the decline.

The CBOE Volatility Index .VIX or the VIX, Wall Street’s “fear gauge,” shot up 8.3 percent to end at 12.56.

State Department spokeswoman Jen Psaki followed Obama’s comments by telling a daily briefing that the administration was considering all options, except for sending U.S. troops into Iraq.

“It’s a bit of a crisis mode here. Geopolitical concerns have definitely taken over. It’s a very fluid situation and things are happening very fast, it seems,” said Timothy Ghriskey, chief investment officer of Solaris Asset Management LLC in New York.

The Dow Jones industrial average .DJI fell 109.69 points or 0.65 percent, to end at 16,734.19. The SP 500 .SPX slid 13.78 points or 0.71 percent, to 1,930.11. The Nasdaq Composite .IXIC dropped 34.30 points or 0.79 percent, to 4,297.63.

The Dow touched an intraday low at 16,703.73, while the SP 500 fell as low as 1,925.78, and the Nasdaq slid to a session low at 4,284.528.

In macroeconomic news, retail sales rose 0.3 percent in May, half the growth rate that economists had forecast. Americans’ new claims for unemployment benefits unexpectedly rose last week.

While both economic indicators were below expectations, neither was seen as so weak as to change the perception of improving economic conditions, and the market’s recent uptrend is still viewed as intact.

Energy shares ranked among the few gainers on Thursday. The SP energy sector index .SPNY was up 0.3 percent. Oil prices hit nine-month highs on worries that escalating violence in Iraq could disrupt oil supplies from the major OPEC exporter.

Shares of major U.S. airlines dropped for a second straight day as oil prices rallied. American Airlines Group Inc (AAL.O), the world’s largest carrier, tumbled 4.9 percent to $40.20 while United Continental Holdings Inc (UAL.N) fell 5.9 percent to $42.60. The Dow Jones Transportation Average .DJT dropped 2 percent.

Geron Corp (GERN.O) was one of the Nasdaq’s most-active stocks, surging 21.2 percent to $3.15 on heavy volume after the U.S. Food and Drug Administration lifted a partial clinical hold on a study testing its blood cancer drug.

Lululemon Athletica Inc (LULU.O) fell 15.9 percent to $37.25 on heavy volume. The athletic apparel retailer cut its full-year earnings and revenue outlook.

A bright spot was Restoration Hardware Holdings Inc (RH.N), which climbed 12.7 percent to $80.40 a day after the luxury home furnishings retailer’s first-quarter results.

Trading volume was at around 5.5 billion shares on U.S. exchanges, slightly below the 5.76 billion average for the last month, according to data from BATS Global Markets.

(Reporting by Angela Moon; Editing by Jan Paschal)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/CgaaEa3T6fQ/story01.htm

Tesla Motors to share patents to spur electric car development


DETROIT/SAN FRANCISCO (Reuters) – Tesla Motors Inc (TSLA.O) on Thursday said it would allow others to use its intellectual property in hopes of speeding up development of electric cars by all manufacturers.

Tesla co-founder and Chief Executive Officer Elon Musk said the company would not take legal action against anyone who “in good faith wants to use our technology.”

Musk said on the company’s website that the industry would benefit from open-source sharing of technologies.

He said the company was founded to speed the growth of sustainable transport.

“If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal,” he said.

Musk said the move included all of Tesla’s patents, including several hundred current ones and several thousand in the future.

“We think the market’s quite big enough for everyone,” Musk said.

Investors should not worry that the decision would hit Tesla’s bottom line, he told reporters on a conference call.

“It doesn’t really harm Tesla but helps the industry,” Musk said on the call, “and I think actually it will help Tesla, mostly with respect to attracting and motivating the world’s best technical talent.”

He said investors should be more concerned about whether a company is able to attract and motivate the best talent than the contents of its patent portfolio.

“Putting in long hours for a corporation is hard,” said Musk on the conference call. “Putting in long hours for a cause is easy.”

Many tech companies view the explosion of U.S. patent litigation as a drain on innovation and have become more vocal about policies intended to prevent their patents from being used in court. However, those policies often come with caveats: In 2012, Twitter said it would no longer pursue “offensive litigation” based on its own patents, but reserved the right to use them for defense if the company was sued by someone else.

Likewise, nothing in Musk’s announcement rules out Tesla’s ability to use its patents as bargaining leverage in the event another car manufacturer threatens Tesla with a patent lawsuit, said Joseph Chernesky, a former Boeing patent executive now at Kudelski Group.

“There’s really no change,” Chernesky said. “Companies who don’t need to assert their patents don’t, and most companies don’t.”

Any patents owned by Tesla supplier Panasonic Corp (6752.T) are not included in the sharing move, Musk said. Panasonic has said it plans to be the sole manufacturer at Tesla’s planned “gigafactory” for battery production.

Musk said his company will continue to file for patents in part to keep competitors from attaining them and then blocking Tesla and others from using the information.

Tesla shares closed Thursday at $203.52, down 95 cents, or 0.5 percent.

(Reporting by Bernie Woodall in Detroit and Dan Levine in San Francisco; Editing by Chris Reese, Lisa Von Ahn and Jonathan Oatis)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/1g3l5voN60M/story01.htm

Ford lowers fuel economy rating for six vehicles


DETROIT (Reuters) – Ford Motor Co (F.N) said on Thursday it was lowering the fuel economy ratings on six of its models, including a number of hybrids, and would reimburse owners for the difference.

The No. 2 U.S. automaker said the ratings would be cut on its 2013 and 2014 model year hybrid and plug-in hybrid vehicles as well as most 2014 Fiesta cars. It was the second time Ford cut fuel ratings for the C-Max hybrid in under a year.

“We apologize to our customers and will provide goodwill payments to affected owners,” Ford CEO Alan Mulally said in a statement. “We also are taking steps to improve our processes and prevent issues like this from happening again.”

The restatement of mileage estimates is nothing new in the auto industry.

Last August, Ford – which has touted its superior fuel efficiency in the past – cut the ratings for the C-Max hybrid by up to 7 miles per gallon following complaints from consumers and experts that the model’s actual mileage fell short of claims.

In 2012, an investigation by the U.S. Environmental Protection Agency showed that both Hyundai Motor Co (005380.KS) and its affiliate Kia Motors Corp (000270.KS) overstated fuel economy by at least a mile per gallon. The South Korean carmakers last December agreed to pay $395 million to settle lawsuits related to the matter.

“Ford isn’t the first manufacturer to admit that it was optimistic in its EPA fuel economy ratings, and it might not be the last,” said Jack R. Nerad, editorial director at Kelley Blue Book’s KBB.com.

“The broad implications of this might spur EPA to be more restrictive in how its fuel economy rules and ratings are administered,” he added. “This will gain attention in Congress as well.”

In the latest case, Ford said it identified an error through internal testing and notified the U.S. environmental regulator. No adjustments on other vehicles are planned after review of the entire lineup, the company said.

The EPA said it conducted independent tests to confirm Ford’s results and ordered the company to correct fuel economy labels on the cars within 15 days.

Ford estimated about 200,000 of the affected vehicles had been sold or leased in the United States, and affected owners would receive a “goodwill payment” of up to $1,050 for the estimated difference in fuel costs. Cars in dealer lots will be relabeled with new window stickers reflecting the corrected estimates.

Owners outside the country will be contacted by the automaker.

The largest change is for Ford’s Lincoln MKZ hybrid, which saw its combined city and highway fuel economy value reduced by 7 miles per gallon. Other affected models include four versions of the Fiesta, the hybrid and Energi versions of the Fusion, and the C-Max hybrid and Energi.

Ford shares were off 2.3 percent at $16.51 in late New York trading.

(Additional reporting by Timothy Gardner in Washington; editing by G Crosse and Chris Reese)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/BsgoMxw5x1I/story01.htm

Top BNP executive to go as talks on U.S. penalty gather pace


PARIS (Reuters) – The chief operating officer of BNP Paribas is to step down at the end of June and retire completely on Sept. 30, France’s biggest bank announced on Thursday as talks with U.S. authorities over a potential $10 billion fine gathered pace.

New York’s banking regulator had requested the departure of the long-serving Georges Chodron de Courcel as part of a settlement for alleged violations of sanctions against Iran, Sudan and other countries, a person familiar with the matter told Reuters on June 5.

U.S. authorities – five of them in all including the New York financial regulator – are investigating whether BNP evaded U.S. sanctions between 2002 and 2009. Sources familiar with the matter say they are trying to establish whether the bank stripped out identifying information from wire transfers so they could pass through the U.S. financial system without raising red flags.

Conference calls with various U.S. authorities are taking place every six hours, a source familiar with the matter in France said.

“Negotiations are far from over, but everybody would like to see the case move forward quickly,” the source said. “We understand that the U.S. authorities want to reach a settlement before July 4 at the latest.”

BNP Paribas did not mention the investigation in its announcement. It said the 64-year-old’s departure, in less than three weeks’ time, was at his own request and would allow him to comply with new French bank regulations on the number of directorships he can hold.

Chodron de Courcel is one of the bank’s three most senior managers under Chief Executive Jean-Laurent Bonnafe and has direct responsibility for the investment banking activities that are at the centre of the investigation.

A spokeswoman for the bank said he had planned to retire this year anyway and would not comment further on the U.S. proceedings. A source familiar with matter said last week the bank was not considering executive departures in connection with the negotiations.

The bank said Chodron de Courcel had “devoted his entire 42-year career to BNP and then BNP Paribas, and has made a decisive contribution to the Group’s development, and especially to the project which eventually led to the creation of the new BNP Paribas entity”.

On Wednesday, a person familiar with the matter said Vivien Levy-Garboua, a senior adviser and formerly the head of compliance for the French bank, was also among people targeted by the superintendent of New York’s Department of Financial Services, Benjamin Lawsky.

BNP Paribas may have to pay a fine of about $10 billion and face other penalties such as being suspended from clearing clients’ dollar transactions, sources close to the situation have said.

The potential impact has raised concern in French government and banking circles. President Francois Hollande raised the issues with Barack Obama last week.

On Wednesday, Bank of France Governor Christian Noyer said a dollar clearing suspension could be disruptive to the international financial system.

BNP has said publicly only that it is in discussions with U.S. authorities about “certain U.S. dollar payments involving countries, persons and entities that could have been subject to economic sanctions”.

It has set aside $1.1 billion for the fine but told shareholders it could be far higher than that. Last month it also said it had improved control processes to ensure such mistakes did not occur again.

The bank’s market value has dropped by 15 percent, erasing around 11 billion euros ($15 billion), in the four months since it first announced the provision for the fine on Feb. 13. Its shares closed up 0.2 percent at 51.46 euros on Thursday.

Since then the scale of the likely fine has risen sharply, and a figure as high as $16 billion was suggested at one point, according to people familiar with the matter.

FINE INFLATION

In the past two years the U.S. Justice Department has said it has broken records on penalties for corporate misconduct at least seven times, including three times this year alone. The most recent was Credit Suisse in May, which paid $2.6 billion over charges that it helped Americans evade U.S. taxes, the largest penalty ever levied in a criminal tax case.

Total corporate criminal penalties in the United States overall increased about 647 percent between 2001 and 2012 to about $4.3 billion, according to figures compiled by University of Virginia law school professor Brandon Garrett.

There are multiple explanations for the rising fines. For one, cases related to the 2007-2009 financial crisis have produced big settlements connected to trillions of dollars in subprime mortgage products. U.S. authorities have also turned their attention to other crimes involving big dollar amounts, including money laundering, sanctions violations and the rigging of benchmark interest rates.

(Reporting by Andrew Callus, Matthias Blamont, Blaise Robinson, Alexandre Boksenbaum-Granier and Natalie Huet; Editing by Ingrid Melander, Philippa Fletcher and Will Waterman)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/rbLLuWs3yKM/story01.htm

Lululemon sees tough second-quarter, shares tumble


TORONTO, (Reuters) – Lululemon Athletica Inc LULU.O cut its financial forecasts and warned that second-quarter sales were off to a weak start, sending shares of the struggling yogawear retailer down 15 percent even as it announced a new stock buyback program.

Chief Executive Laurent Potdevin said on a conference call that purchases were dropping even as customer traffic was picking up, blaming the decline in part on what he described as a “suboptimal” product assortment.

Fighting to win back customers and investors alike in the wake of an embarrassing recall of overly sheer yoga pants last year, Lululemon said it expects sales in established stores and online to decline in the low to mid-single digits in the second quarter, which started May 5.

Comparable sales edged up 1 percent in the first quarter, but the gain reflected an increase in online business. In established stores, sales dropped 4 percent.

“We have a core product assortment that has not been evolved as quickly as it should have been,” Tara Poseley, Lululemon’s new Chief Product Officer, also told the call. She said Lululemon did not offer enough seasonal products, as opposed to all-season “core” products, in the first quarter.

Potdevin admitted to investors earlier this year that Lululemon, which essentially created the lucrative yogawear market, was “not the only game in town anymore.” Rivals like Gap Inc GPS.N, Under Armour UA.N, VF Corp VFC.N and even department stores are pushing fashionable workout gear.

Even as first-quarter earnings came in slightly ahead of expectations, Lululemon’s latest forecasts reinforced the impression that the retailer is struggling to regain its stride in a more crowded compatitive landscape.

“The second quarter guidance is for a real deceleration from the already anemic first quarter,” said Cowen and Co analyst Faye Landes.

Stifel analyst Jim Duffy cut the company to “hold” from “buy” after earnings, citing the disappointing forecasts.

In another blow, Lululemon said veteran Chief Financial Officer John Currie would retire by the end of the fiscal year. Currie, who said he wants to spend more time skiing, announced the news about a year after Chief Executive Christine Day announced her own exit after an extended slowdown in sales at a company that had regularly turned in double-digit growth.

The latest results came a day after Lululemon’s founder and largest shareholder, Dennis “Chip” Wilson, announced he had voted against the reelection of the company’s new chairman, who is a veteran director, as well as another board member. Wilson praised management, but said the board is too focused on short-term growth. (Full Story)

FALLING BEHIND

The company now expects revenue for the year to be in the range of $1.77 billion to $1.80 billion, with adjusted earnings of between $1.71 per share and $1.76 per share. It had earlier forecast earnings of $1.80 to $1.90 per share on revenue of $1.77 billion to $1.82 billion.

Analysts, on average, had expected full-year earnings of $1.89 a share on revenue of $1.8 billion, according to Thomson Reuters I/B/E/S.

Vancouver-based Lululemon’s reputation for selling pricey but top quality yoga and running clothes was badly tarnished by last year’s recall, which came after some customers noticed that their stretchy pants were partially transparent.

For more than a year, it has worked to smooth out quality and supply-chain issues, battle lawsuits, deal with departing executives and soothe customers after Wilson said in an interview that “some women’s bodies just actually don’t work” for Lulu’s pants.

The retailer had previously said it would not fully resolve its supply chain issues until 2015.

Excluding a one-time adjustment for planned repatriation of foreign earnings, the company said its profit in the quarter was 34 cents a share. Analysts on average were expecting earnings of 32 cents a share.

On a net basis, profit in the fiscal first quarter ended May 4, fell to $19 million, or 13 cents per share, down from $47.3 million, or 32 cents per share, a year earlier.

Revenue rose 11 percent to $384.6 million, while sales at established stores and online sales edged up 1 percent from a year earlier. The company had forecast little change. The small gain came thanks to online sales, which rose 25 percent while comparable sales at corporate stores fell 4 percent.

The company said it could buy back up to $450 million worth of common shares over two years.

Shares fell 15.3 percent to $37.53 on the Nasdaq.

(Reporting by Euan Rocha and Allison Martell in Toronto and Shubhankar Chakravorty in Bangalore; Editing by Kirti Pandey, Sofina Mirza-Reid and Chizu Nomiyama)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/mP7UNXdfzR0/story01.htm

Inherited IRAs in play for bankruptcy creditors: U.S. high court


(Reuters) – The U.S. Supreme Court on Thursday said inherited individual retirement accounts are not protected from creditors in bankruptcy, in a ruling that impacts one of the most popular ways to save for retirement.

In a unanimous opinion, the nation’s highest court held that an IRA inherited by someone other than a spouse cannot be considered a retirement fund, because its beneficiary cannot invest additional money and must make distributions within a set number of years.

The treatment of inherited IRAs in bankruptcy is gaining relevance as Baby Boomers die and leave their assets to their children.

A set of 2005 bankruptcy law amendments protect retirement accounts from the reach of creditors. The Supreme Court was asked to decide if Congress intended those protections to extend to inherited IRAs in Clark v. Rameker, a dispute over the bankruptcy of a small-town pizza shop owner in Soughton, Wisc.

Heidi Heffron-Clark and her husband, Brandon Clark, declared bankruptcy in 2010 after the shop closed. The Clarks’ main asset was about $300,000 in an IRA inherited from Heffron-Clark’s mother. William Rameker, the trustee administering the Clarks’ estate, wanted to get his hands on the money for the benefit of landlords, banks and other creditors owed about $700,000.

After back-and-forth rulings through multiple appeals, the Supreme Court heard arguments in March in an effort to clear up inconsistencies on the issue in different courts.

In an opinion penned by Justice Sonia Sotomayor, the high court said the bankruptcy code is designed to strike a balance between ensuring creditor recoveries while protecting a debtor’s “essential needs.”

The justices determined an inherited IRA did not fall within the scope of an essential need the way retirement security did.

“Nothing about the inherited IRA’s legal characteristics would prevent (or even discourage) the individual from using the entire balance of the account on a vacation home or sports car immediately after her bank­ruptcy proceedings are complete,” the ruling said.

Lawyers for both the Clarks and Rameker did not respond to requests for comment.

Justice Elena Kagan underscored the importance of the outcome during oral arguments in March, saying inherited IRAs “are not arcane accounts.

“Tons and tons of people have IRAs, and they die every day,” Kagan said.

The ruling affirms a decision last year authored by Frank Easterbrook, the economic scholar and chief judge for the 7th U.S. Circuit Court of Appeals. Easterbrook’s ruling was at the time contrary to prevailing case law in other circuits.

(Reporting by Nick Brown; editing by Andrew Hay)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/Yposi9OcCHU/story01.htm