News Archive

Opel reaches severance deal with Bochum staff

FRANKFURT (Reuters) – Opel, the European arm of General Motors, has reached a severance deal with workers at its Bochum factory in Germany, it said on Monday, a crucial step in the automaker’s restructuring.

Opel management has been negotiating with labor union IG Metall about the terms of a severance deal after it decided to close the Bochum factory in April last year, as part of a drive to bring down costs in Europe.

Opel has reached “binding and reliable” agreements with IG Metall, the Ruesselsheim-based carmaker said in a statement. Opel declined to comment on the cost of laying off the staff.

The closure of Bochum is set to cost at least 550 million euros ($754 million), two sources familiar with the matter told Reuters in May.

Opel expects its results this year to be burdened by non-recurring costs such as unfavorable exchange rate moves as well as the closure of the Bochum factory.

In early June, General Motors said it expected to report a profit in Europe by mid-decade. Previously, it had only said it would break even in Europe within that time frame.

(Reporting by Edward Taylor and Jan Schwartz; Editing by Mark Potter)

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IMF’s Lagarde urges ‘gradual path’ for Fed rate hikes

WASHINGTON (Reuters) – The head of the International Monetary Fund said on Monday that the U.S. Federal Reserve should move interest rates up only gradually when it finally begins to lift borrowing costs from near-zero.

“We believe that a gradual path of interest normalization is the right approach,” IMF Managing Director Christine Lagarde told a news conference as she discussed the Fund’s annual health check on the U.S. economy.

(Reporting by Anna Yukhananov; Writing by Tim Ahmann; Editing by Chizu Nomiyama)

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Araneda gets temporary hot seat at Codelco

A week after sacking former chief executive (CEO) Thomas Keller, Chilean copper producer Codelco has put in place a temporary head to allow it time to search for a full-time replacement.

The Codelco board promoted vice president of its South Central operations and civil mining engineer, Octavio Araneda as interim CEO.

Araneda, despite holding the position on an interim basis, is the third executive to take on the role in less than three years, with Keller departing recently and former CEO and now Antofagasta plc head Diego Hernandez stepping down just over two years ago.

The most recent management changes at the state-owned miner come at a crucial time when it is seeking to cut costs, expand the life of its mines and increase profitability. At the same time, copper prices have been lagging and its workforce has become restless, staging walkouts at some of its operations in reaction to the company’s attempts to renegotiate their pay packets.

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Starbucks to subsidize U.S. workers’ college degree

(Reuters) – Starbucks Corp said it plans to partly pay for an online bachelor’s degree program for its employees in the United States, hoping to retain its workforce and save on hiring and training costs.

The world’s largest coffee chain is teaming up with Arizona State University to subsidize education for its U.S. employees who work an average of 20 hours a week.

As of September 2013, Starbucks had 137,000 employees, about three-fourths of its global workforce, in the United States.

Employees enrolling in the program, called the Starbucks College Achievement Plan, can choose among 40 subjects ranging from retail management to electrical engineering and will be under no obligation to remain with the company after graduation.

Employees admitted to the university as a junior or senior will earn full tuition reimbursement for each semester of full-time course work, while freshmen and sophomores will be eligible for a partial tuition scholarship, the company said in a statement on Sunday.

Starbucks declined to estimate how much it expects to spend on the program. “We will know more of what the investment will be once partners (employees) sign up over the next year,” Starbucks spokeswoman Laurel Harper said in an email.

Starbucks’ investment in its employees’ education comes as it grapples with higher dairy costs. The company has locked in coffee prices for the rest of this fiscal year.

Harper declined to comment on employee retention rate in the company, citing competitive reasons, but said Starbucks has achieved retention rates “well above the industry average.”

(Reporting by Sampad Patnaik in Bangalore and Lisa Baertlein in Los Angeles; Editing by Gopakumar Warrier)

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Automakers in U.S. driving banks from buoyant new car market

NEW YORK/DETROIT (Reuters) – U.S. banks looking to get in on a booming market for financing new-car sales have run into a formidable competitor: the auto manufacturers themselves.

Financing arms of car companies, including Toyota Motor Corp, Honda Motor Co and Ford Motor Co, made half of all new U.S. car loans in the first quarter, up from 37 percent a year earlier and the largest percentage of the market in four years, according to credit data firm Experian.

These companies also write the vast majority of leases, which contributed a record 26 percent of new car sales in the quarter, up from 23 percent last year and 20 percent in 2012.

The financing arms are providing subsidies from the manufacturers, lowering monthly payments and extending loan terms to make it easier for buyers to drive away in a shiny, new vehicle. As a result, major banks are increasingly moving into riskier parts of the market to make loans.

US Bancorp, for example, for the first time ever decided to start financing used cars, an area of the market that the automakers’ finance companies have little interest in. It also started offering loans to less creditworthy borrowers.

And Wells Fargo Co has been leveraging off a nationwide deal with General Motors Co to provide loans subsidized by the No. 1 U.S. automaker. Wells sees this as a way to gain more of the used car loan business at GM dealerships.

The aggressive push by car companies is beginning to raise questions among industry analysts and consultants about whether it is sustainable.

If interest rates rise, the automakers could find the incentives too costly unless they are prepared to take a hit to profits – with any pullback in the deals being offered customers running the risk of hurting demand. And, if used car prices weaken, the financing units could be hit with losses on vehicles coming back from leases and repossessions.

The automakers’ financing companies are doing substantially more than they were just a year or two ago, said April Ancira, vice president in the San Antonio office of Ancira Motor Co, a Texas-based group with 11 dealerships selling GM, Nissan, Fiat, Chrysler, VW and Ford cars.

“They’re being very aggressive with incentives,” Ancira said.

Pete Carey, vice president for sales at Toyota Financial Services, said incentives are playing a bigger role as automakers look to stand out in a crowded market where the basic quality of cars is uniformly good.

“We’re at a point in the industry that we’re spending as much as we’ve ever spent,” Carey said.

The strategy is currently paying off in spades for automakers. All the major automakers posted healthy profits in the first quarter. U.S. car sales rebounded in May to an annualized rate of 16.8 million vehicles, against 15.6 million for all of last year. Sales were only 10.4 million in 2009 as the recession crushed demand.

Outstanding U.S. loans on new cars totaled $811 billion at the end of March, up 11.6 percent from a year earlier, according to Experian.


The automakers are in a position to offer the deals because their cost of borrowing has gone down as their balance sheets have improved and as bond investors have lined up to buy securities backed by loans and leases.

But they risk sweetening the deals so much that it starts to cut into their profit margins. In a few years time, as the leased vehicles are returned, the strategy could lead to a glut in the used-car market.

If a car turns out to be worth less at the end of a lease than projected, the finance company will take a loss on the lease, said Jim Ziegler, a consultant to car dealers. “It appears as a profit until they get the car back,” Ziegler said.

Analysts at Moody’s Investors Service said car resale values at the end of leases have so far tended to be higher than assumed, resulting in double-digit gains for finance companies and lease investors. But the gains have started to decelerate to single-digits now and they expect to see that downward pressure continue this year.

“There is still room for used car prices to decline before we see any losses,” said Aron Bergman, of Moody’s. But, he added, “the gains are going down.”


The average monthly lease payment for the most-leased car in America, the Honda Civic, was $251 in the first quarter, according to Experian.

But when Jonathan Stierwald, a Minnesota resident, wanted to lease a car for his nephew, he found Mike Piazza Honda in Pennsylvania willing to lease him the car for three years for just $80 a month. He flew there to get the deal. The lease was financed by Honda’s finance arm.

The details of the deal could not be determined. A salesman at the Langhorne, Pennsylvania dealership, which is owned by Piazza, the former All-Star baseball catcher, said factors such as a high credit score and higher down-payment may have helped. Honda representative Steve Kinkade said the dealership could have added its own incentives on top of the company’s promotions.

Honda, which was fifth in U.S. auto sales in the first five months of the year, increased its average subsidy per leased car by 26 percent to $1,476 in that period from a year earlier, according to

Kinkade said the company is pleased with how its finance unit has paced its leasing to drive sales without too many of the cars later coming onto the used car market and depressing prices.

Others are liberally using subsidies, too. Toyota subsidized 92 percent of its U.S. leases in its fiscal year ending in March, up from 82 percent the year before.

“We can get fairly aggressive with pricing or payments, depending on what we anticipate the used market to look like,” Toyota’s Carey said.

Auto industry analysts and consultants said they did not think the situation was getting out of hand just yet.

The average incentive per car sold so far this year was $2,918, up slightly from $2,825 a year earlier and just under 10 percent of the average transaction price, according to JD Power Associates data.


Automaker finance arms are also offering loans at interest rates as low as zero percent. And, they are taking on more loans to borrowers with subprime credit ratings, according to data from Experian.

The length of loans is also increasing. Lenders granted one-in-four new car buyers more than six years to repay in the first quarter, up from one-in-five a year earlier, the figures show.

The average monthly payment on new car loans was $474 in the first quarter, only $15 more than a year earlier, even as the average amount financed rose by $964 to a record $27,612.

Unable to compete, some banks are in retreat.

Ally Financial Inc, which was once GM’s financing arm but is now on its own, increased its financing of used car purchases by 14 percent in the first quarter from a year earlier, but its new car lending declined so much that it made 6 percent fewer auto loans in total.

US Bancorp estimated that used cars will eventually make up

40 percent of its auto loans after doing none in the past. Consumers with “nonprime” credit scores, defined as below 675, will account for 15 percent of US Bancorp’s portfolio, compared with none previously.

Not that the opportunity in the used car market isn’t also large – in terms of numbers of vehicles sold the used car market is more than twice the size of the new-car market.

Tom Wolfe, executive vice president of consumer credit solutions at Wells Fargo, said its partnership with GM improves its ties with dealers and that for every subsidized new car loan it makes for GM at a dealer it will pick up three used-car loans. Wells Fargo is the largest U.S. used-car lender with a 7.1 percent market share, according to Experian.

Wolfe said customers who borrow to buy a used car so that they can get to and from work are good credit risks.

(Reporting by Bernie Woodall in Detroit, David Henry and Peter Rudegeair in New York. Additional reporting by Nick Carey in Chicago. Editing by Paritosh Bansal and Martin Howell)

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Fund founder Rajaratnam’s brother faces U.S. insider trading trial

NEW YORK (Reuters) – In 2011, former billionaire and hedge fund manager Raj Rajaratnam was convicted for insider trading and sentenced to 11 years in prison.

When his younger brother goes to trial on Tuesday in his own insider trading trial in New York, he hopes for a better fate.

U.S. prosecutors accuse Rengan Rajaratnam, a former portfolio manager at Raj Rajaratnam’s Galleon Group, of engaging in an insider trading scheme with his brother involving technology companies Clearwire Corp and Advanced Micro Devices Inc (AMD.N) in 2008.

Daniel Gitner, his lawyer, declined comment. He has argued prosecutors lacked evidence Rengan Rajaratnam, 43, knew any inside information was disclosed for a personal benefit.

A guilty verdict would continue an unbroken insider trading trial winning streak for Manhattan U.S. Attorney Preet Bharara’s office, which has secured convictions of 81 people since October 2009.

Jurors are expected to hear recordings of FBI wiretaps, which featured prominently in the trial of Raj Rajaratnam.

According to the indictment, in March 2008, Rajiv Goel, a then-Intel Corp (INTC.O) executive, learned the company planned to invest $1 billion in Clearwire. Raj Rajaratnam passed on the information to his brother, who later called him to complain when a news report of the deal surfaced, prosecutors said.

“So I don’t know how much you got in today,” Rengan Rajaratnam told him, according to the indictment, “but I think (Clearwire’s share price) is gonna rip tomorrow.”

The price climbed the next day, enabling Rengan Rajaratnam to earn $100,000 personally and Galleon to reap $700,000, prosecutors said.

That August, Raj Rajaratnam told his brother of a “handshake” deal between AMD and two Abu Dhabi-owned investment companies he learned about from Anil Kumar, a McKinsey Company partner, the indictment said.

The same day, Rengan Rajaratnam told Raj that another McKinsey partner, David Palecek, had “spilled his beans” about investments in AMD, prosecutors said.

Despite trading on the tip, Galleon sold AMD for a loss due to overall market declines, prosecutors said.

Kumar and Goel pleaded guilty, testified at Raj Rajaratnam’s trial and were sentenced in 2012 to two years probation. Palecek died in 2010; his lawyer has said no proof exists he agreed to provide inside information.

Rengan Rajaratnam faces three counts of conspiracy and securities fraud, after prosecutors dropped four other charges.[ID:nL1N0O21V0]

The U.S. Securities and Exchange Commission has also sued Rengan Rajaratnam, claiming he also traded on inside information about stocks including Polycom Inc (PLCM.O) and Hilton Hotels while at Sedna Capital Management, where he worked from 2004 to 2007.

Before Sedna, he worked as an analyst at Steven A. Cohen’s SAC Capital Advisors, which last year pleaded guilty to fraud charges and agreed to pay $1.8 billion in criminal and civil penalties. A federal judge in May barred prosecutors from mentioning Rengan Rajaratnam’s employment at SAC during his trial.

The case is U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 13-00211.

(Reporting by Nate Raymond; Editing by Noeleen Walder and Grant McCool)

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Exclusive: Friedman could become Nasdaq CEO next year

NEW YORK (Reuters) – Nasdaq OMX Group Inc lured back former Chief Financial Officer Adena Friedman as co-president with the understanding that she will succeed Chief Executive Bob Greifeld, possibly as soon as next year, sources familiar with the matter said.

There is no written agreement that lays out such a timeline. And Greifeld, 56, who has been the financial market company’s CEO for 11 years, could still stay until 2017, when his contract ends, the sources said.

But one of the sources said that Friedman, 44, left her job as CFO of private equity firm Carlyle Group LP with the clear impression that she could become CEO within the next 12 to 18 months if she did not perform poorly.

While her return, announced last month, was widely seen as positioning her to succeed Greifeld, the understanding on the expected timeline has not been reported previously.

Nasdaq declined to comment or make Friedman available for an interview.

Both Greifeld and the Nasdaq board were involved in hiring back Friedman, the sources said.

Friedman, who had left for Carlyle three years ago after an 18-year career at Nasdaq, begins her new job on Monday. She will oversee the transatlantic exchange group’s global corporate, information services, and technology solutions business lines, accounting for around 60 percent of Nasdaq’s total revenue, which last year was $3.2 billion.

Succession has been top of mind at Nasdaq over the past few years but a number of possible internal candidates have not been prepared to wait for Greifeld to step down, complicating such planning at the company.

In September, sources told Reuters that the company had put together a list of external and internal candidates to succeed Greifeld. External candidates on Nasdaq’s list included London Stock Exchange Group Plc CEO Xavier Rolet, Singapore Exchange Ltd CEO Magnus Bocker, TMX Group Ltd CEO Tom Kloet, and former CME Group Inc CEO Craig Donohue.


In November, Eric Noll, who headed trading operations at the exchange and was seen as the top internal candidate for the job, left to become CEO of brokerage ConvergEx Group[BNYCG.UL].

One source said so serious was Nasdaq about Noll as a candidate that it had even put him through CEO boot camp training.

Noll had replaced yet another CEO-hopeful in 2009. Chris Concannon, who until then had been Greifeld’s No. 2, left for trading firm Virtu Financial, where he is president and chief operating officer.

Friedman’s decision to leave New York-based Nasdaq in 2011 was spurred in part by the career opportunity at Carlyle, but also because it meant she could spend more time in the Washington DC area, where her family lives, the sources said.

Carlyle also offered her more money. The cash portion of her compensation at Carlyle was similar to what she made at Nasdaq, but the equity portion was higher.

At the end of last year, Friedman had around $15.7 million worth of Carlyle stock that had not yet vested. She had to give up unvested stock when she returned to Nasdaq.

Friedman and Greifeld developed a strong working rapport at Nasdaq, where Friedman helped orchestrate the takeovers of OMX Group, INET, and the Philadelphia and Boston Exchanges. The two stayed in contact after she left Nasdaq, the sources said.

In February last year, Carlyle also approached Nasdaq about taking the exchange private. Talks broke down over a disagreement on price.


Greifeld was a proponent of Friedman being his chosen successor even in 2011. But at the time the board was split as to whether she could lead the company, one of the sources said. She had spent her entire Wall Street career at Nasdaq, and some directors worried about her lack of outside experience and her management skills, the source said.

Now, with the experience from Carlyle under her belt, the board is ready to give her a shot, the sources said. Three top Nasdaq executives, John Jacobs, Anna Ewing, and Bruce Aust, will report directly to her.

One source said, the CEO job is “hers to lose.”

Under Greifeld, Nasdaq has been diversifying away from transaction businesses, which are challenged after years of soft trading volumes and competition from upstart trading venues as well as brokerages that execute stock orders internally in so-called “dark pools.”

It is instead investing in providing technology, data, and corporate services to companies. These more stable sources of income largely fall under the business lines that Friedman now leads. Co-President Hans-Ole Jochumsen is in charge of transaction services.

Nasdaq’s stock has risen nearly 50 percent since the beginning of last year, spurred in part by a bull market and takeover expectations following Intercontinental Exchange Inc’s $11 billion acquisition of NYSE Euronext.

(Editing By Paritosh Bansal and Martin Howell)

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Asian shares slip, crude firms as market eyes Iraq

TOKYO (Reuters) – Asian shares got off on the back foot on Monday, as crude extended gains and tested nine-month highs on fears the insurgency in Iraq could spread – disrupting oil exports.

Sunni insurgents seized a mainly ethnic Turkmen city in northwestern Iraq on Sunday, while the United States boosted security for its diplomatic staff in Baghdad and said some personnel had evacuated from the embassy.

Brent LCOc1 rose about 0.5 percent to $113.07 per barrel, after touching $114.69 on Friday, its highest since September. Brent added more than $4 last week. U.S. crude rose about 0.4 percent to $107.34, approaching Friday’s nine-month high of $107.68.

Gold hit its highest in nearly three weeks as the Iraqi crisis supported the metal’s safe-haven appeal, rising about 0.1 percent to $1,277.80 an ounce after hitting $1,278.74 earlier in the session – the highest since late May.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down about 0.1 percent, moving away from a three-year high hit a week ago.

Japan’s Nikkei stock average dipped 0.9 percent, weighed down by fears of higher materials costs, and off last week’s three-month highs.

“Investors aren’t expecting material costs will rise soon and have an immediate impact on companies’ profits, but they are wary of these risks in the longer run,” said Hikaru Sato, a senior technical analyst at Daiwa Securities. “The geopolitical concerns are lowering risk appetite.”

Wall Street stocks edged higher on Friday, but ended the week with modest losses.

The dollar JPY slipped about 0.3 percent to 101.76 yen, moving back toward a two-week low of 101.60 yen marked on Thursday. The euro shed 0.2 percent to buy 137.79 yen.

Against the greenback, the euro was slightly higher on the day at $1.3541.

The dollar got little help from U.S. Treasury yields, which edged down as prices rose in response to waning risk appetite. The yield on benchmark 10-year Treasuries stood at 2.586 percent, down from Friday’s U.S. close of 2.604 percent.

For further clues on the direction of U.S. rates, investors will be focusing on the U.S. Federal Reserve this week as it concludes its policy meeting on Wednesday. Markets will be watching for any signals on when the U.S. central bank might begin hiking interest rates.

“Key points are if Fed Chair (Janet) Yellen upgrades her view on the economic view in light of recent economic indicators and if the central bank raises its yield forecast, which would reignite expectations for earlier rate hikes,” said Junichi Ishikawa, market strategist at IG Securities in Tokyo.

“Whether geopolitical risks have any currency impact depends on how the situation in Iraq and Ukraine impacts the equity markets, but so far their reaction appears limited,” he said.

Other data in focus this week is China’s latest report on foreign direct investment on Tuesday, and then house price figures on Wednesday. Investors would be concerned if the latter were to show a slowdown in property price growth, raising questions about the outlook for that sector.

(Additional reporting by Ayai Tomisawa and Shinichi Saoshiro; Editing by Eric Meijer)

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Medtronic to buy Covidien for $42.9 billion, rebase in Ireland

(Reuters) – U.S. medical device maker Medtronic Inc (MDT.N) said on Sunday it had agreed to buy Covidien Plc (COV.N) for $42.9 billion in cash and stock and move its executive base to Ireland in the latest transaction aiming for lower corporate tax rates abroad.

While the deal will allow Medtronic to reduce its overall global tax burden, the Minneapolis-based company said it was driven by a complementary strategy with Covidien on medical technology rather than tax considerations

“The real purpose of this, in the end, is strategic, both in the intermediate term and the long term,” Medtronic Chief Executive Omar Ishrak said in an interview after the deal was announced. “It is good for the U.S. in that we will make more investment in U.S. technologies, which previously we could not.”

Medtronic’s corporate tax rate, now at around 18 percent, won’t change much, Ishrak said.

The merger of Medtronic, the world’s largest stand-alone medical device maker, and Covidien, a maker of devices used in a range of surgical procedures, will create a close competitor in size to the medical device business of industry leader Johnson Johnson Co (JNJ.N).

It broadens Medtronic’s scope beyond its array of heart devices, spinal implants, insulin pumps and other products into areas such as weight-loss surgery and laparoscopic procedures. The expansion should allow it to better compete for business from hospitals, particularly in the United States where healthcare reform efforts and shrinking government reimbursement for medical procedures has kept pressure on device pricing.

The disparate businesses means there should not be significant antitrust concerns, industry analysts said.

“Beyond the financial rationale, the company expands dramatically, and it puts them in a whole bunch of areas they never were in before. It makes sense,” said Jefferies analyst Raj Denhoy.

Denhoy estimated the deal would shave 2 to 3 percentage points off the company’s corporate tax rate, pointing to Covidien’s rate of 16 percent.

The deal values each Covidien share at $93.22, paid for by $35.19 in cash and 0.956 Medtronic shares. The transaction represents a 29 percent premium to Covidien’s closing stock price on Friday, Medtronic said.

The combination, which will leave Covidien shareholders owning about 30 percent of the combined company, is expected to result in at least $850 million of annual pre-tax cost synergies by the end of fiscal year 2018. Medtronic said it would keep its operational headquarters in Minneapolis and pledged $10 billion in U.S. technology investments over the next 10 years.


Acquisitions of companies aimed at lowering corporate tax rates, known as inversions, have historically been rare but are becoming more common.

Some U.S. lawmakers are concerned that the deals erode government revenue by giving corporations another tax-avoiding loophole. Two bills in the U.S. Congress and a White House proposal would make inversions harder to do, but neither has gained much traction. That could change if another major U.S. company or two tried to conduct inversions, tax lawyers and analysts said last week.

Two recently attempted inversions failed, but only after they refocused political attention on the strategy. U.S.-based Pfizer Inc’s (PFE.N) bid for rival British drugmaker AstraZeneca Plc (AZN.L) was rejected, while the proposed combination of U.S. advertising firm Omnicom Group Inc (OMC.N) with France’s Publicis Groupe SA (PUBP.PA) collapsed for non-tax-related reasons.

Democrats in Congress have called for new restrictions on these deals, with bills offered by Senator Carl Levin and his brother, Representative Sander Levin, both Michigan Democrats. President Barack Obama has a proposal similar to the Levins’. Republicans have expressed concern about inversions, but have not put forward legislation of their own.

Some lawmakers have said that anti-inversion curbs should be tackled as part of a comprehensive overhaul of the loophole-riddled U.S. tax code, but this is a difficult project that Congress has not tackled since 1986.

Medtronic’s deal with Covidien is expected to close in the fourth quarter of 2014 or early 2015, Medtronic said.

Perella Weinberg Partners LP, Cleary Gottlieb Steen Hamilton LLP and A L Goodbody advised Medtronic, while Goldman Sachs Co (GS.N) and Wachtell, Lipton, Rosen Katz and Arthur Cox advised Covidien. Bank of America Merrill Lynch (BAC.N) provided committed financing for the transaction.

(Reporting by Susan Kelly in Chicago and Greg Roumeliotis in New York; Additional reporting by Kevin Drawbaugh in Washington, D.C.; Editing by Michele Gershberg, Dan Grebler and Eric Walsh)

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