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Lufthansa pilots’ 15-hour strike affects 9,000 travelers

FRANKFURT (Reuters) – Lufthansa pilots threatened further strike action on Tuesday as they began a 15 hour walkout at Frankfurt airport in a row with management over retirement benefits that stretches back two years.

The pilots, represented by union Vereinigung Cockpit (VC), are striking from 0600 to 1700 ET on long-haul routes from Frankfurt, Europe’s third-largest airport and Lufthansa’s main hub.

The strike, affecting around 9,000 travelers, is the longest since a three-day nationwide walkout in April, and the union threatened more.

Three strikes since the end of August have targeted specific operations such as those at Munich or Frankfurt and budget unit Germanwings and have lasted around six to eight hours.

“We’re not on the same level for talks,” VC board member Markus Wahl told Reuters on Tuesday. “If Lufthansa doesn’t make a move, then further strikes will happen.”

The pilots are trying to increase pressure on management to maintain a retirement scheme that gives pilots the option to retire from the age of 55 and still receive up to 60 percent of their pay until regular retirement.

Lufthansa, in the midst of a cost-cutting plan and trying to set up new low-cost units to battle tough competition, wishes to alter the scheme for new pilots, so that the average age at which its pilots retire rises to around 60.

Lufthansa, Europe’s largest airline by revenue, has canceled 25 of 57 long-haul flights planned for Tuesday as a result of the strike. In total, around 50 flights have been canceled from Monday to Wednesday in order to ensure crews and planes are not stranded.

As in previous strikes, the airline is using managers with pilots’ licences to keep planes flying. “We’ve managed to keep one in every two flights in the air,” a spokeswoman said.

Lufthansa is not the only flag-carrying airline in Europe struggling with labor relations. Air France pilots called an end to a two-week strike over the weekend in a row over low-cost expansion.

(Reporting by Peter Maushagen; Writing by Victoria Bryan; Editing by Elaine Hardcastle)

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EU says Ireland tax deal with Apple was state aid

BRUSSELS (Reuters) – The European Union has accused Ireland of giving Apple Inc. illegal state aid through tax arrangements that had “no scientific basis” but which helped the iPhone maker shelter tens of billions of dollars in international revenues from tax.

In a letter written in June but published only on Tuesday, European Competition Commissioner Joaquin Almunia told the Dublin government that tax deals agreed in 1991 and 2007 appeared, in his preliminary view, to amount to state aid that broke EU laws and could be clawed back from the U.S. company.

“The Commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple,” Almunia wrote to Ireland in the letter, which was dated June 11.

Publication of the letter had been expected this week.

Analysts said the Irish tax arrangements saved Apple, the world’s most valuable corporation, billions of dollars in tax.

The Irish government and Apple have long denied any sweetheart deals were agreed. There was no immediate comment on Tuesday on from either Dublin or Apple.

The EU’s competition watchdog announced in June that it was looking at whether a number of countries’ benign tax regimes for multinational companies, which help to attract investment and jobs, represent unfair state aid.

Under EU competition law, if a government is found to have unfairly helped a company with state aid, it must then recover that money from the company.

(Editing by Alastair Macdonald)

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Vanguard, BlackRock may reap billions from Pimco after Gross exit

NEW YORK/BOSTON – Vanguard Group and BlackRock Inc could be prime destinations for hundreds of billions of dollars in assets that may flee Pimco in the wake of the sudden exit of Bill Gross, the celebrated “Bond King” of U.S. mutual funds. His new company, Janus Capital Group Inc, may see Gross’s cachet attract tens of billions of dollars, investors and analysts said.

During the year ended Aug. 31, investors made $64.7 billion in net withdrawals from Pimco funds, according to research firm Morningstar Inc. Those outflows will likely accelerate with Gross’s departure.

“Lots of Pimco AUM (assets under management) will be up for grabs,” analysts at Wells Fargo Securities said, noting that they reckoned the total sum Gross managed at Pimco ranged from $500 billion to $700 billion. If half of that amount turns over – typical when a high profile manager leaves a fund – Gross’ departure could translate into a $300 billion market opportunity for rivals, Wells Fargo analyst Christopher Harris said Monday in a research note.

BlackRock, the world’s largest money manager, and Vanguard, the No. 1 U.S. mutual fund company, provide the performance and the size to attract cash flows from investors unnerved by the infighting at Pimco during the past several months and amid a probe by the U.S. Securities and Exchange Commission. Smaller fund companies may also benefit from the fallout.

Retail investors tend to shift money quicker than big pensions and other investment institutions, which deliberate more slowly about what to do.

Janus, the Denver asset manager with a volatile history, could be in for a surprise if it is expecting Pimco money to flow automatically after the star fund manager.

    “Gross is a very capable investment manager. He’s not God,” said Carl Nelson, executive secretary and chief investment officer of the $1.1 billion San Luis Obispo County Pension Trust.

    Instead, institutional investors such as Nelson, who can take months to make decisions, will want to see how Gross settles into his new role managing the Janus Global Unconstrained Bond Fund, which has about $13 million under management.

To be sure, more than a dozen fund representative and consultants told Reuters that they have hesitations about leaving Pimco, which Gross co-founded more than 40 years ago.

“We hired Pimco as an organization, we didn’t hire Bill Gross as an individual to manage our money,” said Stephen Rauh, the chairman of the $4 billion Vermont Pension Investment Committee, which has Pimco on its “watch list.”

Pimco’s Total Return Fund, which Gross ran personally for 27 years and has about $222 billion in assets, appears most vulnerable to poaching, said analysts at Susquehanna Financial Group.

“BLK (BlackRock) is likely the biggest beneficiary,” analyst Doug Sipkin said.


Meanwhile, few fund firms have had a harder time than Janus over the past decade as its stock funds fell out of favor. Janus has struggled for years to recapture the status it lost during the dot-com crash. Its assets peaked at more than $300 billion in 2000 and stood at $178 billion at the end of June.

Janus CEO Dick Weil hopes Gross will attract money to a stable of bond funds that have just $31.4 billion in assets under management as of June 30. That’s up from $9.2 billion four years ago.

Janus now could double or triple those bond assets again as money follows Gross, said Dan Sondhelm, partner at SunStar Strategic, a financial services consulting company in Alexandria, Virginia.

“No salesman could do that,” Sondhelm said. Investor cash flows could start to gather steam by the first quarter of next year, he said.

For Gross, the shift to Janus means giving up one of the industry’s biggest paychecks, a reported $200 million a year, if for no other reason than the fund he will manage is a fraction of Total Return Fund’s size. Gross has a net worth of $2.3 billion, according to Forbes.

“He didn’t come for big money upfront, he came to build a fund” and other products, said a person familiar with the matter, speaking on condition of anonymity because of the sensitivity of the situation.

Janus likely has put together a pay plan that would reward Gross for drawing assets into products he oversees, a key measure of success in the fund industry, said Todd Sirras, managing director at pay consulting firm Semler Brossy, which has worked with Janus in the past.

Gross, 70, wasn’t available to comment. A Janus spokesman said executives including Weil wouldn’t comment.

“Janus’s move to hire Mr. Gross strikes us as precipitous, coming two days after last week’s multiple news reports about the U.S. Securities and Exchange Commission investigation of alleged improper valuation and performance reporting in Pimco’s $3.6 billion Total Return exchange-traded fund,” Moody’s said.

“If the SEC determines that these allegations are true, it would not be clear what liabilities – both legal and reputational – might attach to Mr. Gross.”

(Reporting by Ross Kerber and Luciana Lopez; editing by Tim McLaughlin, Linda Stern and John Pickering)

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SoftBank considers stake in Legendary Pictures: report

TOKYO (Reuters) – Japan’s SoftBank Corp (9984.T) has been in talks to take a minority stake in privately held movie studio Legendary Pictures, entertainment trade publication The Hollywood Reporter reported on Tuesday.

The talks between SoftBank and Burbank, California-based Legendary, home of hits like “Man of Steel” and the 2014 remake of “Godzilla”, have been going on for weeks, according to the publication. The talks have been on a separate track from SoftBank’s negotiations with DreamWorks Animation(DWA.O), The Hollywood Reporter said.

The Hollywood Reporter was first to report that SoftBank had been in talks with DreamWorks over a possible acquisition. A SoftBank source and banking sources in Japan subsequently said those talks had cooled even before media reports about them emerged over the weekend.

SoftBank declined to comment.

Legendary was founded in 2000 by chief executive Thomas Tull, who raised funding from private equity investors. A representative of Legendary could not be reached for comment.

(Reporting by Teppei Kasai; Editing by Kenneth Maxwell)

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GM CEO to reveal multiyear financial strategy: WSJ

(Reuters) – General Motors Co’s (GM.N) Chief Executive Officer Mary Barra will on Wednesday reveal a multiyear financial strategy that aims to boost the company’s profits and launch “market leading” vehicles, the Wall Street Journal reported.

In an interview with the Journal, Barra said she would give investors a more specific deadline for her financial targets and would detail how the company would spend its cash and cash assets. (

The company’s stock has fallen nearly 20 percent since Barra was appointed CEO in January.

GM was not available for comment outside normal business hours.

(Reporting by Ramkumar Iyer in Bangalore; Editing by Lisa Shumaker)

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Morningstar strips Pimco Total Return Fund of its gold rating

(Reuters) – Morningstar downgraded its analyst rating on the Pimco Total Return Fund to “bronze” from “gold”, citing uncertainty about outflows and the reshuffling of management responsibilities after the exit of co-founder Bill Gross.

    Gross, the bond market’s most renowned investor, quit Pimco for distant rival Janus Capital Group Inc (JNS.N) on Friday, a day before he was expected to be fired from the huge investment firm he helped found more than 40 years ago.

    Dan Ivascyn, one of Pimco’s deputy chief investment officers, was named Group Chief Investment Officer to replace Gross. With Bill Gross’ abrupt departure, Pimco’s $222 billion flagship Total Return Fund has been taken over by Scott Mather, Mark Kiesel and Mihir Worah.

    “The fund’s Bronze Morningstar Analyst Rating reflects Morningstar’s high level of confidence in PIMCO’s resources and overall abilities but also the uncertainty as to exactly how all of these parts will mesh in the wake of Gross’ departure,” Mornigstar analyst Eric Jacobson wrote in a report on Monday.

    Since the start of the year, investors have pulled $25 billion from the Pimco Total Return Fund, the world’s largest bond fund, according to Morningstar data as of the end of August. This latest downgrade could set off another chain reaction of negative cash outflow momentum for the Pimco Total Return Fund.

The Financial Times reported on Tuesday that officials at the Securities and Exchange Commission, the Federal Reserve and the US Treasury, have been talking to investors and warning them of the consequences of pulling their money from Pimco. (

Pimco CEO Doug Hodge said on Monday that the investment group is bracing for investors to pull out money following Gross’s departure but expects the vast majority of clients to stick with the firm and is confident it can handle any outflows.

    “Mark, Mihir and I intend to harness our individual and collective skills to continue to deliver the same excellence to investors they have come to expect from PIMCO’s Total Return Fund,” Scott Mather, CIO Core Strategies said in response to Morningstar downgrade.

    Morningstar evaluates mutual funds based on five key pillars, which it believes leads to funds that are more likely to outperform over the long term on a risk-adjusted basis. A “gold rating” is assigned to a Best-of-breed fund that has garnered the analysts’ highest level of conviction.

    “It will take some time to see how Ivascyn and the new managers will coalesce as a team in their new roles, but there are a number of reasons to believe they will be successful after the dust settles,” Mornigstar said.

(eporting by Supriya Kurane in Bangalore and Jennifer Ablan in New York; Editing by Kim Coghill)

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Euro zone inflation slows in September as expected

BRUSSELS (Reuters) – Euro zone inflation slowed further in September on falling prices of unprocessed food and energy, a first estimate showed on Tuesday, sending the euro lower against the dollar on expectations of further European Central Bank policy easing.

Eurostat said consumer prices in the 18 countries sharing the euro rose 0.3 percent year-on-year, slowing from 0.4 percent year-on-year increases in August and July. The September was in line with market expectations, according to polling data.

The ECB wants to keep headline inflation below, but close to, 2 percent over the medium term. The persistently low rate underscores the difficulty of hitting that target in a stagnating euro zone economy.

By 0625 ET, the euro had fallen against the dollar to 1.2609 from 1.2662 before the release. The FTSE Eurofirst 300 share index of leading companies was up 0.56 percent at 1,378.81.

“With actual output below potential and weak wage growth in many euro zone countries, inflation will remain subdued,” said Tomas Holinka, economist at Moody’s Analytics.

“The euro area economy stalled in the second quarter and the recovery prospects are fading. With tougher sanctions against Russia, risks are weighted to the downside. The euro zone’s weaker than expected performance fuels uncertainty about economic recovery and fears about the threat of deflation,” he said.

Unprocessed food prices fell 0.9 percent year-on-year in September and energy was 2.4 percent cheaper.

What the European Central Bank calls core inflation – a measure stripping out these two volatile components – was 0.7 percent year-on-year, slowing down from 0.9 percent in August.

To accelerate price growth, the ECB has cut the cost of borrowing to almost zero and pledged further cheap loans to banks and to buy repackaged debt. ECB President Mario Draghi has emphasized that it could do even more.

But going for full-blown quantitative easing, by adding government bonds to the ECB’s shopping list, would be politically difficult because of stiff opposition in Germany.

Draghi is expected to give further details of ECB plans to buy reparcelled debt, known as asset-backed securities, when the bank’s governing council meets in Naples on Thursday. Investors do not expect new policy decisions yet, after the bank cut all three of its main interest rates in early September.

Draghi has, in the meantime, sought to put the ball back in the court of governments, saying that the central bank cannot single-handedly turn around the bloc’s economy, and countries need to make reforms.

The ECB’s job may be made easier by a weakening euro, which has broken below its 2013 lows and is down almost 9 percent from the peak it hit against the dollar in May.

(Additional reporting by John O’Donnell in Frankfurt; Editing by Alastair Macdonald and Mark Trevelyan)

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SoftBank, DreamWorks Animation talks have cooled: sources

(Reuters) – SoftBank Corp’s (9984.T) talks to acquire Hollywood studio DreamWorks Animation SKG Inc (DWA.O) have cooled, a SoftBank source and banking sources in Japan said.

DreamWorks Animation shares were down about 9 percent in extended trading on Monday. The shares had risen about 26 percent to close at $28.18 during market hours on reports that SoftBank was in talks to acquire the company.

A SoftBank source said talks had taken place with DreamWorks Animation but they did not appear to be going anywhere.

Two bankers at separate institutions in Japan said SoftBank’s interest had cooled even before media reports emerged over the weekend about the discussions, with one citing price as a dissuading factor.

“Their interest briefly picked up, but the price being what it was, it has now cooled,” one of the sources said.

The Wall Street Journal reported on Monday that SoftBank’s talks had cooled but that it was possible talks could restart, with the two sides striking a deal other than an outright takeover, possibly some kind of content partnership. (

DreamWorks Animation spokeswoman Allison Rawlings said the company will not comment on market rumors.

(Reporting By Sai Sachin R in Bangalore; Yoshiyasu Shida and Taiga Uranaka in Tokyo; Editing by Anil D’Silva and Ryan Woo)

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Bank derivatives boom ahead of ECB test results as investors play safe

LONDON (Reuters) – Investors hopeful but not entirely confident that next month’s European bank check will yield positive results are stacking up derivatives positions to balance optimism about the industry against worry over its performance in a faltering economy.

The European Central Bank is expected to publish the outcome of its bank asset quality review on Oct. 26 in a bid to convince investors – after three previous “stress tests” failed to spot subsequent problems – that Europe’s lenders have sifted out their risky holdings and now have enough capital to withstand any more financial crisis-style shocks.

However recent nasty surprises are still vivid. The euro zone banking index fell nearly 17 percent between April and August as poor economic data from Italy, France and even Germany threw into doubt a euro zone recovery while top banks like BNP (BNPP.PA), Lloyds (LLOY.L) and Royal Bank of Scotland (RBS.L) were hit with hefty fines for misconduct ranging from sanctions violations to manipulation of key interest rates. Portugal’s announcement of a 4.9 billion-euro ($6.22 billion) bailout for Banco Espirito Santo (BES.LS) caused more pain.

With all that in mind, investors are hedging their bets.

As a way of taking a punt without putting much capital at risk, many are turning to call options – which offer the right but no obligation to buy shares at a certain price and time.

Derivatives strategists at JPMorgan, Societe Generale and BNP Paribas have all been advising their clients to bet on a modest rally after the results’ publication.

“Investors … cannot afford to miss a potential strong rally that could be triggered by this event, but do not always have sufficient conviction to just buy cash equities,” said Davide Silvestrini, head of European equity derivatives strategy at JP Morgan.

Since the summer, interest in banking sector call options has surged: There are currently more open bets on a 9 percent rise on the Euro STOXX banking index .SX7E by December than there are on a roughly equivalent fall, Thomson Reuters data showed. This is an unusual occurrence because investors tend to hedge against a fall rather than a rise in shares.

That reluctance to commit money to bank shares is reflected in the current performance of the Euro STOXX banking equity index – currently 10 percent off its March peak.

But, say some investors, that dip also means the potential for fresh gains if the ECB publishes a positive report.


Those expecting a surge in banking stocks are basing their position on the fact that the ECB’s asset quality review (AQR) is likely to confirm that banks have got themselves into shape.

Sources familiar with ECB thinking told Reuters recently that the central bank is likely to say most banks have improved since the crisis abated last year. [ID:nL6N0RP2QK]

That would remove a threat currently hanging over the banks – that of more capital increases, which dilute equity and send shareholders running, pummeling share prices – and instead allow banks to focus again on lending, helping to improve the economy and their own profits.

“Post-AQR you’ll have a sort of stamp of approval coming from the ECB on the banks’ capital levels,” said Gerry Fowler, global head of equity and derivatives strategy at BNP Paribas.

“Even with the fairly consensus view that the stress tests won’t be bad, you could still see the Euro STOXX banking index up 5 percent just because the deluge of data increases transparency.”

Derivatives strategists have been advising clients to take out ‘call spreads’ which typically involve buying a call to be exercised at a price equal to or slightly above current levels, while also selling another call with a higher price, both to cut the cost of the trade and limit potential losses if shares fall.

BNP Paribas recommended buying one December call with strike prices of 155 or 160 points, effectively betting on a rally of at least 6-9 percent, and selling two calls with strikes at 165 or 175 points, or 12 to 19 percent above current levels.

Some warier investors were looking at longer-dated options.

Vincent Cassot, head of equity derivatives strategy at Societe Generale, tipped buying a call with a 150 points strike price, 2 percent above the current level, due to expire in March 2015, financed by selling a call with a 170 points strike.

“If you have the sector going up quickly, then you’re going to still do well, if not, you’re going to have more time with the March 15 expiry,” Cassot said.

(Editing by Sophie Walker)

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