News Archive

GM’s Indonesia closure highlights automakers’ emerging markets woes

DETROIT (Reuters) – General Motors Co’s (GM.N) decision to shutter a car factory in Indonesia comes as global automakers rethink the timing and scope of investments in emerging markets once touted as engines of growth.

Global automakers poured billions into Brazil, Russia, India, China and other emerging markets during the past few years. For now, some key emerging markets are a drag on sales and profits.

Ford Motor Co (F.N), General Motors Co (GM.N), Toyota Motor Corp (7203.T) and Korean automakers Hyundai Motor Co (005380.KS) and Kia Motors Corp (000270.KS) said slumps in Brazil, Russia, India and other emerging markets dented profits last year.

Ford took an $800 million one-time charge to fourth-quarter earnings in an accounting change because of the volatile currency in Venezuela. GM wrote down $194 million of the value of its assets in Russia, and cut production there.

Toyota says vehicle sales in Asia fell 11 percent in the latest quarter, mainly because of weak demand in Thailand and Indonesia.

India has suffered a two-year decline in sales since Ford and Renault-Nissan announced big investments in the country.

Fiat Chrysler Automobiles NV had planned to launch its Jeep brand in India in 2013. Now, the company says it plans to wait until the third quarter of this year.

“India is just waking up,” says Vikas Sehgal, global head of automotive at investment bank Rothschild.  He says India will grow in the long run.

Industry executives say they still expect emerging markets to drive global vehicle sales growth in the long run, an inevitable outcome of growing population and rising incomes.

“We want to expand sharply in emerging markets,”  Ford Chief Executive Mark Fields said during a recent presentation to analysts. Ford has two new car plants in India, and it plans to launch four more in the Asia-Pacific region, including two in India and two in China.

GM says more than half of global vehicle sales growth by 2030 will come from emerging markets. IHS forecast that sales in India, Brazil and Russia will rise 40 percent by 2020 to more than 12 million vehicles. The company also has said that the bulk of about $700 million in restructuring costs forecast for this year will be spent in South America and in Asia-Pacific operations.

“These are not investments made with a four-year perspective,” says Xavier Mosquet, managing director at Boston Consulting Group. “You have to make it with a 20-year perspective.”

(Reporting by Bernie Woodall; editing by Andrew Hay)

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For Macy’s, going downmarket looks like the way ahead

(Reuters) – Macy’s Inc’s (M.N) planned push into the off-price retailing sector, dominated by chains such as TJX Cos Inc’s (TJX.N) TJ Maxx, shows the venerable department store chain has faced up to new realities of retailing in the United States.

For the past six years, Macy’s has focused more on cutting costs and streamlining its operations rather than expanding as a way to fuel earnings. Now, that has changed.

Macy’s said this week it would spend $1.2 billion to expand internationally and set up off-price stores, which sell items such as seconds, returned goods and off-season merchandise at prices that squeezed middle-class customers have found increasingly attractive since the 2008 recession.

“It’s a new world. Since so many peoples’ salaries are off-price they also need to shop that way,” said Robert Brusca, chief economist at consulting firm Fact and Opinion Economics. “Macy’s is bending to the reality of retailing.”

The customer mindset has also changed, analysts said, as even higher income shoppers who tightened their belts and traded down during the recession have stayed with off-price retailers.

The move will give Macy’s the opportunity to stake a claim on three main types of shopper – the luxury buyer, through its Bloomingdale’s chain; middle-income shoppers through its namesake stores; and the more bargain-hungry crowd attracted to TJ Maxx, Ross Stores (ROST.O) and Burlington Stores (BURL.N).

TJX’s sales have increased 6 percent in each of the past two years, while Macy’s sales have grown an average 0.75 percent.

“If you’re looking for growth vehicles going forward in this retail environment, it (off-price retailing) has to be a consideration,” research firm Retail Metrics’ President, Ken Perkins told Reuters.

“… It’s something very very wise to look at.”

Perkins noted the success of upmarket retailer Nordstrom Inc’s (JWN.N) off-price Nordstrom Rack stores, which have generated almost all of its parent’s recent growth.

Nordstrom Rack’s sales have grown at least 10 percent every quarter for the past two years, while the company’s overall sales growth has ranged from 0.4 percent to 8.9 percent.

Macy’s’ holiday-quarter sales rose just 2 percent.

“This new phase we have entered has the opportunity to take our company to a whole new level of success,” Chief Financial Officer Karen Hoguet said on an earnings call.

“We have the ability to create a larger relationship with existing customers and make inroads with customers that have not traditionally shopped either Macy’s or Bloomingdale’s.”

(Additional reporting by Siddharth Cavale; Editing by Ted Kerr)

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How Sands fell from grace at Standard Chartered

LONDON/HONG KONG (Reuters) – In summer 2012 Peter Sands was flying high as Standard Chartered Chief Executive, batting back questions on whether he was tempted to run Barclays or even the Bank of England.

Praised for steering a safe path through the financial crisis, the former McKinsey consultant had just delivered bumper half-year earnings to set his Asia-focused bank on course for a 10th straight year of record profits.

But days later, when Sands had gone on holiday, New York’s bank regulator accused the bank of being a “rogue institution” that hid $250 billion in transactions tied to Iran and left the United States vulnerable to terrorists.

It was the start of a run of trouble that saw Sands ousted on Thursday following a rebellion by key shareholders.

Investors cited failures in strategy, execution and governance, leaving new CEO Bill Winters with a lot to do.

Investors have said Chairman John Peace needs to share the blame for Standard Chartered losing its sparkle, and he is leaving in 2016 once Winters has settled in.

Critics said Sands, 53, too often blamed external factors, such as changes in Korean law or tougher global regulations, and failed to restructure the bank quickly.

They said he was good at growing the bank, but failed to axe jobs and businesses when Asian growth stalled.

Sands survived 2013, sustained by his record of making good returns for shareholders, but by early 2014 some top investors were privately talking about replacing him.

It was suggested he might become chairman, but he said he had no interest in that and pressed ahead with plans to get the bank back on track.

Disquiet about the pace and depth of change grew as the year progressed, and behind the scenes, the bank’s second biggest shareholder Aberdeen Asset Management was agitating for change.

Its biggest investor, Singapore sovereign wealth fund Temasek, meanwhile, had long voiced concerns about governance.

By the end of last year, Aberdeen’s CEO Martin Gilbert was pressing Peace to replace Sands, a source familiar with the situation told Reuters. Gilbert also told Sands he should go.

In December the board decided change was needed, another source said. They wanted a successor before the annual general meeting in May, otherwise another fiery shareholder gathering was inevitable.

Headhunter Egon Zehnder was tasked with finding the successor. Sands was aware of the process, a source said.

Sands, with his spiky white hair and Harry Potter spectacles, grew up in Asia and previously worked for the British Foreign Office and McKinsey.


Insiders said Standard Chartered has been on the ropes ever since New York’s regulator launched its broadside.

The bank’s response was typical of a company that did not deal well with bad news: it felt hard done by.

It paid a fine of $667 million and avoided losing its state banking license. But the row left the bank slow to respond when more problems arrived. Its 19-member board looked unwieldy and reluctant to challenge management, investors said.

The bank had also aggressively increased its lending during its boom era, and rival bankers said it appeared to relax lending standards and carried some major single name exposures.

Losses from bad loans rose last year, and investors fear there could be more problems from $61 billion of loans to commodities companies, built up over the last five years.

Other problems have surfaced. Staff morale is said to be low; several senior executives left, including finance director Richard Meddings; and more than 40 percent of shareholders rebelled against the pay plan at last year’s AGM.

Yet the bank remained profitable, unlike many rivals, and its expected 2014 profit of about $5.7 billion is double its level when Sands became CEO.

Sands set out plans to cut $400 million in annual costs and 4,000 jobs, including taking out layers of management and shutting some areas, including its loss-making equities business.

But analysts expect Winters to cut more of the bank’s 89,000 staff, which has doubled under Sands, and also quickly address whether to raise capital. Sands has resisted calls to raise cash, in contrast to 2008, 2009 and 2010 when he moved quickly when funds were needed to improve capital and grow the business.

Standard Chartered’s shares have almost halved in the past two years, against a 19 percent rise in the European bank index. That has undone much of Sands’ good work in his first five years, leaving shares down a fifth since he became CEO in November 2006.

“Sands did very well, but he was there too long. The board supported everything he did so the guy feels he is walking on water and that lowers your guard,” said a senior banker at a rival firm.

Investors welcomed the appointment of Winters, but some said the bank may need to go further and consider moving to Singapore or Hong Kong to re-orient itself towards Asia.

The bank has said it keeps its domicile under review, and London has remained its preferred home in recent years.

Sands admitted on Thursday the last two years had been difficult but put a brave face on his exit.

“It was always our intention to begin a handover process around now … now is the right time for me to hand over,” he said.

(Additional reporting by Sinead Cruise, Alexander Smith and Sophie Sassard; Editing by Giles Elgood)

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Top U.S. forecaster says jobs data adding up to a rate rise: Reuters poll

(Reuters) – The steady drop in the U.S. unemployment rate has set up a simple set of arithmetic that will lead to a Federal Reserve interest rate rise soon to ward off future inflation, according to the most accurate forecaster in Reuters polls last year.

Jim O’Sullivan, chief U.S. economist at High Frequency Economics, isn’t yet completely convinced that Janet Yellen’s Fed will begin raising rates in June. But he says it’s only a matter of time before they will have to.

“The idea that the economy is so fragile that it can’t take a rate hike? I don’t think so,” he said.

He doesn’t believe that the U.S. being a lone engine of growth, while many parts of the world economy remain at risk to a renewed downturn, will prevent the Fed from focusing on its mandate of full employment and low inflation.

What concerns O’Sullivan in terms of judging the timing of the first U.S. rate hike in a decade is that even the core measure of inflation the Fed watches has remained surprisingly low at a time when the job market has taken off so strongly.

“If wages are slowing and core PCE is slowing, they don’t go,” he said, noting that even core PCE inflation slipped to 1.3 percent in December from 1.5 percent last summer around the time oil prices began their spectacular tumble.

But the powerful surge in hiring across the United States, evidenced in the latest employment numbers that took place over the same period, is necessarily going to bring an already-low jobless rate of 5.7 percent even lower.

“The arithmetic is just overwhelming. Unless employment growth slows dramatically, the unemployment rate is going to continue to fall,” O’Sullivan said.

Federal Reserve Chair Janet Yellen noted the “considerable progress” in the labor market recovery in testimony this week but said “room for further improvement remains.”

“The part we can be most confident in is that the trend in the unemployment rate is going to remain downwards,” he said. “In turn, that means eventual upward pressure on wages and inflation. The Fed needs to be forward looking.” 

HFE’s O’Sullivan topped a list of more than 80 forecasters graded by StarMine for accuracy on a set of key monthly data releases in 2014, including GDP, inflation, retail sales, jobs, as well as purchasing managers’ surveys of business activity.

(Reporting by Ross Finley; Editing by Bernadette Baum)

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ECB’s Nowotny opposes ejecting Russia from SWIFT system: report

VIENNA (Reuters) – European Central Bank policymaker Ewald Nowotny has warned against kicking Russian banks out of the SWIFT payments transfer system as part of tighter sanctions on Moscow, the Austria Press Agency quoted him as saying on Thursday.

Such a move “we would see as very problematic because it could perhaps undermine confidence in this system”, the governor of Austria’s central bank told reporters in Brussels after meeting European Commissioner Pierre Moscovici.

Russia has drafted a law to regulate a local equivalent to SWIFT in response to concerns that the Belgian-based system, the world’s biggest for electronic payments, could be a focus of Western sanctions against Moscow over the Ukraine crisis.

In 2012, SWIFT cut off Iranian banks that were the subject of EU sanctions over Iran’s nuclear program – a step that shut down a major avenue through which Iran did business with the rest of the world.

APA quoted Nowotny as saying Austria would not be immediately affected should Russian banks be excluded from SWIFT, but that Russia could retaliate, “and this could of course affect all companies that do business in Russia”.

He reiterated that Austrian banks had no plans to leave Russia because they had proven themselves to be an element of stability in the latest economic crisis. Raiffeisen Bank International (RBIV.VI) and Bank Austria (CRDI.MI) are active there.

(Reporting by Michael Shields; Editing by Kevin Liffey)

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N.Y. court revives Macy’s claims vs. JC Penney on Martha Stewart deal

NEW YORK (Reuters) – A New York state appeals court on Thursday revived most of Macy’s Inc’s lawsuit accusing J.C. Penney Co of interfering improperly with its exclusive merchandising contract with Martha Stewart Living Omnimedia Inc.

The 5-0 decision by the Appellate Division in Manhattan restored two claims by Macy’s that a lower court judge had dismissed. It also upheld the validity of a third Macy’s claim, but said Macy’s did not deserve punitive damages.

Thursday’s decision is the latest step in an unusual battle over the right to sell home goods from a company named for one of the most famous U.S. names in homemaking. Macy’s, which is based in Cincinnati, had settled with Martha Stewart in January 2014.

J.C. Penney said it may appeal but looked forward to defending against Macy’s claims. It said it was pleased the court decided that punitive damages were not warranted.

Ted Grossman, a Jones Day partner representing Macy’s, in a phone interview called the decision a “thumping” ruling that “expanded, clearly, the damages that we can receive.” Macy’s itself called the decision a “resounding victory.”

At issue was a 2011 agreement in which Martha Stewart was to design bed, bath and kitchen products for sale at J.C. Penney stores being revamped by the retailer’s chief executive at the time, Ron Johnson.

Macy’s complained that the agreement interfered with its own 2006 contract giving it exclusive rights to sell the same kinds of products under the Martha Stewart brand.

Last June, State Supreme Court Justice Jeffrey Oing said J.C. Penney’s “over the top” and “less than admirable” interference violated Macy’s exclusivity rights under the 2006 contract.

But Oing dismissed Macy’s claims that J.C. Penney breached confidentiality provisions of its contract with Martha Stewart, or that its actions amounted to unfair competition.

The appeals court said these dismissals were wrong because J.C. Penney used its “financial leverage” over Martha Stewart to learn about Macy’s contract, and then began selling Martha Stewart designs to which Cincinnati-based Macy’s was entitled.

“JCP misappropriated Macy’s labor, skill, expenditures, and good will, all the while demonstrating bad faith in pursuing its objective,” Justice John Sweeny wrote for the appeals court.

Sweeny said that despite the “unsavory atmosphere surrounding JCP’s conduct,” there was no showing that the Plano, Texas-based company should pay punitive damages.

In Thursday trading, JC Penney shares closed up 13 cents at $9.12, and Macy’s was unchanged at $63.58.

The case is Macy’s Inc et al v. JC Penney Co, New York State Supreme Court, Appellate Division, 1st Department, No. 13958.

(Reporting by Jonathan Stempel in New York; Editing by Jeffrey Benkoe, Tom Brown and Leslie Adler)

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Deutsche co-CEO faces trial for providing false testimony: Spiegel

FRANKFURT (Reuters) – Deutsche Bank (DBKGn.DE) co-Chief Executive Juergen Fitschen and four former board members will stand trial in Munich on suspicion of having provided false testimony during the Kirch trial, German weekly magazine Der Spiegel said on Thursday.

Deutsche Bank declined to comment.

The presiding judge at the Munich court, Peter Noll, has allowed the case to go forward, Der Spiegel said, citing unnamed sources.

A spokeswoman for the Munich court said that based on current information, she could not confirm that the case had been formally admitted for trial.

In Germany, a formal declaration that a case has gone to trial tends to follow only after the lawyers of the accused have been informed.

Munich prosecutors have been investigating whether Fitschen and former executives gave misleading evidence during a civil court case brought by the heirs of Leo Kirch, the deceased media magnate who had sued Deutsche Bank.

Munich prosecutors launched a separate criminal investigation in November into whether Fitschen gave misleading evidence at the Kirch trial.

(Reporting by Edward Taylor and Joern Poltz; Editing by Elaine Hardcastle)

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Strike ends at General Motors plant in Brazil

SAO JOSE DOS CAMPOS, Brazil (Reuters) – Workers at a General Motors Co (GM.N) car factory in Brazil ended a six-day strike on Thursday after the company dropped plans to lay off 800 employees, the union said, ending the latest labor standoff in the troubled Brazilian auto industry.

Later on Thursday the metalworkers union of Sao Jose dos Campos re-elected its leadership by a three-to-one margin, highlighting the appeal of more confrontational union tactics that are gaining steam across the country.

The re-elected leadership, which also organized a strike against planemaker Embraer SA (EMBR3.SA) last year, credited its hardline reputation and consistent criticism of President Dilma Rousseff for the decisive win over their opponents, who were backed by a national union with close ties to the ruling party.

Rousseff’s popularity has slumped to an all-time low as the Brazilian economy founders and she pushes to close a federal budget gap with tax increases and stingier pension policies.

“The country is fed up with the president. When she went after the pensions, that was checkmate for us,” said Wagner Morais de Oliveira, an Embraer employee backing union leaders.

The strike at GM followed labor disruptions for the Brazilian operations of Volkswagen (VOWG_p.DE) and Mercedes Benz (DAIGn.DE) as workers revolted at payroll cuts after losing 7 percent of colleagues in the industry last year.

In a compromise with the union, GM agreed to furlough 650 workers for five months, with a guarantee they will get their jobs back, said the metalworkers’ union of Sao Jose dos Campos, which sits about 55 miles (90 km) outside Sao Paulo.

GM representatives did not respond to a request for comment.

Workers brought production to a standstill last week to protest GM’s proposal to furlough nearly 800 workers for two months before laying them off in April.

Stoppage days will not be deducted from wages and the company vowed not to retaliate against workers who walked off the job in the longest strike GM has faced in Brazil in the last 12 years, the union said.

GM has cut its payrolls at the factory from about 7,500 workers in 2012 to about 5,200 currently.

(Additional reporting by Anthony Boadle; Editing by David Gregorio)

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IBM targets $40 billion in cloud, other growth areas by 2018

(Reuters) – International Business Machines Corp (IBM.N), which ruled computing in the age of the mainframe, is targeting $40 billion in annual revenue from the cloud, big data, security and other growth areas by 2018.

The aggressive target, set by IBM executives at the company’s annual investor meeting in New York on Thursday, is the latest step for the technology giant towards emerging, high-margin businesses, and away from its previous strongholds in hardware and servers.

The $40 billion will come from areas which IBM calls its “strategic imperatives,” namely cloud, analytics, mobile, social and security software.

That would represent about 44 percent of $90 billion in total revenue that analysts expect from IBM in 2018.

Those businesses generated $25 billion in revenue for IBM last year, or 27 percent of its total $93 billion in sales.

The company said it would shift $4 billion in spending to its “strategic imperatives” this year.

Revenue at IBM has gradually shrunk over the past three years as it sold off its unprofitable units in businesses such as low-end servers, semiconductors and cash registers.

IBM Chief Executive Virginia Rometty has said she was happy to jettison revenue from such unprofitable businesses, which she dubs “empty calories.”

IBM revenue has now fallen for the past 11 quarters, while earnings growth has been sporadic.

The company says its long-term plan is to hit “low single-digit” revenue growth and “high single-digit” growth in operating earnings per share. Last year IBM withdrew its long-term plan to hit $20 per share in operating earnings for 2015.

IBM stood by its January forecast of $15.75 to $16.50 in operating earnings per share for 2015. Analysts expect $16.02, on average, according to Thomson Reuters I/B/E/S.

But the company, which gets more than half its revenue from overseas, said the strong U.S. dollar would crimp sales by more than 6 percent this year. In January, it had expected a currency-exchange dent to revenue of 5 percent to 6 percent.

IBM shares were up 0.6 percent at $163.80 on the New York Stock Exchange.

(Reporting by Bill Rigby; Editing by Andrew Hay and Bernadette Baum)

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