News Archive

Google to pay CFO Porat more than $70 million

(This March 26th story has been corrected to remove ‘in the next two years’ from headline and first paragraph)

(Reuters) – Google Inc said it would pay its new Chief Financial Officer, Ruth Porat, more than $70 million through a combination of restricted stock units and a biennial grant.

The company hired Morgan Stanley CFO Porat as its finance chief earlier this week, a sign it is aiming to rein in costs as it invests in new businesses such as self-driving cars and Internet-connected eyeglasses.

Porat’s compensation package includes a grant of $25 million through restricted stock units, a $40 million biennial grant in 2016 and a special one-time $5 million sign-on bonus, Google said in a regulatory filing on Thursday. (

Porat, who will join Google on May 26, will also get an annual base salary of $650,000. She earned a base salary of $1 million at Morgan Stanley for 2013, according to the bank’s proxy filing. Her pay last year will be disclosed once the bank files its latest proxy.

Porat is the latest among a string of Wall Street executives to leave an industry that is increasingly regulated to move into the more free-wheeling technology sector, where fortunes can be built fast but businesses can also become irrelevant overnight.

Google paid its outgoing CFO Patrick Pichette, who announced his retirement earlier this month, $62.2 million for the three years through 2013, more than twice the $29.6 million Porat earned at Morgan Stanley, according to regulatory filings.

Mountain View, California-based Google said it would stop annual cash bonuses for senior vice presidents from next year and shift to a system that includes annual base salary and biennial equity grants.

Shares of Google closed at $563.64 on Thursday on the Nasdaq.

(Reporting by Avik Das in Bengaluru; Editing by Joyjeet Das)

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As 3G digests Kraft deal, rivals will focus on organic firms

NEW YORK (Reuters) – The macaroni and ketchup merger of Kraft Foods Group (KRFT.O) and H.J. Heinz Co may prove a boon to the far smaller natural and organic food companies that have seized market share as consumers shift away from processed foods, bankers and portfolio managers said.

Brazilian private equity firm 3G Capital Partners and Warren Buffett’s Berkshire Hathaway (BRKa.N) announced a $46 billion deal to consolidate the companies Wednesday, one that will create the No. 3 packaged food maker in North America after PepsiCo and Nestle USA..

Digesting that deal will likely sideline 3G, a major buyer of food companies, for the next year or two before it considers another large-scale acquisition, according to industry bankers.

That should take some pressure off bigger players, and potential targets, such as Kellogg Co (K.N) or Mondelez International Inc (MDLZ.O) and give them time to bulk up on the organic and natural brands that shoppers increasingly prefer.

“Consumer packaged goods companies are desperate to find ways to grow, and they are not seeing any growth with their products internally,” said Phil Terpolilli, an analyst at Wedbush Securities.

The apparent success of General Mill’s (GIS.N) $820 million acquisition of organic mac-and-cheese maker Annie’s in September will likely fuel more acquisitions of similar companies, Terpolilli said. General Mills paid slightly more than four times net sales for the Berkeley, California-based company, and credited Annie’s products with turning around its U.S. sales in its most recent quarter.

Coca-Cola Co (KO.N) is also likely to acquire more organic and natural competitors this year to expand its product line, said John Staszak, an analyst at Argus Research.

The burgeoning interest from big companies makes the high valuations of similar organic and natural food companies more palatable, said Matthew Weiss, a research analyst who works on several funds at New York-based Baron Capital Management.

His firm owns shares of WhiteWave Foods Co (WWAV.N), best known for its Horizon Organic dairy products, and United Natural Foods Inc (UNFI.O), a distributor of natural and organic foods that is a key supplier to Whole Foods Market Inc (WFM.O).

Baron Capital did not invest in either company solely on the idea that they could be taken over, Weiss said. But he thinks that it is likely that at least one of them will be acquired this year.

“There’s a scarcity value to healthy brand portfolios. After Annie’s and WhiteWave, the drop off in size is significant,” Weiss said.

WhiteWave shares have a takeover premium priced in. They are up 25 percent so far this year and trade at a price to earnings ratio of 55, well above the average of 19 in the Standard Poor’s 500 Index.

Shares of Hain Celestial Group Inc (HAIN.O), the parent company of organic brands including Earth’s Best and Ella’s Kitchen, trade at a P/E of 47, also suggesting a takeover premium. The shares are up 8.4 percent this year.



The leading U.S. packaged food makers face increasing pressure from investors and their own boards to boost growth and cut costs as consumers shift to products they view as healthier.

U.S. sales of organic products jumped 11.5 percent, to $35.1 billion, in 2013, the most recent data available from the Organic Trade Association. Sales of traditional consumer packaged goods rose just 1.5 percent in 2013, according to the Boston Consulting Group.

To some extent, the organic and natural acquisition spree has already begun. Mondelez International Inc said in February that it was buying Enjoy Life Foods, the privately-held maker of allergy-friendly foods, an estimated $12 billion market in the United States. Hershey Co (HSY.N) said it was buying Krave Pure Foods Inc, the maker of a lower-calorie meat jerky, in January.

But Weiss, the fund analyst, sees rapidly-changing consumer tastes accelerating the dealmaking.

“Coconut water, Greek yogurt, quinoa; these are no longer exotic foods but must-haves for grocery stores, and the companies that provide these products are growing much faster than traditionally packaged food companies,” he said.

(Additional reporting by Anjali Athavaley and Olivia Oran; Editing by Michele Gershberg and John Pickering)

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Fed weighs insurers’ proposal for new capital rules

WASHINGTON (Reuters) – The U.S. Federal Reserve is considering a proposal from life insurers that could delay the implementation of a costly nationwide capital framework for the $1 trillion industry, according to records of a recent meeting between the two sides seen by Reuters and people familiar with the matter.

More than a dozen senior insurance executives met Fed Governor Dan Tarullo on Feb. 6 to pitch a two-step process for launching nationwide insurance rules, according to records of the meeting by Dirk Kempthorne, who heads the American Council of Life Insurers, an industry group.

The group presented the plan under which the Fed would use the current system of state-based regulation for a period of time before writing a national framework that would likely require firms to boost capital buffers, according to the meeting records and people briefed on the matter.

Tarullo, the Fed’s top Wall Street regulator, did not indicate whether he was open to adopting the insurers’ proposal, the people said. But he did ask the companies to form a team to work with his staff in developing final details for such a scenario, the meeting records show.

The Fed has not committed to executing any plans submitted by the industry, a person briefed on the matter said.

A delay could give some relief to insurers from a new capital regime that analysts and investors fear would ramp up costs and stifle profits.

While precise estimates are lacking because the rules are still unknown, Bank of America has estimated that Prudential (PRU.N) and MetLife (MET.N) could see their capital levels drop by 50 percent in a worst-case scenario under the new rules.

A two-step process could also buy more time for the Fed, which has been slow in building insurance expertise, and only last year hired a former Connecticut state regulator to head the effort.

Insurance firms have lobbied Congress about how their industry will be regulated after the crisis, and politicians have often raised the issue with regulators on Capitol Hill.

Asked for a comment, the Fed said Tarullo has encouraged various industry representatives and state commissioners to offer suggestions on how it should set capital requirements for the industry.

“The Federal Reserve welcomes these views as it prepares to formulate consolidated capital requirements applicable to holding companies with insurance activities,” a spokesman said.

One of the people briefed on the matter said the Fed has noted in subsequent staff-level meetings that the 2010 Dodd-Frank Wall Street reform law does not prohibit it from adopting a two-step process.

“Tarullo was intrigued by these ideas and their potential as standards that could apply to both life and property-casualty companies,” Kempthorne said in a March 10 email sent to members of the American Council of Life Insurers.

Other attendees in the meeting, including Roger Ferguson, the chief executive of TIAA-CREF, MetLife President of the Americas Bill Wheeler, and Mark Grier, a member of Prudential’s board of directors, declined to comment or did not immediately return a request for comment.

The ACLI confirmed it had met with Tarullo to discuss capital standards.

The Dodd-Frank law mandated the Fed to write nationwide capital standards for the first time to help avoid another insurer failure such as the near collapse that prompted the $182 billion bailout of AIG (AIG.N) at the height of the financial crisis in 2008.

That is a marked shift for the industry, which has so far been overseen by state commissioners whose main goal is to protect policyholders rather than the wider financial system.

The industry has long expressed skepticism that the Fed does not have enough expertise or resources to regulate the sector. The central bank only has several dozen insurance experts spread throughout its organization, versus more than 400 banking experts in its Washington headquarters alone.

Tarullo told the insurance executives at the meeting that the Fed is looking to bring on more insurance experts, Kempthorne wrote in the email, but that he would not establish a separate insurance division.

Since the financial crisis, the Fed was put in charge of overseeing insurance holding companies that own thrifts, a type of bank that focuses on building up deposits and doling out mortgage loans, as well as insurance holding companies whose demise could jeopardize the wider financial system.

Insurers fear they could be treated too much like the heavily-regulated Wall Street banks, given the Fed’s history as a bank watchdog.

(Reporting by Douwe Miedema in Washington; Editing by Soyoung Kim and Alan Crosby)

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Global shares up at end of down week, oil prices retreat

NEW YORK (Reuters) – Wall Street and European stocks edged ahead on Friday but remained en route to a losing week while U.S. Treasury debt prices jumped on government data indicating U.S. economic growth was slowing.

Brent oil fell below $50 a barrel after Thursday’s spike on Saudi-led air attacks in Yemen, and the dollar was down.

Investors awaited a speech on monetary policy on Friday by Federal Reserve Chair Janet Yellen that may contain hints on when U.S. interest rates may be increased.

Wall Street’s key indexes were modestly ahead after the Commerce Department said U.S. gross domestic product expanded at a 2.2 percent annual rate in the fourth quarter and after-tax corporate profits had their biggest drop since early 2011. The economy grew at a 5 percent rate in the third quarter.

The Dow Jones industrial average .DJI rose 9.81 points, or 0.06 percent, to 17,688.04, the SP 500 .SPX was up 2.62 points, or 0.13 percent, to 2,058.77 and the Nasdaq Composite .IXIC added 14.03 points, or 0.29 percent, to 4,877.39.

Healthcare stocks helped buoy the indexes that have been on a four-session losing streak, with biotech stocks .NBI bouncing 2.3 percent higher after suffering a 7 percent drop in the prior four sessions. Energy .SPNY was the worst performing sector as crude prices resumed their decline.

“Yellen will be the big news of the day, certainly, so I don’t expect a lot of movement before that,” said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

European shares had their biggest weekly fall of the year but were ahead for the day.

The pan European FTSEurofirst 300 .FTEU3 of top companies ended up 0.22 percent for the day. For the week the FTSEurofirst 300 was down 2.1 percent, but that was only a dent in its nearly 15 percent gains for the past three months.

Asian shares dropped overnight.

In New York, Treasury yields fell on the GDP data, which reinforced opinions the Fed would push back the launch of its first interest rate hikes since 2006. Benchmark 10-year notes US10YT=RR were last up 13/32 in price to yield 1.96 percent, down from 2.00 percent late on Thursday.

Yellen’s scheduled speech in San Francisco was also curbing trading in the dollar, which posted minor gains against the euro and dipped against the yen and Swiss franc.

The dollar index .DXY, which tracks the greenback versus a basket of six currencies, fell 0.192 points or 0.2 percent, to 97.244. The yen JPY= was last up 0.03 percent, at $119.2100.

and the euro at $1.0908, up 0.23 percent.

Oil investors grew less worried about the escalating conflict in Yemen and focused on new supplies possibly coming to market after an Iranian nuclear deal.

U.S. crude CLc1 was down 3 percent at $49.92 a barrel after jumping 4.5 percent, while Brent LCOc1 was down 2.35 percent at $57.80. [O/R]

(Additional Reporting By Marc Jones, Jemima Kelly and Nigel Stephenson in London and Shinichi Saoshiro in Tokyo; Editing by Chizu Nomiyama and David Gregorio)

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Brazilian police arrest another executive in Petrobras probe

SAO PAULO (Reuters) – Brazilian police on Friday arrested the CEO of Grupo Galvão, the latest executive arrested in a corruption probe focused on state-run oil firm Petroleo Brasileiro SA (PETR4.SA).

Dario Galvão, chief executive of the construction group, and Guilherme Esteves, who is being investigated for funneling bribe money, were taken to federal police headquarters in the southern city of Curitiba, according to a court spokeswoman.

Trials are underway there in what has become Brazil’s biggest-ever corruption probe known as Operation Car Wash.

In December, prosecutors accused the CEO of participating in a cartel of construction executives that fixed prices on contracts at Petrobras, as the oil company is known.

Federal Judge Sergio Moro called Galvão the mastermind of the company’s criminal activity and said he posed a risk of committing more crimes. Prosecutors have proof of his crimes from 2008 until 2014, Moro wrote in a court decision.

Moro also cited evidence that Esteves used secret accounts abroad to funnel large bribes to employees at Petrobras and rig producer SeteBrasil.

Two dozen of Brazil’s biggest engineering firms are being investigated for overcharging on Petrobras contracts and using the excess to bribe executives, politicians and political parties.

A spokeswoman for Grupo Galvão declined to comment on the arrest. Esteves was not available for comment.

In a sign of the broadening economic impact of the probe, Galvão Engenharia, part of Grupo Galvão, filed for bankruptcy earlier this week.

Galvão Engenharia was also one of 23 companies blacklisted by Petrobras in December, with the oil company cutting off payments and banning the firms from bidding on future contracts.

Nearly 100 people, including the treasurer of President Dilma Rousseff’s Workers’ Party, have been indicted in the year-old probe, and prosecutors say more criminal charges will be presented. About 20 executives and money changers are currently in state and federal jails in Curitiba, including the head of Galvão Engenharia, Erton Fonseca.

Eduardo Leite, vice president of another firm accused of belonging to the cartel, Camargo Correa, was transferred to house arrest this week after agreeing to a plea bargain deal to cooperate with investors. Another executive from the firm would be released soon, the court spokeswoman said.

(Reporting by Caroline Stauffer; Editing by David Gregorio)

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Former American Apparel CEO Charney seeking $40 million in damages

(Reuters) – The founder and former chief executive of American Apparel Inc (APP.A), Dov Charney, plans to file a lawsuit claiming $40 million in damages for breaches of his employment contract, and more lawsuits are planned, his attorney said on Friday.

The company’s shares were down 2.8 percent at 69 cents in late morning trading on Friday.

Charney was fired in December, six months after he was suspended for allegedly misusing company funds and for allowing the posting on the Internet of nude photos of a former female employee who had accused him of sexual harassment.

Charney has denied the allegations.

“There will be other lawsuits we will be filing against the company, which they are aware of but have not revealed to the media,” attorney Keith Fink told Reuters in an email.

The claims for damages, first reported by Bloomberg, include almost $6 million in severance, $1.3 million in vacation-time pay and at least $10 million for emotional distress.

Charney is also seeking 13 million shares of the company, worth about $9.2 million as of Thursday’s close. It was not immediately clear what makes up the balance of the damages being sought.

Fink said Charney was also likely to sue for defamation and breach of privacy related to his personal email and will seek a probe into the $10.4 million of expenses that American Apparel has said it incurred in investigating his alleged misconduct.

The lawsuit alleging defamation is “top priority” and might be filed as soon as next week, Fink said.

Fink alleges that the investigation was not independent, that he was denied access to documents, and that Charney was not questioned.

“These claims are baseless, and we are confident that Dov will lose on each and every one of these,” American Apparel spokeswoman Liz Cohen told Reuters in an email.

The U.S. Securities and Exchange Commission has ordered an investigation into matters arising from the review by the board committee that formalized Charney’s firing, the company said on Wednesday.

American Apparel said it was not immediately clear whether the probe related to Charney’s conduct or to the board’s review.

Charney, 46, started American Apparel’s predecessors in 1989 and had run the company since 2007, when it went public.

American Apparel, which has not turned a profit since 2009, lost $28 million in the fourth quarter.

(Reporting by Anjali Rao Koppala and Sruthi Ramakrishnan in Bengaluru; Editing by Andrew Hay, Gopakumar Warrier, Ted Kerr and Savio D’Souza)

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U.S. economic growth slows in fourth quarter; corporate profits fall

WASHINGTON (Reuters) – U.S. economic growth cooled in the fourth quarter as previously reported and after-tax corporate profits took a hit from a strong dollar, which could undermine future business spending.

Gross domestic product expanded at a 2.2 percent annual rate, the Commerce Department said on Friday in its third estimate of GDP. That was unrevised from the forecast the government published last month.

Businesses throttled back on inventory and equipment investment, but robust consumer spending limited the slowdown in the pace of activity. The economy grew at a 5 percent rate in the third quarter.

After-tax corporate profits declined at a 1.6 percent rate last quarter after increasing at a 4.7 percent pace in the third quarter. Corporate profits from outside the United States fell at an 8.8 percent rate, the steepest decline since the 2007-2009 recession.

“Slower profit growth could mean slower investment in the coming months,” said Thomas Costerg, an economist at Standard Chartered in New York.

Multinationals such as technology giant IBM, semiconductor maker Intel Corp, industrial conglomerate Honeywell and Procter Gamble, the world’s largest household products maker, have warned that the dollar will hurt their profits this year.

The dollar gained 7.8 percent against the currencies of the main U.S. trading partners between June and December.

For all of 2014, after-tax corporate profits fell 8.3 percent, the largest annual drop since 2008.

Economists had expected fourth-quarter GDP growth would be revised up to a 2.4 percent rate and after-tax corporate profits would rise at a 1 percent pace.

U.S. stocks were trading marginally higher, as investors bet that the weak growth data would delay a Federal Reserve interest rate increase until later in 2015. The dollar dipped against a basket of currencies, while prices for U.S. Treasuries rose.


A separate report showed consumer sentiment slipped in March, adding to signs that the moderate pace of economic expansion persisted through the first quarter.

The University of Michigan said its consumer sentiment index fell to 93 this month from a reading of 95.4 in February.

The sturdy dollar, lingering weakness in Europe and Asia, harsh winter weather in the United States and a now-settled labor dispute at busy U.S. West Coast ports dampened activity in the first two months of the year.

With temperatures rising, there are signs of some pick-up in activity. But the dollar will likely provide a challenge for domestic manufacturers. First-quarter growth estimates range between a 0.9 percent and 1.4 percent rate.

“The impact of dollar strength and energy price declines may prove too much for GDP to hit the long-awaited 3 percent threshold in 2015, leaving another year of mid-2 percent growth in its wake,” said Jay Morelock, an economist at FTN Financial in New York.

Businesses accumulated $80 billion worth of inventory in the fourth quarter, less than the $88.4 billion the government had estimated last month.

As a result, inventories subtracted 0.10 percentage point from GDP growth in the fourth quarter. Restocking was previously reported to have added 0.1 percentage point to output.

The weak pace of restocking, however, removes the threat of an inventory overhang, giving businesses scope to place more orders for goods, which should help to stimulate manufacturing.

Business investment on equipment was revised to show it rising at a 0.6 percent rate instead of the previously reported 0.9 percent pace, likely reflecting the impact of the strong dollar and lower crude oil prices, which have caused a drop in drilling and exploration activity.

But consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 4.4 percent rate in the fourth quarter instead of the 4.2 percent rate reported last month. It was the fastest pace since the first quarter of 2006.

Consumer spending, however, moderated early in the first quarter as cold and snowy weather kept shoppers at home. Households also appear to have opted to save the bulk of their savings from lower gasoline prices.

Despite slower global demand, export growth was revised higher. But with consumer spending so strong, more imports than previously estimated flowed into the country, resulting in a trade deficit that weighed on GDP growth.

Trade lopped off 1.03 percentage points instead of the 1.15 points reported last month.

(Reporting by Lucia Mutikani; additional reporting by Richard Leong in New York; Editing by Paul Simao)

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Neither Grexit, nor Grexident. Euro and ‘drachma’ in parallel?

BRUSSELS (Reuters) – Greece is unlikely to exit the euro, either intentionally or accidentally. But it might be forced to introduce an alternative means of payment, in parallel to the euro, to pay some domestic bills if a reform-for-cash deal with its creditors is not secured soon, several euro zone officials said.

Athens has lost access to bond markets and international creditors are not willing to lend it more money until it starts implementing reforms. An official familiar with the matter told Reuters this week that without fresh funds, the government will run out of money by April 20.

“At some point, when the government has no more euros to pay salaries or bills, it might start issuing IOUs — a paper saying that its holder would receive an x number of euros at a point in time in the future,” one senior euro zone official said.

“Such IOUs would then quickly start trading in secondary circulation at a deep discount to the real euros and they would become a ‘currency’, whatever its name would be, that would exist in parallel to the euro,” the official said.

If the government ran out of euros to pay wages, pensions and suppliers, it would have to introduce capital controls to prevent a mass outflow of euros from the country. That might limit the amount Greeks can withdraw from cash machines or send abroad, as happened in Cyprus in 2013.

The IOUs might not be widely accepted in shops and could be used as a way to settle only some government-related payments such as energy bills, at least initially.

At the same time the government would keep euros from tax revenues to cover debt repayments to avoid default.

“The arrangement could be temporary to keep the government going as it hopes to negotiate a deal with creditors that would unlock more euros in loans,” a second euro zone official said.

The officials said Greece has already shown in the past that it was willing to delay payments on its domestic obligations to save euros needed for debt redemptions.

Athens has lately relied on repo transactions – where it borrows money from state entities – to cover its cash crunch, but can continue for only a few more weeks, the source told Reuters earlier this week.

The Greek government declined to address questions about a possible parallel currency, saying it expects an agreement with creditors soon along lines discussed by Prime Minister Alexis Tsipras in talks on the sidelines of an EU summit last week.

“The Greek government believes that there will be a deal at the Eurogroup and funding will be released after that, as agreed at the seven-party meeting,” a Greek government official said.


Greek officials, including Finance Minister Yanis Varoufakis, have dismissed the idea of Greece quitting the euro on its own and there is no legal way, nor political will among the other 18 countries sharing the currency to kick Greece out.

“There is no means of forcing a country out of the euro zone or out of the European Union and Greece has no intention of leaving on its own,” the second euro zone official said.

Some economists argue that Greece could have an incentive to return to the drachma because then it could sharply devalue its new currency to make exports more competitive and attract a big increase in tourism.

But that would also make Greece’s huge public debt in euros impossible to repay, forcing it to default.

“If they were to default, it is better to do that inside the euro zone rather than outside, because then it would become a problem of all the countries sharing the euro, rather than just Greece,” a third official said.

In a video from 2013 when he was still an academic, Varoufakis made exactly that point.

“My proposal was that Greece should simply announce that it is defaulting within the euro in January 2010 and stick the finger to Germany and say: well, now you can solve this problem by yourself,” the future minister was filmed as saying.

The big question then would be if the European Central Bank would then continue to keep the Greek banking sector liquid through its Emergency Liquidity Assistance (ELA) that is designed only for viable banks that have liquidity problems.

If the ECB pulled the plug, the Greek banking sector would most likely collapse, forcing a recapitalization in the new “currency” or, if the consequences of such a collapse were to dire to contemplate, the euro could agree to again recapitalize the banks, possibly even through its bailout fund ESM.

But officials said such options were so many “ifs” away that they were not even informally discussed.

(Additional reporting by Renee Maltezou; Editing by Paul Taylor)

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U.S. consumer sentiment falls in March but above forecasts

NEW YORK (Reuters) – U.S. consumer sentiment fell month-over-month in March, a survey released on Friday showed, though the reading was better than expected.

The University of Michigan’s final March reading on the overall index on consumer sentiment came in at 93, topping both the preliminary read of 91.2 as well as the median forecast of analysts polled by Reuters, which was for a reading of 92.

However, it was below the final February reading of 95.4.

(Reporting by Ryan Vlastelica; Editing by Chizu Nomiyama)

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