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Wall St. tumbles as investors flee equities on Greek debt crisis

U.S. stocks fell sharply in heavy trading on Monday and the SP 500 and the Dow had their worst day since October after a collapse in Greek bailout talks intensified fears that the country could be the first to exit the euro zone.

The European Central Bank froze funding to Greek banks, forcing Athens to shut banks for a week to keep them from collapsing.

And Greece appeared to confirm it was heading for a default after a government official said the country would not pay a 1.6 billon euro loan installment due to the International Monetary Fund on Tuesday.

U.S. investors also worried about Puerto Rico’s debt problems and a bear market in China the day before quarter-end and ahead of Thursday’s U.S. jobs report and the long weekend for U.S. Independence Day.

“None of that bodes well for people stepping in and buying the dips as has been the mentality most of the year,” Michael James, managing director of equity trading at Wedbush Securities in Los Angeles who said U.S. shares could fall again Tuesday.

“Could that reverse itself tomorrow? It’s going to take a lot of good news from Greece,” he said noting that portfolio managers would not want to show risky equities on their books at the end of the second quarter.

The SP and Dow Jones Industrial Average .DJI had their worst days since Oct. 9 and both turned slightly negative for the year to date. The last annual decline for both indexes was 2008. The Nasdaq had its biggest one-day percentage decline on Monday since March 25.

Volatility rose sharply and all 10 SP sectors retreated while the Global X FTSE Greece exchange-traded fund (GREK.K), which tracks the Athens stock market, fell 20 percent. In Europe, the blue-chip Euro STOXX 50 index .STOXX50E had suffered its biggest one-day fall since 2011.

“There is no mechanism to be ejected from the European Union. This has never happened before,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. “When you don’t know what could happen you sell. You get on the sidelines.”

While the Greek economy is small and most U.S. corporations have limited direct exposure, investors are concerned about the fallout across Europe if Greece exits the euro zone.

A snap Reuters poll of economists and traders found a median 45 percent probability that Greece would leave the euro zone.

Chinese stocks had closed sharply lower after a volatile day of trading despite surprise monetary easing by the central bank.

On top of this, U.S. territory Puerto Rico faces a restructuring of its $73 billion debt burden.

The Dow Jones industrial average .DJI fell 350.33 points, or 1.95 percent, to 17,596.35, the SP 500 .SPX lost 43.85 points, or 2.09 percent, to 2,057.64 and the Nasdaq Composite .IXIC dropped 122.04 points, or 2.4 percent, to 4,958.47.

The CBOE Volatility index .VIX, a measure of the premium traders are willing to pay for protection against a drop in the SP 500, jumped 34.5 percent to 18.86, its highest level in almost five months.

Financials .SPSY was the worst SP sector with a 2.44 percent decline. U.S. banks have an exposure to $12.7 billion of Greek debt.

JPMorgan Chase (JPM.N), down 2.5 percent, was the biggest drag on the SP financial sector followed by Wells Fargo (WFC.N), down 2.4 percent. Goldman Sachs (GS.N) weighed the most on the Dow with a 2.6 percent decline.

Assured Guaranty (AGO.N) fell 13.3 percent and MBIA Inc (MBI.N) fell more than 23.4 percent after BTIG downgraded the insurers on concerns over Puerto Rico’s debts.

Declining issues outnumbered advancing ones on the NYSE by 2,874 to 282, for a 10.19-to-1 ratio on the downside; on the Nasdaq, 2,469 issues fell and 367 advanced for a 6.73-to-1 ratio favoring decliners.

The benchmark SP 500 index was posting 2 new 52-week highs and 25 new lows; the Nasdaq Composite was recording 48 new highs and 126 new lows.

About 7.3 billion shares changed hands on U.S. exchanges, compared with the 6.3 billion average for the month-to-date, according to data from BATS Global Markets.

(Additional reporting by Saqib Ahmed in New York; Editing by Saumyadeb Chakrabarty and Meredith Mazzilli)

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Second-quarter M&A close to record amid mega deals

NEW YORK/LONDON Mergers and acquisitions (MA) worldwide in the second quarter of 2015 almost matched the record set in the second quarter of 2007, according to preliminary Thomson Reuters data, as big companies turned to deals to boost their market share.

Low interest rates and stronger confidence among chief executives have led to a steady rise in MA activity in the last two years to close to pre-2008 financial crisis levels. The second quarter of 2015, however, stands out for the number of mega deals that were clinched or attempted.

These include Royal Dutch Shell Plc’s (RDSa.L) $70 billion acquisition of British rival BG Group Plc (BG.L), cable operator Charter Communications Inc’s (CHTR.O) $78.7 billion merger with Time Warner Cable Inc (TWC.N), and chip maker Avago Technologies Ltd’s (AVGO.O) $37 billion acquisition of peer Broadcom Corporation (BRCM.O).

Such large deals drove MA volumes globally in the second quarter of 2015 up by 34.6 percent year-on-year to $1.33 trillion as of June 26, shy of the record $1.41 trillion seen in the second quarter of 2007.

“Given the consolidation that is going on across numerous sectors, to be a bystander could mean losing ground from a competitive standpoint,” said Gary Posternack, global head of mergers and acquisitions at Barclays Plc (BARC.L).

“Companies are mapping out their industry landscapes, focusing on transactions that could position themselves as industry leaders, and acting aggressively to try to bring them to fruition,” Posternack added.

Consolidation was often sparked by one company exploring a sale and spurring its rivals into action. In the United States, for example, health insurer Humana Inc’s (HUM.N) decision to put itself on the block prompted peers Cigna Corp (CI.N), Aetna Inc (AET.N), Anthem Inc (ANTM.N) and UnitedHealth Group Inc (UNH.N) to also explore other deals.

To be sure, there were several takeover approaches in the quarter that were rebuffed. Cigna has so far snubbed Anthem’s $53.8 billion acquisition proposal, natural gas pipeline company Williams Companies Inc (WMB.N) rejected a $53.1 billion offer from peer Energy Transfer Equity LP (ETE.N), and generic drug maker Mylan NV (MYL.O) is resisting a roughly $50 billion bid by Teva Pharmaceutical Industries Ltd (TEVA.TA), while also seeking to acquire rival Perrigo Company Plc (PRGO.N) in a hostile $35 billion bid.

“The public markets have become more receptive to companies taking control of another company in a transformational way, even when the target may be reluctant to sell or merge,” said Robin Rankin, global MA co-head at Credit Suisse Group AG (CSGN.VX).


A major difference between the recent MA boom and that seen in 2007 is that the latter was to a large extent fueled by private equity-backed leveraged buyouts, as opposed to this year’s strategic corporate deals. In fact, the first half of 2015 has seen the slowest six-month period for private equity-backed acquisitions since 2012.

“For private equity investors, one of the main issues is the limited supply of assets. They have money to put to work but it proves hard for them to compete against industry players or new money pools in fiercely competitive auctions,” said Luigi Rizzo, head of MA for Europe, the Middle East and Africa at Bank of America Corp (BAC.N)

Despite the near-record MA volumes, and the frothy valuations that have accompanied them, dealmakers say companies that see a strong strategic rationale remain committed to acquisitions.

“When you are in the boardroom, discussion is not generally focused on whether we are in a bubble or not, or how long will this MA trend continue. The discussion is rather about fundamentals, what is happening to operations and how much is the business worth,” said Stephen Arcano, MA head at law firm Skadden, Arps, Slate, Meagher Flom LLP.

MA volumes jumped in all three regions. More companies showed appetite for cross-border dealmaking, with U.S. agrochemicals company Monsanto Co (MON.N) launching a bid for Switzerland’s Syngenta AG (SYNN.VX), and Potash Corp of Saskatchewan Inc (POT.TO) going after German peer K+S AG (SDFGn.DE).

“Buyers are looking for growth and borders do not represent obstacles. If they can buy something in emerging markets, developed Asia or in Europe, that is consistent with their strategy, that will be what they want to do,” said Bob Eatroff, Americas MA co-head at Morgan Stanley (MS.N).

Macro-economic concerns such as Greece’s debt crisis and China’s interest rate policies did not dampen MA sentiment in Europe and Asia in the second quarter. Dealmakers say this could change if concerns over Greece or other issue curb risk taking.

“The market backdrop in Europe could be described as a form of surreal stability; markets are favorable, but there are potential risks on the horizon which may not yet have been factored in,” said Robert Leitão, head of Rothschild’s global financial advisory team.

(Reporting by Greg Roumeliotis in New York and Pamela Barbaglia in London; Editing by Tom Brown)

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AT&T, DirecTv extend ‘termination date’ for second time

ATT Inc (T.N), the No. 2 U.S. telecom company, said it has extended the “termination date” of the merger agreement with satellite TV provider DirecTV (DTV.O) for “a short period of time”, the second time in two months.

ATT said in a regulatory filing on Monday that the extension is aimed at obtaining final regulatory approval for the merger. (

ATT in May last year offered to buy DirecTV to create the largest U.S. pay TV company. The deal highlights ATT’s pressing need for fresh avenues of growth beyond the maturing U.S. cellular business, which has become increasingly competitive.

(Reporting By Lehar Maan in Bengaluru)

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Heinz executives to dominate Kraft Heinz leadership

The leadership of Kraft Heinz Co will be dominated by former executives of H.J. Heinz Co after that company merges with Kraft Foods Group Inc (KRFT.O), both companies said.

Eight of the 10 executives named on Monday to the combined company’s senior leadership team come from Heinz, including Chief Financial Officer Paulo Basilio.

They will work under Bernardo Hees, who is to become Kraft Heinz’s chief executive after holding the same position at Heinz. Brazilian firm 3G Capital and Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) bought Heinz in 2013.

The departure of eight Kraft executives by year end, including CFO James Kehoe, was also announced on Monday.

The two who will remain are Jim Savina, who will become Kraft Heinz’s general counsel, and George Zoghbi, who will become chief operating officer of the U.S. commercial business.

Kraft Heinz’s board will also have a Heinz flavor, with six directors coming from 3G and Berkshire, and five from Kraft.

Shareholders of Kraft are scheduled to vote on July 1 on the merger, which would put brands including Heinz ketchup, Kraft cheese, Oscar Mayer cold cuts, Maxwell House coffee and Planters peanuts under one roof.

Berkshire and 3G would own 51 percent of the combined company, and 3G would oversee day-to-day operations.

The Brazilian firm has become known for cutting costs, which contributed to a 41 percent increase in Heinz’s first-quarter profit even as sales fell.

(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky)

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Gundlach says purchased ‘lots’ of Treasuries, Ginnie Maes on Friday

NEW YORK Jeffrey Gundlach, a widely followed investor who oversees DoubleLine Capital, said in an interview on Monday his firm had purchased “lots of Treasuries and Ginnie Maes” on Friday, ahead of new developments in the Greek and Puerto Rico crises.

The U.S. Treasuries market rallied on Monday, with yields falling to one-week lows, as a breakdown in talks between Greece and its creditors stoked bets Athens would default on its debt.

“The risk-reward set-up was favorable,” said Gundlach, who is referred to as the new “King of Bonds” for his series of prescient investment calls. “The 30-year Treasury went to a new high yield and no other part of the curve did. This was exactly the opposite of what happened at the low in yields in January.”

The 30-year bond US30YT=RR was up on Monday more than 2 points in price for a yield of 3.101 percent, down 15 basis points from Friday.

Gundlach said he purchased Treasuries and Ginnie Mae mortgage-backed securities because even if yields had accelerated higher, the view was that high-yield “junk” bonds and Emerging Market debt would do worse than Treasuries.

“Also, we had significantly outperformed quarter-to-date, having been defensive on rates and the thesis was no longer as compelling with rates up so much,” he added.

Gundlach said he knew to purchase long-duration assets such as Treasuries and Ginnie Maes because the Shanghai Stock Exchange Composite Index (SHCOMP) was “signaling trouble by collapsing after blowing off to the upside a la the Nasdaq back in 1999/2000.”

Gundlach, who said in May that he purchased some Puerto Rico pension payment-backed bonds, also told Reuters on Monday he will look to buy more of that municipal debt if the price is attractive. “But timing is everything,” he said.

Gundlach argued that he favors Puerto Rico pension payment-backed munis because the government is unlikely to default on these securities despite their poor legal protection because they are held mostly by local residents.

Even if there is a restructuring, their cheapness — the 2039 pension bond last traded at just 41.5 cents on the dollar — offers some cushion. “I know it is not for everyone but it is one of the more interesting plays,” Gundlach said.

The Los Angeles-based DoubleLine Capital had $73 billion in assets under management as of March 31.

(Reporting by Jennifer Ablan; Editing by Bernadette Baum and David Gregorio)

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Greek drama not likely to waylay Federal Reserve

WASHINGTON The fuse may be lit for a Greek exit from the euro zone but the fallout in the United States is expected to be modest and not enough to throw the Federal Reserve’s likely September rate hike off course, said former Fed officials and outside analysts watching the latest turn in Greece’s crisis.

Major U.S. stock indexes closed down about two percent on Monday following sharp declines in Europe and Asia, while yields on Treasury bonds fell as investors piled into U.S. debt, as is typical in times of overseas stress. But the gyrations in the markets were not dramatic enough to waylay the Fed, analysts said.

“They don’t have to raise rates tomorrow morning,” said Roberto Perli, a former Fed staffer and now head of global monetary policy research at consulting firm Cornerstone Macro. “We will see how the economy does, and if it does not look like this is going to be a big deal then it is squarely up to U.S. data.”

Michael Cloherty, head of U.S. rates strategy at Royal Bank of Canada’s RBC Capital Markets unit in New York, said events in Greece did not significantly change the outlook for the Fed.

“This isn’t a ‘watch Greece’ situation…While we have chaos in Greece, there are no signs of dramatic contagion yet, and that’s why it doesn’t change the Fed’s tone,” he said.

Talks between Athens and its creditors broke down over the weekend after Prime Minister Alexis Tsipras called a surprise referendum on the austerity cuts in an aid package proposed by Greece’s creditors.

The crisis in Greece has been such a long-running saga that the financial system has had time to buffer itself against the worst.

When the possibility of a Greek exit from the euro zone first arose in 2010, it conjured the possibility of another global meltdown – with banks throughout Europe and the world on the hook through their holdings of hundreds of billions of dollars in potentially worthless Greek bonds.

In the intervening years, much of that debt has been rolled into loans from the International Monetary Fund and other European nations, with much of the remainder already discounted heavily through a negotiated writedown with private creditors.

According to the latest figures from the Bank for International Settlements, U.S. banks have a modest $12 billion invested directly in Greece.

Direct trade relations between the countries are also small, and years of recession in Greece have already taken their toll on any U.S. exporters dependent on the country.

Perli and others said the Fed will closely watch changes in the value of the dollar, a running theme in Fed commentary for several months now.

The run-up in the dollar over the last year nicked U.S. exports to an extent that surprised the Fed, and any new surge in the currency could mean another hit to exports and to jobs.

The U.S. employment report for June will be issued Thursday, ahead of the long Fourth of July holiday weekend. As long as that and other upcoming reports show continued strong job creation, well above 200,000 per month, the Fed would likely proceed with an initial rate increase in September, analysts said.

A White House spokesman on Monday said U.S. exposure to Greece was small and that the crisis did not pose a threat to the U.S. banking system. The Fed declined to comment on developments in Greece.


The confusion in Greece could, however, make the mechanics of any Fed rate increase trickier, if flows of capital into U.S. markets begin to spike or if an actual Greek exit pushes the euro zone economy back into recession.

The Fed may not delay its rate hike plans because of that, but it could make the management of markets more difficult, and cause longer-term bond yields to behave in unexpected ways – falling because of the inflow of capital, for example, at the time the Fed is trying to push them up.

That just highlights the risks of one central bank diverging towards higher rates when the rest of the world is struggling, something the Fed will need to prepare for.

“Somebody up there has a kind of playbook of the two or three possibilities and the ramifications of them, so they can follow a decision tree,” said former Richmond Fed president Alfred Broaddus. “They don’t want to be caught off guard…They want to be ready for whatever flow effects to the U.S. economy might be.”

(Reporting by Howard Schneider and Michael Flaherty; Additional reporting by Jonathan Spicer in New York and Ann Saphir in San Francisco; Editing by Andrea Ricci)

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MetLife accuses U.S. risk panel of secrecy; demands access to records

WASHINGTON MetLife asked a federal judge on Monday to force the U.S. government to hand over 500 pages of confidential records that relate to financial regulators’ decision to designate the insurance giant as systemically important.

In a filing in U.S. District Court for the District of Columbia, MetLife said the government’s failure to hand over the records harms its “due-process rights.”

MetLife is embroiled in a legal battle with the U.S. Financial Stability Oversight Council (FSOC), a panel of regulators chaired by Treasury Secretary Jack Lew that polices for emerging financial market risks and threats to stability.

The panel has the power to dub large non-bank financial firms as systemically important, a tag that results in greater oversight by the Federal Reserve.

MetLife has argued it is not systemically risky to the broader marketplace, and it is asking the court to overturn the FSOC’s determination.

The FSOC has come under criticism in recent years by companies, lawmakers and even the Government Accountability Office that its decision-making process lacks adequate transparency.

Although the FSOC does hold public meetings, much of its business is conducted behind closed doors, and companies have complained they have not received enough advanced warning when they were being considered for the designation of systemically important.

The FSOC has made changes to address some of these criticisms, including giving companies more warning and more chances to offer feedback during the process.

But MetLife says the FSOC has still refused to provide its outside lawyers all the documents about the designation, even though the panel has already made its final decision.

MetLife said in Monday’s court filing that the FSOC is denying access to the records because of “information-sharing” arrangements it has with state insurance regulators about the company.

MetLife argued that the FSOC should not be balking about cooperating because there is a protective order in place to ensure that only the company’s outside attorneys and the government – and not the general public or even the company itself – would be able to view any sensitive material.

“This court should therefore direct FSOC to produce the withheld documents immediately so that MetLife can review all of the materials that the agency considered as part of its decision-making process and mount a fully informed challenge to FSOC’s designation determination,” the court filing says.

A Treasury Department spokesman did not immediately respond to an email seeking comment about MetLife’s request.

(Reporting by Sarah N. Lynch; Editing by Leslie Adler)

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Alstom chief confident GE deal will get EU approval

PARIS The chief executive of French engineering group Alstom SA (ALSO.PA) is confident the planned sale of the group’s power business to General Electric Co (GE.N) will win European Union approval, he was quoted saying in a newspaper interview.

“I hope that we are now in the final leg and I am confident … My position is very clear. I do not see why Plan A would not work out,” Patrick Kron told Le Figaro, when asked if he has any plan B should Brussels block the deal.

GE’s planned 12.4 billion euros ($14 billion) purchase of Alstom’s power equipment business has sparked regulatory worries that it would harm competition.

The Commission is concerned the takeover would leave just two gas turbine companies in Europe, with GE competing with Germany’s Siemens (SIEGn.DE).

Kron said Alstom’s shareholders meeting on June 30 will be an occasion to defend and explain a project he was “proud of”.

(Reporting by Dominique Vidalon; Editing by David Holmes)

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Talks to resolve Lufthansa pay dispute stalled, union says

FRANKFURT Talks to resolve a pay dispute at German airline Lufthansa (LHAG.DE) have stalled and a resolution is still not in sight, German flight attendants’ union UFO said on Monday.

Union chief Nicoley Baublies said he had received a message from Lufthansa’s chief executive Carsten Spohr late on Monday, urging him to get back in touch.

“I am not very hopeful,” Baublies said, adding that contact with Spohr was not equivalent to resuming full negotiations between the airline and the union.

Lufthansa faces a June 30 deadline to make concessions to cabin crew over pay and pensions or face strikes over the busy summer holiday season.

Lufthansa has been in lengthy talks with various staff groups to try to cut costs to compete more effectively with low-cost airlines and Gulf airline rivals.

UFO said earlier on Monday its members were ready to talk and Lufthansa CEO Spohr told journalists he was optimistic that a deal could be reached.

UFO said last week its members would strike on July 1 if Lufthansa did not put forward a much better offer on pay and pensions.

More one-day strikes would follow that could last until Sept. 16, disrupting travel over the lucrative peak summer season, the union said at the time.

Spohr said the airline needed 24 hours’ notice to change flight plans so it was crucial to come to an agreement on the negotiation process with unions by the morning of June 30 at the latest.

The dispute centers around the airline’s pension scheme.

Lufthansa has said that low interest rates mean it can no longer afford the retirement scheme it offers to cabin crew.

The costs of the scheme, which amounted to some 3.7 billion euros ($4.1 billion) last year, are of particular concern for the airline because cabin crew can take early retirement from the age of 55 due to the strains of frequent flying.

It wants employees to contribute more of their salary towards their pension. UFO wants to keep much of the current retirement scheme.

Spohr said the airline wanted to ensure that employees who had been with the company the longest would be least affected by the pension changes.

Lufthansa shares were down nearly two percent, while the German blue chip index .GDAXI, hit by the Greek debt crisis, was down 3.56 percent.

(Reporting by Peter Maushagen and Victoria Bryan; Writing by Harro ten Wolde; Editing by Jeremy Gaunt and Jane Merriman)

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