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Health insurer Cigna says second-quarter medical costs stay low; profit beats

Health insurer Cigna Corp, which agreed last week to be bought by Anthem Inc for $47 billion, said on Thursday that medical services use was low in the second quarter, helping to keep costs in check and beat Wall Street profit estimates.

Cigna’s report of a continued low utilization trend backs up a growing industry view of this closely watched component of insurer profitability. Anthem made similar comments on Wednesday, when it reported better-than-expected quarterly earnings.

Health insurers have benefited from low medical services use during the past five years as the weak economy has kept down doctor visits and hospitalizations and membership growth has helped increase revenues.

But the rate of overall health spending has begun to increase and medical use is expected to rise more as the economy improves. The national healthcare reform law, also known as Obamacare, has contributed to the increase as millions of people gained health insurance coverage in the past two years.

That is driving insurers to consolidate to build scale to help keep costs down and negotiate better deals with doctors and hospitals.

“The reason why there is so much consolidation is because utilization and the cost trend overall will go up, which will pressure the profitability for these companies long term,” Morningstar Research analyst Vishnu Lekraj said.

Aetna Inc agreed to buy smaller rival Humana Inc in early July, just weeks before Anthem and Cigna reached a deal.

The mergers are expected to face antitrust scrutiny as regulators consider their effect on insurance premium rates. The concerns have kept Cigna shares far from Anthem’s offer price of more than $183.

Cigna shares dipped 0.4 percent at $144.81 on Thursday.

Cigna Chief Executive Officer David Cordani said on CNBC on Thursday that the companies were already talking to state and federal regulators. “We will fully engage with state leaders and federal leaders and those conversations have already started,” Cordani said.

Cigna said its ratio of medical claims paid as a percentage of premiums taken in, or MCR, was 77.5 percent for its commercial business and 84.4 percent for its government business. It expects medical costs to rise 5 percent to 6 percent in 2015.

Net profit rose to $588 million, or $2.26 per share, for the second quarter, from $573 million, or $2.12 per share, a year earlier.

Excluding items, Cigna earned $2.55 per share, beating the average analyst estimate of $2.31, according to Thomson Reuters I/B/E/S. On Friday when it announced the Anthem deal, Cigna said second-quarter earnings would be at least $2.50 per share.

Cigna manages insurance plans for large companies and sells health plans to individuals on government exchanges created under the U.S. Affordable Care Act. It also manages government Medicare and Medicaid plans.

Premiums and fees in Cigna’s commercial and government businesses rose 10 percent in the second quarter, boosted by the addition of 524,000 customers.

Revenue rose about 9 percent to $9.49 billion, just below the average analyst estimate of $9.53 billion.

(Corrects spelling of name Vishnu in 6th paragraph)

(Reporting by Caroline Humer in New York and Amrutha Penumudi in Bengaluru; Editing by Simon Jennings and Jeffrey Benkoe)

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IMF board says Fund cannot join Greece bailout talks now: FT

WASHINGTON The International Monetary Fund can participate in discussions over the latest financial rescue for Greece but cannot officially join the talks until after the fiscally beleaguered nation has agreed to comprehensive reforms, the Financial Times reported on Thursday.

The FT report, citing a confidential summary it obtained of the IMF board’s meeting on Wednesday, said that IMF staff had determined that while the Fund could participate in negotiations aimed at providing a third round of relief to Greece, the country was disqualified for any IMF bailout given its high debt levels and poor reform record.

“The Fund will only decide whether to participate during a ‘stage two’ after Greece has ‘agreed on a comprehensive set of reforms’ and, crucially, after eurozone bailout lenders have ‘agreed on debt relief’,” the FT reported, adding that IMF staff were not in full agreement on the issue.

The decision means that an IMF decision on any further bailout for Greece could stretch for months and possibly into 2016 and raises questions about whether it will ultimately join euro zone efforts, according to the newspaper’s report.

The European Union, led by Germany, and the IMF had agreed on a new 86 billion euro aid package to keep Athens afloat, and negotiations on the package were continuing on Thursday. Greek Prime Minister Alexis Tsipras’ government is seeking to wrap up negotiations in time for a major debt payment due on Aug. 20.

Germany’s representative to the IMF board said that Berlin wanted the Fund to move alongside European efforts and without it’s parallel efforts now faced having to push through the bailout on its own in just weeks, the FT reported.

(Writing by Susan Heavey; Editing by Chizu Nomiyama)

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Wall St. lower amid weak earnings and GDP data

U.S. stocks fell in late morning trading on Thursday as earnings from Facebook and Procter Gamble disappointed investors and data showed that the economy expanded at a slower-than-expected pace in the second quarter.

Procter Gamble’s (PG.N) 3.7 percent fall dragged down the Dow, after the company reported its sixth straight quarter of lower sales.

Facebook (FB.O) shares fell 3.9 percent after the social media company’s profit decreased, and weighed heavily on the SP 500 and Nasdaq.

Gross domestic product expanded at a 2.3 percent annual rate in the second quarter, below the 2.6 percent rise economists had expected, even as the Federal Reserve left doors open for a possible rate hike in September.

The Fed has maintained near-zero interest rates for nearly a decade, saying it will raise rates only when it sees a sustained recovery in the economy.

“Earnings haven’t been great and there is much more slack in the economy than the market or the Fed thought while big concerns such as oil and China continue to persist,” said John Canally, investment strategist at LPL Financial.

“We are in a slow-growth environment and anything that knocks that down further is not a plus for the market.”

The U.S. dollar continued to strengthen and was up 0.68 percent near a weekly high of $97.63 against a basket of currencies as the Fed readies to raise rates this year.

U.S. stocks closed stronger on Wednesday after the Fed statement. The SP 500 has bounced about 2 percent higher in the past two days following a near-3 percent drop over the preceding week that had been caused in part by a rout in China’s stock markets.

At 11:12 a.m. ET (1512 GMT) the Dow Jones industrial average .DJI was down 66.34 points, or 0.37 percent, at 17,685.05, the SP 500 .SPX was down 8.72 points, or 0.41 percent, at 2,099.85 and the Nasdaq Composite .IXIC was down 23.00 points, or 0.45 percent, at 5,088.73.

Seven of the 10 major SP sectors were lower with the technology index’s .SPLRCS 0.59 percent fall leading the decliners.

More than halfway through the second-quarter earnings season, analysts expect overall earnings of SP 500 companies to edge up 0.8 percent and revenue to decline 3.9 percent, according to Thomson Reuters data.

While earnings are expected to increase this quarter, valuations remain a concern. The SP 500 is trading near 16.9 times forward 12-month earnings, above the 10-year median of 14.7 times, according to StarMine data.

Companies scheduled to report during the day include Expedia (EXPE.O), LinkedIn (LNKD.N) and Western Union (WU.N) after the close.

Whole Foods Market (WFM.O) slumped 10.8 percent to $36.41 after same-store sales growth cooled.

Skechers USA (SKX.N) jumped 14.1 percent to $146.42 as the sports shoe maker and retailer reported a better-than-expected rise in quarterly revenue.

Mondelez International (MDLZ.O) rose 4.5 percent to $45.07 after reporting results that beat expectations.

Declining issues outnumbered advancers on the NYSE by 1,628 to 1,187. On the Nasdaq, 1,463 issues fell and 1,050 advanced.

The SP 500 index showed 15 new 52-week highs and five new lows, while the Nasdaq recorded 30 new highs and 53 new lows.

(Reporting by Tanya Agrawal)

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NYC property market still hot even as private equity exits

NEW YORK The private equity and other pooled funds that have made century-old buildings some of the hottest properties in Manhattan have been cashing out at double the rate of a few years ago, but strong buying from other investors has assuaged fears that the market is peaking.

The institutional investors and real estate investment trusts that are taking private equity’s place indicate a comfort level for older buildings that have been renovated in Midtown South, the district accounting for many of the transactions.

These buildings are now considered Class A, whereas a decade ago they were not. The arrival of Apple Inc (AAPL.O), Facebook Inc (FB.O) and Google Inc (GOOGL.O) over the past decade has made Midtown South, which extends for about 20 blocks south of 34th Street, the mecca for technology, advertising and media companies.

The rush by funds to acquire and renovate the district’s warehouses and commercial “showroom” buildings is largely over as the better properties along the Fifth Avenue and Park Avenue South corridors have been fixed up and sold.

“Manhattan has been pretty picked over,” said James Murphy, an executive managing director of commercial real estate company Colliers International.

Demand is so strong that the availability of office space in Midtown South was about half the U.S. average in the second quarter.

The market for the bare-brick, open-space layouts that characterize the district took off in 2011, when Google paid $1.9 billion for a 2.9 million square-foot building in the Chelsea neighborhood there.

Since then, Midtown South rents have shot up to record levels nearing $75 a square foot, Murphy said. That is still less than what the glass and steel office buildings fetch in Midtown but pricier than downtown, where demand is more scattered.

Leasing and sales have been strong over the past 18 months. Some institutional and even foreign investors are buying significantly renovated buildings despite their less attractive locations in the middle of a block.

“That’s something you really have not seen before,” Murphy said.


Pooled funds have been a leader in the buying and selling buildings since the Great Recession. Purchases and sales by these firms were almost equal at more than $12 billion each from 2011 through 2013, Colliers data for all of Manhattan showed.

But selling by this group picked up over the past six quarters, when it also topped $12 billion. Purchases also accelerated, yet the volume was just above $8 billion, indicating the beginning of an exodus.

Real estate investment manager Clarion Partners and investment firm William Macklowe Co bought the 85,000-square-foot building at 636 Sixth Avenue in 2011 for about $45.2 million, up from the 2004 sale price of $29 million, according to media reports.

    Clarion, which oversees commingled funds and separately managed accounts, spent between $10 million and $12 million in renovation and leasing costs. It recouped some of the investment in the building, constructed in 1902, when financial services company TIAA-CREF picked up an 18,280-square-foot retail condominium there for $42 million in December.

With its long-term lease, the condo had minimal upside, said Margaret Egan, an asset manager at Clarion, which has $35.8 billion in assets under management.

    “That’s what some owners do,” she said. “You ride the building up a little bit, and when it’s time to sell off a piece and monetize that and take a nice return, you do that.”

Now many private equity firms have been able to exit before completing the business plans for a building, said Woody Heller, an executive managing director at real estate company Savills Plc’s (SVS.L) Savills Studley unit in New York.

In a very short period, he said, private equity funds have enjoyed tremendous appreciation in the value of their real estate and sold after hitting their metrics.

But that does not indicate a market peak. Heller said investors had become more ambitious, willing to overlook a building not yet fully leased or renovated, or a problem that could prove an obstacle in a less desirable area.

“They’re desperate to buy product,” he said. “There’s scarce little of it, and so they’re willing to absorb whatever minor remaining risk is perceived to exist.”

(Reporting by Herbert Lash; Editing by Lisa Von Ahn)

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Time Warner Cable targets closing Charter deal by year end

Time Warner Cable Inc (TWC.N) said on Thursday it was working towards closing the deal with Charter Communications (CHTR.O) by the end of the year.

Charter said in May that it would buy Time Warner Cable in a cash-and-stock deal, which valued the larger rival at $78.7 billion.

“We’re well into the process of seeking regulatory approvals and planning for integration of our operation,” Chief Executive Robert Marcus said on a post-earnings conference call with analysts.

Regulatory obstacles had earlier sunk Comcast’s (CMCSA.O) bid for Time Warner Cable.

MoffettNathanson analyst Craig Moffett said the odds of approval for the Charter deal seems to be getting better based on the recent developments.

Last week, ATT Inc (T.N) completed its acquisition of DirecTV, after regulators cleared the deal.

Time Warner Cable reported a 3.5 percent rise in second-quarter revenue that still fell short of the average analyst estimate as the company lost about 45,000 residential video customers.

Cable companies have been struggling with declining subscriber numbers as viewers shift to cheaper and more flexible streaming services offered by Netflix Inc (NFLX.O), Inc (AMZN.O), Hulu and others.

Charter executives are also exploring whether to launch an online video service as part of its combination with Time Warner Cable, Reuters had reported in May.

Net income attributable to common shareholders fell to $463 million, or $1.62 per share, in the second quarter ended June 30, from $499 million, or $1.76 per share, a year earlier.

Excluding items, the company reported earnings of $1.54 per share, missing the average analyst estimate of $1.81 per share.

Revenue was $5.93 billion, while analysts were expecting $5.94 billion, according to Thomson Reuters I/B/E/S.

The company’s shares were little changed at $189.46 in morning trading on the New York Stock Exchange. Up to Wednesday’s close, shares of the company have risen about 25 percent this year.

(Reporting By Arathy S Nair in Bengaluru; Editing by Maju Samuel and Anil D’Silva)

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Consumer spending bolsters U.S. second-quarter growth

WASHINGTON U.S. economic growth accelerated in the second quarter as solid consumer spending offset the drag from weak business spending on equipment, suggesting a steady momentum that could bring the Federal Reserve closer to hiking interest rates this year.

Gross domestic product expanded at a 2.3 percent annual rate, the Commerce Department said on Thursday. First-quarter GDP, previously reported to have shrunk at a 0.2 percent pace, was revised up to show it rising at a 0.6 percent rate.

“This was a very constructive report and given the supportive domestic economic backdrop, we expect this positive momentum in activity to be sustained in the coming months, providing the Fed with the necessary justification to raise rates this year – perhaps as early as September,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

The revision to first-quarter growth reflected steps taken by the government to refine the seasonal adjustment for some components of GDP, which economists said left residual seasonality in the data, as well as new source data.

The report also showed a pick-up in inflation during the quarter, which economists say keeps the Fed on track for its first interest rate hike since 2006. The U.S. central bank on Wednesday described the economy as expanding “moderately” while upgrading its view of the labor market and saying housing had shown “additional” improvement.

A separate report from the Labor Department showed first-time applications for unemployment benefits increased 12,000 last week to a seasonally adjusted 267,000. However, claims remained near their cycle lows.

The dollar rose against a basket of currencies, while prices for U.S. Treasury debt were mixed. Stocks on Wall Street were trading lower.

The economy grew 1.5 percent in the first half compared to 1.9 percent during the same period in 2014. Though second-quarter GDP growth was a bit below economists’ expectations for a 2.6 percent rate, the growth composition pointed to firming domestic fundamentals.

A measure of private domestic demand, which excludes trade, inventories and government expenditures, increased at a solid 2.5 percent rate after rising at a 2.0 percent pace at the start of the year.

Growth in the second quarter was boosted by consumer spending as households used some of the windfall from cheaper gasoline in late 2014 and early this year to go shopping. The strengthening labor market also encouraged consumers to loosen their purse strings.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 2.9 percent rate from a 1.8 percent pace in the first quarter. The saving rate fell to 4.8 percent from 5.2 percent.


The economy also got a lift from housing, exports, and state and local government spending. However, the energy sector continued to weigh on growth as it struggles with the lingering effects of deep spending cuts by oil-field companies like Schlumberger (SLB.N) and Halliburton (HAL.N) in the aftermath of a more than 60 percent plunge in crude oil prices last year.

Business investment on equipment fell at a 4.1 percent rate.

Spending on mining exploration, wells and shafts plunged at a 68.2 percent rate, the largest decline since the second quarter of 1986. This category dropped at a 44.5 percent pace in the first quarter. But there are signs that the energy spending rout might be nearing an end.

Data last Friday showed U.S. energy firms added 21 oil rigs last week, marking the third increase over the past 33 weeks. Schlumberger said last week it believed the North American rig count may be bottoming and that a slow rise in both land drilling and completion activity could occur in the second half of the year.

Exports rebounded in the second quarter, despite a strong dollar, while imports rose moderately. That left a smaller trade deficit that added 0.13 percentage point to GDP growth.

While businesses accumulated $110.0 billion worth of merchandise, down from $112.8 billion in the first quarter, inventories are still high and could hurt growth in the third quarter.

The sturdy pace of consumer spending and a rise in oil prices pushed up inflation in the second quarter.

The personal consumption expenditures (PCE) price index rose at a 2.2 percent rate, the fastest since early 2012, after falling at a 1.9 percent rate in the first quarter. Excluding food and energy, prices increased at a 1.8 percent pace.

“The stronger recent core PCE number probably makes this report a little bit hawkish for Fed considerations,” said Michael Feroli, an economist at JPMorgan in New York.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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Global stock markets can deliver robust returns despite FX swings: study

LONDON Investors allocating funds across global stock markets can earn an average return of up to 12 percent a year despite currency swings, a study showed on Thursday.

The study — by the Cass Business School, the Bank of England and City University Hong Kong — used data from more than 40 stock markets, observed over 30 years.

It found very little erosion of returns as a result of movements in exchange rates.

“This leaves significant returns available to investors allocating money across global stock markets when returns are measured in an investor’s home currency,” the Cass Business School said.

“(Conversely) the result also means that predictable movements in stock markets are of no use in predicting exchange rate movements.”

In recent years, movements in currency markets have often led to sharp moves in global stock markets. For example, in Japan, a steady drop in the yen JPY= as the Bank of Japan delivered a huge monetary stimulus program drove the benchmark Nikkei .N225 to record highs.

Similarly in recent months, a drop in the euro EUR= as the European Central Bank embarked on a 1 trillion euro asset-buying program has boosted European stock markets .FTEU3.

Most investors allocating funds across assets and global markets tend to hedge their exposure so that sharp and sudden currency swings do not eat into their returns.

The study, published as a BoE working paper, showed that the relationship between stock market returns and currency returns was virtually zero.

“The punchline … is that if, for example, you are confident that the Japanese stock market is going to rise relative to the UK stock market, this tells you nothing about movements in the yen relative to the British pound,” Richard Payne, one of the authors of the study said.

(Reporting by Anirban Nag Editing by Jeremy Gaunt)

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Cigna CEO says has begun talks with regulators about Anthem deal

NEW YORK Cigna Corp (CI.N) CEO David Cordani said on Thursday that the company has begun conversations with regulators, including state regulators and antitrust regulators, about its $47 billion agreement to be purchased by Anthem Inc. (ANTM.N).

Speaking on CNBC, Cordani said that the company expects a 12 to 18 month regulatory review process.

Antitrust experts have said that regulators are likely to ask the companies to sell some assets in regional areas where the two companies have high market share.

Concerns about antitrust review have led to some skepticism of the deal. Anthem’s cash and stock offer is worth $183.40 but its shares closed on Wednesday at $145.41, about 26 percent below that level.

(Reporting by Caroline Humer; Editing by Chizu Nomiyama)

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Facebook spending on messaging, wearables seen fuelling growth

Facebook Inc’s (FB.O) plans to focus spending on its two messaging services, Instagram and its virtual reality headset business was cheered by Wall Street analysts, who said the efforts would boost long-term growth.

Of the 50 brokerages covering the stock, at least 20 raised their price targets. Piper Jaffray was the most bullish with a $146 target – 50 percent over Facebook’s Wednesday close of $96.99. The median price target is $110.

Investors, however, adopted a more cautious view of Facebook’s spending plans, which will eat into future profits, sending the stock down 1.6 percent to $95.40 in early trading.

Facebook, the world’s largest social network, reported a 9 percent fall in second-quarter profit on Wednesday. The company also said it expects ad revenue growth to continue to slow for the rest of the year.

But its monthly active users hit 1.49 billion globally as of June 30, up 13 percent from a year earlier.

“We believe the commentary on its face may have raised red flags to some investors, but it may have been misinterpreted as more negative than intended,” Piper Jaffray analyst Gene Munster said in a note.

Munster and other analysts said Facebook’s investments, particularly in newer initiatives such as video, photosharing app Instagram and messaging services Facebook Messenger and WhatsApp, will drive long-term growth.

“While newer initiatives may have a less pronounced impact on near-term revenue growth, we believe management’s focus on optimizing the user experience will bear significantly more financial fruit long term,” said Baird analysts.

Baird raised its price target to $110 from $96.

Wall Street is overwhelmingly bullish on Facebook – only one analyst a “sell” rating on the stock.

(Reporting by Tenzin Pema and Abhirup Roy in Bengaluru; Editing by Sayantani Ghosh)

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