News Archive


U.S. appeals court rules for Argentine central bank in bond case


NEW YORK Argentina’s central bank on Monday won the reversal of a U.S. court ruling that had allowed bondholders to try to hold it responsible for the country’s obligations on debt that has been in default since 2002.

The 2nd U.S. Circuit Court of Appeals in New York overturned a 2013 ruling denying a bid by Banco Central de la República Argentina (BCRA) to dismiss claims by creditors holding $2.4 billion in judgments against the South American country.

U.S. District Judge Thomas Griesa had previously held that the central bank had waived its sovereign immunity, and that as a result the creditors could move forward with a lawsuit seeking to have it declared Argentina’s “alter ego.”

The ruling had been sought by bondholders including NML Capital Ltd, which is a unit of Paul Singer’s Elliott Management Corp, and EM Ltd, controlled by investor Kenneth Dart, who sought to go after funds BCRA held in foreign jurisdictions.

But a three-judge panel of the 2nd Circuit reversed, saying BCRA could invoke its own sovereign immunity to avoid liability and directed Griesa to dismiss the case.

Circuit Judge Jose Cabranes wrote that the court’s ruling is not intended to allow Argentina to “continue shirking the debts it has the ability to pay, although we suspect that this will be a predictable and unfortunate outcome of our decision.”

But Cabranes said the central bank was entitled to invoke its own sovereign immunity as a defense.

Carmine Boccuzzi, a lawyer for Argentina, said he was “gratified” by the ruling, which he said was the third to reject the bondholders’ efforts to go after the central bank.

A representative for NML Capital declined to comment. Representatives for BCRA and EM Ltd did not immediately respond to requests for comment.

The ruling stemmed from long-running litigation by creditors seeking full repayment on bonds after Argentina’s $100 billion default in 2002.

Those creditors spurned Argentina’s 2005 and 2010 debt restructurings, which resulted in 92 percent of its defaulted debt being swapped and investors being paid less than 30 cents on the dollar.

The country defaulted again in July 2014 after refusing to honor orders to pay $1.33 billion plus interest to Elliott Management’s NML Capital Ltd and other hedge funds suing over the bonds.

Griesa ordered Argentina in June to pay $5.4 billion to another 500-plus holders of defaulted debt before it could pay the majority of its creditors.

(Reporting by Nate Raymond in New York; Editing by W Simon and Meredith Mazzilli)

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Toshiba scandal continues as more accounting errors found


TOKYO Toshiba Corp again delayed announcing its annual financial results on Monday, as new accounting errors prevented the company from drawing a line under Japan’s worst corporate scandal in four years.

Toshiba, which was scheduled to post its earnings for the business year ended in March, said the newly discovered problems included incorrect impairment charges on fixed assets at several subsidiaries and improperly timed booking of loss provisions at a U.S. subsidiary.

“We deeply apologize for the situation we are in yet again, and for the inconvenience and concern we have caused to our stakeholders including shareholders and investors,” Chief Executive Masashi Muromachi said before making a deep bow of contrition to a packed, late-night news conference.

The laptops-to-nuclear conglomerate had already delayed announcing its results by around three months due to an independent investigation over its past accounting practices.

That probe found Toshiba had overstated past results by around $1.2 billion over several years, prompting its then-CEO and several other executives to step down last month. It is Japan’s biggest accounting scandal since 2011 when Olympus Corp was found to be involved in a $1.7 billion scheme to conceal two decades of investment losses.

Toshiba said government regulators accepted its request for extension and that it plans to submit the results by Sept. 7.

Muromachi declined to say how much the newfound errors were worth but said they were “not huge”.

Toshiba found some 10 new cases of accounting errors stretching back to around 2010, although these will not drastically affect Toshiba’s forecast for an operating profit of 170 billion yen ($1.4 billion) for last fiscal year, Muromachi said.

He said the U.S. unit named in the new disclosure was not Toshiba’s Westinghouse nuclear business. Investors have speculated the company might need to reassess the value of that business due to a downturn in nuclear energy demand.

The CEO said Toshiba should be able to meet the new deadline for closing its books but that if not, “I would have to consider taking responsibility, including resignation, if needed.”

Earlier this month, Toshiba said it would take 127 billion yen ($1.05 billion) in impairment charges for the past financial year to reflect writedowns in its nuclear business as well as semiconductor and appliance units.

Its estimated 170 billion yen operating profit was below the 330 billion yen forecast it canceled in May when it widened its accounting probe.

(Additional reporting by Reiji Murai; Editing by William Mallard and Rachel Armstrong)

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Fiat Chrysler’s Marchionne says ‘unconscionable’ to give up on GM deal: paper


MILAN It would be “unconscionable” for Fiat Chrysler Automobiles (FCA) (FCHA.MI) not to pursue a merger with rival General Motors (GM.N) and create a company that can generate $30 billion a year in cash, FCA chief Sergio Marchionne said in a newspaper interview.

GM’s board rebuffed a merger proposal from the Italian-American carmaker earlier this year. The rejection has not stopped Marchionne from working on the plan and lobbying GM investors in an effort to drag the GM board to the negotiating table, sources told Reuters in June.

In an interview published on Sunday on the website of Automotive News, Marchionne said he had studied every detail of a deal that would result in “cataclysmic changes in performance” but had not been able to start a discussion with GM.

“It would be unconscionable not to force a partner,” he said.

The issue facing the FCA board at present was that “an attack on GM, properly structured, properly financed, … cannot be refused. You can play hardball to a point,” Marchionne said.

“It’s too big to ignore,” he added.

Asked whether this meant FCA was considering a hostile takeover, Marchionne said: “Not hostile. … There are varying degrees of hugs. I can hug you nicely, I can hug you tightly, I can hug you like a bear, I can really hug you. Everything starts with physical contact. Then it can degrade, but it starts with physical contact.”

Marchionne said FCA had received approaches from other potential partners that would be interested in discussions, but GM remained by far the preferred option.

“There are people who are interested in doing deals. I’m not interested in doing deals with them … because there’s a better deal,” he said.

(Reporting by Valentina Za; Editing by Susan Fenton)

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Europe, Asia stocks set for worst monthly drop in three years on China, Fed


NEW YORK World stock indexes edged lower on Monday amid persistent investor concerns about slowing growth in China and the prospect of higher U.S. interest rates, while oil prices rallied.

Oil was up more than $2 a barrel, rebounding from early losses, as data showed contracting U.S. production and OPEC willingness to talk with other producers about falling prices.

U.S. stocks eased, on track for their worst monthly drop in more than three years.

Weekend comments from Federal Reserve policymakers left the door open to a U.S. rate rise as soon as next month.

Fed Vice Chairman Stanley Fischer said in a speech at the annual Jackson Hole, Wyoming, central bankers’ symposium that U.S. inflation was likely to rebound, allowing rates to rise gradually.

“We can still expect to see some significant drops in the market until we get some direction from the Fed regarding a rate increase,” said John DeClue, chief investment officer of U.S. Bank Wealth Management.

The Dow Jones industrial average .DJI fell 50.18 points, or 0.30 percent, at 16,592.83. The Standard Poor’s 500 Index .SPX was down 7.45 points, or 0.37 percent, at 1,981.42. The Nasdaq Composite Index .IXIC was down 11.53 points, or 0.24 percent, at 4,816.79.

The dollar eased as weaker stock markets prompted investors to trim bets against currencies popularly used to fund risky carry trades.

But Fischer’s comments limited the dollar’s losses. The U.S. dollar index, which measures the greenback against a basket of currencies .DXY, was down 0.1 percent.

The pan-European FTSEurofirst 300 stocks index .FTEU3 closed down 0.2 percent. Germany’s DAX .GDAXI fell 0.4 percent, while MSCI’s measure of world stock markets .MIWD00000PUS also slipped 0.4 percent.

Chinese shares had another volatile session. The CSI300 index .CSI300 ended up 0.7 percent, after falling 4 percent at one point. The index was still down 11.8 percent for August.

OIL JUMPS

Oil rose further after its biggest two-day rally in six years last week.

Brent October crude LCOc1 was up $2.45 at $52.50 a barrel, while U.S. October crude CLc1 was up $2.50 at $47.72.

U.S. domestic crude oil production peaked at just above 9.6 million barrels per day in April before falling by more than 300,000 bpd over the following two months, Energy Information Administration data showed on Monday.

U.S. safe-haven Treasuries prices rose on continued concerns over China and emerging market economies, while month-end buying gave longer-dated Treasuries prices a boost.

U.S. 30-year Treasuries US30YT=RR were last up 2/32 in price to yield 2.91 percent. Benchmark 10-year Treasuries US10YT=RR were last up 3/32 in price to yield 2.17 percent, from a yield of 2.18 percent late Friday.

(Additional reporting by Robert Gibbons in New York, and Tanya Agrawal, Nigel Stephenson and Anirban Nag; Editing by James Dalgleish and Dan Grebler)

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China stocks slide as crackdown on speculators spreads, lose 11 percent in August


SHANGHAI China stocks fell sharply on Monday before recovering much of their losses as regulators cracked down on speculators which Beijing blames for a 40 percent crash in the country’s stock markets since June.

Both main indexes plunged more than 4 percent at one point, pulling down markets across Asia, before paring losses in the afternoon.

The blue-chip CSI300 index .CSI300 managed to claw back into positive territory in late trade, ending up 0.7 percent at

3,366.54 points. But the Shanghai Composite Index .SSEC fell 0.8 percent to 3,207.07.

Both indexes shed around 12 percent for the month, their third straight monthly decline, and have lost nearly 40 percent of their value since mid-June despite repeated and unprecedented measures by the government to shore up the market.

“A pull back in the market was to be expected as some investors are taking profits after the two-day rally,” wrote Gerry Alfonso, director of Shenwan Hongyuan Securities, referring to a rebound on Thursday and Friday after ferocious selling earlier last week.

“Investors seem to be waiting until the manufacturing PMI figure is released later this week before making significant decisions.”

China will release its official reading on August factory conditions on Tuesday, and economists polled by Reuters believe activity likely shrank at its fasted pace in three years. Similar surveys on service sector activity are also due.

Reflecting bearish market sentiment, Chinese fund managers cut their suggested stock allocation over the next three months to an eight-year low of 66.3 percent, a Reuters poll showed.

Brokerages shares fell, led by CITIC Securities (600030.SS), after four senior executives from the brokerage confessed to insider trading.

The probe into CITIC Securities was part of regulators’ latest crackdown on market malpractice.

An index tracking banking stocks .CSI300BI reversed early losses to end the day up 3.1 percent.

Chinese state media announced a slew of confessions on Monday following investigations into recent stock market gyrations, including from a detained reporter who admitted to spreading false information that caused “panic and disorder”.

But most analysts attribute the summer crash to the bursting of a typical stock market bubble which was earlier egged on by official media and fueled in large part by borrowed money.

(Reporting by Samuel Shen and Pete Sweeney; Editing by Kim Coghill)

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Asian stocks set for worst monthly drop in three years as Fed, China loom


HONG KONG Global financial markets looked set for another rough week on Monday, with stocks and commodities falling ahead of data that could give clues on when the U.S. will raise interest rates and surveys which are likely to point to further weakness in China.

Confusion over policy direction in the world’s two largest economies sent global markets into turmoil early last week, with the wildest price swings in years pushing investors to the exits.

European shares looked set to follow Asian shares and U.S. stock futures lower on Monday, with Germany’s share index .GDAXI expected to open down 1.35 percent and France’s CAC 40 .FCHI likely to fall 1.39 percent, according to IG. The UK market is closed for a public holiday.

U.S. stock futures ESc1 slid 1 percent, suggesting weakness on Wall Street later in the session.

“This is a market that is walking on glass; China seems to be the central theme feeding into a lot of these things but today the focus is very much on U.S. interest rates again,” said, James McGlew, executive director of corporate stock broking at Argonaut in Australia.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed more than 1 percent and is set to fall 10 percent this month, its worst monthly drop since May 2012.

Selling intensified as China markets extended losses. Shanghai stocks .SSEC, the epicenter of this month’s whip-saw action, were down more than 3 percent at one point. They have plunged more than 40 percent since mid-June.

Japan’s Nikkei .N225 and Australia were down 2 percent before paring losses.

“A pull back in the market was to be expected as some investors are taking profits after the two-day rally,” wrote Gerry Alfonso, director of Shenwan Hongyuan Securities, referring to a brief rebound late last week.

“Investors seem to be waiting until the manufacturing PMI figure is released later this week before making significant decisions.”

A Reuters poll showed China’s official factory sector activity likely fell to a 3-year low in August. Other surveys on Chinese factory and service sector activity will also be released on Tuesday.

Traders are also on edge ahead of U.S. business surveys, factory orders, trade data and Friday’s non-farm payrolls this week, after comments by a top Federal Reserve official suggested that a September rate rise was more likely than some investors expected.

Fed Vice Chairman Stanley Fischer, speaking at the central bank’ conference in Wyoming, said recent volatility in global markets could ease and possibly pave the way for a rate hike.

Prospects of higher interest rates and returns in the United States combined with China’s slowdown have diminished the appeal of emerging markets as investors have dumped riskier assets.

Investors sold $5.9 billion of emerging market assets between Aug. 20-26, a sharp increase from $1.5 billion the week earlier, according to Nomura fund flows data.

Credit markets, often a harbinger of things to come for equities, spelt further pain in store for emerging markets.

An index for Asian high-yield credit has fallen sharply this month compared to a relatively steady performance in the investment grade index, according to Thomson Reuters data.

The dollar eased 0.6 percent to 121.03 yen JPY= after rising to the week’s high of 121.76 on Friday following the Fed officials’ comments that kept prospects of a September hike alive.

The euro was up 0.6 percent at $1.12550 EUR= after touching an eight-day low of $1.1156 on Friday.

The market will watch the European Central Bank’s policy meeting on Thursday to see if it will be inclined to ease monetary policy further in the wake of the recent global market mayhem, though no imminent change is expected.

U.S. crude oil prices dipped as their biggest two-day surge in quarter of a century ran its course.

U.S. crude CLc1 was down 1.3 percent at $44.62 a barrel after jumping more than 6 percent on Friday on frenetic short-covering fueled by violence in Yemen, a storm in the Gulf of Mexico and refinery outages.

The contract was still down nearly 5 percent on the month, when it hit a 6-1/2-year low last week in the wake of China-led global growth fears.

Gold struggled to recover from last week’s losses, even in the face of a softer dollar. Spot gold XAU= was flat at $1,133.98 an ounce, after dropping more than 2 percent last week in its steepest decline in five weeks. For the month, the metal was up 3.5 percent.

(Additional reporting by Shinichi Saoshiro in TOKYO, Samuel Shen and Pete Sweeney in SHANGHAI and Pauline Askin and Charlotte Greenfield in SYDNEY)

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BNY Mellon expects to fix pricing glitch before markets open


BNY Mellon Corp (BK.N) expects to fix the computer glitch that disrupted pricing of U.S. mutual funds and exchange-traded funds before markets open on Monday, its chief executive said.

The resolution of the issue, which affected the calculation of billions of dollars of assets last week, has taken far longer than expected, CEO Gerald Hassell said on a conference call, a transcript of which was made available to Reuters.

“We expect to complete Friday’s NAVs for all but one of the affected fund clients by tomorrow morning … Our goal is to provide fund clients with system-generated NAVs for Monday by tomorrow night,” Hassell said on Sunday night.

The bank has completed calculating net asset values (NAVs) for all funds through last Thursday with the exception of those of one mutual fund client, Hassell said, without identifying the client.

An accounting system BNY Mellon relies on to calculate the prices of clients’ mutual funds and ETFs broke down last weekend, disrupting pricing on nearly 5 percent of U.S. mutual funds and ETFs with about $404 billion in assets, according to data from Morningstar and Lipper. [ID:nL1N1130W8] [ID:nL1N1111QY]

Hassell said the bank still didn’t know the root cause of the failure and would seek assistance from independent third-party to work on the issue.

Last Thursday, financial services software provider SunGard, which hosts an accounting platform that helps the world’s largest custody bank calculate NAVs for its funds clients, apologized for the glitch that happened during a systems upgrade. [ID:nL1N11213M]

(Reporting by Shivam Srivastava in Bengaluru; Editing by Gopakumar Warrier)

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Exclusive: Citi aims to boost equities franchise amid industry shakeout


NEW YORK Citigroup plans to rebuild its long-neglected equities franchise seeking to capitalize on a retrenchment by rivals in the face of new rules designed to make the financial system less risky, according people familiar with the bank’s plans.

A lack of investment in equities and a traditional focus on bond trading kept the No. 3 U.S. bank by assets in the lower echelons of equities league tables, which measure how much revenue Wall Street banks earn from their equity trading units.

It will be tough to dislodge leaders such as Goldman Sachs Group, Morgan Stanley, and JPMorgan Chase Co, that have long dominated the business.

But having shored up its business and capital ratios since the financial crisis, largely by spinning off non-core assets, Citi now aims to profit from a retreat of rivals that were slow in adapting to new rules that force banks to keep more capital, two people with direct knowledge of Citi’s plans told Reuters.

Deutsche Bank, Credit Suisse Barclays and others are re-aligning their investment banking businesses. Prime brokerage units, which provide loans and other services to hedge funds, are being pared back in favor of less capital-intensive businesses such as wealth management.  

Citi, meanwhile, plans to court hedge funds more actively as part of a four-point plan to boost its equities market share, the sources said.

The strategy includes an overhaul of Citi’s trading technology, hiring key executives, expanding research and boosting the unit’s financing.

The bank recently appointed former Chi-X Global chief John Lowrey to head its electronic execution unit, and ex-UBS executive Adam Herrmann to run prime brokerage.

Citi has also hired 11 analysts so far this year to support its investment advisory business, and is increasing financing of the unit in general, said the sources, who did not have permission to be quoted in the media.

COURTING HEDGE FUNDS

Citi has catered to traditional asset managers, but is now shifting its attention to hedge funds, which tend to trade more actively and can bring higher returns through fees. Mid-sized firms are especially attractive, because they lack the resources of their bigger rivals and Citi can offer them services such as risk systems, credit monitoring, and trading algorithms, which have all been part of Citi’s technology revamp.

Building up its prime brokerage and bespoke equity derivatives, key to winning over hedge funds, will be difficult though, because they are capital intensive businesses, said Guy Moszkowski, an analyst at Autonomous Research LLP.

“It will be a tough slog for them,” he said.

But after years of under investment and cuts in the equities franchise the bank is ready to strategically invest in the unit and will do so at a measured pace, the sources said.

Another way they said Citi is putting its capital to work is by expanding its institutional market making business, where it buys and sells large blocks of stocks or derivatives from clients.

As part of its technological push, Citi has rolled out a product in the United States, with plans to launch in Europe, called “Optimus” that helps clients select trading algorithms. “Optimus” looks at different aspects of the clients’ orders, such as size, speed, and market momentum, and then picks the appropriate algorithms to scan the market for other orders that have those same qualities.

Citi’s efforts to boost its equities revenues follow a concerted push to get its house in order after the 2008-2099 financial crisis, when soaring losses from bad mortgage debt forced it to take a $45 billion government bailout.

The revamp included the sale of its retail brokerage arm Smith Barney and other assets that left the bank demonstrably lighter on equities.

“It’s a recurring theme where they under invested and now they have to reinvest,” said Brian Kleinhanzl, an analyst with KBW.

Citi’s last big bet on equities was in 2007, when it paid $680 million for retail equities market maker Automated Trading Desk (ATD). Fierce competition and years of anemic trading volumes following the financial crisis have hurt ATD business.

Citi still sees the retail order flow ATD as valuable, especially for institutional clients to trade with, said one of the sources. Still, the bank is always looking at “strategic alternatives” for the unit, said the other.

(Reporting by John McCrank and Olivia Oran; Editing by Carmel Crimmins and Tomasz Janowski)

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Venture capital cash surfers may see waves recede in market turmoil


SAN FRANCISCO The waves of cash surfed relentlessly by some of Silicon Valley’s largest venture-backed businesses are showing signs of receding amid concern the companies may already worth more than they’re likely to be valued once they finally go public.

Investors have created 132 privately held companies valued at $1 billion or more each, according to tracker firm CB Insights, including ride-hailing service Uber [UBER.UL], accommodation service Airbnb and messaging app Snapchat. After a turbulent week for equities, prompted by worries about the faltering Chinese economy, it may take longer for companies aiming to join their ranks to raise multi million-dollar funding rounds, and they may not get the investment terms they want.

“Many companies in the market for funding right now are struggling to meet their valuation expectations and are going to have to reassess,” said Jon Sakoda of venture firm NEA.

In the last couple of years, the biggest VC-backed firms, dubbed “unicorns” in 2013 by venture capitalist Aileen Lee of Cowboy Ventures, raised increasing amounts of money at a rapid pace. Airbnb, for instance, raised three nine-figure funding rounds starting in 2011.

In June it sealed a $1.5 billion deal that propelled its valuation to $25.5 billion, the third-largest among venture capital-backed companies worldwide.

Venture capitalists started seeing indications a few months ago that late-stage investors, the ones who back unicorns, would be less willing to write nine-figure checks for all but the most impressive startups.

“Investors are now being much more selective identifying which companies can succeed under the scrutiny of the public markets,” said Roger Lee, an investing partner with Battery Ventures.

An end to the six-year stock market bull run seemed inevitable, they said, and they are less confident that all of these companies will live up to their hefty valuations when they go public, which is how these investors make money.

The number of IPOs trading at less than their offering prices has bolstered their doubts. As of late last week, 58 percent of the 38 tech and biotechnology IPOs so far this year were underwater, according to data provided by market-intelligence firm Ipreo and analyzed by Reuters.

To gauge investor faith in late-stage companies, Barry Kramer, a lawyer at Fenwick West specializing in venture capital, keeps an eye on whether more deals come with strict protections for investors.

MONEY BACK

One of several he’s watching is known as a “senior liquidation preference,” where new investors are guaranteed their money back before any other investor in the event the company is acquired at a price below what the investor paid.

At the end of last year, about 26 percent of late-stage Silicon Valley venture deals came with that protection, but today, it’s about 40 percent, Kramer said.

“That’s an important signal to me,” he said, adding it’s too early to draw conclusions after just two quarters. It can also indicate less negotiating leverage for the start-up, another sign of weakness.

Still, the biggest and fastest-growing of the group will likely be insulated from the market unease.

Take Uber, which just closed a $1 billion funding round in China ahead of schedule and with more investors than it could accept.

It is difficult to know how much effect the recent market rout has had on the valuation of the biggest VC-backed companies, because start-ups are typically valued when they seek funding, perhaps once a year.

One indicator could be GSV Capital, a Nasdaq-traded fund that buys shares of private companies from early employees and others. The fund, which as of June 30 held 12.5 percent of its assets in data-analysis company Palantir and 7.7 percent in storage company Dropbox, has dropped 6 percent since Aug. 20.

Some companies said they have noticed worry among investors. San Mateo, California-based Apttus, which provides cloud software for businesses, closed a $108 million funding round about three weeks ago.

“There is very much concern about frothiness and an impending correction,” said Apttus CEO Kirk Krappe.

Apttus raised the cash it wanted, but other companies got the brush-off. One late-stage venture investor said that five to six startups he declined to fund last quarter because of what he considered pricey terms came back willing to re-enter negotiations after being turned down elsewhere.

A year ago, he would have heard back from only one or two in that situation, he said. The investor didn’t want to be identified for fear of offending his portfolio companies.

(Editing by Stephen R. Trousdale aand John Pickering)

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