News Archive

France says debt issuance would be first step for a euro zone budget

CERNOBBIO, Italy A common euro zone budget should initially be funded through joint debt issuance and taxpayers’ money should only be used at a later stage, French Economy Minister Emmanuel Macron said on Saturday.

France wants the euro zone to have its own joint budget to carry out investments.

Macron, in an interview with a German newspaper this week, proposed giving a new commissioner powers to coordinate economic policy across the single currency bloc and preside over fiscal transfers between its 19 members.

The idea has met opposition in Germany with Vice Chancellor Sigmar Gabriel asking for more details and saying he was strictly against a “euro tax, or a value-added tax” to fund a common budget.

Germany has also traditionally opposed the idea of shared debt issuance, fearing it would encourage fiscal profligacy in weaker euro zone members.

Macron said financing the shared budget through taxes from the onset would slow down the project.

“For me it should be the first step of a euro zone budget: raising money with a joint liability,” he told a press conference at the Ambrosetti business forum in northern Italy.

He expressed confidence a mechanism could be agreed to “raise money together for new proposals, new projects and dealing with euro zone issues.”

“As a second stage we have to raise taxes or share taxes. I think it more efficient not to make it a precondition for the euro zone budget otherwise it will take a lot of time,” he said.

The euro zone debt crisis, which put the currency union at risk, has ignited a debate over further integration, but the idea of fiscal transfers from richer to poorer countries is anathema in Germany, the bloc’s powerhouse.

Macron said a shared budget was essential: “You need somebody in charge of allocating the money where it’s relevant for the common interest.”

(Reporting by Silvia Aloisi and Elvira Pollina; writing by Valentina Za; editing by Susan Fenton)

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Credit Suisse to pay $288 million in damages in Lake Las Vegas refinancing

A district court judge has asked Credit Suisse Group AG (CSGN.VX) to pay $287.5 million in damages to an affiliate of Highland Capital Management, as part of a long drawn breach of contract case.

The judge asked the bank to pay about $211.9 million in damages and restitution and $75.6 million in prejudgment interest on the damages.

The damages are related to the event in which the Zurich-based bank was found to have used inflated appraisals to convince an affiliate of Highland Capital Management in 2007 to refinance the Nevada resort community, which sought Chapter 11 bankruptcy a year later.

A Texas jury found in December that Credit Suisse had fraudulently enticed investors to back a $540 million loan for Lake Las Vegas resort, only to have the borrower quickly default.

Highland Capital Management and Credit could not be reached for comment.

(Reporting by Lehar Maan in Bengaluru; Editing by Ken Wills)

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Global concerns may shrink Wall Street’s third-quarter estimates

NEW YORK Slowing growth in emerging markets and currency fluctuations in anticipation of a U.S. interest rate hike may push third-quarter revenue and earnings estimates lower this month.

Wall Street expects a 3.4 percent decline in earnings for the SP 500 .SPX for the quarter. Estimates have already fallen for 9 out of 10 of the benchmark index’s sectors so far this year, according to Thomson Reuters data.

SP revenue is expected to fall 2.8 percent for the quarter, led by steep declines in the energy and materials sectors. As companies tend to revise guidance around the end of the quarter, estimates may become even less optimistic.

“Analysts will likely be pulling in their reins going into the quarterly reports and the pre-announcement season. This could happen fairly quickly,” said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

The dollar index .DXY, measuring the greenback against a basket of major currencies, has risen 0.8 percent so far this quarter after falling 2.9 percent last quarter. Ghriskey sees the currency’s strength hurting the competitiveness of U.S. exports against local products overseas and imports here, resulting in shrinking revenue and earnings for U.S. multinationals.

In addition, demand is likely slower in many overseas markets with slowing growth in China and recessions in Brazil and Russia hurting both revenue and earnings.

Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis, says that since the majority of SP companies tend to beat earnings estimates every quarter, he will focus more on revenue than the bottom line, which can be tweaked with cost cuts and share buybacks to beat estimates.

But Paulsen is not optimistic about the coming quarter.

“It seems clear to me that top-line sales results will be a little disappointing again,” he said. “If you look at what’s going on in global economies, it doesn’t paint a real good picture of what top-line growth will be like. The question is: ‘How much of that is already factored in?'”

U.S. telecommunications .SPLRCL, which is mostly insulated from global markets, is the only SP sector that has shown improving estimates for both third-quarter earnings and revenue.

With crude oil prices falling sharply, the energy sector .SPNY is faring the worst, with current expectations for a 62 percent earnings decline and a 33 percent revenue drop.

Analysts expect the materials sector .SPLRCM to report a 11.8 percent earnings decline due to falling commodities prices and a 10.4 percent revenue drop. They see earnings for industrials .SPLRCI, which have big overseas exposure, falling 4.9 percent and revenue falling 5 percent.

Many investors hope the equity market becomes less volatile after August’s sharp swings. But earnings weakness could make jittery market participants question valuations all over again.

“A lot of people think the market will come back. If we see fundamentals that challenge that story, that could be a very significant part of this earnings season,” said Paulsen.

(Reporting by Sinead Carew; Editing by Dan Grebler)

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Wall Street caps off tough week with a steep loss

U.S. stock indexes dropped more than 1 percent on Friday after a mixed August jobs report did little to quell investor uncertainty about whether the Federal Reserve will increase interest rates this month.

Trepidation about the first U.S. rate hike in almost a decade added to worries among investors already on edge about a stumbling Chinese economy and a recent market selloff.

“Markets are confused. It was an okay jobs report, but there’s worry about China going into the weekend,” said John Augustine, chief investment officer, Huntington Trust in Columbus, Ohio.

Nonfarm payrolls increased 173,000 last month, fewer than the 220,000 that economists polled by Reuters had expected. But the unemployment rate dropped to 5.1 percent, its lowest in more than seven years, and wages accelerated. Many investors viewed those data points as contradictory signals about the urgency to increase interest rates.

Near-zero rates have allowed the U.S. stock market to almost triple from the depths of the financial crisis in 2009. Many on Wall Street hope recent global market turmoil and worries about China’s economy will lead the Fed to hold off raising rates when it meets on Sept. 16-17.

“In the run-up to its policy meeting, the Fed will pay even greater attention to global market developments – this with a view to minimizing the risk that its words and actions would inadvertently add to market volatility that could spill over into a fragile global economy and weaken it further,” said Mohamed El-Erian, chief economic adviser at Allianz.

Following Friday’s employment data, futures market traders predicted about a 20 percent chance a rate hike will come this month, down from around 30 percent before the jobs report and from a more than 50 percent probability before world markets started tumbling two weeks ago.

The Dow Jones industrial average .DJI ended down 1.66 percent at 16,102.38 points and the SP 500 .SPX lost 1.53 percent to close at 1,921.23.

The Nasdaq Composite .IXIC gave up 1.05 percent to 4,683.92.

Microsoft (MSFT.O) was the biggest drag on the SP and the Nasdaq with a 2.05 percent fall.

All the 10 major SP sectors were sharply lower with the financial index’s .SPSY 2.03 percent loss leading the decliners. Wells Fargo (WFC.N) dropped 2.17 percent and JPMorgan (JPM.N) lost 1.88 percent.

In a minor sign of improved sentiment heading into the weekend, all three major indices moved up from lows of around 2 percent in the latter part of the session. But they still ended the week in the red, with the Dow down 3.2 percent, the SP off 3.4 percent and the Nasdaq falling 3 percent.

Chinese stock markets, ground zero for the recent global selloff, were closed on Thursday and Friday for the 70th anniversary of World War II. U.S. stock markets will be closed for labor day on Monday when Chinese markets reopen.

The CBOE Volatility index .VIX, known as Wall Street’s “fear gauge”, rose 7 percent to 27.41, well above its long-term average of 20.

Caterpillar’s (CAT.N) shares lost 1.81 percent after Baird downgraded the stock to “neutral”.

Netflix (NFLX.O) fell 2.24 percent in its sixth straight day of losses.

Stock losses have pushed the SP 500’s valuation down to a relatively more attractive 15.4 times expected earnings, compared to around 17 for much of 2015, according to Thomson Reuters StarMine data.

But the outlook for earnings may darken due to concerns stemming from China. Wall Street already expects a 3.4 percent decline in earnings for the SP 500 this quarter.

Declining issues outnumbered advancing ones on the NYSE by 2,306 to 718. On the Nasdaq, 1,747 issues fell and 1,034 advanced.

The SP 500 index showed no new 52-week highs and 16 new lows, while the Nasdaq recorded 11 new highs and 65 new lows.

Volume was light. About 6.3 billion shares traded on U.S. exchanges, compared to an average of 7.9 billion in the past five sessions, according to BATS Global Markets.

(Additional reporting by Tanya Agrawal in Bengaluru, Sinead Carew in New York and Alexandre Boksenbaum in Paris; editing by Andrew Hay and Chizu Nomiyama)

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Fiat Chrysler U.S. to recall 7,810 SUVs to prevent hacking

Fiat Chrysler Automobiles NV’s (FCAU.N) U.S. arm said on Friday it would recall 7,810 sport utility vehicles in the United States to update software for radios to prevent hacking.

The announcement by FCA US LLC, formerly Chrysler Group LLC, comes more than a month after the company recalled about 1.4 million vehicles in the United States for the software update.

Cybersecurity researchers used the Internet to turn off a car’s engine as it drove, escalating concerns about the safety of Internet-connected vehicles.

FCA said on Friday that it was unaware of any injuries related to software exploitation. (

The recalled vehicles include 2015 Jeep Renegade SUVs equipped with 6.5-inch touchscreens.

FCA said that more than half of the recalled vehicles remain with dealers and will be serviced before they are sold.

(Reporting by Radhika Rukmangadhan in Bengaluru; Editing by Maju Samuel)

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SEC’s Gallagher says will leave his post by October 2

WASHINGTON U.S. Securities and Exchange Commission Republican member Daniel Gallagher announced on Friday that he will not stay on at the agency past Oct. 2.

Gallagher submitted his resignation letter to the White House in May, but he had not announced a date of departure.

“It has been a great honor to serve on the commission during such an important time,” Gallagher said in a statement.

Gallagher and Democratic SEC Commissioner Luis Aguilar, whose term is expiring, were expected to stay at the SEC until President Barack Obama nominated their replacements.

But that process has been delayed after progressive-leaning groups pressured the White House not to replace Aguilar with any corporate lawyers who represent Wall Street.

Gallagher said on Friday that he could leave sooner, if his successor is appointed this month.

Media reports have said the White House is eyeing former U.S. Senate staffer Hester Peirce, now a research fellow at George Mason University. She has consistently declined to comment about it.

Aguilar told Reuters on Friday that he has “no current plans” to leave the agency.

Technically, he can stay on board until December 2016 or until his successor is nominated by the President and confirmed by the U.S. Senate.

(Reporting by Sarah N. Lynch; Editing by Sandra Maler and Doina Chiacu)

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Geneva wealth managers pay defrauded investors to settle Madoff case

GENEVA Five former Geneva wealth managers have paid “substantial compensation” to settle criminal complaints brought by clients whose assets they had invested with U.S. fraudster Bernard Madoff, the Geneva prosecutor’s office said on Friday.

The case was launched in 2009 against five directors of Aurelia Finance, a Geneva-based private bank that prosecutors said had lost up to $800 million of clients’ money by investing in Madoff’s “Ponzi” scheme, which used money from new investors to pay existing clients.

The five men – Vladimir Stepczynski, Pascal Cattaneo, Olivier Ador, Laurent Mathysen-Gerst and Jean-Marc Wenger – were charged with criminal mismanagement of client money by putting too many assets into a Madoff “feeder fund”.

All five resigned from Aurelia’s board and their assets were frozen.

Prosecutors told a Geneva court at the time that the directors had enriched themselves on management fees, finder fees and commissions paid for fictitious returns that were never verified. The Swiss newspaper Le Temps reported last month that the five defendants had been due in court on Oct. 12.

The financial institutions that lost money in the fraud, through asset management units, include Spain’s Santander (SAN.MC), Italy’s UniCredit (CRDI.MI) and Swiss-based EFG International.

Swiss asset managers were among the biggest investors in Madoff’s scheme, with firms based in Geneva particularly hard hit.

Madoff, 77, is serving a 150-year prison term in the United States after pleading guilty in 2009 to masterminding the Ponzi scheme, estimated to have cost investors $17 billion in principal.

In the United States, 15 people including Madoff either pleaded guilty or were convicted at trial in connection with the collapse of the scheme. The final Madoff defendant in the United States was sentenced to six months in prison last month.

It was not possible to contact the Aurelia defendants or their lawyers. Mathysen-Gerst had told the newspaper Tribune de Geneve in 2009: “There is nothing criminal in our actions.”

He was quoted as saying that investments had been allocated to Madoff’s funds “at the explicit demand of the client” or after a discussion of the risks involved, and as denying that management commissions had been out of line with industry standards.

(Reporting by Tom Miles; Editing by Kevin Liffey)

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Muddled jobs report leaves Fed in a ‘jam’ watching markets

NEW YORK/RICHMOND, Va. The latest U.S. jobs report was not definitively good or bad enough to help the Federal Reserve decide whether to raise interest rates later this month, leaving the decision hanging on volatility in financial markets over the next couple of weeks.

The economy added 173,000 jobs in August, quite a bit fewer than expected. But employment growth in June and July were revised higher, wages rose more than expected in August and the jobless rate fell to a seven-year low of 5.1 percent.

With global financial markets reeling over the last two weeks over fears of a Chinese economic slowdown, the report is probably the best and last direct reading on the economy before Fed officials consider hiking rates at a Sept. 16-17 meeting.

Yet the report disappointed those looking for clarity.

“With this jobs report … the Fed finds itself in a real uncertainty jam when it comes to a September interest rate hike,” Mohamed El-Erian, chief economic adviser at Allianz, in Newport Beach, California, said in an email.

“In the run-up to its policy meeting, the Fed will pay even greater attention to global market developments.”

According to Fed policymakers gathered in Jackson Hole, Wyoming last week, not only would the August jobs report need to be decent but market gyrations would need to dissipate for them to act.

Decency was evident in the jobless rate falling to a level many U.S. central bankers see as full strength, while growth in wages and the number of hours worked across the country suggested Americans have more money to spend.

U.S. stocks on Friday fell sharply as investors weighed the chances of a Fed rate hike. Oil prices also fell.

For many, the report simply reinforced their previous views on the timing of the pending rate hike.

“I’d call this a good … employment report. It didn’t change the picture for monetary policy,” Richmond Fed President Jeffrey Lacker, who favors a prompt policy tightening, told a retailer conference in Richmond, Virginia.

Others highlighted the fact that the economy produced nearly 50,000 fewer jobs than expected in August. Still, average job growth in the last three months is 221,000, seen as enough to keep pushing the jobless rate lower.

Employment growth for the month of August in particular has a history of being initially underestimated and later revised higher by the U.S. Labor Department.

Wall Street’s top banks still expect the Fed will raise interest rates this year, but their conviction around a September hike has decreased notably in the last month due to volatility in global markets, a Reuters poll found.

Ten of 17 banks that deal with the Fed directly said they expect a rate hike in the fourth quarter of 2015 or later. Only seven dealers expect the tightening this month compared to 13 in an early August poll.

Bets in futures markets imply investors see roughly a 20 percent chance the hike will come this month.

Fed Vice Chair Stanley Fischer said last week that there was “a pretty strong case” to tighten before the market slump, and that now, “we are still watching how it unfolds.”

While data on the broader U.S. economy has remained healthy, the U.S. central bank wants reasonable confidence that inflation will rebound in the medium term before it raises rates. The rising dollar has also held U.S. prices down.

“It’s really inflation that has been holding them back, and this (jobs report) doesn’t really give them any evidence on that front,” said Thomas Simons, money market economist at Jefferies Co, in New York.

The Fed’s policy decision “will break down to how commodities react between now and the September meeting,” he said. “If commodities recover and stabilize then there’s a chance (of a hike); otherwise I don’t think it’s likely to happen.”

(Reporting by Jonathan Spicer in New York and Jason Lange in Richmond; Additional reporting by Jennifer Ablan in New York; Editing by Clive McKeef and Andrea Ricci)

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Boeing sticks with 747 production plans despite sales drought

NEW YORK Boeing Co (BA.N) said on Friday it is sticking to current production plans for its 747 jumbo jet despite a canceled order that left no net new orders for the plane in 20 months.

Nippon Cargo Airlines Ltd, a unit of Nippon Yusen (9101.T), canceled orders for four 747 freighters on Sept. 1, Boeing said, leaving no net new orders from this year or last. Boeing now has just 25 firm 747 orders, equal to about two years of production, for the $379 million jumbo.

The cancellation will have “no impact on production rates,” Boeing spokesman Doug Alder told Reuters.

The slump in sales of very large aircraft has raised questions about how long Boeing and European rival Airbus Group NV (AIR.PA) can keep building double-decker planes, with 2015 a make-or-break year for both.

Airbus’ competing A380 has booked no orders since 2014 from commercial airlines and has 148 orders in backlog. Airbus is considering upgrading the 10-year-old plane’s engines to stimulate sales.

If the sales slump continues, Boeing could face the prospect of taking an accounting charge of $1 billion or more on the 747-8 program, said Myles Walton, an analyst at Deutsche Bank. It was unclear how long Boeing could go without an order before triggering such an action. “There’s a judgment certainly on the part of the company, its auditors and conversations with customers,” he said.

Boeing has flagged the charge risk in quarterly filings, and said Friday there was no change regarding that due to Nippon’s cancellation.

The 747 does have some sales prospects. Boeing won a commitment in June for 20 747s from Russian cargo airline Volga-Dnepr Group. The U.S. Air Force also agreed to buy an unspecified number of 747s for the Air Force One presidential fleet, which currently has two planes. Neither commitment has been converted to a firm order.

To keep 747 assembly running, Boeing has notched down output and cut costs. Output is due to fall to one plane monthly in March from 1.3. A level below one is considered difficult to sustain.

To some extent, the 747 and A380 are victims of engineering success. Long-range twin-engine planes have largely eclipsed the capabilities of the less-fuel-efficient four-engine 747 and A380. A weak cargo market also has cut 747 freighter sales.

Boeing says at least 143 older freighters will need to be replaced and sees demand for 540 very large aircraft over the next 20 years. Airbus sees a market for 1,551 such planes.

(Reporting by Alwyn Scott; Editing by Dan Grebler)

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