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Fed gives largest U.S. banks extra year for debt rule calculation

NEW YORK The Federal Reserve said on Wednesday that bigger U.S. banks would have an extra year to calculate a capital requirement known as the supplementary leverage ratio for stress testing.

Institutions subjected to the leverage ratio requirement will have to show regulators what the ratio would be in a stressed scenario beginning in 2017.

The extension applies to banks with more than $50 billion of assets, of which there were 39 at the end of the third quarter, according to data from the Federal Deposit Insurance Corp.

The supplementary leverage ratio creates hard limits on how much debt banks can borrow relative to their assets, without giving banks credit for having relatively low-risk assets.

Analysts have said that the supplementary leverage ratio is creating distortions in a number of corners of the bond market, including interest-rate swaps and repo funding markets, by essentially making it more expensive for banks to fund positions in those markets.

Gennadiy Goldberg, U.S. rates strategist at TD Securities, said the delay is unlikely to have much of an impact on credit markets as banks typically look to comply with capital rules well ahead of their actually kicking in.

According to an explanation the Federal Reserve released in conjunction with the rule, the extension was made to “allow banking organizations time to develop the systems necessary to project the supplementary leverage ratio under stressed conditions.”

The change was one of several the Fed made to its rules for stress testing banks and assessing their readiness for dividend hikes and share buybacks. Many of the changes relate to the timing of compliance with certain requirements, though the Fed also removed a requirement for banks to make a calculation known as the tier 1 common ratio.

(story corrects to clarify in first paragraph that the extra year applies just to calculations for stress tests.)

(Reporting by Dan Freed in New York; editing by Dan Wilchins and Chizu Nomiyama)

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NXP wins U.S. antitrust approval to buy Freescale Semiconductor

WASHINGTON NXP Semiconductors N.V. has won U.S. antitrust approval to buy Freescale Semiconductor Ltd, a deal worth $11.8 billion, on condition that it sell its radio frequency power business, the Federal Trade Commission said on Wednesday.

European Union antitrust regulators approved the deal in September with the same condition. Shareholders of both companies approved the merger in July.

The FTC said that the sale of power amplifier assets will restore competition that would have been lost because of the deal. The Chinese private equity firm Jianguang Asset Management Co. Ltd will buy the assets.

The deal values the merged company at over $40 billion and will create the biggest player in the automotive and industrial semiconductor markets.

(Reporting by Diane Bartz; Editing by Alan Crosby)

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Pimco, others sue Citigroup over billions in mortgage debt losses

Pacific Investment Management Co and other investors have sued Citigroup Inc over the bank’s alleged failure to properly monitor toxic securities backed by more than $13.8 billion of mortgage loans, resulting in $2.3 billion of losses.

According to a complaint filed Tuesday night in a New York state court in Manhattan, Citigroup breached its duties as trustee for the 25 private-label trusts dating from 2004 to 2007 by ignoring “pervasive and systemic deficiencies” in how the underlying loans were underwritten or being serviced.

The investors said Citigroup looked askance at the loans’ “abysmal performance” out of fear it might “jeopardize its close business relationships” with loan servicers including Wells Fargo Co and JPMorgan Chase Co, or prompt them to retaliate over its own problem loans.

Some loans backing the 25 trusts came from issuers including the now-defunct American Home Mortgage and Washington Mutual. The lawsuit seeks class-action status and unspecified damages.

Citigroup spokeswoman Danielle Romero-Apsilos declined to comment. TIAA-CREF, and affiliates of Prudential Financial Inc and Aegon NV’s Transamerica are among the other plaintiffs.

Pimco, a unit of German’s Allianz SE, has filed lawsuits against other banks raising similar allegations over other mortgage trusts. A Pimco spokesman declined to comment.

Bond issuers appoint trustees to ensure that payments are funneled to investors, and handle back-office work after securities are sold.

Trustees have in recent years become a target for investors who lost money on badly underwritten mortgages, and believe the trustees shirked their duties to force lenders and bond issuers to buy those loans back.

The case is Fixed Income Shares: Series M et al v. Citibank NA, New York State Supreme Court, New York County, No. 653891/2015.

(Reporting by Jonathan Stempel in New York; Additional reporting by Jennifer Ablan; Editing by Alan Crosby)

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GM, law firm can keep ignition switch documents secret: U.S. judge

NEW YORK General Motors Co (GM.N) and its law firm need not turn over privileged documents to drivers hoping to show that the automaker intended to commit a crime or fraud by concealing defective ignition switches in their vehicles, a Manhattan federal judge ruled on Wednesday.

Despite finding “probable cause” to believe GM committed a crime or fraud by hiding the defect from regulators and the public, U.S. District Judge Jesse Furman found no showing that the automaker and King Spalding produced the documents with an intent to further such misconduct.

Most of the documents related to the law firm’s advice from 2010 to 2013 on three crashes involving Chevrolet Cobalts. Vehicle owners said the deception justified a waiver of attorney-client privilege.

“Put simply, plaintiffs do not provide a factual basis for a good faith belief that the communications and work product they seek – let alone any particular communications or work product they seek – were made with the intent to further a crime or fraud,” Furman wrote.

The judge added that the vehicle owners already had many of the documents in hand, and that King Spalding’s work had “all the hallmarks of dispassionate, sober evaluations (perhaps, in hindsight, too dispassionate and sober for their own good).”

Wednesday’s decision is a victory for GM as it prepares for a Jan. 11, 2016, bellwether trial over an ignition switch defect that could cause engines to stall and prevent airbags from deploying in crashes.

The defect on Cobalts, Saturn Ions and other vehicles has been linked to at least 124 deaths.

GM in February 2014 began recalling 2.6 million vehicles to fix the defect, despite having awareness of a possible problem a decade earlier.

Two months ago, GM agreed to pay $900 million and enter a deferred prosecution agreement to end a related U.S. criminal probe. Furman cited that accord when discussing probable cause.

“We’re pleased with the court’s ruling,” GM spokesman James Cain said. “The company did not conspire with King Spalding to further any crime or fraud.”

Bob Hilliard, a lawyer for vehicle owners, said attorney-client privilege is “difficult to overcome,” and that jurors in the upcoming trial “will determine what level of financial punishment should be assessed against this company.”

King Spalding spokeswoman Micheline Tang said Furman’s decision shows that the firm’s lawyers “did exactly what one would expect ethical and diligent litigators to do.”

Furman oversees more than 200 lawsuits over the ignition switches.

The case is In re: General Motors LLC Ignition Switch Litigation, U.S. District Court, Southern District of New York, No. 14-md-02543.

(Reporting by Jonathan Stempel in New York; Additional reporting by Joseph White in Detroit and Jessica Dye in New York; Editing by David Gregorio and Steve Orlofsky)

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United Continental to offer 13 percent pay increase to pilots: Bloomberg

United Continental Holdings Inc (UAL.N) is offering pilots a 13 percent pay increase in 2016 in a contract that would put them at or near the top of the U.S. airline industry’s pay scale, Bloomberg reported, citing two people briefed on the plan.

The 2016 increase would be followed by annual increases of 3 percent and 2 percent, Bloomberg said.

Reuters reported last week that the second-largest U.S. airline by capacity and its pilots union had reached an agreement in principle to extend the labor contract that covers United’s more than 12,000 pilots by two years.

United’s contract with the Air Line Pilots Association International (ALPA) had been due to run through early 2017. The union and the airline in early October agreed to enter into talks to negotiate an extension of the contract, ahead of original plans to open talks in 2016.

The company does not discuss proposed labor agreements, a United spokesman said in an email. ALPA was not immediately available for comment.

United’s management has been focusing on securing labor contracts following a leadership change in September. New Chief Executive Oscar Munoz, now on temporary leave following a heart attack, has said the integration of United and Continental since their 2010 merger had been “rocky” for employees and customers.

(Reporting by Arunima Banerjee in Bengaluru; Editing by Anil D’Silva)

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With U.S.-Cuba detente, a battle over trademarks looms

CAMAGUEY, Cuba When Julio Manzini decided two years ago to name his small restaurant McDonald’s after the famous fast-food chain (MCD.N), he had no idea it could cause any trouble. He has since been frightened into removing the name.

“I don’t even know what McDonald’s tastes like, I just thought the name was striking, like Shakira or something,” he said at the lunch counter of what used to be “Cafeteria La McDonald’s Camagueyana” in the Cuban city of Camaguey, about 300 miles (500 km) east of Havana.This month, Manzini stripped “McDonald’s” and the famous golden arches from his handcrafted sign as a precaution after he claimed his establishment was visited by a lawyer sent by the company.

The place is now simply called “Cafeteria La Camagueyana.”

His counterfeit McDonald’s illustrates a potential battlefront between Cuba and the United States over trademark and intellectual property rights as Cuba’s economy opens up to more private enterprise and closer ties with the United States.

The two countries restored diplomatic relations this year after half a century of Cold War hostility and are now working to improve ties. Trademark and intellectual property issues will be on the negotiating table, both sides have said.

Both have grievances. The United States has denied Cuban companies the same trademark protection enjoyed by brands from everywhere else, forcing marquee names such as Havana Club rum and Cohiba cigars into long, expensive court battles.

And while Cuba protects trademarks registered with the government, it also tolerates or officially sanctions the resale of unlicensed music, software and entertainment. State television routinely pirates American movies and shows for broadcast.

In a socialist economy that only in recent years has allowed small-scale private businesses, knowledge of trademark law is poor. Manzini said he never thought to check with the Cuban Office of Industrial Property (OCPI) to see if the McDonald’s name was available. It is not: McDonald’s has registered trademarks in Cuba since at least 1985.

Despite the United States’ 53-year-old trade embargo against Cuba, companies from both countries have continued registering trademarks and patents in the other.

Since 1966 about 1,500 U.S. businesses have filed nearly 6,000 trademarks in Cuba, including renewals, according to data from Saegis, the online trademark database from Thomson Reuters.

Among them are Coca-Cola (COKE.O), Pepsi (PEP.N), Levi’s [LEVST.UL], Nike (NKE.N), Starbucks Coffee (SBUX.O), Pfizer (PFE.N), Intel (INTC.O), Burger King, KFC and Goodyear (GT.O).

Another 1,355 trademarks of U.S. origin, including Walmart (WMT.N) and Google (GOOGL.O), are protected under an international treaty known as the Madrid Protocol, according to World Intellectual Property Organization data.

Aside from the “special hamburgers” and “American coffee” on offer, there is little that separates Manzini’s hole-in-the-wall operation from hundreds of other snack bars tucked in doorways across the island.

But he was likely violating trademark protections by using the McDonald’s name and the golden arches on his sign. He said he only fully understood he could be in trouble after the lawyer visited the restaurant recently while he was away.

“I’m really afraid. I don’t even pull in 1,000 pesos ($40) a day,” Manzini said.

McDonald’s would have to complain to the OCPI to legally stop Manzini and others, such as the “McDunald” cafe in the city of Santa Clara, which also uses the golden arches on its sign.

A spokeswoman for McDonald’s declined to comment except to say that “we are committed to vigorously protecting our intellectual property.”


More companies have registered their brands in Cuba since U.S. President Barack Obama and Cuban President Raul Castro announced detente last December, among them Twitter (TWTR.N), Uber [UBER.UL] and Segway.

“There has been an explosion of interest from U.S. companies,” said Jaime Angeles, an intellectual property lawyer and partner at Dominican law firm Angeles Lugo Lovaton who represents firms fighting for their trademark rights in Cuba.

Some 192 U.S. trademarks were filed in Cuba in the first four months of 2015, compared to 78 in all of 2014, according to Saegis data.

A few U.S. companies have seen their brand names pursued by others in Cuba.

Gustavo Fuentes, a Cuban lawyer residing in the United States, has applied for 65 trademarks, including famous brands such as John Deere (DE.N), Chase (JPM.N), the NFL and Pixar.

Some companies are contesting those rights, including JetBlue Airways Corp (JBLU.O), which announced plans for a New York-to-Havana charter five months after Fuentes asked for the name JetBlue.

“We will vigorously protect our brand in Cuba,” spokesman Doug McGraw said.

Fuentes declined to comment. The OCPI has yet to grant him any trademarks, according to its public records.

Angeles, who represents eight of the U.S. companies, including restaurant chain IHOP [DIN.UL] and pharmaceutical company Hospira, said he was confident they would win the rights to their brands in Cuba.

“The Cuban system has all the legal tools to protect trademarks of any country,” he said, adding that companies should claim their trademarks before someone else does. “Filing first is the cheapest protection you can get.”

Cuba has long struggled to protect its marquee brands under U.S. law, including one statute that aims to protect owners of Cuban companies nationalized after the 1959 revolution that brought Fidel Castro to power.

Bacardi, the former Cuban distiller that now makes rum in Puerto Rico, controls Havana Club in the United States after acquiring the name from its original pre-revolutionary owner. Everywhere else, Cuba and its French joint venture partner, Pernod Ricard (PERP.PA), control the rights to Havana Club.

“That is a restriction we put on trademarks only with respect to Cuba,” said Jeremy Sheff, a law professor at St. John’s University in New York. “The U.S. treatment of Cuba is unique in all of international property law.”

Cuba’s famed Cohiba cigar brand has been fighting for its trademark for 19 years against a rival that won a major U.S. court case by citing the embargo.

(Reporting by Jaime Hamre; Additional reporting and Writing by Daniel Trotta; Editing by Kieran Murray)

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U.S. data points to moderate fourth-quarter growth

WASHINGTON U.S. consumer spending barely rose in October as households took advantage of rising incomes to boost savings to their highest level in nearly three years, pointing to moderate economic growth in the fourth quarter.

Anemic consumer spending did little do change expectations that the Federal Reserve will raise interest rates next month as other data on Wednesday showed a surge in business spending plans in October and a drop in new applications for unemployment benefits last week.

“As far as fourth-quarter GDP goes, that is likely to keep estimates close to 2 percent. That’s enough to justify a rate hike as long as next Friday’s employment report is not a disaster,” said Chris Low, chief economist at FTN Financial in New York.

The Commerce Department said consumer spending edged up 0.1 percent after a similar increase in September. That suggests consumer spending, which accounts for more than two-thirds of U.S. economic activity, has slowed from the third quarter’s brisk 3.0 percent annual pace.

The tepid rise in consumer spending could combine with an anticipated drag from an ongoing inventory reduction to hold the economy to around a 2 percent growth rate in the fourth quarter.

But the economy, which expanded at a 2.1 percent pace in the third quarter, could get support from business spending.

In a second report, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 1.3 percent last month after rising 0.4 percent in September.

Coming on the heels of data this month showing a solid increase in manufacturing output in October, it suggested the worst of the drag from a strong dollar and deep spending cuts by energy firms was over.

Fed officials had held off raising rates at their last two meetings as they assessed the degree to which dollar strength and a slowing in economies overseas would weigh on the United States.

“The surge in core capital goods orders could be a crucial signal that this important sector of the economy may be at a turning point, further bolstering the Fed’s confidence in the sustainability of the economic recovery,” said Millan Mulraine, deputy chief U.S. economist at TD Securities in New York.

Manufacturing, which accounts for 12 percent of the economy, has been slammed by the buoyant dollar and energy sector spending cuts. The greenback has gained 18.1 percent against the currencies of the United States’ main trading partners since June 2014.

The pace of appreciation, however, is gradually slowing. Economists also believe that the bulk of spending cuts by oil field firms like Schlumberger (SLB.N) in response to lower crude prices have already been implemented.

U.S. Treasury debt prices rose modestly, while the dollar hit an eight-month high against a basket of currencies. U.S. stocks were flat.


Economists say rising rents and medical costs are diverting money from discretionary spending. While consumer sentiment increased in November from October, households continued to fret over their financial prospects, another report showed.

But as the labor market continues to tighten, there is optimism that wage growth will pick up and encourage consumers to loosen their purse strings and boost spending.

A fourth report from the Labor Department showed first-time applications for state unemployment benefits declined 12,000 to a seasonally adjusted 260,000 for the week ended Nov. 21. Claims have now held below the 300,000 threshold for 38consecutive weeks, the longest stretch in years, and are near levels last seen in 1973.

Strengthening labor market conditions are gradually lifting income. The Commerce Department said personal income increased 0.4 percent last month after rising 0.2 percent in September. Wages and salaries shot up 0.6 percent, the largest gain since May.

Savings increased to $761.9 billion, the highest level since December 2012, from $722.9 billion in September. Higher savings could over time buoy consumer spending.

There was still no sign of inflation, which has persistently run below the Federal Reserve’s 2 percent target.

A price index for consumer spending rose 0.2 percent in the 12 months through October after a similar rise in September.

Excluding food and energy, the personal consumption expenditures price index was up 1.3 percent for the 10th straight month.

In another report, the Commerce Department said new homes sales jumped 10.7 percent in October, which could allay concerns of a significant slowdown in housing.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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Barclays settles with U.S. investors over Libor manipulation

NEW YORK Barclays Plc (BARC.L) has agreed to pay $14 million to settle litigation by holders of its American depositary shares that it conspired with rivals to rig the Libor benchmark interest rate, causing its share price to be inflated.

The preliminary accord filed in Manhattan federal court on Tuesday evening resolves claims that Barclays “turned a blind eye” before and after the financial crisis when its traders manipulated Libor to boost profits, and that senior management condoned the deception to enhance Barclays’ reputation in the marketplace.

Barclays denied wrongdoing in agreeing to settle with plaintiffs led by the Carpenters Pension Trust Fund of St. Louis and the St. Clair Shores Police Fire Retirement System in Michigan. The class period runs from July 2007 to June 2012, and the settlement requires court approval.

A bank spokesman, Mark Lane, declined to comment.

Libor, or the London Interbank Offered Rate, is used to set rates on hundreds of trillions of dollars of transactions, including for credit cards, student loans and mortgages. Banks use it determine the cost of borrowing from one another.

Tuesday’s settlement was disclosed 11 days after Barclays agreed to pay $120 million to resolve similar manipulation claims by “over-the-counter” investors that transacted directly with banks comprising a panel to determine Libor.

Barclays also reached $453 million of settlements over Libor in June 2012 with U.S. and British regulators, and agreed last month to pay $94 million to end litigation claiming it conspired to rig Euribor, which is Libor’s euro-denominated equivalent.

The bank’s ADS price fell 12 percent on the day after the regulatory settlements were announced. Regulators and investors have accused many other major banks of conspiring to rig Libor.

Law firms for the shareholders, led by Robbins Geller Rudman Dowd, plan to seek fees of up to 30 percent of the settlement fund, plus up to $1.2 million for costs, court papers show.

The case is Gusinsky et al v. Barclays Plc et al, U.S. District Court, Southern District of New York, No. 12-05329.

(Reporting by Jonathan Stempel in New York; Editing by Cynthia Osterman)

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Herbalife, CEO prevail in ‘pyramid scheme’ lawsuit

A federal judge dismissed a lawsuit accusing Herbalife Ltd (HLF.N) and Chief Executive Officer Michael Johnson of defrauding shareholders by misrepresenting that the weight-loss and nutritional products company’s complied with laws designed to prevent pyramid schemes.

U.S. District Judge Dale Fischer in Los Angeles decided on Monday that the Oklahoma Firefighters Pension and Retirement System failed to show that the defendants intended to deceive shareholders and materially misrepresented Herbalife’s business.

Fischer, who had thrown out two earlier versions of the lawsuit, dismissed the case with prejudice, meaning it cannot be brought again.

Herbalife shares were up 26 cents at $58.39 in Wednesday morning trading on the New York Stock Exchange.

The lawsuit is separate from the campaign against Herbalife by billionaire activist investor William Ackman of Pershing Square Capital Management LP, who in December 2012 announced a $1 billion bet against the Los Angeles-based company.

Herbalife has long denied that it is a pyramid scheme, which often occurs when participants earn more money by recruiting others to sell products than by selling the products.

The Oklahoma fund’s lawsuit accused Herbalife of “grossly” understating the percentage of sales going to retail customers.

It also said Johnson was closely involved in Herbalife’s day-to-day affairs, making him familiar with the alleged deceptive activity, and took advantage of a share price he knew was inflated by selling more than $126 million of company stock.

Fischer, however, said that despite new allegations about Johnson’s “hands-on” involvement, the lawsuit still failed to sufficiently allege fraud.

“Plaintiff has had multiple opportunities to correct shortcomings,” she wrote. “An amendment would be futile.”

Maya Saxena, a lawyer for the Oklahoma fund, did not immediately respond to requests for comment on Wednesday. Herbalife, in a statement, said it was “obviously pleased” with Fischer’s decision.

The lawsuit sought class-action status on behalf of shareholders from Feb. 23, 2011 to Dec. 19, 2012, when Ackman disclosed his short bet.

In May, another federal judge approved Herbalife’s $15 million settlement with distributors who said the company misled them.

The case is In re: Herbalife Ltd Securities Litigation, U.S. District Court, Central District of California, No. 14-02850.

(Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn)

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