News Archive


American Airlines stops accepting payments in Argentine pesos


BUENOS AIRES American Airlines (AAL.O) has stopped accepting Argentine pesos to pay for tickets due to currency controls that make it hard to convert receipts into U.S. dollars, the carrier said on Wednesday.

Foreign businesses operating in Argentina have long complained that they cannot send their profits home due to protectionist controls enacted by President Cristina Fernandez, who will step down on Dec. 10 after two terms in office.

“We have not reduced our flights, although we currently do not have inventory available for purchase in Argentine pesos due to repatriation issues,” American Airlines said in a statement.

The business-friendly mayor of Buenos Aires, Mauricio Macri, won Sunday’s presidential election against a candidate from Fernandez’s party. Macri vows to ditch Fernandez’s currency and trade controls as part of his push toward free markets.

“We look forward to working with the central bank and the new government on this matter,” American Airlines said in a statement.

The airline operates 27 flights per week from Buenos Aires to the United States, increasing to 35 weekly in high season.

The situation mirrors the one in Venezuela, where airlines have about $3.7 billion in ticket sales trapped because of the socialist nation’s 12-year-old currency control system, the International Air Transport Association (IATA) said in June.

“There is a risk that Argentina is headed down the same path as Venezuela. Both countries top a list of misguided policies and decisions that we are engaging governments across the region to reverse,” Tony Tyler, IATA’s chief executive officer, said in a speech in Puerto Rico this month.

IATA, the trade association for about 260 airlines around the world, would like to talk about policy changes with Macri.

“We are seeking to meet the new government as soon as it is in office to find a solution that will preserve connectivity and the vital economic benefits it brings,” Tyler said.

Alfonso Prat-Gay, a former foreign exchange chief at JPMorgan (JPM.N), is to be Macri’s finance minister.

Argentina’s official peso ARS=RASL was at 9.675 per dollar on Wednesday, 57.3 percent stronger than the black market rate at which many local transactions are made.

Under Fernandez, the central bank intervenes to keep the official rate strong. Macri says he will allow the two rates to converge.

American Airlines Group Inc shares dipped 3 cents to $41.20.

(Additional reporting by Alexandra Ulmer in Caracas and Jorge Otaola in Buenos Aires; Editing by Paul Simao, Bill Trott and Jeffrey Benkoe)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/4DYZJx8w-RU/story01.htm

U.S. new home sales rebound strongly in October


WASHINGTON Nov 25 – New U.S. single-family home sales surged in October and the inventory of properties for sale was the highest since early 2010, which could allay concerns of a significant slowdown in housing.

The Commerce Department said on Wednesday sales increased 10.7 percent to a seasonally adjusted annual rate of 495,000

units. September’s sales pace was revised down to 447,000 units from the previously reported 468,000 units.

Economists polled by Reuters had forecast new home sales, which account for about 8 percent of the housing market, rebounding to a rate of 500,000 units. Sales were up 4.9 percent compared to October of last year.

Though new home sales tend to be volatile month-to-month because they are drawn from a small sample, October’s bounce back should offer some assurance that the housing market remains on solid ground despite declines last month in home resales,

housing starts and confidence among builders.

New home sales vaulted a record 135.3 percent in the Northeast to their highest level since January 2010. Sales rose

8.9 percent in the populous South and were up 5.3 percent in the Midwest. They fell 0.9 percent in the West. The inventory of new homes on the market increased 1.3 percent to 226,000 last month, the highest since March 2010.

Supply still remains less than half of what it was at the height of the housing boom. At October’s sales pace it would take 5.5 months to clear the supply of houses on the market, down from 6.0 months in September. The median price of a new home fell 6.0 percent from a year ago to $281,500.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci; ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters; Messaging:; lucia.mutikani.thomsonreuters.com@reuters.net)))

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U.S. consumer spending slowing, but business investment poised to rise


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 will probably do 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.

The Commerce Department said consumer spending edged up 0.1 percent after a similar increase in September. When adjusted for inflation, consumer spending rose by the same margin.

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. The government reported on Tuesday that the economy expanded at a 2.1 percent rate in the third quarter.

The economy could get support from business spending. In a separate report, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 1.3 percent last month after rising 0.4 percent in September.

The report came on the heels of data this month showing a solid increase in manufacturing output in October, and was the latest suggestion that 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 a stronger dollar and a slowing in economies overseas would weigh on the United States. Manufacturing, which accounts for 12 percent of the economy, has been slammed by the dollar strength and the spending cuts in the energy sector. The dollar has appreciated 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 pared gains after the reports, while the dollar hit an eight-month high against a basket of currencies. U.S. stock index futures slightly extended gains.

WAGES RISING

Economists speculate that rising rents are diverting money from discretionary spending. 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 third report from the Labor Department showed initial claims 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 remain close to levels last seen in the early 1970s.

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

Savings increased to $761.9 billion last month, 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 ticked up 0.1 percent after declining in September for the first time since January. In the 12 months through October, the personal consumption expenditures (PCE) price index was up 0.2 percent after a similar rise in September.

Excluding food and energy, prices were unchanged after rising by 0.2 percent in September. The so-called core PCE price index rose 1.3 percent in the 12 months through October, for the 10th straight month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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Indexes set to open higher as data points to recovery


U.S. stocks opened slightly higher on Wednesday as a barrage of data painted a picture of moderate U.S. economic growth, giving Federal Reserve policymakers more to chew on as they consider whether to raise interest rates next month.

The Dow Jones industrial average .DJI was up 12.69 points, or 0.07 percent, at 17,824.88, the SP 500 .SPX was up 0.66 points, or 0.03 percent, at 2,089.8 and the Nasdaq composite index .IXIC was up 5.33 points, or 0.1 percent, at 5,108.14.

(Reporting by Radhika Rukmangadhan in Bengaluru; Editing by Ted Kerr)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/fuVk-PAGEIQ/story01.htm

U.S. business spending gauge surges, durable goods orders soar


WASHINGTON Nov 25 – A gauge of U.S. business investment plans surged in October, the latest suggestion that the worst of the drag from a strong dollar and deep spending cuts by energy firms was over.

The Commerce Department said on Wednesday non-defense capital goods orders excluding aircraft, a closely watched proxy

for business spending plans, increased 1.3 percent last month after an upwardly revised 0.4 percent rise in September.

Economists polled by Reuters had forecast these so-called core capital goods orders rising only 0.4 percent after

September’s previously reported 0.1 percent dip.

The report came on the heels of data this month showing a solid increase in manufacturing output in October. A survey of

factories also showed a rise in new orders last month. Manufacturing, which accounts for 12 percent of the economy,

has been slammed by the dollar strength and the spending cuts in the energy sector. The dollar has appreciated 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.

Still, manufacturing has to deal with an inventory overhang. Data on Tuesday showed businesses had not been as aggressive as

initially thought in their efforts to reduce unsold merchandise, leading to an accumulation of inventories that economists said

was unsustainable.

Shipments of core capital goods, which are used to calculate equipment spending in the government’s gross domestic product

measurement, fell 0.4 percent last month after an upwardly revised 0.7 percent gain in September.

Core capital goods shipments were previously reported to have risen 0.5 percent in September. An 8.0 percent jump in transportation equipment spending also contributed to lifting overall orders for durable goods – items ranging from toasters to aircraft that are meant to last three years or more – which surged 3.0 percent last month.

Transportation was buoyed by an 81.0 percent increase in aircraft orders. Boeing (BA.N) reported on its website that it

had received 59 orders last month, up from 29 aircraft orders in September. Orders for automobiles and parts fell 2.9 percent.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci; ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters; Messaging: lucia.mutikani.thomsonreuters.com@reuters.net)))

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/8TnilFr_9ZE/story01.htm

U.S. consumer spending tepid; savings near three-year high


WASHINGTON Nov 25 – 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.

The Commerce Department said on Wednesday 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 on the economy from an ongoing inventory reduction to hold the economy to around a 2 percent growth rate in the fourth quarter. The government reported on Tuesday that the economy expanded at a 2.1 percent rate in the third quarter.

Economists polled by Reuters had forecast consumer spending rising 0.3 percent last month. When adjusted for inflation,

consumer spending gained 0.1 percent in October after rising by the same margin in September.

Personal income increased 0.4 percent last month, accelerating after a 0.2 percent gain in September. Wages and salaries shot up 0.6 percent, the largest increase since May.

With income outpacing spending, savings rose, which could boost consumer spending in the coming months. Savings increased to $761.9 billion last month, the highest level since December 2012, from $722.9 billion in September.

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 ticked up 0.1 percent after declining in September for the first time since January.

In the 12 months through October, the personal consumption expenditures (PCE) price index was up 0.2 percent after a

similar rise in September.

Excluding food and energy, prices were unchanged after rising by 0.2 percent in September. The so-called core PCE price

index rose 1.3 percent in the 12 months through October, for the 10th straight month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci; ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters; Messaging: lucia.mutikani.thomsonreuters.com@reuters.net)))

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Deere profit falls on slowed farm equipment sales


Deere Co (DE.N) posted a sharp drop in quarterly earnings on Wednesday and forecast a further slump in agriculture and construction equipment sales in its new fiscal year.

Still, shares of the maker of John Deere tractors rose 5 percent in premarket trading as the profit exceeded Wall Street estimates.

“Folks were gearing themselves for a meaningfully worse outlook,” said Robert Baird Co analyst Mircea Dobre.

Deere also said it might raise its dividend and would consider buying back stock.

The company said it expected sales to be down about 7 percent in its first quarter, which began on Nov. 1, and down about 11 percent for the year.

Deere forecast net income attributable to the company at about $1.4 billion, down from $1.94 billion reported for fiscal 2015. However, Dobre said analysts were expecting an outlook of $1.0 billion and $1.2 billion.

In the fourth quarter ended on Oct. 31, net income attributable to Deere fell to $351.2 million, or $1.08 per share, from $649.2 million, or $1.83 per share, a year earlier.

Analysts on average had expected a profit of 75 cents per share, according to Thomson Reuters I/B/E/S.

Earnings from equipment operations dropped to $335 million from $910 million.

The company forecast an increase in capital expenditures to about $800 million for fiscal 2016 from about $688 million for the prior year.

Deere has already repurchased about $16.2 billion in shares between 2004 and 2015. And the stock dividend has been raised 114 percent since 2010, the company said.

(Reporting by Meredith Davis in Detroit; Editing by Lisa Von Ahn)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/NwfAkHT-t-I/story01.htm

Special Report: Greek shipowners talk up their role to protect tax breaks


PIRAEUS, Greece On the day he took office as Greece’s shipping minister in June 2012, Kostis Moussouroulis received a visit from a 90-year-old shipowner. He still remembers the older man’s words: “Don’t forget, the best minister of shipping and maritime affairs is the minister who is doing nothing for the shipping industry. He is the one who is leaving us alone.”

That’s the way Greek shipowners like it. The magnates who run one of the biggest merchant marine fleets in the world have long argued that if Greece tried to tax them, they would leave – and that their departure would devastate the economy. In recent years, as international institutions repeatedly bailed out Greece, the lenders have also pushed Athens to beef up its tax take. Shipowners have resisted any effort to ditch the tax breaks they enjoy, and no government has dared touch them.

“Shipping is a pillar of the Greek economy,” says the Union of Greek Shipowners, the ocean-going industry’s main association.

Greece’s statistics office says shipping contributes around $9 billion – or 4 percent – of the country’s Gross Domestic Product (GDP). When you include related business, the industry says, the figure jumps to 7.5 percent of GDP, or about $17 billion a year. Deep-sea shipping and related trades employ more than 192,000 people, it says. That’s 4 percent of all Greek workers.

But a Reuters analysis of corporate filings and economic data suggests shipping’s heroic role in Greece’s economy is largely a myth.

That’s because Greek shipowners include in their statistics billions of dollars which never actually enter the Greek economy. If Greece counted only payments to Greek companies and individuals – as other countries do – the deep-sea shipping industry’s contribution would be equivalent to around 1 percent of GDP.

For Greece, the cost of the tax breaks granted to shipowners runs into hundreds of millions of euros. Though that is small compared with the country’s debt, plenty of other citizens have had to tighten their belts. The country has cut jobless benefits by one-fifth, and health spending by a tenth, between 2009 and 2012 in exchange for bailouts from the European Union and International Monetary Fund. The nation’s farmers have seen their tax breaks axed and Greece has raised taxes on high earners. Shipping magnates, on the other hand, have their exemptions written into the constitution.

The shipowners “are powerful in that they … get the media to write what they want,” said economist and former finance minister George Papaconstantinou. “And immediately when you start touching them you start to hear: ‘We are 7 percent of the economy we bring 17 billion every year, 200,000 jobs’ … That’s not the case.”

Syriza, the governing party of Prime Minister Alexis Tsipras, initially promised to end the industry’s generous tax allowances. Shipping Minister Thodoris Dritsas concedes the way Greece measures its shipping industry is not effective. He said the government is reviewing the tax system and expects to publish details next year.

But while he said changes for shipping are possible, the government is reluctant to advocate anything that would damage shipping groups.

“What is very important for us is maintaining the competitiveness of Greek shipping,” he told Reuters in his office across Piraeus harbor from dozens of tree-shaded ship management offices. The ministry has a dilapidated air: Paint peels off the walls and staff ferry documents in supermarket shopping trolleys.

The Union of Greek Shipowners declined to comment on the Reuters analysis, but said any suggestion it used political or media influence to perpetuate inaccuracies about its economic contribution was “a completely false allegation.” It used official data and analysis by respected bodies, it said. “The Greek shipping community stands on its stellar track record as the global success story of Greece.”

The industry says government tax revenues from Greek shipping have increased more than eightfold since the outbreak of the economic crisis. It said this was due to a number of factors including the fact that in 2013, the industry volunteered to pay 420 million euros in extra taxes over several years.

Greece’s central bank and its statistics office ELSTAT, which publish official data on the economy and the industry, said they follow international rules on counting the economy. Both declined to comment on Reuters analysis. The Ministry of Finance did not respond to requests for comment.

MARITIME NATION

A nation of more than 1,000 islands, Greece’s history and culture has been intertwined with the sea since the Battle of Salamis against the Persians in 480 BC, when the Greeks trapped the invading fleet in a narrow strait.

The modern industry grew up in the 19th century. Trading families bought vessels to transport goods between the Black Sea and northern Europe. Over time, they began to provide freight for others. Greeks now operate some of the world’s biggest tankers and bulk carriers.

Three things helped: Greece’s location at the crossroads of Europe, Asia and Africa; a cosmopolitan outlook; and low taxes.

Even in those early days, though, the industry’s international nature sparked doubts about how much money it generated for Greece.

In 1933, Emmanouil Tsouderos, then the Bank of Greece’s governor and later a prime minister, published a report which found that shipping was the country’s biggest source of foreign exchange. The industry brought in 5.9 million pounds sterling equivalent (roughly $450 million in today’s money), around 20 percent more than tourism, he said.

But in his report, the central banker added that not all this money could be counted as a contribution to the economy. So many of the industry’s expenses – fuel, port fees, labor and repairs – were incurred overseas that Greece would never see all the cash. Tsouderos decided that only about a third of the shipping money remained in the country.

Today, Bank of Greece statistics show, shipping receipts are worth some $15 billion a year. That is equivalent to almost 7 percent of GDP, and just behind the $18 billion brought in by tourism.

But unlike Tsouderos, the Bank does not specify how much of this stays in Greece.

Some in the industry still say shipping counts for more than tourism.

“It’s not like tourist money,” said John Coustas, Chief Executive of Danaos Shipping, one of the largest Greek shipping groups. The problem with the tourism industry, he said, is that Greece has to import goods to supply tourists’ needs. “In shipping this is a pure contribution,” he said, sitting in his wood-paneled office overlooking Piraeus port, surrounded by oil paintings of 19th-century shipping scenes.

TOO BIG TO TAX

Greek shipowners have long argued that their industry is too special to tax. After the Second World War, when the cash-strapped government wanted to introduce a levy on shipping companies, owners responded by moving their vessels to companies in tax havens such as Panama.

To keep them sweet, the government in 1953 enshrined tax breaks for shipowners in the constitution. Greece started to allow shipping companies to pay a nominal fee, known as a tonnage tax, instead of a tax on profits. The tax varied widely and was sometimes as low as $1 for each “taxable ton” of a ship’s weight. Shipowners were exempted from tax on their incomes.

This brought some shipping operations back, but the companies which owned the fleet remained registered in Liberia, Marshall Islands and Panama, according to documents, government officials and industry executives. Shipowners wanted to keep their assets safe from volatile local politics.

Today, instead of Greek-based ships manned by Greek sailors, shipping in Greece is mainly made up of small management offices in Piraeus that collect freight fees on behalf of their tax-haven registered parents. The management firms oversee the movements and maintenance of the ships, which rarely if ever visit Greece. In return, the management firms receive a small share of the shipping fees.

It’s not clear how many jobs the industry generates. In 2012, ELSTAT said 5,100 Greeks were employed on Greek-flagged deep sea vessels. Industry-backed studies add about 6,000 Greek sailors on foreign-flagged ships, and around 15,000 jobs onshore. On top of that, they assume the industry generates over 100,000 more jobs indirectly.

Companies and government officials say the Greek-run fleet – like most – mainly employs sailors from developing countries.

The dividends paid by many Greek shipping firms also often stay offshore. The country does not count actual dividends paid, but filings by firms which do disclose their dividends suggest the total paid both on and offshore could be over $1 billion a year.

Shipowners, too, often live outside Greece. More than half the shareholders in big Greek shipping companies are based elsewhere, including famous magnates such as George Economou, who lives in Monaco, and John Angelikousis, who lives in London. Other big names such as Philip Niarchos and Spiro Latsis live in Switzerland, filings in the UK and Switzerland show. They declined to comment on their residence.

Such a globalized structure is common enough around the world. Less common is the way Greece counts this business.

DROP IN THE OCEAN

Countries like Britain and Norway only consider the fees made by shipping companies that are registered on their territories.

They do this partly to reflect economic reality, but also because statistical bodies can’t reliably count money paid or people employed by firms in tax havens, said Robin Lynch, who used to measure GDP at Britain’s Office for National Statistics.

Norway’s statistical service takes that a step further. One measure of GDP it produces strips out Norwegian-registered shipping companies completely. Sabina Du Rietz, a GDP expert at the Norwegian School of Economics, said this is deemed a better measure of the economy, because the shipping industry employs mainly non-residents and has “negligible effect on domestic demand.”

Greece’s statistical agency ELSTAT, on the other hand, counts the whole industry as if it were based in Greece. It includes in its national accounts the full freight fees that are collected by shipping companies registered in tax havens. This means it counts wages paid to non-Greek seamen and dividends paid to non-Greek shareholders.

If Greece counted only fees paid to Greece-based management companies, the industry would be much smaller.

A total of 17 of the largest Greek shipping companies, with a combined turnover of $2.5 billion, published their fee income for 2013. They paid $123 million in management fees to their Greek offices that year, the accounts show. Some of these management firms had branches outside Greece, so not even all of this modest amount stayed in the country.

Assuming management fees across the industry run at a similar level, the total direct onshore impact of shipping groups would be around $700 million that year, Reuters calculations show. Adjusting for costs, the direct contribution to GDP would be around $500 million, compared to the $9 billion or so recorded by ELSTAT.

Including payments to suppliers, sailors and dividends, the contribution to the economy would be around $2 billion. That’s just over a tenth of the figure cited by the industry.

The Reuters estimates are based on a sample of companies which generate about a fifth of shipping export earnings. They may not be representative, although accountants and industry executives say all shipping companies have similar structures and face similar costs.

Nadim Ahmad, head of trade statistics at the Organisation for Economic Co-operation and Development, said Greece is entitled to count the shipping sector as it does. But capturing so much activity outside the economy means the result can be misleading, he said. “Is it right to say: ‘This GDP is generated in this country, ergo it necessarily follows that this is the benefit that accrues to this economy’? It’s obvious the answer is no.”

PR OFFENSIVE

Despite this, Greek shipping owners have managed to convince a succession of governments that they deserve special treatment.

After the fall of the military junta, which ruled from 1967 to 1974, shipowners worried they might lose their tax exemption and mounted a public relations offensive, according to a study by Ilias Bissias, a lecturer at the University of the Aegean who has worked in communications at shipping groups. Normally secretive, shipowners began to give press interviews “to bond with the general public,” Bissias said. And they invested in media groups, which some politicians say they use as a platform to highlight the industry’s contribution.

Greece’s leaders don’t question the industry’s importance, said Yannos Papantoniou, who was finance minister from 1996 to 2001. “For us, shipping is a desperately needed source of foreign income, which addresses the country’s fundamental weakness which is the lack of foreign exchange,” he said.

Gikas Hardouvelis, who was finance minister until January this year, said the importance of the sector gives it political power. “There are people in Greece who think these people should pay taxes. People in the ministry, they were gung-ho to grab them. I tend to be more liberal because I understand that these people have options,” he said.

Papaconstantinou, the former finance minister who said he doubted the importance of shipping to the economy, is one politician who wants change. He told Reuters the government should commission an independent report to estimate the real contribution of the sector. But he said the industry would resist.

“It’s not by accident that you do not have an authoritative independent study of this,” he said.

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How Greek shipowners win tax breaks by talking up their size (Web version) here

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(Additional reporting by Nikolas Leontopoulos, Silvia Aloisi and Eleftherios Papadimas in Athens; Edited by Sara Ledwith and Simon Robinson)

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VW maintains $7 billion of provisions despite simple emissions fix


WOLFSBURG, Germany Volkswagen (VOWG_p.DE) will not lower planned provisions of 6.7 billion euros ($7.1 billion) for the costs of its diesel emissions scandal, though the technical fix for 8.5 million cars in Europe have turned out to be simpler than expected.

VW is seeking as much as 20 billion euros ($21.18 billion) in funding from banks as it struggles to cope with the expected costs of the scandal, which analysts say could top 40 billion euros including fines, legal claims and vehicle refits.

But while the total costs of the scandal aren’t clear, VW has no plans to alter the existing provisions, a spokesman told reporters on Wednesday at the carmaker’s base in Wolfsburg.

VW said during a presentation it only needs to install a mesh near the air cleaner in 3 million 1.6-litre EA 189 diesel engines to ensure they comply with EU emissions rules.

Fitting the mesh will require one hour of work, improving the measuring capability of the engine’s air mass sensor which enables more efficient combustion, another spokesman said.

Chief Executive Matthias Mueller told managers on Monday that the technical steps needed to fix the vehicles are “technically and financially manageable.”

VW said it was too early to give an estimate of the costs of installing the so-called air flow transformer. All 8.5 million engines in Europe, including 5.2 million 2.0-litre diesels and 300,000 1.2-litre diesels, will require software updates.

“Our assumption that fundamental interferences with the engine are necessary have not come true,” Mueller said.

($1 = 0.9442 euros)

(Reporting by Andreas Cremer; Editing by Kirsti Knolle, Greg Mahlich)

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