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Exxon slashes spending after smallest profit in years

Exxon Mobil Corp (XOM.N) on Tuesday reported its smallest quarterly profit in more than a decade and said it will cut 2016 spending by one-quarter and suspend share repurchases as it copes with a prolonged downturn in crude prices.

Shares of the world’s largest publicly traded oil company fell as much as 3.6 percent on the New York Stock Exchange as the price of crude slid 4.2 percent.

Crude oil prices have dropped about 70 percent from the 2014 high over $100 barrel. Current prices at around $30 barrel have triggered a wave of spending cuts as oil companies slash investment in new wells and projects to conserve cash.

“We have built this business to ensure that it is durable in a low price environment,” Jeff Woodbury, Exxon’s head of investor relations, told analysts on a conference call.

The results were somewhat buttressed from crude’s downturn by its integrated business model and long-term investment horizon, unlike smaller shale companies. While profit plummeted in its exploration and production business, its refining unit earned more.

Exxon forecast capital spending at around $23.2 billion this year, a 25 percent drop from 2015.

In another move to conserve cash, Exxon suspended its share buyback plan meant to return cash to investors in the first quarter, something it hasn’t done in 15 years.

Oil analyst Brian Youngberg at Edward Jones in St. Louis characterized Exxon’s report as “relatively good, especially when compared with BP’s terrible results.” He noted that Exxon’s oil and gas output was better than expected and that the company had improved its operations this year.

Earlier Tuesday, BP Plc (BP.N) reported an annual loss of $6.5 billion, its largest ever. Smaller U.S. rival Chevron Corp (CVX.N) last Friday also reported a net loss.

Irving, Texas-based Exxon reported that fourth-quarter profit tumbled to $2.78 billion, or 67 cents per share, from $6.57 billion, or $1.56 per share, in the same period a year earlier. The 2015 fourth-quarter profit was the smallest since September 2002.

Analysts, on average, expected Exxon to earn 63 cents per share, according to Thomson Reuters I/B/E/S.

Exxon said its oil and gas output rose 4.8 percent in the fourth quarter as it pumped more crude oil.

While Exxon is scaling back on spending this year, Woodbury highlighted some recent offshore investments, including the acquisition of 652,000 net acres offshore Newfoundland.

The stock was off 2.7 percent to $74.22 after falling as low as $73.55.

(Reporting by Anna Driver in Houston; Editing by Jeffrey Benkoe)

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Fed’s George sees more rate hikes coming despite market swings

The Federal Reserve should push ahead with interest rate hikes because of the strong fundamentals of the U.S. economy, a Fed policymaker said on Tuesday, downplaying the impact of financial market volatility.

“My view is that the committee should continue the gradual adjustment of moving rates higher,” Kansas City Fed Bank President Esther George, who has a vote this year on the U.S. central bank’s rate-setting committee, said in prepared remarks.

George said her view could change if there were a “substantial shift” in the outlook for the U.S. economy and that she was paying attention to financial market volatility as well as the possibility that job losses in the U.S. energy sector could act as a drag on the overall economy.

But the wild swings in financial markets are “not all that unexpected, nor necessarily worrisome” given that the Fed’s rate hike in December pointed to an end of years of policies aimed at propping up financial market asset prices.

“The fundamentals of the U.S. economy currently appear strong enough to sustain positive growth going forward,” George said in a speech to a business group in Kansas City, Missouri.

George added that she thought the Fed got a “late start” when it raised rates by a quarter percentage point in December after leaving them near zero for seven years. She did not say how many increases she thinks are warranted this year but said she backed a “gradual” path of hikes.

(Reporting by Jason Lange in Washington; Editing by Paul Simao)

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Morgan Stanley in $63 million deal with FDIC over mortgage bonds

NEW YORK Morgan Stanley (MS.N) has agreed to pay $62.95 million to resolve claims over the sale of toxic mortgage-backed securities to three banks that later failed, the Federal Deposit Insurance Corp said on Tuesday.

The settlement resolves lawsuits the U.S. regulator filed as receiver for the three failed banks against Morgan Stanley and other defendants over what the FDIC said were misrepresentations in the offering documents for the mortgage-backed securities.

The FDIC said the settlement funds will be distributed among the receiverships for the three failed banks: Colonial Bank of Montgomery, Alabama; Security Savings Bank of Henderson, Nevada; and United Western Bank of Denver.

(Reporting by Nate Raymond in New York; Editing by Jonathan Oatis)

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U.S. January auto sales stronger than expected

DETROIT U.S. auto sales appeared to fare better than expected in January as the industry benefited from low gasoline prices, easy credit and moderate economic growth, preliminary results showed on Tuesday.

The same trends that boosted sales in 2015 helped blunt the challenges of two fewer selling days and a massive East Coast snowstorm.

Ford Motor Co’s U.S. sales chief, Mark LaNeve, said the last five days of January were strong, helping overcome the snowstorm’s effects. But he said the storm had pressured Ford’s sales, which fell 2.6 percent.

General Motors Co, said it expected overall U.S. January sales of 17.5 million vehicles on a seasonally adjusted annualized basis, compared with 17.4 million forecast in a Thomson Reuters poll of 27 economists.

GM, the top-seller in the U.S. market, said its sales were up 0.5 percent.

Toyota Motor Corp, No. 3 in the U.S. market, showed sales down 4.7 percent, led by an 11 percent drop for car sales while its sport-utility vehicles, crossovers and trucks gained slightly.

Results of all six of the top-selling automakers in the U.S. market topped expectations of forecasters polled by Reuters.

Fiat Chrysler Automobiles showed sales up 7 percent, its 70th straight month of year-over-year increases. Honda Motor Co sales fell 1.7 percent, and Nissan Motor Co reported sales up 1.6 percent.

January sales had been forecast to decline as much as 5 percent industrywide. The month now looks poised to show a strong start of what is expected to be a second straight record year.

Still, auto company shares remain pressured as many Wall Street investors say the cyclical industry will soon plateau, ahead of a decline in several years.

GM and Fiat Chrysler shares traded in New York were down 3.7 percent at midday, and Ford shares were down 4.1 percent. The wider SP Index was down 1.6 percent.

U.S. sales hit a record 17.39 million in 2015, according to WardsAuto, which provides data the U.S. government uses for economic analysis.

Sales of Ford’s F-Series pickup trucks fell 5 percent.

Sales of GM’s Chevy Silverado and Fiat Chrysler’s Ram both rose 5 percent. Each truck is its manufacturer’s best-selling model for the U.S. market.

Volkswagen AG VW brand sales fell 14.6 percent as it continues to be affected by its diesel emissions scandal.

(Reporting by Bernie Woodall; Editing by Lisa Von Ahn and Tom Brown)

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Documents show profit-seeking behind price hikes at Turing, Valeant

WASHINGTON/NEW YORK A decision by Turing Pharmaceuticals to increase profits by raising the price of a lifesaving drug by 5,000 percent drove some patient co-pays up to $16,000, according to excerpts of documents that congressional committee members made public on Tuesday.

The excerpts, which are highlighted in memos released by Democrats on the powerful U.S. House of Representatives Committee in Oversight and Government Reform, give a rare behind-the-scenes glimpse into the business decisions leading to both Turing and Canada-based Valeant Pharmaceuticals’ drastic price increases for certain drugs.

The increases sparked a major public outcry. Both companies are now facing federal investigations over drug pricing.

The document excerpts show how Valeant bought two heart medicines for their “material pricing potential.” The company increased the price of Isuprel by 525 percent and Nitropress, by 212 percent.

The documents also suggest Valeant hiked the prices of an additional 20 drugs by more than 200 percent between 2014 and 2015.

In a statement, Valeant said it had responded to complaints about the price of these drugs by offering volume-based discounts of up to 30 percent.

A Turing spokeswoman did not have an immediate comment. A lawyer for Martin Shkreli, the company’s former chief executive officer, did not immediately respond to a request for comment.

Shkreli, who also faces securities fraud charges, is slated to appear before the committee on Thursday with Valeant interim CEO Howard Schiller. Elijah Cummings, the top Democrat on the House Oversight Committee, called for the probe.

Tuesday’s excerpts show how Shkreli and Turing employees tried to maximize profits from Daraprim, which is used to treat a parasitic infection called toxoplasmosis, while warding off a potential public relations backlash from HIV patients who rely on the drug.

“Very good. Nice work as usual. $1bn here we come,” Shkreli wrote in a May email to the board.

Not long after Turing acquired the drug, reports began to pour in about patients with skyrocketing co-pays.

In one August email, a Walgreens Boots Alliance executive wrote to inquire if the company would grant exceptions for “those patients with a co-pay over the approved amount of $10,000.”

In another case, the company received a plea from Walgreens to reduce the price of Daraprim for a dog, who was “obviously not covered by insurance.”

A Turing executive turned down the request and directed the pharmacy to a “vet meds website.”

(Reporting by Sarah N. Lynch in Washington and Caroline Humer in New York; Additional reporting by Nate Raymond in New York; Editing by Lisa Von Ahn)

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Wall St. extends selloff as falling oil weighs

U.S. stocks extended their selloff in early afternoon trading on Tuesday as falling oil prices heightened concerns regarding the health of the global economy and investors sought safer investments.

Brent oil fell nearly 6 percent, while U.S. crude briefly slid below $30 per barrel, as hopes for a deal between OPEC and Russia on output cuts faded.

Shares of Exxon fell 2.4 percent after the oil major reported its smallest quarterly profit in more than a decade. Chevron also fell 3.3 percent. The stocks weighed the most on the SP energy index.

“We still haven’t broken the correlation between oil and equities and we are yet to find a bottom in oil prices,” said Jeff Carbone, co-founder of Cornerstone Financial Partners in Charlotte, North Carolina.

Carbone said consumer savings from cheap gasoline have failed to translate into higher spending as U.S. consumers opt to pay down debt rather than buy big-ticket items.

Investors have been concerned about a China-led global economic slowdown, tepid U.S. economic data and the pace of rate hikes by the Federal Reserve. The SP 500 has fallen more than 5 percent this year.

“Investors have been looking at the data and while the data has been good, it hasn’t been great and investors remain concentrated on the negative news.”

The focus now shifts to the January employment numbers due this week. Despite the strong labor market, traders are factoring in only one rate hike this year, down from four as earlier estimated.

Investors are also keeping an eye on the U.S. election cycle, with Senator Ted Cruz winning the Republican caucus in Iowa on Monday and Democrat Hillary Clinton narrowly edging out Senator Bernie Sanders.

Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey, said the Iowa election results created greater uncertainty for investors because there were no clear winners.

“The bottom line for people who are investing is they prefer a little more certainty than they are seeing right now in either the election or in the energy markets.”

At 12:46 a.m. ET (1746 GMT) the Dow Jones industrial average was down 245.93 points, or 1.5 percent, at 16,203.25, the SP 500 was down 28.24 points, or 1.46 percent, at 1,911.14 and the Nasdaq Composite index was down 66.32 points, or 1.44 percent, at 4,554.05.

All 10 major SP sectors were lower with the energy index’s 2.59 percent loss leading the decliners.

With fourth-quarter earnings underway, SP 500 earnings are expected to have fallen 4.4 percent from a year earlier, according to Thomson Reuters data.

Big names such as Yahoo and Chipotle are scheduled to report results after the close of market.

Alphabet was up 3.6 percent at $798.45 after the internet giant’s quarterly profit beat estimates. Alphabet surpassed Apple as the most valuable U.S. company. Apple was down 1.2 percent at $95.24.

Michael Kors was up 22.2 percent at $49.39 after the handbag and accessories maker reported a smaller-than-expected decline in quarterly sales.

Mattel was up 12.4 percent at $30.04 after the toy maker reported a surprise rise in quarterly net sales, its first increase in over two years.

Royal Caribbean Cruises fell 16.2 percent after it forecast a current-quarter profit below expectations.

Declining issues outnumbered advancing ones on the NYSE by 2,460 to 541. On the Nasdaq, 2,152 issues fell and 567 advanced.

The SP 500 index showed eight new 52-week highs and 19 new lows, while the Nasdaq recorded 16 new highs and 106 new lows.

(Reporting by Tanya Agrawal; Additional reporting by Lewis Krauskopf; Editing by Don Sebastian)

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Russian oligarchs most likely buyers in Putin’s new privatization plan

MOSCOW Russian oligarchs are the most likely potential buyers of the stakes in some of the country’s largest companies that President Vladimir Putin wants to sell.

The Kremlin said on Tuesday foreign investors were welcome to participate in the privatization announced the day before, which has been driven by an economic crisis brought on by low oil prices.

But former officials, bankers and analysts said the perceived risks of a country subject to western sanctions over Ukraine and with a history of disputed property rights, would limit foreign participation.

Two senior government officials said the plan may only raise between 50 and 80 percent of the trillion rubles envisaged.

Russian’s well-connected magnates may have to be cajoled into investing at a critical juncture for the economy, but could in the long term end up with valuable assets at bargain prices, leaving the Kremlin open to accusations of sweetheart deals.

The preliminary privatization plan, aimed at preventing the state budget deficit from ballooning, coincides with a second year of recession for Russia where share prices have slid along with the price of crude..

Sources told Reuters the Kremlin is considering reducing state stakes in oil companies Rosneft and Bashneft, shipping firm Sovkomflot, diamond miner Alrosa and state-controlled bank VTB.

Government sources told Reuters some of the stakes could be sold on the Moscow Stock Exchange.

“It is possible to sell these assets, but it will be a serious effort,” Andrei Shemetov, deputy head of the Moscow Exchange, said.

Crude prices, Russia’s main export, trade at around $30 per barrel – nearly half the $50 per barrel penned into the 2016 budget, which envisages a deficit of 3 percent of GDP and will not be revised until March.

“This looks like selling diamonds from Russian crowns at a pittance,” said an investment banker at a Western bank.

Putin, a vocal advocate of state control, could face unwelcome scrutiny from a Russian public that still remembers the privatization of the 1990s, when state companies were sold at give-away prices to a chosen few.


On a practical level, Shemetov said the key factor would be timing.

“It’s better to break the selling down into a few stages,” he said, adding that the market may not be able to absorb stakes from two oil firms, such as Bashneft and Rosneft, simultaneously.

According to two officials familiar with the discussion on privatization, 4 percent of Rosneft could be sold on the stock exchange, but there is reluctance to do so, considering the super-low price of the company’s shares.

Shemetov said such a stake could be “absorbed by the market,” but external conditions would be crucial.

Sanctions do not prohibit Rosneft shares from being sold by the state, but many potential buyers will be cautious given that oil prices are still on a downward trajectory.

Alrosa and Sovkomflot have been catching investors’ eyes for a long while, Shemetov said.

“I suspect (Alrosa) will stir the largest demand,” said Vadim Bit-Avragim, portfolio manager at Kapital investment house. “The company’s business is recovering, demand for diamonds is returning.”

Sovkomflot, which has already held several meetings with investment funds, according to a top manager of the company, generates 80 percent of its revenues from outside Russia, lowering its exposure to country-related risks.


Finance Minister Anton Siluanov has said he hopes for around 1 trillion rubles, or 1 percent of gross domestic product, from privatization this and next year. The 2016 budget, approved before the new plan, envisages only about 33 billion rubles ($416.19 million) in privatization revenues.

But two senior government officials said the plan may bring a total of between 500 billion rubles and 800 billion rubles.

“Some assets will be sold – the budget needs cash,” said Sergei Aleksashenko, a former deputy central bank governor and a non-resident senior fellow at the Brookings Institute in Washington. “But overall the proceeds from privatization will be much less than the drop in oil revenues.”

With demand from global investors expected to be lower, local players may have be left with open playing field.

Will Ballard, head of Emerging Markets and Asia Pacific Equities at Aviva Investors in London said the timing was not ideal from the state’s point of view.

“If they are looking to do it now, it must be selling effectively from a need basis rather than ‘seller wants to get the maximum price’,” he said.

Others went further.

“This privatization looks as if intended for big businesses,” a source in the financial market said.

A former government adviser said the timing and shape of the plan may be driven by factors beyond the need for cash.

“All of this may indeed have been done to make the assets more affordable for politically connected businessmen,” the adviser said. “Or just out of their usual paranoia – they don’t want to release control.”

This could potentially enrich those around Putin and cause public discontent that could hinder his possible presidential re-election in 2018. According to polls – more than half of Russians oppose privatization.

It may also be easier said than done. Putin has repeatedly urged Russia’s super-rich business elite to bring back money they moved abroad as the rouble currency plunged.

“It’s possible it is tied to the process of de-offshorisation to bring money back to Russia and in return get good assets at half price,” the financial market source said.

To avoid criticism, an investment banker said, Putin must ensure the assets are not sold too cheaply.

The president has already said Russian companies with offshore accounts will not be eligible to buy, and state banks would not be able give loans to potential investors.

“The only option is to force some oligarchs, loyal to the Kremlin, to buy stake with a premium to market prices,” said the investment banker, who is close to the process.

“Then it will look more like a tax on a group of people, which would be quite a realistic scenario, given Putin’s style of management.”

What Putin envisages and what may happen may not coincide however; several ambitious privatization plans announced by Russia in the past decade failed to materialize.

(Reporting by Margarita Papchenkova, Olga Popova, Zlata Garasyuta, Darya Korsunskaya, Lidia Kelly in Moscow and Karin Strohecker in London; Writing by Margarita Papchenkova and Lidia Kelly; editing by Philippa Fletcher)

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GM, lawyers ask U.S. judge to reject bid to halt switch settlement

NEW YORK General Motors Co (GM.N) has asked a judge to reject efforts by a lawyer who first publicly exposed a faulty ignition switch in GM vehicles to undo a settlement fund resolving 1,380 death and injury lawsuits.

In a separate filing, the lead counsel for people suing over the defect called attempts to undo the settlement fund “both disappointing and disingenuous” and joined GM in asking U.S. District Judge Jesse Furman of Manhattan to reject motions filed last week by Georgia-based lawyer Lance Cooper.

Cooper said that one of the lawyers leading federal switch litigation, Robert Hilliard, struck the settlement mostly to enrich himself and his own clients, an allegation Hilliard denied.

Furman is overseeing federal litigation that hit GM after its 2014 recall of 2.6 million vehicles over defective ignition switches that can slip out of place and have been linked to nearly 400 injuries and deaths.

Cooper had accused Hilliard of working with General Motors to cut a mutually beneficial deal and strategy. GM and the lead counsel for plaintiffs both denied that claim.

The settlement was announced in September, alongside a separate resolution with shareholders over GM’s recall. GM said it would take a $575 million charge related to those settlements.

Cooper has asked Furman, who oversees federal switch lawsuits, to rescind approval of the settlement fund, and to remove Hilliard and co-counsel Steve Berman and Elizabeth Cabraser from lead roles in the litigation.

Cooper’s motions were filed days after the abrupt dismissal of a first bellwether, or test, trial when evidence surfaced calling the plaintiff’s testimony into question. Cooper said that lead counsel bungled that case and excluded other attorneys from the process.

Lead counsel said they had worked tirelessly and cooperatively for all plaintiffs. Although the bellwether fell apart, they defended their selection and said that their work on that case would ultimately benefit other plaintiffs.

GM and lead plaintiffs’ counsel also said Cooper waited more than a month to object to Furman’s order, despite a 14-day cutoff for such filings.

Cooper could not immediately be reached for comment and a GM spokesman said the filing spoke for itself. Hilliard and Berman said the motions were baseless sideshows.

“This is a legally fallow attempt to undermine years of hard work and cooperative effort,” Hilliard said.

(Reporting by Jessica Dye; Editing by Alexia Garamfalvi and Grant McCool)

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Dow Chemical CEO Liveris to step down by mid-2017

Dow Chemical Co (DOW.N) Chief Executive Andrew Liveris said he would leave the company by mid-2017 after it merges with fellow chemical and seeds producer DuPont (DD.N).

DuPont CEO Edward Breen will head the combined company after the merger, while Liveris, 61, is set to be executive chairman. The deal is expected to close in the second half of 2016.

“… My own planned transition out of the company, which will occur when we are set up to be spun off, but no later than the end of Q2 2017,” Liveris said on a call with analysts after Dow reported a better-than-expected quarterly profit.

DuPont and Dow will combine and then split into three separate businesses, focused on material sciences, specialty products and agriculture.

Activist investor Daniel Loeb of hedge fund Third Point has been agitating for the removal of Liveris from the merged company, alleging that he failed to unlock value for Dow shareholders during his time as CEO.

Liveris’s departure would end a four-decade career at Dow during which the Australian engineer became one of the best known executives in the world. However, his spending of company money on non-business items has come under scrutiny.

Reuters reported last year that internal auditors at Dow had questioned Liveris’s spending for years. Dow says those issues were resolved long ago.

Reuters also reported in June that the Securities and Exchange Commission was investigating Dow, and was looking into the spending issues raised by former auditors there.

Dow named James Fitterling president on Tuesday. Fitterling, who will continue as COO, will report to Liveris.

The company is targeting an additional $300 million in cost savings in 2016, building on the $345 million it realized last year, CFO Howard Ungerleider said on the call.

DuPont, which plans to cut 10 percent of its workforce of about 54,000, unveiled a new cost-cutting target last Tuesday.

Dow will cut 500 more jobs, taking its total workforce reduction to 2,200, Liveris said, adding that the company has laid off 1,200 employees so far. Dow employed 49,500 people worldwide in 2015.

Lower costs boosted Dow’s operating margin by 406 basis points to 20.9 percent in the three months ended Dec. 31.

Adjusted profit of 93 cents per share handily beat the average analyst estimate of 70 cents, according to Thomson Reuters I/B/E/S.

Dow shares were up 4.4 percent at $44.45 at midday on the New York Stock Exchange.

(Additional reporting by Joshua Schneyer; Editing by Anil D’Silva)

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