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S&P strips UK of last top-notch credit rating after Brexit vote

LONDON Ratings agency Standard Poor’s stripped Britain of its last remaining top-notch credit rating on Monday, slashing it by two notches from AAA and warning more downgrades could follow after Britons voted to leave the European Union last week.

SP’s move was a fresh blow to Britain’s economic standing after the referendum. Sterling tanked to a 31-year low against the dollar on Monday and the country’s stock markets plunged.

SP said it was the first time it had chopped an AAA-rated sovereign credit rating by two notches in one go.

“In our opinion, this (referendum) outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the UK,” SP said in a statement.

Finance minister George Osborne said on Monday the British economy was strong enough to cope with the volatility caused by Thursday’s referendum.

But the vote has plunged the country into political turmoil, with the ruling Conservative Party looking for a new leader after Prime Minister David Cameron said he would stay on only until October.

The added prospect of a new independence referendum in Scotland – which voted strongly to stay in the EU – threatens the constitutional and economic integrity of the United Kingdom, SP warned.

Long-dated U.S. Treasury yields fell to session lows after the ratings agency’s decision. British 10-year government borrowing costs had already fallen below 1 percent for the first time during European trading hours. [GBP/]

SP warned financial firms – especially foreign ones – might look to other destinations for investment after Britain leaves the EU.

The two other leading credit ratings agencies had already responded to the outcome of the referendum.

Moody’s, which took away Britain’s AAA-rating in 2013 because of the country’s high levels of debt and slow growth, said on Friday it could cut the rating further.

Fitch said on Friday the vote would be “moderately credit negative” for the country.

Both Moody’s and Fitch rate Britain at one notch below AAA.

Protecting Britain’s credit rating was a top priority of Conservative finance minister George Osborne when he came to power in 2010.

(Additional reporting by Jamie McGeever; editing by William Schomberg and Andrew Roche)

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Illinois insurance regulator approves Aetna purchase of Humana

NEW YORK The Illinois Department of Insurance has approved Aetna Inc’s (AET.N) proposed $34 billion acquisition of Humana Inc (HUM.N) provided it is approved by the U.S. Department of Justice, according to an order dated June 23 posted on the department’s website.

Aetna announced the deal last summer and it is under review by the Justice Department, which is looking at competition concerns around its combined Medicare Advantage business for older people and the disabled.

In Illinois, Medicare Advantage plans, in which private insurers manage a customer’s health benefits for the government, have enough competition because members can always turn to the traditional Medicare program if they are not happy, the state Department of Insurance said in its June 23 order.

“We now have change of control approvals in 17 of the 20 states required and continue to cooperate with the Department of Justice on its review,” Aetna spokesman T.J. Crawford said.

The company continues to expect the transaction to close in the second half of 2016, he said.

(This version of the story corrects first sentence to show that Illinois approval is conditional upon U.S. Justice Department approval, instead of that Illinois approval has no conditions)

(Reporting by Caroline Humer; Editing by Tom Brown)

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French prosecutor seeks trial for UBS over client tax fraud-judicial source

PARIS A French financial prosecutor requested Swiss bank UBS (UBSG.S) go on trial for covering up clients’ tax fraud as well as illegal prospecting, a judicial source told Reuters.

The source said the prosecutor had also requested UBS France, the bank’s French arm, go on trial for complicity.

A spokeswoman for UBS had no immediate comment.

French investigating magistrates now have a month to decide whether or not UBS should face judges.

UBS was placed under formal examination in 2014. At the time, investigating judges ordered the company to pay a 1.1 billion euro ($1.21 billion) bail.

(Reporting by Chine Labbe, writing by Matthias Blamont; Editing by Richard Lough)

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Chipotle launches rewards program to bring back customers

Burrito chain Chipotle Mexican Grill Inc (CMG.N) said it will launch a limited-period loyalty program, betting on a strategy it had previously shunned, to lure back customers after a string of food safety lapses last year.

The three-month long program, called ‘Chiptopia’, is part of the company’s plan to create its first-ever permanent loyalty program.

“We created Chiptopia to reward our most loyal customers,” Mark Crumpacker, chief creative and development officer at Chipotle, said on Monday.

“While Chiptopia Summer Rewards lasts just three months, we will be carefully listening to our customers and using what we learn as we consider the design of an ongoing rewards program.”

The company will roll out ‘Chiptopia’ on July 1.

Unlike typical loyalty programs, ‘Chiptopia’ rewards customers for making multiple paid visits within a month rather than on the total amount spent, or by accumulating points.

Chipotle has been doling out freebies including chips and guacamole as well as buy-one-get-one burritos to bring back customers after a food safety crisis, which included outbreaks of E. coli, salmonella and norovirus, scared diners and led to the company’s first-ever quarterly loss.

Since then, the company has been embracing strategies it previously avoided such as reward programs, which Chipotle once viewed as unnecessary discounts for frequent customers.

Chipotle shares were down 1.4 percent at $395.08 in afternoon trading in a weak market.

The stock has lost more than a third of its value through Friday since October when news of an E. coli outbreak at its outlets first surfaced.

(Reporting by Siddharth Cavale in Bengaluru; Editing by Sriraj Kalluvila)

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U.S. officials try to calm markets, urge ‘responsible’ UK-EU divorce

WASHINGTON Senior Obama administration officials sought to calm jittery markets on Monday, insisting there was no financial crisis brewing after Britain’s vote to leave the European Union and urging officials on both sides to take a “responsible” approach to the looming separation.

U.S. Treasury Secretary Jack Lew said last week’s Brexit vote created another challenge for the U.S. economy, but the effect on financial markets has been “an orderly impact so far.”

“There’s no question that this is an additional headwind, but I think that it is something that we can manage through and Europe and the UK can manage through,” Lew said in an interview on CNBC.

“You’ve seen policymakers act in a very responsible way in the days leading up to and through the vote. There’s no sense of a financial crisis developing.”

The U.S. stock market on Monday followed Europe and Asia in sinking further, after markets around the world plunged on Friday the day after the referendum. U.S. stocks opened sharply lower with major stock indexes down more than 1.5 percent in early trade. The British pound GBP= was down another 3.3 percent against the dollar to $1.32, while the euro EUR= fell one percent to $1.10.

Lew said there was ample liquidity available to central banks and financial institutions, but warned that market participants needed to prepare for what may be a long period of change in Europe.

He urged leaders and policymakers to take steps to promote stability and growth.

“The more there’s a focus on restoring confidence, the more there’s a focus on maintaining conditions to promote growth, the better,” Lew said.

In Brussels, U.S. Secretary of State John Kerry said it was important that “nobody loses their head” as European and British leaders to work to negotiate the UK’s separation from the 28-nation bloc.

“It is now incumbent on leaders to implement the will of the people and to do so in a way that is responsible, sensitive, thoughtful and – I hope – strategic,” Kerry said, speaking alongside EU foreign policy chief Federica Mogherini. “The United States cares about a strong EU.”

“It is absolutely essential that we stay focused on how in this transitional period, nobody loses their head, nobody goes off half-cock, people don’t start moving on scatter-brained or revengeful premises,” Kerry added.

Federal Reserve Chair Janet Yellen, who had been scheduled to attend a central bank conference in Portugal organized by the European Central Bank, on Monday decided to pull out of the gathering. She had been scheduled to speak on Wednesday.

Instead, Yellen is returning to Washington following a weekend meeting of the Bank for International Settlements in Switzerland. Bank of England governor Mark Carney had earlier pulled out of the ECB meeting.

(Additional reporting by Susan Heavey in Washington and Warren Strobel and Gabriela Baczynska in Brussels; Editing by Chizu Nomiyama)

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Sterling, stocks take another Brexit hit; oil, yen rise

LONDON Sterling fell more than 2 percent, the euro took a hammering and stocks dropped again on Monday as Britain’s vote to leave the European Union drove investors to seek safety in the yen, gold and low-risk government debt.

Oil prices held near Friday’s lows but were up on the day as traders took the view the British referendum’s result would have little effect on global demand.

Sentiment remained weak, with a political crisis gripping Britain and no clarity about when the world’s fifth-largest economy would leave the EU or on what terms. But the moves on Monday were nowhere near as extreme as on Friday, when global stocks suffered their biggest decline in nearly five years.

The pound recovered some of its lost ground after British finance minister George Osborne said the government had robust contingency plans in place and that it and the Bank of England could do more if needed.

The currency last traded at $1.3455 GBP=, down 1.8 percent on the low. It had fallen as far as $1.3356 in Asian trade and to $1.3228 on Friday, its lowest in 31 years.

It also fell 1.2 percent to 82.28 pence against the euro EURGBP= and 1.7 percent to 137.10 yen GBPJPY=.

“The clear risk must be for further downside,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London.

“Uncertainty equals currency weakness, we know this, and there is no sense that this (sterling) is a value trade right now and that you have to get back in. It is too early for anyone to start calling a bottom.”

The euro EUR=, also considered vulnerable to the exit from the EU of its second-largest economy and a major financial center, fell 0.6 percent to $1.1057, off a low of $1.0980.

Britain’s FTSE 100 share index .FTSE, which lost 3.2 percent on Friday, ebbed a further 0.8 percent on Monday.

The pan-European FTSEurofirst 300 stocks index, which fell 7 percent on Friday in its biggest plunge in nearly eight years, was down 1.1 percent on Monday.

Germany’s DAX .GDAXI pulled back only 0.5 percent and Spain’s IBEX index .IBEX rose 1.8 percent after acting Prime Minister Mariano Rajoy’s People’s Party fared better than expected in weekend elections.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=

Wall Street, where the SP 500 .SPX suffered its worst decline in 10 months on Friday, looked set for a modestly lower open, according to e-mini index futures ESc1 1YMc1.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged down 0.1 percent. Companies with UK exposure in particular came under pressure.

“Things are so uncertain that investors still do not have a clear idea how much of their risk assets they need to sell,” said Hiroko Iwaki, senior foreign bond strategist at Mizuho Securities. “But it is fair to assume investors are not yet done with all the selling they need to.”

Financial shares led declines in Australia and Hong Kong. The financial sector is one of those most threatened by Brexit if the City of London’s investment products and services lose the prized “EU passports” that give them access to the single market.

However, Japan’s Nikkei 225 .N225 closed 2.4 percent higher after government officials stepped up warnings that they could intervene in currency market to stabilize the yen, whose strength harms exporters.


The Japanese currency, considered a safe investment in turbulent times, strengthened 0.1 percent to 102.11 per dollar JPY=. It had risen as far as 101.50 in Asian trade.

Yields on core government debt, another perceived safe haven, fell again. German 10-year bond yields DE10YT=TWEB, the benchmark for euro zone borrowing costs, fell 2.4 basis points to minus 0.08 percent, holding above Friday’s record low of almost minus 0.17 percent.

Spanish 10-year bonds ES10YT=TWEB outperformed those of other lower-rated southern euro zone countries under threat from Brexit-induced turmoil. Their yields fell more than 9 bps to 1.54 percent after Sunday’s election.

U.S. Treasury yields also fell. The 10-year note US10YT=RR yielded 1.51 percent, 7 bps lower than Friday’s close but well above that day’s low of 1.41 percent.

Gold XAU=, which saw its biggest rise since 2009 on Friday, climbed again. It last traded at $1,326 an ounce, up 0.8 percent on the day.

(Aditional reporting by Hideyuki Sano in Tokyo, Nichola Saminather in Singapore, Patrick Graham and Dhara Ranasinghe in London, editing by Larry King)

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U.S. banks’ stress tests may offer comfort in Brexit tumult

NEW YORK The stress tests created for banks by U.S. regulators after the 2008 financial crisis may prove their worth this week, providing a timely message on banks’ hardiness in the midst of turbulence over last week’s vote by Britain to leave the European Union.

The Federal Reserve will release the second set of results from stress tests it has conducted annually on large banks since 2009 on Wednesday. The tests look at how strong banks would be in the event of an unforeseen crisis, with economies in freefall, stock markets dropping precipitously and market counterparties at risk of failure.

And while the stresses that the Fed is testing for in this case are imagined, analysts say the results should be reassuring to investors worried about banks’ exposure to Brexit, an outcome that took the world and markets by surprise.

“This is a real-world test that can help demonstrate the greater resiliency of banks’ balance sheets and the benefits of de-risking that, while having hurt revenue this decade, should help incrementally in times such as this and show the relative strength of U.S. banks,” said CLSA bank analyst Mike Mayo.

Investors may take some comfort in the fact that the Fed’s stress test scenarios are much tougher than anything the banks have so far faced as a result of Brexit.

In the standardized stress test, the results of which were released last week, the Fed’s severely adverse scenario modeled for the stock market losing half its value and unemployment surging to 10 percent, among other factors. The results released on Wednesday will have stressful scenarios tailored to individual banks’ business models and will also judge the quality of their planning processes.

Mayo said the stress test should show that U.S. banks will be able to keep dividends stable and even increase dividends while dealing with the fallout of the UK referendum.


This year’s results are coming at a time when the presumptive Republican presidential nominee, Donald Trump, and some lawmakers, are angling to dismantle the financial reform regulation that formalized stress tests and other rules to make the system safer. As a result of those Dodd-Frank reforms, U.S. banks are arguably better suited to handle market shocks like those caused by the surprise Brexit vote.

The banks have begun putting some plans into place to prepare for the UK leaving the EU, but making moves too soon could be a costly mistake.

“This will be a long, drawn-out process that will take several potentially nuanced turns,” RBC bank analysts led by Gerard Cassidy said in a report detailing the impact of Brexit on big banks.

However, banks are already betting that the “financial passport” that allows them to lend, trade and execute deals effortlessly from the U.K. through continental Europe will be no more.

Senior bank executives are already looking at contingency plans that could relocate staff and operations to places like Frankfurt, Dublin or Amsterdam.

Also, banks are almost sure to face a longer period of extremely low interest rates and further headwinds on loan growth globally — which is not good for profits, analysts said.

Precisely how that will trickle down to profits is still yet to be seen. Analysts were reviewing their earnings estimates, preparing to issue new reports this week.

But by and large, they urged investors to remain calm and, in some cases, buy bank stocks on share price declines that don’t line up with reality. On Friday, the KBW Bank index .BKX fell 7.3 percent. “As has been the case at times of global shocks since the fall of Lehman Brothers in September 2008, some have asked whether Brexit is another ‘Lehman moment,'” market analysts at Goldman Sachs said. “We do not believe so.”

(Additional reporting by David Henry and Michael Erman; Editing by Mary Milliken)

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Oil prices stabilize after Brexit vote, but refined products glut looms

SINGAPORE Oil prices stabilized on Monday as market participants better absorbed the shock of last week’s vote in Great Britain to leave the European Union and recognized the referendum would have little effect on global fuel demand.

Brent crude futures were trading at $48.76 a barrel by 0650 GMT on Monday, up 35 cents from their last settlement.

U.S. crude was up 18 cents at $47.81 a barrel.

Both crude benchmarks had fallen around 5 percent on Friday amid plunging global financial markets as results from a referendum defied bookmakers’ odds to show a 52 percent to 48 percent victory for the campaign to leave a bloc Britain joined more than 40 years ago.

But oil stabilized on Monday as analysts said that Britain’s EU exit would have very little impact on physical oil trading.

“If we assume a 2 percent drop in UK GDP in response to the exit vote, which is on the high end of our economists’ estimates, then UK oil demand would likely be reduced by 1 percent or 16,000 barrels per day, which is a 0.016 percent hit to global demand. This is extremely small on any measure.”” said Goldman Sachs.

Of more concern to the market is a building refined products glut, especially in Asia.

“For near term oil, we remain most concerned about product oversupply, China demand, the macro outlook, and the likely return of production,” Morgan Stanley said in a note to clients.

Chinese refiners have responded to the Asian oil products glut by exporting record amounts of gasoline and diesel fuel into regional markets, eroding refinery profit margins and swelling storage.

As a result, analysts said there is a possibility that refiners dial back production and curb orders for their main feedstock crude oil, potentially weighing on prices.

Despite this, Morgan Stanley added that “the medium term trend towards oil market rebalancing appears in place, barring a recession.” This implies that oil prices would likely remain stable or rise as a supply overhang that pulled down prices by as much as 70 percent between 2014 and early 2016 is gradually brought down, bringing production back in line with consumption.

In shipping, Panama opened the long-delayed $5.2 billion expansion of its shipping canal connecting the Atlantic and the Pacific oceans on Sunday, but the facilities are still too small to handle oil super-tankers like Very Large Crude Carriers (VLCC).

(Additional reporting by Reporting by Osamu Tsukimori in TOKYO; Editing by Sandra Maler and Christian Schmollinger)

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Britain’s Osborne says further volatility ahead but economy is strong

LONDON Finance minister George Osborne said Britain’s vote to leave the European Union was likely to lead to further volatility on financial markets but said the world’s fifth-biggest economy would cope with the challenge ahead.

Osborne, who was speaking publicly for the first time since Britain voted to leave the bloc on Thursday, said the government had put in place robust contingency plans and there was more action that it and the Bank of England could take.

“Our economy is about as strong as it could be to confront the challenge our country now faces,” he told a news conference at Britain’s finance ministry on Monday.

Osborne’s future as finance minister has come under question after he was on the losing side in the referendum.

During the campaign he said he would have to raise taxes and cut spending in the event of a vote to leave the EU.

On Monday, he said the government should wait until the successor to Prime Minister David Cameron is in place before deciding on how to change its fiscal plans in response to the expected slowdown in the economy.

Cameron said on Friday he would stand down but would stay in the job until his successor was in place in October.

“There will be an adjustment in our economy because of the decision that the British people have taken,” Osborne said.

“There will have to be action to deal with the impact on the public finances, but of course it’s perfectly sensible to wait until we have a new prime minister to determine what that will look like,” he said.

Sterling, which fell more than 8 percent against the U.S. dollar on Friday, trimmed some of its losses on Monday as Osborne spoke.

Osborne, who was once the favorite to succeed Cameron, said he would clarify his political future in the coming days.

(Reporting by William James and Costas Pitas,; writing by Kate Holton and William Schomberg,; editing by Guy Faulconbridge and David Milliken)

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