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Deutsche CEO tries to reassure staff as shares plunge

FRANKFURT/LONDON Deutsche Bank’s (DBKGn.DE) chief executive sought to reassure his staff on Friday that Germany’s largest lender remained robust after its shares again fell to record lows, sending tremors through global financial markets.

Deutsche, which employs around 100,000 people, has been engulfed by crisis after a demand for up to $14 billion earlier this month from the U.S. authorities for misselling mortgage-backed securities.

The bank is fighting the fine but would have to turn to investors for more money if it is imposed in full. The German government this week denied a newspaper report that it was working on a rescue plan for the bank.

Chief Executive John Cryan’s letter, seen by Reuters, addressed reports of the departure of a few hedge fund clients, blaming unfounded speculation and “certain forces” that wanted to weaken trust in the bank.

People familiar with the matter told Reuters that one large hedge fund in Asia had pulled out collateral from Deutsche amounting to $50 million in the last two days, while other sources said this had happened elsewhere, albeit on a small scale.

On Friday, Cryan sought to put the moves into perspective.

“We should look at the complete picture,” Cryan said in the letter to the bank’s workers, adding that Deutsche had more than 20 million customers and reserves of more than 215 billion euros.

“We are and remain a strong Deutsche Bank.”


Deutsche is much smaller than Wall Street rivals such as JPMorgan (JPM.N) and Citigroup (C.N) .

But it has significant trading relationships with all of the world’s largest finance houses and the International Monetary Fund this year identified it as a bigger potential risk to the wider financial system than any other global bank.

Worries over a major bank in Europe’s largest economy and talk of a government rescue have stirred painful memories of the 2007-2009 financial crisis.

Italy, whose banks have their own troubles caused by soured loans, called for swift action on Deutsche.

“Just like the problem of bad bank loans must be solved within a reasonable time frame, so it should be for Deutsche Bank’s problems,” Economy Minister Pier Carlo Padoan told Italian daily La Stampa.

With Germany facing elections next year, there is little political appetite for helping a group disliked by many Germans because of its pursuit of investment banking abroad that resulted in billions of euros of penalties for wrongdoing.

German banks have found their profits squeezed by the European Central Bank’s ultra-low interest rates and Commerzbank, the country’s second largest lender, is cutting almost 10,000 jobs.


Deutsche shares traded 5.2 percent lower at 10.31 euros at 1030 GMT after earlier touching a record low below 10 euros. They have lost around 55 percent of their value this year.

Deutsche’s ‘CoCo’ bonds slumped to a record low on Friday, with the 6 percent coupon CoCo trading as low as 69.55 cents on the euro — down from 83 cents earlier in September.

Contingent convertible bonds, known as CoCos, are converted into equity when a bank’s capital level falls below a certain threshold.

Some hedge funds stand to benefit from Deutsche’s share price decline, having taken “short positions” effectively a bet on the price falling further — 3.95 percent of Deutsche’s stock was out on loan as of Thursday, according to Markit data.

“It doesn’t matter whether the bank is in real trouble or not, as long as people think it is, then it is bad news,” said Rabobank markets strategist Lyn Graham-Taylor.

The problems of Deutsche, once Germany’s flagship on Wall Street, are awkward for Berlin, which has berated many euro zone peers for economic mismanagement and pushed for countries such as Ireland and Greece to cope with their banking problems alone.

Austrian finance minister Hans Joerg Schelling this week sought to play down fears over Deutsche, saying the case could not be compared with Lehman Brothers, the U.S. investment bank whose collapse in 2008 sent shock waves around the world.

Alberto Gallo, a partner and portfolio manager with hedge fund Algebris Investments, shared that view.

“Deutsche Bank is faced with a business model profitability issue, not a solvency issue,” he said.

“It will take a long time to fix the business model, but that’s not the same as solvency.”

(Additional reporting by Jonathan Gould, Georgina Prodhan, Kathrin Jones and John Geddie in Frankfurt, Jamie McGeever and Abhinav Ramnarayan in London; Writing By John O’Donnell; Editing by Keith Weir)

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VW’s Seat seeks return to profit with new models, cost cuts

PARIS Volkswagen’s (VOWG_p.DE) long-struggling Spanish division Seat said it may return to profit this year for the first time since 2008 and stay there through 2018, benefiting from demand for new and redesigned models.

Cost cuts and sales of models with higher trim levels helped Seat increase first-half operating profit to 93 million euros ($104 million) from 52 million a year earlier, its best-ever six-month result.

The new Ateca, Seat’s first sport-utility vehicle being rolled out across Europe this year, will help second-half sales and volume should grow further in 2017 thanks to revamped versions of the Leon and Ibiza models and the launch of the Arona, another SUV, Chief Executive Luca de Meo told Reuters.

The Ateca, competing with models from rivals including Renault (RENA.PA) and Hyundai Motor (005380.KS) in the fast-growing compact SUV segment, has attracted 21,000 orders this summer with many customers new to the brand, de Meo said.

“It changes the game for us, it gives us completely different credibility” on profitability, the CEO said in an interview on Friday at the Paris auto show.

“If we have a bit of luck and markets don’t collapse, I see the next three years as profitable years.”

Seat last year narrowed its operating loss to 10 million euros from 127 million in 2014, according to Volkswagen’s (VW) annual report.

VW, which bought Seat in 1986 to increase its exposure to the then fast-growing Spanish market, has long tried to overcome the losses caused by under-utilized capacity at Seat’s Spanish factory in Martorell.

It has cut management and manufacturing costs and shifted production of Audi’s Q3 SUV to Martorell.

De Meo said Seat may offer an electric car by about 2020 as parent VW pushes zero-emission technology across the 12-brand group.

(Editing by Ruth Pitchford)

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Oil falls on firmer dollar and profit-taking after OPEC rally

LONDON Oil prices fell as the dollar strengthened on Friday and investors cashed in on crude’s 6 percent one-day rise after OPEC members agreed on output cuts for the first time in eight years to stifle a two-year price slide.

Global benchmark Brent crude futures LCOc1 were down 48 cents at $48.76 a barrel by 1206 GMT, but still around 6 percent higher than before Wednesday’s OPEC agreement.

U.S. crude CLc1 was down 18 cents at $47.65 a barrel, also about 6 percent higher than before the OPEC deal.

The dollar .DXY rose against a basket of currencies, making it more expensive for investors to hold dollar-denominated commodities such as oil.

“We’re seeing some profit-taking because it is a long time until the next OPEC meeting in November when individual quotas have to follow,” said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.

The Organization of the Petroleum Exporting Countries (OPEC) had agreed to cut output to 32.5-33.0 million barrels per day (bpd) from about 33.5 million bpd, estimated by Reuters to be August’s production level.

The details, including the quotas for each member and the implementation data, will be finalised at OPEC’s policy meeting in November.

“The group surprised us in Algiers and we cannot rule out that they will surprise us again,” BMI Research analysts said.

“However, we maintain our view that a collective cut will have little impact on a fundamental level.”

A persistent oil supply glut brought prices from mid-2014 highs above $100 a barrel to less than $50 today, prompting the oil producers’ group to find agreement on limiting output.

Russia, not an OPEC member but a large producer currently pumping crude at record high levels, said it would find a way to freeze production if the country reaches an agreement with OPEC members.

The United States, a non-OPEC country that is now the world’s biggest oil producer, said it had little faith in this week’s deal leading to higher prices in the long term.

Amos Hochstein, the U.S. energy envoy, said in a Reuters interview that the deal will either lead to higher U.S. production and trigger another price fall or allow U.S. producers to expand market share.

Investors are bracing for further oil price swings ahead of the November meeting.

“We are likely to see some volatility going into November’s meeting,” said Jade Fu, investment manager at Heartwood Investment Management.

“We continue to maintain reasonable exposure to energy through commodity-related sectors, such as U.S. high yield and private equity.”

(Additional reporting by Keith Wallis in Singapore and Osamu Tsukimori in Tokyo; Editing by Adrian Croft and David Goodman)

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Russia says will be able to freeze oil output in case of deal with OPEC

SOCHI, Russia Russia will find mechanisms and instruments needed to freeze oil production should the country reach an agreement with the Organization of the Petroleum Exporting Countries on limiting output, the Russian Energy Minister said on Friday.

Alexander Novak also told journalists on the sidelines of a business forum in the Black Sea resort of Sochi that Iran’s energy ministry’s delegation will visit Russia in October-November to present potential oil deals to Russian companies.

Novak also reiterated that he is against increasing tax burden on the oil sector.

(Reporting by Denis Pinchuk; Writing by Lidia Kelly; Editing by Dmitry Solovyov)

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Global M&A drops in third quarter, companies wary of overpaying

The value of announced mergers and acquisitions (MA) worldwide fell 27 percent year-on-year to $753 billion in the third quarter of 2016, as apprehension among corporate executives about overpaying prevented a repeat of last year’s deal-making frenzy.

The preliminary Thomson Reuters MA data shows the euphoria that drove merger mania in 2015 has subsided. While MA activity remains robust, dealmakers said companies are being more selective in their decisions to do deals.

“With price-to-earnings multiples at historic highs, deals are more likely to happen when there is lower growth in a sector, high potential for synergies, and potential acquirers enjoy a healthy stock price,” said Paul Parker, chairman of global MA at Goldman Sachs Group Inc GS.N.

The stock market is hovering at record highs, while the SP 500 Index’s price-to-earnings ratio is at its highest level since the 2008 financial crisis. Combined with uncertainty over the U.S. Federal Reserve’s policy on interest rates, companies have become more cautious when it comes to MA.

“It does get down to high prices. I think most of last year and the two years prior, even if it was priced high it was OK… Now, it had better be for a good growth profile,” said Marc-Anthony Hourihan, co-head of MA for the Americas at UBS Group AG UBSG.S.

This year’s largest deal so far was clinched in the third quarter; German drug and crop chemical maker Bayer AG’s BAYGn.DE $66 billion takeover of U.S. seeds company Monsanto Co MON.N is also the biggest all-cash deal on record.

Some of the other big deals this quarter included Enbridge Inc’s ENB.TO $28 billion acquisition of Spectra Energy Corp SE.N to create the largest North American energy infrastructure company, and Softbank Group Corp’s 9984.T $32 billion acquisition of British semiconductor maker ARM Holdings Plc.

“The strategic consolidation activity occurring has resulted in many CEOs and boards across sectors saying ‘I don’t want to be left out, I don’t want to be the last mover, because then there will be nothing left to do and I may be disadvantaged’,” said Patrick Ramsey, co-head of global MA, Bank of America Corp BAC.N.

“This will continue to be a driver of both transformative mergers and sizeable bolt-on acquisition activity,” Ramsey added.

Another factor that has weighed on MA this year, dealmakers said, is the United States and several other countries flexing their antitrust muscles and seeking to crack down on deals that aid tax avoidance or risk harming national security.


An exception to the heightened price awareness is the pharmaceutical sector. Drug companies continue to be willing to pay high premiums to buy new products, rather than devote their resources to risky drug development.

In August, Pfizer Inc PFE.N announced a $14 billion deal to acquire cancer drug maker Medivation Inc MDVN.O, at an 118 percent premium to Medivation’s undisturbed share price.

“Valuations in pharmaceutical companies may not be objectively attractive. You’re just dealing with simple reality that many companies need to fill the pipeline of products to supplement what they are able to produce organically,” said Daniel Wolf, an MA partner at law firm Kirkland Ellis.

This quarter, the U.S. had its largest amount of inbound global deals in more than a decade, led by buyers in Europe, Canada and Asia, as the nation’s economy continued to be attractive despite its challenges.

In July, for example, French yogurt company Danone SA DANO.PA said it would double the size of its U.S. business by buying organic foods producer WhiteWave Foods Co WWAV.N for $10.4 billion in its largest acquisition since 2007.

“Once-cautious executives are now looking for growth outside their home market, partly because there is a certain degree of frustration with the lack of economic growth in the region. That makes it even more pressing to look for growth elsewhere and the U.S. remains a logical destination,” said Dietrich Becker, a partner at investment bank Perella Weinberg Partners LP.

That said, Softbank’s deal for ARM shows that some companies have seen the turmoil created by Britain’s vote to leave the European Union as a buying opportunity.

Outbound MA from China continues to be a key driver of deals. China has accumulated $159 billion in outbound MA so far this year, topping 2015’s full-year record of $107 billion.

(Reporting by Lauren Hirsch and Greg Roumeliotis in New York; Additional reporting by Sophie Sassard in London; Editing by Bill Rigby)

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Petronas weighs sale to exit $27 billion Canada LNG project: sources

KUALA LUMPUR/MILAN Malaysian state oil firm Petroliam Nasional Bhd is considering selling its majority stake in a $27 billion Canadian liquefied natural gas (LNG) plant, three people familiar with the matter said this week.

Petronas, as the company is known, is weighing options for the project as a more than 50 percent slide in crude oil prices since the middle of 2014 has hit the group’s profits and prompted cuts to capital expenditure and jobs.

Amid the cost-cutting, the economics of the Canadian project – which took three years to get approval due to environment concerns – have been called into question as LNG prices have fallen more than 70 percent in two years.

Petronas was given the go-ahead for the C$36 billion ($27.34 billion) project by the Canadian government earlier this week. It said then that executives would study the 190 conditions imposed by the authorities and conduct a review before deciding on the next steps.

Petronas said on Friday it will not provide any additional comment when asked about the potential sale.

The sources said Petronas has been considering a sale for months, after it became apparent that a Canadian approval was possible, but had yet to take a final decision. Other options are also being considered, including putting it on ice.

“They are going to be looking at gas prices, costs and returns before they make the final decision,” said one of the sources. “It is a very tough call.”

The Canadian project is Petronas’ biggest foreign investment and seen as a sign of Malaysia’s global energy ambitions. An exit would underscore the financial constraints at the state-run firm and also the soft outlook for LNG prices.

Last month, Petronas reported an 85 percent slide in second-quarter profit and labeled the industry outlook “gloomy” well into 2017. It has committed to paying 16 billion ringgit to the government coffers this year, down nearly 40 percent from its year-ago contribution.


Petronas signed on for the project in 2012 through the acquisition of Canada’s Progress Energy.

It has faced several hurdles. Aboriginal and environmental groups have said the project would threaten a salmon habitat. The LNG price decline added to concerns, also a growing supply glut as other projects went live.

If Petronas goes ahead with a sale, finding a buyer in current market conditions would be difficult, the sources said.

Petronas was considering its options as far back as a year ago, a separate industry source said, but he added it would be difficult to sell in the current environment given that Canadian projects are more expensive.

If Petronas opts to suspend the Canada project, it would be put on ice until gas prices begin to turn around and Petronas is confident of securing long-term contracts at reasonable prices, said the sources, who declined to be identified as the negotiations are not public.

Other LNG projects in British Columbia have also faced delays, underlining the market outlook. In July, Royal Dutch Shell and its partners pushed back a decision on building an LNG export terminal, and Chevron has delayed the scheduled 2017 start of its Kitimat LNG project.

Petronas has minority partners for the project in China, India, Japan and Brunei.

(Editing by Christian Schmollinger and Susan Thomas)

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Japan’s Mitsubishi Motors to resume sales after latest cheating scandal

TOKYO Japanese automaker Mitsubishi Motors Corp (7211.T) will resume domestic sales of eight vehicle models on Oct. 1, the company said on Friday, after correcting overstated mileage readings in its second cheating scandal this year.

Japan’s sixth largest automaker has admitted it falsified the mileage on 12 models, including the Pajero and Outlander SUV, taking a blow to its reputation.

The latest suspension came after a two-month suspension in sales of four minivehicle models this year, including two produced for Nissan Motor Co. (7201.T), following the initial admission of incorrect fuel economy readings.

The market value of the company has tumbled since that scandal broke, prompting it to seek financial assistance from Nissan, which agreed to buy a controlling one-third stake for $2.2 billion.

Japan is Mitsubishi’s fifth-largest market, following markets including Asia ex-Japan, Europe and other regions. Its home country comprised roughly 10 percent of its vehicle sales during 2015/16.

(Reporting by Maki Shiraki and Naomi Tajitsu; Editing by Clarence Fernandez)

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Samsung slammed by Chinese state TV over Note 7 recall ‘discrimination’

HONG KONG Chinese state broadcaster CCTV has slammed South Korean tech giant Samsung Electronics Co (005930.KS) for what it said was “discrimination” against China consumers in its handling of a global recall of Galaxy Note 7 smartphones to replace batteries.

In a commentary piece posted on its website on Thursday evening, CCTV said Samsung’s behavior in China after the Sept. 2 recall of 2.5 million phones was “full of arrogance”.

CCTV said a video apology Samsung issued to U.S. consumers, along with various replacement options and compensation, was in stark contrast to its treatment of those in China, where the company issued a brief statement saying most phones didn’t need to be replaced. “Samsung’s discriminatory policy has caused discontent from Chinese consumers,” it said.

Samsung China didn’t immediately responded to requests for comment on the CCTV criticism.

The CCTV criticism may provide an unwelcome distraction for Samsung as seeks to bolster its position in the world’s largest smartphone market. Once the number 1 mobile phone vendor in China, Samsung dropped out of top 5 in 2015, hit by the strong growth of domestic brands like Huawei, Xiaomi and Oppo.

A number of big-name global consumer brands have fallen foul of the influential broadcaster’s blasts in recent years, prompting firms from German automaker Volkswagen AG to Samsung rival Apple Inc (AAPL.O) to undertake strenuous efforts to bolster their image.

Earlier in September, after a meeting with China’s quality safety watchdog, Samsung China issued a brief statement saying 1,858 Note 7 devices sold in the country as part of a test scheme before the official launch would be recalled.

Most Note 7s on sale in China have batteries from a different supplier and are not part of its global recall of 2.5 million phones announced on September 2, Samsung said.

But after anecdotal reports of a handful of Note 7s catching fire in the mainland, Samsung China issued a statement on Thursday apologizing to Chinese consumers for a “lack of sufficient explanation” on what it said were safe Note 7 phones in China.

(Reporting by Sijia Jiang; Editing by Kenneth Maxwell)

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Asia stocks slip as Deutsche sours mood, oil gains on OPEC pact

SINGAPORE Asian stocks followed Wall Street lower in early trade on Friday, while oil prices held close to the highest level in almost a month on optimism over an OPEC plan to curb output.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.5 percent, on track for a 0.4 percent drop for the week. It is poised for a 2.2 percent gain in September, and a 9.5 percent jump in the third quarter.

Japan’s Nikkei .N225 retreated 1.5 percent after sluggish consumption data. It is down 1.7 percent for the month, but set to end the quarter 5.7 percent higher.

Some Bank of Japan board members doubted whether the central bank’s overhaul of its massive stimulus programme, announced last week would enhance flexibility of monetary policy, a summary of opinions at the central bank’s September rate review showed on Friday.

Japanese consumer prices in August fell 0.5 percent from a year earlier, missing expectations. Consumer prices in the Tokyo area in September dropped 0.5 percent, the fastest year-on-year drop since 2013.

Japanese industrial output rose 1.5 percent, beating expectations for a 0.5 percent rise.

South Korea’s KOSPI .KS11 slipped 0.8 percent after manufacturing activity contracted for a second month in September to hit a 14-month low, and August industrial output posted the biggest decline in 19 months.

On Thursday, Wall Street lost about 1 percent as Deutsche Bank shares slumped to a record low after a report that trading clients had withdrawn excess cash and positions held in the largest German lender.

The bank’s U.S. shares closed down 6.7 percent at $11.48 after earlier falling to as low as $11.185.

The immediate cause of Deutsche’s crisis is a fine, disputed by Deutsche, of up to $14 billion by the U.S. Department of Justice over its sale of mortgage-backed securities.

Deutsche’s woes, alongside a grilling of Wells Fargo’s chief executive by U.S. lawmakers amid a call for the bank to be broken down due to a scandal over its opening of client accounts without agreement, helped push the SP bank index down 1.6 percent.

Oil prices extended gains, rising more than 1 percent on Thursday, on optimism over an agreement by OPEC to cut output, but the rally was limited by doubts the reduction would make a substantial dent in the global crude glut.

U.S. crude futures CLc1 added 1.7 percent to $47.83, after climbing to as high as $48.32, the highest level in almost five weeks. They were little changed on Friday.

Brent crude LCOc1 rose 1.1 percent to $49.24 on Thursday, after earlier touching a three-week high of $49.24.

The U.S. dollar was little changed at 101.09 yen JPY=D4, heading for a flat end to the week, but down 2.2 percent for September, and 2 percent for the quarter.

While the yen is headed for its third straight quarter of gains, speculation that Japanese investors may buy more foreign assets in their new business half-year starting from Oct. 1 could stem the Japanese currency’s gains in the near term.

The euro EUR=EBS was also steady at $1.12165, on track for a 0.1 percent decline for the month, but up 1 percent for the quarter.

The Indian rupee INR= posted its biggest drop since June on Thursday, after Indian officials said elite troops crossed into Pakistan-ruled Kashmir and killed suspected militants preparing to infiltrate and carry out attacks on major cities, in a surprise raid that raised tensions between the nuclear-armed rivals.

(Editing by Jacqueline Wong)

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