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Wells Fargo hit with class action lawsuit over sales practices

A shareholder class action lawsuit was filed against Wells Fargo Co on Monday that alleged the firm misled investors about its financial performance and the success of its sales practices.

Wells Fargo, the United States’ third-largest bank by assets, agreed to pay $190 million earlier this month to settle regulatory charges that some of its employees opened as many as 2 million accounts without customers’ knowledge, in order to meet sales targets.

Robbins Geller Rudman Dowd LLP announced the lawsuit and is seeking class action status on behalf of buyers of the company’s shares between Feb. 26, 2014 and Sept. 15, 2016.

The lawsuit, which was filed in the U.S. District Court of Northern California, comes nearly a week after Wells Fargo chief executive John Stumpf faced U.S. Senate lawmakers about his oversight at the bank.

It also singled out Stumpf and Carrie Tolstedt, the now-retired executive at the center of the scandal, for selling more than $31 million of their stock in Wells Fargo at “artificially inflated” prices.

Wells Fargo has said its board will assess whether to cancel or claw back any incentive compensation paid to Tolstedt.

The complaint also criticizes the firm’s cross-selling strategy, saying it failed to disclose material facts about its practices that were aimed at fulfilling sales quotas.

Wells Fargo has long been the envy of the banking industry for its ability to sell multiple products to the same customer.

The San Francisco-based bank has said it has fired 5,300 people over the matter and would eliminate sales goals in its retail banking on Jan. 1, 2017.

Wells Fargo declined to comment on the matter.

Up to Monday’s close, shares of the company have fallen more than 10 percent since Sept. 8 when it reached a settlement with regulators, wiping off more than $25 billion of market capitalization.

(Reporting by Narottam Medhora in Bengaluru; Editing by Stephen Coates)

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When deals go bad: China state firm managers spooked by new liability rules

HONG KONG Business development managers at Chinese state-owned firms have been put on notice: mess up on MA deals and you can be held personally liable – for life.

Under new rules unveiled by China’s State Council, or cabinet, last month, managers will be held accountable if they “fail to, or incorrectly, perform their duties” with respect to deals that result in a loss of state assets.

A lack of specifics has prompted bankers and lawyers to say this is a draconian catch-all clause that is already slowing deal-making at Chinese state-owned enterprises (SOEs).

Sanctions include pay cuts, disciplinary action or full judicial hearings – even years after managers have moved jobs or retired. In the United States and Europe, company executives are rarely held personally accountable, let alone criminally liable, for bad deals – provided they met their fiduciary duties. When strategic moves go bad, typically the CEO or chairman is urged to resign.

The move is part of President Xi Jinping’s overhaul of China’s bloated, debt-ridden SOEs, which have been on a buying binge in recent years. Sloppy deal-making has led to billions of dollars in writedowns.

Flush with state funds and a government mandate to go global, SOE managers have enjoyed a high degree of freedom to make often big, headline-grabbing outbound deals without fear of personal reprisal.

In the rush to accumulate assets, business development teams weren’t always thorough in their due diligence or market analysis. And deals were typically rubber-stamped by boards that tended not to look too closely at the details or valuations, said bankers and lawyers who have worked on state sector deals.

State firms also paid less attention to integrating newly bought assets – often critical to delivering long-term value.

“There’s growing concern around SOE investments,” said Xiong Jin, international partner at law firm King Wood Mallesons in Beijing. “The government has realized that many SOE assets have been lost through poor investments overseas, and now there’s a sense of urgency to impose better controls. This also comes in the broader context of SOE reform.”

The new rules mean many SOE managers are now reluctant to take decisions, say bankers and lawyers, and can spend weeks tied up on email chains and meetings trying to get their bosses to take responsibility for transactions and have external legal counsel sign off on commercial aspects of deals.

“The blanket reaction from senior company officials would be: be passive, making no suggestions or decisions on MA opportunities,” said a senior official at a state energy company involved in overseas investment.

The official, who didn’t want to be named due to the sensitivity of the issue, said managers would now more likely just report public information about investment opportunities to their bosses, without making any value-added proposals.

“If you start looking through the lens of this document, an SOE manager will start to ask of every operational decision or small decision on every provision in a deal: ‘could I be held accountable for this in 15 years’ time’,” said Andrew McGinty, partner at law firm Hogan Lovells in Shanghai.

“They will either take the path of least personal risk, which may not be best for the business, or keep going up the chain of command to make sure they have covered their position. This is slowing down deals.”


With Beijing’s blessing, state-owned firms led China’s decade-long outbound MA splurge, buying strategic assets from energy and food to technology. State-owned firms accounted for close to two-thirds of China’s $677 billion in outbound deals over the past 10 years, Thomson Reuters data show.

It wasn’t always money well spent.

For example, a tie-up between China’s state-run TCL and France’s Thomson Electronics lost around half its value, and South Korean car maker Ssangyong Motor filed for bankruptcy within five years of being taken over by Shanghai Automotive Industry Corp.

And last year’s oil price collapse forced companies like China Petroleum Chemical Corp (600028.SS) (0386.HK) and CNOOC (0883.HK) to take billions of dollars in writedowns. CNOOC took a 10.4 billion yuan ($1.56 billion) impairment charge in the first half of this fiscal year, which analysts say is largely related to its $15.1 billion buy of Canada’s Nexen Inc in 2013

Bankers said Beijing became even more circumspect following China National Chemical Corp’s [CNNCC.UL] $43 billion bid for Syngenta (SYNN.S) in February – which came with an eye-popping $3 billion break fee, or 7 percent of the deal value compared to 1-2 percent typically.

“It’s this over-exuberant climate that has prompted the government to rein in the excess,” said Howard Yu, professor at Swiss business school IMD. “It all points to an urgent need for systematic reform to impose a sense of discipline when it comes to international expansion through MA.”

The State Council Information Office, the public relations arm of the central government, did not respond to requests for comment.

China’s State-owned Assets Supervision and Administration Commission (SASAC), which oversees SOEs, is also tightening its vetting process on outbound deals and intervening more, said MA bankers in Hong Kong.

At some SOEs, internal committees representing the Communist Party have been given new powers to effectively supersede the board and approve major deals.

Sinochem International Corp (600500.SS) pulled out of a $3 billion acquisition of a German company last month after the SASAC questioned the valuation, a person with direct knowledge of the matter said.

The SASAC did not respond to requests for comment.

($1 = 6.6707 Chinese yuan renminbi)

(Reporting by Denny Thomas and Michelle Price, with additional reporting by Aizhu Chen in BEIJING; Editing by Ian Geoghegan)

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U.S. Labor Department launches review of all Wells Fargo complaints

WASHINGTON U.S. Labor Department Secretary Thomas Perez on Monday pledged to conduct a “top-to-bottom” review of all cases, complaints and other alleged violations that the department has received concerning Wells Fargo (WFC.N) in recent years.

Perez’s announcement, outlined in a Sept. 26 letter to Senator Elizabeth Warren of Massachusetts, comes after Warren and other Democrats asked the Labor Department last week to launch a probe into possible wage and working-hour law violations involving Wells Fargo tellers and sales representatives who may have stayed late to meet sales quotas.

“Given the serious nature of the allegations, the recent actions of our federal partners, and recent media reports, I have directed enforcement agencies within the Department to conduct a top-to-bottom review,” he wrote.

He also said the department has created a web page at to help ensure current and former Wells Fargo employees are aware of worker protection laws.

Wells Fargo was ordered to pay $190 million earlier this month to settle civil charges alleging its employees had set up about 2 million accounts and credit cards in customers’ names that may not have been authorized.

A Wells Fargo spokeswoman could not be immediately reached for comment after the close of business Monday but the company previously apologized to affected customers and said it fired 5,300 employees over “inappropriate sales conduct.”

The Consumer Financial Protection Bureau alleged that the opening of these accounts was driven by a system that financially rewarded employees.

Federal prosecutors have since launched a criminal probe into the issue, a source previously told Reuters.

The Labor Department polices a variety of things, including wage and hour rules, workplace safety, whistleblower protection laws and employee benefit plans.

Perez said that the department’s Occupational Safety and Health Administration (OSHA) has received a number of whistleblower complaints from Wells Fargo employees over the past five years.

Most of those complaints are concluded, with some settling and others found to have no merit, he said. Others are still currently under investigation, he added.

“I have asked OSHA to review the entire docket of both closed and open Wells Fargo cases since 2010,” he said.

Senator Warren, in a statement to Reuters, welcomed the department’s review.

“Every other federal agency with jurisdiction in this matter should follow DOL’s lead and promptly determine whether Wells Fargo and its senior executives should be prosecuted or otherwise sanctioned,” she said.

(Reporting by Sarah N. Lynch; Editing by Leslie Adler and Lisa Shumaker)

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Disney, Microsoft among possible Twitter suitors: reports

Walt Disney Co and Microsoft Corp joined a list of potential suitors for Twitter Inc, according to media reports on Monday.

Twitter shares were marginally down at $23.33 in after-market trading.

The microblogging service has reportedly started talks with a number of technology companies to sell itself, including Google parent Alphabet Inc and may receive a formal bid soon. A source told Reuters that Inc is also in pursuit.

Salesforce is working with Bank of America on a potential bid, a Bloomberg report on Monday said. (

Walt Disney is also working with a financial adviser to evaluate a possible bid for Twitter, Bloomberg reported, citing people familiar with the matter. (

Jack Dorsey, who returned to Twitter as chief executive more than a year ago, has been a part of Disney’s board since 2013.

Microsoft is also among the list of potential suitors, although Facebook Inc is not likely to have an interest in the social network, CNBC said, citing sources, following the Bloomberg report. (

A sale could occur in the next 30 to 45 days, CNBC reported.

“At this moment, Microsoft has nothing to share,” said a spokeswoman for the company.

Facebook declined to comment on the matter while Twitter and Disney were not available for comment.

(Reporting by Anya George Tharakan and Narottam Medhora in Bengaluru; Additional reporting by Anet Josline Pinto; Editing by Shounak Dasgupta)

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Tesla and supplier Hoerbiger settle in court over Falcon Wing doors

SAN FRANCISCO Tesla Motors Co (TSLA.O) and a U.S. subsidiary of Swiss auto supplier Hoerbiger have agreed to settle a lawsuit filed by the electric car maker over problems with a proposed hydraulics system for the luxury Model X’s “falcon wing” doors, court records show.

Both parties have until Oct. 13 to file a joint statement as to the status of the settlement, terms of which have not yet been disclosed.

Tesla and Hoerbiger have delayed filing for a dismissal because certain conditions of the settlement will not be fulfilled until Oct. 4, according to an Aug. 18 filing by the companies.

Lawyers for the companies did not immediately return calls seeking comment.

Tesla claimed that a hydraulic system developed by Hoerbiger in 2014-2015 for use in the Model X doors, which open upwards rather than to the side, was riddled with deficiencies, making it an “unworkable engineering solution” that added costs and “more than a year of wasted efforts.” It sued the company in January.

The lawsuit over the development of the show-stopping doors shone a spotlight on the intricacies of Tesla’s engineering and the complex and dependent relationship with its suppliers. The Model X luxury SUV was, according to Chief Executive Elon Musk, “the hardest car to build in this world.”

After its launch in September 2015, with a revised door design using electromechanical parts from a new supplier instead of hydraulic ones, many owners complained the doors did not latch properly or that the sensors malfunctioned.

Hoerbiger in January denied Tesla’s claims, saying it had fulfilled the company’s specifications and was not responsible for the electronic controls related to the doors’ symmetry and overheating problems cited by Tesla in its complaint. It said it was negotiating with Tesla over reasonable compensation.

Tesla had originally sought punitive damages for negligence from Hoerbiger before dropping that claim.

Musk claimed not to know of Hoerbiger when asked by Reuters during a first-quarter results conference call in May.

In its lawsuit, Tesla said Hoerbiger’s proposed system was prone to overheating, making the doors inoperable, and leaked oil. The doors sagged and did not open properly, it said.

Moreover, “unanticipated complexity” in integrating the system with the car added to assembly time and increased costs above Tesla’s expectations, it said.

(Reporting by Alexandria Sage; Editing by Joseph White and Richard Chang)

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Fed’s Kashkari says no U.S. rate hike was right move

MINNEAPOLIS The Federal Reserve made the “right move” in deciding last week to leave interest rates unchanged, a top Fed official said on Monday, because inflation remains low and more workers are returning to the labor force.

“That to me suggests we have time before we need to adjust rates,” Minneapolis Fed President Neel Kashkari told reporters after a symposium on banking regulation at his bank’s headquarters.

Fed policymakers voted 7-3 on Sept 21 to hold steady the target rate for overnight lending between banks at 0.25 percent to 0.5 percent. Kashkari currently participates in Fed policy discussions as a non-voter, but rotates next year into a voting role.

“I do think that was the right move. I supported the decision in the meeting,” Kashkari said. “It seems to me that the risks of too low inflation are greater than the risks of too high inflation.”

Unemployment registered 4.9 percent in August, below what many economists view as sustainable in the long run, and most Fed officials expect it to fall further.

Inflation has run well below the Fed’s 2 percent target for four years.

Kashkari said he does not consider himself either a monetary policy dove with a preference for lower rates or a hawk who leans toward higher rates.

Instead, he said, he watches inflation, inflation expectations, and the unemployment rate for clues on the optimal setting for interest rates.

“If the data changes and inflation moves up, or inflation expectations move up, or we see either the headline unemployment rate drop quickly or we have some confidence that the slack in the labor market has been used up, that would then suggest to me, okay now it’s time to get going,” Kashkari said. “Then I might be aligned with the hawks.”

(Reporting by Ann Saphir; Editing by Meredith Mazzilli and David Gregorio)

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Wall Street drops as investors brace for presidential debate

Wall Street fell on Monday as Deutsche Bank weighed on financials and investors hunkered down for the first debate between U.S. presidential candidates Hillary Clinton and Donald Trump.

Big banks led the declines as investors worried that Deutsche Bank might need to add additional capital to pay for a$14 billion U.S. demand to settle claims it missold mortgage-backed securities.

Its U.S.-listed shares fell 7.06 percent to a record low after the bank said it had no need for German government assistance, a response to an earlier report that Chancellor Angela Merkel had warned not to expect any.

The race for the White House has so far had little discernible effect on the sentiment but that may change if Monday’s encounter leaves a decisive winner.

With just over six weeks until the Nov. 8 vote, some investors see the neck-and-neck contest sparking volatility in sectors including health insurers, drugmakers and industrials.

“Wall Street favors Hillary at this point because she is a known commodity. Trump is a wild card,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa. “But I don’t think it’s too late for Wall Street to warm up to Trump.”

Pfizer Inc fell 1.81 percent after it decided against splitting into two. The stock was the biggest drag on the SP 500 healthcare index, which declined 1.22 percent.

The Nasdaq biotechnology index dipped 1.3 percent, with cancer drugmaker Celgene Corp falling 2.85 percent.

Many view a potential Clinton presidency as negative for pharmaceutical companies because of criticisms she has made about high drug prices. Trump has promised to dismantle the Affordable Care Act, which has boosted health insurers since 2010.

The SP financial index fell 1.5 percent, with JPMorgan’s 2.19 percent decline and Bank of America Corp’s 2.77 percent slide weighing most. The SP 500 bank index dropped 2.24 percent, its steepest drop since July 5 in the wake of the Brexit vote.

The Dow Jones industrial average dropped 0.91 percent to end at 18,094.83 points and the SP 500 lost 0.86 percent to 2,146.1.

The Nasdaq Composite lost 0.91 percent to finish at 5,257.49.

It was the second consecutive day of declines on Wall Street, leaving the SP 500 2 percent below its record high set in May but still up 5 percent in 2016.

“Investors are acting extremely nervous with regards to the debate … and it highlights the fact that the markets are not focusing on the health of the economy, interest rates and geopolitical events,” said Robert Pavlik, chief market strategist at Boston Private Wealth.

The CBOE Market Volatility index, also known as Wall Street’s “fear gauge”, rose 17.9 percent, clocking its biggest percentage gain in two weeks.

Declining issues outnumbered advancing ones on the NYSE by a 2.56-to-1 ratio; on Nasdaq, a 3.16-to-1 ratio favored decliners.

The SP 500 posted two new 52-week highs and one new low; the Nasdaq Composite recorded 63 new highs and 31 new lows.

About 5.9 billion shares changed hands on U.S. exchanges, short of the 6.8 billion daily average for the past 20 trading days, according to Thomson Reuters data.

(Additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Nick Zieminski and Lisa Shumaker)

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Oil ends up 3 percentt as OPEC meets; volatility hits post-Doha high

NEW YORK/LONDON Oil settled up 3 percent on Monday as the world’s largest producers gathered in Algeria to discuss ways to support prices, with nervous trade driving volatility to its highest since a similar meeting to freeze output in April in Doha which failed.

The Organization of the Petroleum Exporting Countries and other oil producers led by Russia are meeting informally on the sidelines of the International Energy Forum in Algeria from Sept. 26-28 to tackle a crude glut that has battered prices for two years now.

Key OPEC member Iran, the fourth largest crude exporter which is still trying to recapture output before Western sanctions in 2012, downplayed the chances of a deal while some OPEC members remained hopeful.

“Unless there’s an impressive production cut by OPEC on top of a freeze, I think we’ll give back everything we’ve gained by the end of this week,” said Tariq Zahir, an oil bear at Tyche Capital Advisors in New York.

Brent crude futures LCOc1 settled up $1.46, or 3.2 percent, at $47.35 a barrel after trading between $45.74 and $47.66.

U.S. West Texas Intermediate (WTI) crude futures CLc1 rose $1.45, or 3.3 percent, to settle at $45.93 after a session high of $46.20 and low of $44.43.

Both benchmarks moved in a near $2-band between the highs and lows, one of the widest swings in weeks.

Implied volatility, a gauge of how much oil prices move, was at its highest since April 18, when the meeting in Doha among OPEC members to discuss an output freeze ended in an impasse, leaving crude at just above $40.

Scepticism about a deal being reached in Algiers had prompted money managers to cut their bullish bets on U.S. crude futures to a one-month low last week, with prices falling nearly 5 percent. [CFTC/]

Some analysts believe an output freeze will only be implemented after OPEC’s all-important policy meeting beginning in Vienna on Nov. 30. Until then, the group and non-members, including No. 1 producer Russia and top oil consumer the United States, are likely to ramp up production.

OPEC pumped near a multi-year high of 33.24 million barrels per day in August, data showed. Russian production hit record highs of 11.75 million bpd last week. U.S. output has fallen this year but its oil rig count, which signals future production, has risen for 12 of the past 13 weeks. [RIG/U]

“If more Libyan and Nigerian production come online and Iranian production continues to increase, then by November the surplus could be high enough and prices low enough to encourage OPEC to act,” said James Williams, analyst at WTRG Economics in London, Arkansas.

A Reuters poll showing that U.S. crude stockpiles had risen by as much as 2.8 million barrels last week after three prior weeks of declines also caused concern for some market participants, analysts said. [EIA/S]

(Additional reporting by Amanda Cooper in LONDON and Keith Wallis in SINGAPORE; Editing by Marguerita Choy and Louise Heavens)

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Fed seeks more capital from big banks, relief for regional lenders

WASHINGTON The Federal Reserve will seek significantly more capital from the largest U.S. banks and give some relief to smaller lenders as it updates its annual stress test, Fed Governor Daniel Tarullo said on Monday.

The reforms will include a new capital buffer to better protect the financial system from a shock at the nation’s largest lenders like JPMorgan Chase, Bank of America and Wells Fargo.

“In pulling this package of modifications together, we have consciously shaped them in accordance with the principle that financial regulation should be progressively more stringent for firms of greater importance,” Tarullo said in a speech at Yale University in New Haven, Connecticut.

Under the plan, roughly 25 regional banks including Regions Bank and SunTrust Bank would face less scrutiny during the annual stress test.

Specifically, because of their size, those lenders would be spared a costly review of risk management, internal controls, and governance practices.

The largest eight or so U.S. banks would still face such scrutiny. Eventually, they would also be subject to the capital buffer rule.

The Fed, which regulates the banking and financial services sector, expects to outline the new capital plan next year. It will not impact the 2017 stress test, officials said.


Tarullo has been a key architect of banking rules conceived since the 2007-2009 financial crisis. He helped write the fine print of the 2010 Dodd-Frank Wall Street reform law.

The Fed’s stress test considers how roughly 30 banks could weather a downturn lasting more than two years.

Large banks that pass the test may still have to boost capital reserves if they are deemed “systemically important” to global finance.

In July, banks that got a stress test review largely received a thumbs-up from the Fed.

The cutoff for the new capital rule is $250 billion in consolidated assets. Banks below that threshold would not have to satisfy the new standard.

Regional banks have argued for years that they do not deserve the same costly scrutiny faced by the largest Wall Street firms.

The Fed on Monday formally proposed the allowance for regional banks and asked for comment by Nov. 25.

(Reporting by Patrick Rucker; Editing by Paul Simao)

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