News Archive


Wall Street’s rock-solid quarter ends with a loss


Wall Street fell on Friday, pulled down by Exxon and JPMorgan Chase as investors wrapped up a strong quarter and weighed whether corporate earnings reports will justify the market’s lofty valuations.

Major indexes have hit multiple record highs since the election of President Donald Trump on bets that he would improve economic growth by cutting taxes and boosting infrastructure spending. The rally has also benefited from robust economic data and a pickup in corporate earnings growth.

For the quarter ending Friday, the SP 500 gained 5.5 percent, its strongest quarterly performance since the last quarter of 2015.

Investors are now looking to the upcoming quarterly earnings season to justify pricy valuations.

First-quarter earnings for SP 500 companies are expected to rise 10.1 percent, according to Thomson Reuters I/B/E/S. The index is trading at about 18 times earnings estimates for the next 12 months, compared to its long-term average of 15.

“Valuations are as stretched as they ever get,” said Bruce Bittles, chief investment strategist at Robert W. Baird Co in Nashville. “Certainly that’s cause for concern if earnings don’t grow the way they are anticipated to grow.”

Over 40 strategists polled this week on average expected the SP 500 to rise another 2 percent by the end of the year.

The Dow Jones Industrial Average .DJI fell 0.31 percent to end at 20,663.22 points, while the SP 500 .SPX lost 0.23 percent to 2,362.72.

The Nasdaq Composite .IXIC slipped 0.04 percent to 5,911.74.

So far in 2017, technology .SPLRCT has been the top-performing SP sector, up 12.2 percent. The weakest has been energy .SPNY, down 7.3 percent.

Eight of the 11 major SP sectors fell on Friday, with the financial index .SPSY down 0.72 percent. JPMorgan Chase (JPM.N) fell 1.34 percent and Wells Fargo Co (WFC.N) lost 1.03 percent.

Also weighing on the SP 500 and Dow, Exxon Mobil (XOM.N) fell 2.02 percent.

FMC Corp (FMC.N) rallied 13.15 percent after it agreed to buy DuPont’s (DD.N) crop protection business and sell its health and nutrition unit to DuPont. DuPont fell 1.60 percent

Amazon.com (AMZN.O) rose 1.16 percent to a record high.

Advancing issues outnumbered declining ones on the NYSE by a 1.48-to-1 ratio; on Nasdaq, a 1.18-to-1 ratio favored advancers.

The SP 500 posted 18 new 52-week highs and one new low; the Nasdaq Composite recorded 100 new highs and 17 new lows.

About 6.4 billion shares changed hands in U.S. exchanges, below the 6.8 billion daily average over the last 20 sessions and among the lightest volume days in 2017.

(Additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Chizu Nomiyama and James Dalgleish)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/qnEnnqyvZYk/us-usa-stocks-idUSKBN1721G8

Credit Suisse under fire as clients hunted for tax evasion


AMSTERDAM/ZURICH Swiss bank Credit Suisse (CSGN.S) has been dragged into yet more tax evasion and money laundering investigations, after a tip-off to Dutch prosecutors about tens of thousands of suspect accounts triggered raids in five countries.

Coordinated raids began on Thursday in the Netherlands, Britain, Germany, France and Australia, the Dutch office for financial crimes prosecution (FIOD) said on Friday, with two arrests confirmed so far.

The Dutch are “investigating dozens of people who are suspected of tax fraud and money laundering”, the prosecutors said, adding that suspects had deposited money in a Swiss bank without disclosing that to authorities.

British tax authorities said they had opened a criminal investigation into suspected tax evasion and money laundering by “a global financial institution” and would be focusing initially on “senior employees”, along with an unspecified number of customers.

Prosecutors in the German city of Cologne said they were also working with the Dutch. “We have launched an investigation against clients of a bank,” a spokesman said.

None of the authorities disclosed the name of the bank involved. However, Credit Suisse, Switzerland’s second-biggest bank, said local authorities had visited its offices in Amsterdam, London and Paris “concerning client tax matters” and it was cooperating.

It said later it had launched an internal probe. “The investigation will be executed by compliance, it will not be executed by the business,” Iqbal Khan, who is responsible for Credit Suisse’s private banking operations outside Switzerland and Asia Pacific, told Reuters.

“If any individuals are implicated or have violated against these processes or procedures or policies that are in place then we will identify that very quickly.”

The Dutch FIOD seized administrative records as well as the contents of bank accounts, real estate, jewelry, a luxury car, expensive paintings and a gold bar from houses in four Dutch towns and cities. The FIOD tweeted a photo of some of the seized assets. [tinyurl.com/llkjhrz]

The people arrested, one in The Hague and one in the town of Hoofddorp, were not identified.

The actions angered Switzerland’s Office of the Attorney General, which said it was “disconcerted” by the way Dutch authorities had handled the matter and would demand an explanation.

Dutch prosecutors responded that Swiss authorities had been left out of the investigation because none of the suspects were Swiss — they were just linked to secret Swiss bank accounts.

“If the Swiss authorities wish to receive information on the investigation, we, the other countries involved and Eurojust, are always willing to discuss (that) with them,” the FIOD said in a statement.

Eurojust, the European Union agency that coordinates cross-border prosecutions, said the investigation had begun in 2016, and representatives from the countries involved — Switzerland not among them — had held three preparatory meetings to share information before Thursday’s raids.

Prosecutors “analyzed a huge amount of data,” Eurojust said, looking for “individuals and groups suspected of tax fraud and money laundering.”

The investigation uncovered “undeclared assets hidden within offshore accounts and policies…(worth) millions of euros.”

Credit Suisse shares fell 1.2 percent, underperforming the wider European banking sector index .SX7P which rose 0.1 percent on Friday.

OLD WOUNDS

For Zurich-based Credit Suisse, the case reopens the thorny issue of tax evasion which has dogged Swiss banks for years as wealthy individuals around the world have used the country’s strict bank secrecy laws to hide cash from the taxman.

Credit Suisse has paid more than 2 billion Swiss francs ($2 billion) since 2011 in the United States, Germany and Italy to settle allegations it helped clients dodge taxes. It has pushed clients in Europe, Latin America and Asia to participate in government programs facilitating the declaration of untaxed assets.

The bank said in December this process had been completed for Europe.

Switzerland is also among the countries that have signed up to a global initiative led by the Organization for Economic Co-operation and Development. Under the OECD’s Automatic Exchange of Information, banks pass on information to local tax agencies, which then share it with foreign counterparts.

Switzerland began collecting data at the start of the year and will exchange information from 2018.

The Dutch FIOD said the coordinated raids were prompted by a tip-off about 55,000 suspect accounts, and it had passed information to the other countries about the accounts.

Spokeswoman Wietske Vissers said the investigation would “continue for days and weeks” across the various countries. The Netherlands is investing 3,800 Dutch leads. French authorities said they had 25 agents working on the case.

Credit Suisse’s Khan said the 55,000 was “not a number that I can reconcile because as of today, in International Wealth Management in Europe, the total number of accounts is lower than 55,000”.

Australia’s minister for revenue and financial services, Kelly O’Dwyer, said the country’s financial crime investigator was looking at 340 Australians linked to Swiss bank accounts, which she said were only identified by number.

“The fact that these accounts are unnamed,” O’Dwyer said, “means that by their very nature they are likely to have been established to hide the identity of the owner.”

(Additional reporting by Swati Pandey, Michael Holden and Oliver Hirt; Editing by Mark Trevelyan and Andrew Roche)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/gLM67uUP4mk/us-netherlands-taxevasion-international-idUSKBN1720Q2

Fannie, Freddie may write down $21 billion due to U.S. tax cut: BMO


NEW YORK U.S. mortgage finance giants Fannie Mae (FNMA.PK) and Freddie Mac (FMCC.PK) may write down $21 billion of tax-related assets if there is a deep cut in the federal corporate tax rate as promised by President Donald Trump, according to an analyst at BMO Capital Markets on Friday.

These assets, known as deferred tax assets, are items such as tax credits that may be used to reduce a company’s taxes.

If the rate cut is lowered to 20 percent from 35 percent, the value of Fannie and Freddie’s deferred tax assets is worth less and it would be recognized against their capital.

The two agencies, which guarantee home loans and mortgage-backed securities, are holding little capital since they are not allowed to retain their earnings after they have been under conservatorship or government guardianship due to heavy losses from the housing market collapse more than eight years ago.

Fannie drew $116.1 billion and Freddie $71.3 billion from the U.S. Treasury Department to cover those losses. They have remitted all their profits, which are more than their draw, to the Treasury under the conservatorship arrangement.

In absence of much capital cushion, the government-sponsored enterprises (GSEs) would need borrow nearly a total of $17 billion from Treasury, BMO’s head of fixed-income strategy, Margaret Kerins, wrote in a research note.

Such a move, however, would not hurt the value of their bonds or disrupt mortgage market, she said.

“However, the potential for renewed draws is likely to be politically unpopular and may spark preemptive Treasury action

and Congress to prioritize GSE reform in addition to headline risk,” Kerins wrote.

(Reporting by Richard Leong; Editing by Jonathan Oatis and Marguerita Choy)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/ryeBPqn62gQ/us-fanniemae-tax-idUSKBN1722O6

BlackRock’s active gambit ups pressure on rivals


NEW YORK/BOSTON BlackRock Inc’s (BLK.N) decision to revamp part of its stock-picking business puts further pressure on active U.S. equity managers to cut fees, change products and merge to stem a relentless, 12-year decline in assets.

BlackRock is replacing a handful of portfolio managers and doubling down on an investment in computer models and data science to boost returns and cut fees. The moves affect about 11 percent of its $275 billion active stock fund business but are a drop in the ocean for the company, the world’s largest asset manager.

Roughly two-thirds of its $5 trillion in assets under management and half its fee income come from index-tracking funds and exchange-traded funds, products investors are flocking to for superior returns and cheaper management fees.

For rivals heavily reliant on active stock pickers, hiring computer geniuses to develop investing models and spending more on data mining may not be a cost-effective way of boosting performance.

Axing portfolio managers can also trigger investor withdrawals.

“This is a little experiment for BlackRock but bad news for a lot of players in the market,” said Kyle Sanders, a stock analyst for Edward Jones.

The pain could be concentrated among smaller, active fund managers reliant on fleet-footed retail investors. Mangers of larger funds can put more money into their investment process and tend to have more institutional clients willing to endure a period of underperformance.

But even larger companies are at risk.

Analysts at Morgan Stanley (MS.N) see Franklin Resources Inc (BEN.N), home to the Franklin Templeton stable of funds, as one of the most exposed to fee cuts, because its assets are skewed toward the retail brokerage channel.

“Over the next three years, we see the management fee rate compressing by 12 percent, leading to revenue degradation of -18 percent,” Morgan Stanley analysts said in a recent note.

Franklin Templeton, the No. 5 mutual fund company in the United States by assets, did not respond to a request for comment.

In its most recent quarter, Franklin Templeton’s assets fell 6 percent from the year prior, while operating revenue fell by 11 percent.

For the wider industry, Morgan Stanley analysts’ base case is fee compression of 10 percent to 15 percent and more than 25 percent in its bear case.

“We foresee a multi-year adjustment process that will affect the earnings and shares of publicly traded traditional asset managers,” Morgan Stanley analyst Michael Cyprys said in a separate, recent research note. He added that fee cuts and product re-engineering could drive some companies to go private “and usher in an era of large-scale consolidation – not without risks.”

Consolidation is already happening. Janus Capital Group Inc (JNS.N) agreed in October to sell itself to UK-based Henderson Group Plc for $2.6 billion. Anglo-South African financial services firm Old Mutual (OML.L) this month sold a 25 percent stake in its U.S. fund management arm (OMAM.N) to China’s HNA (0521.HK) for $446 million.

YEARS OF FEE PRESSURE

Actively managed U.S. stock funds have not reported a year of net inflows since 2005, according to Morningstar.

Over the past 12 months alone, fund companies including household names such as American Funds, Fidelity Investments, Franklin Templeton and T. Rowe Price Group Inc (TROW.O) have endured withdrawals totaling $131.8 billion, the research service said.

By comparison, index-fund pioneer Vanguard Group attracted $342 billion in the United States, much of it into its passively managed index funds and exchange-traded funds.

A look at industry fees helps explain why. Despite a 15 percent drop in U.S. equity fund fees in the decade ending in 2015, mutual fund managers on average still charge $131 for every $10,000 they manage, according to the Investment Company Institute, a trade group.

Vanguard’s U.S. stock funds fees average $18, according to Morningstar.

Despite their higher costs, just 14 percent of active broad-market, large-cap stock funds beat their passive counterparts over 10 years through 2016.

American Funds defended its strategy. Low-fee shares of its largest fund, the $155 billion Growth Fund of America, beat most of its peers over five years, according to Thomson Reuters’ Lipper unit.

“We are and will always be an investment management company first, run by people with deep expertise and phenomenal track records – enabled by some of the world’s leading next-generation technology,” an American Funds spokeswoman said in a statement.

Fidelity said individual active managers continued to beat the market.

“The active/passive debate usually focuses on the industry as a whole and the performance of the average active manager, but as with every industry there are some that are better than others,” a Fidelity spokesman said in an email.

Will Danoff, one of Fidelity’s best stock pickers, experienced one of his worst years as a portfolio manager in 2016 when his $107 billion Contrafund (FCNTX.O) trailed the SP 500 Index .SPX by nearly 9 percentage points. But so far in 2017, Danoff is working the magic that has been the rule during his nearly 27 years managing investor money. Contrafund’s year-to-date total return of 10.3 percent is easily beating the SP 500 by nearly 4 percentage points.

T. Rowe Price declined to comment.

For its part, BlackRock’s actively managed equity business posted $20.2 billion in outflows last year, according to its earnings report. Its move to a quantitative focus underscores the eroding confidence in the ability of humans to pick large-cap stocks that outperform benchmarks such as the SP 500.

Analysts say, however, the industry will have a chance to prove its worth if there is a stock market correction.

“When (markets) are all going up at once, and all sectors are firing on all cylinders, you’re fine to be all-passive,” said Tom Roseen, senior analyst for Lipper.

“But when markets are tanking, if they make the right bets, then we’ll see (some) active mutual funds beating passive, but we won’t see that at all of them.”

(Reporting by Trevor Hunnicutt in New York and Tim McLaughlin in Boston; Additional reporting by Ross Kerber in Boston; Editing by Carmel Crimmins and Steve Orlofsky)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/57JVt7BkdW4/us-funds-active-blackrock-analysis-idUSKBN1722PR

Oil retreats, set to become first quarter’s worst-performing asset


NEW YORK Oil prices fell on Friday after a three-day rally ran out of steam as a higher U.S. rig count signaled rising production from shale, contributing to the global supply glut.

Prices have been locked within a range during the first quarter as traders searched for signals that the Organization of the Petroleum Exporting Countries’ production cuts are effective or that U.S. production is continuing to offset efforts to rebalance the market.

Brent crude futures LCOc1 have recorded the biggest losses across global asset classes this quarter. In March, the contracts posted the biggest monthly losses since July as growing U.S. crude inventories and drilling activity counterbalanced production cuts elsewhere in the world.

Brent futures settled down 13 cents at $52.83 a barrel. The contracts have lost around 7 percent since the previous quarter, the largest quarterly losses since late 2015.

U.S. crude futures CLc1 settled up slightly, rising 25 cents to $50.60 a barrel after slipping below $50. They ended the quarter at about 5.7 percent lower, also the worst quarterly loss since late 2015.

Oil prices had gained momentum this week on a growing sense that OPEC and nonmember Russia would extend their production cut, seeking to drive the market higher.

“There’s resistance at $52 to $53 a barrel,” said Tony Headrick, energy market analyst CHS Hedging. Additionally, the WTI-Brent spread, which widened early in the month, narrowed to the tightest since March 3, after exports picked up last week, he said.

The U.S. energy department on Friday released supply and demand figures for January, the latest month available, saying the country’s oil demand for that month was up 0.9 percent at 19.234 million barrels per day, while production rose 60,000 bpd to 8.835 million barrels. [EIA/PSM]

Energy services firm Baker Hughes said U.S. oil rigs increased by 10 to 662 in the week, making the first quarter the strongest for oil rig additions since mid-2011. [RIG/U]

The indicator has shown huge gains, with the rig count doubling in a 10-month recovery and undermining efforts led by OPEC to rein in output.

“I wouldn’t be surprised to see some profit-taking ahead of the weekend after the strong gains in recent days,” said Carsten Fritsch, commodity analyst at Commerzbank.

OPEC and non-OPEC producers including Russia agreed late last year to cut output by almost 1.8 million barrels per day in the first half of 2017 to ease a global supply overhang and prop up prices.

Nevertheless, analysts polled on a monthly basis by Reuters have slightly lowered their oil price expectations for this year.

(Click here for a graphic on ‘Q1 2017 asset performance’ here)

(Additional reporting by Henning Gloystein in Singapore and Karolin Schaps in London; Editing by Richard Chang and Matthew Lewis)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/fH_bLDGhWpg/us-global-oil-idUSKBN17103G

Major internet providers say will not sell customer browsing histories


WASHINGTON Comcast Corp, Verizon Communications Inc and ATT Inc said Friday they would not sell customers’ individual internet browsing information, days after the U.S. Congress approved legislation reversing Obama administration era internet privacy rules.

The bill would repeal regulations adopted in October by the Federal Communications Commission under former President Barack Obama requiring internet service providers to do more to protect customers’ privacy than websites like Alphabet Inc’s Google or Facebook Inc.

The easing of restrictions has sparked growing anger on social media sites.

“We do not sell our broadband customers’ individual web browsing history. We did not do it before the FCC’s rules were adopted, and we have no plans to do so,” said Gerard Lewis, Comcast’s chief privacy officer.

He added Comcast is revising its privacy policy to make more clear that “we do not sell our customers’ individual web browsing information to third parties.”

Verizon does not sell personal web browsing histories and has no plans to do so in the future, said spokesman Richard Young.

Verizon privacy officer Karen Zacharia said in a blog post Friday the company has two programs that use customer browsing data. One allows marketers to access “de-identified information to determine which customers fit into groups that advertisers are trying to reach” while the other “provides aggregate insights that might be useful for advertisers and other businesses.”

Republicans in Congress Tuesday narrowly passed the repeal of the rules with no Democratic support and over the objections of privacy advocates.

The vote was a win for internet providers such as ATT Inc, Comcast and Verizon. Websites are governed by a less restrictive set of privacy rules.

The White House said Wednesday that President Donald Trump plans to sign the repeal of the rules, which had not taken effect.

Under the rules, internet providers would have needed to obtain consumer consent before using precise geolocation, financial information, health information, children’s information and web browsing history for advertising and marketing. Websites do not need the same affirmative consent.

Some in Congress suggested providers would begin selling personal data to the highest bidder, while others vowed to raise money to buy browsing histories of Republicans.

ATT says in its privacy statement it “will not sell your personal information to anyone, for any purpose. Period.” In a blog post Friday, ATT said it would not change those policies after Trump signs the repeal.

Websites and internet service providers do use and sell aggregated customer data to advertisers. Republicans say the rules unfairly would give websites the ability to harvest more data than internet providers.

Trade group USTelecom CEO Jonathan Spalter said in an op-ed Friday for website Axios that individual “browser history is already being aggregated and sold to advertising networks – by virtually every site you visit on the internet.”

This week, 46 Senate Democrats urged Trump not to sign the bill, arguing most Americans “believe that their private information should be just that.”

(Reporting by David Shepardson; Editing by Cynthia Osterman and Lisa Shumaker)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/BWsU3x0PBOU/us-usa-fcc-data-idUSKBN1722D6

Snapchat adds more accessible search feature


Snap Inc said on Friday its Snapchat messaging app would add an option for users to search through photos and videos that users have posted to the public.

The move comes just days after larger rival Facebook Inc stepped up efforts to encourage users to take more photos and edit them with digital stickers that show the influence of Snapchat.

Snapchat will enable users to search for photos and videos known as “Snaps” posted to the “Our Story” option on the app, by creating new “Stories” using machine learning technology, the company said in a blog post. (bit.ly/2oiuqBC)

The “Our Story” option is derived from Snap’s widely-copied “Stories” feature that is a slideshow of user content that disappears after 24 hours.

“Our Story” allows users to post their Snaps as part of a larger public collection, which users will be able to search through with the latest update.

For instance, users can use the search feature to find “Snaps” related to events such as local basketball games and topics such as puppies.

The search feature, which will be rolled out in some cities starting Friday, is an addition to curated “Stories”, where public “Snaps” about major events like Wimbledon or the Coachella music festival already appear.

Snapchat popularized the sharing of digitally decorated photographs on social media, especially among teenagers, but faces intense competition from larger Facebook and Facebook-owned Instagram.

Users will now be able to search for over one million “Stories” on Snapchat, Snap said, making the app more accessible.

Snap’s shares were up 1.5 percent in afternoon trading, while Facebook’s stock was down marginally.

(Reporting by Aishwarya Venugopal in Bengaluru; Editing by Sai Sachin Ravikumar)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/PuEGMq4kqxg/us-snap-feature-search-idUSKBN1722MM

Toshiba likely to miss quarterly earnings deadline for third time: sources


TOKYO Toshiba Corp will likely miss a third deadline to report its quarterly business results, two sources told Reuters, forcing the Japanese conglomerate to ask for a fresh extension or face a possible delisting from the Tokyo Stock Exchange.

A third postponement of the October-December earnings, past the latest deadline of April 11, looks necessary because Toshiba’s auditor, PricewaterhouseCoopers Aarata LLC, has questions about results for the business year through March 2016, said the sources. One of the sources has direct knowledge of the delay and the other was briefed on the matter.

Toshiba also may not be able to decide the favored bidder or group for its semiconductor business by its general shareholder meeting in late June, said another person with direct knowledge of the matter. He had previously said the decision would be made in May, or at least before the shareholder meeting.

Toshiba and PwC officials could not be reached for comment in Tokyo outside business hours.

The Japanese conglomerate, which only recently emerged from a huge accounting scandal, has been dragged down by billions of dollars of cost overruns at its former U.S. nuclear unit, Westinghouse Electric Co.

Disagreements with auditors forced the company to postpone its earnings release in February and again in March. After April 11, Toshiba will have eight working days to publish its results for the three months that ended Dec. 31 unless it can persuade regulators at the Ministry of Finance to give it more time.

Despite some progress in tackling writedowns at Westinghouse, a new delay to the Japanese parent’s earnings announcement would underscore the seriousness of the financial crisis that threatens the 144-year old company. For the business year ended Friday, Toshiba forecasts a net loss of 1 trillion yen ($9 billion).

Westinghouse on Wednesday filed for Chapter 11 bankruptcy protection from creditors in New York, a move by Toshiba to fence off losses at the unit it bought in 2006 for $5.4 billion. The filing marks the start of what will likely be lengthy and complex negotiations with creditors and customers that could embroil the U.S. and Japanese governments.

Toshiba’s shareholders at an extraordinary meeting in Japan on Thursday agreed to split off the company’s profitable NAND flash memory unit, green-lighting a plan to sell most or all of the business to raise at least 1 trillion yen to cover charges at Westinghouse.

The company received about 10 bidders in the first round, ended Thursday, with bids as high as 2 trillion yen, the semiconductor business source said.

A source earlier said Western Digital Corp and Micron Technology Inc in the United States, South Korea’s SK Hynix Inc and financial investors were among those expressing interest. 

The Japanese government-backed Innovation Network of Japan Corp and the Development Bank of Japan [DBJPN.UL] are also expected to submit bids as part of a consortium, sources have said.

(Reporting by Kentaro Hamada and Taro Fuse; Additional reporting by Makiko Yamazaki; Writing by Tim Kelly; Editing by William Mallard and Mark Potter)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/s4p_HzgsGDM/us-toshiba-accounting-idUSKBN1722AA

Fed signals it could promptly start shedding bonds from portfolio this year


NEW YORK The Federal Reserve could begin shrinking its $4.5-trillion balance sheet as soon as this year, earlier than most economists expect, New York Fed President William Dudley said on Friday in the central bank’s most definitive comments on the question that looms over financial markets.

The hawkish-sounding assertion temporarily pushed the dollar lower and raised yields on longer-dated bonds, and added Dudley’s influential voice to at least three other officials at the Fed eyeing a prompt end to a crisis-era policy.

“It wouldn’t surprise me if some time later this year or some time in 2018, should the economy perform in line with our expectations, that we will start to gradually let the securities mature rather than reinvesting them,” Dudley, a close ally of Fed Chair Janet Yellen, said on Bloomberg TV.

A couple hours later James Bullard, president of the St. Louis Fed, repeated his preference for the central bank to begin shedding its mortgage- and Treasury-backed bonds immediately.

Economists polled by Reuters and by the Fed itself generally expect the process to start some time next year, a move anticipated to raise market yields as the world’s largest holder of U.S. government debt edges back from the market.

The Fed amassed the record amount of assets in the wake of the 2007-2009 financial crisis and recession in three rounds of “quantitative easing” meant to stimulate investment, hiring and economic growth. It is no longer buying additional bonds, but it is topping up the portfolio when assets mature.

The Fed’s official plan is to begin letting the bonds naturally roll off – not necessarily sell them – once its interest-rate hikes are “well underway”. That is intended to shrink the portfolio to an unspecified lower level, though probably not to the pre-crisis level of around $900 billion.

Cleveland Fed President Loretta Mester and John Williams of the San Francisco Fed have also backed shrinking the portfolio this year. But Dudley, a permanent voting member of the Fed’s policy committee, often paves the way for broader policy decisions and his New York Fed manages the balance sheet for the central bank.

Dudley said the bond run-off would be “passive” and done “in the background,” though he added that it could influence the pace with which the Fed continues to raise rates.

“If we start to normalize the balance sheet, that’s a substitute for short-term rate hikes because it would also work in the direction of tightening financial conditions,” he said. “If and when we decide to begin to normalize the balance sheet we might actually decide at the same time to take a little pause in terms of raising short-term interest rates.”

Neel Kashkari, head of the Minneapolis Fed and among the most dovish policymakers, acknowledged at a local banking conference that there is interest among his colleagues to shrink the portfolio “in a gradual and predictable way.”

A Reuters poll found that economists at primary dealers were split over whether the Fed would announce its plans this year or next, with the actual shedding of bonds some time later. The New York Fed’s most recent poll found Wall Street banks expect no change to the balance sheet until mid-2018.

The central bank hiked rates a notch in mid-March, its second tightening in three months, and it plans to move about twice more this year according to its forecasts.

Dudley, in the TV interview, said “a couple more hikes this year would seem reasonable,” and that the Fed could do a little more or less depending on the economic data.

Bullard, another dovish policymaker who was addressing a students’ conference in New York, said he could back perhaps one more hike this year but added “this is not an environment that data is screaming at the Fed that it has to move.”

(Reporting by Jonathan Spicer; Additional reporting by Ann Saphir in Minneapolis; Editing by Chizu Nomiyama)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/eXx26kXX9ng/us-usa-fed-idUSKBN1722C7