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Tesla deal boosts Chinese presence in U.S. auto tech


DETROIT China’s Tencent Holdings Ltd (0700.HK) has bought a 5 percent stake in U.S. electric car maker Tesla Inc (TSLA.O) for $1.78 billion, the latest investment by a Chinese internet company in the potentially lucrative market for self-driving vehicles and related services.

Tencent’s investment, revealed in a U.S. regulatory filing, provides Tesla with a deep-pocketed ally as it prepares to launch its mass-market Model 3. Tesla’s shares rose 2.7 percent to $277.45 on Tuesday, closing in on Ford Motor Co (F.N) as the second-most-valuable U.S. auto company behind General Motors Co (GM.N).

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Tencent also could help the U.S. company sell – or even build – cars in China, the world’s largest auto market, analysts said.

“It certainly is a strong chess move for Tesla,” said Jeff Schuster, senior vice president of forecasting for researcher LMC Automotive, citing the cash infusion and “help in navigating the Chinese market.”

Tesla Chief Executive Officer Elon Musk on Tuesday tweeted: “Glad to have Tencent as an investor and adviser to Tesla.” Musk did not say what he meant by “adviser” but in a separate tweet he noted Tesla had “very few” Model 3 orders from China, where the car has not been formally introduced.

The midsize Model 3 is due to go on sale later this year in the United States.

The deal expands Tencent’s presence in an emerging investment sector that includes self-driving electric cars, which could enable such new modes of transportation as automated ride-sharing and delivery services, as well as ancillary services ranging from infotainment to e-commerce.

Those new technologies, and their potential to create new business models and revenue streams in the global transportation sector, have attracted billions in investment from China’s three tech giants – Tencent, Alibaba Group Holding Ltd (BABA.N) and Baidu Inc (BIDU.O).

In an investor note, Morgan Stanley auto analyst Adam Jonas said on Tuesday that he “would not be surprised” to see Tencent and Tesla collaborate in the development and deployment of some of those technologies.

The White House did not immediately respond to a request for comment on the Chinese investment in Tesla, but President Donald Trump has been critical of U.S. automakers and of China trade policies.

Founded in 1998 by entrepreneur Ma Huateng, Tencent is one of Asia’s largest tech companies, best known for its WeChat mobile messaging app. With a market capitalization of about $275 billion, it is roughly six times the size of 14-year-old Tesla, whose $45 billion market cap on Tuesday was only $1 billion shy of 114-year-old Ford.

Tencent was an early investor in NextEV, a Shanghai-based electric vehicle startup that since has rebranded itself as Nio, with U.S. headquarters in San Jose, not far from Tesla’s Palo Alto base. Tencent also has funded at least two other Chinese EV startups, including Future Mobility in Shenzhen.

In addition, Tencent has invested in Didi Chuxing, the world’s second-largest ride services company behind Uber, and in Lyft, Uber’s chief U.S. rival.

Baidu has invested in Nio, as well as in Uber and Velodyne, a California maker of laser-based lidar sensors for self-driving cars. Alibaba’s mobility investments include Didi and Lyft.

As Tesla is doing, many of the start-up companies backed by Tencent, Baidu and Alibaba are developing self-driving systems that eventually could be introduced in commercial ride-sharing fleets in the United States and China after 2020.

Tencent maintains a U.S. office in Palo Alto, in the heart of California’s Silicon Valley. Beijing-based Baidu and Hangzhou-based Alibaba also maintain offices in Silicon Valley.

Tencent owns about 8.2 million shares in Tesla, the carmaker said. It is the fifth-largest shareholder, behind Musk and investment companies Fidelity, Baillie Gifford and T. Rowe Price.(bit.ly/2nvNeMI)

To help fund Model 3 production, Tesla raised about $1.2 billion by selling common shares and convertible debt earlier this month. Tencent said its shares were acquired as part of the early March equity sale and on the open market.

Musk had a stake of about 21 percent as of Dec. 31.

 

(Additional reporting by Rishika Sadam in Bengaluru, Sijia Jiang in Hong Kong and David Shepardson in Washington; Editing by Nick Zieminski and Dan Grebler)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/jPRuTilxnVE/us-tesla-stake-tencent-holdings-idUSKBN16Z1FJ

China telecom firm ZTE removed from U.S. trade blacklist


WASHINGTON The U.S. Department of Commerce will remove Chinese telecommunications equipment maker ZTE Corp (000063.SZ) from a trade blacklist on Wednesday after the company pleaded guilty to violating sanctions on Iran and agreed to pay nearly $900 million, the agency said in a notice. [nL2N1GZ224]

Removal from the list marks the end of a tense period for ZTE, which faced trade restrictions that could have severed its ties to critical U.S. suppliers.

“By acknowledging the mistakes we made, taking responsibility for them … we are committed to a ZTE that is fully compliant, healthy and trustworthy,” said ZTE Chief Executive Zhao Xianming said in an emailed statement.

Last year, the U.S. Commerce Department placed export restrictions on ZTE as punishment for violating U.S. sanctions against Iran. The restrictions would have prevented restricted suppliers from providing ZTE any U.S.-made equipment, potentially freezing the Chinese handset maker’s supply chain.

Over the past 12 months, as ZTE cooperated with U.S. authorities, the U.S. Commerce Department temporarily suspended the trade restrictions with a series of three-month reprieves, allowing the company to maintain ties to U.S. suppliers.

Earlier this month, ZTE agreed to pay a total of $892.4 million and pleaded guilty to violating U.S. sanctions by sending American-made technology to Iran and lying to investigators.

The Commerce Department said on Tuesday it would impose severe restrictions on former ZTE CEO Shi Lirong, whom the agency accused of approving efforts to skirt sanctions and ship equipment to Iran.

The Commerce Department said Shi approved a systematic, written business plan to use shell companies to secretly export U.S. technology to Iran. Reuters could not immediately reach Shi for comment.

The U.S. investigation followed reports by Reuters in 2012 that ZTE had signed contracts with Iran to ship millions of dollars’ worth of hardware and software from some of America’s best-known technology companies.

U.S. authorities have said the size of the financial penalty against ZTE also reflects the fact that the company lied to investigators when executives were approached about the allegations.

As part of the deal, ZTE will be under probation for three years and agreed to cooperate in the continuing investigation.

(Reporting by Joel Schectman; Editing by Steve Orlofsky and Bill Rigby)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/LBnsbz4CG2M/us-usa-china-zte-idUSKBN16Z2O4

Wall Street posts sharp gains, fueled by strong consumer data


U.S. stocks ended sharply higher on Tuesday, with financial and energy shares surging as data showed U.S. consumer confidence soaring to a more than 16-year high.

The SP 500’s best day in nearly two weeks came after a record-setting rally for stocks in the wake of President Donald Trump’s election in November had stalled this month. The Dow Jones Industrial Average snapped an eight-day losing streak, which had been its longest run of losses since 2011.

U.S. consumer confidence surged to a more than 16-year high in March amid growing labor market optimism, while the trade deficit in goods narrowed sharply in February. The economy’s strengthening fundamentals were bolstered by other data showing further increases in house prices in January.

The data “underscore what has been going on really in this whole rally, and that is that confidence is pretty high and optimism is high and that has kind of been underpinning the resiliency of the equity markets,” said Jim Davis, regional investment manager at U.S. Bank Wealth Management in Springfield, Illinois.

The Dow Jones Industrial Average .DJI rose 150.52 points, or 0.73 percent, to 20,701.5, the SP 500 .SPX gained 16.98 points, or 0.73 percent, to 2,358.57 and the Nasdaq Composite .IXIC added 34.77 points, or 0.6 percent, to 5,875.14.

Tuesday’s gains follow declines last week as investors fretted over Trump’s ability to enact his agenda after his fellow Republicans failed to pass their healthcare bill.

However, investors appear to have shrugged off the setback, choosing instead to focus on Trump’s promise of reforming the U.S. tax code, which has been a key driver in the post-election record rally.

“You have got maybe some rethinking of the political calculus related to the demise of healthcare, but what that may mean for a quicker focus on tax reform,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

The financial and energy sectors, which have lagged the broader market this year, fueled the SP 500 on Tuesday.

The financial sector .SPSY jumped 1.4 percent, with JPMorgan (JPM.N) and Bank of America (BAC.N) giving big boosts to the SP 500. Energy shares .SPNY gained 1.3 percent, supported by stronger oil prices CLc1.

The Dow Jones Transport Average .DJT, seen by some as a barometer of the economy, gained 1.8 percent for its second-best day of the year.

Apple (AAPL.O) rose 2.1 percent and gave the biggest boost to the SP and the Nasdaq, as the shares hit an all-time high.

In corporate news, General Motors (GM.N) rose 2.4 percent after activist investor David Einhorn’s Greenlight Capital urged the carmaker to split its stock into two classes.

Tesla (TSLA.O) rose 2.7 percent after disclosing that Chinese technology giant Tencent Holdings (0700.HK) had taken a 5 percent stake in the electric car maker for $1.78 billion.

Darden Restaurants (DRI.N) jumped 9.3 percent, making it the best performer on the SP 500, after the Olive Garden owner announced quarterly results and said it would buy Cheddar’s Scratch Kitchen for $780 million.

Advancing issues outnumbered declining ones on the NYSE by a 2.91-to-1 ratio; on Nasdaq, a 1.63-to-1 ratio favored advancers.

The SP 500 posted 18 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 82 new highs and 33 new lows.

(Additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Anil D’Silva and Dan Grebler)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/gG0C7VlOMQI/us-usa-stocks-idUSKBN16Z1D0

GM rebuffs two-class share plan from Einhorn’s Greenlight Capital


General Motors Co (GM.N) on Tuesday rejected a proposal by billionaire investor David Einhorn to split its common stock into two classes to help boost its share price.

In a regulatory filing, the country’s largest automaker said that the proposal “would not help GM sell more cars, drive higher profitability, or generate greater cash flow.”

Einhorn, who runs hedge fund Greenlight Capital, wants management to split its common stock into two classes: one that would receive the current dividends and one that would participate in all earnings and future growth of the company.

The move would lower the company’s cost of capital, improve its financial flexibility and boost its market capitalization by as much as $38 billion, Einhorn said.

To add more pressure on the company, Einhorn has said he wants to nominate directors but would not identify them.

Moody’s and SP both declared shortly after Einhorn’s advances became public that such a structure could negatively impact the automaker’s credit rating.

“Moody’s believes that the Greenlight proposal would reduce financial flexibility and increase credit risk,” Moody’s Investors Service wrote in a note. “The creation of a perpetual, cumulative dividend in excess of $2.2 billion would saddle GM with a sizable and largely inflexible cash outflow burden.”

GM considered the plan too risky after mulling Einhorn’s ideas for some seven months, while it was also negotiating the sale of German Opel brand and Britain’s Vauxhall to France’s PSA Group (PEUP.PA). It has hired two banks to help fight the plan, a person familiar with the matter said.

Warren Buffett, one of GM’s biggest shareholders, has not weighed in on the plan and was not immediately available for comment.

Einhorn said GM’s stock price has languished for years since emerging from the government-backed bankruptcy and is currently trading at the lowest valuation in the SP 500 stock index. But its dividend yield ranks among the top 25 in the index.

Under Chief Executive Mary Barra, GM has been overhauling and pruning operations outside the United States and China, shrinking sales volume while pushing to improve return on invested capital and profitability.

The company has shuttered or scaled back operations in Russia, Australia, Indonesia and Thailand. In February the company sold its East African unit to Isuzu Motors Ltd (7202.T). Barra has promised investors returns of 20 percent or more.

GM announced earlier this month it would sell its European operations – consisting of Opel and Vauxhall – to PSA Group.

But GM stock has performed poorly versus its peers. Ford Motor Co’s (F.N) stock, for instance, is trading at nearly 10 times earnings, while GM is at just under 5.8 times. GM stock has also lagged the broader SP 500 since its November 2010 IPO.

Because of its poor share performance, GM could face continued pressure to return more cash to shareholders rather than holding it as insurance against a potential industry downturn.

Its stock was last up 2.7 percent at $35.64.

PROXY FIGHT

For GM, this marks the second proxy fight in two years. In 2015, the company announced a $5-billion share buyback to end a proxy contest where investor Harry Wilson, who led the government’s bailout of the automaker, was pushing for a board seat on behalf of investors.

Einhorn’s hedge fund owns a 0.9-percent stake in GM, making it the 17th-biggest owner. The firm has been involved with GM for some time, buying the stock in 2011, selling it when the company faced problems with an ignition switch recall, and then buying back in about a year later.

GM is a cash-rich target for any activist investor. Once its Opel sale is complete, the company will target a cash balance of $18 billion, a large sum for a company with a market capitalization of just over $50 billion.

“Without the dividend, the (other class of) shares would be significantly less expensive to short, potentially pressuring shares further,” Joseph Amaturo of the Buckingham Research Group wrote in a client note. He added that GM’s response was “well-reasoned, and as such, (we) believe the likelihood of Greenlight’s proposal receiving board approval is relatively low.”

Einhorn has a history of pushing unique capital plans at big U.S. companies and in 2013 urged Apple Inc (AAPL.O) to issue preferred stock with a perpetual 4-percent dividend.

On Tuesday, as he launched his public campaign for change at GM, he also held some things back, refusing to say who may be on his slate of directors. “We have sent them a notice of nomination for the directors,” Einhorn said on CNBC. “We have not yet determined how many or which directors we will run … We’re going to wait a little while for GM to file their proxy and so forth.”

Einhorn said he supports GM management, including CEO Mary Barra, regardless of what the company decides.

To be successful, Greenlight’s plan will have to get the support of some large institutional shareholders, including Buffett’s Berkshire Hathaway Inc (BRKa.N), which owns 3.34 percent of GM.

Some analysts say it would be a sensible move.

“There is nothing radical about Einhorn’s proposal. It is essentially a call for the creation of a preferred stock that will have a priority for dividends. Investors will benefit from having a choice,” said Anthony Sabino, a professor at St. John’s University’s Peter J. Tobin College of Business.

GM has hired Goldman Sachs and Morgan Stanley to push back against Einhorn’s proposal, said a person with direct knowledge of the matter. The banks declined to comment.

GM said it expects to return about $7 billion in cash to shareholders in 2017, bringing total cash returns to about $25 billion since 2012.

(This version of the story fixes formatting in paragraph 8 to remove bullet point)

(Reporting by Arunima Banerjee, Dan Burns, Jennifer Ablan, David Shepardson and Mike Flaherty; Editing by Nick Zieminski)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/xckM3HDcqG4/us-greenlight-gm-idUSKBN16Z24I

Uber diversity report shows shortage of women, minorities


Uber Technologies Inc released its first diversity report on Tuesday, showing that women and non-white employees are underrepresented at the ride-services company – just as they are at many other technology firms.

Uber released the information after a series of revelations about its culture and business tactics that have incited calls for consumers to boycott the company and changes in senior management. A former employee last month recounted a workplace of sexual harassment and cut-throat competition, prompting Uber to launch an internal investigation.

Uber’s workforce overall is comprised of 36 percent women, but that number falls to 15 percent when looking at employees with technical roles, the company said.

By comparison, Alphabet Inc’s Google’s staff is 31 percent women, Twitter Inc’s is 37 percent women and messaging startup Slack’s workforce is 43 percent women, according to the companies’ websites.

Half of Uber’s total workforce is white, while Asians are the second-largest ethnic group at 31 percent, blacks make up nearly 9 percent and Hispanics account for less than 6 percent, according to the report.

However, when looking at just those employees with technical jobs, only 1 percent of Uber’s staff is black and 2 percent is Hispanic.

“We need to do better and have much more work to do,” Liane Hornsey, Uber’s human resources chief, said in a blog post accompanying the diversity report, which was posted on Uber’s website.(ubr.to/2o7M8It)

Uber also announced in the report it was committing $3 million over the next three years to support organizations working to bring more women and underrepresented groups into tech. It did not say which organizations would benefit.

Hornsey acknowledged that “It’s no secret that we’re late to release these numbers.” Technology companies, including startups, have released annual diversity reports for years. Uber was founded in 2009.

Uber’s report comes more than a month after a former employee, Susan Fowler, wrote a blog post describing a company culture where sexual harassment was common and went unpunished.

The allegations prompted an internal investigation being led by former U.S. Attorney General Eric Holder, and a public rebuke from early Uber investors Mitch Kapor and Freada Kapor Klein.

Uber said in its diversity report that its hiring practices are improving. Last year, Hornsey said, 41 percent of new employees were women, which is 5 percentage points more than the proportion of women in its overall workforce. Uber’s pool of new hires also has a larger percentage of blacks and Hispanics.

(Reporting by Heather Somerville in San Francisco; Additional reporting by Aishwarya Venugopal in Bengaluru; Editing by Shounak Dasgupta and Lisa Shumaker)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/DP-Y-2pzsZY/us-uber-diversity-idUSKBN16Z2KS

Akzo Nobel aims to soothe shareholders over PPG rejection


AMSTERDAM Dutch paints maker Akzo Nobel (AKZO.AS) said it will raise its financial targets and detail plans for its chemicals division next month, as it seeks to win over shareholders and avoid a takeover by U.S. rival PPG Industries (PPG.N).

Akzo said it will announce the plans on April 19 and also brought forward the release of its first quarter earnings to that date, giving investors a week to digest its case for remaining independent before the company’s annual meeting on April 25.

Akzo’s biggest shareholder, other investors and analysts have called for the company’s boards to engage in talks with PPG after they rejected the U.S. company’s 24.2 billion euro ($26 bln) takeover proposal on March 20.

“Our new strategy will further unlock the value within the company, including the creation of two focused businesses,” Akzo CEO Ton Buechner said in a statement. It will “deliver improved profitability and additional long-term value creation for shareholders, employees (and) customers,” he said.

The company said it would unveil plans for selling or floating its chemicals division, which accounts for about a third of company sales and profits and has been estimated to have a standalone value of around 8 billion euros.

Under Dutch law, Buechner is required to consider other interests alongside shareholders’ when making major corporate decisions. Akzo’s labor unions have said they support management and oppose a PPG takeover, fearing job cuts.

Some analysts were skeptical that the April 19 presentation would change many minds.

KBC Securities’ analyst Wim Hoste said Akzo’s current financial targets were already conservative and could easily be upgraded. But the sale of the company’s chemical division by itself would not actually improve prospects.

“It’s a more capital intensive business than paints and coatings, but its not clear why selling it would improve prospects for the rest of the business,” he said. A re-rating of shares for Akzo Nobel and a carved-out chemicals business would likely come years in the future if at all.

PPG’s cash-and-shares proposal is worth around 89 euros per share at current prices, while Akzo is trading at 78.22 euros per share, signaling that investors have serious doubts PPG’s bid will succeed.

One hedge fund manager told Reuters he had been in contact with PPG’s CEO Michael McGarry and decided to stay away.

“PPG really want to do a deal, but they’re not going to wait around forever,” he said.

He said he was worried about “serious antitrust issues” if PPG, the world’s biggest coatings maker, and Akzo, the number two, combine and that it would be difficult to get a deal done in the Netherlands amid rising protectionist attitudes.

PPG could not be reached for comment on Tuesday.

Michael Wegener, managing partner at Hong Kong-based hedge fund Case Equity Partners, who has invested 6 percent of his fund’s assets in Akzo, told Reuters he thought PPG would respond before the shareholders’ meeting.

He said he thinks other event-driven hedge fund managers, which bet on company deals, were continuing to accumulate Akzo shares.

That raises the possibility of fireworks at Akzo’s general meeting. While Dutch anti-takeover measures are generally considered to be robust, Akzo has an unusual arrangement, dating from before 1928. It gives four members of the supervisory board, notably Chairman Antony Bergmans, a former co-CEO of Unilever, control over Akzo’s board appointments.

On Monday, Elliott Advisors, one of Akzo’s largest shareholders with a 3.25 percent stake, said that arrangement was not as powerful a weapon as it would seem.

“We believe shareholders hold the power to remove supervisory board and management board members,” Elliott said in a statement.

If relations between Akzo’s shareholders and management deteriorate to that point, the dispute would likely end up in a Dutch court, which has generally favored management in recent disputes.

About 7 percent of Akzo Nobel’s shareholders are Dutch, while 11 percent of its 46,000 workforce is based in the Netherlands.

(This story was refiled to add dropped ‘t’ in Elliott in para 19)

(Reporting by Toby Sterling and Maiya Keidan; Editing by Mark Potter and Susan Fenton)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/TCWbMvFZ6i4/us-akzo-nobel-m-a-ppg-inds-idUSKBN16Z0LF

Amazon clinches deal to buy Middle East online retailer Souq.com


DUBAI Amazon.com (AMZN.O) has agreed to buy Middle East online retailer Souq.com, thwarting a last-minute bid by Dubai billionaire Mohamed Alabbar’s Emaar Malls EMAA.DU.

The value and terms of the agreement, which deal adviser Goldman Sachs called “the biggest-ever technology MA transaction in the Arab world”, were not disclosed.

But sources with knowledge of the matter said Amazon was paying less than Emaar’s $800 million offer, making it lower than the $1 billion valuation at the time of a Souq.com funding round last year.

One of the sources said on Monday Souq.com would have had to break an exclusivity agreement with Amazon if it had accepted the Emaar Malls offer at this stage.

Reuters reported last week that Amazon had agreed in principle to buy Souq.com, which was co-founded 12 years ago by Syrian-born entrepreneur Ronaldo Mouchawar.

“By becoming part of the Amazon family, we’ll be able to vastly expand our delivery capabilities and customer selection much faster, as well as continue Amazon’s great track record of empowering sellers,” Mouchawar said in a statement on Tuesday.

In a deal document seen by Reuters, Goldman said the acquisition would accelerate Amazon’s entry into “attractive Middle East countries with significant growth potential given e-commerce only represents (roughly) 2 percent of retail sales”.

The deal was endorsed by the Dubai government, which is increasingly focusing on technology, as the emirate expands its retail footprint in the region.

Dubai’s Crown Prince Sheikh Hamdan bin Mohammed bin Rashid al-Maktoum said it showed the city state’s position “as a regional and global hub for the world’s biggest and leading organizations”.

The acquisition is expected to close later this year, according to the joint statement on Tuesday.

For Alabbar, who made his name as chairman of Emaar Properties EMAR.DU, the Dubai government-linked developer of the world’s tallest building, losing out on Souq.com is unlikely to crimp his ambitions to move into e-commerce.

He announced last year he planned to launch his own e-commerce firm Noon in partnership with Saudi Arabia’s Public Investment Fund, a sovereign wealth fund.

Emaar Malls, the retail unit of Emaar Properties, is the operator of the Dubai Mall, which accounts for around 50 percent of the emirate’s luxury goods spending and is one of the Middle East’s largest shopping centers.

South Africa’s Naspers Ltd (NPNJn.J), which has a 36.4 percent stake in Souq.com, has declined to comment on the Amazon deal. Tiger Global Management also has a stake in Souq.com.

(Editing by Edmund Blair and Susan Thomas)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/qXvILeRj2x4/us-souq-com-m-a-amazon-com-idUSKBN16Z0Q1

British bonds buoyed by Brexit risks, but prone to inflation burn


LONDON Fast-rising inflation and growing talk of tighter monetary policy from the Bank of England may spell the end of a winning streak for British gilts, among the best performers in major government bond markets this year.

Yields on 20- GB20YT=RR and 30-year gilts GB30YT=RR neared five-month lows on Monday, contrasting with short-dated yields which last week notched up their biggest one-week rise since early January as inflation sailed past the BoE’s 2 percent target.

Such low yields — resulting from bond price rises — for long-dated paper in part reflect doubt about how Britain’s economy will perform after the country leaves the European Union and therefore the ultimate outlook for inflation and interest rates.

Only Japan, still struggling to generate sustained inflation, has a flatter yield curve than Britain’s among major economies. Britain’s yield curve is at its flattest since October, with the gap between two- and 30-year gilt yields standing at around just 157 basis points.

But many strategists think the inflation burn is being underestimated and that yields will rise. Real or inflation adjusted long-term yields, assuming the BoE meets its 2 percent target over that time, are negative out to 50 years.

The latest Reuters poll of economists predicts consumer price inflation will near 3 percent late this year — but previous bouts of high inflation in 2008 and 2011 suggest this may be a conservative estimate.

“The gilts market is the biggest (yield) steepening trade we could bet on right now,” Kevin Gaynor, head of international research at Nomura, told a fixed income roundtable earlier this month. “The inflation picture is going to be much worse than expected.”

Rising inflation is usually bad news for bonds, which fall in value as interest rates rise.

A Reuters poll published last week suggested the 10-year gilt yield GB10YT=RR will rise to around 1.67 percent in a year’s time from 1.175 percent now. But some strategists thought 2.0 percent or higher is likely. [US/INT]

One Bank of England policymaker, Kristin Forbes, voted to raise rates this month because of growing inflationary pressures and others said they were close to joining her — although the majority view was to tolerate above-target inflation for now.

Britain isn’t the only advanced economy where economic data and inflation numbers are prompting investors to reassess the monetary policy outlook. The European Central Bank has said its sense of urgency to prop up euro zone growth is over and money markets have started to factor in a rate rise in the bloc by year-end.

The U.S. Federal Reserve hiked rates on March 15 after a string of hawkish comments from officials that triggered a rapid turnaround in expectations for a move this month. But the inflation outlook for Britain looks particularly acute, with a rise in energy prices compounded by the pound’s near-20 percent fall against the dollar since June’s Brexit vote.

Last month consumer prices rose 2.3 percent year-on-year, faster than expected.

VULNERABLE

Gilts are one of the only major bond markets globally to deliver positive returns this year.

Ten-year yields GB10YT=RR are down 7 basis points this year. That compares with a rise of almost 20 bps in German and Swiss yields, while U.S. and Japanese yields are little changed from where they ended 2016.

For some bond fund managers, Brexit risks and the uncertainty hanging over the economy remain a reason to hold onto gilts. Bonds often benefit from an environment where investors view economic growth prospects as weak.

“I do think they offer a good hedge to Brexit risks,” said David Zahn, a portfolio manager who runs Franklin Templeton’s European fixed income strategies, which total around 2 billion euros ($2.2 billion).

But some temporary factors that have supported gilt prices recently are likely to fade.

The BoE has completed its gilt purchases as part of its “sledgehammer” stimulus plan designed to counter the shock of June’s Brexit vote.

Overseas central banks and sovereign wealth funds devoured gilts late last year to top up sterling portfolios battered in dollar terms by the pound’s post-Brexit vote plunge, but BoE data for January hinted at a reversal of this trend.

Pension funds have also been big buyers of gilts recently.

Official data show gilt holdings by insurers and pension funds stood at about 28 percent of the total in the third quarter of 2016 – the highest proportion since the final quarter of 2011.

But such funds, which need a fixed income stream to match payouts, typically make extra purchases of gilts to invest unallocated funds ahead of the end of the British financial year in April.

“The BoE has finished buying and we’re coming out of Q1 – which potentially means (pension fund) buying is set to tail off,” said Societe Generale rates strategist Jason Simpson.

“This, to me, leaves long-dated gilts looking vulnerable”.

(Graphics by Nigel Stephenson and Alasdair Pal; Editing by Jeremy Gaunt)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/4fLWnIYhSYg/us-britain-bonds-analysis-idUSKBN16Z1C0

Exclusive: Citigroup to seek bids for Asia general insurance distribution deal


SINGAPORE Citigroup Inc (C.N) will seek bids from global insurers keen to sell general insurance products across the U.S. bank’s Asia-Pacific markets, in a deal that could be worth at least $500 million, a source with knowledge of the matter told Reuters.

Citi’s move underscores how banks are leveraging their network of branches and customer base to generate assured revenue over many years, as demand for insurance grows in the region, the source said.

The multi-year, bancassurance deal for products such as motor, property and travel insurance, will be one of the largest of its kind in the region, and give insurers access to 15 million customers of Citibank in 12 markets including Singapore, Hong Kong, China, India and Australia.

Citi will kick off the process for the 15-year deal in a few days, and expects to choose a partner in a few months, said the person who declined to be identified as the information was not public.

The deal is expected to be pitched to a number of insurers including AIG (AIG.N) and Allianz (ALVG.DE), two sources said.

The exact value of the non-life insurance deal will depend on various issues including how bidders structure upfront payments and calculate net present value of future commissions and deferred payments, the first source said.

A spokesman at Citi declined to comment. AIG and Allianz also declined to comment.

Citi’s plan to seek partners follows the bank’s move to allow insurer AIA (1299.HK) in 2013 to sell life insurance through its Asia network in a multi-year deal.

“The bank has invested a lot to grow its technology platform and digital engagement over several years. The idea now is to complement the life insurance partnership with another one for general insurance,” said the source.

Global insurers are increasingly relying on bank distribution tie-ups to help generate billions of dollars in revenue in Asia, where rising personal incomes are enabling individuals and families to afford insurance.

“You are bound to see participation across-the-board, from Japanese insurers to Europeans and others for this kind of a deal,” said the second person, who has dealt with bank distribution transactions, referring to the Citi deal.

“More and more banks are monetizing their distribution networks as this doesn’t cost them much and the fees goes straight to the bottom line,” he said.

The first source said Citi has an initial preference for one partner for all markets but is open to considering more than one, given the range and scale of the bank’s retail platform.

Asia has seen a spate of bank distribution deals for life insurance in the last five years and transactions for non-life insurance are also heating up.

In January, Standard Chartered (STAN.L) and Allianz announced a 15-year deal that enabled the German insurer to sell its general insurance products to StanChart’s customers in five Asia markets.

(Reporting by Anshuman Daga; Additional reporting by Carolyn Cohn in LONDON and Suzanne Barlyn in NEW YORK; Editing by Randy Fabi and David Evans)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/e-QbpLjIqLg/us-citigroup-asiapac-idUSKBN16Z0YS