News Archive


Wall Street closes with fresh records; tech boosts

(Reuters) – The SP 500 and the Nasdaq advanced to record levels on Friday, buoyed by gains in technology stocks, and each of the major indexes closed out the quarter with solid gains.

The Dow Jones Industrial Average .DJI rose 21.55 points, or 0.1 percent, to 22,402.75, the SP 500 .SPX gained 9.17 points, or 0.37 percent, to 2,519.23 and the Nasdaq Composite .IXIC added 42.51 points, or 0.66 percent, to 6,495.96.

Reporting By Chuck Mikolajczak; Editing by Nick Zieminski

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Bankers anxious over consumer reactions to Equifax breach

(Reuters) – U.S. lenders are concerned their consumer loan and credit card businesses could be stymied if large numbers of people lock or freeze their credit reports to protect themselves in the wake of the Equifax Inc (EFX.N) hack.

Equifax said on Wednesday it “will let consumers easily lock and unlock access to their Equifax credit files” by the end of January.

The pledge came in an apology from the company’s interim chief executive for the exposure of personal identification information for 143 million people in a cyber attack.

Financial advisers recommend many people freeze their records to block thieves trying to borrow in their name.

Restrictions on reports, however, stall the credit checks lenders need for making legitimate loans, requiring borrowers take the extra step of getting the restrictions removed.

“Banks hate credit freezes. The banks want people to buy things on credit without a second thought,” said Chris Hoofnagle, a law professor at the University of California, Berkley, and an author on consumer protection law.

The time required to remove restrictions could thwart issuance of new credit cards, especially store credit cards that offer instant discounts on purchases. Second thoughts could lead drivers to spend less on cars when they reconsider how much they will have to borrow for more expensive models.

Only 2 to 3 percent of U.S. consumers currently have freezes on their credit reports, said Avivah Litan, a security analyst at research firm Gartner Inc.

But with the publicity around the breach, the number will rise. “People are thinking about it like never before,” Litan said, adding that the number will double, though only to 5 percent, without any noticeable impact on lending.

Still, one banker, who was not authorized to speak on the record, said the industry does not know how much credit report restrictions will ultimately slow business. “That’s on the worry list.”

Litan said more people would already have freezes, which vary from state to state, if not for credit bureaus having made them “unnecessarily complicated.”

She said it is not clear exactly how the Equifax locks will work and how they differ from freezes. Bankers expect the locks will be easier to remove, resulting in less “friction” to lending than freezes, which are covered by state laws.

How many consumers add either restriction could depend on how many frauds surface, which will take time to emerge.

“Let’s face it, 143 million frauds won’t be perpetrated right away, it will take some time to filter through,” said Steve Bowman, GM Financial’s chief credit and risk officer.

Reporting by David Henry in New York and Ross Kerber in Boston; Additional reporting by John McCrank; Editing by Dan Grebler

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ISS says P&G investors should vote Peltz on to board

NEW YORK (Reuters) – Institutional Shareholder Services, the influential proxy adviser, said on Friday shareholders in Procter Gamble Co (PG.N) should vote activist investor Nelson Peltz to the board of the consumer goods giant.

Peltz’s Trian Fund Management disclosed a $3.5 billion stake in PG this year and announced the nomination of Peltz to the company’s board, setting off a bitter proxy battle with the maker of Crest toothpaste and Gillette razors.

“The addition of one well-qualified nominee, who holds a large economic stake, appears likely to have benefits that outweigh the potential risks,” ISS said. “Support for dissident nominee Peltz is recommended.”

PG did not immediately return a request for comment.

The company has argued that Peltz’s plan to boost shareholder value by organizing the company into three largely autonomous business units would result in higher costs, lower profits and another restructuring that could lead to a breakup of the company.

Last week Glass Lewis, another proxy advisory firm, recommended that shareholders vote in favor of Peltz.

Cincinnati-based PG’s annual shareholder meeting is scheduled for Oct. 10.

Reporting by Carmel Crimmins and Carl O’Donnell; Editing by David Gregorio

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Lagging U.S. online giants, Europe calls on them to pay up

TALLINN (Reuters) – French, Italian and other European leaders upped the pressure on mostly U.S. tech giants to pay their fair share of taxes in the European Union and abide by the bloc’s rules when they met on Friday, but were still far from a consensus on the issue.

European Commission President Jean-Claude Juncker said the EU executive would propose new rules next year to provide a level playing-field between bricks-and-mortar companies and digital ones.

But European countries are split over whether online companies such as Google (GOOGL.O), Facebook (FB.O) and Amazon (AMZN.O) should pay more tax, with smaller EU members such as Ireland and Luxembourg – which host many online businesses – worried that taxes would hurt their competitiveness without a global solution.

“People moan that there is no European Google, that there is no European Facebook, that there is no European LinkedIn, but my view is that if you want those things in Europe and you want those types of companies to generate in Europe it’s not through heavy taxes and high regulation that you achieve that,” Irish leader Leo Varadkar told reporters, arriving at the meeting in the EU’s would-be “digital capital” of Tallinn in Estonia.

Others, however, say the online multinationals do not pay enough tax in the EU by re-routing profits to low-rate countries such as Ireland and Luxembourg.

There needs to be a consensus among EU countries to implement tax reform, though the European Commission has raised the possibility of stripping members of their veto rights on tax issues, a move Ireland has said it will resist.

  • France’s Macron says digital giants should be taxed on value created
  • EU to propose new tax rules for online sector in 2018: Juncker

‘STRONG DRIVE’

French President Emmanuel Macron said “digital giants” should contribute more to the infrastructure needed to ensure a smooth transition to a digital economy, saying it was “absurd” that economic actors shaken and sometimes weakened by the digital world should be the only ones financing this transition.

“That is why … I support the initiative taken by several finance ministers for a tax on the value created in our countries. This tax will allow us to levy a fair contribution to public goods by taxing the actors who are competing with our European actors and who are today not taking part or not taking sufficient part,” he told a news conference.

Italian Prime Minister Paolo Gentiloni said countries that supported the tax reform not only could but “should” move ahead unilaterally.

However, a Spanish government official struck a more cautious note, saying an EU-wide solution remained the best option and Ireland could be encouraged to come on board.

“We will get there. There is a very strong drive,” the official said. “We will have to find a way to tax. Not to tax more but to tax the digital companies.”

The official added a tax on turnover instead of profits could be implemented by individual countries without even resorting to enhanced cooperation.

The Commission estimates the effective tax burden for digital companies is 10 percent, compared with the 23 percent for bricks-and-mortar companies.

Separately, a source in the French president’s office said the Irish prime minister would come to Paris at the end of October where the subject would be raised.

In the longer term, the EU wants to change existing taxation rights to make sure digital firms with large operations but no physical presence in a given country pay taxes there instead of being allowed to reroute their profits to low-tax jurisdictions.

The Commission has outlined three options for taxes aimed at internet companies that could be agreed upon relatively quickly at the EU level or by a smaller group of EU nations.

One is for a tax on the turnover rather than the profits of digital firms, another would put a levy on online ads, and a third would impose a withholding tax on payments to internet firms.

Additional reporting by Marine Pennetier and Alissa De Carbonnel; Editing by Mark Potter

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Hurricane Harvey curbs U.S. consumer spending; inflation muted

WASHINGTON (Reuters) – U.S. consumer spending barely rose in August likely as Hurricane Harvey weighed on auto sales, while annual inflation increased at its slowest pace in nearly two years, pointing to a moderation in economic growth in the third quarter.

The weak report from the Commerce Department on Friday did little to change expectations that the Federal Reserve would raise interest rates in December. Fed Chair Janet Yellen said this week the U.S. central bank needed to continue gradual rate hikes despite uncertainty about the path of inflation.

“We think current economic conditions are heavily impacted by the effect of the recent hurricanes,” said Chris Rupkey, chief economist at MUFG in New York. “The Fed will rightly look over any soft patch for economic growth in the third quarter.”

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent last month also likely as unseasonably mild temperatures in some parts of the country reduced demand for utilities.

The gain, which followed a 0.3 percent increase in July, was in line with economists’ expectations. The government said the data reflected the effects of Hurricane Harvey.

However, it could not separately quantify the total impact of Harvey on the data. The government made adjustments to estimates where source data were not yet available or did not fully reflect the effects of the storm.

Inflation remained muted in August, with the personal consumption expenditures (PCE) price index excluding food and energy rising 0.1 percent. The so-called core PCE has advanced by the same margin for four straight months.

As a result, the annual increase in the core PCE price index slowed to 1.3 percent in August after advancing 1.4 percent in July. That was the smallest year-on-year increase since November 2015. The core PCE is the Fed’s preferred inflation measure and has been undershooting its 2 percent target since 2012.

  • Hurricanes will likely ‘hit’ U.S. GDP growth in third quarter: Trump
  • U.S. Upper Midwest factory growth accelerates in Sept

The Fed signaled last week it anticipated one more interest rate increase by the end of the year. It has increased borrowing costs twice this year. Financial markets are pricing a roughly 76 percent probability of an interest rate hike in December, according to the CME FedWatch tool.

The dollar was little changed against a basket of currencies, while prices for U.S. Treasuries fell. Stocks on Wall Street were trading higher.

“The Fed appears poised to look through surprises in inflation data over the next few months,” said Ellen Zentner, chief U.S. economist at Morgan Stanley in New York.

When adjusted for inflation, consumer spending slipped 0.1 percent in August, the first drop since January.

HURRICANES SLOWING GROWTH

The report was the latest suggestion that Harvey, together with Hurricane Irma, would dent economic growth in the third quarter. The economy grew at a brisk 3.1 percent annualized rate in the second quarter, with consumers doing the heavy lifting.

Harvey, which tore through Texas in late August, has undercut industrial production, homebuilding and home sales. Further declines are expected after Irma slammed Florida in early September.

Economists estimate the storms could slice off as much as six-tenths of a percentage point from third-quarter GDP growth. The Atlanta Fed is forecasting the economy growing at a 2.3 percent rate in the July-September quarter.

However, a pick-up in output is expected in the fourth quarter as communities ravaged by the hurricanes rebuild.

Segments of the economy not impacted by the storms are pulling ahead. In a separate report on Friday, the Institute for Supply Management Chicago said its MNI Chicago business barometer rose to a reading of 65.2 this month from 58.9 in August. The second-highest reading in more than three years partly reflected a jump in order backlogs to a 29-year high.

A third report showed consumer sentiment holding at lofty levels this month. That offers hope that consumer spending will accelerate in the coming months, though sluggish wage growth remains a concern.

Consumer spending in August was held back by a 1.1 percent decline in outlays on long-lasting manufactured goods. The Commerce Department said spending on new motor vehicles was the leading contributor to the drop in the so-called durable goods.

Auto manufacturers reported that Hurricane Harvey had impacted on sales in the last week of August.

Healthcare spending boosted services outlays, which rose 0.3 percent in August.

Harvey also probably impacted on income in August. Personal income rose 0.2 percent last month after increasing 0.3 percent in July. Wages were unchanged after climbing 0.5 percent in July.

“There was zero wage growth nationally last month as workers idled, or dislocated, from the hurricane could not work,” said Scott Anderson, chief U.S. economist at Bank of the West in San Francisco.

With wages stagnant, consumers dipped into savings to fund spending. Savings fell to an eight-month low of $522.9 billion in August from $524.8 billion in the prior month.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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Deutsche Bank in $190 million currency-rigging settlement

NEW YORK (Reuters) – Deutsche Bank AG agreed to pay $190 million to settle U.S. litigation accusing it of rigging prices in the roughly $5.1 trillion-a-day foreign exchange market.

The German lender is the 15th of 16 banks to settle the private investor litigation, for a total payout of $2.31 billion. Only Credit Suisse Group AG has not settled.

Deutsche Bank’s preliminary settlement was detailed in filings on Friday with the U.S. District Court in Manhattan, and requires a judge’s approval. The bank denied wrongdoing.

Troy Gravitt, a Deutsche Bank spokesman, declined to comment, as did Credit Suisse spokeswoman Nicole Sharp.

Investors accused banks of conspiring to manipulate key currency benchmark rates, including the WM/Reuters Closing Spot Rates, or the Fix, by sharing confidential orders and trade information to coordinate their strategies.

Manipulation was allegedly done through chat rooms with such names as “The Cartel” and “The Mafia,” and tactics known as “front running,” “banging the close” and “painting the screen.”

The litigation followed worldwide currency-rigging probes resulting in about $10 billion in fines for several large banks.

On Friday, the U.S. Federal Reserve fined HSBC Holdings Plc $175 million for failing to properly monitor currency traders.

Deutsche Bank’s settlement is the 5th largest in the investor litigation, after settlements of $402 million with Citigroup, $384 million with Barclays, $285 million with HSBC, and $255 million with Royal Bank of Scotland.

The investors’ law firms, Scott Scott and Hausfeld LLP, called the Deutsche Bank accord “more than reasonable” given that the bank had “fewer indicia of liability” than others.

Other banks that settled are Bank of America, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Royal Bank of Canada, Societe Generale, Standard Chartered and UBS.

U.S. prosecutors have separately brought criminal charges related to currency rigging against six traders.

One, Mark Johnson, who once led HSBC’s global foreign exchange cash trading desk, went on trial this week in Brooklyn, New York, on wire fraud and conspiracy charges.

The case is In re: Foreign Exchange Benchmark Rates Antitrust Litigation, U.S. District Court, Southern District of New York, No. 13-07789.

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Fed fines HSBC $175 million for lack of forex trading oversight

WASHINGTON (Reuters) – The Federal Reserve on Friday fined HSBC Holdings PLC (HSBA.L) $175 million for “unsafe and unsound practices” in its foreign exchange trading business, the latest in a series of fines for banks’ failures to prevent market manipulation.

HSBC failed to monitor chatrooms where traders swapped information about investment positions, the U.S. central bank said, echoing findings by other regulators investigating the $5 trillion-a-day forex market.

“The board levied the fine for deficiencies in HSBC’s oversight of and internal controls over FX traders,” the Fed said in a statement.

The fine follows others of more than $4.3 billion levied by the U.S. Commodity Futures Trading Commission and Britain’s Financial Conduct Authority on six banks including HSBC in November 2014.

“We are pleased to have resolved this matter,” a spokesman for HSBC in London said by phone.

Authorities accused dealers of sharing confidential information about client orders and coordinating trades to boost their own profits. The foreign exchange benchmark they allegedly manipulated is used by asset managers and corporate treasurers to value their holdings.

The Fed’s enforcement action also requires HSBC to improve its controls and compliance risk management concerning the firm’s FX trading, the Fed said.

Reporting by Patrick Rucker; additional reporting by Lawrence White in London; editing by G Crosse and Elaine Hardcastle

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U.S. auto sales for September to be highest in 2017: JD Power and LMC

(Reuters) – Americans in hurricane ravaged cities are replacing their damaged vehicles and that is set to lift the pace of vehicles sales for September to its highest level this year, according to consultancies J.D. Power and LMC Automotive.

September retail sales are expected to come in at an annualized selling rate of 15 million vehicles, flat from a year earlier.

“The effect of hurricanes Harvey and Irma is expected to boost retail light vehicle demand through the remainder of 2017 and into 2018, as recovery continues,” Jeff Schuster, senior vice president of forecasting at LMC Automotive, said on Friday.

Hurricane Irma hit the United States on Sept. 10, about two weeks after Hurricane Harvey plowed into Houston, Texas, causing billions in damages, mostly from flooding.

“With the need to replace 500,000 or more damaged or destroyed vehicles, the U.S. auto market slowdown will see some relief as demand over the next 6-9 months will likely be upwardly distorted,” Schuster said.

“However, this does not change the overall expectation of level to weaker demand in the U.S. over the next 2-3 years.”

Retail sales in September are expected to fall 2.6 percent to 1.2 million vehicles, compared with September 2016, the consultancies reported.

Incentives have hit all-time highs as manufacturers continue with discount aggressively to clear out record inventories of prior year vehicles, J.D. Power and LMC Automotive said.

“While the industry will benefit from additional replacement demand from storm damaged vehicles in the coming months, elevated incentives remain a threat to the overall health of the industry,” Thomas King, senior vice president of the data and analytics division at J.D. Power said.

Reporting by Subrat Patnaik in Bengaluru; Editing by Arun Koyyur

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VW’s Dieselgate bill hits $30 billion after another charge

HAMBURG/BERLIN (Reuters) – Volkswagen is taking another $3 billion charge to fix diesel engines in the United States, lifting the total bill for its emissions-test cheating scandal to around $30 billion.

The German group is struggling to put the two-year-old “Dieselgate” scandal behind it, and working to transform itself into a maker of mass-market electric cars.

On Thursday, Munich prosecutors said they had arrested a former Porsche management board member, the first top executive within the group to be detained amid a widening probe into cheating at VW’s Audi brand.

VW’s growing financial woes and Wolfgang Hatz’s arrest were also discussed on Friday at a regular meeting of the carmaker’s supervisory board, one person familiar with the matter said.

VW shares fell as much as 3 percent on Friday, as traders and analysts expressed dismay that the company was still booking charges for “Dieselgate”.

Evercore ISI analyst Arndt Ellinghorst said the news was unexpected and unwelcome, “not only from an earnings and cash flow perspective but also with respect to the credibility of management”.

VW, Europe’s biggest automaker, admitted in September 2015 that it had used illegal software to cheat U.S. diesel emissions tests, sparking the biggest business crisis in its 80-year history. Before Friday, it had set aside 22.6 billion euros ($26.7 billion) to cover costs such as fines and vehicle refits.

FIXES HARDER THAN EXPECTED

Last year, VW agreed with U.S. authorities to spend up to $15.3 billion to buy back or fix up to 475,000 2.0-litre polluting diesel cars.

On Friday, VW said it was setting aside an additional 2.5 billion euros ($3.0 billion) as hardware fixes for the models were proving tougher than expected and would take significantly longer. Ellinghorst said the complications would amount to 5,200 euros per car.

“We have to do more with the hardware,” a VW spokesman said.

In Europe, where only a software update is required for the 8.5 million affected cars, plus a minor component integration for about 3.7 million 1.6-litre vehicles included in that number, fixes are running smoothly, the spokesman added.

The additional provision will be reflected in third-quarter results due on Oct. 27, VW said.

Ellinghorst, who has an “outperform” rating on VW shares, expects the company to report third-quarter group earnings before tax and interest of 4.04 billion euros.

At 1340 GMT, VW shares were down 0.4 percent at 137.80 euros. They fell as low as 86.36 euros in the immediate aftermath of the cheating revelations, from pre-scandal levels over 160 euros.

As recently as Sept. 11, chief executive Matthias Mueller had maintained in an interview with Reuters that provisions made to date would suffice.

“It has now become clear that we need to do more,” a spokesman said on Friday, without elaborating.

“WHAT MAY BE NEXT?”

VW said in September 2015 that around 11 million vehicles worldwide could be using software capable of cheating emissions tests. Audi, its luxury division, admitted two months later that about 83,000 vehicles with 3.0-litre V6 diesel engines were also fitted with an auxiliary control device deemed illegal in the U.S.

BNP Paribas analyst Stuart Pearson said he has provided for another 1 billion euro charge to hit VW’s fourth-quarter results because of outstanding technical fixes for the 3.0-litre Audis.

“Investors will understandably worry what else may be next,” he said.

He also said the extra time needed to fix VW’s 2.0-litre models meant increased depreciation of the cars being bought back, which also need to be fixed for resale.

With Dieselgate costs rising and management’s credibility weakened by Friday’s announcement, analysts said VW now had a more acute need to accelerate a restructuring or sell some assets.

“In order to keep our constructive stance on the stock we need to see management taking action regarding the group structure over the coming months,” Ellinghorst said.

Separately, Porsche SE, which owns a 30.8 percent stake in VW and tracks its earnings, said the new provision would also affect its results, but stuck to the wide range for its expected 2017 post-tax profit of 2.1-3.1 billion euros.

($1 = 0.8480 euros)

Additional reporting by Hakan Ersen

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