News Archive


As U.S. budget fight looms, Republicans flip their fiscal script

WASHINGTON (Reuters) – The head of a conservative Republican faction in the U.S. Congress, who voted this month for a huge expansion of the national debt to pay for tax cuts, called himself a “fiscal conservative” on Sunday and urged budget restraint in 2018.

In keeping with a sharp pivot under way among Republicans, U.S. Representative Mark Meadows, speaking on CBS’ “Face the Nation,” drew a hard line on federal spending, which lawmakers are bracing to do battle over in January.

When they return from the holidays on Wednesday, lawmakers will begin trying to pass a federal budget in a fight likely to be linked to other issues, such as immigration policy, even as the November congressional election campaigns approach in which Republicans will seek to keep control of Congress.

President Donald Trump and his Republicans want a big budget increase in military spending, while Democrats also want proportional increases for non-defense “discretionary” spending on programs that support education, scientific research, infrastructure, public health and environmental protection.

“The (Trump) administration has already been willing to say: ‘We’re going to increase non-defense discretionary spending … by about 7 percent,’” Meadows, chairman of the small but influential House Freedom Caucus, said on the program.

“Now, Democrats are saying that’s not enough, we need to give the government a pay raise of 10 to 11 percent. For a fiscal conservative, I don’t see where the rationale is. … Eventually you run out of other people’s money,” he said.

Meadows was among Republicans who voted in late December for their party’s debt-financed tax overhaul, which is expected to balloon the federal budget deficit and add about $1.5 trillion over 10 years to the $20 trillion national debt.

“It’s interesting to hear Mark talk about fiscal responsibility,” Democratic U.S. Representative Joseph Crowley said on CBS.

Crowley said the Republican tax bill would require the United States to borrow $1.5 trillion, to be paid off by future generations, to finance tax cuts for corporations and the rich.

“This is one of the least … fiscally responsible bills we’ve ever seen passed in the history of the House of Representatives. I think we’re going to be paying for this for many, many years to come,” Crowley said.

Republicans insist the tax package, the biggest U.S. tax overhaul in more than 30 years, will boost the economy and job growth.

‘ENTITLEMENT REFORM’

House Speaker Paul Ryan, who also supported the tax bill, recently went further than Meadows, making clear in a radio interview that welfare or “entitlement reform,” as the party often calls it, would be a top Republican priority in 2018.

In Republican parlance, “entitlement” programs mean food stamps, housing assistance, Medicare and Medicaid health insurance for the elderly, poor and disabled, as well as other programs created by Washington to assist the needy.

Democrats seized on Ryan’s early December remarks, saying they showed Republicans would try to pay for their tax overhaul by seeking spending cuts for social programs.

But the goals of House Republicans may have to take a back seat to the Senate, where the votes of some Democrats will be needed to approve a budget and prevent a government shutdown.

Democrats will use their leverage in the Senate, which Republicans narrowly control, to defend both discretionary non-defense programs and social spending, while tackling the issue of the “Dreamers,” people brought illegally to the country as children.

Trump in September put a March 2018 expiration date on the Deferred Action for Childhood Arrivals, or DACA, program, which protects the young immigrants from deportation and provides them with work permits.

The president has said in recent Twitter messages he wants funding for his proposed Mexican border wall and other immigration law changes in exchange for agreeing to help the Dreamers.

Representative Debbie Dingell told CBS she did not favor linking that issue to other policy objectives, such as wall funding. “We need to do DACA clean,” she said.

On Wednesday, Trump aides will meet with congressional leaders to discuss those issues. That will be followed by a weekend of strategy sessions for Trump and Republican leaders on Jan. 6 and 7, the White House said.

Trump was also scheduled to meet on Sunday with Florida Republican Governor Rick Scott, who wants more emergency aid. The House has passed an $81 billion aid package after hurricanes in Florida, Texas and Puerto Rico, and wildfires in California. The package far exceeded the $44 billion requested by the Trump administration. The Senate has not yet voted on the aid.

Reporting by Kevin Drawbaugh; Additional reporting by Roberta Rampton in Florida; Editing by Peter Cooney

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Japan’s Nippon Life eyeing M&A for foreign boutique bond and alternative funds

TOKYO (Reuters) – Japan’s Nippon Life Insurance Co [NPNLI.UL], which recently struck a deal to buy about a quarter of U.S. investment firm TCW Group, is scouting for opportunities to buy boutique managers of bonds and alternative assets, its president said.

“Asset management is a business that can generate synergy with life insurance and it needs to be operated globally. We have been looking widely for potential partners,” Yoshinobu Tsutsui told Reuters in an interview.

The bulking up of asset management overseas by Japan’s largest private-sector life insurer comes as the nation’s insurers are increasingly shifting money away from Japanese government bonds (JGBs), their main investment, into riskier but higher-yielding ones such as foreign corporate bonds to diversify their returns.

Insurers in Japan have been hurt by diminishing investment returns after the Bank of Japan launched aggressive monetary easing in April 2013.

In December, Nippon Life announced a deal to acquire 24.75 percent of TCW from private equity firm Carlyle Group LP (CG.O). Nippon Life has about 74 trillion yen ($653.25 billion) in assets.

Tsutsui said potential targets are likely to be asset management companies with bond investment expertise, as the insurer’s portfolio has been traditionally made up of fixed-income products.

He also said the company is looking for specialists in alternative investments, whose real estate and other portfolios offer diversification from conventional bond and stock investments.

“As we have to diversify investment assets globally, alternative is a very important field,” he said. “The United States has a very big and deep market for asset management. There are huge companies but there are also small but unique boutiques. We would like to keep looking there,” he said.

Tsutsui said while his company will curb fresh investment in JGBs further, U.S. interest rate rises pose a challenge to its effort to increase foreign bond holdings.

“Hedging costs will rise with U.S. rate increases, that will diminish returns (from U.S. Treasuries),” he said. Japanese insurers usually hedge against currency swings when they buy foreign assets to protect their yen-denominated value.

“There is an issue of how to build foreign bond portfolios and French government bonds are in the spotlight now,” said Tsutsui, 63, who took over the helm of the company in 2011.

Sources with the direct knowledge have said Nippon Life is in talks to buy a majority stake in the Japanese unit of U.S.-based MassMutual Financial Group in an attempt to boost its bancassurance sales.

Tsutsui declined to confirm the MassMutual talks but said his company has been searching for ways to build up domestic sales channels in addition to traditional door-to-door sales representatives.

“For bank branch sales channel, we are thinking about mergers and acquisitions,” he said.

($1 = 113.2800 yen)

Reporting by Taiga Uranaka and Taro Fuse; Editing by Muralikumar Anantharaman

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Mitsubishi says on track to deliver long-delayed jets by 2020

NAGOYA, Japan (Reuters) – Japan’s Mitsubishi Heavy Industries Ltd (7011.T) is on track to deliver its repeatedly delayed commercial jet by mid-2020, the head of its aircraft unit said, despite a risk of an order cancellation.

The Mitsubishi Regional Jet (MRJ) aircraft has been delayed five times from an original delivery target of 2013, leading to spiraling costs. News this month that an order for the aircraft from Eastern Air Lines was “likely to be lost” has spurred more questions about the outlook of the project.

“We are proceeding pretty much in line with plans,” said Hisakazu Mizutani, president of Mitsubishi Aircraft Corp, referring to the mid-2020 deadline. “We can just about make it.”

He was speaking to reporters in Nagoya on Dec. 8, on the condition that his comments not be published until Jan 1.

Mizutani said the planemaker was at risk of losing Eastern Air Lines’ order for 20 MRJ aircraft with an option for 20 more, but that it was “continuing conversations” with the airline.

Mitsubishi Aircraft said the order has not yet been canceled.

Overall, the Mitsubishi unit has orders for 233 of the 90-seat aircraft, the company has said previously, and aims to sell more than 1,000 of the planes over two decades.

Buyers such as ANA Holdings (9202.T) have said they have no plans to cancel orders despite the delays.

Mitsubishi Aircraft is majority owned by Mitsubishi Heavy Industries, with Toyota Motor Corp (7203.T) and Mitsubishi Corp (8058.T) also holding stakes.

Reporting by Maki Shiraki; Editing by Ritsuko Ando and Himani Sarkar

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UK may use taxes to get tech giants to do more to fight extremism, minister says

LONDON (Reuters) – Britain may impose new taxes on tech giants like Google and Facebook unless they do more to combat online extremism by taking down material aimed at radicalizing people or helping them to prepare attacks, the country’s security minister said.

Ben Wallace accused tech firms of being happy to sell people’s data but not to give it to the government which was being forced to spend vast sums on de-radicalization programs, surveillance and other counter-terrorism measures.

“If they continue to be less than co-operative, we should look at things like tax as a way of incentivizing them or compen­sating for their inaction,” Wallace told the Sunday Times newspaper in an interview.

His quotes did not give further details on tax plans. The newspaper said that any demand would take the form of a windfall tax similar to that imposed on privatized utilities by former Prime Minister Tony Blair’s government in 1997.

Wallace accused the tech giants of putting private profit before public safety.

“We should stop pretending that because they sit on beanbags in T-shirts they are not ruthless profiteers,” he said. “They will ruthlessly sell our details to loans and soft-porn companies but not give it to our democratically elected government.”

Facebook executive Simon Milner rejected the criticisms.

“Mr Wallace is wrong to say that we put profit before safety, especially in the fight against terrorism,” he said in an emailed statement. “We’ve invested millions of pounds in people and technology to identify and remove terrorist content.”

YouTube, which is owned by Google, said it was doing more every day to tackle violent extremism.

“Over the course of 2017 we have made significant progress through investing in machine learning technology, recruiting more reviewers, building partnerships with experts and collaboration with other companies,” a YouTube spokeswoman said.

DEADLY ATTACKS

Britain suffered a series of attacks by Islamic extremists between March and June this year that killed a total of 36 people, excluding the attackers.

Two involved vehicles ramming people on bridges in London, followed by attackers stabbing people. The deadliest, a bombing at a concert in the northern city of Manchester, killed 22 people.

Following the second bridge attack, Prime Minister Theresa May proposed beefing up regulations on cyberspace, and weeks later interior minister Amber Rudd traveled to California to ask Silicon Valley to step up efforts against extremism.

“We are more vulnerable than at any point in the last 100 years,” said Wallace, citing extremist material on social media and encrypted messaging services like WhatsApp as tools that made life too easy for attackers.

“Because content is not being taken down as quickly as they could do, we’re having to de-radicalize people who have been radicalised. That’s costing millions. They can’t get away with that and we should look at all the options, including tax.”

Facebook said it removed 83 percent of uploaded copies of terrorist content within one hour of its being found on the social media network.

It also highlighted plans to double the number of people working in its safety and security teams to 20,000 by the end of 2018.

YouTube said that progress in machine learning meant that 83 percent of violent extremist content was removed without the need for users to flag it.

Reporting by Estelle Shirbon, editing by Larry King

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German lawmaker blasts EU for opposing Niki sale to Lufthansa

BERLIN (Reuters) – The German government will probably lose a 150 million-euro government-backed loan to insolvent Air Berlin because the European Union opposed Lufthansa’s purchase of Air Berlin’s Austrian unit, Niki, a senior member of Chancellor Angela Merkel’s conservatives said on Sunday.

British Airways owner IAG (ICAG.L) said on Friday that it would buy Niki for 20 million euros and provide additional liquidity to the company of up to 16.5 million euros, closing the final chapter in the demise of Air Berlin . Air Berlin filed for insolvency earlier this year.

“The damages will be borne by creditors and German taxpayers, who will see nothing of the Air Berlin bridging loan in the amount of 150 million euros,” said Hans Michelbach, deputy leader of the Bavarian CSU party in parliament and financial spokesman for the conservative bloc.

The situation would have been different if Lufthansa had been allowed to buy the airline for nearly 200 million euros, Michelbach said. Lufthansa (LHAG.DE) backed out of an agreement to buy Niki after the European Commission indicated it would block the sale .

The German government had also criticized the Commission’s position earlier this month, forecasting that only part of the bridging loan from the KfW bank would be repaid.

The Bavarian lawmaker called for a detailed investigation of the Air Berlin and Niki insolvencies and the actions of the European Commissioner Margrethe Vestager.

He said details that had emerged appeared to show that the EU had carried out secret negotiations and provoked Lufthansa’s withdrawal of its takeover offer for Niki in order to “make possible the takeover by a certain investor at a bargain price.”

“By doing so, the Commission violated its neutrality obligation in the worst sense and acted against the interests of creditors,” he said. No further details were provided.

No comment was immediately available from the Commission. In December, it said Lufthansa’s purchase of Niki would have posed serious risks for European consumers.

Michelbach also called for a detailed examination of whether Niki’s landing rights in Germany could legally be sold to IAG.

IAG plans to make Niki part of its low-cost carrier Vueling, employing 740 of Niki’s 1,000 former employees. Assets include 15 A320 aircraft and slots at airports including Vienna, Dusseldorf, Munich, Palma and Zurich.

Niki filed for insolvency earlier this month after Lufthansa backed out of the deal to buy its assets.

Reporting by Andrea Shalal, editing by Larry King

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Siemens to gauge interest of state funds in Healthineers IPO: CEO

FRANKFURT (Reuters) – Siemens will test the appetite of sovereign wealth funds ahead of the planned listing of its healthcare unit Healthineers next year, its chief executive told a German weekly, possibly to secure anchor investors for the flotation.

The listing of a minority of the unit, which makes X-ray and MRI machines, is set to take place in the first half of 2018 and is expected to value Healthineers as a whole at around 40 billion euros ($48 billion).

Siemens is expected to sell 15-25 percent of Healthineers, sources have said, implying stock worth 6-10 billion euros could be sold – Germany’s biggest share offering since Deutsche Telekom in 1996.

“Internal preparations are going well and we are still planning the listing in the first half of 2018, if markets play along,” Joe Kaeser told Frankfurt Allgemeine Sonntagszeitung in an interview published on Sunday.

“In any case, we are planning to test the interest of relevant anchor shareholders, including sovereign wealth funds.”

Asked whether this included Norway and China, home to the world’s largest and third-largest state funds, respectively, Kaeser said: “We will probably cover the range of the most important state funds, yes. The advantage would be that we would gain anchor investors. The disadvantage: the free float of shares is not as high.”

The move is designed to enable the unit to raise its own funds for takeovers and investments in the healthcare sector as well as crystallizing its standalone value, removing some of the “conglomerate discount” that weighs on Siemens’ valuation.

In 2016, utility RWE won BlackRock as an anchor investor in the initial public offering of its Innogy unit. RWE ended up selling a 23.2 percent stake in the networks, renewables and retail unit.

Reporting by Christoph Steitz; Editing by Alison Williams

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Around 6,000 Swiss VW owners seek damages in emissions scandal

ZURICH (Reuters) – Swiss consumer protection organization SKS has filed a claim on behalf of some 6,000 car owners seeking damages from Volkswagen AG (VOWG_p.DE) and Swiss car dealer AMAG related to the “Dieselgate” emissions scandal.

The claim has been lodged with the Zurich commercial court.

SKS said it was assuming damages amounted on average to 15 percent of the initial retail price of the vehicles concerned and that, together with insurance companies supporting the legal action, it wanted to give Swiss-based car owners the possibility to enforce their rights without disproportionate financial risk.

“The cars sold as environmentally friendly were overpriced from the beginning. Due to the manipulation of the exhaust system, they then lost even more of their value on the secondary market,” SKS (Stiftung fuer Konsumentenschutz) said in a statement on Friday.

Volkswagen said it would examine the details of the claim once it had them but said it saw no fundamental case as industry experts had not been able to establish any significant loss of value for VW diesel vehicles on the Swiss market.

“The trust and satisfaction of our customers are extremely important to us. However, we are of the opinion that there are no legal grounds for claims connected with the diesel issue,” it said in a statement.

Volkswagen said 98 percent of the 173,000 affected vehicles in Switzerland had already been refitted at no cost to owners.

AMAG, which imports the cars into Switzerland, said in a statement on its website it did not understand why SKS filed the claim because prices on the secondary market for VW diesel cars were at least on the same level or even higher than those of competing models.

It also said it had not acted with the intention of wilfully deceiving customers.

VW admitted in September 2015 to installing secret software in hundreds of thousands of U.S. diesel cars to cheat exhaust emissions tests and make them appear cleaner than they were on the road, and that as many as 11 million vehicles could have similar software installed worldwide.

Earlier this month, Germany’s highest court rejected a bid by Volkswagen to suspend the work of a special auditor appointed to investigate management actions in the emissions scandal.

Reporting by Silke Koltrowitz; Additional reporting by Georgina Prodhan; Editing by Alison Williams and Stephen Powell

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Uniper CEO criticizes suitor Fortum for lack of clarity

FRANKFURT (Reuters) – The chief executive of German energy producer Uniper (UN01.DE) has criticized Finnish suitor Fortum (FORTUM.HE) for a lack of clarity about its intentions in a planned 8 billion euro ($9.6 billion) takeover of the company.

Fortum has agreed to buy 47 percent of Uniper from Uniper’s parent E.ON (EONGn.DE) and offered the same price to the other shareholders, but it faces pressure to raise its offer from hedge funds Elliott and Knight Vinke, who have built up stakes.

Meanwhile, the Finnish utility is dragging its feet over job guarantee negotiations, Uniper Chief Executive Klaus Schaefer told the Rheinische Post newspaper in an interview published on Saturday.

“Talks are not going as speedily as we would like,” he said. “Fortum is still failing to provide clarity about its goals.”

Just 0.17 percent of outstanding Uniper shares had been tendered to Fortum by Dec. 27, at the offer price of 22 euros per share. The shares closed at 26 euros on Dec. 29. The offer closes on Jan. 16.

Knight Vinke has 5 percent of Uniper and has said it will not tender its stake. Elliott, which has not said how it will respond, has 7.4 percent.

Reporting by Georgina Prodhan; editing by Jason Neely

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Wall Street eyes 2018 gains with a side of caution

(Reuters) – U.S. stocks are expected to keep rising in 2018 because a massive drop in the corporate tax rate is seen boosting the economy and corporate profits, but strategists say sizable gains could either be short-lived or elusive.

The bull market is on track to mark its ninth birthday in March, with the SP 500 climbing 20 percent for 2017 – its biggest increase since 2013. The drop in the corporate tax rate in 2018, to 21 percent from 35 percent, is seen by many as the biggest factor for the stock market next year.

Yet 2018 share gains are expected to be smaller than 2017 with the SP 500’s price/earnings ratio – a measure of stock prices against expected profits – is around its highest level since June 2002. Many on Wall Street cite potential pitfalls even though they see no signs of a recession.

“We’ve had six years in a row where stocks have (outperformed) earnings, and I think we break that streak with stocks going up but not as much as earnings,” said Robert Doll, chief equity strategist at Nuveen Asset Management in Princeton, New Jersey.

Some say the tax bill’s benefit will be short lived. David Kelly, chief global strategist at J.P. Morgan Asset Management described the bill as “more carbs and less protein,” because the tax overhaul will improve spending but does nothing to boost productivity.

“It’ll be a one-year wonder,” said Kelly. “People should enjoy the party while it lasts but just make sure you know where your coat is.”

Several strategists cite the risk that faster economic growth could cause inflation to increase at a pace that would lead the U.S. Federal Reserve to raise interest rates faster than expected.

Wall Street’s rosy forecasts seem “well supported by the tremendous string of good news which the economy has delivered,” according to Jim Paulsen, chief investment strategist with Leuthold Group in Minneapolis.

But he said, the news is too good: “The problem with getting good news is that at some point you can’t be positively surprised any more.”

Paulsen does not expect a recession. But when the economic surprise index – which compares economic data to consensus expectations – is at high levels, equity performance tends to be weaker, according to Paulsen.

The Citi Economic Surprise index .CESIUSD was at 77 on Thursday, not far from its almost six-year high of 84.5 reached on Dec. 22.

“We’re going to have a 10-15 percent correction at some time in 2018. I wouldn’t be surprised if we’re down for the year,” Paulsen said. “If we get a correction and people get scared I’ll probably be buying again.”

Investors will keep a close watch on the on U.S. mid-term elections in 2018 because a Republican loss of control of the Senate or the House of Representatives could stall the party’s agenda. In 10 of the last 17 U.S. mid-term election years, equity price moves for the full year followed January’s direction, according to Jeff Hirsch, editor of the Stock Trader’s Almanac.

Investor moods in January may depend on whether the U.S. Congress reaches an agreement to raise the country’s debt ceiling. Investors will also be hoping Congress can reach a 2018 budget pact by Jan. 19. These are just some of the worries traders are contending with.

But the market has history against it. The SP 500 rises on average 1.3 percent in the so-called Santa Clause rally – the period between Dec. 22 and Jan. 3 – according to Hirsch. This year, five days in, the SP has risen just 0.1 percent.

“The failure of stocks to rally during this time tends to precede bear markets or times when stocks could be purchased at lower prices later in the year,” Hirsch wrote in a blog post.

Reporting by Sinead Carew; Additional reporting by Caroline Valetkevitch and Rodrigo Campos; Editing by Leslie Adler

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