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Goldman Sachs pressed on strategy as new CEO confirmed

(Reuters) – Goldman Sachs Group Inc was pressed for details on new businesses after an uneven second-quarter performance, a likely preview of challenges incoming Chief Executive David Solomon will face as he leads the Wall Street bank’s overhaul.

The bank on Tuesday confirmed Solomon will take over from Lloyd Blankfein, who has held the position for 12 years, on Oct. 1, ending months of speculation. Solomon is tasked with executing a plan to boost revenue by entering new businesses and refashioning old ones.

The bank has pledged $5 billion more in annual revenue by growing its fledgling consumer bank, squeezing more from businesses like asset management and changing how it approaches trading.

Once considered the most savvy Wall Street trading house, it has suffered because of tougher regulation since the financial crisis of 2007-2009 and low market volatility crimping revenues.

Goldman’s quarterly profit topped analyst estimates, but equities trading was flat and higher fixed-income trading followed a notably weak year-ago period.

Its shares, down 10.6 percent since the start of the year, were down 1.6 percent at midday.

In a research note, Wells Fargo analysts attributed the decline to questions about the bank’s shift in focus and noted Solomon’s absence from the earnings call.

Goldman Chief Financial Officer Martin Chavez told analysts on the call that Solomon’s promotion was “all part of the strategy.”

“You’ll see here the emphasis on more recurring fee-based revenue and you’ve seen that in the results. The emphasis on the growth plan, on driving revenue and earnings growth,” he said.

Chavez was also questioned on whether the bank was looking to improve disclosure and transparency for newer businesses.

The bank gave some details on its new consumer lending business, Marcus, for which it has big ambitions, including a planned launch in Britain. Marcus’ loan book currently totals just $3.1 billion compared with rival JP Morgan’s $400 billion consumer loan book.

Chavez was asked why Marcus has yet to offer a banking app at a time when mobile banking is becoming the primary way customers transact.

Analysts also asked why Goldman’s compensation ratio had declined and for details on Goldman’s investing and lending division and planned cash management push.

Second-quarter profit rose 44 percent to $2.3 billion, or $5.98 per share, compared with $1.6 billion, or $3.95 per share. Analysts’ average estimate was for $4.46 per share, according to Thomson Reuters I/B/E/S.

Analysts suggested investing and lending business and the bank setting aside less money for bonuses fueled the profit beat.

Goldman said bond trading revenue climbed 45 percent from an unusually weak year-ago quarter.

In equity trading, Goldman Sachs lagged rivals JPMorgan Chase Co, Citigroup Inc and Bank of America Corp, all of which reported gains.

Total revenue rose 19 percent to $9.4 billion, including increases in everything except fees from advising on mergers and acquisitions.

The bank’s compensation ratio, which measures dollars per revenue set aside for pay and benefits, declined to 39 percent from 41 percent in the prior and year-ago quarter.

FILE PHOTO: A view of the Goldman Sachs stall on the floor of the New York Stock Exchange in New York, U.S. on July 16, 2013. REUTERS/Brendan McDermid/File Photo

Reporting By Aparajita Saxena in Bengaluru and Matthew Scuffham in Toronto; Writing by Sweta Singh and Lauren LaCapra; Editing by Meredith Mazzilli and Marguerita Choy

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UK government wins approval for Brexit trade law in lower house of parliament

LONDON (Reuters) – Prime Minister Theresa May won approval from the lower of house of parliament on Tuesday for a law needed to let Britain pursue an independent trade policy once it leaves the European Union.

Britain’s Prime Minister, Theresa May, appears on the BBC’s Andrew Marr Show in London, Britain July 15, 2018. Jeff Overs/BBC Handout via REUTERS

Lawmakers in the House of Commons voted 317 to 286 in favor of the trade legislation, which is focused on converting trade deals between the EU and third countries into bilateral deals with Britain. It is a technical bill and was not originally intended to define new trade policy.

The bill must also be passed by the House of Lords to become law.

Reporting By Andrew MacAskill; editing by William James

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Fed’s Powell: Years of strong jobs, low inflation still ahead

WASHINGTON (Reuters) – Federal Reserve Chairman Jerome Powell said on Tuesday he sees the United States on track for years more of steady growth, but was challenged in a congressional hearing by senators worried the Trump administration’s trade policies were already damaging businesses in their districts.

Powell in written testimony to the Senate Banking Committee and in his response to questions about a possible “trade war” largely discounted the risks and said there would be a positive outcome if the administration’s bargaining ultimately produced a world of lower tariffs.

But North Dakota Democrat Heidi Heitkamp said she was becoming frustrated with the idea of “short-term pain for long-term gain,” noting that the energy sector in her state already had been hit by higher steel prices because of import tariffs and farmers were worried about permanently losing market share because of retaliatory levies imposed on their goods.

“We cannot afford to put our head in the sand” about the impact, Heitkamp said. “We are going to look back at this time perhaps in a year and say that is the point we turned the corner and the economy started taking a downturn.”

While Powell steered clear of direct criticism of President Donald Trump’s slapping of tariffs on goods, particularly from China but also from U.S. allies in Europe and elsewhere, he acknowledged that tariffs were “absolutely” the wrong approach and said the United States “would feel it at the national level” if levies remained in place for too long.

The Fed’s regional bank presidents have increasingly cited local business concerns about the administration’s trade tactics, with higher input costs and uncertainty over the future offsetting the recent corporate tax cut and pushing firms to reconsider or delay investment plans.

  • Fed’s Powell: ‘Several years’ of strong jobs, low inflation still ahead
  • Fannie, Freddie shares dip after Fed’s Powell remarks

SEVERAL GOOD YEARS AHEAD

The back and forth over trade was a chief point of friction in a Fed appearance that also saw Democrats challenge recent Fed decisions that seem to take a lighter hand in the oversight of major banks, while, in contrast, one Republican said the current positive economy and Powell’s presence at the Fed had made the central bank “boring” to oversee.

For Powell, his testimony marked one of the strongest affirmations yet by a Fed leader that the central bank is within reach of its policy targets after years of struggling to pull the country back from a deep financial crisis and recession.

“With appropriate monetary policy, the job market will remain strong and inflation will stay near 2 percent over the next several years,” Powell said in prepared remarks.

The Fed “believes that – for now – the best way forward is to keep gradually raising the federal funds rate” in a way that keeps pace with a strengthening economy but does not increase rates so high or so fast that it weakens growth, Powell said.

U.S. stocks rose on Powell’s upbeat comments, while bond prices fell and the dollar rose. But analysts said there was little of surprise in the Fed chairman’s message.

“His takeaway was the job market is strong, inflation is going to stay near 2 percent. To me that means two more hikes this year,” said Peter Cecchini, chief market strategist at Cantor Fitzgerald in New York.

Federal Reserve Chairman Jerome Powell gives his semiannual testimony on the economy and monetary policy before the Senate Banking Committee in Washington July 17, 2018. REUTERS/James Lawler Duggan

Powell did not offer his individual views on the appropriate pace of tightening or whether he thinks, as some of his colleagues have argued, that the Fed should pause its rate hike cycle sometime next year if inflation remains under control. But markets expect the central bank to raise rates two more times this year from the current target level of between 1.75 and 2 percent.

Powell will appear before a House committee on Wednesday.

With unemployment at 4 percent, Fed officials broadly feel they have met their mandate for “maximum employment.” To the extent wages are not growing as fast as might be expected, Powell said continued low unemployment could help, but urged lawmakers to think about longer-term policies such as improved education that will ultimately drive outcomes for workers.

While he and other Fed officials have declined to declare a full “victory” over the Fed’s other mandate of 2 percent inflation, Powell said that marker was “close.”

The Fed’s preferred measure of inflation hit 2.3 percent in May, and was right at 2 percent after excluding more volatile food and energy prices.

“The recent data are encouraging,” Powell said as he laid out the reasons why he felt the United States’ near decade-long expansion was set to continue.

Still-low interest rates, a stable financial system, ongoing global growth and the boost from recent tax cuts and increased federal spending “continue to support the expansion,” he told the panel.

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Reporting by Howard Schneider and Lindsay Dunsmuir; Additional reporting by Shruthi Shankar; Editing by Andrea Ricci

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Eurofighter buy would help Belgium secure role in future fighter: BAE

FARNBOROUGH, England (Reuters) – Belgium is being offered a possible role in future European combat jet developments if it picks the Eurofighter Typhoon over the U.S.-built F-35, in a fierce contest to rearm the country’s air force, a senior official with Britain’s BAE Systems said.

British Eurofighter Typhoons are viewed from a U.S Air Force KC-135 during a European Tanker Symposium from RAF Mildenhall, Britain May 17, 2018. REUTERS/Darren Staples – RC12EE7F8720

The sweetener comes as four nations behind the Eurofighter – Britain, Germany, Italy and Spain – step up lobbying to try to secure the order for 34 multi-role jets, amid reports that the Lockheed Martin (LMT.N) F-35 is viewed as the leading contender.

Competition for arms sales is heating up across Europe, with fighter jet tenders open or starting soon in Belgium, Switzerland, Germany, Finland and Poland.

The Belgian government is expected to pick a winner in its fiercely contested tender by October. France opted out of the formal competition, but has pitched Dassault Aviation’s Rafale (AVMD.PA) as part of a larger military cooperation deal.

Anthony Gregory, BAE’s campaign director in Belgium, told Reuters at the Farnborough Airshow that his company was offering direct investments in Belgian firms to ensure they were ready to participate in a future fighter program.

That proposal could appeal to Belgium, whose officials have expressed regret that they skipped becoming a partner in the F-35 program when it first began in the 2000s.

“They’re on the outside now, and as they look to the future, they would want to be more of a partner in whatever program comes beyond this particular replacement,” he said. “Our offer invests in Belgian industry as part of that bigger picture.”

Lockheed has also offered orders for Belgian industry as part of its F-35 bid. U.S. officials argue that picking the F-35 would give it a role on the world’s most advanced fighter jet, joining Britain, Italy, Norway, Denmark, the Netherlands and Turkey, which are also ordering the F-35 jets.

Eurofighter’s sales chief Peter Maute said he expected to sell “several hundred” more aircraft in coming years, given rising military spending and ongoing competitions.

The Eurofighter consortium comprises Airbus (AIR.PA), Britain’s BAE Systems (BAES.L) and Italy’s Leonardo (LDOF.MI).

Maute said the Eurofighter nations had mounted an unusually concerted lobbying effort at the company’s urging.

Defense and trade ministers from those countries have sent separate letters to the Belgian government, Gregory said, arguing that choosing a European-built jet would deepen European defense cooperation and advance a key European Union goal.

Eurofighter Jagdflugzeug CEO Volker Paltzo told reporters the company was in discussions with the core nations about further enhancements to the aircraft’s cockpit and engines, which could later be transferred to future fighter programs.

He said he expected a newly unveiled British future fighter project and a rival Franco-German program would eventually converge into one joint European venture, echoing comments by Airbus Defense and Space Chief Executive Dirk Hoke and Leonardo CEO Alessandro Profumo.

Reporting by Andrea Shalal; Editing by Mark Potter and Jan Harvey

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Ryanair cancels 1 percent of flights on Friday as strike crisis deepens

DUBLIN (Reuters) – Ryanair (RYA.I) plans to cancel only 1 percent of its flights during a strike by Ireland-based pilots on Friday, but Europe’s largest low-cost airline is bracing for far wider industrial action across five countries next week.

FILE PHOTO: A Ryanair logo is seen on a wing of a passenger aircraft travelling from Madrid International Airport to Bergamo Airport, Italy, January 14, 2018. Picture taken January 14, 2018. REUTERS/Stefano Rellandini

The Irish airline said on Tuesday that it expects to cancel 24 of roughly 2,300 daily flights on Friday because of the action by about 100 of 350 Irish-based pilots in a strike it said was regrettable.

The pilots, who are also planning to strike on July 24, are demanding a more transparent system of pay, promotions and transfers as they aim to limit what they say is management’s excessive discretion over pilots’ careers.

Ryanair says it offers some of the best working conditions in the low-cost sector.

Next week Ryanair faces action in two of its three largest markets, with strikes by cabin crew in Spain and Italy, as well as in Portugal and Belgium.

Cabin crew unions in Spain and Portugal on Tuesday told Reuters the dismissal of four cabin crew in Spain last week had complicated efforts to avert two days of strike action on July 25 and 26. Belgian cabin crew also plan to strike on the two dates and Italian cabin crew will strike on July 25.

Spanish union SITCPLA said that the four crew members were dismissed after refusing to continue working after 12 hours, citing fatigue. The union said they are entitled to do this at their discretion under EU flight-time regulations.

Ryanair declined to comment on whether any crew had been dismissed, but a spokesman said that “no cabin crew have lost, or could lose, their jobs over discretion or fatigue”.

A memo issued to cabin crew by Ryanair on July 11 said that a number of cabin crew had “refused to complete their duty on the uninformed assumption that they have ‘discretion’ (in such matters)”.

SITCPLA said it had complained to the European Aviation Safety Agency and the Irish and Spanish air safety bodies and was preparing appeals against the dismissals.

“The dismissals have complicated the necessary atmosphere between Ryanair and the strike committee to restart negotiations and work things out,” SITCPLA spokesman Antonio Escobar told Reuters.

The head of Portuguese union SNPVAC, Luciana Passo, also said the dismissals had reduced the chances of averting the strike, which she said she expects to involve the majority of cabin crew in the country.

The airline, which flies in 37 countries and carried 130 million passengers last year, averted widespread strikes before Christmas by deciding to recognize trade unions for the first time in its 32-year history.

But it has since struggled to reach agreement on terms with a number of them.

Reporting by Conor Humphries; Editing by Jason Neely and David Goodman

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UK PM May suffers parliament defeat over plans to leave European medicines network

LONDON (Reuters) – Prime Minister Theresa May suffered an embarrassing defeat on a trade law that means ministers must now seek to secure an agreement that allows Britain to have continued participation in the European medicines regulatory framework.

A man holds an anti-Brexit banner on Westminster Bridge, in central London, Britain, July 13, 2018. REUTERS/Yves Herman

MPs in the House of Commons voted 305 to 301 to approve the amendment to the trade legislation.

Reporting By William James and Andrew MacAskill; editing by Kate Holton

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UK PM May defeats rebels over plans to remain in EU customs union

LONDON (Reuters) – British Prime Minister Theresa May narrowly avoided a defeat in parliament at the hands of pro-EU lawmakers from her own party on Tuesday, fending off a rebellion that threatened to worsen a crisis over her Brexit strategy.

Parliament voted 307 to 301 against an amendment to trade legislation that would have required the government to try to negotiate a customs union arrangement with the EU if, by Jan. 21, 2019, it had failed to negotiate a deal with the bloc that offered frictionless free trade for goods.

The narrow victory is May’s third this week, underlining the difficulty she faces in passing legislation on one of the most divisive and important decisions in modern British history with only a minority government and a party at war with itself.

Reporting By William James; editing by Stephen Addison

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U.S. judge questions scope of indictment against Insys founder

BOSTON (Reuters) – A federal judge on Tuesday expressed concern about the scope of an indictment against several former Insys Therapeutics Inc (INSY.O) executives accused of bribing doctors to prescribe an opioid and suggested U.S. prosecutors streamline the case to avoid its dismissal.

FILE PHOTO: The billionaire founder of Insys Therapeutics Inc. John Kapoor, exits the federal court house after a bail hearing in Phoenix, Arizona , U.S., October 27, 2017. REUTERS/Conor Ralph/File Photo

U.S. District Judge Allison Burroughs in Boston said she believed the indictment did not contain enough allegations to support a racketeering conspiracy charge against billionaire Insys founder John Kapoor and six other former executives and managers.

“The indictment has a core of conduct that’s problematic and may be criminal,” Burroughs said during a hearing. “I don’t know, that’s what a trial is for. But I’m have having difficultly with the way it’s laid out.”

The indictment charges Kapoor, former Insys Chief Executive Michael Babich and others with conspiring since 2012 to pay bribes to doctors to prescribe the drugmaker’s fentanyl-based cancer pain medication Subsys and to defraud insurers.

Burroughs said she believed the indictment lacked sufficient allegations to establish a relationship between the Insys executives and the various doctors accused of taking bribes that would legally support the racketeering charge.

She made the comments as Beth Wilkinson, Kapoor’s lawyer, urged Burroughs to dismiss the case, saying prosecutors seeking to bring a big opioid epidemic-related case under the Racketeer Influenced and Corrupt Organizations Act had overreached.

“They’re getting pressure to show they’re being tough on the opioid crisis,” she said. “We don’t have to guess why they did it.”

Burroughs did not rule. But she said prosecutors should look at whether the case could be “streamlined and clarified” as she did not want to dismiss the charges due to a lack of evidence. A trial is scheduled for January.

Subsys is an under-the-tongue spray containing fentanyl, an opioid 100 times stronger than morphine. It won U.S. regulatory approval in 2012 for use in managing pain in cancer patients.

The U.S. Justice Department has accused Insys of paying kickbacks to doctors to prescribe Subsys, often via fees to participate in sham speaker programs ostensibly meant to educate medical professionals about the drug.

Kapoor was indicted in October and added as a defendant in a case against six other people, including Babich, who were first charged in December 2016.

Other defendants include Alec Burlakoff and Michael Gurry, former Insys vice presidents, former National Sales Director Richard Simon, and Sunrise Lee and Joseph Rowan, former regional sales directors. They also have pleaded not guilty.

Reporting by Nate Raymond in Boston; Editing by Dan Grebler

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UK Brexit amendments won’t change Ireland’s position: PM Varadkar

DUBLIN (Reuters) – British Prime Minister Theresa May’s decision on Monday to accept the demands of hardline Brexit campaigners will not change Ireland’s negotiating position on Britain’s exit from the EU, Irish Prime Minister Leo Varadkar said on Tuesday.

FILE PHOTO: Irish Prime Minister Leo Varadkar at an EU summit in Brussels, Belgium, June 28, 2018. REUTERS/Yves Herman/File Photo

Britain’s parliament on Monday accepted the insistence of eurosceptic hardliners in her Conservative Party for a legal guarantee that there will be no post-Brexit customs border in the Irish Sea. That move could complicate Ireland’s demand for a backstop agreement that could keep Northern Ireland but not the rest of the United Kingdom in an EU customs union so as to ensure the border between the North and Ireland remains open.

Varadkar told Irish state broadcaster RTE that he believed Britain and the EU could reach agreement on the terms of Brexit by October, six months ahead of Britain’s intended withdrawal. “(But) we can’t make assumptions that the withdrawal agreement will get through Westminster (British parliament).”

He added, “It’s not evident, or not obvious, that the government of Britain has the majority for any form of Brexit quite frankly. “That shouldn’t give us cause for panic and that shouldn’t give us any reason to change our position.”

Varadkar said Ireland needed to “step up preparations for a ‘no-deal’ scenario,” although he added that he thought it unlikely Britain would crash chaotically out of the EU.

Reporting by Conor Humphries; Editing by Mark Heinrich

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