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Madoff trustee reaches $277 million accord with money manager’s family

 

Bernard Madoff exits the Manhattan federal court house in New York in this January 14, 2009 file photo.REUTERS/Brendan McDermid/File Photo
By Jonathan Stempel

The court-appointed trustee liquidating Bernard Madoff’s firm said on Friday he has reached a settlement with the family of late Beverly Hills money manager Stanley Chais that will provide more than $277 million to victims of Madoff’s Ponzi scheme.

Irving Picard, the trustee, said victims will receive at least $232 million of cash, and the rights to $30.7 million of assets that are expected to be sold.

A separate $15 million fund will pay claims by California investors, resolving litigation by that state’s Attorney General Kamala Harris, and which had been brought in 2009 by her predecessor, California Governor Jerry Brown.

Friday’s settlement requires approval by U.S. Bankruptcy Judge Stuart Bernstein in Manhattan, who oversees the liquidation of Bernard L. Madoff Investment Securities LLC. A hearing is scheduled for Nov. 22.

The cash payout would boost to $11.46 billion the sum that Picard has recovered for former Madoff customers, or 65 percent of their estimated $17.5 billion loss. Picard has said half of the 2,597 accounts with valid claims have been fully paid off.

Madoff, 78, is serving a 150-year prison term after pleading guilty to running a decades-long fraud uncovered in December 2008.

Chais, who died in September 2010 at the age of 84, once handled investments for elite Hollywood clients like Oscar-winning director Steven Spielberg, and had been a close friend of Madoff since the 1960s.

Picard had sought to recoup $1.32 billion of “fictitious profits” that he claimed the Chais defendants, including Chais’ widow Pamela, withdrew from Madoff’s firm.

The U.S. Securities and Exchange Commission in June 2009 filed a related civil lawsuit against Chais, claiming he ignored red flags that Madoff’s seemingly steady returns were bogus.

In a court filing, Picard’s lawyers said the settlement covered all of Stanley Chais’ estate and substantially all of his widow’s assets, and represented “a good faith, complete and total compromise.”

Chais had maintained that he was also a Madoff victim and had lost nearly all of his own money.

Lawyers for the Chais defendants did not immediately respond to requests for comment.

Through Sept. 30, more than $1.42 billion has been spent on recovery efforts, including $824.6 million for legal fees for Picard’s law firm Baker & Hostetler and $370.2 million for consultant fees, a Thursday court filing shows.

A $4 billion fund overseen by former SEC Chairman Richard Breeden will also compensate Madoff victims.

The cases are Picard v Chais et al, U.S. Bankruptcy Court, Southern District of New York, No. 09-ap-01172; and In re: Bernard L. Madoff Investment Securities LLC in the same court, No. 08-01789.

(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky and Cynthia Osterman)

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Published at Fri, 28 Oct 2016 17:04:46 +0000

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UPDATE 1-AutoNation net income drops on recall costs; to add used-car stores

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https://pixabay.com/en/users/Hans-2/By hans from Pixabay

UPDATE 1-AutoNation net income drops on recall costs; to add used-car stores

By Joseph White

AutoNation Inc (AN.N) reported a 9 percent decline in third quarter net income on Friday, weighed by $6 million in aftertax costs relating to used vehicles affected by Takata airbag inflator recalls.

AutoNation said it could not sell 14 percent of its used-vehicle inventory because the cars have recalled Takata airbag inflators that have not been replaced.

The U.S. auto retail chain also said on Friday it will invest at least $500 million over the next several years to expand beyond new-vehicle sales, including opening standalone used-vehicle stores that would compete with used-car specialist Carmax Inc.(KMX.N)

The company said it had identified 25 markets where it could open standalone used-vehicle stores under the AutoNation USA brand, and expects to open five stores next year.

These stores will offer services to customers whose vehicles are no longer covered by manufacturer warranties, and sell a new line of AutoNation branded replacement parts, the Ft. Lauderdale, Florida company said in a statement.

AutoNation, the largest U.S. new car dealership chain, faces slowing growth in the U.S. car and light truck market, and increasing pressure on profit margins for new vehicle sales.

The company will expand its collision-repair operations, and plans to build or buy at least 18 new collision-repair operations over the next two years. AutoNation currently operates 70 body repair stores in the United States.

Profit margins on vehicle repair services, replacement parts, collision repairs and used vehicle sales are usually higher than those for new car sales.

In a related move to capture more revenue from a car’s life cycle, AutoNation said it will open four more AutoNation vehicle auction operations over the next two years, adding to a wholesale used vehicle auction it operates in Southern California.

Revenue grew 4 percent to $5.6 billion in the quarter. AutoNation said net income per share remained flat at $1.05 a share, reflecting share repurchases. That was below the $1.15 consensus forecast according to ThomsonReuters I/B/E/S. The company said its board has approved another $250 million in common stock buybacks.

(Editing by Bernadette Baum)

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Published at Fri, 28 Oct 2016 12:34:50 +0000

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Amazon forecast for holiday seasons disappoints as investment rises

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Amazon.com’s logo is seen at Amazon Japan’s office building in Tokyo, Japan, August 8, 2016.REUTERS/Kim Kyung-Hoon
By Jeffrey Dastin and Anya George Tharakan

Amazon.com Inc on Thursday said high spending on warehouses and video production would drag on profits in the holiday quarter, disappointing investors who are weary of roller coaster results from the e-commerce giant and sending its shares down 6 percent.

Amazon is racing to ship packages as quickly as possible by building out its own delivery system. It is making heavy U.S. investments as well as pouring funds into foreign markets, and it also is building out its home electronics and video businesses, aiming to make it difficult for customers to leave.

As a consequence, the Seattle-based company projects operating income in the fourth quarter would range from nothing to $1.25 billion, a wide span that is considerably below Wall Street’s $1.62 billion, according to market research firm FactSet StreetAccount.

“Investments are going to be lumpy,” Chief Financial Officer Brian Olsavsky said on an analyst call. “The second half of this year looks like a big step up compared to the first half – and it is.”

Long known for heavy spending and losses, Amazon has come to turn a profit consistently, partly thanks to selling computer storage and services in the cloud. Companies globally are turning to Amazon, the market leader, and rival Microsoft Corp to host their data. In the just-ended third quarter, Amazon’s cloud business grew sales by 55 percent from a year earlier.

But investors are focused on rising costs for the company’s retail operation.

 

Amazon grew its workforce by 38 percent in the third quarter.

In addition, the company has nearly doubled its spending on the creation and marketing of movies and TV shows in the second half of 2016. Amazon’s hope is that people will sign up for its Prime service to watch these videos – and in turn buy more goods from Amazon to make the $99-per-year subscription worth it.

“Amazon tends to flex investment up and down somewhat unpredictably from time to time in order to drive growth, and that’s what’s challenging for investors,” said analyst Jan Dawson of Jackdaw Research. “Some investors thought the new era of higher margins was here to stay permanently, and this quarter has likely taught them (otherwise).”

But investment is necessary to be competitive, particularly in video if established media companies withhold their content from the likes of Amazon, Dawson added.

Amazon’s income tripled in the third quarter to $252 million, or 52 cents per share, marking the company’s sixth straight profitable quarter. But analysts on average expected 78 cents, according to Thomson Reuters I/B/E/S.

Amazon forecast net sales would rise as much as 27 percent in the current quarter to $45.5 billion.

“Even if it reaches the top end of these forecasts, this would still represent the worst performance in growth terms of this fiscal year,” Neil Saunders, head of retail research firm Conlumino, wrote in a note.

“That said, over the longer term Amazon’s investment in physical should help it get a tighter grip on fulfillment costs,” he added. “Amazon is playing the long game.”

Shares of the company were down at $772 in late trade.

(Reporting by Anya George Tharakan in Bengaluru; Writing by Peter Henderson; Editing by Ted Kerr, Bernard Orr)

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Published at Thu, 27 Oct 2016 21:17:19 +0000

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U.S. funds downbeat on AT&T even before Time Warner deal

 

Traders work on the floor near the post where telecoms company AT&T is traded at the New York Stock Exchange (NYSE) in New York City, U.S., October 24, 2016.REUTERS/Brendan McDermid

U.S. funds downbeat onAT&T even before Time Warner deal

By Tim McLaughlin and Ross Kerber | BOSTON

Many actively managed U.S. mutual funds were cool toward AT&T Inc even before the telecom giant’s planned $85.4 billion acquisition of Time Warner Inc.

The chilly attitude from professional stock pickers partly explains the lackluster reception for AT&T’s planned takeover of Time Warner.

Large-cap growth funds, for example, prefer tech companies whose operations require less capital than a regulated telecom operator like AT&T.

Even a major benefit to owning AT&T – its juicy 5 percent-plus dividend yield – is a cause for investor concern as higher interest rates may make the return look less attractive.

“There will be more options available for other, higher-yielding assets if rates are going up,” said Carrie Tallman, director of research at Parsec Financial, a North Carolina financial adviser that owns shares of AT&T and Time Warner.

Approval of AT&T’s proposed takeover has provoked broad skepticism as the deal faces some of the toughest regulatory scrutiny in recent U.S. history of mergers and acquisitions.

“We are committed to our dividend and to maintaining the financial flexibility for the board to consider future growth in the dividend,” AT&T spokeswoman Emily Edmonds said in email. “On Saturday we announced we’ll increase our quarterly dividend for the 33rd straight year, even as we announced we’ve secured a $40 billion bridge facility to finance our acquisition of Time Warner.”

HUNT FOR YIELD

Meanwhile, seven out of AT&T’s 10 largest fund investors are passive index funds, which are obligated to buy the stock because they track the S&P 500 Index, or other benchmarks that count AT&T as a component.

Overall, more than 600 index funds own nearly 13 percent of AT&T’s shares, according to Thomson Reuters data. That is more than actively managed income, value and growth funds combined, which hold about 8 percent of AT&T shares.

By contrast, those types of actively managed funds hold nearly 18 percent of the shares of rival Verizon Communications Inc, according to Thomson Reuters data.

Large-cap growth portfolio managers like Fidelity Contrafund’s Will Danoff see AT&T as a regulated, capital intensive, slow growth company. Danoff, who oversees about $109 billion for the fund, does not own any AT&T shares, telling investors in recent commentary he has largely avoided telecom stocks.

Only 21 out of 181 large-cap growth funds tracked by Lipper Inc held AT&T shares. During the first half of this year, not owning AT&T hurt these funds’ relative performance to the S&P 500 because the stock surged 26 percent.

Retail investors piled into AT&T as the hunt for yield intensified against a backdrop of historically low interest rates. AT&T’s current dividend yield is 5.3 percent on an annualized basis.

Matthew Benkendorf, chief investment officer of Vontobel Asset Management, a subadviser to Virtus mutual funds, said low rates have undoubtedly driven increased interest in stocks like AT&T.

But in recent months, as higher U.S. interest rates appear more likely, AT&T shares have been under pressure. The stock is off 14 percent in the past three months, reflecting interest rate concerns and Saturday’s announcement of the Time Warner deal.

Questions for investors now include whether Time Warner’s TV and film assets can deliver meaningful growth for AT&T, and whether the new conglomerate will continue to satisfy an important base of investors with a healthy dividend payout.

Vontobel’s Benkendorf said an added wrinkle to those questions is the sustainability of the dividend AT&T is paying. “That is a real question for them,” he said.

(Reporting By Tim McLaughlin and Ross Kerber in Boston; Editing by Bill Rigby)

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Published at Tue, 25 Oct 2016 21:40:18 +0000

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Goldman, closer to Murdoch than Bugs Bunny, misses year’s biggest deal

 

A view of the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2013.REUTERS/Brendan McDermid

Goldman, closer to Murdoch than Bugs Bunny, misses year’s biggest deal

By Liana B. Baker

It has been six years since Goldman Sachs Group Inc, a perennial No. 1 in the M&A league tables, did not feature as an adviser on the year’s biggest deal. But sticking with Rupert Murdoch over Bugs Bunny just cost it this year’s biggest deal.

Goldman missed out on an advisory role on telecom giant AT&T’s deal to buy Time Warner Inc for $85.4 billion because of its perceived conflict stemming from advising media mogul Murdoch’s Twenty-First Century Fox Inc two years ago, when it made a failed bid for Time Warner.

The media conglomerate’s franchises range from CNN and HBO to Harry Potter films, hit TV show “The Big Bang Theory” and Bugs Bunny. The code name for Time Warner in deal talks was “Rabbit,” perhaps an homage to Warner Bros’ carrot-chewing, wise-talking cartoon character.

As a result, investment banking rival Morgan Stanley is now No. 1 in the U.S. merger advisory rankings with $435.3 billion in announced deals, about $435 million ahead of Goldman, which has $434.9 billion, according to Thomson Reuters data.

“CEOs value loyalty from investment banks and have long memories,” said Erik Gordon, a University of Michigan business professor. “This can put banks in an impossible position, because companies often expect them to turn down business now for the uncertain prospect of business later.”

To be sure, the year is not yet over, and on a global basis, Goldman remains the undisputed king. The 147-year-old investment bank has ranked No. 1 in the global M&A league tables every year since 1997, with the exception of 2009 and 2010, when it ranked No. 2 behind Morgan Stanley.

The last time Goldman missed out on the biggest deal of the year was 2010, on the $27.5 billion acquisition of Mexican telecommunications group Carso Global Telecom by America Movil.

But Goldman’s absence from the AT&T-Time Warner deal shows that even the most successful investment banks can miss out on mega-deals by virtue of companies showing a preference for advisers that stick with them rather than their competitors.

When this year’s second-biggest deal was announced last month, Bayer AG’s $66 billion acquisition of seeds and agrichemicals group Monsanto Co, Goldman was also absent from the advisers listed.

Goldman had won no favor with Monsanto after having helped thwart its hostile bid for Syngenta AG last year by providing advice to the Swiss seeds company, and subsequently helping it sell itself to ChemChina for $43 billion instead.

The New York-based bank did, however, manage to secure a financing role in Bayer’s debt package for the Monsanto acquisition.

And Goldman’s allegiance to Murdoch has also paid off handsomely over the years. It advised Fox in 2014 on a $9 billion deal to sell European satellite TV firms to British Sky Broadcasting Group and on the corporate split of News Corp and Fox in 2013.

TOP FOR FEES

Despite missing out on advisory roles on the two blockbusters of 2016, Goldman Sachs is still No. 1 for advisory fees worldwide, according to Thomson Reuters data, generating fees on $659 billion worth of deals so far in 2016, ahead of Morgan Stanley’s $620.5 billion. Goldman declined to comment.

Goldman is advising Reynolds American Inc on British America Tobacco Plc’s offer to buy the stake it does not own for $47 billion, and is also working with Qualcomm Inc on a $37 billion takeover of NXP Semiconductors NV, which is expected to be announced this week.

A mix of big investment banks and boutique advisers shared the $240 million in fees earned from the AT&T-Time Warner deal, with an additional $100 million stemming from the $40 billion financing, according to Freeman Consulting Services.

Perella Weinberg Partners LP was the lead adviser to AT&T, while Allen & Co was the lead adviser to Time Warner. This buoyed Perella Weinberg to 15th in the U.S. rankings and 20th globally, and Allen & Co to 10th in the U.S. and 15th globally.

Citigroup Inc and Morgan Stanley also advised Time Warner, and along with Allen & Co, they will share $80 million to $120 million, according to Freeman.

Along with Perella Weinberg, JPMorgan Chase & Co and Bank of America also advised AT&T and will share an estimated $80 million to $120 million in advisory fees if the proposed deal goes through, according to estimates by Freeman.

Of the $40 billion bridge loan supporting the deal, JPMorgan is providing $25 billion, while Bank of America is offering $15 billion. These financing banks will share about $100 million to $130 million in fees from this role, Freeman said.

(Reporting by Liana B. Baker in New York; Editing by Carmel Crimmins and Bill Rigby)

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Published at Tue, 25 Oct 2016 05:11:07 +0000

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U.S. banking group forms unit aimed at reducing cyber risk

 

A padlock is displayed at the Alert Logic booth during the 2016 Black Hat cyber-security conference in Las Vegas, Nevada, U.S. August 3, 2016.REUTERS/David Becker

U.S. banking group forms unit aimed at reducing cyber risk

The Financial Services Information Sharing and Analysis Center (FS-ISAC), an influential U.S. financial industry group, said on Monday it had formed a unit to enhance collaboration among its members and the U.S. government as a way to help reduce cyber security threats to the financial system.

The new unit, known as the Financial Systemic Analysis & Resilience Center (FSARC), will proactively identify, analyze, and coordinate activities using more sophisticated techniques, the FS-ISAC said in a statement. (bit.ly/2enoimt)

The FSARC is the result of a meeting this year involving the six biggest U.S. banks plus custody banks State Street Corp and Bank of New York Mellon Corp, the FS-ISAC said. The FS-ISAC has more than 7,000 industry members.

(Reporting by Sudarshan Varadhan in Bengaluru; Editing by Ted Kerr)

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Published at Mon, 24 Oct 2016 15:35:56 +0000

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Time Warner, AT&T shares fall with concerns over deal clearance

Ticker and trading information for telecoms company AT&T are displayed at the post where it is traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 24, 2016. REUTERS/Brendan McDermid

Ticker and trading information for telecoms company AT&T are displayed at the post where it is traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 24, 2016.  REUTERS/Brendan McDermid

Time Warner, AT&T shares fall with concerns over deal clearance

By Jessica Toonkel and Supantha Mukherjee

Wall Street signaled skepticism on Monday that AT&T Inc would secure the government approvals needed to carry out its planned $85.4 billion acquisition of Time Warner Inc, with shares of both companies falling as analysts scrutinized the deal.

Time Warner shares were trading some 20 percent below the implied value of AT&T’s $107.50 per share cash and stock offer, indicating investors doubt that the companies would be able to complete the transaction.

The deal, announced on Saturday, would give AT&T control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted assets and reshape the media landscape.

Dallas-based AT&T said on Saturday it would need approval of the U.S. Department of Justice and the companies were determining which Time Warner U.S. Federal Communications Commission licenses, if any, would need to transfer to AT&T. Any such transfers would require FCC approval.

AT&T Chief Executive Randall Stephenson said on Monday he expects government clearances for the deal because it is a so-called vertical integration that will not eliminate a competitor, a situation that is viewed more favorably by antitrust enforcers.

“While regulators will often times have concerns with vertical integrations, those are always remedied by conditions imposed on the merger, so that’s how we envision this one to play out,” Stephenson told CNBC.

Despite its big media footprint, Time Warner has only one FCC-regulated broadcast station, WPCH-TV in Atlanta. Time Warner could sell the license to try to avoid a formal FCC review, several analysts said.

Any decision to review the deal would be made by regulatory officials at the Department of Justice and the Federal Trade Commission, White House spokesman Josh Earnest told reporters on Monday.

“The president would hope and expect that regulators would carefully consider the potential impact of this deal on consumers,” Earnest added.

Shares of AT&T closed down 1.7 percent at $36.86 and shares of Time Warner fell 3 percent to $86.78.

FOCUS ON APPROVALS

Wall Street analysts and traders on Monday expressed concerns about the implications of the antitrust and regulatory challenges.

The total value of broken deals is nearly $700 billion so far this year, a fact that has sidelined some investors.

“The regulatory environment has been unbelievable this year and I think everyone is on edge,” said an arbitrage investor considering buying exposure to the deal who did not want to be identified because they were not authorized to speak to the press.

The biggest deals to fall apart in 2016 include Office Depot–Staples, Baker Hughes–Halliburton, Allergan–Pfizer and Norfolk Southern–Canadian Pacific Railways. Many of the deals drew objections from the Department of Justice and U.S. Treasury.

“We are unprepared at this point to assign anything higher than a 50/50 probability of deal approval,” wrote MoffettNathanson Research in a report, downgrading Time Warner to ‘neutral’ but raising its target price by $8 to $100.

The deal’s arbitrage spread of more than 20 percent is wider than five other recent deals that regulators subsequently shot down or were withdrawn, including Comcast Corp’s planned takeover of Time Warner Cable. That deal had a spread of only 5 percent.

The deal, announced just over two weeks before the Nov. 8 U.S. election, was also generating skepticism among both Republicans and Democrats.

OTHER QUESTIONS

Other analysts were unnerved by the massive $170 billion debt balance the combined company may hold after the deal closes and some questioned the rationale for the combination.

Analysts at Cowen & Co said it was a “struggle” to understand why the acquisition made sense.

“If it is simply differentiated content AT&T is interested in we don’t understand why this couldn’t have been solved by some form of partnership,” the firm wrote in a note to downgrade the company’s investment rating to ‘market perform’ from ‘outperform.’

Analysts at Moody’s, which put AT&T on review for a downgrade after the acquisition was announced, said regulators could include conditions that limit the wireless provider’s ability to use Time Warner content as a competitive advantage, ultimately undermining its objective to differentiate its mobile and pay TV platforms with exclusive content.

(Additional reporting by Malathi Nayak, Carl O’Donnell and Roberta Rampton; Editing by Nick Zieminski, Meredith Mazzilli and Bill Rigby)

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Published at Mon, 24 Oct 2016 21:12:09 +0000

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WSJ: “Retailers Rushed to Hire for Holidays”

https://pixabay.com/en/users/Unsplash-242387/by unsplash from Pixabay

WSJ: “Retailers Rushed to Hire for Holidays”

by Bill McBride on 10/24/2016 10:40:00 AM

From the Eric Morath at the WSJ: Retailers Rushed to Hire for Holidays, a Sign of Tight Labor Market

Retailers geared up to hire holiday-season workers in August this year, an unusually early start showing how competition has intensified for temporary help in a tight labor market.

Data from job-search site Indeed.com shows retailers, and the warehouse and logistics firms they compete with for seasonal labor, started searching for temporary workers a month earlier than in recent years. This suggests retailers and other firms “anticipate stronger consumer demand and expect that it will be harder to find the people they want to hire,” said Indeed economist Jed Kolko.

Last year, more than one in four retail workers hired in the fourth quarter of 2015 started their jobs in October, the highest share on records back to the 1930s.

Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.
 

Seasonal Retail HiringClick on graph for larger image.

This graph really shows the collapse in retail hiring in 2008. Since then seasonal hiring has increased back close to more normal levels.

Note that retailers have been hiring earlier with more seasonal hires in October (red).

Based on the information in the WSJ article, it appears seasonal hiring will be at record levels in October this year.

Read more at http://www.calculatedriskblog.com/2016/10/wsj-retailers-rushed-to-hire-for.html#6mIHWdcrOgEYhGYS.99

by Bill McBride on 10/24/2016 10:40:00 AM

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Published at Mon, 24 Oct 2016 14:40:00 +0000

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Vehicle Sales Forecasts: Sales Over 17 Million SAAR Again in October

https://pixabay.com/en/users/MichaelGaida-652234/by MichaelGaida from Pixabay

Vehicle Sales Forecasts: Sales Over 17 Million SAAR Again in October

by Bill McBride on 10/23/2016 12:41:00 PM

 The automakers will report October vehicle sales on Tuesday, November 1st.
Note:  There were 26 selling days in October 2016, down from 28 in October 2015.

From WardsAuto: Forecast: October Daily Sales to Reach 15-Year High

A WardsAuto forecast calls for October U.S. light-vehicle sales to reach a 17.8 million-unit seasonally adjusted annual rate, making it the seventh month this year to surpass 17 million.

A 17.8 million SAAR is greatly higher than the 17.3 million recorded year-to-date through September, but does not beat the 18.1 million result recorded in the same month last year.
emphasis added

From J.D. Power: New-Vehicle Retail Sales in October Slip; Sixth Monthly Decline of 2016

The SAAR for total sales is projected at 17.7 million units in October 2016, down from 18.1 million units a year ago.

This graph shows light vehicle sales since the BEA started keeping data in 1967.
Vehicle Sales

The dashed line is the September sales rate.

Sales for 2016 – through the first nine months – were up slightly from the comparable period last year.

After increasing significantly for several years following the financial crisis, auto sales are now mostly moving sideways.

Read more at http://www.calculatedriskblog.com/2016/10/vehicle-sales-forecasts-sales-over-17.html#wCcZhgYef3FLk25b.99

by Bill McBride on 10/23/2016 12:41:00 PM

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Published at Sun, 23 Oct 2016 16:41:00 +0000

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Rockwell Collins buys B/E Aerospace for $62 per share

Cockpit equipment made by Rockwell Collins and used in a CH-47 Chinook helicopter is pictured at the ILA Berlin Air Show in Schoenefeld, south of Berlin, Germany, June 1, 2016. REUTERS/Fabrizio Bensch

Cockpit equipment made by Rockwell Collins and used in a CH-47 Chinook helicopter is pictured at the ILA Berlin Air Show in Schoenefeld, south of Berlin, Germany, June 1, 2016.REUTERS/Fabrizio Bensch

Rockwell Collins buys B/E Aerospace for $62 per share

By Alwyn Scott

Aircraft component maker Rockwell Collins Inc (COL.N) has struck a deal to buy aircraft interior maker B/E Aerospace Inc (BEAV.O) for $62 per share in cash and stock, the companies said on Sunday.

The acquisition, valued at $6.4 billion plus the assumption of $1.9 billion in debt, expands the range of products Rockwell Collins supplies to major commercial and business aircraft and broadens its customer based internationally.

The combination is expected to produce cost savings of about $160 million and provide a double-digit boost to per-share earnings in the first full year, the companies said. They also anticipate it generating more than $6 billion in free cash flow over five years.

Rockwell agreed to pay $34.10 per share in cash and $27.90 in shares of Rockwell Collins stock, a 22.5 percent premium to B/E Aerospace’s closing price on Friday.

The companies have little product overlap. Rockwell is best known for avionics, flight control systems and cabin connectivity, while B/E Aerospace is a major provider of aircraft seats, galleys, lighting and other systems.

Rockwell, based in Cedar Rapids, Iowa has market value of about $11 billion, more than twice the size of Wellington, Florida-based B/E Aerospace, which has a market value of $5.1 billion.

B/E Aerospace brings more aftermarket and aircraft retrofit business to Rockwell, which is mainly focused on new equipment, and also adds exposure to twin-aisle aircraft, said Richard Aboulafia, an aerospace analyst at the Teal Group.

Pricing pressures from Boeing Co (BA.N) and Airbus (AIR.PA) are one driver of such a deal. “But it’s also a pretty clear indicator that the market has peaked in terms of deliveries and orders,” Aboulafia said of new aircraft sales. “In this environment, consolidation is inevitable as a cost-control move.”

(Reporting by Alwyn Scott in New York and Mike Stone in Washington; Editing by Mary Milliken and Bill Trott)

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Published at Sun, 23 Oct 2016 17:25:07 +0000

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AT&T to buy Time Warner for $85 billion, create telecom-media giant

The Time Warner building is pictured in New York, New York December 11, 2013. REUTERS/Eric Thayer/File Photo

The Time Warner building is pictured in New York, New York December 11, 2013. REUTERS/Eric Thayer/File Photo

AT&T to buy Time Warner for $85 billion, create telecom-media giant

 

By Greg Roumeliotis and Jessica Toonkel
| NEW YORK

AT&T Inc (T.N) said on Saturday it agreed to buy Time Warner Inc (TWX.N) for $85.4 billion, the boldest move yet by a telecommunications company to acquire content to stream over its high-speed network to attract a growing number of online viewers.The biggest deal in the world this year will, if approved by regulators, give AT&T control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted media assets. The tie-up will likely face intense scrutiny by U.S. antitrust enforcers worried that AT&T might try to limit distribution of Time Warner material.AT&T will pay $107.50 per Time Warner share, half in cash and half in stock, worth $85.4 billion overall, according to a company statement. AT&T said it expected to close the deal by the end of 2017.

Dallas-based AT&T said the U.S. Department of Justice would review the deal and that it and Time Warner were determining which Federal Communications Commission licenses, if any, would be transferred to AT&T in the deal.

U.S. lawmakers were already worried about cable company Comcast Corp’s (CMCSA.O) $30 billion acquisition of NBCUniversal, creating an industry behemoth. Several argued for close regulatory scrutiny of the AT&T deal.

“Such a massive consolidation in this industry requires rigorous evaluation and serious scrutiny,” said U.S. Senator Richard Blumenthal, former attorney general of Connecticut. “I will be looking closely at what this merger means for consumers and their pocketbooks.”

U.S. Republican presidential nominee Donald Trump said at a rally on Saturday he would block any AT&T-Time Warner deal if he wins the Nov. 8 election. Trump has complained about media coverage of his campaign, especially by Time Warner’s CNN.

“It’s too much concentration of power in the hands of too few,” said Trump.

Representatives of his Democratic rival, Hillary Clinton, did not immediately respond to a request for comment.

CONTENT PLUS DELIVERY

AT&T, whose main wireless phone and broadband service business is showing signs of slowing, has already made moves to turn itself into a media powerhouse. It bought satellite TV provider DirecTV last year for $48.5 billion.

It had about 142 million North American wireless subscribers as of June 30, and about 38 million video subscribers through DirecTV and its U-verse service.

New York-based Time Warner is a major force in movies, TV and video games. Its assets include the HBO, CNN, TBS and TNT networks as well as the Warner Bros film studio, producer of the “Batman” and “Harry Potter” film franchises. The company also owns a 10 percent stake in video streaming site Hulu. The HBO network alone has more than 130 million subscribers.

The deal is the latest in the consolidation of the telecom and media sectors, coming on the heels of AT&T’s purchase of NBCUniversal. AT&T’s wireless rival Verizon Communications Inc (VZ.N) is in the process of buying internet company Yahoo Inc (YHOO.O) for about $4.8 billion.

Time Warner Chief Executive Officer Jeff Bewkes rejected an $80 billion offer from Twenty-First Century Fox Inc (FOXA.O) in 2014.

FINANCING

AT&T said the cash portion of the purchase price would be financed with new debt and cash on its balance sheet. AT&T said it has an 18-month commitment for an unsecured bridge term facility for $40 billion.

AT&T currently has only $7.2 billion in cash on hand. Further borrowing could put pressure on its credit rating as it already had $120 billion in net debt as of June 30, according to Moody’s.

AT&T said the deal would add to earnings per share in the first year after closing. It said it expects $1 billion in annual run-rate cost savings within three years of closing, chiefly driven by lower corporate and procurement spending.

5G IS COMING

Owning more content gives cable and telecom companies bargaining leverage with other content companies as customers demand smaller, hand-picked cable offerings or switch to watching online. New mobile technology including next-generation 5G networks could make a content tie-up especially attractive for wireless providers.

“We think 5G mobile is coming, we think 5G mobile is an epic game-changer,” Rich Tullo, director of research at Albert Fried & Co, said in a research note, adding that mobile providers would be in position to disrupt traditional pay-TV services.

A previous Time Warner blockbuster deal, its 2000 merger with AOL, is now considered one of the most ill-advised corporate marriages on record.

Perella Weinberg Partners LP, Bank of America Corp and JPMorgan Chase & Co were financial advisers to AT&T, with Bank of America and JPMorgan also offering bridge financing, while Sullivan & Cromwell LLP and Arnold & Porter LLP provided legal advice.

Allen & Co LLC, Citigroup Inc and Morgan Stanley acted as financial advisers to Time Warner, while Cravath, Swaine & Moore LLP was its legal adviser.

(Additional reporting by David Shepardson, Liana Baker, Malathi Nayak and Diane Bartz; Writing by Bill Rigby; Editing by David Gregorio)

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Published at Sun, 23 Oct 2016 01:38:08 +0000

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Schedule for Week of Oct 23, 2016

 

 

https://pixabay.com/en/users/geralt-9301/photo by geralt from pixabay

Schedule for Week of Oct 23, 2016

by Bill McBride on 10/22/2016 08:01:00 AM

The key economic reports this week are the advance estimate of Q3 GDP and September New Home Sales.

Also the Case-Shiller House Price Index for August will be released.

For manufacturing, the October Richmond and Kansas City Fed manufacturing surveys will be released this week.

—– Monday, Oct 24th —–

8:30 AM ET: Chicago Fed National Activity Index for September. This is a composite index of other data.

—– Tuesday, Oct 25th —–

9:00 AM: FHFA House Price Index for August 2016. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.5% month-to-month increase for this index.
Case-Shiller House Prices Indices

9:00 AM ET: S&P/Case-Shiller House Price Index for August. Although this is the August report, it is really a 3 month average of June, July and August prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the July 2016 report (the Composite 20 was started in January 2000).

The consensus is for a 5.1% year-over-year increase in the Comp 20 index for August. The Zillow forecast is for the National Index to increase 5.2% year-over-year in August.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for October.

—– Wednesday, Oct 26th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
New Home Sales

10:00 AM ET: New Home Sales for September from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the August sales rate.

The consensus is for an decrease in sales to 600 thousand Seasonally Adjusted Annual Rate (SAAR) in September from 609 thousand in August.

—– Thursday, Oct 27th —–

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 255 thousand initial claims, down from 260 thousand the previous week.  Note: I expect some further impact on claims due to Hurricane Matthew.

8:30 AM: Durable Goods Orders for September from the Census Bureau. The consensus is for a 0.2% increase in durable goods orders.

10:00 AM: Pending Home Sales Index for September. The consensus is for a 1.0% increase in the index.

10:00 AM: the Q3 Housing Vacancies and Homeownership from the Census Bureau.

11:00 AM: Kansas City Fed Survey of Manufacturing Activity for October.

—– Friday, Oct 28th —–

8:30 AM ET: Gross Domestic Product, 3rd quarter 2016 (Advance estimate). The consensus is that real GDP increased 2.5% annualized in Q3.

10:00 AM: University of Michigan’s Consumer sentiment index (final for October). The consensus is for a reading of 88.5, up from the preliminary reading 87.9.

Read more at http://www.calculatedriskblog.com/2016/10/schedule-for-week-of-oct-23-2016.html#veu3G2t8x5w4rVoE.99

by Bill McBride on 10/22/2016 08:01:00 AM

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Published at Sat, 22 Oct 2016 12:01:00 +0000

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Credit Suisse reaches 109.5 mln euro settlement in Italy

 

The logo of Swiss bank Credit Suisse is seen below the Swiss national flag at a building in the Federal Square in Bern May 15, 2014.REUTERS/Ruben Sprich/File Photo

Credit Suisse reaches 109.5 mln euro settlement in Italy

By Emilio Parodi and Oliver Hirt | MILAN/ZURICH

Credit Suisse has agreed to pay 109.5 million euros ($119 million) in taxes and penalties to settle allegations by Italian authorities that it helped clients transfer undeclared funds offshore, the Swiss bank said on Friday.

Milan prosecutors had been investigating since 2014 an alleged fraudulent system which was used to transfer up to 14 billion euros ($15.2 billion) to offshore accounts, mainly through the use of insurance policies. Some 13,000 clients are allegedly involved.

Credit Suisse AG was placed under investigation for alleged money laundering carried out by its executives, who have not been identified.

In a statement on Friday, the Zurich-based bank said it had agreed to pay Italian authorities 101 million euros ($110 million) in taxes, late payment interest and penalties to settle its tax position.

In addition, the bank also agreed to pay 8.5 million euros for “administrative infringements in its previous cross-border business.” An Italian judicial source said that payment related to a settlement request filed by the bank to Milan prosecutors.

The source said the prosecutors had approved the request, but the final decision rests with a judge. If the settlement agreement is accepted, the position of Credit Suisse in the case would be closed, leaving under investigation the Italian clients that allegedly benefited from the system.

Under Italian law, filing for a settlement does not imply an admission of guilt.

In March the bank said its business was “systematically focused on declared assets and we have clear internal rules and processes in place to ensure that we conduct our business in accordance with the applicable laws in Italy.

The Italian unit of the bank is not involved in the case.

($1 = 0.9197 euros)

(Editing by Adrian Croft)

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Published at Fri, 21 Oct 2016 14:27:59 +0000

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Piech, Porsche families say united behind VW management – Spiegel

 

Wolfgang Porsche, member of the Supervisory board of German car maker Volkswagen, addresses a news conference at the company’s headquarters in Wolfburg, Germany October 7, 2015.REUTERS/Axel Schmidt

Piech, Porsche families say united behind VW management – Spiegel

 

The Piech and Porsche families that control more than 52 percent of Volkswagen (VOWG_p.DE) have vowed to back senior management, setting aside past disputes as the carmaker struggles to overcome an emissions scandal, Der Spiegel reported on Saturday.

In a rare interview, Hans Michel Piech and Wolfgang Porsche pledged support for VW chairman Hans Dieter Poetsch and chief executive Matthias Mueller, and said they would stay out of daily operational affairs at Germany’s biggest carmaker.

The two families had clashed when Ferdinand Piech was his family’s representative on Volkswagen’s supervisory board, a post he resigned from last year, clearing the way for his brother, Hans Michel.

Some investors feared bickering between the two families would hamper decision-making as the company works to cut costs and adapt to new industry trends such as electronic and autonomous driving.

“We are different and we see our task as representatives of the families different,” Hans Michel Piech was quoted as saying, but he and Wolfgang Porsche both emphasized their ability to find consensus.

Porsche said that would remain the case despite a recent decision to increase the number of family members with voting power to 34.

“Not all 34 will become supervisory board members, or have a say in discussions, and not all of them want to. What is important is that the next generation of suitable family members have an interest in the matter and do not simply wait for the dividend to arrive,” he said.

Volkswagen has suffered its worst-ever crisis since admitting in September 2015 it used sophisticated secret software in its cars to cheat exhaust emissions tests, with millions of vehicles worldwide affected.

The company has set aside 17.8 billion euros (15.83 billion pounds)to pay for costs related to the scandal.

($1 = 0.9189 euros)

(Reporting by Harro ten Wolde and Edward Taylor)

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Published at Sat, 22 Oct 2016 12:41:14 +0000

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UPDATE 8-Cyber attacks disrupt PayPal, Twitter, other sites

 

An attendee looks at a monitor at the Parsons booth during the 2016 Black Hat cyber-security conference in Las Vegas, Nevada, U.S. August 3, 2016.REUTERS/David Becker

UPDATE 8-Cyber attacks disrupt PayPal, Twitter, other sites

By Joseph Menn, Jim Finkle and Dustin Volz

Hackers unleashed a complex attack on the internet through common devices like webcams and digital recorders and cut access to some of the world’s best known websites on Friday, a stunning breach of global internet stability.

The attacks struck Twitter, Paypal, Spotify and other customers of an infrastructure company in New Hampshire called Dyn, which acts as a switchboard for internet traffic.

The attackers used hundreds of thousands of internet-connected devices that had previously been infected with a malicious code that allowed them to cause outages that began in the Eastern United States and then spread to other parts of the country and Europe.

“The complexity of the attacks is what’s making it very challenging for us,” said Dyn’s chief strategy officer, Kyle York. The U.S. Department of Homeland Security and the Federal Bureau of Investigation said they were investigating.

The disruptions come at a time of unprecedented fears about the cyber threat in the United States, where hackers have breached political organizations and election agencies.

Friday’s outages were intermittent and varied by geography. Users complained they could not reach dozens of internet destinations including Mashable, CNN, the New York Times, the Wall Street Journal, Yelp and some businesses hosted by Amazon.com Inc.

Dyn said attacks were coming from millions of internet addresses, making it one of the largest attacks ever seen. Security experts said it was an especially potent type of distributed denial-of-service attack, or DDoS, in which attackers flood the targets with so much junk traffic that they freeze up.

VULNERABILITIES EXPLOITED

Dyn said that at least some of the malicious traffic was coming from connected devices, including webcams and digital video recorders, that had been infected with control software named Mirai. Security researchers have previously raised concerns that such connected devices, sometimes referred to as the Internet of Things, lack proper security.

The Mirai code was dumped on the internet about a month ago, and criminal groups are now charging to employ it in cyber attacks, said Allison Nixon, director of security research at Flashpoint, which was helping Dyn analyze the attack.

Dale Drew, chief security officer at communications provider Level 3, said that other networks of compromised machines were also used in Friday’s attack, suggesting that the perpetrator had rented access to several so-called botnets.

The attackers took advantage of traffic-routing services such as those offered by Alphabet Inc’s Google and Cisco Systems Inc’s OpenDNS to make it difficult for Dyn to root out bad traffic without also interfering with legitimate inquiries, Drew said.

“Dyn can’t simply block the (Internet Protocol) addresses they are seeing, because that would be blocking Google or OpenDNS,” said Matthew Prince, CEO of security and content delivery firm CloudFlare. “These are nasty attacks, some of the hardest to protect against.”

GOVERNMENT WARNED OF ATTACKS

Drew and Nixon both said that the makers of connected devices needed to do far more to make sure that the gadgets can be updated after security flaws are discovered.

Big businesses should also have multiple vendors for core services like routing internet traffic, and security experts said those Dyn customers with backup domain name service providers would have stayed reachable.

The Department of Homeland Security last week issued a warning about attacks from the Internet of Things, following the release of the code for Mirai.

Attacking a large domain name service provider like Dyn can create massive disruptions because such firms are responsible for forwarding large volumes of internet traffic.

Dyn said it had resolved one morning attack, which disrupted operations for about two hours, but disclosed a second a few hours later that was causing further disruptions. By Friday evening it was fighting a third.

Amazon’s web services division, one of the world’s biggest cloud computing companies, reported that the issue temporarily affected users in Western Europe. Twitter and some news sites could not be accessed by some users in London late on Friday evening.

PayPal Holdings Inc said that the outage prevented some customers in “certain regions” from making payments. It apologized for the inconvenience and said that its networks had not been hacked.

A month ago, security guru Bruce Schneier wrote that someone, probably a country, had been testing increasing levels of denial-of-service attacks against unnamed core internet infrastructure providers in what seemed like a test of capability.

Nixon said there was no reason to think a national government was behind Friday’s assaults, but attacks carried out on a for-hire basis are famously difficult to attribute.

(Reporting by Joseph Menn in San Francisco, Jim Finkle in Boston and Dustin Volz in Washington. Additional reporting by Eric Auchard in Frankurt, Malathi Nayak in New York, Jeff Mason and Mark Hosenball in Washington, Adrian Croft and Frances Kerry in London; Editing by Bill Trott, Lisa Shumaker and Jonathan Weber)

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Published at Sat, 22 Oct 2016 01:30:12 +0000

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‘Diva of Distressed’ Tilton to face SEC fraud trial

 

New York financier Lynn Tilton arrives for an appeal hearing at the U.S. District courthouse in New York, September 16, 2015.REUTERS/Brendan McDermid
By Nate Raymond | NEW YORK

Financier Lynn Tilton is set to go on trial next week before an administrative law judge on U.S. Securities and Exchange Commission charges she defrauded investors by hiding the poor performance of assets underlying three $2.5 billion debt funds.

Tilton, the founder of New York-based Patriarch Partners who is known as the “Diva of Distressed” for taking over troubled companies, will face an SEC administrative proceeding in Manhattan on Monday.

The SEC is seeking to force Tilton and Patriarch to pay the agency at least $200 million for defrauding investors in three so-called Zohar collateralized loan obligation funds, which raised $2.5 billion to make loans to distressed companies.

Tilton, 57, denies wrongdoing. She unsuccessfully sued to block what she called an unconstitutional proceeding before an SEC in-house judge in a fast-tracked venue that the agency has increasingly used that critics call unfair to defendants.

Known for her flashy outfits and colorful language, the former Goldman Sachs and Merrill Lynch banker has portrayed herself as a hard-charging female executive in a male-dominated field.

In 2000, she founded Patriarch Partners, which counts among its portfolio companies MD Helicopters and Dura Automotive.

But in 2015, the SEC accused Tilton of directing the valuations of the three debt collateralized loan obligation funds to remain unchanged even though many of the companies in which they invested had performed poorly and failed to make interest payments.

Not only were investors misled, but Tilton and Patriarch avoided having their management fees cut by $200 million, the SEC said.

Tilton and Patriarch counter that they consistently disclosed their investment strategy from the funds’ inception.

They have said the charges stem from a flawed five-year probe pushed by a unit of bond insurer MBIA Inc, which had $1 billion in exposure to the three Zohar funds and has been engaged in litigation related to them.

MBIA not only shared information with the SEC that it gleaned during discussions to restructure one fund but was given confidential documents Patriarch provided during the probe against SEC policy, Tilton contends.

As a result, rather than go through with the restructuring, MBIA chose to litigate to get control of the fund’s collateral, with the SEC’s approval to use the confidential documents so long as its “fingerprints were never revealed,” Tilton’s lawyers wrote.

Randy Mastro, Tilton’s lawyer, at a hearing on Wednesday said the SEC and MBIA entered into “an unholy alliance where rules were broken.”

The SEC has said sharing the documents was permitted. MBIA had no comment.

The U.S. Supreme Court on Sept. 27 rejected Tilton’s bid to avoid Monday’s SEC action.

(Reporting by Nate Raymond in New York; Editing by Will Dunham)

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Published at Fri, 21 Oct 2016 13:15:17 +0000

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UPDATE 1-GE profit up but revenue forecast trimmed amid sluggish economy

 

The ticker and logo for General Electric Co. is displayed on a screen at the post where it’s traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 30, 2016.REUTERS/Brendan McDermid
By Alwyn Scott | NEW YORK

General Electric Co (GE.N) beat analyst profit forecasts in the third quarter, but revenue growth remained sluggish, prompting the company to scale back expectations for full-year revenue and profit on Friday, sending shares sharply lower.

The industrial giant’s adjusted profit jumped 10 percent to 32 cents a share, exceeding the 30 cents that analysts had estimated on average, according to Thomson Reuters I/B/E/S.

GE raised its full-year target for cash returned to shareholders to $30 billion from $26 billion and noted it had returned $25 billion in the first three quarters.

But slow economic growth, particularly in the oil and gas business, weighed on revenue. Organic revenue, which excludes growth from acquisitions, grew 1 percent in the quarter.

The company’s shares were the biggest decliner on the Dow Jones Industrial Average index, falling 2 percent to $28.48 in early trading on the New York Stock Exchange.

Analysts had been looking for GE to report stronger revenue growth after a weak first half, but that was stymied by a 25-percent slump in oil and gas revenue in the quarter.

Investors were skeptical that GE’s organic revenue growth could hit 5 percent in the fourth quarter, Sanford C Bernstein analyst Steven Winoker wrote in a note.

Anemic third-quarter growth “again calls into question the company’s ability to hit the 5 percent” target, he said.

Company officials were more sanguine. Cost cutting in oil and gas and other businesses and a diminishing drag from foreign exchange translation should allow GE to deliver $2 a share in adjusted earnings in 2018, Chief Executive Officer Jeff Immelt said on a conference call.

FORECASTS ADJUSTED

While analysts expect second-half growth of about 15 percent in the power business, GE’s largest division, power revenue grew just 7 percent in the third quarter.

GE trimmed its full-year revenue forecast to flat to 2 percent growth, down from 2 percent to 4 percent growth.

It narrowed its adjusted profit forecast to between $1.48 and $1.52 a share, compared with the $1.45 to $1.55 a share forecast at the end of the second quarter.

The company lifted its cash flow outlook, which it said allowed the boost in share buyback plans by an additional $4 billion. It now expects free cash flow and dispositions to total at least $32 billion, up from a range of $29 billion to $32 billion it forecast at the end of the second quarter.

GE’s net income from continuing operations rose to $2.10 billion in the third quarter ended Sept. 30 from $1.97 billion a year earlier. Earnings per share from continuing operations rose to 23 cents from 19 cents.

Total revenue rose 4.4 percent to $29.27 billion.

(Additional reporting by Rachit Vats in Bengaluru; Editing by Bernadette Baum)

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Published at Fri, 21 Oct 2016 11:07:33 +0000

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Some hedge funds post mega-gains, brighten industry gloom

https://pixabay.com/en/users/Pixaline-1569622/By Pixaline from Pixabay

Some hedge funds post mega-gains, brighten industry gloom

 

By Svea Herbst-Bayliss and Lawrence Delevingne
| BOSTON/NEW YORK

Hedge funds have suffered a steady drumbeat of bad news this year: poor performance, withdrawals, prominent closures, bribery and insider trading charges, and accusations from a state regulator that the whole sector is a “rip-off.”

 

Yet amid the gloom there are still a few managers posting the double-digit percentage gains that turned hedge funds into an elite asset class more than a decade ago, according to performance data provided by fund investors.

For instance, Eric Knight’s activist-oriented Knight Vinke Institutional Partners is up nearly 50 percent before fees this year, while the Russian Prosperity Fund, which picks stocks in the former Soviet Union and is led by Alexander Branis, has climbed 43 percent.

Then there are Jason Mudrick’s Mudrick Distressed Opportunity Fund and Phoenix Investment Adviser’s JLP Credit Opportunity Fund, which are both up 38 percent. Energy-oriented Zimmer Partners’ ZP Energy Fund is up 27 percent, while Gates Capital Management’s ECF Value Fund has risen 26 percent and Michael Hintze’s CQS Directional Opportunities Fund has climbed 20 percent.

By contrast, the average hedge fund returned a little more than 4 percent over the first nine months of the year, according to data from Hedge Fund Research. That is about half of what the S&P 500 Index has returned over the same period, including dividends, and compares to a 7 percent increase for the Barclays Capital U.S. Government/Credit Bond Index, a common measure of the credit markets.

“In general there is no doubt this has been a tough year in terms of performance, but there are still winners out there,” said Mark Doherty, a managing principal at PivotalPath, an investment consultant.

LITTLE-KNOWN VICTORS

The winners are harder to find. They tend not to be multi-billion-dollar household names whose managers appear on television and at industry conferences, attracting money to invest from the largest pension funds.

Although they pursue a variety of strategies, they are united in their relatively small size, investors said.

Gates Capital manages $1.8 billion, while Mudrick Capital oversees $1.5 billion and Phoenix’s JLP Credit Opportunity and Zimmer Partner’s ZP Energy Fund are smaller, with about $1 billion in assets, investors in the funds said. Representatives for the firms declined to comment.

There are a number of even smaller firms delivering blockbuster returns. Former Paulson & Co partner Dan Kamensky’s $125 million Marble Ridge, which started trading in January, is up 23 percent. Svetlana Lee’s Varna Capital, which invests less than $100 million, is up 20 percent. Halcyon Capital’s $200 million Halcyon Solutions Fund, managed by Jason Dillow, is up 22 percent.

“These funds may be able to capitalize on smaller and more inefficient securities that are too small for the larger funds,” said Michael Weinberg, chief investment strategist at New York-based Protégé Partners, which invests in smaller funds.

 

VARIED BETS

 

Knight Vinke’s gains were largely driven by the merger of French electronics company Fnac with electrical retailer Darty, which the hedge fund pushed for, its most recent letter said.

Bets on steelmaker Evraz, Russian airline Aeroflot and Federal Grid Company, which manages Russia’s unified electricity transmission grid system, helped the Russian Prosperity fund, its investment chief Branis said.

 

Some of the winners, including Dallas-based Brenham Capital, which manages $1.3 billion and is up 19 percent this year, also scored big by betting on the beaten-down energy sector as it recovers. Mudrick Capital won with bets on Alpha Natural Resources as the coal miner exits bankruptcy and closely held driller Fieldwood Energy, a fund investor said.

To be sure, this year’s strong returns were preceded by big losses in 2015 and early in 2016 at some firms. Mudrick Capital, which made early bets on distressed energy and commodity companies, lost 26 percent last year, and Gates’ ECF Value Fund lost 19 percent.

Some clients have not had the patience to stick around. Last month Rhode Island’s pension fund voted to cut its hedge fund allocation in half following in the footsteps of New Jersey, which voted for a similar reduction in August. This week New York’s financial regulator called hedge funds a “rip-off” in a report that said the state pension fund lost $3.8 billion on them in the last eight years.

Investors pulled an estimated $23.3 billion from hedge funds over the first half of the year, according to Hedge Fund Research, less than 1 percent of the industry’s $2.9 trillion overall assets.

(Story corrects to show Gates Capital Management’s ECF Value Fund lost 19 percent last year, not 26 percent.)

(Reporting by Svea Herbst-Bayliss and Lawrence Delevingne; Editing by Bill Rigby)

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Published at Thu, 20 Oct 2016 01:44:43 +0000

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California launches criminal probe into Wells Fargo account scandal

Photo

A Wells Fargo Bank is shown in Charlotte, North Carolina, U.S., September 26, 2016.REUTERS/Mike Blake
By Sarah N. Lynch | WASHINGTON

The California Attorney General’s Office has launched a criminal investigation into Wells Fargo (WFC.N) over allegations it opened millions of unauthorized customer accounts and credit cards, according to a seizure warrant seen by Reuters.

Attorney General Kamala Harris authorized a seizure warrant against the bank that seeks customer records and other documents, saying there is probable cause to believe the bank committed felonies.

The probe marks the latest setback for the bank in a growing scandal that led to the abrupt retirement of its chief executive officer, monetary penalties, compensation clawbacks, lost business and damage to its reputation.

Wells Fargo spokesman Mark Folk did not immediately provide a comment in response to requests from Reuters, but was quoted in the Los Angeles Times as saying the bank is “cooperating in providing the requested information.”

A spokeswoman for the California Department of Justice said she could not comment on the probe.

The bank’s downward spiral kicked into high gear last month.

The U.S. Consumer Financial Protection Bureau and other regulators ordered the United States’ third-largest bank by assets to pay $190 million in fines and restitution to settle civil charges that its branch staff created as many as 2 million accounts without customers’ knowledge in order to meet internal sales targets.

The CFPB said that high pressure sales tactics and financial incentives fueled the fraud, which was largely carried out by low-level branch employees. About 5,300 of those employees were fired.

Shortly after the civil settlement was made public, CEO John Stumpf was called to testify before Congress.

Observers have widely criticized his performance, with many saying he appeared ill-prepared to deal with tough questioning by lawmakers including Massachusetts Democratic Senator Elizabeth Warren, who called for his resignation and accused him of him “gutless” leadership.

Last week, Stumpf resigned and was replaced by Chief Operating Officer Tim Sloan.

This is at least the second criminal probe to be opened into Wells Fargo since last month. In September a source told Reuters that federal prosecutors are also looking into the matter.

An affidavit filed by Special Agent Supervisor James Hirt with the California Department of Justice reveals that interviews with possible victims of the fraud have already started.

One victim, identified only as “Ms. B,” told the investigator that she had declined a request by a Wells Fargo teller in late 2011 or 2012 to open new accounts.

But sometime in late 2013 or early 2014, she started to receive notices that she and her husband “allegedly owned on three life insurance policies held by the bank,” the affidavit says.

She also told the investigator that Wells Fargo often claimed that her accounts had to be closed and reopened because of “problems” that it could never fully explain. The constant changes, she added, sometimes caused her to incur fees because her checks would bounce.

Another alleged victim, identified as “Ms. C,” told the investigator she noticed the bank was transferring money from her checking account to her savings account in amounts that grew over time, from $50 to $150.

The bank claimed the transfers were done as overdraft protection, but it refused to provide her bank statements when she asked to see them.

The seizure warrants by the state are seeking a variety of documents from Wells Fargo, including a list of all unauthorized California customer accounts created between May 2011 and July 2015.

It also seeks information about fees, charges and other costs that were incurred and the identity of all Wells Fargo employees that may have opened the accounts.

(Reporting by Sarah N. Lynch; Editing by Chris Reese and Alan Crosby)

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Published at Wed, 19 Oct 2016 23:00:00 +0000

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Morgan Stanley profit jumps on bond-trading comeback

 

The logo of Morgan Stanley is seen at an office building in Zurich, Switzerland September 22, 2016.REUTERS/Arnd Wiegmann/File Photo

Morgan Stanley profit jumps on bond-trading comeback

By Olivia Oran and Sweta Singh

Morgan Stanley reported a better-than-expected profit on Wednesday, boosted by a surge in bond trading that helped all Wall Street banks last quarter.

Morgan Stanley’s gains were especially notable. Its adjusted bond-trading revenue more than doubled, hitting Chief Executive James Gorman’s revenue target for that business for the second quarter in a row.

The bank had struggled for years to improve in bond trading, which has volatile revenue and tough capital requirements to meet. Earlier this year, Morgan Stanley restructured the unit, cutting 25 percent of staff and appointing new leadership.

In an interview, Chief Financial Officer Jonathan Pruzan said the bank was on the right track, though it might be too soon to claim victory.

“The success we’ve had in the last quarter or two has boosted morale and confidence of the team,” he said. “But these things take time and until we can do it for years as opposed to quarters, we’re not going to declare success.”

Though it is still early in the fourth quarter, Pruzan said the trading environment has so far been similar to the end of September.

Overall, Morgan Stanley’s earnings applicable to common shareholders rose 62 percent to $1.5 billion, from $939 million in the same quarter a year earlier. Earnings per share rose to 81 cents from 48 cents, helped by stock buybacks.

Analysts had estimated earnings of 63 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 15 percent to $8.9 billion. Analysts had expected revenue of $8.2 billion. Non-interest expenses rose just 4 percent, reflecting a cost-cutting program that Morgan Stanley hopes will shave $1 billion from annual expenses by next year.

That program, called Project Streamline, is on track despite costs associated with the bank’s stress test resubmission as well as Brexit, Pruzan said.

Morgan Stanley’s shares rose 0.8 percent to $32.57 at midday.

STRONG QUARTER Morgan Stanley wrapped up a surprisingly strong quarter for big U.S. banks. Goldman Sachs Group Inc, Morgan Stanley’s closest rival, reported a better-than-expected 58 percent rise in third-quarter profit on Tuesday.

Bond trading was strong across Wall Street, driven by Britain’s surprise vote to leave the European Union and bouts of anxiety about monetary policy around the world.

Morgan Stanley’s bond-trading revenue rose to $1.5 billion in the third quarter from $583 million in the year-ago period, when stripping out accounting gains and losses related to the value of its own bonds.

“We obviously did much better than probably anybody felt this quarter …,” Gorman said during a call with analysts. “… But we did not and are not going to run any victory lap around fixed income.”

Despite that rebound, Morgan Stanley posted an 8.7 percent return on equity, which is less than Gorman’s stated target of 9 percent to 11 percent by the end of 2017.

Pruzan said he continued to believe that the bank’s target ROE was achievable.

 

Equities sales and trading revenue, a traditional bright spot for the bank, edged up just 1 percent to $1.9 billion.

Revenue from investment banking fell about 7 percent to $1.23 billion, due to weaker M&A fees and capital markets activity.

Morgan Stanley ranked third to Goldman Sachs and JPMorgan Chase & Co in M&A fees collected during the quarter and fourth behind JPMorgan, Bank of America Corp and Goldman in fees from investment banking, which includes equity and debt underwriting, according to Thomson Reuters data.

Revenue from wealth management, which Morgan Stanley has been building for several years, rose 7 percent to $3.9 billion. The business hit a 23 percent pretax margin, in line with Gorman’s target for year-end.

Gorman said to expect an announcement from the firm’s wealth management executives in the coming weeks regarding how the bank will comply with the Department of Labor fiduciary rule. The rule, announced in April, sets a standard for brokers who sell retirement products and requires them to put clients’ best interests ahead of their own bottom line.

Gorman hinted that providing choice to clients about different investing products remains a priority for the firm.

(Reporting by Sweta Singh and Sudarshan Varadhan in Bengaluru and Olivia Oran in New York; Editing by Lauren Tara LaCapra and Nick Zieminski)

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Published at Wed, 19 Oct 2016 16:33:46 +0000

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