Author Archives: Blanco

The Gates Foundation is now one of Berkshire’s largest shareholders

23 Jul 18
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By Paul R. La Monica


Warren Buffett for years has been giving away some of his considerable wealth to the foundation run by his pals Bill and Melinda Gates.

As a result, the Bill and Melinda Gates Foundation — along with Gates himself — now owns more than 5% of Buffett’s Berkshire Hathaway.

Berkshire Hathaway (BRKA) disclosed the ownership stake following an annual gift of more than 13.5 million shares on July 16. The shares are worth just under $13 billion. Gates also owns some Berkshire stock apart from the foundation.

According to the SEC filing, the Bill and Melinda Gates Foundation plan to sell 60 million shares by June 30, 2020 to donate to charity.

Buffett is the world’s third-wealthiest person. Gates, who co-founded Microsoft (MSFT), is the second. They have been friends for years and Buffett has been gifting money and shares to the Gates foundation — along with several other philanthropic groups — since 2006.

In another regulatory filing, Berkshire disclosed that Buffett recently donated more than 1.35 million class B shares to a charity bearing the name of Buffett’s late wife Susan Thompson. Buffett also donated 950,000 class B shares to three other charities run by his children.

Ryanair’s profit has dropped 20% and more trouble is coming

23 Jul 18
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By Charles Riley



Ryanair has a labor problem, and it’s about to get worse.

The low-cost carrier said Monday that higher fuel costs, rising wages and strikes by pilots and regional air traffic controllers had caused its first quarter profit to drop 20% over the previous year.

Ryanair (RYAAY) has been giving pilots raises since recognizing the right of unions to negotiate on their behalf for the first time in December. Staff costs climbed 34% in the three months ended June 30.

Adding to the pressure on its business, strikes by regional air traffic controllers caused “widespread damage” and forced the airline to cancel over 2,500 flights in the first quarter.

With additional strikes scheduled for the summer travel season, the carrier’s labor problems could soon deepen.

Pilots based in Ireland have scheduled a strike for Tuesday, and cabin crew in Spain, Portugal, and Belgium will follow on Wednesday and Thursday.

Shares in Ryanair declined 6% in early trading.

Ryanair said it has signed union recognition agreements in the United Kingdom, Germany and Italy. But it said that progress had been slower in smaller markets.

“We expect further strikes over the peak summer period as we are not prepared to concede to unreasonable demands that will compromise either our low fares or our highly efficient model,” the company said in its earnings statement.

“If these unnecessary strikes continue to damage customer confidence and [prices] in certain country markets then we will have to review our winter schedule, which may lead to fleet reductions at disrupted bases and job losses,” it added.

Sales at Ryanair increased 9% in the first quarter to €2.1 billion ($2.5 billion), but its margin dropped from 21% to 15%. Rising global oil prices pushed fuel costs up by 23% over the previous year to €631 million ($740 million).


Europe’s biggest low-cost airline is not the only carrier facing pressure.

Italian national carrier Alitalia went into administration in May after it was declared insolvent. Budget carrier Air Berlin filed for bankruptcy in August. Britain’s Monarch halted operations in the fall, leaving 110,000 customers temporarily stranded overseas.

A damaging pay dispute at Air France-KLM (AFLYY) forced the firm’s CEO to quit in May.

Nordea May Challenge $580,000 Fine Imposed by EU Markets Cop

23 Jul 18
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The biggest Nordic bank is considering taking on the European Union’s top markets regulator after being handed a fine for providing credit ratings without a license.

Nordea Bank AB, together with four other major Nordic banks, was called out by the European Securities and Markets Authority for selling so-called shadow ratings to corporate clients without permission. Each firm was told to pay a fine of 495,000 euros, or $580,000, for the breach.

Nordea said on Monday that it discontinued shadow ratings in 2016, “although we disagree with ESMA” on the interpretation of the rules. “As for today’s fine, Nordea has just received the information and will decide if to appeal after having analyzed the information,” the lender said in a statement.

Nordea, Danske Bank A/S, SEB AB, Svenska Handelsbanken AB and Swedbank AB were hit with identical fines by ESMA for issuing credit ratings without authorization from June 2011 to August 2016. SEB continued the practice until May 2018, the regulator said. Handelsbanken said it’s preparing an appeal.

Nordic banks offered shadow ratings as a cheaper alternative to the credit grades provided by S&P Global Ratings, Moody’s Investors Service and Fitch Ratings. Lenders in the region said they were catering to smaller corporations that wanted access to debt markets without having to pay the higher fees that the major rating agencies required.

The practice “was generally considered by Nordic bond issuers and bond investors to have served the market well,” Nordea said. The lender said its reading of the rules was that “investment research materials are explicitly exempted” from the rule in question.

Handelsbanken said it’s of the opinion that it’s “compliant with the applicable EU regulations.” SEB described ESMA’s interpretation of the rules as narrow and said it may also appeal the decision. Swedbank said it will analyze ESMA’s conclusion, and noted that it has in the past “objected” to a preliminary decision by the authority.

The banks at the receiving end of ESMA’s fines are also part of a group behind a Nordic venture to create a new regional rating company. Nordic Credit Rating says it expects to be granted a license by ESMA as soon as next month.

NCR’s application would grant it permission to rate companies in the EU and the European Free Trade Association. The firm, which is owned by Nordic banks, bourses and investment funds, has said it is targeting about 500 companies across the region.

Deutsche Bank flunks Fed stress test; 3 other banks get flagged

02 Jul 18
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By   @MattEganCNN

Deutsche Bank was the only major financial institution to fail the Federal Reserve’s annual stress test exam, dealing another blow to Germany’s largest lender.

The Fed raised more moderate concerns about Goldman Sachs and Morgan Stanley that will limit the ability of those Wall Street banks to raise their dividends and buy back more of their stock. The stress test also revealed State Street would suffer “large losses” if one of its business partners came under financial pressure.

Despite those concerns, the Fed’s stress test results reflect a US banking system that has dramatically strengthened from the financial crisis a decade ago. Regulators gave a green light to the vast majority of the 35 largest US banks.

Those banks immediately announced plans to ramp up shareholder rewards. JPMorgan Chase(JPM) announced a 43% dividend hike and plans to buy back nearly $21 billion in stock. Citigroup (C) said it will boost its dividend by 41% and buy back up to $17.6 billion worth of shares. Wells Fargo (WFC) raised its dividend modestly and said it plans to buy back $24.5 billion of stock through mid-2019.

In a stress test, the Federal Reserve considers how banks would hold up under the severe strain of a recession or financial market turmoil. Lenders are also evaluated based on qualitative factors, including risk management, internal controls and government practices.

The Fed then passes judgment on each bank’s capital plan — how it rewards shareholders with higher dividends and stock buybacks.

This year’s exam shows that the largest banks have “strong capital levels” and after paying dividends “would retain their ability to lend even in a severe recession,” Federal Reserve Vice Chairman Randal Quarles said in a statement.

The glaring exception was Deutsche Bank (DB), which has stumbled repeatedly in recent years. The Fed objected to the capital plan of the German bank’s US subsidiary, citing “widespread and critical deficiencies across the firm’s capital planning practices.”

Although the stress test showed that DB USA would survive a recession, it also found “material weaknesses,” including over its data capabilities and controls, how it forecasts losses under stress and risk management functions such as internal audit.

“Together, these weaknesses raise concerns about DB USA’s ability to effectively determine its capital needs,” the Fed said.

The failure limits the ability of Deutsche Bank’s US arm to return cash to its German parent company, senior Fed officials told reporters on a conference call. The Fed will also require Deutsche Bank to address the concerns raised by the exam.

In a statement, Deutsche Bank said its US arm has made “significant investments” to improve its capital planning, controls and infrastructure. The company said it will keep meeting with regulators to address concerns.

Regulators took more of a middle-ground approach with Morgan Stanley (MS) and Goldman Sachs (GS).

Those Wall Street firms won’t be allowed to ramp up their dividends and buybacks beyond what they paid in recent years. That’s because both Morgan and Goldman originally submitted overly aggressive plans that would have dropped their capital levels below what the Fed considers acceptable.

The Fed said the concerns were the result of a one-time accounting hit caused by the corporate tax cut, not how they would perform under stress. In the long run, banks are expected to haul in fatter profits because of the tax law.

State Street (STT), a custodian bank that is paid to safeguard clients’ assets, also drew concerns from regulators.

The stress test showed that State Street would suffer losses if one of its largest trading partners defaulted. State Street will be required to take steps to address the matter, but the company was allowed to raise its dividend and buyback plan. A senior Fed official told reporters that the fix should be relatively straightforward.

The news came at something of an anxious time for banks.

The difference between short and long-term interest rates has flattened to levels not seen in a decade, making it harder for lenders to make money. The S&P Financial Index of bank stocks dropped 13 consecutive days through Wednesday. That’s the longest streak on record, according to LPL Financial.

Saudis’ Biggest Oil Surge in 5 Years Barely Steadies OPEC

02 Jul 18
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Saudi Arabia’s biggest oil-production surge in five years was only enough to keep OPEC’s output steady last month, as losses elsewhere in the group piled up.

The kingdom is delivering on its promise to try and tame crude prices, boosting output by 330,000 barrels a day in June to 10.3 million a day, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. That’s the biggest monthly jump in production since July 2013.

But disruptions in Libya, coupled with ongoing supply losses in Venezuela and Angola, meant overall output from the Organization of Petroleum Exporting Countries rose only 30,000 barrels a day to 31.83 million a day.

With oil prices at their highest in more than three years, Saudi Arabia — OPEC’s biggest member — is under intense political pressure from U.S. President Donald Trump to cool the rally and ease the strain on the global economy. That pressure is set to grow as Trump hits the Saudis’ political nemesis, Iran, with sanctions and urges the kingdom to fill the gap in supply.

The survey shows the scale of the challenge the Saudis face. Even before sanctions make a dent in Iranian exports, losses are accumulating in OPEC’s other troubled members.

Venezuela’s output has sunk to the lowest in decades as a spiraling economic crisis engulfs the country’s oil infrastructure. In Libya, renewed political clashes have led to control of oil ports passing to a faction that opposes the state oil company. On Thursday, the North African producer said it may suspend loadings at two key ports.

The question now is how much more the Saudis will need to produce to keep markets in balance. Forecasts from the International Energy Agency suggest that simply satisfying higher demand in the second half of this year will require more supply, and that cutbacks to Iranian or Venezuelan production would only add to Saudi Arabia’s burden.

That could require the kingdom to pump at maximum capacity of 12 million barrels a day for the first time ever. President Trump said in a tweet at the weekend that King Salman bin Abdulaziz had assured him the kingdom would do so, though the White House subsequently moderated that assertion.

Export data for Saudi Arabia also shows the kingdom is pushing more barrels onto world markets. Shipments climbed to a 15-month high of 7.47 million barrels a day last month, up 320,000 barrels from May, according to preliminary Bloomberg calculations from vessel-trackingand ship-fixture data.

The Saudis’ resolve to fill in the supply gap is creating friction within the organization. Iran — which faces the prospect of losing customers to their political rivals in Riyadh — has said the kingdom has no right to increase production much further, as individual country production limits set in late 2016 still apply.

Based on those quotas, Saudi Arabia produced about 240,000 barrels a day over its limit in June.

“Saudi Arabia will increase production,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “Iran is likely to see any further increase as a grab on its market share.”

U.S. Factory Gauge Jumps, Inflated by Longer Delivery Times

02 Jul 18
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U.S. manufacturing expanded more than forecast last month as a gauge of supplier-delivery times shot up amid robust orders and production, data from the Institute for Supply Management showed on Monday.


  • Factory index climbed to 60.2 (est. 58.5), matching the second-highest since 2004, from 58.7; readings above 50 indicate expansion
  • Gauge of supplier deliveries jumped to 68.2, the second-highest since April 1979, from 62; figure shows lead times increasing as producers have trouble meeting demand
  • Measure of new orders little changed at 63.5 after 63.7
  • Index of production increased to 62.3 from 61.5

Key Takeaways

While indexes of orders, production and factory employment remained elevated, the ISM’s main gauge of June factory activity was inflated by a surge in the group’s measure of supplier deliveries, indicating lengthening lead times.


The delays potentially reflect purchasing managers’ efforts to acquire materials ahead of President Donald Trump’s planned tariffs on Chinese products, which would follow levies on steel and aluminum from around the world. Such demand, coming on top of steady consumption and business investment, is testing capacity limits of both manufacturers and the transportation sector.


“Lead-time extensions, steel and aluminum disruptions, supplier labor issues and transportation difficulties continue,” Timothy Fiore, chairman of the ISM Business Survey Committee, said in a statement. “Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business.”

Supply-chain disruptions are also helping to push up input prices. The ISM’s latest measure of costs of raw and other materials used in manufacturing fell in June but remained close to a seven-year high.

We welcome the new company in the family “SeaTrade Aviation”

27 Jun 18
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The weird reason that mighty Amazon isn’t in the Dow

27 Jun 18
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1. Amazon is too expensive for the Dow: Amazon and Jeff Bezos might be conquering the world, but there’s at least one exclusive club they haven’t gained entry to: The Dow Jones Industrial Average.

BY Matt Egan, Danielle Wiener-Bronner and Jill Disis


Amazon (AMZN) is one of the most consequential companies on the planet, so it stands to reason that it’d be in the world’s most famous stock market index.

Yet Bezos shouldn’t be waiting by the phone for an invite to the iconic yet quirky Dow. That’s because the 122-year-old index is price-weighted, meaning the influence of each stock is based on its price tag. Cheaper stocks have little sway, and vice versa.

Unless Amazon executed a rare stock split, its share price of $1,700 would give the e-commerce giant too much power in the index. That’s 46 times the price of Pfizer (PFE), the cheapest stock in the 30-stock index after General Electric gets the boot on Tuesday. GE’s puny stock price of $13 made the storied company nearly irrelevant in an index of which it was a founding member.

The rules that govern the Dow have also made it impossible for other extremely important companies to join the index. That includes Google owner Alphabet (GOOGL) and its stock price of nearly $1,200. And then there’s Warren Buffett’s Berkshire Hathaway (BRKA), whose Class A shares weigh in at $287,000 apiece.

“If you put in Berkshire Hathaway, everything in the Dow could go to zero and we’d still be up that day,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, which owns the Dow.

Silverblatt conceded that it’s possible an adjustment will be made in the future to open the Dow up to Amazon. However, he cautioned against radically changing an index that’s been around since 1896.

“This thing has worked for over 120 years. You don’t mess with it,” Silverblatt said.

The problem is that it used to be commonplace for companies to split their stocks when they got above $100, to make them cheaper for individual investors. That practice mostly stopped a decade ago due to the rise of ETFs, which allow investors to pool their money together to buy stocks. Individual stock prices don’t matter as much anymore.

“The pressure on companies to split their stock has gone down dramatically,” said Nicholas Colas, co-founder of DataTrek Research.

Still, the fact that Amazon, an $800 billion behemoth that has disrupted bookselling, department stores, cloud computing and groceries, can’t be in the Dow speaks to the limitations of the index.

That’s why sophisticated investors like hedge fund and mutual fund managers pay way more attention to the broader S&P 500. The 500-stock index is weighted by market capitalization, not stock price.

But don’t expect the quirks of the Dow to change its relevance with the average investor.

“The Dow is still the primary measure that Main Street uses to measure Wall Street. I don’t see that changing for a long time,” said Colas.

2. Goodbye, GE: Walgreens (WBA) will officially replace General Electric (GE) on the Dow on Tuesday before the market opens, ending its 110 year membership.

Last year, GE was the worst-performing stock in the Dow, losing almost half of its value. GE is down by another 26% this year.

S&P DJI said that Walgreens will help the index represent the consumer and health care sectors.

Being ousted from the Dow is the latest indignity for GE, which is dealing with a cash crisis caused by years of bad deals. GE has replaced its CEO, slashed thousands of jobs and cut its coveted stock dividend in half.

3. It’s halftime for Corporate America: The second quarter of the year wraps up on Friday.

Overall, companies had a strong first half, boosted by changes to the tax law. But it was a rocky time for the markets, including two 1,000-point plunges in the Dow and increased volatility because of tariff jitters.

Much of the shockwave was set off by Washington, including the Federal Reserve’s rate hikes and President Trump’s trade crackdown.

4. Chinese investment restriction details: The White House plans to announce proposed restrictions on Chinese investments in the United States by Friday. They will take effect at a later date.

Corporate America could suffer if the restrictions significantly cut off foreign capital. And American companies operating in China are preparing for business conditions to get worse.

Chinese investment in the United States has already fallen significantly. It totaled just $1.8 billion between January and May, a 92% drop compared to the same period last year, according to a report from Rhodium Group, a research firm that tracks Chinese foreign investment.

5. The battle for Fox: The ball is in Comcast’s (CCZ) court this week. The NBCUniversal owner tried to usurp Disney’s deal for most of 21st Century Fox’s (FOXA) TV and movie assets earlier this month, but was bested last week when Disney (DIS) raised its offer to $71 billion.

Comcast hasn’t yet said anything publicly, but Wall Street thinks it will still try to counter — CEO Brian Roberts badly wants Fox, which he thinks will better position the company to take on digital competitors like Netflix (NFLX).

Even so, many observers think Disney has the upper hand, in part because it offered a mix of cash and stock to Fox investors. Comcast has only bid cash so far.

Brexit is killing investment in UK car industry

27 Jun 18
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Investment in the UK auto industry has halved because of concerns that Brexit could cripple carmakers and force them to close factories.

BY Charles Riley


The Society of Motor Manufacturers and Traders said Tuesday that investment in new models, equipment and facilities in the United Kingdom was £347 million ($460 million) in the first half of the year, compared to £647 million ($860 million) in the same period of 2017.

The dramatic decline underscores fears that customs checks resulting from Britain’s departure from the European Union could hold up parts shipments needed to keep auto factories running smoothly.

BMW, which makes the iconic Mini at a factory near Oxford, warned on Monday that delays would result in plant closures.

“We always said we can do our best and prepare everything, but if at the end of the day the supply chain will have a stop at the border, then we cannot produce our products in the United Kingdom,” BMW customs manager Stephan Freismuth told the Financial Times.

A spokesperson for the German company confirmed the accuracy of the comments, but said that BMW (BMWYY) remained committed to its manufacturing operations in Britain as it works through “a range of possible Brexit outcomes and their potential impact on our business.”

“Clearly if parts cannot physically get to a factory at the expected time, that factory will not run as smoothly and reliably as is desirable,” the spokesperson said in a statement.

Big businesses are beginning to go public with stark warnings about the dire consequences of a messy Brexit as the clock ticks down to March 2019.

Airbus (EADSF) said last week that it could be forced to quit the country if there’s no deal on EU trading arrangements. Earlier in June, the head of Britain’s top business lobby group said the country’s car industry could be wiped out.

“If we do not have a customs union, there are sectors of manufacturing society in the UK which risk becoming extinct,” said Paul Drechsler, president of the Confederation of British Industry. “That is the reality.”

Car manufacturers, which rely on complicated global supply chains, are worried that Brexit will lead to new trade barriers and delays at the borders. About 45% of the cars made in Britain are exported to the European Union.

BMW employs 8,000 people in the United Kingdom, its fourth largest market. Nissan (NSANF), Toyota (TM), Honda (HMC) and Jaguar Land Rover also have major production facilities in Britain.

There are just over nine months to go before Brexit, but Britain has not yet secured a deal that eliminates the risk that goods will be subject to checks at the border, or even import tariffs.

Industry wants government to rethink Brexit

The British government has yet to agree a proposal for how to avoid customs checks at the UK-EU border, let alone win EU approval.

SMMT said it wanted “swifter progress on Brexit and a deal that, as a minimum, maintains customs union membership and delivers single market benefits.”

Avoiding delays at the border is particularly crucial for auto manufacturers, which rely on the timely delivery of parts from across the European Union. According to SMMT, more than 1,100 trucks bring components to Britain from the European Union each day.

“Our message to government is that until it can demonstrate exactly how a new model for customs and trade with the EU can replicate the benefits we currently enjoy, don’t change it,” SMMT chief executive Mike Hawes said in a statement.

Nearly half of EU business executives have already reduced investment in the United Kingdom following the Brexit referendum in June 2016, according to a survey published Monday by law firm Baker McKenzie. Some 46% of respondents have already seen disruptions to their supply chains.

Fujifilm is suing Xerox for more than $1 billion over failed merger

19 Jun 18
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BY Rishi Iyengar


Fujifilm wants more than $1 billion from Xerox for backing out of a merger between the two companies.

The Japanese firm filed a lawsuit in a district court in New York on Monday seeking “punitive damages for Xerox’s intentional and egregious conduct” in canceling the deal.

Xerox (XRX) was set to merge with Fuji Xerox, an existing joint venture between the two companies, in a deal that would have given Fujifilm (FUJIF) control of the combined entity.

But activist investors Carl Icahn and Darwin Deason, who own 15% of Xerox between them, bitterly opposed the deal, saying it undervalued the iconic American printer and copier firm.

Xerox said last month it had reached a new agreement with Icahn and Deason, which also saw CEO Jeff Jacobson and five other board members step down.

Xerox said in a statement that it was “extremely confident” about its right to back out of the deal. It said it would seek remedies for Fujifilm’s “mismanagement and misconduct.”

The amount Fujifilm is seeking is significantly higher than the $183 million “termination fee” the companies agreed upon if one of them walked away from the agreement. The Japanese firm argues Xerox has deprived it of the benefits of the deal they struck.

Fujifilm is also demanding that Xerox be ordered to pay the termination fee.

It said in a statement that it continued to believe that its takeover of Xerox was the “only correct solution” for investors in both companies.

“It is inconsistent with shareholder democracy to allow Carl Icahn and Darwin Deason, minority shareholders with only 15% of Xerox’s shares, to dictate the fate of Xerox,” the company added.