WSJ : IRS, With AI Help, Readies Audits of Large Hedge Funds, Real Estate Firms

IRS, With AI Help, Readies Audits of Large Hedge Funds, Real Estate Firms
Tax agency turns to enforcement after burst of hiring for customer service jobs

WASHINGTON—The Internal Revenue Service this month will begin auditing 75 large partnerships, including hedge funds and real-estate firms, as the tax agency tries to build its case for keeping what is left of a pot of money Congress gave it last year.

IRS Commissioner Danny Werfel said the agency used artificial intelligence to help select the companies, which it can’t name publicly. They average $10 billion in assets and will receive formal notice of the audits in the coming weeks.

The IRS has long had difficulty auditing large multitiered partnerships and is planning to use the new money from Congress to reverse that trend.

“We’ve been overwhelmed in this area for years,” Werfel said. “These new tools are helping us see patterns and trends that we couldn’t see before.”

When Democrats had full control of the government last year, lawmakers gave the IRS $80 billion to beef up enforcement and improve technology and taxpayer service. But House Republicans, who opposed the expansion, already got President Biden to agree to take back more than $20 billion of it in a deal to raise the debt ceiling this year.

GOP lawmakers want to peel back even more during the federal-spending discussions that will dominate Congress’s calendar in September. They say ramped-up IRS enforcement will end up hurting small businesses and American taxpayers.

The IRS, meanwhile, has been trying to show the public and lawmakers that it is putting the extra money to good use. The $80 billion was supposed to provide the agency with the ability to implement long-range plans with the knowledge that it would have long-term funding, but a year later, the IRS budget is right back in the center of political fights.

Even though most of the money was designated for enforcement, the IRS focused first on taxpayer service, where it could make a faster, more visible difference on a bipartisan priority. That effort hired thousands of workers, helped clear tax-refund backlogs, shorten telephone waiting times and staff in-person assistance centers.

The IRS answered three million more taxpayer calls during this year’s tax filing season compared with 2022, added more features to taxpayers’ online accounts and accelerated its use of scanning to digitize tax returns instead of having workers input numbers by hand.

But the IRS barely got started on hiring enforcement staff, according to an inspector general’s report this week. That was partly because hiring customer-service representatives tied up the agency’s human-resources office and because of a dispute with the Office of Personnel Management over hiring procedures, according to the report.

The result: For the first half of fiscal 2023, the IRS’s large-business and small-business divisions actually lost revenue agents because attrition outpaced hiring, the report said. The IRS didn’t have updated data available this week.

Even once the IRS hires auditors, it will take time to train them and even longer for their cases to yield revenue.

In addition to large partnerships, the IRS plans to pursue cryptocurrency owners and construction contractors making payments to shell companies. It also seeks to increase collections efforts on 1,600 high-income people with tax debts. A similar earlier campaign led to $38 million in revenue.

Meanwhile, the long-term funding that the IRS received last year doesn’t look so secure. A bipartisan Senate bill would hold the agency’s annual budget at $12.3 billion for fiscal 2024, with no adjustment for inflation. The House’s spending bills would reduce the agency’s regular operating budget and would take back tens of billions of dollars of the extra funding approved last year.

“The IRS must work for Americans, not against them, and this bill makes sure that happens,” Rep. Steve Womack (R., Ark.), who oversees the IRS budget legislation, said earlier this year.

Werfel said cuts to the annual budget would force the IRS to dip into the long-term funding for regular operations.

“We’ll be able to keep the lights on next year, but we will have drained critical modernization resources,” he said.

FT : Sweden to boost defence spending next year by almost 30%

Sweden to boost defence spending next year by almost 30%
Stockholm rapidly increases budget to meet Nato’s 2% of GDP target

Sweden will increase its defence spending next year by more than a quarter to meet Nato’s target of 2 per cent of gross domestic product even as the Scandinavian country struggles to overcome Turkish opposition to it joining the western military alliance.

Pål Jonson, Sweden’s defence minister, said on Monday that defence spending would increase by almost 30 per cent to SKr119bn ($11bn) next year in response to Russia’s full-scale invasion of Ukraine.

“Sweden finds itself in the most serious security situation since the end of the second world war, which requires Sweden to have a defence that is ready to protect Swedish territory,” said the agreement between the centre-right government and the nationalist Sweden Democrats.

Sweden has promised Ukraine military support amounting to SKr19bn in total, and said other big investments for next year included new artillery systems, transport planes as well as continued purchases of fighter jets and submarines.

Sweden and neighbouring Finland responded to Russia’s invasion by seeking to join Nato and its promise of collective defence. While Finland became Nato’s 31st member in April, Sweden’s membership application has been held up by Turkey.

Turkish president Recep Tayyip Erdoğan promised in July that his country’s parliament would examine it in the autumn and that he would “work closely with the assembly to ensure ratification”.

But Erdoğan has sharply criticised a series of Koran burnings in Sweden and Denmark — including in front of the Turkish embassies — and has hinted at further delays in the ratification, which has been pending for more than a year.

Turkey’s president lashed out at his US counterpart Joe Biden at the weekend at the G20 meeting in India. He said that Biden’s attempts to link a sale of F-16 fighter jets to Turkey with Ankara’s ratification of Sweden’s Nato bid “seriously upsets us”.

Sweden’s centre-right government has sought to mollify Turkey by passing a new anti-terror law and looking at ways to limit the Koran burnings.

Sweden took advantage of the “peace dividend” following the end of the cold war to cut its defence spending while Finland, which neighbours Russia, did not. Sweden has doubled its defence budget since 2020 under both left- and right-wing governments, which originally included reaching 1.5 per cent of GDP by 2025 and 2 per cent by 2030.

The new coalition in Stockholm has sped up those plans significantly as well as strengthened bilateral ties to Finland and the US alongside its focus on the Nato bid following Russia’s aggression.

Jonson said that the increased spending was due to Sweden’s pending Nato membership and the changes that would require; boosting its own total defence capabilities; and increased military support to Ukraine.

“We are facing historic tasks in defence policy. We will intensify the work on the biggest build-up of total defence since the 1950s,” he added.

FT : Société Générale teams up with Brookfield in private credit push

Société Générale teams up with Brookfield in private credit push
Groups to launch €10bn fund that will also target renewable energy and transport

Société Générale and Brookfield Asset Management are to team up for a €10bn fund in the fast-growing, private credit market as the French bank’s chief executive Slawomir Krupa looks to shake up the lender.

The groups said the fund, to launch with €2.5bn in capital, would grow to €10bn over the next four years. It would target renewable energy and transport companies as well as the finance sector, SocGen and Brookfield said. 

The move follows a big expansion of private credit markets as rising interest rates push up borrowing costs and hamper access to bank loans for some small and midsized companies.

Large hedge funds have been increasing their presence in the $1.5tn sector, which had already developed strongly as an alternative to bank loans, partly as a result of tightening financial regulation.

For SocGen, the tie-up marks a shift under Krupa after the French lender gradually exited its asset management operations in recent years. It ended its involvement with the asset manager Amundi when it was listed in 2015, leaving rival bank Crédit Agricole as the controlling shareholder. It sold most of its Lyxor operations to Amundi in 2021.

Krupa, who is set to unveil the pillars of his new strategy next week, took the reins at SocGen after 15 years of Frédéric Oudéa’s tenure, with pressure to try to lift the bank’s shares after years of relative underperformance compared with peers. The company’s shares have never recovered to the levels reached before the 2008 financial crisis and a rogue trading scandal the same year.

The former head of SocGen’s investment bank and a veteran of the lender, Krupa is expected to take a slightly different tack, including with some of the partnerships he is forging.

He has close relationships with a number of large New York-based fund managers after a period working in the city, according to people close to him. Brookfield’s chief executive Bruce Flatt is among them.

In November last year, when Krupa was already chief-executive-in-waiting, SocGen agreed to merge its equities research and cash equities business with US investment company AllianceBernstein, in a deal he also shepherded.

In the new private credit partnership, SocGen and Brookfield said they would provide “investment-grade financing options”. They said they would combine their expertise, including the French bank’s capabilities in assessing and approving loans and the asset manager’s capabilities marketing the products to end investors.

SocGen and Brookfield said the fund was expected to meet the needs of insurance companies for investment-grade products.

Investment managers such as Blackstone have flagged a “golden moment” for private credit in recent months, including in the US as regional banks pull back on some of their lending.

However, that has prompted calls for more oversight of the industry. In the EU, member states are looking at new legislation with some restrictions on the amount of borrowed money that private debt funds can invest.

FT : Oxford Mini plant saved with £600mn UK electric car investment

Oxford Mini plant saved with £600mn UK electric car investment
BMW to produce two new models co-developed with China from 2026

BMW will invest more than £600mn to produce electric Mini cars in Oxford, safeguarding the historic plant and delivering a vote of confidence in the UK’s auto industry.

The investment by the German carmaker at the site in Cowley will be backed by about £75mn of taxpayer funds, according to people familiar with the matter. Production of two new models will begin in 2026, though BMW plans to import batteries for the cars from Europe or China.

The plant’s future has been under threat since BMW said last year that it would cease production of the first electric Mini model there, leaving the factory reliant on petrol cars, which the German group has promised to phase out by 2030.

Under the plan, BMW will manufacture two new electric models, the 3-door Mini Cooper and the new, smaller Mini Aceman at Oxford.

“With this new investment we will develop the Oxford plant for the production of the new generation of electric Minis and set the path for purely electric car manufacturing in the future,” said BMW’s head of production Milan Nedeljković.

The two models are based on a system developed by BMW and China’s Great Wall Motor, and will be produced in China at a new jointly owned plant from next year. Despite using Great Wall technology, BMW had “no plans” to manufacture the Chinese brand’s cars at the UK plant in the future, Nedeljković said.

Prime Minister Rishi Sunak hailed the decision by BMW as “another shining example of how the UK is the best place to build cars of the future”.

The move by BMW is a much-needed fillip for Britain’s car industry. Production has fallen 40 per cent since the start of the coronavirus pandemic, following plant closures, global parts shortages and decisions by some manufacturers to shift models overseas, though electric production has increased because of rising demand.

The government has set aside £1bn to try to spur investment in battery technology and to attract new manufacturers such as Tesla. Despite recent investments from Jaguar Land Rover and its owner Tata Motors, as well as Nissan, Stellantis and now BMW, none of the new major entrants has decided to build in the UK.

China’s BYD said this year that Brexit meant the UK was not even in the top 10 locations as it considered a site for a European plant.

The fresh investment will also allay fears over the strategic importance of Cowley to BMW. As well as making the same electric Mini models in China with Great Wall, BMW will make the Mini Countryman, its high-riding version, in Leipzig, Germany.

“Oxford is and remains the heart of the brand,” said Mini head Stefanie Wurst. 

Nedeljković said that the Oxford plant would still export globally, even though the Chinese plant that will also build electric Minis benefits from lower manufacturing costs. 

Business secretary Kemi Badenoch said that the car industry was “one which is very critical to the UK economy and which is facing a lot of headwinds”.

She said there was “no point” having net zero targets if they were impossible to meet, and said the government would remain “flexible” towards its goals.

“At the moment, China is leading this technology, we wouldn’t be able to get to where we want to on net zero by stopping or banning Chinese products, that’s certainly not where we are on it,” she said.

“We are ensuring that we can keep the commitments that we made on net zero, but we are also looking as much as possible to diversify our supply chain.”

Ministers are finalising plans for a China-style EV sales quota scheme that will come into force in January. The industry has asked that the rules, which are set to require 22 per cent of car sales to be zero emission next year, rising every year in this decade, be delayed. 

Badenoch said the government realised the transition would not be easy. “What we are working on is how we can be as flexible as possible in order to make it easier for people to adjust.”

Alongside the Oxford plant, BMW also owns an engine factory in Hams Hall, a metalworks plant in Swindon and the luxury car brand Rolls-Royce.

The move by BMW comes as the UK’s car plants seek investment to build electric models as the industry shifts from traditional combustion engines.

Last week, Vauxhall owner Stellantis began producing electric vans at Ellesmere Port, following an investment of about £100mn that saved the site from closure.

JLR is investing about £15bn in new electric models to be built in the UK, while parent group Tata this summer announced a £4bn investment into a new battery plant, which will use Chinese technology at first, to support JLR’s electric models.

Nissan, which runs the UK’s largest car plant, has invested about £1bn with its battery partner AESC, which is owned by China’s Envision. The Japanese group has committed to producing at least one new electric model in Sunderland. The Financial Times reported earlier this year that the company was looking at future models for the site as well.

The VErge : Tesla starts production of Dojo supercomputer to train driverless ca

Old article on Tesla Dojo computer for those who forgotten, after MS Upgrade and new High Street $400 PT

Tesla starts production of Dojo supercomputer to train driverless cars

The supercomputer has gone into production and is expected to elevate the company’s self-driving efforts to the next level.

Tesla says it has started production of its Dojo supercomputer to train its fleet of autonomous vehicles.
In its second quarter earnings report for 2023, the company outlined “four main technology pillars” needed to “solve vehicle autonomy at scale: extremely large real-world dataset, neural net training, vehicle hardware and vehicle software.”
“We are developing each of these pillars in-house,” the company said in its report. “This month, we are taking a step towards faster and cheaper neural net training with the start of production of our Dojo training computer.”
The automaker already has a large Nvidia GPU-based supercomputer that is one of the most powerful in the world, but the new Dojo custom-built computer is using chips designed by Tesla. In 2019, Tesla CEO Elon Musk gave this “super powerful training computer” a name: Dojo.

Previously, Musk has claimed that Dojo will be capable of an exaflop, or 1 quintillion (​​1018) floating-point operations per second. That is an incredible amount of power. “To match what a one exaFLOP computer system can do in just one second, you’d have to perform one calculation every second for 31,688,765,000 years,” Network World wrote.
At Tesla’s AI Day in 2021, Dojo was still a work in progress. Executives revealed its first chip and training tiles, which would eventually develop into a full Dojo cluster or “exapod.” Tesla said it will combine 2 x 3 tiles in a tray and two trays in a computer cabinet for over 100 petaflops per cabinet. In a 10-cabinet system, Tesla’s Dojo exapod will break the barrier of the exaflop of compute.
A year later, at AI Day 2022, Tesla unveiled some progress on Dojo, including having a full system tray. At the time, the automaker spoke about having a full cluster by early 2023 — though now it looks like it will likely be early 2024.

>>> US Research Calls

Research Calls
  • Upgrades:
    • Brown-Forman (BF.B) upgraded to Outperform from Mkt Perform at Bernstein; tgt raised to $76.40
    • DoorDash (DASH) upgraded to Hold from Underperform at Jefferies; tgt raised to $90
    • Kenvue (KVUE) upgraded to Buy from Hold at Deutsche Bank; tgt $27
    • Nu Holdings (NU) upgraded to Overweight from Neutral at JP Morgan; tgt $9
    • Prudential Plc (PUK) upgraded to Neutral from Underperform at Exane BNP Paribas
    • Tenable (TENB) upgraded to Overweight from Neutral at JP Morgan; tgt raised to $56
    • Tesla (TSLA) upgraded to Overweight from Equal-Weight at Morgan Stanley; tgt raised to $400
  • Downgrades:
    • Brunswick (BC) downgraded to Neutral from Overweight at JP Morgan; tgt lowered to $79
    • Evergy (EVRG) downgraded to Peer Perform from Outperform at Wolfe Research
    • RTX (RTX) downgraded to Hold from Buy at Melius; tgt $92
  • Others:
    • Blue Bird (BLBD) initiated with an Overweight at Barclays; tgt $25
    • lock (SQ) named Top Pick at Robert W. Baird; tgt lowered to $72
    • Ecovyst (ECVT) initiated with a Buy at Citigroup; tgt $12
    • H.B. Fuller (FUL) initiated with a Neutral at Citigroup; tgt $78
    • L3Harris (LHX) resumed with a Buy at Citigroup; tgt $193
    • Raymond James (RJF) initiated with a Buy at BofA Securities; tgt $122
    • Red Rock Resorts (RRR) initiated with a Positive at Susquehanna; tgt $52
    • SharkNinja (SN) initiated with a Buy at Jefferies; tgt $67
    • Valvoline (VVV) assumed with a Neutral at Goldman; tgt $37
    • WEC Energy Group (WEC) initiated with a Neutral at Ladenburg Thalmann; tgt $85

>>> US Gapping up

Gapping up
News:
  • CRNX +64.1% (Crinetics' once-daily oral Paltusotine achieved the primary and all secondary endpoints in the Phase 3 PATHFNDR-1 Study evaluating treatment of patients with acromegaly)
  • BLRX +18.7% (FDA has approved APHEXDA)
  • IBRX +15.5% (announces $470 million equity and debt financing from founder Dr. Patrick Soon-Shiong and Nant Entities)
  • TWNK +14.9% (Hostess Brands deal to be acquired by J.M. Smucker (SJM) could be announced today according to WSJ)
  • QCOM +8.6% (enters agreement with Apple (AAPL) for Snapdragon 5G Modem-RF Systems supply)
  • IVVD +7.9% (Dosing of First Participant in CANOPY Phase 3 Pivotal Clinical Trial Investigating VYD222 for the Prevention of Symptomatic COVID-19)
  • VIGL +6.7% (Announces Update on its Small Molecule TREM2 Agonist Program)
  • IMTX +4.6% (entered into a Master Collaboration and License Agreement with ModernaTX)
  • GROV +3.4% (files for 6340019 shares of common stock by selling shareholder)
  • FREY +3.4% (Files Form S-4 for Redomicile from Luxembourg to U.S.)
  • VRNA +3.3% (receives FDA acceptance of NDA filing for Ensifentrine for the maintenance treatment of COPD)
  • MBLY +1.5% (new CFO)
  • PLL +1.5% (announced that the Minerals Income Investment Fund of Ghana agreed to invest $27.9 million to acquire a 6% stake in the Ewoyaa Lithium Project and an additional $5 million in Piedmont partner Atlantic Lithium Limited)
  • CRMD +1.4% (CEO bought 10000 shares at $3.71 worth ~$37K)
Analyst comments:
  • TSLA +6.2% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • NU +3.7% (upgraded to Overweight from Neutral at JP Morgan)
  • TENB +3.1% (upgraded to Overweight from Neutral at JP Morgan)
  • DASH +2.4% (upgraded to Hold from Underperform at Jefferies)
  • BF.B +0.8% (upgraded to Outperform from Mkt Perform at Bernstein)

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:
  • RTX -3.2% (guidance), ASX -0.6% (Aug sales)
Other news:
  • GRNT -5.1% 9launches offering of 7.1 mln shares of common stock by selling shareholders)
  • QIPT -3.1% (acquired a business with operations in Mississippi, Texas and Louisiana reporting unaudited annual revenues of ~$9 mln ?with anticipated Adjusted EBITDA of $2 mln post integration)
  • MRTX -3% (Presents Two-Year Follow-Up Data from KRYSTAL-1 Study Demonstrating Durable Response and Long-Term Overall Survival at 2023 World Conference on Lung Cancer)
  • BUR -2.6% (issues statement on YPF damages ruling)
  • CBAY -2.6% (proposes $150 mln offering of common stock and pre-funded warrants)
  • SJM -2.5% (Hostess Brands deal to be acquired by J.M. Smucker (SJM) could be announced today, according to WSJ)
  • OVV -2.4% (announces 15 mln share secondary offering of common stock by a selling stockholder NMB Stock Trust)
  • CSTL -2.2% (Provides Clinically-Impactful Risk Stratification in Patients with Barrett's Esophagus)
  • EYPT -1.8% (update for lead product candidate EYP-1901 in ongoing PAVIA and DAVIO 2 Phase 2 clinical trials)
Analyst comments:
  • BC -2.2% (downgraded to Neutral from Overweight at JP Morgan)

>>> Kellogg board of directors approves separation into two companies, Kellanova

Kellogg board of directors approves separation into two companies, Kellanova And W Kellogg Co

  • Kellogg Company's Board of Directors approved the pending separation of Kellogg Company into Kellanova and WK Kellogg Co.
  • The separation is expected to become effective on October 2, 2023.
  • The Company also set the distribution ratio of shares at 1 share of WK Kellogg Co for every 4 shares of current Kellogg Company.
  • The Company believes that the separation will create two stronger, more focused companies, each with a strong financial outlook.