TheChek News Flow

>>> State Street misses by $0.01, reports revs in-line

State Street misses by $0.01, reports revs in-line (71.05)

Reports Q4 (Dec) earnings of $1.68 per share, excluding non-recurring items, $0.01 worse than the S&P Capital IQ Consensus of $1.69; revenues rose 4.9% year/year to $2.99 bln vs the $2.96 bln S&P Capital IQ Consensus.
Net interest income increased from 4Q17, driven by higher market interest rates in the U.S. and disciplined liability pricing, partially offset by a mix shift to HQLA

FT : Top Deutsche Bank executive drawn into tax loophole probe

Top Deutsche Bank executive drawn into tax loophole probe

Scheme cost German taxpayer at least €5.7bn in unwarranted tax refunds

Deutsche Bank head of investment banking was sent an email in 2007 that discussed a design flaw in Germany’s tax code that allowed its clients to trick tax authorities into refunding dividend tax that was never paid.

Garth Ritchie, who at the time had a role in the bank’s London-based equities operations, was copied into the email and it was unclear whether he had actually read it, according to a person who has seen the email.

The email, which was first reported by Germany’s public broadcaster ARD and daily Süddeutsche Zeitung, is part of the evidence collected by prosecutors in Cologne, Frankfurt and Munich, who have spent several years probing the scandal.

Two former London-based Deutsche Bank employees who left the lender a decade ago are among those being probed over the so-called cum-ex transactions, which allowed investors to exploit a legal loophole that enabled multiple parties to claim a refund of taxes paid on share dividends.

Mr Ritchie has been the sole head of Deutsche Bank’s struggling investment bank since 2018. The unit has long suffered from falling revenues and high costs. The supervisory board in September extended Mr Ritchie’s contract by five years.

But just a few months later, members of Deutsche Bank’s supervisory board voiced doubts over his future because of the sluggish performance of the investment bank.

Deutsche Bank has stressed that it did not actively participate in the so-called cum-ex deals that between 2001 and 2011 cost the German taxpayer at least €5.7bn in fraudulent tax refunds.

“However, as a big market participant, Deutsche Bank was involved into cum-ex deals of customers,” the bank said in a statement, adding that it was fully co-operating with the authorities investigating the matter.

Mr Ritchie did not immediately answer a request for comment by the Financial Times.

In December, Deutsche Bank paid €4m to settle a cum-ex investigation by the Frankfurt general prosecutor’s office that had looked into the bank’s help to clients in doing controversial tax deals.

In 2007, German policymakers closed a loophole, making such deals impossible for taxpayers based in the country, but those outside Germany remained able for several years to reclaim tax refunds they were not due.

Deutsche Bank’s London-based investment bank acted as a prime broker for clients who were engaged in cum-ex deals, providing them with the liquidity necessary to trade and with shares needed for short sales at the heart of the fraudulent transactions.

A person briefed on the matter told the FT that the total revenue Deutsche Bank generated by providing services to clients engaging in cum-ex deals between 2007 and 2011 amounted to less than €20m.

A cum-ex deal involved a trader borrowing a block of shares to bet against them using a technique called short selling in the run-up to dividend day and then selling them on to another investor.

A loophole in the German tax code meant parties on both sides of the trade could successfully claim a refund of withholding taxes paid on the dividend — even though authorities contend only a single rebate was due.

Analysts expect Deutsche Bank’s investment banking revenues to have fallen close to 7 per cent, while its costs declined only 3 per cent, when it reports full-year results on February 1.

FT : Brussels prepared to cut US car import tariffs as part of trade pact

Brussels prepared to cut US car import tariffs as part of trade pact

Europe and US will deepen commercial ties in effort to stave off trade war

Brussels has said that it is ready to lower tariffs on imported US cars as part of a trade deal with the country, while warning that the bloc will retaliate if Washington attacks Europe’s auto sector with punitive duties.

EU trade chief Cecilia Malmstrom said that Europe was ready to work on a zero tariff trade deal on industrial goods with Donald Trump, following up on a July 2018 agreement to deepen commercial ties.

While Brussels and Washington last year planned talks on “non-auto” industrial tariffs, the EU trade commissioner noted that neither side had excluded the sector from their detailed negotiation objectives, and that talks on the issue were possible.

“We are prepared to put our vehicle tariffs on the negotiating table”, Ms Malmstrom told reporters, as Brussels published its draft negotiation plans for review by national governments.

She said that the EU’s willingness to engage on the issue would depend on what offers the US put on the table in the negotiations, while indicating that this would not require Washington to slash tariffs on pick-up trucks — a particularly sensitive sector.

The trade talks were conceived last year by Mr Trump and commission president Jean-Claude Juncker as a way to stave off a transatlantic trade war after the US president threatened to slap punitive tariffs on some €40bn of EU car imports.

Ms Malmstrom underlined that Europe will retaliate against a range of US imports if such punitive tariffs ever materialise, and that a hit list has already been prepared. The US Department of Commerce is set to report by mid-February on whether EU car imports constitute a national security threat, a key procedural step in preparing possible extra duties.

“That would harm our co-operation”, Ms Malmstrom said. “Should that happen, however, we are very advanced in our internal preparations” to respond.

Tariffs on transatlantic trade in industrial goods are already low — averaging 4.2 per cent for goods entering the EU and 3.1 per cent for the US — but Ms Malmstrom said a further lowering would still have a positive impact given the enormous volume of trade between the two economies.

>>> US Early premarket gappers

Early premarket gappers

Gapping up:

OZK +14.3%, TEAM +8.6%, CFG +6.9%, VFC +6.5%, JBHT +6%, STI +5.1%, GPOR +5%, PCG +4.7%, ACB +3%, PBCT +2.9%, SKX +2.8%, SLB +2.6%, JEC +2.4%, CGC +2.2%, PLUG +2.1%, CVI +1.4%, KL +1.3%, FL +0.7%, RF +0.6%

Gapping down:

NLS -37.7%, CASA -27%, LXRX -22.1%, PRGS -11.2%, TSLA -7%, LLY -3.5%, CVRR -3%, NFLX -2.3%, TIF -2.1%, AXP -1.7%, SIG -1.1%, SNY -0.7%

NY Post : Apollo close to $10.6B deal to buy Arconic ($22/share)

Apollo close to $10.6B deal to buy Arconic

Apollo Global Management is nearing a deal to buy aluminum giant Arconic in a deal valued at roughly $22 a share, or $10.6 billion, The Post has learned.

The board of New York-based Arconic hasn’t yet approved the buyout, but has told Apollo — headed by billionaire Leon Black — and leading Arconic shareholder Elliott Management to finish necessary paperwork so it can clear the deal this weekend, sources said.

A buyout of Arconic, when including assumed debt, would be valued at more than $15 billion, making it one of the biggest leveraged buyouts since the 2008 financial crisis.

Financing for the deal is fully committed and is being led by Deutsche Bank, a source close to the talks said.

The debt markets have recovered from a winter freeze to the point where a large buyout of a company that makes aluminum parts for the aerospace industry can be done, sources said.

“There was an anxiety attack that receded,” an attorney close to the deal said, explaining that surprisingly strong job numbers this month and decent earnings reports have calmed the debt markets.

Another nagging issue in recent weeks has been the fact that a UK-based unit of Arconic sold construction panels that were blamed for the quick spread of a 2017 fire at Grenfell Tower in London that killed 72 people.

To get the deal done, Elliott Management, headed by activist investor Paul Singer, has agreed to take on the risks itself by acquiring majority control of the construction division that’s saddled with the Grenfell liabilities, sources said.

Nevertheless, insiders say Elliott also recently tangled with two other prospective bidders about the size of the guarantee it would provide.

Elliott was planning to put much less than the $1 billion-plus that a rival bidding team of the Blackstone Group and Carlyle Group felt would be needed to protect Arconic from potential litigation, a source close to the matter said.

Now, the deal will include more than $1 billion to cover potential liabilities, although that may include insurance, a source said.

Scotland Yard is investigating the deadly disaster at the 24-story residential tower in West London, and has found damaging information that might implicate Arconic, The Post reported exclusively in October.

If suits from the victims are filed and are successful, Arconic could be held responsible if damages are not covered by the new Elliott-acquired construction unit, sources said.

Already, the Scotland Yard investigation has hurt the auction and reduced the price Arconic is receiving even after spinning off the construction business.

“What fundamentally has changed the whole auction is the Grenfell Tower investigation,” a source close to the situation said.

Reps for Elliott and Apollo declined to comment. Arconic didn’t return calls.

>>> Tiffany & Co reports holiday sales down 1%; comps declined 2%; sees FY19 EPS

Tiffany & Co reports holiday sales down 1%; comps declined 2%; sees FY19 EPS guidance at lower end of prior range; provides FY20 guidance (85.26)

Worldwide net holiday sales declined 1% to $1.04 billion and comparable sales declined 2%.
Co issues downside guidance for FY19 (Jan), sees EPS at lower end of prior range $4.65-4.80 vs. $4.77 S&P Capital IQ Consensus.
FY20 Outlook: Given external challenges and uncertainties, management's preliminary view for fiscal 2019 includes: (i) worldwide net sales increasing by a low-single-digit percentage over the prior year as reported and on a constant-exchange-rate basis; (ii) net earnings per diluted share increasing by a mid-single-digit percentage (which assumes a higher effective tax rate); and (iii) an expected decline in net earnings in the first half of the year, reflecting sales pressures (from lower foreign tourist spending and the effect of a stronger U.S. dollar) as well as expenses related to the annualized effect of higher strategic investment spending that began in the second quarter of 2018, among other factors.

>>> US After Hours Summary: OZK +16%, TEAM +10%, PBCT / JBHT +6% are h

After Hours Summary: OZK +16%, TEAM +10%, PBCT / JBHT +6% are higher while NLS -33%, CASA -20%, PRGS -11%, NFLX -4%, AXP -2% are lower following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: OZK +15.9%, TEAM +9.5%, PBCT +5.9%, JBHT +5.6%

Companies trading higher in after hours in reaction to news: GPOR +4.9% (ticking higher; announces 2019 capital budget and new $400 mln stock repurchase program), PCG +3% / ACB +2.3% (modestly rebounding), JEC +2.4% (approves $1 billion share repurchase authorization and increases quarterly dividend rate by 13% to $0.17/share), PLUG +2.1% (light volume - CEO Marsh to purchase plug common stock), KL +1% (following exec appearance on CNBC), CGC +1% (ongoing volatility)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: NLS -32.8%, CASA -20.4%, PRGS -11%, NFLX -3.9%, AXP -2.1%

Companies trading lower in after hours in reaction to news: CVRR -4.8% (CVR Energy reports exercise of right to purchase common units of CVR Refining), KIN -2.9% (proposed public offering of common stock), RIO -0.4% (releases Q4 production results with 2019 guidance)

Stock Market Wrap Up: Wall Street Jumps on Contradictory Trade News

The S&P 500 gained 0.8% on Thursday, boosted by a Wall Street Journal report indicating the U.S. is considering lifting some, or all, of the tariffs on Chinese imports while trade negotiations continue.

The Dow Jones Industrial Average gained 0.7%, the Nasdaq Composite gained 0.7%, and the Russell 2000 gained 0.9%.

All 11 S&P 500 sectors jumped on the news and finished in positive territory. The trade-sensitive materials (+1.7%) and industrial (+1.7%) sectors led the advance.

It was a relatively muted session prior to the release of the report, which was published around 2:40 p.m. ET. The S&P 500 traded between a loss of 0.4% at its low and a gain of 0.2% at its high.

According to the article, Treasury Secretary Steven Mnuchin suggested lifting tariffs with the aim of advancing talks and winning China's support for longer-term reforms. The report, however, also mentioned that U.S. Trade Representative Robert Lighthizer had pushed back, arguing that any concession could be seen as a sign of weakness.

The news propelled the S&P 500 from a gain of 0.2% to a gain of 1.1%. It also sent the benchmark index well above its 50-day moving average (2626.72) for the first time since Dec. 4.

The market would retrace a good portion of the knee-jerk gains on a follow-up report that said a Treasury spokesperson informed CNBC by email that no recommendations have been made on the tariffs.

Despite the contradictory reports, this will be viewed as an interesting development because it gave market participants (and President Trump) a quick glimpse at the type of reaction that would presumably ensue on news of an actual trade deal. To that end, the S&P 500 jumped nearly 20 handles in a span of about ten minutes on just a suggestion that a proposal was made to lift tariffs temporarily.

The stock market ultimately ended the session on an upbeat note as buyers pushed up prices in the final hour and kept the S&P 500 above its 50-day moving average on a closing basis.

The Philadelphia Semiconductor Index (+1.1%), whose components derive a decent amount of revenue from China, took the news in stride. On a related note, Taiwan Semiconductor (TSM 36.29, +0.65), an Apple (AAPL 155.86, +0.92, +0.6%) supplier, gained 1.8% despite issuing a first quarter revenue warning.

In other earnings news, Morgan Stanley (MS 42.53, -1.96) reported top and bottom line results that were below consensus estimates for the fourth quarter. The stock fell 4.4% on the disappointing results, but it was not enough to bring down the red-hot financial sector (+0.5%), which is now up 7.2% this month.

U.S. Treasuries edged lower, pushing the 2-yr yield and 10-yr yield higher by two basis points each to 2.56% and 2.75%, respectively. The U.S. Dollar Index was flat at 96.06. WTI crude lost 0.6% to $51.99/bbl.

Reviewing Thursday's economic data, which included the weekly Initial and Continuing Claims report and the Philadelphia Fed Index for January:

Initial claims for the week ending January 12 decreased by 3,000 to 213,000 (consensus 221,000) while continuing claims for the week ending January 5 increased by 18,000 to 1.737 million.
The key takeaway from the report is that the low level of initial claims continues to reflect a solid labor market.

The Philadelphia Fed Index for January jumped to 17.0 (consensus 10.5) from 9.1, paced by an eight-point pop in the new orders index to 21.3 that was the highest reading in six months.
The key takeaway from this report was the indication that 46% of firms expect increased activity over the next six months while only 15% are projecting a decline.

Looking ahead, investors will receive Industrial Production and Capacity Utilization for December and the preliminary reading of the University of Michigan Index of Consumer Sentiment on Friday.

Russell 2000 +8.8% YTD

Nasdaq Composite +6.8% YTD

S&P 500 +5.2% YTD

Dow Jones Industrial Average +4.5% YTD