WSJ : Lloyd’s of London Reviews Marine Insurance Market as Losses Mount

Lloyd’s of London Reviews Marine Insurance Market as Losses Mount
A review of unprofitable units could drive up costs for insuring the world’s ocean carriers

Lloyd’s of London Ltd., a syndicate that controls about a fifth of the global marine insurance market, is reviewing a number of loss-making members of its marine unit, a move that could drive up costs for insuring the world’s ocean carriers.

The review comes after a loss of $2.6 billion at Lloyd’s last year and involves a number of Lloyd’s 80-plus insuring groups that have been unprofitable for the past three years, according to people directly involved in the matter. Lloyd’s is an insurance market in London that offers a way for syndicates to pool their risks.

“The [insuring groups] have been asked to come up with a viable plan until the end of the month, or risk closing down,” said a London broker who asked not to be identified.

He said seven syndicates already have trimmed their marine business by a total of about $100 million and “many others are expected to do the same.”

Another broker said the problem comes from the increase in underwriting capital flowing into the market that has pushed premiums down to historically low levels, leaving insurers with unprofitable portfolios.

“Only about 18 syndicates were profitable on hull insurance over the past three years and around 50 were in the red,” another London broker said. “They have been insuring for as low as 0.1% of the vessel’s value, which is unsustainable.”

Brokers say hull premiums may need to double to make them sustainable. War-risk insurance and other high-risk coverage, which is more profitable than hull insurance, has come down from more than 21% of all premiums to around 10% in the past three to four years, brokers said.

“If Lloyd’s moves to raise premiums, all competitors will do the same,” the first broker said. “This will create added problems to shipowners that will have to bear another extra cost.”

Many shipping companies are expected to end the year in the red after a brief respite in losses in 2017. The cost of fuel has gone up by as much as 30% this year and owners are spending billions more to install “scrubbers” for their vessel engines or use cleaner, more expensive fuels to meet lower sulfur-emission limits starting in January.

Lloyd’s Chief Executive Inga Beale, who has been leading the giant insurer since 2014, will step down next year and plans to leave the insurance business. She is the first woman ever to be appointed CEO of the historic marketplace.

Lloyd’s has been slow to adopt digital technology that would cut down its costs. Costs currently make up more than 30% of the insurer’s premiums, making Lloyd’s around 12% more expensive on average than some of its competitors.

Lloyd’s market was established in London more than three centuries ago.

WSJ : Elon Musk Says Tesla Will Remain a Public Company

Elon Musk Says Tesla Will Remain a Public Company
Announcement comes just 17 days after the CEO said he was considering taking the electric-car maker private

Tesla Inc. TSLA 0.85% Chief Executive Elon Musk said late Friday that he is giving up on taking the company private in the wake of shareholders’ objections, 17 days after he shocked the business world with a tweet announcing intentions to pursue the idea.

In a post on the company’s website, Mr. Musk said he had informed Tesla’s board Thursday that “I believe the better path is for Tesla to remain public.” Tesla directors around the same time Friday night released a statement saying “we fully support Elon as he continues to lead the company moving forward.”

Mr. Musk said he made the decision to remain public after consulting Tesla shareholders large and small, and after concluding that the undertaking could impair efforts to boost production of its new sedan that are crucial to his strategy for Tesla.

The timing of Mr. Musk’s announcement ending the go-private effort—after 8 p.m. Pacific time on a Friday night, a day after the decision was discussed with the board—echoed the surprise of his initial tweet on Aug. 7.

The stunning reversal follows intense scrutiny of Mr. Musk’s plan, which would have valued Tesla at $420 a share, or more than $70 billion, and how he formulated and disclosed it to investors with an initial claim to have secured funding for such a transaction. Mr. Musk’s subsequent comments made clear that no final deal for financing was in place.

In the days after his Aug. 7 announcement, Mr. Musk and the Silicon Valley auto maker’s board of directors raced to assemble teams of financial advisers and lawyers to help facilitate complex negotiations. The directors last week created a special committee to consider his proposal.

The board statement Friday night, signed by Tesla’s six currently active independent directors, said it had disbanded the committee.

“The Board and the entire company remain focused on ensuring Tesla’s operational success,” the statement said.

Tesla has struggled for the past year to speed up Model 3 production, placing Mr. Musk under intense scrutiny and raising questions about the company’s finances. The sedan is intended to be Tesla’s first midprice vehicle, aimed at transforming the Silicon Valley company from a niche, luxury brand into a mass-market car maker.

Tesla now is trying to keep up the pace of manufacturing more than 5,000 of the sedans a week this quarter to generate cash and turn a profit. Its cash dwindled in the second quarter, and some of its suppliers have voiced concern about the auto maker’s financial strength, though Tesla executives said that strength is improving and relations with its suppliers are good, The Wall Street Journal reported this week.

The Securities and Exchange Commission has been investigating Mr. Musk’s claim to have “funding secured” for a deal, and subpoenaed Tesla seeking information from each of Tesla’s directors, the Journal reported last week.

Nearly a week after his initial tweet, Mr. Musk elaborated on his thinking about the go-private proposal, saying he had made it after discussions with Saudi Arabia’s sovereign-wealth fund, conducted over the course of nearly two years, about providing financial support. In that Aug. 13 statement, he said he had left a meeting with the fund’s managing director on July 31 confident the funding was available, but the statement made clear that there wasn’t a final deal in place.

Mr. Musk’s explanation for scrapping the deal cited reasons that many analysts and others flagged immediately after his announcement, raising questions about why he didn’t better vet the idea before taking it to Twitter.

Mr. Musk, who owns roughly 20% of Tesla, has said that he believed most of Tesla’s current shareholders would remain investors in the company if it went private. Analysts questioned that claim, in part because of rules that limit some institutional investors’ ability to hold stock in nonpublic companies.

In his posting Friday, Mr. Musk said that issue was a factor in changing his mind, as some of Tesla’s institutional shareholders explained to him “that they have internal compliance issues that limit how much they can invest in a private company.”

Mr. Musk’s initial discussion of the go-private plan also talked about creating a special-purpose fund that would let existing investors keep their shares.

His statement Friday said another reason for abandoning the idea was that “there is also no proven path for most retail investors to own shares if we were private.”

Mr. Musk’s target price for taking Tesla private was a roughly 20% premium to where its stock was trading at the time, and Tesla’s shares initially soared on the excitement of his proposal. But shares sank in the days afterward as it became clear the idea was still in the early stages and faced major hurdles. Shares ended trading Friday at $322.82, 23% below the $420 target.

Still, some shareholders applauded Friday’s news.

“ARK Invest is delighted,” Catherine Wood, CEO of ARK Invest, a Tesla shareholder, said in an email to the Journal after Mr. Musk’s Friday announcement. Ms. Wood on Wednesday had issued an open letter pleading with Mr. Musk to stay public, arguing that taking Tesla private at $420 a share would undervalue it. She said ARK Invest believes Tesla could be worth between $700 and $4,000 a share five years from now.

“I believe that more investors understand how transformative Tesla will be to transportation now that they have been forced to think about the long term,” Ms. Wood said Friday.

Ross Gerber, CEO of Gerber Kawasaki Wealth & Investment Management, said on Twitter Friday that the announcement was good news, noting his clients “won’t have to go through a whole process to stay owners of Tesla.”

Barrons : Carlsberg Brewing Better Profits, Stronger Stock Price

Carlsberg Brewing Better Profits, Stronger Stock Price

Danish beer behemoth Carlsberg could fit the bill for long-term investors thirsting for an undervalued, but promising, consumer stock.

The Copenhagen company (ticker: CARLB.Denmark) appears on track to better profitability, says Morten Imsgard, a senior analyst at Denmark’s Sydbank. “They’ve embarked on this journey to optimize costs, optimize the portfolio, and get rid of noncore brands later than most of the brewers,” he tells Barron’s. “We’re going to see Carlsberg, over a period of some years, close the earnings gap with some of the industry’s best players. They have a lot of low-hanging fruit still to be picked.”

Imsgard sees the operating margin rising by at least two percentage points in coming years, from around 15% now. He’s encouraged by results out this month that showed good growth for Carlsberg’s premium beers, such as Tuborg and Grimbergen, which command higher prices and provide fatter profits. “They are getting some traction,” he observes. “The Tuborg brand is doing very, very well in Asia.”

China and Japan generate about 11% and 5% of Carlsberg’s revenue, respectively. Russia delivers 13%, and Denmark, the United Kingdom, France, Germany, and Italy each provide about 7%, according to FactSet data.

Carlsberg isn’t a market darling. Only six of the 25 analyst teams covering the stock rate it a Buy, while 10 say Sell and nine go with Hold. RBC analysts cite limited revenue growth in Eastern and Western Europe in explaining their Sector Perform rating, equivalent to Hold. Recently changing hands at 791 Danish kroner ($122.62), Carlsberg fetches 22 times forward-year estimated earnings, the same as Guinness parent Diageo(DGE.UK), and a little above Heineken’s(HEIA.Netherlands) 20, and Anheuser-Busch InBev’s(BUD) 19. The stock’s dividend yield is 2%.

Imsgard reckons that some investors have lost confidence in the Danish brewer because of its Russian unit’s woes over the past decade, which stemmed from an economic downturn that hit consumer spending, tax hikes on alcohol, and restrictions on ads. “Maybe, just maybe,” he says, Carlsberg’s Russian business has “bottomed out,” as the spotlight has shifted. “They have still a tough situation in Eastern Europe, but the investor focus has almost gone from that region now,” says the Sydbank analyst, who has a Buy rating on Carlsberg but declines to disclose his price target. “It’s mostly, ‘Be more efficient in mature markets and grow your Asian business.’ If things get better in Eastern Europe, that would be a bonus.”

All brewers are dealing with declines in consumption of mass-market brands, and that’s partly why Carlsberg is pushing its premium beers. Imsgard also praises the company’s forays into specialty labels, such as its buyout of craft brewer London Fields and its partnership with Brooklyn Brewery, as well as its success with alcohol-free beers that target health-conscious drinkers.

He says there were moderate sales boosts from this summer’s World Cup soccer extravaganza and Europe’s heat wave, while a ballyhooed, but brief, European shortage of carbon dioxide (used to put the fizz into beer) didn’t have a major impact.

While bullish, Imsgard urges patience on Carlsberg, while predicting further dividend increases and limited acquisitions. “You have to be a long-term investor,” he cautions. “If you’re just looking for an easy profit in the next six months or so, it might not be the right stock.”

>>>> Week In Review: Back to Record Territory

Week In Review: Back to Record Territory

The S&P 500 advanced 0.6% this week, closing Friday at a new record high for the first time since January 26. Political uncertainty, trade ambiguity, and strengthened expectations for two more rate hikes this year all failed to dissuade motivated buyers, who pushed stocks higher in three of the week's five sessions.
As for the other major averages, the Nasdaq and the Russell 2000 also notched new records, adding 1.7% and 1.9%, respectively, while the Dow climbed 0.5%.
The week started on a mildly positive note, with stocks ticking higher on Monday and Tuesday, but investors were cautious over the next two sessions, largely due to the legal woes of President Trump's former campaign manager, Paul Manafort, and longtime personal lawyer, Michael Cohen.
Mr. Manafort was convicted of tax and bank fraud on Tuesday afternoon, while Mr. Cohen pleaded guilty to a range of charges, including tax fraud and excessive campaign contributions, and implicated the president directly by saying that Mr. Trump directed him to pay two women hush money "for the principal purpose of influencing the election."
It's too early to say what these developments will mean for President Trump's political future, but it's worth noting that the president chose to say, in regards to the situation, that the market would crash "if I ever got impeached" and that "I don't know how you can impeach somebody who has done a great job."
Moving on to the trade front, two days of trade talks between the U.S. and China wrapped up on Thursday without any visible sign of progress. President Trump said beforehand that he wasn't expecting much to come out of the talks, which marked the first official negotiations since a breakdown nearly three months ago.
In monetary policy, President Trump reiterated his displeasure with the Fed on Monday, saying he was "not thrilled" with Fed Chair Jerome Powell for raising rates.
Two days later, the Fed released the minutes from the July/August FOMC meeting, which only strengthened the expectation that the U.S. central bank will hike rates at its September meeting, with officials saying in the minutes that it would likely "soon" be appropriate to raise rates.
Then, on Friday, Fed Chairman Powell gave a speech at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming, saying that gradual rate hikes remain appropriate. Mr. Powell also expressed confidence in the economy and said he doesn't see any signs of inflation getting out of hand.
Seven of eleven sectors advanced this week, with cyclical groups showing relative strength. The energy sector (+2.6%) was the top performer -- rebounding from last week's 3.6% tumble -- helped by an increase in crude prices; West Texas Intermediate crude futures climbed 4.2% this week to $68.66 per barrel.
Meanwhile, the consumer discretionary sector (+2.0%) also outperformed amid a steady flow of retail earnings. TJX (TJX) jumped 4.7% on Tuesday after reporting better-than-expected results, while Lowe's (LOW) and Target (TGT) added 5.8% and 3.2%, respectively, on Wednesday after also beating estimates.
On the downside, the four declining sectors were consumer staples (-1.8%), utilities (-1.4%), telecom services (-0.7%), and real estate (-1.1%).

>>> US Close Dow +0,52% S&P +0,62% Nasdaq +0,86% Russell +0,50%

Closing Market Summary: S&P Notches First Record Close Since January

Friday was a record-setting day for the stock market, with the S&P 500 (+0.6%) notching its first record close (2874.69) since January 26. The Nasdaq (+0.9%) also registered a fresh record finish, as did the small-cap Russell 2000 (+0.5%). The Dow (+0.5%) advanced, but finished about 3.0% below its January record high.

The market extended opening gains after Fed Chairman Jerome Powell didn't say anything upsetting in his speech at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming. Mr. Powell reiterated that gradual rate hikes remain appropriate, adding that he doesn't see any signs that inflation is getting out of hand.

On the international front, investors brushed off news that two days of trade talks between the U.S. and China ended on Thursday without any visible sign of progress. That result was expected as President Trump said beforehand that he didn't believe much would come from the negotiations.

Separately, President Trump tweeted on Friday afternoon that he's asked Secretary of State Mike Pompeo not to go to North Korea because there has not been sufficient progress with respect to the decentralization of the Korean Peninsula. The stock market had a muted reaction to the tweet.

Wall Street's gains were broad-based on Friday with 10 of 11 sectors advancing.

The lightly-weighted materials sector (+1.2%) was the top-performing group, followed closely by the top-weighted technology sector (+1.1%). Within the tech space, software company Autodesk (ADSK 157.20, +20.89) spiked 15.3% after reporting better-than-expected earnings and revenues on Thursday evening.

In other earnings news, retailers dominated the headlines once again with Gap (GPS 29.65, -2.79) and Foot Locker (FL 48.32, -4.88) tumbling 8.6% and 9.2%, respectively, and Buckle (BKE 26.55, -1.25) dropping 4.5% in reaction to their quarterly results. Conversely, Ross Stores (ROST 95.09, +0.06) ticked up 0.1%.

The consumer staples sector (-0.2%) was the lone decliner, but financials (+0.3%), industrials (+0.4%), and utilities (+0.4%) also underperformed.

Looking at other markets, U.S. Treasuries finished slightly lower, pushing the benchmark 10-yr yield up one basis point to 2.83%. Meanwhile, the U.S. Dollar Index gave back nearly all of Thursday's rebound, dropping 0.5% to 95.05, and West Texas Intermediate crude futures jumped 1.2% to $68.66/bbl.

Reviewing Friday's economic data, which was limited to July Durable Goods Orders:

  • July durable goods orders declined 1.7% (consensus -0.6%), and the prior month's reading was revised to +0.7% (from +1.0%). Excluding transportation, durable orders increased 0.2% (consensus +0.4%) to follow the prior month's revised reading of +0.1% (from +0.4%).
    • The key takeaway from the report is that the headline decrease masked a 1.4% increase in orders for nondefense capital goods, excluding aircraft, which is a positive sign about business spending

Looking ahead, investors will not receive any notable economic data on Monday.

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