FT : LSE set to sell French clearing arm to Euronext

LSE set to sell French clearing arm to Euronext
Cash deal worth about €510m could smooth UK group’s path to Deutsche Börse merger

The London Stock Exchange Group is expected to announce the sale of its French clearing arm to rival Euronext within days in a cash deal worth about €510m.

The UK group hopes that the sale will smooth the path for its merger with rival Deutsche Börse.

The LSE and Euronext had hoped to unveil a deal before Christmas but a late disagreement over terms meant the announcement was put on hold. That has now been resolved and a formal statement is expected to come this week, two people briefed on the talks said.

The LSE and Euronext declined to comment.

LSE offered to sell LCH SA, the Paris-based subsidiary formerly known as Clearnet, three months ago to allay concerns from Brussels antitrust officials that its tie-up with Deutsche Börse could curb competition in the European fixed income markets.

That deal faces a critical three-month evaluation period as EU watchdogs examine its likely impact on clearing competition in Europe. Last week, the European Commission pushed back its deadline for a decision on the LSE-Deutsche Börse deal to March 13.

Clearing houses are at the forefront of moves by global regulators to bolster markets after the financial crisis. They stand between parties in a trade, managing the risk to the market if one party defaults on payment.

Ten days ago, LSE and Deutsche Börse received a so-called “statement of objections” from the competition regulators, which laid out concerns about the clearing of trades in derivatives and fixed income markets.

In an interview with the Financial Times last week, Carsten Kengeter, chief executive of Deutsche Börse, said of the French LCH disposal: “We believe that the vast majority of the concerns that are coming out of Brussels will, in fact, be addressed [by the sale].”

A sale would resolve the majority of problems that the European Commission has with a merger between LSE and Deutsche Börse, leaving only issues related to derivatives clearing.

The LSE wants to keep the UK arm of LCH, which clears interest rate swaps, and link it with Deutsche Börse’s Eurex, which clears futures.

Mr Kengeter said that the two exchanges would respond formally to the antitrust concerns by mid-January. “That response, I think, will be crucial to seeking the approval, or obtaining the approval,” he said.

A purchase would be Euronext’s largest deal since it was spun off from Intercontinental Exchange and became an independent company again in 2014.

LCH SA clears credit default swaps, derivatives, equities and repo trades, a crucial market for secured short-term funding for banks.

It made a profit of €36.2m from an operating income of €122.5m in the year to December 2015. Euronext outpaced interest from US exchanges duo Nasdaq and CME Group for LCH SA, according to the people briefed on the talks.

Last month, RBC Capital Markets said that Euronext needed a catalyst, either from a deal or higher trading volumes, to boost its flagging share price, which has dropped 15 per cent this year.

>>> Etihad Airways denies reported speculation on offloading stake in Virgin Aus

Etihad Airways denies reported speculation on offloading stake in Virgin Australia

Etihad Airways denied speculation reported in the Australian Financial Review earlier today (28 December) that the gulf carrier could be considering options for its 21.8% stake in Virgin Australia [ASX: VAH], the same Australian newspaper reported.

Etihad Airways denied the speculation, saying the airliner's investment in Virgin Australia will be maintained, and Etihad Airways remains fully committed to maintain its long-term business partnership with Virgin Australia, the newspaper report said, quoting an unnamed Etihad spokesman as saying.

>>> What to look at today - 28th of December 2016

Dow +0.07% S&P+0.13% Nasdaq +0.28% Russell +0.65%
US MArket closed slightly higher on a slow day. The bulk of today's action took place during the opening minutes as the key indices charged to session highs. The opening rally was followed by a slow intraday drip from those highs. Nine of eleven sectors finished the day in positive territory with technology (+0.5%) underpinning things from the start. The top-weighted group rallied behind Apple (AAPL 117.25, +0.73) and high-beta chipmakers. NVIDIA (NVDA 117.32, +7.54) soared 6.9%, extending its 2016 gain to 256.0%. energy (+0.2%) failing to keep pace with crude oil, which jumped 1.7% to $53.89/bbl. Deutsche Bank (DB 18.37, -0.26) was notified by the European Central Bank that it will have to maintain a phase-in Common Equity Tier 1 ratio of at least 9.51% starting in January. This will be down from this year's requirement of 10.76%. US After Hours NVDA +0.8% extending gains further in after hours trade, MDXG +2% on Aetna EpiFix coverage news... ANTH -67% as Phase 3 study narrow miss causes big drop. Trade remains mixed and light even with all markets open following a very quiet US session, which again saw higher crude prices. CBRC Official: Proposes RRR cut at an "appropriate time". China Q4 Beige Book: Saw improvement q/q in Rev, profits, CAPEX and jobs; New orders stable q/q.
Nikkei -0.01% Hang Seng +0.52% CSI -0.52% Shanghai -0.52%

Eur$ 1.0468 CNH 6.9557 CNY 6.9544 JPY 117.56 GBP 1.2288 CHF 1.0272 RUB 60.6481 WTI $ 53.78 -0.24%

S&P +0.17% EuroStoxx +0.03% Dax +0.01% FTSE +0.09% SMI -0.02%

Macro :
- Italy Bank Fund Sufficient for Lenders if Needed: Official

Keep an eye on :
- AIR FP : Airbus Postpones 6 A380 Emirates Deliveries to 2018 From 2017
- ARAMCO IPO : Saudi Aramco Assessing 5% Stake Sale, Falih Tells Eqtisadiah
- AZN LN : AstraZeneca Plans R&D Projects in Russia: Kommersant
- BMPS IM : Moody’s Reviews Monte Dei Paschi’s Standalone BCA for Upgrade
- BP/ LN : BP to Buy Woolworths’ Australian Gas Stations for A$1.785b
- DIS US : Hulu and Disney in Licensing Pact for Feature Films
- ENGI FP : Engie not to exit Poland after sale of main business, open to acquisitions
- FCT IM : Fincantieri Makes Only Offer to Acquire STX France: Les Echos
- GALP PL : Galp Comments on Changes to Banco Santander, Amorim Contract
- GAS SM : Gas Natural Sells Four Buildings in Madrid for EU206M
- ISP LN : *CERBERUS, APOLLO FRONTRUNNERS IN INTESA NPLS SALE: SOLE
- LHA GY : Lufthansa Seeks Closer Link to Etihad Airways: Die Welt
- LLOY LN : Lloyds Said to Set Up Europe Unit If U.K. Loses Mkt Access: FT
- LSE LN : LSE Said to Plan EU510m French Unit Sale to Euronext: FT
- NOVOB DC : Sanofi Sues Novo Nordisk Over Diabetes Drugs in U.S.: Reuters - http://reut.rs/2iCVZiS
- SAN FP : Sanofi Sues Novo Nordisk Over Diabetes Drugs in U.S.: Reuters - http://reut.rs/2iCVZiS
- 6502 JP : Toshiba Drops 20% to Limit After Weighing Nuclear Writedown

Reuters - Italy set to pump around 6.5 billion euros into Monte Paschi rescue

ROME/MILAN (Reuters) - The Italian government is likely to put in around 6.5 billion euros ($6.8 billion) to rescue the country's third biggest lender Monte dei Paschi di Siena, more than initially expected, sources close to the matter said on Tuesday.

The higher cost of the state rescue is due to the fact that the European Central Bank has revised the bank's capital shortfall to 8.8 billion euros from a previous estimate of 5 billion euros.

The bank requested government support - in the form of a precautionary recapitalisation by the state - last week after its plan to raise 5 billion euros from private investors flopped.

A 6.5 billion euro capital injection would give the Italian government a stake of around 70 percent in the lender.

The remaining 2.3 billion euros should come from the conversion into shares of subordinated bonds held by institutional investors, as required by new European rules for dealing with bank crises.

A precautionary recapitalisation is a type of state intervention in a struggling bank that is still solvent. It means only a modest bail-in of investors though the government can buy shares or bonds only on market terms endorsed by EU state aid officials in Brussels.

Under the scheme proposed by Italy, the government will compensate the 40,000 or so retail investors holding around 2 billion euros of the bank's junior debt, who will convert their notes into shares.

The retail investors will be able to swap those shares for senior bonds, with the state buying back the shares from the bank. The scheme needs EU approval, which could take two to three months.

The ECB, which is close to completing an inspection of the bank's loan portfolio, took a harsher stance on its capital shortfall to be "on the safe side and help restore confidence in the bank", one of the sources said.

Monte dei Paschi, which has been in crisis mode for years, emerged as the weakest lender in European stress tests last summer.

The Tuscan bank, the world's oldest, will use around a third of the 20 billion euros earmarked by the Italian government to bolster ailing lenders.

Shares and securities in the bank have been suspended from trading until the details of the rescue scheme - such as the price at which the government will buy the bank's shares - become clearer.



Other lenders expected to benefit from government support include two regional banks - Popolare di Vicenza and Veneto Banca - and Genoa-based Carige.

Reuters - U.S. mutual fund trustees feel the heat of investor lawsuits


Before New York's famed 21 Club steakhouse drew attention in November for hosting Donald Trump, the wealthy U.S. president-elect, it quietly fed other public representatives: trustees of Paris-based AXA SA (AXAF.PA) investment funds.

The trustees - board members tasked with overseeing AXA funds - had events there and at other ritzy spots, legal records show. A 2011 holiday party at a Del Frisco's restaurant cost $25,775, a $1,000 average for each of roughly 25 people present.

"The wine was very good," a trustee recalled of one meal.

The trustees' dining experiences emerged in a federal case decided in August. Investors including a teacher and a retired police officer accused the firm of collecting excessive fees, a charge the firm denied.

U.S. District Judge Peter Sheridan sided with AXA in his 146-page decision, but he wrote the suit had prompted a "more scrupulous and rigorous" review of board expenses. One result was to reimburse investors for some of the meal costs.

In courts across the land, investors are subjecting mutual fund boards to greater scrutiny. Trustees, often paid hundreds of thousands of dollars a year, are under pressure to prove they have stood up for shareholders in an industry that has $16 trillion under management.

The lawsuits accuse fund boards of missteps such as failing to scrutinize fees or pass along to investors economies of scale as their funds grow with rising markets. The claims illuminate the long obscure role of fund trustees, sometimes known as directors.

Despite their compensation and influence, at many fund families these individuals rarely appear before investors and face few official qualification requirements. Many are current or retired executives, attorneys or academics, much the same as at large publicly traded companies.

Defendants include large fund managers like BlackRock Inc (BLK.N) and Pacific Investment Management Co, or Pimco. The fund managers deny wrongdoing. An AXA spokesman declined to comment.

FEES A SENSITIVE TOPIC

In theory, mutual fund trustees can demand lower fees on the funds or fire the managers who choose the funds' investments. But firings, which investors could see as disruptive, hardly ever happen.

A common concern is that the boards are more focused on following technical rules than looking out for shareholder interests, said Stephen Davis, a senior fellow at the Harvard Law School Program on Corporate Governance.

Fees are a sensitive topic for many actively managed mutual funds, which are losing billions of dollars in assets to cheaper index-tracking funds. Even a small reduction in fees can make a big difference for investors who include many U.S. workers whose savings are in 401(k) retirement plans.

A 2015 Morningstar study showed that while industry assets increased by 143 percent over a 10-year period, fund fees charged to clients fell only 27 percent while industry fee revenue rose 78 percent, showing companies benefiting from the gains more than their investors.

LAWSUITS AGAINST BLACKROCK, PIMCO

In one suit, in federal court in Trenton, New Jersey, plaintiffs accuse BlackRock units of benefiting too much as assets of its Global Allocation Fund (MALOX.O) more than doubled to about $58 billion at Oct. 31, 2013, from about $23 billion at Oct. 31, 2007.

U.S. District Judge Freda Wolfson last year denied a BlackRock motion to dismiss, writing that plaintiffs at least had raised enough doubts about fund trustees that there remained "sufficient allegations that allow for an inference of rubber-stamping by the Boards."

BlackRock defended its boards of trustees. A BlackRock spokesman wrote via email that Global Allocation is priced competitively, adding, "The suit is without merit and we intend to vigorously defend against the action."

A judge has asked both sides for reports on the discovery process by Jan. 19.

A suit in federal court in Seattle compares Pimco's well-known $78 billion Total Return fund (PTTRX.O) with the $2.3 billion Harbor Bond Fund, (HABDX.O) a similar fund Pimco subadvises.

The plaintiff cited how Pimco charged holders of Class A shares of Total Return 0.85 percent of fund assets, while investors were charged just 0.53 percent of fund assets to own a comparable Harbor Bond Fund share class.

The plaintiff claimed Pimco trustees "have been subverted by defendants and no longer serve in their 'watchdog' role" and cited the trustees' generous pay.

Pimco argues its board follows a rigorous process and called the comparison to Harbor Bond Fund inapt because its in-house funds can require it to perform additional work and assume additional risks. Last year U.S. District Judge Ricardo Martinez denied a Pimco motion to dismiss the case, currently awaiting trial.

A Pimco spokeswoman declined to comment.

Some complaints against directors have been knocked down. In a case against Hartford Funds in Camden, New Jersey, U.S. District Judge Renee Marie Bumb likened claims that Hartford's fund board allowed excessive fees to "armchair quarterbacking and captious nit-picking." Closing arguments in the case are set for January.

But elsewhere even unsuccessful actions have brought board critiques.

In Los Angeles, U.S. District Judge Gary Feess in 2009 dismissed a challenge to fees at American Funds but wrote the board's oversight process "seems less a true negotiation and more an elaborate exercise in checking off boxes and papering the file."

An American Funds spokesman said the company in response provided trustees more information about its approach to compensation. Directors were unavailable to comment, he said.

Reuters - Sanofi sues Novo Nordisk over diabetes drugs in the U.S.

Sanofi sues Novo Nordisk over diabetes drugs in the U.S. - http://reut.rs/2iCVZiS

Dec 27 France's Sanofi has filed a lawsuit in the United States accusing Novo Nordisk of falsely claiming that Sanofi insulin drugs would no longer be available for many U.S. patients so it could promote its competing drug.

The complaint, filed by Sanofi US in U.S. District Court for the District of New Jersey on Dec. 23, seeks an order forcing Novo Nordisk to pay unspecified money damages and withdraw marketing materials for its drug Tresiba.

The marketing materials urge doctors and patients to switch from Sanofi's drugs Lantus and Toujeo, used to treat diabetes, to Tresiba, according to Sanofi, because the Sanofi drugs will be "blocked" by U.S. pharmacy benefit manager CVS Caremark in January.

Sanofi said CVS is replacing the drugs with Eli Lilly's similar, cheaper drug Basaglar on its so-called standard formulary, a list of drugs that health insurance plans cover.

Many health plans do not use CVS' standard formulary, and some that do will likely continue to cover the Sanofi drugs, though patients will have to pay more for them, Sanofi said. Sanofi also said it offers assistance to individuals to buy the drugs if their insurance does not cover them.

Novo Nordisk had no comment.

"(W)e believe Novo's statements concerning CVS Caremark's formulary decision on Lantus and Toujeo coverage contain false and misleading claims about the continued availability of Lantus and Toujeo," said a Sanofi spokeswoman in an emailed statement.

Lantus and Toujeo are two of the diabetes treatments that Sanofi sells in the United States, the world's largest health market.

Pressure has been rising on its U.S. diabetes business in recent months as CVS and insurer UnitedHealth Group Inc announced plans to replace Lantus and Toujeo with Basaglar.

Sanofi posted better-than-expected quarterly earnings in October and lifted its profit outlook for the year. But the drugmaker stuck to its forecast that currency-adjusted sales at its embattled diabetes business would shrink by 4 percent to 8 percent per year on average from 2015 to 2018.

>>> Toshiba may need to spin-off or list semiconductor business as part of equit

Toshiba may need to spin-off or list semiconductor business as part of equity financing to counter nuclear business loss 

Toshiba could be forced to carry out a review of its businesses, including spinning-off or listing its semiconductor business, as part of equity financing, the Nihon Keizai Shimbun reported.

The Japanese-language report cited Yoshiharu Izumi, an analyst at Tokyo-based investor media management company Navigator Platform, as saying that there is a possibility Toshiba could decide to sell-off its semiconductor business. Izumi added that investors ought to be strongly cognizant of the many uncertain elements of Toshiba's brands that have little growth prospects.

Toshiba announced on 27 December that it may have to book several hundreds of billions of JPY (several billion USD) of goodwill in connection with the acquisition of CB&I Stone & Webster by subsidiary Westinghouse Electric. Chief executive Satoshi Tsunakawa disclosed at a press conference on the same day that the company would have to consider the positioning of its nuclear business.

Meanwhile, a related report in the same paper noted that as a result of the goodwill problem Toshiba would likely need to increase its equity capital from the just more than JPY 330bn it had as of the end of September 2016. Should the company’s debts exceed its equity capital, Toshiba, which is on the Tokyo Stock Exchange’s 'Securities on Alert' List, would need to rectify the problem by the end of the fiscal year to avoid being delisted, the report said.

>>> Asian Update

Asia Mid-Session Market Update: Japan data perks up; China CBRC official proposes a RRR cut at an "appropriate time"

***US Session Highlights***
- Despite the holidays winding down, the festive mood continued on Wall Street, as stocks put in another positive day. The DJIA continued to flirt with 20,000, reaching a day high of 19977.50.
- Big boost in today's Consumer Confidence number, released at 113.7 against expected 109.0, compared to a previous 109.4. Post-election bullishness of stock market transferring also to consumers on the street.
- House prices continued to grow this month at a slightly faster pace than last month;S&P/Case Shiller: house market showing some vigor despite a recent rate increase, and prospects for future increases on the horizon were not able to dent demand.
- US Yields continue to rise in today's auction for T-Bills and particularly in 2-Year Treasury-Notes.

***US markets on close: Dow +0.06%, S&P500 +0.22%, Nasdaq +0.45%***
- Best Sector in S&P500: Materials
- Worst Sector in S&P500: Telecommunication
- Biggest gainers: NVDA +6.9%; FSLR +4.2%; CF +4.0%
- Biggest losers: MNK -2.7%; ENDP -2.3%; MAT -1.8%
- At the close: VIX 11.98 (+0.55pts); Treasuries: 2-yr 1.23% (+0.025bps), 10-yr 2.56% (+0.022bps), 30-yr 3.136% (+0.026bps)

***US movers afterhours***
- MDXG: EpiFix receives coverage from Aetna; +1.8% after hours
- ANTH: Phase 3 SOLUTION Study with Sollpura in cystic fibrosis misses primary endpoint but demonstrates encouraging results; -63.2% after hours
- GLBL: Knighthead Capital Management, LLC discloses 6.43% stake - 13D filing; +2.5% after hours

***Key economic data***
- (JP) JAPAN NOV RETAIL SALES M/M: +0.2% V -0.5%E; RETAIL TRADE Y/Y: 1.7% V 0.8%E
- (JP) JAPAN NOV PRELIMINARY INDUSTRIAL PRODUCTION M/M: 1.5% V 1.7%E; Y/Y: 4.6% V 4.7%E
- (VN) VIETNAM Q4 GDP: 6.68% v 6.56% prior; YTD Y/Y: 6.21% V 6.30% PRIOR; 2016 GDP 6.3% v 6.30%E v 6.68% in 2015
- (JP) JAPAN NOV VEHICLE PRODUCTION Y/Y: +6.6% V -3.9% PRIOR
- (HK) Macau Nov Visitor Arrivals: 2.59M v 2.68M prior; flat y/y

***Asia Session Notable Observations, Speakers and Press***
- Trade remains mixed and light even with all markets open following a very quiet US session, which again saw higher crude prices.
- Japan 20-yr JGB yield rose 0.5bps to 0.58% as Japan reduces purchases of super long debt. BOJ offers to buy ¥190B in 10-25yr JGBs v ¥200B prior and ¥110B in JGBs with maturity over 25-yr v ¥120B prior
- (CN) China Banking Regulatory Commission (CBRC) Official: Proposes RRR cut at an "appropriate time" - Chinese press
- WOW.AU: Woolworths confirms A$1.79B sale of Woolworths petrol stations to BP
- (CN) China Q4 Beige Book: Saw improvement q/q in Rev, profits, CAPEX and jobs; New orders stable q/q
- (CN) China to raise gasoline prices by CNY95/ton, diesel prices by CNY90/ton; effective tomorrow
- (CN) China Jan-Nov SOE Profit CNY2.11T, +2.8% y/y; Rev CNY40.8T, +2.4% y/y
- Coking coal prices fall amid China output increasing
- Toshiba, 6502.JP: Shares trade limits down -20% after it confirmed yesterday it may have to write down US nuclear operations

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei +0.2%, Hang Seng +0.1%, Shanghai Composite -0.3%, ASX200 +0.9%, Kospi -0.7%
- Equity Futures: S&P500 +0.1%; Nasdaq +0.2%, Dax +0.1%, FTSE100 +0.02%

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.0455-1.0475; JPY 117.37-117.74; AUD 0.7182-0.7208; NZD 0.6889-0.6927
- Feb Gold +0.32% at 1,142/oz; Feb Crude Oil -0.26% at $53.77/brl; Mar Copper +0.25% at $2.52/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 1.18 tonnes to 823.36 tonnes
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.9495 V 6.9462 PRIOR
- (CN) PBOC to inject combined CNY100B in 7-day, 14-day and 28-day reverse repo operation vs. CNY80B prior
- USD/CNY: Has traded in a 151 pip range from Dec 21st-28th v 630 pip range from Dec 14-21st; suggesting PBOC is trying to stabilize heading into the end of the year

***Asia equities / Notables / movers by sector***
- Consumer discretionary: J.Front Retailing 3086.JP -4.4% (CLSA cuts to sell); Kao Corp 4452.JP -0.6% (venture in Indonesia); Toray Industries 3402.JP -2.2% (9-month result speculation); Panasonic Corporation 6752.JP +0.6% (Tesla and Panasonic to start solar module output); Takashimaya Co 8233.JP -4.4% (9-month result); Super Retail Group SUL.AU +2.7% (Morgans Financial raised to add)
- Consumer staples: Woolworths WOW.AU +2.1% (sales of gas stations); Mengniu Dairy 2319.HK +2.0% (shakes off compensation ruling)
- Financials: SBI Holdings 8473.JP +0.3% (in talks to form JV)
- Industrials: Hitachi 6501.JP +1.4% (unit takeover speculation); Riyue Heavy Industry 603218.CN +44% (IPO debut); Nippon Shokubai Co. 4114.JP -0.4% (may cut pretax profit target)
- Technology: Toshiba Corporation 6502.JP -20.4% (weighing nuclear writedown); Hitachi Kokusai Electric 6756.JP +4.8%; Hikari Tsushin 9435.JP +1.3% (share buyback)
- Materials: South32 S32.AU +2.9% (NSW approval for expansion)
- Energy: Caltex Australia CTX.AU -2.2% ( Woolworth sells fuels business to BP); JX Holdings 5020.JP +0.9% (Nomura raised to buy)
- Utilities: Ebara Corp 6361.JP +2.9% (Tokai Tokyo Financial raised to outperform)