Saturday, 31 January 2015

Packers’ Rodgers Wins His Second NFL Most Valuable Player Award

Green Bay Packers quarterback Aaron Rodgers was selected as the National Football League’s Most Valuable Player for the second time in his career following a season in which he led the league’s top-scoring offense while throwing 38 touchdown passes and only five interceptions.
Rodgers, 31, had the NFL’s second-highest quarterback rating this season, completing almost 66 percent of his passes for 4,381 yards. He became just the second quarterback in NFL history to throw more than 35 touchdown passes with five interceptions or fewer.
Rodgers was selected over Houston Texans end J.J. Watt, who was seeking to become the first defensive player to win the MVP award since Lawrence Taylor in 1986. Watt had 20 1/2 sacks, four forced fumbles, five fumble recoveries, one interception and scored five touchdowns, including three receiving. He was named the NFL’s Defensive Player of the Year.
Rodgers, who also was voted the Associated Press NFL MVP after the 2011 season, led a Packers’ offense that averaged a league-high 30.4 points a game this season. Green Bay had a 12-4 record during the regular season and fell a win short of the Super Bowl, losing to the Seattle Seahawks 28-22 in overtime in the National Football Conference championship game.
Rodgers is the eighth quarterback to win at least two NFL MVP awards, joining Peyton Manning, Tom Brady, Kurt Warner, Brett Favre, Steve Young, Joe Montana and Johnny Unitas.
Other NFL award winners included Dallas Cowboys running back DeMarco Murray as the AP Offensive Player of the Year, New York Giants wide receiver Odell Beckham Jr. as Offensive Rookie of the Year, and St. Louis Rams defensive tackle Aaron Donald as top defensive rookie. Bruce Arians of the Arizona Cardinals was voted the league’s coach of the year.
To contact the reporter on this story: Erik Matuszewski in Phoenix atmatuszewski@bloomberg.net

U.S. Oil Drillers Idle 94 Rigs in Biggest Retreat Yet

 U.S. drillers pulled 94 oil rigs out of fields in a single week, the biggest retreat to date, as crude prices capped the longest stretch of monthly declines since 2009.
The oil rig count dropped to a three-year low of 1,223, Baker Hughes Inc. said on its website Friday. It was the biggest weekly decline since the Houston-based oil-field services company began collecting the data in 1987. The Permian Basin of Texas and New Mexico, the country’s biggest oil field, was hit hardest, losing 25 rigs.
Drillers are parking rigs as a global collapse in oil prices prompts producers to curb spending, service contractors to fire thousands and at least one oil-rich county in California to declare a fiscal emergency. Banks including Societe Generale SA have said prices may fall below $40 a barrel as global supplies surge and OPEC resists calls to curb output.
“The risk is that we go into a $30- to $40-a-barrel range if the market is too impatient and doesn’t want to wait for lower rig counts and lower well completions,” Mike Wittner, head of oil research at Societe Generale, said by telephone from New York on Friday. “Then you start getting below operating costs.”
West Texas Intermediate for March delivery rose $3.71 on Friday to $48.24 a barrel on the New York Mercantile Exchange. Even with the gain the futures capped a seventh straight month of declines, dropping 9.4 percent in January.

‘Decisive Actions’

“There’s a lot of debate right now about the duration of the current low oil prices,” Ryan Lance, ConocoPhillips’ chief executive officer, said in a conference call Jan. 29. “We’re assuming that they’ll stay low for 2015, and we’re taking decisive actions.”
ConocoPhillips, the third-largest U.S. energy producer, said on Jan. 29 that it was cutting its rig count in North Dakota’s prolific Bakken shale formation to three this year. On Friday, Chevron Corp. cut its drilling budget by the most in 12 years, suspended share buybacks and laid off workers. Drilling contractor Helmerich & Payne Inc. said it may cut 2,000 jobs after receiving 22 notices from clients terminating rig contracts early.
The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of the world’s oil supplies, has meanwhile held its ground after agreeing in November to maintain output targets. Saudi Arabia, the group’s biggest producer, won’t “singlehandedly balance the market in a downturn,” Khalid Al-Falih, Saudi Arabian Oil Co.’s chief executive officer, said at a conference in Riyadh.

Record Production

U.S. oil production has continued to climb, reaching 9.21 million barrels a day in the week ended Jan. 23, the most in weekly data since at least 1983, Energy Information Administration data show.
Continental Resources Inc., the largest leaseholder in North Dakota’s Bakken shale formation, can weather low oil prices “forever,” the company’s chief executive officer, Harold Hamm, said in an interview at the Argus Americas Crude Summit in Houston on Jan. 28. Prices will recover as early as the first half of this year as producers cut back, he said.
In Kern County, home to three-fourths of California’s oil production, leaders declared a fiscal emergency. The collapse in oil prices may cut the government’s property-tax collections by almost 15 percent in the year beginning July 1, according to Nancy Lawson, the assistant county administrative officer.
“We were looking quite positive before this happened,” Lawson said.
Natural gas rigs increased by three to 319 and one miscellaneous rig was added, bringing the total count down 90 to 1,543. Gas futures for March delivery fell 2.8 cents Friday to $2.691 per million British thermal units on the Nymex, the lowest settlement since September 2012.
To contact the reporter on this story: Lynn Doan in San Francisco atldoan6@bloomberg.net

Friday, 30 January 2015

Citigroup Removed Its Swiss Franc Hedge at the Worst Possible Time

Citigroup Inc.’s loss on a surge in the Swiss franc this month was exacerbated by the bank’s decision to let protections against currency swings lapse a week earlier, according to people with knowledge of the situation.
The bank didn’t renew derivatives trades that would have blunted the impact from Switzerland’s surprise move to let the franc rise, said the people, who asked not to be identified discussing the strategy. The company’s losses exceeded $200 million in the hours after the announcement, before traders pared the deficit to closer to $150 million, the people said.
The loss at Citigroup, which dethroned Deutsche Bank AG last year as the world’s biggest foreign-exchange dealer, illustrates the perils of unhedged trading in the currency markets. Citigroup has faced particular scrutiny of its ability to manage risks after soured mortgage holdings forced it to draw more taxpayer support than any U.S. bank during the financial crisis.
Citigroup was exposed after selling options on the Swiss franc to customers and failing to renew offsetting hedges, according to one of the people. The options gave buyers the right to collect from a strengthening franc and from higher volatility. While the derivatives desk lost money that day, the spot currency desk turned a profit, one person said.
Competitors including JPMorgan Chase & Co., which was said to reap $300 million on the franc’s move, had largely kept their safeguards in place, two people said.

Market Turmoil

It can be expensive to hedge a large position. During last year’s second quarter, Citigroup’s equity-trading revenue was cut by about $100 million because of the cost of protecting itself against market turmoil, tied to the unrest in Ukraine, that never materialized.
While the expiration of hedges contributed to the losses, a greater portion came from customer trading, said Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup.
“As a result of our role in making markets and facilitating trades for clients, Citi experienced a modest loss,” she said in a statement. “Expiration of hedges related to the franc did not drive the shortfalls in our trading activity, all of which was executed under our existing rigorous risk management limits and supervision.”
Citigroup risk managers were aware that the firm’s hedges hadn’t been replaced, one of the people with knowledge of the strategy said. They expired about a week before the Swiss central bank’s decision, another person said.

FX Flow

Chirag Patel, global head of foreign-exchange flow options, and Roland Jeurissen, a senior forex-options trader who joined Citigroup in 2009 from BNP Paribas SA, were responsible for managing the portfolio’s risk, one person said.
The foreign-exchange and local markets unit has been run globally by Nadir Mahmud since Anil Prasad departed last year. James Bindler took over the global foreign-exchange business from Jeff Feig, who joined Fortress Investment Group LLC in 2014 to co-lead the firm’s macro strategy. Sanjay Madgavkar, who also reports to Mahmud, is global head of the foreign-exchange prime brokerage, which counts wounded retail brokerage FXCM Inc. as a client.
Patel didn’t respond to a phone message and Jeurissen didn’t return an e-mailed request for comment. Romero-Apsilos declined to comment on their behalf.
Citigroup Chief Financial Officer John Gerspach sought to reassure analysts last week when questioned about the franc’s swing.

Policy Change

“Since that event, we’ve seen good activity levels from our customers in the FX markets,” he said on a conference call. “We’re going to continue to work closely with our clients to help them manage their currency needs.”
The Swiss central bank gave little public indication it was considering a policy change. On Dec. 18, Swiss National Bank President Thomas Jordan said officials stood ready to further intervene in currency markets to counter a strengthening franc. On Jan. 13, SNB Vice President Jean-Pierre Danthine re-affirmed the currency cap as a “pillar of our monetary policy.”
Two days later, officials sprang the surprise announcement, roiling the currency markets.
Citigroup reported an average foreign-exchange value-at-risk, a measure of how much it could lose in one day of trading, of $32 million in the third quarter, according to a regulatory filing. It has yet to release the fourth-quarter document.
To contact the reporters on this story: Julia Verlaine in London atjverlaine2@bloomberg.net; Dakin Campbell in New York atdcampbell27@bloomberg.net
To contact the editors responsible for this story: Simone Meier atsmeier@bloomberg.net; Peter Eichenbaum at peichenbaum@bloomberg.net David Scheer

Wednesday, 28 January 2015

Facebook CEO Mark Zuckerberg Spends Big Even With Growth Slowing

Mark Zuckerberg is spending faster to chase opportunities in messaging and mobile advertising as sales growth slows at Facebook Inc.’s main social-networking service.
The company said on Wednesday that spending will jump 55 percent to 70 percent in 2015, narrower than the 50 percent to 75 percent range that it projected in October. Zuckerberg has said Facebook is investing in messaging, advertising across the Web, hiring and new technologies such as artificial intelligence.
Total expenses in the fourth quarter soared 87 percent to $2.72 billion. That hit profit, with the Menlo Park, California-based company reporting an operating margin of 29 percent, compared with 44 percent a year earlier. Sales totaled $3.85 billion, up 49 percent and slower than the 63 percent growth in the fourth quarter of 2013.
The spending resembles that of other Web companies including Google Inc. and Amazon.com Inc., which are also investing in ventures from drones to cloud computing that are outside of their core businesses. Facebook has paid billions to acquire companies including mobile-messaging service WhatsApp Inc. and virtual-reality company Oculus VR Inc. to attract users as Internet trends change rapidly, yet revenue from the two platforms remains negligible.
“Facebook is going after some very big opportunities and if they want to compete with the likes of Google and Amazon and Apple they’re going to have to spend for growth.” said Neil Doshi, an analyst at CRT Capital Group, adding that questions about the spending are “warranted.”
Facebook shares slipped in extended trading, after closing at $76.24 in New York. The stock climbed 43 percent last year, compared with an 11 percent gain in the Standard & Poor’s 500 Index.
Facebook’s Evolution
Zuckerberg said in a conference call Wednesday that building new products and profiting off them will take time. A transition may be as complicated as Facebook’s switch from making money off desktop ads to mobile ads, he said, with the company creating a mobile-ad business from nearly scratch after going public in 2012.
“Doing this is going to take a lot of effort over the coming years, and Facebook is going to have to evolve,” the chief executive officer said.
Net Income
Net income rose to $701 million in the fourth quarter, up 34 percent from $523 million a year ago. Profit excluding some items was 54 cents a share, compared with 48 cents projected on average by analysts.
Facebook’s users totaled 1.39 billion at the end of the quarter, up 3 percent from 1.35 billion in the prior period. The company is making more money from each member, with average revenue per user climbing to $2.81 in the fourth quarter, up 31 percent from a year earlier.
Expenses were driven in part by research and development, which made up 29 percent of revenue, while sales and marketing expenses accounted for 16 percent.
Facebook Chief Financial Officer David Wehner defended the spending on the conference call, saying the company is coming “from a position of strength.”
Even with the slowdown, Facebook has growth avenues to exploit, said James Cakmak, an analyst at Monness, Crespi, Hardt & Co.
“You may be seeing some deceleration on the core platform but you’re virtually in day one when it comes to everything else,” he said.
Mobile Fuel
Revenue in the quarter was driven by mobile ads, which accounted for 69 percent of total sales, up from 66 percent in the third quarter. The company is now increasingly selling promotions on mobile applications and sites across the Web, complete with new technology to track individuals’ responses to the ads no matter what device they’re using.
For all of 2014, Facebook’s revenue totaled $12.5 billion, the first time the company’s annual sales reached the eleven-digit mark.
Currency swings bit into results. Excluding the impact of foreign exchange rates, revenue would have increased by 53 percent, Facebook said.
While the dollar’s climb is reducing profits at U.S. companies from Procter & Gamble Co. to Pfizer Inc. and Microsoft Corp., more than 77 percent of Standard & Poor’s 500 Index members have still beaten analysts’ estimates so far this earnings season, according to data compiled by Bloomberg.
International ad revenue excluding the U.S. and Canada totaled $1.89 billion, up 48 percent from $1.28 billion a year ago. Sales in the U.S. and Canada were $1.71 billion, up 60 percent from $1.07 billion over the same period.
10 Year
Zuckerberg last year laid out how his company is going to make money over time. That included building out the ad business over the next three years, focusing especially on video. Within five years, the company would have figured out how to make large businesses out of photo-sharing app Instagram and messaging apps WhatsApp and Facebook Messenger. In 10 years, Zuckerberg has said he wants to have connected the remainder of the world’s population to the Internet, with the company likely focused on artificial intelligence and virtual reality.
In December, Instagram said it has 300 million users, more than that of Twitter Inc. Earlier this month, WhatsApp said it has 700 million, closer to the 1 billion mark that Zuckerberg has said will be the trigger to start trying to profit off of it.
Existing Users
For now, Facebook is expanding the ways it can make money off of Facebook users, no matter where on the Web they are. The company has an ad network called Atlas that lets marketers get data on how often individuals saw their ads and what gadget they used, while an audience network lets them serve ads to mobile apps other than Facebook. The company has been heavily selling its video advertising, after improving the technology and acquiring startup LiveRail to help it serve video ads outside the social network.
The company said Wednesday that users now view videos 3 billion times daily, triple the 1 billion figure disclosed in June.
“The fact that we have this much consumer video on Facebook means we have an opportunity to grow our ad business and that’s exciting for marketers,” Sheryl Sandberg, Facebook’s chief operating officer, said on the call.
To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net

Wealthy Asians Seek Refuge in U.S. Dollar During Currency Turmoil

Asia’s wealthiest families are snapping up dollars as a haven from the volatility plaguing financial markets, providing another source of demand for the greenback.
Rich individuals are chasing the greenback’s rally to a decade-high as the U.S. prepares to raise interest rates for the first time since 2006. Stamford Management Pte in Singapore, which oversees $200 million for Asia’s multi-millionaires, says about 90 percent of its holdings are now in the U.S. currency. SandAire Ltd. and Woodside Holdings Investment Management have boosted dollar assets to the maximum their rules allow.
“The U.S. dollar has moved relatively quickly, and that left a lot of high-net-worths behind,” Jason Wang, Stamford’s Singapore-based chief executive officer, said Wednesday in an interview. “Non-professional investors are not usually the first movers or innovators of a major trend, so there’s still a lot of pent-up demand.”
Markets are becoming more dangerous, particularly for smaller investors, as geopolitical turmoil from the Middle East to Ukraine combines with surprise policy announcements in the euro region, Switzerland, Singapore and Canada, to stoke price swings. With the U.S. economy outperforming its developed-world peers, the dollar is increasingly viewed as the best antidote to the increase in risk.

Bigger Players

Larger investors have known this for months. Hedge funds and other major speculators pushed net wagers on a stronger dollar to a record 448,675 contracts in the week ending Jan. 13, according to the Commodity Futures Trading Commission in Washington. They fell back to 437,873 last week, the first decline since mid-December.
Asia’s importance to the global economy is increasing, with the region’s developing nations accounting for 39 percent of global growth last year, compared with the European Union’s 30 percent and 22 percent for the U.S., according to the International Monetary Fund. The proceeds of that growth are increasingly being plowed into dollar-denominated assets.
Stamford, Woodside and SandAire are what’s known as family offices, established to manage the wealth of one or more rich families, rather than the companies or banks served by larger institutional investors.
SandAire, which has offices in London and Singapore, was set up in 1996 to oversee the investments of U.K. businessman Alex Scott and his family after he sold two family businesses. It’s seeking to limit its exposure to currencies including the euro, pound and yen.

Quick Returns

“We’re currently positioned for continued dollar strength, though we’d be surprised if it’s all one way,” Andrew White, a portfolio manager at SandAire in Singapore, said Wednesday in an interview.
Individual investors in Asia tend to be more proactive in managing their money than their counterparts in Europe and the U.S. because they’re more focused on generating short-term gains, according to Noor Quek, who runs Singapore-based family-office adviser NQ International Pte.
Bloomberg’s Dollar Spot Index, which tracks the U.S. currency against the euro, yen and eight others, touched its highest level this week since the measure started in 2004. The currency’s gains are being driven by speculation the Federal Reserve will soon raise its main interest rate from the zero to 0.25 percent range it’s been in since 2008.

Europe, Japan

The boost to the dollar is amplified by the European Central Bank and Bank of Japan’s efforts to increase the money supply in their own economies. The ECB surprised investors last week with the scope of its 1.1 trillion-euro ($1.24 trillion) quantitative-easing program, sending its currency to an 11-year low against the dollar.
Canada and Norway enacted shock rate cuts this month, while Switzerland removed its currency ceiling on Jan. 15, pushing an index of currency volatility to a 1 1/2-year high and sending investors piling into the dollar for safety. Singapore’s central bank on Wednesday eased monetary policy in an unscheduled decision to reduce the pace of gains in the city state’s dollar versus a basket of currencies.
The greenback has risen versus its peers for seven consecutive months. Fifty-four percent of investors, analysts and traders in a Bloomberg Global Poll this month picked the U.S. as the market likely to offer the best opportunities in the next year.
While Woodside in Singapore has put almost all its cash into dollars, the greenback is less attractive these days because recent gains have made it expensive, said Chief Investment Officer David Fergusson.

Choose Your Poison

Choosing whether to buy the dollar is like deciding “if you’d rather be shot in the head or leg,” Fergusson said in an interview. “You don’t really want to be shot at all, but given that you have to be shot somewhere, I’ll take the leg.”
Woodside was set up in 1959 by Fergusson’s late grandfather. About 80 percent of its liquid assets are now denominated in dollars, compared with 50 percent at the start of last year.
Stamford, whose clients must have at least $2 million in net investable assets, started switching its assets into the U.S. currency from Singapore dollars in 2013.
Wang said he’s not worried about a pullback in the greenback’s rally.
“We’re happy to sit on our long-U.S. dollar position for the next three to five years,” he said. “We’re just enjoying the momentum.”
To contact the reporter on this story: Netty Ismail in Singapore atnismail3@bloomberg.net
To contact the editors responsible for this story: Garfield Reynolds atgreynolds1@bloomberg.net Nicholas Reynolds, Paul Armstrong

Is There Money to Be Made in Oil? New Grads Don't Think So

 Six months ago, a degree in petroleum engineering was a ticket to a job with a six-figure salary. Now it’s looking like a path to the unemployment office.
The oil crash that’s forcing companies to slash billions from their budgets and cut tens of thousands of workers is derailing an industry campaign to attract top college graduates. It comes at a time when the future of drilling is increasingly tied to new technology that lets companies pull more oil and natural gas from the ground, faster and cheaper.
Young people who swarmed to newly designed energy programs at schools from Texas to California are now questioning whether they can count on crude for their future, according to interviews with students, counselors and company officials.
“It’s time for me to do a reassessment of how I plan to begin my career,” said Vince Miller, a senior at Ohio State University studying chemical engineering and president of the school’s Society of Petroleum Engineers chapter. Miller spent the summer working as an apprentice field engineer at a drilling site in North Dakota, and has watched anxiously since then as jobs evaporated.
Rohail Ullah, a sophomore majoring in petroleum engineering at Texas Tech University in Lubbock, Texas, spent part of his winter vacation talking with family and friends about whether the oil business was still the right choice as crude prices plunged 44 percent in the fourth quarter.
“What was going through my mind was: Is this going to give me the opportunity that I’m trying to seek?” he said.
Enrollment in engineering programs aimed at the oil industry soared during the past decade -- jumping by more than 70 percent at Texas A&M University -- as the shale boom brought explosive growth to energy companies across North America. In the past five years, engineering rolls doubled at Colorado School of Mines, according to school data.

$130,000 Salary

Competition for scientists and engineers drove up salaries, with top-ranked new graduates making as much as $130,000 a year.
“It’s one of the highest paying careers right out of college,” said Waleed Akram, a junior studying petroleum engineering at Texas A&M, who’s not yet ready to turn his back on the possibility.
Historically conservative companies like Exxon Mobil Corp. strove for the “cool factor” by flocking to social media, opening Twitter accounts and even creating “Vines” -- the micro-clip videos that have become an essential part of teenagers’ Internet language. Baker Hughes Inc., the oilfield service company, developed a drilling-inspired smartphone game modeled after Candy Crush.

Risky Realities

Despite these efforts, the oil bust has brought back the jolting reality of a volatile, commodity-based business, said Amy Myers Jaffe, executive director of energy and sustainability at the University of California at Davis. In a tight competition with Silicon Valley for the best and brightest, any disadvantage can hurt, she said.
“A lot of top candidates will go into other industries and they won’t be able to get them back,” Meyers Jaffe said. “If you’re good at math and science and you’re seeing that there’s going to be more jobs if you major in computer science, then you’re going to pick computer science.”
The 59 percent collapse in crude prices since June has sent oil companies into a downward spiral. The Standard & Poor’s 500 Oil & Gas Exploration & Production Index fell by 32 percent over the same period as investors anticipated losses and oil executives began planning for the worst.

Snowballing Layoffs

More than 30,000 layoffs have been announced across the industry as companies slash budgets, according to a tally by Bloomberg News. Exploration and production spending is expected to drop by more than $116 billion, a 17 percent decline, because of falling crude revenues, according to an estimate from Cowen & Co.
The steep declines have recalled the workforce decimation of the 1980’s oil bust that spooked a generation of college students. An era of stagnation followed as stripped-down companies trying to rebuild were thwarted by a shortage of skilled workers.
That shortage persisted right up to the current crash, as Halliburton Co. Chief Executive Officer Dave Lesar cited recruiting as his number-one challenge in an October interview. He described the industry’s need for top math and science professionals as “acute,” and said Halliburton was on track to hire 21,000 people in 2014.
With engineers and geologists in short supply, Lesar said he was willing to be flexible.

Math Majors

“In my view, a bright kid is a bright kid,” he said. “Instead of finding a geologist, you find a geography major. If you can’t find a physicist, you find a math major.”
Now, geology and physics graduates are worried their high-paid, globe-trotting days are over before they even started.
By December, after oil prices collapsed and a planned merger with Baker Hughes was announced, Halliburton said it would have to lay off 1,000 workers in the Eastern Hemisphere; This month, Baker Hughes said it would cut 7,000 jobs this quarter, Schlumberger Ltd. is eliminating 9,000 positions and Halliburton said it expected comparable reductions.
There’s little hard data available on how many students may be switching their interests. But “there’s definite concern,” said Priscilla G. McLeroy, director of undergraduate advising for Texas A&M’s petroleum engineering department. McLeroy has received a surge of e-mails from students about to start looking for jobs.

Adjusting Expectations

Engineering students Akram and Ullah both said they’re worried about their prospects as oil prices remain below $50 a barrel -- less than half its $107 peak in June.
“If it continues to be that way, I might even think about making the move over to the mechanical department,” Ullah said, though he said he’s still passionate about finding a position in the oil industry, if he can.
As layoffs mount, graduates at the very least will face higher competition for fewer jobs.
Some students were lucky enough to secure job offers last fall before it was clear the oil-price declines were going to be so severe or long-lasting. Those who didn’t must set their sights elsewhere, looking at smaller names and broadening their search from oil drillers to other companies in the sector, said Jean Manning-Clark, director of the career center and employer relations at the Colorado School of Mines.
“They’re having to work harder and they’re having to look for alternatives,” she said.

Still Recruiting

Even amid the cutbacks, oil companies aren’t abandoning their recruiting efforts, mindful of how hard it is to get the ball rolling again. Exxon is continuing its marketing blitz targeting young people, including a social media and website campaign called “Be An Engineer.” And it hasn’t stopped its campus visits, said Scott J. Silvestri, an Exxon spokesman.
“More engineers and more kinds of engineers are really needed to address future challenges, which is why we support this,” Silvestri said.
Business schools that offer energy-oriented tracks are rethinking how to market themselves as they see students pivot away from oil. Duke University’s Fuqua School of Business added an energy and environment track to its program in 2010, as the shale boom picked up steam. The 30 or so students in its graduate program that had been aiming for jobs in the oil industry are now rethinking, said Dan Vermeer executive director of the school’s Center for Energy, Development and the Global Environment.
Vermeer says Duke’s program prepares students for careers across the energy industry, and many will look for jobs in renewable energy and electricity as well as oil.
“It’s not going to be as robust as it might have been a year ago or two years ago, but I do think we’re buffered to some extent from the market volatility by having these types of students that are sort of cross trained,” he said.
To contact the reporter on this story: Zain Shauk in Houston at zshauk@bloomberg.net

To contact the editors responsible for this story: Susan Warren atsusanwarren@bloomberg.net Will Wade

Oppenheimer to Pay SEC, EU Financial Tax: Compliance

Oppenheimer Holdings Inc. will pay $20 million to settle U.S. regulatory claims that it improperly sold billions of shares of penny stocks on behalf of customers.
Oppenheimer admitted that it failed to report red flags that its client Gibraltar Global Securities, a Bahamas-based firm, was carrying out the transactions without being registered in the U.S., the Securities and Exchange Commission said in a statement. The firm acknowledged additional sales of penny stocks for a different customer that resulted in about $588,400 in commissions, according to the SEC.
In a statement, Oppenheimer said it was pleased to resolve the claims, which involve activity from “years ago.”
The SEC in April 2013 sued Gibraltar, saying the firm had been operating illegally in the U.S. since 2008. Gibraltar is fighting the claims in Manhattan federal court.
The settlements made public Tuesday call for Oppenheimer to pay $10 million to settle the SEC case and another $10 million to resolve related violations with the Treasury Department.
Jennifer Shasky Calvery, director of the Treasury Department’s Financial Crimes Enforcement Network, said Oppenheimer faced stiffer penalties because it was a repeat offender. Oppenheimer paid $2.8 million in 2005 over anti-money laundering violations.
The SEC said its investigation is continuing.

Compliance Policy

Europe Financial Transaction Tax Gets New Push From 10 Countries

A group of 10 euro-area countries renewed their joint effort to implement a tax on financial transactions after talks collapsed last month.
Finance ministers from Austria, Belgium, Estonia, France, Germany, Italy, Portugal, Slovakia, Slovenia and Spain made a joint statement after meetings in Brussels.
Differences over taxation of derivatives and the cost-efficiency of the tax in smaller countries caused talks to break down late last year. The group, which wants the levy to apply as widely as possible, is now asking the European Commission for technical advice.

Courts

Perry Loses Bid to Toss Ethics Charges as Unconstitutional

Rick Perry failed to persuade a Texas judge to throw out an ethics violation case on claims the state constitution protects a governor’s right to say whatever he wants about his official powers.
Perry, a potential candidate for the 2016 Republican U.S. presidential nomination, may have to face a trial on two counts of abusing his authority. Perry allegedly threatened to veto funding for an ethics task force if the county prosecutor running it didn’t resign following a drunken-driving conviction.
Texas state court Judge Bert Richardson, a Republican appointed to oversee the former governor’s case, denied on Tuesday Perry’s bid to dismiss one of the counts and, while he agreed that the second count was flawed, said the state may file an amended indictment “to cure any such defect.” He rejected Perry’s request to dismiss the count.
Richardson also said Perry can’t challenge the constitutionality of the law he’s charged under until after he’s tried.
Perry immediately filed a notice of appeal after the decision.
“Continued prosecution of Governor Perry is an outrage and sets a dangerous precedent,” Tony Buzbee, Perry’s attorney, said in an e-mailed statement. “America’s commitment to the Constitution and the rule of law is at stake in this case, which is why we will immediately appeal.”
Perry, 64, Texas’s longest-serving governor, left office this month.
Perry is accused of wanting to remove Travis County District Attorney Rosemary Lehmberg, a Democrat, and slash funding for the task force under her control because it was probing a cancer-research funding program that benefited some of his political donors. He denies the claim.
The case is Texas v. Perry, D1DC14-100139, 390th Judicial District Court of Travis County, Texas (Austin).

Saxo Faces Lawsuits for Repricing Franc Trades Retroactively

Saxo Bank A/S says it’s bracing itself for lawsuits from some clients who are unhappy with its efforts to have them cover losses on their Swiss franc accounts after the bank repriced trades retroactively.
The Danish bank set a Jan. 23 deadline for clients to respond to its estimates of how much they’d lost trading francs using borrowed funds. Saxo said talks with institutional and retail customers will probably take “a couple of months.” The bank estimated its own losses may be as high as $107 million.
Steen Blaafalk, Saxo’s chief financial officer and head of risk management, said Jan. 26 in a phone interview that legal challenges are “not unlikely.”
Since the Swiss National Bank’s shock decision on Jan. 15 to abandon its euro peg, Saxo has raised its margin requirements not only on the franc but also on most major currencies in an effort to reflect what Blaafalk said is a return to “extreme volatility” across markets.
The bank confirmed Tuesday in Denmark that it repriced franc trades on Jan. 15, citing “very limited liquidity” at the time the trades were executed. Saxo told clients at 11 p.m. Copenhagen time on that day it was doing so, according to spokesman Kasper Elbjoern.
Censeo Asset Management, based in Vienna, said in a press release Tuesday that it “can’t recognize the lawfulness of this measure” and it will help its clients challenge Saxo’s repricing if a review shows the action is “questionable under Austrian law.” The company offered clients a Saxo-brokered franc product.
Saxo is now urging clients to gird for more market disruptions as bond purchases by the European Central Bank distort asset prices and as Greece prepares to renegotiate its bailout terms.
To contact the reporter on this story: Carla Main in New Jersey atcmain2@bloomberg.net

Juniper Beats Estimates Despite CEO Ouster in November

Juniper Networks Inc. forecast first-quarter sales higher than analysts’ estimates, a sign the network-equipment maker is weathering management changes and increased competition. The shares rose in extended trading.Sales will be $1.02 billion to $1.06 billion for the quarter, the Sunnyvale, California-based company said Tuesday in a statement. On average, analysts projected revenue of $1.02 billion, according to data compiled by Bloomberg. Earnings excluding some costs will be 28 cents to 32 cents a share, compared with an average analyst estimate of 30 cents. Fourth-quarter profit also beat estimates.
“It looks good, certainly on the surface,” Erik Suppiger, an analyst at JMP Securities LLC, said in a telephone interview. “They have set some very low expectations.”
Juniper has been working to find new growth, while also dealing with pressure to increase shareholder returns from activist investors led by Elliot Management Corp. A month after naming technology executive Shaygan Kheradpir chief executive officer in January 2014, the company announced increased stock buybacks and cost-cutting. In October, the company said it missed its third-quarter forecast due to worsening carrier spending. A month later, the board replaced Kheradpir, a former Barclays Plc technology executive, with Rami Rahim, citing concerns about Kheradpir’s leadership skills and his behavior in a contract negotiation with an unidentified Juniper customer.
“I’m pleased with the solid progress we made as we successfully streamlined our organization, reduced costs, increased capital returns to our shareholders and sharpened our focus on the fastest growing segments of the market,” Rahim said in the statement.

Profit Beats

One trouble spot was the company’s security technology business. Revenue for security was $96.5 million in the quarter, compared with $157 million in the same period a year earlier, and the company took an $850 million goodwill impairment charge due to the faltering performance of the unit. Suppiger said he would like to see Juniper sell its security business.
In the fourth quarter, earnings excluding certain costs were 41 cents a share, Juniper said in the statement. Revenue fell 14 percent to $1.1 billion. On average, analysts projected profit of 31 cents a share on sales of $1.06 billion.

Shares Rise

Juniper shares rose 5.1 percent at 7:59 p.m. New York time after closing at $21.83. The stock had gained 1.5 percent since Kheradpir stepped down on Nov. 10 through Tuesday’s close.
The company had a fourth-quarter net loss of $769.6 million, or $1.81 a share, as it took the impairment charge.
Rahim has overseen development of some of Juniper’s most successful products since joining the company in 1997, said Doug Murray, a former Juniper executive who is now CEO of Big Switch Networks Inc.
New competitors such as Arista Networks Inc. and VMware Inc. have established themselves as leaders in the approach known as software-defined networking.
Stuart Jeffrey, an analyst at Nomura Securities International Inc., expects Juniper’s software-based products to lift sales in the second half of the year, he wrote in a recent note.
The company bought back $500 million of its shares during the fourth quarter and said it is committed to purchasing a total of $4.1 billion through 2016.
Elliott, which owned 9.1 percent of Juniper shares as of November, submitted a proposal in December to add three to five new directors to the company’s board, which would enable Juniper to avoid a proxy fight, people with knowledge of the matter said at the time.

Phone Companies

Juniper gets 65 percent of its sales from phone companies, many of which have trimmed their capital budgets because they’ve completed the bulk of the move to 4G cellular networks. Verizon Communications Inc., the largest U.S. wireless carrier and Juniper’s largest single customer, according to a Bloomberg supply-chain analysis, broke with the trend on Jan. 22 by raising its capital spending forecast for 2015 to $17.5 billion to $18 billion this year, from $17 billion.
Still, phone companies may be able to significantly reduce network-equipment costs by moving to software-centric approaches. Mark Sue, an analyst at RBC Capital Markets, said total carrier spending will be little change in 2015 at $208 billion.
A successful transition could also help Juniper to gain share with large Internet companies and corporations that are building their own private clouds. Spending by these cloud providers will increase 14 percent to $41 billion, he wrote.
“Juniper could emerge from the current carrier cycle in a stronger competitive position longer term,” he wrote.
(An earlier version of this story incorrectly listed the timing of the CEO transition.)
To contact the reporter on this story: Peter Burrows in San Francisco atpburrows@bloomberg.net
To contact the editors responsible for this story: Pui-Wing Tam atptam13@bloomberg.net Andrew Pollack, Stephen West

Monday, 26 January 2015

Kaisa Bonds Extend Rebound Amid Shenzhen-Led Takeover Plans

Bonds of Kaisa Group Holdings Ltd. (1638) rallied for a fourth day on speculation the local government is seeking buyers for the homebuilder after it missed a coupon payment. The company’s 8.875 percent notes due 2018 jumped 5.78 cents to 62.46 cents on the dollar as of 11:45 a.m. in Hong Kong, according to Bloomberg-compiled prices. Its 10.25 percent debt due 2020 advanced 5.96 cents to 62.22 cents on the dollar. The securities fell to record lows below 30 cents on Jan. 7. The rebound follows reports the Shenzhen local government is seeking new investors to take over the developer based in the southern Chinese city after founder and ex-chairman Kwok Ying Shing quit on Dec. 31. Kaisa is being probed over alleged links to Jiang Zunyu, the former security chief of Shenzhen taken into custody in a graft probe, two people familiar said. “The Kaisa situation took a major turn to the positive, with the expected government-orchestrated investment finally appearing to be in motion,” Owen Gallimore, a Singapore-based credit analyst at Australia & New Zealand Banking Group Ltd., said in a note to clients today. “The large cities, and Shenzhen in particular, are currently seeing strong demand for land and the developers such as Kaisa clearly have valuable assets.” Sunac China Holdings Ltd. (1918) is in talks to purchase a stake in Kaisa as the Shenzhen government seeks investors for the troubled developer, a person familiar with the matter said yesterday. Sunac has sent a team to speak with authorities and carry out due diligence on Kaisa, the person said. Default Risk Kaisa failed to make a $23 million interest payment due Jan. 8 on $500 million of 10.25 percent dollar bonds. It has a 30-day grace period to make the payment. Failure would produce the first default on dollar bonds by a Chinese developer, according to Standard & Poor’s. Investors should be cautious about Kaisa bonds before a takeover is decided, according to Lucror Analytics, an independent bond research firm in Singapore. “We are bemused that the market is so confident of a Kaisa bailout by a white knight,” Charles Macgregor, head of Asia high-yield research at Lucror, said by e-mail. “Any purchase of the Kwok family stake would also require a general offer to other shareholders.” To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Ken McCallum, Chris Bourke

Earning That Mutual Fund Paycheck Gets Easier in Equities

You didn’t have to be a genius to make money in equities the last two years. Buy an index fund and let the bull market guide you to a 44 percent gain. Most money managers who actually pick stocks couldn’t match the Standard & Poor’s 500 Index, let alone beat it. Thanks to three weeks of volatility, that’s beginning to change. This year, U.S. stocks have started to go their own ways, rather than move in lockstep with each other and with little swings, as they did in 2014. That’s good news for active managers, who’ve seen investors pull money for years in favor of low-cost index and exchange-traded funds. “That’s a better environment for the way that we think of the world,” said Doug Burtnick, a Philadelphia-based senior investment manager at Aberdeen Asset Management, which oversees $525 billion. “Managers who focus on discriminating among companies, and to the extent they tend to get the fundamentals right, should be rewarded more richly.” Three weeks into 2015, stocks are getting easier to tell apart. The performance gap between the best and worst industries in the S&P 500 are the widest to start a year since 2012. Companies that beat earnings estimates are being rewarded while those that miss are punished. Energy companies with the most debt are falling twice as fast as their peers. Stock Dispersion A mathematical indicator known as dispersion that measures how far individual equities are swinging relative to the market is up 51 percent after reaching the lowest level since 1979 in August. Daily (SPX) moves in the S&P 500 have doubled from a year ago and the index went 15 straight days with peak-to-trough changes of greater than 1 percent, the longest since 2012. The benchmark gauge added 0.3 percent at 4 p.m. in New York. That contrasts with 2014, when a combination of low volatility and almost unanimous gains in share prices made it the hardest year in three decades for money managers to win. “This is the year to separate the wheat from the chaff,” Brian Peery, co-portfolio manager at Novato, California-based Hennessy Advisors Inc., said by phone. The firm oversees $5.9 billion. “When you get these dispersions, people are going to be looking at what the fundamentals look like, how much they are growing revenue, how much are they increasing margins or profits. At the end of the day, that’s what the market should react on.” Monthly dispersion among S&P 500 stock returns, measured with a tool known as standard deviation, or variance from the average, narrowed for a fifth year in 2014 and reached 4.1 percent in August, data compiled by JPMorgan Chase & Co. and Bloomberg show. The measure is 6.2 percent so far this month. Energy Companies Netflix Inc. (NFLX), Baker Hughes Inc. (BHI), and eight other companies that exceeded analyst profit estimates by the widest margins during this earnings season have climbed an average 2.6 percent this year. At the same time, those with the biggest misses, such as Morgan Stanley (MS) and American Express Co., are down 5.6 percent, according to data compiled by Bloomberg. Energy producers with the most debt are being penalized as oil’s plunge raised speculation that some will find it hard to stay profitable and keep up with borrowings. The 10 oil producers with the highest debt-to-asset ratios in the S&P 500, such as Nabors Industries Ltd. and Transocean Ltd., fell an average 21 percent in the past three months, compared with the 9.8 percent loss from those with the lowest. “The differentiation in returns reflects how investors are reacting to this decline in oil,” Marshall Front, chief investment officer at Front Barnett Associates LLC in Chicago, said by phone. His firm manages over $800 million. “If you’re looking at individual securities as opposed to industries, long-term earnings growth is likely to be the driver.” Trailing Benchmarks The S&P 500 rose 1.6 percent last week, joining a global equity rally after European Central Bank President Mario Draghi expanded stimulus to combat slowing growth and the threat of deflation. The index is down 0.3 percent in 2015, after jumping more than 10 percent in each of the previous three years. In 2014, investors pulled money out of mutual funds, where the challenge to find bigger gains in a monolithic market contributed to the industry’s worst year in at least a decade. Among equity funds with at least $500 million, about 73 percent trailed their benchmarks, the most since 2004, data compiled by Bloomberg show. ETFs, which invest in a basket of shares without regard to the individual companies, have seen their popularity rise amid uninterrupted equity gains. Investors poured $140 billion into the securities last year while withdrawing $55 billion from mutual funds, data compiled by Bloomberg and the Investment Company Institute show. Higher Volatility The dominance of ETFs and the increased influence from central banks caused stocks to move in unison last year, according to Dubravko Lakos-Bujas, head of U.S. equity and quantitative strategy at JPMorgan in New York. Three rounds of monetary easing from the Federal Reserve lifted almost every stock, fueling the bull market that has tripled in prices in almost six years. As the Fed prepares to raise interest rates for the first time since 2006, investors will start to discern winners and losers, he said. “The gap between elevated levels of correlation and low levels of volatility resulted in a very unfavorable environment,” Lakos-Bujas said. “Dispersion may pick up on the back of higher volatility levels in 2015 and it should open up the opportunity set for stock pickers.” To contact the reporters on this story: Oliver Renick in New York at orenick2@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net

China Money Rate Drops as PBOC Injects Funds Via Reverse Repos

China’s benchmark money-market rate fell as the central bank added funds to the financial system, ensuring cash supply as demand spikes before the Lunar New Year holidays. The People’s Bank of China conducted 60 billion yuan ($9.6 billion) of reverse-repurchase operations Tuesday for seven and 28 days, keeping rates close to market levels. The monetary authority offered 30 billion yuan of 28-day contracts at 4.8 percent and a similar amount in seven-day reverse repos at 3.85 percent. China’s new year holidays start Feb. 18. “The central bank wants to ensure pre-holiday cash demand is met,” said Song Qiuhong, an analyst at Shunde Rural Commercial Bank Co. in Guangdong province. “The interest rate for 28-day repos was higher than expected, indicating the central bank may have the concern that significantly lowering the interest rate could accelerate capital outflows.” The seven-day repurchase rate, a gauge of interbank funding availability, fell two basis points to 3.87 percent as of 11:34 a.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. It has dropped 26 basis points in the past three days after rising to a two-week high of 4.13 percent on Jan. 22. The one-month repo rate climbed eight basis points, or 0.08 percentage point, to 5 percent. The PBOC offered 50 billion yuan of seven-day reverse repos to yield 3.85 percent on Jan. 22, the first time it used the short-term tool in a year. It last used the 28-day contracts in January 2013. The seven-day repo rate climbed to a four-week high of 6.59 percent on Jan. 20, 2014, before the Chinese New Year holidays that started Jan 30. The PBOC injected a net 450 billion yuan in the two weeks before those holidays. Capital Flows Yuan positions on the PBOC’s balance sheet, a gauge of capital flows, fell 128.9 billion yuan in December from a month earlier, the most since 2003, official data show. The nation’s trade surplus climbed to a record $54.5 billion in November and was $49.6 billion last month. Goldman Sachs Group Inc. says China’s official errors and omissions data -- figures used by nations to balance cross-border flows when records don’t match -- point to an unprecedented $63 billion of capital outflows in the third quarter of 2014. Foreign-exchange reserves fell to $3.84 trillion in December, from an all-time high of $3.99 trillion in June. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose three basis points Tuesday to 3.24 percent, data compiled by Bloomberg show. The yield on government bonds due September 2024 was steady at 3.43 percent, according to National Interbank Funding Center prices. To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Robin Ganguly, Simon Harvey