Shares of Citi and Wells Fargo rise after UBS upgrades both to buy

Shares of Citigroup and Wells Fargo rose Thursday after an analyst at UBS upgraded both stocks to buy.

Citigroup’s stock was up 1.1 percent, while Wells Fargo gained by 0.9 percent.

UBS changed its rating on Wells Fargo from neutral to buy but lowered its price target from to $60 from $63. The new target is 12 percent higher than Thursday’s price, around $53.50.

Shares of Wells Fargo took a hit last year after revelations of the bank’s cross-selling program. Bank employees were pushed to sell as many products as possible, and opened accounts in customers’ names without their permission to hit sales targets. The bank reached a $190 million settlement with U.S. authorities in 2016, and CEO John Stumpf was forced to resign.

The UBS analyst acknowledged the challenges of overcoming the hit to Wells Fargo’s reputation and its regulatory hurdles but said shares are trading at “historically wide PE discounts” compared to other large cap regional banks.

“Wells Fargo’s substantial underperformance has created a buying opportunity,” Saul Martinez wrote in a note to clients Thursday. “Wells Fargo shares have lagged the average bank in our coverage universe by a substantial 49 percentage points.”

UBS also upgraded Citigroup to buy from neutral, and increased its price target to $80 from $78.

The bank trades at a discount to other large banks, including J.P. Morgan Chase and Bank of America. The analyst cited the profitability of its global consumer banking operation, improved loan growth and earnings momentum at Citibanamex, its Mexican operation, among the reasons for optimism.

“We do not believe that the current share price adequately captures incremental improvements in operating and financial performance in the coming years and still considerable capital optimization opportunities,” Martinez said.

Yellen gets post-Fed payday in private meetings with Wall St. elite

Janet Yellen, chair of the U.S. Federal Reserve, arrives for a dinner during the Jackson Hole economic symposium, sponsored by the Federal Reserve Bank of Kansas City, in Moran, Wyoming, on Thursday, Aug. 24, 2017.

Janet Yellen, chair of the U.S. Federal Reserve, arrives for a dinner during the Jackson Hole economic symposium, sponsored by the Federal Reserve Bank of Kansas City, in Moran, Wyoming, on Thursday, Aug. 24, 2017.

Janet Yellen cashed in with a visit to Wall Street two months after stepping down as Federal Reserve chair, discussing the U.S. economy and interest rates at events on Monday that included a dinner for 40 at a CEO’s Manhattan penthouse.

In a short telephone interview, Yellen, who ran the U.S. central bank the last four years, said she revealed no confidential information. A person familiar with the events hosted by investment bank Jefferies, including the evening gathering put on by CEO Richard Handler, said it was her first such engagement since leaving the Fed.

“I talked about the economy and general perspectives on monetary policy,” Yellen said late on Wednesday. She said she was paid but declined to say how much, and did not provide details.

The program included a question-and-answer session with more than 100 Jefferies clients, where according to the source she stuck close to the gradual rate-hike message that her successor, Jerome Powell, has delivered since taking charge in early February.

Later, over the penthouse dinner of short ribs and matzo in the trendy Tribeca neighborhood, Yellen told executives from hedge funds, private equity firms and other companies that she considered inflation to be in check and unlikely to spike, so rates would stay relatively low, according to a second person familiar with the discussion.

The discussions with billionaires Carl Icahn, Daniel Loeb and other big investors ran past sunset until the college basketball final between Villanova and Michigan tipped off on TV, the second source said. Representatives for Icahn Enterprises and for Loeb, who runs Third Point, did not comment or respond to a request.

Cashing in after years in public service is a well-trodden path for policymakers and regulators, highlighting the demand among investors for any exclusive insights they can offer. In the case of former Fed chiefs, who can earn an annual salary in one night and have no constraints on expressing their views provided they do not broach confidential matters, those insights could potentially move markets.

Yellen’s predecessor Ben Bernanke waited just over a month after leaving the Fed in 2014 before earning some $250,000 for a private talk in Abu Dhabi. He followed that up with similarly-priced private dinners with investors in New York, at which he predicted rates would remain low for a long time. Former Fed Chair Alan Greenspan waited only a week after stepping down before addressing a private dinner in 2006 hosted by Lehman Brothers, the investment bank whose collapse two years later sent the global financial crisis into high gear.

‘An amazing evening’

Under Yellen, who earned just more than $200,000 per year as chair, the Fed finally turned the corner from its crisis-era policies of near-zero interest rates and trillions of dollars of bond-buying.

At Monday’s larger forum for Jefferies clients, she expressed the view that three or four rate rises were likely this year, and that recent U.S. tax cuts and a boost in government spending posed at least some risk of running the economy hot, according to the first source, who like the second source requested anonymity.

Reuters was not able to reach David Zervos, the Jefferies Group LLC chief strategist who conducted the forum and who later tweeted a link to a photograph of him with a smiling Yellen on Instagram. “An amazing evening last night hosting Janet Yellen for our clients in NY,” read the tweet, posted Tuesday.

The third meeting on Monday was with a group of women at Jefferies at which Yellen discussed being a female leader, said the second source.

The Fed raised rates last month at its first meeting under Powell, and forecasts showed policymakers were split between three or four total hikes this year as economic growth and inflation were seen rising.

Yellen joined the Brookings Institution think tank immediately after stepping down and spoke publicly there in February about the economy. Last month she discussed her Fed tenure at University of Pennsylvania.

In recent months she was listed as a speaker-for-hire by the Washington Speakers Bureau, which did not respond to a request for comment.

Her profile page, alongside that of Bernanke and Greenspan, says she travels from Washington and fees vary based on event location.

India’s central bank bans financial firms from dealing with cryptocurrency

An Indian policeman stands guard at the entrance of the Reserve Bank of India (RBI) head office in Mumbai on October 4, 2017.

Punit Paranjpe | AFP | Getty Images
An Indian policeman stands guard at the entrance of the Reserve Bank of India (RBI) head office in Mumbai on October 4, 2017.

Regulated financial institutions in India can no longer legally deal with cryptocurrencies, the Reserve Bank of India announced Thursday.

“In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling [virtual currencies],” the bank said in a statement.

Those that already provide cryptocurrency services will need to end the relationships within a specified time, which the bank said will be announced separately.

Cryptocurrencies caught the attention of regulators after bitcoin’s price rose more than 1,300 percent last year, near $20,000 in December. The cryptocurrency was trading near $6,887 as of 10:20 a.m. Thursday.

Most digital currencies, such as bitcoin, are not backed by any central government, meaning each country has different standards and regulations.

Bitcoin and other cryptocurrencies are not legal tender in India. Before Thursday’s statement, the Indian government had issued warnings about the risk associated with trading. The digital assets also raised flags over consumer protection, market integrity and money laundering, the bank said.

The government had planned to “take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system,” India’s finance minister told lawmakers in New Delhi in February, according to a transcript by The Hindu newspaper.

The country’s tax department sent notices about cryptocurrency investing to tens of thousands of citizens after a national survey showed more than $3.5 billion worth of transactions have been conducted over a 17-month period.

Thursday’s statement was part of an announcement about broader regulatory policy measures for strengthening financial market regulation.

The Reserve Bank of India was more open to blockchain, the technology that underpins virtual currencies, which it said has the potential to improve the efficiency and inclusiveness of the financial system.

Bill Ackman’s hedge fund empire crumbles in less than 3 years from public wrong-way bets on Herbalife, Chipotle

Bill Ackman, founder and CEO of Pershing Square Capital Management.

Bill Ackman has seen his hedge fund’s assets cut more than in half from their peak above $20 billion in 2015 as institutional investors flee Pershing Square’s abysmal returns amid a roaring bull market.

Most of the outside investors have departed or are planning to yank their money as restrictions lift, a person familiar with the matter told CNBC. The defectors include longtime partner Blackstone Group.

Pushing them out the door is an 8.6 percent negative return this year through the end of March, which followed a 4 percent losing return in 2017. Total assets now total just $8.2 billion.

The fund had a negative return of 13.5 percent in 2016 and negative 20.5 percent in 2015. By comparison, the S&P 500 is up 11 percent annually the last three years.

Pershing Square declined to comment for this story. News of the institutional investor exit was first reported by The Wall Street Journal.

Some of Pershing’s challenges over the past three years included a $4 billion loss on its stake in Valeant Pharmaceuticals. Ackman’s short of nutritional supplement company Herbalife proved costly not only in money lost, but also in reputation because of the high profile battle over the company with Carl Icahn.

Pershing also remains the largest investor in Chipotle Mexican Grill with a 10.3 percent stake in the company, according to FactSet. While that investment remains a loss for the fund, Chipotle shares have rallied 26 percent since the restaurant appointed Brian Niccol as chief executive, a move Pershing has celebrated. Niccol took over last month.

Ackman earlier this year cut one-fifth of Pershing Square Capital staff, including one investment professional and several operational positions, as outside investors fled the fund. Reuters earlier reported the layoffs and said Ackman intends to reduce his time in the public sphere, opting instead to focus on investing.

Pershing has clinched some modest investing victories over the past year, including $100 million profit from its brief stake in Nike. CNBC reported in January that Pershing Square started buying Nike in October when it was trading in the $52 to $53 per share range, according to a source.

Ackman’s hedge fund woes are not alone. Several high-profile funds have disappointed in recent years, including David Einhorn’s Greenlight Capital and Nelson Peltz’s Trian Fund Management, which posted gains of just 1.6 percent and 3.7 percent respectively last year. Einhorn told clients earlier this week that the fund suffered one of its worst quarters

Chinese state media claims victory in trade dispute so far, saying Beijing’s tariffs will hurt Trump voters

Chinese state media was quick to note what it sees as Beijing’s edge in the increasingly tense trade relationship between the world’s two largest economies.

“China stands firm and wins first battle of Sino-US trade war,” China’s official People’s Daily newspaper said in the headline of a Chinese-language article Thursday.

Beijing’s tariffs “hit [Trump] where it hurts. … The origins of these products are places where people tend to vote for Trump,” the People’s Daily said according to a CNBC translation.

 

The Trump administration announced late Tuesday proposals for 25 percent tariffs on imports of roughly 1,300 Chinese product lines valued at $50 billion, ranging from machinery to vaccines. Less than 24 hours later, China’s Ministry of Commerce revealed a list of 106 imports from the U.S. that will be subject to a 25 percent tariff, including soybeans and cars.

No effective date for China’s planned tariffs was announced. The Office of the U.S. Trade Representative has planned a hearing on its proposed duties for May 15.

U.S. President Donald “Trump has already proved himself wrong because China has demonstrated that it can’t be coerced and is fully determined to reciprocate,” a separate, English-language editorial from China Daily said Thursday.

“It’s really time for Trump to give up the useless tariff weapon and come to the negotiation table.”

Manager of $200 billion pension fund deletes Facebook account, citing ‘offensive’ management

Christopher Ailman, chief investment officer of the California State Teachers Retirement System

Christopher Goodney | Bloomberg | Getty Images
Christopher Ailman, chief investment officer of the California State Teachers Retirement System

Christopher Ailman, the chief investment officer of the California State Teachers’ Retirement System (CalSTRS), said Wednesday he deleted his Facebook account because of the company’s management.

In a tweet, he said: “I have deactivated my Facebook account. Their lack of oversight and poor management is offensive. #DeleteFacebook.

CalSTRS, which manages $224.4 billion in assets, owns $650.4 million in Facebook shares as of year-end 2017.

Ailman’s tweet comes as Facebook struggles with the news that Cambridge Analytica, a political analytics firm, was able to collect data on millions of people’s profiles without their consent. The news was followed by a steep decline in the company’s stock and raised concern it could be hit with government regulation.

Facebook did not immediately respond to CNBC’s request for comment.

In an interview with CNBC on Wednesday, Ailman said: “They have to deal better with their privacy issues. We’ve been unhappy about the governance [in Facebook] because as shareholders we have almost no say, because [CEO Mark] Zuckerberg just controls that thing.”

“While Silicon Valley loves to have one person in charge, we think there are drawbacks,” he said.

Facebook’s stock rose more than 2 percent on Thursday after Zuckerberg told reporters he has not seen a noticeable change in user behavior amid the scandal. Zuckerberg is scheduled to testify in front of Congress on April 11.

Financial advice for millennials: The dos and don’ts of money

For millennials at the start of their careers looking to save some extra money, financial expert Chris Hogan has some advice on how to become more savvy on what to do with that first paycheck.

Budget, budget, budgetHogan couldn’t stress enough the importance of establishing a budget for yourself, laying out each month where your money is going.

“It’s the importance of being in control,” he told FOX Business’ Maria Bartiromo during an interview on Tuesday. “You tell your money where to go, instead of wondering where it went. It stretches out and gives you more power.”

The power of compound interest

There’s no greater way to exponentially increase your savings than investing money in 401(k)s, a tax-sheltered retirement plan that allows employees to set aside a portion of their compensation before income taxes are applied and 403(b)s, a similar plan designed for public school or non-profit employees.

  • Financial advice for millennials: the dos and don’ts of money

“The 401(k) is a gamechanger,” Hogan said, adding that employees should be aware of when they’re eligible to start investing, because most places require a stint of six, nine or even 12 months.

The danger of debt

Although it may seem easy to sign up for things like credit cards, Hogan warned that “five minutes of stupid can bring you years of regret trying to attack and pay off debt.” Millennials need to avoid debt like the plague, he said, and be on the constant lookout for scams that can take years to recover from.

The truth about the FICO score  

FICO, a credit score in the U.S. that analyzes the likelihood someone will pay their debts, is typically used by banks and credit card companies to study the risk of loaning money to consumers. But Hogan said there’s a lot of misunderstanding when it comes to the FICO score – namely, that people think it’s an indication of wealth.

Young people, he said, need to be aware that it actually takes into account your debt payment, your debt history, the type of debt you have and the likelihood that you’ll rack up more debt.

“If I could go back and just sit me down and really explain these [tips], I think I would’ve made much more financial progress,” Hogan said.

Trade war with China would be ‘devastating’ for American families: US Chamber of Commerce

President Donald Trump and China's President Xi Jinping (not shown) make a joint statement at the Great Hall of the People on November 9, 2017 in Beijing, China.

A day after President Donald Trump slammed South Korea last week for benefiting unevenly from its trade relationship with the US, the largest American business association shot back.

Embedded in an article the US Chamber of Commerce published to commemorate the sixth anniversary of the US-Korea Free Trade Agreement, also known as KORUS, was a video that slammed anyone calling for the pact’s demise.

KORUS “represents a rules-based economic order that goes hand in glove with the mutual defence treaty that has supported regional stability in the Asia-Pacific since the end of the Korean war,” the chamber said.

More from the South China Morning Post :
A nasty US-China fight is inevitable. But it needn’t be terminal
China ‘doesn’t want a trade war’ with US, as sides agree to more talks in Beijing soon
Never mind China, could Trump country be hardest hit by tariffs?

“Despite these gains, there have been calls for ripping up the agreement because of the US trade deficit with Korea. Not only does this metric ignore some basic economic principles, but it also ignores the fact that the deficit is narrowing substantially.”

The chamber, which includes among its 3 million members manufacturing giants such as Ford Motor Company and tech industry leader IBM, also warned last week that punitive trade measures aimed at China could have a “devastating” effect on the incomes of American families.

Traditionally aligned with Trump’s Republican Party, the industry association’s stance highlights the political war brewing in Washington over a trade war that the US president appears intent on sparking. The chamber is one of many companies and organisations stepping up their resistance to Trump’s foreign trade and investment initiatives.

These moves include punitive tariffs on steel and aluminium, announced earlier this month, and expectations that Trump will target China specifically with new import taxes on its products. The latter is the likely result of a Section 301 investigation into Beijing’s foreign investment rules, which demand the transfer of intellectual property to local companies.

“Tariffs are a hidden tax on Americans – plain and simple. More than 41 per cent of clothing, 72 per cent of footwear, and 84 per cent of travel goods sold in the US are made in China,” the Washington-based Retail Industry Leaders Association, said in a public letter to Trump. “A tariff on these products would be a tax on every American.”

RILA’s members include Nike, Gap, Ikea, Abercrombie & Fitch and Whole Foods.

Meanwhile, Wal-Mart, Target, Best Buy and Macy’s are among the large US retailers that separately sent Trump a letter urging him not to impose punishing tariffs on goods imported from China, Reuters reported.

Trump will announce by Friday the imposition of a package of US$60 billion worth of annual tariffs against China, The Washington Post reported, citing four senior administration officials, who declined to be identified.

The package could be applied to more than 100 products, which Trump argues were developed by using trade secrets the Chinese stole from US companies or technologies US companies were forced to hand over in exchange for market access, the report said.

“I’m getting calls from companies asking if they can petition for exemptions [from the metal tariffs],” said Doreen Edelman, a Washington-based trade lawyer with law firm Baker Donelson, told the South China Morning Post in an interview.

“Executives have thrown their hands up in the air because they can’t plan and they can’t predict. Companies are wondering whether they should invest in the US,” she said.

Also looming is legislation that would widen the scope of government reviews of foreign investments on national security grounds, possibly stymieing plans by foreign companies to start or expand operations in the US.

The Foreign Investment Risk Review Modernisation Act (FIRRMA), was co-authored by senior Senators John Cornyn, a Republican from Texas, and Dianne Feinstein, a Democrat from California. Cornyn has tried to cajole lawmakers to support the act to stop China using its “tentacles” to undermine American security through the acquisition of advanced technologies.

If enacted, the legislation would expand foreign investment review procedures overseen by the Committee on Foreign Investment in the United States (CFIUS), which is chaired by the treasury secretary and seeks input from the departments of defence and homeland security, among other federal bodies.

The Washington-based Organisation for International Investment (OFII), which represents the North American operations of HSBC and other global companies with US operations, is resisting the CFIUS legislation by lobbying lawmakers, according to people with knowledge of the matter.

“Mergers and acquisitions with overseas partners continue to be vitally important in the US,” said Chris Griner, chair of the CFIUS practice at law firm Stroock & Stroock & Lavan. “Open investment policy has been the hallmark of US government policy over many years.”

The importance of these transactions might be why Cornyn and Feinstein have not yet been able to push their FIRRMA legislation through.

“If we are going to have legislation that says a Chinese paper company can’t buy a US paper company because that’s a national security issue, what wouldn’t be a national security issue then?” Edelman said.

“If we do it, can you imagine if the rest of the world puts in similar legislation that US companies cannot invest?”

Lawmakers might be hesitant to get behind FIRRMA because “then you’re on the record and your opposition can use that in an attack ad, portraying you as someone who wants to shut down global trade”, she said.

While concerns about China’s acquisition of dual-use technologies, or those that can be used for military applications, sparked the push to strengthen the CFIUS review process, proposed investments from other countries could be slowed down if FIRRMA becomes law.

FIRRMA would give CFIUS the authority to review all “non-passive” investments by foreign entities. Currently CFIUS reviews only transactions that give foreign parties majority control of a US company that develops, sells or licenses advanced technologies with potential military applications.

 

Amazon could buy Toys “R” Us stores: report

Amazon could buy Toys 'R' Us stores: report

Amazon is reportedly considering the possibility of acquiring some of Toys “R” Us’ soon-to-be-closed store locations in the U.S.

The e-commerce giant could use the locations as showrooms for its voice-activated “Echo” gadgets or as a means of enhancing its delivery network, Bloomberg reported. Amazon has shown an increased interest in brick-and-mortar locations in recent months on the heels of its acquisition of the Whole Foods Market grocery chain. Amazon would not acquire the stores to maintain the Toys “R” Us brand, according to the report.

Amazon declined to comment on the report.

Toys “R” Us officials said earlier this month that the New Jersey-based toy retailer would close or sell all of its more than 700 store locations after weak holiday sales and a fruitless search for a corporate buyer. The company initially filed for bankruptcy last September, citing more than $5 billion in long-term debt.

Some Toys “R” Us investors are mulling whether to salvage some stores as part of a slimmed-down version of the business, the New York Post reported. The company has yet to comment on that possibility.

Toys “R” Us is preparing to shutter stores even as another venerable toy retailer is plotting a comeback. Strategic Marks LLC, the company that owns intellectual property rights to the KB Toys brand, said they are exploring the possibility of re-opening the chain.

Facebook, Twitter and Snap take hits: Social media crackdown imminent?

Regulatory pressure on Facebook (FB) is intensifying, and its social media peers are affected as well, at least when it comes to the price of their stocks.

Facebook is facing controversy surrounding how a third party accessed and stored the information of 50 million users. According to Bloomberg, the Federal Trade Commission (FTC) could investigate the incident while Fox News confirmed that Facebook executives will meet with House Judiciary Committee staff as early as Wednesday. In a letter on Tuesday, the U.K. parliament requested that Facebook CEO Mark Zuckerberg appear for testimony.

Tech stocks also took a hit on concern that the European Union would impose a revenue tax on the big digital companies.

How to lose $6.7B in two days? Just ask Mark Zuckerberg

Monday’s retreat in the share value of Facebook, Microsoft, Google, Apple, Netflix and Amazon resulted in the loss of a cumulative $117 billion in total market capitalization. As of Tuesday afternoon, the companies lost another $7 million in market cap. On Tuesday, the Dow Jones Industrial Average was rebounding while the Nasdaq and S&P 500 were swinging between gains and losses. The big losers were Facebook, Snap and Twitter. Amazon was the major gainer, up more than 1.6%.