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Big banks see the need to shrink – but face a path full of obstacles

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A 'Wall St' sign is seen above two 'One Way' signs in New York August 24, 2015. REUTERS/Lucas Jackson  Thomson ReutersA 'Wall St' sign is seen above two 'One Way' signs in New York By Olivia Oran and Anjuli Davies

NEW YORK/LONDON (Reuters) - When the U.S. Federal Reserve's newest policymaker Neel Kashkari dropped a bombshell with a call to break up big banks on Tuesday, it was met with a predictably indignant response from their lobbyists. One described his comments as "blind." But while no one in the executive suites of major global banks would want authorities to force them to split up or downsize, many top bankers acknowledge that their institutions might be better off smaller and simpler. They just worry that any major restructuring could go all wrong because of the way post-financial crisis regulations are applied.

In interviews with Reuters, six senior bankers said they are struggling with the costs and restrictions they face as a result of new regulations, as well as a weak global economy and troubled financial markets. The bankers, who are or recently were in positions ranging from business division head to CEO, spoke on the condition of anonymity so they could be candid without upsetting regulators or investors.

"Fundamentally, the business has to change," said one veteran banker who was on the executive committee of a major European bank until recently. Big banks' shareholder returns have sunk "too low," he said.

These problems are not new, but they have fresh relevance as Deutsche Bank AG confronts questions about its capital adequacy, Barclays PLC faces pressure to break up and CEOs of big U.S. banks struggle with a loss of investor confidence in their stocks.

(For a graphic of U.S. banks' price-to-book ratios, see http://reut.rs/1SG0NDL)

Management teams in the U.S. and Europe are now taking a hard look at dramatic business model changes, but none of the options are particularly attractive, the bankers said.

Merging to cut costs and improve margins is out of the question, given the hurdles banks would likely face from regulators who do not want "too-big-to-fail" institutions getting any bigger. Splitting apart is complicated by capital requirements that would make standalone trading businesses economically unfeasible — and by the fact that there are few, if any, buyers for the assets banks want least.

Some top bankers say they are left with little choice but to muddle through what they fear will be a long, dark period of weak earnings, angry shareholders and gradual shrinkage.

The problem has gotten so bad that Deutsche Bank CEO John Cryan recently said on a public conference call that he'd much rather be CEO of a simpler, retail-focused bank like Wells Fargo & Co , which has only a modest investment banking operation.

"Unfortunately," he said, "there are lots of things I wish for that are not going to come true."

RATCHETING UP CAPITAL

Kashkari's comments, in his first speech as head of the Minneapolis Fed, were surprising because he is a former Goldman Sachs banker, a Republican, and was a senior Treasury official in President George W. Bush's administration during the financial crisis.

They partly echoed the stance of Bernie Sanders, who has also called for big bank breakups and criticized Hillary Clinton, his rival in the struggle to be the Democratic presidential candidate, for being too close to Wall Street. Some of those vying for the Republican nomination have also criticized regulations brought in after the crisis, saying they would repeal the Dodd-Frank reform law.

In an interview with Reuters on Wednesday, Kashkari criticized Dodd-Frank's so-called "living will" rule, which requires banks to show how they can be dismantled in an orderly way if they fail, without creating risk to the broader financial system. Kashkari said he believes the rule would not work in a crisis scenario – that banks would simply be bailed out again.

"I challenge anybody who thinks, in a stressed time, we would put these banks through resolution," he said. "I really don't think it will happen."

One way to force large financial firms to break up is to "aggressively ratchet up" their capital or leverage requirements, Kashkari said. He warned, though, that banks would likely fight hard against any such proposal.

Indeed, Tony Fratto, who worked with Kashkari at the Treasury Department and is now a bank lobbyist at Hamilton Place Strategies, said his former colleague's comments were out of touch with reality.

"This is something like re-opening the barn door after the horse is in the stable," Fratto said. "Love or hate Dodd-Frank, it's simply blind to say that it hasn't significantly improved safety and soundness."

OUT OF ARROWS

Securities analysts and consultants say that banks are in an unenviable position because moves they might have made in the past to improve profitability have been hindered by regulation. As a result, they have struggled unsuccessfully for years to get their returns on equity above single digits.

"In some ways, banks have become bad utilities," said Fred Cannon, a bank stock analyst with KBW. "With utilities, you have strict regulation in what you can do and charge, but in the end investors get a reasonable return. With banks, that last piece hasn't happened."

Bank executives have long argued that weak returns are a "cyclical" issue that should go away when markets begin to flourish again. But as the industry approaches the eighth anniversary of the financial crisis's nadir, questions about whether they face a secular rather than a cyclical profit problem have only grown louder. And top bankers are now wondering how they can possibly grow revenue under a sprawling set of global financial regulations that limit what they do, and sometimes conflict with one another.

(For a graphic showing bank earnings and share price performance, see http://tmsnrt.rs/1mZb4h8)

One common example raised is how new capital rules can penalize banks for being big but also discourage them from getting smaller.

For instance, due to their size, the eight largest U.S. banks must collectively hold $200 billion in extra capital, which weighs on shareholder returns. Included in the capital requirement is a fixed amount each bank must hold to represent "operational risk."

Although the Fed does not explain exactly how it comes up with that figure, it is not just a function of size: Bank of America Corp must hold 25 percent more operational risk capital than JPMorgan Chase & Co , the biggest bank in the country.

Bank of America has said it's taken steps to address the Fed's concerns by cutting back on certain revenue-producing activities that created operational risk. Nonetheless, the bank says it has so far been unable to persuade the Fed to reduce that capital requirement. Its shareholder returns suffer as a result, because revenue is dropping faster than capital costs.

"Every bank is trying to figure out, with bigger capital requirements and profit pressure, how can they create acceptable returns for their shareholders," said John Weisel, an Ernst & Young executive who advises global banks on business strategy.

After years of cost-cutting, he said, CEOs are asking themselves: "We've used all the arrows in our quiver, so what are we going to do next?"

BREAK-UP DEMANDS

European banks are behind their U.S. competitors in addressing a more regulated environment and, in some cases, are flailing around for answers.

Last week, Deutsche Bank shares hit an all-time low on worries that it won't be able to buy back some bonds that can convert into equity. Deutsche regained some value after it outlined plans to repurchase $5.38 billion worth of other bonds, but investors' concerns don't seem to have been entirely assuaged.

Meanwhile, Barclays has come under pressure after a Bernstein analyst wrote an open letter on Feb. 5 imploring CEO Jes Staley to break up the bank.

Rob McDonough, who advises financial institutions on risk management at Angel Oak Consulting Group, says megabanks may have little choice but to get significantly smaller.

"It's too expensive," he said, "for banks to be big."

(Additional reporting by Pamela Barbaglia, Sinead Cruise, Dan Freed and David Henry; Writing by Lauren Tara LaCapra; Editing by Carmel Crimmins and Martin Howell)

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Virgin Galactic’s SpaceShipTwo Returns After 2014 Tragic Crash

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SpaceShipTwo launch

Virgin Galactic returns to the scene with the unveiling of its SpaceShipTwo. The launch came more than a year after the tragic 2014 crash during one of the company's test flights.

Virgin Galactic is determined to bring humans on commercial space flights with the launch of its SpaceShipTwo on Friday at Mojave Air & Space Port in California.

The announcement came 16 months after the tragic 2014 crash during a test flight of the Virgin Space Ship (VSS) Enterprise, the current spaceship's predecessor. The question is, is the company completely ready this time around?

The Grand Return

There is no absolute guarantee for success but by the looks of the unveiling ceremony, the company apears to be determined for triumph.

The event was more than just a launch, it was also a grand party with blasting music, blue party lights and raining cocktails. What's more, Virgin Galactic's founder Richard Branson entered the scene riding atop an SUV.

Even famous astrophysicists Stephen Hawking was part of the launch as his voice was heard over the background as the brand-new commercial spaceship called VSS Unity was revealed.

"It's almost too good to be true," says Branson. He recalls feeling a lump on his throat as tears swelled in his eyes. Overall, he describes the experience as completely overwhelming.

The Fatal Past

Virgin Galactic's past is nothing short of misadventures. After all, errors and unfavorable outcomes are part of ambitious goals, and people cannot expect a company to bring humans to space on commercial flights in just a one-time perfect execution.

The first mishap Virgin Galactic encountered was the explosion of a rocket engine, which caused the lives of three people and injured several others. The project was then put on hold as concerns about the safety of an engine designed to carry people rose. Experts investigated on the matter and made necessary changes to the engine.

Seven years later, Virgin Galactic fell to yet another letdown as one of its pilots named Michael Alsbury died during a test flight. Investigators found that Alsbury deployed a feathering system earlier than necessary on the way down, causing the spacecraft to break apart. Once again, this incident caused the public to question the safety of commercial space flights in general.

Charge It To Experience

The company has vowed to take keen and step-by-step testing before they allow passengers to travel in its spaceship. This is the reason why the company is yet to unveil the official starting date of operations of the VSS Unity.

"When we are confident we can safely carry our customers to space, we will start doing so," says Virgin Galactic.

The company also says there is no other group of people more eager to complete the project as much as its employees. However, the firm reminds the public that this is not a race. It has already exhibited its commitment to perform in-depth testing as it is the correct thing to do and is a key part of success.

Ultimately, Virgin Galactic says there is no easy way to reach the stars, but there is a way and the company is here to find it.

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Virgin Galactic to roll out new space tourism rocket plane

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[ad_1]Virgin Galactic to roll out new space tourism rocket planeIn this Sept. 25, 2013, file photo, British entrepreneur Richard Branson poses with the first SpaceShipTwo at a Virgin Galactic hangar at Mojave Air and Space Port in Mojave, Calif. Virgin Galactic will roll out a new copy of its space tourism rocket Friday, Feb. 19, 2016, as it prepares to resume flight testing for the first time since a 2014 accident destroyed the original and killed one of its two pilots.

Virgin Galactic will roll out a new version of its SpaceShipTwo space tourism rocket Friday as it prepares to return to flight testing for the first time since a 2014 accident destroyed the original, killed one of its pilots and set back the nascent industry.

The space line founded by Sir Richard Branson will unveil the craft at California's Mojave Air & Space Port, where it was assembled.SpaceShipTwo is designed to be flown by a crew of two and carry up to six passengers on a high-speed suborbital flight to the fringes of space. At an altitude above 62 miles, passengers will experience a few minutes of weightlessness and see the Earth below.
After years of development, Virgin Galactic appeared to be nearing the goal of turning ordinary civilians into astronauts when the first SpaceShipTwo broke apart on Oct. 31, 2014, during its fourth rocket-powered flight. Wreckage fell to the Mojave Desert floor.
"When we had the accident, for about 24 hours we were wondering whether it was worth continuing, whether we should call it a day," Branson told The Associated Press. He said engineers, astronauts and members of the public helped convince him that space travel is too important to give up on.
The crash investigation found that co-pilot Michael Alsbury prematurely unlocked the so-called feathering system that is intended to slow and stabilize the craft as it re-enters the atmosphere. Alsbury was killed, but pilot Peter Siebold, although seriously injured, parachuted to safety.

 Virgin Galactic to roll out new space tourism rocket planeIn this Sept. 25, 2013, file photo, the first SpaceShipTwo is seen suspended at center beneath its twin-fuselage mother ship at the Virgin Galactic hangar at Mojave Air and Space Port in Mojave, Calif. Virgin Galactic will roll out a new copy of its space tourism rocket Friday, Feb. 19, 2016, as it prepares to resume flight testing for the first time since a 2014 accident destroyed the original and killed one of its two pilots.

The "feathers"—a term derived from the design of a badminton shuttlecock—are tail structures that extend rearward from each wingtip. They are designed to swivel upward at an angle to create drag, preventing a buildup of speed and heat, and then rotate back down to normal flying position as the craft descends into the thickening atmosphere.

A National Transportation Safety Board investigation found that Scaled Composites, a company that was developing SpaceShipTwo with Virgin Galactic and was responsible for its test program, should have had systems to compensate for human error. The NTSB chairman, Christopher Hart, said it wasn't a matter of shortcuts but of not considering a crew member would make the mistake that occurred.

Virgin Galactic subsequently assumed full responsibility to complete the test program.

The company stressed in a statement Thursday its commitment to testing from the level of individual parts on up to the complete craft.

Virgin Galactic to roll out new space tourism rocket planeIn this Nov. 1, 2014 file photo, wreckage lies near the site where a Virgin Galactic space tourism rocket, SpaceShipTwo, crashed in the desert near Mojave, Calif. One of the two pilots aboard was killed. Virgin Galactic will roll out a new copy of its space tourism rocket as it prepares to resume flight testing for the first time since the 2014 accident destroyed the original. The new spacecraft will be unveiled at Mojave Air and Space Port in Mojave Friday, Feb. 19, 2016.(AP Photo/Ringo H.W. Chiu, File)

"Our team's job is to plan out not just the obvious tests but also the strange and inventive ones, to conduct those tests, and to use the data from those tests to re-examine everything about our vehicle to ensure we can take the next step forward," it said.

The company did not project a timeline for actually carrying space tourists, noting that "our new vehicle will remain on the ground for a while after her unveiling, as we run her through full-vehicle tests of her electrical systems and all of her moving parts."

SpaceShipTwo is the successor to SpaceShipOne, the winged rocket plane that won the $10 million Ansari X Prize in 2004 by demonstrating a reusable spacecraft capable of carrying three people could make two flights within two weeks to at an altitude of least 62 miles.

The prize announced in 1996 was intended to spur the development of private manned spaceflight in the same way the Orteig Prize offered in 1919 fostered trans-Atlantic aviation. Charles Lindbergh won that prize with his nonstop flight from New York to Paris in 1927.

Like SpaceShipOne, SpaceShipTwo is carried aloft beneath the wing of a mother ship—a special jet aircraft that releases it at an altitude of about 45,000 feet. After gliding for a few moments, SpaceShipTwo's pilots ignite the rocket engine to send the craft hurtling toward space.

After reaching the top of its suborbital trajectory, the spacecraft begins falling back toward Earth and glides to a landing on a runway.

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Iowa to give DuPont Pioneer $17M to keep jobs – DesMoinesRegister.com

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WASHINGTON — Iowa lost in its bid to secure the agricultural headquarters following the merger between DuPont and Dow Chemical, the culmination of a months-long push to retain a business synonymous with the state's dominant role in U.S. agriculture.

But it will keep 2,600 jobs that are part of DuPont Pioneer in Johnston, Iowa, after signing off on a $17 million incentive package for the chemical giants.

Dow-DuPont announced Friday that the corporate headquarters for the agriculture company it will spin off from the merger will be in Wilmington, Del. The site was selected in large part because of its close ties to the 214-year old DuPont company and deep roots in product discovery.

Wilmington, where DuPont now has its corporate headquarters, would house the agriculture business' chief executive and other key corporate support positions. In addition to Johnston, the agricultural operations will retain a presence in Indianapolis, Ind., which is home to Dow Agrosciences, part of Dow Chemical.

Despite Iowa losing out on the ag headquarters, a DuPont executive pledged that the new agriculture unit will be a "positive" for the state. It won't result in any further job cuts beyond the 10 percent layoffs that have already happened.

Johnston and Indianapolis will both maintain research and development, sales and marketing teams, and business support functions, among other capabilities, officials said.

Dow and DuPont, which are expected to complete their $130 billion merger later this year, plan to then split into three companies within two years — agriculture, material sciences and specialty products.

"There will be some disappointment" in not getting the headquarters, Paul Schickler, president of DuPont Pioneer acknowledged in an interview.

He said by keeping a presence in Iowa, “it’s really a celebration and preservation of those roots as we position ourselves for the future. Similar to 90 years when we started (Pioneer), we were at the birth of an agricultural company and we're able to utilize the same attributes that Henry A. Wallace used to grow into the future.”

Schickler said the new Dow-DuPont agriculture unit "is a great opportunity for Des Moines." By keeping a local presence, the company will be able it to tap into the area's rich background of science, innovation and close relationship with Iowa's farmers, many of whom who are customers of the hometown Pioneer.

As the world's population demands more and healthier food, the result of a growing population, burgeoning middle class and improved dietary and nutritional standards, he pronounced that there is "no doubt about it, growth is going to be in front of this agricultural company."

While Dow and DuPont contemplated the location of the ag headquarters, lawmakers in Iowa and Indiana mounted a full press to boost their odds, with Gov. Terry Branstad, Sen. Chuck Grassley and others talking with executives of both companies.

In a letter last month to DuPont CEO Ed Breen and Dow CEO Andrew Liveris, Iowa’s six lawmakers in Washington touted Iowa’s role in agriculture, the World Food Prize and local universities among the reasons Iowa should be selected.

The announcement Friday from Dow and DuPont drew mixed reviews from Iowa lawmakers.

Branstad said he was "proud" that executives recognized what Iowa has to offer and selected the state for a part of its newly formed agriculture company.

"We are anxious to help DowDuPont experience success in Iowa by providing a foundation to build on and a business climate that nurtures growth,” he said.

But Sen. Joni Ernst called the decision "disappointing for our state and also difficult, particularly for the hard working Iowans who were laid off and their families." She was hopeful that despite not having the headquarters, the new company will spur job creation in Iowa.

The Iowa Economic Development Authority moved approved $16 million in incentives for the new company Friday. The state offered a $2 million forgivable loan and up to $14 million in research activities tax credits.

The city of Johnston is expected to vote on its own $1 million incentive package at a specially called meeting Friday afternoon. And Polk County is expected to provide a $238,000 forgivable loan.

All told, the company will receive more than $17 million in state and local incentives, which IEDA Director Debi Durham characterized as "extremely modest."

While she and other officials competed for the global headquarters, she said Iowa still wins in maintaining its seed and bio-science presence in Johnston. Though executives will be based in Delaware, she said "key leadership decision-makers" will be in Iowa alongside research and development teams.

"And I don’t see that that changes today, right?" she said. "I believe that decision making as it relates to research and decision making, that connection to the farmer is still going to be here in our backyard."

The state's tax credits apply for the 250 to 500 research and development jobs the company expects to retain in Johnston, though it must keep 500 positions to cash in on the full incentive package from the state.

Though DuPont Pioneer has laid off some 175 people in recent weeks, Durham said the company has committed to maintaining its current level of about 2,600 employees.

"They can't be below that or obviously they jeopardize the incentives on the cash side," she said. "We believe right now we’re at a point of stabilization, and now we’re at a point poised for growth."

The new agriculture company would create the nation’s largest agricultural business, surpassing Monsanto Co., the world’s largest seed operation. The ag business would be worth nearly $20 billion, based on the units’ combined 2014 revenue.

Chad Hart, an Iowa State University agricultural economist, said many in the state lobbying for the headquarters expected Dow and DuPont to pick between Indianapolis or Johnston.

“The company went a third direction that I don’t think ether Iowa or Indiana expected,” he said. “We lost to somebody we didn’t know was even in the race.”

The biggest change for Iowa, Hart said, is that for decades the state has grown accustomed to having both the corporate headquarters and the research and development arm of Pioneer in one location.

While the location of the headquarters out of state might not mean a lot in terms of jobs, it increases the chance that corporate executives in Delaware could decide to make changes that may not have been made if both operations were located together in Iowa.

“It brings more uncertainty into the future,” he said.

Pioneer, purchased by DuPont in 1999, has been an important Iowa company since Henry A. Wallace founded it in 1926. DuPont Pioneer employs about 3,400 workers in Iowa, and has been an important cog in the Iowa economy and symbolic of the state’s dominant position as a major U.S. producer of corn, soybeans, ethanol and other commodities.

The seed and chemical industry has been undergoing a broad wave of consolidation amid a backdrop of a slumping agricultural economy that has squeezed farm income and forced producers to cut back on seed, fertilizer, equipment and other inputs for their operations.

Monsanto, Deere & Co. and Pioneer have all announced job cuts as a result of the downturn.

For its part, Iowa documents show DuPont Pioneer has cut about 175 jobs since December, the majority of which have come because of the farm economy and not the merger, according to DuPont. The company has not determined whether further cuts will come locally as a result of the merger.

Farmers and ranchers are expected to see income fall 3 percent to $54.8 billion in 2016, the Agriculture Department said last week. That would drop net farm income to its lowest level since 2002, tumbling 56 percent from its recent high of $123.3 billion just three years ago, when tight supplies and strong global demand for commodities led to record profits.

Faced with falling revenues and growing pressure to cut costs while finding the next big breakthrough, agribusiness companies such as Dow and DuPont have looked to mergers as a way to save money and spur innovation. Earlier this month, government-owned China National Chemical Corp. announced it was buying seed and pesticide maker Syngenta AG for $43 billion, a deal that came about five months after Monsanto dropped its own bid to take over the Swiss-based company.

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DOJ: Telecom giant paid millions in bribes

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WASHINGTON — One the world's largest telecommunications company's and its subsidiary agreed to fines and forfeitures with U.S. and Dutch authorities totaling more than $800 million to resolve a long-running bribery scheme involving a government official in Uzbekistan, Justice Department officials announced Thursday.

Manhattan U.S. Attorney Preet Bharara said VimpelCom, headquartered in Amsterdam, and its Uzbek-based subsidiary Unitel LLC, made "bribery a foundation of their business model” throughout Uzbekistan.

More than $114 million in bribes, according to federal prosecutors, was funneled to the Uzbek official during a six-year period by the firm, which issues publicly-traded securities in the U.S. The companies concealed the bribes through various payments to a shell company that some VimpelCom and Unitel officials knew was owned by the recipient of the bribe payments.

"The bribes were paid on multiple occasions between approximately 2006 and 2012 so that VimpelCom could enter the Uzbek market and Unitel could gain valuable telecom assets and continue operating in Uzbekistan,'' according to the agreement.

The case, brought under the Foreign Corrupt Practices Act, represents one of the largest such efforts to recover proceeds from a foreign government official, Assistant Attorney General Leslie Caldwell said.

Federal prosecutors said VimpelCom admitted that it falsified its books and attempted to conceal the bribery by classifying payments as equity transactions, consulting fees another transactions. When the company's board of directors sought to assess the firm's corruption vulnerability by hiring outside legal counsel, some company officials withheld information rendering the assessment "worthless.''

VimpelCom CEO Jean-Yves Charlier said resolution of the matter has been a "top priority.''

"While this has been a very challenging experience for our business and our employees, we are pleased to have now reached settlements with the authorities,'' Charlier said. "The wrongdoing, which we deeply regret, is unacceptable. We have taken, and will continue to take, strong measures to embed a culture of integrity across the group.''

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Xiao Gang, China’s Top Securities Regulator, Ousted Over Market Tumult

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Xiao Gang, who was replaced as chairman of the China Securities Regulatory Commission, had been criticized for allowing a speculative bubble to form in the country’s stock market.

HONG KONG — China’s top securities regulator, Xiao Gang, has been replaced, the official Xinhua News Agency announced on Saturday, after facing stinging criticism for amplifying the country’s stock market turbulence.

Just days ago, Prime Minister Li Keqiang castigated the country’s financial regulators for their handling of a steep plunge in stocks since last June and an erosion in the value of China’s currency.

The China Securities Regulatory Commission, led by Mr. Xiao, 57, has taken a big dose of blame for the problems.

He attracted significant criticism for allowing a speculative bubble to form, in which share prices more than doubled in a year. When it burst last summer, those shares gave up all of their gains, hurting millions of families who had borrowed heavily to buy stocks.

As stocks sank, the regulator also intensified the market mayhem. Two measures, intended to stabilized stocks, have been widely blamed for producing a weeklong rout in China’s stock markets that unsettled investors around the world.

Why China Is Rattling the World

China’s economy is faltering, prompting concerns that are now shaking global stock markets.

Mr. Xiao defended himself in a long statement on his agency’s website in mid-January, analyzing the causes of his country’s recent financial sector difficulties. He said the turbulence in China’s markets, including another nose dive in share prices last summer, was partly caused by the inexperience of investors and the immaturity of the local market.

But he also conceded that recent troubles reflected an “imperfect trading system, flawed market mechanisms and inappropriate supervision systems,” together with an exodus of seasoned personnel from his agency.

Mr. Xiao will be succeeded by Liu Shiyu, 54, chairman of the Agricultural Bank of China and a former deputy governor of the People’s Bank of China, according to the news agency.

Mr. Liu was trained in engineering at Tsinghua University, but started a career in the state banking sector in the 1980s, according to the news agency.

His task will not be an easy one.

Anticorruption investigators have been scrutinizing the agency, trying to ascertain whether staff members tipped off friends about their decisions, particularly during the market’s fall last summer. New rules also make it hard for the spouses and children of regulators to live overseas, even though the regulatory agency has also been widely accused of lacking workers with international experience and connections.

But the biggest challenge for Mr. Xiao’s successor may be a lack of autonomy. The senior leadership in Beijing gave little latitude to Mr. Xiao, and it is likely to vet and second-guess his successor as well.

“Even changing him is not going to change the system,” said Hao Hong, the chief strategist at the Bank of Communications International, the overseas arm of one of China’s largest banks. “I don’t see how someone else will want to take his job; he has a very unenviable position.”

Mr. Xiao, who earned an undergraduate degree from Hunan University and a master’s degree in law from Renmin University, spent much of his career in finance.

He started at the People’s Bank of China in 1981. At the central bank, he held several posts, including director general of the fund planning department and the monetary policy department, working his way up to deputy governor.

In 2003, he moved to the state-owned Bank of China, where he served as chairman of the board and secretary of the party committee. While he was at the Bank of China, he described the rapid growth of country’s shadow-banking sector as “fundamentally a Ponzi scheme.”

Mr. Xiao took over at the securities regulator in March 2013, putting him at the helm during the rise and the fall of the Chinese stock markets.

When the markets started tumbling, Mr. Xiao’s agency rolled out a raft of measures to help stabilize the situation. He halted initial public offerings of stock and banned share sales by large stakeholders.

The regulator’s efforts worked for a while, but they started to backfire in January.

Mr. Xiao’s agency introduced so-called circuit breakers for its stock market on the first trading day of this year. The circuit breakers mandated that markets would close for 15 minutes if share prices fell 5 percent and would close for the day if they fell 7 percent.

It was intended to provide a cooling-off period. But in practice, it added to the anxiety in the markets.

As markets began sustained slides, investors rushed to sell as many shares as possible before the circuit breakers could shut down trading. The thresholds were hit in quick succession, twice during the first week of trading in January.

Further policy measures only added to investors’ confusion. The ban of share sales was supposed to expire, and the country’s central bank was pushing down the value of the currency.

As China’s stock markets and the value of the renminbi tumbled faster, the country’s leaders ended up scrapping all three policies in less than 24 hours. The circuit breakers were repealed, the ban on sales of shares by large stakeholders was extended, and the central bank intervened decisively in currency markets to halt any further drop in the renminbi.

“It was a correct strategy to take market-stabilizing measures against unusual movements in stocks and the currency last year.” Prime Minister Li said last Monday of the State Council, China’s cabinet, according to the government-controlled Beijing News. “Looking back, the major responsible departments took inadequate actions and had internal management issues.”

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Why Yellen, Fed may be heartened by CPI data

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Fed Chairwoman Janet Yellen

WASHINGTON (MarketWatch) — Federal Reserve Chairwoman Janet Yellen will be heartened by the surprise jump in the core consumer price index as it confirms what she told Congress last week that prices would rise over the medium term.

The data “validates the Fed’s view that inflation is alive and kicking” said Omair Sharif, economist at SG Americas Securities in New York.

Core prices are up 2.2% over the past 12 months, the biggest increase since the summer of 2012.

Although too much inflation is viewed as dangerous for the economy, Fed officials think that a 2% inflation rate is best for the economy to grow.

Inflation has been trending below that target for the past four years. Low inflation is a signal of weak demand in the economy and raises fears of actual decline in prices or deflation, which can damage an economy, especially one with high debt burdens like the United States.

The Fed’s 2% inflation target is based on a different inflation measure, the personal consumption expenditure index, which tends to run a bit more slowly than the CPI.

Over the last six months, that gap has been pronounced.


Core inflation as measured by the consumer price index is accelerating, but an alternative gauge favored by the Federal Reserve hasn't risen as much, at least so far.

But economists at Bank of America Merrill Lynch said the details of the CPI suggest a pickup in the core PCE to 1.6% year-on-year, which would be the highest level since September 2014.

Yellen told Congress last week that she still expects inflation to rise to the 2% target over the medium term despite the market turmoil and market measures of inflation that have steadily declined.

Jim Glassman, economist at J.P. Morgan Chase, said the CPI data will bolster Yellen’s preferred gradual path of rate hikes.

The Fed “doesn’t want to wake up and find out interest rates are not in the right zip code,” Glassman said.

“Most of us have ruled out the Fed until June. But that’s because the stock market is down 10%,” he said. “The market can shift on you.”

Financial markets had taken any Fed rate hike off the table this year.

Ian Shepherdson, chief U.S. economist at Pantheon, said that if inflation continues at the current rate of increase, core CPI inflation will be 2.8% a year from now.

“Needless to say, the market’s current fed funds projections are not remotely consistent with inflation at that pace, or anything like it,” he said.

But other economists thought the gain in the CPI was more one-off than sustained in nature.

Richard Moody, chief economist at Regions Financial Corp., said there is less inflation pressure in the economy than implied by the CPI report.

“Before the inflationistas – who have been warning about a surge in inflation since the very first day of the very first round of the Fed’s QE program – take a victory lap, and before anyone else starts to worry the U.S. is on the road to becoming Venezuela...we’d suggest holding off,” he said.

The Fed is expected to remain on hold at its next meeting in March given the turbulence in the financial markets since the start of the year.

At their policy meeting in January, Fed officials said this tightening was acting like interest rate increases on the economy, minutes show.

Even economists who think the Fed should hike in March don’t think they will raise interest rates.

“It feels like most of the members of the FOMC have already made up their minds that they want to delay” in March, said Stephen Stanley, chief economist at Amherst Pierpont Securities.

“I am convinced that when the dust clears, we will look back and say that the Fed made a mistake.”

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Inflation flat in January, but some price pressure on consumers is building

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[ad_1]Consumers don’t have to spend as much on necessities because of low inflation on things like gas and clothes.

WASHINGTON (MarketWatch) — Cheaper gasoline and moderating grocery prices kept inflation in check in January, but expenses for medical care and housing are rising.

The consumer price index was flat last month, the government said Friday. Economists polled by MarketWatch had expected a seasonally adjusted 0.1% decline.

Over the past 12 months the main CPI has risen by an unadjusted 1.4%, double the rate in December. That’s the fastest pace since late 2014.

Core prices are up 2.2% in the same span, the biggest increase since the summer of 2012.


Energy prices fell 2.8% in January, led by another drop in gasoline. Fueling up is cheaper than it has been in years, with gas costing less than $2 a gallon in many parts of the country.

Food prices were unchanged in January as the cost of most staples fell, the Labor Department said. The cost of groceries is rising at a much slower rate after spiking in late 2014 and early 2015.

Yet excluding food and energy, so-called core consumer prices jumped 0.3% to mark the biggest gain since August 2011.

Higher medical care and housing expenses, the two largest costs for many Americans, were behind the increase.

The cost of medical care jumped 0.5% in January and it’s risen 3.3% in the past 12 months, the highest rate in three years.

The cost of shelter — owning a home or renting an apartment — has climbed 3.2% in the past year. And rental costs are rising at the fastest pace since 2007.

Although inflation is still quite low, pressure is beginning to build and that’s likely to continue as gasoline prices stabilize. A huge plunge in oil last year drove inflation to fresh post-recession lows.

Real or inflation-adjusted hourly wages, meanwhile, rose 0.4% in January. They have increased by a mediocre 1.1% in the past 12 months.

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Gucci sales rise helps owner Kering to higher earnings

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Luxury group Kering CEO Francois-Henri Pinault speaks to the media during the full year 2015 results presentation in Paris, Friday, Feb. 19, 2016. The French luxury group reported better than expected sales.

PARIS — The French luxury group Kering, owner of brands like Gucci and Yves Saint Laurent, saw its earnings rise last year as demand in Europe and Japan offset a decline in struggling developing economies in Asia and Latin America.
The Paris-based company said its net income rose to 696 million euros ($771 million) in 2015 from 528 million euros a year earlier. Revenue increased 15 percent to 11.58 billion euros.

Sales rose for Gucci, which had lagged in recent quarters, as well as for other major brands, including Puma streetwear.

CEO and Chairman Francois-Henri Pinault noted Friday that the improvements come despite “a more complex economic and geopolitical environment.”

He expects more growth in 2016, despite the financial turmoil in many high-growth markets, particularly China.

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A Gas Leak Is Capped, but Neighbors Are Wary

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The Porter Hill neighborhood of Los Angeles sits below the Aliso Canyon natural gas storage facility.

LOS ANGELES — With a mix of pride and great relief, state officials here announced on Thursday that the leaking natural gas well near the Porter Ranch neighborhood — which over the last four months had pumped thousands of tons of methane and other chemicals into the atmosphere, sickening residents and prompting more than 6,000 households to flee — had finally been capped permanently.

Testing showed that air quality had returned to normal, according to state officials. But for some angry residents of the wealthy planned community at the northern edge of Los Angeles’s San Fernando Valley, nothing short of the gas field’s closing will be enough.

Officials say they have capped the well releasing methane and other chemicals into the atmosphere around the site.

“We have two words in response to today’s announcement: Flint, Michigan,” said Matt Pakucko, one of the founders of the group Save Porter Ranch, which is planning a rally on Friday in support of closing the gas field. “Those people were told by these kinds of officials, ‘The water is fine. Drink it.’ People are still getting sick here.”

Families who relocated to hotels or other short-term housing to escape the noxious fumes will have eight days to return home, before the gas company stops reimbursing them.

Officials for the Southern California Gas Company estimated that it had already spent up to $300 million since the blowout, much of it on attempts to plug the leak and paying for residents’ housing. That figure does not include legal costs from the dozens of lawsuits that have been filed against the company or any penalties the government orders it to pay.

At a news conference on Thursday, state and local officials announced measures that would be taken to make sure that residents were safe.

All wells at the Aliso Canyon storage facility must pass state inspection before any more gas can be injected into the field, officials said. Air quality testing would continue in the area. And an investigation into how the blowout occurred would begin.

“Gas emissions are controlled and air quality has returned to normal levels,” said Jason Marshall, chief deputy director of the California Department of Conservation. “I understand the tremendous concern for the safety of this community.”

Common complaints from exposure to the gas have included headaches, nausea and nosebleeds, which health officials said are short-term effects caused by chemicals added to the gas, so that humans can smell a leak. Those effects should stop now that the leak was over, they said.

“All the levels that we’ve looked at are below health levels of concern, so we do not anticipate that there will be any long-term health effects in the community,” said Jeffrey Gunzenhauser, interim health officer for the Los Angeles County Health Department.

Many residents, however, were far from convinced. Sandi Naiman, 66, has been living in a hotel in nearby Woodland Hills, where she takes care of her 2-year-old grandson. A severe asthmatic, she had developed chronic sinus problems since the leak began, she said, and got sicker every time she went home. She felt she had little choice but to go back.

“Can I afford to stay in a hotel? No,” Ms. Naiman said. “I’m nervous. We don’t feel safe with the gas company there. We’d like them out of there.”

State lawmakers have promised new regulations for all oil and gas storage — including much stricter well inspections and requirements for subsurface safety valves — which they say will help prevent another leak like the one in Aliso Canyon. The leak — which engineers believe was caused by a rupture in a 7-inch injection 500 feet below the surface — was discovered on Oct. 23. The governor declared a state of emergency in January.

Representative Brad Sherman, a Democrat who lives in Porter Ranch and represents the area, said the Aliso Canyon gas field should be monitored 24 hours a day with infrared cameras, which would show on the Internet if any gas was leaking.

“There is a long way to go before this city and this community is going to want to see new gas put in Aliso Canyon,” Mr. Sherman said earlier this week.

Few officials have proposed entirely shutting down the gas field, which accounts for nearly a quarter of California’s natural gas storage capacity. Even with the facility operating far below capacity, energy officials said they were concerned about power failures in Los Angeles.

Dennis V. Arriola, the president of Southern California Gas, said the company would do what it could to reverse the environmental damage that was caused.

At its peak in late November, the leaking well was spewing more than 50 tons of methane into the atmosphere each hour. Southern California Gas, a division of Sempra Energy, has agreed to fund a program to mitigate the effects of the escaped methane, a potent greenhouse gas.

“All of that will be covered by the company, not by ratepayers,” Mr. Arriola said. “We will be using company resources.” (Mr. Arriola also noted the company’s $1 billion insurance policy, which may cover some of the costs.)

Originally, the company planned to give residents only two days to return home once the leak was stopped; that timeline was extended to eight days, under an agreement with the city attorney’s office.

Residents complained that this is still not enough time. Some have called for house-by-house indoor testing, to make sure that none of the chemicals from the well have seeped into furniture or carpets.

Darren Hallihan, 43, said he and his girlfriend planned to sell their home and move away from Porter Ranch. .

“It’s just hard to feel safe up there, knowing that this is going to continue to go on,” he said. “You don’t know if this stuff is seeping slowly into the area.”

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How Tim Cook Became a Bulwark for Digital Privacy

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Timothy D. Cook, Apple’s chief, testifying before Congress in 2013. “We feel we must speak up in the face of what we see as an overreach by the U.S. government,” he wrote in an open letter published this week.

SAN FRANCISCO — Letters from around the globe began pouring into the inbox of Timothy D. Cook not long after the publication of the first revelations from Edward J. Snowden about mass government surveillance.

Do you know how much privacy means to us? they asked Apple’s chief executive. Do you understand?

Mr. Cook did. He was proud that Apple sold physical products — phones, tablets and laptops — and did not traffic in the intimate, digital details of its customers’ lives.

That stance crystallized on Tuesday when Mr. Cook huddled for hours with lawyers and others at Apple’s headquarters to figure out how to respond to a federal court order requiring the company to let the United States government break into the iPhone of one of the gunmen in a San Bernardino, Calif., mass shooting. Late Tuesday, Mr. Cook took the fight public with a letter to customers that he personally signed.

“We feel we must speak up in the face of what we see as an overreach by the U.S. government,” wrote Mr. Cook, 55. “Ultimately, we fear that this demand would undermine the very freedoms and liberty our government is meant to protect.”

Mr. Cook’s standoff with law enforcement officials is indicative of his personal evolution from a behind-the-scenes operator at Apple to one of the world’s most outspoken corporate executives. During that time, he has moved a once secretive Silicon Valley company into the center of highly charged social and legal issues. While Mr. Cook’s predecessor, Apple co-founder Steven P. Jobs, was considered a business icon, he never took aggressive positions on such matters as Mr. Cook now has.

Being at loggerheads with the United States government is risky for Apple and may draw a torrent of public criticism of the world’s most valuable company at a time when its growth rate has significantly decelerated.

Yet people who know Mr. Cook said he did not believe he had a choice but to be vocal. Mr. Cook, who became Apple’s chief executive in 2011, has long said that businesses and their leaders should think of themselves as important members of civic society. In September, he emphasized that this responsibility “has grown markedly in the last couple of decades or so as government has found it more difficult to move forward.”

Mr. Cook “says what he believes, especially in difficult situations,” said Don Logan, the former chairman of Time Warner Cable who has been friends with Mr. Cook since he became chief executive of Apple, bonding over their shared alma mater, Auburn University. Of Mr. Cook’s opposition to the court order, Mr. Logan said: “Tim is currently dealing with a very difficult situation and he knows the decision he has made has lots of ramifications, good or bad. But he wants to do the right thing.”

Apple declined to make Mr. Cook available for an interview. The company is preparing to file an opposition brief against the court order.

Mr. Cook’s ideas about civic duty were partly formed during his childhood in rural Alabama. In a speech at the United Nations in 2013, he recounted how Ku Klux Klansmen had once burned a cross on the lawn of a black family’s home and how he yelled for them to stop. “This image was permanently imprinted in my brain, and it would change my life forever,” he said.

At Apple, which he joined as a senior executive in 1998, Mr. Cook was a quiet figure for much of the period when he worked for Mr. Jobs, a showman who prized secrecy at the company. After Mr. Jobs stepped down because of ailing health, Mr. Cook began making Apple more open, publishing an annual report on suppliers and working conditions for more than a million factory workers.

In 2014, Mr. Cook revealed he was gay, a move widely seen as making a statement about gay rights. Last year, he wrote an editorial decrying religious freedom laws that had been proposed in more than two dozen states that would let people skirt anti-discrimination laws that conflicted with their religious beliefs.

His outspokenness has drawn criticism, with some investors questioning how nonbusiness initiatives — including some of Apple’s environmental moves — would contribute to the company’s bottom line. Mr. Cook responded at a shareholder meeting that it is important for Apple to do things “because they’re just and right.”

Privacy has long been a priority for Mr. Cook. At a tech conference in 2010, he said Apple “has always had a very different view of privacy than some of our colleagues in the Valley.” He cited the iPhone’s feature that shows where a phone — and presumably its user — is and said fears about abuse and stalking had compelled the company to let consumers decide whether or not their apps could use their location data.

Mr. Cook’s views on privacy hardened over time as customers globally began entrusting more personal data to Apple’s iPhones. At the same time, Apple was growing tired of requests from government officials worldwide asking the company to unlock smartphones.

Each unlocking request was carefully vetted by Apple’s lawyers. Of those deemed legitimate, Apple in recent years required that law enforcement officials physically travel with the gadget to the company’s headquarters, where a trusted Apple engineer would be called to unlock the device in a secure S.C.I.F., or secure compartmented information facility. Processing these requests was extremely tedious. More worrisome, the data stored on its customers iPhones was growing more personal, including photos, messages and bank, health and travel data.

And some government officials were not exactly instilling confidence in Apple’s engineers. In one case, law enforcement officials rushed a phone to Apple’s headquarters for unlocking, only for the engineers to discover their target had not enabled the device’s passcode feature.

So Mr. Cook and other Apple executives resolved not only to lock up customer data, but to do so in a way that would put the keys squarely in the hands of the customer, not the company. By the time Apple rolled out a new mobile operating system, iOS7, in September 2013, the company was encrypting all third-party data stored on customers’ phones by default.

“People have a basic right to privacy,” Mr. Cook has said.

By then, Mr. Snowden’s disclosures about how the National Security Agency had cozied up to some tech companies and hacked others to gain user data were reverberating worldwide. The disclosures included revelations of a comprehensive, decade-long Central Intelligence Agency program to compromise Apple’s products; C.I.A. analysts tampered with the products so the government could collect app makers’ data. In other cases, the agency was embedding spy tools in Apple’s hardware, and even modifying an Apple software update that allowed government analysts to record every keystroke.

Letters from alarmed Apple customers started flooding into Mr. Cook’s inbox, fortifying his stance on privacy. Apple’s eighth mobile operating system, iOS8, which rolled out in September 2014, made it basically impossible for the company’s engineers to extract any data from mobile phones and tablets.

For officials at the world’s law enforcement agencies, the new software was a clear signal that Apple was growing defiant. A month after iOS8’s release, James Comey, the director of the F.B.I., told an audience at the Brookings Institution that Apple had gone “too far” with the expanded encryption, arguing that the operating system effectively sealed off any chance of tracking kidnappers, terrorists and criminals.

Government agencies began to press Apple and other tech companies for so-called back doors that could bypass strong security measures. With tensions rising, some form of technical compromise — whether in the form of a chip, a back door or a key — was off the table by 2015.

At Apple, Mr. Cook and others continued to work with investigators to the extent the company could and complied with court orders. Last October, a federal judge in New York said the government was overstepping its boundaries by using a centuries-old law, the All Writs Act, as the basis for its request that Apple open an iPhone for a drug investigation. Apple’s lawyer sided with the judge in the case. The matter has not been resolved.

After December’s San Bernardino attack, Apple worked with the F.B.I. to gather data that had been backed up to the cloud from a work iPhone issued to one of the assailants, according to court filings. When investigators also wanted unspecified information on the phone that had not been backed up, the judge this week granted the order requiring Apple to create a special tool to help investigators more easily crack the phone’s passcode and get into the device.

Apple had asked the F.B.I. to issue its application for the tool under seal. But the government made it public, prompting Mr. Cook to go into bunker mode to draft a response, according to people privy to the discussions, who spoke on condition of anonymity. The result was the letter that Mr. Cook signed on Tuesday, where he argued that it set a “dangerous precedent” for a company to be forced to build tools for the government that weaken security.

“Compromising the security of our personal information can ultimately put our personal safety at risk,” he wrote. “That is why encryption has become so important to all of us.”

Far from backing down from the fight, Mr. Cook has told colleagues that he plans to accelerate plans to encrypt everything stored on Apple’s myriad devices, services and in the cloud, where the bulk of data is still stored unencrypted.

“If you place any value on civil liberties, you don’t do what law enforcement is asking,” Mr. Cook has said.

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Facebook and Twitter Announce Support for Apple in Backdoor Dispute With FBI

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Both Facebook and Twitter today joined the ranks of a growing number of tech companies announcing support for Apple's decision to oppose a government order that would require it to weaken the security of its iOS devices. The FBI is demanding Apple create a version of iOS that would let it crack the passcode on the iPhone 5c used by San Bernardino shooter Syed Farook, something Apple has called a "dangerous precedent."

iphone5c-header
In a tweet shared this afternoon, Twitter CEO Jack Dorsey thanked Tim Cook for his leadership and said the company stands with Apple. In the tweet, Dorsey also links to Cook's strongly worded open letter that calls the FBI's software request "too dangerous to create."Facebook announced its support through a statement shared with USA Today, which says the company will "fight aggressively" against government requirements to weaken security. Facebook says the FBI's demands "would create a chilling precedent."

"We condemn terrorism and have total solidarity with victims of terror. Those who seek to praise, promote, or plan terrorist acts have no place on our services. We also appreciate the difficult and essential work of law enforcement to keep people safe," the statement reads. "When we receive lawful requests from these authorities we comply. However, we will continue to fight aggressively against requirements for companies to weaken the security of their systems. These demands would create a chilling precedent and obstruct companies' efforts to secure their products."

The dispute between Apple and the FBI centers around the FBI's request for a new version of iOS that would disable certain passcode security features on the shooter's iPhone 5c. The FBI has made three demands of Apple, which are as follows:

1. Eliminate the auto-erase function that wipes an iPhone if the wrong passcode is entered 10 times.
2. Eliminate the delay that locks the FBI out of the iPhone if the wrong passcode is entered too many times in a row.
3. Implement a method that would allow the FBI to electronically enter a passcode using software.

While the government has suggested the software tool will be used to unlock only the device in question, Apple and other technology companies believe that it sets a precedent that could lead to similar unlocking requests in the future or a general demand to weaken overall encryption for electronic devices. Tim Cook has called the FBI's demands an "overreach" by the U.S. government that would "undermine the very freedoms and liberty our government is meant to protect."

The implications of the government's demands are chilling. If the government can use the All Writs Act to make it easier to unlock your iPhone, it would have the power to reach into anyone's device to capture their data. The government could extend this breach of privacy and demand that Apple build surveillance software to intercept your messages, access your health records or financial data, track your location, or even access your phone's microphone or camera without your knowledge.

Apple has gained a number of backers over the course of the last few days. Google CEO Sundar Pichai previously announced support for Apple, calling the FBI's request a "troubling precedent" in a statement released yesterday. Apple also has the support of WhatsApp CEO Jan Koum and several advocacy groups, including the Electronic Frontier Foundation, Fight for the Future, and the American Civil Liberties Union. Apple customers have created petitions and are attending rallies held in support of Apple's willingness to fight for privacy protections.

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In 2015, airline passenger complaints skyrocketed by 30 percent

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A Delta jet takes off in view of an Alaska Airlines plane that just landed at Seattle-Tacoma International Airport in Washington state.

More than 20,000 passengers were unhappy with their airline experience in 2015, an almost 30 percent increase in displeasure over the year before, the U.S. Department of Transportation reported Thursday.

The number of passengers who filed complaints rose from 15,539 received by DOT’s Aviation Consumer Protection Division in 2014. The final month of last year was a big one for passenger complaints, DOT said, after recording 1,565 dissatisfied customers. That was a 19.6 percent increase from November and a 46.9 percent bump from December 2014.

Complaints are filed with the DOT over all sorts of things connected with flying: flight problems, baggage, reservation and ticketing, refunds, consumer service, disability and discrimination.

Airlines reported an on-time arrival rate of 77.8 percent in December 2015, up from the 75.3 percent on-time rate in December 2014. But that was a decrease from November 2015, when 83.7 percent of flights were on time.

The most on-time airlines in December were Hawaiian Airlines (93 percent on time), Alaska Airlines (85 percent) and Delta Air Lines (83.6 percent). The airlines with the worst on-time performance were Spirit Airlines (68.7 percent), JetBlue Airways (70 percent) and Virgin America (71.1 percent).

For the full year in 2015, airlines recorded an on-time arrival rate of 79.9 percent, up from 76.2 percent in 2014.

In 2015, airlines told DOT they canceled 1.5 percent of their scheduled domestic flights, an improvement over the 2.2 percent cancellation rate in 2014. In 61 instances last year, domestic flights were delayed on the tarmac for more than three hours.

In December, airlines reported that 22.17 percent of their flights were delayed. They told DOT that 5.70 percent of their flights were late because of aviation system delays, compared with 4.84 percent in November; 7.64 percent of delays were caused by late-arriving aircraft, compared with 5.18 percent in November; 6.13 percent by factors, such as maintenance or crew problems, compared with 4.60 percent in November; 0.66 percent by extreme weather, compared with 0.42 percent in November; and 0.06 percent for security reasons, compared with 0.04 percent in November.

Lost baggage has become less of a problem with the advent of bar-coded baggage tags and computer networks that track luggage. But U.S. airlines said baggage was mishandled for four out of every 1,000 passengers in December. For all of 2015, the airlines posted a mishandled baggage rate of 3.24 per 1,000 passengers, down from 2014’s rate of 3.61.

In December, airlines said there were four incidents involving the death, injury or loss of animals while traveling by air, down from the six reports filed in November 2015. For all of 2015, carriers reported 35 animal deaths, injuries to 25 other animals, and three lost animals, for a total of 63 incidents, up from the 45 total incident reports filed for 2014.

Ashley Halsey reports on national and local transportation.

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Uber loses $1 billion a year competing in China

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Uber has had a rough time trying to make it in China.

The ride-hailing service is all-but dominant in the United States and popular in many other foreign markets, but it’s found Asia, especially mainland China, difficult to crack. The company faces formidable competition from Chinese-owned rival Didi Kuaidi.

On Thursday Uber CEO Travis Kalanick announced that the company’s Chinese operations are losing more than $1 billion on operational and other costs.

"We're profitable in the USA, but we're losing over $1 billion a year in China," Uber CEO Travis Kalanick told Canadian technology platform Betakit. "We have a fierce competitor that's unprofitable in every city they exist in, but they're buying up market share. I wish the world wasn't that way."

That’s not for lack of trying. Uber China, which focuses on the mainland Chinese market, is separate from Uber’s other operations and is run by Chinese managers. The subsidiary has pulled in $200 million in investments from Baidu, the Chinese search engine, and has some of the highest ride volume worldwide from its Chinese audience. In early February, Uber also partnered with Alipay, an app that lets Chinese users traveling internationally pay for their rides in renminbi (China's official currency) without having to switch currencies.

Uber is the world’s largest ride-hailing service by many accounts, valued at more than $50 billion. But despite the Baidu investment and its own sink of funds, Uber China is finding itself outpaced by Didi Kuaidi nearly every step of the way. Didi Kuaidi was formed when the two biggest ride-hailing apps in China, Didi Dache and Kuaidi Dache, merged, and it’s backed by e-retailer Alibaba and service portal firm Tencent, the two largest Internet companies in China.

At least in the Chinese market, Didi Kuaidi has far more capital than Uber does to spend on expansion in the mainland, having raised raised $2 billion in capital to the $1 billion Uber has set aside for its Chinese ventures. Didi Kuaidi also serves far more riders than Uber China does. One million people a day in Beijing alone use the service. A recent report by Analysys International found that Didi Kuadi dominates the ride-hailing market in China, leading with 83.2 percent of users to Uber’s 16.2 percent.

Didi Kuaidi has moved aggressively in its plans for expansion, and is looking to grow in Uber’s US backyard. In September 2015, it invested $100 million in Uber’s domestic rival Lyft. The two firms are working closely together to build a seamless user experience, where customers can use the same app to hail a car from Lyft when visiting the US or a car from Didi Kauidi when visiting China. Didi Kauidi has inked similar deals with GrabTaxi in Southeast Asia and the ride-hailing service Ola in India.

Uber and Didi Kuaidi have both invested heavily in subsidies for drivers that allow them to offer cheaper fares, and Uber believes that this pricing strategy may pay off in the long run for its Chinese operations. According to Kalanick, company hopes to offer Uber in more than 100 Chinese cities by the end of the year.

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One of the most powerful Internet companies is officially for sale

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Yahoo has admitted what everyone already knew — the company is up for sale.

And to make sure it's taken seriously, Yahoo is bringing in outsiders to drum up interest.

The company announced on Friday the formation of "a Strategic Review Committee of independent directors" to explore "strategic alternatives." Put more plainly, Yahoo has hired bankers and lawyers to field offers that can be presented to the company's board of directors.

The moves come after a particularly dark time for Yahoo, marked by layoffs that are cutting around 15% of its workforce and include the shuttering of many of its content verticals such as food, health and travel.

Yahoo and its CEO Marissa Mayer have faced increasing pressure from activist investors to sell what has been referred to as its "core assets" but really just means its actual business.

Despite remaining a major and powerful web destination, driven by the power of its curated, news-focused homepage, Yahoo's core web advertising business suffered along with the rest of the media industry and efforts to grow into newer areas such as mobile and video have been middling.

The formation of an independent board is a step that could force the company to act if a buyer is found.

Meanwhile, Yahoo has held a sizable stake in Chinese e-commerce company Alibaba, something that made its stock very appealing as a way for U.S. investors to invest by proxy into the company before it went public.

Now that Alibaba is a publicly traded company, Yahoo has been pushed to figure out a way to sell its stake in a way that returns money to shareholders while avoiding a major tax hit. One way to do that is to sell Yahoo's core business to another company.

Maynard Webb, chairman of the board of Yahoo, said that the company is looking at this strategy, nothing it could be the best thing for Yahoo shareholders. Investors tepidly agreed, sending Yahoo shares up 1.7%.

"We believe that pursuing these complementary paths is in the best interests of our shareholders and will maximize value," Webb said in a press release.

Yahoo had previously announced in its most recent quarterly earnings release that it would be considering "strategic alternatives," which is code for selling to the highest bidder.

In thia March 3, 1997 file photo, Yahoo! co-founders David Filo, left, and Jerry Yang hold up a fish prop in Filo's office in Santa Clara, Calif.

Friday's announcement comes after some doubt had been expressed over whether Yahoo's leaders had really been that interested in a sale.

SunTrust analyst Robert Peck on Thursday said in a note that some possible buyers had found little interest from Yahoo, "making them question the seriousness of the firm and management in seeking strategic alternatives."

That sluggishness has been attributed to Mayer, who has publicly and privately shown little interest in making a deal, according to Re/code.

In what could best be described as a bit of mixed messaging, Mayer said that the company would consider a sale but also continue to execute her plans

"As both shareholders and employees, all of us here at Yahoo want to return this iconic company to greatness," she said in the press release. "We can best achieve this by working with the committee to pursue various strategic alternatives while, in parallel, aggressively executing our strategic plan to strengthen our growth businesses and improve efficiency and profitability."

A sale of Yahoo would follow on the purchase of another big first-generation Internet company that had fallen from grace — AOL.

Helmed by CEO Tim Armstrong, who is friendly with Mayer, AOL had gone through something of a reinvention as a digital media company with a heavy emphasis on video.

Armstrong was able take a few acquisitions — most notably online video ad platform Adap.tv — and sell what had at one-time been a company on a steep decline for $4.4 billion to Verizon.

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Walmart Profit Fell Almost 8% in 4th Quarter

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A Walmart store in Secaucus, N.J. The company said same-store sales in the United States rose 0.6 percent in the fourth quarter.

Walmart said profit fell about 8 percent last quarter, and it lowered its sales forecast for this year, citing a strong dollar and the costs of a plan to close more than 200 stores worldwide.

Sales during the recent holiday season slowed from the third quarter, Walmart said on Thursday, and it reported fourth-quarter profit of $4.57 billion, down 7.9 percent from the same period a year ago, on declining revenue and same-store sales.

For the current fiscal year, which began this month, sales are projected to be flat, whereas previous estimates called for growth of 3 to 4 percent.

Walmart is among the big retailers struggling to adapt to the popularity of online shopping. Last month, the company announced plans to close 269 stores, including 154 in the United States, a move that will affect 16,000 workers.

“This past year has been a year of investment, operational improvement and change, even while we delivered solid growth,” said Doug McMillon, Walmart’s president and chief executive. “We do see an underlying strength in our Walmart U.S. business that wasn’t there a year ago.”

Quarterly revenue, which reached $129.7 billion, fell 1.4 percent from the year-ago period, with currency adjustments shaving off $4.8 billion.

Earnings per share were $1.43, compared with $1.53 a year ago. Costs associated with the store closings cut 20 cents off earnings per share, which was partly offset by tax-related gains of 14 cents a share.

For the full fiscal year, profit was $4.57 a share, compared with $4.99 the year before, and revenue was $482.1 billion, compared with $485.7 billion in the year-ago period.

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HSBC executives rue missed chance in HQ choice

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The HSBC headquarters is seen in the Canary Wharf financial district in east London, Britain February 15, 2016. REUTERS/Hannah McKay The HSBC headquarters is seen in the Canary Wharf financial district in east LondonBy Lawrence White and Simon Jessop

LONDON (Reuters) - British Finance Minister George Osborne's relief at HSBC's choice of London over Hong Kong as its headquarters is not shared by several top executives who rue a missed opportunity for its China-centered growth strategy.

With its historical roots in China -- HSBC was founded in Hong Kong and Shanghai in 1865 -- Europe's biggest lender has stepped up efforts in recent months to become chief cheerleader for Beijing's 'one belt, one road' infrastructure plan.

"A move to Hong Kong would have sent very positive signals to the region in the longer term," one senior Hong Kong-based executive told Reuters, speaking on condition of anonymity due to the sensitivity of the issue within the bank.

HSBC had a taste of what China's outbound investment drive can offer earlier this month as sole international adviser to state-owned China National Chemical Corp on its $43 billion bid for seeds and fertilizer giant Syngenta, the biggest ever overseas takeover offer by a Chinese company.

China's plan for a new silk road and economic belt, which Beijing envisages spreading from Western China to Central Asia and onwards to Europe, has echoes of The Hongkong and Shanghai Banking Corporation's original 19th century vision, when Thomas Sutherland founded the bank to meet the demands of China's growing business communities and their need for more reliable and sophisticated banking.

Fast forward 150 years and some members of HSBC's management feel a move back to its original hometown of Hong Kong would have helped the bank win more advisory business, along with the financing for some of the huge infrastructure projects expected on China's new silk road.

HSBC's history tells how Sutherland weathered a financial storm in Hong Kong in 1866 by maintaining the bank's payment period for bills of exchange when others were cutting theirs, a move which kept him in business as other banks collapsed.

After Sunday's historic board meeting in London, HSBC said that Asia remained at the heart of the group's strategy, a line a spokeswoman for HSBC reiterated when asked about any divisions within the bank's senior echelons.

HSBC insiders told Reuters the bank had taken into account Chinese sensitivities in timing the announcement of its decision to remain in the UK, waiting until the end of the lunar new year holiday.

"There are senior executives in Asia who were very excited about the possible move...I expect the bank will now do a lot of PR to reinforce the 'we love you messages' to China, having turned them down," an external source familiar with the board and management team's thinking told Reuters.

In conversations both before and after the decision Reuters spoke with nearly a dozen Asia-based executives at the bank who said they would welcome the headquarters moving eastwards.

ASIA PIVOT

HSBC set out a strategy last year to shift up to $230 billion of assets saved by spending cuts elsewhere to Asia, so that it could invest more in the Pearl River Delta and Southeast Asia in particular.

That gave a long-term logic for a move to Hong Kong, despite near-term headwinds such as flagging Chinese economic growth and gyrations in the country's stock markets.

But a move by Britain's Osborne to scrap most of an onerous levy on banks' global balance sheets removed one of the biggest disadvantages of having a London base, appeasing many investors who had pushed for the HQ review.

The make-up of HSBC's board also likely played a part in the outcome, said Chris White, head of equities at Premier Asset Management, which holds shares in the bank.

"If you look at the composition of HSBC's board, it's mainly European, so it shouldn't necessarily be any surprise when they decide that they ought to stay in Europe," he said.

Most prominent among the few non-Europeans on HSBC's board is Hong Kong businesswoman Laura Cha who sits on Hong Kong's Financial Services Development Council advising on how it can improve its status as a financial center. Cha also chaired discussions at the Asian Financial Forum in January on the new silk road plans.

Cha did not respond to an emailed request for comment.

Reuters was not able to ascertain from sources familiar with the meeting whether any board members initially favored a move to Hong Kong. The bank said that the board's final decision on Sunday was unanimous, and most investors now back the choice.

"If they would have decided to move to Hong Kong, I would have had to rethink my position in HSBC," said Joost de Graaf, senior portfolio manager at Kempen Capital Management, which owns shares in HSBC.

While some executives at HSBC in Asia had privately hoped for the move, both they and investors thought that outcome unlikely given China's grimmer market outlook and tightening grip on Hong Kong in recent months.

"I thought it was kind of inevitable they would stay in UK given what is going on in China - currently a Hong Kong listing does not look very attractive for a corporate executive," said an investor at one of the bank's top 20 shareholders.

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Managers at HSBC won’t get a promised pay rise

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HSBC Chairman Douglas Flint, HSBC has struggled to strike the right tone on pay.

The bank u-turned on a global pay freeze last week after a protest from employees, saying it would find cost savings elsewhere.

And it’s now u-turned on the u-turn, refreezing salaries for thousands of UK-based managers, according to a report in the Financial Times.

Emma Dunkley reports that most managers in the bank’s UK retail and investment management operations were told they wouldn’t be getting a pay rise this year.

More junior staff will be getting a salary hike, funded from the bank’s bonus pool, according to the FT.

The bank, like most others, is seeking to cut costs and reduce the size of its capital-intensive investment banking operations. It’s aiming to cut around 50,000 jobs and save $5 billion (£3.1 billion) a year by 2017.

HSBC last week also finally chose to keep its headquarters in the UK after a long-running relocation review.  The bank, one of the world’s largest by assets, considered Hong Kong, the US, and Canada in its list of new homes.

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Asia markets set for a year of exceptions

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Currency symbols are illuminated at a currency exchange store at night in the Mong Kok district of Hong Kong, China, on Saturday, Oct. 24, 2015. The Hong Kong Monetary Authority bought the most U.S. dollars in six years in October to keep its currency within the permitted trading band amid inflows into its stock market and signs the city will be forced to raise interest rates. Photographer: Xaume Olleros/Bloomberg©Bloomberg

Willem Buiter offered a chilling prospect this week at a conference in Hong Kong.

“Its not impossible that even [China] some time next year may be looking at negative rates if the slowdown that I anticipate continues,” Citigroup’s chief economist told the bank’s invitees. “It’s not our central scenario but it is a risk.”

If regular investors shiver at the prospect of a China struggling to combat slowing growth to the extent it has to follow Europe and Japan in making people pay to save — and it should send a chill — then China’s indebted companies should be nearing outright panic.

Low growth and low, or no, inflation would rob them of both routes out from under debt burdens that for many groups are already at alarming levels.

Amid all the fears stalking global markets — be they related to China, oil or emerging markets in general — the problem for traders is to ensure they don’t eschew ultimately attractive investment opportunities along with the bad. For Asian markets, facing a Chinese slowdown, Japan’s battle to reflate, slowing global trade and fears over rising debts, this is even more key. Not all face anything like the same combination of the above.

There are high-level signs of investor differentiation already. Fund managers cut extreme negative emerging markets positions last month, according to Bank of America Merrill Lynch’s monthly survey, which nonetheless still put “short EM” the third most crowded trade behind going long the dollar and short oil.

Next comes the need to differentiate between industries. According to Fitch Ratings, 11 per cent of the 302 non-financial companies that it rates in Asia-Pacific carry a negative outlook, up from 8 per cent a year ago. As last year, about 4 per cent of groups could see an upgrade.

Split by industries, the need to sift carefully is even more clear. The proportion of industry sectors with negative outlooks, according to Fitch, has jumped to 42 per cent from 18 per cent. The list can still challenge perceptions, however: Fitch is positive on Chinese housebuilders, whom it thinks will benefit from falling inventories and rising sales — when most people still fear the sector is a debt-ridden disaster.

Country perceptions are worth re-examining too. Indonesia, which as a commodity exporter does not enjoy the same boost from cheaper materials as China does, is in fact one of the best-performing stock markets in the world so far this year. Business confidence in the country has jumped sharply in the past six months, too.

“There’s this misconception that Indonesian companies borrow dollars left, right and centre and are completely irresponsible,” says Herald van der Linde, head of Asia equity strategy at HSBC, who has covered the country for more than 20 years. “That’s not the case. Since the Asian financial crisis, the better companies have mostly kept a check on leverage.”

Asia’s financial crisis largely passed China by — something analysts are noting as corporate debt piles up. Companies that bought assets overseas last year carried an average gross leverage ratio of 5.4, according to data from S&P Global Market Intelligence.

ChemChina, which this month offered $44bn for Syngenta, the Swiss agribusiness giant, carried total debt of almost twice that based on 2014 numbers. As a state-owned entity with the assumed guarantee that carries, ChemChina has access to lending facilities that private companies could not hope to tap.

For now, China’s buying — and borrowing — continues. On Wednesday, Zoomlion Heavy Industry confirmed that it had offered $3.3bn for Terex, a US crane maker — a cash-and debt financed bid that if successful, would increase Zoomlion’s already eye-popping leverage ratios.

The construction machinery maker already carries gross debt of more than 80 times earnings before interest, tax, depreciation and amortisation. Net out its cash on hand and the ratio is more than 40. As a rule of thumb, leverage above about four times would be considered risky.

Yet, also on Wednesday, there were more positive signs. Fosun International, one of China’s best-known serial acquirers with Club Med and Cirque du Soleil in its portfolio among others, cancelled the $462m purchase of Israel’s Phoenix Holdings — in part to keep its leverage down.

In Asia particularly, 2016 is setting up to be a year of exceptions rather than rules. And in markets so nervous and changeable, it will pay to follow individual stories, be they at country or company level, as closely as any trend.

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How to make sure you’re getting real Parmesan cheese

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On top of spaghetti, all covered with...wood? Bloomberg News recently reported that some packaged grated Parmesan cheeses contain too little cheese and too much wood-pulp, according to a test conducted by an independent laboratory.

How to make sure you're getting real Parmesan cheeseFoodio / Shutterstock / Foodio

The "wood-pulp" mentioned is actually a powdered plant fiber called cellulose that's completely legal in the US and is an FDA approved anti-clumping ingredient for pre-grated cheese. Cellulose is widely used throughout the food industry, helping to make foods like ice cream have a creamier mouthfeel and it's used in good quality grated cheeses, as well as not-so-great quality cheeses.

Since not all cheese is created equal, we turned to Liz Thorpe, cheese expert, consultant and author of The Cheese Chronicles, to get her tips for how to make sure you get real Parmesan every time:

Italian Parmigiano-Reggianopaulista / Shutterstock / paulista

1. Look for the words "Parmigiano-Reggiano" on the rind

"The first thing to know is that Italian Parmigiano-Reggiano and Amerian Parmesan cheese aren't the same thing," says Thorpe. "Parmigiano-Reggiano is a legally protected designation of origin that's used in Europe only for Italian cheese. It can never be sold pre-packaged in a grated form. The beauty of this cheese is that you can always know that you're getting the real thing because the name 'Parmigiano-Reggiano' is burned onto its rind in an unmistakable dotted pattern." This is the top of the line Italian cheese that you want to use in your cooking and and hope to see in restaurants.

2. Buy a wedge from a wheel of cheese rather than pre-grated cheese

Many of us buy grated cheese for its convenience, but "it's super easy to use a microplane and then you're guaranteed a pure product," says Thorpe. "Grate or crumble it yourself—it will taste so much better and you'll use less cheese because it's flavor is so much better."

3. If you're going to buy pre-grated Parmesan, look for American producers with good reputations

"Learn the names of reputable brands that offer pre-grated Parmesan like Sartori and BelGioioso which are both from Wisconsin and Arthur Schuman, Inc. from New Jersey which is the largest importer of hard Italian cheeses," says Thorpe. "Their products are widely available, their quality is really excellent and you can count on their cheeses."

4. In a supermarket, shop for Parmesan in the deli department first

"There are three different tiers of quality: the Parmesan in the deli area, the Parmesan in the dairy case and the Parmesan in the aisle are each different," says Thorpe. "Shop in the deli department first, followed by the dairy case and, as a last resort, the aisle. Cheese is a perishable product and you want your cheese to require refrigeration. If you're buying one that is not refrigerated, there's a reason. A grated product that's shelf stable—that's the lowest product that you could be buying." In other words, make the cheese in a green can your last resort.

5. Buy grated cheese at a specialty foods shop

"A small store buying whole wheels of cheese will grate it on site and there will not be any cellulose added because it doesn't need to have a four-, six- or eight-week shelf life," says Thorpe. Also, if you ask, a small retailer will likely be accommodating and grate the cheese for you.

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