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Trump’s tax cuts won’t pay for themselves: David Stockman

Former Reagan Budget Director David Stockman explains why President Trump’s tax plan is dead before arrival.

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    A rebound in growth and technology stocks has investors gauging whether a months-long rally in the shares of banks, energy companies and other economically sensitive names is running on empty or simply refueling. The Russell 1000 value index started 2021 with its biggest quarterly outperformance relative to its growth counterpart in 20 years, as investors poured money into the shares of battered companies they thought would benefit most from a vaccine-generated reopening of the U.S. economy. The script has flipped since mid-March, with the Russell growth index gaining over 6% compared to a rise of just over 2% for value.

  • Aramco Selling $12.4 Billion Stake in Pipeline Rights Unit

    (Bloomberg) -- Investors led by EIG Global Energy Partners LLC agreed to acquire a roughly $12.4 billion stake in a Saudi Aramco oil-pipeline rights company.The group will acquire a 49% equity stake in Aramco Oil Pipelines Co., a newly formed entity with rights to 25 years of rate payments for oil shipped through the Saudi oil giant’s network of conduits, EIG said in a statement. The deal implies a total equity value of about $25 billion for Aramco Oil Pipelines.The deal is part of Saudi Arabia’s drive to open up to foreign investment and use the money to diversify its economy. Asset disposals also go some way to helping the energy giant maintain payouts to shareholders, as well as investments in oil fields and refinery projects. The company paid a $75 billion dividend last year, the highest of any listed company, almost all of which went to the state.Aramco has become the world’s third-largest company by market value, trailing only Apple Inc. and Microsoft Corp., after an initial public offering in 2019 in which the oil giant raised $25.6 billion for less than 2% of its shares.“This landmark transaction defines the way forward for our portfolio optimization program,” Aramco Chief Executive Officer Amin Nasser said in the statement. “Aramco’s strong capital structure will be further enhanced with this deal, which in turn will help maximize returns for our shareholders.”The deal was described as a lease-and-lease-back agreement. The state-controlled company will lease the usage rights in its pipelines to Aramco Oil Pipelines. The new entity will grant back to Aramco the exclusive right to operate and maintain the network for 25 years and collect rates from the parent company in return. Aramco will continue to retain ownership of the pipelines.“This transaction aligns perfectly with EIG’s philosophy of investing in high-quality assets with contracted cash flows in critical infrastructure,” Robert Blair Thomas, Chief Executive Officer of EIG, said in the statement. The Washington-based firm owns about $22 billion in energy-related assets globally.(Updates with deal details in sixth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • S&P 500, Dow at all-time high as banks, industrial rise

    The S&P 500 and the Dow hit record highs on Friday as economy-linked stocks including banks and industrials gained on optimism around strong U.S. economic growth. Financial stocks rose 0.6%, more than any other S&P sector, with Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co rising between 0.5% and 0.9%. The banks will kick off the first-quarter earnings season next week, and analysts expect profits for S&P 500 firms to have jumped about 25% year on year, the strongest performance for the quarter since 2018, according to Refinitiv IBES data.

  • ECB Steps Up Warnings to EU Not to Delay Joint Recovery Stimulus

    (Bloomberg) -- European Central Bank policy makers stepped up their pressure on the region’s governments to get on with their joint fiscal stimulus, using stronger language to warn of economic chaos for the region if politicians move too slow.Bank of Italy Governor Ignazio Visco called the European Union recovery fund “crucial” in an interview with Bloomberg TV, and Executive Board member Isabel Schnabel said separately that a long delay would be a “disaster.”ECB Vice President Luis De Guindos said it is “crucial that there not be unnecessary delays.” Bank of Greece Governor Yannis Stournaras told Bloomberg TV that he “absolutely” agrees with Schnabel and delays would mean there might not be a recovery this year.The burst of comments suggest escalating concerns, two weeks after Germany’s top court temporarily blocked that nation’s ratification of the 750 billion-euro ($892 billion) fund’s bond issue. All goverments must sign off on that step before the fund can start.The slow timeline for approving spending plans only by the end of this month and starting to disburse funds around the middle of the year is already posing a risk. As the U.S. powers ahead with its own $1.9 trillion stimulus, global bond yields are being pushed higher.The ECB has been forced to accelerate its emergency stimulus to prevent euro-area borrowing costs rising too quickly while the bloc remains bogged down in extended coronavirus restrictions because of a botched vaccine rollout.Read more: Italy’s Draghi Rushing Plans to Borrow Up to $48 Billion MoreStournaras pushed back against suggestions from his Dutch colleague Klaas Knot this week that the ECB could consider paring back its emergency bond-buying in the third-quarter, saying that’s too soon.Both he and Visco said they would rather let stimulus run too long than risk ending it too early.“We see the light at the end of the tunnel but we have to find a way to accelerate the exit from the tunnel,” Visco said, adding that ramping up vaccinations is also “crucial.”The German legal challenge would be an economic disaster for Europe if the disbursement of the funds were to be delayed indefinitely,” Schnabel said in an interview published in German magazine Der Spiegel on Friday. “If that were the case, Europe would have to think about alternative solutions, but that could take some time.”A political group filed an emergency case at the end of March claiming that the EU shouldn’t be allowed to issue the joint debt. In response, the Federal Constitutional Court said it needed to assess whether a preliminary order would be needed -- while that step isn’t uncommon and can usually be done quickly, it has raised concerns that the EU’s cumbersome setup will undermine the recovery.Schnabel, who is responsible for market operations at the ECB, warned that with equity and real-estate prices relatively high, “the risks of a correction are increasing, especially if the economic recovery falls short of expectations.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Global Markets: Wall Street rises along with Treasury yields as inflation heats up

    The S&P 500 and the Dow posted modest gains on Friday, but the Nasdaq was lower, with interest-rate sensitive stocks losing ground as Treasury yields edged higher. "The reopening trade is still very much alive," said Oliver Pursche, senior vice president at Wealthspire Advisors in New York.

  • Harvard-Backed TPRV to Unwind Hedge Fund, Return Outside Cash

    (Bloomberg) -- Harvard-backed TPRV Capital is shutting down its hedge fund after investors pulled their cash.After three-and-a-half years, “we are unwinding the fund and returning all remaining capital to our investors,” the firm wrote in a letter to clients Friday.Institutional investors have been redeeming either due to disappointment over the fund’s performance or because they were reallocating their cash away from fixed-income relative value or volatility strategies, Chief Operating Officer Luca Toscani said in an interview.“Unfortunately the combo of the two was lethal,” he said.The firm, which had peak assets of $820 million at the end of 2019, saw that plunge to $570 million by August 2020, and $233 million by this February. TPRV’s fund lost 2.8% in 2020, and was about flat in the first two months of this year, according to another document.Last year brought “one of the biggest challenges” the fund’s chief investment officers had seen in their professional lives as relative value trades linked to shorting S&P 500 index volatility went awry and led to sharp losses, the firm said at the time.TPRV launched in 2017 with about $400 million from Harvard Management Co, where CIOs Graig Fantuzzi and Michele Toscani were portfolio managers and had worked together for 8 years.The firm is considering its next steps, which could include raising capital or joining a larger platform firm, Toscani said.This is the second fund with ties to Harvard to shutter recently. In May 2019, former Harvard portfolio manager Marco Barrozo closed his Cambridge Square Capital, which had started two years prior and received $200 million from the university.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Stocks Notch Longest Weekly Rally Since October: Markets Wrap

    (Bloomberg) -- Stocks climbed to another record as investors shrugged off concern over inflation and focused on prospects for an economic rebound. Treasuries fell, while the dollar advanced.The S&P 500 closed above 4,100 and posted its third-straight weekly rally -- the longest winning streak since October. Volume on U.S. exchanges hit a new low for this year. Honeywell International Inc. led gains in the Dow Jones Industrial Average on an analyst upgrade. Boeing Co. retreated after grounding dozens of 737 Max jets to repair an electrical flaw that emerged in recently delivered models.Equities extended a surge from their March 2020 lows to about 85% as Federal Reserve officials reassured markets that policy will remain supportive. Vice Chairman Richard Clarida said the Fed is looking for evidence on whether it’s reaching the goals on price stability and employment before adjusting rates. Still, a report showing the rise in producer prices added fuel to the debate about the path of inflation.“It’s noisy data,” said Giorgio Caputo, senior fund manager at J O Hambro Capital Management. “It’s important to remember the positive elements of what is actually happening -- prices are going up because we’re getting demand back together.”These are some of the main moves in markets:StocksThe S&P 500 climbed 0.8% at 4 p.m. New York time.The Stoxx Europe 600 Index gained 0.1%.The MSCI Asia Pacific Index decreased 0.5%.CurrenciesThe Bloomberg Dollar Spot Index gained 0.1%.The euro fell 0.1% to $1.1904.The Japanese yen weakened 0.4% to 109.65 per dollar.BondsThe yield on two-year Treasuries rose one basis point to 0.16%.The yield on 10-year Treasuries rose four basis points to 1.66%.The yield on 30-year Treasuries rose two basis points to 2.33%.CommoditiesWest Texas Intermediate crude fell 0.5% to $59.32 a barrel.Gold slid 0.7% to $1,742.83 an ounce.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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  • Credit Suisse Plans Hedge Fund Unit Overhaul After Archegos Hit

    (Bloomberg) -- Credit Suisse Group AG is planning a sweeping overhaul of the hedge fund business at the center of the Archegos Capital blow up, as the drama forces Wall Street banks to reconsider how they finance some of their most lucrative clients.The Swiss bank is weighing significant cuts to its prime brokerage arm in coming months, people familiar with the plan said. The lender has already moved to tighten financing terms with some funds, and hopes changes to the unit can allow it to forgo major cuts to other parts of the investment bank, which just had a banner quarter, the people said, asking not to be identified as the matter is private.The implosion of Bill Hwang’s family office --which has caused one of the costliest blows to Credit Suisse in its 165-year history -- is the latest reckoning for banks chasing the lucrative business of catering to hedge funds, which present the potential for both outsized gains and huge losses, magnified by large borrowing. Deutsche Bank AG sold its prime brokerage business to BNP Paribas SA in 2019 as part of a retreat from equities during the German bank’s overhaul.Credit Suisse declined to comment.Prime-brokerage divisions cater specifically to hedge funds, lending them cash and securities and executing their trades, and the relationships can be vital for investment banks as well as being a significant source of revenue. Credit Suisse is the biggest prime broker among European banks, in an industry that accounted for about $15 billion of revenue in 2020. Prime brokerage generally accounts for about a third of equities revenue across the industry most years.Since the drama, Credit Suisse has been calling clients to change margin requirements in swap agreements so they match the more restrictive terms of other prime-brokerage contracts, people with direct knowledge of the matter said. Specifically, the bank is shifting from static margining to dynamic margining, which may force clients to post more collateral and could reduce the profitability of some trades.Swaps are the derivatives Hwang used to make highly leveraged bets on stocks at Archegos and which lie at the heart of the losses.Credit Suisse is also concerned the woes at the prime brokerage business will impact morale at other parts of the securities business and that it may spark departures, the people said. The investment bank is keen to take care of top performers, the people said.Deutsche Bank sold its prime business to BNP as part of the German bank’s huge 2019 overhaul that intended to cut its investment banking business, especially in equities. The lender, which became a force on Wall Street after the financial crisis, had struggled to keep hedge funds clients in recent years after a string of missteps, and client balances declined in the run up to Chief Executive Officer Christian Sewing’s decision to sell the business.Now, at Credit Suisse, CEO Thomas Gottstein -- who signaled the bank planned to reduce risk in prime brokerage in a Swiss newspaper article -- is facing questions from his own star traders, dealmakers and private bankers on why the bank’s $4.7 billion hit from Archegos was so much bigger than any of its rivals.The bank announced a raft of changes within the investment bank because of the loss, including the departure of Brian Chin, who led the business. The head of equities sales and trading Paul Galietto, is stepping down immediately, though will stay through April to assist in the transition, according to a staff memo earlier this week reviewed by Bloomberg.The lender also announced three additional exits. Ryan Atkinson, head of credit risk for the investment bank; Ilana Ash, head of counterparty credit risk management for that unit and Manish Mehta, head of counterparty hedge fund risk, according to the memo.The bank has seen a run of missteps under the final months of Urs Rohner’s tenure as chairman. Antonio Horta-Osario is set to take over after the bank’s annual general meeting later this month. Known for disciplined cost-cutting during his time at Lloyds Banking Group Plc, he may also make further changes.Gottstein, who pledged a “clean slate” after scandals under his predecessor, is wedged between disgruntled staff and his own bosses who are increasingly taking charge. The board is pushing for a review of the bank’s wider strategy, not just the units that have run into trouble, the people said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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  • Ecuador’s Divisive Presidential Vote Has Bondholders on Edge

    (Bloomberg) -- Investors are bracing for an unpredictable run-off finale to Ecuador’s contentious presidential race as opinion polls flag a rally of support for career banker Guillermo Lasso, sending the nation’s dollar bonds back to levels seen before the election began.Voters will return to polling stations on Sunday to decide between self-exiled former socialist President Rafael Correa’s 36-year-old protege Andres Arauz, or Lasso, a banker and conservative from the coastal hub Guayaquil. It’s a high-stakes choice for the country and its bondholders, coming just months after Ecuador’s 11th default or debt rescheduling in almost 200 years.Arauz held a double-digit lead in the initial voting round in February, but recent polls show Lasso has closed the gap. This may be leading investors to adopt more neutral postures heading into the vote, even as many voters remain undecided, said Siobhan Morden, head of Latin America Fixed Income Strategy at Amherst Pierpont. Adding to the confusion, the Indigenous political party Pachakutik has called on its supporters to spoil ballots amid fraud accusations.“The bottom line is that the latest polls warrant a neutral position on what we view as equal binary outcomes and policy risks,” Morden wrote in a note. “We had previously argued the potential for extreme heterodox policies under an Arauz candidacy and now shift our analysis to the opposite orthodox policy risk under a Lasso candidacy.”Read the QuickTake: Why Ecuador’s Runoff Vote Matters for the Bond MarketWith so much up in the air, Ecuador’s recently restructured dollar bonds are near levels seen around the first round of voting in February. The notes due in 2040 have risen from an early-March low to trade at 45.5 cents on the U.S. dollar, just off the highest since the final trading day before February’s vote. Still, they’re down about 13 cents from last year’s restructuring, and slipped less than half a cent since Tuesday. The nation’s bonds, on average, are the fourth worst-performing emerging-market debt this year in a Bloomberg Barclays index.“Asset prices have reflected optimism for a Lasso victory this month as Arauz has opposed the central bank reform bill currently making its way through the national assembly,” Citigroup Global Markets Inc. strategists including Eric Ollom and Donato Guarino said.The increased possibility of a Lasso win makes the bonds maturing in 2040 a buying option as “they would be poised for the largest upside regarding current prices,” Ramiro Blazquez and Bruno Gennari of Buenos-Aires based BancTrust wrote in a research note.The extra yield investors demand to hold Ecuador’s sovereign dollar bonds over U.S. Treasuries is 1,168 basis points, putting the nation in distressed territory alongside countries such as Argentina, Belize and Lebanon, according to JPMorgan indexes.Final RoundAt stake in Sunday’s vote is the next government’s willingness to honor the terms of last year’s $17.4 billion debt restructuring and whether it can maintain fiscal targets required under a $6.5 billion deal inked in September with the International Monetary Fund. The new administration will also need to prop up Ecuador’s sputtering economy, which contracted 7.8% last year and may grow just 3.1% in 2021, according to the country’s central bank.While Lasso’s momentum in the polls has stoked speculation that he could pull off a victory, it’s still unclear if he’d be able to garner legislative support for austerity measures. Neither of the candidates will have a congressional majority if they win.“The fragmentation of the National Assembly together with the strong legislative influence of the left would make governability extremely challenging,” according to Blazquez and Gennari.Meanwhile, for Arauz, investors are split on whether he’d replicate Correa’s policies, which included a weakening of institutions, crackdowns on opponents, limiting freedom of expression and running large deficits. The candidate has adopted a more conciliatory tone in talks with bondholders, saying he’s committed to dollarization and to not restructuring the debt. However, he also continues to insist he will distribute $1 billion to poor families from the central bank’s scant reserves.“While the election is looking more competitive, Arauz retains an edge,” Eurasia Group analysts Risa Grais-Targow and Laura Duarte wrote in a note this week. “Ultimately, he represents a clearer change in economic policy, but he will also have to contend with anti-Correista sentiment, making for a close contest.”WHAT TO WATCHBrazilian traders will keep an eye on talks to resolve the 2021 budget gridlock, which has been one of the most significant local drivers this month. President Jair Bolsonaro signaled he may be leaning toward a partial veto of the bill approved by Congress, as requested by Economy Minister Paulo Guedes, but the situation may still changeBrazil’s February retail sales due on April 13 may offer a fresh outlook on how the country’s economy is behaving amid increased coronavirus cases and the outlook for higher rates in the near termColombia retail sales are also due next week, on April 15Both Colombia and Chile have significant parts of their populations in lockdown in an attempt to fight the spread of Covid-19. Chile traders remain focused on the mid-term copper outlook as the commodity continues to favor local assets amid an improvement in the country’s current account balancePeru will hold its presidential election on April 11. The local market has been boosted by rising odds that market-friendly candidate Hernando de Soto will advance to the second round. Volatility should appear on Monday independent of the result(Adds Citi comment in sixth paragraph and updates prices in fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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  • JPMorgan Says These 2 Stocks Could Surge Over 80%

    After a volatile first quarter, Q2 has kicked off in style, and the major indexes sit at – or hover near – all-time highs. The government bond market has also been steadying as yields have pulled back after rising higher earlier in the year, soothing investor fears that inflation could get out of hand. Moreover, the economic recovery seems to be gathering steam at a faster pace than anticipated. “We had been expecting the data to improve about this time, and early signals are that the recovery is absolutely on track,” said Hugh Gimber, J.P. Morgan’s global market strategist. “This is the period where the forecast of a strong recovery in growth is starting to look more like the fact of a strong recovery in growth.” Against this backdrop, the analysts at J.P. Morgan have pinpointed 2 names which they believe are set for strong growth in the year ahead; both are expected to handsomely reward investors with at least 80% of gains over the coming months. We ran them through TipRanks database to see what other Wall Street's analysts have to say about them. Tencent Music Entertainment (TME) We’ll start in China, where Tencent Music Entertainment is the offspring of China’s giant online venture company, Tencent, and Spotify, the Swedish streaming company that makes music and playlists easy. Tencent Music has seen consistently strong sales and earnings for the past year, with the top line growing year-over-year in each quarter of 2020. The Q4 report showed $1.26 billion in the top line, the highest in the last two years, along with 12 cents per share in earnings, up 33% year-over-year. Strong streaming revenue, which showed 29% growth, helped drive the results. And, Tencent Music, through its variety of apps, is the top music streaming service in the Chinese online market – as shown by the 40.4% yoy increase in paid subscribers during Q4. In its quarterly results, the company reported 4.3 million net new users in Q4, to reach 56 million active premium accounts across its apps. That said, the stock has pulled back sharply recently, as like many other high-flying growth names, worries regarding an overheated valuation have come to the fore. But pullbacks often spell opportunity, and covering the stock for JPM, Alex Yao notes the strong subscription growth, as well as the potential in the company’s other businesses, online ads and long-form audio, for monetization. “We believe TME is entering a healthy development cycle with successive growth engines: 1) music subscription remains the core revenue driver with consistent paying ratio improvement, 2) ads revenue ramps up quickly, and 3) active investments in long-form audio initiative, which could become a new growth driver in 2022 and afterwards," Yao noted. To this end, Yao puts a $36 price target on TME, suggesting a one-year upside of 84%, to back his Overweight (i.e. Buy) rating on the stock. (To watch Yao’s track record, click here) Overall, TME has a thumbs up from Wall Street. Of the 11 reviews on record, 7 are to Buy, 3 are to Hold, and 1 says Sell, making the analyst consensus a Moderate Buy. The shares are priced at $19.50, and their $30.19 average price target implies an upside of 55% for the months ahead. (See TME stock analysis on TipRanks) Y-mAbs Therapeutics (YMAB) The next JPM pick we’re looking at is Y-mAbs, a late-stage clinical biopharma company with a focus on pediatric oncology. The company is working on the development and commercialization of new antibody-based cancer therapeutics. Y-mAbs has one medication – Danyelza – approved for use to treat neuroblastoma in children age 1 and over, and a ‘broad and advanced’ pipeline of drug candidates in various stages of the clinical process, as well as five additional products in pre-clinical research stages. Having an approved drug is a ‘holy grail’ for clinical biopharmaceutical companies, and in 4Q20 Y-mAbs saw considerable income from Danyelza. The company announced at the end of December that it had agreed to sell the Priority Review Voucher for the drug to United Therapeutics for $105 million. Y-mAbs will retain the rights to 60% of the net proceeds from the sale, under an agreement with Memorial Sloan Kettering. Also in December, the company announced a license agreement with SciClone. The partnership gives Y-mAbs and Danyelza an opening for treating pediatric patients in China. The agreement includes Mainland China, Taiwan, Hong Kong, and Macau, and is worth up to $120 million for Y-mAbs. The company has entered other agreements making Danyelza available in Eastern Europe and Russia. Danyelza is Y-mAbs flagship product, but the company also has omburtamab in advanced stages of the pipeline. This drug candidate saw a setback in October last year, when the FDA refused to file the company's Biologics License Application, proposed for the treatment of pediatric patients with CNS/leptomeningeal metastasis. Y-mAbs has been in steady communication with the FDA since then, with a new target date for the BLA at the end of 2Q21 or early in 3Q21. These two drugs – one approved and one not yet – form the basis of the JPM outlook on this stock. Analyst Tessa Romero writes, “Our thesis revolves around the de-risked nature of the pediatric oncology pipeline. Our recent KOL feedback is enthusiastic about use of lead asset Danyelza in patients with high-risk neuroblastoma (NB). For second lead asset omburtamab in NB metastatic to the central nervous system (CNS/LM from NB), while the ‘Refuse to File’ last year and subsequent regulatory delays were certainly disappointing, we still see a high probability of approval for the product in the 2Q/3Q22 timeframe…” Looking ahead, Romero sees an upbeat outlook for the company: “Coupling our anticipation of a healthy launch for Danyelza, with regulatory/clinical momentum expected in the near- to mid-term, we see shares poised to rebound and see an attractive buying opportunity at current levels.” The analyst puts a $52 price target on YMAB shares, implying an upside of 86% for the year ahead, and supporting an Overweight (i.e. Buy) rating. (To watch Romero’s track record, click here) Overall, the Wall Street reviews break down 3 to 1 in favor of Buys versus Holds on Y-mAbs, giving the stock a Strong Buy consensus rating. The shares have an average price target of $61.25, suggestive of a 121% upside potential this year. (See YMAB stock analysis on TipRanks) To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

  • Whether you’re retiring in 30 years or 5 years, you still need to do this one thing religiously

    Investing is a crucial part of accumulating enough money in retirement — and the best results come with proper asset allocation. Retirement tip of the week: Check the asset allocation of your retirement portfolios, and if you’ve done it recently, make it a regularly scheduled task once a year. “The time to review your asset allocation and overall retirement investment strategy should be a proactive process throughout the year,” said Jon Ulin, chief executive officer of Ulin & Co. Wealth Management.

  • Arm Battle With China CEO Escalates, Complicating SoftBank Sale

    (Bloomberg) -- The battle for control of Arm Ltd.’s China business is escalating with new lawsuits aimed at keeping the unit’s controversial chief executive in power, further complicating SoftBank Group Corp.’s efforts to sell the business to Nvidia Corp.The dispute erupted almost a year ago in June after the board voted to oust Arm China Chief Executive Officer Allen Wu for conflicts of interest, but he refused to leave. Now the Chinese unit, which remains under Wu’s control, has filed lawsuits against three senior executives the board designated to replace him, according to people familiar with the matter. The previously unreported suits could take years to resolve, suggesting Wu may remain entrenched.Wu fired the three men -- including co-CEO Phil Tang -- but they were subsequently reinstated by the board. In the new lawsuits, Arm China is suing the trio, demanding they return company property, according to the people.Arm China declined to comment on any ongoing legal cases or possible settlement talks. It did say the three executives had caused “material damages” to the company and they had been terminated for legitimate reasons.Tang didn’t return requests for comment. Arm Ltd. declined to elaborate, saying it won’t comment on pending legal matters.The complex tussle has thrown into question the future of Arm, whose semiconductor technology is the world’s most widely used for smartphones and is increasingly deployed in computers. SoftBank founder Masayoshi Son agreed to sell the British chip designer to Nvidia for $40 billion last year, but the path for completing that transaction is growing increasingly difficult.The China dispute also raises questions about Beijing’s willingness to protect foreign investment in the world’s second-largest economy. Arm Ltd. sold a majority stake in the China unit to a consortium of investors, including Beijing-backed institutions. That has complicated the British firm’s efforts to manage Arm China and Wu, who has support from local authorities in Shenzhen.Both sides appear to be at a stalemate. Wu, a Chinese-born U.S. citizen, pulled back from signing settlement agreements worth tens of millions of dollars if he would leave the company, the people said, asking not to be identified talking about legal matters. At the same time, two minority shareholders in Arm China linked to Wu have filed lawsuits to overturn his June 4 dismissal, they said.SoftBank opened negotiations with him last year and had hoped to reach some sort of resolution, they said. Instead the court battles are deepening and the Japanese company has soured over the increasingly complicated dispute, the people said. SoftBank is now resigned to letting the legal proceedings take their course and there are no current negotiations with Wu, according to one of the people.“We are going through a leadership change in China; it’s taking time to resolve,” said Arm Ltd.’s Chief Executive Officer Simon Segars in an interview with Bloomberg Television recently. “It’s hard. But we are confident that’s going to get resolved.”SoftBank and Nvidia declined to comment on the dispute in China.Arm China said in a statement that Wu’s position “is compliant with legal registration and confirmed by China law and regulations.”Read more: Arm Takes Aim at Intel Chips in Biggest Tech Overhaul in DecadeThe standoff accords a relatively unknown executive outsized influence over one of the industry’s most important pieces of technology, in the world’s biggest internet and semiconductor market. Chinese companies need unfettered access to Arm’s products to push forward with the country’s attempts to make itself more independent in chip technology, an area where it’s largely reliant on imports. Beyond resolving the stalemate, Nvidia and SoftBank also need Beijing’s signoff to seal their deal, and it’s unclear whether Wu’s presence would complicate that.Wu’s hold on Arm China is partially due to local laws which make it difficult to change control of a company unless you’re physically in control of the company stamp and registration documents. He’s refused to give them up and has used company funds to pay for legal fees incurred in his attempt to fight off his dismissal, the people said.Arm China said payment of legal fees “is made in compliance with company policies as well as China laws and regulations.”His ultimate goals appear to be a large cash payoff and immunity from subsequent legal action, according to people who’ve spoken with him. Inside Arm China, which is responsible for selling licenses to its chip designs and fundamental technology in the country, Wu has told local staff he’s not going anywhere. He recently gave employees Chinese New Year cash presents in a red envelope with his surname on it.Arm China said the money came from Wu personally to show his appreciation to colleagues, a tradition at Chinese New Year in the country.Hearings in the case against the three executives are expected to take place in late May, one of the people said. Separately, two minority shareholders in Arm China have sued the Chinese entity in Shenzhen to nullify the board’s decision to oust Wu. These two cases are now being merged and hearings are slated for late April, the people said.Son told investors as recently as February that he expects to close the Arm sale and “I don’t have any Plan B.”Arm, for its part is trying to make sure that its technology remains pervasive in China despite U.S. sanctions intended to curb the supply of American technology to major companies like Huawei Technologies Co. While Arm is a U.K.-based company part of its operations are in the U.S. making its products subject to controls.The Chinese government has not stated its position on the Arm China leadership struggle, but the unit has several government-backed shareholders including sovereign wealth fund China Investment Corp. and the Silk Road Fund.In his interview with Bloomberg Television, Arm Ltd. CEO Segars said that the ten-month standoff hasn’t hurt Arm’s business in China. Lack of travel for face-to-face meetings during the pandemic has prolonged the process of changing leadership in China, he said.“When we announced the deal in September, we said it would take about 18 months,” he said. “We remain confident in that timeline.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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