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The Morning Ledger: Foreign Firms Face Rising Insurance Costs as Lawsuits Mount
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Chinese internet giant Alibaba Group agreed to a $75 million settlement last year, an example of rising settlement amounts. PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS
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Hello. Foreign companies listed in the U.S. are facing rising costs for insurance covering directors and officers, propelled by the increasing number of lawsuits, reports CFO Journal's Ezequiel Minaya.
More lawsuits against foreign firms: There were 217 securities class action suits filed against both foreign and domestic companies listed in the U.S. in 2018, a slight uptick from the 216 suits filed in 2017 and the highest number in 20 years, according to a report by insurance brokerage Woodruff Sawyer & Co. The number of class action lawsuits filed against foreign companies, however, rose 39% to 47 in 2018.
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Financial risks on the up: Roughly 20% of the companies listed on the Nasdaq and New York Stock Exchange are headquartered outside the U.S., with 4.5% of these foreign entities sued in 2018, the report said. The dollar amount of settlements for both foreign and domestic companies in 2018 rose 71% to $2.4 billion from $1.4 billion in 2017, according to Woodruff Sawyer.
Higher insurance costs: The increase in both lawsuits and financial risk is pushing up the cost of D&O insurance for foreign companies, a type of insurance aimed at protecting board members and company leadership against personal liability. Foreign firms for many years paid less for this protection than domestic companies, said Priya Huskins, a partner and senior vice president at Woodruff Sawyer.
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Nearly seven months after President Trump and Japanese Prime Minister Shinzo Abe agreed to start two-way trade talks, U.S. Trade Representative Robert Lighthizer is set to meet his Japanese counterpart in Washington, with Tokyo hoping to avoid tariffs on its cars.
Charles Schwab Corp., Citigroup Inc. and Goldman Sachs Group Inc. are among the companies scheduled to report earnings today.
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The U.S. Federal Reserve on Tuesday releases its latest industrial production data. Economists expect manufacturing output picked up in March after it declined for the second consecutive month in February.
Also on Tuesday, Japan publishes its latest trade figures after running a nearly $60 billion trade surplus with the U.S. in 2018.
On Wednesday, the U.S. Commerce Department releases international trade data for February, with economists forecasting a widened trade deficit. The Bank of Korea on Wednesday holds a rate-setting meeting and releases a policy statement.
On Thursday, the Commerce Department publishes fresh consumer spending data. Economists expect sales rebounded robustly in March.
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Commerzbank and Deutsche Bank would face hurdles to combining technology and eliminating tens of thousands of jobs if they merged. PHOTO: ALEX KRAUS/BLOOMBERG NEWS
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Deutsche Bank AG will likely depend on an obscure but valuable accounting quirk—known as negative goodwill, or badwill—to make a deal for smaller rival Commerzbank AG workable.
French advertising giant Publicis Groupe SA has agreed to acquire Alliance Data Systems Corp.’s marketing-services business for $4.4 billion, a deal that gives Publicis access to more consumer data and helps modernize its business.
Russian aluminum giant United Co. Rusal plans to invest $200 million in a Kentucky rolling mill that would be the largest new aluminum plant built in the U.S. in nearly four decades.
Southwest Airlines Co. has conducted inspections on about a dozen engines on its grounded Boeing Co. 737 MAX jets in an attempt to determine whether there is a component problem or manufacturing flaw.
Contract drug manufacturer Catalent Inc. agreed to buy closely held Paragon Bioservices Inc. for $1.2 billion, the latest deal in the emerging market for gene-therapy drugs.
Caesars Entertainment Corp. is preparing to name Anthony Rodio as its next chief executive and say it will evaluate takeover interest in the casino operator, people familiar with the matter said.
Neiman Marcus Group Ltd. is poised to become the latest U.S. business to push lenders into supporting a refinancing, a trend that has raised concerns that some companies might be delaying a reckoning on unsustainable debt loads.
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$2.9 Billion
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The size of Waste Management Inc.'s likely acquisition of smaller rival Advanced Disposal Services Inc.
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Management Consultant Costs Often Overshoot Projections
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Companies often turn to consulting firms for expert advice, but 68% of such projects end up costing more than the client’s initial estimate, according to a new report by research firm Source Global Research.
Clients are part of the problem: 75% of U.S. companies compile estimates for projects’ costs before they receive proposals from consulting firms. Almost half had an estimate at the very earliest stage, before they even decided to go ahead with the project.
“That’s part of the reason the costs come in over expectations—because they’re looking at internal, backwards-looking information to determine what they should pay,” said Fergus Blair, senior analyst at Source Global, which released the report Monday.
“They’re looking at how much we’ve spent with previous consulting firms to deliver this type of work or how much have we spent internally to deliver this type of work, rather than what other companies are spending now,” he added. Source Global surveyed U.S.-based senior executives who had been directly involved in approving and managing consulting projects. Among the organizations represented, 74% had revenues of more than $1 billion.
—Tatyana Shumsky
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Middle-Market Private Firms Post Slower Earnings, Revenue Gains
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An indicator of U.S. corporate and economic health points to a slower pace of growth in the first two months of 2019.
U.S. middle-market private companies reported revenue growth of 9.3% in the first two months of the first quarter from the same period in 2018, according to a report by middle-market lender Golub Capital. This was a slowdown from 10.6% revenue growth in the fourth quarter of 2018. Earnings growth slowed to 9.5% in the period, compared with 13.4% recorded in the fourth quarter of 2018.
The report is based on the Golub Capital Altman Index, which measures the median revenue and earnings growth of more than 150 closely held companies in Golub Capital’s loan portfolio. Statistical testing of the index shows the middle-market private company results provide early insight into the overall growth of the S&P 500 index, as well as quarterly gross domestic product data.
—Tatyana Shumsky
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U.K. Regulator Reprimands, Fines Audit Firm Baker Tilly and Partners
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A U.K. watchdog has imposed sanctions against Baker Tilly UK Audit LLP and its partners Richard King and Steven Railton, following an investigation into the audit of financial statements of Tanfield Group PLC, a manufacturer of electric vehicles, for the 2007 financial year.
An independent tribunal made findings of misconduct in connection with the audit of Tanfield's inventories and trade receivables.
Under the sanctions handed down by the Financial Reporting Council, Baker Tilly received a reprimand and a fine of £750,000 ($982,500). Mr. King and Mr. Railton received a reprimand and a combined fine of £65,000.
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London's Financial Firms Start 2019 on the Back Foot As Brexit Looms
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Uncertainty around Britain's exit from the European Union is taking its toll on the job market in the City of London, the heart of the U.K.'s financial industry. While the number of available jobs decreased nine percent in the first quarter compared to the prior year period, the number of job seekers declined by 15 percent, according to figures released Monday by Morgan McKinley, a recruitment firm.
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Google is disbanding a panel in the U.K. to review its artificial-intelligence work in health care. PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS
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Alphabet Inc.'s Google is disbanding a U.K. panel to review its artificial-intelligence work in health care, as disagreements about its effectiveness dogged one of the tech industry’s highest-profile efforts to govern itself.
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Apple Inc.'s and Qualcomm Inc.'s patent dispute has become one of the ugliest corporate battles in history. A frosty relationship between the companies’ CEOs, Tim Cook and Steve Mollenkopf, has deepened the divide.
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The National Rifle Association filed a lawsuit accusing its longtime advertising agency Ackerman McQueen Inc. of refusing to comply with demands to justify its billings, an extraordinary public break with the gun-rights group’s largest outside partner.
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Federal Reserve Chairman Jerome Powell at the International Monetary Fund spring meetings in Washington, D.C. PHOTO: SHAWN THEW/EPA/SHUTTERSTOCK
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Former Federal Reserve officials and foreign central bankers said President Trump’s combative stance toward the U.S. central bank could over time weaken the institution and its role in the global economy.
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With the global economy slowing and showing signs it may need support, economists are pointing fingers at Germany and a few other countries that are in a position to provide a lot of stimulus but are choosing not to.
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Investors are pouring money into mobile-banking startups, but small businesses have yet to feel the benefit.
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North Korea outlined plans to increase government spending on science, technology and infrastructure, despite sanctions that have bruised the cash-strapped regime’s economy.
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International Airlines Group SA, a European airline group, said that it has appointed Steve Gunning as finance chief, effective in June.
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Mr. Gunning is currently chief financial officer of IAG's British Airways unit and will take over from IAG's current Chief Financial Officer Enrique Dupuy de Lôme. Mr. Dupuy will step down from his role at the company's annual meeting in June. Compensation details were not immediately available.
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