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Exclusive-Fiat Chrysler nears plea deal in U.S. emissions fraud probe – sources

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October 26, 2021

By Mike Spector and David Shepardson

(Reuters) -Fiat Chrysler Automobiles (FCA) is nearing an agreement to plead guilty to criminal conduct to resolve a multiyear emissions fraud probe surrounding Ram pickup trucks and Jeep sport-utility vehicles with diesel engines, people familiar with the matter said.

FCA lawyers and U.S. Justice Department officials are brokering a plea deal that could be unveiled in coming weeks and include financial penalties totaling between $250 million and $300 million, the people said.

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Such a resolution with FCA, which is now part of Stellantis NV, would come more than four years after Volkswagen AG pleaded guilty to criminal charges https://www.reuters.com/article/us-volkswagen-emissions/volkswagen-pleads-guilty-in-u-s-court-in-diesel-emissions-scandal-idUSKBN16H1W4 to resolve its own diesel-emissions scandal involving nearly 600,000 vehicles.It would also mark the final significant chapter in the government crackdown on automakers’ emissions practices that was precipitated by Volkswagen’s deception, which became known as “Dieselgate.”

The FCA investigation focuses on roughly 100,000 diesel-powered vehicles that allegedly evaded emissions requirements. The plea negotiations are fluid and some terms, including the size of any financial penalties, could change as discussions continue, the people said.

Justice Department officials are preparing paperwork that will likely be negotiated with FCA to finalize the plea deal, which could result in changes and also present an outside chance for the agreement to fall apart, the people said.

A plea agreement would cap a series of investigations dating back to 2015 surrounding diesel-powered vehicles in FCA’s U.S. lineup. The current criminal investigation targets the U.S unit of the Italian-American automaker. The affected vehicles span model years 2014 to 2016.

Representatives for FCA parent Stellantis and the Justice Department declined to comment.

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The scandals over emissions cheating tarnished diesel technology and accelerated the industry’s shift to electric vehicles.

The European automakers had promoted “clean diesel” technology as a way to reduce carbon dioxide emissions and ease a transition to an all-electric future. When regulators on both sides of the Atlantic uncovered evidence that diesel vehicles polluted far more in real world driving, the argument for a slower transition to battery electric vehicles was shredded.

Now, automakers are accelerating battery electric vehicle development to comply with tougher, post-Dieselgate pollution standards.

TRIAL SET FOR 2022

The FCA discussions are heating up as one of its employees prepares to face trial next year on charges he misled regulators https://www.reuters.com/article/cbusiness-us-fiat-chrysler-emissions-idCAKBN1W9217-OCABS about pollution from the vehicles, and continued the deception even after officials caught Volkswagen cheating on government emissions tests.

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In April, the Justice Department unveiled charges against two additional FCA employees in the alleged emissions fraud. Italian authorities arrested https://www.reuters.com/business/autos-transportation/italys-police-arrest-stellantis-manager-us-diesel-emissions-enquiry-2021-09-29 one of the two additional employees in September.

An indictment alleges the employees conspired to install illegal software known as defeat devices in vehicles so they could dupe government emissions tests and then pollute beyond legal limits on roadways.

FCA has previously resolved related civil allegations while denying it deliberately attempted to cheat on emissions tests.

Other legal troubles have also dogged the automaker. In March, the company pleaded guilty to violating U.S. labor law, admitting it conspired to make illegal payments to union officials.

The current plea negotiations in the emissions probe come on the heels of other changes at FCA. The company earlier this year sealed a merger with French Peugeot maker PSA to form Stellantis. In September, Stellantis said FCA’s former top boss would depart to become chief executive of AutoNation Inc, the largest U.S. dealership chain.

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In the emissions probe, the criminal case against FCA is expected to track closely with one against Volkswagen that the Justice Department unveiled in 2017, the people said.

Volkswagen admitted to cheating on government emissions tests with diesel-powered vehicles, in the process misleading the U.S. Environmental Protection Agency and customers. The German automaker pleaded guilty to charges including conspiracy to defraud the United States, commit wire fraud and violate the Clean Air Act.

Volkswagen agreed to pay $2.8 billion to resolve that criminal case, and billions of dollars more to settle Justice Department civil allegations and lawsuits from vehicle owners and state officials.

FCA, meanwhile, spoke with senior Justice Department officials in recent months to push back against a demand that the company plead guilty, the people familiar with the matter said.

The automaker instead argued for a so-called deferred prosecution agreement, the people said. In such agreements, a company is criminally charged and agrees to monitoring and other conditions instead of pleading guilty. If the company abides by the agreement, prosecutors later ask a judge to dismiss the charges.

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Justice Department officials rejected FCA’s request for the more lenient treatment.

In talks with U.S. prosecutors, FCA has emphasized the automaker’s January 2019 agreement to pay roughly $800 million to settle civil litigation brought by the Justice Department, state officials and consumers alleging the company’s vehicles evaded emissions requirements, one of the people said.

Separately, FCA this year resolved legal claims from customers who opted out of the earlier settlement with consumers, according to court records.

(Reporting by Mike Spector in New York and David Shepardson in Washington; additional reporting by Joe White in Detroit; editing by Edward Tobin)

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Investors brace for potential hit to earnings because of Omicron

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December 6, 2021

By Caroline Valetkevitch

NEW YORK (Reuters) – As details of a new COVID-19 variant emerge, investors are bracing for a potential hit to U.S. corporate earnings, particularly among retailers, restaurants and travel companies.

News of the Omicron variant comes in the middle of the holiday shopping period, and many businesses are already struggling with higher inflation and supply chain snags because of the pandemic.

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That is putting the focus again on these companies affected by the reopening of the economy, said Kristina Hooper, chief global market strategist at Invesco in New York.

“Are we still going to see traffic into restaurants and retailers, or at least retailers that derive most of their revenue from in-store traffic as opposed to online?” she said. “The other area of vulnerability of course is supply chain disruptions.”

She and other strategists said it’s too early to tell the extent to which the variant could affect earnings.

The Omicron variant that captured global attention in South Africa less than two weeks ago has spread to about one-third of U.S. states, but the Delta version accounts for the majority of COVID-19 infections as cases rise nationwide, U.S. health officials said on Sunday.

Goldman Sachs on Saturday cited risks and uncertainty around the emergence of the Omicron variant as it cut its outlook for U.S. economic growth to 3.8% for 2022. While the variant could slow economic reopening, the firm expects “only a modest drag” on service spending, it said in a note.

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U.S. companies have just wrapped up a much stronger-than-expected third-quarter earnings season, and the rate of fourth-quarter earnings year-over-year growth has been expected to be well below the previous quarter’s.

Analysts see fourth-quarter S&P 500 earnings up 21.6% from the year-ago quarter, while third-quarter earnings growth was at about 43%, according to IBES data from Refinitiv.

That fourth-quarter forecast has not changed since Nov. 26, just after the new variant became headline news.

Omicron may be affecting travel plans. Airline shares have already come under pressure, with the NYSE Arca airline index down 8.3% since the close of the session before Nov. 26.

For companies, “the significance of the impact will depend on how long the Omicron measures last,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “There will be some short-term impact… It’ll surely cause some short-term disruption to travel.”

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Colin Scarola, a vice president of equity research at CFRA, wrote in a Dec. 2 note on the airline sector that while details of the variant are still emerging, trends in U.S. air travel over recent months with the Delta variant may give some insight into what could happen to travel under the Omicron variant.

“This recent history tells us that most people have already accepted the material risk of infection with a Covid-19 variant when fully vaccinated. But knowing that risk of severe illness remains very low, they’ve been comfortable flying on airplanes,” he wrote.

Compounding concerns about the 2022 earnings outlook are higher costs for companies, with Federal Reserve Chair Jerome Powell last week signaling that inflation risks are rising and numerous companies citing rising costs during the third-quarter earnings season.

Even before the Omicron news, Tuz said investors were reading “more and more about inflation and wages and other inputs,” and that was expected to continue into 2022.

“I don’t know if the ability to pass along these higher costs is going to exist as much,” he said.

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(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Nick Zieminski)

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Bank investment chiefs signal China and emerging market caution

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December 6, 2021

LONDON (Reuters) -Market volatility and uncertainty over China’s indebted property sector is making bank investment chiefs cautious about its assets, amid more general nervousness about broader emerging markets.

“I would take a wait-and-see approach on emerging markets,” Credit Suisse global chief investment officer Michael Strobaek told the Reuters annual Investment Outlook Summit.

“I would take a day-by-day, week-by-week approach to China, to see what’s unfolding on the default side and the policy side,” he said, referring to problems in the country’s giant corporate debt sector.

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“Only if I see real deep opportunities, I’d go back in.”

Willem Sels, Global CIO, Private Banking & Wealth Management, HSBC, said clients needed to take a longer term view on emerging markets after many were hurt by recent volatility.

“We have a neutral view on China, we try to diversify,” he said.

“We try to get the confidence of investing in China. We try to align ourselves with what is clear in terms of government policy, and that’s the net zero transmission.”

Investors can still “find some winners” in China by digging down into areas like green tech and 5G-related businesses where the government was showing significant support, said Mark Haefele, CIO at UBS Global Wealth Management.

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(Reporting by Tommy Wilkes, Sujata Rao and Dhara Ranasinghe; Editing by Alexander Smith)

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IMF says euro zone should keep supporting economy, high inflation is temporary

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December 6, 2021

BRUSSELS (Reuters) – Euro zone governments should continue to spend to support the COVID-19 economic recovery, though in an increasingly focused way, and consolidate public finances only when it is firmly under way, the International Monetary Fund said on Monday.

In a regular report on the euro zone economy presented to the group’s finance ministers, the IMF noted, however, that while consolidation itself could wait, a credible way of how it would be done in the future should be announced already now.

“Policies should remain accommodative but become increasingly targeted, with a focus on mitigating potential rises in inequality and poverty,” the IMF said.

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“Fiscal policy space should be rebuilt once the expansion is firmly underway, but credible medium-term consolidation plans should be announced now,” it said.

The Fund also noted that the rise in inflation, which hit a record high of 4.9% on a year-on-year basis in November, was temporary and, therefore, not a big threat because it did not translate into a spike in wages, called a second-round effect.

“Recent inflation readings have surprised on the upside, but much of the increase still appears transitory, with large second-round effects unlikely,” the report said, adding that the European Central Bank’s monetary policy should therefore continue to be accommodative.

“Structural reforms and high-impact investment, including in climate-friendly infrastructure and digitalization, remain crucial to enhancing resilience and boosting potential growth,” the IMF said.

(Reporting by Jan Strupczewski; Editing by Paul Simao)

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