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BW Businessworld

Stiff Penalty

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Goldman Sachs agreed to a settlement worth $1.2 billion to resolve a US regulator’s claim that the bank sold Fannie Mae and Freddie Mac faulty mortgage bonds. Goldman will pay $3.15 billion to repurchase mortgage-backed securities from Fannie and Freddie. The $1.2 billion reflects the amount Goldman will pay, minus the estimated current value of the securities being bought back from Fannie and Freddie. The deal tops a $550 million settlement that Goldman reached with the US Securities and Exchange Commission to resolve charges over how it marketed a subprime mortgage product in 2010.

Chapter Closed
Bank of America reached a record $16.65 billion settlement with the US government to settle charges that it and companies it bought misled investors into buying troubled mortgage-backed securities, helping the bank close a major chapter tied to the financial crisis. The settlement calls for the second-largest US bank by assets to pay $9.65 billion in cash to resolve more than a dozen federal and state probes, and provide $7 billion to struggling homeowners and communities. It is expected to resolve the vast majority of the bank’s remaining liabilities tied to its purchases of Merrill Lynch and Countrywide Financial Corp.

Bigger Menu

Burger King will buy Canadian coffee and doughnut chain Tim Hortons for $11.53 billion in a cash-and-stock deal that will create the world’s third-largest fast food restaurant group. Billionaire investor Warren Buffett’s Berkshire Hathaway has committed $3 billion of preferred equity to finance the deal but will have no role in managing the
business, the two companies said. The new combined firm will be based in Canada, its largest market. Investors and tax experts say the main reason for Burger King to relocate to Canada is to avoid having to pay double taxation on profits earned abroad, as it would likely be subject to if it remained in the United States.

Race Against Time
Suppliers to Apple are scrambling to get enough screens ready for the new iPhone 6 smartphone as the need to redesign a key component has disrupted panel production before the expected September launch. It’s unclear whether the hiccup will delay the launch or limit the number of phones initially available to consumers. The issue highlights the challenges that suppliers face to meet Apple’s tough specifications, and comes on the heels of a separate problem, since resolved, in making thinner screens for the larger iPhone 6. It also highlights the danger for suppliers of depending too heavily on Apple for revenues.

Game On
Amazon has snapped up live-streaming gaming network Twitch Interactive for about $970 million in cash, reflecting CEO Jeff Bezos’s resolve to transform the company into an Internet destination beyond its core retail operations. This  is the largest deal in Amazon’s 20-year history and will help the firm vie with Apple and Google in the world of online gaming, which accounts for over 75 per cent of all mobile app sales. Some retention pacts push the deal to over $1 billion. Amazon is also planning to develop its own software for placing ads online. Initially it will replace ads supplied by Google on Amazon’s own website, but could also take on Google and Microsoft’s advertising business in future.

Filling The Gap

Apparel retailer Gap has said it will open 40 stores in India as part of its strategy to expand in emerging markets. Gap has been looking to cut dependence on the North American market, which generates more than three-quarters of its sales. “India is an emerging market and an important next step in our global expansion strategy,” said Steve Sunnucks, global president, Gap.

Pay Cut

Senior executives of China’s state-owned enterprises face pay cuts of up to 50 per cent under a reform plan approved by President Xi Jinping. China needed to speed up reforms targeting the pay of top executives at state businesses, Xi said. Finance and banking executives will particularly be affected by the move, which comes in the wake of public discontent over the ambiguous status of executives, some of whom are paid like western business executives, earning more than officials in other sectors.

Unfit Food

Ketchup maker HJ Heinz recalled some infant food in eastern China after it was found to contain lead beyond the allowable limit. The move by Heinz comes after food safety regulators in eastern Zhejiang province found “excessive amounts of lead” in the company’s AD Calcium Hi-Protein cereal. Heinz said it was recalling four batches of the product as a precautionary measure. “This relates to an isolated regional withdrawal in eastern China,” company spokesman Michael Mullen said. “Extensive testing confirmed that no other Heinz baby food varieties are affected.”

Tit For Tat
A Russian court ordered the closure of a McDonald’s restaurant in Moscow for 90 days over breaches of sanitary rules. The shutdown came after authorities extended their scrutiny of McDonald’s to several regions, carrying out inspections at a number of restaurants run by the US fast-food chain, amid a standoff with the West over Ukraine. Three other outlets in Moscow have also been temporarily shut down.

(This story was published in BW | Businessworld Issue Dated 22-09-2014)