Proxy adviser Glass Lewis recommends EQT shareholders vote for company’s nominees

(Reuters) – Proxy adviser Glass Lewis & Co has recommended that investors in natural gas producer EQT Corp vote in favor of the company’s board nominees, putting it at odds with another proxy advisory firm which recommended voting in favor of a competing slate of directors proposed by Toby and Derek Rice.

Toby Rice, co-founder of Rice Energy group, speaks during an interview in New York, U.S., June 11, 2019. REUTERS/Brendan McDermid

“We see no significant outstanding concerns regarding leadership or governance at EQT and we do not believe further board refreshment or oversight is warranted at this juncture,” Glass Lewis said in a note dated June 28.

The recommendation by Glass Lewis to vote in favor of all 12 of the company’s nominees comes after proxy advisory firm Institutional Shareholder Services on Friday advised EQT investors to vote in favor of all the nominees of shareholders Toby and Derek Rice.

The Rice brothers were part of the founding team at Rice Energy, which was bought by EQT in November 2017. They say EQT management is responsible for the company’s underperformance since the deal, and have pushed for an overhaul of its board.

EQT welcomed Glass Lewis’ recommendation and said it reaffirmed that the company has the right board, management team and strategy to create significant long-term shareholder value.

“EQT believes shareholders should question the merit of a 3% shareholder seeking to be CEO and replace management and a majority of the board,” the company said in a statement.

Glass Lewis also said management should be given a reasonable amount of time by the shareholders to achieve targets before seeking further changes.

ISS in its report had recommended that EQT shareholders should support all seven nominees put forward by the Rice brothers and five existing members of the board, sending the company’s shares higher.

The Rice brothers also have the support of EQT’s fourth and sixth largest shareholders, DE Shaw Group and Kensico Capital Management Corp.

EQT disagreed with ISS’s recommendations and said the Rice nominees were less qualified, less experienced and conflicted.

“We are grateful to those large shareholders who have publicly announced their support for all Rice team nominees,” the Rice team said, adding it believed the Friday’s stock market reaction to the ISS announcement spoke for itself.

Reporting by Ishita Palli and Bhargav Acharya in Bengaluru; Editing by Bill Rigby and Jonathan Oatis

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Halfway through 2019, tech leads on Wall Street

SAN FRANCISCO (Reuters) – Technology stocks are Wall Street’s top performers as 2019 hits half-way, with investors betting on lower interest rates, although Apple and chipmakers face turbulence related to the U.S.-China trade war.

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 24, 2019. REUTERS/Brendan McDermid

The S&P 500 information technology index has surged 9% in June, its strongest month in three years. That rally, and the S&P 500’s .SPX record high on June 21, reflect investors’ increased appetite for risk as they become more confident the Federal Reserve will cut interest rates to support a slowing economy.

It also shows that Wall Street is mostly confident that U.S. President Donald Trump, who has shown a dislike for stock market downswings, will ultimately resolve his trade conflict with China.

Looking for evidence of progress on the trade front, investors will closely watch a planned meeting this weekend between Trump and China’s president, Xi Jinping, at the upcoming Group of 20 summit in Japan.

“The risk to the downside is the greatest. If trade talks break down then we could head lower, probably a lot further, and the tech sector could be a leader to the downside,” said Randy Frederick, Vice President of Trading & Derivatives at Charles Schwab.

Other investors say their optimism about the tech stocks is grounded in expectations that the sector’s earnings growth will outperform the rest of the economy over the next several years.

“Our expectations for genuine progress regarding tariffs at the G20 is quite low,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York. “Tech is less of a short-term tactical play, and more a belief in the long-term growth potential of the space. Certainly, it’s affected by tariffs and regulation, but the growth story is still there.”

Although just short of its April record high, the technology index is up 26% so far in 2019, leading other sectors by far and easily beating the S&P 500’s 17% return. Among June’s strong performing technology stocks are Nvidia (NVDA.O), Apple (AAPL.O), Xerox (XRX.N), each up over 13%.

Facebook (FB.O), Amazon (AMZN.O) and Netflix (NFLX.O) all rose more than 7% in June, slightly outperforming the S&P 500’s increase of just under 7% as investors increased bets on high-growth, volatile stocks.

Uncertainty related to the trade conflict and Washington’s blacklisting of China’s Huawei have pushed the Philadelphia Semiconductor Index .SOX down 8% from its record high in April, but it is still up 27% for the year, buoyed by expectations that a slump in global sales is near its bottom and that demand is set to recover.

The benchmark chip index has surged over 5% since Tuesday, when Micron Technologies (MU.O) said it resumed some sales to Huawei and forecast a recovery in memory chip demand in the second half of the year.

Underpinning not just tech, but most of Wall Street’s recent strength, is the recently increased confidence that the Fed will cut interest rates as soon as July, with interest rate futures pointing to three rate cuts this year to support already dwindling economic growth.

The recent strong performance of technology stocks comes even as analysts predict a drop in quarterly earnings for the sector, in part due to uncertainty around the trade war. Many U.S. semiconductor companies rely on China for over half of their revenue.

Graphic: Tech earnings expectations, click tmsnrt.rs/2Ysg1C5

Analysts on average expect the S&P 500 IT sector’s earnings per share to sink 8% in the second quarter, compared to a 0.3% increase predicted for the S&P 500, according to Refinitiv’s IBES data.

S&P 500 semiconductor companies are seen posting a much deeper 28% slump in second-quarter earnings, and a 20% drop for all of 2019. Analysts on average expect Advanced Micro Devices (AMD.O) and rival Nvidia to post declines of over 40% in earnings per share for the quarter.

A resolution of the trade conflict would lead analysts to increase their earnings estimates for the technology sector to reflect improved global economic conditions, Frederick said.

“The economy really hasn’t slowed down that much. That says we’re still in a cyclical market and there’s still some upside potential, and tech tends to be one of the leaders when you’re in a cyclical market,” he said.

Reporting by Noel Randewich; editing by Alden Bentley and Chizu Nomiyama

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Australia’s Domino’s Pizza says it will defend itself against staff underpayment class action

FILE PHOTO: A Domino’s Pizza restaurant is seen in Los Angeles, California, U.S. July 18, 2018. REUTERS/Lucy Nicholson

(Reuters) – Australia’s Domino’s Pizza Enterprises (DMP.AX) said on Friday it did not mislead franchisees over payments to their employees and that it had not formally received court documents about a class action.

It reiterated that it will defend itself against the class action over underpayment of staff, although also said the lead applicant had not made any claim against his franchisee employer and no franchisee employer was party to the action.

Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Paul Tait

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U.S. regulator cites new flaw on grounded Boeing 737 MAX

WASHINGTON/SEATTLE (Reuters) – The U.S. Federal Aviation Administration has identified a new risk that Boeing Co must address on its 737 MAX before the grounded jet can return to service, the agency said on Wednesday.

FILE PHOTO: The angle of attack sensor, at bottom center, is seen on a 737 Max aircraft at the Boeing factory in Renton, Washington, U.S., March 27, 2019. REUTERS/Lindsey Wasson/File Photo

The risk was discovered during a simulator test last week and it is not yet clear if the issue can be addressed with a software upgrade or will require a more complex hardware fix, sources with knowledge of the matter told Reuters.

The FAA did not elaborate on the latest setback for Boeing, which has been working to get its best-selling airplane back in the air following a worldwide grounding in March in the wake of two deadly crashes within five months.

The new issue means Boeing will not conduct a certification test flight until July 8 in a best-case scenario, the sources said, but one source cautioned it could face further delays beyond that. The FAA will spend at least two to three weeks reviewing the results before deciding whether to return the plane to service, the people said.

Last month, FAA representatives told members of the aviation industry that approval of the 737 MAX jets could happen as early as late June.

The world’s largest planemaker has been working on the upgrade for a stall-prevention system known as MCAS since a Lion Air crash in Indonesia in October, when pilots were believed to have lost a tug of war with software that repeatedly pushed the nose down.

A second deadly crash in March in Ethiopia also involved MCAS. The two accidents killed a total of 346 people.

“On the most recent issue, the FAA’s process is designed to discover and highlight potential risks. The FAA recently found a potential risk that Boeing must mitigate,” the FAA said in the statement emailed to Reuters. “The FAA will lift the aircraft’s prohibition order when we deem it is safe to do so.”

Boeing said in a securities filing late on Wednesday that the FAA has asked it to address through software changes a specific flight condition not covered in the company’s already-unveiled software changes.

The U.S. planemaker also said it agreed with the FAA’s decision and request, and was working on a fix to address the problem.

“Boeing will not offer the 737 MAX for certification by the FAA until we have satisfied all requirements for certification of the MAX and its safe return to service,” Boeing wrote in the filing.

INTENSE SCRUTINY

Boeing’s aircraft are being subjected to intense scrutiny and testing designed to catch flaws even after a years-long certification process.

Two people briefed on the matter told Reuters that an FAA test pilot during a simulator test last week was running scenarios seeking to intentionally activate the MCAS stall-prevention system. During one activation it took an extended period to recover the stabilizer trim system that is used to control the aircraft, the people said.

It was not clear if the situation that resulted in an uncommanded dive can be addressed with a software update or if it is a microprocessor issue that will require a hardware replacement.

In a separate statement, Boeing said addressing the new problem would remove a potential source of uncommanded movement by the plane’s stabilizer.

FILE PHOTO: Employees walk by the end of a 737 Max aircraft at the Boeing factory in Renton, Washington, U.S., March 27, 2019. REUTERS/Lindsey Wasson/File Photo

A hardware fix could add new delays to the plane’s return to service.

The FAA also said on Wednesday that it continues “to evaluate Boeing’s software modification to the MCAS and we are still developing necessary training requirements. We also are responding to recommendations received from the Technical Advisory Board. The TAB is an independent review panel we have asked to review our work regarding 737 Max return to service.”

American Airlines Group Inc and Southwest Airlines Co earlier canceled flights through early September as a result of the grounding. On Wednesday, United Airlines said it also was removing MAX flights from its schedule through Sept. 3.

Reporting by David Shepardson in Washington; Additional reporting by Eric M. Johnson in Seattle; Writing by Tracy Rucinski; Editing by Phil Berlowitz and Matthew Lewis

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Bombardier exits commercial aviation with sale of regional jet business to Mitsubishi

(Reuters) – Bombardier Inc said on Tuesday it will sell its money-losing regional jet business to Japan’s Mitsubishi Heavy Industries Ltd (MHI) for $550 million in cash, in a deal marking the Canadian plane and train maker’s exit from commercial aviation.

FILE PHOTO: Bombardier’s logo is seen on the building of the company’s service centre at Biggin Hill, Britain March 5, 2018. REUTERS/Peter Nicholls/File Photo

Montreal-based Bombardier has been selling off its weaker-performing commercial plane programs aimed at airlines to focus on profitable business jets and passenger rail cars. The company faced a cash-crunch in 2015 while bringing a larger narrowbody jet to market.

The deal, which Bombardier said was completed at 6:30 a.m. ET (1030 GMT) on Tuesday, is expected to close in the first half of next year.

Under the agreement, the Japanese firm will take over $200 million in liabilities, but receive Bombardier’s estimated $180 million interest in a financing structure it created to support aircraft leasing.

In an interview, Bombardier Chief Executive Alain Bellemare said some proceeds would be used to reduce debt.

“I’m not going to do the math, but that’s clearly the game plan,” he said by phone.

The proceeds exceeded some analysts’ expectations.

“It generates a return better than we had anticipated and ends the company’s exposure in a program which we believe was a drag on earnings,” AltaCorp analyst Chris Murray said in a note.

Bombardier has an additional $400 million liability from residual value guarantees provided to airlines on the regional jet program.

Bellemare said he did not see a “problem” gaining regulatory approval.

Jean-Luc Ferland, a spokesman for Canada’s Innovation Minister Navdeep Bains, said details of the agreement will be reviewed “to ensure it benefits Canadians.”

Bombardier will continue to assemble its regional jet planes (CRJ), but will stop making the aircraft in the second half of 2020, after it finishes delivering on its remaining backlog of 42 orders.

CRJ’s profitable aftermarket sales, engineering expertise and heavy maintenance centers in the United States, would be useful for Mitsubishi, which is trying to develop and certify its delayed regional jet program, the MRJ, which has been rebranded as “SpaceJet.”

“It’s an important step for us as a whole,” said Dan Lochmann, a spokesman for MHI.

Bellemare said about 400 workers producing the CRJ in the Montreal-area would likely find other jobs, such as with Airbus, which needs workers for the A220 jet it acquired last year from Bombardier.

“We believe there are plenty of opportunities to reposition these people,” he said.

Bombardier and Mitsubishi had previously said they were holding talks over the regional jet program.

The Japanese firm is trying to certify the plane, which has been delayed by several years with its first customer, ANA Holdings Inc. It now expects delivery in 2020 rather than in 2013 as originally planned.

A trade secrets lawsuit brought by Bombardier against Mitsubishi’s aircraft unit has been “stayed” or suspended and will be dropped when the deal closes.

Shares of Bombardier pared earlier gains to close up 2.74% at C$2.25 ($1.71) in Toronto.

Reporting by Allison Lampert in Montreal and Debroop Roy in Bengaluru; additional reporting by Steve Scherer in Ottawa and Tim Hepher in Paris; editing by James Emmanuel, Susan Thomas, Tom Brown and Richard Chang

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FedEx confirms Huawei mail ban as new ‘mistake’ reignites Chinese ire

(Reuters) – FedEx Corp has apologized for another Huawei delivery “mistake,” reigniting Chinese ire and drawing the fire of state media which suggested the U.S. delivery firm could end up on China’s upcoming list of companies that harm national interests.

The firm on Sunday said it returned a package – identified as containing a Huawei phone – due to an “operational error,” and that it would deliver all products made by Huawei Technologies Co Ltd to addresses other than those of Huawei and affiliates placed on a U.S. national security blacklist.

FedEx on Monday said it has filed a lawsuit in U.S. District Court seeking to stop the Department of Commerce from enforcing new export prohibitions contained against the package delivery company.

“This puts an impossible burden on a common carrier such as FedEx to know the origin and technological make-up of contents of all the shipments it handles and whether they comply” with restrictions, the company said in a statement here

China’s foreign ministry on Monday nevertheless asked for a full explanation. Technology news outlet PCMag, formerly known as PC Magazine, reported here that its writer in Britain had attempted to send a Huawei P30 handset to a colleague in the United States. FedEx returned the phone and told the sender that it could not deliver the package because of a “U.S. government issue” with Huawei and the Chinese government, PCMag reported.

The incident comes as Chinese authorities investigate FedEx for misrouting packages sent by Huawei last month. Meanwhile, China is also drawing up an Unreliable Entities List of foreign firms, groups and individuals.

The list mirrors the U.S. Entity List that Huawei was added to in May, essentially barring it from buying U.S. technology upon which it was heavily reliant. The U.S. added more Chinese entities to the list on Friday.

The Beijing News, a municipal government-run newspaper, in an editorial on Monday, said FedEx had misinterpreted the U.S. ban and called on U.S. firms to be “rational” and not to over-react.

FILE PHOTO: A Federal Express truck makes its way down a freeway in San Diego, California August 22, 2014. REUTERS/Mike Blake/File Photo

FedEx rival United Parcel Service Inc also confirmed it would not ship to Huawei addresses on the Entity List but had no “general ban” on Huawei products.

A Huawei spokesman said the Chinese firm was not currently using either FedEx or UPS services. On Sunday, Huawei tweeted it was not within FedEx’s right to prevent the delivery and said the courier had a “vendetta.”

UNRELIABLE

The latest incident sparked renewed criticism of FedEx on Chinese social media, with the topic “FedEx apologizes again” trending on Weibo, China’s Twitter-like microblog platform.

State-run newspaper Global Times on Sunday tweeted that FedEx is likely to be added to China’s Unreliable Entities List.

Neither China’s commerce ministry nor FedEx responded to Reuters’ requests for comment on the likelihood of FedEx being added to the list. State news agency Xinhua previously said authorities’ investigation into FedEx misrouting Huawei packages should not be regarded as retaliation.

Being in the “crosshairs” of the Chinese government “is a tremendous headwind and risk” for FedEx, Trip Miller, said managing partner at Memphis-based Gullane Capital Partners, which holds a FedEx position valued at roughly $7 million.

“Can you imagine if FedEx was banned from doing business? China could get our attention pretty quick if it did something like that,” said Miller, adding that such a move would significantly disrupt global trade networks.

FILE PHOTO: A Huawei company logo is seen at the security exhibition in Shanghai, China May 24, 2019. REUTERS/Aly Song/File Photo

FedEx’s operational error comes against a backdrop of increasing tension between the world’s two biggest economies. The United States and China have been engaged in a trade fight for nearly a year on issues such as tariffs, subsidies, technology, regulations and cyber security.

A telephone call between U.S. President Donald Trump and Chinese President Xi JinPing last week, as well as confirmation the two will meet in Japan on the sidelines of a Group of 20 summit, have rekindled hopes of a detente.

Reporting by Kanishka Singh in Bengaluru, Caroline Stauffer in Chicago and Sijia Jiang in Hong Kong; Additional reporting by Huizhong Wu in Beijing; Editing by Marguerita Choy, Christopher Cushing and Shounak Dasgupta

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Eldorado Resorts clinches $18 billion cash and stock deal for Caesars: sources

The 550 foot-tall (167.6 m) High Roller observation wheel, the tallest in the world, is the centerpiece of the $550 million Linq project, a retail, dining and entertainment district by Caesars Entertainment Corp, in seen in Las Vegas, Nevada April 9, 2014. REUTERS/Las Vegas Sun/Steve Marcus/File Photo

NEW YORK (Reuters) – U.S. casino operator Eldorado Resorts Inc has agreed to merge with Caesars Entertainment Corp in a cash and stock deal that values its peer at about $18 billion including debt, people familiar with the matter said on Sunday.

The agreement comes three months after Reuters reported that Caesars had agreed to give Eldorado access to its books under pressure from billionaire investor Carl Icahn, who earlier this year was awarded seats on Caesars’ board.

The deal, which is expected to be announced on Monday, values Caesars at close to $13 a share, according to the sources. The combined company’s ownership would be split roughly between Eldorado and Caesars shareholders, the sources said.

The sources asked not to be identified because the matter is confidential. An Eldorado spokesman said the company did not comment on rumors or speculation. Caesars did not immediately respond to requests for comment.

The combination of the two companies would create a serious competitor to larger casino industry players, such as Las Vegas Sands Corp, Wynn Resorts Ltd and MGM Resorts International.

Caesars’ shares closed on Friday at $9.99. The company, which emerged from bankruptcy in 2017, operates casinos with the Harrah’s and Horseshoe brands. It had 53 properties in 14 U.S. states and five countries outside the United States at the end of December.

Eldorado has a market value of $4 billion. It also had long-term debt at the end of March of $3.1 billion. It owns and operates 26 properties in 12 U.S. states.

Reporting by Greg Roumeliotis; Editing by Peter Cooney

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Daimler to recall 60,000 Mercedes diesels in Germany over emissions

The Daimler logo is seen before the Daimler annual shareholder meeting in Berlin, Germany, April 5, 2018. REUTERS/Hannibal Hanschke

FRANKFURT (Reuters) – Daimler must recall 60,000 Mercedes diesel cars in Germany after regulators found that they were fitted with software aimed at distorting emissions tests, the Transportation Ministry said on Saturday.

The model affected is the Mercedes-Benz GLK 220 produced between 2012 and 2015.

Daimler confirmed that the recall was ordered on Friday but said that it would appeal against the decision while continuing to cooperate with regulators.

The ministry said that it was expanding its investigation into further models.

Since rival Volkswagen admitted in 2015 to cheating U.S. emissions tests, the scandal has spread to other carmakers. Daimler has ordered the recall of 3 million vehicles to fix excess emissions coming from their diesel engines.

Germany’s Bild am Sonntag, which first reported the recall on Saturday, had reported in April that the German auto regulator was looking into suspicious software in the Mercedes-Benz GLK 220 CDI cars produced between 2012 and 2015, after tests showed they only meet emissions limits when a certain function is activated.

Reporting by Ralf Banser in Frankfurt, Jan C. Schwartz in Hamburg, and Christian Ruettger in Berlin; Writing by Tom Sims; Editing by Alison Williams

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S&P 500 touches record high as Wall Street eyes trade talks

(Reuters) – Wall Street was little changed on Friday, as U.S. Vice President Mike Pence’s decision to defer a speech on China policy increased optimism on upcoming trade talks between Washington and Beijing, though tensions between the United States and Iran undercut sentiment.

FILE PHOTO: Traders work on the main trading floor after the opening bell at New York Stock Exchange (NYSE) in New York, U.S. June 20, 2019. REUTERS/Brendan McDermid/File Photo

The S&P 500 briefly hit a record high.

Pence called off a planned China speech that had been cast initially as a sequel to a blistering broadside he delivered in October, a move aimed at averting increasing tensions with Beijing, a White House official said.

The benchmark S&P 500 index hit an intraday record high of 2,964.15, but then stepped back as the rising tensions between the United States and Iran kept investors on edge.

U.S. President Donald Trump and Chinese President Xi Jinping are expected to restart trade talks at the Group of 20 summit in Japan next week, on June 28-29.

“People will be focusing on what happens at the G20 with Presidents Trump and Xi,” said Kurt Brunner, portfolio manager with the Swarthmore Group in Philadelphia. Any indication of progress from Trump following the meeting would be positive for Wall Street, he said.

Stocks were set to log a third straight week of gains, after posting their worst monthly performance this year in May on fears the prolonged trade war would hit global economic growth.

Trump said on Friday he aborted a military strike on Iran in response to Teheran’s downing of a U.S. drone, but the possibility of a U.S. retaliation pushed crude prices higher and helped lift the energy sector by 0.49%. [O/R]

Traders also pointed to higher volatility on Friday on account of “quadruple witching,” when investors unwind interests in futures and options contracts prior to expiration.

At 2:19 pm ET, the Dow Jones Industrial Average was up 0.1% at 26,780.05 points, while the S&P 500 lost 0.06% to 2,952.46. The Nasdaq Composite dropped 0.24% to 8,031.71.

The tech-heavy Nasdaq was weighed down by a 2.3% fall in PayPal Holdings Inc after the digital payments company said its chief operating officer, Bill Ready, would step down.

CarMax Inc rose as much as 3.4% to a record high after the used-vehicles retailer posted quarterly results above analysts’ expectations.

Carnival Corp fell for a second day, down 4.3%, and among the biggest decliners. Several brokerages trimmed their share price targets after the cruise operator cut its 2019 profit forecast.

Declining issues outnumbered advancing ones on the NYSE by a 1.51-to-1 ratio; on Nasdaq, a 1.95-to-1 ratio favored decliners.

The S&P 500 posted 34 new 52-week highs and two new lows; the Nasdaq Composite recorded 45 new highs and 54 new lows.

Reporting by Noel Randewich in San Francisco; Additional reporting by Amy Caren Daniel and Shreyashi Sanyal in Bengaluru; Editing by Leslie Adler

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Exclusive: Deutsche Bank braced for continued Fed restrictions on U.S. business – sources

NEW YORK (Reuters) – Deutsche Bank AG executives expect U.S. regulators to continue to impose restrictions on its Wall Street investment bank even if it passes an annual health check, three sources familiar with the matter said.

FILE PHOTO: The logo of Deutsche Bank is seen at its headquarters ahead of the bank’s annual general meeting in Frankfurt, Germany May 18, 2017. REUTERS/Ralph Orlowski

Executives hope improvements the bank has made to its risk management and capital planning processes since failing last year’s test will enable it to achieve a conditional pass this year, the sources said.

The sources said their optimism is based on conversations with Fed officials over several months. However, the Fed has yet to give a final decision and the bank’s fourth failure in five years is still possible, they said.

A Deutsche Bank spokesperson said: “We cannot confirm any of the information as the results are not know to us. We respect the process, and we will respect the Federal Reserve’s decision, when made.”

The Federal Reserve implemented annual tests of lenders after the 2008 financial crisis to check whether they have sufficient capital to weather a major economic downturn.

Even if the bank passes the stress tests, executives expect the Fed to continue to bar it from making payments to its German parent without the Fed’s approval, the sources said. They also anticipate Deutsche will be told to continue improving the systems it uses to monitor its business and risks, the sources said.

The tests this week and next come amid uncertainty over the bank’s U.S. operations. Deutsche plans cutbacks to appease investors unhappy about its stock market underperformance. It also faces investigations by the Federal Bureau of Investigation and Department of Justice into possible money-laundering lapses. The bank has said it is cooperating with investigators.

Failing the tests would further damage confidence among clients and investors at a time when Chief Executive Officer Christian Sewing is battling to turn around Germany’s biggest lender, whose shares hit a record low this month.

Deutsche flunked the second part of the tests last year. The Fed cited “material weaknesses” in its data capabilities and capital planning process. The bank said in April it had “invested heavily to ensure that the bank meets regulators’ demands and has made significant progress.”

Fed officials recognize the bank has made improvements to its processes but believe more work needs to be done to bring them up to the required standard, the sources said.

This year’s tests are likely to be the last for Deutsche’s U.S. business under current Americas head, Tom Patrick, the sources said. Patrick is expected to leave in the coming months as the bank’s U.S. restructuring progresses, they said. Patrick declined to comment, bank officials said.

Deutsche plans to dramatically reduce the size of its loss-making U.S. equities business as part of an overhaul of its investment bank. However, it plans to retain a substantial U.S. operation to service German corporate clients.

A key task for Patrick’s successor, who will need to be approved by the Fed, will be to rebuild confidence among regulators and ensure it can pass future stress tests unconditionally, the sources said.

The Fed is scheduled to announce on Friday the results of the first part of the tests, which measures banks’ capital levels against a severe recession. Deutsche is expected to pass that section comfortably, as it did last year, the sources said.

The second part of the tests, which focuses on banks’ capital planning and risk management processes, is due to be announced June 27. It is this part that bank officials hope they will conditionally pass this year, the sources said.

Reporting by Matt Scuffham; editing by Neal Templin and Cynthia Osterman

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