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Legal News Report 7-17-15
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Federal Judge Certifies Class Action Lawsuit Against Apple
Jul 16, 2015 | TIME
By Claire Groden
Apple retail workers were given the go-ahead in federal court in California Thursday to pursue a class action lawsuit against Apple, breathing new life into a lawsuit filed in 2013. -
Rovi Slides Most in 3 Years After Litigation Loss to Netflix
Jul 16, 2015 | Bloomberg Business
By Callie Bost
Rovi Corp., which licenses data for television guides, dropped the most in three years after a judge ruled in favor of Netflix Inc. in a patent lawsuit. -
Goldman Sachs profit hit by litigation expenses
Jul 16, 2015 | USA Today
By Kaja Whitehouse
Investment bank Goldman Sachs said its earnings tumbled in the three-months ended in June due to litigation expenses that shaved $2.77 a share from its second-quarter profit. -
Citigroup Profit Soars on Lower Litigation Costs
Jul 16, 2015 | Wall Street Journal
By Christina Rexrode and Peter Rudegeair
The first half of 2015 has been relatively boring for Citigroup Inc.Shareholders will take it.The New York bank turned in its second consecutive drama-free quarterly earnings report Thursday, beating expectations and sending shares 3.8% higher.
Legal News
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Federal Judge Certifies Class Action Lawsuit Against Apple
Jul 16, 2015 | TIME
By Claire Groden
Apple retail workers were given the go-ahead in federal court in California Thursday to pursue a class action lawsuit against Apple, breathing new life into a lawsuit filed in 2013.
The ruling, from U.S. District Judge William Alsup in San Francisco, concerns a lawsuit that alleges Apple should compensate store workers for the time taken to search their bags to make sure they did not steal any merchandise.
The plaintiffs, Amanda Frlekin and Dean Pelle, are seeking $5 million in lost overtime wages for the class members, which include more than 12,000 current and former Apple employees. They allege that workers were subject to twice daily checks of their personal bags by their supervisors, which not only took up a lot of time since employees often had to wait in line, but were also demeaning, since they were often performed in front of customers.
One employee, who wrote an email to CEO Tim Cook with the subject line “Fearless Feedback from Apple Retail Specialist,” wrote that managers “are required to treat ‘valued’ employees as criminals.”
Apple argued that the case was not eligible for a class action lawsuit, since not all store managers conducted the searches.
The case was previously dismissed by the same judge in 2014. That ruling followed a Supreme Court decision on a similar case. The Supreme Court hadruled against Amazon employees who sued the company’s temp agency for overtime wages earned while waiting in line for security checks.
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Rovi Slides Most in 3 Years After Litigation Loss to Netflix
Jul 16, 2015 | Bloomberg Business
By Callie Bost
Rovi Corp., which licenses data for television guides, dropped the most in three years after a judge ruled in favor of Netflix Inc. in a patent lawsuit.
U.S. District Court judge Phyllis J. Hamilton issued a ruling Wednesday granting Netflix’s motion for summary judgment on five of Rovi’s patents, finding them invalid, the company said in a statement Thursday. The patents in question were related to features and functionality provided for over-the-top video service, which has been utilized by companies including Apple Inc., Google Inc. and Hulu LLC, according to the statement.
Shares of Rovi slid 20 percent to $14 at 4 p.m. in New York, the worst drop since July 2012. The stock has plunged 44 percent since the end of February. The stock traded close to $70 in 2011, declining after acquisitions and efforts to develop new products absorbed lucrative licensing cash flows and failed to deliver growth.
Rovi, formed through the 2008 merger of Macrovision and Gemstar, holds the patents for TV programming guides and products that are licensed to cable companies and others.
“The Netflix case is over (for now) and, as expected, all five Rovi patents were invalidated,” Michael Olson, managing director and senior research analyst at Piper Jaffray Cos., wrote in a note Thursday.
Olson, who has an overweight rating on Rovi’s shares with a $29 target price, said a potential patent license revenue stream from Netflix was “relatively unlikely and has never been part of our estimates.”
The ruling shouldn’t affect Rovi’s license renewals with Charter Communications Inc., Comcast Corp., and Dish Network Corp., which were all completed earlier this year, Olson wrote in the note. Rovi’s upcoming renewal with Time Warner Cable Inc. in September should fall into the existing Charter deal as Charter acquires Time Warner Cable, he wrote.
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Goldman Sachs profit hit by litigation expenses
Jul 16, 2015 | USA Today
By Kaja Whitehouse
Investment bank Goldman Sachs said its earnings tumbled in the three-months ended in June due to litigation expenses that shaved $2.77 a share from its second-quarter profit.
The bank earned $1.05 billion, or $1.98 a share, in the second-quarter on revenue of $9.07 billion. Last year Goldman reported earnings of $4.10 a share on revenue of $9.12 billion.
Analysts had expected earnings of $3.85 a share on revenue of $8.74 billion, according to data from FactSet.
During the quarter, the firm recorded a $1.45 billion provision for "mortgage-related litigation and regulatory matters," which reduced earnings by $2.77 a share.
Without those expenses, Goldman would have posted earnings of $4.75 a share, beating analysts' expectations.
Goldman put the money aside amid "active discussions" with the Residential Mortgage-Backed Securities (RMBS) Working Group, a government organization to investigate misconduct that contributed to the financial crisis through the pooling and sale of RMBS securities, Goldman CFO Harvey Schwartz said in a conference call with investors and analysts.
This is the first time Goldman has taken a reserve tied to discussions with the RMBS Working Group, which is backed by the Justice Department, the U.S. Securities and Exchange Commission and New York State Attorney General Eric Schneiderman.
"We have not historically taken reserves for RMBS working group until we got information in this quarter that led to" the provision, Schwartz said.
Litigation expenses in the aftermath of the financial crisis have been an on-going headache for bank investors, who have suffered volatile earnings as a result of some record-breaking fees to settle allegations of wrongdoing.
Citigroup had the opposite experience when it reported earnings Thursday. In last year's second quarter, the bank saw expenses skyrocket when was hit by a $3.8 billion charge tied to a mortgage settlement with the Justice Department. As a result, this year, the bank's profit jumped due to lower expenses.
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Citigroup Profit Soars on Lower Litigation Costs
Jul 16, 2015 | Wall Street Journal
By Christina Rexrode and Peter Rudegeair
The first half of 2015 has been relatively boring for Citigroup Inc.Shareholders will take it.
The New York bank turned in its second consecutive drama-free quarterly earnings report Thursday, beating expectations and sending shares 3.8% higher.
The results, which came in large part because of a sharp drop in legal costs, give Citigroup CEO Michael Corbat more momentum after a difficult 2014 in which his firm failed a regulatory stress test with the Federal Reserve, paid $7 billion to resolve a Justice Department investigation over mortgage-securities abuses and replaced executives at its troubled Mexico unit.
In the second quarter, a less distracted Citigroup reported a big jump in profits, to $4.85 billion, or $1.51 per share, from $181 million, or 3 cents a share, a year ago.
The bank’s trading results were better than its peers’, and some pockets of its retail bank expanded, including U.S. consumer lending. Analysts and investors viewed the results as building on the first quarter, when Citigroup beat earnings expectations and produced revenue in line with analyst predictions. The quarter also moved the bank toward reaching financial targets set by Mr. Corbat on efficiency and profitability.
It would have been hard to not beat last year’s results: A year ago, the bank announced a mortgage-securities settlement with the Justice Department on the same day that it reported second-quarter earnings, nearly wiping out any profits for that quarter.
Analysts cautioned that the earnings were boosted by items like a bigger-than-expected release of reserves set aside for bad loans, and a lower-than-expected tax rate. “There could be some nitpicks on (the) quality” of the earnings number, said John McDonald, an analyst at Sanford C. Bernstein, though he said the overall results were solid.
Bank executives also showed more pessimism about the world economy than some of their peers at rival banks who have spoken this week. “We’re navigating in some choppy waters,” said Chief Financial Officer John Gerspach referencing recent bailout negotiations in Greece and continually low interest rates in the U.S. “The environment remains challenging and unsettled,” added Mr. Corbat.
Citigroup’s trading revenue fell by less than 1%, which was better than the steeper declines that J.P. Morgan Chase & Co.,Bank of America Corp.and Goldman Sachs GroupInc. reported this week.
However, Citigroup reported a slight decline in stock-trading revenue, while its peers posted gains. The drop came from a charge the bank had to take to write down the value of collateral in certain clients’ transactions. Mr. Gerspach said it involved a limited number of transactions and the bank’s action was still “a work in progress.”
While Citigroup’s bond-trading unit is considered an industry leader, its stock-trading unit is relatively small and the bank has been working to build it up. “They’re taking extra risk to gain market share (in stock trading) and those risks are starting to show up now,” said Charles Peabody, an analyst at Portales Partners.
Profits at Citi Holdings, where Citigroup stores the “bad bank” assets that it wants to sell, turned a modest profit for the fourth quarter in a row, after years of losing several billion dollars a year. The bank recently signed deals to sell its consumer bank in Egypt and its consumer bank and cards business in Japan, and this week signed a deal to sell its consumer banks in Panama and Costa Rica, as previously announced. Mr. Corbat has said he wants Citi Holdings to at least reach break-even for 2015, though that could become more difficult as the bank sells down the units in Citi Holdings that are profitable.
Revenue in the consumer bank fell 4%. Results in Asia were hurt as governments there put new restrictions on interest rates that banks can charge customers. Revenue in the investment bank was up 6%, driven by improved trading performance in Asia. The bank made more money from advising companies on topics like mergers and acquisitions, but revenue from underwriting stock and bond offerings was down.
Credit card loans were down, and Mr. Gerspach said the bank would start putting more marketing dollars behind its credit cards.
Expenses fell 30% to $10.93 billion from $15.52 billion a year earlier, largely because of much smaller legal costs. But even excluding the legal costs, expenses were down 7% as the bank spent less on so-called repositioning, which is when it spends money on moves like layoffs or selling business units. The bank cut 3% of its employees and 9% of its branches worldwide, including 15% of branches in the U.S.
Overall, this quarter’s results were higher than what analysts had looked for. After stripping out accounting adjustments, the bank earned $1.45 a share. Analysts polled by Thomson Reuters had expected earnings of $1.34 a share.
Revenue also beat analysts’ expectations, though it declined slightly. After stripping out accounting adjustments, revenue fell 2% to $19.16 billion, slightly better than analysts’ expectations of $19.11 billion.
Within Citicorp, which houses Citigroup’s global consumer and corporate banking divisions, expenses as a share of revenue were 55% for the year so far compared with 65% for 2014. Mr. Corbat has said he wants to get the so-called “efficiency ratio” down to the mid-50s for Citicorp in 2015.
Return on assets was 1.03% for the first half of the year, within the 0.9% and 1.1% range the bank is aiming for.
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