By Sam Nussey

TOKYO (Reuters) -Shares in Japan’s Sony fell 6% in Tokyo trade after first-quarter profit tumbled, with the entertainment conglomerate reporting lacklustre performances by its movie and financial divisions.

Operating profit slid 31% and comments by Sony executives over demand for its games and image sensors units also sparked concern.

The PlayStation 5 console launched in late 2020 but supply was badly affected by supply chain problems during the COVID-19 pandemic. Despite an easing of those snarls, Sony said sales of were below expectations in the April-June quarter. It is targeting sales of 25 million units for the full year.

Sony sold 3.3 million PS5 units in quarter. By comparison, Nintendo’s Switch console, which is in its seventh year on the market, sold 3.9 million units in the same period as consumers rushed to play the latest “Zelda” title.

Sony said promotions that began are July are improving sales momentum for the PS5.

“Sony started discounting the PS5 in the West, which is never a good sign,” said Serkan Toto, founder of the Kantan Games consultancy.

“The company has a lot of work to do, first and foremost to make sure those blockbuster first-party games come out quicker.”

“Marvel’s Spider-Man 2” is due for release in October ahead of the key year-end shopping season. Its predecessor has sold more than 13 million units.

Sony, a leading maker of image sensors used in cameras, also revised down its expectations for a gradual recovery in the smartphone market, saying it now does not expect one until 2024 at the earliest due to weak demand in major markets.

The company trimmed cut its annual operating profit forecast for the unit by 10%, citing the impact of lower sales.

Adjustment to procurement by smartphone manufacturers is having a large impact in the second quarter, Sony said.

The current financial year “will be tough” for the sensors division, Jefferies analyst Atul Goyal wrote in a client note, adding that higher margins are expected in the following year.

(Reporting by Sam Nussey; Editing by Edwina Gibbs)

By Jonathan Stempel

NEW YORK (Reuters) – A federal judge has dismissed a shareholder lawsuit accusing JPMorgan Chase Chief Executive Jamie Dimon and his board of directors of ignoring red flags surrounding disgraced former client Jeffrey Epstein.

In a Wednesday evening decision, U.S. District Judge Jed Rakoff said shareholders led by Miami and Pittsburgh pension funds failed to first ask the bank’s board directly to address their concerns, or show it would be futile to do so, before suing.

The Manhattan-based judge said he will explain his reasoning in due course. Rakoff did not address specific accusations about the largest U.S. bank’s relationship with Epstein.

Epstein died by suicide in a Manhattan jail in August 2019 while awaiting trial for sex trafficking.

Lawyers for the shareholders did not immediately respond to requests for comment.

Shareholders had accused Dimon, seven other directors and Jes Staley, a former private banking and investment banking chief, of having “put their heads in the sand” as Epstein used his accounts to further abuses of young women and girls.

The so-called derivative lawsuit sought to have the defendants or their insurers pay damages to JPMorgan, for the benefit of shareholders.

Rakoff is also overseeing two Epstein-related lawsuits against JPMorgan by the U.S. Virgin Islands, where the financier owned two neighboring islands, and by Epstein victims.

The U.S. Virgin Islands is seeking at least $190 million in damages, while a $290 million settlement with victims awaits final court approval.

JPMorgan is suing Staley, who has expressed regret for his friendship with Epstein and denied knowing about his sex trafficking, to cover its losses in both lawsuits.

Staley was also Barclays’ chief executive from 2015 to 2021.

The case is City of Miami General Employees & Sanitation Employees Retirement Trust et al v Dimon et al, U.S. District Court, Southern District of New York, No. 23-03903.

(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)

By David Shepardson

WASHINGTON (Reuters) -U.S. regulators said on Wednesday they would extend temporary cuts to minimum flight requirements at congested New York City-area airports and Washington National Airport through Oct. 28, citing air traffic controller staffing issues.

The Federal Aviation Administration (FAA) in March agreed to the request of Delta Air Lines and United Airlines to temporarily return up to 10% of slots and flights at New York-area airports and Washington National Airport through Sept. 15.

Major airlines on Monday sought an extension of the waiver, saying air traffic staffing levels in a key New York air traffic sector have not “meaningfully improved.” United first sought an extension in late June.

Airlines can lose their take-off and landing slots at congested airports if they do not use them at least 80% of the time.

The FAA said it was working closely with a major air traffic controller union to implement a long-term solution to resolve ongoing low staffing levels at the New York Terminal Radar Approach Control (TRACON).

A government audit in June said the FAA faced critical air traffic staffing and disclosed New York TRACON staffing was at 54% compared with optimal levels.

The FAA said the waiver had “provided stability at the NYC area airports” but told airlines not to expect additional waivers based on agency staffing beyond Oct. 28. It also urged airlines to use larger planes to transport more passengers.

Airlines for America, an industry trade group said on Wednesday it appreciated the waiver extension while the FAA navigates air traffic controller staffing shortages.

U.S. airlines will continue to operate larger aircraft to reduce pressure on national air space, the group added.

Chicago-based United said last month it would drop to about 395 daily flights from 410 at Newark Liberty International Airport after planning 438 on peak days before the FAA’s March waiver.

Last summer, there were 41,498 flights from New York airports where FAA air traffic control staffing was a contributing factor in delays.

In March, FAA said later this year it planned to reassign approximately 100 square miles (259 square km) of Newark airspace from the area known as N90 to the Philadelphia Terminal Radar Approach Control to address staffing issues. That reassignment has not yet occurred.

(Reporting by David Shepardson; Editing by Marguerita Choy and Jamie Freed)

By Echo Wang

(Reuters) – U.S. stocks closed lower on Wednesday, the day after a report showed Americans borrowed more than ever on their credit cards in the last quarter, and a day ahead of U.S. Consumer Price Index (CPI) inflation data that could influence Federal Reserve interest rate decisions.

“The markets today are just kind of waffling around. And the reason for that is tomorrow is going to be the CPI report for July being released”, said Jason Krupa, vice president of asset management at Lenox Advisors.

On Tuesday, the New York Federal Reserve Bank said U.S. credit cards debt surpassed $1 trillion, and Philadelphia Fed President Patrick Harker said the U.S. central bank may be at the stage where it can leave interest rates unchanged.

“With price of oil going up, the consumer is the backbone of the economy. If they are too stretched and they stopped spending, that feeds us more into a recession narrative”, said Gina Bolvin, president of Bolvin Wealth Management Group in Boston.

Traders put the chance of no rate hike at the Fed’s next policy meeting in September at 86.5%, according to CME FedWatch Tool. Rate-sensitive megacap growth and technology stocks that have led the Wall Street rally, such as Nvidia, Apple and Tesla, were down between 0.8% and 4.8%.

The CPI for July, due on Thursday, is expected to show a slight acceleration from last year. On a month-to-month basis, consumer prices are seen increasing 0.2%, the same as in June.

China’s consumer sector fell into deflation in July. The consumer price index (CPI) dropped in the world’s second-largest economy, the National Bureau of Statistics said, its first decline since February 2021.

The Dow Jones Industrial Average fell 191.13 points, or 0.54%, to 35,123.36, the S&P 500 lost 31.67 points, or 0.70%, to 4,467.71 and the Nasdaq Composite dropped 165.93 points, or 1.2%, to 13,718.40.

The losses followed a broad selloff on Tuesday, after credit rating agency Moody’s downgraded several small and mid-sized banks. On Wednesday, big banks extended those losses with Bank of America down 0.8% and Wells Fargo down 1.3%.

Four of the top 11 S&P 500 sectors rose, with energy stocks leading the gain by a 1.22% jump, touching a near six-month high, tracking a jump in crude oil prices.

Casino owner Penn Entertainment’s shares surged 9.1% on a $2 billion deal with Walt Disney’s ESPN to launch a sports betting business.

Walt Disney’s shares dipped 0.7%, erasing early gains ahead of its quarterly results due after the bell.

Lyft shares tumbled 10% despite a strong earnings forecast, as the company signaled it would double down on competitive pricing to catch up with rival Uber.

Of the 443 S&P 500 companies that have reported results as of Tuesday, 78.6% beat analyst expectations, according to Refinitiv data.

“It could be a little bit of that (the market is ) digesting the fact that we’re beating expectations (on earnings) but those expectations have been coming down quarter over quarter”, said Krupa.

Volume on U.S. exchanges was 11.06 billion shares, compared with the 10.89 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 1.18-to-1 ratio; on Nasdaq, a 1.63-to-1 ratio favored decliners.

The S&P 500 posted 16 new 52-week highs and 7 new lows; the Nasdaq Composite recorded 60 new highs and 178 new lows.

(Reporting by Echo Wang in New York, Bansari Mayur Kamdar and Johann M Cherian in Bengaluru; Editing by Shounak Dasgupta and David Gregorio)

By Sourasis Bose

(Reuters) -Canopy Growth again raised doubts about its ability to stay afloat as the Canadian pot producer’s loss-making streak continued in the first quarter.

Despite a strong start following the legalization of pot in Canada in 2018, the country’s cannabis industry has faced intense competition from cheaper marijuana that is sourced illegally.

Canopy had first raised the going concern doubts in June.

The company has taken several initiatives to turn profitable, including job cuts, exits from some international markets, store closures and divestiture of its retail business across Canada.

The Smiths Fall, Ontario-based company had C$533.3 million in cash and cash equivalents as of June 30, compared with C$677 million at the end of March.

Its total debt was C$1.05 billion at the end of the reported quarter.

The cannabis firm’s quarterly net revenue grew 3% to C$108.7 million, aided by expansion in its BioSteel segment, which makes sports nutrition products.

But its second-quarter sales are expected to be lower sequentially due to seasonality, Chief Financial Officer Judy Hong said in a post-earnings conference call.

The company is also facing an investigation from the U.S. Securities and Exchange Commission over the reporting of revenue from BioSteel.

Canopy had launched an internal review in June for BioSteel and let go of several members of the segment’s leadership team following completion of the assessment.

The company’s adjusted core loss narrowed to C$57.8 million for the three months ended June 30, compared with a loss of C$79 million a year earlier, aided by cost reduction.

The company lowered costs by C$47 million during the quarter, though it saw higher warehousing and production expenses associated with the BioSteel manufacturing facility located in Verona, Virginia.

(Reporting by Sourasis Bose in Bengaluru; Editing by Shinjini Ganguli and Shilpi Majumdar)

By Clare Jim

HONG KONG (Reuters) -News that big developer Country Garden was not able to make $22 million in bond payments is an alarm call for China’s government that more private property companies are close to a tipping point if financial support doesn’t materialise soon.

As Country Garden was the largest developer in the country before this year, industry executives and analysts told Reuters its missed payments this week could prod regulators into rolling out stronger aid measures, but they had little faith such steps would turn the debt-laden sector around any time soon.

Country Garden told Reuters on Tuesday it was not able to make $22.5 million in coupon payments due on Aug. 6 on two, dollar-denominated bonds, though both have 30-day grace periods.

China’s property sector, which accounts for a quarter of the economy, has already seen a string of debt defaults by cash-squeezed developers since late 2021, with China Evergrande Group, the world’s most indebted property developer, at the centre of the crisis.

Contagion fears in the market re-surfaced last month when four high-profile developers signalled liquidity stress amid slumping home sales nation-wide.

Problems are even spreading at state-backed developers, which are seen as having better access to cheap funding and are more likely to benefit from government support.

State-backed Sino-Ocean Group is seeking to extend some offshore bond payments, while Greenland Holdings defaulted on an amortization payment.

A unit of Dalian Wanda Group, the largest commercial property developer in the country, has also missed a dollar coupon payment, though Greenland and the Dalian Wanda unit managed to make the payments later, avoiding official defaults.

Country Garden’s missed payments have triggered a sell-off in shares and bonds across the sector and fears of more contagion, analysts at HSBC said in a research note.

“However, we caution that it’s possible this accelerates the roll out of a policy package to support the housing market.”

China’s Politburo, a top decision-making body of the ruling Communist Party, pledged in late July to adjust property policies in a timely manner, while omitting the often-repeated phrase used by officials that “houses are for living in, not for speculation”, fuelling speculation more stimulus was on the way.

“IT’S HARD TO SEE THE LIGHT”

In its statement on Tuesday, Country Garden said “it’s hard to see the dawn light”, with its usable cash having declined and showing “periodic liquidity stress” due to a deterioration in sales, a difficult refinancing environment and the impact of various regulations on funding sources.

While some market participants are hoping Country Garden could make the latest coupon payments within the grace period, its massive upcoming bond payment schedule will still be a huge hurdle to overcome.

In September alone, Country Garden has a 5.8 billion yuan ($804.72 million) onshore bond maturing and a 48 million yuan coupon due, as well as put options on a further 3.4 billion yuan of paper.

Offshore, it has coupon payments totalling $58 million due next month, according to JP Morgan.

The investment bank said Country Garden’s home sales could slump more than 80% in the rest of this year compared to the four-year average, as reports of financial distress scare away potential homebuyers.

“Arguably, the (Country Garden) contagion impact will be not as big as when Evergrande defaulted, because 40% of the market by 2021 sales has already defaulted,” JP Morgan analysts said in a research report.

Executives of developers, both healthier ones and some of those who have defaulted, told Reuters a default by Country Garden would have limited impact on the wider sector, as bank lending and liquidity are already very tight.

One executive, however, is worried homebuyers would steer clear of private developers and local governments might tighten their access to funding even further to ensure they complete homes that have already been sold. The executive declined to be identified because he was not authorized to speak to media.

Reuters reported last week that some cities have made it harder for developers to access funds from property sales held in escrow accounts, raising risks the cash-strapped companies will be squeezed even more.

Reviving home sales is key to a recovery, developers said, but buyer sentiment is at the lowest level they have ever seen due to the poor outlook for both the sector and the broader economy, which tipped into deflation in July.

With fewer visitors to showrooms, the developers expected sales would remain weak in August and September.

“There is oversupply and inventories, we need to digest such inventories,” said a policy adviser, who declined to be identified as he was not authorized to speak to the media. “It’s difficult given that the population structure has changed and people are unwilling to buy homes after the COVID (pandemic).”

Morgan Stanley analyst Stephen Cheung said in a note that Country Garden’s sales are unlikely to show meaningful improvement in the near term even with policy easing, given weak consumer confidence and the company’s large exposure to less popular low-tier cities.

Country Garden declined to comment on the investment bank reports.

JP Morgan noted that if Country Garden still defaulted after policies aiming at boosting liquidity for developers, it would show that “there is no guarantee of survival”.

“This raises the question of whether government support will ever be sufficient to prevent another large-scale default.”

($1 = 7.2075 Chinese yuan renminbi)

(Reporting by Clare Jim; Additional reporting by Kevin Yao in Beijing; Editing by Kim Coghill)

By David Shepardson

WASHINGTON (Reuters) -U.S. railroad regulators on Wednesday said Norfolk Southern needs “significant improvements” in its safety culture after a Feb. 3 derailment in Ohio caused cars carrying toxic vinyl chloride and other dangerous chemicals to spill and catch fire.

The Transportation Department’s Federal Railroad Administration (FRA) also disclosed it is considering enforcement actions against the Atlanta-based railroad on a number of issues, including track maintenance, inspection, repair practices and hours of service regulations.

“FRA’s findings highlight the need for significant improvements in training practices, overall communications, and trust – all of which are vital to prevent accidents before they occur,” Administrator Amit Bose said in a statement.

“We expect Norfolk Southern to do their part, acting on the recommendations in this assessment as well as previous ones to increase safety.”

FRA found the railroad frequently focused solely on enforcing compliance with minimum safety standards and did not quickly respond to an earlier 2022 audit. But the review praised positive changes and renewed commitment shown by company leadership to improve safety.

Inspections in March identified over 100 defects across 95 miles (153 km) of Norfolk Southern territory “and FRA is considering enforcement actions based on those defects. Further, reviewing the maintenance and inspection history of the territory identified a failure to prioritize critical safety work necessary to ensure safe operation.”

Norfolk Southern said CEO Alan Shaw and members of the company’s leadership team met with Bose in Atlanta on Tuesday to review the findings. The railroad called “the report an important step on the path to becoming the gold standard for safety in the rail industry.”

Shaw said in a statement he “gave Administrator Bose my personal commitment that we are going to use this assessment to take further action. We aren’t waiting.”

The railroad delivered the report to a consultant conducting an independent review of its safety program. “We’re also actively collaborating with labor on safety and we’re engaging with them on next steps to address the report’s findings,” Shaw added.

The report found Norfolk Southern had not moved quickly to embrace findings from the 2022 audit and noted little action in the last 12 months. “It is clear that (Norfolk Southern) does not place an urgent priority on applying lessons learned from the audit and putting corrective actions in place,” the FRA said.

The FRA said while it found enforcement issues the purpose of the safety assessment was “to explore aspects of the railroad organization and operations affecting safety in ways that are not necessarily addressed by rules and regulations.”

(Reporting by David Shepardson; Editing by Jonathan Oatis and Stephen Coates)