Take Five: When doves coo

(Reuters) – Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them.


It’s just over a week since the U.S. Federal Reserve formally paused its rate-rise campaign but central bankers around the world are falling over themselves to emulate Jerome Powell’s dovish turn. Australia’s Philip Lowe, having said for a year the next rate move was up, suddenly declared rates could go either way. The European Central Bank can hardly cut its minus 0.40 percent rate but a new round of bank funding stimulus is now widely expected.

The rate cycle has turned across emerging markets too — India has cut rates for the first time in 18 months; several others including Brazil have hinted at cuts ahead. And upcoming central bank meetings in New Zealand and Sweden are sure to highlight growth concerns.

The shift is showing up on currency markets. The dollar fell in December and January as the Fed pause was priced in. Now it’s everyone else’s turn: the Aussie has lost more than 2 percent since Lowe’s Feb 6 comments; the euro has had its biggest weekly drop in four months and MSCI’s emerging currency index is retreating after rising three months straight. If everyone joins the Fed in the doves camp, the greenback, with the highest interest rates in the G10 group, may resume its ascent. Analysts reckon it has stalled but only time will tell.

(Graphic: Reuters poll: Has the U.S. dollar rally stalled? – tmsnrt.rs/2t5ZKoh)


Less than 50 days before Britain’s EU departure date, markets’ conviction that a no-deal Brexit will be avoided may be starting to fade. There is not that much Prime Minister Theresa May can update UK lawmakers on when she addresses them on Feb. 13. This will be followed by debate in parliament where lawmakers can propose changes, known as amendments.

There are signs that going into that session, currency traders are ramping up their cautious bets on the pound.

Shorter-dated risk reversals, ratios of calls to puts on the pound, indicate investors are now more inclined to buy options to protect against a deeper fall in the pound versus the dollar, rather than anticipate big gains.

That demand for puts has also put a floor under implied volatility, a gauge of expected swings in the currency and a key input to option prices. One-month and one-week implied vols, as they are known, have risen in the past week, after falling steadily in January.

That caution has rippled into cash markets. The pound has fallen back below a key technical market level — the 200-day moving average, an indication investors are no longer bullish on the currency’s prospects. In fact sterling has traded below that average since May 2018, only briefly popping above that in January.

(Graphic: Sterling risk reversals – tmsnrt.rs/2UJZ4AA)


As Chinese markets reopen after the Lunar New Year, they may get more hard evidence on the damage done by the Sino-U.S. trade war. Data on Thursday is expected to show exports as well as imports contracting, with the latter taking an extra punch from slowing domestic demand.

If March 1 passes without a trade agreement with Washington, Chinese exports to the United States will be subject to additional tariffs. So hopes are pinned on the U.S. trade delegation which travels to Beijing on Monday, led by Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. But President Donald Trump has somewhat dampened hopes of a breakthrough, saying he had no plans to meet Chinese President Xi Jinping in the coming month.

If talks collapse and tariffs increase on March 2, it will spell more pain for China’s economy — and the rest of the world. In turn it will increase pressure on Chinese policymakers to ramp up stimulus at next month’s parliamentary summit.

(Graphic: Major items among $200 bln of Chinese goods subject to tariffs announced in September – tmsnrt.rs/2HGBgfj)  


For months, the question on a lot of people’s lips has been whether the U.S. economy is headed for recession, but it looks like the euro zone could get there first.

The European Commission shocked markets by slashing growth and inflation forecasts for the bloc. Thursday’s release of the “flash” GDP data is likely to show the region grew 0.2 percent in Q4. Evidence is already piling up that Germany, the bloc’s largest economy, was teetering on the brink of recession towards the end of 2018 due to global trade headwinds and a cooling Chinese economy.

The picture beneath may be even less rosy. German industrial output has fallen for four months straight, reinforcing expectations the economy actually contracted in Q4. That would translate into a recession after GDP fell in the third quarter.

Markets have taken notice. German 10-year bond yields now are just 10 basis points away from zero percent – territory that in bond markets reflects dire concern about economic conditions.

(Graphic: Germany’s bond yield curve – tmsnrt.rs/2UPzUAO)


Clouds are gathering on the horizon for the world’s top economy — global growth headwinds and the trade war are taking a toll while another government shutdown may be lurking around the corner.

Markets will be scouring various U.S. consumer and producer inflation data out in the coming days to see just how accommodative the Federal Reserve can be after chairman Jerome Powell said in January the case for raising rates had “weakened”. The Fed’s post-meeting statement had also dropped its earlier expectation for “some further” tightening.

Latest jobs data showed workers wage gains dipped slightly on a year-over-year basis, pointing to further reprieve from rate-hike concerns.

The U.S. government has also endured a 35-day government shutdown that ended on Jan. 25, cost the economy at least $3 billion and inflicted hardship on unpaid workers. Lawmakers are resisting President Trump’s demand for funds to build a Mexican border wall. They have until Feb. 15 to find a compromise.

(Graphic: U.S. inflation vs wage growth – tmsnrt.rs/2tcl7Ef)

Reporting by Sujata Rao, Saikat Chatterjee and Josephine Mason in London; Marius Zaharia in Hong Kong, Jennifer Ablan in New York and Patturaja Murugaboopathy in Bangalore; Editing by Toby Chopra

Wall Street opens lower on trade woes

(Reuters) – U.S. stocks fell at open on Friday, with technology stocks leading losses as investors were skeptical that a U.S.-China deal would be reached before the March deadline, adding to nerves over slowing global growth.

The Dow Jones Industrial Average fell 127.17 points, or 0.51 percent, at the open to 25,042.36.

The SP 500 opened lower by 13.69 points, or 0.51 percent, at 2,692.36. The Nasdaq Composite dropped 56.06 points, or 0.77 percent, to 7,232.30 at the opening bell.

Reporting by Medha Singh in Bengaluru; Editing by Maju Samuel

Sprint sues AT&T over 5G branding

(Reuters) – Sprint Corp sued ATT Inc late on Thursday, saying it was misleading consumers into believing that they were using fifth generation or 5G wireless network, a technology that has not yet been widely deployed.

ATT customers were seeing “5G E” logo on their mobile devices in over 400 markets. Even though users are still on 4G network, ATT is calling it 5G Evolution, Sprint said in the lawsuit.

5G can offer data speeds up to 50 or 100 times faster than 4G networks.

Smartphones running on both Android and Apple’s iOS platforms are sporting “5G E” for ATT customers, even though those phones are not equipped to support 5G.

Sprint said that a survey showed 54 percent of ATT’s consumers believed their “5G E” network is the same as or better than a 5G network and 43 percent said if they buy an ATT phone today, it would be capable of running on 5G.

In response to the lawsuit, ATT’s Chief Executive Officer Randall Stephenson said in an interview here with CNBC that the company’s customers are seeing an increase in speed and performance on the “5G E” network and this is a step required to get to “ultimate 5G”.

Last month, Sprint said it plans to release 5G smartphones with Samsung Electronics Co Ltd in the United States during the summer, while rival Verizon Communications Inc in December also disclosed similar plans for the first half of 2019.

ATT did not immediately respond to Reuters request for comment.

Reporting by Akanksha Rana in Bengaluru; Editing by Shinjini Ganguli and Arun Koyyur

American Media says its reporting on Amazon’s Bezos was lawful

WASHINGTON (Reuters) – American Media Inc, the owner of the National Enquirer tabloid newspaper, said on Friday it acted lawfully in its reporting on Jeff Bezos, chief executive of Amazon.com Inc, and that it would thoroughly investigate his claims of blackmail and take whatever action was necessary.

Bezos on Thursday accused AMI of trying to blackmail him with the threat of publishing “intimate photos” he allegedly sent to his girlfriend unless he said in public that the supermarket tabloid’s reporting on him was not politically motivated.

“American Media believes fervently that it acted lawfully in the reporting of the story of Mr. Bezos,” the company said in a statement.

Bezos, the world’s richest man, and his wife announced last month that they were divorcing after 25 years of marriage. That same day, the National Enquirer touted it was publishing alleged intimate text messages between Bezos and Lauren Sanchez, a former television anchor whom he was said to be dating.

Bezos opened an investigation into the leak, led by longtime security consultant Gavin de Becker. De Becker told media that the leak was politically motivated.

In a blogpost on Thursday, Bezos cited an email from AMI deputy general counsel, Jon Fine, to a lawyer representing de Becker. In it, AMI proposed a public acknowledgment from Bezos and de Becker that “they have no knowledge or basis for suggesting that (AMI’s) coverage was politically motivated or influenced by political forces.”

In return for such an acknowledgment, according to the email, AMI offered “not to publish, distribute, share, or describe unpublished texts and photos,” Bezos said.

Bezos said the statement AMI was proposing was false and described the offer as an “extortionate proposal.”

On Friday, AMI said that at the time of Bezos’ allegations it was “in good faith negotiations to resolve all matters with him.”

“In light of the nature of the allegations published by Mr. Bezos, the Board has convened and determined that it should promptly and thoroughly investigate the claims. Upon completion of that investigation, the Board will take whatever appropriate action is necessary,” it added.

Bezos, Amazon.com and the newspaper he owns privately, the Washington Post, have all been targets of attacks on Twitter by U.S. President Donald Trump.

Reporting by Chris Sanders; Writing by Mohammad Zargham and Nick Zieminski; Editing by Tim Ahmann and Susan Thomas

To guide or not to guide? Fed ‘dots’ complicate message

WASHINGTON (Reuters) – U.S. central bankers say clear communication is important, with economic research showing that if the public understands what the Federal Reserve is doing, monetary policy works better and the economy does better.

But when Fed officials meet again in March, it may be tough to tell a cogent story as the Fed’s two main tools for talking to the public head for a rare conflict.

The newest quarterly set of economic projections, including ‘dots’ representing policymakers’ rate forecasts, is likely to show they still expect to raise rates this year. Meanwhile, the official policy statement that comes at the end of each meeting will likely offer no hint about whether rates will rise, fall, or stay the same.

That could stoke fresh confusion over the Fed’s direction after months when Chairman Jerome Powell has struggled to provide a consistent message, prompting fresh calls for the central bank to overhaul some longstanding practices.

Policymakers like St. Louis Federal Reserve President James Bullard have pressed for changes to the Summary of Economic Projections to make them less influential over how the path of Fed policy is perceived.

As time passes, the projections for where rates should be at year end seem more like explicit forecasts, Bullard said in a recent interview. Last December in particular the projections “put us in a box in a bad way” by setting expectations for a rate increase at that meeting even as some economic data appeared shaky. The rate increase proceeded.

“As you get closer to the end of the year you are giving more and more near-term forecasts,” said Bullard.

His idea? Change the system so policymakers always project at least one year ahead, parceling out any anticipated policy action over the eight meetings the Fed holds over a 12 month period.

Outside analysts of late have hammered the Fed for a communications policy described by some as “in tatters” or “a disaster.” They wonder how investors, convinced by the latest statement and policymakers’ public pledges of “patience” that rates won’t rise, will adjust to seeing higher rates penciled into the set of projections coming in March.

For further rate hikes to disappear from the March projections, policymakers would have to shave a full half a percentage point from the median estimate issued in December, which foresaw rates increasing from around 2.4 percent to 2.9 percent through 2019.

That would require seven of 17 officials to cut their forecast, and could raise its own red flag: What do they know that everyone else doesn’t?

In fact, a shift that large in the near-term outlook has happened just once since the Fed first issued quarterly projections in 2012.

That was in March 2015, when a global oil rout and slowing U.S. growth raised risks the Fed would never escape the zero interest rate environment that arrived with the financial crisis. The Fed’s rate “liftoff” got delayed to the end of that year, and rates barely moved again in 2016 as the U.S. economy seemed stuck in mud.

That’s not the economy the Fed sees right now, and not the one officials are likely to describe in their forecasts.

In addition to their estimates of the “appropriate” year-end federal funds rate, officials forecast unemployment, inflation, and growth in gross domestic product. All of those are likely to remain healthy by the March meeting.

The Fed’s policy statement, however, has been moving in a different direction under Powell, steadily stripping away the remnants of “forward guidance” about the direction of rates.


Since the Great Recession, the statement has included some sort of pledge about rates, considered an important element of crisis management. By promising lower rates for a longer period, for example, households and businesses might have greater confidence to borrow and invest.

Fed officials regard that as no longer appropriate in an economy that is mostly back to normal. The Fed wants to be free to move rates up, down, or not at all, and at its own pace, based on how the economy performs. Last month it dropped long-standing language from its post-meeting statement pointing to further increases.

While the statement and projections have not always been well aligned, until now they have at least pointed in the same direction. Both were anchored at zero in the early years, then both indicated rates would move higher as the crisis faded.

With even that directional alignment about to end, Powell has been trying to diminish the significance of the projections, saying after the Fed’s December meeting that they provide “useful information about … participants’ thinking, but the median is not a consensus judgment,” or a “plan.”

It’s a message Fed officials have raised before. Few buy it.

The median ‘dot’ in the quarterly ‘dot plot’ graphic of each official’s estimate for year-end rates may not be a product of consensus, and investors may squabble over whether the Fed will reach it.

But its existence does frame the public and market judgments, a constraint some are urging the Fed to escape.

“Market participants and commentators seem to put much more weight on small differences (in the projections) … than is consistent with our imprecise knowledge” of how the economy and policy will evolve, former Fed Vice Chair Donald Kohn said in a recent paper urging changes to the projections. “This focus detracts from the more appropriate and helpful discussion of the underlying forces at play and the risks.”

Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci

Qantas cancels order for 8 Airbus A380s amid doubts on jet’s future

SINGAPORE (Reuters) – Australia’s Qantas Airways Ltd said on Thursday it formally canceled a longstanding order for eight Airbus SE A380 superjumbo jets.

The decision, which will remove the order placed in 2006 from the Airbus order book, comes as new doubts have been raised about the future of the four-engined A380.

Dubai’s Emirates is exploring switching some orders for the superjumbo to the smaller A350 in a move that has Airbus looking closely at closing A380 factories sooner than expected, people familiar with the matter told Reuters last week.

A Qantas spokesman said the airline had formalized its decision to cancel the order for eight A380s following discussions with Airbus.

“These aircraft have not been part of the airline’s fleet and network plans for some time,” the Qantas spokesman said.

Qantas has 12 A380s in its fleet and the spokesman said it would proceed with plans to refurbish the cabins starting in the middle of this year, with the jets set to remain flying with the airline “well into the future”.

An Airbus spokesman said the manufacturer had agreed to the “contract amendment” announced by Qantas.

“This change will be reflected in our end January order and delivery tables,” the Airbus spokesman said.

The Qantas spokesman declined to comment on the terms of the cancellation.

It comes after another order long viewed as doubtful for 10 A380s from Hong Kong Airlines was removed last month from the end-December Airbus order and delivery tables following negotiations.

Willie Walsh, the CEO of British Airways parent IAG, said last week that Airbus should lower the price of the A380 if it wanted to sell more of them.

The A380 has a list price of $445.6 million, but airlines typically receive significant discounts from manufacturers.

Reporting by Jamie Freed; Editing by Muralikumar Anantharaman

Novartis CEO says U.S. rebate plan will return cash to patients

ZURICH (Reuters) – Novartis AG Chief Executive Vas Narasimhan said his company’s prescription drug prices have been “flat to negative” over the last three years, and directed blame for high costs for U.S. patients on industry middlemen that manage drug benefits.

In an interview with Reuters in New York on Wednesday Narasimhan, a 42-year-old U.S. doctor who has headed the Swiss drugmaker since Feb. 2018, threw his support behind a U.S. government proposal to end a system of rebates drugmakers pay to pharmacy benefit managers (PBMs) and health insurers in order to get products on their lists of covered medicines..

“We (Novartis) pay almost 50 percent of our gross revenues in the United States into rebates,” Narasimhan said. “If you return those rebates to patients, so patients pay less out of pocket, I think that is something that makes a lot of sense and will correct a distortion in the marketplace.”

Narasimhan also acknowledged the industry and company reputational challenges stemming from anger over rising prices, kickback scandals and last year’s revelation that Novartis paid U.S. President Donald Trump’s former attorney, Michael Cohen, $1.2 million.

“It’s hard to call them outlier events, when there’s enough of the outlier events,” he said.

He described efforts to regain respect for the company that now has the world’s highest prescription drug sales as “the great journey of my time as CEO.”

Last month, U.S. Health and Human Services Secretary Alex Azar announced a plan that would end rebates now paid to PBMs and other payers and instead pass along savings to consumers covered by U.S. government health plans. Trump, in his State of the Union address on Tuesday, again called for lower U.S. prescription drug prices.

PBMs, which administer drug benefits for employers and health plans, argue that they are passing sufficient savings to patients and contend that rebates help keep down insurance premiums.

Narasimhan, echoing arguments of many large drugmakers, said the existing system obscures the true price of drugs and leaves patients on the hook, in the form of higher co-pays, or co-insurance payments.


He noted that changes in the decades-old rebate system could eventually affect insurance plans offered by U.S. employers, potentially leading to premium hikes.

“We have zero transparency into the billions we pay in rebates,” the Novartis CEO said. “You could see some adjustment in premiums. But I think that’s another area where we should get transparency.”

Novartis, which had 2018 global sales of $51.9 billion and net profit of $12.6 billion, gets more than a third of its revenue in the United States. But despite all the talk about rising list prices, Narasimhan said since 2016 net prices for its prescription drugs fell about 1 percent.

“At Novartis, we no longer see net price growth as a meaningful contributor,” he said.

Instead, the company is counting on recent and upcoming launches of new drugs to fuel 2019 growth of 4 percent to 6 percent, a forecast Narasimhan reiterated on Wednesday.

Since his elevation to CEO last year, Narasimhan sold off over-the-counter and generic drugs units and plans to spin off the Alcon eyecare business before July as he focuses on new, often very pricey transformative treatments.

These include a gene therapy for spinal muscular atrophy, a one-time treatment Novartis has said could be cost-effective at up to $5 million per patient, and Kymriah, a CAR-T cell cancer immunotherapy with a list price of $475,000.

Narasimhan said the extensive reliance on direct-to-consumer television advertising for medicines in the United States, a practice in which Novartis engages, may also be hurting the industry’s image. TV ads for prescription drugs are not allowed in most countries.

“Our use of the television and television media has eroded some of the trust in the fact that we’re a science-based industry,” Narasimhan said.

Some image problems, however, are specific to Novartis.

Since 2015, it has paid hundreds of millions of dollars in settlements and fines following kickback allegations in South Korea, the United States and China. It also faces an upcoming trial in the United States over alleged doctor bribery.

Last year, Narasimhan disavowed the 2017 consulting deal with Trump’s ex-attorney struck by his predecessor, Joe Jimenez, amid accusations that Novartis had inappropriately sought favor with the new administration.

But the CEO believes negative feelings toward his company and the industry can be reversed.

“It’s a long journey back, but hopefully through consistent action over a decade, we can get there.”

Reporting by John Miller in Zurich; Editing by Bill Berkrot

GM Cruise chief could earn $25 million in long-term incentives

DETROIT (Reuters) – The head of General Motors Co’s Cruise self-driving car unit stands to make more than $25 million over the next decade if the technology subsidiary experiences a change in ownership or is listed publicly, according to a regulatory filing on Wednesday.

Dan Ammann, who stepped down as GM’s president and was named chief executive of Cruise at the start of this year, was awarded 16,914 restricted stock units for common shares of Cruise and stock options for 101,485 common shares of Cruise by the unit’s board on Monday, GM disclosed in its annual 10K filing with the U.S. Securities and Exchange Commission. Each restricted stock unit carries a value of $1,515, while the stock options only have value above the $1,515 strike price, according to the SEC filing.

“Mr. Ammann’s compensation plan is consistent with CEO benchmarks from tech companies with similar market cap to Cruise and is heavily weighted toward the attainment of specific technology and commercial targets,” GM spokesman Tom Henderson said in a telephone interview.

GM Chief Executive Mary Barra told analysts on a conference call on Wednesday after the company reported stronger-than-expected earnings that the Detroit automaker was making “rapid progress” with the technology and this year was critical for the unit.

“I think it’s in a strong position from funding,” she said. “I think it’s in a strong position as we continue to do the development.”

Cruise has a value of about $14.6 billion despite no significant revenue and a product not ready for commercial launch. Japanese technology investment fund SoftBank Group Corp and Japanese automaker Honda Motor Co invested a total of $5 billion for separate minority stakes in Cruise.

GM spent $700 million on Cruise last year and expects to spend another $1 billion on the unit this year, GM Chief Financial Officer Dhivya Suryadevara said on the earnings call.

Analysts have speculated that GM eventually will sell shares in Cruise or spin it off. Cruise, with more than 1,100 employees, is aiming to launch a robo-taxi service by the end of 2019.

The restricted stock units awarded to Amman vest over the next 10 years, ending on Oct. 15, 2028, if the shares meet a market value set by the Cruise board and only if “a change of control or initial public offering occurs before the 10th anniversary of the date of grant,” according to the SEC filing. The stock options vest over the same period.

Ammann joined GM in 2010 from Morgan Stanley, where he was an adviser to GM’s government-led bankruptcy restructuring in 2009. He became GM’s president in 2014.

(This story corrects headline and first sentence to show that total potential incentive package is “more than $25 million,” not “more than $179 million.” Corrects second paragraph to show that the stock options will only have value above the $1,515 strike price, not that all the shares in the restricted stock units and the stock options are valued at $1,515 each.)

Reporting by Ben Klayman; Editing by Leslie Adler

California utility PG&E vows more power shutdowns to prevent wildfire

SACRAMENTO, Calif. (Reuters) – California utility PGE Corp plans to increase the controversial practice of shutting off the power to communities at risk of wildfire when dangerous conditions such as high winds and dry heat are present.

In a report to state regulators bit.ly/2SevTIZ, PGE said it would also remove 375,000 trees near electricity lines, trim vegetation over 2,500 square miles (6,475 square km) and conduct thousands of inspections to prevent its equipment from sparking wildfires.

PGE is under intense scrutiny for its role in sparking more than a dozen wildfires over the past two years. It filed bankruptcy last month, citing anticipated liabilities, including the possibility its equipment set off November’s deadly Camp Fire, which destroyed the Northern California town of Paradise and killed 86 people.

The San Francisco-based utility, which serves 16 million customers, said it would increase nearly tenfold its efforts to turn off the power to communities threatened by wildfire, increasing the number of households and businesses potentially affected by fire-prevention blackouts in 2019 to 5.4 million.

Such shutoffs were also used last year to keep live electricity in the lines from setting off a fire when high winds and heat hit extreme levels and nearby brush or trees could be ignited.

Mark Toney, who directs the utility consumer advocacy group the Utility Reform Network (TURN), said shutting off power would harm vulnerable people, including those who rely on electricity to power life-saving medical equipment.

“The fact that there is such a dramatic expansion of power shutoffs as a strategy to stop wildfires is a sign of PGE’s failure and mismanagement when it comes to trimming the trees and taking care of the grid,” he said.

PGE spokeswoman Kristi Jourdan said the company would only turn off the power to a community as a last resort to keep people safe.

“We understand and appreciate that turning off the power affects the operation of critical facilities, communications systems and much more,” she said.

The company is also on probation in relation to a criminal conviction in the deadly 2010 explosion of one of its natural gas lines in the city of San Bruno near San Francisco.

The judge in that case said he would consider the company’s wildfire plan in deciding whether PGE should do more to prevent wildfire.

California law requires all investor-owned utilities to file wildfire mitigation plans annually.

Reporting by Sharon Bernstein; editing by Bill Tarrant and Lisa Shumaker

Fiat Chrysler, Bosch agree to pay $66 million in diesel legal fees: filing

WASHINGTON (Reuters) – Fiat Chrysler Automobiles NV and Robert Bosch have agreed to pay lawyers representing owners of U.S. diesel vehicles $66 million in fees and costs, according to court filing on Wednesday and people briefed on the matter.

In a court filing late on Wednesday in U.S. District Court in San Francisco, lawyer Elizabeth Cabraser said after negotiations overseen by court-appointed settlement master Ken Feinberg, the companies agreed not to oppose an award of $59 million in attorneys’ fees and $7 million in costs.

The lawyers had originally sought up to $106.5 million in fees and costs.

Under a settlement announced last month, Fiat Chrysler and Bosch, which provided emissions control software for the Fiat Chrysler vehicles, will give 104,000 diesel owners up to $307.5 million or about $2,800 per vehicle for diesel software updates.

The legal fees are on top of those costs. Fiat Chrysler and Bosch did not immediately comment late Wednesday.

Fiat Chrysler is paying up to $280 million, or 90 percent of the settlement costs, and Bosch is paying $27.5 million, or 10 percent. The companies are expected to divide the attorney costs under the same formula, meaning Fiat Chrysler will pay $60 million and Bosch $6 million, the people briefed on the settlement said.

U.S. District Judge Edward Chen must still approve the legal fees. He has set a May 3 hearing on a motion to grant final approval.

The Italian-American automaker on Jan. 10 announced it settled with the U.S. Justice Department, California and diesel owners over civil claims that it used illegal software that produced false results on diesel-emissions tests.

Fiat Chrysler previously estimated the value of the settlements at about $800 million.

Fiat Chrysler is also paying $311 million in total civil penalties and issuing extended warranties worth $105 million, among other costs.

The settlement covers 104,000 Ram 1500 and Jeep Grand Cherokee diesels from the model years 2014 to 2016.

In addition, Fiat Chrysler will pay $72.5 million for state civil penalties and $33.5 million to California to offset excess emissions and consumer claims.

The hefty penalty was the latest fallout from the U.S. government’s stepped-up enforcement of vehicle emissions rules after Volkswagen AG admitted in September 2015 to intentionally evading emissions rules.

The Justice Department has a pending criminal investigation against Fiat Chrysler.

Reporting by David Shepardson; Editing by Sonya Hepinstall