Sunday, August 30, 2015

Carlyle Fund Walloped in Commodities Rout

Just goes to show the big guys are just guessing. Aivars Lode

Selloff has helped drive down holdings in its hedge-fund firm’s flagship fund from about $2 billion to less than $50 million

By Christian Berthelsen and Rob Copeland 
Three years after private-equity giant Carlyle Group LP touted its purchase of a hedge-fund firm, a rout in raw materials has helped drive down holdings in its flagship fund from about $2 billion to less than $50 million, according to people familiar with the matter.
The firm, Vermillion Asset Management LLC, suffered steep losses and a wave of client redemptions in its commodity fund after a string of bad bets, including one tied to the price of shipping of dry goods, such as iron ore, coal or grains. At one point, two of Carlyle’s co-founders, David Rubenstein and William Conway, put tens of millions of dollars of their own money in the fund and left it in amid the losses and redemptions, according to people familiar with the matter.

Vermillion is in the midst of a restructuring, its co-founders left at the end of June, and it is pulling back from trading in several markets.
A collapsing market for raw materials is spreading pain well beyond commodities specialists to some of the heaviest hitters on Wall Street.
This week alone, commodity-trading firms Armajaro Asset Management LLP and Black River Asset Management LLC, a unit of agricultural conglomerate Cargill Inc., said they are closing funds. Several other firms that managed billions of dollars already have closed their doors, including London-based Clive Capital LLP and BlueGold Capital Management LLP. Large money managers including Brevan Howard Asset Management LLP and Fortress Investment Group LLC have wound down commodity strategies.
Assets under management at commodity hedge funds have fallen 15%, to $24.1 billion, since their peak in 2012, and nearly 30 firms out of 250 have shut down since that year, according to industry consultant HFR Inc. Commodity firms lost money for three years in a row before 2014, HFR said.
Commodities are one of the most challenging markets to invest in, because of their complexities and penchant for volatility. Some of the biggest hedge-fund blowups have involved commodity trading, such as the 2006 collapse of Amaranth Advisors LLC after sustaining more than $5 billion in losses on natural-gas trades. 
Commodity prices have plunged due to a combination of factors, including a stronger dollar, an anticipated increase in U.S. interest rates and an expectation that cooling economic growth in China will undermine the country’s voracious appetite for resources. The S&P GSCI commodity index, which tracks commodity prices, has lost more than 8% this year and reached its lowest level since 2002 amid double-digit-percentage declines for everything from oil to wheat to copper to sugar.
Last year, some oil-trading firms scored huge returns when they correctly positioned for a collapse in crude prices by making bets that paid out when prices fell by 60% at one point.
But even some of the firms that were winners in crude’s tumble have been whipsawed. BBL Commodities LP, a $600 million New York firm led by former Goldman Sachs Group Inc. proprietary trader Jonathan Goldberg, was caught out by oil’s quick rebound earlier this year and is down about 15% through midyear after gaining more than 50% last year, according to a person familiar with the fund.
The losses aren’t contained to the usual bulwarks like oil or gold.
Take Andrew Lahde, the hedge-fund manager who earned more than 800% returns in 2007 betting against mortgages ahead of the financial crisis and memorably closed his firm in 2008 with a letter thanking the “low-hanging fruit, i.e. idiots” whom he traded against.
Now, Mr. Lahde’s latest venture, LCM Exponential LLC, is nursing 25% losses through midyear as it amasses the metal rhodium, a byproduct of platinum and palladium used in some cars to control pollution, according to people familiar with the firm. Rhodium has been dinged this year along with other precious metals, and securities tied to the price of physical rhodium have fallen 36% in the past year, including 28% in the past three months alone.
Mr. Lahde said he is sticking with the strategy that as production slows, prices will go up. He is storing his rhodium in a vault.
“Why would I expect anything less?” said Mr. Lahde of the price moves. “If you want to make a lot of money, you need volatility, and you need volatility to go your way.”
Vermillion’s flagship Viridian fund ran into headwinds in 2013 and 2014, losing 23% last year, according to people familiar with the fund. The firm had a successful strategy trading securities in a market tied to the price of shipping dry goods on the high seas and ramped up its investment in it as returns improved. But that withered as the firm remained bullish even while freight rates collapsed to historic lows in the second half of 2014 and early 2015. The trade lost more than 30% in the process and the position remains in the red, though it has recovered somewhat recently, the people said.
Messrs. Rubenstein and Conway, two of Carlyle’s co-founders, invested $30 million collectively in the firm, according to a person with knowledge of its operations. The current value of their stakes is unknown.
Christopher Nygaard and Drew Gilbert, who co-founded Vermillion in 2005 and sold a majority equity stake in the firm to Carlyle in 2012, left at the end of June, according to people with knowledge of the firm’s operations. Vermillion is retreating from prior investments in oil, natural gas, coal, iron ore and agriculture, and traders and strategists involved in managing those strategies are leaving, these people said.
Sean Brennan, Vermillion’s portfolio manager for oil and energy markets, has been hired at Israel Englander’s $30 billion Millennium Management LLC, though Mr. Brennan was still listed on Vermillion’s website Friday.
Messrs. Nygaard and Gilbert declined to comment. Mr. Brennan didn’t respond to a request for comment.
Vermillion will continue managing investments in metals and freight-rate strategies, and the flagship fund remains in operation despite the low level of capital, according to people familiar with the firm.
Vermillion also has added new investment vehicles offering broad bullish exposure to a basket of commodity markets and has a new venture in commodity-finance lending that executives think can expand into a multibillion-dollar business, the people said.
In a statement, Carlyle said: “We are successfully repositioning our commodities business, particularly in commodities finance, to capture an enormous global opportunity.”
Vermillion had $2.2 billion under management at the time of the Carlyle acquisition; its assets in the legacy flagship, metals and freight funds have fallen to just over $400 million since then, though the new strategies in lending and index products have added about $1 billion. The firm’s total assets under management now stand at $1.4 billion.

Wednesday, August 26, 2015

Apple’s Market Cap Loses $60 Billion After iPhone Sales Disappoint

You know, I was totally wrong about Apple. I failed to see how dumbing down the device and making it a luxury statement would continue earnings. Aivars Lode

Shares slide as company’s revenue guidance falls short of Wall Street views

By Daisuke Wakabayashi
After a series of blockbuster earnings that blew past even the most optimistic of Wall Street expectations, Apple Inc. felt the pain of falling short of elevated expectations.

Apple said Tuesday its profit surged 38%, aided again by strong demand for the company’s latest iPhones and robust growth in China where sales more than doubled. The gains lifted Apple’s cash reserves to a record $203 billion.
But while Apple sold 35% more iPhones in the fiscal third quarter compared with a year earlier, those sales missed some analysts’ estimates. Apple also indicated its revenue in the current quarter could come in below Wall Street projections.
Within minutes of the earnings report, Apple’s shares fell as much as 7% in after-hours trading Tuesday, erasing about $60 billion in market value. Shares fell 5.2% in early trading Wednesday. 

Swings in Apple’s shares can spark big moves in the U.S. stock indexes. As the largest company by market capitalization in the S&P 500 and Nasdaq, Apple has an outsize impact on the two market-cap weighted indexes. Apple is among the companies with the highest stock prices in the Dow, which gives it major sway over the price-weighted blue-chip index.
The iPhone is Apple’s most important product, accounting for nearly two-thirds of Apple’s revenue in the quarter ended June 27 versus less than half three years ago. Any signs that iPhone growth is reaching a peak is a major cause of concern for investors.
In an interview with The Wall Street Journal, Apple Chief Executive Tim Cook said he has heard repeatedly that the company can’t sustain its growth rates, but it has proved doubters wrong in the past.
“I refuse to accept that type of thinking,” Mr. Cook said. “I don’t see the ceiling being very close.”
Strong sales of the larger-screen iPhone 6 and 6 Plus are driving Apple to record earnings, while defying a sales-growth slowdown in the smartphone industry. Apple has pried open the door to largely untapped markets like China and enticed consumers to switch from smartphones running Google Inc.’s Android operating system. 
The fiscal third quarter is traditionally weaker for iPhones as consumers hold off on purchasing new models until the fall when Apple typically introduces them. Analysts noted that iPhone unit sales of 47.5 million fell by about 23% from its fiscal second quarter, a steeper rate of decline than the previous two years when quarter-on-quarter sales fell by 19% and 17% respectively. 
Apple said part of the shortfall was the result of it lowering iPhone inventory by 600,000 units during the quarter, a sign that it sold more phones than it manufactured.
Abhey Lamba, a senior technology analyst at Mizuho Securities, said iPhone sales falling short of some analysts’ estimates hurt the bullish view of some investors that the iPhone 6 and 6 Plus could defy seasonal slowdowns the iPhone had experienced in the past.
“It deals a blow to that thesis,” Mr. Lamba said.
The iPhone now overshadows the rest of Apple’s businesses. While Apple has refreshed several product lines in the past year and introduced an entirely new category with a smartwatch, the iPhone accounts for an increasingly larger share of Apple’s revenue.
On a call with analysts, Mr. Cook brushed off a question as to whether Apple needs to move beyond its reliance on the iPhone. “We think the phone has a lot of legs to it,” he said.
In the latest quarter, iPhone sales made up about 63% of Apple’s overall sales, compared with 53% in the year ago period and less than half three years ago. Apple has benefited from selling its iPhones at high prices at a time when smartphone prices are sliding. The average selling price of iPhones rose by more than $100 to $662.42.
The latest iPhones are especially popular in China. In greater China—defined by Apple as China plus Hong Kong and Taiwan—revenue more than doubled to $13.23 billion. For the iPhone, sales rose 87% in greater China compared with 5% growth in the overall market, according to Apple.
Mr. Cook said the company had the highest rate of switchers from Android phones ever during the quarter. “The gap is widening between us and our competitors,” he said. 
It isn’t yet clear whether Apple’s sales will greatly benefit from the Apple Watch, the company’s first all-new hardware product since it introduced the iPad in 2010. Apple didn’t provide a breakdown of the Watch’s sales, which began during the June quarter, lumping the product’s sales in with the iPod, Apple TV and Beats accessories in the “other products” category. Sales of that segment rose 49% to $2.64 billion.
Mr. Cook said the Watch’s sales beat the company’s own internal projection, although he didn’t provide those estimates. He said the “sell-through” of the Watch was better than the iPad and iPhone at the same period of time. He also noted the Watch is still only available in 680 retail locations, or less than 1% of the locations where the iPhone is sold.
Apple’s profit in the quarter rose to $10.7 billion from $7.74 billion in the year-ago period. Revenue jumped 33% to $49.61 billion.
Gross margin—a closely watched measure of profitability reflecting the percentage of revenue that remains after manufacturing costs—was 39.7%, above its estimated range of 38.5% to 39.5%.
Apple’s forecast for revenue in the current quarter came in slightly below Wall Street’s expectations. For the current quarter ending September, Apple said it expects a gross margin of between 38.5% and 39.5%. It sees revenue coming in between $49 billion and $51 billion. Analysts had expected revenue of $51.13 billion, according to a consensus of estimates compiled by Thomson Reuters.
In contrast to the iPhone’s success, iPad sales continued to slump. Apple’s tablet sales fell about 18% in unit terms, marking a sixth-straight quarter of year-over-year declines. 
The iPad and tablet computers, in general, are facing an existential crisis: They aren’t quite as essential as the smartphone but not quite as functional as a notebook computer. Moreover, early iPad users don’t see a huge reason to upgrade to more recent models.
Apple has struck deals with International Business Machines Corp.and other companies to position the iPad as a device for the workplace. So far, those efforts have done little to stem the iPad’s slide.
Another bright spot is the Mac business. Apple said Mac sales rose 9% in units, compared with a 9.5% decline in shipments for PCs globally in the second quarter, according to research firm Gartner. While still one of the smaller players in terms of shipments, Apple has steadily gained market share on competitors.

Tuesday, August 25, 2015

Sea Ice Might Be More Resilient Than Thought

Who knows if this is true or not. Sea ice might be more resilient than thought, study finds. Both sides are trying to justify positions; we should be good stewards and we should focus on fusion as our power source period, everything else is a distraction. Aivars Lode

Single cool summer briefly reversed decline in ice cap around the North Pole, study reports

Arctic sea ice is so sensitive to changing temperatures that a single cool summer briefly reversed the decline in the ice cap around the North Pole, says a new study released Monday. 
Using new satellite data, researchers at University College London reported in Nature Geoscience on Monday that the total volume of sea ice in the Northern Hemisphere was well above average in the autumn of 2013, traditionally the end of the annual melt season, after an unusually cool summer when temperatures dropped to levels not seen since the 1990s. 
“We now know it can recover by a significant amount if the melting season is cut short,” said the study’s lead author Rachel Tilling, a researcher who studies satellite observations of the Arctic. “The sea ice might be a little more resilient than we thought.”
A steady decline in the extent of Arctic sea ice since the late 1970s has been taken as a barometer of longer-term warming trends in the Northern hemisphere. The U.S. Navy last year predicted that by 2030 the Arctic’s northern sea route could be ice-free and navigable for nine weeks every year. 
Miss Tilling and her colleagues used new data from the European Space Agency’s Cryosat-2 radar satellite, launched in 2010. For the first time, they measured changes in the overall volume of seasonal sea ice across the Arctic and Greenland. Until now, researchers have been able to track the extent of ice, but not its thickness.
In 2013, summer temperatures were about 5% cooler than the previous year and the volume of autumn ice jumped 41%, they said.
As temperatures warmed again after 2013, the decline in annual sea ice resumed, according to the U.S. National Snow and Ice Data Center in Boulder, Colo. At its greatest expanse this past winter, the Arctic sea ice was the lowest since satellite measurements began.

'Mini ice age' coming in next fifteen years, new model of the Sun's cycle shows

Solar changes mean a mini ice age coming? Aivars Lode

There will be another Little Ice Age in 2030, according to solar scientists – the last one was 300 years ago

By Alice Harrold 

There will be a "mini ice age" in 2030, solar scientists have said.
We are now able to predict solar cycles with far greater accuracy than ever before thanks to a new model which shows irregularities in the sun’s 11-year heartbeat.
The model shows that solar activity will fall by 60 per cent between 2030 and 2040 causing a "mini ice age".
The conditions predicted have not been experienced since the last "mini ice age" which lasted from 1645 to 1715, called the Maunder Minimum.

Frozen fountain at Trafalgar Square in London in January 1963 The findings are being presented by Professor Valentina Zharkova at the National Astronomy Meeting in Llandudno.
In 1843 scientists first discovered that the sun's activity varies over a cycle of 10 to 12 years.
Fluctuations within that cycle have been difficult to predict, although many solar physicists new that the variations were caused by a dynamo of moving fluid deep inside the sun.

Professor Zharkova’s team of researchers has found that adding a second dynamo close to the surface of the sun, creates a far more accurate model.
The scientists found magnetic waves in two different layers of the sun’s interior which fluctuate between the northern and southern hemispheres of the sun.

“Combining both waves together and comparing to real data for the current solar cycle, we found that our predictions showed an accuracy of 97 per cent," Professor Zharkova said.
The magnetic wave patterns show that there will be fewer sunspots in the next two solar cycles. Cycle 25, which peaks in 2022 and Cycle 26, from 2030 to 2040 will both have a significant reduction in solar activity.

Thursday, July 16, 2015

LME Launches New Round of Warehousing Rules Proposals

Do I hear anyone say manipulation? Aivars Lode

By Ese Erheriene

The London Metal Exchange on Wednesday launched another round of proposals to improve its warehousing operations, which have been criticized for long delays in shipping out metal, particularly aluminum.
The LME’s consultation, which will close on Aug. 17, aims to increase the speed at which metal is moved into and out of warehouses, and would impose a cap on the rent charged for metal in warehouses that is waiting to be moved out, according to an LME statement.
“The proposals we are putting forward today are necessary to ensure that remaining queues and related issues are addressed in accordance with our regulatory obligations and original aims,” said Garry Jones, the LME’s chief executive.
It is the latest move by the LME, owned by Hong Kong Exchanges & Clearing Ltd., to try to resolve the delays in shipping aluminum out of some of its key warehouses. In some cases, companies have had to wait for up to two years to get their hands on aluminum, causing financial costs and operational inconvenience.
Those delays have put the LME under considerable pressure. Late last year, the body was excoriated by a U.S. Senate commission, which concluded that warehouse delays “have likely added billions of dollars in costs to a wide range of aluminum users, from beer makers to car manufacturers to defense companies that make warships for the Navy.”
The Wall Street Journal reported earlier this year that the U.S. Commodity Futures Trading Commission has so far held out giving the LME a license to operate its electronic trading platform in the U.S. as a result of the bottlenecks. In the U.K., the Financial Conduct Authority has said it is monitoring the warehouse situation.
The LME refused to say whether the latest reforms were drawn up to help smooth the path for CFTC approval.
“The CFTC have a number of foreign exchanges that they’re approving…and we’re in the queue with the rest of them,” said Mr. Jones at a press conference.
The LME has changed the rules several times this year already, primarily targeting those warehouses with delays of more than 50 days. In February, the LME said that for every two tons of metal received by those warehouses, one ton would have to be shipped out. In April, that was tightened to one ton out for every ton taken in. Then, in June, the LME said it would launch a new range of aluminum contracts to allow users to protect themselves against rising regional charges that occur in addition to the cost of the metal.
But those modifications were criticized by some customers, who complained they weren’t having much impact.
Colin Hamilton, a metals analyst at Macquarie, said that as a result of the moves, the premiums paid by companies to obtain physical metal would decline, as there would be more metal available on the market.
Waiting times at three of the five worst-offending warehouses have been eliminated; queues at the last two in Detroit and in Vlissingen, the Netherlands, have been harder to tackle.
Now, the LME wants to target all of its warehouses, raising the minimum amount of metal they ship out every day to clear backlogs faster and prevent future buildups. Warehouses with more than 150,000 tons of metal would face a sliding scale of minimum shipments, of between 2,000 tons and 4,000 tons a day, depending on the volume of metal stored in the warehouse. The measure would be introduced in December, the LME said.
At the same time, the exchange wants to stop its registered warehouses charging rent on metal that has been waiting to leave for more than 50 days. This change would be introduced in May 2016, the LME said.
Under these new rules, the LME believes queues in Vlissingen and Detroit would disappear by the end of March and April next year, respectively.
According to the LME, the rule changes have been staggered because of their complexity. The modifications announced Wednesday address the final two parts of a package of reforms that the exchange presented in 2013, though LME officials said more changes could be considered, depending on the impact of the latest proposals.

Wednesday, July 15, 2015

High-Tech Solar Projects Fail to Deliver

So is this an efficient use of capital to deliver alternative energy? Aivars Lode

$2.2 billion California project generates 40% of expected electricity

The Ivanpah solar-thermal plant in California uses thousands of mirrors to reflect sunlight and generate steam. 

By Cassandra Sweet 

Some costly high-tech solar power projects aren’t living up to promises their backers made about how much electricity they could generate.
Solar-thermal technology, which uses mirrors to capture the sun’s rays, was once heralded as the advance that would overtake old fashioned solar panel farms. But a series of missteps and technical difficulties threatens to make newfangled solar-thermal technology obsolete.

The $2.2 billion Ivanpah solar power project in California’s Mojave Desert is supposed to be generating more than a million megawatt-hours of electricity each year. But 15 months after starting up, the plant is producing just 40% of that, according to data from the U.S. Energy Department.

The sprawling facility uses “power towers”—huge pillars surrounded by more than 170,000 mirrors, each bigger than a king-size bed—to capture the sun’s rays and create steam. That steam is used to generate electricity. Built by BrightSource Energy Inc. and operated by NRG Energy Inc., Ivanpah has been advertised as more reliable than a traditional solar panel farm, in part, because it more closely resembles conventional power plants that burn coal or natural gas. NRG co-owns the plant with Google Inc. and other investors. 

Turns out, there is a lot more to go wrong with the new technology. Replacing broken equipment and learning better ways to operate the complex assortment of machinery has stalled Ivanpah’s ability to reach full potential, said Randy Hickok, a senior vice president at NRG. New solar-thermal technology isn’t as simple as traditional solar panel installations. Since older solar photovoltaic panels have been around for decades, they improve in efficiency and price every year, he said.

“There’s a lot more on-the-job learning with Ivanpah,” Mr. Hickok said, adding that engineers have had to fix leaky tubes connected to water boilers and contend with a vibrating steam turbine that threatened nearby equipment.

One big miscalculation was that the power plant requires far more steam to run smoothly and efficiently than originally thought, according to a document filed with the California Energy Commission. Instead of ramping up the plant each day before sunrise by burning one hour’s worth of natural gas to generate steam, Ivanpah needs more than four times that much help from fossil fuels to get the plant humming every morning. Another unexpected problem: not enough sun. Weather predictions for the area underestimated the amount of cloud cover that has blanketed Ivanpah since it went into service in 2013.

Ivanpah isn’t the only new solar-thermal project struggling to energize the grid. A large mirror-powered plant built in Arizona almost two years ago by Abengoa SA of Spain has also had its share of hiccups. Designed to deliver a million megawatt hours of power annually, the plant is putting out roughly half that, federal data show.

NRG and Abengoa say their plants will reach power targets once the kinks are worked out.
In contrast, incremental improvements to traditional solar panels have allowed SunPower Corp. to get more electricity than it originally thought it could from its 1,500-acre solar farm. California Valley Solar Ranch was designed to produce 600,000 megawatt-hours a year in 2013 when it started operating, but today it can generate up to 4% more.

“It’s years of learning from experience,” said Tom Werner, chief executive of SunPower, adding that his employees have been building large-scale solar farms for more than a decade.

Solar-thermal developers including Abengoa and BrightSource continue to build new plants in South Africa, Chile and China. But Lucas Davis, an economics professor at the University of California, Berkeley, says it is unlikely more U.S. projects will gain traction as utilities opt for cheaper solar farms that use panels.

“I don’t expect a lot of solar thermal to get built. It’s just too expensive,” he said.

American solar farms generate nearly 16 million megawatt-hours of electricity each year. That satisfies less than 1% of U.S. electricity demand, but six times the amount of power that solar-thermal plants currently produce. And the vast arrays of solar panels that blanket the ground cost roughly half as much to build as new mirror-powered plants, according to the U.S. Energy Department.

Ivanpah’s computer-controlled mirrors are each about 7 feet high and 10 feet wide. The reflected light is used to heat water in boilers and make steam, which in turn drives turbines to create electricity. 

Electricity prices from new solar farms average around 5 cents a kilowatt-hour, according to GTM Research, which tracks renewable energy markets. That compares with between 12 and 25 cents a kilowatt-hour for electricity generated by the Ivanpah power plant, state and federal data show.

It is unclear how much power would cost from a brand new solar-thermal plant, but it would be more than 5 cents a kilowatt-hour, said Parthiv Kurup, an analyst at the National Renewable Energy Lab in Golden, Colo.

The cost of solar panels has plunged in recent years amid a world-wide glut of equipment as China, Taiwan and other countries rapidly developed solar manufacturing centers. A few years ago solar-thermal technology was heralded as a better way to deliver carbon-free renewable energy; some utilities even predicted the technology would replace traditional solar farms.

Even if solar-thermal developers could offer the same power prices as their solar-panel rivals do, solar-thermal plants face environmental hurdles in the U.S.

The Ivanpah plant was delayed several months and had millions of dollars in cost overruns because of wildlife protections for the endangered Desert Tortoise. Once built, U.S. government biologists found the plant’s superheated mirrors were killing birds. In April, biologists working for the state estimated that 3,500 birds died at Ivanpah in the span of a year, many of them burned alive while flying through a part of the solar installment where air temperatures can reach 1,000 degrees Fahrenheit.

Bird carnage combined with opposition by Native American tribes to industrial projects on undeveloped land has made California regulators wary of approving more. Last September, Abengoa and BrightSource abandoned their quest to build a solar-thermal project near Joshua Tree National Park when the state regulator told them the plant’s footprint would have to be cut in half.

In March the Board of Supervisors of Inyo County, a sparsely populated part of California that is home to Death Valley National Park, voted to ban solar-thermal power plants altogether. “Ivanpah had a significant effect on the decision making,” said Joshua Hart, the county’s planning director.

Tuesday, July 14, 2015

EU Competition Watchdog Investigates Amazon Over Electronic-Books Business

As we have discussed before, cheat the taxes and they will find you. Aivars Lode

By Tom Fairless

BRUSSELS—European Union regulators have opened a formal investigation into Inc.’s electronic-books business, the latest in a series of probes targeting U.S.-based technology giants that could affect how they operate in Europe.
The European Commission, the bloc’s top antitrust regulator, said Thursday that it was investigating whether Amazon uses its market power to force illegal terms on to publishers that harm purchasers of e-books. The regulator is concerned that parts of Amazon’s contracts with publishers “seem to shield Amazon from competition from other e-book distributors,” it said in a statement.
U.S. tech companies are facing a wave of scrutiny in Europe, their biggest overseas market, as regulators crack down on alleged violations ranging from unfair competition to inadequate data protection. 
Amazon is embroiled in several of those probes, which could force the companies involved to make significant changes to their business practices.
The EU opened separate investigations in recent weeks into how large Web companies like Amazon and Google Inc. operate in Europe, and whether e-commerce companies are raising barriers to competition across the region. Amazon’s tax affairs in Luxembourg are also being scrutinized as part of a widening EU investigation into whether multinational companies received an illegal advantage from alleged sweetheart tax deals.
At issue in the investigation announced Thursday are clauses in Amazon’s contracts with publishers that the EU believes may limit competition between vendors of e-books, and reduce choice for consumers. The clauses, known as most-favored nation, or MFN, are common in industries like cable television in the U.S., but they may run afoul of antitrust rules in Europe if they reduce price competition, antitrust lawyers say.
Amazon said it is confident that its agreements with publishers “are legal and in the best interests of readers,” and pledged to cooperate fully with the investigation.
The company is currently the dominant distributor of e-books in Europe. In the U.K., for instance, Amazon accounted for 78% of e-book sales at Hachette Livre, according to an investor presentation last year from Hachette’s owner, Lagardère SCA.
Multiple book publishers have been lobbying the commission to investigate Amazon, one publishing executive said, but it is unclear whether any company had made a formal complaint. “They are the biggest customer for most of us, so you don’t want to upset them,” the executive said. 
The probe will initially focus on e-books in English and German, the largest markets for such products in the region, the EU said. There is no deadline for such investigations, which can last years and are often broadened beyond their initial area of focus.

Margrethe Vestager, the EU’s antitrust chief, said she wants to ensure “that Amazon’s arrangements with publishers aren’t harmful to consumers, by preventing other e-book distributors from innovating and competing effectively with Amazon.”
“Our investigation will show if such concerns are justified,” Ms. Vestager said in a statement.
Regulators on both sides of the Atlantic have targeted the e-books business before. The EU opened formal proceedings in 2011 to investigate whether Apple Inc. and five publishers had illegally colluded to fix the price of e-books before Apple’s first iPad launch in 2010. The case was settled after all the companies involved agreed to alter their contracts. 
The U.S. Justice Department settled a similar case with publishers in December 2012, though Apple has appealed the judgment.