Financial Times USA 17.02.2023
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Repuestos HCKFRIDAY 17 FEBRUARY 2023 INTERNATIONAL NEWSPAPER OF THE YEAR USA $2.50 Canada C$3.
00
The US transition to a green superpower AI is a powerful weapon — for good and bad
BIG READ, PAGE 13 JOHN THORNHILL , PAGE 15
Return of ground warfare in Ukraine Briefing
i StanChart chief pledges
to fight takeover attempts
forces US to review arms stockpiling Bill Winters has revealed a $1bn
share buyback and said the bank
can succeed on its own as it seeks
to ward off a bid by First Abu
Dhabi Bank.— PAGE 5; LEX, PAGE 16
3 Conflict exposes vulnerabilities 3 Calls to raise $817bn budget likely 3 Milley expects negotiated end i Smaller rate rises urged
ECB executive board member
Fabio Panetta said the bank
FELICIA SCHWARTZ — WASHINGTON should shift to smaller rate
increases soon or risk stamping
The US has launched a review of its out growth.— PAGE 4
weapons stockpiles, its most senior mili-
tary official has said, in an indication i Bank boss disappears
that Washington is preparing to increase Bao Fan, the founder of China
arms spending because of worries about Renaissance and one of the
the Ukraine war’s impact on ammuni- country’s top tech dealmakers
tion supplies. has gone missing, according to
General Mark Milley, chair of the joint the investment bank.— PAGE 6
chiefs of staff, said the US had been
forced to reconsider its assumptions i Adani halts $847mn deal
because of the return of 20th century The billionaire’s electricity unit is
ground-warfare tactics after two dec- halting an $847mn purchase of a
ades in which doctrine was shaped by coal-fired power station in India
the Iraq and Afghanistan insurgencies. in a sign his business empire is
“One of the lessons of this war is the slowing down spending.— PAGE 5
very high consumption rates of conven-
tional munitions, and we are re- i Malpass to quit early
examining our own stockages and our David Malpass is to step down as
own plans to make sure that we got it World Bank president nearly a
right,” Milley said in an interview with year before his term expires, after
the Financial Times. criticism of the bank’s response to
“We’re trying to do the analysis so that climate change.— PAGE 3
we can then estimate what we think the
true requirement would be. And then i KPMG to slash US jobs
we have to put that in the budget. KPMG is to axe nearly 2 per cent
Ammunition is very expensive.” of its US staff after a slowdown in
The review is likely to result in calls its consulting business — the first
for an increase in the military’s $817bn Big Four auditor to respond to the
annual budget. weaker economy.— PAGE 7
Milley’s comments come on the heels
of a tour of allied capitals last week by Datawatch
Ukraine’s president, Volodymyr Zelen-
skyy, who called for the west to increase
its supply of armaments. Ukraine has The Doomsday Clock
received more than $29bn in arms and moves closer to midnight
defence spending from Washington 1947 11:45 11:50 11:55 12:00
since the conflict began. Ukrainian soldiers take part in warfare training yesterday at an unspecified location in the UK amid the allies’ commitment to Kyiv — Christopher Furlong/Getty Images 1950
1960
The joint chiefs chair was in Brussels
1970
this week, meeting other countries ic-related shortages in parts and labour. that will rely on billions of dollars-worth ated settlement between Kyiv and out of every inch of Russian-occupied
MIDNIGHT
allied with Kyiv to co-ordinate massive Ukrainian forces are estimated to be of western weapons, including battle Moscow. Ukraine. It’s not to say that it can’t hap- 1980
amounts of lethal assistance ahead of a firing more than 5,000 artillery rounds tanks, infantry-fighting vehicles and While he did not tie the depletion of pen . . . But it’s extraordinarily difficult. 1990
planned Ukrainian counter-offensive in daily, while Russia is estimated to be heavy artillery. stockpiles to his support for peace talks, And it would require essentially the col- 2000
the spring. consuming four times that amount as it A recent report by the Center for Stra- he said that he still believed the war lapse of the Russian military.” 2010
Milley’s remarks, a week before the seeks to take territory in the east. tegic and International Studies, a Wash- would end at the table, with neither side When asked if the moment for diplo- 2020
2023
first anniversary of Russia’s invasion of Kyiv is planning a counter-offensive ington think-tank, found that the US likely to achieve their military aims. macy between Moscow and Kyiv had 11:58:30
Ukraine, reflect a broader debate defence industrial base was “not ade- “It will be almost impossible for the passed, Milley said: “We’re weeks away Source: Bulletin of the Atomic Scientists
among western allies about the possibil- quately prepared” for the security envi- Russians to achieve their political objec- from the beginning of spring, but it’s a The Doomsday Clock, which warns the
ity of the war dragging on indefinitely.
‘It is unlikely that Russia is ronment, and the munitions require- tives by military means. It is unlikely rolling window. There’s opportunities at public how close we are to destroying our
The quantity of munitions required going to overrun Ukraine. ments of another conflict, such as a war that Russia is going to overrun Ukraine. any moment in time.” world, has hit its closest point to midnight.
Experts believe that humanity is more self-
by the conflict has exposed vulnerabili- with China in the Taiwan Strait, was It’s just not going to happen,” Milley However, he said, both sides were
ties in the US defence industry, which is
It’s just not going to happen’ likely to exceed Pentagon stockpiles. said. “dug in pretty hard on their objectives” destructive now than ever before, largely
because of nuclear threats over Ukraine.
trying to pivot from peacetime produc- General Mark Milley Milley has been one of Washington’s “It is also very, very difficult for and unwilling to negotiate.
tion levels, but has been hit by pandem- most prominent advocates for a negoti- Ukraine this year to kick the Russians Global Insight and German influx page 2
Court reveals details of emails between
ex-Barclays chief Staley and Epstein
STEPHEN MORRIS — LONDON said: “Beauty and the Beast.” Epstein count Epstein’s assets as a probable out-
JOE MILLER AND JOSHUA FRANKLIN
NEW YORK replied: “Well one side is available.” flow for ’08 ($120mm [sic] or so?) as I
The Virgin Islands claims the can’t imagine it will stay (pending
Emails exchanged by ex-Barclays chief exchange refers to women and girls Dimon review).”
executive Jes Staley and the late con- Epstein was providing. It alleges that the The complaint also alleges employees
Upper stratosphere fills with victed sex offender Jeffrey Epstein have emails demonstrate a “close personal at JPMorgan raised concerns about
been revealed in greater detail in a law- relationship and ‘profound’ friendship Epstein. A 2010 email from the bank’s
science clutter but no aliens suit filed by the US Virgin Islands between the two men and even suggest risk-management division read: “See
The shooting down by the US of a against JPMorgan Chase. that Staley may have been involved in below new allegations of an investiga-
Chinese surveillance balloon has shone Epstein’s sex-trafficking operation”. tion related to child trafficking — are
a light on the use of the ‘forgotten Newly unredacted portions of a com- The “Snow White” email was first you still comfortable with this client
space’ that is 15km-40km above the plaint brought by the Virgin Islands, reported by the Financial Times in who is now a registered sex offender?”
Earth’s surface — sometimes called where Epstein had a home, contain November 2021. The new elements yes- In a January 2011, the complaint says,
‘near space’. But such balloons are not excerpts of several of the 1,200 emails terday will add pressure on JPMorgan, the bank concluded there were “no
the only objects up there, other items between the men from 2008 to 2012, which the Virgin Islands says is liable for material updates”.
include weather and communications when Staley was Epstein’s private facilitating Epstein’s sexual abuse by JPMorgan declined to comment
devices. As for reports of ‘sky trash banker at JPMorgan. failing to spot and act on red flags. beyond court filings that characterised
and UFOs’, the former is man-made, In July 2010, Staley messaged Epstein: Some of the emails suggest Epstein the complaint as “meritless”. Staley is
probably secret material, while the “Maybe they’re tracking u? That was was under review as a customer at the not a defendant and has consistently
latter is the stuff of fiction. fun. Say hi to Snow White.” Epstein highest levels of the bank, including denied knowledge of Epstein’s sexual
Filling the void i PAGE 3 asked in return: “[W]hat character chief executive Jamie Dimon. An email abuse. Kathleen Harris, a lawyer for Sta-
would you like next?” To which Staley sent in August 2008 read: “I would ley, declined to comment.
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2 ★ FINANCIAL TIMES Friday 17 February 2023
INTERNATIONAL
GLOBAL INSIGHT
Political challenge
BRUSSELS
Germany struggles with refugee influx Henry
Foy
Minister calls on other totipover,”saidPeterBeuth,interior themiddleofEurope,”saidinterior AndyGrote,interiorministerofthe
ministerofthewesternregionofHesse. ministerNancyFaeser,whohostedthe citystateofHamburg,saidGermany
EU nations to take more
Ukrainians escaping war
HeurgedBerlintodomoretoreduce
thenumbersofmigrantsbyspeedingup
thedeportationoffailedasylumseekers
summit.Sheaddedthattalkswouldbe
heldbyEasteronadditionalfinancial
aidforstrugglingmunicipalitiestocope
was not only having to house 1mn
Ukrainians,“wearecontinuingtoseea
biginfluxofasylumseekersfrommany
European armouries
GUY CHAZAN — BERLIN totheircountriesoforigin.
Thewarningscameattheendofaref-
withthemigrantinflow.
Thecomparisonswith2015-16will
othercountriesoforiginaswell”.
Some 1.1mn Ukrainians moved to
drained by year of
Germanyisfacingarefugeecrisisonan
evengreaterscalethanin2015-16when
almost1mnasylumseekerssurgedinto
ugee summit in Berlin designed to
addressthegrowingcallsforassistance
fromtownsandcitiesacrossGermany
sendachillthroughthecorridorsof
powerinBerlinandcouldpresentabig
challengetoChancellorOlafScholz.
Germanylastyear,thefederalstatistics
agencysaid,althoughsomehavesince
returned home. Germany is hosting
conflict in Ukraine
J
thecountry,accordingtoofficials,as strainingundertheinfluxofmigrants. Thearrivalofhundredsofthousands 962,000Ukrainians,againstthenetfig-
UkrainianspourintoEurope’slargest Themeetingcameafterofficialfig- ofrefugeesfromtheMiddleEastand ureof834,000fromSyria,Afghanistan
economyinsearchofsafety. uresreleasedbyGermany’sfederalsta- northAfricainthemid-2010spitched andIraqbetween2014and2016.Mean- ensStoltenbergchooseshiswordscarefully.The
“Theproblemisnowbiggerthanit tisticsagencyyesterdayshowedthatnet the government of his predecessor, New arrivals: whileabout218,000appliedforasylum strait-lacedNorwegiansecretary-generalofNato
wasatthepeakof2016,”saidReinhard immigrationfromUkrainelastyearwas AngelaMerkel,intooneofitsbiggest displaced in Germany last year, the largest isfamousforhisabilitytostickrigidlytotalking
Sager,headoftheAssociationofGer- biggerthanthatfromSyria,Afghani- political crises, strained relations Ukrainians numberofapplicationssince2016. points,sowhenhewarnedthisweekthatthe
manCounties,addingthehugenumber stanandIraqbetween2014and2016, between Germany and its European disembark Faesermadethecaseforamoreequi- west’s“understrain”defencesectorhad“aprob-
ofUkrainianshadcomeontopofthe theheightoftherefugeecrisis. neighboursandfuelledtheriseofAlter- from a train tabledistributionofUkrainianrefugees lem”,hemeantit.Russia’swaragainstUkraineisalmosta
manyimmigrantsfromothercountries “Putin’scriminalwarofaggression nativeforGermany,thecountry’smost in Berlin acrosstheEU,sayingPolandhadtaken yearold.Tensofthousandshavebeenkilled.Westerngov-
aswellasthosewhoarrivedin2015-16. hassetoffthelargestmovementofrefu- successfulfar-rightpartysincethesec- last year in1.5mn,Germany1mnandSpainonly ernmentshadprovidedmorethan$110bnworthofsup-
“Themoodinthecountrythreatens geessincethesecondworldwar,herein ondworldwar. Jacobia Dahm/Bloomberg 150,000.“Thingscan’tremainthisway.” porttoKyiv,saidtheKielInstitute,$38bnofitweapons.
But in many capitals, defence ministers are being
informedbygeneralsthatthereispreciouslittleleftto
give.Warehousesanddumpsarebare.Denmarkhasgiven
UkraineeveryoneofitsCaesarhowitzers.Estoniahaspro-
videdsomany155mmartillerygunsithasnoneleft.
Assuch,theconversationsbetweenwesterndefence
ministers,whometatNato’sheadquartersthisweekand
whogatherattheMunichSecurityConferencetodayand
tomorrow,arelitteredwithfurrowedbrowsandanxious
looks:howlongcanwesustainthislevelofsupport,and
withwhat?
LoomingoverthemisRussia’sspringoffensive,which
Stoltenbergsaidhadalreadybegun.Itisexpectedto
involveamasswaveofnewlymobilisedtroops,alevelof
airpowernotyetdeployedbyMoscowandadailyfiringof
asmanyartilleryshellsasEuropemakesinamonth.
“Itisworryingwhatiscoming,”admittedKajsaOllon-
gren,Netherlandsdefenceminister.Shedescribed“a
senseofurgency”amongfellowNatoministers.“[Itis]a
criticalmomentbecauseofwhatweseehappeningonthe
groundandwhatweexpecttobehappeninginthenext
months. Also, thinking
ahead,aseriousscenario
isthatthiswarwilldrag
Factories are barely
onforalongtime.” able to make
Europe responded to
Russian president
enough shells for
VladimirPutin’sinvasion a week’s worth of
withinitialdisbelief.Cap-
Munich Conference. Diplomacy italsthathadpreviously
Ukraine’s needs
declaredhehadnoplans
todosothendulypredictedKyivwouldfallindays.But
Security forum returns to cold war roots thatrapidlygavewaytoalevelofunityandsupportthat
defiedexpectations.Armiesstarvedoffundingbygovern-
mentsthathaddismissedtheideaofwarinEuropedug
deep,andwithinweeksarmswereflowingeastacrossthe
Putin’smouthpiece,aforumforhis Christoph Europe.Organisersboastthisconfab TherearehopesthattheBayerischer Polish-Ukrainianborder.
Some fear Davos of defence will propaganda.” Heusgen: ‘We willfeaturethelargestUScongressional Hof,thevenuefortheMSC,mayoffer Butalmost12monthsofwar,inwhichPutin’stroops
Iranianofficialswerealsodisinvited, are facing a delegationinMSChistory. otheropportunitiesfordialogue,too. havetargetedcivilianinfrastructureandmilitarytargets,
become western echo chamber aresponsetothesuppressionofprotests rupture with Somewelcomethewesternalliance “TheadvantageofMunichisyoudo hasplacedimmensepressureonEurope’sill-prepared
by snubbing Russia and Iran bywomeninIraniancities.Wolfgang civilisation, usingMunichtoshowcommonpur- nothavetonegotiateaboutmeetingin defencesector.Itsfactoriesarebarelyabletomakeenough
Ischinger,whochairedtheMSCfrom and we have pose,especiallyonUkraine.“It’sbec- HelsinkiorAlaska.Ifyouarebothinthe shellstosupplyaweek’sworthofUkraine’sneeds.Waiting
2008to2022,saidthedecisionwasthe to accept the omingmoreofaconferenceoflike-min- BayerischerHofyoujustgotothesec- timesforsomemunitionshavemorethandoubled.
GUY CHAZAN — BERLIN rightone.Butheadmittedtofeelinga consequences dednations,andthat’sagoodthing,” ondfloorandhaveahalf-hourbilat- StocksofSovietequipmentheldbyeasternNatostates,
Twelveyearsago,theUSandRussia twingeofregret.“Ithinkit’sapity,”he of that’ saidRoderichKiesewetter,aChristian eral,”Ischingersaid. whichUkraine’ssoldiersknowhowtouse,havebeenex-
activatedNewStart,oneofthelastnuc- said.“Ialwaysfelttheconferencewasan Democrat MP and retired colonel. Thentherearetheserendipitousin- hausted.Decisionstosendnewwestern-madeweapons,
leararmscontroltreatiesofthepost- importantplatformfortalkinginfor- “Sometimesyouhavetodrawalinein formalmeetingstoo.“Youhavesomany suchasarmouredvehicles,arefollowedbydelaysas
coldwarperiod.Thevenuepickedfor mallywithdifficultadversaries,coun- thesandwiththewarcriminalsand chanceencountersthere,”saidthesen- armiesrealisehowmuchrefurbishmenttheyrequire.
thissymbolicactwastheMunichSecu- trieswithwhomourofficialcontacts makeclearthey’renotpartoftheclub.” iordiplomat.“TheHofisn’tbig,and JudyDempsey,non-residentseniorfellowatCarnegie
rityConference,orDavosofdefence. werepoorordidn’texistatall.” Butothersworrythattheconference everyonehastosqueezepasteachother Europe,said:“Ukrainereallyneedsthemeans[tofight
TheMSChadestablisheditselfby CreatedbyformerWehrmachtofficer mightenduplosingitsidentity.“Itcan’t inthecorridors...youbumpintopeo- back]buttheyaren’tgettingit.[TheEuropeans]are
thenasoneoftheworld’smostinfluen- Ewald-HeinrichvonKleistattheheight justbecomeanechochamber,”saidone pleyoumightotherwisenevermeet.” behindtheUkrainians.Butit’snotenough.Youdon’tques-
tialforumsforglobaldiplomacy,aplace ofthecoldwar,theMSCstartedin1963 seniorGermandiplomat. Itisthisuniqueatmospherethathas tionthepoliticalwilltosupportUkraine,buttheabilityto
whereenemieshavetraditionallycome asaWehrkundetagung,orconferenceon For decades, the MSC’s attendees yieldedsomeofMunich’smostcele- deliverenough,andquickenough.”
togetherandoccasionallystruckdeals. militarylore.Itsoonevolvedintoa wereanythingbutlike-minded.In2007, bratedrendezvous,suchasthe2020 Theanswer,saymostofficials,islarge,long-termcon-
Thisyear,however,anydiplomatic transatlantic love-in, where western itwasthevenueforaninfamousspeech meetingbetweenDemocraticsenator tractswithdefencecompanies,withpledgesfromEuro-
overturesbetweenRussiaandtheUS politicians,generalsandspychiefscame byPutindenouncingtheUS-dominated ChrisMurphyandMohammadJavad peangovernmentstokeepbuyingevenwhenpeacecomes
areoutofthequestion.Astheanniver- togethertodisplayaunitedfrontin post-coldwarorder.AyearbeforeRus- Zarif,Iran’sthenforeignminister,which toUkraine.SuchconversationswilldominateMunich,too.
saryofPresidentVladimirPutin’sinva- theirstrugglewithSovietcommunism. siainvadedGeorgia,itmarkedthestart provokedawaveofoutrageinWashing- Estonia’sdefenceministerproposedtopeersthisweek
sionofUkrainefastapproaches,noRus- “Itwasaboutprojectingtheresilien- ofasteepslideineast-westrelations. ton.Murphyjustifiedtheget-together, thatdonorcountriescombinetosigna€4bncontractto
sianofficialshavebeeninvited. ce,strengthandcohesionofthetransat- Thisyear,Munichwillprovidethe at a time when the Donald Trump procure1mnartilleryrounds,asatestcaseforjointpur-
ForattendeestheabsenceofRussia’s lanticalliance,notreallyaboutglobal backdropforanewsetofeast-westten- administrationhadshutdialoguewith chasesthatgivedefencecontractorsthesecuritytoinvest.
foreignminister,SergeiLavrov,longa issues,”saidaseniorGermanofficial. sions:betweentheUSandChina.It Iran,bysaying:“Itisdangerousnotto SevenEuropeancountries,includingtheUK,Norway
fixtureinMunich,willbehardtoover- Afterthecoldwarended,itinvited comesaftertheUSshotdownan talktoyourenemies.” andDenmark,announcedonWednesdayajointlyfunded
look.ButMSCchairChristophHeusgen formerfoesandadoptedanewagenda alleged Chinese spy balloon in Itisthatpotentialforice-breaking £200mnpackageofdirectcontractsbetweenUkraineand
makesnoexcusesforexcludinghim. to take in issues such as climate North American airspace this encountersthatmightbelostiftheMSC westerndefencemanufacturersforsupplies.Natoisnow
InRussia’swaronUkraine,“weare changeandmigration.Now,theMSC month. Organisers hope talks fullyrevertstoitscoldwarroots,fans pushingindividualgovernmentstosignnewcontracts.
facingarupturewithcivilisation,and isgoingbacktoitsroots.Although expectedbetweenChina’sforeign fear.“Thedialoguefunctionattheheart Russia’swareconomyhasbeenrunningforatleasta
wehavetoaccepttheconsequencesof therewillbeleadersfromAsia, ministerWangYiandUScounter- oftheMSCisextremelyimportant,”the year.Europe,meanwhile,isjustgettingintogear.
that”,Heusgensaid.“Noonecanexpect AfricaandLatinAmerica,most partAntonyBlinkenontheside- Germandiplomatsaid.“Youcan’tjust
ustooffer Lavrov, whoisbasically participantsarefromtheUSand linesmightdefusesometension. talktothepeopleyougetonwith.” [email protected]
Spain
Madrid’s low-tax leader under fire amid healthcare squeeze
MAKE A WISE BARNEY JOPSON — MADRID engine”ofSpainand“themostopento Healthcareworkerssayspendingcuts thestrike,saysAyusoisengaginginthe
INVESTMENT The Madrid region’s rightwing leader,
investment”.Sheadded:“Webelievein andalackofstaffhaveburdenedpaedi- “managementofmisery”.
lowtaxes.Andyoudohavetopaytaxes, atriciansandprimarycaredoctorswith Doctorswantlimitsontheirworkload
Subscribe today at Isabel Díaz Ayuso, is facing a backlash
sure.Buttheyhavetobetaxesthatare anunsustainableworkload. andbetterpaytoattractmorestaff,but
ft.com/subscribetoday against her low-tax, frugal spending
notconfiscatory.” Thosegroupshavebeenstrikingsince 11roundsoftalksbetweenhealthcare
policies, which are being blamed for a
Madrid,ruledbytheconservative November,providingaminimumlevel groupsandMadridhaveyieldedno
buckling public health system.
People’spartyfornearly30years,has ofservicethatisonaveragehalftheir signsofadeal.
Ayuso,whoispushingneoliberaleco- cutpersonaltaxationinabidtoattract normalhours.Patientsarebeingoffered Ayusorejectedthesuggestionofa
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Friday 17 February 2023 ★ FINANCIAL TIMES 3
INTERNATIONAL
Balloons and Above the Earth
Altitude (km)
Highest space
Weather balloons and the
Chinese balloon compared
David Malpass
Trump’s pick
secret objects as World Bank
shuttle altitude Weather balloons are
621km 600 released from 900 global
locations twice a day
61m
Up to 2m in diameter, they president to
fill the void in
can expand to up to 6m at
Thermosphere
Mesosphere 6m
altitude
The Chinese balloon was
stand down
bigger, with a payload nearly
one year early
‘forgotten space’
Stratosphere the size of a small airliner
Troposphere
Boeing 737
Contains living AIME WILLIAMS — WASHINGTON
organisms and to scale
weather David Malpass is to step down as World
500 Bank president by the end of June,
Downing of Chinese surveillance craft almost a year before his term expires,
following criticism of its response to
casts light on use of upper stratosphere Typical weather
balloons 32km
climate change under his leadership.
The bank said on Wednesday that Mal-
CLIVE COOKSON AND IAN BOTT tronic intelligence. In contrast to the 30 pass, appointed by former US president
LONDON
quick rise and fall of conventional Donald Trump, had told the board of his
The layer of sky above the cruising weather balloons, larger craft made of decision to step down after four years
height of commercial aircraft and below more durable materials can drift at high “to pursue new challenges”.
satellite orbits was, until recently, gen- altitudes for weeks at a time, as the sus- Current Malpass told CNN yesterday he had
erally regarded to be empty space. pected Chinese spy balloon shot down air-breathing “no regrets”. “I think it’s really impor-
That changed after a Chinese balloon on February 4 demonstrated. aircraft record, tant that institutions have new energy,
ISS orbit 400
drifted across North America 20km The same intelligence-collecting MiG-25 27.5km and that’s it, this is a good time for the
408km
above ground, followed by three more technologies used on satellites were also World Bank to do that,” he said.
mysterious objects with lower altitude available for balloons, said Stilianos In an email to staff, Malpass said his
flight paths, all of which were shot down. Vidalis, deputy head of computer sci- intention to step down by June would
The “forgotten space” between about ence at the University of Hertfordshire. coincide with the end of the bank’s fiscal
15km and 40km above the Earth’s sur- The disadvantage of using a balloon year but the “next few months” would
face — sometimes called near space — for surveillance is that its movements “provide a good opportunity for a
was well suited to longer-lasting surveil- are at the mercy of high-level winds. smooth leadership transition”.
lance balloons, said Professor Alan “The jet stream is well understood so Janet Yellen, US Treasury secretary,
Woodward, a physicist and security their path can be predicted,” said Wood- Recent U-2 US thanked Malpass for his service to the
expert at the University of Surrey. ward. But there has been some specula- shootdowns reconnaissance World Bank and said Washington would
KH-11 spy
“The Chinese are not the only ones tion that China may have miscalculated by US military aircraft 21km put forward a candidate following a
satellite
doing this,” he said. the path of its balloon across the US. Approximately 20 “transparent, merit-based and swift
The US operated a balloon surveil- 300 nomination process”. The US, as the
Communications balloons 300km Chinese
lance programme called Project Gene- balloon Feb 4 World Bank’s largest shareholder, tradi-
trix over the Soviet Union in the 1950s. Google parent Alphabet developed a 20km Cumulonimbus tionally appoints its president.
But spy balloons are not the most sophisticated guidance system for its thunder clouds The US and other big shareholders
common objects in this part of the Loon project, which aimed to provide Up to 18km have pressed the World Bank over the
atmosphere. internet connectivity from high- past year to do more to tackle issues
altitude balloons. F-22 fighter jet including climate change alongside its
Weather and scientific balloons By designing a balloon capable of ris- traditional mandate of tackling poverty.
used in Feb 4
The objects that penetrate the upper ing or falling to catch a favourable wind, balloon shootdown That pressure intensified after Mal-
stratosphere most often are weather the Loon team aimed to “sail the strato- 17.7km pass refused to say whether he believed
balloons carrying instruments called sphere” without propulsion. The project Highest in human-caused climate change at a
radiosondes that transmit readings of was discontinued in 2021 on commer- SpaceShipOne conference in September, despite
pressure, temperature and humidity. cial grounds, although some technology altitude 112km 200 repeated questioning. He later said he
According to the US National Weather was sold for further development and a UFOs Feb 10
had been misunderstood.
Service, weather balloons are released few Loon flights still take place. and Feb 11
Last week, Yellen urged the bank’s
twice a day from almost 900 locations Europe’s aerospace groups are focus- Highest recorded bird leadership to “quickly” put in place
12km altitude, Rüppell's
worldwide — amounting to more than ing on different types of autonomous reforms to free up more money to
600,000 launches a year. high-altitude observation and commu- vulture 11.3km address climate change. Yellen, recently
Helium-filled weather balloons are nications platforms with electric pro- Typical airliner back from a trip to Africa, said yester-
relatively small, starting out at about pulsion. The Stratobus from Thales Ale- altitude 11km day the World Bank should “expand its
2m wide and expanding to 6m as atmos- nia Space is essentially an airship, while 10 vision to include addressing global chal-
pheric pressure falls while they ascend. Zephyr, which Airbus is spinning out lenges” and help lower costs for coun-
After rising for an hour or so, the thin into a separate business, is a drone fly- Mount Everest tries needing funds to do so.
rubber membrane bursts and the radio- ing on wings made of solar panels. 8
8.8km Reform of multilateral development
sonde descends on a small parachute. New Shepard lenders, including the World Bank, has
Each year about 20 per cent of US ‘Sky trash’ and UFOs rocket 107km 100 risen on the global policy agenda as
weather balloons are later found on the Some reporting has recently used the Kármán line* wealthy countries face urgent questions
ground and returned for re-use. term “sky trash” to describe the accu- 100km UFO Feb 12 about who pays for the catastrophic
Giles Harrison, professor of atmos- mulation of objects over our heads. But 6km impact of hurricanes, floods and wild-
pheric physics at the University of Read- many scientists say the phrase is mis- Most meteors fires.
ing, said weather balloons were some- leading because it wrongly suggests an burn up at Smaller and less wealthy nations have
times enhanced for other scientific pur- upper atmosphere full of discarded 50km-85km pushed for a UN coalition to secure
poses. “We have developed ways of junk. The man-made material up there funds to help them tackle the effects of
using them for measuring turbu- is likely to still be functional, though its global warming without increasing their
lence . . . and electric charge in clouds function may be secret. debt burdens to crippling levels.
and deployed them during the 2010 vol- “To call it trash is an exaggeration,” The US has led calls from developed
canic ash crisis,” he added. said Don Pollacco, a physics professor countries to reform the World Bank and
and astronomer at Warwick university. other financing institutions. Last year,
Surveillance balloons He has been asked whether any of the Yellen asked the bank for an “evolution
Surveillance balloons are often unidentified objects might have come road map” to show how it would incor-
* FAI-defined boundary between Earth’s atmosphere and space
equipped to image the ground below from an alien culture. “The likelihood of Sources: Nasa; USAF; US defense department; National Weather Service; StratoStar; FAI; FT research
porate climate and pandemic prepared-
and pick up communications and elec- that is about zero per cent,” he said. ness into its operating models.
US federal court. Drugs war Oligarch wealth
Trial lays bare cross-border scourge of Mexico cartels Swiss rule out confiscating
assets of sanctioned Russians
who made millions of dollars from the hope of receiving reduced sentences, or most wanted man, through the centre of
Former law enforcement chief cartel. to get their families to the US. Mexico City under the noses of police in
accused of accepting bribes During the trial, held under height- Closing arguments took place in 2001, Zambada said. SAM JONES — ZURICH to confiscate assets of sanctioned Rus-
SAM FLEMING — BRUSSELS
ened security in a federal courthouse, Brooklyn on Wednesday, and jurors Tracks were even laid between a car- sian oligarchs. The EU wants to make
in return for protecting gangs witnesses said they made or saw pay- have begun deliberating on García tel warehouse and Mexico’s largest train Switzerland has said it is legally impos- sanctions evasion a crime across the EU,
ments to García Luna, one of the most Luna’s fate. If convicted on all counts, he station, prosecutors said, providing a sible for it to confiscate the assets of which would facilitate the seizure of
CHRISTINE MURRAY — MEXICO CITY senior in a long line of Mexican officials faces a life sentence. base to traffic cocaine into the US. sanctioned Russians held in the coun- assets.
JOE MILLER — NEW YORK accused of colluding with traffickers. The US and Mexico have often “These witnesses are describing the try, dealing a blow to European efforts The heads of EU institutions have also
Sinaloa members said they spent clashed as they navigate one of the stuff that you see in gangster-type mov- to use that wealth for Ukrainian post- called for legal options in using Russia’s
In late 2006, Oscar Paredes, a drug car- about $1.5mn a month bribing govern- world’s most intense security relation- ies,” said Andrew Rudman, director of war reconstruction. wealth for Ukraine’s reconstruction.
tel lawyer, walked into a glitzy French ment and law enforcement officials, a ships. US officials have contended with the Wilson Center’s Mexico Institute. Russia said last year central bank sanc-
restaurant in the centre of Mexico City fraction of the roughly $3bn the cartel systemic corruption in Mexico, while “Even if you had both governments Until now, Bern has moved in line with tions imposed by the EU and its allies
carrying a briefcase and duffel bag con- reportedly made in annual profits from Mexican officials say they have been fully, fully, fully, engaged and in lock- the EU in freezing the assets of high- had frozen about $300bn out of its for-
taining $3mn in cash. Fifteen minutes trafficking cocaine to American cities. unfairly blamed for a problem created step, it doesn’t just go away.” profile Russians linked to the regime of eign exchange reserves.
later, those bags were allegedly in the As a result, the cartel became the by demand for drugs and free-flowing Under former president Felipe Cal- President Vladimir Putin. Switzerland Charles Michel, European Council
possession of Genaro García Luna, then “FedEx of cocaine”, US prosecutors said, guns north of the border. derón, who initiated a combative holds more than SFr7.5bn ($8.1bn) in president, who represents the bloc’s 27
head of Mexico’s FBI and soon to be the using trains, ships, containers and sub- During what the US government approach to drug traffickers in 2006, frozen Russian assets, according to its national leaders, told the Financial
country’s minister for public security. marines to flood America with tens of called the cartel’s “golden years”, from Mexico’s murder rate exploded. It is ministry of finance. Times in January that he wanted to
In exchange for the cash, García Luna, thousands of kilogrammes of the drug. 2000 to 2006, prosecutors alleged that estimated that more than 350,000 peo- But as calls in Europe intensify for the explore the idea of actively managing
who would later meet senior US officials Lawyers for García Luna, who García Luna had control of the country’s ple have been killed since 2006 and seizure of Russian wealth held abroad to the Russian central bank’s frozen assets
such as Hillary Clinton as the figurehead pleaded not guilty, said the witnesses highways, airports and ports, and that more than 100,000 are missing. help fund Ukraine’s defence and recon- to generate profits. These, he said, could
of Mexico’s war on drugs, pledged to were people responsible for “horrific his agency would tip off cartel opera- The war on drugs itself has shifted, as struction, Switzerland has made clear then be earmarked for reconstruction
protect the notorious Sinaloa cartel and crimes” such as murder and torture, tives about potential raids. The cartel Mexico has evolved from serving prima- any permanent moves against assets efforts, calling the matter “a question of
“make sure there were no investiga- who were now “testifying to save them- was able to transport Guzmán, then an rily as a route for smuggling cocaine held in its borders would be illegal. justice and fairness”.
tions”, Jesús “El Rey” Zambada, the selves”, and were co-operating in the escaped convict and Latin America’s from South America to also producing “The expropriation of private assets The underlying assets would be
criminal organisation’s one-time synthetic opioids such as fentanyl. In of lawful origin without compensation is returned to the Russian state if a peace
accountant, told a Brooklyn federal the US, there have been more than not permissible under Swiss law,” the agreement were signed, according to a
court this week. 100,000 deaths involving synthetic opi- government said yesterday. draft proposal by the European Com-
Testimony from the four-week trial, oids in the 12 months to August. “The confiscation of frozen private mission, which stressed the need for co-
in which García Luna is facing five crim- As in the past though, Mexican offi- assets is inconsistent with the constitu- ordinated action at an international
inal counts related to drug trafficking, cials are much more likely to end up on tion,” it added, and “violates Switzer- level.
has highlighted failures on both sides of trial in the US than at home. land’s international commitments.” EU officials have acknowledged the
the border to stop the violence caused Alejandro Hope, a former Mexican The most recent report by Switzer- idea would be complicated under inter-
by the illegal drug trade and shown how intelligence official who is now a secu- land’s state secretariat for economic national law. Some argue it could trigger
the cartel expanded its operations with rity consultant, said US prosecutions affairs showed that by June, the entity financial stability risks by raising ques-
impunity, allegedly with help from high- focus on international trafficking, was notified of SFr46.1bn in deposits tions about the safe-asset status of for-
ranking Mexican officials. rather than violent crimes such as mur- held by Russian nationals and legal enti- eign reserves.
Building on evidence that led to the der, and often end with plea deals, limit- ties at Swiss banks. As of November 25, The EU set up a working group to
conviction of Joaquín “El Chapo” Guz- ing their usefulness as deterrents. the total of frozen financial assets explore its legal options this week. It
mán, the former Sinaloa leader, in 2019, “We’re talking about tens if not thou- amounted to SFr7.5bn, as well as 15 aims to inform European leaders at a
US prosecutors have characterised sands of murders and none of them are blocked properties in six Swiss cantons. summit next month.
García Luna as a “smart, ambitious, going to get a single punishment for The Swiss decision comes as EU capi- Additional reporting by Daria Mosolova in
powerful, and self-serving politician” An artist’s impression of Genaro García Luna, right, at his trial — Jane Rosenberg/Reuters those murders,” he said. tals are exploring ways to make it easier London and Andy Bounds in Brussels
4 ★ FINANCIAL TIMES Friday 17 February 2023
INTERNATIONAL
Eurozone Inflation index
US producer
ECB doves fear rates impact on growth price data
Policymakers warn of fall another half point in March and by an
unspecified amount in May. Its bench-
among its rate-setters over how much
further it should raise borrowing costs
point the downward pressure from fall-
ing gas and electricity prices would
urged it to keep increasing borrowing
costs at a pace of half a point for several
puts pressure
in energy prices leading
to ‘rapid’ inflation drop
mark deposit rate is now 2.5 per cent.
However, governing council doves are
given the recent falls in inflation.
Inflation has slipped from a high of
more than offset any residual upward
pressure still to feed through from last
more months. Joachim Nagel, Ger-
many’s central bank president, said in a
on Fed to stay
MARTIN ARNOLD — LONDON
increasingly concerned that the pace of
rate rises risks wiping out growth and
exacerbating risks to the stability of the
10.6 per cent in the autumn to 8.5 per
cent last month. However, core inflation
year’s energy shock.
Panetta said the ECB needed to move
in a “non-mechanistic way” as he
speech last week that it would be a “car-
dinal sin” to stop raising rates too early
because there was a “great danger” of
the course
The European Central Bank should shift financial system. They are pushing for warned that “what we do not want is to inflation staying too high.
to smaller rate increases soon or risk the central bank to switch to smaller
‘What we do not want drive like crazy at night with our head- Other central banks, including the US ALEXANDRA WHITE — NEW YORK
stamping out growth, one of its execu- rate rises — or pause tightening alto- is to drive like crazy lights turned off”. Investors are pricing Federal Reserve, have slowed the pace STEFF CHÁVEZ — CHICAGO
tive board members said yesterday. gether — in May and beyond. in a further rise in the ECB deposit rate of rate rises to a quarter point on signs
Fabio Panetta urged his fellow “To move in small steps is not to move
at night with our to a peak of 3.5 per cent. inflationary pressures are dissipating.
Producer prices in the US rose more
than expected in January, reinforcing
rate-setters to move in “small steps” less,” Panetta told an event in London, headlights turned off ’ “I would agree with the flock of doves “The cost of going too high could be concerns about the stickiness of infla-
after raising its key policy rate by half a saying the decline in energy prices, if at the ECB that, if it raises rates above greater in the euro area because of the tion that may prompt the Federal
point at its past two meetings, saying maintained, would mean inflation fall- remains at record high levels of 5.2 per 3.5 per cent, then it would almost guar- way the economy is functioning,” Pan- Reserve to keep interest rates higher
falling energy prices could lead to a ing to as low as 3 per cent later this year. cent. antee the economy slides into a deep etta said, pointing out the bloc’s econ- for longer to cool the economy.
“rapid” decline in eurozone inflation “We face so much uncertainty in both Some rate-setters, such as Spain cen- recession without almost any benefit in omy was less dynamic than the US.
this year to levels close to the central directions, I would consider it unwise to tral bank governor Pablo Hernández de terms of fighting inflation,” said Daleep If the Fed raised rates too high, it The producer price index, which is often
bank’s target of 2 per cent. move very fast.” Cos, think the core rate is also likely to Singh, chief economist at US investor could “easily adjust” without causing regarded as a leading indicator of where
The ECB has raised rates by 3 percent- The comments by Panetta, one of the fall in the coming months. In a speech PGIM Fixed Income. too much damage to growth because of consumer inflation is headed in several
age points since July 2022 and has sig- most dovish members of the ECB board, earlier this week, he said the ECB had However, some hawkish members of the greater strength of its underlying months, rose 0.7 per cent last month
nalled it will increase borrowing costs by indicate there are widening divisions reached “a crossroads” from which its rate-setting governing council have economy, he added. from December, the US Bureau of Labor
Statistics said yesterday. That surpassed
economists’ expectations for a 0.4 per
cent increase.
Japan. Monetary policy On an annual basis, the PPI, which
tracks prices paid to US producers for
goods and services, was up 6 per cent
Ueda prepares to take BoJ on ‘thorny path’ from a year ago. That marked a modera-
tion from 6.5 per cent in December, but
came in well above market forecasts for
5.4 per cent.
The PPI figures come days after con-
cost of bloating its balance sheet with sumer price data showed inflation
New governor hopes to end more than $300bn in government bond slowed only slightly in January. Recent
purchases. The BoJ also holds more than jobs growth and retail sales reports have
decades of ultra-loose regime half of all locally listed exchange traded also remained resilient despite the Fed’s
without rattling markets fund assets. efforts to cool the economy with high
Investors are betting the BoJ will be interest rates.
KANA INAGAKI — TOKYO forced to abandon the yield curve con- Last month, a blockbuster non-farm
trol policy as Japan’s core inflation rate, payrolls report showed the US economy
In his final appearance at the Bank of which excludes volatile food prices, has added more than half a million jobs in
Japan in April 2005, Kazuo Ueda said he risen to a 41-year high of 4 per cent. January and the jobless rate fell to a 53-
considered himself lucky to have been a Atago said he expected the BoJ’s first year-low of 3.4 per cent.
board member at “an extraordinarily step to be shortening the target duration Fed chair Jay Powell then warned
difficult time”, as the economy battled a of the YCC policy to three years, from 10 rates may rise more than investors exp-
financial crisis and persistent deflation. years. Goldman Sachs has forecast the ect as the firm labour market could
Now about to return almost two dec- YCC shortening to five years in the sec- mean it takes longer for the Fed to hit its
ades later, Ueda, 71, faces an equally ond quarter of 2023. 2 per cent target.
daunting but different challenge: pre- Kato said the measure could be US stock and government bond mar-
paring to lead a pivot from the long- dropped altogether by summer while kets sold off yesterday following the PPI
standing ultra-loose monetary regime maintaining its quantitative easing with data, as well as figures that showed the
that has left the Bank of Japan as the last large purchases of JGBs until markets number of Americans filing for jobless
major central bank clinging to negative stabilised. He also predicted the BoJ claims last week remained near histori-
interest rates, while global peers tighten could start shifting its ETFs to a separate cal lows.
policy to rein in soaring inflation. entity by the second half of Ueda’s term, The S&P 500 was down 0.6 per cent in
The economist, who has been nomi- which could allow it to try an orderly morning trading, having managed on
nated as the next governor, will seek to unwinding without upsetting markets. Wednesday to take stronger than fore-
slowly transition towards interest rate Ueda has warned against premature cast retail sales data in its stride. The
normalisation under scrutiny from glo- tightening, noting that Japan’s economy yield on the interest rate-sensitive two-
bal investors. Any missteps by the BoJ, was not yet in a state where the central year US Treasury rose 0.02 percentage
whose policies to hold down interest bank’s inflation target of 2 per cent points to 4.65 per cent, leaving it close to
rates have left it holding more than half could be sustainably maintained. a three-month high struck in the previ-
of Japan’s government bond market, “The BoJ must not rush to radically ous session.
could destabilise financial markets. change the way it has been doing things, The combination of the producer
“The new BoJ leadership faces an and I don’t think that would happen,” price and consumer price inflation rep-
extremely thorny path ahead,” said Kengo Sakurada, chief executive of orts this week “suggests the easy battles
Izuru Kato, a BoJ watcher and chief Sompo Holdings and chair of the Japan against price pressures have been won”,
economist at Totan Research. “There Association of Corporate Executives, said John Lynch, chief investment
will be no easy exit. It will be extremely said on Wednesday. officer at Comerica Wealth Manage-
difficult to tackle the BoJ’s balance Another person close to the BoJ sug- ment.
sheet, which has recklessly expanded.” gested Ueda was unlikely to embark on “The move from 9 per cent to 6 per
Prime Minister Fumio Kishida is bet- a major policy change until the bank cent will prove to be much less challeng-
ting that Ueda’s monetary policy exper- determined whether this year’s wage ing than the journey from 6 per cent to
tise will allow him to chart a gradual exit talks would flow into pay rises next year. 3 per cent,” Lynch said of price inflation
from the BoJ’s unprecedented quantita- But with an uncertain global eco- levels.
tive easing measures. nor a hawk. Analysts pointed to his vot- 1990s, and opposed lifting that policy in Taking stock: nomic outlook, Atago said the BoJ might Adding to evidence about the strength
“I decided that Mr Kazuo Ueda was ing record on the BoJ board, where he 2000, saying he wanted to wait until a security officer need to entertain additional easing if of the domestic labour market, new
the best fit since he is an internationally served from 1998-2005, to suggest a stock markets had stabilised. patrols around inflation falls sharply and growth slows. applications for state unemployment
well-known economist with deep finan- pragmatic approach to decision-making Toshihiko Fukui, BoJ governor when the Bank of “For the BoJ, it’s extremely important aid, a proxy for lay-offs, totalled
cial knowledge of both theory and prac- that drew more on market and eco- Ueda stepped down, praised the aca- Japan in Tokyo. to consider not only normalisation but 194,000 in the week ending February 11
tice,” Kishida told a parliamentary nomic conditions than ideology. demic at the time as a “pillar of logic” Inset, Kazuo also to leave options open,” he said. on a seasonally adjusted basis. That was
committee on Wednesday, in his first “Mr Ueda knows theory very who understood “central bank spirit”. Ueda As Ueda prepares to become the first down from the revised 195,000 the pre-
Yuichi Yamazaki/AFP/Getty
public comments on the nomina- well, but he also places importance The business community has urged Images
outsider at the helm of the BoJ, he will be vious week, the labour department said
tion. on markets,” said Nobuyasu the BoJ not to pivot drastically from its supported by deputy governors with yesterday.
If Ueda is approved by Japan’s Diet Atago, a former BoJ official who is easing, fearing currency volatility, while deep knowledge of financial markets. Weekly jobless claims have remained
in coming weeks, he will take over in now chief economist at Ichiyoshi calling on it to unwind record purchases On Tuesday, Tokyo also named Ryozo below 200,000 since mid-January. The
April from Haruhiko Kuroda, who has Securities. He described the incom- of government bonds to keep yields low. Himino, a former commissioner of the last time that applications remained
fought persistent low inflation with agg- ing governor as “an ideas man”. In December, the BoJ stunned inves- Financial Services Agency, and Shinichi below that threshold for such an
ressive monetary easing and stimulus. “He will be very practical and decide tors by announcing it would allow 10- Uchida, a BoJ executive who had a key extended period was in April 2022.
But the direction Ueda will take on monetary policy based on actual eco- year JGB yields to fluctuate by 0.5 per- role in shaping monetary policy, as dep- Michelle Bowman, Fed governor, said
remains a major unknown. In terms of nomic conditions,” Atago added. centage points above or below its target uty governors. All are English speakers last week that even though some com-
orientation, Ueda, professor emeritus of Ueda is known for helping introduce of zero, widening the previous band of with ties to the financial community. ponents of inflation had moderated,
the University of Tokyo with a PhD in forward guidance when the BoJ adopted 0.25 percentage points. It has since Additional reporting by Eri Sugiura in continued labour market tightness was
economics from MIT, is neither a dove its zero-interest rate policy in the late maintained its target ceiling, but at a Tokyo putting upward pressure on inflation.
Borrowing Development bank
US Congress warned over debt ceiling default European lender fears lingering high inflation
LAUREN FEDOR — WASHINGTON ing limit. Yellen has previously said it is delivered a speech accusing the Repub- RAPHAEL MINDER — WARSAW energy costs. While the EBRD does not enced by fears of lingering inflation,
“unlikely” the government will run out licans of pushing proposals that would publish its own inflation estimates, chief demanding high wage increases and
The US government risks an unprece- Painful memories of hyperinflation in
of money before “early June”, although add $3tn to the national debt over the economist Beata Javorcik said many of continuing to raise prices.
dented default as soon as July if the the 1990s mean steep price rises are set
independent economists have offered a next decade, and insisting that his forth- those forecasts were “optimistic”. “If you experience hyperinflation in
debt ceiling is not raised, the Congres- to endure for longer than many expect
range of estimates about when the US coming budget would cut the deficit by The IMF said in October it expected your lifetime, the memory remains with
sional Budget Office has warned. in central and eastern Europe, the chief
will run up against a possible default. $2tn over the same period. inflation in all EBRD regions to decline you for ever,” she said.
economist of the European Bank for
It comes amid a war of words between The CBO warned that if the debt limit Kevin McCarthy, Republican Speaker to 7 per cent by the end of 2023 and by Javorcik also questioned the commu-
Reconstruction and Development has
the White House and congressional was not raised or suspended, and the of the House of Representatives, who an average of 10 per cent throughout nication skills of the region’s central
warned.
Republicans on the issue. government could not pay its obliga- has come under pressure to lay out his bankers. “Interest rates are the main
The CBO, a non-partisan government tions in full, the Treasury would either own budget proposal, accused Demo- The lender said in its latest economic tool in fighting inflation, but the second
agency that analyses fiscal policy for need to delay making some payments, crats of “reckless spending” that was forecasts yesterday that the economies
‘If you experience [most important] tool is communica-
Congress, projected on Wednesday that default on its debt obligations, or both. “jeopardising our economy”, adding: of central Europe and the Baltic states hyperinflation in your tion with the public and influencing
if the debt ceiling, the legal limit on the The Biden White House has called on “That’s why we must negotiate a respon- would grow by an average of just 0.6 per expectations.”
government’s borrowing, is unchanged, Congress to lift the debt ceiling without sible debt limit increase that gets our fis- cent this year. Growth would also
lifetime, the memory Since Russia’s attack on Ukraine trig-
its “ability to borrow using extraordi- conditions, but Republican lawmakers cal house back in order.” remain weak in eastern Europe, at just remains with you for ever’ gered a surge in energy and food prices a
nary measures will be exhausted have sought to tie raising it to sweeping The CBO issued its warning alongside 1.6 per cent, and in south-east European year ago, central and eastern European
between July and September 2023”. budget cuts. a report on the federal budget and eco- EU members, at 1.5 per cent. this year. “If you look at previous epi- countries have struggled with inflation
The exact timing depends in part on Each side has accused the other of act- nomic outlook for the next decade. The Countries in the region have been sodes of [high] inflation, they have at levels not seen since the 1990s.
income tax receipts due in April. The ing irresponsibly, raising fears of a stale- watchdog projected that the federal among the worst affected by the impact taken longer [to dissipate] than what Polish inflation increased to 17.2 per
CBO noted that if these receipts fell mate in a sharply divided Washington budget deficit would total $1.4tn this of Russia’s invasion of Ukraine, with the IMF is expecting,” Javorcik said. cent last month from 16.6 per cent in
short of current estimates, the Treasury that could have wide-reaching reper- year, with annual deficits averaging price rises way above the EU average. She added that the scars left by the December, data on Wednesday found,
could “run out of funds” before July. cussions for markets and investors. $2tn over the next decade. High inflation, and central banks’ economic upheaval of the early 1990s in although the figure was below expecta-
Treasury secretary Janet Yellen told Lawmakers narrowly averted a default The CBO said the “cumulative deficit” attempts to combat it with big interest her native Poland and other former tions of a sharper rise. “The odds of
Congress last month that the depart- in 2011, but only after an S&P down- over the coming decade would be $3tn rate increases, have weighed on growth. communist countries of the region cre- inflation falling to single-digit levels by
ment had begun taking “extraordinary grade to the government’s creditworthi- higher than previously forecast, in large However, many economists expect ated the risk of a “self-fulfilling proph- the end of the year have increased sub-
measures” to meet its obligations after ness and a market rollercoaster. part due to recent legislation and the ris- inflation to fall sharply this year on the ecy”. In such a scenario, homeowners stantially,” said Adam Antoniak, an
running up against the $31.4tn borrow- On Wednesday, President Joe Biden ing cost of borrowing. back of the recent slowdown in global and farmers would continue to be influ- economist at ING Bank.
Friday 17 February 2023 ★ FINANCIAL TIMES 5
Crypto heat Digital assets groups say a series of beefed-up enforcement actions are pushing the sector out of the US y MARKETS
StanChart Top of the K-pops Hybe and Kakao tussle for
control of South Korea’s SM Entertainment
Adani halts
$847mn deal
chief vows to for India
power plant
fend off any CHLOE CORNISH — MUMBAI
Gautam Adani’s electricity unit is halt-
ing an $847mn acquisition of a coal-
takeover bids fired power station in India in a sign
that his business empire is slowing
down spending following a short seller
attack.
The Indian billionaire’s conglomerate,
3 Bank woos investors with buyback which includes the country’s biggest pri-
vate thermal power producer, has been
3 Talk of interest by Abu Dhabi rival roiled by a stock market rout triggered
by New York-based short seller Hinden-
burg Research, which last month
KAYE WIGGINS AND HUDSON LOCKETT discount to the book value. It has a mar- released a report accusing the group of
HONG KONG ket capitalisation of $26bn and total stock manipulation and fraud.
STEPHEN MORRIS — LONDON
assets of $820bn. Adani has strongly denied the allega-
Standard Chartered chief executive Bill Winters was forced to dramatically tions and insisted that the group’s debt
Winters has unveiled a $1bn share buy- shrink the balance sheet and rein in pile is manageable.
back and vowed his bank can succeed risk-taking after inheriting vast losses But it has so far failed to stop the
on its own as it seeks to ward off a poten- and compliance issues and has since yields on its bonds spiking and the com-
tial First Abu Dhabi Bank takeover. faced an uphill challenge to restore pany’s listed shares plummeting — with
Yesterday, the UK-based bank income growth and profitability. those of flagship Adani Enterprises tum-
announced that fourth-quarter pre-tax The StanChart chief said the more bling to lows of Rs1,017 from highs of
profits had swung to $123mn, from a generous buyback and final dividend of more than Rs4,000 in December.
loss of $208mn a year ago. While this 14 cents a share announced yesterday — The Adani Group did not respond to a
missed analysts’ expectations for up from 9 cents in 2021 — would take request for comment.
$571mn because of a sharp rise in credit shareholder distributions since the start Widely regarded as an ally of
losses in China, the shares rose 3.6 per of 2022 to more than half of the $5bn Narendra Modi, India’s prime minister,
cent on the bigger than expected buy- target it set itself to reach by 2024. The Adani presented himself as the architect
back and more generous dividend. package represents a concerted effort to Hybe’s big stars are BTS, but its band members must do military service in the coming years — Brendan McDermid/Reuters of logistics networks and power genera-
win over shareholders in case FAB, or a tion that formed the backbone of India’s
rival bidder, makes a formal offer. SONG JUNG-A AND CHRISTIAN DAVIES the emergence of boy band BTS, led by Seoul-based activist fund Align growing economy.
‘We are very happy to be Winters said he had no plans to step SEOUL
whose ascent to global stardom over Partners to impose an independent But a retrenchment would mark a
here accomplishing our down soon. “I would love to see this Two of South Korea’s biggest enter- the past decade has helped make auditor on SM and to increase the change in strategy for Adani, 60, who
transformation through,” he said. Hybe the sector’s dominant player. number of outside directors. built his conglomerate during a debt-
mission all by ourselves’ “Thankfully, we are in good shape and
tainment companies have locked
Hybe’s takeover attempt comes as it Align founder Changhwan Lee, who fuelled expansion, adding revenues by
horns for control of K-pop jugger-
Bill Winters, chief executive energy levels are high.” naut SM Entertainment. contemplates life without BTS. All has been nominated as a board mem- buying or building new projects ranging
He received a 16 per cent rise in total seven members are obliged to com- ber by SM’s management, said Hybe’s from solar power to airports.
The earnings were the first since pay, taking his package to £5.5mn. The Market leader Hybe and the enter- plete military service over the next offer price was too low, adding that its Adani Power in August agreed to buy
reports that FAB had been considering a bank said this reflected the “improved tainment subsidiary of Korean tech couple of years. acquisition of SM could raise antitrust DB Power, a company that owns a profit-
bid for the emerging markets lender. performance achieved”. giant Kakao have both announced “For Hybe, acquiring SM can help it issues. SM’s management has able coal-fired power plant in the Indian
While FAB has said it is no longer pursu- In the final three months of 2022, deals to buy stakes in SM, as the grip pick up the slack amid BTS’s hiatus,” expressed its opposition to Hybe’s state of Chhattisgarh, and its parent
ing a deal — blocking it from making a there were setbacks for StanChart’s of its septuagenarian founder Lee said Park Seong-guk, an analyst at takeover attempt. company Diliigent Power Private.
formal approach for six months — sev- wealth management business, where Soo-man weakens following a cam- Kyobo Securities. “Hybe can increase Last week, Lee Soo-man and Hybe The Rs70bn ($847mn) cash deal,
eral people close to the lender told the growth has been a priority. Income from paign by activist shareholders. its operating profit by 50 per cent by chair Bang Si-hyuk issued a joint which was approved by India’s competi-
Financial Times the deal could be re- the division fell 19 per cent in the last Last week, Hybe, the agency behind acquiring SM.” Park added: “For statement promising to grow both tion regulator in September, had an end-
vived when the deadline expires in July. quarter of 2022, which the bank blamed K-pop sensation BTS, said it would Kakao, it is more important to take companies so as to “enhance K-pop’s of-October deadline for completion,
That increases pressure on Winters, on “risk-averse customer sentiment and buy a 14.8 per cent stake from Lee and over SM because it will be the best way global competitiveness” and to pur- which the companies then extended
now in his eighth year in charge, to the impact of Covid-19 restrictions”. offered to buy another 25 per cent to enrich its content quickly ahead of sue Lee Soo-man’s vision of establish- four times.
prove to shareholders that StanChart But Standard Chartered said China’s from minority shareholders for a total any potential listing.” ing K-pop in the metaverse. But on Wednesday, the latest comple-
can grow as a standalone entity. reopening should help its performance of Won1.14tn ($900mn). That came Yesterday, Hybe proposed seven Kyobo’s Park said: “Lee Soo-man tion deadline, Adani Power said the par-
“We are very happy to be here accom- and it was optimistic about Asian econo- days after Kakao Entertainment candidates for SM’s board and an elec- wants Hybe to win because he ties were no longer extending the deal’s
plishing our mission all by ourselves,” mies, where it makes most of its money, agreed to buy a 9.05 per cent stake in tronic voting system for minority believes he would still be able to pro- time limit.
Winters said of the reported interest. because of rising rates and growth. SM through a rights offering and con- shareholders, amid longstanding duce some music overseas for SM In quarterly earnings announcements
“None of us wants to be distracted with Return on tangible equity, a measure vertible shares. shareholder concerns about Lee Soo- under Hybe’s control.” last week, several Adani portfolio com-
what at this point are just stories,” he of profitability, would approach 10 per A rally in SM shares this week took man’s grip over the K-pop agency. The Albert Yong, managing partner at panies said they would be scaling back
added, saying that StanChart had “had cent in 2023 and exceed 11 per cent next them above Hybe’s offer price of impresario, a former folk singer who Seoul-based hedge fund Petra Capital capital expenditure for the financial
no engagement and have not solicited year, it estimated. About half of the Won120,000 per share. Analysts see studied computer engineering in Cali- Management, said SM’s annual meet- year starting in April.
engagement from anyone”. lender’s income growth came from the the bidding war intensifying. fornia, owns 18.4 per cent of SM ing next month would be crucial. “We will not make new commitments
Since he took over in June 2015, Stan- effect of higher interest rates, chief The K-pop industry had been domi- Entertainment but holds no formal “The AGM will be a watershed until we settle this volatility period,”
Chart’s shares have fallen about a fifth, financial officer Andy Halford said. nated by three music agencies — SM, position within the company. moment for SM. Hybe seems to be in a said Adani Group chief financial officer
leaving it trading at a steep 56 per cent See Lex JYP and YG Entertainment — before Hybe’s proposal follows a campaign good position to win the battle.” Jugeshinder Singh on an analyst call.
Advanced chips will be key weapons in war of the AI world Businesses
For Sale
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in high demand, benefiting Nvidia and, ers, the AI technique behind recent big
INSIDE BUSINESS to a lesser extent, AMD (whose shares advances in language and vision mod-
Business Services,
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are up 30 per cent this year). Besides the els. For designers of ASICs, changes in Runs Daily
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Waters provide a useful answer.
Until now, AI inferencing has been a
the development costs.
But the competition is about to get
healthy market for companies such as more fierce. Microsoft’s success in har- Contracts & Tenders
A
Intel that make CPUs (processors that nessing OpenAI research to take an
can handle a wider range of tasks but are early lead in generative AI owes a lot to
s an all-out war for AI domi- less efficient to run). But the AI models the specialised hardware it has built to
nance breaks out in the tech used in generative systems are likely to run the OpenAI models. These are
industry, Wall Street has be too large for CPUs, requiring more based on GPUs, but the chip industry
placed an early bet on who powerful GPUs to handle this task, has been rife with speculation that the
the biggest winners will be: according to Karl Freund at Cambrian software giant is now designing its own
the companies that make the weapons AI Research. AI accelerators.
that will be used by all combatants. That Five years ago, it was far from certain If it does, it certainly won’t be alone.
means, specifically, the advanced chips that Nvidia would be in this position. Google decided eight years ago to design
needed for “generative AI” systems such With the computational demands from its own chips, known as tensor process-
as the ChatGPT chatbot and image- machine learning ing units, or TPUs, to handle its most
generating systems such as Dall-E. rising exponen- If the AI market ends up intensive AI work. Amazon and Meta
And investors are not betting on just tially, a spate of have followed. The idea of transformers
any weapon maker. Shares in Nvidia, start-ups emerged in the hands of a small originated at Google, suggesting that it,
whose graphical processing units — or to make special- number of tech giants, at least, will have optimised its latest
GPUs — dominate the market for train- ised AI “accelera- chips to work with the new AI models.
ing large AI models, have surged 55 per tors”. These so- Nvidia’s long-term Another threat could come from
cent this year. They have also doubled called ASICs — prospects will be crimped OpenAI itself. The research company
since October, when Nvidia was under a application-spe- behind ChatGPT has developed its own
cloud from a combination of the crypto cific integrated circuits, designed to per- software, called Triton, to help develop-
bust (its chips were widely used by form just one task but in the most effi- ers run their neural networks on GPUs.
crypto miners), a collapse in PC sales cient way — suggested a better way to That could reduce the need for Nvidia’s
and a badly managed product transition handle an intensive data-crunching Cuda — one step towards turning its
in data centre chips. operation. chips into a commodity and giving
A “picks and shovels” investment Yet predictions that GPUs would fail developers such as OpenAI the chance
strategy makes sense when it is still hard to match this purpose-built hardware to deploy their models on any hardware.
to tell how a new technology will play have proved wrong and Nvidia remains If the AI market ends up in the hands
out. The Big Tech companies are gearing on top. That owes much to its Cuda soft- of a small number of giant tech compa-
up to wield expensive new AI systems ware, which is used for running applica- nies, each with ample economic incen-
against each other with no clear sign yet tions on the company’s GPUs, tying tive to design their own specialised
of how to gain a lasting edge. The one developers to Nvidia chips and reducing chips, Nvidia’s long-term prospects will
sure thing is that a lot of advanced silicon the incentive to buy from AMD. be crimped. But it has defied doubters
will be deployed and energy consumed. Nvidia also has a new product hitting before and, for now, is well placed for
But what type of silicon will it be — and the market at the right time, in the form the tech world’s latest bout of AI mania.
who will be best placed to supply it? of its new H100 chip. This has been spe-
It seems safe to say that GPUs will be cifically designed to handle transform- [email protected]
6 ★ FINANCIAL TIMES Friday 17 February 2023
COMPANIES & MARKETS
Financials Financials
Brewing clans
China’s top tech dealmaker disappears pump €400mn
into Tikehau’s
‘Unavailability’ of founder
Bao leaves the investment
His disappearance comes as Beijing
has appeared to ease its crackdown on
began in September when the group’s
president, Cong Lin, was taken away by
being caught up in corruption investiga-
tions in the mainland.
Bao is renowned for his dedication
and personal touch as he wrangles growth effort
the country’s tech companies which had the authorities, according to Caixin. Mao Xiaofeng, president of Minsheng financing for the country’s hottest start-
bank he leads in crisis battered China Renaissance’s business. People close to Bao said his absence Bank, disappeared in 2015 and was held ups or cajoles parties into a deal in
China Renaissance said in a filing to was probably linked to Cong, adding for 21 months before being released on China’s tech scene. HARRIET AGNEW — LONDON
SARAH WHITE — PARIS
RYAN MCMORROW — BEIJING the Hong Stock Exchange late yesterday bail amid a corruption probe at the He closed the merger of food delivery JAMES FONTANELLA-KHAN — NEW YORK
that it had “been unable to contact Mr bank, according to media reports. group Meituan with restaurant rating
China’s top tech dealmaker, Bao Fan, Bao Fan” but was not aware of “any
It is speculated the absence Yim Fung, head of broker Guotai platform Dianping by locking both sides France’s Tikehau Capital has secured
has gone missing, according to his information that indicates that Mr Bao’s is linked to the president of Junan International, was detained in in a Beijing hotel room for a day. China €400mn in backing from two of the
group, China Renaissance, leaving one unavailability is or might be related to 2015 and released five weeks later Renaissance later helped the merged founding families of beer group
of the country’s leading investment the business”.
the business, taken away by after helping authorities with an company list in Hong Kong. Anheuser-Busch InBev to help fuel the
banks in turmoil. The company said its executive com- authorities in September investigation. Bao holds a near-50 per cent stake in next stage of the €38bn alternatives
Bao founded China Renaissance in mittee would manage day-to-day oper- Since coming to power a decade China Renaissance, which has a manager’s international expansion.
2005 after stints at Morgan Stanley and ations in Bao’s absence. that they hoped he would reappear after ago, Xi Jinping has carried out a fero- HK$5.7bn ($730mn) market cap.
Credit Suisse, turning the boutique into Chinese business media outlet Caixin providing information to authorities. cious anti-corruption campaign, The group said it was continuing to The Van Damme and Van der Straten
one of China’s top financial institutions, earlier yesterday reported that Bao had Bao’s disappearance is the latest addi- taking down many of China’s highest operate normally. Ponthoz families will invest the
often beating larger Wall Street rivals to been unreachable for at least two days. tion to a long list of Chinese financial officials who have also tended to be his Additional reporting by Yuan Yang €400mn in equity in Tikehau Capital
tech financings and mergers. The turmoil at China Renaissance executives to have gone missing while political rivals. in London Advisors, the main shareholder in a
publicly traded business spanning pri-
vate debt, real assets, private equity,
and capital markets strategies.
Financials. Distress test The funding will come through SFI, a
subsidiary of Patrinvest, a long-term
investment vehicle representing the two
Angelo Gordon caught on both sides of debt divide AB InBev families, which has also com-
bined on deals with Brazil’s 3G Capital
and German conglomerate JAB.
Following the transaction, the Van
Damme and Van der Straten Ponthoz
ruptcy court that Revlon rigged a vote in families will indirectly own 9.3 per cent
Positions of $50bn credit fund order to win the majority approval it of Euronext-listed Tikehau Capital.
needed to execute the drop-down. Alexandre Van Damme, the billion-
differ in contested Revlon and Revlon denied that claim, saying that aire chair of Patrinvest and an architect
it rejected a rival plan offered by the of AB InBev’s acquisition-fuelled
Serta Simmons bankruptcies excluded group and gave that company growth, and another representative of
the opportunity to participate in the the investment company, Gregory
SUJEET INDAP — NEW YORK drop-down. d’Ursel, will join the board of Tikehau
Angelo Gordon, the corporate credit Angelo Gordon has also argued that Capital Advisors.
investor, has found itself on both sides the 2020 deal was permissible. “We built this firm by partnering with
of a Wall Street divide. The issue will go to trial in March. institutions and families,” Antoine
The $50bn fund manager is a long- The more novel uptier transaction, Flamarion, co-founder of Tikehau, said.
time lender to Revlon, the cosmetics used at Serta to the exclusion of Angelo
business, and to Serta Simmons Bed- Gordon and others, including Apollo
ding, the mattress group. Each company Global Management, has proved even
‘Our goal is to build a global
is in Chapter 11 after falling behind on more controversial than drop-downs. champion in the alternative
debts. The company, in raising the $200mn
But Angelo Gordon’s status as a credi- in new cash in 2020, created a “super-
investment space’
tor is different in the two cases. priority” top layer of debt that ranked Antoine Flamarion, Tikehau
At Revlon, it is poised to seize control ahead of an existing $1.95bn first-lien
after joining a slim majority of lenders loan. Similar to Revlon, the funds “Our goal is to build a global champ-
that offered rescue financing in May investing the new cash also rolled sev- ion in the alternative investment
2020, a deal that left other creditors eral hundred million dollars of their space . . . Having the right partner will
behind. existing debt into the new debt level. help us to grow in a successful manner.”
At Serta, it was among the creditors Angelo Gordon and other Serta lend- Paris-based Tikehau was founded in
excluded from a similar emergency ers that were left out of the transaction 2004 with €4mn in assets, and has
financing assembled in June 2020. Now argue in lawsuits that all lenders, not emerged as one of Europe’s fastest-
at risk of recovering pennies on the dol- just a majority, should have been growing asset managers.
lar from its investment, Angelo Gordon granted the option to participate in the Its founders, Mathieu Chabran and
and other stranded creditors will try to roll-up. Flamarion, formerly of Merrill Lynch
convince another bankruptcy court that Moreover, changing the repayment and Goldman Sachs, were only 28 and 31
the majority group violated their rights. “waterfall”, or order of debt repayments when they set it up with ambitions to
The stances strike some observers as at Serta, required unanimous consent of build a “Blackstone of Europe”.
inconsistent. incumbent lenders, they said. Tikehau, named after an atoll in
“It is definitely a bad look to try to Serta, in court papers, said it chose an French Polynesia, listed on Euronext
propose an amendment [to a loan con- uptier structure over a competing drop- Paris in 2017 through a reverse merger.
tract] that may have left minority lend- down proposal from Angelo Gordon, Its assets have grown from €10bn to
ers behind and then complain about which it believed would cost the mat- about €38bn today, with 740 employees
lack of good faith when they’re on the tress company more. across 14 offices.
receiving end,” said Randall Klein, a At Revlon, the “manufactured default” at US home- better deal,” said Eric Talley, a professor ‘In a Angelo Gordon’s lawsuit against The group has raised funds to invest
lawyer at Goldberg Kohn who special- investor is set to builder Hovnanian. In that strategy, at Columbia Law School. Serta, filed last year in New York state in cyber technology, defence and aero-
ises in corporate debt. seize control Blackstone sought to provide financing They were in a “Hunger Games sce- “Hunger court, is in its early stages. A separate space assets and energy transition com-
Angelo Gordon’s differing positions in after joining a to the company in exchange for Hovna- nario, with each tribute hoping against Games” ruling on whether Serta’s uptier transac- panies, among other areas. It is targeting
the Revlon and Serta cases show how slim majority of nian missing a debt payment so that the hope that the odds will ever be in their tion should be allowed may come €65bn in assets under management by
corporate debt contracts have become lenders that fund manager could win a wager on favour”. scenario, sooner in bankruptcy court. 2026 through organic growth.
unsettled by disputes over a set of novel offered rescue credit default swaps. These novel financings take two main each tribute In a separate 2021 lawsuit filed by “We’re at a critical moment in the
financing structures. funds, a deal Angelo Gordon believes the technical forms: “drop-downs” and “uptiers”. another creditor, US District Judge development of the group,” said
The structures give highly indebted that left other differences between the Revlon and Revlon used a drop-down to borrow hopes Katherine Polk Failla in Manhattan Chabran.
companies financial lifelines. But they creditors Serta transactions leave it on the correct from a group led by Angelo Gordon. against last year agreed with Serta in ruling He pointed to potential acquisition
come with a catch, allowing a majority behind, but at side of both, according to court filings Revlon said that permissive loan cove- that only a majority of creditors was opportunities in the US and Asia, where
of lenders to swap existing debt into a Serta it was and people familiar with their thinking. nants provided leeway to create, or drop hope that needed to approve a new super-priority Tikehau sees opportunities to both raise
tier of newly issued debt that receives among creditors A representative of the business down, a new subsidiary that in turn bor- the odds debt tier. money from the large pools of savings
the first claim on a company’s assets. excluded from a declined an interview request. rowed $880mn from Angelo Gordon She refused to dismiss the case and make investments.
In the Revlon and Serta cases and oth- similar The bankruptcy disputes at Revlon and others. will ever be entirely, ruling that Serta’s ability to roll The deal comes as alternatives man-
ers, this majority has been accused of financing and Serta are expected to be resolved in The lenders in this majority group in their old debt into the uptier required a sepa- agers are grappling with higher interest
Richard B. Levine/
steamrollering a smaller, seemingly the next few months, either through a were able to claim several top Revlon rate trial. Her willingness to at least par- rates, tighter access to loans, and
unsuspecting group to snatch outsized
Sipa/Reuters
settlement or a judge’s ruling. brands as collateral, taking them out- favour’ tially question the uptier had grabbed decreasing valuations.
profits when companies are reorganised Revlon and Serta declined to side the reach of existing lenders. the attention of the lawyers, bankers Tikehau Capital Advisors owns just
in bankruptcy. comment. In the most controversial step of the and companies in the realm of dis- over half of Tikehau Capital.
Bankruptcy disputes are familiar ter- The novel financing structures were deal, the Angelo Gordon group was tressed debt. Once the transaction is completed,
ritory for Angelo Gordon, which in the devised by lawyers and investment allowed to transfer about $1bn of the “One could reasonably conclude from Tikehau Capital Advisors will be two-
years since it was founded in 1988 has bankers to raise capital for companies in previous loan into the new subsidiary, plaintiffs’ allegations that [Serta] sys- thirds owned by its management with
not shied away from complex or contro- distress by cleverly exploiting rivalries in a move called a “roll-up”. tematically combed through the agree- the remainder held by investors includ-
versial situations. between lenders. The remainder of the loan, held by the ment tweaking every provision that ing SFI, Singapore wealth fund
The New York-based fund’s head of “If a company dangles an aggressive stranded group of minority investors, seemingly prevented it from issuing a Temasek, and Morgan Stanley Invest-
distressed and corporate special situa- restructuring move without guarantee- has since plunged to less than 40 cents senior tranche of debt, thereby trans- ment Management.
tions, Ryan Mollett, is an industry vet- ing a privileged position to anyone, it on the dollar after it was no longer forming a previously impermissible The firm has €3.1bn of equity on its
eran who previously worked at Black- can help the company by pitting credi- backed by the transferred collateral. transaction into a permissible one,” the balance sheet and uses this to invest
stone, where he was the architect of a tors against one another to offer up a The minority has alleged in bank- judge wrote in her ruling. alongside clients in each of its strategies.
Automobiles Food & beverage
Renault takes Tesla to task over discounting Nestlé sales volumes hit after steep price rises
PETER CAMPBELL — LONDON De Meo made the Tesla comments selling its Russia plant and Avtovaz JUDITH EVANS — LONDON Nestlé is the latest multinational food price rises while real internal growth
after Renault said operating margins stake following the invasion of Ukraine. manufacturer to report a hit to sales vol- was up slightly at 0.1 per cent for the full
Renault’s chief executive has criticised Nestlé took a hit to sales volumes in the
had risen to 5.6 per cent in 2022, more The group’s free cash flow reached umes from increasing prices after Uni- year. Schneider added that 2022 was
Tesla for cutting electric vehicle prices, final quarter of last year as its steepest
than double the 2.8 per cent in 2021, €2.1bn last year, beating the market lever last week said consumers had also a year of “post-Covid normalisa-
saying it destroys value for customers, price rises in decades prompted house-
while cash flow hit a record following a consensus projection of €1.68bn. bought fewer of its products in 2022 on tion” in many of Nestlé’s markets.
as the French carmaker announced a holds to curb spending on products
€3bn turnround to cut costs. De Meo’s criticism of Tesla follows the record price rises. Households in Price rises by the Swiss group were
doubling of profit margins last year. from the maker of Nespresso pods,
The numbers on margins beat fore- company’s step-up in its electric car Europe and the US especially have been highest in North and Latin America, at
KitKat chocolate and Maggi noodles.
Luca de Meo said the US electric-car casts, which were raised last summer, as sales. It is the third-largest electric car switching to cheaper options, such as 11.6 per cent. The increases cut into
maker’s fluctuating prices, including the carmaker hit its turnround target brand in Europe, and second for hybrids Real internal growth, a measure of sales supermarket own-brand products. North American sales volumes, which
the latest cut last month in the US, three years earlier than planned. behind Toyota. volumes and consumers’ product Schneider said the consumer was declined 1.7 per cent on a like-for-like
Europe and China, had damaged cus- “Now we are out of the emergency As well as launching a €3bn turn- choices, declined 2.6 per cent as the “holding up probably better than we measure as inflation prompted house-
tomer confidence in the value of their room and back in the game. Now we are round, Renault has focused on selling world’s largest foodmaker pushed up expected last fall . . . [but] we also have holds to curb their spending and Nestlé
vehicles. ready to race,” de Meo said. The com- higher-margin vehicles, relaunching prices by 10.1 per cent in the quarter. seen some limited signs now of trading cut down on unpopular product lines.
“I hope that they [Tesla] continue to pany’s “fundamentals have been thor- larger cars, and ditching its strategy of Mark Schneider, chief executive, said down. That’s unavoidable because you It also recorded a SFr1.6bn ($1.73bn)
reduce to zero, but we will continue to oughly cleaned up, and there will be no trying to grow sales at all costs. Nestlé still faced steep cost rises this are seeing the effects of economic impairment on the purchase of peanut
protect the value of our electric vehi- turning back”. The company had “more than com- year. “There are a few cost items that uncertainty and then inflation at the allergy medication Palforzia, adding to
cles,” he said. “This is destroying value Although the group slid to a €700mn pensated the shock” of its Russian exit, have started, on a spot basis, to ease same time.” an earlier SFr300mn charge on its foray
for the customer for sure, when you net income loss last year, pre-tax profit, de Meo said. since the autumn — arabica coffee, Nestlé increased prices for its prod- into healthcare.
do this.” excluding losses from its withdrawal Despite growing economic head- dairy, some of the energy items — but on ucts by an average 8.2 per cent across It forecast a recovery in profitability
Tesla’s price reductions have sparked from Russia, rose from €549mn to winds, Renault expects to post a margin a full-year basis we’re still looking at a 2022. It said overall like-for-like sales in 2023 with underlying operating mar-
complaints from customers who had €1.6bn, while revenues rose from of at least 6 per cent this year and pro- very bleak picture.” He added: “We still growth was 8.3 per cent during the year, gin set to come within a range of 17 per
already bought vehicles at higher prices €41.7bn to €46.4bn. duce about or above €2bn of cash. It will have some repairing to do [on margins] lower than analysts had expected. cent to 17.5 per cent after falling to 17.1
and saw their cars lose value overnight. In May, Renault wrote off €2.3bn from pay a dividend of €0.25 a share. — we are hit pretty hard by inflation.” Sales growth was mainly driven by per cent in 2022.
Friday 17 February 2023 ★ FINANCIAL TIMES 7
COMPANIES & MARKETS
Trafigura chases $577mn in missing nickel
Trader says it fell victim to fraud carried out by Indian businessman’s companies after shipments were found to be steel
HARRY DEMPSEY AND ROBERT SMITH now runs commodity trading software
LONDON
platform TradeCloud.
Trafigura shocked the corporate world Trafigura said the alleged fraud
last week when it booked a $577mn “involved misrepresentation and wide-
writedown and revealed it had been the spread falsification of primary and sup-
victim of a “systematic fraud”. porting documentation”, adding that
But industry insiders were more sur- “any fraud is an opportunity to review
prised at the man the commodity trader and tighten systems and procedures and
identified as being behind the alleged a thorough review is under way”.
perpetrator companies: Prateek Gupta, Gupta did not respond to multiple
a 43-year-old Indian businessman who requests for comment. Citi and Barclays
has traded with Trafigura for years declined to comment.
despite his chequered reputation. Now, the questions turn to how
After discovering shipments of nickel exposed other traders, financiers and
bought from Gupta-linked companies insurers are to one of the metals indus-
that contained no trace of the valuable try’s largest frauds and whether Trafig-
metal, Trafigura has launched legal ura can claw back any of its losses.
action and secured a $625mn freezing After Citi pulled financing, Trafigura
order against the Dubai-based metals used cash from its own balance sheet to
trader and his business empire. continue the trades. To some degree,
Court documents seen by the Finan- that will help insulate its $73bn worth of
cial Times show the alleged fraud has credit lines from the 140 lenders on
drawn in Wall Street bank Citigroup, which it relies to move oil, gas and met-
which financed the trades, and UK als around the world, as other banks are
lender Barclays, where Gupta’s compa- not exposed.
nies held accounts that received Trafig- But the scandal may prompt banks to
ura funds. They also reveal that Trafig- increase scrutiny and auditing of the
ura sold on potentially fake nickel car- company’s risk management proce-
goes in 11 trades worth $94mn, poten- dures. “It makes it even worse for
tially affecting a far larger pool of the Trafigura that they financed it with
commodity trading industry. their own cash,” said Rey at Athena
As new details of the case emerge, the Intelligence.
inquest now begins into why one of the Corporate filings show one business
world’s biggest commodity traders with exposure to the scandal is an
placed such faith in a man whose repu- investment vehicle of Artis Finance, a
tation was well known among trade fin- trade finance start-up backed by TDR
anciers, and why its risk management Capital, a private equity firm with a
procedures fell so short. stake in the UK’s Asda supermarket
Trafigura started trading with Dubai- group.
based TMT Metals, controlled by Gupta Artis’s website describes the entity —
since 2016, more than a decade ago. It Artis LoanCo1 — as a “ringfenced com-
provided “transit finance” to TMT and pany that supports midmarket trader
other Gupta companies, buying nickel and corporates through robust, receiva-
from Gupta’s companies before selling it bles-based financing” and states that
back to the companies or into the open “only the most meticulously risk-as-
market at a later date, charging interest sessed and commercially viable trans-
for the duration of its transportation. actions make it through to the Artis
TMT was a reliable counterparty for Investment Committee”.
years until early signs something might After finding with someone of his reputation,” Milne no business or relationship with Prateek trader decided instead to pursue a fraud ‘I was “I can confirm that Artis LoanCo is a
have been amiss appeared in 2021, shipments of said. “He has been a persona non grata Gupta or Ushdev and is in no way con- claim and freezing order. secured lender to TMT Metals for
when transit times for containers bal- nickel bought for many years.” nected to any of the activities Trafig- Later in January, Trafigura opened amazed receivables financing, but we are not in
looned along with volumes of nickel from groups Jonas Rey, chief executive of Swiss ura’s announcement referenced”. 117 containers in the Netherlands, the to see a position to comment further as we are
traded. Some shipments took more linked to Prateek corporate intelligence firm Athena Trafigura said it started an investiga- United Arab Emirates and Taiwan to still gathering facts, undertaking inter-
than 300 days, many times more than Gupta, below, Intelligence, told the FT he had investi- tion into the trades with Gupta’s compa- find none contained nickel in any form. Trafigura nal reviews and we await a formal state-
necessary for any global shipping route, that contained no gated TMT in 2015 and 2016 over an nies after “a number of red flags” Trafigura has said there is no evidence were ment from TMT,” said the company’s
according to one person familiar with trace of the metal, alleged scheme involving a network of became apparent, although it declined any of its employees were complicit in chief executive Waldo de Vleeschauwer.
the matter. Trafigura has companies trading between themselves, to specify when. the fraud. Economou is leaving the com- dealing Trafigura is yet to decide whether to
A further warning came last July, secured a $625mn each with different bills of lading and An “informant” told Trafigura in pany. with claim insurance but, if it does, providers
when flashes appeared on the due dili- freezing order their own financing. November that one or two of the pur- Commodity traders were stunned by would have to decide whether to accept
gence screens of Trafigura’s risk man- against the trader “Their reputation was horrendous,” chased containers contained something the scale of business that Trafigura someone its claims.
agement teams after authorities in and his business he said. “TMT Metals was blacklisted other than nickel, according to the court undertook with Gupta’s companies. of his Gunvor, another commodity trader,
Cole Burston/Bloomberg;
New Delhi accused Gupta of defrauding from most credit and insurance compa- documents. The supposed 25,000 tonnes of nickel was previously stung by its exposure of
the State Bank of India and four other
Edgar Su/Reuters
nies as they were such a high-risk When the trading house confronted cargo are equivalent to about 1,104 con- reputation’ tens of millions of dollars to Ushdev, a
lenders. entity.” Gupta, he told Trafigura’s head of nickel tainers of the metal, or more than 10 per Gupta-linked company that went insol-
But court filings show it was not until Gupta began his career as a trainee at and cobalt trading, Socrates Economou, cent of the annual imports of China, the vent, but its insurer Euler Hermes paid
October, when Citi moved to stop his father’s metals trading company, that they contained 20,000 tonnes of dominant global consumer. So far, out, helping to minimise losses, accord-
financing the trades between Ushdev International, where he became cheaper nickel alloy and 5,000 tonnes of Trafigura has only checked 156 boxes. ing to three people familiar with the
Trafigura and Gupta’s companies, managing director in 2008. The com- other materials, rather than high-grade Industry insiders warn that the com- matter. Gunvor declined to comment.
that the commodities house began pany, which was partly owned by UD nickel metal. modities trading industry needs to Industry observers say Trafigura may
to investigate in earnest. Trading, became insolvent in 2018 after Gupta tried to blame his business change outdated ways of doing business also struggle to recoup money through
Ian Milne, who was responsible defaulting on loans from a number of partner in India for the discrepancies if it is to escape a repeat pattern of large- legal action given the complexity and
for trying to recover debt Indian banks. and even suggested the contents were scale scandals. ownership structure of the web of com-
from Gupta’s UD Trading Several traders said they had also different to avoid a ban on shipping Rus- They say the fact that the process of panies it says is behind the alleged
for trade finance fund been wary of Gupta’s ties to Sanjeev sian nickel, despite no such ban having buying and selling raw materials still fraud.
TransAsia Private Capital Gupta, the metals magnate whose GFG been in force. largely depends on paper documents “I’m not sure they will get much
between 2018 and 2020, Alliance group of companies is under When Trafigura inspectors checked makes it particularly susceptible to money back from litigation as there’s
said he was “flabber- investigation by the UK’s Serious Fraud containers in November, they found fraud. not much to go after,” said Milne, who
gasted” that Trafigura’s Office. carbon steel, a low-value metal worth “If the industry continues to rely on now works at MonetaGo, a fintech busi-
controls had not brought an Sanjeev Gupta, who is not a relative of less than $1,000 per tonne, versus about paper-based systems and email as its ness that tackles financing fraud. “Sure,
earlier halt to its relationship Prateek’s, is a former Ushdev share- $26,500 for nickel. primary form of communication, it will Gupta has a lot of money out there, but
with Gupta. holder, according to Indian corporate At a meeting in London in early Janu- continue to have these problems,” said most of it is not in his name.”
“I was amazed to see filings. ary, Gupta proposed settling the sum it Simon Collins, a former head of Trafig- Additional reporting by Stephen Morris,
Trafigura were dealing GFG Alliance said it “has for years had owed Trafigura, but the commodities ura’s metals and minerals business who Ian Smith and Joshua Franklin
Telecoms Financial services Industrials
Orange says Europe rivalry KPMG to cut nearly 2% of Schneider Electric chief to
hits sector’s ability to invest US staff as economy cools step back after two decades
ADRIENNE KLASA Orange, one of Europe’s biggest tele- STEPHEN FOLEY — NEW YORK easing demand for IT and strategic con- SARAH WHITE IN PARIS lems, including the scarcity of micro-
coms providers, has invested heavily in sulting. chips since the height of the Covid-19
European telecoms operators are being KPMG is cutting close to 2 per cent of its Schneider Electric’s Jean-Pascal
building networks in key markets, EY, for example, axed holiday pandemic, have proved a headache for
forced to sell parts of their infrastruc- staff in the US after a sharp slowdown Tricoire is set to step down as chief
including Spain and France, and claims bonuses for its US staff, citing the exter- Schneider, though this is easing.
ture to invest in areas such as the roll- in its consulting business, becoming executive after nearly 20 years, with
it has laid more fibre in Europe than its nal environment, and firms have But demand for the automated light-
out of 5G because their returns in a sat- the first of the Big Four accountancy the French automation and software
next five competitors combined. sharply slowed hiring. Job postings by ing and cooling systems that Schneider
urated market are not high enough, the firms to respond to the weaker econ- group turning to an insider as it tries to
But, like other telecoms groups, it is in the Big Four are 50 per cent lower than produces has also grown sharply.
chief executive of Orange has said. omy with systematic job reductions. capitalise on rising demand for its
favour of consolidation, saying this will a year ago, according to the latest “We’re at a moment of real conver-
energy-saving systems.
“When you see companies selling their support investment. “Today in Europe, The cuts, which will affect close to 700 monthly survey by William Blair, the gence between everything we’ve put in
towers [or] using financial vehicles to we have almost 100 telecom operators, people, were announced internally by equity research firm. Peter Herweck — formerly Schneider’s place and the world’s needs,” Tricoire
continue to invest in infrastructure whereas we only have three in China, Carl Carande, vice-chair of KPMG’s US KPMG had been trying to hold down head of industrial automation and now told the Financial Times.
there is something that is, maybe not three in the US and so on, so we have an advisory business. They were needed to costs by delaying the start date for new chief executive of Aveva, the British Europe could “absolutely” do with a
wrong, but something weird going on in environment today that does not favour “better align our workforce with cur- hires, cutting travel budgets and trans- software group, it is taking over — will big investment plan to rival the recently
the market,” Christel Heydemann told investment,” Heydemann said. rent and anticipated demand in the ferring some consulting staff to the become CEO in May. Tricoire is set to launched $370bn US package of green-
the Financial Times. “Europe is already late on 5G rollout market”, he said in a memo to staff. audit and tax sides of the business. stay on as chair until 2025 at the latest. tech subsidies and incentives, Tricoire
Although the market is now cooling as compared to the US or China. If you add Like other Big Four firms, KPMG has “Despite these efforts, we continue to Propelled to the top in 2003 in the added. The region had a “level of
interest rates rise, a number of Euro- to that the burden of investment in been struggling with the collapse in have more people than needed to meet aftermath of the blocking by antitrust urgency that has nothing to do with the
pean telecoms groups, including Voda- fibre, which still needs to roll out in merger and acquisition activity, which current demand,” Carande wrote in the regulators of Schneider’s attempt to buy US, as Europe has an energy supply
fone, have cashed in on their mobile some countries, there’s an equation that has hit its deal advisory business, and memo. The reductions are spread across French electronics group Legrand, Tri- problem”, he said.
towers businesses in recent years to is difficult for Europe.” the US and the consulting business but coire changed the group’s direction with Schneider yesterday reported an 18
reduce large debt piles and free up funds Orange is waiting on a decision from do not include any partners. a big push into overseas markets, per cent rise in 2022 revenues to a
for investment. Orange’s towers busi- European competition authorities on The Big Four went on a hiring spree including the US, China and India. record €34bn, slightly above analyst
ness has been split off into a separate whether it will be able to merge its Span- after the peak of the coronavirus pan- He also refocused on systems for expectations in a Refinitiv poll, helped
company called Totem but is still fully ish business with competitor MasMovil. demic as demand for IT consulting and making buildings and factories more by North America, which overtook Asia
owned by the French group. Competition commissioner Margrethe deal advisory work surged. While energy efficient while branching into as the group’s biggest region.
“On the infrastructure side, you see Vestager argued that competition increasing less than its rivals, KPMG’s areas such as smart technology, includ- Net income was up 9 per cent at
more and more operators who are actu- rather than mergers will lead to invest- US headcount rose by more than 2,000 ing through a string of acquisitions. €3.5bn, taking into account one-off
ally selling their infrastructure [to] ment. to 35,266 at the end of 2021, according to These have included the long-running charges such as a hit from its Russian
infrastructure funds, who are acquiring Orange yesterday launched a strate- its most recent public report. takeover of Aveva completed last year, a exit last year, when it sold the opera-
it because they see benefit to investing gic plan aimed at increasing cash flow “We have experienced prolonged £10.6bn deal initially contested by some tions to local management.
in fibre because it’s a long-term invest- and returns to investors by 2025, now uncertainty affecting certain parts of investors, who eventually managed to Herweck, a German national, will be
ment with long-term guaranteed that the burden of investing in fibre is The Big Four firm has struggled our advisory business that drove out- obtain a higher bid. one of only a handful of non-French
returns,” she added. behind the state-backed company. amid a collapse in M&A activity sized growth in recent years,” it said. In recent years, supply chain prob- bosses at the head of its top companies.
8 ★ FINANCIAL TIMES Friday 17 February 2023
COMPANIES & MARKETS
Crypto. Fresh scrutiny Derivatives
Investors trim
US regulators turn eagle eye bets on Fed
rate-cutting
on digital asset groups plans this year
KATE DUGUID — NEW YORK
Investors who for months had been
banking on the US Federal Reserve
cutting interest rates this year have
been forced to back off those bets after a
raft of strong economic data that
suggests inflation remains persistent.
Futures markets at the start of
February signalled that the central bank
would reduce interest rates at least two
times by the end of the year.
This week they suggested about equal
chances of one rate cut or none at the
Fed’s monetary policy meetings in 2023.
The move in futures shows investors
merging closer to the Fed’s own message
that it will not lower rates until at least
2024. “The market is coming in line
with the Fed,” said Priya Misra, head of
global rates strategy at TD Securities.
“The Fed is data-dependent and we
have seen better than expected data.”
The US on Tuesday reported that
consumer prices in January had cooled
by less than expected. On Wednesday
came statistics that US retail sales,
which include food and petrol, rose
3 per cent last month — well above
forecasts of a 1.8 per cent increase.
“The data this week has brought a
Spate of enforcement actions BUSD tokens in circulation fell by roughly $1bn in less US regulators The US Federal Reserve last month dose of reality to markets,” said Kristina
than a week led by the SEC rejected an application from Custodia Hooper, chief global market strategist at
are a co-ordinated attempt to have launched a Bank, a crypto-focused institution, to Invesco US. It followed a US jobs report
Market cap ($bn)
series of actions join its payment system because its for January that showed the labour
rein in scandal-hit industry against crypto planned crypto activities “are highly
16.2
operators and likely to be inconsistent with safe and
SCOTT CHIPOLINA 16.0
their tokens sound banking practices”.
‘The market is coming in
US authorities have begun the year with 15.8 FT montage
Silvergate, another crypto-focused line with the Fed. The Fed
a crackdown on crypto companies and bank, faces scrutiny from US legislators
their products at such a pace that
15.6
for its role providing services to FTX.
is data-dependent and
15.4
executives fear the industry is being Mainstream lenders may increasingly we have seen better data’
pushed out of one of its biggest markets. 15.2 look to sever ties with the crypto world
In recent weeks, US regulators, led 15.0 to head off any potential regulatory market running hot, adding nearly
by the Securities and Exchange 1 Feb 15 difficulty, lawyers said. three times the number forecast.
Commission, have fired off a series of Source: CryptoCompare
“If you’ve got a bank which is being The strong economic indicators came
enforcement actions against some of the supervised in the US and the Fed as the Fed has slowed its pace of
biggest digital asset companies and their questions their exposure to the crypto monetary tightening, lifting its main
tokens. returns to customers. Tightening their intended specifically to not be specific.” industry, that can trigger some serious policy rate by 0.25 percentage points
At the same time, many of the banks grip further, the SEC proposed on In a further escalation of the regula- evaluation internally at the bank,” said in February after rises of 0.75 and
on which these companies rely for Wednesday tougher safeguards around tory blitz, New York authorities have James Greig, a partner in financial 0.5 percentage points for most of 2022.
payments and custody of assets are also investors’ assets after the collapse of taken aim at one of the biggest so-called regulation at law firm Addleshaw Before the January jobs report,
coming under fresh scrutiny. several high-profile crypto companies stablecoins — dollar-pegged tokens that Goddard in London. “It’s a nudge, rather futures markets pointed to the Fed’s
The newly forceful approach has hit a last year revealed that customer funds act as a crucial entry and exit point for than an enforcement action.” benchmark interest rate peaking at 4.9
crypto industry still reeling from a were not as safe as had been advertised. investors in cryptocurrencies. Binance this month suspended US per cent in the second quarter before
bruising year of plunging prices and a Crypto advocates argue that a The New York Department of dollar payments without providing a dropping to about 4.4 per cent by the
crisis of confidence that led to the heavy-handed approach risks Financial Services this week shut down reason. One of its banking partners, year end, implying two interest rate cuts
collapse of some of the sector’s biggest stifling innovation in the industry by the issuance of BUSD, the stablecoin Signature Bank, had previously said it of 0.25 percentage points each.
players, including exchange FTX leaning too heavily on “regulation by widely used on Binance, and which would no longer allow crypto exchange On Wednesday, pricing showed that
and lenders Voyager Digital and Celsius enforcement” rather than creating a carries the branding of the world’s customers to buy or sell amounts of less investors expect rate rises in March and
Network. bespoke crypto regulatory framework largest crypto exchange. than $100,000. Signature is a member of May, with a peak at 5.25 per cent, but a
Observers said the spate of actions for the industry. Following the order, the amount of the federal scheme that insures deposits less than 0.25 percentage point cut by
amounts to a co-ordinated effort to rein “This type of regulatory uncertainty BUSD in circulation fell by about $1bn in held at the nation’s lenders. the end of 2023 — equivalent to a virtual
in an industry that until now has largely will ultimately drive access to crypto, a matter of days as investors shifted In a question-and-answer session coin flip between one cut or none.
existed outside the strictures of innovation and jobs overseas, where their cash elsewhere. on Twitter this week, Binance chief Bets on where rates will stand by the
traditional financial regulation. customers aren’t guaranteed the same “The US’s crackdown on crypto has executive Changpeng Zhao said it was end of 2024 have changed even more
“I would suspect this is just the level of protection,” said Paul Grewal, become far more aggressive than what likely that banks had been asked by significantly, rising from expectations at
beginning of the US trying single- chief legal officer at Coinbase. “In the we have seen from regulators in many regulators to “either not work with the start of February of about 2.9 per
handedly to divide the system between meantime, America and Americans are other major jurisdictions,” said Ilan crypto businesses completely, or be very cent to 3.7 per cent this week.
those who meet their standards and getting left behind.” Solot, co-head of digital assets at Marex cautious about working with crypto Changes in rate expectations have
those who don’t,” said Tom Keatinge, But John Reed Stark, former chief of Solutions. businesses”. been met with changing bets on infla-
founding director of the Centre for the SEC’s office of internet enforcement, “It appears the SEC thinks their ‘If you’re But whether enforcement is direct or tion. The so-called one-year break-even
Financial Crime and Security Studies at said the agency’s approach was actions are in the long-term interest a large indirect, industry insiders said they inflation rate, showing where investors
UK think-tank Rusi. consistent with how it handled of consumers and they’re willing could already feel the chilling effect of believe inflation will be in a year’s time,
Since the start of the year, the SEC rule-breaking in traditional finance. to tolerate short or medium-term project, the recent regulatory crackdown. Our global has risen from 2.1 per cent at the start of
has sued lender Genesis and exchange “This ‘regulation by enforcement’ consequences of capital moving away you best “I feel we’re going to see more action team gives you February to 2.9 per cent.
Gemini for failing to register a crypto phrase is just a crypto catchphrase from the US,” he said. from the SEC in the coming months and market-moving That puts the market more in line
lending scheme as a securities offering, designed to obfuscate and deflect,” There are also signs that US regulators brace for this is just the beginning,” said Charles news and views, with the Fed’s own forecasts from
and ordered rival exchange Kraken to he said. “There is no insider trading are turning their attention to the links incoming Storry, head of growth at crypto plat- 24 hours a day December. Surveyed officials saw
discontinue a scheme that the regulator statute, there is no derivatives between the world of crypto and the form Phuture. “If you’re a large project, ft.com/markets rates ending this year at about 5.1 per
said offered more than 20 per cent fraud statute. It’s a broad framework traditional financial system. impact’ you best brace for incoming impact.” cent and 2024 at about 4.1 per cent.
Derivatives
EU banks fear impasse over access will force them out of booming India trading
HUDSON LOCKETT — HONG KONG legal recognition for six months to regulators’] sticking point for all of last He added: “It will be a huge surprise if Markets Association — warned that, local subsidiary or relying on local
CHLOE CORNISH — MUMBAI
LAURA NOONAN — LONDON
resolve the impasse. year,” he said. this doesn’t get sorted.” without a breakthrough, EU banks financial institutions that still had
Trade bodies wrote to EU officials last International policymakers are However, banks and other financial “would need to drastically reduce their access to Indian clearing houses.
EU banks have warned they will be week pressing them for urgent action. largely sanguine about the clash, market participants are becoming activities, reject clients’ trades or The trade bodies declined to
forced to leave India’s capital markets India’s stock and government bond with one telling the Financial Times increasingly frustrated. potentially exit the Indian financial comment further, apart from saying
unless regulators can settle a dispute markets are valued at about $3tn and that “the build-up of risk in CCPs In their letter, the trade bodies — market”. that neither of these options would be
over traders’ access to the country’s $1tn respectively, and its derivatives is so large and the benefits of including the European Banking Banks are particularly worried about feasible before the April 30 deadline.
booming securities and derivatives market is among the most active in co-operation so evident that it’s hard Federation, Global Financial Markets access to derivatives clearing as it The India-based banker said EU
markets. the world, making the three markets to see any country taking a sustained Association, the International Swaps would take time and planning to lenders were lobbying Esma this month
lucrative for western lenders. approach of non-cooperation or limited and Derivatives Association and the unwind thousands of open contracts. to push back the deadline to avoid being
Industry figures are becoming The EU lenders’ potential departure co-operation”. Asia Securities Industry and Financial The industry groups estimated that forced out.
increasingly concerned that the from Indian capital markets hinges EU, UK and Swiss financial institutions “Given that these discussions haven’t
stand-off between EU and Indian on a system the bloc uses to manage India’s capital markets are attractive to western banks accounted for more than 60 per cent really gone in a positive way so far, we
regulators will not be resolved ahead of cross-border activity with other of derivatives cleared on CCIL, India’s are not hopeful at all that the MOU
an April 30 deadline. countries. Market value ($tn) largest clearing house. [memorandum of understanding] can
This would leave EU lenders little The system, known as equivalence, 5 “We are at the moment where banks be signed before May 1,” he said. “What
choice but to exit from trading in the relies on Brussels judging another Government bonds have to make a decision as to the future we’re asking for is a two-year timeframe
country over the coming months until country’s regulation and supervision to Equities of their clearing activities in India and in which Esma and the RBI can come up
they can find a workaround that would be as good as its own. 4 they will have to make it within the next with a solution . . . or the banks can
probably shrink their businesses. Bankers and trade bodies said that few weeks,” said the Asia head of one figure out a plan B.”
The dispute originated with an last year Esma began pushing Indian 3 industry body behind the letter. A person familiar with the banks’
announcement by the European regulators to sign a revised deal that The head of another trade body said: operations in India said that, while the
Securities and Markets Authority last would give the Paris-based agency more “European banks may actually have to banks would still be able to operate in
October that it would no longer legally direct oversight of six Indian clearing 2 leave Indian markets for a while. With areas besides capital markets, he
recognise India’s six main clearing houses that EU banks use to process every day, a deal seems less and less “would be surprised if there is no
houses (CCPs) because, it said, its exist- market transactions in India. likely.” impact [on these businesses] because
ing accord with local authorities was The Reserve Bank of India, India’s 1 The banker said that European you can’t just isolate your capital
inadequate. central bank, balked at the new agree- lenders, including Deutsche Bank, BNP markets activities from the rest of the
A clearing house stands between two ment, which would have replaced a deal 0 Paribas, Société Générale and Crédit bank”. The banks and Esma declined to
parties in a trade, insulating the market from 2017, according to an India-based 2012 13 14 15 16 17 18 19 20 21 22 Agricole, had spent much of January comment.
from contagion if there is a default. banker at a European lender familiar seeking alternative means of accessing Additional reporting Philip Stafford in
Sources: Bloomberg; Goldman Sachs
Esma said it would defer withdrawing with the negotiations. “That was [Indian markets — whether by establishing a London
Friday 17 February 2023 ★ FINANCIAL TIMES 9
COMPANIES & MARKETS
The day in the markets Investment tide
What you need to know
is shifting back to
3 Wall Street stocks fall on latest sign of
active strategies
persistent inflation
France’s CAC 40 index touches all-time high
3 US government bonds also come under 7,500
pressure
3 Oil benchmark Brent reverses course
to slide lower
Dan Taylor
Wall Street stocks fell yesterday after the
latest evidence of stubborn inflationary
7,000
Markets Insight
I
pressures in the world’s largest economy,
which fuelled concerns that the US
Federal Reserve will have to raise interest 6,500 t has become conventional wisdom virtually everyone. This competition leads to positive flows, which further
rates further to curb price rises. in markets that the continued rise has driven active fees down (and will aids performance.
The blue-chip S&P 500 fell 0.5 per of passive investing is seemingly probably continue to do so). But this eventually leads to too many
cent, while the tech-heavy Nasdaq inevitable. If active investors Additionally, as liquidity has assets in a particular strategy, which
Composite lost 0.6 per cent, both charge fees and pay transaction improved, transaction costs have finally leads to underperformance.
recovering slightly after heavier losses at 6,000 costs, they will on average underper- declined, so the cost of active turnover is Passive investing is still not at any
opening. Government bonds also came form a passive benchmark. less than it once was. While passive kind of theoretical limit but, when you
under pressure, with the yield on Over time, this return advantage has investing still enjoys an advantage, it is include the impact of active investment
two-year Treasuries rising 2 basis points become so obvious that the dominant meaningfully smaller than it was two or strategies’ benchmark hugging, we
to 4.64 per cent while the 10-year yield force in the US equity market today is three decades ago. believe it may be approaching an upper
added 4bp to 3.84 per cent. 5,500 passive. There is another advantage that limit.
The January US producer price index, 2021 22 23 But while the core tenets of passive passive had over the past few decades Increasingly, the marginal dollar
which tracks wholesale prices, rose at an Source: Bloomberg
make sense, past performance is no that is unlikely to be replayed over the invested in the market is simply buying
annual rate of 6 per cent, down from 6.2 guarantee of future results. Passive next decade or two: the trillions of the market. If certain equities become
per cent in December but well above the strategies have disproportionately dollars that migrated from active to irrationally overvalued, passive funds
consensus estimate of 5.4 per cent. expected retail sales that were expected Dax both rose 0.2 per cent, while the CAC benefited from the wave of money that passive strategies. are increasingly allocated towards it.
The data is the latest signal of to boost corporate earnings. 40 in Paris was a standout performer, up has moved from active to passive. Morningstar estimates that, in 2022, The relative performance of active
persistent inflation that has pushed up “The difference today is that the 0.9 per cent to a record intraday high. Estimates of passive market share in active US equity mutual funds had net managers in particular appears to
the level at which investors expect US narrative has turned towards inflation,” Some economists fear that signs of the US range from 25 to 50 per cent and exhibit cyclicality and they have gone
rates to peak and lowered the number of
Fed rate cuts forecast for later this year.
said John Roe, head of multi-asset funds
at Legal and General Investment
economic strength will encourage the
main central banks to press on with more
our internal analysis agrees. But we
think this underestimates the impact of
While the core tenets through roughly a decade of difficult
performance.
“Strong producer prices to start the Management. “Positive growth implies a interest rate increases. passive. of passive make sense, Passive disproportionately benefited
year in January highlight that there
remain strong underlying inflationary
soft landing, whereas stubborn inflation
points towards a no-landing and the risk
Christine Lagarde, European Central
Bank president, on Wednesday stressed
Many equity managers offer
strategies that are active but hug their
past performance is no from the continual bouts of quantitative
easing and historic levels of fiscal
pressures, particularly due to a still-tight of tighter monetary policy.” the need for more interest rate rises. respective benchmark to some degree. guarantee of future results stimulus, where the best strategy was
labour market and very strong wage The US Dollar index, which measures Brent crude oil, the global benchmark, Looking at regulatory filings by simply to own the market and buy the
growth over the last few years,” said the currency against a basket of peers, gave up earlier gains to trade 0.4 per cent institutional fund managers of their dips. A different environment may
analysts at Citi. rose 0.1 per cent. lower at $85 a barrel, while WTI, the US holdings, we estimate the asset- outflows of $926bn, while passive funds call for more discretion and less
Yesterday’s declines reversed an earlier Across the Atlantic, the pan-regional marker, fell 0.3 per cent to $78.28 a barrel. weighted active share across the Russell had net inflows of $556bn. complacency among equity investors.
gain as investors cheered stronger than Stoxx Europe 600 and Frankfurt’s Xetra Martha Muir 1000 has fallen to 35 per cent, including This would indicate that, on a typical While active managers struggled
a material drop over the past five years. trading day, there was a net flow relative to passive benchmarks in the
Simply put, this suggests that only advantage of nearly $6bn for passive late 1990s, active rebounded quite
Markets update one out of every three dollars (held funds (using similar Morningstar data, significantly over the next decade.
by institutions) deviates from a cap- that number was about $2bn in 2021). Following a decade of recent underper-
weighted benchmark; so the US market While it is hard to quantify precisely formance, active managers appeared to
may actually be two-thirds passive. what kind of net benefit that lends stage a rebound in 2022. Was 2022 an
US Eurozone Japan UK China Brazil We are not suggesting that this will (or passive over active, our estimates are anomaly or the start of a new cycle?
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa should) reverse but we do believe there up to 2 percentage points annually. Passive has been a boon for the
Level 4122.34 1836.50 27696.44 8012.53 3249.03 108999.54 is an increased opportunity in active. Whatever the advantage has been, with typical investor at the expense of active
% change on day -0.61 0.18 0.71 0.18 -0.96 -0.55 Let us start with the two clearest the market in effect two-thirds passive, management — and rightly so. But as we
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $ benefits of passive investing: very low history is unlikely to repeat itself. approach peak passive, the playing field
Level 103.722 1.067 134.205 1.201 6.852 5.238 fees and transaction costs. We also believe investors should take looks a lot more level going forward.
% change on day -0.193 -0.094 -0.067 0.083 0.089 0.111 Passive fees have always been very into account cyclicality. This appears to
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond low on a relative basis and, over the past be a feature of many types of invest- Dan Taylor is chief investment officer at
Yield 3.829 2.476 0.502 3.495 2.887 12.996 decade, have fallen to near-zero for ment strategies; good performance Man Numeric
Basis point change on day 2.800 0.400 0.050 1.200 -0.300 0.500
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 429.80 85.65 79.14 1831.20 21.47 4043.90
% change on day -0.18 0.32 0.39 -1.74 -1.11 -1.14
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.
Main equity markets
S&P 500 index Eurofirst 300 index FTSE 100 index
4320 1840 8320
4160 8000
1760
4000 7680
1680 7360
3840
| | | | | | | | |
3680 | | | | | | | | | | | | | | | | | | | |
1600 | | | | | | | | | | | | | | | | | | | | 7040 | | | | | | | | | | |
Dec 2023 Feb Dec 2023 Feb Dec 2023 Feb
Biggest movers
% US Eurozone UK
West Pharmaceutical Services 13.42 Commerzbank 10.14 Centrica 5.72
Eqt 6.07 Tenaris 8.03 Standard Chartered 4.11
Ups
Cisco Systems 5.85 Orange 6.08 Bt 2.86
Marathon Oil 5.10 Dsm 5.45 Burberry 2.34
Albemarle 4.49 Airbus 4.55 Vodafone 2.32
%
Organon & Co -14.34 Adp -5.31 Imperial Brands -3.63
Henry Schein -6.46 Randstad -3.26 Endeavour Mining -3.37
Downs
Solaredge -5.60 Klepierre -2.64 Hargreaves Lansdown -1.95
Host Hotels & Resorts -5.51 Amadeus It -2.20 3i -1.91
Nrg Energy -5.29 Ucb -2.18 Berkeley Holdings (the) -1.88
Prices taken at 17:00 GMT Based on the constituents of the FTSE Eurofirst 300 Eurozone
All data provided by Morningstar unless otherwise noted.
Wall Street Europe London
Roku surged off the back of better than France’s Atos rallied on announcing that At the top of the FTSE 100 index was
expected results, posting a loss of $1.70 Airbus planned to acquire a minority British Gas owner Centrica, which posted
per share in the fourth quarter, narrower stake in Evidian, the IT services group’s a threefold increase in operating profits
than the $1.73 loss analysts had expected. cyber security and big data arm that was to a record £3.3bn for 2022.
The TV streaming platform said it was set to be spun off. The operator, which has benefited from
on the path to delivering a profit in 2024 Jefferies, commenting on rumours of high energy prices, extended its £250mn
as it “carefully” managed expenditure. such a deal earlier this year, said: “We fail share buyback programme by £300mn
Roku approved a plan last November to understand the rationale of taking a and proposed a final dividend of 2p.
to reduce its headcount by 5 per cent in minority stake as it would limit any Joining Centrica in the top half of the
an effort to reduced its operating costs. synergies that Airbus could extract from blue-chip benchmark was Vodafone
Healthcare product maker West this.” If an agreement was struck, Airbus following a report that the telecoms
Pharmaceutical topped the S&P 500 planned to own a holding approaching 30 group was looking at ways of extracting
index after posting earnings of $1.77 per per cent. more value from its 65 per cent stake in
share in the fourth quarter, comfortably A chunky earnings miss sent Swedish Vodacom, an African mobile operator.
topping the Refinitiv-compiled estimate cloud computing group Sinch tumbling. Bloomberg said the group was
of $1.38. It posted a loss after tax of SKr226mn exploring several options, which spanned
Eric Green, chief executive, said it ($21.6mn) in the fourth quarter, well merging the business to selling a stake.
entered “2023 with a strong order book”. below the SKr174mn profit that analysts London-listed pharma group Indivior
Joining West at the top of the had expected. dived on announcing an $85mn operating
blue-chip benchmark was networking Johan Hedberg, interim chief executive, loss for 2022 against a $213mn profit a
conglomerate Cisco. said the seasonal uptick in messaging year earlier.
Overnight, it upgraded its revenue and volumes expected in the quarter “was not It has been embroiled in US legal action
earnings forecast for 2023, driven by its as definitive as we have seen in previous related to Suboxone, an anti-addiction
“growing recurring revenue base and years” with some customers now medication, and has set aside $290mn
. . . healthy backlog”, it said. prioritising profitability ahead of growth, “for legacy civil multi-district antitrust
An unexpected loss sent Boston Beer which made them “more price sensitive”. litigation matters”.
sharply lower with the maker of Truly Germany’s Commerzbank leapt after The unveiling of a “growth plan” lifted
hard seltzer reporting a loss of 93 cents its net profit more than tripled in 2022 to fast-fashion retailer Boohoo.
per share in the fourth quarter, well wide €1.44bn, its highest level in more than a It said there was “little or no value” in
of the 70 cents profit that Wall Street had decade. its existing management incentive plan
excepted. More money would also be returned to so announced a scheme with a maximum
Dave Burwick, chief executive, blamed investors through a €122mn share payout worth £175mn if Boohoo’s shares
this on “our production mix and supply buyback and dividend of 20 cents per hit £3.95, more than 700 per cent higher
chain inefficiencies”. Ray Douglas share. Ray Douglas than its current price. Ray Douglas
10 ★ FINANCIAL TIMES Friday 17 February 2023
MARKET DATA
WORLD MARKETS AT A GLANCE FT.COM/MARKETSDATA
Change during previous day’s trading (%)
S&P 500 Nasdaq Composite Dow Jones Ind FTSE 100 FTSE Eurofirst 300 Nikkei Hang Seng FTSE All World $ $ per € $ per £ ¥ per $ £ per € Oil Brent $ Sep Gold $
-0.61% -0.62% -0.60% -0.18% -0.094% -0.067% -0.112% -1.74%
0.18% 0.18% 0.71% 0.84% 0.083% 0.25%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparison
AMERICAS EUROPE ASIA
Jan 17 - - Index All World Jan 17 - Feb 16 Index All World Jan 17 - Feb 16 Index All World Jan 17 - Feb 16 Index All World Jan 17 - Feb 16 Index All World Jan 10 - Jan 20 Index All World
S&P 500 New York S&P/TSX COMP Toronto FTSE 100 London Xetra Dax Frankfurt Nikkei 225 Tokyo Kospi Seoul
2,395.26
27,696.44
4,122.34 8,012.53 15,499.38
20,578.57 2,356.73 2,395.26
20,376.23 7,830.70 15,181.80 26,791.12
3,928.86
Day -0.61% Month 3.52% Year -7.86% Day -0.19% Month 2.33% Year -3.28% Day 0.18% Month 2.79% Year 5.36% Day 0.18% Month 0.79% Year NaN% Day 0.71% Month 4.81% Year 3.19% Day 0.63% Month 1.83% Year -11.54%
Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
11,996.24 9,327.30
1,836.50
53,504.06 1,805.87 8,933.30 21,678.00 3,311.23
53,128.97 20,987.67 3,283.60
10,957.01
Day -0.62% Month 9.78% Year -15.04% Day 1.11% Month 1.51% Year 0.62% Day 0.18% Month 3.41% Year 0.51% Day 0.35% Month 6.89% Year 6.99% Day 0.84% Month -2.47% Year -13.85% Day 0.93% Month 1.33% Year -3.22%
Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
27,853.74
7,366.16
33,922.02 112,228.39 3,249.03 61,319.51
33,296.96 7,083.39 26,052.39 60,655.72
108,791.24
3 161 84
Day -0.60% Month -0.78% Year -2.90% Day -0.55% Month -3.13% Year -5.37% Day 0.89% Month 5.60% Year 5.53% Day 1.16% Month 8.31% Year 3.35% Day -0.96% Month 2.71% Year -5.72% Day 0.07% Month 2.15% Year 5.34%
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12 ★ FINANCIAL TIMES Friday 17 February 2023
ARTS
Miniature superhero delivers big fun
This week’s film releases Ant-Man and the Wasp:
Quantumania
reviewed by Danny Leigh Peyton Reed
and Leslie Felperin AAAEE
S
Sharper
omewhere in a meeting room Benjamin Caron
at Marvel Studios, within the AAAEE
wider Disney headquarters, a
detailed presentation must Marcel the Shell With Shoes On
have broken down exactly the Dean Fleischer Camp
target audience for Ant-Man and the AAAAE
Wasp: Quantumania. In the thick of this
good-natured mishmash of a B-movie, The Son
you might find yourself pondering it. Florian Zeller
The star remains the industrially like- AEEEE
able Paul Rudd, cast again as Scott Lang,
shrunk in previous adventures into a
miniature superhero. If Rudd is a draw
across demographics, politically active was said. I said it myself. It only deepens
daughter Cassie (Kathryn Newton) now the mystery of how he made this.
pitches to Gen Z. But the project is seem- Having The Son follow The Father is
ingly aiming up the age scale too. For quite the conceit. You picture Zeller giv-
those of the vintage who may to want to ing a satisfied click of the heels. Another
see Michelle Pfeiffer and Michael Doug- is that there are multiple sons here. The
las star in a film together, the company most obvious is Nicholas (Zen
says you can. You just have to watch McGrath), a troubled, socially isolated
them fight CGI goons alongside giant teenager. The setting is Manhattan, con-
camel-snails. jured by the exposed brick apartment of
But we open with Rudd, and the gen- his father, Peter (Hugh Jackman). To
tle midlife crisis one might expect from begin, the boy moves in. His school com-
the second sequel to a comic offshoot. A plains of serial truancy; relations with
jolt to the system is required. It comes, his mother Kate (Laura Dern) have
essentially, with a family vacation: a trip soured after his parents’ divorce. Now
into the “quantum realm”, an alternate he reunites with dad, along with Peter’s
universe gatecrashed by Cassie, Scott, second wife Beth (Vanessa Kirby). The
brilliant wife and mother Hope (Evan- Above: Paul Rudd and Jonathan Majors in ‘Ant-Man and the Wasp: Quantumania’. Below left: ‘Marcel the Shell With Shoes On’ couple fret about the kid’s withdrawn
geline Lilly) and her genius parents, affect. There is also their newborn,
played by Pfeiffer and Douglas. let it show. “This isn’t exactly ant sci- Nana Connie gardens during the day Theo, to consider.
Like so many secret universes, lava- ence, is it?” she asks Douglas, with the while Marcel and his pet lint ball mooch But Peter is very much a son as well.
lamp visuals loom. Yet it is not really a same hauteur she used in Scarface to about, sleeping at night in his “bread- References to his childhood dot the
universe at all, we learn, but that mod- warn Al Pacino about getting high on his room” between two slices of bread. But film’s clunking melodrama. Met in brief,
ern obsession: the multiverse. Though own supply. the quietude of their existence is dis- his tyrant father is played — ta-da! — by
the script unpacks probability theory, The fun (abundant) comes with rupted when Dean turns them into Anthony Hopkins. The older actor is
the chance of anyone watching this film Pfeiffer and the nonsense physics, the internet superstars overnight. That plot almost worth a ticket. But the uneasy,
who hasn’t already had it explained by bubblegum vibe and Rudd’s fail-safe point mirrors how the original home- eternal truth behind his killer scene —
Spider Man: No Way Home or Everything deadpan. The blockbuster fight scenes made short films about Marcel by Slate we parent in answer to how we were
Everywhere All At Once must now be sub- that were once every Marvel film’s cen- and Fleischer-Camp went viral back in parented — puts a harsh spotlight on the
atomically small. trepiece are throwaway. That much 2010, while a strand about the bickering manipulative hokum everywhere else.
The loudest echoes of Everything chunk of plot goes to a woman over 60: makes this an odd entry to the studio’s couple who used to live in the house The casting doesn’t help. Hopkins lit
Everywhere come with who ends up Pfeiffer, our greenscreen action heroine. world for the talented Jonathan Majors, maybe echoes the disintegration of the up The Father. In The Son, Jackman
in the midst of the chaos. Just as that If the actress is privately puzzled as to cast as new long-term villain Kang. But filmmakers’ own real-life relationship. brings precisely the depth you would
movie centred on Michelle Yeoh’s har- how she got here amid the gooey effects it is hard to resist the mischief at work A wistful theme of loss and loneliness expect from the star of The Greatest
ried launderette owner, here too a and knowing pulp dialogue, she doesn’t here. The film has already teased the runs through the film, nominated for an Showman. I know: a cheap shot. Jack-
pomp of Dune before Douglas mentions Oscar last month for Best Animated man is a fine lead for a different sort of
socialism in admiring tones. That much Feature. We learn that Marcel and Nana movie. But watching Hopkins act him
confirms it. The movie won’t rest until Connie were once part of a large com- off screen, you wonder if Zeller is mak-
the ghosts of Frank Herbert and Walt munity of shells, but an unfortunate ing a sardonic point: the old casually
Disney have spun themselves silly. DL incident reduced their number to just blitzing the young. Then Jackman
In cinemas now two. Meanwhile Nana Connie is losing resumes conveying psychic trauma with
her memory and growing weak. How the air of someone thinking he might
Sharper, the pulpy, Manhattan-set Marcel copes with this shell-cracking have lost his car keys.
thriller about confidence tricks and stress forms a beautiful final act that’s But it’s the film that has the character
double crosses, is mostly a hoot and so tender but never twee thanks to adept flaw no actor could redeem. The Son has
tidily executed it’s only later that you comic timing and playful use of scale. LF little time for Nicholas’s mother: the role
may find yourself questioning the plau- In UK cinemas now is so thin, it feels bizarre Dern is playing
sibility of its wacky denouement. But as it. Yet grimmer still, the film isn’t really
with a good display of mentalism, it’s Some bad reviews are a pleasure to interested in Nicholas or his depression
best to just relax and enjoy the show- write. With others, mean-spirited glee is either. Or it is, for as long they yield
manship and sleights of hand embed- outweighed by actually having to relive queasy dramatic tension. (Will baby
ded in the subtlety of the performances. the film. Or maybe your mood is more be safe?)
The film shuffles five main characters sorrowful than angry. Both things are The Son feigns to paint itself saddened
around the board like coconut half- true of The Son, the appalling new film that Nicholas can’t articulate his state of
shells and asks us to guess who is the from Florian Zeller. mind. If he could, that would distract
grifter and who is the mark. Viewers The writer-director is also a brand- from Peter, to whose inner anguish Zel-
familiar with the faces of stars Sebastian name playwright; his latest movie is ler endlessly, cynically directs us. And
Stan, Julianne Moore and John Lithgow adapted from his own play. So was his then he puts the crisis of a child’s mental
may be tempted to guess whether they last, The Father, in which Anthony Hop- health away again, back with the other
are playing good or bad guys based on kins starred in a fractured portrait of props. DL
characters they’ve played in the past. Alzheimer’s disease. A masterpiece, it In UK cinemas now
But that could itself be a trap, especially
given how protean these actors can be. Left: Zen
Can we even trust that their charac- McGrath in
ters are who they say they are? Is Max ‘The Son’.
(Stan) really a druggie ne’er-do-well? Is Below: Justice
his mother Madeline (Moore) actually Smith and
that devoted to her partner, hedge-fund Julianne Moore
billionaire Richard Hobbes (Lithgow)? in ‘Sharper’
Rekha Garton; Alison Cohen
And how are they related to the two Rosa
more unknown quantities we meet in
the first act, shy bookseller Tom (Justice
Smith) and PhD student Sandra (Briana
Middleton), who fall in love in a mon-
tage of upmarket, style-section clichés?
The word “glamour” originally
referred to enchantment and magic —
pretty things are not to be trusted — and
that’s certainly the case here with this
toothsome cast of characters. It’s a
shame that the final twist is too silly by
half, like a spot of neon polyester in an
otherwise immaculate wardrobe. LF
In UK cinemas now
Like many of the best films and books
with deep transgenerational appeal,
Marcel the Shell With Shoes On feels
simultaneously strange and comfort-
ingly familiar, like a half-remembered
dream. The protagonist is nothing more
or less than the title’s description: a sea-
shell roughly an inch high with one
googly eye, an animated mouth and
trainers made of modelling clay.
Brought to life via stop-motion anima-
tion within an otherwise live-action
world, Marcel has just enough body
parts to create a deeply expressive little
character, whose constant burbling
stream of chatter was semi-improvised
by actor Jenny Slate — who co-wrote the
film with the director, Dean Fleischer-
Camp (also Slate’s ex-husband).
Don’t let Marcel’s breathy, soprano
chirp fool you into thinking he is merely
cute. He’s also a bit of a prankster, and
not above throwing a little shade at
Dean for being a sad sack who spends his
days interviewing Marcel and Marcel’s
grandma Connie (Isabella Rossellini).
Friday 17 February 2023 ★ FINANCIAL TIMES 13
FT BIG READ. INDUSTRIAL POLICY
The Biden administration is pouring billions of dollars into green technology in an effort to decarbonise
the US and rejuvenate its manufacturing heartlands. It is a gamble with huge geopolitical ramifications.
By Derek Brower and Amanda Chu
America’s bid for cleantech supremacy
I
n a huge hangar in Quonset Point,
Rhode Island, welders are aiming
blazing torches at sheets of alumin-
ium. The hulls of three new ships,
each about 27 metres long, are tak-
ing shape. The first will hit the water
sometime in the spring, ferrying work-
ers to service wind turbines off the New
England coast.
The US barely has an offshore wind
sector for these vessels to service. But as
the Biden administration accelerates a
plan to decarbonise its power genera-
tion sector, turbines will sprout along its
coastline, creating demand for services
in shipyards and manufacturing hubs
from Texas to New York.
Senesco Marine, the shipbuilder in
Rhode Island, has almost doubled its
workforce in recent months as new
orders for hybrid ferries and larger crew
transfer vessels have come in. “Every-
body tells me recession in America is
inevitable,” says Ted Williams, a former
US Navy officer who is now the com-
pany’s chief executive. “But it’s not hap-
pening in shipbuilding.”
Nor is it happening in any clean
energy sector in America. Across the
country, a new revolution is under way
in sectors from solar to nuclear, carbon
capture to green hydrogen — and its
goals are profound: to rejuvenate the
country’s rustbelt, decarbonise the
world’s biggest economy, and wrest con-
trol of the 21st-century’s energy supply
chains from China, the world’s clean-
tech superpower.
The world is only just beginning to
contend with what it means. Less than
three years ago, the US had ditched the
Paris agreement on climate change and
then president Donald Trump was tout-
ing an era of American energy domi-
nance based on the country’s fossil fuel
abundance.
Since then, President Joe Biden has
Sweeping
legislation has
colour and military veterans. “We’re
hiring right out of high school,” says Joe
reach $800bn, and $1.7tn once the pri-
vate spending generated by the loans
cobalt, while North America makes up
less than 5 per cent of production,
‘It is truly “chronic sclerosis” of current permit-
ting rules means that by the time
passed sweeping legislation to reverse been aimed at Mastrangelo, the Edison, New Jersey- and grants is included. according to the IEA. massive projects have met all the conditions
course. Last year’s colossal Inflation spurring based head of Eos Energy Enterprises, The tax breaks have made marginal “The Germans make a lot of this stuff. demanded of them, about 95 per cent
Reduction Act and its hundreds of bil- investment in the company making the batteries. projects suddenly economical, say The Chinese make a lot of this stuff. So . . . It’s have been delayed by five years or more.
lions of dollars in cleantech subsidies
are designed to spur private-sector
technologies
such as wind,
His goal for the factory is to double its
total capacity to 3 gigawatt-hours in
developers. A battery plant can gener-
ate tax credits of up to 50 per cent of
we are still facing the irony that for the
IRA to succeed in the short term, it still
industrial This could limit the green potential of
the legislation. While credible models
investment and accelerate the country’s solar and car 2024, producing a battery every 90 sec- headline costs, if it meets several crite- relies a lot on China,” says Scaysbrook. policy. It’s suggest the law’s provisions could allow
decarbonisation effort. batteries on onds once the plant is fully automated. ria including prevailing wage require- Some early progress is being made. the US to cut 45 per cent of emissions
“It is truly massive,” says Melissa Lott, home soil The workforce will also double, to 500. ments, domestic sourcing of materials Last month, GM announced $650mn to
the kitchen compared with 2005 by 2030, putting it
director of research at Columbia Uni- FT montage; AFP/Getty
Images/Dreamstime
“We’re doing this in a location that and location in a fossil fuel community. develop the Thacker Pass mine in sink. It’s a within spitting distance of the Biden
versity’s Center on Global Energy Pol- was historically an old energy economy, This can translate into an effective Nevada, the US’s largest known source administration’s target of 50 to 52 per
icy. “It’s industrial policy. It’s the creating not jobs but career paths for reduction of 60 to 65 per cent of a of lithium. Honda, Hyundai, BMW and strong, cent, slower permitting could reduce
kitchen sink. It’s a strong, direct and
clear signal about what the US is priori-
people to get to middle class,” Mas-
trangelo says.
project’s fair market value, according to
law firm Vinson & Elkins.
Ford have all announced multibillion-
dollar plans to build batteries in the US.
direct and this to 35 per cent, says Lott at the CGEP.
Given the tight timeline to get the
tising.” Climate is central to the IRA. But it is “It enables us to grow and also enables But it’s a drop in the ocean compared clear signal projects up and running — both to capi-
The tax incentives have made the US industrial policy on a grand scale too, a further incentive for people that want with the scale of Chinese domination. talise on the 10-year tax credits and to
irresistible to investors, say cleantech aiming to revamp the US’s decrepit to invest,” says Mastrangelo. Wood Mackenzie estimates the US will about what meet the Biden administration’s decar-
developers, and are sucking money
away from other countries. Since the
infrastructure and create advanced
manufacturing jobs in rustbelt regions
Wood Mackenzie estimates invest-
ment in energy storage will more than
make up 13 per cent of lithium battery
manufacturing by the end of the decade,
the US is bonisation targets — worker shortages
are another pressing problem. “We have
passage of the IRA last year, $90bn of like western Pennsylvania, once the triple by the end of the decade, reaching only a 3 per cent upward revision com- prioritising’ another generation of mega projects in
capital has already been committed to heart of the country’s steelmaking $15.8bn. Energy storage capacity addi- pared with forecasts before the IRA. front of us and the labour market is
new projects, according to Climate industry. From Ohio to Georgia, invest- tions will grow from 5GW to 25GW per Asia-Pacific will still account for two- already strained to the limit,” says Anir-
Power, an advocacy group.
“The US is now the most opportunity
ment is also pouring into lithium-ion
energy storage, the technology that will
year by 2030, enough to power almost
20mn homes.
thirds. “There are so many components
when you think about building solar
‘This is the ban Basu, chief economist at the Associ-
ated Builders and Contractors.
rich, most aggressive growth, most pro- underpin the electrification of the US While juicy subsidies are also availa- and wind. It’s not going to be realistic future of The ABC estimates the US will need to
lific market for renewables investment auto fleet. ble for wind and solar, the IRA’s biggest that the US is going to become totally add half a million more construction
in the world today,” says David All told, the IRA offers $369bn of tax impact may be on technologies that self-sufficient in that way,” says Marlene ambitious workers in 2023 on top of the normal
Scaysbrook, managing partner of Quin-
brook Infrastructure Partners, a global
credits, grants, loans and subsidies,
many of them guaranteed past 2030.
have yet to achieve scale, including car-
bon capture and bioenergy.
Motyka, US renewable energy leader at
Deloitte.
climate hiring pace to meet demand: a sign that
clean energy is creating the jobs, but an
cleantech private equity group. “And The credits can be sold, too, allowing For green hydrogen, a potential clean
Too much red tape
legislation alarming prospect for the developers.
will be for quite some time.” deep-pocketed investors with enough alternative to natural gas in industries Some of the IRA tax credits also
And yet it is a gamble for the US too. tax liability to buy the credit — a way to such as steelmaking, the subsidies wipe To claim the mantle of cleantech super-
that can depend on paying prevailing wages and
The ring of protectionism, and the sheer get more capital to developers, quickly. out about half the project cost. power from China will take an extraor- actually including apprenticeships in the work-
scale of state intervention, has alarmed Credit Suisse thinks the public spend- For Europe, which hopes scaling up dinary expansion of infrastructure — force — measures designed explicitly to
allies. France’s president Emmanuel ing enabled by the IRA could eventually domestic supplies of green hydrogen but not everyone in the US welcomes it. pass’ address the longstanding complaints of
Macron says the IRA could “fragment can speed decarbonisation and help This month, authorities in Scranton, American workers who have watched
the west”. Ursula von der Leyen, the Inflation Reduction Act will boost renewable replace the loss of Russian natural gas, Pennsylvania — the city Biden regularly jobs “shipped overseas” over decades of
European Commission’s president, has investment to nearly $114bn a year by 2031 the US now poses a threat. The EU is invokes to remind Americans of his globalisation, but which are also
complained it would bring “unfair com- US renewable capacity additions (GW) and investment ($bn) scrambling to respond, but the US blue-collar heritage — held a 90-minute increasing costs. “These standards are
petition” and “close markets”. by year incentives are so comprehensive — tax zoning board hearing about a proposed actually going to undermine the Biden
And the underlying effort to break the breaks for every section of the green solar array on West Mountain, north- administration’s clean energy agenda as
dependence on cheap Asian compo- Solar distributed Annual investment hydrogen supply chain — that it will be west of the city’s centre. a whole,” says Ben Brubeck at the ABC.
nents that have sped the advance of Solar utility hard to compete, say analysts. The array, said its developers, would It leaves the pace of the energy transi-
Offshore wind 120
renewables in recent years leaves many “If you look at the price at which a well have created dozens of jobs and been tion in the US depending on how, or
analysts sceptical. At a time when the Onshore wind located green hydrogen project, let’s say sited on a former coal mine — exactly whether, the Biden administration will
100
White House is also contending with Storage in Texas, exporting through the port of the kind of project that the federal gov- be willing to compromise.
high inflation and Russian aggression, 80 Corpus Christi, could generate green ernment wants to coax along. Even many supporters wonder how
can the US reset the global energy order, hydrogen if they can access low-cost But residents were less impressed. an industrial policy to rejuvenate Amer-
create high-paying cleantech jobs at 60 renewable power — it’s pretty untoucha- One of them, Brian Gallagher, said he ica’s manufacturing heartlands can hap-
home and cut emissions — all at the ble,” says Scaysbrook. “It’s a pretty would be able to see the facility from his pen alongside an effort to decarbonise
same time? 40 potent trade advantage.” porch. “We’re not an asset, we’re a the economy in less than a decade — all
“There is simply no reason why the neighbourhood. We don’t want to wake while the US adopts a geopolitical strat-
blades for wind turbines cannot be The geopolitics of the IRA up and look at this,” he said. The board egy to compete with China in a new
20
made in Pittsburgh rather than Beijing,” Gaining a similar advantage over China, voted 4:1 against the project. clean energy race.
Biden said in a speech last April. 0 however, will be far harder. About two- The US may have the west’s most gen- Others say one cannot happen with-
“Global arms race for clean energy? 2022 23 24 25 26 27 28 29 30 31 thirds of the world’s batteries for elec- erous subsidy regime and its federal out the others. Either Biden ensured the
Certainly,” says Daniel Liu, an analyst at Source: Wood Mackenzie tric cars and nearly three-quarters of all government may be committed to fight for the climate would bring jobs for
Wood Mackenzie. “But there has to be solar modules are currently produced in reshoring supply chains, but permits to Americans, or Americans would forget
some level of collaboration because no
US lags far behind rivals in renewable China, according to the International build stuff are another matter. about climate. Either the reliance on
country can do it alone.” electricity generation Energy Agency. BloombergNEF esti- Congressional efforts to loosen the foreign supply chains would be broken,
Share of renewable generation, 2021 mates China invested $546bn in its rules have made little progress, leaving or America would be relegated in the
Powering growth 0 20 40 60 80
energy transition in 2022. states and local authorities with signifi- new global energy order.
In a warehouse in Turtle Creek, just east Brazil Meanwhile, the domestic supply of cant power to block projects. “This is the future of ambitious cli-
Canada
of Pittsburgh, Pennsylvania, a line of Germany raw materials, parts and processing But building transmission infrastruc- mate legislation that can actually pass,”
workers are assembling batteries, each China capacity is lacking too. The lithium ture across state lines — crucial if windy, says Sonia Aggarwal, a former Biden cli-
about the size of a suitcase, based on France refineries, and nickel and cobalt for bat- sparsely populated regions such as mate adviser who now runs the Energy
zinc — an alternative to lithium-ion that Japan teries; the rare earth materials for solar Oklahoma are to be connected with big Innovation think-tank. “We have to
its proponents say will offer competi- US modules; the nacelles and monopoles consumer centres on the coasts — is actually be more holistic. Without
tively priced, non-flammable, dispatch- Russia for offshore wind — almost everything especially difficult. Paul Bledsoe, a including worker policies, and including
able energy for hospitals, schools and India can be sourced more cheaply abroad. former Clinton White House adviser this broader global perspective of where
South Korea
other stationary users. Together, China and Europe produce who now works for Washington’s Pro- we are going, we wouldn’t have the cli-
It’s a young cohort, many people of Source: US Energy Information Administration more than 80 per cent of the world’s gressive Policy Institute, says the mate policy at all.”
14 ★ FINANCIAL TIMES Friday 17 February 2023
The FT View
The great British business investment problem
should focus on developing the right tax regulation also has a stultifying effect on Chopping and nesses scale up, partly by reducing regu-
UK plc needs a bold, allowances, slashing barriers to busi- business growth, squeezing investment. changing of latory barriers and consolidating the
ness growth, and rebuilding Britain’s The increase in corporation tax from numerous defined contribution pension
long-term plan to reputation for stability. 19 per cent to 25 per cent will make the
policies is
schemes. The role of equity funding
support capital spending A stable set of capital investment UK less competitive. The government damaging. A more broadly needs rebooting. It needs
incentives is a key starting point. The should endeavour to lower it over time. long-term tax to be easier and cheaper for companies
Britain has an investment problem. For current “super-deduction” tax allow- Business rates — a levy on property — road map would to list, and investor relief schemes need
decades, business spending on things ance expires in March, just as busi- are among the most onerous in the G7. be valuable long-term backing. Reducing the tax
like plants and machinery as a portion nesses are hit with a big increase in cor- Reform is needed to reduce their drag differential between debt and equity
of GDP has lagged well behind other G7 poration tax — which would leave the on small business growth and property finance, to incentivise the latter, could
nations. Investment has stalled since UK among the least competitive capital investment. Meanwhile, thousands of be explored.
the Brexit referendum, and has only just allowance regimes in the OECD. Gener- small firms are deliberately curbing Stability is essential to give businesses
returned to pre-pandemic levels. Sub- ous allowances should be extended per- their revenue to avoid passing the clarity to plan. The chopping and chang-
par capital spending has led to flatlining manently or replaced by a system of full £85,000 threshold to charge VAT. A ing of policies is damaging. A long-term
productivity — which has held back expensing which would give firms long- smoothing mechanism whereby a tax road map would be valuable. The
growth, wages and tax revenues. The term certainty in their ability to offset reduced charge is applied for those that planned bonfire of EU-derived laws by
UK is now forecast to be the only major investments against their tax bills. just exceed it could help unlock growth. the end of the year is, meanwhile, caus-
economy to shrink this year; corporate Stronger incentives could be added for Boosting access to finance is vital too. ing significant uncertainty, and a speedy
insolvencies are set to rise and invest- green and digital spending. Ensuring Britain has deep pools of long-term cap- resolution to the dispute over trade
ment prospects will weaken further. A R&D tax incentives remain attractive is ital, but less than 1 per cent of the rules with Northern Ireland is crucial.
plan to get businesses investing again is also crucial to support spending by £4.6tn in pensions and insurance assets Short-term attempts to jolt investment
paramount, or Britain’s low-growth growth sectors such as biotech. A is invested in unlisted UK equities, will be tempting for policymakers. But
malaise risks becoming entrenched. planned reduction to credits used by according to New Financial, a think- the issue demands a holistic approach
There is no silver bullet to overturn- start-ups is already leading investors tank. Venture capital is widely avail- that supports business growth and con-
ing a longstanding and complex prob- and innovative firms to look abroad. able, but Britain needs to unlock fund- fidence over the long-term. The eco-
ft.com/opinion lem. But this and future governments The cumulative burden of tax and ing from these other pots to help busi- nomic prize for getting it right is huge.
Opinion Data Points
Letters
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Include daytime telephone number and full address
Corrections: [email protected]
If you are not satisfied with the FT’s response to your complaint, you can appeal
Man City’s outsized to the FT Editorial Complaints Commissioner: [email protected]
domination is hurting Companies are looking to management researchers for answers
English football In answering his own question “Why
are few management research ideas
the current explanatory approach (eg
why some firms are better than
What makes design-oriented
research so important is its goal of
which focused on the transfer of
business knowledge. This example and
taken up?” (Opinion, February 6) others). How should companies design generating and validating knowledge research approaches in related areas
Andrew Jack cites the problems of too their supply chains? How can we that can be used to shape things. such as business informatics show that
John Burn-Murdoch little knowledge transfer, institutional
publication barriers and business
organise start-up ecosystems? Or, in
much more general terms, how will we
A few outstanding examples show
what management research can
management research can also solve
problems in a design-oriented way. It
professors’ lack of practical experience. conduct business in the future? achieve. For example, a study simply has to want to do this.
These are commonly discussed These are all questions that published in the journal Science Christoph Seckler
Man City’s on-pitch performances have far exceeded the reasons; however, we believe that the academics like us are asked by business developed and tested a training course Assistant Professor of Entrepreneurial
core issue is the current approach in leaders in executive programmes. They for small companies in west Africa. It Strategy
typical level associated with its wage bill management research. are also fair, legitimate questions. was able to demonstrate that training René Mauer
Premier League wage bills vs on-pitch performance levels, averages 2015−2023 We have proposed a shift towards However, modern management based on psychological principles Professor of Entrepreneurship and
Circle size indidcates number of seasons
Man City more design knowledge (eg how to researchers are making little effort to produces better results than a training Innovation
80 points per season* build better organisations), away from answer them. That needs to change. course provided by the World Bank, ESCP Business School, Berlin, Germany
Liverpool
70 Chelsea
Arsenal ) Man Utd
60
Spurs
ared
: 0..883 The economic conditions Your reweighting of MBA Here’s a name to consider
squ
Soton
Leics
ndlili
n e ( r− that make wars more likely rankings should go further as Biden’s running mate
50 Brighton Tre
Watford Everton
One year has passed since the start of Your decision to update the If, as Jim Clyburn recommends (“Key
Burnley Villa Russia’s invasion of Ukraine, and methodology for the Global MBA Democrat backs Biden for four more
40
nothing seems to indicate that the rankings after 25 years (“Global MBA years”, Interview, February 13), Joe
Cardiff Norwich flames of war are dying. Why does the Ranking 2023: change at the top”, Biden runs again in 2024, when he will
30
0.5x 1x 2x war still continue? Why are military Report, FT.com, February 12) is very be 82, his choice of a running mate and
Wage bill relative to median in each season (log scale) tensions rising in the world? welcome. likely successor will be crucial.
*Figures show ‘expected points’, which are based on the results a team could have expected from the We reject the thesis of a “clash of As is the revising downwards of the A friend of mine has come up with a
scoring opportunities it created and conceded in each game civilisations”. Rather, we need to importance of salary components — striking idea, which I have not heard
Source: FT analysis of Understat and clubs’ accounts
F
recognise that the contradictions in the salary levels three years after aired in the media: Mitt Romney. How
deregulated global economic system graduation and wage increases from many sensible Republicans who loathe
ootball is a simple game. billionaire-owned sides have generally have made geopolitical tensions more before the MBA — so that they now Trump and his ilk would vote for that
Twenty-two players chase a shifted themselves along the trendline acute (Opinion, February 14). account for 32 per cent rather than ticket? It would turn Trump’s base into
ball for 90 minutes, and at — spending more money and enjoying One of the worst faults of the present 40 per cent of the total, as previously. a forlorn rump and tilt all the purple
the end the team with the a commensurate improvement in per- system is the imbalance in economic The new proportion, however, still states towards Biden.
highest wage bill wins. My formance — City have sheared away relations inherited from the era of free- seems unduly high when compared Professor Louis W Marvick
version of Gary Lineker’s original line entirely, dominating even opponents market globalisation. We refer to with the weightings for “international University of Nevada, Reno, NV, US
on the inevitability of German victory with similarly substantial wage bills. international net positions, where the diversity and gender parity” which Lüneburg, Germany
may be less witty than his, but it cap- Averaged over the last nine seasons, US, the UK and various other western each just score 3 per cent.
tures something of English football’s most Premier League clubs have fared countries have large external debts, Moreover, the table on the top 25 Musk price cuts damage
growing credibility crisis. roughly as well as we would expect while China, other eastern countries, schools still leads with the weighted
The association between spending based on the historical relationship and to some extent Russia are in an Consultants’ critique had salary for each one. Tesla’s ‘exclusivity’ claims
power and success on the pitch has between wages and performance. external credit position. Given the influence of the FT It would appear that Elon Musk has
been established for some time in aca- There are of course exceptions — A consequence of this imbalance is a me nodding in agreement rankings on business schools, there is a misread the reasons why Bernard
demic circles, and went mainstream in Brighton have earned about seven tendency to export eastern capital to As the founder of a consulting firm, I danger that they drive their approach Arnault has become a richer man than
the 2009 book Soccernomics, co-au- more points per season than their the west, no longer only in the form of should have disagreed with Mariana in terms of subjects taught, and he is (“Tesla reduces prices across
thored by my colleague Simon Kuper. wage bill would indicate, while Man- loans but also of acquisitions leading to Mazzucato’s interview criticising the students and staff recruited, with too Europe and US by up to 20%”, Report,
On average, the more money a football chester United have underperformed a centralisation of capital in eastern government’s use of consulting firms great a focus, in relative terms, on the January 14). People value exclusivity
club spends on its staff — both players by about six points — but City are an hands. (The Henry Mance Interview, highest earning areas after graduation and while previously owning a Tesla
and coaches — the better its results. outlier. The club has bludgeoned its To counter this trend, the US and its February 13). Instead, I found myself rather than on addressing the critical could be seen as a badge of honour,
It’s an inconvenient truth for a sport way to 15 more points per season than major allies have for several years nodding in agreement. needs of society in the decades ahead. increasingly owning one is considered a
we would expect based on the wage abandoned their previous enthusiasm In response to Mazzucato’s view, There would therefore be merit in mundanity equivalent formerly to
bill relative to other clubs. for deregulated globalism and have governments urgently need to change the FT further strengthening its being the owner of a Ford Mondeo.
The club has bludgeoned Such an extreme divergence from
the historical trend raises an obvious
adopted a policy of “friend shoring”: an
increasingly pronounced protectionist
how they procure consultancies.
Having participated in several public
controls on the calculation of its
business school rankings by appointing
This issue can only be exacerbated
with its dramatic price cuts.
its way to 15 more points question: how have they managed to closure against goods and capital from procurement processes, the an independent international panel of With marques including Porsche,
per season than we would reach a level of performance that China, Russia and much of the non- procurement teams like to window business school and university leaders, Audi and even Kia offering products
would typically be associated with a aligned east. The EU too has been dress with multiple selection criteria employers, business school graduates that rival and even surpass Tesla in
expect based on its wages team spending tens of millions more? joining this American-led protectionist but almost all decisions come down to and representatives of wider society to terms of performance and range, Tesla
One possibility is that just like other, turn. price. In all likelihood, the winning determine the constituent elements of would do well to position itself as the
that has always styled itself as belong- more modest over-performers If history is any guide, these consultancy “bought” the project and the rankings and the weightings Apple of the automotive world and
ing to everybody. For the most part Brighton and Liverpool, City have uncoordinated forms of protectionism inevitably sent the “D” team. attached to them. maintain its position as the most
this has been tolerated by fans and mastered the arts of data-driven exacerbate international tensions and Think about it from the individual Anthony Carey desirable and trendy automotive
owners of the less wealthy clubs — this recruitment to maximise the on-pitch create favourable conditions for new consultants’ perspective. You can work London HA2, UK company in the world.
is partly because there has always value of every pound they spend. The military clashes. The conflict in on a highly profitable project where the David Coombs
been space for a meritocratic interpre- additional factor of employing argua- Ukraine and rising tensions in the Far client values your input and is focused Lack of non-compete rules Corby, Northamptonshire, UK
tation in which the clubs with the most bly the best coach in the world, Pep and Middle East can be fully on the business benefit of your
money have earned it through supe- Guardiola, provides a boost. This is understood only in the light of these participation, or you can work on a isn’t an issue for California Some questions for the
rior performances, rewarded by prize plausible — since Guardiola’s arrival, major economic contradictions. government project with skinny I read with interest the article on non-
money and more paying fans. And the “Citizens” have been the best-per- A new international economic policy margins, politics and expectations compete clauses (“US companies resist Centrica chief executive
partly because the gaps in perform- forming team in the league every year initiative is therefore required to head mismatched with the price. ‘legally questionable’ proposal to ban There’s only so much a company can
ance tracked the gaps in spending — across a raft of different metrics. off the threat of further wars. So the unintended outcome is, at non-compete clauses for staff”, Report, do, said British Gas chief Chris O’Shea,
which is to say they have been merely However, among the more than 100 A plan is needed to regulate current best, a suboptimal use of public funds February 10). as he announced £3bn record profits at
large, rather than vast. allegations of financial rule-breaking account imbalances, which draws on and, at worst, a failed project. California has banned these types of parent Centrica (Report, FT.com,
But neither of those factors holds levelled at City by the Premier League John Maynard Keynes’s project for an Governments need to focus on quality restraints on trade as being against February 16).
true now. First, there is the torrent of last week is a more ominous possible international clearing union. and approach to raise the delivery bar. public policy since 1872. My question is: how come British Gas
money poured into elite clubs by bil- explanation of the club’s outsized suc- A development of this mechanism Stephen Newton Although California still protects is so effective at unwanted forced-entry
lionaire individuals, states and latterly cess: that it could have been paying today should start from a double Chief Executive, Elixirr, London EC2, UK trade secrets as such, and permits non- for pre-pay meters — and yet wholly
US private equity, which few outside of some of its playing and coaching staff renunciation: the US and its allies competes associated with the sale of a unable to supply me with a smart
the recipients’ most diehard fans additional fees not disclosed in its should abandon the unilateral Remember context is a business, what has happened in the meter? I want to keep track of my
would claim has been earned on the accounts. protectionism of “friend shoring,” state since then would appear to rocketing gas bill. A one-year wait?
pitch. And second, the gaps in per- To be clear, the club has denied any while China and other creditors should friend to understanding suggest that the absence of such Really? But first register my interest
formance have become gulfs. By my wrongdoing and the statistics pre- abandon their espousal of unfettered Richard Waters (Inside Business, restraints has not in any way harmed “online” and forgo a paper bill. Really?
calculations, over the past 22 years, sented here provide the what, not the free trade. February 10) asks us to imagine the economy but has allowed Remember, I want to keep track.
the gap between the top and bottom why or the how. But for as long as the The task of our time is urgent: we Microsoft Edge distilling a “document innovation and entrepreneurship to Where’s the advice on how best to
clubs has widened by 11 points, and Premier League allows a meritocracy need to assess whether it is possible to on your screen into five bullet points, flourish. run my boiler? (I don’t, by the way,
the team that tops the table has to become a plutocracy, its integrity create the economic conditions for instantly”. Would I want Waters’ own Employers worried about whether want to pay £200 for one of your
improved its goal difference by an and credibility will be in jeopardy. world pacification before military piece similarly condensed? No: because their employees might leave and digital controls). Wake up! A smart
average of one goal every year. Whatever the independent commis- tensions reach a point of no return. the nuance and background he compete might want to focus instead meter and decent customer support
None of these breaches of football’s sion adjudicating the club’s case con- Professor Emiliano Brancaccio provides is what I pay you for. We must on doing their best to make sure their would be a good start. But wait. If
social contract are exclusive to Man- cludes, Manchester City have helped University of Sannio, Benevento, Italy never forget that context is a friend to employees feel valued and engaged millions of your customers start to get
chester City, but there is a reason the to break English football, even if they Professor Robert Skidelsky understanding, and the enemy of rather than trying to crush their a grip on their gas use, won’t that
Abu Dhabi-owned club has become haven’t broken the rules. University of Warwick, Coventry, UK populism and all manner of toxicity. entrepreneurial spirits. impact next year’s profits?
the lightning rod for criticism of so- For a full list of signatories go to Nick Bradbury Simon Inman Judith Ward
called financial doping. Where other [email protected] ft.com/letters Reading, Berkshire, UK Santa Rosa, CA, US London SW12, UK
Friday 17 February 2023 ★ FINANCIAL TIMES 15
Opinion
AI warfare can empower the bad guys as well as the good Health data
could underpin a
TECH NOLOGY
capabilities should be outsourced to pri-
vate companies that are largely unac-
The attendees at the responsible AI
conference, hosted by the Dutch and
officers should always remain in control
of the technology’s use. But he acknowl-
make those decisions right. For exam-
ple, precision-guided missiles can be British sovereign
countable for the technology’s use. South Korean governments, generally edged that was not a universal view in used to reduce civilian casualties — or
John
Thornhill
In Ukraine, US companies such as
Microsoft, Starlink and Palantir have
welcomed the role that the technology
was playing in helping Ukraine defend
Silicon Valley. That point has been high-
lighted by Musk’s decision to scale back
precisely the reverse: to target hospitals
or medical personnel, as the Russians
wealth fund
been critical in boosting the Ukrainian itself against Russia’s brutal invasion. Ukraine’s access to Starlink’s network have done in Syria and Ukraine. “Relia-
war effort. Microsoft has provided more They also saw AI as a critical force multi- for fear of escalating the conflict, gener- bility does not mean compliance with
S
than $100mn of technological assist- plier for maintaining democratic socie- ating a fierce row with Kyiv. “Musk now international law. Precision does not
ance to Kyiv to harden the country’s dig- ties’ defences against other autocratic has his own defence policy,” as one con- mean compliance,” she told the confer- John
tick artificial intelligence in ital infrastructure and secure data on rivals, such as China. But the broader ference attendee said. ence. “Wars are dirty.”
the same sentence as war and the cloud. Starlink, the satellite internet One of the broader principles about Lethal autonomous weapons systems Taysom
the mind’s eye conjures up company run by Elon Musk’s SpaceX, AI that is easy to enunciate, and near- can empower bad actors, as well as the
K
swarms of killer robot drones
buzzing over battlefields zap-
has provided safe communications for
Ukraine’s frontline forces. And the data
Governments should push impossible to enact, is that humans
should remain in control of machines.
good ones who attend responsible AI
conferences. Self-righteous democra-
ping enemy soldiers as in some futuris- company Palantir has helped optimise for norms to frame its Algorithms should never be allowed to cies can suffer from what Stuart Russell, ing Charles recently decided
tic horror movie. But the reality of the Ukraine’s digital “kill chain” by provid- military use even if they fall make life-and-death decisions by them- a computer science professor at Univer- that the wealth created from
war in Ukraine has highlighted how ing actionable intelligence drawn from selves. Just how humans always remain sity of California, Berkeley, calls the wind blowing over Crown
machine learning systems are already satellite imagery, battlefield sensors and short of binding treaties “in the loop” when AI systems are “sole ownership fallacy”. As with land should be shared more
transforming the conduct of battle in far other open sources. widely used at lightning speed in diffuse attempts to limit the use of biological, broadly with the public. This
less graphic, yet highly important, ways, Alex Karp, Palantir’s chief executive, unease about the widespread adoption ways in times of war is not clear. Never- chemical and nuclear weapons, govern- could generate as much as £1bn per
facilitating data processing and other is clear about the lessons that should be of lethal AI systems was palpable. There theless, governments should still push ments should conclude it is in their col- annum, it has been estimated. What
“back office” functions and tilting the learnt. If you go into battle using old- was a sense that the conduct of war is for accepted norms to frame the use of lective self-interest to restrict the terri- other assets do we have in the UK which
military advantage towards Kyiv. school technology you will still be at a rapidly entering radically new territory military AI even if they fall short of ble things they can do to others so that are collectively owned and should be
They have shown how a clever and “massive disadvantage” against an and we have no road map to the future. agreeing binding international treaties. those terrible things are not also harvested for the public good?
courageous military armed with smart adversary that uses digital targeting and One of the complicating factors is the As Agnès Callamard, the secretary- inflicted on themselves. In 1990, Norway created a sovereign
software can outfight a far bigger enemy AI, he told me at the REAIM conference unprecedented role that private sector general of Amnesty International, wealth fund to store the wealth gener-
overly dependent on dumb hardware. in The Hague this week. “The country companies are playing. Palantir’s Karp argued, the ability of AI systems to help The writer is founder of Sifted, an FT- ated annually from oil. The value of this
They also raise fresh questions, though, that wins the AI battles of the future will argued that his company fully accepted military officers make more reliable and backed media company covering European fund varies with the market but is
about how far critical national security set the international order.” that elected politicians and military precise decisions does not necessarily start-ups reported to have reached $1tn during
the recent boom and is used to safe-
guard the country’s economy. Could we
in Britain create a Coronation Fund that
Efi Chalikopoulou
captures and deploys wealth from our
own shared assets?
The financial An opportunity has arisen, partly as a
result of the information technology
capability developed within the NHS to
help defeat Covid-19. The NHS collects
valuable and diverse patient data,
system is ripe
which is stored within geographically
distributed and legally federated trusts,
each of which is separately governed.
Newly developed safe data-sharing
technology, deployed during the pan-
demic, now allows this to be shared
for cyber attack between trusts and more broadly with
researchers. This is vital in helping to
save lives but it is also potentially a stra-
tegic national resource.
The question is how such a fund might
work. One possible legal structure to
house the data could build on the work
wake-up call that investors cannot of the Ada Lovelace Institute and the AI
FINANCE afford to ignore. For what it shows is that Council, which have reported on what a
the financial sector has quietly slid in “data trust” might look like. A co-opera-
Gillian recent years into a state of high depend-
Tett ence on third-party tech vendors, both
big and small.
This “creates a major source of [new]
A co-operative would offer
one legal structure: all
D
risk”, as Rostin Behnam, CFTC chair
notes. That is partly because these enti- citizens are members and
erivatives traders tend to ties are only lightly supervised (at best),
watch the US Commodity since they fall outside the remit of finan- would share in any surplus
Futures Trading Commis- cial regulators. The vendors’ own cus-
sion closely on a Friday. tomers also have patchy visibility of This echoes the Digital Operational nies’ choices around vendors to a preap- problems that erupted during the tive could offer one attractive legal
This is the day the CFTC their operations. (One shocking twist in Resilience Act recently adopted by the proved list. After all, he notes, a hack to Covid-19 pandemic. structure: all citizens are members and
normally releases its weekly “commit- the Ion saga is that the company has European parliament, which also core financial infrastructure would be a And what is so alarming about the Ion would share in any surplus generated,
ments of traders” report showing over- offered no public updates on events, makes financial groups accountable for national security issue. saga is it shows the Spof problem is not while the governance reports to the data
all positioning in derivatives markets, aside from a terse initial statement). the security of tech vendors they use. However, this heavy-handed state limited to Big Tech. “Without a doubt, a subjects, not shareholders. This is a pos-
such as oil futures. The other issue is that malicious But these reforms still seem far too control would be wildly controversial in regulatory rethink is warranted,” as sible structure that enables the wealth
This month, however, the data has attacks on western financial and busi- modest to resolve the problem. One rea- a country such as America, since it Agustín Carstens, head of the Bank for generated to benefit the whole popula-
been missing in action because a small, ness infrastructure are accelerating, son is that the border-hopping antics of seems to contradict corporate govern- International Settlements, argues. tion; in addition to the health benefits
publicity-shy data group called Ion Mar- both from hostile governments such as tech vendors such as Ion can easily slip ance principles and the cult of market I strongly agree. But even if you think and those of potential data-driven med-
kets — headquartered in Dublin but Russia and criminal gangs. “A 2022 sur- between the cracks of national regula- innovation. So another, more realistic, that Carstens’ plea is correct, the unpal- ical breakthroughs. I know that my data
used by dozens of American and Euro- vey of 130 global financial institutions tors, without better co-ordination. In route would be to expand the regulatory atable reality is that this is unlikely to be alone is worth nothing. The value lies in
pean players — suffered a ransomware found that 74 per cent experienced at any case, it does not seem either perimeter — and ask financial regula- implemented soon. For one thing, tech sharing safely.
attack on January 31. least one ransomware attack over the feasible, or fair, to expect financial com- tors to scrutinise tech vendors and other companies are likely to fiercely resist The pandemic has taught us that
Todd Conklin, US Treasury deputy past year,” says Christy Goldsmith panies to police these tech vendors digital companies themselves. new oversight; for another, it is unclear while some data must always remain
assistant secretary, scrambled to reas- Romero, a CFTC commissioner. themselves. As it happens, some central bankers whether financial regulators could even private, others — such as infection sta-
sure investors by stressing that “the Moreover, these attacks have become So some observers are now consider- are already pushing for this because big build the proper capabilities to monitor tus — can and should be shared. The
issue is currently isolated to a small so sophisticated that the Department of ing more radical ideas. One, floated last tech groups such as Apple are starting to software groups — if politicians let them. NHS has already begun to develop the
number of smaller and midsize firms Justice now talks about the emergence year by Brett Goldstein, a former cyber offer financial services. Another impe- There is a vast skills and culture gap. technical architecture to safely collect
and does not pose a systemic risk to the of Ransomware as a Service (RaaS), she security expert at the Pentagon, is that tus is that banks, brokers and asset So the unnerving reality is that there and share data between trusts, and
financial sector”. Phew. notes, (a wry pun on the well-known the government should restrict compa- managers are becoming heavily reliant will not be a quick fix for the problems. value is being derived from it.
However, the attack forced Ion’s cus- investment term Software as a Service, on a tiny collection of Big Tech entities, Or not unless politicians, financiers, Data collected by trusts can now be
tomers to use old-fashioned paper ledg- or SaaS). such as Microsoft and Amazon, for investors and regulators both accessed safely via an NHS-developed
ers for a period, making it impossible for
the CFTC to collate the sequential posi-
Is there any solution? Regulators and
financiers are furtively tossing ideas
This sector is highly cloud computing.
As Michael Hsu, acting Comptroller of
strengthen their defences and push for
reform. Without this, the next attack
system under rigorous access rules
agreed by patients, doctors, researchers
tioning data. Some traders tell me this around. The CFTC says it plans to create dependent on third-party the Currency, notes, there are “single could do far more lasting damage than and administrators. This can be
might have had ripple effects on prices. a “cyber-resilience framework for bro- tech vendors that are only points of failure” (Spof) risks in which Ion. That is a scary thought. extended within a governance regime
And since the report seems unlikely kers and dealers”, with rules requiring the loss of one node hits the entire sys- agreed by patients, doctors, researchers
to reappear soon, this incident is a them to monitor their tech vendors. lightly supervised (at best) tem, similar to the type of supply-chain [email protected] and administrators to help create value.
The safe data-sharing infrastructure
was developed by the NHS. UK-based
Privitar Ltd, a company I helped found,
provides the software to protect patient
US pulls ahead of UK in tackling regional economic woes identity under strict governance rules.
It is a small conceptual leap, and realis-
tic practically, to take the technical
work done so far and use it to create a
privacy-preserving pool of UK patient
and Japan remain largely free of them. economics ministry, there is no voice Treasury’s micromanaging approach Once much poorer than everywhere data.
Paul The processes driving the apparently for the future. is doomed to fail. The UK is low on the in the UK, this region is now richer What could the revenues generated
Collier twin US and UK stories are in fact differ- While viewing itself as the bastion of OECD rankings for growth, civic engage- than anywhere in Britain except the by using this data to help treat disease
ent. American democracy increasingly economic orthodoxy, the Treasury does ment, quality of life and trust in central South East. look like? The global drug development
came under the influence of the super- not realise that this short-termism is government. Sunak has repeatedly had the chance market is estimated to surpass $100bn
J
rich. Whether right- or left-leaning, exceptional. Its power is wholly atypical Yet the Treasury’s repeated response to assist Gove’s shift in direction. by 2027. Value is created by speeding up
they were predominantly based in large among advanced economies, and to failure has been tighter centralis- Instead, he pushed back. He assigned no drug discovery, helping establish safe
oe Biden and Rishi Sunak are coastal cities: their agendas ignored the hopelessly inappropriate for today’s ation. In contrast, even the two other money to the levelling up plans; due to drug delivery to disease sites, and accel-
facing the same problem — the tragedies in the interior “flyover” states. economic challenges. The UK is the large unitary states, France and Japan, Treasury scrutiny and delay, 95 per cent erating ethical clinical trials. It has been
persistent divergence between Biden has a genuine back-story as a rep- most top-down and highly centralised have been devolving for decades. That of the money Gove found elsewhere is estimated that curated NHS data could
regions that began during the resentative of a left-behind region. His large state in the industrialised world. the UK today also has among the highest unspent and will be clawed back. More- be worth £5bn per annum in perpetuity.
Thatcher-Reagan era. But the State of the Union address was a clear regional inequalities in the industrial- over, as EU support for the UK’s poor From a legal and technical perspec-
US president and the British prime min- reset for Democrat priorities: “My eco- ised world is not coincidental. Local regions is replaced, it has also been cut. tive, a UK sovereign wealth fund could
ister have chosen opposite economic
and political strategies to address it.
nomic plan is about investing in places
and people that have been forgot-
Whitehall overrules priorities have long been relegated: by
2016 voters reacted.
Sunak’s government has now crossed
the Rubicon, stripping Gove of authority
be created from these potential reve-
nues. It could even be named for the
In the US, this trend now pits the large ten . . . a blue-collar blueprint to and crushes local agency, In 2019, Boris Johnson promised “lev- to spend and rejecting any serious Coronation. Of course this can only be
cities against the rest; in the UK, the rebuild America.” The Inflation Reduc- energy, incentives elling up” but little has changed. industrial policy. done with the democratic agreement of
booming South East has left other tion Act will generate the funds for Appointing Michael Gove as head of the Biden and Sunak have chosen diamet- the nation’s people. That would require
areas behind. By 2016, anger at the investment — without austerity. and action new department invigorated the plan to rically opposing paths: the US will prior- trust that their data is adequately secure
increasing divergence exploded into Britain’s problem is different and less renew left-behind regions — his 2022 itise redirecting growth to left-behind and that information about individuals
political mutiny, with despairing voters tractable: it is the Treasury. Combining Whitehall overrules and crushes local White Paper even anticipated Biden’s Americans while Sunak imposes further would be impossible to identify. But,
in neglected regions backing Donald the functions of public finance and eco- agency, energy, incentives and action, themes and advocated greater local austerity on their long-abandoned Brit- like Norway, it is worth taking action to
Trump’s presidential campaign and the nomic policy but dominated by the with leaders on the ground denied the decision-making matched by public ish counterparts. It will not take long for develop a unique asset to be deployed to
rupture of Brexit. annual Budget process, this all-powerful powers or resources to solve proximate investment. us to discover which approach works. help the public good.
The geography of discontent mapped department has multiple cabinet problems. The aim was to outwit the Treasury’s
the geography of voting in both coun- supplicants. Local government must OECD-wide evidence tells us that stranglehold and short-termism. The The writer is a professor at Oxford univer- The writer is fellow at the Centre for Science
tries. Yet, these regional divergences also beg for funds. Its elite recruits rush devolving power is essential for foster- post-unification renewal of formerly sity. Philip McCann, a professor at Man- and Policy at Cambridge university. Wendy
had been historically atypical and to cut spending to match revenues. ing national growth — particularly East German states, led by Helmut chester university, also contributed to this Hall, chair of the Ada Lovelace Institute,
countries such as Germany, Korea Investment gets squeezed: without an in economically weaker places. The Kohl, demonstrated that it could work. article contributed to this article
16 ★ FINANCIAL TIMES Friday 17 February 2023
Boohoo: Lyttle mercies
The fast-fashion chain wants to reset its long-term incentive plans to give executives a chance of getting
paid after a collapse in the company’s market value. An expected recovery in profit margins bodes well for
the tiered scheme that it would put in place.
Growth share plan 2023 Chief’s pay Profit margins
Twitter: @FTLex
By payout tranche £’000 %
Implied market cap £bn Cumulative Fixed pay Annual bonus Operating margin Ebitda margin
Cumulative dilution (%) award £mn Long-term incentives
10
7 200
Centrica: says Credit Suisse, worth about 50p a
share, nearly half the stock price today. 2,500
WeWork:
neutrality neutralised Centrica is either unbelievably cheap 6 8 unflexitarian
or investors doubt that its performance
Centrica’s name implies neutrality. It is sustainable. The latter is the credible 150 2,000 The alleged appeal of WeWork’s office
5
describes a middle-of-the-road utility hypothesis. 6 space rentals is flexibility for workers
just doing its job. That is out of kilter 4 Current
and companies who do not want to
1,500
with the UK energy group’s position at market cap 100 make long-term commitments. The
the eye of a political storm over
household energy costs.
US M&A: 3 4 capital structure of the company, best
known for the shambolic failure of a
Higher natural gas and power prices health checks 2
1,000
2019 float attempt, is less forgiving.
mean profits jumped in 2022. 50 2 The business just reported its 2022
Centrica’s low stock rating reflects Merger and acquisition activity in the 500 full-year financials, which included an
doubts over the duration of recovery — US has yet to stir from its sick bed 1 annual cash burn figure of less than
as well as calls for higher windfall following a weak 2022. But one sector 0 $1bn. Results improved through the
taxes. remains in rude health. Patient care 0 0 2021 2022 2023 2024 2025 year. Cost cuts and improving
1 2 3 4 5 0
Two years back, chief executive has emerged as a bright spot for Wall Tranche 2020 2021 2022 occupancy even yielded WeWork’s first
Estimates
Chris O’Shea struggled to garner Street financiers as companies jostle to Source: company Source: company Source: Visible Alpha positive ebitda in December.
enough cash flow to invest, never mind take advantage of a shift in how This, please note, was normal
pay shareholders. However, medical care is paid for in the US. There is nothing quite like widening The group is worth just £600mn awarded when market value targets adjusted ebitda — not the “community-
householders, campaigners and Interest in healthcare transactions the goalposts after the striker has compared with £4.6bn at the start of were hit. The stock would be exposed adjusted ebitda” evangelised by ousted
sections of the media are nevertheless bucks a broader trend. Only 1,090 missed it by a mile. That is what UK 2021. That has as much to do with to clawback for price declines during founder Adam Neumann. Still, the
still furious that Centrica’s 2022 deals, worth $100bn, have been fast-fashion group Boohoo is vigorous competition from Shein of a holding period. company’s stock trades at under $2 per
operating profits tripled to £3.3bn. announced so far this year, according planning to do. China and labour controversies as For the first two tiers paying out a share, implying a market capitalisation
It has not helped that the utility is to data from LSEG. That marks a 50 When John Lyttle became chief rising input costs. total of £42.5mn, the holding period of some $1bn. Year-end gross debt was
embroiled in a row over prepaid energy per cent drop in volume and an even executive in 2019, he could have Boohoo is now asking shareholders is just a year. Shares from the later $3bn. Junior bonds due in two years are
meters. Agents allegedly installed these steeper 60 per cent decline in value earned up to £50mn from a five-year to agree to a fresh set of incentives with tranches would be held for three trading at less than 60 cents on the
in vulnerable households. But from the same period last year. incentive plan by boosting the stock targets that it should be easier for years. dollar. The distressed prices of debt
Centrica’s UK retail business, British CVS Health agreed to buy primary price. Instead, the market value has bosses to hit. The total possible reward Boohoo shares would roughly need and equity suggest a balance sheet
Gas Services, which once pulled in care provider Oak Street Health for fallen by two-thirds below the of £175mn from the replacement to double to hit the first target and restructuring will be necessary.
£200mn-£300mn in annual operating $10.6bn last week. That comes just starting level. Lyttle would probably scheme is a shade lower than the trigger a payout. Current depressed Claimants could get large haircuts from
profit, made nothing last year. months after the drugstore operator have got nothing at next year’s £200mn on offer before. levels increase the chances of Lyttle a company once valued at $47bn.
It was the Energy, Market and snapped up home-care provider vesting date. But if it vested in full, dilution of pulling off that feat. WeWork insists hybrid and flexible
Trading and Upstream gas divisions Signify Health for about $8bn. Even Boohoo justifies a rejigged 6.06 per cent would be above 5.77 per The incentive schedule is tighter work make it essential to the future
that made all the running. Amazon is wading in, buying primary- incentive scheme on the basis that cent for previous schemes. Boohoo’s but there is also less time for economy. Bearish investors worry
At first glance, Centrica’s shares care operator One Medical for about market conditions were outside chair, Mahmud Kamani, would not management plans to go awry. about the permanence of the work-
appear to reflect strong financials. $3.9bn last summer. management’s control. Funny how participate. Fellow co-founder Carol Not for the first time, Boohoo is from-home trend and the dependence
They have returned 86 per cent over A push to reduce healthcare that argument never seems to apply Kane would be included. proving that — in governance terms of the business on employment levels.
the past year. That is way ahead of the spending and increase efficiency forces when economics are favourable. Five tranches of shares would be — it is an outlier. Joblessness remains low but knowledge
broader UK market and other utility consolidation. The US federal workers who use urban co-working
stocks. Yet the price to forward government is the top customer, spaces have been hit hard by job cuts.
earnings multiple of less than 5 times providing $1.6tn on Medicare and At the least, the company is in a race
earnings has never been lower, Medicaid healthcare benefits in 2021 — such as CVS and UnitedHealth, have Bohai Bank. A broader slowdown and demand for wealth management is to increase revenue while slashing costs
implying the share return could have or more than a third of the total. better odds of benefiting from the property market crisis triggered a growing. Gross domestic product is before its estimated liquidity of $1.5bn,
been much higher. In recent years, government acquisitions by reducing claims. $582mn impairment. The wealth expected to rise more than 7 per cent mostly in the form of undrawn debt,
Two factors are responsible. First, programmes have shifted towards management business had a 17 per cent this year. First Abu Dhabi Bank, the runs out. The hustling has begun. In
investors are worried the energy bull value-based care. Unlike the income drop, partly due to lockdowns. UAE’s biggest lender, has been tipped recent weeks, WeWork extended the
market is drawing to a close. UK spot traditional fee for service model, the Standard Chartered: Critics quip that boss Bill Winters is as a bidder for StanChart. maturity of a letter of credit that was
power prices are £143 per megawatt value-based approach tries to reward executing the longest turnround in Steep political and regulatory set to expire this year. It has also
hour, nearly triple their level two years doctors for keeping patients healthy. Abu Dhabi do history. But there are still grounds for hurdles make this unlikely, even if the accessed another $250mn of debt.
ago. But periods of high volatility are Ideally this means fewer costly optimism. The bank’s common equity 40 per cent premium implicit in a That came from SoftBank, which
typically followed by long periods of hospital stays. Primary care clinics and Standard Chartered’s big bet on China tier one ratio of 14 per cent is in line $35bn sticker price was feasible. also owns a majority of the company’s
calm. home care services can deliver this backfired in the last quarter, earnings with peers. It raised its target return on This should not stop StanChart shares. The Japanese investor is still
Second, O’Shea faces as much preventive care well. More money is yesterday showed. Its old hedge in the tangible equity to more than 11 per benefiting from exposure to the backer of last resort to WeWork. Unless
pressure from the City on payouts as expected to be spent in this area. That Middle East should help support the cent. The financial markets trading Middle East — so long as it tiptoes the modest trickle of profits quickly
from consumer campaigners and the partly explains why the defensive S&P stock as Asian setbacks abate. business has been performing well. carefully around compliance pitfalls. turns into a flood, debtholders will
media. It wants more. They want less. Healthcare index has climbed over the Annual pre-tax profit rose 28 per StanChart has differentiated itself StanChart shares are up a third in the have to hope SoftBank has a cunning
An increase in the share buyback to past year while the broader market fell. cent but remained below forecasts. from other Asia-focused peers by past year but still trade at just over half plan to forestall a restructuring.
£550mn, from last November’s There are downsides to primary care Impairments hit a higher than betting big on emerging markets. Its tangible book, more than a 40 per cent
£250mn, lifted its shares nearly 5 per M&A. Opening medical practices is expected $838mn for the year. That largest market segment after Asia is discount to peer HSBC. Better Lex on the web
cent on the day. Yet cash will keep capital intensive. Neither Oak Street reflected a rocky few months in China Africa and the Middle East. performance, a $1bn buyback and For notes on today’s stories
building this year. This should be about nor One Medical is profitable. Groups for the UK-listed bank. It took a The United Arab Emirates Middle Eastern exposure should all go to www.ft.com/lex
£2.5bn, after dividends and buybacks, with big health insurance divisions, $308mn hit on its investment in China contributes a quarter of the total. Here, bolster share price gains.
CROSSWORD
No 17,335 Set by BRADMAN
ACROSS
1 Islander takes my vessel round island on
return (8)
5 Is troublesome holy book revolting? (4,2)
9 Keep isn’t protected by chief (8)
10 Fruit one of five children brought to
church (6)
12 In smart clothes that’s embroidered (7,2)
13 Ordeal coming with industrialisation (5)
14, 16 Effected reforms – this to become
dame? (4,7)
19, 21 Pat may be such an important person
in pathology (7,4)
24 Smile when crossing river – fish is seen
(5)
25 Like architectural style of a pillar and
somehow not right (9)
27 Well-balanced sides in tremendous
competitions (6)
28 Rush around ward in a frenzy to provide
equipment (8)
29 Comfort found in the sun – wonderful!
(6)
30 I have a meal about nine, ending with
coffee – it’s an obsession (4,4)
DOWN
1 Buffalo Bill entertains me – funny stuff
(6)
2 Robber in Austria captured by someone
on horseback (6)
3 One cold beginning to trouble you and
me – sudden occurrence (5)
4 Beautiful female in song – finale coming
JOTTER PAD up (7)
6 Mostly crude actor playing a king? (5,4)
7 City beach maybe that is found on travel
Solution 17,334 (3,5)
8 Superlative advice telling prying person
$ ' 0 , 1 , 6 7 ( 5 & / 8 % to ease up (8)
2 ' 1 + ( 2 1 11 Manage first to last to create an
8 * / , & 2 5 $ 1 * / $ , 6 international sales organisation (4)
) 2 $ 2 2 ' ) 15 Man will come in a taxi having wandered
9 , & 7 , 0 : $ , 1 6 & 2 7 around and about – that’s self-evident (9)
6 ( $ 5 : 5 17 Fat little son weeps (8)
7 + ( : 2 5 . 6 ( 0 0 $ 18 Fliers going up over Surrey town area to
give final message (8)
+ $ 3 6 $
20 Pains – they ultimately must get tackled
, 0 3 , $ ' 8 / 7 ( 5 <
by doctors (4)
( 7 6 1 6 2 21 Follower of reformer to lie around on a
8 1 % ( $ 7 ( 1 3 + 5 $ 6 ( road (7)
$ + 5 ( ( 8 : 22 Female singer (51) in religious festival (6)
2 & 7 $ + ( ' 5 2 1 0 ( ( . You can now solve our crosswords 23 Woman housing old lover in building’s
( / $ , 6 % / in the new FT crossword app at extension? (6)
, ' 2 / 0 2 1 7 ( & $ 5 / 2 26 Breton doctor taken in by Scottish one?
ft.com/crosswordapp
(5)*
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