WEDNESDAY 22 MARCH 2023 INTERNATIONAL NEWSPAPER OF THE YEAR EUROPE

The race to be Asia’s offshore wealth hub Women mark 50 years trading at the LSE
BIG READ, PAGE 15 MARKETS, PAGE 9

Closing ranks Briefing

Xi backs Putin i Trafigura and Vitol weigh
more Russian oil trading
on Ukraine The commodities groups have
said they would consider trading
more Russian oil if they had clear
Xi Jinping, left, and Vladimir Putin guidance that governments and
shake hands during a signing ceremony banks found it acceptable.— PAGE 6
at the Kremlin in Moscow yesterday.
Despite stating that he would attempt i Israel settlement reversal
to broker a peace deal between Moscow Lawmakers have repealed a law
and Kyiv, the Chinese president openly ordering the dismantling of four
supported his Russian counterpart’s settlements in the occupied West
“objective, unbiased position” over the Bank, a move that critics see as a
war in Ukraine. Xi also said he had step towards annexation.— PAGE 4
invited Putin to visit China “at a conven-
ient time” this year. i Venezuela tensions rise
However, despite a public show of Oil minister Tareck El Aissami’s
support for Putin during his three-day sudden resignation on Monday
trip to Russia, Xi declined to commit has triggered fears of a broader
China to economic plans that could help purge in President Nicolás
Moscow withstand western sanctions. Maduro’s government.— PAGE 4
While Putin stated that a deal to build
a gas pipeline between the two countries i China boosts chip groups
was “practically finalised”, Xi remained Beijing has given chip companies
conspicuously silent on the topic. easier access to subsidies and
News & analysis page 2 more control over state-backed
Traders open to Russian oil page 6 research, as US export controls
Constanze Stelzenmüller page 17 force a sector rethink.— PAGE 7
Vladimir Astapkovich/Kremlin/AP

i Sri Lanka debt crisis call

President Ranil Wickremesinghe
has urged creditors to reach an

First Republic rallies on Yellen pledge accord so the country can resolve
its crisis this year. The IMF has
approved a $3bn loan.— PAGE 3

i Most of Nestlé not healthy

of extra support for small US lenders The world’s largest food company
has acknowledged that less than
half of its portfolio of food and
drinks is “healthy” using widely
accepted definitions.— PAGE 6

3 Treasury secretary buoys sector 3 Promise of depositor guarantees 3 Turmoil weighs on Fed rates call
JAMES POLITI — WASHINGTON
Shares in First Republic and other
regional US banks rallied sharply yes-
terday after Janet Yellen said the gov-
ernment stood ready to provide further
support for smaller lenders if needed.
In an intervention designed to shore
up confidence in the banking system
after more than a week of turmoil, the
US Treasury secretary said that guaran-
tees offered to depositors in the failed
Silicon Valley Bank could be replicated
“Our intervention was necessary to
protect the broader US banking sys-
tem,” she added. “And similar actions
could be warranted if smaller institu-
tions suffer deposit runs that pose the
risk of contagion.”
Shares in First Republic, which have
Inside
3 Fed weighs rate-rise pause Page 3
fallen about 85 per cent this month, rose
more than 52 per cent by afternoon
trading in New York, leading a broader
rally in US lenders. US Bancorp, Key-
Corp and Zions rose by between 6 and
9 per cent. The KBW Bank Index was up
more than 5 per cent.
Casey Haire, US banks analyst at Jef-
feries, said Yellen’s public intervention
was reassuring for investors. “Having
the Treasury secretary comment that
they would step in as necessary is the
clearest sign yet regulators could act.”
Datawatch
tion, the Fed announced a new facility to afflicting the sector are weighing on cen- Profit margins
boost liquidity for struggling banks. tral banks. The Fed’s Open Market Com- US non-financial groups
(% of gross value added)
While Yellen defended the “decisive” mittee meets today to decide whether to
and “forceful” steps taken by regulators press ahead with a quarter-point rate 16
14
to avert a broader banking crisis in the rise or forgo an increase to help stabilise
12
US, the problems afflicting smaller insti- the financial system.
10
tutions are far from resolved. A $30bn Yellen suggested that concerns in the 8
lifeline put together by Wall Street bank US had been eased to some extent by 6
chief executives — and cheered by the market developments in recent days. 4
US government — initially failed to “The situation is stabilising. And the US 2
arrest the previous sharp sell-off in the banking system remains sound,” she 1945 60 80 2000 22
shares of First Republic Bank. said. “We are squarely focused on doing Source: Weber, I. and Wasner, E. ‘Sellers’
In Europe, the turmoil that followed our job. And you should rest assured Inflation, Profits and Conflict’

at other institutions.
“The steps we took were not focused
on aiding specific banks or classes of
banks,” Yellen said in a speech to the
American Bankers Association, which
marked her most extensive comments
yet on the banking turmoil.
3 Klein talks on quashing deal Page 6 The US Treasury worked with the
3 Banking turmoil Page 8 Federal Reserve and the Federal Deposit
3 Markets Insight Page 10 Insurance Corporation to provide guar-
3 Letters Page 16 antees for all deposits at failed SVB and
3 Martin Wolf Page 17 Signature Bank, including those higher
3 Lex Page 18 than the $250,000 threshold not cov-
ered by government insurance. In addi-
SVB’s failure contributed to the collapse
of Credit Suisse, which Swiss rival UBS
agreed to buy in a deal wiping out $17bn
of bonds.
Since SVB’s crisis was brought to a
head by the impact of interest rate rises
on its bond portfolio, the problems
that we will remain vigilant.”
Yellen stressed differences today from
the global financial crisis. “Back then,
many financial institutions came under
stress due to their holdings of subprime
assets. We do not see that situation in
the banking system today,” she said.
US after-tax profit margins have reached
levels not seen since the aftermath of the
second world war. Companies are pushing
up prices and their margins, rather than
wages, according to research from the
University of Massachusetts

Bern’s ban on Credit Suisse bonuses

drags banker morale to new depths
SAM JONES — ZURICH awards. “We will pay salary and bonus, ten a SFr9bn guarantee to UBS to sup-
JAMES FONTANELLA-KHAN, STEPHEN
MORRIS AND OWEN WALKER — LONDON where outstanding, as per the previ- port its digestion of its rival and author-
ously communicated schedule,” the ised a SFr100bn liquidity support facil-
The Swiss government has banned bank said in an email on Sunday night. ity from the Swiss National Bank.
Credit Suisse from paying deferred But the federal council, Switzerland’s Swiss political parties have been in
Trump regains limelight bonuses awarded before 2022 in a executive body, has ordered Credit uproar over the bailout. The populist
after hinting at his arrest move that has sparked more upset Suisse not to pay awards from previous Swiss People’s party said Credit Suisse
from staff at the failed bank. years while allowing the bank to pay bankers had “taken millions in pay
Analysis i PAGE 4 bonuses for 2022 for the sake of “legal without taking responsibility”, while the
The finance ministry said yesterday certainty” and to “avoid impacting Social Democrats pledged legislation to
that it had imposed “remuneration- employees who did not themselves ban all bonus payments and cap wages
Austria €4.30 Morocco Dh50
Bahrain Din1.8 Netherlands €4.30
related measures” on Credit Suisse as a cause the crisis”. at large banks receiving state aid.
Belgium €4.30 Norway NKr45 result of the use of taxpayer funds to The federal council has also asked the A second Credit Suisse banker said:
Croatia Kn32/€4.25 Oman OR1.60 facilitate its $3.25bn takeover by rival finance ministry to draw up plans to “We thought it couldn’t get any worse
Cyprus €4.00 Pakistan Rupee350
Czech Rep Kc120 Poland Zl 24
UBS. “More happy news,” said one control payouts to Credit Suisse staff for and it just did. Essentially, this seems
Denmark DKr43 Portugal €4.00 Credit Suisse banker. “Maybe UBS will all future bonus rewards. like the government is helping UBS
Egypt E£80 Russia €5.00 turn up to find they have bought empty Public anger over banker bonuses has unwind the investment bank but cut-
France €4.30 Serbia NewD530
Germany €4.30 Slovenia €4.00
offices . . . Our shares are near remained high in Switzerland since the ting everybody’s pay.”
Greece €4.00 Spain €4.00 worthless.” financial crisis. Protests erupted in A third said: “I was expecting it. We
Hungary Ft1350 Switzerland SFr6.70 Credit Suisse management had tried Zurich in front of Credit Suisse’s head- are not entirely clear what will happen
India Rup220 Tunisia Din7.50
Italy €4.00 Turkey TL80
to avoid a mass walkout of staff by quarters over the proposed use of public next but morale is so down it’s hard to
Luxembourg €4.50 UAE Dh23 promising to maintain planned pay money in the rescue deal. Bern has writ- even describe.”
Malta €4.00

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2 ★ FINANCIAL TIMES Wednesday 22 March 2023

INTERNATIONAL

Power of Siberia 2 Dissent crackdown

Xi stays silent on Putin’s gas pipeline hopes
Russian president had
hoped for deal on link
to China via Mongolia
MAX SEDDON — RIGA
KATHRIN HILLE — TAIPEI
POLINA IVANOVA — BERLIN
Xi Jinping has backed Vladimir Putin’s
stance on his war in Ukraine but
refrained from endorsing his talk of a
planned pipeline to reroute Russia’s gas
exports from Europe to Asia.
The Chinese and Russian leaders
signed a joint statement yesterday after
holding talks in Moscow in which they
extolled Beijing’s “positive role” and
“objective, unbiased position” on
Putin’s invasion. But their talks did not
yield decisive agreements on economic
issues key to helping Moscow weather
western sanctions.
The lack of substance in Putin’s rheto-
ric about the talks, which he described
as “warm, comradely and constructive”,
underscored Russia’s diminishing influ-
ence as its reliance on China’s political
and economic backing deepens.
Beijing has offered Moscow an eco-
nomic lifeline during the war by increas-
ing purchases of its energy exports and
replacing western goods restricted by
the sanctions. Yesterday’s talks, how-
ever, showed that the further deepening
of economic ties were still subject to
negotiations. Xi will stay in Moscow for
a third day today.
Putin’s main goal during the Chinese
Bilateral ties. Xi visit
leader’s stay was to get him to agree to
his planned Power of Siberia 2 gas pipe-
line set to supply China via Mongolia.
Earlier yesterday, Putin spoke about it
as if it were a done deal, saying “practi-
cally all the parameters of that agree-
ment have been finalised”.
In joint remarks with Xi after the
talks, the Russian president promised to
supply China with at least 98bn cubic
metres of natural gas by 2023 — a figure
attainable only if the new pipeline
comes online — and noted that Mongo-
lia had already signed off on the deal.
But Xi remained conspicuously silent
on the topic. The joint statement said
only that Russia and China would
“make efforts to advance work on stud-
ying and agreeing” the pipeline plans.
The Chinese leader was more forth-
coming on Ukraine, however. The joint
statement mostly rehashed the Krem-
lin’s talking points, warning against “the
practice by any country or group of
countries to seek advantages in the mili-
tary, political and other areas to the det-
riment of the legitimate security inter-
ests of other countries” — a frequent
Russian complaint against Nato — and
appeared to accuse western countries of
escalating the war.
Putin, who has repeatedly mused
about using nuclear weapons against
the west if it continues to help thwart
Russia’s faltering invasion, warned that
UK supplies to Kyiv of armour-piercing
rounds that contain depleted uranium
could escalate the conflict.
Moscow
arrests leader
“Russia will be forced to react accord-
ingly, taking into account that the col-
of Nobel
lective west has begun using weapons
with a nuclear component,” Putin said,
Peace Prize
without specifying the response.
In a further show of support for Putin,
who last week became subject to an
rights group
international arrest warrant for alleged
war crimes in Ukraine, Xi invited him to MAX SEDDON — RIGA
China “at a convenient time” this year.
Russian police have arrested one of the
The US has said China’s peace plan for
leaders of Memorial, the rights group
Ukraine would legitimate Russia’s terri-
that shared last year’s Nobel Peace
torial conquests in Ukraine while giving
Prize, as Vladimir Putin’s crackdown
Moscow time to replenish its armed
on dissent continues more than a year
forces. Ukraine is also sceptical of the
into his invasion of Ukraine.
plan but has refrained from criticising
China ahead of an expected call between The homes of several Memorial leaders
Xi and President Volodymyr Zelenskyy. were raided yesterday and Oleg Orlov,
See Opinion the head of the group’s human rights
practice, was charged with “repeatedly
discrediting the armed forces”. If found
guilty, he would face up to three years in
prison.
Memorial, which documented atroci-

Kremlin talks expose Russia’s reliance on China

Moscow’s urgent need to find
buyers for its energy could
play into Beijing’s hands
MAX SEDDON IN RIGA AND JOE LEAHY
BEIJING
Vladimir Putin and Xi Jinping placed
their growing economic ties at the heart
of talks in the Kremlin yesterday, high-
lighting Moscow’s dependence on Bei-
jing after its economy was largely sev-
ered from the west.
The Russian president hailed China’s
economic model as “much more effec-
tive” than that of other countries, a rec-
ognition of the lifeline Beijing has
extended since Moscow’s full-scale inva-
sion of Ukraine last year — with bilateral
trade reaching a record $190bn in 2022.
“The sanctions have exacerbated the
already asymmetrical relationship
between Russia and China,” said Maria
Shagina, a senior research fellow at the
International Institute for Strategic
Studies.
Moscow sees its economic reliance on
China as crucial to its prospects of win-
ning the war, a person close to the Krem-
lin said. While China’s help in weather-
ing the effects of sanctions is irreplacea-
ble, Russia’s wealth of natural resources
will secure Beijing’s continued support,
the person added.
The most hotly anticipated topic for
discussion yesterday was the planned
Power of Siberia 2 gas pipeline, which
would give Russia a vital new way to
reroute exports from reserves no longer
being sent to Europe.
“The logic of events dictates that we
fully become a Chinese resource col-
ony,” the person said. “Our servers will
be from Huawei. We will be China’s
major suppliers of everything. They will
get gas from Power of Siberia. By the end
of 2023 the yuan [renminbi] will be our
main trade currency.”
Western sanctions left Moscow with a
Rbs2.58tn ($34bn) budget deficit in the
first two months of this year alone as it
intensified military spending.
Last year, China’s imports of Russian
energy — which make up more than 40
per cent of the Kremlin’s budget reve-
nue — grew from $52.8bn to $81.3bn.
Russia was China’s second-largest sup-
plier of crude oil and coal, according to
Columbia University’s Center on Global
Energy Policy (CGEP).
Side by side: In January, Russia overtook Qatar,
Vladimir Putin, Turkmenistan and Australia to become
right, welcomes China’s biggest gas supplier, delivering
Xi Jinping to the 2.7bn cubic metres that month, accord-
Grand Kremlin ing to Chinese customs data.
Palace, Moscow, In Washington, the view is that Mos-
yesterday cow and Beijing are “trying to check”
Pavel Byrkin/Sputnik/AP
America’s global influence. John Kirby,
a spokesperson for the US National
Security Council, said on Monday: “It’s a
bit of a marriage of convenience, I’d say,
less than it is of affection.”
Russia’s urgent need to find buyers for
its energy could play into China’s hands
again during this visit, just as it did in
2014 when Moscow faced sanctions
over its annexation of Crimea. Back
then, Russia and China signed a deal for
the Power of Siberia pipeline, offering
Beijing a low-cost supply of gas. The
project came on stream in 2019.
A decision to engage “in the next huge
project with Russia while Russia is
bombing Ukraine” would send a critical
message about Beijing’s deepening ties
with Moscow, said Tatiana Mitrova, a
research fellow at the CGEP.
With imports of microchips, 5G
equipment and heavy industrial
machinery subject to US export con-
trols, Russia has turned to Chinese man-
ufacturers. Moscow imported $4.8bn in
electric machinery and parts from
China last year as supplies from other
countries plummeted, according to
Bruegel, a Brussels-based think-tank.
Chinese customs data shows that
exports of certain semiconductors to
Turkey more than doubled in 2022,
while Turkey, whose high-tech exports
were previously negligible, increased
sales to Russia.
“While China became by far the lead-
ing exporter of semiconductors to Rus-
sia after the war, exports often had
either a Turkish or a [UAE] connec-
tion,” Shagina said. This tactic aimed to
create “layers that can protect China
from sanctions risks”, she added.
The surge has come even though
many leading Chinese technology com-
panies such as Huawei have wound
down exports to Russia for fear of US
sanctions. Instead, obscure Chinese
manufacturers have taken their place.
The results have often been mixed.
ties under Joseph Stalin’s regime in the
Soviet era as well as recording rights
abuses in contemporary Russia, was
banned in late 2021. A number of the
group’s longtime activists, including the
69-year old Orlov, resumed some of its
work last year as a new entity.
China’s energy imports from Russia Memorial won the Nobel Peace Prize
Million tonnes in October for its “outstanding effort to
document war crimes, human right
100
2021 2022
abuses and the abuse of power”, along-
side Ukraine’s Centre for Civil Liberties
80
and Belarus’s Viasna, whose leader, Ales
60 Bialiatski, was this month sentenced to
10 years in prison.
40 Orlov told reporters after being
released that he had been charged in
20 connection with an article he wrote for
French website Mediapart in November
0 and published in Russian on Facebook.
Crude oil Coal LNG Pipeline gas
The article condemned the “bloody war
Russia is importing more dual-use technology unleashed by Putin’s regime in Ukraine”
from China and said “a victorious fascist Russia
Selected categories* ($bn) would inevitably become a serious secu-
rity threat not just for its neighbours,
0.6 but all of Europe”.
Electric machinery/
parts In a video posted by Vasily Polonsky,
the independent Russian journalist,
0.4 Orlov said police had seized his elec-
tronic devices, a “No War” badge,
Office machinery Memorial stickers and a book docu-
Telecoms and sound menting alleged Russian war crimes in
0.2 recording equipment
Transport equipment
Chechnya in the 1990s.
Instruments Searches were conducted at Orlov’s
apartment and the homes of eight other
0 Memorial members yesterday morning
2019 20 21 22 23 as part of an investigation into what the
* Include goods subject to export bans from advanced economies police said were separate charges of
Sources: Center on Global Energy Policy; Bruegel
“rehabilitating Nazism”.
Those charges date back to 2021,
‘The logic of “There are all these shitty Chinese com- when Memorial admitted it had mistak-
panies supplying 5G [telecommunica- enly added a Nazi collaborator and two
events tions] equipment. It’s the second and traitors to a list of millions of Russians
dictates third tier. It’s more like 4.2G,” said a sen- eligible for rehabilitation after being
ior Russian technology investor. executed during Stalin’s terror.
that we Chinese technology is also Russia’s Memorial said another of its mem-
fully only option for continuing to produce bers, Alexandra Polivanova, had been
much of the energy that China is released after being named as a witness
become a importing. Yakov & Partners, McKin- in the Nazism case, while two other sen-
Chinese sey’s former Russian arm, described ior members were held for interroga-
Russia’s previous dependence on west- tion.
resource ern oilfield service groups such as Halli- The group posted photos of masked
colony’ burton and Baker Hughes as an “Achil- security forces outside its office holding
les heel”, because production was a sledgehammer and jackhammer,
Kremlin source expected to decline 20 per cent after although it said the men did not use
their departure. them to enter the building.
High-tech projects such as Novatek’s Over the past year, Russia has charged
Arctic liquefied natural gas project in 482 people under new wartime censor-
Siberia are also affected. But Russian ship laws rushed through in the days
executives say there are workarounds. immediately after the invasion began in
“Let’s say you are missing a compres- February 2022, according to OVD-Info,
sor . . . because Siemens makes it,” said an independent rights group. It has
one executive. “Maybe you do without jailed 136 of them. The crackdown has
the compressor. Maybe you get two essentially crushed dissent in Russia —
compressors from China that are less defined under the law as anything devi-
good. But for most things it is workable.” ating from the Kremlin’s line — prompt-
Additional reporting by Yuan Yang in Lon- ing hundreds of activists and independ-
don and Felicia Schwartz in Washington ent journalists to flee the country.

Combustion engine ban

Brussels moots ‘e-fuels’ vehicle category to end Germany spat

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GUY CHAZAN — BERLIN
ALICE HANCOCK — BRUSSELS
The European Commission is seeking
to resolve its spat with Germany over a
proposed EU ban on vehicles with com-
bustion engines by suggesting new
models using carbon-neutral e-fuels
could be sold in the bloc after 2035.
Under the draft plan, a category of vehi-
cle would be created for cars that could
run solely on such fuels — so-called
e-fuels only. They would be fitted with
technology to prevent them using tradi-
tional fossil fuels such as petrol and
diesel.
But it was still unclear yesterday
whether Germany, whose car industry
accounts for about a fifth of the coun-
try’s industrial revenues, had accepted
the proposal. The German transport
ministry said only that it was continuing
to consult with the commission on a
possible solution to the dispute.
E-fuels are produced using electricity
from renewable hydrogen and other
gases and are often considered “carbon
neutral”. But the technology is at an
early stage of development.
EU member states and the European
parliament passed a law last year that
would ban the sale of new petrol and
diesel engines in the bloc from 2035.
The ban was a key part of the EU’s effort
to cut emissions by 55 per cent by 2030
compared with 1990 levels.
A final rubber-stamp vote by member
states was scheduled for earlier this
month, paving the way for the law to
enter force. But Germany raised last-
minute objections, effectively scupper-
ing the vote.
Talks have been held since then to try
Green push: e-fuels being promoted in Berlin in January — John MacDougall/AFP/Getty
to bring Germany back on board, and
there were hopes a deal might be
reached ahead of this week’s EU summit
in Brussels.
Anna Lührmann, the German state
minister for Europe, fuelled those hopes
yesterday, telling reporters before a
ministerial meeting in Brussels: “I
assume that talks [on a solution] will be
wrapped up before the summit.”
But a German transport ministry
spokesman was more ambivalent. The
ministry was “liaising closely with the
commission to find a solution that offers
a reliable path to allowing cars with
internal combustion engines to be sold
after 2035, as long as they run exclu-
sively on e-fuels”, he said.
The commission told journalists yes-
terday that it was confident a solution
could be found that would “clarify the
issue . . . about the role of e-fuels in the
future”.
Germany’s transport ministry wrote
to the commission last week setting out
some of its demands. It said there
should be “legally binding steps” to
implement the resolution on e-fuels
that was part of the legislation on the
combustion engine phaseout.
It also said that cars running on
e-fuels should count towards existing
targets for emissions reductions.
An EU official close to the talks said
the ministry’s request in the letter for a
supplementary act laying out provisions
for e-fuels was “problematic”.
A senior EU diplomat said it was “very
much up to the German transport min-
ister and the commission how they can
solve this . . . if they cannot conclude, it
will cast some sort of vibe [over other
climate-related regulations].”
Wednesday 22 March 2023
Fed weighs rate-rise pause amid crisis
US central bank must decide whether to continue inflation battle or help stabilise financial system
COLBY SMITH — WASHINGTON
The US Federal Reserve must make one
of the most consequential decisions of
its rate-raising campaign this week as it
considers whether to implement
another increase without knowing if
efforts to shore up the banking sector
will work in the long term.
Central bank officials were gathering
yesterday for their latest two-day meet-
ing, at which they must decide whether
to press ahead with another quarter-
point rate rise or forgo an increase.
The dilemma comes after global
authorities acted swiftly to support the
financial system following Silicon Valley
Bank’s collapse, the Fed rolling out a
new facility to aid lenders and the Swiss
government brokering a hasty takeover
of a faltering Credit Suisse by UBS.
But it remains unclear whether these
actions will be enough to stem the fall-
out from the crisis. Share prices of most
regional US banks are languishing well
below levels seen before the implosion
of SVB. First Republic Bank’s stock
dropped after a second downgrade of its
credit rating on Sunday — although US
regional bank shares rallied yesterday
after US Treasury secretary Janet Yellen
said the government was prepared to
Sri Lanka
President sets
deadline to
end debt woes
Climate change
Saudi Arabia leads push on carbon capture
CAMILLA HODGSON AND ATTRACTA
MOONEY — LONDON
Fossil fuel-producing nations lobbied
on key aspects of the UN climate report
released this week, with carbon cap-
ture technology emerging as one of the
flashpoints in eleventh-hour discus-
sions between government negotiators
signing off on the definitive climate
change research.
Discussions were sent into overtime as
carbon capture and storage and carbon
dioxide removal technologies featured
among the issues thrashed out in debate
about the final wording of the UN Inter-
governmental Panel on Climate Change
“summary for policymakers” at meet-
ings in Interlaken, Switzerland.
The report concluded that global
warming in the near term was “more
likely than not” to see a rise in tempera-
ture of 1.5C since pre-industrial times
and called for urgent action to address
climate change.
During the negotiations among
researchers and policymakers over the
final wording, Saudi Arabian represent-
atives pushed for an emphasis on the
technologies that aim to remove carbon
dioxide from the atmosphere.
offer further support to small lenders.
As a result, the Fed is to some extent
flying blind as it decides whether to
pause its aggressive campaign to curb
persistent inflation in an effort to help
stabilise the financial system.
“It’s a tremendously challenging
time,” said Ellen Meade, who served as a
senior adviser to the central bank’s
board of governors until 2021. “In this
case, [Fed chair Jay] Powell has to be
both a firefighter and a policeman.”
Further complicating the high-stakes
decision, due today, is that it will be
accompanied by projections not just
for the trajectory of interest rates,
but also for growth, inflation and
unemployment, at a time when the
economic situation is changing rap-
idly. “This whole thing is a
disinflationary event
. . . but it is very difficult
to know how disinfla-
tionary it is,” said Ian
Shepherdson at Pan-
theon Macroeconom-
ics, referring to the
banking turmoil.
Fuelling the uncer-
tainty is the fact that
regional banks are
expected to sharply
Sri Lanka’s government wants to
finalise plans to resolve its debt crisis
by the end of the year, the country’s
president has said, urging creditors to
reach a compromise quickly or risk
creating more economic peril.
In his first interview since the
International Monetary Fund
approved a $3bn, four-year lending
programme on Monday, Ranil
Wickremesinghe said the deal and his
long-term reform plans were the
country’s “last chance” to open up an
economy beset by shortages of food,
fuel, medicine and foreign currency
during 2022.
“I would like to see the agreements
by the end of the year,” Sri Lanka’s
president said, referring to deals with
its bilateral and commercial creditors
that the country now needs to
This caused consternation among
other participants who wanted a greater
focus on cutting emissions “rather than
relying on unproven technologies”, peo-
ple familiar with the talks said.
While the latest UN report acknowl-
edged the role that carbon capture and
storage (CCS) could play in reducing
emissions, the authors cautioned that
such technologies came with “feasibility
‘I’m sure there are some
countries that are going to
cherry pick [messages
from the IPCC report]’
and sustainability concerns”. The report
said: “Implementation of CCS currently
faces technological, economic, institu-
tional, ecological, environmental and
sociocultural barriers. Currently, global
rates of CCS deployment are far below
those in modelled pathways limiting
global warming to 1.5C to 2C.”
Critics of carbon capture and storage
say the expensive and under-developed
technology is used by oil and gas pro-
ducers as a way to maintain business as
usual rather than to phase out fossil fuel
★ FINANCIAL TIMES
INTERNATIONAL
curtail their lending in response to the
recent ructions. Torsten Slok at Apollo
Global Management estimated banks
holding roughly 40 per cent of all assets
across the sector could retrench, leading
to a sharp recession this year.
“What we do know is that the combi-
nation of both the lagged effects of mon-
etary policy slowing things down and
now magnifying that with this downside
risk is just making things more compli-
cated,” he said. Slok estimated the com-
bination of tighter financial conditions
and lending standards following the
bank failures had in effect raised
the federal funds rate — the
rate at which banks lend to
each other — by 1.5 percentage
points from its current target
range of between 4.5-4.75 per
cent.
As a result, he expects
the Fed to forgo a rate rise
today. Economists at Gold-
man Sachs, who also
project a pause this week,
forecast the equivalent of
roughly a quarter-point
to a half-point increase in
the fed funds rate follow-
ing recent events.
Pausing the rate-rising
negotiate. “But what I like, and what
can happen, are two different
timelines.”
The IMF is set to disburse an initial
tranche of about $330mn, with the
arrival of the rest of the funds
contingent on Sri Lanka making
progress towards a preliminary deal to
restructure its debt.
However, elements of reaching that
deal are out of Colombo’s control, with
Sri Lanka relying on an easing of
tensions between China, the country’s
main bilateral lender, and other
creditors for progress to occur.
The president acknowledged
“geopolitics” could affect his
government’s ambitions.
The IMF deal, which was first tabled
in September, could only be approved
after Beijing dropped its resistance to a
production and shift their business
models to renewable energy.
“I’m sure there are some countries
that are going to cherry pick [messages
from the IPCC report] . . . and just look
at the potential of carbon dioxide
removal,” said another person familiar
with the talks.
The Saudi stance did not surprise
IPCC veterans. In 2021, representatives
of the kingdom sought to replace refer-
ences to “carbon emissions” with
“greenhouse gas emissions”, people
familiar with the talks said at the time.
The United Arab Emirates, the pet-
rostate due to host this year’s UN cli-
mate summit, was not especially vocal
at discussions on the latest report, said
another person familiar with the talks.
However, COP28 president-designate
Sultan al-Jaber, who is also the head of
state-owned oil company Adnoc, has
been consistent in stressing the need for
a reduction of emissions rather than a
reduction in fossil fuel production.
He has called for the oil and gas indus-
try to roll out carbon capture and stor-
age technology, and urged policymakers
to create incentives to “bring down the
cost of carbon capture”.
Pilita Clark see the FT View page
campaign would mark an abrupt U-turn
for the Fed, which had as recently as this
month raised the prospect of accelerat-
ing the pace of rate rises with a half-
point increase after last month shifting
down to a more typical quarter-point
cadence.
‘It’s a tremendously
challenging time. Powell
has to be both a firefighter
and a policeman’
In congressional testimonies before
the release of February’s jobs and infla-
tion figures, Powell, pictured, said the
decision would hinge in part on those
pieces of data, neither of which showed
much sign of a cooling economy. He also
said the Fed would ultimately need to
lift its benchmark rate higher than the
5.1 per cent projected by officials as
recently as December.
Most economists have since revised
down expectations for the “dot plot”,
which aggregates individual forecasts
for the fed funds rate through to 2025.
Before the implosion of SVB, many
thought the median estimate for the so-
called terminal rate would rise by half a
planned restructuring this month.
Other troubled debtors that also
owe large amounts to China, such as
Ghana and Pakistan, are closely
watching Sri Lanka’s negotiations.
Colombo owes $40bn in foreign debt
to bilateral creditors — including
China, India and Japan — as well as
commercial bondholders, along with
another roughly $40bn in domestic
debt, according to IMF figures.
“The whole issue is whether [our
bilateral creditors] will be on one
platform or whether we’ll talk with
China and with the Paris Club
members separately,”
Wickremesinghe said, referring to a
group of bilateral lenders that includes
Japan and western European nations.
He said he expected the Chinese
“will come along” with a debt deal,
Net Zero Industry Act
European response to US green deal attacked
PEGGY HOLLINGER AND CHENG
TING-FANG — LONDON
ANDY BOUNDS — BRUSSELS
Leading industrialists have delivered a
damning verdict on EU efforts to pre-
vent companies shifting investment to
the US, warning the bloc’s competitive-
ness is rapidly eroding.
Executives from Solvay, Merck and Dow
have warned that Europe’s Net Zero
Industry Act, announced last week, will
not be sufficient to compete with
$369bn of green tax incentives and sub-
sidies on offer in the US under President
Joe Biden’s Inflation Reduction Act.
“The US has adopted a simple strat-
egy that immediately incentivises busi-
nesses to invest while the EU is coming
with a political framework that lacks
precise elements [and] simple, clear-
cut reasons for businesses to invest,”
said Ilham Kadri, chief executive of Bel-
gian chemicals company Solvay.
“I need simplicity,” she added. “We
need a level playing field with the US. It’s
called competitiveness . . . and it’s not
in Europe’s favour today.”
Belén Garijo, head of German biotech
and materials giant Merck, said Europe
“urgently needs a holistic industrial pol-
percentage point to between 5.5 per cent
and 5.75 per cent. Now, some forecast
that to remain unchanged while others
expect only a quarter-point increase.
“The Fed has got some more to do,”
said Vincent Reinhart, who worked at
the central bank for more than two dec-
ades, though he said officials were “less
sure where they are headed”.
Economists polled in the latest Finan-
cial Times survey, conducted in part-
nership with the Initiative on Global
Markets at the University of Chicago’s
Booth School of Business, said recent
events had led them to scale back their
expectations for the fed funds rate at the
end of the year by a quarter of a percent-
age point. But most still see the Fed rais-
ing the rate at least to 5.5 per cent — and
keeping it there until 2024.
Reinhart warned that if the Fed were
to pause its rate rises in an attempt to
shore up financial stability, it would face
increased criticism for its management
of the banking sector. Meade said such a
move could call into question Powell’s
commitment to fighting inflation. A
quarter-point rise “preserves the notion
of credibility that he’s gone to great
lengths to restore over the past year”.
See Companies, Markets Insight & Lex
Martin Wolf see Opinion
Hard times: daily wage workers
wait for customers at a wholesale
market in Colombo. Below, Ranil
Wickremesinghe — Chamila Karunarathne/
EPA-EFE/Shutterstock, Buddhika Weerasinghe/FT
notwithstanding tensions between
Beijing and others over the size of the
potential writedown China might be
asked to swallow.
“There’ll be a lot of shadow boxing
but, other than that, at the end of the
day, neither side can afford to take a
very rigid stance,” Wickremesinghe
said. “There has to be compromise.”
Beijing has forged its own path with
cash-strapped creditor nations during
the emerging debt crisis.
It has so far proved reluctant to treat
debts along the lines put forward by
western lenders, arguing that global
restructuring norms need updating.
Critics, including the US, say this has
slowed the ability of countries such as
Zambia to recover from debt crises.
Benjamin Parkin, John Reed and
Mahendra Ratnaweera
icy that enables sustainable change and
makes this change a competitive advan-
tage . . . The Net Zero Industry Act does
not solve these issues.”
The alarm was echoed by Neil Carr,
European head of Dow, the US chemi-
cals group, who warned that US incen-
tives made investment in the decarboni-
sation of EU industry “less attractive” in
comparison. “The act ignores the criti-
Executives from
Solvay, Merck and
Dow say the
proposals are not
enough to match
US green subsidies
cal importance of enabling investment
in industrial decarbonisation to achieve
EU climate targets,” he said. The “large
sums” of recovery and resilience funds
had to be made “much more easily and
swiftly accessible”.
The EU last week published proposals
that would allow authorities to waive
regulatory constraints for strategic
projects, streamline permitting proc-
esses, boost power grid infrastructure
and incentivise investment in supply
chains across the bloc. More than $90bn
3
Credit Suisse
EU promises
to respect
bondholder
rights after
bank turmoil
SAM FLEMING — BRUSSELS
A senior EU policymaker has pledged
not to wrongfoot investors by upend-
ing bank creditor hierarchies, after a
market uproar at Switzerland’s deci-
sion to favour shareholders over
bondholders in the rescue takeover of
Credit Suisse.
Dominique Laboureix, chair of the Sin-
gle Resolution Board, the body in charge
of shutting down failed banks, said fears
that additional tier 1 (AT1) bank debt
was “not investable anymore” should
not apply in the EU.
Values of risky bank debt fell in
Europe on Monday after Credit Suisse
AT1 bondholders were left with nothing
as part of a rescue deal, under which
Swiss rival UBS bought the troubled
lender. The decision overturned estab-
lished assumptions that debt holders
would be prioritised over equity hold-
ers. The bank’s shareholders received
SFr3bn ($3.3bn) from UBS, while bond-
holders lost $17bn.
The bond market jitters led the SRB,
the European Banking Authority and
the European Central Bank to put out a
statement stressing that common
equity instruments would continue to
be the first ones to absorb losses, with
AT1 written down only afterwards. The
Bank of England made similar remarks.
Laboureix insisted that notwith-
standing the decisions in Switzerland,
EU authorities would continue to stick
to the established pecking order for
investors. “We won’t take them by sur-
prise,” he said.
“We should be extremely clear on this
crucial element: yes indeed we want to
follow this order, because it gives clarity
to the investors,” he told the Financial
Times. “If not, who will invest in bank-
ing issuances, if there is this possibility
that each and every authority in the EU
can decide whatever it wants depending
on the conditions of the day?”
Andrea Enria, the ECB’s chief supervi-
sor, echoed Labourieux’s remarks.
“This type of approach would not be fea-
sible under the European framework,”
Enria told the EU Parliament yesterday,
adding they would wipe out bank equity
before bonds, regardless of whether a
bank had to be wound down or was
taken over by another lender.
AT1s were introduced in the wake of
the financial crisis as part of reforms
aimed at reducing the risk of taxpayers
being called upon to support failing
banks. The securities have grown into a
market worth about $260bn.
Concerns among investors following
the weekend’s events were “under-
standable”, said Laboureix, adding that
he was not criticising the Swiss authori-
ties, which were acting on specific
national financial stability concerns.
Those decisions — coupled with
efforts by US authorities to underpin
confidence following the failure of two
banks and to boost global dollar liquid-
ity — showed authorities were taking
the necessary steps to stabilise the mar-
kets. “They are taking their responsibil-
ities all over the globe — that’s
extremely good in terms of financial sta-
bility,” said Laboureix.
The SRB has responsibility for ensur-
ing a failure of one financial institution
does not spread turmoil in banking.
in green investment has poured into the
US since last year’s passage of the IRA,
which seeks to reduce emissions to half
their 2005 levels by 2030. It provides
tax credits for groups that source inputs
from countries with which the US has a
free trade agreement. That excludes the
EU and Japan, which lack such deals.
Volkswagen, BMW and Enel are
among the major European companies
to review their investment plans in the
bloc in light of the IRA. “If my custom-
ers leave Europe, that’s not good for us,”
said Solvay’s Kadri. “Believe me, if my
customers are not here, I’m not going to
spend a euro here.”
Marco Mensink, head of the European
chemicals trade association Cefic, said
the EU did not understand the funda-
mental attraction of the US green deal.
“They don’t fund the building of a plant.
They fund the day you start operating
through tax breaks, so you actually
make a profit,” he said. “The US has a
business case and Europe makes a law.”
The comments come as organisations
across the bloc warn of the EU’s eroding
competitiveness. The German Regula-
tory Control Council has estimated that
during the pandemic, EU law added an
annual compliance burden of €550mn.
4 ★ FINANCIAL TIMES Wednesday 22 March 2023

INTERNATIONAL

Law repeal Internal tension

Knesset votes to reopen Jewish settlements
Palestinians decry move
allowing Israelis back into
four West Bank areas
JAMES SHOTTER — JERUSALEM
Israel’s parliament has repealed legisla-
tion that ordered the dismantling of
four Jewish settlements in the occupied
West Bank, in a move that critics
denounced as a step towards the creep-
ing annexation of the territory.
The vote in the early hours yesterday
fulfils a long-held goal of the far-right
lawmakers who dominate Benjamin
Netanyahu’s hardline government and
want to re-establish the settlements,
which most of the international com-
munity considers illegal.
The decision comes amid rising Israe-
li-Palestinian tensions, with violence in
the West Bank at its highest level for
nearly 20 years. Israel is also mired in a
row with Arab countries after Bezalel
Smotrich, the ultranationalist finance
minister, claimed on Sunday there was
“no such thing as Palestinians”.
On Israel’s streets, Netanyahu’s
administration is facing the biggest
wave of protests for a decade over a con-
tentious plan to weaken the judiciary.
Israel dismantled the four settle-
ments in the northern West Bank —
Homesh, Sa-Nur, Ganim and Kadim —
in 2005 at the same time as it withdrew
US politics. Stormy Daniels inquiry
from the Gaza Strip, sparking a furious
reaction from settlers.
The Knesset vote means clauses bar-
ring Israeli citizens from entering or
staying in the evacuated areas, and giv-
ing the army the power to remove any
who try, will no longer apply to the four
areas. The changes will not affect Gaza.
Settler leaders hailed the vote as a
“great day for the state of Israel”. How-
ever, Nabil Abu Rudeineh, spokesman
for Palestinian Authority president
Mahmoud Abbas, branded it “contrary
to all resolutions of international legiti-
macy”, while Gilad Kariv, from Israel’s
opposition Labor party, decried the
changes as a “pre-annexation law”.
“[This is] a law that will lead to the
establishment of more illegal outposts.
A law that will increase the violent,
bloody friction between Israelis and Pal-
estinians,” Kariv said.
The changes are the latest in a series
of initiatives by the government —
which took office in December with
ultranationalist settlers such as Smot-
rich and Itamar Ben-Gvir holding
important security posts — that aim to
boost settlements in the West Bank.
Last month the government
announced it would retroactively legal-
ise nine settlement outposts deep in the
West Bank, which even Israel did not
previously deem legal, and promote the
construction of thousands of new settle-
ment housing units.
Those initiatives drew condemnation
from Antony Blinken, US secretary of
state, who warned that they would
“exacerbate tensions and undermine
the prospects for a negotiated two-state
solution”.
The West Bank makes up the bulk of
the Palestinian territories but has been
occupied by Israel since 1967. Over the
past half-century, Israel has constructed
more than 130 settlements there, which
house some 700,000 settlers.
In 2005, then prime minister Ariel
Sharon said Israel would withdraw from
Gaza and the four settlements in the
north of the West Bank, arguing that
Israel would have to cede them in any
future peace deal with the Palestinians.
Venezuela
risks further
regime purge
after oil
minister quits
JOE DANIELS — BUENOS AIRES
MICHAEL STOTT — LONDON
The sudden resignation of one of Vene-
zuela’s most powerful ministers has
exposed tensions at the top of Presi-
dent Nicolás Maduro’s authoritarian
government and triggered fears of a
broader political purge.
Tareck El Aissami resigned on Monday
as oil minister, saying he wanted to
“support, follow and totally back” an
investigation into serious corruption at
state oil company Petróleos de Vene-
zuela (PDVSA), the backbone of the

Trump seeks political capital with arrest alert

Ex-president rallies allies and
ensures return to spotlight
with prediction of indictment
LAUREN FEDOR AND STEFANIA PALMA
WASHINGTON
Police began installing steel barricades
outside Manhattan’s criminal court on
Monday ahead of the possible indict-
ment of Donald Trump.
If Trump was correct in his prediction
that he would be arrested yesterday, he
would be the first former US president
to face criminal charges, setting up a
legal battle that will reverberate across
the 2024 presidential election.
Critics and allies say an indictment
could bolster Trump’s standing with
grassroots Republicans who will select
the nominee for president in 2024, even
if it could turn off voters in the general
election. Several prominent Republi-
cans have already rallied to his defence.
“Donald Trump is at his weakest
when he is irrelevant, when nobody is
talking about him, when he becomes an
afterthought,” said Carlos Curbelo, a
former Republican congressman from
Florida and Trump critic. “He had
started becoming that, and now this
controversy has put him back in charge
of the national narrative.”
Trump became the first national
Republican to declare he was running
for president in November, just weeks
after a disappointing midterm election
performance for his party that many
blamed on his presence in the races.
Four months later, most national
opinion polls of Republican voters show
Trump leading the few candidates who
have declared so far, including Nikki
Haley, the former UN ambassador, and
Vivek Ramaswamy, a fund manager
who rails at environmental, social and
governance criteria, and potential run-
ners such as Ron DeSantis, the Florida
governor.
Even as rumblings of an indictment
have grown, several polls have shown
Trump gaining ground. A Quinnipiac
poll out last week showed 46 per cent of
Republican and Republican-leaning
voters supported Trump, 32 per cent
DeSantis and 5 per cent Haley. In a head-
to-head matchup, Trump had
51 per cent, DeSantis 40 per cent.
“DeSantis might be the buzz in the
GOP conversation, but for now Trump is
seeing no erosion and, in fact, enjoys a
bump in his lead in the Republican pri-
Backing: mary,” said Tim Malloy, Quinnipiac
supporters of University polling analyst.
Donald Trump At the weekend, Trump said on his
protest Truth Social platform he expected to be
yesterday near arrested and accused the Manhattan
Mar-a-Lago Club district attorney’s office of being “cor-
in Palm Beach, rupt” and “highly political”. The
Florida inquiry, one of several he faces, stems
Giorgio Viera/AFP/
Getty Images
from allegations he paid hush money to
a porn actress about their alleged affair.
Allies leapt to his defence. Kevin
McCarthy, Speaker of the House, said he
would direct Republican committee
chairs to see whether federal funds were
“being used to subvert our democracy
by interfering in elections with politi-
cally motivated prosecutions”.
A trio of Republican House commit-
tee chairs accused Alvin Bragg, the
Manhattan district attorney, of being
“about to engage in an unprecedented
abuse of prosecutorial authority” and
demanded he turn over “all documents
and communications” relating to his
office’s investigation into Trump.
For the most part, Trump’s rivals, cur-
rent and prospective, have been critical
of Bragg, even while trying to keep some
distance from the former president.
“The idea of indicting a former presi-
dent of the United States is deeply trou-
bling to me as it is to tens of millions of
Americans,” Mike Pence, who is
reported to be weighing his own White
House run, said at the weekend.
“No one is above the law,” said the
former vice-president who fell out with
Trump over the January 6 attack on the
Capitol. “I am confident President
Trump can take care of himself.”
The reaction from DeSantis, who has
steered clear of clashing directly with
Trump, was closely watched. The Flor-
ida governor drew laughs on Monday at
a press conference when he said: “I don’t
know what goes into paying hush
money to a porn star to secure silence
over some kind of alleged affair, I just, I
can’t speak to that.”
But he added: “What I can speak to is
if you have a prosecutor who is ignoring
crimes happening every single day in his
jurisdiction and he chooses to go back
many, many years ago to try to use
something about porn star hush money
payments, that is an example of pursu-
ing a political agenda and weaponising
the office, and I think that that is funda-
mentally wrong.”
There have been signs in recent weeks
the district attorney’s years-long inves-
tigation into the payment was nearing a
conclusion, although authorities have
not confirmed that an indictment of
Trump is imminent.
The case relates to Trump’s alleged
relationship with Stormy Daniels,
whose real name is Stephanie Clifford,
and whether he broke the law by arrang-
ing for her to receive hush money in the
run-up to the 2016 presidential election.
The actress claims she had an affair
with Trump and received $130,000 in
2016 from an entity set up by Michael
Cohen, Trump’s former personal law-
yer. Cohen was sentenced in 2018 to
three years in jail after pleading guilty to
charges including campaign finance
violations linked to the payment.
Clifford, who at one point signed a
statement saying she did not have an
affair with Trump, has claimed she was
threatened to remain silent. Trump has
‘Donald denied they had an affair.
Some Trump critics worry the Man-
Trump is at hattan case may undercut the public’s
his weakest appetite for further prosecutions, not
least in Georgia, where the Fulton
when he is County prosecutor is weighing charges
irrelevant, relating to Trump’s attempts to inter-
fere with the 2020 presidential election.
when But others point out that even if
nobody is Trump were to win in next year’s prima-
ries, his legal challenges were likely to
talking catch up with him — at the very least at
about him’ the ballot box in a general election.
Doug Heye, a former spokesperson
for the Republican National Committee,
said: “Clearly, an indicted former presi-
dent running for office, that is not a win-
ning message for Trump.”
Janan Ganesh see Opinion
South American country’s economy.
In a televised speech, Maduro called
on Venezuelans to “go on the offensive
against the corrupt, the bandits, the
delinquents, the criminals”. He added:
“We are in a difficult and conflictive
transition from a society corrupted by
capitalism to a society with a culture of
work, solidarity, equality and sharing.”
El Aissami, a longtime Maduro ally,
has a $10mn US government reward on
his head for allegedly facilitating drug
trafficking from Venezuela. He played a
key role in helping Caracas dodge US
economic sanctions, using his Syrian
and Lebanese parentage to open up new
business channels to Iran and Turkey.
Maduro said “very important busi-
ness people, top officials at state entities
and lawmakers” had been arrested in
the first phase of the corruption investi-
gation, raising the question of how
extensive the crackdown might be.
Among those detained was Joselit
Ramírez, who led Venezuela’s crypto-
currency regulator and was indicted on
money-laundering charges in 2020 in
the Southern District of New York,
accused of helping El Aissami evade
sanctions by issuing digital currency.
In a country where graft has been
endemic for decades, investors and ana-
lysts yesterday questioned what the
motive for El Aissami’s downfall might
be. Venezuela was ranked 177th out of
180 in Transparency International’s lat-
est corruption perception index.
“We’re talking about the architect of
Maduro’s sanctions evasion strategy,”
said Geoff Ramsey, a Venezuela expert
at WOLA non-governmental organisa-
tion in Washington. “If anyone knows
where the bodies are buried, it’s El Ais-
sami. The most important thing to
watch now is whether he will be given a
soft landing, or if Maduro will go after
him more directly.”
Some Venezuela watchers questioned
whether El Aissami had been caught in a
power struggle between the Maduro
clan and a rival faction headed by vice-
president Delcy Rodríguez and her
brother, Jorge, the head of Congress.
Francisco Monaldi, a Venezuelan oil
expert at Rice University’s Baker Insti-
tute, pointed out that oil sales to the
black market in China, circumventing
US sanctions, had led to immense graft.
Venezuela boasts the world’s largest
proven oil reserves and pumped more
than 3mn barrels a day in its heyday.
However, years of mismanagement, US
sanctions and the expulsion of most for-
eign oil companies have reduced output
to well below 1mn b/d.
Maduro, who has survived a decade in
power despite numerous attempts to
oust him, said El Aissami had “con-
firmed his status as a revolutionary” by
agreeing to help the investigation.

Universities Minerals

California anti-bias law hits minority students DRC says Rwanda smuggling costs $1bn a year
ANDREW JACK — NEW YORK
Thousands of low-income students
from minority groups in California face
reduced chances to gain degrees at
good US universities because of a state
law designed to protect against
discrimination, education advocates
have warned.
While intended as a progressive political
measure, college and non-profit staff
say California’s intensifying travel bans
are undermining tours by prospective
students to historically black colleges
and universities (HBCUs) and Hispanic-
serving institutions across the country.
The spat highlights the intensifying
“culture wars” in the US and raises con-
cerns about a fresh barrier to social
mobility.
Bill 1887 was passed in the California
assembly in 2017 to outlaw official
travel to states it considers discrimina-
tory based on sexual orientation or gen-
der identity. It has been extended regu-
larly and now applies to 23 states.
However, employees in California’s
116 community or junior colleges —
which offer low-cost two-year training
that can be transferred and count
towards undergraduate degrees — say
the ban forbids the use of state funds for
campus tours essential to motivating
students to apply.
Yasmin Delahoussaye, director of the
Educating Students Together College
Access Program, a non-profit that
arranges tours, said: “This shift kills any
opportunity to show our students some
of our nation’s top-tier schools. It’s
extremely frustrating for those of us
working to encourage black students to
transfer. HBCUs are concentrated in
those southern ‘red’ states we cannot
travel to.”
She estimated that at least 2,000
fewer students would take tours this
year as a result of the bans, which forced
her to reschedule one planned tour four
times, from Louisiana to Georgia and
then Virginia before ending up in Mary-
land, Washington DC and Pennsylvania,
where there are far fewer and more
expensive HBCUs.
The legislation risks setting back
recent efforts to improve access to terti-
ary education for poorer black students,
including a pioneering agreement in
2015 to give students with good aca-
demic grades in California’s community
colleges automatic admission into 39 of
the country’s HBCUs.
Claudia Barbosa-Daniels, a counsellor
at Evergreen Valley College in San José,
said many students would not apply to
HBCUs without visits to help familiarise
them with living and studying condi-
tions. “There’s nothing that beats an
HBCU for a student of colour. The fam-
ily component means they will thrive.”
She said that when the ban forced her
to cancel a tour to Georgia last year, one
HBCU cancelled promised scholarships
of $20,000 for any student who partici-
pated and applied to transfer. “We’re
just not able to have as many opportuni-
ties for our students because of the ban.
It’s had a huge effect.”
Assembly member Evan Low, who
introduced the California law, said it
was not meant to prevent such trips.
“This isn’t intended to deter students
from pursuing a higher education if
they’re looking to attend or visit a col-
lege or university that is in a state where
state-funded travel is banned,” he told
the Financial Times.
TOM WILSON — LAUSANNE
ANDRES SCHIPANI — NAIROBI
The Democratic Republic of Congo said
it was losing almost $1bn a year in min-
erals that were being smuggled into
Rwanda, as it restated its call for inter-
national sanctions to be placed on the
Kigali government.
Nicolas Kazadi, DRC finance minister,
said Rwanda last year exported close to
$1bn in gold, tin, tantalum and tung-
sten, even though the country has few
mineral deposits. “It’s all coming from
DRC — that’s obvious,” he told the FT
Commodities Summit in Lausanne. “It’s
not only allegations, it’s evidence.”
Kinshasa has long accused Rwanda of
plundering its natural resources by sup-
porting M23, an armed group that
resumed fighting in late 2021. DRC pres-
ident Felix Tshisekedi recently urged
visiting French leader Emmanuel
Macron to take economic measures
against Rwanda for its alleged backing
of M23, which has waged a brutal insur-
gency across eastern DRC.
“We’re still waiting for those sanc-
tions,” Kazadi said, adding that M23’s
main objective was to take DRC miner-
als and siphon them over the border.
US secretary of state Antony Blinken
told Rwandan president Paul Kagame in
December that any “external support to
non-state armed groups in the DRC
must end, including Rwanda’s assist-
ance to M23”, according to the US state
Nicolas Kazadi,
finance minister:
‘[Rwanda’s mineral
exports are] all
coming from DRC
— that’s obvious’
department. Rwanda has denied the
allegations that it supports M23. M23
also denies being backed by Rwanda.
Yolande Makolo, a spokesperson for
the Rwandan government, said: “The
minister [Kazadi] is delusional. Rwanda
cannot be responsible for state failure in
the DRC and the cannibalisation of their
economy by over 100 illegal armed
groups whose activities the government
allows, and even supports.”
Kagame has maintained strong bilat-
eral ties with western partners, includ-
ing the UK, despite leaked evidence
from UN investigators of his country’s
involvement in fighting in the DRC.
The DRC holds vast amounts of gold
and some of the world’s largest deposits
of tantalum, also known as coltan,
which is used in the manufacture of
electronic devices. It exported 2,220
tonnes of coltan last year, up 54 per cent
from 2021. Official gold exports fell 11
per cent to just over 28 tonnes, but the
true figure is thought to be far higher.
The US Treasury has estimated that
more than 90 per cent of DRC’s gold was
“smuggled” to countries including
Rwanda and Uganda, where it is refined
and exported, mainly to the United
Arab Emirates. The US last year placed
sanctions on the owner of a Ugandan
gold refinery for his alleged involve-
ment in the illegal trade.
The DRC government in January
launched a joint venture with a UAE-
based company to export DRC gold
mined by hand to a refinery in the Gulf.
Kazadi said the venture, Primera Gold
DRC, which ultimately aims to export a
tonne of certified gold per month, had
exported 454kg since January.
Wednesday 22 March 2023 ★ FINANCIAL TIMES 5
6 ★ FINANCIAL TIMES Wednesday 22 March 2023

Chips are down Beijing reacts to US curbs by pumping ‘all possible resources’ into favoured semiconductor groups y COMPANIES

UBS seeks to Bitter sweet Nestlé admits most of its food

and drinks not considered ‘generally healthy’
Trafigura and
Vitol open to
cancel Klein trading more
Russian oil
deal for First TOM WILSON AND DAVID SHEPPARD
LAUSANNE

Commodity traders Trafigura and

Boston revival Vitol said they would consider trading

more Russian oil if they received clear
guidance that governments and banks
would accept them doing so.
The world’s two largest independent

3 Veteran’s Credit Suisse tie-up queried

energy traders both wound down their
oil businesses with Russia following

3 Legal team examines voiding contract

President Vladimir Putin’s full-scale
invasion of Ukraine last year.
Trafigura chief executive Jeremy Weir
said his company’s position would only
STEPHEN MORRIS, ARASH MASSOUDI way possible, the people said. In partic- change if there was broad agreement
AND OWEN WALKER — LONDON
ular it is reviewing whether it can scrap from banks, insurers and western gov-
UBS is set to enter talks with Michael or negotiate down a break-up fee owed ernments that big traders needed to re-
Klein to unwind a deal that would have to Klein. However, if it cannot, one per- engage to facilitate the smooth and safe
seen the Wall Street dealmaker take son said, the costs to activate the break movement of Russian oil.
control of much of Credit Suisse’s invest- clause would not be material. “You have to have all stakeholders
ment bank, according to people with One person close to Klein said they involved to do this thing properly and
direct knowledge of the matter. “seriously doubt” the deal can go ahead professionally, and have buy-in,” Weir
The talks, coming days after UBS was on the same terms because “First Bos- told the Financial Times’ Commodities
forced to buy its Swiss rival for $3.25bn, ton can’t be what it was meant to be” Global Summit in Lausanne.
underline the view among UBS execu- with its parent group set to disappear. Trafigura currently lifted only a “lim-
tives that Klein secured terms that were A key part of First Boston’s strategy ited” number of cargoes of refined prod-
too favourable. was a close partnership with Credit ucts, permitted under exemptions in
UBS also sees some value in keeping Suisse’s wealth management and trad- the west’s sanctions, he added.
parts of the now defunct Credit Suisse’s ing operations, which is unlikely to con- Russell Hardy, Vitol chief executive,
investment banking unit. tinue under UBS’s ownership, the peo- said the company was in full compliance
“We assume he [Klein] is cherry pick- ple said. Once Credit Suisse is sub- with the west’s restrictions and cur-
ing. The deal was done when the selling sumed, First Boston would no longer be rently traded less than 100,000 barrels a
bank had a gun held to its head and we able to receive capital from its parent or day of Russian oil. “Is that number going
be able to distribute equity to staff that to move up marginally in the event of
transferred over, they added. some slightly stronger guidance
‘We assume [Klein] is cherry UBS and Credit Suisse declined to Nestlé says: ‘Enjoyment-related categories will not be turned into health-related categories’ — Hollie Adams/Bloomberg towards what’s expected? Yes, maybe,”
picking. The deal was comment, as did a spokesperson for he said. “Is it going to dramatically
Klein. ALISTAIR GRAY — LONDON fruit and vegetables. Nestlé, whose executive Mark Schneider said last change? I don’t think so.”
done when the selling bank For Klein, the deal would have ful- products include Smarties chocolates, month that the group had made The chief executives’ comments come
Nestlé has acknowledged that the
had a gun held to its head’ filled an ambition of running a high-
nutritional value of less than half its
Nesquik milkshake and Nescafé cof- “already a lot of progress” in reducing as the US government has begun to pri-
profile Wall Street business after his fee, released the figures following calls sodium, sugar and saturated fats. vately urge some large trading compa-
portfolio of mainstream food and
are no longer in that position,” a person 2008 departure from Citigroup. A pro- from shareholders and campaigners The foodmaker said it had reduced nies to restart activity with Russia if
drinks can be considered “healthy”
close to UBS said. “We are not here to tégé of former Citigroup leader Sandy for greater transparency about the sodium in products including Mahler they can do it under the G7’s $60-a-
using a commonly accepted defini-
enrich Michael Klein at the expense of Weill, the 59-year-old investment nutritional value of its products. Seafood Creamy Soup, and added barrel cap. Russia’s Urals blend, its main
tion, despite pressure on packaged-
our shareholders.” banker was once considered a candidate The Switzerland-based group said more zero-sugar variants of Coffee benchmark, is currently trading at
food makers to make their products
Last October, Klein, a former Credit to take the helm of the Wall Street giant. that it was “setting a standard for Mate and more plant-based foods, $49.95, according to Refinitiv data.
more nutritious.
Suisse board member, negotiated a After founding M Klein & Co, which transparency” and was the first in the including Garden Gourmet Schnitzel. Western officials are concerned that
merger of his boutique advisory firm employs about 20 staff, Klein has con- The annual report of the world’s larg- sector “to report on the nutritional But industry executives have the sanctions have inadvertently moved
with the advisory and capital markets tinued acting as an adviser to CEOs, cor- est food company showed that 54 per value of its entire global portfolio”. argued that there are limits to how far the Russian oil trade from better-known
unit of Credit Suisse, planning to spin off porations and governments on major cent of its food and beverages by reve- Holly Gabriel, a campaigner at they can push healthier products. companies to lesser-known operators,
and list the combination under the his- transactions. He has become a close nue — excluding products such as pet responsible investment charity “Enjoyment-related categories often using ageing vessels.
toric First Boston brand. Klein would adviser to Saudi Arabia, including on food, baby food, vitamins and special- ShareAction, welcomed the disclo- [such as confectionery] will not be Companies that were “arguably less
have owned a minority stake and the the initial public offering of its state oil ised medical nutrition — were rated sure but said it “shows the company is turned into health-related catego- experienced, certainly less transparent”
Swiss lender a majority position. company Saudi Aramco. lower than 3.5 under the widely used still far too reliant on the sale of less ries,” Schneider said. were now taking Russian oil on old boats
Credit Suisse had agreed to buy Credit Suisse shareholder Harris health star rating system. healthy food and drink products”. Mark Wijne, research director at through difficult shipping channels
M Klein & Co for $175mn and separately Associates had raised questions over the Foods with a lower score are not Packaged-food groups are under the Access to Nutrition Initiative, said such as the Danish straits, all the way to
paid Klein personally another $10mn terms of the deal with Klein and his pos- considered to be “generally healthy”, scrutiny over the extent to which they the disclosure was “very welcome” Asia, Ben Luckock, Trafigura’s co-head
for advising on the restructuring of its sible conflict of interest given the according to the not-for-profit Access are responsible for a global obesity but showed that companies such as of oil trading, said.
investment bank. banker had been on the board for four to Nutrition Initiative. problem. Some governments have Nestlé could and should do more. Torbjörn Törnqvist, chief executive of
UBS has now assigned a legal team to years. HSR takes into account levels of sat- introduced taxes on high-sugar prod- Nestlé added that it would be “set- energy trader Gunvor, said many ves-
examine how to void the contract Credit Embracing reality page 7 urated fats, sugar and salt, as well as ucts and restrictions on advertising ting a global target for the healthier sels carrying Russian oil had previously
Suisse signed with Klein in the cheapest See Letters, Opinion, Markets and Lex “positive nutrients” such as fibre, and sales promotions. Nestlé chief part of our portfolio later this year”. been “heading towards the scrap yard”.

Business Opportunities
Readers are strongly recommended to take appropriate
professional advice before entering into obligations.
US insider-trading case against junk-bond king’s protégé is a first
and entrepreneur, if relatively obscure
INSIDE BUSINESS measured against other Drexel alumni
who became masters of the universe.
AMERICAS But earlier this year, the Department
of Justice, once again knocked on
Peizer’s door. The Feds have accused
Sujeet him of insider trading related to 2021
shares sales of a listed healthcare serv-
Indap ices company, OnTrak, which Peizer
founded in 2003 and where he had been
after learning that OnTrak was going to
lose key contracts with insurers that
would send its revenue plummeting, he
used two different 10b5-1 plans to exer-
cise stock warrants and sell shares.
The Feds said that it had used new
data science techniques to uncover
questionable trades like Peizer’s.
Naturally, either under the old rules
or the new ones, executives could never

F
or a time in the mid-1980s,
Terren Peizer, then in his 20s,
may have had the best seat in
finance. After stints at First
Boston and Goldman Sachs,
Peizer would sit as a trader next to
Michael Milken at the junk-bond king’s
famed X-shaped desk at the Beverly
Hills office of Drexel Burnham Lambert.
The two would reportedly exchange
high-fives after a winning trade, accord-
ing to that era’s seminal book, Den of
Thieves.
But it would soon become perhaps the
worst vantage point. Peizer witnessed
the shell shock that overcame Milken
when news came across the wire in 1986
of the arbitrageur, Ivan Boesky, co-
operating with the government in what
would be a sprawling investigation of a
securities fraud ring that eventually
would reach both Milken and Drexel.
Peizer would ultimately turn state’s
evidence and testified against Milken
about alleged illegality at the invest-
ment bank at a 1990 pre-sentencing
Businesses For Sale hearing for his mentor (Everyone was
running faucets, Peizer told the federal
court, noting the paranoia that gripped
Business for Sale, Business Opportunities, Business Services,
the Drexel offices of being caught on
Business Wanted, Franchises government surveillance.)
Runs Daily Milken eventually pleaded guilty to
.........................................................................................................................................................................................................................................................................
financial crimes and served 22 months
Classified Business Advertising
UK: +44 20 7873 4000 | Email: advertising@ft.com
in jail. Peizer went on to a successful
career as a California-based financier
chair and chief executive. According to
the indictment, the sale allowed Peizer
to avoid more than $12mn in losses.
Peizer is charged with abusing a so-
called “10b5-1” plan that allows execu-
tives to sell stock safely without risking
accusations of benefiting from inside
information. The case is important to
the Department of Justice and the civil
authorities at the Securities and
Exchange Commission as it is the first to
challenge solely an
executive’s trading California-based financier
based on a 10b5-1
plan. Peizer is charged with
By sheer coinci- abusing a ‘10b5-1’ plan
dence, the SEC
has just enacted that allows executives
tougher limits on to sell stock safely
the usage of 10b5-1
plans, a tool that had been first imple-
mented in 2000 to give executives the
“safe harbour” protection.
A plan would delineate a pre-
determined schedule of share transac-
tions. But ultimately the worry became
that there was excessive flexibility in the
plans and academic studies showed
that executives using 10b1-5 plans
seemed to be skilled at systematically
avoiding losses.
The SEC as of March has tightened
rules on 10b5-1 plans. Most notably, to
get the benefit of the legal protection,
there has to be a 90 day “cooling off”
period before any share sales.
According to the indictment of Peizer,
legally trade on such inside information,
whatever the terms of a 10b5-1.
Peizer’s lawyer has proclaimed his
innocence. “The government has
clearly over-reached in this case, espe-
cially since they have disregarded the
good-faith discussions regarding the
facts and circumstances of this inquiry
which took place before these cases
were filed without any prior notice,”
said his attorney, David Willingham.
Even now, in his mid 60s, Peizer’s
LinkedIn profile lists him as the current
CEO or chair of nine companies, and his
biography in SEC filings said that his
personal firm had led $1.5bn worth of
investments in various companies over
the years.
He was a fixture courtside at Los
Angeles Laker basketball games,
according to a fellow executive.
OnTrak shares have now collapsed to
under $1 each. But at their peak in early
2021, prior to his share sales, Peizer’s
stake was valued at more than $800mn,
according to filings (the indictment
noted he previously had almost not sold
any shares in the company).
For his part, Michael Milken declined
to comment on Peizer’s plight. A repre-
sentative told the Financial Times that
Milken was “not focused on the distant
past” but rather on the release of his
new book describing his longstanding
interest in medical research.
sujeet.indap@ft.com
Wednesday 22 March 2023 ★ FINANCIAL TIMES 7

COMPANIES & MARKETS

Technology Technology

China to nurture chosen few chipmakers
Liberal approach seen as
admission that response
to US curbs has failed
QIANER LIU — HONG KONG
China is giving a handful of its most suc-
cessful chip companies easier access to
subsidies and more control over state-
backed research, as tightening US con-
trols on access to advanced technology
force a major rethink in Beijing’s
approach to supporting the sector.
The nurturing of closer co-operation
with a select group of companies comes
after the government shook up its tech
strategy this month with the creation of
a Communist party science commission
and a reinvigorated Ministry of Science
and Technology.
Chipmakers Semiconductor Manu-
facturing International, Hua Hong Sem-
iconductor and Huawei, as well as
equipment suppliers Naura and
Advanced Micro-Fabrication Equip-
ment Inc China, will be among those
benefiting from the policy shift, accord-
ing to people familiar with the matter.
The chosen few will have access to
additional state funding without having
to achieve performance goals as before.
They will also be able to play a bigger
role in state-backed research projects,
reducing the influence of state-owned
companies and academic institutes.
“The Chinese government will subsi-
dise these companies to produce and
Financials. Wirecard trial
deploy localised chipmaking tools with-
out any funding cap, just in order to
overcome US restrictions,” said one per-
son with knowledge of the policy shift.
The move is a tacit admission that
previous policies of massive and often
ill-targeted subsidisation of the chip
industry to build up domestic capabili-
ties have failed, with China needing a
different response to the US restrictions.
“China has wasted too much money
on non-functional research to bypass
the sanctions without harvest,” said an
official working closely with Chinese
chipmakers. “It is time to ditch the delu-
sions and channel all possible resources
into the companies, with the capability
to guide the industry out of misery.”
This liberalisation for a few comes as
Chinese industry has been crippled by
the Biden administration’s restrictions
on the export of advanced chips, while
an agreement among the US, Japan and
the Netherlands is set to deny it access
to the latest chipmaking equipment.
China needed to accelerate the devel-
opment of homegrown replacements,
analysts said, but it would not be an easy
task. “There are bound to be bouts of
pain in replacing equipment with
domestic alternatives, but it is unavoid-
able,” said Lucy Chen, vice-president of
Taipei-based Isaiah Research.
Beijing’s direct intervention with big
investments has failed to produce much
of a technological edge, according to
industry executives. One manager at a
domestic chipmaker cited as an exam-
ple attempts to make lithography
equipment for chipmaking, in which
research has been under way since
2006. “This equipment is only theoreti-
cally usable, and no chip manufacturer
has ever dared to activate such a
machine in their fabs,” said the execu-
tive, who requested anonymity owing to
the sensitivity of the matter.
Industry experts are still cautious
about how receptive the Chinese gov-
ernment would be to the industry’s con-
cerns. “The officials and investors only
listen to the good news,” said an execu-
tive from a Chinese chip tool maker.
SMIC, Hua Hong, Huawei, Naura and
Advanced Micro-Fabrication Equip-
ment Inc China did not respond to
requests for comment.
Google hopes
to gain ground
on ChatGPT
with launch of
Bard chatbot
MADHUMITA MURGIA
ARTIFICIAL INTELLIGENCE EDITOR
Google has launched its Bard chatbot in
a move to rival OpenAI’s popular Chat-
GPT, as it seeks to make up lost ground
in the race to commercialise generative
artificial intelligence technology.
The tech group began rolling out the
chatbot, its first standalone consumer
AI product, yesterday. Google said that
Bard, which provides answers to text-
based questions, will be run separately
from its Google Search engine.
Its launch comes almost four months
after Microsoft-backed rival OpenAI
drew worldwide attention with the

Braun’s stoic denials test judge’s patience
Ex-chief of collapsed payments
group unfazed by Munich case
probing huge accounting fraud
OLAF STORBECK — MUNICH
In his two and a half years in police cus-
tody, Markus Braun seems to have
changed very little.
The former Wirecard boss still wears
his black turtlenecks. He is as self-
confident, polite and intransigent as
ever. His statements in the trial in
Munich examining one of Europe’s big-
gest accounting frauds have been pep-
pered with PowerPoint presentations
and industry jargon. They have often
sounded more like investor briefings
than statements in a criminal case.
Braun’s testimony ended last week.
Dozens of other witnesses are lined up
to appear in proceedings that are
expected to last until mid-2024 at the
earliest, but the 53-year-old is the cen-
tral figure in the case.
Along with two former colleagues, he
faces charges of fraud, embezzlement
and market and accounting manipula-
tion. If found guilty on all counts, he
faces up to 15 years in jail.
Yet in hour after hour of court time
since mid-February, he has remained
unfazed, always denying any wrongdo-
ing in a firm but affable manner. “I want
to be very precise here,” he has said.
He even appeared to enjoy some of
the conversation with presiding judge
Markus Födisch, answering questions
politely, patiently, and with a smile.
Throughout he has been unwavering
in his position. He has also retracted the
few admissions of accountability he
made to prosecutors during the early
stage of the investigation back in 2020.
In his opening statement at the trial,
he said that the day of Wirecard’s col-
lapse was a “day of deepest regret and
pain”, but has not said since what it was
that he regretted. The fraud, he is ada-
mant, was orchestrated entirely with-
out his knowledge and involvement.
Instead, he has blamed Wirecard’s
fugitive second-in-command, Jan Mar-
salek, as well as former Dubai-based
manager Oliver Bellenhaus. The latter is
one of the three defendants in the case
but he has turned chief witness and has
implicated Braun heavily.
The third defendant, Wirecard’s
former head of accounting Stephan von
Erffa, also denies all wrongdoing.
Braun disputes even the most basic
facts of the case. After long investiga-
tions, Wirecard’s administrator and
criminal prosecutors maintain that the
Markus Braun’s payments company’s outsourced opera-
testimony ended tions in Asia, which on paper accounted
last week in for half of total revenue and €1.9bn in
proceedings corporate cash, were a sham. Braun is
expected to last insistent these operations did exist.
until mid-2024 His version of events is that Marsalek
Sven Simon via Reuters
and Bellenhaus created a “shadow
structure”, hijacking payments process-
ing by Wirecard and embezzling its
returns, tricking the company’s man-
agement as well as its auditors.
Braun has presented emails and chat
messages, bank statements and other
documents he considers “hard facts”
that prove his point. The judge has
called his arguments a “theory” based
on “your interpretation of the facts”.
The former chief executive has also
depicted himself in court as someone
who came close to uncovering and stop-
ping the fraud. He argued, for instance,
that it was he who pushed for a forensic
KPMG audit in October 2019 after a
Financial Times article raised questions
about the existence of key clients, and
that he decided to replace Marsalek in
early 2020 in response to the latter’s
behaviour during the KPMG audit.
At one point, Födisch appeared to
stump Braun with a question: if the out-
sourced operations had existed, why did
Marsalek and Bellenhaus need to forge
minutes of meetings and databases, as
well as client and transaction data?
“Would it not have been much easier
just to take the cash?” the judge asked.
Braun was flustered and struggled to
come up with a clear explanation, argu-
ing — in contradiction with other evi-
dence and witness statements — that the
only documents that had been forged
were balance confirmations.
This apart, Braun’s generally immov-
able position sometimes seemed to test
the judge’s patience. At one point,
Födisch commented to Braun: “You
have just said with very many words the
same as before: nothing.” After Braun
dismissed several witness statements as
untrue, the judge said: “Here are three
accounts, which all clearly contradict
you. Do you really want to claim that
they are all entirely made up?”
Braun’s response was the witnesses
were just saying what they thought the
investigators wanted to hear.
The judge challenged Braun why he
did not do more to investigate internal
and external warnings and signs of trou-
ble from whistleblowers, auditors, short
sellers and media reports.
“From the outside, it looks like the
The judge situation was escalating more and more.
I want to comprehend why you did not
told Braun: get involved personally,” Födisch asked,
‘You have after Braun said that any allegations
were always investigated “by the
just said responsible departments” at Wirecard.
with very Födisch also asked why Marsalek,
who was in charge of the outsourced
many operations, was in effect answerable to
words the no one almost until the company col-
lapsed — a view that Braun rejected.
same as The judge read the court a statement
before: that Braun gave to prosecutors in Decem-
ber 2020, six months after Wirecard col-
nothing’ lapsed, admitting that he had “failed” as
chief executive and had to accept respon-
sibility for what had happened because
he did not “see the iceberg coming”.
“This is more than you have told us,”
the judge commented after he had fin-
ished reading the statement out.
Braun responded that he was emo-
tionally distressed at the time, after six
months in police custody, and also
lacked access to the prosecutor’s files.
Pushed by the judge to say whether he
still thought he had failed, Braun
reverted to the mathematical language
of his doctorate in business informatics.
“I did not solve the equation properly. In
this sense, I failed.”
public release of its chatbot, ChatGPT,
sparking a rush by tech giants to bring
powerful new language-based artificial
intelligence to the internet search
business.
Last week, OpenAI revealed its new
language model, GPT-4, which users
can access through a premium version
of ChatGPT and via Microsoft’s search
engine Bing. Chinese search group
Baidu also released its own chatbot,
Ernie, which it positions as a Chinese-
language alternative to ChatGPT.
In recent weeks, generative AI has
also been integrated into widely used
productivity applications, such as
Google’s Workspace including Google
‘We want to get feedback
and gradually phase up the
number of people who
have access to Bard’
Docs and Gmail, and Microsoft’s Office
365 software, as well as into popular
apps such as Duolingo, allowing millions
of people to start interacting with the
technology.
Google said Bard would generate
answers only in English — rather than
computer code or other languages —
and would provide access on a first-
come-first-served basis to users who
sign up to its wait-list in the US and UK.
“We want to get feedback and gradu-
ally phase up the number of people who
have access to Bard, and the reason for
that is we really want to be able to test
and learn from that before we roll it out
very widely.” said Zoubin Ghahramani,
vice-president of Google Research.
Bard is built on top of Google’s AI tech-
nology known as LaMDA, or Language
Model for Dialogue Applications, and
was trained on text data taken from the
open web. It is also grounded in Google
Search results, an extra layer of training
that means it is less likely to contradict
itself with incorrect information.
Question-answer chatbots have been
among the first wave of consumer prod-
ucts being built on top of generative AI
— a technology that uses enormous
amounts of human-generated text to
produce plausible responses to queries.
But Google has been slow to release
conversational AI compared with its
rival Microsoft, which in January
announced a “multibillion-dollar”
investment in OpenAI. Critics say
Google is hemmed in by its hugely prof-
itable search business, which discour-
ages it from introducing generative AI
because of its ability to summarise
search results into a single answer.
Jack Krawczyk, one of the leads on
Bard, said the group wanted people to
treat the chatbot as an “experiment” to
generate ideas and strategies, rather
than as a replacement for search.

Utilities Financials

RWE warns on Washington’s Xinjiang checks Trafigura chief criticises LME nickel contract
LAURA PITEL — BERLIN
Germany’s biggest utility warned that a
US ban on imports from China’s Xin-
jiang region could “significantly hinder
plans to build a green energy infra-
structure”.
RWE said yesterday that the import of
solar modules from Asia was subject to
“stringent checks” after Washington
last year enacted a ban on all imports
from the region where there have been
allegations of human rights violations.
Germany’s largest power producer,
which has expanded aggressively into
renewable energy, said it had suffered
“considerable project delays” as a result
of what it called the time-consuming
reviews of solar module deliveries.
The company describes itself as the
fourth-largest renewable energy player
in the US and the second-largest owner-
operator of solar farms in the country.
“State-imposed restrictions on cross-
border trade could also significantly
hinder plans to build a green energy
infrastructure,” the company said in its
annual report. At a press conference to
announce RWE’s full-year results, chief
executive Markus Krebber said the
company was not advocating that the
US legislation, called the Uyghur Forced
Labor Prevention Act, be unwound.
Mark Noyes, head of RWE’s US-based
clean energy division, added: “We cer-
tainly are supportive of the
checks . . . [They] are critical to making
sure what enters the US or any shore [is]
manufactured and sourced from ethical
positions.”
The solution, Krebber said, was to
beef up solar supply chains in the US
and Europe. “The right conclusion — if
we now need [significantly] more solar
panels, turbines, cables, whatever —
cannot be to water down the stand-
ards . . . We need now to ramp up the
European supply chain as the US is ram-
ping up their supply chain.”
In a subsequent statement, the com-
pany said that, while it supported the US
ban, it considered the procedure to cer-
tify that components do not originate
from Xinjiang as “too lengthy”, adding
that it led to “risks of bottlenecks in the
supply chain”.
The north-western region of Xinjiang
has been a hub for production of goods
from cotton to silica-based products
used in solar panel modules. Business
lobby groups had warned that the act,
signed into law by Joe Biden in 2021,
would pose a compliance challenge for
western businesses operating in China.
The UN has warned that crimes
against humanity may be taking place
against interned Muslim Uyghur and
other minorities in the region. China
denies the claims.
RWE reported better than expected
earnings before interest, taxes, depreci-
ation and amortisation of €6.3bn for
last year.
Additional reporting by Andy Bounds in
Brussels and Yuan Yang in London
LESLIE HOOK AND HARRY DEMPSEY
LAUSANNE
The head of Trafigura, one of the
world’s largest commodities traders,
warned the London Metal Exchange’s
global nickel benchmark is unfit for
purpose and needs reform to reflect
the rapid rise of the battery market.
The warning comes just days after the
LME said it discovered bags of stones
instead of nickel in one of its ware-
houses, dealing a further blow to a con-
tract that is already suffering from low
liquidity levels.
The LME contract is for high-purity
nickel, which is chemically very differ-
ent from the nickel sulphate used for
most battery applications.
The latter has experienced a surge in
demand as electric vehicles have grown
in popularity.
Jeremy Weir, chief executive of the
Singapore-based trader, told the Finan-
cial Times’ Commodities Global Sum-
mit in Lausanne the LME contract was
“not fit for purpose for the global nickel
industry when we include the battery
market”.
“The battery market is now the larg-
est part of the industry, therefore the
LME contract does not necessarily
reflect the underlying [structure] of a
large part of the industry,” he said. “We
have to have the contract or contracts to
reflect the underlying business and
we’ve just seen a major change.”
His comments join a growing chorus
Jeremy Weir branded the global
benchmark ‘not fit for purpose’
from trading houses and miners, includ-
ing BHP, calling for an overhaul of the
LME nickel benchmark.
The market has been further compli-
cated in recent years by Chinese nickel
producers in Indonesia that have made
technological breakthroughs, causing a
proliferation of different forms of the
metal that cannot be delivered against
the LME contract.
The LME, which this month intends
to publish an action plan detailing its
proposals to improve the nickel con-
tract, said in a statement that it recog-
nised the structural shifts in the market.
“Our current focus is on rebuilding
liquidity in our class 1 [high-purity]
nickel contract and we continue to
explore ways in which we might
enhance the contract specifications,” it
said.
The bags of stones that were discov-
ered in its warehouse caused the LME to
cancel nine nickel warrants, worth
about $1.3mn in total.
8 ★ FINANCIAL TIMES Wednesday 22 March 2023

BANKING TURMOIL

Start-ups learn the hard way how to Banks

manage cash after collapse of SVB
Many founders have scrambled to recover funds they had parked in large amounts at the lender
ANDREW EDGECLIFFE-JOHNSON
AND STEPHEN FOLEY — NEW YORK
GEORGE HAMMOND — SAN FRANCISCO
A week after Silicon Valley Bank col-
lapsed, a group of venture capital firms
wrote to the shell-shocked start-ups
they had put their money into. It was
time, they said, to talk about the “admit-
tedly not so sexy” function of treasury
management.
Days of scrambling to account for
their companies’ funds presented a gen-
eration of founders with an uncomforta-
ble fact: for all the effort they had put
into raising cash, few had spent much
time thinking about how to manage it.
In some cases, the sums involved were
considerable. Roku, the video stream-
ing business, had almost half a billion
dollars in SVB when the bank run began
— a quarter of its funds.
Many others had concentrated all of
the funding on which their long-term
growth plans and imminent payroll
needs depended on one or two banks,
with little consideration that regulators
would only insure the first $250,000 in
the event of trouble.
The “easy-money regime” allowed
relatively immature companies to
amass unusually large sums of cash that
were “far in excess of what they
needed”, observed the former chief risk
officer of one of the biggest US banks.
“The problem here is that the cash
seems to me so outsized relative to the
size of the companies,” he said. “Tradi-
tionally people would grow into that
over time. Nobody would hand a couple
of hundred million dollars to a start-up
with 20 people in it” before the venture-
capital-fuelled start-up boom.
David Koenig, whose DCRO Risk Gov-
ernance Institute trains directors and
executives on managing risks, said:
“When the money’s flowing, you pay
less attention to it.”
It was not unusual for people who had
been successful growing new things to
ignore traditional risks. “Risk to them is
something that’s separate from what
they do in their business.”
Founders swapping notes at the South
by Southwest festival in Texas last week
admitted that they had received a rapid
education.
“We got our MBA in corporate bank-
ing this past weekend,” said Tyler
Adams, co-founder of a 50-person
start-up called CertifID: “We didn’t
know what we didn’t know, and we
were all making different but similar
mistakes.”
His wire fraud prevention business,
which raised $12.5mn last May, banked
with PacWest Bancorp and scrambled
on Friday to move four months of pay-
roll into a regional bank where it had
kept a little-used account while opening
an account with JPMorgan Chase.
The VCs, including General Catalyst,
Greylock and Kleiner Perkins, advo-
cated a similar strategy in their letter.
Founders should consider keeping
accounts with two or three banks,
including one of the four largest in the
US, they said. Hold three to six months’
worth of cash in two core operating
accounts, they advised, investing any
excess in “safe, liquid options” to gener-
ate more income. “Getting this right can
be the difference between survival and
Many start-ups an ‘extinction-level event’,” the inves-
concentrated tors warned.
funding on one Kyle Doherty, managing director at
or two banks, General Catalyst, noted that banks liked
with little to “cross-sell” several products to each
consideration client, heightening the risk of concen-
that regulators tration, “but you don’t need to have all
would only your money with them”.
insure the first William C. Martin, founder of invest-
$250,000 in the ment fund Raging Capital Management,
event of trouble argued that complacency was the bigger
Patrick T. Fallon/
AFP via Getty Images
factor in start-ups managing cash irre-
sponsibly. He said: “They couldn’t imag-
ine the possibility that something could
go wrong, because they hadn’t experi-
enced it. As a hedge fund in 2008 seeing
counterparties going broke, we had con-
tingencies, but that didn’t exist here.”
He called it “pretty irresponsible”
for a multibillion-dollar company or
venture fund to have no plan for
a banking crisis. “What’s your CFO
doing?” he said.
Doherty pushed back on that idea.
“Things move fast in the early phases of
a company: the focus is on making prod-
uct and delivering it. Sometimes people
just got lazy, but it was not an abdication
of responsibility, it was that other things
took priority and the risk was always
fairly low.”
For Betsy Atkins, who has served on
boards including Wynn Resorts, Gopuff
and SL Green, SVB’s collapse was a
“wake-up call . . . that we have to do
deeper focus on enterprise risk manage-
ment”. Just as boards had started to
scrutinise supply-chain concentration
during the pandemic, they would now
look harder at how assets would allo-
cated, she said.
Russ Porter, chief financial officer of
the Institute of Management Account-
ants, said companies needed to diversify
banking relationships and develop
more sophisticated finance depart-
ments as they grew in complexity. “It is
not best practice to use just one part-
ner . . . to pay your bills and meet your
payrolls. But I am not advocating atom-
ising banking relationships.”
For example, the IMA itself has
$50mn in annual revenue and five peo-
ple in its finance department, one of
whom spends two-thirds of his time on
treasury functions. It has cash to cover a
year of expenses, and three banks.
Many start-ups have taken advantage
of the ready availability of private
financing to delay rites of passage such
as initial public offerings, which Koenig
noted were often moments where
founders were told they must put more
professional financial teams in place.
Finding finance professionals attuned
to today’s risks can be hard.
Porter said: “There’s a shortage of
CFOs with experience working in really
challenging times. They’ve never had to
deal with high inflation; they might
have been still in university or just get-
ting their careers going during the Great
Financial Crisis.
“The required skillset might be
changing a bit, from a dynamic, growth-
oriented CFO to one more balanced,
who can address and mitigate risks.”
There was another pressing reason for
‘We got start-ups to become more serious about
treasury management, Doherty said:
our MBA the number of businesses changing
this past banks had provided fraudsters with an
opportunity to impersonate legitimate
weekend. counterparties by telling start-ups to
We didn’t wire money to new accounts.
Adams said: “We started getting
know what emails from vendors with wiring
we didn’t instructions in them: ‘You need to
update your payments and wire
know, and to this account.’ In the weeks to
we were all come, we’re going to see a lot of fraud-
sters saying, ‘Hey, we can take advan-
making tage of this.’”
different Kris Bennatti, a former auditor and
founder of Bedrock AI, a Canadian
but similar start-up backed by Y Combinator that
mistakes’ sells a financial analysis tool, warned of
the risk of overreacting.
“Implying that we should have been
optimising our finances for bank failure
is absurd to me. This was an extreme
black swan event, not something that
we should have or could have foreseen.”
One idea floated on Twitter in the past
week — by the former Bank of England
economist Dan Davies — would be for
VC firms to go beyond offering advice to
their investee companies to offer out-
sourced treasury functions.
Bennatti was not in favour.
“Frankly, I don’t think this is a prob-
lem we need to solve, and definitely
not a service that VCs should offer. Let-
ting a bunch of tech bros handle my cash
is so much worse than letting it hang out
at RBC.”
See Opinion and Markets
Thousands of
jobs to go after
UBS takeover
of Swiss rival
OWEN WALKER — PARIS
CHRIS FLOOD — LONDON
SAM JONES — ZURICH
UBS’s rescue of Credit Suisse is
expected to result in tens of thousands
of job cuts, with Switzerland’s financial
sector already bracing itself for a heavy
hit from the contentious takeover.
Credit Suisse’s domestic business and its
investment bank, which collectively
employ more than 30,000 staff, are
expected to bear the brunt of the cuts,
according to people familiar with UBS’s
plans.
These people added that it was too
early to quantify how many roles would
go, but it could be as much as a third of
the 120,000 jobs in the combined group,
as UBS winds down much of the invest-
ment bank and removes overlapping
roles in Switzerland.
“The takeover threatens job cuts on a
scale that the labour market in the
banking sector cannot absorb,” said the
Swiss Bank Employees’ Association yes-
terday, calling for redundancies to be
paused until the end of the year.
The deal was orchestrated by the
Swiss authorities over the weekend
after they became alarmed at the rate of
customer withdrawals Credit Suisse was
suffering last week.
The SFr3bn ($3.25bn) deal has been
criticised for the losses incurred by
bondholders and the lack of a share-
holder vote on the union.
Credit Suisse, which at the end of 2022
employed more than 50,000 people, has
already slashed 4,000 positions so far
this year. But the takeover is expected to
result in many of Credit Suisse’s 17,000
investment bankers losing their jobs as
UBS winds down most of the unit.
UBS, which employs 74,000 staff glo-
bally, will also look to remove overlap-
ping Credit Suisse roles in Switzerland,
close branches and reduce staff in
administrative positions, according to
people with knowledge of the plans.
In a call with analysts on Sunday night
following the announcement of the deal,
UBS chief executive Ralph Hamers said
they would try to remove $8bn of costs a
year by 2027, with $6bn coming from a
reduction in staff and $2bn on IT spend-
ing.
Credit Suisse spent SFr8.8bn on staff-
ing costs last year.
In a staff memo on Monday, Credit
Suisse chief executive Ulrich Körner
and chair Axel Lehmann said any deci-
sions over jobs had yet to be made.
“We [will] work diligently and at pace
throughout the coming period to iden-
tify which roles might be impacted,”
they said. “Where necessary, we will
communicate with impacted individu-
als in line with country specific guide-
lines and policies.”
The takeover is set to be completed in
the second half of the year.
Ethos Foundation, which represents
Swiss institutional investors that collec-
tively own between 3 per cent and 5 per
cent of both banks, said it was pressing
Swiss authorities and UBS to spin off
Credit Suisse’s domestic business, which
employs just under 17,000 people.
“This would preserve jobs and main-
tain a healthy competition, which would
ensure the proper functioning of our
economy,” said Ethos.

‘Embracing reality’ Theme picked by Credit Suisse for HK event proves more topical than intended
KAYE WIGGINS AND CHENG LENG
HONG KONG
As Credit Suisse entered weekend crisis
talks that would end in its forced takeo-
ver, a group of its bankers embarked on
a different sort of survival challenge: an
outdoor adventure trip that they were
filming for Bear Grylls.
The executives had spent Friday night
on a camping retreat in Sai Kung, a dis-
trict of Hong Kong known for its hiking
Contracts & Tenders
trails, said three people with knowledge
of the matter.
Grylls, the TV adventurer, will use
their filmed material in a presentation
he is giving at Credit Suisse’s investor
conference in the city this week.
The subject of the presentation is
“Lessons learned from navigating some
of the harshest environments”. The staff
paid for the trip themselves, Credit
Suisse said.
It is one element of the bank’s Asian
Investment Conference that is uninten-
tionally prescient: this year’s theme is
“embracing reality”.
Months in the making, the gathering
began in Hong Kong yesterday, two days
after a forced takeover by rival UBS at
the behest of regulators that ended its
167-year independent history.
“We must all continue to work as nor-
mal,” Credit Suisse’s chief executive
Ulrich Körner and chair Axel Lehmann
wrote in a memo to staff on Monday, the
day after the sale.
About 1,600 executives from asset
managers, hedge funds, family offices
and other investment groups arrived at
Hong Kong’s Conrad hotel to watch
Credit Suisse executives attempt to fol-
low that instruction.
The conference has been a fixture of
the region’s financial calendar for more
than a quarter of a century. This time
round, the agenda included weighty
topics such as US-China relations, the
chip wars, and the conflict in Ukraine.
After the weekend’s events, some of
the panels — “Where has all the risk
gone?” and “In a fast-changing, frag-
mented world, how can we create sus-
tainable value?” — sounded out of place.
On the event’s main stage, “it felt like
business as usual”, said Mark Kwan, an
executive director of Singapore wealth
manager Straits Asset Management. “If
you didn’t read the news, you wouldn’t
have thought anything had happened.
Maybe it hasn’t sunk in yet.”
Private conversations included jokes
such as on whether attendees needed to
pay for their breakfast or whether the
Swiss National Bank would pay, and
whether bankers’ corporate credit cards
were still working, according to one
attendee.
Two people said, half in jest, that they
were hoping to pick up merchandise
marking the end of an era. Lehman-
branded baseball caps sell for hundreds
of dollars on eBay. A third said none
were available, “not even any pens”.
There were exceptions to the busi-
ness-as-usual rule. Körner, Lehmann
and Hong Kong’s chief executive John
Lee cancelled plans to attend, in what a
bank spokesperson described as minor
changes to the schedule.
Journalists had their invitations
rescinded at the eleventh hour. Several
turned up anyway, though they were
closely supervised by communications
staff and kept out of the main event.
Bear Grylls will speak on ‘navigating
some of the harshest environments’
“The AIC represents Credit Suisse at
its best,” Neil Hosie, the bank’s global
head of equities, said. “For 26 years, it
has been our privilege to present power-
ful perspectives on the themes that mat-
ter most.” Hosie took Körner’s slot at the
event.
Beneath the humour and sense of the
absurd, there was sadness. In private
conversations, clients offered to help
Credit Suisse bankers find new jobs,
according to a banker present. A
reporter gave a Credit Suisse media rela-
tions executive — who was tasked with
keeping the press out — a reassuring pat
on the shoulder.
Several attendees said they felt they
were intruding on private grief. One
called it a “sad and nostalgic time”.
A Credit Suisse banker said they were
disturbed by a reporter while they were
trying to have a “sentimental conversa-
tion” with colleagues.
Credit Suisse staff were “absolutely
gutted and shell-shocked”, said an
adviser who held crisis meetings with its
bankers on the day of the event.
“There’s a lot of upset and anger.”
Reflecting on the takeover on the eve
of the conference, a former Credit Suisse
banker said: “Things weren’t easy there.
But my God, I never expected it to end
like this.”
See Letters, Opinion and Lex
Wednesday 22 March 2023 ★ FINANCIAL TIMES 9

COMPANIES & MARKETS

Women traders recall battle for equity

after 50 years on London Stock Exchange
Pioneers faced sexism and abuse as they built their careers, but bourse says struggle is not over as it marks anniversary
KATIE MARTIN — LONDON

Janet McCall sparked a good deal of

excitement when she took up her role
on the floor of the London Stock
Exchange in 1978 as the first female
dealer at broker Wedd Durlacher.
“Colleagues say that Janet is dark if
not sultry, shapely and single, very
promising and when it comes to busi-
ness: tough,” one press cutting from the
time of her appointment noted. “Per-
haps she will not spoil the atmosphere
after all.” Another article observed that
the 22-year-old “pretty brunette” from
Essex, who was joining a team of 84
men, did not have “a special boyfriend”
in her life at that point.
Wedd Durlacher was consumed by
Barclays back in 1986. Janet McCall, now
Janet Stevens, went on to become a
director at UBS. Now, women are repre-
sented in senior roles across the City,
and language like that is bracing enough
to make any modern reader wince.
But the LSE believes remembering
that time matters. This week it is mark-
ing 50 years since women like Janet were
first admitted on to the floor of the
exchange, which had been the tightly
guarded preserve of men for more than
170 years.
“Change has come, but so much more
is required,” said Julia Hoggett, LSE
chief executive.
The journey for women on to the floor
of the exchange on March 26 1973 was
not smooth. Ranald Michie, emeritus
professor at Durham university and
author of The London Stock Exchange: A
History in 1999, said the council of the
exchange put the matter to a vote
among its members several times
before 1973.
“The council could see the need for
change,” he said. But each time, it was

‘One man complained that

if his wife . . . saw him
talking to attractive
women, he’d be in trouble’ In the spotlight: Janet McCall, pictured on the trading floor, was described in the press as ‘sultry, shapely and single’ when she joined the LSE as Wedd Durlacher’s first female dealer in 1978 — Frank Herrmann

rejected, by a huge margin. “People
were inventing all sorts of reasons to
stop them coming in.”
Women were present in the City,
largely as typists or telephonists. But
exchange members threw up objections
businesses had often been nationalised.
Calls for greater competition were
building, and the London market was
struggling to justify its fixed trading
fees. Moreover, the world was moving
on; the resistance to women was starting
successful legal campaigns for profes- Beryl Gayler ‘You thought, Linda Treacy ‘They said I Janet Stevens ‘You had to
sional recognition by women in other
industries — helped one aspiring floor
good grief, I can’t do this’ would look silly in a top hat’ be better than the boys’
member, Muriel Bailey, also known as
Muriel Wood, to take a more vocal
stance. She pointed out that female
PORTRAITS BY CHARLIE BIBBY

that, by today’s standards, seem bizarre.
What if women used their female
charms or short skirts to secure better
prices? What if they were physically
incapable of jostling their way through a
crowded trading floor?
“One man complained that if his wife
came to the viewing gallery and saw him
talking to attractive women, he’d be in
trouble when he got home,” Michie said.
But pressure for change was becom-
ing unbearable. Before the first world
war, London accounted for a third of
trading in all securities around the
world, including government bonds,
Michie said. By the 1960s, much of that
international heft had melted away.
Both domestic and international listed
Boards tend to have better representation than executive
committees but more progress is needed everywhere
Representation of women in the UK, 2021 (%)
Executive committees Boards
0 10
Building society
to look anachronistic.
The breakthrough came when 11
regional British and Irish stock
exchanges merged — a step agreed by
members in 1972. Exchanges in Liver-
pool, Manchester, Glasgow and else-
where were all folded into London. Sev-
eral of them, including Aberdeen and
Huddersfield, had already accepted
women as members since the mid-
1960s. “Suddenly you had the prospect
of these northern women coming to
London and going on the floor, and you
couldn’t stop them,” Michie said.
“Women had been trying to force
change behind the scenes” for decades,
said Dr James Taylor at Lancaster uni-
versity. But the amalgamation — and
20 30 40 50
Equality
membership of some but not all parts of
the combined group would create a two-
tier system. Even then, Taylor said, “it
still took months to face up to real-
ity . . . It was performative misogyny.
People were proud of having voted
against women joining, it was two fin-
gers up to public opinion.”
At the same time, inflation was on the
up, and pension fund managers were
mindful that if they were to pay out the
sums that retirees had been promised,
their savings pots would have to look
beyond bonds paying fixed rates.
“Investors were looking for some-
thing that would hold value in an infla-
tionary environment. Equities provided
opportunities,” Michie said. The admis-
sion of women on to the trading floor
helped them participate in this boom
too, putting them in a better position
when the so-called Big Bang of market
deregulation landed in the 1980s.
Even then, women on the trading
floor faced a tough task. “There was
never any victory in allowing them in,”
said Taylor. “This was not the result of a
positive vote. Women were seen as
intruders.” Three weeks after women
Beryl Gayler left school at 15 and worked
for several years as a telephonist. “In the
mid-1970s, a Laurence Keen dealing
partner invited me to join the dealing
team as a Blue Button [a trainee dealer]
on the Stock Market Trading Floor. “The
first time you walked on to the floor, you
thought, ‘Good grief, I can’t do this.’ But
after a while, people make jokes and you
carry on. The firm was very supportive.
“I retired in 2007. We obviously went up
to the office with the Big Bang. That
wasn’t nice. We missed the floor. At the
time of my appointment, the dealing
partner invited a retired senior partner to
lunch, to break the news that the
company had employed a woman to
trade on the market floor. It was a very
big deal in those times, and something I
am exceptionally proud to be part of.”
Lindy Treacy arrived at the LSE in 1979.
Before she landed on the exchange floor,
Treacy worked at broker Mullins.
“Mullins was the government broker.
All the men wore top hats, so my first job
in the morning was to brush these hats.
After I’d been there for a year they had a
dealing position, so [I asked to] be
considered for that position. They said no
because I would look silly in a top hat.
“We were a minority and, sadly, laddish
and misogynistic behaviour was tolerated
and almost encouraged. It was a
challenging time for those who were
simply seeking equality in the workplace.
“I was known on the floor as Lindy Lou.
There were other nicknames like Dirty
Debbie, Sweaty Betty, some of them not
repeatable. You had to be thick-skinned
and have a sense of humour.”
“I worked as a trainee dealer, a so-called
Blue Button, on the stock exchange floor
for Wedd Durlacher. They were one of the
biggest jobbers, known as a market
maker now, and I was the first woman
they employed as a trainee. Market
makers were on the podiums making the
prices, and I was the first ever in equities.
There were only five or six other lady
brokers and we looked out for each other.
“I remember feeling a bit miffed at the
time that the press concentrated on what
I looked like, because I felt like it was an
achievement. I found most people very
supportive but I remember that you had
to prove yourself. You had to be better
than the boys . . . Now I am a trustee for
the stock exchange veterans charity and I
work in further education, helping young
people understand what the City is like.”

Banking
were first allowed in, press reports show Michelle Underwood ‘Here to Sarah Danes ‘It was daunting, Christine Spencer
Insurance that one woman, on her second visit to
Asset manager the floor, was catcalled and verbally
find a husband? they asked’ the hundreds of suited men’ ‘Diana Rigg kept talking to me’
FTSE 100 abused. “This hasn’t frightened me off,”
Fintech she said. “I’m simply ignoring it.”
All of the early female traders who
Average
spoke to the Financial Times about their
Investment bank experiences of the 1970s and 1980s had
Private equity fond memories of that time, despite
their very different treatment to male
Source: HM Treasury
colleagues. Sarah Danes, who joined the
exchange in 1978 with stockbrokers
Vivian Gray, recalls she was not permit-
Women are still far more likely to have lower-paid roles ted to wear trousers to work until 1996. Michelle Underwood, then Michelle Sarah Danes joined stockbroker Vivian “I was Christine Evans. And in 1974, I was
Female representation by pay quartile, 2022-23 (%) Women are still a relative rarity in McAtee, joined stockbroker Mullens in Gray in 1978, initially as an assistant. A the youngest ever female dealer on the
Highest Upper middle Lower middle Lowest trading roles. “Half a century later, our 1978. In 1980 she entered the bourse floor year later she became a Blue Button, floor, just before my 18th birthday. I had
sector has not fully redressed the struc- while working for Charles Stanley. seeking information on share prices on joined Sternberg Flower at 16 straight
HBOS 42 56 67 79 tural inequity and imbalances that “It was quite overwhelming, because the stock market floor. from school in the statistics department.
characterised the experience of women there were just so many men. There was “It was daunting, as there was only a “In ’74, when I was the youngest
— and barred them from professional so much to learn. There was always a handful of other women on the trading woman, I was invited to a Women of the
Lloyds 38 52 66 72 growth in our sector,” said Hoggett at sense of urgency, but it was very, very floor, with hundreds of suited men. I was Year luncheon. I was on the top table and
the LSE. enjoyable. It wasn’t well paid. petrified. Diana Rigg kept talking to me.
NatWest 32 47 59 69 The Financial Conduct Authority, the “When I first started I had to have a job “Luckily, I had a very kind dealer; he “I was very keen to specialise, and
UK regulator, said it believed “a diverse on the Saturday and the Sunday working was very charming. His nickname was the Sternberg had this arm of traditional
Standard and inclusive culture results in better in the chemist’s. Yorkshire Ripper. It was very male but not options but, again, they were not quite so
Chartered 26 30 38 61
judgment and decision-making and “You were there to learn. You were masculine as we think of it these days, keen on putting me into a specialist
encourages innovation”. expected to pick up people’s dry cleaning, not like football hooligans. They were market. In ’77 I was headhunted in to
Barclays 19 30 44 57 “We look forward to an open discus- get their sandwiches, all that sort of always very polite and charming. investment trusts at James Capel.
sion on how we should use our powers to thing. But it was brilliant. “Nobody [outside work] understood “I stayed there until 1988, when I left to
HSBC 15 27 36 56 further diversity and inclusion within “Everyone said, ‘Are you here to find a what I was doing. I earned very little have children, and went back in ’97, when
financial services, to the mutual benefit husband?’ And I’d go, ‘No, no, no.’ I met money. I had to supplement my income I retook all my exams, but the market had
Source: Government gender pay gap service
of firms and their customers.” mine on a beach.” by working behind a bar.” changed so much.”
10 ★ FINANCIAL TIMES Wednesday 22 March 2023

COMPANIES & MARKETS

The 1930s banking The day in the markets

collapse that has What you need to know
parallels with SVB 3 Regulatory moves support US shares First Republic’s share price began to recover yesterday
3 Interest rate rise expectations ease
3 European stocks extend gains Share price (US cents)

Abby Joseph Cohen US stocks continued to advance by

yesterday afternoon as investors took
140

120

Markets Insight
heart from regulatory moves to contain
the risk of contagion in the financial
system and looked towards the Federal 100

T
he recent closure of Silicon
Valley Bank has some
intriguing parallels with a
failure more than 90 years
ago. In 1930, the collapse of
the Bank of United States — which was
not a governmental entity — is widely
believed to have been a big catalyst in
turning the 1929 recession into the far
more serious Great Depression.
Economists including Milton Fried-
man, Anna Schwartz and Ben Bernanke
have written that the failure of the Fed-
eral Reserve to support Bank of United
States had dramatic, unintended conse-
quences on the national economy, the
banking system and regulation.
What was Bank of United States?
Although little known today, in 1930 it
was the largest commercial bank in the
US by deposits and customers, holding
more than $268mn in savings and hav-
ing more than 440,000 depositors. It
mainly served the large immigrant com-
munities of New York City, offering spe-
cialised services including translators,
loans to small businesses, extended
hours for working-class customers and
the ability to transfer funds overseas.
The institution was among the first to
open accounts for women and African
Americans. Rebecca Kobrin, professor
of history at Columbia University, has
written extensively on the special role
Bank of United States played in facilitat-
ing the business activities of first- and
second-generation immigrants. These
were mainly from eastern Europe and
Italy, although the UK, Ireland and
Scandinavia were also represented.
When it began to falter, officials at the
Federal Reserve Bank of New York and
leaders of the dominant financial insti-
tutions in the city argued against assist-
ing Bank of United States. This was
despite helping several other institu-
tions in preceding weeks, as they had
also done in the early 1920s.
According to Prof Kobrin, the reasons
for failing to provide liquidity included
antisemitism and anti-immigration
sentiment. There also was an incorrect
argument that a failure would have only
local consequences. In the end, this
bank was illiquid, not insolvent, and
depositors ultimately received 93 cents
on the dollar. But the economic damage
had been done.
It is difficult to write definitively
about Silicon Valley Bank as that situa-
tion is still very much in process. Even
The failure of the Fed to
support Bank of United
States had dramatic,
unintended consequences
so, perhaps a few parallels may be
drawn. First, both institutions focused
their business on a clearly defined and
concentrated group of customers. SVB
knew its clients well, offering services
that appealed to the venture capital
community and tech entrepreneurs.
A century earlier, the customers of
Bank of United States were attracted to
services tailored to an immigrant popu-
lation and the unusual name, which
suggested great stability. But it was
poorly diversified, with almost all of its
customers located in New York City.
Real estate dominated the loans it origi-
nated, roughly 45 per cent compared
with 12 per cent for other New York-
based banks. And it had overexpanded,
often without proper accounting disclo-
sures for acquisitions.
Reserve’s next interest rate decision.
The S&P 500 rose 0.7 per cent and the 80
Second, the critical role each institu- tech-heavy Nasdaq Composite rose 1 per
tion played in the broader economy was cent in lunchtime trading.
not fully appreciated. SVB was not lim- The KBW Nasdaq Bank Index gained 5 60
ited to the geography suggested by its per cent, while beleaguered California-
name, nor was the impact of Bank of based lender First Republic climbed 41.5 40
United States limited by its New York per cent, having fallen by nearly a half on
City roots. In addition to the effects on Monday.
the broader US economy, the failure of Banks have steadied after regulators’ 20
Bank of United States created problems moved to support lenders caught in the
for institutions in Europe and Asia that recent financial tumult. US Treasury 0
used its facilities to transfer funds and secretary Janet Yellen yesterday signalled
establish credit lines. the government would back all deposits 21 Feb 2023 21 Mar
Third, the follow-on regulatory and at smaller US banks if needed.
Source: Bloomberg
legislative consequences are difficult to Investors are turning their attention to
anticipate. It is believed that the dra- decisions on interest rates from the US
matic damage done by the closure of and British central banks this week. The The Bank of England meets tomorrow Credit Suisse and UBS, which
Bank of United States had a telling effect turmoil in the global banking sector, but pricing from the swaps markets announced plans to merge in a Swiss
on the then-governor of New York state, which began with the collapse of Silicon indicates investors are divided between a government-brokered deal on Sunday,
Franklin Delano Roosevelt. Many of the Valley Bank, has eased expectations 0.25 per cent increase to 4.25 per cent, rose 7.3 per cent and 12.1 per cent
changes enacted by his presidential about the scale of interest rate increases and no change. European stocks also respectively. The yield on the two-year
administration beginning in 1933 would to combat inflation. extended their gains as investors took Treasury note, which closely follows
have provided at least some relief dur- The Federal Reserve decision will come heart from regulatory moves to contain interest rate expectations, jumped 0.2
ing the dark days of the bank failures after a two-day meeting that started the risk of contagion from weak banks. percentage points to 4.15 per cent
early in the Great Depression. Ulti- yesterday. Futures markets The Stoxx Europe 600 Banks index yesterday while the yield on the 10-year
mately, depositors received legal pro- overwhelmingly predicted on Wednesday closed up 3.8 per cent, having gained 1.2 note rose 0.09 percentage points to 3.57
tections, bank examiner staffs were the Fed would raise rates 0.25 per cent, per cent in the previous session. Broader per cent. Yields move inversely to price.
enhanced and diversification in the from its current level of between 4.50 per indices also rose, with the region-wide In Asia, Hong Kong’s Hang Seng index
deposit base and loan portfolios was cent and 4.75 per cent. Traders think the Stoxx 600 up 1.4 per cent, Germany’s Dax closed up 1.4 per cent and China’s CSI 300
encouraged. central bank will then begin a series of 1.8 per cent, France’s CAC 40 1.4 per cent gained 1.1 per cent. Martha Muir and
Silicon Valley Bank is still being cuts through to the end of the year. and London’s FTSE 100 1.8 per cent. William Langley
unwound, and the fallout will take some
time to be fully understood. Regulators
and Congress are sure to have much Markets update
more to say and do. For example, will
there be a move towards more robust
regulation as occurred in the 1930s? In
the meantime, we are reminded that the US Eurozone Japan UK China Brazil
banking system is heavily dependent on Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
the confidence of its participants. Level 3974.43 1765.26 26945.67 7536.22 3255.65 101244.86
Transparency and reliable information % change on day 0.58 1.31 -1.42 1.79 0.64 0.32
flow are critical elements of this. Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 103.089 1.077 132.275 1.220 6.874 5.245
Abby Joseph Cohen is professor of business % change on day -0.186 0.466 0.498 -0.489 -0.261 -0.042
at Columbia Business School and a retired Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
partner of Goldman Sachs Yield 3.562 2.293 0.242 3.520 2.874 12.722
Basis point change on day 8.010 17.600 0.000 6.000 0.900 5.400
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 412.68 74.47 68.74 1969.35 22.50 3875.40
% change on day 0.86 0.92 1.36 0.37 2.79 0.57
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

8000
4160 1800
7680
4000 1760 7360

| | | | | | | | |
3840 | | | | | | | | | | | | | | | | | | | |
1720 | | | | | | | | | | | | | | | | | | | | 7040 | | | | | | | | | | |

Jan 2023 Mar Jan 2023 Mar Jan 2023 Mar

Biggest movers
% US Eurozone UK
First Republic Bank 39.74 Commerzbank 7.66 Rolls-royce Holdings 6.40
Solaredge 9.42 Saipem 7.57 Natwest 5.66
Ups

Enphase Energy 8.40 B. Sabadell 7.46 Prudential 5.19

Key 7.97 Unicredit 6.96 Ashtead 5.18
Us Ban 7.87 Ing 6.21 Barclays 4.97
%
Applied Materials -4.46 Colruyt -2.29 Fresnillo -3.92
Alliant Energy -3.79 Kerry Grp -1.66 Endeavour Mining -3.88
Downs

Consolidated Edison -3.78 Dsm -1.52 Kingfisher -1.46

Intel -3.74 Coloplast -0.97 Severn Trent -1.44
Cms Energy -3.68 Asml Holding -0.92 United Utilities -1.28
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

Beleaguered lender First Republic surged Dutch IT services group Ordina jumped Lenders NatWest, Standard Chartered,
to the top of the S&P 500 index, having after a takeover offer from French tech Barclays and Lloyds were in the top half
fallen 47 and 33 per cent respectively consultant Sopra Steria. The bid of €5.75 of the FTSE 100 index, swept up in a
during the previous two sessions. The per share ex-dividend was more than 20 broad sector rally.
rebound came as Janet Yellen, the US per cent above Monday’s closing price Danni Hewson, head of financial
Treasury secretary, told the American and valued Ordina at €518mn. analysis at AJ Bell, said “the shotgun
Bankers Association that the government The group’s two largest shareholders, wedding between UBS and Credit Suisse”
would offer a backstop to smaller lenders Teslin and Mont Cervin — together seemed “to have diffused some of the
if needed. Peers Western Alliance, holding about 26 per cent of its shares — tension from the global banking sector”.
PacWest, US Bancorp, Zions and had already agreed to the offer. DNA sequencer Oxford Nanopore
KeyCorp all rose sharply. Belgium’s Telenet surged after its Technologies jumped after reporting
A clinical setback sent Altimmune largest shareholder, US cable group gross profit 8 per cent ahead of Citi’s
plummeting, with the group reporting Liberty Global, announced its intention to estimate for the second half of last year.
nausea and vomiting among the “adverse buy the remaining stake in the television, Guidance, however, implied a
events” of its experimental weight-loss internet and telephony group. downgrade to its 2023 revenue target,
drug pemvidutide. The mid-stage trial The €22 per share bid represented a driven by lower Covid-19 sequencing
did, however, show a mean weight loss of 45 per cent premium to Telenet’s most sales in China, said the broker.
10.7 per cent at 2.4mg doses. recent closing price. Citi nevertheless expected Oxford
Electric vehicle maker Tesla rallied Germany’s ThyssenKrupp rallied Nanopore to deliver compound annual
following reports that it was set to deliver following a report suggesting a potential growth of around 30 per cent from 2024
healthy quarterly sales in China. sale of its steel division. Business onwards, owing to its “strong product
Software group BlackBerry rose after newspaper Handelsblatt said a possible pipeline and increased commercial focus”.
agreeing to sell “substantially all its non- buyer, private equity firm CVC, wanted to A ratings upgrade helped propel TI
core patents and patent applications” to a pay €1 for the unit, although the deal Fluid Systems higher. The automotive
subsidiary of KPI, an intellectual property faced opposition from the workforce and fluid group was lifted to “hold” from
monetisation company. The deal, worth some management. “underperform” by Jefferies, “primarily on
up to $900mn, involved around 32,000 Upbeat guidance lifted German valuation grounds”, said the broker. The
patents and applications relating mostly recruiter Amadeus Fire, which forecast company, down 30 per cent this year
to mobile devices, messaging and revenues of between €440mn and before yesterday’s rally, was trading at a
wireless networking. €470mn in 2023, topping the €427mn 20 per cent discount to peers, said
Biopharma group Quince soared after analysts were expecting. Amadeus Fire analysts.
receiving a $1.60 per share offer from said demand for skilled workers remained Property developer Henry Boot rose
Echo Lake Capital — a 90 per cent high in its domestic market; a trend from after reporting record underlying profit of
premium to Monday’s close. Ray Douglas which it expected to benefit. Ray Douglas £56.1mn in 2022. Ray Douglas
Wednesday 22 March 2023 ★ FINANCIAL TIMES 11

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 $

-1.42% -0.489%
0.58% 0.63% 0.46% 1.79% 1.31% 1.36% 0.86% 0.466% 0.498% 0.914% 1.53% 0.37%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparison
AMERICAS EUROPE ASIA
Feb 22 - - Index All World Feb 22 - Mar 21 Index All World Feb 22 - Mar 21 Index All World Feb 22 - Mar 21 Index All World Feb 22 - Mar 20 Index All World Feb 22 - - 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
4,079.09 20,515.24 8,014.31 15,477.55
15,203.84 27,696.44
3,974.43 19,665.69 7,536.22 26,945.67

Day 0.58% Month -0.57% Year -10.91% Day 0.75% Month -2.90% Year -10.64% Day 1.79% Month -5.51% Year 1.29% Day 1.75% Month -0.25% Year NaN% Day -1.42% Month -1.95% Year 0.56% Day NaN% Month NaN% Year NaN%

Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
1,835.09 20,886.96 3,308.75
11,787.27 11,748.94 53,789.64 9,281.30
52,421.28 1,765.26 9,049.40 3,173.93
19,258.76

Day 0.63% Month 2.23% Year -15.10% Day 0.95% Month -1.58% Year -5.53% Day 1.31% Month -3.61% Year -0.70% Day 2.45% Month -2.19% Year 7.87% Day 1.36% Month -7.76% Year -10.03% Day 1.09% Month -3.92% Year -4.55%

Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
109,176.92 27,597.01 61,002.57
33,826.69 7,335.61 3,290.34 3,255.65
7,114.51 26,554.33 58,074.68
32,392.39
101,244.86
Day 0.46% Month -2.24% Year -6.26% Day 0.32% Month -7.25% Year -12.82% Day 1.42% Month -2.68% Year 8.06% Day 2.53% Month -3.09% Year 9.33% Day 0.64% Month -1.05% Year 0.14% Day 0.77% Month -4.29% Year 0.39%

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14
Infinity at the tip of an artist’s pencil
Can material objects capture
the spiritual and the cosmic?
A show in New York has
no limits to its ambitions,
writes Ariella Budick
A
rtists are never on thinner
ice or more sublimely sure
of their footing than when
they’re hunting for a view
of the infinite. The Drawing
Center’s expansive show Of Mythic
Worlds in Manhattan takes as its topic
what its curator Olivia Shao calls the
“universal pursuit to understand that
which is outside of our objective,
worldly experience”. In other words, it’s
about everything. Material objects —
sheets of paper — strive to reveal the
insubstantial. Marks made in charcoal
and ink point to the inchoate and repre-
sent the unrepresentable.
If all that sounds like a tall order for an
exhibition of 50 works ranging from
17th-century China to 21st-century New
York, it’s also hard to imagine one that
could do justice to its ambitions. Shao
perceives a formal coherence in depic-
tions of the spiritual realm, patterns
that materialise from era to era like half-
forgotten clues in a perennial treasure
hunt. The circle appears again and again
— as a mandala and a full moon, as orbit-
ing heavenly bodies in Jordan Belson’s
1952 Brain Drawings and as an aching,
irradiated void in the skull in Duane
Linklater’s “Migraine 1” (2022).
Other motifs pop up, too, their conno-
tations vaguer than vague but their
rhythms recognisable. A bulbous sil-
houette takes the form of a mountain
(in a Georgia O’Keeffe landscape) or an
astrological event (in Cameron’s “Pluto
Transiting the Twelfth House” from
1978-86).
I scanned the galleries for a more
familiar iteration of the same lumpy
form, the elephant inside the boa con-
strictor from The Little Prince, but this
context is too transcendently sober to
include anything so playful.
Clockwise, from above: Jordan
Belson, ‘Brain Drawing’ (1952);
Lenore Tawney, ‘Untitled’ (1965);
Cameron, ‘Pluto Transiting the
Twelfth House’ (1978-86) — Estate of Jordan
Belson, courtesy Matthew Marks Gallery; courtesy Lenore G
Tawney Foundation/Alison Jacques; courtesy Nicole Klagsbrun/
Cameron Parsons Foundation
★ FINANCIAL TIMES
ARTS
This collection of rarefied gestures
adds up to a curator’s credo. Shao seems
to believe that in every culture and in
any time, artists tap into metaphysical
forces by invoking a consistent reper-
toire of visual forms.
Her approach is deliberately ahistori-
cal. By gathering works created in mul-
tiple centuries, she hopes to strip away
time and identity, letting each image
resonate with all the others in an orches-
tra of jangling symbols. She doesn’t
address the question of whether these
resonances come from universal princi-
ples or banal convention. Do wavy lines
imply invisible motion by some inher-
ent property or just by consensus? Do
grids really impose order on open space,
or have we merely learned to see them
that way?
Spend enough time drifting from one
galactic or internal vista to another and
you find yourself in the border zone
where the abstract and the illusionistic
overlap. O’Keeffe’s wavering lines
against a blank ground evoke wind or
choppy water, or birds in flight. In one of
her untitled landscapes, we see a shining
patch of sky from inside the mouth of a
cave. (A similar perspective, of the
Moon seen from an opening in the
Earth, anchors the Metropolitan Opera’s
prettily spiritual new production of
Wagner’s Lohengrin.)
These recurring signs necessarily hint
more than they unveil. “The artistic
image is always a metonym, where one
thing is substituted for another,” wrote
the director Andrei Tarkovsky, whose
film Solaris is excerpted here. “The
infinite cannot be made into matter,
but it is possible to create an illusion of
the infinite.”
These assorted metonyms, meta-
phors and meta-works speak to me only
intermittently. Lee Bontecou’s untitled
drawing from 1960 is one that does: it
compresses the sensual menace of her
sculptures into two scaleless dimen-
sions, so that you can’t tell the minus-
cule from the boundless. The dark space
at its centre could be an eye or some
other ravenous orifice, but it might just
as easily represent a volcano’s crater, a
dark sun or a black hole sucking life
from the galaxy. You can see it receding
into nothingness or swelling like a
bump, at once void and protuberance.
A mixture of the intimate and the cos-
mic permeates two collages by the jour-
nalist Janet Malcolm, who joined pages
cut from astronomy books with frag-
mentary passages by poet Emily Dickin-
son. Malcolm seems an odd interloper
here, like an unyielding rationalist who
has wandered into a seance. A bit of
back-story, included in the catalogue,
helps explain her presence. In 2012,
Malcom acquired a copy of the book
Emily Dickinson’s Open Folios, a compila-
tion of handwritten notes and scraps of
love letters that the scholar Marta
Saved by a volcano of operatic energy
OP E R A
Les contes d’Hoffmann
La Scala, Milan
aaaee
James Imam
When local authorities cut La Scala’s
funding for this season, citing pressures
from rising energy prices, Davide
Livermore was forced to reinvent his
production of Les contes d’Hoffmann on a
shoestring budget. His solution was to
go back to basics using old-fashioned
dramatic techniques, attempting to
conjure the opera’s magic with tradi-
tional lighting devices, shadow play,
floating objects and a splash of
interactive theatre.
Offenbach’s “opera fantastique” —
which depicts poet ETA Hoffmann’s
botched romantic encounters with
three women — is filled with supernatu-
ral details: one would-be lover is a doll
who has come to life; another is a
courtesan who steals the poet’s shadow.
Livermore tells the story with Chinese
lantern projections and shadows
formed on sheer hanging sheets by
actors from the Controluce troupe. At
one point, a candle hovers over audi-
ence members’ heads in the stalls.
Compared with his recent large-scale
La Scala productions, Livermore’s take
is minimal, with just a few set items — a
bar for the prologue’s tavern, a piano in
Crespel’s house — on an uncluttered
stage. Nevertheless, the director mud-
dies the libretto’s already convoluted
plot, opening with a double of Hoffmann
Werner had retyped and arranged on
the page with great aesthetic precision.
She was drawn into an epistolary rela-
tionship with Werner and a dive into
Dickinson’s life, which somehow com-
plemented Malcolm’s interest in 19th-
century astronomers and their photo-
graphs of the transit of Venus. As if in a
historical detective novel, these strands
turned out to twine in intricate and star-
tling ways, leading towards some of the
more outré zones of Victorian sexuality.
The coincidences and connections
rattled her: “There does seem to be
something occult going on here, and I
don’t think I believe in the occult,” she
Patterns materialise
from era to era like
half-forgotten clues in a
perennial treasure hunt
wrote to Werner. The result of her dis-
comfiting obsessions is the Emily Dickin-
son Series of collages, in which free-
floating words share a habitat with plan-
ets, their clarity occluded behind onion-
skin paper like pages from an ancient
photograph album.
Don’t tell an artist not to gaze into an
eclipse. In a 1965 work by that name,
Lenore Tawney prefigures the shapes in
Malcolm’s collages, giving us a perfect
circle with lines flaring beyond its edges,
a radiance escaping the force field of
shadows. Tawney worked mostly with
Janet Malcolm, ‘Ermine’, from the ‘Emily Dickinson Series’ (2013) © Etienne Frossard
seen in a coffin as if the spirit of the poet
is somehow reliving his misadventures
from the grave. The director explains
the protagonist’s demise by having both
Hoffmann and the dastardly Schlémil
die in the act three duel.
The conceit is an unnecessary distrac-
tion, and it does not help that Livermore
floods the stage with gratuitous detail.
The repeated appearance of a silent
dwarf in a sequinned jacket and top hat
raises more questions than it answers;
the ubiquitous squad of masked dancers
in black Lycra, who wiggle in time to the
music, are tiresome. Extras holding a
huge blue sheet rush into the stalls dur-
ing the Venetian act three, flapping it
over the seated audience. The device
mainly makes it difficult to hear the
opera’s barcarolle.
La Scala claims conductor Frédéric
Chaslin has conducted Les contes
Ardent: Vittorio Grigolo as Hoffmann
Wednesday 22 March 2023
fibre, so this kind of peekaboo layering
was unusual for her, but the mystical
aspirations weren’t. In 1957, she moved
to Coenties Slip, a hive of artistic activity
at the then-decaying tip of Manhattan.
Influenced by her new neighbours,
including Agnes Martin, she took up
minimalism and eastern religion with
equal enthusiasm, creating frameless
tapestries that hung in the air like stars.
Shao’s desire to detach pieces from
their temporal context rubs against the
viewer’s need — well, my need, anyway
— to be oriented, to ground glimpses of
the eternal in snapshots of a particular
moment. There’s a reason that the 20th-
century French semiotician Roland Bar-
thes produced wriggling nets that
occupy a grey zone between mark and
meaning: he was interested in what
makes signs intelligible, how a combina-
tion of lines and dots acquires content.
In the spirit of Chinese and Japanese
calligraphy, which transform handwrit-
ing into art, Barthes’ elegant strokes
explode with inner energy. A dense vor-
tex dissipates at the edges, where flecks
of ink shoot away on disparate trajecto-
ries. Another of his drawings displays
the gulf between the show’s limitless
goals and its inherent frustrations. A
school of sperm-like squiggles darts
through space in all directions, leaving
indecipherable contrails that seem to
fade even as they appear. That right
there is la condition humaine expressed
in a handful of runes.
To May 14, drawingcenter.org
d’Hoffmann more than 500 times. Chas-
lin performs a trimmed version of the
score here, which comes in at just over
three and a half hours.
He led the orchestra with sweeping
romantic gestures, drawing conspicu-
ous shifts in colour and tempo. Playing
was approximate and overly loud, lack-
ing the subtlety and transparency that
might have brought Offenbach’s musi-
cal incantations to life.
Tenor Vittorio Grigolo has not been
employed in opera houses in most of the
English-speaking world since 2019
following an allegation he faced of inap-
propriate and aggressive behaviour, but
his career has continued as normal in
Italy. His performance on the opening
night was this disappointing produc-
tion’s saving grace. An irrepressible vol-
cano of operatic energy, Grigolo
depicted a virile and tortured Hoffmann
with undeniable magnetism and a
bright, ardent voice. His vivid delivery
of the “Kleinzach” aria made Offen-
bach’s onomatopoeic wordplay go off
like firecrackers.
Federica Guida was a further standout
as the mechanical doll, Olympia, dis-
armingly delicate and luminous in the
famed act three aria. Luca Pisaroni
brought threatening menace to all four
of Hoffmann’s arch-rivals. Marina
Viotti’s full-voiced Niklausse was coun-
terposed by Francesca Di Sauro’s lithe
and seductive Giulietta, the courtesan.
The excellent chorus of boozy students
raised the roof. Overall, however, Italy’s
leading opera house failed to cast its
magic on this occasion.
To March 31, teatroallascala.org
Wednesday 22 March 2023
Singapore and Hong Kong have established new fund structures — vehicles that represent a direct
challenge to traditional offshore centres whose success has been built on privacy and low taxes.
Race to be the Caymans of Asia
I
n 2020, the pandemic halted travel
and shut borders. But at the same
time, two of Asia’s biggest financial
centres saw an opportunity to
shift the global centre of gravity
for hedge funds and the world’s
wealthiest families.
Singapore established the Variable
Capital Company, a fund structure that
allows a wide range of potential users to
shelter large pools of capital in discreet,
lightly taxed wrappers domiciled in a
well-regulated financial centre. Hong
Kong made enhancements to the Open-
ended Fund Company, a similar struc-
ture it had established two years earlier.
The vehicles are a direct challenge to
existing offshore centres such as the
British Virgin Islands, Mauritius and the
Cayman Islands and their advocates
predict they could herald big changes in
the way money is managed.
“We see this as the start of a massive
shake-up of asset management, of fam-
ily offices and the whole flow of capital,”
says a Singapore-based partner of one
UK law firm involved in setting up the
new structures in both cities. “This sets
the path for [Hong Kong and Singapore]
to be the heart of a new hybrid between
family offices and hedge funds”.
Investor take-up, particularly in Sin-
gapore, has been rapid. The bankers,
and lawyers involved in setting them up
say their impact could be far more wide-
spread and more disruptive than previ-
ously imagined, drawing assets and
expertise into the region.
“Singapore has always been the
poorer cousin compared with the
Cayman Islands, British Virgin Islands
and even places like Mauritius,” says
Ryan Lin, a lawyer at Bayfront Law,
who describes the structures as “a
game-changer”.
The new vehicles represent a direct
challenge to traditional offshore finance
centres whose success has been built on
privacy and low taxes and whose econo-
mies are heavily dependent on the reve-
nue generated by financial services.
Others fear they will create a fertile
space for money laundering and tax
avoidance. Maíra Martini, a research
and policy expert at campaign group
Transparency International, says the
risk with vehicles such as OFCs and
VCCs is that they “usually function like a
black box” and “can be very attractive
to the corrupt and other criminals”.
Bringing it home
Hong Kong spotted its opportunity in
the wake of the Panama Papers and Par-
adise Papers leaks, which in 2016 and
2017 sparked hundreds of news stories
worldwide about the use, and abuse, of
offshore funds in the Caribbean.
The stories made some institutions
more cautious about the reputational
risks of investing in entities domiciled in
places like the British Virgin or Cayman
Islands. Investors were looking for alter-
natives because the public had started
to “think that people only put money
into the Caymans to hide something”,
says a Hong Kong-based financial
adviser.
In 2018, the city-state’s regulators
introduced its alternative, the “open-
ended fund company” or OFC, which
aimed to “enrich the choice of invest-
ment vehicles and facilitate the distribu-
tion of Hong Kong funds internationally”.
OFCs are corporate fund vehicles that
are domiciled in Hong Kong and whose
units can be offered to the public or held
privately. The investments within them
must be managed by an entity licensed
as an asset manager in Hong Kong.
According to the adviser, the territory
“was trying to capitalise on this trend”
as well as attract lucrative business and
help solidify its position as a global
financial hub.
Singaporean authorities, frustrated at
the tendency of local fund managers to
register investment vehicles offshore
rather than in Singapore itself, launched
the rival VCC in 2020. It made it easier
for overseas and domestic entities to
register an investment vehicle in Singa-
pore provided a local entity managed it.
Despite the “variable” moniker, VCCs
can also have fixed capital, allowing
them to cater to a range of potential
users including mutual fund groups,
hedge funds, private equity, real estate
firms and managers of family wealth.
The single locally incorporated struc-
ture can hold a pool of assets and multi-
ple sub-funds, cutting down on costs. It
is also covered by more than 70 double
taxation agreements.
According to one lawyer who has
established the vehicles, a “big differen-
tiator” of VCCs compared to traditional
structures is that they allow for easy
★ FINANCIAL TIMES
FT BIG READ. FINANCIAL SERVICES
By Mercedes Ruehl, Leo Lewis, Kaye Wiggins and Chan Ho-him
Hong Kong and
Singapore have
dividend payouts to shareholders. “In a
conventional entity, if you start paying
created dividends out of capital not out of prof-
incentives to its, the regulators will be all over you.”
encourage In both Hong Kong and Singapore,
registration of
new financial
privacy is another, perhaps even bigger
draw, since the names of shareholders
vehicles, are not made public. “That’s very
suggesting it important because if I was a shareholder
is policy to and had money in multiple VCCs, I
promote their wouldn’t want people to know where I’d
proliferation. invested,” the lawyer adds.
Below right: Matthias Feldmann, a senior invest-
Raffles Place
in the financial
ment management partner at Clifford
Chance based in Hong Kong and Singa-
district of pore, points to the relatively low run-
Singapore. ning costs. “A VCC is less expensive to
Privacy is a operate once set up than an offshore
big draw for
investors to
fund vehicle . . . that is one of the key
revenue streams of the government.”
the city-state
FT montage/Getty Images; The geopolitical stakes
Roslan Rahman/AFP/Getty
Images For both cities, longstanding rivals
within Asia, there were clear motiva-
tions for establishing the vehicles.
Hong Kong had an obvious target
market: mainland Chinese investors
and institutions, some of whom are
drawn to the territory for its “familiar-
ity and proximity”, says Sally Wong, the
chief executive of the Hong Kong Invest-
ment Funds Association.
Singapore’s ambition was more subtly
aggressive: to comprehensively shed its
reputation for sleepiness and position
itself, through regulatory innovation
and reputational risk-taking, as the
region’s new alpha predator.
The speedier take-up of VCCs in the
city is a sign, say lawyers, of how suc-
cessfully Singapore has managed to
position itself as the “not China” option
for both Chinese money and other
assets. Its safe-haven credentials have
strengthened as relations between the
US and China deteriorated.
Both Hong Kong and Singapore intro-
duced generous incentives to encourage
registration of the new vehicles,
cementing in the minds of investors the
VCCs have helped Singapore’s financial
sector grow
Assets under Registered fund management
management (S$tn) companies
6 1,200
5 1,000
4 800
3 600
2 400
1 200
0 0
2016 17 18 19 20 21
Source: Monetary Authority of Singapore
idea that it is now government policy to
encourage their proliferation.
“The government is committed to
developing Hong Kong not only as a
fund distribution hub, but a fund domi-
cile hub. This vehicle [OFC] is part of
that package. It’s a strategic objective,”
says Wong.
Hong Kong’s response to the launch —
and rapid early take-up — of VCCs was
to tweak the structure of the OFC to
align it more closely with its south-east
Asian rival. In 2021, the city’s Securities
and Futures Commission announced
that the government would pay 70 per
cent of all fees to lawyers, accountants
and other professional advisers engaged
to establish OFC structures up to a value
of HK$1mn (about $127,000).
That is more generous than
Singapore’s subsidy of S$30,000
($23,000) — but the Lion City also offers
employment passes to senior managers
and owners of the funds.
Singapore strides ahead
In Hong Kong, the managers of more
than a dozen funds say that they either
had recently completed or were in the
middle of establishing an OFC.
“It’s not that we have a fixed idea yet
of what might be coming under this
umbrella, we just want to be ready to say
‘yes’ if, say, a Chinese tycoon calls us and
says they want to put some capital into
this kind of structure,” says one fund
manager who has set up an OFC.
But Hong Kong still lags behind its
great rival: 40 OFCs were set up in 2021
and 64 in 2022, a leap from just eight
registered in the first two years but still
far below Singapore’s numbers.
Part of the reason for this is the long
shadow cast by an increasingly
autocratic China. Professionals advising
on the structure in Hong Kong say
privately that one thing limiting the
scheme’s take-up is that many Chinese
investors prefer to put their money in
Singapore, which they regard as being
further from Beijing’s reach.
“That’s the problem we [Hong Kong]
face: it’s not seen as being truly
offshore,” one says.
For Singapore the rush to establish
the new structures has been especially
pronounced. “Prior to 2020 the vast
majority of Singaporean managers had
their funds in offshore jurisdictions
such as the Cayman Islands, Mauritius
or Luxembourg. Now the tables have
turned,” says Mahip Gupta, a partner at
Singapore-based Dhruva Advisors.
“Since the Variable Capital Company
structure was introduced, most have
chosen Singapore as their fund domicili-
ation hub. Even new fund manager
applications have significantly acceler-
ated here.” Dhruva has set up 65 VCCs,
and about a third shifted from other
jurisdictions according to Gupta. “A
mass onshoring of funds is taking hold.”
There were 872 VCCs registered in the
city-state as of February, according to
government data. That helped drive
a record S$448bn in total asset manage-
ment inflows during 2021, 15.7 per cent
higher than the previous year, according
to the most recent data from the
Monetary Authority of Singapore,
the island nation’s central bank and
financial regulator.
The number of licensed and regis-
tered fund management companies
in Singapore increased 15 per cent year
on year — by 146 — to 1,108 in 2021, the
most recent data available.
“The pace of growth surprised even
the MAS,” says one hedge fund manager.
Experts disagree on exactly who is
using the vehicles. “For large interna-
tional managers or for institutional
managers targeting international inves-
tors, the VCC is not yet that common,”
says Feldmann.
A hedge fund executive whose firm
has used the structures says the incen-
tives do little to attract large blue-chip
investors. “The big guys don’t care
about these small subsidies . . . It’s
pocket change to them”.
But Anne Yeo, head of funds and
investment management for Rajah &
Tann, says she has “observed a gradual
shift in terms of the VCC being invested
into by worldwide global investors”.
Luring family wealth
Singapore’s VCCs have also been helped
by the rapid expansion of another piece
of its asset management industry:
family offices. Large amounts of family
wealth have been shifted to the city-
state during the pandemic, especially
from mainland China, outpacing argua-
bly even VCCs in terms of growth.
“The area where VCCs and family
[wealth] overlap . . . is where single
family offices decide there is an inten-
tion to take on external money and they
15
‘This sets start using a VCC structure,” says Vikna
Rajah, a partner specialising in tax and
the path for trust for private clients at Rajah & Tann.
The lure of the new structures, and of
[Hong Kong the capital expected to flow into them, is
and also beginning to trigger a movement of
financial expertise. Singapore requires
Singapore] VCCs to have a manager, responsible for
due diligence and anti-money launder-
to be the ing controls, based in the city. “That’s
heart of a very smart,” the hedge fund executive
says. “It’s going to create a lot of jobs for
new hybrid lawyers, accountants and auditors.”
between Investment banks and long-only
pension funds in Singapore and Hong
family Kong report a steady recent outflow of
both junior and experienced people to
offices and family offices or firms involved with the
hedge funds’ newly established structures in prepa-
ration for a flood of new capital.
But by positioning themselves as
rivals to centres such as the Cayman
Islands, Hong Kong and Singapore are
entering tricky territory. They are
trying to lure away the best bits of the
Caribbean islands’ lucrative business
without also risking the backlash they
have faced for facilitating tax avoidance.
The city-states must also avoid
attracting capital from groups under
sanctions and money launderers.
“Legitimate funds could be mixed with
dirty money and used to invest across
different sectors,” says Martini at Trans-
parency International, making it “diffi-
cult for authorities to trace potentially
stolen funds . . . To mitigate the risks of
these structures being used for money
laundering, transparency and regula-
tion of fund managers are key.”
Both territories say they have put in
place such measures. King Au, execu-
tive director of Hong Kong’s Financial
Services Development Council, an advi-
sory body set up by the Hong Kong
government, acknowledges that OFCs
could have investors from the US and
Europe, potentially including Russia.
“Therefore the fund managers or the
banks who distribute the products have
to, [through] the regulatory obligations,
‘[The rule screen out these unwanted clients or
money,” he says.
that requires That task falls to executives at the
groups managing the funds. One such
a city-based individual says “reams” of paperwork
manager] is and due diligence checks are required;
another that he could be spot-checked
very smart. by regulators at any time and held
personally liable for any wrongdoing.
It’s going to Some firms may be better than others
create a lot at screening their investors, says the
hedge fund executive — or be more
of jobs for “willing to take a risk”. But he agrees
lawyers, that bringing the checks onshore is “the
right thing”.
accountants “To me the point is, they’re trying
to make it a real jurisdiction from
and auditors’ the start.”
16 ★ FINANCIAL TIMES Wednesday 22 March 2023

The FT View
A last chance for the Metropolitan Police
Scathing report finds
the force is letting down
Londoners and its own staff
London’s Metropolitan Police was one of
the world’s first modern police forces
and is still, by numbers, one of the
largest. It is now the subject of one of the
most damning reports ever filed on a
major British institution. A review by a
senior peer has deemed the Met institu-
tionally racist, misogynist and sexist.
The force is beset by discrimination and
bullying, it says, and seems unable to
police itself. The Met has degraded
frontline services and is failing women
and children in particular. Public
consent — the principle underpinning
the model of policing that Sir Robert
Peel created in the 1820s — is “broken”.
The review by Baroness Louise Casey
was commissioned after the rape and
murder of Sarah Everard by a serving
ft.com/opinion Met officer, Wayne Couzens, in 2021.
Publicity around that case led to another
coming to light — David Carrick,
sentenced last month to 30 years for
raping and sexually abusing 12 women
over 17 years. Carrick and Couzens
served together in the parliamentary
and diplomatic protection command,
described by Casey as a “dark corner” of
the Met. Both abused their roles to
facilitate their crimes.
While these are the most extreme
examples, they reflect failings of an
internal culture running through the
force. Sexism and racism are routine,
homophobia “deep seated”. Some 12 per
cent of women who responded to a
survey said they had experienced sexual
harassment or assault at work. Distress-
ing case studies illustrate the findings: a
Sikh officer who had his beard cut; a
Muslim who had bacon left in his boots.
London’s residents, the report warns,
are being badly let down. The city
“no longer has a functioning neighbour-
hood policing service”. Organisational
cuts have severed contacts with
communities. De-prioritisation of
public protection has put women and
children at unnecessary risk. Black
Londoners are “both over-policed and
under-protected”, and still dispropor-
tionately affected, as for decades, by the
abuse of stop and search powers.
Successive governments bear some
responsibility. Apart from Theresa May,
home secretaries have been scared to
take on the police. The Cameron gov-
ernment’s “austerity” measures have
taken a lasting toll. Met spending is now
about £700mn, or 18 per cent, lower in
real terms than in 2013. That, the report
says, would be enough to employ more
than 9,600 extra police constables.
Casey rightly salutes the decency and
bravery of many officers. But the Met
has for too long put its problems down to
a “few bad apples” instead of identifying
and tackling the systemic causes. What
is needed now is a root-and-branch
overhaul of the 43,000-strong force,
with measurable targets that are
scrupulously monitored.
The service has The latest Met commissioner, Sir
for too long Mark Rowley, is an able and committed
former counter-terrorism head. He will
attributed its
need courage and the full backing of the
problems to a national and London governments to
‘few bad apples’ implement the report’s 16 recommen-
instead of dations to regain trust and rebuild front-
identifying and line policing. Whitehall should give
tackling the Rowley the powers he seeks to sack bad
officers more easily. External police and
systemic causes experts need to be brought in to help
drive change. And vetting procedures
for recruitment and promotion must
urgently be tightened and standardised.
The possibility of a Met break-up,
which Casey warns may ultimately be
necessary, should be kept on the table.
Splitting off the force’s national role in
counter-terrorism and government
protection would allow it to focus
entirely on the capital, and end its twin
reporting lines to the home secretary
and London’s mayor. Only by seizing
this last chance to reinvent itself will the
Met be able to enter a third century in
anything like its current form.

Opinion Environment Email: letters.editor@ft.com

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Corrections: corrections@ft.com
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have done untold damage Remember what Jobs said about iPad dangers
Andy Carter
earthquake. This would be unimag-
Pilita inable today. Likewise, it is bracing to
look back at an editorial a few days
Clark later in the Las Vegas Review-Journal
headlined “Global warming alarmists
push false premises”.
Amy Orben and Tom Metherell write
that there is little evidence to suggest
smartphones are hurting children’s
mental health (“Technology is a
scapegoat for society’s teen traumas”,
Letters, March 20).
To claim otherwise is, apparently,
an example of using “simplistic
narratives” to explain much more
complicated “socio-economic,
international . . . and lifestyle factors”.
It is of course worthwhile hearing the
views of academics on this issue, but
France’s failure to reform
pensions policy has a price
“Macron’s pension reform muddle” (FT
View, March 20) is as nothing
compared to the FT’s own muddle.
You seem to be arguing that
Emmanuel Macron, the French
president, should have let his policy —
perhaps no less interesting to note the
views of the man who actually created
the iPhone. After all, it was Steve Jobs
himself who, answering the question of
whether he allowed his children access
to the iPad, said: “Actually we don’t
allow the iPad in the home. We think
it’s too dangerous for them in effect.”
Jobs had a reputation for being coldly
thorough. A co-founder of what
became the Apple computer company
once said of him that “if you had the
choice of forming a relationship with
Steve Jobs or an ice cube, you should
choose the ice cube for warmth”.
It is not teenagers alone who are
glued to their screens all day long, but
the impact of that addiction may be
greatest on younger minds. And
psychologists may debate what that
impact is. Still, it may be common
sense to prefer the views of the man
who actually designed these devices to
be addictive.
Gordon Bonnyman
Frant, East Sussex, UK
Perhaps we must consider
plans for second best world
Your Big Read article “The crumbling
consensus over 1.5C” (March 17) was
right to highlight the crisis we have
now reached in international climate
policy. While it is still perhaps
geophysically possible to limit global
Credit Suisse debacle is
akin to a memorial service
Those of us who remember the almost
sepia-tinted investment banking days
of yore, still feel a frisson of excitement
at the mere mention of the names
Credit Suisse First Boston, Credit Suisse
White Weld and Credit Suisse Financial
Products (“Credit Suisse petitions
central bank for show of support as
shares slump”, Report, March 16).
It is almost morbidly fascinating to
observe how the individuals who
inhabited those firms —
entrepreneurial, innovative, almost
swashbuckling, fleet of foot and mind
— have, in the ostensible name of
progress, been replaced by regulation
and imprisoned by overpaid
hierarchical jobsworths. The Credit
Suisse debacle is akin to a memorial
service of what once was.
With the demise of Barings, Drexel
Burnham Lambert and Salomon
Brothers, we were deluded into
thinking the ever more monolithic “full
service” banks that became the giant

S
witzerland is generally fee-
ble at making global head-
lines.
But it grabbed the world’s
attention twice over on
Monday when an emergency bank
rescue unfolded in Zurich while scien-
tists unveiled a jolting UN climate
report down in the resort of Inter-
laken.
We still don’t know if UBS’s takeover
of Credit Suisse will stave off a wider
banking meltdown. But the scientists
in Interlaken showed we have mani-
festly failed to do what is needed to
thwart the gathering climate crisis.
While striving to explain that
there was plenty of money and know-
how to stem emissions, they also
warned that billions live in places
“highly vulnerable” to warming that
one author said could hit 1.5C as soon
as the early 2030s.
Scientists showed we have
manifestly failed to do
what is needed to thwart
a global warming crisis
I say “we” have failed to act, but that
is not quite right. Those determined to
preserve an overwhelmingly fossil-
fuelled economy bear an outsized
responsibility. And this week has been
a reminder that others are not blame-
free. That includes those of us in the
news media and, to some extent, the
UN body that delivered Monday’s
report, the Intergovernmental Panel
on Climate Change.
The IPCC was set up in 1988 to
provide governments with regular,
gold standard assessments of climate
science and policy. Its reports typically
take hundreds of experts years to
complete and run to thousands of
pages. The one on Monday was a syn-
thesis of six earlier reports, including
the colossal sixth assessment that
was published in chunks over eight
months from August 2021.
It is striking to see how media cover-
age has changed since the fifth assess-
ment. The day its first report emerged
in 2013, a flagship BBC news show
interviewed a climate sceptic at length
about the finding that humans were
“extremely likely” to be the main cause
of “unequivocal” global warming.
Bob Carter, an Australian geologist,
scoffed that the climate had always
changed; there was nothing odd about
recent warming and trying to end it
was as pointless as trying to stop an
What the IPCC report was really all
about, it warned readers, was “killing
off fossil fuel use despite its affordabil-
ity and reliability”.
It is sobering to consider how much
climate policymaking, and the IPCC
itself, was affected by all the years
when climate scepticism was main-
stream.
An absorbing new insider’s account
suggests the impact on scientists was
real. In his book, Five Times Faster,
former UK government climate
adviser Simon Sharpe reveals that,
far from exaggerating the climate
threat, scientists have often shied
away from giving governments worst-
case scenarios.
One IPCC author he cites explains
part of the reason was “intimidation
from vested interests, leading to a fear
of being accused of scaremongering”.
In 2014, Sharpe joined one of the
meetings of scientists and government
officials held to approve IPCC reports
and the shorter summaries for policy-
makers that are often all anyone
reads. He was struck by a section in
the longer report referring to a study
showing humans could not survive
certain levels of heat and humidity
even if they were out of the sun,
drenched in water and naked.
But when he tried to have this
mentioned in the summary, he was
told that, though it was uncontrover-
sial, there was an informal rule that
everything in the shorter document
had to be supported by at least two
pieces of independent research. It
stayed out.
Intimidation from outsiders does
not entirely explain such caution.
Scientists are relatively tolerant of
“false negatives”, or believing a
hypothesis is wrong even though it
turns out to be true. But they have a
deep aversion to “false positives”, or
believing a hypothesis is correct when
it isn’t.
These instincts may partly explain
why, as Sharpe writes, IPCC reports
have repeatedly revised down their
estimates of the level of warming that
could trigger irreversible tipping
points in the climate system.
This week’s IPCC summary for poli-
cymakers does not hold back. It spells
out with bleak clarity how the risk of
tipping points, species extinction and
other disasters will rise as the planet
warms.
We have never been better
informed about the future of the cli-
mate. Now we must make up for all
those lost years and try to make sure
it stays liveable.
pilita.clark@ft.com
of which you approve — be defeated in
the National Assembly so that
concessions could be made to his
opponents. That ignores the fact that
compromises have already been made
by prime minister Élisabeth Borne,
that her allies are unreliable, and that
the opposition is intransigent.
France’s parliament lacks credibility
as a legislature. As has happened many
times before, this French crisis will be
resolved either by a referendum or an
election or on the boulevards. If it is
not to be resolved, the young, who now
throng to go on demonstrations, will
have to pay an even greater price for
their country’s unreformed debt-
ridden pension system.
When we come to mourn Macron’s
passing, as we will, it will be his failure
to build a strong, durable and
progressive centre force that is likely to
command our attention.
Andrew Duff
Cambridge, Cambridgeshire, UK
Buckminster Fuller
preferred ‘peace’ games
Jacquelyn Schneider’s interesting
article on war games (Opinion, March
18) underscores their value as a way
for institutions to test possible
outcomes of conflict rather than to
predict the future.
Another benefit of simulation
gameplay can be to promote empathy
and communication by presenting
differing, sometimes conflicting points
of view.
The great visionary, inventor and
architect R Buckminster Fuller created
the 1960s “world peace game”,
following study of war games at the US
Navy War College, as a tool to
understand and develop solutions to
what he called the real enemies of
humanity: hunger, illiteracy, lack of
healthcare, environmental
degradation, and what he called the
“you-and-me world”.
Was that 60 years ago? Fuller is the
inspiration for “The Global Game:
Remapping Collaborations”, the theme
for London Design Biennale 2023, at
Somerset House in June, which will see
over 40 nations, cities and territories
represented. Visitors will have the
opportunity to try out an
algorithmically updated World (Peace)
Game from the Swiss Museum of
Contemporary Design and Applied
Arts or a Chatham House-
commissioned climate simulation to
transform a quiet peninsula into a
world-famous cultural hub, in the face
of escalating climate shocks. Other
participants include a design team
from Ukraine, who will demonstrate
the role that collaboration plays in
connecting and communicating in
times of war, Romania’s exploration of
regenerative practices and humans’
interconnection with nature and
Malta’s adaptation of the village square,
which will appear in the courtyard of
Somerset House. Results will be
discussed!
Victoria Broackes
London W11, UK
Carter and the story of the
White House solar panels
Regarding Edward Luce’s column
“Carter has been wronged by history”
(Opinion, February 23) one of the
groundbreaking and — in today’s world
— relevant contributions Jimmy Carter
made as president was his support for
solar energy policy and the backing he
gave to the research and development
of renewable energy.
He had 32 solar panels, which were
designed and built in America,
installed on the roof of the West Wing
of the White House during the 1979 oil
crisis. Not only did those panels heat
the White House’s household water,
more importantly, they underscored a
commitment to a move away from
fossil fuels towards a more
environmentally-friendly, renewable
source of energy.
But tragically, in 1986, succumbing to
pressure from the fossil fuel lobbies,
the new Reagan administration
reversed course, cutting funding for
research and development and had the
panels removed.
One of those panels, as documented
in Scientific American magazine, was
donated to the Solar Science and
Technology museum in Dezhou, China.
Himin Solar Energy Group, the
company that accepted the donation, is
now producing about 80 per cent of the
solar water heaters used in the world.
Thanks to Reagan’s shortsightedness,
the US lost a tremendous opportunity
to become a world leader in solar
technology and solar panel production.
Zia Ebrahimzadeh
Washington, DC, US
warming to 1.5C, there is mounting
evidence that the current collection of
political leaders around the world are
simply not up to the task of effectively
tackling this crisis. So we have to start
considering a contingency plan for a
second best world.
That does not mean that we should
abandon the 1.5C target. As the sixth
assessment report by the
Intergovernmental Panel on Climate
Change has made clear over the past
couple of years, huge risks lie above
this threshold.
The last time global temperature was
much more than 1.5C above its pre-
industrial level was during the Pliocene
Epoch, about three million years ago,
when the polar ice caps were much
smaller and global sea level was several
metres higher than today.
Our contingency plan would mean
spending massively on geoengineering
solutions, particularly carbon dioxide
removal, but perhaps also on solar
radiation management, to lower global
temperatures below the 1.5C threshold.
We would also have to set aside
trillions of dollars to deal with growing
loss and damage to lives and
livelihoods from overshooting the
threshold, and invest even more to
make countries, companies and
communities less vulnerable in a more
dangerous and insecure world. And of
course we would still need to cut
greenhouse gas emissions to net zero as
soon as possible to avoid truly
catastrophic warming.
This contingency plan would be
costly, difficult and risky, but it is the
price we would have to pay for not
having responded with urgency and
scale to the very clear warnings from
scientists over the past 35 years.
Bob Ward
Policy and Communications Director
Grantham Research Institute on Climate
Change and the Environment
London School of Economics and Political
and Science, London WC2, UK
Will aviation be grounded
by manpower shortage?
While the UK’s proposed airport
expansion seems to assume an easy
take-off, there are constraints (Report,
March 20). One major one is
manpower and the general shortage of
skilled workers. When you read the
current manpower requirements for a
successful transition to net zero, there
will be few left to go around, and
probably they would opt not to work in
support of the “brown” aviation
industry.
Michael Cross
London TW10, UK
conglomerates was the way to go. But
the travails of Barclays Capital, led by
former CSFB executives, put paid to
that idea.
At least there has been a burgeoning
of boutiques, so often built and run by
those from an “earlier generation” not
unlike so many hedge funds.
Beware of the word “progress”!
Nicky Samengo-Turner
Gloucester, Gloucestershire, UK
Medieval assurances beat
any of today’s stress tests
Over the past few days, you have
provided extremely informative
coverage and analysis of the ongoing
banking failures (The Big Read, March
21).
History itself provides some valuable
lessons. During the Middle Ages,
creditors had to rely on their ingenuity
to provide for the security of their
loans. Forced to borrow from the
moneylenders of Brussels, for instance,
King Edward III of England had to give
his crown as security, whereas Charles
IV, the Holy Roman Emperor and King
of the Germans, was forced by his
creditors to pledge both his crown and
his coronation robe.
Today’s regulators are much less
ingenious: they rely on “stress tests”,
run only on paper, to confirm the
trustworthiness of financial players
and reassure anxious creditors. One is
therefore tempted to argue that the
old-fashioned way of providing
financial guarantees in medieval times
had more merits compared with what
we observe today.
Professor Costas Milas
Management School, University of
Liverpool, Liverpool, UK
Putting the phone away
helped my productivity
Embarrassed at how long it took me to
read “How Cal Newport rewrote the
productivity gospel” in which he posed
the question how long was I able to
stand in line at a coffee shop without
looking at my phone (FT Magazine,
March 11), I googled Newport’s books
and read a few reviews. I responded to
an email or two. I played Wordle. Then
I caught myself on Instagram. OK, OK,
I get it. I didn’t think I had a problem.
But I (finally) finished the article and I
see that in fact I do. Thanks for the
heads up. Making some much needed
changes now . . . Like turning the
damn phone off and leaving it in
another room while I actually get some
work done.
Sarah Raspin
Wargrave, Berkshire, UK.
Wednesday 22 March 2023 ★ FINANCIAL TIMES 17

Opinion
Don’t assume DeSantis is a safe alternative to Trump
Some Conservatives have a theory in just three-quarters of the Maga creed, enough.) As likely, he is pandering to a more extreme (though also no incentive insecurity about his place in his party.
A M ER ICA about this. Having voted Remain, and he can get a greater share of it enacted. crowd that views him with suspicion as not to). I suspect he could turn into a The Goldilocks candidate, just right-
scolded “nasty” Tories in the past, May Trump’s efforts to subvert the US sys- an establishment Republican. And this pro-trade liberal and China dove and wing enough, is how much of the Repub-
Janan was always straining to show the right tem always hit against the limits of his is in early 2023, before any showdown keep the greater share of his following. lican donor class views DeSantis. But
that she was one of them. The result was own attention span and executive grip. with Trump for the party’s presidential DeSantis has no such license. What there is another way of looking at this.
Ganesh textbook overcompensation. A fervent That fail-safe won’t exist with DeSantis. nomination has even begun. makes him so deceptively risky is that He is sufficiently steeped in populism to
Leaver, with nothing to prove, might Second, there is something of May There was always one benign feature he must keep earning and retaining spell trouble. (Unlike, say, Nikki Haley,

B
oris Johnson didn’t start the
fire. It was Theresa May, his
predecessor as UK prime
minister, who embarked on
a harder Brexit than a close
referendum result seemed to warrant.
It was May who gave some bellicose
advisers the run of Downing Street. It
was May who equivocated when
High Court judges were under tabloid
siege. Much of the civic and economic
rot in the UK can be traced back
to a prime minister who now plays the
elder stateswoman, forever tutting at
her errant successors.
have been milder on the status of
UK-resident EU citizens, for instance.
And slower to invoke Article 50, the
formal process of Brexit, when there
was no plan.
An ocean away, US Republicans
won’t remember her from among the
rabble of recent UK premiers. But, as
Ron DeSantis courts them, the parable
of May is something to keep in mind as
a warning. The idea has taken hold that
Florida’s governor is a much safer alter-
native to Donald Trump: a populist, no
doubt, but a house-trained one. This is
wrong, or at least rash, on two counts.
First, DeSantis is abler and more dis-
ciplined than Trump. Even if he believes
about DeSantis: something of the try-
hard. Precisely because he arouses
The idea that he is a
populist, but a house-
trained one, is wrong or at
least rash on two counts
mistrust among Trump voters, he is
always striving to prove his populist cre-
dentials. Perhaps he seriously believes,
for example, that Ukraine does not
rank among America’s “vital national
interests”. (Which would be troubling
of the Trump personality cult. Because
millions of voters are unconditionally
faithful to the 45th president, he doesn’t
need to say or do anything in particular.
His flock is there if he builds a wall
against Mexico, and there if he doesn’t.
It is there when he flatters the dictator
of North Korea, and there when he
threatens to crush him. It is there as
he promises an infrastructure splurge,
and there as his successor Joe Biden does
much more to bring one about. It is even
there when he recommends vaccines
against Covid-19.
Trump doesn’t live or die by his poli-
cies. That is the point of a personality
cult. He has no incentive to become ever
the trust of populist voters through
his actions. His conventional Ivy League
résumé, his photo-op with Biden during
Hurricane Ian, even his personal
stiffness: moderate Republicans hope
that these are the marks of a pliable
company man.
But these are also liabilities that
he will have to counteract in a primary
contest. So, expect more gestures in
the vein of his Ukraine statement, or
his call for a grand jury to look into
vaccines, or his rolling war on woke.
No US politician in recent years
has been more resourceful in finding
causes to fight. That owes something
to imagination. It owes even more to
who announced her 2024 presidential
bid last month.) But not so steeped that
he can sit back and let his reputation
speak for itself with the Republican
base. The ultimate effect of his being
almost-Maga is not moderation, but a
restless itch to belong. Perversely,
Trump himself has more latitude to
disappoint the extremists.
In the history of nations, there is
nothing to suggest that damage is only
done by true believers and obvious
vandals. Beware them. But beware the
pretenders no less. They have too much
to prove, and to the wrong people.
janan.ganesh@ft.com

Four ways to
fix the bank
problem
Martin Wolf Economics
It is not clear how bad this crisis
is going to be. But reform is
urgently needed

B
anks are designed to fail. And
so they do. Governments
want them to be both safe
places for the public to keep
their money and profit-seek-
ing takers of risk. They are at one and
the same time regulated utilities and
risk-taking enterprises. The incentives
for management incline them towards
risk-taking, just as the incentives for
states incline them towards saving the
utility when risk-taking blows it up. The
result is costly instability.
If one thing is clear about the events of
the last two weeks, it is that the vaunted
reforms introduced after the global
financial crisis have not changed any of
this that much, or at least not enough.
Yes, leverage of banking systems has
fallen since the crisis. But it remains
dangerously high. According to the Fed-
eral Reserve, on March 8 2023, the dif-
ference between the book value of the
assets and debt liabilities of US commer-
cial banks was $2,137bn. This slice of
equity backed assets that were notion-
ally worth $22,800bn. But a recent
paper suggests that mark-to-market
losses are already around $2tn. A gen-
eral run would force these losses into the
open and wipe out the equity. To pre-
vent this, the authorities may have to
protect all deposits.
Nice words were uttered about the
need for orderly resolution of failing
banks, with equity the first claim to be
wiped out. But, lo and behold, that is not
what happened in saving Credit Suisse.
Equity holders retained value and the
state also provided them with guaran-
tees indirectly, by guaranteeing UBS.
Yet, we are told by the Swiss finance
minister, “This is no bailout. This is a
commercial solution.” It is indeed a bail-
out. It might be the least costly solution
overall. But this is not how the post-
2008 crisis regime was supposed to
work. I am not that surprised.
At this stage, it is still not clear how
bad this crisis is going to be. But it is
already evident that the reforms after
the last one, though vastly better than
nothing, were not enough, especially
after the Trump administration tam-
pered with them. They have not guaran-
teed a crisis-proof system. They have
not provided a smooth way to resolve a
bank in crisis, especially if the latter
risks becoming systemic.
So what might be done? There are
four broad approaches to reform.
First, let the market prevail, as Ken
Griffin of Citadel has argued. Alas, the
functions of the banks in providing
money and credit are too vital to allow
this. The notion that the government
guarantee of deposits creates moral haz-
ard is also complicated. Depositors are
unable to monitor the soundness of
banks in real time: the absence of insur-
ance would just make them more jittery.
But its presence is clearly a subsidy to
shareholders and so encourages higher
leverage and greater risk-taking.
Second, tighten up current regula-
tion. All banks with deposits that are de
jure or de facto insured need to be regu-
lated for capital soundness and liquidity
This is already a large banking crisis
US bank failures ($bn), 1981-2023
Bank assets FDIC losses
1,500
Bear Stearns and
Lehman assets
1,000
500
0 0
1980 85 90 95 2000 05 10 15
Sources: Oxford Economics; FDIC
in the same way. The decision to take
Silicon Valley Bank out of the regulatory
net for systemically significant banks
was a mistake, because anything can
trigger a panic if a sufficiently large
number of banks have similar vulnera-
bilities. Also, while extending deposit
insurance, increase insurance premia
and link them to the risk-characteristics
of banks, such as leverage. Again, make
stress tests universal and brutally realis-
tic on all risks, including interest rates.
Third, go well beyond business as
Banking stands revealed
as a part of the state
masquerading as part
of the private sector
The banking crisis is bad but not yet as bad
as it was in 2008
US banks indices, rebased, Jan 1 2007=100
25
KBW regional banks
20
15
10
KBW banks
5
23 2007 2010 2015
Source: Refinitiv
usual in increasing the robustness of
banks. One recommendation suggested
a move to three-to-one leverage instead
of the 10- or 20-to-one now common.
An alternative proposal is to force banks
to be funded by debt that converts auto-
matically into equity as market valua-
tions decline. The above ideas would go
with strict marking of their accounts to
market. A proposal from Mervyn King,
former governor of the Bank of England,
is for banks to match deposits to their
liquid assets. The latter would include a
pre-agreed value of collateral against
lender-of-last-resort lending. This
should guarantee liquidity at all times.
Finally, penalties on management of
failed banks should be imposed, reflect-
ing the reality that these are utilities.
Fourth, abandon this attempt to com-
bine the provision of money with risky
Studies confirm the substantial
costs of banking crises
Impact on GDP (%)
-10 -8 -6 -4 -2 0
120
Cerra & Saxena
100 (2008)
Ollivaud & Turner
80 (2014)
60 Furceri & Mourougane
(2009)
40
Kenny et al.,
20 avg in UK (2021)
0 CBO on 1980s Long-term
2020 2023 US S&L (1992) Short-term
Source: Oxford Economics
loans in one sort of business. This would over to technology companies. The
have two complementary elements. money created by central banks could
Liabilities to the public that are sup- be used to fund government (by replac-
posed to be perfectly liquid and ing government bonds) or be invested in
redeemed at par (“money”) should be other ways.
matched one-to-one with similar assets. Meanwhile, risk intermediation could
This could be done by forcing interme- be done by mutual funds, whose value
diaries to hold reserves at the central would move with the market. Less radi-
bank or similarly liquid government lia- cally, the intermediation might be done
bilities. This is the famous “Chicago by banking institutions, but ones
Plan”. But members of the public could funded by a mixture of equity, bonds
now hold central bank money directly. and time deposits, not sight deposits.
That was impossible when access to No one is yet ready for these last
banking required branch networks but approaches. But the second and third
it would now be possible for everyone to must be on the agenda. Banking stands
hold central bank digital currencies that
are perfectly safe, in any quantity. This
revealed as a part of the state masquer-
ading as part of the private sector. At the
idea would make the central bank the least, it needs to be far more robust. Ide-
monopoly supplier of money in the ally, it would be radically transformed.
economy. Management of the digital
payment system could then be handed martin.wolf@ft.com

A reckoning on Germany’s Russia policy is long overdue

ibly important signal”, according
EUROPE to Kyiv’s mayor Vitali Klitschko.
Yet Germany’s Russia policy is
Constanze unpleasantly like a zombie: it keeps
clawing its way back out of the grave. A
Stelzenmüller devastatingly comprehensive new book
by journalists Reinhard Bingener and
ing him at his private residence in 2015,
“because you’re so busy these days,
especially with the conflict in Syria”.
Another recent book by journalist
and Russia expert Michael Thumann
(full disclosure: we are friends and
former colleagues) traces a long arc
relations with the states of central and
eastern Europe and the west.”
The Nord Stream 2 gas pipeline was
conceived at a 70th birthday party for
Schröder in St Petersburg in the spring
of 2014, only weeks after the seizure
of Crimea; Putin was a guest of honour.
16 years, 12 of them in a grand coalition
with the SPD?
Following the invasion of Ukraine,
CDU leader Friedrich Merz spoke
of “severe failings” in his party; he has
not volunteered any further details
since then. Merkel herself had been
And there is more: the scandal over a
Russian mole in the German external
intelligence service’s cyber security
department; the florid fraud and over-
sight failures revealed in the Wire-
card financial services case (the com-
pany’s fugitive chief operating officer

E
ver since Vladimir Putin
invaded Ukraine in February
last year, German politicians
on both sides of the aisle have
been competing with each
other to publicly disavow the mistakes
made in Berlin’s Russia policy — in con-
trite speeches, rewritten party docu-
ments and train trips (many train trips)
to Kyiv. In early March, the Social Dem-
ocrats’ co-chair Lars Klingbeil even
hauled his party’s parliamentary group
leader and leading advocate of diplo-
macy with the Kremlin, Rolf Mützenich,
to Ukraine’s capital, sending “an incred-
Markus Wehner describes the networks
connecting the SPD, the energy industry
and Russia. The fat spider in the middle
of it all: Gerhard Schröder, former chan-
cellor, Russian lobbyist and personal
friend of Putin.
After Putin’s illegal annexation of Cri-
mea in 2014, a shocked Angela Merkel,
then chancellor, orchestrated EU-wide
sanctions. But Bingener and Wehner
describe how SPD grandees from
former chancellor Helmut Schmidt
down agitated to get them lifted — espe-
cially economics minister and vice-
chancellor Sigmar Gabriel. In a cringe-
making anecdote, Gabriel reportedly
thanked Putin obsequiously for receiv-
Berlin’s vulnerability
to economic corruption
is systemic — and that
is a security risk
from the 1922 Treaty of Rapallo
between the Weimar Republic and the
Soviet Union to today. It concludes
scathingly: “The Rapallo Treaty and the
Nord Stream projects were united by a
common false assumption: that Russia
and Germany are connected by higher
interests that matter more than good
“It was Putin’s project to weaken
Ukraine . . . and to make Germany
complicit,” Thumann writes. The eco-
nomics ministry, he adds, stopped
publishing data on gas imports in 2016;
when he inquired, he was told that
these were “business secrets”. In 2022,
the year Russia invaded Ukraine, it
was revealed that Russia’s share of
German gas imports amounted to a
staggering 55 per cent. The trap had
snapped shut.
It would appear that the Social Dem-
ocrats still have a lot of accounting to do.
But what of the Christian Democrats
and Merkel, who succeeded Schröder
as chancellor and ruled Germany for
clear-eyed about Putin, but also
defended the Nord Stream pipelines
as an “exclusively private enterprise”
until the end of her tenure. In a now-
notorious appearance at a Berlin theatre
after her retirement, she refused to
accept that she had made any mistakes
of her own.
That resounding silence is clearly
infuriating to other conservatives. In
a withering recent newspaper essay,
Hans-Joachim Falenski, a former CDU
foreign policy adviser, recounts
repeated foiled attempts by the party’s
legislative group to give teeth to Berlin’s
relationship with the Kremlin — and
lays the blame squarely on Merkel.
Jan Marsalek is suspected to have been a
Russian spy); the ongoing revelations
about a climate foundation that acted as
a conduit for Gazprom money to help
finish the construction of Nord Stream 2
(since suspended) ahead of the Russian
invasion.
All this suggests two things. Germany’s
vulnerability to economic corruption is
systemic. And that is a security risk —
not just to Europe but to the western
alliance. Germany needs a parliamen-
tary commission of inquiry. It is time for
a comprehensive reckoning.
The writer directs the Center on the US and
Europe at the Brookings Institution
18 ★ FINANCIAL TIMES Wednesday 22 March 2023

Maserati/IPO: modders of intention

Maserati cars are priced similarly to higher-end Mercedes or BMWs and are cheaper than Rolls-Royce or
Ferrari vehicles. The sports-car maker’s ebit margin in 2022 was lower than 10 per cent. The profitability of
Porsche and Ferrari is closer to other luxury businesses, and their stocks are valued accordingly.

Twitter: @FTLex
UBS/Switzerland:
alpenstock take
Wealth management is as emblematic
of Switzerland as Toblerone.
The chocolate is losing its emblem of
the Matterhorn mountain as a result of
offshoring. Swiss authorities do not
want the branding of wealth
management to weaken too. That is
one reason they have pushed struggling
Credit Suisse into a shotgun wedding
with larger rival UBS.
Outflows of more than SFr10bn daily
from Credit Suisse last week chilled a
wealth management and private
banking sector that habitually tops
global rankings. In 2021, Switzerland
harboured assets of $2.5tn, followed by
Hong Kong with $2.3tn and Singapore
with $1.5tn, Boston Consulting says.
Combining Credit Suisse and UBS
should create a national champion in
wealth management with $1.8tn in fee-
paying pro forma assets and 11,000
relationship managers. The onus is on
UBS chief executive Ralph Hamers and
divisional boss Iqbal Khan to integrate
the businesses in a way that minimises
capital flight. The latter’s familiarity
with Credit Suisse’s relationship
managers may well help UBS hold on
to assets. Their main problem is that a
proportion of clients have accounts
with both banks. Many will move
money to other institutions to reduce
concentration risk. They are likely to
have baked in a loss of perhaps a fifth
of client assets.
Gulf investors have extra reasons for
pulling funds. Saudi National Bank
owns nearly a tenth of Credit Suisse
shares and worsened depositor panic
last week by ruling out a capital
injection. It has taken a savage haircut
via the forced sale of the company.
But any fugitive money may stay in
Switzerland. The country has a healthy
ecosystem of smaller wealth managers
and private banks. These include Julius
Baer, with about $460bn in year-end
AUM. The next tier are Pictet, with
$280bn of wealth assets, Lombard
Odier, Vontobel and EFG.
Without Credit Suisse, UBS will be
the only Swiss bank with a big balance
sheet from which the highest-rolling
private clients might want to borrow.
That matters when sophisticated
margin lending is required.
Swiss authorities took hard, fast
action to halt a collapse. That does not
automatically strengthen wealth
management credentials by reducing
Switzerland’s top tier of banks from
two to one. Business clusters benefit
from scale and diversity. Both are
diminished by the loss of Credit Suisse.
Kingfisher:
plumb the depths
Bust can easily follow boom. UK-listed
DIY retailer Kingfisher has been trying
to avoid that scenario since its
pandemic boost faded. A cost of living
crisis, higher energy prices and rising
wages all added to the gloom last year.
At least it maintained momentum,
full-year results yesterday showed.
Like-for-like sales in the 12 months
to January were more than 15 per cent
higher versus pre-pandemic levels. But
they were off 2.1 per cent year on year.
Working-from-home trends have
faded but not completely reversed.
Part-timers are still spending to
refurbish their properties when they
can. Kingfisher shares have rallied
from October lows. But a valuation
back at levels last seen in early 2022
lacks support as economic fears return.
Surveys suggest estate agents in the
retailer’s key UK market are at their
gloomiest since 2009. Uncertainty over
the course of interest rates remains.
Banking turmoil is yet to spill into a
credit crisis but knock-on effects on
consumer confidence are possible. DIY
retailers remain vulnerable.
Kingfisher has diversification on its
side; UK brands B&Q and Screwfix
cover different customer bases. Even
so, sales growth in the fourth quarter of
last year slowed. Adjusted pre-tax
profits dropped 20 per cent to £758mn
compared with its record year in 2021-
22. The out-turn was at the top end of
Kingfisher’s guided range. Analysts are
expecting profits to drop lower again
this year to £633mn. A share price to
forward earnings multiple of 11 times is
in line with its five-year average.
Since taking the helm in 2019, chief
executive Thierry Garnier has helped
to soften the blow from economic
volatility. Cost cuts in areas such as
supply and logistics have offset rises
elsewhere. Further share buybacks are
promised for this year, once a current
£300mn programme has completed.
Garnier is trying to paint an
optimistic picture but he can do little to
Price by model
Range
Audi
BMW
MBG
JLR
Tesla
Porsche
Maserati
Aston Martin
Ferrari
Bentley
Rolls-Royce
Premium- Luxury
Luxury
Sources: Bernstein; S&P Capital IQ; Stellantis
Can you hear a faint roar in the
distance? It might be the sound of
Maserati heading to the public
markets. The Italian luxury sports-
car maker is still miles from that,
but it is already a separate business
within carmaker Stellantis.
With Porsche up almost 40 per
cent since its float last year and
Ferrari’s valuation thundering ahead,
the market is starting to do a spot of
window shopping. Maserati is
midway through a strategic U-turn. It
is seeking to focus on profits rather
than sales. It has spruced up its
range, adding the MC20 model with a
£200,000 price tag.
Revenues are growing again, up
15 per cent in 2022 to €2.3bn. Ebit
margins have also recovered, to 8.7
plaster over cracks in the housing
market or another potential lurch in
consumer confidence.
UK renewables:
auction stations
“Renewable energy is cheap” has
become a political mantra in many
countries since Russia’s invasion of
Ukraine. Most western governments
set bold new goals to build more wind
farms and solar arrays cheaply — and
quickly — in response to Russia’s
squeeze on gas supplies.
But inflation-busting rises in supply-
chain costs, plus higher interest rates,
mean the era of sharply falling
renewables prices is over. Governments
Ferrari and Porsche in line with luxury stocks
Average price (including
special-edition models
Hermès
Ferrari
LVMH
Porsche
Swatch
Mercedes-Benz
Stellantis
BMW
Volkswagen
Renault
Volvo Cars
Maserati's biggest markets
Ultra-Luxury
US/Mexico
(top four)
per cent in 2022. It is targeting 15 per
cent by 2024 and 20 per cent longer
term. No listing is likely before then.
Today, Maserati is miles behind
Porsche and Ferrari. The average
selling price of its cars is under
€100,000, Bernstein analysis says,
which is not that different from pricier
Mercedes or BMW cars. Ferraris can
cost €500,000 or more. Porsche —
whose models run a wide gamut — has
higher volumes to lend a helping hand.
Maserati may find it difficult to go
head to head with super-sports-car
brands. But it is charting a different
route. Maserati has pledged to bring
out an electric version of all its models
by 2025, and to go entirely electric by
2030. That is a canny move. It should
help Maserati attract a different type of
that do not recognise the pressures on
the industry risk deterring investors —
and missing clean-energy targets.
That could be catastrophic. The
Intergovernmental Panel on Climate
Change warned this week that the
world has already warmed by 1.1C
above pre-industrial levels. At the end
of March, the UK will test how cheaply
new renewables projects can be built in
an era of pricier money, commodities
and labour. Rishi Sunak’s government
will invite bids to build new projects
from the likes of Sweden’s Vattenfall.
Companies compete for “contracts
for difference”, securing a guaranteed
price for their electricity for 15 years.
The auctions, in which groups
actually bid lower rather than rising
prices, have been a huge success since
the first of them eight years ago. Prices
Price-to-earnings CY (multiple)
Europe China Japan Other
customer, not least among eco-
conscious tech entrepreneurs.
How much might Maserati be
worth? On today’s paltry margin, it
would not deserve much of a
premium to the likes of BMW, whose
enterprise value is about one time’s
last year’s sales. But it does have
room to raise profitability as it
focuses on pricier models. If one
applied Porsche’s valuation of
2.6 times last year’s sales, that would
raise its enterprise value to €6bn.
Of course, the market would need
to see continued evidence of a well-
executed turnround before it gave it
anything like that sort of accolade.
Stellantis is right to keep Maserati
in the garage until its engines are
firing on all cylinders again.
at which companies agreed to build
offshore wind farms have fallen more
than two-thirds since 2015 to £37.35
per MWh in the past year, expressed by
convention in 2012 prices.
But energy groups are wary. They
argue that the UK has set maximum
prices, which vary according to
technology, that do not adequately
account for factors such as rising wind-
turbine prices. These have jumped by a
third since the end of 2021 alone.
Companies that have already sunk
hundreds of millions of pounds into
developing projects are still likely to
bid, although some may wait to see if
conditions improve. The longer-term
danger is that energy groups will
prioritise more favourable jurisdictions
such as the US — with its tempting
clean-energy tax breaks.
First Republic:
last resorts
First, the worry was about liquidity.
Does a bank have enough cash on hand
to weather a wave of withdrawal
requests? Second came solvency. Does
the accounting value of assets exceed
that of liabilities? The third, equally
crucial, question for besieged banks is
whether there will even be a profitable
business after a rescue.
Emergency liquidity is expensive.
This is a problem for First Republic, a
US bank whose total assets stood at
more than $200bn at the end of 2022.
Amid panicked deposit flight, it has
required heavy government support.
Between March 10-15, First Republic
borrowed as much as $109bn from the
Fed at an annualised cost of 4.75 per
cent. The $10bn in funds lent from the
Federal Home Loan Bank cost over 5
per cent. Ratings group S&P has said in
a downgrade note that the bank’s asset
book, largely of long-dated mortgages,
was yielding only 3.5 per cent annually
in its 2022 fourth quarter.
As recently as January First Republic
was trumpeting its low-cost deposits. It
said that these cost it just 55 basis
points last year, less than other
midsized regional lenders. The bank
had been popular with affluent
customers who appreciated its high-
touch service. But this was not enough
to keep their money parked there in
the last week.
At the end of 2022, its book value
was $75 per share. In January, the
shares were trading at nearly twice
that. They have since slumped. They
were trading at just $19 even after US
Treasury secretary Janet Yellen said
the government could insure deposits
of troubled banks fully.
Investors seeking to inject equity
into First Republic or acquire it
outright should understand that its
earnings capacity is highly opaque.
Cheap deposits are far superior to
wholesale borrowing even from the
federal government, especially in a
high interest rate world. Fateful deposit
flight has now become both a liquidity
and an enterprise value challenge.
Lex on the web
For notes on today’s stories
go to www.ft.com/lex

CROSSWORD
No 17,364 Set by CHALMIE
        ACROSS

 1 Rubbish heap protects freedom

fighters’ leaders (6)
  4 Woman running paper resisted
changes (8)
10 Russian writer’s failed revolt spanning
24 hours (9)
  11 Leader of Orthodox congregation
long ago (2,3)
 12 Low rumbling begins Othello? (4)
13 Old American car boss who makes
   bread online? (10)
15 In New York, they’re 19 nits on a
 roundabout (7)
16 Sticky end due for 19 team (6)
   19/21A/5/21D Slogan of airline bearing
with weird vid if, well, dead (6,2,5,7,2,4)
 23 Actors extremely annoyed by 24
suffer the fate of Captain Bligh (4,6)
   25 French region turns one stupid (4)
27 Has licence key (5)
 28 Bank seal I break to leave 5 (9)
29 I’m 19, confused having disobeyed
  orders (8)
30 Puts on coat, finally impressing wise
men (6)

 
DOWN

1 Support of ex-partner in junk mail

swallowed by horse (8)
2 Left out too much in counterfeit note
(9)
JOTTER PAD 3 Appearance of 11th toilet (4)
5 See 19 Across
6 Player monitors TB outbreak (10)
Solution 17,363 7 Section of audience boo, killing
download (1-4)
& + 2 8 * + 0 $ 5 % / , 1 * 8 Prophets eat 500 ceremonial suppers
$ 5 $ ( / $ 1 $ (6)
% $ & . 3 $ < 6 , 5 / 2 , 1 9 Says it’s a country after 19 (6)
5 + ( 5 $ % 1 1 14 Town ditches MP for council leader at
, . ( $ 9 , ( 7 1 $ 0 ( 6 ( tube station (5,5)
2 6 8 ( , 5 7 17 Inspecting chopper going up above
/ , 7 $ 1 < - $ 9 ( / , 1 excavation (9)
( 5 * 4 1 / 1 7 18 Liberal officer finally stops various
* $ 7 ( $ 8 ; 6 / 8 7 7 < inexperienced motorists (1-7)
( 1 $ 6 $ ( 0 20 Long-lasting bad rule broken (7)
* / ( 1 ( $ * / ( 6 7 5 , 3 21 See 19 Across
* 9 5 0 9 6 9 $
22 Church 5 after this doctrine
1 $ , 5 2 % , ( / $ 7 , 2 1
supporting small children (6)
You can now solve our crosswords 24 5 city (5)
2 7 8 5 1 5 ( 8 in the new FT crossword app at 26 Make 5 power pictures? (4)
* 5 $ 6 6 ) ( ' : , * : $ 0 ft.com/crosswordapp*