THURSDAY 30 MARCH 2023 NATIONAL NEWSPAPER OF THE YEAR UK £3.50; Republic of Ireland €3.

90

Britain’s new stability rests on shaky ground Brazilians braced for Bolsonaro’s return
ROBERT SHRIMSLEY, PAGE 23 ANALYSIS, PAGE 8

North Korea’s oil Briefing

smuggling,
i Doubts on EU science bid
The attempt to rejoin the Horizon
research programme has come

triads and
under threat because London is
seeking a contribution cut to
reflect its late entry.— PAGE 2

ghost i Response to US green deal

Britain and the EU have boosted

ships
co-ordinated efforts to respond to
Washington’s subsidy scheme,
and could co-ordinate moves on a
new carbon border tax.— PAGE 2

i LGIM in climate alert

The largest UK asset manager has
urged investors to “strap in” for a
“bumpy ride” as businesses and
markets have failed to price in
climate change risks.— PAGE 12

i China threat over US trip

Beijing has threatened to retaliate
if Taiwan president Tsai Ing-wen
meets House Speaker Kevin
McCarthy on a trip to California,
as US-China tensions rise.— PAGE 8
FT investigation How organised crime helped shift illicit oil and evade sanctions. Big Read, Page 21
Illustration: Steve Bernard i Berlin dirty money push
Germany is to establish a new
anti-money laundering authority,

Ermotti returns as UBS chief to steer

after criticism of its white-collar
crime record.— PAGE 4

i Financial Times awards

$3.25bn Credit Suisse rescue mission

The FT has won both the National
Newspaper and Weekend
Newspaper of the Year, and FT
Weekend magazine won National
Magazine of the Year, at the 2023
Newspaper Awards.

3 Hamers ousted 3 Chair hails ‘best person’ for job 3 Biggest bank tie-up since 2008 3 Shares rise 4%
OWEN WALKER
EUROPEAN BANKING CORRESPONDENT
UBS has ousted its chief executive and
brought back former boss Sergio
Ermotti to steer the takeover of Credit
Suisse less than two weeks after the
announcement of the contentious
$3.25bn rescue deal.
Ermotti, UBS chief executive for nine
years before stepping down in 2020, will
lead the effort to merge two of the
world’s biggest banks after Ralph Ham-
ers was pushed aside. “I cannot empha-
sise how big a deal this is in terms of
financial history and financial engineer-
ing that’s required,” UBS chair Colm
Kelleher said. “It’s about having the best
person in our opinion to effect the
execution of this merger.”
He added that he had initially called
Ermotti to see if he was interested in the
job on Monday last week — the day after
Hamers gave a fumbling performance
on an analyst call on the takeover.
Hamers said he was “stepping aside in
the interests of the new combined entity
and its stakeholders, including Switzer-
land and its financial sector . . . I am, of
course, sorry to leave UBS but circum-
stances have changed in ways that none
of us expected.”
The takeover, orchestrated by Swiss
Inside
3 Credit Suisse plea deal probe Page 9
3 Answering ‘call of duty’ Page 11
3 AT1 wipeout hits banks Page 13
3 Lex: old guard, new reality Page 24
authorities, will create the world’s
fourth-largest bank, with 120,000 staff
and $5tn of assets under management.
But it is politically divisive, with more
than three-quarters of Swiss voters call-
ing for the combined bank to be split up
by new legislation.
Bondholders are also preparing legal
proceedings against the Swiss govern-
ment after $17bn of high-risk securities
were wiped out in the transaction.
Kelleher said Ermotti’s work in scal-
ing back UBS’s investment bank a dec-
ade ago and his experience of operating
at a global level were essential for over-
seeing the biggest bank merger since
2008. He added that Hamers, chief
executive since November 2020, had
put the bank “in a position to stabilise
Credit Suisse and ensure a successful
integration”, but that Ermotti would
“hit the ground running”.
Ermotti will start next week, while
Hamers will remain as an adviser for a
transition period.
UBS shares closed nearly 4 per cent
higher, with some investors welcoming
the change. “As a shareholder and bond-
holder, we are very happy,” said Davide
Serra, chief executive of Algebris, who
added that Ermotti would reduce inte-
gration risk and “serve [the bank’s] cli-
ents and not . . . investment bankers”.
Since leaving UBS, Ermotti has
chaired the reinsurer Swiss Re as well as
a special purpose acquisition company
that bought Italian luxury fashion group
Ermenegildo Zegna.
Mark Diethelm, an analyst at Vonto-
bel, said Ermotti’s experience in trans-
Datawatch
forming UBS after the financial crisis Broadminded Britain
% who say the following are justifiable
would be crucial, noting that the bank
was “already facing significant political Homosexuality Divorce
Abortion Casual sex
pressure due to its large size and impor- 100
tance for the country”.
80
Hamers joined UBS from ING after 25
years at the Dutch lender, seven as chief 60
executive. He was a surprise choice for 40
the UBS job, despite having been hand- 20
picked by then-chair Axel Weber. 0
Critics pointed to his lack of experi- 1981 90 98 99 05 09 18 22
Sources: World Values Survey;
ence in wealth management and invest- King’s College London
ment banking, UBS’s two biggest busi-
nesses. He was viewed as a digital expert The UK is becoming more liberal,
who could help cut back the bank’s cost according to the latest World Values
base, but his ideas took time to imple- Survey. Since 2018 there have been
double-digit increases in tolerance of
ment. It was more than a year before he
divorce, abortion and casual sex. Support
unveiled his plan for the business, which for homosexuality also increased
consisted of targeting wealthy clients in
the US and Asia.

Crypto exchange Binance concealed

Musk backs tech industry
call to halt AI arms race
Elon Musk has signed an open letter
along with 1,000 tech executives and
researchers calling for an end to the AI
arms race. Published yesterday by the
Future of Life Institute, a non-profit
campaign group, it urges a ‘pause’ in
development of artificial intelligence
systems such as OpenAI’s GPT. It says
programmers are developing ‘powerful
digital minds that no one, not even
their creators, can understand, predict
or reliably control’.
Call for pause i PAGE 10
extensive links to China for years
SCOTT CHIPOLINA
Binance hid substantial links to China
for several years, contradicting execu-
tives’ claims that the crypto exchange
left the country after a clampdown on
the industry in late 2017, according to
internal company documents seen by
the Financial Times.
Chief executive Changpeng Zhao and
others holding senior positions repeat-
edly instructed Binance staff to hide the
company’s presence in China. This
included an office in use until at least the
end of 2019, and one Chinese bank that
was used to pay some employee salaries.
“We no longer publish our office
addresses . . . people in China can
directly say that our office is not in
China,” Zhao said in a company message
in November 2017, seen by the FT.
The documents underscore the
extent to which Binance, the world’s
largest crypto exchange, has sought to
obscure the extent and location of its
operations as regulators scrutinise cryp-
to-related activity. Zhao has said that
most Binance staff, other than “a small
number of customer service agents”, left
China after 2017 when Beijing intensi-
fied its crackdown on crypto.
The exchange was sued by US regula-
tors this week over allegations that it
had illegally served American clients.
The Commodity Futures Trading
Commission also alleged that Binance
“intentionally” did not disclose the loca-
tion of its executive offices and that
statements that its headquarters were
wherever Zhao was located reflected “a
deliberate approach to attempt to avoid
regulation”.
In late 2019, employees at the com-
pany discussed a media report that
claimed Binance was opening an office
in Beijing. “Reminder: publicly, we have
offices in Malta, Singapore and Uganda,”
one message said. “Please do not con-
firm any offices anywhere else, includ-
ing China.”
Binance told the FT: “It is unfortunate
that anonymous sources are citing
ancient history (in crypto terms) and
dramatically mischaracterising events.
This is not an accurate picture of
Binance’s operations.”
Zhao was born in China but has Cana-
dian citizenship and has publicly denied
that Binance is a Chinese company.
“The original founding team mem-
bers that were based in Shanghai left
China just two months after the com-
pany was organised,” Binance said, add-
ing that it had “never been registered or
incorporated in China”, nor did it have
any technology in the country.

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2 ★
EU research programme
Cash dispute delays Horizon return
London wants reduction of
payment after being kept
out of scheme since 2021
ANDY BOUNDS — BRUSSELS
GEORGE PARKER AND BETHAN STATON
LONDON
The bid to rejoin the EU’s Horizon
research programme — expected to be
one of the early “wins” of the recent
Northern Ireland trade deal — is under
threat because of a dispute over money.
Scientists say membership of the
€95.5bn scheme is vital for research and
investment but Britain has been
blocked since 2021 owing to a row over
post-Brexit trade in Northern Ireland.
Transport
Shapps sticks
with 2030
combustion
engine ban
JIM PICKARD, PETER CAMPBELL
AND ATTRACTA MOONEY
Grant Shapps has vowed to press ahead
with plans to ban the sale of new petrol-
and diesel-engined cars by 2030
despite the EU exploring a possible
exemption for vehicles powered by
“e-fuels” under its own scheme.
Rishi Sunak, prime minister, who will
today unveil measures aimed at boost-
ing energy security and green indus-
tries, has come under pressure from
some Tory MPs to backpedal on the plan
to ban cars solely powered by combus-
tion engines in seven years’ time. Sir Iain
Duncan Smith, former Conservative
leader, said this week that the 2030
deadline was “simply not achievable”.
Brussels this week agreed to intro-
duce an exemption for cars that run on
e-fuel, which are made with captured
CO₂ and hydrogen, into an EU law ban-
ning the sale of combustion engines
from 2035, after Germany threatened to
block it. But Shapps, energy secretary,
said the government was sticking with
its “path” for a transition to electric
vehicles, which would phase out hybrid
vehicles from 2035 and has no exemp-
tion for e-fuels. “That position remains
the same. We’ve always been more for-
ward leaning on this stuff than the EU.”
The car industry had been expecting
the government to announce the details
of a “zero emissions mandate” today,
which would compel them to sell a pro-
portion of electric vehicles from the
start of 2024. But officials said the gov-
ernment planned to launch another
consultation on the mandate this week
to “provide certainty to the sector”.
The broader energy security and
green package will extend a programme
that offers £5,000 grants to households
installing electric heat pumps until
2028, in a bid to encourage a shift away
from gas boilers. But it will not accept a
recommendation in a recent net zero
review by former energy minister Chris
Skidmore to bring forward a ban on gas
boilers from 2035 to 2033.
The government will also announce a
consultation to speed up planning
approvals for solar power and offshore
wind farms.
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rights reserved.
With London and Brussels hailing a
new chapter in relations after the Wind-
sor framework on Northern Ireland
trade was finalised, readmission to
Horizon seemed likely.
However, London is now arguing that
its annual contribution to the seven-
year programme should be reduced
because its late entry has diminished
the value of programme’s returns.
“The EU’s delays over the last two
years have had a damaging and lasting
impact on UK R&D,” the government
said. “Discussions on a way forward will
need to reflect the financial reality that
we have missed over two years of the
seven-year programme.”
As members of Horizon until 2020,
Science scene
‘New chapter’
at Royal
Institution
Making history: The Royal
Institution has been the venue
for scientists, such as Michael
Faraday, right, to announce
important discoveries
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FINANCIAL TIMES
NATIONAL
British institutions received research
grants roughly equal to the govern-
ment’s contribution. During the block,
UK researchers could participate in, but
not lead, Horizon-funded projects, with
their work funded directly by London.
However, the UK contribution to EU
programmes such as Horizon is set
under the terms of the Brexit Trade and
Cooperation Agreement.
Under the terms of the TCA, the UK
must contribute an amount proportion-
ate to the size of its economy, which is
about 18 per cent of that of the EU,
according to statistics agency Eurostat.
Britain had been expected to contrib-
ute £15bn for the full seven-year pro-
gramme. The Financial Times calcu-
The Royal Institution, founded more
than 200 years ago to promote
scientific research and education, is
seeking to put a troubled recent past
behind it and reinstate itself as a
“home for science where everyone will
feel welcome”.
The institution will launch a five-
year strategy today, aimed at
enhancing its mission to “bring the
public and scientists together to share
their interest and passion for science”.
The move follows an overhaul at the
top of the organisation with the arrival
of a new executive team and board of
trustees last year. They aim “to write a
new chapter” in the organisation’s
history, Professor Sir Richard Catlow,
chair, said. This will include reviving
plans to make better use of its
neoclassical headquarters in London’s
Mayfair, which dates to 1799.
At the same time, Katherine
Mathieson, the institution’s director
who joined from the British Science
Association, another national
organisation promoting science to the
public, will focus on providing
managerial stability and strengthening
its finances. She is the fourth director
in the past five years.
“We are projecting a deficit budget
this year and next, but we have diverse
Market shocks
BoE calls on pension funds to bolster bond stress readiness
LAURA NOONAN AND JOSEPHINE CUMBO
The Bank of England has pushed pen-
sion funds to prepare for a bond mar-
ket shock more than twice as severe as
the current stress test in an effort to
avoid a repeat of last year’s gilt market
turmoil.
The recommendation for how to miti-
gate the risk of future blow-ups was
included in the BoE’s quarterly financial
stability update from its Financial Pol-
icy Committee, released yesterday.
The FPC urged pension funds to per-
manently hold liquidity to deal with
future instability. It also concluded that
the banking sector “remains resilient”
and the outlook for household indebt-
edness was better than expected, while
warning of potential issues in global pri-
vate credit markets.
It also reiterated the need for “urgent
action” to address risks in financial
institutions beyond the perimeter of
traditional banking.
While the failures of Silicon Valley
Bank and Credit Suisse have dominated
recent headlines, UK pension funds
have been in the FPC’s crosshairs since
last September’s market turmoil.
lates that according to the TCA, the pro
rata fee for the remaining years of the
programme, which ends in 2027, could
add up to as much as €11bn — equiva-
lent to £9.7bn — depending on when the
UK rejoins Horizon.
Neither the UK nor the European
Commission would confirm the figure.
But reducing London’s contribution
would involve reopening the TCA,
which Brussels refuses to countenance.
People close to Rishi Sunak, the prime
minister, have confirmed he is consider-
ing taking Britain back into Horizon but
say he is “sceptical” about the pro-
gramme and has asked science minister
George Freeman to look into a Plan B,
based on global collaboration.
income streams and our strategy is
scalable,” she said. “We continue to use
our resources to make a charitable
impact and we plan to increase that as
we grow our support.”
The organisation is still recovering
from the effects of the coronavirus
pandemic, which included the
temporary closure of the historic 420-
seat lecture theatre, which has become
familiar to television audiences from
the Christmas lectures broadcast.
In the 19th century, it was the venue
for scientists to announce discoveries.
Michael Faraday revealed photography
as a practical proposition in 1839, while
JJ Thomson announced the existence of
a new fundamental particle, later
called the electron, in 1897.
Pension funds’ liability-driven invest-
ment strategy of using government
bonds to manage risk backfired after Liz
Truss’s tax-cutting Budget triggered an
unprecedented rise in borrowing costs.
The LDI funds, which did not have
any fixed requirements on liquidity
management but had been stress-tested
by the BoE against their capacity to
withstand a 100-basis-points move in
bond yields, were forced to fire-sell gov-
ernment debt, leading to a price spiral.
The BoE has now recommended the
Pensions Regulator act “as soon as possi-
ble” to require LDI funds to hold liquid-
ity buffers that would allow them to
cope with a 250bp move in interest rates
without having to sell assets. The jump
in September was about 160bp.
Simeon Willis, chief investment
officer at XPS, a pension consultant,
said the 250bp threshold would not sur-
prise the sector. “The minimum level of
resilience is lower than most pension
schemes have been working to and as
such this shouldn’t cause any issues for
schemes whose funds were already in
alignment with guidance.”
Reducing the threat of instability in
pension funds is part of the BoE’s wider
Academics, however, insist that the
UK must rejoin the programme. This
month 18 research bodies issued a joint
demand for London and Brussels to get
Britain’s readmission “swiftly over the
line, finally ending the damaging
impasse”.
Vivienne Stern, chief executive of
Universities UK, which represents the
sector, said the EU had accepted “rea-
sonable adjustments” to the cost to UK
should be made.
More than 40 countries are associated
with Horizon, and EU diplomats say
they have to be fair to other late joiners
such as New Zealand. Talks are
expected to begin after Easter and aim
to secure an agreement by June.
Membership, which consists
mainly of people wanting to attend
regular science events, fell to 3,500
from 4,500 pre-pandemic but was
growing again, Mathieson said.
Demand for in-person events was
“increasing strongly month by
month”, and Mathieson was also
looking to expand the body’s
outreach activities, which include
the country’s largest programme
taking science shows to schools.
The institution extended its
online reach during the pandemic,
building a new livestream
programme and seeing the number
of subscribers to its YouTube
channel rise to 1.34mn.
The Grade 1 listed headquarters is
in good condition following a £22mn
refurbishment more than a decade
ago when cost overruns plunged the
RI into a financial crisis from which
it took several years to recover.
Mathieson said the next step was
to improve the energy efficiency of
the building using a £4.35mn grant
from the Greater London Authority.
“We want to be an exemplar of what
can be achieved with the older
building stock that is so prevalent in
London and throughout the UK.”
Clive Cookson
work on containing the risks in non-
bank financial institutions, which
includes hedge funds, private credit,
asset managers and crypto.
In its update, the FPC pointed to risks
in the fast-growing global private credit
market, where higher interest rates,
combined with the fact that borrowers
are typically small and do not have
credit ratings, mean loans are “more
vulnerable to a deteriorating macro
environment”.
The FPC also gave further details of
plans for stress-testing the wider finan-
cial system, an exercise it said would
“investigate the behaviours of banks
Canary Wharf: FPC says it will probe
banks’ behaviour after market stress
Thursday 30 March 2023
Climate change
Carbon tax
co-ordination
signals thaw
in EU ties
GEORGE PARKER, CAMILLA HODGSON
AND JIM PICKARD
Britain and the EU are boosting co-
ordination of efforts to tackle climate
change and respond to a huge US green
subsidy programme, in a sign of warm-
ing relations between the two sides.
Rishi Sunak, prime minister, said this
week that Britain and the EU could co-
ordinate moves on a carbon border tax
that would place a levy on imported car-
bon-intensive goods arriving in Europe.
The government will today launch a
consultation on introducing a “carbon
border adjustment mechanism” as part
of a broader net zero strategy.
Grant Shapps, energy secretary, said
the consultation would address the risk
of future “carbon leakage”, where busi-
nesses move production to a country
with weaker climate regulations in
order to avoid paying a carbon levy.
Sunak told MPs this week the govern-
ment was making progress on a so-
called CBAM, saying the idea was “rea-
sonable and sensible” and that, when he
was chancellor, he had discussed the
issue with German leader Olaf Scholz.
Sunak told the Commons liaison com-
mittee there “may be opportunities for
co-operation” with the EU, just as the
two sides had been in talks over the
emissions trading scheme.
Officials said the aim was to work with
like-minded countries and that the UK
and EU were giving serious considera-
tion to linking their carbon pricing sys-
tems. “It makes sense,” said one.
Meanwhile, Kemi Badenoch, trade
secretary, held talks yesterday with
Valdis Dombrovskis, EU trade commis-
sioner, to discuss a co-ordinated
response to US president Joe Biden’s
Inflation Reduction Act.
People close to Badenoch said Biden’s
$369bn subsidy programme threw up
similar challenges for the EU and UK,
along with other Washington allies, such
as Australia and Japan. Jeremy Hunt,
chancellor, told MPs he would publish a
full response to the IRA this year. “That
doesn’t necessarily mean matching sub-
sidy for subsidy, but it means that mak-
ing sure the overall package, which
means people choose to invest in the
UK, remains attractive,” he said.
Discussions between London and
Brussels on climate-related issues are
the latest signal of improving EU-UK
relations after the resolution last month
of a corrosive row over post-Brexit trad-
ing relations in Northern Ireland.
The Treasury raised the prospect of a
CBAM in its net zero review in October
2021, but warned that the process could
be hugely complicated to implement.
The EU’s CBAM, which is close to
approval and will start levying charges
in 2026, has already proved controver-
sial. China has asked for discussions at
the World Trade Organization, saying it
could be discriminatory.
The tax seeks to level the playing field
for the domestic companies regulated
by the EU’s emissions trading system by
imposing a levy on imports of carbon-
intensive products. The similar designs
of the UK and the EU emissions trading
systems leaves open the possibility of
formally linking the two.
Sarah Williams of Green Alliance, an
environmental organisation, said link-
ing the UK and EU “carbon pricing sys-
tems makes a lot of sense”.
Additional reporting by Sylvia Pfeifer
and non-bank financial institutions fol-
lowing a severe but plausible stress to
financial markets”.
Unlike the annual banking stress
tests, the exercise will not make findings
on specific companies but rather assess
the vulnerabilities of the system.
The FPC reiterated its call for
“urgent” global work on the resilience of
non-bank financial markets, warning
there were “vulnerabilities” in parts of
that ecosystem that “could crystallise
should there be further volatility or
sharp movements in asset prices”.
The FPC opted not to allow banks to
release a crisis-time capital buffer to
shore up lending but said it would
“monitor the situation closely”.
It added it would be ready to adjust
the buffer “in line with the evolution of
economic and financial conditions”. The
FPC said it had seen only limited evi-
dence of banks cutting back on lending.
Charles Counsell, chief executive of
the Pensions Regulator, welcomed the
FPC recommendation: “I am pleased
this builds on the guidance we . . . put in
place in November. We will be issuing
updated guidance on LDI in April.”
Markets page 13
Thursday 30 March 2023 ★ FINANCIAL TIMES 3

NATIONAL

Cross-Channel migrants will be sent

Treasury

Hunt offers
to military bases rather than hotels new funds for
public sector
pay deals
Ministers hope move will act as deterrent and cut accommodation costs of £6mn a day
CHRIS GILES, GEORGE PARKER AND
WILLIAM WALLIS AND ROBERT WRIGHT BETHAN STATON

Jeremy Hunt suggested yesterday that

The government raised the stakes in its
battle to curtail cross-Channel migra-
tion yesterday, promising to limit the
use of hotels to house asylum seekers
and begin moving them to military
bases and, potentially, barges instead.
In the latest announcement linked to
the contentious “illegal migration bill”,
immigration minister Robert Jenrick
used strong rhetoric to outline plans to
toughen the asylum system and crack
down on people smugglers.
“I see these people and the work that
they do every day,” Jenrick said of traf-
ficking gangs. “They are some of the
most evil, pernicious people in society.
You have to match them. You cannot
behave in a way that’s weak and naive.”
The risk for the government is that for
all the tough talk and damage incurred
to Britain’s reputation for respecting
human rights, the problem — a priority
for Prime Minister Rishi Sunak — con-
tinues to worsen, and the number of
arrivals keeps growing. Some 3,770 peo-
ple have arrived by small boat this year,
despite bad weather, according to the
Ministry of Defence, on top of a record
of more than 45,000 in 2022.
Jenrick indicated that by moving asy-
lum seekers from hotels, where they are
housed at a cost of more than £6mn a
day, to repurposed military bases, the
government hopes to make Britain a
less appealing destination.
The country could not risk, he said,
becoming a magnet for “millions of peo-
ple” who were “displaced and seeking
better economic prospects”.
There is near universal agreement
among political parties and local
authorities that the use of hotels to
house about 150,000 asylum seekers,
many awaiting decisions on their
claims, is unsustainable.
The use of hotels is also politically
charged, with Conservative backbench-
ers among those complaining that the
policy has adversely affected tourism
and inflamed local tensions. The £2.3bn
the policy cost last year, according to
Jenrick, has eaten away at an already
scaled-back overseas aid budget.
But there remains deep scepticism
among migration experts, charities and
immigration lawyers that the crack-
down will achieve its aim of deterring
people smugglers and repelling clandes-
tine migrants.
“Setting aside people from Albania,
there are loads of other people who
come from a long way who are in des-
perate circumstances and who have
gambled everything and money,” said
Sir David Normington, former perma-
nent secretary at the Home Office.
“They might just continue to gamble,
get in boats and come across if they see
people are not being dealt with quickly
and not being deported.”
The new legislation promises to bar
clandestine migrants from claiming
asylum altogether, in breach of interna-
tional obligations, according to the UN
refugee agency, and remove them to
Crossing danger: their countries of origin or safe third
migrants picked countries.
up in the Britain has a returns agreement with
Channel could Albania and last year struck a deal with
be sent to Rwanda for the removal of asylum seek-
bases such as ers. But Sunak this week played down
Catterick expectations about how quickly the deal
Garrison, below with Kigali would get off the ground. It
Ben Stansall/AFP/Getty
Images; APS (UK)/Alamy
has few other existing options for
removing clandestine migrants.
“The government is taking a big gam-
ble. If they still come in substantial
numbers and are not processed quickly
enough, the numbers [needing accom-
modation] will keep growing very
quickly,” Normington said.
The Home Office said two military
bases in Lincolnshire and Essex would
each accommodate about 200 people,
initially, with capacity gradually
increasing to 1,700 and 2,000, respec-
tively. Catterick Garrison in Sunak’s
Yorkshire constituency would also be
used down the line, it said, as would a
former prison in Bexhill, East Sussex.
But the space available goes nowhere
near matching the scale of demand for
accommodation. The Refugee Council,
a charity, found that if irregular migra-
tion to Britain continued at current lev-
els, and the backlog of asylum cases
remained unaddressed, more than
190,000 people “could be detained or
forced into destitution” in the first three
years of the crackdown. Most of these
arrivals would be refugees, they added.
The potential cost of detaining and
accommodating people who could not
be removed to other countries would
reach £9bn, it said, even assuming
30,000 people were sent to Rwanda.
‘This “These announcements . . . won’t
address the challenges of the system the
thoroughly government itself admits is failing due
bad to its own mismanagement,” said Enver
Solomon, chief executive of the Refugee
decision is Council.
not based Use of former military facilities has
also drawn opposition from MPs whose
on good constituencies are affected. Local coun-
governance cils in both Essex and Lincolnshire are
seeking injunctions to block the Home
but the Office from using them.
politics of “This thoroughly bad decision . . . is
not based on good governance but the
trying to do politics of trying to do something,” the
something’ Conservative MP Sir Edward Leigh said
of plans to use the former air base in his
Edward Leigh, Lincolnshire constituency.
Tory MP Briefings in advance of yesterday’s
announcement had suggested the gov-
ernment would also use industrial
barges to house asylum seekers. Jenrick
admitted in the Commons that there
were, as yet, no barges.
The question, said Jed Pennington, a
human rights and immigration lawyer,
was what happens if the boats keep
coming? “In terms of removing rights
and legal protections there isn’t really
anywhere to go after this,” he added.
the Treasury would find new money to
settle a wave of public sector strikes, as
schools were told an extra £680mn
would fully fund an improved pay offer
to teachers.
Hunt told MPs that Whitehall depart-
ments could ask for new money and did
not necessarily have to finance all pay
deals from their existing budgets.
His comments address a key concern
of public sector workers demanding
higher pay amid the cost of living crisis.
In response to questions from MPs on
the House of Commons Treasury com-
mittee, Hunt made it clear that he was
willing to find new money for public sec-
tor pay deals once they were agreed.
“When we settle [the disputes], there
will be a negotiation with departments
as to how much [of the additional cost]
is borne by additional support from the
Treasury and how much is borne by effi-
ciencies and reprioritisations in depart-
ments,” he said.
The NEU, England’s largest teaching
union, on Monday urged members to
reject the government’s latest pay offer
partly on the grounds that schools
would have to make cuts to fund it.
But Whitehall insiders insisted yes-
terday the offer would be fully funded
by the government. They said schools
would be given an additional £150mn to
top up budgets for next year’s pay offer,
which would on average provide teach-
ers with a 4.5 per cent wage rise.
Ministers argue the bulk of an earlier
offer of a 4 per cent rise was already cov-
ered by a £2bn cash injection set out by
Hunt in his Autumn Statement.
On Monday ministers announced an
extra £530mn to fund a £1,000 one-off
bonus for teachers this year, bringing
the total new money for the latest pay
offer to £680mn.
Hunt’s allies said the money would be
found from the education department’s
non-school budget or elsewhere in the
government’s overall “spending enve-
lope”. Taxes would not rise to pay for it.
Kevin Courtney, NEU general secre-
tary, disputed that the £680mn meant
the pay offer was fully funded. “Even
with the additional funding, schools
would still be out of pocket to fund the
whole pay rise,” he said. The union con-
tinued to object to the offer on the basis
the rise was insufficient, he said.
The Treasury had insisted that all
money for public sector pay deals to end
the wave of industrial action must come
from within existing Whitehall budgets,
but recently softened its stance in rela-
tion to NHS workers.
On Tuesday Steve Barclay, health sec-
retary, said he was “working with the
Treasury to ensure my department has
the money it needs to fully fund” a
higher than expected offer to NHS staff.
Health department insiders claimed
the Treasury had agreed to provide an
additional £3bn to help fund the NHS
deal, although Hunt’s allies insisted
talks with Barclay had not concluded.

Resolution Foundation Scotland Post-Brexit deal

Inferior public services
blamed on low investment
VALENTINA ROMEI
ECONOMICS REPORTER
The low level of public investment has
left the country in a “poorer” state
compared with other nations, with not
enough hospital beds, dire transport
links and inadequate housing, accord-
ing to a new report.
Government investment averaged
2.5 per cent of gross domestic product
each year this century, said the Resolu-
tion Foundation think-tank. That is well
below the 3.7 per cent average for indus-
trialised countries and the UK was con-
sistently among the weakest third of
OECD nations, the report found.
“Britain’s record on public invest-
ment is one of long-term failure,” said
James Smith, research director at the
Resolution Foundation and author of
the report. “Our investment levels are
too low and too volatile. As a result, we
are left with overwhelmed hospitals,
often terrible public transport and a
chronic shortage of housing.”
UK hospitals have fewer beds relative
to the country’s population than all but
one OECD advanced nation, according
to the report.
Inadequate capital spending by the
government has held back the economy,
through poor public transport links and
significant congestion, with workers
spending more time commuting than
those in all but two OECD advanced
countries, it said.
Weak investment has also affected
housing, with the stock of affordable
homes relative to the number of fami-
lies nearly halving since the 1980s.
This long-term failure to invest in
transport, housing, healthcare and local
services “has clear consequences in our
day-to-day lives, and has made Britain
poorer”, the report concludes.
The Resolution Foundation estimated
that had public investment matched the
OECD average over the past two dec-
ades, it would have been £500bn higher
in today’s prices.
The report said total capital spending
— private as well as public — relative to
the size of the economy had been below
that of other industrialised countries for
decades, contributing to economic stag-
nation since the 2008 financial crisis.
It highlighted how government
investment plans were often announced
and then scrapped before they were
implemented, resulting in highly vola-
tile capital spending. As a result, the
government on average failed to spend
about £1 in every £6 it planned to.
In response to the report, the Treas-
ury said that despite “tough decisions
we’ve taken to stabilise the public
finances, we are maintaining record lev-
els of capital investment with £600bn
over the next five years”.
Yousaf rewards allies with
key cabinet appointments
LUKANYO MNYANDA AND MURE DICKIE
EDINBURGH
Humza Yousaf announced his cabinet
yesterday, rewarding colleagues who
backed his bid to lead the Scottish
National party and retaining key fig-
ures who served under his predecessor,
Nicola Sturgeon.
The new first minister, who billed him-
self as custodian of many of Sturgeon’s
flagship social policies, bolstered his
progressive credentials by appointing
the first Scottish government cabinet
with a majority of women.
After being sworn in, Yousaf will now
seek to rebuild the pro-independence
SNP’s reputation for governing compe-
tence. “I have committed myself to a
radical, ambitious and progressive pol-
New team: Humza Yousaf, bottom
centre, with his cabinet yesterday
icy agenda for Scotland, and I know that
this team is the right one to deliver it,”
he said.
Gerry Hassan, professor of social
change at Glasgow Caledonian univer-
sity, said Yousaf might struggle to con-
vince Scots that the SNP would deliver
improvements in health and education
after nearly 16 years in power. “Turning
round a big ship that’s been going off
course is a big ask,” he said.
Yousaf has promised to heal divisions
exposed during the often bitter leader-
ship contest.
His main rival in the race, former
finance secretary Kate Forbes, strongly
criticised Yousaf’s record in govern-
ment. While Forbes said she backed
Yousaf, she declined his offer to serve as
rural affairs secretary, a more junior
position.
Yousaf appointed Shona Robison, a
close friend and ally of Sturgeon, as
finance secretary. Màiri McAllan, a ris-
ing star in the SNP, was promoted to sec-
retary for net zero. Six of the 10 cabinet
portfolios went to women.
Yousaf made Neil Gray, the former
culture minister and his campaign man-
ager, cabinet secretary for the wellbeing
economy. Michael Matheson becomes
health secretary. Angus Robertson, who
served under Sturgeon as constitution
secretary, retained the post.
Robert Shrimsley page 23
Britain on final stretch to
join Pacific trade grouping
GEORGE PARKER — LONDON
LEO LEWIS — TOKYO
Britain is poised to join an 11-member
Asia-Pacific trade bloc, with accession
talks set to be wrapped up by the end of
the week.
Officials said talks to join the Compre-
hensive and Progressive Agreement for
Trans-Pacific Partnership were reach-
ing the “end game” stage, while one told
the Financial Times: “The deal is done.”
Accession to the group will bolster
Rishi Sunak’s argument that Brexit has
allowed the UK to pursue a new trade
strategy, while also enhancing the
prime minister’s foreign policy “Asia-
Pacific tilt”.
However, the economic gains are min-
imal, according to the government’s
own projections, and will do little to off-
set the European trade losses incurred
as a result of Brexit.
The government estimates that the
deal will increase gross domestic prod-
uct in the long term by 0.08 per cent,
although it said that could increase if
Thailand and South Korea later joined
the group.
Current membership of the CPTPP, a
trade agreement signed in 2018, is Aus-
tralia, Canada, Japan, Mexico, New Zea-
land, Singapore, Brunei, Chile, Malay-
sia, Peru and Vietnam.
The deal could also be contentious.
The FT reported this month that, as part
of the agreement, Britain would elimi-
nate import tariffs on palm oil from
Malaysia, a product blamed for wide-
spread deforestation.
Officials declined to comment on the
terms of the deal before it was finalised.
Diplomats in one CPTPP member state
said the agreement, first reported by
Politico, would be wrapped up by the
end of the week.
Government data showed that in
2020 the 11 CPTPP countries were the
destination of 8.4 per cent of UK exports
of goods and services and the source of
6.8 per cent of imports.
Although trade deals have been
touted as one of the big “benefits of
Brexit”, they have done little to compen-
sate for the barriers to trade erected by
Britain’s departure from the EU.
Official forecasts suggest that Brexit
will lead to GDP being 4 per cent lower
in the medium term, a loss that dwarfs
the economic benefits of doing a deal
with countries on the other side of the
world.
However, Sunak views the agreement
as economically and strategically
important, giving Britain a new role in a
region dominated by China.
Downing Street confirmed that talks
to join CPTPP were “progressing well”
and that a further meeting would take
place by the end of the week.
4 ★ FINANCIAL TIMES Thursday 30 March 2023

INTERNATIONAL

Financial crackdown Russian invasion

German agency to chase white-collar crime Kyiv suspects

Berlin reacts to criticism
with tougher body to
tackle money laundering
Action Task Force, a Paris-based inter-
governmental agency that sets stand-
ards for limiting money laundering and
the financing of terrorism.
auditors. Germany’s existing anti-
money laundering agency, the Financial
Intelligence Unit, will be integrated into
the BBF, which will also be responsible
large-volume, complex, systematically
organised [crimes] . . . that are planned
from Germany or have some kind of
German connection”, he said.
China ‘testing
agencies. “Priority should also be given ground’ on
role to play in
to mitigating the risks associated with
the high use of cash in the country and
the use of informal money or value

GUY CHAZAN — BERLIN

Germany is to establish a new beefed-up
anti-money laundering authority, after
widespread criticism of its failure to
crack down on white-collar crime.
The new agency will be called the Fed-
eral Authority for Fighting Financial
Crime, or BBF in German. It will be
guided by the principle of “follow the
money”, said a senior official.
The move follows a critical report
issued last August by the Financial
It said Berlin needed to “do more to
proactively and systematically investi-
gate and prosecute money laundering
activity, in line with [its] risk profile”.
The creation of the agency also fol-
lows the fall of payments giant Wire-
card, whose collapse in 2019 turned into
the biggest accounting scandal in Ger-
many’s postwar history.
Laws passed in the wake of Wirecard’s
collapse granted financial watchdog
BaFin extensive powers to probe the
accounts of Germany’s most important
listed companies and tightened rules for
for enforcing international sanctions.
The FIU has long been under fire for
its slowness in dealing with reports of
suspicious financial activity. German
media reported last year that it was sit-
ting on a backlog of more than 100,000
such reports. Officials said that by
March 21, that had been cut to 30,000.
“The aim of the new agency . . . is to
strategically realign the fight against
money laundering in Germany,” a sen-
ior official said. The authority would
“concentrate on meaningful cases of
international money laundering . . .
Retirement. Reforms
“Where we see suspicious activity on
financial markets, in payment flows, in
carousel or securities transac-
tions . . . we will investigate it along the
money flows.”
Money laundering has long been seen
as a serious problem in Germany, where
cash is used in many transactions that in
other countries would occur digitally.
In its report last year, the FATF said
domestic co-ordination across Ger-
many’s 16 states was a “challenge” and
called for better co-operation between
its supervisory and law enforcement
transfer services,” it said.
The head of the FIU, Christof Schulte,
resigned last December after the gov-
ernment admitted that the FATF had
been kept in the dark about the extent of
the backlog of cases at the agency.
Schulte will be succeeded by Daniel
Thelesklaf, a Swiss citizen whom
finance minister Christian Lindner has
said is a “proven expert in the fight
against money laundering”.
The finance ministry will submit a bill
on the creation of the new authority to
the Bundestag in the coming months.
peace process
BEN HALL AND GIDEON RACHMAN
KYIV
China is still “testing the ground” on
whether it wants to engage fully in a
peace process to end Russia’s war
against Ukraine, the Ukrainian foreign
minister has said.
Dmytro Kuleba said Beijing had not yet
decided whether to invest fully in brok-
ering a negotiated end to the war or to
intensify its support for Moscow, includ-
ing through the supply of weapons.
“China is testing the ground, in terms
of the peace process, whether the
moment has come for them to play a

Spain asks young to pay for pensions shortfall
Madrid to raise contributions
rather than cut benefits as
population ages and costs soar
BARNEY JOPSON — MADRID
Spain is forging ahead with pension
reforms that include a contentious fix
for years of expensive promises to reti-
rees: making younger people pay more.
While France is in revolt over plans to
lift the minimum retirement age from
62 to 64, Spain’s has been at 65 for dec-
ades, leaving it searching for other ways
to shore up a creaking pension system
while being fair to young and old.
Having repealed 2013 reforms that
became politically intolerable for cut-
ting the benefits of today’s retirees, the
Socialist-led government will today ask
lawmakers to approve a package that
seeks more from younger generations.
José Luis Escrivá, pensions minister,
said the measures would move from
“the traditional paradigm of pension
reform”, calling France’s bid to raise the
retirement age an old-school approach.
Adopting measures eschewed by
France, Spain will pull new money into
the pensions pot from companies and
employees, especially the highest-paid,
then use it to reduce injustices such as
the punitive impact of missed contribu-
tions on women who gave up jobs to
look after children.
“We have created revenue-generating
measures that will strengthen the sys-
tem so that we can finance additional
spending increases,” Escrivá said.
But there is controversy over one
source of revenue called the “intergen-
erational equity mechanism”. Although
its name hints at redistribution from
older to younger people, it involves peo-
ple in work having to contribute more to
the social security system.
“Most experts think the title of this
mechanism is perverse. It is just the
opposite,” said Rafael Domenech, an
economist at bank BBVA who advised
on the repealed 2013 reforms, which
were passed by a conservative People’s
party (PP) government.
Escrivá says Spain’s efforts exemplify
the impossible dilemmas faced by many
European countries: how to balance
decent pensions for existing retirees,
intergenerational fairness for young
people and financial sustainability.
Achieving two of these goals tends to
be manageable. Securing all three is
Demonstration: hard. Certain features of Spain make its
a pensions challenge tougher, starting with the urg-
protest this ency of reducing its public debt, equal to
month in 116 per cent of gross domestic product.
Barcelona. Another is that Spain has not fostered
Unlike France, a competitive market for 401(k)-style
Spain will pull private pensions seen in the US or em-
new money into ployer-based plans. That means the eld-
the retirement erly’s dependence on state pensions,
pot from with active workers financing the bene-
companies and fits of retirees, is higher than elsewhere.
employees Partly for this reason, the benefits of
Ximena Borrazas/SOPA existing pensioners are comparatively
Images/LightRocket/
Getty Images generous. The size of their pensions
equates to 80 per cent of net pre-retire-
ment income, ahead of France’s 74 per
cent and an average of 62 per cent in the
OECD club of countries.
The European Commission has made
a fairer and healthier pensions system a
prerequisite for getting billions of euros
of EU recovery funds. Brussels has yet to
review the latest reforms.
Airef, Spain’s fiscal watchdog, last
week said the reforms would not pay for
themselves and would increase Spain’s
budget deficit by 1.1 percentage points
of GDP by 2050. The demographic pres-
sures are stark. Today in Spain, there
are three people of working age for each
Spain’s government says its reforms will improve public finances
Public spending on pensions as a % of GDP
2023 30
Spanish retirees make up 20% of the population, rising
to 30% by 2050
Population by age and sex, 2022 and 2050* (’000)
Baby boomers 50
400 300 200
* Projection
Sources: Ministry of Inclusion, Social Security and Migrations; INE
pensioner; by 2050 that dependency
ratio will be just 1.7 to one. Spain’s high
life expectancy of 83 is behind the fall,
and the fact its baby boom came late.
Although its civil war ended in 1939,
Spain did not experience the surge in
pregnancies that followed the end of the
second world war elsewhere. Instead,
the birth rate in the first years of Fran-
cisco Franco’s military dictatorship did
not climb until the economy began to
take off in the late 1950s. Spain’s first
baby boomers are just starting to retire.
Politicians have given today’s pen-
sioners an immovable promise, limiting
options for reform. In a letter to them
last year, Escrivá wrote: “Whatever the
circumstances, you must be sure that
the purchasing power of your pension is
always guaranteed.”
His sentiments reflected a consensus
over the 2013 reforms on the political
left. To limit costs, they had introduced
mechanisms to cap monthly pension
payments when the system was in defi-
cit and reduce benefits as the average
lifespan increased. These reforms had
been due to come into force in 2019 but
as soon as it came to cutting the pen-
sions of 10mn who vote, the Socialist-led
role or not,” Kuleba said.
Beijing has still not agreed to Ukrain-
ian president Volodymyr Zelenskyy’s
request for a talk with Chinese leader Xi
Jinping despite China’s attempt to posi-
tion itself as potential peacemaker. The
leaders have not spoken since Russia’s
full-scale invasion in February last year.
Western capitals have expressed
17
Without reforms
scepticism about China’s statement of
16 principles for ending the war, which it
issued last month. But officials in Kyiv
15 are keen to engage with Beijing.
14 Kuleba said China foreign minister
Qin Gang earlier this month assured
13 him that China would not provide weap-
After reforms
12 ons to Russia. Kyiv has seen no evidence
it is already doing so.
11 But Kuleba said he made clear to Chi-
40 50 60 70 nese officials “it is very inappropriate to
try and put on the same footing the mili-
tary support provided to Ukraine and
military support provided to Russia”.
He added: “Ukraine is exercising its
Age right to self-defence to protect its terri-
2050 2050 torial integrity. And therefore countries
100+
90 who provide weapons to Ukraine, they
80 help to defend the UN Charter.”
Male 65+ 70 Female 65+
60 Countries providing arms to Russia
Baby boomers would “become accomplices in the
40 crime of aggression and in the violation
30 of the territorial integrity of a sovereign
20
2022 10 2022 country,” he said.
0 “If the fundamental principle of the
100 0 0 100 200 300 400 Chinese foreign policy is respect for ter-
ritorial integrity, then we don’t see any
kind of rational explanation or argu-
ment why it is legitimate to provide
‘It’s not government voted to scrap them in weapons to Russia.”
2021, but the PP opposed the decision. Days before the invasion, China’s
about being That left pensions linked just to infla- president referred to a “no limits part-
generous. tion. As such, they rose 8.5 per cent in nership” with his Russian counterpart,
January, better than the average rise of Vladimir Putin, and Xi visited Moscow
It’s about about 3 per cent for salaried workers. on a state visit last week in a show of
making sure The average payment is now €1,191 per support for the Kremlin. But Kuleba
month and the maximum €3,059. said Ukraine’s intelligence assessment
pensioners “It’s not about being generous. It’s was that Russia was “completely furious
have a about making sure pensioners have a with Chinese attitudes and the lack of
dignified life,” said Fernando Luján of support coming from China”.
dignified the UGT union. China “will not allow Russia to col-
life’ The CEOE, Spain’s business lobby, lapse” but “they need a weak Russia to
complains not only about employers make concessions to China, to provide
having to make more social security their resources”, he added. Russian oil
contributions, but also highlights the and gas exports to China have rocketed
raw deal for the young. Rosa Santos, over the past year as western markets
labour relations director at the CEOE, have been all but closed off.
described the intergenerational equity Ukraine is gearing up for a counter-of-
mechanism as a tax. Young people “are fensive later this spring to drive Russian
going to have to work more years [for] troops out of the south and east of the
the same pension as current pensioners, country. For many, it is seen as a key
and that’s the best-case scenario . . . hav- moment for Kyiv to achieve a break-
ing contributed more to the system”. through or risk leaving a stalemate that
Madrid calculates the reforms would deters further US and European sup-
add €5,300 to the pension of someone port. Kuleba said the narrative of a
who is 60 today but give a 25-year-old an make-or-break moment was dangerous
extra €20,000. As long as the benefits of for Ukraine, as if it failed, it would help
current retirees are untouchable, it may those in the west who want to push Kyiv
be the best deal young people can get. into a compromise with Moscow.

Europe

Ukraine’s neighbours grapple with glut of tariff-free grain

STEPHEN MCGRATH — BUCHAREST
BARBARA ERLING — WARSAW
Ukraine’s tariff-free access to the EU
has caused a grain glut in neighbouring
countries, leading to complaints that
Brussels is offering farmers too little
compensation.
The flow of cheap imports began after
the invasion last year when the EU
scrapped customs duties and quotas on
Ukrainian grain and rerouted some
shipments Russia had been blocking in
Black Sea ports via the Polish and Roma-
MAKE A WISE INVESTMENT nian road and rail networks.
“Farmers in Romania are the most
impacted by the transit of grain coming
in from Ukraine,” said Alexandru Baciu,
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• React to trusted global news everywhere you south-east Romania. “They have depos-
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home or office from Monday to Saturday we have not managed to sell last year’s
• Enjoy our award-winning lifestyle journalism harvest because of this transit issue.”
with FTWeekend At a European Council meeting in
Brussels last week, the European Com-
Subscribe today at ft.com/subscribetoday
mission proposed that affected EU
farmers receive a total of €56.3mn to
mitigate the effects of an “excessive sup-
ply” of Ukrainian grain imports. Bul-
garia would be offered €16.7mn, Poland
€29.5mn and Romania €10mn.
In late January, Bulgaria, the Czech
Republic, Hungary, Poland, Romania
and Slovakia pressed Brussels for an
“urgent response” to address the impact
of a “significant increase” in Ukrainian
grain on local markets.
Romanian president Klaus Iohannis
said Brussels was ignoring the “huge
sacrifices” being made in facilitating
Ukraine’s exports and asked for more
than €10mn, which was “tiny, if not to
say a mockery of the issue we face”.
Romanian trade groups echoed this
sentiment. The Forum of Professional
Farmers and Processors has threatened
nationwide protests next month over
what it called a “derisory” offer.
During a visit to Bucharest on Mon-
day, Charles Michel, European Council
president, praised the role Romania had
played in setting up export routes and
bringing vital revenue to Ukraine. “But I
know this has adversely affected Roma-
nian farmers,” he said. “We should look
into increasing this amount.”
Mateusz Morawiecki, Poland’s prime
minister, who was visiting Bucharest
yesterday, said the offer was “inade-
quate” and called on Brussels to “help us
more”. EU members are set to vote on
the farmers’ aid package today.
In Poland, Ukrainian imports have
been particularly destabilising in the
south-east. “Neither the Polish govern-
ment nor the EU is aware of the serious-
ness of the situation,” said Michał
Kołodziejczak, leader of Agrounia, a
farmers’ movement. Poland should
admit Ukrainian grain only if it was
bound for other markets, he said.
Ukrainian imports had driven down
local grain prices. “Last year grain prices
were around 1,500 zlotys ($346) a
Constanța: grain lorries have been
queueing around the Romanian port
tonne, today prices are well below 1,000
zlotys, they even reach 750 zlotys.”
Lech Sprawka, governor of Lublin
region, which borders Ukraine, said
Poland was failing to re-export most of
the Ukrainian grain. Sprawka told TOK
FM radio that of 800,000 tonnes that
entered Poland this year, only about
4,000 tonnes were re-exported outside
the EU, to Africa and elsewhere.
Farmers recently pelted Henryk Kow-
alczyk, Poland’s agriculture minister,
with eggs, calling him a traitor and
accusing him of destroying their liveli-
hoods. Opposition lawmakers have
called for his resignation. The ministry
was yesterday scheduled to hold talks
with farmers on issues including subsi-
dies for deliveries of grain to seaports.
Logistics has become a pressing issue
in Romania, where ports handling
Ukrainian grain were “full of goods”
they cannot handle, said Cezar Gheo-
rghe, an adviser to the agriculture min-
istry. Drone footage shot near the
Romanian Black Sea city of Constanța
shows lorry queues stretching around
the port. “In my 20 years of career in
agribusiness, I did not see [queues] like
that,” said Gheorghe.
Thursday 30 March 2023 ★ FINANCIAL TIMES 5
6 ★ FINANCIAL TIMES Thursday 30 March 2023

INTERNATIONAL

American Jews
in backlash over
Netanyahu’s
judicial reforms
Group that is politically diverse but
normally supportive criticises Israeli PM
FELICIA SCHWARTZ AND JAMES POLITI
WASHINGTON
Benjamin Netanyahu’s attempt to over-
haul Israel’s judicial system has sparked
a backlash among some of the country’s
most ardent backers in the US, straining
support that has been at the core of its
security strategy for decades.
The recent criticism is remarkable in
that it is coming from a politically
diverse group of American Jews that has
for the most part been steadfast in its
defence of Israel, even as the country
faced mounting condemnation of its
treatment of Palestinians.
What has shaken the US Jewish com-
munity so much this time is the sense
that Netanyahu is trying to undermine
Israel’s democratic institutions.
“We love Israel but we’re not going to
watch as Israel’s democratic founda-
tions are weakened, if not undermined,”
said Rabbi Rick Jacobs, president of the
Union for Reform Judaism, dubbing
recent events as a “key inflection point”.
He added: “We can’t imagine a Jewish
state that isn’t democratic and yet there
are people who can.”
Netanyahu has bolstered his leader-
ship credentials in Israel by touting his
sophisticated understanding of US
political dynamics, frequently suggest-
ing his rivals at home might mishandle
relations with Washington when polls
show many Israelis have security issues
uppermost on their minds.
But critics argue he planted the seeds
of the recent break with American Jews
by overtly inserting himself into an
increasingly polarised US political
scene, by showing contempt for then
president Barack Obama, then by em-
bracing his successor, Donald Trump.
Among the high-profile defenders of
Israel who have spoken out recently is
former New York mayor Michael
Bloomberg, who said Israel’s govern-
ment was “courting disaster”. Miriam
Adelson, wife of the late US casino mag-
nate and mega Republican donor Shel-
don Adelson, said Netanyahu’s hasty
rush to enact changes was “naturally
suspect” and that “bad motivations
never bring good outcomes”.
Zeke Emanuel, an oncologist and
bioethicist at the University of Pennsyl-
vania and a prominent Jewish American
whose brother is Rahm Emanuel, the US
envoy to Japan, said he saw eroding sup-
port for Israel within his own family.
“A lot of American Jews don’t identify
with this regime . . . and I think that’s a
real problem,” said Emanuel, at the
weekend’s protests while visiting Israel.
Emanuel, a former government
health official, added: “I look at my
daughters, my nieces and my nephews.
Unlike me, we were clamouring to come
to Israel, we felt free in Israel, they don’t.
They’re not clamouring to come, they’re
not taking their children, they don’t see
it as essential.”
David Friedman, the US envoy to
Israel during the Trump administration
who is close to Netanyahu, described
the past few days and weeks as “one of
the hardest things I’ve had to watch”.
“We see the whole of Israel as a mira-
cle and as something that is at the core of
our Jewishness, and watching that social
A protest at the fabric disintegrate was more painful tion League, the American Jewish Com-
Israeli consulate than if Israel were attacked by an enemy mittee and the Jewish Federations of
in New York on from the outside,” Friedman said. He North America this week called the last
Monday. Below, supports some of the changes but called three months “painful” and urged
2016, Benjamin the implementation process “botched”. Israel’s parliament to build consensus in
Netanyahu and Four top American Jewish organisa- the months ahead.
Barack Obama tions have also weighed in. The Confer- This week, Israel’s prime minister
Leonardo Munoz and Jim
ence of Presidents of Major American said he would suspend the reforms fol-
Watson/AFP/Getty Images
Jewish Organizations, the Anti-Defama- lowing widespread protests, saying he
wanted “to avoid civil war through dia-
logue”. But many concerns remain.
Jacobs of the Union for Reform Judaism
pointed out: “I was relieved, but not
entirely. There was a commitment to
delay but not a commitment to discard.”
The crisis peaked after Netanyahu
fired his defence minister, bringing tens
of thousands on to Israel’s streets as the
country temporarily shut down amid
mass strikes. But tensions with Ameri-
can Jews had already been mounting.
When Netanyahu returned to power
late last year, he formed what is argua-
bly the most rightwing government in
the country’s history, including minis-
ters from far-right and ultra-Orthodox
parties. This further hurt ties with
‘Watching American Jews who largely identify as
liberal and vote Democratic.
that social Adding to the schisms were provoca-
fabric tive statements by government minis-
ters such as Bezalel Smotrich in the
disintegrate defence ministry who said Israel should
was more “wipe out” the Palestinian town of
Huwara. More than 120 Jewish leaders
painful signed a letter opposing his planned
than if visit to the US. It went ahead, but he was
shunned by major Jewish groups.
Israel were “Most of the American Jewish com-
attacked by munity has deep reservations on Net-
anyahu’s politics,” said Jon Alterman,
an enemy director of the Middle East program at
from the the Center for Strategic and Interna-
tional Studies. “The American Jewish
outside’ community tends to skew left and the
Israeli Jewish polity is moving right.”
In Congress, there has been bipartisan
pressure on Netanyahu to back off. Mitt
Romney, the Republican senator from
Utah, joined Chris Murphy, a Connecti-
cut Democrat, this week welcoming the
reforms’ postponement. President Joe
Biden said of them on Tuesday: “I hope
he [Netanyahu] walks away from it.”

Pre-election pledge

Erdoğan slashes Turkey’s energy bills

ADAM SAMSON — ANKARA
Recep Tayyip Erdoğan has said his gov-
ernment will cut energy bills for con-
sumers and companies in the Turkish
president’s latest attempt to ease the
cost of living crisis weeks before a hotly
contested election.
Residential and business electricity
rates will be cut by 15 per cent next
month, while industrial groups will
receive a 20 per cent discount on their
natural gas bills, Erdoğan said in parlia-
ment yesterday.
The stimulus measures come as con-
sumers face a squeeze from severe infla-
tion that has caused the price of every-
thing from groceries to housing to soar.
Erdoğan’s unconventional economic
policies have inflamed the inflation cri-
sis and weakened the currency, which
has weighed heavily on his popularity.
He is set to face his toughest election
during his two decades in power on May
14. Several of Turkey’s leading opposi-
tion parties this month chose Kemal
Kılıçdaroğlu as a common candidate to
battle Erdoğan.
The state of the economy and the gov-
ernment’s sometimes stuttering
response to the February 6 earthquake,
which killed more than 50,000 people in
Turkey, are expected to dominate the
campaign in its final weeks.
Consumer prices were up 55 per cent
in February compared with the same
month in 2022, while the domestic pro-
ducer price index was up 77 per cent
over the same period, according to offi-
cial data.
Erdoğan pushed the central bank to
slash interest rates last year, in contrast
to most countries, which boosted them
to combat inflation. The lira has tum-
bled 62 per cent against the US dollar
since the start of 2021, as many foreign
investors have fled the country over
Recep Tayyip Erdoğan: set to face
his toughest election in two decades
concerns about its economic trajectory.
The government has attempted to
dull the blow from runaway inflation
with a series of measures, including a
55 per cent rise in the minimum wage at
the start of this year and increases to
pensions for public servants.
It has also attempted to shore up the
lira with the introduction of bank
accounts that protect against exchange
rate fluctuations and tight controls on
the movement of foreign currency by
companies.
While Erdoğan’s appeal has been
wounded by the economic malaise, he
remains popular in many constituen-
cies, particularly in the more pious parts
of society that he has championed dur-
ing his time in power. He has also
received a boost on the international
stage since early 2022 for acting as a
mediator between Russia and the west.
His pushback against Sweden’s bid to
join Nato, over claims that it had har-
boured individuals Turkey considers to
be terrorists, also gained Erdoğan
favour among some groups.
Kılıçdaroğlu’s opposition coalition,
which is composed of six parties, has
promised to return Turkey to a more
orthodox economic model if it wins.

Bern-Brussels relations

Switzerland to restart talks on closer EU ties

SAM JONES — ZURICH
ANDY BOUNDS — BRUSSELS
Switzerland has announced plans to
restart diplomatic talks with the EU
after a two-year hiatus that raised
doubts on the nation’s future economic
and political relationship with the bloc.
Bern said it was authorising diplomats
to prepare a formal negotiating man-
date to reopen talks this summer on a
deal that could stabilise trading ties in
exchange for concessions on Swiss sov-
ereignty. “There is a positive momen-
tum in the talks between Switzerland
and the EU at the technical, diplomatic
and political levels,” the government
said yesterday.
Swiss officials are proposing a “pack-
age” agreement bundling multiple trea-
ties rather than a universal framework.
Efforts to forge a comprehensive
“framework agreement”, which
reworked a series of treaties with Brus-
sels into a single text, foundered in May
2021 when Bern abruptly announced it
was abandoning the process.
The breakthrough came earlier this
month after a visit to the Swiss capital
by European Commission vice-presi-
dent Maroš Šefčovič, responsible for
relations with Switzerland. He agreed to
ditch the overarching talks format.
“We welcome the positive momen-
tum towards modernising EU-Swiss
relations,” Balazs Ujvari, a commission
spokesman, said yesterday. “Our objec-
tive remains the same: to upgrade EU-
Swiss relations in a way that reflects
Switzerland’s deep integration into the
EU single market, with a level playing
field as its cornerstone.”
The 2021 breach set the stage for a
“slow motion Swexit”, as individual
agreements in areas such as medical
regulation, financial equivalence and
engineering standards lapsed.
The framework negotiations, which
had dragged on for seven years, were
regarded by many in Bern as an attempt
to strong-arm Switzerland into big con-
cessions as the EU sought to consolidate
its authority with neighbouring states.
In a 2020 referendum, 38 per cent of
Swiss voters supported pulling out of
the passport-free Schengen zone.
In Brussels, the talks were seen as a
way to streamline EU-Swiss relations
and rectify disproportionate conces-
sions granted to the country as a result
of previous piecemeal negotiations.
A country of just under 9mn people,
Switzerland is the fourth largest eco-
nomic partner of the EU, after China,
the US and UK, with annual bilateral
trade worth €280bn last year.
Switzerland is in urgent need of an
electricity and power-trading agree-
ment with Europe, economists point
out, as highlighted by extreme energy
price fluctuations this year, and Swiss
universities are clamouring for access to
the EU’s Horizon funding programme.
Šefčovič warned there were still big
differences between the two sides.
Thursday 30 March 2023 ★ FINANCIAL TIMES 7
8 ★ FINANCIAL TIMES Thursday 30 March 2023

INTERNATIONAL

Strait tensions ICJ guidance

China hits at Taiwan president’s US trip UN resolution

Beijing says it will retaliate
if Tsai meets Speaker
McCarthy on 10-day tour
KATHRIN HILLE — TAIPEI
China has threatened to retaliate if Tai-
wan president Tsai Ing-wen meets US
House Speaker Kevin McCarthy during
a trip to the US, amid soaring tensions
between Washington and Beijing.
A meeting would be “another provo-
cation” that would “sabotage peace and
stability in the Taiwan Strait”, the Chi-
nese government’s Taiwan policy body
said, pledging to “resolutely hit back”.
The warning came yesterday morning
as Tsai was preparing to take off on a
10-day trip during which she is sched-
uled to meet McCarthy in California.
Her visit is deemed crucial to affirm-
ing her country’s ability to engage in for-
eign relations but comes as Beijing’s
assertive foreign policy stance has cur-
tailed her room to manoeuvre.
“Taiwan’s determination to go out
into the world will only grow stronger,”
Tsai said on her departure from Taipei.
“The message I want to send through
this trip is that Taiwan will steadfastly
safeguard our freedom and democracy
and continue to be a force for good in the
international society.”
Tsai will stay for two nights in New
York on her way to Guatemala and
Latin America. Political comeback
Belize, two of the remaining 13 coun-
tries that recognise Taiwan, and for two
nights in Los Angeles on her return.
Tsai, whose final term ends next year,
will today receive the Hudson Institute’s
Global Leadership Award.
The two brief US visits have been
defined as stopovers, a long-running
practice that started as a courtesy for
Taiwanese presidents but has expanded
under Tsai, reflecting Washington’s
deepening engagement with Taipei.
China claims Taiwan as part of its ter-
ritory and threatens to attack it if Taipei
refuses to submit to its control indefi-
nitely. Last August, Beijing staged
unprecedented military exercises and
fired missiles over Taiwan for the first
time after then-US House Speaker
Nancy Pelosi visited Taipei.
Pelosi’s successor, McCarthy, had also
pledged to visit Taiwan. But the Finan-
cial Times reported this month that he
held off after Tsai suggested they meet
in the US instead to limit the risk of a
belligerent reaction from Beijing.
Ahead of Tsai’s arrival, senior Biden
administration officials said transits
through the US by top Taiwanese offi-
cials were routine and China should not
“use this upcoming transit as an excuse
or pretext to carry out aggressive or
coercive activities aimed at Taiwan”.
Officials stressed there had been no
change to the US’s “one China” policy,
under which Washington recognises
enables top
Beijing as the sole government of China. court to assess
Taiwan’s defence ministry said it was
prepared for any Chinese threat during
Tsai’s trip, including a “worst-case” sce-
climate fight
nario it did not define. It added there
was no sign of Chinese military moves.
Beijing has stepped up political pres-
obligations
sure on the government of Tsai’s Demo-
cratic Progressive party in advance of CAMILLA HODGSON — LONDON
general elections next January. On Sun-
The International Court of Justice will
day, Honduras switched diplomatic rec-
assess the legal obligations of states to
ognition from Taipei to Beijing. A day
protect current and future generations
later, Beijing welcomed Tsai’s predeces-
from climate change after countries
sor, Ma Ying-jeou, from the opposition
backed a resolution at the UN.
Kuomintang, the first sitting or former
Taiwanese president to visit China. The advisory opinion of the ICJ, the UN’s
Additional reporting by James Politi in top legal body, could increase the risk of
Washington litigation for countries failing to adhere
to international laws and treaties, while
providing guidance about what they
must do to defend human rights and the
environment from climate harm.
Countries approved the resolution by
consensus without a vote, following a

Brazil braced for Bolsonaro return
Former president has not been
in the country since leaving
after electoral defeat last year
BRYAN HARRIS AND MICHAEL POOLER
SÃO PAULO
MICHAEL STOTT — LONDON
Former president Jair Bolsonaro is
expected to return to Brazil today for
the first time since leaving office, aiming
to revitalise the country’s far-right
movement but facing the possibility of a
ban from politics or even arrest.
Bolsonaro’s likely return from Florida
is set to complicate the presidency of his
successor and political nemesis,
leftwing leader Luiz Inácio Lula da Silva,
if the ex-president succeeds in mobilis-
ing the opposition.
Since leaving Brazil in December to
avoid Lula’s inauguration, Bolsonaro
has continued his populist style of poli-
tics while living in Orlando, Florida, reg-
ularly greeting and embracing support-
ers and dining at fast food restaurants,
including at the opening of a burger res-
taurant this week.
At the same time, several investiga-
tions have been opened against the
former leader in Brazil, including
embezzlement claims over $3mn of jew-
ellery said to have been a gift from the
Saudi government, and accusations of
incitement relating to the storming of
political institutions by his radical sup-
porters on January 8.
Bolsonaro said he was “without a
mandate, but I’m not retired” and was
returning to discuss strategy with his
party. He claimed Brazil was “entering a
hole that can be difficult to get out of”.
Friends and adversaries have put
pressure on the former army captain to
return home. Bolsonaro’s political allies
want him to tour the country to help the
far-right movement recover from his
electoral defeat in October.
“The leader of the Brazilian right con-
tinues to be Bolsonaro,” Tarcísio Gomes
de Freitas, governor of São Paulo and
ally of the former president, told the
Financial Times during a visit to Lon-
don this week. “He has a big influence
on social networks, he can mobilise
crowds, he has the respect of people
[and] an amazing charisma.”
But Bolsonaro’s political opponents
want to see him face justice in cases
including his alleged role in the January
insurrection and the jewellery case.
Analysts say his return has the potential
to disrupt the administration of Lula,
In demand: who has struggled to make his mark in
Jair Bolsonaro the first months of his government after
greets returning to the presidency for a his-
supporters in toric third term.
Doral, Florida, Beyond rebranding a few social wel-
last month fare programmes, Lula has yet to make
Joe Raedle/Getty Images
progress with critical policy proposals,
partly because of the inertia of Congress.
He faces the prospect of a revitalised far-
right opposition challenging his agenda.
“It’s certainly going to be more diffi-
cult for Lula to govern with Bolsonaro in
the country, precisely because Bol-
sonaro can and probably will stir up his
base,” said Camila Rocha, a political sci-
entist at the Brazilian Center for Analy-
sis and Planning.
“With Bolsonaro here, people will feel
more empowered to engage. And it
could pose problems for the govern-
ment. They could start organising street
protests, being more active online.”
Bolsonaro’s departure for Florida in
December raised the hackles of some
supporters, who grumbled that he was
abandoning the fight against the left.
But the former president’s popularity
rating has remained intact.
De Freitas, who is tipped as a potential
future leader of the right, added that the
events in January were “regrettable, but
people understand that [Bolsonaro] is
not responsible. It was an isolated act.”
Valdemar da Costa Neto, leader of
Bolsonaro’s Liberal party, said he
wanted the former president to travel
around Brazil to help elect between
1,000 and 1,500 mayors in next year’s
municipal elections.
While Bolsonaro was away, da Costa
Neto focused on nurturing the political
career of the former president’s wife,
Michelle, who rose to prominence dur-
ing the election campaign last year with
stump speeches on the importance of
family and Christianity. She is seen as
another potential successor to her hus-
band if his legal woes continue.
Bolsonaro has lost effective immunity
from criminal prosecution after ceasing
to hold public office for the first time
since he was first elected as a Rio de
Janeiro councillor in 1989.
The most pressing investigations
against him relate to alleged miscon-
duct during the election last year. Bra-
zil’s electoral court is investigating sev-
eral allegations of abuse of political
power, including one related to an event
last year at which he hosted foreign
‘It’s going to ambassadors to air concerns about Bra-
zil’s electoral system. If he is found
be more guilty, he could be barred from politics
difficult for for eight years.
The former president faces several
Lula to criminal investigations, including into
govern whether he incited the January 8 insur-
rection with his social media activity.
because An inquiry is under way into claims of
Bolsonaro the orchestrated use of disinformation
by his political team. He denies all
can and wrongdoing.
probably Another investigation into Bolsonaro
relates to packages of jewels that a Bra-
will stir up zilian official said had been a gift from
his base’ the Saudi Arabia government. One
set, worth US$3mn and believed to be
destined for Michelle Bolsonaro, was
apprehended by customs in 2021.
A second set was obtained by
Bolsonaro, but later returned to
the authorities. Neither was initially
declared as public patrimony; investiga-
tors are looking at potential corruption,
smuggling and abuse of presidential
powers in the case. Bolsonaro denies
any wrongdoing.
The Saudi embassy was contacted for
comment.
Additional reporting by Carolina Ingizza
campaign led by Vanuatu, the Pacific
island nation at risk from rising sea lev-
els. More than 100 nations co-spon-
sored the resolution. The US and China,
the world’s largest emitters, did not.
Delta Merner, lead scientist at the Sci-
ence Hub for Climate Litigation at the
Union of Concerned Scientists, said yes-
terday’s decision at the UN General
Assembly marked “a historic moment
for international climate justice”.
The ICJ, which could take over a year
to deliver its findings, would “alter how
we think about emissions responsibili-
ties and accountability, including corpo-
rate accountability”, and “reinforce” the
legal rationales for “thousands of cli-
mate litigation cases filed”, she added.
UN secretary-general António Guter-
res said the ICJ’s opinions had “tremen-
dous importance and can have a long-
standing impact on the international
legal order”, but are not legally binding.
Support for what began as an initia-
tive led by Vanuatu students has grown
over the past year as many countries
have suffered extreme weather events.
With emissions remaining high, scien-
tists recently warned that average tem-
peratures were likely to hit 1.5C above
pre-industrial levels in the near term.
Although activists have turned to the
courts to force both governments and
companies to cut emissions faster, offi-
cials said the ICJ opinion was not seen as
a route to new lawsuits but a way to give
governments greater clarity.
Ralph Regenvanu, Vanuatu’s minister
of climate change, said the initiative was
“not directed at any [individual] state”,
nor was it “intended to blame, shame or
seek any judgment”.
However, experts said it could affect
climate lawsuits more directly. Lavanya
Rajamani, professor of international
environmental law at Oxford university,
who supported the Vanuatuan initia-
tive, said the findings could “support
national and regional climate litigation”
by identifying “a standard or bench-
mark for what is expected of states”.
Yesterday’s decision comes months
after a coalition of small island states,
including Vanuatu and Antigua and
Barbuda, asked another intergovern-
mental body for an opinion on coun-
tries’ legal obligations.
Findings from the International Tri-
bunal for the Law of the Sea are
expected to be delivered in 2024, before
the ICJ concludes its work.
Payam Akhavan, a lawyer supporting
the oceans initiative, said a “more
important” outcome of the tribunal’s
opinion would be using it to apply pres-
sure on big polluters at COP summits.
At last year’s COP27 summit, coun-
tries agreed to create a “loss and dam-
age” fund for the most exposed nations.

Mineral supply Shanghai Co-operation Organisation

Indonesia seeks inclusion in US green plan
MERCEDES RUEHL — SINGAPORE
CHRISTIAN DAVIES — SEOUL
HARRY DEMPSEY — LONDON
Indonesian business has criticised the
“unfair” exclusion of the country’s crit-
ical minerals from a huge package of US
subsidies for green technology as it
seeks to assuage Washington’s con-
cerns about Chinese dominance of its
sprawling resources sector.
Arsjad Rasjid, chair of the Indonesian
Chamber of Commerce and Industry
(Kadin), which has close ties to the gov-
ernment, said Indonesia could play a
crucial role in fulfilling US demand for
electric vehicles and batteries. The
country has the world’s largest reserves
of nickel, vital for battery production.
The US government is expected in the
coming weeks to publish guidance on
how battery and EV makers can qualify
for tax credits under the Inflation
Reduction Act, a climate bill passed last
year that includes $370bn in subsidies
for clean energy technology.
But experts and people close to the
negotiations said batteries containing
Indonesia-sourced components may be
ineligible for full IRA tax credits because
the country does not have a free trade
agreement with the US and Chinese
companies dominate its nickel industry
via joint ventures and mine ownership.
Rasjid said Indonesia was working
with multinational companies to build
separate China and non-China nickel
supply chains. Indonesia is “friend
‘We are in discussions
about IPEF . . . If the
US excludes Asean, it
feels really unfair’
to both” China and the west, he said.
The US “should look at Indonesia and
the Association of Southeast Asian
Nations [Asean] as an alternative to
China”, added Rasjid, who is also presi-
dent director of Indonesian conglomer-
ate Indika Energy.
The IRA grants tax credits to compa-
nies if a certain percentage of the value
of critical minerals in EV batteries is
extracted or processed in the US or FTA
partner countries. Indonesia and other
countries hope the US will choose to
grant members of the Indo-Pacific Eco-
nomic Framework equivalent status to
those with full FTAs with the US.
“We are in discussions about IPEF and
the spirit of that agreement is to work
together. If the US excludes Asean, it
feels really unfair,” Rasjid said. Indone-
sia is the chair of Asean this year.
Washington and Tokyo on Tuesday
signed a trade agreement covering criti-
cal minerals for EV batteries which
Japan believes is likely to pave the way
for tax incentive eligibility, while the US
launched talks with the EU on a similar
deal this month.
Another provision of the IRA restricts
tax benefits if a “foreign entity of con-
cern” extracts, processes or recycles
critical minerals or manufactures or
assembles components. One US mining
executive familiar with the negotiations
said there would “almost certainly” be
no deal for Indonesia in the near term,
while the interpretation of the “foreign
entity of concern” clause was unlikely to
be clarified until next month.
Additional reporting by Aime Williams in
Washington
Saudi Arabia eyes entry to Asia security club
SAMER AL-ATRUSH — DUBAI
Saudi Arabia has taken a step towards
joining a Chinese-led regional security
and trade club, as Beijing’s push for
influence in the Middle East gathers
momentum.
The kingdom will become a dialogue
partner of the Shanghai Co-operation
Organisation after the move was
approved by the cabinet yesterday,
almost three months after Chinese pres-
ident Xi Jinping visited Saudi Arabia.
The SCO, a political, security and
trade alliance set up in 2001 as a rival to
western influence, has eight full mem-
bers: China, Russia, India, Pakistan and
four central Asian nations. Iran is
expected to become a full member this
year after signing a memorandum of
obligations last September.
Other states such as Qatar and Egypt,
which like Saudi Arabia have close mili-
tary ties to Washington, are also dia-
logue partners of the SCO.
When Xi met Saudi Arabia crown
prince Mohammed bin Salman in Riy-
adh in December, he hailed a “new era”
in Beijing’s relationship with the Gulf.
Two months after the December meet-
ing, Beijing brokered a deal to restore
diplomatic relations between Saudi
Arabia and its regional rival, Iran.
The rapprochement helped to ease
regional tensions and added momen-
tum to peace talks in Yemen, where a
Saudi-led military coalition had been
fighting Iranian-backed rebel Houthis.
It underscored Beijing’s ambitions in
a region long considered a US sphere of
influence, as well as Saudi Arabia’s
desire to diversify its foreign relations.
Chinese state media said Xi spoke to
Allies: Xi Jinping and Mohammed
bin Salman meet in Riyadh last year
Prince Mohammed on Tuesday, offering
help in further Saudi-Iranian talks.
China is already Saudi Arabia’s largest
trade partner and has been investing
more in the country. This week, it
announced a venture with Chinese com-
panies to build a 300,000 barrels per
day refinery in China, and a $3.6bn deal
for 10 per cent of a Chinese oil refiner.
Washington has warned that some
types of co-operation with Beijing could
weaken ties with the US. It has raised
concerns about the adoption of Huawei
5G technology in the region, and put
pressure on the United Arab Emirates
into shutting down what Washington
said was a Chinese security facility.
Xi’s visit to Saudi Arabia in December
came a month after US president Joe
Biden vowed on a trip to Jeddah that the
US would not abandon the region to
China, Russia and Iran. But few analysts
expect China to supplant the US, which
remains the top military and security
partner for Gulf countries.
Last year, Riyadh led moves by oil
exporting countries to raise production
at a time of soaring inflation and just
before the US midterm elections.
Thursday 30 March 2023 ★ FINANCIAL TIMES 9

Techs take off Sector’s shares surge as Alibaba’s six-way break-up plan boosts hopes of end to China crackdown y MARKETS, PAGE 13

Credit Suisse Flight cancelled Airbus drops Atos unit deal

after pressure from hedge fund chief Hohn
JPMorgan’s
Dimon forced
violated 2014 to testify in
Epstein cases
plea deal over JOE MILLER AND JOSHUA FRANKLIN
NEW YORK

secret accounts
3 Senate panel says tax evasion persisted
3 Bank failed to disclose nearly $100mn
OWEN WALKER — LONDON
STEFANIA PALMA — WASHINGTON
Credit Suisse violated a 2014 plea deal
with the US government for the Swiss
bank’s role in helping wealthy Ameri-
cans evade tax, according to an investi-
gation by the Senate finance committee.
The two-year probe claimed that the
bank, which is being taken over by rival
UBS, failed to disclose nearly $100mn in
secret offshore accounts belonging to a
single family of US taxpayers.
“At the centre of this investigation are
greedy Swiss bankers and catnapping
government regulators, and the result
appears to be a massive, ongoing con-
spiracy to help ultra-wealthy US citizens
‘At the centre of this
[probe] are greedy Swiss
bankers and catnapping
government regulators’
to evade taxes and rip off their fellow
Americans,” said Senator Ron Wyden,
who chairs the committee.
Under the 2014 Department of Justice
deal, Credit Suisse was fined $2.6bn, but
settled for $1.3bn after agreeing to com-
ply with disclosure rules. But in March
2021, several ex-Credit Suisse bankers
who originally blew the whistle on the
bank urged US authorities to reopen the
case, stating that the tax evasion contin-
ued “well after the plea agreement and
sentencing”.
The release of the committee’s inves-
tigation comes less than two weeks after
UBS agreed to buy Credit Suisse for
$3.25bn in a deal orchestrated by Swiss
regulators in the face of a deepening cri-
sis at the bank.
Following the launch of the investiga-
tion, whistleblowers in 2021 informed
the committee that Credit Suisse also
held undeclared accounts worth nearly
$100mn for a family of dual US-Latin
American citizenship, the report says.
The bank “intentionally” hid the cli-
ents’ US citizenship on internal paper-
work and helped them “quietly close”
the accounts and transfer the assets
elsewhere, the report said, citing the
whistleblowers. This may lead to one of
the largest penalties for violations of for-
eign bank account registration rules in
US history, the committee said.
The 77-page report also set out Credit
Suisse’s alleged efforts to help Dan
Horsky, a wealthy Israeli-American eco-
nomics professor conceal $220mn in
offshore accounts from the govern-
ment. In 2017, Horsky was sentenced to
seven months in prison for tax evasion.
Staff at the Swiss bank were aware of
Horsky’s potential compliance issues at
least three years before declaring one of
his accounts after being contacted by
the DoJ in 2015, the report found.
The report said that Credit Suisse
informed the committee that it had dis-
closed thousands of undeclared
accounts worth more than $1.3bn to US
authorities since its plea deal. But in
response to the panel’s inquiries, the
bank found 23 more client relationships
valued at more than $20mn with poten-
tially undeclared accounts, the report
said. The DoJ did not immediately
respond to a request for comment.
Credit Suisse has faced fines from
European regulators over similar issues,
including a €238mn deal with France to
resolve claims that it broke laundering
laws by luring clients to Switzerland.
In a statement yesterday, Credit
Suisse said: “In its core, the report
describes legacy issues, some from a
decade ago, and we have implemented
extensive enhancements since then to
root out individuals who seek to conceal
assets from tax authorities.”
Credit Suisse staff poached page 11
AT1 wipeout to cost banks page 13
TCI chief Chris Hohn said Airbus should focus on hitting aircraft delivery targets — Patricia Huchot-Boissier/abacapress.com
SYLVIA PFEIFER — LONDON
LEILA ABBOUD — PARIS
Airbus bowed to pressure from bil-
lionaire hedge fund manager Chris
Hohn and yesterday pulled its bid to
buy a minority stake in a unit of
French IT services company Atos.
Shares in Atos plummeted 17 per cent
to €10.62 in Paris after the company
confirmed the European plane maker
would no longer pursue talks to take a
29.9 per cent stake in Evidian, its dig-
ital and big data arm.
The loss of that option will pile pres-
sure on Atos, something that will con-
cern the French government because
the company owns sensitive quantum
computing assets and cyber defences
that Paris considers to be strategic.
The investment would have helped
Atos carry out a planned split after a
period of heavy losses.
Airbus had begun talks with Atos
because it was interested in boosting
digitalisation and technology devel-
opment, said a person familiar with
the matter, but decided buying a
roughly 30 per cent stake in Evidian
was not the best way forward.
Airbus would not have been able to
run the business, which is in the mid-
dle of a turnround, even after having
invested a significant amount.
But the two companies said in sepa-
rate statements they would continue
to discuss other ways they could work
together. Airbus stressed that a part-
nership had “the potential to create
significant value for both companies”,
something Atos repeated.
Atos said it would “explore other
options with Airbus and keep working
on a strategic and technology partner-
ship for the long term”.
Airbus stressed that withdrawing
the bid was “an independent decision
by our board of directors and man-
agement which was not influenced by
outside pressure or parties”.
Jamie Dimon, the longtime chief execu-
tive of JPMorgan Chase, will be inter-
viewed under oath over his bank’s deci-
sion to retain the late sex offender Jef-
frey Epstein as a client, said people
familiar with the matter.
The sworn deposition, to take place
behind closed doors in May, is the latest
development in two high-profile cases
brought against the US bank by an
alleged Epstein victim and by the US
Virgin Islands, where the disgraced fin-
ancier had a home.
The lawsuits claim JPMorgan, where
Epstein banked for 15 years from 1998
to 2013, benefited from human traffick-
ing and ignored internal warnings about
its client’s illegal behaviour. The lender
has described the claims as meritless.
The pre-trial process unearthed com-
munications between JPMorgan staff
that referred to a “Dimon review” into
the bank’s relationship with Epstein.
The bank denied that its chief execu-
tive had any knowledge of such a review.
A person familiar with the bank’s
internal probe said there was no record
found of Dimon being in direct commu-
nication with Epstein or being included
in any discussion over retaining him as a
client. JPMorgan declined to comment.
Lawyers for JPMorgan had previously
resisted attempts to depose Dimon and
tried to limit the range of documents
handed over in the pre-trial process.
Guillaume Faury, Airbus chief exec- Last week, Judge Jed Rakoff, who is
utive, had said the company would presiding over the cases, denied in part
only progress with a deal if it made JPMorgan’s request to dismiss the law-
sense “from a financial standpoint”. suits and allowed some claims against
The decision not to progress comes the bank — and some against Deutsche
after Hohn, whose TCI fund is one of Bank, which is being sued separately by
the largest shareholders in the Euro- an alleged Epstein victim — to proceed.
pean plane maker, demanded it drop He later ordered JPMorgan to hand
its interest, describing the proposed over documents containing communi-
deal as a “bailout of Atos, a company cations involving Dimon and former
that is burdened with unsustainable general counsel Steve Cutler from
levels of debt and other liabilities”. before 2006, the year that Epstein was
Hohn also questioned the use of first arrested. A provisional trial date for
management time on the transaction, both cases has been set for October.
arguing Airbus should be focusing on Former JPMorgan executive Jes Staley
meeting aircraft delivery targets. is also set to be deposed by his former
TCI, which has a more than 3 per employer’s lawyers in April after the US
cent stake in Airbus and has been a bank countersued him for any potential
shareholder since 2012, had filed a damages. JPMorgan’s complaint claims
motion for the group to answer 16 Staley witnessed and participated in sex
questions on the transaction at its crimes at Epstein’s residences, and
annual meeting next month. alleges he did not disclose this “despite
Atos in June last year said it planned having a fiduciary duty” to do so.
to split in two, a process it aimed to Staley has denied any involvement in
complete by mid-2023 at the earliest. Epstein’s illegal activities.

Industrials have much to gain by abandoning ‘forever chemicals’
industry is up in arms, declaring that
INSIDE BUSINESS Europe’s proposal threatens global
growth, makes the green transition
EUROPE impossible and jeopardises thousands
of jobs by classing all PFAS as harmful.
Peggy In some cases, such as chipmaking,
alternatives are unavailable or costly to
Hollinger develop. Meanwhile, at least one law
firm is advising its chemical clients to
“step up advocacy activities” — or lob-
bying — to kill the proposal.
Legal Notices
for action. Others are pulling informa-
tion on their troublesome chemicals
from public view. And yet others such as
Chemours — a company spun out of
DuPont — and Japan’s Daikin are even
opening new production lines to serve
chipmakers and other industries.
There is a case for exempting vital
industries such as chipmaking, where
the high specifications required make
alternatives more difficult to find. But

I
n 1987, the world decided to ban
chlorofluorocarbons, just two years
after discovering that they were
depleting the ozone layer. Industry
warned of dire economic conse-
quences should the ban go through. Fast
forward 36 years and 99 per cent of
ozone-depleting substances have been
phased out and the ozone is recovering.
To anyone following the so-called
“forever chemicals” debate, the tale is
familiar. But there is no guarantee of a
happy ending this time unless industry
adapts its approach.
Last week Europe launched a public
consultation on one of the most radical
pieces of chemical legislation ever pro-
posed: a phased ban on up to 10,000
substances known as PFAS.
These molecules, which have a chain
of linked carbon and fluorine atoms, are
used in millions of applications, from
cookware to cosmetics, batteries and
semiconductors to medical devices.
They are valued for their high resist-
ance to oil, water and heat. But as their
use has grown, scientists have worried
about health risks. PFAS do not break
down easily, accumulate in the environ-
ment and human organs, and are linked
to cancers and other health issues. The
US Environmental Protection Agency
has warned that even near-zero levels of
PFAS could pose a threat.
Yet the international chemicals
It is a predictable reaction. But it is
misguided. The global trend is clear and
it is not in PFAS’s favour.
Two of the most toxic variants have
already been banned under a UN con-
vention. Concern is now growing over
their PFAS replacements and, with so
many, it is hard to judge toxicity on a
case-by-case basis.
So European regulators are consider-
ing a broader
restriction unless The global trend is not in
safety can be
proved. Even in the PFAS’s favour. Two of the
US, where the most toxic variants have
approach is more
targeted, PFAS already been banned
curbs are growing. under a UN convention
Some 30 US states
have either implemented or are consid-
ering restrictions on forever chemicals.
The number of US lawsuits is also ris-
ing, while in Europe 3M’s $581mn settle-
ment with Belgium last year over PFAS
pollution could signal more environ-
mental lawsuits, insurers have warned.
3M, one of the world’s largest PFAS
producers, certainly thinks that the risk
is not worth it. It has said it will stop pro-
ducing or using the compounds by the
end of 2025.
Investors, too, are concerned. Manag-
ers of $8tn in assets last year wrote to the
biggest chemical companies to demand
that persistent chemicals be phased out.
Some, like 3M, have set out road maps
this should be paired with stricter regu-
lation on use and disposal.
There is less justification for contin-
ued use in discretionary areas, such as
cosmetics, rainwear and dental floss.
Without the pressure of regulation it
is doubtful that producers or users will
be inclined to find alternatives. Industry
has known of the toxic effects of some
PFAS for decades, yet they are still in use
and accumulating in the environment.
Any EU ban is still years away and the
Businesses For Sale
proposals are sure to be revised before
then.
But for industry to get the best out-
come, it needs to engage more actively
with the emerging concerns. For exam-
ple, there is a distinct lack of transpar-
ency.
After three years of work, the
researchers drafting the EU plan still
struggled to identify who produces what
and where in Europe.
Companies should be more open
about their PFAS products. They should
disclose independently verified assess-
ments of safety and their investment in
alternatives.
Replacing PFAS will be harder than
the global effort to replace CFCs. But
that experience shows the industry is
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10 ★ FINANCIAL TIMES Thursday 30 March 2023

COMPANIES & MARKETS

Technology Automobiles

Chatbot labs urged to delay projects VW wants to

Musk among those to sign
letter seeking a six-month
hiatus on ‘dangerous’ race
TIM BRADSHAW AND IAN JOHNSTON
Elon Musk and more than 1,000 tech
researchers and executives have called
for a six-month “pause” on the develop-
ment of advanced artificial intelligence
systems, such as OpenAI’s ChatGPT, to
halt what they call a “dangerous” arms
race.
An open letter, published yesterday
by the Future of Life Institute, a non-
profit campaign group, had been signed
by more than 1,100 individuals from
across academia and the tech industry
within hours of its publication.
“Recent months have seen AI labs
locked in an out-of-control race to
develop and deploy ever more powerful
digital minds that no one — not even
their creators — can understand, predict
or reliably control,” the letter stated.
Signatories include AI professors Stu-
art Russell and Yoshua Bengio, the co-
founders of Apple, Pinterest and Skype,
and the founders of Stability AI and
Character.ai.
The FLI, which published the letter,
counts Musk among its top funders and
is led by Max Tegmark, a Massachusetts
Institute of Technology professor and AI
researcher.
Technology. Governance
“We call on all AI labs to immediately
pause for at least six months the train-
ing of AI systems more powerful than
GPT-4. This pause should be public and
verifiable, and include all key actors. If
such a pause cannot be enacted quickly,
governments should step in and insti-
tute a moratorium,” the group added.
The letter follows a rush of ground-
breaking AI launches over the past five
months, including Microsoft-backed
OpenAI’s ChatGPT in November and
this month’s release of GPT-4, the model
that underpins the chatbot.
Companies such as Google, Microsoft
and Adobe are also adding new kinds of
AI features to their search engines and
productivity tools, in a move that has
put AI into the hands of millions of eve-
ryday users. That accelerating pace of
development and public deployment
has worried some AI researchers and
tech ethicists about the potential impact
on employment, public discourse — and
humanity’s ability to keep up.
The letter urged the creation of
shared safety protocols that are audited
by independent experts to “ensure that
systems adhering to them are safe
beyond a reasonable doubt”.
“AI systems with human-competitive
intelligence can pose profound risks to
society and humanity,” it stated.
Top of the growing list of signatories
to the letter are noted AI researchers
Bengio, professor at University of Mon-
treal, and Berkeley professor Russell.
Musk, who was a co-founder of OpenAI
but left in 2018 and has since become
critical of the organisation, also signed
the letter.
Others include Apple co-founder
Steve Wozniak, author Yuval Noah
Harari and former US presidential can-
didate Andrew Yang.
Nobody identifying themselves as an
employee of OpenAI was among the first
1,000 people to sign the letter.
The intervention comes as govern-
ments around the world are racing to
formulate a policy response to the rap-
idly evolving field of AI, even as some
Big Tech companies are cutting back
their AI ethics teams.
pay members
of executive
board up to
25% more
PATRICIA NILSSON — FRANKFURT
Volkswagen wants to pay members of
its executive board up to 25 per cent
more, sparking wider concerns over
Oliver Blume’s role as chief executive of
both VW and Porsche.
Blume, head of Porsche since 2015,
stepped into the dual role in September
after Herbert Diess was ousted as boss of
VW by shareholders and union leaders
following repeated clashes with the
group’s powerful works council.
Some investors have criticised
Blume’s unusual position as head of
both companies, particularly given his
plans to overhaul VW at a difficult time
for the group and car industry as it

Silicon Valley curtails ‘responsible AI’ oversight switches to electric technology.

Critics voice safety concerns
after Google, Microsoft and
rivals lay off ethics advisers
CRISTINA CRIDDLE AND
MADHUMITA MURGIA
Big Tech companies have been slashing
staff from teams dedicated to evaluating
ethical issues around deploying artifi-
cial intelligence, leading to concerns
about the safety of the new technology
as it becomes widely adopted across
consumer products.
Microsoft, Meta, Google, Amazon and
Twitter are among the companies that
have cut members of their “responsible
AI teams”, who advise on the safety of
consumer products that use artificial
intelligence.
The numbers of staff affected remain
in the dozens and represent a small frac-
tion of the tens of thousands of tech
workers eliminated in response to a
broader industry downturn.
The groups said they were dedicated
to rolling out safe AI products. But
experts said the cuts were worrying, as
potential abuses of the technology are
being discovered just as millions of peo-
ple begin to experiment with AI tools.
Their concern has grown since the suc-
cess of the ChatGPT chatbot launched
by Microsoft-backed OpenAI, which led
other techs to release rivals such as
Google’s Bard and Anthropic’s Claude.
“It is shocking how many members of
responsible AI are being let go at a time
when arguably, you need more of those
teams than ever,” said Andrew Strait,
former ethics and policy researcher at
Alphabet-owned DeepMind and associ-
ate director at research organisation
Ada Lovelace Institute.
Microsoft disbanded all of its ethics
and society team in January, which led
the company’s initial work in the area.
The tech giant said the cuts amounted to
fewer than 10 roles and that Microsoft
still has hundreds of people working in
its office of responsible AI.
“We have significantly grown our
responsible AI efforts and have worked
hard to institutionalise them across the
company,” said Natasha Crampton,
Microsoft’s chief responsible AI officer.
Twitter has slashed more than half of
its headcount under Elon Musk, includ-
ing its small ethical AI team. Its past
work included fixing a bias in the Twit-
ter algorithm, which appeared to favour
white faces when choosing how to crop
images. Twitter did not respond to a
request for comment.
Twitch, the Amazon-owned stream-
Cost cutting: ing platform, cut its ethical AI team last
Meta, Amazon, week, making all teams working on AI
and Twitter are accountable for issues related to bias,
among the tech according to a person familiar with the
groups whittling move. Twitch declined to comment.
down teams that In September, Meta dissolved its
were set up to responsible innovation team of about
safeguard users 20 engineers and ethicists tasked with
FT montage/Dreamstime/
Getty Images; SOPA Images
evaluating civil rights and ethics on
Instagram and Facebook.
Meta did not respond to a request for
comment.
“Responsible AI teams are among the
only internal bastions that Big Tech
have to make sure that people and com-
munities impacted by AI systems are in
the minds of the engineers who build
them,” said Josh Simons, former
Facebook AI ethics researcher and
author of Algorithms for the People. “The
speed with which they are being abol-
ished leaves Big Tech’s algorithms at the
mercy of advertising imperatives,
undermining the wellbeing of kids, vul-
nerable people and our democracy.”
Another concern is that large lan-
guage models, which underlie chatbots
such as ChatGPT, are known to “halluci-
nate” — make false statements as if they
were facts — and can be used for nefari-
ous purposes such as spreading disinfor-
mation and cheating in exams.
“What we are beginning to see is that
we can’t fully anticipate all of the things
that are going to happen with these new
technologies, and it is crucial that we
pay some attention to them,” said
Michael Luck, director of King’s College
London’s Institute for Artificial Intelli-
gence.
The role of internal AI ethics teams
has come under scrutiny as there is
debate about whether any human inter-
vention into algorithms should be more
transparent, with input from the public
and regulators.
In 2020, the Meta-owned photo app
Instagram set up a team to address
“algorithmic justice” on its platform.
The “IG Equity” team was formed after
the police murder of George Floyd and a
desire to make adjustments to Insta-
gram’s algorithm to boost discussions of
‘It is race and highlight profiles of marginal-
ised people.
shocking Simons said: “They are able to inter-
how many vene and change those systems and
biases [and] explore technological
are being let interventions that will advance
go when equity . . . but engineers should not be
deciding how society is shaped.”
arguably, Some employees tasked with ethical
you need AI oversight at Google have also been
laid off as part of broader cuts at Alpha-
more of bet of more than 12,000 staff, according
those teams to a person close to the company.
Google would not specify how many
than ever’ roles had been cut but said that respon-
sible AI remains a “top priority at the
company, and we are continuing to
invest in those teams”.
The tension between the develop-
ment of AI technologies within compa-
nies and their impact and safety has pre-
viously emerged at Google. Two AI eth-
ics research leaders, Timnit Gebru and
Margaret Mitchell, left in 2020 and
2021, respectively, after a highly publi-
cised row with the company.
“It is problematic when responsible
AI practices are deprioritised for com-
petition or for a push to market,” said
Strait from the Ada Lovelace Institute.
“And unfortunately, what I am seeing
now is that is exactly what’s happening.”
Additional reporting by Hannah Murphy in
San Francisco
“The dual role of CEO Blume and the
resulting capacity restrictions for his job
at VW raise the question whether it is
the right time to increase his maximum
pay,” said Janne Werning, head of ESG
capital markets and stewardship at
Union Investment, one of the company’s
top 15 shareholders.
VW’s supervisory board proposed
raising maximum pay for members of
the executive board up to 25 per cent
from €12mn to €15mn, which share-
holders must approve in a vote in May.
Supervisory board members are also
in line for a significant pay rise under
the proposals, with fixed pay increasing
Some investors have
criticised Blume’s unusual
position as head of both
Volkswagen and Porsche
from €100,000 a year to €175,000,
while the cap on maximum pay would
grow from €7mn to €8.5mn.
The plan, which was developed with
the help of a “renowned and independ-
ent external remuneration consultant”,
kicks in retroactively from the start
of 2023.
Under the German system, there
are two boards. The executive board
is the main decision-making body that
manages the company, while the
supervisory board oversees the work of
the former and advises on strategic
planning.
Werning said that Union Investment
would engage with VW on the underlin-
ing targets of the proposed executive
remuneration strategy, which would see
long-term incentive schemes play a rel-
atively more important role.
“A raised ceiling should not lead to
excess pay because of unambitious tar-
gets,” he said.
The decision comes against a back-
drop of strikes in Germany and other
European countries as workers press for
higher pay because of the rising cost of
living, while companies warn the
demands will fuel further inflation.
VW last year agreed to increase staff
pay for 2023 by 5.2 per cent, following
talks with unions.
Blume has not yet fully laid out his
plan for VW, which has struggled with
its software strategy and decided to ven-
ture into battery manufacturing to sup-
port its transition into electric vehicles.
VW said two weeks ago that it would
lift investments to expand in the US and
also in China on which the group relies
for a large portion of its profits, commit-
ting €180bn over the next five years.
The carmaker also has a notoriously
complex ownership structure, but is
ultimately controlled by the Porsche-
Piëch family, heirs of Porsche’s founder.

Automobiles Technology

Tesla loses ground in China after price war
EDWARD WHITE — SEOUL
GLORIA LI — HONG KONG
Tesla’s move to slash prices in China
has backfired as Elon Musk’s company
loses market share to Warren Buffett-
backed BYD, putting Chinese carmak-
ers on track to sell more passenger
vehicles than their foreign rivals for the
first time in 2023.
Tesla last year started cutting prices in a
bid to reclaim lost ground in the cut-
throat Chinese market, sparking a price
war in the country that has hit Euro-
pean, Japanese and other US carmakers.
Chinese consumers responded by
favouring cheaper, newer models by
BYD. In the first two months of the year,
the Shenzhen-based group sold more
than five times the number of units that
Tesla did in China.
The US carmaker’s decision to cut
prices in October was a “nuclear” option
that triggered most of the industry to
follow suit, said Bill Russo, founder of
Shanghai-based consultancy Automo-
bility and the former head of Chrysler in
China.
“Foreign brands are clearly bleeding
market share and we therefore expect
2023 to be the first full calendar year in
which local brands outperform global
brands in terms of sales volume,” Russo
said.
Last year, Chinese carmakers
accounted for 47 per cent of total pas-
senger vehicle sales, according to Auto-
mobility data.
BYD’s strong performance heralds the
Chinese conglomerate’s ascendancy.
The group’s vertically integrated struc-
ture — from mines to batteries and chips
— has given it an advantage as the global
car industry works to transition away
from the combustion engine.
BYD chair Wang Chuanfu said yester-
day he expected first-quarter sales to
jump 80 per cent year on year and weak
competitors to be “eliminated” after the
group reported a more than 400 per
cent surge in net profit for 2022 to
Rmb16.6bn ($2.4bn).
In January and February, BYD’s share
of plug-in hybrid and battery car sales in
the world’s biggest car market increased
to more than 40 per cent from 34 per
cent last year, while Tesla’s eased
slightly to 7.8 per cent.
Tesla’s price cuts and the ensuing
price war among major electric vehicle
brands in China come at a time when
Beijing is removing generous state sub-
sidies after spending more than $120bn
since 2009 to support the industry.
China boasts one of the world’s most
advanced EV markets. However, car
sales are generally down as the country
emerges from pandemic restrictions
that have slowed economic growth.
The China Association of Automobile
Manufacturers warned last week that
the sector now faced “sharply rising
inventories and mounting operational
pressure” with the slump in sales wors-
ening over the past month.
Apple opens buy now, pay later service in US
PATRICK MCGEE — SAN FRANCISCO
Apple launched its buy now, pay later
programme in the US on Tuesday in a
further expansion into finance and
challenge to incumbents including
Klarna and Affirm.
The iPhone maker unveiled plans for
Apple Pay Later at its developers’ con-
ference in June. After several months of
delays, “select” US consumers were
being invited to use the finance tool,
said the $2.5tn tech giant.
Apple Pay Later is built into the Wal-
let function of the iPhone and lets users
pay for online goods and in-app services
in four payments spread over six weeks.
Zero-interest loans of $50-$1,000 will
be made through Apple Financing, a
wholly owned subsidiary.
Goldman Sachs, with which Apple
launched its credit card in 2019, will
play a role by allowing Apple access to
Mastercard’s network since the iPhone
maker lacks a licence to issue payment
credentials directly. The scheme fea-
tures “no fees and no interest” and was
designed to let customers “make
informed and responsible borrowing
decisions”, said Jennifer Bailey, who
heads Apple Pay.
The service will be embedded in the
iPhone operating system, which
accounts for more than 50 per cent of
smartphones in the US, according to
data from Counterpoint Research.
Apple Pay Later follows in the foot-
Apple’s finance aims have drawn the
interest of Wall Street and regulators
steps of Klarna, Afterpay and Affirm,
pioneers of the buy now, pay later
model, which have struggled to retain
their momentum as the economy has
slowed and interest rates have surged.
When Apple announced its plans,
Sebastian Siemiatkowski, Klarna chief
executive, hailed a “great win for con-
sumers”, adding on Twitter: “Plagiarism
is also the highest form of flattery.”
Apple’s finance ambitions have drawn
attention from Wall Street and regula-
tors. Jamie Dimon, JPMorgan chief exec-
utive, has said he saw Apple as a long-
term challenger. “That’s a bank . . . If
you move money, hold money, manage
money, lend money, that’s a bank.
There’s a lot of competition coming.”
Rohit Chopra, director of the Con-
sumer Financial Protection Bureau, said
in July that his agency would “have to
take a very careful look [at] the implica-
tions of Big Tech entering this space”.
Apple is the only large tech company
to launch such a product in the US.
Thursday 30 March 2023 ★ FINANCIAL TIMES 11

COMPANIES & MARKETS

Ermotti answers ‘call of duty’ with UBS return

Banker embraces opportunity to reclaim chief executive role and integrate a rival lender that had long been in his sights
OWEN WALKER AND STEPHEN MORRIS
The day after agreeing to rescue Credit
Suisse in the most significant banking
deal since the financial crisis, UBS chair
Colm Kelleher called Sergio Ermotti to
see if he wanted his old job back.
Kelleher had watched his current
chief executive, Ralph Hamers, fum-
bling questions from analysts at a hast-
ily arranged call the night before. The
performance had underscored concerns
the board had over the Dutchman’s abil-
ity to oversee such a huge and compli-
cated transaction.
Kelleher was also becoming spooked
about the magnitude of the challenge
UBS had taken on in striking the
$3.25bn deal, which would create the
world’s fourth-largest bank, with
120,000 staff and $5tn of assets under
management.
The bank’s shareholders and regula-
tors were also raising concerns, sharp-
ening the appeal of bringing back
Ermotti, who ran UBS for nine years
before stepping down in 2020.
On the call with Ermotti, the Monday
after the deal was signed, Kelleher pro-
posed that the 62-year-old return as
CEO and marshal the integration of
Switzerland’s two biggest banks, in the
first-ever combination of two global
systemically important financial
institutions.
The pair knew each other well and
had spoken regularly about the plight of
Credit Suisse for several months, but the
call was the first time Ermotti’s return
was officially discussed.
They had dinner on the Tuesday
evening, and six days later, on the fol-
lowing Monday, UBS’s board signed off
on one of the most stunning corporate
comebacks in recent years.
“I cannot emphasise how big a deal
this is in terms of financial history and
financial engineering that’s required,”
Kelleher said of the Credit Suisse takeo-
ver yesterday as UBS announced
Ermotti’s return.
“It’s about having the best person in
our opinion to effect the execution of
this merger,” he added.
While the decision to replace Hamers
was taken quickly, his position as UBS
CEO had never seemed secure.
Hamers had been a surprise choice to
replace Ermotti in late 2020, having
spent the majority of his career at the
much smaller Dutch bank ING. His lack
of experience in UBS’s two main busi-
ness lines, investment banking and
wealth management, was criticised by
analysts and UBS staff.
But he was chosen by former chair
Axel Weber to help cut costs and
develop a stronger digital strategy for a
bank whose roots stretch back 161
years.
On the surface, Hamers’ time at the
helm of UBS appeared a success, with
the bank notching up a series of record-
breaking quarterly profits. Yet it took
time for him to make his mark and it
was more than a year into his tenure
before he presented his grand vision for
the bank.
The plan, which was focused on devel-
oping UBS’s wealth management busi-
ness in the US and Asia, was laden with
references to tech initiatives. Much of
the communication around the strategy
was muddled by explanations of how
Corporate comeback: Sergio Ermotti was invited back to UBS to lead the complex integration of domestic rival Credit Suisse — Michael Buholzer/Keystone via AP
Strategy test
Boss who prizes instinct
re-enters financial fray
In bringing back Sergio Ermotti as
chief executive, the UBS board has
gone for someone who knows the
bank well. Ermotti held the role from
2011-20 and won plaudits for leading
its recovery from the
financial crisis.
Born in Switzerland, the 62-year-old
is a career banker, having completed
stints at Citigroup, Merrill Lynch and
UniCredit before moving to UBS.
As chief executive, his main task was
to solidify the bank after a SFr6bn
($6.5bn) bailout by the Swiss
government during the financial crisis
and a $2.3bn rogue trading scandal.
Ermotti scaled back the investment
bank — but did not close it altogether,
despite some calls for him to do so —
and built the core wealth management
operation.
“My best decision was not to follow
consensus . . . I’m sure I wouldn’t be
the CEO today if I had done it,” he told
the Financial Times in an interview in
2020. “As a leader, your first instinct is
usually the right one.”
The share price was at about the
same level when he left the job as it
was when he started, but that
compares favourably with a drop of
the business would adapt to an “agile
working” model.
Critics derided Hamers’ strategy and
his description of UBS as a “Netflix for
wealth” in media interviews.
A key pillar of his strategy was the
$1.4bn acquisition of US robo-adviser
Wealthfront, the first time UBS had
agreed a takeover since the financial cri-
sis. But the start-up’s customers —
almost 60 per cent in the value
of Credit Suisse over the same
period.
Ermotti stood down in 2020, saying:
“After nearly a decade as CEO, now is
the right time to write my next
chapter. UBS is in great shape, enjoys
maximum strategic flexibility and is
well positioned for sustainable
growth.”
Ralph Hamers took over from
Ermotti in 2020 and will stand aside
now as the Swiss banker takes back
the reins.
Since stepping away from UBS,
Ermotti has kept himself busy with
board seats at fashion group
Ermenegildo Zegna and at Innosuisse,
the Swiss innovation agency.
He has also been chair of
reinsurance group Swiss Re, although
his time there has not been without
controversy. Last year, proxy adviser
Institutional Shareholder Services
recommended that investors vote
against Ermotti’s re-election because
of a lack of gender diversity on the
board.
Despite these distractions, he is
relishing his return to the top job at
UBS. “The task at hand is an urgent
and challenging one,” Ermotti said in a
statement, promising to deliver “the
best possible outcome for our clients,
our employees, our shareholders and
the Swiss government”. Oliver Ralph
mostly younger, digitally savvy savers —
seemed an odd fit with the wealthier cli-
ent base UBS was looking to attract in
the US.
By the time Kelleher replaced Weber
as chair a year ago, the board and long-
serving UBS staff were already starting
to lose patience with Hamers, according
to several people with knowledge of
internal discussions. Kelleher initially
Performance of UBS stock under four leaders
SFr
Rohner Grübel
2007 10 15
Source: Refinitiv
took Hamers under his wing and
attempted to brush up his communica-
tions skills. Hamers was banned from
using his favourite buzzwords such as
“purpose” and “ecosystems” in their
weekly meetings.
The pair set about trying to convince
international shareholders to invest and
close UBS’s valuation gap with US peers.
Kelleher had been willing to give
Hamers time to prove he was capable of
80
Ermotti Hamers
60
40
20
0 nical aspects of the deal before deciding
20 23
leading the business and carrying out its
growth strategy. But when UBS aborted
the Wealthfront acquisition in Septem-
ber, questions began to be asked about
Hamers’ authority within the bank.
Hamers, who will remain at UBS as an
adviser during a transition period, did
not respond to a request for comment.
By the turn of the year, when the situ-
ation at Zurich rival Credit Suisse was
looking increasingly perilous, the UBS
board stepped up plans for a potential
rescue, anticipating that Swiss authori-
ties would eventually ask them to move.
For UBS, Kelleher drove the takeover
talks, with Hamers playing a back-seat
role, according to people involved in the
negotiations.
After the takeover was announced on
March 19, and while Kelleher was in dis-
cussions with Ermotti over his return,
the bank’s senior management team
started putting together a plan for inte-
grating the two banks.
The task was handed to Mike Dargan,
the bank’s chief digital and information
officer, though other executives have
been feeding into the process, according
to people with knowledge of the plans.
Given the lack of experience of trans-
formative M&A deals among the bank’s
executive ranks, UBS invited consultan-
cies to pitch for work on the takeover.
At a meeting of UBS’s executive com-
mittee last week, senior managers tried
to persuade Hamers against granting
McKinsey too big a role in the process
due to the level of influence the 97-year-
old consultancy has had over both
banks in recent years, according to peo-
ple with knowledge of the talks.
Throughout his time in charge, Ham-
ers had increasingly relied on McKinsey
to help push through changes at the
group. This rankled with senior manag-
ers at the bank as well as board mem-
bers, according to people involved in the
discussions. Hamers had also served on
McKinsey’s advisory council.
For Ermotti, the chance to come back
to UBS at a time when it was taking over
its rival proved too good to turn down.
During his nine years at UBS, Ermotti
had drawn up plans to acquire Credit
Suisse “three or four times”, according
to two people familiar with his thinking.
But discussions with the Credit Suisse
board never progressed as they were not
interested in a deal.
After officially joining next Wednes-
day, Ermotti will take stock of the tech-
if he needs to make changes to the exec-
utive board — including the possibility
of bringing back other former UBS staff
— or to the integration plans.
“Coming back to manage this situa-
tion is a challenge, but also . . . I felt a
call of duty,” Ermotti told journalists on
Wednesday.
“I always felt that the next chapter
[for UBS was] a transaction like this
one. It would be a bit of a contradiction
from me not to accept the job to execute
on what I believe was the right next
move for UBS.”
See Lex

Financials

Rivals seek to poach senior Credit Suisse staff

SAM JONES — ZURICH
OWEN WALKER — LONDON
Switzerland’s private banks are seek-
ing to poach key staff and clients from
Credit Suisse as steep job and bonus
cuts force bankers into the market fol-
lowing the takeover by UBS.
Julius Baer, Pictet, Lombard Odier, EFG
and LGT are among Swiss wealth man-
agers sounding out disgruntled Credit
Suisse bankers, people familiar with
continuing conversations have told the
Financial Times, offering job stability
and attractive sign-on packages to make
up for bonuses blocked or wiped out by
the government-backed UBS takeover.
Credit Suisse employees saw hun-
dreds of millions of francs worth of
deferred bonuses erased by the emer-
gency takeover this month, while the
Swiss government has ordered a freeze
on future bonus payments. Many are
also anticipating swingeing job cuts, as
UBS seeks to integrate its biggest rival
into its own successful franchise.
“The best people don’t wait,” said one
senior executive at a top-five Swiss bank
that is negotiating with individuals at
Credit Suisse. “This is a highly competi-
tive environment. All UBS has to offer is
five years of insecurity.”
A board member at another rival said
he knew of an entire Credit Suisse team,
of 10 to 15 people, that was looking for
an exit. “They will move in a block. [It’s]
in a location where UBS already has a
team . . . Things are going very fast.”
Credit Suisse’s operations in Asia are a
focus, several rival bankers said. The
region has been the main driver of profit
growth in Swiss private banking over
the past decade but the spoils have been
unequally shared. Many midsize Swiss
banks have, until now, been outcom-
peted by the two big banks.
While most analysts have been posi-
tive about what the takeover of Credit
Suisse will mean for UBS, the loss of key
employees will have a significant impact
on what the banks’ combined wealth
management franchise eventually looks
like, some have warned.
“In the end this is a relationship busi-
ness,” said Andreas Venditti, analyst at
Jumping ship: top Credit Suisse
bankers are being courted by rivals
Vontobel, a large Swiss private bank. He
said he expected senior bankers to take
major clients with them when they
depart. In some respects, he said, they
would be pushing at an open door.
“You have a lot of ultra high net worth
individuals who were clients of both
UBS and Credit Suisse, because they
value diversification,” he said. “UBS has
tried to play down the overlap of clients
but I would be very surprised, frankly, if
it was that low.” He also pointed to an
existing trend of outflows: rich clients
took a net SFr95.7bn ($104bn) out of
Credit Suisse accounts last year.
Nicole Curti, chief executive of Capital
Y, an adviser to ultra-rich families and
president of the Alliance of Swiss Wealth
Managers, said clients were worried
“about where this is going”.
She added: “The advice we have been
giving to clients is to diversify — to the
private banks like Pictet, Lombard
Odier and, of course, Julius Baer, but
also to the Swiss cantonal banks, which
have good online payment systems for
custody of cash.”
An adviser to UBS said retention was
now the “number one” issue for man-
agement as it grapples with digesting its
rival. The combined bank will have a
balance sheet of close to SFr5tn, with
SFr3.3tn of assets managed for the rich.
“Credit Suisse private bankers are being
called left, right and centre,” he said.
12
Openreach’s plans put Ofcom in a tricky position
Anna
Gross
S
ome people in the telecoms
industry like to compare the
copper or fibre lines transmit-
ting data under our feet to
railways. They are both natu-
ral monopolies, they argue: duplication is
wasteful, the high costs of construction
deters new entrants and economies of
scale are essential for survival.
But laying fibre costs much less than
laying a railway track. The fact that
more than 100 alternative network pro-
viders — or “altnets” — have popped up,
backed by billions in private capital,
suggests the financial incentives are
there to multiply the infrastructure.
Altnets are expected to reach 11.5mn
homes by the end of 2023, funded by
about £17bn from private investors.
Financials
LGIM points to
‘bumpy ride’ in
green transition
Asset manager worries
about failure to price in
risks of climate change
ATTRACTA MOONEY, CHRIS FLOOD AND
CAMILLA HODGSON
The UK’s largest asset manager has
warned that businesses and financial
markets are failing to price in the risks
of climate change, telling investors to
“strap in” and prepare for a “bumpy
ride”.
Legal and General Investment Man-
agement, which oversees more than
£1.2tn in assets, said a delayed shift to a
low-carbon economy could leave global
equities more than a third lower than in
The economic cost of
shifting to a low-carbon
economy was described
as ‘incredibly cheap’
a rapid transition and that a quarter of
companies that issue investment-grade
bonds could face downgrades if a net
zero world is not achieved by 2050.
Nick Stansbury, LGIM’s head of cli-
mate solutions, said the asset manager
had grown “far less confident” that the
goals of the Paris agreement on climate
change could be achieved even though
the economic cost of transitioning to a
low-carbon economy had become
“incredibly cheap”.
Under the 2015 Paris agreement,
countries agreed to limit global temper-
ature rises to well below 2C above pre-
industrial levels, and ideally to 1.5C. The
UN Intergovernmental Panel on Cli-
mate Change reported last week that a
1.5C rise in the near term was now
“more likely than not”.
LGIM said in a report yesterday that
science and engineering had delivered
Airlines
European flights disruption set to continue
PHILIP GEORGIADIS — BRUSSELS
ADRIENNE KLASA — PARIS
European airlines have warned that air
traffic controller strikes in France will
cause further travel disruption for pas-
sengers this year.
French air traffic controllers have
joined a series of strikes called by unions
this month against President
Emmanuel Macron’s unpopular pen-
sion reforms.
The disruption has rippled across
Europe because air traffic controllers
are responsible for planes flying over
their airspace, as well as those landing
and taking off from French airports.
EasyJet chief executive Johan Lund-
gren said yesterday that the airline was
“very badly hit” because UK flights
often have to cross French airspace to
reach other parts of Europe.
“It is something we have to plan for,
and we are doing our best to try to miti-
gate it, but of course it is very diffi-
cult . . . sometimes you only get 24
hours notice,” he said.
Michael O’Leary, the Ryanair chief
How inherently monopolistic tele-
coms infrastructure is has become a
central question after BT’s networking
division Openreach said it wanted to cut
its wholesale prices for the second time
in two years. Its contentious proposed
pricing model — dubbed Equinox 2 —
aims to lock in customers such as Voda-
fone, TalkTalk and Sky and encourage
customers to switch from legacy copper
lines to fibre.
Altnets claim the former monopoly’s
pricing manoeuvres amount to an anti-
competitive land grab that — if permit-
ted by the regulator — could price them
out of existence. Some analysts and
industry executives say that would not
be the worst thing as only one main net-
work provider is necessary — internet
companies can rent from them, remov-
ing the need for more infrastructure.
But infrastructure competition has
been a powerful motor for the govern-
ment’s ambition of turbocharging full
fibre rollout, which had been lagging
behind other countries, and getting
ultrafast internet to more people.
the cost cuts and technology required
for a low-carbon energy system and that
the most pressing challenge was now
allocating capital at speed and introduc-
ing government policies to support the
transition.
“The world could easily absorb the
costs associated with realising the goals
of the Paris climate agreement. But the
window to successfully meet a 1.5C cli-
mate outcome is closing at a worrying
speed,” the report said.
The report, based on extensive mod-
elling by LGIM, said “transitioning to a
below 2C climate outcome” would lower
monthly global gross domestic product
growth by as little as 1 basis point over
the next quarter of a century, although
this rate varies by region with emerging
markets taking a bigger hit.
“Our model shows that the inflation-
ary burden of a low carbon transition in
Nigeria is at least four times greater than
it is in the UK,” the report said.
While it was cheap to transition now,
Stansbury argued that if the world con-
tinued to delay for another decade and
was then forced to cut emissions rapidly,
the inflationary pressures and geopoliti-
cal destabilisation would pose a “very
serious risk for investors”.
“The financial consequences of cli-
mate procrastination are being badly
underestimated.”
LGIM said the best measure to drive
down global emissions would be an
effective carbon price, whether through
a direct tax, a cap and trade mechanism
or government subsidies for greener
sources of energy.
About 23 per cent of emissions glo-
bally are subject to a carbon price,
which now averages $6 a tonne of CO₂,
according to the OECD, too low to moti-
vate groups to change business models.
LGIM cautioned that carbon prices
could surge to $900 a tonne mid-cen-
tury if action to limit global warming to
less than 2C is delayed until 2030.
executive, said this summer would be
“materially better” than in 2022 when
staff shortages led to an unprecedented
set of delays and cancellations.
But he said airlines still faced a “very
difficult” challenge, mainly because of
the “scandal” of delays and cancella-
tions caused by the French strike.
Europe’s skies are already congested
French air traffic
controllers have joined
strikes called by unions
against pension reforms
because of the closure of Russian and
Ukrainian airspace and Eurocontrol,
the EU’s air traffic manager, warned in
January of “major” pressure as airlines
returned to close to their pre-pandemic
flight schedules.
O’Leary added that he expected
strikes to continue into April, which
would affect the Easter getaway. He said
Ryanair had to cancel 60 flights sched-
uled on both Wednesday and Thursday
★ FINANCIAL TIMES
UK COMPANIES
After dragging its feet for years about
upgrading its copper lines, Openreach
only began “building like fury” in large
part because rivals were starting to get
to places such as London and Milton
Keynes ahead of it. Openreach is invest-
ing £15bn to reach 25mn homes by
2026, and has already reached 10mn of
them. Some gripe about our internet
coverage, but Britain owes a lot to the
altnets.
Many of these companies are now
struggling against a backdrop of soaring
inflation and high interest rates that
have closed off financial taps. Consoli-
dation in the sector was always inevita-
ble. The first dominoes are starting to
fall, and there are early signs that Virgin
Media O2 and its owners are interested
in buying. Economies of scale are
important and will become more so.
Yet a number of the challenger busi-
nesses are robust and likely to lead M&A
in the future. Community Fibre, Lon-
don’s largest full-fibre network opera-
tor, has laid lines to nearly 1mn homes,
and has signed up 30 per cent of custom-
Chilling effect
Price cuts lead
to steep Asda
profit decline
at short notice. Europe’s largest low-cost
airline also cancelled 230 flights last
weekend.
DGAC, the French civil aviation
authority, said domestic and regional
flight schedules were more likely to be
affected than long haul owing to the
increased disruption involved in
rescheduling the latter. The aviation
authority added it has no visibility into
strike actions in the coming weeks
because unions only have to notify them
shortly before they go on strike.
Ryanair has called on the European
Commission to introduce minimum
service rules to prioritise flights over
France during industrial action.
An EU official said the commission
was “closely monitoring” the strikes as
it weighed the proper functioning of its
internal market with the right to strike.
Security staff at Heathrow are also
due to begin a 10-day walkout tomor-
row, leading British Airways to cancel
about 300 flights.
The industry is under pressure to
improve its operations following chaotic
scenes last summer.
ers in its more established neighbour-
hoods. CityFibre is well capitalised and
has built cables to 2.7mn homes, with a
take-up rate of at least 25 per cent.
Now Ofcom finds itself in a tricky
position. On the one hand, the regulator
wants Openreach to continue quickly
rolling out fibre. On the other, it wants to
ensure that Britain does not return to
The regulator’s decision
over whether to permit the
price change will provoke
outrage either way
the relative stasis facilitated by a reti-
cent monopoly.
It is inevitable that Openreach will
seek to increase its customer base —
that’s what businesses do. And given
that it already owns about 80 per cent of
the UK’s broadband connections (and
100 per cent in many parts of the coun-
try), any material expansion of market
share will inherently push it back
Asda profits slipped by nearly a quarter
last year, while sales were flat, as the
supermarket chain cut prices.
Sales, excluding fuel, rose 0.1 per
cent in 2022 to £20.4bn, while adjusted
underlying profits fell to £886mn from
£1.2bn the previous year.
Mohsin Issa, who co-owns the grocer
with his brother Zuber and private
equity group TDR, said that although
the price reductions “contributed to a
decline in profitability, it was the right
thing to do for our customers” amid
the cost of living crisis.
The company did not disclose the
impact of fuel sales on earnings. Some
industry observers last year accused
UK supermarkets of profiteering from
high fuel prices, which they deny.
The Issas’ goal is for Asda to overtake
J Sainsbury as the country’s second-
Retail
Next seeks clarity on tax and warns on profits
LAURA ONITA
Next’s chief executive has called for
more clarity on the amount of corpo-
rate tax businesses will pay in the com-
ing years as the retail chain warned on
profits.
Lord Simon Wolfson, the Conservative
peer and longest-serving FTSE 100 chief
executive, said: “While we can justify
where we are and that we need to pay for
the pandemic, where we are going com-
parative to other countries . . . I’m not
sure this level is the right level, and the
government hasn’t told us what the
long-term aspirations are.”
The government is raising the tax rate
in April from 19 to 25 per cent for com-
panies with annual profits of more than
£250,000. Wolfson did not say what he
thinks the rate should be.
His remarks came after Next warned
of a “difficult year” ahead as it budgets
for a drop in earnings this year despite
record annual profits in 2022.
The group, which has 466 stores in the
UK, said it expected full-price sales to be
down 1.5 per cent this year and profit
towards a position of monopoly.
Ofcom’s decision to chastise BT’s chief
executive Philip Jansen for bullish
remarks made around the publication
of the company’s results — that Open-
reach was “an unstoppable machine”
and that the situation would “end in
tears” for some altnet rivals — seems a
bit naive. It is Jansen’s job to try to main-
tain BT’s dominant market position. It is
Ofcom’s job to set rules to keep that
expansion in check.
It’s not obvious that Openreach’s pro-
posed pricing model poses an existential
threat to altnets: for a start, the rates
remain significantly above altnets’ costs
and the price most offer. But Ofcom’s
decision over whether to permit the
change will provoke outrage either way.
The regulator must make clear what its
red lines are, and what it would do
should Openreach breach them.
Every business is going to fight for
growth. Ofcom needs to make the rules
of the fight unimpeachable.
anna.gross@ft.com
largest grocer. Mohsin said the
group had made “good progress”
laying the foundations to achieve
this goal since they bought it for
£6.8bn in 2020.
Tesco remains the largest grocer
with a 26.9 per cent market share,
while Sainsbury’s is on 14.8 per cent
and Asda 14.3 per cent, according to
Kantar data.
The Issas, who also co-own EG
Group with TDR, are exploring a
merger of EG’s UK business with
Asda, to tackle the petrol station
empire’s debt mountain, which
starts to mature in 2024.
In January, credit rating agency
Moody’s warned that EG faced a
growing risk of a rating downgrade if
it failed to address its £7bn debt
pile. Laura Onita
Hollie Adams/Bloomberg
before tax to fall 7.6 per cent to £795mn,
slightly below the £805mn consensus.
Wolfson said: “The year ahead looks
like it will be challenging: the combina-
tion of inflation in our cost base, and top
line sales, which are likely to edge back-
wards, is uncomfortable.”
The shares pared back an early loss of
nearly 8 per cent in trading yesterday to
close 4.3 per cent lower at £64.34,
Forward planning:
the fashion chain
wants to know the
corporation tax
rate as far ahead
as possible
despite the group posting a better than
expected rise in annual profits in 2022.
Pre-tax profit was £870mn in the year
to January, up 5.7 per cent year on year
and £10mn higher than previous guid-
ance of £860mn. Full-price sales rose
6.9 per cent year on year as shoppers
flocked to stores after coronavirus
restrictions were eased and were up
20.5 per cent against pre-pandemic lev-
Thursday 30 March 2023
Financials
City has lost
standing as
pre-eminent
hub, survey
concludes
DANIEL THOMAS
London has lost its lead as the world’s
top financial centre, according to
research by the City that will add to
concerns over the Square Mile’s com-
petitiveness.
London and New York have tied for the
top spot, according to the benchmark-
ing data by the City’s governing body,
but this marks the first year that the UK
capital has not been the clear leader.
Financial services executives have
warned that the UK is at risk of losing its
place as a top financial centre after
Brexit, which forced some companies to
move operations to the EU.
There are also concerns that the US is
a more attractive place to list and grow
businesses, given the prospect of higher
valuations and a less restrictive busi-
ness culture.
Companies such as Cambridge-based
Arm and CRH, the world’s largest build-
ing materials group, have said they will
seek listings in New York.
Ministers have outlined a range of
potential services reforms including to
the listings market, as well as attempts
to deregulate sectors such as banking
and insurance.
Chris Hayward, policy chair at the
City of London Corporation, said Lon-
don’s “competitive advantage is at risk.
A long-term plan to stimulate growth in
the financial and professional services
sector is needed.”
The City of London Corporation has
begun working on its own proposals to
ensure that the financial and profes-
New York increased its
score to equal London
while Singapore was third
and Frankfurt fourth
sional services sector remains competi-
tive over the next decade.
An initiative backed by Lloyd’s,
Schroders, JPMorgan, EY and Barclays
is drawing up recommendations to be
published in the autumn.
The City of London Corporation —
which governs the area around the
financial district — has been publishing
an assessment of the competitiveness of
financial centres for three years.
The City said London received a com-
petitiveness score of 60, up from 59 last
year, but New York increased its score
by 2 points to equal London. Singapore
placed third with 51, while Frankfurt
scored 46, Paris 43 and Tokyo 35.
The survey found that London con-
tinued to perform well across factors
such as innovation, reach of activity,
resilience and business infrastructure,
talent and skills, and regulation.
But New York’s score increased
through high growth in tech invest-
ment, dealmaking and increased levels
of sustainable issuance.
The report found that the UK’s finan-
cial and professional services sector
generated £64bn in trade surplus in
2022, the largest of any country. But
fewer companies were choosing to list in
London, despite changes to rules.
The City wants ministers to encour-
age defined contribution funds to invest
in high-growth industries, which would
lead them to stay and scale in the UK, as
well as increase focus on areas such as
green bond issuance.
els. However, the group warned that
inflation would continue to drive up
costs until the second half of this year.
Prices in its spring/summer ranges
are forecast to rise 7 per cent and in
autumn/winter 3 per cent, but the
increase was “more benign than previ-
ously thought”, as freight costs and
energy bills come down.
Over the past three years, underlying
group operating margins have fallen
from 18.16 to 16.53 per cent in 2022. It
said it expected underlying net profit
margins of about 15 per cent this year.
Josh Warner at City Index said the
outlook “suggests that both growth and
profits have peaked”. He added: “Next is
known for underpromising and over-
delivering but has warned shareholders
it is not being overly cautious.”
The group said it still had “far more
ideas and opportunities for long-term
growth than it has had for some time”. It
added: “And while the year ahead looks
challenging, we’re not facing the kind of
long-term structural obstacles we have
overcome in the past eight years.”
See Lex
Thursday 30 March 2023 ★ FINANCIAL TIMES 13

COMPANIES & MARKETS

Fixed income. Aftershocks Regulation

Carbon credit
Credit Suisse AT1 wipeout watchdog calls
tipped to cost banks dear for ‘step up’ in
offset quality
CAMILLA HODGSON — LONDON

The independent task force that is set to

Investors warn Swiss decision
to write down $17bn of bonds
‘forever impairs’ new issuance
NIKOU ASGARI AND OWEN WALKER
LONDON
HARRIET CLARFELT — NEW YORK
Some banks will struggle to issue a form
of risky bonds used to bolster their capi-
tal and others will pay a much higher
price for them after similar debt held by
Credit Suisse was wiped out in its forced
sale, investors have warned.
Swiss regulators’ decision to write
down $17bn worth of Credit Suisse’s
additional tier 1 (AT1) bonds as part of
the bank’s purchase by UBS, rather than
wipe out shareholders, has called into
question the future viability of the
$260bn segment of debt markets.
Greg Peters, co-chief investment
officer of PGIM Fixed Income, said the
fallout from the decision for banks “for-
ever impairs the ability to issue AT1s”.
He added: “There will be a continued
risk premium repricing in that space.”
Stephen Ehrenberg, a portfolio man-
ager for Barings’ investment-grade fixed
income group, warned that higher costs
could well lead to a segmented market.
“You could see some of the strong UK
banks and the Nordic banks continue to
be able to access that market [while]
some of the weaker banks find that
either they can’t access new issue or that
the cost of doing so is too expensive.”
In a sign of smaller banks opting not to
refinance at higher rates, Deutsche
Pfandbriefbank, a lender that special-
ises in real estate lending, decided not to
call its AT1 bond last week, citing “mar-
ket conditions and economic costs”.
Kian Abouhossein, European banking
analyst at JPMorgan, noted recently that
AT1 debt is part of banks’ regulatory capital Some banks
may have to rely
(Capital as a percentage of risk-weighted assets)
heavily on
Common equity tier 1 Additional tier 1 Tier 2 equity to meet
0 5 10 15 20 25 regulatory
requirements
Barclays Jose Cendon/Bloomberg
HSBC
Deutsche Bank
BNP Paribas
Santander
Source: JPMorgan
most banks were paying 8 to 10 per cent Investors typically earn high interest in
coupons for AT1 bonds but should brace return for bearing these risks.
themselves for this “potentially rising The bonds form part of a bank’s tier
into double digits”. one capital, which also includes com-
If some banks are effectively locked mon equity and is the core measure of a
out of the market for AT1 bonds, they lender’s financial strength. CET1 and
could be forced to rely more heavily on AT1 capital must comprise more than 6
other sources of capital, such as equity, per cent of a bank’s risk-weighted assets
to meet regulatory requirements. under Basel regulations. Tier 2 capital is
Mark Holman, co-founder of Twenty- the second layer of a bank’s capital and
Four Asset Management, said he did comprises assets such as hybrid debt.
“not expect anybody to issue at current While debt typically ranks above ‘In the short
levels”. “I don’t see why they would pay equity in a restructuring, Swiss financial
that much when they can grow equity in regulator Finma upended the order of term we’re
other ways such as through retained priority by giving SFr3bn ($3.3bn) back suffering
earnings,” he said. to Credit Suisse shareholders while
Some banks have issued AT1 bonds at wiping out AT1 bondholders. Joost from
less than 4 per cent coupon. “Looking at Beaumont, head of bank research at contagion
the underlying risks, that just doesn’t ABN Amro, said the decision “will defi-
make sense,” said Rob Thomas, a credit nitely leave its mark on the AT1 instru- and we’re
research analyst at T Rowe Price. ments”, adding: “I definitely think it will suffering
AT1 bonds are a product of the global increase the cost of capital for banks.”
financial crisis, born out of regulators’ AT1 bonds are perpetual, meaning the from a
desire for banks to shift risk away from borrower has no obligation to repay confidence
depositors, and to have greater capital investors. However, banks typically
requirements in case of failure. Also refinance the bonds with new issuance issue’
known as contingent convertibles, or once an initial “non-call period” has Mark Holman,
Cocos, the bonds can be converted into expired — giving valuable flexibility to TwentyFour
equity if capital ratios slide below a cer- investors, who can decide whether to Asset
tain level, or written down entirely. invest in the new debt. Management
More than $37bn worth of AT1 debt
issued globally has call dates in April
alone, according to Refinitiv data. If
many banks decide not to call their
debt, yields in the AT1 market could be
driven even higher, analysts say.
An Invesco exchange traded fund
tracking AT1 debt has fallen 19 per cent
this month, underscoring the loss of
confidence in the market.
“In the short term we’re suffering
from contagion and we’re suffering from
a confidence issue,” said Holman.
Reassurances from other European
authorities that they would not follow in
Finma’s footsteps have provided little
comfort. On Tuesday, Bank of England
governor Andrew Bailey distanced the
UK from the Swiss actions, saying: “In
any resolution, we will always abide by
the creditor hierarchy because that’s a
cardinal principle.”
The European Central Bank previ-
ously said “common equity instruments
are the first ones to absorb losses”. They
“really wanted to show in Europe this
will never, ever happen . . . But then the
question is, will investors really believe
this?” asked Beaumont.
One person involved in negotiating
the Credit Suisse deal for UBS said the
Swiss decision to change the rules was
“rushed out to avoid a [winding down of
Credit Suisse] and massive global conta-
gion”. They added: “The AT1 market
will reprice and we will pay a higher
price for a while . . . At the moment, we
are well capitalised and well buffered
and we’ll be OK.”
Ehrenberg agreed it would take time
for the market to settle. “People come
away from something like this and say
‘yeah, we’ve got these rules, but over a
weekend a government can change the
rules’. So I think there will be a need to
regain some of that trust.”
Additional reporting by Laura Noonan
police the carbon credit market
announced initial rules yesterday, with
its chair stressing “everyone has to step
up” to improve the quality of offsets.
The Integrity Council for the Volun-
tary Carbon Market, whose board mem-
bers include representatives of the pri-
vate sector and non-profit groups, said
that it planned to raise the bar on the
quality of credits, which buyers, largely
companies, use to compensate for their
emissions.
The market for carbon offsets —
which are supposed to represent a tonne
of carbon avoided or removed from the
atmosphere — has been hit by concerns
about a lack of integrity and regulation.
“Not everybody consistently meets all
[criteria for best practice] . . . Every-
body is going to have to step up,” said
Annette Nazareth, chair of the ICVCM
and a former commissioner of the US
Securities and Exchange Commission.
There was “not enough consistency in
the quality” of credits, she added.
The first batch of offsets with the
ICVCM stamp of approval are set to be
available before the end of the year. The
ICVCM, which grew out of an initiative
spearheaded by former Bank of Eng-
land governor Mark Carney, marks the
first big attempt to regulate the growing
The market for carbon
offsets has been hit by
concerns about a lack of
integrity and regulation
industry, though Nazareth said that the
group was more of a “self-regulator”.
She said that she was talking to regu-
lators, including the US Commodity
Futures Trading Commission and the
International Organization of Securities
Commissions, which are interested in
the growing market.
The ICVCM will have the power to
approve groups such as Verra, a non-
profit organisation that is the largest
issuer of credits from environmental
projects that are used by companies to
offset their emissions. The body will also
be able to remove its approval in cases of
serious non-compliance.
Under the plan, approved groups will
be required to label individual credits
that meet all the rules, with the ICVCM
undertaking periodic spot checks.
Those issuing credits must also publicly
disclose important information, includ-
ing the names of the projects linked to
the credits that companies purchase.
The initial rules from ICVCM came as
the chief executive of Verra said that the
group was working to improve the
assessments of carbon-credit projects
by its third-party auditors.
“We’re streamlining [the process],
we’re improving systems, we’re training
Our global the auditors, bringing in technology”
team gives you and making sure that “the rules and the
market-moving requirements are fit for purpose”, said
news and views, David Antonioli.
24 hours a day Nazareth said it was “incumbent” on
ft.com/markets groups such as Verra to ensure that their
auditors were “doing a good job”.

Equities Fixed income

Alibaba’s break-up plan spurs tech sector
rally on hopes of end to China crackdown
HUDSON LOCKETT AND
WILLIAM LANGLEY — HONG KONG
Alibaba’s plan to split into six business
units has spurred a rally for Chinese
technology groups, with traders seeing
the move as the latest sign that Beijing’s
rolling crackdown on the sector was
coming to a close.
Alibaba’s Hong Kong-listed shares rose
more than 12 per cent yesterday, after
similar gains for the stock on Wall
Street, while the Hang Seng Tech index
tracking the largest techs listed in Hong
Kong climbed 2.4 per cent. Shares in
Japanese tech investor SoftBank, one of
Alibaba’s key early investors, rose more
than 6 per cent in Tokyo.
Analysts said the radical shake-up to
Alibaba’s structure, which people famil-
iar with the matter said had received
positive feedback from regulators prior
to the announcement, reflected a shift
by internet groups to become more
responsive to Beijing’s priorities.
The move would also serve to bolster
profits in the wake of a long share price
slump for the sector’s biggest names.
“Big internet firms appear to be
changing strategy, from expanding plat-
forms across verticals to downsizing and
focusing,” said Winnie Wu, China equity
strategist at Bank of America. “[Ali-
baba’s] break-up may be an important
experiment.”
Wu said such splits “may help insulate
the impact of [regulatory] risks” for the
newly independent units, since “differ-
ent subsidiaries can have varied data
disclosure and auditing arrangements,
and US investors can invest in ecom-
merce without touching the AI part”.
Shares in Chinese tech groups had
The moves reflect sector efforts to
be responsive to Beijing’s priorities
already received a boost this week after
Alibaba founder Jack Ma on Monday
appeared publicly in mainland China
for the first time in a year, as Beijing
seeks to boost investor confidence in its
support for the country’s private sector.
Under its new plan, Alibaba will
install a separate chief executive and
board at its business units, which can
each “pursue independent fundraising
and IPOs when they are ready”, Alibaba
chief executive Daniel Zhang said.
Analysts have responded positively to
the new structure, with some voicing
hopes that spinning off these businesses
will help mitigate what they describe as
a “conglomerate discount” by the mar-
ket, which values Alibaba as a whole less
than the sum of its parts.
“We think reorganisation empowers
different business units to respond
quickly to market changes and enhance
decision-making,” analysts at Jefferies
wrote in a note.
“In our view, this is an important
organisational change, and [the new
structure] leads to flexible and leaner
management, supported by its middle
and back-end infrastructure.”
See Lex
US label maker is first to tap junk bond
investors since SVB-led flight to safety
HARRIET CLARFELT — NEW YORK
A US labelling company has become
the first to break a weeks-long drought
of issuance in the $1.4tn US junk bond
market after banking sector turmoil
dented investor appetite for risky debt.
Labl, operating as Multi-Color Corpora-
tion, completed a $300mn bond issu-
ance on Tuesday, with the debt set to
mature in 2028. Proceeds from the deal,
which priced with a yield of 9.5 per cent,
according to people familiar with the
details, will be used in part to fund a
potential acquisition.
While the transaction was not partic-
ularly large, Multi-Color — which makes
labels for food, drinks and other con-
sumer products — was the first US bor-
rower with a subinvestment-grade
credit rating to tap the market since the
failure of Silicon Valley Bank.
The fallout from the lender’s collapse
had derailed a strong start to the year for
sales of high-yield bonds. Issuance
halted after SVB’s collapse and the crisis
at Credit Suisse led investors to flee into
safer assets, such as government bonds.
The high-yield market had “for all
intents and purposes been shut down
for new issuance activity”, said Mike
Chang, a bond portfolio manager at
Vanguard, in a “reversal of trends that
we saw in the first couple of months of
this year”.
Tuesday’s deal brought some relief to
a market that had been on ice following
issuance of $34bn in January and Febru-
ary combined, greater than the total for
the second half of 2022.
‘In the past we’ve seen the
underwriters try to reopen
the market with a known
name to test the waters’
But John McClain, portfolio manager
at Brandywine Global Investment Man-
agement, warned against reading too
much into the Multi-Color deal. He pre-
dicted a few “high quality” high-yield
issuers would follow the label maker
with their own junk bond offerings in
the next few weeks.
Marty Fridson, chief investment
officer at Lehmann Livian Fridson Advi-
sors, described the offering as “kind of a
gutsy move” by the label maker and its
bankers. He added: “A lot of times in the
past we’ve seen the underwriters try to
reopen the market with a high-end,
well-known name to test the waters.”
After the drought of recent weeks,
corporate borrowing for the first quar-
ter stands at $37.5bn as of March 28, the
lowest figure in seven years.
By contrast, companies with stronger
credit ratings have maintained greater
access to bond markets. High-grade
borrowing has exceeded $374bn in
2023, with investors continuing to buy
into large deals, such as last week’s
$6.5bn bond issued by UnitedHealth.
Investors said the disparity between
junk and investment grade-rated issu-
ance underscored the very high borrow-
ing costs low-grade issuers face, with
interest rates averaging almost 9 per
cent for risky US bonds. This is up from
less than 6 per cent just over a year ago,
before the Federal Reserve embarked
on the most aggressive campaign of
monetary policy tightening in decades.
The spate of US bank failures has
shaken markets and exacerbated wor-
ries about an economic downturn this
year that could lead to defaults at some
highly indebted companies.
14 ★ FINANCIAL TIMES Thursday 30 March 2023

COMPANIES & MARKETS

Reality check for The day in the markets

venture capital after What you need to know
a magical decade 3 Wall St gains as banking turmoil eases Alibaba’s break-up plans boost local tech stocks
3 Alibaba’s HK stock rises on split plan
Hang Seng Tech index
3 Real estate boosts FTSE 100

Michael Casey US stocks rose yesterday as fears of

further turmoil in banking eased, while
4,800

Markets Insight
Asian equities were buoyed by Chinese 4,600
ecommerce giant Alibaba’s plans to
splinter into six business units after years
of pressure from domestic regulators.

V
enture capital blossomed
from an artisanal strategy
into a behemoth over the
past decade, raising $163bn
last year in the US alone.
But the run on Silicon Valley Bank is
raising questions about the industry
and its prominent voices.
While levitating on the vapour of tan-
talising valuation mark-ups, many of
these leaders mistook the advantages of
low interest rates and globalisation for
their skill, and anointed themselves
prophets of innovation.
In truth, the wall of cash in recent
years led many VC funds to rely less on
discrimination and judgment and more
on playing a numbers game, investing in
an array of start-ups in the hope that
one delivered a vertiginous return. This
has always been part of the VC playbook
but it became more gamified, descend-
ing into an undisciplined play on the
momentum of industry and market
trends. The standards of due diligence
deteriorated.
Rising rates and the collapse of SVB
have laid bare that reality. Yet some per-
sist in the belief that VC’s problems may
disappear if we return to a world of fall-
ing interest rates and cheap money —
that the assets in VC portfolios will
return to their high-water marks; that a
buyer will pay a price as dear as Soft-
Bank’s Vision Funds have in the past.
These sentiments are delusional. The
real problems are broader. We are living
in a world of deglobalisation, geopoliti-
cal competition and the elevation of
resilience over efficiency. These condi-
tions demand rapid advances in science
and technology for markets that are
sub-global in scale. For many US VC
firms, executing a pivot is not so simple.
Why? First, the industry over-in-
dexed on capital-light software and con-
sumer start-ups, which rose from 39 per
cent of capital invested in the US in 2012
to 49 per cent in 2021, according to
PitchBook data. The attractions of soft-
ware were obvious: big markets, de mini-
mis marginal costs. This orientation
benefited from tailwinds in a world
where the globalisation of services and
intangibles, such as data, was accelerat-
ing. Software will remain very impor-
tant, particularly with the development
of artificial intelligence. But, alas, we
already see a splintering of the internet,
and governments are likely to exercise
greater control over the flow of data and
The wall of cash in recent
years led many VC funds to
rely less on judgment and
more on a numbers game
intellectual property across borders.
The European Commission’s recent
decision to ban its staff from using Tik-
Tok over security concerns is but an
early example.
In addition, while software may have
eaten the world and disrupted many
industries, most software is riddled with
bugs and vulnerabilities. Cyber crime
has exploded. The FBI has revealed that
financial losses from cyber crime quin-
tupled to $6.9bn between 2017 and
2021. In a heightened threat environ-
ment, companies and countries are
likely to emphasise information secu-
rity over efficiency. This is likely to
shrink the potential to sell across mar-
kets while increasing the development
costs for many software products.
Second, VC firms wishing to reorien-
4,400
Wall Street’s S&P 500 and the tech-
tate towards critical sectors such as agri- heavy Nasdaq Composite added 1 per
culture, computation, energy and life cent and 1.3 per cent respectively, leaving 4,200
sciences are likely to fail. Many both on track for modest monthly gains
eschewed such sectors: only 12 per cent despite the recent collapse of three mid-
of deals in the US over the past decade sized US lenders. The KBW Bank index 4,000
were in the “hard” sectors of energy, rose 1.5 per cent, while shares in First
hardware, biotech and pharmaceuti- Republic Bank climbed 6.1 per cent.
cals. Ironically, analysis from In-Q-Tel “Banking system stress remains high 3,800
reveals two-thirds of the funders for US but there are some signs of stabilisation,”
growth-stage hardware companies said analysts at Bank of America, with
between 2015 and 2017 were foreign. lenders on Tuesday borrowing roughly 3,600
Many US VC firms lack the expertise $5.7bn from the Federal Home Loan Jan 2023 Mar
and networks to originate and evaluate Banks, down from $156.4bn borrowed
Source: Bloomberg
deals in deep tech. They mostly do not from the liquidity provider on March 13,
have relationships with universities and when stresses in the sector emerged.
technology transfer offices that can Bond markets traded between gains more than 12 per cent, following similar cent from its peak in October 2020.
facilitate the commercialisation of and losses throughout the day, with the gains on Wall Street the day before, while Europe’s Stoxx 600 index added 1.2 per
groundbreaking scientific discoveries. two-year US Treasury yield down 0.01 the Hang Seng Tech index tracking the cent, with shares in UBS up 3.7 per cent
Nor do they have the experience navi- percentage points at 4.04 per cent and largest technology companies listed in after the bank said it would bring back
gating labyrinthine regulatory path- the yield on the 10-year Treasury down the city climbed 2.4 per cent to its highest Sergio Ermotti as CEO to steer its
ways to bring novel technologies and 0.01 percentage points at 3.56 per cent in level since late February. China’s CSI 300 takeover of Credit Suisse. Europe’s Stoxx
therapies to market. Moreover, their New York. Yields fall when prices rise. rose 0.2 per cent. 600 Banks index gained 1.9 per cent.
value-creation tool kits are deficient for The dollar advanced 0.3 per cent against The moves came after Alibaba London’s FTSE 100 rose 1 per cent,
capital-intensive businesses. a basket of six other currencies. announced a radical restructuring that helped by real estate stocks after UK
Finally, the sources of early-stage and Figures out yesterday showed US would mean it separating into business February mortgage approvals edged up
growth capital are likely to shift. States home sales rose for the third consecutive groups dedicated to cloud computing, to 43,500 from January’s 39,600.
are likely to expand concessionary month in February, up 0.8 per cent on ecommerce, local services, logistics, Prices for Brent crude gave up earlier
financing to start-ups in priority sectors, January. Economists polled by Refinitiv digital commerce and media. Long under gains to slip 0.6 per cent to $78.38 a
creating competition for deals. And val- had expected a decline of 2.3 per cent. pressure from domestic regulators, barrel, but still up from roughly $73 a
uation multiples are likely to be hit by Alibaba’s Hong Kong-listed shares rose Alibaba’s stock has fallen almost 70 per barrel two weeks ago. George Steer
restraints on deep-pocketed foreign
investors. In addition, dual-use technol-
ogies — particularly those in aerospace, Markets update
biology, computation and materials —
are likely to face more stringent export
controls.
Venture capital prospered in a magi- US Eurozone Japan UK China Brazil
cal decade that placed a premium value Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
on storytelling — perhaps because the Level 4014.17 1782.03 27883.78 7564.27 3240.06 101283.08
price of money had none. If it wishes to % change on day 1.08 1.25 1.33 1.07 -0.16 0.10
retain relevance, VC will need more Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
than a software update. Level 102.597 1.083 132.505 1.231 6.888 5.147
% change on day 0.163 0.000 1.176 -0.162 0.039 -0.606
Michael Casey is the founder of Portico Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Advisers Yield 3.559 2.322 0.302 3.617 2.874 12.426
Basis point change on day -0.090 3.700 -0.770 0.500 -0.200 -15.400
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 418.19 78.14 72.98 1962.85 23.05 4033.70
% change on day 0.99 -0.65 -0.30 0.85 0.68 0.52
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 5.84 Oci 15.34 Ocado 7.66
Micron Technology 5.71 Infineon Tech 6.75 Prudential 4.26
Ups

Paychex 5.26 Erste Bank 4.60 M&g 3.68

Mosaic (the) 4.38 Adidas 3.44 Barclays 3.53
Cf Industries Holding 4.22 Kbc 3.18 Land Securities 3.36
%
Ross Stores -1.75 A.p. Moller - Maersk B -23.60 Next -4.34
Bath & Body Works -1.66 Tenaris -0.53 Smith & Nephew -1.10
Downs

Target -1.33 Grifols -0.45 Pershing Square Holdings Ltd -0.54

Intuitive Surgical -0.98 Brenntag -0.32 Pearson -0.51
First Solar -0.90 Dsm -0.27 Associated British Foods -0.44
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

Upmarket “athleisure” group Lululemon France’s Atos dived on news that Airbus Next sank to the bottom of the FTSE 100
Athletica jumped after assuaging fears no longer planned to acquire a minority index after chair Michael Roney said it
about excess stock. stake in Evidian, the IT services group’s had “prepared (and budgeted) for a
“Those worries appeared overdone,” cyber security and big data arm that was difficult year” ahead.
said UBS, which noted that Lululemon’s set to be spun off. The fashion retailer reiterated its 2023
inventory rose “only” 50 per cent in the Jefferies, commenting on rumours of outlook that pointed to sales declining 1.5
fourth quarter, below the 60 per cent the such a deal earlier this year, said: “We fail per cent and a pre-tax profit of £795mn,
broker said was problematic. to understand the rationale of taking a which was slightly below the £805mn
Gross margin also beat UBS’s minority stake, as it would limit any analysts had expected.
estimates, with the group’s chief synergies that Airbus could extract from In the bottom half of the FTSE’s smaller
executive telling analysts “we do not this.” peer, the mid-cap FTSE 250 index, was
drive our top-line growth through OCI rose sharply after Inclusive Capital Digital 9 Infrastructure, which was
discounts or promotions and we have no Partners, a US activist investor, said the downgraded by Jefferies. The investment
intentions to”. fertiliser maker was trading at a group’s rating was lowered from “hold” to
Near the top of the S&P 500 index was significant discount to its intrinsic value. “underperform” owing to its “stretched
PayChex, the human resources provider, In-Cap, which has a 5 per cent stake in fund-level balance sheet”.
which posted earnings of $1.29 per share the Dutch group, proposed strategic Investment group Phoenix Spree
for its fiscal third quarter, 5 cents above options to unlock value, which reportedly Deutsch fell sharply on news that it was
the Refinitiv-compiled consensus. included asset sales. suspending its dividend. This was done in
Joining PayChex at the upper end of OCI, in response, said it would “evaluate order to “preserve cash and support its
the blue-chip benchmark was chipmaker the merits of the views and ideas of our core business”, which revolves around
Micron Technology, which unveiled stakeholders, including In-Cap”. Berlin’s residential property market.
several belt-tightening measures. A lack of dividend alongside weak Robert Hingley, chair, said: “During
Sanjay Mehrotra, chief executive, said guidance weighed on Germany’s Encavis. 2022, the real estate industry has had to
capital expenditure would be reduced to The renewable energy group, having adjust to the combined effects of global
$7bn, down more than 40 per cent from benefited from “exceptionally high inflationary pressures and higher interest
last year, amid slowing demand growth. electricity prices” last year, said it rates.” These were trends PSD had “not
Micron plans to cut headcount by 15 expected earnings of “more than €0.60” been immune from”.
per cent alongside executive salary cuts per share in 2023, 3 per cent below the Component provider Essentra, which
and a suspension of bonuses. consensus estimate. sells electronic, hardware and fastener
IT management tools company A payout was also put on hold as products, rallied on announcing it would
N-able rallied in anticipation of joining Encavis pursued “a highly ambitious be returning £150mn to investors via a
the S&P SmallCap 600 index next week. capacity expansion from our own special dividend and share buyback.
Ray Douglas resources”. Ray Douglas Ray Douglas
Thursday 30 March 2023 ★ FINANCIAL TIMES 15

MARKET DATA

WORLD MARKETS AT A GLANCE FT.COM/MARKETSDATA

Change during previous day’s trading (%)
S&P 500 Nasdaq Composite Dow Jones Ind FTSE 100 FTSE Eurofirst 300 Nikkei Hang Seng FTSE All World $ $ per € $ per £ ¥ per $ £ per € Oil Brent $ Sep Gold $

-0.162%
No change
1.08% 1.37% 0.72% 1.07% 1.25% 1.33% 2.06% 0.99% 1.176% 0.114% 1.13% 0.85%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparisson
AMERICAS EUROPE ASIA
Mar 01 - - Index All World Mar 01 - Mar 29 Index All World Mar 01 - Mar 29 Index All World Mar 01 - Mar 29 Index All World Mar 01 - Mar 29 Index All World Mar 01 - - 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
3,982.24 3,971.27 20,260.13 7,935.11
15,381.43 27,453.48 27,518.25
19,657.53 7,484.25 15,142.02

Day 1.08% Month 1.10% Year -13.34% Day 0.81% Month -2.02% Year -10.29% Day 1.07% Month -4.05% Year 0.26% Day 1.17% Month 0.86% Year NaN% Day 1.33% Month 1.47% Year -0.34% Day 0.37% Month 1.29% Year -10.46%

Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
11,716.08 53,223.77 1,824.49 9,314.30 3,263.24 3,255.54
11,466.98 52,686.24 19,943.51 19,784.65
1,760.07 8,944.30

Day 1.37% Month 3.65% Year -16.20% Day 0.24% Month 1.12% Year -4.93% Day 1.25% Month -2.05% Year -1.35% Day 1.41% Month -3.45% Year 8.43% Day 2.06% Month 1.91% Year -7.01% Day 0.22% Month 0.03% Year -4.91%

Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai

105,711.05 7,295.55 27,444.31

32,889.09 3,258.03 3,245.38 59,463.93
32,394.25 101,276.91 7,088.34 26,329.46
57,613.72

Day 0.72% Month -0.12% Year -7.58% Day -0.20% Month -3.72% Year -15.82% Day 1.32% Month -1.20% Year 8.98% Day 1.56% Month -2.69% Year 8.88% Day -0.16% Month -1.21% Year 0.79% Day 0.60% Month -1.50% Year
51071.16%
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20 ★ FINANCIAL TIMES Thursday 30 March 2023

ARTS

Complicité back
Drive Your Plow Over the Bones
of the Dead
Barbican, London
AAAAE

at full throttle Accidental Death of an Anarchist

Lyric Hammersmith, London
AAAAE

barely notice she’s doing it as you fall could not be more topical: Daniel Rag-
THEATRE into stride with her marvellous central gett’s staging (a co-production between
character. This is a woman who scarcely the Lyric and Sheffield Theatres)
Sarah registers with those in power, but who is arrived in London at the same time as
Hemming drily funny and sardonic and who artic-
ulates a profound, urgent call for a
the publication of a scathing independ-
ent review of the Metropolitan Police.
rethink of humanity’s place on the The laughs, which are plentiful, come
earth. Her affinity with local wildlife, edged with rage: a statistic emblazoned

T
he house lights are still up
when a woman in her six-
ties, clutching a plastic car-
rier bag, wanders on to the
stage and taps the micro-
phone speculatively. The audience shifts
apprehensively. Is she here to make
some sort of emergency announcement?
It seems not. “I want to tell you a
story,” she says, before offering some
tangential details about washing her
feet. So it is that this magnificent Com-
plicité adaptation of Olga Tokarczuk’s
2009 novel Drive Your Plow Over the
Bones of the Dead opens. Simon
McBurney’s staging immediately sets
the tone, finding a supple theatrical
equivalent of Tokarczuk’s dazzling, slip-
pery narrative style.
What’s true and what’s not true are
soon very much open to question, as
Janina (a name she hates) embarks on
her wildly idiosyncratic yarn — part
murder mystery, part parable, part
blazing political manifesto. Her quiet
backwater on the Polish-Czech border
has become a crime scene, we learn:
bodies are mounting up with the fre-
quency of a lurid TV cop show. And
Janina has a theory. The victims, all
men, all belonged to the local hunt club.
It’s obvious to her that the animals are
taking revenge. This is a view she has
shared with the police — to no avail: they
simply reckon she is crazy — and now
wants to share with us. How reliable a
narrator she is remains to be seen.
Tokarczuk’s brilliant novel is every bit
as enigmatic as its protagonist: under
cover of a crime thriller, she slips in a
subversive slicing and dicing of the
patriarchy and a rallying cry for greater
environmental awareness. But you
her fascination with astrology, her pas-
sion for the work of William Blake and
her love affair with an entomologist all
add up to a deep sense of the inter-
connectedness of life.
In McBurney’s production, that inner
life leaps out on to the stage, with Dick
Straker’s gorgeous video work drench-
ing Rae Smith’s set in star-studded skies,
astrology charts and dappled, beetle-
inhabited forest floors. We are seeing
the world as Janina sees it. Meanwhile a
‘Drive Your Plow’ is part
murder mystery, part
parable, part blazing
political manifesto
wonderfully versatile ensemble plays
both the neighbourhood residents and
the local fauna — statuesque, watchful
deer; slinky foxes; strutting magpies.
The practice of having humans portray
animals neatly embodies Janina’s view
that the two are equal.
Christopher Shutt’s sound design and
Richard Skelton’s music can be menac-
ing, suspenseful or tenderly lyrical. The
blurred borders in the novel — between
territories, species, literary genres, inte-
rior and exterior worlds — translate to
stage as a multi-faceted, fourth-wall-
breaking spectacle.
At the centre is Janina, eccentric,
insistent, mordant, fearless. She’s
superbly played by Amanda Hadingue
(Kathryn Hunter, with whom she has
been sharing the part, was taken ill
before the official London opening).
The role is a feat of memory to begin
with, but Hadingue delivers it with crisp
matter-of-factness underscored by
burning outrage. There is standout
work too from César Sarachu as Janina’s
gawky but loveable neighbour, Oddball
(very funny when stoned), Tim McMul-
lan as the oleaginous priest and Alexan-
der Uzoka as the gentle student Dizzy
with whom Janina translates Blake.
It’s great to have Complicité back at
full throttle, with a prime piece of com-
pelling storytelling that uses comic
ingenuity, sharp physicality and clever
technology to lift a complex, multi-
layered novel into vibrant stage life.
There’s a sag in energy before the inter-
val, when the weight of incident begins
to slow the show’s momentum. And one
big narrative twist feels less shocking
than in the book.
But this is a beguiling, imaginative
piece of theatre, as strange, dark and
mischievous as the book. And it demon-
strates how powerfully theatre can
advocate through artistry. In the book,
Janina has a platform; on stage, she has a
microphone. A solo read becomes a
communal experience, so amplifying
the call for a different way of thinking
about who is important and about our
place in the world.
To April 1, barbican.org.uk, then on UK and
European tour, complicite.org
Another mysterious casualty, another
eccentric story and another unconven-
tional narrator and arbiter of justice.
But the mood in Accidental Death of an
Anarchist is very different. This 1970
farce by Dario Fo and Franca Rame is
based on a real-life scandal: the murky
death during police interrogation of an
Italian railway worker and anarchist.
Tom Basden’s riotous new version
brings the satire right up to date and
on the set wall at the end informs us that
1,850 people have died in police custody
or following contact with the police in
England and Wales since 1990. And
Basden’s script is sprinkled with all too
recognisable outrages: officers taking
selfies with murder victims; dodgy
WhatsApp groups.
It’s comedy that is the tool of interro-
gation here, however, and Raggett and
his cast wield it mercilessly. The agent of
truth is “the Maniac”, an enigmatic indi-
vidual who fetches up in a police station
Above: Amanda
Hadingue in
accused of impersonation and who pro-
ceeds — by impersonating a judge — to
Complicité’s run rings round everybody, all the
‘Drive Your Plow while delivering a running commentary
Over the Bones to the audience.
of the Dead’.
Left: Howard
Donning a ludicrous wig, half-moon
spectacles and a gargantuan air of confi-
Ward, left, and dence, he manages to hoodwink the
Daniel Rigby in none-too-bright officers that he is inves-
‘Accidental tigating the suspicious plunge of the
Death of an anarchist from a fourth-floor window.
Anarchist’ The more he appears to collude with
Alex Brenner; Helen Murray
their ludicrous cover-up, the more he
exposes it as a sham. Pretence uncovers
pretence, the whole thing delivered with
the flourish of a barrister dropping a
killer piece of evidence mid-trial. And
the grand irony is that, on moral
grounds at least, he is indeed their judge.
The linchpin of Raggett’s staging is
Daniel Rigby as the Maniac: a human
tornado whose pratfalls, clowning and
one-liners, delivered at blistering speed,
simultaneously stitch up the coppers
and leave the audience in stitches. He is
well supported by Tony Gardner’s
pompous superintendent, Jordan Met-
calfe’s bullishly stupid detective and
Shane David-Joseph’s hapless constable.
A good week for eccentric narrators.
To April 8, lyric.co.uk

Jazz stripped down to core values

JA Z Z
Lakecia Benjamin
Jazz Café, London
aaaae
Mike Hobart
Lakecia Benjamin draws on the intense
wellspring of classic John Coltrane and
adds the sonics and history of her main
instrument, alto sax. That core aesthetic
was established even before she took the
stage at Ronnie Scott’s. Cymbals
swished, pianist Zaccai Curtis sprayed
modal block chords and bowed double
bass rumbled and scraped around the
tonic key. Benjamin joined, full-throttle
and focused, with tumbling pentatonics,
warbles and long-sustained notes crying
in the upper range.
Scene set, the night’s first theme,
“Trane”, was cued by a brief sway of
Benjamin’s alto sax. Whiplash rhythms
alternated with walking bass swing and
ebb-and-flow solos moved inexorably to
a high. It took a while before the piece
ended with a final phonic from Ben-
jamin’s alto sax. Audience nailed, it was
time for a brief chat. “I like to talk, but
now’s the time for playing,” said the
warm and welcoming Benjamin.
The set was based on her recently
released, guest-laden album Phoenix (on
Lakecia Benjamin at the Jazz Café
Whirlwind Recordings) — voiceovers,
samples and electronica are in that spir-
ited mix. Here, the music was presented
by a stripped-down acoustic sax and
rhythm quartet steeped in the core val-
ues of mainstream modern jazz. Fast,
spidery piano came with two-handed
thrust, bassist Ivan Taylor held the fort
and drummer EJ Strickland delivered a
chattering dialogue of bass drum and
snare. The band stretched out, themes
re-entered on cue, and Benjamin, the
focus, drew on a swathe of jazz history —
that first number referenced a key
inspiration; soon the music would draw
on hip-hop and the blues.
On the album, “Amerikkan Skin” fea-
tures the recorded voice of Angela
Davis, but in this unadorned acoustic
set, the sentiments were expressed by
Benjamin’s spoken word and elaborated
with rhythmically sharp fast-paced rap.
“New Mornings” delivered a change
of vibe and the sinuous playout of
“Blast” was accented with the blues.
Then “Amazing Grace”, played instru-
mentally and channelling 1950s gospel
R&B in the style of Ray Charles: Ben-
jamin’s phrases curled round the chords
and slurred, sighed and moaned; Curtis
supported with gospel voicings and
occasional shakes and trills.
“Jubilation”, written by Patrice
Rushen, one of the album’s guests,
returned to the band’s core style. Tough
syncopated sax drew a cheer, the thun-
der and crash of unleashed drums got a
roar. Then the house was plunged into
darkness. “Either it’s time to go, or they
haven’t paid their bills,” said Benjamin,
launching a sharp-edged extended ver-
sion of the Coltrane classic, “My
Favorite Things”.
Wayne Shorter’s “Footprints” segued
into the spiritual “Wade in the Water”.
Still time for one more, “Moods”, a
Latin-tinged romp from her latest CD.
thejazzcafelondon.com

GA M I N G
Storyteller
PC and Nintendo Switch
aaaee
Lewis Gordon
“An honest tale speeds best being
plainly told,” says Queen Elizabeth in
Richard III. It’s a surprisingly modern
attitude — that the most effective yarns
favour clarity and brevity. Storyteller, a
new puzzle game based around building
narratives, seems to have taken the
monarch’s advice to heart. It packs 51
headscratchers into just a few hours,
while attempting something strikingly
ambitious: the deconstruction and
remixing of western literature’s most
famous tales.
It does so by fusing together two rela-
tively young forms: the comic strip and
the video game. At the start of each puz-
zle, you are given a title, “Seeing the
Ghost of a Lover” for example, and a
number of panels, characters and
scenes to manipulate. For example, you
place the wedding scene down and then
drop Adam and Eve into it. They fall in Storyteller offers an enjoyably flexible
love. Next, you select the graveyard, approach to classic sagas.
with “Adam” on the tombstone and Eve Yet by the time credits roll, it feels as if
kneeling next to it. She mourns her late Storyteller hasn’t quite capitalised on the
husband. Finally, you create another rich possibilities of its premise. The
wedding scene featuring the biblical game is undeniably funny, but lacks a
duo; however, this time Eve sees the few punchlines. Moreover, its tour of the
spirit of her deceased partner. Et voilà! world’s most beloved stories is whistle-
The story is thus complete. stop to a fault and ends too abruptly.
Beginning with three panels, the puz- What’s arguably missing is a rip-roaring
zles eventually ramp up in complexity crescendo where all the elements —
to panels spanning eight. All the good plot, character, form and style —
stuff is here: the aforementioned love, coalesce. As it stands, Storyteller lacks
death, heartbreak and ghosts, as well the closure of its greatest forebears.
as resurrection, amnesia, jealousy,
revenge, monsters and even Oedipal
incest. Some of the most satisfying puz-
zles are those grouped under “Secrets”,
whose comic strips involve demanding
royalty, resentful butlers and good old-
fashioned detective work. Indeed, there
is a joy in working backwards like a
detective during these plot-driven
conundrums, arriving at solutions that
often playfully subvert the tropes on
which they are based.
Beyond a handful of characters who
possess immutable traits — chivalrous
knight, treacherous usurper and a ‘Storyteller’ fuses comic strips and
malevolent dwarf named Hatey — video games
Thursday 30 March 2023
Triads, ghost ships and underground banks: an investigation shows how regional business figures linked
to organised crime have helped facilitate illicit deliveries of hundreds of thousands of barrels.
Inside North Korea’s oil smuggling
A
t 10.39am local time on
September 25, 2022, an oil
tanker called the Unica sat
alongside a vessel in waters
just west of the North
Korean port of Nampo.
Tied together by cables, the two ships
sat side-by-side for just under three
hours, conducting what appears to be a
ship-to-ship transfer of oil in violation
of UN sanctions on North Korea.
The Unica is one of just three foreign
vessels that still sails straight to North
Korea. It has made at least 23 journeys
to the country or its exclusive economic
zone since 2019.
Illegal shipments to Pyongyang have
been well documented. Less well
known, however, are the individuals
behind the shadowy networks that have
enabled the regime of Kim Jong Un to
finance a new generation of ballistic
missiles and nuclear warheads.
Now, a joint investigation by the
Financial Times and the Royal United
Services Institute think-tank shows how
business figures in east Asia linked to
organised crime have helped facilitate
illicit deliveries of hundreds of thou-
sands of barrels of oil.
Documents show that the Unica con-
ducted deliveries to North Korea while
co-owned by Gary To, a Hong Kong oil
trader with links to the triads, a syndi-
cate of organised crime groups with
roots in southern China.
To is a former business partner of
Alvin Chau, one of Asia’s leading gam-
bling tycoons, who was recently jailed
for organised criminal activities.
While the oil and petroleum products
delivered by the Unica and other vessels
offer a critical lifeline to North Korea,
the regime also needs middlemen to
source and pay for the cargo.
Tens of millions of dollars’ worth of oil
was bought by companies operated by a
Macau-based businessman named Sun
Tit Fan, according to documents seen by
the FT. The purchases were made
through the subsidiary of a North
Korean bank placed under sanctions by
the US for assisting Pyongyang’s nuclear
weapons programme. Like Gary To, Sun
is a former business partner of Chau.
The investigation is a complex tale
traced through shell companies, triad
networks, underground financing chan-
nels and sprawling family connections.
But it sheds new light on how the shat-
tered economy overseen by North
Korean dictator Kim Jong Un has been
propped up by murky intelligence and
financing operations in the Chinese spe-
cial administrative regions of Hong
Kong and Macau.
It also helps explain how Kim’s regime
can continue to build increasingly
sophisticated nuclear weapons in defi-
ance of tough international sanctions.
Last week, Kim attended a missile test
that simulated a nuclear attack on the
US and South Korea.
“This is the most detailed evidence
ever put into the public domain to show
how North Korea uses people with high-
level connections to criminal networks
like the triads to evade sanctions and
finance their weapons programmes,”
says James Byrne, director of the open-
source intelligence and analysis
research group at Rusi.
“These networks are central to North
Korea’s ability to continue to function
and threaten the world with nuclear
war.”
The oil smugglers
Sanctions experts describe the Unica’s
deliveries of oil and petroleum products
to North Korea as a flagrant violation of
UN Security Council resolution 2397,
passed in December 2017 after
Pyongyang’s most recent nuclear test.
The resolution imposed a cap on per-
mitted oil transfers to North Korea of
500,000 barrels a year, far below its
energy needs. All transfers are supposed
to be reported to the UN, but only a frac-
tion ever are. An unreported transfer
constitutes a violation of the sanctions.
Hugh Griffiths, a former co-ordinator
of the UN panel of experts monitoring
violations of sanctions on North Korea,
says that even before the sanctions were
imposed, Pyongyang relied on ship-
ments from a network of Asian oil trad-
ers whose principal business was smug-
gling untaxed petroleum products into
mainland China.
But after the sanctions were intro-
duced, less hardened offenders fell
away as rogue companies and ships
were identified and brokers arrested.
“What you’re left with after all this
pressure are networks that are habitu-
ally accustomed to breaking the law,”
says Griffiths. “People who can secure
★ FINANCIAL TIMES
FT BIG READ. EAST ASIA
By Christian Davies, Primrose Riordan and Chan Ho-him
At the centre of a web of connections to
the Unica tanker are Asian gambling
tycoon Alvin Chau, far right, and Hong
Kong oil trader Gary To. Macau-based
businessman Sun Tit Fan, below, is also
connected to Chau and the oil trade
FT montage/Suncity Facebook page.
Tanker illustration by Steve Bernard from satellite imagery
‘This is the most the acquiescence of the crew with the
threat of physical violence, who can be
detailed evidence ever sure that anyone who is arrested is not
going to talk, and crucially, who have the
put into the public means to launder the proceeds.”
domain to show how The oil deliveries expose the difficulty
of preventing violations even after indi-
North Korea uses vidual entities have been identified. The
Unica has continued to deliver to North
people with high-level Korea even after the vessel was placed
connections to under sanctions by the EU in December.
That so many deliveries are facilitated
criminal networks through Hong Kong and Macau also
raises questions about China’s commit-
to evade sanctions’ ment to enforcing UN sanctions on
North Korea.
“We would often notify China of
‘In North Korea, it is potential breaches of the sanctions
regime,” says Aaron Arnold, a Rusi
not only the leadership counter-proliferation expert who also
served on the UN panel. “It was com-
that is hereditary. . . It is mon not to receive a response.”
good for the new boss In a statement, the Chinese govern-
ment said it implemented UN resolu-
to grow up in the tions and fulfilled its international
obligations, but added: “Political settle-
environment they will ment and diplomatic channels are the
be operating in’ only viable way to resolve the [Korean]
peninsula issue, not sanctions.”
The Hong Kong government said it
“attaches great importance” to imple-
menting UN sanctions, adding that its
law enforcement agencies tracked sus-
pected violations “vigorously”. The gov-
ernments of Macau and North Korea did
not respond to requests for comment.
A single ship can make a difference.
Researchers from Rusi have calculated
that if it was fully laden during each of
its 14 suspected transfers to North
Korea between August 2021 and Sep-
tember 2022, the Unica could have
delivered approximately 489,166 bar-
rels of oil — equivalent to 98 per cent of
North Korea’s entire permitted annual
quota — all by itself.
The North Korean regime has a long
history of engaging in criminal activity
as a means to accumulate foreign cur-
rency. Propping up this illicit shadow
economy are foreign organised criminal
groups such as the triads, who assist in
the regime’s overseas financing and pro-
curement activities. Hardened crimi-
Reporting team nals offer the North Koreans access to
Steven Bernard, Dan Clark, global smuggling, distribution and
Sam Joiner and Caroline money laundering networks.
Nevitt. Additional work by “Imagine your missile engineers need
Justine Williams and Irene de some equipment for their ballistic mis-
la Torre Arenas sile navigation systems,” says Andrei
Lankov, professor of history at Kookmin
To read the full, interactive University in Seoul and a leading
version of this investigation, authority on North Korea. “You can’t
scan the QR code just visit the factory that makes it — you
need to rely on people who, for a good
commission, are ready to do pretty
much everything.”
A key figure connected to businesses
and individuals doing business with
North Korea across east Asia is disgraced
gambling tycoon Alvin Chau, the former
chair of Hong Kong’s Suncity Group.
Chau’s conviction and imprisonment
in January on charges including involve-
ment in a criminal organisation has
shone a spotlight on the illicit activities
centred around Suncity.
One expert says the Hong Kong-based
conglomerate became an “underground
bank”, and court documents show how
its influence stretched from mainland
China across Asia.
Suncity began in 2007 as a “junket”,
or gambling promoter responsible for
shipping high rollers from mainland
China, where gambling is illegal, into
Macau where it is legal.
But the company has since diversified
into a variety of other businesses, gener-
ating hundreds of billions of US dollars
in revenue.
According to the judgment issued in
Chau’s conviction, Suncity used legiti-
mate businesses to conceal a host of ille-
gal activities, accumulating assets and
equity in development projects from
gamblers who became indebted to the
group back in the mainland.
The Macau court authorities estimate
Suncity’s illegal gambling turnover was
HK$823.7bn (US$105bn) between
March 2013 and March 2021. “Suncity
became an underground bank of a huge
scale,” says Steve Vickers, a former
Hong Kong policeman.
A regional law enforcement official
and former casino executives told the
FT that Suncity was involved in money
laundering across Asia, as well as assist-
ing wealthy citizens from the mainland
to move money out of China.
Suncity group’s listed entity has since
been renamed LET Group. The group
distanced itself from its previous chair,
Chau, and said the gambling promotion
business that was the subject of the
Macau court proceedings was contained
in a private company run by Chau. The
allegations were “not relevant to our
organisation”, LET Group said. Chau did
not respond to a request for comment.
A 2022 report by the government
of the Australian state of New South
Wales also suggested Chau was a triad
associate, referencing due diligence doc-
uments citing “ongoing connections
with triads and the facilitation of organ-
ised crime by Suncity”.
Chau previously served as an execu-
tive at a gold-trading affiliate of the Sun-
city Group run by Gary To, the co-owner
of the Unica.
To also had a connection to the 14K
triad, an organised crime syndicate
prevalent in Hong Kong and Macau,
through a onetime executive of his gold
company identified as a 14K member by
the Australian authorities.
To denied any connections to triad
groups. He told the FT in a statement
that he had acquired the gold-trading
affiliate from Suncity to deal in precious
metals, and had only met Chau “once or
twice”.
“[I] hope that my name and my com-
pany will not relate to Suncity or Mr
Chau again,” he says. “I have never been
involved in any triad-linked operations
to ship oil to North Korea.”
He said that he had sold out of Pros-
pera Pacific International, the company
that owns the Unica, in October 2018 —
Shadowy networks
have enabled the
regime of Kim Jong
Un to finance a new
generation of
nuclear weaponry
the same month the company was
established.
But an official document seen by the
FT shows that To was one of two ulti-
mate beneficiary owners of the com-
pany as recently as early 2020, by which
time the PPI-owned Unica had already
visited the North Korean port of Nampo
in defiance of UN sanctions on at least
five occasions.
When asked for evidence that he had
sold his stake in PPI, and to whom, To
did not respond.
It’s not known who paid for the oil on
the Unica. But North Korea has relied on
covert networks overseas to act as mid-
dlemen for generations.
An examination of the business activ-
ities of Macau-based businessman and
racing car driver Sun offers an insight
into how the regime may have facili-
tated such purchases.
Like Gary To, Sun has connections to
Alvin Chau. They appear together in the
company records of a luxury car show-
room in Macau registered in 2014.
Sun also appears to have triad connec-
tions. He is named in the records of a
Macau-registered company, San Sing
Sai Investment, alongside two former
business partners of the leader of the
Shui Fong triad.
21
But it is Sun’s connection to a sus-
pected North Korean operative called
Suen Chuen Pun — and an apparent
dynasty suspected of carrying out North
Korean financing operations over sev-
eral decades — that raises pressing ques-
tions about his business activities.
The ‘family network’
Defector testimonies and company and
property records suggest that Suen, who
died in 2008 at the age of 89, was an
“overseas agent” dispatched from North
Korea to Macau in the 1950s, charged
with investing money in the territory’s
casino industry on behalf of the
Pyongyang elite.
Macau, a Portuguese territory until its
handover to China in 1999, has long
proved fertile soil for North Korean
operations. “As early as the 1950s,
Macau was a place where North Korean
operatives, whether spies or business
people raising money for the regime,
could go about their business more or
less unnoticed,” says Lankov of Kook-
min University.
Beginning in the 1960s, Suen and his
descendants acquired multiple proper-
ties and established dozens of compa-
nies in both Macau and Hong Kong,
many of which are known or suspected
to have been involved in business with
or on behalf of North Korea.
According to a member of his family
who spoke to the FT, Sun Tit Fan is Suen
Chuen Pun’s grandson. The two were
listed as co-owners in two development
companies based in Hong Kong through
which illicit payments to North Korea
appear to have been made.
Between 2007 and 2014, the two com-
panies paid close to $34mn in 90 trans-
actions for oil purchases through DCB
Finance, a subsidiary of North Korea’s
Daedong Credit Bank. The transactions
continued even after Daedong Credit
Bank and DCB Finance were sanctioned
by the US in 2013.
Company and property records also
connect Sun and Suen to a North Korean
national called Son Kon Hwa, who was
involved in the illicit overseas drugs
trade on behalf of the regime.
Ri Jong Ho, a former senior North
Korean official who defected in 2014,
says that Son Kon Hwa was dispatched
to Macau by North Korean foreign intel-
ligence in the 1990s. Defector testimo-
nies and official records suggest that Son
could be the son of Suen — and the
father, or uncle, of Sun.
“The records indicate they are a
closely interlinked family network that
have been engaged in business with
North Korea for a long time,” says Rusi’s
Byrne.
According to Lankov, it is common for
North Korea’s overseas trade and
financing networks to be passed down
over generations. “In North Korea, it is
not only the leadership that is heredi-
tary,” says Lankov. “From an efficiency
point of view, it is good for the new boss
to grow up in the environment they will
be operating in.”
Sun Tit Fan could not be reached
for comment. His wife, Si San San,
confirmed to the FT that she and her
husband had done business with North
Korea, but she denied they had violated
any sanctions. She denied that Suen
Chuen Pun was Sun’s grandfather,
calling him a “father figure” to her
husband.
Si says that “all of Macau has accused
my husband of being part of the 14K
[triad] and said he’s linked to the Shui
Fong [triad]” but it is “nonsense”.
She says the connections identified by
the FT and Rusi did not constitute a
family network. Asked why so many of
the people co-owning multiple compa-
nies and properties over decades had
variations of the same surname, she
said it was a coincidence.
The ability of North Korea’s criminal-
linked networks constantly to adapt and
reconstitute themselves has led some
experts to argue that identifying and
imposing sanctions on individual com-
panies makes little sense.
But Arnold, the former member of
the UN panel on North Korea sanctions,
argues that the concerns raised by this
investigation go far beyond the issue of
North Korea itself.
“The same loopholes and vulnerabili-
ties that North Korea exploits to hide a
lot of its sanctions evasion activities are
used by all kinds of other types of crimi-
nal actors — hackers, kleptocrats, tax
avoiders, narco traffickers and human
traffickers,” says Arnold. “It’s all part of
the same system.”
This investigation was produced in part-
nership with the Royal United Services
Institute in London
22 ★ † FINANCIAL TIMES Thursday 30 March 2023

The FT View
How to avoid a debt crisis in the developing world
China’s rescue lending surge
shows need for co-operation
on restructuring
Revelations this week that China is ram-
ping up its bailout lending to poorer
countries serve to highlight a potential
debt crisis in the developing world. A
new study shows China’s rescue lending
surged to $104bn between 2019 and the
end of 2021 to participants in its Belt
and Road Initiative, the world’s largest-
ever transnational infrastructure pro-
gramme.
This figure, while striking, is minor
compared to the overall debt levels in
emerging markets. The Institute of
International Finance, a financial indus-
try association, estimates that total
developing world debt rose to a record
of $98tn at the end of 2022, after govern-
ments and corporations filled their
boots in recent years.
ft.com/opinion With so much debt weighing on the
world’s weakest economies, it will not
take much to push several into default.
Pressures are building. A stronger US
dollar is increasing the domestic cur-
rency valuation of external debts.
Higher interest rates, required to fight
inflation, are also raising debt service
costs. The war in Ukraine is exacerbat-
ing uncertainties.
Heading off a developing world debt
crisis should be a top priority. But as
strategic discord between China and the
US-led west intensifies, a dearth of co-
operation among big creditors is pro-
longing the agony for several developing
world defaulters. A solution to emerging
market debt problems is further com-
plicated by the explosion in private sec-
tor debt over the past two decades.
This explosion has meant that
between 2000 and 2021, the share of
public and publicly guaranteed external
debt of low and lower-middle income
countries owed to bondholders jumped
from 10 to 50 per cent of the total.
The impact of lagging co-ordination is
clearly visible. Fitch, a rating agency,
says there have been nine sovereign
defaulters since 2020, including the
unresolved situations in Sri Lanka and
Zambia. The competing demands
between the multilateral organisations,
China, other bilateral creditors and
private bondholders are so complex
that it now takes three times as long to
resolve a default as it did on average in
the two decades before 2020, according
to Fitch.
It is now time for western creditors
and China to make concessions and
reach a bold new framework. All parties
— China, multilateral lenders, other
bilateral lenders and the private sector
— need to be ready to take losses.
A new institutional framework is
required. If Beijing feels allergic to the
Paris Club of creditors, then the new
framework could potentially be con-
structed around the G20, which is often
China’s preferred international forum.
Stakeholders should be clear, how-
ever, that the objective should not be
Beijing should simply to revive the G20’s debt service
realise that a suspension initiative, which expired at
the end of 2021. The DSSI performed a
framework in
valuable function in providing relief on
which haircuts debt interest payments for 73 of the
are spread world’s low-income countries. What is
evenly is its best needed now is more ambitious: an
hope to limit agreed framework for the restructuring
eventual losses of developing world debt.
Opposition to such a scheme will no
and preserve its doubt be strong. But failure to grasp the
reputation nettle now will only exacerbate eventual
losses for all creditors further down the
track. Beijing should realise that a
framework in which haircuts are spread
evenly among creditors is its best hope
not only to limit eventual losses but also
to preserve its reputation in lower-in-
come countries.
Unresolved defaults in the developing
world are already making life a misery
for people in countries such as Sri
Lanka. Many more could suffer unless
China and the west find a path to co-op-
eration on what is clearly a moral
imperative.

Opinion Media
Letters
Email: letters.editor@ft.com
Include daytime telephone number and full address
Corrections: corrections@ft.com

Fox’s populist mask has

If you are not satisfied with the FT’s response to your complaint, you can appeal
to the FT Editorial Complaints Commissioner: complaints.commissioner@ft.com

slipped in defamation case Optimism around AI productivity is premature
Ben Hickey
suit in 2020, a lawyer for the network
Jemima successfully defended Fox by arguing
that the “general tenor” of Carlson’s
Kelly show should inform viewers that he
was “not ‘stating actual facts’ about
the topics he discusses and is instead
engaging in ‘exaggeration’ and ‘non-
Like Monsieur Jourdain, the Molière
character who had been speaking
prose all his life without realising it,
we have for years been using artificial
intelligence, unobtrusively embedded
in a range of goods and services, but
the emergence of “generative” artificial
intelligence has stirred up optimism to
a level that I feel is premature.
Goldman Sachs’s latest research,
which is cited in Delphine Strauss’s
article (“AI predicted to put 300mn
jobs at risk in big economies”, Report,
March 28), concludes that its
A different interpretation
of Sino-Russian relations
In “China, Japan and the Ukraine war”
(Opinion, March 28), Gideon Rachman
cites Harvard professor Graham
Allison’s observation that the Russia-
China axis is “the most consequential
undeclared alliance in the world”.
application could raise global gross
domestic product by 7 per cent over
a decade.
But we have been here before, during
the computer revolution, that swept
away whole swaths of clerical jobs,
from typing pools to telephonists, but
prompted economist Robert Solow’s
famous remark that “you can see the
computer age everywhere but in the
productivity statistics”.
What was the missing factor?
Schumpeter’s “Creative Destruction”.
In other words, the transition from
existing working practices to new ones
is not seamless nor frictionless. It takes
time to install the new systems and
to train workers, and the dislocation
this creates drags down overall
productivity growth.
Only once the new systems are
bedded in can productivity move to a
higher level. I suspect this will happen
again for AI. Goldman Sachs may well
see the GDP growth it expects, but
happening a decade later than planned.
Richard Cragg
London KT1, UK
Defence spending is not
the priority for Europeans
Your leader on the end of the peace
dividend (FT View, March 27)
understates the problem facing
western governments seeking
the support of their populations for
a new military build-up.
Imprudent pension ploys?
While it is true that final salary
pensions have been “horrible” for UK
companies for the past two decades,
they were very nice indeed for many of
the same companies in the decade
before that (Report, March 28).
Jonathan Eley’s analysis does not
take into account the “pension
holidays” taken by many companies
in the 1990s. These companies stopped
contributing to their pension schemes
on the basis that rising share values
meant they did not need to contribute.
For example, Unilever took a
seven-year pension holiday during
this time. The Inland Revenue
estimates that £17bn in contributions
to pension schemes were not made
as a result of this.
Many companies actually took
money out of their pension schemes
on the basis of actuarial valuations
showing these funds to be “surpluses”.
It is not clear how much money was
taken out of pensions on this basis. It is
also not clear if any of this money was
used for wage growth, investment,

F
ox News was meant to be a
TV channel for the man on
the street. Sure, its prime-
time anchors might be able
to live lives of luxury on their
multimillion-dollar salaries, but that
didn’t matter: this was a channel that
told it straight and reported the real
facts that “they” — the metropolitan
liberal “ruling class” — didn’t want
“you”, ordinary Americans, to hear.
This was not, of course, a view that
everyone subscribed to — least of all
Democrat voters, fewer than one in
five of whom trust Fox News, accord-
ing to a YouGov poll last year. But it
was a narrative that the network and
its star anchors have pushed relent-
lessly. Anchor Tucker Carlson, for
instance, invoked the “ruling class” in
more than 800 of 1,150 episodes of his
show, according to analysis by the New
York Times last year.
literal commentary’”.
Carlson and co might have been
exaggerating, sure, but they were still
on the viewers’ side — any “reasonable
viewer”, argued the lawyer, watched
Carlson “with an appropriate amount
of scepticism” about the statements
he makes.
This time, a Fox anchor was seem-
ingly conspiring against his own
viewers. In a text message to fellow
primetime hosts Sean Hannity and
Laura Ingraham about a Fox News
reporter who had tweeted that there
was “no evidence” for Trump’s claims
that the election had been stolen by
Dominion’s voting machines, Carlson
wrote: “Please get her fired. Seri-
ously . . . What the fuck? I’m actually
shocked. It needs to stop immediately,
like tonight. It’s measurably hurting
the company. The stock price is down.
Not a joke.”
Fox’s real motives have suddenly
become embarrassingly transparent.
But if it is, how can Allison
and Rachman explain the total
contradiction between the decision
to deploy nuclear weapons in Belarus
and the Sino-Russian communique,
which explicitly states that “all
nuclear-weapon states should not
deploy nuclear weapons abroad and
should withdraw nuclear weapons
deployed abroad”.
It also shows that the relationship,
if not on the Russian side, is largely
transactional. And everything suggests
that Beijing has no interest in Ukraine
and Taiwan being thought of as
similar situations.
Vladimir Putin must have been
disappointed by the modest
commitments offered by the Chinese
president, Xi Jinping, standing at his
side. Certainly China has no interest
in the collapse of Russia. And their
common hostility to western values
cements their relations. But to speak
of an alliance is simply an abuse of
language, contradicted by the latest
developments. A transactional
relationship is not an alliance.
Zaki Laïdi
Professor, Sciences Po, Paris, France
An eight-nation European survey
I conducted with Berlin colleagues,
found that less than half the 12,685
respondents thought military threats
were a fairly big or big risk to their
country’s security. In Britain only 51
per cent saw a risk; in Germany 48 per
cent. By contrast, 88 per cent saw the
global economy as a risk and 80 per
cent similarly viewed climate change.
Among those who did see a risk,
64 per cent chose Nato or the US as the
best source of help for dealing with
military threats. In short, leaders do
not need to convince their citizens
about what needs doing, but to wake
them up to the need to act.
Professor Richard Rose
University of Strathclyde, Glasgow, UK
Visiting Fellow European Union Institute,
Florence, Italy; WZB Berlin Social Science
Center, Berlin, Germany
takeovers, etc or whether it was simply
paid to shareholders as dividends.
All of this was, of course, completely
legal and reasonably public, but it
may not have been wise or prudent.
How much of the £500bn paid
into UK pension schemes in the past
two decades, according to Eley, could
have been saved if companies had not
stopped contributions or extracted
surpluses in the 1990s?
Conor Downey
London N1, UK
Correction
c An article in a Watches and Jewellery
Special Report on March 27 regrettably
referred to “the late” Vanessa Redgrave.
We sincerely apologise to Dame Vanessa
for the error.

B
As Brian Stelter, CNN’s former chief
The network’s real media correspondent and the Walter
Shorenstein Media and Democracy
OUTLOOK ecause I’m a regional policy
nerd, the part of Jeremy
hypothecation of national insurance:
retain 1p at local level and put it
be 5.5 per cent larger. “Time is
money,” he says. Every hour someone
motives have suddenly Fellow at Harvard, tells me: “Fox Hunt’s March Budget towards mega-projects. A long-term stands on a platform has a cost for
ENGLAND
become embarrassingly presents itself as a family, and Fox
wants viewers to feel like they are part
speech that caught my
attention was not about
guaranteed income stream would give
mayors something to borrow against;
Leeds, northern England and UK plc.
In a report on regional economic
transparent of the Fox family. But the gap between pension rule changes, but the promise it is why the mayors of Greater inequality last month, the academics

Over the past month or so, however,
this narrative has unravelled spectac-
ularly — via a trove of texts, emails and
depositions made public as part of a
the imaginary family and the capital-
ist reality is really clear in these mes-
sages . . . It’s actually just a cold, hard,
calculating business.”
It’s not yet obvious what the impact
Time is money
of “12 potential Canary Wharfs”
outside London, via the creation of
new investment zones.
and it’s being The chancellor’s analogy
inadvertently highlights the chronic
Manchester and the West Midlands
argued for business rates retention for
“levelling-up zones” over 25 years, an
argument they won in the Budget.
Nevertheless, even though for
Anna Stansbury and Dan Turner,
along with former shadow chancellor
Ed Balls, identified poor urban
transport as one of four key barriers
to better productivity. The state of

$1.6bn defamation case brought
against Fox by Dominion Voting Sys-
tems. The company alleges that the
network knowingly aired false claims
that the 2020 election had been stolen
from Donald Trump, partly because of
the use of Dominion machines.
The aspect of the communication
between Fox News hosts and execu-
tives that I found most repugnant was
the gap between what was being said
among themselves and what was said
on air. In November 2020, Carlson
sent a text to his producer referring to
claims that voting software had been
manipulated to rig votes. “The soft-
ware shit is absurd,” he wrote. Later
that night, he told viewers of his show:
“We don’t know anything about the
software that many say was rigged. We
don’t know. We ought to find out.” In
another text to one of his team, in Jan-
uary 2021, Carlson, who has been a
major supporter of Trump on his show,
said about the then president: “I hate
him passionately.” In another, he called
Trump “a demonic force, a destroyer”.
This isn’t the first time Fox has itself
ended up accidentally revealing that
viewers should not take what it says
seriously. In another defamation law-
wasted in
of all of this will be on Fox’s viewing policy failure holding back UK cities people in the north the argument urban infrastructure outside the
figures. In a survey conducted earlier beyond the capital: transport. seems self-evident, there is a battle to capital “stands out in international
this month by Maru Group for Variety The seeds of the London dockland convince government that major context”, they wrote, and not in a
Intelligence Platforms, 21 per cent of
Fox viewers said they trust the net-
work less after the revelations. But
the north development’s success may have
originated in Michael Heseltine’s low-
tax “urban enterprise zone”. But it
transport investment outside London
is economically desirable.
Perhaps it is because the bleak
good way. “Spending data suggests
more can be done,” they added.
So it is against this backdrop that
while 10 per cent of those aware of the benefited from the wildly expensive reality and economic impact of the government is talking about
case said they were watching the chan- Jubilee line extension, completed in transport connections serving Leeds creating its new Canary Wharfs. The
nel less now, Fox actually saw a slight the late 1990s. The bill for the Tube and other northern cities are hard to £80mn — spread over five years —
increase in viewers on the day after project was more than £3bn. appreciate if you’re not using them. that comes with the new zones has
chair Rupert Murdoch’s deposition Leeds, which has been earmarked The performance of Transpennine to be split between tax incentives
was revealed for one of these new Canary Wharfs, Express, the operator serving the and other investment such as
Neither is it clear that Dominion — remains the biggest city in Europe north of England, is now so appalling infrastructure. That isn’t going to
which is seeking to call Murdoch and to lack a mass transit system. When that it has become a running joke. build Leeds a Jubilee line.
Carlson to testify — will win the case, Boris Johnson, then prime minister, This month, West Yorkshire mayor A picture paints a thousand words
which is expected to go to trial next unveiled his integrated rail plan Tracy Brabin was late for a conference though, so when geographer Alasdair
month; Fox is arguing that its execu- in November 2021, he promised the about the state of northern transport Rae posted a map this month showing
tives and anchors were not directly city that ministers would finally after a string of trains from Leeds to what London’s new Elizabeth line
involved enough in the coverage of the work up a plan for a network, in Newcastle were cancelled overnight. would look like if you picked it up and
election fraud claims to be held liable, exchange for removing Leeds from A government decision on TPE’s plonked it in the north of England, it
and the fact the network has not set- England’s scaled-back and delayed contract is due imminently but in the unsurprisingly went viral.
tled suggests they are confident they high-speed railway. meantime Tom Forth, head of data at It’s not that northern England
can win. But while a plan is being worked on, Leeds-based Open Innovations, has necessarily begrudges London its rail
But what is clear is that the mask has a funding mechanism with which to done some calculations to quantify the links. It’s that the growth argument
come off. The idea that Fox News is a deliver the Leeds equivalent of the cost of the chaos. for also investing properly in
channel of the people has been shown Jubilee line boon remains elusive. The effective population of Leeds transport outside the capital feels so
to be a lie, just like the claims of tech- Such issues underpinned last week’s would, he estimates, have been 44 per obvious. So obvious, indeed, that even
nology-enabled election fraud ped- report on local funding by the cent larger if TPE wasn’t cancelling the chancellor’s own rhetoric agrees.
dled to its loyal viewers. Northern Powerhouse Partnership, nearly one in four of its trains, as it did
by Jennifer Williams which suggested a French-style in January, and its economy would jennifer.williams@ft.com
jemima.kelly@ft.com
Thursday 30 March 2023
BUSINESS
Brooke
Masters
W
hen First Citizens Bank
agreed over the week-
end to buy most of what
is left of Silicon Valley
Bank, there was one
thing it absolutely did not want.
Though SVB, whose March 10 failure
shook the global banking sector,
was best known for serving venture
capitalists and techies, First Citizens’
purchase agreement went out of its way
to exclude cryptocurrencies and loans
backed by crypto from the deal.
The North Carolina lender is not alone
in its aversion to digital assets. New York
Community Bank, which snapped up
the remnants of Signature, the lender
that failed right after SVB, refused
to touch Signature’s substantial digital
banking arm. The US Federal Deposit
Britain’s new
stability rests on
shaky ground
POLITICS
Robert
Shrimsley
J
eremy Corbyn is on his way out
of the Labour party and proba-
bly parliament. Boris Johnson
is facing suspension from the
Commons. The last election’s
prime ministerial candidates are now
embarrassments to their parties, men
the current leaders define themselves
against. The Sunak government has
prioritised financial stability and even
compromised over Brexit in Northern
Ireland, while in Scotland the separatist
cause is losing ground after the depar-
ture of Nicola Sturgeon as first minister.
Pragmatism is giving populism a run
for its money. Could the UK’s years of
political turmoil be over?
The discrediting of Corbyn and John-
son — the most dismal choice ever pre-
sented to a British electorate — is striking.
After a disastrous election for Labour,
Corbyn’s leadership was doomed but
few would then have foreseen his suc-
cessor, Sir Keir Starmer, barring him as a
candidate next time around. Yet the
rapid and ruthless marginalisation of
the hard left is the main evidence for the
party’s return to electoral viability.
Johnson’s eclipse owes less to his poli-
tics than his character flaws. But this too
is a victory for stability, standards and
AMERICA
Edward
Luce
I
f the US has taken to heart one big
lesson in the 21st century, it is that
democracy is not created at gun-
point. The 20th anniversary of the
Iraq invasion reminded Americans
of that. It does not follow that the safe
space of Zoom will fare better.
President Joe Biden’s second summit
for democracy, which is taking place
this week, is both virtual and surreal.
Among the participants are India, which
is in the process of jailing opposition
leader Rahul Gandhi on a trumped up
defamation ruling; Israel, whose leader,
Benjamin Netanyahu, wants to shut
down judicial independence; and Mex-
ico, whose leader, Andrés Manuel López
Obrador, is trying to end free and fair
elections. With friends such as these,
democracy hardly needs enemies.
Banks face a tough choice over crypto
Insurance Corporation is having to
return $4bn in deposits directly to those
customers.
Former US congressman Barney
Frank, who was on Signature’s board,
argued to me that the banks were
responding to growing regulatory
hostility to cryptocurrencies in the
wake of last November’s implosion of
digital exchange FTX. He even went so
far as to blame concerns about crypto
for what he thought was a hasty govern-
ment takeover of Signature.
“I cannot think of any other reason for
the New York regulator shutting
us down,” he said. “They shoot one man
to discourage the others [and say] stay
away from crypto.”
Boosters of bitcoin and other digital
assets agree. Online chats and Twitter
are full of speculation about what they
see as a concerted effort by the US gov-
ernment to ban crypto completely.
Dubbed “operation chokepoint 2.0”, the
theory includes the collapses of Signa-
ture and Silvergate, a smaller lender
that also did a lot of digital assets busi-
ness, and a string of regulatory actions.
Regulators insist that they are just
readiness to face hard choices over his
premiership’s dishonesty, rule-breaking
and impossible promises. The next
election will be a contest between two
recognisably mainstream and serious
leaders. More urgent concerns like the
cost of living and the state of public
services have deepened the national
fatigue with political upheaval.
Brexit’s malign effects linger. It polar-
ised politics, destabilised Northern Ire-
land and revived Scottish nationalism.
But while most voters now consider the
decision a mistake, there is less appetite
for reversing it. Both main parties are
committed only to improving the terms.
To the outside world Britain begins to
look more dependable. The Ukraine
invasion has forced the UK to reappraise
the cost of sour relations with EU neigh-
bours. The bloc now even merits posi-
tive mentions in the recently revised
foreign and defence strategy.
In Scotland, unionists expect the
replacement of Sturgeon with the affa-
ble but unproven Humza Yousaf to offer
a respite from fears of a UK break-up.
Even a modest Labour revival will
undercut the case for a fresh independ-
ence referendum. Sympathisers may
find it harsh to lump this “progressive”
nationalism with other populisms but it
too feeds on anger, a “foreign” enemy
and sketchy details of how the rupture
might work.
Tory stonewalling of demands for a
fresh independence vote has temporar-
ily paid off. Nationalism thrives as a
campaigning movement. But after a
brutal leadership contest, a long spell in
Biden’s awkward democracy summit
Biden’s aims are noble, and it is note-
worthy that neither Hungary nor Tur-
key, regarded in Washington and west-
ern Europe as illiberal democracies, was
invited. But the president’s means are
open to doubt. According to V-Dem, a
Swedish research institute, almost three
quarters of the world’s population now
live in autocracies against less than half
a decade ago. That vertiginous shift jus-
tifies the term “democratic recession”.
It is difficult to believe a liberal demo-
cratic Russia would have invaded
Ukraine. It is equally hard to imagine
the people of an autocratic Ukraine
fighting as fiercely for their freedom as
they are doing now. It is thus reasonable
for the US to think that spreading
democracy is in its national interest.
The problem is that America is not very
good at it.
Nowhere has the US expended more
guns and butter than in the Middle East.
The democratic returns have been
almost uniformly negative. The Arab
world’s only recent convert, Tunisia,
was recently lost to a coup d’état. Israel’s
democracy, meanwhile, hangs in the
balance. That is without mentioning the
★ FINANCIAL TIMES
Opinion
trying to ensure that banks are stable
and cryptocurrencies do not enable
money laundering and other crime.
Signature’s shut down “was not
crypto related”, said the New York
Department of Financial Services. The
bank lost 20 per cent of its total deposits
within hours of SVB’s collapse, deplet-
ing its cash, and withdrawal requests
were continuing, the FDIC said.
Official attitudes
towards the currencies
have hardened since FTX’s
collapse. They had to
“We have not lost sight of the poten-
tial transformative effect that these
technologies could have on our financial
system,” Michael Barr, the US Federal
Reserve’s vice-chair, said in a recent
speech about crypto. “But the benefits
of innovation can only be realised if
appropriate guardrails are in place.”
However, the crypto bros have a
point: official attitudes have hardened
power in Holyrood and still no prospect
of another referendum, momentum is
faltering and the factional poisons are
seeping out. Support for independence
has fallen from an occasional majority
to the low 40s.
The UK has found a new stability — yet
it stands on soft foundations. The coun-
try has not fallen back in love with cen-
trist smoothies. Sunak and Starmer are
tolerated, rather than embraced by
their parties. Defeat might quickly see
the Tories revert to their aggressive early-
Brexit manifestation. Much of Britain’s
media has augmented partisan bias with
a new and paranoid hostility to institu-
tions, populist prejudices fortified by busi-
ness models which reward strong views.
Many of the underlying conditions
which fuel populism and separatism
Nationalism thrives as a
campaigning movement,
but it is faltering and the
poisons are seeping out
fact that the Jewish nation state is not
exactly democratic with the Arab terri-
tories it occupies.
Sarah Margon, whom Biden named to
lead his administration’s efforts on
democracy and human rights, withdrew
her name in January after senators
objected to her criticisms of Israel. Hav-
ing a record of arguing for democracy
seems like an odd rap against the person
whose job that will be.
Since the fate of the system
will be settled in the global
south, it would be sensible
to ask what they think
The only unqualified success in US
democracy promotion was the Marshall
Plan for postwar Europe. Since the fate
of democracy will largely be settled in
the so-called global south — the parts of
the world that are neither in the west,
nor the emerging China-Russia axis — it
would be pragmatic to ask them what
they think.
since FTX’s collapse. They had to. In the
years while US regulators engaged in
endless consultation and hand-wring-
ing, massive risks had built up.
FTX, once valued at $40bn, was
considered the crypto industry’s
responsible player. Yet it turned out to
be so lacking in basic financial controls
that millions of customers’ assets were
allegedly plundered by its executives.
The scandal and falling cryptocurrency
prices undermined Silvergate: deposi-
tors pulled out $8bn in the fourth quar-
ter, forcing it to sell securities at a steep
loss. That prompted a further run and
ultimately liquidation.
Now US watchdogs are clamping
down. The Fed and other regulators
officially warned banks in January to be
careful of “fraud and scams” and “signif-
icant safety and soundness concerns”
when working with crypto companies.
The enforcement cases are also
coming thick and fast. US-listed crypto
exchange Coinbase has been warned
that it might be charged with securities
violations. On Monday, the Commodity
Futures Trading Commission sued
Binance, alleging that it illegally allows
remain. Growth is low and productivity
poor. Real household incomes are
expected to fall by nearly 6 per cent over
two years. Income inequality is among
the highest for an OECD nation. Auster-
ity has hollowed out public services.
Without growth, small-state Tories will
struggle to reconcile their desire for
significantly lower taxes with the lack of
public support for spending cuts, a real-
ity Labour is also reluctant to acknowl-
edge. On top of this are the enormous
economic and social challenges of the
AI and green industrial revolutions.
Immigration — a canary in the popu-
list coal mine — is again a focus for vot-
ers. One can blame self-serving agitators
for ramping up anger at the small boats
crossing from France, but liberals have
seen the cost of ignoring these issues.
Populism thrived in the UK, as it is
still thriving elsewhere, where leaders
lost sight of or dismissed the concerns of
their own citizens. It happened espe-
cially where they hollowed out the state,
focused on national rather than regional
income and on the asset-rich over the
asset-poor. It is why a sustained focus on
To judge by their UN voting record,
many care little about the fate of
Ukraine. Their retort is that the west
seems not to care much about their con-
flicts. During a two-year civil war in
northern Ethiopia, some 600,000 peo-
ple lost their lives. Although accurate
estimates of the death toll from Russia’s
full-scale invasion of Ukraine are hard
to come by, it is roughly a quarter of
Ethiopia’s figure. The Ukraine war is
daily front-page news; Ethiopia’s trou-
bles might get mentioned on page 14
every couple of months.
As India’s foreign minister, S Jais-
hankar, put it last year: “Europe has to
grow out of the mindset that Europe’s
problems are the world’s problems, but
the world’s problems are not Europe’s
problems.” What Jaishankar really
meant, of course, was the west as a
whole. But he was careful to exclude the
US, just as Biden is careful not to men-
tion India’s democratic backsliding.
Each needs the other to counter China.
Here it gets even muddier. India’s
treatment of its Muslim minorities is
arguably as bad as China’s policies in
Xinjiang. The US State Department has
Americans to trade crypto derivatives.
The watchdog contends that Binance
also facilitates illegal activities. “Like
come on. They are here for crime,” its
chief compliance officer is quoted as
saying of some customers. (Coinbase
and Binance reject the allegations.)
Jeremy Allaire, chief executive of sta-
blecoin issuer Circle, which had parked
$3bn in reserves at SVB, has warned
that the crackdown is driving crypto
enthusiasts on to “platforms with no
oversight, totally opaque bank and risk
exposures . . . this doesn’t end well”.
That’s a little overdone. Some banks
are still serving digital asset companies
in limited ways. Circle has big deposits
at custody bank BNY Mellon and a
partnership with New Jersey bank
Cross River.
But no one is openly bidding to
replace Signature and Silvergate as the
main crypto-focused banks. The time
has come for the industry to make tough
choices about digital assets. Lenders
such as First Citizens are signalling
which side they want to be on.
brooke.masters@ft.com
Ewan White
levelling up and regional democracy
remains essential.
Nor is ending the turmoil the same as
reversing its impact. Brexit will hold for
at least a generation. The nation is still
working through an immense change
which remains a faultline in politics and
among the nations of the UK.
As to Scotland, close to half of Scots
have shown a past readiness to back
independence and support is stronger
among under-50s. Continued SNP suc-
cess is a prerequisite for a new referen-
dum so a slump in party support eases
pressure for a break-up. But demo-
graphic forces mean unionists would be
foolish to assume victory.
For all this the UK looks more stable.
While it may be premature to call the
end of upheaval, politicians have a
chance to show the value of pragmatic
over dogmatic government. One worry
is that parties are too campaign-focused
and reactive in the face of so many soci-
etal challenges. But there is a moment, if
leaders have the confidence to grasp it.
robert.shrimsley@ft.com
labelled the latter “genocide” — the
gravest charge possible. Yet barely a
peep is heard from Washington about
what is going on in Kashmir.
When the west can be bothered to lis-
ten, the global south’s consistent refrain
is for more dollars to help their shift to
clean energy, better infrastructure and
modern healthcare. Which of the two
great powers, China or the US, helps the
most is likeliest to shape their political
future and foreign policy alignment.
One of the by-products of Russia’s inva-
sion of Ukraine is that it has brought this
pressing question to the fore.
Biden’s White House is trying to come
up with a coherent US approach to the
global south, but officials admit it is a
work in progress. China has pumped
more money into the developing world
than all the west combined — with both
good and bad effects. Whether the
Malis, Cambodias and Bolivias of this
world become democracies lies in their
hands. The best way of nudging them
down that path is to lecture less and lis-
ten more.
edward.luce@ft.com
23
Make it easier
for people to
invest directly in
US Treasuries
Robert
Hockett
O
ne of the crowning ironies
of the collapse of Silicon
Valley Bank is that it was,
by and large, doing what
we want banks to do —
lending to productive industries and
managing its asset portfolio prudently.
SVB lent to promising start-up compa-
nies, while investing its non-loan hold-
ings in the safest assets there are: US
Treasury securities.
For well over 50 years now, US Treas-
uries have been the “gold standard” in
both American and global financial
markets. They never default, and they
pay guaranteed returns well in excess of
the minimal interest that individuals
and businesses earn on their bank
deposits. Banks’ profits derive from the
“spread” between low-interest borrow-
ings — that is, client deposits — and
higher-yield investments — in SVB’s
case, Treasuries.
But any business or individual in
America can already invest directly in
Treasuries, through web-accessible
personal accounts held at the Treasury.
The aptly named TreasuryDirect sys-
tem already cuts out the middleman by
enabling anyone, to open an account at
the Treasury in minutes. In effect, this is
e-banking with the US’s own Treasury —
a means by which individuals’ treasur-
ies become part of the national one.
But why doesn’t everyone do this?
I think it’s due to a certain cumbersome-
ness in the TreasuryDirect digital
architecture — an issue that Treasury
secretary Janet Yellen could resolve
with the stroke of a pen.
Apart from the need for a social
These are the ‘gold
standard’ in domestic and
international markets
— they never default
security number, the sole impediment
to TreasuryDirect’s operating as a uni-
versally accessible savings and pay-
ments platform right now is the fact that
to use it one must also maintain a sepa-
rate account at a bank, out of which one
can pay for Treasuries at Treasury-
Direct, and into which one can receive
cash on redemption of those securities.
Three years ago, when the US was
looking for ways quickly to get money
into the hands of its citizens locked
down by Covid-19, I contacted officials
at the Treasury and at the US Digital
Service. How long, I asked, would it take
to convert the system of web-accessible
TreasuryDirect accounts into a nation-
wide network of smartphone-accessible
digital wallets for all citizens and busi-
nesses in America.
The answer? About three months.
Within a matter of months, all Ameri-
can citizens and businesses could have
interest-bearing digital savings and
transaction accounts on their phones
and all similar devices. This information
formed the basis for the “Digital Green-
backs” plan that I then developed — in
honour of our nation’s first paper
currency, which for its first 50 years was
issued not by the Federal Reserve, but
by the Treasury.
Think about some of the transforma-
tive changes this simple expedient
would make to our banking, commerce
and finance. For a start, the problem of
America’s “unbanked” and “under-
banked” would be solved more or less
overnight. Moreover, banking would be
safe for all — both because Treasuries
never default and because we’d need no
middleman to stand between us and our
investments. And, also thanks to cutting
out the middlemen, these digital Treas-
ury bank accounts, provided they are
held to maturity, would pay far more
interest than ordinary bank accounts do.
Finally, by facilitating and speeding
up transactions, TreasuryDirect wallets
would accelerate economic growth — for
our principal measure of growth, gross
domestic product, takes transaction
volume as its denominator.
President Joe Biden is often said to be
dead-set on outdoing his former boss,
Barack Obama. One way he could do
this is to set USDS the task of safely and
remuneratively banking all businesses
and individuals in America, thereby
enabling all of us to share in the nation’s
annually growing wealth.
The writer, former counsel at the Federal
Reserve Bank of New York and the IMF, is
Edward Cornell professor of law at Cornell
Law School
24 ★ FINANCIAL TIMES Thursday 30 March 2023

Next: size down

The British fashion retailer has delivered higher than expected profits, despite the cost of living crisis. Next’s
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Twitter: @FTLex
UBS/Ermotti:
old guard, new reality
Switzerland’s Sergio Ermotti has
replaced Dutchman Ralph Hamers as
chief executive of UBS only 10 days
after the bank’s shotgun marriage to
Credit Suisse. But this is not a “Swiss
solution”, chair Colm Kelleher insisted.
The phrase “Irish intervention” may
be more apt. Ermotti has better
credentials to handle one of the most
critical integrations in banking history.
This serves Swiss national interests,
invoked by politicians in forcing UBS to
absorb its failing rival.
But Irishman Kelleher is responsible
for the switch. He has shown judicious
ruthlessness. Last year, he scrapped
Hamers’ ill-advised $1.4bn takeover of
US robo adviser Wealthfront. If rising
interest rates had not helped UBS to
post record profits, the deal might have
finished Hamers then.
Ermotti was the UBS chief for nine
years. He restructured a bank bailed
out by the Swiss government. Cutting
down the investment bank to a service
division triggered fury that turned to
plaudits. Expect Ermotti to follow the
same playbook, with his powerful chair
at his elbow. This will be the first tie-up
of two globally systemically important
investment banks. Execution risks will
also be systemic.
A target reduction in pro forma risk-
weighted investment bank assets from
30 per cent to 25 per cent is a starting
point. Credit Suisse’s non-core side
already accounted for about a quarter
of total divisional RWAs of $80bn.
Securitised products, which Apollo is
buying, represents another $20bn.
These alone should take UBS to its
immediate goal
Fixed income will feature in the cull.
Equities are a better fit with wealth
management clients. That did not stop
Credit Suisse fuelling an Asian
expansion with cheap loans to Asian
tycoons in the 2010s. Ermotti will
inspect these assets gingerly.
UBS will dispense with the bulk of
the markets division, worth another
quarter of investment banking RWAs.
Combined with a 10 per cent loss of
asset-based fees the hit to revenues
might be $5bn from a total of $13bn for
Credit Suisse, thinks Citigroup.
US financier Michael Klein now has
little chance of resurrecting the Credit
Suisse First Boston brand. He may still
be able to field some assets on the
cheap. Integrating these would be a
walk in the park compared with what
Ermotti faces. As Hamers clears his
desk, he may comfort himself by
imagining what he has been spared.
US natural gas prices:
hope springs infernal
This time was supposed to be different.
Last summer, the price of US natural
gas hit a high of $10 per million British
thermal units. The worry then was that
Europe would run short of winter
supplies as Russia cut its output in
protest at sanctions.
Today, the price has fallen to just $2/
mmbtu. Gas consumption in the US has
hit a five-year low thanks to a mild
winter. The US Energy Department
says the country will finish March with
more than 1.9tn cubic feet of gas in
storage, a quarter more than the five-
year average.
A massive production boom in the
2010s led to a glut, low prices and
eventually financial distress for some
businesses. Oil and gas drillers were
forced into austerity by shareholders.
The Ukraine war followed. The US gas
industry envisaged a golden era where
output growth would be supported by
sustained high prices and profitability.
It is turning into a long wait.
One optimist is Chesapeake Energy,
a pioneer of shale drilling. It went
bankrupt in 2020 but re-emerged and
pivoted away from oil and towards gas.
Its shares have fallen more than a
quarter from their peak last summer.
Chesapeake’s chief executive Domenic
Dell’Osso told investors last month that
the company had to manage through
price volatility this year, but that the
secular trends supported natural gas as
a winning commodity.
His thesis depends in part on the
volume of LNG export capacity the US
is adding. The US began exporting
natural gas only in 2016 and its current
shipment capacity has already reached
14bn cubic feet per day, a figure set to
jump to about 20bn with the addition
of three new export terminals.
The US Energy Department admits
that its forecasts did not anticipate the
scale of the current chill in prices.
It may turn out to be no more than a
quirk of the weather. But investors
have been burnt before by prophecies
Next’s margins
Per cent
Gross profit Ebit Net Income
50
40
30
20
10
0 Home
2018 2019 2020 2021 2022
For the fiscal period ending
FT graphic Sources: S&P Capital IQ; company; Refinitiv *Results for year ending Jan 2023
Higher than expected annual profits
sound like a good excuse for a
shopping spree.
In the UK retail sector, however,
purse strings are tightening. Over the
past eight years, UK fashion retailers
such as Next have adapted to the
shift to online sales and dealt with
pandemic lockdowns. The cost of
living crisis adds to their woes.
Strong full-year results are
therefore overshadowed by fears over
whether Next’s growth has peaked.
There are several signs that the
business has reached maturity. The
shares fell yesterday as longstanding
chief executive Lord Simon Wolfson
warned that inflation would drive a
near 9 per cent drop in pre-tax
profits this year to £795mn. Labour
of secular tailwinds and new
production discipline. They should
retain their hard-won scepticism.
Alibaba:
small poppies syndrome
Jack Ma has returned to China after a
year’s absence. His arrival coincides
with the decision to divide Alibaba, the
$255bn ecommerce group he co-
founded, into six. Alibaba’s share price
rose 12 per cent in response.
There is little reason to think the
split will make these businesses more
competitive. The revamp may,
however, placate politicians and
regulators intent on cutting China tech
groups down to size. Six small poppies
Next brand UK market share
By product category* (%)
Children’s
Men’s
Women’s
clothing
Women’s
accessories
Women’s
lingerie
Women’s
shoes
0 2 4 6 8 10 12 14 2013 2015 2017 2019 2021 2023
costs are the biggest contributor. Full-
price sales are also expected to dip 1.5
per cent as consumers tighten belts.
Given the profits guidance was first
issued in January, Wolfson could be
forgiven if he felt that yesterday’s share
price reaction was overdone. Yet Next’s
long-term outlook invites caution.
In the past 20 years, Next has
delivered a compound annual growth
rate of 14.1 per cent in pre-tax earnings
per share (assuming dividends are
reinvested). More recently growth has
been flattening out. Compound annual
growth in EPS will be closer to 5.4 per
cent over eight years if the profit
forecast for 2023/24 is correct.
Wolfson has tried new tricks. For
example, in 2020 Next launched a
“Total Platform” service as an online
make a less tempting target than one
large one.
The new units encompass domestic
ecommerce, cloud computing, services
such as food delivery, digital
entertainment, international
ecommerce, and logistics. Each will
have its own chief and the flexibility to
raise funding, including via market
listings.
Shareholders hope rejigs unlock
value. There are hazy promises of
greater efficiency. But the split will not
yield hidden treasures. Logistics is fast-
growing but unprofitable. Revenue
growth in cloud computing was 3 per
cent in the last quarter, down from 62
per cent in 2019.
Google’s creation of holding company
Alphabet in 2015 offers clues to what
may happen. Google claimed it would
Next outperforms
Share prices (rebased)
200
Next
150
100
FTSE
350
FTSE 350 General
Retailers index
50
host for other retailers. Yet many of
these ventures are immature. Total
Platform accounted for £16mn out of
a total pre-tax profit of £870mn in
the year ending in January.
Wolfson believes there may still be
room for market share growth in the
group’s core business. But he cautions
that opportunities to expand are “less
numerous than they were”.
Next trades at a higher multiple
than peers Marks and Spencer and
Frasers Group, at 13 times forward
earnings versus 10.8 times and 9.2
times, respectively.
Next’s disciplined discounting has
allowed it to maintain enviable
margins. Poorer growth prospects
mean investors should still think
twice before filling their baskets.
support new tech ventures. Yet
Alphabet’s main unit remains online
ads. A show of greater transparency
soothed twitchy US regulators, though.
Alibaba has accepted more oversight.
Yet the shares are off nearly 70 per cent
from their 2020 high. The stock trades
at 8 times forecast ebitda, a third below
Amazon. Blame nimble rivals and a
slow economy. Alibaba has posted
three straight quarters of negative
customer management revenue —
money paid by merchants for services.
Tencent also looks like a candidate
for a break-up, which could split apart
its financial and entertainment units.
But the danger in aping Alibaba is that
it would inspire further cynicism.
Defensively creating independent
businesses in a familiar wrapper does
not count as a radical overhaul.
Jefferies:
direct approach
As the first investment bank to report
results, Jefferies is often seen as a
preview of what is to come for the rest
of Wall Street. On that basis, there is
good news and bad.
First, the good. The trading boom
that began during the pandemic is still
going strong. Uncertainty caused by
rising interest rates engenders
volatility — honey to a bear for risk
takers. At Jefferies, first-quarter
trading revenues surged by a third
from a year earlier to $639mn.
Fixed income trading had a
particularly strong run, with revenue
up 63 per cent, as clients raced to place
big bets or hedge against risks.
Next, the bad news. Business
remains in the doldrums for
dealmakers handling mergers,
acquisitions and initial public offerings.
In the US, the total value for M&A
deals is down about 45 per cent this
year, according to Refinitiv. IPO deal
proceeds are down 18 per cent from a
year ago. Overall, investment banking
revenue at Jefferies fell 42 per cent to
$567mn. Debt underwriting revenues
collapsed during the quarter. They
plummeted 67 per cent, compared
with a 20 per cent fall for equity
underwriting. This could be a sign that
more companies are getting their loans
from private credit funds and other
direct lenders.
Recently, struggling US lender Pacific
Western Bank turned to investment
firm Atlas SP Partners for a $1.4bn
financing facility.
Elsewhere, alternative asset groups
Apollo and Blackstone are among those
in talks to provide a $5.5bn loan for the
buyout of health-technology company
Cotiviti. If successful, it would be the
largest buyout financing deal ever
arranged by private credit firms.
This does not bode well for US banks
that make lucrative fees from
underwriting and syndicating loans.
JPMorgan, Bank of America, Citigroup,
Goldman and Morgan Stanley were the
top five bookrunners last year.
This year, new entrants will do their
best to chip away at that franchise.
Lex on the web
For notes on today’s stories
go to www.ft.com/lex

Executive Appointments

CROSSWORD
No 17,372 Set by ARTEXLEN
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head (8)
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9 One has shot with iron between hands
(6)
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18 Out of shape needing runs to be
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19 Entertainer in street not alien in 1050
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22 River crossed by unclothed local
swimmer (4)
24 Nobbled gaoler receiving pressure;
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26 Maybe diamonds and gold interested
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27 Olympian great, he naturally boxes (6)
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28 Was monarch bearing son passive? (8)

DOWN

2 A sprinkler came into activity (5)

JOTTER PAD 3 Youngster army trained, new soldier (11)
4 Protective covers shielding road in
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7 × : Ý 7 in passage (9)
N × ~ N × N Ý ‚ æ € N : Ô Ú 17 Review disrupted Malaysians after
B 7 7 Ô 8 × mother leaves (8)
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€ ‚ ~ × N Ý B ‚ ‚ × × : N N You can now solve our crosswords 23 Inlet encloses tip of lugged bulb section
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