FRIDAY 4 AUGUST 2023 EUROPE

A debt downgrade to make Uncle Sam weep The science of forecasting extreme weather
GILLIAN TETT, PAGE 17 BIG READ, PAGE 15

India protests Briefing

Modi pressed i US set to dismiss KPMG
wire fraud convictions
over violence Two people found guilty amid a
KPMG corruption scandal will
have their convictions dropped
Security personnel stand guard as dem- after US prosecutors said they
onstrators protest yesterday in Imphal, had misinterpreted laws.— PAGE 5
capital of Manipur state, India, against
the mass burial of Kuki people killed in i Turkey inflation soars
ethnic violence that has wracked the The inflation rate neared 50 per
north-eastern region in recent months. cent in July, halting eight months
More than 130 people have been of slowing price growth as the
killed and 60,000 displaced since the weak lira and higher taxes put
violence began in early May, sparking consumers under strain.— PAGE 2
nationwide protests by opposition
groups who accuse prime minister i Nintendo profit rises 82%
Narendra Modi of not doing enough to The Kyoto-based group broke its
quell the violence. His Bharatiya Janata first-quarter profit record, on the
party also rules Manipur. box office success of The Super
The India National Developmental Mario Bros. Movie and of its latest
Inclusive Alliance, an opposition group, Zelda game.— PAGE 6; LEX, PAGE 18
says the violence is a threat to national
security as it steps up attacks on Modi i New turn in malaria fight
ahead of a general election next year. A promising new weapon in the
Opposition parties yesterday placed a battle against malaria, which kills
parliamentary no-confidence motion 600,000 people per year, is being
against the government on the issue. trialled — bacteria found in the
Push for action page 3 guts of mosquitoes.— PAGE 4
AFP via Getty Images

i Birmingham City boosted

Ex-NFL player Tom Brady has
joined the list of US celebrities

Apollo warns borrowing costs will force investing in British football after
he bought a stake in second-tier
team Birmingham City.— PAGE 9

i SocGen outperforms

shift for $4tn private equity industry The French lender beat quarterly
profit predictions, helped by
falling charges on bad loans and
cost-cutting, although revenue in
its home market slowed .— PAGE 9

3 Buyout chief calls end to lucrative era 3 View chimes with other bosses 3 Quarterly profit up 60%
ANTOINE GARA — NEW YORK
A lucrative age for private equity buy-
outs has ended, prompting an abrupt
shift in the $4tn industry, which can no
longer rely on cheap debt and rising
asset prices, the chief executive of
Apollo Global Management has warned.
“In the [private] equity business, this
year has really marked the end of an
era,” said Marc Rowan, whose Apollo
group is one of the world’s biggest pri-
vate equity firms with $617bn in assets.
A decade of “money printing”, fiscal
stimulus and low interest rates that had
pulled forward economic demand “is in
retreat”, he added.
His warning came an investors face a
period of lower growth and higher inter-
est rates, which have raised the buyout
industry’s cost of borrowing to take
groups private. Buyout firms enjoyed an
extraordinary run of profitability in the
past decade as low financing costs and
buoyant financial markets made it easy
to sell investments for a gain.
Private equity firms will be forced “to
go back to investing in the old-fashioned
way. They’ll actually have to be very
good investors,” Rowan said.
Similar warnings have come from
other executives in private capital. Chip
Firms will be forced ‘to
go back to investing in
the old-fashioned way’
Marc Rowan, Apollo CEO
Kaye, chief executive of Warburg Pin-
cus, told the Financial Times last year
that an era of geopolitical calm that had
provided a tailwind to asset prices was
reversing, complicating the outlook.
Jeffrey Jaensubhakij, chief invest-
ment officer of Singaporean sovereign
wealth fund GIC, said last month:
“Many of the things that were tailwinds
for the private equity industry have
come to an end . . . and I don’t think
they are coming back any time soon,”
referring to the impact of rising interest
rates on corporate valuations.
Rowan made his comments as Apollo
reported second-quarter results. He
said the New York-based group has
closed its newest flagship corporate
buyout fund with about $20bn in com-
mitments, short of the more than $24bn
that a predecessor buyout fund raised in
2018.
Apollo earned an adjusted profit of
$1.1bn during the quarter, slightly beat-
ing consensus estimates and nearly 60
per cent higher than the same quarter a
year before. Its finances were buoyed by
$35bn of new investor cash and the
impact of higher interest rates, which
increased yields in its $450bn portfolio
of debt investments.
Growth at Apollo has mostly come
from its credit investing operations,
which include ownership of the insurer
Athene and more than a dozen plat-
forms Apollo has built or acquired over
the past decade to originate loans.
These non-buyout businesses now
constitute more than two-thirds of
Apollo’s overall assets and have posi-
Datawatch
tioned it to be a beneficiary of the higher Science friction
interest rate environment, Rowan said. Contribution to high-quality scientific
publications in 2023 (’000 adjusted
Quarterly earnings it generated from count*) US China
base management fees on the assets it
manages and the spread it earns from All
sciences
investing insurance policies rose 55 per
cent to $1.2bn from this time a year ago. 0 5 10 15 20
Apollo continues to expand its debt Physical
sciences
origination businesses after it bought Earth and
the securitised products business of environmental
Credit Suisse, a large originator of asset- sciences
0 2 4 6
backed securities worldwide. *Units reflect
“We are in the beginning of a secular Source: Nature international collaboration
shift in how credit is provided to busi- China has surpassed the US’s output of
nesses and a shift that I believe will con- high-quality academic articles in physical
tinue to gather speed,” Rowan said. sciences and in earth and environmental
He characterised the lending as sciences. However, it produces fewer
“highly complementary” to the banking exceptional scientific studies than the US
overall, the 2023 Nature Index reports.
system because it is coming from
sources of long-term capital.

Bank of England takes interest rates to

15-year high despite slowing inflation
DELPHINE STRAUSS, GEORGE PARKER stay at high levels, saying “we are going below 5 per cent in the fourth quarter.
AND MARY MCDOUGALL — LONDON
to have to keep this stance of policy” to Jeremy Hunt, finance minister, was also
The Bank of England has raised inter- return inflation to target. cheered by the BoE forecast that a reces-
est rates by 0.25 percentage points to Prices in the UK are still rising at a sion would be averted and that inflation
5.25 per cent and warned that UK bor- faster pace than in other advanced could be much lower by the next elec-
Goldman suffers as spate rowing costs are likely to remain ele- economies such as the US, Japan and the tion, expected in late 2024, standing at
of top-level exits persists vated despite slowing inflation. eurozone as the country grapples with about 3 per cent by next August.
stubborn labour shortages and high “The plan is working,” Hunt said.
Top talent exodus i PAGE 8 The central bank’s Monetary Policy energy costs. “But we have to make sure we stick to
Committee voted by six to three yester- Persistently high rates increase the the plan and we don’t veer around like a
day to take interest rates to a 15-year prospect of more pain for homeowners shopping trolley.”
Austria €4.50 Morocco Dh50 high, with two members preferring a in the run-up to the next general elec- Sterling slipped and UK government
Bahrain Din1.8 Netherlands €4.50 larger 0.5 percentage point move and tion, with Rachel Reeves, shadow chan- bond yields fell after the BoE move
Belgium €4.50 Norway NKr45
Croatia Kn33.91/€4.50 Oman OR1.60
one voting to pause. cellor for the opposition Labour party, before ending the day little changed.
Cyprus €4.20 Pakistan Rupee350 Most economists had forecast a claiming that a “Tory mortgage bomb- The bank’s updated forecasts suggest
Czech Rep Kc125 Poland Zl 25 quarter-point rise after inflation fell to a shell is hitting families hard”. that whether rates remain at 5.25 per
Denmark DKr46 Portugal €4.20
Egypt E£80 Russia €5.00
15-month low of 7.9 per cent in June. But But the BoE forecasts contained some cent or rise further, it will still take until
France €4.50 Serbia NewD530 the MPC cautioned that “it was too early brighter news for Rishi Sunak, Conserv- mid-2025 for inflation to fall to the BoE’s
Germany €4.50 Slovenia €4.20 to conclude that the economy was at, or ative prime minister, who has promised 2 per cent target.
Greece €4.20 Spain €4.20
Hungary Ft1450 Switzerland SFr6.70
very close to a significant turning point”. to halve inflation to 5.4 per cent by the ECB eyes stable rates page 2
India Rup220 Tunisia Din7.50 BoE governor Andrew Bailey empha- end of the year. The day in markets page 10
Italy €4.20 Turkey TL110 sised that interest rates would need to The BoE said that the rate could dip FT View page 16
Luxembourg €4.50 UAE Dh24
Malta €4.20

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2 ★ FINANCIAL TIMES Friday 4 August 2023

INTERNATIONAL

Eurozone Price rises

ECB dove eyes stable rates to tame inflation
Extended period at current
levels will avoid damaging
economy, says Panetta
MARTIN ARNOLD — FRANKFURT
A senior European Central Bank policy-
maker has said it can achieve its objec-
tive of bringing down inflation by com-
mitting to keep interest rates stable for
longer, rather than raising them and
risk crashing the economy.
Fabio Panetta, an ECB executive
board member, said persistence in
keeping rates at current levels “for an
extended period” could achieve a simi-
lar effect to raising borrowing costs fur-
ther while avoiding “unnecessary costs
to the economy”.
However, he did not rule out the pos-
sibility of more policy tightening, say-
ing: “Should the inflation outlook mate-
rially deteriorate, a further rate adjust-
ment would be warranted.”
The comments by Panetta, one of the
ECB’s most “dovish” board members,
underline how the debate is intensifying
over whether it should raise rates for a
10th consecutive time next month with
price pressures cooling and the euro-
zone heading for a downturn.
Investors are leaning towards a pause
by the ECB in its rate rises in September,
even though several economists think a
final increase of its deposit rate to an all-
Interview. Leo Varadkar
time high of 4 per cent is likely to tackle
persistent rises in services prices.
Last week, the central bank opened
the door to a pause in its monetary tight-
ening after raising rates by a quarter-
percentage point to 3.75 per cent while
ditching language indicating it expected
more rises.
Speaking in Milan, Panetta said “rely-
ing solely on an aggressive approach to
rate hikes might amplify the risk associ-
ated with overtightening, which could
. . . require rates to be cut hastily in a
deteriorating economic environment”.
Instead, he said: “Emphasising per-
sistence may be particularly valuable in
the current situation, where the policy
rate is around the level necessary to
deliver medium-term price stability, the
risk of a de-anchoring of inflation ex-
pectations is low, inflation risks are bal-
anced and economic activity is weak.”
The eurozone economy grew 0.3 per
cent in June from the last quarter, an
improvement from a mild contraction
over the previous six months but still
weaker than the US, where gross domes-
tic product grew 0.6 per cent.
Eurozone inflation has fallen from a
record 10.6 per cent last year to 5.3 per
cent in July. But that remains well above
the ECB’s 2 per cent target and some pol-
icymakers worry rising profit margins,
increasing wages and resilient demand
are raising services prices, which rose at
a record rate of 5.6 per cent in July.
Turkey cost of
living soars
Panetta, however, said “the process of
disinflation has been set in motion”. He
after lira is
cited six consecutive months of falling
eurozone producer prices, which
allowed to
dropped 0.4 per cent in June, a recent
lowering of inflation expectations and a
deteriorating economic outlook.
plummet
“Demand conditions in the euro area
are likely to remain weak as the impact ADAM SAMSON — ANKARA
of monetary policy strengthens, govern-
Turkey’s inflation rate jumped to
ments unwind the fiscal policy meas-
almost 50 per cent in July, halting an
ures they adopted in the energy crisis
eight-month streak of slowing price
and the consumption impulse from
growth as the weak lira, an overheating
excess savings fades,” he added.
economy and higher taxes put consum-
Panetta is due to leave the ECB board
ers under strain.
in November but will remain on its gov-
erning council by becoming governor of Consumer prices rose 47.8 per cent in
Italy’s central bank. July compared with the same month in
2022, a pick-up from the annual pace of
38.2 per cent recorded in June, the
Turkish Statistical Institute said yester-
day. Economists polled by FactSet had
forecast a slightly lower 45.8 per cent.
The stronger than expected increase

Irish leader alert to Russia’s maritime threat
PM rejects claims Dublin is
freeloading over defence amid
military neutrality debate
JUDE WEBBER — DUBLIN
Leo Varadkar has acknowledged that
Ireland must better defend its waters
from potential Russian sabotage, but
denied suggestions its longstanding mil-
itary neutrality meant it was freeload-
ing off its strategic partners.
Russian ships were spotted close to
Ireland’s north-west and south-west
coastline earlier this year, sparking fears
they could be mapping and monitoring
international data transmission cables
and gas pipelines.
Ireland’s prime minister told the
Financial Times that while no indica-
tions were evident of an imminent
threat, his officials “have to do more” to
monitor the situation.
“There’s two areas that we’re working
on with our [EU, UK and US] partners,”
he said. “One is to make sure that
[cables and pipelines] are more secure
and harder to sabotage. And then, that
we could respond to a threat if it did
emerge.”
Varadkar’s remarks come amid a
public debate on whether Ireland’s posi-
tion of neutrality — a stance it has held
since before the second world war —
remains fit for purpose following Rus-
sia’s full-scale invasion of Ukraine in
February last year. Ireland held consul-
tations on the issue in June, with contri-
butions from international experts, aca-
demics and services personnel.
Some people protested at what they
see as an attempt to push Ireland into
Nato, but strong defences were also
made of Ireland’s neutrality. President
Michael D Higgins waded into the
debate in a newspaper interview in
which he warned Ireland that it was
“playing with fire”.
Varadkar maintains that Ireland will
stay out of the western military alliance
despite the decision of Finland and Swe-
den to join. He also defended Ireland’s
role supplying only non-lethal equip-
ment and humanitarian aid to Kyiv.
Estonia, Latvia and Lithuania, the
Baltic states, with a combined popula-
tion not much above Ireland’s 5.1mn,
have been Nato members for two dec-
ades. Finland joined the alliance in
April. Varadkar said Ireland was “never
going to be a significant military power,
Supporting role:
Leo Varadkar, at
his Dublin office
this week, says
Ireland is ‘never
going to be a
significant
military power’
Robert Stothard/FT
is never going to be a huge asset to Nato,
if we ever were to join it”.
Ireland spends just a fifth of a percent-
age point of its gross domestic product
on defence, against a Nato target of 2 per
cent — though most members miss this
amount too.
The prime minister hit back sharply
against suggestions that the country was
freeloading. That was “definitely not”
the case, he said. “I’ve read that com-
mentary . . . It’s certainly not the kind
of thing that gets said to me [by EU
peers].”
Ireland’s relative distance from conti-
nental Europe and history as a colony of
Britain lie behind its neutrality.
Varadkar said EU partners appreci-
ated the security contributions that Ire-
land had made away from the battle-
field. “No country in western Europe, on
a per capita basis, has accepted as many
[Ukrainian] refugees as we have.”
Ireland is already involved in UN
peacekeeping, the EU’s Permanent
Structured Co-operation initiative for
closer military links and Nato’s Partner-
ship for Peace. “There probably aren’t
that many countries in the world that
have an international development
budget that’s as big as our defence
budget,” Varadkar said. “I think that’s
actually a positive thing.”
Sinn Féin, the pro-Irish unity party,
echoed Varadkar’s stance during a par-
liamentary debate in June. But that’s
where Varadkar’s alignment ends with
his rival, which is channelling voter
anger at an acute housing crisis and is
topping opinion polls ahead of a general
election to be held by spring 2025.
Varadkar said the government was
delivering “real signs of progress” in
homebuilding, but admitted: “It’s too
soon to say we’ve turned the corner.”
Voters appear weary, however. Varad-
kar’s Fine Gael has been in government
since 2011. Varadkar has called the
period “austerity to prosperity”, span-
ning economic bust to a boom driven by
a huge tax windfall from global technol-
ogy and pharmaceutical companies, but
his party’s support has sunk to 18 per
cent in one poll.
Still, Varadkar maintains that the eco-
nomic record of his party, which has
governed with allies Fianna Fáil and the
Greens since 2020, gives the coalition a
‘No country “realistic” prospect of returning to
power. Combined, the three parties out-
in western poll Sinn Féin, support for which has
Europe, on fallen recently to 29-31 per cent.
“It’s a significant risk to put . . . a pop-
a per capita ulist party in office,” Varadkar said of
basis, has Sinn Féin. “Historically, they’ve got all
the big calls wrong, and will do so
accepted again . . . Up until very recently, they
as many were a Eurosceptic party.”
Sinn Féin would “tax talent hard”, had
[Ukrainian] opposed free trade deals and was out of
refugees as touch with small businesses.
The government, meanwhile, plans to
we have’ stash the corporate tax bonanza in
sovereign wealth and infrastructure
funds to face the challenges presented
by its fast-growing population, includ-
ing growing pressures on housing, infra-
structure and pension costs ahead.
Varadkar said Ireland would seek to
cash in on robotics, artificial intelligence
and other digital investment opportuni-
ties despite job cuts in its tech sector,
including nearly 900 at IT consulting
group Accenture announced this week.
“Trump was change, Brexit was
change,” Varadkar said. “Change isn’t
always for the better, in my view.”
underscores how Turkey remains in the
throes of a cost of living crisis, even as a
new economic team President Recep
Tayyip Erdoğan appointed in June con-
tinues to unwind unconventional poli-
cies that were in place for years.
Under the direction of new finance
minister Mehmet Şimşek, Turkey has
abandoned its costly defence of the lira
and allowed the currency to plummet
by a quarter against the euro since the
end of May.
The weak lira makes imports more
expensive, an increase that typically
‘The main objective of our
policies is to permanently
reduce inflation to single
digits in the medium term’
gets passed on to consumers and busi-
nesses through higher prices.
At the same time, the stimulus pro-
gramme that Erdoğan launched before
May’s election win is still filtering
through Turkey’s $900bn economy. Big
increases in the minimum wage and
public sector salaries were expected to
push inflation higher for much of this
year, central bank chief Hafize Gaye
Erkan said last week.
Şimşek has also boosted taxes on a
broad range of goods and services,
including a 200 per cent increase in pet-
rol taxes. These measures, which are
aimed both at cooling demand and
refilling government coffers after the
pre-election spending binge, are
expected to be inflationary.
“We are in a transition period where
disinflation and price stability are tar-
geted,” Şimşek said yesterday, adding
that “the main objective of our policies
is to permanently reduce inflation to
single digits in the medium term”.
Cafes, restaurants and hotels posted
the biggest annual price rises in July, the
peak of the summer tourism season,
with an 82.6 per cent increase. The cost
of basic necessities has also continued
climbing rapidly: food costs jumped
60.7 per cent while clothing and housing
costs climbed about 20 per cent.
The central bank has more than dou-
bled interest rates since June, with fur-
ther increases expected in the coming
months in an attempt to tame inflation.
Erkan forecast last week that inflation
would reach 58 per cent by the end of
the year before falling to 33 per cent by
the end of 2024 and 15 per cent the fol-
lowing year. But many economists
worry that Erdoğan, a long-term oppo-
nent of high borrowing costs, will not
allow the central bank to raise rates to a
sufficient level to cool inflation.

ECB

Central bank needs more ‘critical mindset’ in oversight role

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MARTIN ARNOLD — FRANKFURT
One of the leading candidates to
become the eurozone’s next chief
banking supervisor has called for a
more “critical mindset” in overseeing
the sector and warned it still faced sig-
nificant risks stemming from macro-
economic upheaval.
Claudia Buch, deputy head of Ger-
many’s central bank, told the Financial
Times that “cultural change” in euro-
zone banking supervision was needed to
bring in more people “who have a criti-
cal mindset and take the decisions to
make sure supervisory action is taken”.
Buch is one of two candidates — along
with the Bank of Spain deputy governor
Margarita Delgado — on the shortlist to
replace Andrea Enria as chair of the
European Central Bank’s supervisory
board when he steps down at the start of
next year.
The single supervisory mechanism
was created in 2014 to harmonise over-
sight of banking in response to the
region’s sovereign debt crisis a decade
ago. It oversees the bloc’s 110 biggest
and most systemically important banks.
This year, the EU’s external auditor
criticised the ECB for being too lax in
supervising banks and insufficiently
aggressive in pushing to reduce stock-
piles of bad loans.
However, eurozone lenders were rela-
tively untroubled by the turmoil when
several US lenders collapsed, including
Silicon Valley Bank, and a liquidity cri-
sis at Credit Suisse forced it into the
arms of its rival UBS.
The EU’s top regulator said yesterday
only three of Europe’s 70 biggest banks
would be forced to raise capital in a
doomsday scenario, praising the
“robust” nature of the banking sector.
Buch said the resilience of the lenders,
despite the Covid-19 pandemic and Rus-
sia’s full-scale invasion of Ukraine,
reflected the sector’s own efforts to
boost capital and liquidity as well as
“the success of supervision”.
Yet the Bundesbank vice-president
listed several challenges. The biggest
stemmed from how the macro environ-
ment was changing. In particular, a
sharp rise in interest rates to tackle
inflation has increased the risk that a
lender’s deposits could evaporate
quickly, as happened during the recent
turmoil among US lenders. Buch said:
“The problem in Germany is that banks
are under pressure to increase their
deposit rates and they can’t pass this on
to their loan customers because loan
demand is relatively weak.”
The Bundesbank has imposed extra
capital requirements on two-thirds of
German banks to cover the impact of
rising borrowing costs. These increased
minimum capital levels by 0.89 percent-
age points of risk-weighted assets. This
pushed up minimum capital levels by
about €12bn for the country’s 22 biggest
banks supervised by the ECB.
Many German banks have locked in
Claudia Buch: shortlisted to be the
eurozone’s chief banking supervisor
low rates for long periods in their large
mortgage portfolios and these are val-
ued at less after the ECB raised rates by
4 percentage points in the past year.
Eurozone banks have increased their
average rate on deposits with a maturity
of up to one year to 2.5 per cent, which
compares with only 0.21 per cent on
overnight, instant-access deposits.
Deposits with a maturity of up to two
years have almost doubled to €1.8tn in
the past year, while overnight deposits
have fallen nearly 10 per cent to €9.1tn.
“You can do some simple simulations
on what would happen if a significant
share of depositors switches to higher
interest-paying deposits, and then you
see that the net interest margins are
shrinking,” Buch said. “So we’re telling
the banks: where we think that interest
rate risk is quite significant, we are
imposing higher capital charges.”
Buch warned the decline of energy-
intensive industries in Europe, where
output has fallen sharply after the natu-
ral gas crisis caused by the Ukraine con-
flict, could lead to an increase in bad
loans among banks exposed to these
sectors. The ECB is due to propose
Enria’s successor next month.
Friday 4 August 2023
Modi pressed
to take more
action over India
security crisis
PM accused of ‘indifference’ as violence
in north-east threatens to spread
JOHN REED — NEW DELHI
Narendra Modi’s political opponents are
seizing on a grisly, three-month conflict
in India’s north-eastern state of
Manipur to challenge the prime minis-
ter on a security crisis of national signifi-
cance they say his government has
failed to contain.
Opposition parties, who are sharpen-
ing their lines of attack ahead of next
year’s general election, say the violence
is a threat to national security, a view
shared by some analysts who warn it
threatens to spill over to neighbouring
states in a volatile region.
Members of the newly formed India
National Developmental Inclusive Alli-
ance, an opposition umbrella group,
accused Modi at the weekend of “brazen
indifference” to the violence, which has
killed more than 180 and displaced
some 60,000 since May.
Opposition parties have succeeded in
placing a no-confidence motion against
Modi’s government on parliament’s
agenda, putting the premier on the spot
‘The genie is out of the
bottle and they are
trying to put it back’
International Crisis Group
in a legislature where his Bharatiya
Janata party enjoys a solid majority and
calls the shots. A vote is expected next
week, before the end of parliament’s
session on August 11.
Although the motion is certain to fail,
it will compel Modi to address the crisis
in BJP-governed Manipur. His only
remarks on it came last month when he
expressed “pain” and “anger” over a
widely shared video showing two
women from the state’s Kuki minority
being paraded naked by a mob.
“The opposition has made Manipur a
prestige issue, a stick to beat Modi with,”
said Neerja Chowdhury, a contributing
editor at The Indian Express paper.
However, she added, “this has to go
beyond the immediate politics that both
sides want to play”.
Manipur is one of the region’s states
known as the Seven Sisters, plagued by
conflicts since India’s independence in
1947. It borders China and Myanmar’s
Chin state, where residents have been in
revolt since a military coup in 2021.
Unlike past conflicts there, in which
armed insurgents fought the state, the
current strife has pitted two ethnic
groups against each other, with violent
incidents including two women and a
child being burnt in an ambulance and a
man’s head being impaled on a stake.
Conflict broke out in May between the
mostly Hindu Meiteis, the state’s domi-
nant ethnic group who live in lowlands
West Africa
US orders partial evacuation
of Niger embassy after coup
FELICIA SCHWARTZ — WASHINGTON
The US is partially evacuating its
embassy in Niger after a military junta
seized power in the west African nation
last week and neighbouring countries
warned that they may use force unless
constitutional order is restored.
The state department on Wednesday
ordered the departure of non-emer-
gency personnel and family members, a
move that may signal a deterioration of
the security situation. It highlights the
challenges facing Washington as it
responds to the military takeover in a
country that has been an important
regional partner for the US.
Matthew Miller, state department
spokesman, said the embassy remained
open for limited emergency services for
US citizens. Kathleen FitzGibbon, the
US ambassador to Niger, was recently
confirmed and is due to arrive in the
country soon.
France has already begun efforts to
voluntarily evacuate French and Euro-
pean citizens who wish to leave Niger.
Mohamed Bazoum, regarded as the
west’s staunchest ally in the Sahel
region, was overthrown as president on
Wednesday last week, bringing further
instability to the troubled region after
★ FINANCIAL TIMES 3
INTERNATIONAL
around state capital Imphal, and the
hill-dwelling, mostly Christian Kukis.
Tensions escalated after the state’s BJP-
led government floated a plan to extend
tribal status to the Meiteis, which would
give them the same affirmative privi-
leges enjoyed by the Kukis, including
the right to buy land in the hills.
Analysts said the conflict could
spread beyond Manipur, which has a
population of about 3mn. The Kukis are
ethnically related to the Mizos in the
Indian state of Mizoram to the south
and to the Chin in Myanmar. Some in
the group also live in Bangladesh, mean- On the march: a protest takes place in Kolkata on Wednesday over sexual violence against women and ethnic clashes in Manipur — Piyal Adhikary/EPA/Shutterstock
ing ties of kinship and sympathy with
the Kukis extend across India’s state and
international borders.
Some Meiteis have left Mizoram in
recent weeks, fearing for their safety.
The Nagas, Manipur’s second-largest
ethnic group, have voiced concern
about being dragged into the conflict as
they live alongside the warring commu-
nities and in some cases have faced har-
assment or other repercussions.
“There are all the signs that it might
spread” to other parts of the north-east,
said Praveen Donthi, senior analyst for
India with the International Crisis
Group. “The genie is out of the bottle
and they are trying to put it back.”
Tensions have escalated elsewhere in
India amid what opponents say is Modi’s
weakening of democratic institutions
and promotion of Hindu majority inter-
ests. At least six died this week in
clashes between Hindus and Muslims in
Haryana state near New Delhi.
Authorities in Manipur initially im-
posed an internet blackout, but its par-
tial lifting allowed images of burnt
churches and violence, including the
sexual assault of two women, to be cir-
culated, adding pressure on Modi to act.
The government has deployed about
50,000 soldiers, armed police and other
security personnel to the state to
enforce buffer zones between the war-
ring communities.
Mobs have looted more than 4,000
weapons and half a million ammunition
rounds from police in Manipur, accord-
ing to official estimates, only some of
which have been recovered. “There is no
possibility that violence can calm down
until these weapons come back,” said
Sushant Singh, senior fellow at the Cen-
tre for Policy Research in New Delhi.
The BJP enjoys support from the
Meiteis and Kukis, but some are
demanding New Delhi dismiss Biren
Singh, the state’s chief minister, and
impose direct rule from India’s capi-
tal. The Kukis have also called for a sep-
arate administration on their lands.
“This has strategic implications,” said
Singh from the Centre for Policy
Research. “It weakens our defensive
posture against China,” amid border
tensions.
military coups in neighbouring Mali and
Burkina Faso in recent years.
Over the weekend, a group of west
African leaders led by Nigerian presi-
dent Bola Tinubu threatened to take
military action against the new junta in
Niger if it did not restore the toppled
democratic government within seven
days. The US, France, EU and Britain
condemned the coup and suspended aid
to the country.
Defence chiefs from the Economic
Community of West African States
began a two-day meeting in the Nige-
rian capital Abuja on Wednesday as a
delegation from the regional bloc trav-
elled to Niamey, Niger’s capital, as part
of efforts to find a solution to the crisis.
Nigeria also moved to increase the pres-
sure on the Niger junta by cutting off
electricity to a country where it supplies
more than 70 per cent of the power.
Washington has yet to declare the
events in Niger a coup, as doing so would
end US security assistance to a country
that Washington sees as important for
fighting terrorism and pushing back
against Russia’s influence in Africa.
There are about 1,100 US troops in
Niger and the Pentagon is not planning
to remove them. The US has suspended
security co-operation since the coup.
4 ★ FINANCIAL TIMES Friday 4 August 2023

INTERNATIONAL

Trump indictment puts spotlight Public health

on inner circle of ‘co-conspirators’
Unnamed but easily identifiable accomplices of ex-president accused of helping to undermine election process
JOE MILLER — NEW YORK
Donald Trump did not act alone: that
was one takeaway from special counsel
Jack Smith’s indictment charging the
former US president with attempting to
frustrate the peaceful transition of
power after his election defeat in 2020.
Six alleged accomplices were identi-
fied as “co-conspirators” by the US
Department of Justice, including four of
Trump’s attorneys. None has been
charged.
They are variously accused of assist-
ing Trump with everything from intimi-
dating state legislators and election offi-
cials to cooking up “sham” investiga-
tions into supposed electoral fraud, and
exploiting the anger of the crowd that
stormed the Capitol on January 6 2021.
While prosecutors did not name them
— as is standard practice for individuals
mentioned in an indictment but not
charged — they painted a vivid picture
of their alleged involvement.
Details in the indictment all but
directly identify some of the more famil-
iar characters in Trump’s orbit based on
public information.
Rudy Giuliani
Former New York mayor turned Trump
lawyer Rudy Giuliani has identified
himself as being “personally involved”
in the litigation.
His previously reported actions match
those attributed to co-conspirator 1,
described in the indictment as “an attor-
ney who was willing to spread knowingly
false claims and pursue strategies that
the defendant’s 2020 re-election cam-
paign attorneys would not”.
As the alleged leader of the Trump
White House’s campaign to meddle with
the election results, he is accused of
repeatedly lobbying lawmakers in Ari-
zona and Georgia, presenting them with
unsubstantiated claims of hordes of
dead people having voted, while also
attempting to mislead elected officials
in Pennsylvania and Michigan.
Giuliani, 79, took to Twitter soon after
the indictment was released, posting a
185-minute live video in which he reiter-
ated claims of voting irregularities in
“crooked Democrat cities”, adding that,
Legal Notices
while he did not think anyone lied in the
aftermath of the 2020 election, “you
have the right to lie under the First
Amendment”.
A lawyer for Giuliani, Robert Costello,
did not respond to a request for com-
ment. In a statement to The New York
Times, Costello acknowledged that it
“appears that Mayor Giuliani is alleged
to be co-conspirator number 1”.
John Eastman
Described as “an attorney who devised
and attempted to implement a strategy
to leverage [vice-president Mike
Pence’s] ceremonial role overseeing the
certification proceeding to obstruct the
certification of the presidential election”,
co-conspirator 2 appears to refer to law-
yer John Eastman. He was hauled before
the House committee examining Janu-
Giuliani said ary 6 to explain his involvement in the
he did not events leading up to the riot.
think anyone A former Supreme Court clerk who
joined the Trump camp after the
lied after the November election, Eastman was once
election described by Pence’s counsel as “a ser-
pent in the ear of the president of the
but added: United States”, according to an email
‘You have released by the January 6 committee.
Co-conspirator 2 is alleged to have
the right to compiled a memo claiming votes were
lie under miscounted in seven states — a docu-
ment mentioned in the January 6 report
the First and attributed to Eastman. On the
Amendment’ morning of January 6, co-conspirator 2 is
further accused of addressing the crowd
with a speech that matches one given by
Eastman, telling Trump supporters that
Eastman Pence needed to act to stop Congress
from certifying Joe Biden’s victory.
was once Lawyers for Eastman said the indict-
described ment “relies on a misleading presenta-
tion of the record to contrive criminal
as ‘a serpent charges against . . . Trump and to cast
in the ominous aspersions on his close advis-
ers”. They added that their client would
ear of the fight any charges if brought.
president of
Sidney Powell
the United Co-conspirator 3 is another attorney,
States’ described as someone “whose
unfounded claims of election fraud”
Trump privately referred to as “crazy”,
but whose theories he nonetheless
“embraced and publicly amplified”. The
few details provided by prosecutors
appear to match Sidney Powell, a
former federal prosecutor who joined
the fight to overturn the election result
after expressing concerns about its legit-
imacy on the podcast of Steve Bannon, a
former political adviser to Trump.
Co-conspirator 3 is alleged to have
filed a lawsuit against the governor of
Georgia, claiming “massive election
fraud” was accomplished through a vot-
ing machine company’s election soft-
ware and hardware. A case matching
this description was brought by Powell,
only to be dismissed a few weeks later.
She has since faced sanctions for filing
frivolous lawsuits. A lawyer for Powell
declined to comment.
Jeffrey Clark
A little-known DoJ official until late
2020, Jeffrey Clark was introduced to
Trump in December of that year and
was briefly proposed as an acting attor-
ney-general after allegedly telling the
president that if appointed he would tell
state officials that the agency had evi-
dence of election fraud, according to the
January 6 committee’s final report.
His involvement in the attempts to
overturn the election, as detailed in the
report, match the description of co-con-
spirator 4, who prosecutors say was “a
justice department official who worked
on civil matters and who, with the
defendant, attempted to use the justice
department to open sham election
crime investigations and influence state
legislatures with knowingly false claims
of election fraud”.
He is alleged to have “tried to coerce”
then acting attorney-general, Jeffrey
Rosen, to send a draft letter containing
such claims to state officials just two
days before January 6, saying he would
take Rosen’s job unless he and his dep-
Accused: John uty agreed to the proposal.
Eastman, left, A lawyer for Clark did not respond to
and Rudy request for comment.
Giuliani
Below: Sidney Kenneth Chesebro
Powell, top, and The author of the notorious “Wisconsin
Jeffrey Clark memo” — as co-conspirator 5 is referred
Jim Bourg/Reuters to in the indictment — appears to be
Kenneth Chesebro, a legal adviser to the
Trump campaign identified by the Janu-
ary 6 committee’s report as the person
who drafted “a series of legal memo-
randa” that laid the groundwork for a
so-called fake electors plan.
This matches the definition of co-con-
spirator 5 provided by prosecutors in
the indictment as “an attorney who
assisted in devising and attempting to
implement a plan to submit fraudulent
slates of presidential electors to
obstruct the certification proceeding”.
According to the committee, Chesebro
suggested in November 2020 that the
president “could gain a few extra weeks
for litigation to challenge Wisconsin’s
election results, so long as a Wisconsin
slate of Republican nominees to the elec-
toral college met on December 14 to cast
place holder electoral college votes on a
contingent basis”.
A lawyer for Chesebro did not respond
to a request for comment.
Co-conspirator 6
The identity of co-conspirator 6,
described as a “political consultant who
helped implement a plan to submit
fraudulent slates of presidential electors
to obstruct the certification proceed-
ing”, is not obvious. Few details are
given in the indictment, beyond refer-
ences to the individual sourcing phone
numbers for senators, identifying help-
ful attorneys and participating in a con-
ference call with Pennsylvania electors.
See Opinion
Mosquito gut
bacteria help
boost fight to
curb malaria
CLIVE COOKSON AND SHERI SCOTT
LONDON
Scientists are developing a new weapon
in the fight against malaria in the form
of bacteria found in the guts of mosqui-
toes, which limit growth of the micro-
scopic parasites that cause the disease.
The TC1 strain of Delftia tsuruhatensis, a
naturally occurring bacterium, was dis-
covered accidentally at the Spanish lab-
oratories of GSK, the pharmaceutical
and biotechnology company, in the
course of its work looking into a disease
that kills more than 600,000 a year.
Thomas Breuer, chief global health
officer at GSK, hailed an “entirely novel
approach for malaria control”. He con-
tinued: “TC1 has potential to further
reduce the huge burden of malaria in
endemic countries and is more evidence
that through deploying a range of pre-
vention approaches, we may be able to
finally eradicate this terrible disease.”
Nearly half the world’s population is
at risk from malaria. The Anopheles
mosquito, which spreads the Plasmo-
dium parasite responsible for malaria, is
tackled with insecticidal nets, indoor
sprays and antimalarial drugs. But the
‘Through deploying a range
of prevention approaches,
we may be able to finally
eradicate this terrible disease’
effectiveness of these methods is declin-
ing as mosquitoes and parasites become
resistant to chemical treatments.
Field tests in Burkina Faso’s Institut
de Recherche en Sciences de la Santé
and research with Johns Hopkins Uni-
versity in the US and other partners sug-
gested that TC1 could be developed into
a safe, effective way to control malaria,
said results in the journal Science.
Janneth Rodrigues, project leader at
GSK’s Tres Cantos lab, said experiments
showed that mosquitoes infected with
the bacteria were no longer carrying the
parasite at any stages of their life cycle.
When the scientists introduced TC1
into mosquito colonies in controlled set-
tings, the insects were not harmed by
the infection. The study showed the bac-
terium was not transmitted to humans
when the mosquito fed on their blood.
Delftia tsuruhatensis bacteria are rou-
tinely found in nature. Although the
species has been shown to cause rare
cases of disease in the immunocompro-
mised, researchers do not expect this to
be a serious safety concern. They found
that TC1 produced a molecule called
harmane that inhibited parasitic devel-
opment. Harmane is a neurotoxin in
high doses but is considered safe in the
tiny quantities produced by the bacte-
rium in mosquitoes.
“Harmane can be found in most
foods, coffee and barbecued meats and
is naturally produced within the human
body,” said Rodrigues.
Further confidence comes from the
safety record of Delftia-based products
already marketed as plant growth pro-
moters in agriculture. Modelling at
Imperial College London forecast that
use of TC1 over three years would lower
clinical cases of malaria by 15 per cent.

Netanyahu coalition

Israeli tech sector voices growing alarm at judiciary reforms

JAMES SHOTTER — JERUSALEM
Eran Shir has helped create about 120
jobs in Israel since he co-founded
Nexar, an automotive start-up, in 2015.
But this year, as Benjamin Netanyahu
has embarked on a drive to weaken the
judiciary, he has decided to boost activ-
ities abroad instead.
“We’re investing more in our locations
outside Israel and generating intellec-
tual property outside Israel . . . and
we’re actively looking at opening in
other locations,” said Shir. “We haven’t
done any incremental hiring in Israel
this year, but we hired five people in Por-
tugal,” he said.
Shir’s decisions reflect alarm among
Israeli tech entrepreneurs and business
leaders about the economic implica-
tions of the overhaul being pushed by
the prime minister’s hardline coalition.
The changes have sparked seven
months of protests, drawn US criticism
and prompted thousands of reservists
to threaten to stop volunteering.
For now, the fundamentals of Israel’s
$500bn economy are solid. Growth is
forecast at around 3 per cent this year,
unemployment stands at 3.3 per cent
and inflation 4.2 per cent.
Economic disruption from the battle
has been limited but the political gyra-
tions have affected Israel’s financial
markets. As the crisis progressed, the
shekel has lost about 8 per cent against
the dollar and the blue-chip index has
barely risen. Morgan Stanley warned
last week the turmoil could feed into
higher borrowing costs. The central
bank said in April it could knock an
average of up to 2.8 per cent annually off
output over the next three years.
The overhaul includes a law passed
last week that limits the top court’s abil-
ity to strike down decisions of the gov-
ernment, which would have greater
control over the appointment of judges.
The government has played down
concerns about the economic impact.
After Moody’s and Standard & Poor’s,
the rating agencies, warned last week
about the economic repercussions of the
overhaul, Netanyahu and finance min-
ister Bezalel Smotrich drew attention to
big investments in Israel planned by
Intel and Nvidia, the chipmakers.
But many economists, executives and
investors see the changes as a recipe for
erratic policymaking that could erode
Israel’s business-friendly environment.
“Israel until now had good institu-
tions, an array of checks and balances,
separation of power and an efficient
bureaucracy. But all that is being tar-
geted by the government,” said Itzchak
Raz, an economist at the Hebrew Uni-
versity of Jerusalem.
Nexar co-founder Shir said it was wor- they also said such an exodus was the
rying that the government had been biggest threat facing the economy.
prepared to go ahead with the overhaul “[The Israeli economy] is almost like
despite opposition at home and abroad. an energy dependent economy that gets
Others in Israel’s tech sector — it all of its sales from taking minerals out
accounts for more than a sixth of eco- of the ground. The minerals in this case
nomic output and more than half of are entrepreneurs,” said Adam Fisher,
exports — have similar concerns. A sur- managing partner at Bessemer Venture
vey last month by the Start-Up Nation Partners, which has invested $1.5bn in
Central think-tank found 68 per cent of Israeli start-ups. “The only problem . . .
start-ups had taken legal or financial is that while minerals can’t be taken out
steps, such as moving activities or cash of the ground and moved elsewhere,
outside Israel, since the judicial battle entrepreneurs and employees can
began. Investment in the sector was 67 move. And that’s why high tech is
per cent lower in the first half of the year screaming at the top of our lungs.”
than in the same period a year earlier.
Some are betting this reaction is over-
done. Michael Fertik, founder of Heroic
Ventures, a venture capital firm, said he Legal Notices
had put more money into Israel this
year than last, and that the fundamental
reasons for investing in the country’s
tech sector remained. Others are less
bullish. Nadav Zafrir from Team8,
which runs a start-up platform as well as
a venture capital arm, said fundraising
had “definitely” become more difficult.
The longer-term question is whether
the small steps towards relocating busi-
ness activities made so far by Israeli
companies, particularly in the highly
mobile tech sector, become something
bigger. Executives and investors said
that, so far, this was not the case. But
Friday 4 August 2023 ★ FINANCIAL TIMES 5

Continental drift Investors gloomy on European economic outlook but see the US as heading for a soft landing y MARKETS

DoJ seeks to Running total Adidas vows to give €110mn of

Yeezy sales to charity as it unwinds West ties
LSEG and
Microsoft
annul KPMG to develop
bespoke AI
audit scandal NIKOU ASGARI — LONDON

The London Stock Exchange Group is

working with Microsoft and several

convictions banks to create bespoke generative

artificial intelligence models in a move
that shows how the financial services
sector is trying to harness the technol-
ogy without exposing proprietary data.

3 Wire fraud charges to be dismissed The launch of OpenAI’s ChatGPT last

year spurred a wave of interest in gener-

3 Prosecutors misinterpreted the law
STEPHEN FOLEY — NEW YORK
Two people found guilty in a corruption
scandal involving KPMG and the US
audit regulator are set to have their con-
victions dropped, after prosecutors con-
ceded they had misinterpreted the law.
David Middendorf, a former KPMG
managing partner for audit quality, and
Jeffrey Wada, who worked at the Public
Company Accounting Oversight Board,
were convicted of fraud over claims that
Wada passed confidential information
to KPMG to help the firm prepare for
PCAOB audit inspections, in the hope of
being given a job at the Big Four firm.
The Department of Justice conceded
this week in a court filing that its reading
of wire fraud statutes was incorrect, in
The deported partner
aims to be ‘reunited with
his three college-age US
children and wife’
light of subsequent legal judgments in
unrelated cases. It said it would ask for
the jury verdict to be set aside and the
charges dismissed.
Another KPMG audit quality partner,
David Britt, who was deported to Aus-
tralia after pleading guilty to a similar
charge, is now planning to ask the court
to allow him to reverse his plea.
Middendorf and Britt were among six
partners and employees, including the
head of the audit practice, who were
fired by KPMG in 2017 after revelations
that it had hired people from the PCAOB
and used its contacts there to receive
advance notice of which audits would be
subject to inspection. The firm had been
wrestling with persistently low audit
quality scores from the process.
KPMG later paid $50mn in a settle-
ment with the Securities and Exchange
Commission, which oversees the
PCAOB, including charges related to the
scandal. As part of the settlement it
admitted using the advance notice to
alter completed audits before inspec-
tors arrived.
The DoJ secured criminal convictions
of six people in all, three of whom
admitted additional charges of conspir-
acy to defraud the SEC by interfering
with the inspection process, as well as
the wire fraud charges that have now
been called into question.
The applicability of the wire fraud
statutes turned on whether defendants
were trying to steal “property” from the
PCAOB or just affect the outcome of its
inspections.
Recent judgments in unrelated cases,
including a 2020 Supreme Court ruling,
Kelly vs US, had clarified that wire fraud
could not be brought against Midden-
dorf and Wada, the DoJ said in a submis-
sion earlier this week to an appeals
court considering appeals from Mid-
dendorf and Wada. The department
asked for their case to be sent back to a
lower court, where it said it would dis-
miss the charges.
Attorneys for Middendorf and Wada
declined to comment.
Britt pleaded guilty in 2019 to a single
count of conspiracy to commit wire
fraud, admitting to obtaining confiden-
tial information on upcoming inspec-
tions and using it to improve results. He
had been in the US for three decades, but
had never become a US citizen and was
deported as a result of the conviction.
Rob Stern, a lawyer for Britt, said he
would try to have the guilty plea with-
drawn. “We fully expect now to go back,
as I told the judge we would in these cir-
cumstances, to have the record
expunged so that he can be reunited
with the three college-age US children
and wife who are still in the country,”
Stern said.
Taking stock: Adidas still retains unsold Yeezy sneakers with a book value of €400mn — Seth Wenig/AP
OLAF STORBECK — FRANKFURT
Adidas has pledged to donate
€110mn to charity after a successful
first sale of its remaining stock of
Yeezy trainers, as the sportswear
group unwinds its ill-fated partner-
ship with Kanye West.
The German company terminated its
highly profitable agreement with rap-
per West — now known as Ye — in
October last year after he made
antisemitic remarks.
In its second-quarter results yester-
day, Adidas said the first sale of its
outstanding Yeezy shoes generated
€400mn in revenue and €150mn in
operating profit. The company had
previously promised to donate a “sig-
nificant amount” of the proceeds to
charity. It has made an initial dona-
tion of €10mn already with a provi-
sion for another €100mn.
Chief executive Bjørn Gulden said
the donations would be made to
organisations fighting racism and
antisemitism.
Adidas yesterday gave a slightly
more optimistic outlook for 2023
after overall sales in the second quar-
ter, excluding currency swings, were
flat year on year at €5.3bn. The poten-
tial full-year loss will also be smaller
than previously guided, with chief
financial officer Harm Ohlmeyer say-
ing that, excluding the Yeezy sales,
Adidas was a “break-even company”.
Gulden said the core business had
done “slightly better than expected”
in the second quarter. He also
believed the allure of the Adidas
brand would increase once “larger
volumes of our hot sellers”, such as
Samba and Gazelle shoes, were availa-
ble in stores.
Shares in Adidas were up 0.5 per
cent yesterday. The stock is up about
40 per cent so far this year over inves-
tors’ hopes that Gulden will be able to
restructure the company, which in
2022 was hit hard by the sudden end
of its highly profitable Yeezy brand,
an exit from Russia and lockdowns
and anti-western sentiment in China.
In the second quarter, sales in China
were up 16 per cent while they fell by
the same rate in North America,
excluding Yeezy. In Europe, they
declined by 1 per cent. Operating
profit more than halved in the second
quarter to €176mn, excluding Yeezy.
The Financial Times reported last
week that demand for the trainers in
the first sale in late May and early
June exceeded the company’s most
optimistic expectations. Gulden
acknowledged yesterday that selling
the Yeezy stock “is of course also help-
ing both our cash flow and general
financial strength”.
He added that the company sold
20-25 per cent of its remaining Yeezy
inventory in late May and early June.
A second batch will go on sale this
month.
Adidas still sits on unsold Yeezy
sneakers with a book value of
€400mn and a retail value of at least
twice that much. Should Adidas be
unable to sell this, it would have to
write it off.
ative AI and, while many financial serv-
ices companies are interested in its
potential benefits, they are wary of
inputting confidential information in
the models, which continually learn
from the data they are given.
David Schwimmer, chief executive of
LSEG, said the company was working
with Microsoft to create “bespoke large
language models”.
“We’re having conversations with cus-
tomers about the opportunity for them
to use the vast amount of data we have
available, to commingle that with their
data in a secure proprietary [manner],”
he said, as the exchange and data group
reported first-half results yesterday.
Microsoft took a 4 per cent stake in
LSEG in December last year and secured
a board seat as part of a 10-year strategic
partnership, marking the latest incur-
sion by Big Tech into the operation of
global capital markets. It also invested
$10bn in OpenAI in January.
Schwimmer said generative AI was
useful “if you are a big bank that has a lot
of proprietary data that you want to use
and get access to . . . for your own trad-
ing strategies, risk management”.
Banks were interested in creating
their own generative AI models because
they “want to make sure that none of
[their] data is being used to inform any
other large language models out there”,
he added. Schwimmer did not name the
companies that LSEG was working with.
The London exchange operator,
which is suffering from a dearth of list-
ings, regards AI-related products as a
potential new business line.
LSEG shares dropped as much as 6 per
cent yesterday before recovering to
trade 1.2 per cent lower after the com-
pany reported mixed first-half earnings.
Its operating profit edged up 0.7 per
cent to £1.4bn, but growth in the com-
pany’s data subscriptions slowed. Reve-
nues at LSEG’s equities business, which
includes stock market listings, declined
11 per cent to £116mn compared with
the first six months of last year.
See Lex

Uber’s profit marks a shift after Silicon Valley’s ugly decade
like to talk about how their companies
INSIDE BUSINESS will be financially sustainable and
socially responsible.
TECHNOLOGY These look like necessary stylistic
adaptations to the times. But the incen-
tive structure of the venture capital
Richard world hasn’t changed: outsized rewards
still go to the biggest winners in new
Waters markets. Nor have cycles in the capital
markets been banished.
Legal Notices
sive and competition has waned, the
subsidised rides and deliveries that
drove Uber’s growth have largely ended.
Pushing less well capitalised rivals to the
sidelines before raising prices was
always at the heart of the plan champi-
oned by Uber’s early backers — though
they probably didn’t think it would take
14 years to get to this point.
Despite the higher prices, bookings

I
f you were looking for a sign that the
tech start-up world has shaken off
the growth-at-all-costs mindset
that typified the last decade, Uber
reporting a profit this week for the
first time might fit the bill.
The US ride-hailing company was
emblematic of Silicon Valley’s ugly side
during the boom years of the 2010s. It
gave a whole new meaning to the phrase
“cash burn”, reporting more than $30bn
of operating losses as it took advantage
of a ready supply of cheap capital to sub-
sidise a global growth spree.
The chronic losses left doubts about
whether the economics of ride-hailing
— as well as the food delivery business
Uber also moved into — would ever
make sense, or whether companies
would be able to build competitive
moats in these markets.
It wasn’t only a case of financial
transgression. For Uber, trampling on
regulations and antagonising the taxi
drivers it wanted to replace was a fea-
ture, not a bug.
It is nearly two years since the stock
market turned sour on high-growth
tech companies, a reversal that quickly
fed through into private markets and
stemmed the flow of capital. But how
much has really changed?
These days, company founders speak
a different language and consciously
adopt a less abrasive demeanour. They
Uber’s early years were an extreme
version of the expansionism that took
hold during the period of ultra-low
interest rates following the 2008-09
financial crisis. So much money was
being tossed about that we ended up
with disasters such as WeWork and
Theranos.
Uber embodied an extreme version of
a prevalent business model and culture.
Other internet companies might have
been prepared to
bend regulations in Uber’s early years were an
the race for global
growth but few extreme version of the
were as willing to expansionism that took
openly flout them.
With Uber, the hold during the period of
q u e s t i o n w a s ultra-low interest rates
always: what
would happen when the cheap money
ran out and regulators finally caught up
with the company? Did it provide
enough real value to riders and drivers
— and, more recently, users of its deliv-
ery services — to justify the unprece-
dented accumulated losses it was
amassing?
By squeezing out the company’s first
operating profit this quarter, Dara
Khosrowshahi, the former Expedia boss
who took over six years ago, and Nelson
Chai, who came in as chief financial
officer to steer the company’s initial
public offering and its aftermath, have
provided at least a partial answer.
As capital has become more expen-
have continued to rise steadily. That is a
good sign that riders and eaters see
value in the convenience of ordering
through Uber’s app and were not only
drawn by uneconomically low charges.
Uber is also starting to flex its muscles
as a platform, as it looks for ways to
encourage the 137mn people who use its
services at least once a month to become
more regular customers. It has a sub-
scription service, Uber One, and cross-
promotes its different services. Adver-
tising is starting to become an impor-
tant source of revenue.
The unresolved question is whether
this will be enough both to make Uber
sustainably profitable and to support
the kind of margins that would justify
the huge upfront investments it took to
build the company. But if it really has
turned a corner then, ironically, it will
have partly validated the aggressive tac-
tics that set the company on its way.
It would be comforting to think that
regulators had learnt the lessons from
the last decade of tech growth. But as
another tech race heats up, this time in
artificial intelligence, they are once
again struggling to adapt quickly
enough. The leading artificial intelli-
gence companies have promised to
apply this powerful technology respon-
sibly. The huge rewards at stake — and
the capital flooding into lossmaking AI
start-ups — will put that to the test.
richard.waters@ft.com
6 ★
Support services
US attorney-client privilege in peril
Leading law firms attack
court ruling in favour of
SEC after cyber atttack
JOE MILLER — NEW YORK
Global law firms and corporate counsel
are warning of a “massive” challenge to
the centuries-old concept of attorney-
client privilege, as the US securities reg-
ulator seeks the power to examine inter-
nal records from companies that fall vic-
tim to cyber attacks.
A federal judge in New York last week
ordered law firm Covington & Burling to
reveal to the Securities and Exchange
Commission the details of seven clients
whose information was allegedly
accessed in a hack of the firm’s compu-
ter systems in 2020.
The SEC’s demand — even after Cov-
ington said it notified all those whose
information may have been compro-
mised — marked a new front in the bat-
tle over the limits of attorney-client
privilege, industry representatives said.
The ruling “could have massive impli-
cations for when, whether and how peo-
ple seek the advice of counsel, especially
if it emboldens the SEC and other agen-
Winning edge
Nintendo
on a high as
sales soar
The company’s latest ‘Legend of
Zelda: Tears of the Kingdom’
game sold 18.5mn copies and
helped shift 3.9mn units of the
Switch in the April to June period
Industrials
Adani buys India cement maker for $600mn
CHLOE CORNISH — MUMBAI
Gautam Adani has made his first major
acquisition since a short seller report
rocked his infrastructure empire ear-
lier this year, buying cement company
Sanghi Industries in a $600mn deal.
Adani’s Ambuja Cements, which his
group bought last year from Switzer-
land-headquartered Holcim for
$10.5bn, is acquiring 57 per cent of the
shares in Gujarat-based Sanghi from its
family owners, with the company val-
ued at Rs50bn ($600mn) after taking
into account debt and liquid assets.
An open offer is being launched for a
further 26 per cent stake at 114.22
rupees per share, which represents a 14
per cent premium to Sanghi’s closing
price on Wednesday.
Adani said it was funding the deal
entirely through its own cash, signalling
a break from its previously debt-fuelled
acquisition spree.
The move marks the conglomerate’s
cies to test client confidences”, said Ger-
ard Stegmaier, a partner at law firm
Reed Smith who regularly litigates
attorney-client privilege challenges.
“It fundamentally risks interfering
with attorney-client relationships and
the ability of clients to believe . . . that
their confidences will be protected by
the law firm that they work with and the
courts that they interact with,” he
added.
The SEC first filed an application to
force Covington to comply with a sub-
poena in January, telling a federal court
that it sought to “assess and identify
potential illegal trading based on infor-
mation gathered during the attack”,
thought to be carried out by Chinese
operatives.
More than 80 leading US law firms —
some of which have been the target of
their own cyber attacks — wrote to the
judge in support of Covington’s efforts to
avoid disclosing the information, “to
emphasise the danger of enforcing a
subpoena like the one at issue”.
The SEC declined to comment on the
recent ruling.
In a statement, Covington said it “had
a duty to protect [its] clients’ confiden-
tial information” and would “consider
Nintendo has broken its record for
first-quarter profits as The Super Mario
Bros. Movie dominated the box office
and the company’s latest Legend of
Zelda game sold 18.5mn copies since its
launch in May.
Operating profit in the April to June
quarter hit ¥185.4bn ($1.29bn), a rise
of 82 per cent on the same period a
year earlier and testament to the
demand for new games from the large
base of Switch console owners.
Sales of The Legend of Zelda: Tears of
the Kingdom, ranked by critics as
among the best games of all time, also
helped shift 3.9mn units of the Switch
during the April to June period.
That pace, said analysts, was highly
unusual given that the Switch was now
seven years old and rumours were
already swirling about when the
company would launch a successor.
The Switch, which has undergone
return to acquisitions after a seven-
month pause following a report by New
York-based short seller Hindenburg
Research in January. It accused Adani of
financial misconduct and knocked
some $150bn off the group’s total stock
market value.
Adani strongly denies the claims and
its shares have gradually recovered
much of their losses.
“We are optimistic about the acquisi-
tion by Ambuja Cements, recognising it
as a mutually beneficial opportunity for
both of the shareholders,” said Ravi
Sanghi, Sanghi Industries’ chair and
managing director.
Sanghi boasts India’s largest plant for
cement and clinker and produces 6.1mn
tonnes of cement per year at the facility
in western India.
The deal strengthens Adani in its bat-
tle for share in India’s cement market,
which is expected to benefit from
Narendra Modi’s drive to improve infra-
structure.
FINANCIAL TIMES
COMPANIES & MARKETS
any next steps in consultation with our
affected clients”.
The US Chamber of Commerce, which
filed an amicus brief in support of Cov-
ington on behalf of its members, said the
“unprecedented” ruling would “chill cli-
ents and their lawyers from having
open, candid conversations”.
“I can’t think of any prior analogous
situations where the SEC has gone after
lawyers in an attempt to investigate cli-
‘[The ruling] could have
massive implications for
whether and how people
seek the advice of counsel’
ents,” said Jonathan Urick, associate
chief counsel at the Chamber Litigation
Center.
“Covington did a very thorough, good
faith, internal review of all the material
that was compromised in the cyber
attack,” he added, and the SEC’s attempt
to nonetheless go after “highly confi-
dential and sensitive” client informa-
tion was an “invasive step, crossing a
huge Rubicon”.
Advocacy groups also warned that the
several upgrades and redesigns during
its lifetime, has sold nearly 130mn
units, based chiefly on a relentless flow
of hit games that have included Mario
Kart, Super Mario Galaxy and the
previous iteration of Zelda.
The first quarter also marked the
culmination of a four-year project by
Nintendo to better leverage the might
of its intellectual property. Mario,
Luigi, Link and other Nintendo
characters are described by analysts as
the most valuable entertainment IP
properties that are not owned by
Disney.
Despite that, Kyoto-based Nintendo
has historically avoided extensive use
of its IP outside the games themselves.
That strategy began to change in 2018
when Shuntaro Furukawa became
chief executive.
As well as lending its IP to Mario-
based theme parks in Japan and
Adani became India’s second-biggest
cement maker virtually overnight after
the deal for Ambuja and its subsidiary
ACC. It lags behind UltraTech Cement,
part of the Mumbai-based Aditya Birla
conglomerate, which has a manufactur-
ing capacity of 132.5mn tonnes of grey
cement per year.
Adani said it aimed to increase
Sanghi’s production to 15mn tonnes per
year. Its current assets produce 67.5mn
tonnes a year, with a target of 140mn
tonnes by 2028.
“With this acquisition, we are very
confident that we will achieve this
ahead of time,” said Karan Adani, Gau-
tam Adani’s son and chief executive of
the logistics and transport business
Adani Ports and Special Economic Zone.
Ambuja this week reported that its
standalone quarterly profits fell 39 per
cent year on year to Rs6.4bn from
Rs10.5bn for the three months to June
last year, as sales were up nearly a fifth
but expenses such as finance costs rose.
judge’s decision would prompt regula-
tors to go on “fishing expeditions” with
broad requests.
“More than 300 federal agencies have
this same subpoena power and, if
upheld, the court’s decision threatens to
expand the use of administrative sub-
poenas,” said Susanna McDonald, vice-
president of the Association of Corpo-
rate Counsel, which lobbies on behalf of
its 45,000 members.
Companies “rely on the trust and con-
fidence of the attorney-client relation-
ship with their own lawyers and their
outside lawyers”, she added.
The order in the Covington case
comes amid challenges to the concept of
attorney-client privilege, which has
roots in ancient Rome and was adopted
in the English legal system before enter-
ing US common law. The US Supreme
Court in January declined to overturn
an order compelling a law firm to hand
over tax-related communications as
part of a criminal investigation.
The SEC has also passed a rule that
mandates the near-immediate report-
ing of cyber security breaches at pub-
licly listed groups. It would compel com-
panies in the US to report “material”
breaches within four business days.
beyond, The Super Mario Bros. Movie
was released in April, and has since
taken more than $1.3bn at the box
office.
Nintendo said yesterday that sales
related to IP had trebled from a year
earlier to ¥31.8bn in the first
quarter, driven by the success of the
film.
While the film’s success was a
milestone, said Jefferies analyst Atul
Goyal, investors should not be
distracted by it.
“The story here is that console
gaming for Nintendo is still the main
thing,” said Goyal.
“The movies and theme parks are
great, but peripheral. What we saw
with the sales of Zelda is something
else. From an investor’s point of
view, you shouldn’t take your eye off
the core gaming side.” Leo Lewis
See Lex
Food & beverage
Bud Light woes mar upbeat AB InBev quarter
MADELEINE SPEED
Anheuser-Busch InBev has reported a
steep drop in sales of its Bud Light
brand after a collaboration with a
transgender TikTok personality spark-
ed a backlash in the US.
The biggest brewer said yesterday that
US revenues had dropped 10.5 per cent
in the second quarter.
The weakness in the key market was
“primarily due to the volume decline of
Bud Light”.
Sales of Bud Light, which had long
been the top-selling beer in the US,
tumbled for several weeks after a mar-
keting collaboration in April with Dylan
Mulvaney led to calls for a boycott and
hit sales.
The controversy caused AB InBev to
end the partnership and place two exec-
utives on leave. North America makes
up about a sixth of the brewer’s volumes
sold in 2022.
Its US struggles marred an otherwise
Financial services. Succession
Race is on for the
top job at EY after
break-up fiasco
Favourite Baldwin’s role in
Project Everest raises doubts
he will be able to unite factions
STEPHEN FOLEY — NEW YORK
MICHAEL O’DWYER — LONDON
EY boss Carmine Di Sibio’s right-hand
man has emerged as a frontrunner to
take over as global head of the firm in a
leadership race triggered by the collapse
of its attempted break-up this year.
Briton Andy Baldwin, an architect of
the abortive plan to spin off EY’s con-
sulting operations, was running to be
the first non-US executive to become
global chair and chief executive, accord-
ing to people inside or close to the firm.
Baldwin had argued, along with Di
Sibio, that EY needed to rethink its
structure radically but some of the peo-
ple said his involvement in the failed
talks over how to divide the business
had raised doubts on whether he could
unite EY’s warring factions.
Another contender was Jad Shimaly,
head of EY’s business in Canada, insid-
ers said, and at least four other execu-
tives have put their names forward or
have considered doing so.
“Andy is the favourite by a large mar-
gin but things can get weird in a hurry,”
said one person familiar with the candi-
dates. “Like a UK Conservative party
leadership contest.”
Nominations to lead the business will
close on August 13, according to an
internal email this week described to
the Financial Times. A nominations
committee will take soundings from
hundreds of the most senior partners,
and thousands more will be surveyed on
the qualities they wanted in a leader and
on EY’s strategy, the email said.
The final candidate will be picked not
by popular vote but by the global execu-
tive committee chaired by Di Sibio and
ratified by a group of prominent part-
ners. The firm has previously signalled
that it expects the decision to be settled
around November, with the winner tak-
ing over in June next year.
In 25 years on the consulting side of
the firm, Baldwin has been credited
with pushing the use of new technology
internally. He drove greater integration
of EY’s separate national firms during a
three-year spell as head of European
operations before he became one of Di
Sibio’s two deputies in 2019.
The break-up plan, Project Everest,
was designed to liberate EY from con-
flict-of-interest rules that restrict the
consulting arm from working for audit
clients. “The strategic rationale of what
we’re doing, our partners understand,”
Baldwin said last year. Their question
“is not, ‘Should we do something?’ I
think that train’s left the station.”
The plan pitted global bosses against
the leadership of EY’s US arm and con-
sultants against their more sceptical col-
leagues in the audit business.
Some partners and former partners
said a period of “healing” could be bet-
ter than another restructuring attempt,
even a slimmed-down version of the
split that would involve selling off only
parts of the consultancy.
Several pointed to Baldwin’s age. Hav-
ing just turned 57, he would be able to
serve just three years before hitting
mandatory retirement age unless he
was given an extension to serve the
usual four-year term.
“The global executive [committee]
has put the firm through the wringer
and we need significant, maybe even
wholesale, change,” said one person.
“Andy needs to wear this debacle. He
resilient quarter for the brewer, which
reported that revenues climbed 7.2 per
cent to $15.1bn as it managed to pass on
price increases to customers.
AB InBev, which also makes Bud-
weiser, Stella Artois and Corona, said
yesterday that earnings before interest,
tax, depreciation and amortisation inc-
reased 5 per cent in the second quarter
to $4.9bn, far ahead of analysts’ esti-
mates of 0.4 per cent growth.
Drinks volumes declined 1.4 per cent,
Sales took a tumble after the brand
collaborated with a trans personality
Friday 4 August 2023
needs to be held accountable for push-
ing so hard and listening so little.”
Another said: “We need to reinstitute
the ban on senior management retire-
ment extensions that clog up the pipe-
line and hinder the development of
future leaders.”
EY is structured as a network of
locally owned partnerships, giving
country leaders considerable influence,
particularly in the US, which accounts
for 40 per cent of global revenues. Julie
Boland, US managing partner, dealt the
final blow to Project Everest in April,
having decided it would weaken EY’s
audit business. She is not thought to
want the top global job for herself but is
likely to play an important role in
whether Baldwin’s campaign succeeds.
Boland did not respond to an email
seeking comment. EY declined to com-
ment or to make any of the possible can-
didates available for interview.
At a meeting of more than 100 senior
partners in Lisbon in June, Shimaly was
considered on the sidelines as a dark
horse who could unite EY’s factions, one
person in attendance said. The natural-
ised Canadian, brought up in Lebanon,
is six years Baldwin’s junior, giving him
time to serve two full terms.
Shimaly had a “Canadian ‘do no
harm’ approach, and it could be helpful
to have a North American perspective
without necessarily being a US partner”,
said a person familiar with some part-
ners’ thinking.
Marie-Laure Delarue, a French part-
ner who oversees EY’s audit practice
globally, was mentioned as a contender
‘Andy needs to wear this
debacle . . . to be held
accountable for pushing so
hard and listening so little’
after the Lisbon gathering. She would be
the first woman to lead EY at the global
level and, like Baldwin and Di Sibio, has
a background serving clients in the
financial services industry.
Other mooted candidates include the
Americans Janet Truncale, who runs
EY’s financial services in the Americas,
and Ryan Burke, who heads the firm’s
practice serving private businesses.
Truncale was seen as an ally of the glo-
bal executive committee in its long-sim-
mering tensions with other members of
the US leadership, making it unclear if
she could win Boland’s support, said
several people familiar with the matter.
Another executive said by several
insiders to be considering whether to
stand was US-born Julie Teigland, who
oversees EY’s businesses in Europe, the
Middle East, India and Africa. She was
previously in charge of EY Germany
when the firm was auditing Wirecard,
which was later revealed to have fabri-
cated half of its revenue and €1.9bn in
corporate cash. Baldwin was in charge
of the European region at the same time.
EY has been banned from taking on new
audits in Germany for two years.
“Many of the candidates are going to
be problematic, either because they are
too closely associated with championing
Everest or with undermining it . . . or
because they are carrying with them
baggage associated with previous scan-
dals,” said Laura Empson, a Bayes Busi-
ness School professor.
That did not mean the firm would be
unable to coalesce around a new leader.
“They are all united in their desire to
make a great deal of money, and they
know that the way to do that is not to
fight but to get the firm on the safest
possible footing as quickly as possible.”
in line with expectations. The company
maintained its guidance for the year.
The company’s share price has fallen
more than 10 per cent since March.
“Given Bud Light’s travails, this is an
impressive demonstration of AB InBev’s
resilience and diversification . . . We
believe that the share price has over-
reacted to the Bud Light situation,”
wrote analysts at RBC Capital Markets.
The Belgium-based brewer insisted
yesterday that, despite the backlash, it
had surveyed 170,000 consumers and
found that 80 per cent had a “favourable
or neutral” view towards Bud Light.
Rivals have capitalised on the boycott,
with Modelo Especial dethroning Bud
Light as the best-selling beer in the US
in June.
Molson Coors, AB InBev’s biggest
competitor in the US, soaked up some of
Bud Light’s market share with its Coors
Light and Miller Lite brands, reporting
record quarterly sales and upgrading its
full-year outlook earlier this week.
Friday 4 August 2023 ★ FINANCIAL TIMES 7
8 ★ FINANCIAL TIMES Friday 4 August 2023

COMPANIES & MARKETS

Goldman hit by exodus of top talent

Financials

as lower pay and slowdown take toll
Surge of high-profile exits has left insiders fearing loss of knowledge could take years to replace
JOSHUA FRANKLIN, STEPHEN GANDEL
AND MADISON DARBYSHIRE — NEW YORK
When a memo landed in Goldman Sachs
inboxes earlier this year announcing
that Mike Koester was leaving the firm,
there were audible gasps at the bank’s
headquarters in lower Manhattan.
The departure of the 25-year Gold-
man veteran, co-president of the
group’s alternative investments busi-
ness, stunned staff, with one employee
describing Koester as a “beloved” figure
inside the bank. “If you don’t have aspi-
rational mentors, it becomes difficult to
stay,” the person added.
It is one of several recent high-profile
exits from Goldman, which have added
to chief executive David Solomon’s
struggles in the past 12 months as he
pares back an expensive foray into con-
sumer banking at a time when the firm’s
financial performance is still lagging
behind that of rivals.
Some current and former Goldman
employees say the turnover is in part
due to lower pay at the bank in 2022,
when it had to cover losses at its con-
sumer lending business. Others blame a
reorganisation late last year, Solomon’s
second such overhaul since he took
charge less than five years ago. And
many fear that 2023 will be another dis-
appointing year for pay given the slow-
down in Goldman’s core investment
banking and trading businesses.
“Goldman people, senior people, are
more receptive than ever to take a call
from me,” said one Wall Street head-
hunter.
Besides Koester, who left in April and
plans to start his own venture in the pri-
vate markets, other notable departures
have included Julian Salisbury, chief
investment officer for asset and wealth
management, Dina Powell, head of
Goldman’s business covering sovereign
wealth funds, and Joe Montesano, head
of equity trading for the Americas.
This week, three more partners con-
firmed they were leaving Goldman. On
Monday, two of the bank’s senior law-
yers decamped for Citadel. David
Thomas is becoming head of legal for
global markets at Citadel’s hedge fund
unit, while David Rusoff is joining Cita-
del’s market-making arm as chief legal
officer.
Then, on Tuesday, Goldman told
employees that Lisa Opoku, a partner
since 2012, was heading for the exit. She
had been running the bank’s wealth
management business that caters to
current and retired partners.
“It’s hard to watch, really,” said one
former Goldman banker. “It used to be a
place that really specialised in training
people, and training them to be leaders.
It’s just not the same place any more.”
Goldman has pointed to longer tenure
for current partners across the firm and
argued that the bank has intermittently
gone through periods of higher turnover
before, including in 2011 following the
financial crisis and in 1998 when the
firm delayed an initial public offering.
“We have incredibly talented people
who are the best at what they do, and we
are never surprised when, after 20
years, they go on to have big roles at
other companies,” said Goldman
spokesman Tony Fratto.
He added: “This is history repeating
itself, it’s a natural cycle — and it creates
a powerful ecosystem where former col-
leagues become loyal clients.”
But others at Goldman fear the
loss of knowledge could take years
to replace. It is putting to the test
a refrain inside the firm that no
Return on equity
Per cent
JPMorgan Goldman Morgan Stanley
Q2 2022 Q3 2022 Q4 2022 Q1 2023
Sources: company statements; Bloomberg; Morningstar
Trading places: matter who leaves, gaps are filled
the departures quickly and there are enough hungry,
have added to smart go-getters to ensure the bank
the struggles of does not miss a beat.
chief executive “The joke at Goldman is there’s no
David Solomon, place that can regenerate itself faster
below, as the than Goldman Sachs,” said one banker
firm’s financial who left last year.
performance is After consumer banking, Solomon is
still lagging doubling down on asset and wealth
behind rivals management. The bank is hoping that
Michael Nagle/Bloomberg;
Takaaki Iwabu/Bloomberg
growth in those businesses, which inves-
tors view as more stable, can comple-
ment its more volatile investment bank-
ing and trading division. A similar strat-
egy has proved popular among investors
in longtime rival Morgan Stanley.
Ahead of the announcement of Salis-
bury’s departure, Goldman called inves-
tors in its funds to play down the
impact for the asset management
business, which has raised more than
$200bn in gross third-party funds
since 2020.
“They understand, but it’s not a good
look for asset management,”
said one person familiar
with the discussions.
Goldman said such
calls are standard
practice whenever a
Stock
Price-to-book value
BofA Citi
20
15
10
5 1.0
0 0.8
Q2 2023 2013 14 15
senior asset management executive
departs, and that the attrition rate
among its investment professionals is
the lowest it has been in years.
Part of Goldman’s success is often
attributed to its large and influential
alumni network. Employees often
become clients when they leave to run
companies, work at hedge funds or join
private equity firms.
One of Solomon’s priorities has been
to cultivate that network in a more co-
ordinated way, including offering
former partners exclusive access to an
investment vehicle that will put money
into the firm’s private market funds.
Goldman’s upper echelon of roughly
425 partners — historically one of the
top titles on Wall Street — is selected
every two years and undergoes regular
churn to make room for new talent.
“We work to keep the partnership at
around the same size and so 80 partners
leave about every two years,” Fratto
said. “Given the changes we have made
to set the business up for long-term suc-
cess, some turnover is expected but not
anything that hasn’t occurred in prior
cycles.”
Still, some current and former Gold-
man employees think the departures in
1.8
Morgan Stanley
1.6
1.4
1.2
Goldman
16 17 18 19 20 21 22 23
‘For years recent years — and in particular the
quality of people leaving — are notable
people compared with the historical norm.
weren’t One senior Goldman executive said
this week that the recent departures had
ready to for the first time made them consider
leave. Now being more receptive to incoming calls
from prospective employers.
senior The early years of Solomon’s tenure
people take were also marked by several high-pro-
file departures, including co-head of
our calls investment banking Gregg Lemkau,
and are who joined Michael Dell’s investment
firm, co-head of the securities division
even Marty Chavez and chief financial officer
proactively Stephen Scherr, who later became chief
executive of Hertz.
calling us’ Many departing employees are join-
ing the Goldman diaspora. Salisbury is
Wall Street joining Chavez at Sixth Street, while
headhunter
Powell will be working for Lemkau,
whose venture has merged with BDT, a
merchant bank started by another
Goldman alumnus, Byron Trott. Cita-
del, whose co-chief investment officer
Pablo Salame joined from Goldman, has
also recruited heavily from the bank.
“For years people weren’t ready to
leave,” said the Wall Street headhunter.
“Now senior people take our calls and
are even proactively calling us.”
Citi’s head of
investment
bank Ybarra
to step down
STEPHEN GANDEL — NEW YORK
Paco Ybarra, Citigroup’s investment
banking head and leader of the bank’s
biggest business unit, is to leave the
company in the most significant man-
agement departure since Jane Fraser
became chief executive more than two
years ago.
Ybarra, a 36-year veteran of Citi, joined
the bank as a junior manager in Madrid
before climbing the ladder to become
head of debt trading.
In 2019, Citi’s then chief executive
Michael Corbat named him head of
Citi’s large institutional client group,
which also includes the bank’s transac-
tion services business.
Ybarra, 61, said the decision to leave
was his own and followed a period of dis-
cussion with Fraser. They had recently
come to the conclusion that it was the
right time for him to move on.
“This is my retirement from Citi but I
don’t plan to disappear,” Ybarra said. “I
don’t think I am just going to play golf,
but I don’t know what is next.”
Insiders say Ybarra has played an out-
sized role at Citi as head of the invest-
ment bank.
The unit he oversees generated more
than half of Citi’s $40.9bn first-half reve-
nue in 2023, and includes the transac-
tion services business that is growing
quickly and is one of the bank’s new
focal points. Of Citi’s five main business
heads in the current structure, three
reported up through Ybarra.
For the past few years, Ybarra has also
been one of Citi’s top-paid employees.
He was awarded $22.6mn in cash and
stock grants last year, only $2mn shy of
Fraser’s $24.5mn package.
This year, though, Citi said it would
withhold some of his 2022’s pay after
the bank, along with rivals, agreed to
pay hundreds of millions of dollars to
settle allegations employees were using
WhatsApp and other unauthorised
messaging services.
Ybarra’s exit comes shortly after Citi
announced a number of management
changes, and as Fraser seeks to restruc-
ture the bank to find a mix of businesses
that will produce consistent returns.
Citi’s profits fell in the second quarter
and, with Goldman Sachs, it was one of
the few big US banks that reported a fall
in year-on-year profits for the period.
Citi has not named a replacement for
Ybarra, and has not said if it will. The
move could allow Fraser to streamline
upper management, something she has
signalled she would like to do, poten-
tially removing a layer between her and
a number of Citi’s key business units.
Ybarra will stay with the bank to help
with the transition and plans to leave at
some point in the first half of next year.
“I think we have done a very good job
in executing on our strategy to simplify
and focus the business on key areas,”
Ybarra said. “I am sticking around to be
part of those discussions about the
future leadership of Citi’s institutional
business but I don’t know what the
result of that will be.”
Fraser announced the departure
internally yesterday in a memo to
employees, which was seen by the FT.
Fraser said in the memo that no decision
had been made on what the new leader-
ship of Citi’s large commercial client
business would be, or how it would be
structured. “I expect that we’ll complete
our assessment and be in a position to
share decisions with you in the coming
months,” Fraser wrote.
Additional reporting by Joshua Franklin
and Arash Massoudi.

Pharmaceuticals Sport

Novo and Lilly face weight-loss drug claims
JAMIE SMYTH — BELFAST
Novo Nordisk and Eli Lilly are facing
the risk of a wave of personal injury
lawsuits over claims they failed to warn
patients that their blockbuster diabe-
tes and weight-loss drugs can cause
stomach paralysis and vomiting.
Morgan & Morgan, a personal injury law
firm, said it had filed a case on behalf of
a 44-year-old woman from Louisiana
who suffered such severe vomiting after
taking Ozempic and Mounjaro that she
was hospitalised and lost teeth.
The firm said it had signed up 400 cli-
ents who claim that after taking the
drugs they contracted gastroparesis, a
disorder that slows or stops movements
of food from the stomach to the small
intestine and causes nausea, vomiting
and abdominal pain.
Novo’s Ozempic and Lilly’s Mounjaro
are prescribed for diabetes. They are
part of a class of drugs called glucagon-
like peptide 1 (GLP-1) agonists, which
are also used to treat weight loss. The
drugs have proved popular in the US,
with analysts estimating they could gen-
erate a $50bn market by 2030.
Paul Pennock, a lawyer at Morgan,
said the drugs had caused debilitating
and disabling injuries to clients, who
had not been adequately warned by
Lilly and Novo about the dangers of gas-
troparesis. “Many people are experienc-
ing constant vomiting. I don’t mean
A law firm has signed up
400 clients who say they
contracted gastroparesis
after taking the medicines
once a week, I mean every day, all the
time. I mean, so bad that these people
are going to the emergency room for
their vomiting.”
Morgan said it had signed up clients
from 45 US states and expected that the
litigation would eventually involve
thousands of cases nationwide.
Novo said GLP-1 drugs had been on
the market for years to treat diabetes,
and symptoms of delayed gastric emp-
tying, nausea and vomiting were listed
as possible side-effects. “Patient safety
is of utmost importance to Novo Nord-
isk. We recommend patients take these
medications for their approved indica-
tions and under the supervision of a
healthcare professional.”
Lilly said: “Patient safety is Lilly’s top
priority, and we actively engage in mon-
itoring and reporting safety information
for all our medicines.”
Court documents showed that the
claim had been filed by Morgan on
behalf of Jaclyn Bjorklund in a federal
court in Louisiana.
Personal injury lawsuits are common
in the US. Some can turn into mass torts,
where many plaintiffs seek compensa-
tion for harms caused by third parties.
Johnson & Johnson is fighting a battle
over tens of thousands of claims that its
talcum powder caused cancer.
See Lex
NFL star Brady buys Birmingham City stake
JOSH NOBLE AND OLIVER RALPH
Tom Brady has joined the growing
ranks of US sports stars and celebrities
investing in English football after tak-
ing a minority stake in second-tier side
Birmingham City.
Brady, who retired from playing this
year, is the most successful quarterback
in NFL history, having won the Super
Bowl seven times with the New England
Patriots and the Tampa Bay Buccaneers.
His involvement at Birmingham City
comes three weeks after US hedge fund
Knighthead Capital Management took
day-to-day control, having bought a 46
per cent share of the club and purchased
its 29,000-seater stadium.
Knighthead’s investment followed a
prolonged period of upheaval during
which the club was controlled by a
changing roster of Hong Kong and Chi-
nese businessmen, one of whom went to
jail for money laundering, while its par-
ent company was listed on the Hong
Kong stock exchange.
“Birmingham City is an iconic club
with so much history and passion and to
be part of the Blues is a real honour for
me,” Brady said. “I’ve been part of some
amazing teams in my day, and I’m look-
ing forward to applying my perspective
to create that same success here.”
Birmingham City did not disclose the
size of his stake or the amount he
invested, but said Brady would chair a
new advisory board working with the
club on health, nutrition, marketing
and commercial opportunities.
Lower-league UK football clubs have
attracted attention from US celebrities
and sports stars in recent years. Holly-
wood actors Ryan Reynolds and Rob
McElhenney bought Wrexham in 2021,
NFL star JJ Watt bought a stake in
Burnley this year, while basketball
player LeBron James is a minority inves-
tor in Liverpool.
Like James and tennis star Serena
Williams, Brady is part of a generation
of top athletes looking to build their own
business empires. Last year he joined a
new financial services firm, Consello, as
a partner and was one of several famous
faces who promoted the now-collapsed
cryptocurrency exchange FTX.
Birmingham City’s new club chair
Tom Wagner called Brady’s investment
“a statement of intent”, with the star
“both investing and committing his
time and extensive expertise”.
Shortly after the takeover, Wagner
hired sports industry veteran Garry
Cook as Birmingham City’s new chief
executive. Cook was previously chief
executive of Manchester City and held
senior roles at Nike and Ultimate Fight-
ing Championship.
New York-based Knighthead Capital
is an investment firm that describes
itself as a specialist in “event driven, dis-
tressed credit and special situation
opportunities”.
Knighthead is part of a wave of US
investment into lower-league football.
Former Disney chief executive Michael
Eisner owns third-tier team Port-
smouth.
Friday 4 August 2023 ★ FINANCIAL TIMES 9

COMPANIES & MARKETS

Trading sentiment. Recession fears Banks

Investors turn gloomy over

SocGen beats
forecasts
Europe’s economic outlook despite state
rate rise cap
SARAH WHITE — LONDON

France’s Société Générale beat profit

expectations in the second quarter,
helped by falling charges on bad loans
and cost-cutting measures, even as
revenue slowed in the lender’s home
market.
SocGen yesterday reported net
income of €900mn, exceeding the
€732mn forecast by analysts in a Refini-
tiv poll. It had posted steep losses in the
same period a year ago owing to its Rus-
sia exit.
Group revenues fell 8.9 per cent to
€6.3bn, worse than expected in the poll,
but costs rose at a slow pace and loan-
loss charges of €166mn were far lower
than the €424mn expected in consen-
sus estimates cited by RBC Capital Mar-
kets analyst Anke Reingen.
“Cost control in the second quarter
was encouraging but is also a reflection
of weaker revenues,” Reingen said in a
note.
“Revenues contracted due to the
decline in the net interest margin in
France and in market activities’ reve-
nues against a backdrop of gradual nor-
malisation after some particularly
favourable years,” said chief executive
Slawomir Krupa, who took over the role
in May.
Krupa, a SocGen veteran and former
head of the investment bank, has faced a

Bitter harvest: since 2014 in April but has expanded as

While the US looks headed for
a ‘soft landing’, the continent’s
prospects are less sanguine
MARY MCDOUGALL — LONDON
HARRIET CLARFELT AND KATE DUGUID
NEW YORK
Investors are increasing bets that
Europe will sink into a painful economic
downturn in a growing contrast to the
conviction in financial markets that the
US is headed for a “soft landing”.
The euro has fallen against the dollar
in the past two weeks, while the surprise
ascent of European shares this year has
stalled and German government bonds
— investors’ preferred retreat in times of
stress — are gaining in price.
The shifts show growing confidence
among fund managers that economic
indicators in the eurozone are weaken-
ing in the face of higher borrowing costs,
while the US has demonstrated resil-
ience despite the most restrictive inter-
est rate environment in 22 years.
“We’ve seen a lot of interest rate hikes
in the US but demand and growth are
strong,” said Ario Emami Nejad, portfo-
lio manager at Fidelity International.
“The European growth dynamic is
weak; we think the [European Central
Bank] has made a policy mistake and
they will recognise this late,” he added,
referring to the idea that the ECB has
hoisted borrowing costs too high and
will be forced to cut them.
Official figures last week showed the
US economy grew at an annualised rate
of 2.4 per cent in the second quarter,
well above what economists had fore-
cast, while the US Federal Reserve’s pre-
ferred gauge of inflation cooled more
than expected in June, bolstering expec-
US stocks power ahead
of Europe
Rebased (%)
20 Yield spread between 10-year US
S&P 500
15
10
5 1.2
Europe Stoxx 600
0 1.0
Jan 2023 Aug
Source: Refinitiv
tations it can soon call time on its rate-
raising cycle. Meanwhile, Europe has
been teetering on the brink of recession,
while services inflation in the eurozone
hit a record of 5.6 per cent in July.
Analysts said interest rate rises had
been less successful at bringing down
inflation in Europe than in the US
because a larger proportion of inflation
had been down to the damage inflicted
in food and energy supplies by Russia’s
invasion of Ukraine.
In the first half of this year, European
equity markets were a surprise hit, con-
founding analysts’ almost universal
expectation of declines. Instead, a mild
winter and easing of the region’s energy
crisis helped the continent avoid a deep
shock and propel the Stoxx Europe 600
index 8.5 per cent per cent higher in the
first six months of the year.
Those gains have gone into reverse
midway through a disappointing sec-
ond-quarter earnings season. Compa-
nies on the Stoxx 600 are on track to
deliver their biggest decline in quarterly
profits since the early stages of the pan-
demic, reporting a 17 per cent year-on-
Gap between US and European
borrowing costs hits widest
level this year
Treasuries and German Bunds (%)
1.6
1.4
Jan 2023 Aug
year drop in earnings per share in the
second quarter, more than double the
fall of US rivals in its S&P 500.
Accordingly, the share price gap with
Wall Street has widened. The S&P 500 is
up almost 20 per cent this year, helped
by enthusiasm over artificial intelli-
gence — dominated by US companies.
“If you look at the equity valuations,
they’ve been much higher in the US
than in Europe and the rest of the world
for quite some time,” said Tim Murray, a
multi-asset capital markets strategist at
T Rowe Price. “There was a little bit of
narrowing and now that’s widened back
out. In the US, the narrative is we’re
going to get the soft landing and avoid
recession, whereas I think in Europe,
there’s still a lot of doubt about that.”
The picture is similar in other parts of
the financial markets. The euro has
fallen 2.6 per cent against the dollar
since mid-July and, in government
bonds, the gap between US 10-year bor-
rowing costs and those of Germany —
Europe’s biggest economy — has wid-
ened to its highest level this year. That
so-called spread hit its narrowest point
a larger US economic data improved relative to
proportion of the eurozone, hitting 1.6 percentage
inflation in points on Wednesday.
Europe is down Kevin Thozet, a member of the invest-
to food and ment committee at Carmignac, said that
energy prices dynamic had pushed him to offload
Attila Kisbenedek/AFP via
some US Treasuries in favour of German
Getty Images
government bonds, which would rally in
a full European recession. “When we
consider the two economic blocs, Ger-
many is the region where we see the
most economic weakening,” he said.
Figures from BNY Mellon show
non-US investors have made net sales of
about $50bn of US Treasuries since the
start of the year, while Bunds attracted
close to $4bn of net inflows from non-
eurozone investors in the same period.
Investors have also been buying UK
government bonds in recent weeks,
with 10-year gilt yields falling 0.25 per-
centage points from a peak in early July,
as investors bet aggressive Bank of Eng-
land rate rises to deal with the UK’s out-
sized inflation problem would result in
economic pain. “We are more positive
on gilts than we have ever been,” said
Eren Osman, managing director at pri-
vate bank Arbuthnot Latham.
The price of bonds issued by compa-
nies also show expectations of a rosier
outlook for the US over Europe. The
‘If you look premium paid by lowly rated US compa-
nies to issue bonds is at about its lowest
at equity in 16 months, with the “spread” over
valuations, government debt standing at 3.82 per-
centage points — down from 4.81 per-
they’ve centage points at the end of 2022.
been much Eurozone junk bond spreads remain
much wider, having shrunk by a more
higher in modest 0.7 percentage points to 4.32
the US than percentage points this year, according to
the ICE BofA Euro high-yield index.
in Europe’ Additional reporting by George Steer
SocGen has been held
back by a rule that caps
the pace at which banks
can pass on rate rises
constrained French market, as well as
falling earnings from trading bonds and
equities.
SocGen also said it had reached a set-
tlement with US regulators over the way
it kept records on unauthorised elec-
tronic messages. It did not give an
amount, but guided yesterday that any
fine was lower than a €95mn charge it
had already recorded. Paris-based BNP
Paribas last week reported a fine for the
same issue.
SocGen has been held back this year
by a local consumer protection rule that
caps the pace at which banks can pass on
interest rate rises to households. French
lenders have lagged behind regional
rivals in reaping the benefits of a rapid
rise in rates in the eurozone.
In France, SocGen’s retail banking
revenues were down 13.6 per cent to
€1.9bn. The bank and other French
lenders, such as Crédit Agricole, have
warned they were not likely to catch up
with European peers posting higher
retail bank sales until 2024. At BNP,
which is more exposed to business lend-
ing than mortgages, the impact has been
less pronounced.
French banks are also having to pay
out a higher rate on a popular savings
Our global bank account called the Livret A than in
team gives you recent years.
market-moving SocGen’s earnings from trading bonds
news and views, and equities also fell year on year, mir-
24 hours a day roring a trend at Wall Street rivals and
ft.com/markets BNP Paribas. SocGen shares were up
nearly 3.5 per cent yesterday.

Asset management Commodities

Brookfield and Sequoia Heritage hunt
for value at venture-backed businesses
ANTOINE GARA — NEW YORK
GEORGE HAMMOND — SAN FRANCISCO
Brookfield Asset Management and
Sequoia Heritage, a $16bn fund that
manages the wealth of Silicon Valley,
are creating a vehicle to capitalise on
plunging valuations of venture capital-
backed companies.
The firms are investing $250mn each to
found a company called Pinegrove Capi-
tal Partners led by Brian Laibow,
according to two sources familiar with
the matter.
Until recently, Laibow was co-head of
the North American operations of Oak-
tree Capital Management’s flagship
credit fund.
Brookfield and Sequoia Heritage will
each own a 50 per cent stake in the com-
pany, which is also trying to attract out-
side capital from institutional investors.
The firm hopes to raise more than
$2bn for its first fund, which will invest
in privately held companies that have
seen their valuations tumble amid a
repricing of venture-backed groups.
Brookfield and Sequoia Heritage
declined to comment.
The vehicle will take advantage of a
funding crunch for start-ups and their
venture capital owners, which have
struggled to exit their investments amid
a dramatic slowdown in initial public
offerings. Investors in venture capital
funds have, meanwhile, found it harder
to redeem their money.
Pinegrove will buy up stakes in start-
ups from venture backers under pres-
sure to deliver returns to their own
investors, as well as shares in venture
funds from people looking to cash out. It
will also offer some types of lending.
Brookfield, led by Bruce Flatt, wants
to capitalise on plunging valuations
Start-ups in hard-hit sectors such as
cryptocurrencies and fintech are trad-
ing at discounts of as much as 80 per
cent, according to participants in the
secondary market.
Sequoia Heritage was founded in
2010 with money from partners at
Sequoia Capital, including $150mn each
from Doug Leone and Michael Moritz.
The firm has grown fast, and secured
investments from Stripe co-founder
John Collison and former Google boss
Eric Schmidt’s family foundation.
Sequoia Heritage invests separately
from Sequoia Capital. Last month,
Moritz stepped down from his role at
Sequoia Capital to focus on his Heritage
investments full time.
In January 2022, Brookfield entered a
“strategic partnership” to build logistics
support for Sequoia China’s invest-
ments in ecommerce start-ups. Brook-
field also invested in Sequoia China,
which is in the process of being spun off
from the US firm.
Bruce Flatt, chief executive of Brook-
field, and executives at Sequoia were
introduced by Bruce Karsh, co-founder
of Oaktree after Brookfield acquired a
controlling interest in Oaktree in 2019.
Saudi Arabia warns of deeper cuts to oil
production, risking Washington’s anger
TOM WILSON AND DAVID SHEPPARD
LONDON
Saudi Arabia warned it could deepen
cuts to oil production as it extended its
voluntary supply curbs with Russia for
another month, despite a rally in crude
threatening to revive tensions between
Riyadh and Washington.
The Opec+ leaders have sought to prop
up oil prices with a series of production
cuts over the past year, frequently plac-
ing Riyadh at odds with the White
House, which wants lower prices to sup-
port the economy ahead of next year’s
election, while limiting revenues flow-
ing to the Kremlin.
Saudi Arabia will prolong its 1mn-
barrels-a-day production cut — first
implemented in July and dubbed the
“Saudi lollipop” or sweetener for the oil
market by energy minister Prince
Abdulaziz bin Salman — until the end of
September, while Russia will cut oil
exports next month by 300,000 b/d.
The Saudi cut could also be extended
or “deepened”, the state news agency
said yesterday, citing the country’s
energy ministry, indicating that it could
tighten supply even further.
“The market thinks that current
Saudi production levels were a hard
floor, but they’re indicating output
could go lower at least until inventories
come down and the market stabilises,”
said Christyan Malek, global head of
energy strategy at JPMorgan.
Russia, which has agreed to cut supply
by 500,000 b/d in August, said it would
make a slightly smaller cut next month.
‘They’re indicating output
could go lower at least until
inventories come down
and the market stabilises’
The move by the Opec+ leaders, made
outside a formal meeting of the group,
comes despite oil prices rallying 14 per
cent in July to nearly $85 a barrel. Brent
crude rose almost 2 per cent after the
announcements to $84.75 per barrel
yesterday afternoon.
When Riyadh announced its 1mn b/d
cut for July, crude had fallen from highs
of $130 per barrel in March 2022 to
about $75 per barrel. At the start of July,
the Saudis extended the cut for August.
The Opec+ cuts have raised tensions
in the past between Saudi Arabia and
the White House.
Advisers to Joe Biden have travelled to
Riyadh to try to broker a formal rela-
tionship between Riyadh and Israel,
including Amos Hochstein, who also
advises the White House on energy.
Prince Abdulaziz has been at the fore-
front of efforts by Opec+ members to
raise the oil price as the country
attempts to transform its economy
through an investment programme that
requires high crude revenues to fund it.
Russia wants a higher price to fund its
war, having lost a large part of its gas
export revenues.
“Opec+ clearly wants higher prices.
Higher interest rates are going to
increase the cost of borrowing for the
grand projects Saudi Arabia wants to
develop,” said Keshav Lohiya, founder
of Oilytics.
The cut in Saudi output is in addition
to a voluntary 500,000 b/d cut
announced in April, when its output was
about 10.5mn b/d. It means Saudi oil
output will remain at 9mn b/d until at
least the end of September, 25 per cent
lower than its maximum capacity.
10 ★ FINANCIAL TIMES Friday 4 August 2023

COMPANIES & MARKETS

The case for The day in the markets

more US equity What you need to know
exceptionalism 3 US Treasury yields hit nine-year high Ten-year Treasury yield climbs to nine-month high
after borrowing pledge
3 Stoxx Europe 600 index suffers its Per cent

Rebecca Patterson third successive session of losses

3 Sterling falls to its weakest level
against the dollar since late June
4.5

Markets Insight US Treasury yields climbed to a nine-

month high yesterday in the wake of a
4.0

A
fter outperforming peers
for 12 out of the past 13 cal-
endar years, could US equi-
ties dominate for another
decade?
At first glance, another 10 years with
the US on top seem unlikely. History
shows relative equity performance
alternating between US and non-US
equities. High valuations, margins and
ownership eventually all sow the seeds
of a handoff, especially when there is a
new growth catalyst. The popping of the
US technology bubble in the early 2000s
coupled with the growth emerging from
China joining the World Trade Organi-
zation illustrates the dynamic: after
years of US equity leadership in the
1990s, the baton was passed in the
2000s to more China-centric markets.
But a second look suggests more
American equity exceptionalism is pos-
sible, for at least two reasons. First, the
US is set to capture a sizeable share of
productivity benefits from technology
such as artificial intelligence. Second, a
moderating global economy could work
against more cyclically biased equity
markets overseas, favouring those
geared towards organic growth drivers.
Diversification remains, as Nobel
Prize winner Harry Markowitz said,
“the only free lunch in finance”. But for
global investors, economic prospects
over the coming years suggest that meal
might taste better with an abundant
helping of US stocks.
This is not to write off diversification
across asset classes and geography. Any
investor hoping to increase long-term
wealth through compounding returns
will want to manage risk from idiosyn-
cratic events. It also is not to suggest that
over a shorter period — months or quar-
ters — the US won’t at times lag behind
other markets, just as it did at the turn of
this year as China reopened and Europe
was less damaged than expected. But,
over the next decade, there is good rea-
son why Markowitz’s principle may at
least be geographically challenged.
First, over multiyear periods, domes-
tic growth has been found to dominate
local equity returns. A 2011 study by
Clifford Asness, Roni Israelov and John
Liew suggests that 39 per cent of 15-year
returns could be explained by domestic
economic performance. Growth is fun-
damentally a function of labour and
productivity. Given that most of the
developed world (and China) faces at
The US is set to capture
a sizeable share of
productivity benefits from
technology such as AI
least directionally similar labour con-
straints, the US seems likely to be a rela-
tive growth winner thanks to prospects
for greater productivity gains.
Specifically, the gradual diffusion of
technological advances through the
economy, led by AI, could give a produc-
tivity boost to US growth. A recent
report by Goldman Sachs estimated that
widespread adoption of generative AI
could raise overall US labour productiv-
ity growth by 1.5 percentage points a
year, roughly doubling the recent pace
— that’s in line with the effect of the per-
sonal computer. The report estimates
that this force, all else being equal, could
lift US gross domestic product growth
1.1 percentage points for 10 years.
US tech dominance could benefit
respective equities over the next decade
government announcement that it would
increase its borrowing in coming months.
in another way: the weight of technol- The 10-year Treasury yield climbed 0.11
ogy in US equity benchmarks. Thanks percentage points to 4.19 per cent, 3.5
partly to large overhangs of government extending a rise that began on
debt, deteriorating demographic back- Wednesday after the US government
drops (more retirees and fewer work- lifted its issuance target for the coming
ers) and more fragmented economies, quarter in the wake of Fitch's unexpected 3.0
we may well see a trend of moderating downgrade of Washington's credit rating.
global economic growth. The IMF, in its Piling further pressure on Treasuries,
April World Economic Outlook, noted hedge fund manager Bill Ackman said he
that its five-year-ahead global GDP was shorting US 30-year debt, citing
growth forecast had fallen from 4.6 per “large deficits as far as the eye can see”. 2.5
cent in 2011 to only 3 per cent. The US Treasury announced on Aug 2022 2023 Aug
Without significant cyclical momen- Wednesday that it would boost its
Source: Refinitiv
tum, companies with more structural, issuance of new long-term debt this
organic sources of growth are likely to quarter, in order to fill the growing gap
capture an investor premium. US equity between tax revenue and government Germany's Dax gave up 0.8 per cent and meeting in September, as prices in the UK
index benchmarks have notably smaller spending. Yields on 10 and 30-year London's FTSE 100 fell 0.4 per cent. continue to grow at a faster pace than in
weightings of companies that depend on Treasury bonds have jumped since then. In currency markets, sterling fell to other large economies.
cyclical growth than peers. Data from After weakness in early trading, US $1.2623, its weakest level against the Earlier in Asia, Hong Kong's Hang Seng
Morningstar Direct, for instance, shows stocks were virtually flat at midday. The dollar since late June, after the Bank of index fell 0.5 per cent, while South Korea's
non-US equity benchmarks have more S&P 500 yesterday recorded its biggest England raised its benchmark rate to Kospi lost 0.4 per cent and Japan's Topix
exposure to industrials and basic mate- one-day drop since April. Apple and 5.25 per cent, as was expected by the dropped 1.5 per cent.
rials, while the US has more than double Amazon are due to report second-quarter majority of investors. China's benchmark CSI 300 was the
the weight on technology. earnings after the closing bell. Falling inflation in the UK allowed the only outlier in the region, adding 0.9 per
This doesn’t rule out a near-term pull- Europe's region-wide Stoxx Europe central bank to slow the pace of its cent after fresh data showed that the
back by big US tech stocks, or relatively 600 index ended the day down 0.7 per tightening campaign after it surprised country's services activity expanded
stronger near-term equity performance cent, its third successive session of losses. markets with a larger half-point increase faster than expected in July. The Caixin
in another region. But in thinking about The index has declined almost 3 per cent at the previous policy meeting in June. services purchasing managers' index rose
longer-term portfolios and why equity since the start of the month. Yet the BoE policymakers left the door to 54.1, well above the 52.4 forecast.
leadership has shifted over several dec- France's Cac 40 lost 0.7 per cent, open for further tightening at their next Kate Duguid and Daria Mosolova
ades, it comes back to growth and what’s
driving it. For now, it is difficult to see
what could lead to a macro environment Markets update
reminiscent of 1980s Japan or 2000s
China and emerging markets.
A US economy that is relatively
stronger than its peers, thanks in large US Eurozone Japan UK China Brazil
part to an advantage in key technologies Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
and growth driven less by cyclical forces Level 4505.08 1810.91 32159.28 7529.16 3280.46 121096.11
than structural ones, suggests US equi- % change on day -0.18 -0.63 -1.68 -0.43 0.58 0.20
ties are more likely to remain in the win- Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
ner’s circle in the coming decade. Level 102.707 1.093 142.315 1.270 7.190 4.884
% change on day 0.114 0.000 -0.743 0.079 0.125 1.408
Rebecca Patterson is a former chief invest- Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
ment officer at Bridgewater Associates Yield 4.190 2.599 0.649 4.571 2.682 10.441
Basis point change on day 8.960 6.900 2.570 8.700 -1.300 -0.900
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 454.79 84.82 81.26 1944.20 24.41 3775.00
% change on day -0.29 1.95 2.23 -0.15 -0.43 -1.86
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
4640 1880 7840

7680
4480 1840
7520
4320 1800 7360

| | | | | | | | |
4160 | | | | | | | | | | | | | | | | | | | |
1760 | | | | | | | | | | | | | | | | | | | | 7200 | | | | | | | | | | |

Jun 2023 Aug Jun 2023 Aug Jun 2023 Aug

Biggest movers
% US Eurozone UK
Clorox 9.74 Ses 14.81 Rolls-royce Holdings 4.51
Westrock 8.01 Casino Guichard 3.96 Admiral 3.69
Ups

Apa 7.36 Societe Generale 3.85 Entain 2.30

Regeneron Pharmaceuticals 7.09 Merck 3.74 Barclays 1.84
Constellation Energy 6.76 Caixabank 3.35 Natwest 1.59
%
Dxc Technology -29.46 Infineon Tech -10.33 Mondi -6.74
Expedia -16.49 Solvay -5.29 Bt -4.20
Downs

Etsy -12.13 Lufthansa -5.20 Fresnillo -4.09

Paypal Holdings -11.48 Telecom Italia -3.92 St. James's Place -3.38
Qualcomm -9.93 Sanofi -3.25 Ocado -2.62
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

A chunky profit beat sent Clorox to the Luxembourg-based SES surged on the Heading the FTSE 100 index was Rolls-
top of the S&P 500 index, with the back of better than expected results, Royce, which posted a fivefold increase in
cleaning products maker reporting posting second-quarter revenue of underlying operating profit to £673mn for
quarterly earnings of $1.67 per share — €497mn — more than 3 per cent ahead of the half year.
more than 40 per cent above Wall Street analyst estimates. The standout division was civil
estimates. The satellite operator also launched a aerospace, which achieved an
Clorox issued guidance for its fiscal share buyback of up to €150mn after a operating margin of 12.4 per cent, up
2024 year that was “better than feared”, “strong performance” from its mobility, from 3.4 per cent a year earlier,
said UBS, “and will likely be viewed as government and fixed data sectors. reflecting “higher after-market
conservative in light of the company's A weak forecast weighed on Germany's profitability and increased large spare
recent track record of overdelivering”. Infineon, with the chipmaker forecasting engine sales”, it said.
At the bottom of the blue-chip revenue of €4bn for the current quarter, The engine maker's shares have risen
benchmark was DXC Technology, which 2 per cent below market estimates, noted more than 90 per cent so far in 2023 as it
posted revenue and margins that “fell Citi. Jochen Hanebeck, chief executive, undergoes a turnaround plan that “may
short of our expectations”, admitted chair said semiconductor trends presented a be happening at a faster rate than
Mike Salvino. “mixed picture with both light and shade”, previously expected”, said Shore Capital.
The IT services group said it had been adding that “demand for consumer At the tail-end of the blue-chip
“impacted by lower than anticipated applications, such as PCs and benchmark was packaging and paper
resale and project revenues”, leading it to smartphones”, remained low. group Mondi, which reported a 28 per
cut its full-year outlook. Digital music distributor Believe fell cent year-on-year drop in core profits for
Trading app Robinhood Markets fell after cutting its full-year guidance, the half year.
sharply despite posting net income of forecasting organic growth of about 14 This was the result of “softer demand,
$25mn in the second quarter against a per cent, down from an 18 per cent target. customer destocking and higher input
loss of $511mn three months earlier. A “less favourable currency environment” costs”, it said.
What spooked investors was a decline and a lack of recovery in ad-funded Leading the FTSE 250 mid-cap index
in monthly active users to 10.8mn — streaming were to blame, it said. was Helios Towers, which reported a
down by 1mn during the period — which New business buoyed Bavarian Nordic, 28 per cent year-on-year jump in core
contributed to a 7 per cent fall in which announced an order for smallpox profit to $173.8mn for the first six months
transaction-based revenue to $193mn. (and mpox) vaccines worth $120mn from of 2023.
An unexpected profit sent Wayfair the US Biomedical Advanced Research The telecoms infrastructure group,
soaring, with the online furniture store and Development Authority. which operates in Africa, flagged an 18
reporting quarterly earnings of 21 cents The biotech group raised its per cent increase in organic revenue due
per share — way better than the 74 cents 2023 revenue forecast by 15 per cent to to tenancy growth and inflation-linked
loss analysts had expected. Ray Douglas DKr6.9bn ($1.01bn). Ray Douglas contracts. Ray Douglas
Friday 4 August 2023 ★ FINANCIAL TIMES 11

MARKET DATA

WORLD MARKETS AT A GLANCE FT.COM/MARKETSDATA

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

-0.18% -0.08% -0.43% -0.63% -1.68% -0.49% -0.29% -0.743% -0.15%

No change No change No change
0.079% 0.18%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparison
AMERICAS EUROPE ASIA
Jul 04 - - Index All World Jul 04 - Aug 03 Index All World Jul 04 - Aug 03 Index All World Jul 04 - Aug 03 Index All World Jul 04 - Aug 03 Index All World Jul 04 - Aug 03 Index All World

S&P 500 New York S&P/TSX COMP Toronto FTSE 100 London Xetra Dax Frankfurt Nikkei 225 Tokyo Kospi Seoul

4,505.08 7,529.16 33,422.52 2,605.39

4,446.82 20,103.89 20,124.81 7,442.10 15,937.58 15,851.44 2,579.00
32,159.28
Day -0.18% Month 1.11% Year 8.42% Day -0.49% Month -0.18% Year 2.93% Day -0.43% Month -0.10% Year 0.99% Day -0.79% Month -1.48% Year NaN% Day -1.68% Month -3.00% Year 16.66% Day -0.42% Month 1.60% Year 6.79%

Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore

13,973.27 19,420.87 3,304.06

13,791.65 1,816.09 1,810.91 9,486.30 19,110.38
54,039.66 9,307.10 3,185.38
53,203.80
Day 0.00% Month 1.14% Year 10.31% Day -0.06% Month -2.17% Year 13.25% Day -0.63% Month -1.01% Year 5.06% Day -0.23% Month -2.98% Year 14.95% Day -0.49% Month 2.66% Year -1.37% Day -0.63% Month 2.98% Year 1.93%

Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
35,253.93 122,350.39 28,702.74 3,280.46
34,288.64 119,549.21 7,310.81 7,260.53 28,220.18 3,222.95 65,446.04 65,240.68

Day -0.08% Month 2.43% Year 7.44% Day 0.20% Month 1.18% Year 16.68% Day -0.72% Month -1.89% Year 13.27% Day -0.94% Month 1.67% Year 28.42% Day 0.58% Month 2.45% Year 2.96% Day -0.82% Month 0.86% Year 12.28%

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14
Straight-talking trans sex-workers tell all
This week’s new film
releases reviewed by
Jonathan Romney
K
okomo City isn’t a place so
much as a state of mind — and
a state of body. In this
documentary about four
black trans sex-workers, the
reference is to a 1930s number by
Kokomo Arnold, “Sissy Man Blues”,
containing the line “Lord, if you can’t
send me no woman, please send me
some sissy man.”
As playful as it is incisive, Kokomo City
is full of such provocations, including
stylistic ones. At the start, Liyah Mitch-
ell from Georgia recalls tangling with an
armed client. Director D Smith cuts in
dramatised moments from the encoun-
ter, and a gun swivelling in mid-air, to a
soundtrack of ’70s cop-movie funk. Just
as its subjects flout social and gender
protocol, Kokomo City breaks with the
proprieties of documentary style.
The film mixes dispassionate obser-
vation with something of an insider per-
spective: D Smith was a successful
music producer, then transitioned and
found herself marginalised within the
recording industry. The stories here
similarly involve struggles of exclusion,
but countering this is a focus on self-
invention and hard-earned humour.
Kokomo City could be accused of glamor-
ising its topic, except that here self-
glamorising is presented as an essential
survival tactic.
A theme running throughout is the
subjects’ relationships with men who
consider themselves straight, but sleep
with trans women and want to keep it
secret (male genitals may be considered
a bonus by some clients, as Koko Da Doll
from Atlanta says).
These liaisons can be risky, often
resulting in violence when men feel
their masculinity threatened. But other
possibilities are shown by Miami couple
Xotommy and Rich-Paris — male and
trans woman respectively — who sweet-
naturedly canoodle for the camera and
★ FINANCIAL TIMES
ARTS
Above: Daniella Carter in the documentary ‘Kokomo City’. Above right: Virginie Efira in ‘Paris Memories’ — D Smith
Kokomo City tell their “how we met” story on the sofa.
D Smith The most magnetic of the four main
AAAAE subjects is Daniella Carter, who is speed-
ily articulate and has zero interest in
Paris Memories self-censorship. She has the most
Alice Winocour trenchant things to say about sex work
AAAEE — a girl may have to “tickle a prostate to
get her [electricity] bill paid” — and also
You Hurt My Feelings about trans identity and black culture.
Nicole Holofcener When she tells her own story, it’s not just
AAAAE poignant but underwritten by social
awareness: she lost her family, she says,
Joy Ride because her mother saw her transition-
Adele Lim ing as “losing another black man”.
AAAEE What could have been a sombre study
is offset by sparkling execution. First-
time director Smith also edited the film,
very jazzily, and shot it in black and
white, with just an impressionistic
splash of colour in one sequence. The
photography is dazzling, whether cap-
turing the subjects with their defences
down, or giving them a supermodel
sheen; it also exults in jokey in-your-
face sexuality (it’s big on up-close back-
sides). As for realist atmospherics —
daytime street life, night-time neon —
there’s barely a shot that wouldn’t look
magnificent in a photo exhibition.
The end brings a bitter sting: the film
is dedicated to Koko Da Doll, who was
shot dead earlier this year. It adds a
bleak note to a film that is empathetic
and revealing, caustically realist but —
against all odds — exuberant too.
In cinemas now
The title Paris Memories has an unfor-
tunate ring — shades of Amélie, or,
worse, Netflix’s Emily in Paris. In fact it’s
quite apt: Alice Winocour’s drama is
about recovering erased memories fol-
lowing the trauma of the Paris attacks in
and around the Bataclan concert hall in
November 2015.
Although the venue isn’t named, that
event is clearly in mind in this story of a
woman caught in a bistro when armed
intruders open fire (Winocour’s own
brother Jérémie, to whom the film is
dedicated, was one of those who sur-
vived the Bataclan siege.)
Trying to piece together her jigsaw
recollection of that night months later,
Mia (Virginie Efira) returns to the res-
taurant, where a group of survivors
meet regularly; among them is Thomas
(Benoît Magimel, bullishly affable),
who remembers more about Mia’s expe-
rience then she does. Meanwhile, she
drifts away from her partner (Grégoire
Colin), who wasn’t with her then but
easily might have been. The film is acute
on the logic of chance, near-misses,
encounters that seem destined.
One such crossing of paths on the fate-
ful night was with Assane, an African
cook at the restaurant, with whom Mia
remembers hiding. It’s here that the film
becomes political, as she goes on a soli-
tary quest into the invisible world of
immigrant labour that — as a telling
comment from Assane informs us —
keeps Paris functioning.
Writer-director Winocour — who
made the distinctive realist drama
Proxima, with Eva Green as an astronaut
in training — slightly strains to carry this
sombre topic. There are some question-
able touches: Mia’s hallucinations of
the dead and the use of first-person
voiceovers. A twist involving another
survivor and Eva’s sense of guilt feels
awkwardly contrived.
But there’s also a nicely downplayed
register to the acting — at times, it’s
almost impassive — which defuses any
sense of spurious torn-from-the-head-
lines urgency. Virginie Efira has a calm
solidity that has made her French cin-
ema’s most approachable Everywoman.
This undemonstrative containment
makes her eminently suited to play a
stunned survivor who walks through
her changed world like a ghost.
In cinemas now
Writer-director Nicole Holofcener has
been a mainstay of the US independent
circuit since 1996’s Walking and Talking,
and a longtime specialist in sophisti-
cated female-centred comedies. Her lat-
est film You Hurt My Feelings is about
pampered, neurotic Manhattanites
whose personal traumas seem inconse-
quential given the griefs of the wider
world — but they know it, and that’s part
of the joke.
The star is Julia Louis-Dreyfus, from
Seinfeld, Veep and Holofcener’s 2013 film
Enough Said, a romcom that cast her
counter-intuitively but brilliantly
against the late James Gandolfini. Here
she plays Beth, a writer struggling with
her novel, following an only vaguely
successful memoir that none of her
writing students have read. Her hus-
band Don (Tobias Menzies) is a psycho-
therapist, going through a period of
weary self-doubt and contending with
patients who include an obstreperous
couple (David Cross and Amber Tam-
blyn, priceless together) addicted to
attritional carping.
There’s barely a shot in
‘Kokomo City’ that
wouldn’t look magnificent
in a photo exhibition
Don has always been supportive, but
when Beth overhears him confessing
that he’s not mad about the novel, her
world collapses. And, because anxiety is
contagious, so do the worlds of her sister
Sarah (Michaela Watkins) and Sarah’s
actor husband (Arian Moayed). A deli-
cious tangle of comic paradox, the film
explores the idea that in being enthusi-
astically affirmative of your loved ones,
you may unknowingly cause them hurt
and damage.
It’s super-spare in execution, yet eve-
rything is meticulously tuned. The act-
ing is superb, too: as Beth, tenderly ago-
nised, smiling doggedly through the
daily humiliations, Louis-Dreyfus cre-
ates a lovely lived-in rapport with Men-
zies, who proves a master of the con-
tained, near-subliminal cringe, his lined
face looking as if it’s about to slide very,
very slowly off his head. And Jeannie
Berlin, recently the family doyenne in
The Fabelmans, is imperiously tetchy as
Friday 4 August 2023
Beth’s mother. As an urbane, angst-
fuelled New York comedy, it undoubt-
edly occupies familiar territory; it’s
edited by Woody Allen’s long-term col-
laborator Alisa Lepselter. But
Holofcener’s film is sharper than any-
thing Allen has done for decades, and
with a wry voice that’s purely her own.
On Amazon Prime Video now
Joy Ride is a boisterously goofy female
comedy from first-time director Adele
Lim, the Malaysian co-writer of the
2018 hit Crazy Rich Asians. It’s a trave-
logue farce about an Asian-American
woman in search of her personal history
and cultural identity — but also up for
raunchy adventures and “I-love-you-
guys” bonding en route.
Ashley Park plays Audrey, who was
adopted as a child by a white American
couple; she grows up strait-laced, work-
focused and out of touch with her ori-
gins. Fortunately she has life-long friend
Lolo (Sherry Cola), an irrepressibly sex-
positive artist, to remind her how Asian
she still is, and to encourage her to let
her hair down.
When Audrey takes a business trip to
Beijing, Lolo comes along, together with
unpredictable non-binary cousin Dead-
eye (Sabina Wu, doing their own riff on
the studied weirdness that made a star
of Aubrey Plaza). Once there, they meet
up with Kat (Stephanie Hsu), a rising
star in Chinese cinema who’s desperate
to conceal her liberated past — and espe-
cially her crotch tattoo, the subject of a
jaw-dropping sight gag.
Written by Cherry Chevapravatdum-
rong and Teresa Hsiao, Joy Ride is canny
when it comes to flipping expectations
— for example, showing how people
from different parts of Asia might have
their own Asian stereotypes. Eyeing up
other travellers at Beijing airport, the
heroines decide the Taiwanese are
“weird but cute” and that Korean pop
groups “all have the same faces”. Other-
wise, the quartet show surprisingly little
interest in the people they meet —
unless they’re available to help Audrey’s
journey of self-discovery, or to provide
knockabout sex.
But the leads are hugely personable,
with a briskly affecting spiky-sisterly
interplay between Park and Cola. The
execution is functional, and somewhat
cartoonish — especially in a dance rou-
tine to a K-pop cover of Cardi B’s sul-
phurous rap hit “WAP” — but Joy Ride is
an amiable number that will really
come into its own on Tsingtao-fuelled
long-haul hen party flights.
In cinemas now
Left: Ashley
Park, left, and
Sherry Cola in
the goofy
comedy ‘Joy
Ride’. Below:
Tobias Menzies
and Julia Louis-
Dreyfus are
among the
neurotic
Manhattanites
in ‘You Hurt My
Feelings’
Friday 4 August 2023
The UK Met Office’s predictions have become much more accurate even as the climate has become
less stable. But the ability to track some of the world’s most dramatic events remains elusive.
Forecasting ever more extreme weather
T
he world’s weather is pre-
senting a paradox. In many
regions, conditions are
unprecedented, different
to anything seen before.
Yet they are also more predictable
than ever.
This summer’s extreme heat across
Europe and the US was foretold days
in advance. Last year, four days before
Britain experienced 40C for the first
time, the UK’s national weather service,
the Met Office, issued a red warning —
announcing an 80 per cent chance of
record-breaking temperatures.
“The actual forecasting, and deciding
how to message the forecast, was one
of the easier things we had to do,” says
Will Lang, the meteorological service’s
head of situational awareness. “It was
almost scary how clear-cut it was.”
Economists and political pollsters
regularly see their predictions upturned
by real-world outcomes. In contrast,
weather forecasters have managed
steady improvements in modelling a
chaotic system.
The Met Office encapsulates this
process. Remembered by many Brits
for failing to forecast a 1987 storm that
killed 18 people in the UK, it is today
ranked as one of the world’s best-
performing public weather services.
Based in Exeter, south-west England,
and largely funded by the UK govern-
ment, it says its four-day forecast is
now as accurate as its one-day forecast
was 30 years ago.
Much of the credit goes to the expand-
ing network of satellites, which provide
data on cloud cover, humidity, wind
and other variables, and increases in
computing power, which allow more
complex calculations.
Better forecasts are giving govern-
ments and companies more opportu-
nity to mitigate the costs of heatwaves
and extreme weather, which are already
large enough to be seen in gross domes-
tic product figures. So far this year, the
US has experienced 12 weather-climate
events costing more than $1bn, includ-
ing 10 severe storms.
But even “normal” weather causes
all manner of shortfalls and inconven-
iences, from failed crop harvests to
delayed flights. Increasingly accurate
forecasting has the potential to improve
performance across a swath of sectors.
Abundant data has created new
opportunities for specialised or “hyper
local” forecasts, mostly for business.
Since the weather holds huge sway
over things like heating oil and
natural gas, when Citadel, the world’s
largest hedge fund, hired Sebastian
Barrack to expand its commodities
trading in 2017, one of his first moves
was to hire a 20-strong team of weather
forecasters. Citadel now credits that
forecasting team for much of its success
in commodities trading, which
accounted for about half of its $16bn in
returns last year.
Despite leaps in forecast accuracy,
blind spots remain. Forecasters struggle
with certain weather phenomena: local-
ised thunderstorms, which can trigger
flash flooding, are still at the outer limits
of their abilities. Google, Nvidia and
Huawei are among the technology com-
panies developing AI-based forecasting,
which aims to bridge some of the gaps.
Not to be outdone, the Met Office is
also investing in machine learning and
supercomputing power. Beyond being
the UK’s national service and archive, it
provides its forecasts to other countries
and sells insights to private clients in
fields as wide-ranging as aviation, retail,
construction, agriculture, mining and
insurance.
The investment has already aided the
Met Office in its most important task:
forewarning. The 1987 storm, which the
office forecast would largely hit France
and Spain rather than the UK, was diffi-
cult to predict because of a sting jet — a
burst of powerful winds lasting just a
few hours.
Today, its forecasters would be able
to identify the storm hitting the UK as a
low probability event, allowing a warn-
ing to be issued. “We work on a mantra
of ‘no surprises’,” says Lang.
A global endeavour
The science of weather forecasting dates
back to the mid-19th century. In 1854,
Robert FitzRoy, formerly the captain of
HMS Beagle, on which Charles Darwin
sailed, founded the Met Office. Its initial
role was to improve safety for ships, by
gathering a few scattered observations
and charting them.
By the 1920s, there was an attempt at
more sophisticated prediction. Lewis
Fry Richardson, a British mathemati-
cian, honed a series of equations, based
★ FINANCIAL TIMES
FT BIG READ. SCIENCE
By Henry Mance and David Sheppard
The extreme heat that caused on Newtonian physics, that could calcu-
wildfires on the Greek island of late how pressure, temperature and
Rhodes in July, below, was predicted. other variables interact.
But certain weather, such as rainfall, Being an intrinsically chaotic system,
still poses challenges, making the weather is highly sensitive to small
flooding like that seen in Llanrwst, changes in initial conditions: the prover-
Wales, in October 2020, bottom, bial butterfly can cause a hurricane. As
harder to foresee a forecaster, “you’re pushing against
FT montage/PA/Dreamstime/ESA-JHuart/CC/Met Office/Open chaos”, says Paul Davies, the Met Office’s
Government Licence
chief meteorologist. It wasn’t until the
1960s that better data and computing
power allowed a step-change.
Data quality is crucial. The UK has
a few hundred observation stations
containing meteorological instruments,
often at airports. These are now comple-
mented by sensors on aircraft, ships
and buoys, as well as remote sensing by
radar, satellite and weather balloons.
Everyday devices are now capable of
feeding into forecasters’ models. “We’re
not at the stage yet of using the tempera-
ture from your car, but most cars are
measuring temperature and it would be
technically quite easy to share that
data,” says Douglas Parker, a professor
of meteorology at the National Centre
‘We believe we’re solving for Atmospheric Science, University of
Leeds.
equations of physics that Weather forecasting also marks suc-
are fundamental. So if cessful international co-operation.
Through the UN World Meteorological
we move into a hotter Organization, established in 1950, coun-
world, the equations tries agree to share their weather data.
In 1997, the Met Office worked with a
should still be valid’ grid of boxes 90km wide. That resol-
ution has gradually shrunk to 10km
today for the global grid. For the UK,
the resolution is 1.5km. These boxes are
stacked vertically, into the troposphere
and the lower stratosphere. Meteorolo-
gists now debate whether there is an
optimum resolution below which the
accuracy of forecasts no longer
improves significantly. “There might be
other ways that we can use our compu-
ter power to increase the accuracy,” says
Helen Roberts, a Met Office forecaster.
One of those ways is so-called ensem-
ble forecasting. Traditional models
are “deterministic”: observations are
plugged into a model, which provides a
‘We’re not at the stage yet single forecast. In ensemble forecasting,
the observations are tweaked in random
of using the temperature ways, and the model is run multiple
from your car, but most times simultaneously on the different
data sets.
cars are measuring The random tweaks compensate for
temperature and it would the limitations of the observations and
of the model. They give a probabilistic
be technically quite easy’ account of different outcomes; reason-
able worst-case scenarios can be picked
up earlier. “Introducing randomness
into this incredibly complex system
actually improves it,” says Roberts.
The Met Office’s global ensemble fore-
cast currently uses 12 different scenar-
ios. This involves vast amounts of com-
puting power and electricity. By the end
of 2025, the service will only use ensem-
ble forecasting, enabled by one of the
world’s largest supercomputers, ini-
tially budgeted at £1.2bn. (The super-
computer, based in Microsoft data cen-
tres and intended to process 60 quadril-
lion calculations per second, was due to
be ready last summer, but was held back
by Covid chip delays. The Met Office
now expects it to be online in spring
2024.)
Human forecasters retain a role. They
compare the models’ outputs to real
weather observations and adjust them
for biases. “For the time being, human
meteorologists provide so much added
value and insight above raw model
data,” says Roberts.
The models should perform robustly
even as the world warms. Extreme
Paul Davies, the
Met Office’s chief
meteorologist, says
forecasting is like
‘pushing against
chaos’
weather is not necessarily hard to pre-
dict: July’s European heatwave involved
a “loopy” jet stream, which allowed high
pressure to settle for many days in five
regions of the northern hemisphere.
“We believe we’re solving equations of
physics that are fundamental. So if we
move into a hotter world, the equations
should still be valid,” says Parker.
Some places are easier to forecast
than others. Britain has comparatively
unpredictable weather because it sits off
the edge of a continental landmass and
next to a large ocean.
But prediction is easier than in the
tropics, where there are fewer observa-
tion stations, where the effect of the
Earth’s rotation, a stabilising force on
the weather, is weaker, and where
thunderstorms can be frequent.
“In a chaotic system, there is a time-
scale over which [things] are no longer
predictable,” says Parker. “We think
for our mid-latitude world it is some-
thing like two weeks. For the tropics, it
might be a day [at least for rainfall].”
The Met Office has meteorologists
embedded with customers, particularly
airlines and airports, who want tailored
interpretation of forecasts. Demand for
tailored services is likely to grow. As
the UK’s share of renewable energy
increases — from 11 per cent in 2012 to
more than 30 per cent in 2022 — under-
standing how hard the wind will blow
or the sun shine has become key to
ensuring the lights stay on.
The UK’s National Grid Electricity
System Operator is investing in increas-
ing the frequency and quality of the
forecasts it receives, including using
machine learning. It is also working on
analysis of satellite imagery of clouds
to see if its solar radiation forecasts can
become more accurate.
Whiffle, a specialist forecaster that
grew out of a project at Delft University
of Technology in the Netherlands, has
taken the grid concept and super-
charged it. Rather than focusing on
10km boxes, it says it can predict the
weather based on areas as small as 10
metres squared. This can give wind
farm operators advance notice of how
much they are likely to generate from
individual turbines, aiding their trading
in power markets. It can also help with
the optimal placing of wind turbines
within a bloc.
“The margins on these projects are
not normally huge, generally in the
region of 6-10 per cent,” says Remco
Verzijlbergh, Whiffle’s co-founder. “So if
the yield you get from the wind is lower
than you hoped for, the economics can
quickly blow up.” The company works
closely with General Electric and Shell,
among other customers.
Better days ahead
Last month, exactly a year after accu-
rately predicting record-breaking tem-
peratures, the Met Office found itself
under scrutiny — from England cricket
fans. The fans wanted dry weather to
enable England to try to beat Australia
in an Ashes Test match in Manchester.
The Met Office suggested that no play
would be possible on the third day of
the Test, a Friday. A rival forecasting
service, AccuWeather, offered a more
optimistic view, which was quickly
adopted by fans. The England team itself
judged that an app called Home and Dry
was the most accurate guide. “It’s impos-
sible to know with weather forecasts,”
15
sighed a BBC radio commentator.
Overall, the Met Office’s forecast was
largely accurate, and England’s rain-
affected match finished in a draw. But
the episode highlights one of the short-
comings of current weather forecasts:
pinpointing exactly when and where rain
will fall.
The physics behind rainfall is an
“extremely non-linear process,” says
Parker. Most rain starts as ice crystals
or snowflakes and turns to rain as it
descends within a cloud. It is affected by
multiple factors, including interaction
with other water in the clouds, the
topography of the land below and the
level of aerosols in the atmosphere.
Given the difficulties in forecasting,
attention is being paid to “nowcasting”:
tracking rain over the extremely short
term. In 2021, DeepMind, an artificial
intelligence arm of Google, and the Met
Office published a paper in the journal
Nature suggesting that machine learn-
ing could outperform traditional, phys-
ics-based models at nowcasting rainfall
within the next 90 minutes.
Machine learning has also been tri-
alled over longer time horizons.
Researchers at Nvidia said last year that
their model was able to pick up extreme
weather events such as hurricanes two
to six weeks in advance. It required
much less computing power than tradi-
tional forecasting, running 320 ensem-
ble forecasts in just three minutes.
“The interesting thing is how [AI-
based forecasts] opens up for the
private sector to compete with national
weather services, because you don’t
need the same infrastructure of scien-
tists or computing experts to make that
work,” says Parker.
But models trained on historic data
may not be reliable in a changing
climate. “If we have an AI that’s a
statistical fit to the climate that we
know, and then we have a different
climate, it’s not so clear that that
model will continue to be accurate.
£1.2bn $1bn+
Budgeted cost Estimated cost of
of the Met Office’s severe weather
supercomputer, events in the US
due online in 2024 so far this year
We’ve got no guarantees,” Parker adds.
Improvements in medium-range
forecasts, whether by AI or othermeth-
ods, are a focus for meteorologists. Such
probabilities could help retailers
to decide what to stock, for example,
and farmers to decide what to plant.
“We might not be able to make a really
strong statement about what the
weather’s going to be like this summer
or this winter, but even if we just talk
about a slight shift in the odds — a 10 per
cent increased chance of it being ahotter
summer — combined with a lotof other
information that you’re getting, that
might just be enough to tip the
balance,” says the Met Office’s Lang.
But mid-range forecasts would not
help individuals plan holidays or wed-
dings. “You’re never going to be able to
forecast your barbecue a month in
advance,” says Parker.
Conveying such nuanced information
is a challenge. Already the public has
access to an array of weather apps, often
with hourly forecasts and shiny maps
that foster an illusion of certainty. The
Met Office is studying how to give a
sense of the probabilities involved.
With extreme events, communica-
tion can be counterintuitive. In 2017, a
small but intense storm hit the Cornish
coastal village of Coverack, causing flash
floods. On the radar, “you could hardly
see it — it was just a little point”, says
Davies. As a result, people nearby were
unaware and did not try to flee the area.
“Had we produced the perfect warning,
we might have lost lots of lives,” he adds.
People nearby “might have rushed to
the car and been drowned”.
Since the Coverack storm, the UK has
endured a number of unprecedented
weather incidents. In 2020, a study by
the Met Office had concluded that while
hot summers were rising, “the current
chance of seeing days above 40C is
extremely low”. Two years later, it hap-
pened. Now the service says 40C temper-
atures “could be the norm” by the middle
of the century, even if the world takes
some steps to limit carbon emissions.
Experts emphasise that even accurate
warnings are no substitute for long-
term adaptation and mitigation strate-
gies, which help society cope with
intense heat and rainfall. “Underneath
is climate change. It affects everything,”
says Davies. “How do we communicate
that, but also present it in such a way
people don’t see us as nanny state?”
16 ★ FINANCIAL TIMES Friday 4 August 2023

The FT View
The Bank of England walks a tightrope
Mixed signals on monetary
policy leave UK economy
on an uncertain path
Ahead of the Bank of England’s 14th
consecutive rate rise since 2021 on
Thursday, Prime Minister Rishi Sunak
claimed “there is light at the end of the
tunnel” on Britain’s inflation fight. After
justifiable criticism of the bank for fall-
ing behind the curve — with the UK’s
high inflation making it an outlier in the
G7 — a downward trajectory for price
growth is now visible. Since the BoE’s
hefty 50 basis point rate rise in June, a
product of being too complacent earlier
in the year, inflation data has cooled.
The Monetary Policy Committee
plumped for a less aggressive 25 basis
point rise at its August meeting, taking
rates to 5.25 per cent. Yet it does
not seem confident on what it needs to
do next.
ft.com/opinion The mixed signals from the meeting
are particularly concerning when the
economy is already straining and the
margin of error for causing a recession is
small. The MPC’s updated view that per-
sistent inflationary pressures may be
crystallising indicates the need to keep
its policy tight. But guidance that rates
would stay “sufficiently restrictive for
sufficiently long” — alongside a split
vote, with two members voting for a
more forceful 50 bps rise — points to
uncertainty over how far and how fast
the BoE thinks it ought to go.
A 25 bps increase this month was
sensible. Broader price pressures are
abating. Food price inflation has slowed
to its lowest in a year. Producer price
inflation, a leading indicator of the
prices shoppers face, has fallen rapidly.
Prior rate rises are also squeezing
demand. Last month, annual house
prices fell by the most since 2009 amid
higher mortgage rates. Bank lending
has eased. But the MPC’s nemesis has
been the jobs market, with wages still
growing strongly.
The UK’s robust labour market has
kept core inflation, which excludes
energy and food prices, too high at 6.9
per cent. Some further tightening looks
inevitable. But modelling that showed
the BoE reaching its 2 per cent inflation
target in 2025 under different interest
rate paths created some confusion.
Some saw the August meeting as “hawk-
ish”, others underscored more “dovish”
tones — highlighting the broader prob-
lem the central bank has faced in com-
municating its plans.
Just how the BoE proceeds matters
greatly. Home buyers and those set to
remortgage already face thousands of
pounds more in annual payments,
which will increasingly pinch demand.
Business activity is falling sharply too. If
the BoE is too dovish there is a risk that
inflationary persistence feeds into wage
resilience. But if it pushes rates too
far, for too long, it risks crushing the
economy.
Part of the problem is that it is diffi-
cult to get a clear handle on just how
Modelling that much previous rate rises are squeezing
showed the BoE the economy. Few central banks have
got to grips with that. The MPC itself, as
reaching its 2%
governor Andrew Bailey admitted, is
inflation target not leaning much on its own internal
in 2025 under model. The planned review by former
different Federal Reserve chair Ben Bernanke
interest rate is very welcome, and will hopefully
scenarios go some way to improving the BoE’s
processes.
created some For now, the BoE will need to tread
confusion carefully and keep a very close eye on
the data. It was playing catch-up before,
but now the economy is looking more
delicate and price pressures are easing.
A slow and steady approach from here
would be wise to gain a clearer picture of
where the economy is.
Britain was the first major advanced
economy to raise rates, but the last to
leave double-digit inflation. The BoE
would surely not want it to be the last to
recover from a substantive interest rate-
induced recession as well. The light at
the end of the tunnel should not lead
into a ditch.

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solve Europe refugee crisis Solar sites can support climate goals while protecting nature
FT montage/Getty Images I would like to expand on issues raised
by former US Treasury secretary
Henry Paulson regarding the need to
address climate change while
safeguarding biodiversity (Opinion,
July 16).
While we can all agree with the
importance of conserving nature, I
believe that a more balanced
perspective is necessary when
considering the climate and
biodiversity nexus and perhaps there
can be some transferable lessons that
the US could take from the UK,
particularly when it comes to site
selection and planning for solar
deployment.
There is no denying that nature will
be in decline at a catastrophic rate
unless urgent action is taken, and
Paulson is right in that if not located
properly, renewable energy sites will
have an impact on ecosystems and
habitats.
However, UK planning policy
ensures that significant harm to
biodiversity resulting from
development is avoided. These
safeguards extend to protected areas,
important habitats and species.
Furthermore, the Environment Act
(2021) includes provisions to
strengthen and improve the duty on
public bodies to conserve and enhance
biodiversity, including mandating a net
gain in biodiversity through the
planning system.
Utility-scale, ground-mounted solar
in the UK supports multifunctional
land use, which is a solution that not
only maximises the potential of solar
farms to deliver clean energy to
address climate change, but also
significantly improves biodiversity.
Planning permission for a solar farm is
time-limited, typically 25 to 40 years,
which leaves the land to lay fallow,
while many solar sites are also grazed
on by sheep, beneath and around the
solar panels. This management regime
often results in biodiverse hay
meadows that are rich in wildlife.
Solar energy is an essential
component of our journey towards net
zero and it is vitally important to adopt
thoughtful strategies to ensure that
renewable energy development aligns
with the Global Biodiversity
Framework. By working
collaboratively and embracing
innovative approaches, we can
overcome these challenges and also
learn from geographies where
deployment of solar already works in
harmony with nature.
Ross Grier
Chief Operating Officer, NextEnergy
Capital, London W1K, UK

his country. Haftar, a warlord, is

Kim reported to have links to the smug-
glers. Then there is Egypt’s Abdel
Ghattas Fattah al-Sisi, upon whom President
Emmanuel Macron bestowed the
Légion d’honneur, France’s highest
Women’s emotional touch AI tools must be open to Seigniorage as described by Haldane,
originally designed to improve the
is needed in tech sector
With the recent explosion of public
scrutiny and public debate
The FT report about advocates of open
liquidity of the banking system,
deserves a different coining to reflect
discourse around AI, largely as a science warning of scientific fraud the reality of its function now that

E
urope is helping to entrench
Arab autocrats by asking
them to stem the flow of
refugees across the Med-
iterranean, with no regard
for their governance or human rights
record. They, in turn, are only too
happy to pose as partners, claiming
they alone can protect Europe’s south-
ern border from illegal migrants, in
exchange for more cash.
Perversely, it is often the rule of
those repressive leaders that is driving
thousands of people from across the
Middle East and north Africa to leave
their homes and make the treacher-
ous trip in the first place.
In its yearly threat assessment
released in February, the US intelli-
gence community singled out Tunisia
as a particular problem in the region:
“President Kais Saied’s ongoing
consolidation of governing authority
Repressive rule in the
Middle East is driving
thousands to make
treacherous journeys
increases the risk for a serious break-
down in stability.”
Since then, Saied has in effect dis-
mantled democracy in Tunisia. He
whipped up racist sentiment, unleash-
ing violence against sub-Saharan
migrants which sparked a further ref-
ugee crisis. Human rights groups have
accused Tunisia of dumping migrants
in the desert on its border with Libya,
where some have died of thirst. Skilled
Tunisians are also leaving in droves.
Yet last month the EU signed a strate-
gic partnership deal with Tunisia that
offers several hundred million euros
worth of help for economic develop-
ment, but is mostly focused on cracking
down on illegal migration and curbing
departures. Another €900mn is in the
pipeline, if Saied agrees to reforms
demanded by the IMF.
Communities that host refugees
deserve international support and
financial aid can help create economic
opportunities to keep migrants at
home. Having said little about his
power grab, the EU approach now
rewards Saied for being a cruel auto-
crat and an incompetent steward of
his country’s economy.
Italy’s rightwing prime minister
Giorgia Meloni has also led the way in
courting the de facto ruler of eastern
Libya, General Khalifa Haftar, seeking
his help to prevent departures from
decoration, in 2020.
Sisi has spent billions on vanity
projects like a new capital city while
the economy takes a nosedive. Infla-
tion has reached an all-time high of
35.7 per cent, the national currency
has plummeted and Egyptians are
facing power cuts in the sweltering
heat. In 2022, Egypt suddenly made it
into the top five nationalities of illegal
arrivals in Europe.
While Europe works to keep refu-
gees and migrants out, it expects other
countries, such as Lebanon, Jordan
and Turkey to host millions of refu-
gees forever. Refugees in Lebanon are
estimated to represent 25 per cent
of the country’s overall population —
compared to just 1.5 per cent in
Europe. Syria is not safe for voluntary
returns and Lebanon was rightly
chided by the European parliament
for forcing some Syrians to go home,
where many are then rounded up by
the regime of Bashar al-Assad.
The impact of such large refugee
populations on the stability and social
fabric of small countries like Lebanon
and Jordan cannot be ignored. But as
long as Syrians are not heading in large
numbers to Europe as they did in
2014, Europeans seem content to
ignore the festering wound in Syria.
Meloni, who has in the past praised
Assad, may even think he can be an
ally on the refugee issue.
The long-term interests of Europe
and the west are best served by democ-
racy and good governance in the global
south. Of course, policymakers have to
deal with the world as it is, and not with
the leaders they wished they had. But
coddling dictators only cements their
rule, creating a vicious cycle.
No one has yet cracked the code of
how to maintain short to medium term
stability while helping to deliver
democracy and good governance in the
long term. It requires vision and sus-
tained, smart policies about thorny
issues at a time of short public attention
spans, dictated by-election cycles
increasingly driven by populism. Sadly,
band-aid solutions are becoming the
norm in an age of policy gridlock on
various challenges, including climate
change, the effects of which will also
make the migration crisis worse.
In June, the EU said it will join
efforts to assess the viability of block-
ing out the sun to mitigate global
warming — instead of focusing on
curbing emissions. “Solar radiation
modification” carries its own risks
and is described by some experts as
science fiction. So is the illusory stab-
ility promised by dictators.
The writer is author of ‘Black Wave’
result of ChatGPT, it is no surprise that
even dating apps are now embracing
the software, as written about by
Elaine Moore (“AI entering the dating
pool is a bleak prospect”, Opinion,
August 1).
There is indeed a possibility that
such apps could lose their personal
touch as they become dependent on
software to generate human sentiment,
however AI is here to stay and so
wherever it is built and used, it needs
to be representative.
AI requires humans to build it and,
as we know, women still face barriers
when it comes to entering the world of
tech. Part of this is that women are
exposed to the industry less due to
societal bias or a lack of non-traditional
entry routes. In order for tech such as
AI to be understanding and
empathetic, its creation and
implementation must be by as broad
and diverse a range of people as
possible, meaning we need more
women in the industry.
So more must be done to ensure this
is the norm, rather than the exception,
and this includes placing greater value
on people returning to the workforce
who want to resume or embark on a
new career in tech.
Beckie Taylor
Chief Executive, Tech Returners,
Manchester, UK
Graphene holds key to
better carbon capture
The true potential of carbon capture,
utilisation and storage (CCUS) lies in
the U. Many people started their week
hearing, perhaps for the first time ever,
about carbon capture — but it’s not all
about sequestering carbon under the
sea. Instead, we have homegrown
technology right now that is being
exported around the world, to help
industries decarbonise instantly by
locking carbon from their emissions
into graphene.
Instead of just pumping this carbon
under the sea, graphene is part of a
circular economy that both
decarbonises existing heavily polluting
materials, such as concrete and
cement, and transforms the
performance of future energy
infrastructure such as battery cells and
solar panels.
This technology fits easily with
existing infrastructure and reduces
the CO₂ potential of natural gas by up
to 40 per cent immediately. In our shift
to a cleaner future, CCUS has a rightful
role in our arsenal.
John Hartley
Chief Executive Officer, Levidian
Technology Centre, Cambridge, UK
Japanese market will not
tolerate yield curve control
Your editorial’s (“The Bank of Japan’s
timely tweak”, FT View, August 1)
assessment that BoJ governor Kazuo
Ueda has passed his first big test sits
oddly with the Japanese yen’s renewed
slide and the rise in Japanese bond
yields to a seven-year high in the wake
of his yield-curve policy tweak
announcement.
The basic flaw with Ueda’s choice
of a gradual approach to eliminating
yield control is that it signals that the
Bank of Japan is becoming concerned
about rising wage and price inflation
and that its policy tweak could be the
precursor to the BoJ eventually
allowing the markets free rein in
setting bond yields. That risks putting
Japanese bond prices on a very
different trajectory from those in the
US, where the Federal Reserve appears
to be towards the end of its interest
rate rising cycle.
If the odds favour a fall in Japanese
bond prices at a time when they favour
a rise in US bond prices, why will there
not be substantial selling pressure on
the Japanese government bond
market?
If such selling pressure were to occur,
would that not imply a continued slide
in the yen that would exert unwanted
upward pressure on Japanese inflation,
which is already above the
government’s 2 per cent target?
In the end, it would seem that
Ueda will eventually be forced by
the market to abandon yield curve
control.
From a credibility standpoint, he
might then regret not having heeded
Macbeth’s advice that if the deed were
to be done, it were well that it would be
done quickly.
Desmond Lachman
Senior Fellow,
American Enterprise Institute,
Washington DC, US
(FT.com, August 1) raises some
well-founded questions about research
data sharing, but fails to take into
account recent developments in
artificial intelligence, which are
redefining scientific discovery.
To develop robust AI systems, we
need high-quality training data, and
large volumes of it. The life sciences
community has been sharing research
data openly for decades. As such, it’s
uniquely placed to leverage new AI
technologies to drive our
understanding of the living world, from
molecules to ecosystems. A recent
example is the AlphaFold AI developed
by Google DeepMind, which used
publicly available data and clever
machine learning to shed light on the
mystery of how proteins fold.
As more research becomes
AI-powered, scientists and engineers
should apply principles of
transparency and openness to the AI
tools they develop. AI systems are
complex, but there are many ways of
making them more open, so the
community can scrutinise and validate
their predictions. To develop trusted AI
that is free of bias, we need open
foundational data sets, open AI models,
and a society-wide debate that informs
regulation.
Edith Heard
Director-General, European Molecular
Biology Laboratory, Heidelberg,
Germany
Ewan Birney
Deputy Director-General, European
Molecular Biology Laboratory,
Hinxton, Cambridgeshire, UK
CBDCs lift veil of myth
over the money system
Andy Haldane’s response to the
backlash against the concept of CBDCs
illustrates two things (Opinion, August
1). Firstly, money is inherently
political, and in a democracy, it is the
people rather than bankers,
billionaires or cryptographers who
should decide who benefits from the
provision of money as a means of
payment.
Secondly, finance is an industry
with a long history and short memory.
The Bank of England’s practice of
paying interest on “reserves” was
enacted in 2009 when the banking
crisis was at its height. Prior to that
date, seigniorage referred instead to
the “profit” which the state generated
when it minted coins in a metal that
was worth less than the face value,
allowing the government to finance its
activities in effect at a discount (as long
as “the people” believed in the value of
the currency).
particular crisis has passed into history,
namely subsidy.
The real value of CBDCs is that they
lift the veil of myth, cultural memory
and emotion, which avoids having to
confront the fact that modern money is
created out of thin air, and allow
proper debate on the value of the bits
and bytes we use to pay for stuff.
Bruce Davis
Associate, Cambridge Centre for
Alternative Finance, Cirencester,
Gloucestershire, UK
What is the true cost of
the latest travel boom?
“Travel boom as holidays come first”
(Report, July 29) suggests there are
plenty of “travellers determined to
take to the skies despite soaring ticket
prices”. And it seems cruise lines are in
the same happy economic bubble.
So now is the perfect time to make
sure the full price includes the real
true cost of covering each individual’s
carbon footprint. Capitalising on this
opportunity to get those buoying up
global economies to take full
responsibility for their part in adding
to our climate crisis couldn’t be
better timed.
No matter how much we pay, any
form of unnecessary travel that adds to
the droughts, heat and flames
devastating so much of our planet is
clearly just getting us all to hell in a
variety of handcarts.
Barbara Mullarney
Acton, London W3, UK
BoE had its head in the
sand on inflation
In your article, “Bernanke to lead Bank
of England review into forecasting”
(FT.com, July 28), the subheading
reads, “Appointment of former Fed
chair follows criticism of UK’s central
bank for failing to predict persistence
of inflation”. Was it not more the case
that at the time of inflection (early
2022) the BoE denied it had an
inflation problem, rather than it failed
to predict persistent inflation?
Semantics, maybe, but if you deny you
have a problem, how can you possibly
fail to predict it will persist!
Martin Hewes
Hewes & Associates,
Haslemere, Surrey, UK
Correction
c There are 465 global human rights and
civil society groups in Meta’s Trusted
Partner Program, not 645 as wrongly
stated in an article on August 3.
Friday 4 August 2023
The Trump indictment is welcome news for America’s allies
Donald
Ayer
T
uesday’s indictment of
Donald Trump is a turning
point of enormous impor-
tance for the US — and for
the global community of
democracies.
On January 6 2021, we witnessed the
appalling culmination of an organised
effort to overturn the outcome of a free
and fair election. Since then, it has been
far from clear to many people in the US
and around the world that the American
system of government has what it takes
to effectively deal with the nefarious
conduct of a wilful demagogue.
However, the indictment delivered
this week is the greatest demonstration
yet that our system is, after all, up to the
task. In its 45 pages it tells one story in a
very readable way — the story of how
Trump “[d]espite having lost, . . . was
determined to remain in power. So for
Downgrading
US debt has
a political logic
FINANCE
Gillian
Tett
S
ometimes the gods of finance
deliver choreography that
might make future historians
chuckle. This week in America
provided one such moment.
On Tuesday, the special counsel Jack
Smith announced a blistering new
indictment against former US president
Donald Trump for allegedly launching
“an unprecedented assault on the seat of
American democracy”.
And on the very same day, the credit
rating agency Fitch stripped America of
its hallowed AAA tag, echoing a similar
2011 move by Standard & Poor’s. This
means two out of the three big rating
agencies have now downgraded treasur-
ies — never mind that these supposedly
define the “risk-free” benchmark for
global finance.
At first glance, these two announce-
ments might not seem linked — and
they were certainly not co-ordinated.
But the coincidence is symbolic. For
what they collectively signal is that
America’s political economy is heading
into uncharted waters, with an alarm-
ingly wide range of potential outcomes.
Investors should take note, regardless of
their views on the wisdom behind the
move by Smith — or indeed Fitch.
You don’t become a world leader in science by ignoring the basics
TECH NOLOGY
John
Thornhill
M
oravec’s paradox, an
observation much loved
by technologists, suggests
that robots do well what
humans do badly and
vice versa. So, for example, a computer
can easily trounce the strongest human
players at chess. But that same machine
could not move the pieces on the board,
a trivial task for a five-year-old child.
A similar complementarity exists
between the public and private sectors
in a flourishing economy. Governments
set national priorities, mobilise
resources, build infrastructure and help
nurture a well-educated, healthy and
mobile population. Private companies
provide entrepreneurial dynamism,
investing in new market opportunities
and technologies to boost the economy’s
more than two months following elec-
tion day [he] spread lies that there
had been outcome-determinative fraud
in the election and that he had actually
won” and went on to commit crimes
that would have made the false claim a
reality.
Its allegations, if proved, show beyond
any doubt that Trump knew he had lost,
and that, working together with six pre-
cisely described but unnamed co-con-
spirators, he spearheaded a series of sys-
tematic efforts to change the outcome.
Those efforts are spelt out with great
specificity that foreshadows the evi-
dence that the prosecutors are ready to
put before the jury. They include: exten-
sive activities and intimidation aimed
at convincing officials in seven states
to alter the legitimate vote counts
without any basis; the organisation
and submission of fraudulent slates of
state electors that could be relied on to
alter the outcome of the election;
repeated attempts to intimidate officials
in the Department of Justice to convince
state officials to replace legitimate elec-
tors with electors supportive of Trump;
and tireless efforts to intimidate the
To understand why, it pays to peruse
the details of Fitch’s announcement. In
decades past, rating agencies have
assessed the creditworthiness of Amer-
ica primarily by analysing its economic
and financial fundamentals. For as any
student of finance knows, one differ-
ence between emerging markets and
developed countries is that the former
have traditionally been deemed more
prone to political risk, and developed
countries less so.
In Tuesday’s announcement, Fitch
analysts did duly cite some statistics.
“We expect the general government def-
icit to rise to 6.3 per cent of GDP in 2023,
from 3.7 per cent in 2022, reflecting
cyclically weaker federal revenues, new
spending initiatives and a higher inter-
est burden,” they noted, predicting “a
further widening to 6.9 per cent of GDP
in 2025”.
Meanwhile “the interest-to-revenue
ratio is expected to reach 10 per cent by
2025 (compared to 2.8 per cent for the
‘AA’ median and 1 per cent for the ‘AAA’
median”) and the “debt-to-GDP ratio is
projected to [reach] 118.4 per cent by
2025 . . . two-and-a-half times higher
than the ‘AAA’ median of 39.3 per cent of
GDP.” In plain English: America’s debt
data is far worse than any other top-
rated country, and likely to deteriorate.
Of course, as many economists
angrily retorted, America is not exactly
a “normal” country. Since it enjoys the
(in)famous “exorbitant privilege” of
printing dollars, it can always repay its
debts — if it chooses.
Moreover, Fitch itself noted that some
productivity. Purist economists may
hate the horticultural analogy, but gov-
ernments prepare the soil and compost,
businesses give the seed and nutrients.
The trouble with Britain’s economy is
that instead of cultivating beautiful
flowers, the country is pushing up too
many weeds. Rather than exhibiting
complementary capabilities, the public
and private sectors suffer from the same
maladies: short-termism, managerial
inertia, poor productivity and a reluc-
tance to invest. For the past seven years,
Brexit has imposed a massive additional
distraction tax on both sectors.
All that has fed the narrative of bro-
ken Britain, the impression that nothing
really works anymore. The healthcare
system fails to treat many patients
speedily (almost 7.5mn remained on the
NHS waiting list in May), the justice sys-
tem does not deliver justice (consider
the grotesque mistreatment of the
wrongfully convicted Post Office sub-
postmasters). Meanwhile, private sec-
tor water companies pump sewage into
our rivers (only 14 per cent of England’s
waterways have “good ecological status”
according to a 2022 parliamentary
★ FINANCIAL TIMES
Opinion
vice-president Mike Pence to fraudu-
lently alter the electoral vote count on
January 6.
And when all of these efforts fell
short, Trump, the indictment alleges,
used the violence of the mob that he had
invited to Capitol Hill on January 6 as
one last tool to change Pence’s mind, or
to at least delay the proceeding. It will
be highly notable that Trump is at the
This powerful pushback
by our constitutional
rule of law system should
be profoundly reassuring
centre of all these manoeuvres. It will
also prove important that his persistent
efforts were resisted even by many of his
closest advisers, but went forward any-
way on the strength of his will.
This indictment is so important
because it officially calls the former
president to account at the criminal bar
for the most important wrongs that he is
alleged to have committed — the efforts
of those debt statistics have actually
improved recently: debt-to-GDP, say, is
slated to be “only” 112 per cent in 2023,
down from 122.3 per cent in 2020. No
wonder that Janet Yellen, Treasury sec-
retary, dismissed the downgrade as
“arbitrary and based on outdated data”.
But what many critics failed to realise
is that this downgrade has less to do with
economics than with politics — or “gov-
ernance”, to use the polite euphemism
the rating agency repeatedly cites. For
even if Washington can theoretically
pay its bills and cut its debt, that does
not mean it actually will; or not with 100
per cent probability. There is a new rip-
ple of policy risk.
One sign of this is that bitter Congres-
sional battles keep exploding over the
debt ceiling. And while the last such
What is hard to imagine is a
polarised Congress taking
the steps needed to tackle
the nation’s fiscal problems
report) while the City of London falls
down on its core function of providing
growth capital to new businesses.
The reasons for this malaise were
explored last month at a refreshingly
non-partisan conference run by Civic
Future, a non-profit organisation
founded last year to help train a new gen-
eration of leaders to improve public life.
Ironically, one of the most optimistic
takes on Britain was provided by the
For too long Britain has
been papering over the
cracks of an outdated
social and economic model
American economist Tyler Cowen,
author of a book called The Great Stagna-
tion that inspired the event. The UK, he
suggested, was well placed to capitalise
on three transformations that may be
about to boost global productivity: the
biomedical revolution, the diffusion of
artificial intelligence and the energy
transition. Only a few places in the
to subvert the democratic electoral sys-
tem on which America’s existence as a
nation is based.
It does so with charges that fit the
conduct like a glove. The first charge
is of a conspiracy to defraud the US
by subverting its interests in a free
and fair election. The second and
third are conspiracy to obstruct, and
obstruction of, the official proceeding at
which the electoral votes were to be
counted on January 6. And the fourth,
fittingly brought under the Ku Klux
Klan statute enacted after the Civil War
to protect against abuse of freed former
slaves, alleges the no less appalling
conspiracy to deny the civil rights of all
Americans to have their votes counted
fairly.
The indictment is important not only
to Americans. Contemplating the spec-
tacle, the US’s allies were right to won-
der if they could continue to count upon
it to play a global leadership role —
including on democracy issues. This
week’s powerful pushback by our con-
stitutional rule of law system should be
profoundly reassuring on that front.
Of course there remains much to do
stand-off was resolved in June, the
shouting — and threats about a govern-
ment shutdown — may return this
autumn when negotiations restart over
the 2024 budget.
The broader issue, however, is that
the political ecosystem is so polarised
that it is hard to imagine Congress tak-
ing the sensible steps needed to tackle
America’s fiscal problems. These
include hammering out a bipartisan bill
to overhaul social security, reviewing
spending and reforming the tax system.
There have not been any serious initia-
tives along these lines since the 2010
Simpson-Bowles commission — and
that failed.
That is why this week’s accidental
choreography matters. If Smith’s legal
onslaught knocks Trump out of the
2024 election race in a way that enables
centrist political forces to prevail, it is
possible to imagine a future scenario
where sensible bipartisan fiscal policies
might emerge in Congress to tackle that
debt.
But right now Trump is leading the
Republican field, by some way, and the
world could take new research ideas in
these areas and turn them into success-
ful businesses, Cowen argued. With its
world-class universities, rich human
capital and venture capital expertise,
“south-east England is one”, he said.
The cluster of brainpower in the Lon-
don-Oxford-Cambridge triangle —
which includes the AI research com-
pany Google DeepMind, the Francis
Crick biomedical research centre and
four of the world’s top 10 universities —
is impressive. And there have been a few
great examples of the public and private
sectors working well together in Britain:
the expansion of the offshore wind tur-
bine industry and the rapid develop-
ment of the Oxford Covid vaccine, to
name but two.
But what was striking at the Civic
Future event was the seething frustra-
tion felt by many of the British partici-
pants at the inability of successive gov-
ernments to help realise this economic
potential. Rather than indulging in
overblown rhetoric about turning Brit-
ain into a science superpower, policy-
makers needed to focus on improving
the performance of the core economy.
in the case. And ultimately, the charges
against Trump must come to trial
and the government must deliver proof
of what it claims that satisfies a
jury beyond a reasonable doubt. The
defendant can be counted on to do
whatever he can to prevent that from
happening.
But the grand jury has had its say, and
the story is a very powerful one. And the
case is in the hands of an excellent judge
— a former public defender who has
already handled an important case
against Trump in which she rejected his
efforts to block the investigation of the
January 6 committee.
For people and nations who worried
that this day would never come, there
is reason for optimism that Trump
may finally be made to answer for the
worst of what he has done. That is good
news for American democracy — and
for America’s democratic allies the
world over.
The writer was US deputy attorney-general
under George HW Bush. Norman Eisen,
White House special counsel in the Obama
administration, also contributed
Efi Chalikopoulou
indictments are energising his base. At
best, this will ensure that the 2024 race
is bitterly polarised, making bipartisan
initiatives impossible. At worst, if
Trump wins back the presidency
(which cannot be discounted), this will
unleash profound policy uncertainty.
This is a populist, after all, who has
vowed to take revenge on his enemies by
gutting the civil service. The last time he
was in office he threatened the inde-
pendence of the Federal Reserve, deliv-
ered big unfunded tax cuts and failed to
trim spending. More recently, he has
pledged to block reforms of social secu-
rity or Medicare, and pledged to extend
expiring tax cuts.
So while it might seem fair to question
some of the economic logic — as well as
the timing — of Fitch’s move, the rating
agency’s fears about rising policy risk
looks spot on. What the loss of that AAA
tag really reveals is that America is
being judged less like a developed coun-
try, and more as an emerging market.
Uncle Sam should weep.
gillian.tett@ft.com
That view has been echoed by a damn-
ing report this week from the think-tank
Reform, which argues that for too long
Britain has been papering over the
cracks of an outdated social and eco-
nomic model.
To believe that the British govern-
ment and City investors share the stra-
tegic vision to build world-beating
advanced industries in the way that the
Taiwanese, South Korean and Singapo-
rean governments have helped to do is
to imagine an institutional capability
that does not exist. That will require a
more creative era of national renewal to
ensure true complementarity between
the public and private sectors.
Still, it should not be beyond the wits
of a fag-end Conservative government
to deliver on some smaller, but useful,
ambitions to help fix broken Britain: to
build more houses, extend the provision
of more affordable child care and
encourage greater business and public
sector investment. Rather than doing
the clever stuff poorly, it should at least
strive to do the simple stuff well.
john.thornhill@ft.com
17
Frenzy over
superconductor
seems too
super to be true
PHYSICS
Anjana
Ahuja
I
f you haven’t yet heard of LK-99,
where have you been? Over the past
week and more, this pebble-sized
dark rock lookalike — made of lead,
phosphorus, copper and oxygen —
has pushed social media into meltdown,
sent stock markets surging and put Sili-
con Valley investors into a spin.
Scientists all over the world struggled
to make sense of the hallowed lump.
One enthusiast livestreamed his effort
to bake a replica, with 16,000 Twitch
viewers tuning in to stare at a kiln.
According to scientists in South
Korea, LK-99 is a room-temperature
superconductor that can work at nor-
mal pressure. If true, it represents colos-
sal progress. Superconductors are mate-
rials that can conduct an electrical cur-
rent with zero resistance, which means
zero energy loss. They generally operate
only at impractically low temperatures
or fantastically high pressures. MRI
machines, for example, use a niobium-
titanium alloy cooled by liquid helium
to below minus 263C.
But a room-temperature, ambient-
pressure superconductor made from
cheap materials would pave the way for
perfectly efficient high-capacity power
grids, desktop quantum computing,
fusion reactors and even levitating
trains. Hence the race in Europe, the US,
Russia and Japan to find so-called high-
temperature superconductors. Any
breakthrough would be a Nobel Prize
shoo-in.
But there’s a catch: proof remains elu-
sive. Superconductivity, first discovered
Scientists all over the globe
struggled to make sense of
the hallowed lump from
South Korea
in 1911, is notoriously difficult to con-
firm in the lab. Mistaken sightings are so
common they are nicknamed USOs, or
Unidentified Superconducting Objects.
An electrical current is a messy affair
— a bit like a dance floor of rowdy party-
goers attempting a conga (the moving
electrons bumping into atoms cause lost
energy). But below a critical tempera-
ture, many materials become supercon-
ducting: the electrons abruptly pair up
and begin to move smoothly. It is as if
the partygoers disappear amid clouds of
dry ice — and instantly reappear as pairs
of ballroom dancers gliding effortlessly
in unison.
There are two giveaway signs of that
transition: first, measured resistance
drops to zero; and, thanks to a curious
phenomenon called the Meissner effect,
a superconductor will levitate above a
magnet.
On July 22, a preprint — a draft scien-
tific paper that has not undergone peer
review — surfaced, claiming that LK-99
had met both tests. Scepticism was
immediate. The researchers, from the
Korea Institute of Science and Technol-
ogy and the country’s Quantum Energy
Research Centre, were respectable but
not superstars. The method for making
this miracle material — bearing the ini-
tials of two authors, Sukbae Lee and Ji-
Hoon Kim — seemed incredibly simple,
including use of a pestle and mortar,
but lacked detail. A linked video
appeared to show partial, rather than
full, levitation.
Strangely, another paper by Lee and
Kim quickly followed, this time with
four other authors. As Scientific Ameri-
can notes, critics pointed to graphs fea-
turing an oddly scaled axis, though a
researcher at Lawrence Berkeley
National Laboratory in California said
the Korean claim was theoretically plau-
sible. One team in China reported lim-
ited success at replication; another in
India reported failure.
The matter is not yet closed but the
odds seem unfavourable. A hastily con-
vened verification committee set up in
South Korea issued a cautionary note on
August 2, suggesting lack of concrete
evidence.
Given superconductivity’s history of
false dawns, our trusty pebble, now with
its own wikipedia page, is most likely to
be an unremarkable rock with acciden-
tally interesting properties. But what a
gripping spectacle — one that tells us
less about physics and more about the
collective human need, even among
scientists and investors, to dream.
The writer is a science commentator
18 ★ FINANCIAL TIMES Friday 4 August 2023

Nintendo: Mario goes to the movies

Popular characters have given the Japanese company’s Switch console impressive longevity. Nintendo’s
sales and profits remain bumpy. This year’s Mario movie is still well ahead in terms of box office receipts
than bigger critical successes, including ‘Barbie’ and ‘Oppenheimer’.

Twitter: @FTLex
Worldcoin: Altman
lowballs for eyeballs
The goal of Worldcoin, a
cryptocurrency co-founded by OpenAI
boss Sam Altman, sounds reasonable
enough. It is to create a global network
in which users feel able to trust
strangers on the internet. The method
— scanning eyeballs to create digital
IDs — is misguided.
Channelling wider unease, the
Kenyan government has ordered a halt
to sign-ups. People had been queueing
for iris scans in the east African
country. Iris scanning could allow the
San Francisco and Berlin-based
start-up the opportunity to amass a
centralised biometric database. It has
been dishing out tokens, ostensibly
worth a few dollars each, in return.
Participants clearly have no idea
what their personal data is worth to
tech companies. They also have a
worrying level of faith in the value of
the tokens. Tokens trade at $2.31 each,
according to data site CoinGecko. That
means a market worth of just under
$270mn for the tokens in supply.
But this is a small, highly illiquid
market in which price moves may be
driven by bad data. And if tokens are
free, they lack the scarcity that
propelled bitcoin’s price. Parent
company Tools for Humanity has yet
to present a convincing business model
for Worldcoin.
Fluctuating prices go against the
start-up’s original plan, which was to
provide tokens that could act as global
currency for a universal basic income.
Altman is riding high on the success
of OpenAI, the generative artificial
intelligence start-up he co-created.
Worldcoin’s iris scan is designed to
verify humans, a countermeasure to
the proliferation of AI of which OpenAI
is a part. Altman is therefore trying to
solve a problem he helped create.
OpenAI has raised more than $11bn
in funding. Worldcoin has received far
less. Crypto start-ups fell out of favour
after the price of digital assets crashed
last year. But Worldcoin investors are
well regarded, including venture
capital firm Andreessen Horowitz.
The same concerns that hobbled
Meta’s digital token project could
stymie Worldcoin. Regulators have
already raised alarms. Tokens are
unavailable in the US, where regulators
are still deciding on definitions for
securities. This will deter users.
Even if demand is high, Worldcoin’s
chance of worldwide success is slim.
Global governments have no intention
of allowing a private company to
challenge fiat currency.
Obesity drugs:
the weigh ahead
Celebrity endorsements for a new class
of weight-loss drugs are mounting,
even if they do not work on Boris
Johnson, incorrigible it seems in
lifestyle as in politics. But reports of
drastic side-effects are also emerging.
A personal-injury law firm in the US
has filed a suit for a Louisiana woman
who allegedly suffered severe vomiting
and lost teeth after taking the drugs
Ozempic and Mounjaro.
The manufacturers say they take
patient safety very seriously but
further personal injury claims may
follow. They are unlikely to dispel
bullishness about obesity treatments.
These diabetes treatments are part of
a drug class known as GLP-1 agonists.
Recently these have been used to treat
weight loss, often off-label.
Novo Nordisk of Denmark makes
Ozempic and Wegovy, approved by US
regulators in 2021 as an obesity
treatment. Eli Lilly of the US is
responsible for Mounjaro.
The European Medicines Agency is
separately reviewing data on the risk of
suicidal thoughts linked to GLP-1
agonists. Critics point to potential
misuse by people with eating disorders.
The popularity of GLP-1 agonists has
caused supply issues. Prices are high.
Wegovy has a US list price of $1,349 for
28 days’ supply.
Forecasts over the possible size of the
weight loss drugs market have
ballooned. Morgan Stanley recently
increased its estimate for the size of the
obesity drugs market from $54bn to
$77bn by the end of the decade. Shares
in Novo and Lilly have flown in the past
12 months and trade at premiums to
such rivals as Pfizer.
Novo is shortly due to release the
results of a study into whether Wegovy
cuts the risk of cardiac trouble in
people who have a history of heart
disease or obesity. If so, it will bolster
shares further. The real prize for
investors further down the road is a big
class of affordable drugs that reduce
Device lift
Quarterly unit sales (units mn)
Nintendo Switch – OLED Model (¥bn)
Nintendo Switch Lite Sales
Nintendo Switch Software
8 80
6 60
4 40
2 20
0 0
Q1 2023 Q2 Q3 Q4 Q1 2024
FT graphic Sources: Nintendo; S&P Capital IQ; Box Office Mojo
In the world of gaming, new is good.
New console releases mean more
hardware and software sales.
Nintendo has the oldest console of its
class. The Japanese video game group
therefore surprised investors
yesterday when earnings beat
records and market expectations.
Operating profits were the highest
ever in the three months to June 30 at
¥185.4bn ($1.3bn). Sales rose 50 per
cent to ¥461.3bn.
The earnings surge followed the
success of The Super Mario Bros.
Movie. This may have gone unnoticed
to chin-stroking Oppenheimer
audiences and pink-clad Barbie fans.
But the film, featuring the evergreen
Brooklyn plumber, broke this year’s
global box office record. Licensing
the human tendency to overeat. Legal
and regulatory actions are more likely
to drag on earnings than negate them.
Warner:
script doctor needed
David Zaslav, chief executive of Warner
Bros. Discovery, said yesterday the US
media company is “in the business of
storytelling”. In the current narrative,
Zaslav appears to be the ham-fisted
corporate villain. In recent months,
university students have jeered him
and Steven Spielberg and Martin
Scorsese have wrangled with him amid
a strike by writers and actors.
Yesterday, Zaslav did not have much
good news on the big picture in
More ups and downs than Mario Brooklyn blockbuster
Nintendo sales and operating income
Operating profit
700
600
500
400
300
200
100
0 wider market. Cash channels never
2021 2022 2023
Nintendo Q1 2024 is Apr-Jun 2023
royalties nearly tripled thanks to the
movie. Many movie-goers have felt a
sudden urge to play a Mario game.
That meant going out and buying a
new Switch console. The platform has
been on the market for seven years —
decades by gaming industry standards.
Another legend perpetuated its myth
profitably. After nearly 40 years since
releasing the first Zelda game,
Nintendo launched The Legend of Zelda:
Tears of the Kingdom. Sales have been
strong, especially in the UK.
When an old console model remains
popular, it saves on development costs.
Nintendo also skips the marketing
costs of each new version launch. Ad
spending alone can exceed $15mn in
the month before a platform goes on
sale. An ageing console remains a risk
Hollywood. The best tale the former
mentee to GE’s “Neutron” Jack Welch
could drum up involved bean counting.
The company’s streaming service
Max hit adjusted ebitda break even in
the quarter after losing $550mn in the
same period of the previous year.
WBD’s gross debt balance fell to $48bn
after it paid back a couple of billion of
borrowings. It is on its way to shrinking
its leverage ratio from 4.6 times now to
less than three times over 18 months.
Annual savings from the merger of
Discovery and Warner Media are set to
rise from $4bn to $5bn.
But the plot remains complicated.
WBD had boosted near-term profits by
licensing intellectual property to others
such as Netflix. But this controversial
practice can help competitors. WBD’s
cable networks are suffering from the
Box office takings, 2023 ($mn)
1,350
The Super Mario Bros. Movie
811
419
Barbie Oppenheimer
to future profits, especially during
the peak Christmas period. Shoppers
are more likely to buy newer models
from Sony and Microsoft.
Nintendo shares are up 15 per cent
this year, about half the increase
registered by peer Sony. They trade
at a premium of just a tenth to Sony
on a forward earnings basis, despite
the huge popularity of the Mario and
Zelda releases this year.
Nintendo has made the best return
possible from its investment in the
current Switch model. Consoles and
games still account for 92 per cent of
group sales. For its shareholders,
returns will depend on Nintendo
producing a sequel to the Switch as
compelling as regular reinventions of
its Zelda brand.
pay-TV cord-cutting movement. Zaslav
will have to decide how many billions
to pay to keep NBA basketball rights.
Like rival Disney, which is pondering
the future for its ESPN network, Zaslav
must judge whether news channel CNN
is worth selling to a specialised owner.
The company says free cash flow
could hit $5bn for the year. An
extended work stoppage could provide
even more near-term upside. WBD’s
stock price is down 50 per cent since
the merger closed 16 months ago and
its enterprise value now sits at $76bn.
The group’s numbers are decent to
good, given diminished expectations.
But Wall Street has soured on big
entertainment companies. Their
economics do not work either for
either the talent or the capital markets.
That script will be hard to flip.
ICE/LSEG:
delta blues
Over the past two decades, the mantra
for stock exchange operators has been
diversification at all costs. First came
an expansion into trading other asset
classes, such as derivatives. Then it was
a move into clearing and settlement.
Recently, these businesses have pushed
into data and risk management.
Diversification has made these
companies financial estuaries. Trading
and listing fees ebb and flow with the
drop too low thanks to steady sales of
data and analytics. These also swell
valuation multiples.
Intercontinental Exchange and the
London Stock Exchange Group, which
both reported results yesterday,
demonstrate differing impacts from
tides and torrents. ICE owns the New
York Stock Exchange and is one of the
largest bourse operators in the world.
LSEG makes most of its money from
data services following acquisitions
culminating in Refinitiv.
US stock markets are booming again
and London is falling behind. The
combined market value of LSE-listed
companies was $3.18tn at the end of
June, a 0.7 per cent drop from two
years ago, says the World Federation of
Exchanges. The equivalent figure for
the NYSE increased 3.4 per cent to
$24.8tn over the same period.
Net revenue at ICE’s exchanges unit
rose 9 per cent to $1.09bn from a year
earlier. That helped it deliver a 44 per
cent increase in net income for the
quarter, despite weakness in its
mortgage software business. By
contrast, LSEG, which generates two-
thirds of its revenue from data and
analytics, reported an 18 per cent drop
in group pre-tax profits in the first half.
LSEG shares are up just 0.4 per cent
over the past 12 months, compared
with ICE’s 7.4 per cent gain. Even so,
LSEG still commands a premium over
ICE on a price to forward earnings
basis. This reflects hopes that problems
integrating Refinitiv are over. If so,
expect riverine flow to buoy LSEG
higher, even as ICE bobs up and down
in stronger tides of trading.
Lex on the web
For notes on today’s stories
go to www.ft.com/lex

CROSSWORD
No 17,486 Set by LEONIDAS
        ACROSS

 1 Directly organise search with wife lost

(2,3,4,5)
  10 Hamlet maybe disastrous without lead
on reflection (5)
11 Scowl after brief prank with old Jack (9)
12 Best drug cut with end bits of talcum
  separately (7)
13 Capital one sunk into struggling casino
(7)
14 Yankee nerd with dope cycling back to
     pub (5)
16 Raw fish inside of fete for VIP treatment
(3,6)
19 Complicated vessel, one with a fixed
   course? (9)
20 Holy scroll I see to the right of Mount (5)
22 Exaggerate version of Fagin in Moody’s
clothes? (7)
     25 Fabric bird with 50% off (no returns) (7)
27 Reason allotment has beer (9)
28 What Ma plays from some contrary
collection (5)
  29 Abbess in car crossing the lady’s lovely
isle (6,8)

DOWN

2 Hot soldiers climbing trees excited
tourist (9)
3 Race male to see where females are (5)
4 Boat charts army abroad regularly with
navy (9)
JOTTER PAD 5 Hunter stringing up black French duck
(5)
6 Diagram of fine church among vulgar
Solution 17,485 drawings? (9)
7 Jeremy possibly working to block NY tax
3 ( $ & + ( 6 $ 1 ' & 5 ( $ 0 collectors (5)
$ 7 ( 2 ( $ / 2 8 Right vehicle in place to get help (7)
, 6 + 0 $ ( / : $ 5 5 $ 1 7 9 Copied English chapter on dictionary (6)
1 ( ' ( 6 2 6 2 15 A Christian touring island city (9)
7 5 , $ ' 6 , 0 8 / $ 7 2 5 17 Repackage third cape that’s going for a
7 6 5 ( , : snip (4,5)
+ 2 7 + ( $ ' ( ' & 2 & 2 $ 18 Case of alcohol and of grease both
( 6 < , / < upended (9)
7 ( 5 1 6 6 3 $ 5 ( 5 2 2 0 19 Drone beat pedestrian (7)
2 $ 3 $ 5 $ 21 German guy probably reversed second
: $ 1 ' ( 5 ( 5 6 1 $ , $ '
carriage (6)
23 Huge Tatar provides accommodation for
1 & / 3 & 6 1 1
nag (3,2)
5 ( + ( $ 7 6 ( 3 , 6 2 ' ( You can now solve our crosswords 24 Keep heading north to catch eastern
( ( 1 , 1 1 & 6 in the new FT crossword app at poet (5)
' , 6 $ ' 9 $ 1 7 $ * ( 2 8 6 ft.com/crosswordapp 26 Suffer in short treatment (5)*