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Silicon Valley aids Pentagon in AI arms race The real scandal of central bank digital cash
BIG READ, PAGE 21 ANDY HALDANE, PAGE 23
DELPHINE STRAUSS AND AKILA QUINIO from 0.1 per cent in December 2021 and i Eurozone back to growth
is expected to raise them further when Eurozone inflation fell in July but
Mortgage approvals rose in June and its monetary policy committee meets hopes that the ECB might soon
consumer credit grew at its fastest pace on Thursday. However, the steep rise in begin cutting rates were hit by
for five years, as borrowers weathered rates is feeding through only slowly to price pressures in services, the
the highest interest rates in 15 years. mortgage rates. EU’s statistical office said.— PAGE 4
Official data showed that net mort- The BoE said the “effective” interest
gage approvals for house purchases rose rate — the actual interest rate paid — on i China curbs drone sales
to 54,700 in June from 51,100 in May, in newly drawn mortgages rose just 7 basis Beijing has imposed export curbs
a shift that defied analyst predictions. points to 4.63 per cent in June, a rela- on drones and drone components
Approvals for remortgaging rose to tively modest increase. The effective that could affect the Ukraine war
39,100 from 34,100, yesterday’s figures rate on the outstanding stock of mort- and public security globally.—
showed. gages rose 10bp to 2.92 per cent. PAGE 6; MICHAEL MIKLAUCIC, PAGE 23
In another development that poten- Andrew Wishart, a property econo-
tially bolstered the case for a Bank of mist at the consultancy Capital Eco- i Birkenstock IPO lined up
England interest rate rise this week, net nomics, said it took between two and L Catterton, the buyout firm that
borrowing of consumer credit rose to three months for quoted mortgage rates owns Germany’s Birkenstock, is
£1.7bn, the highest since 2018. to feed through to housing market activ- considering an IPO of the sandal-
“The economy may have ended the ity, so the figures for June would reflect maker that might happen as early
second quarter on the same resilient an earlier decline in mortgage rates. as September.— PAGE 9
note that it has had all year,” said Tho- Mortgage approvals are already well
mas Pugh, an economist at the auditor below their pre-pandemic average. Datawatch
RSM UK. Analysts think the market is unlikely
Analysts had expected the housing to pick up in the short term, even
market to slow in a month when the BoE though better inflation data has raised Fruit fall
raised interest rates sharply to 5 per hopes that the BoE might be able to stop Harvested production in the EU
cent — the 13th consecutive rise and the raising rates earlier than previously (000’ tonnes)
2021 2022
highest level since 2008. The 0.5 per- thought. Peaches and
centage point increase caused lenders to Richard Donnell, research director at nectarines
temporarily pull mortgage deals from property portal Zoopla, said the hit
the market while they repriced them. from high mortgage rates on house sales Watermelons
The data also suggested that consum- was “far from uniform” across the UK.
Muskmelons
ers were more confident in spending in “The impact of higher rates is being
Mike Egerton/PA Wire
other areas. Borrowing on credit cards felt most in southern England,” he said. Strawberries
remained stable, the BoE said, while “In many lower value areas, the cost of
consumer credit, which includes car buying with a 5.5 per cent mortgage England’s Stuart Broad celebrates after series at 2-2. It was a fitting way for Urn” after winning the first two 1,000 2,000 3,000
finance and personal loans, rose. remains cheaper than rental cost.” taking the winning wicket with the Broad to bow out after hitting a six with matches at Edgbaston and at Lord’s, Source: Eurostat
But Pugh cautioned that “the lagged The average rent ac ross the UK was final ball of his cricketing career to his last shot as a batsman on Sunday but they have not won an Ashes series The EU’s production of summer fruits fell
effect of the huge rise in interest rates £1,283 last month, 28 per cent higher defeat Australia in the last Test match after announcing his retirement the outright in England since 2001. 6.3 per cent to 8.6mn tonnes last year.
that has already happened, combined than in February 2020, at the onset of of this year’s Ashes series against Aus- night before. England won the third Test of the This drop was largely driven by a decline
in the harvesting of watermelons and
with the risk of further rate rises, could the Covid-19 pandemic, according to tralia at the Oval in London. His total of 604 Test match wickets is series at Headingley but rain denied
muskmelons, or cantaloupes, which fell
easily tip the economy into recession estate agency Hamptons. Broad’s dismissal of Alex Carey second only to teammate Jimmy them the chance to convert a winning 18.4 per cent and 9.5 per cent respectively.
later this year”. Shop prices fall page 2 ensured that England won the match Anderson for fast bowlers. position at Old Trafford in Manchester
The BoE has increased interest rates Savings deadline for banks page 3 by 49 runs to square the five-match Australia, as holders, retained “the in the fourth Test.
World Markets
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2 ★ FINANCIAL TIMES Tuesday 1 August 2023
NATIONAL
Environment Inflation
Retail data
Industry urges accelerated carbon capture shows shop
Ministerial backing for The move doubles the number of
projects that have received government
tion, welcomed the support for the two
schemes — the Viking project on Hum-
as well as in the continued transition
from fossil fuels after that date.
a decade or more to deploy at scale.”
Adam Berman, deputy director at
prices down
new storage sites is ‘great’
but not enough, say bosses
backing. The four schemes are designed
to establish an industry that will reduce
berside and Acorn in Aberdeenshire —
but said time was “running out” to build
Nick Cooper, chief executive of
Storegga, the developer of Acorn, said
industry group Energy UK, said carbon
capture’s viability relied not just on state
for first time
DAVID SHEPPARD, RACHEL MILLARD
AND GEORGE PARKER
emissions from heavy industries strug-
gling to cut their reliance on fossil fuels.
But executives promoting the tech-
the required infrastructure.
“It’s really great to have this momen-
tum but there is still a huge amount to
the company was ready to “roll its
sleeves up [and] sit down with the gov-
ernment and crack on” to discuss how
support but a robust carbon price.
Sunak has come under criticism for
failing to cut far enough the carbon
in two years
nology said the government was still build by 2030,” she said, referring to the state backing for the project would allowances available to emitters, while
The energy industry has urged minis- moving too slowly in developing target of capturing 20mn to 30mn work. Acorn is backed by oil and gas providing additional allowances to DELPHINE STRAUSS
ECONOMICS CORRESPONDENT
ters to accelerate their support for the detailed policy and funding models to tonnes of carbon dioxide a year by the producers Harbour Energy and Shell. heavy industry. This has pushed the UK
nascent carbon capture sector after ensure that CCS could be built at the end of the decade. “Billions of pounds of Graeme Davies, director of the Viking carbon price to a steep discount to the Shop prices fell month on month in July
Rishi Sunak pledged yesterday to max- scale needed to ensure the sector met its investment is waiting to be deployed to project, led by Harbour Energy with EU equivalent. for the first time in two years, accord-
imise production of oil and gas. initial emissions reduction target by the decarbonise these industrial regions but backing from BP, hailed approval of the “Beyond financing arrangements for ing to industry data published today,
The call came after the prime minis- end of the decade. They said backsliding firm plans are required to secure it.” project as a “major milestone” and said individual projects, the future of the adding to evidence that high inflation
ter committed to continue licensing new by ministers on other climate commit- The capture of CO₂ emissions from he was confident it would be capturing UK’s CCS industry relies heavily on a might finally be starting to ease.
North Sea developments to “bolster” ments was making it more challenging processes, ranging from manufacturing carbon by 2030. But he warned that the domestic carbon price that incentivises
energy security while also announcing to develop a carbon capture sector. to oil refining, and its planned storage in challenge should not be underesti- industry to capture carbon rather than The British Retail Consortium said shop
the government would back two new Ruth Herbert, chief executive at the disused North Sea wells is a key part of mated. “There’s a lot to do — these are simply emit it,” Berman said. prices in July were 0.1 per cent lower
carbon capture and storage schemes. Carbon Capture and Storage Associa- the UK’s goal of hitting net zero by 2050, major infrastructure projects that take Lex page 24 than in June, as the annual rate of infla-
tion fell to 7.6 per cent, from 8.4 per cent
in June, and below the three-month
average of 8.4 per cent.
Politics. Emissions The dip was caused partly by big dis-
counts on clothing and footwear as
retailers sought to lure customers put
Sunak woos motorists as part of green drive off venturing out by wet weather, the
retail industry trade body said.
Non-food prices fell 0.2 per cent
between June and July, taking the
annual rate of inflation down to 4.7 per
ple who criticised him for flying wanted cent.
Activists see red but premier — by implication — to “stop people going Food price inflation also slowed for a
eyes votes as he aligns himself on holiday”. third consecutive month, with the
Ed Miliband, Labour’s shadow cli- annual rate falling from 14.6 per cent in
with interests of middle Britain mate change secretary, claims Sunak is June to 13.4 per cent in July — the lowest
undermining the bipartisan approach to since December 2022.
cutting carbon which ministers often The BRC said the decline reflected
GEORGE PARKER AND LUCY FISHER
claim makes Britain an attractive place price cuts for a number of staples,
Rishi Sunak arrived in Aberdeenshire for green investment. including oils, fats, fish and breakfast
yesterday on a private jet, flying into Sunak claims that Labour’s opposi- cereal.
exactly the kind of row the prime minis- tion to new drilling is because it has The figures corroborate other recent
ter has been stoking since green issues received about £1.5mn from Dale Vince, evidence that price pressures are finally
handed the Conservatives a surprise by- a businessman who has also donated to
election win less than a fortnight ago. the pressure group Just Stop Oil.
Trailing Labour by around 20 points Chris Skidmore, the former Tory
‘We expect some global
in national polls, the Tory triumph in energy minister who conducted a net commodity prices to
Boris Johnson’s old Uxbridge and South zero review for the government, said the
Ruislip seat was widely attributed to a plan for additional drilling was “the
rise again and food prices
backlash against the Labour London wrong decision at precisely the wrong will be slower to fall’
mayor’s extension of a daily charge time, when the rest of the world is expe-
aimed at highly polluting cars. riencing record heatwaves”. easing even in the UK, where inflation
Sunak’s trip to Britain’s oil capital, But Sunak continues to court two has so far been more persistent than in
partly to announce plans for hundreds audiences at the same time. His promise the US or eurozone.
more North Sea drilling licences in the Most Conservative voters support net zero but not at the expense of ordinary people of more oil and gas drilling was coupled “While inflation remains high, the
years to come, was the latest in a series % who agree that the government should … with an announcement of two new outlook is improving,” said Mike Wat-
of interventions that have enraged envi- Aim to reduce the UK’s carbon Only introduce policies to reduce Introduce policies to reduce carbon projects to capture carbon dioxide and kins, head of retailer and business
ronmentalists. emissions to net zero by 2050 carbon emissions that do not result in emissions, even if these result in some store it under the North Sea, which crit- insight at research company NielsenIQ,
His calculation is that by portraying additional costs for ordinary people additional costs for ordinary people ics say is an unproven technology. which helps compile the BRC data.
himself as being “on the side” of motor- For now, Sunak’s approach is more Figures from the Office for National
ists and taking a “pragmatic and propor- 0 25 50 75 0 25 50 75 0 25 50 75 about a shift in tone than an abandon- Statistics showed consumer price infla-
tionate” approach to climate change, he ment of the government’s climate goals. tion fell unexpectedly sharply to 7.9 per
All British
is aligning himself with middle Britain. adults Even the prime minister’s promised cent in June from 8.7 per cent in May.
Sunak’s contention is that the UK can review of low-traffic neighbourhoods Meanwhile, research company
reach its target of net zero carbon emis- Conservative was described by his office yesterday as Kantar said that grocery inflation was
sions by 2050 while still drilling for oil voters no more than a “fact-finding mission”. easing — with producers such as Pre-
and without unfairly hitting struggling Conservative election strategists have mier Foods subsequently announcing
families. The flipside is that he hopes to Labour always feared that by taking more stri- that they were not planning any further
present his opponents as unreasonable voters dent positions on issues such as the price rises this year.
or, in the words of cabinet minister environment, migration and transgen- But the data on shop prices will offer
Michael Gove, suggest they have turned Lib Dem der rights, they risk driving away mod- only partial reassurance to the Bank of
net zero into a “religious crusade”. voters erate Tory voters. For now, many Con- England’s Monetary Policy Committee,
Polling suggests that, unlike in the US, servative MPs believe Sunak is striking which meets on Thursday to consider
there is broad cross-party support in Source: YouGov Survey of 2,000 adults in July 2023. Party affiliation based on vote in 2019 general election the right balance. and vote on a further increase in interest
Britain for moving to a net zero econ- “This is all rhetorical,” said one. rates.
omy. However, it also suggests that sup- Oil region: neighbourhoods” — areas closed to on sales of new diesel and petrol cars ‘This is all “There aren’t going to be any actual The nine-member panel said in June
port drops when carbon-cutting policies Rishi Sunak, through traffic that have been blamed from 2030 despite 40 Tory peers and changes to the law. The government is that it expected goods price inflation to
result in extra costs for ordinary fami- with Alister by some for creating congestion and MPs calling for a delay. The 2050 net rhetorical. just trying to make clear we’re on the decline this year but it is more con-
lies. Tory voters are particularly resist- Jack, Scotland blocking access for emergency vehicles. zero target also remains in place. There aren’t side of the majority, not the minority.” cerned that continuing strength in
ant to the idea. secretary, visits To ram home the “pro-motorist mes- Sunak’s confirmation of North Sea oil Greg Clark, Tory chair of the Com- wages might feed persistently high
Sunak’s office insisted that the prime a Shell plant in sage”, Sunak — whose preferred prime drilling licences was not a break with going to be mons science and technology commit- inflation in services.
minister had not changed his policies Peterhead, ministerial mode of transport is the hel- existing policy — he has long argued that any actual tee, said: “Developing carbon capture is BRC chief executive Helen Dickinson
since the Uxbridge win, but his tone has Aberdeenshire, icopter — posed for a picture in former domestic supplies should be exploited clearly a green policy and, until we no said today’s figures were “cause for opti-
shifted in the past week, as Tory MPs yesterday prime minister Margaret Thatcher’s during a carbon transition — but it still changes to longer need oil and gas for refining, mism” but added that there were still
Euan Duff/WPA/Getty Images
clamour for a dilution of green policies. official car, an old Rover. generated fury. the law’ using our own supplies rather than ship- “dark clouds on the horizon”.
Sunak claimed the mayor of London, All the while Sunak, conscious of poll- The prime minister appeared to relish ping them in from overseas seems obvi- She cited Russia’s withdrawal from
Sadiq Khan, had handed Uxbridge to ing suggesting growing public concern the fight, happy to be talking about Conservative ously sensible.” the UN-brokered deal to export Ukrain-
the Tories with his plan to extend the about climate change, has been careful something other than the poor state of MP One official said of Sunak: “I think he’s ian grain across the Black Sea and India’s
£12.50-a-day ultra low emission zone to to resist pressure from MPs in his own the economy and public services, the very smart to position himself as ‘pro- new curbs on rice exports.
outer boroughs, hitting owners of more party to change its carbon-reducing two issues that traditionally dominate. motorist’. In Westminster it’s easy to “We expect some global commodity
polluting cars. targets. In a combative interview with BBC forget how much people outside of prices to rise again as a result and
On Sunday, Sunak vowed to review The prime minister repeated again Scotland, Sunak defended his use of a urban centres rely on their car to get to food prices will be slower to fall,” said
“anti-car policies”, notably “low traffic yesterday that he would stick to the ban private jet for his visit, saying that peo- work or transport their family around.” Dickinson.
NATIONAL
Consumer protection
Teachers vote
what actions we can take”. teachers in England, ending six months would bring an end to disruption and said Bousted and Courtney, adding
‘If the £250bn in savings He added that the FCA welcomed “the of strikes. allow schools to focus on making up for that the government “should be in
earning little interest can progress that has been made so far but The National Education Union said time lost during the pandemic. no doubt that we will hold its feet to
work harder, it will help this needs to speed up”.
Chancellor Jeremy Hunt said: “Banks to accept 6.5% yesterday that 86 per cent of its teacher
members had voted to accept the deal.
Mary Bousted and Kevin Courtney,
joint general secretaries of the NEU,
the fire on delivering for teachers
and support staff on workload and
pay increase
with the cost of living’ should be passing on interest rate Some 85 per cent of support staff also claimed the result as a victory for the funding”.
increases to savers and we’re keeping a backed the offer, which the NEU Other teaching unions are
comes” that came into force yesterday. close eye on whether they do. Today’s recommended. consulting members on the offer
“If they are unable to do so, the FCA will new Consumer Duty gives the regulator Its announcement was swiftly
‘[The government] should with a recommendation to accept.
take action,” the regulator said as it laid the tools they need to take action where followed by similar statements from be in no doubt that we will But while the dispute over
out a 14-point plan to tackle problems in that isn’t happening.” the smaller NASUWT and the NAHT, teachers’ pay looks close to
the savings rate market. At a Commons Treasury committee which represents headteachers. The
hold its feet to the fire on resolution, the government remains
Banks have been under pressure from hearing last month the four largest Association of School and College delivering for teachers’ locked in a dispute with doctors’
regulators and politicians for bolstering banks denied “profiteering” and said Leaders said last month that its unions. The protracted row is
profits by applying interest rate they had passed on as much as 60 per members had accepted the deal. union movement, saying walkouts by adding to disruption caused by
increases to loans far faster than they cent of rate rises in the first half of the The offer of an increase of at least 6.5 members since the start of the year, nurses’ strikes this year, with more
have passed them on to depositors, year. The committee’s chair, Harriett per cent for teachers and school leaders along with the threat of co-ordinated than 820,000 operations and
although some have recently begun Baldwin, said yesterday that its mem- in England from September was in line action with other unions from this appointments cancelled as a result
increasing savings rates. bers had “been pushing for progress on with recommendations from the autumn, had “shifted the dial”. of NHS industrial action so far.
The FCA said its research showed that rates for savers all year and this action independent pay review body. The NEU said a separate, statutory Next month, junior doctors in
instant access accounts, which it said by the FCA represents more progress”. Rishi Sunak, prime minister, last ballot that opened before the England will stage a four-day
represented 60 per cent of all deposits, She added: “If the £250bn in savings Dispute: National Education month formally offered pay rises of 5-7 government set out the latest pay offer walkout after rejecting the latest
had benefited from only 28 per cent of earning little interest can be made to Union members on strike in per cent for workers across the public showed a decisive majority of members offer, while consultants will go on
the cumulative 1.5 percentage point rise work harder, it will help with the cost of London this year. Joint leader sector in a push to end a wave of had been willing to continue stoppages, strike for a second time.
in BoE rates between January and May. living and help to tackle inflation.” Mary Bousted, above, says the walkouts, saying the proposal was with 95 per cent in favour on a turnout Radiographers in England held a
It found that lenders surveyed had The BoE raised rates 0.5 percentage result is a victory for unions “final” and that “no amount of strikes” of 53 per cent. two-day stoppage last week.
offered instant access savers an average points in June and markets predict a fur- Dinendra Haria/Anadolu Agency/Getty Images would “change this decision”. “This is a compelling case for trade Delphine Strauss
interest rate of 1.25 per cent in May ther quarter-point rise on Thursday.
4 ★ FINANCIAL TIMES Tuesday 1 August 2023
INTERNATIONAL
Niger junta
Eurozone economy returns to growth accuses ousted
Inflation falls to 5.3% but zone economy were bolstered by sepa-
rate figures from Eurostat showing it
“July’s inflation data will have been a
disappointment for policymakers,” said
with EU headquarters in the country.
Excluding Ireland, eurozone growth
The shrinking of Italy’s economy
marked a deterioration from 0.6 per
government of
unchanged core rate
damps hope of ECB cuts
rebounded with growth of 0.3 per cent
in the second quarter compared with
Andrew Kenningham, an economist at
consultants Capital Economics, predict-
would have halved, according to ING
economist Bert Colijn. Pointing to sur-
cent growth in the first quarter and was
below the stagnation forecast by econo-
authorising
MARTIN ARNOLD — FRANKFURT
the previous quarter, despite the ECB’s
unprecedented rise in borrowing costs
ing services prices would fall only slowly
from a record high in July and “keep the
veys indicating a fresh downturn in
activity and bank lending, he said that
mists in a Reuters poll. Italy’s statistics
agency said domestic demand made a French rescue
over the past year. ECB from pivoting to rate cuts until well “continued broad stagnation of eco- negative contribution while foreign
The eurozone returned to growth in the But the good news was offset by serv- into next year”. nomic activity remains the most likely trade, including tourism, was neutral.
second quarter and inflation fell in July ices inflation rising to a record high of The eurozone stagnated in the past outcome for the coming quarters”. Economists said the Italian downturn DAVID PILLING AND SARAH WHITE
LONDON
but hopes that the European Central 5.6 per cent in the single currency bloc, quarter and shrank in the final three French GDP growth accelerated to 0.5 was likely to have been triggered by the
Bank might soon begin cutting interest while economists said the uptick in out- months of last year. But its recent per cent in the second quarter, but this recent ending of a “superbonus” The junta that seized power in Niger
rates were tempered by persistent price put was largely because of one-off fac- revival was weaker than the US, which largely reflected the export of a cruise scheme, which had triggered a boom in last week has accused the ousted gov-
pressures in services. tors and was unlikely to last. last week reported annualised growth of ship. home improvement after offering Ital- ernment of authorising a French mili-
Eurostat, the EU’s statistical office, The figures were a setback for the 2.4 per cent for the period. Italy became the weakest performer ians tax credits worth 110 per cent of tary operation to rescue deposed presi-
said inflation had slowed to 5.3 per cent ECB, which raised interest rates for the Eurozone growth was skewed of the eurozone’s big economies in the any energy efficiency work on their dent Mohamed Bazoum.
in July, while core inflation, which ninth consecutive time last week. The upwards by a 3.3 per cent surge in Irish second quarter after output contracted homes.
excludes energy and food prices to give a central bank has said it will keep gross domestic product in the period, 0.3 per cent from the previous quarter “We are confident that the biggest The military government said yesterday
clearer sign of underlying price pres- increasing borrowing costs until under- which has been volatile owing to shifts because of a decline in Italian industry drag will have come from investment,” that Bazoum’s foreign minister, Has-
sures, was unchanged at 5.5 per cent. lying price pressures are clearly falling in intellectual property by large US and farming output that outweighed said Melanie Debono, an economist at soumi Massoudou, had signed a docu-
Hopes of a soft landing for the euro- towards its 2 per cent target. pharmaceutical and technology groups slight growth in services. Pantheon Macroeconomics. ment authorising the French to attack
the presidential palace. It offered no
proof.
France has demanded the reinstate-
Environment. Geothermal quest ment of Bazoum, regarded as the west’s
staunchest ally in the troubled Sahel
region, and warned that it would take
German cities dig deep for green energy unspecified action if French personnel
or property were harmed.
Thousands of pro-junta demonstra-
tors surrounded the French embassy in
Niamey, the capital, on Sunday, chant-
ing pro-Russia slogans such as “Long
Experts say hot water pumped Live Putin”.
from far below ground could The French foreign ministry said yes-
terday: “France reiterates that the only
help heat up to 70% of homes
‘The junta in Niamey may
GUY CHAZAN — MUNICH
have miscalculated.
Munich’s Oktoberfest is a beer lover’s
paradise, with almost 6mn people
Ecowas has drawn a line in
enjoying its lederhosen-slapping revelry the sand — it’s not bluff ’
every year. Few of them would guess
what is happening 3,000m beneath legitimate authority in Niger is Presi-
their feet. dent Mohamed Bazoum and democrati-
Every day, thousands of gallons of hot cally elected institutions. Our priority is
water are pumped to Europe’s largest the safety of our citizens and our inter-
geothermal plant from under the Okto- ests, which cannot be the target of vio-
berfest’s fairground venue, providing lence, in line with international law. We
heat for 80,000 local people. have no other objective than that.”
“It’s all happening under the Wiesn,” The ministry did not comment fur-
said Christian Pletl, head of renewables ther on whether French forces had been
at Munich utility SWM, using the local authorised to carry out strikes. A person
name for the beer festival. “We have a with knowledge of French thinking said
borehole right below it.” Paris was unlikely to take action with-
Ever since Olaf Scholz’s government out US involvement.
unveiled a law this year banning gas- France has 1,500 troops in Niger and a
fired boilers in new houses, the question base with attack drones and fighter jets,
of how Germans should heat their while the US has 1,100 troops on the
homes has risen to the top of the politi- ground and two drone bases.
cal agenda. Alex Vines, head of the Africa pro-
The boiler ban was an attempt to gramme at Chatham House think-tank,
address one of the biggest challenges said France and the US would “tread
Germany faces in its green transition: Piping hot: Terawatt hours (TWh) of energy a year the porosity of the rock is at its highest ‘It’s not total heating demand. But some experts very carefully” given the level of anti-
the vast amount of carbon dioxide emit- Christian Pletl, and cover a quarter of Germany’s total and where most of the water is.” say the potential is much greater. Hot French and anti-western sentiment in
ted by its heating sector. Heating right, head of demand for heating in towns and cities. Bavaria’s geothermal story began in rocket water aquifers were only found in areas the Sahel. A military response from the
accounts for more than 50 per cent of decentralised “Geothermal energy has enormous 1983 in the small town of Erding, north- science. targeted for oil and gas exploration, Economic Community of West African
Germany’s energy consumption — and heat production potential, especially in big cities where east of Munich, when prospectors drill- such as Bavaria, and much of the rest of States was more likely, he said. Ecowas
85 per cent of it comes from fossil fuels. and renewable there are few alternatives,” he said. ing for oil found hot water instead. The the country is still uncharted territory. on Sunday threatened force if Niger’s
Scholz’s government must bring this energy at SWM, The potential for energy extracted Three years later, the local council took technology Bracke said many big cities could also junta did not restore civilian power
down if Germany is to get even close to with colleague from closer to the Earth’s surface, over the drill hole and used the water to have aquifers, pointing to Aachen where within seven days.
its goal of carbon neutrality by 2045. Thomas Gilg at a between 100m and 1,000m deep, could heat schools, hospitals and industrial has existed the Romans built the first geothermal “This is where the junta in Niamey
The ban on new boilers is the centre- heat pump plant be even greater. “In theory, 50-70 per zones, as well as for a spa and hot spring. for 150 heating network 2,000 years ago. may have miscalculated. They may
piece of those efforts. But another law in Sendling, cent of the existing housing stock in Ger- Twenty-nine more projects followed, Berlin is another candidate. In June have assumed a weak Ecowas response
requiring municipalities to find climate- Munich — Laetitia many could be heated using geothermal all exploiting Bavaria’s Molasse basin, a years’ the city government said it would drill just like in Mali and Burkina Faso,”
Vançon Photography
friendly energy sources for local heating energy in conjunction with heat geological formation stretching across three test boreholes. Vines said, referring to the bloc’s inabil-
may prove even more consequential. pumps,” Bracke said. southern Germany. The area has a thick
Christian Pletl A project in Geretsried, Bavaria, by ity to reverse coups in either of Niger’s
Cities are now frantically trying to fig- The technology is simple: boreholes stratum of fractured limestone through Canadian company Eavor Technologies, neighbours. “But Ecowas has drawn a
ure out how to comply with the new law, are drilled into subterranean lakes which water can pass. Bavaria accounts is also garnering attention. Rather than line in the sand. Defence planners have
which is due to be passed this year. known as aquifers that lie 1-3km under- for nearly 80 per cent of Germany’s siphoning water from aquifers, it will been tasked to plan an intervention —
Munich is a step ahead of them. ground. The water is pumped to the sur- installed geothermal power output. circulate it through a U-shaped well, it’s not bluff.”
“Eleven years ago we committed to face and its heat passes via heat But Bavaria is no world pioneer. allowing it to be heated naturally by the Ecowas has also threatened to cut off
becoming the first big city in Germany exchangers to normal, non-thermal Around 250,000 households in France’s rock deep underground and brought Niger’s electricity, much of which is sup-
with 100 per cent carbon-neutral dis- water that is then used for heating in greater Paris area receive geothermal back to the surface in a “closed loop”. plied from Nigeria, and to impose sanc-
trict heating,” said Thomas Gigl, head of residential areas. heat, fed by aquifers first tapped in 1969. Eavor’s technology can, in theory, be tions on members of the junta and their
SWM’s south Munich site. Geothermal “It’s not rocket science. The technol- Iceland is prolific in the field, with used anywhere, not just in sedimentary families.
energy was “key” to that goal, he added. ogy has existed for 150 years,” said Pletl, geothermal sources accounting for two- basins with underground reservoirs. Bazoum remains trapped in his resi-
Other locations could follow suit. Rolf standing next to huge pipes bringing up thirds of its primary energy use. But Pletl is sticking to the traditional dence but a photo showing him smiling
Bracke of the Fraunhofer Institution for 100 litres of water a second at a temper- Compared with that, Germany is a methods. He expects to be able to pump alongside Mahamat Idriss Déby, Chad’s
Energy Infrastructures and Geothermal ature of nearly 100C from thousands of minnow. In 2020 it had 42 geothermal thermal water out of the aquifers under president, who travelled to Niamey on
Systems estimates that deep geother- metres below Munich. “But the real art plants, providing 359 megawatts of Munich for years. “This resource is vir- behalf of Ecowas to try to broker a deal,
mal could supply as much as 200-400 is in figuring out where to drill — where installed thermal capacity, a fraction of tually inexhaustible,” he said. has been released by Déby’s office.
Ocean ecosystems
INTERNATIONAL
Weakness in
China tightens controls on drone exports factories puts
Limits on military and “responsible great power”, China had
decided to broaden restrictions on the
repeated statements in support of Rus-
sian security concerns have under-
equipment development department —
limits exports of drones carrying
impact to our business from these new
regulations, we would like to point out
pressure on
commercial-use supplies
may affect Ukraine war
export of unmanned aerial vehicles, the
ministry added.
mined its claim to be neutral.
China has a dominant role in the glo-
narrowly defined equipment suitable
for military use such as powerful radars
. . . drones and drone-related equip-
ment can be exported normally after
Beijing to
KATHRIN HILLE — TAIPEI
QIANER LIU — HONG KONG
The controls, which take effect on
September 1, follow repeated appeals by
EU officials to China to restrict supplies
bal drone supply chain and Shenzhen-
based company DJI is the world’s largest
commercial drone maker by shipments.
or hyperspectral cameras.
Another notice from the four depart-
ments covers a broad range of drone
fulfilling relevant compliance criteria as
long as they are used for legitimate civil-
ian purposes,” said DJI.
boost support
of military or dual-use technology to One notice issued yesterday by four components and industry executives The commerce ministry said: “China’s
China has imposed export controls on a Russia since Moscow’s invasion of departments — the commerce ministry, said this rule would have an impact on modest expansion of the scope of its WILLIAM LANGLEY — HONG KONG
JOE LEAHY — BEIJING
wide range of drones and drone compo- Ukraine. Ukrainian forces have success- customs administration, military-use commercial-use drones. “The focus of drone control . . . is an important meas-
nents, a move with potential impact on fully used commercial drone models technology regulator and the military’s the controls is dual-use components,” ure to demonstrate our stance as a Manufacturing activity in China con-
the Ukraine war and on public security with self-designed payloads to target said a DJI sales manager, adding that responsible major country, to imple- tracted for a fourth straight month in
applications in many western countries. Russian military units. Russia’s military while ordinary DJI products would be ment global security initiatives and
“The risk of some high-specification has also increasingly relied on UAVs for
‘The risk of some high- unaffected, parts and some high-per- maintain world peace.”
July while growth in services and other
sectors slipped, bolstering calls for Bei-
and high-performance commercial-use attacks on Ukraine. specification . . . drones formance models might be restricted. The controls would affect some jing to take concrete measures to boost
drones being converted to military use China has urged both parties to seek DJI said it had always strictly com- drones for the consumer market and no
continues to rise,” the Chinese com- peace talks but Beijing’s growing mili-
being converted to military plied with export laws and regulations civilian drones could be exported for
the flagging recovery of the world’s
second-biggest economy.
merce ministry said yesterday. tary co-operation with Moscow, its use continues to rise’ in China and any other jurisdictions. military purposes, the ministry said.
As a leading drone producer and refusal to condemn the invasion and its “While we are evaluating the specific See Opinion China’s official manufacturing sector
purchasing managers’ index for July
came in at 49.3, slightly higher than ana-
lysts’ forecasts of 49.2 and above June’s
Asia. Corruption claims reading of 49 but still in contraction ter-
ritory. The non-manufacturing PMI,
which includes sectors such as construc-
Xi military crackdown claims first scalps tion and agriculture, fell to 51.5 from
53.2 the previous month. It was short of
the 53 forecast by Goldman Sachs.
A reading below 50 indicates a
month-on-month contraction, while
deterrent as well as the missile systems one above 50 signals an expansion.
Senior officers in PLA Rocket critical to a potential attack on Taiwan The July “data provides little encour-
Force replaced as president and efforts to deny US forces access and agement that the economy is turning
free movement in the western Pacific. the corner”, Robert Carnell, head of
aims to reassert party control Two foreign senior government offi- Asia-Pacific research at ING, the Dutch
cials briefed on related intelligence said bank, wrote in a note.
the Rocket Force leaders were being An anticipated manufacturing and
KATHRIN HILLE — TAIPEI
EDWARD WHITE — SEOUL probed for leaking military informa- export-led rebound from pandemic
tion. “The trigger was the fact that we,
The replacement and continuing outside China, have a quite detailed
absence from public view of two army understanding of the Rocket Force’s
The July ‘data provides
generals has offered confirmation of structure by now,” said one of the offi- little encouragement
Xi Jinping’s renewed campaign to cials. “It’s about divulging secrets.”
enforce party discipline in the military The military was one of Xi’s first tar-
that the economy is
as the Chinese president intensifies his gets after taking power in an overhaul to turning the corner’
decade-long push to exert tighter con- assert authority over a force he judged
trol over the armed forces. had begun to fall into decay and slipped restrictions has failed to materialise as
The purge of General Li Yuchao and out of the party’s control, according to global economic conditions have deteri-
his deputy, General Liu Guangbin, from Phillip Saunders, director of the Center orated. Growth in the huge services sec-
command of the country’s Rocket Force for the Study of Chinese Military Affairs tor, an important source of employ-
— which controls China’s nuclear and at the US National Defense University. ment, has weakened amid slowing con-
conventional missiles — comes amid Two former CMC vice-chairs, Xu Caihou sumer spending and investment, flag-
what People’s Liberation Army experts and Guo Boxiong, faced prosecution for ging exports, and a property sector
and intelligence sources believe is a new corruption in 2014. liquidity crisis. Gross domestic product
anti-corruption crackdown. Their dis- “Ten years on, there’s a new genera- rose 0.8 per cent in the second quarter
appearance, and now replacement, fol- tion of leaders, some of that anti- compared with the previous three
lows a string of announcements about corruption fear has worn off,” Saunders months, well below forecasts.
new anti-corruption measures in the said. “There’s a need periodically to The Chinese Communist party’s sen-
armed forces re-emphasise the drive against corrup- ior decision-making body, the polit-
At two high-level meetings in Beijing tion and re-emphasise politically the buro, last week announced measures to
in June, Xi told military leaders they theme of loyalty to the party.” try to boost growth, which it acknowl-
should “focus on solving the prominent Ahead of PLA Day today, which edged was making “tortuous progress”.
problems that persist at party organisa- marks the founding of the CCP’s armed But analysts said Beijing would proba-
tions on all levels with regard to enforc- services, official media have published a bly not unleash broader fiscal stimulus
ing the party’s absolute leadership over series of articles exhorting cadres to because of high debt levels, especially
the military”. “strengthen military governance”. among local governments.
The Central Military Commission, “That they talk about these problems The PMI figures show “there is yet to
China’s forces leadership body, which Xi again is a code phrase for saying abso- be a significant turnaround in the sof-
chairs, last month called for the estab- lute loyalty to the party has not yet been tening recovery activity”, said Erin Xin,
lishment of an “early warning mecha- Renewed focus: in a probe. Despite the commanders’ last October, but it has not published the ‘That they achieved,” said Lyle Morris, senior fel- economist at HSBC. “This puts more
nism for integrity risks in the military” Xi Jinping, seen removal, an investigation has still not names of all of those facing prosecution. low at the Asia Society Policy Institute’s onus on policymakers to move swiftly to
and announced a probe into corruption on a visit to a been officially announced and the Under Xi, China’s most powerful talk about Center for China Analysis and a former provide much-needed policy support.”
in equipment procurement going back PLA garrison, Financial Times could not confirm the leader since Mao Zedong, an anti- these China country director in the office of China’s state planner yesterday
almost six years. has retrained his subjects of any probe. corruption crusade has served the dual the US secretary of defence. “Xi has con- announced a consumption package tar-
Questions about Li’s whereabouts sights on graft However, Cercius, a Canada-based purposes of eliminating political rivals problems solidated control of the PLA in unprece- geting vehicle purchases and develop-
have been swirling for weeks. The com- in the military consultancy tracking elite Chinese and punishing endemic graft. Since again is a dented ways. But that doesn’t mean it’s ment in rural areas. The central bank
PLA Pictorial/Eyepress/
mander of the Rocket Force was not Reuters Connect
politics, has pointed to the detention 2012 nearly 5mn lower-level officials as complete.” has also eased monetary policy.
mentioned in official reports of Xi’s pro- and arrests late last year of lower-level well as thousands of higher-level code phrase Over the past decade, Xi has concen- China’s benchmark CSI 300 rose
motions of senior PLA generals late in officials with ties to the Rocket Force as “tigers” have been ensnared, as well as for saying trated control over the military in his 0.6 per cent, while the Hang Seng China
June, an event which he would have an indication of a wider investigation. It executives in the technology, finance own hands, elevating the powers of the Enterprises index added 1.3 per cent,
been expected to attend. A person with is common for a crackdown on junior and energy industries and even China’s absolute CMC chair and enshrining those with technology and property stocks
knowledge of the Rocket Force’s own officials to be followed months later own anti-graft watchdogs. loyalty to changes in the Communist party char- climbing sharply on expectations that
general officer summer promotion cere- by arrests of more senior cadres for It remains unclear whether Xi’s ter. Some experts said the latest probe policymakers would have to step up
mony said Li missed that event too, a sit- corruption. renewed focus on the military was the party pointed to a failure of those reforms. efforts to stimulate the economy.
uation PLA experts called “highly In early June, the Central Commission prompted by a particular case or bigger has not yet “There were loose ends in selecting Hong Kong yesterday reported
anomalous”. for Discipline Inspection, the Chinese concerns over political loyalty. The Rocket Force leaders. Since Xi selected second-quarter growth of just 1.5 per cent
Last week the South China Morning Communist party’s internal watchdog, Rocket Force is one of the PLA’s most been these people himself, his leadership is year on year, far below a 2.9 per cent
Post revealed that several current and announced that more than 39 senior strategically important branches, with achieved’ compromised,” said PLA analyst expansion in the first three months.
past PLA Rocket Force officers, includ- military and political cadres had been responsibility for China’s rapidly Andrew Yang. “He now has to defuse the Additional reporting by Hudson Lockett
ing Li and his deputy, had been targeted arrested since the 20th party congress expanding land-based nuclear negative impact in the military.” and Chan Ho-him in Hong Kong
Legal Notices
National security Republican party
Israel says road to creating Tycoon told Trump to drop presidential bid
ties with Riyadh remains long DEREK BROWER — NEW YORK former president in an election if he was elected in a purple state and he’s very
LAUREN FEDOR — LONDON
the nominee. “I will support anyone popular,” Hamm said. Youngkin, a
Billionaire Republican donor Harold who’s running against Joe Biden. Or former Carlyle executive, has sent
JAMES SHOTTER — TEL AVIV Diplomats say Saudi Arabia has been Hamm told Donald Trump to drop his [California governor] Gavin Newsom, mixed signals about a White House bid
SAMER AL-ATRUSH — DUBAI seeking concessions from the US includ- bid for the White House as the party or any other extreme-left candidate this year. Dave Rexrode, a senior ad-
ing security guarantees, support for a needed a candidate free of the “chaos” they can drum up,” he said. viser, said: “We appreciate Mr Hamm’s
Israel’s national security adviser said civilian nuclear programme and weap- surrounding the former president, who Trump has a huge lead over other support of the governor, and from a lot
the road to establishing ties with Saudi ons sales in exchange for normalising faces several criminal investigations. Republicans running for the party’s of others, who look at Virginia and see
Arabia was “still long”, despite ties with Israel. Saudi officials have said nomination, according to recent polls. what can be accomplished when you’re
increased efforts by the US to facilitate a the kingdom would also need a gesture The Oklahoma oil tycoon, whom Hamm also said in the interview that focused on common sense results.”
formal relationship between the two from Israel towards the Palestinians, Trump considered making energy sec- he wanted Glenn Youngkin, the gover- The comments from Hamm, one of
long-term adversaries. although they have not spelt out what retary in 2016, urged the former presi- nor of Virginia, to make a bid for the US oil’s most vocal figures, echo those
In an interview with Israel’s public that would entail. dent in May to act as the party’s “king- White House. Hamm flew to Richmond, made privately by others in the sector
broadcaster yesterday, Tzachi Hanegbi Asked about concessions, Hanegbi maker, a role for him to be very influen- the state capital, to meet Youngkin this who supported Trump’s pro-fossil fuel
said a full agreement was not under dis- said Israel would not accept “anything tial”, and back another candidate. spring and met him again in Dallas, policies but soured on him after the Jan-
cussion but that Israel had been “posi- that will erode its security”. “I know he wasn’t happy,” Hamm told where he urged him to enter the race. uary 6 Capitol riot and effort to overturn
tively surprised a few months ago when However, in a sign of the difficulties the Financial Times, referring to his “He did a tremendous thing, getting the 2020 election result.
the White House . . . said it was exerting that any deal would face in Benjamin phone conversation with Trump. “January 6 separated a lot of people in
efforts to reach a deal with the Saudis”. Netanyahu’s coalition, Orit Strook, an “That’s all I can do. How seriously he the [Republican] party . . . the fact that
“I can identify with what the US presi- ultranationalist from the far-right Reli- takes that recommendation, I don’t he wouldn’t accept the result,” Hamm
dent said in an interview a few days ago, gious Zionist party who serves as the know.” said. The country now needed a “clean
where he said that the road is still long national missions minister, said the gov- Trump and Hamm met for a dinner slate” and to get away from “division
but that he thinks that there will be a ernment would not make any conces- on Sunday at the former president’s golf and chaos”.
possibility of progress,” Hanegbi said. sions in the West Bank. club in New Jersey. A Trump ally said Hamm also called for a candidate who
US president Joe Biden sent one of his “There’s a consensus in all the right- the conversation had been “positive” could be in office longer than the four-
closest advisers to the Saudi capital last wing parties. We’re done with with- and Hamm had “left the door open” to year term to which a second Trump
week to discuss the topic, and said dur- drawals and settlement freezes in Judea future support and had not yet endorsed presidency would be constitutionally
ing a meeting with US campaign donors and Samaria,” she said, using the bibli- any candidate. Hamm’s office con- limited. “You need somebody that could
on Friday that “a rapprochement [is] cal name for the West Bank. “Netan- firmed that characterisation. be there for eight years to undo the dam-
maybe under way”. It was the second yahu is a responsible prime minister Late last week, after telling the FT age of the Biden administration.”
trip by a US official to Riyadh in a matter and he won’t sell the Land of Israel in about his call with Trump, Hamm Harold Hamm: called on Trump to Additional reporting by James Politi in
of weeks. exchange for a visit to the White House.” hinted he would nonetheless back the act as a Republican ‘kingmaker’ Washington
Tuesday 1 August 2023 ★ FINANCIAL TIMES 7
8 ★ FINANCIAL TIMES Tuesday 1 August 2023
INTERNATIONAL
Splitting from the atom A reactor project in Georgia risks being the US’s last hurrah after delays and cost overruns y PAGE 11
speech group
The private equity owners of German
sandal maker Birkenstock are consid-
ering an initial public offering of the
company that could take place as soon
as September, according to people
familiar with the matter.
L
Blania, freely assert that their lofty goal convinced of a far more simple road-
is to have 8bn users. Their company block to the company’s success: most
ast week, I joined a group of aims to solve a problem that doesn’t yet people won’t care enough to sign up.
2mn people and counting exist and the likelihood of which will Worldcoin lives or dies on its ability to
who have given up their irises seem absurd to most. And that’s just the persuade people to get their eyes
to Sam Altman’s dystopian start of Worldcoin’s potential problems. scanned. Even for those who regularly
cryptocurrency project, I arrived for my eye scan at a shared buy and sell crypto, free tokens cur-
Worldcoin. OpenAI chief executive Alt- working space in Shoreditch, London, rently worth about $50 are unlikely to
man, who has already had a busy year aware of several core issues with the bring hundreds of millions of people
with ChatGPT, started the global rollout company’s plans. through the door. Videos of people
of his latest venture last week, scanning First, its mission is extremely contra- queueing up for scans after the launch
eyeballs in 35 cities across 20 countries. dictory. Digital cur- circulated online but diehard fans, the
At its core, Worldcoin is a private rencies were cre- With the eye scan I went curious and journalists won’t make for
company embarking on mass biometric ated as a rejection the sort of numbers the company wants.
data gathering. It is based in San Fran- of centralised for, you can in theory sign Worldcoin is already under scrutiny
cisco and Berlin, and backed by venture finance and to stop up for your share of the for the way it incentivises participants
capitalists including Andreessen governments and in developing countries, where it has
Horowitz. In some countries, in corporations from growth in a society where offered people free cash and gifts such as
exchange for a scan of your eyeball, having total con- robots do the hard work AirPods in exchange for a scan. That
Worldcoin will issue you some of its trol of personal scrutiny will increase as the company
cryptocurrency tokens (currently par- data — an aim that seems ideologically expands.
ticipants receive 25 but that number has opposite to Worldcoin’s goal of uniting No one could accuse Altman of a lack
fluctuated), which can be traded on citizens and their governments through of ambition. The problem is that World-
crypto markets and, at the time of writ- its crypto token. In the same vein, eye coin’s success hinges on OpenAI bring-
ing, were worth $2.18 each. scanning will be complete anathema to ing about a reality that is an unpleasant
Altman claims that Worldcoin is a most crypto libertarians. thought for most. Creating both the
tool for a near-future in which OpenAI’s Second, Worldcoin is not available in problem and the solution is an uncom-
artificial intelligence surpasses human the US, where uncertainty persists over fortable premise, even if Worldcoin
intelligence, rendering most jobs redun- the treatment of crypto assets as securi- turns out to be a damp squib. Until that
dant and meaning global society has to ties and regulation is expected to be far is more clear, the question remains:
be restructured around a universal stricter in the aftermath of the FTX col- even if you feel comfortable giving up
basic income model. lapse. This seems like an existential your biometric data to a Silicon Valley
Its iris-scanning technology — carried catastrophe for Worldcoin’s ambitions. start-up whose founder is working to
out using “the Orb”, a bowling ball-sized “We didn’t think it would end up as bring about robot super intelligence,
chrome device — can deduce that you ‘world minus the US coin’,” Altman told should you?
are a human and not a robot, issuing you the Financial Times last week.
a kind of digital passport called a “World Third, there are unanswered privacy tabby.kinder@ft.com
10 ★ FINANCIAL TIMES Tuesday 1 August 2023
Investment
Auditors resist US plans on fraud-finding business tied
Accounting firms seek to auditors’ responsibility to scrutinise reads. “The proposal will substantially ant of the Securities and Exchange Com- Sandra Hanna, a lawyer at Miller & to Buffett buys
block rules widening
scope, saying fees will soar
whether a company is complying with
laws and regulations, and to communi-
cate more of their concerns to a com-
increase the cost of the audit without a
commensurate benefit.”
Existing standards require auditors to
mission, now an adviser to the PCAOB,
said existing standards provided too
much “wriggle-room” for auditors to
Chevalier who has represented audit
firms, called it an attempt to turn audi-
tors into “fraud examiners” and impose
stake in IMA
pany’s board. detect and report only wrongdoing that avoid confrontation when they saw a “forensic” standard where the small-
STEPHEN FOLEY — NEW YORK The proposal comes amid frustration directly affects the accuracy of financial potentially illegal behaviour. est concern would have to be investi- JAMES FONTANELLA-KHAN
AND WILL LOUCH
in Washington that audit firms are not statements, while the new rules would “The current standard doesn’t serve gated. “I worry for auditors that they are
The largest accounting firms are fight- living up to their duty to protect inves- mean they have to check for behaviour the capital markets in any way, shape, never going to be able to live up to the A US investment and advisory firm
ing to block rules in the US that would tors from wrongdoing by their clients. that could have an indirect effect, for fashion or form,” he said. “I’ve told the standard,” she said. with ties to billionaires including War-
force them to take more responsibility The Center for Audit Quality, a group example by putting a company at risk of people at the PCAOB that this is a war Tony Thompson, one of the three ren Buffett has agreed to buy a 45 per
for rooting out fraud at the companies representing firms led by the Big Four of large fines. and the war has begun. It’ll test those PCAOB board members who voted in cent stake in Italian machinery maker
they audit. Deloitte, PwC, EY and KPMG, is asking In the PCAOB, the proposed rules won three board members and we will see if favour of the proposal, said he was open IMA in a deal valuing the company at
With days to go before the end of a corporate directors to sign on to a letter support from only three of the five they’ve got a spine or not.” to feedback, especially regarding about €6.5bn, according to people
consultation period on the proposal attacking the plan. board members. Two members who Business lobby groups and the smaller audit firms that may not have familiar with the matter.
from the Public Company Accounting “Auditors are not lawyers, and as a had previously worked for the Big Four accounting firms are expected to put in the resources of the Big Four. But he
Oversight Board, they are trying to sign result, the proposed amendments opposed the changes; one called them a letters opposing the rules before a dead- defended the principle behind the pro- BDT & MSD Partners’ investment,
up clients to oppose the plan, saying would expand the auditor’s role to “breathtaking expansion of the audi- line on August 7. The CAQ said it was not posal. “We are not asking auditors to which was set to be announced yester-
audit fees will soar if it goes through. include knowledge and expertise out- tors’ responsibilities”. opposed to reform of existing require- become lawyers . . . If you see things of day, is a sign of its dealmaking ambi-
The PCAOB’s new rules would widen side their core competencies,” the letter Lynn Turner, a former chief account- ments but the proposal went too far. concern, don’t just unsee them.” tions and a rare big money transaction
in an otherwise slow market.
“We believe BDT & MSD’s long-term
view and deep expertise in supporting
Personal goods. Growth outlook family enterprise makes it an ideal part-
ner to help us reach these goals and
accelerate global growth, including in
LVMH, Kering and Hermès face end of revenge buying the US market,” Alberto Vacchi, chair
and chief executive of IMA, said.
The IMA deal provides an exit for its
current private equity backer BC Part-
ners and marks the firm’s second sale in
the past week after it offloaded a minor-
Sector luxuriated in consumer ity stake in US petcare retailer PetSmart
to Apollo Global Management.
spree after pandemic but now BC would more than double its money
on IMA after taking a 45 per cent stake
enters phase of normalisation in 2020, one of the people said.
The IMA transaction is one of the larg-
ADRIENNE KLASA — LONDON est in Europe so far this year, according
ANDREW EDGECLIFFE-JOHNSON
AND SILIN CHEN — NEW YORK to Standard & Poor’s data, at a time
COLBY SMITH — WASHINGTON when rising inflation and concerns over
the state of the economy have weighed
Luxury groups are braced for the end of on dealmaking. Buyout firms have been
the post-pandemic recovery boom as
Chinese and US consumers become
more selective in their purchases.
The machinery maker
The sector has had several years of cited the ‘deep expertise
exceptional growth driven by two
engines: China and the US, luxury’s big-
in supporting family
gest market, where pandemic-era sav- enterprise’ of BDT & MSD
ings and stimulus generated new shop-
pers in droves. hit hard as the cost of the debt they use
Now there are signs that the pace of to fund deals has increased.
growth may be reaching its peak, partic- The number of $1bn-plus deals glo-
ularly in the US. bally so far this year is on track to be the
Michael Kliger, chief executive of lux- lowest since 2019, the S&P data shows.
ury ecommerce platform Mytheresa, Founded in 1961, IMA designs and
said: “There is a slowdown in the US, but manufactures machines for the process-
ing and packaging of pharmaceuticals,
cosmetics and food, among other things.
‘There is a slowdown in The business is majority-owned by the
the US, but compared to Vacchi family, which built the business
through acquisitions.
an absolutely crazy base. BC Partners invested in IMA during
People went bonkers’ the early stages of the pandemic in
2020, in a deal valuing IMA’s equity at
compared to an absolutely crazy base. about €3bn, the Financial Times previ-
People got out of the pandemic and went The luxury growth for 2023 is expected to be at a far chasing one positive surprise after the Investors are Federica Levato, partner at Bain in ously reported. It had €2bn in revenues
bonkers.” market is lower 5 to 12 per cent. other to a steady state, as consumer Milan, said there was no “one-size-fits- in 2022, according to a press release.
Hermès and LVMH have posted expected to Much to the surprise of policymakers demand normalises after the post-pan- looking at all performance for the market in the US “The company is widely considered a
strong growth so far this year. Gucci more than and economists, consumer spending in demic euphoria. an industry right now. jewel in the manufacturing world in
owner Kering, which has struggled to double its size the US has held up well despite central “This transition is likely going to pro- “The performance of the brands is Europe and northern Italy,” Stefano Fer-
reboot its flagship brand, has lagged by 2030, but bankers’ efforts to damp demand duce some turbulence, as we have seen shift ‘from a very fragmented and dispersed. There raresi, a partner at BC Partners, said.
behind. Companies ranging from LVMH annual growth through sharply higher borrowing costs. recently with Richemont. But, in the momentum are brands that are growing 30 per cent The deal signals the clout of BDT &
to Prada to Richemont — owner of for this year is However, as labour markets have absence of a hard-landing recession, the in the US and there are brands that are MSD Partners, founded last year by the
Cartier — have reported slower sales expected to be cooled, wage gains have slowed and sector should soon find an even keel.” play chasing decreasing 30 per cent.” merger of Byron Trott’s BDT merchant
growth in the US. 5% to 12% the spectre of a recession looms, some Hermès is the exception, where long one positive She said the categories suffering most bank with the Michael Dell-backed
FT montage/Reuters/
The rebound in China from last year’s Shutterstock/Alamy
buyers have begun to pull back at the waiting lists for products, lesser depend- were streetwear, small bags and entry- investment group MSD Partners.
lockdowns is continuing but has been margins. ence on tourist spending in favour of surprise after level trainers — exposed to aspirational “This investment is emblematic of
slower than some had expected. Spending on boats, aircraft, jewellery local clientele and ultra-premium posi- another to a consumers, who have been more our flagship strategy of providing long-
“The global mood is not one of and other discretionary goods has tioning produced another set of bumper affected by inflation. term, aligned capital to family business
revenge buying like we saw in 2021 and softened, retrenching to pre-pandemic results with no fall-off in sales in the US, steady state’ A salesperson at Bergdorf Goodman, owners and founders to help them
2022, so we’re talking more about nor- levels. according to the company. the Fifth Avenue department store in achieve their objectives,” co-chief Trott
malisation than anything else,” said Investors have reacted to the latest set A dip in China owing to lockdown New York, offered a mixed picture of said.
Jean-Jacques Guiony, chief financial of earnings. restrictions at the beginning of the spending. Tourists from Canada, China The firm was raising its latest flagship
officer at LVMH, the biggest luxury Richemont shares fell 9 per cent last year was also less pronounced than for and India were still willing to spend fund and had gathered $13bn from
group and the sector bellwether. “In week, pulling other names in the sector competitors. $10,000 or more in a single transaction. investors, according to a person familiar
the United States, we see it’s not as good down with it, after reporting lacklustre Kering, which owns brands including “I haven’t been making many transac- with the matter.
as it was.” US sales in its most recent quarter. Saint Laurent, Gucci and Bottega tions that are discounted . . . [but] peo- Trott, a former Goldman Sachs execu-
The sector broke records in 2022, LVMH grew sales 17 per cent to €42.2bn Veneta, is hoping that some dealmak- ple are a little bit more careful than tive, is known as the billionaires’ banker
growing by about a fifth to €345bn, in the first half but investors balked at a ing, including an agreement to take a 30 before, for sure.” and is a close adviser to Buffett.
according to consultancy Bain and Ital- 1 per cent contraction in the US in the per cent stake in Italian fashion house James Knightley, chief international BDT & MSD is also co-led by former
ian industry group Altagamma, as second quarter, sending shares down Valentino, and a leadership reshuffle at economist at ING, said that “economic Goldman rainmaker Gregg Lemkau,
demand for indulgences ranging from nearly 4 per cent after it released its Gucci will help revive its fortunes. realities” were setting in, especially who joined MSD in 2021 after a career in
Birkin handbags to luxury travel results this week. Its first-half sales grew only 2 per with credit card borrowing rates which he advised Silicon Valley execu-
exploded. Luca Solca, analyst at Bernstein, sees cent to €10.1bn while those at Gucci, above 20 per cent. “People are still tives, including Elon Musk. The com-
Luxury is expected to more than a change in what investors look for in which accounts for half of group reve- spending on luxury, just at a more nor- bined entities have invested more than
double its size by 2030, but annual the sector, “from a momentum play nue, contracted. mal rate.” $50bn since 2010.
Media Automobiles
Disney taps old heirs apparent to advise Iger Bosch head seeks a more competitive Europe
CHRISTOPHER GRIMES — LOS ANGELES Staggs held numerous roles at Disney, Iger delayed his retirement several PATRICIA NILSSON — STUTTGART as Europeans, want to be competitive”, Privately owned Bosch is among
including chief financial officer, chief times during his original 15-year tenure he said. Europe’s largest employers and last year
Disney has hired two former executives The head of car parts supplier Bosch
operating officer and head of theme as chief. Under the new contract, he will Hartung pointed to the red tape facing made roughly half its €88.2bn in sales
who were seen as potential successors has urged European governments to
parks. Mayer worked closely with Iger step down in 2026 at the age of 75. businesses in the 27-country EU, such as outside the continent.
to Bob Iger during his first stint as the spend more time improving the conti-
on a series of acquisitions and was an In addition to advising Iger, Mayer filling out social insurance forms, as an Alongside its car supplies business, its
company’s chief executive, according nent’s competitiveness than on citing
architect of Disney’s streaming strategy. and Staggs will work with ESPN presi- “issue”. biggest division and the driver of profits,
to people familiar with the situation. the risks companies face doing busi-
After the launch of Disney+, Mayer dent Jimmy Pitaro to examine strategic “In various areas, you find barriers Bosch makes products from home
ness in China.
The executives, Kevin Mayer and Tom options for the sports channel. between countries and import-export appliances to power tools.
Staggs, have been brought on to advise ESPN was once the profit engine of The call from Stefan Hartung, who has relations that [ . . .] are actually some- Hartung said that “de-risking is not
Iger on how to deal with the company’s
The pair who run Candle Disney but is declining with the rest of led Bosch since last year, comes as Euro- times worse than [when doing business] really a great term, because it sounds so
legacy television businesses, including will be consulted on how US cable networks. Iger made ESPN a pean capitals grow increasingly con- outside of Europe,” he said. easy” and “you can’t de-risk by isolating
the ESPN sports network. standalone unit as part of a restructur- cerned over the exposure of the region’s yourself”.
The moves were first reported by
to address the legacy TV ing and said recently he would like to businesses to China. However, he said that the focus on the
online news site Puck. business, including ESPN find a strategic partner for the group. Last month, Germany warned its issue at least meant that politicians in
The renewal of their Disney ties Iger has said finding his successor is a companies to reduce their dependence Europe were examining the broader
comes just weeks after the company’s was seen as a likely successor to Iger, priority. The Disney board has on Beijing as it adopted its first China question of “what our [companies’]
board extended Iger’s contract for two who surprised many observers by appointed a four-person committee for strategy, stressing that the government interests actually are”.
years, raising questions about succes- choosing Bob Chapek to run the com- the task, led by Mark Parker, the former would not pick up the bill if they fell vic- Hartung’s call comes as the number of
sion planning at Disney. pany. Chapek was forced out last Nike chief who took over as chair in tim to mounting geopolitical risk. enforcements against breaches of EU
Staggs and Mayer were well liked by November after less than three years, April. Asked about “de-risking” from China, internal market rules tumbled between
Wall Street while they were at Disney prompting Iger’s return for what was Potential internal candidates for the Hartung said: “What are we doing for 2020 and 2022.
but left as their chances of getting the said to be a two-year term. But this CEO job are thought to include Dana the unified market of Europe? That has Failure to adhere to the rules can lead
CEO job faded. They run Candle, a month Disney said the board had given Walden, co-chair of Disney Entertain- recently not been so much discussed.” to member states adopting different
media group they founded with backing Iger a two-year extension and a bump in ment, film chief Alan Bergman, and Governments should target improve- Stefan Hartung: call to concentrate standards that stymie cross-border
from private equity group Blackstone. potential bonuses. theme parks head Josh D’Amaro. ments to the single market “if we, on Europe rather than China business.
Tuesday 1 August 2023 ★ FINANCIAL TIMES 11
Energy. Renewables
Capita boss
possibly through the Pension Protection superfund has been authorised, Clara. It formed in the meantime. Higher inter- the market, the government proposed
Lewis to step
Helen Fund, which would sweep up small,
underperforming defined benefit
has yet to strike any deals.
Superfunds would replace the
est rates have helped the DB market to
record surpluses and funding levels,
this month throwing the doors open to
racier models, co-mingled funds, earlier down and be
Thomas schemes that have no other options. employer covenant behind members’ according to the PPF. Schemes told a profit extraction and more principles-
Expanding on that, there is then the uni-
fying theory of everything superfunds,
pensions with a capital buffer provided
by investors. The conflicts of interest
year ago that they were decades from
buyout have struck insurance deals.
based safeguards to facilitate deals.
There is some suggestion that greater
replaced by
AWS executive
E
which would crunch together the entire inherent in combining profit-seeking The average scheme, estimates consult- risk could be tolerated within super-
pensions market into a series of not-for- investors and protection of members’ ants LCP, has funding at 90 per cent of funds to maintain at least a 10 per cent
veryone seems to think that profit uber-funds. benefits would be managed in a lighter- the level required for buyout — a posi- pricing discount to insurance deals.
superfunds can play a role in Third, there is the commercial super- touch way than in the insurance world, Guidance expected soon from the Pen-
solving the UK’s pensions fund concept, the one the government enabling a cheaper route to getting pen- sions Regulator will also address some LEKE OSO ALABI
woes. Typically, however, the seems most interested in. This is a for- sion obligations off companies’ books.
This idea to help schemes of these points.
Capita has announced that chief execu-
word is being used to refer to profit pensions structure that could This, as the Bank of England has pointed in limbo has itself been The market could still struggle with-
tive Jon Lewis will retire at the end of
at least three slightly different things. consolidate old defined benefit schemes out, is ripe for regulatory arbitrage. It out a statutory regime. The risk of regu-
Pensions is a scale game, where bigger — still a drag on corporate balance wanted superfunds to be used only as a
stuck between living and latory arbitrage remains. And a more
the year. He will be replaced by Adolfo
Hernandez, Amazon Web Services’
pots of cash mean lower costs, more sheets, but short of the funding levels stepping stone to a buyout. dead for some time gung-ho approach may not comfort
vice-president of global telecommuni-
diversified investment and, hopefully, required for the gold standard surety of These concerns and the uncertainty pension trustees, when weighing up
cations.
better returns. The government is a buyout that transfers all liabilities to of an interim regime have stymied tion where schemes should usually be whether to take the plunge into super-
intent on shifting pension fund assets an insurance company. development. Pensions trustees need a waiting to achieve that goal. funds. That is especially the case given The change in leadership comes after
into more productive and higher-risk This idea to help schemes in limbo has compelling reason to put members into That doesn’t mean that there aren’t the chances that this market comes two data breaches at one of the UK’s big-
investments to help the UK economy as itself been stuck between living and dead a riskier regime, rather than continue any deals for Clara to do. It offers a under renewed political scrutiny gest outsourcing groups.
well as (and, it sometimes feels, second- for some time. The government con- working towards buyout — the most decidedly low-risk “bridge to buyout” around its investment decisions. Capita had warned clients, including
arily) trying to improve the position of sulted on it in 2018, but only responded obvious one being the distress or likely model, where schemes are also held sep- These superfunds may not be so USS — the UK’s biggest private sector
members themselves. to that process this month. An interim insolvency of a sponsor that could pitch arately to avoid issues of cross-subsidi- supersized after all. pension plan — that the personal data of
Hence the desire to supersize. First, regulatory regime, under the Pensions members into the PPF, cutting benefits. sation. members might have been stolen dur-
there is the idea of a public consolidator, Regulator, was set up in 2020. Only one The pensions market has trans- But in its determination to kick-start helen.thomas@ft.com ing a cyber attack in March.
More than 500,000 individuals pay in
or draw down from pension schemes
that rely on Capita’s technology. The
Technology pension schemes of Pearson, Marks and
Spencer, Diageo, Unilever, BAE and
CMA reopens
Atlas Master Trust said their members’
personal data was likely to have been
accessed.
Hernandez’s 30-year career in the
technology sector has included senior
Activision probe
tor. Stephen Rawlinson, analyst at
Applied Value, also noted Hernandez
had little “experience of handling UK
publicly listed companies”.
Capita said Lewis would step down
towards the end of the year but will
Watchdog to reconsider gaming market. The CMA ruled in April remain in the business until July 2024 to
the deal was anti-competitive over con- ensure an orderly transition.
its refusal of $75bn deal cerns it would prevent competition in The company has also been
after new documents filed cloud gaming, a nascent part of the embroiled in a separate data breach in
industry. After the ruling, both compa-
nies criticised the UK for hampering
CRISTINA CRIDDLE
innovation, with Activision accusing
‘While the company was
The competition watchdog has re- Britain of being “closed for business”. restructuring . . .
opened its consultation on Microsoft’s In its latest submission, Microsoft
proposed $75bn acquisition of Activi- argued that licensing deals with cloud
strategically its position
sion Blizzard, in a move that could lead gaming services, including Nvidia, was weakening all the time’
to a reversal of its decision to stop the Boosteroid, Ubitus and Cloudware,
blockbuster deal. should be taken into consideration. which files containing details on local
New documents submitted by Micro- The first three of these agreements council benefit payments were left
soft to the Competition and Markets were previously offered as potential exposed on an unsecured Amazon data
Authority on July 25 and published yes- remedies to the CMA’s concerns but the bucket. Eight local councils said their
terday argue that the deal warrants regulator argued there was no guaran- files were potentially put at risk through
fresh consideration. tee Microsoft would not break, termi- unsafe storage and some have been crit-
The US tech giant has asked the CMA nate or renegotiate the deals. ical of Capita’s response.
to consider its recent agreements with However, the EU’s competition regu- Colchester city council said it had
lator approved the Activision deal in written to 7,349 residents and custom-
May, with the cloud gaming agreements ers that were affected by the incident.
‘Submissions of this nature accepted as remedies, as well as a bind- Despite his attempts to restructure
are possible but are very ing 10-year obligation that the company Capita and reduce debt while streamlin-
would honour the licences and not ing its sprawling operations, the com-
rare. We will consider [the] amend the terms without the consent of pany’s share price plunged almost 80
submissions carefully’ the European Commission. per cent during Lewis’s five-year tenure
Profits flatline for ‘magic circle’ law firms BT names Telia’s Kirkby as first female chief
ROBERT WRIGHT drop by almost 7 per cent, to £1.82mn by 2 per cent from the previous year to MAXINE KELLY AND OLIVER BARNES will retire from executive life, BT in the past 12 months and 46 per cent
each, while Linklaters’ equity partners £854mn, excluding exceptional items, said. Adam Crozier, BT’s chair, said that since Jansen took the helm in February
Profits have flatlined at the UK’s elite BT has appointed Allison Kirkby as the
took home £1.78mn each on average, while Allen & Overy’s fell to £892mn, given Kirkby’s existing role on the 2019.
corporate law firms as they reach a cru- first female chief executive in its his-
almost 5 per cent less than the previous from £900mn. Clifford Chance’s profits board, “we are confident we will have an The shares closed down 1.7 per cent
cial stage in their battle to grow in the tory, saying she will take over from
year. Clifford Chance’s profit per equity declined marginally to £781mn and orderly leadership transition and yesterday.
US, with higher costs and a deals slow- Philip Jansen by the end of next Janu-
partner was flat. Freshfields did not disclose its figure. handover of responsibilities”. Kirkby — who has previously worked
down hitting bottom lines. ary as the telecoms group embarks on a
The slowdown in growth follows a Rising costs and a tougher economic In May, BT said it would cut between at UK-based Virgin Media, Danish telco
cost-cutting drive.
Clifford Chance, Allen & Overy and Lin- boom in demand for corporate law climate come as the magic circle seeks to 40,000 and 55,000 jobs, including TDC and Sweden’s largest challenger
klaters, three of London’s “magic circle” firms in 2021, as a deluge in mergers and gain traction in the lucrative US market. Kirkby, who has been a non-executive employees and third-party contractors, telco Tele2 — has led Telia since May
law firms, all increased revenue in their Williams said the group was currently director at BT since 2019, joins from in the next seven years. The deployment 2020, where she oversaw a period of
most recent financial years but saw generating only about 15 per cent of its Sweden-based telecoms group Telia, major transformation “and a return to
partner profits stall amid higher staff
‘If you want to be a truly revenue in that region. which operates across the Nordic and growth”, Telia said in a statement yes-
costs and lower demand. global firm, you have to “If you want to be a truly global firm, Baltic regions. She will be one of only Allison Kirkby: the
BT non-executive terday.
The slowdown comes as two of the you have to have 25, 30, 40 per cent of nine women leading FTSE 100 compa- On her departure, Kirkby said: “After
magic circle reach a pivotal moment in a
have 25, 30, 40 per cent of your revenue in the US,” Williams said. nies when she assumes the role.
director will leave
Telia and become almost 10 years of living apart from my
bid to secure a foothold in the US mar- your revenue in the US’ Freshfields and Allen & Overy have The appointment comes as the one of nine female family, and the unique opportunity now
ket, with Allen & Overy planning a made recent strides in the US. Allen & former state telecoms monopoly begins FTSE 100 chiefs offered to me in the UK, I have carefully
$3.4bn merger with Shearman & Ster- acquisitions triggered by pandemic-era Overy is hoping to put its blockbuster the biggest cost-cutting drive since it considered and decided to leave Telia
ling, and rival Freshfields Bruckhaus financial stimulus boosted their coffers. transatlantic merger to a vote in Octo- was privatised in the 1980s. It plans to of generative artificial intelligence, and take on a new challenge.”
Deringer having invested in new offices, Tony Williams, principal at legal con- ber, and Freshfields has poached part- reduce its 130,000-strong workforce by which Jansen hailed as a “huge opportu- In line with BT’s remuneration policy,
including in Silicon Valley. sultancy Jomati, said firms had seen a ners from leading law firms in the past as much as 40 per cent by 2030. nity”, will replace about 10,000 jobs. which shareholders approved this
Freshfields was the only firm in the drop-off in M&A work since then, and three years, including to launch a Silicon Kirkby said she was “fully supportive Patrick Drahi’s Altice increased its month, Kirkby will be paid an annual
group to nudge up its partner profits, by rising costs due to higher salaries. Valley office to target tech work. of our strategy and am excited about shareholding in BT to almost 25 per cent salary of £1.1mn, with a performance-
1 per cent, with its equity partners tak- “Firms in the early part of the year Although profits stalled, the magic leading [BT] into its next phase of devel- in May. But the Franco-Israeli billion- linked bonus of 120 per cent of salary,
ing home just over £2mn each on aver- had to dramatically increase their sala- circle saw revenues rise, with Allen & opment, as we grow to support custom- aire’s telecoms investment group said at half of which “will be deferred into BT
age in the year to the end of April. ries because of the hot labour market,” Overy and Clifford Chance making ers, shareholders and the UK economy”. the time that it had no plans to make an Group shares for a further three years
In contrast, equity partners at Allen & Williams said. more than £2bn for the first time. Jansen will be available to support the offer for BT. with no additional performance condi-
Overy saw their average profit shares Pre-tax profits at Linklaters dipped See Lex handover until March 2024, when he BT’s share price has fallen 25 per cent tions”, the company said.
Tuesday 1 August 2023 ★ FINANCIAL TIMES 13
0.1 per cent — Japan is the only country Bold gesture: want the weaker yen,” said Tetsuya
‘Delisting every asset other
Long-dated bond yields hit Japanese yields leap
to maintain negative rates — while call- Inoue, a former BoJ official who is now a than bitcoin would have
Bank of Japan
to nine-year high
nine-year high amid ‘de facto 10-year government bond yield (%)
ing for more time to settle at its 2 per governor Kazuo senior researcher at Nomura Research
essentially meant the end
cent inflation target. Ueda’s decision Institute.
abolishment’ of trading cap 1.0 Peter Tasker, co-founder of Arcus to loosen the Several currency analysts argued of the industry in the US’
Investment said: “Does it presage a full- central bank’s that, while the psychological signifi-
KANA INAGAKI AND LEO LEWIS — TOKYO blown tightening? Almost certainly not. grip on long- cance of the BoJ’s move was high, it was vast majority of the US crypto busi-
MARY MCDOUGALL AND KATIE MARTIN 0.5 So as long as rates are negative at the term bond unlikely to trigger a major investor nesses operating outside the law unless
LONDON
short end, there is a limit to how far the yields initially rethink on the yen, predicting a brief they registered with the commission.
Japanese government bond yields 10-year yield can rise.” stirred investor phase of currency volatility but no last- “We really didn’t have a choice at that
0
jumped yesterday as global debt, The 10-year JGB yield rose to a nine- confusion ing change to the currency’s weakness. point, delisting every asset other than
Kiyoshi Ota/Bloomberg
currency and equity markets began to year high of 0.607 per cent yesterday After choppy trading on Friday, the bitcoin . . . would have essentially
absorb a landmark shift by the Bank of -0.5 before falling back to 0.59 per cent after yen went into the weekend at about meant the end of the crypto industry in
Japan to allow yields to rise more freely. 2015 20 23 the BoJ announced unscheduled pur- ¥141 against the dollar, roughly its level the US,” he said. “It kind of made it an
Analysts said BoJ governor Kazuo chases of ¥300bn ($2.1bn) in five- to 10- ahead of the BoJ’s decision. easy choice . . . let’s go to court and find
Source: Refinitiv
Ueda’s decision to loosen the central year government bonds. Kamakshya Trivedi, a currency strat- out what the court says.”
bank’s grip on long-term bond yields The yield had risen to as much as egist at Goldman Sachs who described Oversight of the crypto industry has
marked a significant step towards near-term policy rate hike optionality.” 0.572 per cent on Friday, also a nine- Ueda’s move as a “giant leap” for the BoJ hitherto been a grey area with the SEC
unwinding decades of ultra-accommo- The decision opened the way for a year high. Still, analysts said the yield but only a “small step” for the yen, said and the Commodity Futures Trading
dative monetary policy. potential shift in Japan’s status and fun- was unlikely to breach the new ceiling of that, while the currency could climb Commission jockeying for control.
The benchmark yield on 10-year JGBs damental changes in global investment 1 per cent. higher in the coming days as the market Gensler has previously said he
rose to a nine-year high yesterday. flows. Most experts do not expect the BoJ to explored the parameters of the central believes most cryptocurrencies with the
The shock decision, which the BoJ The practical end of yield curve con- abandon negative interest rates until bank’s flexibility, sustained apprecia- exception of bitcoin are securities.
denied represented a policy change, was trols marked what investors said was a next year at the earliest, when the cen- tion was probably not on the cards. Ether, the second-largest cryptocur-
tantamount to calling time on a contro- definitive step towards policy normali- tral bank has forecast inflation will fall “It would take a more substantial pol- rency, was absent from the SEC’s case
versial seven-year monetary experi- sation after decades of deflation and back below its 2 per cent target. icy turn to offset stronger global risk against Coinbase. It also did not feature
ment known as yield curve control that economic stagnation and seven years of Headline inflation hit 3.3 per cent in sentiment, which tends to weigh on the in the 12 “crypto asset securities” speci-
set Japan’s central bank far apart from negative interest rates. June and the BoJ on Friday upgraded its yen, and the rate differential makes it fied in the SEC’s lawsuit against Binance.
global peers, analysts said. “What is clear to us is that, with this core inflation projection for fiscal 2023 unlikely that this will prompt significant The SEC said its enforcement division
Ueda’s move, which initially stirred change today, there will be a repatria- from 1.8 to 2.5 per cent, while lowering repatriation back to Japanese assets,” did not make formal requests for “com-
investor confusion and was described as tion of money from abroad into Japan, its fiscal 2024 forecast to 1.9 per cent. Trivedi wrote in a report to clients. panies to delist crypto assets”, adding:
“opaque”, in effect widened the band which will affect equities as well,” said Ueda also said the yen’s recent volatil- Ueda emphasised that the BoJ “In the course of an investigation, the
within which 10-year JGB yields would Luca Paolini, chief strategist at Pictet. ity against the dollar had played a part ‘Japan is intended to sustain easing measures staff may share its own view as to what
be allowed to move to 1 per cent from 0.5 “Japan is ending deflation so Japan in the BoJ’s decision. while it determined whether recent conduct may raise questions for the
per cent. becomes a more normal place to invest.” Some analysts said this statement — ending wage rises would continue into next commission under the securities laws.”
The bank added that it would offi- But veteran BoJ watchers warned the first acknowledgment linking the deflation so year. Stocks, bonds and other traditional
cially retain as a “reference” its 0.5 per against concluding that the central bank currency’s recent weakness to a change Robert Tipp, chief global investment financial instruments fall under the
cent cap on yields. was on the brink of tightening. in yield curve controls — could create becomes a strategist and head of global bonds for Our global SEC’s remit but US authorities remain
“This is ‘de facto’ abolishment of yield The relaxation of the yield band was significant market uncertainty over the more PGIM Fixed Income, argued that the team gives you locked in debate as to whether all — or
curve control, at least for the time intended to signal concern to markets possibility of political intervention in central bank was buying time. market-moving any — crypto tokens should do so.
being,” UBS chief Japan economist about the rising risk of inflation and the the level of the yen. normal “It wants to see whether wage growth news and views, The SEC declined to comment on the
Masamichi Adachi wrote in a report. long-term distortion of bond markets. “It’s not good if there is suspicion that place to is organic or the result of pressure from 24 hours a day implications for the rest of the industry
“No introduction of the policy rate guid- The BoJ added on Friday that its over- the BoJ is responding to complaints government,” he added. ft.com/markets of a settlement involving Coinbase
ance suggests that the bank left open the night interest rate would remain minus from the government that they do not invest’ See FT View delisting every token other than bitcoin.
Equities Currencies
T
growth figures for the eurozone, ahead of
a string of high-profile US corporate 5
he global economic para- energy has exceeded $2tn since 2021, additional capacity they bring. As earnings later in the week.
digm is shifting quickly and helped by government incentives of examples of the positive feedback loop Wall Street’s tech-focused Nasdaq
the “de-risking” of supply more than $500bn. between policy support and technologi- Composite advanced 0.1 per cent by
chains is a crucial topic. A multipolar policy toolkit is emerg- cal progress, our analysts see green elec- midday in New York, extending gains 0
Some have argued that de- ing to channel resources into this tricity generation costs falling through from the previous week, while the
risking — while attempting generational endeavour, encompassing large subsidy 2030 with capital costs for wind and benchmark S&P 500 traded flat.
leaps in technology and decarbonisa- programmes, expanded export and solar generation dropping 50 per cent, Investors prepared for more big US -5
tion — is not a realistic objective. investment controls and new regulatory making them 35 per cent cheaper than tech companies including Apple and
Critics of such a push suggest that it frameworks. fossil fuels on average at that point. Amazon to report earnings this week, Hang Seng
will result in a breakdown of trade and For a successful transition away from We also see the cost of lithium-based offering more insight into the health of
-10
investment, guaranteeing higher infla- the globalised regime, policymakers electric-vehicle battery storage falling Wall Street’s high-flying tech sector.
tion. But we are optimistic that it can must continue to work with the corpo- almost 40 per cent below current levels Across the Atlantic, the region-wide Jan 2023 Jul
happen without causing a major shock rate sector and focus on the most critical by 2030 with potential sodium ion bat- Stoxx Europe 600 ended the day 0.2 per Source: Refinitiv
to the global economy. nodes. Careful implementation will be teries being potentially 20 to 30 per cent cent higher while the CAC 40 in Paris
The shift towards a multipolar world needed to preserve the collaboration more cost-effective than that. added 0.3 per cent and Frankfurt’s Xetra
has been developing over the past five that has been key to breakthroughs But the risk of widespread global Dax traded flat, having hit an all-time the European Central Bank to raise rates, reading will not be a dovish argument
years and this regime is now entrenched. decoupling is high, given the temptation high earlier in the day. a week after policymakers lifted the at the September meeting, leaving a
Security rather than economic effi- to weaponise economic interdepend- Investors responded with a measure of region’s benchmark deposit rate to 3.75 further hike on the table,” said Bert Colijn,
ciency is the new imperative for policy- De-risking supply chains ence amid conflicts. The high stakes of enthusiasm to data showing that the per cent, its highest since 2001. senior eurozone economist at ING.
makers amid hegemonic US-China can be achieved through success or failure in emerging industries eurozone economy grew 0.3 per cent in After the policy meeting, ECB president Asian equities rallied as investors bet
rivalry and the reverberations of Rus- such as AI, advanced semiconductors, the three months to July after stagnating Christine Lagarde confirmed that the on more economic stimulus from China’s
sia’s war in Ukraine. higher inventory buffers quantum computing and renewables in the previous quarter. central bank’s ninth successive rate rise government after fresh data showed
Stark lines of sovereignty are being and greenfield capex are motivating protectionism. The reading came in above the 0.2 per may have been the last, moving away activity in the country’s services sector
drawn over technology that has been Indeed, current policy trends could cent forecast in a Reuters poll of from the hawkish forward guidance she missed expectations in July, and
produced by highly globalised research fuel a cycle where the defensive actions economists. Separate figures showed that gave in past meetings. manufacturing weakened.
and development programmes over such as the development of extreme of one country to reduce supply chain annual inflation in the 20-country Still, core inflation, which excludes food Hong Kong’s Hang Seng index gained
recent decades. ultraviolet lithography, the technology risks reinforce the concerns of trading currency bloc slowed to 5.3 per cent in and energy prices, was unchanged at 5.5 0.8 per cent while the CSI 300 index of
Significant imbalances and concen- used in advanced microchips. partners, leading to industrial policy tit- July, down from 5.5 per cent in the per cent in July, marginally exceeding Shanghai and Shenzhen stocks rose 0.6
trations in global market shares have Given the challenges, why are we for-tats that leave us all worse off. previous month. analysts’ expectations. per cent as both reached their highest
built up across many segments of the more sanguine about the inflation and International communication and The reading could ease the pressure on “For the data-dependent ECB, this GDP levels since early May. Daria Mosolova
international economy since the 1990s growth dangers of supply chain de-risk- compromise will be key to avoiding this
and it is clear from the disruptions that ing? We see three reasons for optimism. scenario. Rather than indiscriminate
occurred during the Covid-19 pandemic First, global growth will be boosted by reshoring and economic isolation, we Markets update
that this needs to change. the immense capex programmes from a believe the end goal of de-risking supply
The scale of the new investment variety of companies around the world. chains can be achieved through a com-
required to de-risk supply chains will be Second, intense competition for bination of higher inventory buffers and
enormous. Our analysts project a cost of emerging technologies is likely to boost greenfield capex, which would boost US Eurozone Japan UK China Brazil
$1.5tn to support friendshoring and productivity. Consider the examples and diversify production capacity. Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
onshoring of supply chains, including that came out of cold war-related Such an outcome could put a multi- Level 4581.75 1863.49 33172.22 7699.41 3291.04 121873.89
those for advanced semiconductors and research and development, including polar economy on an even more resil- % change on day -0.01 0.12 1.26 0.07 0.46 1.40
critical minerals. semiconductors and satellite communi- ient and balanced footing than the glo- Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
The global electric vehicle battery cations, and the potential of artificial balised world that is being left behind. Level 101.704 1.103 142.080 1.287 7.147 4.757
industry will require $7tn of capital intelligence. % change on day 0.081 -0.091 1.261 0.078 -0.241 0.751
expenditure over the next 20 years. Finally, the higher costs of alternative Daniel Blake is Asia EM Equity Strategist at Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Committed investment in clean supply chains will be mitigated by the Morgan Stanley Yield 3.943 2.489 0.598 4.386 2.702 10.474
Basis point change on day -2.480 0.100 5.310 -0.600 0.600 -7.300
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 465.41 85.39 81.63 1954.25 24.23 3846.40
% change on day 0.11 1.16 1.30 0.46 -3.14 1.19
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.
7680
4480 1840
7520
4320 1800 7360
| | | | | | | |
4160 | | | | | | | | | | | | | | | | | | | |
1760 | | | | | | | | | | | | | | | | | | | | 7200 | | | | | | | | | | | |
Biggest movers
% US Eurozone UK
Paramount Global 5.61 Galp Energia 4.27 Int Consolidated Airlines S.a. 3.60
Adobe 4.21 Novo Nordisk 3.35 Centrica 2.87
Ups
MARKET DATA
S&P 500 New York S&P/TSX COMP Toronto FTSE 100 London Xetra Dax Frankfurt Nikkei 225 Tokyo Kospi Seoul
4,581.75 7,699.41 16,468.27 2,632.58
20,612.30
4,450.38 7,531.53 16,147.90 33,234.14 33,172.22
19,913.17 2,564.28
Day -0.01% Month 2.95% Year 10.93% Day 0.55% Month 2.36% Year 4.76% Day 0.07% Month 2.28% Year 3.77% Day -0.14% Month 1.67% Year NaN% Day 1.26% Month 0.07% Year 19.47% Day 0.93% Month 2.66% Year 7.39%
Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
14,325.76 55,049.03 20,078.94 3,373.98
1,863.49 9,641.50
1,831.87 9,593.00 18,916.43
53,526.10 3,205.91
13,591.33
Day 0.06% Month 3.89% Year 15.61% Day -0.03% Month 2.65% Year 14.12% Day 0.12% Month 1.79% Year 8.27% Day -0.45% Month 0.51% Year 18.21% Day 0.82% Month 5.97% Year -0.55% Day 0.08% Month 5.38% Year 5.20%
Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
35,453.84 121,883.05 7,512.47 29,644.71 3,291.04 66,527.67
7,400.06
34,122.42 118,087.00 28,230.83 3,202.06 64,718.56
Day -0.02% Month 3.03% Year 7.93% Day 1.40% Month 3.20% Year 18.13% Day 0.29% Month 1.32% Year 16.27% Day 0.49% Month 5.01% Year 32.31% Day 0.46% Month 2.78% Year 1.16% Day 0.56% Month 2.77% Year 15.53%
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20 ★ FINANCIAL TIMES Tuesday 1 August 2023
ARTS
W
hen The Beatles fin-
ished recording their
Sgt Pepper album in
1967, they broadcast it
at dawn over the
rooftops of Chelsea. Last weekend Peter
Gabriel, finishing up his first album
proper in 20 years, arranged for i/o
(about ageing and grief — for parents
and for the planet) to be pumped out
through multiple speakers at an Kwon Song-Hee of South Korean band Leenalchi — Redferns
“immersive listening session” in a forest
clearing underneath a seven-metre- with a brisk “yallah” on a celebration of Sunday morning, no one accepted her
wide replica of the Moon at Womad Fes- fishing, from the trawlers of Gaza to the invitation. On record her music sounds
tival in Wiltshire. In which setting it pearl divers of Kuwait, where Kelani utterly organic, as if hewn from the
sounded reassuringly timeless and grew up. Best of all was a sojourn in Al- earth, but in performance she was con-
occasionally sublime. Andalus: Carlos Cano’s song about the stantly sampling and looping herself
But a whole festival was taking place last Arab ruler of Seville, al-Mu’tamid with foot pedals so the layered construc-
all around, with surprises everywhere, ibn Abbad, was followed by a setting of tion was apparent. Accompanying her-
from joyous northern Ghanaian Frafra the poet-king’s own farewell to the Alca- self on piano and a kannel zither the size
synth gospel to samba rap to Welsh and zar and to the city. of a bodyboard, she sang of creation, of
Colombian harp battles. Last year ADG7 The Iranian classical musician Kay- the dying languages of her corner of
made a splash with their eclectically han Kalhor made one of the albums of Estonia, of the world tree that blocks out
instrumented modern take on northern Above: Israeli-born singer Liraz played music that reflected her Iranian heritage. Below: Femi Kuti — Garry Jones the year with the kora player Toumani the light. The delicate melody of “Tõist-
Korean folktales. Following in their Diabaté, The Sky Is the Same Colour Eve- muudu” rang clear; on “Mu Vallakoolo-
footsteps came Leenalchi from South string and Abundance Mutori filled in Birmingham suburbs might dispute rywhere. Here Kalhor was joined by the mise Paal Kiil” the zither sparkled as if
Korea, who play an updated form of with a dub-heavy bass vamp until that; but the reprises of qawwals per- equally talented Erdal Erzincan from the night was raining stars.
pansori, the austere narrative music Samende was ready to unleash the formed at earlier Womads by Nusrat Turkey. Iranian spike fiddle (kaman- Heavy rains on Sunday left the crowds
performed by a singer and a single band’s trademark mix of jit and zam- Fateh Ali Khan were rapturously ener- cheh) and Turkish lute (baglama) are a skating gingerly on mud. Horace Andy
drummer. But the band, with two bass rock. By the end, as “Welelye” segued getic. The crowd thrilled as a harmo- delivered a groundshaking reggae set,
guitars, three singers (in their Womad into “Africa”, the crowd were dancing nium intro resolved into “Allah-Hoo”; reminding the audience and the food
configuration, at least), keyboard and shouting amid the raindrops. and a closing run through endless false
By the end of stalls that money is the root of all evil
bleeps and interjections and relentless Orchestral Qawwali Project brought a climaxes on “Dam Mast Qalandar”, the Mokoomba’s set, the while mining the best of his own career
kit drums, were anything but austere. full string orchestra, plus French horn basis for Nusrat’s “Mustt Mustt”, exem- and his collaborations with Massive
The singers swapped lines around con- and a gong hovering, like Chekhov’s gun plified traditional Qawwali bad behav- crowd were dancing and Attack. Japanese psych trio Kuunatic
versationally and then dramatically;
cartoon woodblock animations
waiting to be deployed. But the frontline
is a traditional Qawwali party: harmo-
iour as the orchestra grandiosely over-
ran their stage time and had the power
shouting amid the rain played an extended version of their sci-
ence fiction concept album, Gate of
unspooled behind “Tiger Is Coming” niums, tabla, backing singers pushing pulled mid-flight, to disappointed boos Klüna, with a deep thump of drums,
and then full-on dayglo Hallyu for with steady, accelerating claps, and a and a standing ovation. perfect fit: the two men played a single sternum-cracking basslines and shrine
“Please Don’t Go”. powerful singer, Abi Sampa. The singer Liraz, born in Israel to an uninterrupted hour-long flow. Kalhor instrumentation of flute and shakers.
Mokoomba, Victoria Falls’s finest She and musical director Rushil Iranian Jewish family, was greeted by a set up sad descending melodies, occa- Soul II Soul brought matters back to
musical export, staked their claim as Ranjan have taken on the tricky task of sea of waving red, white and green flags. sionally dropping his bow to use the reality. And Femi Kuti & the Positive
future headliners. The Zimbabwean marrying western classical and Sufi Vexillological analysis identified the kamancheh for percussion, tapping Force closed out with high-energy
group opened with a brooding “Masan- devotional music and bringing it to a fes- lion-and-sun emblem of pre-revolu- beats on its neck, playing pizzicato, Afrobeat for those who had resisted the
gango”, matching the gathering clouds. tival that Ranjan described as “Qaw- tionary Iran, which her parents left to strumming chords; Erzincan watched siren call of the M4, railing against cor-
Trustworth Samende snapped a guitar wali’s spiritual home in the west”. Some move to Tel Aviv. She sings entirely in and waited, keeping time on the ruption, bad education and healthcare
Farsi, in solidarity with Iranian women; baglama before diving into fast solos of and failing electricity supplies, mes-
her last two albums were made with his own. It all culminated in a brisk jig, sages more than usually universal.
musicians from Iran, the former with before the two locked eyes and finished “I’ve got a lot on my mind,” he sang,
soundfiles traded over the internet, the perfectly in sync, as if a long and com- as he turned this corner of a Wiltshire
latter in person in a clandestine session plex equation had finally been solved. field into downtown Lagos. “A lot on
in an Istanbul basement. “If you want to lie down,” offered my mind.”
Here her Israeli band captured their Estonian singer Mari Kalkun, “that’s
heady amalgam of Anatolian rock, fine by me.” Even in the early hours of womad.co.uk
Shah-epoch Tehran disco and
“Babooshka”-era Kate Bush. Liraz Zimbabwean
swapped her glittery gold veil to bran- group
dish her own Iranian flag, embroidered Mokoomba
Nathan Brown
with the words “Women Life Freedom”.
Palestinian singer Reem Kelani, mak-
ing a welcome return to the festival in a
shady Arboretum, took her jazz trio on a
musical tour of the Arab world. There
was polyrhythmic clapping on wedding
songs (“If you let us in,” promised the
groom’s family, “we will make you
leader of all the Arab tribes”), then a
Galilean lullaby shifting in and out of
darkness with gentle piano triplets from
Bruno Heinen. A galloping reading of
Sayyid Darwish’s “The Porter’s
Anthem” brought Weimar to Cairo. Nets
were cast and crews gathered together
The US military is opening up to defence and weapons start-ups as evolving technology begins to
transform modern warfare — and this whiff of opportunity has spurred a gold rush among investors.
By Tabby Kinder
The FT View
The Bank of Japan’s timely tweak
policy. It did this by keeping the 0.5 per excluding volatile fresh food and energy Rather than the deliver the sustained wage growth
Reaching the inflation cent figure in place but said it will now prices, there have been calls for Japan to BoJ rushing to needed to meet the 2 per cent target. Yet
regard this as a “reference”; it raised the tighten monetary policy much faster. debate in Japan is centred on the gov-
target means getting hard cap on yields to 1 per cent. The tac- Ueda should beware of this path. For
raise interest
ernment’s desire to increase defence
serious about fiscal policy tical success of this manoeuvre is clear the past 30 years, the BoJ has been rates, the spending and pay for it with gimmicks
from the limited market reaction, with struggling to meet its 2 per cent inflation government such as a potential sale of shares in tele-
Kazuo Ueda has passed his first big test 10-year yields rising modestly to around objective. A crucial ingredient to hit needs to coms company NTT. Japan emerged
as governor of the Bank of Japan. With 0.6 per cent, while the yen is little the target sustainably in future is a complement from Covid with a renewed fiscal deficit
last week’s cleverly designed tweak to changed. Ueda should feel well satisfied. steady rise in labour incomes, but monetary policy adding to its enormous public debt. Fur-
yield curve control — as the BoJ’s cap on Broadly speaking, yield curve control despite stronger wage-setting this year, ther out, spending on pensions and
10-year bond yields, in place since 2016, has worked well in Japan, providing a Japan’s economy is still some way from by setting out healthcare will inevitably have to
is known — he appears to have pulled off clear guarantee of ultra-easy monetary delivering. clearer plans increase as the population ages.
the delicate task of changing that policy policy through some difficult times for The BoJ expects inflation to hit its tar- Getting fiscal and monetary policy to
without causing financial markets to the economy. Nevertheless, issues have get next year before dipping below it work together has been a constant chal-
fear an imminent rise in interest rates. become apparent over time. In particu- again the year after that. Meanwhile, lenge for economic management in
Ueda’s careful, patient stance is sound: lar, fixing bond yields has made the yen China is on the verge of deflation and the Japan. Part of the argument for stimula-
Japan needs to entrench a habit of rais- highly sensitive to interest rate changes rate cycle in the US and Europe is near a tive monetary policy was always the
ing wages before the interest rate cycle overseas, and as with any fixed price, peak, so the external inflationary pres- need to generate enough private
turns downwards in the rest of the the interest rate cap is vulnerable to sures on Japan are likely to abate. demand to allow for fiscal consolida-
world. Rather than the BoJ, it is Japan’s speculative attack if markets think it Rather than the BoJ rushing to raise tion. If Japan really is getting close to
government that has more to do on eco- may be changed. Raising the cap now, interest rates, the government of Prime sustainable, on-target inflation then it
nomic policy. when there is no acute market pressure Minister Fumio Kishida needs to com- behoves the government to think seri-
The central bank’s immediate chal- to do so, is therefore an astute move by plement monetary policy by setting out ously about a fiscal policy that works in
lenge last week was to raise the cap on Ueda. It provides insurance against clearer fiscal plans. Efforts to boost that environment. Ueda has started
10-year bond yields from 0.5 per cent further yen weakness at limited cost. worker productivity and support inno- well, but the Bank of Japan cannot do
ft.com/opinion without signalling a normalisation of With inflation running at 4.2 per cent, vation in the private sector would help this alone.
pointlessness of rivalry Starmer has a chance to seize high ground on climate policies
Ewan White If, as seems likely, the Conservatives moral and economic imperative in The recent watering down of various challenging the Conservatives head-on
conclude from the Uxbridge and South the face of rapidly accelerating climate policies in pursuit of fiscal rectitude as truth-deniers and handmaidens of
Ruislip by-election that their best hope change, or even because opinion only makes this problem worse. To give planetary disaster.
in the general election will be to turn polls show that climate policies have people reason to vote for them, The world is crying out for leaders
themselves into opponents of net zero very wide public support, including in politicians need “narrative identity”: who can acknowledge honestly what is
climate policies, what should Labour both the red and blue “walls”. It is clearly defined causes they are for, and happening as the wildfires rage and
do? As Robert Shrimsley notes because Tory climate scepticism can others they are against. Antarctica melts. Starmer is fortunate
(“Conservatives declare war on Big finally give Starmer a defining The Tories’ lurch into an anti-green that this can also give him the clarity
Everything”, Opinion, July 27), there narrative. position gives Starmer the opportunity he needs to overcome his major
are voices within the party (including The Labour leader’s competence and to achieve such an identity. He should weakness in public opinion polling.
possibly his own) urging Keir Starmer decency are evident. But the polls and define himself as the pro-climate- Michael Jacobs
to follow suit. focus groups show that he lacks action leader, passionately Professor of Political Economy,
But this would be a strategic mistake. definition: people don’t know what he championing a safe future for young University of Sheffield,
This is not just because net zero is a stands for. people and voters’ grandchildren, and Sheffield, UK
T
political parties, other than the far- various elements of the government’s in acting as steward of the taxpayer’s for the UK financial markets.
right National Rally, might jostle for proposed reforms to lobbying rules stake in NatWest. As anyone who has served on a board
he phrase “know your power but, come the second round, (“UK lobbying watchdog criticises If a government minister has of directors knows, the main job of a
enemy” is generally syn- the “republican front” has recognised government for rejecting reforms”, concerns about the conduct of the CEO chair is to set clear governance rules
onymous with the impor- the difference between competitor FT.com, July 27). The latter, after all, of a company in which the government and lead by example. Sir Howard has
tance of keeping tabs on and enemy. Now that old understand- has long avoided public comment. has a stake, the proper course is to take done none of this and has not exercised
the competition, whether ing is fraying, which could result in As the industry body for UK that up with UKGI so that it can — his most fundamental duties. All very
by simply sampling your rival’s prod- disaster for both France and Europe. lobbyists, the CIPR argues that the along with the other shareholders, who alarming for a former FSA boss. Time
uct or by more nefarious means such In the US, the “No Labels” centrist government has missed the chance to between them own the majority of the for a new chair who has read the job
as espionage. But another, less fre- group has convinced themselves that expand the scope of the lobbying shares — discuss the matter with the description.
quently used meaning is just as impor- their most important competitors are register, which is currently blind to chair and the board. Tom Berger
tant: correctly identifying who your the daft ideas that can be found in both around 95 per cent of lobbying activity, Transparency is need to restore faith Instead the City minister, the London SW1, UK
rivals actually are. political parties. But while Democrats to capture the huge numbers presently in Britain’s political system chancellor and the prime minister all
That’s the act of corporate genius certainly have no shortage of eccentric exempt from signing. Instead, we have appear to have ignored the stewardship
that saw the marketing and creative beliefs, a victory for Joe Biden is been offered some tweaks, requiring role of UKGI. In doing so, they have Correction
teams behind Oppenheimer and Barbie extremely unlikely to prevent cen- government departments and civil Until we have a register that captures undermined the authority and
embrace the light-hearted meme trists from clawing back power at a servants to publish more information lobbying activity rather than who is leadership of UKGI. c Paramount Energy & Commodities
about these two divergent films shar- subsequent election. A victory for more regularly while obliging already- doing the lobbying, we will not have They have also shown contempt for SA’s subsidiary in the United Arab
ing a release date. Not only did it see Donald Trump just might. registered lobbyists to disclose more the transparency needed to restore the principles of good governance and Emirates was incorporated in 2020
more than 200,000 people in the US In the UK, Rishi Sunak seizes on details about clients. Root and branch public’s faith in the political system. stewardship on which a healthy market and was not created for the purpose
buy tickets for both films on the same whatever dividing line he can find reform is needed, but the government Alastair McCapra economy depends. of trading Russian oil at prices above
day, it also increased the amount of with Keir Starmer, including the lat- is instead pruning a few branches while Chief Executive, Chartered Institute of Mark Goyder $60 per barrel, as incorrectly stated in
free media that both received. ter’s willingness to build on the green- leaving the rotten oak untouched. Public Relations, London W3, UK Suffolk, UK a Lex note on July 6.
Although not much connects a bril- belt. But Sunak’s biggest enemy isn’t
liant, three-hour polemic about the Starmer: it’s the country’s sluggish
B
growth rates. Even if he is able to pull
off a remarkable turnaround in Tory
The idea that those you fortunes, he will do so at the cost of
further limiting his own ability to
O UTLO O K ig Ben’s clock tower is the
unrivalled showpiece of
over half a century old and its water,
electric, sewage and gas infrastructure
reform, yet neither the government nor
opposition dare pursue it. Ministers
superficially compete with deliver the policies he wants: such as Britain’s parliament. needs urgent replacement. Proposals admit privately that local government
teaching maths to 18, an admirable BRI TAI N Enveloped by ugly range from multibillion-pound options finance is convoluted and unfair, but
aren’t your biggest threat aim which cannot possibly be met scaffolding in recent years that involve moving MPs and peers off- memories of Thatcher’s poll tax
almost always holds true without finding some way to increase while it underwent an external site, to slower and even more expensive disaster discourage reform. Theresa
the amount of money in the education restoration project, Elizabeth Tower plans to do the work in stages so they May’s equally doomed plans to
nuclear bomb with a witty, self-refer-
ential comedy on a children’s doll, the
budget.
Sunak surely can’t do that without
MPs are stuck (renamed after the late queen) has
just reopened following internal
can remain in the building. Meg Hillier,
Labour chair of the public accounts
transform social care will also cast a
long shadow. Such issues tend to be
fact that mention of one has been
largely accompanied by mention of
the other has given them a greater
increasing sluggish growth, and part of
the solution there is to abandon the
dysfunctional planning regime. All too
as parliament renovation.
But its gleaming condition — with
regilded panels and a new coat of
committee, which scrutinises
government spending, laments that the
full upgrade has been repeatedly
shunted into what former Labour
home secretary Charles Clarke called
the “too difficult box” and shelved.
level of prominence. It’s part of why
the pair managed an opening weekend
often, the prime minister is a Lions-
gate Plus politician: what he does
crumbles Prussian blue paint on the clock dial
numerals — belies the sorry state of
deferred. “It’s what I call ‘slow politics’
— nobody thinks in the long term.”
The political system is beset by an
inertia-crisis paradox. Alice Lilly of
box office performance hitherto
reserved for the biggest of the Marvel
movies and other established film
makes sense as part of a contest with
his opposite number, but as an overall
strategy it has a hole in it.
around them the old Palace of Westminster. Even
newer parts of the estate are
crumbling: just last month, rainwater
A board of cross-party MPs and
peers, clerks and lay members is now
in charge of devising a new shortlist of
the Institute for Government points to
net zero ambitions — now being scaled
back by the government in the hope of
franchises. Most of us, of course, are not consid- deluged the covered courtyard of restoration options and parliament electoral gains — as another victim of
The studios’ coup lay in realising ering how to hold off Marine Le Pen Portcullis House, when a pane of will vote on the final proposal this this trend. “You get moments where
that, while plenty of people will see in France or protect the rules-based glass broke in the atrium’s roof. December. But the issue provokes there’s a bit of political will and
both films, they are not, in any mean- order in the US or boost the UK’s slug- Six incidents of falling stonework, conflicting and impassioned views. A momentum, but that can quickly slip
ingful sense, competing with one gish growth. But the “Barbenheimer 10 fires, and one incident of potential 2018 vote to move parliamentarians away because stasis is always easier
another. There are certainly lessons principle” — that you should remem- asbestos exposure have been recorded off the estate and get on with the job than major reform,” she says. When
here for film. An ill-conceived sense of ber that the people you superficially since 2020, while leaking pipes was scotched last year when the crises erupt, the response is “a knee-
who is and isn’t a rival, has seen many compete with aren’t the biggest threat regularly flood politicians’ offices. The Commons and Lords commissions jerk reaction, rather than longer term,
production companies set up their to you — holds true almost every- prospect of a blaze tearing through the swooped in to scrap the independent more strategic thinking”, Lilly adds.
own streaming services, spending vast where. estate remains a serious threat: body overseeing the project, accusing A sticking plaster approach to
sums on new content to attract sub- In our romantic lives, our rivals parliament’s archive, containing acts it of having acted “in haste”. complicated policies and floundering
scribers. Initiatives like Lionsgate Plus aren’t every attractive person our handwritten on 500-year-old vellum, In the meantime, doing nothing is organisations, such as the newly
or Disney’s decision to rush new partners might happen across in work is being rehoused in Kew. not cost neutral. The ad hoc patch-ups revamped Elizabeth Tower, may
releases from the cinema (a model or at play. It’s a general sense of drift or MPs, however, appear paralysed already cost the taxpayer £2mn a appear to mitigate economic and
with a clear path to profit) to stream- neglect. In our professional lives, we over how to manage the problem — as week. Politicians of all parties fear political costs but are in fact a false
ing (which is not yet proven) will aren’t really in direct competition with they are over so many policies making a multi-decade, multibillion economy. In the long term, the UK’s
surely endure as symbols of the our internal rivals. It’s our ability to requiring system overhaul or pound spending commitment at a time most difficult policy challenges face
excesses brought about by near-zero make more sales or more discoveries spending commitments that will when public finances are tight. Even if the same prognosis as parliament’s
interest rates. or more entertainment that drives outlast the current government. the Palace of Westminster is a Unesco renovation: the bigger the delay, the
But how much sense do they make how we do. All too often, we end up in Breaking political impasses over the world heritage site, releasing funds for more tricky and expensive reform
as commercial strategies? Ironically, pointless acts of intrigue against our NHS or university funding models, or their own workplace risks looking self- becomes. Even physical decay cannot
they fail to internalise the most impor- supposed “rivals” rather than working fundamentally rethinking the serving. There is similar timidity shake politicians out of their inertia.
tant lesson from Netflix, whose on the real obstacles to success. pensions system, seem impossible. elsewhere: England’s social care model
founder Reed Hastings once named by Lucy Fisher Much of the parliamentary estate is and planning system need wholesale lucy.fisher@ft.com
his major competitor as “sleep”. stephen.bush@ft.com
Tuesday 1 August 2023 ★ FINANCIAL TIMES 23
Opinion
The real scandal of central bank digital currency West must match
Russia and
ECONOMICS
the Bank of England in February, to
which the above-named petition is the
fear deposits might flee from commer-
cial banks to the safe haven of CBDC at
direct tax on citizens levied in propor-
tion to their cash holdings at a tax rate
held by banks (whose mystery name is
“reserves”).
China in dark
Andy
citizen response.
Eight years ago, before CBDC was
even an acronym, I wrote in a speech a
the first whiff of financial grapeshot.
Such concerns about financial stabil-
ity are not to be dismissed. They have
given by the interest rate. Most people
are blissfully unaware they are being
taxed in this way. The name of this tax —
For many decades, cash has been the
only form of money on which no inter-
est rate is paid, disadvantaging those
arts of grey zone
Haldane few (I thought uncontroversial) lines caused almost all CBDC designers — and seigniorage — adds to its mystery and who hold it. With the advent of CBDCs,
about the possibility of digital cash. Cue all commercial banks — to conclude that oddity. we could remunerate cash and level the
D
howls of derision. A former lecturer of it should pay no interest, since doing so The oddity does not end there. Sei- monetary playing field to the benefit of
mine wrote a paper entitled “Haldane would tend to add to the attraction, and gniorage is a stealth tax that is both large all citizens. Designers of CBDCs have Michael
riving down the M1 motor- Cashes Out on Cash”. A petition was increase the liquidity pressures on and highly regressive. Highly regressive foreclosed on this option, opting to con- Miklaucic
way in England recently, I mounted to stop me scrapping cash because cash is held disproportionately tinue levying a large, stealthy, regressive
was struck by a spray- (which I signed, in a failed attempt to by the poorest and least advantaged in tax on their citizens. They have done so
R
painted message across a
flyover: “Stop CBDC”. It was
lighten the mood).
If nothing else, these responses make
Designers of CBDCs have society. Large because, with a global
stock of physical currency estimated at
to protect banks and their own finance,
both of whom have long benefited from
the same message I’d seen earlier that clear that cash is much more than a pay- opted to continue levying around $8.3tn among the world’s big- this privilege. ussia’s unprovoked war
week on a placard opposite Downing ments technology. It is one of the purest a large, stealthy, regressive gest economies, and interest rates of say Cash is our money, not theirs. This against Ukraine grinds into
Street. These are not isolated views. and oldest forms of public good, a sym- 5 per cent, it amounts to a tax on global social choice is one that citizens should its 18th month. It is a war
Judging by a petition currently doing the bol of identity and sovereignty. Choices tax on their citizens citizens of over $400bn each year. be debating and deciding. At present, fought with blood and iron.
rounds, tens of thousands of people about this public good are, ultimately In a world where all cash was physical, we are doing neither. At the very point Shorn of the nuance or ambi-
across the UK have put their name to and rightly, ones for citizens rather than banks under duress. This design choice central banks and governments could we could be lowering the fiscal burden guity of the so-called grey zone, this is
stopping CBDC. For them, CBDC is a central bankers or cryptographers. They has largely gone unnoticed by the pub- legitimately argue that it was technolog- of a large and regressive stealth tax, gov- old-fashioned, heavy metal warfare.
scandal. are social, not technological, choices — lic. This is strange because paying no ically impossible to pay interest. Sei- ernments and central banks are instead Desperate to prevail, Russia has dangled
For the uninitiated, CBDC is central and sometimes emotional ones. interest on CBDCs has large and lasting gniorage was an unavoidable conse- choosing to reinforce and raise it. This is the threat of nuclear retaliation against
bank digital currency — a digital And the social issues raised by CBDCs implications for citizens, even though quence of providing the public good of a CBDC scandal, if not the one discussed any western-supported escalation. In
replacement for physical cash. At least are without question real. This includes they may not realise it. physical cash. With the advent of CBDC, by graffiti artists on motorway flyovers these circumstances one might ask if the
130 countries around the world are now concerns about the privacy of the cur- Cash is not just a payments medium; those arguments are now otiose. Inter- or indeed anyone else. grey zone remains a valid concept? Are
considering issuing digital cash to their rency and about retaining access to cash it is also a means of financing govern- est could easily and simply be paid on cyber attacks, disinformation and influ-
citizens. In the UK a consultation docu- for those who neither want nor can ments and central banks. Physical cash the CBDC held by citizens, just as it has The writer, an FT contributing editor, ence campaigns still relevant? The
ment was issued by the Treasury and access CBDC. There are also those who is an interest-free loan to government, a been for many decades on the CBDC is chief executive of the Royal Society of Arts answer is a resounding “Yes”.
Ukraine is but a single front in a larger
war on a global scale over what is and is
not permissible in international rela-
tions. While defending Ukraine’s sover-
eignty is vital, the war over the future
road is littered
think Russia has been weakened by this
war and is incapable of strategic sur-
prises. On the contrary, though its mili-
tary has performed dismally in Ukraine,
Russia maintains a robust capacity to
subvert our interests with a full range of
A
candidate, but its membership pros-
pects — never strong even when Brus- cannot win in Ukraine,
year ago, Ursula von der sels and Ankara enjoyed a more con- much less in the struggle
Leyen, the European Com- structive relationship than now — are
mission president, told remote in the extreme. The queue at the over the liberal global order
Ukraine’s parliament: EU’s door also includes Bosnia and
“There is a long road ahead Herzegovina, Georgia and Kosovo. Prague. He correctly pointed out that, as governance in Europe”. Expanding on Other candidate countries, admit- of “fishing” vessels to bully neighbours
but Europe will be at your side every This long line of potential entrants, enlargement proceeded, the risk would his implicit criticism of Scholz’s propos- tedly smaller than Ukraine, would also in the South China Sea, militarisation of
step of the way, for as long as it takes, which would expand the EU club from grow that one country could use its veto als, Morawiecki added: “In Europe, expect access to the EU’s largesse. Yet atolls in the South China Sea, Confucius
from these dark days of war until the 27 to 33 or even 37 countries, throws to block a common policy. If, however, nothing will safeguard the freedom of budgetary reform on the scale needed to Institutes at western universities and
moment you cross the door that leads light on a second obstacle to the bloc’s the EU decided to stick with majority nations, their culture, their social, eco- pay for enlargement would mean less foreign police outposts which monitor
into our European Union.” expansion. No matter how desirable as a voting, various groups of countries nomic, political and military security for many states in central and eastern expatriate Chinese. In 2021 China
She was right that Ukraine’s road to way of stabilising Europe’s eastern and might choose to move ahead on their better than nation states. Other systems Europe that have received tens of bil- imposed a trade embargo and other
the EU will be long. Just how long south-eastern neighbourhood, enlarge- own in different policy areas. are illusory or utopian.” lions of euros since joining the EU from sanctions on Lithuania in retaliation for
became apparent when Ukraine’s push ment will require far-reaching changes “It would be a confusing tangle — and It is ironic that Poland, a fervent sup- 2004 onwards. the opening of a Taiwan Representative
to join Nato, the western world’s other to the EU’s institutions, policies and an invitation to all those who want to bet porter of Ukraine’s EU entry, objects to Are political parties and voters ready Office in Vilnius.
premier institution, received the deli- financial arrangements for which nei- against a united geopolitical Europe and the kind of institutional reforms that for such concessions in the name of a The non-military means available to
cately worded response in July that the ther national governments nor elector- play us off against each other,” Scholz might make enlargement workable. But safer Europe? Let us not forget that advance a country’s strategic interests
alliance would issue an invitation when ates in most of the 27 member states observed. the irony does not end there. Like Bul- another obstacle in Ukraine’s path is have expanded in recent years. Our
“allies agree and conditions are met”. appear prepared. It is a strong argument but not every- garia, Hungary, Romania and Slovakia, Hungary’s allegation that western adversaries make effective use of them.
If anything, EU membership may With respect to institutions, it would one likes it. Mateusz Morawiecki, Poland wants the EU to extend curbs on Ukraine’s ethnic Hungarian minority Russian and Chinese information cam-
turn out to be even harder for Ukraine be difficult but not impossible to accom- Poland’s prime minister, told an audi- Ukrainian grain imports in order to pro- suffers mistreatment. paigns cast blame for the Ukraine war
to secure than Nato entry. In both cases, modate new members by reallocating ence at Germany’s University of Heidel- tect domestic farmers. The EU, anxious to reward Ukraine for on Nato expansion and the hegemonic
unanimous agreement among alliance seats in the European parliament, berg in March that the EU’s responses to This dispute suggests how hard it will its courageous resistance to Russian “west”. Ukraine’s friends may recognise
states is a prerequisite for expanding the reweighting votes in the European the debt crisis and pandemic each be for the EU to incorporate Ukraine, aggression, can and must press on with this as the lie it is, but it resonates in the
membership. As Sweden has discovered Council (in which national governments exposed “the limits of supranational one of the world’s largest agricultural enlargement. Ukraine and others global south and in enclaves of gullible
since applying to join Nato, this process meet) and redesigning the commission. producers but also one of Europe’s poor- should be given benefits, such as some opinion in Europe and the US.
is not necessarily smooth. Much more vexed is the question of est countries even before the war. With- access to EU funds and a voice in policy- Weapons, training and intelligence
But Ukraine’s EU bid raises an addi-
tional set of formidable challenges. In
whether, or how, to replace unanimity
in fields such as taxation and foreign
Enlargement will require out extensive reform of the EU’s Com-
mon Agricultural Policy and regional
making, even before gaining full mem-
bership. Even so, enlargement promises
provided to Ukraine are holding off a
Russian military victory but, on their
the first place, it is entangled with the policy with a system of majority voting. far-reaching changes to the aid schemes, Ukraine would have an to be the most difficult task in the EU’s own, will lead to a frozen conflict with
process, to which the EU is formally This is precisely what German chan- bloc’s institutions, policies enormous claim on the EU budget — almost 70-year history. Russia in indefinite possession of over 15
committed, of admitting at least five cellor Olaf Scholz proposed in a speech some 65 per cent of which goes to these per cent of Ukrainian territory. That
other countries: Albania, Moldova, last year at Charles University in and financial arrangements two spending programmes. tony.barber@ft.com would amount to a victory for Russia. It
already occupies 20 per cent of Georgia
and 12 per cent of Moldova, and is swal-
lowing Belarus into its “union state”.
Military support alone cannot pro-
AI entering the dating pool is a bleak prospect duce a Ukrainian victory, much less vic-
tory in the bigger struggle over the lib-
eral global order. If we wish to preserve
this order, we must master the dark arts
of the grey zone, using a full arsenal of
by nature a random affair. Artificial chat Tinder already uses AI to moderate common. Undeterred, online tech mag- dating app company Bumble, which sub-threshold tools based on the non-
TECHNOLOGY is at least a less sinister way to help that photos (a bid to keep the site respecta- azine Wired made the bold claim this listed on markets in 2021 at $43 per military elements of strategic power.
process along than asking users to swab ble). Now it wants to see if it can help year that AI would make dating more share, now trades at just over $18. The portrayal of Vladimir Putin as a
Elaine the insides of their mouth, as DNA-dat- with profile creations. Generative AI fun by serving up pithy icebreakers. It It’s not as if users of other forms of war criminal, and support for the Inter-
ing app Pheramor once did. But a prolif- could ease online dating “fatigue”, said claimed any opposition was the result of social media have shown much interest national Criminal Court’s arrest war-
Moore eration of AI-assisted conversations Match chief executive Bernard Kim in tedious cynicism. Yet even the pithiest in chatting with AI, either. After Snap- rant, show how the west can do this. As a
suggests that eventually dating apps will May. He argues that having an AI assist- of opening lines loses value once you chat added an AI chatbot called My AI, result of the ICC warrant, Putin was
T
simply be full of computers trying to ant at hand could help to tackle the know that it didn’t come from a real per- users were so cross that they posted forced to cancel a trip to South Africa’s
woo other computers. son. Journalist Nancy Jo Sales, who once multiple negative reviews on Apple’s meeting of the Brics countries. In July,
errible news from the world One start-up even offers the chance to wrote a book about her online dating App Store. “Either make your new AI only 17 African heads of state out of 54
of online dating. As if a
parade of dubious romantic
watch this exact premise unfold. Teaser
AI asks users questions about them-
Computer-enhanced exploits, points out that AI eliminates
the entire point of dating, which is sup-
experiment bearable to speak to, or
remove it from the top of my friends
attended Putin’s Russia-Africa summit,
as opposed to 43 that attended in 2019,
prospects and dead-end selves and their personalities and then seduction may turn out to posed to be about getting to know list,” wrote one. limiting his ability to exert influence. To
chats wasn’t bad enough, crafts AI-generated chat that is designed be no more sophisticated another person. Meta’s suggestion that AI personas exploit this success, western countries
artificial intelligence has dipped its toe to mimic them. When individuals There is also the possibility that the can help its users in messaging apps should continue to ostracise Putin and
into the dating pool. match, they can sit back and watch as than the human kind technology will supercharge the prob- WhatsApp and Messenger has also mobilise their full information fire-
Eleven years ago, Tinder helped to their chatbots try to chat each other up. lem of fake accounts. If real users are received little positive feedback. power to portray Putin as the criminal
turn dating into a series of quick-fire The companies behind the biggest scourge of modern dating that is ghost- adding AI-generated chat then bots will In the end, AI-enhanced seduction that he is.
interactions on the internet. But for dating apps are following these develop- ing — ie someone abruptly terminating become more difficult to identify. may turn out to be no more sophisticated The enduring relevance of the grey
some jaded users, even writing “Hi” to a ments with great interest. Bumble all contact without warning. This is something that dating apps than the human kind. The test will come zone should not be dismissed. On the
romantic prospect is now too much claims that AI is improving matches. But daters who need AI to remind and their users are both very sensitive when the conversation moves beyond contrary, it is there that victory will be
effort. Tech start-ups such as Rizz and Chief executive Whitney Wolfe Herd them to end a conversation may not about. Putting off users is a gamble that the app. In the real world, it will quickly won in Ukraine and in the wider conflict
YourMove AI are gaining a foothold in has also said that AI might be used to bother to take the advice. Plus, already these apps cannot afford to take. The become apparent who was blessed with over the future global order.
the sector by offering AI assistance in simplify the process of creating an fragile ties between strangers will frac- number of paying users at Tinder have genuine charm and who was flirting
creating witty opening lines and appeal- online dating profile, helping people to ture further if one or both suspect that flatlined. Parent company Match with a little help from AI all along. The writer is a senior fellow at National
ing profiles. become more confident. Match, which they are not engaging with a real person. Group’s share price has fallen by more Defense University and the editor-in-chief
Meeting strangers on the internet is owns Tinder and OkCupid, notes that Ghosting would become even more than a third in the past 12 months. Rival elaine.moore@ft.com of the PRISM journal
24 ★ FINANCIAL TIMES Tuesday 1 August 2023
Twitter: @FTLex Bank of Ireland net interest income progression Bank of Ireland deposits
€bn
Loans & advances to customers (gross interest, €mn) Insured Uninsured
Liquid assets (gross interest, €mn)
Carbon capture: Those also need to conclude swiftly to
persuade investors to back transport
Deposits and other liabilities (gross interest, €mn) 2,500 Personal
deposits
Johnson & Johnson:
injection election and storage schemes. Planning 2,000 Non-personal
dry powder
permission must be secured too. deposits
Will it be a case of third time’s a charm CCS is finally gaining momentum in 0 10 20 30 40 50 60 Johnson & Johnson is a very valuable
for carbon capture and storage in the the UK but many hurdles remain. 1,500 Source: company company, notwithstanding its efforts to
UK? Rishi Sunak has now identified Net interest income (€mn) convince US federal judges of the
four CCS projects he hopes will be built
Irish banks made big gains last year contrary. Late on Friday, a New Jersey
1,000 Share prices (rebased)
this decade. This will bolster investor
confidence in a fledgling industry that
Legal services: Bank of Ireland AIB Stoxx Europe 600
bankruptcy court ruled that the big
pharma company could not pursue a
has suffered many false starts over the laying down the law 500 250
200
bankruptcy deal with tens of
past 16 years. Previous administrations thousands of consumers who claim its
150
cancelled CCS funding competitions in In most walks of life, take-home pay of 0 talcum powder caused serious illness.
100
2015 and 2011. some £2mn would be hailed as an The court said a financially
Energy groups, including Harbour unequivocal success. Not so amid the 50 engineered J&J subsidiary — created
-500 0
Energy, Shell and BP, have interests in UK’s “magic circle” law firms. Clifford Jul Jan Apr Jul Oct Jan Apr Jul through the so-called Texas two-step
the two projects named by the prime Chance, Allen & Overy and Linklaters H2 2021 H1 2022 H2 2022 H1 2023 2021 2022 2023 process — was “not sufficiently
minister yesterday. These were the and Freshfields have reported stalling Source: company Source: Refinitiv financially distressed to avail itself of
Acorn scheme in Scotland, led by or declining profits per partner. Gazing bankruptcy”. Yesterday, J&J shares fell
Macquarie-backed Storegga, and the into a crystal ball offers little in the way Higher interest rates and reduced Yet there are concerns that Bank of with the ECB, with the bulk earning about 4 per cent, or $17bn of value, on
Harbour Energy-led Viking scheme in of relief. competition are a potent mix in the Ireland’s reliance on a glut of deposits the 3.75 per cent ECB deposit rate. fears litigation could go on for years.
England’s Humber region. The UK The problem, for the UK’s elite law banking sector. Witness the tripling puts peak profits within sight. Interest on these liquid assets, Alleged victims now will have to rely
picked two other projects, in England’s firms, is that they have been forced to of the Bank of Ireland’s pre-tax It had €100bn of these at the end of which also include bond holdings, on the broader US court system to
north-west and north-east, in 2021. jack up salaries and offer perks to stop profits in the first half, when returns June, with €60bn in current accounts totalled €648mn in the first half, potentially get settlements. The
Jefferies estimates that globally CCS ambitious US competitors from on tangible equity hit 18.5 per cent. earning zero interest. The withdrawal from €210mn in the second half of bankruptcy court acknowledged this
could develop into a $600bn ebitda poaching their staff. That has loaded There are few signs of weakness in of two banks from the Irish market has last year. Strip out this effect and net process was slow and perhaps more
industry if net zero goals are achieved. up their cost base, just as they headed the loan book, with earnings allowed remaining lenders merely to interest income is in essence flat over inefficient than a single global deal
For oil and gas companies, repurposing into a dealmaking slump. supported by a strong economy and pass on an estimated 5 per cent of one year. As the ECB ramps up its struck in bankruptcy. Big companies,
pipelines and depleted reservoirs to To be fair, elite law firms do not just favourable demographic trends. interest rate rises to savers so far. inflation fight it has already tweaked including the likes of 3M, have tried to
transport and store CO₂ emitted by work on M&A transactions. They try to Why, then, are its shares trading Contrast that with the UK’s NatWest, what it pays banks on minimum use US bankruptcy law as a way to
power plants and heavy industry is be a one-stop shop for their clients’ below their March peak? which closed its Irish banking reserves. Further tightening is quickly resolve so-called mass torts.
attractive. But more transparency is legal needs. But advising on successful While the market forgives, it rarely businesses last year. Its deposit beta — possible. The Friday bankruptcy dismissal
needed on financing models and transactions is more profitable than forgets. Bank investors remain a the proportion of market rate changes Some investors will favour Bank of was a second attempt by the J&J
capital costs first. most work. The $90mn that Wachtell, cautious clique following US regional passed on to customers — was 75 per Ireland because it is expected to subsidiary known as LTL to satisfy the
CCS is yet to play a significant role in Lipton, Rosen and Katz charged bank blow-ups and Credit Suisse’s cent in the second quarter. distribute about 10 per cent of the courts bankruptcy was appropriate. A
the equity story of oil and gas groups Twitter, which is now being contested failure earlier this year. Ireland has One potential risk to Bank of market value in dividends and previous 2023 ruling had said that LTL
such as Harbour, even though it has by Elon Musk, is a case in point. made huge progress dealing with bad Ireland’s earnings from deposits lies buybacks. Risks, though, are now was insufficiently financially distressed
interests in both the Acorn and Viking The cyclical dearth of transactions debts and tightening lending with the European Central Bank. Some weighted to the downside. That to belong in bankruptcy court because
schemes. Investors await more clarity helps explain the squeeze on pre-tax standards since the financial crisis. €30bn of its excess liquidity is stashed makes shareholders reluctant to bite. it had secured funding from its parent
on revenue streams. profits, which fell marginally at J&J and had its own assets.
The attractiveness of CCS for Linklaters, A&O and Clifford Chance. With some more asset shuffling,
investors will depend on allowed But the bigger issue, for the UK’s magic along with a raised $8.9bn settlement
returns under a regulated asset base circle, is that US behemoths such as of cost inflation at UK law firms — share price to a record high. So far, opt to pay for Copilot, Mizuho offer and agreements with thousands
financing model. The RAB model is Kirkland & Ellis or Skadden Arps are keeping profits under pressure even however, the sharp rise in share prices estimates an annual $9bn revenue rise, of victims, J&J tried again. But the
used to finance UK infrastructure such stealing their lunch. when boom times return. has not corresponded with a jump in equal to an extra 3 per cent. court said that, even this time, LTL had
as energy networks and airport Top US firms are structurally more AI-driven sales and profits. This sort of increase is welcome, if far too much in the bank for a
terminals, and is well understood. profitable. They make pots of money For software companies adding AI not transformative. Microsoft’s new bankruptcy filing. It had access to
Nevertheless, CCS is uncharted
territory. Formal negotiations with UK
on their home turf — the world’s largest
capital market and a litigious one to
AI: capabilities, there are two options:
employ a freemium model and price
Office software with AI features gives
users the chance to create PowerPoint
perhaps $30bn in resources.
J&J and other big companies say they
officials are yet to commence. boot. On top of that, they get to tag pricing SaaS services services at low rates to encourage high presentations more easily and parse are not trying to shirk responsibilities.
Capital costs are also murky. The along when key corporate or private take-up, or charge premium rates that documents quickly. The challenge is The particular powers of the
overall cost of the Viking project is equity clients snap up European Forecasts for generative artificial reflect the costs. AI hype suggests the convincing customers that AI is not just bankruptcy court make for a cleaner
estimated at £7bn but that includes companies. In a UK ranking of revenue intelligence disruption are hampered first strategy is unnecessary. But how a productivity enhancement but an resolution for all sides, they argue.
sums expected to be invested by per lawyer, US firms occupy the first by the lack of clarity around pricing. AI should premium rates be fixed? essential service. US courts are not impressed with
emitters. Harbour and its junior five spots, according to Law.com’s excitement has lifted software-as-a- GitHub priced its AI Copilot services If companies succeed in doing that, their arguments. But when ad hoc
partner in Viking, BP, are yet to recent international ranking. service stocks from last year’s slump. at $19 a month per person for there is one further danger to consider: litigation proves to be disappointing,
disclose the costs of the CO₂ transport That means they can afford to pay But how can AI be a multitrillion-dollar businesses. Microsoft went further, AI services require high compute costs US jurisprudence will probably need to
and storage, although they are likely to people more. At top US firms, partners market if customers pay little to access opting to charge an extra $30 a person and are expensive to provide. Raising be reformed.
be a minority share of the overall sum. often take home more than twice what AI-enhanced services? per month. This means the premium per person subscription rates means
Companies such as Essar are in talks magic circle partners make. Starting When Salesforce launched AI Cloud service is twice as expensive as the higher recurring revenue. But if Lex on the web
with UK officials over separate funding salaries, too, used to be much higher — in June, it did not raise rates. Box does cheapest version of Microsoft 365. It is customers use AI tools more than For notes on today’s stories
models that will incentivise them to although the UK has recently had to not charge for AI services. Microsoft’s a fair starting point. If a fifth of expected, then charging a flat rate will go to www.ft.com/lex
invest in technologies to capture CO₂. catch up. That is going to stoke the fire bet on start-up OpenAI has lifted its Microsoft’s Office 356 enterprise users weigh on future margins.
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