THURSDAY 25 MAY 2023
00
Peril of having Musk behind the AI wheel
EDWARD LUCE, PAGE 15
Fair deal
Ageing crisis
tests Beijing
Pensioners play cards in Rudong, in
China’s Jiangsu province, last month.
Rudong was so populous in the 1960s
that it was chosen to pilot China’s one-
child policy. Nearly 60 years later, a new
housing development in the city is offer-
ing discounts to families with two chil-
dren, while a local primary school has
been turned into an old-people’s home.
Amid fears that Rudong may one day
become a ghost city, the county in which
it is based is now China’s oldest, with
nearly 39 per cent of its population over
60: more than double the national fig-
ure of 18.7 per cent. As a result, cotton
and rice farms struggle to find workers,
while the elderly population subsists on
meagre pensions.
To offset this ageing crisis, Beijing
needs to encourage people to work
beyond the retirement age of 50 for
women and 60 for men, observers say.
China’s population woes page 4
EU looks to tap profits from €196bn of
frozen Russian assets to assist Ukraine
3 West seeks to ratchet up pressure 3 Sanctions lock payments at Euroclear 3 Dividends generate cash
LAURA DUBOIS — BRUSSELS
PHILIP STAFFORD — LONDON
The EU is discussing sending Ukraine
the profits generated by billions of euros
of Russian assets stuck inside the
plumbing of global financial markets.
Officials from member states and the
European Commission met yesterday to
explore options to siphon off the inter-
est generated by Russian assets held at
Euroclear, the world’s biggest settle-
ment house, according to people famil-
iar with the matter.
Such a move would stop short of
expropriating the assets themselves but
would still amount to an escalation in
the west’s financial pressure on Russia,
with the aim of helping Kyiv defend
itself from Vladimir Putin’s war.
Sanctions have frozen €196.6bn in
Spanish voters go to polls
muddled by ‘strange crisis’
Pedro Sánchez has made Spain’s
strong jobs market a central part of his
pitch as his ruling Socialists fight this
weekend’s local elections. He presents
himself as a compassionate economic
prime minister but the combination of
rising prices and high employment has
put Spain in uncharted territory as the
opposition People’s party challenges.
One politics professor says: ‘Spain has
never had such a strange crisis. Voters
don’t know whether to be angry or not.’
Analysis i PAGE 3
Subscribe In print and online
www.ft.com/subsusa
Russian assets at Euroclear, according
to the Belgian government, of which
€180bn are Russian central bank assets.
The assets are generating cash from
coupons and dividend payments, which
has been stuck for up to a year. That
cash is reinvested by Euroclear and it is
the profits generated by the reinvest-
ment that EU officials are interested in
diverting to Ukraine.
As a standard practice, Euroclear
lends out its clients’ cash balances to
Siphoning off interest for
Kyiv’s benefit is ‘uncharted
territory . . . but we
believe it could be done’
Paris Olympics organisers defend high
ticket prices for ‘the people’s Games’
SARAH WHITE — PARIS
Organisers of the Paris 2024 Olympic
Games have hit back at criticism over
high prices ahead of the next release of
tickets to the public, saying the charges
were necessary to balance the budget.
Disappointment over access to tickets
has deepened in France in recent weeks
after two rounds of sales, during which a
highly publicised release of nearly 1mn
tickets at €24 each ran out quickly, yet
seats at many flagship events such as
gymnastics ran into hundreds of euros.
Some French athletes also criticised
the prices, in the first significant signs of
a public backlash almost a year from the
opening ceremony at the end of July.
Ministers and organisers have said
that several million tickets had been
available for less than €50 but these
were sold quickly, while prices for pre-
STOCK MARKETS
minimise credit risk and retains the
interest earned. High interest rates,
together with the unusual accumulation
of payments owing to the sanctions,
have led to bumper profits. In the first
quarter of this year, Euroclear reported
€734mn of interest on cash balances
from Russia’s sanctions-hit assets.
“It’s not entirely clear who this inter-
est belongs to,” one person familiar with
the discussions said. Tapping into the
interest for the benefit of Ukraine was
“uncharted territory”, the person said,
“but we believe that it could be done”.
Some officials believe this principle
could be applied to a broader range of
frozen Russian assets, including those
stuck at Luxembourg’s Clearstream.
Another person familiar with the situ-
ation said “financial institutions don’t
mium seats were not out of scale with
ticket prices at the 2012 London Olym-
pics. They were needed to finance the
event and subsidise cheaper places.
“For sure there’s some frustra-
tion . . . we knew from the outset we
would not be able to respond to
demand,” Tony Estanguet, head of the
organising committee, said. The three-
times Olympic champion and slalom
canoeist added that public perception
over prices did not reflect that only 5 per
cent of tickets were more than €400.
“It does not provide an answer to the
thousands of people who would have
wanted more affordable tickets, but not
everyone can have access to all catego-
ries in all sporting events,” he said.
Organisers said they had already sold
5.2mn tickets out of the 8mn open to the
public, despite criticism over prices.
The remainder will be released over the
World Markets
CURRENCIES
How long will the new gold run last?
BIG READ, PAGE 13
know what to do with this money” and
the option of diverting profits to aid
Ukraine seemed promising.
The commission said it had been
“exploring ways of using Russian frozen
and immobilised assets” to “ensure that
Russia pays for the damages caused in
Ukraine”. It said discussions were con-
tinuing with international partners but
were “both legally and technically com-
plex”. Euroclear declined to comment.
Several people cautioned that the
legal implications still needed to be
reviewed, and such a move was likely to
need broader international backing as it
could affect financial markets. Euro-
clear held €35.6tn of securities in 2022.
The EU is also considering actively
managing the profits to generate more
money, the people said. This could be
next few months, Estanguet said, with-
out changes to the pricing plans.
Sports minister Amélie Oudéa-
Castéra also defended the prices, saying
on Sunday that France had sought to
avoid “a Games tax” and that the event
had to be as self-sufficient as possible.
Part of the outcry over tickets stems
from the organisers’ attempt to bill
2024 as “the people’s Games”, with a
focus on accessibility to all.
The budget for the 2024 Games was
increased last year by 10 per cent to
€4.4bn. Just over a third is expected to
come from ticket sales and hospitality,
slightly higher than the London Olym-
pics. The rest is roughly split between
funding from the International Olympic
Committee and sponsors.
Overall, the event will cost just less
than €9bn, including the construction
of buildings such as the Olympic Village.
GOVERNMENT BONDS
USA $2.50 Canada C$3.
FT commission
done through an asset management
vehicle, or through Euroclear itself.
However, that move could have legal
implications for an institution that usu-
ally acts as a custodian. One person said
there needed to be a balance between
“protecting the role of Euroclear” and
“siphoning off money to Ukraine”.
Euroclear is facing lawsuits from
counterparties in Russia to force the
company to hand over the payments.
The settlement house said in March
that it would not distribute “any profits
related to the Russian sanctions until
the situation becomes clearer”.
The Belgian government has said sep-
arately that it aims to use the tax income
from the profits generated by the frozen
assets at Euroclear to help Ukraine.
Russia says militias ‘liquidated’ page 2
Briefing
i Citigroup ends Banamex
sale and opts for flotation
The US lender has said it will spin
off its Mexican retail bank, which
has 38,000 employees, via an
IPO, abandoning a plan hatched
last year to sell the unit.— PAGE 5
i Debt ceiling gaps persist
House Speaker Kevin McCarthy
has warned that the sides are “still
far apart” on a number of issues
amid White House negotiations
over the US debt ceiling.— PAGE 2
i PwC tax crisis escalates
Australia’s government has
referred the spiralling PwC tax
leaks scandal to country’s federal
police, asking it to consider
opening a criminal probe.— PAGE 5
i Netanyahu passes budget
Israel’s PM has managed to pass a
two-year $269bn spending
package after overcoming rifts
within his coalition of far-right
and religious parties.— PAGE 4
i Siemens focuses on China
The head of Siemens has vowed
to expand its share in China,
arguing that the market is crucial
to innovation and growth at the
German industrial group.— PAGE 6
i Company dividends soar
Dividends issued by the world’s
1,200 biggest groups hit a record
$326.7bn in the first quarter of
2023, a rise of 12 per cent on the
same period a year ago.— PAGE 8
Datawatch
Belief in Fed wanes
% of Americans reporting confidence
in the US central bank’s chair
Alan Ben Janet Jay
Greenspan Bernanke Yellen Powell
80
60
40
20
0
2000 05 10 15 20 23
Source: Gallup
Only 36 per cent of Americans say they
have either a great deal or a fair amount
of confidence that Jay Powell, the Federal
Reserve chair, will do the right thing
for the US economy — the lowest level
of confidence for more than 20 years.
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2 ★ FINANCIAL TIMES Thursday 25 May 2023

INTERNATIONAL

Ukraine war Default fears

Russia claims pro-Kyiv militias ‘liquidated’
Incursion on its territory
embarrasses Kremlin and
raises border concerns
MAX SEDDON — RIGA
Russia has claimed its army “fully liqui-
dated” pro-Ukrainian militias who
made a two-day incursion on its terri-
tory, an embarrassing episode that
points to broader failures more than a
year into President Vladimir Putin’s
invasion.
The apparent ease with which two
Ukraine-based groups of far-right Rus-
sian nationals penetrated Russia’s bor-
der and temporarily “liberated” a vil-
lage raised rare public criticism from
local authorities, prompting the Krem-
lin to play down concerns. Russia had
“blocked off and routed the nationalist
groups, [then] beat [them] back into
Ukrainian territory”, said Sergei Shoigu,
Russia’s defence minister, in a public
broadcast yesterday, adding that “more
than 70 Ukrainian terrorists have been
destroyed”. He vowed that Moscow
would “react in a timely and extremely
vicious fashion to similar acts by
Ukrainian fighters in the future”.
A Ukrainian military intelligence offi-
cial on Tuesday admitted co-operating
with the groups behind the raid, the
Russian Volunteer Corps and Free Rus-
sian Legion, which have taken responsi-
bility for the Belgorod incursion and a
string of similar incidents this spring.
Ukraine has hailed the attacks as evi-
dence of both an anti-Putin uprising
Eurozone. Manufacturing
among Russian nationals and Moscow’s
weak control of border regions.
The Russian army has been keen to
play down the apparent shortcomings
the attacks exposed.
On Tuesday, bloggers close to the
Moscow vowed to ‘react in
a timely and extremely
vicious fashion to similar
acts by Ukrainian fighters’
defence ministry released two videos
showing Alexander Lapin, a senior Rus-
sian general and head of the army’s
ground forces, urging a small group of
soldiers: “Forward, lads, for the mother-
land!” down a bucolic village street as
part of what they said was the fightback
against the militias.
But no signs of fighting were audible
or visible in the clips, which were filmed
5km away from where the fighting took
place, according to Russian independ-
ent news outlet Agentstvo.
The defence ministry also came in for
rare criticism from Viacheslav Gladkov,
the governor of Belgorod, in a late-night
webcast after a local resident com-
plained the border was “full of holes”.
Gladkov told the resident he agreed
and that he had “even more questions
for the defence ministry than you do”.
“We need to draw conclusions from the
mistakes that were made,” he added.
Asked about Gladkov’s comments,
Dmitry Peskov, Putin’s spokesman, said
the war with Ukraine required “very dif-
ficult and tense work” that “constantly
creates questions that are asked and
answered”.
The regional governor’s voice added
to growing criticism of the Russian
defence ministry by hardliners grouped
around Yevgeny Prigozhin, founder of
the Wagner paramilitary group.
Russia’s forces are on the verge of cap-
turing the eastern Ukrainian city of
Bakhmut — a symbolic triumph after
the army failed to make significant
advances since early last summer.
But the huge losses of men and mater-
iel the invading forces have sustained in
Bakhmut, coupled with a failure to
make progress elsewhere on the front
lines, have raised fears Russia could find
itself on the back foot after a much-an-
ticipated Ukrainian counter-offensive.
McCarthy
warns gaps in
debt ceiling
deal linger as
talks resume
LAUREN FEDOR, JAMES POLITI AND
COLBY SMITH — WASHINGTON
KATE DUGUID — NEW YORK
Republican negotiators will return to
the White House to “try to finish the
negotiations” on the debt ceiling, Kevin
McCarthy said yesterday, although he
warned the sides were “still far apart”
on a number of issues.
The Speaker of the House’s remarks on
Capitol Hill came with just over a week
to go until a key June 1 deadline. Janet
Yellen, the US Treasury secretary, has
repeatedly warned lawmakers that if
Congress does not raise the debt ceiling
in a matter of days, the federal govern-
ment risks defaulting on its obligations

Germany unnerved by plunge in exports to China
Big drop highlights unique set
of challenges for Europe’s
industrial powerhouse
MARTIN ARNOLD AND PATRICIA NILSSON
FRANKFURT
A double-digit drop in German exports
to China has rattled Europe’s biggest
economy, triggering debate over why its
vast manufacturing sector has fallen
behind rivals benefiting from a rebound
in Chinese demand.
The 11.3 per cent drop in Germany’s
China exports in the first four months of
the year on the same period a year ago
highlights a unique set of challenges for
Europe’s industrial powerhouse, econo-
mists say. Carmakers are losing market
share in China, chemical producers and
other energy-intensive companies are
hit by high power prices, and the euro’s
appreciation against the dollar has
made German goods less competitive.
Carsten Brzeski, global head of macro
research at Dutch bank ING, said Ger-
man exporters also felt they were prey
to mounting security and trade tensions
between Beijing and Washington.
“Germany is now considered to be
allies with the US, which has led to more
explicit or implicit discouraging of pur-
chases of German products,” he said.
Several big German companies with
businesses in China reported big falls in
first-quarter sales there, including
chemicals group BASF, Volkswagen and
car parts producer Bosch.
Declining exports to China are among
a number of indicators that Germany’s
manufacturing sector is suffering from a
sharp fall at the start of this year, includ-
ing lower factory output, plunging
demand and slowing backlog of orders.
Germany seems to be an outlier
among European countries, most of
which have had higher shipments to
China this year, suggesting German
exporters are losing market share in
their second-biggest market outside
Europe. Exports from the 27 EU mem-
bers to China rose 2.9 per cent year on
year in the first quarter, found Eurostat.
The decline means China accounted
for only 6 per cent of Germany’s total
exports in the first three months of this
year, the lowest share since 2016 and
down from more than 7 per cent in the
same period of each of the past four
Assembly line: years, the federal statistical agency said.
electric vehicles This runs counter to earlier expecta-
being produced tions that Germany’s vast manufactur-
at Volkswagen’s ing sector would benefit from a boost in
Zwickau plant Chinese demand after Beijing’s zero-
in Germany. VW Covid policy was lifted late last year and
says deliveries supply chain bottlenecks eased.
to China fell “It is mainly services that rebounded,
15% in the but not yet manufacturing,” said Brze-
first quarter ski, adding that carmakers had been hit
Jens Schlueter/Getty Images by a lack of smaller electric vehicles and
the Chinese trend of buying from
domestic carmakers. Motor vehicles
and parts made up more 15 per cent of
total German exports last year, he said.
European gas prices have fallen from
last year’s peak, but remain higher than
in earlier years, putting energy-inten-
sive companies at a disadvantage.
“Chemicals output is down sharply
due to the energy crisis,” said Oliver
Rakau, chief German economist at
research group Oxford Economics.
“There has been a permanent hit to
competitiveness.”
Berlin has drawn up plans to subsidise
80 per cent of electricity costs for
energy-intensive companies.
German exporters to China have had a tough start to the year
€mn
German exports to China
Monthly average since 2019
2019 20
Germany has lost market share in China among EU exporters
German share of total EU exports to China in Q1* (%)
2015 16 17
* Figures are only for the first three months of each year. EU figures exclude Hong Kong
Sources: Federal statistical agency (Destatis); Eurostat
German exporters, which account for ‘We have
more than a quarter of all EU exports
outside the bloc, have also been ham- continued
pered by the recent appreciation of the to feel the
euro from below parity with the dollar
late last year to trade between $1.07 and economic
$1.10 in recent weeks. effects
Manufacturing activity fell to a six-
month low in Germany this month, S&P of the
Global’s survey of purchasing managers restrictions
reported on Tuesday. Cyrus de la Rubia,
chief economist at Hamburg Commer- imposed in
cial Bank, said the survey found foreign response
demand for German-made goods had
“virtually collapsed”. The BDI, Ger- to the
many’s main business confederation, is pandemic’
watching the decline in exports and is
hoping it is a blip that will ease once Chi- Bosch
nese construction activity rebounds.
BASF, which has been downsizing in
Germany while building a €10bn plant
in China, reported sales of €2.3bn there
in the first quarter of this year, a 29 per
cent drop on the previous year’s period.
The group blamed decreased demand,
which had also led to lower prices.
Volkswagen, which sells more cars in
China than any other carmaker, said
11
10
9 this month, the Treasury department
8 the highest yield ever to entice buyers.
7 market. Stocks have dropped this week,
6 tech-heavy Nasdaq Composite both
21 22 23
60
40
20
0 and in financial markets over whether
18 19 20 21 22 23
deliveries had dropped 15 per cent in the
first quarter after a surge in sales at the
end of 2022, when Chinese buyers took
advantage of EV subsidies as well as a
combustion vehicle tax exemption that
ended in December. VW makes most of
its cars it sells in China in the country.
Bosch also reported a decrease in Chi-
nese demand, pushing first-quarter
Asia Pacific sales down 9.3 per cent.
“During the first two months of 2023,
we have continued to feel the economic
effects of the restrictions imposed in
response to the pandemic,” Bosch said.
After German industrial production
suffered its biggest drop for 12 months
in March, falling 3.4 per cent from Feb-
ruary, some economists expect the fed-
eral statistical agency today to revise its
initial estimate of first-quarter gross
domestic product from zero growth to a
contraction. A second consecutive quar-
terly decline in GDP, after a 0.4 per cent
drop in the 2022 final quarter, would
mark a technical recession. The IMF has
forecast Germany to be the weakest per-
former among big economies this year,
with output set to shrink 0.1 per cent.
in early June, and as soon as June 1.
Yellen reiterated her forecast yester-
day. Speaking at an event with the Wall
Street Journal, she said uncertainty over
the debt ceiling was already causing
“some stress in financial markets”, add-
ing that Treasury bills coming due in
early to mid June were “trading at . . .
significantly higher rates”.
Investors have been avoiding bonds
maturing in early June, driving the price
of those securities much lower. Early
was forced to auction four-week bills at
The stress is not limited to the debt
with the blue-chip S&P 500 and the
down nearly 2 per cent. “I think that
should be a reminder of the importance
of reaching a timely agreement,” Yellen
said, warning there could be “substan-
tial financial market distress” even in
the run-up to an eventual agreement.
McCarthy and Joe Biden met on Mon-
day for talks the leaders described as
“productive”, after the US president cut
an overseas trip to the G7 meetings short
to be in Washington for the debt talks.
But the apparent impasse in the days
since has stoked concern in Washington
the sides can reach a deal in time to
avert an unprecedented default that
economists warn would wreak havoc on
the global economy.
Any deal struck between the White
House and congressional Republicans
will need to be approved by the majori-
ties in both the House of Representa-
tives, which Republicans control by a
narrow margin, and the Senate, which
Democrats control by a similarly slim
amount. Both Biden and McCarthy are
under increasing pressure from the left
and right flanks of their parties, respec-
tively, to reject calls for compromise.
Even so, McCarthy insisted yesterday
that a deal was possible, and that he
could be able to shepherd it through the
lower chamber of Congress.
“I think we can make progress today. I
am hoping we can make progress.”
The most hawkish members of McCa-
rthy’s conference have dismissed fears
of a default and suggested the Treasury
can simply prioritise debt payments.
But Yellen dismissed those claims yes-
terday: “Our payment systems have
been constructed in order to pay our
bills, not to decide which bills to pay and
which bills not to pay. Generally, priori-
tisation is not really something that’s
operationally feasible, so there will be
some difficult choices to make.”

UK bond market

Gilt yields soar near mini-Budget level as inflation disappoints

MAKE A WISE CHRIS GILES AND MARY MCDOUGALL was so great that the BoE would be jumped to 6.8 per cent, up from 6.2 per lessons to learn” on the management of
INVESTMENT LONDON
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Gilt yields yesterday hit levels not seen sively beyond their current level of 4.5 Food price inflation remained close to would raise interest rates again if infla-
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hoped. Traders in forward markets are bet- by the year’s end — a key target of Prime tion data for last month was likely to
ting that rates will peak at about 5.3 per Minister Rishi Sunak — BoE governor prompt the central bank’s Monetary
FINANCIAL TIMES Good Friday, Independence Day, Thanksgiving, the Market expectations of further interest cent by the end of the year. Andrew Bailey gave no such assurance. Policy Committee to act again. There
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Thursday 25 May 2023 ★ FINANCIAL TIMES 3

INTERNATIONAL

Spanish voters face ‘strange crisis’ of

Spain

Football’s
La Liga wants
high employment and rising prices changes to law
after racism
Government squares off with opposition over economy before Sunday’s regional and local polls
backlash
JOSH NOBLE — BARCELONA
MICHAEL POOLER — SÃO PAULO

Spain’s football league has demanded

BARNEY JOPSON — VALENCIA
High up in a Valencia church tower,
Tristán Tomás Carrein is sealing cracks
and doing his bit — along with tens of
thousands of others — to keep the con-
struction sector thriving.
Building firms in the coastal region
are employing more people than at any
time since the boom that ended in 2007,
helping to make Spain’s labour market
the strongest in 15 years ahead of local
and regional elections on Sunday.
Carrein, a former carpenter, teacher
and car factory supervisor, appreciates
the security of a two-year project.
“I’ve always been chasing the stability
that nobody ever gave me,” he said. Yet
his net pay of €1,500 a month is stag-
nant while prices are rising: “We get the
same money here today that I remem-
ber my mother getting 25 years ago.”
In a bellwether region where prime
minister Pedro Sánchez’s Socialists have
held power since 2015, such mixed feel-
ings create potential openings for both
the ruling party and rightwing opposi-
tion as they vie for votes. Sánchez has
made the buoyant jobs market a central
part of his pitch. The Socialist leader —
who has piloted and polarised Spain
through Covid-19 and the Ukraine war
— presents himself as a compassionate
economic steward who has steered the
country to a better place than its neigh-
bours.
He would like to run with the same
message in a general election due in
December. But as inflation persists, the
combination of high prices and high
employment puts Spain in uncharted
territory, says Pablo Simón, a professor
of politics at Madrid’s Carlos III
University.
“Spain has never had such a strange
crisis. Voters don’t know whether to be
angry or not,” he said.
Polls show that Sánchez already faces
an uphill struggle to prevent big gains at
the weekend by the opposition People’s
party, an increasingly bellicose right-
wing force. By the end of the year he
could be fighting for his political life.
Portraying Sánchez as unscrupulous
and untrustworthy, People’s party
leader Alberto Núñez Feijóo is seeking
to capitalise on discontent over the
prime minister’s political deals with the
radical leftist Podemos party, Catalan
separatists, and a Basque party led by an
ex-member of the disbanded terrorist
group Eta. Spain, Feijóo claims, is “tired
of Sanchismo”.
Sánchez prefers to talk about the
strong economy and ridicule Feijóo for
“predicting apocalypses that never
come”.
One of the prime minister’s first
achievements was to use a furlough pro-
gramme to prevent mass lay-offs during
the pandemic. He has ratcheted up the
minimum wage several times, and
together with his controversial parlia-
mentary allies, he reformed labour law
to put more people on permanent con-
tracts rather than precarious short-
term ones. They also imposed new caps
on rent rises and conjured up an infla-
tion-linked 8.5 per cent boost to public
pensions this year.
“It’s taken the sting out of prices going
up,” said Miguel Belda, a retired teacher
who plans to vote for the Socialists.
Corporate leaders in Madrid, who
have little affection for the prime minis-
ter, concede that the economy has done
better than expected. “The unknown is
how much voters value good manage-
Price pressures: ment,” said one person close to Sánchez.
shoppers buy But there are holes in the prime min-
meat at ister’s narrative too.
Valencia’s Although Spain’s 3.8 per cent eco-
central food nomic growth in the first quarter was
market. Below, stronger than the US and its biggest EU
Tristán Tomás peers, gross domestic product has not
Carrein returned to pre-pandemic levels,
IMAGO/viennaslide/Reuters,
Barney Jopson/FT
putting the country in a worse position
than Greece, Italy and France.
Too many jobs are still low quality and
the unemployment rate has ticked up in
recent months to 13.3 per cent, though
that remains low for Spain by the stand-
ards of the past decade. Government
energy policies help explain why infla-
tion, at just under 4 per cent, is the low-
est in the EU after Belgium and Luxem-
bourg, but citizens are still feeling the
pain of rising prices.
In a fragmented political system, polls
show that the parties of the left and
right, clumped together in two blocs, are
’We get evenly matched both nationally and in
Valencia.
the same A Socialist victory there would show
money here the prime minister has a chance of hold-
ing on in the general election. A win by
today that I the PP, which is trying to shake off mem-
remember ories of corruption last time it was in
power, would create a sense of a new
my mother dawn for the right.
getting 25 Ximo Puig, the Valencia region’s
Socialist president, keeps his distance
years ago’ from Sánchez. He said it was “unfair” to
inject national politics into the local
vote and highlights his own success in
attracting foreign investment, including
a Volkswagen battery plant. But a refer-
endum on the prime minister is just
what conservatives want.
Carlos Mazón, the PP candidate seek-
ing to eject Puig, rattles off grim wage
and poverty statistics and accuses the
prime minister of doing nothing to help
local farmers or ceramics producers
wracked by water and gas crises, respec-
tively. “The reality of the data is quite
different from [Sánchez’s] triumphalist
marketing,” he said.
At the medieval church, Carrein
remains undecided. He has voted both
left and right over the years, but says the
economy debate leaves him unsure
what to do on Sunday. He said: “I would
love to believe in politics. But they have
given me no reason to.”
In Valencia’s central food market,
Natalia Estellés Palanca, who owns a
butcher’s stall, said she could not
remember a tougher time given the mix
of rising costs, shortages of skilled staff
and lack of government help. “It’s all
very unstable. You don’t know where
things are going. We’re all living in fear,”
she said. “People are indecisive about
their shopping — and their voting.”
changes to the country’s laws after rac-
ist abuse directed at one of the game’s
star players prompted a backlash from
players, sponsors and the Brazilian
government.
Real Madrid’s Vinícius Júnior was the
target of racist chants last weekend dur-
ing a game at Valencia and an outcry
spread after the head of La Liga
appeared to play down the incident.
The Brazilian forward, rated as one of
football’s top players, reported the
abuse to the match referee. He was later
sent off for violent conduct.
After the game, Vinícius Jr posted a
message on social media saying the
Spanish league “belongs to the racists”,
and criticised football authorities for
failing to tackle the problem. He later
called on sponsors and broadcasters to
push the league to take firmer action.
“It wasn’t the first time, not the sec-
ond time, and not the third,” he said.
“Racism is normal in La Liga.”
Javier Tebas, La Liga chief executive,
has come under fire for his response.
Shortly after the match on Sunday, he
directed a message at Vinícius Jr on
Twitter, saying: “Before you criticise La
Liga, you need to educate yourself prop-
erly. Don’t let yourself be manipulated.”
On Tuesday, La Liga sought to shift
the focus, saying in a statement that it
felt “powerless”. It blamed Spanish law
for failing to give it the tools to address
the issue, insisted it had led a “relentless
fight” against racism, and vowed to
lobby the government for new powers to
penalise clubs and fans.
Tebas yesterday apologised for his
comments: “Although it wasn’t what I
intended, people understood it differ-
ently. So I have to be clear and say I was
mistaken and apologise for that tweet.”
Vinícius Jr has been repeatedly tar-
geted by racist football fans this season.
Spanish police have arrested seven men
over two separate incidents, one of
which involved an effigy of the Brazilian
player hung from a bridge near the Real
Madrid training ground.
Real Madrid has called on the attor-
ney-general’s office to investigate the
incident in Valencia, while Carlo Ance-
lotti, Madrid head coach, said the game
should have been called off. “What we
saw today is unacceptable, an entire sta-
dium chanting racist slurs,” he said.
The episode has also sparked fury in
Brazil. In a gesture of solidarity with the
player, the lights on the Christ the
Redeemer statue in Rio de Janeiro were
turned off on Monday evening.
President Luiz Inácio Lula da Silva
demanded that Fifa, football’s global
governing body, and La Liga take “seri-
ous measures” in response. “We cannot
allow fascism and racism to take over
football stadiums,” he said. Brazil’s min-
istry of racial equality said it had asked
Spanish authorities to investigate.
Valencia has promised lifetime sta-
dium bans for those responsible but said
it was “totally false” to accuse the entire
crowd of shouting racist remarks.
Additional reporting by Samuel Agini in
London and Barney Jopson in Madrid

Budapest Neurotechnology

Hungary accelerates funding talks with EU
MARTON DUNAI — BUDAPEST
SAM FLEMING — BRUSSELS
Hungary is speeding up talks with
Brussels to unlock nearly a third of its
EU funding following a long and bitter
stand-off, but officials warn the
remainder of the cash is likely to stay
frozen because of persistent differ-
ences over its reform efforts.
Budapest has been clashing with Brus-
sels and other EU capitals for more than
a decade since Prime Minister Viktor
Orbán came to power, with critics
decrying a democratic backslide on civil
rights, rule of law and more recently his
diverging stance on the war in Ukraine.
János Bóka, Hungary’s EU negotiator
and junior justice minister, said talks
with the European Commission were
advancing swiftly on almost a third of
the €36bn his country should receive by
2027. Budapest recently adopted a
reform of its justice system intended to
fulfil key preconditions for EU funding
under the bloc’s cohesion policy.
The justice reform “gave the talks a
[new] impetus. It raised the level of
mutual political trust,” Bóka said.
“The atmosphere is better in every
way, the meetings have become much
more frequent.”
Once it is put in practice, the reform
should unlock about €13bn of cohesion
funds, according to people familiar with
the negotiations. But the rest of the
funding is unlikely to be disbursed any
time soon.
Hungary badly needs to access EU
money because its economy is in reces-
sion, it has by far the EU’s highest infla-
tion and interest rates, and its fiscal bal-
ance has come under question as its
debt servicing costs have soared to
‘The atmosphere is better
in every way, the meetings
much more frequent’
János Bóka, Hungary negotiator
about 4 per cent of gross domestic prod-
uct this year.
Hungary is due a total of about €22bn
in regular cohesion funds in the EU’s
2021-27 budget period if it fulfils all cri-
teria laid out by Brussels.
More than €6bn worth of cohesion
funds remain frozen because of the EU’s
new “conditionality mechanism” linked
to rule of law standards. Budapest’s fail-
ure to meet other conditions on aca-
demic freedoms, LGBT+ rights and
asylum rules is keeping further funding
out of reach.
In addition to cohesion money, Buda-
pest is also awaiting access to €12.4bn
worth of loans and grants from the bloc’s
post-pandemic recovery fund. Before
any of those funds can be disbursed,
Hungary first needs to take more meas-
ures against corruption and embezzle-
ment of EU funds and provide transpar-
ency and accountability guarantees
listed in 27 “super milestones”.
Bóka acknowledged that the justice
reform only covered four of those
requirements, noting that “all super
milestones must be met before we can
submit a payment claim for recovery
funds”.
Hungary is also struggling to fulfil
conditions related to freedom of aca-
demic thought, affecting around 9 per
cent, or €2bn, of the cohesion funds.
The starkest ideological differences —
over Hungary’s civil liberties and asy-
lum laws — affect the smallest portion of
cohesion funds — about €700mn for the
LGBT+ laws and some €50mn for the
asylum rules. Bóka said his country
would not relent on either of those
issues, suggesting Budapest might chal-
lenge Brussels in court over those funds.
“We have not considered that sce-
nario thoroughly yet, but when it comes
to accessing EU funds I would not
exclude any legal options,” he said.
AI ‘digital bridge’ helps paraplegic man walk
CLIVE COOKSON — LONDON
A “digital bridge” that uses artificial
intelligence to decode brain signals has
enabled a paraplegic patient to walk
just by thinking about moving his legs,
boosting hopes that the neurotechnol-
ogy could help millions of people over-
come disabilities.
Swiss researchers implanted an elec-
tronic device in Gert-Jan Oskam’s skull
on top of the region of the brain respon-
sible for controlling leg movements.
Using algorithms based on adaptive
AI methods, “movement intentions are
decoded in real time from brain record-
ings”, said Guillaume Charvet, head of
brain-computer interface research at
the French public research body CEA.
These signals were then transmitted
wirelessly to a neurostimulator con-
nected to an electrode array over the
part of the spinal cord that controls leg
movement below the injury site, said
Jocelyne Bloch, the project’s neurosur-
geon.
Researchers at École Polytechnique
Fédérale de Lausanne (EPFL) and Swiss
hospitals published their findings in
Nature yesterday. The breakthrough
would enable doctors to bypass dam-
aged nerves and boost the treatment of a
range of neurological disorders includ-
ing strokes, the researchers said, though
they cautioned that much research and
development would be required to min-
iaturise and enhance the technology, cut
production costs and carry out exten-
sive clinical trials.
Oskam, the first person to be fitted
with the digital bridge, said he had
regained natural control over the move-
ment of his limbs, enabling him to walk
and climb stairs, or just share a beer
with friends standing at a bar.
“This simple pleasure represents
a significant change in my life,” said
Oskam, a 40-year-old Dutch man
whose spine was injured in a cycling
accident 11 years ago.
Wheelchair-free: Gert-Jan Oskam
with scientist Andrea Galvez Solano
The EPFL team previously used a
more complex procedure to restore
mobility to people paralysed by spinal
cord injury.
Patients specified their desired move-
ments — for example standing, walking
or pedalling — by pressing keys on a
small tablet computer which then trans-
mitted instructions to a series of elec-
trodes implanted in the lower spinal
cord. These stimulated nerve cells to
initiate movement in the appropriate
muscles.
Oskam was upgraded to the new dig-
ital bridge from the previous system.
“This feels radically different,” he
said. “Before, I felt that the stimulation
was controlling me, now I am control-
ling the stimulation myself. I can take
steps that feel natural.”
The new system does not rely on
instructions from an external computer.
As Oskam used the digital bridge,
his brain and nervous system adapted
to it, forming new connections that
enabled him to walk with crutches even
when the spinal implant was switched
off.
Although the digital bridge has so far
been tested only on Oskam, the
researchers are about to extend the clin-
ical trial, initially to three new patients
and then many more.
4 ★
Middle East
Israeli budget passed after coalition deal
Funds pledged for Haredi,
national guard and new
West Bank settlements
JAMES SHOTTER — JERUSALEM
Israeli prime minister Benjamin Netan-
yahu has succeeded in passing a two-
year state budget after overcoming rifts
within his coalition of far-right and reli-
gious parties.
Parliament voted through the Sh1tn
($269bn) spending package in the early
hours of yesterday after Netanyahu
struck deals with two factions that had
threatened to withhold support for the
budget unless their demands for greater
Oldest county reflects China’s population woes
Factories are struggling to find
workers and schools have
become homes for elderly
JOE LEAHY AND SUN YU — RUDONG
ANDY LIN — HONG KONG
“Sleep well, eat well, that’s all that mat-
ters for old people,” said Xiao. The
sprightly 75-year-old shares a room
with a couple in their 80s in what was a
primary school but which, to illustrate
China’s demographic crisis, has been
converted into an old people’s home.
A poster on the Rudong Binshan Eld-
erly Apartments cautions visitors that
sticky-rice dumplings are a choking
hazard for elderly relatives.
In the 1960s, Rudong, in prosperous
eastern Jiangsu province, was so popu-
lous it was chosen to pilot the one-child
policy. Nearly 60 years later, it is the
country’s oldest county; nearly 39 per
cent of its population is over 60, more
than double the national figure of 18.7
per cent. As a result, schools have closed
and the cotton and rice farms struggle to
find workers, while the elderly popula-
tion subsists on meagre pensions.
Rudong offers a preview of China’s
demographic challenge, which in its
scale and speed promises to eclipse sim-
ilar crises in places such as Japan and
Italy. Last month, India unseated China
as the world’s most populous country, a
UN study found. This came after China’s
population shrank last year for the first
time since the 1960s.
For Beijing, the crisis will require
reforms to a growth model that has
turned China into the world’s second-
largest economy, including diverting
spending from infrastructure and prop-
erty towards pensions and healthcare
and trying to find younger workers for
factories. It will also need to tackle the
pension system, in which urban resi-
dents get higher allowances than most
migrant workers or rural residents.
“Population development is a vital
issue,” President Xi Jinping said this
month. He stressed the party’s new
motto of “high-quality development of
the population”, which underlines the
need for better childcare and education
to lower the burden of raising families.
“What you see in Rudong is only the
beginning,” said Huang Wenzheng, a
senior fellow at the Center for China and
Globalization. “Rudong may one day
become a ghost city.”
When the one-child policy was intro-
duced, people hoped it would help alle-
viate poverty in Rudong’s densely
packed village houses by reducing the
number of mouths to feed.
Washington
US seeks to lower tension with South Africa over envoy claim about Russia arms supply
FELICIA SCHWARTZ AND ALEC RUSSELL
WASHINGTON
JOSEPH COTTERILL —JOHANNESBURG
US president Joe Biden’s administra-
tion is seeking to play down a rift with
South Africa over the allegation that
Pretoria covertly shipped arms to Rus-
sia, signalling a desire to address the
dispute privately to avoid further dam-
aging their relationship.
In a break from diplomatic protocol, the
US ambassador to South Africa claimed
this month that arms were placed on a
sanctions-hit Russian vessel under
cover of darkness in a Cape Town naval
base last December, later adding that he
would “bet my life” on it.
His accusation reflected deep frustra-
tions in Washington over South Africa’s
publicly supportive stance towards
Moscow. Russia has cultivated strong
ties with the ruling African National
Congress, which the Soviet Union
backed when it was in exile in the apart-
funding were met. The final package
included billions of shekels for Israel’s
fast-growing and fervently religious
Haredi community, whose leaders are
key Netanyahu allies, funding for settle-
ments in the occupied West Bank
regarded as illegal by most of the inter-
national community, and a new
national guard demanded by ultrana-
tionalist national security minister Ita-
mar Ben-Gvir.
Netanyahu hailed the passing of the
budget — which envisages spending of
Shk484bn in 2023 and Shk514bn in
2024 — as the “dawn of a new day” and
said his government’s priority was to
lower the cost of living in Israel, where
inflation has reached 5 per cent.
Social policy. Demographic crisis
Passing time: “Nobody had anything to eat in the
retired villagers 1960s,” said Wu Aiping, an entrepre-
play cards near neur who runs the Huayuantouju Eld-
Rudong erly Care Home in Rudong.
Over time, the one-child policy took
root and family size declined. By the
1980s, as the economy grew, young peo-
China expected to age much faster than
rest of world
Estimated population by age group, 2020
(% of total population)
Male Female
China
-6 -4 -2 0 2 4 6
85-
75-79
65-69
55-59
45-49
35-39
25-29
15-19
5-9
Sources: United Nations World Population Prospects 2022; FT calculations
heid era. But many in the US adminis-
tration worry that publicly rebuking or
penalising supposedly non-aligned
countries, such as South Africa, over
their ties with Russia risks pushing
them closer to Moscow.
Officials have refused to comment
publicly or privately on the details of the
accusation by Reuben Brigety, the US
ambassador, saying they would wait for
the results of an investigation launched
by the South African president, Cyril
Ramaphosa. Two people privy to the
administration’s thinking have sug-
gested though that the ambassador had
complicated matters by going public
with the accusation.
South Africa’s refusal to condemn
Russia’s invasion of Ukraine has irked
the Biden administration. But Washing-
ton also believes Biden has a rapport
with Ramaphosa and that diplomacy is
the best way to handle the frayed rela-
tionship with their largest trading part-
ner in Africa. “Ramaphosa and the
FINANCIAL TIMES
INTERNATIONAL
Asked on Channel 14 News whether
his government would return to a con-
which early elections would have been
triggered — was celebrated by Netan-
troversial judicial overhaul that he
delayed in March after one of the biggest
yahu’s coalition partners, with finance
minister Bezalel Smotrich saying it
waves of protests in Israel’s modern his-
tory, Netanyahu answered, “Certainly”.
Opposition leaders were quick to
would “provide stability and certainty
to the economy”. Ben-Gvir said the
budget deal had delivered “lots of
warn against a resumption of the judi- good news”.
cial reform, with Benny Gantz, head of But opposition politicians lambasted
the National Unity party, accusing the the spending package for doing too little
prime minister of being “drunk on to rein in inflation, and for channelling
power once again”. significant resources to the ultraortho-
“I’ll remind Netanyahu that it is stu- dox education system.
pid to repeat the same action and to The funding for the Haredi education
expect a different result,” he wrote on system is a particular bone of conten-
Twitter, pledging that protests would tion for secular Israelis because ultraor-
restart if the judicial overhaul returned. thodox schools are not required to teach
The passing of the budget — without core subjects such as English and maths,
ple also began leaving Rudong for more ‘It’s good for
lucrative jobs in Shanghai and other
eastern cities. these old
In 2016, China finally abandoned the people to
one-child policy as fertility rates
plunged. But it was too late for Rudong. work. If
In the decade ending 2020, the county’s they stay at
population fell nearly 12 per cent to
about 880,000. Its 2022 disposable in- home, they
come of Rmb43,645 ($6,315) a head, get sick
while high compared with the rest of
China, lags behind the rest of Jiangsu by quickly’
more than 12 per cent.
Yet many older people in Rudong say
World excluding China their pensions are Rmb300 or less a
-6 -4 -2 0 2 4 6 month. While they say it is not enough,
80-84 it still exceeds what the IMF said in 2021
70-74 was the average monthly rural pension
60-64 payment of Rmb170. This is below the
50-54 absolute rural poverty line of Rmb192
40-44 per month set by central government.
30-34 Most poor elderly rural residents are
20-24 reluctant to ask their children for
10-14
money owing to China’s rising cost of liv-
0-4
ing. Because of the one-child policy,
some couples have to also care for up to
South African government have said an international sanctions, as a way of
investigation is under way and we look depriving Vladimir Putin’s regime of the
forward to the results,” said a US funds and arms it seeks.
National Security Council official. In a sign of US conciliation, Brigety
Congress may still try to press the US has said he regretted any misconcep-
government to take a harder line, ana- tions that his remarks created about
lysts said. Jim Risch, the top Republican South Africa.
on the Senate foreign relations commit- Ramaphosa has identified a retired
tee, said he shared Brigety’s concerns judge to head the Lady R inquiry but has
about South Africa’s ties with Moscow. yet to name that person or finalise its
“The Biden administration should use
existing authorities to re-evaluate the
scope and scale of our current engage-
ment with South Africa’s government,”
he said.
The diplomatic spat over the Russian
ship, the Lady R, reflects the delicate
path that Washington has to tread as it
seeks to convince reluctant members of
the “global south” to back the west’s
position over the Ukraine war.
Since Moscow’s full invasion of
Ukraine last year the US has sought to
press traditional strategic partners to at Docked: Lady R at Simon’s Town
least remain neutral and to enforce naval base, Cape Town, in December
and students instead devote much of
their time to studying the Torah.
Critics say that the measures will dis-
courage Haredi men — only half of
whom work and almost none of whom
do military service — from seeking
employment. This will put mounting
strain on the Israeli state budget as the
Haredi share of the Israeli population is
forecast to grow from about an eighth to
around a third by 2065.
“While you were sleeping, the worst
and most destructive budget in the
country’s history was passed. There is
no good news . . . only endless extor-
tion,” Yair Lapid, leader of the largest
opposition party, Yesh Atid, wrote on
Twitter.
eight grandparents and four parents.
Under the pagoda of Rudong’s 1,200-
year-old Guoqing Temple, a 77-year-old
incense seller said she received a tiny
state pension but worked, as she did not
want to be a “burden” on her son.
A 64-year-old said he was now too old
to do his former trade of carpentry.
Elderly farmers are still visible
around Rudong. “It’s good for these old
people to work,” said the supervisor of a
work party of 70-plus-year-olds. They
were hoeing a field planted with onions
and being paid Rmb8 an hour. “If they
stay at home, they get sick quickly.”
Many employers and local authorities
hope to lure younger workers for what
the government says will be Rudong’s
“dynamic decade”, so they are offered
incentives from higher salaries to subsi-
dised housing. A poster in a labour
exchange advertising work at one of
Rudong’s factories says younger male
workers can apply for machine operator
jobs with a monthly salary of Rmb6,500
or more. This compares with Rmb5,800
offered to unskilled males aged 40-55.
At a new housing development in the
city, discounts are offered for homebuy-
ers with a doctorate, masters degree or
technical qualifications, or were fami-
lies with two children. These local
incentives are echoed nationally.
One state agency has launched pilot
projects in 20 cities to build a “new era
of marriage culture” to “encourage
childbearing”, state media reported.
Beijing has also announced initiatives to
curb extravagant weddings.
Some cities are handing out cash pay-
ments for families with a third child,
while others are expanding maternity
and paternity leave. Many are subsidis-
ing fertility assistance programmes.
But analysts question if piecemeal ini-
tiatives will be enough to protect the
economy from the decline, which some
anticipate could reduce gross domestic
product growth by 1 percentage point a
year until 2035. At the current rate,
China will have only one worker for
every retiree by the century’s end, com-
pared with four today, said Bert Hof-
man, director of the East Asian Institute
at the National University of Singapore.
To offset this, the government needs
to encourage people to work beyond the
retirement age of 50 for women and 60
for men, and to nudge its still-large rural
population into more productive urban
jobs, Hofman added. Beijing also needs
to expand private pensions and upgrade
the health sector.
“You need a reform package that
brings all these together,” he said, point-
ing out that until such reforms are real-
ised, semi-rural counties such as Ru-
dong will strain to care for the elderly.
terms of reference, his office said this
week. His government has denied sell-
ing weaponry to Russia and suggested
that if any transfer did occur, it was done
by a rogue actor. The government is yet
to see concrete proof for the US claim
regarding the vessel, Ramaphosa’s
spokesperson said this week.
Patrick Gaspard, ambassador to
South Africa from 2013 to 2016 and now
president of the Center for American
Progress think-tank, said both sides
appeared keen to de-escalate. “There’s
been a kind of reckoning with the seri-
ousness of what it would mean to actu-
ally have ruptured relationships
between the US and South Africa, who
are incredibly important allies,” he said.
“There’s still serious issues here but
these issues are going to be addressed
across the diplomatic table,” he added.
There is, however, deep-seated antip-
athy towards the US inside the ANC,
which has publicly accused Washington
of provoking the Ukraine war. The
Thursday 25 May 2023
COP28
US and EU
legislators
call for oil
chief to leave
climate role
AIME WILLIAMS — WASHINGTON
CAMILLA HODGSON — LONDON
More than 100 US lawmakers and
members of the European parliament
have called for removal of the head of
the United Arab Emirates’ state-owned
oil group Adnoc as president-designate
of the UN climate summit this year.
The UAE, as the host for COP28, earlier
this year appointed Sultan al-Jaber to
lead the summit in Dubai from the end
of November.
In a joint letter to UN officials, and US
and European leaders, including US
president Joe Biden and European Com-
mission president Ursula von der Leyen,
the lawmakers call for the UAE to with-
draw Jaber’s appointment, as his posi-
tion as an oil executive risked “under-
mining the negotiations”.
The group, comprised mainly of Dem-
ocratic members of the US Congress and
left-leaning members of the European
parliament, expressed “profound con-
cern” that UN rules allowed private sec-
tor polluters to exert “undue influence”
over the process of the summit.
Last year’s COP summit hosted by
Egypt ended in disappointment for cli-
mate activists as well as many devel-
oped and developing nations. Countries
including Saudi Arabia and Russia
‘It is easy to see how
[attendees of polluting
corporate actors] could
obstruct climate action’
blocked an effort by a coalition of more
than 80 countries, including the US and
EU, to include a reference to phasing
down all fossil fuels in final agreement
by almost 200 countries.
“It did not escape our attention that at
least 636 lobbyists from the oil and gas
industries registered to attend last
year’s COP, an increase of more than
25 per cent over the previous year,” the
lawmakers wrote in the letter.
“When the number of attendees rep-
resenting polluting corporate actors,
which have a vested financial interest in
maintaining the status quo, is larger
than the delegations of nearly every
country in attendance, it is easy to see
how their presence could obstruct cli-
mate action.”
In his defence, COP28 said Jaber had a
20-year career “in the renewable energy
space”, citing his role as chair of Masdar,
the state-owned renewable energy com-
pany. As Adnoc chief, Jaber had been
given a mandate to “transform, decar-
bonise and future proof” the company,
it said. He had also been involved in cli-
mate diplomacy for more than a decade,
attending 11 COPs, including the Paris
summit, where he led the UAE’s role.
But under Jaber, Adnoc also last year
accelerated its oil production by bring-
ing forward its capacity expansion to
2027 from 2030, and signed off on
$150bn in capital spending over five
years to 2027. Capital spending ear-
marked for “low carbon solutions”
stood at just $15bn for the years to 2030.
US climate envoy John Kerry has pre-
viously defended the UAE against
“unfair” criticism in its role as COP28
organiser, saying it was important to
bring oil-producing nations into the UN
climate negotiations.
On Tuesday, Kerry told a UK parlia-
mentary committee on defence he was
optimistic about the potential of the UN
talks to secure meaningful agreement.
party’s ties with Russia strengthened
under South Africa’s former president,
Jacob Zuma, who worked closely with
Moscow as an exile under apartheid.
Zuma, whose government became
notorious for its corruption of state bod-
ies, was a keen supporter of a bid by Rus-
sia to build nuclear plants in South
Africa. The deal was cancelled by a
South African court order.
“There’s a really significant portion of
the South African establishment that
believes the US is an antagonist of some
sort,” said Michelle Gavin, the Ralph
Bunche senior fellow for Africa policy
studies at the Council on Foreign Rela-
tions.
South Africa’s main opposition and
business leaders have warned the Lady
R row could disrupt critical commercial
ties. South Africa exported more than
$15bn worth of goods to the US in 2021
under the African Growth and Opportu-
nity Act, a US law that grants duty-free
terms to specific nations.
Thursday 25 May 2023 ★ FINANCIAL TIMES 5

Hot debate Glencore braces itself for an annual meeting grilling from investors over coal business and green targets y PAGE 7

Citi abandons Mired down Embracer shares plummet after

$2bn strategic gaming partnership is called off
Australia
refers PwC
plan to offload tax scandal to
federal police
Banamex and MICHAEL O’DWYER — LONDON
NIC FILDES — SYDNEY

Australia’s government has referred

chooses IPO the PwC tax leaks scandal to the coun-

try’s federal police, asking it to con-
sider opening a criminal investigation.
It is an escalation of a scandal that has
led to the head of PwC’s Australian busi-

3 Months-long effort to sell unit ends ness stepping down and efforts by the
Big Four firm’s international bosses to

3 Separation to occur by mid-2024 prevent the case spiralling into a global

STEPHEN GANDEL — NEW YORK
CHRISTINE MURRAY — MEXICO CITY
Citigroup has said it will spin off its Mex-
ican retail bank through an initial public
offering, abandoning a plan hatched
early last year to sell the unit.
The US lender plans to completely
separate its Banamex division, which
has 38,000 employees and is one of the
largest consumer banking franchises in
Mexico, by the middle of next year. The
bank said an IPO of the unit was likely
by the end of 2025.
Despite the spin-off, Citi plans to
retain much of its corporate and institu-
tional businesses in Mexico.
Citi executives previously said they
had been pursuing a dual process in
order to exit Banamex. The bank said
One complication was
Mexico’s demand for
concessions, such as
over labour protection
yesterday that it now believed an IPO
was the better route for investors.
Chief executive Jane Fraser, who is
leading a broader effort to slim Citi, said:
“We concluded that the optimal path to
maximising the value of Banamex for
our shareholders and advancing our
goal to simplify our firm is to pivot from
our dual-path approach to focus solely
on an IPO of the business.”
The plan avoids any immediate hits to
the bank’s bottom line and capital that it
may have had to record if it completed a
distressed sale.
Citi also said it would resume stock
buybacks by the end of June, at least six
months sooner than analysts expected.
Citi shares were down 3.1 per cent in
early afternoon trading yesterday.
“It is not the ideal solution,” said Mike
Mayo, a Wells Fargo analyst, who had
pushed Citi to exit Banamex. Mayo said
an IPO gave Citi the ability to turn back
to a sale if it received a better offer.
The IPO plan marks the end of a
months-long effort to sell the unit. In
February, the FT reported that Citi was
in exclusive talks to sell Banamex to
Grupo Mexico, owned by Germán Lar-
rea. The deal was expected to value the
unit at up to $8bn. It is not clear why or
when those negotiations ended, or why
the bank did not pursue other offers.
Mexico’s government complicated
matters by requiring concessions, such
as one that would have largely protected
workers from lay-offs. Andrés Manuel
López Obrador, president, earlier this
week said the government was analys-
ing whether it made sense to enter the
bidding process for Banamex if no other
deal materialised. López Obrador said
yesterday that his government was still
considering stepping in and buying a
portion of the bank.
Citi bought Banamex for $12.5bn in
2001. Since then, it has fallen from the
country’s second-largest bank to the
fourth, after struggling to compete in a
market dominated by other foreign
lenders. Analysts and bankers have
pointed to such factors as poor manage-
ment, bloated costs and limitations
from US regulatory requirements.
Even so, Citi executives said the
rationale for the Banamex exit had
more to do with Fraser’s strategic
refresh than with any difficulties it had
in the unit.
So far, Fraser’s efforts have largely
focused on slimming Citi’s consumer
banking franchises. The exit from con-
sumer banking, and retail operations in
Mexico in particular, have taken longer
than some analysts had hoped.
Citi’s plans to pull back from its global
consumer bank were announced more
than two years ago; the planned Ban-
amex exit was announced in early 2021.
Embracer was transformed by a deals spree that included intellectual property for ‘The Lord of the Rings’
ANNA GROSS — LONDON
Swedish gaming group Embracer’s
share price plummeted yesterday
after the group slashed its forecast
for the year and said a $2bn partner-
ship deal had fallen through.
The drop, the biggest daily percentage
fall since the shares were listed on the
Stockholm exchange in November
2016, came hours after Embracer was
informed that a major strategic part-
nership that had been negotiated for
seven months “will not materialise”.
The Nordic gaming group said that
as a result, it now expected to gener-
ate SKr7bn to SKr9bn ($656mn to
$843mn) in adjusted earnings before
interest and tax for the 12 months to
March 2024, down from SKr10.3bn to
SKr13.6bn.
The group’s shares closed down
44.8 per cent at SKr22.76 in Stock-
holm. The price has more than halved
over the past week since the group on
May 15 warned on profit for the year
to March 2023 and signalled delays in
closing some licensing deals.
“It has been a challenging year,
adversely impacted by game delays,
weaker consumer demand and lack-
lustre reception for certain notable
releases,” Embracer’s chief executive
Lars Wingefors said yesterday.
Wingefors had transformed the
once-obscure Swedish developer into
a sprawling games empire through a
four-year acquisition spree. The
group bought stakes in multiple stu-
dios, the US comics publisher behind
Hellboy and Sin City, intellectual prop-
erty for The Lord of the Rings, and
board games such as Catan.
But his light-touch approach to
integrating these businesses, along
with the gulf between the group’s
actual and adjusted profits, have
attracted short interest from hedge
funds that argue the group is worth
less than the sum of its parts.
Embracer said the unspecified stra-
tegic partnership, “which would have
set a new benchmark for the gaming
industry” and generated $2bn in reve-
nue over six years, was terminated
late on Tuesday.
“Put simply, this is negative news,”
wrote analysts at Citi, referring to the
collapsed partnership deal. “In as far
as failures to conclude deals go, a
‘miss is as good as a mile’.”
The news overshadowed an
announcement of a “transformative”
deal with Amazon to create a game
from its Lord of the Rings IP.
The group yesterday reported lack-
lustre fourth-quarter earnings that
nonetheless came in above consensus
estimates, while organic sales
declined 4 per cent with an operating
loss of SKr95mn. Adjusted earnings
before interest and tax came in at
SKr6.4bn for the year, significantly
below the previous guidance range of
SKr8bn to SKr10bn.
reputational crisis.
PwC had received information about
planned changes to Australia’s tax rules
because Peter Collins, its former head of
international tax in the country, had
been on an advisory group to the gov-
ernment’s Treasury department.
Emails released this month showed
how PwC drummed up business from
multinational clients, including US tech
groups, using confidential government
information received by Collins about a
planned clampdown on tax avoidance.
A small number of partners, includ-
ing the chief executive of PwC Australia,
have stood down over the affair, but pol-
iticians have been frustrated that more
information about other partners who
received the information and the clients
that benefited have yet to be released.
In a statement yesterday, Australia’s
Treasury said Collins had “improperly
used confidential Commonwealth infor-
mation”.
It added that the emails published
this month “highlighted the significant
extent of the unauthorised disclosure of
confidential Commonwealth informa-
tion and the wide range of individuals
within PwC who were directly and indi-
rectly privy to the confidential informa-
tion. In light of these recent revelations
and the seriousness of this misconduct,
the Treasury has referred the matter to
the Australian Federal Police to con-
sider commencement of a criminal
investigation.”
The names of the PwC partners and
staff involved in the emails were
redacted before being released by a sen-
ate committee but the recipients
included people in the firm’s US, UK and
Irish businesses. The recipients
included senior partners from PwC’s
international network, some of whom
had responsibility for large clients, said
a person with knowledge of the matter.
PwC Australia said it would continue
to co-operate fully with any investiga-
tions. Collins has not responded to
requests for comment.

Investors seek to loosen Rome’s grip on state-owned group boards

was a watershed moment for corporate
INSIDE BUSINESS Italy. In the past, the government, which
owns a 23.6 per cent stake in Europe’s
EUROPE largest utility, would have been unchal-
lenged in its choices.
This time a little-known London-
Silvia based hedge fund, Covalis Capital,
which owns a 1 per cent stake in Enel,
Sciorilli presented an alternative slate of board
candidates. The fund hoped to defeat
Borrelli
compromise with Meloni’s coalition
partners, according to media reports
and several Italian officials.
Minority shareholders questioned the
process. Elizabeth Desmond, chief
investment officer for international
equities at Mondrian Investment Part-
ners, which holds a 1.7 per cent stake in
Enel, said last month: “We have been
extremely disappointed by the com-

M
anagement candidates at
listed Italian state-
controlled companies
may be selected by exec-
utive search firms but the
final choices are ultimately made by rul-
ing politicians and, typically, their allies
are selected.
Experts and investors regard this dec-
ades-old system as a blight on good cor-
porate governance but, until recently, it
had rarely come into question.
Every three years, ahead of the
annual meetings at companies in which
the state is the largest shareholder, the
government of the day presents inves-
tors with a slate of candidates to renew
the boards of directors.
Such companies, including energy
majors Enel and Eni and defence group
Leonardo, were fully state-owned until
the 1990s. The only other board propos-
als usually come from the domestic
funds association, Assogestioni. It sub-
mits lists of names to fill the seats that
by law must go to minority investors.
Term after term the nomination proc-
ess has been dominated by power plays
within ruling coalitions. This year’s
appointments, the first by the govern-
ment of prime minister Giorgia Meloni,
were no different. But the reaction by a
small group of international investors to
Meloni’s picks for the chief executive
and chair roles for Rome-based Enel
the government’s list, which, it com-
plained, was “the result of political com-
promise and lacked transparency”.
Covalis’s list was backed by investors
representing 6.94 per cent of the share
capital but fell short of thresholds to
elect a single board member. The gov-
ernment got its way, with its picks secur-
ing 49 per cent of the votes. But Giuliano
Noci, a strategy professor at Politecnico
di Milano, points out: “The process is no
longer how it used
to be, with the gov- ‘We have been extremely
ernment deciding
and everyone else disappointed by the
staying silent no complete lack of
matter what.”
Indeed, Italian transparency around the
treasury officials nomination process’
travelled to Lon-
don ahead of the meeting to explain why
their picks deserved backing, according
to several investors, while public rela-
tions firms contacted journalists to offer
background chats with the candidates.
This effort was out of the ordinary when
it comes to state-backed groups.
Francesco Starace, Enel’s outgoing
chief executive, had support among
international investors but not in Italy’s
new government. Meloni privately
spent months discussing successors
with her allies, only to ditch her pre-
ferred candidate at the last minute in
favour of former Terna and Telecom Ita-
lia chief executive Flavio Cattaneo. He
became the preferred candidate after a
plete lack of transparency around the
nomination process.”
The choice of Paolo Scaroni, one of the
most seasoned Italian energy sector
executives, as Enel’s chair was also ques-
tioned. He was previously CEO at both
Enel and Eni. But he came under fire
before the vote on May 10 for remarks
criticising the EU’s management of the
energy crisis and sanctions against Rus-
sia, which, he said, would ultimately
benefit countries such as the US and
Norway. Scaroni fostered strong energy
ties between Italy and Russia as chief
executive of Eni for nine years from
2005 to 2014. Norway’s sovereign
wealth fund, an investor in Enel, backed
Covalis’s candidate for chair rather than
Scaroni.
Noci says there was public clash of
“two very distant approaches” to corpo-
rate governance — between a state that
still acts like these are private compa-
nies it owns, and a group of assertive
funds that are used to taking a stance on
environmental, social and governance
issues.
The push by minority shareholders
did not change the board outcome. But
Noci says it was still a shock to Italy’s
corporate governance mechanisms:
“You can no longer apply the state-led
approach to a context that is dominated
by the market, where even a small fund
can cause a ruckus.”
silvia.borrelli@ft.com
6 ★ FINANCIAL TIMES Thursday 25 May 2023

COMPANIES & MARKETS

Industrials Technology

Siemens vows to expand China share
Chief says pulling out of
pivotal market is ‘not an
option’ for German group
PATRICIA NILSSON — MUNICH
The chief executive of Siemens has
vowed to expand its market share in
China, arguing that the market is crucial
for innovation and growth at the indus-
trial conglomerate.
The comments by Roland Busch
come as German companies are under
pressure to diversify away from China,
as Berlin seeks to reduce its dependence
on what it perceives as a geopolitically
risky market after being stung by its
reliance on Russian gas. But Busch told
the Financial Times it was “not an
option” to pull out of the market, which
accounts for 13 per cent of revenues.
“I will defend my market share and, if
I can, I will expand it,” said Busch, who
took the helm of Siemens in late 2021.
“Where can I find the customers which
pull me into the next level of innovation,
which are demanding, and which are
looking for the next technology? It’s
China in very many cases.”
Siemens has in the past few years
transformed from a sprawling engineer-
ing group making products such as
washing machines to a tech company
developing digital tools for industrial
use. It sold its 50 per cent stake in its
Technology. Industrial relations
home appliances joint venture to Bosch
in 2015 and the group still holds stakes
in several of its former companies that
were spun out to form standalone enti-
‘China will do their own
work in terms of high-tech
manufacturing — this is
clearly on the agenda’
ties. Those include medical technology
unit Siemens Healthineers and Siemens
Energy, which in turn owns renewable
energy business Gamesa.
The German group, which employs
more than 311,000 people, last week
raised its guidance for a second time this
year thanks to margin increases in its
smart infrastructure and digital indus-
tries units. The results were helped by
the easing of global supply chains, which
allowed the company to chip into
bloated order books.
Siemens’ share price has jumped by a
third in the past year to about €150.
China, where wages and labour costs
have been rising in recent years, has
become particularly important to Sie-
mens’ digital industries arm, which
focuses on automation and makes about
a fifth of revenues in the country.
Many companies, including Siemens,
have been looking to move manufactur-
ing away from China to where wages are
lower. Others are worried that rising
geopolitical tensions and US curbs on
China’s access to advanced technology
are hitting the country’s viability as a
manufacturing base for exports.
Busch noted the decline in China’s
attractiveness as an investment destina-
tion for overseas manufacturers was
one reason why “high-tech manufactur-
ing” has been high on Beijing’s agenda.
“I’m not saying that China is deindus-
trialising,” Busch said. With increas-
ingly advanced factories, the country’s
industry would be able to “defend their
value but in a different way”.
“China will do their own work in
terms of high-tech manufacturing —
this is clearly on the agenda.”
Seoul calls on
US to review
chip subsidy
conditions
SONG JUNG-A — SEOUL
South Korea has called on Washington
to review its conditions for new
semiconductor subsidies, revealing its
concerns over the impact of US legisla-
tion on Korean chipmakers’ operations
in China.
The US Chips and Science Act offers
$52bn in subsidies to chipmakers build-
ing new production facilities in the US,
but contains “guardrails” detailing the
limits on those receiving federal funds,
in terms of expanding or upgrading
their advanced chip capacity in China
over the next 10 years.
South Korea is home to memory chip-
makers such as Samsung Electronics
and SK Hynix, which are boosting

Samsung faces threat of first strike in its history

Traditionally ‘high-handed’
approach over labour issues
encounters growing militancy
SONG JUNG-A — HWASEONG
In the normally quiet research centre at
the Samsung Electronics head office,
loudspeakers blare as trade union activ-
ists exhort staff to join their campaign
for higher wages at the company.
The union wants a 6 per cent pay rise
while Samsung is offering 4 per cent,
close to the inflation rate. Unless chair
Lee Jae-yong comes to the table for
negotiations, they will ballot members
on a strike, which would be the first
at a company that only recognised
unions in 2020.
“We are asking the company to treat
its workers in accordance with its global
standing,” said Son Woo-mok, leader of
the 10,000-strong National Samsung
Electronics Union.
The strike threat comes at a sensitive
time for Samsung, which posted a
record $3.4bn loss in its chip division in
the first quarter. It has been forced to
cut chip production amid an industry
slump and the US-China tech rivalry.
For Samsung, previously known for its
aggressive stance on organised labour,
this is new territory.
“The company is now at a crossroads,
belatedly going through the rocky proc-
ess,” said Bae Kyu-shik, a labour expert
in Seoul. “Given its lack of experience in
dealing with unions, it won’t be easy to
effectively handle the new challenges of
fine-tuning various workers’ demands.”
Investors were watching closely, said
Park Yoo-kyung, an investment adviser
on governance at APG Asset Manage-
ment. “As a long-term shareholder, we
are concerned as Samsung is relatively
inexperienced in terms of managing
industrial relations. A strike is not a win-
win solution for anyone, especially at a
difficult time like this.”
The stand-off at Samsung comes amid
a crackdown on unions in South Korea
by the country’s president Yoon Suk
Yeol. A former prosecutor, Yoon has
described the Korean Confederation of
Trade Unions as a “deep-rooted evil”,
encouraging state officials and prosecu-
tors to conduct sweeping reviews of
alleged illegal union activity. The unions
have organised regular street demon-
strations in response.
Samsung’s founder, Lee Byung-chull,
grandfather of the current chair, alleg-
edly declared that unions would be
allowed at the company “over my dead
body”. South Korea’s unions have a rep-
A section of utation for militancy, and groups such
Samsung’s chip as Hyundai Motor have had to grapple
factory in South with frequent strikes over wages and
Korea’s Gyeonggi other working conditions.
province. Bosses In 2019, during the administration of
have offered a president Moon Jae-in, state prosecu-
4% pay rise but tors alleged that Samsung had been
the trade union involved in union-busting as well as
is demanding 6%. threatening to cut the wages of employ-
Unless chair Lee ees linked to unions and withdrawing
Jae-yong, below, business from subcontractors who
comes to the appeared union-friendly. Several execu-
table, workers tives were convicted of union sabotage,
will be balloted and since then the company has sought
on a strike to reset relations with workers.
SeongJoon Cho/Bloomberg;
Jeon Heon-Kyun/EPA-EFE
The union represents about 9 per cent
of Samsung’s 120,000 domestic employ-
ees, a fraction of the 46 per cent average
union membership at big South Korean
companies. Membership has grown
from just three people to 10,000 in four
years, as the union has attracted engi-
neers, researchers and production
workers asking for better remuneration
and more holidays.
While Samsung has long had a reputa-
tion as one of the best employers in
South Korea in terms of pay and welfare
benefits, its salaries have fallen behind
some SK Group units.
The union has held more than 20
meetings with company officials this
year but the talks have reached an
impasse, hence the request for the chair
to enter talks. “The absence of top man-
agers at the negotiating table means that
they are not properly recognising us as a
counterpart,” Son said.
He said the strike plan would be put to
a vote if Lee continued to refuse to talk
to them, though they have not set a
deadline for his response.
“We are patiently waiting for his
response, given the huge implications
that a strike will have on the national
economy and the global supply
chain,” he said. “You know what hap-
pens to a chip plant if the process
stops just for a second,” he said, refer-
ring to the lengthy process of restarting
production.
Union members complain of a “fear-
driven” cultural rigidity and “too severe
‘We are internal competition” between workers.
They have called for a safer work envi-
asking the ronment. In 2018, Samsung compen-
company sated workers exposed to harmful
chemicals at its plants. The company
to treat said workplace safety had improved and
workers in it was investing in further improve-
ments.
accordance Samsung said it would continue to
with its talk to the union. “The company guar-
antees the employees’ right to establish
global and join labour unions as well as to bar-
standing’ gain collectively, and respects lawful
union activities under the relevant laws
Son Woo-mok, and regulations,” the company said.
union boss Samsung’s anti-labour reputation
makes many workers reluctant to join
the union. “We need a union to voice our
opinions but I don’t want to join it
because that may reduce my chances of
getting an overseas job or promotion,”
said Lee, a Samsung marketer.
Park Ju-geun, head of research group
Leaders Index, said Samsung’s perform-
ance-driven remuneration policy made
it prone to labour conflicts. Samsung
was likely to maintain its “high-
handed” approach.
“Old habits die hard. The way Sam-
sung now treats its unions is not so dif-
ferent from their past practices. But it
won’t be able to continue to ignore them
as their members increase and their
power gets stronger.”
investments in US production facilities
even as they remain heavily exposed to
the Chinese market.
“The Republic of Korea believes the
‘guardrail provisions’ should not be
implemented in a manner that imposes
an unreasonable burden on companies
investing in the United States,” South
Korea said on the proposed funding
rules of the Chips Act. “In this vein, the
RoK requests the US government to
review the proposed rule’s current defi-
nitions of ‘material expansion’, ‘legacy
semiconductor’ and other key terms.”
The US in October introduced expan-
sive chip export controls in an effort to
slow China’s progress in making
advanced semiconductors, barring US
Samsung Electronics
and SK Hynix are among
operators that remain
heavily exposed to China
companies from supplying tech for
D-Ram chips that are more advanced
than 14 nanometres, and for Nand
memory chips with 128 layers or more.
Seoul also requested that Washington
further clarify the scope of restricted
activities under a “technology claw-
back” clause. This requires the recipi-
ents of federal funding to return US sub-
sidies if they knowingly engage in any
joint research or technology licensing
effort with “foreign entities of concern”
for a technology or product that raises
national security concerns.
Samsung, the largest memory chip-
maker, is building a $17bn foundry in
Taylor, Texas, while second-ranked SK
Hynix is planning to build an advanced
chip packaging plant in the US.
They have been caught up in growing
US-China tech rivalry as Washington’s
curbs on tech transfers threaten to
weaken their competitiveness in China.
Under the Chips Act rules proposed in
March, they are required not to expand
capacity for advanced chips in China by
more than 5 per cent for a decade, in
order to receive federal funding.
Seoul’s state-run Yonhap News said
yesterday that the government had
asked Washington to double the limit to
10 per cent. Seoul’s commerce ministry
declined to comment on the report.
South Korean chipmakers are heavily
reliant on their Chinese plants for a sub-
stantial part of their D-Ram and Nand
flash memory chip production. Sam-
sung produces about 40 per cent of its
Nand flash memory chips from its Xi’an
plant, while SK Hynix’s plant in Wuxi in
eastern China accounts for nearly half of
its global D-Ram output.
The Biden administration in October
gave the two Korean chipmakers a one-
year reprieve from export controls
designed to curb China’s ability to
develop high-end chips.

Technology

TikTok reshapes social shopping business to conquer big western markets

CRISTINA CRIDDLE — LONDON
TikTok has restructured its ecom-
merce business in an effort to refocus
on markets such as the UK and the US,
as the Chinese-owned group struggles
to export its livestream shopping
model outside its home country.
Staff in Brazil working on launching
TikTok Shop, the social media group’s
in-app marketplace, in that country are
being relocated to markets where the
service has already been introduced
such as the UK, US and south-east Asia,
according to people familiar with the
restructuring.
Those who had been working on
bringing the service to Spain are being
moved to London amid a broader
reshuffle of executive positions at the
top of the European business, these peo-
ple said.
A pause on expansion in Europe is
echoed by a slowdown of a full rollout of
the feature to sellers in the US, accord-
ing to people familiar with the business.
TikTok said it had not finalised any
launch plans or dates for the feature
outside of existing markets.
The group’s owner, Beijing-based
ByteDance, launched TikTok Shop in
the UK in 2021, its first market outside
Asia. The service allows brands and
influencers to link products to buy in
videos or broadcast live to sell products
available to purchase within the app.
While the social media ecommerce
model has been hugely successful in
Asia, TikTok Shop has been beset with
problems elsewhere, in particular fail-
ing to gain full traction with western
consumers and content creators.
In an effort to crack markets outside
China, TikTok has paused its interna-
tional expansion plans to refocus on
countries where its ecommerce service
has been launched. The Financial Times
previously reported that country
expansions initially planned for last
year had been delayed multiple times.
TikTok’s change of strategy led to the
restructuring of its European ecom-
merce operations in mid-April, accord-
ing to those with knowledge of the
move. All staff in Spain were told they
could not remain there and would need
to relocate to London, where they would
be offered two flights home a month, as
well as six months of rent payments in
their new homes, these people added.
Joe Jiao, former head of ecommerce in
Spain, has recently been promoted to
running ecommerce in the UK for small
businesses.
These moves represent the latest of
several changes at TikTok’s London
TikTok Shop
allows brands
and influencers
to sell products
within the app
Andrew Harrer/Bloomberg
office since the FT revealed a culture
clash within the ecommerce team, lead-
ing to high staff turnover and com-
plaints of a toxic environment. Joshua
Ma, who ran TikTok Shop in Europe,
stepped down after it was revealed he
told staff he “didn’t believe” in mater-
nity leave but remains at the company.
His interim replacement, Patrick
Nommensen, has had his scope nar-
rowed in recent months to focus on UK
key accounts and brands, according to
two people familiar with his role.
TikTok said servicing key accounts
and small businesses required different
approaches, so it made sense to have
dedicated leaders for both areas as the
product grew. Nommensen continued
to have oversight of overall UK opera-
tions, it added.
Ecommerce employees in London
have been told they must be in the office
five days a week from September,
reflecting the emphasis on the project.
ByteDance hopes to turn social com-
merce into a big moneymaker in west-
ern markets, as the model has proved
lucrative on TikTok’s sister app Douyin,
which has sold more than 10bn prod-
ucts. ByteDance’s earnings before inter-
est, tax, depreciation and amortisation
surged 79 per cent to about $25bn in
2022, according to two investors briefed
on the numbers.
In particular, live shopping, where
users can buy products from sellers dur-
ing a live broadcast and which is a
hugely popular format in Asia, appears
to be failing to resonate with western
consumers.
The majority of revenues made from
TikTok Shop in the UK are derived from
uploaded recorded videos that link cer-
tain products, rather than livestreams
selling items, according to multiple peo-
ple familiar with the matter.
Additional reporting by Hannah Murphy in
San Francisco
Thursday 25 May 2023 ★ FINANCIAL TIMES 7

COMPANIES & MARKETS

Food & beverage

Glencore faces investor pressure on US probes

coal as focus turns to climate targets
Swiss miner’s shareholders call for disclosures around Paris accord goals ahead of annual meeting
LESLIE HOOK
Glencore is braced for a heated debate
over its highly profitable coal-mining
business when it meets shareholders
tomorrow as the group comes under
pressure to tackle climate change.
A growing number of shareholders
support a resolution asking the com-
pany to explain how its thermal coal
production — the largest of any com-
pany outside China and India — is com-
patible with its climate goals.
Legal & General Investment Manage-
ment, Allianz, Scottish Widows, Man
Group and HSBC Asset Management
have all backed the measure in recent
days, as have proxy advisers Glass Lewis
and Institutional Shareholder Services.
Tomorrow’s annual meeting comes as
Glencore’s $23bn hostile takeover bid
for Canadian group Teck Resources has
raised fresh questions about whether
the Swiss miner might spin off its own
coal business.
The division is highly profitable,
accounting for 53 per cent of earnings
last year, but is seen as dragging down
Glencore’s overall valuation because of
the associated climate risks.
Glencore had proposed to buy Teck,
then split the merged business into a
separately listed coal company and a
standalone metals company — admit-
ting there was more value to be created
that way.
“This deal for me marks an interest-
ing departure for Glencore, who have up
to now said they want to keep coal as
part of the portfolio, but wind down the
assets,” said Tal Lomnitzer, senior
investment manager at asset manager
Janus Henderson, one of Glencore’s
shareholders. “Whether or not this deal
[with Teck] happens, the likelihood that
they would split coal out has increased.”
Glencore’s coal resources stretch from
Australia to South Africa to Colombia,
and it primarily mines thermal coal,
which is burnt in power plants. Produc-
ing 110mn tonnes of the fossil fuel a
year, the company is the world’s largest
thermal coal producer outside China
and India.
The Swiss miner and trading house,
based in Zug, also has a vast network of
metals mines and industrial facilities,
including battery recycling, aluminium
smelting and copper and cobalt mining.
Its commodity trading arm ships raw
materials around the world and trades
products from crude oil to carbon; the
division accounted for one-fifth of the
group’s earnings last year.
Glencore says it is focused on growing
its metals business and producing mate-
rials such as copper, cobalt and nickel
that are essential for the energy transi-
tion. Deals such as a $1.1bn aluminium
tie-up with Norsk Hydro, and plans to
build Europe’s largest battery recy-
cling plant on the Italian island of
Sardinia, are among its recent
investments in this area. The com-
pany has also laid out plans to dou-
ble its copper production.
By contrast, its coal strategy is to
responsibly run down its existing coal
mines to the end of their lifespans,
planning to close 12 between 2019
and 2035. On current projections,
the group will still be producing
coal after 2040.
However, a handful of share-
holders have been calling
A coal facility in since 2021 for Glencore to spin off its
Newcastle, New coal unit, owing to the climate risks and
South Wales. the very different growth trajectories of
Glencore, led by the coal and metals operations.
chief executive “When you look at the structure of
Gary Nagle, Glencore, you see there is a lot of value
below, will still trapped there,” said Chris LaFemina,
be producing analyst at Jefferies. “The coal business
coal after 2040 appears to be depressing the valuation
on current of the entire business.” The miner’s
projections near-50 per cent stake in Viterra, an
Brendon Thorne/Bloomberg
agricultural trading house, was also
undervalued, he added.
Glencore’s chief executive Gary Nagle
— who cut his teeth running the com-
pany’s coal business before taking on his
current role two years ago — said share-
holders wanted the coal business to stay
inside the company. But if that changed,
he would follow suit. “If there was
strong support from shareholders to
divest, it is something we would do,”
Nagle told investors in April.
Glencore has committed to reducing
its emissions — both direct and indirect
— by 15 per cent by 2026, and by 50 per
cent by 2035, relative to a 2019 baseline.
But it has refrained from setting a spe-
cific target for reducing coal output,
which is its biggest source of Scope 3, or
indirect, emissions.
At tomorrow’s AGM, the resolution on
coal disclosure is set to throw all
these issues into focus. The reso-
lution asks Glencore to disclose
how its projected thermal coal
production aligns with the Paris
Agreement’s target of limiting
global warming to 1.5C, and to
detail how the company’s
capex plans line up with those projec-
tions.
“This resolution is hugely important
for assessing transition risk,” said
Naomi Hogan, strategic projects lead at
the Australasian Centre for Corporate
Responsibility, which co-ordinated the
resolution. “Both for now and for any-
thing that happens next, for current
shareholders and future shareholders.”
The resolution does not call for Glen-
core to spin out its coal business.
Glencore has opposed the motion,
arguing that it seeks to influence strat-
egy, which is a matter for the board, and
that it is unclear.
While the disclosures called for are
not vastly different from what Glencore
already discloses, proxy advisers
pointed out that additional information
would be helpful for evaluating future
climate measures.
“The requested disclosures will be
useful for shareholders when evaluating
the company’s 2024 climate plan,”
wrote Glass Lewis in a research note. ISS
similarly recommended voting for the
resolution in its report, which also clas-
sified Glencore’s carbon risk as “high”.
The ACCR resolution may be unlikely
to get the 50 per cent vote share needed
to be binding, because Glencore’s big-
gest shareholders are expected to side
with management. But the measure
could still trigger a mandatory consulta-
tion process, if more than 20 per cent of
shareholders vote against management
and in favour of the resolution.
Such an outcome would echo last
year’s AGM, in which 24 per cent of
‘Whether shareholders voted against Glencore’s
climate plan, triggering a consultation
or not [the process.
Teck deal The company consulted its “major”
shareholders, formally engaging with
and coal about 85 per cent of the registry, but
spin-off] some smaller shareholders said they
were left out.
happens, Giuseppe Bivona, chief investment
the officer at Bluebell Capital, said his firm
was not contacted, despite its outspo-
likelihood ken criticism of Glencore’s climate plans
that they and its calls for a coal spinout.
“When you refuse to talk to the most
would split vocal shareholder, it is a message of con-
coal out has tempt in general vis-à-vis all the dissent-
ing shareholders,” said Bivona.
increased’ As Glencore navigates the AGM, ques-
tions over the future of its coal business
will continue long after the votes are
cast tomorrow.
Its hostile bid for Teck could also be
revived in the coming weeks. Teck’s
board has refused to engage in deal
talks, but Glencore has indicated it will
consider approaching shareholders
directly with an improved offer.
LaFemina, the Jefferies analyst,
believed big changes could be afoot.
“Clearly there is a major restructuring
they have been considering: you merge
with Teck, you spin off coal, you IPO
Viterra,” he said, referring to the agri-
cultural trading group.
Given that environmental, social and
governance concerns were a growing
factor, he thought a coal spinout could
happen sooner rather than later. “The
longer you wait,” LaFemina said, “the
harder it will be to do.”
claims of bid
collusion by
makers of
baby formula
STEFANIA PALMA — WASHINGTON
JAMIE SMYTH — NEW YORK
The US Federal Trade Commission is
probing whether infant formula pro-
ducers, including Abbott Laboratories
and Nestlé, have colluded in relation to
bids for a government programme.
The US regulator last year launched an
investigation into potential co-ordina-
tion among infant formula businesses
regarding a programme by the Depart-
ment of Agriculture that offers free
infant formula to low-income families.
The Special Supplemental Nutrition
Program for Women, Infants, and Chil-
dren, known as the WIC programme,
accounts for more than half of formula
sales in the US.
Documents published on the FTC’s
website indicated the probe was exam-
ining whether any company in the sec-
tor had “engaged in collusion or co-ordi-
nation with any other market partici-
pant”. According to the FTC, just three
manufacturers have bid on contracts for
the government programme since 1996.
The programme is dominated by
Abbott and Reckitt Benckiser. Abbott in
March filed a petition to limit the scope
The probe follows a supply
crisis in 2022 when safety
issues forced Abbott to
temporarily close a plant
of what it described as an “overly broad”
FTC investigation. The regulator denied
that request and, in a document issued
in April, gave Abbott until May 9 to com-
ply with its investigation. Abbott said
the company was co-operating with the
FTC’s request. Reckitt Benckiser said it
could not comment on a pending gov-
ernment investigation.
Nestlé confirmed that it, along with
others in the sector, received a civil
investigative demand related to the WIC
contract bidding process and had
responded to the FTC.
The probe follows an infant formula
supply crisis that emerged in February
2022 when safety issues forced Abbott
to temporarily close a plant in Michigan
that supplied 15 per cent of US formula.
It later worsened because of supply
chain strains linked to the Covid-19 pan-
demic and the war in Ukraine, and
stores including Walmart, Kroger and
CVS rationed sales after panic buying.
In January, Abbott said it was being
investigated separately by the Depart-
ment of Justice in relation to the prob-
lems at its baby formula manufacturing
plant in Sturgis, Michigan.
The crisis focused attention on a lack
of competition in the US infant formula
market. Together, Abbott and Reckitt
Benckiser had a market share of about
80 per cent prior to supply disruptions.
Experts say the high cost of building
plants, getting regulatory clearance and
restrictions on foreign supplies have
helped create a consolidated market.
The two companies are able to main-
tain a large presence in the programme
because they can offer big rebates to
states on bulk purchases that smaller
providers cannot afford. The contracts
enable them to secure the most shelf
space in stores and are a disincentive for
other operators, analysts have said.
Additional reporting by Madeline Speed

Travel & leisure Banks

Newcastle Utd in talks on Saudi sponsor deal
SAMUEL AGINI — LONDON
Newcastle United, the Premier League
football club owned by Saudi Arabia’s
Public Investment Fund, is in talks to
sign a shirt sponsorship deal with a
Saudi company that is also owned by
the PIF, according to three people with
direct knowledge of the matter.
If the talks come to fruition, Sela will
replace gambling company Fun88 on
the front of Newcastle’s match day
shirts. Premier League clubs have
agreed to phase out front-of-shirt gam-
bling sponsors by the end of the 2025-26
season after UK government pressure.
However, the people familiar with the
Sela talks said no deal has been signed
with the Saudi sports, culture and enter-
tainment events company.
Sela’s website says it is owned by
Saudi’s PIF. The PIF’s website lists Sela
as a portfolio company. One of the peo-
ple said a sponsorship could be worth
more than £20mn if it goes ahead.
PIF’s ownership of Sela would fall
under Premier League rules put in place
after PIF’s £305mn Newcastle takeover
in 2021, and which were designed to
ensure related-party transactions are
struck at fair market value. The rules
are meant to prevent clubs from striking
artificially high sponsorship deals that
would give them an unfair advantage.
Newcastle, PIF and the Premier
League declined to comment. Sela did
not respond to a request for comment.
All related-party deals must be sub-
mitted to the Premier League for fair
market value assessment. All deals
worth more than £1mn are also scruti-
nised. The league has a databank of
commercial deals for reference and
makes use of independent third parties
Joelinton wears a shirt with Fun88’s
logo, which could soon be replaced
to assess “fair market value”. Clubs,
which are allowed to challenge the
assessment, can alter the value of a deal
to bring it in line with fair market value
after Premier League feedback.
Newcastle has previously signed a
deal with Saudi Arabian Airlines, the
national carrier, for the players to take
part in warm weather training in Riy-
adh. Noon, an online retailer based in
the Gulf and backed by PIF, is already
Newcastle’s official shirt sleeve partner.
The talks with Sela were first reported
by Sky News.
The potential deal shows how Saudi
money has transformed the club both
on the pitch and commercially since
2021. The consortium also includes
British financier Amanda Staveley and
the billionaire Reuben brothers.
PIF originally agreed to acquire New-
castle in April 2020 but completion was
delayed for more than a year amid con-
cerns over the country’s human rights
record and broadcast piracy. Former
Premier League chair Gary Hoffman
resigned in November 2021 amid anger
from rival clubs over his handling of the
Newcastle deal.
Credit Suisse aborts effort to protect bonuses
OWEN WALKER AND ROBERT SMITH
LONDON
Credit Suisse has given up trying to save
its staff bonuses that were wiped out
after the bank’s rescue by UBS.
Just over $400mn of deferred pay for
Credit Suisse middle managers was
reduced to zero as a result of the state-
orchestrated takeover, and several
bankers are preparing lawsuits against
Finma, the Swiss regulator, over their
losses, the Financial Times reported this
week.
Credit Suisse had appealed to Switzer-
land’s Federal Administrative Court to
protect the bonuses, which were linked
to additional tier 1 bonds that were also
wiped out.
However, the St Gallen court revealed
on Tuesday that the bank had with-
drawn its appeal.
“The withdrawal has the effect of ren-
dering irrelevant the initiated proceed-
ings, and the FAC accordingly struck
them off the list of cases,” the court said,
adding that a further appeal could be
made to the Federal Supreme Court.
The bonuses date back to 2014 when
managing director and director-level ment created after the financial crash of
staff at the bank were offered a contin- 2008 to give banks greater capital flexi-
gent capital award as part of their remu- bility in the event of crises.
neration. The awards were designed to Separately, the Swiss government on
mimic AT1s, which could be converted Tuesday confirmed plans to cut the full
into equity or written down to zero if the bonuses for about 1,000 of the most
bank was in distress. senior bankers at Credit Suisse for 2022
CCAs typically made up about 10 per and 2023.
cent to 15 per cent of a manager’s bonus
and vest after three years. They pro-
vided two interest payments a year. In
2021, the last year they were granted, Legal Notices
more than 5,000 Credit Suisse staff
received them.
Credit Suisse declined to comment.
Credit Suisse told Finma that it did
not agree with its decision to write down
the AT1s.
The court said it had received 230
appeals involving 2,500 appellants
against Finma’s decision to cancel the
AT1 instruments.
Law firms, notably Quinn Emanuel in
Zurich and Pallas in London, have
signed up bondholders representing
more than a third of the $17bn that was
invested in the AT1s when they were
cancelled.
AT1s are a type of hybrid debt instru-
8 ★
Bond investors bet Fed will
keep rates higher for longer
Sticky inflation and continued
strong growth data suggest a
maximum of two cuts this year
KATE DUGUID — NEW YORK
MARY MCDOUGALL — LONDON
Bond traders have had a major rethink
on the path of US interest rates, reduc-
ing bets on a series of cuts after stub-
bornly high inflation readings and
strong economic data.
A little more than two weeks ago,
traders in the Treasury futures market
had put money on the possibility that
interest rates could be cut to 4.2 per cent
by the end of the year, from the current
range of 5 per cent to 5.25 per cent, sug-
gesting three or even four rate cuts. Now
that expected tally has dropped to a
likely maximum of two, taking rates to
4.7 per cent.
The broad shift drags investors more
in line with the consistent message from
the US Federal Reserve that it has no
plans to chip away at rates while infla-
tion remains far above its target. But it
also underlines the state of intense
uncertainty over where markets are
heading next.
“If you are feeling confused about the
macro outlook, it is important to realise
that you are not the only one,” wrote
Dario Perkins, an analyst at TS Lombard
in London.
“A head-clutching Old Testament-
style recession would resolve many of
these tensions and bring some clarity to
the outlook. But I would not be sur-
prised if the confusion continued for a
while longer, with a global macro envi-
ronment that continues to frustrate
both the bulls and the bears.”
Equities
Biggest listed groups issue a record
$326bn of dividends in first quarter
ARJUN NEIL ALIM — LONDON
Dividends issued in the first quarter by
the world’s largest listed companies hit
a record this year, even as prominent
investors and asset managers warn of a
coming global economic slowdown.
The world’s 1,200 biggest public compa-
nies collectively issued $326.7bn in divi-
dends in the first quarter of 2023, a rise
of 12 per cent on the same period a year
ago, according to a quarterly report
from fund manager Janus Henderson.
Payouts to shareholders were boosted
by the largest contribution in nine years
from special dividends, as companies
such as carmakers Ford and Volkswa-
gen made one-off contributions.
The rises reflect the durability of cor-
porate earnings even as stock markets
around the world tumbled on Russia’s
full-scale invasion of Ukraine, high
energy prices and rising interest rates.
Fund managers have also expressed
concerns over the record $1.3tn of share
buybacks that companies engaged in
last year, seen by some as an alternative
to dividends, citing concerns that they
did not benefit shareholders as much as
company management. Ben Lofthouse,
Fixed income. Monetary policy
Expectations for where interest Asset managers have been
rates will be in Dec have risen piling into bets on lower rates
Daily futures pricing for Dec 2023 (%)
5.5
5.0
4.5
4.0
3.5
Dec 2023 May
2022
Sources: Bloomberg; CFTC
Since the collapse of Silicon Valley
Bank and other regional US lenders this
year, financial markets have expected a
credit crunch to result in a US recession,
which could prompt the Fed to cut rates.
Meanwhile, US consumer price rises
have been slowing, reaching an annual
pace of 4.9 per cent in April. Some inves-
tors have taken that, in combination
with the regional bank failures, as a sign
that the Fed will start to reverse the his-
torically aggressive pace of rate rises
that it has executed over the past 14
months.
But the Fed itself has never been sym-
pathetic to that view, and in recent
weeks a growing number of its policy-
makers have reminded traders that the
fight with inflation is far from over. The
US job market has also remained
robust, with the unemployment rate
hovering at 54-year lows. A brief rise in
weekly claims for unemployment bene-
fits earlier in May ultimately turned out
to largely be the result of fraud, econo-
mists said. Bond markets are caught in
these cross currents.
“The data flow has been a bit better
head of global equity income at Janus
Henderson, said the growth was
“impressive, considering the challenges
the global economy faced in 2022”.
Stripping out special payments and
exchange rate moves, Janus Henderson
said global dividends rose 3 per cent in
the first quarter and predicted the total
would rise 5 per cent to $1.64tn in 2023.
Lofthouse said banking and oil were
likely to be among the biggest payers.
Mark Donovan, a senior portfolio
manager focusing on large-cap US equi-
ties at Boston Partners, suggested the
rise in dividends reflected a “growing
acceptance” that managements have to
weigh the benefits of investing profits
back into the company alongside
returning gains to shareholders.
“Energy is a great example where for
years and years a lot of executives were
biased towards putting money back into
projects, many of which yielded low
returns and ultimately resulted in poor
stock price performance,” he said.
“Those executives have figured out that
raising a dividend and increasing buy-
backs is a better way to enrich share-
holders and ultimately keep their jobs.”
Janus Henderson said UK dividends
FINANCIAL TIMES
COMPANIES & MARKETS
Asset manager net contracts in US
two-year Treasury futures (mn)
1.0
0.8
0.6
0.4
0.2
May 2022 2023 May
recently. People got worried [about] the
jobless claims number . . . but then
finding out it was fraud in Massachu-
setts and that we’re trending not quite as
high is one reason we’ve taken out some
of the cuts,” said Jay Barry, head of inter-
est rate strategy at JPMorgan.
Barry also noted that the JPMorgan
surprise index, which compares inves-
tors’ perceptions of economic growth
against the reality in the data, has
jumped significantly.
Fed chair Jay Powell on Friday said
that the credit crunch expected in the
wake of the collapse of the regional
banks may limit how much the Fed
needs to raise rates.
“The sooner we see the Fed stop hik-
ing rates, the less economic damage
we’ll see, so the less need we’ll have to
cut rates,” said Kristina Hooper, chief
global market strategist at Invesco.
This adjustment in views on rate cuts
could matter for asset managers, who
have been piling into shorter-dated
bonds, betting that interest rates will
come down. The yields on shorter-
dated Treasury notes move with infla-
grew 6 per cent to $15.3bn in the first
quarter, driven by payouts from oil
companies, airlines and the contract
caterer Compass. The US was responsi-
ble for close to half of corporate divi-
dends issued in the first quarter of 2023,
Janus Henderson said, with real estate,
tech and healthcare also driving growth.
Dividends from mining companies fell
due to the drop in commodity prices.
Earlier this month Goldman Sachs
forecast dividends would rise 5 per this
year, adding that even in a recession
they were only likely to fall slightly, as
they are the “stickiest” alongside spend-
ing on research and development.
Daniel Peris, a fund manager at Feder-
ated Hermes and author of The Strategic
Dividend Investor, predicted that divi-
dends would increase in popularity,
including among tech companies, as
businesses reduced share buybacks and
competed to attract investors in a
tougher climate.
“The challenge for investors will be to
determine which companies can afford
to do so — are well positioned for the
new cash-based capital markets para-
digm — and which are not,” he added.
Additional reporting by Chris Flood
Fed officials tion expectations, so a rise in yields
insist the fight could be costly.
with inflation is “From here, I think the level of uncer-
not over, though tainty remains high and investors will
chair Jay Powell remain extremely cautious given the
says the credit tail risks ahead and the highly volatile
crunch expected start to the year,” said Kavi Gupta, head
after the of US rates trading at Bank of America.
collapse of US Investors also say that recent progress
regional banks on debt ceiling negotiations could be
may limit the pushing yields higher.
need to raise “This is generally a world where US
rates — FT montage/ Treasury bonds rally on a fear of a
Bloomberg
default by the US government over that
horrendous debt ceiling debate, so the
fact that bonds have sold off and yields
have risen is at least driven in part by
hopes and expectations that a deal on
that is near,” said Jim Leaviss, chief
investment officer for public fixed
income at M&G Investments, on a pod-
cast this week.
Analysts at BlackRock suggested
investors were falling back into the
habit of assuming that market stresses
or economic wobbles would nudge the
Fed and other central banks into back-
‘If you are ing down on rates.
“Most developed markets are grap-
feeling pling with a shared problem. Core infla-
confused tion is proving more stubborn than
expected and remains well above cen-
about the tral banks’ 2 per cent targets,” they
macro wrote in a recent note.
“We think that means central banks
outlook, can’t undo any of their inflation-fighting
it is rate hikes any time soon, even if finan-
cial markets think the Federal Reserve
important will start cutting rates before the end of Our global
to realise the year. We see recession ahead. But team gives you
unlike in the past when central banks market-moving
that you would cut rates to stimulate a struggling news and views,
are not the economy, we think the unresolved infla- 24 hours a day
tion problem makes that unlikely this ft.com/markets
only one’ time.”
Equities
Cboe takes on European bourses with
plan to launch IPOs from Amsterdam
NIKOU ASGARI — LONDON last year, according to Refinitiv data.
“We came to the conclusion that,
Cboe Global Markets is planning to lure
from a capital formation perspective,
companies to list on its markets in
there are gaps where a new, innovative
Europe, aiming to reverse a trend that
listings exchange, thinking and operat-
has seen many companies desert the
ing in a different way, could truly add
continent for the US.
value,” Jos Schmitt, head of global list-
The group, which runs the largest pan- ings for Cboe Global Markets, told the
European share trading venue, is pre- Financial Times. “Europe is one of the
paring to take on the London Stock areas we want to focus on.”
Exchange, Euronext, Nasdaq and Deut-
sche Börse, which dominate the market
for primary listings. Cboe is aiming to
‘There are gaps where a
launch listings in the coming weeks new, innovative listings
from a base in Amsterdam.
Its move comes as Europe suffers a
exchange . . . could
drought of new public offerings and as truly add value’
companies such as Flutter, CRH and
Ferguson give up their European listings The company has an exchange based
for the deep capital pools of New York. in the UK and the Netherlands but is
British chip designer Arm will also list in seeking to hire a director of corporate
the US instead of the London market. listings sales based in Amsterdam,
Officials in the UK and EU are seeking according to a job ad on its website.
to overhaul their capital markets and The focus of the role will be “attract-
listing rules in an attempt to make the ing new public company listings for the
continent more competitive and attrac- Cboe Global Markets in the European
tive for investors and companies. Union”, it says. “We’re looking at both
European companies have raised just the UK and EU,” Schmitt said.
$2.9bn from IPOs so far this year, com- Ian White, analyst at Autonomous
pared with $3.8bn over the same period Research, said Cboe faced “a real uphill
Thursday 25 May 2023
Fixed income
Five top banks
breached gilts
trading laws,
says watchdog
YASEMIN CRAGGS MERSINOGLU AND
JANE CROFT — LONDON
Five of the world’s largest banks broke
UK competition law by sharing sensitive
information when trading British gov-
ernment bonds in the wake of the finan-
cial crisis, according to provisional find-
ings from the country’s competition reg-
ulator.
A small number of traders at Citi-
group, Deutsche Bank, HSBC, Morgan
Stanley and Royal Bank of Canada
unlawfully shared sensitive informa-
tion, including on pricing and strategies,
in chat rooms on Bloomberg terminals
between 2009 and 2013, according to
the provisional finding published by the
Competition and Markets Authority
yesterday.
As a result, the regulator said, the
banks could have “denied the full bene-
fits of competition” to those they were
trading with, including pension funds
and the UK’s Debt Management Office.
Traders swapped information “in the
context of” government bond sales by
the DMO and the repurchase of gilts by
the Bank of England, the CMA added.
“A properly functioning, competitive
bond market benefits tens of millions of
taxpayers and pension savers as well as
being at the heart of the UK’s reputation
as a global financial hub,” said Michael
Grenfell, director of enforcement at the
‘These alleged activities
are therefore very serious
and warrant the detailed
investigation undertaken’
CMA. “These alleged activities are
therefore very serious and warrant the
detailed investigation we have under-
taken.”
The regulator said if it concluded that
at least two banks engaged in anti-com-
petitive behaviour, it might issue fines.
It can levy fines as high as 10 per cent of
global turnover in a relevant market.
There is no investigation into individ-
ual traders as part of the inquiry, which
began in 2018.
“The language used here is quite
punchy,” said Kate Pollock, a partner at
law firm Stewarts, adding that any
potential fines could be “hefty”,
depending on factors such as the extent
and length of misconduct. There could
also be civil lawsuits brought by inves-
tors such as pension funds, she said.
Deutsche Bank first alerted the CMA
to the behaviour. As Germany’s biggest
bank had admitted its involvement in
“anti-competitive” activity, it will not be
subject to any fines.
Citigroup has also admitted involve-
ment and entered into a settlement
agreement with the CMA. It will receive
a discounted fine if penalties are
imposed, the regulator said.
HSBC, Morgan Stanley and Royal
Bank of Canada have not admitted any
wrongdoing, the CMA said, adding that
inquiries continued and its findings
were provisional. The banks will now
formally respond to the findings before
the CMA finally decides whether the law
has been broken.
slog” to grab market share from Euron-
ext. “I can’t see why, as a prospective
new issuer, that a brand new exchange
would be a good place for you to get visi-
bility and interest in your shares, versus
comfortably the biggest capital raising
pitch in Europe,” he added.
Cboe built its name in the US, trading
options such as the Vix volatility index,
and runs Europe’s biggest markets for
secondary trading of shares, but has lit-
tle experience in IPOs. One exception is
at Neo, a Canadian venue bought by
Cboe last year, which has about 60 pri-
mary listings. Schmitt said it hoped to
replicate that success in Europe.
“Our focus will be on earlier-stage
growth companies, for which there is
investor interest across the globe and
where incumbent exchanges are not
providing what it takes to make them
successful,” said Schmitt.
White added that Cboe was “becom-
ing a real nuisance for the continental
European exchanges”, having eaten
away at their market share in equities
trading. It holds a 25 per cent share of
the European equities trading market,
compared with Euronext’s 24 per cent
share, since the start of May.
Thursday 25 May 2023 ★ FINANCIAL TIMES 9

COMPANIES & MARKETS

The day in the markets Sell-side analysts

What you need to know
still deserve a ‘buy’
3 US debt ceiling jitters hit stocks
rating of their own
Short-term yields hit 20-year high as default deadline nears
and bonds
Yield on one-month Treasury bills (%)
3 European and Asian benchmarks down
3 Disappointing inflation figures
unsettle UK markets
6
Robert Buckland
US stocks slid and short-term Treasury 5
yields held near two-decade highs
yesterday, as investors fretted over the
4
Markets Insight

L
looming US debt ceiling deadline while
policymakers struggled for an agreement.
Wall Street’s benchmark S&P 500 was et me take you back to Sep- tread and not everyone succeeded — is everything, while on the sell side,
down 1 per cent and the tech-heavy 3 tember 1989. It was my first leading to significant fines and reforms getting stocks right is just a part of the
Nasdaq Composite fell 1.1 per cent. day at a long-forgotten UK introduced by former New York State job. Building that network is more
Both indices extended losses from the securities house. The head of attorney-general Eliot Spitzer, which important.
previous session as traders grew nervous 2 equity research asked my sought to decouple analyst pay from I am not trying to justify the contin-
at the prospect of an unprecedented US father’s profession — a farmer. Perhaps banking revenues. The decline of sell- ued survival of my profession. The cor-
government default in June. inevitably, I was assigned to the food side research had begun. porate bond markets seem to function
“Optimism over a debt ceiling deal is 1 manufacturing team. It was my job to Whatever you think about the late well enough without armies of sell-side
getting tired out,” said Mohit Kumar, chief get the coffee, help spread the load on 1990s model, it did support big budgets analysts. I’m not convinced that plans to
Europe financial economist at Jefferies. busy results days, prepare stock notes and broad coverage of many stocks. revoke parts of Mifid II will reverse the
The yield on Treasury bills that mature 0 and pore through industry statistics, Some of that coverage may have been decline in sell-side research, which was
next month — at around the date the 2005 10 15 20 23 very much in that order. conflicted but, in my experience, ana- well established before the regulation
government could run out of money — Source: Refinitiv
My farming background was little lysts were much more motivated by arrived. There has always been value in
eased slightly to 5.7 per cent, having help but I did free up my boss to spend their Extel ranking with institutional the networks built by the best sell-side
climbed to 5.88 per cent overnight. The the day calling or meeting investors. It investors than their popularity with analysts. However, clumsy attempts to
rate is at its highest level in more than 20 lowest in almost two months. France’s cent by the end of the year. The yield on struck me that, for somebody called a companies. monetise those networks have pro-
years, surpassing levels since before the Cac 40 fell 1.7 per cent and Germany’s two-year gilts rose 0.24 percentage research analyst, he didn’t spend much voked regulatory crackdowns, and so
financial crisis began in 2007. Dax lost 1.9 per cent, extending their points to 4.37 per cent, its highest level of his time doing research or analysis. reduced future revenue opportunities.
The yield at auction on a US 21-day bill losses from the previous session. since October, when the “mini” Budget of Instead, he worked to build and main- The glory days may be Big banks still employ hundreds of
on Tuesday hit 6.2 per cent, the highest The FTSE 100 was down 1.8 per cent then-chancellor Kwasi Kwarteng sent tain a network across his companies and gone, but research remains company analysts. Alternative financial
level for any US benchmark bond in more and short-term UK bond yields moved markets into a tailspin. the investors who owned (or could own) support for sell-side research might
than 20 years. sharply higher, after inflation fell to 8.7 China’s benchmark CSI 300 index fell their shares. It was intense work. a fulfilling career for the come from prime brokerage, derivative
Meanwhile, investors await the minutes per cent in April, a much smaller drop 1.4 per cent, erasing gains from a rebound His main performance measure was energetic and analytical trading or wealth management. Invest-
from the Federal Open Market than the Bank of England had forecast. rally that pushed the gauge up more than the annual Extel survey, which polled ment banking still pays a large part of
Committee’s March meeting, released “This undoubtedly makes life harder 10 per cent earlier in the year. In Hong institutional investors for their favour- the cost. The Spitzer reforms helped to
later yesterday, which could give an for policymakers and no doubt raises the Kong, the Hang Seng China Enterprises ite analysts. The most highly ranked Then the buy side started to change. safeguard the independence of analysts.
indication of the Federal Reserve’s chance of yet another . . . rate hike in index fell as much as 1.6 per cent. were those with the widest and deepest The rise of passive funds drove down the But it didn’t stop the cross-departmen-
interest rate path. June,” said James Smith, developed Japan’s Topix shed 0.4 per cent, and networks, not always those who made profitability of active fund managers. tal subsidy. To quote one large bank
In Europe, the region-wide Stoxx 600 markets economist at ING. Traders now Australia’s S&P/ASX 200 fell 0.5 per cent. the best stock calls. The Institutional These pressures were passed on to the CEO: “Research is a cost of bringing
traded down 1.8 per cent, hitting its bet BoE rates will peak at about 5.3 per Daria Mosolova and Hudson Lockett Investor magazine survey carried simi- sell side via lower commissions. The footfall to the franchise.” It might be
lar significance in the US. EU’s Mifid II rules, which unbundled tough to justify sell-side research as a
Top-ranked analysts were coveted for payments for trading and research, revenue generator nowadays. It’s easier
Markets update the trading commissions they brought compounded the squeeze. Under the to justify as a marketing expense.
in but also their potential to attract traditional commission-based model, Even if the glory days are gone, sell-
lucrative investment banking business. asset managers paid for sell-side side company research remains a fulfill-
It was easier for a banker to win the research using client funds. Following ing career for the energetic and analyti-
US Eurozone Japan UK China Brazil mandate to handle an initial public Mifid II they paid directly out of their cal. It’s a great place to learn how to
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa offering if they had a big name analyst in own revenues. Predictably, these pay- research companies and build networks
Level 4109.13 1813.01 30682.68 7627.10 3204.75 108734.10 the sector. “Ranking and banking” was ments collapsed, a fatal blow for some — valuable skills in any profession. I
% change on day -0.88 -1.73 -0.89 -1.75 -1.28 -1.09 the battle cry of the late 1990s. This led independent research houses. eventually moved on to more macro
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $ to inevitable conflicts. Were analysts Few readers will mourn the decline of roles but I never regret where I started. I
Level 103.482 1.078 138.555 1.242 7.050 4.963 being paid by investors who wanted an sell-side analysts, and many will criti- hope I made my father proud.
% change on day -0.006 0.000 0.000 0.000 0.000 0.000 independent view, or by companies who cise the inaccuracy of their stock recom-
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond wanted a positive case put to the mar- mendations. But that is to neglect a key Robert Buckland is a markets analyst, for-
Yield 3.719 2.470 0.404 4.343 2.741 11.384 ket? This was a difficult tightrope to contrast: on the buy side, performance merly global equity strategist at Citigroup
Basis point change on day -1.920 0.600 0.450 5.000 0.500 -3.900
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 425.18 78.29 74.40 1969.20 23.16 3634.70
% change on day -1.08 1.89 2.04 -0.06 -2.89 -1.06
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index
4240 1880 8000

4160 1840

4080 1800 7680

4000 1760
| | | | | | | | |
3920 | | | | | | | | | | | | | | | | | || | 1720 | | | | | | | | | | | | | | | | | | | | 7360 | | | | | | | | | | |

Mar 2023 May Mar 2023 May Mar 2023 May

Biggest movers
% US Eurozone UK
Corning 2.47 Evonik Industries 2.31 Intertek 3.36
Marathon Oil 2.35 Colruyt 0.69 Ocado 2.29
Ups

O'reilly Automotive 2.16 Edenred 0.36 Sse 1.63

Apa 1.96 Dsm 0.31 Fresnillo 0.79
Baker Hughes 1.80 Repsol 0.30 Airtel Africa 0.34
%
Analog Devices -8.22 Infineon Tech -4.66 Prudential -5.94
Intuit -7.99 Saipem -4.53 Aviva -5.88
Downs

Agilent -7.98 Cnh Industrial -4.40 Persimmon -5.52

Dish Network -6.36 Unicredit -4.19 Phoenix Holdings -4.57
Microchip Technology -5.51 Continental -3.93 Taylor Wimpey -4.55
Prices taken at 17:00 GMT Based on the constituents of the FTSE Eurofirst 300 Eurozone
All data provided by Morningstar unless otherwise noted.

Wall Street Europe London

Sinking to the bottom of the S&P 500 Video games company Embracer At the top of the FTSE 100 index was
index was Agilent Technologies, the lab plummeted after revealing that a “major Intertek, the testing group, which
instrument manufacturer, which trimmed strategic partnership” would “not reported a 6.5 per cent rise in like-for-like
its guidance to reflect “increased market materialise”. revenue growth between January and
uncertainties”. This led to a chunky earnings miss for April. This surpassed the 4.2 per cent
Third-quarter revenue would land the Swedish group, which expected to analysts had expected.
between $1.64bn and $1.66bn, falling generate adjusted operating profit of Intertek said it was benefiting from an
short of the £1.68bn Wall Street had between SKr7bn and SKr9bn ($650mn to increase in demand from its assurance,
expected, while its full-year revenue $840mn) in its 2023-24 year — more than testing, inspection and certification
target was lowered to a range of $6.93bn 23 per cent below the SKr10.5bn analysts services.
to $7.03bn, down from the $7.03bn to had forecast. Close to the bottom of the blue-chip
$7.10bn stated in February. What struck Citi during its earnings call benchmark was Aviva following reports
At the top of the blue-chip benchmark with Embracer was that the seven that activist investor Cevian Capital had
was materials group Corning, known for months invested in these failed sold almost its entire stake in the insurer.
its Gorilla glass, which announced a 20 negotiations had “crowded out Europe’s largest activist fund had been
per cent increase to its display glass investments . . . that could have been applying pressure on Aviva to increase its
substrate prices. more profitably made elsewhere”. payouts to shareholders. Cevian’s exit
This was intended to offset “elevated France’s Exclusive Networks sank coincided with the release of a
costs in energy, raw materials, and following an accelerated bookbuilding first-quarter update described as
other . . . operational expenses”, it said. offering by one of its shareholders. “decent” by broker Panmure.
Department store chain Kohl’s rose HTIVB sold a 3.7 per cent stake in the Heading the FTSE 250 index was
sharply after delivering far better than cyber security specialist, 0.6 per cent of Marks and Spencer, which delivered an
expected results, posting earnings of 13 which was bought back by Exclusive at “impressive” profit for the second half of
cents per share in the first quarter, way €19 per share, more than 9 per cent below its financial year, said Jefferies.
above the 42 cents per share loss Tuesday’s closing price. The retailer planned to restore a
analysts had earmarked. HTIVB is controlled by Olivier dividend for its 2024 year as it posted an
Inventory also declined 6 per cent year Breittmayer, the founder and former chief annual profit before tax and adjusting
on year, alleviating fears over high executive of Exclusive. items of £482mn, comfortably beating
stockpiles that have blighted retailers. Weaker order growth weighed on the broker’s £433mn estimate.
Clothes retailer Abercrombie & Fitch Aalberts, the Dutch industrial equipment Aarin Chiekrie, equity analyst at
surged after increasing its full-year group, which said its order book at the Hargreaves Lansdown, flagged “good
outlook for sales and operating margin. end of April was 4 per cent higher year on progress” in the group’s clothing and
This came as it delivered a decade-high year, trailing the 51 per cent growth at the home section, an area where M&S has
first quarter for net sales. Ray Douglas same time last year. Ray Douglas “struggled in recent years”. Ray Douglas
10 ★ FINANCIAL TIMES Thursday 25 May 2023

MARKET DATA

WORLD MARKETS AT A GLANCE FT.COM/MARKETSDATA

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

-0.88% -0.94% -0.80% -1.75% -1.73% -0.89% -1.62% -1.08% -0.186% -0.403% -0.06%
0.321% 0.230% 1.37%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparison
AMERICAS EUROPE ASIA
Apr 25 - - Index All World Apr 25 - May 24 Index All World Apr 25 - May 24 Index All World Apr 25 - May 24 Index All World Apr 25 - May 24 Index All World Apr 25 - May 24 Index All World

S&P 500 New York S&P/TSX COMP Toronto FTSE 100 London Xetra Dax Frankfurt Nikkei 225 Tokyo Kospi Seoul
30,682.68 2,567.45
20,676.74 7,914.13
4,109.13 15,863.95 15,821.01
4,071.63 19,982.68 28,657.57 2,489.02
7,627.10
Day -0.88% Month -0.67% Year 4.25% Day -0.97% Month -3.53% Year -1.67% Day -1.75% Month -3.75% Year 1.75% Day -1.92% Month -0.35% Year NaN% Day -0.89% Month 7.50% Year 13.72% Day 0.00% Month 0.91% Year -3.02%

Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
12,442.36 9,406.40 3,324.55
54,713.70 1,850.35
9,163.50 19,617.88
11,799.16 19,115.93 3,214.21
53,379.93 1,813.01
Day -0.94% Month 3.37% Year 10.47% Day 0.71% Month -2.22% Year 4.28% Day -1.73% Month -2.46% Year 7.15% Day -1.12% Month -2.68% Year 6.23% Day -1.62% Month -4.93% Year -6.76% Day -0.12% Month -3.34% Year -0.09%

Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
109,421.17 7,573.86 27,537.07 3,367.03 61,773.78
33,530.83
103,946.58 26,524.54 60,056.10
32,789.56 7,253.46 3,204.75
Day -0.80% Month -3.19% Year 2.72% Day -1.09% Month 4.61% Year -1.67% Day -1.70% Month -4.27% Year 14.07% Day -2.39% Month -4.40% Year 9.89% Day -1.28% Month -2.92% Year 1.84% Day -0.34% Month 3.60% Year 13.84%

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12
Brilliance of 100
brief encounters
THEATRE
Sarah
Hemming
W
hen Ruth Wilson took
to the Young Vic stage
for a nine-minute
standing ovation at the
end of The Second
Woman last Saturday afternoon, she
was wearing slippers. Understandably.
She had just finished 24 hours of near-
constant performance, delivering the
same short scene 100 times over, each
time with a different stage partner. In a
fairly fancy pair of heels.
It was a stunning achievement,
brilliantly executed by Wilson: confir-
mation of her exceptional skill and
empathy as an actor. More than that, it
proved a rich and revealing piece of
drama — a study in human behaviour, a
witty exploration of gender dynamics
and a celebration of the unpredictable
nature of live theatre. So popular was
the event (co-produced with LIFT) that
hundreds queued for hours round the
block to get in. #TheQueue trended
on Twitter.
The appeal of the piece, first staged by
Nat Randall and Anna Breckon in Aus-
tralia in 2017, lies in its combination of
epic and intimate, repetition and inno-
vation, text and improvisation. The
scene, inspired by John Cassavetes’ 1977
film Opening Night, is simple enough.
Virginia — blonde wig, red velvet dress,
pointy slingbacks — sits in a room await-
ing a visit from Marty. It’s clear that they
have previously argued.
He arrives with some takeaway noo-
dles, apologises for his earlier reaction,
they have a drink, she asks him for reas-
surance, they dance, it gets messy. He
leaves. She tidies up, resets the music,
★ FINANCIAL TIMES
sits down calmly to await the next guy.
In a kind of multiverse scenario, each
iteration of Marty is played by a differ-
ent stranger, the vast majority male
non-trained actors sourced by a public
callout. They’ve learned the script —
apart from a couple of key responses
that they can freestyle — but have had
no rehearsal with Wilson. The fascina-
tion for the audience is watching the
countless variations on this encounter,
Wilson’s instant ability to assess her
partner, and her playfulness.
Cameras relay minute changes of
expression live on a big screen, but their
presence also reminds us of the clichéd
ways women can be depicted on stage
and screen. The set — a red room in a
gauze box — becomes Virginia’s prison
but also her domain. The audience,
itself shifting and changing, becomes
integral to the piece, growing more
vocal as time passes.
One (young) man apologises for her
being mistaken as his mum in the super-
market (her eyes narrow), one man
So popular was ‘The
Second Woman’ that
people queued for hours
round the block to get in
knocks back the booze (she joins him,
glugging down glass after glass), one guy
tidies up, another is so patronising that
she stuffs her noodles into his jacket
pocket. Some Martys are arrogant,
some are angry, some are kind, some are
broken; some encounters are moving,
some funny, some aggressive.
A chap in Cuban heels deliberately
takes her seat and she drags him to the
floor by his tie. Is he acting or being him-
self? Every now and then a celebrity
walks through the door — among them
actors Andrew Scott, Idris Elba, Ben
Whishaw and Tom Burke, playwright
ARTS
Ruth Wilson Jack Thorne and director Edgar Wright
performed — delighting the audience and giving
almost nonstop Wilson even freer rein (she smeared
for 24 hours in noodles on Scott’s face).
‘The Second It’s compulsive, funny, far from bor-
Woman’ ing — I had to tear myself away after six
Helen Murray
and a half hours. “It’s like a survey of
men,” said my neighbour at one point,
and it does partly feel like a compen-
dium of every awkward date you’ve ever
been on. But it’s also essentially playful
and good-natured. And it’s the growing
involvement and bonding together of
the audience that makes it. There is
something uplifting about watching
epic theatre — be it Peter Brook’s
groundbreaking The Mahabharata, Ivo
van Hove’s six-hour Roman Tragedies or
Duckie’s eccentric sleepover piece, Lull-
aby. You lose track of time, surrender
yourself to a story, immerse yourself in a
makeshift community of strangers and
stagger out to be surprised by the busy
street outside.
The Second Woman is sure to surface
again soon. Meanwhile a documentary
film of this version is in the works. And,
when Wilson has caught up on her sleep,
let’s hope she’s back on stage soon.
youngvic.org
Before Brokeback Mountain was a semi-
nal Ang Lee film, with Heath Ledger and
Jake Gyllenhaal on heartbreaking form
as two ranch-hands who fall in love, it
was a short story by Annie Proulx. It’s
that story that Ashley Robinson’s new
play adapts, creating an intimate drama.
What we lose is the film’s staggering
A bitingly modern Wozzeck
O PE RA
Wozzeck
Royal Opera House, London
aaaae
Richard Fairman
It is extraordinary to think that Büch-
ner’s play Woyzeck was written before
Queen Victoria came to the throne and
Berg’s opera, which is based on it, before
the Great Depression. Was it really the
1830s when Büchner conceived a totally
modern scene like the downtrodden
Wozzeck providing a urine sample dur-
ing nearly abusive clinical trials?
The opera’s stark message about the
poor and forgotten in society feels as bit-
ingly modern as ever, so there is no
pressing need for a director to double
down on its relevance. For the Royal
Opera’s new production, Deborah
Warner sets the work in the present day
— there are modern suits and a fridge in
Marie’s kitchen — but it never feels as if a
point is being made.
This is par for the course with a
production that does not seek to be
interventionist. As in her Britten stag-
ings, Warner favours a naturalist telling
of the story, without an agenda, on an
open panoramic stage. The opera looks
striking in Hyemi Shin’s designs, is
well paced (it runs straight through
with no intervals in just over an hour
and a half) and plays host to an excep-
tional portrayal of the title role by
Christian Gerhaher.
We first encounter Wozzeck mopping
the floor in the men’s toilet at the bar-
racks. From the hostile glances he gets
from the soldiers and his own deference
scenery — the vast mountain ranges of
Wyoming — and footage of the oppres-
sive social conservatism of small-town
America in 1963. In their place comes a
chamber piece, closely focused on the
two men and the impact of that context:
the fleeting sense of freedom they find
on the mountainside; the furtive and
increasingly desperate nature of their
meetings in the 20 years that follow.
Robinson styles it as a memory play,
opening with the older Ennis (Paul
Hickey) being dragged out of sleep by a
jaunty song on the radio. “Don’t let the
years get you down,” it chirps; Ennis’s
scowl lets you know what he thinks of
Mike Faist, left, and Lucas Hedges in ‘Brokeback Mountain’ — Manuel Harlan
towards them, it is clear that even
among the everyday working class
Wozzeck ranks as the lowest of the low.
Gerhaher, looking nervy and defensive,
sees deep into the inner Wozzeck,
putting a gulf between himself and
everybody else, a man who entertains
dreams, or visions, that take him close
to the borders of sanity.
It can be tempting to think of Ger-
haher primarily as a Lieder singer, but
this portrayal reminds us of the reach of
his voice. He packs more than enough
power and has the incisiveness to get the
words over the orchestra, as well as a
heartfelt tenderness for the few affec-
tionate moments with Marie.
In that role Anja Kampe is predictably
vivid, her fearless singing recalling the
unforgettable Anja Silja more than 40
years ago. Among the supporting cast,
Peter Hoare teeters brilliantly on the
edge of black comedy as the Captain.
Thursday 25 May 2023
The Second Woman
Young Vic, London
AAAAA
Brokeback Mountain
Soho Place Theatre, London
AAAAE
this dime-store philosophy. But as he
picks up and cradles an old work shirt,
we realise that his accrued years are a
torment in more ways than one. He has
grown old. Jack, the love of his life,
has not.
Ennis’s younger self and Jack then
step on to the stage to replay the story,
starting with their first meeting, when
they are dispatched up the mountain to
herd sheep for the summer. The con-
trast between them is beautifully delin-
eated by Mike Faist and Lucas Hedges.
Faist’s Jack, talkative, sparky and
impulsive, has a lithe, easy charm and
rarely stops moving; Hedges’ Ennis,
laconic, cautious and introverted, sits
silent and withdrawn as his companion
rattles on. “You ain’t much of a talker,”
observes Jack, drily, at one point.
But in Jack’s nervous energy and
Ennis’s wariness, we see common
ground: both are buffers against a
tough, unpromising life (Tom Pye’s set
is spartan; furniture is shabby). What
they find is not just a sexual but an emo-
tional connection, and Faist and Hedges
let you see how Jack’s performative con-
fidence and Ennis’s tight reserve are
covers for feelings they can’t fully
express. There’s a deft performance too
from Emily Fairn as Ennis’s wife Alma,
another lonely casualty of this tor-
mented situation.
The flashback format is awkward,
obliging Hickey to hang around a lot
with little to do. But Jonathan Butterell’s
atmospheric staging is laced with coun-
try-inflected music by Dan Gillespie
Sells (Everybody’s Talking About Jamie),
delivered by a terrific onstage band with
Scottish singer-songwriter Eddie
Reader on vocals, Greg Miller on har-
monica and BJ Cole on pedal steel guitar.
The songs, evocative of time and place,
also sit adjacent to the emotions on
stage without expressing them directly.
The score gently expands what we see
on stage: an achingly sad love story told
with tenderness and care.
To August 12, sohoplace.org
Brindley Sherratt is less individual as
the Doctor, but sings imposingly, and
Clay Hilley trumpets his tenor strongly
as the preening Drum Major. Rosie
Aldridge and Sam Furness provide
decent support as Margret and Andres,
and John Findon makes much of the
small role of the Fool.
The concentration of the perform-
ance feels as if every note counts, an
impression largely generated from the
pit. Other conductors have found
greater transparency in Berg’s music,
but Antonio Pappano’s combination of
attention to detail, depth of sound and
dramatic drive makes for a compelling
experience. As the blood-red moon rises
at the back of the stage and Pappano
draws the orchestra to its peak, this
Wozzeck takes its place as one of the
finest performances of recent seasons.
To June 7, roh.org.uk
Peter Hoare,
left, and
Christian
Gerhaher
in ‘Wozzeck’
Tristram Kenton
Thursday 25 May 2023
Periods of economic and geopolitical turbulence have often boosted the precious metal. Now a drive
towards record prices is also being pushed by central banks worried about the strength of the dollar.
How long will the gold boom last?
I
n a high-security vault in London’s
Mayfair, where the glass is thick
enough to resist automatic gunfire
and four control rooms keep watch
around the clock, some of the
world’s wealthiest individuals have
been rushing to store gold.
The small safes inside, which cost as
much as £12,000 annually, are set to be
full by the end of the year as clients
resort to securing more hard assets, a
sign of the troubled times.
Clients have a growing “alertness to
the new world order”, says Ashok
Sewnarain, chief executive of IBV Inter-
national Vaults, the Mauritian company
that owns the vault. “We have mistrust
in the banks, huge inflation and a global
divide on reserve currencies.”
The rush to gold by the global elite is
being mirrored by emerging market
central banks. Last year central banks
bought 1,079 tonnes of bullion — the
most since records began in 1950.
As a result, gold has been hovering
close to its nominal all-time high of
$2,072 per troy ounce — the traditional
unit for precious metals — since late
March. Many speculators, or gold bugs,
are holding their breath as they wait for
a new record to be set.
Gold has long been a safe haven in
times of turbulence, and that is no less
true today. Coronavirus, the war in
Ukraine, geopolitical tensions, inflation
fears, mounting global debt, high inter-
est rates and the banking crisis have all
prompted investors to re-evaluate
safe-haven assets. Gold has been the
beneficiary.
“In the past decade, it was low infla-
tion and high growth, globalisation and
peace, laissez-faire economics and an
invisible hand, and tech outperform-
ance,” says Nicky Shiels, head of metals
strategy at MKS Pamp, a Swiss precious
metals trading firm. “Each of these
structural themes is unwinding
concurrently, which is creating a posi-
tive environment for gold and other
commodities.”
There is also a geopolitical factor, as
developing countries grow wary of the
strength of the US dollar. As the west
imposed sanctions on Russia following
the invasion of Ukraine, the US and its
allies froze $300bn of foreign exchange
holdings denominated in dollars, euros
and sterling. That alarmed many coun-
tries with US dollar holdings, whose cen-
tral banks have been racing to diversify
their holdings, and buy more gold.
“Gold has become progressively geo-
political,” says Sebastien de Montessus,
chief executive of Endeavour Mining, a
London-listed gold producer.
The revival in gold’s fortunes has cen-
tral bank officials, fund managers and
retail investors anticipating a new
gilded period. Some forecasters reckon
gold could be on its way to its real record
high of nearly $3,300 per troy ounce in
today’s dollars, set in 1980 at a time
of oil-driven inflation and Middle East
turmoil.
If today’s stagflation, geopolitical ten-
sions and dedollarisation persist, then
some say bullion will keep shining. “Is
this a new era? Simply, yes,” says Ruth
Crowell, chief executive of the London
Bullion Market Association, which sets
the global standards and price bench-
marks for gold trading. “The shift to
gold is about creating a more neutral
portfolio in response to geopolitics.”
On the other hand, gold prices are
notoriously fickle. As fear and panic ebb
and flow, the price surge could prove to
be temporary. And concerns over gold’s
environmental impact — and the fact it
has no role in the energy transition,
unlike other metals — could also damp
its prospects in the long term.
Gold is having its moment, but how
long will it last?
The fear index
A primary motivator for gold’s resur-
gence is concern about the reliability of
other liquid assets.
As markets have become more vola-
tile in recent months, investors have
been turning to gold anew. It has gained
a fifth since November, after the col-
lapse of three regional US banks and the
takeover of Credit Suisse by UBS.
“Gold is indicating that there’s a high
degree of fear in financial markets,” says
Ross Norman, chief executive of Metals
Daily, a precious metals data provider.
“It’s a bellwether and the bell is ringing.”
For some, this is validation of long-
held beliefs on the security of the global
economy. David Franks, a modern-day
gold bug, holds more than £2mn in bars,
coins and mining stocks but has other-
wise steered clear of investing in the
equity markets.
★ FINANCIAL TIMES
FT BIG READ. COMMODITIES
By Harry Dempsey and Leslie Hook
Many countries
see gold as a
The UK-based restaurant owner says
the scale at which governments printed
more secure bet
than other
money after the 2008 financial crisis to
return economies to health made his
reserve assets. investment choices a no-brainer.
Vladimir Putin, “At some stage, the world will wake up
below right, to America having debt way beyond its
called it Russia’s means. I don’t see any other answer
‘safety cushion’
against crisis
than gold or silver,” he says. “If you have
held it since 2008, it hasn’t done excep-
FT montage/Alexsey tionally well. I’m reassured one day, per-
Druginyn/RIA Novosti/Pool/
Reuters
haps before I die, that it will do well.”
His fears over a lack of other investa-
ble asset classes resonate beyond the
bullion vaults that deal with customers
prone to thinking in terms of crisis and
catastrophe. Such concerns are accentu-
ated as the US debt ceiling negotiations
go to the wire again this month.
Janet Yellen, US Treasury secretary,
has warned of financial and economic
catastrophe if Congress does not agree
to raise the federal debt limit by the
start of June, which would raise the pos-
sibility of the first ever default on Treas-
ury debt.
Mark Bristow, who leads Barrick
Gold, the world’s second-largest gold
producer, agrees with Franks. The cen-
tral banks of the world have run out of
options, he argues, the inflation genie is
out of the bottle and emerging nations
face the risk of a US dollar debt spiral.
“The harsh reality is when you have
more debt than GDP, there’s only two
ways to get out of it: have a major finan-
cial correction or grow your way out. We
can’t grow out of this,” he says. “The
only way out is a hard global landing.”
Distrustful of dollars
Beyond individual investors, the rise in
gold has, in part, been driven by a global
Gold’s rally towards a record ... ... as central banks buy more
Gold price ($ per troy ounce) Share of gold in official reserve assets (%)
4,000 30
Adjusted for inflation* 25
3,000
20
2,000 15
10
1,000
5 developing
Nominal price
0 0
1980 90 2000 10 23
Sources: Refinitiv; FT calculations; World Gold Council; IMF * Using US CPI, constant 2023 prices
shift away from the almighty dollar.
Since the 2008 global financial crisis,
there has been a clear push to diversify
reserve currencies: the US currency’s
share of global foreign exchange
reserves has slid from more than 70 per
cent in 2000 to less than 60 per cent
today. That shift has been led by Russia,
China, Turkey and India. “A lot of coun-
tries have understood that the dollar
was a weapon, serving the US,” says de
Montessus of Endeavour Mining.
For Russia, the west’s sanctions have
only increased its reliance on gold,
which it also mines domestically. When
‘Is this a new era? Simply,
yes. The shift to gold is
about creating a more
neutral portfolio in
response to geopolitics’
the global financial crisis struck in 2008,
Vladimir Putin praised Russia’s gold and
hard currency reserves as the “safety
cushion” for the Kremlin to ease eco-
nomic pain for millions of Russians.
Three years later, the Russian leader
toured the depository at the central
bank in downtown Moscow, flexing a
gold bar weighing more than 10kg. At
that time, Russia’s central bank was in
the early stages of quietly increasing the
share of the precious metal in its inter-
national reserves. Today gold accounts
for about 25 per cent of Russia’s $600bn
in total reserves — rising almost sixfold
in tonnage terms since 2007.
As countries search for alternatives to
the dollar, a key question is what role
Advanced
economies
All countries
Emerging
and
countries
1995 2000 05 10 15 22
gold will play in Beijing’s plans to inter-
nationalise the renminbi. In December,
Xi Jinping touted settling payments for
Saudi oil and gas in renminbi — which
analysts say will only gain traction if it
can be converted into gold. “Gold is re-
entering the world system in terms of
payments,” says Paul Wong, market
strategist at Sprott Asset Management.
The People’s Bank of China has the
largest foreign exchange reserves in the
world at about $3.2tn and has reported
adding gold for six months running —
although many in the gold industry sus-
pect the level of buying has been higher
than officially reported figures.
This could help China challenge the
US currency, says Oliver Ramsbottom, a
partner at McKinsey. “China’s sustained
gold purchases could be interpreted as
part of a long-term policy to loosen capi-
tal controls, thereby increasing the ren-
minbi’s challenge to the US dollar.”
Economies in distress, typically heav-
ily indebted in US dollars, are also turn-
ing to gold. Before its default in Decem-
ber, Ghana, the world’s sixth-largest
gold producer, proposed paying for oil
imports in bullion — not dissimilar to
the medieval barter trade of gold for salt
between Mediterranean economies and
west Africa. Another mining nation,
Zimbabwe, is launching gold-backed
digital tokens in an effort to prop
up its inflation-stricken cur-
rency.
After the gold rush
While gold enjoys its moment
to shine, it is hard to predict
how long this rally will last.
Precious metal price forecast-
ers are sometimes compared with
those who sit in the fold-down seat
facing backwards in London taxis —
they can only see what has come, not
what is ahead.
That is, partly, because $12tn of gold
sits above ground with supply increas-
ing at a 2 per cent rate last year, putting
an outsized focus on demand push-and-
pull factors that work in complex and
unpredictable ways. Gold prices col-
lapsed from a high of $1,920 per troy
ounce in 2011 after the financial crisis to
nearly $1,200 two years later.
In the near term, the key factor deter-
mining gold prices will be the path taken
by the US Federal Reserve to balance
keeping the economy healthy and get-
ting inflation under control. That will be
pivotal for whether asset managers join
13
retail investors and central banks in pil-
ing in for bullion, after 10 months of out-
flows for gold-backed exchange traded
funds until March.
Fed officials signalled last week they
would not be deterred from further
interest rate rises to tackle inflation
after market expectations of a pause
had been rising, causing gold to ease off
to about $1,970 per troy ounce as higher
rates raise bonds’ attraction relative to
non-yielding bullion.
Success in bringing down rising prices
from April levels of 4.9 per cent to the
Fed’s target of 2 per cent would further
damp enthusiasm for gold, a hedge
against inflation. An agreement on the
US debt ceiling could also put down-
ward pressure on bullion prices.
Longer term, consumer appetite for
the precious metal may be depressed by
the state of the gold mining industry
itself — especially as it comes under
greater pressure to lower emissions,
reduce environmental impact and
become more transparent.
“We are now firmly in a world that is
decarbonising,” says Tom Palmer, chief
executive of Newmont Corporation, the
world’s largest gold miner, which sealed
a $19bn deal for Australian rival
Newcrest this month.
He expects this will drive more merg-
ers in the gold mining industry, as com-
panies need longer-life mines to meet
their climate targets and environmental
goals. “We are in an industry that is con-
solidating.”
Gold, one of the least reactive ele-
ments, has little direct role in the energy
transition, unlike many other more
functional metals. But its deposits are
often found alongside copper, which is
crucial for low-carbon technologies
such as wind turbines, electric cars and
power transmission lines. Only 8 per
cent of gold is used in applications such
as technology, medicine and industry —
the rest is mainly for jewellery and
investing.
That is not lost on gold mining execu-
tives, many of whom are trying to
increase copper production. “If I were to
get in the time machine and go forward
10 years, I think a lot of gold companies
will be producing copper,” says Palmer.
1,079 However, the shift towards a low-
carbon world works against gold miners
tonnes too: a growing cohort of researchers are
calling for gold mining to be curtailed
Bullion bought by
central banks last because of its environmental impact.
year, the most since A recent paper led by Stephen Lezak,
records began a researcher at the Scott Polar Institute
at the University of Cambridge, found
52% that the carbon footprint of extracting
gold was at least as much as all intra-
Share of professional
investors who say European aviation, and says global
gold is the safest demand can mostly be met by recycling.
asset, according to a “When you think of gold, you think of
Bloomberg survey this clean, pure, luxurious substance.
Nothing can be more at odds with the
$3,289 reality of how gold is produced,” says
The record gold price
set in 1980, adjusted
Lezak, who points to impacts such as
mercury emissions, water use and car-
for inflation. Prices
this year have
bon emissions. “It’s easily replaceable
and massively harmful.”
hovered just below
$2,000 While many gold executives argue
they improve the quality of life for local
communities by providing jobs, and are
$12tn reducing their environmental impacts,
The value of the concerns over sustainability are set to
supply of gold that grow.
sits above ground
This may not improve gold’s reputa-
tion among younger investors, who are
more likely to be lured by digital invest-
ments such as NFTs or crypto.
Although the industry-funded group
World Gold Council is working on plans
to set up a gold-backed stablecoin,
Andreas Habluetzel, chief execu-
tive of Degussa Goldhandel, a
European gold dealer that owns
British bullion house Sharps
Pixley, believes that the digiti-
sation and generational chal-
lenges will limit gold’s ability to
rally further.
“In Europe, the younger gener-
ation are not really into gold. I don’t
think we have a lot of chance for
upside,” he says. Despite the collapse of
the crypto exchange FTX, he rues that
“trust is back and crypto will have a
future place as an asset class”.
Crypto enthusiasts do at least have
one thing in common with gold bugs:
sympathy for the idea that the fiat cur-
rency system is broken, and is heading
for catastrophe. While risks remain
present in the global economy, and as
equities and bonds have shown signs of
reversing their 20-year pattern of rising
simultaneously, many will continue to
put their faith in a weightier investment.
“It’s hard to push back against an
asset with a 5,000-year history of pro-
viding wealth,” says Metals Daily’s
Norman.
14 ★ FINANCIAL TIMES Thursday 25 May 2023

The FT View
Investors can play their part in the war on superbugs
As McDonald’s is targeted,
governments also need to
tighten and enforce rules
Antimicrobial resistance is one of the
critical issues of our time. Bacterial
infections that are resistant to antibiot-
ics caused 1.3mn deaths worldwide in
2019, more than malaria; by 2050 the
toll is expected to reach 10mn a year.
Attention has largely focused on over-
prescription of antibiotics by doctors,
leading to excessive consumption.
Investors are now rightly taking aim at
overuse in industrial farming and live-
stock production — which can fuel not
only resistance but the emergence of
drug-resistant superbugs in people.
European asset managers Legal &
General Investment Management and
Amundi are among those targeting the
fast food giant McDonald's at its annual
meeting today. They are pushing the
ft.com/opinion company to stick to World Health
Organization guidelines on antibiotics
use across its supply chain.
McDonald's acknowledges that AMR
is a “critical global public health issue”
which, along with suppliers, it has
a responsibility to help address as one of
the biggest beef buyers in the world. It is
adamant it has a “strong record of
responsible antibiotic use” and works in
line with WHO guidance. But critics say
the fast food company has been water-
ing down its commitments on antibiot-
ics use and recently published more
limited targets.
Investors are right to agitate, but
governments and international bodies
must step up too. The Covid-19 pan-
demic undid some of the progress made
in controlling AMR. Meanwhile, no new
classes of antibiotics have been brought
into circulation since the 1980s. Though
the pharmaceutical industry has
committed $1bn to fighting drug-resist-
ant superbugs, it prefers funding more
lucrative medicines.
The WHO has warned that AMR is
a top global public health threat, but it
needs to tighten and enforce rules. The
economic consequences are also poten-
tially significant. The World Bank says
in a worst-case scenario, antimicrobial
resistance could reduce annual global
gross domestic product by 3.8 per cent
by 2050, push an additional 28mn peo-
ple into extreme poverty, and increase
global healthcare costs by $1tn a year.
Drug-resistant infections change the
profile of many medical interventions.
Without effective antibiotics, cancer
treatments and other pharmaceuticals
may be undermined.
The McDonald’s resolution may well
not pass. A similar one last year failed to
win support from major shareholders
Vanguard and BlackRock; this year
shareholder advisory firms ISS and
Glass Lewis have also recommended
rejection. Yet investors and companies
should be attentive. As with resolutions
that have demanded action on climate
change from oil companies, some Euro-
pean investors are ahead of the curve
Though the compared with many US counterparts.
pharmaceutical As more data is published and real-
world impacts proliferate, investors will
industry has
inevitably take a more activist stance
committed $1bn against public companies that have a
to fighting hand in industries that perpetuate
drug-resistant AMR. The topic has not yet attracted the
bacteria, it same support as climate change, but if
prefers funding climate-style litigation is replicated,
lawsuits could start to target those per-
more lucrative ceived to be enabling AMR.
medicines Climate change itself is exacerbating
many health challenges, which makes
tackling AMR even more important.
Higher temperatures are making the
outbreaks of various illnesses more
common and more severe; flooding can
spread disease through sewage contam-
ination and poor hygiene and displaced
individuals often have little access to
clean water. Poorer countries in Africa
and Asia will be among the hardest hit.
What has been dubbed “the silent
pandemic” requires the intervention
at a global level of investors and govern-
ments alike.

Opinion Society
Letters
Email: letters.editor@ft.com
Include daytime telephone number and full address
Corrections: corrections@ft.com
If you are not satisfied with the FT’s response to your complaint, you can appeal

Why we shouldn’t be so to the FT Editorial Complaints Commissioner: complaints.commissioner@ft.com

anxious about anxiety Danger of growing use of biometric data is staring us in the face
Ben Hickey The Ada Lovelace Institute is
concerned that Chris Philp, the
policing minister, is considering
(Report, May 16) expanding police use
of facial recognition, including
integration into body-worn cameras.
The use of biometric data, such as our
faces, fingerprints and voices, raises
significant legal, ethical and societal
risks. This uniquely personal data can
be used not only to identify, but also to
categorise and classify, inferring
characteristics such as gender and race.
Last year, we published an
independent review of the governance
of biometric data led by Matthew
Ryder KC, which found that existing
frameworks are inadequate,
fragmented and failing to keep pace.
Crucially, this means the legality of
facial recognition for policing is highly
uncertain. We believe “one-to-many”
identification and categorisation in
public services should be halted until
primary legislation is passed.
However, this goes beyond policing.
Biometrics are being used by public
and private organisations, including
employers and schools, and in public
spaces, such as shops and public
transport. Our research shows that the
UK public has significant reservations
about the use of facial recognition by
private companies.
Parliamentary committees, the
biometrics commissioner and other
experts agree on the lack of adequate
governance. The 2019 Conservative
party manifesto promised that police
technologies would be used safely
“within a strict legal framework”.
Yet the government hasn’t delivered,
and the data protection and digital
information bill may become another
missed opportunity. Similarly, the
government’s proposals for regulation
of artificial intelligence look only to
existing regulators and so provide no
meaningful further protection.
The UK’s inaction stands in stark
contrast with the EU, which is passing
AI legislation, including a ban on
biometric identification in public
spaces. We hope that the government
will take the steps needed to establish
the biometrics governance regime the
UK public so urgently needs.
Francine Bennett
Interim Director, The Ada Lovelace
Institute, London EC1, UK

positive or negative may have crucial
Jemima implications for our wellbeing.
“Meta-anxiety — anxiety about
Kelly anxiety — is exactly the thing that’s
destroying us,” Tracy Dennis-Tiwary,
a clinical psychologist and author of
German pension funds technical challenges. Tell that to John F Fine the water bosses what
Kennedy in 1962, when he set his
prefer the old reliables they take out in bonuses
John Thornhill (“Europe needs to
country a target to send men safely to
and from the moon within 10 years. Both Britain’s main political parties
‘Frankenstein’ its start-up sector”,
Opinion, May 19) makes a cogent point
Equipped with technology that had a
fraction of the power of a modern
had the opportunity to reform the
water industry. Both failed (“Water
about the dearth of investment by smart phone, the US built a machine company dividends double to £1.4bn

I
was once, as an intern, told by
a veteran reporter that if I was
ever asked the classic “What
do you think makes a good
journalist?” question in a job
interview, there was only one correct
answer: paranoia.
I confess to having been somewhat
perplexed at the time, but 10 years
later, I get it. I wasn’t being encouraged
to go around imagining that everyone
was out to get me. Rather, I was being
reminded of a journalist’s responsibil-
ity to publish accurate and fair infor-
mation. It was a warning against
complacency. A nudge, if you like,
to hold on to a little bit of good old-
fashioned anxiety.
He needn’t have worried too much
about me: I’m fairly familiar with
anxiety’s pulse-quickening, breath-
shortening charms, which extend to
my work. But he was also tapping into
Future Tense: Why Anxiety is Good For
You (Even Though it Feels Bad), tells
me. “That’s why we’re having this
mental health crisis now. We’re
talking about it incorrectly.”
Dennis-Tiwary says that rather than
trying to avoid anxiety, we should be
facing it to build skills and emotional
resilience that help us manage it.
Further, by framing it negatively, we
miss out on the opportunity to harness
the more positive features it can
bring: vigilance, focus, motivation and
a burst of energy that can help us
perform at our best.
If we don’t always frame it as a nega-
tive, we can experience what some
neuroscientists call “good anxiety”.
“Good anxiety is situational, time-lim-
ited and very motivating,” Morra
Aarons-Mele, author of The Anxious
Achiever: Turn Your Biggest Fears Into
Your Leadership Superpower, tells me.
“It’s the anxiety that we need to do
great things, and often the anxiety that
German pension funds into their own
start-up sector. However, he omits to
mention the old adage that “necessity
is the mother of all invention”.
The euro provides Germany with the
European equivalent of the dollar’s
“exorbitant privilege” but within the
eurozone, pumping cash into German
coffers and driving the German
industrial engine.
Why invest in risky start-ups when
there are safer and larger returns to be
made from investing in older, more
reliable businesses, particularly if you
are a risk-averse pension fund?
Michael Ledzion
Cambridge, UK
Pollution-free flying
is no longer a pipe dream
Your article, “Aviation will need
€300bn for EU green hydrogen”
(Report, FT.com, May 22) is neatly
proximate to the $260bn in 2020
money that America spent to send men
to the moon.
A narrative exists that suggests
pollution-free flying is a fantasy that
cannot be attained due to intractable
that travelled over 393,000km through
space, landed on and took off from the
moon, and returned three astronauts
safely. That happened in 1969.
Our moonshot is to build propulsion
units that allow travel over distance
and heights akin to current generation
commercial aircraft. Yes that is a
serious challenge and it will be costly,
but are we really suggesting that the
data processing and technology
capabilities that exist across the
Americas, Europe and Asia are
incapable of meeting that challenge?
A determination by governments
and the nous of the private sector
worldwide is well capable of delivering
pollution-free flying, and that will open
a cornucopia of opportunity for the
aviation industry and its customers.
Joe Gill
Director of Origination and Corporate
Broking, Goodbody, Dublin, Ireland
despite sewage outflows anger”,
Report, May 9).
Fines are only effective if they are
personally levied on the directors. The
fines should equate to their bonuses.
They award themselves unjustified
bonuses. The government or the
regulator should cancel the bonuses
until they honour the investment to
renew our pipes and sewers, which has
been promised every time prices have
been raised for the past 50 years.
J L Fynaut
London N10, UK
OPINION ON FT.COM
Erdoğan is driving a high-performance car
towards the ditch
Turkey’s vigorous export-oriented private
sector economy is being threatened by
the president’s monetary chicanery, writes
Alan Beattie
www.ft.com/tradesecrets

By framing it negatively,
we miss out on the
opportunity to harness its
more positive features
an idea that a growing body of
research is pointing to: anxiety is not
something we can or even should
always try to eradicate entirely, and
that we actually need a bit of it to
perform well, and even to help us lead
happy and fulfilling lives.
Of course, it should be said, beyond
a certain point anxiety can become
debilitating, and clinical intervention
is needed to deal with serious anxiety
disorders. But we seem to live in a soci-
ety that is increasingly anxious about
anxiety’s very existence.
It was the theme of last week’s
mental health awareness week, run by
the Mental Health Foundation. On the
foundation’s “anxiety statistics” page
we are told that in 2022-2023, 37 per
cent of women and 30 per cent of men
in Great Britain reported high levels of
anxiety, up from 22 per cent and 18 per
cent respectively from 2012 to 2015 —
a rise often attributed to increased
social media use, as well as worries
about external threats from climate
change, AI and pandemics. Above the
statistics, there is a warning: “This
content mentions anxiety, which
some people may find triggering.”
But what if part of the problem is
that we are thinking about anxiety the
wrong way? A study published in
Emotion, a peer-reviewed journal, in
March found that judging emotions as
we feel because we care, because we’re
emotionally invested in the outcome,
because we want to be excellent.
Because we’re scared as hell, we
go for it.”
All of that is very well, you might
think, but given how cripplingly awful
anxiety can feel, how can we tap into
the “good” variety when we are in the
grips of its horror? One way is to
respond physiologically: doing
breathing exercises that let us know
we are safe by stimulating the
parasympathetic nervous system,
or undertaking physical activity,
which releases feel-good endorphins
and serotonin.
But another technique is something
that Harvard Business School psychol-
ogist Alison Wood Brooks has called
“anxiety reappraisal”. When we are
feeling anxious, our bodies and brains
are in a state of increased arousal and
alertness similar to — and sometimes
indistinguishable from — excitement.
Our heart rate quickens, adrenaline
surges and we prepare ourselves for
action. Brooks’ research suggests that
reframing anxiety with simple tweaks
— such as saying “I’m feeling excited”
rather than “I’m feeling anxious” —
can be surprisingly effective.
Of course, when anxiety has
reached a point at which it is difficult
to go about daily life, such techniques
are unlikely to be sufficient. But if we
experience it at a more moderate
level, we should try to see it for what it
is: a normal, even healthy human
emotion that our very survival as a
species has relied upon. If you’re never
anxious, you’re probably not alive.
jemima.kelly@ft.com
A
OUTLOOK round a wood-burning
stove in a shop in Bajram
B A LK A N S Curri, northern Albania, a
circle of women work,
chat and swap photos of
their sons and husbands, almost all of
whom are in London. Of the 12,310
As jobless men Albanian migrants who went to the
UK last year on boats, an
flee abroad, overwhelming majority were men
from this mountain region. They left
because of a lack of work or a sense of
Albanian boredom and hopelessness.
This exodus is transforming the
lives of the wives and mothers they
women grasp left behind. At the Bajram Curri shop,
women gather to make food, produce
handwoven clothes and jewellery, and
new freedoms draw hiking maps to sell to locals and
visitors. By keeping the home fires
burning they’ve created precisely
what their men lacked: a social life, a
source of income, and hope.
Despite a recent boom in tourism,
Albania’s chronic jobs shortage is still
driving men away. Economic
conditions are nothing like as desperate
as they were under communism, but
the transition to a prosperous market
economy is proving long and hard.
The country has some of the lowest
wages and highest living costs in the
Balkans. A proposed minimum wage
will be insufficient to meet surging
inflation: in 2021-22, Albanians spent
as much as 60 per cent of their income
on food alone, explained Andi Hoxhaj,
a western Balkans specialist at
University College London.
Lured by rumours of easier
by Camilla Bell-Davies lifestyles, farmers moved their
families to small urban centres like
Barjam Curri. The shop’s website
manager, Gerta, lived in the
countryside growing vegetables and
rearing sheep until her father decided
to relocate to a dingy apartment in
town in 2007. When he was unable to
find work, the family almost starved.
It’s common in these cases for
women to become breadwinners using
“indoor skills” such as cleaning or
shopkeeping, says Catherine Bohne,
an Italian-American who has lived in
these mountains for 15 years and
helped set up the Bajram Curri shop.
“Meanwhile men sit around drinking
rakia and feeling emasculated.”
Under communism, women were
active in the labour market but in the
1990s patriarchal norms resurfaced,
pushing women back inside the
homes, especially in more remote
parts of the country. Now, men slip
away quietly — many who leave
simply go into town carrying a T-shirt
in a plastic bag and don’t come back.
“Often the men don’t send money
back for ages because they owe debts
to human traffickers or they can’t
make enough doing manual labour.
The women left behind just have to
get on with things,” Bohne says.
This can bring new freedoms in its
wake. Gerta has learnt tech skills from
running the website and will go to
university next year. Lida, the shop
manager, was confined to the house
by her husband until he left to find
work in Belgium. With four kids to
raise alone, she made jewellery to sell,
gained confidence and eventually
stopped texting her husband to ask
permission to go out.
The shop’s next project is to create a
network for women who earn a living
by growing or gathering things: wild
blueberries, blackberries or chestnuts.
Before, these women would earn just
€10 for three days’ work from an
exploitative market collection point.
The ladies in the shop encouraged
them to make jam instead, which they
can sell for €5 a pot.
For every success story, there are
still women who are starving, who
become victims of modern slavery, or
who have to pay off debts for a son who
took a boat to London. But there are
some positives for the next generation.
Mothers expecting their sons to leave
are likely to focus on their daughters’
studies. In 2021, 71 per cent of
university enrolments in Albania were
women, up from 58 per cent the decade
before. Meanwhile male participation
in the labour force has declined
steadily over the past 30 years.
Two hours away from Bajram Curri,
in Shtiqën village outside Kukës, lives
Naze, 89, with her daughter and three
granddaughters. Since her sons and
grandsons are all in London, she
focuses her energies on her girls
instead, and “not just finding them a
wealthy husband”, she says proudly.
Naze’s nine-year-old granddaughter
greets me shyly in English. “She
studies hard,” says Naze. “One day,
she will be president of Albania.”
The writer is a reporter based in the
Balkans
Thursday 25 May 2023
Don’t treat crypto like gambling — even if it is largely pointless
MARKETS
Helen
Thomas
E
ven the heat of Miami can’t
warm a crypto winter.
The faithful descended on
Florida last weekend for the
world’s “biggest bitcoin
event”. Only half as many made the
journey as in 2022. Some of the buzz and
meme coins were gone. So was the sense
of indestructibility, after a year in which
some of crypto’s biggest names cratered
and US agencies launched a slew of
enforcement actions in the sector.
There was a cold blast from Westmin-
ster last week too, where an influential
parliamentary committee suggested
that crypto was, not disruptive or rene-
gade, but worse: borderline irrelevant.
Unbacked cryptoassets, said the
Treasury select committee, had “no
intrinsic value” and served “no useful
Beware Musk’s
warped
libertarianism
AMERICA
Edward
Luce
F
uture generations might say
that the big event of 2023 was
when Elon Musk thought of
TruthGPT — the “maximum
truth-seeking AI” he plans to
launch. Musk is many things — brilliant
engineer, massive risk-taker, overgrown
adolescent. One thing he is not is some-
one who can be trusted with a technol-
ogy that could assume God-like influ-
ence over our lives. Nor is anyone for
that matter. But the point about billion-
aire libertarians is that they have the
money to do whatever they want.
There are roughly eight billion rea-
sons why the rest of humanity should
find that disquieting. We could start
with the most basic: American liber-
tarians should rarely be taken at face
value.
They generally share two characteris-
tics. The first is that they are rich. It is as
rare to find an impoverished libertarian
as it is to find a wealthy socialist. The
second reason is that their libertarian-
ism rarely stretches beyond their per-
sonal freedoms, especially the liberty
not to be taxed. Other people’s freedom
is their own lookout.
Once you accept that Musk’s world
view seems to be that he should
Bank of England needs to improve its communication on inflation
Jagjit
Chadha
S
ince it was granted opera-
tional independence, the
Bank of England has had an
honourable record in control-
ling inflation. Its Monetary
Policy Committee met its inflation
target in the quarter century from May
1997 to May 2022. But as has been well
documented in the past year, it seems to
have blotted its copybook.
Inflation has peaked in double digits
and the figures just announced for this
April fell much less than the BoE had
forecast. It seems likely to stay above
target for the rest of this year and the
next, raising the strong possibility of
monetary policy having to induce a
recession to attain price stability for the
first time since the early 1990s.
No doubt some mistakes have been
made, but what is just as important are
the lessons we need to learn in setting
social purpose”. The right thing to do to
protect consumers, it suggested, was to
regulate this activity as gambling.
This was dismissive, appealing and,
I think, wrong. The committee has
a point about utility. You can be open-
minded about the potential for distrib-
uted ledger technology, or even stable-
coins and central bank digital currency,
and still think cryptocurrencies have
totally failed to demonstrate their use-
fulness, as a store of value, medium of
exchange or tool for financial inclusion.
“The industry still does a very bad job of
explaining things,” says Oliver Linch,
chief executive of Bittrex Global. “It’s
been wink wink . . . if you know, you
know, to the moon nonsense.”
The committee’s concern was that
financial regulation would mean a “halo
effect” for that kind of guff, giving a false
sense of safety — a legitimate concern.
But “to say it’s gambling makes no sense
legally”, says Marc Jones, partner at
Stewarts Law firm, noting the owner-
ship aspect to cryptoassets. Nor would it
be likely to result in effective regulation.
The dividing line between financial
regulation and gambling is already
be allowed to do what he wants, his
philosophical confusion ceases to mat-
ter. The same applies to many in his
cohort, such as Peter Thiel, Ken Griffin
and Charles Koch. Watch what they do,
not what they say. Many of them sub-
scribe to the outlook on life of Ayn
Rand’s epic individualist John Galt, the
fictional character in Atlas Shrugged,
whose selfishness is presented as heroic.
This novel’s message is that extreme
selfishness can be extremely moral.
Some of Musk’s fellow billionaires
support Donald Trump, who is the most
un-libertarian figure in US politics. If
the former president is re-elected next
year, he has promised to pass a federal
ban on abortion, deport millions of ille-
gal immigrants and impose a loyalty test
on federal employees. He has vowed to
be America’s “retribution”.
Little of this fits with commonsensical
ideas of freedom. Many plausibly argue
that Trump’s return would spell the end
of US liberal democracy. Not much of
this seems to bother the libertarians.
Trump, of course, enacted the largest
corporate tax cut in US history — a $2tn
measure that disproportionately bene-
fited the super-rich. That Musk is this
week hosting Ron DeSantis’s presiden-
tial launch on Twitter is a nuance. The
Florida governor wants to be Trump
without the personal drama.
Most billionaires, whether on the left
or the right, think that they got rich
because government stayed out of the
way. You hear this account as much
from Mark Zuckerberg’s liberal friends
as from conservatives. However, this is
a path for an independent central
bank in the second quarter of the 21st
century.
First, we need to focus BoE resources
on understanding inflation, perhaps
even renaming the worthy quarterly
Monetary Policy Report the Inflation
Report once again. And we must reiter-
ate that inflation is neither temporary
nor permanent; it is controlled by the
central bank, which responds to the
shocks given the structure of the econ-
omy and the instruments at its disposal.
That does not mean that we should
become inflation zealots; the MPC can
choose to move gradually in response to
an inflation shock if it judges that output
or employment would be too violently
affected by an immediate return to
price stability.
Second, we desperately need the right
narrative to communicate clearly to
market participants and to households,
who have been shocked by the rapid
increase in the bank rate.
The UK is a small open economy
with a supply side hampered by the
effects of Brexit and labour and supply
chain shortages that have, in turn, been
★ FINANCIAL TIMES
Opinion
murky. Spread betting and other types
of leveraged trading are taxed as
gambling but regulated by the Financial
Conduct Authority. Adverts for betting
platforms prominently display that
80 per cent of retail accounts lose money,
an at-source version of the FCA’s warn-
ings in the absence of more powers.
Meanwhile, UK gambling regulation
is still trying to catch up with the inven-
UK regulation of the betting
industry is still trying to
catch up with the invention
of the smartphone
tion of the smartphone. It is “not fit for
purpose”, says Matt Zarb-Cousin, who
campaigns to clean up gambling. This
year’s gambling reform proposals
belatedly pledge controls on free bets
and other inducements. The FCA sent
shares in spread-betters tumbling in
2016 with leverage limits and bans on
account bonuses and promotions.
Crypto (and spread betting) can cause
often convenient amnesia. Musk’s
Tesla, for example, received $465mn of
taxpayers’ stimulus money in 2009. The
research that resulted in Google’s search
engine was funded by the National Sci-
ence Foundation in the 1990s. They
seem like small numbers today but they
were decisive when these big fish were
minnows.
Libertarian free speech values are
also selective. Among democracies, the
US is unique in interpreting any curb
on election spending as an attack on
free speech. That means people like
Musk have infinitely more speech than
the average person. There are no limits
on what they can contribute to their
favourite causes or candidates. Peter
Thiel’s $15mn was critical to JD Vance’s
He is not someone who can
be trusted with technology
that could assume God-like
influence over our lives
exacerbated by food and energy price
shocks.
We neither emphasised the size of
these shocks nor their specificity to the
UK. As a result, we were not sufficiently
clear about the need to signal an early
start to the normalisation of monetary
policy, which was too often conflated
with tightening.
The situation in the US, for example, a
The institution’s
job is to explain
and manage risks
on society’s behalf
large producer of oil and food, was quite
different and our rates need not have
followed the same path.
Third, we need to move away from
one model, one forecast and one interest
rate choice. Models are nearly always
wrong but they have their uses. And, by
and large, that is to help us think about
risks. It is the central bank’s job to
explain and manage those risks on
gambling-like harm, says Zarb-Cousin.
But better to incorporate protections
such as self-exclusion tools into the
tougher financial framework.
Dividing responsibility between
regulators would be a mistake. The
crypto universe doesn’t neatly split into
conceivably useful and definitely point-
less. A split is an invitation for regula-
tory arbitrage. And the intersection of
crypto with mainstream finance should
be of as much interest to regulators as
the tokens themselves.
The committee’s report seems
unlikely to prompt a change of direction
from the government, which in Febru-
ary followed Europe and other jurisdic-
tions such as Hong Kong in proposing to
regulate crypto under the UK’s existing
financial services framework.
That doesn’t make it insignificant.
After much excitable talk about the UK
as a “global crypto hub”, the mood has
shifted — a shift that, oddly, this latest
broadside could reinforce. Crypto will
increasingly be asked to play by the
rules of mainstream finance. The com-
mittee is unlikely to be pushing for a
lighter touch in the name of innovation.
success in winning an Ohio Senate
seat last year. Both Thiel and Vance are
admirers of Viktor Orbán, Hungary’s
self-styled illiberal prime minister.
Musk has converted Twitter into his
idea of a free-speech platform. He
alleged Twitter was censored by liberals
prior to his $44bn acquisition last year.
To be sure, there were instances where
flags were put on tweets that went
against the rapidly evolving science on
Covid, such as mask wearing, for exam-
ple. Its guidelines were often arbitrary.
Now, however, it is turning into a vehi-
cle for Musk’s id. Last week he tweeted
that George Soros, the liberal billion-
aire, was a menace to civilisation: He
“hates humanity”, said Musk. Soros
demonisation is a sure sign you are fall-
ing into dark conspiratorialism. See
Orbán, Russian president Vladimir
Putin or Benjamin Netanyahu, Israel’s
premier.
Musk’s love of free speech vanishes
when it comes to China. I challenge
readers to find one critical thing Musk
has said about the most censored big
society’s behalf. The risks of higher
and lower inflation include assessments
of the transmission of policy and
the response to a decisive shift of
regime, which would mean perma-
nently higher interest rates. It is reduc-
tive to translate that task of risk man-
agement into a single interest rate
choice every few weeks.
Rather, the central bank needs to spell
out the path of rates required to manage
those different risks. Or at the very
least allow external members of the
MPC to set out their thinking at press
conferences. That so many of these risks
are financial in nature strengthens the
case to merge the MPC with the BoE’s
Financial Policy Committee.
Fourth, there is a perception that the
BoE has been taken over by the Treas-
ury since the financial crisis. External
and internal MPC members have been
appointed by the Treasury, with the
bank increasingly providing a kind of
retirement home for former Treasury
officials.
At a time when excessive levels
of quantitative easing have been blur-
ring the boundary between monetary
This is also true internationally. The
US crackdown rests on protecting inves-
tors using the same securities laws and
standards as for the rest of finance:
“There’s no reason to treat the crypto
market differently just because differ-
ent technology is used,” said SEC chair
Gary Gensler last year. Iosco, the co-or-
dinating body for global securities regu-
lators, this week called for watchdogs to
move faster in establishing a “level
playing field between cryptoassets and
traditional financial markets”, includ-
ing breaking up crypto firms where
services including broking, trading and
custody are combined in a way that
would be unacceptable elsewhere.
All signs to date — from Binance’s
troubles in securing licences, to the low
success rate for UK anti-money laun-
dering registration — suggest that large
parts of the crypto world, even those
eager for the warm glow of accredita-
tion, will struggle to clear basic hurdles,
let alone a like-for-like standard. As
the crypto winter lifts, it won’t just be
conference audiences that have shrunk.
helen.thomas@ft.com
Ellie Foreman-Peck
society on earth. Twitter is blocked in
China. But Tesla has a large plant in
Shanghai and is planning to open
another. “I’ll say what I want to say and
if the consequence of that is losing
money, then so be it,” said Musk when
asked about his comments on Soros.
That was badly misleading. Musk can
tolerate losses on his Twitter vanity
project. But he has bet the farm on
Tesla. Criticising China would put
Tesla’s business model in jeopardy.
Musk, like Thiel, has the right to say
what he likes and invest his money
where he wants. Nothing in America
is seriously threatening that. But this
does not give him the right to be taken
seriously.
The sooner people see Musk’s politi-
cal motives for what they are, not what
he claims them to be, the better for soci-
ety’s mental health. Even if he were
right about government’s failings,
Washington needs to put a titanium
fence around AI.
edward.luce@ft.com
and fiscal policy, this is unfortunate.
Although it is highly desirable to have
a co-operative relationship between the
Treasury and the BoE, the political
antennae of the former should not be
transmitting a signal to the latter.
The BoE needs to focus on the plumb-
ing of monetary and financial markets
without any suggestion of interference
from the other side of town.
And so the government and the
Treasury should have been warned not
to be tempted to take credit for any fall
in inflation.
Unfortunately, it is also clear that the
level of public understanding of infla-
tion, interest rates and debt is not where
it ought to be. Some 30 years ago, the
BoE did a sterling job in explaining the
case for price stability. The MPC and
central bank can do more now by hold-
ing their policy meetings as set-piece
events around the country.
This would not only support regional
economies but also promote a national
focal point for the BoE’s vital work.
The writer is director of the National Insti-
tute of Economic and Social Research
15
Europe must
take defence
innovation
seriously
Nathan
Benaich
T
he way we fight wars is
changing. We’ve all seen
the images from Ukraine
of miles-long Russian tank
convoys being picked apart
by cheap drones. And as early as 2010,
the Stuxnet worm wreaked havoc with
Iran’s nuclear programme.
Considering the rapid growth of the
European tech ecosystem in recent
years, Europe’s absent track record in
defence innovation is striking. A new
€1bn Nato initiative will provide finance
for future deep-tech start-ups, but so
far the continent’s sole tech champion,
Helsing, is almost entirely backed by
one investment company.
Artificial intelligence is already dis-
rupting defence and Europe has to
decide whether it wants to embrace this
challenge or outsource it. While out-
sourcing might be easier in the short
term, it means leaving control of strate-
gically important technology in the
hands of others, including autocracies.
European venture capital is failing to
go after the hardest problems. Democ-
racy won’t defend itself with the next
grocery-delivery app. While Andrees-
sen Horowitz’s American Dynamism
project may have been mocked by some
in Europe, no one has been brave
enough to start an equivalent drive for
a “European Dynamism”.
VC has a crucial role to play in
defence. In the US, venture-backed
companies such as Palantir and Anduril
have achieved significant scale. Euro-
pean VCs, however, have swerved the
sector out of ethical discomfort, opting
to avoid difficult questions, rather than
make the case to both their backers
There is a lack of political
courage, a reluctance to
make choices and a
culture of penny-pinching
and their own teams on why this field is
important. Meanwhile, many European
limited partner agreements rule out
defence investments altogether.
But governments also have a responsi-
bility to nurture this evolving sector. I’ve
come across entrepreneurs working on
critical challenges, whether in multi-
sensor perception or drone technology,
whose businesses live under a constant
existential threat — from their own cus-
tomers in national governments.
The industry is hamstrung by lengthy
procurement procedures that favour
entrenched incumbents. Challengers
find themselves fighting for small
exploratory projects with poor conver-
sion to large-scale contracts. This makes
it hard to build a business sustainably.
It’s unsurprising that investors are
reluctant to back the sector.
These failings stem from a cultural
issue in European innovation.
First, there is a lack of political cour-
age. Partnering with early stage busi-
nesses risks governments investing in
technologies that may not succeed. It
also means, in some European coun-
tries, diversifying away from manufac-
turers in which they own significant
stakes. Considering the major defence
companies’ dismal track record of deliv-
ery, viewing them as the “safe” option is
perverse. The UK’s £5.5bn Ajax tank
from General Dynamics — which is run-
ning six years late and beset with flaws
— is just one example of such pro-
grammes running into difficulty.
Second, there is a reluctance to make
choices. European countries should bet
bigger on a small number of key tech-
nologies. While hardware is important,
we will never be able to outproduce the
US or China. However, being relatively
smaller makes it easier for European
militaries to digitally transform them-
selves.
Finally, we are plagued by a culture of
penny-pinching. Vast sections of our
economy are being rebuilt ground-up,
AI-first. This work is crucial but it is not
cheap. Europe’s low levels of uncoordi-
nated defence spending have already
given rise to under-investment of about
€160bn, compared to 2008 spending
levels.
The first waves of AI progress stemmed
from 20th century co-operation between
industry, investors and government in
the US. Europe will need to summon up
similar ambition and collaboration to
succeed in the 21st.
The writer is a general partner of Air Street
Capital and co-author of the State of AI report
16 ★ FINANCIAL TIMES Thursday 25 May 2023

SSE: the hum of the parts

The UK energy group was left with three main businesses after selling its British household supply division in
2020. It plans to drive growth in energy networks and renewables through an upgraded £18bn five-year
investment plan. SSE shares have performed well in the past year.

Twitter: @FTLex
Executive pay:
marked men
The US Securities and Exchange
Commission wants shareholders to
register when executives receive
windfall pay packages. But a change in
remuneration disclosure formulas
could unintentionally reveal them
theoretically owing the company.
Last year, the SEC instituted a new
rule requiring annual proxy filings,
before annual shareholder meetings to
elect directors, to include disclosures
on “pay versus performance”. Starting
this year, listed US companies must put
their total shareholder return numbers
alongside executive pay. They must
also lay out clearly the measures used
to determine remuneration.
Add to those disclosures
“compensation actually paid”. In past
proxy filings, a typical summary pay
table would show the value of cash and
shares. But the equity component’s
worth would reflect a share price at the
grant date. If the stock price rocketed
up, under the previous reporting
regime, pay would be understated.
Or, in the case of Nvidia’s chief
executive, overstated. The
semiconductor high-flyer’s shares lost
about half their value in the US tech
crash of 2022. Jensen Huang, its CEO,
had “actually paid” remuneration of a
negative $4mn, relative to the
originally reported value of $21.3mn.
Companies are quick to point out
that even these marked-to-market
figures are not the final word. Until
shares fully vest, and are sold, realised
pay remains hypothetical. Companies
have also complained that the new
rules are unnecessarily onerous.
But increased executive pay
information has been mandated by
Dodd-Frank reform laws enacted in the
wake of the financial crisis. A few years
ago, the SEC required companies to
compare the median employee pay to
that of the boss. At Nvidia, the typical
worker made a healthy $228,000
annually, though the chief executive
took home nearly 100 times that sum.
The data reveals that large stock
grants can, unsurprisingly, be volatile.
In the previous two years, Huang’s
stated pay was just over $40mn in
total. But, on a market value basis, that
figure was above $180mn due to
Nvidia’s strong share price
performance during that period.
Whether Huang is over or
underpaid, given the broader wealth
creation under his tenure, is a question
for shareholders. But, in future,
working through the tedious maths
becomes the company’s responsibility.
Property tech:
flipping out
There is a stalemate in the US
residential property market. Many city
centre office blocks are empty.
Developers disdain turning them into
housing at scale. Higher interest rates
make mortgages less affordable. Sellers
refuse to countenance price cuts.
The hiatus is weighing on housing
technology companies. Seattle-based
Redfin’s shares are down 90 per cent
from its 2021 high. Zillow stock has
fallen 77 per cent. Venture capital-
backed funding for so-called proptech
dropped more than a third year on year
in 2022, says the Center for Real Estate
Technology & Innovation.
A market rebound this year is
unlikely. Mortgage applications hover
at a three-decade low, says the
Mortgage Bankers Association. Despite
the slowdown, hesitant sellers mean
median prices fell just 3.3 per cent in
March year on year, according to
Redfin’s own data. But lack of
inventory means the property market
is unlikely to repeat its financial crisis-
era slump. Buyer demand remains
high. If Redfin and Zillow can cut costs,
they can ride out the stagnant market.
Both have quit the pricey house-
flipping market, in which companies
buy properties, make repairs and list
them for a higher price. Both have
shrunk their workforces, too. Redfin
expects a net loss of $35mn in the
second quarter on revenues of $275mn,
according to Visible Alpha, down from
a loss of $78mn the previous year.
Rising rates could offer a chance to
expand mortgage sales and services by
using data to develop appealing digital
products. Strengthening ties between
property agents and home loans is key.
Mortgages are a small, lossmaking
part of Redfin’s business. But it is
growing fast. Some 20 per cent of
Redfin homebuyers use it for a
mortgage. If it can lift this “attach rate”
to 30 per cent, it might add another
$20mn or so of revenue. Redfin’s
challenge is clear: if it can keep a lid on
SSE’s ebitda by division
Adjusted operating profit (£mn)
2023 2022
Networks
Renewables
Thermal and gas storage
Other businesses including
corporate unallocated
-200 0 200 400 600 800 1,000
FT graphic Source: SSE/FT research
Eighteen months ago SSE was in the
eye of a storm. These can knock
down electricity lines, less so power
plants. Activists nevertheless wanted
to break it up. Boss Alistair Phillips-
Davies can feel justifiably warm and
dry after holding firm.
Arguments for a break-up centred
on SSE’s “inefficient” structure. Yet
its diversity helped last year as
Russia’s invasion of Ukraine shook up
energy markets. Today its shares
trade on a forward earnings multiple
of more than 12.5 times, cheaper than
some European peers such as
Iberdrola on 16 times, as well as
National Grid at 15.7 times.
SSE’s thermal generation business
contributed most to adjusted annual
pre-tax profits, up 89 per cent to
operating costs, mortgages could be the
third-largest part of the business and
the only one to report a profit.
Personal computers:
reboot required
When the iPad first went on sale in
2010, pessimists proclaimed the end of
the laptop era. Ten iPad generations
later and that prediction has yet to
materialise. But plunging sales over the
past year suggest that the laptop’s end
approaches more rapidly than ever.
The global personal computer
market has contracted for years, yet
many workers still rely on them. In the
first quarter, shipments of desktops
and notebooks fell a third over the
SSE has an £18bn plan to
expand renewables capacity
Renewable Networks regulated
capacity asset value
Gigawatts £bn
16 20
14
12 15
10
8 10
6
4 5
2 This week, parent Meta was given
0 0
2022 2027 2032
Source: company
£2.2bn. UK gas-fired power plants help
to meet electricity demand when
renewables cannot. SSE Thermal also
owns gas storage facilities.
Profits growth at SSE’s renewables
business — which was at the heart of
spin-off calls — ironically suffered due
to insufficiently windy conditions last
year. A UK windfall tax on low-carbon
electricity generators cost it £43mn.
Less diverse companies, such as
Denmark’s Ørsted, have fared less well.
SSE wants to grow all three of its
units, including its UK regulated
electricity networks. It upgraded
investment plans to spend £18bn by
2026-27, although half of this will go
towards networks. Previously, SSE had
been targeting £12.5bn of capital
investment by 2025-26. Last year’s
previous year, the fourth straight
quarter of double-digit declines,
according to Canalys data. Notebook
shipments suffered the largest decline,
falling 34 per cent compared with the
28 per cent drop for desktops. These
are now below their 2018 nadir.
Yesterday, Lenovo’s earnings miss
underscored this. The world’s leading
maker reported a 24 per cent revenue
drop for the first quarter. Net income
fell 72 per cent to $114mn. The latest
results mark its third straight quarter
of declines. Shares fell 8 per cent.
Weak sales figures in China, the
world’s biggest market, only pile on the
bad news. Shipments in mainland
China fell by a quarter. Meanwhile,
total tablet shipments climbed 40 per
cent during the same period. Lenovo
does have a strong line-up of tablet
SSE has had a good year
Share prices* (rebased)
10
SSE*
Iberdrola
Euro Stoxx
0 Utilities
National Grid
-10
-20
-30
May Jul Sep Nov Jan Mar May
2022 2023
Source: Capital IQ * In local currency
strong performance also means SSE
will no longer have to sell a stake in
its electricity distribution network
business to fund its investments.
Do not expect blue skies
throughout. SSE still has to deal with
rising supply chain costs. Indeed,
£2bn of the upgrade to its investment
plan accounts for this. New projects
in the UK are also facing hold-ups in
securing grid connections. SSE does
lack exposure to the US, where clean
energy companies are flocking to
take advantage of the Inflation
Reduction Act. Nevertheless, SSE
shares have fared well so far this year,
rising 12 per cent. The chill wind of
break-up calls could return. But for
now SSE should have done enough to
silence its critics.
devices. Yet in China, Apple has a
stronghold. Shipments there more than
doubled to 2.5mn units.
Lenovo needs alternative growth
engines. Its operating margins are less
than 5 per cent. That explains its cheap
valuation, now at eight times forward
earnings, at the low end of its already
depressed three-year range.
Expanding into smartphones,
servers and IT services businesses
helps; these make up about 40 per cent
of group revenues. But competition
here is fiercer than for PCs.
Laptops remain ever-present in the
workplace. But a lasting shift away
from these tools would mean makers of
accessories such as displays should
offer better profitability than
computers themselves. The shutdown
of laptops is nigh.
Giphy/Meta:
top of the vlops
Nick Clegg arrived at Facebook in 2018
as the social media company’s Euro-
whisperer. The hope was that the
former deputy British prime minister
and European parliament member
could woo overseas regulators and help
mend the company’s image. Five years
on, UK and European regulators have
only become more aggressive.
two bills. First, a €1.2bn fine over data
privacy from Ireland’s Data Protection
Commission. Second, an estimated
$260mn loss on the forced sale of
animated image search engine Giphy
by the UK’s Competition and Markets
Authority. The arrival of the EU’s
Digital Services Act raises the odds of
more. “Very large online platforms”, or
vlops, such as Meta face the toughest
obligations for content moderation.
Meta has received a bigger fine from
US regulators in the past. But they have
never forced it to unwind an
acquisition. Yet, like the gif (graphics
interchange format) of Homer
Simpson disappearing into a hedge, the
impact of Giphy’s sale will be minimal.
The idea that gifs could increase
Meta’s power now seems absurd thanks
to the speed with which they have
fallen out of favour online. Gifs do not
have a place in the company’s pivot to
the virtual reality of the metaverse and
Meta has already shut Giphy’s small
advertising business. The sale of Giphy
to Shutterstock, even at a loss, chimes
with Meta’s “year of efficiency”. The
loss is not life-threatening for a
company with $40bn in cash and
marketable securities. The digital ads
business in Europe and the UK merits
the cost of regulator compliance.
Year-on-year losses from metaverse
development unit Reality Labs are
predicted to rise this year, exceeding
$13.7bn. Yet Meta’s ebitda margin is
forecast to hit a five-year high thanks
to a bump in revenues alongside a staff
reduction and other cost cuts. Clegg
may not be able to change the direction
of regulator intervention. But Meta’s
ability to keep its global advertising
customers happy matters more.
Lex on the web
For notes on today’s stories
go to www.ft.com/lex

CROSSWORD
No 17,424 Set by BRADMAN
        ACROSS

1 Network supplying power brand of vehicle

(6)
4 Attempt to restrict one cunning form of
  government by a few (8)
9 Restrict soldiers at home repeatedly (4,2)
 10 Aim of those dyeing hair? Let’s not be
nasty! (2,2,4)
  12 Like a mirror offering great views maybe
— but no cat reflected in it! (8)
 13 Emerging from Thessalonica, the national
goddess (6)
  
15 Fruit something squishy? Chop off front
bit (4)
16 One’s often raised game after inconclusive
 result (10)
19 Ultimately you cannot act badly as
   someone dealing with money (10)
20 Post — preserve with touch of bitumen (4)
 23 After deficiency, you set about servant (6)
25 In a little time gather very English group
   to support cause (8)
27 Omen gets mistaken for precious object
(8)

28 Punishment for caging the Spanish
moggy? (6)
  29 Spies little fellow and expresses sorrow (8)
30 Garish old carriage with wooden interior
(6)

  DOWN

1 Soldier’s nothing left to provide cover (7)

2 I’m pierced, suffering in outer layer of skin
(9)
3 One-off HE establishment — what you get
JOTTER PAD in Paris (6)
5 Beginning to be a fine England cricketer
(4)
6 After drink a Conservative becomes
Solution 17,423 unpredictable (8)
7 East End gangster brothers reportedly in
0 $ 7 7 ( 5 2 ) & 2 8 5 6 ( frenzy (5)
, 5 0 2 % $ 9 8 By Jove, fellow’s travelling north some
6 & 2 5 ( 7 8 5 1 6 7 , / ( distance! (7)
7 2 7 5 ( ( 6 1 11 Orange transport for conveying book
5 ( 3 / , & $ 6 ( 5 3 ( 1 7
collection (7)
14 Actress cutting final performance short (7)
, 6 & 1 + 9 6 17 People who are a bit too ‘sugary’? (9)
$ & + ( ( 6 & $ 3 ( ( 6 18 Search with soldiers to get hold of a
/ , * ' ( 6 Roman official (8)
3 $ 3 ( 5 % 2 < . 1 2 7 19 Said everything with nasty edge (7)
0 5 ( : % 7 5 21 One that’s charged with infliction of
, 0 3 , 2 8 6 , ' 2 / , 6 (
violence (7)
22 Noisy festivities including a show (6)
' $ 9 6 1 2 0 $ 24 Political groups providing money, mostly
* $ 7 + ( 5 , 1 * % 5 ( $ . You can now solve our crosswords to accommodate politician (5)
( , 5 9 2 1 ( in the new FT crossword app at 26 Enthusiastic knight moving forward? This
7 5 2 8 % / ( 6 + 2 2 7 ( 5 ft.com/crosswordapp* is bent before monarch (4)