FRIDAY 24 MARCH 2023 INTERNATIONAL NEWSPAPER OF THE YEAR EUROPE

The fall of Credit Suisse must not be in vain EU solar industry edges out of China’s shadow
TIDJANE THIAM, PAGE 19 BIG READ, PAGE 17

TikTok chief struggles to fend off Briefing

i Bern regulator defends
Credit Suisse bond wipeout

US ban in front of hostile Congress Finma has defended the move to

render $17bn of investments
worthless in the lender’s rescue.
— PAGE 6; SWISS RATES, PAGE 4; CLAIRE
JONES, PAGE 11; OPINION, PAGE 19

3 App ‘free from manipulation’ 3 Forced sale would be ‘damaging’ 3 Lawmakers fear China surveillance i 19,000 Accenture jobs cut
The New York-listed consultancy
has announced a jobs cull over
HANNAH MURPHY — SAN FRANCISCO the next 18 months, the biggest
RYAN MCMORROW — BEIJING
CRISTINA CRIDDLE — LONDON
cut in an industry battling rising
costs and uncertainty.— PAGE 6
TikTok’s chief executive has told hostile
US lawmakers that the viral video app i German gas warning
will be kept “free from any manipula- Berlin’s energy watchdog has told
tion by any government”, as he strug- business and families the crisis is
gled to head off a potential US ban. not over and they will need to cut
Shou Zi Chew received a bipartisan consumption further to avoid a
pummelling from a congressional com- crunch next winter.— PAGE 2
mittee yesterday that threatened to ban
the Chinese-owned app as a “cancer” i Crypto fugitive arrested
and tool of surveillance. Authorities in Montenegro have
TikTok has become a flashpoint in ris- detained an individual believed
ing tensions between the US and China, to be Do Kwon, the entrepreneur
with Washington concerned it could be behind the $40bn implosion of
used to steal sensitive US data. terraUSD last year.— PAGE 3
Before the hearing, the Chinese com-
merce ministry hit out at a plan from US i Israel limits PM removal
authorities that would separate the US A law limiting the circumstances
arm of TikTok, which has 150mn US in which a premier can be ousted
users, from its Chinese owners. has been attacked as a bid to
“Forcing the sale of TikTok will seri- shield Benjamin Netanyahu, who
ously damage the confidence of inves- is on trial for corruption.— PAGE 3
tors from all over the world, including
from China, on investing in the United i Russian slips house arrest
States,” the ministry said, adding it Artem Uss, wanted in the US for
would “firmly” oppose such a move. alleged sanctions evasion and
In a series of tense exchanges in Wash- money laundering, has fled house
ington over four hours, Chew attempted arrest in Italy a day after his
to assuage concern over the social media extradition was approved.— PAGE 2
app’s links to its Chinese parent com-
pany ByteDance but met a sceptical Datawatch
audience.
“We do not trust TikTok will ever
embrace American values,” said the Here’s to EU
Republican chair of the House energy UK adults’ views of bloc’s leadership (%)
and commerce committee Cathy lawmakers. “I still believe that the Bei- cer, like fentanyl, another China export, Singapore and had a US-born wife. He Shou Zi Chew 60
Approve
McMorris Rodgers. “TikTok has repeat- jing communist government will still that causes addiction and death”. conceded that in the past employees at testifies
edly chosen a path for more control, control and have the ability to influence The hearing comes at a critical Beijing-based ByteDance were subject yesterday: ‘Our
40
more surveillance and more manipula- what you’re doing,” said Frank Pallone, moment for TikTok. This month, Sen- to Chinese law that would have com- commitment Disapprove
tion. Your platform should be banned.” the panel’s top Democrat. ate Democrats and Republicans intro- pelled them to co-operate with state is to move
TikTok has taken measures to resp- In addition to concerns over national duced a White House-backed bill that intelligence work. data into the 20
Don’t know/
ond to the concerns, spending $2bn on a security, lawmakers also lobbed accusa- would give the administration new pow- However, he added, its partnership United States refuse to answer
partnership with Oracle designed to tions that the app did not have adequate ers to ban Chinese apps that pose a secu- with Oracle, known as Project Texas, to be stored on
safeguard data and content from Ameri- moderation processes and was unsafe rity threat, including TikTok. would create a firewall, meaning that American soil 0
2008 12 15 20 22
can users against Chinese influence. for children, described by one as a “can- Rogers responded to the Chinese was no longer the case for TikTok staff. by an American
Source: Gallup
“Our commitment is to move data commerce ministry’s statement, telling Chew quibbled with the characterisa- company’
Jim Watson/AFP via
into the United States to be stored on Chew he had “zero confidence” that tion by lawmakers of the news that Tik- Getty Images
Britons’ approval rating of the leadership
American soil by an American company TikTok is a ‘cancer, like ByteDance and TikTok were not Tok had inappropriately obtained the of the EU, on the rise since 2013,
overseen by American personnel,” “beholden” to the Chinese Communist data of US journalists, as well as a Finan- surpassed 50 per cent last year for the
Chew said. “So the risk will be similar to
fentanyl, another China party. “The CCP believes they have the cial Times journalist, as “spying”. first time since the survey began. At
any government going to an American export, that causes final say over your company,” he said. Additional reporting by James Politi in 51 per cent, that is more than the 46 per
cent who approve of the UK’s leadership
company asking for data.” addiction and death’ Chew, a former Goldman Sachs Washington
But Chew faced overt scepticism from banker, emphasised that he was from Algorithm tug of war page 9

Hindenburg shorts Dorsey’s payments

group Block after fake accounts claims
JOSHUA FRANKLIN Block’s shares fell about 20 per cent in tion. The report helped wipe about
AND ORTENCA ALIAJ — NEW YORK
OLIVER RALPH — LONDON early trading in New York before paring $100bn off his empire’s market value.
losses to trade 14 per cent lower. As of Adani has denied the allegations.
Hindenburg Research, the short seller Wednesday’s close, the company had a Hindenburg alleged yesterday that
that recently targeted India’s Adani market capitalisation of nearly $44bn. Block had overstated its genuine user
Copper traders sound red Group, has accused payments com- Its two primary businesses are its counts while understating the amount it
alert over market prices pany Block of artificially inflating its Square payments services for mer- costs it to attract new customers. It cited
user numbers and facilitating fraudu- chants and the Cash App mobile pay- “former employees” as estimating that
Analysis i PAGE 10 lent transactions. ments product, which competes with 40-75 per cent of accounts they
PayPal’s Venmo and Zelle. The com- reviewed were fake, involved in fraud or
In a statement, Hindenburg said it had pany purchased Afterpay, a buy now, were users holding multiple accounts.
Austria €4.30 Morocco Dh50
Bahrain Din1.8 Netherlands €4.30
investigated Block, led by Twitter co- pay later business, for $29bn in 2021. Hindenburg said in investigating the
Belgium €4.30 Norway NKr45 founder Jack Dorsey, for two years and Hindenburg first came to prominence matter, it had opened several accounts
Croatia Kn32/€4.25 Oman OR1.60 had taken a short position in the shares. in 2020 when it claimed electric truck under fake names including “Donald
Cyprus €4.00 Pakistan Rupee350
Czech Rep Kc120 Poland Zl 24
It said the series of accusations was start-up Nikola’s business was a fraud. Trump” and “Elon Musk”.
Denmark DKr43 Portugal €4.00 based on “dozens of interviews with Founder Trevor Milton was convicted The short seller claimed that what was
Egypt E£80 Russia €5.00 former employees, partners, and indus- last year of defrauding investors by mis- portrayed as a “Wild West” approach
France €4.30 Serbia NewD530
Germany €4.30 Slovenia €4.00
try experts, extensive review of regula- leading them on Nikola’s technology. had made Block popular with criminals
Greece €4.00 Spain €4.00 tory and litigation records, and FOIA Earlier this year Hindenburg accused for processing transactions. The report
Hungary Ft1350 Switzerland SFr6.70 and public records requests”. Block did Indian billionaire Gautam Adani of “the alleges that Block has no obvious advan-
India Rup220 Tunisia Din7.50
Italy €4.00 Turkey TL80
not immediately respond to a request largest con in corporate history”, alleg- tage over rivals such as PayPal or Zelle.
Luxembourg €4.50 UAE Dh23 for comment. ing fraud and stock market manipula- Lex page 20
Malta €4.00

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2 ★ FINANCIAL TIMES Friday 24 March 2023

INTERNATIONAL

Energy crisis Extradition case

Germany warns of winter gas shortages
Industry and households
must use less to preserve
supplies, says regulator
GUY CHAZAN — BERLIN
Berlin’s energy watchdog has warned
that companies and households will
need to cut gas use further if Germany is
to avoid a power crunch next winter.
Klaus Müller, head of the Federal Net-
work Agency, said Germany’s energy
crisis “isn’t over” and much depended
on whether next winter would be colder
than the last.
“The danger of a gas shortage is still
there,” he said. “It depends a lot on
whether we continue to curb gas use and
ensure diversified supplies into Ger-
many. And there are risks,” he added.
These included China’s economic
recovery, which was accelerating “more
quickly than many predicted”, leading
to a higher demand for gas that will have
“consequences in terms of price”.
The winter of 2023-24 will also be the
first Germany has experienced “with-
out any Russian pipeline gas at all”,
while the global supply of liquefied nat-
ural gas “is not expected to increase sig-
nificantly this year or next”.
Müller’s comments echo those of
Fatih Birol, head of the International
Energy Agency, who warned last month
that Europe had not yet won its energy
war with Russia, despite a big drop in gas
prices.
“Being overconfident for next winter
is risky,” Birol said, adding that Europe
Foreign investment. Shared interests
could not afford to lose focus on conser-
vation or developing renewable energy.
Germany has been one of the biggest
casualties of the turmoil in European
energy markets sparked by Russia’s war
in Ukraine. Before the invasion, 55 per
‘We can — and must — do
more [to save gas] . . . We
were lucky to have had a
mild winter in Europe’
cent of its gas came from Russia. Those
supplies virtually disappeared in the
months after the fighting erupted, trig-
gering a rush for alternatives.
The decline in Russian pipeline
imports pushed wholesale gas prices
higher than €300 a megawatt hour last
summer, from about €20/MWh before
the war. That forced some of Germany’s
energy-intensive companies to shut
down production and prompted warn-
ings of blackouts and gas rationing for
industrial customers.
But Germany managed to reconfigure
its energy system to deal with the crisis,
which Müller described as a “singular
achievement”. Berlin sourced new sup-
plies of LNG from the Middle East and
US, increased imports of pipeline gas
from Norway, Holland, Belgium and
France, and built its first LNG import
terminals on the northern coast. Ger-
many’s gas tanks are now 64 per cent
full, a much higher level than a year ago.
Companies and households also made
drastic energy savings, with industry
using 20 per cent less gas this winter.
“They did it through fuel switching,
through technical innovations they
should be really proud of, and through
cutting back on production, something
that is very painful,” said Müller.
But he added he was convinced they
could, and might have to, go even fur-
ther. “I don’t know any businessman
who wouldn’t be prepared to make even
more savings to prevent a gas shortage
next winter,” he said. “I think we can —
and must — do more [to save gas].”
Much, he pointed out, depended on
the weather. “We were very lucky to
have had a very mild winter in Europe
[in 2022-23],” he said. “But you see what
a serious impact the weather has, you
see how much gas has to be burnt to heat
homes when it’s cold.”
Russian
businessman
wanted by US
escapes house
arrest in Italy
AMY KAZMIN — ROME
MAX SEDDON — LONDON
A Russian businessman wanted in the
US for alleged money-laundering and
sanctions evasion has escaped from
house arrest in Italy, a day after a court
approved his extradition.
Artem Uss, the son of the governor of
the Russian province of Krasnoyarsk in
Siberia, slipped out of his home in the
small town of Basiglio near Milan on
Wednesday despite the use of an elec-
tronic tag to monitor him.
“Intensive investigations are under
way to find him,” Italy’s Carabinieri
police said yesterday. Uss’s defence

Sanctions tighten Iran’s embrace with Moscow

team said it did not know where he was,
Russian state newswire Tass reported.
Uss, the subject of an international
arrest warrant, was taken into custody
at Milan’s International airport on Octo-
ber 17, weeks after US authorities
charged him with criminal conspiracy,
Two economies targeted by fraud and money laundering.
western embargoes look After about six weeks in jail, Uss was
released into house arrest — with an
for ways to forge closer ties electronic bracelet to monitor him —
following an Italian court order.
The Carabinieri said officers rushed
ANDREW ENGLAND AND
NAJMEH BOZORGMEHR — TEHRAN to the Russian’s home on Wednesday

Russia has become the largest foreign

investor in Iran over the past year,
according to Tehran officials, reflecting
how two nations subject to heavy sanc-
tioned have stepped up co-operation
since the invasion of Ukraine.
Ehsan Khandouzi, Iran’s finance min-
ister, said Russia had invested $2.76bn
in the Islamic republic in the financial
year that ended this week in industrial,
mining and transport sector projects.
“We define our relations with Russia
as strategic and we are working together
in many aspects, especially economic
relations,” said Khandouzi. “China and
Russia are our two main economic part-
ners [and] Iran is going to expand its
relations with them through imple-
menting strategic agreements.”
His comments underscore how
Tehran and Moscow have forged closer
ties since the west imposed sanctions on
Russia after the invasion of Ukraine a
year ago. Russian business delegations
in search of deals and advice on avoiding
sanctions have visited Iran, which has
been keen to develop trade ties to bol-
ster its own sanctions-hit economy.
The US and Europe have accused
Tehran of selling to Moscow armed
drones that have been used against
Ukraine. Iran denies its drones are used
in the war. Khandouzi said the conflict
was “unfortunate” for Iran, but did not
respond when asked if Tehran had ben-
efited from arms sales to Russia.
The Iranian and Russian central
banks signed a deal in January to link
their interbank communication sys-
tems in an effort to boost bilateral trade.
“Russia and some other countries are
keen to use mechanisms such as mutual
monetary agreements or trade-based
swaps. We have negotiated not only with
Russia, but also with China and partners
including Turkey,” he said.
“Technically speaking, this financial
network is in a better situation between
Iran and Russia than others,” he said.
Analysts are sceptical about how far
the two can develop trade as they have
commodity-based economies produc-
Friends in need: ing similar products, but a western dip-
Iranian supreme lomat said the fear was “it’s a dynamic
leader Ayatollah that can become self-sustained”.
Ali Khamenei, Iran has endured decades of sanctions
centre, and and has been cut off from the global
president financial system since former US presi-
Ebrahim Raisi, dent Donald Trump withdrew from the
right, greet 2015 nuclear accord and launched new
Vladimir Putin curbs against the republic.
during the This has further stymied Iran’s ability
Russian leader’s to attract foreign investment; the largest
visit to Tehran inflow after Russia was £256mn from
in July — Office of the Afghanistan. Chinese investment was
Iranian Supreme Leader/AP
$131mn, behind Iraq and the United
Arab Emirates, showing it is not only
western companies that are being
deterred from doing business in Iran.
Russia accounted for two-thirds of the
total foreign direct investment of about
$4.2bn in Iran this financial year,
according to finance ministry data. Iran
attracted FDI of just $1.45bn in 2021,
according to UN trade data.
President Ebrahim Raisi’s hardline
government has prioritised regional and
Asian trade relationships since taking
office in 2021 to counter the sanctions. A
Chinese-brokered deal signed this
month will restore diplomatic relations
between Iran and rival Saudi Arabia
seven years after they were severed.
Khandouzi said Iran had last month
achieved its highest level of oil exports
for at least two years, overtaking a previ-
ous high of 1.3mn barrels a day, despite
US sanctions.
Non-oil exports of $53bn were also
12 per cent higher in the first 11 months
of this year than the same period the
previous year, he said. Imports in the
same period were $60bn, which com-
bined with the export data showed that
“Iran’s economy cannot be isolated”.
Yet the government has struggled to
contain the economic malaise that has
gripped the republic, with inflation
higher than 47 per cent and the rial
down 60 per cent under Raisi’s watch.
Iranian economists blame the authori-
ties for fuelling inflation by excessively
printing money. Tehran in December
replaced the central bank governor who
had been in the post for just 15 months
as the national currency slid to record
lows against the US dollar, while the
regime battled months-long nationwide
‘We define protests. Khandouzi defended the gov-
ernment’s record and said it planned to
our relations reform the central bank to be “held
with Russia accountable to meet the inflation tar-
gets”. It would also be given the “neces-
as strategic sary authority to control the procedures
and we are which create money supply”, he said.
“We also managed to decrease the
working money supply growth rate, which was
together 39 per cent in the last Iranian year. By
the end of this financial year, it is pro-
in many jected to be 30 per cent. We are deter-
aspects’ mined to decrease the inflation rate.”
Khandouzi said the government had
boosted tax collection and clamped
down on evasion while reducing corpo-
rate tax by 5 percentage points.
Yet the government’s biggest chal-
lenge is easing the pressure on ordinary
Iranians, with analysts warning that
economic grievances remain a ticking
bomb amid wider public anger at the
regime.
“When the country is struggling with
economic problems, officials definitely
make more efforts than before and
spend more time serving people,”
Khandouzi added.
The US claimed he bought
sensitive US military
technology, then sent it
to Russian entities
afternoon as the bracelet alarm began
signalling his escape. They found he had
already slipped away.
The police, whose station was just
2.3km from Uss’s home, said officers
had checked on him an hour earlier and
found nothing amiss.
The day before the Russian’s escape,
an appeals court in Milan had ruled he
could be extradited to the US to stand
trial on charges of bank fraud and vio-
lating an embargo against Venezuela.
According to US prosecutors, Uss was
the co-owner of a Germany-based com-
modities trading and industrial equip-
ment business called Nord-Deutsche
Industrieanlagenbau.
US authorities claimed he used the
German trading company to buy sensi-
tive US military technology, then sent it
to Russian entities, including companies
under sanction.
It said the company also smuggled
hundreds of millions of barrels of
Venezuelan oil to buyers, including
companies controlled by oligarchs
under sanction.
While the Italian court ruled the US
could not try the Russian on the charges
of smuggling military technology or
money laundering, it said he could be
held to answer the other two charges.
Shortly after Uss’s arrest in October,
police in Moscow put together a money-
laundering case against him in Russia
and secured a court order for his extra-
dition. The hasty request probably indi-
cated that Russia wanted to rescue him
from US prosecution by remanding him
there, the Kommersant newspaper
reported. Uss himself asked the court to
extradite him to Russia instead of the US
in January.
Additional reporting by Giuliana Ricozzi in
Rome

Energy expansion

Hungary eyes bigger French role at Russian-led nuclear plant

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MARTON DUNAI — SOFIA
HENRY FOY — BRUSSELS
LEILA ABBOUD — PARIS
Hungary and France are discussing
greater involvement for French com-
panies in the expansion of the central
European country’s Russian-led
nuclear power plant.
Such a move would mark a shift in the
pro-Moscow stance of Viktor Orbán,
Hungarian prime minister, who has
resisted pressure from other EU states
for sanctions on nuclear exports from
Russia after the invasion of Ukraine.
It would also underscore Orbán’s
openness to pragmatic co-operation
with EU and Nato allies on strategic
issues despite his Eurosceptic rhetoric,
criticism of Brussels and his rightwing,
nationalist regime.
Budapest has begun to re-evaluate
the €12bn expansion of its nuclear
power plant at Paks, a flagship project in
its economic co-operation with Russia,
according to senior government offi-
cials. The project is led by Rosatom,
Russia’s state-owned nuclear develop-
ers, and financed mostly from a Russian
state loan.
Framatome, France’s state-owned
nuclear reactor maker, is a subcontrac-
tor to Rosatom in Hungary, working on
the control systems for the plant with
Siemens, the German engineer.
“We will further increase the role of
Framatome at the Paks investments,”
Péter Szijjártó, Hungarian foreign min-
ister, said last week after a visit to Fla-
manville, the French town where Fram-
atome is building a nuclear power plant.
Budapest has defied western pressure
to loosen its ties with Moscow and tried
to add two new Russian reactors to the
Paks facility, increasing its capacity by
2 gigawatts.
Orban agreed to the expansion in a
deal with Russian president Vladimir
Putin in 2014, shortly before the inva-
sion of Crimea. He has stuck to the plan
despite severe delays and insisted it
must be completed by 2030.
But the war, which Orbán last year
expected to be over quickly, shows no
sign of ending, raising questions over
the Paks timeline and the feasibility of
long-term co-operation with Moscow,
forcing Hungary to look for alternatives.
While Hungary and France have
blocked efforts by other EU member
states to place Rosatom under sanc-
tions, there is increased pressure on the
bloc to find ways to restrict the com-
pany’s business and find alternatives for
countries that rely on the company to
service their power plants.
“There is a discussion [over rethink-
ing Paks] because we are worrying,”
said Balázs Orbán, the premier’s politi-
cal director, who is not related to him.
But, he said, experts had warned a
change of design would set the project
back years. “If we start something new,
it’s just it’s a waste of years and then
really we will be in trouble in 2030.”
Budapest is reviewing its €12bn
expansion of the Paks power plant
The German government has been
reluctant to give Siemens permits to
deliver its part of the project, however,
leading Hungary to consider whether
Framatome could play more of a role.
Orbán and French president
Emmanuel Macron discussed the Paks
project and co-operation on nuclear at a
dinner meeting in Paris last week.
The German government and Sie-
mens declined to comment. Framatome
did not respond to a request for com-
ment.
Hungary is not yet ready to abandon
the project altogether or replace the
main Russian design. It is intent on sav-
ing as much as possible from the origi-
nally approved plans to avoid having to
submit them for approval again with
local regulators, those of the EU and the
International Atomic Energy Agency in
a process that could take years.
But sources told the Financial Times
that the longer the war dragged on and
the sanctions regime remained in place,
the more likely it became that Russian
participation in the project might have
to be phased out.
Additional reporting by Laura Pitel in
Berlin and Sarah White in Paris
Friday 24 March 2023 ★ FINANCIAL TIMES 3

INTERNATIONAL

Macron the ‘master of clocks’ plays for

Fugitive hunt

time as pensions backlash intensifies
French president attempts to restore calm but ignites fresh indignation as protesters take to streets
LEILA ABBOUD — PARIS
Faced with a political crisis largely of his
own making, Emmanuel Macron has
resorted to a trademark tactic to salvage
his second term: playing for time.
In his first public statement since
ramming through his unpopular pen-
sions reform without a parliamentary
vote, the French president defended
both the policy and the method and
tried to calm public anger that has
sparked protests from Paris to Rennes.
“We must move forward,” he said in a
televised interview on Wednesday. “We
have to restore calm and rebuild a
parliamentary and reform agenda by re-
engaging with labour unions and any
political parties who are ready to do so.”
But in what was perceived as an
inflammatory comment, he also
appeared to compare protesters who
threatened MPs and defaced their
offices with those who stormed the US
Capitol in 2021: “When the US experi-
enced what it went through on Capitol
Hill, when Brazil experienced what it
experienced, when you had the extreme
violence in Germany, in the Nether-
lands or sometimes here, we must say:
we respect, we listen . . . but we cannot
accept rebels and factions.”
Union chief Laurent Berger said
Macron’s interview amounted to a prov-
ocation and called on “workers to turn
out en masse” at protests yesterday to
show their discontent.
That rallying call was heeded as hun-
dreds of thousands of people took to the
streets across France.
Many participants spoke of fresh
anger against the government. They
chanted “Macron out” as they marched
and brandished signs that condemned
the president for using clause 49.3 of the
constitution — which allows the govern-
ment to pass laws without a vote unless
opposition parties bring it down with a
no-confidence vote — to pass the
increase to the retirement age.
“We’ve been going to protests since
January and originally it was against the
pensions reform. Now it’s transformed
into anger about our democracy,” said
Simon Duquerroir, a project manager in
France’s social security department.
“Treading on our democracy like this
has created a second chapter for this
movement.”
Despite the protests, Macron has
decided not to make any big political
moves for now: he will not replace the
prime minister or call for early elec-
tions, nor will he give in to opponents’
demands to put pensions reform up for
a referendum.
Instead, Macron — who sometimes
calls himself “master of the clocks” for
how he sets the tempo of France’s politi-
cal agenda — and his supporters will
take a few weeks to figure out their next
steps. One MP from a party allied with
Macron’s Renaissance grouping said the
country faced “a quite grave moment”
and Macron had only “difficult options”.
Haunted by the sometimes violent
gilets jaunes movement of 2018 that
forced him to U-turn on a fuel tax,
Macron and his allies also want to see
how the protest movement evolves.
In recent days, demonstrators burnt
Macron effigies, cut off electricity to
banks, defaced politicians’ offices and
tossed Molotov cocktails at town halls.
Worker anger: Some unions are increasing the pres-
protesters sure, including dockers who blocked the
march through port of Le Havre yesterday.
Nantes, The pensions debacle has severely
western France, compromised Macron’s ability to
yesterday after deliver on the reform agenda he prom-
a television ised when re-elected 11 months ago,
interview by with goals such as reaching full employ-
Emmanuel ment and fighting climate change, say
Macron, below some of his allies.
Loic Venance and Ludovic
His hand was weakened when his
Marin/AFP/Getty Images
party lost its majority in the National
Assembly in June, leaving its centrist
alliance about 40 votes short of a major-
ity and facing an emboldened far right
and a hardline far left.
The government’s strategy has been
to form ad hoc coalitions with opposi-
tion lawmakers on each draft law, but
the approach failed on pensions. Prime
minister Élisabeth Borne spent months
trying to secure a deal with the conserv-
ative Les Républicains, only for them to
prove too divided to deliver the votes.
Macron then decided to trigger clause
49.3 in a move that has deepened the
crisis, with the opposition accusing the
government of running roughshod over
parliament. It also revived familiar
attacks on Macron by his critics — that
he is out of touch, arrogant and governs
in a top-down manner.
The sentiment was mirrored in public
opinion polls, with about two-thirds
opposed to raising the retirement age
and more than three-quarters against
using clause 49.3 on the pensions bill.
It was not supposed to be this way.
Reforming France’s costly and complex
pension system was unfinished business
from Macron’s first term when he
attempted a much more ambitious
overhaul, only to abandon it because of
the Covid-19 pandemic.
During his 2022 campaign, Macron
said that if re-elected he would simply
raise the retirement age to 65 or 64, and
not seek to construct a new system that
would treat workers more fairly, as he
had before. That scaled-back ambition
symbolised how much Macron has
changed since first taking office in 2017
on a promise to modernise France and
practise politics differently.
“The old pensions reform was Macron
1.0: an innovative and bold policy fix for
a perennial problem in France,” said one
longtime ally now in government. “This
one is Macron 2.0: just get something
done even if it’s not ideal.”
Looming in the background is
‘Macron France’s heavy public debt and pressure
from Brussels to bring deficits back
cannot get within EU guidelines.
out of this Macron acknowledged that his pivot
to a simpler, quicker pensions reform
mess by was partly motivated by such consider-
changing ations. “We had Covid-19, the war in
Ukraine and inflation, and we spent
the prime heavily to protect people, so our public
minister. finances are degraded,” he said.
In his interview, Macron cast the pen-
He has to sions overhaul as a painful necessity
negotiate before going back to the “battle to
achieve full employment and reindus-
for real’ trialise France”.
It remains unclear whether such
changes will be possible, given the par-
liamentary complications and the vola-
tile mood in the country. Macron’s
approval ratings have fallen 4 percent-
age points in the past month to 28 per
cent, according to an Ifop poll, their low-
est since the gilets jaunes crisis.
Some members of Macron’s govern-
ment have called for a governing pact
with Les Républicains, which would
include naming a new prime minister
from the right, such as interior minister
Gérald Darmanin or finance minister
Bruno Le Maire. But others argue the
divisions in the ranks of Les Républic-
ains make such a bet unwise. The party
leaders have also ruled it out.
“Macron cannot get out of this mess
by changing the prime minister,” said
one former adviser. “He has to negotiate
for real now and this runs against not
only how French institutions work but
also against his nature. It’s not obvious
to me that he is capable of changing.”
Arrest made
in Montenegro
over collapse
of terraUSD
digital tokens
SCOTT CHIPOLINA — LONDON
MARTON DUNAI — SOFIA
Authorities in Montenegro have
arrested an individual believed to be
South Korean fugitive Do Kwon, the
crypto entrepreneur behind the $40bn
implosion of the terraUSD and luna
digital tokens last year.
In a statement on Twitter, Montenegro’s
interior minister Filip Adzic said “the
former cryptocurrency king” was
detained by police at Podgorica Airport
with falsified documents.
The collapse of terraUSD coin last
year unleashed an unprecedented crash
in crypto markets which engulfed many
of the industry’s leading companies.
Kwon, co-founder of Terraform Labs,
was charged with fraud and breaches of
capital markets law in his home country
and sparked an international manhunt.
South Korean authorities said last
year he had travelled to an unknown
country, believed to be Serbia, via Dubai
after leaving Singapore, where Terra-
form was based. His South Korean pass-
port was also revoked. “We are waiting
for official confirmation of identity,”
Adzic added.
The meltdown of terraUSD and luna
Last year, terraUSD’s
peg collapsed, sparking
an unprecedented
crisis of confidence
coins affected hundreds of thousands of
investors, many of whom were drawn in
by a scheme in which clients could lend
their terra coins for a yield of up to 20
per cent.
TerraUSD, a stablecoin, was designed
to connect traditional and crypto mar-
kets. Traders use them like cash or a
store of value between crypto trades.
Most track the value of the dollar one-
for-one but terra was supposed to be
kept in line by algorithmic coding, so it
did not need to be backed by hard
assets.
Kwon and Terra have also been sued
by the US Securities and Exchange Com-
mission for allegedly arranging a
cryptocurrency fraud that led to billions
of dollars in losses by selling a number of
digital assets not properly registered
with regulators. The SEC said the
alleged fraud took place between April
2018 and May 2022.
In May last year, terraUSD’s peg col-
lapsed, sparking an unprecedented cri-
sis of confidence in crypto markets that
plunged companies such as Celsius and
Three Arrows Capital into bankruptcy.
The collapse of terraUSD fuelled con-
cerns among international regulators
that the stablecoin industry poses sta-
bility risks to established finance as
crypto becomes more integrated with
conventional payment systems.
In September last year, Interpol
issued a red notice against Kwon, repre-
senting a plea to worldwide law enforce-
ment to arrest the Terraform boss. Since
his disappearance, Kwon has continued
to make statements on social media
without sharing his location.
Terraform and Montenegro’s interior
ministry did not respond to a request for
comment.

Turkish election Legal reforms

Pro-Kurdish party switches ticket to avoid bar Israel makes removal of premiers tougher
AYLA JEAN YACKLEY — ISTANBUL
Turkey’s pro-Kurdish People’s Demo-
cratic party is to field candidates in
May’s election under another political
banner in an effort to circumvent a
likely legal ban.
The move underscores the challenge
facing opposition groups in mounting a
campaign against president Recep
Tayyip Erdoğan’s ruling party.
The HDP, the country’s third-biggest
party, faces court charges of having ties
to the armed Kurdistan Workers party,
labelled a terrorist organisation by Tur-
key, the US and the EU. The HDP denies
links with the militants and accuses
Erdoğan of politicising the judiciary to
suppress its vote in the May 14 poll.
Anticipating a ban, the HDP said yes-
terday that it would contest the vote
under the allied Green Left party’s
ticket. Green Left, which campaigns for
ecological sustainability and equal
rights, has backed the HDP since the
party first contested elections in 2014.
Turkey’s constitutional court this
week rejected the HDP’s request to post-
pone its defence in the case by a month.
Mithat Sancar, HDP co-chairman,
said the threat was akin to a “sword of
Damocles hanging over us as we go to
elections . . . For this reason, we have
concluded that contesting the elections
as the HDP carries serious risks.”
The HDP this week announced it
would not field a candidate for presi-
dent, signalling its support for the joint
opposition candidate, Kemal
Kılıçdaroğlu, who leads the centre-left
Republican People’s party. The HDP,
‘We have concluded
that contesting the
elections as the HDP
carries serious risks’
whose base is largely Kurdish and
attracts about 12 per cent of the elector-
ate, is widely seen as the swing vote.
Erdoğan faces his toughest election
after two decades in power, a task that
has been complicated by the devastat-
ing earthquake that killed more than
57,000 people in Turkey and Syria last
month. Voters have expressed unhappi-
ness at his stewardship of the $800bn
economy, with inflation running at 55
per cent.
Recent polls have shown Kılıçdaroğlu,
who is backed by a six-party alliance
that does not formally include the HDP,
ahead of Erdoğan but with both candi-
dates short of the 50 per cent needed to
clinch the presidency without a runoff.
The HDP has faced a crackdown since
2015, when peace talks between the gov-
ernment and the PKK collapsed.
At least four of the HDP’s predeces-
sors have been banned in Turkey since
1993 while thousands of Kurdish activ-
ists, including former HDP leader Sela-
hattin Demirtaş, are in prison for their
political activities.
Demirtaş had positioned the HDP as a
leftwing party advocating for minority
rights, gender equality and environ-
mental protection to appeal to non-
Kurdish voters.
Soner Cağaptay, director of the Tur-
key programme at the Washington
Institute of Near East Policy, said the
HDP was “doing the safe thing” given
the risk of its candidates being barred.
“Turkey’s pro-Kurdish opposition has
been brutalised for so long, it’s become a
master of getting around bans and limi-
tations,” he said. “They [the HDP] have
an extremely well-organised and disci-
plined voter base, and voters will
migrate en masse to the new party.”
JAMES SHOTTER — JERUSALEM
Israel’s parliament has passed a law
limiting the circumstances in which a
prime minister can be removed from
office, the first in a series of contentious
legal changes that have sparked
months of protests.
The amendment, passed after a rancor-
ous debate that stretched into the early
hours of yesterday, intensifies the battle
over a judicial overhaul pushed by
Benjamin Netanyahu’s far-right govern-
ment that has plunged Israel into its
deepest political crisis for years.
Critics have denounced the amend-
ment as designed to protect Netanyahu,
who is on trial for corruption, from
being removed from office over his legal
woes. Supporters deny this, arguing that
the new rules are needed to prevent the
“annulment” of the democratic process.
The move is part of a broader set of
changes — including giving the govern-
ment and its allies control over the
appointment of judges and limiting the
top court’s ability to strike down laws —
that have drawn hundreds of thousands
of Israelis on to the streets since the gov-
ernment proposed them in January.
Demonstrations continued yesterday,
with hundreds of navy veterans setting
fire to tyres outside the port of Ashdod,
and protesters blocking main roads as
part of an attempt to “paralyse” the
country for a day.
Government officials say the changes
are needed to rein in an activist judici-
ary that has pushed a partisan leftwing
agenda. But critics see them as a funda-
mental threat to Israel’s checks and bal-
Critics say the
amendment is
designed to
protect Benjamin
Netanyahu, right,
who is on trial
ances that will eviscerate minority pro-
tections, foster corruption and damage
the economy.
Existing Israeli law allowed a prime
minister to be removed but did not spell
out the circumstances in which this
could occur. The new rules specify that a
premier can be removed only on
grounds of mental or physical ill health,
and only by the cabinet or parliament.
Gali Baharav-Miara, Israel’s attorney-
general, this year ordered Netanyahu
not to get involved in his government’s
judicial overhaul owing to a conflict of
interest stemming from his corruption
trial, where he is fighting allegations of
fraud, bribery and breach of trust.
Baharav-Miara’s order came amid
speculation, which she denied, that she
was considering ordering Netanyahu to
step aside, something she would not be
able to do after yesterday’s amendment.
Netanyahu has dismissed the charges
against him as a politically motivated
witch-hunt and has denied that the judi-
cial reforms would have any impact on
his personal situation.
Ofir Katz, an MP from Netanyahu’s
Likud party who sponsored yesterday’s
bill, said it would provide “stability” by
limiting the circumstances in which a
prime minister could be removed.
Yair Lapid, head of Yesh Atid, the
largest opposition party, accused the
coalition of ratifying “a contemptible
and corrupt personal piece of legisla-
tion”, adding that “Netanyahu has once
again taken care of only himself”.
Avigdor Lieberman said his Yisrael
Beiteinu party would petition Israel’s
top court to strike down the law.
“We won’t allow the state of Israel to
be turned into a monarchy of the Netan-
yahu family,” he said.
4 ★
Inflation fears
Switzerland ploughs on with rate
increase despite bank upheaval
SNB opts for half-point
rise and says it has ‘put a
halt’ to Credit Suisse crisis
SAM JONES — ZURICH
RICHARD MILNE — OSLO
Switzerland has raised interest rates by
half a percentage point, despite the
financial turmoil that this week led to a
rescue-takeover of one of the country’s
largest lenders.
The Swiss National Bank opted to
plough ahead with its fourth consecu-
tive interest rate rise, saying the chances
of inflation becoming entrenched had
risen. It follows a half-point rise by the
European Central Bank last week.
Inflation in Switzerland, at 3.4 per
cent in February, remains far lower than
elsewhere in Europe. But the SNB said it
Africa alert
WHO warns
of Marburg
virus spread
Virulent: a haemorrhagic fever
victim is taken away by Angolan
medics — Alvaro Canovas/Paris Match/Getty
India
Gandhi handed jail term over Modi remarks
JOHN REED AND JYOTSNA SINGH
LUCKNOW
Rahul Gandhi has been sentenced to
two years in jail for remarks he made
about Narendra Modi by a court in the
prime minister’s home state of Gujarat,
raising the temperature of Indian poli-
tics a year ahead of a national election.
The court in Surat sentenced Gandhi,
the best-known figure in the Congress
party that dominated Indian politics for
decades, for comments he made in a
2019 speech in which he asked “why all
thieves have the name Modi, Modi,
Modi”.
The court granted Gandhi bail and
suspended the sentence for 30 days to
give him time to appeal.
Modi’s dominant Bharatiya Janata
party will face voters in April and May
2024 as the prime minister seeks a third
term in office.
Gandhi, who holds no formal position
in the Congress party but is its best-
known personality, has gone on the
attack against Modi in recent weeks
over his ties to Gautam Adani, the
industrialist whose group is facing scru-
tiny after an attack by short seller
Hindenburg Research.
was concerned about upward price
pressures becoming entrenched even as
the global economy stagnates.
It now expects inflation of 2.6 per cent
in 2023 and 2 per cent in 2024 and 2025.
The central bank targets inflation of
below 2 per cent.
“Ensuring price stability is and will
remain the core objective of the SNB,”
central bank chief Thomas Jordan said
following the decision, which leaves the
policy rate at 1.5 per cent.
Jordan spent last weekend brokering
discussions between Credit Suisse and
UBS, which was forced by the authori-
ties into a rescue-takeover of its rival.
“Our monetary policy assessment has
taken place in an exceptional situation,”
Jordan said, referring to the near col-
lapse of Credit Suisse, adding that the
SNB had “put a halt” to the crisis.
Analysts expect further rises. “With-
The World Health Organization has
urged African authorities to step up
monitoring regimes and clinical care
after Tanzania reported its first
outbreak of the virulent Marburg virus.
Marburg spreads to humans from
fruit bats and is passed on through
direct contact with the bodily fluids of
infected patients. The disease is highly
virulent, causing haemorrhagic fever
and killing up to 88 per cent of those it
infects. It belongs to the same family of
viruses as Ebola, another deadly
disease whose most severe outbreak
occurred across several west African
countries from 2013-16.
Tedros Adhanom Ghebreyesus, the
WHO director-general, said yesterday
that eight Marburg cases had been
reported in Tanzania, five of them
fatal. Nine cases have been confirmed
in Equatorial Guinea after an outbreak
was first reported in the west African
country last month.
The WHO was “leading trials of
vaccines in the context of the
emergency”, he added. There are no
vaccines or antivirals approved for the
Amit Malviya, who heads the BJP’s
information and technology depart-
ment, said yesterday that Gandhi was
“flippant and dangerous” and accused
him of “deriding India and Indians”.
The ruling party has also accused
Gandhi of defaming India on a trip to the
UK this month.
“The cowardly, authoritarian BJP gov-
ernment has been shaken by Rahul
Gandhi and the opposition because we
are exposing their black deeds,” said
Mallikarjun Kharge, the Congress
party’s president, in a tweet.
Analysts give Congress little chance of
Rahul Gandhi has homed in on the
premier’s business connections
FINANCIAL TIMES
INTERNATIONAL
out the turmoil, the SNB may have
accelerated the rate hike cycle . . . In the
circumstances, a steady pace was proba-
bly safer, but significantly more is
needed,” said Christian Schulz, econo-
mist at Citi.
“The economy is resilient, probably
also to the domestic financial turmoil,
so we expect 50 basis points in June and
another 50 basis points at the remaining
meetings this year.”
Others disagreed with Jordan’s view
that the banking turmoil had been con-
tained, saying there were likely to be
economic repercussions.
“There is little doubt that fears about
financial stability will have an impact on
the availability of credit and thus on the
economic situation and the inflation
environment in the coming months,
which will ultimately influence the path
of interest rates,” said Charlotte de
illness, with treatment focusing on the
rehydration and clinical care of
patients.
Tanzania’s Marburg outbreak
involved 161 contacts. Its east African
neighbours Uganda and Kenya have
enhanced border surveillance to help
reduce transmission.
Ummy Mwalimu, Tanzania’s health
minister, said her government had
“managed to control the rate of the
new infections of Marburg. So far it has
not been reported anywhere else apart
from the affected area.
“We’re determined to end the
outbreak within the shortest period of
time,” she added.
Abdirahman Mahamud, interim
director of the WHO’s alert and
response co-ordination department,
praised the countries’ swift reaction in
dealing with the outbreaks, as the cases
were located in remote regions.
The WHO said it assessed the risk
posed by the outbreak as “very high” at
the national level, “moderate” at the
regional level and “low” at the global
level.
winning next year’s election. Many in
India hold Gandhi, a member of the
fourth generation of the family that
ruled India for decades, responsible for
feckless leadership and corruption that
contributed to its defeats by the BJP in
2014 and 2019.
He quit as the Congress party’s presi-
dent after the 2019 election. His 76-
year-old mother, Sonia Gandhi, took on
the role until last year, when the party
appointed Kharge to the post.
Some observers argue that Rahul
Gandhi has made a slow but discernible
political comeback in recent months,
seizing on the Adani affair and eco-
nomic issues such as India’s stubbornly
high unemployment rate as weapons
against Modi.
Hindenburg’s short seller attack was
published shortly after Gandhi com-
pleted a 4,000km Bharat Jodo Yatra, or
Unite India March, a trek from the coun-
try’s southern tip to Kashmir, in which
thousands joined him along the route.
“It was a stroke of good fortune for
Gandhi that the Adani scandal broke
during the yatra,” said Asim Ali, an inde-
pendent political analyst. “But in terms
of capitalising on it, I’m not sure it’s
going to be an easy task.”
Montpellier, senior economist at Credit
Suisse.
Norges Bank, the first western central
bank to start tightening monetary pol-
icy after the Covid-19 pandemic, also
raised rates yesterday and warned that
more increases were to come.
Norway’s central bank increased bor-
rowing costs by 0.25 percentage points
to 3 per cent and suggested it would go
higher at its next meeting as it tries to
bring inflation under control.
“There is considerable uncertainty
about future economic developments,
but if developments turn out as we now
expect, the policy rate will be raised fur-
ther in May,” said Norges Bank governor
Ida Wolden Bache.
The Bank of England also raised rates
by a quarter point, leaving the bench-
mark bank rate at 4.25 per cent.
See Opinion
The cases that were reported in
Equatorial Guinea were about
150km apart, “suggesting wider
transmission of the virus”, according
to the WHO.
Mahamud said the global health
body was working “very closely”
with Cameroon and Gabon,
Equatorial Guinea’s neighbours, as
some of the latest cases were in
border areas. The subregional risk
was “very high”, he added.
“It’s happening right at the
border,” he said, urging Cameroon to
“increase readiness”.
Marburg incubation ranges from
two to 21 days, according to the
WHO. The virus is traced back to
laboratory work on African green
monkeys in the German city of
Marburg, where the first cases were
detected along with simultaneous
outbreaks in Frankfurt and Belgrade
in 1967. There have been regular
outbreaks in Africa since the first
cases in South Africa in 1975.
Donato Paolo Mancini in London and
Andres Schipani in Mogadishu
Chinese economy
Billionaires pay price for Xi’s tighter policies
JOE LEAHY — BEIJING
China’s population of super-rich fell
more than 14 per cent last year as Presi-
dent Xi Jinping’s zero-Covid policy, reg-
ulatory crackdowns and a property
collapse took their toll on the nation’s
wealthy.
The number of billionaires in China fell
by 164 to 969 compared with a decline of
25 to 691 in the US, according to the
2023 M3M Hurun Global Rich List, after
depreciating currencies and falling
stocks battered the wealthy across the
globe.
“This past year has been tumultuous
for wealth creation,” the report said.
While China was still the “world capital
for billionaires”, the total wealth of the
country’s richest plunged 15 per cent.
China’s economy expanded only 3 per
cent last year as Xi sealed borders and
locked cities down in an ultimately
futile attempt to keep the Omicron vari-
ant at bay. The Shenzhen stock market
in southern China ended the year down
17 per cent and the renminbi depreci-
ated 6 per cent against the dollar.
Some old faces, such as internet entre-
preneur Jack Ma, who three years ago
was China’s richest man, toppled fur-
US. Monetary policy
Credit crunch risk
piles pressure on Fed
Worst financial turmoil since
2008 throws central bank’s
rate-raising drive off course
COLBY SMITH — WASHINGTON
As Jay Powell fielded questions from
journalists on Wednesday after the US
Federal Reserve’s decision to plough for-
ward with another interest rate rise, he
quipped that it had been “quite an inter-
esting seven weeks”.
The Fed chair was speaking after the
bank raised rates by a quarter point and
signalled it might be close to concluding
its campaign to stamp out inflation fol-
lowing the most aggressive monetary-
tightening campaign in decades.
The end of painful rate rises would
normally be a cause for relief, even cele-
bration, but for one inconvenient fact:
the reason the Fed thinks it can afford to
let up is the worst bout of banking tur-
moil since the financial crisis of 2008,
and one that critics of the US central
bank argue it should have seen coming.
“They’re afraid that they are getting
close to thin ice,” said Diane Swonk,
chief economist at KPMG, of the predic-
ament facing the Fed. It must now
decide whether to keep applying the
brakes to the economy, or whether a
looming credit crunch precipitated by
the collapse of Silicon Valley Bank and
Signature Bank will do the job for it.
“They want to cool inflation without
sending the economy into a deep freeze
and that is just a very hard thing to do.”
Powell is right that the US central
bank has been on a rollercoaster ride
over the past two months or so, as
have the investors and traders who hang
on its every word. After its February
meeting, Powell seemed optimistic it
had turned the corner on inflation and
that a “soft landing”, where price pres-
sures ease without a painful recession,
was in sight.
That quickly gave way to renewed
concern that the economy was again
gaining momentum. Just two weeks ago,
Powell even floated the idea that the Fed
could jettison the gradual quarter-point
rate rise it had opted for in February and
move back to a half-point increase this
month. He also warned the Fed would
probably have to tighten more than
expected to bring inflation back to the
central bank’s 2 per cent target.
Now that hawkishness has evapo-
rated, thanks to the implosion of SVB
and Signature. Indeed, on Wednesday
Powell admitted the Fed had considered
taking a pause, that is forgoing a rate rise
altogether, this month.
The collapse and government take-
over of the two lenders resulted in stress
across the banking industry, especially
for smaller operators, prompting emer-
gency measures from the Fed and other
arms of the US government designed to
ward off further contagion.
It is unclear whether policymakers
have done enough, with already
depressed shares of banks selling off
again on Wednesday after Janet Yellen,
the Treasury secretary, appeared to rule
out blanket guarantees in the near term
for deposits over $250,000.
The turmoil could result in exactly
the same kind of credit crunch the Fed
had hoped to precipitate with tighter
monetary policy, albeit one over which
the central bank has far less sway, econ-
omists warn.
“We’re still in a position where finan-
cial conditions need to tighten for infla-
ther down the rankings, barely scraping
into the top 10 of the country’s most
wealthy.
Ma has spent much of the past year in
Japan after he and other ecommerce
magnates were targeted by regulators as
Beijing sought to tighten its control over
data and the financial system.
The number of billionaires
in China fell by 164 and
the total wealth of its
richest plunged 15%
Property tycoons also suffered dra-
matic losses following a government
campaign to reduce leverage in the sec-
tor that sparked a meltdown in prices.
Many of the country’s wealthy started
moving money to havens such as Singa-
pore after Xi began pursuing a “com-
mon prosperity” policy aimed at reduc-
ing social inequality.
But even with the fall in the number of
super-wealthy in China, the country
remained the world’s “absolute No1” for
billionaires, the report said, led by the
capital Beijing, where Xi and many
other Communist party leaders reside.
Friday 24 March 2023
tion to come down,” said Swonk. “But
what is hard at this point is that the Fed
doesn’t have as much control as it once
thought it had. It’s lost some of its ability
to determine the path.”
Benson Durham, head of global policy
at Piper Sandler and a former senior
staffer at the Fed, pointed out: “They
always wanted financial conditions to
tighten, but to tighten in an orderly way.
Having bank runs is the disorderly way.”
In its statement on Wednesday, the
Federal Open Market Committee said
the banking-related turmoil was “likely
to result in tighter credit conditions for
households and businesses and to weigh
on economic activity, hiring and infla-
tion”. The “extent of these effects is
uncertain”, it warned.
Powell rammed that point home.
“Such a tightening in financial condi-
tions would work in the same direction
as rate tightening,” he said, adding that
it could potentially be the equivalent of
a “rate hike or perhaps more than that”.
“Of course, it’s not possible to make
that assessment today with any
precision whatsoever,” he pointed out.
According to a new set of economic
projections, known as the dot plot, most
Fed officials still see the federal funds
‘They always wanted
conditions to tighten, but
in an orderly way. Having
bank runs is disorderly’
’rate peaking at between 5 per cent and
5.25 per cent this year, a quarter point
higher than the level reached after
Wednesday’s rate rise. That is un-
changed from the December forecast.
In a sign that the FOMC could be
closer to ending its rate-rising cam-
paign, the policy statement said “some
additional policy firming may be appro-
priate”. Powell urged reporters to focus
on the “some” and “may” in that phrase,
although he was adamant that rate cuts
were not expected this year.
Ellen Zentner, chief US economist at
Morgan Stanley, said the complex eco-
nomic backdrop meant Powell was right
to send a “very vague, very soft” signal.
“The Fed is making no promises here”
Tom Porcelli, chief US economist at
RBC Capital Markets, detected a more
definitive message: that the “hiking
cycle is now over”, adding: “In terms of
action, it screams that they recognise
the gravity of the moment.
Given the tumult in the banking sec-
tor, it is perhaps unsurprising that the
Fed slightly downgraded its outlook for
the economy, which it expects to grow
only 0.4 per cent this year before
expanding 1.2 per cent in 2024. Such
anaemic growth is a daunting prospect
for President Joe Biden, who has said he
plans to run for re-election next year.
In an early sign of a bipartisan consen-
sus that the Fed erred in its duty, two
senators who could not be further apart
on the political aisle introduced legisla-
tion that would replace the central
bank’s internal investigator with a presi-
dential appointee.
“After the Federal Reserve’s failure to
properly identify and prevent the
shocking failures of Silicon Valley Bank
and Signature Bank, it’s clear we can’t
wait any longer for big change at the
Fed,” said Rick Scott, a Republican from
Florida, who is being supported by
Democrat Elizabeth Warren.
Gillian Tett see Opinion
See Lex
Beijing had the most billionaires of
any city in the world — 109, compared
with 105 in New York and 103 in Shang-
hai. London was ranked fifth behind
the southern Chinese tech capital of
Shenzhen.
Asia, with 57 per cent of the world’s
population, accounted for 49 per cent of
the world’s billionaires and 39 per cent
of its wealth while North America and
Europe combined had 15 per cent of the
world’s population, 46 per cent of its
billionaires and 57 per cent of its total
wealth.
India had the third-highest number of
billionaires at 187 while Germany over-
took the UK for fourth place with 144,
compared with 134. Russia’s total
number of billionaires declined by two
to 70, leaving it in eighth in spite of west-
ern sanctions imposed after Moscow’s
invasion of Ukraine.
Despite China’s vast number of bil-
lionaires, none of them ranked in the
report’s top 10 global rich list, which was
led by Bernard Arnault of LVMH with
$202bn followed by Elon Musk with
$157bn. The only Asian billionaire in the
top 10 was Mukesh Ambani, the Indian
oil, petrochemicals, telecoms and retail
magnate, with $82bn.
Friday 24 March 2023 ★ FINANCIAL TIMES 5
6 ★ FINANCIAL TIMES Friday 24 March 2023

Toshiba takeover Japanese group’s board approves $15bn offer from JIP-led consortium ahead of shareholder vote y COMPANIES

Finma defends Still charging Ford says EV unit will lose $3bn
this year and should be viewed as a ‘start-up’
Accenture to
cut 19,000 jobs
as consulting
writedown of sector retreats
AT1 bonds at MICHAEL O’DWYER — LONDON
STEPHEN FOLEY — NEW YORK

Accenture is to axe about 19,000 jobs

Credit Suisse over the next 18 months, the largest in a

3 Watchdog faced urgent need to act
3 ‘Extremely fragile’ conditions cited
SAM JONES — ZURICH
OLIVER RALPH — LONDON
Swiss regulator Finma has defended its
decision to wipe out a swath of risky
subordinated bonds as part of the Credit
Suisse rescue deal.
Sunday’s move, which rendered
SFr16bn ($17bn) of investments worth-
less, has become one of the most contro-
versial elements of the shotgun mar-
riage between Credit Suisse and larger
rival UBS brokered by Swiss authorities.
Just hours after the deal was
announced, other regulators began to
distance themselves from the decision,
fearful that it would endanger banks’
ability to raise capital. Enraged bond-
holders have pledged to sue the Swiss
government and Finma.
Finma said yesterday that all the con-
‘A solution was found to
protect clients, the financial
centre and the markets’
Urban Angehrn, regulator chief
tractual and legal obligations had been
met for it to act unilaterally given the
urgency of the situation.
“On Sunday, a solution was found to
protect clients, the financial centre and
the markets,” Finma chief executive
Urban Angehrn said. “In this context, it
is important that Credit Suisse’s bank-
ing business continues to function
smoothly and without interruption.”
Swiss National Bank chair Thomas
Jordan said yesterday that the purchase
by UBS had been the only option for
Credit Suisse, saying that a takeover of
the bank by the government and its sta-
bilisation in a process known as resolu-
tion would have risked a systemic crisis.
“Resolution in theory is possible
under normal circumstances, but we
were in an extremely fragile environ-
ment, with enormous nervousness in
series of cuts across the consulting sec-
tor as companies battle rising costs and
an uncertain economic outlook.
The New York-listed group said yester-
day that it expected to incur staff sever-
ance costs of $1.2bn and a further
$300mn of expenses from the “consoli-
dation of office space”.
The retrenchment will hit about 2.6
financial markets in general,” Jordan per cent of Accenture’s 738,000 staff,
said. “Resolution in those circum- who provide consultancy and outsourc-
stances would have triggered a bigger ing services to large companies.
financial crisis, not just in Switzerland Accenture has enjoyed explosive
but globally.” growth in recent years as demand for
The regulator decided, in conjunction advice on tech projects from multi-
with the SNB and the Swiss finance min- nationals ballooned. It has been on a hir-
istry, to preserve some value for Credit ing binge, adding more than 230,000
Suisse shareholders, who would nomi- staff since August 2020.
nally be subordinated to any bondhold- Half of the 19,000 employees will
ers in the capital structure. UBS will pay leave by the end of August, the company
SFr3.25bn for Credit Suisse’s shares. told analysts. More than half the cuts are
The tier 1 (AT1) bonds in question expected to affect staff who work in cor-
contained explicit contractual language porate functions rather than serve cli-
that they would be “completely written ents directly, the company said.
down in a ‘viability event’ in particular if Chief executive Julie Sweet character-
extraordinary government support is ised the cuts as “offensive” rather than
granted”, Finma said. This allowed the defensive, to ensure Accenture kept to
regulator to prioritise equity holders its long-term profitability targets in a
ahead of AT1 holders. AT1s are a type of high-inflation environment.
hybrid instrument created after the “We’ve been dealing with the chal-
crash of 2008 to give banks greater capi- lenges of compounding wage inflation,”
tal flexibility in the event of crises. Driving change: Ford’s Explorer electric sport utility vehicle launch in London this month — Chris J Ratcliffe/Bloomberg she said. “We’ve been doing that with
As part of the acquisition deal by UBS, pricing but [also] with cost efficiencies
the combined bank will receive SFr9bn CLAIRE BUSHEY — CHICAGO combustion, vehicles powered by bat- cent from the year before. Tesla lost and digitisation and we’ve identified an
of government guarantees and a teries, and commercial vehicles. money for a decade before reporting opportunity to go after structural cost.”
Ford said it expected to lose $3bn
SFr100bn liquidity lifeline from the
making electric vehicles this year, as
The financials, which Ford planned its first quarterly profit in 2013. Accenture is the latest big consulting
SNB. An additional emergency govern- to explain yesterday in a “teach-in” Ford’s losses in the Model e business group to cut jobs, following moves last
it gave investors their clearest look
ment ordinance issued by Bern on Sun- for investors, are meant to convey a stem from spending on projects such month at McKinsey and KPMG’s US and
yet at the outlook for the company’s
day had further confirmed the power to more detailed view of the carmaker’s as building new assembly and battery Australian businesses. McKinsey will
nascent battery-powered car and
take decisions over elements of a bank’s costs and revenues to produce EVs as plants in Tennessee and Kentucky, as dismiss up to 2,000 of its 45,000 work-
truck business.
capital structure, Finma said. it pursues a goal of selling only zero- well as adding a new type of battery force. KPMG is eliminating almost 700
Quinn Emanuel Urquhart & Sullivan The EV business, known as Model e, emission vehicles by 2040. technology, Lawler said. jobs in its US advisory business and
and Pallas Partners are among law firms reported a $900mn loss in 2021, The new structure also gives more Ford plans to manufacture 2mn about 200 in Australia — roughly 2 per
representing bondholders that have which rose to $2.1bn in 2022 as it detail on Ford Blue, the traditional- EVs a year by the end of 2026, hitting cent of its total in each country.
pledged to fight the decision. Quinn accelerated production of models engine vehicle division that will fund an operating profit margin of 8 per Accenture announced the cuts along-
hosted a call on Wednesday joined by such as the Mustang Mach-E. “Ford its transition to clean energy vehicles. cent for the division. The target for side its results for the three months to
more than 750 participants. Partner Model e is an EV start-up within Ford Ford Blue will earn $7bn before the company as a whole is 10 per cent. February, reporting revenues of
Richard East said that the deal was “a and, as everyone knows, EV start-ups interest and tax this year, the com- As the company tries to convert its $15.8bn, a 5 per cent increase on the
resolution dressed up as a merger” and lose money while they invest in capa- pany said, compared with $6.8bn last EV losses into profits in three years, same period a year earlier. Consulting
pointed to statements by the ECB and bility, develop knowledge, build vol- year. Profit at the commercial vehicle investors are interested in “knowing revenues fell 1 per cent to $8.3bn, while
the Bank of England, which distanced ume and gain share,” said Ford’s chief unit, Ford Pro, is projected to nearly how that path looks”, said Stephen sales by the managed services, or out-
themselves from the Swiss approach. financial officer John Lawler. double this year to almost $6bn. Brown, analyst at Fitch Ratings. sourcing, division grew 12 per cent to
“You know something has gone wrong The Michigan carmaker released Ford’s EV sales place it a distant sec- Lawler said the company would $7.5bn. Operating income dropped 5.8
when other regulators come and recast financials yesterday based on ond behind electric-car maker Tesla, clear that hurdle through a combina- per cent to $1.9bn in the quarter.
politely point out that in a resolution new business units it announced last which had two-thirds of the US mar- tion of building production, competi- US technology companies had slowed
[they] would have respected ordinary year. The company is now reporting ket last year. The Texas company led tive pricing and changes to the design their spending, Sweet said. “This will
priorities,” he said. profits and losses in three categories: by Elon Musk reported net income of and engineering of the company’s sec- last for a bit of time but it will eventually
See Letters and Opinion cars and trucks powered by internal $12.6bn in 2022, an increase of 123 per ond generation of EVs. come back. These are great companies.”

Legal Notices
AI revolution ‘industrial capture’ risks loss of public control
than the overall increase in computer
INSIDE BUSINESS science research faculty. “Many of the
researchers we spoke to had abandoned
TECHNOLOGY certain research trajectories because
they feel they cannot compete with
Madhumita industry — they simply don’t have the
compute or the engineering talent,” said
Murgia Nur Ahmed, author of the paper.
In particular, he said academics were
unable to build large language models
the money for generative AI in the past
six years had gone to start-ups like
Anthropic, Inflection, Character.ai and
Adept AI, and larger efforts like OpenAI
that are building their own large mod-
els. In 2019, OpenAI pivoted from a non-
profit into a profitmaking enterprise
with a $1bn investment from Microsoft,
citing a need “to rapidly increase our
investments in compute and talent”.

T
here’s a colossal shift going
on in artificial intelligence
— but it’s not the one some
Business Opportunities
Readers are strongly recommended to take appropriate Businesses might think. While
advanced language-gener-
like GPT-4, a type of AI software that
generates plausible and detailed text by
predicting the next word in a sentence
with high accuracy. The technique
requires enormous amounts of data and
computing power that primarily only
large technology companies like Google,
The consequences of this shift are
manifold. It means public alternatives
to corporate AI tech, such as models and
data sets, are becoming increasingly
scarce. And new applications are likely
to be commercially driven rather than
in the broader public interest, several

professional advice before entering into obligations.
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+44 (0)20 7873 3000, or viewed at
www.FT.com/advertising
For Sale
ating systems and chatbots have domi-
nated news headlines, private AI com-
panies have quietly entrenched their
power. Recent developments mean that
a handful of individuals and corpora-
tions now control much of the resources
and knowledge in the sector — and will
ultimately shape its impact on our col-
lective future.
The phenomenon, which AI experts
refer to as “industrial capture”, was
quantified in a paper published by
researchers from the Massachusetts
Institute of Technology in the journal
Science this month, calling on policy-
makers to pay closer attention. Its data
is increasingly crucial. Generative AI —
the technology underlying the likes of
ChatGPT — is being embedded into soft-
ware used by billions of people, such as
Microsoft Office, Google Docs and
Gmail. And businesses from law firms to
the media and educational institutions
Business for Sale, Business Opportunities,
Business Services, are being upended by its introduction.
Business Wanted, Franchises The MIT research found that almost
Runs Daily 70 per cent of AI PhDs went to work for
.............................................................................................................................
companies in 2020, compared with 21
Classified Business Advertising
UK: +44 20 7873 4000
per cent in 2004. Similarly, there was an
Email: advertising@ft.com eightfold increase in faculty being hired
into AI companies since 2006, far faster
Microsoft and Amazon have access to.
Ahmed found companies’ share of the
biggest AI models had gone from 11 per
cent in 2010 to 96 per cent in 2021.
A lack of access
means researchers ‘If you want to work on
cannot replicate
the models built in specialised AI tasks like
corporate labs, and climate science or
can therefore nei-
ther probe nor agriculture, there is not
audit them for a lot of appetite for that’
potential harms
and biases very easily.
The paper’s data also showed a big dis-
parity between public and private
investment in AI technology. In 2021,
non-defence US government agencies
allocated $1.5bn to AI. The European
Commission planned to spend €1bn.
Meanwhile, the private sector invested
more than $340bn on AI in 2021.
“There is such a concentration of
wealth and investment in a very narrow
set of techniques,” said Alex Hanna,
director of research at the Distributed
AI Research Institute and a former
member of Google’s Ethical AI team.
She pointed to investment data from
PitchBook showing that the majority of
researchers pointed out. Hanna, whose
work is funded by non-profits, agrees.
“If you want to work on specialised AI
tasks like ensuring biodiversity, or cli-
mate science or agriculture, there is not
a lot of appetite for that,” she said.
Meredith Whittaker, president of
encrypted app Signal, has compared the
situation with the US military’s domi-
nance over scientific research during
the cold war in a seminal paper in 2021.
“It is here, in these darker histories, that
we confront the steep cost of capture —
whether military or industrial,” she
wrote. “And its perilous implications for
academic freedom . . . capable of hold-
ing power to account.”
Researchers and policy experts con-
cur on the diagnosis but not on the solu-
tions — some, like Ahmed, believe gov-
ernments should set up academia-only
data centres to allow researchers to run
experiments but others, like Whittaker,
believe that would further concentrate
power among those who own infrastruc-
ture, like cloud services. But they all
agree on the one thing policymakers
simply can’t do: turn a blind eye.
madhumita.murgia@ft.com
Friday 24 March 2023 ★ FINANCIAL TIMES 7
8 ★
Industrials
Toshiba backs $15bn buyout offer
Board approves JIP bid to
pave the way for Japan’s
biggest take-private deal
LEO LEWIS AND KANA INAGAKI — TOKYO
Toshiba’s board approved a $15bn offer
from a consortium led by a Japanese
buyout fund, paving the way for the
country’s biggest ever take-private deal.
Toshiba said Japan Industrial Part-
ners has offered to buy the group for
¥4,620 ($35) a share. Shares in Toshiba,
Japan’s best-known conglomerate,
closed at ¥4,213 yesterday.
The 147-year-old group will be taken
private by a consortium backed by 17
domestic companies and six financial
institutions. According to people famil-
iar with the matter, the group includes
financial services group Orix, Chubu
Electric Power and chipmaker Rohm.
Toshiba’s board said it approved JIP’s
Hacked off
Editor’s exit
sparks protest
at Les Echos
Question of independence: Les
Echos editor-in-chief Nicolas
Barré, fourth from left, leads an
editorial meeting at the paper’s
headquarters in Paris last year
Cristophe Archambault/AFP via Getty Images
Telecoms
Billionaire Hohn urges overhaul at Cellnex
ANNA GROSS — LONDON
BARNEY JOPSON — MADRID
Billionaire hedge fund manager Chris
Hohn is attempting to oust three board
members at Cellnex and hasten the
appointment of a new chief executive
amid a challenging period for Europe’s
largest mobile-tower company.
Hohn’s hedge fund TCI, which has a
record of embarking on boardroom bat-
tles, said that it had concerns about
“governance” at the Spanish group, par-
ticularly surrounding the replacement
of Tobias Martínez Gimeno, who
stepped down as chief executive in Janu-
ary. He will leave in June.
“We believe that Cellnex is a great
company, but in our opinion it cannot
reach its full potential because it is held
back by poor corporate governance,”
Hohn wrote in a letter to the Cellnex
board, seen by the Financial Times. “We
¥2tn bid but stopped short of recom-
mending it to shareholders, saying a
special committee would further review
the deal before the tender offer is
expected to be launched in July.
“We reached the conclusion that this
transaction would reasonably contrib-
ute to enhancing our corporate value if
it leads to creating a stable management
structure and if it can win unified sup-
port from shareholders,” Toshiba said.
People close to several of Toshiba’s
largest shareholders said they were
“comfortable” with the formula used to
value the group. At its peak last year,
when higher bids were expected from
Bain Capital and other global private
equity funds, it was valued at ¥2.5tn.
The board’s approval of JIP’s bid her-
alds the end of an eight-year saga featur-
ing an accounting scandal, a brush with
delisting and a fire sale of the company’s
most valuable asset, the flash memory
business now known as Kioxia.
Journalists at France’s largest business
newspaper are protesting against the
abrupt removal of their editor-in-chief,
which they say was decided by the
publication’s billionaire owner Bernard
Arnault in breach of the daily’s
editorial independence.
Reporters at Les Echos would not
sign their names to their articles online
and in print for 24 hours from noon
yesterday to protest against the “forced
departure” of Nicolas Barré by Arnault,
according to a statement from a group
representing the newsroom.
“We are undertaking this action for
24 hours to highlight our
determination and our anger that the
owner has not respected the
independence of our publication,” said
Leila de Comarmond, president of the
journalist’s association at Les Echos,
adding that “the vast majority” of
journalists would participate.
The company “cannot mask the
reality” that Barré was “removed by
the owner in contradiction of the
guarantees of independence
negotiated” at the time of the sale of
the newspaper to LVMH, the luxury
group owned by Arnault, the
journalists’ association said.
LVMH bought Les Echos from British
believe that the . . . hiring process for a
new CEO has been mishandled by the
board and resulted in insufficient
progress to recruiting a suitable replace-
ment,” he wrote, as he called for the
departure of chair Bertrand Kan and
two directors.
TCI, which owns 3 per cent of
Cellnex’s share capital and a further 6
per cent in derivatives, is hoping that
one of its own directors, Jonathan
Amouyal, will be appointed via “con-
structive dialogue”. However, if this is
not possible, it says that it will propose a
vote at the company’s next AGM.
Cellnex declined to comment.
The group’s share price has fallen 20
per cent over the past 12 months, at a
time when rising interest rates and high
levels of debt have shaken up its acquisi-
tive business strategy.
TCI is already involved in corporate
controversy in Spain as it has been a
FINANCIAL TIMES
COMPANIES & MARKETS
If it wins the backing of Toshiba’s
shareholders, the deal will lead to the
company’s delisting — a fate it narrowly
avoided in 2017 when the failure of its
US nuclear business took it to the edge
of bankruptcy.
As a result of its financial troubles,
Toshiba in 2017 opted for an emergency
issuance of $5.4bn worth of new equity
in a deal engineered by Goldman Sachs.
The transaction radically altered
Toshiba’s shareholder register, packing
it with aggressive foreign activist funds,
which have called on the company to
find better ways to unlock value.
For the past six years, the company’s
largest shareholder has been Effissimo
Capital Management, a secretive Singa-
pore-based fund run by Japanese man-
agers that has put pressure on Toshiba.
Shares in the Japanese group soared
after it received a $20bn take-private
offer from European private equity firm
CVC in April 2021. JIP’s latest offer rep-
publisher Pearson, the former owner of
the Financial Times, in 2007 and
signed an accord intended to protect
the newsroom’s independence.
Staff at Les Echos said Arnault
removed Barré because he was
unhappy about a review in Les Echos of
Story of an Ogre, a book critical of fellow
billionaire Vincent Bolloré, who has
risen as a powerful media owner.
Barré was ‘removed by
the owner in contradiction
of the guarantees of
independence negotiated’
France’s biggest newspaper and
television channels are owned by
billionaire industrialists who use them
as tools of influence. In addition to Les
Echos, LVMH owns Le Parisien daily
newspaper and a classical radio station.
The Bouygues family behind the
construction-to-telecoms eponymous
conglomerate owns TF1, the biggest
private broadcasting company. The
Dassault family, owner of defence
company Dassault Aviation, owns Le
Figaro newspaper. Telecoms billionaire
Xavier Niel owns a stake in Le Monde.
forceful advocate of Ferrovial’s plan to
shift its head office from Madrid to the
Netherlands in order to facilitate the
listing of its shares in New York.
The infrastructure group sparked
fury in the Spanish government when it
announced its plan.
This year TCI also demanded that Air-
bus, the world’s largest plane maker,
abandon its bid for a stake in the cyber
security arm of French IT company
Atos.
The last time Hohn moved against a
chair, however, was when he called for
the resignations of the chief executive
and chair of Montreal-based railway
group Canadian National in 2021, after
the company’s failed attempt to buy
Kansas City Southern.
Martínez resigned after eight years at
the helm of Cellnex, during which time
it became Spain’s largest telecoms group
amid a dealmaking spree.
resents a 21 per cent premium to
Toshiba’s share price before CVC’s offer
came to light.
After CVC’s offer collapsed and
Toshiba’s plan to split the company was
also rejected by shareholders, the group
began soliciting new bids last spring, ini-
tially attracting interest from the
world’s largest buyout funds. But JIP was
chosen as the preferred bidder in Octo-
ber and Toshiba said no other fund sub-
mitted a concrete proposal.
Yesterday, the company said JIP was
unlikely to seek a major change in its
business strategy and indicated that a
buyout would not lead to the complete
replacement of its management.
At the same time, M&A bankers and
lawyers said they believed that, once
privatised, Toshiba was likely to put a
number of non-core units up for sale.
Toshiba reported worse than expected
results in February, with quarterly oper-
ating profit falling almost 90 per cent.
A relative latecomer to media,
Bolloré, the largest shareholder in
Vivendi, has proved the most
interventionist at his group’s TV
news channel, radio and newspaper,
often replacing editors and
journalists and shaping the editorial
line. Under his ownership, CNEWS
has been revamped as a
conservative debating forum,
playing a role in French media akin
to Fox News in the US.
Barré will “pursue new
challenges” in a new role within the
company, LVMH’s media arm said
in a statement announcing the
editor’s departure on Wednesday.
Francois Vidal, Barré’s deputy, will
take over his responsibilities on an
interim basis until a new editor is
appointed.
“I am very happy Nicolas Barré
has chosen to pursue new
opportunities at the group in a new
role. I want to thank him for his
work over the past decade leading
editorial where he has proven his
great value as an editor and a
manager,” Arnault said.
LVMH and Barré did not respond
to a request for comment.
Additional reporting by Leila Abboud
Technology
Chip businesses fight ‘forever chemicals’ curbs
PATRICK TEMPLE-WEST — NEW YORK
Intel and other semiconductor compa-
nies have joined industrial materials
businesses to fight US clampdowns on
“forever chemicals”, substances used
in myriad products that are slow to
break down in the environment.
The lobbying push broadens the opposi-
tion to new rules and bans for chemicals
known as PFAS. The substances have
been found in the blood of 97 per cent of
Americans, the US government says.
More than 30 US states are consider-
ing legislation to address PFAS, accord-
ing to Safer States, an environmental
advocacy group. Bills in California and
Maine passed in 2022 and 2021. “I think
clean drinking water and for farmers to
be able to irrigate their fields is far more
important than a microchip,” said Stacy
Brenner, a Maine state senator who
backed the state’s bipartisan legislation.
Technology. Royalties
Arm seeks to lift
chip design prices
in profits drive
ahead of IPO
Customers prove resistant to
shake-up of payments model
by SoftBank-owned business
ANNA GROSS AND CHENG TING-FANG
LONDON
KANA INAGAKI — TOKYO
Arm is seeking to raise prices for its chip
designs as the SoftBank-owned group
aims to boost revenues ahead of a hotly
anticipated initial public offering in
New York this year.
The UK-based group, which designs
blueprints for semiconductors found in
more than 95 per cent of smartphones,
has told several of its biggest customers
of a radical shift to its business model,
according to industry executives and
former employees.
These people said Arm planned to
stop charging chipmakers royalties for
using its designs based on a chip’s value
and instead charge device makers based
on the value of the device. This should
mean the company earns several times
more for each design it sells, as the aver-
age smartphone is vastly more expen-
sive than a chip.
The changes represent one of the big-
gest shake-ups to Arm’s business strat-
egy in decades, at a time when SoftBank
chief executive Masayoshi Son is seek-
ing to drive up Arm’s profits and attract
investors to its impending return to the
public markets.
“Arm is going to customers and saying
‘We would like to get paid more money
for broadly the same thing’,” said one
former senior employee who left last
year. “What SoftBank is doing at the
moment is testing the market value of
the monopoly that Arm has.”
SoftBank, which acquired Arm for
£24.3bn in 2016, plans to retain a major-
ity stake following the IPO. It was aiming
to start pushing through the pricing
shake-up at the chip designer by as early
as next year, but has so far been frus-
trated by customers’ reluctance to
accept the new arrangement.
MediaTek, Unisoc and Qualcomm,
and multiple Chinese smartphone mak-
ers including Xiaomi and Oppo, are
among the companies that have been
made aware of the proposed change to
pricing policy, according to several peo-
ple familiar with the talks.
The Cambridge-headquartered com-
pany licenses its designs to various chip-
makers for them to use to make the
semiconductors found in smartphones,
computers and cars. It charges a licence
fee for obtaining its blueprints, and a
recurring royalty for each chip shipped.
Arm has also become more aggressive
in pushing price increases within its
existing sales model for royalties and
licences over the past year, particularly
for customers making chips for smart-
phones, where it has a dominant market
position, according to people with
knowledge of the recent moves.
Arm has been in a bitter legal battle
with its largest customer, Qualcomm,
since last year, accusing the mobile chip-
maker of using its intellectual property
without permission.
In its counterclaim, the chipmaker
alleged Arm had told “one or more of
Qualcomm’s customers” that it would
cease licensing central processing units
(CPUs) to all chip companies and only
provide licences to device makers.
According to the new business model
being presented by Arm, royalties
would be set according to the average
selling price of mobile devices rather
than that of the chips. The changes will
mainly involve Arm’s most prominent
In Minnesota, bills would ban by 2025
certain products that contain added
PFAS — which is short for perfluoroalkyl
and polyfluoroalkyl substances — in leg-
islation considered to be some of the
toughest in the country.
Semiconductor
groups including
Intel say there are
no alternatives to
PFAS for their
manufacturing
The Semiconductor Industry Associa-
tion — whose members include Intel,
IBM and Nvidia — has cosigned letters
opposing the Minnesota legislation.
Chipmakers also opposed the California
and Maine laws.
The pushback in the US echoes a dis-
pute in Europe, where chipmakers have
warned that a proposed ban on PFAS
Friday 24 March 2023
Cortex-A designs, essential for develop-
ment of smartphone processors.
Charging based on device price is a
widespread practice across the telecoms
equipment market, with Qualcomm,
Nokia and Ericsson all using a similar
model for their patents. The problem
for Arm is that it is attempting to change
its pricing strategy long after it estab-
lished a different sales model.
The average price for a smartphone
chip is about $40 for Qualcomm, $17 for
MediaTek and $6 for Unisoc. Arm
charges royalties of about 1 to 2 per cent
of the value of each chip sold based on
its designs, according to Sravan Kundoj-
jala, an analyst at TechInsights.
By contrast, the average smartphone
sold for $335 in 2022. While it is unlikely
Arm would seek as much as 1 to 2 per
cent of the value of each device, those
familiar with the matter said it would
set its new pricing in a way that signifi-
cantly increases overall earnings.
“The [royalty] amount will be at least
several times higher than what Arm gets
now,” said an executive from a leading
Chinese smartphone maker which has
so far refused to back the proposed plan.
“We are told that they hope such
changes could start from 2024.”
Some of Arm’s customers, including
Apple, are both chipmakers and device
makers, and have special licensing and
royalty agreements with Arm. The
iPhone maker is not involved in discus-
sions about the change to Arm’s busi-
‘Arm is going to customers
and saying, we would like
to get paid more money
for broadly the same thing’
ness model, said executives with knowl-
edge of the recent discussions.
Arm, SoftBank, Qualcomm, Medi-
aTek, Unisoc, Xiaomi and Oppo
declined to comment.
Son is relying on a blockbuster Arm
IPO to help mount a turnround at Soft-
Bank, which has suffered heavy losses
during the past year as the value of its
tech investments was hammered in a
broader industry downturn.
Son announced last year that he
would step back from day-to-day opera-
tions at SoftBank to devote himself to
turbocharging Arm’s growth.
People close to Son said he felt Arm
had taken a smaller slice of industry
profits over the past decade than chip-
makers such as Nvidia, Broadcom and
Qualcomm, especially considering how
crucial its designs were in mobiles.
Investors in the US, the UK and Japan
have told the Financial Times that they
have applied valuations to Arm of
between $30bn and $70bn. They say
that the broad range stems from the dif-
ficulty in identifying any comparable
companies, and a lack of clarity over the
company’s precise growth strategy in
recent years.
For several years under SoftBank’s
ownership, Arm posted stagnating reve-
nue and falling profits. Costs increased
from $716mn in 2015 to $1.6bn in 2019,
according to SoftBank data. Revenues
gained 20 per cent to $1.9bn over the
same period, while profits fell almost 70
per cent to $276mn by 2019.
It has since reversed its fortunes, post-
ing a 35 per cent rise in revenues to
$2.7bn in 2021, the latest date for which
there are annual figures, and a 68 per
cent rise in adjusted earnings to $1bn.
Additional reporting by Qianer Liu in Hong
Kong and Leo Lewis in Tokyo
See Lex
will disrupt semiconductor supplies.
Long-term PFAS exposure can weaken
the immune system, decrease infant
and foetal growth and increase kidney
cancer risk in adults, according to a
2022 report by the US National Acade-
mies of Sciences, Engineering and Medi-
cine. Widely used in products from non-
stick cookware to firefighting foam to
ski wax, PFAS are also widely used in
semiconductor manufacturing.
Chip groups say there are no alterna-
tives to PFAS for their manufacturing.
Last week the US Environmental Pro-
tection Agency proposed limiting the
chemicals in drinking water.
If fully implemented, “the rule will
prevent thousands of deaths and reduce
tens of thousands of serious PFAS-at-
tributable illnesses”, the EPA said.
Fay said companies were reviewing
the EPA’s proposal. Intel declined to
comment.
Friday 24 March 2023 ★ FINANCIAL TIMES 9

COMPANIES & MARKETS

TikTok caught in tug of war over its algorithm

Parent company ByteDance stuck between US and Chinese legal manoeuvres aimed at controlling video app’s future
HANNAH MURPHY — SAN FRANCISCO
CRISTINA CRIDDLE — LONDON
RYAN MCMORROW — BEIJING
The US and Chinese governments are
battling for control over the algorithm
that powers TikTok, with the short-
form video app trapped in a geopolitical
tug of war over its future.
ByteDance, the Beijing-based com-
pany that owns TikTok, has faced US
demands that the app be sold to cut ties
to its home country, while the Chinese
government has taken legal measures to
prevent divestment without its consent.
The heart of the conflict is which
country can lay claim to TikTok’s pow-
erful algorithm, according to several
people familiar with deliberations and
international legal experts.
The Chinese government is likely to
block ByteDance from selling TikTok’s
algorithm technology, according to
experts and TikTok insiders. Beijing
introduced a new export restriction to
squash any deal without its approval
when the Trump administration tried to
ban the app in 2020.
TikTok’s algorithm has been touted as
one of the most advanced uses of artifi-
cial intelligence in consumer technol-
ogy. It is considered more effective than
rivals such as Meta at presenting users
with content they are likely to be inter-
ested in that does not necessarily come
from friends’ recommendations.
That has given the app an uncanny
ability to serve up addictive lip-sync and
dance videos that capture the attention
of its 1bn users worldwide. But critics
contend that, under pressure from the
Chinese government, it could be manip-
ulated to serve up propaganda or polar-
ising material — a claim denied by
ByteDance.
“China won’t allow TikTok’s algo-
rithm to be exported,” said Keith Krach,
a US businessman and former politician
who led the Trump administration’s
attempted crackdown on TikTok. “You
can’t split the baby in two.”
The predicament has created a high-
stakes moment for TikTok’s chief exec-
utive, Shou Zi Chew, who was set to tes-
tify before the US Congress yesterday.
According to written testimony
posted ahead of the hearing, he was to
tell the House of Representatives energy
and commerce committee: “TikTok has
never shared, or received a request to
share, US user data with the Chinese
government. Nor would TikTok honour
such a request if one were ever made.”
Separately, he appealed directly to the
app’s 150mn US users in a video showing
the US Capitol in the background on
Tuesday. “Some politicians have started
talking about banning TikTok,” he said.
“Now this could take TikTok away from
all 150mn of you.”
Concerns over the algorithm, along-
side national security fears that US user
data could be harvested for espionage
purposes, have led the Committee on
Foreign Investment in the US (Cfius) —
an inter-agency panel that evaluates
foreign investment — to demand that
its Chinese owners sell their stakes in
TikTok or potentially face a ban.
TikTok said 60 per cent of ByteD-
ance shares were owned by global
investors, while 20 per cent were
owned by employees and a fur-
ther 20 per cent by its
founder Zhang Yiming.
But Zhang has control
over the company by way
of owning a separate class
of shares with additional
voting rights, people
close to ByteDance
have said.
Show of support: China’s foreign ministry last week
US opponents of demanded that Washington “stop
a TikTok ban unreasonably suppressing” TikTok,
demonstrate on noting that the US had failed to produce
Capitol Hill this any evidence to show the app threat-
week. Below, ened its national security.
TikTok CEO China last year introduced the world’s
Shou Zi Chew first rules for regulating and monitoring
has sought to tech algorithms — with the one that
reassure US underpins TikTok listed in the country’s
politicians that official algorithm database.
the app would The database also lists the algorithm’s
not share user owner as Beijing Douyin Information
data with Beijing Technology, ByteDance’s main Chinese
Brendan Smialowski/AFP via
Getty Images; Bryan van der
entity, where an official from China’s
Beek/Bloomberg internet regulator is a director and has a
say over any acquisition or spin-off.
TikTok has also become a flashpoint
for tensions between the west and China
over concerns that user data could be
transferred to China’s communist gov-
ernment. Critics say the Chinese state
could use this for espionage.
TikTok has always denied it would
submit to such demands. However, local
laws could mandate that Chinese com-
panies disclose data to the state.
Growing concerns over TikTok have
led to the app being banned on official
government devices in the US, UK, Can-
ada and the EU, as well as on official
work devices for staff at news organisa-
tions such as the BBC and Danish broad-
caster DR.
“The CCP has a record for using social
media as a tool for repression. This isn’t
abstract to think of how they might use
this data. It is simply applying the
norms they have in their own country,”
said James Bethell, a member of the
UK’s House of Lords and of the Inter-
Parliamentary Alliance on China. “I
don’t see how a Chinese-owned
TikTok solves that problem . . .
and I am sceptical a UK govern-
ment can ever trust [one].”
TikTok has said that the best
way to address national security
Cfius process. This includes Lisa
Monaco, the US deputy attorney-
general who has emerged from within
President Joe Biden’s administration as
one of the fiercest advocates for a sale,
according to a person familiar with the
matter. Her office did not respond to a
request for comment.
Another difficulty is that any US com-
panies that could afford to buy TikTok,
such as Meta or Google, would probably
face antitrust challenges. In 2020 a coa-
lition of Oracle and Walmart emerged as
a likely buyer that could appease the
White House, and some have suggested
a similar solution now could be revived.
Oracle did not respond to a request for
comment.
Another route to divestment would
be an initial public offering. But ByteD-
ance has shelved plans to list overseas
after Beijing cracked down on big tech
groups, and the public markets cooled
amid a broader downturn.
Chew has said the company has “no
concrete plan” to launch an IPO. TikTok
said: “If protecting national security is
the objective, divestment doesn’t solve
the problem: a change in ownership
would not impose any new restrictions
on data flows or access.”
Meanwhile, a group of Silicon Valley
investors and tech executives, including
Peter Thiel, Vinod Khosla and Keith
Rabois, have formed an anti-China alli-
ance to lobby for protecting US tech
interests. The Hill & Valley Forum, as it
is known, is convening a dinner with
about 200 expected attendees, includ-
ing elected officials. TikTok will be
among the talking points. The Wall
Street Journal first reported news of the
dinner.
‘China concerns is not through divestiture but called “Project Clover”, to fence off data “There is a near unanimity among
through “transparent, US-based protec- in three centres: two in Ireland and one attendees that TikTok poses a serious
won’t allow tion of US user data and systems, with in Norway. national security risk to the US and that
TikTok’s robust third-party monitoring, vetting After ByteDance’s run-in with the the status quo cannot continue,” said
and verification, which we are already Trump administration, the group Jacob Helberg, a former Google policy
algorithm implementing”. moved strategically to add additional adviser who is leading the group and
to be To address the backlash, TikTok has American stakeholders in December who was recently appointed as a com-
spent $2bn so far on “Project Texas”, a 2020. The company had benefited from missioner on the US-China Economic
exported. partnership with cloud software group the help of shareholder Bill Ford at Gen- and Security Review Commission, a US
You can’t Oracle. User data will be routed through eral Atlantic, a big Republican donor, government agency.
its servers and access to US data will be navigating the tense political waters. Whether there is a forced sale or a
split the restricted to those with authorisation. Despite not needing more capital, ban, some experts warn of China possi-
baby in two’ Oracle is also reviewing TikTok’s ByteDance raised about $5bn at a bly retaliating and of that spreading
source code, the technological architec- $180bn valuation to broaden its base of beyond internet companies.
ture underpinning the app, to assess its US shareholders, including Washington- “The risk that the US faces is that
security risk. Under current proposals, based private equity group Carlyle, China may respond,” said Anupam
third parties, including Cfius and the US according to people familiar with the Chander, a professor in global internet
government, will have approval author- matter. regulation at Georgetown University.
ity over parts of TikTok’s business. These changes have not proved “[Any] TikTok ban could be devastat-
‘TikTok TikTok has a similar plan in Europe, enough to satisfy those overseeing the ing for modern international trade.”
poses a
serious
national
security
risk to the
US and the
status quo
cannot
continue’

Financial services

EY’s US boss says jury is still out on split plan

MICHAEL O’DWYER — LONDON
STEPHEN FOLEY — NEW YORK
Julie Boland, the head of EY’s US busi-
ness, said it was too soon to predict
whether the plan to break up the Big
Four firm could be salvaged, two weeks
after she pitched the group into tur-
moil by pausing work on the deal.
The decision to halt preparations for the
split of EY’s audit and consulting arms
has prevented an escalation in costs tied
to the deal, known as Project Everest,
while important issues remained unre-
solved, Boland told the Financial Times.
Boland cast the split into doubt this
month when she told almost 4,000 US
partners that it was being put on
“pause”, as she raised concerns over the
“health” of the audit business and the
ability of the standalone consulting arm
to meet its profit targets.
The firm’s leaders have committed to
a negotiation “sprint” to resolve the
issues raised by Boland, but she told the
FT it was “premature” to say whether
the deal could be rescued without being
fundamentally redrawn.
“I think we all recognise what’s out-
standing, and what needs to happen,”
said Boland, who has led the US busi-
ness, the largest of EY’s member firms,
since last July.
The proposed break-up is designed to
liberate EY’s consultants and much of
its tax practice from independence reg-
ulations that restrict them from advis-
ing the firm’s audit clients.
Boland’s comments came after four of
EY’s most senior former leaders, includ-
ing Steve Howe, who led EY’s US busi-
ness for 12 years until 2018, told retired
partners of fears that the plan was fun-
damentally flawed and threatened audit
quality, according to an email seen by
the FT.
The pause meant being “very judi-
cious about what we’re spending” on
transaction costs before resolving the
points of disagreement, Boland said.
The costs of the transaction were set
to run to several hundred million dol-
lars by this month and reach $2.5bn,
excluding bankers’ fees, by completion,
said people familiar with the matter.
EY announced in September that its
top national bosses had agreed unani-
mously to put the break-up to country-
by-country votes among its 13,000 part-
ners but Boland’s comments highlight
the depth of disagreement among its
most senior leaders.
Carmine Di Sibio, who leads EY’s glo-
bal business and has been the driving
force behind the split, said in February
that the deal faced “no tremendous hur-
dles” apart from a possible downturn in
public markets delaying a stock market
listing of the consulting arm. If the split
goes ahead, Di Sibio would lead the
spun-out consulting arm.
“I think it was probably a misnomer
to say just because we came out of feasi-
bility [planning] everything was done
and dusted,” said Boland.
The intention in September had been
to move to a new phase to “identify all
the details that we could provide to our
partners in order for them to vote on
any transaction”, she said.
Partner votes were intended to begin
in November but were delayed repeat-
edly before being postponed indefi-
nitely after Boland’s intervention.
10 ★ FINANCIAL TIMES Friday 24 March 2023

COMPANIES & MARKETS

Commodities. Supply woes Crypto

Coinbase
Copper set for record high shares slide
after SEC alert
on rise in Chinese demand on legal action
SCOTT CHIPOLINA — LONDON
STEFANIA PALMA — WASHINGTON

Shares in Coinbase fell more than a

tenth in afternoon trading yesterday
after the US markets regulator warned it
was considering potential enforcement
action against the crypto exchange over
possible securities laws violations.
The Nasdaq-listed group confirmed
late on Wednesday it had received a
“Wells Notice” from the Securities and
Exchange Commission, which warns
companies they may face legal action.
The SEC is looking at Coinbase’s crypto
staking business, as well as investment
and custody services, and part of its spot
trading business, the company said.
The notice is the latest in a growing
line of actions the SEC has taken against
prominent crypto companies in the US
as the agency’s chair, Gary Gensler,
takes a tougher stance on an industry he
deems largely non-compliant with secu-
rities law. Since the start of this year, the
financial markets watchdog has fired off
a blitz of enforcement actions, including
suing lender Genesis and exchange
Gemini for failing to register a crypto-
lending scheme as a securities offering.
On Wednesday, the agency sued
crypto entrepreneur Justin Sun, whose
companies include Tron and BitTor-
rent, and a host of celebrities it alleged
had improperly touted digital assets.

Inventories of the industrial Copper has been performing
strongly this year ...
metal have sunk to their lowest Price ($ per tonne)
... and stockpiles are running
low
Visible inventories (mn tonnes)
Rich resource: which is ramping up to supply 600,000 ‘We estimate about 35 per
workers at a tonnes by the end of next year. “We are
cent of net revenue is
copper mine in heading towards a train wreck,” he said.

seasonal level since 2008 12,000 1.2

HARRY DEMPSEY — LAUSANNE
Copper prices will surge to a record high
this year as a rebound in Chinese
demand risks depleting the lowest
March stockpiles in 15 years, the world’s
largest private metals trader has pre-
dicted.
Global inventories of the metal used
in everything from power cables and
electric cars to buildings have dropped
rapidly in recent weeks to their lowest
seasonal level since 2008, leaving little
buffer if demand in China continues to
pace ahead.
The benchmark three-month copper
contract is trading at $8,865 a tonne,
having gained 30 per cent since falling
sharply in the three months after Rus-
sia’s invasion of Ukraine when investors
fretted that soaring energy prices would
dent metals demand.
Kostas Bintas, co-head of metals and
minerals at Trafigura, the Singapore-
based trading house, said that copper
prices would probably surpass the
$10,845 a tonne peak achieved in March
2022 and could even hit $12,000 a
tonne.
“I think it’s very likely in the next 12
months that we will see a new high,” Bin-
tas said at the FT Commodity Global
Summit in Lausanne, Switzerland.
“What’s the price of something the
whole world needs but we don’t have
any of?”
Goldman Sachs expects the world to
run out of visible copper inventories by
the third quarter of this year if demand
10,000
8,000 0.6
6,000
4,000 0 Current demand
2020 21 22 23
Sources: Bloomberg; Goldman Sachs
in China continues to power ahead as
strongly as it did in February.
Chinese copper demand was up 13 per
cent year on year last month, according
to the bank, after activity picked up fol-
lowing the lunar new year, which took
place earlier this year than last. It pre-
dicts that copper could hit $10,500 a
tonne in the near term, before reaching
$15,000 by 2025.
“The forward outlook is extraordi-
narily positive,” said Jeffrey Currie, glo-
bal head of commodities research at
Goldman Sachs.
He added that “like oil in the 2000s,
you’ve got to absolutely love copper in
the 2020s”, referring to the 5 per cent
supply-demand gap that led Brent
crude to rally from $20 to almost $150 a
barrel versus an expected 15 per cent
deficit for copper this decade.
Copper has been the best-performing
industrial metal this year, gaining 6 per
cent while others such as zinc and nickel
have fallen on broader financial market
weakness.
Despite that, several strategists and
traders said prices of commodities were
1.0
0.8 2020
2019
0.4 2021
2023 2022
0.2
Goldman Sachs
forecast
Jan Apr Jul Oct Dec
1 1 1 1 31
failing to reflect sufficiently market
expectations of supply deficits.
Guillaume de Dardel, head of energy
transition metals at Mercuria, a Swiss-
based trader, said current prices “don’t
fully reflect the anticipation of supply
and demand shocks in the future” and
commodities “price the present more
than the future”.
Copper is crucial to decarbonisation
because the replacement of fossil fuels
with renewable power requires vast
amounts of the metal to distribute elec-
tricity longer distances from diffuse
wind and solar farms to households and
factories that consume it.
Metals analysts said demand for cop-
per had accelerated and been pushed
higher by clean energy industrial poli-
cies in the US and Europe that rely on
electrification.
Mining executives say it is increas-
ingly difficult to boost new supply of
copper with declining grades. Mining
billionaire Robert Friedland told the
Financial Times it took him 28 years to
develop the vast Kamoa-Kakula mine in
the Democratic Republic of Congo,
Zambia. Mining S&P Global estimates that 40mn
executives say it tonnes of copper will be consumed a
is increasingly year by 2030, up from 25mn tonnes in
difficult to boost 2021.
new supply of Depleted inventories can make com-
copper with modity prices volatile and a sudden
declining grades price surge can cause problems for pro-
Zinyange Auntony/
Bloomberg
ducers, traders and consumers in find-
ing enough cash to cover margin
requirements and avoiding running into
a liquidity crunch.
However, some in the market see rea-
son to expect the copper shortages and
price surge to be felt later this decade.
BHP, the world’s largest mining com-
pany, told the conference that new sup-
ply from Peru, Chile and the DRC would
keep the market in surplus for the next
two to three years.
Marc Bailey, chief executive of Sucden
Financial, a London-based commodity
brokerage, agreed, saying he expected a
rebuilding of copper stocks this year as
lockdowns were lifted in China.
“It’s the same way that we reopened
our economy, which is that we wanted
to look after ourselves and feel good, we
wanted to go to restaurants, travel, see
friends. We didn’t want to buy houses,”
he said.
‘What’s But others said copper’s role in decar-
bonising the economy together with the
the price of difficulties in developing new mines
something meant prices of the red metal were cer-
tain to shoot higher soon.
the whole “You can think of copper almost like
world needs being a house in a casino,” said Nick Pop-
ovic, joint head of copper and zinc trad-
but we ing at Glencore, referring to the high
don’t have likelihood of rising prices. “The house
always wins no matter what permuta-
any of?’ tion we look at and the bottlenecks.”
potentially at risk, depending
on SEC’s course of action’
The notice, the second served to Coin-
base by the SEC, has made a “prelimi-
nary determination” to recommend
action against the exchange, according
to a copy seen by the Financial Times. A
potential civil action may involve a
request for an injunction, a cease-and-
desist order or civil money penalties,
among other measures.
Trevor Williams, an analyst at Jeffer-
ies, described the notice as an “ominous
sign” that could put revenue from trad-
ing alternative coins and staking in jeop-
ardy if they were required to register
with the SEC as securities. “We estimate
around 35 per cent of net revenue is
potentially at risk, depending on the
SEC’s course of action,” he said.
Last month another exchange,
Kraken, agreed to pay a $30mn settle-
ment and end its staking business, in
which customers agree to lock up their
tokens in other crypto projects, in
return for a high yield.
In a post Coinbase’s chief legal officer
Paul Grewal said Coinbase was “prepar-
ed for this disappointing development.”
“We asked the SEC specifically to
identify which assets on our platforms
they believe may be securities, and they
declined to do so,” he said, adding that
Our global Coinbase was confident in the legality of
team gives you its assets and services.
market-moving Coinbase chief executive Brian Arm-
news and views, strong tweeted that “after years of ask-
24 hours a day ing for reasonable crypto rules, we’re
ft.com/markets disappointed that the SEC is considering
courts over constructive dialogue.”

Equities Monetary policy

Evergrande restructuring plan sends
domestic property stock peers lower
CHAN HO-HIM — HONG KONG
THOMAS HALE —SHANGHAI
Chinese property stocks fell yesterday
after the long-delayed release of devel-
oper Evergrande’s restructuring plan,
highlighting doubts about the com-
pany’s prospects of recovery.
Evergrande was at the centre of a crisis
in the Chinese property sector after it
defaulted in 2021 with liabilities of
$300bn, including offshore debt of
$22.7bn.
The company on Wednesday released
details about restructuring $19.1bn
worth of debt, about 84 per cent of its
total offshore leverage. The plan allows
creditors to swap debt into new notes
with a maturity of 10-12 years.
Another option is to convert them
into new notes with a five- to nine-year
maturity or to swap to equity-linked
instruments tied to its two Hong Kong-
listed units in electric vehicles and prop-
erty management.
Brock Silvers, chief investment officer
at private equity firm Kaiyuan Capital,
said “creditors should need substantial
inducement” to accept the long-matu-
rity notes, adding the equity tied to its
EV arm “may not provide much actual
security” as well.
“Evergrande continues to represent a
very significant credit risk,” Silvers said.
“The announced restructuring also
remains silent on any immediate pay-
ment to bondholders or any capital
injection from chairman Hui Ka Yan.”
The Hang Seng Mainland Properties
index, which tracks 10 of the country’s
largest developers listed in Hong Kong,
fell 0.6 per cent yesterday. Notable
losses included a decline of 0.9 per cent
Evergrande’s proposal could offer a
template for other distressed groups
for Country Garden Services, the prop-
erty management arm of the country’s
biggest developer, and a 0.7 per cent fall
for China Resources Land.
The restructuring plan is expected to
take effect in October. It comes at a time
when sluggish growth poses a challenge
to Chinese policymakers who are trying
to revitalise an economy weakened by
years of Covid-19 restrictions.
Yan Yuejin, analyst at the E-house
China Research and Development Insti-
tution in Shanghai, said the plan was a
“breakthrough” after 20 months of debt
negotiations and could offer a template
for other distressed developers.
“The deal will win time for debt dis-
posal and create better conditions for
Evergrande to reduce debt and focus on
the delivery of houses,” said Yan.
In its restructuring proposal, Ever-
grande said it planned to get investors’
sign-off by the end of March. The com-
pany added it hoped the proposal would
“incentivise” onshore creditors to reach
an agreement on debt. The vast major-
ity of Evergrande’s assets and liabilities
are in mainland China.
Additional reporting by Cheng Leng and
William Langley in Hong Kong
Investors bet Fed has finished raising
interest rates after squeeze on banks
KATE DUGUID AND HARRIET CLARFELT
NEW YORK
Investors are betting that the Federal
Reserve’s interest rate rise this week
will be the last in its campaign to curb
inflation, with the failure of two
regional US banks and a rescue deal for
Credit Suisse aiding the central bank’s
mission to tighten financial conditions
and turn the screws on borrowers.
Two weeks ago, futures markets
reflected expectations that the US cen-
tral bank’s key rate would rise as high as
5.7 per cent by the summer.
But the collapse of Silicon Valley Bank
and its peer Signature — and the shot-
gun wedding of Credit Suisse and UBS
after a tense weekend of negotiations —
have forced a drastic repricing of how
much further the Fed will need to act to
pursue its policy goals.
The Fed has jacked up interest rates in
the world’s largest economy from near
zero at the start of last year to a range of
4.75 to 5 per cent after its latest policy
announcement on Wednesday — the
highest rate since 2007. But ructions in
the banking industry have sparked fears
about tougher lending conditions, with
financial institutions expected to
increasingly pull back credit lines to
protect their own balance sheets.
Markets are not excluding the possi-
bility of one more quarter-point rise in
May, but a hold followed by a series of
cuts later in the year is now seen as the
most likely scenario.
The angst in the banking sector has
already damped banks’ willingness to
‘The Fed was already in
the process of tightening
credit conditions. Now we
have a magnifying effect’
lend to businesses and individuals, the
same effect produced by higher interest
rates. The ripples are likely to continue.
US corporate debt and equity issuance
has slowed in the past two weeks, and a
market measure that quantifies bank
funding stress — the FRA-OIS spread —
on Wednesday rose to its highest level in
more than three months.
Investor fears of a dramatic slowdown
in mortgage lending, particularly in
commercial real estate, which is mainly
driven by regional banks, have spread.
“Banks are under pressure on three
different fronts: funding costs, the
declining value of assets and regulatory
scrutiny. If you combine these things,
you do begin to wonder about banks’
willingness to lend over the coming
quarters,” said Torsten Slok, chief econ-
omist at Apollo Global Management.
“The Fed was already in the process of
tightening credit conditions. Now sud-
denly we have a magnifying effect,
which could potentially mean faster
tightening of financial conditions, which
in turn raises the risk of a sudden stop in
the economy.”
Fed chair Jay Powell on Wednesday
admitted the events of the past fortnight
were “likely to result in some tightening
of credit conditions”. In turn, that mar-
ket-induced tightening will work “in the
same direction as rate tightening”, he
said, implying the central bank may not
need to raise borrowing costs as aggres-
sively as previously anticipated because
investors will do the job instead.
Also released on Wednesday, the Fed’s
“dot plot” showed officials still expect at
least another interest rate rise this year.
See Lex
Friday 24 March 2023 ★ FINANCIAL TIMES 11

COMPANIES & MARKETS

The day in the markets Banks turmoil

What you need to know
risks overdoing
3 US equities return to form as Fed
rate-setters’ job
Pound hits 6-week high after UK raises interest rates
signals rate rises may be nearing peak
3 European indices close with mixed $ per £
results as region-wide Stoxx 600 dips
3 Dollar drops while sterling strengthens
in wake of central bank moves
1.24
Claire Jones
Markets Insight
1.23
US equities advanced yesterday as
investors digested another central bank

C
interest rate rise that has come despite 1.22
turbulence in the banking sector.
The blue-chip S&P 500 gained 1 per entral bankers have been at and $2tn in Treasuries during the previ- banks are tightening lending standards
cent in early afternoon trade while the 1.21 pains to stress that they can ous 12-month period. in response to higher interest rates and
tech-heavy Nasdaq Composite climbed maintain a neat dividing line The renewed expansion of the bal- lower levels of liquidity.
1.7 per cent as both indices recouped between actions taken to ance sheet is expected to continue in Powell acknowledged more tighten-
some losses of the previous session. 1.20 quell inflation, and those to coming weeks. Michael Howell, manag- ing was on the way, not only from rate
Late on Wednesday the US Federal fix turmoil in the banking system. ing director at Crossborder Capital, said: rises, but from the banking turmoil,
Reserve proceeded with the So much so that the US Federal “In a world of massive debts, global which would have an effect “equivalent
0.25 percentage point interest rate 1.19 Reserve on Wednesday raised interest markets must act as a whopping refi- to a hike”. But no one knows how strong
increase markets expected, but signalled rates a quarter point, despite the recent nancing system where the capacity of that turmoil-related “hike” will be.
its policy of further rate rises to curb collapse of three midsized US lenders. capital — that is, balance sheets and As Claudia Sahm, a former Fed econo-
1.18 Take a look at the central bank’s bal-
inflation might be nearing its peak. liquidity — is key.” mist and founder of the Stay at Home
The Bank of England followed suit Jan 2023 Mar ance sheet, however, and it is clear For some Fed watchers like Ed Price of macro blog, puts it: “No one put bank
yesterday by raising its benchmark Source: Refinitiv financial instability has had an impact Ergo Intelligence, the reversal from con- failures in the toolkit, but the reality is
interest rate by 0.25 percentage points, on monetary policy. Last week, the Fed traction to expansion also fuels the that’s what’s happened.”
also anticipated by markets. The Swiss pumped almost $300bn into the US sense that we are living through an era Torsten Slok, chief economist at
National Bank and Norwegian central In its monetary policy statement on US Treasuries advanced yesterday, banking system after unveiling a new of “handbrake-turn” central banking. Apollo Global Management, adds: “This
bank also increased interest rates Wednesday the Fed omitted previous with the yield on the 10-year note falling facility, the Bank Term Funding Pro- is a case of being careful what you ask
yesterday. references to the need for “ongoing” rate 0.05 percentage points to 3.44 per cent. gram. The facility, which offers to take for. Global central banks have over the
The rise on Wall Street came despite rises. Swaps markets are pricing in no The yield on the two-year note, which is lenders’ US Treasuries off them at par ‘No one put bank past year tried to tighten credit condi-
mixed movements in Europe. The region- change at the next meeting in May, with more closely linked to short-term value in exchange for cheap central failures in the toolkit, tions gradually, and with the ongoing
wide Stoxx 600 closed down 0.2 per cent an outside chance of one more increase. interest rate expectations, was down bank loans, is a direct response to the headwinds to the banks, the tightening
and London’s FTSE 100 lost 0.9 per cent. The dollar fell 0.2 per cent against a 0.9 percentage points at 3.89 per cent. problems that befell the now defunct but the reality is that’s may come a lot faster.”
However, Germany’s Dax was flat and the basket of other currencies. Yields move inversely to price. Silicon Valley Bank. what’s happened’ It is possible that bank turmoil could
CAC 40 in Paris was 0.1 per cent stronger. “Balancing the Fed’s desire to keep its Sterling rose 0.5 per cent against the Those problems owed a lot to poor dissipate, especially if the US limits the
“If you take the view the Fed will ease pressure on inflation, and the reality of dollar to $1.23 after the BoE decision. The risk management, with SVB making an threat of bank runs through moves to
rates more compared to European tightening credit conditions and bank yield on two-year gilt contracts was down ill-judged, oversized bet on long-dated Fed chair Jay Powell has gone from hint- guarantee all deposits, insured or other-
central banks then that supports the lending appetite, we think the Fed could 0.2 percentage points at 3.29 per cent. US government bonds, which have ing at a return of large half a percentage wise. “Households and businesses built
divergence [between US and European still deliver one more 25bp hike in May,” The yield on the 10-year note was down plummeted in value over the past year. point rises to pumping hundreds of bil- up excess savings during the pandemic
equities],” said Geoffrey Yu, a strategist said Tai Hui at JPMorgan Asset 0.08 percentage points to 3.36 per cent. At root, however, the sharp reversal in lions into the banking system. and there is not so much excess leverage
at BNY Mellon. Management. Martha Muir and William Langley the price of those bonds is down to the In theory, the balance sheet expan- in the system,” Sabrina Khanniche, sen-
actions of the US central bank. sion ought to offset the impact of the ior economist at Pictet Asset Manage-
In the past year, the Fed focus on fight- Fed’s monetary tightening. That does ment. “The situation now is very differ-
Markets update ing inflation has led not only to bumper not, however, mean prices are about to ent to 2008 as a result.”
rate rises. It has also resulted in the run- spiral. Milton Friedman might have said But the risk of an uncomfortable sce-
off of more than $400bn of US debt from inflation is always and everywhere a nario still looms for the Fed, where a
the central bank’s balance sheet as monetary phenomenon, but the money combination of rapid monetary tighten-
US Eurozone Japan UK China Brazil bonds matured and were not replaced. central banks produce is only a small ing and banking stress triggers a lending
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa That came after a long period when amount of overall supply. In the UK, the crunch that will have a far more dra-
Level 3995.68 1764.55 27419.61 7499.60 3286.65 99494.30 the Fed massively expanded its balance reserves, notes and coins linked to the matic impact on demand than desired.
% change on day 1.49 -0.22 -0.17 -0.89 0.64 -0.72 sheet under its quantitative easing pro- Bank of England make up just under a A lending crunch and slowdown in the
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $ gramme to support markets and the fifth. The rest comes from deposits held economy might help rein in inflation,
Level 102.249 1.089 130.995 1.232 6.827 5.269 economy by buying bonds to counter at private financial institutions. but it may not be in a way central banks
% change on day -0.095 0.927 -1.266 0.736 -0.917 0.185 the impact of the Covid-19 pandemic. The corollary of those deposits is are keen to take credit for.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond The Fed bought $800bn-worth of bonds credit creation. There have already been
Yield 3.448 2.190 0.301 3.502 2.883 12.725 between March 2021 and March 2022, signs on both sides of the Atlantic that claire.jones@ft.com
Basis point change on day -12.140 -13.600 -2.830 -8.900 0.600 13.300
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 415.72 76.31 70.47 1949.35 22.35 3925.00
% change on day 1.10 -0.50 -0.61 -0.16 -0.53 1.12
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index
4320 1840 8320

8000
4160 1800
7680
4000 1760 7360

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

Jan 2023 Mar Jan 2023 Mar Jan 2023 Mar

Biggest movers
% US Eurozone UK
Netflix 9.56 Sanofi 5.19 Melrose Industries 3.70
Accenture 7.75 Grifols 4.28 Endeavour Mining 2.90
Ups

Regeneron Pharmaceuticals 6.76 Asml Holding 2.88 Ocado 2.83

Monolithic Power Systems 5.37 Terna 2.71 Scottish Mortgage Investment Trust 2.17
First Solar 5.36 Infineon Tech 2.31 Bae Systems 1.77
%
Comerica -5.64 Casino Guichard -9.32 British American Tobacco -5.54
First Republic Bank -4.80 Jeronimo Martins -3.96 Schroders -3.88
Downs

Factset Research Systems -3.92 Commerzbank -3.61 Standard Chartered -3.01

Genuine Parts -2.98 Caixabank -3.49 Hsbc Holdings -2.90
Zions Ban Na -2.82 Saipem -3.43 Legal & General -2.80
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

Plans to reduce its overheads sent Germany’s Nemetschek, which develops Guarantor loans provider Amigo
Accenture to the top half of the S&P 500. software for the construction and media plummeted to an all-time low on news it
The consulting company said it planned sectors, jumped off the back of a rosy had halted lending and planned to wind
to axe about 19,000 jobs. medium-term outlook. Growth in revenue down its operations. The announcement
Near the bottom of the blue-chip index was expected to ramp up in 2025, hitting came just weeks after the lender warned
were regional lenders First Republic and “at least mid-teens . . . well above the it had not “received sufficient . . .
Zions as jitters across the sector market average”, said the group, which indications of interest” to hit its £45mn
persisted. Janet Yellen, the US Treasury has been moving its clients over to a equity funding target.
secretary, a day earlier ruled out a broad subscription-based model. Amigo, which has been embroiled in a
expansion of deposit insurance to protect Buoying French healthcare group tussle over compensation for historic mis-
savers with balances above $250,000. Sanofi were positive results for an selling, had its “scheme of arrangement”
Crypto exchange Coinbase fell sharply experimental asthma drug it developed sanctioned by the High Court in May but
after disclosing in a regulatory filing that alongside US partner Regeneron, which this rescue plan rested on completion of a
it had received a “Wells Notice” from the also rallied on Wall Street. capital raise by May 26 this year.
Securities and Exchange Commission, A late-stage trial showed that Dupixent Rallying to the top of the FTSE 250
which warns companies they may face met its goals for treating chronic index was PureTech Health, which
legal action. obstructive pulmonary disease, a life- announced that Royalty Pharma — a US
“The SEC staff told us they have threatening lung condition. buyer of biopharmaceutical royalties —
identified potential violations of Assuming a second phase 3 study in had agreed to acquire a stake in the
securities law, but little more,” said the 2024 was also positive, Sanofi could raise biotherapeutics group’s royalties for
group, which added it was “confident in its guidance for peak Dupixent sales to schizophrenia treatment KarXT, invented
the legality of our assets and services”. more than €20bn, said Citi — a total that by a team at PureTech.
Block dived after investment firm would comfortably exceed the €17bn PureTech would receive $100mn in
Hindenburg Research disclosed a short analysts were forecasting. cash upfront and up to $400mn in
position in the payments platform Online pharmacy chain Zur Rose fell additional payments linked to regulatory
headed by Twitter founder Jack Dorsey. sharply after pushing back by a year its and commercial milestones for the drug.
The short seller alleged that Block had target for when it expected to break even Joining PureTech at the top of the mid-
artificially inflated its user numbers and for adjusted core profits, now scheduled cap index was oil and gas group
facilitated fraudulent transactions. for 2024. Energean, which released 2022 results
Block said it would work with the The delay was due in part to the Swiss that reinforced its “sector-leading growth
regulator to explore legal action against group’s focus on its business in Germany, credentials”, said Jefferies. Lifting
Hindenburg “for the factually inaccurate where electronic prescriptions were being sentiment further was Energean’s goal for
and misleading report” about its Cash rolled out and would be mandatory by “cumulative dividends of at least $1bn by
App business. Ray Douglas January 2024. Ray Douglas end-2025”. Ray Douglas
12 ★ FINANCIAL TIMES Friday 24 March 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 $

-0.89% -0.22% -0.17% -1.266% -0.48% -0.16%

1.49% 2.14% 1.23% 2.34% 1.10% 0.927% 0.736% 0.227%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparison
AMERICAS EUROPE ASIA
Feb 24 - - Index All World Feb 24 - Mar 23 Index All World Feb 24 - Mar 23 Index All World Feb 24 - Mar 23 Index All World Feb 24 - Mar 23 Index All World Feb 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
2,395.26
3,991.05 3,995.48 7,930.63 15,399.89
20,193.33 15,220.45 27,531.94 27,419.61
19,625.86 7,499.60

Day 1.49% Month -0.41% Year -10.33% Day 0.48% Month -2.77% Year -10.50% Day -0.89% Month -5.12% Year 0.57% Day -0.04% Month 1.63% Year NaN% Day -0.17% Month 1.27% Year 0.82% Day NaN% Month NaN% Year NaN%

Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
11,919.25 20,423.84 3,300.04
53,239.95 52,941.46 1,826.14 9,172.70 20,049.64
11,507.07 8,970.00 3,219.00
1,764.55

Day 2.14% Month 2.85% Year -14.38% Day 0.74% Month -0.21% Year -3.96% Day -0.22% Month -3.35% Year -0.65% Day -0.44% Month -2.83% Year 7.70% Day 2.34% Month -2.01% Year -8.57% Day -0.06% Month -2.41% Year -3.87%

Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
107,152.05 60,672.72
33,045.09 7,299.26 27,101.53 3,291.15 3,286.65
32,423.81 7,139.25 26,482.21
57,925.28
99,494.30
Day 1.23% Month -2.19% Year -5.62% Day -0.72% Month -7.39% Year -15.17% Day 0.11% Month -2.44% Year 8.48% Day -0.16% Month -2.80% Year 9.11% Day 0.64% Month -0.14% Year 0.82% Day -0.50% Month -3.07% Year -0.13%

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Friday 24 March 2023 ★ 15
16
This week’s film releases
reviewed by Leslie Felperin
and Danny Leigh
B
y all accounts, Alexander
Skarsgård is a nice guy,
surprisingly down to earth
for one so uncannily good-
looking and abdominally
chiselled. And yet you can’t help
worrying what the actor’s recent roles
have done to his mental health. There
have been sadists (Big Little Lies), men
turned violent by trauma (The North-
man) and entitled creeps who think it’s
their right to shag their girlfriend’s
underage daughter (The Diary of a Teen-
age Girl) or toy with people’s lives for fun
(Straw Dogs), profit (Succession) or food
(True Blood).
In Infinity Pool, he plays a character
with all the colours from the victimised,
violent posh-nob monster rainbow.
James Foster is a blocked novelist holi-
daying on the (made-up) island of La
Tolqa with his rich wife Em (Cleopatra
Coleman). Bored with the idle luxury of
the gated resort they’re not supposed to
leave, James and Em take a day trip with
another couple, giggly Gabi (horror
high-priestess Mia Goth) and Alban
(Jalil Lespert).
When James accidentally kills a
farmer and flees from the scene, local
law demands he must pay reparations
with his own life. But there’s a get-out-
of-execution-free card: James can have
a “double” of himself made and killed in
his place. Later, as things get worse, we
start to wonder which one was really
bumped off, given that now there’s a
“wrongness” around his eyes, “like a
crab at the dump”, as Em puts it.
Writer-director Brandon Cronenberg
definitely has a way with words, but he’s
even more of a craftsman when it comes
to visuals, especially trippy, CGI-laced
montages. These accompany the char-
acters’ drug binges, masked orgies and
crazed crime sprees, which turn exqui-
sitely violent. Like a run of other recent
films and TV shows (The White Lotus,
The Menu, most JG Ballard adaptations),
Infinity Pool plays with the viewer’s lust
for the trappings of wealth and repul-
sion for the people who have it.
As sophisticated, morally murky
sci-fi, this is as good as Cronenberg’s
father David Cronenberg at his best, up
there with the likes of Dead Ringers,
eXistenZ and Crash (itself a Ballard
★ FINANCIAL TIMES
ARTS
Cocktail of wealth, sex and violence
adaptation). But Cronenberg fils has his Above: Mia Goth
own aesthetic sensibility, palpable in the and Alexander
macro and ultra-wide angle lenses used Skarsgård in the
by his cinematographer Karim Hussain. nihilistic sci-fi
(They collaborated on the director’s two ‘Infinity Pool’.
other, equally compelling-repellent fea- Left: Laurence
tures, Possessor and Antiviral.) Fishburne and
It’s bracingly nihilistic stuff, and in Keanu Reeves in
Skarsgård, Cronenberg has found his ‘John Wick:
perfect leading man, a beautiful Über- Chapter 4’
mensch full of boundless cruelty and
self-loathing. Let’s hope he gets to do a
kids’ film next. LF
In UK cinemas now
The number four is considered unlucky
in much of Asia because the word in Chi-
nese (“si” or “sei”) sounds similar to the
word for death. So it proves in the
fourth, and hopefully last, instalment of
the John Wick franchise, in which there
are many, many deaths, from scores of
nameless extras to several major char-
acters. It’s also fitting that of all the big,
globe-trotting action movies series to
come out of Hollywood in recent years,
this is the one most indebted to Asian
filmmaking, especially the wuxia mar-
tial arts tradition. Even its star, Keanu
Reeves, is himself part Asian, though
John Wick is meant to be Belarusian.
Those who’ve been following the saga
will know that it all started when some
minor-league Russian gangsters killed
the hitman’s dog, setting off a falling-
domino cascade of revenge murders by
Wick. Every film since has built a bigger
picture of a world secretly run by a guild
of assassins governed by ancient tradi-
tions and a strict hierarchy, like the
Mercers or the Haberdashers but with
more bloodshed.
At this point, Wick is still on the outs
with the guild (see chapters 2 and 3),
leading head honcho Marquis (Bill
Skarsgård) to put a bounty on his head.
This brings various killers out hunting,
including Wick’s supposed old friend
Caine (Hong Kong legend Donnie Yen),
who is blind but deadly, and an
unnamed scruffy American (Shamier
Anderson) who insists he’s “nobody”
but we’re clearly meant to like because
he has a dog. Reeves still moves with
grace even if his line readings are as stiff
as ever.
The almost abstract balletic inter-
ludes of fight choreography are the
highlights, like the scenes in a musical
when everyone starts singing and danc-
ing. Bravura action sequences include a
single-shot shootout filmed looking
down through a cutaway ceiling, an
ascent not once but twice up the hun-
dreds of steps to Sacré-Coeur and the
destruction of an antiquities and glass
art exhibition. If watching all that anni-
hilation and fake death is your idea of
fun, this will be the bomb, but for those
who like a little more emotional meat on
the bones, it’s thin broth. LF
In cinemas now
The rural bar in The Beasts is basic: a
few rough tables, local farmers setting
the world to rights. You might well see
something precious in that simplicity,
here in a remote corner of Galicia, north-
western Spain. So timeless. So authentic.
You would guess that was how Anto-
ine (Denis Ménochet) felt on arriving in
this dusting of smallholdings in the rich
Galician hills. And so the French school-
teacher settled here with his wife Olga
(Marina Foïs), starting over by growing
organic produce. What lovelier idyll? A
day working the soil; supper; sunset.
And yet as the film begins, relations with
the men in the bar have soured. That
much we glean from the wisecracks as
Antoine passes: the mirthless kind.
This excellent, hard-to-shake film
turns on how those jibes spiral into war.
The antagonists are Xan and Loren
(Luis Zahera and Diego Anido), middle-
aged brothers either found in the bar or
slogging in the scrap of land they share
with their elderly mother next door to
Antoine and Olga. An ugly campaign of
harassment begins. There are small,
gross violations; then darker aggres-
sions. And the mood is expertly taut,
even if it can feel director Rodrigo
Sorogoyen is simply telling with great
skill a tale we have seen before.
Not quite. The Beasts is skilful, and
filled with deft performances. (Foïs
comes to the fore, but the movie is domi-
nated by Zahera as the type of loud-
mouth most dangerous when quiet.)
But what gives the film its grip is the
Why of it all, which emerges under the
queasy, thriller-ish escalations.
Xan and Loren are crude and cruel
but not, in their own minds at least,
without reason. The well has been poi-
soned between the families by a pro-
posed wind farm crossing the area. The
brothers were meant to sell up grate-
fully; their dearest wish to quit the land
Antoine adores, and drive a cab in the
nearest city. But Antoine has vetoed the
scheme. Xan demands an explanation.
“Because this is my home,” he replies.
The endless complexities inside that
simple statement nag through the film:
the gulf between the home you choose
and the one you’re stuck with. The ques-
tion of which should take precedence
may be mixed up with money and edu-
cation. It also has no correct answer.
And so the knots of logic draw ever
tighter around the necks of all parties.
Yes, The Beasts could be read as a
fable: an allegory for every newcomer
who ever followed a dream into the
country. But the film feels hauntingly
particular too. It shouldn’t surprise us to
learn that it is inspired by real events. (A
2016 documentary, Santoalla, presents
those still more plainly.) And so
Sorogoyen has made a brilliantly
written, superbly acted film with the
grave heft of non-fiction: a glimpse of
stark truths behind that lush Galician
landscape. DL
In UK cinemas and on Curzon Home
Cinema now
Friday 24 March 2023
Infinity Pool
Brandon Cronenberg
AAAAE
John Wick: Chapter 4
Chad Stahelski
AAEEE
The Beasts
Rodrigo Sorogoyen
AAAAA
A Good Person
Zach Braff
AAEEE
Does Florence Pugh need to fire her
agent or start listening to her agent?
Either way, the actress could use a new
strategy. Last year, the gossip-plagued
Don’t Worry Darling proved a garish non-
event. No less flawed is A Good Person,
the candyfloss tale of loss and addiction,
written and directed by Zach Braff.
Certain fortysomethings may see that
as a Bat Signal. Back in 2004, Braff made
Garden State, a twee indie movie with an
outsize cultural footprint. Braff himself
starred as a sad-eyed New Jersey man-
child, but the spotlight fell too on
Natalie Portman, cast as a young woman
whose eccentric antics defined a much-
mocked trope of 2000s American cin-
ema. She was the Manic Pixie Dream
Girl: kooky, quirky and devoted to her
hopeless boyfriend.
A Good Person often suggests that
Braff, now 47, has been comatose since.
The setting remains suburban New Jer-
sey. And while we and the director have
aged a couple of decades, his choice of
protagonist has not. Pugh’s character
Allison is in her mid-twenties and a bun-
dle of live-wire vibes.
And yet at last reflecting changed
times, she is not here to save a lost-soul
boyfriend — but to be lost herself. The
cause comes five minutes in, when her
car is involved in a horrific crash. Her
two passengers are killed: the sister and
brother-in-law of her fiancé Nathan
(Chinaza Uche). The deaths orphan the
couple’s teenage daughter Ryan (Celeste
In ‘Infinity Pool’, trippy,
CGI-laced montages
accompany drug binges,
masked orgies and
crazed crime sprees
O’Connor), left to live with her gruff ex-
cop grandfather Daniel (Morgan Free-
man). That makes a lot of characters for
the film to hand a lot of grief. But Alli-
son’s remains the central focus.
Her pain is addressed with Oxy-
Contin. (Again, a repeat prescription:
Braff’s character in Garden State took
lithium for depression.) Early on, the
script gestures vaguely at the wider US
opioid crisis but, Lord knows, Braff is no
social realist. The stuff of addiction and
loss is instead sprinkled with cuteness,
then smothered with a custard of
speeches about us all being works-in-
progress. And the cure comes out of the
movie-magic medicine chest: an
unlikely friendship.
The friend is Daniel. Re-connecting
with Allison, his rage over her possible
manslaughter of his daughter varies
according to Braff’s story arc. Other
family members are still more forgiving.
And so a film that begins out of its depth
just keeps on swimming.
Braff clearly has good intentions, but
the road to hell is tough on his actors.
Still, Freeman is craftsman enough to
sell even the hokiest line in the moment.
And Pugh remains a bona fide film star.
Just one in need of better films. DL
In cinemas now
Left: Florence
Pugh goes
through grief
and pain in
‘A Good Person’.
Below: Luis
Zahera, left, and
Denis Ménochet
in ‘The Beasts’
Friday 24 March 2023
The EU wants to accelerate its green transition but depends on China for raw materials and technology.
In the wake of the Russian fuel crisis, the bloc is wary of relying on one country to meet its power needs.
t the annual gathering of
Europe’s solar power lobby
in Brussels this month,
industry executives cele-
brated the rapid rollout of
panels across the region after the retreat
from Russian gas.
Standing behind a DJ deck, Walburga
Hemetsberger, SolarPowe owerr Europe’s
c h i e f e xe c u t i v e , s a i d t h a t t h e n i g h t
should be “the best party ever”, adding
that the European industry had broken
records on installations last year. But EU
officials speaking at the same event had
their minds on an even bigg ggeer challenge.
“Switching from fossil fuels to renew-
ables should not mean replacing one
dependency with another,” warned
energy commissioner Kadri Simson,
who has spent the past year marshalling
efforts to wean the bloc off Russian gas.
The EU wants to make solar power its
single biggest source of energy by 2030.
T h a t wo u l d m e a n a l m o s t t r i p l i n g i t s
solar
sol ar power ge gener
nerati
ationon cap
capaci
acity
ty over
the next seve venn years. Yet, as Simson
reminded delegates, more than three-
quarters of the EU’s solar panel imports
in 2021 “were from one single country”.
That country, China, is a critical sup-
plier for Europe’s green transition. Yet
in the wake of a Russian fuel crisis and
pandemic supply-chain disruptions,
European officials and companies are
i n c re a s i n g ly w a r y o f re ly i n g o n o n e
country to meet its generation equip-
ment needs — especially given that pro-
d u c t i o n i s c o n c e n t r a t e d i n a re g i o n
where there have been widespread alle-
gations of human rights abuses.
With the Biden administration pour-
ing hundreds of billions of dollars into
c l e a n e n e r gy u n d e r t h e U S I n f l a t i o n
Reduction Act, and amid growing Sino-
scepticism in Europe, some EU officials
are making the case for an industrial
resurgence at home.
“It’s a Hamiltonian moment,” says
Raphaël Glucksmann, a European par-
l i a m e n t m e m b e r w h o s e r ve s o n t h e
international trade committee, refer-
ring to the creation of a strong American
federal state. “Thirty years of deregula-
tion and free-trade policy in Europe has
ironically led to the triumphs of the Chi-
nese Communist party.
“Europe has to produce things again.
We cannot be a continent of consumers.
We’ve learnt from the pandemic and the
war, when there’s a market disruption,
then we are lost and naked.”
The commission’s response has been
to introduce a Net Zero Industry Act
designed to boost the manufacture of
“strategic” technologies, including solar
and other renewable energy infrastruc-
ture, on home turf. The law, proposed
last week, states that the EU should have
enough clean energy manufacturing
capacity to meet at least 40 per cent of
its generation needs.
But the continent currently produces
less than half that, and there are already
warnings that the proposals are unreal-
istic. “We can’t scale quickly enough to
meet European demand,” says Steven
Xuereb, direct ctoor of solar quality assur-
ance company PI Photovoltaik-Institut
Berlin. “Everyone’s excited about the
new plant in Sicily, which will produce
3GW. The Chinese giants are announc-
ing new 20GW factories.”
Europ
Eur opeanean sol
solar
ar com
compan panieiess sa
say
ay tha
thatt
more funding needs to be available to
bring the industry up to that level. They
also say that measures in the proposed
act, to prioritise local production in
public procurement contracts and for
consumer subsidies, could incre reaase
costs to a degree that affects take-up.
“If badly designed, the NZIA risks
sending the sector back 20 years,” says
Kareen Boutonnat, chief executive for
Europe and Asia Pacific at Lightsource
bp, one of the region’s largest solar
developers. “No one is interested in
costly renewables.”
The solar factory of the world
The EU’s conundrum has some histori-
c a l i ro n y t o i t . E u ro p e w a s o n c e t h e
worl
orld’ d’ss lar
large
gest
st sol
solar
ar power man manufaufacc-
turer, pro ducing 30 p er cent of all
photovoltaic panels in 2007. But a big
industrial policy push caused Chinese
production to increase and prices to
decline, just as Europe was suffering the
after-e -efffects of the 2008 financial crash.
In 201
2012, 2, the EurEurop
opeanean Comm
ommiss issio
ionn
launched an anti-dumping investiga-
tion into Chinese solar panel imports;
the following year, it imposed an almost
50 per cent duty on those imports.
That decision pitched the EU into its
biggest trade dispute with China yet.
Beijing threatened retaliatory tariffs on
wine and luxury cars. The European
Commission climbed down from its ini-
tial proposals, instead agreeing a price
floor on solar panels with Beijing, to the
dissatisfaction of the European solar
manufacturer lobby. The price floor was
later dropped in 2018.
The trade tussle revealed elements of
E u ro p e - C h i n a t e n s i o n t h a t re m a i n
today. Member states were divided over
the commission’s proposal, not wishing
★ FINANCIAL TIMES 17
FT BIG READ. RENEWABLE ENERGY
By Yuan Yang, Alice Hancock and Laura Pitel
used in the manufacture of solar cells,
A worker at a says Jo Joh hannes Bernre reuuter, a marke kett
plant in res
eseearcher spec peciialising in po pollysilicon.
Jiangsu Two such plants remain in Norway, run
province, by Norsun and Norwegian Crystal.
China, checks Erfurt, of Meyer Burger, describes the
a solar Norwegian producers as the “two last
photovoltaic men standing”, while Bernreuter adds
module that so long as their output remains at
FT montage: AFP/Getty about 1GW or less each year there is lit-
Images
tle incentive for their upstream polysili-
c o n s u p p l i e r s s u c h a s G e r m a n y ’s
Wacker Chemie to expand their output.
Chinese companies have also become
a world leader in the technology that
turns the raw material into ingots and
w a f e r s. “ T h e E u r o p e a n e q u i p m e n t
manufacturers retreated from the solar
market because the Chinese ones were
more cost-effective,” says Bernreuter.
“If they have to come back on the scene,
it would be a major hurdle to provide
competitive equipment.”
The question is how quickly the EU
c a n c re a t e t h e n e w s u p p ly c h a i n s
needed to achieve its renewable energy
goals. Bringing Chine se companie s
onboard would speed the transition,
industry players say.
Mario Kohle, chief executive of solar
panel installer Enpal, says that the “Chi-
nese manufacturing capacities are abso-
lutely excellent and way ahead of west-
ern manufacturing capacities when it
comes to solar and batteries”. Another
industry executive comments that “if
we really want to be successful in re-
establishing the value chain in Europe,
we need China . . . Chinese companies
should be welcome to invest in Europe.”
But they warn that energy costs will
n e e d t o f a l l b e f o re t h a t c a n h a p p e n .
Polysilicon production and ingot fabri-
cation are both energy intensiv ivee and
China’s industrial elect ctrricity prices are
in the range of $60 -$80 per MWh
exclu
cludindingg sub
subsid sidieiess, acc
accord
ording
ing to the
IEA. Even before Russia’s invasion of
Ukraine sent European energy prices
sharply higher, the average EU power
price was $130 per MWh.
30% $50bn
Europe’s share of What China has
the PV panel market spent on solar panel
in 2007, when it was manufacturing
production leader capacity since 2011
Europe’s push
t o r i s k t h e i r o w n t r a d e re l a t i o n s w i t h d r a f t i n g o n e o f t h e E u ro p e a n p a r l i a - “We’re not going to invest billions [in
China while also benefiting from cheap ment’s positions on the forced labour Europe] if we don’t know we’re going to
solar panels that eased pressure on their regulation, proposes an approach simi- get competitive, predictable energy
own green-e -en nergy subsidies. lar to the one favoured by Maria Manuel costs,” says a senior executive from a
T h e re s u l t w a s t h e e m e r g e n c e o f Leitão Marques, a Portuguese lawmaker large European company in the solar
to get out of
China as the undisputed world leader in leading the negotiations on the file. It supply chain.
solar-power technology. Since 2011, the involves companies operating in high- The Breakthrough Institute, a Califor-
country has invested over $50bn in new r i s k i n d u s t r i e s a n d a r e a s h av i n g t o nia-based think-tank, says the carbo bon n
solar panel manufacturing capacity, 10 prove that their product ctss are not made intensity of manufac turing in China,
times more than Europe pe,, according to using poor working conditions — a mir- where electricity is mostly produced by
the International Energy Agency. ro r i n g o f t h e U S “ p re s u m p t i o n o f burning coal, is a powerful argument for
China’s solar This capacity growth has led to the
cheap prices that enabled Europe’s
record-breaking solar installations.
According to the IEA, Europe imported
26GW of photovoltaic modules in 2021
denial” model for Xinjiang imports.
Activist groups under the umbrella of
the Coalition to End Forced Labour in
the Uyghur Region are also bringing
lawsuits in countries such as the UK and
moving supply chains into more renew-
able-e-rreliant regions in Europe.
But Seaver Wang, co-director of the
institute’s Climate and Energy Program,
says the continent will also need foreign
shadow — but the bill was just a third of what it
paid in 2010, when it imported 15GW.
Dependence on Xinjiang
Businesses and governments in Europe
are already concerned about the risks of
Ireland to block imports from Xinjiang.
G u n t e r E r f u r t , c h i e f e xe c u t i v e o f
Swiss solar technology manufacturer
Meyer Burger, says smaller companies
in the solar supply chain fear the forth-
coming EU rules “might block supply
partners. “Based on industrial experi-
ence and low energy costs, Scandinavia,
the US, Canada, Korea and Malaysia
c o u l d b e p ro m i s i n g re g i o n s f o r n e w
polysilicon production.”
Assembling solar cells and modules —
over-reliance not only on a single coun- and not do enough to ensure alternative a broader aim of the EU net zero legisla-
try, but on a small number of very large resources are being provided”. tion — is less energy-intensive and can
China’s share of production at all stages of the solar supply producers. A series of explosions in China’s own government is also start- be viable with lower investment. “With
2 0 2 0 a t a m a j o r p o ly s i l i c o n p l a n t i n ing to limit the export of some technolo- relatively modest public incentives you
chain has vastly expanded ... China run by GCL-Poly Energy removed gies used in the production of the wafers could probably place cell and module
Solar PV manufacturing capacity, by region (%) about 10 per cent of global supply and that form the basis of solar cells. assembly anywhere,” says Wang.
China Europe North America Rest of the world pushed prices up by 50 per cent. Rebecca Arcesati, an analyst focusing Solving such sectoral co-ordination
Polysilicon Silicon wafers Therre ar
The aree als
alsoo ser
seriou
iouss eth
ethicaicall que
ques-s- on China-Europe innovation at think- problems is the traditional role of indus-
tions surrounding China’s production of tank Merics, says Beijing’s proposals to trial policy, which could also help drive
100
pollysilicon, tth
po he main raw material for restrict technology transfer are a “coun- the kind of vertical integration that has
80
solar panels. About two-fifths of global ter” to the US and EU’s attempts to build made the Chinese giants so competitive.
60
production is concentrated in Xinjiang, alternative clean-tech supply chains. But the EU would have to bridge large
40 the northwestern region where the gov- “Like the US, China wants to be able to price gaps; European-assembled mod-
20
ernment has orchestrated a vast crack- defend and weaponise the tech choke- ules are about a third more expensive
0
2010 15 22 2010 15 22 down on Uyghur and other Muslim resi- points it controls,” she says. than Chinese ones.
dents. Journalists and researchers using “If there is demand for a European
PV cells PV modules satellite imagery and interviews with Europe’s chokepoints onshore supply chain, then there will be
100 release
eleased d det
detain
aineees ha hav
ave do docum
cument enteed B u t e ve n a s re s t r i c t i o n s o n s u p p l i e s companies onshoring. The question is if
80 the co -lo cation of various fac torie s from China loom, formidable obstacles people are willing to pay for it,” says a
60 inside detention centres, where prison- confront Europe’s plans for greater self- Europe-based executive at a Chinese
40
ers are forced to work. sufficiency in solar technology. solar company.
20
0
While Beijing says its policies in Xin- One of Europe’s main bottlenecks in To meet its target of manufacturing
2010 15 22 2010 15 22 jiang are to counter terrorism and pro- the supply chain is the production of 40 per cent of clean energy generation
mote development, the high levels of the silicon ingots and wafers that are equipment within the EU, the commis-
... and its production of solar panels dwarfs that of all other coercion in its policies to “assimilate” sion has proposed measures to incentiv-
countries combined Uyghur Muslims mean that it is difficult ise investment in clean tech industrial
Cumulative solar PV production, 2017-21 (GW) t o d i s e n t a n g l e f o rc e d l a b o u r p ro - plants and allowed member states to
g r a m m e s f ro m vo l u n t a r y o n e s. disregard environmental protections
China Europe North America Rest of the world Reseseearch from Laura Murphy at Shef- when permitting certain facilities.
field Hallam Universityhas also found But Xuereb, of PI-Berlin, says the
0 100 200 300 400 500 600 that at least two major companies in the challenges and timescales of building
silicon supply chain, Xinjiang Hoshine supply infrastructure closer to home
Polysilicon and JinkoSolar, have plants in industrial mean that the next 420GW of capacity,
parks that also house prisons or intern- which the EU aims to install by 2030,
m e n t c a m p s. Ne i t h e r c o m p a n y “will primarily come from China”.
Silicon wafers responded to an emailed request for Jan Krueger, managing director of
comment. Pelion, a Munich-based fund financing
In 2022 the US started blocking g r e e n i n v e s t m e n t s, c o m p l a i n s t h a t
PV cells
imp orts containing content made in
Xinjiang, and two policies working their
‘European equipment E u ro p e i s “ l a c k i n g i m p l e m e n t a t i o n
speed” and that the approval process for
way through the European parliament manufacturers retreated renewable energy subsidies is very slow.
could also lead to obstacle s for solar “There’s more than enough capital,
PV modules panel imports from China: the corpo- from the solar market there’s commitment from industry and
rate sustainability due diligence direc-
tive and the forced labour regulation.
because the Chinese ones investors,” he says. Now it’s up to the EU
to incentivise this re- e-iindustrialisation.”
Source: IEA
Glucksmann, who is res espopon nsible for were more cost-effective’ Data visualisation by Keith Fray
18 ★ FINANCIAL TIMES Friday 24 March 2023

The FT View
The tragedy of Iraq, 20 years on
US-led invasion has become
a byword for catastrophic
foreign intervention
The night President George W Bush
announced to the world that a US-led
coalition was invading Iraq, he said one
of the aims was helping Iraqis to achieve
“a united, stable and free country”. Yet
20 years since the first tanks rumbled
across the border, the one thing that
unites Iraqis is their sense of disillusion-
ment at the state of their beleaguered
nation.
It is true that Iraqis have been able to
vote in multiple elections since the
monstrous dictator Saddam Hussein
was toppled in 2003. But after two dec-
ades in which they have suffered cycles
of horrific violence and years of inept,
corrupt government, Iraq is neither a
functioning nor stable democracy.
Successive elections have produced
ft.com/opinion weak coalitions made up of rival
factions more interested in enriching
themselves and their patronage net-
works than developing the nation. The
dominant political forces are aligned to
armed Shia militant groups, most of
which are backed by Iran. It is largely
their whims that determine the coun-
try’s stability.
Instead of a liberated Iraq showing
“the power of freedom to transform the
region”, as Bush promised, the US-led
invasion became a byword for a cata-
strophic foreign intervention and the
perils of pursuing regime change with
no clear plan about what comes next.
Even worse, a war fought on a false
premise that Iraq had weapons of mass
destruction damaged global trust in the
US, and its claims to moral leadership.
The damage still reverberates today.
The Iraq war opened the door to
neighbouring Iran to extend its influ-
ence across the region, shifting the
power dynamics of the Middle East and
stoking sectarian tensions. A US army
study of the Iraq war released in 2019
concluded that “an emboldened and
expansionist Iran appears to be the only
victor”. The ousting of Saddam, a Sunni,
empowered groups from the Shia
majority, many with ties to the Islamic
republic.
The weakness and chaos of the post-
war state also provided the fertile ter-
rain for the birth of the Sunni jihadist
group Isis.
The US spent almost $20bn rebuild-
ing Iraq’s security forces between 2003
and 2011 after foolishly disbanding
Saddam’s Ba’ath party and the army.
When faced with a major threat, a 2014
blitz by Isis across swaths of the country,
the Iraqi army mostly melted away. It
took four years of yet more conflict and
the intervention of an international coa-
lition to drive the jihadis from their
strongholds.
Though the security situation in Iraq
has now stabilised, governance has not
improved. Youth unemployment is rife
and the state struggles to deliver basic
services as ministries act as fiefdoms of
After two political factions. Despite the tens of bil-
decades in lions of dollars spent on Iraq’s recon-
struction, the oil-rich state suffers regu-
which citizens
lar electricity outages, particularly in
have suffered the summer when temperatures soar
cycles of horrific past 50C.
violence and The militias affiliated to political fac-
years of inept, tions regularly intimidate and some-
corrupt times kill those demanding better of
their leaders. When frustrated young
government, Iraqis took to the streets in 2019, more
the country is than 600 protesters were killed. At the
neither a latest parliamentary election, in 2021,
functioning just 36 per cent of eligible voters cast a
nor stable ballot, a damning indictment of Iraqis’
democracy despondency. It is not uncommon to
hear Sunnis and Shia complain that life
was better under Saddam.
The only bright spot is the young gen-
eration of Iraqis who aspire for a better
future: about 60 per cent of the popula-
tion are aged under 25 and they will, one
day, drive change. Until then, the legacy
of a badly planned and badly fought war
is the shattering of the Iraqi state and
the fabric of Iraqi society.

Opinion Data Points

Letters
Email: letters.editor@ft.com
Include daytime telephone number and full address
Corrections: corrections@ft.com
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culture battles but they What’s overhyped is not artificial, but human intelligence
are losing the war John Thornhill (“GPT-4 is as
astonishing as it is unnerving”,
where each fully informs the other, in a
human way. I have another layer of
what might plausibly come next. Yet, I
suggest, so is this letter — a human
The philosopher Thomas Nagel’s
paper “What Is It Like to Be a Bat?”
Opinion, March 17) finds OpenAI’s language and images: memory and the creation. (1974), proposed that “an organism has
latest artificial intelligence product ability to compare memories One doesn’t have to be either a conscious mental states if and only if
John Burn-Murdoch “impressive”. Indeed, we are reaching
the point where the most overhyped
repeatedly, and thus reflect iteratively
on those comparisons.
hardcore reductionist or a mystic for
our self and identity to evaporate
there is something that it is like to ‘be’
that organism”.
system here is not artificial, but human That is my consciousness: it is less under this analysis. Some people will We still don’t know what it is like to
intelligence. than it seems; and (again) AI will find this very uncomfortable, but such be Nagel’s bat, but as humans perhaps
I think in language and images. As rapidly catch up. emotions are really only noise we already know what it is like to be a
‘Culture war’ politics in anglophone countries have opened up Thornhill says, GPT-4 is “multimodal”. Those who privilege human thought generated in a flesh and blood system (future) bot.
The bot can produce and combine text argue that AI output is meaningless: a vulnerable to physical threat and other Nick Bradbury
divides across age and party affiliation where there were none and image, though not (yet) in a way statistically-generated prediction of frailties. Reading, Berkshire, UK
Immigration preferences by age Immigration prefs. by political leaning
2005-2009 2017-2022 2005-2009 2017-2022
Swiss central bank has put America can learn from Peabody property woes
Loosen
immig- Anglophone
countries
its independence at risk Macron’s pensions battle point to a historic failure
ration
Like a gravitational pull, the takeover It remains to be seen whether France’s Your investigation into the Peabody
of Credit Suisse by its bigger rival UBS president Emmanuel Macron and his Trust housing association’s
has attracted press coverage on an government will be able to reform the mismanagement of its 104,000
unprecedented scale (“How the Swiss French social security system, but the properties points to a historic policy
orchestrated a rescue”, The Big Read, constitutional mechanism they are failure (The Big Read, March 16). It
Other
developed March 21). using is a remarkably elegant solution was the Thatcher government that
Tighten countries In all this, one aspect of the “rescue to the problem of how to overcome decided to promote housing
immig- package” has slipped through the parliamentary division and associations as the preferred providers
ration cracks unnoticed: the fact the Swiss obstructionism (“Macron’s pension of social housing, because of poor
Age 15-24 65+ 15-24 65+ Left Right Left Right National Bank, Switzerland’s central reform muddle”, FT View, March 20). management by the then dominant
bank, has lost its independence. Article 49.3 of the French local authority landlords.
Source: FT analysis of World Values Survey

T
he 2010s were a fruitful
decade for culture warri-
ors on the right. There was
a particularly rich seam in
2016, with the Brexit ref-
erendum and the election of Donald
Trump. Three years later, Scott Morri-
son and Boris Johnson exploited the
culture wars on their way to win victo-
ries in Australia and the UK.
Much has been made of campaigns
that identify “wedge issues” to split
the electorate — immigration being a
common example — but there has
been little consideration of the down-
side. Fracturing the electorate tends to
do lasting damage and could come
back to hurt you.
Late last year, I observed that mil-
lennials were shattering the oldest
rule in politics by no longer adopting
conservative views as they age. It
The realignment
of anglophone politics
is pushing millennials
away from the right
wasn’t clear at the time what was caus-
ing this break with the past, but my
further analysis suggests that fuelling
the culture wars may only benefit the
right in the short term.
For one thing, this millennial voting
pattern appears to be almost exclu-
sively anglophone, according to work
by Morten Støstad, a researcher at the
Paris School of Economics. Across
continental Europe, the same genera-
tion continues to follow its ancestors
gradually rightward, but from the UK
and US to Canada, Australia and New
Zealand, they have veered away from
the traditional path.
This is a smoking gun for three
reasons.
First, continental multi-party sys-
tems allow voters to switch their alle-
giances away from anti-immigrant
parties while still staying within the
right or leftwing bloc in a way that the
predominantly two-party Anglo-
sphere system does not. If millennials
were being alienated solely by eco-
nomic injustice, we might see the same
desertion of the right in Europe as in
the English-speaking world. A growing
cultural disillusionment makes more
sense.
Young adults have had a torrid time
since the global financial crisis, with
home-ownership lagging behind that
of previous generations and poverty
rates rising among under-40s while
they fall for pensioners. But if this
were repelling millennials from their
traditional political journey, we would
see it everywhere. We don’t, and in
fact millennial homeowners in Britain
have turned away from the conserva-
tives more sharply than renters.
This is not to say that economics
doesn’t matter. Indeed, anglophone
countries — and particularly their
youth — have tilted more firmly to the
left as a result of the financial crisis
than other nations have done.
In 2009, the average anglophone
adult was much less likely to hold the
government responsible for providing
welfare than their European counter-
parts. But 10 years later that gap had
closed, and young English-speakers
had shifted even further left.
Finally, there is some direct evi-
dence that the realignment of anglo-
phone politics over the past decade,
with cultural and economic axes now
parallel, is pushing millennials away
from the right.
In 2009, views on immigration were
not delineated according to party or
age divides. But 10 years and several
culture battles later, younger adults
are now far more pro-immigration
than their elders, and those on the left
are far less anti-immigration than the
right.
The same is true with attitudes to
LGBT issues, where a divide between
progressives and conservatives now
neatly maps on to age. In both cases,
conservatives successfully drove a
wedge between one generation and
the rest — but the cohort they dis-
carded is growing steadily larger.
No trend in politics lasts forever.
The “demography is destiny” argu-
ment — that increasing racial diversity
would lock in dominance for progres-
sive parties in the west — has already
proved overstated because race and
ethnicity have proved less politically
monolithic than once thought. But
hand-crafting the formative political
events that can shape a generation’s
worldview and then expecting them to
forget it all is quite something.
Conservative parties may have won
some culture battles, but they’re losing
the war.
john.burn-murdoch@ft.com
According to the Swiss Central Bank
Act, the SNB is not permitted to seek or
accept instructions either from the
federal council or from the federal
assembly. By demanding and accepting
a loss guarantee from the federal
council on a SFr100bn liquidity
assistance loan (the “public liquidity
backstop”) for the combined new
bank, the SNB has violated this
principle.
It is time to define who is responsible
for fulfilling the monetary policy
mandate and who stands accountable
for the stability of Switzerland’s
financial system. While the former is
clear, the latter is now firmly in the
hands of the federal council.
Jacob Bjorheim
Visiting Fellow, University of Zurich
Switzerland
Limited liability is crux of
the moral hazard problem
There is yet another way to fix the
bank problem, besides those that
Martin Wolf has discussed (Opinion,
March 22).
The main cause of moral hazard is
limited liability, especially when this
applies to bank managers’ large
shareholdings, mostly from bonuses.
We cannot go back to the pre-Victorian
approach of unlimited liability for all,
because it would mean that banks
could never get equity capital from
outsiders.
But there is no reason why we could
not require senior bank management
to face multiple liability, and in the
case of chief executives possibly to
have unlimited liability.
If senior management faced a really
serious loss when their bank failed,
there would be far less need for shed
loads of restrictive regulations.
Charles Goodhart
London School of Economics
London W14, UK
A word of caution around
one of your banking ‘fixes’
We agree with Martin Wolf (“Four
ways to fix the bank problem”,
Opinion, March 21) that market
discipline and consistently-applied
rules are essential to any sound
banking regime. But one of the ways to
“fix” the banks presented by Wolf
would “save” the system by narrowing
it and thereby killing it.
That narrow option would require
banks to hold their depositors’ funds in
government bonds like a money-
market fund. At first glance, this seems
like a reasonable idea. However, banks
are currently responsible for creating
the majority of deposit money —
typically at least 80 per cent of the
money supply, broadly measured —
and they do so predominantly by
making loans. Tying deposit money
exclusively to government debt would
give finance ministries a dominant role
in monetary policy, force every
investment to be matched by savings,
and push all private sector finance into
the capital markets.
The problem facing the banking
system thus far is neither liquidity nor
leverage, as in the last crisis. Rather, it
is a problem of financing long-duration
assets when rising rates are telling
households and firms to redeploy their
capital elsewhere. Going forward,
monetary policy and bank regulation
need to position banks for a “post-zero-
interest-rate-policy” world in which
capital and finance turn over more
quickly and depend less on inflated
capital asset valuations.
Steve H Hanke
Professor of Applied Economics
Matt Sekerke
Fellow, Johns Hopkins University
Baltimore, MD, US
Troubling crackdown on
human rights in Sri Lanka
It’s good that the IMF is moving to help
Sri Lanka (Report, FT.com, March 21).
However, the country’s crisis isn’t just
economic and social. A human rights
crisis has continued too.
Sri Lanka’s president Ranil
Wickremesinghe has governed in an
increasingly authoritarian fashion
since he came to power last year. Under
Wickremesinghe’s leadership, the
government has regularly cracked
down on peaceful protests.
As international actors focus on
alleviating the island nation’s economic
pain, they shouldn’t lose sight of a
human rights situation that’s becoming
ever more troubling.
Taylor Dibbert
Pacific Forum, Washington, DC, US
constitution allows the prime minister
to remove the “responsibility” for a
proposed law from the National
Assembly, France’s lower house of
parliament, and take it on to the
executive branch, at least for measures
relating to finance and social security.
The National Assembly is, however,
able to take back that “responsibility”
by a vote of a majority of the full
membership of the National Assembly,
thus nullifying the new law.
But it may be far more difficult for
members of the National Assembly to
vote for raising the retirement age from
62 to 64, however much this might
actually be needed to save their social
security system, than to abstain from a
vote censuring the government.
Today in America, lawmakers in the
hard-right House Freedom Caucus are
threatening to play Russian roulette
with the national credit rating, thus
creating problems that would vastly
dwarf the current banking malaise
(“New donors boost hardline
Republicans”, Report, March 6)
I wish we had something like the
French Article 49.3 to defend the
country against them.
Jim Linford
Marinwood, CA, US
An ‘incomplete picture’ of
Singapore MPs’ interests
Your piece, “Singapore MP’s tech job
puts spotlight on politicians’ interests”,
(Report, March 8) presents an
incomplete picture. Singapore members
of parliament receive an allowance of
S$192,500 ($145,200) per year.
Ministers may earn an annual salary of
S$1.1mn. Beyond this, neither MPs nor
ministers receive any perks such as
personal cars or housing allowances.
Backbench MPs are allowed to hold
private sector jobs, but not ministers.
Singapore is not the only
Commonwealth country that allows
this. Indeed, it remains the case in the
UK, despite restrictions put in place
after a recent lobbying scandal.
In the case of Tin Pei Ling, chair of
the parliamentary committee for
communications and information, she
and her employer acknowledged, in the
wake of public controversy, the
problem that her position could have
caused. They then changed her
company responsibilities to avoid
compromising her role as an MP.
TK Lim
Singapore High Commissioner
London SW1, UK
Presenting legislation to parliament
in 1987, environment secretary
Nicholas Ridley observed: “Local
authorities have found themselves
landlords of vast numbers of
houses . . . about 50,000 is not
uncommon . . . As a result councils
have faced an enormous
administrative and management task.
Almost inevitably it has led
to . . . tenants feel[ing] like
supplicants. Often cumbersome,
remote and inflexible arrangements for
the management and maintenance of
properties have grown up.”
He was right, and his successors have
let tenants down by allowing the
economies of scale associated with
finance to create housing associations
with more than 100,000 units under
management, when it is obvious that
the optimal size for management
purposes is much smaller.
Regulation alone won’t be enough to
improve matters. Separating finance
from management is the key, along
with reinvigorating the housing
management profession.
Professor Mark Stephens
Ian Mactaggart Chair in Land, Property &
Urban Studies, University of Glasgow, UK
Why housing associations
have all lost their way
It’s worth recalling that Peabody was
penalised in the early 2000s, instead of
being praised, for BedZED, a housing
development that pioneered
environmental construction but which,
because it was so untried, went well
over budget — as in fact almost every
construction scheme does (The Big
Read, March 16).
BedZED was developed by Dickon
Robinson. When I met him in the late
1990s he was installing solar panels on
the roofs of Victorian blocks, not, he
said, merely to save energy but because
their tenants were poor and it would
save them money.
Peabody does seem to have lost its
way, but so, I suggest, has just about
every other association, whether
founded by Victorian philanthropists
or by hippy squatters in the 1970s who
prevented the destruction of swaths of
historic London earmarked for
redevelopment. All have become
overblown, have lost their local
connections, and it seems their
thoughtful workers, all in the name of
market forces.
Judith Martin
Winchester, Hampshire, UK
Friday 24 March 2023
Credit Suisse’s fate casts a shadow over the banking sector
Tidjane
Thiam
L
ike everyone else, I watched
the events unfolding in Zurich
in recent days with something
akin to stunned disbelief.
When I stepped down as the
chief executive of Credit Suisse, it
had just posted its highest profits for 10
years after a deep restructuring. And
though I managed the tricky situations
that developed under my watch
effectively, things have gone wrong in
the years since.
Little more than three years later,
the same bank, part of Switzerland’s
national fabric for more than 160 years,
was ushered into the arms of its
biggest rival, UBS, over the course of a
frantic weekend.
Sadly, there will be a human impact
on the many thousands of people,
and many former colleagues, who are
likely to lose their jobs following
US lenders
face a looming
new risk
FINANCE
Gillian
Tett
A
s Jay Powell, Federal
Reserve chair, faced the
media on Wednesday after
a 25 basis point rate hike,
he tried to put a brave face
on his country’s bank turmoil. “Our
banking system is sound and resilient,
with strong capital and liquidity,” he
declared, promising that the Fed, Treas-
ury and Federal Deposit Insurance Cor-
poration would do everything to quell
the panic unleashed by the failure of Sil-
icon Valley Bank.
Maybe so. The Fed supplied an eye-
popping $152bn of liquidity to banks
last week. But investors remain decid-
edly unimpressed — shortly after Powell
spoke, bank stocks slid, with particular
declines in weaker groups such as First
Republic.
It might be tempting to blame the
malaise on the Fed’s hike, but that is only
a small(ish) part of the tale. The bigger
issue is that small and medium-sized
banks are grappling with three interre-
lated problems: a deposit flight; an erod-
ing business model; and a credit crunch.
Take the deposit problem. This has
arisen because the FDIC’s mandate only
protects deposits up to $250,000 if a
bank fails, unless there is a “systemi-
How European entrepreneurs can live the American dream
TECH NOLOGY
John
Thornhill
T
his year, I have heard
several visiting Americans
berate Europe for its
lack of innovation and
entrepreneurial success,
with some justification.
Since the start of the century, Europe’s
share of the world’s top 100 most valuable
companies has fallen from 38 to 18, while
that of the US has risen from 54 to 61,
boosted by the giant west coast tech
firms. Part of the reason is US-style
“permissionless innovation” is far more
adaptable to disruptive technological
change than Europe’s regulation-heavy
“upstream governance”, says Andrew
McAfee, the Massachusetts Institute of
Technology scientist and author.
To defend its technological sover-
eignty, Europe must “get serious” about
this rescue. Since I left the bank in
February 2020, I have mostly refrained
from commenting on Credit Suisse,
but the turn of events now compels
me to speak.
A big part of my job as chief executive
— helped by a dedicated team — was set-
ting a new course towards wealth man-
agement and away from investment
banking to fully realise the potential of
the franchise. But just as big a task was
strengthening the balance sheet, which
ranked bottom of the list of systemically
important banks when I joined. So we
raised SFr10bn of equity, tackled
multibillion-dollar legacy issues, from
the US mortgage securities market
to Mozambique, cut risk exposure
by 45 per cent and eliminated more
than SFr100bn of impaired assets.
Risk was always a priority for me. It
was clear that the bank’s risk systems
needed a major investment and that this
would be a large, multiyear undertak-
ing. I often described this as a 10-year
job, which was clearly not complete
by the time I left. A few days into the
role, one of my first decisions was to
approve $150mn of new investment in
cally important” reason to extend wider
coverage.
Before SVB collapsed it seemed that
“systemic” meant big banks. Hence
when SVB and Signature wobbled, cus-
tomers moved funds to the too-big-to-
fail giants. However, the FDIC then sub-
tly reinterpreted this mandate, and pro-
tected all deposits at SVB and Signature,
supposedly because of systemic conta-
gion risks. As Powell noted on Wednes-
day, “history has shown that isolated
banking problems, if left unaddressed,
can undermine confidence in healthy
banks and threaten the ability of the
banking system as a whole”.
But Janet Yellen, US Treasury secre-
tary, also revealed on Wednesday that
the Treasury and FDIC do not plan to
offer blanket guarantees for depositors
in advance, without Congressional sup-
port. Ambiguity still reigns. This will
almost certainly spark more outflows
from smaller banks.
The next issue is the banks’ business
models. During the past decade banks
enjoyed abundant cheap funding
because their customers left their
money in low-yielding bank accounts
due to a lack of better alternatives. The
banks then made profits by extending
loans at slightly higher rates and buying
long duration assets such as treasuries.
But customer behaviour is shifting.
Not only is there a flight from smaller
banks to larger ones, but deposits overall
are moving into money market funds.
And the loss of cheap funding hurts
since banks still have loans on their
books extended at low rates. Worse still,
building globally relevant tech compa-
nies and accept the “radically inegalitar-
ian” outcomes that result, says Alex
Karp, the American co-founder of the
US data company Palantir. Describing
himself as a “classic European progres-
sive” who wants poor people to have
“healthcare and teeth”, he argues that
the whole European experiment will be
in question “if everyone with a high-
value revenue is sitting in America”.
While accepting the urgent need to
raise their technological game, Europe-
ans answer in two ways. First, they say
Europe’s social model is not optimised
for maximising gross domestic product
so much as eudaimonia, the ancient Greek
concept of happiness. On that score,
several European countries outperform
the US. Europe shows up strongly in the
latest World Happiness Report, which
asks people how satisfied they are with
their lives. Eight European countries,
led by Finland, Denmark and Iceland,
are among the world’s top 10 happiest
nations (Israel and New Zealand are the
other two). The US ranks 15th.
That makes some of the US criticism of
Europe sound like the question posed by
★ FINANCIAL TIMES
Opinion
risk management systems. We also
increased compliance staff by more
than 40 per cent, even when we were
conducting a major cost-cutting pro-
gramme across the bank.
It was clear that until risk and
compliance systems were materially
improved, behaviour and culture would
be more important than ever. After the
initial and well-publicised losses in dis-
It was ushered into the
arms of its biggest rival,
UBS, over the course
of a frantic weekend
tressed debt experienced in late 2015, I
shut that business down, reduced our
risk appetite and made sure everybody
understood I wanted to hear bad news
when it happened. We managed to get
through 16 quarters without a serious
issue, had more than $200bn of wealth
management inflows, cut risk and cut
both operating and legacy costs. By
2019, Credit Suisse was making nearly
rate swings have created unrealised
losses in banks’ securities portfolios,
totalling $620bn across the industry at
the end of 2022, according to the FDIC.
Thankfully these do not usually need
to be booked, unless a bank fails. And
most banks are less likely to fail than
SVB, because they have fewer unin-
sured depositors. But even if SVB-style
dramas can be avoided, the pattern is
creating “a long tail of zombie banks”,
as the hedge fund Bridgewater says.
“Policymakers can stop a bank run but
unless the Fed cuts rates they can’t stop
the repricing in banks funding costs.”
That feeds into a third issue: a credit
crunch. As funding costs rise, banks will
cut loans. In some senses this is what
Fed officials want, since slower credit
creation will curb inflation. But the rub
One might be tempted to
blame the malaise on the
Fed’s rate rise, but that is
only a small part of the tale
the novelist Jeanette Winterson’s adop-
tive mother on hearing her daughter had
fallen in love with another woman. “Why
be happy when you could be normal?”
she asked. If economic “normality”
results in societal unhappiness, maybe it
is better just to stay happy after all.
The second, more defiant, response is
that Europe is “getting serious” about
tech, albeit in its own patchy, culturally
diverse way. Over the past decade, tech-
It is only the land of
opportunity until you
want to get into school or
pay your healthcare bill
enabled start-ups have exploded across
Europe, benefiting from some imported
Silicon Valley mindset and methodol-
ogy. Up until the end of October, last
year, early stage European start-ups
attracted 31 per cent of total global
investment in this sector compared
with 33 per cent in the US, according to
Atomico’s State of European Tech
as much profit as its new owner UBS. Its
current plight saddens me. But we need
to focus on what happens now.
UBS has said it will keep Credit
Suisse’s “crown jewel”, the standalone
Swiss bank I created that has been a
consistently strong performer despite
the wider group’s issues. However,
regulators should look again at whether
they ought to allow a single domestic
player of this size in the Swiss market.
Arguably, UBS attempting to absorb
CS’s Swiss universal bank would
do little except add thousands more
job losses to those already expected in
investment banking.
From a wider perspective, policy-
makers need to raise investors’ confi-
dence in the European banking sector.
The treatment of the holders of addi-
tional tier 1 bonds (AT1s) has created
significant uncertainty. What happened
will play out in the courts for years.
There is a basic principle that
common equity takes the hit first. It
seems that the treatment of AT1s — even
if correct under the current Swiss rules
— will raise the cost of capital for Swiss
banks and for European banks. This will
is that it is extremely hard to predict the
impact of a credit squeeze since it can
create a self-reinforcing downward spi-
ral of recession and defaults. So while
the crisis in American banks was ini-
tially sparked by interest rate (and
liquidity) risks, it could now slowly
morph into a problem of credit risk too.
The $5.6tn commercial real estate
lending market illustrates the problem.
At present 70 per cent of these loans
comes from small and medium-sized
groups. “Small banks’ absolute dollar
exposure to CRE lending has grown at
an accelerating rate over the past ten
years,” notes Morgan Stanley;
Even before the interest rate cycle
turned, CRE values were starting to
come under pressure because the rise of
internet shopping and homeworking
hurt retail and office space. But with
rates rising, “all of a sudden those assets
become very hard to roll over” as Rick
Rieder of BlackRock says. Since $2.5tn
of loans are due to be refinanced in the
next five years, this will eventually cre-
ate pain for borrowers — and banks.
The good news is that the CRE prob-
report. Picking up on the trend, storied
US venture capital firms, including
Sequoia Capital and Bessemer Venture
Partners, have set up shop in Europe.
“Europe really is becoming a tech
hotspot,” says Roxanne Varza, director
of the Paris tech campus Station F,
which has worked with 5,000 start-ups
since it opened in 2017. Whereas a dec-
ade ago the most ambitious European
entrepreneurs would automatically
head to Silicon Valley, many are now
staying at home and recruiting top-tier
talent from around the world, including
the US, Varza tells me.
In spite of the global tech market
downturn that is hitting the industry,
Europe’s upbeat entrepreneurs are
quick to list the region’s advantages:
some great technical universities, many
highly skilled, and relatively cheap, soft-
ware engineers and plenty of ambition
to tackle the world’s biggest problems,
such as climate change. But they are
equally quick to identify the remaining
constraints on growth: an incomplete
single market, making it hard to expand
across borders, overly restrictive regu-
lations and a later-stage funding gap.
have some of their US peers rubbing
their hands. AT1s or “cocos” are an
important source of capital for Euro-
pean banks, and because of the market
appetite, interest rates may not have
fully reflected the risks involved. This
new layer of uncertainty will have an
adverse impact on the competitiveness
of the European banking sector. Net net,
US and Asian rivals could come out of all
this relatively stronger.
A related issue is that shareholders
were denied a vote with emergency law
changes, which shocked many investors
and market participants. Of course, this
was an emergency. The alternative
could have been far worse. But after the
thousands of hours spent working on
things like resolution plans since 2008,
the episode shows the need for further
work to codify approaches to banking
crises and be more transparent with
investors over the likely response from
policymakers. We must learn the lessons
from the past few days — otherwise
Credit Suisse will have fallen in vain.
The writer is a former chief executive of
Credit Suisse
Efi Chalikopoulou
lems do not seem to be nearly as grave as
the issues in subprime mortgages in
2008. And there is plenty of capital in
the American bank system as a whole to
absorb such credit losses.
Moreover if the problems at small
banks spark consolidation, via mergers
or failures, this would be welcome. In the
past, American politicians have taken
pride in their country’s large number of
banks — currently sitting at more than
4,000 — as a sign of competition and con-
sumer choice. But it does not serve the
country well to have a long “zombie tail”.
However, the bad news is that this tri-
fecta of problems means that anyone
who hopes for a quick resolution to the
bank woes will be disappointed. If the
FDIC extends insurance, that would
reduce the panic. A halt to rate rises
would reduce the business squeeze. But
today’s mess is the result of a decade of
policy mistakes and will not be fixed in
10 days or 10 months; particularly if the
next chapter of the drama now moves
from interest rate risks to credit woes.
gillian.tett@ft.com
One European country that shows
how to combine societal happiness and
entrepreneurial dynamism is Sweden,
which has one of the highest rates of
social mobility in the world and has cre-
ated more tech unicorns (start-ups val-
ued at more than $1bn) per head than
almost any other country.
The idea that the US is the land of
opportunity is only true until you want
to get into school or pay your healthcare
bill, according to Sebastian Siemi-
atkowski, co-founder of the Swedish fin-
tech giant Klarna and son of Polish
immigrants. With free education and
free healthcare, Sweden is a “fantastic
society” where everyone is equally val-
ued. “It is one country where if you want
to make it, it is up to yourself,” Siemi-
atkowski told me at a Sifted event in
Stockholm earlier this month.
At least in some parts of Europe,
entrepreneurs succeed because of its
social model, not in spite of it. The rest
of Europe, and some US critics, should
take note.
The writer is founder of Sifted, an FT-
backed site about European start-ups
19
Asia needs a
more effective
financial
safety net
Rhee
Chang-yong
M
arch 24 marks the 13th
anniversary of the Chiang
Mai Initiative Multilater-
alisation (CMIM), a cur-
rency swap network
designed to ensure financial stability
among member states of the Associa-
tion of Southeast Asian Nations, as well
as China, Japan, and Korea.
The devastating impact of the 1997
Asian financial crisis led to the estab-
lishment of a regional safety net to
address short-term liquidity difficulties
in the region and to serve as an alterna-
tive to the IMF.
Since its inception, the CMIM’s lend-
ing capacity has doubled to $240bn, a
significant number even when com-
pared to the IMF’s $1tn in firepower. It
has also added a crisis prevention facil-
ity and extended its lending programme
maturities.
But despite these impressive strides,
the CMIM’s effectiveness has not been
market-tested as member countries have
not utilised it. This raises serious con-
cerns about the network’s functionality.
It is unfortunate that the CMIM has
lagged behind the European Stability
Mechanism, which was established two
years later. The ESM was used several
times to prevent contagion effects dur-
ing the European debt crisis, and it has
established a solid market-tested
record. As a result, it is now a well-re-
garded regional financing arrangement,
despite being a relative latecomer.
Why doesn’t the CMIM inspire confi-
dence in its effectiveness, unlike the
ESM? The answer lies in the fact that it
uses a pledge-based system that relies
The Chiang Mai Initiative
has to transition from a
pledge-based system
to a fully-funded one
on bilateral swaps, which fundamen-
tally limit the network’s ability to instil
confidence during a crisis. The Covid-19
pandemic is a case in point, as it has
affected not only swap-recipient coun-
tries but also swap-providing ones,
potentially placing significant political
burdens on the latter when they are pro-
viding funding.
A new IMF policy states that money
disbursed through bilateral swap
arrangements may not qualify as for-
eign exchange reserves of swap-provid-
ing countries if it supports balance-
of-payment needs in recipient coun-
tries. This reduces the swap-providing
countries’ incentive to keep their
pledges, as they would have to accept a
decrease in their foreign reserves. In
contrast, the ESM uses a funding system
based on paid-in capital that provides
greater assurance and stability during
a crisis.
To be more effective, the CMIM needs
to transition from a pledge-based sys-
tem to a fully-funded one. This would
separate its balance sheet from those of
its member countries, alleviate funding
uncertainty, and increase its credibility
during crises.
As the region’s member countries lack
convertible currencies, finding ways to
recognise paid-in capital to the CMIM as
foreign exchange reserves, similar to
capital subscriptions at the IMF, is
essential.
Technological advances and interest
in improving cross-border payment sys-
tems through central bank digital cur-
rencies also present opportunities to
enhance the CMIM. Hong Kong, Singa-
pore and other Asian economies are
conducting CBDC pilot experiments,
which have already demonstrated
potential benefits in reducing cross-bor-
der transaction costs and settlement
risks.
However, further research is needed
to ensure the system can function
properly on a large scale, especially in
times of crisis. If the liquidity provision
mechanism can be programmed in
advance by using the digital currencies
of global and regional safety nets, such
as the IMF and the CMIM, it can
enhance the current cross-border CBDC
platform.
Asian policymakers have long sought
to establish an effective regional safety
net. Upgrading the CMIM to a new insti-
tutionalised fund system based on
paid-in capital should be a top priority.
Beyond their pledges, member coun-
tries need to have skin in the game.
The writer is governor of the Bank of Korea
20 ★ † FINANCIAL TIMES Friday 24 March 2023

Ferrexpo: iron plan

Shares in the Ukrainian iron ore producer have trailed peers in the year following Russia’s invasion.
Insufficient power supplies and restricted export routes have forcibly reduced its sales volumes. These are
half of pre-invasion levels. Despite lower pellet prices and volumes, Ferrexpo is expected to stay profitable.

Iron ore producers Trend for iron ore pellets

Twitter: @FTLex
Federal Reserve/ECB:
big bang theory
Throughout economic history, interest
rate tightening cycles tend to end with
a bang, not a whimper. Whether the
multiple bank failures in the past two
weeks were loud enough is moot.
US Federal Reserve chair Jay Powell
raised rates by a quarter rather than a
half percentage point on Wednesday.
The Bank of England raised by the
same amount yesterday. The question
is whether any more rises will follow.
ECB president Christine Lagarde, who
defended rate rise policy last week,
softened her tone this week.
Though European bank shares have
dropped recently, they are up 7 per
cent in the year to date, helped by
rising rates and the boost to their net
interest income (NII). The Stoxx 600
European bank index has royally
outperformed the KBW US bank index.
Some say that stricter European
regulation, including tougher capital
buffers, has made all the difference,
despite the woes of Credit Suisse,
forcibly sold to UBS last weekend.
Liquidity was what mattered there.
Contagion and deposit withdrawal can
occur rapidly. A flood of withdrawals
can quickly turn into a credit crunch as
banks pull back on lending.
Credit markets are already fragile.
Bank of America’s high-yield spread
index has widened by a quarter to 500
basis points over risk-free rates in
March alone. Trading volumes in
secondary debt markets have
plummeted. Primary issuance has
vanished altogether. Borrowing is as
costly as it has been in a decade.
Any further rate increases would
ignore the impact of previous rises. US
Fed rates have risen more than twice as
fast in the past year as they did in the
run-up to the financial crisis.
Everywhere, bank lending rates are
still catching up with central bank
policy rates.
Since the ECB began tightening last
summer, only half of that increase on
average has passed on to borrowers as
of January this year, according to S&P.
A trend of using expensive high-yield
bonds to refinance the disappearing
supply of bank loans has begun.
Bank investors can sense a shift,
pricing in a peak in NII growth, the
driver of bank profits. Every 25 bps
shift in ECB rates drives a 4 per cent
move in earnings per share on average,
says Citigroup. A lagged effect on loan
pricing should keep NII rising this year
in Europe, but probably not in 2024.
This boom period for Europe’s banks
could be as good as it gets.
Arm/SoftBank:
open ended
For SoftBank’s Masayoshi Son,
improving growth at Arm is a priority
before an IPO of the UK chip designer.
To achieve this, he will raise prices for
final users of Arm’s chip designs.
Boosting sales at the SoftBank-owned
group this way is harder than it looks.
It may backfire faster than expected.
Son should expect reluctance from
all its design users. These include US
chip group Qualcomm and Chinese
smartphone makers such as Xiaomi.
True, Arm’s plans to alter its royalty
programme make sense. Its original
business model charges chipmakers
fees, reported to be about 2 per cent,
for using its designs, based on a chip’s
value. Charging device makers based
on the value of the device — top phone
prices can run over $2,000 — would
add several multiples more in fees.
There are good reasons why Arm has
become the global standard — with its
designs powering nearly all of the
world’s smartphones. The processors
are energy efficient, using less battery
power while generating less heat. Most
importantly for clients, they are cheap.
Attractive pricing enables Arm to
retain its leading position. China, one
of its biggest markets, has long been
developing RISC-V, an open-source
chip-design architecture. Local tech
groups have turbocharged investment
in this alternative to Arm designs in the
past year since US export controls ban
them using its advanced US technology.
Arm’s entrenchment in the supply
chain and a lack of technical support
from open-source alternatives mean
the price move will boost Arm’s top
line. But higher costs for device makers
will only encourage them to invest in
alternative design sources.
Amid a chip sector decline, Arm
would fetch less than $34bn based on
an average industry earnings multiple
— far below the $60bn that SoftBank
reportedly expected last year.
If Son seeks a quick boost for a listing
this year, he might have found a
Share prices (rebased)
Ferrexpo
Rio Tinto
BHP
Fortescue Metals
FTSE 350 Industrial Metals and Mining index
2021 22
FT graphic Source Refinitv
What does it take to make a company
uninvestable? In theory, bad news is
no reason not to buy a stock, perhaps
offering savvy investors a bargain.
But a beaten-up company is worth
buying only if its potential to earn
money in the future is preserved.
Bank investors worldwide will be
pondering this question this year. At
some point so will those watching
Ferrexpo, the London-listed iron-ore
group, which has struggled on with
its operations in war-torn Ukraine.
In peacetime, Ferrexpo has an
attractive position. Its huge, low-cost
resource base means it should trade
at a valuation closer to its peers at 4-5
times forward ebitda. It is closer to 3
times, on depressed earnings.
Its valuation, of course, also
solution. But given the longer term
risks, finding investors who will stick
with Arm is the true problem.
Cenkos/FinnCap:
the repair shop
During tough times in the City of
London, it is better to drink with
company than drown sorrows alone.
Cenkos Securities and FinnCap, two
well-known names in the UK’s clubby
small-cap broker world, intend to
share the tab after agreeing to a £43mn
all-share nil premium deal yesterday.
No wonder they seek strength in
numbers. The industry is fighting some
of the harshest conditions in memory.
Total money raised on London’s junior
China import price per tonne ($)
140
120
BHP
100
2022
80
Source Bloomberg
Ferrexpo pellet sales volumes
Tonnes mn
60
40
20
0 pointing to its public listing and the
23 2019
Source: Ferrexpo
reflects the monumental challenges it
faces. Ferrexpo’s operations have not
been directly affected by the fighting,
but about 10 per cent of its staff have
left the country. Another 6 per cent is
in active military service, of which 20
have died in service.
Though there are other reasons for a
discounted valuation. Founder and
majority shareholder Kostyantin
Zhevago has been arrested. Its auditor
quit in April 2019 amid discrepancies
about the use of Ferrexpo funds.
Under the circumstances Ferrexpo
has done a remarkable job. Power
outages affect its production. Its main
export route — through the Black Sea
port of Pivdennyi — remains closed as
the area is under Russian control. It
still manages to sell pellets into Europe
Aim market dropped to a 20-year low
last year. New issues fell to the lowest
since Aim’s creation in 1995.
The deal, through which Cenkos
investors will receive 3.19 new FinnCap
shares for each of their existing stock,
is a defensive move against the dismal
backdrop. Revenues and profitability
at both have collapsed. Including
expected dividends, FinnCap will own
50.1 per cent of the pro forma total.
Cenkos fell to a £2.7mn loss last year
after a 46 per cent dive in revenue to
£20.3mn. FinnCap has yet to publish
its full-year results. In the six months
to September 30, it made an adjusted
pre-tax loss of £0.6mn on revenue of
£16.4mm, down nearly half year on
year. While Peel Hunt and Numis have
not been immune to the downturn,
both rivals stayed profitable last year.
240
220
200
180
160
140
120
100
23
12
10
8 executive of Coinbase, said the listed
6 crypto exchange was the subject of an
4 SEC probe. Coinbase has held itself up
2 as a beacon of respectability in crypto,
0
2020 2021 2022
and reroute some through other
ports.
Last year it produced about 6.2mn
tonnes, down by half since 2021.
Though costs per tonne are up by
almost half, the miner still earns a
profit and sufficient cash flow to
cover its needs. That matters because
Ferrexpo’s access to capital markets
is pretty much closed.
For now, Ferrexpo has the balance
sheet to cope — with no debt (apart
from leases) and $113mn of cash.
Iron ore prices have rebounded, and
its pellets sell at a premium.
Barring more disruption, it should
survive this period. Nevertheless its
depressed valuation means that the
persistently high risk will only appeal
to the hardiest investors.
For FinnCap, a merger is preferable
to a potential takeover. It rebuffed last
year’s approach from Panmure
Gordon, led by ex-Barclays Capital
banker Rich Ricci. Competition
concerns could yet be a risk.
Combining their client books would
easily hand the new company the
greatest number of brokerage clients
on Aim, says Adviser Rankings.
A roll-call of venerable City
financiers who own shares in the two
have offered their blessing. These
include Jim Durkin, one of Cenkos’s
founding shareholders and its former
chief, and, on the FinnCap side,
venture capitalist Jon Moulton.
Given the turmoil in equity markets,
Cenkos and FinnCap may not be the
only small-cap brokers to elbow up
together to the bar this year.
Coinbase/Block:
money problems
It has hardly been a banner fortnight
for traditional US banking. But life
looks no easier for businesses tipped to
disrupt the financial services industry
by intention rather than by accident.
On Wednesday, Brian Armstrong,
the outspoken founder and chief
rules and scrutiny that this invites.
At the same time, Jack Dorsey’s
Block finds itself in the crosshairs of
another method of accountability.
The short selling firm Hindenburg
Research has accused Block of
exaggerating user metrics and the
marketing costs of its Cash App money
transfer unit. Hindenburg added that a
core customer included criminals using
Cash App for wrongdoing. Block has
denied wrongdoing.
Coinbase must first cope with the
crypto winter. Falling prices of digital
currencies led to plummeting trading
volumes on the Coinbase platform in
2022. Commensurately, Coinbase’s
transaction revenue fell by two-thirds
last year, relative to 2021. Its shares are
down 80 per cent from their peak.
Block’s market capitalisation has
dropped by about the same amount
from its own high. It earns revenue
from fees paid on Cash App transfers,
and also its buy-now, pay-later unit,
Afterpay. It acquired this as well from
fees on customer bitcoin transactions.
Both Block and Coinbase are
unprofitable on a net basis owing to
heavy spending on overhead,
technology and marketing.
Coinbase faces a novel and genuinely
interesting question: do its lending
offerings constitute securities?
Block may well offer a better
customer experience than a traditional
bank but its compliance is now under
the spotlight. At this time of economic
turmoil, coping with rule books seems
to be particularly hard for financial
services companies with newfangled
business models.
Lex on the web
For notes on today’s stories
go to www.ft.com/lex

CROSSWORD
No 17,366 Set by ZAMORCA
        ACROSS

 1 Recalled problem with one key set for

clockwork instrument (5,3)
 
5 Religious leader and bishops, in the
main, rejected Sunday opening (6)
10 Drum and bass on the never-ending
radio outside (5)
11 Vociferously moaned, fed up with old
  dining room furniture (9)
12 Jeopardises aims when filled with
rage (9)
13 Index includes unknown composer (5)
   14 Jack gets toes crushed crossing large
crowd (6)
 15 Humorous stage show’s almost at
capacity (7)
   18 Drew again, boxing ringleader so had
another go (7)
 20 Play around with complex clue over a
couple of days (6)
   22 Crop off sign for island (5)
24 RuPaul maybe agreed, sort of, to host
question session at the end (4,5)
25 Show’s design caught at heart of story
(9)
 
26 Record old church’s age (5)
27 Partner in game getting bored,
becomes foul-mouthed (6)
28 Dr Spooner’s darling impudence is
  popular at kids’ party (5,3)
DOWN
1 Catch boy to return glove (6)
2 Walk fast, second time lift’s gone (6,3)
JOTTER PAD 3 Chancellor’s a bit insincere, somehow
concealing tax matters at first (7,8)
4 Stink raised by part of a play that’s
Solution 17,365 very rude (7)
6 Yelp after pan with no lid boiled over
$ / $ & $ 5 7 ( , ' < / / 6 for cabbage and potato dish (6,3,6)
1 6 3 2 % 5 $ + 7 Each cross in margins voided
1 ( : 7 ( 5 0 ( 4 8 $ 7 2 5 questions (5)
( ( 1 ' $ , , (
8 See Democrat in constituency going
ahead quietly (8)
; < / $ 1 , 1 8 1 ' $ 7 ( '
9 Reckons Dad’s confused by drink (4,2)
( / , & 7 8 ' 16 Represent self as endlessly tough,
2 1 $ . 1 , ) ( ( ' * ( which is not true (9)
3 + ( 2 ) 1 ( 5 17 Worth wearing comfortable shoes to
5 ( $ 6 6 ( 5 7 , 2 1 6 see flowers (8)
( , + & 2 & 3 19 University college indeed cultivated
0 $ 5 , - 8 $ 1 $ % 5 $ 6 6 reason (6)
, * $ 5 7 / 3 $ 20 Leaves twice, heading for uncle’s
8 3 5 , 9 ( 5 , 1 , 7 , $ /
house in France (7)
You can now solve our crosswords 21 Push in rudely to get off boat (6)
0 , $ < 2 1 7 0 in the new FT crossword app at 23 Note American Vice-President’s rising
6 8 3 , 1 ( $ 1 $ * 5 $ 0 6 ft.com/crosswordapp irritation (5)*