Airbus is to sell close to 300 aircraft to Chinese companies in a multibillion-dollar package of deals that will strengthen the European group’s foothold over US rival Boeing in the world’s second-largest aviation market.

The European manufacturer’s series of agreements with Chinese carriers, which involves the sale of 292 planes worth more than $37bn, are the country’s first big purchases since the Covid-19 pandemic.

The deals are a major coup for Airbus in its battle with Boeing as China is a vital growth market for the world’s two biggest aircraft manufacturers.

It also highlights Boeing’s problems in China since the two fatal crashes of 737 Max jets in October 2018 and March 2019.

China was the first country to ground the aircraft. While the Max is flying again in most major markets, none of the Chinese airlines have yet returned the planes to commercial service, despite the country’s aviation regulator last year deeming it to be airworthy again.

Airbus struck a similar deal with Beijing, agreeing to sell about 300 aircraft worth an estimated €30bn, shortly after the second Max crash in 2019.

Boeing has also continued to grapple with a series of production issues as well as the fallout from the Max crashes, helping Airbus surge ahead of its rival with strong demand for its narrow-body jets.

China Eastern Airlines said it would buy 100 of Airbus’s popular single-aisle A320neo family of jets, Air China will take 64 of the aircraft, while its Shenzhen Airlines subsidiary is purchasing another 32.

In addition, China Southern Airlines, a carrier Boeing has historically counted as its biggest customer in the country, said it will buy 96 A320neos, as well as lease additional planes.

China Southern’s Airbus deal follows its decision in May to remove more than 100 of the 737 Max jets from its fleet plans, citing uncertainty over deliveries.

The orders are a “solid endorsement from our airline customers in China of the performance, quality, fuel efficiency and sustainability of the world’s leading family of single aisle aircraft”, said Christian Scherer, Airbus chief commercial officer.

Airbus in May said it was pushing ahead with aggressive plans to increase output of its narrow-body aircraft by 50 per cent to 75 a month in 2025, despite concerns over the state of the supply chain. Airbus is already in the process of increasing production to 65 a month by the summer of 2023.

Deliveries of the jets ordered by the Chinese airlines on Friday will take place between 2023 and 2027, according to stock exchange filings.

While much of the global airline industry has benefited from resurgent passenger demand as restrictions have continued to ease following the pandemic, the recovery has been slower in China and the Asia-Pacific region.

Flight capacity in the region continues to show negative year-on-year growth in the face of tight restrictions and lockdowns across some jurisdictions, according to a report by industry consultancy IBA Insight published on Friday.

Analysts at Jefferies recently downgraded Chinese airlines, citing China’s zero-tolerance and quarantine policy as a key factor for ongoing headwinds facing the sector. The bank cut its Chinese total passenger growth forecast to just 2.7 per cent growth this year, down from an original forecast that predicted growth of 15.4 per cent.

Russian president Vladimir Putin has already drawn his energy battle lines in Europe. On Friday, he added Asia. Russia will force the ownership of its Sakhalin-2 natural gas project into a local entity, threatening the investments of foreign groups including Shell and Japanese trading companies. It is a shot across the bows of energy producers that are attempting to negotiate exits from Russia.

Putin has threatened retaliation on unfriendly foreign groups before. But the move on Sakhalin-2 is the first clear attempt at nationalisation. Motivated by what Russia claims is the threat of an “environmental emergency”, the appropriation makes some sense from the host country’s perspective.

Russia does not want Shell to remain a phantom shareholder, providing no capital or operational expertise. From March, ExxonMobil discontinued working at nearby Sakhalin-1, which it has a 30 per cent stake in and operates. Oil and gas production there has plummeted some 80 per cent.

The move appears to be less about attacking Japanese investors Mitsui and Mitsubishi, which together own 22.5 per cent. Both have said they want to continue as customers. Russian liquefied natural gas accounts for nearly a tenth of Japan’s needs.

Shell is well aware of the risk. In first-quarter results it wrote down more than half its previous $3bn book value for Sakhalin-2. Most brokerage analysts will not have much in their financial models for the project. Jefferies puts the value at 20p in a £21.68 share price. For Bernstein it is less than 2 per cent of next year’s ebitda. Shell’s shares rose on the day.

But if Shell hoped to sell its stake to, say, Chinese oil producers such as Cnooc or CNPC, that now looks a lot more difficult. BP, which owns a fifth of state-owned Rosneft, and Total Energies of France, which has large investments in Russia’s gasfields, have plenty to ponder. Expect more asset grabs to come.

The writer is a managing director at Van Lanschot Kempen

The stock market has run out of exuberance, but private equity has not. That is leading to some extreme distortions in the correlations between the public and private markets.

Stock markets are seeing large and fast declines as the largest single US buyer of financial securities — the Federal Reserve — switches to selling while raising rates.

The private equity world remains more insulated, still primed after boom fundraising years with an abundance of “dry powder” — uninvested but available money. Bain estimates the industry had its second-best fundraising year in its history, capping a five-year run that has netted $1.8tn in new buyout capital.

But it is clear that investors should not see private equity as a means to hide from the economic cycle. Traditionally, there is a trickle-down effect on equity valuations between public and private markets. This relationship can be distorted at times by factors such as illiquidity of private investments as well as capacity of buyout groups to take on more debt to pay more. But over time, distortions typically should be reduced by arbitrage — if nothing else, via initial public offerings and delistings.

So when the dislocation between private and public equity gets too large, alarm bells should start ringing. The pain might be delayed but eventually, there is a reckoning.

Even if the fall in wider asset valuations is not reflected in the current estimated worth of unlisted portfolios, eventually private equity groups have to exit their investment given the finite holding periods set for them. The clock ticks on for delivering internal rate of returns, the industry’s profit benchmark. According to PitchBook data, these slowed in the third quarter of last year to 6.8 per cent compared with rates above 14 per cent in the first two quarters.

While illiquidity provides the incentive to do proper homework and think in the long term, it also breeds complacency. Less immediate valuations of assets can cloak performance.

And there is an unfortunate congruence between the fundraising and economic cycles. When economies and markets are booming, private equity funds can raise money more easily. This means they are under pressure to allocate sizeable funds for investments at valuation levels at risk of being problematically high.

McKinsey estimates that by net asset value, the global private equity industry has grown by a factor of nearly 10 since 2000, outpacing growth in market capitalisation in public equities nearly threefold over the same period

But this has led to tremendous amounts of capital chasing a limited number of deals, as well as an arms race where companies with the lowest cost of capital triumph. There was an industry shift from asset performance to asset gathering; a trend that might be less in the interest of the end investors — or limited partners — and more in favour of the general partner, the managers of the private equity funds.

If returns suffer, that could particularly affect less experienced investors in private equity, many of whom have only recently been able to put money to work in the asset class as it has democratised with greater retail access.

However, we still believe there are opportunities and real value in private equity. An example are the funds that focus on small to midsized companies, where private equity owners have the opportunity to professionalise and internationalise or consolidate fragmented industries. These areas enjoy the double benefit of a bigger pond of deals to fish from, with fewer fishermen around. This lowers the risk of “overpaying” while the idiosyncrasy of portfolios decreases the reliance on the economic cycle.

Likewise there will be good opportunities for funds that focus on megatrends such as energy transition, digitalisation and urbanisation. Real assets — real estate, infrastructure and land — are a strong beneficiary of these trends. This asset class is likely to grow in weighting under the private markets umbrella.

One example is that in order to achieve climate goals, there is a critical need to upgrade existing buildings. This provides value-added opportunities for real estate managers who can make an impact while enjoying valuation uplifts as they improve their buildings’ energy labels.

Such themes offer a practical way to invest responsibly and enjoy secular growth against a murky macroeconomic backdrop. They also might provide private equity investors with returns closer to those they have grown used to.

A record-breaking US proxy season for shareholder proposals brought disappointment to environmental activists, as some investors shied away from backing climate proposals they saw as too prescriptive.

Buoyed by a victory last year at ExxonMobil and rules that made it easier to put public policy-related questions on proxy ballots, activists filed 389 environmental and social proposals with member companies of the Russell 3000 index, according to statistics from The Conference Board.

Yet the share of support for environmental proposals dropped from 37 per cent in 2021 to 33 per cent this year.

Some of this was due to the fact that 30 of the least controversial proposals were withdrawn after companies agreed to activists’ requests. Those that went to a vote tended to be further reaching or were at companies where management has strongly resisted environmentalist demands, the research shows.

The results reflected growing squeamishness among asset managers about tying managers’ hands on climate-related issues. This has been exacerbated by Russia’s invasion of Ukraine, which forced investors and companies to think more about energy security.

BlackRock set the tone earlier this year when the world’s largest money manager warned that it would be voting against shareholder resolutions on climate that it considered to be too extreme or prescriptive. The Conference Board statistics show that other large investors are making similar distinctions in the name of long-term returns.

“It’s the board’s role to oversee and direct corporate strategy,” said Ben Colton, who heads stewardship at State Street Global Advisors. “As long- term shareholders, we need to be as pragmatic and consistent as possible.”

Proposals asking management to report on several environment-related options drew significantly higher backing than those that sought to restrict management behaviour. Seven resolutions asking for reports on plastic pollution garnered an average of 45 per cent support. However, 10 demands that banks and insurers stop financing new fossil fuel development received average support of just 10 per cent.

“Overall numbers don’t lie, but they don’t tell the whole story for this proxy season,” said Merel Spierings, The Conference Board researcher who analysed the numbers. She said that when the most prescriptive proposals are excluded, support for climate-related resolutions was largely unchanged from 2021.

The voting patterns at ExxonMobil make clear how these concerns are playing out this year. Last year, investors unexpectedly supported board candidates proposed by an activist hedge fund that wanted the oil major to do more on climate change. This year, several new climate-related proposals of different types were on the proxy ballot.

BlackRock voted against a proposal that would have required the US oil major to set specific targets to reduce its greenhouse gas emissions. It voted in favour of asking the company to do scenario planning for a range of energy transition pathways. State Street abstained on both.

The emissions limit proposal received just 27 per cent support, but the scenario planning item that BlackRock favoured ended up passing with 51 per cent of the vote. BlackRock owns about 9 per cent of ExxonMobil shares.

The reluctance of some investors to back prescriptive climate resolutions comes as Republican politicians are waging war against what they call “woke capitalism”. State governments in Texas and West Virginia are moving to boycott financial services groups that “discriminate” against fossil fuels.

But backers of the more specific climate proposals argued that they were necessary to move companies beyond vague promises to keep global warming to a minimum. All of the fossil fuel financing proposals met the 5 per cent threshold that allows investors to put them forward again next year.

“The resolutions were a critical step forward and helped move the conversation between investors and banks from long-term targets and disclosure to ‘What is your plan?’” said Ben Cushing, who runs the Sierra Club’s Fossil-Free Finance campaign. “It is really disappointing that these proposals were [considered] so prescriptive . . . they will be coming back.”

Credit Suisse is struggling to reduce a backlog of hundreds of new wealthy clients waiting as long as eight months to open accounts in Asia, causing some to switch to rivals and hitting staff morale in a business at the heart of the bank’s efforts to revive its fortunes.

The challenge facing Credit Suisse in Asia comes after the bank in November introduced more stringent source of wealth (SoW) corroboration standards for new clients, a move prompted by a series of scandals that left it in the crosshairs of regulators and with a multibillion-dollar trading loss.

By February, the new measures had created a waiting list of more than 600 people, as understaffed “know-your-customer” and SoW teams strained under the increased workload, according to people familiar with the matter, just as staff in the region also face limited flexibility in working from home.

For regular wealthy clients, it now takes between six and eight months to be checked and approved. Even those on the bank’s priority list — with $10mn to $15mn to deposit and hundreds of millions in assets — are waiting three to four months, the people said.

The customer backlog underlines the dilemma Credit Suisse is wrestling with as it seeks to increase profits by taking on more risk after several high-profile scandals, without incurring further reputational damage or regulatory sanctions for cutting corners on compliance.

Private banking in Asia is central to Credit Suisse’s efforts to lift revenues and rebalance its earnings towards wealth management. As the number of rich families surges in the region — particularly in mainland China, India and Indonesia — private banking has become one of the most profitable areas of business.

Francesco De Ferrari, head of wealth management globally, said at a presentation to investors last week that Asia-Pacific had the highest expected growth rate of any region at 10 per cent, though he cautioned that rising interest rates and the downturn in markets had proved a headwind in recent months.

In a bid to speed their ability to take on clients, Credit Suisse managers in May relaxed the SoW corroboration threshold to 50 per cent for new customers it deems “low-risk”, with the aim of verifying the remaining half of their wealth within 12 months, the people said.

The low-risk designation is largely given to those in better-regulated jurisdictions with reliable documentation, such as Singapore and Hong Kong. However, the decision has led to concerns internally that some will not be properly vetted, the people added.

While the backlog had fallen to just over 500 by late spring, some clients grew so frustrated they dropped out of the process and turned to rivals, in particular Wall Street lenders such as JPMorgan, which is aggressively expanding and poaching customers in the region, the people said.

“Our bankers are continuing to bring in new clients to the bank,” Credit Suisse said in a statement. “When onboarding these new accounts, it’s very important to us that we fully meet all the regulatory requirements,” adding that it was reviewing the IT and personnel needed to do this.

The race to eliminate the backlog comes as staff have bridled at curbs on flexible working imposed by Benjamin Cavalli, who took over as head of wealth management in Asia Pacific last November.

In May, Cavalli and his top managers sent a series of memos, including one titled “WFO is the new BAU” — standing for “working from the office is the new business as usual” — asking that all front-office and product specialist staff in the region work from the office five days a week, when Covid-19 restrictions allow.

According to people familiar with the matter, employees have pointed out that the directive is at odds with the insistence from Credit Suisse chief executive Thomas Gottstein in May that a full-time return to the office was “unrealistic and not what employees want”.

“Your biggest asset, and the biggest obstacle to growth in Asia, is skilled relationship managers — there are not enough of them,” said one person familiar with the matter, who cautioned that the draconian stance could backfire. “We are now in a world where we need to demonstrate flexibility.”

The bank said in a statement that the Asia-Pacific region had adopted a “flexible working regime” but that “staff are encouraged to engage with their manager to agree on an appropriate level of flexibility”.

Credit Suisse has embarked on a recruitment drive in Asia, hiring 80 relationship managers in 2021 for wealth management and adding a further 30 this year to take its total to 710. However, this is still short of the roughly 850 UBS has in the region.

In the summer of 1998, the Japanese currency slid to its lowest level against the dollar since the calamitous burst of the economic bubble seven years earlier. A senior finance ministry official, Haruhiko Kuroda, cautioned that an excessive fall in the yen was negative for the Japanese economy.

Nearly one-quarter of a century later, Kuroda is the governor of the Bank of Japan and sounding a familiar refrain as the yen continues its descent through a 24-year low, again breaking the level of ¥137 against the dollar and leaving traders uncertain when the slide will stop.

“The recent rapid acceleration of the yen’s decline is not desirable,” Kuroda said last month, following discussions with Prime Minister Fumio Kishida. It was a change of tune for the central banker, who had until then suggested a weaker yen could have benefits for the economy.

The debate within Japan on the depreciating currency has become increasingly fierce. Dust-jackets in bookstores set out clashing theories on the yen in bold type: one apocalyptic title of a business book reads The Weak Yen Will Destroy Japan while another bullishly predicts that “a cheap Japan” would revive the nation.

At the heart of the debate around the yen is the question of whether Kuroda’s decade-long ultra-loose monetary policy can withstand the pressure of global inflation. As the interest rate differential between Japan and the US has widened, investors have dumped the currency and sent it to historic lows.

Analysts say the yen — and Japan’s economy — stands at a critical juncture with two starkly different outcomes, depending on the next steps that will be taken by the central bank.

If the BoJ sticks to its guns while the US Federal Reserve continues to raise interest rates, the yield divergence could spell a further collapse in the yen beyond the 24-year low. But if the BoJ moves to tweak its monetary policy, or if a global recession prompts a U-turn in US interest rates and a flight to safe havens, it could trigger an abrupt reversal.



“As the risk of a US recession increases, the risk of a reversal to a strong yen over the medium to long term is also increasing,” says Yujiro Goto, FX strategist at Nomura. “Past price action shows that during a stagflationary period, the yen tends to depreciate against the dollar, while during a recessionary period, the yen tends to appreciate.”

Japan has suffered the same shocks that have affected the global economy amid a surge in oil and gas prices caused by Russia’s invasion of Ukraine. But while consumer price inflation has soared above 8 per cent in the US and the UK, Japan’s headline inflation remained at 2.5 per cent in May — only slightly above the central bank’s 2 per cent target.

The reason for that differential is wages. While the post-pandemic recovery has brought significant wage pressure in the US and Europe, in Japan there has been almost no pass-through from higher commodity prices to employee earnings.

In a video recording of a seminar released this week, Kuroda said persistent deflation between 1998 and 2013 had made companies cautious about raising wages. “The economy recovered and companies recorded high profits,” he said. “The labour market became quite tight. But wages didn’t increase much and prices didn’t increase much.”



In the nine months Kuroda has remaining in his term before he steps down in March, he must perform a delicate balancing act. His unwavering resolve to maintain negative rates and cap bond yields at zero reflects his judgment that Japan’s underlying economy is weak and would struggle to grow if rates were higher.

At the same time, he wants to shift the mentality of Japanese consumers and get them used to rising prices: a vital step to sustain inflation at 2 per cent. In early June, Kuroda was forced to apologise for suggesting the Japanese public was growing more tolerant of inflation, amid a furious backlash from politicians and the public.

The combination of rising prices and a collapsing currency has squeezed consumers’ wallets, with everything from petrol and electricity to chocolate and instant noodles more expensive. Meanwhile, workers — beaten down by decades of stagnant pay — have largely given up the fight for higher wages that would better insulate them against higher prices in the shops.

Analysts are wondering just how much longer the BoJ can hold its course, as political winds shift and public unhappiness grows. But no path presents an easy way out. “Deflation has continued for three decades and price stagnation has become the social norm. The society as a whole does not tolerate rising prices,” says Kazuo Momma, the former head of monetary policy at the BoJ who is now executive economist at Mizuho Research Institute. “There is fundamentally no exit for the BoJ”. 

Controlling the yields

The pace of the yen’s decline is not only angering the public, it is also leading to speculative attempts to dislodge the BoJ’s grip on the market for long-term government bonds.

In 2016, the bank expanded its toolkit for monetary easing and introduced a cap on 10-year bond yields at “around 0 per cent”, a policy called yield curve control. If yields threatened to rise above the target, the bank would buy government bonds to push them back down.

Already in recent years, the BoJ has widened its permissible band to let yields trade up to 0.25 per cent, saying it needs to transition to a “sustainable” policy. But some investors are now taking short positions on Japanese government bonds, betting the bank will be forced to give up its target and let yields rise and the bond price fall.



To defend its yield target, the central bank has so far in June been forced to buy government bonds at a monthly rate of ¥20tn, double the pace seen at the previous peak of bond-buying in 2016, according to analysis by Deutsche Bank.

Eiji Maeda, former assistant governor of the BoJ who is now president of think-tank Chiba-Bank Research Institute, says that if the central bank is to continue with its monetary easing programme, it should adjust its policy on negative rates and yield curve control.

“Are negative rates really boosting Japan’s economy and is it really necessary to keep 10-year bonds at 0 per cent?” Maeda says. “The 10-year peg is OK in a global environment of low interest rates and inflation, but otherwise, it creates various distortions in the market and that’s now being reflected in the foreign exchange rate.” 

Economists are divided on whether Kuroda will tweak the framework of yield curve control before his tenure ends. Barclays predicts the BoJ will shorten the target from the 10-year to the 5-year sector in September, while others are betting that it will extend the tolerance band around the 10-year to greater than 0.25 per cent. Goldman Sachs says neither move is likely and that the BoJ’s credibility would be hurt if it was forced into changing its policy due to market pressure.

If the BoJ were to make any tweaks, the timing would be critical. Analysts say the worst-case scenario would be if its move coincided with a recession in the US, which Fed chair Jay Powell has acknowledged is “certainly a possibility” as the central bank pledges to do whatever it takes to rein in surging inflation. If a slowdown forces the Fed to halt its plan to raise interest rates, the steep depreciation of the yen could quickly reverse.



Analysts at Goldman Sachs say hedge funds in the US have been using the yen derivatives market — mostly options — to play what many now see as a rising risk of US slowdown or recession. Benjamin Shatil, FX strategist at JPMorgan in Tokyo, says the market is going to confront a big divergence in views over the summer as to whether the US economy will slow down or not.

If investors think US rates have already peaked, he says, then they would assume the dollar/yen has also peaked. If not, they may continue to bet on the yen going lower. The uncertainty augurs a period of volatility, Shatil says. “The risks for the yen are less linear than they were.”

Beyond Abenomics

The pressures faced by the BoJ are also playing out on the political scene. Since Kishida was appointed prime minister last October, investor attention has focused on whether his economic programme would mark a break from the “Abenomics” of his predecessor who left office in 2020.

Shinzo Abe, Japan’s longest-serving prime minister, pursued the three “arrows” of increased government spending, looser monetary policy and structural reforms that sustained a weaker yen in order to boost Japanese exports.

When Kishida came to office last October, he spooked markets by promising a “new form of capitalism”, signalling his focus on redistributing income and indicating that he might push for a capital gains tax increase.



Ken Shibusawa, a former Goldman Sachs banker who was a core member of the panel behind drafting Kishida’s economic policy, says the prime minister wants to create a more inclusive capitalism that is less focused on maximising short-term economic gains.

“You just print all this money and basically where does it go? It goes to the people who already have the money,” says Shibusawa, whose Meiji-era ancestor Eiichi Shibusawa is often referred to as the father of Japanese capitalism. Of Abe’s system, he says, “I didn’t see three arrows. I saw one big bazooka.”

In recent months, however, people close to the prime minister say Kishida and his aides have become increasingly concerned about the negative reaction from foreign investors, causing them to back away from the capital gains tax plan. The strong influence wielded by Abe, who still heads the biggest faction within the ruling Liberal Democratic Party, may also be a factor.

When the draft of Kishida’s economic agenda finally came out this month, it stressed that the new form of capitalism was not about redistribution but “using redistribution as a means to raise growth”. Critically, the 35-page document ended with a line saying the government “would firmly maintain the three arrows of bold monetary policy, flexible fiscal policy and growth strategy to stimulate private investment” — although the use of the phrase “Abenomics” was deliberately avoided.



Still, some analysts have not ruled out the possibility that Kishida would apply pressure on the BoJ to revise its monetary policies in the future to soften the yen’s fall. That is because of the weight the Kishida administration places on public opinion.

Public concerns about rising prices have already started to erode Kishida’s solid popularity and both higher living costs and the weak yen have become a major issue during the campaign for the upper house election on July 10. The result will be crucial for the future of Kishida’s economic agenda. If the LDP manages to win a single-party majority, Tetsufumi Yamakawa, head of Japan economic research at Barclays, says there will be less pressure for Kishida to maintain Abenomics and its weak yen policy.

“There will be more flexibility in monetary policy,” he says, suggesting that the path away from the extreme measures adopted over recent years might now open up.

Holding out for a hero

The tensions over monetary policy are likely to come to the fore when Kishida chooses the next BoJ governor to replace Kuroda in April.

A prelude to the post-Kuroda contest was the closely watched replacement of board member Goushi Kataoka, an aggressive reflationist who has pushed for the BoJ to ease policy further to achieve its 2 per cent inflation objective more rapidly.

For the first time since the start of Abenomics, the government in March chose a successor who is not a reflationist, reducing the presence of dovish members on the BoJ’s nine-member board.

So far, BoJ watchers believe there are only two candidates to succeed Kuroda, who has been governor since 2013: Masayoshi Amamiya, the BoJ’s deputy governor who is regarded as its chief monetary strategist, and Hiroshi Nakaso, also a former BoJ deputy governor with close ties to the international central banking community.

Both represent traditional, safe choices from within the bank, who have closely supported Kuroda’s governorship. But the two BoJ insiders would also be less dovish than Kuroda and will be tasked with the formidable challenge of addressing the growing negative impact on financial markets and finding an acceptable exit from its decade-old monetary easing.



“One job I do not want ever is to be the next BoJ governor. It’s going to be a horrendous job. And the person that is named should be crowned as a hero for picking up that job,” Shibusawa says.

Analysts expect both candidates to consider an end to the yield curve control policy and negative interest rates during their term, but very few expect the BoJ to move towards significant tightening any time soon. The central bank is keen to avoid the mistakes it made in August 2000 and in July 2006, when it raised interest rates only to cut them again as the economy slid into recession.

In a book released in May, titled The Last Line of Defence: Crisis and the Bank of Japan, Nakaso did not make clear whether he believed the central bank should maintain its 2 per cent inflation target — a vagueness that suggests he would at least consider a break with the current era.

“At the end of the day,” he wrote, “I believe the monetary policy under Governor Kuroda showed both the effectiveness and the limits of how much can be done by monetary policy and what can’t be achieved by monetary policy alone.”

Accounting shenanigans that help companies raise money have a habit of reappearing in different forms.

For years, corporate borrowers, often private equity-owned, have relied on so-called adjusted ebitda in order to maximise their debt-raising capability. These fudges included so-called “add-backs” — one-time charges and the like — designed to give a fairer depiction of profitability. But some dubious add-backs included earnings that were speculative or not-so-aberrational. Juicing up ebitda this way enabled the company to take on even more junk loans and junk bonds.

The holders of such debt are getting another accounting lesson now. Many of those previous debtors seek to borrow additional cash, deploying the fuzzy math of ebitda profitability. According to a recent report from Moody’s, of 226 leveraged loan term sheets it reviewed for debt issuances in 2021 and 2022, over half lacked formal definitions for ebitda. This has allowed corporates keen to raise more debt, or pay out dividends, to creatively construct an ebitda measure that avoids breaching covenants.

Some adjustments look defensible, such as those based on wording from Big Four accounting firms that write “quality of earnings” reports. Still these numbers still do not equate with the audited historical figures in financial statements. More questionable add-backs include the profits from merger and acquisition deals contemplated but not yet completed and research and development charges that are usually regularly recurring.

Credit agreements historically contained “maintenance” covenants, which would result in a technical default if a company failed to maintain a certain amount of profit relative to debt. Such restrictions have appeared less frequently in the last decade.

However, more common are “incurrence” covenants that have requisite profit levels before raising more debt or pursuing other financial engineering. The increasingly fluid ebitda calculation is one aspect of the creativity employed by borrowers to raise more money. Lenders, including sophisticated hedge funds, are ostensibly victims of this game-playing. Then again, they freely bought this paper ignoring the risks they took on.

Price and grade inflation are rampant. Now job titles are jumping on the bandwagon. Big Four audit firm EY is skirting the troublesome issue of doling out more cash to thousands of workers by elevating them to partners, without the attendant profit share.

The move is not totally global; it will not take place in the US, for instance. In the UK, EY’s 679 associate partners will become partners. EY is a latecomer to the ruse, following in the steps of peers Deloitte and KPMG.

As the Big Four’s embrace suggests, the cost/benefit analysis stacks up nicely. Costs are little more than tippexing out the “associate” on business cards — for those who still use them. Benefits: two egos stroked at one swoop: more clients get to talk to partners, who in turn get to parade their elevated status on social media — as many were quick to do.

It is a win for traditional equity partners too: fewer snouts in the trough means they get to keep more of the profit pool. That is particularly key as the firm pushes ahead with a restructuring to spin off, and possibly list, the consultancy arm.

EY and its peers are quick to allay concerns that anointing non-equity holders partners may mislead; this cadre were already associate partners. But it clearly stretches the traditional definition of senior practitioners who, as owners and top bosses of accounting firms, split the profit pool.

Of course, title inflation is not restricted to professional services. There are plenty of other valueless titles and qualifications adorning business cards and social media profiles: Oxbridge MAs, for example, available to BA holders after six years, or brand ambassadors aka bloggers. Or take titles, frequently prefaced with “executive”, bestowed to retain the loser in a leadership battle.

None of it is harmful and wily owners can deploy an elevated title to their personal advantage in other fields, be it snaffling an airline upgrade or superior restaurant table. In some countries it can even help secure a visa. But like any other form of inflation, there are drawbacks: diluting the pool of partners takes some shine off the title.

France plans to take full control of power group EDF, a nuclear energy specialist that has been grappling with high debt, production outages and conflicting demands from its state shareholder as it gears up to try to process its biggest orders for new reactors in decades.

The takeover, announced by prime minister Élisabeth Borne on Wednesday, would close a rollercoaster chapter for the former monopoly, which has included a shelved government attempt last year to restructure the sprawling company, still 84 per cent controlled by the state.

“I confirm to you today that the state intends to control 100 per cent of EDF’s capital,” Borne told lawmakers as she set out priorities for the new government following Emmanuel Macron’s re-election as president in April and legislative elections in June. She did not detail how the operation would take place, or when.

Shares in the company, which was listed in 2005, soared 14.3 per cent after Borne’s speech. The stock held by minority shareholders is worth roughly €5bn at current market prices.

Known as Electricité de France when the utility was created just after the second world war, EDF’s capital was opened up to private investors with the argument it would bring more financial discipline and transparency to a group with a history of internal quarrels and that is sometimes described as a quasi state-within-a-state.

But its listed status has proved increasingly problematic, including this year when Paris forced EDF to foot the bill for its cap on energy prices to protect households from soaring costs, now exacerbated by Russia’s invasion of Ukraine. The move sparked an outcry from minority shareholders and the stock, which has sunk almost 90 per cent since a 2007 peak, took a hit.

As well as giving the French government greater licence to intervene at EDF, a full renationalisation — which the group’s powerful unions have been in favour of in the past — might allow Macron to score political points. The president’s centrist party lost its majority in the lower house of parliament in June and will now have to wrangle with lawmakers on the left and right to try to pass bills.

“One of the reasons to do this now is for the symbolism of it. A nationalisation in France, even if this isn’t truly one as it is already state-owned, will please some parts of the left and the right,” said one banker who has previously worked with the company.

Financially, full state control would also have the merit of further decreasing EDF’s borrowing costs. The group, which has been tasked by Macron with building six new nuclear reactors in France in the coming years at an estimated cost of about €52bn, will have to find ways to fund the venture, beyond any state financing.

But the move may not resolve all of EDF’s problems. The group has faced cost overruns and long delays at a handful of flagship reactor projects in Britain and France, raising concerns over its ability to build more in future. Corrosion problems at some of its existing 56 reactors in France have torn a hole in its finances as production drops to multi-decade lows — its core profit is due to take a €18.5bn hit from that alone this year.

“It’s a message to the unions and to the left,” Denis Florin of energy consultancy Lavoisier Conseil said of the nationalisation plans. “Beyond that, the question is what it will do to change things operationally, beyond giving EDF a more secure financial structure.”

The French state took part in a recapitalisation of EDF this year. Over the years the company has branched into renewable energy and has sought to export its atomic technology to countries such as Britain and China. It has had to contend with government pressure before, including after being pushed to absorb ailing reactor designer Areva in 2017.

The shake-up in its capital structure may have repercussions elsewhere too. Energy experts in the UK said it raised further questions about the speed with which new nuclear projects could move forward in Britain.

A planning decision on EDF’s proposed £20bn plant at Sizewell on England’s east coast is due by the end of Friday.

Additional reporting by Nathalie Thomas in London

Uniper has formally requested a rescue package from Berlin, in a move likely to lead to the government owning a substantial share of the utility brought to the brink of insolvency by a drastic reduction in gas deliveries from Russia.

Europe’s largest buyer of Russian gas has been losing tens of millions of euros a day as it seeks to plug the gap with much more expensive gas bought on the open market, without being able to pass on the added cost to customers.

Chief executive Klaus-Dieter Maubach told reporters that Uniper “cannot tolerate [the current situation] for long” and that it might have to start drawing gas from its storage facilities as soon as next week, further reducing supplies needed for the coming winter.

The company said on Friday that it had “submitted an application to the German government for stabilisation measures” through which it would seek to offset some of its increased costs.

The German parliament had earlier pushed through changes to the country’s energy security act to allow special pricing mechanisms to be imposed on consumers.

Maubach did not say how large Uniper’s bailout would need to be, but German politicians have suggested it could be as large as €9bn. The executive said Uniper could lose as much as €10bn this year.

Uniper’s proposal to the German government also seeks to expand an undrawn €2bn credit facility, first agreed with the state-owned KfW bank at the start of the year, when Uniper found itself on the wrong side of energy price hedges.

The plan “contains equity components which would lead to a relevant participation of the Federal Government in Uniper SE”, the company added.

Maubach did not elaborate on what size such a stake would ultimately be, but said: “We’re not talking about 5 per cent or 10 per cent, I can say that much”.

Germany’s economics minister Robert Habeck said his government was “working flat out” to help Uniper.

“The concrete form of support will now be negotiated and then decided. Politically, one thing is clear: we will not allow a systemically important company to go bankrupt and as a result cause turbulence in the global energy market,” he added.

Uniper’s main shareholder Fortum, which owns almost 80 per cent of the utility, would also look at restructuring the company and “establishing a security of supply company under the ownership of the German government”, Uniper said.

The proposed bailout comes as gas flows from Russia are down 60 per cent on their standard capacity, with planned maintenance of the Nord Stream 1 pipeline scheduled to begin next week, further restricting supply.

German officials have warned that Russia may use the pipeline repairs as an excuse to permanently shut off gas supplies in retaliation for sanctions imposed on Moscow after the invasion of Ukraine.

Such a scenario would make it impossible for Germany to fill its gas storage facilities to the targeted 90 per cent by November, forcing the country to ration supplies to businesses throughout the winter. The shortage would also affect the transfer of gas to France, Austria and the Czech Republic.

“The plans to amend the Energy Security Act would make it possible to pass on higher gas prices evenly among all gas customers, in the form of a levy,” BDO lawyer Christian Hampel said of one of the options now available to the government.

The French government is working with Goldman Sachs and Société Générale as it explores how to take full control of utility EDF, with a tender offer to minority shareholders emerging as the preferred option, according to people familiar with the matter.

The government this week announced it would take back the 16 per cent of EDF it does not already own, saying the move would bolster the power group’s finances as it gears up for more investments in costly nuclear reactors, and allow France to gain even greater control over its electricity production as Europe is rocked by an energy crisis.

The government has yet to detail how it will assume full ownership of the indebted company. A tender offer to EDF’s shareholders, rather than trying to steer a nationalisation bill through parliament, is shaping up as the swiftest and most viable plan, according to three people familiar with the matter.

“There’s a need to go quickly here, and a market offer is more efficient than dealing with a political mess in parliament,” one of the people said.

The parliamentary option would entail passing a law in effect authorising a form of expropriation so that the state could take full control, another person said, even if it still involved financial compensation for shareholders.

Lazard and BNP Paribas are advising EDF, two people added.

No final decision on how to proceed has yet been taken and the timing of any offer is still uncertain, although it would most likely be after the August lull. French finance minister Bruno Le Maire said on Thursday the renationalisation could take several months.

The banks and France’s finance and energy ministries all declined to comment.

An offer to minority shareholders, which includes many of EDF’s own employees and other retail investors, would likely require support from all of the big French banks during the operation, another person familiar with the matter said.

To squeeze out minority investors, any offer would have to reach the 90 per cent acceptance threshold. The state controls 84 per cent of EDF today, while the minority shareholdings are currently worth roughly €5bn.

A swift resolution would remove EDF from the scrutiny of the stock market as it struggles with financial woes, even if a full nationalisation may do little to fix longer term problems the group is facing. Those include improving its industrial knowhow to avoid the huge cost overruns and missed deadlines that have plagued recent reactor projects.

Corrosion problems at some existing reactors have sliced EDF’s electricity output, and the group has warned its core profit will be hit by €18.5bn as a result this year. It has also had to foot the bill for some electricity price caps dictated by the government.

“In the short term, you have a situation in which the financial results are going to be catastrophic,” said Nicolas Goldberg, a senior energy analyst at Columbus Consulting. “There was going to be a need for another recapitalisation and the status quo was no longer possible.”

One of the other options to nationalise EDF would be more vulnerable to the vagaries of politics. A bill to enforce the buyout would have to be passed through France’s parliament, testing President Emmanuel Macron’s ability to get lawmakers onside just weeks he lost his majority.

Many opposition figures from the left and right have previously supported the idea of a return to state ownership for EDF, hailing it as the ultimate public service institution.

But the process of pushing a bill through parliament could be much lengthier, running the risk of getting bogged down in “interminable debates”, one person familiar with the matter said.

The Bank of England on Friday warned an overhaul of insurance regulation cannot be a “free lunch” for the industry, saying the changes must protect millions of policyholders.

The BoE’s Prudential Regulation Authority, which supervises insurers, is working with the government on changes to the Solvency II regulatory regime that Boris Johnson hopes will free up companies to invest billions of pounds in UK infrastructure.

Solvency II, which was introduced when the UK was part of the EU, stipulates how much capital companies should hold and where they can invest.

Tensions have been growing between Downing Street and the BoE over the reform of Solvency II because the prime minister believes regulators are being excessively cautious.

The PRA has also come under mounting pressure from industry to drop its push for changes to the so-called matching adjustment, which offers life insurers a capital boost if they invest in certain assets to back their long-term liabilities, mainly future payouts to pensioners.

The regulator wants to put the matching adjustment on what it sees as a more sustainable footing that better reflects the credit risks taken by insurers with their investments.

In a speech on Friday, PRA chief executive Sam Woods recognised the “strongly negative” industry reaction to this proposal, but said “the livelihoods of millions of pensioners depend on getting this right”.

The regulator is “clear that this is not a free lunch”, he said. “If changes simply loosen regulations which were overcooked by the EU, without tackling other areas where regulations are too weak, then we are putting policyholders at risk,” he added.



Johnson’s resignation as Conservative party leader on Thursday, and his plan to step down as prime minister in September, have raised questions about how quickly the Solvency II overhaul will be implemented.

He regards the changes to the regulatory regime as a crucial post-Brexit reform that can unleash an “investment big bang” by insurers in UK infrastructure.

The government is paving the way for reform of Solvency II through a financial services bill, and Rishi Sunak and John Glen were leading on this work until they resigned as chancellor and economic secretary.

The bill is still expected to proceed, and Woods said Glen had “got this work very, very far advanced”, with clauses about the Solvency II overhaul due to go into the legislation.

But a central question hangs over the reform: whether the government will effectively override the PRA’s concern about the matching adjustment in order to give insurers more wriggle room to shift money into UK infrastructure.

“We are hoping that we’ll be able to agree, but if [the government] do [form a different view], we live in a democracy . . . we’ll get on with whatever the settlement is,” said Woods.

His speech was an attempt to make clear the PRA’s reasoning for what Johnson and other politicians have perceived as an excessively cautious approach by regulators.

Woods said his thinking had evolved since a speech last year where he said he had not seen “pervasive evidence” that capital levels in the insurance industry were too low or too high.

He added some life insurers had viewed the PRA’s proposals for the matching adjustment as “sort of manufactured” to try to get the overall reform to a neutral position that neither tightened or loosened capital requirements. “That is completely wrong,” said Woods.

Hong Kong buyers now own more property in London than any other foreign group. The shopping spree, which in the past helped boost prices, could shift to Japan. A weak yen makes real estate prices attractive. But beware using this as a catalyst to buy Japanese property stocks and real estate investment trusts.

Sales of Japanese flats to Hong Kong buyers are up about a third and inquiries have increased by as much as 70 per cent compared with last year, says property adviser Jones Lang LaSalle. That fits a broader trend. More than 10 companies, many of which are foreign investment managers, have bid to buy the $2.2bn government portion of the Otemachi Place complex this week.

On the surface, the attraction for foreign buyers is obvious. Japan has low mortgage rates of just over 2 per cent. There has been a 24 per cent decline in the value of the yen since 2020 against the US dollar, pegged to the Hong Kong dollar. These factors present Hong Kong buyers, both retail and institutional, with the best deals in over two decades.

Shares of local developers, such as Japan’s largest Mitsui Fudosan and peer Sumitomo Realty & Development, are up this year on hopes the demand will continue.

Yet any newfound appetite is unlikely to overturn the longer-term trend. Japan’s population has been in decline since 2008. The price depreciation of the average Japanese house has historically been significantly faster than elsewhere in Asia.

Local real estate investment trusts, or Reits, provide no better choice. Some big local Reits, including Japan Real Estate Investment Corp, have lost over a tenth in the past year. The high average loan-to-value ratio for these Reits means they depend on Japan’s near-zero rates holding, which is not a given. Each one percentage point rise in interest rates would mean at least a 10 per cent decline in available funds from which to distribute dividends.

As the interest rate gap between the US and Japan widens, the risk of tightening monetary policy by the Bank of Japan elevates. That would sate any hunger for Japanese property.

The founder of jeans label Diesel and owner of fashion brands Jil Sander and Marni has said he wants to build an Italian luxury conglomerate to compete with French groups such as Kering and LVMH.

Renzo Rosso, chair of holding company Only The Brave, founded Diesel in 1978 aged 23, and went on to build a fashion business that employs 6,000 staff around the world at seven brands.

“Italy doesn’t have a domestic luxury conglomerate like the French ones,” he told the Financial Times in an interview. “My plan is to create one.”

OTB has plans for a stock market listing and Rosso is in the process of hiring bankers to advise him. “Of course our [market capitalisation] will be different from the big French groups but my ambition is to show that Italian brands can come together and strengthen each other.”

The European luxury industry has been caught up in some of the effects of sanctions against Russia after its invasion of Ukraine. In March, the EU barred exports of goods worth more than €300 to Russia, in effect ending luxury fashion trade.

But while the likes of Russian president Vladimir Putin are known to be fans of Italian luxury brands, Russia is not a primary destination for the industry.

It is only Italy’s 14th largest global trade partner and according to Italy’s national fashion chamber, the country’s luxury goods exports to Russia amounted to €1.4bn a year before the war.

“The lockdown in some parts of China has been a much greater concern for me compared to the war in Ukraine in terms of impact on our business,” said Rosso. Russia and Ukraine account for about 2 per cent of OTB’s annual revenues — which grew to €1.53bn in 2021, compared with €1.3bn the previous year. It has no stores in either country.

Asia, on the other hand, is a key market for the group. It opened a branch in South Korea last year and Japan alone makes up 25 per cent of its total revenues.

Rosso said one-third of the group’s investments over the next three years would be focused on expanding in China. OTB currently has 80 stores in the country, where it employs almost 1,000 people. It is aiming to double the number of both stores and staff there by 2024.

Rosso is a council member at the national fashion chamber. He said that he and other senior figures — including Patrizio Bertelli of Prada, Remo Ruffini of Moncler, Gildo Zegna and Angela Missoni — were working to modernise the industry and that it would eventually evolve from its traditional family-owned model.

So far, it has been the big French conglomerates, like Kering and LVMH, that have taken opportunities to buy major Italian brands like Gucci, Bulgari and Bottega Veneta.

Rosso is one of the few people on the Italian fashion scene to have pursued a similar path, acquiring Maison Margiela and Marni before buying Jil Sander and emerging brand Amiri. “We will look at further expanding before the listing,” said Rosso.

“It’s not easy but we are on the lookout for brands that can strengthen our luxury positioning. We will demonstrate to the world that even Italy can have its own luxury conglomerate.”

Rosso’s personal fortune is estimated to be about €2.5bn but he is very attached to his roots and still lives in his north-eastern home town of Bassano del Grappa.

Since the start of the war, he has brought more than 440 Ukrainian refugees to Italy and supported them through the foundation run by his wife Arianna Alessi, local NGOs and donations from citizens and other companies.

“We gave them housing near our headquarters [in the Veneto region] and I have hired about 20 women across the group,” Rosso said. The Italian brand Intimissimi has supplied pyjamas and underwear for them, he said, adding: “We’ve seen an outpouring of generosity from locals and businesses.”

He said that while the sanctions and the war would affect the sector, it was important to take a stand against the invasion of Ukraine.

“The videos of the war these women have shown us from their partners made me understand that what we see on television isn’t even half of the story and it is simply devastating.”

Hedge funds aiming to profit from the uncertainty over whether corporate takeovers that have been agreed will ultimately be completed say the US stock market now offers more compelling targets than when the eruption of the coronavirus pandemic threatened to torpedo every deal.

So-called merger arbitrage funds typically place bets in the period between a deal being struck and when it is due to complete, a high-stakes strategy that relies for its success on correctly predicting whether a transaction will happen or not against an often volatile backdrop.

The combination of a slowing economy, increased regulatory scrutiny and the challenge of executing highly leveraged transactions in skittish debt markets is forging opportunities for such specialist Wall Street funds.

“From a risk/reward perspective, it’s a more attractive environment since there are real strategic rationales you can underwrite as an arb,” said one executive at a merger arb fund.

The question of whether Elon Musk will follow through on his $44bn agreement to buy Twitter has proved the most captivating. Late last week, Musk notified Twitter that he was terminating the deal, accusing the social media platform of misleading him over its number of fake accounts.

Even before Musk formally reneged on the deal, investors were sceptical the billionaire would complete the transaction, with Twitter shares trading roughly a third below the $54.20 a share he had offered. The stock was down almost 7 per cent at $34.35 in pre-market trading on Monday.

But with Twitter’s board vowing to pursue legal action to force Musk to complete the deal, some merger arb funds are likely to wager on the outcome of the stand-off.

“To be honest, I think it is an amateurish attempt at a termination,” said Roy Behren, who runs a $5bn merger arb fund for Westchester Capital.

Twitter’s share price still needs to reflect the chance that the deal is renegotiated at a lower price, or that the company secures a damages judgment or termination fee, he added.

The transaction is far from the only one with a spread of more than 10 per cent between where the target’s stock is trading and what the acquirer has agreed to pay. For merger arb funds, a gap of at least 10 per cent is regarded as indicating a significant degree of doubt over whether a deal will close. 

While Musk’s intentions have been the key variable in the Twitter deal, it is fear over how US competition regulators will treat Microsoft’s $75bn acquisition of video games group Activision Blizzard that has created uncertainty over whether it will happen — and an opening for merger arb funds.

The spread of 18 per cent reflects concern that antitrust authorities, who are increasingly hostile towards Big Tech, will subject the takeover to a strict review and potentially even block it.

Merger arb funds have also been drawn to the $15bn deal that Intercontinental Exchange, the owner of the New York Stock Exchange, struck in May for mortgage software provider Black Knight.



Some funds reckon that competition regulators could step in, while others point to the possibility that the companies could challenge any opposition from authorities just as AT&T successfully did in 2019 when it defeated the Department of Justice’s bid to block its $80bn purchase of Time Warner.

Acquirers usually have almost no discretion to walk away from signed agreements, making scrutiny from competition authorities the most common impediment to a deal closing.

Once a takeover is agreed, the target’s shares will typically trade at a small discount to the offer price. The gap narrows but is not eliminated until shareholders are paid at the closing, which typically happens three to six months after a deal is first agreed.

As rising interest rates raise the cost for takeovers dependent on debt, two outstanding leveraged buyouts — Apollo’s $7.1bn purchase of car parts maker Tenneco and the $16bn acquisition of television ratings group Nielsen by Elliott and Brookfield — each have had spreads beyond 10 per cent. Tenneco’s discount has, however, narrowed to less than 5 per cent recently as financing for the takeover has started to come together.

Alongside an assessment of the risk that a given deal fails to complete, a spread also reflects the opportunity cost to a merger arb fund of choosing to wager on the outcome of a particular takeover rather than putting money into US government bonds.

Merger arb funds typically aim for annual returns in the mid to high-single digits, though their lack of correlation with broader equity markets heightens their appeal for some investors.

Arguably the most complex but still potentially rewarding case for merger arb funds is the fate of US budget carrier Spirit Airlines. Since signing a stock-and-cash merger with arch rival Frontier in February, JetBlue has made an all-cash offer for Spirit.

With a risk that competition authorities could thwart both potential deals, Spirit has twice postponed a shareholder vote on the Frontier transaction, a delay that keeps JetBlue’s hopes alive. The two competing transactions — alongside the potential intervention from regulators — offers an attractive backdrop for funds prepared to wager on the eventual outcome.

The number of variables in play is a sharp contrast to the onset of the pandemic in March 2020, when a plunge across equity markets at one point appeared to derail every pending takeover.

“You were worried if Tiffany stores were ever going to open up again,” said the executive who works at a merger arb fund, referring to the uncertainty over whether the $16bn deal that French luxury group LVMH had agreed before the pandemic for the US jewellery chain would ever happen.

The rapid intervention by the Federal Reserve in financial markets meant most deals ended up closing at or near their original terms. 

Despite the drama of LVMH’s 2020 pursuit of Tiffany, Musk’s approach to Twitter has made it even more intriguing for merger arb funds. Legal experts have said that the agreement to buy Twitter is watertight, but Musk’s stubbornness and financial resources raise the prospect of a messy legal battle. 

“Twitter should continue to trade well above the standalone value of the company,” said Behren of Westchester Capital. “The company has the better argument and there is validity to the merger agreement that should be enforced.”

Asset managers and brokerages are rushing into wealth management as “the rich get richer” and a rising tide of young do-it-yourself investors come into inheritances, according to a new report.

Growth of wealth management is set to outpace that of asset management by an average of 2 per cent every year until 2030, as DIY investors seek assistance in turbulent markets, according to research by Bain and Company, a consulting group.

The move into wealth management is a marked shift for traditional asset managers. The industry historically relied on self-directed brokerages such as Charles Schwab, Fidelity and Hargreaves Lansdown, or independent wealth managers to steer investors towards their products.

The aim is to attract younger customers coming into new wealth, and keep them as their needs grow more complex.

DIY investors joined markets in record numbers over the past few years. Now, “we’re betting that those self-directed investors will seek advice”, said Stephen Bird, the chief executive of old school asset manager Abrdn.

At the end of 2021, Abrdn bought the UK’s second-largest DIY investment firm, Interactive Investor**, to grab a younger, more tech-savvy customer base.

“When the next generation inherits money from their parents, they typically don’t stay with their parents’ financial adviser,” Bird said.

The wealth management industry, which combines asset management with financial planning and advice, is expected to swell 67 per cent from $137tn under management in 2021 to almost $230tn globally by 2030, according to Bain. Asset management, which is more investment focused and already a saturated market, is expected to grow by less than 40 per cent from $109tn to $152tn under management over the same period.

“If you have a wealth management capability you have a much more valuable business,” said John Waldron, the chief operating officer of Goldman Sachs, of the future growth in the sector. Younger customers are “incredibly attractive to us”, Waldron said.

Self-directed investors face a down market, many for the first time. “The rougher things get the more people will need wealth management,” said Markus Habbel, a partner at Bain who worked on the report.

Much of the growth in demand for wealth management is because of rising inequality and highly concentrated wealth, Bain found. Globally, the investable assets of wealthy individuals is expected to double in almost every part of the world by 2030.

“The rich are getting richer, that’s for sure,” Habbel said.

Across the industry, wealth management services are picking up steam. In June, Charles Schwab, one of the largest US retail asset managers, renamed its 20-year-old private client advisory the “Schwab Wealth Advisory” to widen the appeal of its wealth management offering to a broader client base. The average customer enrolled in the programme has $2mn in investable assets.

“We’d like them to take advantage of all the services we offer and be clients for life,” said Bryan Olson, the head of Schwab’s wealth advisory business.

“Hopefully the next generation will be clients too, and when that wealth transfer takes place we will already be engaged and helping them.”

Many, such as Abrdn, are building out their offerings through acquisition.

In March, Royal Bank of Canada announced plans to buy the UK’s largest wealth manager, Brewin Dolphin, for £1.6bn to become a dominant player in the UK wealth market almost a year after JPMorgan bought online wealth management platform Nutmeg for $1bn.

Goldman’s Waldron said the group was actively looking for businesses that expanded its wealth management business’ digital capabilities.

Habbel, of Bain, said: “We expect a lot of M&A.”

**This article has been amended to correct the name of the company purchased by Abrdn to Interactive Investor

Airbus expects airlines to order more aircraft than previously forecast over the next 20 years to replace less fuel-efficient planes, but said passenger numbers would not grow as fast as previously thought.

In its 20-year outlook published on Monday the European aerospace group raised its forecast for global deliveries of jets by all manufacturers to 39,490 from 39,020.

Roughly 80 per cent of the deliveries are expected to be for single-aisle aircraft, which typically serve short and medium-haul destinations, while 2,400 planes will be new and converted freighter aircraft.

The upward revision is partly the result of 2021 being taken out of the rolling 20-year forecast period. Last year was exceptionally weak for deliveries as the industry struggled to emerge from the pandemic, which led to the temporary grounding of most of the world’s fleet.

Airbus said it expected passenger traffic to grow more slowly than before, by 3.6 per cent per year rather than the 3.9 per cent forecast in November, as higher energy costs and the cost of carbon start to hit the sector.

“As energy prices become more expensive, whether we are talking about crude oil prices or carbon dioxide pricing or alternative fuels, there is a strong correlation between what is good for the environment and the fact that purely for operating costs, airlines are very, very motivated to require the latest, most efficient and lowest-emission aircraft,” said Bob Lange, head of business analysis and market forecast at Airbus.

Just 20 per cent of all aircraft currently in service are in the latest generation of fuel-efficient planes, such as Airbus’ best-selling A320neo family of narrow-body jets and Boeing’s rival, the 737 Max. However, this is up from 13 per cent in 2019.

The company still expects air traffic to recover to pre-pandemic levels some time between 2023 and 2025, amid ongoing pressure from soaring inflation as well as the risk of further outbreaks of variants of Covid-19.

Orders from Asia, which has driven demand for planes in recent years, are expected to be slightly lower than the previous Airbus forecast. China, however, still remains poised to overtake the US as the world’s busiest aviation market in the coming years.

The company’s assumptions include global economic growth of 2.6 per cent a year, and passenger and freight traffic growth of 3.6 per cent and 3.2 per cent a year respectively.

Shell is recruiting a manager for its TikTok channel to influence a generation that uses the social media platform known for short videos, as oil and gas companies pump money into advertising campaigns to improve their public image during the energy crisis.

The social media push comes as US and British companies take advantage of supply shortages due to Russia’s invasion of Ukraine and attempt to persuade the public their products are a matter of national security.

Companies including BP in the UK, Chevron in the US, as well as the American Petroleum Institute, a trade body representing more than 600 members in the oil and gas industry, have launched campaigns pushing an expansion of domestic capacity as a solution to the crisis.

But the public relations drive also comes in the context of pledges by governments around the world to phase out polluting fossil fuels, and a new focus among regulators on both sides of the Atlantic over how companies market their environmental credentials.

In the UK, BP spent more on Facebook ads marked as being about “political or social issues” than any other organisation in the 30 days to July 5.

According to Facebook-owner Meta’s spending tracker, the oil group spent more than £220,000 in the week to July 5, six times more than the second top spender, the International Rescue Committee.

The BP ads launched since the start of the war in Ukraine have featured slogans such as “We’re backing Britain” and “Home grown energy”. Others promote “North Sea oil and gas”, and the UK’s “plan to boost long-term energy security”.

Who Targets Me, a British organisation that monitors political advertising on social media, noted that before Russia’s invasion of Ukraine, BP’s ads had focused on green energy.



But BP said its ad campaign was aimed at highlighting its future plans. “Ultimately, our plans for homegrown energy in the UK are diverse and include oil and gas, wind, hydrogen and EV charging — and we see our long-term investments reflecting that.”

In the US, Chevron’s ads on Facebook said it was increasing drilling in the Permian basin by more than 15 per cent, “as part of a larger effort to help offset rising energy demands and lower carbon emissions”. In similar ads on Google, Chevron said it was meeting demand for “reliable” energy.

“It’s important for our stakeholders to be aware of the investments and progress being made to provide reliable energy that is needed in their lives. Paid social media allows us to effectively reach these stakeholders,” a Chevron spokesperson said.

InfluenceMap, a think-tank that tracks lobbying, reported an increase in ads by oil and gas companies that promoted the expansion of US fossil fuel production as part of the solution to the energy price shocks.

The API campaign on Facebook has promoted “American-made energy” and “American natural gas and oil”. The trade body has consistently resisted the Biden administration’s push to shift to renewable energy.

Between January 26, when the API first specifically referenced the Ukraine crisis, and April 1, the group created and ran 761 ads through its Energy Citizens homepage, InfluenceMap found. The campaign reached 19.6mn people, the group calculated.

By comparison, in the final three months of 2021, the API’s Energy Citizens page created just 67 ads referencing energy or national security or energy independence, which were seen 6mn times, said InfluenceMap.

Kathy Mulvey, accountability director of the Union of Concerned Scientists, said Russia’s war in Ukraine had “certainly” disrupted energy markets. “But it really shouldn’t disrupt the transition we need to make to clean energy, and I think we really see the API seizing on the war here in its lobbying efforts to fight back against the clean energy transition.”

A spokesperson for the API said: “We hope the administration will view US natural gas and oil, which is relied on by families and businesses every day, as a strategic asset that is vital to our national security.”

Shell said it was trying to engage young people by demonstrating its role in the energy transition. It said more than 35 per cent of its spending in 2022 would go towards producing low-carbon energy and non-energy products.

The company’s ad for someone to manage its TikTok channel requires the successful candidate to “catapult Shell [into becoming] one of the best content creators on TikTok”.

“You will start a new chapter that will help energy engaged audience[s] and Gen Z worldwide understand . . . the opportunities of energy transition and the Shell role and ambition in it.”

Pressure is growing on regulators to formally scrutinise the data and rating providers who award investments high or low scores on environmental, social and governance (ESG) principles.

An influential member of an advisory board to the European Commission has added his voice to calls for ESG data and ratings providers to be regulated amid growing concerns about greenwashing in the asset management sector.

Pierre Bollon, who serves on the European Economic and Social Committee (EESC) and is a general representative of AFG, the French Asset Management Association, said data providers were playing an increasingly important role in the investment industry and should be subject to the same regulatory scrutiny as other parts of the financial services sector.

“Companies are being asked by investors to produce more and more information on ESG, as this becomes more mainstream, but there is no standardisation of this information,” said Bollon, whose board advises the European Commission on employers’ issues.

“Data providers are now a key part of the financial chain and I do not see why this key part — ratings are important — isn’t under scrutiny somewhere,” he added, pointing out that, in contrast, asset managers, brokers and stock exchanges were all regulated.

Globally, asset managers and owners are under increasing pressure from policymakers and customers to provide information on the ESG impact of their funds and investment holdings as part of a wider net zero carbon emissions push. 

Output from data providers is used to construct indices that determine the investment strategy of a wide variety of financial products, including the $10tn exchange traded funds industry.

A recent call for evidence on the burgeoning ESG data market by the European securities regulator found those using the services had a range of concerns over the consistency and transparency of data provided.

Bollon’s comments, at a high level conference of world pension leaders in Paris last week, come as regulators around the world consider tighter controls on the sector to reduce false claims about “green” credentials of funds.

Last month the European Securities and Markets Authority (Esma) said feedback it had received on the ESG data sector showed “an immature but growing market” which, following several years of consolidation, has seen the emergence of a small number of large non-EU headquartered providers.

However, bodies that gave evidence to Esma highlighted “some degree of shortcoming” in their interactions with the rating providers, “most notably on the level of transparency as to the basis for the rating, the timing of feedback or the correction of errors”.

There are currently about 59 ESG rating providers active in the EU including a small number of very large non-EU providers, according to Esma data.

“Esma will continue supporting the European Commission in their assessment of the need for introducing regulatory safeguards for ESG ratings,” said Esma.

The European Commission was contacted for comment.

The UK’s Financial Conduct Authority last month said it saw a “clear rationale” for regulatory oversight of certain ESG data and rating providers.

“We stress that market participants and consumers must be able to trust green and other ESG-labelled financial instruments and products,” said the FCA.

Luxury groups Burberry and Richemont have felt the impact of Covid lockdowns in mainland China in the past three months, though there were strong recoveries in Europe and both benefited from a stronger US dollar.

At Burberry, same-store sales in mainland China were down 35 per cent in the three months to the end of June but overall group sales inched up 1 per cent in the period, better than the 2 per cent decline analysts had predicted.

Richemont, which focuses on watches and jewellery rather than clothing, reported a 37 per cent fall in sales in China in the period, though taking June alone, when shops started reopening, the fall was only 12 per cent.

Burberry’s chief financial officer Julie Brown said the company entered the quarter with two-fifths of its distribution capability closed by lockdowns. “The stores reopened during June and although we still see short-term challenges we take a long-term view and we are very confident,” she said.

Brown also said the impact of Covid-19 in China so far had been practical rather than economic, though the latest data showed the country’s economy only narrowly avoided contraction in the second quarter.

In dozens of Chinese cities, shoppers must show a negative PCR test, taken within the past 72 hours, before they can enter a shop. Despite this, Brown said sales were recovering well.

Both companies turned in a much stronger performance in Europe, with Burberry’s Europe, Middle East and Africa sales rising 47 per cent and Richemont’s Europe revenue up 42 per cent after the effect of currency fluctuations was stripped out.

Brown said stores in Europe were attracting more local customers while tourist numbers from further afield were down.

Visitors from the US and elsewhere were showing a preference for mainland Europe over the UK, she added, blaming the government’s decision to scrap VAT refunds for overseas visitors at the start of 2021.

“Our data shows the tax change is hitting shopping. A large proportion of our overseas customers claimed it,” Brown said. “We hope we will get an alternative scheme.”

Burberry’s sales in the Americas fell 4 per cent, which it blamed on strong comparative figures. Richemont reported a 25 per cent increase.

Both companies are being helped by the strong dollar. Burberry said it expected this would add £190mn to full-year sales, up from a previous estimate of £159mn.

The profit impact will be slightly less, at £90mn against £92mn previously forecast. Brown said this was due to changes in product mixes.

Analysts said the trading news was reassuring but overall sales growth at Burberry still lagged behind the rates reported by luxury peers.

“From here the strategy needs to deliver on bread-and-butter revenue and earnings growth, which has proved elusive in the past,” said Piral Dadhania at RBC.

Burberry’s new chief executive, Jonathan Akeroyd, is expected to outline his strategy for the group in November.

Luca Solca, at Bernstein, said luxury fashion was benefiting from a “you only live once” attitude among well-heeled consumers that was enduring longer than many had predicted.

Deteriorating economic prospects weighed on both companies’ shares. Burberry was down 5 per cent to £16.48 in mid-morning London trade, while Richemont’s Zurich-listed shares were down a similar amount at SFr95.

Germany’s Uniper has been forced to withdraw gas from its storage facilities after deliveries from Russia’s Gazprom came to a halt, imperilling the country’s efforts to build up emergency supplies ahead of the winter.

The Düsseldorf-based company, which is Europe’s largest buyer of Russian gas, confirmed on Friday that it had been siphoning gas from storage units since the beginning of the week in order to fulfil contractual obligations to its commercial customers in the face of severely restricted supplies.

Germany, which was already receiving just 40 per cent of the gas ordered from Russia, has not been receiving any via the Nord Stream 1 pipeline since maintenance work began at the start of the week.

The country’s Federal Network Agency, which is in charge of monitoring gas supplies, confirmed that as a result, more gas is being removed from storage than is being put in. It said: “[T]his development makes it harder to reach the storage levels necessary for the winter and reduces the reserves available in the event of a gas deficit situation.”

Germany’s plan remains to fill gas storage facilities to 90 per cent by the beginning of November in order to cushion the blow to industries and households in the event of a permanent cut in Russian supplies.

However, with just three-and-a-half months remaining, the current storage level is only at 64.5 per cent. Companies, municipalities and private individuals have been urged to take measures to reduce their energy consumption so that more gas can be stored in the coming weeks.

Acute shortages in Germany could also hit neighbouring countries Denmark, France, Austria, Switzerland and the Czech Republic, all of which are net importers of gas that transits through Europe’s largest economy.

The withdrawal of gas from storage units comes amid negotiations over a rescue package for Uniper, which is losing tens of millions of euros a day as it is forced to procure gas from spot markets at highly inflated prices, without being able to pass on the increased costs to customers.

German ministers are in talks with their Finnish counterparts over the precise structure of a bailout for Uniper, which is majority owned by Finland’s Fortum, a partially nationalised group that has baulked at offering further support.

The German government has changed the law to allow for increased costs to be offset via a number of measures, including a one-off levy on consumers, but has not yet activated these provisions, or indicated how they would function.

Dozens of corporate bond deals have failed to launch in recent months as the end of central bank stimulus leaves companies starved of cheap funds.

It is generally rare for companies to pull the plug on bond deals once bankers are actively trying to sell the debt to investors. But in June, pulled or postponed deals in the Europe, Middle East and Africa region more than tripled compared with May, according to Bloomberg data.

Records of cancellations are scant, but “there have probably been more transactions withdrawn from the market in the last three months than the last three years”, according to Mark Lynagh, co-head of debt markets for Europe at BNP Paribas.

Now that benchmark interest rates are poised to rise and Ukraine-fuelled inflation has proven sticky, fund managers are demanding much higher returns in exchange for their investments. But companies are balking at this higher price tag after years of largesse, particularly with a potential recession ahead. Bankers say ultimately, companies will have to learn to live with pricier debt.

“It used to be child’s play: you would put a deal out there, the European Central Bank would come in with a massive order and everyone else would pile in,” said one banker.

“Now, it’s much more difficult. The market’s already contending with inflation and interest rates. Then there’s the Ukrainian war, the Bank of England wanting to sell down its corporate bond portfolio and the ECB asset purchase programme finishing. It’s the worst possible time for all these things to be happening together.”

Central banks have held interest rates close to, or in the ECB’s case, below zero per cent since the financial crisis of 2008, with support that they increased when the coronavirus pandemic struck. Through its asset purchase schemes, the ECB owned €345bn of companies’ debt at the end of June, up from €195bn in the early days of the pandemic, often buying debt in the so-called primary market when it is first issued.

Companies gorged on this opportunity to issue cheap debt, with $1.2tn hitting the European market in 2021, according to Refinitiv data.

But now, the ECB is pulling back, reinvesting maturing assets but not buying fresh debt. If enough private sector investors step up to buy a bond anyway, lured in by juicy interest payments or by the reliability of the issuer, the lack of ECB support does not matter. But in tricky market conditions, or for shakier borrowers, the ECB provided essential support.

“[The ECB] is the difference between success and failure” when an issue gathers only just enough support from investors, said Will Weaver, head of debt capital markets for Europe at Citi. “In an amazing market”, the ECB’s withdrawal may add just a tiny sliver to the company’s cost of borrowing. But “in a market like this, it’s [half a percentage point] or maybe the deal doesn’t get done”.

Companies in Europe are accustomed to exploiting low costs to borrow opportunistically, snapping up funds for general purposes or to speed up purchases of new equipment. In benign market conditions, banks are often able to pull borrowing costs lower through the one- to three-day process of gathering orders from investors.

Not any longer. Johannes Laumann, chief investment officer at German holding company Mutares, backed out of issuing a €175mn bond in June after failing to attract investors with promises of regular interest payments of 7.5 per cent.

“It was honestly speaking one of the toughest raises I’ve ever done,” he said. “You face investors who are actually buying your story . . . but they are saying they won’t invest at all at the moment or there are better opportunities [elsewhere].”

French car rental company Europcar also pulled a bond deal on May 9, aborting plans to raise debt to bolster its fleet of vehicles.

Executives at the company checked in with bankers for the €150mn deal twice a day, but as investors demanded ever higher interest payments, the company’s directors pulled the plug, according to a person close to the deal. Investors’ demands simply went beyond Europcar’s limit, this person said, especially as the company “did not really need” to access the market.

The value of new corporate bonds hitting the global market fell by 17 per cent in the first half of the year compared with 2021, according to data from Refinitiv. Riskier so-called high yield issuance dropped 78 per cent, reaching its lowest level in the first half since 2009.



This slowdown is bad news for banks handling the fundraisings. In high yield deals, banks underwrite companies’ debt and then sell it to specialist investors. But banks can take losses on these deals if investors demand higher borrowing costs than expected.

One banker said conditions were “horrendous” in speculative debt. “Most bankers are losing money in high-yield issuance. There’s no liquidity,” he added. Several bankers said it had become a “buyers’ market”, allowing investors to be more selective and making life difficult for less mainstream borrowers.

JPMorgan and Morgan Stanley recently acted as bookmakers on £1bn of debt issued to fund gambling company 888’s takeover of William Hill’s European operations. They offered the debt at a heavy discount to investors, and with an 11.5 per cent yield — well above the euro high-yield benchmark of around 7 per cent — and still struggled to woo buyers.

Even much higher yields than in previous years may not be enough. “Not every yield that is double digit is sustainable here,” said Alberto Gallo, chief investment officer at Andromeda Capital Management, which he co-founded this year in anticipation of stress in credit markets. “We need as investors to understand which companies can live with higher interest rates.”



The stress is also clear in the secondary market, after debt has been issued. The amount of European debt trading at distressed levels — with prices so low that yields are more than 10 percentage points above their benchmark — more than doubled from the end of May to the end of June.

Some investors are concerned that a wave of defaults lies ahead, but most analysts are more optimistic, pointing out that the rush of issuance in recent years should pad out corporate balance sheets for now. According to Fitch Ratings data, only one of the debt instruments trading at distressed levels in Europe is due to mature in the next 12 months.

Still, many fresh debt issues will cost companies more than they are accustomed to. “Higher prices reflect more normal conditions,” said Ed Eyerman, Fitch’s head of European leveraged finance. “What was abnormal was the period from 2017 to 2021.” Rising benchmark interest rates and slower earnings mean a pick-up in ratings downgrades is likely, Fitch suggested.

Analysts at Moody’s, another rating agency, warn that companies with low cash flow and high amounts of floating-rate debt, where interest payments rise in line with benchmark rates, risk not having enough cash to service or refinance their debt. Floating rate debt makes up 18 per cent of high-yield bonds in Europe.



Some of the pain is concentrated on particular borrowers and sectors. Three of the seven European bonds classed as distressed by Fitch and set to mature before the end of 2024 are from troubled German real estate company Adler or its affiliates, for example.

S&P Global has also identified sectors that have yet to recover from the pandemic — including real estate, consumer discretionary companies and industrials — as areas that are most vulnerable to a period of stagflation.

But as consumer confidence reaches record lows in the UK and plumbs new depths in the eurozone and the US, the outlook across credit markets is weakening. “There’s very little that’s protected against the broad-based consumer weakness,” said Sunita Kara, a global co-head of high-yield at Aviva Investors.

Several bankers said some companies were looking for new solutions — such as bank loans — rather than bonds, to raise debt. Companies would still need to borrow to invest, with the green transition requiring medium- to long-term spending, said Guy Stear, head of fixed income research, at Société Générale.

For issuers, the end of cheap money means the fear of missing out on good financial conditions in 2021 has given way to a fear of making mistakes in a volatile market.

“Companies don’t want to take the risks,” said one of the bankers. “If you’re a chief financial officer or a treasurer and you get board approval but then you pull the bond, it doesn’t look good for you or the company.”

At the site of France’s first new nuclear reactor in more than 20 years, robots are whirring away fixing faulty welding as developer EDF races to open the plant after a decade of delays that have damaged its reputation.

Ahead of it lies a challenge of a different order of magnitude: a construction programme to build six more, just as the French government, which owns 84 per cent of the business already, plans to take full control.

The full nationalisation of EDF, which was announced earlier this month, comes as a series of crises pile pressure on the group’s finances. In theory this will provide it with some relief away from the glare of public markets.

So far, however, the state buyout has raised more questions than it has answered, including how the government thinks it might do a better job at fixing long-running industrial problems that have plagued projects at EDF, some of them as basic as a lack of experienced welders.

“It’s not because the government will now have 100 per cent that it’s going to suddenly take three years less to build a reactor,” one person close to the company said.

“Right now we’re in symbolic territory with this nationalisation. It doesn’t resolve any of the main problems we know the group is facing — will it allow EDF to bolster the skills it needs?” said Cécile Maisonneuve, a senior adviser at the centre for energy and climate at French think-tank IFRI. “None of the industrial or regulatory issues were linked to its capital structure.”

Just as Europe attempts to move away from its dependence on Russian gas and grapples with soaring power prices, problems at some of EDF’s existing 56 reactors in France have caused shutdowns and sent its energy output to multi-decade lows.



Instead, it has had to turn to expensive wholesale markets for supply and this is expected to all but wipe out its core profits this year. Rating agencies have warned that this will further push up EDF’s debts, beyond last year’s €43bn, and it is likely to need a second capital injection soon — after one as recently as April.

At the same time, political battles have made EDF’s listed status increasingly untenable. It was made to pay for an annual electricity price cap announced in January to shield consumers from the spiralling market, sparking a stand-off between the state and EDF managers, and enraging minority shareholders.

The Flamanville 3 reactor on France’s northern coast has come to symbolise some of the technical problems faced by EDF and its contractors. Now due to start loading fuel next year, construction began in 2007 with a target finish date of 2012. The budget is now nearly four times the initial €3.3bn estimate.

Setbacks include regulators finding faults in the finishing standards of some of the pipe welding. To address this, EDF commissioned purpose-built robots to work inside the pipes, rather than dismounting an entire piping system already encased in thick concrete walls.

Keeping EDF on track is vital for energy security not just in France but more broadly. Other European nations have long relied on its exported nuclear energy, and its dwindling output has come at the worst possible time as the bloc braces for a potential total cut-off of Russian gas.



“France has traditionally been the source of cheap nuclear power for its neighbours but now it requires help and this will cause problems in Italy, Switzerland and Britain this winter,” said Phil Hewitt, director at energy consultancy EnAppSys.

The UK is also a major construction client. EDF is building its only new nuclear power plant — Hinkley Point C, a project that has been plagued by cost overruns and delays. All but one of Britain’s remaining nuclear power stations are due to close by the end of the decade.

But its home country is especially reliant. France lags European neighbours on wind and solar power, and is much more focused on nuclear as a source of low-carbon energy.

It accounts for more than 60 per cent of the country’s energy production and in February, the government announced plans for at least six next generation, EDF-made European Pressurised Reactors (EPRs) — a programme of some €50bn that will need to be financed with debt.

In private, French officials have criticised EDF and the way it has managed some operational problems, although the preventive checks and reactor shutdowns were demanded by the regulator.



“EDF’s production cuts are not acceptable. It can’t go on like this,” one government official said, adding that full state ownership might help speed up decision making, including for new projects.

“lt allows us to gain time, a few weeks or months here and there. It adds up,” they said.

Some of EDF’s problems are not of its own making. Over the years, successive governments have pushed it into expensive strategic decisions, including the bailout of ailing reactor designer Areva.

It also suffered from a lull in government orders when the world cooled on nuclear power after the Fukushima disaster in 2011.

The energy crisis caused by Russia’s invasion of Ukraine has revived interest in the industry, but even in France, with its long history of construction and large fleet, it has been more than 20 years since the last new reactor came online — at the eastern Civaux site in 1999. Engineers and other skilled workers have deserted the sector to build careers in finance or other industries.



“In that gap between Civaux and Flamanville, we lost our knowledge of how to carry out huge projects and our industrial capacity,” said Alain Morvan, the latest manager brought in to finish the project, during a site visit in June.

With the EPR build in mind, EDF has now begun recruiting more nuclear specialists, and Morvan said there were lessons from Flamanville that could be applied elsewhere.

The company had also been pushing for a new regulatory framework for how nuclear power is sold, and for changes to a system that forces it to sell some of its output at fixed prices to local competitors, which outgoing CEO Jean-Bernard Lévy has called “poison” for the group’s finances.

The French government has yet to say how or when regulation will change and some reforms will require approval from Brussels.

It has also said little about how it might reshape the company — which also has a big renewable energy portfolio and a distribution business — when it takes full control, which is expected via a tender offer worth roughly €7bn in October or November.

EDF declined to comment further on the nationalisation or plans for the group.

Full state control will at least eradicate one very visible problem: since its shares peaked in 2007 after what was, at the time in 2005, one of Europe’s biggest ever IPOs, EDF’s stock has fallen close to 90 per cent.

One banker who has worked with EDF before said: “The original sin was privatising a group operating in nuclear energy to start with.”

In an internal memo to staff in July seen by the Financial Times, Lévy said facing up to future projects as a listed company had become too difficult.

“If the delisting does not solve all of our regulatory, industrial and financial problems, and particularly the scale of our debt, it does allow us to start finding solutions.”

Additional reporting by Leila Abboud

South and south-east Asian currencies are outperforming their developed-nation peers as economic reopening and swift central bank action have helped offset the impact of a stronger US dollar.

Indonesia’s rupiah and Singapore’s dollar — top performers in the region — have fallen less than half as much as the euro, which is down 11 per cent this year against the US currency.

While the Bank of Japan’s ultra-loose monetary policy has pushed the yen down 17 per cent against the dollar, tightening by India’s central bank has limited the rupee’s drop to less than 7 per cent.

Those moves come as the Federal Reserve has taken aggressive action in recent months to raise interest rates, in a bid to tackle red-hot inflation. That vigorous policy stance has propelled the dollar higher and weighed heavily on the currencies of several developed and emerging markets.

But several south and south-east Asian countries got in ahead of the Fed, meaning that their currencies have fallen only about 7 per cent on average in the year to date, according to Financial Times calculations based on Bloomberg data, compared with an average drop of more than 11 per cent for a range of European currencies.

“In 2013 a lot of the currencies that got hit by the taper tantrum, their fundamentals were poorer,” said Mansoor Mohi-uddin, chief economist at the Bank of Singapore, referring to the market tumult that followed then-Fed chair Ben Bernanke pointing to a planned withdrawal of the central bank’s bond-buying programme.

He added that many central banks had been quicker to tighten policy or even pre-empt the Fed, while the current account deficits that left the region so vulnerable in the past were far less of a concern.

“That gives a shield to these countries in terms of their exchange rates,” Mohi-uddin said, adding that long-delayed economic reopenings throughout the region were also adding strength.



That outperformance comes despite substantial differences in monetary policy and the impact of surging commodity prices across the region.

Singapore’s dollar has dropped just 3.5 per cent this year as the Monetary Authority of Singapore has rapidly tightened policy in response to sharp moves by the US Federal Reserve.

Irene Cheung, senior Asia strategist at ANZ, said Singapore’s currency had done well “first because of the very aggressive policy stance of the MAS and second the revival we’re seeing in tourism and the telecoms sector”.

She added that while Singapore was vulnerable to more substantial rises in energy prices already hitting European economies, export-focused countries in the region including Indonesia and Malaysia were actually benefiting from higher commodity prices.

“The [Indonesian] rupiah has weakened but it’s not even as bad as the start of the pandemic,” said Cheung. She added that while Indonesia’s central bank had yet to even raise rates this year, it was still running a “very good trade surplus” thanks to exports of commodities including natural gas and palm oil.

Resilience for the Indonesian and Malaysian currencies is backed up by investment flows this year. High-frequency data from JPMorgan on non-resident portfolio flows into local markets show net purchases of $5.4bn and $1.3bn of Indonesian and Malaysian securities this year, respectively. In contrast, foreign investors have dumped about $29bn worth of Indian stocks and bonds.

Yet even India’s rupee, which this week neared a record low of Rs80 to the dollar, is only down about 7 per cent compared with the free-falling Japanese yen.

A widening current account deficit has pressured the rupee, India’s finance ministry said in its latest monthly report, with India’s foreign exchange reserves declining by $34bn from January to June amid high global energy costs and surging demand for gold.

“As long as we’re depreciating in line with other emerging markets currencies the RBI should be OK with it,” said Jayesh Mehta, country treasurer for India at Bank of America.

He added that India’s current account deficit was still within a manageable range and the central bank was unlikely to resort to large-scale intervention as it did in 2013.

“I don’t think they’ll need to do that,” Mehta said, “but that is a backstop — you have the ultimate firepower there.”

Canadian energy companies are gushing profits and taking their share prices along for the ride. Suncor Energy, one of the country’s biggest oil producers with a $45bn market value, has been a notable laggard.

Safety problems have weighed on the stock. Operational issues and accidents have caused the company to miss production targets. The group is the worst-performing large Canadian oil sands producer over the past 12 months. Although the stock is up 56 per cent, that is less than half the gains recorded by Cenovus Energy and MEG Energy. Suncor trades on just 4 times forward earnings, compared with eight times a year ago, even though oil prices have climbed over 50 per cent during the period.

All this has attracted the attention of Elliott Management. In April, the activist investor revealed a 3.4 per cent stake and launched a campaign against Suncor. On Monday, the two sides reached a deal. Elliott will appoint three new directors to Suncor’s board and the company will consider the potential sale of its retail business, Petro-Canada, which operates a network of around 1,800 petrol stations. This comes just 10 days after Suncor’s chief executive Mark Little stepped down.

Elliott is no stranger to shaking up underperforming energy companies. It has called for a break-up of Marathon Petroleum in the US and the removal of its CEO in the past. Marathon ended up selling its Speedway petrol stations business in 2020.

But Elliott’s plans to shake up Suncor is no sure fire way to revive it. The hedge fund thinks a sale of Petro-Canada could unlock $5bn of “trapped value.” A sale would certainly give the company an immediate cash injection. But it would also take away a source of stable cash flow that is insulated from oil price swings. The business generated around C$800mn in ebitda or 7 per cent of group total last year. Moreover, the most likely buyers — namely Parkland and Alimentation Couche-Tard — will probably attract antitrust scrutiny.

Still selling assets will be easier than fixing Suncor’s poor safety record. This will require an overhaul of group operations and a rethink of the corporate culture across its 13,000-strong workforce. That will take much more time.

Asset managers have sailed on a rising tide of wealth in recent years. An equity bull market buoyed assets under management and swelled fees. But the conditions that helped markets cruise to record highs have hit an iceberg.

Rising interest rates, stubbornly high inflation and the worst start for stocks in half a century mean fund managers big and small will see a sizeable hit to their earnings this year.

Even BlackRock, the world’s largest money manager, is not immune to a downturn. Consensus forecast expects the group’s net income to fall 11 per cent this year. Those at smaller rivals T Rowe Price and Invesco are forecast to drop by an even steeper 27 per cent and 38 per cent respectively.

BlackRock set the tone last week after reporting a decline in second-quarter net earnings of more than a fifth to $1.1bn as assets under management (AUM) shrank 11 per cent to $8.5tn. The asset management arms at State Street, JPMorgan and Morgan Stanley have also disappointed.

Fund managers are trying to balance diminishing top lines with rising costs. Never mind the shift to passive products, declines in AUM reduce fees. This comes after several years of increased hiring. For Franklin Resources, overheads as a proportion of revenues have climbed 300 basis points over the three fiscal years to September. Others such as T Rowe Price have added to staff numbers while pushing down this costs ratio in recent years.

The biggest fund managers will be fine. Although total assets at BlackRock fell during its most recent quarter, this was mainly due to the performance of the stock market. Its net inflows rose $90bn during the period. Having an industry-leading passive investment franchise like iShares helps. The company’s technology division is another bright spot. Aladdin — its portfolio management technology platform — helped drive a 5 per cent rise in the unit’s revenue.

Smaller firms, on the other hand, will be in a more painful spot. Pressure to consolidate will grow.

Mining group Anglo American has forecast higher production from its De Beers diamond business as it benefits from sanctions imposed on its main Russian rival Alrosa.

The FTSE 100 miner increased full-year production guidance in diamonds to 32mn to 34mn carats, from 30mn to 33mn carats previously, citing “robust demand” from US customers.

The US imposed sanctions on Russia’s state-controlled diamond company Alrosa following the invasion of Ukraine, with the aim of cutting one of the Kremlin’s sources of revenue.

This has also given De Beers the opportunity to increase its market share.

Analysts reckon demand for non Russian stones is strong thanks to pent up demand from consumers following the pandemic.

This has been reflected in the revenues Anglo has generated at its sales events known in the industry as “sights”. Anglo produces most of its diamonds in Botswana. It also has operations in South African and Namibia.

While slowing global growth and reduced consumer spending could hit sales, Anglo said ongoing sanctions along with decisions by a number of US jewellery businesses to restrict purchases of Russian diamonds, have the “potential to underpin continued robust demand”.

The new production guidance for De Beers was announced in a trading update where Anglo reported a 9 per cent drop in second-quarter output after drought hits its copper mining operations in Chile and it carried out maintenance at its Minas-Rio iron ore mine in Brazil.

However, Anglo’s new chief executive Duncan Wanblad said its “production performance” had started to pick up, positioning the company for a stronger second half of the year.

Anglo had a tough start to the year, reporting a 10 per cent drop in production in three months to March due to Covid-related absences and high rainfall in South Africa and Brazil.

The company also increased its cost forecasts by 9 per cent because of rising prices, particularly for diesel, which it uses in the trucks at its sites.

In Thursday’s update, Anglo maintained cost guidance for most of its key assets and said its Quellaveco project in Peru would contribute to copper production in the second half of the year by up to 150,000 tonnes.

However, it warned that its copper mines in Chile continued to face severe drought, with the two years to June 2022 being the driest since records began.

Mining is a highly water intensive activity. In copper production it is used to carry crushed rock through pipelines and also in processing and extraction.

“Anglo American’s reaffirmation of costs for most of its key assets should help provide some comfort for the stock,” said Tyler Broda, an analyst at RBC Capital Markets.

Shares in Anglo were down 1.3 per cent at 2,570p on Thursday and have fallen around 16 per cent this year.

Separately, Polymetal International, which mines gold and silver in Russia and Kazakhstan reported a 36 per cent drop in sales in the second quarter.

Due to sanctions imposed on Moscow the company said its Russian operations accumulated 130,000 ounces of gold in the three months to June.

The company expects the gap between production and sales to close in the third quarter as its increases sales to buyers in China and Asia.

Earlier this week, Polymetal said it was considering disposing of its Russian assets to focus on operations in Kazakhstan.

“International sanctions against Russia continue to have a material impact on sales, procurement and logistics,” the company’s chief executive Vitaly Nesis said in a statement.

Roche’s chief executive Severin Schwan will step down next March and has been nominated as chair, after 15 years at the helm of one of the world’s biggest drugmakers by revenue.

Schwan will be succeeded by Thomas Schinecker, head of the diagnostics unit. The board will recommend the outgoing chief executive to replace current chair Christoph Franz, the former Lufthansa chief who has held the role at Roche since 2014.

Schwan joined Roche as a trainee in 1993 and has been at the company his entire career.

Schinecker has overseen one of the company’s most important units during a time of unprecedented demand. Sales at the diagnostics division grew 11 per cent in the first half of the year after the effects of currency fluctuations were stripped out, though demand for Covid-19 tests is expected to decline in the second half.

Revenues at the division have shot up since before the coronavirus pandemic. In the first half of 2019, sales were SFr6.3bn ($6.5bn). In the same period of 2022, they were more than 50 per cent higher.

Roche was the first company to offer a Covid test in China at the beginning of the pandemic and was similarly “very early” when monkeypox started to spread this year, Schwan said.

Jefferies analysts said in a note that Schinecker’s appointment “likely surprises many” given the company’s focus on speciality pharmaceuticals, which were central to Schwan’s plan to overcome the “patent cliff” — the loss of monopoly rights on legacy blockbuster drugs.

But Schwan told reporters on Thursday that there would be no major changes in the company’s plans.

“The strategy as it stands will continue. And of course, we want to evolve both our businesses, pharma and diagnostics,” Schwan said. “I don’t see any structural or other changes on a strategic level with the appointment of Thomas Schinecker.”

In a statement, Schinecker said: “I am excited about the future innovations we will bring to patients around the globe.”

Schwan stressed Roche’s tradition of “long-term continuity, especially at the top” and how this was reflected in its succession planning.

Schwan was himself the head of Roche diagnostics before he became group chief executive.

The company’s net income grew 12 per cent to SFr9.2bn in the first half. Group sales grew five per cent to SFr32.3bn. It also confirmed its outlook for the year, with overall sales expected to be stable or grow in the low-single digits.

Sales of Covid drugs and tests are expected to decrease by about SFr2bn to SFr5bn.

A key EU lawmaker is set to back calls for a formal ban on brokers selling customers’ share trades to market intermediaries, adding to momentum in favour of clamping down on the practice.

Danuta Hübner, a senior lawmaker in the European Parliament, said in a draft statement seen by the Financial Times that the concerns around the practice known as payment for order flow are “symptomatic of a broader issue” of national EU regulators interpreting rules differently.

In her note she said “the rapporteur maintains the initial proposal” of the European Commission, which is to ban the practice.

The draft highlights the growing resistance in Europe to payment for order flow even before it has become popular in the region. US brokerages earn billions of dollars a year on the process, collecting a record $3.8bn during last year’s retail trading boom. Payment for order flow is also lucrative for high-speed trading firms that profit on the difference in their own purchase price for a share and the price at which they pass it on to clients.

Brokers say the practice helps them keep fees low — many in the US offer free trading — and market makers are also obliged to provide clients the best price available on the broader market. But critics worry about potential conflicts of interest because brokers may be incentivised to sell their customers’ orders to the highest bidding wholesaler.

Hübner called on more transparency in the EU around the way in which best execution for retail orders is defined, on top of a ban, adding that this would lead to “a harmonised approach to best execution, more transparency and a level playing field across Europe, to the benefits of end-investors”.

Payment for order flow is not legally banned in Europe but rules on inducement to clients and requirements to find the best price means it is often tough to implement in practice.

Hübner’s position represents a blow to Germany, where some regional exchanges often only have a single market maker and a single broker.

However, many other countries in Europe have been pushing hard for a formal ban. Regulators in the Netherlands and Spain have both conducted in-depth studies that found investors got a worse price if their orders were sold to intermediaries before trading on an exchange.

Hübner’s report also recommended scrapping the limit on the amount of business that can be executed in dark pools — off-exchange venues that fund managers use to buy and sell large blocks of shares without disturbing the price on the market.

Hübner’s finding said the caps, brought into force with the 2018 Mifid II rules, were “set arbitrarily and had limited utility”. It would also bring it into line with the UK, which had committed to ending the policy.

Germany has told fellow EU capitals that it opposes a general ban on payment for forwarding client orders for execution in part because it fears it would damage retail investor participation in the markets. However diplomats say a majority of member states are in favour of a ban.

“Payment for order flow really does nothing to make the financial markets work better, it just maximises profits for brokers,” said one EU diplomat. “An EU-wide ban of payment for order flow services is key to increasing transparency and decreasing costs for regular people trying to invest some of their hard-earned savings.”

“Germany is not convinced of the commission’s proposal of a general ban on payment for order flow,” said a spokesperson for the country’s finance ministry, describing the measure as being premature and lacking empirical justification. 

The spokesperson added that it would not “sufficiently take into account the existing regulatory framework on best execution” and that it would “lead to a serious setback of the currently observed increased participation of retail investors in financial markets and hamper cross border competition between brokers and trading platforms.”

Energy trader Gunvor has posted record profits in the first half of the year, as the industry cashes in on volatility in oil and gas markets sparked by Russia’s invasion of Ukraine.

The Geneva-based energy trader, which is controlled by billionaire Torbjörn Törnqvist, said on Thursday its net income after tax nearly quadrupled to $841mn in the first six months of this year, compared with the same period a year earlier. This is more than the profit figure for the entire year in 2021.

“Gunvor’s result during this period, driven by massive global market dislocations, was broad-based across all regions and activities, including crude oil, oil products, natural gas, and liquefied natural gas,” Törnqvist said in a statement.

“Particularly encouraging is the return of substantial profitability in our refining operations and our shipping,” he said, adding that the cause was mainly tight refining capacity worldwide and strong demand, especially in Europe.

Trading volume however fell 16 per cent to 99mn tonnes. Revenues were up 85 per cent on the same period last year due to the significant rise in commodity prices.

Commodity traders have had a significant boost from volatility and disruption in commodity markets caused by the pandemic and the war in Ukraine.

Trafigura also posted a record half-year profit of $2.7bn for the six months ended in March, while Glencore said in June it expected earnings in its trading business for the first half of the year to exceed $3.2bn, the top of end of the guidance it had given for earnings for the entire year.

Commodity prices have been very volatile following the Ukraine war. Brent crude oil surged to a near-record high just under $140 a barrel in March, but was trading about 20 per cent below that price by the end of June.

The European benchmark Dutch TTF wholesale gas price also soared to record highs in March, before falling markedly. It then almost doubled in June as Russia cut supplies through the Nord Stream 1 pipeline to Germany.

Gunvor said it continued to fulfil Russian contracts that were not yet subject to sanctions, but did not refine Russian crude oil. Its efforts to divest its minority stake in a Russian oil products terminal have “not been so far practical or legally feasible”, it said, adding that it “conservatively adapted the valuation of the asset at the end of June”.

Gunvor has pulled back from Russia since 2014, when the US imposed sanctions on Gennady Timchenko, its Russian co-founder, for his alleged ties to President Vladimir Putin.

Timchenko sold his stake to Törnqvist just before the sanctions were announced and has left the company.

“The vast majority” of Gunvor’s profits will be kept within the company to fund further growth, Törnqvist said. It will also continue to invest in non-fossil fuels as part of its “support of the energy transition and energy security”, he added.

Germany has agreed a €15bn rescue package for Uniper, and will take a 30 per cent stake in the energy company that came close to collapse after Russia slashed gas supplies to Europe’s largest economy.

Chancellor Olaf Scholz, who broke off his holiday in southern Germany to complete the deal, said Uniper was of “paramount importance” to the country’s economy and for safeguarding energy supplies to companies and residential customers.

Europe’s largest buyer of Russian gas, Uniper had been losing tens of millions of euros a day since Russia’s Gazprom drastically reduced supplies of the fuel to Germany through the Nord Stream 1 pipeline in mid-June. Officials in Berlin worried that the company’s collapse might trigger a Lehman Brothers-style meltdown of the whole German energy sector.

Under the Uniper bailout, the company will be able to access up to €7.7bn in government support, as required. A credit line from German state-owned bank KfW will also be increased from €2bn to €9bn, and the government will be represented on the company’s supervisory board.

Scholz drew parallels between the bailout and former European Central Bank president Mario Draghi’s pledge to do “whatever it takes” during the eurozone debt crisis.

“It’s exactly the same now — we will do everything necessary to ensure that the country, its companies and citizens get through this situation,” he told reporters in Berlin.

The bailout comes on top of the €10bn in funding Scholz’s government has already provided to Gazprom’s German subsidiary, which Berlin took control of in April, and which operates gas storage facilities essential to meeting demand during winter.

But the bailout of Uniper will mean higher prices for German consumers. Under its terms, from October at the latest, Uniper will be legally entitled to pass on higher costs to its customers — corporates and municipal utilities.

These will then be able to pass on the extra costs to private households.

Robert Habeck, economy minister, said the new levy was necessitated by the “energy scarcity that Russia has artificially created”. It was, he added, “not the kind of ordinary fluctuation that the market can still digest”. But the government said it would provide more relief for consumers in the months ahead, including an expanded housing allowance.

Uniper chief executive Klaus-Dieter Maubach said his company had “a clear perspective on how the costs which arise due to the interrupted gas supplies from Russia can be shared by many shoulders going forward”, but warned that there was “no end in sight” for the energy crisis that has cost the utility billions of euros to date.

As part of the rescue package, Berlin will buy €267mn of new Uniper shares at €1.70 each, pending shareholder approval. The company’s shares were worth almost €11 each at close of trading in Frankfurt on Thursday but had fallen almost a third by Friday afternoon.

Uniper’s majority owner Fortum, which is in-turn majority owned by the Finnish government, will see its stake of almost 80 per cent diluted to 56 per cent. Scholz acknowledged that existing shareholders were making a “multibillion-dollar contribution” to saving the company.

Fortum chief executive Markus Rauramo warned that while Uniper had been stabilised for now, “further efforts will be required to create a long-term sustainable basis for the gas business”.

Germany is one of the most exposed countries to Russian gas: before the war in Ukraine, 55 per cent of its imports of the fuel came from Russia.

Benchmark European gas prices have almost doubled from already elevated levels since Russia reduced capacity on Nord Stream 1. Prices are 10 times the level they were in 2019.

Martin Shkreli is back to his entrepreneurial ways, just a couple of months after his release from jail.

Shkreli announced on Monday that he’s launching a web3 platform called Druglike. This is not a drug company, mind you – he’s banned from the pharmaceutical industry – but an open-source platform for drug research, according to a press release:

Open-source medical research platforms already exist, of course. 

For example, one platform called VirtualFlow was used for a 2020 paper in Nature, where a team of academics “prepared one of the largest and freely available ready-to-dock ligand libraries, with more than 1.4bn commercially available molecules.” A quick (and we hope not flawed) survey of the internet helps us guess that ligands bind to proteins in order to target particular pharmaceutical therapies, and docking is a modelling technique to predict how ligands and proteins will bind. 

Its white paper references the Nature experiment in the bolded section below:

Druglike uses ligand docking as the example in its white paper. What sets it apart from VirtualFlow, from what we can tell, is that they add a heap of web3 to the mix, along with some decentralised computing. The whitepaper describes ligand-docking modelling as an optimisation problem, and says the project creates a new protocol called “Proof-of-Optimisation” – basically proof-of-work for function-optimisation problems – for verification. 

We will confess we don’t currently have the data-science chops to independently evaluate how realistic this proposal is. 

But when it comes to decentralised computing, we did catch a whitepaper reference to Folding@home, a decentralised project where regular people can donate computing power to help university labs run protein-folding simulations. 

Folding@home teams offer different “rewards” for participation, but there doesn’t appear to be a standard for what rewards are used. In other words, there could realistically be zero cryptocurrency involvement at all. In early 2019, Folding@home published a cryptocurrency policy that says that outright: 

On forums for new and interested volunteers, one post from October 2021 comes from a user saying that they heard “this thing doubles as a dogecoin miner,” and asking “how do I get doge out of FaH, and how do I join a team?”

We also can’t help but notice that Druglike’s press release is followed by a “safe harbour” statement, just in case the tokens planned by the platform are deemed to be securities. Shkreli is also banned from serving as an officer or director of public companies, to be sure, so the whitepaper includes a disclaimer that says “if and when Druglike makes . . . an offering in the United States, the offering likely will be available solely to accredited investors.”

Ministers need to continue reforming London’s capital markets or risk losing ground to rival cities in the EU and US, the author of the UK’s latest market deregulation proposals has warned.

Last week, the Treasury backed a series of reforms drawn up by Freshfields’ lawyer Mark Austin to make it quicker, easier and cheaper for companies to raise money in London.

His six-month review recommended ensuring that retail investors should be allowed to take part in all equity raisings, including those previously the preserve of institutional investors.

Austin also pushed for shares to be held in digital forms showing their ownership to “enhance the ability of individual shareholders to constructively engage with companies on governance and ESG issues”.

In an interview with the Financial Times, Austin described these changes as “once in a generation” reforms that alongside work recommended in a previous review carried out by Lord Jonathan Hill will make London as attractive as anywhere outside the US for companies to raise money.

But he added that the UK was at risk of complacency at a time when rival cities in the EU were fighting harder to become more attractive to companies and investors.

“There’s no point having a theoretically perfect market if no one uses it,” he said.

“By the middle of next year, London will have a regulatory regime that is modernised and fit for purpose. But is that the end of the story in making the market future-proof for the next 20 years? Absolutely not. We’ve got much wider issues.”

Austin argues that the UK needs to become more “streetwise” and take on an “insurgent” mentality rather than simply relying on its history as a financial capital.



“When we were in the EU, we were the default place for western capital. We’re not necessarily any more. We should justify everything by reference to whether we still need it, and what use it serves. Because I think if you asked that question across a lot of our listing regime, you don’t actually need it.”

As a corporate lawyer, Austin creates “grids” of pros and cons for clients for different cities when assessing where to list. “Until now, we haven’t come out that well, the amount of friction we have.”

While ministers have been quick to claim the benefits of being able to reform outside the EU, Austin is clear that most of these changes could have happened regardless of Brexit. In some cases, reforms were needed simply to catch up with regimes in cities such as Amsterdam.

“The air is in danger of going out of London. It was never going to be a cliff edge after Brexit. If we’re not careful, we will go back to being a regional financial centre. I think we should be more ambitious than that.”

Last Tuesday, the Treasury published the results of a review of the fundraising market by the Freshfields lawyer, which recommends reforms to the pre-emption rights regime to allow more money to be raised quickly and to reduce regulatory oversight of fundraisings.

It is hoped the reforms will make the UK’s capital markets more attractive for fast-growing and capital-hungry firms, and they have received support from fund managers such as Abrdn, BlackRock, Hargreaves Lansdown and Jupiter.

Austin says the London listing regime has been overburdened by additional requirements and regulations, and “gold plating” of basic rules. He argues that there are vested interests and a “groupthink” mentality that support the status quo of the UK capital markets. “Just because that's the way we do it now doesn’t mean we should keep it going forward — you’ve got to keep London relevant.”

Cities such as Paris, Frankfurt and Amsterdam “don’t have any of this baggage”, he added. “London needs to wake up right now. And start to really motor in terms of meaningful, sensible, bold and brave reform.”

Companies are still deterred by high taxes and corporate governance that limits remuneration for top executives, he said. “You can’t reward people in the way you can in other jurisdictions. My worry is that we’re making it too unattractive for companies to be public here.”

Austin added that proposed changes to corporate governance rules in forthcoming legislation would add further burdens on companies looking to list in the UK, and predicted that more public companies would be taken private, where rules were looser.

He said that investor attitudes also needed to change around backing promising growth companies, rather than simply seeking income through dividend-paying stocks.

Julius Baer has reported a big drop in first-half profit, which the Swiss wealth manager blamed on “one of the worst six-month periods for capital markets in decades”.

The bank reported a 26 per cent fall in net income to SFr450mn ($468mn), missing estimates, as nervous customers deleveraged their portfolios and retreated from risky stock market trades. Its assets under management also declined by SFr54bn to SFr428bn.

“This decrease was driven by the significant corrections in global equity and bond markets,” chief executive Philipp Rickenbacher said. “In Asia and the Middle East we saw [from clients] a very pronounced deleveraging up to March, we had substantial elimination of credit positions.

“However, the interesting thing for me is how fast these things happen, but also how fast they reverse,” he added, pointing to net new money inflows of SFr1.5bn since the end of April as a reason for optimism.

The performance so far this year stands in stark contrast to 2021, when Julius Baer reported record annual profit as wealthy investors took on more risk and pumped money into surging stock markets.

But many investors are now staying on the sidelines because of a potential global recession, accelerating inflation, rising interest rates and the war in Ukraine.

Its earnings are also an indication of what to expect from its larger rivals UBS and Credit Suisse, which report results on Tuesday and Wednesday respectively.

Shares in Julius Baer initially fell more than 5 per cent, but recovered to close up 2.7 per cent. It remains one of the best-valued global wealth managers despite falling roughly a quarter this year.

“This environment will clearly separate the wheat from the chaff,” Rickenbacher said in an interview. “There are plenty of M&A opportunities in the market, but the question is when they will materialise. I think midsized players are now in challenging territory, many need to make investments . . . we are well positioned to take advantage of this.”

The decline in first-half income from client trading activity was partially offset by an 11 per cent increase in net interest income, driven largely by higher earnings from rising US rates.

Operating costs also rose as the bank took a SFr55mn provision to settle a historic Lithuanian embezzlement case, but staff expenses fell as it cut the amount set aside to pay bonuses and imposed a hiring freeze on all but front-line wealth relationship managers.

The results were “clearly below estimates on lower than expected revenues and higher expenses”, said Vontobel analyst Andreas Venditti. “A hiring freeze for non-relationship manager positions suggests no quick recovery expected.”

As with many international companies and because of Russia’s invasion of Ukraine, Julius Baer has “initiated the wind-down of its advisory subsidiary in Moscow”, which has a net asset value of SFr1.2mn.

Rickenbacher said “direct sanction impact” has been “low”. The bank has identified about SFr900mn of customer money that is affected.

Old-school saxophonists deployed sharp elbows to avoid the spots on stage that muffled their playing. Too bad that Julius Baer, co-sponsor of the Montreux Jazz Festival, is stuck in its own acoustic dead zone. The Swiss private bank, which just published weak half-year results, is stumbling through the changes like other long fund managers.

Tumbling markets reduce fee income from client portfolios. Smart improvisation can soften the impact, but cannot negate it.

One variation in tone, which this week’s chorus of bank results will echo, is greater emphasis on lending. Rising interest rates make this more remunerative. Julius Baer, for example, estimates that an increase of 1 percentage point in US rates alone would add about 3.5 basis points to its gross margin. This rose to 81 basis points for the half year.

But Julius Baer is more of an asset manager than a bank. Over half its gross margin derives from fees and commissions. These have slipped as assets under management slumped 11 per cent to SFr428bn.

Chief executive Philipp Rickenbacher believes Julius Baer is through the worst. Clients are chipping in net new money again. A freeze on hiring new staff — apart from the relationship managers who bring assets with them — should keep a lid on costs.

This bellwether for the Swiss private banking industry finished the second half with decent core equity tier one capital of 15 per cent. That equates to SFr820mn of spare capital, enough to cover immediate buyback commitments.

Julius Baer says it has the world’s most valuable wealth management brand. Lex is sceptical of such calculations. But franchises do matter. The business has a strong proposition in an industry undergoing secular expansion.

Near term, cyclical challenges create dissonance. The shares, down by a quarter so far this year, are a relatively pricey 2.4 times tangible book value. They will stay under pressure. Central bank rate rises appear too small to tame inflation. Markets remain fragile. Wealth management companies hunt for a sweet spot that, for the moment, does not exist.

A tourist boom in Europe and resilient US sales helped LVMH, owner of Louis Vuitton, post higher-than-expected revenue for the second quarter, offsetting a drop in its Chinese business after strict Covid-19 lockdowns began to take their toll.

However, momentum at the French group still slowed from one quarter to the next after the setbacks in China, the luxury goods industry’s second-biggest market.

Revenues reached €18.4bn, up 19 per cent year on year when stripping out the effect of acquisitions and currency swings — higher than the average 11 per cent forecast by analysts, but below the 23 per cent rise notched up three months earlier.

The world’s biggest luxury group said it was encouraged by buoyant demand elsewhere, however, including in South Korea and Singapore, despite an 8 per cent drop in sales for the Asia region as a whole when excluding Japan.

“We were strongly affected by China, there was a sharp slowdown and there’s no miracle cure,” chief financial officer Jean Jacques Guiony told the Financial Times. He added that there was a “big question mark” over the outlook for that market, and “nothing that allows us to predict whether those hard lockdowns will come back or not”.

But a bounceback in other countries was helping the industry, Guiony added, including in Europe where a return of American tourists and a strong dollar was encouraging spending in shopping capitals like Paris and Milan.

Guiony said LVMH, usually one of the top performers in the luxury goods sector, was “optimistic, confident and vigilant” all at once, despite potential headwinds.

On top of an uncertain period ahead for China, fears of a US recession are still swirling, and inflation is spiralling worldwide into a growing challenge for manufacturers. In the luxury goods industry, that includes higher transport costs or rising raw material prices such as for gold.

But high-end brands have long had a greater capacity to pass on price rises to consumers, and LVMH, home to spirits brands like Hennessy and fashion labels Christian Dior and Fendi, has followed suit this year across items from cognac to handbags.

It posted higher operating profits and margins for the first half of 2022, with core earnings up 34 per cent from a year ago to €10.2bn, while net profit came in 23 per cent higher at €6.5bn.

Harry Barnick, a senior analyst at research company Third Bridge, said LVMH’s resilience in spite of its Chinese woes may not necessarily be replicated at rival groups, including France’s Kering, which is behind brands like Gucci and Saint Laurent.

“LVMH has a more balanced portfolio and is better at adapting to local markets,” Barnick said, adding that Gucci was more exposed to Asia.

LVMH’s results come after the group’s 73-year-old chief executive and top shareholder, billionaire Bernard Arnault, last week changed the structure of his family holding company Financière Agache, a step seen as paving the way towards his eventual succession.

Agache was turned into a joint-stock partnership known as a commandite, which allows owners to sell down the share capital while retaining iron-clad control over the company. A handful of family-backed French companies have similar commandite structures such as Hermes and Michelin.

The new holding company will be held equally by Arnault’s five children — who all have jobs at LVMH — and give them long-term control over the company, in a structure with lock-up clauses and rules on decision-taking. The family has 48 per cent of LVMH and 63.5 per cent of voting rights.

Luck and timing play an important role in career success. The tenure of outgoing Rolls-Royce boss Warren East was repeatedly blown off course. His successor, Tufan Erginbilgic, has a good chance of catching an uplift from the pandemic recovery of aviation.

Erginbilgic, a low-profile oilman turned buyout guy, is joining the FTSE 100 engineering group at a favourable point in the investment cycle. Rolls-Royce has invested heavily in new engines over the past decade. The need for R&D spending is now falling. The relatively young engine fleet has much time ahead in the air. That matters because Rolls-Royce’s jet engine business makes money from maintaining engines while they are being used, not from selling them.

To be sure, Rolls-Royce is still a long way off cruising altitude. Making engines that power widebody aircraft plying international routes meant that the pandemic hurt it badly. But passenger numbers on those routes should recover to pre-pandemic levels by 2024. There are early signs of a recovery in demand for new large aircraft.

Rolls-Royce could be highly cash generative, depending on how much of the recent cuts — covering more than a third of operating costs — are reversed.

Plenty of thorny strategic issues sit in Erginbilgic’s inbox. One is whether to return to the market for smaller engines for single-aisle aircraft. Sustainability is another. Decarbonisation poses an existential threat to the business.

Erginbilgic is a partner at private equity firm Global Infrastructure Partners. One fear is that he may take a leaf from private equity’s reputedly short-termist playbook.

That view stereotypes a diverse industry as asset flippers. GIP focuses on large-scale investments in energy and transport where the energy transition is a key concern. The same holds at BP, where he worked for 20 years. There he invested in biofuels and set up electric vehicle-charging partnerships.

Erginbilgic’s goal, as specified by chair Anita Frew, is to make Rolls-Royce a profitable icon of British industry — no oxymoron intended. Long investment cycles mean the company is on a course set by previous leaders. The aviation recovery should help Rolls-Royce, provided a looming downturn is mild. A pilot can only hope for a couple of decent tailwinds in one flight.

Parents may expel grown-up kids from home because they are ready for independence, or simply because they have become a nuisance. 3M is spinning off its healthcare group for the first reason and ditching an earplugs business for the second.

The demerger of a surgical products division with $9bn of annual revenue is hardly the most controversial parenting decision by the Minnesota-based industrial giant. Kellogg and General Electric also intend to streamline their businesses, making them easier for Wall Street to understand.

3M’s tough love involves putting its Aearo Technologies subsidiary into Chapter 11 bankruptcy. 3M says this will help resolve hundreds of thousands of claims that the company’s “combat arms earplugs” harmed members of the armed services.

The parent does take some responsibility for its subsidiary’s fate. It has put $1bn in Aearo’s pockets to fund the potential payouts on claims. But 3M’s basic message to Aearo is: “You’re on your own kid”. 3M is evidently hoping the cash and a pat on the head will be enough to ease its conscience and limit its exposure.

For better or worse, US bankruptcy courts have become prime venues for resolving “mass torts”. Here, products with alleged defects stand accused of harming thousands of users. The court has the power to push all the disparate claims into a single legal proceeding. This makes life easier for the company.

As for victims, the bankruptcy process puts all of them on equal footing. Otherwise, first-mover advantage could leave each claimant competing to extract compensation before the company runs out of money. Aearo, which itself still has $100mn in revenues, is different from businesses featuring in so-called “Texas two-step cases”. It is an extant business rather than an artificial vehicle created solely as grist to the mill of the bankruptcy courts.

Even so, Americans should question whether 3M is making appropriate use of the bankruptcy process. Big companies are ensuring their own lives are more comfortable by writing a cheque to a wayward, freshly emancipated scion. Judges and creditors committees are then co-opted as social workers to sort out its problems.

Bookies price favourites expensively. UBS lacks that distinction despite leading the field in global wealth management. Shares in the Swiss wealth manager and lender trade at around tangible book value after a panicky 7 per cent drop on Tuesday morning. Blame the heavy going brought by falling asset prices and blame poor form — second-quarter results missed estimates.

The reaction looks overdone, given it has a strong franchise underpinned by recurring revenues on trillions of relatively sticky invested assets.

Analysts griped that adjusted profits before tax missed estimates by 10 per cent. Recurring fee income fell more than expected. Global wealth management suffered a sharp 12 per cent quarter-on-quarter drop in fee-generating assets. This key division produces about half of UBS’s pre-tax profits. Both the spread earned on assets and the net inflow of new fee-generating funds were weak.

Net new fee-generating assets, an important metric for the global wealth division, fell by $3.5bn in the Americas, bringing the total for the region to $773bn. Costs relative to income are 85 per cent for the Americas, 10 percentage points higher than for the division as a whole. UBS is chasing market share in competition with the likes of Morgan Stanley.

The division’s total fee-generating assets slipped $170bn to $1.24tn amid slumping markets. Chief executive Ralph Hamers says markets are none too healthy at present. This hardly counts as a top-level insight, given that anyone with smartphone access to stock prices would say the same.

The investment bank had a poor result compared with its US peers. Mostly, that disappointment came in fixed income. Here, revenues only rose 19 per cent against the average of a third in the US. Yet UBS scaled back bond trading years ago, preferring equities, which did reasonably well in comparison. A sprinkling of one-off costs from the corporate centre completed the picture of woe.

UBS remains worth holding on to as a medium-term investment. It is a lot cheaper than Morgan Stanley, which is trading at almost twice its tangible book value. Expect to cover losses and then some when the asset cycle turns.