WEDNESDAY 20 APRIL 2016 WORLDBUSINESSNEWSPAPER UK £2.70 Channel Islands £3.00; Republic of Ireland €3.00

Martin Wolf China uncorked Pay grades Brexit is a perilous one-way bet HowChileischallengingFranceinthe Students need more data on college for Britain —COMMENT, PAGE 11 Chinese wine market —BIGREAD,PAGE 9 performance —SARAH O’CONNOR, PAGE 12

No more tears Millennial mums going Saudi Arabia Briefing ga-ga for organics spark J&J rethink i EDF board warned over Hinkley Point Managers at the French utility have written to its board warning that the directors could be held responsible if the company pushes on with its borrows $10bn £18bn nuclear project.— PAGE 15; ANALYSIS, PAGE 17 i Hammond rules out Libya combat role The foreign secretary has told MPs that there are no plans for troops to be involved in fighting Isis in as oil slump Libya, though the UK was willing to send thousands to help train “unity” government forces.— PAGE 4 i Extremist allegations threaten Khan bid Former human rights lawyer and drains reserves Labour candidate for London mayor Sadiq Khan leads the polls but questions, pushed by Tory rival Zac Goldsmith, on links to extremists may 3 First debt-raising since 1991 be hurting his campaign.— PAGE 4 3 Move paves way for historic bond i Labour shortage to drive US wages A leading business group has predicted that the US SIMEONKERR —DUBAI “This is paving the way for the king- faces significant labour shortages in a wide range of ELAINEMOORE —LONDON domtotransformfromacreditornation sectors as unemployment falls towards 4 per cent Saudi Arabia is raising $10bn from a into a debtor nation. It’s a significant and the working-age population stagnates.— PAGE 5 consortium of global banks as the king- momentofchangeindebtmarkets.” dom embarks on its first international Saudi Arabia may now raise its first i Goldman profit plunge caps grim season borrowing in 25 years to counter dwin- global bond in the wake of the loan deal, The US bank’s profits have more than halved after dlingoilrevenuesandreserves. bankers said. Institutions that loaned across-the-board falls in revenues, bringing down Thelandmarkfive-yearloan,asignof the most would be set to benefit from a the curtain on a sobering earnings season for the big Riyadh’s newfound dependence on mandatetohelpRiyadhraisethebond. US banks.— PAGE 15; LEX, PAGE 14; ANALYSIS, PAGE 16 foreign capital, opens the way for the The lead lenders, each pledging about country to launch its first international $1.3bn, include Bank of Tokyo-Mitsubi- i Saudis host Obama and look to successor bond issue. It comes as the low price of shi, HSBC and JPMorgan, bankers said. The US president arrives in Riyadh today, where he crude encourages other Gulf govern- Banks were required to lend at least will be greeted by hosts looking past the US election ments, such as Abu Dhabi, Qatar and $500mtoparticipate. in the hope his successor will restore ties that have Oman,totapbondmarkets. Mr Algaseer declined to comment on frayed during his time in office.— PAGE 7 The oil-rich kingdom, which last the pricing but other bankers close to weekend blocked a deal among oil pro- the deal said it had priced at around i Tesco Bank targets mortgage market ducers to freeze output and bolster 120basispointsoverUSdollarLibor. The Edinburgh-based lender has unveiled a push to prices, has burnt through about $120bn The loan is Saudi Arabia’s first inter- take on the high-street banks by offering property inreservessincelate2014.Itsfiscaldefi- national borrowing since 1991, when it loans through independent brokers, a sign that cit is set to widen to 19 per cent of gross raised about $1bn in the aftermath of mortgage market competition is rising.— PAGE 20 domesticproductthisyear. theIraqiinvasionofKuwait. Strong interest in the loan, especially Bankers are now confident that Saudi fromAsia,camedespiteratingagencies’ state-relatedcompanieswillalsoseekto A Johnson & Johnson US magazine advertisement from the 1950s — Image courtesy of the Advertising Archive downgrades on Saudi creditworthiness raise funds, using the sovereign loan, Datawatch since the oil price collapsed. The gov- andlaterbond,asabenchmark. ernment raised the amount it wanted to Prince Mohammed bin Salman, who DAVIDCROW —NEWYORK changingtastesofyoungercon- to rethink their strategies as Employment rates in The last quarter —CHICAGO borrow from $6bn-$8bn to $10bn after oversees economic reform, is set to LINDSAY WHIPP sumers. US sales of J&J’s baby they struggle to cope with the the OECD of 2015 saw the thedealwasoversubscribed. publish his “vision for Saudi Arabia”, a care products, including its “no shiftingtastesofmillennials. 15-64 year olds (%) proportion of Johnson & Johnson is 66.5 “Thedealisverysuccessful,withvery template for shifting to a post-oil era, in relaunching its baby care busi- more tears” shampoo, fell Mr Caruso said J&J had people in jobs in the OECD area competitive pricing,” said Elyas Algas- RiyadhonApril25. ness because millennial moth- 14 per cent year-on-year in the “robust plans to relaunch 66.0 eer,deputy regional general manager at It is expected to give details about the first quarter to $95m, their baby”thisyear. return to the peak ers are ditching its talcum 65.5 level hit in the Bank of Tokyo-Mitsubishi. “There was privatisation of state oil company Saudi powders and shampoos in lowestlevelinadecade. The company’sinfant brands 65.0 first quarter of immensemarketappetite.” Aramco, the creation of a sovereign favour of more expensive “It looks like millennial have been a mainstay since the 2008. However, Ewen Cameron Watt, chief invest- wealth fund and other reforms to boost organicalternatives. moms are buying new organic launch of Johnson’s baby pow- 64.5 employment rates ment strategist at BlackRock, the jobs and investment. JPMorgan has products,” said Dominic der in 1893. But more recently 64.0 are not back to world’slargestassetmanager,said:“The been working with the state oil com- Tumbling sales of its baby care Caruso,chieffinancialofficer. the company has struggled to pre-crisis levels in loan is a way for Saudi Arabia to test the pany since late last year on a plan for an products have forced the Brands from McDonald’s, combat the perception that 2006 10 15 many countries, waters and set up an international initial public offering, people aware of change, making J&J the latest Heinz and Campbell’s Soup to some of its products contain Source: OECD including the US borrowingprofile. themattersaid. power brand to fall prey to the Avon andGaphavebeenforced dangerouschemicals. Gove holds up Albanian model for post-Brexit future outside EU market

GEORGEPARKER —LONDON Critics seized on Mr Gove’s “Albanian saying the UK should not accept the ALEXBARKER —BRUSSELS model”, pointing out that the Balkan principal conditions for entry. It would Britain will move outside the EU’s country has limited access to the single not pay into the EU budget, accept free singlemarketandinsteadjoin“Bosnia, market, no financial services “pass- movement of workers or the jurisdic- Serbia,AlbaniaandUkraine”inaEuro- ports” and its exports to the EU are sub- tionoftheEuropeanCourtofJustice. Mistrust of Spain keeps EU pean free trade zone if voters choose jecttocustomschecks. The “free-trade area” described by support solid in Gibraltar Brexit in June’s referendum, according Brexit campaigners were challenged Mr Gove takes several forms. Iceland, toavisionoutlinedbyMichaelGove. byGeorgeOsborneonMondaytosetout Liechtenstein, Norway and Switzerland Gibraltar, ceded to Britain in the 1713 exactly what “Out” would look like. are part of the European Free Trade Treaty of Utrecht but seen by Spain as The pro-Brexit justice secretary for the Mr Gove set out to respond, saying: Association,whosemembershavevary- a colonial relic that sooner or later will first time confirmed yesterday that the “There is a free-trade zone stretching ing levels of single market access. Nor- be returned, wants the UK to stay in Leave camp did not want Britain to from Iceland to Turkey that all Euro- waypaysintotheEUbudgetandaccepts the EU. A poll puts support at 88 per remainpartoftheEU’stariff-freeblocin peannationshaveaccessto . . . free movement. Switzerland does not cent amid fears that should Britain which British-based banks can trade “After we vote to leave we will remain have full access to the single market but leave, ‘Spain might be tempted to be under a “passport” scheme. He insisted in the zone. The suggestion that Bosnia, doesacceptfreemovement. mischievous at best and downright the UK’sfinancial services sector would Serbia, Albania and Ukraine would Albania has an agreement covering vindictive at worst’, especially with “thrive”inthisnewenvironment. remain part of this free-trade area — trade in goods and potentially financial regard to its border crossing, used by He said Britain would forge its own andBritainwouldbeontheoutsidewith services. But it would only have full 30,000 workers and visitors every day. deal with the EU but said that a conti- just Belarus — is as credible as Jean- single-market access if it applies the Analysis i PAGE 2 nent-wide free trade area embracing a ClaudeJunckerjoiningUkip.” existingandfutureEUrulebook. Martin Wolf i PAGE 11 wide range of bilateral deals would “be MrGove’saidessaidBritainwouldnot Britain in Europe pages 2 & 3 thecoreofournewarrangement”. seektoremainpartofthesinglemarket, Martin Wolf page 11

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APRIL 20 2016 Section:FrontBack Time: 19/4/2016 - 20:07 User: robertss Page Name: 1FRONT, Part,Page,Edition: LON, 1, 1 2 ★ FINANCIALTIMES Wednesday 20 April 2016

BRITAININEUROPE

Legislation Cameron compromises over new trade union laws

Ministers scrap plan to deliver that support: trade unions. after criticism from Labour, the Liberal related activities. Yet ministers have als in order to get its current legislative Despite certain concessions, ministers Democratsandmanycrossbenchpeers. given ground by promising not to cap ‘Westill package through Parliament before the abolish payroll payments are pressing ahead with laws that will Yesterday, as the bill reached its facility time until there is at least two have a bill Queen’sSpeechinMay. after referendum warning make it harder to go on strike and will report stage in the Lords, the govern- yearsofdatafromtherelevantbodies. Ministers are also mindful of unions’ end the automatic “opt-in” system of mentofferedfurtherconcessionstopre- Lord Mendelsohn, Labour’s business that will potential influence over the looming fundingofLabourbyunionmembers. ventfreshdefeats. spokesman in the Lords, described the referendum: although they are a much JIMPICKARDANDSARAHO’CONNOR make it Nicola Smith, head of economic and Ministers have given up attempts to concessions as a “major turning point” diminished force, unions still have a Ministers have scrapped plans to abol- social affairs for the Trades Union Con- end automatic “check-off”: the system ontheunionbill. harder directlinktoabout6mmembers. ish the automatic payment of union gress,saidlastweekthattheunions’pri- will remain, so long as the costs are cov- But he urged the government to for UK They are already involved in the EU subscriptionsthroughpayrollsaspartof ority was preparing for the proposed eredbytheunion. deliver more compromises, particularly campaign: last week Unison became the a series of compromises over the trade newrules. The government is pushing ahead over proposals that will force union workers latest big union to back the Remain unionbill. “Thereisarangeofareaswhere,ifthe with proposals to give greater powers to members to actively “opt in” to their to defend camp, joining the GMB and Unite on the TheconcessionsintheHouseofLords government was to recognise that as a ‘They the certification officer, who monitors politicalfunds. same side as Jeremy Corbyn’s Labour came after unions warned David Cam- minimum some parts of the bill need the sector: he will be able to access Len McCluskey, head of Unite, wel- themselves’ party and Mr Cameron’s Conservative eron that they were unable to throw improvement, then they might have a might have unionsandtheirmembershiplists,even comedtheconcessions,butwarnedthat government. The GMB is training offi- theirfullweightbehindthecampaignto better chance of convincing trade a better in the absence of a complaint — with the the bill — even in its current form — cials to talk to shop floor workers about remain in the EU because they were too unions to focus more resources on the powertoimposefinesofupto£20,000. would set back industrial relations in why it benefits jobs and growth for the busy fighting the “draconian” legisla- referendum,”shesaid. chance of But ministers gave ground by promis- Britainbydecades. UKtoremainintheEU. tion. The Unite union also told the govern- convincing ing to amend the bill to ensure that the “We still have a bill that will make it Unite is encouraging members to talk Theprimeministerneedsthesupport ment that if it could adopt “a less adver- certification officer is free of ministerial harder for UK workers to defend them- to other members. An official said: “To of millions of Labour voters if he is to sarial approach” it might have a better unions to interference. selves, that undermines the right to beabletogetanAirbusworkertotalkto win June’s referendum on EU member- chance of winning over union members focus more Likewise, the bill will still compel all strike and establishes an aggressive reg- a Nissan worker about the benefits of ship. Yet for months he has been intheEUreferendumcampaign. public sector employers to publish ulator,”hesaid. staying in the EU will carry much more embroiled in a parliamentary battle Thegovernmenthadalreadyendured on the information on the cost of employees’ Thegovernmenthasbeenunderpres- weight than George Osborne trying to with the organisations that could help three lost votes on the trade union bill referendum’ “facility time” — time off for union- sure to water down some of the propos- scarepeopletodeath.”

Overseas territory. Sovereignty Gibraltar rock solid in its commitment to Brussels

access to the EU single market if Brexit Residents fear Madrid will happened would be to accept “co-sover- advance its claim for control if eignty”,orjointcontrolbySpainandthe UK. That would mean, he added, “the the Leave campaign triumphs SpanishflagontheRock”. What is at stake for Gibraltar is not — GIBRALTAR least the territory’s booming economy. TOBIASBUCK Over the past decade it has grown rich Nowhere in Gibraltar feels more British from its buoyant financial services and thanMainStreet,thecommercialartery gambling industry. Part of the terri- thatrunsthelengthoftheoldtown. tory’sattraction—andindeeditsofficial Number 162 is home to the Gibraltar pitchtointernationalinvestors—isthat Arms Pub, offering a Sunday roast for Gibraltar offers a “gateway to Europe”, just £8.95. The local Marks and Spencer and the ability to trade seamlessly with departmentstoreisatNumber215,pro- therestoftheEU. viding shoppers with a wide choice of Political and business leaders in the navy blazers and English biscuits. In territory are quick to stress that Gibral- between the two is a striking reminder tar trades more with the UK than with that the great political convulsions grip- the rest of the EU. But losing unfettered ping Britain today are shaking its tiny access to the single European market overseas territory as well: the local wouldhitGibraltarhard. headquarters of the Stronger in Europe “This place is familiar with adversity. campaign,whichopenedlastweek. We have dealt with sudden change The office’s staff of eight volunteers before,”says Edward Macquisten, chief appear to have little to do. By all executive of the Gibraltar Chamber of accounts,Gibraltarisunitedinitsdesire Commerce.“ButiftheUKleavestheEU, for the UK to remain a member of the and we were forced to leave as well, it EU. A poll published on Friday by the would be very tough for Gibraltar eco- Gibraltar Chronicle, the local newspa- nomically.” per, found 88 per cent of the population With just over two months to go until would back EU membership in the ref- the referendum, Mr Picardo makes no erendum on June 23. Turnout is secret of his frustration with the debate expectedtobeabove80percent. intheUK. “Gibraltar’s best interests are served Gibraltarians are “hearing some of by remaining in the EU. That is the things being said by the Leave cam- undoubted in the view of the govern- paign with disbelief”,he says. “It is very ment, and there is widespread support easy to make a pejorative argument for that in Gibraltar,” says Fabian about Brussels bureaucrats and the Picardo,thechiefministerofGibraltar. shape of bananas. But you are not going The main reason for the territory’s to make serious policy based on that pro-EU stance is visible from the bal- sortofDad’sArmyargument.” cony of Mr Picardo’soffice, which offers To Madrid, meanwhile, Mr Picardo a commanding view across the Bay of Keeping up with the outside world, and one that is mer of 2013, the European Commission leave the EU, Spain might be tempted to offers a customary signal of defiance. Gibraltar to Spain. Gibraltar was ceded standards: used by 30,000 workers and visitors has intervened repeatedly to unblock be mischievous at best and downright Even if Britain and Gibraltar do leave totheBritishcrowninthe1713Treatyof flags of the EU, every day. “We have one constant issue the border, just as the prospect of Euro- ‘If the UK vindictiveatworst.” the EU, the issue of Spanish control and Utrecht, but, at least as far as Madrid is Gibraltar and and that is our border and the relation- pean Community membership helped How exactly Spain would respond to influence in the territory will not be on concerned, the matter of sovereignty is the UK fly over ship with Spain,”says Gemma Vasquez, open it more than three decades ago. leaves the Brexit is hard to predict. The country the table. Gibraltar, he insists, will “not farfromsettled.Officially, the Rock’s campaign director of Gibraltar Stronger From 1969 to 1982, Spain had kept the EU, and we has been without a proper government pay a sovereignty price for access to the Spain regards Gibraltar as a colonial Main Street inEurope.“ShouldBritainleavetheEU, frontiersealed,aperiodrememberedin were forced since the December general election singlemarket”. relic that sooner or later has to fall back Oli Scarff/Getty Images Spain would have more of a free rein to Gibraltarwithbothangerandanguish. and appears to be heading for a repeat to leave as Video: Treasury analysis under Spanish control. The fear among dowhatitwantsattheborder.” “For us, the EU has proven itself as a ballot in June. In the meantime, all that Lionel Barber and Janan Ganesh Gibraltarians is that Madrid will be Recent political tensions have often guarantor of normality in our relation- well, it would London and Gibraltar have to go on are discuss the Treasury’s estimates tempted to use Brexit as a lever to led to a near standstill in cross-border shipwithSpain,”saysPeterMontegriffo, be very tough recent remarks by José Manuel García- on the economic consequences advancethatclaim. traffic — choking economic and social a former Gibraltar trade minister and for Gibraltar Margallo,caretakerforeignminister. of leaving the EU Themostimmediateworryisthebor- life both in the territory and adjacent now a partner at Hassans, a local law He told Spanish television last month www.ft.com/treasuryanalysis der crossing — Gibraltar’sonly land link Spanish communities. Since the sum- firm.“PeopleinGibraltarfearthat,ifwe economically’ that the only way for Gibraltar to retain

Business fears MAKE A SMART INVESTMENT Subscribe to the FT today at ft.com/subscription Hundreds of entrepreneurs sign open letter against EU exit

KATEALLEN TheirwarningcomesasAnnaSoubry, public finances, equivalent to 8p on the fromtheopportunitiesitoffers,itisbet- POLITICALCORRESPONDENT business minister, called on companies basicrateofincometax. ter to be on the inside helping shape the SomeofBritain’sbest-knownentrepre- to speak out about the referendum. On Over 15 years the economy would be rulesofthismarketinsteadofjustbeing neurs have warned about the impact Monday, George Osborne, the chancel- 6.2percentsmaller,costingeachhouse- subjecttothem.” 015 lor, set out the official Treasury projec- hold£4,300ayear. Other signatories include Dinesh NOVEMBER 7 2 NOVEMBER that a vote for Britain to leave the EU would have on their businesses and the tions of the damage a British exit from The findings triggered a furious back- Dhamija of Ebookers, William Shu of prospectsforfuturestart-ups. theEUcouldcausetotheUK. lash from Leave campaigners, who said Deliveroo, Simon Woodroffe of Yo! Downing Street regards economic theywere“highlytendentious”. Sushi and Peter Williams of clothing FINANCIAL TIMES newspaper in any manner is not permitted without More than 200 businesspeople in sec- arguments as its primary route to vic- In their letter, the entrepreneurs brandJackWills. Number One Southwark Bridge, London SE1 9HL the publisher’s prior consent. ‘Financial Times’ and ‘FT’ are registered trade marks tors from technology to fashion have tory in June’s referendum; polling has argued: “Of course the EU isn’t perfect; Lloyd Dorfman, founder of Travelex, Published by: The Financial Times Limited, of The Financial Times Limited. ROLLING IN THE DEEP signed an open letter, published in the repeatedly shown it is the only aspect of but rather than cutting ourselves off whosignedthelettersaidleavingtheEU Number One Southwark Bridge, The Financial Times adheres to a self-regulation 361_Cover.PRESS.indd 1 21/10/2015 10:51 Financial Times, citing “the benefits of the debate that consistently rivals would be “the biggest own-goal in our London SE1 9 HL, United Kingdom. regime under the FT Editorial Code of Practice: Tel: 020 7873 3000; Fax: 020 7407 5700 www.ft.com/editorialcode being able to do business within immigration in its significance for the postwarhistory”. Editor: Lionel Barber Europe’s single market of 500 million public. Another signatory, Doug Monro, Reprints consumers”,theEU’scross-borderregu- Voters needed to hear from busi- founderofAdzuna,saidtheuncertainty Subscriptions and Customer service: Are available of any FT article with your company Tel 0800 028 1407; [email protected]; logo or contact details inserted if required (minimum latory regime and “the ability to recruit nesses before they made their minds up and reduction in investment that would www.ft.com/subscribenow order 100 copies). the brightest people” across the conti- about how to vote, Ms Soubry said in a result from an exit would cause a jobs One-off copyright licences for reproduction of FT nentaskeyreasonstostayintheEU. speech at the London Stock Exchange marketslowdown. Advertising: articles are also available. They include government technology yesterday. The letter is the latest in a series of Tel: 020 7873 4000; [email protected] For both services phone 020 7873 4816, or adviser Baroness Lane-Fox, fashion “It’srightforustobelongtoagroupof attempts by both sides of the campaign Letters to the editor: alternatively, email [email protected] Fax: 020 7873 5938; [email protected] designer Anya Hindmarch, Arnaud countries with whom we have so much to demonstrate business support for Executive appointments: FT Cityline Massenet of fashion retailer Net-A-Por- in common, whether it’s the values of theircase. Tel: 020 7873 4909; www.exec-appointments.com For real time share prices call 0905 817 1690 or go to http://www.ft.com/servicetools/ftmobile/cityline. Calls ter, Alex Chesterman of property site human rights, democracy or how we do Bosses of 36 FTSE 100 companies and Printed by: cost 75p/min. Zoopla and Jacqueline Gold of under- business,”shesaid. 162 other businesses put their names to St Clements Press (1988) Ltd, London, Newsprinters wearretailerAnnSummers. “That’s why it’s imperative we hear ananti-BrexitletterinFebruary. (Knowsley) Limited, Merseyside, Newsprinters Newspapers support recycling Britain is the best place in the EU to loud and clear the voices of all busi- The campaign for Britain to leave (Eurocentral) Glasgow, and Smurfit Kappa News The recycled paper content of UK newspapers in Press Ld, Kells, Ireland 2014 was 78.5% launch a business and leaving would nesses.” the EU last month published a list of “undoubtedly undermine the ability of TheTreasury’smainscenarioclaimed 250 business figures who support its ©Copyright The Financial Times Limited 2016. All Britain’s entrepreneurs to start-up, thataBritishexitfromtheEUwouldcut Entrepreneur Baroness Lane-Fox is case. rights reserved. Reproduction of the contents of this innovateandgrow”,theysay. tradeandleavea£36bnayeargapinthe in favour of Europe’s single market Letters page 10

APRIL 20 2016 Section:World Time: 19/4/2016 - 20:01 User: hyltonm Page Name: UKNEWS1, Part,Page,Edition: LON, 2, 1 Wednesday 20 April 2016 ★ FINANCIALTIMES 3

BRITAININEUROPE Idea floated of Gove as deputy PM after vote Promotion for Eurosceptic justice secretary a possibility to heal party wounds amid talk of ministerial job for Johnson

GEORGEPARKER —POLITICALEDITOR job” to Boris Johnson through gritted Gove’s view teeth. The London mayor and MP for Michael Gove is seen by David Cameron Uxbridge and South Ruislip infuriated as the key to restoring Conservative ‘The In Mr Cameron by deciding at the last party unity after the EU referendum, minute to join the Brexit camp. Even but it did not sound that way yesterday campaign though some on the Tory right do not asthejusticesecretaryhithisEuroscep- want us to trust Mr Johnson’s motives, he remains ticstride. believe that toobigafiguretosideline. Mr Gove attacked the In campaign, Thequestionof“whatjobforBoris”is ledbyMrCameron,for“treatingpeople Britain is a common staple of ministerial gossip, like children”, for trying to persuade beaten and much of which focuses around the pos- voters that “Britain is beaten and bro- broken . . . sibility that Mr Cameron could create a ken” and for being “overwhelmingly vacancy at the Home Office by moving negativeandpessimistic”. [It] imagines TheresaMaytotheForeignOffice. For good measure Mr Gove rubbished the people of Another key objective for Mr Cam- Mr Cameron’ssuccess in excluding Brit- this country eron,accordingtosupportiveministers, ain from “ever closer union”,saying this is to bring rising stars from the 2010 supposed negotiating triumph offered are mere intake to the ministerial ranks. “He “no protection” and had negligible legal children, wantstomakeitaquestionofthefuture meaning. capable of versusthepast,”saidone. ItisperhapsasignoftheEuro-trauma being Theprimeministermaynotbeableto affectingtheConservativepartythatMr escape or shake off the party’s past Cameron is looking to Mr Gove to help frightened obsessions with Europe that easily. It bring the party together — if the prime into obedience would take letters from only 50 Tory minister succeeds in keeping Britain in by conjuring MPs to trigger a vote of no-confidence, theEUonJune23. andsomeMPsbelieveoneislikely. “Gove is the key,” said one cabinet up new The level of acrimony among Tory minister. Another said: “There’s a lot of bogeymen Eurosceptics over Mr Cameron’s run- talk about Michael becoming deputy every night’ ning of the pro-EU referendum cam- primeministerinaunityreshuffle.That paign is rising by the week, with more mightmakealotofsense.” thantwomonthsstilltogo. Winning the referendum may be only Et tu? Michael Philip Hollobone, a Eurosceptic Tory the start of Mr Cameron’s problems. If Gove walks MP, said the “disgracefully dodgy docu- he loses, things could be more straight- behind David ment” from the Treasury on the cost of forward: many ministers expect the Cameron during Brexit was worthy of the children’s pro- primeministerwouldquitimmediately. a visit to a school grammeJackanory. “He wouldn’t last 30 seconds,” Ken in Birmingham One senior Tory backbencher said Mr Clarke,formerchancellor,hassaid. in 2013 Osborne and Mr Cameron were indulg- But Eurosceptic Tories say that if Mr Paul Rogers/Getty Images ing in hyperbole which was harming Cameron wins the referendum he will their case for Britain to remain in the have done so in such an unfair and dis- EU. “They’re making so much noise reputable way that some pro-Brexit of whom is Mr Gove, a long-time friend Intriguingly Mr Osborne, who was nomenal and it takes a toll on you and about how bad Brexit would be that it MPs will demand his head. The £9m ‘There’sso ofMrCameronandMrOsborne. made Mr Cameron’s “first secretary of your family and I don’t think I could do makes you wonder why we agreed to pro-EU leaflet and Chancellor George Mr Gove’s status as a genuinely com- state”anddefactodeputyafterthe2015 that.” have this referendum in the first place. Osborne’s 200-page Treasury analysis muchnoise mitted Eurosceptic, willing to put his election, appears to be relaxed about The most recent parallel was John If you really thought it was going to be areheldupasevidence. abouthow love of country ahead of his friendship theidea. Major’sdecisiontomakeMichaelHesel- thatbad,whydidyoudecidetohaveit?” Mr Cameron is therefore making with Mr Cameron, makes him a The chancellor’sallies believe that Mr tinehisdeputyprimeministerin1995in It is a rhetorical question. Mr Cam- plans for an immediate cabinet reshuf- badBrexit uniquely credible figure in this “unity Gove, in spite of his standing in the the aftermath of another Tory Euro- eron agreed in 2013 to hold the referen- fle to head off any Tory mutiny after the wouldbe reshuffle”. party, genuinely has no ambitions to be sceptic leadership challenge. Mr Hesel- dum as a device to try to hold his party June23vote;ifitisonlyanarrowmargin Theideaofmakinghimdeputyprime prime minister and is therefore not a tine, by that point, had abandoned his together. It might have seemed a good Reality check of victory, the mood among Tory MPs youwonder minister would be the clearest demon- seriousrivalfortheNumber10job. The FT dissects ownprimeministerialambitions. ideaatthetime. willbefebrile. whywe stration of Mr Cameron’sdesire to bring “I don’t have what it takes,” Mr Gove pro- and anti- While Mr Gove would be a key figure Additional reporting by Kate Allen and Jim Theprimeminister’salliessaythathe agreedtothe the party back together, although what told the FT Weekend Magazine in 2014 Brexit claims inanyreconciliationreshuffle,MrCam- Pickard will move quickly to bring key Euro- precise responsibilities he might hold in about any prime ministerial aspira- ft.com/brexit eron’s allies say that the prime minister Global Insight page 7 sceptics into the fold, the most notable referendum’ thatroleareunclear. tions. “The pressure of the job is phe- would also be obliged to offer a “proper Martin Wolf page 11

economy, under-developed,” he said. “It the obstacles to trade, but without Alternative trade model is like comparing a little nut with a big uniformly applying red tape across the Out camp smitten with watermelon.” home economy”. attractions of Albania Olli Rehn, who negotiated such pacts It goes on to say the format has as EU enlargement commissioner, said similarities with the EU’s approach to he was “surprised” the Leave side former communist countries in the would want an agreement that would western Balkans — first called the Bosnia, Serbia, Albania and Ukraine are put the UK “permanently on the Central European Free Trade economically weak, desperate to substitute bench”. Agreement. These attempted to clear integrate with the EU, and still carrying The main attractions for Leave trade barriers without cumbersome deep scars from war and revolution. So supporters are outlined in Business for requirements to pool sovereignty or what makes their EU trade model so Britain’s 1,000-page research document accept rules wholesale. attractive for Brexit campaigners? called Change or Go. For a country such as Albania, this The praise for the Albania-Ukraine This looked at Ukraine’s “deep and has morphed into an association option voiced by Michael Gove, justice comprehensive trade agreement” as an agreement that sets a framework for it secretary, echoes the work of pro- “alternative model” to joining the to move closer to EU law and business Leave analysts, who see the countries European Economic Area, which standards, in part to give EU investors charting “a way forward” combining comprises EU and European Free Trade confidence to work in the country. free trade with tailored political co- Association nations. In theory, the pact is broad, covering operation. The hitch is that Brussels It allows for a close economic trade in goods and — crucially for the sees the pacts, known as “stabilisation relationship with the EU, without the UK — potentially financial services, but and association agreements” in the political and financial obligations of an only amounts to full single market western Balkans, as special support at EEA country such as Norway, which access if Albania adapts it to apply the the start of a long journey towards EU semi-automatically applies EU law, existing and future EU rule book. membership for relatively small, accepts free movement and pays into In financial services, it also relates to troubled economies, rather than a the EU budget. a tiny Albanian cottage industry, with divorce settlement for a big, successful The report argues the Ukraine trade barely any integration with the one. deal, hatched under the shadow of the European market, whereas the City of Karel De Gucht, the EU’s former trade Russian annexation of Crimea and war London is the region’s biggest financial commissioner, said any Brexit in eastern Ukraine, was an “under- hub, handling 40 per cent of wholesale comparison was “ridiculous nonsense”. examined way forward” that covers “all euro-denominated trade. “Albania is a poor country, a small the key aspects, as well as lightening Alex Barker, Brussels

Lords committee Carney defends BoE public stance on Brexit

EMILY CADMAN that are “speculative and beneath the bank has already announced plans for a dignity of the Bank of England”, while number of extra liquidity options The Bank of England has a “duty” to former chancellor Lord Lawson said it aroundtheJune23votetolowertherisk speak out about the risks of the refer- was “quite wrong” for a BoE governor to ofBritishbanksrunningoutoffunds. endum on the UK’s membership of the enterthepoliticalfrayinthisway. Mr Carney said the BoE would con- EU, governor Mark Carney said as he But Mr Carney said it was part of the tinuetobothdevelopand“ifnecessary” hit back at critics who have accused BoE’s core remit to assess the implica- implement such plans, adding “we will himofinterferinginpoliticalmatters. tions of the referendum for financial communicate as much as is prudent Mr Carney told a House of Lords com- stabilityandmonetarypolicy. about those plans in advance of any risk mittee yesterday that it was a funda- “The bank has a duty to report our materialising and as comprehensively mentalpartofbeingan“openandtrans- evidence-based judgments to parlia- aspossibleonceriskshavedissipated”. parent central bank” to report its judg- mentandtothepublic,”hesaid. The governor also told the economic mentstoparliamentandthepublic. Whereas for the Scottish independ- affairs committee that some of the risks “Assessing and reporting major risks ence referendum the BoE publicised its to the UK economy the BoE had flagged doesnotmeanbecominginvolvedinpo- contingency plans after the vote, the “may be beginning to manifest”. He litics; rather it would be political to sup- pointedtowardsthefallingvalueofster- press important judgments which relate ling, the rising cost of buying protection directly to the bank’s remits and which against further falls and a 40 per cent influenceourpolicyactions,”hesaid. drop in commercial property transac- While the BoE has been careful to tionsinthefirstquarter. stress it will remain neutral in the cam- MrCarneyalsoofferedbackingforthe paign, it has repeatedly flagged that the Treasury’s dossier earlier this week, on EU vote is the biggest domestic risk to the costs of leaving the EU to the UK financial stability and has given consid- economy, saying the “broad approach” erableammunitiontotheRemaincamp. seemedsound.Headdedthattheunder- The tone and content of its statements lying economics were “consistent with haveinfuriatedLeavecampaigners. the broad economic strategy the UK has After a recent hearing in the Com- pursued effectively since the repeal of mons, Eurosceptic MP Jacob Rees-Mogg Mark Carney: governor says BoE the corn laws”. Leave campaigners acc- accused Mr Carney of giving answers has duty to report its judgments usedtheTreasuryof“scaremongering”.

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NATIONAL

New unity government Foreign dividends Prudential Hammond rules out Libya combat troops closer to tax Foreign secretary willing the new “unity” government, he said. been a “disaster”: that scheme was controlled any of Libya, a country the tionaltroopsontheground.Hequashed refund after Mr Hammond faced tough questions ended after claims of sexual assault and sizeofwesternEurope. speculation that as many as 1,000 Brit- to send personnel to help from his own backbenchers over Brit- widespreadindiscipline. The consequences of western inter- ish troops could be asked to take part in train national forces ain’s involvement in the war-torn state, Mr Hammond visited Tripoli yester- vention in 2011 had been “death and aninternationalforceinthecountry. marathon which has the largest oil reserves in day to show support for Fayez Sarraj, destruction” across the region, he said. “We do not anticipate any requests Africa. the new prime minister of the fledgling “Canwelearnthelessons?” from the GNA for ground combat forces JIMPICKARD court battle CHIEFPOLITICALCORRESPONDENT Libya has been a borderline failed administration, based in a naval base in Updating the House of Commons to take on Daesh (Isis) or any other state since western forces helped topple theharbour. about his trip, Mr Hammond acknowl- armed groups and we have no plans to Philip Hammond, the foreign secretary, Muammer Gaddafi in 2011, prompting Thenewunitygovernmentwassetup edged that Libya was suffering from a deploytroopsinsucharole,”hesaid. VANESSAHOULDER sought to reassure sceptical Conserva- military conflict between various mili- toendtheinstabilityofhavingtwocom- liquidity squeeze in its banking system, Yet the foreign secretary also sug- Prudential came a step closer to secur- tive MPs as he insisted that there were tiasandfactions—whileIsishassecured peting governments at either end of the a shortfall of energy provision and a gestedthatnowwasthetimeforthenew ing a tax refund of more than £100m noplansforBritishtroopstobeinvolved a foothold of more than 3,000 militants country.EarlierthismonththeIslamist- shortageofcommodities. Libyan government to take action yesterday,in the latest round of the UK infrontlinefightingagainstIsisinLibya. inthecoastalcityofSirte. allied administration in Tripoli But he said the country still had the against Isis while it was still “relatively insurer’s long-running battle for com- Mr Hammond, who visited Tripoli John Baron, a Tory MP, said the Brit- announced it was stepping down. But potential to be a “rich” successful state. thinontheground”. pensation over past breaches of Euro- this week, said there had been no ish-French action five years ago had Mr Sarraj still faces opposition in east- “There is the potential for this to be a If that occurred, it was likely to seek peanlaw. request by the new UN-backed Govern- been an “unmitigated disaster” and ern Libya, where there remains a rival real turning point in Libya’s fortunes,” naval and air support from interna- ment of National Accord for foreign urgedministerstolearnlessonsfromits administration backed by remnants of hetoldMPs. tional allies, he acknowledged. The Judges at the Court of Appeal rejected combattroopsontheground. previousmistakes. thecountry’soldarmy. British special forces are already training support being offered did not nearly all of HM Revenue & Customs’ However, the UK was willing to send Andrew Murrison, another Tory Sir Edward Leigh, a senior Tory MP, operating in the country, it has been need the approval of parliament, he argumentsagainstanearlierrulingthey troops — in the tens or hundreds — to backbencher, said that a previous said the new administration was in real- reported, but Mr Hammond insisted said, given the UK had no fewer than 16 described as a “masterpiece of exposi- help train forces under the command of attempt to train Libyans in the UK had ity“holedupinanavalbase”andhardly there was no “appetite” for conven- suchoperationsaroundtheworld. tionandreasoning”. The decision also increases the likeli- hood of payouts running into hundreds of millions of pounds for 10 other insur- ers that were part of the case led by Pru- dential. Culture and conquest British Museum to showcase Sicilian artefacts The case is one of a number of hugely complicated legal cases — involving multiple court hearings in the UK and Luxembourg — in which companies are trying to recover tax paid decades ago. At that time, many of the UK tax rules broke European law by treating cross- border transactions less favourably thandomestictransactions. The tax authority said: “HMRC is extremely disappointed with this judg- ment. Nothing is payable immediately as a consequence of these decisions and we plan to robustly defend our position throughfutureappeals.” Prudential declined to comment, but Graham Aaronson of Joseph Hage Aar- onson, the litigators acting for Pruden- tial,said:“Itisobviouslyanencouraging result.” The Treasury moved last year to imposeanew45ptaxrateonrefunds,in an attempt to ensure that claimants “do

£7.2bn £100m Total provisions Tax refund made by HMRC Prudential may Ceramic bowl likely to be paid receive in with triskelion, over five years compensation circa 650–600BC not enjoy an unfair tax advantage at the The British Museum has gathered more than 200 objects for its new expense of the public purse”.The move exhibition, which will retell the history of the Italian island of Sicily from wasasignoffearsovertheimpactofthe about 735BC, when the Greeks made their first official colony at Naxos, claims on the exchequer, as well as the Marble statue of Gilded bronze through Carthaginian and Roman rule to its time under Norman conquerors likely public anger over large payouts at and beyond. Sicily: Culture and Conquest will run from April 21 to August 14 warrior, atimeofspendingcuts. and gold falcon, Akragas, Sicily, circa 1200–1220 Regione Siciliana; The Metropolitan Museum of Art Breaches of European law are one of circa 470BC the legal risks that has led HMRC to make provisions of £7.2bn. The Office for Budget Responsibility expects the provisionstobepaidoutoverfiveyears, Race for London. Central issue pencilling in payments of between £500mand£2bninanysingleyear. Tax experts said it was not yet clear whetherHMRCwouldgetpermissionto appeal to the Supreme Court. The 13- Extremism looms large in mayoral election debate year-old case has already involved sev- eralhighcourthearingsandareferralto the European Court of Justice. Yester- ing and public transport. Ahead by 10 Islam. Mr Khan said “one of the great Mr Goldsmith said in a BBC debate on sided extradition arrangements to the day’s judgment described the length of The Labour candidate is ahead points in the latest polls, he has tried to thingsaboutthiscountryisdueprocess, Monday night that “we have a massive US”.Mr Ahmad’s crime was committed thelitigationas“inordinate”.Thejudges in the polls but fears that his allaythedamagebypromisingtobe“the thepresumptionofinnocence . . . Some battle on our hands, an ideological bat- in the UK, leading to accusations about said: “Whether the final end is in sight British Muslim mayor who will take the of my clients were victims of police mis- tle, a battle that right now we are proba- justice being outsourced to the US. In afterallthistimeremainstobeseen.” campaign is being damaged fight to extremists”.He has also pledged conduct. Our police are not perfect. But bly losing, and it doesn’t help to give 2012, Mr Goldsmith said that his was “a Thecasepivotsonthefreemovement to back police officers forced to shoot to I would rather live in a country where platforms or oxygen or cover to people story which has caught people’s imagi- of capital provisions originally killinterroristincidentsandpointedout thepoliceareaccountable”. whomeantodousharm”. nation. I’ve been bombarded with let- enshrined in the Treaty of Rome, which CONORSULLIVAN that he received death threats as an MP Mr Goldsmith said his rival has spo- Mr Khan replied: “I regret giving the tersfrommylocalconstituents”. means that member states are not SadiqKhanvisitedBatterseaearlierthis aftervotingforgaymarriage. ken at events where some of the other impression I subscribed to their views A spokesman for Mr Goldsmith said: allowed to treat foreign dividends less month, going door to door to canvass Before becoming an MP in 2005, Mr and I’ve been quite clear I find their “ThereareamillionmilesbetweenZac’s favourably than domestic ones. The lat- votes for his bid to be London’s next Khan was a leading human rights law- viewsabhorrent.” comments on extradition and cases est phase of litigation will determine mayor. One of his stops was with Silves- yers and chairman of campaign group Sadiq Khan: the A spokesperson added: “Sadiq has involving his constituents, and Khan’s how much tax needs to be refunded to Labour candidate tro de Besi, a 56-year-old insurance bro- Liberty. He wrote a chapter called said he had made spent his entire career fighting extrem- repeated attempts to demonstrate that Prudential’s policyholders and share- ker. His reaction to Mr Khan suggests “Actions against the police” in a legal it clear he found ism — a fight which is made much Ahmad, a man who pleaded guilty of holders, after the courts previously that questions over the former human guideaboutfightingracismthatadvised extremist views harder by this kind of dog-whistling terroroffences,wasinnocent.” established they had overpaid tax on rights lawyer’s links to extremists may readers to “think laterally in looking for ‘abhorrent’ from the Tories — which just drives MrKhan,withanothertwoofthefour foreigndividends. be damaging his campaign. Mr de Besi humanrightsissues:manyarenotobvi- mainstream Muslims into the arms of Muslim MPs and organisations such as Prudential’sclaims extend from 1990 saidhecouldnotmakeuphismindwho ouslyabreachofhumanrights,buthave speakers had been extremists. In 2003, the extremists and puts them off engag- the Muslim Council of Britain, signed a to 2007, a period when it received sev- to vote for because there had been “lots ahumanrightsangle”. Mr Khan spoke at a conference about ingwithpoliticsandpubliclife.” letter to the Guardian in August 2006 eral thousand dividends. The overpay- of information in the papers, rightly or The Goldsmith campaign has Guantánamo Bay prisoners organised Theresa May, home secretary, has saying Britain’s foreign policy in the ment of tax on foreign dividends dimin- wrongly,onterrorism”. attacked his record, saying a person by Yasser al-Siri, who once said Osama criticised Mr Khan for being “in contor- Middle East offered “ammunition to ished the investment returns to with- Mr Khan’s main rival in the London who helped those who “seek to do our binLaden“diedanhonourabledeath”. tions over whether Babar Ahmad — a extremists” and put civilians at profits policyholders, as well as share- election on May 5, Zac Goldsmith, has police and capital harm” and “coached Mr Khan attended meetings of Stop man subsequently [jailed for] conspir- increased risk. He said at the time that holders. The company has not said how repeatedly pushed allegations about the people in how to sue the police” should Political Terror, the forerunner to Cage, acy and providing material to support “current policy on the Middle East is itwoulddistributethecompensation. Labourcandidateandextremismtocen- notbemayor. a lobbying group that has spoken posi- terrorism—wasafriendofhisornot”. seen by almost everyone I speak to as The Court of Appeal’s decision trestage.HehasnotaccusedMrKhanof Mr Khan accepts some former clients tively about “Jihadi John”, the terrorist Mr Khan said he supported Mr unfair and unjust. Whether we like it or focused on highly technical issues sympathy for extremists, but says there were “unsavoury” — they included the accused of murdering westerners in Ahmad, a constituent, in his unsuccess- not, such a sense of injustice plays into around how much credit needed to be areconcernsoverhisjudgment. 9/11 plotter Zacharias Moussaoui. But Syria. He accepts it is “possible” he has ful battle against extradition to the US. thehandsofextremists”. given for the foreign taxes it paid. The The accusations have diverted atten- he says that “even the worst people spoken alongside Suliman Gani, an ButsodidcurrentmayorBorisJohnson. Mr Goldsmith said last week that this size of the refund from HMRC will also tion from Mr Khan’s policies on two of deserve a legal defence”.Another client imam in his Tooting constituency who There was concern at the time about amounted to “blaming terrorism on depend on whether the interest paid is London’smost pressing problems: hous- was Louis Farrakhan of the Nation of hassaidwomenare“subservient”. what Mr Goldsmith described as “lop- Britishgovernmentpolicy”. compoundorsimple.

Transport technology Carmakers struggle to overtake motorists’ lack of confidence in driverless vehicles

PETERCAMPBELL veyed said they found “the idea of a car driverless vehicles on UK roads by the cars, while Nissan and Renault plan to would feel safe letting their car guide MOTORINDUSTRYCORRESPONDENT that is capable of taking over the entire endofthedecade. introduce at least 10 fully autonomous them along urban and country roads.” The majority of drivers believe driver- drivingprocessveryunappealing”. Carmakers say that vehicles with vehiclesontotheroadby2020. A 2014 study by Sciencewise, a policy less cars are unsafe, according to a sur- The report said: “The biggest concern greater autonomy will be safer. Globally Nissan’s Qashqai, which is produced research group funded by the Depart- vey that shows the gulf in public confi- among drivers was that an autonomous there are 1.2m deaths a year caused by in Sunderland, will next year become ment for Business, found that consum- dencethatcarmakershavetobridge. car would not be able to avoid an acci- motor accidents, and more than 90 per thefirstmass-marketcarintheUKtobe ers were worried about the technology, dent, with a third (34 per cent) citing cent of crashes are caused by human abletodriveitselfonthemotorway. givenexperienceofphonesandcomput- The motor industry has invested heav- thatastheirbiggestreservation.” error. By contrast, machines do not get “It’s clear that autonomous cars have ers. “They feel machines aren’t up to ilyindriverlesstechnologytotrytopro- The results suggest that winning over distracted by mobile phones or fall a way to go before the concept is truly tasks where human lives are at stake,” duce fully autonomous cars by the end public attitudes may be just as large a asleepatthewheel. adopted by the motoring public,” said said the report. “If the car requires a of the decade, but a survey from What hurdle for the industry as designing the HalfofthecarssoldintheUKhavecol- JimHolderfromWhatCar? human to take over the controls in an Car? said more than half of consumers technology and winning regulatory lision avoidance technology, including “Half the drivers we talked to would emergency,the driver may be too out of feel either “unsafe” or “very unsafe” approvaltorollitout. sensors that warn a driver if they are feel happiest allowing their car to take practice to safely do so.” Nissan found travellinginafullyautonomousvehicle. George Osborne, chancellor, has drifting out of a motorway lane. Several Drivers’ biggest concern was of cars over in a traffic jam, when the risk is many of the concerns were alleviated Some 45 per cent of the 4,000 sur- pledged to bring in regulations to allow makers are working on fully driverless being unable to avoid an accident minimal, while hardly any of them oncepeopletravelledinthecars.

APRIL 20 2016 Section:World Time: 19/4/2016 - 19:52 User: hyltonm Page Name: UKNEWS3, Part,Page,Edition: LON, 4, 1 Wednesday 20 April 2016 ★ FINANCIALTIMES 5

INTERNATIONAL

Jobs market Brazil Rousseff US labour shortage set to drive up wages pledges long Lack of skilled workers and with its 5 per cent rate now, and wage ily even as growth in gross domestic makers as they consider the next move share of S&P 500 companies’ revenues fight against growth will be running at 3-3.5 per cent product remains lacklustre, presenting in interest rates. One question Janet rose to 9.8 per cent last year compared ageing population likely to in 2017, a percentage point higher, said aconundrumtoFederalReservepolicy- Yellen, the Fed chair,and her colleagues with9.1percentin2014,andweresetto squeeze corporate profits theboard. are trying to answer is how much hid- jumpfurther. proposed A lengthy list of lines of work that will den slack there is in the workforce — for While demand for workers has been show significant shortages includes Labour supply tightens example, people working part-time sufficient to lure some Americans off SAMFLEMING —WASHINGTON impeachment occupational therapists, nurses, plant Job vacancy Unemployment becausetheycannotfindafull-timejob. the sidelines and into work, the steady The US faces significant labour short- operators and machinists. The states duration (days) rate ( ) Slow wage growth suggests that con- exit of ageing baby boomers from the ages in a wide range of sectors as unem- withthetightestlabourmarketsinclude siderableslackremains,butsomemeas- workforce is likely to weigh on the JOELEAHY —BRASÍLIA —WASHINGTON ployment falls towards 4 per cent and TexasandColorado.   ures of wage growth are starting to stir. labour force participation rate in the GEOFFDYER the working-age population stagnates, a “We are already very close to full  Recession  The Fed’s so-called Beige Book survey longer term. That is good news for Dilma Rousseff has promised to fight leadingbusinessgrouphaspredicted. employment, yet we have this trend of last week reported that the firming employees, Mr Levanon added, because   on against an attempt to impeach her, With the time needed to fill a job very slow growth of labour supply for labour market was starting to deliver itshouldmeanpayincreasesfaster. which she dismissed as part of Brazil’s already near the highest in at least 16 the next 15 years, and there is very little   higher wages in nearly every region of longtraditionofcoups. years and the number of people volun- that could be done about it barring   theUS. tarily leaving jobs at its strongest since major immigration reform,” said Gad Someemployersareliftingentrylevel Election updates In her first meeting with the foreign the recession, difficulties finding skilled Levanon, the Conference Board’s chief   wages and states including California For latest news media after the lower house of congress and results from the labour will intensify, pushing up wages economistforNorthAmerica.   and New York are aggressively boosting Democratic and voted to impeach her on Sunday, the and squeezing corporate profits, the “The implication of that is it is harder   minimum wages to well above the fed- D Republican primaries president said her country had a tradi- ConferenceBoardsaidinareport. tofindworkers,andthereismoreaccel-   eralminimumof$7.25anhour. in New York tion of not respecting elected authority Barring a recession, joblessness erationinlabourcosts.” Analysis from Goldman Sachs esti- ft.com/uselection thatdatedback60or70years. should fall another point compared The jobs market has tightened stead- Sources: DHI Group; Bureau of Labor Statistics mated this week that labour costs as a “Brazilhasadormantcoupiststreak,” Ms Rousseff said. “If we follow the tra- jectory of the presidents of our coun- try . . . we will see that impeachment has systematically become an instru- mentforuseagainstelectedpresidents.” Android The president, under pressure for a collapse in economic growth and a vast corruption scandal at Petrobras, the state-owned oil company, is locked in a Google and Brussels bitter fight with her vice-president, Michel Temer, who will take her job if sheisimpeached. prepare for battle The motion has now moved on to the senate. If more than half of the 81-seat upper house accepts the motion, which arguesthatMsRousseffviolatedthelaw —BRUSSELS CHRISTIANOLIVER Whydoesthecommissionthink by fudging the national budget to dis- guise a deficit, Ms Rousseff will be sus- The EU is poised to open a new front in Googlecouldbeharmingother pended and Mr Temer would take over its showdown with Google as early as companies? assoonasearlynextmonth. today by announcing formal charges in Margrethe Vestager, competition com- If after up to six months of delibera- relation to the company’s mobile oper- missioner, says she is concerned that tions the senate decides by a two-thirds ating system, Android. The case would Google is forcing phonemakers and majoritytoformallyimpeachMsRouss- represent a new chapter in Brussels’ operators to enter into contracts that eff, Mr Temer would assume power efforts to combat the alleged abuses of preloadGoogleappsontosmartphones. untilthenextelectionsin2018. US technology companies, and has This means that Google could be stifling The opposition has begun to fight already drawn comparisons to its clash smaller, innovative app makers and backagainstMsRousseff’scharacterisa- withMicrosoftadecadeago. serviceproviders. tion of the proposed impeachment as a coup, saying the country needs to get a Hasn’ttheEUalreadycharged Wasn’tthisproblemof new and stable government in place as Googlewithanti-competitive pre-installedsoftwareattheheart fast as possible to rescue it from the behaviour? ofEU’sepicMicrosoftcase? worseningeconomiccrisis. Yes,thiswouldbeasecondchargesheet, There are some similarities. Microsoft “Congress and Brazilian society has knownasastatementofobjections.The wasbruisedbyitsyearsofantitrustcon- realised we are rapidly arriving at the firstaccusedGoogleofabusingitsdomi- flict in Brussels and was found to have bottomofthewell,”saidsenatorAloysio nance of online search to promote its abused its dominance of PC operating Nunes of the opposition PSDB party. own shopping services unfairly. Google systemstoforceitsmediaplayeroncon- “We do not have hyperinflation, but we deniesthecharge. sumers. The case closed in 2007, with do have a social crisis. We have had two more than €2bn in combined fines. But years of a recession which has no paral- HowdominantisAndroidasthe thedigitalworldhaschanged.Microsoft lels,noteventhecrisisin1929and1930. operatingsystemonsmartphones? was making money by selling the soft- The social situation is one of emergency Very. More than 80 per cent of smart- ware itself. Android is free of charge. andcongressisawareofthis.” phones globally use Android’s open- Google is monetising the platform in a Backing congress’s charges that Ms sourcesystem,whichcanbeusedfreeof far more complex way, by harvesting Rousseff manipulated the budget, charge by anyone. By contrast, Apple’s data on users to target them more effec- allowing her to spend more ahead of the own iOS operating system represents tively with advertising and selling its 2014 elections, he insisted the impeach- only about 13 per cent of the market, servicestothemwithdifferentapps. ment was legal. “We would be a banana accordingtodatafromGartner. republic if the president could do what- Doweexpectanyothercharges? ever he or she wanted, whatever enters Isbeingsodominantillegal? The investigation has focused on two his or her head, without anything ever No,butEUrulesmeanthatGooglefaces other areas. Brussels has said it is exam- happeningtothem,”hesaid. special requirements not to crush new ining whether Google prevents smart- Mr Temer is the head of the PMDB, marketentrants. phone makers from developing their the biggest party in congress and until own modified versions of Android, Competition likes of Facebook, Amazon, Microsoft recently Ms Rousseff’s main coalition called “Android forks”.Ms Vestager will chief Margrethe and Expedia — are easily available with Whatisthepotentialremedyifthe partner. Yesterday,Ms Rousseff bitterly also probably have to broach the diffi- Vestager, left, is Android. Samsung’s mobile phones are commissiondoesconcludethere attackedhimastheleaderofthe“coup”. cult subject of “tying” — weighing up concerned that pre-installed with apps from Google’s hasbeenwrongdoing? “It is startling that a vice-president in whether Google illegally hindered rival Google is forcing rivals. Companies including Nokia and Some lawyers close to the case think the the exercise of his mandate would con- apps by establishing digital connections phonemakers Amazon have also used versions of most likely course is that Brussels will spire openly against the president,” Ms that automatically push Android users and operators to Android without pre-installing Google seek to revise the contracts between Rousseff said. “In no democracy in the towardsGoogle’sownservices. enter contracts apps. Googleandphonecompanies. world would a person who did that be that preload respected because every one of us WhatdoesGooglesay? Google apps on Whyisn’tApple’sclosediOS WillGooglehavetopayafine? knows the injustice and pain that you The company denies all wrongdoing. It to smartphones operatingsystemunderthe If the commission finds wrongdoing, it feelwhenarebetrayed.” says its app networks have given con- Justin Sullivan/Getty Images spotlighttoo? can impose a fine of up to 10 per cent of Askedifshewouldcallearlyelections, sumers more choice than ever before. It Emmanuel Dunand/AFP/Getty That returns us to the issue of domi- the previous financial year’s turnover, Ms Rousseff did not dismiss the notion flatlyrejectsanysuggestionbythecom- nance.Googleisfeelingtheheatbecause which was $74.5bn in Google’s case. but said it was not being considered at mission that it is trapping customers its market share is so much bigger than Most people involved rule out a fine present.“Thisisnotthebeginningofthe into using its apps. The company says Apple’sand it is therefore under greater anywherenearthemaximum. end; we are at the beginning of the fight, that its competitors’ apps — from the pressuretochangeitsbehaviour. Editorial Comment page 10 anditwillbealongone,”shesaid.

Egypt tensions Italy revokes cyber security company’sexport licence

JAMESPOLITI —ROME week when it recalled its ambassador to decisionIdon’tknow—nobodyhascon- maybeusingitstoolstotrackdissidents HANNAHKUCHLER —SANFRANCISCO Cairoforconsultations. firmedthat.” and journalists. Privacy International

The Italian government has stripped Although there is no evidence that MrRabedeniedthelossofthelicence, namedHackingTeamlastmonthasone 015 controversial cyber security company EgyptusedHackingTeamtechnologyto whichemergedearlierthismonth,wasa of the companies that sold “sophisti- 7 2 NOVEMBER Hacking Team of its licence to export keep track of Regeni, and Italian offi- “game changer” for the company, since cated surveillance technologies” to the outside the EU amid growing scrutiny cials deny any explicit connection with it was still free to export within the EU technical arm of the Egyptian intelli- of its sales of surveillance software to the loss of the export licence, experts and could apply on a case-by-case basis gence services worth about €1m, repressiveregimessuchasEgypt. say the killing may have accelerated an for Italian government approval to sell accordingtoaclientlistleakedlastyear. effort already under way to keep closer itsproductsoutsidetheEU. Inareport,theNGOsaidtheEgyptian The move coincides with a sharp rise in tabsonthecompany’ssales. Hacking Team sells a remote-control intelligence agency wanted to target ROLLING IN THE DEEP

diplomatic tensions between Italy and “Hacking Team was already in the system used by more than 50 govern- Apple’s iPhones and Mac computers, as 361_Cover.PRESS.indd 1 21/10/2015 10:51 Egypt over the brutal murder of Giulio spotlight but my sense is that the media well as people using pirated copies of Regeni, a 28-year-old Italian research and political pressure of the Regeni case Microsoft’sWindowsoperatingsystem. MAKE A SMART INVESTMENT studentinCairo. might have accelerated the analysis and A protest in Rome The revocation of Hacking Team’s over the death of Italy’s ministry of economic develop- the decision-making around it,” said Giulio Regeni, licence — first reported by Forbes — Subscribe to the Financial Times today ment said the decision to revoke the Paolo Boccardelli, director of the busi- which has soured came as signatories of the Wassenaar licence was necessary due to “changed nessschoolatLuissUniversityinRome. relations between Arrangement, which governs the sale of Morning briefing. Midday analysis. Mobile updates. Subscribe to political circumstances” in a number of “It certainly didn’t help the company to Italy and Egypt arms,metinAustrialastweektodiscuss the FT and you’re better informed all day. markets where Milan-based Hacking beprovidingthiskindoftechnologytoa whether or not to change the rules on Team had been doing business. government with which there is diplo- ment agencies worldwide to track crim- granting export licences for cyber arms With newspaper delivery, you start the day prepared.* With FT.com, Although no specific country was men- matictension.” inals and terrorists online, and boasts or so-called “dual-use technologies”, you’re on top of the news throughout the day. And with mobile tioned,thecompanysolditsproductsto Eric Rabe at Hacking Team acknowl- on its website that it can bypass encryp- which can be used as weapons and and tablet access, you’re up to speed wherever you are. Egypt, Brazil, Kazakhstan, Lebanon, edgedtherehadbeena“certainpolitical tion. The company hunts for previously defensively. Thailand and Vietnam in 2015, accord- pressure to be more circumspect about undisclosed vulnerabilities in software HackingTeamsaysonitswebsitethat ingtooneItalianofficial. licences” and said Egypt was “a good — known as zero-day exploits because it obeys the Wassenaar rules, to which ItalianofficialssuspectRegeni’sdeath example of a country where the politics the software maker has zero days to fix Italy is one of 41 signatories. It said it Visit ft.com/subscribenow was the work of Egypt’s security serv- have changed and the relationship has them before they become a problem — only sells to governments, not compa- ices, despite Cairo’s denials, and Rome’s changed”. But he was cautious about toexploitwithitsproduct. nies or individuals, and will not sell its mistrust of official accounts of the stu- drawing any conclusions, adding: Human rights groups have criticised products to countries blacklisted by the *Terms and conditions can be found at www.ft.com/subscribenow dent’sdeath reached a tipping point last “Whether that is the factor behind this HackingTeamforsellingtoregimesthat US,EUorUN,amongothers.

APRIL 20 2016 Section:World Time: 19/4/2016 - 19:49 User: hyltonm Page Name: WORLD1, Part,Page,Edition: LON, 5, 1 6 ★ FINANCIALTIMES Wednesday 20 April 2016

INTERNATIONAL

Leaders at odds Budget gap Kremlin Merkel stance on migrant plan angers Renzi orders state Berlin rejects Rome idea The Italian plan, dubbed the “migra- Seibert added that the EU already had from Italy — for funding common chal- before on aspects of the migration crisis companies to tion compact”, was well received in appropriate instruments in the bloc’s lengessincethe2008financialcrisis. —namelyontheEU-Turkeydeal,which to fund refugee expenses Brussels. Donald Tusk, EU council pres- budget. Germany has blocked the proposals controversially stemmed migrant flows by issuing EU bonds ident, welcomed the idea and agreed to Mr Renzi could not conceal his irrita- because of fears that bonds could ulti- from the Middle East along the Balkan pay higher “work on an ambitious plan” to stem tion at the German reaction. “We have mately result in Berlin having to shoul- route last month, and on the finger- migrationwith“thirdcountries”. proposed eurobonds . . . if Merkel and der the debts of economically weaker printingofmigrantsatItalianports. JAMESPOLITI —ROME dividends STEFANWAGSTYL —BERLIN But one crucial aspect of the plan — to countries,notablysouthernEUstates. But generally, Berlin and Rome have DUNCANROBINSON —BRUSSELS fund “migration management” costs in The latest dispute between Mr Renzi been allies in the push for a revision of Italian frustration with Berlin boiled member states and investments in Tensions between and Ms Merkel comes after a few EU asylum rules, a sweeping relocation JACKFARCHY —MOSCOW over again as Germany slapped down a Africa with common EU bonds — was Matteo Renzi months of fragile detente between the policy to spread migrants across EU and Angela Merkel Russia has ordered its state-controlled proposal from Rome to fund refugee rejected by Ms Merkel, the German Italian and German leaders. In Decem- memberstates,andresistancetoborder had appeared to companies, including gas giant expensesbyissuingcommonEUbonds. chancellor, with unusual force and ber and January, Mr Renzi had repeat- closures undermining the passport-free have eased in Gazprom, to pay at least 50 per cent of The spat reignited tensions between speed, despite her great need to main- recent months edly attacked Ms Merkel for pursuing Schengenarea. their 2015 earnings in dividends, the Angela Merkel and Matteo Renzi that taintheEU’statteredunityinthemigra- policies that fuelled populist forces In Brussels, some officials within the latest of a string of measures designed appeared to have eased in recent tioncrisis. the Germans have different solutions across Europe, but had toned down the commission are thought to be open to to plug a gaping hole in the state months. Steffen Seibert, her spokesman, said they should tell us,”Mr Renzi said in an rhetoric after a January 29 summit in the idea of refugee bonds. A spokesper- budget. Amid concern at a big rise in migrant on Monday that while Mr Renzi’s plans interview on Rai, Italy’s public televi- Berlin. son for the EU’sexecutive arm said that flows across the central Mediterranean for “a comprehensive external migra- sion. “We’re not stuck to a solution, but Some observers believe that the Ital- countriesshouldbe“imaginative”inthe The move would require eight state- to Italy in the first months of 2016, Mr tion strategy” would “naturally be it’s clear that this is a problem that the ians are using the spat as leverage to waytheyhandledtherefugeecrisis. owned entities to increase significantly Renzi, the prime minister, on Saturday deeply studied”,the EU bond idea was a EUhastoresolve,alltogether.” pressure the EU to grant Italy’sdemand The bluntness of Ms Merkel’s latest the amount they pay the government asked the EU to offer financial incen- non-starter. He said: “The federal gov- Ms Merkel is, however, only restating for leeway on its budget rules to deal rejectionreflectstheconcerninhercon- and other shareholders in dividends — tives to countries in sub-Saharan Africa ernment sees no basis for a common her well-known opposition to plans for with migration expenses. A decision on servative CDU/CSU bloc about the potentially forcing them to increase lev- for them to curb migrant flows and debt financing of the migration EU bonds, which have been proposed thosebudgetrulesisdueinearlyMay. recent electoral success of the rightwing erageorcutspending. readmitthemafterdeportation. expenditures of member states.” Mr repeatedly — with consistent backing Italy and Germany have clashed AlternativeforGermanyparty. Dmitry Medvedev, prime minister, signedanordermandatingthenewdivi- dend levels on Monday, according to a statement published yesterday. The Immigration. Fragmented landscape move would bring an extra 100bn rou- bles ($1.5bn) to the 2016 state budget, hesaid.ItcomesasRussiaisbracedfora second consecutive year of recession amid lower oil prices, sending the gov- Refugee influx rattles ‘Russia-Germans’ ernment scrambling to amend its budget. It was planned on the assump- tionofa3percentdeficitbasedoncrude pricesaveragingUS$50perbarrel. Sociallyconservativegroup’s ForRussia,whichreliedonoilandgas allegianceswaystotheAfD revenuesformorethanhalfofitsbudget until 2014, the slide in crude prices is inapoliticallydividedarena painful. Last year,lower oil prices drove the share of oil and gas down to 43 per —PFORZHEIM cent of budget revenues and in March STEFANWAGSTYL thatsharefelltojust28.6percent. AndreasFabrizius,a29-year-oldwelder Moscowhasalreadymadeplanstocut fromPforzheim,ishelpingtostirupone spendingby10percent,andisplanning of Germany’s most settled immigrant to privatise government stakes in some communities — his fellow ethnic Ger- of its most valuable companies, includ- mansfromtheformerSovietUnion. ingoilcompaniesRosneftandBashneft, For years, they mostly backed Angela diamond miner Alrosa and VTB, the Merkel’s conservatives, often out of country’ssecond-largestbank. respect for former chancellor Helmut However,it is still unclear how exten- Kohl, who opened Germany’s doors to sive the privatisation will be. Many ethnic Germans from eastern Europe influential figures in the Russian elite following the cold war. They mostly have argued against privatising state workedhard,securedjobsandsoughtto assets at current low valuations, while integrate; some saw themselves as even the corruption-tainted sales of state moreGermanthantheGermans. assets in the 1990s have tarnished the But the refugee crisis has shaken cer- concept of privatisation for many tainties around the 2.5m “Russia-Ger- Russians. mans”, descendants of farmers who The move to mandate higher divi- moved east centuries ago but kept their dends also comes as Russia’s plans to culture. In last month’s regional elec- launch its first international bond since tions, many gravitated towards the im- the imposition of sanctions over migration-sceptic Alternative for Germ- Ukrainelookincreasinglydoubtfulafter any party that scored big gains in polls western governments pressured banks opposingMsMerkel’sopen-doorpolicy. nottoparticipateinthedeal. AmongitsbiggestvictorieswasinPfo- “Inthecurrentsituation,everyrouble rzheim,ahistoricgoldsmithingcentrein counts and the government is under- south-west Germany with a large immi- standably trying to mobilise all grant population, where the AfD won resourcestoboostrevenuesoastoavoid nearly 25 per cent — double the local deeper cuts to spending,”said Vladimir regional average. And its best result in On the march: landscape. Security experts also warn trations of Russia-Germans and AfD mass sexual assaults in Cologne on New Tikhomirov, chief economist of broker- the town was 43 per cent in the modern the refugee the radicalisation of some Russia-Ger- voters is strong. Sergey Lagodinsky, an Year’sEveblamedonArab-lookingmen, ageBCS,inanotetoclients. suburbofHaidach,wherenearlyhalfthe crisis has shaken mans increases the chances of Moscow analyst at the Heinrich-Böll Foundation reports emerged in January of a 13 year- The higher dividend payments would 8,500 residents have a Soviet family certainties usingthemasapoliticalweapontotryto research institute and himself a former old Russia-German girl in Berlin who apply to eight state-owned companies, background,includingMrFabrizius. around the 2.5m undermineGermanandEUstability. Soviet immigrant, says: “The Russia- claimed she had been raped by men of according to a copy of the order pub- “I’m not against immigration,” says Russia-Germans Manfred Gullner, head of the Forsa Germans voted CDU because of Kohl. foreign appearance. Although police lished by the government yesterday: MrFabrizius,whoarrivedinGermanyin Hannibal Hanschke/Reuters polling agency, cautions against gener- Now their trust has declined because of ruled her story was fabricated, the case Gazprom,thestategasgiant;Alrosa,the 2002. “But immigrants must conform alisations and says local influences Merkelandherrefugeepolicy.Moreand of“Lisa”resonatedamongformerSoviet diamondminer;oilcompaniesBashneft withourrules,nottheotherwayround.” played a role. Pforzheim, for example, morewillvotefortheAfD.” immigrants, not least because Russian and Zarubezhneft; RusHydro, the Although he declined to say which has a long rightwing tradition: it voted This shift has been driven by more mediahighlightedtheallegations. hydropower company; Sovcomflot, party he supported, he delivered AfD- strongly in the 1990s for the Republi- recent ex-Soviet migrants, whose politi- Stefan Meister, a Russia expert at the Russia’s largest shipowner; Transneft, like warnings at a recent rally of about cans,anearlieranti-immigrationparty. caloutlookisshapedlessbygratitudeto DGAPthink-tankinBerlin,saystheLisa the state pipeline monopoly; and Ros- 800 immigrants. Mr Fabrizius now But the correlation between concen- MrKohlthanbyadmirationforRussian case shows there is “a policy from the neftegaz, a holding company for the arranges patrols to keep Haidach “safe president Vladimir Putin. Unlike their Russian side to activate [Russia-Ger- state’s stakes in the energy industry, forordinarypeople”,eventhoughpolice km elders, they feel confident about their mans].”But Fyodor Lukyanov,editor of includinginRosneft. saylocalcrimeratesarelow. Soviet past and stay in touch with their ‘I’mnot Russia in Global Affairs magazine, says: The order would require them to pay Russia-Germans are descended from homelandviatelevisionandinternet. against “It’sa very Soviet way to find somebody the higher of 50 per cent of net profit settlers recruited in the 18th century by The newcomers’ lack of integration immigration outside to be responsible for dysfunc- under international financial reporting Catherine the Great, who came to live Berlin barely registered politically until the tionsinone’sownsystem.” standards(IFRS)orRussianaccounting along the Volga river, giving rise to their Ukraine crisis began. This divergence butthey Mr Meister fears Kremlin-backed standards. original name, Volga Germans. During has been compounded by the refugee mediacouldnowseektofueldiscontent For some companies, that would thesecondworldwar,Stalinsawthemas GERMANY crisis. Many Germans have been unset- must over other issues, not only among Rus- require a significant lift in dividends — potential collaborators andsent them to Cologne tled by the arrival of more than 1m conform sia-Germans, but among the country’s potentially benefiting minority share- Siberia and central Asia. Many retain CZECH mostly Muslim refugees since 2015. But withour 3m other Russian-speaking immi- holders. Gazprom’s board has already theirGermanlanguageandculture. REPUBLIC Mr Lagodinsky says Russia-Germans grants. This creates the prospect that recommended dividends of 7.4 roubles The success of the AfD in Pforzheim Pforzheim have felt it more keenly because they rules,notthe more will switch to upstart parties such per share, which analysts estimate is raises the prospects of further electoral are social conservatives; less exposed to as the AfD. “I think the Russians were roughly half what it would be forced to gains among Russia-Germans, adding to FRANCE ethnicdiversitythanotherGermans. otherway surprised by the Lisa case and have pay under the new rule. The company’s Germany’salreadyfragmentingpolitical With Germans already outraged over round’ startedtoexploreotherpossibilities.” sharesjumped6.6percentyesterday.

Nagorno-Karabakh Moscow plays the peacemaker as decades-old conflict flares in the energy-rich Caucasus

JACKFARCHY impression in Baku and Yerevan that Azerbaijani army chiefs. Days later, the lack of engagement: “The whole situa- TheEUhastriedtoforgeclosertieswith ters, he argued that “you will have to theyarealone,thathe’stheonlygamein Russian foreign minister and prime tion with the ceasefire regime not hold- formerSovietstatesintheregion,which takeuptheshotgunatsomepoint”. As one of Europe’s most intractable town,”saysMatthewBryza,aformerUS ministerwereinBakuandYerevan. inganymore[ . . . ]isadirectconse- is strategically vital to the bloc as an Russia has looked to strengthen ties conflicts teeters on the brink of war, ambassadortoAzerbaijan. Moscow’s energetic diplomacy over- quence of the inability or unwillingness energy supplier. The main oil pipeline with both countries following the Russiaisindiplomaticoverdrive. Nagorno-Karabakh — a mountainous shadowed the work of the OSCE Minsk oftheinternationalcommunitytoact.” from Azerbaijan to Turkey runs less flare-up. In Yerevan last week, Gazprom FightingbetweenAzerbaijanandArme- region roughly the size of Luxembourg Group, a multilateral body co-chaired US diplomats privately concede there than30milesfromNagorno-Karabakh. agreed to extend a gas supply contract nia over the mountainous enclave of — lies within the borders of Azerbaijan by the US, France and Russia, which Azerbaijan and Armenia accuse each withArmeniaandcutalreadylowprices. Nagorno-Karabakh left more than 100 but is populated by ethnic Armenians. since 1994 has been working to find a otherofstartingthefighting.ButasTho- In Baku, Sergei Lavrov, Russian foreign dead this month and plunged a two- The conflict began in the dying days of solution to the conflict. The group did Vladimir Putin: mas de Waal, an expert on the Caucasus minister, discussed a proposed railway Russian president decade-oldpeaceprocessintocrisis. the Soviet Union, and expanded into a not meet until April 5, by which time sent ministers to at Carnegie Europe, says, exchanges of linefromRussiatoIranviaAzerbaijan. In response, Vladimir Putin, the Rus- bloody war that left more than 20,000 Moscowhadbrokeredaceasefire. the disputed fire across the line of contact have Nonetheless,Russiaisnotawhollysta- sian president, brokered a ceasefire at deadandamilliondisplaced.Theregion “It took me by great surprise that it region when become commonplace: “It’s not really bilising influence. It would continue to talks in Moscow and sent some of his has run its own affairs with support took the OSCE Minsk Group co-chairs a fighting began the question who fired the first shot, the sell arms to both sides, Dmitry Rogozin, most senior lieutenants to the region. fromArmeniasinceaceasefirein1994. considerablelengthoftimetoconvene,” questioniswhoescalatedandwhy.” the deputy prime minister, said this Analysts and diplomats say Moscow’s When the worst fighting since that said Tahir Taghizadeh, Azerbaijan’s is little appetite to launch a new diplo- The escalation appears to have been week. And people who have worked on move to act as peace broker could allow ceasefire broke out on April 1, Russia’s ambassadortoLondon. matic push in the waning days of the driven by Azerbaijan, which advanced the settlement process say that neither it to increase its already substantial foreign and defence ministers were Armenia’s foreign ministry said in a Obama administration, according to beyond the line of contact to seize new side would have faith in a lasting peace influenceinanenergy-richregionthatis making calls to their Azerbaijani and statement: “We are grateful for Russian peoplebriefedontheirthinking. land in the form of a few “strategic brokeredbyMoscowalone. a key focus of EU plans to diversify gas Armenian counterparts within hours. A efforts so far and we are hopeful that Still, Nagorno-Karabakh, located at heights”—anescalationunprecedented As Mr Bryza says: “The key to resolv- suppliesfromRussia. few days later in Moscow a truce was they will continue until a final resolu- the seam of Europe, Russia, Iran and since1994.MrTaghizadehconfirmedas ing this is to get the two presidents to “When the US has been so silent, hammered out — at a trilateral meeting tionisreached.” Turkey, has the potential to destabilise much. Using a metaphor of a home- have sufficient trust in each other, and Putinhasfilledavacuumthatleavesthe between the Russian, Armenian and Mr Taghizadeh criticised the west’s theentireCaucasusregion,sayanalysts. owner defending his house from squat- Russiaisnotgoingtobeabletodothat.”

APRIL 20 2016 Section:World Time: 19/4/2016 - 19:42 User: owendavid Page Name: WORLD2, Part,Page,Edition: LON, 6, 1 Wednesday 20 April 2016 ★ FINANCIALTIMES 7

INTERNATIONAL

GLOBALINSIGHT WASHINGTON Obama faces testing talks in Edward attempt to reshape Saudi ties Luce Riyadh looks to next president for closer relations while regional issues rile White House US leader’s backing for Cameron over GEOFFDYER —WASHINGTON SIMEONKERR —DUBAI Brexit risks backfiring Long before he became president, Barack Obama wanted to put some dis- tance between the US and Saudi Arabia. During a 2002 speech against the Iraq eorge Canning, the 19th-century British war that eventually propelled his presi- statesman, famously called the New World dential bid, Mr Obama referred to the into existence “to redress the balance of the Saudisas“ourso-calledallies”. old”. David Cameron, UK prime minister, no InthenowfamousAtlanticarticlelast doubt had similar hopes when he asked month on the “Obama Doctrine”, Mal- GBarack Obama to visit the country this week barely two colm Turnbull, the Australian prime months before its Brexit referendum. Who better than a minister,wasquotedasaskingthepresi- US president to refute the Brexiteer dream of replacing dent: “Aren’t the Saudis your friends?” Britain’scontinentaltieswithananglosphericworld?Who MrObamareplied:“Itiscomplicated.” better than Mr Obama to deflate the feverish ambitions of With a hint of “be careful what you BorisJohnson,MPandmayorofLondon? wish for” in the air, the consequences of Alas, that is where the poetry ends. In the age of Donald Mr Obama’s effort to reshape the rela- Trump, Americans worry about the coarseness of their tionship with the Saudis will be on dis- debate, but it is at least rivalled by Britain’s tradition of play when he visits Riyadh today and character assassination. Mr Obama is taking quite a risk tomorrow for a bilateral meeting and a withhisvisit.USpresidentsmakeapointofavoidingother regionalsummit. democraciesaheadofgeneralelectionsforfearofseeming He will be greeted by Saudi hosts qui- to meddle. By putting the UK’s economic and geopolitical etly seething at their country being future in question, the June 23 referendum is far more calleda“free-rider”bytheUSpresident importantthananyordinaryelection. andlookingpasttheelectiontoseeifthe Instead of giving a helpful tilt to Mr Cameron’s Remain next occupant of the White House will campaign, Mr Obama’s intervention could backfire. Even try to restore the close relationship of beforeMrObamaopenedhismouth,MrJohnsonlastweek the1980sand1990s. accused him of “outrageous and exorbitant hypocrisy” for But he will also meet a Saudi royal wanting Britain to persist with a sovereignty-pooling family that has in some ways taken the arrangement the US would never contemplate. Slightly president at his word and taken more more politely, a group of pro-Brexit members of parlia- regional security matters into its own ment last month wrote to Mr Obama urging him not to hands — in ways that have not always interfere. “We would certainly never think of visiting the beentothelikingoftheWhiteHouse. United States and telling the US public how to vote in an “It is like this catch-22 where we want election or the amendment of their constitution,” said them to be more responsible for their KateHoey,aLabourpartyMP. own security,but when they do it, it can Shehadapoint.Yettheintensityoftheprebuttalsbefore be ineffective and destabilising in the MrObama’svisitbetraysworriesabouthispotentialinflu- region,” says Frederic Wehrey, of the ence.MuchoftheBrexitcaserestsontheviewthattheUK CarnegieEndowmentthink-tank. could quickly negotiate a free trade agreement with the Tomorrow, Mr Obama will meet lead- US.Havinghadtograpplewithsurgingprotectionistsenti- ersoftheGulfCo-operationCouncil,the ment at home, Mr Obama is perhaps the world’s leading regional grouping that the administra- expert on how difficult that would be to achieve. Last year tion has urged to work together more Mike Froman, the understated US trade representative, closely to deal with threats from Iran said: “We are not particularly in the market for free trade andothersecurityissues. agreements with individual countries,”after he was asked Ashton Carter, US defence secretary, about prospects for a US-UK deal. In plain English that was due to meet his GCC counterparts meanttherewouldbezerochance.MrObamawilllookfor yesterdaytodiscussmissiledefenceand atactfulwaytoreinforcethatpoint. protectingagainstcyberattacks. Furthermore, Mr Obama’s popularity ratings in the UK “From the start, there was a strategy arehigherthanforanylocalpolitician,includingMrJohn- ofurgingthemtobecomemoreself-suf- The Saudi king, Salman bin societythatwascommonintheUSafter corporate America its first port of call son. They are particularly high among Britain’smillennial ficient,”says James Smith, US ambassa- Abdulaziz, far right, looks on as the 9/11 attacks. A bipartisan bill which ‘Whenever whentryingtolureoverseasinvestment generation, whose high turnout would be key to defeating dor to Saudi Arabia during Mr Obama’s Barack Obama is welcomed to would strip legal immunity for Saudi wemeetthe to help transform the economy for a the pro-Brexit case in June. UK polls show younger voters firstterm. Riyadh in January last year. Below, officialsfoundtobeinvolvedinterrorist post-oil era. US exports to the kingdom are more comfortable with the EU than older ones. Mr While being urged to take more smoke rises over Sana’a after a Saudi attacksintheUSstandsagoodchanceof Americans, continuetoexpand. Obama will hold a town hall event in London with young responsibility, the Saudis have found bombing raid on the Yemeni capital. passingtheUSSenatethisyear. itisclear “This is an important partnership,” voters. He will have dinner with royals William and Kate plentyofreasontoquestionMrObama’s The US has privately criticised “I think their [the Saudis’] hope is saysDerekChollet,aformerseniorPen- andlunchwithWilliam’sgrandmother,theQueen. commitment. Even before the negotia- Riyadh for the humanitarian impact that with a new presidency, things will thatwehave tagon and White House official in the The latter, who turns 90 tomorrow, might give Mr tion of a nuclear deal with Iran, their of the conflict revert to how they have been for dec- aspecial Obama administration. “What Obama Obama a crash course on how to influence British voters great regional rival, Riyadh criticised Carolyn Kaster/AP; Mohammed Hamoud/Anadolu Agency/Getty ades, but there have been some deeper has been trying to do is have it evolve so withoutappearingtodoso.Shortlybeforethereferendum the president for not backing Hosni structural changes in the relationship,” relationship. thatitcanbesustainedovertime.” on Scotland’s independence in 2014, the apolitical mon- Mubarak, the former Egyptian presi- says Perry Cammack, a former state Wearejust For its part, Riyadh wants more indi- arch urged Scots to “think hard” before they voted. It was dent, in 2011 and for not doing more to departmentofficial. cation that the US will remain steady in clear in which direction she wished such thinking to go. defeattheAssadregimeinSyria. Yet for all the friction, the Obama beingmore its commitment to the region, and will The margin in favour of the status quo was wider than the The culmination of these frustrations administrationhasmaintained—andin honestwith prevent Iran taking advantage of the polls anticipated. Mr Obama will be hoping for a similar has been the Saudi-led campaign in some ways enhanced — collaboration nucleardealsignedlastyear. outcomeagainstBrexitonJune23. Yemen, which Riyadh says is aimed at with Saudi Arabia. This will be Mr eachother’ “WheneverwemeettheAmericans,it In spite of Mr Obama’ssupposed coolness on the UK-US restoring a government overthrown by Obama’sfourthvisit,themostbyanyUS is clear that we have a special relation- “special relationship”, he readily agreed to this trip as a an Iran-backed rebellion. While the US president. The administration has also ship, with overwhelming energy put favourtoMrCameron.“WewanttodowhateverCameron has provided some military support, it signed a record number of arms con- into fostering that relationship,” says a thinkswillhelphimtowinthisvote,”saysLouSusman,Mr has privately criticised Riyadh for the tracts with Riyadh, which surpassed seniorSaudiadviser. Obama’s first ambassador to Britain, and an informal humanitarianimpactoftheconflict. Moscow to become the world’s third- “I think the Americans have already adviser. “Of course, it is entirely up to the British people Saudi irritation at the Obama admin- largest arms spender last year, and shown enough their confirmation of whichwaytheyvote.”Naturally,thatgoeswithoutsaying. istration has been matched in part by a works closely with the Saudis on coun- strength in our relations. We are just revival of the sort of criticism of Saudi ter-terrorism. Saudi Arabia made beingmorehonestwitheachother.” [email protected]

South Africa. August poll Geneva negotiations Corruption threatens Zuma’selection hopes Syrian peace talks on verge of collapse as ceasefire fails mendations that he repay some of the end up with a scenario . . . where the tions and less than 50 per cent in a Scandal over president means millions of dollars of taxpayers’ money liberation movement governs in rural nationalvotein2014. spentupgradinghisprivateresidence. areas through patronage; and in urban “IftheANCsucceedshereandregains ERIKASOLOMON —BEIRUT talks already looks bleak. One western ruling ANC party faces uphill AtstakeistheANC’sholdonbigcities, areas people making decisions on the itsstrength,itwouldhavebeenabench- diplomat likened efforts to keep the Syrian peace talks appear close to col- including Johannesburg, the commer- basisofdifferentchoices.” mark . . . It would say: ‘This is what we talks going to “watching a slow-motion struggle to retain the big cities lapse in Geneva after the opposition cial hub, and Pretoria, the capital. The In many ways, Nelson Mandela Bay actually need to do. Roll up our sleeves carcrash”. declared a “pause” in its participation poll will gauge how much damage the Municipality,which includes Port Eliza- and admit that yes there’s corruption This round of peace talks is the third —PORTELIZABETH andfightingintensifiedinthecountry. ANDREWENGLAND controversies dogging Mr Zuma have beth, is a microcosm of the ANC’s prob- . . . and deal with it,’” he says. “It’s very since the US and Russia, which back South Africa’s ruling party boasted that wrought on his party and whether the lems in cities where urban voters have clear to me the people love the ANC but Activist groups reported increased gov- opposing sides in Syria’s five-year civil more than 100,000 supporters would oppositioncancapitaliseonit. grownfrustratedwithpoorservicedeliv- they hate corruption. Remove corrup- ernment shelling across northern and war,beganpushingforarevivalofnego- attendthelaunchofitsmanifestoahead TheANC’sslimmajorityinPortEliza- ery,mismanagementandcorruption. tionandthepeoplewilllovetheANC.” centralSyriayesterday,adayaftersome tiations. This is Mr de Mistura’s first ofcruciallocalelections. bethintheEasternCape,apartystrong- In an attempt to turnround its for- Yet Mr Zuma’s battered credibility rebel groups launched the “Battle to attempt at raising political transition, The event, held at a stadium in Port hold,isconsideredthemostvulnerable. tunes there, the ANC appointed Danny makes the task far harder. The presi- Redress Injustices” in response to themostcontentioussubjectofall. Elizabeth, was meant to be a show of Shoulditlosecontrolofthecityitwould Jordaan — who led South Africa’s suc- dent’s charisma and common touch regimeairstrikes. The opposition wants a transitional force after weeks of turmoil that had led beadamagingblowtotheANC,heaping cessful2010footballWorldCupbid—as play well in rural areas, but analysts say The opposition and President Bashar governing body that excludes Mr Assad to calls, even from within his African more pressure on Mr Zuma and pre- mayor 10 months ago. Since then he has urban voters are angered and disillu- al-Assad’s forces accuse each other of and his inner circle. Mr Assad’s delega- National Congress, for President Jacob senting further evidence that voting battled to sort out its finances and dis- sionedwiththeirpresident. violating a US and Russian-brokered tion proposes expanding the govern- Zuma to resign. But when he strode to patterns in Africa’s most industrialised missed29seniorcityofficials. Even at the manifesto launch, there ceasefire that looks increasingly irrele- menttoincludeoppositionfigures. the stage at the 46,000-seater stadium nationaregraduallyshifting. Mr Jordaan acknowledges it would be wereANCsupporterswhofeltheshould vantinmanypartsofthecountry. At a news conference yesterday, onSaturday,banksofseatswereempty. “Itwouldmeantheycannolongertalk “devastating” if the ANC lost control of resign. After initially saying he backed The opposition’s High Negotiations Riyad Hijab, the HNC president, said ItillustratesthestruggletheANCfaces of a sentimental hold that the ANC has the municipality. The party won 52 per the president, Tapami, an unemployed Council in Geneva, facing growing frus- the opposition would accept only “real aheadoftheAugustpoll.Theformerlib- over black voters; the emotional umbili- cent of the vote there in 2011 local elec- man wearing a T-shirt handed out by tration from rebels on the ground, said politicaltransition”. eration movement may still draw thou- calchordhasbeenseveredforever,”says the ANC with Mr Zuma’s face on it, on Monday it had requested a “brief “Wewill not surrender,oh sons of our sands to its events but its support at the Mcebisi Ndletyana, an associate profes- admitted“wewanthimtostepdown”. hold” to its participation. It said the people, as long as we have a pulse,” he ballot box has waned at three consecu- soratJohannesburguniversity. He added he would still vote for the move was in protest at ceasefire viola- was quoted as saying on HNC’s Twitter tivevotessince2009.Thisyear’smunici- At present, only one big urban centre ANC and in the eyes of many black vot- tions by Assad forces and a lack of page. “We did not come to Geneva to pal vote is expected to be the most where black Africans are not in the ers, the ANC remains the only credible progress in improving conditions, such reproducetheAssadregime,wecameto fiercelycontestedsincetheANCwonthe majority — Cape Town — falls outside politicaloption. asincreasedaccess,tomillionsofpeople endthiscriminalregime.” firstdemocraticelectionin1994. the ANC’s control. But if the opposition But the August vote will test the inareasbesiegedbypro-regimeforces. Earlier yesterday, Bashar al-Jaafari, The ANC’s task has been exacerbated is able to break the ANC’s majorities in strength of that loyalty and others are Staffan de Mistura, the UN special the head of Mr Assad’s delegation and by the scandals engulfing Mr Zuma and othercities,theformerliberationmove- alreadydemandingchange. envoy for Syria, said he would continue Syria’s UN representative, said he had a threaten to cloud the party’s election ment will be increasingly reliant on Linda Alindile, a university student with the effort, already run as indirect mandate only to expand the govern- campaign. The most recent, which has poorer,ruralareas. planning to vote for the Economic Free- talks, by pursuing “technical discus- ment,nottodiscussthepresident’sfate. triggered multiple calls for his removal, “There’s no doubt about the critical dom Fighters, a radical breakaway of sions” with the HNC at its hotel in Mr de Mistura tried to play down the was a constitutional court ruling that he nature of this election,” says Mmusi the ANC, said: “They are all corrupt, or Geneva. entrenched positions and argued it was violated the constitution by failing to Maimane,leaderoftheDemocraticAlli- Waning support: President Jacob most of them are. In the ANC, the more Both sides seem to be stepping up the normal after five years of conflict, abide by the public protector’s recom- ance, the main opposition. “You could Zuma has faced calls for his removal corruptyouarethehigheryourise.” rhetoric at a time when the future of the ratherthanasignoffailure.

APRIL 20 2016 Section:World Time: 19/4/2016 - 19:41 User: owendavid Page Name: WORLD3, Part,Page,Edition: LON, 7, 1 8 ★ FINANCIALTIMES Wednesday 20 April 2016

INTERNATIONAL

Infrastructure Japan Abe poses threat to press China-led bank approves funds freedom, says UN official for projects along new Silk Road —TOKYO ROBINHARDING reasonablybeenperceivedasathreatto restrictthemedia.Hecalledforthegov- PressfreedominJapanisunderserious ernment to “get itself out of the media- threatfromPrimeMinisterShinzoAbe In an effort to counter the Obama ticipate. Under its guidelines, the AIIB World Bank-EBRD project in Kaza- regulation business” by repealing the AIIB backs schemes in and his government, according to a administration’s initial criticism, the can only fund projects open to compa- khstan’scommercialcapital,Almaty. clausethatallowsittodeterminewhatis scathingreportbyaUNofficial. central Asia and Pakistan AIIB has said it will enforce governance nies from all countries, while the ADB All three projects will receive prelimi- fairandwhatisbiased. focused on transport links standards on a par with those at the restricts participation to bidders from nary approval from the AIIB’s invest- After a week-long fact-finding mission, However, Mr Kaye also criticised the World Bank and ADB. Last week Jin itsmembernations. ment committee before the end of this David Kaye, special rapporteur on free- country’s media, saying it would easily Liqun, AIIB president, and his World ButtheADBwillnotcedeitsleadrole. month,accordingtotwopeoplefamiliar dom of expression, pointed to “really beabletoresistgovernmentinfluenceif TOMMITCHELL —BEIJING JACKFARCHY —MOSCOW Bank counterpart signed a framework “ADB is the lead financing partner for with the process, followed by a formal worrying” trends on media independ- it stuck together, preserved its inde- agreement to work together on co- go-ahead from the bank’sboard in June. ence in Japan and urged reform of the pendenceandpractisedself-regulation. China’s flagship international develop- finance projects. The AIIB expects to TheAIIBdeclinedtocomment. country’sbroadcastinglaw. Among Mr Kaye’s other targets for ment bank is hoping to pave a new Silk approve about $1.2bn in financing this ‘The benefit for AIIB is By focusing on projects led by other Mr Kaye’scomments are the first offi- criticism were Japan’s kisha clubs — Road, with at least three of its initial year, including about a dozen projects establishing a project international development banks, the cial recognition of fears that Mr Abe is closed groups of reporters that sit inside projectsfocusedontransportarteriesin with the World Bank that have not yet AIIB can build up an investment portfo- systematically weakening freedom of every government ministry, gaining centralAsiaandPakistan. beenannounced. portfolio that will help lio more quickly than if it acted alone. the press in Asia’s richest democracy privileged access to officials and infor- The Asian Infrastructure Investment The AIIB will also co-finance projects them get a better rating’ Meanwhile, the World Bank, ADB and andseekingtosilencecriticalvoices. mation but self-censoring their report- Bank will help fund a highway in Paki- with the Washington and Tokyo-led other development banks can tap into “Asignificant number of journalists I stan, an expressway from Tajikistan’s ADB,theEuropeanBankforReconstruc- the project and administers it on behalf the AIIB’s $100bn in capital, while sav- met feel intense pressure from the gov- capital to the border with Uzbekistan, tion and Development and the UK of the other co-financiers,” the tender ingtheirmoneyforadditionalprojects. ernment, abetted by management, to David Kaye, a UN and a ring road in Almaty, Kazakhstan, Department for International Develop- document said. “Bidding shall be car- “The World Bank projects they are conform their reporting to official pol- special rapporteur, says many according to people with knowledge of ment.JapanwastheonlymajorUSallyto ried out in accordance with ADB’s pro- looking at are ones where AIIB can icy preferences,” Mr Kaye told a press journalists claim to theprojectsandtenderdocuments. refuseBeijing’sinvitationtojointheAIIB. curementguidelinesandprocedures.” make a difference by helping with addi- conference. “Many claimed to have have been silenced The AIIB was formally launched in InPakistan,theAIIBwilljointheADB In Tajikistan, the AIIB will join the tional financing and increasing their been sidelined or silenced after indirect by top politicians January after attracting dozens of Asian and Department for International ADB and EBRD to help fund a road scale,” said a person familiar with the pressurefromleadingpoliticians.” andEuropeanmembercountries,many Development to fund a 64km stretch of between the country’s capital, Dush- two banks’ discussions. “The benefit for Mr Kaye came to Japan after his origi- inginreturn.“Ithinkthekishaclubsys- of them US allies that ignored Washing- road connecting Shorkot to Khanewal, anbe, and Tursunzoda on the AIIB is having something to show and nal visit, scheduled for last December, tem should be abolished. They’re a tool ton’sconcerns about the emergence of a accordingtoatenderdocument. Uzbekistan border. The third transport establishing a project portfolio that will was cancelled when the government to restrict access — they foster a kind of Chinese rival to the World Bank and The ADB-led project’s terms were link that the AIIB is expected to help helpthemgetabettercreditrating.” saiditcouldnotarrangemeetings. access journalism and undermine AsianDevelopmentBank. recentlyrevisedtoallowtheAIIBtopar- fund is the Bakad Ring Road, a joint Editorial Comment page 10 While a UN special rapporteur has no investigative journalism. I think they’re formal powers, finding itself singled out ahindrancetomediafreedominJapan.” for criticism is highly embarrassing for Mr Kaye said he had heard first-hand Japan’sgovernment.MrKaye,alawpro- reports of newspapers delaying or can- Canberra conundrum fessor at the University of California, celling the publication of articles and Irvine, will present a full report to the demoting or transferring reporters who UN’sHumanRightsCouncilnextyear. wrote articles critical of the govern- Concerns about press freedom in ment. He did not confirm allegations of Japan have been growing after Mr Abe government pressure forcing out some appointed Katsuto Momii, an ally, two broadcasters but said the cluster of years ago as chairman of public broad- departures was “surprising in an indus- caster NHK, communications minister try in which employees stay with com- Sanae Takaichi said she could shut paniesfordecades”. down “politically biased” broadcasters, Mr Kaye criticised Japan’snew official and journalists known for asking tough secrets act as going “further than neces- questionslefttheirtelevisionjobs. saryinprotectinginformationfromdis- Mr Kaye took Ms Takaichi to task, closure”,and said a body that approved saying her view was not dictated by the school textbooks should be insulated law itself, and that her comments had frompoliticalinterference.

Energy technology ‘Clean coal’ hailed as saviour for jobs in US and Beijing

LUCYHORNBY —BEIJING Paris. Mr Moniz said the two countries’ reliance on coal required the develop- Developing “clean coal” technology ment of coal technologies that emitted wouldhelpthecoalsectorintheUSand lesscarbon. China and prevent further job losses, Clean coal is contentious among envi- according to US energy secretary ronmentalists. Some see it as the only ErnestMoniz. way to reduce emissions while main- Crashing prices for coal amid China’s taining or increasing the energy supply Mustering cattle at Anna Creek station, one of Kidman’s holdings in the South Australian outback — Chris McLennan /Alamy economic slowdown and US investors’ availabletotheworld’s7bnpeople.Oth- preference for newer, less polluting ers believe it diverts funds from more energy technology has hit the industry promising technologies while so far fail- hardinbothcountries. ingtodeliveronemissionsreductions. LastweekUScoalgroupPeabodyfiled The US is promoting pilot projects in ChineseconsortiumstrikesAustralialanddeal for bankruptcy under the weight of China, including carbon capture and about $6bn in debt. Meanwhile, Bei- storage. Chinese construction compa- jing’s bid to shut down capacity and cut nies have been involved in planning JAMIESMYTH —SYDNEY complied with all requests that have which raised concerns about the prox- sortium is pledging to invest A$46.3m jobs in the sector last month prompted coal-based projects in the US, including been made by the Foreign Investment imity of a missile-testing range to Anna ($36m) in capital improvements and mass protests in China by coal workers the energy department-backed Texas AChinese-led consortium has agreed Review Board and we believe the sale Creek,oneofKidman’spastoralstations. restocking in Kidman in the first year fromatleasttwobigstate-ownedmines. Clean Energy plant, although many of to buy a historic Australian company will secure the long-term future of the To meet regulators’ concerns, Kidman afterasale,andtocreate50jobs. Clean coal is the holy grail for those thoseprojectshavestalled. that owns more than 1 per cent of the Kidman enterprise,” said John Crosby, has agreed to a separate sale of Anna Over recent weeks shareholders in who accept the world’s dependence on “For a carbon-constrained world, we country’s landmass just months after Kidmanchairman. Creek station, which controls roughly Kidman and the Chinese-led consor- the energy source but want to curb feel we must develop the enabling tech- Canberra blocked a similar deal led by A wave of Chinese investment into tiumhavebecomefrustratedatthelong emissions of carbon and other green- nologies for all sources, including coal. thesameprospectivepurchaser. foreign housing, agriculture and public review into a sale process, which first house gases that scientists say contrib- The marketplace will then decide,” Mr Shanghai Pengxin Group has brought in infrastructure assets is generating pub- 80% A$46.3m began in April 2015. This prompted utetodamagingglobalwarming. Monizsaid. Australian investors since the previous lic concerns in many developed econo- Company run by Amount the themtorefusearequestfromFIRBfora “The idea of having a continued China consumes about 4bn tonnes of deal was blocked, but S Kidman & Co’s mies, including Australia. While Can- Shanghai Pengxin consortium is furtherdelayinitsdecision-making. opportunity for coal use in a highly car- coal a year for power generation and decision to sell most of its holdings to berrastatesitcontinuestowelcomefor- would acquire this pledging to invest But in an apparent effort to head off bon-constrained world is something direct burning by industrial users, the consortium creates a political prob- eign investment, it has progressively stake in Kidman in Kidman political sensitivities over foreign own- that’s attractive for carbon reasons. It’s accounting for over 60 per cent of its lem for Scott Morrison, Australia’s tightenedtherules. ership of such a high-profile Australian also attractive in addressing the coal energy mix. The US burns about 900m treasurer, who last week tried to delay Family-owned Kidman, founded in 24,000sqkmofland,toAustraliancom- company, Mr Morrison has signed an country,the dislocations that otherwise tonnes a year, more than 90 per cent of approving Kidman’s sale beyond a gen- 1899 by Sidney Kidman, controls pasto- pany Williams Cattle Co, as long as the order extending the decision review would become even greater,”Mr Moniz whichisusedforpowergeneration. eralelectiononJuly2. ralleasesofmorethan100,000sqkmof Chineseconsortiumdealisapproved. periodtomid-July. saidinaninterviewinBeijingbeforethe Up to 5m of China’s 12m jobs in the Under the proposed sale a company outback and owns roughly 185,000 cat- The Chinese consortium is led by This means a final decision on the Peabodyannouncement. state-ownedcoalandsteelsectorscould controlled by Shanghai Pengxin would tle. In November, its proposed sale to Shanghai Pengxin, founded by Chinese proposed sale will come after a pro- China and the US, the world’stwo big- be lost amid government-mandated acquire an 80 per cent stake in Kidman foreign investors, including a consor- billionaire Jiang Zhaobai, and owns real posedgeneralelectiononJuly2. gest polluters, have reached a series of restructuring, according to some esti- with 20 per cent purchased by Austral- tium controlled by Shanghai Pengxin, estate,agriculturalandchemicalsassets. “The government will not be making deals to curb emissions and build mates, although Beijing has officially ian Rural Capital, a company listed on promptedMrMorrisontointerveneand Shanghai CRED Real Estate Stock Co, a hasty decision on this very significant domestic political support for lower- givenalowerfigureof1.8m. theAustralianStockExchange. declarehewouldblockanydeal. foundedbypropertydeveloperGuiGou- matter,”saidthetreasuryyesterday. carbon industrial policies to help meet In the US, coal mines directly “The consortium and Kidman have Mr Morrison cited advice from FIRB, jie, is the other major backer. The con- Lex page 14 commitments made late last year in employedabout75,000peoplein2014.

Contracts & Tenders Afghanistan Suicide bomber kills 28 in Kabul car blast at start of Taliban ‘spring offensive’

AMYKAZMIN —NEWDELHI stormed into the area during the attack, istration and the national security monthslateralmostconqueredthestra- theTalibanfortalksbuttheyhavefailed with security forces battling them forces, as well as the international coali- tegically significant town of Sangin in todoso,”saidMrRashid. A powerful car bomb in the centre of beforeclearingthearea. tionforcesnowgraduallyreducingtheir Helmand province. While Afghan secu- “TheTalibanwentontoannouncethe the Afghan capital, Kabul, killed 28 The Taliban, which last week warned presenceinthecountry. rity forces — backed by Nato reinforce- springoffensiveintotaldefianceofwhat peopleandinjuredhundredsmoreyes- itplannedtobringmoreterritoryunder In September, Taliban fighters briefly ments and air support — managed to Pakistanhadpromisedtheywoulddo.” terday, just days after Taliban rebels its control and renew its offensive captured the town of Kunduz and two push the rebels back in both instances, In a statement announcing their formally announced the start of against the government of President theareasareagainunderthreat. spring offensive, the Taliban rebels a“springoffensive”. Ashraf Ghani, has claimed responsibil- “There has been heavy fighting in vowed to “employ all means at our dis- Officials said the bomb, detonated by a ityfortheattack. Kunduz in the last few days, there has posal to bog the enemy down in a war of suicide bomber close to a government “Clearly the networks the Taliban been heavy fighting in Helmand prov- attrition”. securityagencychargedwithprotecting haveestablishedinKabulhavenotbeen ince in the south and there is a danger Meanwhile, Mr Ghani’s fragile unity thecountry’sVIPs,explodedatthepeak completely eliminated,” said Ahmed that either one of these places could fall government is fighting dissent among ofthemorningrushhour. Rashid, author of several books on totheTaliban,”saidMrRashid. coalition members and externally, with Afghanistan’s presidential palace is Afghanistan,PakistanandcentralAsia. Planned peace talks between Hamid Karzai, the former president, just a few hundred metres away from In a tweet, Mr Ghani said the attack Mr Ghani’s government and the rebels behind growing calls for a traditional thesiteoftheexplosion,whichoccurred “clearly shows the enemy’s defeat in have stalled, with Islamabad unable to loya jirga, or tribal council, to choose a in a crowded area where homes, face-to-face battle” with the Afghan persuade the Taliban’sleaders, many of newleader. mosques, schools and businesses are security forces. But the devastating whom are believed to be in Pakistan, to Nato members are due to meet in July packedamonggovernmentoffices. explosioncomesatatimeofrisinganxi- A man in Kabul learns his relative come to the negotiating table. “Pakistan in Warsaw to discuss their future plans Gunmen were reported to have ety for Afghanistan, Mr Ghani’s admin- has been killed in the bomb blast has promised that they would deliver andpresenceinAfghanistan.

APRIL 20 2016 Section:World Time: 19/4/2016 - 19:36 User: owendavid Page Name: WORLD4, Part,Page,Edition: LON, 8, 1 Wednesday 20 April 2016 ★ FINANCIALTIMES 9

FTBIGREAD. CHILE

As Beijing’s crackdown on lavish gift-giving hits expensive wines, Chilean exporters are taking aim at China’s casual drinkers. Can the grape wean Santiago from its dependence on bulk commodities? By Lucy Hornby

he bottles of Great Wall, Changyu and Dragon Seal Chile wine exports to China Annual value ($m) winelineuplikesentrieson the shelf behind Cristián 250 López as he sits in his office Tin Santiago’sgleaming business district. 200 For Mr López, in charge of Asian sales Bulk for Chilean group Viña Concha y Toro, Bottled these are a daily reminder of the fast- 150 changing fashions of Chinese cities half a world away. “Chile and China both 100 start with ‘C- h-’ but they could not be fartheraway,”hesays. Turning copper 50 Chinaistheworld’slargestmarketfor redwine,whichshouldbeenoughtoput it on the radar of any winemaker.But as 0 the business seeks to recover from the 2003 05 10 15 Chinese government’s crackdown on Source: Viñas de Chile (based on customs data) corruption and lavish gift-giving, con- into wine sumers are turning away from expen- sive French labels to “new world” desire for authenticity by investing in exporters like Chile, the fifth-largest Chile directly, Mr Venegas says. “The wine-producing nation and second- most important thing is that the label largestsuppliertoChina. says‘Chile’.” For Chile, this is more than a sales opportunity: the hope is that the wine BuildingBrandChile business can wean the country off its Bottled wine is Chile’sanswer to its cen- dependenceonbulkexportslikecopper tury-old dilemma — what to do with too andagriculturalcommodities. much of a good thing? In the 19th cen- Wine appreciation is growing among tury it was nitrate, used in fertiliser and prosperous Chinese. In Shanghai or Bei- explosives. Chileans feel the boom cre- jing, professionals meet at wine bars. ated little lasting wealth. In the 20th Well-offcouplesgiveabottleasagift.At century mining put the country on the map as the world’s largest copper pro- ducer. “In Latin America there’s an embed- ded idea of the curse of natural resources,”sayseconomistPatricioMel- ler, head of the state-backed think-tank FundaciónChile. Santiago’s solution has been to diver- sify exports. Fundación Chile incubated a salmon industry, then fruit, and is working on shellfish. The development of bulk wine exports means Chile pro- duces twice as much as it did in the $5bn 1980s,eventhoughlocalwineconsump- ValueofChile’sannual tionisonlyone-thirdwhatitwasthen. fruitexports China’s boom presented a mixed blessing for the copper producer. The holiday times, families propose toasts economy grew at the fastest pace in with red wine instead of the fiery, high- alcoholbaijiufavouredbyoldermen. Ten years ago, Chinese who liked the cachet but not the taste of wine mixed it with Sprite to make it go down better. Supermarkets would plastic-wrap two bottles of wine to a can of Coca-Cola as a salespromotion.AChinesedairyexecu- tive once proudly poured yoghurt into French wine, to demonstrate the versa- tilityofhisproduct. All that is in the past. Ecommerce is the fastest-growing channel for wine $40bn sales in China and specialist clubs are Annualcopper springing up. In 2013, Mr López moved exportsdwarfallothers to Shanghai, intending to stay for six months. He ended up living for two Ready to go: wine casks at the Cono for instant price comparisons. “It has Chile’s sunny, dry days and cool eve- salvaged many a Chinese brand, but Latin America but tilted dangerously years in a country he calls “crazy, like a Sur vineyards 200km south of exposed brands that don’t have a solid nings create far more grape juice than marketers are discreet about such towards a single product. Chilean wine movieonfast-forward”. Santiago — Martin Bernetti/AFP/Getty pricing strategy,” says Mr López. “If the market for Chilean bottled wine can details. and seafood sales to China quadrupled Around the globe, wines from Chile, pricingisallovertheplaceitaffectsyour support. The excess is pumped into Mr Venegas is unusual because he is afterthetradedealbutweredwarfedby South Africa, Australia and the US have brand in every way possible. If you plasticbladdersbigenoughtofitinsidea willing to discuss De Martino’s three copper. Chile’s wine exports are worth eroded the market for their French aspire to build a brand, the challenge is shipping container and sent to China or product lines: bottled wines, bulk sales $2bn per year, fruit $5bn and salmon counterparts. Diners in London and different than if you just want to sell Europe. and grape juice sales. He is equally $3.5bn. Copper takes the main share, at New York now choose a bottle based on wine into China. A lot of discipline is proud that Marcelo Retamal, De Mar- $40bn. involved.” tino’s winemaker, was recently named Taxi drivers in Santiago rattle off cop- ‘Chinaboughthuge the13thmostinfluentialintheworld. per prices the way Shanghai cabbies Bulkcommodity While Viña Concha y Toro is mapping point out the price per square metre of volumesofbulkwineand Leaving Santiago on the motorway, the precise habits of China’s cosmopoli- eachhousingblock.Copperaccountsfor dusty residential neighbourhoods tan drinkers, Mr Venegas sees Chinese 55percentofChile’sexportsandalmost expensivebottles.Mostwas quickly give way to flat green vineyards wine sales from the point of view of his 15percentofgovernmentrevenues. forcorruption.The and billboards advertising fungicides. customers, the owners of Chinese labels Jorge Heine, Chile’s ambassador in This is the Maipo valley, the heart of like the ones whose bottles lined Mr Beijing, was bemused when journalists industryhastostartagain’ Chile’swinecountry. López’sshelf.Thepictureisnotpretty. in Santiago started calling him ahead of In the town of Isla de Maipo, a road “Themainconcernforsomeyearshas China’s quarterly announcement on the type of grape rather than their crewwithasinglebackhoehascreateda been corruption. The industry suffered gross domestic product last week. “This knowledgeofFrenchgeography. traffic jam. Just past the construction a lot. China bought huge volumes of is not the stuff that normally makes China was an exception to this until lies the De Martino vineyard, where bulk wine and very expensive bottled headlines in Chile!” he noted. It is now. recently. Confused about which wine to export manager Francisco Venegas dis- $3.5bn wines — most of that consumption was China’s slowdown has ended the com- buy, newly rich Chinese would simply plays a framed photograph of a cere- Diversificationhassparked for corruption, for people related to the modities supercycle. The value of the buy the most expensive French labels. mony, 10 years ago, to mark the day a growthinsalesofsalmon government.Bigparties,veryexpensive peso has plummeted and an increas- “People are becoming more sophisti- free-trade agreement between China gifts,” he says. “The whole industry has ingly unpopular government is trim- cated in terms of thinking which coun- andChilecameintoeffect. Winemakers with bulk sales keep hadtoadjustandstartagain.” mingbudgets. tries the wine is coming from rather Following that deal, copper exports them separate from their bottled As China’s purge took effect, one Amid the mining downturn, those than just choosing France,” says James quicklyturnedChinaintoChile’slargest brands, with good reason. A customer nichemarketthatsufferedwascounter- involved in wine marketing do not pre- Roy, analyst at the China Market trading partner. Wine exports also selecting a single bottle from the feit wines. At the peak of the country’s tendthatitcanreplacecopper.Theydo, ResearchGroupinShanghai. surged, doubling within eight years. But wooden shelves of a wine shop does not boom, Chinese consumption of French however, see their efforts to build a Mr López sees an opening for Chile. most Chinese who drank Chilean wine want to think about 24,000 litres of the wine outpaced the production of top nameforChileanwineasawaytocreate He wants to convince the 36m Chinese were no more aware of where it came stuffsloshingacrosstheoceans. French châteaux. A clue to that arith- abrandforthecountryitself.Thiscould who purchase at least one bottle a from than they were of the origin of the A lot of bulk wine goes to pad out pro- metical impossibility lies in the $500 translateintomoretourism,theseedsof month that wine need not be expensive copperintheirmobilephones. duction for other countries’ labels. In paid for empty bottles of Château Lafite aserviceindustryandthebeginningofa tobegoodvalue. $2bn That is because most of the Chilean China, no laws require the disclosure of in Beijing. Chilean bulk wine may have path away from being an exporter of He has an unlikely ally in the Chinese Valueofannual product sold to China is “bulk wine”, a theoriginofwineinsideabottle.Mixing filledthembutnooneiswillingtosay. bulkcommodities. Communist party, which is in its third wineexports commodity,likecopper. in better quality Chilean bulk wine has Bottled wines account for three-quar- “Wines are Chile’s product. It’s the year of an unrelenting anti-corruption ters of Chile’s wine sales to China by flag. All those other products, copper, drive.Winesaleshavesuffered,particu- value, but only one-third by volume. whatever, there’s no designation of ori- larly French wine, which government A tale of two critics [that] I was going to do this for the rest of ($1.50) a bottle, or Rmb19.90 or The bulk trade could suffer if Beijing gin. Wine is the product that gets in importers and state-owned firms my life.” Rmb29.90. I wouldn’t drink that,” he everadoptslabellingrulestomakeclear frontoftheconsumer,”saysMrHooper. boughtinlavish,bribery-fuelledbinges. How wine consuming But the people taking Mr Qu’s courses says, “I don’t know what’s inside.” wherewinecomesfrom. “Wineisourambassador.” Wine consultant Guy Hooper recalls became a business on wine appreciation are more likely to be A similar sense of indignation “In my latest trip I found customers extravagant dinners even in provincial sales representatives trying to get their inspired Jim Boyce, Chinese wine’s becoming aware there were other cities, far from Beijing. “Everyone was If wine sales are still a developing tongues around strange foreign greatest cheerleader. His Grape importers and their wineries are really very glamorous and we were like the business in China, the practice of wine terms than wine consumers. Wall of China blog promotes cheating,” Mr Venegas says. “They are celebrities. There were models on cat- criticism is in its infancy. “I don’t feel consumers like the best of the country’s losing confidence in their own imports. walks, signed bottles as gifts, and then a “Normal people listen to their advice from sommeliers or wines. TheyarenoticingthatwhentheChinese businessmanbuys60or80cases.” friends. They don’t really understand experts. My feeling is still that Foreign journalists label says it is a French wine, or a local Those in the marketing business who the vocabulary of wine criticism,” says they look at the budget. arriving in China before the brand, most of it is just blends of the Chinese demand Chile hopes it can use thought one such sale meant they had Li Demei, wine consultant and a Advice plays only a small part 2008 Olympics provoked his cheapstuff. wine sales to help wean the country off mastered China are having to think professor at Beijing Agriculture in their consideration.” ire. “A lot of people started “Now they are in a different stage of its dependence on commodity exports again. Many failed to check on basics, University. Several years ago Mr Qu (right) felt talking about fake wine, or mixing development. They see themselves as a such as whether their Chinese agents That has been a challenge for angered at wine importers who made Coke with Lafitte, and I thought, that’s strong country and empowered. They Bribery-fuelled binges Wine sales in owned refrigerated warehouses or gen- Hans Qu, China’s first sommelier. A astronomical margins on Chinese buyers’ not what I am seeing. There was all have the money and they want to buy China have suffered as a result of uine distribution networks. “Wine spoil chance promotion from hotel eagerness to spend. Now, he is more this negative press. thegoodstuff.” Beijing’s anti-corruption crackdown destroysbrand,”MrHoopersays. bartender to wine steward 12 years worried about imported wines being sold “Now it’s almost gone the other way. Chinese wine producers led by Cofco, So do the inflated prices that some in ago “changed my life”, he says. “I liked cheaply. There are too many overly optimistic the state-owned food and beverage con- Production up Chile produces twice as marketing thought would give their everything . . . I felt really excited “Imagine a Spanish wine for Rmb9.90 expectations.” glomerate, and privately held Changyu, much wine as it did in the 1980s even labels extra cachet. Ecommerce allows are responding to Chinese consumers’ as local consumption has fallen

APRIL 20 2016 Section:Features Time: 19/4/2016 - 18:30 User: palmerc Page Name: BIG PAGE, Part,Page,Edition: LON, 9, 1 10 ★ FINANCIALTIMES Wednesday 20 April 2016

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Leaving the EU is simply not worth the risk Public sector must be clear on cost of capital Sir, We are the founders and CEOs of some of the UK’s most entrepreneurial Sir, “The public sector needs to be they need to assess the cost of the arguments clearly. He chaired a businesses — from early stage start-ups better at accounting for its assets,” risk-bearing of taxpayers. There is a commission advising the government to household names. Martin Wolf argues persuasively (April school in economics going back to an of France on how to treat risk in public Every day, as we build our 15). The public sector also needs to be article by Arrow and Lind in 1970, projects in “Le calcul du risque dans les companies, we see the benefits of being clear about its cost of capital. The which argues that governments can investissements publics” (2011). There is able to do business within Europe’s public sector can borrow at lower rates perfectly diversify risk by spreading it no reason to believe that the cost of single market of 500m consumers, than the private sector. Hence Mr Wolf over many taxpayers and thus reduce capital of the public sector is WEDNESDAY 20 APRIL 2016 with one set of regulations across 28 states that it makes little sense to the cost of risk-bearing to zero. systematically lower than that of the countries, and the ability to recruit the advocate private infrastructure A closer look suggests that this is private sector. The ostensibly low cost brightest people here and across finance. As John Kay put it in 1993, this misguided. For example, Arrow and of capital may tempt governments to Europe. view is “naive”.Default risk for Lind assume that project outcomes are disguise risks even more subtly than Once the latest round of British- government paper is low because uncorrelated with economic off-balance sheet borrowing under the backed EU reforms have been taxpayers come to the rescue when development overall. Yet, the outcome private finance initiative. Just think completed, the European market for projects fail. Taxpayers de facto of the average project must be how nuclear plant investment would Google and the art of services, as well as digital products, will provide unremunerated credit correlated with economic fare when evaluated using a cost of create even greater business insurance. They bear a risk and that is development. After all the economy is capital similar to that of the private opportunities for our companies. a cost to them and thus society at large. the sum of all projects. sector. monopoly maintenance Of course the EU isn’t perfect; but When governments care about Christian Gollier, head of the Michael Klein rather than cutting ourselves off from overall benefits and costs to society Toulouse School of Economics, makes Washington, DC, US Brussels is right to draw parallels with the celebrated Microsoft case the opportunities it offers, it is better to be on the inside helping shape the rules European antitrust cases against of users around the world. There is of this market instead of just being Egypt accepted Saudi Strong measures to offset Google seem to be like London buses. however another parallel with Micro- subject to them. Youwaitagesforonetoarriveandthen soft, namely the dominant position The economic shock of a vote to sovereignty of islands the rich parent effect theyallcomealongatonce. Google enjoys in mobile operating sys- leave the EU would also be hugely Sir, Your report “Sisi blames social Sir, You report (April 13) a striking When Margrethe Vestager took over tems, which makes its self-promoting damaging to our businesses. Leaving media users . . .” (FT.com, April 13) finding that earnings 10 years after asantitrustchiefattheEuropeanCom- tactics questionable. Apple might have could lead to lost investment, missed states that the “Egyptians had long graduation for students with rich mission at the end of 2014, Brussels a stronghold at the top end of the mar- opportunities and lost jobs. considered” the islands of Tiran and parents are about 10 per cent higher had spent the previous five years ket but Android supplies its software The UK is currently the best place in Sanafir “part of their territory”.No one than those with poor parents, even locked in unavailing negotiations with platform to more than 80 per cent of Europe to launch and grow a business; disputes that the islands have been after taking account of the university the US search group over a series of smartphones. leaving the EU will undoubtedly under the Egyptian government’s attended and subject studied. This gap competition disputes. It took her just a This latest shot in the battle between undermine the ability of Britain’s management since 1950 at the rises to 15-20 per cent for the highest few months to open the first formal Google and the commission is likely to entrepreneurs to start-up, innovate, invitation of the Saudi government. 10 per cent of all earners and the case: into whether Google abuses its 90 stoke suspicions in the US that Europe and grow. It is simply not worth the But this did not involve a transfer of highest earners are medics and per cent share of search traffic to and its institutions are anti-American risk. sovereignty, which the Egyptian economists. The authors of the study squeezeoutrivalsunfairly. and anti-Silicon Valley. While Ameri- Alex Asseily government has always accepted. are aware that these higher earnings Now Ms Vestager is poised to widen cans may have legitimate complaints Founder, Jawbone, State and Chiaro In a UN Security Council meeting in could be due to several unobserved the attack. She is expected to launch a aboutissuessuchas“safeharbour”,the Alex Chesterman 1967, the Egyptian ambassador made a causes such as higher ability of “rich second case, possibly as early as today, questions raised over Google are much Founder and CEO, Zoopla Property Group statement declaring that “Egypt has graduates”,more use by them of the this time looking at Google’s mobile morevalid. William Shu never asserted sovereignty over the “parental bank” (for private school platform, Android. It will examine A great deal rests on the commis- Founder and CEO, Deliveroo Islands, and its presence was merely to ‘I’ve never seen anything like it — fees and other handouts during and whether Google leverages its high mar- sion’sinvestigation.Theinternetgroup Lloyd Dorfman administer them”.Further, the but then my eyes aren’t what they after university) and greater ket share in mobile operating software ispromotingitsproductstoconsumers Founder, Travelex; Chairman, The Office Egyptian government has declassified a used to be’ networking capabilities. to push its apps on to customers in order to deepen its already domi- Group and Doddle 1990 document of advice from the Undoubtedly, I personally benefited whethertheywantthemornot. nant control of online search: a process Martha Lane Fox Egyptian Ministry of Foreign Affairs to from networking in my (unplanned) Ms Vestager’s concerns are under- knownintheUSas“monopolymainte- Founder, doteveryone; Co-Founder, Lucky the then Egyptian Prime Minister Dr education (what there is of it, since economist job at the Treasury in the standable. Google has come under fire nance”. Voice and lastminute.com Atif Sidki which concludes that private universities are banned) and early 1970s, thanks to a kindly and fromrivalsfortakingadvantageofcus- Given the digital world’s propensity Niklas Zennström Egyptian management of the Islands the media. sociable high ranking official who tomers’ desire for pre-installed apps to create winner-takes-all positions, CEO and Founding Partner, Atomico; “does not affect the continuation of In our country, the progressive new invited everyone (from chief economic ready for use as soon as the smart- and the feedback loop that “big data” founder, Skype Saudi sovereignty over them”.This is tax system has an effective top tax rate adviser to secretaries) who had been phoneistakenoutofthebox.Itstactics provides in sharpening search results, Peter Williams why, as you quote, Mr Sisi said: “I did of 75-80 per cent (including social involved in each Treasury macro- include ensuring a suite of its own apps this could leave Google with a vice-like Founder and CEO, Jack Wills not give up any of our rights.” security contributions), which means forecasting exercise to his house for a installed on each phone, and excluding grip on digital services. It is better for Rumi Verjee Dr Saud Al-Almmari that there will be no new wealth celebratory dinner party. It was here thoseitdoesnotwishtodistribute. Google that these questions are Founder, Domino’s Pizza UK Blakes Law Firm, created to redistribute. The brave that I first observed the Oxbridge In a speech this week, Ms Vestager decided in the open. Before Ms Ves- Saul Klein Al-Khobar, Saudi Arabia pension reforms involve tinkering at networking club and also discovered drew an explicit parallel between tager’s arrival, the commission’s probe Co-Founder, LoveFilm the edges of a system in which 1.7 the correct order in which to use an Android and the commission’s mara- into the company was plagued by sug- Simon Woodroffe Greeks can only dream of workers pay-as-they-go for one array of dinner party silverware. These thon case against Microsoft. It is an apt gestions of political interference and Founder, YO! Sushi and YOTEL pensioner, which is structurally two simultaneous events probably comparison. Just as the software group lobbyingbyFrenchandGermanmedia Arnaud Massenet such a parallel universe unsustainable. The three-times resulted in an uplift to my future salary threw in free internet browsers and companies. Due process will allow the Founder and Director, Net-a-Porter Sir, By mistake, on Friday April 15 recapitalised banking system cannot of around 20 per cent. media players with its PC operating UStechgrouptomakeitscase. Group; CEO and Director, de-pury Group I must have received the FT’s copy begin to provide liquidity until the Now about 50 per cent of pupils go software, Google freely distributes Ms Vestager is right to pick this sec- Dinesh Dhamija from a parallel universe, where there huge overhang of nonperforming loans on to higher education rather than 6 Android software to phonemakers and ondfightwithGoogle.Duckinganother President, TIE; Founder, ebookers.com is another Greece with, by coincidence, is commercially addressed. And per cent back in the 1960s, so strong mobile operators. This is then bruising battle with the internet giant For the complete list of 211 signatories go a prime minister also called Alexis meanwhile social fairness is achieved measures may be needed to offset the exchanged for the contractual right to mightseemthelessstressfulcoursebut to www.ft.com/letters Tsipras, laying the foundations of a by the excellent being forced to rich parent effect on children’s future installitsappsontheirphones. anything short of a robust approach sustainable and inclusive recovery emigrate. earnings. I doubt that the government’s Google can argue that it gives space would only weaken innovation. In the Press freedom is not a (“Greece has defied the doom-mongers Markos Komondouros advice on internships or relying on on its system for rival products such as long run, that could leave consumers — now the IMF must do its bit”). Athens, Greece kindly employers will address this Amazon and Facebook, and that it pro- with a worse service than would other- vehicle to insult people Unfortunately, here in our version of imbalance. With inheritance tax videsavaluablefreeservicetomillions wisebethecase. Sir, I wonder if Gideon Rachman has Greece, we can only dream of such an The very companies largely ineffective, then providing indeed any idea about the words of the outcome. genuine equality of opportunity may poem attacking Turkish president Despite six years of crisis, there are that should be staying require a progressive tax on lifetime Recep Tayyip Erdogan (“Merkel must still no structural reforms of any sort Sir, As a gay man, I read with dismay gifts. guard freedom of the press”,April 19). that would free Greek entrepreneurial that companies are boycotting North Prof Keith Cuthbertson Press freedom has nothing to do with a spirit from the clutch of the Carolina. Cass Business School, pure insult to a country’s elected all-consuming state, or encourage A gay person in North Carolina, London EC1, UK president. The democratic west is not foreign investment. Closed professions which has just passed a law permitting Mission creep must stop built on insulting people and nations. remain hermetically so, time-wasting, companies to discriminate against Contrary to Mr Rachman’s argument, senseless bureaucracy holds firm, the them, wants a job with an organisation Correction the pursuing of the case by prosecutors justice system doesn’t work, and any that won’t discriminate; but these are cTheBrexitscenarioshownina at the World Bank will strengthen western democracy, not form of meritocratic evaluation of staff the very organisations pulling out. front-pageillustrationyesterday tarnish it. The democratic west should in the large and inefficient public Those organisations are inconsistent: indicatinga9.5percentreductionin Crisis lending should be the job of the International Monetary Fund learn to find other, more respectful and sector is resisted tooth-and-nail. some still have operations in countries GDPby2030iftheUKoptedforWTO constructive ways of satire and Instead, the current government is with more repressive anti-gay laws: for membershiponlywasthehighendof Another emerging market commodity for years, Papua New Guinea needs to criticism. Insulting people and nations extending the well-rehearsed practice example Singapore, or worse, Saudi theTreasuryestimate.Tobeconsistent exporterdeepinfiscaltrouble;another move towards a flexible currency and is not the right way. of inundating key public sector posts Arabia. withtheotherscenarioscited,itshould chance for the World Bank to try to shoreupitslong-termfiscalposition. Dr Saruhan Ozel with cronies and is seeking to meddle James Thomas haveshowna7.5percentreduction,the proveitsrelevance. This is unlikely to be a short-term Istanbul, Turkey more than ever in culture, private London SW12, UK mid-rangeestimate. Papua New Guinea is the latest problem. There is a fundamental need exporterofoilandgaswhich,hitbythe to adjust public finances and restore falling global price of hydrocarbons in external competitiveness. Papua New recent years, has found itself short of Guinea should not simply take loans When Laurence Rossignol, France’s pressure,”she told Le Monde Like many nonreligious French foreignexchangeandobligedtoturnto from the World Bank to bail out its Feminists in minister for women’s rights, likened newspaper. “But when we support women my age, I knew where Ms international official lenders. As was banks from the short-term conse- women willingly wearing the burka to those women, we are considered Rossignol’s reaction came from. I have thecasewithNigeria,itiscurrentlytry- quencesoftheauthorities’ownactions. a tangle over African Americans backing slavery, ‘Islamophobic.’” the example of my mother in mind: ing for a loan from the World Bank This is not the first time that the she caused international controversy. The western backlash against the she insisted on receiving a higher rather than accepting the advice of the bankhaswanderedtowardsoroverthe Islamic fashion The row was amplified by her use of veil in the past two decades has been education and having a career when acknowledged crisis lender, the Inter- edge of its remit. Nigeria, which faces the word “Nègres” or “Negroes”. She fiercest in France. In 2004 it was all her Corsican Catholic family nationalMonetaryFund. similar problems with collapsing oil later apologised for the “language banned in schools. Manuel Valls, the required of her was to get married and Itiseasytoseewhythisbenefitsboth earnings and downward pressure on mistake” but she stands by her point, Socialist prime minister, and Nicolas raise children. The fact that she did Papua New Guinea and the bank. The the currency, has also asked the World criticising brands such as Marks and Sarkozy, the centre-right former not go to school before the age of eight Oceanian nation gets dollars without Bank for a loan that is fairly clearly Spencer and H&M that are designing president, have recently suggested and, unlike her older brother, was not the stigma of borrowing from the IMF, meant to bail it out of a straight-up fis- Islamic fashion. extending the ban to universities. allowed to learn a musical instrument and the bank occupies itself at a time cal balance problem, not to improve its “These clothes highlight the Feminism in France, shaped by still blows my mind. that its core mission of development productivecapacity. imprisonment of women’s bodies,”the Simone de Beauvoir’s notion that But I recently had an experience financehasbeensubstantiallyeroded. It is understandable that the bank is minister said last week. She described tradition oppresses women, has been that made me see how disconnected Nonetheless, it is not a sensible seekingnewwaystopushmoneyoutof as “irresponsible” the labels offering impregnated with republican this legacy has become from the daily move. Pretending that what is at heart the door to clients. Its role in providing burkinis — cover-all swimsuits — or secularity, or laïcité, explains Florence lives of a lot of Muslims whose parents a macroeconomic foreign exchange development finance country-by- hijabs. “Today there are some women Rochefort of the Centre for National or grandparents came to France after problemcanberesolvedthroughmicr- country has increasingly been usurped promoting political Islam and there Scientific Research. As the notion of the feminist revolution of the 1960s. oeconomic intervention will not help by China’s bilateral lending and by are some women who are suffering in laïcité has taken on a more I was talking to an unemployed 23- Papua New Guinea make the adjust- regionaldevelopmentbanks,including the suburbs from the pressure uncompromising and anticlerical hue, year-old from Bobigny, a Parisian ment that it needs. It will merely draw the new Asian Infrastructure Invest- [exerted by the former].” moving away from the spirit of the suburb similar to Aubervilliers, about the World Bank further into problems mentBank. French feminist groups have largely 1905 law that regulates the his experience, as the son of Haitian itisnotdesignedtoresolve. But rather than contorting its lend- come out in defence of Ms Rossignol. relationship between the state and immigrants, of discrimination in the The justification for calling in the ing to keep its existing model alive, the “The image that came to your mind is religious institutions, so has French workplace. He praised the UK, where bank to help is that the country’s com- bank should switch much more of its Paris slavery because that is what the veil feminism. Because it is a religious “policewomen can wear a veil if they mercial banks are short of dollars to energy towards plugging the real holes symbolises through the invisibility of symbol, she says, the veil is regarded want to”.One woman, he said, had help their clients clear foreign in development, the provision of “glo- Notebook women’s bodies in the public space,”a by definition as suspicious. recently dared to wear one to work in exchange transactions and thus con- bal public goods” — technology and dozen organisations wrote in an open “The veil is a challenge to a hard- the mall where she worked. Shoppers ductinternationaltrade.Buttherootof know-how in areas such as health, by Anne-Sylvaine letter. “Alas, the downtrodden are fought French feminist norm, which were so astonished that her employer the dollar shortage is not the kind of energyandtheenvironment. Chassany often accomplices.”Among the can be summarised as ‘I am a feminist allowed her to keep it on that they microeconomic structural issue in the The trend of countries with macr- signatories was Femmes sans Voile and I am sexy’,”Ms Rochefort took selfies with her “because it was banking sector in which the World oeconomic adjustment problems mak- d’Aubervilliers, formed by women of explains. Today’s feminists “are not such progress”. Bankhasundoubtedexpertise. ing a path to the World Bank’s door north African descent in a poor interested in nuances. Is the veil I was taken aback. The veil has Far more important is an exchange needs to be halted. The proper agency suburb of northern Paris. experienced as a religious alienation? never looked like progress to me. But rate overvalued after sustained inter- for crisis lending is across the road at French historian Elisabeth Badinter, Not for all who wear it,”Ms Rochefort if it is perceived as such by some, then vention by the central bank, together the IMF. Papua New Guinea needs to an influential feminist, has called for a says. “Studies show it’s also a tool there may be something wrong with with a collapse in dollar earnings admit it has a bigger issue than tempo- boycott of the brands in question and used by a minority that faces the approach being taken by France — because of sliding global oil and gas rary difficulties in commercial banks, says more coercive means should be discrimination to create a sense and its feminists. prices, which have driven official for- andtheWorldBankneedstofindmore considered. “Only the law can protect of dignity or opposition. The best eign exchange reserves to dangerously fruitful things to do now that its tradi- those who wear the veil under response may not be a ban.” [email protected] low levels. As the IMF has been urging tionalroleisinlong-termdecline.

APRIL 20 2016 Section:Features Time: 19/4/2016 - 18:46 User: palmerc Page Name: LEADER, Part,Page,Edition: LON, 10, 1 Wednesday 20 April 2016 ★ FINANCIALTIMES 11 Comment

Sophisticated states are failing, so politicians need to take risks Transparency over tax is not trusted, corruption is comparatively their labour market; the wasted majori- ing which politicians grew complacent Trump or Ms Le Pen are often good at OPINION low and, overall, the institutions of pub- ties of Silvio Berlusconi and Tony Blair, and voters developed a strong sense of pointing out when things are broken, the answer to Jan lic administration function as they or the eurozone’s inability to put the entitlement. they are almost invariably wrong on should. In other words, none of the clas- commoncurrencyonasolidfooting. Voters are now more fickle, and so howtofixthem. all our prayers Techau sic elements of state failure are present. There are many reasons for sophisti- majorities are less stable, which leads The only lasting way out of sophisti- Yetnothinggetsdone. cated state failure. The sheer difficulty politicians to avoid controversial issues catedstatefailureisforresponsiblepoli- For roughly 30 years, since Margaret of governing complex, highly diverse and shun big risks. As Jean-Claude ticians to worry less about getting re- n illness is afflicting socie- Thatcher performed drastic surgery on societies should not be underestimated, Juncker, the president of the European elected and to start risking their politi- ties in both Europe and an ailing British economy, the western Commission, put it, politicians “know cal careers for things that need to be BUSINESS North America: sophisti- world has done piecemeal reform at exactly what they need to do, but they done — just as Thatcher did in the 1980s cated state failure. It fuels best. Politicians have promised change, Political elites are disposed don’tknowhowtogetre-elected”. and as Gerhard Schröder did with John the Donald Trump and of course — reform of pensions, labour As long as this dilemma remains labour market reform in Germany in Kay AMarine Le Pen insurgencies and endan- markets, the tax system and education. to protect the status quo, unresolved, the result is paralysis. Over themid-2000s. gers the ability of advanced societies to They have promised smaller states and so opportunities for time, as disappointments have accumu- If mainstream politicians do not start secure a bright future for their citizens. lessbureaucracy. lated, growing numbers of voters have taking these risks, less savoury figures Sophisticated state failure is a cancer But with a few notable exceptions, lit- painless change are missed begun to voice their frustrations. Politi- will take their place. Institutions will eating away at societies in the west and tle of this has ever materialised in any cal elites, however, are disposed to pro- suffer lasting damage and the worst he Panama Papers have undermining the liberal world order meaningful way. Much of it died before but since lawmakers often do not (and tect the status quo, so opportunities for political instincts, ones that have previ- provoked yet more soul that,uptonow,theyhaveupheld. it could reach the statute books. That is cannot) know what they are doing, they painless change are routinely missed. ouslylurkedbeneaththesurface,willbe searching about tax avoid- Yet by and large, everything works as the definition of sophisticated state fail- decideinsteadtodoverylittle. The result is the slow migration of dis- unleashed. And with that, sophisticated ance. So over the weekend I it should in the mature democracies of ure: to have a functioning state in which The benefits of globalisation and the contentfromthefringestothecentre. state failure will eventually turn into read the guidance on Gaar the developed world. Elections are fair nothing gets done. There are countless entry of China into the world economy, Populism, whether of right or left, is realstatefailure. Trecently issued by HM Revenue & Cus- and free. The courts work, and so do the examples of this: the inability of succes- along with low interest rates, led to an not the answer to sophisticated state toms. For the benefit of readers outside taxauthorities.Thepolicecanmostlybe sive French governments to reform unnaturally long period of growth dur- failure. While populists such as Mr ThewriterisdirectorofCarnegieEurope the UK, and those within Britain who havealife,HMRCisBritain’staxcollect- ingagencyandGaaristheGeneralAnti- Abuse Regulation, which has been part ofBritain’staxcodesince2013. Gaar nullifies any tax advantage gained from arrangements found to be abusive. It transforms, and perhaps eliminates, the traditional distinction Britain’s friends between avoidance and evasion. It destroys the traditional argument that thereisnomoralityintaxation,onlythe obligation to comply with the letter of the law and tax code. Regulations such are right as Gaar in effect say that if you ought to be paying tax, you are legally liable for thetax.Australiapioneeredtheideaofa general anti-avoidance statute approach a century ago, and France, Germany, Ireland and Canada (but not to fear Brexit theUS)havefollowed. Thedeclarationmadein1929byLord Clyde—“Noman . . . isunderthesmall- est obligation, moral or other, so to relativetoabaselineofcontinuedmem- arrange his legal relations as to enable ECONOMICS bership, would be between 3.4 and 4.3 the Inland Revenue to put the largest per cent of gross domestic product by possible shovel in his stores . . . [and] Martin 2030; under the second, it would be the taxpayer is entitled to be astute to Wolf between 4.6 and 7.8 per cent; under the prevent, so far as he honestly can, the third, it would be between 5.4 per cent depletion of his means by the Inland and9.5percent.Shouldwebelievethese Revenue” — has been overruled by stat- numbers? No. But the direction is right ute. But it is easier to proclaim the goal and the magnitudes probably too small. than to make it operational. The guide- ow might future historians In sum, the UK economy would be less lines subject a potentially abusive com- judge a British to decision open to trade and foreign direct invest- UK exports growth G7 product market regulation G7 labour protection law mercial arrangement to a “double rea- toleavetheEUintherefer- ment than otherwise, if it left the EU. By destination, change 2004-2014 Degree to which competition is regulated Employment legislation index sonableness” test. The arrangement is endumonJune23?Itmight This would then damage its level of pro- (£bn) (%) in product markets (6=most regulated) (6=most protected)* not abusive if reasonable people would wellbeseenasthemoment ductivityandsoitsoutput. 80 400 1.0 1.1 1.2 1.3 1.4 1.5 0123thinkitreasonable. Hwhentheweststartedtounravel.Thatis Some proponents of Brexit argue that France Italy The primacy of reasonableness whyBarackObama,USpresident,isnot this is incorrect, because the UK econ- 60 300 Canada Germany makes the outcry over the Panama merely entitled to present his views on omy would become more deregulated France 40 200 Japan “Brexit”.As leader of the west, he must and dynamic outside the EU. Yet the UK Germany Japan doso. isalreadyoneoftheleastregulatedlarge 20 100 UK The primacy of The choice the UK faces in June is high-income economies. Furthermore, Italy Canada whether to exercise its option to leave the worst UK regulations — those on US reasonableness makes 0 0 US the EU now. So long as it is a member, it land use — are homegrown. Again, the EU China Russia Japan UK the outcry over the will always have this option. But it will biggest intervention in the labour mar- US Switz. Brazil * Protection for permanent workers against not be granted the choice to rejoin after ket in recent years has been the govern- Sources: Haver Analytics; OECD; HM Treasury Data=2013, except US=2008 individual and collective dismissal Panama Papers troubling ithasleft.Themomenttoexerciseaper- ment’s decision to impose a big jump in petualoptioniswhenitsvalueisnotjust theminimumwage.(Seecharts.) Another objection is that the EU is that nobody knows what would follow a tainedthewestduringthesecondworld Papers troubling. Reasonable is a mat- high, but unlikely to become much Proponents of Brexit will also argue becoming a less important market for vote for Brexit. First, proponents of war and the cold war. Pressed itself, the terofperception.Whileitseemsreason- higher. The UK should vote to leave if, that the UK economy need not become the UK. Yet the absolute increase in UK Brexitdonotagreeonwhichalternative US desires a prosperous and outward- able to say that what is reasonable is and only if, it is sure it will be better off lessopen.Butthisargumenthasacatch. exports to the EU over the 10 years to topursue.Second,wedonotknowwhat looking Europe, capable of sharing bur- what reasonable people would think than if it postponed the choice. That is The more the UK wished to preserve its 2014 was still far larger than to any the UK’s partners might want. Some dens in the decades ahead. The US has reasonable, this circular definition notthecasenow.Itmightneverbe. privileged access to the EU market (by other market even though the growth foolishly assume that latter will be gen- long regarded the UK’sactive participa- breaks down if reasonable people have Indeed, those in favour of remaining, becoming a member of the EEA) the rate was far slower. This is because the erous. But a partner who has been repu- tion in the continent, of which the latter little knowledge of the complexities of like me, would argue that, far from less sovereignty it would regain. It baseissohuge.TheUKisalsothelargest diated is unlikely to be generous in a will always be a part, as a vital interest. modernfinanceandtaxation. bringing gains, exercising the option to would not gain control over immigra- recipient of inward foreign direct divorce. Moreover, the overwhelming The UK is not the great power of the I confess that I recently opened a bro- depart would deliver immediate losses. tion and would have to accept single investment within the EU. It is incon- aimoftherestoftheEUwillbetokeepit past. But its actions still have conse- kerage account in Luxembourg, with a This, proponents of Brexit complain, is market regulations without any influ- ceivablethattheattractionsoftheUKto together. They will want to make any quences.Itisnot—andmustnotwishto subsidiary of a Canadian bank. I have “project fear”.That objection is absurd. ence on them. If, to take an opposite investors would not be diminished if it exit painful. Finally, Brexit will mean a be — a European Singapore. Only the never been to Luxembourg except to Avoiding needless and costly risks is extreme, the UK chose the WTO option did not have access to the EU market on long period of turmoil and uncertainty. west’s enemies would welcome such a visit Eurostat, the pan-European statis- howadultsdifferfromchildren. initstradewiththeEU,butdecideduni- aparwiththatofmembers.(Seechart.) The financial crisis has shown how folly. tical agency (yes, I do get out some- Possible economic costs of leaving are laterallytokeepitstariffsagainsttheEU These arguments, however, relate costly such uncertainty can be, not just How do most informed Americans, times, but not far). The purpose of the laid out in the Treasury’sexcellent anal- at zero, it would be obliged to offer the only to the long term. Despite absurd forafewyears,butfarintothefuture. Australians or, for that matter, other account is not to avoid tax, and the ysis, published this week. It argues that same deal to all other WTO members. attempts to deny this fact, it is also true For all such reasons, foreign friends Europeans, react when they see the UK arrangement does not avoid tax. I the UK would be significantly worse off Such unilateral free trade is an option. are appalled by the potential damage considering the end of a relationship opened the account to avoid excessive under any of the three most plausible Butitwouldalsoremovevirtuallyallthe done by Brexit — and not just to the UK, that gives it a voice in the direction of currency charges when buying foreign alternatives to membership: member- bargaining chips needed to negotiate Despite absurd attempts butmorewidely.Foremostamongthese the continent, while being free from so securities. ship of the European Economic Area preferential access to non-EU markets. is the US. It behoves those who prate of many of the burdens and mistakes of But I realise today that this arrange- (like Norway), a bilateral trade agree- This is quite apart from the fact that the to deny this, nobody violated UK sovereignty to remember our partners? They think it mad. Nicely, ment might sound dodgy if it was ment (like Canada) or shared member- UK would have far more clout in such knows what would follow that, had the US not become engaged, butfirmly,MrObamashouldsayso. described on the front page of a tabloid ship of the World Trade Organisation negotiationsifoperatingviatheEUthan the UK would now be a Nazi or Soviet newspaper, and reasonable people (like Japan). Under the first, the loss, ifactingallonitsown. a vote to leave the EU satellite. US resources and will sus- [email protected] mightreasonablyaskmetoexplainwhy itwasreasonable;althoughnooneinthe City of London would raise an eyebrow, and many reasonable citizens with rea- sonably sophisticated investment port- folios would have similar arrangements The secret of a world-class biotech sector (sometimeswithoutknowingit). There was nothing on David Cam- eron’s tax return that told us more than that the prime minister is a reasonably After initial enthusiasm, investors lost advantages no European country could rewardsforinnovativedrugproducers. GlaxoSmithKlineandAstraZeneca. well-off bloke, which most of us know OPINION confidence. The only big winner, in match: many high-quality universities On top of this, pioneers such as The prospects of filling that gap have already. The obvious problem of trans- termsofmarketcapitalisation,hasbeen whose biomedical research was funded Genentech, with its genetically engi- improved in the past two years, thanks parency is that journalists, the general Geoffrey Shire, whose growth has been based onamassivescalebythefederalgovern- neered insulin, were quick to bring inparttothespilloverintoEuropeofthe public and opposition politicians, who Owen largely on drugs acquired through take- ment; an efficient system for transfer- drugs to the market, giving a boost to prolonged (but now fading) biotech do not really understand what is going overs, principally in North America; it ring technology from academic labora- investorconfidencethatothercountries boomintheUS.MoreBritishcompanies on and may not want to, are suspicious hasfewlinkswiththeUKsciencebase. tories into business; a developed ven- lacked. As the sector grew, so did the have gone public. New sources of fund- of complex-sounding transactions in ritain, it is often said, has The blame is sometimes put on short- ture capital industry that had made number of specialist investors and the ing have been established by City of which they do not themselves engage world-class science but too termism, investors’ reluctance to back poolofexperiencedmanagers. London institutions and the Wellcome (or may not know that they themselves few world-class science- companies whose research will take 10 Although many of its biotechs are Trust,abiomedicalcharity.Severalear- engagein). based companies. Nowhere is years or more to pay off. But this is hard The UK’s poor performance ultimately taken over, often by Big ly-stage companies — for example, Such scrutiny has two dangers. One is this more true than in bio- tosquarewiththefactthatthecountries Pharma,theUShasbeenabletosupport those in the hot area of cancer immuno- that having to explain your possibly Btechnology.Although Nobel Prizes have known for their patient approach to has less to do with uniquely emerging companies long enough to therapies — have recently raised large complex financial affairs to unsympa- been awarded to British scientists in finance, Germany and Japan, have per- British weaknesses than create a number of giants. It took Gilead amountsoffreshcapital. theticjournalistsaddstothealreadytoo molecular biology, genetics and immu- formed worse than the UK in creating 15yearstogofromstart-uptoprofitabil- If UK biotech is to grow further, it long list of reasons why able people nology, no UK biotech company comes and sustaining biotech businesses; yet with American strengths ity, and another 10 to achieve Big Bio- needstocomeupwithabig-sellingdrug might not want to go into politics. And close to matching US leaders such as theUS,whereinvestorsarecriticisedfor tech status; the rise in its market value usingnoveltechnologytotreataserious the other is that such concerns draw Amgen,BiogenandGileadinscale,prof- their fixation on the next quarterly moneyinelectronicsandcouldapplyits to more than $100bn is the result partly disease.Oneortwosuchsuccessescould attention away from genuinely serious itabilityornumberofmarketeddrugs. results,hasdoneoutstandinglywell. company-building skills to biotech; of its successful hepatitis C drug, transform the sector’s image, and the and widespread tax evasion, corruption Several well-financed companies The UK’s poor performance com- Nasdaq, a stock market that offered Sovaldi. In the UK there is a dearth not willingnessofinvestorstosupportit. and money laundering, practices of were founded in the 1980s and 1990s, paredwiththeUShaslesstodowithdis- a congenial home for young, high- only of big biotechs but also of inde- which the Panama Papers provide yet but there were few successes and too tinctively British weaknesses than with growth companies; and a big domestic pendent,medium-sizedcompaniesthat The writer, a former editor of the FT, is furtherevidence. many disappointments, as potentially American strengths. When the first bio- market that, because of the absence of would make the life sciences sector less the co-author with Michael Hopkins of big-selling drugs failed in clinical trials. techcompanieswereformedtheUShad price controls, offered exceptional reliant on the Big Pharma companies: ‘Science,theStateandtheCity’ [email protected]

APRIL 20 2016 Section:Features Time: 19/4/2016 - 18:39 User: palmerc Page Name: COMMENT, Part,Page,Edition: LON, 11, 1 12 ★ † FINANCIALTIMES Wednesday 20 April 2016

BUSINESSLIFE

Imagine that you are facing the biggest UK study exploited a vast trove of tax the way for the universities with the Shine a light on investment decision of your life. You and loan repayment data to examine highest-earning graduates to charge Lets launch in . . . are familiar with the small print on graduates’ earnings 10 years into their higher fees (UK fees are currently the disparity of investment adverts that says, “Past careers. This is a big improvement. capped at £9,000 a year). Critics say performance is no guarantee of future Previous, less robust, data looked only the success of those institutions might Helsinki, Finland graduate pay results”,but in this case you don’t even at earnings between six months and not reflect the value of the education have reliable data on that past three years after graduation. ‘Young they provide, but simply that they by university performance. No idea of whether this The study confirmed there were big recruit people with better A-level particular investment has been disparities between the earnings of people results or richer parents, or because delivering higher or lower returns than graduates from different universities. they offer lots of courses that lead to any of the similar-looking ones on The median male graduate from the deserve as investment banker jobs. offer. Oh, and you are 17 years old. London School of Economics was much data Yet these are reasons to publish For many young people, this is what earning about £45,000 a year, for intelligent data, rather than none at all. it is like to choose a university. Not that example, while the median university as possible We need a measure of “value added” it is putting anyone off. Degrees have graduate was on about £26,300. Most so they can for each university: a sense of what never been more popular: the number strikingly, there was a substantial graduates earn relative to non- of 25 to 34-year-olds with degree-level minority of institutions (23 for men decide graduates with the same backgrounds, Dreamstime qualifications in OECD and G20 and nine for women) where the where to locations and A-level results. It sounds Population 600,000 (wider region 1.4m) industrialised nations swelled nearly median graduate was earning less than study tricky, but the authors of last week’s Invested in start-ups in 2015 $198m 45 per cent between 2005 and 2013. In the median non-graduate. study are halfway there. They did not Days to set up a company general terms, they are indeed a good But the academics did not name have all the data they required, but 14 investment. Most studies show that those institutions at the bottom. For 17- they did adjust for background and A- graduates earn substantially more over year-olds, this seems worse than level results. This narrowed the Few European countries decent English among their lifetimes than non-graduates. useless. Now they know for a fact some differences between universities but need a start-up launch pad locals, can make Helsinki But that does not mean every degree universities will be a waste of money — did not eliminate them. quite like Finland does. a tough sell for some. from every institution is of equal value. but they do not know which ones. Of course, the value of university Mired in recession for the Little wonder that some graduates — in To be fair to the researchers, there cannot be measured just by the boost past four years, the Nordic Show me the money: Start- countries like the US and UK, where are reasons to be cautious about to your earnings. But young people country has suffered the ups can draw on multiple students generally pay for higher publishing data like this. It can be ’ deserve as much information as decline of its two biggest sources for financing, from education — have been left feeling misleading to compare raw numbers possible so they can decide. I struggle industries: forestry and government innovation short-changed because they can find without context. David Willetts, the to sympathise with the purists who say Nokia. So hopes are high agency Tekes, which awards only non-graduate jobs. UK’s former universities minister, this would “financialise” higher that a cohort of former more than €100m a year, to Now there are moves afoot to equip offers the example of a university in a education. When I left university in mobile phone workers can angel investors: the chief young people with better data. deprived area that takes local students 2006, the average graduate left with turn promising start-ups executive of Supercell, President Barack Obama has passed with relatively poor A-levels. Those £9,670 in debt. Last year, it was more into the next big thing. founder of Skype, and Sarah O’Connor new “gainful employment” regulations graduates might go on to earn more than £20,000. If we did not want young chairman of Nokia are all that force for-profit career colleges to than they would if they had they not people to see university as a financial The case for: The demise of active; together they Onemployment disclose the proportion of students that attended, but they still might earn less decision, we should not have made Nokia’s mobile phone recently invested in Wolt, a graduate, how much they earn and than the UK median salary, since them pay for it. business has one benefit for food delivery start-up. how much debt they accumulate. average pay is lower in some regions. start-ups in Helsinki: a flood The UK has taken a small step At the other end of the spectrum, [email protected] of qualified engineers and Local heroes: Supercell has towards transparency, too. Last week, a some experts fear the data could pave Twitter: @sarahoconnor_ others with tech skills. Few become one of the most businesses begin without successful European tech several ex-Nokians, often at companies by daring to be the top. different. It has focused on Finland benefits from developing a few games for Entrepreneurship. Nerio Alessandri, Technogym good fundamentals: its mobile technology. To date education system has long it has four: Clash of Clans, been judged one of the best Hay Day, Boom Beach, and in the world and it has Clash Royale, developed by regularly topped the charts. small teams of no more than Foreigners often marvel at 10 people. In 2015, with 180 Fit for purpose the quality of skills, and it workers, it made €2.1bn in has established several sales and operating profits world-beating companies, of €850m. especially in gaming. Several other gaming Helsinki has one of the start-ups have gained global pre-eminent tech gatherings attention including in Europe. Slush is held in Seriously, split between November and December, Helsinki and Los Angeles, highlighting the dark winter which has tried to bring days as a reason for Finnish some of the lessons of the The founder of the fitness success because they inspire US entertainment industry equipment maker brought people to work. “Welcome to its Best Fiends title. Italian design acumen to the dark. Embrace the cold,” is the festival’s slogan. What the locals say: Juho working up a sweat, writes Makkonen, chief executive The case against: Despite and co-founder of Rachel Sanderson some big successes, late- Sharetribe, says: “There are stage funding remains a starting to be enough ou first see Technogym’s problem. Many medium- people with knowledge of motorway-side headquar- sized start-ups go abroad networks, accelerators and ters speeding along the road for financing and growth. the support ecosystem, and towards the Italian beach Finland’s isolated location the quality of engineering, resortofRimini.Undulating forces companies to look especially, is very good.” Ycurves on the roof look like a sinuous outwards but limits the size However, he says: “At the runningtrackracingtowardthesea. of the local market. Nokia point you want to get really Inside the Antonio Citterio-designed might have been a good serious — when you want to building, home to one of the world’s training ground but its sheer raise €10m or more — the largest sellers of high-end gym equip- size was not conducive to funding isn’t really ment by sales, there is no let-up in the entrepreneurialism. available.” sense of motion. Wall-to-wall gym The dark nights and machines — bikes, ellipticals, treadmills difficult language, despite Richard Milne — whirr, as they are tested by staff on the factory floor, or used by employees during their breaks in the vast on-sitegym. Innovation to watch Even in the offices people do not sit still. There are no chairs. Large black Chatbot life beyond the grave balls take their place. Written on the doors of a single lift: “Take the stairs. HANNAH KUCHLER Burn calories.” Someone admits that in this workplace it is not worth your career to be seen not taking the stairs. Everyoneistrimandsmiling. This is the vision of Nerio Alessandri, Health is wealth: our,allure, coolness. It becomes fashion anineverwroteback.ItwasMrAlessan- youwanttotoneup,ortotreatdiabetes, who founded Technogym here in his working out at andaspirational,”hesays. dri’s “sliding doors moment”; he found depression or obesity you can’t just go hometownofCesenaintheItalianprov- Technogym’s Indeed, Mr Alessandri considers he is fitnessequipmentinstead. for a walk, you need exercise as medi- ince of Romagna in 1983. Humans are headquarters. competingwithmakersofluxurygoods. In 1983 he built his first machine — cine.Youneedpersonalisedtraining.” “borntomove”,heargues.Anautobiog- Employers Technogym’s MyRun home treadmill, the Hack Squat — in a small garage. MrAlessandrisaysthebiggestgrowth raphy-cum-self-help guide published encouraging which retails at well over £2,000 in the Today, alongside Mr Alessandri’s sleek opportunity for Technogym is corpo- two years ago opens with the mantra on staff to keep fit UK, for example, is “aspirational like a Citterio-designedmachines,itlookslike rate customers tapping into a trend which Mr Alessandri has built a global is the next area Chanelhandbag”,hesays.“Butitisaspi- torture equipment. But he sold it to a amongbusinessestoencourageemploy- fitness business that had revenues of of growth, says rational for your health and wellbeing. localgymnearRimini,thenatthefront- ees to keep fit — both to limit the cost of Eternime just over €500m last year. Its machines founder Nerio That is why it needs to be trendy, cool line of Italy’s body-beautiful beach sick leave and because of growing evi- If Silicon Valley talks about Eternime says it are in top-flight hotels, gyms and Alessandri, andnotpunishment.” scene, and never looked back. For the dencethatithelpsproductivity. death, it usually plans to “preserves your most homes: “Our ancestors walked 30k a below Fitness as fashion is having a mom- first publicity photos, his wife Stefania He cites the ancient Roman mantra stop it. important thoughts, stories day, nowadays we walk less than 1k Alessia Pierdomenico ent. Hashtags #fitspo — fitness inspira- MiganidresseduplikeJaneFondainthe “menssanaincorporesano”or“healthy When Alphabet, the and memories for eternity”. dailyonaverage.” tion — and #eatclean — eating healthily 1980sTheWorkoutera. mind, healthy body”. “We need to company formerly known as Which sounds sweet, until Mr Alessandri is lean, looks younger — have spread across Instagram, with And like Mr Armani, who helped rev- return to a human-centric approach,” Google, launched its biotech you read the vaguely than his 55 years and moves nonstop. people taking selfies while working out olutionise women’s wardrobes and hesays,aftertoomuchfocusfortoolong company Calico in 2013, threatening website: “We all Seated, he rocks forward; standing, he andphotographingtheirfood. workinglivesbycreatingthesoft-shoul- ontechnology. Time magazine ran a cover pass away sooner or later. paces about. Showing off an exercise Initially,MrAlessandriwantedtobea dered suit, Mr Alessandri’s Technogym How much momentum his idea has asking: “Can Google solve We only leave behind a few bike, he decides it looks better in fashion designer and wrote to Giorgio is not just about design: there is techni- willbetestedinthecomingweeks,when death?”, while computer photos, maybe some home another position so, wearing blazer and Armani, Italy’s king of pret-a-porter, in cal innovation too. This makes him an Mr Alessandri plans to list up to 30 per scientist Ray Kurzweil takes videos, or in rare situations, formal trousers, he picks it up and lifts the early 1980s seeking a job. Mr Arm- outlier in Italy,where laggardly produc- centofthebusinessonthestockmarket a cocktail of pills he believes a diary or autobiography,” it. “Physical exercise is incredibly pow- tivity is often blamed on companies inMilan. will help him stay one step adding: “But eventually, we erful. It is too late looking for a cure in skimpingonR&Dinvestment. The reasons are threefold. Its private ahead of the grim reaper. are all forgotten.” the 20 days before you die, you need to First breakthrough: “We were the first Technogym launched the industry’s equity backer Arle Capital Partners, But one Bay Area start-up The product, currently in a have started preventing [the illness] 20 In his own to create exercise equipment with a first software system to help people which owns 40 per cent, wants an exit. is taking a more modest private beta test, creates an yearsbefore,”hesays. words built-in TV. We were then the first to training in the gym in 1996 and the first Mr Alessandri, who with his brother approach to life beyond the “intelligent avatar” that Technogym has been the exclusive add internet connectivity, which enabled gym machine with a built-in TV system owns 60 per cent of the company,wants grave by promising to use looks like you (largely supplier to the past four summer us to provide digital content on our in 2002. This year it will launch Run- to improve governance, and he argues chatbots to achieve because it is a picture of Olympics and will be again for Rio this Regrets, products.” ning Music, an interactive treadmill thatgettingfitfortherigourofthestock immortality. your face) and is trained to summer. deals and that detects the runner’stread to create market will help do that. Funds raised Chatbots are taking off. know and understand your Still, the Technogym vision is “fitness the best Best deal: “Becoming a supplier of the a personalised music soundtrack. Over- willbeusedforexpansion. They are being used to life so that people in the as pleasure”. In founding the company, British Army. Today, the UK is our all, it has 240 international patents plus Technogym is shortly to open its first order drinks, find future can converse with it. Mr Alessandri took the 1980s US fitness mentor number-one market in the world.” morethan100designpatents. standalone flagship store in a three-sto- information or, less happily, Some 30,000 people have crazeandaddedItaliandesign,with Still, Mr Alessandri’s longer-term reypalazzoincentralMilan,justaround in the case of the recent signed up for early access to a dash of dolce vita. This is fit- Biggest regret: “Choosing the wrong vision appears more intrusive, arguably the corner from the fashion capital’s scandal with Microsoft’s Tay, the service, which Eternime ness equipment that doubles person in a key position. The biggest closer to Big Brother: an Orwellian eco- gridofluxuryshoppingstreets. exchange racist comments. wants to become a database up as haute interior decor. Mr mistake for a CEO is not finding the system where logging into the Techno- Itsrevenuesin2015were€512m,with Eternime is betting that of the dead: “Think of it like Alessandrialsoinvokesanewly right person for the right place.” gymappwillfeedallthedataonyourfit- €87m of earnings before interest tax, people will get so a library that has people fashionabletermforworkingup ness and training regime to your health depreciation and amortisation. That is comfortable with these instead of books, or an a sweat, Technogym-style: “well- Best mentor: “Vittorio Giaroli, founder of club, personal trainer, insurer, doctor, up from revenues of €412m in 2013 and robotic representations that interactive history of the ness”. consultancy Value Partners in Milan, hospital and even employer. Isn’t that €37mofebitda. they will want to talk to current and future “Fitness is only hedonistic while who helped me transform my terrifying? No, he says. “The vital point “Health is wealth,” he observes, as a artificially intelligent generations. An invaluable wellness is an emotional entrepreneurial vision into a strategic is that to obtain a result you need to parting shot. In Mr Alessandri’s case, it versions of their ancestors. treasure for humanity.” approach. It is design, glam- plan.” have programmed physical exercise. If ringsparticularlytrue.

APRIL 20 2016 Section:Features Time: 19/4/2016 - 18:23 User: palmerc Page Name: BizLife, Part,Page,Edition: LON, 12, 1 14 ★ FINANCIALTIMES Wednesday 20 April 2016

Lost and found

Smartphones have curtailed sales of satnavs, and crushed their margins, but TomTom has found other ways to monetise its intellectual property – one reason its shares have outperformed Garmin’s recently

Twitter: @FTLex Email: [email protected] TomTom revenues Share prices €m (rebased, in € terms) Consumer 1600 Automotive 400 1400 TomTom performed well versus peers in recent Licensing Ashmore: Garmin 350 Goldman Sachs: quarters. May it continue. Telematics 1200 pride of place But unless the growth in inflows is 300 primary challenge surprisingly sharp over the coming 1000 The Argentines themselves joke about year, Ashmore shares have seen their 250 It is fitting that Goldman Sachs their country’s pridefulness: how does best. 800 reported first-quarter earnings on the an Argentine end it all? By climbing his 200 day of New York’s presidential primary. own ego and jumping off. 600 Wall Street’s most fabled franchise is The sense of self-worth will be Australian beef: 150 polarising, too, and Goldman has been bolstered by Argentina’s first successful 400 slammed repeatedly by Bernie sovereign bond launch this decade. The well done 100 Sanders, the firebrand challenging new president is market friendly and 200 Hillary Clinton for the Democratic has settled inherited grievances with Whenever China comes out of the 50 nomination. Mr Sanders will surely be hedge funds. With longer maturities present period of political and 0 0 heartened by the bank’s poor showing. yielding more than 7 per cent, the economic uncertainty, it is sure to have Revenue and earnings per share fell oversubscribed deal, worth up to worked up a heck of an appetite. Best 2009 10 11 12 13 14 15 2013 14 15 16 40 per cent and 55 per cent, $15bn, went well. After this year’s be ready. FT graphic Source: S&P Capital IQ; Thomson Reuters Datastream respectively, from the year before. strong run, emerging market bond Yesterday, China’s Hunan Dakang, a This revenue shortfall was not the managers have sturdy egos, too. pig breeder, said that its Australian result of the regulatory clampdown One of those, the UK-listed subsidiary would buy a majority stake When satellite navigation was the rival or software titan under the help fund such commitments. Before Mr Sanders craves. Rather, fees from emerging-market debt specialist in Australian cattle-rancher S Kidman. new thing, tales abounded of drivers dashboard and will instead flock to the interest, tax, depreciation and IPOs and dealmaking fell, as volatility Ashmore, reported yesterday. There It will pay $230m for 80 per cent of stranded miles from their destination uncompromised TomTom. amortisation, profits in the consumer in equity markets spooked investors was some good news: assets under the target, which owns about by the still-buggy tool. TomTom, a Sales in the automotive division were division were €14m in 2015 — down around the world. Trading in fixed management rose almost 4 per cent on 100,000 sq km of Australian farmland satnav trailblazer, must also avoid up 30 per cent in the first quarter. from €55m in 2014. Consumer income, currency and commodities, the quarter to $51bn, better than — 1.3 per cent of the country — rearing getting stuck in a cul-de-sac. Licensing revenue rose strongly too. margins are barely a quarter of their a strength at Goldman, was down analysts’ forecasts. Chief executive nearly 170k head of cattle. The price Smartphones have squeezed the And the stock market is increasingly 2013 levels. sharply as well. But the weaker profits Mark Coombs, a proud cheerleader for equates to 15 times S Kidman’s 2015 Dutch company’s device sales. appreciative of the value of TomTom’s It could sell the maps database; the would have looked better if regulators emerging markets, thinks there is still net earnings, according to Hunan Despite a foray into watches, first- intellectual property. Over three years, €2.5bn fetched by Here is more than had not insisted on less leveraged plenty of “absolute and relative value”. Dakang’s disclosures. The remaining quarter sales of consumer products its shares have outperformed those of TomTom’s market value. balance sheets (Goldman’s return on Someone is listening. Ashmore’s shares fifth will be bought by Australian Rural fell 4 per cent, it said yesterday. But Garmin — a US company with similar A better option, given its waning equity was a thin 6.4 per cent; it usually are up by half from their January lows. Capital, an Australia-listed company TomTom is no BlackBerry. It still has roots but without a mapping database. profitability, might be to ditch the leads peers at about 10 per cent). Emerging-market yield spreads have that invests in agriculture. two very credible assets: its mapping The question is how to monetise that consumer devices and focus on Goldman claims its results were fallen below the average US corporate The purchase looks well timed. database and, closely related, its knowledge. Digital cartography is selling to carmakers and on mapping, down to a low point in the cycle. It high-yield spread, Credit Suisse says. A Australia’s beef exports to China independence. The world’s other two expensive, especially when it comes to with the fleet tracking and licensing offset the weakness by holding year ago, markets favoured US high amounted to A$750m (US$585m) in map databases are owned by Google adding the kind of detail that will be businesses (Uber is a customer of the non-payroll operating costs to the yield over EM (the shift is as much the year to June 2015, on official data. and Here, which was sold to a needed for driverless cars. TomTom latter) driving profits. The company lowest level since 2009 (it helped about the dire state of US energy bonds Last year the two countries signed a consortium of German carmakers warned that investment levels would says there is still mileage in the that the quarter did not contain a as sentiment towards EM). EM debt trade agreement to eliminate tariffs of last year. The theory is that most increase this year; it is questionable devices that made its name. But it $225,000 speech from Mrs Clinton). issuance has not diminished, either. It between 12 per cent and 25 per cent on carmakers will be reluctant to allow a how long it can rely on device sales to risks running out of road. Harvey Schwartz, chief financial is up more than 12 per cent year to Australian beef exports to China over officer, pointed out that the bank had date, according to Dealogic. the next decade. Meanwhile, other reduced assets in the fixed income unit Mr Coombs will need to keep on factors that have suppressed supply, by a quarter since 2013, along with persuading. Ashmore’s shares have such as drought and destocking, will market. Hunan Dakang will tap into But while first-quarter results Amazon announced a video-on- similar cuts in pay and headcount priced in a very healthy recovery. Last encourage a recovery in prices, Deloitte diversified routes to China’s growing contained a 4.5m bump in non-US demand offer on Monday, separating it there. Yet he reiterated his quarter may have been good but AUM expects. demand for animal protein. Yum, yum. customers, to 34.5m, Netflix forecast from its Prime shopping membership commitment to the costly, capital a year ago were almost a fifth higher at Shenzhen-listed Hunan Dakang, just 2m more in the current quarter — programme. It offers some advantages intensive and volatile division, from $61bn. It is a stretch to believe that with a market capitalisation of nearly more than 50 per cent below analysts’ over Netflix, including the ability to which others, including rival Morgan earnings will jump enough during the $3bn, seems a sensible enough suitor. forecasts. In percentage terms, the download content to watch offline. At Stanley, have retreated. next two years to justify that sharp ARC, with a listed value of $4m, Netflix: increase would be the smallest ever. home and on its travels, Netflix will Goldman’s dominance comes in part share price recovery. looks more odd. With $350,000 cash red peril After Monday night’s 8 per cent drop, encounter similarly stubborn from sticking with its strategy through Consider what would happen if AUM on hand, ARC will need to convince the company still has an enterprise competitors, unwilling to roll over. short-term choppiness. Its shares did recover to the previous peak. On its investors to stump up $60m for the Netflix is “breaking through the value of more than four times its 2016 The battle is expensive. Netflix has traded up 2 per cent yesterday, so its average fees of 60 basis points and a deal even as its primary asset — one- cultural zeitgeist”,proclaimed the revenues. This is puzzling. Other high- raised prices in the US to help fund an confidence seemed to be appreciated. better than expected profit margin, the tenth of the listed cotton co-operative video-on-demand company in priced internet stocks can boast bigger additional $1bn spending on content, But the bank has not produced added revenues — about £42m — Nomai — is faring badly. Adding a local quarterly results on Monday. Its stock barriers to entry — think of Amazon’s but is burning cash at $1bn a year and consistent revenues in FICC since the would lift earnings to a level a fifth partner, however, may give the deal a then broke below the more tangible physical infrastructure. Netflix, like the needs to tap debt markets. The 2008 crisis. It faces real questions higher than current consensus better chance of success after it was $100 level, falling sharply after hours. TV networks it seeks to displace, is on a company notes that its bonds trade about its approach, and not just from estimates for 2016. Yet the shares are rejected last year on national security Grand ambitions helped Netflix hamster wheel of buying or producing better than their single B rating implies cranky populists running for office. up 50 per cent this year. Only if grounds. become the best-performing S&P 500 ever more content. The next Adam and suggests that “over time” the earnings rise as much as the shares The Foreign Investment Review stock of 2015. In January, it produced a Sandler film or new Gérard Depardieu rating agencies “may catch up”.Then Lex on the web have will Ashmore look historically Board will rule on the deal in July. If map of the world coloured almost series — both launching soon on Netflix again, shareholders might catch up For notes on today’s breaking cheap relative to earnings. successful, ARC will offer a new way to entirely in its corporate red to publicise — may lure more subscribers, but more with the risk of the proposition. stories go to www.ft.com/lex Ashmore can brag that its funds have access Australia’s promising cattle its expansion to 130 more countries. will always be needed. Zeitgeists are fickle things.

LOW Forecastsby 1020 11 LOW 13 13 1010 16 12 11 2 1030 LuxembourgSun 14 57 5 14 Lyon Sun 21 70 14 HIGH Madrid Rain 15 59 14 13 13 14 ManchesterSun 16 61 14 15 Miami Fair 27 81 16 Milan Sun 23 73 10 16 Montreal Sun 13 55 13 LOW MoscowShower 12 54 17 17 14 14 Mumbai Sun 33 91 15 Munich Sun 14 57 15 1010 NewYork Sun 18 64 NiceSun 19 66 16 LOW 3 18 15 Paris Sun 17 63 26 Prague Fair 11 52 16 3 15 Reykjavik Shower 643 28 Rio Sun 34 93 Wind speed in MPH at 12 GMT 18 Rome Sun 21 70 Temperatures max forday˚C Wind speeds in KPH SanFrancisco Sun 22 72 Today’stemperatures Stockholm Fair 11 52 StrasbourgSun 17 63 Abu Dhabi Sun 32 90 Belgrade Fair 16 61 Copenhagen Sun 12 54 HamburgFair 10 50 SydneySun 25 77 Amsterdam Sun 13 55 Berlin Fair 13 55 Delhi Sun 40 104 Helsinki Sleet 745To kyoSun 18 64 Athens Sun 27 81 Brussels Sun 14 57 DubaiSun 31 88 Hong Kong Fair 27 81 To rontoSun 14 57 B’ham Sun 15 59 Budapest Sun 16 61 Dublin Sun 13 55 Istanbul Rain 24 75 Vancouver Sun 19 66 Bangkok Fair 36 97 Buenos Aires Sun 23 73 Edinburgh Sun 15 59 JerseySun 14 57 Vienna Sun 15 59 Barcelona Fair 20 68 Cardiff Sun 15 59 Frankfurt Sun 15 59 Lisbon Shower 18 64 Warsaw Fair 12 54 Beijing Sun 25 77 ChicagoShower 20 68 Geneva Sun 17 63 London Sun 15 59 Washington Sun 21 70 BelfastSun 15 59 Cologne Sun 15 59 GlasgowFair 14 57 LosAngelesSun 29 84 Zurich Sun 18 64

ACROSS 3 Being fine and dry inside, showers CROSSWORD 1 Assistant’s experiment to make hit the roof (5,4) No. 15,219 Set by AARDVARK cake (6) 5 King welcomes the French 4 Expression of reservation about moderate (5)    armed fleet in battle (6) 6 Amount of land at this point 8 Look frantically in bird’s place for keeping to Reform Act? (7) files, clippers etc (7) 7 Decorative work to get spliced   9 Notice displaying vehicle outside still lacking centrepiece described by youngster after (9)  parking (7) 10 Jack handles this type of bowler 11 Rash children pick one novel by maintaining attack at both ends   unknown (7,3) (9) 12 Article about sport, portraying 13 Japanese certain to knock back English runner (4) meal when roaming ancient city 13 Project written before 1st of April (9)    about new military government 15 Murdoch, on strike, obtains street (5) food for Paddy? (5,4) 14 Piece of meat buttery in the 17 Plan shows Indian city with simple     middle, with crackling perhaps (8) housing (7) 16 Small table, pick of the bunch, 19 See about book owned by college mostly stays around office zone fellow, my good friend (3,4) (8) 21 Character in Marathon training in    18 Type of tooth woman wanted, shade (5) with gold filling (5) 22 Writer of Dublin’s expansive about 20 Bones revealed by map-makers mouth of Liffey (5)   when travelling west (4) 21 Old pop group avoiding the spotlight here? (3,7) Solution 15,218 23 Sudden eruption faculty reported   0,11(627$ %5($' at college (5-2) $ $ $ 3 7 ( 1 $ 24 Play pontoon regularly, attracting 7,786 $%67$ ,1(5 the underworld (7) ( , 7 & 7 0 8 . 25 Recall missing sappers, part of '82'(& ,0$/ .,7+ 1 5 7 . ' 2 JOTTER PAD army unit? (6) )5$,/7< (92/9(5 26 Left winger’s disguising sudden $ / , 8 $ 6 pain (6) / (66(16 ' (%$&/( DOWN 6 6 7 , / , (526 %(676(//(5 1 Dog loves constant resident in 6 $ 7 5 + & / ( pub (5) 7,7/(52/( + ($36 2 Sort of chip is thrown over, cold, ( ( 6 , 5 , 7 , eaten by cat (7) 326,7 ',6,1)(67

APRIL 20 2016 Section:FrontBack Time: 19/4/2016 - 18:45 User: wayn Page Name: 1BACK, Part,Page,Edition: LON, 14, 1 Wednesday 20 April 2016 ★ 15

TDK Corp Pioneer Netflix German Nikkei 225 Korea won/ Brent crude Silver The Firm Market should 10-year Bund US dollar woo family businesses 8.24% 0% 11.84% 1bp 3.7% 1.4% 2.24% 4.4% LOMBARD, PAGE 20 ¥6,440 ¥318 $95.56 0.17% 16,874 Won1,127.4 $43.87 $16.91

Out of bounds FCA warns asset managers to stay Goldman’s off golf course in crackdown on high-value gifts Short View profit fall caps Dan McCrum

The euro has spent much of 2016 accumulating value com- glum season paredwiththedollar.Itisingoodcompany. Five central banks have surprised many of the investors and economists who try to predict their actions this year by announcing bigger and bolder measures designed to stimulate economies, nourish inflation and — some argue for WallStreet —suppressexchangerates. Lower interest rates might be expected to weaken cur- rencies. Yet policymakers in the eurozone, Japan, New 3 First-quarter income plunges 56% Zealand, Sweden and Norway have all seen the value of their currencies rise in response. Signs that markets are 3 Bank revenue down across the board beginning to lose faith in the powers of central banks, per- haps: the strengthening of the yen appears odd only until the price is compared with the less than ¥80 a dollar pur- BEN MCLANNAHAN — NEW YORK sweep of brighter than expected earn- chased before the arrival of Abenomics at the end of 2012. ingsamongthesixbiggestUSbanks. But if it seems that the gods of money live in markets too Goldman Sachs’ profits more than But analysts said that all the big banks deep and ineffable to fathom, an even longer-term per- halved after across-the-board falls in had talked down their prospects in the spective provides a different guide. The average rate revenues, bringing down the curtain on weeks before earnings, meaning they against the dollar this century is ¥106, not far from the a sobering first-quarter earnings season had very low bars to clear. Each of Gold- ¥109 where it was trading yesterday. for the big US banks. man’s four core units showed double- Think about the euro in similar terms and it could easily Executives at the Wall Street group digit falls from a year earlier. be stronger. Worth $1.23 on average since the millennium, had prepared the market for big falls in The weakest result came from the thelevelwouldbeahalfwayhousebetweenwheretheeuro key trading and investing businesses, investing and lending unit, a set of busi- has traded since the European Central Bank announced its blaming the rocky start to the year nesses trying to make good returns on quantitative easing programme at the start of 2015 and the acrossstocks,bondsandcommodities. Goldman’s own capital. It posted net muchhigherpricethatprecededit. In the end, earnings per share for the revenues of just $87m, down 95 per cent Yet monetary policy also gives reason to think further period were better than analysts had from a year earlier, as the bank strug- euro strength is possible. Inflation has been picking up in feared, thanks largely to a one-off gain gledtoexitinvestmentsandwrotedown the US even as the prospect for further increases in interest from refinancing preferred stock. But in the value of many of the remaining rateshasdiminished,loweringbondyields. terms of revenues, which fell about assetsonitsbooks. Subtracting the level of inflation from that of nominal 40 per cent from a volatility-boosted Harvey Schwartz, chief financial interest rates produces a calculation of the real interest period a year earlier to $6.34bn, the officer, accepted that the quarter had rate faced by businesses and consumers. So, rising US quarter was the worst in more than four been “tough” but said that things were inflation has served to push real interest rates further years for Goldman. looking up. “March was better than Feb- below zero, and further below the level in the eurozone Revenues from investment banking ruary and February was better than Jan- where inflation remains moribund, according to BNP dropped 23 per cent to $1.46bn, equity uary,” he said. So far in April, he said, Paribas. trading was down 23 per cent to $1.78bn, “the market feels a little fragile...but A stronger euro would in turn mean cheaper imports and revenues from the core bond- for the most part it feels like that is and even less inflation in Europe. There would be further trading unit plunged 47 per cent to behind us”. He stressed that the bank pressure on the ECB to act, but also fresh questions about $1.66bn. Net income for the period was had kept a lid on costs during the period. thepowerofpolicyifitdoes. 56 per cent lower at $1.2bn. Pay dropped 40 per cent, exactly in line The FCA’s review found executives were spending too much wooing clients with hospitality Guy Moszkowski, analyst at Autono- with revenues, while non-payroll costs mous Research, said the “terrible” amounted to $2.1bn, the lowest since The level best for Europe period in bond trading had underlined thesecondquarterof2009. AIME WILLIAMS AND despite rules published in 2014 Asset managers insisted the Euro against the dollar ($ per €) Goldman’s exposure to institutional Even so, Goldman’s annualised return MADISON MARRIAGE cracking down on offering gifts industry had tightened its belt 1.5 investors, rather than big multination- on equity during the period came to 6.4 or hospitality that are “of greatly since the days when, Fund managers have been 1.4 als that keep trading through tough per cent, well short of its double-digit warned to stay off the golf unreasonable value”. according to one, clients were periods. target, prompting some analysts to ask course by regulators in a sign The report found that fund flown by helicopter from the 1.3 Such transactional “flow” business why Goldman was not considering more thatthegoodtimescontinueto managers were still offering British Grand Prix to the 1998 Monetary policy 1.2 softened year-on-year falls in debt radical measures to boost profits. The rollforsomeintheCity. social events not directly help- World Cup final in Paris. gives reason to trading for universal banks such as market expects Goldman to make an 8.3 ful for business — such as invit- “Soon we will be having a golf 1.1 think the euro JPMorgan Chase, Citigroup and Bank of per cent ROE for the full year, which The Financial Conduct Author- ing advisers to attend rugby day without golf balls, a fishing could rise further, America. would mark its worst return since 2011. ity said in its 2015 review into games or play golf. “Hospitality day in the gym and we will be 1.0 which would put Goldman’s earnings of $2.68 a share, Shares in Goldman were up about conflicts of interest in asset provided or received did not watching Formula One on the 2011 12 13 14 15 16 pressure on the down 56 per cent from last time’s $5.94, 1.5 per cent by midday in New York. management that executives always appear to be designed to office TV,” scoffed Justin Urqu- Source: Thomson Reuters Datastream ECB to act again. were ahead of analysts’ estimates of an Lex page 14 were spending too much woo- enhance the quality of service hart Stewart, head of Seven average of $2.45, completing a clean Lenders suffer revenue fall page 16 ing clients with hospitality, to the client,”it said. Investment Management. [email protected] EDF fears exposed as managers warn board over legal risks of Hinkley Point

MICHAEL STOTHARD — PARIS meeting on Friday, at which directors Hinkley Point, convene a special share- are expected to discuss the funding of holder meeting and talk to the French A group of managers at EDF has sent a theproject. market regulator and lawyers. letter to the French utility’s board of François Hollande, the French presi- The FT provided a summary of the directors warning they could face legal dent, is meeting ministers at the Elysée letter to EDF. The company said: “This action if the company pushes ahead Palace today to discuss financing is an anonymous document that we with its £18bn Hinkley Point nuclear options for Hinkley Point. The French have never seen and so we cannot projectintheUK. Amazon and Netflix lock statehasan85percentstakeinEDF. comment.” The letter, dated April 19 and seen by The letter by the EDF managers The letter was not signed, with one horns in streaming battle the Financial Times, said that if a board highlights the ferocity of the internal of the people involved saying that was Amazon and Netflix are battling to decision in favour of Hinkley Point led battle that has ragedover Hinkley Point, because the managers feared for their capture television audiences that are to “destruction of value” at EDF then its with Thomas Piquemal, chief financial jobs if they publicly warned on the moving away from traditional TV in directors could be held personally officer, resigning last month over his dangers of Hinkley Point. favour of digitally streamed, responsible. concerns that the UK project might Critics of Hinkley Point have raised on-demand viewing. The question is Most EDF board members are endanger the company’sfuture. concerns over the cost of the project, whether they can each prosper in an expected to vote in favour of the final Three people familiar with the letter given EDF’s stretched balance sheet. increasingly competitive environment. investment decision on Hinkley Point at confirmed its contents to the FT. It The group’s €37bn of net debt dwarfs its Lex iPAGE 14; Analysis iPAGE 19 a meeting scheduled for May 11. But the recommended that the board should €19bn market capitalisation. managers’ letter comes before a board commission a series of extra studies on Clean-up costs weigh on EDF page 17

Companies / Sectors / People

Companies Cofco...... 9 Legal & General...... 20 Rio Tinto...... 17,29 Valeant...... 16 Chesterman, Alex...... 2,21 7-Eleven...... 19 Coutts...... 16 Leo Burnett...... 16 Roche...... 18 Verizon...... 18 Coombs, Mark...... 14 AIIB...... 8 Credit Suisse...... 16 Lloyds Banking Group...... 20 Rolls-Royce...... 29 Viña Concha y Toro...... 9 Crosby, John...... 8 ANZ Banking Group...... 28 DBS...... 16 London Stock Exchange...... 20 Rosneft...... 6 Volkswagen...... 18 Dhamija, Dinesh...... 2 Adzuna...... 2 Daily Mail...... 18 London and Country...... 20 Rosneftegaz...... 6 Walgreen...... 18 Dorfman, Lloyd...... 2 Airbus...... 2 Deliveroo...... 2 Malaysia Airlines...... 18 RusHydro...... 6 Walmart...... 19 Gold, Jacqueline...... 2 Alibaba...... 18 Deutsche Börse...... 20 Marks and Spencer...... 2,10,20 S Kidman...... 8,14 Wells Fargo ...... 16 Goujie, Gui...... 8 Allergan...... 16 DoubleLine...... 28 McCarthy & Stone...... 20 Sabadell...... 20 Williams Cattle Co...... 8 Gundlach, Jeffrey...... 28 Alrosa...... 6 Drax...... 21 McDonald’s...... 1 Saga...... 20 YP Holdings...... 18 Hastings, Reed...... 19 Amazon...... 5,14,19 Dundee Precious Metals...... 21 McKinsey...... 20 Sberbank...... 21 Yahoo...... 18 Heath, Chris...... 20 Amgen...... 11 Dunelm...... 20 Meggitt...... 29 Schlumberger...... 30 Yo! Sushi...... 2 Higgins, Benny...... 20 Anglo American...... 29 EDF...... 15,17 Merck...... 18 Schroders...... 20 Zarubezhnef...... 6 Hill, Jonathan...... 20 Ann Summers...... 2 Ebookers...... 2 Microsoft...... 5 Seven & i...... 19 Zoopla...... 2,21 Hindmarch, Anya...... 2 Antofagasta...... 29 Expedia...... 5 Morgan Stanley...... 14,16 Shanghai CRED Real Estate...... 8 Holmes, Elizabeth...... 18 Apollo...... 18 Facebook...... 5 NBC...... 19 Shanghai Pengxin...... 8 Sectors Isaka, Ryuichi...... 19 Apple...... 5,18 Fiat Chrysler...... 18 NHK...... 8 Sharetribe...... 12 Airlines...... 18 Jacques, Jean-Sebastien...... 29 Aramco...... 1 Ford...... 18 NM Rothschild...... 28 Showtime...... 19 Automobiles...... 4,18 Jiang, Zhaobai...... 8 Areva...... 17 Gap...... 1 Net-A-Porter...... 2 Sky...... 19 Banks...... 14,15,16 Lane Fox, Martha...... 2 Ashmore...... 14,20 Garmin...... 14 Netflix...... 14,19,29 Skype...... 12 Construction...... 20 Loeb, Daniel...... 19 Associated British Foods...... 20 Garuda Indonesia...... 29 Next...... 20 Société Générale...... 16 Energy...... 8,17,21 Lévy, Maurice...... 16 Aston Martin...... 18 Gazprom...... 6 Nissan...... 2,4 Sovcomflo...... 6 Financial Services...... 20,28 López, Cristián...... 9 Aston Villa...... 20 Genentech...... 11 Nokia...... 5,12 Standard Chartered...... 16,28 Financials...... 14,16,28 Makkonen, Juho...... 12 AstraZeneca...... 11 Gilead...... 11 Nomai...... 14 Starz...... 19 Food & Beverage...... 9,14,20 Massenet, Arnaud...... 2 Australian Rural Capital...... 8,14 GlaxoSmithKline...... 11 OCBC...... 16 Stock Spirits...... 20 Health...... 18 Momii, Katsuto...... 8 Aveva...... 29 Glencore...... 21,29 OnTheMarket...... 21 Supercell...... 12 Insurance...... 4,20 Monro, Doug...... 2 Avon...... 1 Goldman Sachs...... 14,15,16,18,29 PJT Partners...... 18 TPG...... 18 Media...... 8,14,16,18,19 Mueller, Christoph...... 18 BHP Billiton...... 29 Google...... 5,14 Paulson & Co...... 16 TSB...... 20 Mining...... 8,9,17,21 Musk, Elon...... 18 Bank of America...... 15,16 H&M...... 10 Peabody...... 8 Technogym...... 12 Oil & Gas...... 28,30 Nesis, Vitaly...... 21 Bank of Tokyo-Mitsubishi...... 1 HBO...... 19 Petrobras...... 5 Tesco Bank...... 20 Personal & Household Goods...... 1 O’Day, Daniel...... 18 Barclays...... 16 HSBC...... 1,20 Pfizer...... 16 Tesla...... 18 Pharmaceuticals...... 11 Paulson, John...... 16 Bashneft...... 6 Hacking Team...... 5 Polymetal International...... 21 Theranos...... 18 Property...... 21 Rometty, Ginni...... 29 Berkeley Group...... 20 Here...... 14 Popolare di Vicenza...... 16 Third Point...... 19 Retail & Consumer...... 19 Schlee, Clive...... 21 Biogen...... 11 Hunan Dakang...... 14 Pret A Manger...... 21 Tohoku Electric Power...... 29 Technology...... 14,18,21 Schwartz, Harvey...... 15 BlackBerry...... 14 IBM...... 29 Primark...... 20 TomTom...... 14 Telecoms...... 18 Shu, William...... 2 Bridgepoint...... 21 Intercontinental Exchange...... 20 Procter & Gamble...... 16 Toyota...... 18 Travel & Leisure...... 12,21 Suzuki, Toshifumi...... 19 Bristol-Myers Squibb...... 18 JPMorgan...... 1,15,16,18 Property Software Group...... 21 Transneft...... 6 Utilities...... 17 Thiam, Tidjane...... 16 CME Group...... 20,28 Jack Wills...... 2 Prudential...... 4 Travelex...... 2 People Thompson, Dorothy...... 21 Caffè Nero...... 21 Johnson & Johnson...... 1 Publicis...... 16 UBS...... 16 Alessandri, Nerio...... 12 Walsh, Sam...... 17 Campbell’s Soup...... 1 Khazanah...... 18 Quest Diagnostics...... 18 Uber...... 14 Armani, Giorgio...... 12 Weston, George...... 20,20 Changyu...... 9 LCH...... 20 Renault...... 4,18 UniCredit...... 16 Balwani, Sunny...... 18 Williams, Peter...... 2 Citigroup...... 15,16 Laboratory Corp’n of America...... 18 Rightmove...... 21 VTB...... 6,21 Blankfein, Lloyd...... 16 Woodroffe, Simon...... 2 © The Financial Times Limited 2016 Week 16 16 ★ FINANCIALTIMES Wednesday 20 April 2016

COMPANIES

INSIDEBUSINESS Financials ASIA Paulson funds’ assets tumble by $2bn Jennifer Hughes Soured bets on Allergan cent in 2010, following gains of 21.5 per share price falls following fears over its But Mr Paulson is not alone in his cent in 2009, 37.6 per cent in 2008 and business model and ability to repay woes — 2016 has been a rocky year for and Valeant take toll 158.5percentin2007. debt. Its shares are currently trading at hedge funds, with sharp losses incurred on total sum managed But fund documents show that the about$32.60,havingstoodat$262.50in bymarqueenames. It’ll be no easy ride for company’s assets under management August. Paulson was the sixth-biggest Many managers trimmed had fallen to $14.3bn as of March 1 — shareholder as of the end of December, their bullish bets and added short posi- LINDSAY FORTADO —LONDON banks as they try to MARYCHILDS —NEWYORK down from $16.1bn in November, and accordingtoregulatoryfilings. tions as markets fell in the first six fromahighof$36bnbackin2011. Paulson & Co’sAdvantage Plus fund is weeks, only to have those short posi- John Paulson’s losing bets on Allergan These numbers are unlikely to have now down 15 per cent this year and Mr tions hurt them when the market court Asia’s wealthy and Valeant have contributed to a improved since March, given sharp falls Paulson is tapping his own fortune as reversedcourse. near-$2bn fall in his funds’ assets in the in the price of Mr Paulson’spharmaceu- additional collateral for his firm’s funds $14.3bn “Bad things happen when you’re the space of five months — taking the total ticalsholdings. as a guarantee for its credit line, accord- Assets under least prepared for them,” Alexandra amount managed by his hedge fund His funds were down about $250m ingtoapersonfamiliarwiththereturns. management at Coupe, head of asset allocation research he multimillionaire sputtered into his wine March 1, according business to its lowest level in almost 10 after a 17 per cent plunge in Allergan He is faring worse than most event- to fund documents at Pacific Alternative Asset Manage- when asked about the quality of his bank’s years. shares—hislargestholding—onApril5, driven and activist funds this year, as ment Company, said of this year’s tur- services. “Are you kidding?” he asked, as he Paulson&Co—oneofthetitansofthe on news that tough new tax rules from well. Hedge Fund Research’s event- moil. detailed a litany of complaints about hassles US hedge fund industry — made billions the Obama administration had scup- driven index advanced 2.7 per cent in 15% Part of Mr Paulson’s current strategy and complications likely to be familiar to any- of dollars betting against subprime peredatakeoverbidfromPfizer. the first quarter, while its activist index Reduction in value is focusing on specialty pharmaceutical one with a bank account and access to a helpline. But this of Paulson & Co’s T mortgages ahead of the financial crisis. Atthesametime,Valeant,onceaWall gained3.1percent. Advantage Plus companies that may be takeover millionaire is from Asia, and thus belongs to one of the Its Advantage Plus fund returned 17 per Street darling, has suffered a series of Paulson&Codeclinedtocomment. fund this year targets. world’s most-courted set of bank customers. If he doesn’t like his current set-up, he has choices. Bank executives around the world are lining up to tell their shareholders theyarelookingeastinsearchofhigherprofits. The case is at first glance a strong one. Last year, Asia’s Banks. Slowdown test wealthy — those with at least $1m in investable assets, excluding their primary home — overtook those in the US to become the largest group in the world, according to a report by Capgemini and RBC Wealth Management. Their US lenders suffer biggest revenue fall in 5 years wealthisgrowingmorequicklytoo,at11.4percentin2014 comparedwith7.2percentglobally. Inabsolutenumbers,Asiaishometo4.7moftheworld’s rich people who hold $15.8tn that should be in search of Net income plummets 24% as managementandotherservices.Privatebankersestimate perhaps as much as half of this is not being professionally consumer gains fail to offset managed. The region is also embarking on an unprece- trading and dealmaking woes dentedgenerationaltransferofwealthasthecurrentsetof patriarchspreparestohandoverthereins. “If you are a wealth manager you want to be where the ALISTAIR GRAY —NEWYORK wealth is being created. And wealth is being created on a The six biggest US banks have suffered huge scale in emerging markets whichever way you want their steepest decline in quarterly reve- to look at it,”said Tidjane Thiam, chief executive of Credit nues since 2011, after a profound slump Suisse, this month before embarking on a five-day visit to on Wall Street overshadowed better the bank’s most-valued Chinese clients. Credit Suisse has resultsintheirconsumerbusinesses. drawn back from the US and parts of Europe, but has dou- JPMorgan Chase, Bank of America, bled the growth rate of its 600-strong army of Asia-based Citigroup, Goldman Sachs, Morgan relationship managers. UK-listed rival Standard Char- Stanley and Wells Fargo generated total tered, meanwhile, plans to use its decades-old corporate revenues of $98bn in the first quarter, relationships in the region to support its push into private down 9 per cent from a year earlier — banking. the steepest fall in five years, according But how easy will it be for banks to establish lasting — toaFinancialTimesanalysisofBloomb- and profitable — relationships? Not all multimillionaires ergdata. offer the same opportunities. JPMorgan became a case in Deepcostcutsfailedtocounteractthe point this month when it cut fallinrevenuesothesixlendersalsosaw one-fifth of its Asian private their collective net income plummet 24 bank relationship managers Last year the percentyearonyearto$18bn. (RMs) and refocused on cus- region overtook Goldman became the latest victim of tomers with more than theslowdownintradinganddealmaking $10m. “The economics are the US as home yesterday when the investment bank such that for most private to the most posted its lowest first quarter revenue banks, unless you have sinceLloydBlankfeinbecamechiefexec- somewherestartingbetween rich individuals $7m and $9m to invest, offeringafullprivatebankingserviceisprobablyunprofit- Analysts have forecast able,”says Chris Harvey, global head of financial services a second-quarter dip atDeloitte. Yet most banks do not know how best to deploy their but some executives employees. While 90 per cent of them can track revenues are more optimistic attributable to each relationship manager, fewer than one in 10 can measure individual profitability, according to a study by BCG. Scale matters as well. Geneva-based Union utive in 2006. Net earnings dropped thebatteringwascausedlargelybydiffi- group’s chief financial officer, said the Money worries: loans. “The consumer is in good shape,” Bancaire Privée this week said that its $10bn assets under morethanhalf,echoingasimilardecline cult markets, the drops also reinforce bank had a “significant backlog” of Goldman Sachs said Tony DeSpirito, portfolio manager management (AUM) in Asia, mostly acquired from its atcompetitorMorganStanley. fears that post-crisis regulation and a investmentbankingdeals. and the five oftheBlackRockEquityDividendFund, takeover of Coutts’ international operations, were about The aggregate figures for the big six shift to electronic trading platforms Gerard Cassidy, analyst at RBC, other big US whichmanages$21bn. half the level it would need to be comfortably profitable. banks illustrate the sector’s reliance on havepermanentlydamagedinvestment pointedtoBatsGlobalMarkets’success- banks saw He argued that large banks were Getting to $20bn would rank UBP 17th in the region, turbulent securities businesses. Banks banks’fortunes. fulIPOlastweek.“Thiscouldbeasignal revenues fall by among the most attractive areas of the according to Asian Private Banker. UBS, Citigroup and that have sizeable consumer divisions Analysts have forecast another year- thatthewindowmayreopen,”hesaid. 9 per cent in the stockmarket:theyaretradingatornear Credit Suisse are the largest competitors with $274bn, held up significantly better. Net income on-year dip in total revenues in the sec- Whether or not investment banks first quarter all-timelowsasmeasuredbytheratioof $210bnand$150.6bnundermanagement,respectively. attheretailarmsofJPMorganChaseand ond quarter. But some executives are make a recovery, analysts expect retail compared with their share prices to their tangible book Regional competition is also toughening. Singapore’s Bank of America rose 12 per cent and 22 moreoptimistic.Theysaidtradingbusi- and commercial operations to continue 2015 — Richard Drew/AP value — a closely watched valuation DBSacquiredSociétéGénérale’swealthmanagementbusi- percentrespectively. nesses had recovered in March and toactasaballast. metric. ness two years ago and OCBC this month added Barclays’ Buttheoverallresultsfromthebigsix April. Some also said they expected Several financial executives said they Mr DeSpirito said dividends were Singapore and Hong Kong units to its Bank of Singapore were not as bad as feared, spurring an 8 advisory and underwriting fees from believe American consumers are resil- underpinned by stable retail divisions brand. Those two lenders now have roughly $75bn AUM per cent rally in bank stocks since deals, initial public offerings and debt ient so they plan to increase lending and that share prices could rally even if apiece — and they too boast deep relationships around the JPMorgan started the reporting season raising to recover. John Gerspach, Citi- through credit cards, mortgages and car the Federal Reserve did not increase region. lastWednesday. ratesthisyear. The last challenge for wealth managers is the nature of Of the six banks, only Wells Fargo, “The Fed raising rates is great for the the clients themselves. They are slow to entrust assets, which has the smallest investment Big six US banks banks. But it’s all upside. There’s really favouring old-style long-term relationships, which can be bankingarm,increasedrevenuesfroma Earnings, net income ( bn) Collective revenues, no expectation for interest rates rises expensive for the banks involved. They also like to hold year earlier — by 4 per cent, and that Q Q year-on-year change () this year [pointing to consensus fore- more cash than the rich elsewhere, cutting into fees, was thanks in large part to the acquisi-      casts],”hesaid. according to Capgemini, and they expect their bank to tionofloanbooksfromGECapital. However,support from the consumer extendmorecreditthantheirpeersdoelsewhere. Debttradingwasparticularlyhardhit JPMorgan and commercial divisions is unlikely to “Themarginshavecomedownsincethefinancialcrisis,” in the first quarter as uncertainty over  last. says Michael Blake, head of UBP’s private banking opera- US monetary policy combined with jit- Citigroup Wells Fargo, Bank of America and tionsinAsia.Heattributesthistocostssuchascompliance ters over China’s economic growth and Bank of America JPMorgan all increased reserves for as well as competition. “It is, however, absolutely possible sinking commodity prices to put invest-  energy losses in the quarter by about to be profitable in this market. Clients will pay for advice mentbanks’clientsoffdealing. Wells Fargo $500m. So far, losses have been largely and they value the networking effect of a private bank, The collective performance stands in - containedtoenergy. too.” contrast to the first quarter of 2015, Morgan Stanley “Most segments are doing relatively Given the strains on business models elsewhere, even when a revival of trading desk revenue well,”said Brian Charles, analyst at RW the possibility of profits from Asia’s wealthy will keep Goldman Sachs stirred hopes that investment banks - Pressprich.“Rightnowlossesarealmost banks coming. But they shouldn’t expect it to be easy. had finally put a long period of       athistoriclows.”Butheadded:“Eventu- depressed returns behind them. While Sources: company filings; Bloomberg allylossesaregoingtocreepup.” [email protected]

Media Banks Publicis buoyant as it eclipses sales forecast Popolare di Vicenza discounts €1.75bn offering

ADAMTHOMSON —PARIS Maurice Lévy, chief executive, The sales results hint at a change in RACHELSANDERSON —MILAN capital hole, is due to run for two weeks, underwriteronthedeal,andisexpected described the first three months as “a fortune for Publicis, whose perform- afterwhichtimethebankplanstolistits to end up holding most of Popolare di Publicis shares recorded their biggest Banca Popolare di Vicenza, the strug- promising start to 2016”,and attributed ancelastyearwasdeeplyaffectedbythe sharesonthestockexchangeinMilan. Vicenza’sshares. single day gain in seven years, as the gling regional lender at the heart of the strong numbers to accounts won at 2014 decision to call off a proposed But last week a crisis meeting of Italy’s Concerns about Popolare di Vicenza’s French advertising group reported Italy’s bank rescue deal, has priced its the end of last year as well as to “good $35bn merger with long-time US rival top financiers and officials pulled capital levels have come amid greater forecast-beating sales growth during €1.75bn capital raising at as little at momentum”inthemediamarket. Omnicom. together a rescue fund worth scrutiny of the bad loans run up during thefirstquarter. €0.1 per share — citing a lack of willing However,hecautionedaboutthenext In December, fast-moving consumer €4bn-€6bn,madeupofequitycontribu- Italy’scripplingthree-yearrecession. buyersamongthebiginstitutions. Shares closed 6.8 per cent up yesterday two quarters, which would be more goods group Procter & Gamble, the tions from the country’sfinancial sector, Worries about non-performing loans as the group, which has brands includ- affected by losses in last year’s media world’s largest advertiser, said it was The bank’s board said yesterday it had amid fears that the Popolare di Vicenza have already hit bank share prices ing Saatchi & Saatchi and Leo Burnett, accountreviews. shiftingalmostallofitsNorthAmerican set a price range of €0.1 to €3 for its new capitalraisingwouldflop. hard. said that organic revenue grew 2.9 per Publicis said yesterday that it would media planning and buying business share offer because “in the process of Thisfund,knownasAtlas,isintended Italian banks have made €200bn of centto€2.29bninthefirstquartercom- maintain previous pledges to improve fromPublicistotheUSgroup. pre-marketing with significant interna- to head off concerns that a failed fund- loans to borrowers now deemed insol- paredwiththesameperiodlastyear. all of its financial indicators, including Mr Lévy, who is expected to step tional and domestic investors, there raising could trigger a wider panic that vent, of which €85bn has not been writ- That was much higher than consen- dividendpayout,thisyear. down next year, announced that same were not sufficient indications of inter- harms the capital ratio of its sole under- tendownontheirbalancesheets. sus forecasts of just 0.3 per cent and ThomasSinglehurst,mediaanalystat month an overhaul of Publicis’s struc- esttodetermineapricerange”. writer,UniCredit,whichisItaly’slargest A broader measure of non-perform- came on the back of better than Citi Research, said in a note: “The group ture aimed at breaking down what he Popolare di Vicenza’s fundraising, bank by assets and its only globally sig- ing debt, which includes loans unlikely expected revenue figures for Publicis at is clearly participating in the generally described as the “silos” within the which was demanded by the European nificantfinancialinstitution. to be repaid in full, stands at €360bn, theendoflastyear. bettermediatrends.” organisation. bank supervisor in Frankfurt to fill a Atlas has since joined UniCredit as an accordingtotheBankofItaly.

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COMPANIES

Technology Technology Apple hires Verizon leads the crowded race for Yahoo former Tesla Private equity and media whole of the dotcom pioneer, which Some of the bidders have complained the online advertising company previ- Investors will be watching for any top engineer has struggled to adapt to a fast- that the sale process has been disor- ously named Yellowpages.com, are indication of what bids Yahoo has groups among potential changing internet market, closed on derly. One person involved described it interested in buying parts of Yahoo’s received and how seriously these are bidders for internet group Mondaynight. as “a total mess . . . just all over the coreunits. beingconsidering. for its electric Potential offers will help determine place”. These potential strategic buyers Yahoo’sboardispursuingaspin-offof the value of Yahoo’s core business, Despite Yahoo’s lacklustre perform- would be happy to work in co-ordina- the core company but has formed a sep- JAMESFONTANELLA-KHAN car project ANDMARYCHILDS —NEWYORK excluding its 15 per cent stake in Ali- ance in recent years, several companies tion with a private equity group to buy arate committee to explore a sale fol- HANNAHKUCHLER —SANFRANCISCO baba, the Chinese ecommerce group. are convinced they can leverage the theassetstheyfindmostusefulfortheir lowing pressure from shareholders. The US telecoms group Verizon is the lead- Yahoo’s share in Alibaba was worth brandintoaneweraofgrowth. existingoperations. committee of independent board direc- TIMBRADSHAW —SANFRANCISCO ing contender to take over Yahoo, but about $30bn yesterday,while its overall Verizon has long been touted as the Yahoo was due to report earnings tors is being advised by Goldman Sachs, Apple has lured a former top Tesla the internet company is also consider- marketvaluewas$35bn. most likely buyer. People familiar with aftermarketscloseyesterday. JPMorganChaseandPJTPartners. engineer to its electric car team, ing rival bids from more than a dozen Analysts have valued the core busi- the matter confirmed that the telecoms Sales at the Silicon Valley company Shares in Yahoo, which have fallen according to people familiar with the suitors, including private equity groups ness, which includes search and digital group was a frontrunner but they areforecasttofall12.2percentto$1.1bn 18 per cent in the past year, ticked up move. TPG and Apollo, marketing company media units such as Tumblr, Yahoo stressed that it was not the only serious in the quarter, according to the average 0.3 per cent to $36.62 in morning trad- YPHoldingsandtheBritishpublisherof Finance and Yahoo News, at between contender. analyst estimate, with earnings forecast ing in New York but were slightly down The recruitment of Chris Porritt, who theDailyMail. $1bn and $10bn, depending on which Other bidders, including the Daily at 7 cents per share, just over half the atlunchtime. leftAstonMartintobecomeTesla’svice- The first round of bids for part or valuationmetricsareused. MailandGeneralTrustandYPHolding, previousyear’sfigure. Yahoodeclinedtocomment. president of vehicle engineering three years ago, is a boost for the Apple car project after the departure of Steve Zadesky,theteam’sleader,thisyear. Mr Porritt worked on the Model S and Health. Blood testing Model X at Tesla, which has been engaged in a war for talent with the iPhonemakerforthepast18months. Apple, which has not acknowledged Theranos battles to get ahead of criminal probe the existence of a car project, declined to comment. He left the electric car pio- neer a few months ago, according to one person close to the company. His move Silicon Valley start-up says was first reported by Electrek, an elec- it is confident it can address tric-carnewswebsite. Tesla described Mr Porritt in May investigators’ concerns 2013 as a “world-class leader” and “out- standing engineer”.He spent 16 years at Aston Martin and worked on the DB9, DAVIDCROW —NEWYORK havingbeenatLandRoverforadecade. Just hours before it emerged that Ther- Traditional carmakers including Toy- anos, the Silicon Valley blood-testing ota, Ford and Renault-Nissan have start-up, was under investigation by opened Silicon Valley research and federal prosecutors and the US securi- developmentcentres. ties regulator, its founder appeared on Last year Apple poached engineers nationaltelevisiontoissueameaculpa. whohadworkedonself-drivingsystems Elizabeth Holmes, 32, who dropped at Tesla and Volkswagen, suggesting out of Stanford university in 2003 to set that any vehicle it produced would have up Theranos, said she was “devastated” adegreeofautonomouscapability. And by its failings in an interview with NBC, it hired Doug Betts, a 25-year auto whichairedonMondayafternoon. industry veteran who had worked at She was referring to an inspection FiatChrysler. report in November from CMS, the US But in January it emerged that Mr Centers for Medicare and Medicaid Zadesky was leaving Apple’s car project Services. The regulator in charge of lab- for personal reasons. One person close oratory testing in the US found that to the team cautioned against seeing Mr Theranos’s California facility had put Porrittasadirectreplacement. patients’ lives at risk by issuing inaccu- Tesla has fought back, recruiting rateresults. former Apple staffers in security, sen- The television interview was part of sors, chip design and materials. Last an orchestrated attempt to get ahead yearElonMusk,founderandchiefexec- of another damaging revelation: federal utive, said Apple was known as the prosecutors have opened a criminal “Teslagraveyard”amonghisstaff. probeintowhetherthecompanymisled But the tech group’sgrowing automo- investors about the capabilities of its tive team and resources suggest an proprietary system, which can purport- increasinglyseriousinitiative. edly produce accurate results from just Since the Financial Times first afewdropsofblood. reported on Apple’s secret car R&D lab After working in secret for a decade, Federal prosecutors are investigating whether Theranos, the Californian blood-testing company, misled investors about the state of its technology outside its Cupertino headquarters last Ms Holmes lifted the lid on the technol- year, the company is said to have been ogy in 2013, and claimed that Theranos snapping up real estate in neighbouring would be able to dispense with the nee- the law so patients can order their own diagnostics using commercially availa- forcing Theranos to close the outlets in priate qualifications to run its labs. Sunnyvale. Buildings in the area have dles and venous draws that have under- testswithoutfirstseeingadoctor. blemachines. its stores, according to a person familiar SupportersofTheranospointoutthat been given names from Greek mythol- pinnedbloodtestingfordecades. According to two investors who have In a memo sent to customers and withthematter. it has survived previous investigations, ogy,suchasZeusandMedusa,inapossi- Instead a few drops of blood would be received subpoenas from the US attor- partners, seen by the Financial Times, The drugstore group was awaiting the including from health departments in ble reference to the car initiative’s code collected in a tiny glass vial known as a ney’s office for the Northern District of Theranos said it was under “investiga- final word on sanctions from the CMS PennsylvaniaandArizonaandtheFDA. name, Project Titan, according to a nanotainer and the samples would be California, the probe centres on tions or inspections” by several regula- but had resolved to terminate the part- Thismonthitappointedsixmedicsto report in the Silicon Valley Business run through proprietary machines to whether Theranos misled investors tors, including the attorney’s office, the nership,thepersonsaid. a beefed-up advisory committee to Journalthismonth. generate accurate results, Ms Holmes over the capabilities of its technology SECandtheCMS. In the autumn the Food and Drug address concerns that its board lacked In 2014 a Sunnyvale city manager’s said. She promised prices between 50 duringthe2014capitalraisingandprior Last month regulators from the CMS Administration also censured the com- scientific experience and was domi- blog post disclosed that Apple would be and 90 per cent lower than at estab- fundingrounds. proposed banning Ms Holmes and pany for using the nanotainer, which it nated by ageing establishment figures, using a building there “as a testing facil- lished rivals such as Quest Diagnostics The company said it “continues to Sunny Balwani, the company’s presi- deemed an “unapproved device”,to col- such as Henry Kissinger, the former US ity for new electronic technologies that and the Laboratory Corporation of work closely with regulators and is co- dent, from the blood-testing industry lectpatientblood. secretaryofstate. are integrated into high-end cars” and America. operatingfullywithallinvestigations”. foratleasttwoyearsaspartofapackage A recent independent study found But yesterday some commentators asan“autotestingcentre”. Plaudits quickly followed and inves- Last November Theranos suspended of sanctions related to the violations that the company was producing “sys- were already writing obituaries. Dr Apple has previously released a sys- tors rushed to back the company,which the use of nanotainers for all but one theyhadidentifiedinNovember. tematically lower” cholesterol results Eleftherios Diamandis, head of clinical tem called Carplay for integrating the attaineda$9bnvaluationin2014aftera of the more than 260 tests it offers. It is The regulator has not yet made a thanQuestandLabCorp. biochemistry at Mount Sinai hospital in iPhoneintoadashboard. $400m funding round that made Ms currently running the vast majority of final decision on whether to implement Regulatory problems became public Toronto, said “negative publicity,based Reports in the German media this Holmes a billionaire on paper through theban. six months ago, shortly after the Wall on facts, is going to bring this company week again linked Apple with Magna her50percentstake. Theranos, meanwhile, says it is confi- Street Journal published a front-page downveryquickly”. Steyr, the automotive contract manu- At the time the company signed a $9bn 50%-90% dent that it can address investigators’ story alleging that the company’s tech- Jeffrey Sonnenfeld, a management facturer that has been working with high-profile agreement with Walgreen Group valuation Savings promised concerns. nologywasbadlyflawed. professor at Yale, predicted that the BMW to produce versions of the Mini. and proceeded to open more than 40 in 2014 following by Theranos Walgreen executives, worried about The Financial Times subsequently company would “soon run its course, This partnership was set to end this “wellness centres” in drugstores in Ari- a funding round based on prices of the company’s reputation, have reported that the group was employing leaving a wake of foolish, famous inves- year, noted Apple-watcher Neil Cybart zona, where legislators have changed worth $400m established rivals instructed their lawyers to find a way of two scientists with apparently inappro- torsinitswake”. inhisnewsletterAboveAvalon.

Pharmaceuticals Airlines Roche upbeat on new cancer drug prospects Malaysia Airlines loses chief

ANDREWWARD older products, such as its Lucentis eye and Roche’s atezolizumab, which work JEEVANVASAGAR —SINGAPORE aviation business is leaving the com- PHARMACEUTICALSCORRESPONDENT drug, lose momentum while others, by disabling the “checkpoint” in cancer pany. Whoever replaces Christoph — The chief executive of Malaysia Air- suchasitsHerceptinbreastcancermed- cells that normally blocks the immune whether a Malaysian or a foreigner — Roche said its efforts to catch up with lines, Christoph Mueller — brought in icine, face looming competition from systemfromattacking. needsafreehand.” Merck and Bristol-Myers Squibb in to turn the business round after two copycat“biosimilar”drugs. Muchoftheindustry’sfocusisnowon Mr Mueller appeared to have put the cancer immunotherapies was on track aviation disasters — is to step down in Merck and BMS of the US already combining immunotherapies with toughest parts of the project behind as fresh data reinforced excitement September long before his three-year have immunotherapies on the market, othercancerdrugsinanefforttoextend him. In an interview this month he said over the new generation of tumour- contractexpires. fightingdrugs. butRochesaysthegreaterbreadthofits thebenefitstothetwo-thirdsofpatients the company had posted a profit in Feb- oncology portfolio will give it an advan- who do not respond to the first genera- Yesterday Mr Mueller, who took the ruary — its first positive monthly result The Swiss group yesterday highlighted tage in the long-run. It has nine immu- tionoftreatments. helm at the airline last March, said he in years. Last summer he had said the the potential of its atezolizumab medi- notherapiesindevelopmentand50sep- A study published yesterday showed was leaving for personal reasons. But a airline was on track to return to annual cine, which has recently won fast-track arateclinicalstudiesunderway. 69 per cent of patients with advanced person familiar with the situation said profitability by 2018, and had finished reviews from the US Food and Drug Data issued at the annual meeting of melanoma treated with Opdivo and the German chief executive — the first layingoffemployees. Administration for its use in bladder the American Association for Cancer another BMS immunotherapy called non-Malaysian to hold the post — had In a statement yesterday Mr Mueller and lung cancers — paving the way for Research in New Orleans this week has Yervoy were alive after two years, and a come under intense pressure from said: “I am proud of what we have potentialapprovalsthisyear. providedfurtherevidenceforthosewho fifth had no signs of tumours. However, stakeholders as he tried to transform achievedasateaminsuchashorttime.” Daniel O’Day, head of Roche’s phar- see immuno-oncology as the most halfsufferedseriousside-effects. thestrugglingnationalflagcarrier. MalaysiaAirlinessaidhehadaskedto Businesses maceuticals division, said that he was important breakthrough against the Mr O’Day said approval for atezolizu- Hehascut6,000jobs,slashedpayand step down because of “changing per- “very optimistic” about prospects in disease for decades — and a welcome mab in bladder cancer would open a focused on Asia, moving away from the sonal circumstances” but intended to immuno-oncology, which involves fresh source of growth for the pharma- new front in the immuno-oncology former strategy of linking European cit- stayonasanon-executivedirectorafter For Sale drugs that help the immune system kill ceuticalsindustry. market, which has until now been iestoAustralia. servinghissix-monthnoticeperiod. cancer cells. These immunotherapies One-third of people with advanced focused mainly on melanoma and non- Mr Mueller urged rebranding after The lossmaking group suffered a sus- are forecast by analysts to generate tens melanoma treated in a study of BMS’s small cell lung cancer. “For the past 30 the disasters of 2014. But the airline’s tained decline in passenger demand Business for Sale, Business Opportunities, of billions of dollars a year in sales Opdivo immunotherapy have survived years there has not been anything new sole shareholder, Khazanah — Malay- after the disappearance of flight MH370 Business Services, withinthenextdecade. foratleastfiveyears,researcherssaid— for patients with advanced bladder can- sia’ssovereignwealthfund—disagreed. over the southern Indian Ocean in Business Wanted, Franchises His comments came as Roche double the average proportion for peo- cer,”he said. “Weare looking forward to Shukor Yusof of Endau Analytics, a March 2014 and the shooting down of Runs Daily announced that sales rose 5 per cent to plewiththatcondition. providingthatopportunity.” Malaysian aviation consultancy, said MH17overUkrainefourmonthslater...... Classified Business Advertising SFr12.4bn ($13bn) in the first quarter, Andrew Baum, analyst at Citigroup, Roche is also optimistic about pros- the airline needed to be free from state At Malaysia Airlines Mr Mueller, who UK: +44 20 7873 4000 | Email: slightlyaheadofanalysts’expectations. said the data had resolved any remain- pects for its newocrelizumab treatment interference if it was to succeed on com- iscreditedwithhavingtransformedAer [email protected] Immunotherapy is at the heart of ing doubts about the durable effect of formultiplesclerosis,whichisoncourse mercial terms. “It’s a disgrace,”he said. Lingus, cut routes to Frankfurt, Bris- efforts to refresh Roche’s business as so-called PD-1 drugs, such as Opdivo tohitthemarketinthenextyear. “The best turnaround specialist in the baneandIstanbul.

APRIL 20 2016 Section:Companies Time: 19/4/2016 - 19:24 User: puttnama Page Name: CONEWS3, Part,Page,Edition: LON, 18, 1 Wednesday 20 April 2016 ★ FINANCIALTIMES 19

COMPANIES

Retail & consumer Japan’sSeven & i appoints activist-backed president

Head of 7-Eleven division Butthesuccessiondisputeattheretail failed to win the board’s backing to In a recent report, Daiwa Securities onthechoiceofMrIsakaasgrouppresi- conglomerate behind the 7-Eleven con- removeMrIsaka. analyst Kazunori Tsuda said the board’s dent, Seven & i left the chairman posi- wins conglomerate’s top venience store chain has exposed the The ousting attempt by Mr Suzuki, rejection of Mr Suzuki’s proposal to tionvacantandscrappedthechiefexec- job in victory for Loeb challenges that many Japanese compa- who has overseen the conglomerate for removeMrIsakawasevidencethatgov- utiverole. niesfaceinfindingnewtalenttoreplace nearly 25 years, came under fire from ernance by the nomination committee Until the recent succession battle, Mr ageingchiefexecutives. the group’s founding family members andoutsidedirectorswaseffectual. Suzuki had been considered one of the KANAINAGAKI —TOKYO TheSeven&iboardchose58-year-old and external directors who had backed Mr Tsuda said it was a defining most respected business leaders in Seven & i has named an executive Ryuichi Isaka, president of its core MrIsakaduetohisroleinstrengthening moment “not only for Seven & i but for Japan and a pioneer in the convenience backed by US activist Daniel Loeb as 7-ElevenJapanunit,toruntheconglom- theconveniencestoreoperations. the history of governance at Japanese store sector.With innovative marketing presidentoftheJapaneseconglomerate, erate, in line with the selection made by The boardroom clash was thrust into businesses”. and product development strategies, two weeks after a boardroom spat led to its nomination committee last week. the spotlight after Third Point, the The top-level changes have not, how- 7-Eleven has expanded its operation to thedepartureofitschairman. The appointment is effective from May hedge fund run by Mr Loeb, wrote to ever, eliminated concerns about a lead- morethan18,000storesinJapan. Analysts said that the management 26. Seven & i over concerns that Mr Suzuki ership vacuum after the exit of a charis- Analysts say the challenge is whether changesannouncedyesterdaymarkeda The management reshuffle came was seeking to replace Mr Isaka in an matic executive who had maintained a Mr Isaka can respond to calls from Mr victory for shareholder activists and after Toshifumi Suzuki, the 83-year-old effort to position his son as his succes- firmgripovertheretailempire. Loeb and other investors to take more Prime Minister Shinzo Abe’s campaign chairmanandchiefexecutiveofSeven& sor. Mr Suzuki has denied the accusa- While the 15-member board, includ- Ryuichi Isaka: president of 7-Eleven drastic measures to fix its struggling toimprovecorporategovernance. i, resigned abruptly on April 7 having tionofnepotism. ing four external directors, had agreed Japan will now run the conglomerate supermarketandretaildivisions.

Media. Video streaming Amazon and Netflix lock horns in battle for the living room

As the two US companies Prime mover compete for subscribers, new Retailer seeks to draw in rivals appear on weekly basis lower-income customers

MATTHEWGARRAHAN —NEWYORK In Amazon’s most mature markets, The battle for the living room is hotting Prime has become its secret up.ThisweekAmazonfiredashotacross weapon. Prime members in the US, the bows of Netflix with the launch of its who pay $99 annually for the Prime digital video package as a stan- service, spend nearly twice as much dalone subscription in the US, untether- per year as non-Prime members. ing it from its express delivery service as The services included in Prime itbidstoattractmorecustomers. include unlimited video and music A day later, Reed Hastings, Netflix’s and expedited shipping. chief executive, said his company was Estimates put Prime membership on course to hit 100m subscribers at 25-40 per cent of US households. “sometime”nextyear. However, by introducing a new The two companies are duking it out $10.99 monthly pricing option last to capture television audiences that are weekend, Amazon is trying to moving away from so-called “linear” expand Prime to lower-income television — or tuning in at a pre-set customers who might otherwise time — in favour of digitally streamed, balk at the annual fee. on-demandviewing.Bothhaveinvested “Amazon Prime is likely vast sums to produce and license origi- somewhat saturated for above- nal content. Amazon spent an esti- income households in the US,” mated $3bn last year on movies and wrote Ben Schachter, an analyst at shows such as Transparent, while Netflix Macquarie, in a client note. is on course to spend $6bn in 2016, He expects that the company building on demand for series like Mak- “will continue to experiment with ingaMurderer,NarcosandDaredevil. ways to attract more lower-than- Thequestioniswhethertheycaneach average-income households”. prosper in an increasingly competitive This demographic is a key environment in which new digital sub- customer base for Amazon’s rival scription services are launching on a Walmart, whose stores have been near weekly basis — and where estab- struggling to find growth. lished broadcasters have large, built-in Walmart started testing its own audiences. Prime-like shipping subscription In Europe, for example, “cord-cut- last year, but the service has not ting”isnotasprevalentasintheUS,and been rolled out. Leslie Hook operators such as Sky, which has 21.5m Quest for viewers: Netflix has secured the rights for new Disney films including ‘The Jungle Book’ while channels also spend large sums on original content customers across the UK, Ireland, Aus- tria, Italy and Germany, has a customer base already well-served with on-de- simultaneouslyin130countries,amove note: “International subscriber guid- chasing pack of other online subscrip- Top Gear, and has a enlisted Woody mandcontent. Netflix that helped add 6.74m new subscribers ance was considerably lower than the tion video on demand services,”Enders Allen to write a comedy series. Netflix MrHastingshintedthatdigitalgroups Share price ( ) in the first quarter, of which 4.6m came most bearish forecasts.” Yet despite analysts Toby Syfret and Alex Fenton will this year premiere The Crown, a can thrive in a more competitive envi- from outside the US. The international occasional periods of potentially slower wrote. “The question is whether it can series about the life of Queen Elizabeth ronment. When asked about Amazon’s  push helped lift its total subscribers growth, Netflix is still expected to grow: get to the end and reach the promised II, outbidding UK broadcasters for the standalone subscription on the com- above81m. Enders Analysis said it would double its landwithoutfallingontheway.” rights. This year also marks the start of pany’s first-quarter earnings call, he However,Netflixexpectstoaddfewer subscriberbaseto150mby2020. In the US, NBC, Showtime, Starz and itsdealtoairfirst-runWaltDisneymov- said it was evidence that “growth in the  subscribers in the second quarter than Netflix has sacrificed earnings growth HBO are among the channels to have ies in the US, making it the home of new internet TV market” was “displacing in the same period a year ago, at its for investments in original content, gen- launchedstandalonevideosubscription releasefilmsaftertheyhavescreenedin linear TV”. Increased competition was launch in Australia and New Zealand. It erating net income of just $27.7m in the services that are available without a cinemas and been released on DVD, “all part of the natural evolution from isforecasting2mnewinternationalsub- firstquarteronrevenuesofcloseto$2bn. cableorsatellitetelevisionsubscription. such as the new adaptation of The Jungle linearTVtointernetTV”,headded.  scribers for the second quarter, com- Investors have been willing to accept They are all in the market for original BookandtheupcomingCaptainAmerica: Netflix has a considerable head start paredwith2.37mayearago. such a low margin as Netflix has pur- content, which has increased the pres- CivilWar,aswellasoldertitles. on its rival having begun its interna- This admission spooked investors sued international growth. At some sure on Netflix but been a boon for Hol- These investments should ensure tional video push four years ago. But its  and sparked a 10 per cent fall in Netflix point, however, it will have to make its lywoodstudiosandotherproducers. Netflix keeps adding subscribers. But path to hoped-for global success is lit- Apr  Apr sharesonMonday. investmentspay. Amazon outbid Netflix and other Amazonandtherestofthechasingpack teredwithpotentialstumblingblocks. Michael Nathanson, an analyst with “Netflix has to move quickly along its broadcasters to pay an eye-watering aresnappingatitsheels. Source: Thomson Reuters Datastream In January it turned its service on MoffettNathanson, wrote in a research tightrope to stay ahead of the growing $250m to sign the three presenters of See Lex

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APRIL 20 2016 Section:Companies Time: 19/4/2016 - 19:28 User: puttnama Page Name: CONEWS4, Part,Page,Edition: LON, 19, 1 Wednesday 20 April 2016 ★ FINANCIALTIMES 21

UKCOMPANIES

Travel & leisure Pret A Manger serves up double-digit sales growth

Sandwich chain’s bet on equity group Bridgepoint, said avocado “Last year thousands of customers more people would eat it,” he said. tant, and you simply can’t afford to versity towns, such as Exeter, Notting- was its fastest-growing ingredient, with toldustheyweretryingtoeatlessmeat, “We’re not getting rid of our meat alienate your staff. Under no circum- ham, Durham, Manchester and Bir- more vegetarian options customers eating 5m in 2015. Its best- said Clive Schlee, Pret A Manger’s chief options, we’re simply saying, here’s an stances will we risk that — we haven’t mingham.” reaps appetising returns selling item was a vegetarian Beets, executive. “This year we have chal- alternative.” cutanyofourbonuses.” International sales were strong, with Squash&FetaSuperBowl,selling17,000 lenged ourselves to increase our vege- While the new minimum wage has Pret opened 23 new shops in the UK like-for-like sales in the US, Pret’s fast- aweekandoutperformingbothchicken tarian options in all shops, as well as seen companies cut employee benefits last year, and Mr Schlee denied that the est-growingmarket,up13.8percent. PAULMCCLEAN andsalmonoptions. opening a veggie-only pop-up shop to — with Caffè Nero staff losing their free sandwich chain was close to saturation. Last year, Pret began serving dinners Booming avocado sales and rising Overall sales were up 13.9 per cent to learnmorefromourcustomers. lunch, for example — Mr Schlee said no “It’s easy to assume we’re everywhere with wine, jazz and “really posh olives” demand for vegetarian food helped £676.2m, while earnings before inter- “People are becoming more aware suchcutswouldbemadeatPret. due to our presence in London, but in at one of its central London branches. sandwich chain Pret A Manger to est, tax, depreciation and amortisation about the health and environmental “I’m very conscious about how hard actual fact we have about half as many Mr Schlee said that despite the popular- deliver tasty double-digit growth in rose 14.5 per cent to £84.3m in the 52 aspects around vegetarianism. We’ve our staff work — how cheerful they are shops as the big coffee shops and pizza ityofthescheme,thecompanyhadcon- saleslastyear. weeks to December 31 2015. Like-for- always thought that if vegetarian food and how motivated they are when but- chains,” he said. “We’re now building cluded “that Pret works best when it The chain, which is owned by private likesalesrose7.5percentyearonyear. wasmoreattractiveandmoreavailable, teringthebread—allthatisveryimpor- outside of London, and focusing on uni- stickstoitscurrentformatofservice”.

Energy. Renewables Property Zoopla to buy Drax challenges ministers with offer to drop coal supplier of software for Chief says power generator is Heat of the moment ready to switch to wood by estate agents 2020 if subsidies are awarded

JUDITHEVANS PILITACLARK ENVIRONMENTCORRESPONDENT Zoopla, the internet property portal, is to buy the market leader in estate The head of the UK’s largest power sta- agency software for £75m as it battles tion has thrown down the gauntlet to with Rightmove and OnTheMarket for government ministers with an offer to theloyaltyofagents. stop using climate-warming coal in as little as three years in return for more The acquisition of Property Software greenenergysubsidies. Group would link Zoopla with a back- Dorothy Thompson, chief executive office system used by 8,000 branches, of the Drax group, told the Financial which might then join its portal, ana- Times the company could easily beat lystssaid. the 2025 deadline for phasing out coal Alex Chesterman, founder and chief power that ministers set in November, executive, said: “For those who want it, by converting more boilers at its huge we will provide a complete end-to-end North Yorkshire power plant so they solution.” burnwoodpelletsinstead. Zoopla and Rightmove, its larger “We have project plans that we could listed rival, are among the UK’s most execute within three years, so you could popularwebsitesbuthavefacedcompe- take our coal units off the system by tition during the past year from OnThe- 2020 if not before,” Ms Thompson said Market,setupbyaconsortiumofestate in an interview ahead of Drax’s annual agents to break their stranglehold on an shareholdermeetingtoday. area that has become crucial to home The company has already turned its Burning question: Drax wants to convert its coal boilers to use biomass, or wood pellets, as seen above at its generating station in North Yorkshire salesintheUK. 42-year-old Selby power station into About 2,000 agents ditched Zoopla one of the world’s biggest renewable for OnTheMarket, which allows mem- generators over the past four years, by Steep falls at Drax Drax profits bers to list on only one other big portal. upgrading nearly half its six coal-fired But Zoopla’s numbers have been rising Share price (pence) Earnings before interest, tax, depreciation boilerstoburnwoodpellets,orbiomass, and amortisation (£m) again, while OnTheMarket faces a mostlyimportedfromtheUS. Dec  mutiny from a group of agents unhappy But it has only done this after receiv- withitsserviceandfees. Government announces Nov    ing subsidies and other support worth changes to subsidy scheme Energy secretary says all Rightmovehasstartedprovidingsoft- £451.8m in 2015, or 17 per cent of reve- for biomass plants Britain’s coal power stations ware, “cementing the links with the nues at the power plant, which supplies Jul  will close by   agents’ back office and IT systems”, about8percentoftheUK’selectricity. Climate change tax exemption  according to Anthony Codling, analyst is abruptly scrapped in the Budget, It is a corporate transformation that atJefferies. which Drax calls a 'very, very big shock'  But with the purchase of PSG, Zoopla Apr  Aug  Overall, the company’s Drax sues the Drax admits defeat  appears to have leapfrogged its rival. government over in its legal action  About 5,000 of the software company’s share price has fallen the withdrawal after appeals customers do not use Zoopla, offering a of a key subsidy court ruling chanceofbundledselling.  60 per cent over the  Zoopla said it expected full-year     Q   Q  past two years results “at the higher end of expecta- Sources Thomson Reuters Datastream; S&P Capital IQ tions” as falling energy prices boosted uSwitch, the price comparison website has not been for the faint-hearted. profits at its Selby station, which sells switching Drax’s remaining three coal at Jefferies. The government is due to forimportedwoodisthreateningforests itboughtlastyear. Exposedtoendlessshiftsingovernment electricityintothemarket. boilers to burn wood would be impossi- offer three more batches of CFD con- intheUS.Draxrejectstheseclaims,say- While Zoopla, whose main portal is green energy policies, Drax’sdaily share Overall, Drax’s share price has fallen ble unless the company received more tracts over the next four years but these ing its switch to wood cuts its carbon used by 16,700 agents, has made acqui- price has tumbled sharply at least five 60 per cent over the past two years, of a newer type of subsidy structured as are expected to go to offshore wind emissions by more than 80 per cent sitions, Rightmove, used by 19,700, has timesinthepasttwoyears,ononeocca- while pre-tax profits dropped from a contract for difference, or CFD, that farms,notbigbiomassgenerators. compared with coal and does not harm grown organically. OnTheMarket, sion by as much as 28 per cent in a day. £166min2014to£59mlastyear. guarantees long-term power prices for Asked if Drax could expect more sub- forests. launched in January 2015, is used by That was on the day of last year’s July The company confirmed on Monday renewablepowercompanies. sidies, the energy department says: “We But the company faces other tests as about6,000agents. Budget, when a climate change tax was that it examined several financing Drax was awarded one CFD for are already supporting over 5 gigawatts ministers consider how to close the PSG — backed by LDC, the private applied to renewable generators, a step options last year to boost its biomass its third boiler conversion two years of biomass technologies, providing eight coal stations selling power to the equity arm of Lloyds — generated reve- Ms Thompson likens to “putting an plansand“optimiseitsbalancesheet”. ago but is still awaiting state aid nearly a quarter of our renewable elec- market, which together supply more nues of £15.9m in the year to the end of alcoholtaxonapplejuice”. Drax abandoned the effort after find- approval for it, a delay Ms Thompson tricity.” than19percentoftheUK’selectricity. March, and boasts a customer retention The climate change tax reduced ing a high volume of deals being saysis“shocking”. Ministers want “a sensible level of MsThompsonsaysitisnotclearifthe rateofmorethan97percent. Drax’s earnings before interest, tax, attemptedaheadoftheMayUKelection Approval is widely expected because support”tokeep“billsaslowaspossible government will close down all the coal The acquisition, conditional on depreciation and amortisation by an and other market dislocation, it said, Brussels waved through support in for hardworking families and busi- stations in one go or shut them progres- Financial Conduct Authority approval, estimated£30min2015andisexpected adding that it was right to test the mar- Decemberforacoal-to-woodpelletcon- nesses”,headds. sively,whichcouldcauseproblems. will be funded by existing cash and a tohavedoubletheimpactthisyear. ket “but not something that we needed version at the smaller Lynemouth The government is also facing pres- “Youcan’tsay,‘well,I’mgoingtoclose £50mextensionofitsdebtfacility. Draxhasalsobeenhitbylowerwhole- todo”. power station. A positive decision could sure from environmental activists who this one and not that one’. There are Mark Goddard, PSG chief executive, sale power prices — which fell by about But the question of future subsidies make a £70m difference to Drax’s arguethatburningwoodpelletsisnotas competition issues that will stop you will become head of Zoopla’s property 30 per cent in 2015 — damping gross remains vital. Ms Thompson says annualrevenuesfrom2017,sayanalysts greenasDraxclaimsandthatitshunger doingthat,”shesays. servicesdivision.

Mining Business Leaders Polymetal on the lookout for further deals

JAMESWILSON the Kapan gold mine in Armenia Mr Nesis said Polymetal was close to from Dundee Precious Metals in March, agreementwithaRussianbank—either Polymetal International has said it is and this month agreed to buy Glen- VTBorSberbank—toprovide$280mto open to more acquisitions after its sec- core’s Komarovskoye deposit in Kaza- $300mofprojectfinanceforKyzyl. ond deal this year to increase gold pro- khstan, where it already operates its Polymetal struck a deal in December ductionincentralAsia. onlymineoutsideRussia. with Polyus Gold for potential joint The UK-listed precious metals miner The acquisitions, for combined development of Nezhdaninskoye, Rus- is on the verge of starting construction upfront payments of $125m, are likely sia’sfourth-largestgolddeposit. atitslargenewmineinKazakhstan,and to add to Polymetal’s output this year. Mr Nesis said Nezhdaninskoye could has said it will consider extending its be one of the next mines Polymetal was portfolio after completing that $350m involved in constructing and would be project. Growth appetite: “relativelycapital-light”. Vitaly Nesis, chief “We probably have a bit of appetite executive, says Russian gold miners have been sup- forlonger-datedgrowthoptions—sayto Polymetal has a portedbybigcostreductionsastherou- bebuiltin2019or2020—thatwouldbe pipeline ‘gap’ ble has fallen. But they have been hit by interesting to provide a longer-term after 2019-20 theperceptionofgreaterpoliticalriskin pipeline,”said Vitaly Nesis, chief execu- the past two years since relations tive. “We are OK for 2019-20, and then The miner said it would review 2016 between Moscow and the west soured wehaveagap.” production guidance when the deals overthecrisisinUkraine. Shares in Polymetal have increased completedinthecomingmonths. Mr Nesis said the perception of Rus- 20percentthisyear—helpedbytheris- Polymetal intends to start building sian risk was “starting to shift” with ing gold price — giving it a market capi- Kyzyl, another mine in Kazakhstan, “sentiment creeping back up”. Borrow- talisation of £2.9bn. The company has next month. The project, which was ing costs for Polymetal had fallen and been one of the most active acquirers of acquired in 2014 and should launch in there were signs of wider investor inter- gold assets in recent months, spending 2018, has added 50 per cent to the est,headded. relatively small sums to extend its focus group’s ore reserves. It is expected to “Our pitch is that we have been stable inRussiaandbeyond. propel group output from 1.2m ounces performers, our operational perform- The gold and silver producer bought ofgoldthisyearto1.6mozin2020. ancehasbeenverysolid,”hesaid.

APRIL 20 2016 Section:Companies Time: 19/4/2016 - 17:49 User: pryorc Page Name: CONEWS6, Part,Page,Edition: LON, 21, 1 28 ★ FINANCIALTIMES Wednesday 20 April 2016

MARKETS&INVESTING

Capital markets Capital markets Brexit hedgers are wasting Argentina returns with $16bn debt sale their money, says bond guru The UK is not going to Managers of this newly Holdout creditors will be ernment, and the story of an emerging who own debt on which Argentina voked a scramble for a piece of the vote to leave the EU, popular kind of fund do not market nation with potential for eco- defaulted and who fought for full repay- $70bn transaction in the so-called grey market according to Jeffrey have to adhere to a bond paid in cash as Buenos nomicimprovementatatimewhenoth- ment until a deal was reached this year. The demand as — where investors can buy and sell the ersaremiredinrecessionandscandal. Argentina will pay the holdouts in cash Argentina returned debtbeforeitisofficiallyissued. Gundlach, the influential market benchmark. Aires ends conflict after a long absence bond investor. “[They] became popular Claudia Calich, fund manager at on Friday. “This is just the starting caused by debt Bids on the 30-year bond reached 3 The founder of because traditional M&G, called the sale a positive step in point . . . to begin on the road to achiev- default and conflict points above its yet to be decided issue DoubleLine Capital, which alternatives were deemed ELAINEMOORE —LONDON normalising Argentina’s financial rela- ingzeropoverty,”MrPrat-Gaysaid. with creditors price. Bids on the 10-year bond hit 2 BENEDICTMANDER —BUENOSAIRES manages more than $84bn to be unattractive. With an ERICPLATT —NEWYORK tionswiththeinternationalmarkets. A breakdown of the sale revealed that pointsaboveitsissueprice. of assets, adds that any unconstrained bond fund I “In order for the macroeconomic out- benchmark 10-year bond was the most 7% Traders said the grey market activity investors who are hedging have no idea what I’m Argentina was welcomed back to inter- looktoimprove,itisimportantthatfor- popular offered, allowing the country to Yield offered in the implied the bonds would rally in price against such an outcome going to get but it’s better national capital markets yesterday with eign direct investment picks up as a tightentheyieldfrom8percentto7per 10-year bond, the oncetheywereallocated. are wasting their money. than getting something I the largest sale of debt by any develop- result,”shesaid. cent. Investors who bought 30-year most popular in the The bonds have been issued under In a freewheeling know I don’t like.” ing nation and one of the biggest order Alfonso Prat-Gay,Argentina’sfinance bonds will earn 8 per cent a year, rather largest sale of debt New York law, which means investors by any developing interview at his group’s Los Mr Gundlach recalls how bookseverrecorded. minister, said demand was the highest than 8.85 per cent as initially indicated nation have recourse to international courts if Angeles headquarters, Mr he told traders on the day Fifteenyearsafteritwaslockedoutof for any emerging market debt issue. He while five-year bonds came with a yield thecountrydoesnotpaythemback.But Gundlach expounds on Mr Trump announced his marketsastheresultofdebtdefaultand also clarified that the government was of6.875percent. clauses within the bonds have been the UK and US political candidacy: “The greatest conflict with creditors, it returned with not planning to issue anymore debt this Three-year Argentine bonds, which alteredtoclarifythatequaltreatmentof landscapes and negative long in the entire world is a $16.5bn sale of dollar-denominated year,despiteuncertaintiesgeneratedby were only recently added to the coun- creditors does not mean equal ratable interest rates. Trump’s odds to win the debt, upsized from a planned $15bn as the complicated economic inheritance try’s sale plan, attracted fewer bids and payment, correcting the confusion that presidency.” demandtotalledcloseto$70bn. leftbythepreviousadministration. weresoldwithayieldof6.25percent. enabled holdouts to successfully sue Brexit DoubleLine cannot play Investorssaidtheywereimpressedby Part of the proceeds of the sale will be Ahead of the deal being priced yester- Argentinainthefirstplace. “It’s not going to happen,” the political betting Argentina’s new investor-friendly gov- used to settle a dispute with investors day, the scale of the order book pro- AdditionalreportingbyLucindaElliott he says definitively. market, but Mr Gundlach “People like to complain, predicts that Mr Trump will they like to say what’s win the White House if his wrong. But when it comes nomination is confirmed at down to actually pulling the Republican convention Analysis. Capital markets the lever they sit there and — and defence stocks they say, ‘What exactly am would then do well. I doing here? What is going “Trump is very squishy to happen?’ on ideas and offers Ultra looks beyond gap in Treasury futures “The devil you know is contradictory ideas week better than the devil you to week. But two things he don’t know. Look at what has said clearly and happened with Scotland. consistently are build a People aren’t going to pull wall and build the defence. Strong debut of CME’s new Client trading of Treasury a lever for Brexit, so I don’t “I think Trump would contract highlights increasing futures compared with cash even think that’s worth have much higher deficit. Average daily notional ( bn) He talks about leaving dislocation in post-crisis era Futures volumes Futures as a social security completely Cash volumes  of cash alone, cutting taxes and   spending a lot of money. PHILIPSTAFFORDANDJOERENNISON Donald Trump’s a debt A futures contract at CME Group that guy; he knows about tracks the world’s primary government  borrowing a lot of money.” bond benchmark has flourished since  its launch in January as investors adjust  Negative rates to a world of low interest rates and heft- Jeffrey Gundlach, Expectations of low iercapitalcostsforholdingbonds.  founder of DoubleLine interest rates are so The new contract from CME, the  embedded in financial world’s largest futures market, has  considering.” The cost of market assumptions that it “gonelikeabatoutofhell”,accordingto protection against a fall in smacks of “complacency”, aseniorexecutive.   sterling has risen towards Mr Gundlach says. In the first seven weeks of its life, the      * the high of 2010 after the If it becomes clear that “10-year Ultra Treasury note” contract, * Year to date UK election resulted in a the Federal Reserve will which tracks the US government secu- Estimated total cost coalition government. Mr not follow other central rity that is used as a benchmark all over of trading Gundlach says investors banks in considering the world, has notched up more than are being foolish pushing negative rates for the next 1mtrades. Trade size of m,  of margin up the cost of such downturn, investors could The success of the contract — the fast- financed ( ’) insurance. get burnt. est-growing product in the CME’s 148- Cleared interest  k  rate swap, plus gap “Remember all the tail “The odds are very low year history — reflects a shift in the broker fees risk insurance that pension that the US will go to structureoftheUSinterestratemarket, Cleared interest plans put on in 2009? negative interest rates, not between cash and futures products, fol- rate swap  What a waste of money.” based on some great lowingpost-financialcrisisregulation. US Treasury k It will prove the same economic growth belief but A longstanding 10-year Treasury futures gap with Brexit insurance, he on their failure in Europe futures listed contract at the CME  says. “The odds are less and Japan,” he says. remains popular, so the market is not Average holding than what people have “Those central banks will simplyswitchingtotheUltra. period: embedded into their have to get out of it, but The ultimate success of the new con-  months  protection so it’s likely to what is the path out? tract will rest on broader market partic- lose money. Raising interest rates ipation from asset managers, which  “And nobody knows against the global tend to wait and see before committing -day -yr -yr -yr -yr what would happen under economic backdrop seems toaproduct. a Brexit anyway. So often hard to justify.” “Asliquiditygrows,therewillbemore Sources: CME Group; Thomson Reuters Datastream things go the opposite way pull to switch to the Ultra 10-year,”says from what people expect. Terrorism James Ong, a derivatives strategist at The 10-year also appeals greatly to high-frequency chase, or repo, market. New rules on says: “Unsecured bank financing in Maybe your hedge is The one thing that could Invesco Fixed Income. “We would like Ultra Treasury traders,whohavebecomebiggerpartic- capital ratios make it more expensive three months . . . is lower than where actually in the anti-hedge.” shake Mr Gundlach’s to see liquidity grow. As it does I think note from CME ipantsintheUSbondmarket. for banks to undertake such activity. the US Treasury is issuing its debt on a scepticism over Brexit is if wewillbeusingitmorefrequently.” has reportedly “Financing is a really, really impor- The US repo market is 40 per cent yield basis. So, Houston, there’san issue Donald Trump more terrorism inflames The Ultra fills an important gap for ‘gone like a bat tant part of the ecosystem that has been smaller than it was at the height of the in the repo market. We’ve never had a Mr Gundlach says: “Trump concerns about the free investors and traders in Treasury out of hell’ a little bit overlooked,” says Paul financialcrisis. situationlikethatbefore.” is the unconstrained bond movement of people futures.Suchderivativetradesareoften Frank Polich/Bloomberg Hamill, global head of fixed income, A dislocation between government Some people envisage a shift away fund of the political arena.” in the EU. Stephen Foley closed out near the expiry of the con- currencies and commodities at Citadel bonds and swaps has taken place, with fromtheuseofswapsforhedgingincer- tract by finding an old cash Treasury Securities. “And that is where we will Treasury yields being quoted above tain circumstances, or a move to using Gundlach v the index security and delivering that to the other almost certainly see innovation. swap rates, a negative relationship that futures such as the CME Ultra, rather return party. The Ultra contract provides [Financing is] where many investors upends financial theory. Under normal thanjustcashTreasuries.  greater flexibility in settling futures aresubstantiallymorefocused.” market conditions this would be RJ O’Brien, a futures broker, says this DoubleLine Total Return Bond fund trades in the current climate of low The concern over financing is being reversed swiftly, but it has been situation could continue for several Barclays US Aggregate bond index  interestrates. exacerbated by a breakdown in the entrenched for nearly six months, indi- years. The answer, it says, lies in using In trading, however, the crucial ele- industry’s fundamental tool: market cating how higher capital costs are rein- futures such as the Ultra, which can be  ment is cost, particularly in the current activity that links Treasury bonds forcingdislocations. cleared at the CME and offset against  regulatory climate as the effects of and OTC derivatives, notably interest “Totalcostanalysisisgoingtobecome otherTreasuryfutures. banking and market reforms resonate rateswaps. very, very complex,”says Mike du Ples- Others, however,point out that swaps  forinvestors. In the vast US fixed income market sis, global head of credit execution at canbecustomisedforspecificrateexpo-   With banks facing higher capital there are various ways for buying and UBS. “The question of how they’re best sures,whereasfuturesareabluntertool. charges for trading over-the-counter selling interest rate exposure, via OTC goingtousetheirmarginwilldetermine “You’llhavefuturesandOTCmarkets - derivatives, the use of futures offers a and listed derivatives, and cash Treas- which trade they do. The tail may start working symbiotically, as they always       cheaper alternative, according to a uries. A crucial area of trading, which towagthedog,sotospeak.” were,”saysDavidClark,chairmanofthe Source: Morningstar report by Greenwich Associates, a capi- hasreceivedrelativelylittleattention,is Sean Tully, senior managing director Wholesale Markets’ Brokers Associa- tal markets consultancy. Using futures the funding of positions via the repur- for financial and OTC products at CME, tion,atradebody.

Commodities Oil & gas China’sgold price benchmark to rival London Venezuela disruption set to cut crude output

HENRYSANDERSON and the financial industry to trade gold futures contracts are now on Chinese ANDRESSCHIPANI is less than 20 days away from a major Pino, has blamed Saudi Arabia for the bars. exchanges. Prices from iron ore to cop- ANDESCORRESPONDENT power production disruption,” Olivier collapseofthetalks,claimingitsdelega- China, the world’s largest gold con- Last year the London price moved to perareincreasinglysetinthecountry. Jakob of Petromatrix, a Swiss-based tionhad“noauthoritytodecideonany- sumer, has launched a gold price Venezuela’s economic and political an electronic auction system. In 2014 This year, China’s first crude oil con- consultancy, wrote in a report. “Crude thing”astheywereunderstrictinstruc- benchmark to compete with London’s woes are set to curtail the Opec mem- the Financial Conduct Authority found tract is expected to start trading. A and product production could be nega- tions from Riyadh not to give any almost century-old process as the ber’s oil production, adding to a grow- that a Barclays trader had manipulated number of exchange traded funds and tively impacted and the country might groundtoIran,anotherOpecmember. country seeks to have a greater influ- ing list of supply disruptions that are theLondongoldfixandtheBritishbank other long-only funds that track com- have to increase imports of petroleum Crude production in Venezuela, enceoverpricingofthepreciousmetal. helpingtopropupglobalcrudeprices. wasfined£26m. modities are also expected to start, productsforgenerators.” which has the biggest oil reserves in the The twice-daily auction for the renmin- “China needs a gold benchmark that accordingtoCiti,includingafundbased Analysts believe chronic power short- Unplanned production stoppages are world, according to the BP Statistical bi-denominated Shanghai Gold Bench- reflects local market flows and reduces on copper and an exchange traded fund agesinthecountrycouldsoonaffectthe picking up among Opec members, with Review,isalreadydecreasing. mark Price started yesterday on the gold’s price dependency on the US dol- tracking agricultural products, under oil sector, with output declining oil prices around $40 a barrel. A strike According to Opec, Venezuela’s pro- ShanghaiGoldExchange. lar,” Roland Wang, managing director considerationbytheregulator. 100,000-200,000 barrels per day this in Kuwait and pipeline fire in Nigeria duction dropped to 2.52m b/d in Febru- It involved 18 banks, including inter- for China at the World Gold Council, an “Huge increases in open interest and year. have added to the disruptions that ana- ary from 2.59m b/d in December. Aver- national groups Standard Chartered industry body, said. “An Asian-focused, daily trading in Chinese commodity DangerouslylowwaterlevelsatVene- lysts estimate stand at almost 2.8m b/d age output in 2015 was 2.65m b/d, down BankandANZBankingGroup. yuan-denominated benchmark will sig- futuresmarketshavehadalargeimpact zuela’sgiantGuridam—whichprovides —thehighestinnearlytwoyears. from2.68mb/din2014. The launch could eventually reduce nificantlyincreasetheliquidityandeffi- on global prices, enhancing short-term more than a third of the country’s elec- Supply issues have provided a power- While the power shortages may the influence of the London gold price, ciencyofthegoldpricediscoverymech- price volatility and shifting more pric- tricity—mayalsoforceittoshutthesite ful prop for the oil price after some of increase domestic consumption of fuels which started in 1919 when bankers at anism.” ing power to the east,” the bank said. to avoid turbine damage, which is likely the world’s leading producers failed to such as diesel, electricity rationing is NM Rothschild & Sons in London sat Commodity pricing is increasingly “This trend has primarily played out in to hit oil production and could force the agree to freeze production — a deal that likely to hit oil production, says Fran- down to calculate a fair level. That moving to China, as trading has base metals and iron ore, with more redirection of some oil exports to elec- Venezuela helped bring to the negotiat- cisco Monaldi, a Venezuelan energy became the global gold benchmark, expanded in its domestic futures con- commodities to be affected in the tricitysuppliesanddieselgenerators. ingtabletotrytopropupitsfinances. expert with the Houston-based Baker usedbyminers,centralbanks,jewellers tracts. Six of the top 10 globally traded future.” “We have to consider that Venezuela Thecountry’soilminister,Eulogiodel InstituteforPublicPolicy.

APRIL 20 2016 Section:Markets Time: 19/4/2016 - 18:28 User: wrightjeremy Page Name: MARKETS1, Part,Page,Edition: LON, 28, 1 Wednesday 20 April 2016 ★ FINANCIALTIMES 29

MARKETS&INVESTING

Global overview TRADINGPOST Markets update Jamie S&P  index Equities remain elevated as firmer Change on day  Chisholm      There are two ways to look at the low oil price continues to set the tone   cost of market protection.   It is either a good thing that shows Mar   Apr investors’ risk appetite is robust, and which allows portfolio positions to be S&P 500 briefly exceeds pushed further into negative territory US equities Miners including Freeport- held because they can be cheaply hashurttheyen. McMoRan and Newmont Mining were hedged. Or it is a bad thing because it 2,100 as Goldman beats After hitting ¥107.81 per dollar on among the top performers as a rise in suggests the market is too sanguine consensus while robust Monday, the Japanese currency was metals prices helped the S&P 500. and vulnerable to a negative shock. 0.3 per cent softer on the session at Naturally, those with a tendency Brent crude puts pressure ¥109.12. toward bullishness will favour the on government bonds The dollar index fell 0.5 per cent to FTSE  index former; the bearish will veer towards 94.04, hovering just above six-month Change on day  lows as investors continue to weigh the  the latter. FTREPORTERS So, with that said, traders can make shifttoamoredovishtonefromtheFed-  their mind up about the following. A barometer of global equities climbed eralReserve.  The CBOE Vix index, a measure of to its highest level of the year yesterday It is a stance that has helped suppress the cost of S&P 500 implied option as a firmer oil price continued setting Treasury yields, though the more chip-  volatility, closed on Monday at 13.09, thetoneforbroadmarkets. per mood across markets yesterday Mar   Apr its lowest finish to a session since The broadly risk-positive mood put crimpeddemandforsomefixedincome August 17. pressure on government bond prices, assets and the two-year Treasury yield UK equities A second straight day of By August 24, 2015, the Vix had which nudged yields higher, and weak- —amongthemostsensitivetoUSpolicy gains, led by Anglo American and spiked above 50 as the S&P 500 ened the Japanese yen. Gold rose $21 to — added 1 basis point to 0.75 per cent. Glencore, left the FTSE 100 blue-chip tumbled 9.7 per cent in just four $1,254anounceasthedollarweakened, The 10-year Treasury was roughly flat index up almost 3 per cent on the year. sessions. The Vix’s long-term average and silver jumped 4.1 per cent to $16.88 at1.78percent. is about 20. anounceasitbrokeoutofamultimonth Yields on equivalent-maturity Ger- The CBOE Oil Vix hit 79 on February tradingrange. man Bunds were 1bp higher at 0.17 per Eurofirst  index 12, around the time West Texas Abigdriverofsentimentacrossglobal centaheadoftomorrow’smonetarypol- Change on day  Intermediate, the US-based oil markets is the resilient performance of icy decision from the European Central  contract, touched a 12-year low of oil since the collapse of a production Bank.  $26.05 a barrel. freeze deal on Sunday. Brent crude rose Suchhistoricallylowbondyieldshave  With WTI back to $40 a barrel, the 2 per cent to $43.77 a barrel as worries supported stock markets, because Oil Vix is down to 46. It has averaged about a strike by Kuwaiti energy sector they make shares seem attractive in  37.5 over the past 10 years. workers continued to underpin the comparison. Mar   Apr The JPMorgan Global FX volatility internationalenergybenchmark. In foreign exchange, South Korea’s index is 11.4, against 10.5 for its 10-year The FTSE All-World equity index won was among the best-performing European equities French, German, average. Helping to keep currency gained 0.9 per cent to 269.4, its highest Asian currencies, up 1.2 per cent, after Italian and Spanish equity markets market volatility percolating is level since early December. The pan- Shamil Zhumatov/Reuters theBankofKoreakeptratesonholdbut have continued to dig out from losses uncertainty over central bank action, European Stoxx 600 advanced 1.5 per Oil in the driving seat: FT.com/video downgraded growth and inflation fore- recorded at the beginning of the year and politics. Sterling/dollar three- cent while the S&P 500, which briefly Michael Mackenzie tracks the apparent rebalancing of crude casts for the second time this year. The month volatility remains elevated at surpassed the 2,100 threshold, eased price and how it sets the pace for wider market sentiment KospiCompositewasflat. more than 15 ahead of June’s vote on backed and was little changed in after- The Malaysian ringgit, which has Nikkei  index UK membership of the EU. noontrade. been sensitive to moves in the oil price, (’ ) Change on day  With earnings season dominating the ing a string of consensus-beating results quake, industrial production is likely to rose 1.1 per cent, with commodity cur-  [email protected] attention of investors, the Wall Street amongthesixbiggestUSbanks. contract in April, increasing the proba- rencies including the Aussie dollar  benchmark stands within 2 per cent of Japanese equities reversed a poor bility that the economy could succumb alsofirmer.  Volatility index last May’srecord. Analysts had forecast start to the week as the Nikkei 225 ral- to negative growth in the second quar- Sydney’sstockmarketbenefitedfrom CBOE Vix index a poor batch of results and many com- lied 3.7 per cent, with investors noting ter,”saidBNPParibas. strength in resources stocks, the S&P/   panieshavebeatenexpectations. that the economic impact of the earth- The bank’s economists forecast a ASX 200 added 1 per cent, while in Mar   Apr  Not all the earnings news has been quakesontheislandofKyushumightbe 0.2 per cent contraction in Japan’sgross greater China the Shanghai Composite well received, however. Netflix took a counteracted by more stimulus meas- domestic product during the second rose 0.3 per cent and Hong Kong’sHang  Asian equities Japanese stocks hit yesterday when the media group uresfromtheBankofJapan. quarter. Sengclimbed1.3percent. reversed their recent losses to show a  warnedofslowingsubscribergrowth.In “With big carmakers forced to sus- With the BoJ due to deliver its latest Reporting by Jamie Chisholm in London, Apr  Apr  strong rally as the volatility in oil Source: Chicago Board Options Exchange contrast Goldman Sachs rallied after pend production nationally by the dis- policy decision at the end of the month, Eric Platt in New York and Peter Wells eased. beating lowered expectations, complet- ruption of supply chains caused by the the possibility of interest rates being inHongKong

Rolls Royce dealerswasthatJean-SebastienJacques, Share price (pence) theincomingchiefexecutive,was Trading Directory  resettingexpectationsaheadofhis officialappointmentinJuly.  BHP Billitongained5.2percentto  964.5paheadofitsfiscalthird-quarter  productionreportovernight.Analysts London Apr   Apr expectittotrim2016ironoreguidance Source: Thomson Reuters Datastream whilesayingthatquarter-on-quarter

Glencore rises 7.5% Day's productionforallitsmaincommodities Indices Close change exceptoilhasbeenstableorslightly as miners prop up FTSE 100 6405.35 51.83 improved. FTSE 100 FTSE 250 17044.25 154.50 Rolls-Roycerallied4.7percentto FTSE 350 3556.06 29.36 696.5ponnewsofa$1.2bnjetengine FTSE All-Share 3502.70 28.47 orderfromGarudaIndonesia. FTSE All-Share Yield 3.70 - RBCadvisedcaution,sayingRollswas FTSE 100 Futures 6357.00 52.00 stillviewedasa“specialsituation” Bryce Elder 10 yr Gilt Yield 1.64 0.03 ratherthananormalaerospaceand 20yr Gilt All-Share Ratio 0.60 - defencecompany.At20times2017 earnings,thestockmightbemispricing MinerspoweredtheFTSE100toits thandoubleitspreviousestimate.The industrytrendssuchasaweak highestclosesinceearlyDecember groupwouldmeetdebtreduction after-marketandsluggishdemandfor yesterday,withGlencoreamongthetop targetsevenifitdecidednottosellthe privatejetsandpowersystems,the performers. LomasBayascoppermineinChile,the brokersaid. Theresourcesgrouprose7.5percent brokersaid. SectorpeerMeggittrose6.2percent to169.9pastraderspickeduponnews Therestofthecommoditystocks to413.2paftertheaircraftengineer thatannualcoal-supplynegotiations pushedtheFTSE100higherby0.8per repeatedfull-yearguidanceaheadofan withTohokuElectricPowerofJapan cent,or51.83points,to6,405.35.Anglo investorday.First-quarternumbers haddeliveredabetterthanexpected Americanwas8.5percentfirmerat werebetterthanexpectedthanks result. 752.5pandAntofagastarose7.6per largelytoamorerobustthanfeared Tohokuagreedtopay$61.60atonne centto492.8p. performanceforitscivilafter-market forimportedAustralianthermalcoal— Havinghitathree-yearlowinmid- operations,whichhadbeenthecauseof down7percentfromayearagobutstill February,theFTSEhasrebounded aprofitwarninginOctober. faraboveaspotpriceofabout$11. 15.7percent.Large-capminershad Avevawassent9.1percenthigherto “Thismarksthelargestpremiumto reacheda13-yearlowamonthearlier £16.61afterthedesignsoftwaremaker spotthatwehaveonrecord,”said andhavesincesurged78percent. reassuredontrading. Macquarie,whichcalledit“amassive Rio Tintoadded2.8percentto£23.33 ThestatementsfromMeggittand coupforGlencoreandotherproducers evenaftercuttingits2017iron-ore Avevahelpedliftengineersincluding sellingonJapanesefiscalyearterms.” shipmenttarget.WhileRioblamed Weir,thepumpmaker,whichrose BernsteinResearchthisweekputa problemswiththeintroductionofafleet 6.3percentto£11.96aheadofan 250ppricetargetonGlencore,more ofdriverlesstrains,thesuspicionamong updatedueonApril28.

thelowestin14years,accordingto softwareandhardwarein-house.But Bloombergdata. StifelanalystDavidGrossman Netprofitsfellto$2bnfrom$2.3bnin contendedthattheresultspointedto thesameperiodin2015.Adjusted “signsofstabilisation”forthecompany, profits,whichexcludecertainitems,of whichismorethanacenturyold. $2.35asharealsobeatWallStreet IBMsharesdeclined5.1percentto expectationsof$2.09ashare. $144.75.Theyarestillup22.7percent However,a“closerlookshowsresults sinceFebruary11. Wall Street weregenerallyoflowquality,withmore ElsewhereNetflixsharesplunged thanhalfoftheEPSbeatcomingfroma nearly12percenttoaone-monthlowof IBM declines after taxbenefit”,saidSherriScribner,an $96.87afteritissuedsurprisinglyweak fall in legacy sales analystatDeutscheBank. subscribergrowthguidance. Trading Directory Thestrategicimperativesunit,which Thestreamingcompanysaidit housesthecloudanddataanalytics expectedtoadd2minternational divisions,loggeda14percentyear-on- subscribersinthecurrentquarter.That yearriseinquarterlyrevenues.Cloud wasbelowanalysts’estimatesfor3.45m Adam Samson and Pan Yuk salessoared34percent. andsharplyslowerthanthe4.5madded However,thecognitivesolutions inthefirstthreemonths. division,whichaimstocreatesoftware Disappointingguidance IBMsharesdeclinedyesterday,eating andservicesthatcan“think”morelike overshadowedwhatwasotherwisea intoasharpgainoverthepasttwo humansthancomputers,andisa solidsetoffirst-quarterresults. months,itdisclosedits16th-straight significantpartofchiefexecutiveGinni Inmiddaytrading,theS&P500rose quarterlysalesfall. Rometty’sturnroundefforts, 0.3percentto2,100.2,surpassingthe BigBluesaiditsrevenueshad underwhelmed.Revenuesfell1.7per closelywatched2,100levelforthefirst dropped5percentyearonyearto centto$4bn. timethisyear.Thebroadmarketindex Trading Directory $18.7bnasgrowthinnewerbusinesses Legacyunits,whichhelpedIBMgrow sitslessthan2percentfromitsall-time Runs Daily failedtooffsetthedeteriorationin intoatechnologypowerhouse,are highlastMay.TheDowwasup0.3per ...... legacyunits.Thefiguretopped sufferingascompaniesmovetocloud- centat18,050.7,whiletheNasdaq Classified Business Advertising expectationsof$18.3bn,butwas basedsolutionsinsteadofhosting Compositefell0.2percentto4,950.6. UK: +44 20 7873 4000 | Email: [email protected]

APRIL 20 2016 Section:Markets Time: 19/4/2016 - 19:26 User: wrightjeremy Page Name: MARKETS2, Part,Page,Edition: LON, 29, 1 30 ★ Wednesday 20 April 2016

INSIGHT Analysis. Equities John Plender Asia volatility traders in hunt for liquidity

Wild swings have highlighted Linked indices the lack of a Vix counterpart Cautious consumers South Korean structured finance issuance for the region’s investors Korean structured products written on selected Asian indices (€m) fail to reap full benefit Korean Kospi Hang Seng China S&P 500 Euro Stoxx Other JENNIFER HUGHES 200 index Enterprises Index 50 index of falling crude costs When markets plunged in January, led by China, one index in Asia was hit more Interest in autocallables Interest in products referencing than most—amovethat sent shudders begins to rise as South the Hang Seng China Enterprises 50 through the region’s growing band of Korea’s savers seek yield Index soars as Chinese stocks ne of the great non-events in the global econ- volatility traders, as the world braced rally, making the point at which omy in the past 18 months has been the fail- for a re-run of the turmoil that overtook losses bite look very distant 40 ure of consumers in the developed world to the market the previous September. spend enough of the windfall from a falling oil The index that volatility traders were price to generate a powerful boost to growth. watching most closely was the Hang 30 OIn the US and Japan households have saved much of the Seng China Enterprises Index (HSCEI), increase in income stemming from cheaper oil. The made up of Hong Kong-listed mainland potency of the windfall in the eurozone has not been companies. In 2015, when China’s mar- 20 enough to obviate the need for extreme monetary easing, kets were soaring, it had become the ref- includingnegativeinterestrates. erence point of choice for “autocallable Explanations are not hard to find. With a large energy securities” in South Korea, a popular 10 sector, the US has sustained a significant hit to investment. andriskyretailproduct. At the same time, deleveraging in the aftermath of the The worst fears of traders did not financial crisis and worries about an uncertain future have materialise as the global mood subse- bluntedAmericans’urgetospend. quently recovered. But this year’s wild 0 In Japan, the increase in the consumption tax in 2014 market swings have awakened interest 2013 2014 2015 took away more from consumers than the oil windfall in Asia’s lack of a liquid tool that can FT graphic Source: SG Flow Strategy & Solutions delivered. As for the eurozone, austerity still reigns and help protect portfolios and trading posi- animal spirits are at a low ebb. tions held by banks and hedge funds Economists at the International Monetary Fund, mean- fromboutsofturmoil. That leaves banks as the key media- However, when the HSCEI began to or place bets on whether or not a com- while, argue that what brought about past windfalls was “In periods where we have volatility ‘What we tors, as holders of volatility risk, plunge in the weeks following China’s pany will pay out. not just the falling oil price but its combination with falling and uncertainty then asset managers see for the between the buyers of the structured surprise devaluation, the trades were For now, with markets in more buoy- interest rates. The trouble today is that rates had already and hedge funds are looking to take products they have sold — huge markets structured such that the speed of the ant mood, the volatility landscape has declined to extremely low levels before oil caved in. With advantage of that,” says Shane Carroll, coming in the likes of South Korea, Taiwan and decline in effect wiped out the banks’ quietened down in Asia. Even the HSCEI interest rates low, the incentive to spend the windfall is derivatives strategist at Société Géné- year is Japan — and those hedge funds with an hedge by increasing their overall sensi- is back above 9,000 after its lurch as low reduced because consumers do not fear prices are about to rale, who adds that interest had been interest. As the banks selling the prod- tivity to the sharp moves. as 7,500 in February, although still short rise. They may also seize the opportunity to save more rising for several years. that the ucts to clients have effectively gone long The result has been a shift to other of the 10,000 rule of thumb used by because, in a low interest world, a bigger pot of savings is Investors in the US can turn to the volatility implied volatility, they need a liquid products that seek to better match bankersasagaugeofriskappetitedeal. needed to achieve a given tar- CBOE’s Vix, a gauge of implied S&P 500 market that can allow them to hedge banks’ risks as well as a rise in the price But those in the market warn this is get return on investment. volatility. Across US markets there is a of volatility that risk. of volatility in the region. Instruments just the calm before the next storm. Is it possible that the wind- The trouble range of participants, such as banks and will be very The limited number of volatility trad- called corridor variance swaps, which “What we see for the coming year is fall effect has simply been today is rates credit investors, keen to limit risk to ers in the region and the scale of South are active only when indices are in a cer- that what is called the ‘vol of vol’,or ‘vol- delayed and that the dynam- hedge funds focused on potential arbi- high’ Korea’s retail structured products mar- tain range, are one such answer. atility of volatility’, will be very high,” ics of the transfer of resources had already trages, not to mention retail investors ket is such that “vol” is normally Investors are also expressing rising says Govert Heijboer, co-chief invest- from oil producers to consum- declined before trading options. cheaper in Asia. That helped autocalla- interest in dividend futures as a way of ment officer at True Partner, who man- ersisabouttochange? Although Asian exchanges have cre- blesellerstohedgebyattractinginterest coping with market volatility that may agesaspecialistvolatilityfund. Maybe, but it is hard to see oil caved in ated indices that seek to replicate the from hedge funds keen on the low prices not reflect, or even affect, the underly- “People should remember that when much happening in Japan, Wall Street equity model, including the offered on products such as variance ing economy. These exchange traded the 2007, 2008 crisis started happening where massive quantitative easing has failed to break the V-Nikkei and the V-Hang Seng, the mar- swaps. These allow investors to place contracts are based on expected divi- we had an intermediate period when it deflationary psychology and not managed to prevent an ket in products based on them is illiq- bets on future levels of volatility relative dend payouts by a calendar date, allow- was somewhat quiet before it all started appreciation of the yen in recent weeks. The eurozone uid,accordingtohedgefunds. to current levels. ing traders to hedge dividend exposure again.” would be a more natural place for oil-induced buoyancy because, unlike the US, it is not struggling with the burden of a big energy sector. By the same token, if it was going to happeninEuropeitwouldsurelyhavehappenedbynow. Commodities The US is where the case might be arguable. Recent labour market data offer some hope of more buoyant con- sumption. Note, too, that while households’ savings con- Oil price buoyed by tinued to rise as oil prices fell further in January and Febru- ary, consumers did not pull in their horns as they had done previously. Spending growth picked up. The fall in retail supply disruptions sales in March, driven by a decline in auto sales, does not help the thesis, but it could be rationalised by reference to tightening financial conditions and the prevailing fear of ANJLI RAVAL market, said Carsten Fritsch, recessionthathassincewaned. analyst at Commerzbank. Also helpful is the weakening of the dollar against the A strike that has temporar- But the strike was unlikely to yen and the euro, which enhances earnings prospects in ily halved Kuwait’s crude last for weeks because the the corporate sector. Until recently,capital flows danced to output and global supply economy was “too reliant on the tune of currency manipulation by central banks. But as disruptions propelled oil oilrevenues”,hesaid. I have noted here before, markets have recently taken to prices higher yesterday. Kuwait hopes to bring pro- neutralising competitive devaluations. And as Benn Steil Brent, which had sunk to duction back up to normal and Emma Smith of the Council on Foreign Relations point almost $40 a barrel on Mon- levels in the coming days, out, the markets now seem to be reacting rationally to day after talks between pro- and is planning to take legal movementsininterestratedifferentials. ducers in Doha collapsed, action against the strikers. Though the policy rates of the Bank of Japan and the rose as much as $1.34 to The disruption adds to European Central Bank have fallen well below the federal $44.25. West Texas Interme- supply issues in Nigeria, Ven- funds rate, US inflation readings have been on an upward diate, the US benchmark, ezuela and elsewhere. trend. This has pushed real inflation-adjusted US policy rose $1.49 to $41.26 a barrel. Exports of Nigeria’s Forca- rates below those in Japan and the eurozone. Many market participants dos crude are expected to Though the ECB has been ploughing deeper into nega- expected prices, which have stay down until June, while tive rate territory, falling eurozone inflation means that rallied 45 per cent since mid- reports at the weekend said real eurozone rates have risen this year. So the yen and the February, to come under force majeure had been euro are not just havens in a storm. Rate differentials make freshpressureafterthefailed declared again on Brass Europe and Japan attractive destinations for savings and dealtofreezeoutput. River cargoes after a pipeline are a cause of dollar weakness. But Brent is back at levels leak. About 400,000 b/d of Given that inflation in the US looks set to rise faster than before the meeting, sup- supplyhasbeenlost. in Japan or the eurozone, dollar weakness may be with us ported by the Kuwait strike Venezuelan declines of for some time — though that assertion has to be accompa- and reaction to outages in about 200,000 b/d are nied by the standard health warning that attaches to all Nigeria and Venezuela. expected to accelerate fol- currencyforecasts. “The market is increas- lowing news that Schlum- Does this add up to a case for a bigger windfall effect to ingly pricing supply risk as berger, the oil-services com- come? Not, I’m afraid, a wholly convincing one — the spare capacity has disap- pany, will decrease activities headwinds are just too powerful at present. peared,”said Olivier Jakob of amid insufficient payments. Petromatrix, a Switzerland- Lost supply in Iraq and [email protected] basedconsultancy. Libya has also tightened the Global unplanned disrup- market. tions, which Energy Aspects Summer maintenance in estimates at almost 3m b/d, the North Sea is expected to are near a two-year high. add pressure on supplies, Meanwhile production especially of the crude More comment and data on ft.com from non-Opec nations has grades that underpin the taken a hit from the collapse Brentfuturescontract. inoilprices. Contracts for June delivery Y Fast FT Our global economies, headed “We are back in an envi- have moved to a premium team gives you market- by Brazil, Russia, India ronment where the only over those for July. This moving news and views, and China. spare capacity left is in stor- market structure, known 24 hours a day, five days ft.com/beyondbrics age tanks, and if those bar- as backwardation, is associ- a week. ft.com/fastft Y Podcast The Hard rels start to be used then the ated with tighter market Y Alphaville Our Currency podcast takes a crude oil structure tightens,” balances. irreverent financial blog. look at what is driving said Mr Jakob. However, a Reuters report Join Paul Murphy and the global currency Kuwaiti oil workers said maintenance on the Bryce Elder for the daily market. ft.com/podcasts downed tools for a third day Buzzard field in the North Markets Live session at in protest at public-sector Sea had been delayed from Y Analysis 11am. Lex Video pay reforms. The country’s early July to September. Buz- ft.com/alphaville and opinion from the crude production has fallen zard is the largest contribu- Y News and team on the hot issues beyondbrics to 1.5m barrels a day, from an tor to the Forties crude oil comment from more affecting companies and average 2.8m b/d in March. stream — one of the four than 40 emerging markets. ft.com/lexvideo The protest had led to a grades that make up the temporarily balanced oil benchmark.