High-priced tech stocks sink further into bear market territory

Some of the hottest technology stocks and funds of recent months have fallen into bear market territory and investors are betting on more turmoil to come, as rising bond yields undermine the case for holding high-priced shares.

A Friday afternoon stock market rally notably failed to include shares in Tesla and exchange traded funds run by Cathie Wood, the fund manager who has become one of the electric carmaker’s most vocal backers.

Shares in Tesla fell 3.6 per cent on Friday to close below $600 for the first time in more than three months, although it had been down as much as 13 per cent at one point. The stock is down 32 per cent from its January peak, erasing $263bn in market value.

Wood’s $21.5bn flagship Ark Innovation ETF — 10 per cent of which is invested in Tesla shares — also closed lower on Friday. It is now down 25 per cent and in a bear market, defined as a decline of more than one-fifth from peak.

Clean energy funds run by Invesco, which were last year’s best-performing funds, are also in bear market territory, along with some of the highest-flying stocks in the technology and biotech sectors.

“Bubble stocks and many aggressively priced US biotechnology stocks have been the hardest hit segments of the equity market,” said Peter Garnry, head of equity strategy at Saxo Bank.

The tech-heavy Nasdaq Composite index fell into correction territory — defined as a decline of more than 10 per cent from peak — earlier this week but rebounded 1.6 per cent on Friday as bond yields stabilised.

The yield on 10-year US Treasuries yield briefly rose above 1.6 per cent early in the day after a robust employment report for February buoyed confidence in a US economic recovery. Yields were less than 1 per cent at the start of the year.

Rising long-term bond yields reduce the relative value of companies’ future cash flows, hitting fast-growing companies particularly hard.

These type of companies figure prominently in thematic investing funds run by Wood at Ark Investments. The performance of Ark’s exchange traded funds has abruptly reversed after they recorded huge inflows and strong gains for much of the past 12 months.

“The speculative tech trade is in various stages of rolling over right now,” said Nicholas Colas, co-founder of DataTrek, a research group.

RBC derivatives strategist Amy Wu Silverman said investors were still putting on hedges in case of further declines in high-flying securities, including options that would pay off if Tesla and the Ark Innovation fund drop in value.

The number of put options on the Ark fund hit an all-time high on Thursday, according to Bloomberg data. By contrast, demand for put options on ETFs such as State Street’s SPDR S&P 500 fund — which reflects the broader stock market — have fallen as stocks have dropped.

Demand for options normally slides as a stock or ETF slumps in value, given there was “less to hedge, since you got your down move”, Silverman said. The elevated put option activity on speculative tech stocks and funds was “suggesting investors believe there is more to go”, she said.

Even after the declines, stocks in the Ark Innovation ETF remain highly valued, with a median price-to-sales ratio of 22 versus 2.5 for the broader stock market according to Morningstar, the data provider.

Two of the fund’s other big holdings, the streaming company Roku and the payments group Square, were also lower on Friday, extending recent declines.

Ark’s other leading ETFs have also retreated sharply as air has come out of Tesla and other hot stocks. Tesla is the largest holding in Ark’s $3.3bn Autonomous Tech and Robotics fund and its $7.2bn Next Generation Internet ETF.

Wood has also taken concentrated holdings in small, innovative companies. Ark holds stakes of more than 10 per cent in 26 small companies across its five actively managed ETFs, according to Morningstar.

“These large stakes raise concerns around capacity and liquidity management,” said Ben Johnson, director of passive funds research at Morningstar. “The more of a company the firm owns, the more difficult it will be to add to or reduce its position without pushing prices against fund shareholders.”

Ark did not respond to a request for comment. The Ark Innovation ETF is still sitting on a performance gain of 120 per cent for the past year. It bought more shares in Tesla when the carmaker’s shares began falling last month.

FC Barcelona’s presidential hopefuls vow to restore finances — and keep Messi

A week that began with police raiding the offices of FC Barcelona will end with a change of leadership at the Spanish football club engulfed in crises on and off the pitch.

The Catalan institution on Sunday ballots its 140,000-strong membership to elect its next president.

Three candidates — former club president Joan Laporta, technology investor Victor Font and lawyer Antoni Freixa — are vying to succeed Josep Maria Bartomeu, who resigned last year after a spectacular falling out with Barcelona’s greatest ever player, Lionel Messi.

Bartomeu was arrested alongside the club’s chief executive and its top lawyer on Monday. Police are probing a scandal dubbed “Barçagate” — allegations that the club corruptly hired outside groups to defame Bartomeu’s adversaries on Facebook.

Bartomeu could not be reached for comment but has always denied wrongdoing. The club said it had offered its “full collaboration to the legal and police authorities”.

The candidates admit the affair is damaging to the club’s image, but speaking to the Financial Times ahead of the vote, discussed how they would solve potentially larger issues: returning Barcelona to profit following the pandemic; tackling a mounting €1.1bn debt pile; and convincing Messi to stay.

A further financial blow came on Thursday after Barcelona and three other Spanish clubs were ordered to pay back millions of euros received in state aid. The EU’s highest court declared beneficial tax arrangements they had enjoyed for a quarter of a century were illegal.

Laporta, club president from 2003 for seven trophy-laden years, said he would, once again, make Barcelona “a reference [point] in the football world”. Freixa, a former club director, said that “recovering [is] perfectly possible if we take the right sporting decisions”. 

Font offered the starkest assessment, arguing that years of profligate spending on players, spiralling debt and a coronavirus-induced revenue shortfall of just over €200m last season have created “a perfect storm”. 

“The old business model of FC Barcelona [has become] obsolete,” he said.

Stalled ambition

Barcelona had been admired across global football as a model of success. Since the turn of the century, its star-studded team has won the Champions League, Europe’s top club tournament, four times. 

All this was achieved under the ownership of members, rather than a wealthy individual or group to fund the team. Instead, Barcelona capitalised on rising media rights contracts and commercial deals, as sponsors sought to be associated with the winning side.

In the 2018/19 season, it became the world’s highest revenue-generating club with €840.8m — an increase of nearly €500m from a decade earlier. 

Barcelona’s stated ambition was to be the first football club to reach annual revenues of more than €1bn. The pandemic has punctured that notion. 

The candidates argue that Messi, who was on a €555m four-year contract, is value for money because of the income he generates for the club © Fran Santiago/Getty

Top teams, from England’s Manchester United to Italy’s Inter Milan, have suffered steep revenue falls with spectators absent from stadiums. But Barcelona has been among those hit hardest, slumping to a €100m pre-tax loss last season.

The prospects of quickly turning to growth once fans return are murky. Broadcasters across Europe have signalled they will pull back from paying ever higher sums to screen elite football. The value of players in the $5.6bn transfer market has collapsed, as clubs cut spending on squads.

This has left Barcelona in a precarious position. Spending came through huge borrowing: the club’s total debt has risen above €1.1bn, with creditors including banks, players, tax authorities and rival clubs. The majority of this debt is short term, with repayment due this year. 

Barcelona’s place as a cultural institution, generously supported by Catalonia’s business class, has led to a belief the club will be bailed out of its financial predicament. 

“Imagine if [people] said Queen Elizabeth II is going to go bankrupt?” said a top executive at a Spanish bank. “She isn’t. Barcelona has intangible assets which will never disappear.”

Barcelona’s off-pitch struggles mirror its wage burden

Club executives are in talks with lenders over debt refinancing, but the leadership vacuum has stalled the discussions. “There is plan A, B, C, D,” said a person close to the executive team. “[But] no one wants to make a decision.”

When Christian Seifert, chief executive of Germany’s Bundesliga football league, attacked plans for a breakaway European “super league”, he singled out clubs like Barcelona for pushing ideas that concentrate wealth among the game’s elite without first resolving their own financial problems.

“These so-called super clubs are in fact poorly managed, cash-burning machines that were not able, in a decade of incredible growth, to come close to a somehow sustainable business model,” Seifert told the recent FT Business of Football summit.

Sunday’s election was sparked by the resignation of Bartomeu in October. His downfall began a few months earlier, when Messi demanded to leave following a humiliating 8-2 defeat in the Champions League quarter-finals against Germany’s Bayern Munich. The defeat was the latest in a series of heavy losses in the latter stages of the competition in recent years.

Josep Maria Bartomeu resigned as Barcelona president in October. He was arrested on Monday alongside other top club executives © Josep Lago/AFP/Getty

Bartomeu blocked the move. Messi, a six-time winner of the Ballon d’Or, the sport’s highest individual honour, chose to see out his contract, which runs until June, rather than begin a legal dispute with the club. 

Declining to sell came at a price. Spain’s El Mundo newspaper cited leaked documents to reveal Messi’s four-year contract was worth €555m, including salary and easily achieved performance bonuses that make him among the world’s best-paid athletes. 

The Messi money machine

Yet, Barcelona’s presidential candidates consider him value for money, vowing to persuade the player to stay at the club — though, perhaps, on reduced terms. 

Laporta, who has secured more nominations than any other candidate, argued Messi allows the club to generate bigger sponsorship deals and draws high-rolling VIP hospitality guests to matches.

“Messi costs 8 per cent of the total income of the club,” he said. “[But] Messi generates around 30 per cent of [that] income.” 

Joan Laporta has pledged to inject liquidity into the club by raising cash on the bond markets © Oscar Del Ponzo/AFP/Getty

Font said he would offer the player “a contract for life”. His plan envisages the Argentine taking a pay cut in the coming years, but then being given financial security for decades. The club would benefit from the ongoing association through future marketing deals.

While offering paeans to Messi, the candidates had brickbats for the club’s former administration. 

In particular, they argue the record €222m fee from selling Brazilian forward Neymar to Paris Saint-Germain in 2017 was squandered on inadequate replacements — such as midfielder Philippe Coutinho and winger Ousmane Dembélé — acquired on big transfer fees and salaries.

In the 2017-18 season, Barcelona’s wage bill jumped nearly 50 per cent to about €640m, paying more in player salaries than any club in world football. Its wage bill has remained at similar levels, eating up three-quarters of the club’s income. 

Game changers

Each of the candidates has suggested they will spend less on players, with a greater reliance on youngsters developed at its famous La Masia academy, from which Messi once graduated.

Font said he would bring in Xavi Hernández, a legendary former player and academy alumni, and give him sweeping powers, similar to Manchester United’s Sir Alex Ferguson or Arsenal’s Arsène Wenger — former managers who coached the first teams but had wide control over sporting matters.

Freixa is focused on bolstering the team, seeking to acquire “two or three top players”. This would be funded by spending the proceeds of a proposed deal to sell a stake in Barça Corporate, an entity that contains business such as its merchandising arm and “innovation hub”.

Laporta pledged to inject liquidity into the club by following the likes of Inter Milan and Tottenham Hotspur to raise cash on the bond markets. “I have enough experience to talk to the banks face to face, to explain the situation, to explain our potential lines of business, our potentialities in terms of sporting success,” he said.

But Font insists the club cannot afford to keep increasing its debts to facilitate further spending. Instead, the technology entrepreneur — in a move that Laporta supports — has called for a review of a €1bn plan financed by US investment bank Goldman Sachs to redevelop its 100,000-seater Camp Nou stadium, seeking to reduce the cost of the project. 

The club’s members — each a shareholder and most fervent fans — must decide who can best move on from Barçagate, while retaining Barcelona’s place as one of football’s financial and sporting champions. 

“I would like to launch a message of calm,” said frontrunner Laporta. “FC Barcelona has enough assets, has enough resources, in order to reverse this situation.”

White House warns of ‘large number’ of victims in Microsoft hack

The White House has warned that hackers may have compromised a “large number of victims” in the US by exploiting recently disclosed vulnerabilities in Microsoft software. 

Jen Psaki, White House press secretary, said on Friday that there was currently an “active threat” from hackers exploiting four flaws in Microsoft’s Exchange email application, which the tech group disclosed earlier this week. Microsoft has blamed a Chinese state-backed hacking group for the attacks.

“This is a significant vulnerability that could have far-reaching impacts,” Psaki said. “We are concerned that there are a large number of victims and are working with our partners to understand the scope.” 

Brian Krebs, a cyber security researcher, claimed in a blog post on Friday that at least 30,000 organisations “including a significant number of small businesses, towns, cities and local governments” had been hacked in the past few days following Microsoft’s disclosure, citing multiple sources briefed on the matter. 

On Tuesday, Microsoft published a blog post in which it said a group of hackers had launched “limited and targeted attacks” to gain access to emails. It also said the hackers had tried to go deeper into victims’ computer systems in order to lurk there unnoticed for a long period of time.

Microsoft has attributed the campaign to a group of Chinese state-sponsored hackers called Hafnium. China on Wednesday denied responsibility, according to a Reuters report. The White House did not link the campaign to any particular country.

It is unclear who has fallen victim to the attacks. Microsoft said that Hafnium has tended to target “infectious disease researchers, law firms, higher education institutions, defence contractors, policy think tanks, and NGOs” in the past.

Late on Thursday, Jake Sullivan, National Security Adviser, said in a tweet that the White House was “tracking . . . reports of potential compromises of US think tanks and defence industrial base entities”. 

He and Psaki urged the government, private sector companies and academic institutions to patch their systems after Microsoft issued fixes for the vulnerabilities. 

The concerns come after revelations in December that a sprawling cyber espionage campaign, likely backed by Russia, had been targeting US government agencies and businesses unnoticed for at least a year.

Authorities are still struggling to understand the scope of the fallout from the SolarWinds hack, which has prompted calls for President Joe Biden to prioritise US cyber security. The Biden administration is now preparing sanctions and other executive orders in response to the hack. 

James Lewis, a cyber expert at the Center for Strategic and International Studies, said it appeared that Microsoft and the US government had uncovered the Chinese attack while “poking about looking for SolarWinds”.

“This is the downside of a big hack by somebody else as it increases the chance that you’ll be found out,” Lewis said. “The Chinese should send the Russians a bill.”

Emerging markets suffer first outflows since October on rate jump

Fears over rising US interest rates have spilt into emerging markets, prompting investors to pull money from stocks and bonds in an abrupt end to what had been a months-long streak of inflows.

A daily tracker of cross-border flows prepared by the Institute of International Finance shows that foreign investment turned negative in emerging market equities at the end of last week and in debt this week, resulting in total daily outflows for the first time since October.

The turnround comes as a sharp rise in US borrowing costs, which has spread to many other large developed markets, has brought back fears of the 2013 “taper tantrum”, when the signal that the Federal Reserve was considering withdrawing its stimulus weighed heavily on emerging markets.

“Flows have turned negative and that’s really a surprise, as we were still early on in the rebound from a cataclysmic 2020,” said Robin Brooks, the IIF’s chief economist. “The honeymoon that began after positive vaccine headlines in November is unfortunately over. We are in a repeat of the 2013 taper tantrum.”

The IIF’s tracker uses daily data available for assets in 30 emerging economies. It showed total inflows of $20bn in January, compared with more than $50bn in the IIF’s more comprehensive but less timely monthly series. Over the past week, the tracker recorded daily outflows of about $290m, compared with daily inflows of about $325m in February.

Emerging market assets typically offer higher returns than their developed market peers to compensate for the greater perceived risk of holding them. When yields rise in developed markets, that dents their allure.

The urgency of those concerns was on full display on Thursday, when Federal Reserve chief Jay Powell refrained from even hinting that the world’s most influential central bank was prepared to take action to tame rising long-term interest rates. The US 10-year yield, a key marker for global rates markets, jumped sharply as he spoke, stretching above 1.6 per cent on Friday from about 0.9 per cent at the start of the year.

Wall Street investment bank Goldman Sachs on Thursday afternoon said it expects the 10-year Treasury yield to rise further, to 1.9 per cent by the end of the year, while it also increased its projections for other developed-market interest rates.

“What is changing literally as we speak is that many investors are going ‘oh my gosh, if US interest rates need to go up, emerging markets are in for a bruising’,” Brooks added.

“Ten days ago people were of the mindset that [talk of rising US rates] would be small potatoes for EM but the pendulum has just swung.”

Paul Mackel, global head of currency research at HSBC, echoed that view on Friday. “We have feared a tantrum for EM currencies and the dramatic moves in US Treasuries are certainly causing negative spillovers, especially for the high-yielding currencies,” he wrote to clients.

However, he added, the external balances and debt profiles of many emerging economies were in better shape today than in 2013. “This does not mean EM FX should be fully immune now but it does help to explain why depreciation pressures are not as intense . . . so far.”

Line chart of 10-year Treasury yield (%) showing US interest rates have shot higher on brighter economic outlook

Prices for emerging market assets have also been under pressure, with MSCI’s broad gauge of emerging market equities down 7 per cent in dollar terms from its high less than one month ago. Debt tracked by JPMorgan’s global EMBI index has generated a loss of almost 4 per cent from the end of last year when accounting for a price decline and interest payments.

Separate data from research group EPFR, collated by Barclays, highlight this change in sentiment. Funds holding EM bonds priced in leading developed market currencies, such as the dollar, euro and yen, endured the biggest outflows since the end of March last year in the week to Wednesday. Barclays noted, however, local currency bond funds had flat flows over the period, while equity funds continued to garner inflows.

“The sentiment towards EM risk in general remains intact, reflected by EM equity funds continuing to attract inflows,” said Andreas Kolbe, head of EM credit research at Barclays. But he noted that investors have become more discerning in which assets to target, with corporate bonds faring particularly poorly thanks to the broader debt sell-off.

“We believe that in the very near term, the risk is skewed to further outflows,” he said in a note to the UK bank’s clients on Friday.

Bank of America analysts echoed this sentiment, saying “we remain cautious [on] EM as we expect volatility in US rates to remain high until the Fed adds some guidance”.

Brooks at the IIF said he expected investors to continue withdrawing money from EM stocks and bonds in the coming weeks unless the Fed focused on anchoring long-term rates. Recent comments by members of the US central bank’s interest-rate setting committee, suggesting that rising inflation was a natural consequence of the rebound from last year’s recession, were unhelpful, he said.

Line chart of MSCI Emerging Markets index showing Emerging market stocks pull back after sharp rally

“The Fed’s objective should be to focus attention away from the short term and on to the medium term, where the growth story remains murky,” he said.

Analysts have long warned that rising US interest rates, coupled with any reduction in bond-buying programmes by the Fed and other central banks that have fuelled rising prices on global financial markets, would spell danger for emerging market assets. The “push” factor of low yields in advanced economies and the “pull” factor of potential currency appreciation in emerging markets would both be reversed, they say.

Brooks said that, with few exceptions, EM currencies had already appreciated against the US dollar, “pricing in” the boost to their economies expected as the pandemic recedes.

Dissident rappers trigger lyrical battle for Cuban hearts and minds

It is one of communist Cuba’s most hallowed slogans, deployed by Fidel Castro in the 1959 revolution and repeated countless times since: “Patria o Muerte” — Fatherland or Death.

So when a group of Cuban rappers, some living abroad, launched a lyrical challenge to the sacred phrase, subverting it to “Patria y Vida” — Fatherland and Life — and calling time on the revolution to a chorus of “It’s over”, the Havana government mobilised to defeat the insurgents, including with their own musical riposte.

The rap pulls no punches. The video opens with an image of 19th century Cuban hero José Martí that burns away to reveal George Washington, another revolutionary. “No more lies, my people demand freedom, no more doctrines,” run the lyrics. 

“‘Fatherland and Life’ is a phrase of light, a phrase of rebirth,” Yotuel Romero, one of the rappers, told the Financial Times from Spain, where he spends part of his time. “Cubans who live abroad and those on the island have found hope in these words, hope for a prosperous Cuba . . . where we can live with our rights respected.”

“The song has definitely caused quite a stir,” said Ricardo Herrera, director of the Washington-based Cuba Study Group, which promotes US-Cuba dialogue. “It’s a very potent song with lyrics that have resonated with a lot of Cubans, particularly outside the island.”

Most of the musicians involved — Alexander Delgado and Randy Malcom from the reggaeton band Gente de Zona, singer-composer Descemer Bueno, as well as Yotuel — are Cuban exiles who until recently were regular visitors to Havana.

Two dissident rappers living on the island, El Funky and Maykel Osorbo, members of the San Isidro artistic collective, also feature. In November, San Isidro and its supporters gathered outside Cuba’s culture ministry to lead a rare public protest on the island after one of its members was imprisoned.

The rap furore comes at a sensitive time for Cuba’s communist government, which is struggling with serious food shortages and long queues for basic supplies. Pandemic restrictions and a tightening of the US embargo under the Trump administration have devastated tourism, an important source of dollars, and crimped the flow of remittances from overseas.

Official Cuban media were quick to blast the rappers as US-loving traitors and mercenaries. President Miguel Díaz-Canel joined the attacks, tweeting: “#FatherlandorDeath shouted thousands last night . . . They tried to erase our slogan but Cuba has sent it viral #CubaViva”. 

Havana residents queueing to buy food. Cuba’s communist government is struggling with serious shortages and long queues for basic supplies © Yamil Lage/AFP via Getty Images

This week, the authorities unveiled a musical counterblast: the rather awkwardly titled “Patria o Muerte por la Vida” — Fatherland or Death for Life — featuring five officially sanctioned performers, led by songwriter Raúl Torres, singing a robust salsa rebuttal to the rappers against the backdrop of a Cuban flag.

“You can cash in by licking the arrogance of the empire,” go the lyrics, referring to the US. “You can cash in by singing that you’re against poverty from a satin sofa.”

So far, YouTube users seem to be siding with the rappers, who had almost 3m views as of March 5 compared with 670,000 for the regime-sanctioned retort.

Politicians abroad have weighed in too. Dita Charanzová, a Czech conservative in the European parliament, organised an internet seminar to support the rappers.

“Being Czech, the fight of Cubans for democracy reminds me a lot of our fight . . . against the communist regime,” she said. “Music and art played a fundamental part in the resistance.”

The increasingly bitter musical war reflects a move by a new generation of Trump-supporting Cuban-Americans in Miami such as Alex Otaola, a social media influencer and internet TV host. He has sought to ban from Miami Cuban or Cuban-American cultural figures interested in improving relations between the two countries, preferring a hardline boycott policy.

“Latin music is becoming ever more popular and Miami is at the centre,” said a western Cuban music promoter who asked not to be named. “At the same time there is this new and even more hostile atmosphere toward any reconciliation there with Cuba that is very hard to escape,” he said.

It is unclear whether the musical battle will resonate with ordinary Cubans, most of whom are preoccupied with a daily struggle to find food and basic goods.

Several who spoke to the FT by telephone said they knew of the issue due to the government response, but added that most people were staying at home to avoid coronavirus and there was little talk about it in food queues.

Yurislaidis Lopez, a 32-year-old living in Marianao, a working-class suburb outside Havana, was unmoved by the video and its anti-authority message. “I’m not sure what they do to other people, but in my neighbourhood the police keep us safe,” she said.

“What everyone is talking about where I live is that for the first time in years the man on a bike with a box of piglets on the back hasn’t arrived. We raise them for the new year.”

‘After a year we’re back to square one’: Milan locked in Covid’s grasp

This time last year, chef Andrea Berton thought customers “might be overreacting” when they began cancelling tables at his Michelin-starred Milan restaurant amid a rise in cases of the concerning new coronavirus.

“It was a strange atmosphere,” he recalled this week. “The restaurant was suddenly empty at lunchtime and international customers kept calling to cancel bookings and events around the Salone del Mobile,” he added, referring to Milan’s annual furniture fair.

Neither he nor anyone else could have foreseen what would happen next. Days later, on March 8, Italy’s government ordered the immediate lockdown of the wealthy Lombardy region that includes Milan in an effort to stem the spread of Covid-19. The unheard-of restrictions were extended across the whole country the following day, confining 60m people to their homes.

It was the moment that Europe finally woke up to the threat from a virus that had emerged in China around the turn of the year. Within weeks, the entire continent — and soon the whole world — had been brought to heel by the pandemic.

“We were confronted with a virus we knew nothing about,” said Francesco Passerini, mayor of the small town of Codogno, an hour from Milan, where one of Italy’s earliest confirmed Covid-19 cases had been discovered in late February. “We didn’t know how to protect our community and we had people who were very ill. It felt like an impossible fight.”

Inside a coronavirus intensive care unit at a hospital in the city of Lodi, near Milan © Emanuele Cremaschi/Getty Images

A year on, an end to Europe’s coronavirus crisis still seems some way off despite the hope offered by vaccines. Most of the continent’s 750m citizens continue to endure curbs on their daily lives and the economic and social toll has been enormous.

In Italy — as in some other EU countries such as nearby Greece and the Czech Republic — the number of new infections is rising as concerns intensify over the threat from new variants. Lombardy, still Italy’s worst-affected region, is grappling with thousands of new cases daily and hundreds of deaths each week.

On Friday, a new two-week partial lockdown came into force across the region, with offices closed and employees told to work from home. Schools and playgrounds are shut and hospitality and travel are banned, although shops remain open — for now.

Yet as cases tick higher, experts fear it is only a matter of time before the curbs are extended.

“It won’t be long before the whole country goes back into the ‘red zone’,” said Guido Bertolaso, Lombardy’s vaccine adviser, this week, referring to the most stringent level in Italy’s coloured tier system.

Chart showing that cases and ICU admissions are rising again in Lombardy, with the number of ICU patients climbing 30 per cent in the last week

“Unfortunately it’s not over,” said Passerini, the Codogno mayor. “But it’s not comparable with last year because we’ve learned to live with the virus and now we have a vaccine. So we have something to look forward to.”

Looking back evokes painful memories. The most vivid was the day he and other volunteers had to empty a church to make room for dozens of coffins. “I remember watching the dead bodies being brought in and the church, a place of hope, suddenly turn into a morgue. I couldn’t believe it was happening,” he said.

In the weeks and months that followed, Carla Sozzani, owner of 10 Corso Como, a cultural, shopping and dining destination in Milan’s nightlife district, could not get used to the silence in a city known as a teeming hub for industry, banking and fashion.

“The only noises you could hear, day and night, were the ambulances and the drones they used to check nobody was leaving their homes,” she said. “It was unsettling.”

Mired in a series of lockdowns, Milan has welcomed only a fraction of the 10m tourists who came in 2019, a shortfall that has put immense strain on its economy.

There is hope that the new government of Mario Draghi, an experienced crisis manager who formerly ran the European Central Bank, can bring improvements by speeding up the vaccine rollout and leading an economic recovery.

Sozzani, a self-confessed optimist by nature, was certain that Milan would regain its vigour in time for the rescheduled Salone del Mobile in September, once more people had been inoculated. “The fair is a symbol of Milan and it will represent its rebirth,” she said.

Chef Andrea Berton has been forced to close his Michelin-starred Milan restaurant once again

In a sign of his frustration at the slow rollout, Draghi has moved to block the export of 250,000 Oxford/AstraZeneca doses destined for Australia so they could be used in Italy. As of this week, however, under 6 per cent of Italians had received a first vaccine dose.

One Milan-based anaesthesiologist, who did not wish to be named, also warned that intensive care units in hospitals across the region were rapidly filling up again.

“It reminds me of last spring,” she said. “The vaccine makes us hope for the best but we need to plan for the worst, because the rollout is too slow and people are dying.”

Berton was this week forced to close his restaurant again, a “stop-go approach” that he said would be the death of his and other businesses in the city.

“I would never have imagined it would last this long,” he added. “After a year we’re back to square one.”


UK-EU trade falls sharply as Brexit disruption starts to bite

Brexit disruption took its toll on Anglo-French trade volumes at the start of this year, mirroring declines in commercial activity between the UK and other large EU countries.

French exports to the UK were down 13 per cent in January compared with the average of the previous six months, while French imports from the UK fell 20 per cent, according to the French customs office. “Trade with Britain is disrupted due to Brexit,” it said.

The volume of French exports and imports from other countries rose in January compared with the previous month. Anglo-French trade had recovered from the impact of the coronavirus pandemic last year, rising for the second consecutive year, boosted by companies stockpiling before the UK left the EU single market at the end of December.

But the new French figures indicate that the frictional barriers and uncertainty created by Brexit have dealt a heavy blow to commercial activity between the UK and the EU, its biggest trading partner.

Even though the UK and EU agreed a last-ditch trade deal to avoid tariffs on most goods which came into force on January 1, trade was still disrupted by higher shipping costs, transportation delays, health certificate requirements and more complex customs requirements at the border. 

Some tariffs are still levied on goods that are imported into the UK and then re-exported to EU markets with little or no further processing.

German exports to Britain in January were down about 30 per cent year on year, continuing a trend of declining trade between the two countries since the Brexit referendum in 2016, according to figures released by the federal statistical agency this week.

Separately, Italy last month reported a 38 per cent year-on-year drop in exports to the UK and a 70 per cent drop in British imports in January — both much steeper declines than those with other countries.

However, economists said it was still unclear how much of the declines in UK-EU trade were the result of Brexit and how much were caused by the fallout from the pandemic, which dealt a heavy blow to global trade in the first half of last year.

“I have a hard time deciding what is the impact of Brexit and what is simply down to the impact of coronavirus,” said Gilles Moec, chief economist at French insurer Axa.

Before the UK left the EU single market at the end of last year, many UK and EU companies had built up their inventories in preparation for higher costs and disruption from Brexit, which may have contributed to the fall in January as they drew down their stocks, Moec added.

“There were so many stories about companies that had trouble exporting or importing after Brexit and a lot of hauliers were reluctant to deal with the customs issues, so there must have been an impact,” he said, adding that it was “still too early” to say how much of the drop in trade with the UK would be permanent.

The UK has been steadily declining as a trading partner for the rest of the EU. Its share of overall exports from the 27-country bloc has fallen from 17 per cent to 14 per cent since the 2016 Brexit referendum, according to Eurostat.

Overall figures for EU trade in January are due to be published later this month. But last year exports from the bloc to the UK fell 13.2 per cent, while EU imports from the UK were down 13.9 per cent.

While the pandemic caused overall EU trade to fall, the UK had a steeper decline than the EU’s three other main trading partners — the US, China and Switzerland. 

Gabriel Felbermayr, president of the Kiel Institute for the World Economy, said research it did for the German government found the country’s exports to the UK were likely to remain 12-15 per cent below pre-Brexit levels.

“Some of the recent collapse is due to teething problems,” said Felbermayr. “The major new trade barrier in goods trade are rules of origin that are costly to document and to abide by; however, traders will learn how to deal with them.”

He said there was evidence that “many of the bigger [German] firms have planned for Brexit and have reorganised their operations” to adapt to the likely disruption, while smaller companies have done less. 

The unravelling of Lex Greensill: a mix of bravado and financial alchemy

As the first wave of the coronavirus pandemic swept across Britain a year ago, a billionaire banker made a televised pitch to the nation offering assistance.

Lex Greensill, a 44-year-old Australian who had made his name by devising ingenious ways for companies to pay their bills faster, announced a plan to ease the pressure on NHS staff fighting the virus.

Sandwich chain Pret A Manger had just offered every NHS worker in the country a free cup of tea. Greensill went one better: his company would enable doctors, nurses and even hospital janitors to cash a part of their pay cheque every day — rather than waiting until the end of the month — at no additional cost.

“In a way,” Greensill told Sky TV, pausing for dramatic effect, “it is our free cup of tea.”

It was a characteristically bold pledge, mixing the skills that had turned the son of a sugarcane farmer into one of Australia’s richest people — a flair for financial engineering, an ability to navigate the blurry line between public and private sectors and a heightened sense of bravado.

But one year later, Greensill’s vision is in tatters.

Greensill offered NHS staff the chance to cash a part of their pay cheque every day — rather than waiting until the end of the month — at no additional cost © AFP via Getty Images

Greensill Capital, the company he founded, teeters on the brink of insolvency. The group’s German banking subsidiary is in even greater legal peril: financial watchdog BaFin, still reeling from the Wirecard scandal, this week filed a criminal complaint against Greensill Bank’s management for suspected balance sheet manipulation.

The company had frequently portrayed itself as a saviour of small business, proclaiming that it was “making finance fairer” and “democratising capital”. Yet, Greensill’s lawyers this week painted a stark picture of the chain of destruction that a messy collapse could unleash: many of their corporate clients were “likely to become insolvent”, putting over 50,000 jobs around the world at risk.

The crisis at the company is a humbling reversal for a figure who had rapidly become a fixture of the British establishment. Prince Charles presented him with a CBE for “services to the economy” in 2017. The following year, former prime minister David Cameron signed up as Greensill’s adviser.

Some victims of the Greensill fiasco will elicit little sympathy. 

David Cameron hired Lex Greensill as an adviser when he was prime minister. The banker made Cameron his adviser in 2017 © Chung Sung-Jun/Getty Images

SoftBank’s $100bn Vision Fund poured $1.5bn into the company in 2019, bewitched by its financial engineering. The fund is now expecting to lose its investment. Cameron, meanwhile, has seen a long-awaited personal windfall from share options turn to dust. 

But small business owners, many of whom have never even heard of Greensill, could become collateral damage. The British and German governments are also scrambling to halt any risk to taxpayers.

The insurance industry — a key cog in Greensill’s machine — is watching events unfold with a nervous eye. One insurer has already laid the blame for the scale of cover it extended to the company at the feet of a rogue underwriter.

“This is similar to what blew up AIG in 2008,” says one person close to the brewing disputes, in reference to the complexity of the contracts involved.

G0584_19X Supply Chain Finance flowchart - MARKETS

Over a decade after the financial crisis, the unravelling of Greensill has again shone a harsh light on the dangers of little-understood financial products.

Greensill Capital emerged as one of the dominant players in supply chain finance, a once-staid method of corporate funding that exploded in popularity over the past decade, due in part to lax disclosure requirements. 

Lex Greensill became the dominant figure in a seemingly niche, yet increasingly important, corner of finance. But now, some of his biggest backers have severed ties.

Credit Suisse, having put $10bn of client money into Greensill’s complicated financial products, pulled the plug on these funds this week and started returning cash to investors. 

Sanjeev Gupta, the metals magnate once hailed as Britain’s “Saviour of Steel”, halted payments to the firm, even after Greensill’s financial alchemy proved vital in helping him forge a global industrial conglomerate from ageing and unloved steelworks.

Even as his empire crumbles, Lex Greensill remains defiant. Reached by phone on Thursday, he accused the Financial Times of engaging in a “significant amount of character assassination”. 

He declined to comment further.

Lex Greensill became one of Australia’s richest people by devising seemingly ingenious ways for companies to pay their bills faster © Ian Tuttle/Shutterstock

Reckless ambition

To hear Lex Greensill tell it, his mission is very simple: to help small businesses get paid faster. Growing up on a farm in Bundaberg in Queensland, Greensill’s often repeated origin story hinges on the financial hardships of his parents. Their suffering when large corporations delayed payments to the family business moulded his corporate vision.

After moving to the UK in 2001 aged 24, Greensill joined investment bank Morgan Stanley in London four years later. At the time, the US firm was expanding in supply chain finance, where companies enlist banks to pay their suppliers upfront. 

Greensill thrived in this once obscure backwater. Barely half a decade later in 2011, he struck out and established his own eponymous supply chain finance specialist, aged just 35. 

His rising profile soon bagged him a plum role as an adviser to then prime minister Cameron, who furnished him with an office in the heart of government. 

“It’s a long way from Bundaberg to London to 10 Downing Street,” Greensill told an Australian radio station in 2017. “It, hopefully, shows other folks that there is nothing that you can’t do if you set your mind to it.”

Sanjeev Gupta, the metals magnate, once hailed as Britain’s ‘Saviour of Steel’, has halted payments to Greensill © Huw Evans/Shutterstock

The reality behind the self-mythologising is more complex, however. 

The financial product Greensill champions is divisive. Some regulators and rating agencies have sounded alarm at the potential for supply chain finance to mask ballooning borrowing levels

The controversial technique was at the heart of last year’s alleged fraud at NMC Health, the former star of the FTSE 100 that fell dramatically into administration last year. The Middle Eastern hospital operator quietly borrowed hundreds of millions of dollars via Greensill through funds at Credit Suisse.

Carson Block, the famous short seller who in late 2019 first exposed NMC’s hidden debts in an explosive report, recalls that the company had downplayed its use of supply chain finance.

“When we saw its [debt] in the Credit Suisse fund, we automatically knew that management was lying,” he told the FT. “We therefore thought it was probable that they were lying about far more than just supply chain finance.”

NMC’s collapse hit its hospital staff hard. Many in the UAE were left facing anxious waits for delayed wages. In the same month Greensill was pledging selflessly to help doctors and nurses in the UK get paid faster.

“Lex is a great salesman,” says one of his early backers. “He’s got this ‘good old boy farmer made good’ story. But I think his ambition is reckless.”

This ambition nearly drove Lex Greensill’s own business over the edge in 2016. Public accounts show that Greensill Capital lost $54m that year due to bad loans — more than its revenue and over 10 times its 2015 losses.

In his hour of need, two very different British men helped rescue Greensill: a blue-blooded star fund manager and an Indian-born trader reinventing himself as a captain of industry.

An unlikely saviour 

“Dear Sanjeev, your fund is now up and running.”

In October 2017, Lex Greensill emailed a trusted business partner after helping him open an account with GAM, his favourite Swiss investment firm.

GAM ended up managing £50m for British steel baron Sanjeev Gupta. But the fund it was invested in was far from straightforward: it channelled a circular flow of financing, which took money from the metals magnate, before quietly investing the cash back into his own companies’ supply chain. The Swiss fund manager, which has never publicly identified the sole investor in the fund, told the FT it returned the money at the end of 2020.

The investment vehicle’s formation epitomised the financial complexity that had bound Greensill, GAM and Gupta.

Tim Haywood, once one of GAM’s star fund managers, had started investing in Greensill-structured deals in 2015. 

The following year, when the financial start-up experienced its near-disastrous losses, the Swiss firm took things a step further: Haywood’s fund lent over $120m to Greensill Capital itself, through a shell company named after a creek on the Australian financier’s family farm. 

Greensill Bank, a subsidiary of Greensill Capital, bought four corporate planes for its parent company © REUTERS

Around this time, Greensill also ramped up business with Gupta, who having built a commodities trading business out of a Cambridge university dorm room in the 1990s, was now turning his hand to rescuing decrepit steelworks around the world.

In 2017, Greensill’s revenues nearly tripled and the group swung to a profit. But documents seen by the FT show the secret behind its dramatic recovery: $70m of the company’s $102m net revenue was derived from Gupta’s companies.

The following year, the close relationship started to come unstuck: GAM suspended Haywood after an internal investigation into risk management and internal record-keeping. 

Nervous investors ran for the exits of his funds, which had invested heavily in Greensill products, many funding Gupta. Unable to dispose of them easily, GAM was forced to liquidate its flagship $7.3bn fund range. Investors waited the best part of the year for final payment.

For many observers, the fact Greensill and Gupta emerged from the wreckage of the GAM fiasco unscathed seemed miraculous. 

Yet, behind the scenes, a series of 2019 transactions that helped repay GAM, shifted substantial debts related to the Gupta companies on to the balance sheet of a seemingly staid lender in the industrial heartland of Germany: Greensill Bank.

These facilities, first revealed in the FT last year, were a time-bomb that has only just exploded: the billions of euros of Gupta-related debt is what first sparked the concern of German regulator BaFin in 2020. Gupta’s GFG Alliance declined to comment.

As the pressure has mounted, the flamboyant side of the Greensill empire and the role of the German lender has started to come under closer scrutiny. GAM’s investigation into Haywood also focused on his use of Greensill’s private jets. Greensill Bank purchased the jets and leased them to an Isle of Man subsidiary of Greensill Capital, allowing the humble Australian farmer’s son to fly aboard a fleet of corporate planes until last year when, under pressure from the board, the aircraft were sold.

How Greensill was able to afford such a luxury always baffled the company’s rivals: as one supply chain finance executive puts it: “This is a great industry, but I fly Ryanair.” 

EU and US agree to suspend tariffs in Airbus-Boeing dispute

The EU and US have agreed to suspend punitive tariffs related to their longstanding feud over aircraft subsidies, in the first breakthrough in trade relations since President Joe Biden took office. 

The two sides reached a deal after intensive talks, according to people familiar with the discussions, in a sign that the 16-year-old transatlantic trade battle over state aid to Airbus and Boeing could be coming to an end. 

The accord, announced by Ursula von der Leyen, European Commission president, means both sides will suspend tariffs linked to the dispute for four months. The duties have hit products ranging far beyond aircraft, encompassing an eclectic array of goods such as US self-propelled shovel loaders, French wine, and even US ornamental fish.

In a statement issued after a call with Biden, von der Leyen said: “President Biden and I agreed to suspend all our tariffs imposed in the context of the Airbus-Boeing disputes, both on aircraft and non-aircraft products, for an initial period of 4 months.

“We both committed to focus on resolving our aircraft disputes, based on the work of our respective trade representatives,” she said.

The goodwill gesture is intended to prepare the ground for negotiations on a permanent solution to the dispute by setting joint rules on permissible aircraft subsidies.

The deal came a day after the UK and US came to their own arrangement whereby Washington also agreed to suspend punitive tariffs linked to the dispute for four months.

Britain had already unilaterally stopped imposing its own tariffs at the start of this year. EU officials and other trade experts have questioned whether Britain would have had the right to continue to impose them anyway, given its exit from the bloc’s customs union.

Valdis Dombrovskis, EU trade commissioner, and the incoming US trade representative Katherine Tai have both stressed their desire to end the Airbus/Boeing dispute, amid concerns that it is adding to economic damage at a time of global crisis. 

“I would very much be interested in figuring out how to land this particular plane because it has been going on for a very long time,” Tai said at her senate confirmation hearing last week. 

Brussels imposed extra tariffs on $4bn of US goods in November, covering a wide range of products including sugarcane molasses, casino tables and fitness machines. 

By then the US had already imposed extra duties on $7.5bn of European exports — the result of Washington’s own World Trade Organization victory against aid to Airbus. 

Brussels sees today’s step as a breakthrough that can pave the way for broader co-operation on trade after the tensions of the Trump era — tensions that at times threatened to boil over into a full-scale trade war.

The US-EU aircraft subsidies dispute is one of the longest-running cases in WTO history — both sides have been found over the years to have failed to properly implement WTO panel rulings on illegal subsides. 

The battle dates back to 2004, the year after Airbus overtook its US rival in terms of deliveries for the first time. Having earlier brokered an agreement with the EU on state aid in 1992, the US launched a case against subsidies for the European group that dated back to the 1970s. Initially the US claimed that $22bn in illegal funding had been given to Airbus. 

The EU followed up a few months later with a challenge of its own, originally claiming $23bn in illegal aid was offered to Boeing.

The two sides have long remained far apart on the terms of any agreement on how to fund new aircraft development. But with both Airbus and Boeing focused on recovering after the coronavirus pandemic and a hiatus in new commercial aircraft development, industry experts said the timing was right.

New rules also need to be set before China becomes a significant competitor to Airbus and Boeing. Beijing has made it a priority to break the global duopoly that has dominated for decades.

The deal will come as a relief to aircraft manufacturers and other businesses on both sides of the Atlantic. French wine producers and Italian cheesemakers have been among those in the vanguard of calls for an end to the dispute. The spirits industry has also been among the US sectors strongly urging a solution. 


Senate Democrats strike deal to extend US unemployment benefits

Senate Democrats have struck a deal to extend emergency unemployment benefits until October in Joe Biden’s $1.9tn stimulus bill, providing relief for the jobless for an extra five weeks in one of their final changes to the plan.

The compromise between centrist and liberal members of Biden’s party will see the pandemic top-up to unemployment benefits cut to $300 a week from $400 as part of the deal to pay it out for longer, according to a Democratic aide.

It came as the upper chamber began a marathon session to consider a series of amendments to the stimulus bill before it moves to a final vote in the coming days.

The need to maintain emergency unemployment benefits after they expire on March 14 has been one of the primary catalysts of the push for extra stimulus from Biden, who wants to offer protection to millions of Americans who remain out of work because of the pandemic.

But until Friday it had been the focus of intense haggling among Democratic lawmakers who were unhappy with the House version of the bill, which extended the benefits at $400 a week until the end of August.

The deal includes a new provision for a tax exemption on the first $10,200 in jobless benefits. Jen Psaki, the White House press secretary, said the combined changes would provide more help to the unemployed than the previous version.

The agreement marks the second significant change to the stimulus bill this week, after Democratic senators agreed to narrow eligibility for the $1,400 direct payments in the plan.

The changes to the stimulus bill are designed to maintain Democratic unity around the legislation and ensure that there are no hiccups as it moves to a final vote. The upper chamber is evenly divided between 50 Democrats and 50 Republicans, and Kamala Harris, the vice-president, casts any tiebreaking votes, giving Biden’s party a narrow edge but no room for defections.

The agreement on unemployment benefits was reached as data from the US labour department showed jobs growth rebounding from its winter slump but still far short of pre-pandemic levels, prompting Democrats to stress the need for more stimulus as Republicans said the economy would recover without it.

“The February jobs report shows some progress, but much more is needed to address the daily reality of joblessness and financial insecurity facing millions of Americans,” said Nancy Pelosi, the Democratic House speaker, on Friday.

Even though opinion polls show a large majority of Americans support the stimulus, Republican lawmakers have mounted united opposition to the legislation, saying the aid is not sufficiently targeted at those who need it most and that the overall price tag is excessive.

“[Democrats] are dead-set on ramming through an ideological spending spree packed with non-Covid-related policies,” said Mitch McConnell, the Republican leader in the Senate, on Friday morning.

Ron Klain, the White House chief of staff, responded to the Republican criticism on Twitter: “If you think today’s jobs report is ‘good enough,’ then know that at this pace . . . it would take until April 2023 to get back to where we were in February 2020”.

On Friday afternoon, Biden was expected to meet his top economic officials, including Cecilia Rouse and Brian Deese, to discuss the administration’s economic response to the pandemic.