FirstFT: Global financial watchdog to probe hedge fund borrowing

Receive free World updates

We’ll send you a myFT Daily Digest email rounding up the latest World news every morning.

Good morning.

The world’s financial stability watchdog is launching a probe of the build-up of debt outside traditional banks, as it seeks to limit hedge funds’ borrowing and boost transparency.

Klaas Knot, chair of the Financial Stability Board, told the Financial Times the review was intended to address rising risks from so-called “non-banks”, which include hedge funds and private capital.

“If we want to arrive at a world where these vulnerabilities are less, we have to tackle this issue,” he said, referring to the key role played by non-banks’ debt in stoking recent crises, such as the bond market meltdown at the start of the pandemic.

Knot said the review was a priority because non-banks’ leverage “can potentially threaten financial stability”. Read the full interview.

And here’s what else I’m keeping tabs on today and over the weekend:

• Markets: Today marks the final day of trading after a bumpy quarter for investors. The S&P 500 is down 3.5 per cent since June 30 and is on course for its first quarterly loss in a year. Here’s the outlook for today’s trading.

• Inflation: The US Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures price index, is updated and the University of Michigan releases the final September reading of its consumer sentiment index. Inflation in the eurozone has fallen to the lowest level in almost two years.

• Monetary policy: John Williams, head of the Federal Reserve’s New York branch, will deliver remarks about the economic outlook at the Long Island Association.

• Politics: The US government is heading towards a shutdown unless Congress reaches a funding deal by midnight on Saturday. The shutdown would begin at 12.01am on Sunday. Who are the radical Republicans willing to shut down Washington?

How well did you keep up with the news this week? Take our quiz.

Five more top stories

1. Credit Suisse has warned that it expects at least $2.2bn of losses in the third quarter as UBS integrates the business it rescued six months ago. It said it would suffer a loss of approximately $1.6bn from exiting loans that had been placed in the combined group’s “bad bank” and $600mn from a decision to wind down “certain management arrangements”. Here’s more on the results which cover the first half of the year.

2. Linda Yaccarino is planning to meet the seven banks that helped bankroll Elon Musk’s takeover of X, formerly known as Twitter, next Thursday, said people briefed on the matter. The company’s chief executive will lay out her plans to revive the struggling social media company. Here’s more on the high-stakes meeting.

• More Elon Musk news: Electric-car maker Tesla was sued yesterday by a US civil rights agency, which accused the company of tolerating “open hostility and racism” directed at black employees.

3. The US has accused China of launching a global information war and trying to create a “community of digital authoritarians”. In a report published by the state department Beijing was accused of making efforts to shape the global information arena by a range of activities, including censorship and propaganda to pushing authoritarianism and exploiting international organisations. Here’s more on the report’s findings.

4. EY is canvassing senior partners on a shortlist of six candidates for global chief executive, following the resignation of Carmine Di Sibio in the wake of the collapse of his plan to break up the accounting firm. Candidates include the leader of EY’s Canadian business and the heads of its American consulting and financial services practices. Read more on those hoping to run the Big Four firm.

5. Singapore’s GIC sold its stake in a Vista Equity Partners fund after the buyout firm’s founder was embroiled in a tax scandal, according to people familiar with the matter. The sovereign wealth fund, one of the world’s most influential investors, made a loss on its investment after disposing of its roughly $300mn holding at a discount. Read the full story.

Today’s big read

More than 70,000 people have fled Nagorno-Karabakh in the past week — more than half of the population of the self-proclaimed republic — following a brief but bloody war. The abolition of Karabakh’s government and the evacuation of the ethnic Armenian population marks the end of a bitter conflict and a severe setback for Russia’s influence in the region. It also raises questions about neighbouring Azerbaijan’s ambitions.

We’re also reading . . . 

Chart of the day

Do exchange traded funds invested on the basis of environmental, social and governance criteria outperform? Scientific Beta crunched data on every US equity ETF domiciled in either North America or Europe and categorised by Bloomberg as either “socially responsible” or ESG, from 2012 to the end of 2022. Here are the findings.

Take a break from the news 

Autocracy is something today’s democracies thought they had left behind, but two books — one focused on antiquity, the other on modern history — shed light on how it is enabled. Read the latest FT Books Essay by Martin Wolf.

Additional contributions from Tee Zhuo and Benjamin Wilhelm