Aurelia Butler

Credit Suisse is disputing SoftBank founder Masayoshi Son’s account of a controversial deal the Japanese group struck with Greensill Capital, as once-close ties between the companies turn increasingly bitter. The Swiss bank last month launched legal action in the US over $440m owed to its wealthy clients by Katerra, a Californian construction group that was backed by SoftBank’s $100bn Vision Fund and also a client of supply chain finance group Greensill. The dispute centres on an emergency cash injection that SoftBank agreed in late 2020 to give Greensill, which lent struggling Katerra money that it had originally borrowed from Credit Suisse clients. As part of the deal, Greensill agreed to write off Katerra’s debt in return for a small stake in the construction group, which went on to file for bankruptcy last June. The Financial Times revealed last year that the $440m cash from SoftBank never reached the Swiss bank’s customers.Thanks for reading FirstFT Asia and here’s the rest of today’s news — EmilyFive more stories in the news1. US and Russia agree to extend talks over Ukraine crisis Russia warned that it would walk away from diplomatic efforts to end the crisis over Ukraine if the west continued to ignore demands over security guarantees, but agreed to extend talks into this week.2. New Oriental fires 60 per cent of workers Chinese online tutoring company New Oriental has fired 60,000 employees since Beijing banned the $100bn-a-year private education industry from making a profit, the group’s founder has said. New Oriental has lost 90 per cent of its market value, in common with other US-listed Chinese online education companies, since the ban.3. China tech stocks rally Chinese tech stocks rallied yesterday after starting the year with a week of sharp falls. Hong Kong’s Hang Seng Tech index gained 2.2 per cent, with Alibaba Health Information Technology rising nearly 11 per cent and short-video platform Kuaishou’s Hong Kong-listed shares advancing more than 10 per cent. The Star 50 index of Shanghai-listed tech stocks climbed about 1 per cent.More markets news: The technology-focused Nasdaq Composite briefly fell into correction territory, dropping more than 10 per cent from an all-time high hit in November.4. LG Energy Solution readies IPO LG Energy Solution, the world’s second-largest electric vehicle battery maker, is preparing to raise $11bn in one of South Korea’s largest listings as it battles Chinese rivals to dominate the market.5. Aung San Suu Kyi sentenced to four years Aung San Suu Kyi has been sentenced by a military-controlled court in Myanmar to four years in prison after she was convicted in three criminal cases, including for illegally importing and possessing walkie-talkies.Coronavirus digestNovak Djokovic has won his appeal against deportation from Australia over his Covid-19 vaccination exemption.Pro-Beijing news organisations and politicians in Hong Kong have called for punitive action against Cathay Pacific after its crew breached quarantine rules and started an Omicron outbreak.China is tightening pandemic controls in Tianjin, a city of 14m, after discovering the first community transmitted cases of the Omicron coronavirus variant.Reinfections are rising among people who caught Covid-19 earlier in the pandemic as the Omicron variant spreads. Novartis will seek expedited approval for Ensovibep, a Covid-19 drug developed with biotech group Molecular Partners, after strong trial results showed it could help to treat the disease.The day aheadWorld Economic Forum publishes Global Risks Report Bubbly markets and asset prices are among those expected to be featured in the report. Surging crypto prices are also something to keep an eye on. (Forbes) Australia retail sales figures Australian Bureau of Statistics will release its December report on retail sales figures today. Economists expect another strong month of results that would build on October’s 4.9 per cent increase. (Australian Associated Press) What else we’re reading Inside private equity’s race to go public Most of the industry has been enriched during the pandemic — but a select group has had a particularly good time. Eleven listed private equity firms collectively gained nearly $240bn in market value in 2021. Now, a growing number of privately held buyout groups are rushing to join them on the public markets.

N26 co-founder: we got it wrong on global expansion and crypto Max Tayenthal told FT’s Olaf Storbeck that the €7.8bn fintech should have prioritised expanding its services over “putting flags” in more countries. It missed out on the cryptocurrency boom, as it battles to justify its status as one of Europe’s most highly valued fintechs. For more industry news, sign up for our FintechFT newsletter delivered on Mondays.What happens when the Web3 bubble pops? Web3 builds on Web 2.0, which was all about social media and user-driven content, taking it to the next level of either utility or hype, depending on your point of view. Rana Foroohar argues that investors should pay less attention to the metaverse and more to those who are using capital to build out the hard assets of the future.

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Explainer: Fed prepares to shrink $9tn balance sheet Markets are on edge as the Federal Reserve looks to trim bond holdings that have ballooned in past two years. Here is our guide to how the Fed might manage the process of reducing its portfolio of securities, and why it matters for markets.The EU vs the City of London As the UK marks the anniversary of its divorce from the single market, bankers and officials confirm a broader picture: rather than a big-bang shift of financial businesses to the EU, the City is enduring a slow puncture that could take decades to play out. Your feedbackLast week we asked whether nations should pursue a “zero-Covid” policy. Here’s what our readers had to say: “Pursuing a zero Covid policy is essentially a futile and fragile strategy. Indeed, a country has to open up and when it does there will be Covid transmission so ultimately it is a flawed approach that renders the extreme measures that have gone before as meaningless. We sometimes laud countries for their supposed successful suppression of the virus but at what cost to their society? There needs to be a more measured balance adopted.It also seems to me that those countries pursuing zero Covid are shamelessly letting other countries suffer the pain as they develop the medical and societal approaches to overcome Covid whilst they themselves will seek to reap the benefits of those gains. A zero Covid approach only works provided other countries are not sealed and do not adopt the same approach (we need only witness the supply chain challenges to understand this). The ultimate free ride perhaps?” — AM, Hong Kong “Sadly, even the fact that we can discuss zero Covid means that it is a policy, and thus political. Certainly public health concerns are wrapped up therein, but the main driver of zero Covid for the Beijing Party leaders is to underscore the success of their earlier lockdown and continued provision of substandard vaccines. It is difficult to fault their lockdown strategy, but Covid has proven that more than brute force is necessary to halt the joint health and economic damage of the pandemic. Truly impressive leadership should accept that policy direction must change with evolving realities, even if these realities admit scientific mistakes.” — Spencer Dodington, Islington, London More

Powell did not mention the U.S. central bank’s plans to hike interest rates explicitly in brief opening remarks for his nomination hearing before the Senate Banking Committee for a second four-year term as head of the Fed.But he noted that the strength of an ongoing recovery had pushed the supply and demand for goods and services out of line, with higher prices following.”The economy has rapidly gained strength despite the ongoing pandemic, giving rise to persistent supply and demand imbalances and bottlenecks, and thus to elevated inflation,” Powell said in his remarks, which were released by the Fed on Monday. “We know that high inflation exacts a toll.”President Joe Biden nominated Powell for a new term as Fed chair, but the appointment must be ratified by the Senate. More

Investing.com – Federal Reserve Chairman Jerome Powell will stress that the U.S. central bank will continue to use its tools to support a strong labor market and prevent the risk of elevated for longer inflation, according to prepared remarks ahead of his testimony Tuesday for the Senate Banking Committee.  “We will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched,” Powell will say in prepared remarks at his confirmation hearing.  “I would like to thank President Biden for nominating me to serve a second term as Chair of the Board of Governors of the Federal Reserve System.”The Fed chief will talk “sustained improvement” in the economy despite the ongoing pandemic, which has “given rise to persistent supply and demand imbalances and bottlenecks, and thus to elevated inflation.” “On the eve of the pandemic, the U.S. economy was enjoying its 11th year of expansion, the longest on record … [but] this attractive picture turned virtually overnight as the virus swept across the globe,” according to the prepared testimony. The remarks came just days ahead of the U.S. inflation report due Wednesday, expecting to show that the pace of inflation increased at its fastest pace in December since 1982.Against the backdrop of elevated inflation, bets on the a more aggressive pace of rate hikes have continued to ratchet up, with Wall Street consensus now leaning toward four rate hikes this year, with the first hike as soon as March. “We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing, and transportation. We are strongly committed to achieving our statutory goals of maximum employment and price stability.” Powell is expected to say in testimony. More

WASHINGTON (Reuters) – A U.S. Senate committee holds hearings this week for Federal Reserve Chair Jerome Powell and vice chair nominee Lael Brainard that could provide new details about the U.S. central bank’s plans to tighten monetary policy, but also kick off a broader debate in coming weeks about its role in addressing issues as disparate as climate change and racial inequality.Powell appears before the Senate Banking Committee on Tuesday for consideration to a second four-year term as head of the Fed; Brainard, currently a Fed governor, will be questioned by the same panel on Thursday for promotion to a four-year term as Fed vice chair. The positions require majority approval by the full Senate, which is narrowly controlled by President Joe Biden’s Democrats, with the committee hearings a first step. The jobs are among the two most important in the U.S. and global economies, and top of mind at the hearings will be the Fed’s plans for raising interest rates and possibly reducing its more than $8 trillion in bond holdings to curb inflation that has sped far beyond the central bank’s 2% target. Powell, in prepared remarks for delivery at the hearing that were released by the Fed on Monday, pledged to use the central bank’s full suite of policy tools “to prevent higher inflation from becoming entrenched.””The economy is expanding at its fastest pace in many years, and the labor market is strong,” Powell said. But the strength of the recovery is “giving rise to persistent supply and demand imbalances and bottlenecks, and thus to elevated inflation. We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials.”The issue has become politically troubling for Biden, with price increases undermining wage gains for many workers, cited by Republicans as stemming from Biden’s ambitious spending, and acknowledged by Democrats as evidence the reopening of the economy is not going so smoothly.The Fed in December flagged plans to tighten policy faster than expected in response, with a rate hike perhaps as soon as March. But that was before it became clear just how fast the Omicron variant of the coronavirus would spread, with this week’s hearings the first opportunity for Powell and Brainard to say how the current outbreak of the disease and the consequent disruptions to school and commerce have influenced their outlook.Economists, if anything, have tilted in a hawkish direction, and in recent days intensified their view that the Fed would move sooner and at a quicker pace to tame price increases that show no sign of moderating on their own. The Consumer Price Index is expected to have increased around 7% in December from a year earlier, according to a Reuters poll of economists, a level not seen since the high inflation scares of the late 1970s and early 1980s. The data will be released on Wednesday. “The Fed’s growing discomfort with higher inflation is currently outweighing any concerns about downside risks from the Omicron variant,” Oxford Economics economists Nancy Vanden Houten and Kathy Bostjancic wrote recently.Financial markets are clearly positioning for a Fed that is prepared to be more aggressive in its response to inflation.Bond markets are rapidly repricing for a higher interest rate environment, with yields on Treasury securities marching upward and bondholders suffering deep losses in the first week of 2022. Riskier assets like stocks and even cryptocurrencies – a relatively new asset class with scant experience confronting a Fed tightening cycle – have also nosedived in the early days of the year.FAMILIAR FACES Biden’s decision to appoint two Washington and Fed policy veterans to the central bank’s top jobs was in part a vote for continuity and bipartisanship at a critical moment for the U.S. recovery from the pandemic – incomplete in many ways but bedeviled by rising prices, disruptions to the supply chain for goods, and constrained by some workers’ reluctance to take jobs.Powell, a Republican, and Brainard, a Democrat, are familiar personalities on Capitol Hill who have cleared prior votes in the Senate, worked closely on the Fed’s massive response to the coronavirus crisis, and more lately collaborated on plans to exit those support programs as inflation surged.But the nominations also signal change. Brainard has been vocal as a Fed governor about the central bank’s need to analyze and ultimately address the potential impact climate change could have on financial institutions, equity values and other aspects of the economy – views that align with Biden and which she would be in a stronger position to advocate as vice chair. Other coming Fed appointments by Biden, including to the open position of vice chair for financial regulation, are expected to reinforce the importance at the central bank of climate and other issues like the impact of inequality on the economy, and possibly produce the first majority-female Fed board in the central bank’s history.Republicans may focus questions to Brainard about her climate views; Powell may face tough questions from some Democrats, notably Senator Elizabeth Warren, who has already announced plans to oppose his nomination for what she sees as a too-lax approach to regulating big banks. More

NEW YORK (Reuters) -JPMorgan Chase & Co Chief Executive Officer Jamie Dimon said on Monday the economy is generating so much inflation that the Federal Reserve might have to raise short-term interest rates https://www.reuters.com/markets/funds/goldman-sachs-expects-four-fed-rate-hikes-this-year-2022-01-10 more than four times this year.Speaking to CNBC, Dimon said, “It’s possible that inflation https://www.reuters.com/markets/us/us-consumer-prices-increase-further-november-2021-12-10 is worse than people think. I, personally, would be surprised if it’s just four increases this year. Four would be very easy for the economy to absorb.”Dimon spoke after economists at JPMorgan (NYSE:JPM) and some other Wall Street banks said they expect the Federal Reserve to raise interest rates four times this year in a quicker pace than they had predicted earlier.Citing signs that the economy is strong, Dimon said consumers had never been in better financial shape, evidenced by high checking account balances, payments on debt and increased home values.But he also warned that financial markets will fluctuate regardless of how the economy is going.”We’re expecting that the market will have a lot of volatility this year as rates go up, and people do projections and look at the effects of interest rates on businesses differently than they did before,” Dimon said.As Dimon spoke, volatility in the stock and bond markets continued.Wall Street’s main indexes tumbled on falling prices for technology stocks, which have been hit hard by expectations for higher U.S. Treasury yields. The Nasdaq was down nearly 2% and about 9% below its Nov. 19 closing record.The benchmark U.S. 10-year Treasury yield rose to its highest level in nearly two years. Investors sold the securities in anticipation that the Federal Reserve will begin its tightening policy with an interest rate hike as soon as March. The yield on the 10-year reached as high as 1.805%, up every day this year from 1.5118% on New Year’s Eve. The Fed has already begun reducing the pace of asset purchases, the first step in paring back stimulus measures introduced during the pandemic. “If we are lucky, the Fed will slow things down and we will have a soft landing,” Dimon said.Asked about remote working policies during the coronavirus pandemic, Dimon said JPMorgan would continue to be flexible on working from home, provided it benefited the bank’s clients.Last week, Citigroup Inc (NYSE:C) said staff in the United States who have not been vaccinated against COVID-19 by Jan. 14 would be placed on unpaid leave and fired at the end of the month unless they are granted an exemption.Dimon suggested that JPMorgan’s current policy of requiring New York City employees to be vaccinated before coming to the office could be extended to terminate those who refuse to be vaccinated.”If you aren’t going to get vaxxed, you won’t be able to work in that office. We’re not going to pay you to not work in the office,” Dimon said.On return-to-work questions, Dimon said, “We don’t have to answer this right away.” More

The Federal Reserve has begun sketching out plans to shrink the size of its balance sheet, which ballooned during the pandemic as it hoovered up government bonds in an attempt to stave off an economic collapse. The US central bank now holds just under $9tn of assets, more than double the amount compared to early 2020 when it embarked on an unlimited bond-buying programme to prop up markets and lower long-term borrowing costs for business and households facing financial ruin. Minutes from the Fed’s policy meeting in December, released last week, revealed that policymakers had embarked on their most comprehensive discussion to date of how they intend to manage the process of trimming the size of the balance sheet. The minutes, which also showed that officials thought the Fed might need to raise interest rates “at a faster pace” than originally anticipated, has since triggered sharp moves in financial markets as investors become more attuned to the central bank’s abrupt pivot to a tighter monetary policy. This week, real yields — which are derived from Treasury securities adjusted for inflation — surged to their highest level since June as traders prepared for cuts to the Fed’s balance sheet. Real yields affect every corner of financial markets, and factor into equations investors use to value assets from stocks and bonds to real estate.Here is a guide to how the Fed might manage the process of reducing its portfolio of securities, and why it matters for markets.Why is the Fed discussing its balance sheet now? Under pressure to respond to soaring inflation, the Fed had already announced plans to withdraw the $120bn-a-month bond-buying programme it put in place at the onset of the pandemic.The central bank expects to cease buying bonds in March, paving the way for it to start tightening policy by raising interest rates this year. A majority of Fed officials are now pencilling in three quarter-point rises this year, and a further five before the end of 2024. Shrinking the balance sheet would be another way of curtailing the amount of stimulus the Fed is pumping into the economy, something officials think it must do given the jump in consumer prices and the strength of the recovery. “It is becoming hard to justify why the Fed is keeping such a large balance sheet if the economy is doing so well,” said Roberto Perli, a former Fed staffer and head of global policy research at Cornerstone Macro.What are the plans for reducing it? The Fed has not yet made any final decisions on shrinking its balance sheet, but the account of the December meeting showed there is broad support for a relatively rapid reduction after the first interest rate rise. The process should be swifter than the Fed’s previous attempt to pare back its holdings in 2017, which had swollen due to bond-buying after the global financial crisis in 2008. Back then, the Fed waited for about two years after the first post-crisis rate rise before it stopped reinvesting the proceeds from maturing Treasuries and agency mortgage-backed securities (MBS), a process known as “run-off”. The Fed thinks it can afford to move more quickly thanks to “a stronger economic outlook, higher inflation, and a larger balance sheet”, which contrasts with the relatively tepid recovery in the wake of the financial crisis. Even after the Fed trims the balance sheet, it is likely to remain much larger than it was before 2008, according to Mark Spindel, chief investment officer at MBB Capital Partners. Spindel said the prospect of hacking it back to its pre-crisis size of less than $1tn was a ship that had “long sailed”. Indeed, Fed officials support monthly caps that would limit how quickly run-off can proceed to ensure a pace that is “measured and predictable”, according to the minutes. Some also back a swifter reduction of the Fed’s holdings of agency MBS faster than its pile of Treasuries. For now at least, Fed officials seem to be exclusively focused on shrinking the balance sheet by not replacing bonds that mature and do not appear to be discussing selling assets outright. Why are markets on edge?Although the Fed had announced the end of its bond-buying programme and telegraphed looming rate rises, the sudden discussion of its balance sheet caught investors off-guard. The last time the central bank attempted to reduce the size of its balance sheet, it ended in upheaval as it became clear too much cash had been drained from the financial system.In 2019, two years after it had begun to wind down its Treasury portfolio after the last crisis, short-term funding costs rocketed. Banks, which had partially filled the gap by buying Treasuries, were less willing to lend cash to overnight borrowing facilities, further exacerbating the situation. The Fed was forced to intervene, pumping billions of dollars into the so-called repo market, and embarking on a series of monthly asset purchases.Investors are not concerned about an outright repeat of the repo crisis, but whenever the Fed withdraws stimulus, it can have unintended consequences.With its unlimited asset purchase programme, the Fed has left a sizeable imprint in the $22tn US Treasury market, the backbone of the global financial system. As it acquired US government debt during the pandemic, it became one of the largest owners of Treasury inflation protected securities, or Tips, depressing the yields deep into negative territory. It now single-handedly owns more than a fifth of the $1.7tn of debt.If the Fed begins to sell those bonds, the supply of Tips in the market is expected to balloon, pushing their yields — known as real yields — up. That could reverberate in every corner of financial markets, given real yields are used as a marker by which almost every security in the US is priced. Investors got their first glimpse of that last week, when real yields surged dramatically, triggering a sell-off in speculative tech shares that are highly sensitive to the rates. The move, which accelerated on Monday, weighed further on risky assets, with the technology-heavy Nasdaq sliding into a technical correction as it dropped 10 per cent from its all-time high.“The single most important question for the market in 2022 was the outlook for real yields,” said Deutsche Bank’s George Saravelos. “It has been the ‘glue’ that has held the market regime together.”Could it have an impact on Treasury market liquidity? The primary block to a rapid reduction in the balance sheet is the resiliency of the Treasury market and its ability to function properly when its biggest buyer starts pulling back.Fed officials recently indicated concern, highlighting “vulnerabilities” in the world’s most important bond market and how the weaknesses might influence the pace at which it retreats.“Liquidity is not the same as it was 10 years ago,” said Priya Misra, head of US rates strategy at TD Securities.The Fed has put new tools in place designed to mitigate potential problems, including a permanent facility that allows eligible market participants to swap Treasuries and other ultra-safe securities for cash at a set rate.This standing repo facility, which was unveiled in July, is intended to serve as a backstop for the market and avoid a repeat of the volatility that occurred during the last attempt to shrink the balance sheet. More

The 3 billion pound ($4.07 billion) LF Woodford Equity Income Fund was suspended in June 2019 after it ran out of cash to pay back investors seeking to leave after a period of underperformance. The fund was heavily exposed to unlisted, hard-to-sell stocks.The Financial Conduct Authority opened an investigation in June 2019 into the circumstances relating to the suspension.”We are now finalising our legal analysis with a view to making decisions as to whether to take action and, if so, what action should be taken and against whom,” Financial Conduct Authority CEO Nikhil Rathi said in a letter to parliament’s Treasury Select Committee (TSC), made public on Monday.Rathi said all key evidence has been gathered.”If any disciplinary action is taken, in the interests of fairness, we will be unable to identify who it is against and what the allegations are until certain stages have been completed. The timing of any outcome will also be contingent on whether the proceedings are contested,” Rathi said.TSC Chair Mel Stride said on Monday in a response to Rathi’s letter that the FCA should ensure “as swift as possible a conclusion” to the probe, saying it remains a matter of keen interest to the lawmakers.Around 2.5 billion pounds in the fund has been handed back to investors.The suspension of the fund, along with the freezing of some property funds after the June 2016 Brexit referendum, prompted regulators to review rules that allow such funds to offer daily redemptions to investors.($1 = 0.7366 pounds) More