World’s Biggest Interest Rate Cuts Are Chile’s Prize for Taming Inflation

Matthew Malinowski
Fri, September 1, 2023 at 10:00 AM MDT·5 min read





(Bloomberg) -- In Santiago, real estate sales are surging, stocks recently hit record highs and investors are betting big on corporate bonds. Forecasts show Chile’s economic growth next year will top mighty regional peers like Brazil and Mexico.

That optimism is being driven by expectations for the world’s biggest interest rate easing cycle, the payoff for the central bank’s early and aggressive fight to save an overheated economy from surging prices and unsustainable growth that approached a red-hot 12% two years ago.

That rescue wasn’t painless — quickly raising interest rates to a two-decade high caused a mild recession, and data out just this week showed continued doldrums in retail and industry — but the economy is now much better positioned to benefit from lower rates than some of its developed-world peers, which were slower to boost borrowing costs.

“Inflation expectations have been anchored, and that speaks to the central bank’s credibility,” said Andres Perez, the chief economist for Latin America at Banco Itau in Santiago. “The hiking cycle started well before other countries, especially developed economies.”

The bank’s easing cycle — including a 1 percentage-point cut in July and what’s forecast to be a 75 or 100 basis point reduction Sept. 5 — will total at least 625 basis points over the next 12 months, the biggest in the world according to market implied policy rates tracked by Bloomberg. Just a year ago, the benchmark rate peaked at 11.25% as price increases topped 14%, the highest since 1992 and the steepest among regional peers.

Chile and other Latin American nations, with more recent memories of out-of-control inflation, were much more aggressive about interest rate hikes than developed-market peers as consumer prices surged globally in 2021. Brazil, for example, raised rates as early as March 2021, while the Federal Reserve didn’t increase borrowing costs until a year later.

Now the Fed and European Central Bank are still playing catch-up, weighing more tightening. Last month, Goldman Sachs Group Inc. predicted the Fed won’t cut rates until the second quarter of 2024.

Chile faced the same cost-of-living pressures from global supply bottlenecks and Russia’s invasion of Ukraine that other countries encountered, but on top of that, the country also grappled with the aftermath of stimulus totaling more than 25% of gross domestic product injected into the economy during the pandemic.

Government transfers under former President Sebastian Pinera reached 90% of households, and three rounds of early pension fund withdrawals approved by Congress pumped roughly $50 billion in additional cash into a red-hot economy.

Turnaround

A linchpin of the bank’s response was consistent communication. After taking over as central bank governor in February 2022, Rosanna Costa repeatedly emphasized economic growth was slowing too gradually and inflation running too hot. She sent real rates, adjusted for consumer-price increases, to the highest since 2002, according to Bloomberg Economics.

Inflation projections quickly tumbled, and economists and traders now see it slowing to the 3% target within two years. By contrast, cost-of-living estimates in Brazil, which is also cutting rates, remain above target through 2026.

Peso Risks

Of course Chile’s aggressive cuts pose risks. Some economists are warning inflation could be revived by a weakening peso, which has tumbled 6.4% since the start of July even as the Finance Ministry doubles dollar sales, a move which supports the currency.

A weaker currency makes imports more expensive, and Chile is particularly vulnerable because it imports the majority of its fuel. Wage growth and rising commodity costs have also been flagged as potential vulnerabilities.

Central bank Vice President Pablo Garcia downplayed the peso’s effect on the monetary policy outlook, saying in an Aug. 26 interview from Jackson Hole, Wyoming, that board members still intend to lower rates to 7.75%-8% at year’s end from 10.25% now.

“The news that we’ve had, both on the international scenario and domestic data, inflation, gyrations of the exchange rate, they don’t seem to paint a picture dramatically different from what we had in mind when we started the cuts in July,” Garcia said.

2024 Outlook

For now, Chilean financial markets are positioning for better times. Local stocks smashed records in July and early August on bets that lower rates will help demand, setting off a rally across sectors that was led by retailers like Plaza SA and Ripley Corp.

Economic activity expanded in July, defying analysts’ forecasts for a dip, according to the central bank’s latest GDP proxy published Friday. Growth is gaining momentum, according to Bloomberg Economics’ Felipe Hernandez.

Meanwhile, investors are hurrying back to the corporate debt market on prospects of a return to stronger economic growth after months of stagnation, according to a monthly Bloomberg News survey published in August. UBS upgraded Chilean stocks Thursday to most preferred in emerging markets, prompted by the rapid monetary policy pivot and a more stable political backdrop.

Real estate sales jumped 33% in Santiago in the first half of this year from the previous six months. Rene Castro Leal, a University of California-trained executive who is selling apartments at a new residential building in the capital, said he’s seen an inflection point in demand.

Fresh in his mind is a client who had fallen in love with an apartment a year ago, but was hesitant to buy because of the rough economic outlook. That buyer finally agreed to purchase the property after the central bank delivered its first interest rate cut in July and said inflation was coming down faster than initially thought.

“Clients react to the central bank,” Leal said. “We’re going to have better months ahead.”

--With assistance from Matthew Boesler.

 Bloomberg Businessweek

Soft Demand Prompts UPS to Offer Early Retirement to Pilots

Zacks Equity Research
Fri, September 1, 2023

Per a Reuters report, United Parcel Service UPS has offered early retirement to some pilots. The move is aimed to reduce labor costs as the package delivery firm struggles with a decline in demand scenario. The weak freight market has hurt overall volumes.

At present, UPS employs around 3,400 pilots. The company expects 167 pilots to accept this voluntary retirement offer. The separation scheme is quite lucrative as it includes cash as well as healthcare-related benefits. This is, in fact, the first time since 2010 that UPS has decided to reduce employments of its pilots. In 2010, UPS had furloughed 109 pilots, per the report mentioned above.

We remind investors that in August, while releasing second-quarter 2023 results, management trimmed its current-year revenue outlook. UPS now expects 2023 revenues to be around $93 billion (prior view: $97 billion). Management cited costs associated with the labor deal, inked with 330,000 unionized workers, and declining package volumes induced by labor negotiations as reasons for lowering the outlook.

Due to these headwinds, UPS shares have declined 2.6% year to date compared with its industry’s 10.3% growth.

Zacks Investment Research

Zacks Rank & Key Picks
UPS currently carries a Zacks Rank #4 (Sell).

UPS offers senior pilots buyout package to cut costs

Eric Kulisch
Thu, August 31, 2023

UPS is gradually removing MD-11 aircraft (pictured) from its fleet because they are expensive to operate. (Photo: Jim Allen/FreightWaves)

UPS Inc. is offering pilots an early retirement package to reduce payroll amid declining package volumes.

The integrated parcel and logistics giant confirmed Thursday it wants to trim senior pilots from its ranks, a day after communicating with the pilot group.

“At UPS, we regularly assess our operations and make adjustments to better serve our customers. As part of our effort to efficiently manage our airline, we are offering a voluntary separation benefit to eligible UPS pilots,” UPS (NYSE: UPS) said in an emailed statement. “Those who choose to accept the offer will receive a comprehensive compensation package that includes cash and healthcare benefits.”

UPS did not disclose specific details of the offer.

UPS reduced its flight activity in July by 14% from the prior month, and flight hours were down 13% year over year, according to tracking data compiled by Morgan Stanley.

UPS reported second-quarter domestic next-day air revenue fell 9.4% on a 12% drop in volume. Management attributed a large chunk of the domestic decline to customers trading down to UPS’ lower-cost ground network.

Within the United States, UPS is adjusting package flows to maximize utilization of Next Day Air flights, which enables it to reduce block hours — time in flight and taxiing at the airport — in the two-day operation. By filling overnight flights from its Worldport hub in Louisville, Kentucky, it has reduced the need to operate as many daytime flights. CFO Brian Newman said the changes resulted in domestic flight hours that were 6.5% lower versus the 2022 quarter.

UPS began retiring its fleet of older MD-11 aircraft in January. A total of 42 tri-jet freighters will be discharged over the next few years and replaced by 28 new Boeing 767 medium widebody aircraft, the first six of which are scheduled for delivery this year. The 767s offer lower operating costs, with better reliability and fewer emissions.

Louisville TV station WDRB was first to report the UPS effort to downsize crew levels at its cargo airline. It said UPS wants to eliminate 167 pilots.

The last time UPS downsized its pilot workforce in 2010, it furloughed 109 pilots.

It’s unclear how many long-tenured, senior captains there are at UPS Airlines who qualify for the offer.

FreightWaves/American Shipper 

UBS made a $29 billion quarterly profit after rescuing Credit Suisse

Joseph Wilkins
Fri, September 1, 2023 

UBS is based in Zurich, Switzerland.Fabrice Coffrini/AFP/Getty Images

UBS completed one of the largest bank mergers in March when it rescued failed rival Credit Suisse.


The bank posted a record $29 billion second quarter profit due to an accounting gain from the deal.


UBS plans to cut 3,000 jobs and save $10 billion as part of its integration strategy.

UBS posted the biggest quarterly profit for a bank on record following its rescue of Credit Suisse earlier this year.

The $29 billion profit for the second quarter announced Thursday was mostly due to an accounting gain known as negative goodwill following the takeover of its Swiss rival in March.

The assets of Credit Suisse were worth far more than the $3.25 billion that UBS paid in the government-brokered rescue deal, which meant it could book the difference.

The biggest quarterly profit posted by a bank had been $14.3 billion from JPMorgan at the beginning of 2021.

Excluding the post-merger gains, UBS reported a far more modest $1.1 billion pre-tax profit.

The bank is cutting 3,000 jobs in Switzerland by the end of next year and reducing costs by $10 billion as part of its restructuring plans, CEO Sergio Ermotti said.

"There is no room for nostalgic considerations," he told Bloomberg TV. "We are executing on the strategy, we are making very good progress."

UBS plans to eliminate any overlap between the two organizations and eventually stop using the Credit Suisse brand.

Two-thirds of Credit Suisse's investment bank, including almost all of its trading division, is set to be wound down, Bloomberg reported.

UBS is up almost 30% this year and Deutsche Bank analysts Benjamin Goy and Sharath Kumar rate the shares as a "buy."

"The underlying UBS business is seemingly not impacted by the deal," they wrote in a note reported by The AP. "Clearly, the group remains a construction site in the near term, however we believe this set of results and announcements should give confidence in the mid-term bull case."

UBS stock soars to 15-year high after blockbuster profit from Credit Suisse deal

David Hollerith
·Senior Reporter
Thu, August 31, 2023 

In March Swiss regulators pushed for UBS to take over smaller rival Credit Suisse as a way of tamping down unfolding chaos in the global banking system. Five months later, the stock of UBS is at a 15-year high.

The latest catalyst came Thursday as UBS reported a record $29 billion quarterly profit due to an accounting gain from the Credit Suisse purchase. It is the biggest quarterly profit for any bank ever, exceeding the $14.5 billion earned by JPMorgan Chase (JPM) last quarter.

UBS (UBS, UBSG.SW) stock surged 7% at the open of Thursday's trading in the US. Year to date it has climbed more than 43%, reaching its highest price since 2008.
UBS Group AG (UBS)
View quote details

The blockbuster gain recorded by UBS is the latest example of how some banks were able to benefit from the turmoil of the spring by absorbing troubled rivals with help from their governments.

JPMorgan's second quarter profit, which ballooned by 67%, got a major boost from a $2.6 billion gain tied to its rescue of First Republic in May after regulators seized the San Francisco lender and sold the bulk of its operations to the largest bank in the US.

JPMorgan, which purchased the bulk of First Republic's operations, was among the other giants that booked a huge gain from the rescue of a smaller rival this year. (Jeff Chiu/AP Photo, File)

First Citizens (FCNCA), a sizable regional bank, also benefitted after it purchased assets from the failed Silicon Valley Bank, which was seized by regulators on March 10 during the initial wave of panic that roiled the industry.

The deal helped make the Raleigh, N.C.-based institution the second-most profitable US bank for the first three months of the year.

The union of UBS and Credit Suisse created a mega institution with $5.5 trillion in assets. After some deliberation, UBS said it will fully integrate Credit Suisse’s large Swiss bank into its operations as opposed to spinning it off.

That integration will bring $10 billion in cost reductions including layoffs of approximately 3,000 employees expected to begin in late 2024 and spread out over several years. The integration of the two Swiss banks is expected to finish by the end of 2026.

"Given the events leading up to the acquisition, stabilizing the Credit Suisse client franchises globally has been our most immediate priority," Sergio P. Ermotti, UBS Group chairman and CEO, told analysts Thursday.

UBS chief executive Sergio Ermotti at a press conference on Thursday in Zurich. (Fabrice Coffrini/AFP via Getty Images)

The Credit Suisse franchise brought in $18 billion in net deposits over the quarter. UBS also attracted more money from wealthy clients. It said it attracted $16 billion in net new assets for its enormous wealth management business, the operation's highest second quarter inflows in over a decade.

Excluding acquisition-related costs, Credit Suisse AG reported a pretax net profit loss of $10.1 billion.

Ermotti, who stepped down from the role in 2020, was asked to return to the bank’s top seat in April to lead it through the enormous transaction.

"Since closing in June, we have won back clients' confidence, as evidenced by the positive asset flows and strong engagement across wealth management, and the Swiss business," he added.

UBS reaps windfall gain from Credit Suisse deal after Swiss bank nabs rival at bargain $29 billion discount

Christiaan Hetzner
Thu, August 31, 2023 

UBS CEO, Sergio Ermotti

In a move that could be considered the deal of the decade, UBS, having rescued rival Credit Suisse from a liquidity crisis prompted by the collapse of Silicon Valley Bank, has announced extraordinary gains for the second quarter.

UBS CEO, Sergio Ermotti, revealed that the bank raked in a staggering $29 billion in net profit, a remarkable 14-fold increase solely attributable to this emergency acquisition.

“We are very proud to see that clients are entrusting us and really believing in the story,” he said, citing wealth management customers placing more of their money with the bank despite the turmoil surrounding the deal.

This substantial Q2 gain, however, is a paper gain resulting from “negative goodwill” arising from the transaction—a term that sounds bad but is in fact a sign of sharp negotiating skills.

Normally when a company acquires another, it pays a premium over the market price, creating an intangible asset called goodwill, representing the difference between the target company‘s perceived worth and the acquisition price.

In most cases, less goodwill is seen as favorable for investors since excessive goodwill can lead to substantial impairment charges if assumptions behind the transaction fail.

Probably the most famous example is AOL Time Warner. After merging at the height of the dotcom bubble, the new group in 2002 wrote down close to $100 billion of the deal’s goodwill, leading to the largest loss in corporate history.

By comparison, UBS created negative goodwill by underpaying for Credit Suisse. At the time of the shotgun wedding, Credit Suisse was already trading at a substantial discount to its book value when UBS insisted to the federal government that they would only countenance a purchase if a deal was priced even lower.

In the end, they agreed to end 166 years of Credit Suisse history for just 3 billion Swiss francs ($3.4 billion).

Distraction is now the number one integration risk

Today’s quarterly results revealed the sheer scale of the discount it got for the franchise.

Thanks to the negotiation of chair Colm Kelleher, UBS managed to generate nearly $30 billion in value for its own shareholders in one fell swoop.

Had it not been for this windfall profit, the lender would have seen its $2.1 billion net income from the previous year swing to a small loss for the period.

There is a downside, however. As much as $28 billion in added costs, including $4 billion in litigation risks, could result from the deal. But this estimate from the company is likely a worst-case scenario.

The merger of Switzerland’s two biggest names in banking has however created an entirely different problem.

The combined $1.7 trillion balance sheet of the new behemoth is roughly twice the size of the Swiss economy.

This has sparked concerns UBS bankers may be tempted to take oversized risks just like their colleagues at Credit Suisse, knowing the institution is now definitively too big to fail.

To soothe fears in the country, Kelleher has said his management team will screen Credit Suisse’s notoriously free-wheeling investment bankers to ensure no bad apples make it through the ongoing integration process.

Earlier this month UBS assured Swiss citizens the bank had no need of 9 billion francs in taxpayer money to backstop losses arising from Credit Suisse’s derivatives exposure and already returned all support to the country’s central bank.

The Swiss native, brought in for political reasons in conjunction with the deal, said he wanted the process of consolidating Credit Suisse and restructuring the merged entity to take a back seat in the minds of his employees to prevent any distractions from their day-to-day tasks.

“Everybody wants to talk about it, but the reality is that what we need to do is to continue to stay close to clients and manage our current business, both at UBS and Credit Suisse,” he said, before going on to call the integration “a second priority.”

This story was originally featured on Fortune.com

In wake of Credit Suisse, Switzerland told to better prepare for bank failure


The logos of Swiss bank Credit Suisse and UBS are seen in Geneva, Switzerland

Fri, September 1, 2023 
By Noele Illien, Elisa Martinuzzi and John O'Donnell

BERN (Reuters) -Switzerland was urged to prepare properly for the failure of a big bank on Friday by a group of experts in the wake of the collapse of Credit Suisse, but their report to government skirted radical reform some say is needed.

UBS Group emerged as Switzerland’s single largest bank earlier this year after the government hastily arranged and partly bankrolled its takeover of stricken Credit Suisse to prevent that bank's collapse.

The failure of one of the world's biggest banks and a one-time symbol of Swiss financial strength blindsided the country's officials and regulators, who had long grappled with the lender as it lurched from one scandal to the next.

On Friday, a group of Swiss experts, including bankers and academics, urged the government to improve its readiness should UBS, which is now far larger, run into trouble.

They called for the country's regulator FINMA to be given more clout with the power to impose fines. They said FINMA should be given more authority to intervene and that there should be improved coordination amongst Swiss authorities.

The experts also recommended that FINMA get closer to banks' executives before there is a crisis.

The experts also suggested that it should be made easier for banks to tap central bank funding, by loosening the rules on what security can be offered in return.

The recommendations are not binding and may not make it further than their report. The powerful central bank, Swiss National Bank (SNB), said it disagreed with some of the suggestions, including on liquidity and on how the authorities work.

The Credit Suisse takeover – the first rescue of a global bank since the financial crisis of 2008 – grants enormous clout to UBS, ridding it of its main rival.

It will change the landscape of banking in Switzerland, where branches of Credit Suisse and UBS are dotted everywhere, sometimes just metres apart.

The banks, two of the most systemically relevant in global finance, hold combined assets of up to 140% of Swiss gross domestic product in a country heavily dependent on finance for its economy.

The collapse of Credit Suisse has prompted an international debate about reforms introduced after the last financial crash to prevent banks becoming too outsized to wind down - a drive that has since faltered.

Although Switzerland imposed losses on shareholders and some bond investors - one pillar of those crisis reforms - they balked at the prospect of winding up Credit Suisse, opting to sell to UBS instead.

The deal was criticised by some in Switzerland. "UBS got the deal of the century," said a spokesperson for the Social Democrat party, which is a member of the ruling coalition. "At the same time, the costs of massive job cuts are foisted on the public. We need bank rules with teeth."

Others also see grave failings.

"Swiss policymakers failed to adequately supervise Credit Suisse throughout the past decade leading to its demise," said Beat Wittmann, chairman of Porta Advisors, a Swiss boutique advisory firm.

"Unfortunately there is so far no political willingness to learn any lessons," he said.

Nicolas Veron of the Peterson Institute for International Economics in Washington, cautioned that Switzerland could be stumped if UBS were to run into trouble.

"(The) rescue of Credit Suisse isn't a perfect success but it's not a story of policy failure either.

"The Swiss had two options - the merger, plan A, or resolution, plan B, and the judgement call was that a deal was better," he said, adding that there is no such fallback if UBS runs into trouble.

During the global financial crash of 2008, it was UBS, not Credit Suisse, that needed a state rescue.

At that time, the Swiss central bank lent more than $54 billion to a vehicle that UBS used to offload problem debt, including subprime loans.

(Additional reporting by Oliver Hirt in Zurich; Writing By John O'Donnell; Editing by Susan Fenton)

MUFG Brokerage JV Sued in Japan Over Credit Suisse AT1 Sales

Takashi Nakamichi and Rie Morita
Thu, August 31, 2023 



(Bloomberg) -- Japanese investors sued Mitsubishi UFJ Financial Group Inc.’s joint venture brokerage with Morgan Stanley, showing that the fallout from losses on Credit Suisse’s riskiest debt continue to reverberate around the world.

The suit was filed Thursday to the Tokyo District Court on behalf of 66 plaintiffs, demanding 5.2 billion yen ($36 million) in compensation from Mitsubishi UFJ Morgan Stanley Securities Co. They are seeking to recover losses from so-called Additional Tier 1 notes that were sold by the firm, according to the filing led by Yamazaki Marunouchi Law Office.

Bondholders lost everything when about $17 billion of these securities were wiped out during UBS Group AG’s emergency takeover of Credit Suisse. Some reacted with anger when UBS said this month it won’t need state support for its rescue deal after all. The debacle has sparked various lawsuits around the world, and the latest case in Japan hits its largest lender.

The plaintiffs claim that the brokerage violated a suitability principle by selling the bonds to regular investors even though the products are for professional institutions, according to a copy of the complaint seen by Bloomberg News. The firm also didn’t offer sufficient explanation about the risks associated with the notes, including conditions that could trigger a writedown, it said.

A representative for Mitsubishi UFJ Morgan Stanley Securities declined to comment, saying the firm has yet to see the filing.

In Japan, Mitsubishi UFJ Morgan Stanley Securities sold the securities more aggressively than any other firm, making up about two-thirds of the 140 billion yen of the notes taken up. Its approach contrasts with some major financial companies in Asia including Nomura Holdings Inc. and United Overseas Bank Ltd., which took a more cautious approach.

Bondholders across the world have been trying to seek damages from Swiss authorities for their losses, though the cases in Japan take aim at financial institutions for alleged improper sales practices. Tokyo-based Monex Group Inc. was sued in July by an investor who accused the online brokerage of not giving any explanation about special risks related to the debt.

MUFG has been stepping up efforts to expand its business of managing assets for the rich, with wealth services atop its list of growth strategies since 2021. Its brokerage has said the debt was sold to help clients diversify their portfolios, and that these sales were handled properly for the most part.


Mitsubishi UFJ Morgan Stanley Securities allegedly kept selling the bonds to retail clients after March 15, when Switzerland’s central bank floated the prospect of rescuing Credit Suisse as the firm’s woes deepened, the complaint said. It also allegedly advised the plaintiffs around that time to avoid offloading their AT1s, saying the Swiss lender had adequate capital, according to the complaint.

Plaintiffs were told the notes would be fine as long as Credit Suisse’s key financial health measure stayed at 7% or higher, the complaint said. They were also reassured the debt was safer than stocks, when the opposite essentially held true, it added.

“The defendant clearly has the obligation to compensate for damages,” Taiju Yamazaki, an attorney-at-law at Yamazaki Marunouchi Law Office, said by email. The AT1 bonds hardly suited the plaintiffs while information provided by the brokerage fell short of satisfying the duty of explanation, he said.

The AT1 issue has brought renewed scrutiny on Japan’s financial industry. Criticism has been building that banks and brokers have gone too far in selling risky products to individuals in search of fees. Officials are growing less tolerant of improper sales practices with recent crackdowns on products like structured bonds.

Bloomberg Businessweek

UK

‘She’s totally lost it’: inside story of the unravelling of Liz Truss’s premiership

Aubrey Allegretti

 Senior political correspondent

THE GUARDIAN
Fri, 1 September 2023 

Photograph: Stefan Rousseau/PA

LONG READ

When Liz Truss addressed the nation from Downing Street in her first speech as prime minister, she promised “action this day, and action every day”. It was meant to be a Churchillian call to arms demonstrating her determination to solve the intractable issues facing Britain. Instead, it foreshadowed the most chaotic period in recent political history.

As the sole survivor through the cabinets of the three previous Conservative-led governments, Truss was used to putting pragmatism above principles. But that approach was cast aside when she swept in to No 10.

In her first week in office, an aide suggested she should “be like Blair” and avoid immediately rocking the boat. He was slapped down. Truss told him to stop talking – and the aide was said to have been cut out of further meetings.


Such single-mindedness quickly collided headlong with the realities of government. With an inexperienced team in No 10, and a divided party, the foundations of her administration were shaky from the start. Within 49 extraordinary days, it had fallen apart.
‘Things got off to a bad start on day one’

The early omens were hardly encouraging. On Tuesday 6 September, Truss flew to Scotland to meet Queen Elizabeth, who would formally invite her to form a new government. Thick fog delayed her plane’s landing at Aberdeen airport. Finally arriving at Balmoral, Truss shook hands with the smiling monarch. The bad weather persisted, delaying Truss’s return to Downing Street.

Queen Elizabeth II and Liz Truss at Balmoral Castle, 6 September 2022. Photograph: Jane Barlow/AFP/Getty Images

As she was driven towards No 10 on the last leg of her round trip, the car made several detours to wait for a break in the rain in which Truss could make a speech, while a bin bag was temporarily used to protect the waiting, sodden podium.

Truss eventually made a hurried address lasting four minutes and five seconds. She warned of “severe global headwinds” but insisted Britain would “ride out the storm”.

That evening, she appointed a new cabinet, but she left Wendy Morton, the chief whip, and Thérèse Coffey, the deputy prime minister, to conduct junior ministerial hirings and firings.

“It was silly of Liz not to squeeze every ounce of goodwill out of people by being the one to appoint them, so things got off to a bad start on literally day one,” said one of those appointed that day.

Instead, Truss was putting the finishing details to a package to protect people from spiralling energy costs. The plan had been worked on in secret during the leadership race as millions fretted about whether they could afford their bills come winter. Though she had railed during the leadership campaign against “handouts”, Truss relented.

Truss and her husband, Hugh O’Leary, outside No 10, 6 September 2022. Photograph: Hannah McKay/Reuters

The energy price guarantee was relatively well received, with no observable wobbles in the markets despite the intervention’s £100bn price tag. But 55 minutes into a Commons debate on the issue on 8 September, a cabinet colleague appeared at Truss’s side with news that any prime minister would dread. Nadhim Zahawi, the chancellor of the duchy of Lancaster, handed her a note saying the queen’s health was deteriorating.

It was a moment for which officials had been preparing for years. When the queen’s death was announced at 6.30pm, Operation London Bridge was activated – and the cogs in the British political system ground to a halt.

For 10 days, most officials were diverted to help with preparations for the queen’s lying in state and funeral.
‘There was basically zero institutional memory left’

For Truss’s newly assembled team of political aides, it was a chance to get to know each other. The group included special advisers who had worked with Truss at the Foreign Office, and a handful from the Boris Johnson and Theresa May eras. Among others were public affairs executives and lobbyists.

“It would have been the perfect moment for some team bonding, but we couldn’t even go to the pub,” recalled one aide.

The lobbyist Mark Fullbrook was brought in as No 10 chief of staff, with Ruth Porter, a public affairs executive, designated as his deputy. Jason Stein, a former media aide to several cabinet ministers and to Prince Andrew, was bought back in as a special adviser. Adam Jones was appointed as head of political communications.

Mark Fullbrook, the new No 10 chief of staff, 7 September 2022. Photograph: Dominic Lipinski/PA

An overwhelming number of the senior figures brought into the administration had limited experience running a Whitehall department, let alone the country. The entire legislative affairs team – in charge of drafting and timetabling bills – was replaced too.

“It was like she’d stripped off all the wallpaper, then the paint and floorboards too. There was basically zero institutional memory left,” one Truss-era cabinet minister said.

As the mourning period for the queen wore on, Truss set about with changes behind the closed door of No 10, setting up her main office in the cabinet room and ordering a full-scale desk reorganisation in which the policy unit was evicted and moved into the Cabinet Office.

In the corridors of power, proximity is everything. Looking back, a No 10 source admitted the move meant there were “fewer people in-house to quality-check”.
Mini-budget: disaster strikes

Truss was determined to overhaul the high-tax, high-spend approach she had accused Rishi Sunak of adopting in his No 11 days. She ordered the new chancellor, Kwasi Kwarteng, to remould the economy.

The mini-budget was pencilled in for Friday 23 September, the final sitting day of the Commons before recess. Labour’s autumn conference would begin two days later and Truss thought the statement would “blow them out of the water”, leaving the opposition facing uncomfortable questions about whether they would support this tax cut or that.

Kwarteng’s team privately feared that the size of the statement was ballooning. At first, it was a vehicle to implement Truss’s campaign promises of reversing the planned national insurance and corporation tax rises. But new measures kept being added at Truss’s behest: investment zones, scrapping the cap on bankers’ bonuses and – most controversially – abolishing the top rate of income tax.

Kwasi Kwarteng delivers his statement on the government’s growth plan to the House of Commons, 23 September 2022. Photograph: Jessica Taylor/UK Parliament

This last measure had been discussed by Truss and Kwarteng over the summer, but they had not intended to announce it so soon. Truss was keen to use the honeymoon period that she thought would be afforded to them to “go big”, but there was disbelief among Tory MPs when the details emerged.

Jitters had already set in because of the refusal to formally badge the announcement as a budget. This was a deliberate tactic taken by No 10 because doing so would have involved the Office for Budget Responsibility producing its own analysis and forecasts on the plans. Truss viewed the OBR as part of the “economic establishment” and had already sacked the most senior civil servant in the Treasury, Tom Scholar.

Kwarteng delivered the statement to the Commons in 26 mesmerising minutes. The significance of the event did not sink in straight away. Most MPs sat in shellshock. Only one Tory dared to raise a concern. Mel Stride, the Treasury select committee chair, decried the “vast void” at the centre of Kwarteng’s statement, namely the lack of OBR scrutiny.

Kwarteng’s team was brimming with confidence. Chris Philp, the chief secretary to the Treasury, fired out a tweet at 10.17am saying it was “great to see sterling strengthen on the back of the new UK growth plan”, with a graph showing a rise in the pound’s value against the US dollar.

Less than half an hour later, the pound had fallen to a 37-year low.Interactive

Kwarteng had expected some market backlash and still headed off that evening to the Two Chairmen pub in Westminster to celebrate. The real backlash would come two days later. In an incredibly inflammatory move, on the Sunday Kwarteng took to a BBC studio to declare: “There’s more to come.”

The markets duly went into a frenzy. It sparked a run on the pound and fears of sharply higher borrowing costs. Worse, it precipitated a crisis in the UK pensions industry.

Comparisons with Black Wednesday in 1992 and fears of a 2008-style financial crash forced the Bank of England to step in. The Bank’s governor, Andrew Bailey, complained of being blindsided by the mini-budget’s £45bn of seemingly unfunded tax cuts, prompting Threadneedle Street to buy up to £65bn of UK government bonds.

Truss’s initial instinct was to say nothing. She “pathologically hated backing down”, an aide recalled. But after a meeting with Kwarteng that was said to have descended into a shouting match, she agreed to the Treasury issuing a statement on Monday designed to calm the markets. It reassured the City that forecasts by the OBR would be published and there would be a further announcement in the autumn on plans to avoid debt spiralling out of control.

Truss went back into hiding. No 10 aides feared that the markets could “smell our nerves” and the silence only made things worse.

Police outriders wait to escort Truss from the back of Downing Street, 30 September 2022. Photograph: Dan Kitwood/Getty Images

In an attempt to avoid looking like Downing Street had descended into full-scale panic, eight BBC local radio interviews were set up. “They were, objectively, a disaster,” said one of her senior team. Over the course of an hour, interviewers from the radio stations in Leeds (where she grew up), Norfolk (she is the MP for South West Norfolk), Kent, Lancashire, Nottingham, Tees Valley, Bristol and Stoke-on-Trent unleashed the pent-up anger of millions of nervous Britons.

She was cut down to size within minutes by the first presenter, who asked Truss bluntly: “Where’ve you been?”

What followed was ritual humiliation for the prime minister. The questions kept relaying fury from listeners. One asked pointedly: “Are you ashamed of what you have done?”

Seemingly not. “She was wounded, but that only made her more angry and defiant,” said one aide. “The belief was we just needed to explain better and harder.”
The U-turns begin

Truss stuck to her stance on the opening day of the Tory party conference in Birmingham, which began a few days later, on Sunday 2 October. Settling into her seat in the BBC studio for the traditional leader’s sitdown, she was determined to appear unfazed.

Truss brushed off the backlash to the mini-budget, saying she stood by the measures. But there was a hint of contrition. “I do accept we should have laid the ground better,” was the most she could muster.

Michael Gove sat opposite the prime minister, ready to savage her answers on live television. “It’s still the case that there is an inadequate realisation at the top of government of the scale of change required,” he said.

Nevertheless, Truss launched a charm offensive to try to woo her critics. She invited those viewed as “persuadable” up to her hotel suite aiming to win them over, succeeding with the likes of Greg Hands, a former chief secretary to the Treasury who afterwards dutifully tweeted out a defence of the mini-budget. Others, such as John Glen, were unconvinced.

Liz Truss on the BBC’s Sunday with Laura Kuenssberg programme at the start of the Conservative party conference, 2 October 2022. Photograph: Stefan Rousseau/PA

The number of Tory MPs who were threatening to vote against the mini-budget began to mount. Jake Berry, the Conservative party chair, added to the febrile atmosphere by saying those who did so would lose the party whip.

With support ebbing away, Truss realised she might not have the numbers to get her plans through parliament. Such a defeat would have been treated as a vote of no confidence.

With the tide turning against her, Truss relented. Late on the evening of Sunday 2 October, she told Kwarteng to U-turn on the abolition of the top tax rate.

A planned visit and interview with Truss the following morning were scrapped and a wider malaise quickly set in. Penny Mordaunt, the leader of the Commons, declared “our comms is shit” at a late-night reception, while another minister, Conor Burns, tipped Kemi Badenoch as “the future of our party” – much to Truss’s fury.

Meanwhile, Grant Shapps strolled around the party conference hotel boasting about his spreadsheet containing a list of unhappy MPs and their grievances. He had felt slighted by her at the start of the leadership election, and when he was passed over for a cabinet job became one of the leading figures in the fight to remove her.

What started as a slight polling deficit for the Tories became a gulf. Labour’s lead soared to more than 30 points and ministers privately began putting Truss on notice.
The unravelling

The greater the criticism of Truss became, the more she isolated herself. Not only did the pool of allies she would speak to narrow, but others struggled to contact her to relay their concerns or offer support after her phone was hacked.

The incident took place during the summer leadership race but did not publicly emerge until after she had left No 10, meaning many remained in the dark about how to get hold of her.

Government ground to a halt (again) and the sole focus of Truss’s team turned to trying to shore up support. David Canzini, a political strategist brought in during the dying days of Johnson’s government, was drafted back to run a “war room” operation in No 10.

Truss walks off stage after delivering her keynote speech at the Tory party conference in Birmingham, 5 October 2022. Photograph: Aaron Chown/PA

It started strongly, with Berry chairing the morning meetings in the Pillared Room and Hands brought in to handle MP relations. “But people slowly dropped out as they saw which way the wind was blowing, until the point you looked around the room and realised it was basically empty,” said one of those present.

Adam Jones, Truss’s political communications director, took some time off after the party conference for his wedding and honeymoon and never returned. Jason Stein stepped into his place and in an email to staff joked: “I’ll try not to break anything.”

By mid-October, MPs were whispering that Truss had until Christmas to turn things around. But that was about to change.

Fresh from a disastrous party conference, Truss arrived at committee room 14 on a dusty corridor in parliament to face a grilling from the 1922 Committee of Tory backbenchers. Every question was hostile. Mark Harper, Kevin Hollinrake, James Cartlidge – who would all become ministers in the Sunak government – were among those who voiced their concerns.

Robert Halfon went one step further and directly blamed Truss for trashing the Conservative party brand. The unhappiness of the parliamentary party was becoming increasingly stark, emboldening MPs to think the unthinkable: that they might be about to defenestrate a second prime minister in just over a month.

Meanwhile, Kwarteng faced an awkward showdown of his own in Washington. He had flown out for an annual gathering hosted by International Monetary Fund after it issued a stern slapdown of the mini-budget. Though he attended some talks, he was scrambled home a day early, boarding an overnight flight.

Kwasi Kwarteng leaves 11 Downing Street, 14 October 2022. Photograph: Neil Hall/EPA

No one believed the official explanation from the Treasury that it was to work on the upcoming medium-term fiscal plan. News of his imminent sacking leaked and Kwarteng found out via Twitter as he was being driven to Downing Street to be told the news personally.

The conversation with Truss was short. She told him he was being sacked, and Kwarteng cooly replied that he already knew.

When Kwarteng exited the cabinet room, an observer remarked his shirt was hanging out at the back: “It literally looked like he was leaving with his tail was between his legs.”

Jeremy Hunt was asked to take the job. Normally affable, on this occasion he was solemn – he requested that no pictures of him smiling be released by in-house government photographers. Hunt was now running the show, and Truss’s supporters felt the entire policy platform on which she had entered No 10 was about to be ripped to shreds.

Truss made one last effort to steady the ship, calling a press conference that afternoon. It lasted less than nine minutes but had been intended to go on much longer. She announced a second U-turn, that the planned national insurance rise she had vowed to cancel would go ahead.

While Truss said she was “absolutely determined” to stay in post, insiders said this was the moment she knew her time in No 10 was up. After taking just three questions, Truss hurried off stage – to shouts of “aren’t you going to apologise?” from the remaining reporters.

Truss during a No 10 press conference after Kwarteng’s sacking, 14 October 2022. Photograph: Getty Images

The final week

Truss’s premiership had become a tinderbox. There was no need for ministerial resignations or no-confidence letters – the sense of inevitability that she could survive for only a few more days was overwhelming.

Truss became ever less involved. She dodged an urgent question in parliament on recent economic turmoil and was mocked when Mordaunt, who stepped in to answer on her behalf, insisted Truss was not hiding “under a desk”.

Critics began speculating who would last longer – the prime minister, or a lettuce. In an effort to stay out of the fray, Truss delegated decisions to her most ardent supporter, Coffey.

Wednesday 19 October started worse than terribly. A gruelling prime minister’s questions left uncomfortable grimaces on the faces of the Tory MPs behind Truss.

Amid the uncertainty, another, almost forgotten scandal: Suella Braverman, the home secretary, was forced out for breaching the ministerial code by sending an official document from her personal email to a fellow MP.

But the most bizarre twist of events was yet to come. That afternoon, Labour tabled a craftily worded motion. It would have guaranteed parliamentary time for a bill to ban fracking. The business secretary, Jacob Rees-Mogg, was in favour of reviving the controversial drilling practice but many Tory MPs were not. To avoid a mass revolt, the chief whip, Wendy Morton, determined that it would be treated as a confidence vote – meaning anyone who defied the whip would face ejection from the parliamentary party.

Towards the end of the debate, communications broke down. On the floor of the Commons, with less than 10 minutes until the division bells started ringing, the energy minister, Graham Stuart, announced that the confidence vote had been called off. Mayhem broke out. Coffey was accused of manhandling a Tory MP to force them to vote with the government, while Morton and her deputy, Craig Whittaker, felt so undermined that they tried to resign on the spot.

Both were dissuaded from doing so in the hours that followed, but it was clear their authority had vanished – and that Truss had lost control of the government and her party.
‘That’s when I thought she’s totally lost it’

Immediately after that mess had unfurled in parliament, half the parliamentary party drifted across to a reception to mark the 100th anniversary of the Carlton Club. Swilling champagne at the private members’ club situated on the edge of Mayfair, each peered at their phones for updates on the government’s imminent collapse.

Gallows humour started to percolate through the room. Hunt and the foreign secretary, James Cleverly, gave speeches from the grand central staircase, alluding to the chaos. Mingling in the crowd were members of the 1922 Committee executive – the so-called men in grey suits whose job it was to tell Truss she could go quietly or be pushed. “You had the assassins and the about-to-be-assassinated milling around in black tie – it was like a game a Cluedo,” said one of those who was present.

Those who had been leading the campaign to oust Truss knew the moment had arrived. One told Graham Brady, the chair of the 1922 Committee, that there were now enough no-confidence letters from colleagues poised to be submitted to trigger a no-confidence vote. And so on Thursday morning, Brady traipsed across to No 10 to tell Truss she had lost the support of the parliamentary party.

Truss decided not to fight on and summoned her aides to the cabinet room. “There was no round of applause or tears, just an emotionless and exhausted room of people,” recalled one of those present.

In the days before she formally stepped down, Truss held farewell parties for her supporters at the prime ministerial grace-and-favour mansion of Chequers. Even then, she defended everything she had sought to achieve, saying she had “the right policies at the wrong time”.

“That’s when I thought ‘she’s totally lost it’,” said a former aide.

One year on from Truss taking office aiming to remould the economy, interest rates and mortgage costs have risen, inflation is uncomfortably high and growth, meanwhile is practically nonexistent.

Her successor, Sunak, is still struggling to draw a line under what some Tory MPs call the “Trusterfuck” that they believe will cost them their seats and the party its majority at the next election.

BOE’s Chief Economist Likens Truss Crisis to River of Crocodiles

Tom Rees
Fri, September 1, 2023 


(Bloomberg) -- The Bank of England’s chief economist compared last year’s UK market crisis caused by former Prime Minister Liz Truss to being by a river of crocodiles.

Huw Pill said the turmoil “was not a comfortable experience” for the central bank after Truss’s unorthodox plan for unfunded tax cuts spooked investors and forced the BOE to intervene in markets.

“That episode felt like we were by a river with lots of crocodiles in, and we were dipping our toe into the river,” Pill said on a panel in South Africa.

The remark was a vivid critique of the episode that triggered a plunge in the value of the pound and UK government bonds, triggering a funding crisis in one corner of the pensions industry. It required an intervention by the UK central bank.

Pill also noted the crisis put into question Britain’s institutions after the Truss administration froze out the UK’s fiscal watchdog, the Office for Budget Responsibility, from its usual role of overseeing major statements from the Treasury.

“The challenge in developed markets may be having hopefully built the right institutions, ensuring that the political process respects” them, he said.

“That episode was one where that organization, that institution, was cut out and I think brought into question the wider institutional structure within which macroeconomic policy in general, including monetary policy, operated,” Pill said.

Pill added to recent remarks by the BOE suggesting that it will leave interest rates at high levels for longer. On Thursday, he said he prefers a “Table Mountain” path for interest rates where policy is kept steady at restrictive levels rather than sharp hikes followed by rate cuts.

He said the combination of a tight labor market and workers wanting to catch up on wages eroded by inflation means the Monetary Policy Committee needs to be “particularly wary of allowing a dynamic to emerge that leads to persistence.”

However, he said the BOE takes comfort from longer-term inflation expectations being much better anchored compared to previous surges in prices in the 1970s and 1980s.

“That’s something we have to work on,” he said. “That anchoring of expectations doesn’t happen by accident. It happens because of the actions of the central bank and the commitment of the central bank to its inflation target.”

THE 1%

Billionaire Kellner Family Gains Full Ownership of PPF Group

Peter Laca
Fri, September 1, 2023



(Bloomberg) -- The heirs of late Czech billionaire Petr Kellner acquired full ownership of the richest family office in the European Union’s eastern wing, buying out two minority owners who helped build a business empire with €40 billion ($43 billion) in assets.

Kellner’s widow Renata Kellnerova and her family bought the shares in PPF Group from Ladislav Bartonicek and Jean-Pascal Duvieusart, who each held 0.535% stakes in the investment company, according to a statement, which didn’t disclose financial terms of the transactions.

“Our minority stakes had their logic in the structure of PPF Group as founded and managed by Petr Kellner,” the two former shareholders said in the statement Friday. “Today, when the shareholding structure is divided among Petr’s heirs, the logic of PPF’s management also changed, which is why we both decided, in agreement with Renata Kellnerova, to sell our shares and simplify the shareholding structure.”

They will both remain active within PPF Group, with Bartonicek holding the post of the chairman of the board of SOTIO Biotech BV, and Duvieusart serving as chairman of the board of PPF Financial Holdings.

The Kellner family, which has a net worth of $11.7 billion according to the Bloomberg Billionaire Index, has been shifting its investment focus back to western markets, following years of expansion in Asia, after Kellner died in a helicopter crash in 2021.

PPF’s key assets are businesses in telecommunications, media, financial services and e-commerce, although the group’s portfolio also includes real estate, engineering and biotechnology.

Since Kellnerova became the majority owner, she has overseen several large deals, most recently the €2.15 billion sale of telecommunication operations in Bulgaria, Hungary, Serbia and Slovakia to Abu Dhabi’s Emirates Telecommunications Group Co.

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Spam Call Filter Firm Is Rare Beneficiary of Fukushima Furor


Aya Wagatsuma and Kotaro Hara
Thu, August 31, 2023



(Bloomberg) -- China’s fury over Tokyo’s decision to discharge treated wastewater from the Fukushima nuclear plant is producing a rare beneficiary among Japanese stocks as tensions heighten.

Tobila Systems Inc., an Aichi-based developer of call-screening software for mobile phones, has seen its stock surge more than 10% since the water release on Aug. 24, a move that reportedly set off a torrent of angry calls from China to groups and individuals in Japan. Tobila, or “gate” in Japanese, announced Wednesday that it will offer a new feature for corporate customers that blocks overseas countries as the number of phone calls from China surges.

Fury and unease among the Chinese public have buffeted Japanese companies that are especially reliant on demand from Asia’s largest economy. Tokyo-based cosmetics firm Shiseido Co., which gets 30% of its revenue from China, has slumped 9% over the past two months amid online calls to boycott. China also suspended seafood imports from Japan, impacting shares of Nissui Corp. and sushi chain operator Genki Sushi Co.

“In terms of the overall macroeconomic impact on the market as a whole, the effect on individual consumption behavior in China will have a large impact,” said Takeru Ogihara, chief strategist at Asset Management One Co.

For Tobila Systems, the stock market is waiting to see how much rising tensions actually contribute to revenue, said Shoichi Arisawa, an analyst at Iwai Cosmo Securities Co., adding that the jump in shares will likely level out.

Bloomberg Businessweek

Hedge Funds, Private Equity Sue SEC Over Fee Disclosure Rule
WHATCHA GOT TO HIDE?!

Dawn Lim
Fri, September 1, 2023 

SEC Chair Gary Gensler 

(Bloomberg) -- Trade groups for the world’s biggest hedge funds and private equity firms are taking the US Securities and Exchange to court over new restrictions it placed on the industry last month.

The American Investment Council and the Managed Funds Association are among the groups alleging the SEC went too far by rolling out sweeping rules mandating disclosures and barring firms from doing sweetheart deals with some investors. The organizations, which also represent a swath of smaller firms, asked the court to overturn the regulations.

“The new rules would fundamentally change the way private funds are regulated in America,” the groups wrote in the petition filed with the Fifth Circuit Court of Appeals in New Orleans.

In a statement, the SEC said it “will vigorously defend the challenged rule in court.” The agency added it “undertakes rulemaking consistent with its authorities and laws governing the administrative process.”

The regulations adopted on Aug. 23 require private funds to detail quarterly fees and expenses to investors. Firms will be prohibited from allowing some favored investors to cash out more easily than others — unless those deals are offered to all fund investors. It’s the latest bid by the SEC under Chair Gary Gensler to tighten its grip on the fast-growing, multitrillion-dollar industry.

Crux of the Fight

The rule also prohibits funds from charging investors fees to cover regulatory investigations and compliance costs, unless investors agree to the expenses. It bans funds from charging those fees if the regulatory actions result in a court- or government-ordered sanction.

“The private fund adviser rule will harm investors, fund managers, and markets by increasing costs, undermining competition, and reducing investment opportunities for pensions, foundations, and endowments,” said Managed Funds Association Chief Executive Officer Bryan Corbett.

The American Investment Council’s president, Drew Maloney, said that the SEC “exceeded its own authority, defied congressional design for private funds and advisers to those funds, and imposed significant new and unneeded burdens on private capital that fuels thousands of small businesses.”

The industry is arguing that the SEC lacks authority for the rule changes. Gensler has said the agency used its powers under the 2010 Dodd-Frank Act to prohibit or restrict advisers’ sales practices, conflicts of interest and compensation.

SEC Concessions

The industry groups say Congress never required such sweeping protections for private equity’s investors. They also argue that the industry’s customers are sophisticated and do not need the same protections as retail investors in mutual funds.

Buyout firms took in money at a rapid clip in the past decade as investors chased higher yields. Many firms now extend far beyond buyouts and into lending, financing critical infrastructure and funding real estate deals. The biggest alternative asset managers, including Blackstone Inc. and Apollo Global Management, have expanded their investor base beyond pensions and endowments and have been looking to manage more for insurers and wealthy individuals.

The SEC made several concessions to soften some parts of the rule, but ultimately didn’t satisfy industry concerns. The case over the rule could set a precedent over how much power the SEC has to regulate the private funds industry, which has been on edge that the regulations could mark the beginning of more rules to come.

--With assistance from Madlin Mekelburg and Anthony Lin.

CRIMINAL CAPITALI$M

Jon Corzine’s Critics Want Him Banned From Futures Trading

RETURNS FROM VACATION IN 'THE BIG HOUSE'

Lydia Beyoud and Miles Weiss
Fri, September 1, 2023 

(Bloomberg) -- Jon S. Corzine’s critics are making a renewed effort to halt the comeback attempt of the former head of MF Global Holdings more than a decade after the derivatives brokerage imploded and about $1 billion in customer money went missing.

Three prominent executives in the futures industry are asking the US Commodity Futures Trading Commission to take another close look at Corzine and his young New York-based hedge fund, JDC-JSC. They claim the former New Jersey governor and US senator no longer qualifies for an exemption that allows him and the fund to trade a small amount of futures. His 2017 settlement with the regulator left him that room, but a subsequent rule change could eliminate it, they said.

Corzine, who once led Goldman Sachs Group Inc., wanted to make MF Global a Wall Street player. Instead, the brokerage fell into bankruptcy — one of the biggest in US history — setting off congressional and regulatory probes and prompting new restrictions on how brokers can invest customer funds. Critics say Corzine’s background makes him unwelcome in the industry.

“His continued ability to participate in our markets and our industry represents an indefensible failure of regulation,” Douglas Bry, president of Augur Trading Co., Ernest Jaffarian, CEO of Efficient Capital Management, and Martin Lueck, co-founder of Aspect Capital, wrote in a July 6 letter to the CFTC that was viewed by Bloomberg.

The three men serve on the National Futures Association’s board of directors in the Commodity Pool Operators and Commodity Trading Advisors category. In the letter, they said they were speaking on their own behalf. They asked the CFTC to bring an enforcement action or pursue “whatever remedy is appropriate” to deny Corzine the exemption.

In a phone interview, Corzine said the hedge fund consulted with lawyers and has systems in place to ensure compliance with the rules of the exemption.

“We have strict rules,” he said. “We’ve programmed our computers to make sure all of that happens, and I don’t think there’s been any violation of any of those rules.”

The CFTC’s rule change has been reviewed with outside legal counsel, “and our outside legal counsel assured us that the firm still qualifies for the de minimis exemption,” said his spokesman, Steven Goldberg.

Corzine declined to comment on the letter, saying he wasn’t aware of it. A spokesman for the CFTC declined to comment.

Ultimately, Corzine paid $5 million to settle the CFTC’s case against him while neither admitting nor denying the allegations. The commission never directly tied him to the missing customer money, and Corzine has said that he never requested any misuse of customer funds.

The agreement’s careful wording allowed Corzine to navigate the intricacies of registration requirements. Though he was prohibited from registering with the agency or working as a futures commission merchant, he wasn’t explicitly barred from seeking an exemption from registration as a commodity pool operator, or CPO. Most large hedge funds have a CPO.

‘Legitimate Dispute’

In 2020, the CFTC tightened requirements. Under the rule change, firms and their principals seeking exemptions from CPO registration must not have “a statutory disqualification.” That includes registration bans or court orders that prevent someone from being involved in transactions or advice related to futures contracts, said David Slovick, a partner at Barnes & Thornburg and a former CFTC senior enforcement attorney.

Nothing in the statute or in Corzine’s settlement clarifies whether he’s entitled to claim an exemption from registration as a CPO, said Slovick, who wasn’t involved in the CFTC case or any efforts by the letter’s authors.

“There’s a legitimate dispute here,” he said. “It is really up to the CFTC to decide whether they think what he’s doing is violating that provision.”

Two of the letter’s authors, Bry and Jaffarian, led an unsuccessful petition in 2019 to get the Securities and Exchange Commission to block Corzine’s registration as an investment adviser.

The SEC still placed restrictions on Corzine’s comeback by prohibiting him from trading his own capital separately from investor money. It also limited his hedge fund’s ability to invest in less-liquid assets.

JDC-JSC’s most recent regulatory filing discloses Corzine’s settlement. It also notes that he isn’t “restricted from acting as, or being affiliated with, an asset manager that is exempt from registration with the CFTC.”

JDC-JSC, which trades futures in areas such as interest rates and currencies, has claimed the exemption since 2018, according to regulatory filings. Corzine has listed three funds on Jan. 4 as exempt from registration, according to data from the National Futures Association. As of Dec. 31, 2022, his firm had about $510 million in regulatory assets under management, which can include leverage, according to an SEC filing in March.

Fall From Grace

Corzine joined Goldman Sachs as a bond trader and rose to co-CEO before shifting to his political career. But it’s his time at the helm of MF Global that made him notorious. He joined the commodities and derivatives brokerage as CEO in 2010 with a vision of transforming it into a global investment bank focusing on proprietary trading.

A series of risky bets in the European sovereign bond market — worth about $6 billion — led the firm to misuse customer accounts to cover a deepening hole in its own trading book as margin calls rolled in, the CFTC has said. The company went bankrupt in 2011.

In 2013, the CFTC sued MF Global and Corzine, alleging that the use of client cash to cover the company’s proprietary-trading obligations violated “fundamental customer protections on a scale never previously seen in the US futures markets.”

The regulator announced a settlement with MF Global in 2013, requiring the company to reimburse customers $1.2 billion and imposing a $100 million penalty. It took years for clients, including farmers, to recoup their funds through the bankruptcy process.

(Updates starting in fifth paragraph on association board roles, SEC restrictions.)

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CRIMINAL CAPITALI$M
PwC Australia flags revenue hole, partner profit cut due to tax scandal legacy

Thu, August 31, 2023 

FILE PHOTO: PwC sign is seen in the lobby of their offices in Barangaroo

By Lewis Jackson

SYDNEY (Reuters) - PwC Australia on Friday said the spin-off of its government consulting business and other costs from a tax scandal will leave a double-digit revenue hole and require partners take an income haircut.

The "big four" accounting firm reported revenue of A$3.4 billion ($2.21 billion) for the year ended June, up 11% on the previous year. However, the divestment of its government consulting business, which was responsible for roughly 20% of revenue, is likely to see revenue drop this fiscal year.

PwC Australia agreed in June to sell its lucrative government practice to private equity firm Allegro Funds for A$1 as public sector departments froze ties with the tainted brand and cabinet ministers lined up to condemn its use of confidential tax documents to solicit business.

More than 1,500 of the firm's around 9,000 staff will move to the business, renamed Scyne Advisory, when the deal completes at month-end.

To help offset the revenue hole and avoid job losses or wage cuts, partners who share in PwC Australia profit will take a 30% income hit this financial year.

"We completely accept that past leadership failed to meet the standards our people, our clients, the community and the Australian government rightly expect, and for that I apologise," new CEO Kevin Burrowes said in a statement.

"We didn't get it right, but our focus has, and always will be, on our clients, as we take the necessary steps to re-earn trust with our stakeholders."

The firm has been dogged since January by a national scandal over revelations a former partner leaked confidential tax documents which were then used to drum up work around the world.

Months of outrage have forced out 12 partners, including the former chief executive and embroiled clients Google, Uber and Facebook.

An independent review into the firm's governance, accountability and culture will be released later this month followed by the firm's response to its recommendations.

Terms of reference made public in July revealed the review excluded historic actions.

Investigations by external law firms into the leaks have also been commissioned, media reported, however the firm has not committed to making them public. PwC Australia on Friday did not respond to questions about those reviews or whether they would be made public.

PwC Australia will also release its annual transparency report later this year.

($1 = 1.5404 Australian dollars)

(Reporting by Lewis Jackson; Editing by Christopher Cushing)