- She had been accused of interfering with investment decisions
The fund is overhauling its processes for investment referrals
David Rubenstein and Gabrielle Rubenstein arrive for a State Dinner at the White House in 2018.Photographer: Alex Brandon/AP Photo
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By Marion Halftermeyer
July 26, 2024 at 2:45 PM PDT
Gabrielle “Ellie” Rubenstein, a daughter of Carlyle Group Inc. co-founder David Rubenstein, resigned from the board of Alaska’s sovereign wealth fund following allegations that she improperly interfered with investment decisions.
Her departure from the Alaska Permanent Fund, where she was vice chair, takes effect Aug. 1, she announced at its board meeting Wednesday, surprising some of the trustees.
Part of her job as a board member was to introduce staff to potential investment managers that the fund might want to do business with, and ultimately it didn’t invest with anyone she had referred, a spokesman for Rubenstein said Friday.
The nature of the disclosure, coming in the middle of an hours-long meeting, underscores the discord among the board’s six members. Craig Richards, a trustee since 2017, expressed his disappointment in the board’s behavior.
“What occurred today was a coup,” he said in closing comments, noting how Rubenstein had been allowed to cast a vote for new leadership prior to announcing her departure.
Adam Crum succeeded Rubenstein Wednesday as vice chair as well as chair of the governance committee. Ethan Schutt also stepped down as board chair and was replaced in that role by Jason Brune. Schutt will remain on the board.
“We changed the date of when we do our election in a way that I didn’t know we were doing it,” Richards said. “It’s clear to me now that it was probably done because Trustee Rubenstein is resigning.”
Alaska Permanent Fund, which is fueled by the state’s oil revenue, manages about $80 billion. It invests in stocks, bonds, private equity and other asset classes and makes annual payments to the state, which in turn disburses dividends to Alaska residents.
The fund is overhauling its process for investment referrals and protocols for how the board communicates with staff. The board approved some initial changes and will consider a full proposal in September.
Leaked emails showed that Rubenstein had set up meetings between investment staff and managers she knew, including her father, and that the chief investment officer had raised concerns about her potential conflicts of interest, according to reports earlier this year by the Alaska Landmine and Financial Times.
David Rubenstein is a Bloomberg contributor.
The emails prompted investigations into the source of the leak and the allegations, and some board members, state lawmakers and members of the public called for more scrutiny, according to a report earlier this year by the Anchorage Daily News.
“The staff especially has gone through a weird period,” Ellie Rubenstein said at the meeting, and they deserve “to have fresh leadership.”
Rubenstein, who’s also chief executive officer of private equity firm Manna Tree Partners, attributed her decision to not having enough time to dedicate to the sovereign wealth fund, as well as the toll that the controversy has taken on her health.
‘Not Compatible’
She “concluded that the scope and pace of change necessary to fully institutionalize the fund are not compatible with the demands of leading her private equity firm,” said Rubenstein’s spokesman, Chris Ullman.
The fund normally makes decisions about the board’s composition at its annual meetings in September, but it accelerated that process because of the governance concerns. Richards said he had been excluded from some private discussions among board members.
“There might have been talks among some of you, but there’s been no talks among me,” Richards said. “Once again, I find myself figuring out stuff at a meeting that’s already been pre-decided.”
Rubenstein said during the meeting that she had always followed policy.
“Don’t believe everything you read,” she said.
Brune and Crum were among board members who thanked Rubenstein for her service and said they appreciated the investing expertise that she brought to her role.
Alaska Governor Mike Dunleavy also praised her work at the fund.
Her contributions “are both significant and impactful,” Dunleavy said in a statement. “She has been an agent of change thanks to her astute understanding of the global financial markets.”
Follow all new stories by Marion Halftermeyer
Monthly Archives: July 2024
Two alleged leaders of Mexico’s Sinaloa crime cartel arrested after landing in the US
Ismael ‘El Mayo’ Zambada Garcia and El Chapo’s son face multiple charges for ‘leading criminal operations’
By Andrew Buncombe, IN SEATTLE and Graham Keeley, IN MADRID26 July 2024 • 7:19pm
Two of the alleged leaders of one of the most violent and powerful criminal organisations in the world were arrested after being lured to the United States in an elaborate sting operation.
Ismael “El Mayo” Zambada Garcia, the co-founder of the Mexican Sinaloa cartel and the son of Joaquín “El Chapo” Guzman Lopez were arrested after being tricked into flying to the US instead of to another airport in Mexico.
The suspects landed in a private jet at the airport in El Paso, Texas on Thursday where they were arrested.
Details of how the alleged drug lords were captured are unclear but Fox News reported Mr Guzman Lopez convinced Mr Zambada Garcia to board the jet which he believed was heading south in Mexico but instead, it flew north and landed in the United States.
When the plane touched down, Mr Guzman Lopez surrendered and “El Mayo” was detained.
The New York Times quoted US officials saying the son of El Chapo lured Mr Zambada Garcia to El Paso “under false pretences”.
It is not clear if or why he may have betrayed his fellow cartel boss. The US is known to use plea deals to encourage members to cooperate with them.
Merrick Garland, the US attorney general said in a statement: “The Justice Department has taken into custody two additional alleged leaders of the Sinaloa cartel, one of the most violent and powerful drug trafficking organisations in the world.”
The US Drug Enforcement Administration had offered a reward of up to $15 million for information leading to Mr Zambada’s capture.
Mr Garland said both men were facing multiple charges in the US for “leading the cartel’s criminal operations, including its deadly fentanyl manufacturing and trafficking networks”.
He added that the two men joined “a growing list of Sinaloa cartel leaders and associates who the Justice Department is holding accountable”.
“Fentanyl is the deadliest drug threat our country has ever faced, and the Justice Department will not rest until every single cartel leader, member, and associate responsible for poisoning our communities is held accountable,” he said.
Court documents showed on Friday that Mr Zambada pleaded not guilty to US drug trafficking charges.
He waived his right to appear personally in court and directed that a not guilty plea be entered on his behalf.
He was ordered detained without bond and is scheduled to be arraigned before U.S. Magistrate Judge Anne Berton next Wednesday, the records showed.
The two men were said to be among the most consequential drug traffickers in Mexico and oversaw operations that sent drugs to the US, Europe and other parts of the world.
It is understood that Mr Zambada Garcia has never been imprisoned, unlike his top ally, Joaquin Guzman Loera, known as “El Chapo”.
After his father was extradited to the US, it appeared that Mr Guzman Lopez was promoted to head the cartel.
In 2019, El Chapo was sentenced to life in prison by a court in New York.
After El Chapo’s capture, several of his sons, who were known as “Chapitos” or “The Little Chapos” took control of the crime organisation, US authorities said.
One son, Ovidio Guzman Lopez, was extradited to the United States last year to face drug charges.
‘Killing Americans coast to coast’
Anne Milgram, the US Drugs Enforcement Administration chief, said in a statement that the arrest of Mr Zambada Garcia “strikes at the cartel that is responsible for the majority of drugs, including fentanyl and methamphetamine, killing Americans from coast to coast.”
She said the capture of El Chapo’s son strikes “another enormous blow to the Sinaloa Cartel”.
In 2012, a federal grand jury in Texas indicted the 76-year-old Mr Zambada Garcia on charges of murder and conspiracy connected with drug trafficking, money laundering and organised crime.
Breon Peace, the US attorney for the eastern district of New York, said: “As alleged, Zambada Garcia is charged with numerous drug offences, now including the manufacture and distribution of fentanyl, a deadly drug that was largely unheard of when he founded the Sinaloa Cartel more than three decades ago and today is responsible for immeasurable harm.”
Cold-Storage Giant Lineage Raises $4.4 Billion in IPO
The company’s listing is the biggest public offering of the year so far
By Liz YoungFollow and Corrie DriebuschFollow
Updated July 25, 2024 6:24 pm ET
Lineage runs a network of more than 480 temperature-controlled warehouses in North America, Europe and the Asia-Pacific region. PHOTO: LINEAGE LOGISTICS
Lineage, the largest refrigerated-storage company in the world by capacity, raised $4.4 billion in its initial public offering in the biggest listing of the year.
Shares jumped to $82 at the start of the Novi, Mich.-based company’s first day of trading Thursday, up $4 a share from its IPO price, before settling back to close at $80.78, a 3.6% gain for the day. Lineage sold nearly 57 million shares in the offering.
Lineage, which is trading on the Nasdaq exchange under the ticker “LINE,” last week said it planned to offer 47 million shares for $70 to $82 each.
The company has been riding strong demand for refrigerated warehousing since the pandemic and an aggressive acquisition strategy to build a network of more than 480 distribution centers counting nearly 3 billion cubic feet in North America, Europe and the Asia-Pacific region.
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The listing extends a string of public offerings this year, including digital-rewards company Ibotta, social-media platform Reddit and AI-focused Astera Labs. Lineage’s IPO also breaks a logjam in the logistics market after several years where companies put sale and public listing plans on hold amid weak freight demand.
Lineage, controlled by San Francisco-based investment firm Bay Grove, raised $1.9 billion in a funding round in 2021 that valued the business at around $18 billion. Its backers included real-estate investor BentallGreenOak, hedge fund D1 Capital Partners and Oxford Properties Group, which helped develop the Hudson Yards complex in Manhattan.
The company raised another $1.7 billion in January 2022 and $700 million in December 2022, but didn’t disclose its valuation.
Lineage has bought 116 businesses since it was founded in 2008, including striking deals in 2019 to acquire U.S. rival Preferred Freezer Services for $1 billion and Emergent Cold for $900 million.
Morgan Stanley has the lead role on the Lineage offering.
Full Stands, Full Volume: The Olympics You Remember Are Back
Family, friends and fans were missing from two straight Covid Games. In Paris, one athlete said, competitors will have the kind of experience they dream about.
Stands are filled at rugby sevens on the first day of competition.Credit…Gabriela Bhaskar for The New York Times
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By Andrew Keh
Reporting from Paris
- July 26, 2024Updated 5:17 a.m. ET
Tara Davis-Woodhall, a long jumper by trade and an entertainer at heart, gazed into the stands at Tokyo’s 68,000-seat Olympic stadium and decided she needed some noise. In a quixotic bid to inject even a small dose of spirit into a pandemic-stricken Summer Games, she began clapping her hands theatrically.
Tens of people, give or take, clapped back.
“It was awful,” Davis-Woodhall said last month about the enforced emptiness of the Olympics three summers ago. “It was my first Olympics, and I was like, ‘What the heck? This is weird!’ I’m glad it’s over, and I’m glad that I’m going to Paris to actually experience an Olympics.”
Countless athletes like Davis-Woodhall — those who have competed in an Olympics but not truly experienced one — have arrived in Paris this month in search of the same thing: normal Games.
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Because normalcy, at the Olympics, is grandeur. It is the distinct cocktail of sound and color produced by the gathering of more than 200 national teams and millions of fans. It is athletes climbing into the stands to celebrate with family and friends, or to be consoled by them. It is crowds cheering for sports they do not typically watch.
All of this was missing at the coronavirus-delayed Summer Games in Tokyo in 2021 and the Winter Games in Beijing a year later. Both were sequestered from society and almost entirely denuded of life and fervor.
The International Olympic Committee and its member nations keenly understood all that was lost. They have sensed an opportunity in Paris to restore that Olympic feeling, to re-establish how the Games should look and feel and to welcome back commercial partners and fans.
“The tone is completely different,” said Sarah Hirshland, the chief executive of the United States Olympic and Paralympic Committee. “We now have permission to have fun.”
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The merrymaking had a head start on Wednesday, two days before the opening ceremony, with the Games’ soft opening: a small slate of soccer and rugby matches around the country.
It was merely an appetizer, but in a single sun-splashed afternoon at the Stade de France, just north of the capital, the Paris Games became everything the Tokyo Olympics were not.
The stands were jammed and rippling with energy, particularly when the host, France, grappled to a draw with the United States in a rugby sevens match. Flags were waved. Slogans were chanted: “Allez les Bleus!”
Stephen Tomasin, 29, a member of the U.S. team, was one of many athletes on Wednesday who were awe-struck by the atmosphere in the stadium, which holds more than 80,000 spectators.
“It’s what you dream about: a packed stadium in an Olympic opener,” he said. “It doesn’t get much better than this.”
It has been almost a decade since this sort of pomp was seen at the Summer Games. The Tokyo Olympics were a shell of the normal spectacle, with eerily quiet venues and muted celebrations. The Winter Games in Beijing several months later unfolded largely behind barbed wire, in what Chinese organizers called a “closed loop” and one athlete called “sports prison.” The biggest sporting event in the world had never felt so small.
But competitors at those pandemic Games were just as rueful about missing the subtle elements, like the spontaneous camaraderie of the athletes’ village or the presence of family to celebrate or commiserate in some of the most emotional moments of the athletes’ careers.
“The cafeteria in Tokyo was humongous,” said Luis Grijalva, 25, a Guatemalan long-distance runner competing in Paris. “Sitting there, when it was empty, it felt like eating in a warehouse.”
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The American weight lifter Jourdan Delacruz, 26, described the Tokyo Games in one word: isolating. She recalled falling far short of her expectations in competition and finding no one to lean on. Her favorite memory of that summer, she said, was seeing her friends and family at the airport after a lonely flight back to the United States.
“I got to still have a good Olympic experience,” she said of the reunion, “just not at the Olympics.”
She wants to perform better in Paris, of course, but she also wants to experience the Olympics as they are meant to be experienced. She wants to wave to screaming fans at the opening and closing ceremonies. She wants to attend other events and befriend athletes from different sports and far-flung nations. She wants to linger and explore the city — and not alone.
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“I have a lot of friends and family coming to Paris ,” she said. “Like, a lot.”
Paris organizers announced this month that 8.6 million tickets had been sold, breaking the record of 8.3 million set at the Atlanta Games in 1996. They expect that figure to rise before the Games end on Aug. 11.
After the alienation of two pandemic Games, the Paris Olympics will be woven into the very fabric of the city, with a grandiose opening ceremony that will snake along the Seine on Friday and events at iconic sites like the Eiffel Tower, the Grand Palais and the Palace of Versailles.
“Paris 2024 is a reset for the Olympic brand,” said Terrence Burns, a longtime Olympic marketing consultant.
Even before the pandemic, Mr. Burns said, the image of the Games had faltered, plagued by political tensions, doping scandals and less-than-inspiring locales.
Television ratings for the Games have slumped in the United States since the 2016 Olympics in Rio de Janeiro. Burns said one had to look back to London in 2012 to find “the last truly globally successful Summer Games in a destination city.”
Paris could be the next one, and Olympic leaders do not want to squander the opportunity.
Hirshland, the president of the U.S.O.P.C., said there were serious implications this summer for every national Olympic committee but particularly for her own: The next Summer Games will be in Los Angeles in 2028. She said the resumption of a normal Olympic cycle would translate directly to revenue.
“Interest and engagement from the consumer drives every dollar we make in some capacity, whether it’s a commercial sponsor, a broadcast-rights deal or even a philanthropic donor,” she said. “And as a result, the stakes are higher for us.”
But Hirshland was just as focused on reviving the experience for fans and athletes.
Among the most enthusiastic will be Davis-Woodhall, 25, the long jumper, who said the Paris Games had been on her “dream board” since the misery of her time in Tokyo.
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When she claps on the purple track this summer at the Stade de France, she hopes tens of thousands of people in the crowd will clap back. When she jumps, she wants to give them a reason to roar. And afterward, she will change into her signature cowboy boots, strut around the track and, if all goes well, luxuriate in their love.
“Now I get to live out my moment,” she said.
Rory Smith and Talya Minsberg contributed reporting.
Will New Inflation Data Bring a Fed Rate Cut?
Follow live coverage and analysis of the June PCE report.
Last Updated:
July 25, 2024 at 5:49 PM EDT
Awaiting the Data
The central bank’s preferred gauge of prices—the personal-consumption expenditures, or PCE, price index—is expected to confirm that inflation continues to close in on the central bank’s 2% annual target.
The June PCE price index will be published Friday at 8:30 a.m. ET, as part of the Bureau of Economic Analysis’ personal income and outlays report.
Here’s what economists forecast, according to FactSet:
Headline: 0.1% month-over-month increase and a 2.4% year-over-year increase
Core: 0.2% month-over-month increase and a 2.5% year-over-year increaseShare
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June PCE Inflation Report: What to Expect
Inflation data coming Friday should give the Federal Reserve another key piece of the evidence it needs to cut interest rates in September.
The central bank’s preferred gauge of prices—the personal-consumption expenditures, or PCE, price index—is expected to confirm that inflation continues to close in on the central bank’s 2% annual target. The June PCE price index will be published Friday at 8:30 a.m. ET, as part of the Bureau of Economic Analysis’ personal income and outlays report.
Trump Plans a Speech to Bitcoin Faithful. Big-Money Donors Are the Target.
By Joe LightFollow
Published: July 26, 2024 at 3:00 a.m. ET
Donald Trump.PHOTO: BRANDON BELL/GETTY IMAGES
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While Donald Trump’s plans to speak at a major Bitcoin
BTCUSD3.07% conference this weekend have crypto investors hoping for details about a Republican administration’s policy agenda, make no mistake: For the former president, this is all about campaign donations.
Trump on Saturday is scheduled to give a keynote address at the Bitcoin 2024 conference in Nashville, Tenn. Some Bitcoin investors think Trump will use the platform to make a major announcement, such as to throw his support behind having the U.S. government buy Bitcoin as a “strategic reserve” asset, akin to foreign currencies, or oil.
Such a move would likely require legislation, meaning it has almost no chance of happening soon. But Trump nodding to that or any other pro-crypto agenda could certainly help prices.
The Trump campaign didn’t respond to a request for comment.
Bitcoin was down about 1.8% in the past 24 hours through Thursday afternoon. For the year, it was up 46%, driven in part by the release of the first spot Bitcoin exchange-traded funds in January, as well as increasing expectations that the Federal Reserve will cut interest rates.
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Trump was decidedly not a pro-crypto president. In 2019, he tweeted that he was “not a fan” of Bitcoin and other cryptos, calling them based on “thin air.” The Securities and Exchange Commission brought myriad cases against companies trying to raise money through “initial coin offerings,” which the agency said were in effect unregistered initial public offerings.
Just before the change in administration, the SEC brought one of crypto’s most-hated lawsuits, against Ripple Labs, claiming that the token XRP was an unregistered security. Even after Trump left office, he kept up the anti-Bitcoin rhetoric, calling it a “scam against the dollar” in 2021.
But everything changed when Trump launched his 2024 campaign and it became clear that he could raise millions in contributions from the industry. Now he is billing himself as the pro-crypto candidate, and industry executives are falling in line.
In May, Trump said he would start taking crypto donations, and the campaign says it has raised $4 million worth of Bitcoin and other tokens so far. The pro-crypto Fairshake political-action committee has raised around $170 million, making it one of the largest PACs this election cycle.
Some venture capitalists, including Marc Andreessen and Ben Horowitz, have said they are backing Trump because of their frustration with Democratic crypto policy. Trump’s vice presidential pick, Ohio Sen. JD Vance, is himself a crypto investor.
While Trump can’t unilaterally force the country to buy crypto, there are policies that industry executives hope he can help out with. Chief among them is turning down the enforcement heat on the industry. SEC Chair Gary Gensler continued his predecessor’s lawsuits against the industry and brought several of his own, accusing crypto platforms such as Coinbase Global
of operating unregistered securities exchanges. The industry’s hope is that a new SEC chief would drop those actions.
“A change in SEC leadership would stem the tide of enforcement actions,” wrote Compass Point Research & Trading analysts Ed Groshans and Joe Flynn in a note.
The industry also wants rules changed to make it easier for banks and other companies to hold cryptocurrencies. It thinks applying know-your-customer requirements to decentralized exchanges—as some agencies want—is untenable and that the government’s hostile stance is pushing jobs abroad. Trump appointees could reverse many of those actions.
Finally, a Trump administration increases the chance that industry-friendly laws would be passed in the next couple of years, the Compass Point analysts wrote. Both the House and Senate have worked on bills that would put most of the crypto industry outside of the SEC’s purview. While there is an outside chance the bills could be passed toward the end of this year, with a Republican administration, such a bill would have a better-than-even chance of becoming law, the analysts said.
It’s unclear how much of a focus the crypto industry would actually be in a second Trump administration when weighed against larger battles like overhauling the tax system and trade policy. But for now, even positive sound bites from a potential future president are like a glass of cold water to an industry that has spent the better part of its existence fighting regulatory heat.
Write to Joe Light at joe.light@barrons.com
A $1 million starter home is now the norm in more than 200 US cities
By Samantha Delouya, CNN
In an aerial view, luxury homes line the coast of La Jolla on April 27, 2024 in San Diego, California. The value of starter homes has grown at a faster pace than the average home, according to new research from Zillow. Kevin Carter/Getty ImagesCNN —
The number of US cities where first-time homebuyers are faced with at least a $1 million price tag on the average entry-level home has nearly tripled in the past five years, according to new research.
A Thursday report from Zillow indicates that a typical starter home is now worth $1 million or more in 237 cities, up from 84 cities in 2019, underscoring America’s ongoing home affordability crisis.
“Affordability has been strained across the board,” Orphe Divounguy, a senior economist at Zillow, said. “We see the largest number of million-dollar starter homes in expensive coastal markets. We see them in markets with very low homeownership rates and we see them in markets with more building regulations.”
Zillow defines a “starter home” as being among those in the lowest third of home values in a given region. California, New York and New Jersey contain the highest number of cities with entry-level homes that carry an average million-dollar price tag, but half of all US states have at least one such city, the report said.
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What is behind the price explosion?
Skyrocketing home prices, along with elevated mortgage rates, have contributed to a feeling of frustration among most Americans about the housing market. A majority of Americans — 76% — say it’s a bad time to buy a house, according to a May survey from Gallup.
It’s a problem, partly, of supply and demand: There is a shortage of homes for sale compared to demand, which has driven up prices.
RELATED ARTICLEThese states have some of the poorest Americans – and the highest homeownership rates
Home prices jumped during the pandemic as more Americans, many of whom were newly remote workers, rushed to find homes offering extra space. Then, the Federal Reserve’s war on inflation caused mortgage rates to surge. In 2024, prospective homebuyers face an unpleasant combination of high prices and high borrowing costs.
All of this has added up to one of the most unaffordable housing markets in a generation, causing many young Americans to remain renters for longer than many would like. The median age of a first-time homebuyer was 35 last year, a year older than in 2019, according to Zillow.
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The median price of a previously owned home in the US rose to $426,900 in June, the second consecutive month that prices reached a fresh record high based on data going back to 1999, according to the National Association of Realtors. In many cities, that median price is much higher.
To further complicate things for first-time buyers, the value of starter homes has grown at a faster pace than the average home. According to Zillow, starter home values have grown 54.1% over the past five years, while the average US home has increased by 49.1%.
Jeffrey Jenkins, a public policy professor at the University of Southern California, explained the reason for this disparity: There have been more potential buyers for starter homes and the supply is lower compared to larger family homes.
When costs rise, people turn to homes that are relatively cheaper, Divounguy said.
“Not just within their market. They also have tended to move to relatively more affordable markets,” he said. “That’s going to put more pressure on those homes and push their prices up faster.”
RELATED ARTICLEThe worst may be over for homebuyers
Finding an entry-level home with a price tag under one million dollars in the United States is certainly not impossible, though. The nationwide average price tag for a starter home is $196,611, according to Zillow. However, cities with more restrictive building regulations are more likely to have higher-priced real estate than the national average, said Zillow. Land in cities is scarce, and zoning restrictions breed even more scarcity.
There are some promising signs that the housing market may be turning a corner, though. According to a recent report from the National Association of Realtors, home inventory is starting to pile up, meaning that buyers may soon have more negotiating room. There were 1.32 million active listings in the US in June, a 23.4% jump compared to last year.
“We’re seeing a slow shift from a seller’s market to a buyer’s market,” said National Association of Realtors chief economist Lawrence Yun in a statement.
Thames Water blow as stock is downgraded to junk status
Moody’s decision increases chances of government-organised administration
Thursday July 25 2024, 12.01am BST, The Times
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Thames Water suffered a setback in its efforts to avoid a government-organised administration when an influential ratings agency downgraded its bonds to junk status, putting it in breach of its operating licence.
Moody’s, one of the three big worldwide ratings agencies, issued a new rating on bonds issued by Thames Water Utilities, one of the water and sewerage company’s main operating entities. It rated its bond “family” at BA2, a junk grade, down from the previous BAA3, the lowest investment grade.
Industry sources said the move increased the chances of Thames, which has 16 million customers across London and the southeast, eventually being put into special administration, a type of insolvency in which a government-appointed body takes control while the company is restructured. The future of Thames, which has about £16 billion of debt, is one of the largest corporate challenges facing the new Labour government.
Thames’s licence specifically requires it to maintain an investment-grade rating from Moody’s. The water regulator Ofwat said it was considering its response, including the possibility of enforcement action, but noted that it had already announced a new financial monitoring regime for the company a fortnight ago.
Moody’s said it issued the downgrade in light of a draft determination by Ofwat of price increases over the next five years. Thames had asked for a 40 per cent hike, but the regulator said it was minded to allow only half that. Moody’s was also responding to Thames’s recent financial results, which “indicated its weakening liquidity position”.
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Thames said it had notified Ofwat of the likely downgrade in April, when Moody’s first signalled its intention to re-rate the bonds. It said it “continued to work with Ofwat to maintain the ongoing financial resilience of the business”.
“Management is engaging with investors and its creditors and remains committed to seeking new equity funding and exploring all options to extend its liquidity runway,” Thames said.
The company has been in a mounting financial crisis for two years as it struggles with a mountain of debt made more difficult to bear by higher interest rates. It also faces several investigations by Ofwat and environmental regulators over its performance on water leakage and sewage spill targets, and by Ofwat over recent dividend payments.
Its current owners, led by the Canadian pension fund Omers and the Universities Superannuation Scheme, which manages the retirement savings of UK university staff, had pledged to inject up to £3.5 billion of new equity to help the company take on more debt to pay for higher levels of investment. But in March the shareholders declared the company “uninvestable”, saying Ofwat was not prepared to approve the level of price increases the company needed over the next five years. The investors have since written down the value of their shareholding to zero, and said they will walk away.
Chris Weston, Thames Water’s chief executive, in the job since January, has insisted that the company plans to seek new equity and debt investors. Industry sources say one possible solution is a debt-for-equity swap, where lenders to the company cut the value of their loans in return for shares.
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Moody’s has cast doubt on Thames’s ability to attract new shareholders: “We see elevated risk that existing or future equity investors may view the proposed risk and return profile as not sufficiently attractive to provide the sizeable equity requirement of at least £2.5 billion under Thames Water’s current business plan and likely more in the context of the proposed [prices] determination.”
Can China smash the Airbus-Boeing duopoly?
It hopes to succeed where others have failed
Jul 25th 2024|farnboroughSaveShareGiveListen to this story.
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Each year Airbus and Boeing, the two halves of the global aircraft duopoly, face off at the world’s most prestigious airshow, which alternates between Paris and Farnborough, in the countryside close to London. This year’s event in Farnborough, which opened on July 22nd, was a more subdued clash than usual. Both firms announced some orders from airlines, but these were mostly small.
Boeing is still reeling from the consequences of a panel blowing off a 737 max, its short-haul aircraft, in January. That model, which first flew in 2016, has been bedevilled with safety issues. The company has had to slow down production as regulators have investigated its safety procedures, enraging airlines whose deliveries have been delayed. Airbus, which had more planes on display at Farnborough than its chastened rival, has had troubles of its own. Snags in its supply chain have forced it to delay plans to ramp up deliveries of its short-haul jets. At current production rates it will take Airbus nearly 12 years to produce the 8,600 planes it has on its order books, and a similar time for Boeing to meet its 6,150 unfilled orders.
The backdrop is one of soaring demand. Boeing reckons that over the next 20 years the global fleet of passenger planes will need to double to meet the world’s growing appetite for flying, requiring 44,000 new aircraft. That is roughly twice as many planes as the duopoly managed to deliver in the past 20 years.
Could this open the door to aviation’s twosome becoming a threesome? Rob Morris of Cirium, a consultancy, thinks “it is more a case of when, rather than if”. Yet the barriers to becoming a maker of large passenger planes remain formidable.
It would cost Boeing and Airbus perhaps $20bn-30bn to develop a new plane. The expense would be even greater for any newcomer. They would need a decade or more to prepare designs, set up factories, establish a supply chain and obtain the blessing of regulators before any revenue rolled in. What they produce would need to match or beat the price and performance of the duopoly’s competing planes. They would then have to convince airlines, which benefit from lower costs when running a single-make fleet, to switch. And they would need to build the vast network of service technicians any customer would require before signing a cheque.
Embraer, a Brazilian aerospace firm, is rumoured to be contemplating a tilt at the duopoly. Its regional jets seat a maximum of around 145 passengers, compared with typically between 150 and 240 for Boeing’s 737 max and Airbus’s A320 family of short-haul planes. Few pundits dispute that it has the engineering prowess. Yet the experience of Bombardier, its one-time rival in regional jets, suggests that is not enough. The Canadian firm invested vast sums developing its CSeries jet, larger versions of which could compete with smaller versions of Airbus’s and Boeing’s short-haul planes. The financial strain this placed on the company, coupled with tariffs imposed by America after an anti-dumping complaint by Boeing, led it to sell the programme in 2017 to Airbus, which now markets the aircraft as the A220. Bombardier ceased making regional planes altogether in 2020, though it still makes business jets.
Taking on the duopoly from a standing start would be even riskier. After 15 years of soaring costs and technical snafus Mitsubishi Heavy Industries, a Japanese industrial giant, called time last year on its project to develop SpaceJet, a small regional plane that would have been its country’s first homegrown passenger aircraft in decades. The mc-21, a much delayed narrowbody jet from Russia’s United Aircraft Corporation, is said to be too heavy and suffers from a shorter range and lower capacity than planned. While it may begin commercial service next year, and has a few hundred domestic orders, it is unlikely to do much flying outside Russian airspace.
Flight risk
China’s determination to become an aerospace superpower—and its willingness to throw fistfuls of yuan at the effort—presents the biggest threat to the duopoly. The Centre for Strategic and International Studies, an American think-tank, reckons that by 2020 China’s government had handed up to around $70bn in subsidies to comac, the country’s state-owned aerospace champion, to develop the C919, a narrowbody rival to the 737 max and A320 family. Conceived in 2006, it made its long delayed first flight in 2017. comac has now delivered six of the planes to customers, and has orders for over 1,000 more.
The C919’s range and capacity, however, fall short of the competition. Christian Scherer, boss of Airbus’s commercial-aircraft business, regards comac as a serious competitor, but points out that the C919 offers no new technology or features. Attracting international buyers will be tough. Outside its home market, only a startup in Brunei with Chinese backers has ordered the C919. Western aviation regulators will be wary of approving a new jet from a new manufacturer, and Western politicians could grumble about domestic airlines purchasing Chinese planes.
Even if comac meets its goal of making 150 C919s a year in five years’ time, which seems ambitious, it will remain a minnow. Cirium reckons 1,800 short-haul jets will be sold annually by then, meaning comac would account for less than a tenth of the total. Boeing still hopes it will ramp up production of its 737 max to 50 a month by 2026. Airbus intends to be making 75 A320s a month by 2027.
That said, a slow climb does not mean comac will never reach altitude. Mr Morris of Cirium reckons that over the next 20 years it can capture 20-30% of a Chinese market for 6,000 short-haul planes. China’s domestic aerospace supply chain should also develop further. Only 14 of the 82 suppliers for the C919 are Chinese, and many of the most complex components come from America and Europe. But China’s government is endeavouring to change that. It is even said to be planning an attempt to break into the jet-engine business, taking on Western incumbents.
Airbus, too, was heavily dependent on government largesse when it first began making big jets (though it had the advantage of being formed out of a consortium of longstanding European aerospace firms with experience making planes). Its first passenger jet, the A300 it launched in 1969, was a commercial disappointment. But it laid the groundwork for planes that followed. comac may similarly learn from the C919. Though details are scant, it is now developing the C929, a model of which was on display at Farnborough. The long-haul plane would compete with Boeing’s 787 Dreamliner and Airbus’s A330. comac is also said to be developing the C939, which would take on the even larger Boeing 777 and Airbus A350. The incumbents should watch their tails. ■
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This article appeared in the Business section of the print edition under the headline “Dogfight”
European stocks rise as global selloff eases; Natwest up 7%
PUBLISHED FRI, JUL 26 20242:26 AM EDTUPDATED 26 MIN AGO
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LONDON — European markets were higher on Friday as a global stock selloff eased and investors awaited a U.S. inflation print.
EUROPEAN MARKETS
| TICKER | COMPANY | PRICE | CHANGE | %CHANGE |
|---|---|---|---|---|
| .FTSE | FTSE 100 | 8260.4 | 74.05 | 0.9 |
| .GDAXI | DAX | 18342.09 | 43.37 | 0.24 |
| .FCHI | CAC 40 Index | 7499.63 | 72.61 | 0.98 |
| .FTMIB | FTSE MIB | 33872.18 | 101.11 | 0.3 |
| .IBEX | IBEX 35 Idx | 11132.5 | -13.1 | -0.12 |
The pan-European Stoxx 600 was last 0.53% higher, with most sectors and major bourses in the green.
Mining and oil and gas stocks led gains and were last up 1.47% and 1.43% respectively, while food and beverage stocks retreated by 0.5%.
Autos recouped losses made earlier in the day and were last up 0.41%, after Germany’s Mercedes Benz said it was narrowing its annual profit margin forecast.
NatWest rose as much as 7% after the British bank reported that its pretax operating profit fell by less than expected in the first half of the year.
European equities have closed lower for the last two sessions amid a sharp downturn in technology stocks, with Wall Street’s tech-heavy Nasdaq Composite down more than 3% this week.
Overall, Stoxx losses have eased from last week, when the regional index recorded its worst performance since October.
The biggest item on the data front Friday is the U.S. personal consumption expenditures price index, due at 8:30 a.m. ET, as investors seek more support for high expectations for a September rate cut. Economists polled by Dow Jones expect the headline figure to come in at 2.5% annually and 0.1% monthly.
Asia-Pacific markets largely rebounded Friday, as Tokyo’s headline inflation slowed slightly to 2.2% in July from 2.3% in May. U.S. stock futures were higher in the early hours.