TheChek News Flow

German watchdog says Wirecard mistakes have made it more willing to ‘step on toes’

BaFin was criticised for badly mishandling one of Europe’s biggest accounting frauds

The German financial watchdog that was criticised for badly mishandling one of Europe’s biggest accounting frauds said it has become much more active and “willing to step on toes” in the five years since Wirecard collapsed.

“We didn’t meet all the expectations placed on a supervisor,” said Mark Branson, the head of BaFin who joined from Swiss regulator Finma in 2021, a year after the payments group collapsed in June 2020. But, he added in an interview with the Financial Times, the regulator had changed and was now a “more active, bolder institution”.

BaFin in 2019 banned short selling of Wirecard shares in a move interpreted as a vote of confidence in the company. It also filed a criminal complaint against two Financial Times journalists who reported on suspected accounting fraud.

Just over a year later, Wirecard collapsed into insolvency after disclosing that half of its revenue and €1.9bn in cash did not exist.

Branson said BaFin had sent “mixed signals into the market” about Wirecard, adding this had been “unfortunate and didn’t help clarify what was really going on”.

“We are talking today with the benefit of hindsight, about an unclear situation with conflicting information. That said, broadly speaking, your institution [the FT] got it right; ours got it wrong.”

He acknowledged that the Wirecard scandal had done serious damage to trust in German capital markets. But it had also led to a regulatory overhaul that gave BaFin more powers to supervise companies and to more structured handling of information and whistleblowers.

London-based short seller Matthew Earl, who co-wrote a 2016 report outlining suspicious activity at Wirecard, told a parliamentary inquiry that BaFin was not interested when he called its whistleblower hotline.

The regulator also gave the European Securities and Markets Authority selective and incomplete information when it made its case for the ban on shorting Wirecard shares.

“I’m confident that, faced with something similar, we would react differently”, Branson said, adding: “Our ambition is to be a world-class supervisor.”

In the past four years, BaFin has sent special monitors into German businesses from Deutsche Bank to fintech Solaris, issued millions of euros in fines, and imposed unprecedented restrictions on client numbers at online-only bank N26. 

It has also become more willing to publish details of individual corporate wrongdoing and its response, said Branson.

He insisted BaFin had not become overzealous. “The institutions that have problems with us are problematic institutions,” he said. The regulator’s approach these days was “not just about being stricter, but about stepping on the right toes at the right time”.

BaFin’s top priorities now include cryptocurrencies and stablecoins — digital currencies backed often by the dollar.

Branson pointed to its recent decision to deny a licence to stablecoin Ethena after finding “serious deficiencies” in the company’s business organisation as well as “infringements” of regulatory requirements.

“When I talk about that with our international colleagues, there’s nobody who’s further ahead of the curve,” he said of BaFin’s approach to stablecoin supervision.

Branson also said the regulator was prepared to axe “unnecessary” red tape that “doesn’t support supervisory goals”. He singled out reporting and compliance requirements being the same for smaller and larger banks.

“We’re not shy of telling both the German and European legislators where there are things that we think are no longer necessary.” But he was also adamant that there should be no cuts to capital or liquidity requirements for smaller banks.

“This is about smarter regulation, not deregulation.”

Fears over US debt load and inflation ignite exodus from long-term bonds

Investors have exited funds at fastest rate since 2020 at height of Covid pandemic

Investors are fleeing long-term US bond funds at the swiftest rate since the height of the Covid-19 pandemic five years ago as America’s soaring debt load tarnishes the appeal of one of the world’s most important markets.

Net outflows from long-dated US bond funds spanning government and corporate debt have hit nearly $11bn so far in the second quarter, according to Financial Times calculations based on EPFR data.

The second-quarter exodus is on track to be the heaviest since severe market turbulence in early 2020, and marks a powerful shift from the average inflows in the previous 12 quarters of about $20bn.

The redemptions from long-term bond funds, which are widely used by institutional investors, come at a time of growing jitters over America’s fiscal path. Fund flows capture only a sliver of the vast US bond market, but they provide a proxy for investor sentiment.

“It’s a symptom of a much bigger problem. There is a lot of concern domestically and from the foreign investor community about owning the long end of the Treasury curve,” said Bill Campbell at bond-focused investment firm DoubleLine, referring to the funds flows.

President Donald Trump’s “big, beautiful” tax bill, which is under consideration in Congress, is forecast by independent analysts to add trillions of dollars to US debt over the next decade, something that would force the Treasury department to sell a huge amount of bonds. The White House has countered that tariffs and higher growth would cut the debt.

At the same time, market participants are bracing themselves for the administration’s tariffs on major trading partners to stoke higher inflation, one of the biggest scourges for bond investors.

Lotfi Karoui, chief credit strategist at Goldman Sachs, said that the outflow “reflects concerns over the longer-run outlook for fiscal sustainability”.

“It’s a volatile environment, with inflation still above target and heavy government supply as far as the eye can see,” added Robert Tipp, head of global bonds at asset manager PGIM, referring to the Federal Reserve’s 2 per cent inflation goal. “This is driving a skittishness about the long end of the yield curve, and a general uneasiness.”

Longer-dated bonds are particularly sensitive to inflation, because higher growth in prices erodes the value of fixed interest payments paid over long periods of time.

The jitters have also been reflected in the price performance of long-term US debt, which has fallen about 1 per cent this quarter, clawing back steeper losses after Trump’s April tariff announcements spooked markets, according to a broad Bloomberg index.

By contrast, money has continued to pour into funds that hold US bonds maturing in the near future — with more than $39bn flooding into short-dated strategies this quarter, EPFR figures show. These funds are paying juicy yields since the Fed has held short-term rates at elevated levels this year.

Andrzej Skiba, head of BlueBay US fixed income at RBC Global Asset Management, added that investors might opt to diversify their bond holdings more internationally at this point, but “we don’t think it’s the end of the Treasury market, and the role of Treasuries as a core holding in global fixed income portfolios”.

Still, he said market participants could start demanding “more compensation to invest further out the curve” when it comes to buying new Treasury bonds. “Even though we don’t see an earthquake coming, you could see tremors.”

CATL to bring battery-swapping technology to Europe

World’s biggest EV battery maker says global co-operation will help ease pressure on supply chains

CATL, the world’s largest maker of electric vehicle batteries, plans to bring its battery-swapping and recycling technology to Europe, amid a global battle to secure more sustainable EV supply chains.

In an interview with the Financial Times, Jiang Li, the Chinese group’s board secretary, said battery swapping — in which EV drivers exchange depleted cells for fully charged ones — had “huge potential” in Europe to make batteries cheaper and longer-lasting.

Battery swapping, technology pioneered by Chinese electric-car maker Nio, takes minutes and lowers the upfront cost of buying an electric car, as drivers do not own their own batteries — the most expensive components of an EV. It also enables the cells to be used for longer.

Battery swapping had been slow to expand outside of China due to the high cost of building the service stations required. But it is gaining traction amid growing concerns about battery supply chains on the back of rising geopolitical tensions and growth in EV sales. 

Other companies have already started to introduce battery swapping to Europe. Nio operates 60 power swap stations in Germany, the Netherlands, Norway, Sweden and Denmark. Stellantis recently brought battery swapping to its fleet of Fiat 500 electric vehicles in Spain via its Free2move car-sharing service. 

But CATL, which added a Hong Kong listing in May, has plans on a larger scale. It is hoping to build 1,000 battery-swap stations by the end of this year in China and 10,000 stations in three years.

“Then we can copy the business model in Europe and other regions,” Li said during an event in London, adding the group had already discussed using swapping technology on the continent with carmakers.

Li’s comments come as Brussels is increasing pressure on Chinese companies entering the EU car market to form joint ventures with European companies or license parts of their technology.

Li said international co-operation was critical to ensure sustainable battery supply chains — a growing priority for countries worldwide. Nations, led by the US, are seeking to reduce their dependence on China for the critical minerals crucial for the transition to electric vehicles. Companies are also looking for ways to make batteries last longer and to recycle the materials for reuse. 

CATL has already licensed its battery manufacturing technology to Ford and Tesla, and has a joint venture with Stellantis to build a €4.1bn lithium battery factory in Spain.

“We are facing some difficulties in geopolitics, but we are still open to co-operating, especially in research and development,” he added. “We don’t want to make money with only one company. We want to share.”

CATL is partnered with non-profit organisation the Ellen MacArthur Foundation on initiatives designed to create a circular economy. “To create that market demand [for a circular economy], you need a crisis and a tipping point, which is exactly now,” said Jonquil Hackenberg, chief executive of the foundation.

CATL, which acquired Chinese battery recycling group Brunp in 2015, claims it can achieve a 100 per cent recycling rate for core critical minerals such as nickel, cobalt and manganese. Its swapping technology makes it easier to recycle batteries, as they can be collected in bulk from service stations instead of from individual vehicles. 

Li said CATL wanted to bring its recycling technology to Europe but cautioned that stricter regulations and higher costs would make establishing a profitable business harder on the continent.

In China, CATL has signed up more than a dozen truckmakers to use its batteries as part of a broader strategy to diversify its revenue streams.

The group also plans to install as many as 300 swapping stations across many of China’s main trucking routes, with a target of expanding that network to 150,000km of expressways and trunk roads covering 80 per cent of the country’s main freight roads.

Slide comes after report that US president is considering announcing successor to Jay Powell earlier than expected

The dollar weakened to a three-year low after a report that Donald Trump was considering nominating the next Federal Reserve chair early.

The US dollar fell 0.3 per cent against a basket of key trading partners’ currencies on Thursday morning in Asia, hitting a level last reached in early 2022.

The move came after a Wall Street Journal report that the US president was considering announcing his pick to succeed Federal Reserve chair Jay Powell earlier than expected.

“The US dollar has been weakening on the back of tariff and Trump policy uncertainty. This seems to be an extension of it,” said Kelvin Lau, senior economist for greater China and Asia at Standard Chartered.

“The possibility itself of an early nomination has led to the belief that the Fed could shift to an earlier [interest rate] cut.”

Yields on the rate-sensitive two-year US Treasury fell 0.02 percentage points to 3.76 per cent.

A deal for BP, worth roughly $80 billion, would be a landmark combination of two supermajor oil companies

Shell SHEL -0.72%decrease; red down pointing triangle is holding early stage talks to acquire rival BP BP -1.01%decrease; red down pointing triangle in what would be the largest oil deal in a generation, people familiar with the matter said.

Talks between company representatives are active, the people said, and BP is considering the approach carefully. Acquiring BP would put Shell on firmer footing to challenge larger competitors such as Exxon Mobil XOM 0.68%increase; green up pointing triangle and Chevron CVX 0.35%increase; green up pointing triangle. It would be a landmark combination of two so-called supermajor oil companies, a group of multinational behemoths that dominate the production of the world’s most important energy sources.

Potential terms of any deal couldn’t be learned and a tie-up is far from certain, the people familiar with the matter warned. The discussions are moving slowly, one of the people added.

BP is currently valued at around $80 billion. Taking into account a premium, a deal could end up as the largest corporate oil deal since the $83 billion megamerger that created Exxon Mobil at the turn of the century. It would also easily be the biggest M&A deal of the year, so far, in a market that has been rattled by President Trump’s trade war and other geopolitical tensions.

A Shell spokesman said: “As we have said many times before, we are sharply focused on capturing the value in Shell through continuing to focus on performance, discipline and simplification.”

A BP spokesman declined to comment.

Shell comes into the talks operating from a position of strength, with its stock sharply outperforming BP in recent years. Shell, which like BP is based in the U.K. but has operations around the world, has a market value of more than $200 billion.

BP has been the laggard among major oil companies after an ill-fated push away from fossil fuels into renewable energy. It has also suffered years of management upheaval and operational disasters.

Activist investor Elliott Investment Management, which owns more than 5% of BP’s shares, has pushed for changes at the energy company since at least February, underscoring the oil and gas producer’s exposure to a potential takeover bid from a rival.

BP has since adopted several measures to try to address investor frustrations. It announced plans earlier this year to boost oil and gas production and sharply cut investments in clean energy.

BP is also in the process of trying to sell its lubricants business that operates under the Castrol brand and has indicated it could unload at least part of its solar unit, Lightsource. More recently, BP said that its Chairman Helge Lund, a key architect of the company’s low-carbon strategy, plans to step down.

Shell meanwhile has focused on its most profitable operations, pledging to pump more oil and gas and rolling back green energy targets.

When asked publicly, Shell Chief Executive Officer Wael Sawan has said recently that the company’s bar for big dealmaking would be high. Shell in May announced a multibillion-dollar share buyback plan, the latest in a long series of big share repurchases. Shell has been working with bankers on a potential sale of its chemicals assets in Europe and the U.S., The Wall Street Journal previously reported.

For Shell, acquiring BP would take years of integration, complicated by culture clashes and possibly the sale of overlapping assets. But a deal could give Shell’s global trading business greater reach and bolster its dominance in areas like liquefied natural gas. Analysts and investors also see a good matchup in the companies’ Gulf of Mexico operations.

Acquiring BP would offer an opportunity for Shell to spread costs over a larger operating base and would box out rivals. Shell would also be more politically palatable to U.K. regulators who may oppose a foreign buyer from acquiring BP, a more than century-old company that traces its roots to oil exploration in Persia during the height of the British Empire.

Bloomberg News reported in early May that Shell was evaluating a potential BP deal.

A Shell-BP deal would be the latest in a wave of M&A activity across the energy landscape as the producers look to achieve greater economies of scale.

Chevron is still working to close its $53 billion megadeal for Hess, which has been held up due Exxon’s effort to challenge the deal’s legality.

Exxon last year closed a $60 billion deal to buy Pioneer Natural Resources. Diamondback Energy sealed a $26 billion deal for Endeavor Energy Resources to bolster its position in the Permian Basin.

The U.S.-launched review of the alliance has sparked investor concerns

Key Points

Babcock BAB 11.81%increase; green up pointing triangle International downplayed widespread concerns about the U.S. commitment toward a multi-billion dollar submarine deal with the U.K. and Australia, aimed at countering China’s rise in the Indo-Pacific.

The U.S. administration has launched a review of its participation in the three-way alliance, known by the acronym Aukus, which is aimed at providing Canberra with nuclear-powered submarines while jointly developing other cutting-edge technologies for warfare. U.S. officials have recently argued that the security alliance must fit President Trump’s “America First” agenda.

David Lockwood, chief executive of Babcock, one of the companies expected to benefit from Aukus contracts, said in a call with investors on Wednesday that it isn’t unusual for an administration to review a defense program.

“I think it is a natural thing to do. Nothing we are hearing from our U.S. partners I would describe as worrying at the moment, but they are just only starting the review,” he said.

The review has sparked concerns among investors in the companies involved in Aukus as well as U.K. and Australian officials, since Britain will play a big role in building the new submarines and for Australia the deal represents a major upgrade to its military capabilities. Babcock is involved in Aukus as a supplier of components for the submarines that will be built throughout the 2020s and 2030s, and its participation has supported the group’s shares.

Lockwood’s comments came after Babcock reported higher revenue and underlying operating profit for its fiscal year amid growing demand in the U.K. for defense and civil nuclear-energy equipment.

Shares in Babcock jumped 13.65% in early morning trade in London, trading at 11.73 pounds.

The British defense company–a major contractor for the U.K. government–on Wednesday reported revenue of 4.83 billion pounds ($6.58 billion) for the year ended March 31 compared with 4.39 billion pounds the year before.

Underlying operating profit–a metric that strips out exceptional and other one-off items and is Babcock’s preferred metric of profitability–jumped to 362.9 million pounds from 237.8 million pounds. The underlying operating margin was 7.5%.

Consensus estimates published by Babcock in June forecast revenue of 4.85 billion pounds, underlying operating profit of 356.1 million pounds and an underlying operating margin of 7.32%.

Western nations’ increased focus on defense capabilities and nuclear-power generation, in particular small modular reactors, is driving demand for Babcock’s products, Lockwood said.

The U.K., Babcock’s home market and the source of 62% of the group’s revenue, is committed to increasing its military spending to 3.5% of gross domestic product for core defense and allocating an additional 1.5% of GDP for resilience and security improvements by 2035.

The FTSE 100 company is involved in the delivery of the U.K.’s nuclear deterrent, which the Labour government has confirmed as a national-security priority, and the Hinkley Point C nuclear power station under construction in Somerset, England.

The group has also benefited from the war in Ukraine, as it supports the U.K. donations of military equipment to the Eastern European country and the training of Ukrainian troops.

“The shift in foreign policy under the Trump administration is pushing European countries to up their military spending, although much of this will be yet to come through, so the fact Babcock is already seeing improved trading is encouraging,” said Russ Mould, investment director at AJ Bell.

The Type 31 frigate program, aimed at delivering five multipurpose warships to the British Royal Navy, is making good progress, with work starting on the third ship, the company said. The first ship entered the water after the year end, it added. The program had been hit by increased labor costs and delays due to design changes.

Babcock’s contract backlog rose to 10.4 billion pounds from 10.3 billion pounds the previous year.

The group now expects to achieve its previous medium-term target of an underlying operating margin of at least 8% one year earlier, in the current fiscal year.

It also set new medium-term targets. Average revenue growth should be a midsingle digit, while the underlying operating margin should surpass 9%, it said.

Babcock surprised with the launch of a 200 million-pound share buyback program to be completed in fiscal 2026, which was completely unexpected and likely to be very well received by investors, said J.P. Morgan analyst David Perry.

“We think the share buyback program illustrates that Babcock is now a high quality, cash generative company…a far cry from the company of five years ago,” Perry said, describing the British group as one of the most under-valued European defense companies.

The decision to launch a share buyback was partly motivated by Babcock walking away from well-advanced negotiations for two acquisitions in fiscal 2025 because of “very, very good reasons,” Lockwood said. Investors shouldn’t give for granted that there will be a share buyback program every year, he cautioned.

The board recommended final dividend of 4.5 pence a share, taking the total to 6.5 pence a share, up 30% on year.

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