TheChek News Flow

John Rodgerson defends potential tie-up with rival Gol despite concerns about competition and ticket pricing

The boss of Brazilian airline Azul has argued that its planned merger with rival Gol to create the country’s largest carrier will strengthen Brazil’s aviation industry and expand the number of routes on offer.

Chief executive John Rodgerson defended the tie-up as bolstering a sector still grappling with the financial fallout of the Covid-19 crisis, saying it would drive efficiencies and benefit consumers.

Azul-Gol would control about 60 per cent of the domestic market, giving rise to concerns about the potential impact on competition and ticket prices. But Rodgerson described it as a “merger of growth” that could increase the number of destinations served by Azul from 150 to 200. 

“We can strengthen our balance sheet and connect a lot more people,” the American businessman told the Financial Times. “[It is an] opportunity to grow and to add more cities to the map, add more [flight] frequencies.”

He added that the deal, which will require regulatory approval, could even lower ticket prices in certain markets, “because we’re going to get more capacity up in the air”.

The proposed tie-up follows a difficult period for Latin America’s airlines. They received little direct financial assistance from governments during the pandemic, in contrast to the billions of dollars showered on US and European peers, leading many to skirt or fall into bankruptcy. 

Brazilian carriers also complain that the country’s expensive jet fuel prices and widespread passenger lawsuits push up costs and fares.

Gol filed for bankruptcy last year, and is seeking $1.9bn of financing in order to exit Chapter 11 proceedings in the US, while Azul has struck out-of-court agreements with creditors to reduce its liabilities and unlock new funds. Latam Airlines, the region’s largest group, emerged from bankruptcy protection in late-2022.

Azul and Abra, Gol’s majority shareholder, signed a memorandum of understanding this month, agreeing to combine the companies into a single entity but continue to operate both brands separately.

Shares in the two groups have rallied, though they remain at a fraction of pre-coronavirus levels.

The new Azul-Gol would have combined annual revenues of some R$37bn ($6.2bn), based on 2023 figures, along with an overall net debt of about R$52bn, according to the latest filings. Rodgerson said it should have a reduced cost of capital and benefit from joint procurement.

Both airlines were given a boost this month when the government agreed to significant discounts on outstanding tax liabilities.

Industry watchers believe antitrust watchdogs may force the enlarged entity to cede landing slots at popular airports in order to obtain regulatory approval

Founded in 2008, Azul challenged the Latam-Gol dominance with a focus on smaller cities not served by other airlines. Rodgerson said the merging companies’ routes only overlapped by 10 per cent, adding that higher levels of market concentration were found in the UK, France, Canada, Korea, Germany and Chile. 

The CEO suggested regulators could be appeased through “remedies of growth”, with extra flights added to certain locations.

The government of leftwing president Luiz Inácio Lula da Silva, which wants to make air travel more affordable and has pledged to support carriers, appears to be favourable.

Its ports and airports minister suggested ticket prices would not rise following the merger, which he said fell into a wider global trend of airline consolidation.

Rodgerson said he had discussed the idea of a merger last year with Lula. “I think he totally understood the logic [and] that we are a massive customer of Embraer,” the CEO said, referring to the Brazilian plane maker. “[Lula] wants to see more people travel. And so in that sense, our objectives are totally aligned.”

However, Rodgerson said that, regardless of the merger, ticket prices would need to rise in the short term following a slump in the Brazilian real, which has further pushed up the costs of kerosene and spare parts priced in dollars. These pressures have led Azul to close a dozen routes for the first time.

Venture-capital firms are bringing AI and dealmaking to accounting, property management and other unglamorous fields

Forget virtual-reality headsets and brain-chip implants. Silicon Valley is coming for boring businesses that do lots of clerical work.

The prospect of artificial intelligence automating administrative tasks is attracting venture capitalists to ho-hum professions such as accounting, customer-service centers and property management. Tech entrepreneurs have raised hundreds of millions of dollars to retrofit these businesses with AI tools and drive up their profitability.

The playbook also involves startups adapting one of Wall Street’s favorite practices: the roll-up. Private-equity firms refined the model of merging businesses in sectors such as car washes and heating and air conditioning outfits and using greater scale to cut costs. Much of the capital these new startups raise is similarly going to fund buyouts of businesses, which are “rolled up” into one operation.

“These services businesses, many of them ultimately globally just barely break even, so they haven’t got a lot of attention from VC investors,” said Marc Bhargava, a managing director at General Catalyst, a venture firm planning to pour hundreds of millions of dollars into these types of investments. “That’s going to change.”

The startups in this new field add to the growing universe of places where investors can get exposure to the theme of AI transformation, beyond companies like chip maker Nvidia. Other ways people have expressed bullishness on AI’s potential include buying shares of power producers, turbine makers, manufacturers of data-center equipment and other providers of AI infrastructure.

Among the flushest new players bringing AI to quiet professions is Long Lake Management Holdings, a startup founded 13 months ago. Since then, Long Lake has raised $600 million plus from investors and acquired around a dozen companies that collectively employ about 1,400 workers, people familiar with the company said.

Long Lake’s first deals were for businesses that manage the operations of homeowners associations. Those management companies are now adopting AI tools for tasks like generating presentations for HOA board meetings. It is targeting an expansion into other industries, including human-resources services.

Another startup that attracted venture funding is Crete Professionals Alliance, which has acquired multiple regional accounting and professional-services firms. Crescendo, which launched last year, bought out a customer-service company that had over 3,000 workers its first deal. Dwelly, a British property-tech startup, did a deal last year for a home-rental agency that managed over 1,000 properties.

Venture capitalists are investing in roll-up efforts while the broader market for more traditional startup fundraising hasn’t returned to previous highs. U.S. startup investment volume last year was 41% lower than in 2021, according to PitchBook data. That year, low interest rates and demand for digital services during the pandemic drove record levels of activity.

A big exception is the multibillion-dollar investment rounds into high-profile AI companies like OpenAI and Anthropic. Some investors in those startups are also backing the efforts to bring AI to less glamorous sectors. Josh Kushner’s Thrive Capital, which owns a significant chunk of OpenAI, funded Long Lake and Crete.

Bhargava of General Catalyst said his firm dedicated $1.5 billion to the strategy in recent years and is looking to write checks of at least $100 million for each project it backs. The firm has invested in seven startups pursuing AI-enabled rollups, including Long Lake and Crescendo.

Some of the entrepreneurs behind these startups come from Wall Street. Long Lake was co-founded by Alex Taubman, who spent a decade at Oaktree Capital Management. He also worked at the investment firm that managed his family’s wealth, much of which came from the luxury-mall operator they founded, The Taubman Company.

But some of the new startup tactics will look foreign to traditional buyout investors. Private-equity firms, for example, historically used borrowed money to fuel their dealmaking while maintaining ultimate control. Venture firms are backing startup founders that retain majority ownership of the businesses, which are so far avoiding debt.

The billionaire philanthropist speaks about his early years, geopolitics, past mistakes and how he isn’t always checking his phone

Microsoft co-founder Bill Gates has spent the past quarter of a century focused on philanthropy and investing in startups. Recently, he sat down for a wide-ranging interview with Wall Street Journal Editor in Chief Emma Tucker.

The billionaire discussed his childhood and why he thinks he likely would have been diagnosed with being on the autism spectrum if he were a kid today. He also weighed in on President Trump’s reform task force led by fellow billionaire Elon Musk, U.S.-China relations and his ties to convicted sex offender Jeffrey Epstein.

Gates recently had a three-hour dinner with Trump, saying he was “impressed” by the commander in chief’s interest in global issues. He has a memoir due out next month titled “Source Code: My Beginnings,” which covers his childhood through the beginning of Microsoft.

Here are the takeaways from the interview:

Reflecting on his childhood, Gates said he showed signs of being on the autism spectrum that weren’t associated with the disorder at the time but probably would be today. “I didn’t behave in a standard way,” he said.

Gates was able to concentrate deeply on math and science, which “became a strength,” he said.

His parents, however, worried about him fitting in. They handled the situation well, he said, by sending him to a therapist and the school where he met Paul Allen, his Microsoft co-founder.

Gates said he supports Trump’s mandate to reduce federal expenditures through a new Department of Government Efficiency, known as DOGE.

“I’m among the people who think the deficit needs to be brought down because otherwise it will create a financial problem for us,” he said. “Given the numbers that they have tossed around, they’ll have to look at everything including pension, defense, healthcare.”

But Gates doesn’t want to see Musk, who is in charge of the new entity, completely getting rid of certain programs. Some should stay because they provide long-term benefits, he said, including medicines that enable millions of people to live with HIV.

“If you cut those off, not only would they die when we have a cure on its way, but the negative feelings you’d have say, in Africa, would be worse than never having done the thing at all,” he said. “I hope the value system still includes the half a percent that saves all those lives.”

He thinks the U.S. and China need a more even-keeled relationship.

Asked about the current direction of relations between the two superpowers, Gates said, “It’d be great if we had more win-win elements.” Getting along is important for dealing with global issues ranging from the Earth’s climate to deadly diseases, he said.

Gates added that there is a 10% to 15% chance of a natural pandemic occurring in the next four years. “It’d be nice to think we’re actually more ready for that than we were last time. But so far we’re not,” he said.

Spending time with Epstein was ‘foolish.’

The Journal previously reported on Gates’s ties to Epstein, including that the latter threatened Gates over an affair he had. The two met a few times, Gates has said, to discuss philanthropy. He now realizes he had been played by Epstein.

“In retrospect, I was foolish to spend any time with him, and he sort of got time with various people by spending time with other people,” said Gates. “I thought it would help me with global health, philanthropy. In fact, it failed to do that, and it was just a huge mistake.”

Asked if he has since become more wary of making connections with people, Gates said: “Definitely. I mean, are you kidding?”

He is still close to Microsoft, including its CEO.

Gates stays connected to the tech behemoth through what he called a “very close relationship” with Chief Executive Satya Nadella. “I love doing product reviews, and he brings me in to do that,” Gates said. “It’s maybe 15% of my time. It helps me stay up-to-date.”

Despite living in the mobile age, Gates described himself as “not a big phone user.”

“My daughter, my youngest, gives me a hard time because she expects if I get a text, within three or four minutes I should be aware of it,” he said.

In China, a Cat-and-Mouse Game to Rein In Crypto

Recent court cases reveal how middlemen are facilitating a booming trade, eluding a crackdown

Three years ago, China’s government imposed sweeping restrictions on trading cryptocurrencies. But that hasn’t stopped brokers, including Chen Xin, from helping people convert large amounts of Chinese yuan into crypto.

Working as a middleman in China’s underground financial system, Chen would routinely accept more than $100,000 in cash and then swap it for the cryptocurrency tether using overseas trading platforms. He knew not to ask too many questions about where the cash came from—but he assumed a lot of it wasn’t clean.

“The money is dirty,” he told his wife, according to testimony he delivered later as a witness in a Chinese court case that was part of the government’s efforts to clamp down.

The role of traders such as Chen in facilitating Chinese crypto transactions is largely invisible to the outside world. But a Wall Street Journal examination of court cases and Chinese government notices sheds new light on how they operate—and how they are fueling Chinese demand for crypto despite government efforts to rein it in.

In some cases, criminal groups are trading crypto to launder ill-gotten gains, boosting crime syndicates beyond China’s borders, including ones trafficking fentanyl, U.S. prosecutors say. In other cases, middle-class urbanites are using it to secretly move money out of the country, in violation of government rules designed to restrict the flow of money across China’s borders.

The activity is exceedingly difficult to stamp out and undercuts Beijing’s image of strict control over the economy and financial industry.

The total scale of crypto activity in China is unknown. After China sought to limit access to mainstream crypto exchanges in 2021, many users turned to over-the-counter trading and peer-to-peer networks that are tougher to track.

Blockchain data firm Chainalysis estimates $95 billion flowed to China-based over-the-counter brokers it analyzed from late 2023 through mid-2024, more than double the level of the same period two years earlier.

The rising interest has made China an important source of crypto activity globally, though it remains behind the U.S. in overall crypto adoption, according to Chainalysis. Even so, if demand keeps rising, it could support prices for crypto assets such as bitcoin, which has soared in value to more than $100,000 recently.

Finding workarounds

On the messaging app WeChat and other online forums, users teach one another how to surreptitiously sign up for accounts on popular trading platforms. Trading yuan for tether, whose value is pegged to the U.S. dollar, appears to be especially popular.

Once a person has traded yuan for tether, bitcoin or other virtual currencies, it can then be converted into foreign currencies and reinvested in overseas property or stocks, sidestepping capital controls that cap individual purchases of foreign exchange at $50,000 a year.

Crypto users and industry participants say that Chinese nationals are still able to open accounts and trade crypto on exchanges such as OKX and Binance despite the government’s restrictions. While the platforms’ websites are blocked in mainland China, users can access them via virtual private networks, or VPNs, which are commonly used by urbanites to get around government internet rules.

“Access to OKX services is restricted in the PRC,” an OKX spokesperson said in response to questions, referring to the People’s Republic of China. The spokesperson added that OKX ensures compliance in all jurisdictions and cooperates with regulators and law enforcement globally.

Binance didn’t respond to requests for comment. In the past, Binance has said its website is blocked in China and isn’t accessible to China-based users.

Workarounds also exist for users who run into problems such as failing to pass trading platforms’ “know your customer” checks. Such checks, which are standard practice in the financial industry, seek to determine customers’ identities and at times their sources of funds.

To pass the tests, China-based users can register shell companies in offshore jurisdictions, such as the Cayman Islands or British Virgin Islands, and set up institutional trading accounts on the platforms instead, said Jack Ding, a Beijing-based crypto-regulations specialist at Duan & Duan Law Firm. He has also been representing Chinese creditors against the failed crypto exchange FTX in its chapter 11 proceedings.

Many Chinese are also connecting through messaging apps such as Telegram to trade crypto via informal peer-to-peer networks that don’t involve the exchanges.

‘Avoid getting involved’

China has tried to curtail the activity by prosecuting big traders to scare off others. In one Chinese county, authorities have begun going door to door to warn local residents against trading crypto.

The message from officials, according to state media: “Stay rational, avoid getting involved.”

Chinese officials worry about the transactions because of their potential links to money laundering and other illicit activity. They also worry that outflows could put pressure on the value of the yuan and complicate Beijing’s efforts to reinvigorate a weakened economy just as President Trump is promising to take aim at China’s lucrative export sectors.

In the coastal province of Jiangsu, near Shanghai, one crypto-trading ring managed to change the equivalent of at least $150 million from Chinese yuan into Australian dollars over about 18 months before several of the people operating it were prosecuted in late 2023 for running illegal business operations.

First, the Chinese money handlers collected funds from customers looking to transfer currency offshore. Then they bought tether and transferred the virtual currency to brokers in Australia, who simultaneously paid the clients back overseas using Australian dollars.

More than 90% of clients were looking to move the equivalent of at least $400,000 offshore per transaction, prosecutors said recently, well in excess of China’s $50,000 annual cap. People involved in running the operation were sentenced to as much as seven years in prison.

In late 2023, state media said 74 people were arrested in connection with another trading ring, involving more than $2 billion in the underground banking system, with much of the money being turned into tether, according to state media.

A low-level employee at a textiles company was behind the crypto-trading ring, police said. Investigators identified cash flows of nearly $700 million via bank cards linked to him.

“This was obviously inconsistent with his status,” one police official said, according to the state media account.

In response to questions, China’s central bank said that the opacity of crypto trading, its low costs and the speed of cross-border transfers presented major challenges for fighting money laundering, but that the government was expanding efforts to combat the problem.

China will “maintain a high-pressure stance against the use of cryptocurrencies in money laundering and for the illegal transfer of funds,” the central bank said.

Widening appeal

For many young Chinese, crypto is appealing at a time when there are few good options to build wealth at home amid a weak economy. While some are tapping crypto to move money offshore, others buy it as an investment, hoping it will protect their wealth if the yuan falls in value.

“In China, cryptocurrencies represent a kind of fintech innovation that is widely perceived as new, trendy and innovative among the younger generation,” said Maggie Hu, an assistant professor at the City University of New York’s Baruch College.

Chen Xin’s case sheds light on how small-time brokers help make the trading possible.

The operation began in 2022, when Chen started accepting cash from clients and in exchange provided them with tether, he recalled in court testimony, as part of a case against several others involved in the network who were convicted of facilitating online criminal activities. He testified as a witness but wasn’t named as a defendant.

Chen said in the testimony that he teamed up with another broker, and that each of them ran accounts on OKX and Binance. He said one big customer, named Fang Rengan, routinely asked Chen to prepare more than $100,000 worth of tether on behalf of other clients.

In his own witness testimony, Fang said he was working on behalf of a casino in Cambodia. He said he didn’t know many details about the casino, which wasn’t named in the court documents, except that it had money it needed to convert into crypto. Like Chen, Fang wasn’t listed as a defendant in the case.

Casinos targeting Chinese gamblers have sprung up in Cambodia, the Philippines and Myanmar in recent years, in some cases operating in violation of local or Chinese laws. The illicit ones need to launder the money they earn, with crypto serving as one option.

Fang recruited others who received yuan transfers from the casino into their personal bank accounts. These people would then withdraw the cash—at times the equivalent of tens of thousands of dollars each—and give it to representatives of Fang, who would hand it over to Chen. Known as layering, the tactic helps obfuscate the source of the funds from police.

After receiving the cash, Chen would then transfer the equivalent amount of tether to the bosses of the casino, completing the deal. He earned a commission for his efforts.

Chen’s wife quizzed him about his activities, according to the court testimony. But the couple had little money of their own and Chen figured it was best to push on.

“To put it bluntly, it was money laundering,” Chen said in the court testimony.

The Journal was unable to determine the location of Chen or Fang, or whether they had lawyers. It couldn’t be learned whether they were punished for their roles in the crypto network.

Tether, the company behind the cryptocurrency, said it was committed to combating illicit activity and that it complies with requests from global regulators and law enforcement.

Bankrupt shipbuilder is being bought by Spanish state-owned group Navantia

Harland & Wolf suppliers owed millions of pounds fear they will not be paid as the bankrupt shipbuilder is taken over by Spain’s Navantia, warning of a hit to UK supply chains if they are replaced by European contractors.

The 164-year-old company best known for building the Titanic fell into administration last September, hobbled by large losses and steep interest payments on its debt.

A deal was struck in December with state-owned Navantia which the UK government vowed would protect 1,000 jobs at H & W’s four yards in Northern Ireland, England and Scotland.

But suppliers say jobs are already being lost in the supply chain and they have little prospect of getting their invoices paid.

Russell Downs, the bankruptcy and restructuring expert brought in as interim executive chair in July, told the Financial Times in December the sale to Navantia “regrettably” would mean losses for creditors and suppliers.

On January 14, the four yards that had been continuing to operate followed the parent company into administration.

“It’s very stressful,” said the chief executive of one British-based supplier who, like others, asked not to be named. “They owe us £10mn plus, a reasonably big chunk of our business . . . We’re an SME. That kind of money does have an effect.”

He added: “Until just before Christmas, the assumption was that H & W would be sold as a going concern and Navantia were going to stand behind its debt . . . Looking ahead, I would imagine Navantia are going to use their own suppliers now — they’re not going to want to take liabilities.”

Tan Dhesi, chair of the defence select committee at Westminster, asked John Healey, UK defence secretary, in a letter last week for “comprehensive answers” by February 3 on how government is helping H & W’s supply chain.

“The immediate effects on the UK supply chain and employment landscape are huge,” said the head of one company supplying H & W’s Appledore yard in England and Belfast.

“There’s a lot of angry local people and not much support from anybody,” said a supplier of services in Belfast, who said his company and clients were owed £22mn.

“It’s a horrible situation . . . It’s a bit like David and Goliath,” he said. “It’s been cloak and dagger the whole way through . . . Basically, the rug has been pulled. The headlines are saying they’re saving jobs. I know [supply chain] companies have already started laying people off.”

Navantia understands suppliers’ concerns and is committed to developing H & W’s capabilities and “supporting the local industry,” said one person familiar with the company’s plans. It aims to “redevelop a healthy industrial ecosystem in order to support their [suppliers’] viability,” the person said.

The sale to Navantia is expected to close on Monday. Staff were told in an email last week seen by the FT that “the next chapter in the shipyard’s history is about to begin”, with Navantia bringing “the experience, stability and investment that is desperately needed”.

The Belfast and Appledore supplier said the so-called prepack sale was “being used as a means to write off debt at the expense of the trade creditors” which are mainly SMEs.

The UK government and Navantia have refused to disclose financial details, including the size of what Jonathan Reynolds, business and trade secretary, said was a “relatively minor” increase to the £1.6bn contract to build three Royal Navy support vessels in which Navantia and H & W are partners. Navantia had pushed for a boost to clinch the deal.

A government spokesperson said it “has not given any direct financial support to Navantia” and the deal contained “the minimum changes to the contract necessary — on commercial terms — to ensure its continued delivery”. 

Hilary Benn, the UK’s Northern Ireland secretary, on January 15 blamed unpaid invoices to suppliers on “the failure of the old H & W”.

“It now falls to Navantia to decide which of the invoices it wishes to pay, but it will want to secure a relationship with suppliers contributing to the fleet solid support ship programme,” he said.

AI leaders clash over safety and $100bn Stargate project

Top tech leaders at Davos such as DeepMind’s Demis Hassabis and Meta’s Yann LeCun in fiery debate

The biggest figures in artificial intelligence sparred over the dangers of the rapidly advancing technology at the World Economic Forum this week, as hype swirled around a $500bn AI infrastructure project touted by Donald Trump.

AI pioneers including Google DeepMind chief Sir Demis Hassabis, Anthropic co-founder Dario Amodei and “godfather of AI” computer scientist Yoshua Bengio used the gathering in Davos to reiterate stark warnings about the AI threats, as commercial interests and geopolitical rivalries steamroller concerns about safety.

While Hassabis acknowledged that the “genie can’t be put back in the bottle”, he said artificial general intelligence — when computers surpass human cognitive capabilities — could threaten civilisation if it runs out of control or is hijacked by bad actors. This is particularly the case with large language models that are “open source” and accessible by all.

“There’s much more at stake here than just companies or products,” the Nobel Prize winner said in an interview with the Financial Times. “[It’s] the future of humanity, the human condition and where we want to go as a society.”

Amodei, whose start-up makes the chatbot Claude and is backed by Google and Amazon, said he was concerned about authoritarian governments using AI and was “very worried about 1984 scenarios, or worse”.

“Science doesn’t know how we can control machines that are even at our level of intelligence, and even worse if they’re smarter than us,” added Bengio during a panel. “There are people who are saying, ‘Don’t worry, we’ll figure it out.’ But if we don’t figure it out, do you understand the consequences?”

Their stance was criticised as hypocritical by Yann LeCun, chief AI scientist at Meta, which has spent billions developing an open source LLM called Llama. He said that such concerns were belied by his rivals’ fierce competition to build, and sell, the best models.

“Yoshua and Dario have made opinions against open source and that’s actually very dangerous,” he said in an interview. “Obstacles to open source distribution would lead to regulatory capture by a few players, either of the west coast of the US or China . . . [putting] power in the hands of a small number of people.

“It’s very strange from people like Dario. We met yesterday where he said that the benefits and risks of AI are roughly on the same order of magnitude, and I said, ‘if you really believe this, why do you keep working on AI?’” LeCun added. “So I think he is a little two-faced on this.”

Whilst scientists and engineers debated the risk-reward of AI, business executives showed unfettered enthusiasm for the technology. 

“There are no contrarians,” said Ervin Tu, president of Dutch tech investment group Prosus. “If you have any appreciation for what large language models and agents trained on them can do, you would be hard-pressed as a human not to conclude that they are transformational and will be incredibly disruptive in every industry.”

On Wednesday, the febrile atmosphere was further charged by OpenAI, SoftBank and Oracle announcing a $500bn US AI infrastructure joint venture called “Stargate”.

Trump hosted their chief executives, Sam Altman, Masayoshi Son and Larry Ellison, in the Oval Office on Tuesday, before signing executive orders this week that would eliminate many guardrails around the development of the technology. The new US president said the moves would ensure American primacy in the technology.

“At OpenAI, we believe infrastructure is destiny,” said OpenAI chief financial officer Sarah Friar. “[Stargate] is about more compute. More compute builds better models. Better models answer more complex problems and deliver more benefits for people and businesses.”

Stargate dominated debate in Davos for the rest of the week, with many including Elon Musk taking to his social networking site X to question how the trio would fund the vast expenditure promised.

The FT reported on Friday that Stargate has not yet secured the funding it requires, will receive no government financing and will serve only OpenAI once completed. So far, SoftBank and OpenAI intend to put forward more than $15bn each for the project, hoping to raise a combination of equity from their existing backers and debt to fund Stargate.

The new venture was also taken as the latest evidence of a fissure in the relationship between Altman and Microsoft chief executive Satya Nadella and his top AI executive Mustafa Suleyman, the former DeepMind cofounder who left his own startup and joined Microsoft early last year.

“The tensions that surfaced between Mustafa Suleyman and Sam Altman at Davos last year were just the beginning,” said Salesforce chief executive Marc Benioff, which competes with Microsoft in selling AI-powered agents to businesses.

“Microsoft is now accelerating its own AI development . . . This pattern reflects Microsoft’s history with its ‘partners,’” Benioff added. “This could mark the beginning of the end for the relationship, making it critical for OpenAI to expand to other platforms quickly.”

“Marc has no idea what he’s talking about,” said Microsoft spokesperson Frank Shaw.

Microsoft has invested almost $14bn in OpenAI since 2019 and in return negotiated rights to its intellectual property and to be its exclusive cloud computing provider. But the latter agreement was terminated alongside the announcement of Stargate.

In Davos, Nadella also cast doubt on the Stargate spending pledges and touted Microsoft’s planned $80bn in capital expenditure.

“All I know is I’m good for my $80bn,” he said, later replying to Musk on social media platform X: “And all this money is not about hyping AI, but is about building useful things for the real world!”

Stargate is just the latest example of an infrastructure arms race for data centres in the US as it prepares for the next leg of the AI economic boom. Musk’s xAI built a supercomputer called “Colossus” containing 100,000 interconnected Nvidia chips in just three months last year and has pledged to expand the number 10-fold.

BlackRock and Microsoft are preparing to launch a $30bn AI investment fund to build data centres and energy projects to meet growing demands stemming from the tech sector. On Friday, Meta chief Mark Zuckerberg said the company would spend between $60bn-$65bn on capital infrastructure this year while expanding its AI teams.

“I’ve had nonstop customer meetings, across every sector. I don’t think there’s a single CEO I’ve spoken to who doesn’t know they need to be deploying AI,” said OpenAI’s Friar. “AI isn’t just on the agenda; it is the agenda. It is no longer just an abstract concept or futuristic vision. It’s here.”

Rome vs Milan: how Mediobanca turned prey for Monte dei Paschi

Prestigious Milanese bank has become latest pawn in government consolidation efforts

When Italian financial power broker Mediobanca helped its longtime client Monte dei Paschi di Siena structure a make-or-break capital raising in 2022, little did it know it would ultimately become a takeover target for the former poster child of the country’s failed banking system. 

On Friday, MPS astonished investors by launching a €13.3bn all-share bid for its larger rival at a premium of just 5 per cent to Mediobanca’s closing price a day earlier.

The takeover offer by a lender that is still partially government-owned represents yet another shock to the Italian banking system, the latest in a series of back-to-back deal attempts that could reshape the country’s financial landscape.

“This is the final battle between Roman [politics] and Milanese finance,” said one government official.

Since taking power in late 2022, Giorgia Meloni’s rightwing government has made it a priority to portray itself as market friendly, seeking to ease observers’ fears it would use a heavy-handed nationalist approach to business and financial policy.

However, a series of interventions in the financial sector — including an attempt to engineer the sale of MPS to rival Banco BPM last year and controversial amendments to the country’s capital markets legislation — as well as public statements against “international speculators” have reignited such concerns.

“It is simply unfathomable that a commercial lender, whose [largest single shareholder] is the government, launches a takeover attempt of a larger investment banking rival, with a nil premium and without a clear strategic objective,” said one veteran banking executive in Milan.

Following the lender’s successful turnaround, Italy has been cutting its stake in MPS — which it bailed out in 2017 — to meet EU commitments to return the world oldest bank to private hands.

But the state remains the largest single shareholder with a stake of more than 11 per cent — and MPS appears to play an increasingly important part of government efforts to create a new centre of financial power.

Last year, Meloni’s government hoped to merge the Tuscan lender, once a symbol of Italy’s leftwing parties’ financial clout, with Banco BPM to create a large domestic banking hub.

Dubbed the “third pole”, the aim was for the enlarged lender to compete with larger rivals UniCredit and Intesa Sanpaolo and maintain a strong Italian footprint.

UniCredit’s takeover bid for Banco BPM in November thwarted those plans and left the government scrambling for ways to counter chief executive Andrea Orcel’s latest manoeuvre.

Insiders now say MPS’s move on Mediobanca shows Meloni’s government has abandoned hope that UniCredit can be stopped, and accepted that it must find an alternative to BPM for its consolidation efforts.

On Friday, MPS chief executive Luigi Lovaglio said the takeover offer was “an industrial project we have been thinking about since 2022”.

“We will create the third banking group in the country,” Lovaglio said. He called the move “brave”, “innovative” — and “friendly”. Insiders say that Mediobanca’s chief Alberto Nagel does not see it that way.

“Obviously the takeover bid is a market transaction”, Meloni told reporters on Saturday. “The only thing I note is that MPS, which used to be seen as a problem by both institutions and citizens, is a perfectly healthy bank that launches ambitious operations and this should make us proud.”

Replacing BPM with Mediobanca and turning MPS into buyer instead of target also gives Rome a fresh opportunity: to capitalise on connections forged with two giants of corporate Italy and extend its reach over the insurance group Generali — a large investor in Italian public debt, and one 13 per cent owned by Mediobanca.

In the latest auction of MPS shares in November, the government sold sizeable chunks of its remaining holding to Delfin, the holding company of the billionaire Del Vecchio family, the construction tycoon Francesco Gaetano Caltagirone and BPM. 

Along with their new shareholdings in MPS, Caltagirone holds 7.8 per cent of Mediobanca and 6.9 per cent of Generali. Delfin has 9.9 per cent of Generali and 19.8 of Mediobanca.

Both Caltagirone and Delfin have long been at odds over strategy with Nagel and Generali chief Philippe Donnet, but have failed in bids to replace them.

Generali’s decision to enter an asset management joint venture with France’s Natixis, first reported by the Financial Times in November and announced on Tuesday, further aligned Rome with Caltagirone.

Meloni’s allies raised concerns over the risk Italian savings would be increasingly invested abroad and that the refinancing of Italy’s huge public debt might face hurdles going forward.

Such concerns resonated across the Italian establishment, and with Caltagirone. His representatives on the Generali board voted against the deal, according to people with knowledge of the deliberations.

Insiders see Caltagirone’s hand behind MPS’s move on Mediobanca, rather than MPS boss Lovaglio’s. In their telling, it is part of a broader attempt to take control of Generali and overhaul Mediobanca’s business and management, something the late billionaire Leonardo Del Vecchio set his eyes on years earlier. Caltagirone’s son Alessandro is a newly appointed member of MPS’s board of directors.

People close to Caltagirone and people close to MPS denied the Roman tycoon’s direct or indirect involvement in the transaction.

A merger between Mediobanca and MPS would help solve Caltagirone’s and Delfin’s long-standing complaints while also giving Rome a seat at the country’s most prestigious and influential financial tables.

There is no certainty that a deal will happen. MPS shares closed down 7 per cent on Friday, while Mediobanca’s shares rose almost 8 per cent.

Analysts’ responses were muted. Marco Nicolai at Jefferies noted that synergies between the two banks were limited and risks were high. “Cultural differences between the two companies could result in revenue dis-synergies, especially on the investment banking and wealth management front,” he added.

“Our first impression is that this offer has limited chances of success,” said KBW analyst Hugo Cruz.

But people close to MPS argued that Mediobanca “has stood still for too long”, and was overly reliant on its dividend from Generali, a long-standing criticism of the Milanese bank.

“The road ahead is long and winding, not just for MPS but for the whole Italian banking sector: lots of moving parts, lots of unknowns and too many actors involved,” said one chief executive.

Net selling highlights how rising interest rates in Japan are reshaping global markets

Japanese investors have been selling Eurozone government debt at the fastest pace in more than a decade, with analysts warning that the move by one of the bloc’s cornerstone bondholders could lead to sharp market sell-offs.

Net sales by Japanese investors rose to €41bn in the six months to November — the latest figures to be released — according to data released by Japan’s finance ministry and the Bank of Japan and compiled by Goldman Sachs.

The prospect of higher bond yields at home and political upheaval in Europe — including the collapse of Germany’s ruling coalition, leading to elections next month, and turmoil in France, which has been operating under an emergency budget law — have accelerated the sales, said analysts. French bonds were the most sold during the period, at €26bn.

The sales add further pressure to indebted European governments already facing a jump in borrowing costs. They highlight how rising Japanese interest rates after years in negative territory are reshaping financial markets around the world.

Japanese investors returning home is a “game changer for Japan and global markets”, said Alain Bokobza, head of global asset allocation at Société Générale.

Although Japanese investors have been net sellers of Eurozone bonds for most of the past few years, the pace has picked up in recent months.

Japanese investment flows have been “a stable source of [European] government bond demand for a long time”, said Tomasz Wieladek, an economist at asset manager T Rowe Price. But markets are now “entering an era of bond vigilance” where “rapid and violent sell-offs” could happen more often.

Gareth Hill, a bond fund manager at Royal London Asset Management, said the scenario had “long been a concern for holders of European government bonds, given the historically high holdings [among] Japanese investors” and could put pressure on the market.

In addition, soaring costs of hedging against swings in the value of the yen have made overseas debt increasingly unappealing. Despite coming down from a 2022 peak, when hedging costs are accounted for, the 10-year Italian government bond yield for Japanese investors is just over 1 per cent, roughly the same as the Japanese 10-year yield, according to Noriatsu Tanji, chief bond strategist of Mizuho Securities in Tokyo. He pointed to regional banks in Japan as being among the main sellers of European debt.

“Japanese investors must be asking themselves quite hard to what extent they should be holding foreign bonds,” said Andres Sanchez Balcazar, head of global bonds at Pictet, Europe’s largest asset manager.

Norinchukin — one of Japan’s largest institutional investors — last year said it planned to offload more than ¥10tn of foreign bonds this financial year. In November, it recorded a loss of about $3bn in the second quarter after realising losses on its large holdings of foreign government bonds.

The pullback by Japanese investors is putting upward pressure on bond yields that have already moved higher since the European Central Bank started to reduce its balance sheet after a vast emergency bond-buying programme during the coronavirus pandemic, said analysts.

France — which has one of Europe’s deepest bond markets and historically been a favourite among Japanese investors due to the additional yield it offers over benchmark German debt — has seen large Japanese outflows in recent months.

Between June and November, as a political crisis deepened resulting in the fall of Michel Barnier’s government, Japanese funds’ total outflows reached €26bn, compared with sales of just €4bn in the same period the previous year.

“There is no question that for France the buyer base has changed,” said Seamus Mac Gorain, head of global rates at JPMorgan Asset management.

Over the past 20 years, Japanese investors have become a cornerstone of several bond markets as ultra-low yields at home have made foreign investments more attractive, including for big investors such as pension funds who need to buy safe sovereign debt.

Total holdings of foreign bonds by Japanese institutional investors reached $3 trillion at their peak in late 2020, according to IMF.

However, as Japanese investors have started to search for returns at home, their net buying of global debt securities have shrunk to just $15bn in total over the past five years — a far cry from the roughly $500bn in such purchases they made in the previous five years, according to calculations by Alex Etra, a macro strategist at Exante.

“Whereas Japanese bonds were quite unattractive for domestic investors in the past, they are more attractive now,” said JPMorgan’s Gorain. “That is a structural change.”