FT : Anatomy of a trade: how Andrea Orcel masterminded UniCredit’s swoop on Comm

Anatomy of a trade: how Andrea Orcel masterminded UniCredit’s swoop on Commerzbank
Italian lender sidestepped bank ownership rules to build 21% position in German rival

Andrea Orcel stunned Germany last week by raising UniCredit’s stake in Commerzbank from 9 per cent to 21 per cent in a manoeuvre that mirrored tactics made notorious in hostile takeover battles more than a decade ago.

When carmaker Porsche and automotive supplier Schaeffler Group came for German blue-chips Volkswagen and Continental in 2008, they built their stakes by stealth. Back then, there was no legal obligation to disclose positions built through derivative instruments that guaranteed access to shares only at a later point in time.

The loophole in EU disclosure rules has since been closed, making large-scale secret stakebuilding impossible.

For Orcel, a former M&A banker and now chief executive of UniCredit, the stricter disclosure rules for financial derivatives presented a different opportunity: UniCredit has been able to disclose a 21 per cent stake in Commerzbank while complying with rules that, for now, block it from owning more than 10 per cent.

“Think what you may but this is just beautifully done,” said one Frankfurt-based banker.

At the core of the trade is an arbitrage between two rule books.

Eurozone laws governing bank ownership and control mean no one can buy more than 10 per cent of a lender without first getting the green light from the European Central Bank.

Approval may be a formality for an EU-based bank such as UniCredit, which had already said it would seek ECB consent after acquiring its first 9 per cent stake. But the process can take months, which allows rivals to build their own positions, hedge funds to snap up shares and a target to buttress its defence.

However, ECB acceptance is only required for UniCredit to take control of voting rights attached to Commerzbank shares. The rules neither stop the Italian bank from gaining economic exposure to the target’s stock beforehand nor ban the signing of contracts now to receive the shares after central bank approval.

Disclosure rules for share ownership in the securities laws enacted after the Porsche and Schaeffler tussles have a different focus: they require an investor to reveal the position when it owns — directly or indirectly through derivatives — an economic interest in 5 per cent of the shares or when they hit higher thresholds, one of which is 20 per cent.

This discrepancy allowed Orcel to reveal a huge jump in UniCredit’s stake in Commerzbank, taking it from a minority investor to leapfrogging the German government as the single biggest shareholder. Its position is also big enough to make it difficult for potential competitors to make a counter-offer for the German bank, should it decide to pursue a takeover.

At the core of the transaction are contracts UniCredit entered with Barclays and Bank of America, according to voting rights disclosures and bankers familiar with the deals.

Both investment banks struck so-called total return swap agreements with UniCredit, in effect committing to replicate the economic performance of Commerzbank’s stock. If the German lender’s shares go up, or the bank pays its dividend, the counterparties will pay the change in value to UniCredit. If the stock goes down, UniCredit must cover the difference.

Barclays and BofA also committed to physically deliver the Commerzbank shares to UniCredit later, should the Italian lender still want them.

Four people familiar with the deal say the two investment banks will each make €12mn in fees and other income on the trade, which has a notional value of €2.3bn. The income each bank stands to receive could rise to €40mn-€50mn if the contracts are extended beyond 2026 or otherwise modified, they said.

People familiar with UniCredit’s thinking said the fees were “far lower”, without elaborating.

“In itself, a total return swap is not a very complex transaction and relatively simple from a technical point of view,” said former senior Deutsche Bank derivatives trader Pius Sprenger.

But “applying it on such a large scale as in the Commerzbank case required a lot of determination”, said Thomas Schweppe, a former Goldman Sachs M&A banker and founder of Frankfurt-based investor advisory boutique 7Square.

And last week’s 11.5 per cent total return swap was far from the first step in Orcel’s pursuit of Commerzbank.

Preparations to acquire the German bank started back in 2023 when the Italian lender silently built a direct stake of just under 3 per cent, said two people with direct knowledge of the matter, hovering below the first disclosure threshold for direct holdings.

In August 2024, when rumours started to circulate that the German government may soon start selling down its 16.5 per cent stake, UniCredit acquired another 1.7 per cent through a much smaller total return swap, still sitting below the 5 per cent threshold for combined direct and indirect positions.

Then on the night of September 10, the Italian bank bought another 4.5 per cent from the German government when it outbid financial investors in a block trade, clearing the 5 per cent disclosure threshold for the first time and subsequently revealing its 9 per cent position. By September 23, it had converted the initial, smaller total return swap into shares.

On the same day, UniCredit entered two much larger total return swaps, relating to stakes of 5 per cent and 6.53 per cent, that will expire in 2026. A two-year exercise period — much longer than the expected six to 12 months timeframe for obtaining regulatory clearance — shows the Italian bank is “patient”, said one insider.

UniCredit negotiated the derivatives without external advisers, relying on in-house expertise, said people with knowledge of the situation.

UniCredit’s equity and credit sales and trading team is headed by derivatives specialist Salvatore “Chicco” Di Stasi, who joined from UBS last year and previously worked at Goldman Sachs.

“He has something that you don’t [often] find in a large commercial bank, nor in UniCredit . . . He is very, very creative as far as structuring is concerned,” one former colleague said.

Total return swaps can come with risks. During the 2008 financial crisis, large drops in VW and Continental shares left Porsche and Schaeffler Group exposed to huge losses when their derivative stakes lost billions of euros in value.

Orcel has eliminated that risk with another layer of financial engineering, said people familiar with the transaction. He is using a so-called collar to hedge the Commerzbank position against share price declines, while also waiving large parts of the upside.

The structure — consisting of opposing call and put options — in effect locks in last week’s Commerzbank share price.

The careful stakebuilding served to underscore Orcel’s seriousness about gaining control of Commerzbank despite political opposition.

Revealed days after the German government announced it was pausing sales of its remaining stake in Commerzbank in the wake of UniCredit’s initial stakebuilding, one insider said Orcel had used the trade to ask: “Can you hear me now?”

Another banker familiar with the deal said Orcel used the derivatives to “walk the talk”, with the position underpinning his verbal interest in Commerzbank.

Hedging the downside to the Commerzbank trade backs Orcel’s claim he could walk away from his pursuit of the German group, the banker said.

While such an announcement could lead to a steep fall in Commerzbank’s share price, UniCredit’s losses would be limited. Similarly, if a future deal with the German bank did go through, Orcel could take full possession of the underlying 11.5 per cent stake at its mid-September price without having to pay a meaningful takeover premium.

UniCredit’s trades have also made it far harder for potential rivals such as Deutsche Bank, BNP Paribas or ING to build a similar derivatives position in Commerzbank.

While Commerzbank is a highly liquid stock, close to a third of the total market capitalisation is tied up: 12 per cent is owned by the government, and 21 per cent is controlled by UniCredit.

As one German banker said: “For everyone else, mustering a counter bid has become quite a lot harder.”

FT : UK’s City minister pushes for blockchain gilts despite concerns

UK’s City minister pushes for blockchain gilts despite concerns
Treasury unit has raised questions over new technology

City minister Tulip Siddiq is pushing for the UK to start issuing “digital gilts” on the blockchain, amid concerns that Britain needs to modernise its markets to compete internationally.

The government’s Debt Management Office (DMO), an executive agency of the Treasury that is responsible for issuing and managing the government’s debt, has resisted the move, according to one former minister and several department officials familiar with the discussions.

But the officials said that Siddiq was determined to move ahead to combat the risk of the UK being “left behind” by global peers.

While traditional bonds have largely moved from paper to electronic trading in recent decades, a digital bond differs because it is issued and traded using blockchain technology.

Advocates say the technology can improve efficiency and reduce costs by eliminating middlemen. BlackRock boss Larry Fink has heralded it as the “next generation” for financial markets.

But the use of blockchain for issuing bonds is in its infancy and accounts for only a sliver of the market. Multiple systems are being developed for issuing digital bonds, meaning infrastructure developed today may be different to that which ultimately prevails, according to experts.

“There has been some resistance to change, but Tulip doesn’t see any concrete reason why this shouldn’t happen,” said one Treasury official briefed on the discussions.

“In the long term this is where we are going. We are not keeping up with the rest of the world and we risk being left behind.”

Industry group UK Finance has been among those calling for the UK to launch a digital gilt to show the government’s “commitment” to the technology and help position the country as a leader in digital assets.

Digital issuance also has the potential to eradicate layers of intermediaries in the financial system such as registrars and transfer agents, increasing transparency over the ultimate beneficial owners of the bonds.

However, many of the benefits would not accrue until the majority of market users had developed “interoperable” or mutually compatible systems, said one market infrastructure expert. Many traders are not yet able to deal in digital bonds, while the new asset class also carries legal and cyber-related risks.

While there are some supporters of digital gilts within the DMO, the body is required to evaluate any new policy on the basis of whether it improves the functioning of the gilt market or reduces costs, according to one person familiar with the workings of the unit — a narrower set of parameters than ministers who are keen to promote the UK internationally and incentivise “growth”.

This would naturally cause hesitancy from the organisation, as digital gilts would raise significant technical questions around topics such as the fungibility of traditional and digital gilts and documentation of legal ownership, the person added.

Ministers can generally override such questions by directing civil servants to enact a policy regardless.

People briefed on the matter said that Siddiq had discussed digital gilts with Jessica Pulay, who succeeded Sir Robert Stheeman as DMO chief executive this summer. Pulay was seen as “progressive” by many in the financial industry, said a person at one firm.

The Treasury has been exploring the possibility of digital gilts for more than two years. Former Conservative City minister John Glen spoke publicly about the idea in April 2022, during Boris Johnson’s administration.

While there has been limited public commentary from the government since then, former Tory City minister Andrew Griffith said he also pursued the idea.

“The DMO were resistant, even though it would have been a trial,” he told the Financial Times, adding that “the argument was that at a time when we were asking them to issue record numbers of gilts it was an unnecessary distraction”.

A paper by UK Finance and consultancy Oliver Wyman last year argued that digital bond issuances had helped countries such as Luxembourg, Switzerland and Singapore to raise their profile as leading markets for digital assets.

The European Investment Bank, the World Bank, UBS and Hong Kong Monetary Authority are among those to have issued digital bonds.

The DMO said it “welcomes technological innovation”, adding: “Whilst ultimately these are decisions for ministers, we continue to monitor very closely developments in this important and fast-moving area, working closely together with our colleagues in HM Treasury and in dialogue with financial market participants.”

The Treasury said: “We want to reinvigorate our capital markets to attract the most innovative companies to support investment across the economy.

“We have a strong working relationship with the internationally respected Debt Management Office and work closely with them to monitor developments around new technologies in this important and fast-moving area.”

FT : European carmakers brace for a deeper and longer downturn

European carmakers brace for a deeper and longer downturn
Profit warnings have come from a sector facing weak sales at home, intense competition in China and slowing EV demand

Profit warnings by carmakers including Volkswagen and Stellantis are stoking fears that the European industry will be stuck in a deeper and longer downturn.

At the start of 2024, the sector had expected a return to normal after Covid-19 supply chain disruptions were resolved, with vehicle production forecast to rise more than 2 per cent on the back of pent-up demand. Instead, companies are facing problems on multiple fronts, including intense competition in China, weak European demand and the region’s slowing shift to EVs.

“We’ve all assumed that things would normalise but they are taking a turn for the worse. All of a sudden there is an acceleration in negative factors and the magnitude of the deterioration is big,” said Jefferies analyst Philippe Houchois.

Carmakers also need to be braced for a longer downturn as they grapple with higher technology investments, lower EV margins and more competition from Chinese rivals as they make inroads into foreign markets, warn analysts.

“There are fundamental headwinds in pretty much every geography for the industry as a whole. It will be premature to say that in the course of 2025 things will start to look better,” said UBS automotive analyst Patrick Hummel.


The biggest headwind has come from China, the world’s largest car market, which has been hit by the property sector slowdown. Although Beijing has unleashed a swath of stimulus measures to bolster the economy, the likes of Volkswagen and Mercedes-Benz are likely to struggle as customers choose local brands with superior technology and low pricing.

Foreign brands’ market share of Chinese auto sales is at a record low of 37 per cent in the first seven months of 2024, down from 64 per cent in 2020, according to data from Automobility, a Shanghai consultancy.

The decline has been particularly steep for German carmakers, who now have less than a 15 per cent share compared with nearly 25 per cent four years ago, Chinese industry data shows.

In recent weeks, Mercedes-Benz and Porsche have warned of lower than expected profits as sales of luxury cars in China have been hit by sluggish consumer spending.

Western carmakers, which had enjoyed economies of scale from selling large volumes of petrol cars in China, will see those benefits declining as they lose their market share to local rivals offering state of the art EVs, according to Matthias Schmidt, an independent car analyst.

International carmakers would have to compensate for the squeezed margins by raising prices in other markets. “There are a lot of negative consequences [in the Chinese market] that are not staying within China’s borders,” he said.


In Europe, where higher interest rates have capped sales growth, car companies also are struggling with slowing growth in EV sales and supplier bankruptcies causing component shortages.

The outlook is unlikely to improve next year with new EU carbon emissions standards forcing European carmakers to sell more EVs rather than petrol cars despite sluggish demand.

“From a pricing perspective, 2025 could be a very difficult year in Europe,” said Daniel Schwarz, an automotive analyst at Stifel. “They have to sell more electric cars. People don’t want them. They have to provide more discounts for these cars.”

The slowing growth in electric vehicle demand also has fuelled a decline in overall European sales. During June to August, new vehicle registrations dropped 3 per cent for Volkswagen and nearly 10 per cent for Stellantis, according to figures released by the European car industry body.

Volkswagen, which counts China as its biggest single market, is considering shutting plants in Germany for the first time in its 87-year history as it seeks to cut costs to survive the challenges. Europe’s largest carmaker posted an operating margin of 0.9 per cent for its VW passenger car brand in the first half, and last week warned its overall operating profit margin would fall to 5.6 per cent in 2024, compared with last year’s 7 per cent.

The discounts in Europe will further pressure automotive cash flows, which are or will turn negative for Volkswagen, Stellantis and Aston Martin.

The industry also has been shaken by new supply chain issues following the increasing number of insolvencies among car suppliers, particularly in Germany.


UK luxury-car maker Aston Martin and Ineos Automotive, a new car brand launched by billionaire tycoon Jim Ratcliffe, have blamed component shortages for delays with production, while Porsche issued a profit warning in July due to disruptions caused by flooding at an aluminium supplier.

“Over the past six to nine months, blue-chip suppliers have had fires, floods or administrators appointed to an extent and a scale that I personally haven’t seen in my career,” Adrian Hallmark, Aston Martin’s new chief executive, told investors after the London-listed group cut its vehicle delivery target on Monday.

In addition to external factors, some of the problems have been self- inflicted, said analysts. Peugeot and Chrysler maker Stellantis, for example, is struggling in the US after it had priced its vehicles too high.

“We’ve made some mistakes this year and we’ve . . . paid the price in the share price,” Natalie Knight, chief financial officer at Stellantis, said recently. The group’s shares have more than halved since their peak in March.

Following its profit warning on Monday, the world’s fourth-largest carmaker’s operating profit margin is estimated to plummet to 2.4 per cent in the second half compared with 10 per cent in the first six months of the year. That is due to the heavy discounts the group is offering to US dealerships to clear high inventory in its biggest market.

Bernstein analyst Stephen Reitman said this year will be a pivotal test case as to whether car manufacturers will try to overcome slowing demand with painful cuts to production or turn to a bruising discount battle with rivals, which will hurt their profitability.

“We knew that 2024 was going to be a tough year and so a test of their pledges to favour value over volume,” Reitman said, adding: “If companies cut production instead of trying to kill each other with discounts, then investors may look a bit more positively at the sector. But if they fail and revert to old ways, it will be much more negative.

FT : China’s ‘World Bank’ gives its backing to wave of renminbi bonds

China’s ‘World Bank’ gives its backing to wave of renminbi bonds
Asian Infrastructure Investment Bank will provide guarantees and support for developing nations’ ‘panda bonds’

The Asian Infrastructure Investment Bank, Beijing’s answer to the World Bank, is giving its backing to what it believes will be a wave of renminbi bonds issued by developing nations wanting to tap Chinese investors.

Jin Liqun, president of the world’s second biggest development bank by members, told the Financial Times that he had seen “great demand” for local currency borrowing and that a number of countries had asked it for help on how to sell so-called panda bonds.

Last year Egypt used a guarantee from the bank, covering principal and interest, to issue on the Chinese mainland market. Jin said the bank plans to offer further guarantees or advice on such lending as it tries to foster the development of this nascent market and encourage funding for high-quality projects in developing nations.

“Some members have inquired about the experience of panda bonds issued by the Egyptian government, and they would like to do this,” said Jin. “We are responding to the needs of these countries.”

The AIIB’s support for the panda bonds market comes as China continues its long-running push to increase the international use of the renminbi and reduce reliance on the US dollar.

Beijing announced new rules in 2022 for debt issuance in the currency by foreign entities, allowing money raised domestically in China to be used offshore. Panda bond sales so far this year are already on course to surpass last year’s total of Rmb150bn ($21bn), as issuers including western banks and carmakers take advantage of Beijing’s reforms.

China’s cuts to domestic interest rates, as the world’s second-largest economy battles to stave off deflation, are also helping attract countries to the panda bond market.

However, so far relatively few foreign governments have chosen to use this less conventional form of borrowing. Concerns include a lack of buyers compared with the huge global investor base for bonds denominated in US dollars, and the fact the renminbi is still a far less easily tradable currency than the greenback.

Christopher Lee, chief analytical officer for Asia Pacific at S&P Global Ratings, said the “very low” domestic interest rates were “a big incentive” for borrowers, and also highlighted the attractiveness of guarantees from the AIIB. But he added that few foreign governments have so far come to the panda bond market because issuers still need to agree with regulators about how much of the money raised can be taken out of China.

“Repatriation is still an issue because China wants to manage its currency,” he said.

The AIIB accepted its 110th member state at annual meetings in Uzbekistan last week and has a triple-A credit rating, making the multilateral lender a powerful force to plug countries into a debt market that China wants to deepen. Its members include the UK, France and Germany.

Egypt became the first African country to issue renminbi debt in China’s onshore market last October when it sold Rmb3.5bn in three-year bonds under guarantees from the AIIB and the African Development Bank.

The debt had a coupon of 3.5 per cent, compared with prohibitive US dollar borrowing costs at the time, as Egypt grappled with a debt and currency crisis ahead of a devaluation and IMF bailout this year.

“Few investors in China knew about the Egyptian bond issuance. So without our guarantee, it would be very, very hard,” Jin said. “Even though it would increase [the cost] by a couple of basis points, compared to direct borrowing from us, Egypt could establish itself in the Chinese panda bond market.”

Chinese President Xi Jinping urged more African states in particular to issue panda bonds at a summit in Beijing with leaders from the continent last month, as part of a drive by the Chinese leader to foster international use of the renminbi.

Kenya, which joined the AIIB last month, said earlier this year that it was interested in selling panda bonds. Pakistan has also explored issuing the debt.

Both countries are battling to contain costs on new borrowing after receiving IMF bailouts this year. Both have been under pressure due to debts they racked up with Chinese lenders and private creditors in recent years.

New loans under China’s Belt and Road Initiative to build infrastructure projects across the developing world have slowed to a trickle, after a series of defaults and debt crises rocked Beijing’s policy banks.

China controls 27 per cent of voting rights at the AIIB, against less than 6 per cent at the World Bank. While a number of western countries have signed up to the AIIB, the US, which has about 16 per cent of World Bank votes, has not.

Jin, a former Chinese vice minister of finance who has led the AIIB since its inception in 2016, said the bank is focusing on “high quality” projects as many borrowers grapple with high debts.

“The big issue is, how could we help these countries attract external capital inflows without creating debt problems? Our answer is we need to push for productive investment,” Jin said.

“You may also have noticed that China, with regard to Belt and Road . . . they focused on the quality rather than the quantity, and I think you can see they’re also learning from their experience,” he added. “So far as we are concerned, we just want to make sure any financing we provide will work out to the best result.”

FT : China’s foreign investors hope stimulus will end ‘deep winter’

China’s foreign investors hope stimulus will end ‘deep winter’
International backers of Chinese equities want to see package backed by heavy fiscal spending

China’s stimulus package unveiled in the run-up to a holiday marking 75 years of the People’s Republic was greeted as a gift by ecstatic domestic investors. Now foreign investors need to decide whether to join the party.

The package, which targeted the country’s depressed stock and property markets, helped drive the benchmark equity index up 24 per cent in the space of a week. Hong Kong’s Hang Seng index rose nearly 7 per cent on Wednesday morning, while mainland Chinese markets were closed for the week.

Still, many foreign investors want to see if the package will be backed by heavy fiscal spending as they decide whether to upgrade underweight positions. Private equity and foreign direct investors, meanwhile, want reforms to fix underlying problems in China’s economy, such as how to boost domestic consumption and curb deflationary pressures.

“Is this time different? We have seen these fits and starts where China puts in place some kind of stimulus and it has not resulted in a long-term constructive recovery,” said Saira Malik, chief investment officer of US asset manager Nuveen, which has $1.3tn in assets under management.

“This time it still looks to us that its impact is greater for the stock market than the economy. Before we became more structurally bullish we’d be looking for more follow-through in terms of a pick-up in economic activity.”

Last week “was a clear turning point for the China A-share market . . . investor confidence has been restored significantly”, said Thomas Fang, head of China global markets at UBS, referring to shares listed in mainland China. He added that “follow-through measures” would be critical to convincing foreign investors to change their longer-term views.

The stimulus measures include unprecedented direct support from the central bank for institutional investors to purchase stocks and for companies to conduct share buybacks. The government also cut benchmark interest and mortgage rates.

The Communist party politburo, led by President Xi Jinping, strongly backed fiscal support for the economy, while cabinet head Li Qiang repeated the message on Sunday. This has strengthened expectations that fiscal spending will follow the monetary easing, though details have yet to be released.

Before the rally, many foreign fund managers were underweight on China. A monthly survey of global fund managers by Bank of America showed that in September, being short or negative on Chinese stocks was seen as the second-most crowded trade in the world, behind buying the so-called Magnificent Seven tech stocks that have driven US markets to record highs this year.

Before the stimulus-related rally, which increased China’s stock market turnover by about five times, the foreign share of trading volume was about 10-15 per cent, said UBS’s Fang.

“We anticipate that [global] funds will need to restore their Chinese investments to a more rational level,” said Yu Chen Jun, deputy chief investment officer for equities at Value Partners.

KraneShares CSI China Internet ETF, the largest China-focused, US-listed exchange traded fund by assets, reported $408mn in net inflows last week, the biggest since June 2022.

“When Xi Jinping gets involved you know the answer is unlimited support” for the stock market, said Beeneet Kothari, founder of Tekne Capital Management, which invests about $1bn in tech companies outside the US, more than half of which is in China.

“Then you get the benefit of higher stock prices creating more benefits at [the] CEO level, leading to higher spending and downstream effects,” Kothari said, adding that the fund had “aggressively” increased its positioning in China in the first half of 2024.

Investors had pulled $4.2bn out of US-domiciled China, Hong Kong and Taiwan equity ETFs and mutual funds from the start of 2024 until the end of August, according to Morningstar Direct data.

Michael Metcalfe, head of macro strategy at State Street, said inflows last Tuesday and Wednesday represented the strongest two-day run the bank had seen since China’s post-Covid reopening in January 2023.

State Street’s role as a custodian bank gives it oversight of asset flows. Investors are still underweight on Chinese stocks and are only reducing that gradually. “It depends on investors’ timeframe, but if in six months’ time, there’s more evidence that policy changes are biting, investors will be encouraged to reduce the underweight [position] more,” Metcalfe said.


Others cautioned that the Chinese market faced external risks such as the possible re-election of Donald Trump, who has promised to increase tariffs on Chinese goods.

“The difficulty is to run China risk into the US election, where Trump trades may make a comeback,” wrote Dirk Willer, Citi’s global head of macro research, in a note to clients on Friday.

Still, it was positive that China was seeking to stimulate the economy while the US was doing the same through interest rate cuts, said George Gatch, chief executive of JPMorgan Asset Management. “That is likely to be a positive for global demand and markets,” he said.

Outside listed equities, the sentiment of foreign investors is mixed, especially among private equity and venture capital firms, which have been hardest hit by China’s slump.

“It’s a very deep winter there right now,” said Ed Grefenstette, chief executive of Pittsburgh-based trust The Dietrich Foundation, which invests in private market funds.

He estimated that 40-80 per cent of the venture capital groups in China might not raise a new fund, which he said would be an “extraordinary restructuring of the system”.

But Yup Kim, chief investment officer of the Texas Municipal Retirement System, said: “Up until 2020 I was a very strong China bull. In the short term, it’s very difficult to say, but I do think in the next 10 to 15 years there’s just going to be a lot of equity value created across Chinese companies.”

Kevin Lu, a partner at the Swiss private equity firm Partners Group, said his company was “contemplating very seriously” setting up a local onshore renminbi-denominated fund.

For institutional investors, the confidence boost will need to be followed by more targeted fiscal measures, particularly to boost households suffering from depressed property prices, salary cuts and a weak job market.

“We’ve only just begun to see urgency on the part of the authorities there,” said Guy Miller, chief market strategist and economist at Zurich Insurance. 

Foreign executives in China are also circumspect. Julian Fisher, chair of the British Chambers of Commerce in China, said while “any measures to stabilise the economy and increase domestic consumption” were welcome, “it is far too early to tell” if this would benefit British business. He highlighted Beijing’s slow progress on market access issues for foreign investors.

Jens Eskelund, president of the EU Chamber of Commerce in China, said the strong signals on stimulus were positive, but fundamental reforms to rebalance China’s economy towards domestic demand were still lacking. “We don’t really see anything that indicates that China is moving away from that sort of investment-driven, state-led, export-oriented economy.”

Ultimately, said Archie Hart, co-portfolio manager for the emerging markets equity portfolios at Ninety One, “if this is the last policy pronouncement for a while, then euphoria will fade quite quickly”.

FT : Hungarian investors accuse Spain of breaking EU law over rail deal veto

Hungarian investors accuse Spain of breaking EU law over rail deal veto
Madrid blocked sale of Spanish trainmaker Talgo for political reasons, says Ganz-MáVag chief

Hungarian investors have accused Spain of ignoring basic EU freedoms by vetoing their attempt to buy Spanish trainmaker Talgo amid concerns about Budapest’s ties to Russia, but said they were interested in reviving the deal.

The Spanish government in August blocked Hungarian consortium Ganz-MáVag’s €600mn bid for Talgo on “public security and order” grounds.

In his first interview since the veto, Ganz-MáVag chair György Bacsa told the Financial Times: “The Spanish government set aside free enterprise in Europe . . . [especially] the free movement of capital, out of political interests. There is no other way to put it.”

His comments will stoke tensions with Spain as the consortium vows to launch a legal challenge against Madrid’s decision, starting in Spain’s Supreme Court.

The free movement of capital is one of the EU’s four fundamental freedoms — alongside free movement of goods, services and people — but member states can be permitted exemptions on security grounds. Claims that the principle has been breached can be heard at the European Court of Justice.

Spain has classified the documents explaining its decision, but a senior Spanish government official said one concern was that the Russia-friendly government led by Hungary’s hard-right Prime Minister Viktor Orbán would acquire Talgo technology that could instead be useful in Ukraine’s reconstruction after Moscow’s full-scale invasion of the country.

Talgo’s variable gauge system would enable trains to move seamlessly between Ukrainian train tracks and narrower rails in neighbouring European countries.

Bacsa said he had not heard the technology was an issue until the FT reported on it last month. “We are fighting excuses or attacks that we can’t grasp,” Bacsa said. “[The Spanish government] doesn’t share its arguments, and we don’t believe they have any professional or legal arguments . . . We don’t want to forget the Spanish market.”

He said the deal would have given Talgo the potential to expand beyond its traditional western markets into eastern Europe and central Asia: “This would have been a bridgehead for them.”

Bacsa said the Hungarian consortium was ready to move beyond Spain’s “double standards” and try again to seal a deal. “We won’t fight political battles,” he said. “We tabled a professional industrial plan. We remain open to it.”

Spain’s Prime Minister Pedro Sánchez has criticised Orbán as a fan of Russian President Vladimir Putin and said the Hungarian prime minister wanted “to bring Ukraine to its knees”.

Spain’s economy ministry said on Monday: “In strict adherence to the EU legal framework and after thorough analysis, the government determined that [authorising] this operation would have entailed insurmountable risks to national security and public order.”

Orbán’s government has locked horns with EU and Nato partners over its stance on the Ukraine war, with Budapest resisting EU sanctions against Russia.

Hungarian foreign minister Péter Szijjártó hosted a Russian trade forum in Budapest last month, hailing the two nations’ business ties. Following a meeting with his Russian counterpart Sergey Lavrov on the sidelines of the UN General Assembly in September, he praised their bilateral co-operation.

“Russia will always be a part of central European reality, so Hungary cannot afford to give up on these ties,” he told state media.

Ganz-MáVag, which launched the Talgo bid in March, is backed by an investment arm of the Hungarian state that holds a 45 per cent stake in the company and by trainmaker Magyar-Vagon (MáVag), which Spain asserts is “ultimately controlled” by Hungarian oil company MOL.

A MOL subsidiary manages Solva II, the private equity fund that holds the majority 55 per cent stake in the consortium. Bacsa is MOL’s chief operating officer, but he insisted the owners of the fund had “limited influence”.

A state loan backed more than half of the offer, which he said was essential as MáVag was too small to bid on its own.

Solva II’s owners remain hidden, although it has in the past been linked to MOL chair and chief executive Zsolt Hernádi, one of Hungary’s most influential businessmen. Other ventures in the Solva group are owned by Hernádi and his family members.

Bacsa declined to name MáVag’s owners, but said the full list was sent to Spanish authorities. “You will not find any Russian link, any Russian influence there. We cannot imagine what justifies the perceived Russian interest or influence and the resulting security risk.”

He acknowledged MáVag until recently had a Russian business partner: it was co-owner with Russia’s Transmashholding of a rolling stock manufacturer near Budapest until 2022.

“Until May this year, Transmashholding was 20 per cent owned by [France’s] Alstom,” he said. “If doing business with Russians before 2022 makes you [a] Russophile, half of Europe could be called that and excluded from business now. It’s nonsensical . . . a new form of McCarthyism.”

He also said MOL was under no Russian influence and had no major Russian shareholder nor “any exposure that would justify any suspicion”.

But Péter Buda, a security expert working at the Geneva Graduate Institute and a former Hungarian intelligence officer, said Moscow saw rail as a strategic sector.

“Western intelligence agencies co-operate,” he said. “There is a heightened sense among them that Hungary is using its companies to serve Russian strategic interests. Spain must have seen such reports. And the railway sector is seen in Russia as a logistical cornerstone of the military.”

FT : How long can Eli Lilly ride the weight-loss drug boom?

How long can Eli Lilly ride the weight-loss drug boom?
The company is set to become the first $1tn drugmaker, but investors see warning signs it has reached ‘peak enthusiasm’

Times are good at Eli Lilly. Wall Street’s insatiable appetite for weight-loss drug stocks looks set to turn the company into the world’s first $1tn drugmaker by market value.

But war stories about gloomier times are never far away when you run a pharmaceutical company. In the late 2000s, Eli Lilly’s share price neared all-time lows as patents of its blockbuster psychiatric drugs — chief among them Prozac, Zyprexa and Cymbalta — expired.

Consolidation was then sweeping the industry, recalls chief executive Dave Ricks, a 25-year veteran, and Eli Lilly was at risk of becoming “the back end of a hyphen to someone else”. The wheel of fortune has since turned. The company’s main problem is building production lines fast enough to meet demand for its blockbuster diabetes and weight-loss drugs Mounjaro and Zepbound, part of a new class of drugs known as GLP-1s.

The drugmaker has invested $20bn in manufacturing facilities over the past four years. The pool of possible patients is one of the largest of any drug in history: there are more than 100mn US adults with obesity and 1bn people worldwide.

“Everyone has a biomarker in their bathroom, it’s called a scale,” says Ricks, speaking from a production facility under construction on the site of Eli Lilly’s Indianapolis headquarters. “So many people get a benefit, and they get it pretty quickly, and so then there’s a consumer interest cycle that is pretty powerful.”


With the most potent weight-loss shot and a pipeline of 11 experimental treatments, including what is widely expected to be the first approved small molecule GLP-1 pill, Eli Lilly stands to be the biggest winner in a market that is projected to grow to $130bn a year in peak sales by the end of the decade.

But Ricks is far from complacent. He spends much of his time working to boost manufacturing capacity to outcompete rival Novo Nordisk. Meanwhile, Eli Lilly is fighting off competition from copycat weight-loss drugs and other drug developers entering the lucrative field, and coming under increasing pressure from politicians and patients over the price of its treatments.

Investors are also becoming wary over the company’s frothy valuation, which stood at $842bn as of market close on Monday, or 54-fold higher than projected earnings over the next 12 months, a height never reached before in the industry.

“Everybody is jumping blindly on [Eli] Lilly and all these stocks so they will keep grinding up but they are priced for perfection,” says one top-10 shareholder. “If investors get scared about the 10 other players with weight-loss drugs and the prospect of pricing pressure, they could be in trouble.”

But the company hopes to consolidate its position among the top 10 most valuable companies in the US by staying ahead of the competition. For Eli Lilly, this will mean pouring its extraordinary revenues into research and development to prepare for when its weight-loss drugs reach the so-called patent cliff when generic competition arrives, sometime in the mid-2030s.

The tech stocks that compete for the title of most valuable company — the likes of Microsoft, Apple, Nvidia and Google — share a “stickiness with their customers . . . that the pharmaceutical industry in the past has lacked”, says Daniel Skovronsky, Eli Lilly’s chief scientific officer.

The long-term mission for the company is not just to rise to greater heights but to avoid a return to darker times by cultivating some of that consumer loyalty. “Our mission”, adds Skovronsky, “is to get out of that boom and bust cycle of pharma”.

In 2018, after Swiss drugmaker Roche turned down the rights to license a promising GLP-1 pill to treat type 2 diabetes from its sister company Chugai, a rivalry dating back more than a century boiled up once again.

Eli Lilly beat out its Danish competitor Novo Nordisk for the rights to the experimental drug after a short bidding war, paying just $50mn upfront, according to two people familiar with discussions. Novo Nordisk declined to comment.

Skovronsky could not recall whether the pill’s potential as a weight-loss treatment was even discussed at the time of the licensing deal.

But the pill — now known as orforglipron, which looks set to be first small molecule anti-obesity pill if it launches as planned in 2026 — is one of several fronts in which Eli Lilly appears to be outmanoeuvring Novo Nordisk for supremacy in the weight-loss drug market.

“For a century, we’ve competed with [Novo Nordisk] directly or indirectly,” says Ricks. “Competition is good for consumers in that way: it speeds up things because you race, you work harder, we can iterate in ways that produce better products . . . so there has been a sort of leapfrogging.”


In 1923, Eli Lilly was first out of the blocks with a commercial insulin product to treat diabetes, which until then was considered a death sentence. Novo, then a standalone company before its merger with Nordisk, created a longer-lasting version and the first insulin pen.

In 1982, Eli Lilly launched the first synthetic, mass-producible version of human insulin. In 2005, Eli Lilly then created the first GLP-1 drug — a twice-daily injection, but Novo Nordisk would revolutionise the market with the launch of Ozempic in the US in 2017.

Despite Novo Nordisk being first to market, Eli Lilly has benefited from “a second mover advantage” with the launch of its weight-loss medicines, says Rajesh Kumar, head of healthcare equity research at HSBC. “They can see what traps the guy ahead of them is falling into,” he says, allowing them to ramp up manufacturing faster and to invest in next-generation products.

This year, Mounjaro and Zepbound, which are both based on the active ingredient tirzepatide, are set to generate $18.8bn in sales between them, according to analyst consensus estimates — edging closer to Novo Nordisk’s $27bn in projected revenues from Ozempic and Wegovy, despite being on sale for a shorter period of time. Sales from Eli Lilly’s GLP-1 franchise are projected to surpass Novo Nordisk’s by 2027.

If orforglipron launches on schedule in 2026, Eli Lilly would enjoy a two-year monopoly of the weight-loss pill market before rivals caught up. At the same time, the company is also developing retatrutide, a treatment that activates three different gut peptides and in mid-stage trials resulted in 24 per cent body mass reduction, far more dramatic than the effects of any existing treatment.

The company is also racing to prove the added benefits of tirzepatide for knock-on effects of obesity, such as sleep apnoea, cardiovascular risk and chronic kidney disease, helping to ease the path to wider insurance coverage. Medicare, the state-backed healthcare programme mostly for over-65s, only covers weight-loss drugs when a patient is suffering from another comorbidity.

“We’re going to eat the elephant one step at a time here . . . by proving the indications not just to lower weight but for the consequences of that,” says Ricks. “I think in five years we’ll look back and say mostly those diseases can be augmented by changing their weight . . . and the payers will look back and say, ‘Yeh, we should cover [tirzepatide] in all these conditions and the precursor condition which is medical obesity.’”

Beyond its longtime rival, Eli Lilly is also facing competition from other quarters. As many as 16 new obesity drugs could launch by the end of the decade, including from drugmakers AstraZeneca, Pfizer and Amgen, according to PitchBook.

But more imminently, Eli Lilly is fighting back against an array of copycat weight-loss drugs. The US Food and Drug Administration permits compounding pharmacies, which typically prepare customised medication, to reproduce trademarked drugs when there is a shortage, and these have flooded the market.

Ricks argues that there was “no rationality” for tirzepatide to remain on the FDA’s shortage list because of Eli Lilly’s efforts to ramp up supply, adding that compounding presented a risk to patients. “Let’s partner together to solve the production problem, let’s not use this trap door, which exposes Americans to adulterated products with unapproved [active pharmaceutical ingredients].”

With competitors at Eli Lilly’s heels and its key advantage being eroded, investors see warning signs that the company’s valuation may be nearing its peak.

A top-25 shareholder predicts that Eli Lilly will pass the $1tn milestone but says that is “close to the top”. “There’s the inevitable patent cliff, there’s competition and soon there’s going to be a price war to the bottom,” says the investor. “It seems like this is peak enthusiasm for [Eli Lilly].”

If Eli Lilly really wants to escape the pharmaceutical industry’s boom and bust cycle, its research and development team will have to get to work on discovering the next era-defining medicine. The task for Eli Lilly is to determine “what is your next giant pie-in-the-sky thing”, says one investor.

The company is hoping such opportunities may be hidden in the real-world data from the rollout of its anti-obesity medications.


Early signs suggest that the hundreds of thousands of patients prescribed tirzepatide are starting to see other surprising effects from the treatment: a reduction in anxiety and depression symptoms as well as better control over compulsive behaviours such as smoking and drinking, according to Skovronsky.

Eli Lilly has already put the treatments to work against autoimmune diseases, such as psoriatic arthritis, in combination with other medicines, but Skovronsky says that the effects on mental health and addiction “are intriguing enough that we’re considering . . . how to attack the question of whether these drugs can help those kinds of diseases”.

The drugmaker is also considering including people who are not overweight, but are at risk of weight gain, in future trials of its weight-loss pills and other treatments, suggesting it is already searching for ways to expand the weight-loss drug market.

The biggest question for Eli Lilly, however, is what the company will do with the unprecedented windfall from its weight-loss drugs.

Between now and 2030, analysts expect the business to generate $187bn in free cash flow, with which Eli Lilly can do whatever it wants. As one venture capitalist put it: while industry watchers are obsessing over Eli Lilly’s market value, what will be more defining is what Lilly does “once the money comes in the door”.

“Our capacity to spend is going up so we should look at everything but probably not change our principles,” says Ricks, adding that he favoured early-stage R&D bets over big, set-piece acquisitions that provide a bump in revenues but curtail growth.

“When this company’s future was in doubt . . . we made a bet on R&D and we survived that by being inventive,” says Ricks, pointing to how the company persisted with diabetes and obesity research when other pharma groups gave up.

“That’s probably the way we maintain momentum by being inventive,” says Ricks. “We deploy dollars by project, not by some top-down math . . . so that requires us to get into the weeds on each project and get excited about it or not.”

When Merck’s blockbuster cancer immunotherapy drug Keytruda launched in 2014, Skovronsky recalls rushing to catch up and launch Eli Lilly’s own version of the class of drugs known as checkpoint inhibitors. He predicts that many rival drugmakers will miss the next wave of innovation as they try to find a route into the obesity market.

Meanwhile, Eli Lilly will have the breathing room to pursue its next big innovation: now that Kisunla, its treatment for people with early-stage Alzheimer’s, has been approved in the US, it is putting the medicine to work as preventive treatment for the incurable brain disorder.

Skovronsky adds that Eli Lilly, whose previous biggest drug was depression treatment Prozac, is likely to push back into psychiatry. Non-opioid painkillers are also an area of potential growth, as the US continues to search for solutions to the opioid crisis.

Companies “have gotten challenged by investors in the years coming up to the cliff not because the rest of the business isn’t growing through the cliff but because the rest of the business just is uninteresting”, says Jacob Van Naarden, who runs Eli Lilly’s oncology division.

For Eli Lilly, the challenge will be to prove to investors that the rest of its business can be as attractive as its blockbuster GLP-1 drugs. “If you remove the diabetes and obesity businesses, they don’t execute that well,” says one investor. “There’s some risk in just going into new areas, because just like Novo actually they’re really good at this one thing . . . the rest are a mixed bag.”

And the odds are long. Discovering hugely popular medicines like statin Lipitor, autoimmune medicine Humira, Keytruda and now the GLP-1s “happens pretty infrequently and usually not by the same company twice in a row”, says Van Naarden. “Maybe it’s us — that’d be great.”

FT : How Ozempic is transforming your gym

How Ozempic is transforming your gym
Weight-loss drugs and a new focus on wellness are pushing many exercise machines towards obsolescence

Hold tight to your free weights — the Ozempic revolution is coming to a gym near you.

The runaway success of “GLP-1” weight loss and diabetes drugs, which also include Wegovy and Zepbound, is hard to overstate. Sales are expected to approach $50bn this year, making them the top-selling class of drugs worldwide. That is despite global shortages, high prices and the fact that the drugs are largely available only in injectable form so far. Sales are expected to more than double to $130bn by 2030 and could soar higher if the makers win permission to sell them as a preventive tool.

For pharma groups Novo Nordisk and Eli Lilly, soon to be joined by others, this is fabulous news. For others, it is likely to be really bad. Diet company WeightWatchers recently changed chief executives as it struggles to adjust, and soft drink, beer and snack company shares have been on a wild ride as investors try to figure out who will be hurt the most when consumers taking the drugs eat healthier food and fewer calories overall.

For gyms and health clubs, the impact is going to be huge but complicated for an industry that is still rebuilding after Covid. The pandemic put a quarter of US fitness centres out of business and reshaped commuting and exercise patterns. Weight-loss drugs are likely to supercharge a consumer rush towards strength training equipment that has been gaining force for more than a decade, and many gyms are still ill-prepared.

Ten years ago, most health club floors were seas of treadmills, elliptical machines and stationary bikes, with fixed weight machines along the edges along with a free weight area geared towards power lifting, mostly by men. But the pandemic and concurrent rise of apps and YouTube videos that gave people access to personalised fitness routines has made that configuration all but obsolete.

Customers still use treadmills but both sexes now seek out a wider range of strength training equipment, including barbells, dumbbells, medicine balls and the like. Clubs, seeking to boost membership, have also leaned into the social aspects of in-person fitness, from group classes and personal trainers to cafés and hang-out areas.

Gyms are pushing their stair climbers and fixed weight machines to the periphery and replacing them with open space for body-sculpting classes, free weights and individual training sessions.

“We’re seeing a greater demand for space for strength,” Colleen Keating, CEO of Planet Fitness, one of the largest listed gym groups, told analysts in August. Even Peloton, famous for its cardio-intensive bikes, is testing an app focused on strength training.

The shift takes time and money. The now less-popular cardio machines are often sold on multiyear leases, while strength training equipment generally requires an upfront investment. The delay is leading to uneven usage and customer complaints at clubs that have not made the shift.

Weight-loss drugs will exacerbate the pressure. As the drugs gain acceptance, fewer people are likely to rely on exercise as their primary weight loss tool and the drugs’ side effects, nausea and intestinal distress, can make high-impact cardio activities uncomfortable.

However, GLP-1 users still need the gym. Studies suggest that the drugs cause significant muscle loss along with fat, leading to problems with balance and mobility as well as saggy skin sometimes dubbed “Ozempic butt”.

Strength training seems to be the answer not just for GLP-1 users but everyone else. A growing body of medical literature suggests strength training cuts mortality, particularly for women, while also helping to prevent osteoporosis and relieving the symptoms of depression.

“It’s gone from being health and fitness to health and wellness, which is a lot more holistic” says Eleanor Scott, a partner on PwC’s leisure strategy team.

Foot traffic to popular US gym chains Crunch Fitness and EoS Fitness is up by double-digits year on year, according to data provider Plaicer.ai. Planet Fitness has added 2.7mn members since the start of 2023 and improved its profit margins.

For all of them, the combination of strength training with prevention creates a chance to win, or win back, older customers still wary of gyms post-Covid. Although 80 per cent of baby boomers participate in fitness activities, just 42 per cent belong to a gym, compared to nearly three-quarters of active Gen Zers and millennials, according to ABC Fitness. But growth will not follow if newcomers end up fighting the regulars for access to the dumbbells.

>>> NIKE on the call: Withdrawing FY25 guidance given CEO transition; to provide

NIKE on the call: Withdrawing FY25 guidance given CEO transition; to provide quarterly guidance for balance of the year
  • Co's previous FY25 guidance:
    • Expect reported revenue to be down mid single digits (reduced from initial outlook of positive growth).
    • 1H25 down high single digits. Foreign exchange headwinds have worsened and will now have a 1 point translational impact on revenue in FY25.
    • Expect gross margin expansion of approximately 10 to 30 basis points on a reported basis.
  • Co also decided to postpone its Investor Day.
  • Co added commentary regarding business trends:
    • Revenue expectations moderated since start of the year; expect a similar impact and scale to Q1.
    • See indications of slight second half improvement in revenue trends versus first half.
    • Expect gross margin to decline versus the prior year due to incremental headwinds.
  • Co provided Q2 guidance:
    • Expects revenue to be down 8-10%, gross margins to be down approximately 150 bps.

>>> US After Hours Summary: CRGY +7.4% up big on inclusion in S&P SmallCap 600;

After Hours Summary: CRGY +7.4% up big on inclusion in S&P SmallCap 600; NKE -6.1% slipping on Q1 results and withdrawn FY25 guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CALM +0.9%

Companies trading higher in after hours in reaction to news: CRGY +7.4% (replacing PRFT in S&P SmallCap 600), GLDD +4.5% (dredging awards totaling $342.3 mln), OZK +2.8% (increases dividend), TXG +1.9% (mega-scale single cell analysis), AVAV +1.6% (successfully flight tests solar-powered aircraft), MITK +1.2% (appoints new CEO), KIM +1.1% (acquires Waterford Lakes Town Center), CACI +0.7% (acquires Applied Insight), SWBI +0.6% (FBI releases NICS background checks data), OPEN +0.5% (appoints new CFO), CVS +0.3% (Glenview Capital not pushing for break-up), DUK +0.3% (rebuilding power grid in SC), CAE +0.3% (signs 25-year sub-contract valued at $1.7 bln), FANG +0.1% (revises Q3 production guidance), SMC +0.1% (to acquire Tall Oak Midstream Operating, LLC)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: NKE -6.1% (also withdraws FY25 guidance), RGP -4.6% (also announces new brand identity)

Companies trading lower in after hours in reaction to news: LPLA -4.7% (CEO terminated; names interim CEO), BA -0.2% (largest union appeals to CEO, according to Reuters), TDOC -0.1% (COO to resign), IR -0.1% ($135 mln worth of bolt-on acquisitions)