TheChek News Flow

Novo Banco IPO would cement Europe’s periphery bank renaissance

Europe’s problem banks now appear to be some of those best positioned for growth

The name might not be overly original but Portugal’s Novo Banco (New Bank) could live up to the billing for investors. The bank is what remains after the calamitous break-up and bailout of Banco Espírito Santo (BES) in 2014. The country’s second-largest bank at the time failed spectacularly and had to be placed into resolution. Rebirth has been the story since. With a lengthy government-backed bailout practically complete, Novo Banco could be the first European bank initial public offering in years.

Portugal is sharing in the broader comeback enjoyed by what was once Europe’s problematic periphery. Alongside countries such as Italy, Spain and Greece, it is outperforming economically. That is especially true when it comes to banks, which after years in the doldrums have won the attention of investors thanks to higher interest rates. With balance sheets cleaned up and stricter lending standards, Europe’s problem banks now appear to be some of those best positioned for growth. If successful, a Novo Banco IPO would capitalise on near-peak profits and renewed interest in the sector.

Novo Banco is the country’s fourth largest bank, focused on individuals and SMEs with a 15 per cent share in corporate lending and a tenth of the mortgage market. Under the steady hand of former AIB banker Mark Bourke, its transformation under the special regime in place since 2014 is almost complete.

This involved the workout of about €8bn of legacy assets left over from the BES days. A contingent capital agreement worth €3.9bn with the resolution fund was designed to keep the bank’s CET1 capital above a minimum of 12 per cent following losses. That mechanism officially expires in December 2025 and only has about €500mn of capacity left (that is almost certainly not needed). Until then, however, Novo Banco is unable to pay dividends.

The bank wants regulators to close the mechanism early so it can get the ball rolling on capital returns. A CET1 ratio at 19.9 per cent as of June this year means ample spare cash to fund investor payouts. It would also be the trigger for an IPO, pushed by 75 per cent shareholder Lone Star Funds.

Strong growth in net interest income helped achieve returns on tangible equity of more than 20 per cent last year. That has likely peaked, depending on the path of interest rates. Asset quality is also good, the average mortgage loan-to-value is under 45 per cent.

That could earn a multiple at the higher end of where Spanish banks are trading: 7 times forward earnings would value Novo Banco’s equity at just under €3bn. That would mean a return for Lone Star of around double its investment — and another score in the comeback for Europe’s banks.

Fund managers are flush with cash but uncertainty over subsidies and tariffs has chilled activity

US investors are pouring money into funds that finance infrastructure projects from wind farms to data centres, only to find their fund managers are worried they cannot quickly sign attractive deals.

A cool-down in infrastructure deal activity is being blamed on uncertainty over the outlook for green energy subsidies and tariffs, ahead of a US presidential election that looks too close to call, according to market participants.

Fundraising by asset managers focused on infrastructure has come back to life, beginning with the launch last December of a record $28bn fund by Brookfield that ended a drought of almost 18 months.

In the first half of 2024, North American infrastructure funds raised a further $10bn, compared with $4bn in the same period last year, according to Preqin data. The third quarter has also started strongly, with almost $7bn raised in July and August so far, compared with just $2.5bn in the same period last year.

And the numbers are expected to climb further after rising equity markets gave pension funds and endowments the ability to increase their allocations to alternative, illiquid investments. Infrastructure funds are pitching themselves as a way to lock money in high-yielding assets before interest rates start to come down.

This month, Los Angeles Fire and Police Pensions approved reallocating 2 per cent of the $31bn fund to infrastructure investments from commodities. Infrastructure “may provide the plan higher expected returns in periods of stable and falling inflation and would have a lower correlation to public equities”, the pension fund’s adviser, RVK, said in the meeting agenda.

The $274bn New York City retirement system also said its funds have increased their exposure to infrastructure by up to 2 per cent since late last year.

The global energy transition away from fossil fuels is driving investor interest, becoming the fastest growing subsector in infrastructure, according to Campbell Lutyens, another advisory firm.

“We count at least 110 energy transition specialist private funds in the market now trying to raise some $170bn,” said Gordon Bajnai, Campbell Lutyens’s chief executive. “That by far outstrips any other areas of specialisation, like data [centres] and transport.”

But actual infrastructure deal flow this year has not risen to match the inflows, and the projects that have come to market this year have tended to be smaller. The total value of deals remains far below 2021 and 2022 highs. Despite being flush with cash, infrastructure fund managers are proving cautious.

Former president Donald Trump has stated his intention to dismantle large parts of the Biden administration’s Inflation Reduction Act, which provides incentives for domestic industry and clean technology, if he is returned to the White House in November. He has also vowed to introduce new tariffs on imports.

“We can’t accurately cost a project, therefore we can’t price it,” said David Scaysbrook, co-founder of Quinbrook Infrastructure Partners, which raised $3bn for its renewable energy fund earlier this month.

“We have to be more cautious over the next 12 months on committing to projects. There’s a bit of a stalling of momentum until we have more certainty around costs.”

The looming election means more delayed deals or projects taking longer to come to market, said Mark Widmar, chief executive of First Solar, the largest US solar manufacturing company. “You’re going to be in this window with a lot of uncertainty for a period of time. It will be very disruptive for the industry.”

Some asset managers are banking on a surge in deals after polling day in November when the political make-up of the White House and Congress becomes clear.

Steven Meier, chief investment officer for New York City retirement system, said if Republicans win, “there may be some pullback in some of the infrastructure initiatives”, but the long-term outlook remains positive.

“The demand and the need is there.”

Complex Russian share swap scheme falls short of targets

Caution on part of foreign investors undermines attempts to return over $1bn to millions of country’s retail investors

A complex scheme devised by Moscow to swap Russian and western investors’ frozen assets and return more than $1bn to ordinary retail shareholders has fallen short of the Kremlin’s expectations, with less than 10 per cent of the original target delivered.

Investitsionnaya Palata, a little-known brokerage in Voronezh, a city closer to the Ukrainian border than it is to Moscow, operated the scheme. But it managed to secure just Rbs8.1bn ($89mn) for the millions of ordinary Russians whose foreign share purchases were locked in custodian accounts at Clearstream and Euroclear after the west imposed sanctions in the wake of Russia’s full-scale invasion of Ukraine in March 2022. 

Just over 708,000 Russians were able to receive funds — far fewer than the 3.5mn that have had their assets trapped for more than two years — after interest in the scheme from foreign investors proved more lukewarm than Russian officials had hoped. 

Investitsionnaya Palata received an exclusive mandate from the Kremlin in March to operate the swap programme. Moscow hoped it would enable ordinary Russians to prise back up to Rbs100bn ($1.12bn) worth of foreign equities frozen by sanctions imposed by Ukraine’s western allies.

The brokerage finished the first round of the scheme last week, and revealed that it was undersubscribed on both sides. Ordinary Russians submitted applications to sell shares worth about half the allotted amount, while foreign investors were only willing to take up about a fifth of the offers. 

The brokerage has not yet set a date for a second round, and is still considering whether or not to press ahead.

Russian stocks were hit by western sanctions just after the country’s citizens had begun to develop a taste for private investment. 

In the years after the 1990s, most people in the country viewed the stock exchange as a casino, preferring to keep their money in banks, where double-digit interest rates provided high returns on deposits, or simply under their mattresses. 

But in the late 2010s the government began offering tax benefits for equities investments, and brokerages made investing possible with just a few taps on a smartphone app. In 2017, there were just over 1mn personal Russian accounts on the Moscow Exchange — by mid-2024, that number had grown to more than 30mn. 

On the other side of the swap scheme are foreign companies with at least Rbs600bn trapped in Russia, in so-called Type C accounts, which are overseen by the Russian state.

Initially, Investitsionnaya Palata seemed confident in the programme’s success. “Everyone is keen to swap,” CEO Alexey Sedushkin told the Financial Times in May.

But many foreign investors had reservations.

The head of a European investment company assisting clients with assets blocked in Russia said their customers kept asking: “How do I know who I am ultimately buying from? Who is the real counterparty? What if I violate restrictions?”

The scheme’s attractiveness for foreign investors was further hampered in June, when US sanctions hit the Moscow Stock Exchange — Russia’s main platform for securities trading — and its subsidiaries, the National Settlement Depositary (NSD) and the National Clearing Centre.

Sedushkin said the sanctions “were not expected to significantly impact non-residents’ ability to buy back Russians’ securities”.

“Non-residents will interact directly only with the programme operator, which is not subject to any restrictions,” he said, adding that investors could specify in their bid that they did not want to buy securities from sanctioned persons.

Both Euroclear and Clearstream, which operate from Belgium, discouraged investors from participating. 

“We believe that the market understands generally that an elective asset swap may not be consistent with western policy goals,” a person familiar with Clearstream’s thinking said. 

Euroclear, which holds most of the frozen Russian shares, said it was “not involved in the process”, while clients participating “would do so fully at their own risk”.

Successful Russian retail investors have already received their cash, but foreign investors still face a struggle.

Those whose bids were successful became the owners of assets that are currently held in custodian accounts of Russia’s NSD at Euroclear and Clearstream.

To transfer the stock from the NSD to a foreign custodian, new shareholders needed to contact either Euroclear or Clearstream and the authorities in their own country to obtain approval for the asset transfer.

Essentially, the foreigners exchanged the risk that the Russian government would never allow them to withdraw their roubles for the risk that the European authorities would not permit them to withdraw securities held in an NSD account.

While, several Russian law firms, including BGP Litigation and Delcredere, have reported successful instances of unblocking Russian-owned assets held by European depositories and transferring them to non-sanctioned, non-Russian accounts, these were individual cases unrelated to the swap scheme.

“We have clients who have not only received positive permission from the Belgian treasury but have, in fact, already transferred their assets to a western jurisdiction,” Sedushkin said. “I am sure that European authorities will make such decisions faster for their own citizens.”

However, two people familiar with the matter said the asset swap scheme would likely circumvent EU sanctions against Russia.

The person familiar with Clearstream downplayed the likelihood of earlier precedents being replicated on a large scale.

“We are aware of only a very few specific cases where the EU competent authorities have authorised investors to withdraw assets from NSD’s accounts in the EU,” the person said.

Top defence contractors set to rake in record cash after orders soar

Industry could step up share buybacks as large M&A opportunities are limited, analysts say

The world’s largest aerospace and defence companies are set to rake in record levels of cash over the next three years as they benefit from a surge in government orders for new weapons amid rising geopolitical tensions. 

The leading 15 defence contractors are forecast to log free cash flow of $52bn in 2026, according to analysis by Vertical Research Partners for the Financial Times — almost double their combined cash flow at the end of 2021. 

Five top US defence contractors are forecast to generate cash flow of $26bn by the end of 2026, more than double the amount in 2021. The figures exclude Boeing, given its recent problems and heavy weighting towards civil aerospace.

In Europe, national champions BAE Systems, Rheinmetall and Sweden’s Saab, which have benefited from new contracts for ammunition and missiles, are expected to see combined cash flow jump by more than 40 per cent.

The industry is benefiting from a sharp increase in military spending as governments increase their budgets in response to Russia’s full-scale invasion of Ukraine and escalating tensions in the Middle East and Asia. 

In the US, recent aid bills for Ukraine, Taiwan and Israel allocated nearly $13bn for weapons production at America’s five biggest defence groups — Lockheed Martin, RTX, Northrop Grumman, Boeing and General Dynamics — and their suppliers. In the UK, the Ministry of Defence has committed £7.6bn for military aid to Ukraine over the past three years, including for stockpile replenishment. 

The government spending surge has already propelled order books to near record highs. It typically takes several years for new contracts to translate into higher sales — defence companies book the majority of their sales once weapons are delivered — but the growing cash flows are already prompting debate about how the industry will spend the money. 

“It’s the billion-dollar question for the industry: companies typically don’t like holding large amounts of cash on their balance sheets, so what do they do with all that money if acquisitions are not that straightforward? Share buybacks and dividends are one way,” said Robert Stallard, analyst at Vertical Research.

Companies had already directed billions of dollars into share buybacks before the recent flood of new orders; some took on extra leverage to do so. Last year was the strongest for buybacks by aerospace and defence companies in both the US and Europe for the past five years, according to data from the Bank of America, although levels remain far below those of other sectors.

Lockheed Martin and RTX bought back close to $19bn in stock between them last year. In Europe, BAE Systems this summer concluded a three-year £1.5bn buyback programme and immediately started a further £1.5bn buyback. 

The large repurchases using taxpayers’ money by US contractors have prompted criticism among some lawmakers who have questioned whether companies are investing enough in new facilities and production. Executives have insisted they are boosting capital spending even as they return money to investors.

Companies will also be looking for more deals, said analysts, while cautioning that big purchases would be restricted by regulatory concerns about competition.  

“M&A is inevitably the next stage in the cycle,” said Nick Cunningham, analyst at Agency Partners. “Given how long-cycle the industry is, it takes a while for the capacity to be created and for the money to flow but the huge growth in the market will generate activity.”

Rheinmetall earlier this month announced a $950mn deal for the Michigan-based military vehicle parts maker Loc Performance. The German contractor said the deal would boost its chances of winning US Army contracts for combat vehicles and tactical trucks worth more than $60bn.

Armin Papperger, chief executive, told analysts the scale of the US military and its orders made it worthwhile to adapt to the country’s strict requirements for foreign defence contractors, such as maintaining a separate corporate structure with parallel management and domestic production.

“Even if we don’t catch one of the big fishes, we will catch smaller fish and small fish are worth billions in the United States,” he said.

Analysts at BoA noted that while Rheinmetall had not yet decided how to finance the deal, it had enough cash as well as available credit lines to move forward, adding that the company was expecting to end the year with a cash position of about €1bn.

Others that have done deals in North America recently include Renk, the tank gear box maker that was recently partially listed in Frankfurt, which last year acquired Canadian maker of suspension components General Kinetics. 

Czechoslovak Group is bidding for the ammunition business of America’s Vista Outdoor. BAE Systems last summer paid $5.6bn for Ball Aerospace, a supplier of mission-critical space systems. It funded the deal through existing cash and new external debt.

More activity is expected in Europe’s increasingly competitive space industry. Airbus, Thales and Leonardo are looking at merging some of their space activities. The ambition would be to create a pan-European alliance in space similar to that of MBDA, Europe’s missile champion, people familiar with the talks have said. 

The prospect of larger-scale consolidation is unlikely given competition concerns. 

“There is still room for mid-sized companies to buy others without regulatory authorities or ministries of defence becoming terribly upset,” said Byron Callan of Capital Alpha Partners, adding that some private equity-owned defence businesses may also come to market in the future. 

While defence spending is likely to remain strong over the coming years, the recent jump in orders will probably tail off, especially once the war in Ukraine ends. 

Callan said: “It is a cyclical business. As much as people talk about 10- year demand cycles, politics can change and security assessments can change and so too can defence demand.”

Venture group G Squared raises $1bn to invest in discounted start-up shares

Slowdown in public listings and takeovers means staff and investors are selling shares for cheap on secondary market

The venture capital group G Squared has raised $1.1bn for its latest fund to capitalise on growing investor demand for its strategy of buying pre-existing stakes in start-ups.

Founded in 2011 and based in Chicago, G Squared has backed technology groups such as artificial intelligence company Anthropic and cyber security specialist Wiz.

While typical venture capitalists focus on buying new shares in start-ups, G Squared invests most of its funds in existing shares, bought directly from start-up employees and investors who want to sell some of their holdings. 

The secondary market has been growing because of a slowdown in the public listings and takeovers that would otherwise allow shareholders to sell their stakes.

The new fund is the company’s sixth and of a similar size to its previous one. According to founder and managing partner Larry Aschebrook, it will now have about $4bn of assets under management. 

Aschebrook said many fund managers faced pressure from their institutional investors to return cash, but were finding it hard to do so because of the slow market for initial public offerings.

“For years companies and traditional growth mangers viewed secondaries as something that was bad,” he told the Financial Times. “Thankfully, finally it’s our time to shine.”

Other groups are also seeking to capitalise on the challenging market, such as Pinegrove Capital Partners, a new group backed by Brookfield Asset Management and Sequoia Heritage that was founded last year to target buying shares in cut-price start-ups.

Aschebrook said investors can buy shares in the secondary market at about a 30 per cent discount to company’s value, and at a 70 per cent to 80 per cent discount to the prices investors paid during the low interest rate-fuelled boom times of the coronavirus pandemic.

G Squared has also backed businesses including sports merchandiser Fanatics and European ride-hailing group Bolt.

It bought about $135mn of shares in Amazon-backed Anthropic from FTX, as part of the crypto exchange’s bankruptcy proceedings.

G Squared says it has a “concentrated” portfolio and has generated about double the cash that investors pay in — a metric known as “distributed to paid in capital” or DPI — over its five-to-seven-year investment timelines.

Only 9 per cent of venture funds raised in 2021 have returned any capital to their ultimate investors, according to Carta, a software company used by start-ups to track their investors. By comparison, a quarter of 2017 funds had returned capital over the same time horizon.

There are some signs of increased activity in venture markets such as the recent investment in UK financial technology group Revolut — in which G Squared is also an investor — and Aschebrook said he saw an improvement.

“You’re seeing the market pick up in bidding on secondaries,” Aschebrook said, with a focus on “really big, mature businesses”.

SocGen’s Slawomir Krupa struggles to turn tide as investors snub lacklustre reset

Shares have fallen 19% since CEO outlined new strategy focusing on capital rather than growth

The night before Société Générale’s chief executive Slawomir Krupa was due to lay out his strategy for the French bank last September, he warned his board to brace themselves for a share price drop.

The 50-year-old believed too much hype surrounded the plan he had concocted as a dose of reality for France’s third-biggest lender, people close to the discussions said. 

Almost a year on, that caution has proved salutary. The stock tanked about 12 per cent that day. But it did not stop there. Long a straggler compared with other European banks and diminished since a rogue-trading scandal in 2008, SocGen has trailed peers further, its stock down 19 per cent since the presentation.

That has only turned the pressure up on the man tasked with breaking this downward trend. Krupa’s blunt approach, rooted in his experience heading the bank’s US operations, has focused on rebuilding capital.

But this has meant further shrinking a lender that competed neck and neck with crosstown champion BNP Paribas before the global financial crisis of 2007-2008, while contending with muted revenue growth. Though all French banks suffered because of external factors this year — including an uncertain domestic parliamentary election in June and July — SocGen is now worth a quarter of its Parisian rival and has been overtaken by Crédit Agricole, trailing both banks’ profitability.

The lacklustre strategy has yet to convince shareholders, who sent the shares down earlier this month when SocGen downgraded its outlook for its French retail bank, overlooking otherwise encouraging signs from its equity trading teams.

Referring to the unravelling of Credit Suisse, which was long seen as one of the weak links in Europe’s banking sector before being taken over by Swiss rival UBS in a government-brokered rescue operation, Morningstar analyst Johann Scholz said focusing on capital was “probably the correct strategy”.

“But you’re starting to see some concerns that more restructuring is needed, which needs to be funded . . . To get the cost-to-income ratio down, SocGen can’t really rely on the income side.”

Insiders and analysts had complained that loftier but previously unattained goals had been detrimental to SocGen under Krupa’s predecessor, Frédéric Oudéa. Krupa, a Franco-Pole who spent five years managing SocGen’s US business, has been applauded for his “no bullshit” ways by some clients and advisers, even if his more meritocratic, incentive-based approach has meant ruffling feathers among some veterans.

Sales of non-core businesses in the past 12 months at SocGen, from divisions in countries where it had less clout such as Morocco or Madagascar to an equipment finance unit, have raised more than €2.7bn. This has contributed to an improved capital outlook, with guidance lifted to 13 per cent core tier one by the end of this year — albeit lower than some peers. 

More trimming is expected. About 900 jobs are to be cut by the bank in France, including at its headquarters in La Défense, the Paris business district. But in the meantime the bank needs to lift returns.

“Slawomir is in a difficult situation — not by his own making, but he has very few alternatives apart from very gradually transforming the bank,” said one former senior SocGen executive. “There is no excess capital. He has to cut costs and probably unwind some of the bad deals he has inherited.”

Once a magnet for the brightest French maths graduates, SocGen’s cachet has been dented by the shock €4.9bn losses generated by the unwinding of trader Jérôme Kerviel’s rogue trading positions in 2008. It has since been prone to other mishaps. The bank exited Russia in 2022, taking a €3.3bn hit.

Brighter spots include a thriving online banking franchise, Boursobank. Krupa is also seeking to change the culture in the investment bank, people familiar with the overhaul said, including through changes to remuneration structures, with bonuses tied to originating new mandates.

Krupa has equally signed deals such as a recent partnership in private credit lending with Brookfield Asset Management, a novel model for a European bank, or a tie-up with AllianceBernstein in equities. The idea is partly to shift the bank into an “asset light” model.

There are setbacks elsewhere, however. Penalised, like French peers, by local rules that limited how quickly banks could pass on interest rate rises to clients, SocGen performed worse than European rivals. It further scaled back its expectations for margins in the business this year, partly because of costly deposit payouts in France.

Krupa was one of two insider contenders for the top job. Though a SocGen veteran educated in France, he was less of a classic establishment choice than Sébastien Proto, a former Rothschild banker who graduated from elite school ENA the same year as President Emmanuel Macron and worked as an adviser to former president Nicolas Sarkozy. 

Krupa, who previously headed SocGen’s investment bank, likes to say “facts over feelings”, according to people who work with him, earning him appreciation from big US fund managers.

“He has a diversity of cultures and experience. He knows how to be French when needed and American when he’s closing a deal, for instance with Bernstein,” said Alexandre Fleury, named co-head of the investment bank alongside Anne-Christine Champion in a series of reshuffles.

“That’s one of the values he brings — he’s worked in several parts of the bank, in several countries and seen different perspectives.”

Krupa’s capital focus has translated into an “everything could be on the table” approach, two people at the bank said, in which businesses are constantly under review.

That has been destabilising, some employees said. Meanwhile, Krupa’s decision to change the parameters of an annual French employee bonus scheme — that shrank the pot last year — has also irked.

Krupa has had occasional clashes with SocGen chair Lorenzo Bini Smaghi, people familiar with the matter said, but the disagreements have been out in the open as part of board discussions and sometimes even welcome, they added.

To add to the bank’s structural woes, Krupa has to deal with the regular takeover rumour, such as when Macron reignited speculation that SocGen could be a bid target in May.

Replying to a Bloomberg TV question, Macron said that “of course” the lender could be bought by other European rivals. The comments, which the president later said had been misinterpreted, caused internal frustration, SocGen insiders said.

“The president was talking about European political questions,” Krupa told a shareholder meeting that same month. “The probability of a large-scale operation, a cross-border operation in Europe is, from my perspective, nil.”

Despite the speculation, the bank could be a target and, given the fact that SocGen shares are cheaper than comparable rivals, it might be too early for investors to pile back in, said Jérôme Legras, head of research at Axiom Alternative Investments.

The clumsy handling of the first strategy reset a year ago was still too fresh, he noted. “They got burnt.”

Messaging app calls it ‘absurd’ for French authorities to hold its chief responsible for abuse of the platform

Messaging app Telegram has said its chief executive has “nothing to hide” after French authorities detained Pavel Durov at the weekend for alleged failures in content moderation.

In a surprise move that has escalated the global debate over free speech and raised tensions with Moscow, the Russia-born billionaire was arrested at Paris-Le Bourget airport when he arrived in the country on his private jet from Azerbaijan on Saturday evening, according to French news agency AFP.

The Paris prosecutor’s office has confirmed an active investigation into Durov, and French media have reported he is alleged to have failed to moderate adequately criminal activity on the platform.

In a statement on Sunday, Dubai-based Telegram said its moderation was “within industry standards and constantly improving”, adding that it was abiding by EU laws including the Digital Services Act. The legislation, which came into force this year, requires platforms to police harmful content and disinformation more closely, or risk penalties or being restricted in the bloc.

“It is absurd to claim that a platform or its owner are responsible for abuse of that platform,” Telegram said. “We’re awaiting a prompt resolution of this situation. Telegram is with you all.”

Durov’s detainment marks the most drastic national action against a social media chief to date and threatens to further ignite global debate over whether platforms should prioritise online safety or free speech. Free speech proponents such as Elon Musk have been hitting out at French authorities, with the billionaire owner of rival platform X posting the hashtag “#freepavel” on his platform.

French authorities had been investigating whether Telegram’s moderation failures had helped facilitate illegal activity including terrorism, drug peddling, money laundering, fraud and child exploitation, according to several French television outlets. Some reports suggested there had been a warrant out for Durov’s arrest, but Telegram on Sunday said the entrepreneur “has nothing to hide and travels frequently in Europe”.

Durov has been known as the “Mark Zuckerberg of Russia” after co-founding the country’s most popular social media network, VKontakte, in his native St Petersburg in 2007. He fled Russia in 2014 after allegedly refusing to comply with Moscow's demands for access to the data of Ukrainian users protesting against a pro-Russia administration.

Founded in 2013, Telegram has exploded in popularity, nearing 1bn users and becoming one of the key communication tools in conflict zones and humanitarian crises such as the Russia-Ukraine war and the Israel-Hamas conflict.

Durov has taken a hands-off approach to moderation and cast the app as unassailable by governments. However, some researchers have warned that it has become a hub for illicit activity and extremism as a result.

While Durov now has dual French-Emirati citizenship, his Russian roots prompted some lawmakers in Moscow to call for his release and suggest the arrest was politically motivated, while the Russian embassy in France said it had requested consular access to Durov.

In recent years, Durov has tried to distance himself and the app from Russia, amid claims by critics that the Kremlin might still have links to or leverage over Telegram.

“He thought his biggest problems were in Russia and left . . . he wanted to be a brilliant ‘citizen of the world’, living well without a homeland,” former Russian president Dmitry Medvedev, now a prominent rightwing commentator, wrote on his Telegram channel on Sunday.

“He miscalculated. To our common enemies, he is still Russian — unpredictable and dangerous, of different blood.”