TheChek News Flow

German companies have become relatively small and relatively cheap

Foreign takeovers of UK-listed companies have given rise to much hand-wringing in the City of London. The phenomenon is now spreading to the continent. “Deutschland im Ausverkauf” is the phrase used to describe this by some observers. Germany, it would appear, is on sale. 

Deal volumes are inherently lumpy. But the numbers show a trend. So far this year, international companies have been on a $47.2bn German shopping spree, according to Tim Winkel of 7Square. That’s nearly 70 per cent higher than the value of inbound M&A in the whole of 2020. It includes high profile megadeals such as Adnoc’s bid for chemicals company Covestro and Danish group DVS’s swoop on Deutsche Bahn’s logistics business — together worth about $32bn. Concerns will not have been assuaged by would-be suitors stepping into more sensitive sectors such as banking. UniCredit’s frenemy hug on Commerzbank, which has raised politicians’ hackles, is not counted in the numbers. 

Adding to concerns, German companies are not out and about doing some shopping of their own. The volume of outbound M&A has dropped to $11bn — down two-thirds since full-year 2020. The paucity of domestic private equity funds is part of the reason why. Financial buyers, meanwhile, accounted for over a quarter of inbound M&A in 2024.

These trends reflect the fact that German companies have become relatively small and relatively cheap.

That is in part due to the country’s well-documented economic ills. Only last week, it downgraded its 2024 economic forecasts and envisaged a second year of contraction. High energy costs and sluggish demand have affected its industrial base, pushing the likes of Covestro into the arms of deep-pocketed suitors. Giant conglomerates such as BASF are responding to the pressure by putting businesses on the block, suggesting this trend has further to run. 

As well as suffering from economic drag, German companies are often exposed to lower growth, traditional industries such as car manufacturing. Sizeable companies in the jazzy tech sector or pharma companies, which have spawned many of the new global behemoths, are few.

The upshot of all of this is that German companies are now smaller players on the global corporate landscape. The banking sector has been especially hard hit. The country’s largest bank, Deutsche Bank, was the 10th-largest in the world by assets in 2013. It is now the 26th. In terms of market value, corporate Germany accounts for 2 per cent of the MSCI all countries index, down a third compared with a decade ago.

True, that is not as poor a performance as the UK’s, whose weighting has more than halved. But it is worse than other European countries. Denmark and the Netherlands have seen their weightings rise thanks to the performance of homegrown giants Novo Nordisk and ASML respectively.

To look at it another way, the Dax — which was valued at a 20 per cent discount to the S&P 500 on a price/earnings basis just before the pandemic — now trades at a 40 per cent discount. Solving Germany’s economic malaise is a long-term endeavour. In the meantime, it remains attractive to global punters on the lookout for a bargain.

Rising rates have boosted profits and policymakers want banks that can compete with US rivals. But many obstacles remain

Europe’s last major cross-border bank merger, cooked up in 2007 by the continent’s banking elite during clandestine meetings in Geneva’s grand Four Seasons Hotel des Bergues, did not end well.

But 17 years after Dutch lender ABN Amro was carved up in a three-way transaction that contributed directly to four multibillion-euro bailouts during the financial crisis, European bank executives are contemplating mergers once again.

Andrea Orcel, who as a senior investment banker at Merrill Lynch was a key architect of the takeover of ABN Amro by Royal Bank of Scotland, Santander and Fortis, is in the vanguard. UniCredit, the Italian bank of which he is now chief executive, has shaken up the top echelon of European finance by taking a substantial stake in Commerzbank, Germany’s second-biggest lender.

After acquiring a chunk of shares from the German government, which bailed out Commerzbank during the financial crisis, and building up an under-the-radar position using derivatives, UniCredit shocked the country’s political and business establishment last month by revealing a 9 per cent stake.

If it receives permission from the European Central Bank, which should be a formality, UniCredit will be able to convert all its derivative positions into shares — giving it a 21 per cent stake and making it the lender’s largest shareholder.

A full merger between the two is not the only potential outcome of UniCredit’s overtures but even so, the swoop is the latest and most eye-catching sign that dealmaking among Europe’s banks is back on the cards.

Profitability at many of the continent’s lenders has improved markedly thanks to rising interest rates. Combined with their cleaner balance sheets and more robust capital levels, that has meant they are in a healthier position to acquire rivals.

Nicolai Tangen, chief executive of Norway’s $1.7tn oil fund, which owns shares in most of Europe’s biggest banks, says the continent needs more financial institutions with global heft.

“It’s very healthy to get bigger banks in fewer hands because scale matters in this industry,” he says. “There is just so much cost in having the whole regulatory system in place for a bank, and there is little evidence that larger banks give worse deals for consumers.”

There is also widespread agreement among Europe’s policymakers and politicians on the need to encourage larger, multinational banks as a way to fend off competition from US lenders, which have dominated global banking since the financial crisis, and fast-growing Asian rivals.

“Governments that nationalised banks during the financial crisis are now ready to draw a line under it and are selling their stakes,” says Marco Troiano, a banks analyst at Scope Ratings. “This means all those banks have come into play for potential consolidation.”

The value of mergers announced between European banks hit €13.8bn in the second quarter of this year, the highest figure since the third quarter of 2010, according to data compiled by Dealogic.

Notable deals over the past 18 months include the state-orchestrated rescue of Credit Suisse by UBS and the hostile pursuit of Sabadell by larger Spanish rival BBVA, a deal that if consummated would create Europe’s seventh-largest bank with a market value of €63bn.

Many of these transactions have been attempts at domestic consolidation, but there is enthusiasm in some quarters that they could herald a broader wave of cross-border dealmaking.

But cross-border bank mergers remain difficult to execute in practice because of national political opposition and the fragmented nature of Europe’s banking market.

The quarterly average number of deals since 2008 has been 27, with an average total value of just €4.2bn, according to Dealogic data — far below the 50 deals worth €16.4bn averaged in each quarter between 2000 and 2008.

And at present share prices, even a UniCredit-Commerzbank tie-up would be worth less than the €108bn of mergers in the second quarter of 2007, when the ABN Amro takeover was announced.

The global financial crisis of 2008-2010 marked the start of a long winter in European bank M&A.

“If you go back to the pre-financial crisis, banks were in an M&A growth mindset, fuelled by cheap money and a lack of appreciation for the risks involved,” says Justin Bisseker, banks analyst at fund manager Schroders, who has covered the sector for 27 years.

“Now everything is more regulated. There is a realisation that banks are international in life but national in death. That mindset has made cross-border deals much harder to execute.”

Lorenzo Bini Smaghi, chair of France’s Société Générale and a former executive board member of the ECB, agrees that national regulators and supervisors have played a significant role, by maintaining or even raising the barriers for cross-border activity.

“In Europe it’s more of a cultural issue,” he says. “Financial institutions are seen as a source of risk, and [the view is that] if you minimise this risk, financing will come somehow. So the objective of regulations is not competitiveness, it’s just stability, stability, stability.”

Analysis by the ECB shows that the sizes of acquired banks in deals after the financial crisis are much smaller than before, while there is a higher failure rate for attempted mergers in the years since 2008. UniCredit and Commerzbank have previously made overtures to each other over a deal, while Deutsche Bank abandoned talks to merge with its German rival in 2019.

The ECB analysis found that about four in every five completed deals in the Eurozone were domestic. The few cross-border bank deals since the financial crisis have tended to be between institutions in neighbouring countries linked by common language or trade, such as Spain’s CaixaBank buying Portugal’s Banco BPI in 2017 or various smaller deals such as those involving Belgian, French and Dutch banks or the continuing pursuit of Austria’s Addiko by Serbian lender Alta Pay.

Partly as a result, European banks have fallen far behind their US and Asian counterparts since the financial crisis. While European lenders were focused on cleaning up their balance sheets and building up capital levels, their Wall Street rivals got bigger at home and increased their presence overseas, especially in areas such as investment banking and trading.

“Today, you can’t do a large financial transaction — M&A or infrastructure financing — without American financial institutions,” says Bini Smaghi. “European banks are too fragmented and don’t have the balance sheets. That is a fragility for Europe.”

The world’s 10 biggest banks by assets include just three European lenders — and one of them, HSBC, is headquartered outside the EU. The list is dominated by Chinese and US financial institutions, with France’s BNP Paribas, Crédit Agricole and Société Générale — along with Spain’s Santander — the only Eurozone banks to make the top 20.

By comparison, a similar ranking from 2008 featured eight European lenders in the top 10, with no Chinese banks and only two US ones.

The decline of European banks on the global stage is keenly felt by policymakers, not only as a sign of the continent’s waning international heft but also for its inability to finance important changes in its economy.

The main reason for the increased talk of dealmaking is banks’ improved financial health over the past few years, which has put buyers in stronger positions and is making targets more attractive. 

After a wave of bank bailouts following the financial crisis — where lenders that had been on aggressive acquisition sprees or loaded up with toxic debt needed to be rescued — regulators imposed more stringent capital requirements. This led to a decade of pain, but Europe’s banks are now among the best capitalised in the world.

The speed with which central banks have raised interest rates since 2022 has been a boon for commercial banks, which typically generate most of their profits from the difference between the interest they receive on lending and what they pay out on deposits.

The fattening of the so-called net interest margin as rates rose led to a €100bn windfall for European banks over the past two years. This has generated excess capital above regulatory requirements, which some bank executives have considered spending on acquisitions.

But with few obvious targets available, many banks have increased their dividend payments and — for the first time — begun buying back their own shares. European banks have pledged to return more than €120bn to shareholders this year, with €47bn from share repurchases.

These promised returns have increased interest in a sector long-neglected by international investors. The Euro Stoxx Banks Index, which tracks Europe’s biggest listed banks, has risen more than 75 per cent over the past two years.

Bank executives have been cleaning up their institutions’ balance sheets through a series of deals known as significant risk transfers. Such transactions, where banks offload risk from their balance sheet to third-party investors, hit total notional values of €163bn in 2022 and €154bn last year, up from around €80bn in 2020, according to the ECB.

As interest rates start to fall, potentially eroding banks’ hard-won profitability, investors expect more interest in mergers. “If we see more revenue pressure in the sector — which I think is possible in the euro area if interest rates fall below 2 per cent again — I would bet that we get quite a lot of M&A to improve profitability,” says Schroders’ Bisseker.

For policymakers, the transitions to greener energy and a more digital economy and the need for remilitarisation following Russia’s invasion of Ukraine all point to a need for more lending capacity.

Cash-strapped governments are increasingly reliant on the private sector to provide this financing. Banks with bigger balance sheets and a greater appetite for risk are able to diversify where they lend and invest, and do so with larger commitments. 

“Cross-border mergers have many advantages if they result in larger, more agile, more comprehensive and deeper institutions,” said ECB president Christine Lagarde last month.

“Banks that can actually compete at a scale, at a depth and at range with other institutions around the world — including the American banks and the Chinese banks — are in my opinion desirable,” she added.

But while policymakers are keen to stress the need for European super banks that can go toe to toe with their Wall Street counterparts, completing deals can still be fiendishly difficult and time-consuming.

BBVA’s €10bn approach to Sabadell has met with opposition from Spain’s Socialist-led government, which is wary of job cuts and branch closures — the traditional route to reducing operating costs following a merger.

Stefan Wittmann, a senior official at Germany’s services sector union and a member of Commerzbank’s supervisory board, last month pledged to fight a UniCredit takeover “tooth and nail”.

So-called “revenue synergies” between businesses can also be hard to achieve in practice, as it is often difficult to sell the same products in countries with different regulatory regimes or consumer preferences. Cost savings are also difficult, especially when expensive, risky and time-consuming IT integration projects are involved.

“All in all, the rationale for cross-border synergies on costs or revenues is very weak,” said Jean-Pierre Mustier, a previous chief executive of UniCredit, who drew up his own plan to acquire Commerzbank in 2017.

“We are very, very far from having truly efficient pan-European banking groups, as Europe is de facto fragmented.”

One sticking point is the lack of a set of Europe-wide bank rules that would allow lenders to operate in different countries seamlessly. Since the Eurozone crisis in 2009, policymakers have been pushing for a European banking union to provide a common financial regulatory framework.

Troiano, at Scope Ratings, says the lack of progress on a Europe-wide deposit insurance scheme to protect customers’ savings if a bank fails was a significant reason for the dearth of cross-border deals.

“If you have one or two cross-border deals happening, that could act as a catalyst and increase the sense of urgency for politicians to legislate what is needed,” he says.

“But it’s a matter of, do you put the cart before the horses or the other way round? The banks will not move unless there is complete banking union in place.”

Kian Abouhossein, a banks analyst at JPMorgan, adds that bigger banks are likely to be pushed by regulators into holding more capital, as UBS is finding in Switzerland following its takeover of Zurich rival Credit Suisse.

“The combination of regulatory demands for more capital for larger institutions, plus deposits not moving freely between countries, makes large transactions very difficult,” he says.

While investors tend to support bank mergers in principle, such obstacles have made them sceptical of cross-border deals in practice.

“We’ve shied away from European banks that have gone through empire-building,” says Brian Kersmanc, a portfolio manager at US fund group GQG Partners, a big investor in European banks and a top-10 shareholder in Commerzbank.

“It’s less of a positive if you are going cross-market. There can be cultural differences going into new markets and these are landmines that can trip you up.” 

And for all the high-level enthusiasm for European financial champions, foreign takeovers of large financial institutions are highly controversial. National concerns and political considerations often override any desire to establish a new cohort of European super banks that can compete on the global stage.

Germany’s chancellor, Olaf Scholz, who has called for greater financial integration across Europe, responded to news of UniCredit’s stakebuilding in Commerzbank by saying that “unfriendly attacks [and] hostile takeovers are not a good thing for banks, and that is why the German government has clearly positioned itself”.

Asked by Bloomberg whether he would be prepared to allow a takeover of SocGen by a foreign rival in the name of greater financial integration across Europe, France’s president, Emmanuel Macron, replied simply: “Yes, for sure.”

But few believe that the one-time Rothschild banker — or any other national leader — would be so obliging if an offer were actually on the table.

Bondholders could make $14bn from emerging market restructurings, says Debt Justice

Campaign group says debt resolution in countries from Ghana to Ukraine mean potential big profits for investors

Bondholders stand to make profits of $14bn on resolutions of sovereign debt crises that broke out from Ukraine to Zambia in recent years, according to calculations by a UK debt campaigner.

Restructurings under way or recently concluded in Ghana, Sri Lanka, Suriname, Ukraine and Zambia will provide over $30bn in debt relief for the countries in the years ahead. They will also deliver sizeable gains to investors over time, if governments avoid further defaults, Debt Justice said.

These profits could be worth more than a third of bondholders’ original outlay and are a sign that troubled economies are not being granted sufficient reductions in their borrowing, according to the campaign group.

“Debtors, for whatever reason, do not have enough power in negotiations, and are not getting enough relief to avoid restructurings in future,” said Tim Jones, policy director at Debt Justice.

The calculations will add to the debate on the success of initiatives in the past year to end a logjam in resolving a spate of sovereign defaults and Ukraine’s war financing in response to Russia’s invasion.

In recent months Ghana and Zambia have exited lengthy bond defaults, and Ukraine replaced a wartime payment suspension, after holders of Kyiv’s US dollar debt agreed to cuts in the value of their holdings.

Sri Lanka is also close to completing a long-delayed bond restructuring, while Suriname resolved a default last year.

These countries have also been doing deals with official creditors and other private lenders, but unlike bondholders the terms have generally not been fully disclosed, making it difficult to assess what returns they will make.

To arrive at the $14bn figure, Debt Justice assumed that investors bought half of their bonds when they were originally sold by governments, usually at face value, and half at market prices, which collapsed as defaults loomed and then in some cases took years to be resolved.

The profits are compared to the returns investors would have made buying US government debt over the same period, as a safe asset, and reflect both high interest payments on bonds before defaults, and the benefit of buying defaulted debt at low prices, Debt Justice said.

Theoretical profits would be as low as $1.9bn if all bonds were bought at face value and none of the upside payments were triggered, and as high as $26bn if all bonds were instead bought at low prices and attracted the maximum possible upside, according to the estimates.

“The caveat is that the calculations assume that the restructured debt will be repaid. It’s not that they’ve realised the profit yet. We think there are dangers of countries having to restructure again in the future,” Jones said.

The Debt Justice calculations underscore that “bondholders have got substantial upside” from Sri Lanka’s proposed restructuring and Zambia’s deal, said Brad Setser, senior fellow at the Council on Foreign Relations.

Several of the recent restructurings outside Ghana contain provisions that will reward bondholders with higher payouts if their economies outperform targets in the years ahead.

Triggers for these payments will typically be assessed at the point the countries are due to exit IMF bailouts in the next few years. That risks “debt levels that ironically create very real risks of distress, immediately after the programme periods”, Setser said.

While some of the restructurings such as Sri Lanka’s also have downside provisions to reduce payments in the event of future economic trouble, they do not go far enough, he added.

Investors and advisers to governments have nevertheless said that these so-called “contingent” payments have been needed in order to bridge deep disagreements over official projections of the post-default path of countries, and get negotiations over the line.

Blackstone crosses $200bn

It’s been a rough two year slog for bankers taking companies public. Volatile markets, cratering valuations and high interest rates caused many private companies to delay their IPO plans. 

But rejoice! Blackstone, the bellwether of the private equity industry, says business is about to come back in a big way. 

The owner of Medline Industries, software group UKG and the world’s largest portfolio of data centres says it is preparing to take some of its largest investments public.

Blackstone president Jonathan Gray has told the FT a stock market rally has given the $1.1tn-in-assets group confidence that public markets can handle some of its biggest bets. 

“When you have this strong of an equity market it’s almost like a magnet pulling companies out of the private market,” said Gray, who added that discussions inside 345 Park Avenue had “gone from theoretical to practical and we are talking about things like timing”.

Gray’s optimism on IPO markets provided a positive gloss to its muted asset sales in third-quarter results released on Thursday.

The biggest story at Blackstone is its continued growth in almost any market environment. 

Blackstone attracted $41bn in new assets in the quarter, with half coming in its credit and insurance business. The unit now manages more than $350bn, making it Blackstone’s single largest business line by assets.

“We are building a third-party performing credit juggernaut, and we expect our business to grow significantly from here,” Gray told analysts on a call.

Chief executive Stephen Schwarzman has earmarked credit investments as where Blackstone will uncover its next $1tn. Rivals at Apollo, KKR and Brookfield are chasing the same dollars. 

They have all identified the problem. As their buyout funds have grown beyond $20bn in size and deals have grown larger, the exit options have narrowed. It’s harder to sell a company worth 11 figures than one worth half as much. 

In turn, they have become far more reliant on the IPO market, which as Gray has said himself, is “cyclical”.

That’s not the case in credit investments, where banks have retreated and opportunity abounds. Blackstone and its rivals have been buying loan books and using their insurance investment mandates to offer financing.

The market sent Blackstone shares to a new record high on Thursday, pushing the firm’s valuation above $200bn for the first time.

Canadians push for a $47bn deal in Tokyo

Alimentation Couche-Tard made a full-court press in Tokyo on Thursday, where the CEO, CFO and billionaire founder Alain Bouchard all lined up to say they were ready to engage with Seven & i over their proposed $47bn takeover.

The message from the massed ranks of executives was clear: Seven & i’s break-up plan, announced last week, should be ignored and investors should back its bid.

“We think [our offer is] more compelling than what was proposed last week, with a great deal more certainty and much less risk,” said Alex Miller, the recently appointed chief executive and president of Couche-Tard.

The problem for Couche-Tard is that, despite flying all this way, Seven & i, which owns the well-loved Japanese convenience chain 7-Eleven, didn’t agree to a meeting.

The offer from the owner of Circle K is being evaluated by the Japanese group’s special committee and the Canadian delegation will have to wait, along with the market, for its decision.

One thing that’s working in Couche-Tard’s favour: the company is offering cold hard cash.

While Seven & i’s stock price has risen more than 30 per cent since the first offer in August, it still trades at ¥2,218 ($15) a share, which is below the latest bid of closer to $18.

“Our offer is a certainty, right, it’s cash, versus a hope that [Seven & i] can continue to execute on a plan that’s not delivered value over the last years,” added Brian Hannasch, Couche-Tard’s former chief executive and now special adviser to the group.

Couche-Tard’s top team has made one thing exceptionally clear: they’re not willing to give up easily.

Gifts to the school’s endowment, an important support for its operations, fall 34%

Donations to Harvard University fell nearly 15% in a year when some high-profile donors said they would stop giving money to the school over its handling of antisemitism on campus.

Harvard said in a financial report Thursday that it received $1.17 billion in gifts in the year that ended June 30, down from $1.38 billion in the same period the year before.

Gifts to Harvard’s endowment, the university’s investment fund, fell 34% to $368.1 million. The endowment itself gained 9.6% for the fiscal year.

The endowment is a crucial part of the school’s operations. Distributions from the endowment made up 37% of Harvard’s revenue for the year, the university said.

A separate form of donations—gifts that the university can spend now—rose 8.6% to $527.7 million. It was the second-highest amount received in Harvard’s history, the university said.

Harvard and other universities around the country have been rocked by pro-Palestinian protests after Hamas’s attack on Israel on Oct. 7, 2023, and the subsequent war in the region, and how the schools responded drew fierce criticism from some high-profile donors. Claudine Gay resigned as the university’s president in January over her response to campus antisemitism and mounting allegations of plagiarism.

Hedge fund billionaire Ken Griffin has said he paused donations to Harvard over his alma mater’s handling of antisemitism on campus. The family foundation of investor Len Blavatnik had stopped donations late last year.

Two Harvard task forces said in June that it found that Jewish, Muslim and Arab students were harassed, bullied and discriminated against on campus.

Harvard said in its financial report Thursday that the task forces are working on “rebuilding not only a sense of belonging but also genuine acceptance among members of our community.”

Alan Garber, Harvard’s president, had indicated that donations would be down in an interview published last week in the Harvard Crimson, the university’s newspaper.

“Some of the new commitments have been disappointing compared to past years,” Garber said.

“There are also some indications that we will see improvements in the future,” he added.

The report Thursday acknowledged that the school had been through a challenging year. “Our University will emerge stronger from this time—not in spite of being tested, but because of it,” Garber wrote.

Wobbly data for the third quarter underscores challenges for Beijing policymakers seeking to boost economic activity

SINGAPORE—China’s economy slowed in the third quarter, a deceleration that highlights the urgency of Beijing’s recent pivot toward greater support for growth after months of hesitancy.

Investors’ initial euphoria over Beijing’s weekslong barrage of stimulus measures and messages of reassurance has faded, however, as doubts have crept in over just how effective any planned stimulus will be at revving up the ailing economy and bringing a festering property crisis to a close. Key details remain unclear—including, critically, how much more Beijing intends to borrow to finance its support plan and what exactly it intends to spend it on.

The result has been a roller coaster for Chinese stocks in recent weeks, as investor sentiment has swung wildly between boundless optimism and nagging unease. China’s benchmark CSI 300 index surged more than 30% in the span of six trading days through Oct. 8, then went on to shed 11% as of Thursday’s close—but is still up more than 10% since the start of the year. Hong Kong’s Hang Seng Index has tumbled 13% since that same peak, but remains around 18% higher than where it started the year.

A critical moment awaits. A key committee of China’s legislature, the National People’s Congress, is due to convene toward the end of this month. Expectations are high that it will sign off on a big new fiscal package, possibly running into hundreds of billions of dollars of extra government borrowing. Pan Gongsheng, governor of China’s central bank, reiterated on Friday earlier pledges that more monetary loosening would come before the end of the year—including a possible cut to benchmark lending rates that could come as soon as Monday.

Yet hopes for a meaningful effort to turn the economy around by putting money into the pockets of Chinese consumers, which many economists say would be the best remedy for China’s current malaise, are diminishing. Leader Xi Jinping and his top lieutenants are focused instead on managing a brewing financial crisis in local government budgets, not reorienting China’s economy away from its heavy reliance on investment and manufacturing, The Wall Street Journal has reported.

The upshot is China is likely to meet its official growth target of “around 5%” this year despite the third-quarter wobble, but a rebalancing of China’s lopsided economy isn’t in the cards. That reluctance to restructure the economy is a recipe for slower growth in the years ahead and raises the chances of persistent tensions over trade, economists say.

China’s economy expanded 4.6% in the July-to-September quarter compared with the year-earlier period. That was a touch slower than the 4.7% year-over-year expansion in the second three months of the year. For the first nine months of 2024, China says the economy has grown 4.8% from the same period in 2023, putting it at the low end of the “around 5%” goal.

“These GDP figures seriously jeopardize the government’s growth target for this year. It will take a huge stimulus-fueled push to generate a turnaround in growth sufficient to attain the target,” said Eswar Prasad, professor of trade policy at Cornell University and a former head of the International Monetary Fund’s China division. “Generating more balanced growth that is driven by household consumption and private business investment represents an even bigger challenge.”

Still, other data Friday showed some signs of stabilization in the economy in September after a weak July and August. Retail sales rose 3.3% in the first nine months of the year compared with the same period in 2023, while unemployment edged down to 5.1% last month from 5.3% in August.

Industrial production rose 5.8% in the nine-month period compared with a year earlier, unchanged from the previous reading for January to August. Over the same period, investment in buildings, equipment and other fixed assets was similarly unchanged, at 3.4%.

“On the whole, the economy is still functioning in a smooth and stable manner,” despite challenges from a tepid property market, rising local government debt and weakening market confidence, said Bi Jingquan, chairman of a Beijing think tank affiliated with the National Development and Reform Commission, China’s top economic-planning agency.

Beijing’s target of 5% GDP growth for this year “is still possible, but it could come under 5%,” Bi, a former NDRC vice chairman, said at the FutureChina Global Forum in Singapore.

Beijing’s policy pivot came in late September, when Pan, the central bank governor, announced plans to cut interest rates and support China’s swooning stock market by offering central bank funds to investors.

A cascade of policy announcements followed, some of which were new while others reheated old promises. Homeowners were told they would be able to refinance their mortgages at lower rates, a trickier process in China than in the U.S. Economic planners pledged to clear a backlog of unsold homes. China’s finance minister said he would ensure some $300 billion of unspent borrowing proceeds would be plowed into the economy this year and that banks would get new capital.

One promising signal that stimulus is having an effect: Home sales during the seven-day National Day holiday earlier this month doubled compared with last year, National Bureau of Statistics spokesman Sheng Laiyun said at a news conference Friday.

On Thursday, China’s housing ministry said it would redevelop one million homes in rundown urban shantytowns and said it would prod banks to double the loans on offer for developers to around $500 billion, part of a broader attempt to complete unfinished homes. It remains to be seen whether either move will lead to any durable improvement; property stocks slumped after Thursday’s announcement.

Though officials have yet to spell out the scale of their overall stimulus plan, economists mostly expect new borrowing to come to somewhere between 1 trillion and 3 trillion yuan, equivalent to between about $140 billion and $421 billion, though some are holding out for more like 10 trillion yuan.

Logan Wright, a partner at New York-based research firm Rhodium Group who leads its China markets research, said the policy moves since late September show the government is becoming more responsive to the economy’s short-term weakness. But he said fiscal policy needs to focus on consumption to have a big effect, and that deep-seated problems weighing on growth, such as decaying local government finances, will require bolder changes.

“It is a better situation this month than last month,” he said. “But does this change the central tendency of the economy? Probably not.”

Other data Friday showed the property crisis is far from over, underscoring the importance of government efforts to address a widespread lack of home-buyer confidence. New home prices in 70 Chinese cities fell 6.1% in September compared with a year earlier, worse than the 5.7% drop recorded in August, official data showed. Of the 70 cities, 68 recorded year-over-year price declines, unchanged from August.

Figures earlier this week showed export growth slowing sharply in September to 2.4% in year-over-year terms, compared with 8.7% in August, suggesting buoyant export growth could be petering out as the global economy slows and trade barriers go up to Chinese goods.

Patek Philippe squares up in battle for young urban buyers with Cubitus watch collection

The brand’s new line is its first since 1999 and is targeted at the increasingly popular sporting luxe market, amid an industry downturn

Patek Philippe has today unveiled its first new watch collection in 25 years, intended to reach an urban and trendy clientele, and counter a marked downturn in the industry.

Named Cubitus, the distinctively square-shaped watch with rounded corners has a sporty design and is designed to speak to the growing fashion for shaped models. It also underscores the popularity of the sporting luxe category, in particular luxury steel watches with integrated bracelets.

The launch of the Cubitus comes as Swiss watch exports declined 12.4 per cent in September, their worst monthly performance in the year to date, according to the Federation of the Swiss Watch Industry. The independently-owned Patek Philippe is largely seen as a bellwether for the industry, despite it not disclosing its annual financial performance. According to a Swiss watch industry report by Morgan Stanley, the watchmaker is ranked as the fifth largest, with annual revenue of SFr2.1bn ($2.4bn).

“Patek is the gold standard of the high-end complication mechanical watch industry,” says Aurel Bacs, an industry veteran and senior consultant for Phillips auction house, in association with his company Bacs & Russo. “It’s very impactful what Patek Philippe do, good or bad. And now that we’re facing difficult and challenging times, it’s even more important to see in what direction they lead the road.”

Patek Philippe launching a new collection, he adds, is significant. “It’s huge in the same way as Porsche launching a new model range, or Ferrari saying we’re doing an SUV.”

The launch of the Cubitus line was held in Munich’s Bergson, a former power station turned avant-garde cultural space. Days before the launch, there was an unofficial release of pictures of one of the new watches online, sparking reactions on specialist forums and social media. Thierry Stern, Patek Philippe president, said he was “disappointed and shocked” at the leak.

The new Cubitus collection debuts in three models. The platinum Reference 5822P features a large-format date, moon phase and day of the week, all of which change instantaneously; there are six patents pending on it. This is complemented by two models with a date function: the vintage-styled Ref 5821/1AR in steel and rose gold with a blue dial, and the all-steel 5821/1A featuring an olive-green dial. The watches are priced at £75,690, £52,480 and £35,330 respectively.

The Cubitus now sits alongside the watchmaker’s other sports watch collections, the Aquanaut and the Nautilus, both of which have long waiting lists. The Aquanaut launched in 1997, while the Nautilus, first created in 1976, was relaunched in 2006. Starting prices for steel Aquanaut and Nautilus models are £19,080 for Ref 5267/200A and £27,860 for Ref 7118/1A, respectively.

Stern said the most important aspect of the new collection was the creation of a new shaped, luxury sports watch with a strong design, in a market where 85 per cent of timepieces are round. The creation of a new line would allow it to be further extended to include a family of models. “My will, for more than about 15 years, was always to find a sporty line like this,” he said.

Thierry Stern says the watch industry’s downturn is cyclical and a return to more ‘normal’ times © Christophe Michaud/Patek Philippe

Asked about his views on the state of the market, Stern said the recent downturn was more cyclical, and reflected the industry returning to more normal, conservative times, following a post-Covid exuberance. He added, however, that the mid-range watches, priced at SFr5,000-SFr10,000, were “not in good shape”.

Stern said he envisions the steel model in particular as attracting ambitious buyers aged between 30 and 50 who are “on the move”, while the platinum Ref 5822P is clearly targeted at older clients — “but someone who is still cool and likes the hype”.

Work on creating the Cubitus officially started about four years ago, with its conception rooted in Ref 5822P, which has a completely new movement. Patek Philippe’s dedicated movement department can spend up to a decade developing calibres, and the house is currently working on movements set for release up to 2039.

For the Cubitus, Stern selected from this list of in-development movements, choosing one based on Patek Philippe’s ultra-thin self-winding calibre 240, while the new calibre’s big date display suited the watch’s square dial.

A small band of just four individuals at the company were involved in the Cubitus’s creation: Stern; Jerome Pernici, commercial and marketing director; Patrick Cremers, director of the brand’s Geneva flagship; and Eric Fague, head of creation. Stern also occasionally sought the advice of his sons, who are both in their twenties. “They are learning [the business], but I also like their comments,” he said.

An industry leader is always scrutinised in a much harsher and more close-up way than a smaller brand

Aurelrecalled Stern. Eventually, the final design codes of the Cubitus inched towards those of the Aquanaut and Nautilus, something Stern was unapologetic about considering those are the brand’s “strong lines”.

“When you expect me to go left, I like to go right,” he says. “It’s also part of my duty, to create something that people do not expect. I’m not a trend follower, and never will be. We have to surprise people.”

Auction house veteran Bacs says that, while Patek Philippe is an industry leader, brands should never underestimate the appetite of the market. “Even if your name is as great as Patek, Rolex, Ferrari, Porsche, you can get it wrong and launch something that is just not meeting the taste of the market,” he says. “And an [industry] leader is always scrutinised in a much harsher and more close-up way than a [smaller brand].”

In the meantime, Stern insists the new Cubitus is not indicative of a new strategy of launching more collections, more often, but about growing Patek Philippe’s customer base. Today, the brand produces 72,000 watches annually, around double when Stern first joined. “We had to be more selective [back then], we had no choice,” he said. Today, however, “I can slightly increase the number of different people who can own a Patek Philippe. I can open my collection a little wider.”

Lisa Schiff advised wealthy collectors on contemporary works but admitted pocketing their funds intended for purchases

A former art adviser to stars including Leonardo DiCaprio has pleaded guilty to defrauding clients out of $6.5mn to fund what prosecutors claim was a “lavish” New York City lifestyle.  

Lisa Schiff, who ran a contemporary art advising business in Manhattan, had brokered deals for works by artists such as Wangechi Mutu, Sarah Lucas and Chloe Wise, but filed for bankruptcy earlier this year after being sued by former customers. 

On Thursday, US federal prosecutors said she had pleaded guilty to one count of wire fraud in “connection with the purchase and sale of approximately 55 artworks”.

They claimed Schiff — who had a roster of high-profile customers — pocketed money from her clients with which she was supposed to buy art, and diverted proceeds from the sale of certain works.

In total, Schiff defrauded “at least twelve clients, one artist, the estate of another artist, and one gallery”, according to New York federal prosecutors.

“For years, Lisa Schiff breached the trust of her art advisory clients by lying to them and diverting millions of dollars her clients had entrusted to her,” Manhattan US attorney Damian Williams said in a statement following the agreement.

A lawyer for Schiff, Randy Zelin, said the plea agreement showed his client “has accepted responsibility . . . and will continue to work to make amends”.

“This is one snapshot in a photo album filled with good work [and] professionalism,” Zelin added. “I do hope that she goes back to playing a role in the art world.”

Schiff had been a prominent figure in the city’s art scene since the launch of her SFA Advisory in 2002, and went on to open her own gallery in Tribeca in 2019.

Last year, she was accused of fraud in two civil lawsuits, including one brought by collector Candace Barasch, who claimed Schiff owed her at least $2.5mn for art purchases never fully completed. Schiff’s company filed for Chapter 7 bankruptcy protection in January.

Schiff is scheduled to be sentenced next year. She faces a maximum of 20 years behind bars, although prosecutors agreed to seek a prison sentence of no more than 51 months in her plea agreement.

Her collection, which includes artworks by Damien Hirst, is set to be auctioned at Phillips in New York next month as part of the bankruptcy process.