TheChek News Flow

U.S. has sought to contain planned Israel counterattack on Tehran, hoping to head off wider Middle East war

WASHINGTON—Israel has assured the Biden administration that a planned retaliatory attack on Iran won’t target nuclear and oil facilities, according to U.S. officials, a promise sought by the White House to head off further Middle East escalation and to avoid a potential oil-price increase.

The pledges came in a call between President Biden and Israel Prime Minister Benjamin Netanyahu last week, as well as in conversations in recent days between Defense Secretary Lloyd Austin and his Israeli counterpart, Yoav Gallant, the officials said.

Israel has suggested it would aim for military or intelligence targets, the officials said, but has stopped short of providing the U.S. a list of specific targets. The planned attack is a response to Iran firing 180 missiles at Israel on Oct. 1 after an Israeli airstrike that killed Lebanese militia Hezbollah leader Hassan Nasrallah.

“We listen to the opinion of the U.S., but we will make our final decisions based on our national interests,” Netanyahu’s office said in a statement.

Israel’s response, which is likely to come before the U.S. presidential election on Nov. 5, could resemble a previous attack in April that hit an Iranian military base shortly after Tehran launched 300 missiles and drones at Israeli territory. But Israeli officials have said that their operation could hit unexpected targets. It is also likely to be more severe, analysts said.

For the White House, limiting the Israeli counterattack in hopes of heading off a wider Middle East war that could further draw in U.S. forces has been a critical goal with less than a month before the presidential election.

The National Security Council, Defense Department and Israeli Embassy in Washington declined to comment on the Israeli assurances, which were first reported by the Washington Post. Iran’s mission to the United Nations didn’t respond to a request for comment.

Natan Sachs, director of the Brookings Institution’s Center for Middle East Policy, said Netanyahu’s decision was somewhat “reassuring for the Biden administration.” But, he added, Israel’s response is likely to aim for inflicting severe damage on Tehran.

Some of the Iranian missiles in the Oct. 1 attack, which targeted Israeli military and intelligence sites, penetrated Israel’s antimissile defenses, causing minor damage but raising fears that another Iran attack might prove more effective.

“The latest Iranian attack caused real damage, and Israel is intent on making clear the old rules still apply: that Iran should dare not strike Israel directly, rather than the new rules Iran hopes to establish, of a regular tit-for-tat between the two countries,” Sachs said.

Oil prices rose after Biden suggested earlier this month that U.S. officials were considering whether to support an Israeli strike on Iranian oil facilities. A day later, the president appeared at a White House press briefing room to say Israel should refrain from attacking Iranian oil facilities. “If I were in their shoes, I’d be thinking about other alternatives than striking oil fields,” Biden said on Oct. 4.

Some analysts say Biden should be wary of Netanyahu’s assurances about its attack.

“This wouldn’t be the first time he’s floated what Biden wanted to hear, then did an about face when he got blowback from the right,” said Frank Lowenstein, a State Department official in the Obama administration, adding that hard-liners in the Israeli government “are still pushing for an attack on the nuclear sites, or at least the oil facilities.”

If Iran responded to the planned Israeli strike with a counterattack on Israel, it would be the third instance of Tehran hitting Israeli territory this year.

The U.S. signaled its support for Israel’s plans Sunday when it announced it was sending a missile-defense system designed to shoot down ballistic missiles to Israel. The decision marked a significant step in American efforts to bolster Israel’s defenses, putting U.S. soldiers on its territory.

The U.S. Army-operated Terminal High Altitude Area Defense, known as Thaad, is expected to begin arriving in the coming days, along with roughly 100 soldiers to operate it.

Cosmetics company says retailers are tightening their inventories as mass beauty sales continue to see slow growth trends, particularly in the U.S.

Coty warned investors of an expected sales slowdown in the second quarter, joining its competitors in sounding the alarm on a global slowdown in the growth of the beauty market.

The cosmetics company, whose brands include Max Factor, Covergirl and Lancaster, said on Monday retailers are tightening their inventories due to weaker beauty product sales and demand trends, especially in the U.S.

The stock was down 6.8% to $8.55 in post-market trading. Through Monday’s close shares have fallen 26% this year.

Overall, Coty expects store sales to rise 4% to 5% in the fiscal first quarter ending Sept. 30, and sales in the second quarter to grow moderately. During the height of the pandemic demand exploded for beauty products across regions, especially for fragrances and skincare products, even as inflation weighed on consumers. Coty, with a large portfolio of fragrances, was one of the main winners in the industry, and saw annual sales jump to $6.12 billion in fiscal 2024 from $4.72 billion in fiscal 2020.

The company is now facing tougher competition from smaller brands, as well as a challenging consumer backdrop. In August, the company said it swung to a loss in its fiscal fourth quarter, and reported revenue growth of 1%.

Coty said sales to retailers are well below final sales to consumers in key markets such as the U.S., Australia, Travel Retail Asia and China, even if its exposure to the Asian giant is limited.

In the second half of the year, Coty forecasts some growth acceleration supported by easier prior-year comparisons, launch initiatives and distribution expansions.

Big competitors including L’Oréal and Estée Lauder have in recent months also signaled weakening trends in the beauty industry, especially in China and the U.S. On the cosmetics retail side, Chicago-based company Ulta Beauty is expected to update the market on the health of the industry on Wednesday, coinciding with its first analyst day in three years.

“The operating environment remains dynamic, and the low end of our range implies incremental pressure on consumer spending,” Ulta’s finance chief Paula Oyibo said during the company’s latest earnings call with analysts. “We have taken a more cautious view for the year.”

Behind Xi Jinping’s Pivot on Broad China Stimulus

A bevy of bad news prompted action from the leader—but not a full U-turn

With China’s economy sinking deeper into a funk last month, Xi Jinping finally decided something had to be done.

After resisting calls to take forceful steps to prop up the economy for two years, Xi relented in late September and ordered a barrage of interest-rate cuts and other measures to put a floor under growth.

But Xi didn’t give his economic mandarins a blank check. According to officials and government advisers close to decision-making, he wanted to bail out indebted Chinese municipalities on the brink of collapse and revive the stock market, without veering too far from his focus on letting the state drive China’s transformation into an industrial and technological powerhouse.

For Xi, the officials and advisers say, the near-term goal isn’t to massively stimulate demand but to fend off a brewing financial crisis—or “derisking,” in official lingo, thereby helping to stabilize the overall economy and achieve the 5%-or-so growth target for this year.

The resulting mixed message on what exact stimulus was coming has sent investors on a roller-coaster ride. Markets were initially energized by interest-rate cuts and other easing measures by the central bank only to be deflated by lackluster news conferences from other economic agencies short on details.

Investors, who had been hoping for a massive stimulus package similar to what Beijing rolled out during the global financial crisis, were unsure what to make of what Beijing depicted as a “package of incremental policies.”

That means little change to Xi’s overarching agenda of directing state resources toward fortifying China’s industries against perceived foreign threats. Calls from economists and investors inside and outside China for rebalancing the economy to household consumption from manufacturing haven’t gained much traction.

The shift, tactical rather than strategic, is centered on the central bank and the state coffer providing liquidity support for local governments and big banks, the backbone of funding for the Chinese economy.

Another focus of the policies is to rescue China’s stock market, which has been on a losing streak for nearly four years. The People’s Bank of China is taking the unprecedented step of encouraging brokerage firms, insurers, and listed companies to tap central-bank or commercial-bank funding to buy stocks.

Support for household consumption has mainly come from a reduction in mortgage rates, part of a new push to arrest the multiyear downturn in the property market. Analysts estimate that the cut can save homeowners about 150 billion yuan, roughly $21 billion, in interest payments, a meager relief given the trillions of dollars in annual household consumption in China.

Xi’s centralization of decision-making, which has time and again led to abrupt policy twists and turns, is adding to the opaqueness and unpredictability of Beijing’s economic policy, potentially increasing rather than decreasing risks associated with investing in China.

Since Beijing said late last month that it would do more to prop up the economy, many investors have found themselves on edge, fearing that they might either miss out on a rally or get sucked into a short-term pop. Some have been anxiously waiting for government briefings for any signs of additional stimulus or lack thereof.

“Investing in China used to never be like this,” says Eric Wong, founder of Stillpoint Investments, a New York-based asset manager specializing in Chinese equities. “In the past, you could just invest based on company fundamentals. Now we’re getting into such a bind guessing what they will say.”

A festering liquidity crisis

In late 2020, Xi suddenly scrapped strict Covid restrictions that left the country isolated for more than two years and badly battered the economy, after protests across China’s big cities. There was no advance warning to doctors and nurses of the abrupt policy reversal, leaving hospitals unprepared for a flood of patients.

The shift on economic policy came just as abruptly.

For the past couple of years, after China dropped its self-imposed Covid isolation, economists and investors called on Beijing to take forceful action to prop up growth—a mission more urgent after previous government intervention sapped energy out of a vast private sector and turned a property boom into a bust.

Officials in charge of day-to-day economic affairs held increasingly urgent meetings to discuss ways to address the real-estate meltdown and the immense strain on local governments running out of money.

Yet despite all that prodding, Xi had appeared determined to stay his hand.

As recently as late June, his handpicked premier, Li Qiang, who had likened China’s post-Covid economy to a patient in recovery, stressed the need to avoid using “strong medicine” to support growth.

“According to the theory of traditional Chinese medicine,” the premier said, “strong medicine cannot be given at this time. It should be adjusted accurately and slowly to gradually restore [the patient’s] foundations.” Chinese stocks tanked following these remarks.

Then, by mid-September, it became clear the economy had taken a turn for the worse. Signs of malaise were spreading.

Real-estate woes were deepening, further pushing down consumption already weakened by a gloomy economic outlook.

The jobless rate among people ages 16 to 24 kept climbing, posing a challenge to the leadership’s much-prized social and political stability. And the benchmark of mainland-traded stocks, the CSI 300 Index, was headed for an unprecedented fourth straight year of losses.

What’s more, reports were flowing into the power center in Beijing of a festering liquidity crisis across China, according to the officials and government advisers close to Beijing’s decision-making. In particular, financially strained local governments have been struggling to pay civil servants as well as state-owned and private contractors.

“There is a severe shortage of cash among local governments,” said one of the people familiar with the situation. “Something has to be done to avoid a full-blown crisis.”

But any significant action had to come from Xi, who until recently had shown few signs of worry over the economy.

By late September, the din of bad news was becoming too much even for Xi, who decided to act.

The fine print

On Sept. 24, the central bank led the charge to announce rate cuts and other steps to shore up growth and the stock market.

The breadth of the easing measures taken by the central bank surprised even some financial officials in Beijing.

Notably, Pan Gongsheng, governor of the People’s Bank of China, announced plans to set up a facility aimed at guiding commercial banks to lend to listed companies for the purpose of share buybacks.

Some analysts questioned the rationale behind the measure, as companies usually buy back stocks with their own money as opposed to borrowed funds. Nonetheless, the measure reflects Xi’s desire to revive stock trading, according to the officials and advisers close to Beijing’s decision-making.

The central-bank briefing on Sept. 24 immediately led to a surge of Chinese stocks traded both on the mainland and in Hong Kong. Wall Street firms such as Goldman Sachs Group and BlackRock upped their recommendation on Chinese equities though they cautioned they still see long-term challenges for China’s economy.

China’s state media also jumped into the fray by touting record account openings at Chinese brokerages.

For investors and analysts, the ensuing trading frenzy has become reminiscent of what became known as the “Uncle Xi bull market” of 2015, when a government push to encourage stock investing resulted in an epic stock rally in the first half of that year. A big question now is whether the gains will take hold—or turn into a crash just as the 2015 market boom did.

To that end, investors have been hanging on every word from Beijing.

An Oct. 8 briefing by Beijing’s top economic-planning agency disappointed the market with some vague pro-growth pledges but few specifics. It also laid bare the leadership’s resolve to continue aiding high-end manufacturing such as electric cars even though such industry-centric policy has led to wasteful overproduction at home and heightened trade tensions with the West.

The Finance Ministry’s briefing on Saturday reignited hopes that some sizable fiscal support is in the offing.

“The unprecedented series of press conferences by Xi’s policy team demonstrates that Xi now recognizes that China’s economy is on the wrong track,” said Andy Rothman, China strategist at Matthews Asia, a U.S.-based fund manager, “and that a pragmatic course correction is urgently needed.”

Some investors have decided not to pounce yet.

Idanna Appio, a portfolio manager at First Eagle Investments, said the New York asset-management firm, which specializes in long-term holdings, hasn’t changed its allocation to Chinese assets despite the flurry of policy moves from Beijing.

“Without measures to address the oversupply of real estate, the related debt risks and local government’s heavy reliance on the property market,” Appio said, “these recent easing efforts may not be sufficient to tackle China’s deeper economic challenges.”

For now, many of the new policy measures are less about providing direct stimulus to the economy and more about stabilizing local finances and by extension, the overall financial system and the economy.

Following its briefing two weeks ago, the central bank has set up a swap facility to allow eligible brokerages, insurers and fund managers to access highly liquid government bonds by pledging certain assets—such as stocks—as collateral.

According to people familiar with the decision-making, this isn’t a stimulus measure, but rather a derisking step.

Here, Beijing took a page from what the U.S. did during the 2008 global financial crisis, when authorities allowed investment banks and others to obtain liquidity by pledging their assets as collateral.

In China, banks can always borrow from the interbank market to stay liquid, but that market is off limits to brokerages and insurance firms. As a result, this new swap facility is intended to provide those nonbank financial firms with liquidity in the event of a crisis.

During his press conference on Saturday, Finance Minister Lan Fo’an indicated that a new round of fiscal support from the central government will be focused on backfilling local-government budget shortfalls, helping localities swap maturing debt for new borrowing, and beefing up the capital base of major state banks.

Absent from the measures are any significant moves to boost consumption. People close to the ministry say such measures are in the works but nothing substantial is imminent.

Analysts project that China’s top legislature, the National People’s Congress Standing Committee, will approve the issuance of so-called special sovereign bonds worth about $284 billion at the next meeting scheduled for later this month. Most of the bonds are expected to be used for the purpose of local-debt swaps and bank-capital injection.

The officials and advisers close to Beijing’s decision-making say the central government is putting budget constraints on some heavily indebted localities in exchange for them getting funding support from the center. While the move shows an attempt at much-needed financial discipline from Beijing, it could also lead to those localities reducing spending, potentially worsening the nation’s deflationary problems.

But a pivot is a pivot. For many analysts and investors, Beijing’s plan to rescue local governments and stabilize the financial sector is one positive step toward steadying the economy.

However, China still has a way to go before the economy stages a meaningful recovery. First and foremost, many economists have said, the power center needs to do a big U-turn on the focus of state support—from factories to households.

“China’s leadership isn’t prepared to unleash the ‘bazooka’ necessary to power a strong recovery in demand and to end deflation,” said Michael Hirson, head of China Research at New York-based consulting firm 22V Research, “but is taking important steps to stabilize growth and lower tail risks.”

Supply constraints and intense war demands have left the IDF relying on the US to fill gaps in protective shield

Israel faces a looming shortage of interceptor missiles as it shores up air defences to protect the country from attacks by Iran and its proxies, according to industry executives, former military officials and analysts.

The US is racing to help close gaps in Israel’s protective shield, announcing on Sunday the deployment of a Terminal High-Altitude Area Defense (Thaad) antimissile battery, ahead of an expected retaliatory strike from Israel on Iran that risks further regional escalation.

“Israel’s munitions issue is serious,” said Dana Stroul, a former senior US defence official with responsibility for the Middle East.

“If Iran responds to an Israel attack [with a massive air strike campaign], and Hizbollah joins in too, Israel air defences will be stretched,” she said, adding that US stockpiles were not limitless. “The US can’t continue supplying Ukraine and Israel at the same pace. We are reaching a tipping point.”

Boaz Levy, chief executive of Israel Aerospace Industries, a state-owned company which makes the Arrow interceptors used to shoot down ballistic missiles, said he was running triple shifts to keep production lines running.

“Some of our lines are working 24 hours, seven days a week. Our goal is to meet all our obligations,” Levy said, adding that the time required to produce interceptor missiles was “not a matter of days”. While Israel does not disclose the size of its stockpiles, he added: “It is no secret that we need to replenish stocks.”

Israel’s triple-layered air defences have so far shot down the vast bulk of incoming drones and missiles fired by Iran and its proxies at the state from across the region.

The country’s Iron Dome system has shot down short-range rockets and drones fired by Hamas from Gaza, while David’s Sling has intercepted heavier rockets fired from Lebanon, and the Arrow system has blocked ballistic missiles from Iran. Houthi rebels in Yemen and Iraqi militias have also fired missiles, rockets and drones at Israel.

The Israeli military claimed in April that, with the help of the US and other allies, it achieved a 99 per cent interception rate against an Iranian salvo of 170 drones, 30 cruise missiles and 120 ballistic missiles.

But Israel had less success fending off a second Iranian barrage of over 180 ballistic missiles fired on October 1. Almost three dozen missiles hit Israel’s Nevatim air base, according to open source intelligence analysts, while one missile exploded 700 metres away from the headquarters of the Mossad, Israel’s foreign intelligence agency.

The US-supplied Thaad battery, which is designed to shoot down ballistic missiles, will sit alongside Israel’s Arrow system. It bolsters Israel’s overall air defences as Benjamin Netanyahu’s government plans its retaliatory strike for Iran’s missile barrage in October, which Tehran said was to avenge the killing of the leaders of the Hamas and Hizbollah militant groups.

Lebanon-based Hizbollah has shown it can still strike at least 60km into Israel despite weeks of Israeli attacks on its commanders and its arsenal.

On Sunday, a Hizbollah attack drone killed four Israeli soldiers at a military base in the centre of the country.

“We are not seeing Hizbollah’s full capability yet. It has only been firing at around a tenth of its estimated prewar launching capacity, a few hundred rockets a day instead of as many as 2,000,” said Assaf Orion, a former Israeli brigadier general and head of strategy at the Israel Defense Forces.

“Some of that gap is a choice by Hizbollah not to go full out, and some of it is due to degradation by the IDF . . . But Hizbollah has enough left to mount a strong operation,” Orion added. “Haifa and northern Israel are still on the receiving end of rocket and drone attacks almost every day.”

Analysts said that defence planners and Israel’s AI-powered air defences were having to choose which areas to protect over others.

More than 20,000 rockets and missiles have been fired at Israel over the past year from Gaza and Lebanon alone, according to official Israeli figures.

“During the October 1 attack, there was a sense the IDF reserved some Arrow interceptors in case Iran fired its next salvo at Tel Aviv,” said Ehud Eilam, a former researcher at Israel’s Ministry of Defence. “It’s only a matter of time before Israel starts to run out of interceptors and has to prioritise how they are deployed.”

‘King of the geeks’: how Alex Gerko built a British trading titan

XTX Markets conquered foreign exchange trading and made its Russian-born founder a multibillion-pound fortune

If Alex Gerko had stuck with his plan A, he might have stayed a Russian academic rather than becoming one of Britain’s wealthiest billionaires with an estimated £12bn fortune.

After gaining a maths PhD in Moscow, however, Gerko concluded he could not be world-class as an intellectual.

Instead, he moved to London where, with the help of an Icelandic supercomputer and 25,000 AI chips, he built XTX Markets: an algorithmic trading firm and part of a new elite that has rewired financial trading.

The unassuming 44-year-old owes his rise to a huge shift in financial markets since the 2008 crisis, which led to proprietary trading moving out of big banks and into secretive, highly profitable companies.

But XTX is also one of the few UK companies to have cemented its global pre-eminence in a period that has shaken the British capital’s once unassailable confidence in its status as a global financial hub.

“What Alex Gerko has done is next generation, next level,” said Paul Rowady, founder of trading consultancy Alphacution Research Conservatory.

“There’s no other example of a high frequency style trading firm starting the way that they did, in London, in foreign exchange . . . and then growing so quickly.”

Gerko and XTX declined to comment for this article.

XTX’s exact trading formulas are a closely guarded secret. Broadly, the firm makes money by taking tiny margins on millions of daily trades across currency, debt, equity, commodity and crypto markets. It aims to provide more competitive prices than rivals to investors who are looking to buy or sell assets. It handles $250bn worth of trades every day.

Gerko arrived in London with Deutsche Bank, which he had joined in Russia after finishing his doctorate. From there he moved to GSA Capital, a British quantitative hedge fund carved out of the German lender where he first built out the currency trading desk, followed by other assets.

But keen to reinvest the trading profits he made in expanding the business rather than share with investors, Gerko began negotiations to spin out. In 2015 he took a small group of traders and some capital from GSA, and set up XTX, named after a mathematical formula used in linear regression. 

“He and his team were getting extremely ambitious . . . and the difficulty is trying to hold a high-frequency trading business inside a client business,” said one person who worked with Gerko.

“They’re mega geeks. They are the kings of the geek world,” said someone who knows him.

XTX is now one of the most profitable private British companies, and Gerko one of the UK’s richest people, retaining about 75 per cent ownership.

XTX made £1.5bn in profits across its UK and Singapore entities last year, and Gerko and a small group of quants and developers shared a profit pot of £747mn, filings show.

Gerko took £413mn of that; the remaining £334mn was split among 25 other people. In 2022, when the entities reported profits of £1.6bn, Gerko earned £417mn; 24 others shared £350mn.

Gerko has accumulated some of the customary trappings of wealth. He owns a 150-acre estate in the Chilterns, with an energy efficient, subterranean house that originally included a floor that can be lowered to reveal a swimming pool. He built a 3,560 square metre wildlife pond in the grounds that sparked a planning dispute, according to council documents.

But the kings of the geek world also have some more esoteric baubles. They quietly populated their King's Cross headquarters with a replica of the Apollo 11 spacecraft’s command module, which sits in the canteen. Models of Battlestar Galactica robots stand tall around the office.

The family office Gerko recently set up to manage his wealth is named Cromulon Capital after a species of human head-shaped planets from the sci-fi show Rick and Morty. 

Core to XTX’s early growth was cracking currencies — a so-called over the counter market that was dominated by investment bank trading desks in the City of London where knowing who to call is key. Crucial to that was Zar Amrolia, the former global head of FX at Deutsche Bank who would become XTX’s co-chief executive at its founding.

He “had the Rolodex, he could call and say, ‘give us a try, send us some of your orders and see if we don’t perform as good or better as what you’ve been getting from the so-called old boy network’,” said Rowady.

Foreign exchange provided the best market for XTX to start off in “because it had yet to be pervaded by the high-frequency trading firms, because they don’t typically have the Rolodex to be able to penetrate that market”, Rowady added — and it was centred on London.

In an era when the likes of Virtu Financial have built businesses shaving microseconds off the speed it takes to execute trades, XTX has instead prioritised using reams of market data and artificial intelligence to build its trading models, and advocated against what it calls a “destructive speed race”.

Gerko believes “the best way for the market to be brutally efficient is for whoever is smartest to be given a fair crack,” said a person who worked at GSA and XTX. “But if the market is structured in such a way that only the fastest will win, then the market’s monopolised.”

Rivals argue this is because XTX entered the speed game too late. “They try to preach as [if] they’re on some moral pedestal . . . That’s only because they weren’t good at high-frequency trading,” said a competitor. 

XTX’s quant researchers use machine learning to scan trillions of market data points, price points, and other factors, in order to build statistical models that learn when and how to price different assets for investors.

That requires vast amounts of computing power. Gerko and XTX’s interest in artificial intelligence is profound, extending to early stage investments in AI start-up Anthropic, processing company Groq and British autonomous vehicle company Wayve, among others. 

“We were in the same building as Deepmind. During fire drills I almost thought HR would try to poach them,” quipped a former employee.

But it is the firm’s consumption of Nvidia’s AI chips that underlines the centrality of the technology to its trading strategies.

XTX’s research is handled through a supercomputer in Iceland, where cold weather keeps cooling costs down and geothermal energy is cheap. It can hold 400 petabytes of data, equivalent to about 80tn digital photos. 

To achieve that, XTX has spent more than £150mn on its 25,000 AI chips, according to people familiar with the matter.

Most are the last three generations of Nvidia hardware, making the low-profile trading firm one of the chipmaker’s biggest corporate customers behind governments, state-backed defence contractors and Tesla, according to a report from Air Street Capital. Nvidia did not respond to a request for comment.

On top of that, XTX is also building its own vast data centre in Finland.

“XTX is unique,” said Alvaro Cartea, director of the Oxford-Man Institute of Quantitative Finance. “Their edge is machine learning and neural networks, which combined with their compute power, can outpower pretty much all other firms.”

“The fact they have 25,000 GPUs and very few people is an indication that that’s where they think the value is,” Cartea added.

Even if it is not an old-style high-speed trading firm, speed remains important to XTX.

When European stock exchange group Euronext moved its data centre from Basildon to Bergamo in 2022 — with physical proximity to data centres a key factor in how quickly firms can trade — “Gerko went nuts”, according to an industry executive.

“The legacy Chicago crew are still about who’s got the best set of wires,” said the person who knows Gerko, adding that by contrast, XTX’s views on speed are “pretty anti-establishment . . . it’s a combination of that, and it’s not in their natural skillset.”

Unlike firms such as Jane Street, known for a more decentralised approach to management, XTX is made in Gerko’s mould.

It has about 250 employees globally, far fewer than at rivals. In almost a decade at XTX, there have been few women in senior positions.

Although he has long led the firm alongside a co-chief executive responsible for day-to-day management — first Amrolia and then, since last year, the ex-JPMorgan Chase and Deutsche Bank trader Hans Buehler — one consequence of his outsized stake is its one-dimensional culture, according to people close to XTX.

“It’s hard to influence change when you have a majority shareholder,” said one. “It’s the same type of people,” said a former employee. 

That majority shareholder shows no sign of selling. GSA sold its stake back to XTX in 2017, according to people familiar with the matter. XTX has not taken outside investment since. GSA declined to comment.

In contrast, Citadel Securities sold a 5 per cent stake to venture capitalists Sequoia and Paradigm at a $22bn valuation in 2022.

Although a public listing or stake sale could help crystallise his fortune, Gerko has no plans to do so. He also paid £1.2bn to British tax authorities in the past two years, according to Sunday Times estimates, in stark contrast to the tightly-structured affairs of other billionaires based in the country.

“Alex wants to keep control, it’s his baby. Why would he give up [the] business to then comply with all the obligations of an IPO? There’s no upside for him,” said someone who worked with him.

Meanwhile, Gerko has backed initiatives supporting maths education. He founded Axiom Maths, a UK charity that runs ‘maths circles’ for secondary school children, an “approach originated in the former Soviet Union” — a nod to the billionaire’s origins.

Yet Gerko is no longer Russian. In December 2022, months after Vladimir Putin’s invasion of Ukraine, the Jewish emigrant renounced his citizenship.

“Rejoice Russian twitter, the “Ukrainian Nazi Jew Gerko” is no longer your compatriot: started in 2020, about $10k of fees to Russian lawyers, 5 months of collecting docs, 5 embassy visits staring at Putin’s portrait, 4 months of wait and voila, I am officially a non-Russian,” he wrote on Twitter at the time.

Some firms refused to work with XTX allegedly because of Gerko’s Russian heritage: XTX sued them for racial discrimination.

Gerko continued to be outspoken on social media when the Israel-Hamas conflict began last year, denouncing institutions seen to be sympathising with Hamas while donating to charities and hospitals.

“Fnck Harvard,” he wrote on October 8 last year, saying he would “never” hire anybody from the university at the centre of a backlash over its stance on student protests.

His Twitter account has since vanished, though he remains active on LinkedIn, where criticising politicians and rivals continues. “Extremely shortsighted decision,” he wrote, when the UK government did not fund a new national maths academy.

Previous targets for his taunts include rivals Citadel Securities and Virtu Financial. “New head of compliance? Or straight to the board?” he wrote when Doug Cifu, chief executive of Virtu, tweeted about buying a new corgi dog.

“They all hate each other. XTX and Citadel, there’s no love lost between the two heads of them,” said the head of a European stock exchange.

“Competition makes markets better and the meteoric rise of XTX as a leading trading firm has been impressive to watch and made us a better firm in order to compete with their excellence,” said Cifu. 

Citadel Securities, referring to previous posts about them, said: “The FT has a duty to shine a light on his appalling social media posts.”

Now, Gerko’s focus appears to be on mathematics, outcompeting rivals and taking market share.

“They make money hand over fist,” said Jesse Forster, head of equity market structure at Coalition Greenwich.

“XTX remind me a bit of Renaissance Technologies,” he added, referring to the hedge fund whose billionaire founder Jim Simons was known for his love of code-breaking and mathematics rather than money.

But a person who knows Gerko disagreed: “He wants to take on all of them, he wants to be better than Renaissance, better than Citadel.”

Alexei Sagal is among a new group of businessmen benefiting from western companies’ exodus

For Alexei Sagal, an industrialist from the Stavropol province in southern Russia, Vladimir Putin’s full-scale invasion of Ukraine has been transformative.

The horse-breeding enthusiast has emerged as a key buyer of assets from fleeing western companies. Last week his group Arnest, which made its money as a contractor for some of the world’s largest consumer goods groups, agreed to buy Unilever’s Russian business for €520mn. It previously took over the Russian operations of Dutch brewer Heineken, US canning giant Ball Corporation and Swedish cosmetics group Oriflame.

Arnest’s income from sales doubled from Rbs7.4bn in 2021 ($77mn) to Rbs13.9bn last year, while basic profit soared about 24 times, from Rbs40.6mn to Rbs972.8mn, according to company disclosures.

Sagal’s rapid rise to prominence illustrates how the war has triggered the largest asset redistribution within the country since the USSR’s collapse, giving rise to a new generation of capitalists with ties to the state.

“Arnest was relatively unknown until such time as companies were looking to sell assets. It became a regular and successful bidder,” said one lawyer working on western exits. “The mass departure has created a new breed of entrepreneur.”

Other businessmen who have purchased western assets include Ivan Tavrin, who bought classifieds site Avito from Naspers for about $2.4bn in 2022 and German consumer goods giant Henkel’s Russian assets a year later. Last December the US sanctioned Tavrin, saying he “has become one of Russia’s biggest wartime dealmakers since the beginning of Russia’s illegal war against Ukraine”.

Finding buyers acceptable to both western regulators and the Kremlin has become ever more challenging for companies looking to exit Russia.

Multinationals have to carry out thorough due diligence on bidders and sometimes seek approval from their own watchdogs to ensure they do not breach western sanctions.

“The list of those [potential Russian buyers] who fit these criteria is constantly getting narrower,” said a person who has advised on several exit deals.

Foreign companies also need to comply with Russia’s ever stricter rules, including agreeing to steep discounts. The bigger the deal, the more likely the Kremlin and federal ministers are likely to be involved.

“Only those favoured by the authorities can get approval for these assets. Nobody gets them by chance,” said Ilya Shumanov, head of Transparency International’s Russia branch.

Exits are likely to get more costly for western companies, according to two people familiar with the plans, which are designed to keep enough western assets as leverage against confiscations of Russian assets abroad.

Measures under consideration include a rise in the mandatory discount applied to assets — from 50 per cent to 60 per cent — and an increase in taxes, from 15 per cent to 35 per cent. Putin’s approval would also be officially required for deals valued above Rbs50bn, across all sectors.

Founded in 1971 as a state chemical plant in Sagal’s hometown of Nevinnomyssk in southern Russia, Arnest has one advantage: Sagal has not been sanctioned by western powers.

The businessman is also close to Denis Manturov, Russia’s first deputy prime minister overseeing the defence sector, according to a person close to the Russian government’s subcommittee on foreign investments and three people involved in ongoing western corporate exits.

Manturov is a protégé of Sergei Chemezov, who served in the KGB alongside Putin in the 1980s and now heads state defence conglomerate Rostec, the people said. Manturov’s rising stock in the Kremlin — he was promoted in May — has made him an important figure to broker exit deals, they added. Manturov — like Chemezov — is subject to sanctions.

“The impunity doesn’t seem to have gotten to his head. He’s good at putting deals together — he’s reasonable, observes the formalities, and doesn’t demand too much for himself,” said one of the people involved in several recent exit deals.

The ministry of trade has acted “like an octopus” under Manturov, said another person who has worked on numerous exit deals. “They are redistributing the assets and structure of the economy in a very specific way, ensuring they have their own interest,” the person said, adding that this has been a boon for “medium-level sharks” like Arnest.

Formerly trade and industry minister, Manturov visited the Arnest plant in 2019.

His family have shares in an agricultural business that had ties with Sagal, according to Russian independent outlet The Bell. In December 2023, Kolos, an entity in which Sagal used to hold shares, bought half of an apple and blueberry producer co-owned by Dinastia, a company founded by Manturov’s late father. In 2020 Manturov said that Dinastia was a family business from which he received income.

Sagal was a Kolos shareholder until at least 2008, when the company stopped disclosing ownership details, according to a quarterly report on its website.

Kolos is now owned by Nina Valter, 61, who was previously a shareholder and director at various Arnest-linked companies, according to corporate filings. In July, it transferred its stake in the apple and blueberry producer to Denis Taran, a local entrepreneur.

“Sagal has never done any business with Denis Manturov’s family,” Arnest told the FT, adding that Kolos “is not connected to the assets of Alexei Sagal and Arnest in any way”.

Arnest added: “As they leave the Russian market, international companies have been selecting buyers carefully. The key to Arnest’s negotiation success lies in its long-standing partnerships with international businesses.”

It cited previous work with companies like Oriflame and Unilever and the fact that both Arnest and Sagal underwent “multiple checks by international companies and authorities”.

Sagal started working with Arnest in 1996 as a distributor and accumulated a controlling stake in the company by 2004, according to an interview with business news site RBC last year.

By then Arnest had secured its first contract with a foreign brand, making cans for German consumer goods giant Henkel’s Taft hairsprays. It now produces and packages products for the Russian market and countries such as Belarus and Kazakhstan.

Sagal also owns Russia’s Tersk Stud, one of the largest Arabian horse farms in Europe. A stallion belonging to Putin is housed there.

In a 2019 interview with Russian investment firm Veles Capital, Sagal said the stud provided valuable networking opportunities, calling it “a promising bridge between Russia and the Gulf countries”. 

Arnest has become the frontrunner to buy AB InBev’s stake in a $1.3bn Russian joint venture after authorities rejected Turkish brewer Anadolu Efes’s bid in August, according to one person with knowledge of the talks. Anadolu Efes’s application was rebuffed because of its owner’s supposed excessive support for Ukraine, the person said.

Arnest is competing with other politically connected competitors, the person cautioned, however. Last year, for instance, Sagal thought his group had secured the acquisition of Baltika, Russia’s largest brewery, from Carlsberg before eventually losing out to a longtime friend of Putin.

AB InBev declined to comment. Anadolu Efes, which said that it was “reviewing” the Russian authorities’ decision, did not respond to a request for comment.

Ball Corp, Heineken and Unilever declined to comment for this story.

The acquisition of US canmaker Ball Corp’s Russian assets for $530mn was Arnest’s first big deal since the Ukraine invasion. Russian media reported the deal was funded with a loan from VTB.

“Banks like VTB do not give multibillion loans to just anybody,” Shumanov said. VTB, the Kremlin and the government did not respond to requests for comment for this story.

Arnest then acquired Heineken’s third-largest brewer for a symbolic €1, agreeing to take on €100mn of existing debt. It will soon own about €600mn worth of assets sold by Unilever, including four factories.

“I wouldn’t say they are little guys becoming big guys,” one person who has worked on numerous exit deals said. “They are little guys still working for big guys.”

In Paris for motor show, companies including Xpeng and GAC pledge their long-term commitments in effort to allay concerns

Chinese carmakers said they were not seeking to “overthrow” Europe’s legacy manufacturers with cheaper electric vehicles in an attempt to allay fears among European rivals over their aggressive international expansion.

Several leading Chinese carmakers including Xpeng and GAC in Paris for the biennial motor show pledged their long-term commitments to the European market amid a trade war between Brussels and Beijing and warnings of an “invasion”. 

“We’re a 10-year-old company. We’re not going to overthrow anybody who’s developed over 100 years,” Xpeng co-president Brian Gu said as the company showcased an electric saloon with highly advanced artificial intelligence technology.

Gu added that the company wants to position itself as the provider of “premium electric vehicles” in Europe, although it may also consider offering more compact models with affordable pricing. “We don’t want to be competing on price. It’s not our goal,” he added.

The Chinese start-up is also “open to doing more with Volkswagen” after the two companies agreed a deal this year to develop two electric vehicles, according to Gu.

GAC, a Chinese state-owned carmaker making inroads in the region, struck a similarly conciliatory tone on the economic benefits of its entry into European markets, highlighting how it could end up working with the region’s suppliers. 

“When we come to the European markets, we come with an attitude to co-operate,” said general manager Feng Xingya. “We’d like to co-operate with partners in the industry chain and also provide and cater for the needs of European consumers.”

The comments from Chinese carmakers — out in force in Paris, where their cutting edge electric designs went up against homegrown models — come against a backdrop of growing political anxiety over the risks implied for Europe’s industry.

EU member states agreed in early October on tariffs of up to 45 per cent on Chinese EVs in an effort to thwart their advance. Local manufacturers from Volkswagen to Stellantis, the maker of Peugeot and Fiat, have issued a string of profit warnings, casting doubt on the future of European factories which are wrestling with overcapacity amid falling vehicle demand.

Some of the European carmakers’ comments about Chinese rivals have been more muted, in part because they want to team up with some of their competitors from China to improve their own technological edge.

The chief executive of France’s Renault vowed on Monday to fight back against the advances of Chinese carmakers, but equally called for more collaboration especially in the area of battery supply chains where Chinese companies control key ingredients.

“They want a share of the cake and in exchange we probably need some help,” said Renault chief executive Luca De Meo. The company is developing its electric car facilities in northern France thanks in part to a partnership with China’s Envision AESC, which will provide the carmaker with batteries.