TheChek News Flow

- Fed will need to allow tight policy additional time to continue to do its work; In good position to hold rates steady and watch things evolve

- Vigilant to the risks to both inflation and employment mandates; Current approach is prudent to manage both sets of risks

- Regulators considering restriction on how much banks can rely on 'held-to-maturity' securities under liquidity requirement; Larger banks would be required to have available liquidity to cover uninsured deposits

- Fed weighing limits on assets banks can hold as buffers- Regulators exploring targeted adjustments to existing liquidity rules

- Regulators are reviewing regulatory treatment of certain types of deposits, including ones tied to venture capital or cryptocurrency businesses

- Economy is strong, growth solid, unemployment low

The slow return of high-spending Chinese tourists is resulting in an uneven recover of the market, while a money laundering case could impact the sector.

As the luxury sector sees a global slowdown, Singapore, one of its key markets, is being impacted by the slow return of Chinese tourism.

While high-spending Chinese visitors are returning to some markets, including cities like Paris and Milan, “the recovery in tourist spending on personal luxury goods overall is uneven and the effects of the pandemic are still very visible across some key luxury shopping destinations like Singapore,” said Fflur Roberts, head of luxury at Euromonitor International.

Total international luxury shopping on personal luxury goods, while booming post-pandemic for some brands, still remains at only 74 percent of its 2019 peak. It is not expected to reach full recovery until 2025, with much of the fall being attributed to the absence of Chinese tourists. “Slower than anticipated spending growth is expected in some key destinations like Singapore, that were traditionally dependent on Chinese tourism spending,” Roberts said.

Despite that cautious outlook, retail sales of luxury goods in Singapore increased by 11 percent in 2023 in current terms, to a total of 12.4 billion Singapore dollars, or $9.1 billion, according to Euromonitor. However, a record-breaking money laundering case in the city state, involving accused Chinese nationals, could potentially dampen demand in the short term for luxury goods as high-net worth individuals could avoid attracting unwanted attention.

Singapore authorities have started sentencing 10 Chinese nationals in the 3 billion Singapore dollar, or $2.2 billion, money laundering case. Multiple locations across the county were raided in August 2023 by local police to arrest the accused for allegedly laundering proceeds from overseas criminal activities. Three out of the 10 have so far been sentenced to jail time, fines and the forfeiting of assets, with the money laundering being linked to funds derived from illegal Chinese gambling rings. Some of the group are already wanted by Chinese authorities.

Chinese national, Su Wenqiang, the first of the accused to plead guilty in the money laundering case, agreed, as part of a plea deal, to forfeit assets worth more than 5.9 million Singapore dollars, or $4.3 million to the state, including a pink Delvaux bag worth SGD 4,100 ($3,010), a green Moynat bag worth SGD 5,780 ($4,250), a white Prada bag worth SGD 1,305 ($960), a Tiffany & Co. bracelet worth SGD 6,200 ($4,550), a pair of Dior earrings worth SGD 540 ($400), a Graff diamond ring worth SGD 9,450 ($6,940) and 38 luxury items including handbags, jewelry and watches worth a total of SGD 396,000 ($290,880).

The case sent shockwaves through the country, which is known for its safe and stable governance and attracts foreign investment through tax incentives and exemptions. It also raised questions on the effectiveness of Singapore’s existing measures to detect and counter money laundering activities and if additional measures are needed.

The revelation of such high-end luxury purchases in the money laundering case shined a spotlight on luxury spending in the city state and led to concerns that the under-regulation of luxury goods could be exploited to launder money. Singapore is tentatively due to have its anti-money laundering practices evaluated in 2025 by the Financial Action Task Force, an intergovernmental organization.

The case could have a longer lasting impact on luxury shopping in the city state if new regulations on the purchasing of high-value luxury assets are deemed necessary. Second Minister for Home Affairs Josephine Teo said in Parliament that Singapore’s anti-money laundering requirements comply with international standards set by FATF.

“A number of the suspects had purchased high-value assets such as luxury cars, bags, liquor and ornaments. These were among the assets that were seized, or issued with a prohibition of disposal order,” Teo said. “They are currently not regulated unlike, for example, precious stones and precious metals.”

The FATF Recommendations are a set of international standards, which the organization suggests countries should implement through measures adapted to their particular circumstances. Teo stated, “We will examine if Singapore needs to extend anti-money laundering requirements to new classes of assets, beyond what FATF has recommended. This has to be evaluated carefully so that we do not end up unduly inconveniencing legitimate businesses and customers.”

Prosecutors in the cases have said that a strong message needs to be sent to show that money laundering is a serious offense and to protect the country’s reputation as a financial hub.

Singapore is home to more than 300,000 people with a net wealth above $1 million. This number is set to increase to more than 400,000 people by 2030, according to Euromonitor International.

Still, any impact from the money laundering case on luxury spending is likely to only pause, not stall, overall spending, observers believe.

“Whilst in the short term the ongoing sentencing and fallout of the money laundering case may have some impact on spending habits on luxury goods, or, moreover, displaying wealth through luxury brands and other conspicuous lifestyle trends and habits as high-net-worth individuals avoid attracting unwanted attention, this is unlikely to have a long-term impact alone on luxury spending in Singapore,” Roberts said.

And most brands felt little impact from the case, with macroeconomic factors being a bigger worry. “We did not feel a direct impact from the incident. Since they would favor the ultra-high-end watches, which are items we do not solely focus on in our business. However, the market for watches has slowed down generally due to a weaker economy. Perhaps dealers who deal solely with ultra-high-end models will feel the ramifications.” said Nick Lim, director of Chuan Watch Collection Pte Ltd., a luxury watch specialist.

“The accused persons do not represent the entire watch buying or selling community. It’s hard for people with illegal money to even spend it at shops like ours. Many shops do not take cash nowadays. Only bank wire payments. And perhaps the sellers didn’t conduct their due diligence to a reasonable extent,” Lim said.

As the country awaits the return of high-spending Chinese visitors, domestic spending in Singapore could prop up the sector’s recovery, as it has in other countries over the last few years. According to Mintel’s Global Consumer survey, Singaporeans are more willing to spend as the world settles firmly into the post-pandemic era.

“Back in July 2020, 71 percent of Singaporean consumers said they would save or invest money left over after paying bills and buying necessities. Four years on, this dropped to 60 percent in March 2024,” said Huiqi Ong, senior consumer lifestyle analyst, Asia Pacific, at Mintel.

​​“Purse strings may be relaxing, but Singaporeans are still discerning about where they spend their money. If brands can prove their worth, consumers will spend. Seventy-three percent of Singaporean consumers said they thought it was worth paying more for products of high quality,” Ong said.

Alleged hybrid assault is a challenge to European democracies that have a high bar for evidence of culpability

European investigators increasingly see Russian fingerprints around recent acts of suspected sabotage on strategic infrastructure but are struggling to respond.

Reacting to clandestine threats is difficult because evidence around the suspected attacks—including a severed undersea gas pipeline, cuts in a vital internet connection and the disruption of a rail network—often isn’t conclusive. Potential culprits in big cases include commercial shipping or fishing vessels that have been engaged in apparently legitimate maritime transport or trawling for fish near sensitive seabed installations that were destroyed around the same time. They rarely have direct connections to Russian authorities, investigators say.

European governments have charged some Russians and Russian proxies in smaller incidents and are getting more vocal in accusing Moscow of waging hybrid warfare, but are stopping short of accusing Russia of specific attacks. In the most brazen suspected incidents, a lack of clear proof has prompted officials to leave cases open or declare investigations inconclusive.

Last fall, Finnish investigators linked a Chinese-registered ship, operated by a Russian crew, to the cutting of the Balticconnector natural-gas pipeline to mainland Europe. As the investigation advanced and the ship sailed around Scandinavia back toward Russia, the Finns contacted Norwegian counterparts about their suspicions. Norwegian authorities contemplated forcing the ship into one of their harbors for inspection, but ultimately decided they lacked clear evidence. A Norwegian coast-guard ship shadowed the Newnew Polar Bear as it was passing sensitive marine infrastructure.

“Only a week or two later we would have had enough evidence to stop and search the ship, but by then it was already too late,” one Norwegian official said.

Detecting potential attacks is increasingly difficult because Russia, since launching its full-scale invasion on Ukraine two years ago, has turned more to civilians and commercial vessels to survey and possibly attack critical infrastructure such as undersea connections, offshore energy facilities, transport networks and military installations, people familiar with the cases say.

Some governments are also refraining from blaming Moscow for fear of escalating tensions beyond control. The suspected attacks often fall below the threshold of what would be considered warlike acts of aggression because they involve civilian vessels, with operators who willingly talk with investigators and claim innocence.

Investigators and prosecutors must meet European justice systems’ high bar for criminal evidence while authorities grapple with enforcing national-security laws against potential culprits benefiting from Western democracies’ freedoms.

To prevent attacks, European governments have put the systems protecting critical infrastructure on high alert, added security personnel and placed more cameras and sensors at rail and maritime facilities.

German prosecutors last month detained two dual Russian-German nationals suspected of spying for Moscow with the goal of disrupting Western military assistance to Ukraine through sabotage. Germany’s population of roughly 83 million people includes a Russian community of nearly four million, and Moscow’s spymasters are targeting them for recruitment, security officials said.

Ordinary civilians are recruited via social media such as Telegram, as well as through the chat functions of popular online games, investigators said. Recruits sometimes remain unaware that they operate on behalf of Russia.

Polish officials in February detained a man working for Russian intelligence who they said planned to commit acts of sabotage, including setting fire to facilities in the western city of Wroclaw, a big supply hub to Ukraine. A Polish court late last year sentenced six men to prison on espionage charges.

Some officials believe that one of Moscow’s objectives is to spread fear and distrust through disruptions. These officials believe that a more prudent course than responding by accusing Russia and potentially spreading fear is to remain quiet about suspicions, though this approach has drawn criticism.

“If the current strategy is in fact to avoid attribution in cases where significant evidence points to Russia,” said Benjamin L. Schmitt, a senior fellow at the University of Pennsylvania who specializes in European energy security, “this will only degrade deterrence and invite further attacks against critical infrastructure.”

More governments are going public with warnings.

On Tuesday, Norway’s security agency plans to publish a major report that is expected to analyze the threat of Russian sabotage in the country, which borders Russia and hosts critical North Atlantic Treaty Organization military assets. Norway also trains Ukrainian soldiers and provides ammunition and hardware to Kyiv.

Britain’s cyberintelligence agency GCHQ is “increasingly concerned about growing links between the Russian intelligence services and proxy groups to conduct cyberattacks—as well as suspected physical surveillance and sabotage operations,” its director Anne Keast-Butler said last week.

NATO issued an exceptionally blunt statement this month accusing Russia of waging “an intensifying campaign of…sabotage, acts of violence, cyber and electronic interference, disinformation campaigns, and other hybrid operations.”

Authorities believe Moscow is using civilian equipment for spying and sabotage. Russia has in recent years employed its vast commercial fishing fleet, as well as marine-research ships for intelligence gathering in the Arctic, an area crucial for its strategic nuclear-submarine deterrence that is based there, an official for Norway’s security service PST said. Some of the vessels are modern ships, more than 300 feet long, equipped with sonar and other technology that allows them to scan the seabed, the official said.

Since the start of the full-scale invasion of Ukraine, such vessels have mapped critical subsea infrastructure around Europe and identified potential targets in case of a full-blown confrontation with NATO, several officials said. U.S. officials see similar threats to subsea cables in the Pacific Ocean.

The Balticconnector rupture shows investigators’ challenge in linking damage to culprits. On Oct. 7 the Chinese-registered containership Newnew Polar Bear left Russia’s Baltic Sea port of Kaliningrad and sailed north. Staffed by a Russian crew, it crossed the pipeline’s area at the same time the link broke.

The ship, which was trailed by the Sevmorput, a nuclear-powered merchant ship owned by the Russian government, then docked in St. Petersburg, before retracing its path and sailing around Norway to the northern Russian port of Arkhangelsk. It traveled at least a large part of the 3,600-mile route almost simultaneously with the Sevmorput, according to satellite data reviewed by The Wall Street Journal.

Finnish investigators believe that the pipeline was cut by the Newnew Polar Bear’s anchor. A spokeswoman for the Finnish investigation authority said that the ship’s Chinese owners were collaborating with investigators and that the probe sought to determine whether the rupture was an accident, the result of negligence, or a deliberate act of sabotage.

The owner of the ship, Hainan Xin Xin Yang Shipping, didn’t respond to a request for comment.

Immediately after the pipeline was cut, Finnish officials identified the ship as a potential culprit, but they were unable to search it because it was in international waters.

A Finnish official familiar with the investigation said investigators are unlikely to attribute responsibility at the end of the probe.

In Germany, officials and investigators say they suspect Russia could have been behind an attack on the railroad that temporarily halted all rail traffic in the north of the country in October 2022.

The rail attackers crippled both the railway’s main communication network and its backup by almost simultaneously severing two data cables located roughly 200 miles apart, investigators said. Whoever carried out the sabotage had detailed knowledge of the network, investigators said.

“It smells like Russia. It looks like Russia,” a senior investigator said. This person said that the attack failed to cause greater public concern because it only disrupted traffic for around four hours, which he said was a relatively unexceptional disturbance for passengers using Germany’s delay-plagued rail system.

In January 2022, as Russia was positioning its forces to attack Ukraine, a Russian fishing trawler was detected traversing the icy waters above a major fiber-optic cable around the time it was cut. The cable carried data from SvalSat, one of the largest commercial satellite ground stations in the world, located on Norway’s Svalbard archipelago in the far north.

The cable carries data that is essential for internet traffic across Europe. Russia has in the past said that the West uses the facility to spy on marine traffic. A backup cable ensured continuous operation, albeit at a lower capacity.

The Russian trawler crisscrossed more than 100 times over the exact spot where the cable was cut, according to satellite traffic-monitoring data, said Ronny André Jørgensen, a prosecutor from the northern city of Tromsø who investigated the incident.

Footage from an underwater drone revealed that the seabed where the cable was cut had been plowed by a hard object, the tracks of which resemble the impact of the equipment carried by the Russian trawler Melkart 5. The captain of the ship was questioned but no evidence was found against him, and the company denied responsibility.

The owner of the trawler, Murman SeaFood, didn’t immediately respond to a request for comment.

“The bar for evidence in a criminal investigation is very high, and we have not been able to reach it,” Jørgensen said.

Jørgensen said that Russian fishing boats have been spotted over the area where another cable was cut off the coast of northwest Norway less than two months before the Svalbard incident. The cable, belonging to a local ocean observatory, was used to monitor marine life, but in theory could be used to trace the movement of ships and submarines, he said.

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Wall Street firms such as Fortress are backing legal showdowns against big companies

Johnson & Johnson has an enterprise value of $375bn. Yet it wants you to think of it as an underdog. Earlier this month, the healthcare titan announced that it had reached the outlines of a deal to settle liability over allegedly carcinogenic talcum powder. The terms would see the tens of thousands of claimants being paid $14bn over 25 years, or $6.5bn in present value terms.

The so-called mass tort case had been an ongoing, significant overhang for J&J. And the agreed deal was clever — a potential win-win for victims who would begin to get their money soon and closure for the company. But J&J in the press release took the opportunity to fire a broadside against its adversaries. It first singled out plaintiffs’ lawyers whom it said had “conflicted financial incentives”, amid the negotiations. 

And then in a remarkable subsequent line, it blamed what it said was frivolous litigation as a result, in part, of “the unregulated and surreptitious financing of product litigation by financial institutions, including private equity and sovereign wealth funds”. 

The release did not name the firms in question. But on Friday J&J told a federal court it sought the details on the plaintiffs’ backers and it was serving a subpoena on the $48bn alternative asset manager Fortress Investment Group, whose new owner is Abu Dhabi’s Mubadala Investment Company.  

Within Fortress’s private credit business is one of the most sophisticated litigation funding players in the world, known as Fortress Legal Assets. One plaintiff’s lawyer in the talc matter admitted last spring in a deposition that Fortress dollars were, at least in part, funding the multimillion-dollar pursuit of the claims.

Notwithstanding its agreement, J&J has maintained that the scientific evidence shows its talc did not cause either ovarian cancer or mesothelioma, a cancer that develops in the lining of some internal organs. And while it has unsurprisingly taken aim at the lawyers on the other side of the table, its real fury is trained on Fortress. J&J claims the firm’s funding has distorted the bargaining process, with lawyers taking extreme positions because of the financial return requirements of their client. In other words, the Fortress money — with a cost of capital of roughly 15 per cent — served as tax that prevented a settlement from being struck sooner, making both J&J and victims worse off.

Litigation finance is not new and has always been controversial. Plaintiff law firms have been derided as “ambulance chasers” and have stigma attached to them in the US. But they are increasingly backed by the Wall Street houses in mass tort cases, which is leading to showdowns with Fortune 500 companies like the J&J battle.

Litigation funders maintain that at their core they simply level the playing field. Corporate defendants have insurance policies that let them escape or cushion the consequences of their wrongdoing. Litigation finance is supposed to provide the counterbalance for victims of misconduct so they are not stymied in seeking justice by limited upfront cash.

Samir Parikh, a law professor at Wake Forest University who has studied mass tort litigation finance, says that, in fact, the quality of victim claims has little to do with how cases are ultimately resolved. He said in many cases, the most valuable service provided by attorneys is outside the courtroom. “Rather, the name of the game is really marketing, or ‘building inventory’,” he says.

Parikh was referring to the process of finding and accumulating thousands of claimants — meritorious and otherwise — in order to maximise pressure on companies to settle lawsuits. This marketing machine is ultimately what litigation finance is beginning to underwrite.

According to Fortress’s website, it has cumulatively funded $6.8bn in litigation finance. Industry participants say virtually every major private capital firm is involved in funding lawsuits, though often quietly and through affiliates. Centerbridge and Apollo both funded lawsuits of victims of PG&E while also being financial creditors and shareholders of the California utility that paid victims billions over its role in devastating wildfires.

Corporate general counsels and the US Chamber of Commerce advocacy group are now arguing that litigation finance has become a grave threat to many companies given the billions in firepower of mainstream private capital firms. Private capital firms are trying to shed their long-standing image as cut-throat vultures. Still, investing in legal brawls can be lucrative business and the Johnson & Johnson stand-off shows that managing this dilemma is very real.

Aby Rosen was New York real estate royalty. Is his office empire crumbling?

RFR Holding has billions of dollars in debt coming due at a time when valuations are down and financing costs up

By the time property developer Aby Rosen bought New York’s Seagram Building in 2000, both the mid-century Midtown tower and its namesake Canadian distiller were past their prime.

But the building was the making of Rosen’s real estate empire. Together with his longtime business partner Michael Fuchs, their company RFR Holding and a vast collection of modern art, Rosen renovated, rebranded and remarketed unloved landmarks at higher rents.

“Rosen brought an art collector’s eye to real estate,” said Bob Knakal, who heads brokerage firm BK Real Estate Advisors and has worked on deals for Rosen in the past. “He looked at buildings and saw things that other people missed.”

The 375 Park Avenue tower, never officially named the Seagram Building, was completed in 1958 as the first Manhattan skyscraper with floor to ceiling windows. At the start of its fifth decade, it was draughty and energy inefficient with a fire-prone electrical system and leaky fountains in its plaza. The building’s famed Four Seasons restaurant was in its twilight.

The German émigré bought the property for $375mn and spent tens of millions more on upgrades. Over the next decade, it was rarely anything other than full. By 2013, it was a $1.6bn testament to Rosen’s acuity at wringing fortunes from faded landmarks as well as his spot in the top tier of New York developers.

Now it only produces about half the income it did before the pandemic, and Moody’s Analytics last month included it on a list of properties that may be difficult to refinance. RFR refinanced a $400mn debt tied to the building in December, but still owes $750mn on a 2013-vintage loan.

Since 1991, Rosen has bought more than 50 buildings across Manhattan — including a half stake in the Chrysler Building. He has sold a few along the way, as well as diversified by buying buildings in Seattle, Tel Aviv and elsewhere.

But the flashy purchases of a man with an equally showy social life may now be starting to catch up with him.

Billions that Rosen has borrowed on the Seagram Building and other properties are either coming due in the next year or already have, at a time when higher interest rates and the post-Covid realities of office have cut commercial real estate valuations and made refinancing more difficult.

RFR said the Seagram Building was “fully leased with an investment grade tenancy” and that operating profits are set to more than double this year.

Even so, similar stress is being replicated across the RFR portfolio.

In 2018, Rosen told the Financial Times that the value of RFR’s portfolio had climbed to $14bn. Since then, the global real estate market has not been kind.

He has already been forced out of some of his marquee properties, including the Lever House, and a high profile office-to-condo project in Midtown Manhattan.

Last week, he had $470mn in debt come due on 285 Madison, a 26-storey building near New York’s Grand Central Station worth $610mn when he took out the loans in 2018. In 2022 it was valued at $60mn less than the debt.

RFR is far from the only New York developer feeling the pain from a post-Covid real estate downturn. Still, the developer and his partners have to reckon with at least $2.5bn in debt either coming due in the next year or already past due, a FT analysis of publicly available loan data shows.

The analysis found 16 loans connected to more than 20 properties that RFR owns, by itself or with partners. Collectively, those buildings generated just over $26mn last year after interest payments, nearly three-quarters less than the $97mn they were expected to when RFR and its partners took out the debt.

Twelve of the loans are in some state of distress, whether flagged by mortgage servicers as at risk of default, delinquent or still outstanding despite the maturity date having passed.

Four of the buildings are not bringing in enough rent to cover mortgage expenses. Another two are either empty or about to be: one of which being a Brooklyn office building that was fully occupied by WeWork before the bankrupt co-working company broke its lease last year.

Lawsuits and mortgage filings point to a growing pile of unpaid bills.

Earlier this month, a former top executive of Rosen’s RFR Holding sued Rosen and Fuchs for $20mn, alleging they had missed two deadlines this year on payments tied to a 2019 exit package.

A Blackstone venture is separately pursuing the developers for nearly $50mn, one of a number of outstanding loans that the private equity group and its partners bought from the failed bank Signature.

RFR has also missed mortgage payments and a property tax bill totalling just over $9mn on 522 Fifth Avenue. The building facing foreclosure is a Miami retail property Rosen’s group bought in 2019 for $20.5mn.

“Aby is at the top of the game in being astute, but even the people who were astute with their leverage are falling to these higher interest rates and being unable to refinance,” said Knakal at BK Real Estate Advisors.

With his other Midtown Manhattan landmark, the Chrysler Building, Rosen faces a distinct challenge. RFR co-owns the building with Signa, the insolvent Austrian property group founded by the one-time billionaire René Benko.

Signa’s administrator is now seeking to sell its half of the 77-storey art-deco skyscraper to raise cash. Although the building is 90 per cent let, the building comes with an expensive ground lease, limiting its attractiveness. A fire sale price could crystallise a depressed valuation — as well as leaving Rosen with a partner not of his choosing.

RFR declined to comment on the lawsuits, but said that the vast majority of its nearly 100 properties were “well leased and performing well”. The company was actively working to restructure the debt of those on its properties experiencing stress, it added.

“No one invested in real estate is immune to the pressures from fluctuating capital markets or the changing trends in work and lifestyle that we are currently seeing,” RFR said. “We’re confident in our ability to work through these obstacles as we have in the past.”

Rosen has also used unpaid bills as a negotiating tactic before. In a fight over the currently closed Gramercy Hotel, RFR stopped paying its lease in mid-2020, claiming the pandemic had made the property worthless.

But with $929bn in US commercial mortgage debt set to come due this year according to the Mortgage Bankers Association — about $180bn of which is tied to office properties — investors are watching not just to see what happens to Rosen, but what his challenges herald for the rest of the property industry.

“Any office owner is under significant pressure, so it is not a matter of if, but when maturities are coming up,” said an investor in distressed real estate loans.

“RFR has a lot of high-profile stuff needing to be refinanced right now, but there are a lot of developers all over the country with loans that are going to have to get worked out.”