FT : EU faces potential €450mn post-Brexit bill on empty London offices

EU faces potential €450mn post-Brexit bill on empty London offices
European Medicines Agency saddled with 15-year liability for lease after subtenant WeWork stops paying rent

The EU faces a potential office space bill of more than €450mn after its drugs regulator quit London because of Brexit, adding pressure to its already overstretched budget.

The European Medicines Agency sublet its former headquarters building in Canary Wharf to WeWork in 2019 but the bankrupt desk-space business had suspended rent payments, according to a document seen by the Financial Times.

The EMA told lawmakers in Brussels that it needed €30mn annually to fund rent and bills until and unless a new occupant is found for the Canary Wharf property. The EMA’s lease ends in June 2039, creating a potential liability of more than 15 years totalling €450mn.

It has already asked the EU for more than €3mn to cover rent for the first quarter. Brussels is legally obliged to make up any shortfall in the EMA budget.

European parliamentarians, who must approve any request, will quiz officials on Thursday in private about the future of the building, vacated when the EMA moved to Amsterdam as the UK left the EU. 

In replies to written questions by the European parliament’s budget committee, the EMA said the prospects of recouping much of the money were slim because of the UK’s weakening commercial property market.

Finding a new tenant was likely to take at least two years, since the vacancy rate in Canary Wharf was more than 15 per cent, it said.

Meanwhile, the EU would be liable for rent and service charges, taxes, operating costs and utility bills, totalling about €30mn a year, the EMA said.

In line with UK industry practice, the agency would also have to offer “rent-free periods or equivalent cash payments” of about 15-18 months every five years, in effect a 25 per cent discount, it said. 

The building at 30 Churchill Place was designed in 2008 and is categorised as second-hand, renting at £29-£35 per square foot rather than the £50-£57 for newer space.

“The financial and human resource burden of managing and maintaining the former premises diverts EMA’s attention from its critical human and animal health mandate,” the agency added.

WeWork stopped paying rent on January 1 but continues to pay service charges, according to people familiar with the situation. The two sides are in talks.

“Before any decision can be taken we must await the outcome of negotiations with the subtenant that are confidential,” Olivier Chastel, vice-president of the budget committee, told the FT.

The EMA is urging the European Commission to find a “political resolution”, hinting that British officials could be housed in the building in a deal with Brussels.

But in its answers to MEPs, the commission said the EMA’s relocation was not covered by Brexit agreements and the contract was not its responsibility. “To our knowledge . . . UK authorities visited the premises but did not eventually express interest [in leasing] them,” it said.

The EMA will soon submit its estimate of the likely financial gap for inclusion in the debate over the EU budget. 

The EU is already engaged in tortuous budget talks. The commission has asked for a €100bn increase, with half earmarked for Ukraine. The plan has met fierce resistance from richer member states, which pay the most and who have haggled the non-Ukraine sum down to €21bn. However, a deal remains elusive.  

“The EMA has a €480mn annual budget. This is €30mn a year,” said an EU diplomat on Tuesday. “They can start looking in their own budget before asking for more from the EU.”

FT : Global minimum tax will boost revenues for tax havens, says OECD

Global minimum tax will boost revenues for tax havens, says OECD
Corporate tax take to rise up to a third at hubs for multinationals such as Ireland and the Netherlands

Tax havens such as Ireland and the Netherlands are set to be the big winners from the global minimum tax, which will initially boost state revenues from multinationals by up to a third, according to OECD research.

The global minimum tax, which came into effect from January 1 across the EU, UK and a clutch of other big economies, applies an effective tax rate of at least 15 per cent on profits on large multinationals.

An OECD working paper published on Tuesday estimated participating countries categorised as “investment hubs” would have the largest expected gains from the reforms, with corporate income tax revenues rising from 14 per cent minimum to up to 34 per cent.

The OECD, which oversaw negotiations on the tax reforms, defines investment hubs as jurisdictions with more than 150 per cent of inward foreign direct investment of gross domestic product. These include jurisdictions such as Bermuda, the British Virgin Islands, Ireland, Jersey, Guernsey, Luxembourg, Netherlands, Switzerland and Singapore.


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The global minimum tax, originally agreed in principle by more than 140 countries in 2021, is designed to stop a decades-long downward spiral in headline corporate tax rates worldwide. Under a series of interlocking rules, if profit by a multinational is taxed below a 15 per cent rate in one country, other countries will be able to charge a top-up levy.

Manal Corwin, head of tax at the OECD, said that while investment hubs might gain in the short term, the “key thing to watch for is the decisions that businesses make” in future.

“Those decisions become less likely in the future as it’s costly to set up structures [in investment hubs] and the incentive to do that is reduced by the global minimum tax,” she added.

The predictions about how much additional revenue tax havens would receive involved “a higher degree of uncertainty than other results”, the report added. This was because the countries in question were a relatively “heterogeneous” group.

Commentating on the report, Rasmus Corlin Christensen, an international tax researcher at Copenhagen Business School, said not all tax havens would gain equally from the reforms.

Countries such as Ireland and Netherlands where multinationals had booked large amounts of profits and also had a large economic presence would likely benefit the most from the changes, he predicted.

The OECD research suggests high-income jurisdictions, such as Australia, Germany, Japan and the UK would receive the second-highest amount in additional revenue. But the 7 per cent to 10 per cent increase in tax revenue is significantly less than the boost for some tax havens.

Overall the report estimated that all participating countries adopting the global minimum tax would have gains of at least 3 per cent in their tax take. This was because there was “low tax profit in all jurisdictions groups”, said Ana Cinta González Cabral, one of the report’s authors.

Separate OECD research found more than one-third of global corporate profits were taxed at an effective tax rate of below 15 per cent, while roughly half of these profits were in relatively high tax jurisdictions with effective tax rates in excess of 15 per cent.

However, the OECD working paper also revised down the overall amount of additional tax it expected the global minimum tax to bring in. Last year, this was projected to be up to $220bn. The OECD now estimates it will range from $155bn to $192bn annually. It said the revision was because of a change to its modelling which relied on more up-to-date data.

FT : US used electric vehicle values fall almost a third in 2023

US used electric vehicle values fall almost a third in 2023
The declines mean the cost of financing for new battery cars rises for consumers

The resale value of best-selling electric vehicles fell almost a third in the US last year, amid a wider slowdown in the growth of EVs across the developed world. 

The second-hand value of the top-10 selling battery cars in the US, including models from Tesla, General Motors and Ford, fell an average of 28 per cent in 2023, data from CarGurus and compiled by HSBC show.

In the UK, the value of used EVs fell about a fifth in the UK, far higher than the overall market where resale values dropped only 3.7 per cent, according to the bank which referred to Auto Trader data.

Resale values are a core indicator of a vehicle’s desirability, reflecting what a second-hand buyer is willing to pay for a model that is typically about three years old.

EV pricing “is likely only to get tougher in 2024”, said the bank’s analyst Mike Tyndall, who warned the wind down of subsidies in countries such as Germany and France “could force carmakers to get aggressive on pricing”.

Carmakers are likely to have to erode what little profit margin they have in EVs in order to prevent them being undercut by new, cheaper models from China, he added.

“It is difficult to completely focus on profitability since it risks losing market share to the EV-native new entrants that continue to remain price aggressive in the pursuit of market share.”

Carmakers have warned of deeper than expected scepticism from mainstream buyers over EVs, forcing manufacturers to cut prices or scale back sales targets.

Weaker resale values for battery cars means new EVs will be comparatively less affordable than petrol or diesel models that are expected to lose less value over the same period.

The metric is key for setting lease prices, where a motorist will finance the amount of money that a vehicle loses over a three-year lease. The larger value loss will mean a greater need for finance.

About 60 per cent of new vehicles in Europe are bought on a lease, while in some markets such as the UK it is more than 90 per cent.

The sharp declines in resale value will weigh on carmakers in markets such as the UK and California, where they must increase the proportion of their sales that are fully electric every year, or face hefty fines.

Mike Hawes, head of the Society of Motor Manufacturers and Traders, which represents the UK car industry, said more incentives, as well as cheaper insurance deals and more charging points, were needed to encourage consumers to buy electric models.

“Invariably we’ve got to the stage where we are through the early adopter phase, and we need to get into the mass market, and that’s never a linear transition,” he said.

In the US, the used price of Tesla Model X, the worst performer, dropped 36 per cent compared to a year earlier. While a second-hand Model X would fetch $75,798 in December 2022, by last month this had fallen to $48,511 for an equivalent vehicle. 

Other best sellers fell sharply, including Ford’s F-150 Lightning pick-up truck, which dropped 30 per cent from $90,245 to $62,540, and the Chevrolet Bolt, which fell 32 per cent from $26,325 to $17,901.

In the UK, resale values for the Nissan Leaf and Renault Zoe — both older models — fell by a quarter, while the Porsche Taycan fell 21 per cent and the BMW i4 dropped 18 per cent.

Carmakers are also increasing discounts to try to shift new EVs, both in the UK and US, as they face the challenge of convincing mass market buyers to shift to electric driving.

Roughly half of the new EVs on sale in the UK offer 0 per cent finance, sometimes with offers that effectively cut the price of a vehicle by a third. Other brands are offering straight cash discounts of up to 27 per cent, while the overall cash discounting “is at the highest level we have seen to date”, Tyndall added.

In the US, discounting offers doubled during the course of 2023. All of the top-10 selling US EVs in the country have discounts, including $5,000 from Tesla for its Model 3 or Model Y cars, and more than $8,000 for the Ford Mustang Mach-E and the Hyundai Ioniq 5.

FT : Millennium backs biggest planned hedge fund launch in more than a year

Millennium backs biggest planned hedge fund launch in more than a year
Former portfolio manager at Izzy Englander’s firm strikes out with expected $4bn-$5bn launch

A former Millennium portfolio manager is preparing to launch what would be the biggest new hedge fund in more than a year after securing $3bn of capital from Izzy Englander’s firm and taking up to 30 investment staff with him.

Diego Megia, who worked at Citadel before a five-year stint at Millennium, is targeting $4bn to $5bn of investor capital for the launch of Taula Capital, according to two people familiar with the fundraising effort. The macro hedge fund is expected to start trading in the first half of the year, the people said.

Although other large launches are planned for later in the year — with former Millennium co-chief investment officer Bobby Jain’s new fund Jain Global expected in July — at $4bn, Taula would still be larger than any hedge fund started last year.

Multi-strategy hedge fund Freestone Grove Partners, led by a former Citadel portfolio manager, launched with $3.5bn last week, according to one person with knowledge of the matter.

Millennium’s investment and the fact that Taula is seeking to launch with up to $5bn of capital were previously reported by industry information service With Intelligence.

Hedge fund launches have dwindled as a talent war has enticed portfolio managers to join large existing funds, while institutional investors have become pickier, reserving allocations for well-known managers from big funds with a proven record.

Millennium and other large hedge funds are known for backing talented portfolio managers starting their own funds, usually on the condition that they get preferential investing terms. Millennium declined to comment.

But it is uncommon for a portfolio manager to take a big team of investment professionals with them, as Megia has done. Taula Capital will launch with roughly 60 people, including 26 to 30 investment staff and 30 support staff, a person familiar with the matter said. Taula Capital declined to comment.

After a decade of low volatility in government bonds markets, central bank rate jumps and rising inflation have made macro trading potentially very profitable for hedge funds. Macro hedge funds such as Brevan Howard, Rokos Capital and Caxton posted enormous gains in 2022, though performance was more muted last year.

The launch comes during a difficult capital raising environment for hedge funds, as many talented portfolio managers are opting to join large multi-manager hedge funds such as Millennium, Citadel, Point72 and Balyasny.

These funds have become very popular with institutional investors seeking stable returns that can persist even when equity markets fall.

A fierce talent war between multi-managers has resulted in enormous pay packages, dissuading portfolio managers from setting up their own hedge funds.

Some of the biggest fund launches from 2023 included London-based equity hedge fund Ilex Capital Partners and New York-based hedge fund Surgocap, which launched with $2.1bn and $1.8bn in capital, respectively.

>>> US After Hours Summary: ETWO +12.7%, SGH +9.4%, PSMT +9%, WDFC +6.3% up on e

After Hours Summary: ETWO +12.7%, SGH +9.4%, PSMT +9%, WDFC +6.3% up on earnings; AEHR -15.6% tumbling after slashed FY24 guidance; crypto-related stocks falling after Bitcoin ETF approval head fake
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: ETWO +12.7%, SGH +9.4%, PSMT +9%, WDFC +6.3%, ATRO +5.8% (guidance), ISRG +5.2% (guidance), GATO +1.2% (guidance), AZZ +0.1%
Companies trading higher in after hours in reaction to news: AEVA +3.1% (stock offering), NNBR +1.7% (registers record new business wins), ALC +1.7% (positive topline results from COMET trials), LEN +1% (increases dividend and repurchase plan), COOP +0.2% (appoints new President), PFBC +0.1% (approves repurchase plan), BKD +0.1% (reports weighted average occupancy)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: AEHR -15.6% (guidance)
Companies trading lower in after hours in reaction to news: IREN -3.3% (moving on Bitcoin ETF approval head fake), SDIG -2.6% (moving on Bitcoin ETF approval head fake), MSTR -2.4% (moving on Bitcoin ETF approval head fake), RIOT -2.2% (moving on Bitcoin ETF approval head fake), NTST -2.1% (stock offering), MARA -2% (moving on Bitcoin ETF approval head fake), CLSK -2% (moving on Bitcoin ETF approval head fake), HUT -2% (moving on Bitcoin ETF approval head fake), BITO -1.8% (moving on Bitcoin ETF approval head fake), HIVE -1.2% (moving on Bitcoin ETF approval head fake), FTRE -0.2% (partners with VEEV), BA -0.1% (CEO saying it must acknowledge QA issues, according to WSJ)

>>> US Close Dow -0.42% S&P- O.15% Nasdaq +0.09% Russell -1.05%

Closing Stock Market Summary
Today's trade had a negative bias. The A-D line favored decliners by a 7-to-3 margin at the NYSE and by a nearly 2-to-1 margin at the Nasdaq. The major indices were able to close off their highs of the day, though, thanks to support from mega cap stocks that recovered from early weakness.

NVIDIA (NVDA 531.40, +8.87, +1.7%) was a standout winner in that respect after being down as much as 1.1% at its low this morning. Alphabet (GOOG 142.56, +2.03, +1.4%), Amazon.com (AMZN 151.37, +2.27, +1.5%), and Microsoft (MSFT 375.79, +1.10, +0.3%) had all been trading down earlier, too.

Losses in Meta Platforms (META 357.43, -1.23, -0.3%), which had been trading up at its best level of the day, Apple (AAPL 185.14, -0.42, -0.2%), and Tesla (TSLA 234.96, -5.49, -2.3%) countered some of the strength from the aforementioned names. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.3% gain.
The overall negative vibe was partially a reaction to a Q4 revenue warning from Microchip Technology (MCHP 85.34, -0.30, -0.4%) that was tied to a weakening economic environment. In a related action, Samsung Electronics said it expects its Q4 operating profit to be down 35% year-over-year and below analysts' expectations.

Four of the S&P 500 sectors logged a gain while seven of them saw a decline. The information technology sector (+0.3%) was the top performer while the energy (-1.6%) and materials (-1.1%) sectors registered the largest declines.

The 2-yr note yield settled three basis points higher at 4.38% and the 10-yr note yield rose two basis points to 4.02%. On a related note, today's $52 billion 3-yr note auction met strong demand.
  • S&P 500: -0.3%
  • Dow Jones Industrial Average: -0.4%
  • S&P Midcap 400: -1.2%
  • Nasdaq Composite: -1.1%
  • Russell 2000: -1.9%

Reviewing today's economic data:
  • November Trade Balance -$63.2 bln (consensus -$64.7 bln); Prior was revised to _$64.5 bln from -$64.3 bln
    • The key takeaway from the report is that exports were $4.8 billion less than October exports while imports were $6.1 billion less than October imports. The drop in both exports and imports fits with a weakening global economic environment.
  • December NFIB Small Business Optimism 91.9; Prior 90.6

Looking ahead, Wednesday's economic calendar features:
  • 7:00 ET: Weekly MBA Mortgage Applications Index (prior -9.4%)
  • 10:00 ET: November Wholesale Inventories (consensus -0.2%; prior -0.4%)
  • 10:30 ET: Weekly EIA Crude Oil Inventories (prior -5.5 million barrels)