TheChek News Flow

Has Big Oil in the US got its swagger back?

It’s tempting to believe so, in a week where the most significant industry consolidation in two decades gathered pace and the supermajors continued to enjoy a lift from rising crude prices.

As we report today, ExxonMobil, which fired the starting gun on the current M&A race with its $60bn purchase of Pioneer two weeks ago, is still on the hunt for deals, or at least those where “one plus one equals three”.

Exxon also reported third-quarter earnings had risen to $9.1bn, up from $7.9bn in the previous three months, thanks to the oil price increase and more refining activity, although a little lower than expected because of weaker margins in its chemical business and reduced trading.

On Monday, Chevron announced a $53bn deal to buy fellow US producer Hess, the biggest transaction in its history, doubling down on its bet that demand for fossil fuels would remain strong for decades to come. Today it reported third-quarter revenues of $6.5bn, down from $11.2bn last year, but up from $6bn in the previous three months.

This doubling down was attacked by former US vice-president and climate campaigner Al Gore this week in an FT interview as he hit out at the “buddy-buddy” relationship between political leaders and the fossil fuel industry, which he said was damaging prospects for global climate action.

Gore has also criticised the industry’s “capture” of the UN climate change negotiations. Big Oil remains unapologetic: “We are not selling a product that is evil,” Chevron chief Mike Wirth told the FT this week as he laid out a “real world” case for fossil fuels.

The backdrop to the industry manoeuvring is the shift from fossil fuels to cleaner sources of energy.

The International Energy Agency said this week that demand for oil would fall by almost half by 2050 if governments carried through on their green pledges and said that the energy crisis triggered by Russia’s full-scale invasion of Ukraine, rising tensions in the Middle East and record temperatures highlighted the risk of continuing to rely on fossil fuels. The IEA also laid out the ramifications of governments failing to follow through on their pledges, showing oil demand would barely fall by 2050.

The FT editorial board said recent tie ups are part of the race to be last man standing, a bet that the IEA is wrong, and proof that, as Saudi Arabia’s energy minister said this week, “hydrocarbons are here to stay”. 

What the recent megadeals really show however is that we are in a new age of uncertainty, writes energy editor David Sheppard, who says that those betting the transactions signal robust demand growth may want to think twice.

“You can of course believe that the IEA have got this wildly wrong,” he says, “or that governments will grow tired of addressing climate change, if their populations deem it too complicated or expensive. But within the wide ranges and uncertainty of the IEA scenarios is a glimpse into what the likely path is for the oil sector. Investors should be careful about swaggering blindly towards it.”

Quarterly profits at oil group and rival Chevron miss Wall Street expectations

ExxonMobil remains on the hunt for deals even after unveiling its biggest transaction this century, the company said on Friday, as it and rival Chevron reported profits that fell short of Wall Street expectations.

The largest US oil company announced this month it was buying Pioneer Natural Resources in a $60bn acquisition that fired the starting gun on what is expected to be a race to consolidate the sector.

Kathy Mikells, Exxon’s chief financial officer, said the deal did not preclude the supermajor from striking again in the near term.

“It’s important to say that we’re always looking,” she told the Financial Times. “Many times I’ve described us as very inquisitive but also very picky. A deal has got to be what we say is ‘one plus one equals three’.”

Chevron announced its own mega-deal this week: a $53bn takeover of Hess that accelerates the pace of M&A activity in the sector. Pierre Breber, the company’s finance chief, declined to say whether more could follow.

“We’re focused on this transaction,” Breber said in an interview. “It’s a big transaction . . . we’ll focus on executing this one well.”

Exxon reported earnings of $9.1bn, down sharply from $19.7bn last year on the back of lower crude prices, but also shy of the $9.6bn anticipated by analysts, according to LSEG.

Chevron’s earnings for the period of $6.5bn were down from $11.2bn a year ago and short of the $6.9bn pencilled in by analysts, according to LSEG. Surging oil prices last year pushed producers to record profits.

Exxon’s shares were steady in pre-market trading, while Chevron’s dropped 2 per cent.

Analysts and dealmakers expect more multibillion-dollar transactions as big producers aim to stock up on prime drilling spots that they can exploit into the coming decades despite warnings that fossil fuel demand could peak by 2030.

“It’s important to understand that we’re in a depletion business with upstream,” said Mikells. “I think [the deal] puts us in a good position for the long term.”

Pioneer is the biggest operator in the Permian Basin, the engine room of the US oil industry, which sprawls across Texas and New Mexico. By snapping up the company, Exxon will hold a dominant position in the oilfield, with 15 per cent of total crude production.

The deal was Exxon’s second significant transaction of the year after it bought Denbury Resources for $5bn in July to bolster its carbon management business. Denbury owns the biggest pipeline network in the US for transporting and storing CO₂.

In a statement on Friday, Exxon’s chief executive Darren Woods said: “Pioneer will help us grow supply to meet the world’s energy needs with lower carbon intensity while Denbury improves our competitive position to economically reduce emissions in hard-to-decarbonise industries.”

Chevron also announced a deal to snap up oil producer PDC Energy for $6.3bn in May, a transaction it closed this quarter. Its purchase of Hess will give it access to the biggest oil discovery in a decade off the coast of Guyana, where it will be working alongside Exxon, which operates the project known as the Stabroek block.

Both companies have increased capital expenditures this year as they pursue production growth. Exxon spent $18.6bn in the first nine months versus $15.2bn in 2022. Chevron’s outlay over the period rose to $11.5bn from $8.1bn last year.

Chevron’s chief Mike Wirth said the company was “investing to profitably grow our traditional and new energy businesses to drive superior value for shareholders”.

Norwegian energy group says Europe’s supplies ‘in a much better place’ than last year

The boss of Norway’s state-backed energy company has said European gas supplies are “in a much better place” compared with last year, adding that repairs to its platforms will not interrupt supplies this winter.

Equinor, which has become Europe’s biggest source of natural gas after Russia halted most of its gas supplies to the continent following its invasion of Ukraine, on Friday lowered its outlook for annual production growth from 3 per cent to 1.5 per cent because of maintenance on its gas and oilfields during the summer.

But Anders Opedal, the company’s chief executive, said the work had now been completed, enabling production to ramp up ahead of the crucial winter heating season.

“We’re back in normal production,” he added. “We don’t see any read-over from this event on supplies. Our focus will be to make sure we have high production at our facilities.”

The comments should provide a degree of reassurance to gas markets, where prices have jumped in recent months due to nervousness about the war between Israel and Hamas, strikes at a Chevron liquefied natural gas plant in Australia and possible sabotage of a gas pipeline between Finland and Estonia.

Futures contracts tracking Dutch gas, the benchmark for global gas prices traded at €51.24 per megawatt hour on Friday, well below the peak of €311 reached in August 2022 after Russia invaded Ukraine but double the recent low of €25 at the end of July.

“It’s a nervous market. Incidents and events around the world do impact the European gas market and we expect volatility but Europe is in a much better place [than last winter],” Opedal said.

While Equinor, which provides 29 per cent of the UK’s natural gas, will continue to boost supplies, Opedal said Europe remained a “scarce market”. “We will produce as much gas as possible but Europe also has to attract liquefied natural gas into the market,” he added.

To bolster energy security, countries have struck long-term deals for LNG, with companies in France, the Netherlands and Italy all announcing deals this month with Qatar to guarantee 27 years of supply.

Europe has also topped up gas storage, with the EU reaching a target of filling storage facilities to 90 per cent of capacity in August, two-and-a-half months ahead of a November deadline.

Still, analysts warn that Europe is not completely out of the woods, with gas storage alone not sufficient to meet winter demand. Europe “remains finely balanced for this winter” and any unplanned large outage at a key piece of infrastructure or supply disruption “would test the gas system’s resilience”, said Natasha Fielding, head of European gas pricing at Argus, a price reporting agency.

“If something happened to rapidly tighten the global LNG market, such as a shutdown at a large LNG export plant, and both Europe and Asia got into a tug of war for available LNG supplies, then European gas prices could spike again,” she added.

Francesco Gattei, chief financial officer of Italian energy company Eni, said he had been “quite positively surprised” by the company’s ability to quickly wean itself off Russian gas. Eni also reported results on Friday, saying its adjusted profit before taxation fell 47 per cent to €3.3bn in the three months to 30 September.

Equinor’s net operating income before taxation was $7.5bn in the third quarter, down 71 per cent from $26.1bn in the same period last year, and slightly below the $9.6bn reported in 2021, but ahead of analysts’ estimates.

Both Eni and Equinor expect prices to remain higher than before the Ukraine war for some time, bolstering profits in the years ahead but increasing scrutiny of the industry, which has faced a series of windfall taxes.

Founder backs Rithm Capital buyout plan valuing company at $720mn

Daniel Och has agreed to support a rival’s buyout plan of Sculptor Capital Management, ending years of bitter fighting against the hedge fund he founded.

Sculptor said that Rithm Capital had agreed to boost its purchase price to $12.70 per Sculptor common share, valuing the company at about $719mn. Rithm, once an affiliate of Fortress Investment Group, first signed a deal to buy Sculptor in July at $11.15 per share, before boosting its bid to $12.00 last month.

Och, who has been outside the company’s management for the past four years, had been pressing Sculptor to consider a rival bid from a consortium including the hedge fund managers Boaz Weinstein and Bill Ackman. 

The Weinstein group’s latest offer for Sculptor reached $13.50 per share, according to securities filings. However, Sculptor rejected each offer over concerns that many existing clients would withdraw their capital before a Weinstein deal could close and that in response, the Weinstein group would walk away from a transaction.  

“We are pleased to reach this amended agreement with Rithm, which delivers a highly attractive premium to Sculptor stockholders, and appreciate the support of Mr Och and the other [founders] in achieving this outcome for stockholders,” said Marcy Engel, chair of the Sculptor board.

Och and a group of allied former executives at Sculptor have agreed to vote their collective 15 per cent stake in the company in favour of the Rithm deal. Och has agreed to drop litigation linked to the earlier Rithm deal.

A person familiar with the thinking of the rival bidding group told the FT that, between Och’s shares and the quarter of the company controlled by existing management and its allies, it was unlikely that the Weinstein group could successfully prevail over the Rithm deal.

Och founded what was known as Och-Ziff Capital Management in the 1990s after leaving Goldman Sachs. The firm went public in 2007 at a valuation of $12bn. But its fortunes changed in the aftermath of the financial crisis and it was eventually ensnared in a bribery scandal involving African governments. 

In 2016, the firm paid $412mn to settle the charges, which Sculptor says led to Och’s removal as chief executive and Och-Ziff’s rebranding as Sculptor.

The company launched a sale process in 2022 as settlement between Och and Sculptor over a lawsuit where the founder challenged the company’s board over a $146mn pay package granted to chief executive Jimmy Levin, Och’s former protégé.

Och said he was “pleased to have helped negotiate a better outcome for Sculptor shareholders.

“I have known Michael Nierenberg [Rithm chief executive] for a long time, and I believe that he and his team will be proper stewards of the business for the benefit of investors, employees and shareholders.”

You can check into Dubai — but there’s a chance you won’t check out, at least not for a year or so.

R&B singer Trey Songz’s bodyguard Cornell Whitfield is the latest Western tourist to run afoul of the sharia-based judicial system in Dubai, one of the seven emirates that make up the federation of the United Arab Emirates.

It’s a system critics say unfairly targets unwitting travelers, especially those perceived as having some money.

Miami native Whitfield, 40, who has acted as a bodyguard for many celebrities including Lil’ Kim, Dallas Cowboys cornerback Trevon Diggs and San Francisco 49ers wide receiver Deebo Samuel, was sentenced to a year in prison last week for allegedly “slapping” a male fan who tried to reach out and touch Songz last March at a Dubai hotel.

Whitfield, the father of a young son, is just one in a long line of Westerners who’ve found themselves facing a nightmare of red tape, arrests and sometimes lengthy detention for what appear to be largely spurious claims.

Radha Stirling, who’s run the site Detained in Dubai since 2008, when she first helped a friend who was arrested in Dubai, has aided what she says have been “thousands” of tourists arrested on flimsy pretenses there.

Stirling told The Post that most Westerners are naive about what awaits them in Dubai.

Foreigners, she said, are targeted by both Dubai residents and expats there who know they can go to the police and make an accusation, often with no evidence, and immediately get the cops and local prosecutors on their side.

The accusers often ask for large sums of money in exchange for dropping charges, she added. Many tourists opt to go to court, not realizing that judges almost automatically side with the accusers, even if they know the victims are being extorted.

“Whoever takes the first police complaint is usually favored in the outcome,” Stirling told The Post.

“So if I’m the one who takes a complaint to the police station, I’m probably going to win that criminal case. Visitors think Dubai is this modern, luxurious place and they assume the justice system is like the West’s when it most definitely is not.”

Earlier this month, New York City college student Elizabeth Polanco De Los Santos, 21, who had been sentenced to a year in prison, managed to get freed after a “hellish” five months in Dubai that began when she was arrested for touching a security guard’s arm at the airport in July.

A 29-year-old Houston woman named Tiarra Allen, who was known online as the “Sassy Trucker,” managed to escape the country in August after being stranded in Dubai for months over an altercation at a car rental agency.

Stirling’s organization helped both women win release.

In 2022, a UK coroner said the Foreign Office wasn’t doing enough to warn Britons about the risks of visiting Dubai after a London resident, Lee Bradley Brown, “probably” died from beatings and neglect while in police custody there. Brown had been arrested after a verbal altercation with a hotel staffer in Dubai in 2011.

Millionaire British businessman Albert Douglas, 62, a longterm UAE resident, has been jailed in Dubai since 2019, when he was arrested because his son’s flooring company failed there and officials deemed him responsible for the debts.

Douglas has heart problems, his son Wolfgang Douglas told The Post, and has been tortured repeatedly while in Dubai prisons. So far the family has spent millions to try to get him out but nothing works, Wolfgang said.

“If you’re a rich white person, forget it,” he said. “They blackmail you for money and keep raising the amount and adding on (prison) sentences. It’s a total nightmare.”

The potential trouble facing tourists in Dubai is in odd and stark contrast to the massive, $8.7 trillion economic program launched late last year by the emirate’s powerful ruler, Sheikh Mohammed bin Rashid al Maktoum, with billions going to prioritize tourism. Dubai is among a federation of seven sheikhdoms on the Arabian Peninsula.

Whitfield contacted Stirling when he returned to Dubai recently, completely unaware that he was in legal hot water stemming from an incident that took place in March in front of the Five Palm Jumeirah hotel.

Whitfield was convicted of assault after he slapped a Jordanian man who was drunk and acting in a threatening and aggressive way toward Songz.

The man initially demanded $60,000 to drop the criminal allegations, but Whitfield didn’t have the money. Stirling said he assumed the Dubai justice system was fair and would acquit him because he said he was acting in self-defense on behalf of his client.

“His mood goes up and down,” Stirling said. “He’s hopeful that his lawyer will get him out on appeal but there’s no guarantee of that.”

The Post has reached out to the UAE’s consulate in New York for comment.

Analysts say the owner of Vans and Supreme may have common ground with its new shareholders, who are pushing the group to cut costs, sell off assets and pay down debt.

This summer, newly appointed VF Corp. chief executive Bracken Darrell told investors he would move to turn around the company’s slumping portfolio of brands, including Vans, Supreme and Timberland, with “a sense of urgency.”

For some investors, that’s not fast enough.

Earlier this week, investment fund Legion Partners Asset Management acquired a stake in the Denver-based brand manager, calling for VF to sell off poorly performing labels such as Timberland, according to a Bloomberg report. They were the second activist to zero in on the company this month, on the heels of Engaged Capital, which on Oct. 17 confirmed its position in the company at a hedge fund conference.

Like Legion Partners, Engaged Capital is urging the VF Corp. to explore “non-core divestitures,” a category analysts say could mean any brand except the company’s two biggest, Vans and The North Face. The fund is also advocating for management to cut costs, use cash flow to pay down debt and replace some board members.

Activist investors ostensibly have the same goals as corporate executives – maximise shareholder value – but are seldom welcome in the boardroom. Oftentimes, they’ll push for difficult decisions such as new leadership or layoffs, or even for a company to be broken up or sold.

For the most part, analysts agree that something needs to change at VF Corp., whether that comes from an activist investor or the c-suite. The company’s growth has stalled, as three of its four biggest brands – Vans, Timberland and Dickies – saw their revenue decline in the fiscal year ending in March 2023 (strong sales at The North Face helped offset the drop). The $2 billion acquisition of Supreme in 2020 has so far failed to pay off, with the streetwear brand missing growth targets. Shares recently hit a 14-year low.

“Quite honestly, what they’re asking of VF is not unreasonable,” said Neil Saunders, managing director at GlobalData. “Cutting costs and streamlining operations are what VF should be doing anyway.”

What are activist investors?

Legion Partners and Engaged Capital are in a class of investment firms that put on high-pressure, outsider campaigns to make changes at publicly traded companies. Their efforts typically kick off with the disclosure of a large stake in a company – typically in the low single digit percentages, below the threshold that would trigger anti-takeover measures.

These investors then campaign publicly for their agenda, hoping to win over other shareholders and ratchet up pressure on corporate leadership. Sometimes, managers quickly agree to implement some or all of an activist’s wishlist. But fights can turn nasty, with back-and-forth attacks in the business press, regulatory filings and even on social media. The endgame can be a showdown where shareholders vote on duelling slates of board members.

These confrontations can be long and acrimonious, with plenty of twists and turns.

Macellum Advisors purchased a 5 percent stake in Kohl’s in March 2022, waging a more than year-long battle to replace the department store’s board. The hedge fund enlisted other activist funds, including Legion Partners, calling out Kohl’s for its poor retail execution that has led to years of declining sales and profits.

Macellum won two board seats, and the company agreed to boost a share buyback plan. But the fight continued: a new group of additional activist investors piled on the retailer, pushing it to consider a sale and threatening a hostile takeover. Kohl’s fended off these efforts.

In the end, Kohl’s chairman of the board remained in his seat, while chief executive Michelle Gass exited the company late last year to become president and successor to Levi’s CEO. Kohl’s shares trade at about one-third their price before Macellum disclosed its initial stake.

Sometimes companies welcome activist investors, if not quite with open arms. In 2019, Barington Capital fired off a letter laying out the many challenges facing Victoria’s Secret and calling for the breakup of parent L Brands. The company resisted that last step for a while, but implemented some of the fund’s suggestions and hired it on as an adviser. Victoria’s Secret was spun off in 2021. Barington went on to push for changes at Chico’s that same year, and in August, Hanesbrands.

Why target VF Corp.?

The investors’ arrival shouldn’t come as a surprise, said Lee Peterson, a retail consultant at WD Partners.

“Their stock is down 35 percent since last year, and divesting from one or a few of their 12 brands is just low-hanging fruit,” Peterson said. “It was smart for Engaged and Legion to go after VF.”

The company’s main problem is that its portfolio lacks focus: its 12 brands include the streetwear label Supreme, skater brand Vans, outdoors brands Timberland and The North Face, the workwear line Dickies and Jansport, which makes backpacks.

Supreme, in particular, has been a disappointment since VF acquired it for north of $2 billion three years ago. In the 12 months ending March 2023, Supreme posted revenue of $523 million — a 7 percent decline from $561.5 million the year prior. The group as a whole saw sales dip 2 percent to $11.6 billion in the same period.

“We’re not seeing VF’s acquisition strategy work as well as it once did,” Saunders said. “Divesting some of its brands would be sensible because it allows the company to focus on areas of best growth.”

What’s ahead for VF?

This activist fight is at least starting out relatively civil.

Tether has allegedly been used by Hamas, drug dealers, North Korea and sanctioned Russians

Tether, the $84 billion so-called stablecoin bridging the worlds of cryptocurrencies and the dollar, is increasingly showing up in investigations tied to money laundering, terror financing and sanctions evasion.

Tether is now the world’s most heavily traded cryptocurrency by volume. The stablecoin, also known as USDT, maintains a 1:1 exchange ratio with the dollar. Traders use it to stash their cash, easily invest in other cryptocurrencies or swap it into traditional currencies such as the dollar.

Another use for tether seems to be in illicit finance, according to indictments, blockchain analysis and sanctions notices. In the past year, the cryptocurrency appears to have been used in financing Hamas, paying Chinese fentanyl suppliers, funding the North Korean nuclear program and helping buy sanctioned Venezuelan oil for sanctioned Russian oligarchs.

Tether has $84 billion in circulation. It has maintained its value and trading volume despite two cryptocurrency headwinds. During a “crypto winter,” when some of crypto’s biggest players collapsed, the total global market cap for cryptocurrencies has fallen today to about $1.3 trillion from more than $2.1 trillion in April 2022.

At the same time, interest rates have soared, making safe investments lucrative again. Tether pays no interest, but yields on the assets it owns have risen sharply. So the opportunity cost of holding it has gone up.

Tether’s eponymous parent company, Tether Holdings, is getting all of the benefits of the higher rates. The company generates billions of dollars of cash as one of the 22 largest buyers of U.S. Treasury debt, holding more than countries like Mexico and Spain, according to the company.

Cryptocurrencies including tether came under scrutiny following the Hamas attack on Israel.

Blockchain analysis shows that wallets seized by the Israeli government for being connected to Hamas received some $41 million in cryptocurrency between 2020 and 2023, according to Israeli blockchain firm Bitok. More than 99% of that came in tether, Bitok said.

After high profile seizures earlier this year, Hamas’s militant al-Qassam Brigades asked supporters to no longer send bitcoin to protect themselves.

Tether has appeared repeatedly in recent high-profile sanctions, seizures and indictments. One case involved the use of tether to purchase 500,000 barrels of oil from Venezuela’s sanctioned national oil company in 2021. “Everyone does it now. It’s convenient, it’s quick,” wrote Yury Orekhov, a Russian who lived in Dubai, to someone involved in the transaction.

The message was part of Orekhov’s U.S. indictment last year on several counts of fraud, money laundering and sanctions evasion, including operating fronts for a sanctioned Russian oligarch and Russian arms manufacturers.

Orekhov was arrested in Germany, where the U.S. attempted to extradite him. Orekhov opposed the extradition and was released by German authorities after a German court ruled that the Venezuela-related allegations weren’t illegal in Germany. Orekhov didn’t respond to a request for comment.

Recent moves by the U.S. government targeting a transnational fentanyl supplier network and the North Korea’s nuclear-weapons program have also highlighted the use of tether, in addition to traditional financial networks and laundering techniques.

A spokeswoman for Tether didn’t respond to requests for comment. After The Wall Street Journal sent Tether questions for this article, it published a blog post “reinforcing its stance against crypto’s terrorist utilization.”

The blog said Tether has aided governments worldwide with criminal investigations, helping freeze a total of $835 million in assets it said were mostly tied to theft. Tether said it had frozen 32 addresses with around $873,000 linked to illicit activity relating to Israel and Ukraine.

“There is simply no evidence that Tether has violated sanctions laws or the Bank Secrecy Act through inadequate customer due diligence or screening practices,” the company wrote.

The attacks on Israel have spurred bipartisan calls in Washington to subject cryptocurrency companies to the Bank Secrecy Act and other oversight aimed at deterring money laundering and illicit finance.

Sen. Cynthia Lummis, who has been a crypto industry supporter, and Rep. French Hill, chair of the digital assets subcommittee on the House Financial Services Committee, sent a letter to Attorney General Merrick Garland imploring the Justice Department to accelerate a long-running investigation into Tether. The DOJ should act against Tether “to choke off sources of funding to the terrorists currently targeting Israel,” the legislators wrote.

Tether’s owner is under pressure because tether is a centralized token. That means tether can be frozen by the company that generates it, even in privately held wallets. Bitcoin was also used in several of these cases. But bitcoin is decentralized, meaning it can’t be frozen unless it is stored in an account at an exchange or institution.

Earlier this month, the Justice Department charged eight Chinese companies and 12 employees and officers with crimes related to fentanyl trafficking. Several of those charged maintained cryptocurrency wallets to handle the transactions related to the drug shipments that were also sanctioned by the Treasury Department. The designated wallets received more than $1.2 million in tether over hundreds of transactions, as well as additional transactions in bitcoin, according to data provided by ChainArgos, a blockchain data platform.

The North Korean nuclear-weapons program has also used tether, according to a U.S. indictment from earlier this year.

In an effort to fund the nuclear program despite sanctions, employees of the North Korean Munitions Industry Department would use fake documents to get themselves hired at companies—including several cryptocurrency exchanges—that were hiring remote IT workers.

At their request, the workers were paid in cryptocurrency. The payments, if not already in tether, would often be swapped into tether, which would be sent back to North Korea through accounts controlled by the country’s sanctioned Foreign Trade Bank. According to an indictment, $7.2 million in tether was sent to an account controlled by a Foreign Trade Bank employee funding the nuclear program.

The Treasury Department also sanctioned Russian cryptocurrency exchange Garantex last year, citing its usage by Russian cybercriminals and willful disregard of anti-laundering policies. Despite the sanctions, around 80% of the exchange’s trading still involves tether, according to a leading blockchain analytics company.

An old Tokyo steakhouse is bringing quiet culinary luxury to London at an extremely high price

If you are opening a restaurant that sells sirloin steaks for £760 each, you must pick your spot carefully. So Aragawa, a Japanese steakhouse that opened in Tokyo in 1967, has come to Clarges Street in Mayfair, near Berkeley Square and squarely in London hedge fund territory.

Mayfair has enough people who will not think too hard before paying that sum for a top-grade sirloin steak from cattle reared at Nishizawa farm, near Kobe. Nor will they feel the pinch of the £900 that it charges for a 400g Tajima black Wagyu steak from Okazaki ranch in Shiga prefecture. This is not an offering for those who need to check their bank balances. 

The rest of us will ask how a steak can be worth that much, albeit one prepared in a charcoal-fired kiln by a master chef who knows how well it is cooked by touch and the sound of the sizzle. Even Mayfair’s hedge fund traders, alert to arbitrage opportunities, may wonder why they are paying about twice the price in London than in the Aragawa restaurant in Tokyo.

One answer is that they will be drawn as much by the price as the beef. There cannot be many fans of the Nusr-Et steakhouse chain, where a giant Tomahawk Wagyu steak costs £630, who go for the purity of the meat. More are enticed by the flash and sizzle of its Turkish founder Nusret Gökçe, also known as Salt Bae, and his slicing and salt-sprinkling displays.

Aragawa is the quiet luxury alternative: rather than a flamboyant celebrity butcher, you get a sober artisan who has been honing his craft for the past 40 years. There is a distinct echo of Jiro Ono, the perfectionist sushi chef from Ginza in Tokyo made famous by the 2011 documentary Jiro Dreams of Sushi, and championed by Bob Iger, Disney’s chief executive.

This encouraged a wave of very expensive sushi restaurants, including the three-Michelin-starred Masa in New York, where an omakase dinner at the counter costs about $1,000. Displays of vinegared rice and glistening fish, prepared by chefs with razor sharp knives, draw on a sushi tradition that reaches back centuries.

But the steakhouse is not an ancient Japanese institution. Meat was rarely eaten there until the 20th century, and New York restaurants such as Peter Luger and The Old Homestead long predated the first Aragawa steakhouse, which opened in Kobe in 1956. This is instead a prime example of Japan’s peculiar talent for taking foreign products and refining them.

Anyone who has lived in Tokyo is familiar with Italian restaurants run by Japanese chefs that somehow improve on the pizza and pasta one eats in many places in Italy. The same goes for coffee, and I used to frequent a perfect pastiche of a French bistro on a side street in the Yutenji district. Call it affectionate tribute or cultural appropriation, it is executed precisely.

This also applies to Japanese denim, and to single malt whiskies from distilleries in the Kansai region around Kobe and Osaka. They are traceable products whose mystique and price often rises with distance from their origins. Bottles of 100th anniversary 18-year-old Mizunara whisky from Suntory’s Yamazaki distillery are now selling for £1,850 at Fortnum & Mason.

Beef is a classic case of Japanese adaptation. Having dabbled in crossbreeding with western cattle in the early 20th century, it focused on pure Japanese breeds, including the top Tajima strain of black Wagyu. The unique marbling of Wagyu beef is created by the intensive feeding of cattle to produce intramuscular fat, which makes the steaks unusually fragrant and soft.

When agricultural trade was liberalised in the 1990s, the country responded by making domestic beef even more Japanese: farmers steadily increased the amount of marbling in their animals. Wagyu cows are also raised in the US (despite Wagyu meaning “Japanese cattle”), but Japan contrived to keep its own steak as distinctive as its best whisky is from Scotch or bourbon.

Japan’s steakhouses layer on top of this meticulous supply chain artisanal cooking that takes years for chefs to perfect. The high-end binchotan charcoal that Aragawa burns is not only costly but becoming rarer, since fewer heirs to the family businesses that produce it want to keep going. The end result is an intricate but potentially endangered form of craft cuisine.

Is it sustainable? If a Japanese steakhouse has to come to Mayfair to find customers who can foot the bill, I’m not sure that it is. Once you have paid to import Kobe steaks and fine charcoal, and taken on the overheads of Clarges Street, you end up charging extremely high prices. Kotaro Ogawa, owner of Aragawa in both Tokyo and London, tells me he is even thinking of producing charcoal in the UK himself.

His steaks epitomise the difficulty facing Japan in finding a broad international market for its most rarefied consumer products. They delight those who both appreciate dedicated artisanship and can afford exquisite objects, but that is a small target. Still, Aragawa’s Mayfair diners can be assured of one thing: the experience is, in its own way, genuine.

Investors are starting to fret over rising fuel costs and high ticket prices

European travellers are a resilient bunch. This summer, they braved delays, queues and rising ticket prices to fill airline seats in droves, say British Airways owner IAG and Air France-KLM. Both reported strong results on Friday. 

But with summer firmly in the contrail, airline investors fret over mounting storm clouds from high ticket prices, rising fuel costs and the cost of living squeeze. With 75 per cent of expected fourth-quarter revenues already booked, the slower winter season looks reasonable, claims IAG. But the question on investors’ minds is, what will it take for the ski-boot to drop?  

Rising ticket prices have powered revenues. Frequent flyers complain of feeling gouged. As well they might. At IAG, revenues per seat per kilometre flown are up about 25 per cent in the third quarter compared to pre-pandemic levels.

Airlines could lift their prices because seat capacity has lagged demand. In the pandemic, they took older aircraft out of the sky. Indeed, IAG expects to close this year at 96 per cent of pre-pandemic capacity. 

True, expansion at low-cost airlines means that overall capacity has recovered beyond 2019 levels, says Alex Irving at Bernstein. But it should have exceeded that a while ago. Historically, it has grown by some 3 per cent a year.

This supply squeeze has allowed airlines to pass higher costs through to consumers. Operating margins at IAG, which came in at 20.2 per cent, have gone just above 2019 levels. 

Trouble is, ticket prices cannot climb indefinitely without making staycations more attractive. For guidance, look no further than the US. Domestic fares have declined this past quarter.

Meanwhile, fuel costs are rising. IAG, which is 73 per cent hedged for the fourth quarter, says it will reach €7.6bn for the full year, up from €6.1bn in 2022. That more than offsets other savings.

High seat prices and swelling fuel costs should keep airline stocks grounded, just as new capacity arrives.