TheChek News Flow

Will Revolut ever get a British banking licence?

The fintech’s share simplification deal with SoftBank removes just one regulatory concern

There was no escaping Revolut during the recent UK party political conference season. The fintech co-sponsored Labour’s opening reception earlier this month and hosted events at the Conservatives’ convention the week before.

The payments-to-crypto provider told the Financial Times that its high profile at the conferences was “entirely unrelated” to its longstanding bid for a UK banking licence, which its chief executive, Nik Storonsky, has previously lobbied the prime minister on.

Political support of whatever stripe could prove invaluable for the licence Revolut needs to turbocharge growth in its home market and to instil confidence in overseas regulators; a prize that remains elusive, almost eight months after one of its senior executives promised it was coming “any day now”.

And while the recent resolution of Revolut’s messy share structure with its biggest investor, SoftBank, will assuage some regulatory misgivings, the fintech must cross several more hurdles before it will be allowed to become a UK bank, according to people familiar with the situation.

Banking licences are typically granted within 12 months of application, the UK regulators’ guidance says. Revolut’s application, which has been on regulators’ desks since January 2021, was always going to be a longer journey, former insiders and experts told the FT.

With close to 8mn customers in the UK, Revolut is far bigger than any of the 36 new lenders that the Bank of England’s Prudential Regulation Authority and Financial Conduct Authority have jointly approved since 2013.

That size means “it would be attracting senior attention” within the regulators, said Gavin Stewart, a former FCA official who is now a regulatory consultant. “That will effectively double [officials’] workload: everyone will want to chip in.”

Still, Revolut’s application has been hindered by many factors beyond nervousness about licensing a bank that could swiftly take a significant part of the UK retail-banking market, according to insiders at the fintech and others familiar with its troubled regulatory journey.

After being forced to issue qualified and late accounts for 2021, Revolut recently admitted to a delay to its 2022 accounts.

Revolut thought it was “not a big problem” that the auditors stated that they could not properly apportion all of the company’s revenue for the 2021 accounts, one former insider said, adding that the issue arose in part because Revolut built its own accountancy software package rather than buying one as most companies do.

Regulators repeatedly raised concerns about the delays and qualifications to the 2021 accounts, as well as about Revolut’s public downplaying of the issue, according to two people familiar with discussions. Revolut’s bullish stance sparked criticism from the fintech’s own board. The fintech was admonished for the latest delay by regulators in recent weeks, two people familiar with the situation said. They added that the company has reassured regulators that the accounts will be finalised imminently.

Revolut declined to comment on the specifics of its talks with the PRA and FCA. “We work closely with regulators around the world . . . Revolut has obtained over 70 licences across a range of financial services,” said the fintech, which was granted an EU banking licence by the Bank of Lithuania in 2021.

The FCA and PRA declined to comment on the accounts issue, or on any other aspect of their dealings with Revolut.

Revolut’s issues have not been limited to its accounts. In early 2022, a flaw in its payment system meant US criminals could steal more than $20mn. In another recent case, the fintech allegedly allowed as much as £1.7mn to be paid to accounts that had been red-flagged by the UK’s National Crime Agency.

Every bank has cases that slip through the gaps. Stewart said regulators generally take a tough approach to banks during application processes because “once they get a licence, it’s much harder to take it away”.

A series of departures has not helped Revolut’s cause with regulators, who generally prefer stable management teams. In the two and a half years since it submitted its first application for a UK licence, it has lost five senior UK executives, including its UK banking chief, James Radford.

The FCA, which oversees Revolut’s existing UK payments business and ordered a review of its culture in 2021, carries out exit interviews with departing staffers. Several told the FT that they have given negative feedback to the watchdog on their time at the fintech. Revolut said 80 per cent of its internal exit interviews this year “rated their experience at Revolut as ‘positive’.”

Two ex-Revolut insiders involved in regulatory applications said they had left, in part, because they were not comfortable with how they were asked to present information to officials.

Supervisors have also questioned Revolut’s governance arrangements, according to people familiar with the discussions, and the level of challenge presented by the board to Storonsky.

The PRA has told Revolut it wants to see the board expanded, ideally to include directors with more technology and banking expertise able to challenge executives on operational and compliance issues, according to two people familiar with the request.

Revolut is in the process of adding two more non-executives to expand the board to seven, alongside the chief executive and chief technology officer, the people said. Current non-executive directors include the chair, Martin Gilbert, who co-founded Aberdeen Asset Management, and Michael Sherwood, a former Goldman Sachs co-head for Europe.

Regulators previously flagged concerns about the board’s ability to robustly challenge management, given the wealth that certain non-executive directors had amassed from Revolut shares — mostly granted before a 2021 funding round that then increased the company’s value fivefold. The fintech then responded to these concerns by remunerating board members in cash rather than shares, according to people familiar with the situation.

Insiders describe incidents where Revolut’s board has been wrongfooted by public announcements by Storonsky. The fintech’s Russian-born 39-year-old co-founder retains a “big say” in how Revolut is run, according to one former employee.

Meanwhile, a spate of banking collapses in March has made regulators more cautious generally, while soaring interest rates and slowing economies that have depressed fintechs’ valuations make banking supervisors fret over the difficulty of raising more capital if companies need to shore up losses.

Against that backdrop, the licence that Storonsky said he would “love to have . . . as a Christmas present” last year might not be ready by this festive season either.

Dilan Yeşilgöz-Zegerius is leader of the ruling VVD party and could become prime minister after elections next month

The Dutch justice minister — and a frontrunner to be the next premier — has warned that the conflict between Israel and Hamas could cause civil strife in European countries.

Dilan Yeşilgöz-Zegerius said the cycle of violence “will get translated to our societies”. Her comments came in an interview before Islamist attacks in France and Belgium killed three people and left three injured.

“Israel has every right to defend itself, which will also mean innocent victims on the Palestinian side and victims on the Israeli side will continue. It will get translated to our societies as well,” she said. 

Yeşilgöz-Zegerius, the daughter of Turkish Kurds who fled persecution, said she was reviewing security arrangements in Jewish areas. There were about 50,000 Dutch Jews, mostly in Amsterdam, she said, and there are already special police units to protect them and patrol outside synagogues and schools.

There were no “concrete threats”, she said, but “we are looking at whether it is enough” and if changes were necessary.

The minister defended the right of those sympathising with the Palestinians to protest. France has banned demonstrations while Germany has been criticised for heavy-handed policing. 

“In a democracy everybody can go out on the streets and demonstrate and be an activist. That is good. If you see Hamas flags and things that belong within a terrorist context, then the police and the prosecution should be aware . . . and handle it.”

Yeşilgöz-Zegerius, 46, called for people to “unite against terrorism”.

“You have to show that you are supporting Israel in this case. So you just raise the flag and show this is one front against terrorism.”

But as in other European countries, political parties in the Netherlands have diverged in their response to the new conflict in the Middle East ahead of Dutch general elections on November 22.

Green MP Kauthar Bouchallikht has quit as a candidate for re-election because of her party’s response, which initially failed to mention the plight of the Palestinians.

In The Hague, while the government flew the Israeli flag from ministries last week, the city council declined to do so, hanging the municipal arms at half-mast instead. 

She has taken a strong line on law and order and promised to “take control” of who can come into the country, mirroring the tough approach taken by the UK after it left the EU and echoing rightwing politicians in France, Germany, Italy and Greece where immigration is hotly debated. In the Netherlands, migration policy is also divisive — and triggered the collapse of the Rutte government in July. 

The minister said the Dutch system was overwhelmed with economic migrants who failed to integrate, threatening social peace. “The willingness of the Dutch public . . . to accept refugees is fragile.”

In contrast to Rutte, Yeşilgöz-Zegerius has not ruled out forming a coalition with far-fight anti-Islamist Geert Wilders. She criticised politicians who favoured open immigration for letting down both migrants and locals. 

“It sounds better . . . [when] left parties say anybody can come, there’s no problem. But then look at what’s happening in the real world. In Ter Apel [reception centre] in April last year, people were sleeping in the grass outside.”

The acceptance her family received in the 1980s — a house, work, language lessons and supportive neighbours — was unlikely to happen now because of the “pressure on society”, she said.

The VVD would reduce the rights of those granted asylum to bring extended family members to join them, and identify which sectors require workers, handing out temporary visas, she said. 

“We don’t have a vision as a government. We don’t take control.”

“There is pressure because society right now sees and feels we are getting too many people arriving without knowing who they are, who needs us and who we need. It’s just happening to us.”

Tax authorities said to have inspected a number of the Apple supplier’s sites in provinces

China has launched an investigation into Apple iPhone maker Foxconn over tax and land use, Chinese state media reported on Sunday.

The Global Times, citing anonymous sources, said tax authorities inspected Foxconn’s sites in the provinces of Guangdong and Jiangsu and natural resources officials had inspected sites in Henan and Hubei.

Foxconn said it would co-operate with the investigation. “Complying with laws and regulations is a basic principle for the group worldwide,” said Foxconn in a statement. “We will actively co-operate with the relevant authorities’ operations.”

The Global Times article quoted an expert saying “Taiwan-funded enterprises, including Foxconn . . . should also assume corresponding social responsibilities and play a positive role in promoting the peaceful development of cross-strait relations”.

Foxconn founder Terry Gou is running as an independent candidate in Taiwan’s presidential elections in January, a contest that will have a significant influence on Taiwan’s relationship with China and tensions in the Taiwan Strait.

Gou, who handed Foxconn management to a successor chief executive four years ago, resigned his seat on the board in early September after announcing his presidential run, but retains a 12.5 per cent stake in the company.

Beijing has in the past targeted local subsidiaries of Taiwanese companies with regulatory probes and political pressure at sensitive or tense times. Chinese officials frequently urge Taiwanese companies to help promote “peaceful development” between the two sides.

China claims Taiwan as part of its territory and reserves the option to take the island with force if Taipei resists unification. The People’s Liberation Army is continuously stepping up moves to probe the airspace and waters near Taiwan.

Gou trails all other three presidential candidates so far with a support rating of just 7 per cent, according to a poll conducted this week by Formosa, one of Taiwan’s leading pollsters.

The founder insists that despite his decades of doing business in China, which has made Foxconn the country’s largest private employer and exporter, he is not doing China’s bidding.

“If the Chinese Communist party regime were to say ‘If you don’t listen to me, I’ll confiscate your assets from Foxconn,’ I would say ‘Yes, please, do it!’” Gou said at the announcement of his presidential run on August 28. “I cannot comply with their orders. I won’t be threatened.”

Apple is also trying to navigate an increasingly complex relationship with China at a time of historic tensions between Beijing and Washington. Last week, Apple chief executive Tim Cook travelled to China and met with members of Xi Jinping’s leadership team, including Vice-Premier Ding Xuexiang and China’s commerce and information technology ministers.

Chinese government departments and state-owned enterprises have in recent months banned or discouraged employees from using Apple devices. In September, Beijing warned of iPhone-related “security incidents”.

The investigation into the Apple supplier also highlights broader uncertainty among foreign businesses in China after Beijing cracked down on the operations of consultancies and due diligence groups.

On Friday, the Financial Times reported Chinese police had raided the Shanghai offices of WPP-owned media agency GroupM.

Energy firms, environmental groups try to influence rules governing new clean-energy industry

WASHINGTON—Big energy producers are sparring over billions of dollars in subsidies from last year’s climate law, a fight that pits the Biden administration’s goals for economic growth against its efforts to reduce greenhouse-gas emissions.

The battle is over subsidies to produce clean hydrogen, a potential alternative to oil and natural gas in industries such as steelmaking and trucking where renewable energy and batteries alone aren’t adequate. The administration is weighing how strictly to define what energy sources can be used to make clean hydrogen and still be eligible for some of the most valuable tax credits in the Inflation Reduction Act.

NextEra Energy, Constellation Energy and Plug Power say the subsidies should be widely available—even to companies that generate carbon emissions—to spur the growth of a hydrogen industry seen as crucial to limiting climate change in the long run.

The businesses and industry groups have made the argument in advertisements everywhere from the New York Times and digital media outlet Semafor to the streaming service Hulu. They also have made their case in meetings with Biden administration officials, according to people familiar with the matter. Labor unions such as the International Brotherhood of Electrical Workers have sided with them.

Companies such as Air Products & Chemicals, meanwhile, say the money should go to businesses that use only renewable energy, which could mean slower development and fewer new jobs. Environmental groups have made the same argument in newspaper ads; the groups also have appealed to administration officials, a person familiar with the meetings said.

The spat is the latest example of companies in sectors from electric cars to energy fighting over the technical details of clean-energy subsidies that could be worth $1 trillion over a decade.

“The hydrogen rules are make or break,” said Leah Stokes, an associate professor at the University of California, Santa Barbara, focused on energy, environment and climate, who advised Democrats on the climate law and is in favor of tight hydrogen tax-credit rules.

The administration missed an August deadline to write the hydrogen rules. White House officials are considering a range of proposals, including rules that would get stricter over time, a senior administration official said.

Ashley Schapitl, a Treasury spokeswoman, said the agency is trying to make sure the rules strengthen U.S. energy security and address climate change.

The subsidies come atop $7 billion in recently announced federal grants from the 2021 infrastructure law for hydrogen megaprojects across the U.S. to kick-start the industry.

Today, nearly all hydrogen is made by heating natural gas. The method is cheap, but it generates greenhouse-gas emissions. Those can be lowered or eliminated by switching to machines powered by renewable energy that split water into hydrogen and oxygen.

The new tax credit gets more valuable as the production process generates less emissions. The maximum amount for the cleanest hydrogen is $3 per kilogram, roughly enough to make green hydrogen cost competitive with hydrogen made from natural gas.

The heart of the current conflict is in whether companies planning to use fossil-fuel power from electricity grids to make hydrogen would have to buy equivalent renewable energy on an hourly basis or a looser annual standard.

Companies such as NextEra, Plug Power and BP say projects should count as green if they use fossil-fuel grid power but buy renewable-energy credits that match their annual usage. Otherwise, they argue, hydrogen projects won’t be viable in much of the U.S., preventing the job and climate benefits the White House wants.

“If we don’t ever get to having hydrogen available for use, we’ll never solve any problems,” said Emily Fisher, an executive vice president at the Edison Electric Institute, a trade group for utilities.

Constellation, the largest U.S. nuclear-plant operator, is arguing for looser rules allowing existing clean-power projects to be used to make hydrogen. Restrictive rules would halt the company’s plans to invest nearly $1 billion in nuclear-powered hydrogen, a spokesman said. Constellation and others are part of the Fuel Cell & Hydrogen Energy Association, an industry group that has advertised against tight regulations.

Opponents—including Air Products, which has plans for green hydrogen facilities that run on new renewable power in states such as Texas—want stricter rules requiring new clean-energy developments and electricity-matching based on hourly demand. Those rules would likely deny some competitors the tax credits.

The issue is splitting some of the White House’s usual allies. Environmentalists have said in advertisements in outlets including the Washington Post that many energy producers are trying to hijack clean-energy rules to get credit for projects that would increase pollution.

“We cannot afford the hydrogen tax credit to serve as yet another subsidy for the fossil fuel industry,” a group of senators including Sheldon Whitehouse (D., R.I.), Jeff Merkley (D., Ore.) and Elizabeth Warren (D., Mass.) wrote last week to Treasury Secretary Janet Yellen.

A separate group of senators including Maria Cantwell (D., Wash.), Sherrod Brown (D., Ohio) and Joe Manchin (D., W.Va.)—one of the main architects of the climate law—plans to argue for looser rules to spur the industry and allow more regions to have hydrogen projects, according to a draft of a separate letter to Yellen viewed by The Wall Street Journal.

Many analysts expect the government to start with relatively loose rules, then transition to tighter standards such as matching renewable-electricity usage hourly. Europe has proposed starting hourly matching for its hydrogen rules in 2030.

The American Clean Power Association, an industry group, proposed applying a more relaxed standard to projects that begin construction before Jan. 1, 2029.

Opponents say such an approach would mean nearly all projects finished through the early 2030s would get the looser rules because of how long construction takes, risking an increase in emissions.

“If they get it wrong, it’s really big,” said Craig Segall, vice president of policy for environmental group Evergreen Action. “It’s harder to make other [Inflation Reduction Act] errors that are worth 100 million tons of CO2 over time.”

Record numbers of migrants are coming with children and from countries they can’t be deported back to, overwhelming U.S. authorities

Historically high numbers of people are illegally entering the U.S., straining an immigration system already overwhelmed by the number of families coming across the border to request asylum.

Border agents made 2.05 million arrests in the federal fiscal year that ended in September, new government data show, the second year in a row that figure has exceeded two million. In the past, the numbers have risen and fallen based on significant economic and policy changes like recessions and pandemic-era border restrictions. But they never exceeded 1.7 million and never stayed at an elevated level as long as they have the past few years.

The record numbers of people entering the country illegally aren’t the only reason border communities are struggling in Texas and shelters are full as far away as Massachusetts. In the past, most migrants were single adults from Mexico looking for work. If caught by the Border Patrol, they could easily and quickly be deported.

Now, a fast-growing share are families with children, who are difficult to deport to their home countries. The change started around 2014 and has exploded in the past two years.

Many families are fleeing gang violence in Central America, though recently a growing number are escaping political repression and poverty in South America.

After crossing into the U.S., they typically surrender to the first border agent they find.

Smugglers encourage adults to travel with children, telling them they are likely to be quickly released into the U.S. because the Border Patrol doesn’t have the capacity to hold families for more than a day or two. Once released, they can wait years for their cases to be processed in clogged immigration courts.

Some initially stay in shelters, taxing resources in places such as Chicago and New York as numbers have grown recently. But most eventually find jobs in a U.S. economy that has recovered from the Covid-19 downturn more robustly than Latin America.

Routes to the U.S. have changed in recent years, with a particular shift toward Texas. Some people head there because it is the closest border crossing from Central and South America. Others want an entry point closer to their final destination on the East Coast.

But Border Patrol resources have historically been built up in Arizona and California, where Mexican migrants were more likely to cross.

The agency tries to quickly move staff, but savvy smugglers often target spots where they know U.S. authorities have the least ability to detain people.

The result has been a surge of migrants crossing the Rio Grande into Texas and regular releases of families by overwhelmed Border Patrol agents in communities like Del Rio and the Rio Grande Valley.

Recently, though, the daily flow of migrant families and others from harder-to-deport-to countries has grown so large that even border cities with the most resources, like El Paso and San Diego, are struggling to handle the number of people arriving every day.

When deportations are difficult

Managing large numbers of illegal border crossings is tougher when migrants can’t be easily deported.

Because Mexico and the U.S. share a border and have long had strong relations, deporting migrants from that country is relatively easy.

Recently, a large number of people are coming from countries that have strained ties with the U.S., making deportations difficult or impossible. Since 2022, for instance, more than 715,000 Cubans and Venezuelans illegally crossed the U.S.-Mexico border, fleeing political repression and economic distress.

Venezuela and Cuba both recently agreed to start accepting deportees for the first time in years, though it remains to be seen if the change will deter migration.

Economic problems caused by the hangover of the Covid-19 pandemic also are driving increased migration from South American countries like Ecuador, Colombia and Peru, which accept U.S. deportations but require long and costly flights.

Migration to the U.S. is becoming increasingly global, with more asylum seekers from as far away as India, Uzbekistan and Mauritania making their way to Mexico and then crossing into the U.S.

The expanding roster of starting points is making it more difficult for the U.S. government to devise a comprehensive migration strategy. The reasons people are leaving their countries differ vastly from nation to nation. The U.S. must also negotiate more diplomatic arrangements to ensure foreigners can be deported.

Researchers and officials say that so long as demand for low-skilled labor remains high in the U.S. and political, economic and environmental distress keep pushing people to leave troubled countries, the numbers of people willing to do whatever it takes to cross the border will remain high.

Government should prioritise investment in roads and 5G, says survey by trade body Make UK

More than two-thirds of the UK’s manufacturers believe the country’s infrastructure has deteriorated over the past decade, affecting their capacity to do business, according to the sector’s main trade body.

The government should prioritise investment in roads and 5G broadband, according to more than 60 per cent of the 150 respondents to a survey by Make UK. Upgrades to local rail infrastructure were also seen as a pressing issue.

The study found that 68 per cent of companies said the state of the UK’s national infrastructure had worsened in the last 10 years, while 57 per cent complained local networks had deteriorated over the same time period.

Mike Thornton, partner and head of manufacturing at audit firm RSM, which helped carry out the survey, said that infrastructure quality was one of the key criteria for businesses when choosing where to set up, alongside a country’s tax and regulatory framework and access to skills. “Manufacturers have made their needs clear and infrastructure must be a priority,” he added.

The findings follow calls last week for greater spending on transport, energy and water networks by the National Infrastructure Commission, a government advisory board. In only its second five-yearly assessment, the NIC called for a sharp increase in infrastructure investment from an average of £55bn annually to £80bn per year in the 2030s, with more than half coming from the private sector.

The Make UK survey, however, found that its members believed that “infrastructure changes should be delivered by the state to ensure that agents of the economy can perform as efficiently as possible”. 

More than half of respondents said local authorities should be given responsibility for infrastructure investment as they would “likely have a better view of what is working in their areas”.

The calls for more investment follow recent government cuts to major rail and road projects.

Earlier this month the government axed plans to build the northern leg of the HS2 high-speed rail line between Birmingham and Manchester. There are also doubts about whether the southern section between Birmingham and London will run into the planned terminus in the centre of the capital at Euston after the government said it would only be built if it could be financed through private investment.

In March, the government also announced delays to a number of road schemes, including a £9bn road tunnel under the Thames, known as the Lower Thames Crossing, the £320mn A27 Arundel bypass and the £250mn Rimsrose Valley bypass in Liverpool.

Although the government pledged earlier this month to invest up to £8bn in tackling potholes, a report by the Asphalt Industry Alliance earlier this year said the backlog of repairs was the highest it had been, while “structural conditions continue to decline”. 

The AIA found that 11 per cent of the local road network across England and Wales was considered to be in poor condition and likely to require maintenance in the next 12 months. It added that on average local roads were now being resurfaced less than once every century.

Noble Francis, economics director at the Construction Products Association, said that although the government was “constantly churning out strategies and road maps highlighting the importance of infrastructure for economic growth, productivity and competitiveness, it doesn’t actually deliver on the improvements.”

Earlier this year, a study by the Resolution Foundation said the cost of reversing the under-investment in infrastructure since the 1970s would be the equivalent of 1.6 per cent of GDP annually over the next two decades, or about £40bn a year.

Spreads on euro-denominated junk bonds rise to widest levels since 2016

Europe’s riskiest corporate borrowers are paying the highest premium in seven years to tap the region’s €412bn junk bond market, highlighting growing fears that a long period of high interest rates and an economic slowdown could trigger further defaults.

The so-called “spread” — or gap — between the yields on euro-denominated corporate debt rated triple C or lower and government paper has widened to more than 18 percentage points on average, according to an ICE BofA index.

That marks the biggest spread since June 2016 and surpasses levels seen in 2020 when the Covid-19 crisis triggered fears of messy defaults and bankruptcies. At the start of last year, the spread was as low as 6.7 percentage points.

Government bond yields have soared on both sides of the Atlantic in recent weeks, dragged skywards by concerns that both the Federal Reserve and the European Central Bank will keep interest rates ‘higher for longer’ to get inflation under control. But corporate bond yields have climbed at an even faster pace.

Expanding spreads indicate that bondholders are demanding larger premiums to compensate them for the risk of a default.

European companies that have defaulted on bonds or loans in recent months include French retailer Casino Guichard-Perrachon, Netherlands-based manufacturer Keter and Belgium-based Ideal, according to rating agency Moody’s.

Analysts and investors said the widening of risky European spreads underscored persistent concerns over the health of the region’s economy. They also pointed to structural issues within Europe’s high-yield bond market — including its lack of depth and liquidity — which have fuelled sharper moves than those in the same asset class in the US.

“I think the economic backdrop in Europe is definitely worse than in the US,” said Christian Hantel, a corporate bond portfolio manager at Swiss firm Vontobel. The widening of spreads “has to be seen in the context of slower economic growth, the aggressive interest rate hikes and the ongoing elevated inflation numbers”.

Many more North American companies have defaulted on their debt so far this year compared with Europe. Spreads for triple-C rated bonds in the US have also yawned wider since the end of the summer, as markets have increasingly priced in expectations of interest rates staying elevated well into next year. But they remain tighter than their European counterparts at roughly 10 percentage points, around levels seen just a few months ago.

Very low-grade European borrowers also suffer from having a narrower investor base than their counterparts in the US, where the high-yield bond market is $1.3tn (€1.1tn) in size, say analysts.

“Europe has a bank-based financial system. The US has a market-based financial system,” said Torsten Sløk, chief economist at Apollo. “There’s much fewer places to go in Europe — you can really only basically go to the banking sector, because credit markets just play a much smaller role.”

That relatively small market size also allows for individual credits to have a disproportionate influence over the direction of an index or sub-index.

A bond issued by the heavily indebted French telecoms group Altice, yielding 29 per cent and maturing in May 2027, has the largest weighting in Europe’s triple-C high-yield gauge, at 4.7 per cent. Its spread has widened to more than 28 percentage points from less than 26 percentage points in late September, Bloomberg data shows.

“Idiosyncratic names [can] push the [index’s] spread out,” said Anton Dobrovskiy, investment specialist on the euro high-yield team at T Rowe Price, adding that risk aversion linked to the Israel-Hamas war was also likely to have amplified moves in European credit spreads this month.

Times of market and economic uncertainty typically hit the lowest-grade companies hardest, noted Vontobel’s Hantel.

“Triple-Cs are the weakest link of the high-yield universe and the corporate credit market in general,” he said. “It’s not a surprise that we see more stress here.”

Former UniCredit boss steps into governance and political quagmire to turn around indebted tech contractor

A French paratrooper in his youth, Jean-Pierre Mustier has been parachuted in to manage the kind of corporate minefield his home country seems adept at producing.

The former UniCredit chief may face his biggest challenge yet as chair of IT services group and military contractor Atos following his predecessor Bertrand Meunier’s resignation last Monday. Mustier now has the prospect of angry minority shareholders, looming debt repayments, a bruised board and political opposition to a break-up plan concocted with Czech billionaire Daniel Křetínský — all under the watchful gaze of the French state.

“While Mustier’s job is not impossible, it is a very difficult task . . . and you are forced to make a decision. You can’t kick the can down the road because of the liquidity issue, the funding crisis,” said Chandramouli Sriraman, analyst at Stifel.

The slow demise of what was once seen as a national champion has gripped France’s business and defence circles, who wonder how a company whose supercomputers run models for the French nuclear arsenal could fall on such hard times.

Křetínský’s move to buy the company’s legacy IT unit and a stake in the faster-growing big data business has added a nationalistic twist to the saga, with rightwing lawmakers agitating over the sale of a holding in a sensitive business to a foreigner.

Shares in Atos, which has changed chief executive three times in as many years, have fallen 90 per cent in the past three years to €4.68, giving the company a market valuation of €521mn.

“It has become a political issue,” said economist Jean-Hervé Lorenzi, lamenting “the mess” that a company managing all the IT for next year’s Olympic Games in Paris “has been allowed to slide into”.

Mustier’s first task will be to assess whether he can salvage the rescue plan spearheaded by Meunier, who invited the former Société Générale banker and fellow alumnus of elite engineering school École Polytechnique to join the board in May. That deal involves selling Atos’s lossmaking IT consulting unit to Křetínský, who has also agreed to inject cash into the rebranded faster-growing supercomputing and cyber security division Eviden via a capital raising.

“If we don’t split, it’s like having conjoined twins and one of them is extremely sick and you decide to kill both of them,” said a person close to Atos. “There is no good option.”

Created in the 1990s, Atos provided digital services to companies in the early internet years. Under Thierry Breton, a former French finance minister who became Atos CEO for a decade until 2019 and is now EU commissioner for internal markets, the company took on debt to fund acquisitions, reaching more than €14bn in market value. But it came late to cloud computing, buying supercomputer maker Bull in 2014.

After Breton’s departure the group racked up setbacks including the aborted purchase of US IT services firm DXC in 2021 and an accounting probe in the US. Business has deteriorated since Atos unveiled the break-up plan last year.

Křetínský in August agreed to participate in a €900mn capital boost for Eviden in exchange for a 7.5 per cent stake — a financial contribution Meunier sought to help meet Eviden’s capital needs and the €2.25bn in debt payments it faces in 2025. That part of the deal, however, has drawn fire from shareholders, defence officials and politicians.

Křetínský reached the deal when Atos shares were worth around €15. If carried out now, the capital raising would be much more dilutive and less appealing for existing shareholders, who will vote on it at a meeting next year.

Hedge fund CIAM and UDAAC, a grouping of small investors, have also accused Atos chair Meunier of misleading and inadequate disclosures in lawsuits filed against the company. Another small shareholder, Alix AM, has filed a complaint with France’s financial prosecutor for “active and passive corruption” in the planned transaction with Křetínský. Atos has “firmly” rejected the allegations.

“We are glad that [Meunier] is gone . . . but Mustier is taking up the same project, so ultimately, it’s a bit of window dressing,” said CIAM chief Catherine Berjal.

The prospect of Křetínský taking a stake in the division responsible for Atos’s most sensitive tech has also raised concerns among government officials and politicians. “The hypothesis of such a powerful, foreign player getting closer to our most sensitive military capacities deserves all our attention,” centre-right lawmakers said in a letter published in August.

Many believe Mustier will go back to the drawing board. “Either the [shareholder vote] never happens or it is called and the shareholders refuse the capital increase,” said Sophie Vermeille, a lawyer for UDAAC. “The only question is when Atos puts in place a plan B.”

One person familiar with the talks over the company’s future said “Mustier . . . is not going to take the slightest risk”.

People close to Křetínský’s side say he would gladly do without the stake in Eviden, describing political criticism as a “thorn in our side”.

The Czech energy tycoon, a fluent French speaker who started investing in France in 2018 and has impressed the Paris elite with his knowledge of French literature, has bought publisher Editis from Vivendi, invested in appliance retailer Fnac-Darty and is taking over food retailer Casino. But he sold a stake in newspaper Le Monde last month after a newsroom revolt.

Atos executives admitted last Monday that if the Křetínský deal fell through they would need to look for other options, including asset sales, a share sale or issuing more debt.

Defence groups Thales and Airbus have expressed an interest in Atos assets, including the cyber security business, according to people close to the matter. The government might turn to these companies if it loses trust in Atos to handle its military activities, the people added.

Meanwhile the blame game has begun on Atos, with some pointing the finger at Breton. Critics, including Meunier, say the former finance minister pressed ahead with acquisitions for the sake of growth.

In an interview with La Tribune last month, Meunier said Breton’s acquisition strategy had been “achieved with questionable or insufficient selectivity and the signing of contracts whose remuneration was too low in relation to costs”.

A former Atos employee close to Breton hit back, saying it was Meunier’s erratic strategy that had dragged down Atos, distracted its management and led investors to lose trust in the group.

Meunier pushed to have the state take a stake in the company to stabilise the shareholding but was rebuffed by the finance ministry and other officials, according to a person with knowledge of the meetings. “They didn’t want to save Atos,” the person said.

Meunier, Mustier, Atos and the French finance ministry declined to comment.

But some in Paris business circles argue that Meunier, a former private equity executive at PAI Partners and CVC, shares the blame after putting forward turnaround plans that have foundered while shareholders grew frustrated by the falling share price.

“Meunier likes to blame Breton, but he left four years ago,” said CIAM’s Berjal. “He could have made better choices.”

For the person familiar with talks over the company’s future, “Meunier inherited a difficult situation but did not handle it well, and the house of cards fell down. That’s the story.”