FT : Bobby Jain’s hedge fund launch falls short of $8bn-$10bn target

Bobby Jain’s hedge fund launch falls short of $8bn-$10bn target
Millennium alumnus has tempered his ambitions after initially aiming for industry’s biggest ever debut

Bobby Jain’s new hedge fund is falling short of its original $8bn-$10bn fundraising target, thwarting his ambition for the industry’s largest-ever debut.

The Credit Suisse veteran and former co-chief investment officer of Millennium Management has told potential clients he is now aiming to launch Jain Global in July with $5bn-$6bn of assets, according to investors.

The smaller target comes as performance among so-called multi-manager hedge funds slows and as cracks start to appear in the model pioneered by Izzy Englander’s Millennium and Ken Griffin’s Citadel.

“Bobby let the expectation get set at too high a level,” said one big investor. “Now he has to reel it back.”

Running a multi-manager platform is a fiendishly complicated juggling act that requires market-leading IT systems, sophisticated risk management and the allocation of capital across dozens of portfolio managers trading different strategies.

Jain has sweetened the terms for investors who sign up fast, cutting performance fees for those willing to commit by the end of this month.

Those who invest $250mn or more will pay a performance fee of only 10 per cent indefinitely, said people familiar with the situation — half the industry standard. Accounts of $100mn-$250mn will pay a 13 per cent performance fee, while those investing less than $100mn will pay 15 per cent.

Since Jain started the firm last July he has faced a delicate balancing act in generating enough buzz around the launch to entice clients and hire portfolio managers without setting expectations at a level he is unable to meet.

“With a launch like this it’s a race between hiring the people and raising the capital,” said another big investor. “The people want to know the capital has been raised and the investors want to know who the people are.”

Jain, who left Millennium in June last year, began fundraising for his new firm last September but was hamstrung by an agreement with his former employer not to solicit any of its clients until this year, according to several people familiar with the situation.

Multi-managers seek to make money regardless of overall market performance and their record of strong risk-adjusted returns has made theirs the most popular strategy among investors in the $4tn global hedge fund industry.

Assets at multi-manager firms increased 150 per cent between 2018 and 2022, according to Goldman Sachs, against 13 per cent growth for the rest of the hedge fund industry. Last year Citadel was up more than 15 per cent, outperforming peers that recorded annual returns of between 3 per cent and 10 per cent, according to investors.

But an expensive war for talent is eating into returns, and their “pass through” charging model — where investors pay all the fund’s costs instead of a management fee — is drawing greater scrutiny from clients.

Meanwhile, successive interest rate rises have lifted the risk-free return available elsewhere to investors, putting greater pressure on hedge funds to justify their positions in client portfolios.

All of this has contributed to a level of “investor fatigue” towards the multi-manager sector, said one person close to Jain Global.


Jain, 53, began his career at Chicago trading firm O’Connor and Associates before joining Credit Suisse in 1996, where he worked his way up to global head of asset management. In 2016 he left for New York-based Millennium, as part of Englander’s push to make the business more institutional.

At Millennium, where he was co-chief investment officer with Englander, Jain helped refine the firm’s risk management approach. It carefully monitors its more than 320 investment teams, forcing managers to cut positions that are going sour and allocating more money to those who are doing well.

Jain had been regarded internally and externally as a potential successor to Englander, although this has been disputed by some in the Millennium camp. Jain left abruptly in 2022 after it became clear to him that his career there had reached a ceiling.

Details around the launch of Jain Global have been trickling out since. Hedge fund debuts have been few and far between in the past few years as potential founders have opted to join established platforms rather than take on the cost and risk of setting up a business themselves.

“Putting together a large number of high-quality teams and executing flawlessly on day one is going to be a real challenge . . . kind of like the moon landing,” said one investor that is a large allocator to hedge funds.

Citadel and Millennium, each of which runs about $60bn in assets, employ roughly 2,500 and 5,500 people respectively and invest tens of millions of dollars a year in technology and data analytics.

The fortunes of ExodusPoint, whose founder Michael Gelband is another Millennium alumnus, illustrate the challenges for new entrants. Its $8bn debut in 2018 remains the largest hedge fund launch but despite the initial fanfare, the firm’s returns have been underwhelming, according to some investors; it was up 7.3 per cent last year, said people familiar with its performance.

Meanwhile, Canadian alternatives giant Brookfield Corporation last year closed its multi-strategy hedge fund Brookfield Hedge Solutions Advisors after four years, reflecting challenges scaling the $1.3bn business.

Even established players such as Schonfeld Strategic Advisors have struggled to keep up in recent years. Millennium and Schonfeld held talks last year about a tie-up but were unable to agree on a deal.

People close to Jain say there is still room for a new entrant that can attract portfolio managers interested in joining a smaller start-up business, with greater opportunities for subsequent management responsibilities and shared rewards if the business does well.

In his favour is his charisma, experience and network. However, he is launching during a costly bidding war for portfolio managers in which signing bonuses and performance fees have climbed to their highest levels.

“There has been a war for talent for some time. There will be vast swaths of the talent market who won’t be accessible to him,” the allocator said.

In recent years incumbents firms such as Citadel, Millennium and Balyasny Asset Management have moved to lock up investors’ capital for years, in part because a stable business is a draw for talent.

Jain, however, is offering investors the opportunity to fully redeem their investments within two years. While longer than most other hedge funds, it is shorter than some multi-manager hedge funds including Millennium which has moved to five years. 

Redemptions create problems if too many investors pull their cash out at the same time because the cost of running the hedge fund has to be borne by a smaller number of investors.

One established rival questioned whether seasoned portfolio managers would leave their existing employers to join a firm whose longevity is not guaranteed.

Jain has tried to entice potential employees, dangling a future allocation of capital from Jain Global to portfolio managers who may want to spin out with their own hedge funds later. He has made several big hires as he sets out to build a team of 35-40 portfolio managers in offices in New York, London, Singapore and Hong Kong.

Jain Global’s chief investment officer for fundamental equities in the Americas will be Townie Wells, a former portfolio manager at Citadel, who is joining in October. Sam Kellie-Smith, who was chair of global markets at Morgan Stanley, will lead the Asia team while Paul Enright, who managed his own money for six years after 12 years at hedge fund Viking Global, will be chair of fundamental equities.

>>> US After Hours Summary: DFS -7.9%, AA -2.3%, FUL -1.8% lower on earnings; BT

After Hours Summary: DFS -7.9%, AA -2.3%, FUL -1.8% lower on earnings; BTU +5.4% will join S&P SmallCap 600; RAMP +9.3% higher on guidance and deal to acquire Habu; PLUG -15.2% lower on ATM to sell shares

After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: RAMP +9.3% (guides Q3 revenue above consensus; also to acquire Habu)
Companies trading higher in after hours in reaction to news: BTU +5.4% (to join S&P SmallCap 600), IMTX +3.2% (stock offering), OKE +1.9% (increases dividend and authorizes $2 bln share repurchase program), VOR +1.3% (doses first AML patient with VCAR33 and provides corporate update), FLNC +1.1% (surpasses 20 GWh of deployed and contracted storage systems globally), BHP +0.5% (provides operational review for 2H23), DHT +0.3% (provides business update, improving its estimated cash break-even levels), GTLB +0.3% (announces the GitLab Duo Pro add-on), FAST +0.1% (increases dividend), CAAP +0.1% (reports Dec traffic)

After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: DFS -7.9%, BTMD -6.5% (lowers Q4 guidance; also to acquire Asteria Health), TALO -5.1% (guides Q4 in-line, also commences $300 mln stock offering), WTFC -3.2%, SNV -2.4%, AA -2.3%, FUL -1.8%, KMI -0.4%
Companies trading lower in after hours in reaction to news: PLUG -15.2% (enters into ATM sales agreement to sell up to $1 bln in shares), ELF -2.4% (to join S&P MidCap 400), COF -2% (in sympathy with weak DFS earnings), MRCY -1.5% (names new COO; also simplifies organizational structure; also 100 job cuts), WGO -1.3% ($300 mln convertible notes offering), VRDN -0.6% (commences stock offering), BROS -0.1% (to expand operations at its Phoenix office), NFLX -0.1% (NFLX not planning to launch app for AAPL's Vision Pro headset, according to Bloomberg), AAPL -0.1% (NFLX not planning to launch app for AAPL's Vision Pro headset, according to Bloomberg), NDAQ -0.1% (reports December volumes)

>>> US Close Dow-0.25% S&P -0.56% Nasdaq -0.59%

Closing Stock Market Summary
Today's trade featured a negative bias. The major indices were able to close off their lows, though, thanks to a push higher in the last half hour of trading. The late afternoon improvement, which left the S&P 500 and Nasdaq Composite near their best levels of the day, was largely driven by mega cap stocks making upside moves.

The Vanguard Mega Cap Growth ETF (MGK) was down as much as 1.5% earlier, closed near its best level of the session with a 0.5% loss. Meta Platforms (META 368.37, +0.91, +0.3%) eked out a slim gain after being down as much as 2.4%.

The overall negative vibe was related to rising market rates and a recalibration of the market's optimistic rate cut view. The 2-yr note yield jumped 14 basis points to 4.36% and the 10-yr note yield climbed four basis points to 4.11%.

Activity in the Treasury market was partially a reaction to this morning's release of the December retail sales report, which did not go the market's way. That is to say, consumer spending was slightly better than expected in December and not likely to persuade the Fed to cut rates as much, or as early, as the market hopes.

On a related note, European Central Bank President Lagarde echoed recent comments by other central bankers, saying rate cuts are likely to begin this summer, according to FT.
The fed funds futures market is now pricing in a 59.1% probability of a 25 basis points rate cut at the March FOMC meeting versus a 66.9% probability yesterday, according to the CME FedWatch Tool.

Still, selling activity was fairly modest, suggesting market participants are simply hesitant to buy at this level rather than anxious to sell. The Invesco S&P 500 Equal Weight ETF (RSP) declined 0.8%.

The S&P 500 financial sector closed with a 0.3% decline after some components reported quarterly results since yesterday's close. Charles Schwab (SCHW 63.45, -0.86, -1.3%) and U.S. Bancorp (USB 40.82, -0.56, -1.4%) were influential laggards from the sector after their quarterly results while Citizens Financial Group (CFG 31.73, +0.53, +1.7%) went against the grain with a gain.

Meanwhile, the rate-sensitive real estate sector (-1.9%) saw the largest decline.
  • S&P 500: -0.6%
  • Nasdaq Composite: -1.0%
  • Dow Jones Industrial Average: -1.1%
  • S&P Midcap 400: -3.2%
  • Russell 2000: -5.6%

Reviewing today's economic data:
  • Weekly MBA Mortgage Applications Index 10.4%; Prior 9.9%
  • December Retail Sales 0.6% (consensus 0.4%); Prior 0.3%; December Retail Sales ex-auto 0.4%; Prior 0.2%
    • The key takeaway from the report is that consumer spending remained healthy in the final month of 2023, which does not strengthen the argument for an imminent start to a rapid rate cut campaign by the FOMC.
  • December Export Prices -0.9%; Prior -0.9%
  • December Export Prices ex-ag. -0.9%; Prior -1.0%
  • December Import Prices 0.0%; Prior was revised to -0.5% from -0.4%
  • December Import Prices ex-oil 0.0%; Prior was revised to 0.1% from 0.2%
  • December Industrial Production 0.1% (consensus -0.1%); Prior was revised to 0.0% from 0.2%; December Capacity Utilization 78.6% (consensus 78.8%); Prior was revised to 78.6% from 78.8%
    • The key takeaway from the report is that output remained relatively steady in December, though it followed downward revisions to November's production rate and capacity utilization.
  • November Business Inventories -0.1%; Prior -0.1%
  • January NAHB Housing Market Index 44 (consensus 38); Prior 37

Thursday's economic calendar features:
  • 8:30 ET: Weekly Initial Claims (consensus 206,000; prior 202,000), Continuing Claims (prior 1.834 mln), December Housing Starts (consensus 1.417 mln; prior 1.560 mln), and Building Permits (consensus 1.478 mln; prior 1.460 mln)
  • 10:30 ET: Weekly natural gas inventories (prior -140 bcf)
  • 11:00 ET: Weekly crude oil inventories (prior +1.34 mln)

WSJ : Boeing 737 MAX 9 Part in Plane Blowout Was Made in Malaysia, Official Says

Boeing 737 MAX 9 Part in Plane Blowout Was Made in Malaysia, Official Says
New details emerge about manufacturing process in harrowing Alaska Airlines flight

WASHINGTON—A Boeing BA 1.28%increase; green up pointing triangle 737 MAX 9 plug door that blew out during a harrowing Alaska Airlines flight earlier this month was manufactured in Malaysia, according to the nation’s top air-safety investigator, who offered new details from the probe into what led to the accident.

Jennifer Homendy, chair of the National Transportation Safety Board, said Wednesday that SPR 3.65%increase; green up pointing triangleSpirit AeroSystems produced the plug door in Malaysia before it wound up in the Boeing supplier’s Wichita, Kan., factory, and eventually on a train to the plane maker’s 737 factory in Renton, Wash., near Seattle.

Homendy said the safety board’s investigation would delve into the plug door’s production, transport, installation and entry into service—as well as quality checks along the way. The plug door’s origin highlights the complexity of Boeing’s supply chain after years of increased outsourcing of various components’ production. Boeing and Spirit said they are supporting authorities’ investigation into the accident.

“We have no indication right now of where in the process this occurred,” Homendy said after a closed-door briefing with members of the Senate Commerce Committee on Wednesday. “This could be anywhere along the line, and we are not just pinpointing manufacturing.”

The Federal Aviation Administration, which grounded about 170 MAX 9 jets after the Alaska blowout and emergency landing, said Wednesday the aircraft would be banned from flying passengers until it evaluated data from inspections of the planes’ plug doors. The agency offered no estimate for when the MAX 9 jets would resume flying.

Alaska and United Airlines have said they found other MAX 9s in their fleets with loose hardware surrounding those jets’ plug doors.

Homendy said Wednesday some bolts on the plug door are supposed to be loose and aren’t meant to be torqued. Instead, she said, they are secured by pins. The NTSB’s metallurgical analysis will be looking for signs of fatigue cracking and corrosion and other potential factors that led to the Alaska blowout, she said.

The FAA also said Wednesday its investigation into Boeing’s manufacturing processes included those involving Spirit, once a unit of the aerospace giant it sold off in 2005.

FAA chief Mike Whitaker told The Wall Street Journal last week “all indications are it’s manufacturing” that led to the Alaska accident, and not a design flaw with the plug door.

Several senators who attended the briefing said the jets might have to remain grounded while the investigation advances. “They need to figure out what caused the problem, because it may be systemic,” said Sen. Jon Tester (D., Montana) in an interview.

Sen. Maria Cantwell (D., Wash.), who chairs the Senate Commerce Committee, said the panel would likely call a hearing to examine the FAA’s oversight of Boeing’s manufacturing. Sen. Ted Cruz (R., Texas), the panel’s ranking member, said air-safety officials need to ensure a similar accident doesn’t happen again. “People get on a plane, they expect the doors to stay on,” Cruz said. “Who screwed up—we don’t know.”

FT : UK financial regulator to probe firms on sexual misconduct and bullying cla

UK financial regulator to probe firms on sexual misconduct and bullying claims
FCA’s move aimed at increasing diversity after industry-led efforts yielded little progress

The UK’s top financial regulator is gearing up to grill banks, insurers and brokers on the level of sexual harassments and bullying complaints in their workplaces and whether they have used non-disclosure agreements to hush up grievances.

Sarah Pritchard, the Financial Conduct Authority’s executive director for markets and international, told MPs on Wednesday that the regulator was intensifying efforts to tackle non-financial misconduct across the City.

The issue has been in focus after a number of high-profile cases of sexual misconduct — including that of hedge fund founder Crispin Odey, who was ejected from the company he founded after an investigation by the Financial Times revealed multiple claims of sexual harassment and assault against him.

Appearing before the Treasury select committee’s “Sexism in the City” investigation, Pritchard said wholesale banks, wholesale insurers and brokers would be asked for data on the number of complaints of non-financial misconduct in their businesses, as well as “methods of detection and methods of resolution”.

A person familiar with the exercise said participation would not be optional. Pritchard said companies would be asked to provide the data in a “very short period of time” and added that the FCA hoped to complete its analysis on the data “by the summer”.

The regulator could not immediately say whether the results would be made public.

“One of the reasons that we’re going out with the piece of work . . . will be so that we can see how cases of non-financial misconduct are resolved,” Pritchard told the committee.

“If we see, for example, use of NDAs alongside non-financial misconduct coming through that data . . . we will be able to take that into account in our future supervisory work.”

Pritchard did not elaborate on how the FCA’s supervision division might deal with a firm that was persistently using NDAs but stressed that there were “a number of valid reasons why an entity might use a non-disclosure agreement to keep confidential the commercial terms of a settlement”.

Robert Dedman, a financial services partner with law firm CMS and former head of enforcement at the Bank of England, said the exercise marked “the first time that the FCA has tried to get an industry-wide sense of the level of non-financial misconduct in the industry”.

“The historic lack of regulatory guidance in this area meant firms had to make their own judgments about what constituted non-financial misconduct,” he added. “This may lead to inconsistency in the information the FCA receives from firms, which the regulator will need to be alive to when calibrating its supervisory response.”

The FCA published a consultation last September on how firms identified and dealt with non-financial misconduct, as part of a broader consultation on improving diversity after decades of industry-led efforts yielded scant progress.

The measures do not mandate companies to report their use of NDAs to the FCA.

“We recognise there has been feedback on this point in the consultation so we’re open to understanding whether those are refinements we can make to collect statistics,” said Nikhil Rathi, the regulator’s chief executive. He added that the FCA could see “there could be a case for looking at” collecting data around NDAs.

Pritchard stressed the proposals would give the regulator “much better visibility around non-financial misconduct regardless of whether an NDA is used. A NDA won’t prevent any notifications to the regulator.”

The proposals include clearer guidance on the FCA’s view that non-financial misconduct is “relevant to fitness and propriety” of individuals to hold roles in financial services and offering firms examples of the kind of issues it is concerned about.

WSJ : Future FinTech CEO Denies SEC’s Manipulative-Trading Allegations

Future FinTech CEO Denies SEC’s Manipulative-Trading Allegations
Shanchun Huang said he intends to fight the SEC’s lawsuit in court and provide evidence he didn’t trade in the company’s stock before he became chief executive

The chief executive of Future FinTech Group, Shanchun Huang, denied allegations from the U.S. Securities and Exchange Commission that he artificially inflated the company’s share price before taking over as CEO.

Through his attorney, Huang said Wednesday morning that he intends to fight the SEC’s lawsuit in court and provide evidence that he didn’t trade in Future FinTech’s stock before becoming CEO in March 2020.

The agency alleged last week that Huang used manipulative trading techniques in early 2020 to push the fintech firm’s share price up, with the intention of preventing the stock from being delisted from the Nasdaq exchange for trading below the $1 minimum bid price.

According to the SEC, the trades were placed after Future FinTech’s founder and former chief executive approached Huang about taking over as CEO. The securities regulator also alleges that Huang failed to make required filings about his ownership stake in the company until a year after he became CEO, by which time he no longer owned any company stock.

Huang said Wednesday that he relied on advice and counsel of retained professionals in connection with his disclosure obligations. The CEO claims he has cooperated with the SEC and testified in the investigation that led to the lawsuit.

“I will not permit the SEC’s case to interrupt my and the board’s vision for the growth and success of the company,” Huang said.

The SEC is seeking fines and to have Huang barred from serving as an officer or director of a public company.

Future FinTech said on Tuesday that it has established an independent committee to review and investigate the SEC’s claims, adding that it has placed restrictions on Huang’s ability to trade in company stock while the SEC’s litigation is ongoing. The SEC lawsuit won’t affect company operations, according to the board.

FT : Hapag-Lloyd Maersk deal signals shake-up in global shipping alliances

Hapag-Lloyd Maersk deal signals shake-up in global shipping alliances
New partnership from next year comes as industry grapples with disruption from terror attacks in the Red Sea

Two of the world’s biggest container shipping lines have announced a new partnership, in a major reshaping of the industry’s commercial relationships.

In a surprise announcement on Wednesday, Denmark’s Maersk and Germany’s Hapag-Lloyd said they would establish a “new long-term operational collaboration” from February 2025.

Container shipping alliances offer customers a wider range of destinations and services because lines share space on each other’s ships.

Maersk, operator of the second-biggest container ship fleet, announced last year that from January 2025 it would end its 2M alliance with Mediterranean Shipping Company, the world’s biggest container line.

Hapag-Lloyd, which operates the world’s fifth-biggest fleet, will leave the THE alliance, of which it is the largest member.

News of the “Gemini Cooperation” comes as container lines grapple with disruption from terror attacks in the Red Sea that have forced them to divert nearly all services travelling though the Suez Canal to longer routes via the Cape of Good Hope.

Services between Asia and Europe have been most affected, although shipping between Asia and the US east coast via Suez has also been hit.

Simon Heaney, senior manager in container research at London-based Drewry Shipping Consultants, said alliances were vital for shipping lines and their customers.

“Alliances . . . allow operators to get more efficiency from their networks,” Heaney said. “From a shipper perspective, you get more competition between any two given ports.”

The announcement took the industry by surprise because Maersk, which controls 14.6 per cent of global container ship capacity, had been expected to operate without alliance partners after January 2025. Maersk is part of Denmark’s AP Møller-Maersk.

Hapag-Lloyd’s departure from the THE Alliance puts the remaining alliance members — Japan’s Ocean Network Express, Taiwan’s Yang Ming and South Korea’s HMM — “under the spotlight”, Heaney said. Hapag-Lloyd operates 6.9 per cent of global container ship capacity, according to figures from Alphaliner, an information service. The remaining THE alliance members account for just 11.6 per cent of the world fleet.

“What are they going to do?” Heaney asked. “They don’t have the scale to continue as they were.”

The other big alliance — the Ocean Alliance — between France’s CMA CGM, China’s Cosco and Taiwan’s Evergreen — controls 29.3 per cent of the fleet.

Another industry veteran agreed the new deal was likely to force changes in other alliances.

Ocean Network Express said it had been “aware” of the possibilities of changing partnerships and would continue to provide a “broad, high-quality service network” beyond 2025.

The Gemini Cooperation will cover seven significant trade routes, including Asia to the US West Coast, Asia to the US East Coast and Asia to Northern Europe.

Johan Sigsgaard, Maersk’s Chief Product Officer, said both companies expected the Suez Canal to be back in normal use by February 2025, when the new arrangement came into force.

But he added: “If that’s not the case, we’ll need to look at the alternative.”

According to figures from Clarksons, a shipping services company, container ship arrivals in recent days at the mouth of the Red Sea are 90 per cent down on levels in early December last year. Most vessels have diverted to travel via the Cape of Good Hope, a route that adds up to two weeks to sailings between Asia and Northern Europe.

FT : Revolut calls on High Court to throw out lawsuit over account closure

Revolut calls on High Court to throw out lawsuit over account closure
Son-in-law of late mining magnate claims the fintech cancelled his account because of ‘malicious’ allegations

Revolut has called on London’s High Court to throw out a lawsuit brought by the son-in-law of a late mining magnate, who claims the fintech group cancelled his account because of “malicious” claims against him.

The court on Wednesday heard an application to dismiss what Revolut alleged was “disproportionate” litigation brought by Ildar Uzbekov after it froze his money account in 2020.

The case comes amid scrutiny of how UK financial institutions deal with high-profile customers who may pose a reputational risk. Private bank Coutts last year dropped Nigel Farage, the former leader of the UK Independence and Brexit parties, having raised concerns about his political views. Dame Alison Rose, chief executive of Coutts’ parent NatWest, and Coutts chief Peter Flavel both stepped down in the ensuing scandal.

Uzbekov, whose father-in-law was the magnate Alexander Shchukin, said Revolut “stonewalled” him while his account was frozen and he “suffered significant distress and inconvenience” in dealing with the company.

Patrick Green KC, representing the Kazak-born British citizen, alleged in written submissions that Revolut closed his account unlawfully on the basis of “factual mistakes” and “spurious” claims.

The barrister said Uzbekov was seeking a “correction of the factual record” to “vindicate his reputation”.

Tony Singla KC, for Revolut, told the court that Revolut suspected that Uzbekov could have been involved in money laundering and that the company was “not required to investigate” the allegations.

He noted that Revolut was subject to several regulatory obligations “concerning anti-money laundering and financial crime”.

Singla said so-called debanking related to “free speech rights, for example concerning the expression of political views” and that was “entirely distinct” from Uzbekov’s claim.

He added that Uzbekov was not seeking financial damages “as he accepts that he suffered no loss” as a result of the account closure.

Green said in written arguments that sources on which Revolut’s money laundering concerns were based were not “credible”. He added that Revolut’s application to strike out Uzbekov’s claim was “without merit”.

A ruling on Revolut’s application will follow in due course.

Revolut’s account opening process has attracted scrutiny in the US, where the company is facing a class-action lawsuit over the way it handles biometric data collected through customers’ self-recorded identification videos.

A complaint filed to an Illinois court in November last year alleged that the company breached state privacy law by failing to appropriately disclose how it collects and stores this data, which prospective customers are asked to record in order to open accounts. Revolut plans to contest those allegations according to a person familiar with the situation.

The hearing comes as the fast-growing London-based fintech awaits an important decision on its UK banking license application, which it submitted three years ago and would give it a boost in its home market.

The payments group previously attracted scrutiny from the UK’s Financial Conduct Authority about alleged failures to freeze money from accounts flagged as suspicious by the National Crime Agency.

Revolut plans to dispute those allegations in court, according to a person familiar with the situation.

Revolut declined to comment on both current lawsuits.

FT : Hedge funds crash and burn in JetBlue/Spirit fiasco

Hedge funds crash and burn in JetBlue/Spirit fiasco
A tie-up with Frontier might be the cleanest way forward

No one likes making the wrong choice when deciding on an expensive trip. On Monday, a US federal judge nixed JetBlue’s all-cash buyout for Spirit Airlines, with an equity value of $3.8bn. The court decided that Spirit’s ultra-discount model was too important in the airfare marketplace to sacrifice in the deal. Instead of getting about $34 per share, Spirit equity holders have a piece of paper trading for $6.

Adding to the anguish, Spirit directors had a choice in 2022. The airline had initially signed up to a stock merger with Frontier Group, a similar deep discounter like Spirit. But the board, under heavy pressure from hedge funds, went for broke by taking a premium bid from JetBlue hoping against hope that it could push a deal past the US Department of Justice and eventually the judiciary. That wager has imploded spectacularly. It serves as a cold lesson in modern corporate governance and capital markets.

According to the court’s reasoning, JetBlue’s objective in buying Spirit was mostly about acquiring planes, pilots, routes and other infrastructure, rather than preserving its business model. The jilted Frontier had previously warned that the only way to make the JetBlue/Spirit combination work was to reduce Spirit’s capacity.

As for JetBlue, it has been searching for a way to keep up with the big four US carriers — American, United, Delta and Southwest — who through their own dealmaking now control 80 per cent of the domestic US market. Its shares rallied slightly on Tuesday after the ruling.

JetBlue will pay $470mn in total reverse termination fees through various interesting mechanisms. The Florida-based airline has already paid Spirit shareholders $2.50 a share upon the target’s successful shareholder approval vote. It separately has paid a 10 cent per month “ticking fee” to Spirit shareholders for a year. Spirit itself will only get $70mn.

Thanks to 2022’s deal wrangling, much of Spirit’s shareholder register now comprises merger arbitrage investors. These firms probably would not have supported a Frontier merger. Instead they wanted to play the long odds of a JetBlue all-cash takeover, along with the various interim payouts.  

In the intervening two years, the US airline industry has suffered from the plateauing of the post-pandemic travel surge. At the same time, labour and operating costs have soared, creating greater impetus for consolidation.

Spirit’s market capitalisation is down to $700mn against a net debt load of $5.5bn, including leases. It could very well face bankruptcy. The Biden administration and others cheering the JetBlue decision should reflect on that possibility. Spirit’s cleanest remaining route might be the one originally forsaken: a tie-up with Frontier.