TheChek News Flow

The decision gives Evergrande another shot at working out a restructuring plan to ensure its survival

China Evergrande EGRNQ -27.27%decrease; red down pointing triangle has been given another chance to restructure its billions of dollars in debt as a court adjourned a hearing to wind up the company.

The heavily indebted Chinese property developer said that a Hong Kong High Court had moved the hearing, scheduled on Monday, to Dec. 4.

The decision gives Evergrande, one of China’s largest developers, another shot at working out a restructuring plan to ensure its survival. Evergrande, which has more than $300 billion of liabilities, said on Oct. 20 that it was still working with creditors to revise the terms of a proposed debt restructuring.

Hong Kong-listed shares of the developer were up 5.1% at 25 Hong Kong cents (3.2 U.S. cents) at the midday trading break, after having dropped as much as 23% earlier.

ECB’s Andrea Enria says lack of cross-border integration increases costs for customers

The increasing fragmentation of Europe’s banking system is a “faultline” that heightens financial vulnerability and saddles everyone with higher costs, the European Central Bank’s outgoing head of supervision Andrea Enria has warned.

Enria, who is stepping down at the end of this year after five years as the ECB’s chair of supervision, told the Financial Times his biggest “personal regret” was how the banking market of the 20-country eurozone was becoming “more and more segmented along national lines”.

“We still maintain this sort of [national] faultline in our institutional arrangements, in terms of integration and in terms of the safety net,” he said. “That’s the main issue that we should fix.”

Enria added that the faultline created an “element of risk”.

“If you have a shock hitting a part of the banking union, the banking sector doesn’t work as it could as a shock absorber by absorbing losses in one country through profits in another country,” he said.

Banks across Europe have been criticised for not passing on the sharp rise in interest rates to depositors as fast as they have increased the cost of loans. The gap between loan and savings rates has boosted lenders’ profits and prompted some countries, such as Spain and Italy, to introduce windfall taxes on the sector.

Enria said this was in part down to the lack of cross-border competition across the single currency bloc. “If you have more competition, if you have a more integrated market, that will be much more beneficial for customers of banks, both depositors and borrowers,” he said.

The 62-year-old Italian has been a driving force in the integration of Europe’s financial market. He was the first head of the European Banking Authority for eight years before joining the ECB. EU leaders recently approved the appointment of Claudia Buch, vice-president of Germany’s central bank, to succeed him at the end of December.

The single supervisory mechanism was created in 2014 to harmonise oversight of banking across the currency bloc in response to the region’s sovereign debt crisis a decade ago. It monitors the bloc’s 110 biggest and most systemically important banks.

Eurozone lenders were relatively untroubled by turmoil in the sector in March, when several US lenders collapsed including Silicon Valley Bank and a liquidity crisis at Credit Suisse forced it into the arms of its rival UBS.

However, Enria said the upheaval in the sector “really scared me” because of how “investors go to the next weak link” in a crisis by betting against a bank’s share price or by buying insurance against a debt default. This had “an immediate negative impact on the behaviour of institutional and corporate treasurers” who pull deposits from banks seen as vulnerable.

He said supervisors “need to put a lot of attention on these type of dynamics” in particular by scrutinising “the funding and liquidity risk of banks much more than we have done in the past”. Watchdogs should also tighten up oversight of governance and business models, which “are the drivers that attract the attacks from investors”.

For much of the past decade there have been failed attempts to complete the eurozone’s banking union by agreeing a common deposit guarantee scheme for the bloc. Enria said this was “totally mired in a cobweb of red lines by member states”. But even without it, he said EU lawmakers could do more to encourage banks to expand across national borders.

There was “an element of myopia” both by national regulators, who under appreciated the benefits of integration, and by banks, who are not doing enough to make banking union “work at its best”, he said, appealing for “more courage” on both sides.

Bank executives say they cannot create truly pan-eurozone businesses because, while the ECB handles the prudential regulation across the bloc, they must deal with a patchwork of national authorities’ different rules on conduct.

Enria hinted more conduct oversight could be brought under the ECB’s remit, adding this could boost the EU’s capital markets union project, the bloc’s long-running drive to fully integrate its financial system. “If you want a capital markets union, you need to make bolder steps also in the direction of integration of supervision on the conduct side,” he said.

Global regulators are seeking to clamp down on risks outside the banking sector among hedge funds, private equity and crypto exchanges. Enria said the initial approach had been to control risks by heaping additional requirements on the banks who finance the “shadow banking” ecosystem.

Watchdogs are discussing whether the “regulatory perimeter” should be expanded to include more direct supervision of other entities including those offering a panoply of bank-like services that are in effect acting as “virtual banks”. Enria stressed he was not arguing to expand the ECB’s powers.

Big Oil’s transatlantic strategy gulf has never been wider — and that is OK

Mega-deals in the US make sense, but it’s not obvious why European groups should scale up too

An old industry joke about Hess, based according to the New York Times in 1972 on the family patriarch’s work ethic, was that the company name stood for holidays, evenings, Saturdays and Sundays.

Sector advisers know the feeling. Two mammoth oil and gas deals, Exxon buying Pioneer for $60bn then Chevron buying Hess for $53bn, have ignited the deals market and set off another round of soul-searching about who is doing what in the net zero transition.

The megadeals appear to be doubling down on a resilient outlook for oil demand — an approach to transition that presumes it isn’t going to happen in a meaningful way. But the combinations make sense in other scenarios too. Big Oil is using its richly-valued shares to buy good assets held by companies with a higher cost of equity. More flexible, domestic barrels in terms of Pioneer’s shale acreage are useful in an uncertain world. So is the ability to operate more efficiently and prune lower-quality assets from portfolios as the outlook changes.

One conclusion has been that the European sector will have to respond to this upscaling of their rivals. It’s not obvious why. Sure, Exxon’s deal will create a production juggernaut 50 per cent bigger than Shell on Rystad Energy’s 2023 numbers and 75 per cent bigger than BP. But there aren’t other growth assets like Hess’s crown jewel in Guyana out there to buy. Nor do Europe’s pumpers have the highly rated stock to engineer acquisitions at toppy prices. 

Investor scepticism around the European sector’s decision to invest into the energy transition rather than ignore it won’t be solved by putting two together. Other than the death-throes defeatism of “get bigger and cut costs” (and hey, that may come), it’s not clear what mergers would achieve.

Another oddity is the idea that US companies’ conviction in their oily future should derail European investment in transition businesses. Leave aside the reality of operating in a different market, where social legitimacy requires different choices. It would be downright strange if, faced with the kind of drastic uncertainty about the outlook for oil and gas, everyone opted for identikit strategies. 

Forecasts that range from 15 per cent growth in oil demand to 2045 (Opec) to a collapse of 75 per cent by 2050 (one International Energy Agency scenario) should not generate unanimity of response. Nor do the competing forces of continued demand growth, political ructions and energy security concerns versus booming renewables investment, biofuels demand and accelerating electric vehicle adoption produce a slam dunk victor. 

Upstream-friendly mutterings by both BP and Shell this year somewhat mask the strategic gulf across the Atlantic. BP is working towards putting 40 per cent of its investment into low carbon areas by 2025, now more weighted to biofuels and EV charging than renewables. Depending on where Shell ends up in its various ranges, its figures are 15-23 per cent, with the US majors barely out of single digits. That spending will be refined — based on returns but also, as with Shell’s job cuts in its light hydrogen mobility division for passenger cars this week, on what technology triumphs in different areas. 

These efforts, argues Oswald Clint at Bernstein, are starting to bear fruit in wind projects and carbon capture agreements, which belie the gloom about the likely returns on offer. The European sector has (whisper it) outperformed the US over the past year, with a once-whopping valuation discount narrowing on a forward-price earnings basis. A chunk of what remains reflects a more richly-valued US market generally, even excluding technology. 

At the very least, given the sector has outperformed the European market, there should be investors who might like fossil fuel cash flows (and the higher prices likely from low investment) while enjoying the warm glow of financing transition — especially as new business lines (hopefully) become more substantial towards 2030.

The companies’ conviction of two years ago that they have the technical nous, project experience, trading businesses and end-to-end system knowledge to make transition work should still apply. But it is going to be increasingly hard to instil belief on that front while also cosplaying as a Texas oilman. “Sometimes it feels like I’m the one trying to get companies excited about their strategy, rather than the other way around,” said one Europe-based investor. 

Changing that impression may still require Hess-like effort — 24/7.

Diverging paths of David Solomon and Sixth Street’s Alan Waxman shown in deal over GreenSky consumer lending unit

David Solomon started at Goldman Sachs in 1999, joining in his mid-30s from the scruffy Bear Stearns, as a partner in the junk bond group of the investment bank he now runs. Alan Waxman came to Goldman’s 85 Broad Street headquarters just a year earlier, fresh with an undergraduate degree from the University of Pennsylvania. Their respective careers journeys since the late 1990s recently converged in an intriguing way.

Waxman is the co-founder and chief executive of Sixth Street Partners, the private capital firm he launched in 2009 after his Goldman departure and that now manages more than $70bn. Sixth Street just acquired GreenSky, a consumer lending business, from Goldman for a song, less than $500mn. The deal marked comprehensive retrenchment in Goldman’s main street ambition — the bank had only bought GreenSky for more than $2bn two years ago, in a deal championed by Solomon himself. 

Solomon’s tenure can be characterised as rocky, at best. Turnover of staff at Goldman Sachs is common but the pace of senior departures in recent years has struck even jaded Wall Street hands as unusually brisk.

More generally, with the rise of private capital and Silicon Valley, the top brains in finance, whether young or seasoned, have increasingly compelling options outside of big banks, which are facing the unyielding demands of regulators, politicians, shareholders and the general public.

Shareholders of Goldman Sachs could fairly wonder if that among these two late-1990s joiners, if they would have preferred to have kept Waxman instead of Solomon. But the related question is if someone had the obvious talent of Waxman, why would they want to ply their trade at Goldman Sachs for decades? Are the big banks then otherwise stuck with a pool of executives who simply could not get a better job somewhere else?

This may be a false dichotomy. Waxman starred in Goldman’s famed special situations group that managed distressed debt and made complex loans. He left Goldman just as it became a bank holding company and before the introduction of the Volcker rules on proprietary trading — changes that tamped down on risky activities. Sixth Street itself then has benefited from growth in so-called shadow banking that happens outside of the traditional banking regulatory oversight.

An executive at a big bank is probably better suited for somebody who is interested in taming complex organisations, managing risk diversification and gladhanding a variety of disparate constituencies.

James Gorman of Morgan Stanley and Jane Fraser of Citigroup are each former McKinsey management consultants. JPMorgan’s Jamie Dimon got his start out of business school wheeling and dealing in regional banks as the apprentice of Sandy Weill.   

One longtime Goldman executive now in private equity said being a successful banker or trader was far different than being an effective manager, even if usually one could only ascend to a leadership post by first being a respected producer. Solomon, as previous head of investment banking for Goldman, maintained its dominance in securities underwriting as well as mergers and acquisitions advisory.

“Alan could never run the 45,000 people at Goldman,” said this person who maintained he was a huge admirer of Waxman’s accomplishments. “He is an investor first.”

Waxman probably would not want to be, either, given that Sixth Street investment returns have made him a tycoon without any byzantine bureaucracy to master. The Sixth Street founder recently poached from Goldman a former close colleague, Julian Salisbury, who like Waxman, is a highly accomplished investor. Waxman declined to comment.

Goldman insiders dispute any talent deficit. One 30-year veteran told me that its core trading and investment banking businesses were more profitable and dominant than ever. Moreover, the level of commercial and social prestige from carrying a Goldman business card remained unmatched by virtually other employer. This person also wryly noted that there were plenty of Goldman veterans who underwhelmed professionally after leaving the firm. 

Still, among the important tasks of any chief executive is the allocation of shareholder capital. And in the GreenSky transaction, Waxman will almost certainly get the better of Solomon, though perhaps it will be of some comfort to Goldmanites that the Sixth Street founder is an alumnus of a bank that taught him much of what he knows.

Company vows to be ‘pin-up’ for Future Fund scheme that lent money to start-ups during pandemic

The founder of a sex party planner that is part-owned by the UK government through a pandemic-era start-up fund has vowed it will be a “pin-up” for the scheme and turn a profit for the British taxpayer thanks to its pivot towards a new dating app.

Killing Kittens in April rebranded its main business as WeAreX to coincide with the launch of an app of the same name that offers “social dating for sex positive people” as well as tickets to adult events. That followed a move late last year to carve its sex party business out as a wholly owned subsidiary.

The rejig of its corporate structure to focus on a new dating app was aimed at smoothing a profitable exit for investors including the UK government, which holds a 1.5 per cent stake in the company through its Future Fund. The scheme, which launched in April 2020, has faced criticism for ill-fated investments in start-ups.

Emma Sayle, WeAreX’s co-founder who started Killing Kittens in 2005, said splitting the businesses would ease a sale of the dating app to a larger rival within the next three to five years and help the government turn a profit on its £170,000 loan to the company, which was converted into equity last year.

“We’re the pin-up for the Future Fund and how it should be done,” said Sayle. She pointed to Match Group, which owns legacy dating platforms including Match.com and Plenty of Fish, as a potential buyer. Match has retained market dominance by buying up younger apps including Tinder, Hinge and The League.

The WeAreX app has gained 47,000 active monthly users since launch, of which about a third pay for a £24.99 monthly or £119.99 annual subscription, contributing to revenues over the past year of roughly £1mn. Killing Kittens’ events separately generated roughly £700,000 in revenues over the same period.

“The online side is very easy to see who would buy it,” said Sayle. “When you had it all lumped into one business and you’re talking about . . . mergers and acquisitions or exiting . . . the Killing Kittens party side of it is a harder sell.”

On the whole, the 1,191 promising tech and early-stage businesses to which the state-backed British Business Bank advanced £1.1bn of loans have struggled. As of the end of September, 146 businesses backed by the fund had been declared insolvent, losing the government £138mn. The government has generated £48mn from 55 corporate exits.

“As venture capital is long-term term investment, it is far too early to give an indication of the overall Future Fund portfolio performance,” the British Business Bank said.

Hadleigh Bolt, WeAreX’s chief operating officer, said the move into online dating offered the possibility of “more explosive growth, more avenues to enter into new markets and more routes to exit”, which would “ultimately make more money for the UK government”.

Sayle said WeAreX had a “niche which the bigger dating apps don’t have”. Unlike some bigger rivals, it only allows verified profiles as well as offering chat rooms where users can discuss sexual fetishes. It is also developing an ad platform for adult brands that counts sex toy company Lelo among its clients, and runs an e-ticketing platform for other adult events, which Sayle billed as the “Ticketmaster or Eventbrite for the sex-positive world”.

Dating apps have increasingly sought to appeal to a broader audience beyond heterosexual monogamous relationships. London-based Feeld has pitched itself as a sex-positive platform for all sexual orientations, while Hinge and Tinder recently rolled out features for users to seek non-monogamous matches.

WeAreX is working on an equity raise of at least £250,000 from retail investors that would value the business at £15mn, up from £14.5mn when the government took its 1.5 per cent stake last year. WeAreX is also targeting an up to £5mn series A funding round in 2025, as it builds towards a fivefold rise in group revenues to £9mn by the end of 2026, according to an investor document seen by the Financial Times.

Former Marvel Entertainment executive Ike Perlmutter says he can ‘no longer watch the business underachieve its great potential’

Billionaire and former Marvel executive Isaac “Ike” Perlmutter offered moral and logistical support to his friend Nelson Peltz last year when the activist investor campaigned for big changes at Disney DIS -0.56%decrease; red down pointing triangle.

As Peltz prepares a fresh challenge to the company, Perlmutter is proving to be a key financial ally, too.

Perlmutter said he has entrusted his stake in Disney to Peltz’s Trian Fund Management as it prepares to press the company for multiple board seats. Trian’s holding in the company totals about 33 million shares, including stock that the investment firm controls under an arrangement that gives Peltz’s firm sole voting power over Perlmutter’s shares, according to people familiar with the matter.

Trian’s Disney stake, a holding that The Wall Street Journal previously reported is worth upward of $2.5 billion, includes shares held by Trian funds and outside investors. Perlmutter’s shares represent the majority of the stock that Trian currently controls.

Aided by Perlmutter’s shares, Peltz’s Trian now has nearly four times as many shares to vote than the investment firm had during the first campaign, which means more muscle to press Disney CEO Bob Iger for board seats or other changes. The specter of Peltz’s renewed campaign represents one of several challenges Iger faces as Disney shares trade at their lowest level in nearly a decade.

Disney declined to comment.

Perlmutter became one of Disney’s largest independent shareholders when he sold Marvel to the entertainment giant for $4 billion in 2009. Perlmutter told the Journal he plans to urge Disney’s board to accept one or more of Trian’s board nominees, including Peltz.

Peltz hasn’t officially launched a fresh proxy battle against Disney—the nominating window for Disney’s board of directors opens in December—but he could do so if the board resists adding him as a director. Peltz is expected to seek multiple board seats, up from one last year, the Journal reported.

Trian isn’t seeking to add Perlmutter, who was chairman of Marvel Entertainment until March, to Disney’s board, nor is the firm asking Disney to rehire him, the people said.

“While I was a Disney employee, I was not comfortable publicly stating my views on the company and its performance,” Perlmutter said in a statement. “As someone with a large economic interest in Disney’s success, I can no longer watch the business underachieve its great potential.”

Peltz and Perlmutter are neighbors in Palm Beach, Fla., and frequently dine together with their wives.

Perlmutter said he plans to urge Disney’s board to “immediately welcome one or more Trian board candidates” and believes Peltz and Trian could help Disney improve its operations and strategy and achieve better results for shareholders.

Perlmutter said he has purchased but hasn’t sold Disney stock since the 2009 Marvel acquisition.

Perlmutter aims to donate family wealth to further medical research and hospital care, and an increase in the value of his Disney holdings will allow him to do more of this, he said. He and his wife Laurie have been active donors to medical charities and healthcare institutions including New York University’s Langone Medical Center.

Disney’s board members, excluding Iger, collectively own under $15 million worth of stock in the company, according to FactSet. Iger owns around $15 million in shares and has sold much of the stock he has received over the past two decades.

During Peltz’s initial campaign, Trian accumulated around nine million Disney shares and nominated Peltz to the board in a proxy campaign. Peltz called in proxy materials for Disney to cut spending, including executive pay, and criticized directors who he said had backed unwise strategic decisions and botched succession planning at the company.

Perlmutter assisted with the campaign by calling Disney directors and brokering meetings between Peltz and then-CEO Bob Chapek. Peltz called off his earlier campaign in February after Iger, who returned to the CEO job in November to replace Chapek, announced $5.5 billion in budget cuts and a head count reduction of 7,000 positions.

Trian hoped that with time, Disney’s cuts and other restructuring moves as well as new initiatives would result in improved operating performance. So far, changes at the company haven’t boosted Disney’s share price, which has languished below $100 per share for much of the year. On Friday, it closed at $79.33.

Perlmutter and Iger have long had an acrimonious relationship. Perlmutter, who made his fortune doing turnarounds of bankrupt and distressed retailers, believes that profligacy can kill a company if left unchecked. He pestered studio executives at Disney for years to spend less on Marvel Studios superhero movies, even offering script notes about how to save money on props and reduce runtime.

In 2015, after a dispute over budgets and movie slates between Marvel Studios chief Kevin Feige and the studio’s creative committee, which was led by Perlmutter and his allies, Iger sided with Feige and removed Perlmutter from his position overseeing the studio.

Perlmutter was terminated from his job running Marvel’s comic-book publishing and licensing businesses in March, a move Disney said at the time was part of the cost-cutting efforts. Perlmutter told the Journal in an interview that he was fired.

“I have no doubt that my termination was based on fundamental differences in business between my thinking and Disney leadership, because I care about return on investment,” Perlmutter said at the time. Both Iger and Perlmutter have acknowledged in recent interviews that their relationship is strained.

How long will Marco Gobbetti stay on as CEO of Ferragamo? That’s a question shareholders may start asking themselves soon. The brand’s sales have been declining every quarter until the end of September. In April and in August, Gobbetti said the drop in revenue was due to weakness in travel retail sales and to a pruning of its retail network. He also argued that the new collections by the brand’s new designer Maximilian Davis had not yet fully hit the stores. This month, the 63-year-old Italian executive also blamed the downturn in consumer spending for the 12 percent drop in nine-month net sales and against the same period in 2022.

What if the problem is deeper and has to do with the brand’s strategy and storytelling?

Ferragamo, known for its silk scarves and bow-tipped ballerinas, has been trying to reinvent itself for years. It hasn’t had much success. Gobbetti, who was previously CEO of Burberry, took the executive reins in January 2022 and Davis, a British national with Trinidadian and Jamaican roots, put his own brand on pause to join Ferragamo three months later. Together, they have been trying to build a new identity. But what is it about exactly?

The new Ferragamo is very black and red, modernist and minimalist with lots of tailoring. Davis’ shows have been getting good reviews and his point of view is stronger and much more convincing and consistent than that of his predecessor Paul Andrew, who is also British. Andrew went in all sorts of different directions in terms of style, steered by the Ferragamo family who could not decide what they wanted the brand to be.

Davis is a talented designer but that does not mean he’s figured out what it takes to make Ferragamo regain its former glory. Or what the brand is fundamentally about. His vision is sharp and edgy from a fashion point of view. His looks are clean and elegant, but there is little reference to Italy, let alone Florence, where the brand was founded in 1927. Maybe that’s the problem. When you buy Ferragamo shoes, bags or clothes, you want to buy a bit of Italy. Even the products don’t have Italian names. One of its new totes is called the Hug bag. Its design is somewhat similar to Hermès’s bags with the same emphasis on buckles.

Ferragamo offers shoes and bags in bright colors that are cosmopolitan and may appeal to young customers, but its personality has become somewhat cold and severe. Its designs do not express the lightness, ingenuity and love of life and the arts that Italy is known for.

Could it be that Gobbetti made the same mistake he did at Burberry — hiring a designer who did not really understand the brand? Designer Daniel Lee, in place for a year, is on a mission to reconnect Burberry with its British roots after years of lackluster performance under Riccardo Tisci. The Italian designer developed an urban, metrosexual and sporty identity for Burberry that did not suit the brand, fashion critics and industry experts say. Gobbetti, who worked withTiscibefore at Givenchy, was the one who chose the Italian designer for Burberry.

Gobbetti thinks highly of Davis. However, talent is not enough to woo consumers and get them to open their wallet. A designer needs to respect a brand’s heritage and master the cultural references of the country it is from. There’s no need to be a citizen of that country to achieve that. Some foreigners understand the culture of a country even better than those who hail from it. John Galliano, the British designer from Gibraltar, did a superb job at Dior and his successor Maria Grazia Chiuri, who is Italian, performed even better. She has tripled the brand’s sales in the past seven years.

According to the data company Launchmetrics, Ferragamo ranked 10th in terms of media impact value (MIV) with its last show during Milan Fashion Week. MIV is a proprietary algorithm created by Launchmetrics to measure and benchmark the impact of media placements and mentions in the fashion, luxury, and beauty industries. The MIV generated by Ferragamo’s fashion show — to which Miss Tweed was not invited — totaled $7.9 million against $49.7 million for Gucci, which topped the ranking of the Milan shows last month. Gucci was followed by Prada, Dolce & Gabbana, Versace and Fendi. During the Italian city’s Fashion Week, there were lots of wealthy Chinese flown in by Ferragamo to see the show and spend their money at its flagship on Milan’s swanky via Monte Napoleone.

“They lost the previous clientele, but they have not yet managed to conquer a new one,” summarized a former Ferragamo executive. “It’s clear to many people that the brand’s storytelling is weak but internally, managers don’t see it as a problem.” Also, Ferragamo’s strength is in bags and shoes, not in ready-to-wear. Yet, the brand wants to position itself as a fully-fledged fashion brand that also sells jewelry.

Miss Tweed asked Ferragamo to explain what its story was. A spokeswoman said it was about craftsmanship and heritage. She did not talk about the brand’s Italian roots or identity. Referring to Davis, she said: “He explored with linear precision that defines his expression, the silhouettes of the heritage of the brand, with a graphic purity reworked in new proportions and with new hardware. He introduced a new creative language for a new audience with a global creative vision in ready-to-wear, shoes and bags, including a contemporary take on Ferragamo’s iconic styles.” That statement does not tell us who the Ferragamo lady is and what her universe is about — things consumer usually identify with.

The company’s poor numbers, on the other hand, are easy to grasp. In the six months to June 30, Ferragamo’s profit before tax fell to €34 million, down from €88 million in the same period last year. Ferragamo’s revenues for 2023 will likely be down against 2022. CEO Gobbetti will argue the best has yet to come and ask investors for patience.

Commenting on the company’s nine-month results on Oct. 19, Gobbetti said: “The overall sales performance reflects, at this stage, the ongoing focus on quality of sales and rationalization of distribution networks, as well as the evolution of the offer and the acceleration of the transition to the new creative course, the full potential of which, will become evident in 2024.”

What is striking with Ferragamo is that you have brands such as Gucci, Dior, Louis Vuitton, Celine, Saint Laurent and Prada that have grown exponentially in the past decade, yet Ferragamo today makes less revenue than it did in 2016. Its annual sales in 2022 stood at €1.25 billion, while in 2019 they were €1.37 billion and in 2016, they had reached €1.43 billion. These numbers speak volumes about the brand’s lack of clear vision and strategy.

Ferragamo’s share price has also been on a steady decline, and not only due to the current market correction that has weighed on all luxury stocks in recent weeks. Ferragamo shares stood at €31.85 euros in 2015. When Gobbetti joined in early Jan. 2022, they were at €22.7. They closed on Friday at €11.26, valuing the company at €1.9 billion.

When Gobbetti was hired by the Ferragamo family, he was seen as the savior who could give the brand a new relevance. He also obtained something no CEO of the company ever got before — free reins to run the business. Before Gobbetti, the Ferragamo family kept meddling with design, store openings and marketing. They and would never let the CEO take decisions and craft a coherent roadmap. “The family has given full powers to Marco,” one senior industry source said. His predecessor Micaela Le Divelec Lemmi struggled to get the family’s full backing and cooperation, industry sources say.

For many years, influential members of the Ferragamo family remained in key posts and would not let go of the vision they had of the brand’s golden age of the 1950s and 1960s. Back then, Salvatore Ferragamo was the “shoemaker to the stars” and personally looked after celebrities like Sophia Lauren, Audrey Hepburn and Rita Hayworth. In terms of style and image, they did not want it to stray too far away from that period. As a result, the brand looked old and customers thought it was for their grandmothers.

“The brand was dying a slow death. Inertia was not an option,” said a luxury industry expert who has worked for Ferragamo. “They needed a creative disruption. Now, their problem is rebuilding traffic because they have been irrelevant for such a long time,” he said.

Another problem is that Ferragamo has been stuck with old stock from the previous era that is not easy to get rid of. This also explains the drop in sales. The transition from one designer to another is never easy. Analysts estimate that Ferragamo makes about 15 percent of its sales from outlets, if not more, with many of them in China. Outlets are useful to turn stock into cash, but they can weaken a brand’s exclusive image.

Ferragamo is also suffering from its overexposure to the U.S. market, which performed well in 2022 but has been down this year. It has also built a big presence in China, where demand has not picked up as much as expected. This week, Ferragamo announced it was buying back the stakes it had in joint-ventures with local partners in several cities in Greater China. The companies belong to Peter Woo, who runs a big real estate portfolio in Hong Kong and mainland China and owns the retailer Lane Crawford Joyce Group.Woo has a 5.98 percent stake in Ferragamo and remains a member of the board even after the deal, the company said.

“The conclusion of the transaction will strengthen Ferragamo's presence in the Greater China area, one of the most relevant markets for the group, at a very important time for the brand's relaunch,” Gobbetti said in a statement issued on Wednesday.

Some investors are growing skeptical about Gobbetti’s ability to turn around Ferragamo. The Italian executive dropped the Salvatore part of the brand’s name and replaced its traditional burgundy red with the same flashy red that luxury car maker Ferrari uses. He also threw out its trademark handwritten logo and adopted one that looks like that of several other brands, including Burberry and Balenciaga.

Before joining Burberry in 2017, Gobbetti used to run LVMH’s Celine. He was lucky to work with Phoebe Philo, whose designs were hugely popular. His track record at Burberry is more mixed. Many industry analysts think he jumped ship before completing the brand’s turnaround. Also, he hired Tisci who, it turned out, was ill-suited for Burberry. When he agreed to leave for Ferragamo in 2021, the Italian manager secured a package worth more than €8 million. It included a welcome bonus of €4.43 million and a guaranteed bonus for 2022 of €3 million. That €7.4 million was roughly equal to the company’s operating profit in the first quarter of 2021. At Burberry in 2020, Gobbetti received £2.55 million, including share awards, or nearly €3 million. He said he was going to Italy to be closer to his family.

Luckily for Gobbetti, who spent nearly 20 years abroad, he was entitled to the tax break reserved for Italians who return home. Starting in 2022 and for seven years, he became eligible to pay a flat 15 percent tax rate on his income -- a third of what he was charged in the U.K. or what most wealthy Italians pay. Overall, in 2022, Gobbetti’s total remuneration reached €9.84 million, according to the company’s annual report.

That’s a lot of money for a CEO who relies on consultancy firms such as Boston Consulting Group (BCG) to help define the company’s strategy and fine-tune its operations. Gobbetti also relied on a lot on BCG when he was at Burberry, industry sources say. It’s likely that he will go down in history not as the man who made Ferragamo into a huge success — unless he wakes up and strengthens the brand’s storytelling and image — but as the luxury CEO who was handsomely paid for outsourcing strategy to consultants.

Case could impact restructuring efforts for indebted Chinese real estate company

Two years after its first default, the world’s most indebted property developer Evergrande faces its biggest legal test so far in its slow-motion collapse.

On Monday, a Hong Kong court will address a winding-up petition, brought by offshore investor Top Shine Global, against a company that has embodied the turmoil that has engulfed China’s property sector and whose fortunes have worsened dramatically in recent months. 

In September, the authorities said its founder and chair Hui Ka Yan was suspected of crimes, while plans to restructure its international debts were derailed by a lack of approval from the China Securities Regulatory Commission (CSRC). The wider real estate sector has also been shaken this month by a default by the developer Country Garden, adding to dozens of missed payments by its peers.

The prospect of an Evergrande liquidation, with its hundreds of projects across the mainland, gives added urgency to Beijing’s effort to address the problems of the country’s paralysed real estate sector.

“I do think the Chinese government looks at Evergrande as unique,” said one person familiar with the restructuring sector in China.

Top Shine’s winding-up lawsuit, initially brought in mid-2022 but repeatedly delayed, accuses Evergrande of failing to honour claims of HK$863mn (US$110mn) in relation to stakes Top Shine bought in the Evergrande unit Fangchebao, its online real estate and automobile marketplace platform.

The lawsuit could also be a further blow to any hopes of a restructuring deal between Evergrande, which had more than $300bn in liabilities at the time of its failure in 2021, and its international bondholders. A deal that would have seen new notes issued to replace old bonds was thrown off course at the last minute in September because of a lack of regulatory approvals.

International bondholders have yet to state a clear position on any liquidation, but earlier this month said it was “the base case” if no restructuring deal was reached. Their advisers have attended previous hearings brought by Top Shine.

Meanwhile, the fate of Hui has highlighted uncertainty over the government’s views on Evergrande, bringing with it implications for future restructuring plans or the process of liquidation.

The person familiar with the restructuring sector in China said criminal proceedings were likely to take precedence over civil cases. “We have been involved in other cases where the chair has been locked up and nothing really happens in the restructuring in that period until the dust settles,” the person said.

Beijing has so far emphasised the need to complete unfinished projects and has not openly intervened in Evergrande’s case, with local authorities in the southern province of Guangdong, where Evergrande is based, instead spearheading restructuring discussions.

International bondholder advisers Kirkland & Ellis and investment bank Moelis complained in a statement earlier this month about the company’s failure to gain regulatory approval for the restructuring plan.

The advisers noted that “despite repeated requests” from the bondholder group, Evergrande “has not provided copies of the filings made with CSRC and a detailed account of the efforts made to obtain the CSRC’s approval which led to the current situation”.

In contrast to Evergrande, another developer, Sunac, received approval for its own restructuring in recent weeks in a Hong Kong court.

Many are ‘investing because everybody else is’ and most will lose money, claims Vinod Khosla

Artificial intelligence start-ups are overvalued and most will fail to make money, according to Vinod Khosla, an early OpenAI backer, in a warning to investors who are pouring billions into the buzzy sector.  

Since the launch of OpenAI’s ChatGPT chatbot a year ago, investors have rushed to put their money in AI start-ups, including rival chatbot makers Inflection, Anthropic and Cohere, sending valuations soaring.

“Most investments in AI today, venture investments, will lose money,” Khosla said this month at a technology conference in Laguna Beach, California.

Khosla, speaking to the Financial Times on the sidelines of the Wall Street Journal’s Tech Live event, drew a parallel between the hype around AI and last year’s frenzy of investment into cryptocurrency start-ups, including failed exchange FTX. 

Many later entrants are “investing because everybody else is investing, that is what’s happening in AI”, he said. This year, venture capitalists have invested $21.5bn into AI companies globally, compared with $5.1bn in all of 2022, according to PitchBook.

Many hope that bets on highly valued companies will pay out because others will invest later at an even greater valuation — a phenomenon known as the “greater fool theory”, Khosla told the FT. 

Khosla is confident AI will radically change the world. He believes AI has the potential to take on 80 per cent of the workload in 80 per cent of all human roles over the next two decades, and will create huge economic value.

Khosla Ventures was one of the first venture firms to bet on OpenAI, investing $50mn in the young company in early 2019 in a round valuing the start-up at $1bn, according to people with knowledge of that investment. OpenAI is now seeking a valuation of around $86bn. 

Khosla Ventures declined to comment on OpenAI’s current valuation, noting that OpenAI had not confirmed that target.

The valuations of rival AI companies have also soared this year. Anthropic was valued at $5bn in a deal earlier this year, before it raised a larger round from Amazon, while Cohere was valued at $2.1bn this summer and Inflection reportedly at $4bn. Fledgling businesses have also secured eye-catching sums. In June, French start-up Mistral AI raised €105mn in Europe’s largest ever seed round when the company was just a month old.

Khosla suggested he would sit out later-stage funding rounds where expectations risked exceeding the underlying value of the business. “We are very, very active but very selective,” he said. 

His firm’s other investments include online grocery delivery companies Instacart and DoorDash as well as financial technology companies Stripe, Block and Affirm.

“We invest in the fundamentals . . . which is different from investing in momentum, which is [what] most of the management community [does],” said Khosla. 

He also highlighted concerns that powerful AI technology could be used to undermine next year’s US presidential election. “There will be millions of bots interfering with our election next year . . . nation states — which means China mostly — influencing the election next year and attempting to make democracy dysfunctional,” he said. 

He lauded efforts by the Biden administration and Congress to staunch the flow of US capital and expertise to Chinese companies working on AI, semiconductors or quantum computing. 

President Joe Biden issued an executive order in August that would limit the ability of US venture capitalists to invest in those sectors. A congressional committee has been probing historical investments by prominent US firms that had a presence in China, including Sequoia Capital. 

The US should use all the tools at its disposal to win the AI race with China, including importing talented researchers from Russia, pulling in capital from the Middle East and creating an attractive regulatory environment, said Khosla.

Homegrown AI tools could provide free doctors or AI tutors to children around the world, he suggested. “That kind of ability to bring services to people who desperately need it will result in whether western values win . . . or China wins. I think that’s the key.”