TheChek News Flow

Economy minister Sergio Massa to raise interest rates to almost 100 per cent and step up currency intervention

Argentina will announce on Monday a new round of emergency government measures, including raising interest rates 600 basis points to 97 per cent, to try to stave off the country’s worst economic crisis in two decades.

The Peronist government is desperate to avoid a big devaluation before elections in October. But the South American country is also running out of foreign exchange reserves as Argentines abandon the fast-devaluing peso and embrace the US dollar.

Fuelled by money-printing to finance a large government deficit, Argentine inflation hit 109 per cent a year in April, the highest level since 1991. The economy ministry said the new measures, to be announced Monday, would involve the central bank stepping up intervention in the foreign exchange market to try to slow the peso’s fall.

Economy minister Sergio Massa is also trying to persuade the IMF to bring forward the disbursement of agreed loans and will travel to China on May 29 to seek greater use of the renminbi in foreign trade. Last month, Argentina activated a currency swap with China allowing it to pay just over $1bn of its imports this month in renminbi.

The IMF has already shown leniency towards Argentina over the past year, allowing it greater leeway on targets to increase reserves and reduce money-printing in an attempt to keep a $44bn loan programme on track. It is unlikely to want to bring forward disbursements in the months before a potentially pivotal election, which the government is likely to lose.

Massa also plans to allow the import of food at a zero tariff to try to bring down inflation, a first in a country which is one of the world’s largest grain exporters. The government will also lower interest rates on a state-run scheme for Argentines to buy locally made products on credit, part of an effort to boost national industry.

The latest package of measures does not represent a change of course, more an attempt to reiterate policies of heavy state intervention which have failed to bring down inflation or boost the economy. It also entails risks: constant rises in interest rates are making the servicing of a huge pile of domestic debt increasingly expensive.

“This is just kicking the can a few inches down the road,” said Hector Torres, a former IMF executive director and Argentine diplomat who is now at the Canadian think-tank CIGI.

“I have nothing against central banks using reserves to smooth volatility and fight speculators. But we are already out of reserves, deeply indebted to the IMF, with no access to capital markets. In that situation selling what we owe to the IMF to buttress an exchange rate that is clearly unsustainable is reckless. It can only invite speculators to bet on a new default.”

Economists have criticised the government’s foreign exchange and price controls for creating huge distortions, deterring investment and depressing production. Many forecasters expect Argentina to enter recession this year, with Oxford Economics forecasting a 1.6 per cent fall in GDP, the worst outlook for any major Latin American economy.

Amid a bitter squabble over policy between president Alberto Fernández and his powerful vice-president Cristina Fernández de Kirchner, Massa is seen as one of the Peronist movement’s few remaining options as a presidential candidate for October’s elections.

However, his plan to try to patch up the economy with temporary interventions to avoid painful austerity measures before the election has run into increasing difficulties, compounded by a severe drought which has hurt agricultural exports. Massa’s chances as a candidate now depend on the success of his economic plan over the next few months.

The centre-right opposition has yet to agree on a presidential candidate this year, with support divided between Horacio Rodríguez Larreta, the centrist mayor of Buenos Aires, and conservative law-and-order candidate Patricia Bullrich.

A far-right contender, Javier Milei, has been rising rapidly in the polls and could yet reach a second round run-off if he can increase his support beyond greater Buenos Aires. Milei has campaigned on a radical anti-establishment platform which includes abolishing the central bank and dollarising the economy.

Brex bid for SVB portfolios

The FDIC finally released the various financial institutions that bid for parts of Silicon Valley Bank’s portfolio. As our fellow fintech enthusiast Alex Johnson pointed out, there was one name that stood out on that list for being “not like the others”: fintech startup Brex.

TechCrunch spoke with Brex co-CEO and co-founder Henrique Dubugras, who confirmed that the company did in fact put its name in the hat for SVB but only for the early-stage and growth portfolios within its business.

The idea actually came from a customer, he said, who thought Brex “could handle those customers better than big banks.” The first week after the SVB meltdown, the FDIC was not going to accept any bids from entities other than banks. During that time, Brex worked to step up for SVB customers in other ways. Then the following week, the FDIC said it was open to selling it by parts — and also open to non-banks submitting bids.

“That’s when we submitted our bids,” Dubugras said.

While the offer didn’t pan out, he doesn’t regret Brex taking a shot at it. “In the end, we think it was just easier for them to sell the whole thing in one piece,” he added.

Still, the startup continues to “keep seeing [its] deposits materially increase,” as not every startup or early-stage that once banked at SVB wants to move their cash over to a big bank.

At one point (in early 2021), Brex was in fact thinking of becoming a bank itself, going as far as to apply for a bank charter, before later withdrawing that application.

Today, Dubugras said that’s not something he thinks is in Brex’s future.

Since Marianne Hayek, the wife of Swatch Group founder Nick Hayek Senior, died a month ago at the age of 93, the small world of Swiss watchmaking has been abuzz with speculation about the consequences that her death may have on the group’s leadership and structure.

Some industry insiders believe the Swatch Group could be broken up and some brands sold. Others are confident nothing will happen in the immediate future, particularly as resurging demand in China will boost the sales of many of its brands, such as Omega, Tissot and Longines – a positive trend that will encourage the status quo. Miss Tweed considers the group’s future.

Marianne Hayek, a stern and determined woman, kept the family together with an iron grip after her husband died in 2010. While she was alive, no serious discussion about the future of the group could take place between the three key members of her family, industry insiders say. That includes her son, Nick Junior, CEO of the Swatch Group, her daughter Nayla, who is chairman and looks after jeweler Harry Winston, and her grandson Marc, who is CEO of luxury watchmaker Blancpain and oversees luxury watch brands.

There is tension between all of them, as is often the case in families. Following Marianne’s death, each will inherit one third of her controlling stake worth several billion euros. The Hayek family controls an empire composed of major watch component and movement factories and of some 17 brands including Omega, the source of about half the group’s profits. It also owns the brands Certina, Hamilton, Rado and Swatch and produces and distributes watches under license for the French fashion brand Balmain.

Nayla is 72, Nick Junior 68 and Marc 52. Nayla is more interested in breeding horses than in jewelry and has done little to develop the Harry Winston brand, as Miss Tweed reported in 2021. Marc runs Blancpain and looks after high-end watches Breguet and Jaquet Droz but staff rarely see him, as Miss Tweed explained in 2021. Marc spends most of his time on his yacht and away from the office, industry sources say. Breguet’s sales now hover around €320 million euros, according to Vontobel estimates, or less than half what they were a decade ago. However, the situation is not serious enough for change to be afoot, most industry specialists say.

“In my opinion, they don’t hate each other enough to go as far as breaking up the group,” a former Swatch Group manager and close friend of Marianne’s told Miss Tweed on condition of anonymity. “They don’t need money. And the memory of Nick Senior is still there, but for how long, it’s difficult to say. For now, in my opinion, the most likely scenario is the status quo.”

Yet there is talk among watch executives, bankers and consultants about what could happen should Nick Junior decide to split up the group. For example, he could give Harry Winston to Nayla and give her son the group’s high-end arm that includes Breguet and Jaquet Droz on top of Blancpain. The Swiss watch chronicler Business Montres, authored by Gregory Pons, recently published a thorough analysis of the consequences of Marianne’s death. Pons argues that a split is one possibility. And, of course, many bankers would like to see the Swatch Group putting up for sale Harry Winston, for which it paid $1 billion 10 years ago, as well as Breguet which would fetch more than $1 billion.

Each would perform better and would be worth much more if run by professional managers instead of the notorious sycophants currently in place. Industry sources lament the fact that the storytelling and creativity of these two brands has been neglected in recent years. “But selling Harry Winston or Breguet would mean admitting failure,” a senior watch executive commented about the Hayek’s readiness to sell any of the family jewels.

Yet, it is clear that the Swatch Group could be performing better. Sales in 2022 rose 4.6 percent to 7.4 billion Swiss francs while many jewelers, including LVMH’s Bulgari, Tiffany & Co, Richemont’s Cartier and luxury watch brands enjoyed double-digit growth. The Swatch Group’s inventories stood at 6.8 billion Swiss francs on Dec. 31, 2022, which is close to one year of turnover. The group’s share price and valuation have also been under-performing compared with industry peers Richemont, Kering and LVMH for many years.

In spite of such lackluster results, senior management and board members continue to pay themselves handsomely. Last year, Nick Junior’s remuneration totaled 6.5 million Swiss francs while Nayla’s was 4.2 million Swiss francs, according to the group’s annual report. These figures put them in the same league as Richemont’s top executives. However, Richemont makes nearly three times as much revenue, or €20 billion, and its market capitalization is six times greater at €88 billion.

A question industry observers often ask is why an activist fund has not targeted the group to change its governance and improve performance. Activist funds Bluebell and Third Point, which both bought stakes in Richemont to bring about changes in the past two years but did not go very far, appear to have passed on the Swatch Group. The Hayek family controls not only 42.7 percent of voting rights but also the entire board of directors and leadership. Nobody challenges their decisions and strategy, and few of the group’s major institutional shareholders appear to have the determination and stamina to push for change.

The Hayeks are also bound by a shareholder pact. Marc, Nayla and Nick have first refusal if one of them wants to sell his or her shares. “No shareholder can ask them to do anything,” a senior industry source said of the trio. The Swiss press is rarely critical of the Swatch Group because it benefits from its advertising. The group has thousands of small individual shareholders, many of them Swiss pensioners who are happy to receive their dividends and their gift of a Swatch watch every year. The Swatch Group likes to remind people that, in the 1980s, the Swatch brand saved the industry from being destroyed by competition from Japan’s popular quartz movements.

The Swatch Group today is regarded as one of the country’s most important employers, together with Rolex. They are known as paternalistic companies offering generous benefits. They also help Switzerland’s watchmaking know-how and engineering shine around the world. Rolex and Swatch Group are the pride of the country and a major vector of Swiss soft power.

Yet, the list of changes frustrated investors who would like to see at the Swatch Group is long. This week, the group issued a terse statement after its annual general meeting (AGM) saying that all the resolutions were passed with “an overwhelming majority”. No details were provided. After the AGM, the Swiss foundation Ethos fired a few arrows at the Swatch Group. Ethos, composed of pension funds and institutional investors and which promotes socially responsible investment, criticized the fact that the meeting was not held in person but conducted electronically. In this way, it is easier to block certain questions.

It criticized the lack of independence of the Swatch Group’s board members. “Ethos also took the opportunity to ask theboard ofdirectors to strengthen its independence by appointing new independent members. At Swatch Group, the average term of office ofdirectors amounts to more than 17 years, while the average term of office of SPI companies is just over seven years.” The SPI, or Swiss Performance Index, is Switzerland’s overall stock market index. Indeed, most Swatch Group board members are long-time allies of the Hayeks. They refrain from asking difficult questions and are paid between €120,000-€155,000 a year plus €24,000 in expenses. The Swatch Group’s spokesperson did not reply to an email from Miss Tweed asking for details about the succession and Marianne Hayek’s death. “We have the choice not to reply,” spokesman Bastien Buss told Miss Tweed.

INVESTOR RELATIONS

Analysts and institutional investors complain that the Swatch Group does not have a dedicated investor relations office. The name of the person shown on the company’s results press release is that of the Finance Director Thierry Kenel who has little time to answer questions. The Swatch Group famously never publishes the date of its results in advance. Sometimes it calls a press conference the next day at its headquarters in Bienne, near Berne, which no overseas investor is able to attend at such short notice. Conference calls are announced on the day of the results.

Broker Bernstein wrote in a note last year that the Swatch Group was the only company it covered that behaved like this. The group does not provide transcripts or replays of conference calls. It does not use IFRS reporting standards but rather Swiss GAAP which gives them more leeway. “Add to that a CEO providing a business narrative seen by many as too rosy and out-of-synch with factual performance and you end up with a large investor audience not wanting to know about Swatch Group at all,” Bernstein said.

One experienced luxury stock investor based in Dubai told Miss Tweed on condition of anonymity: “I have not looked at Swatch Group in years. Its corporate governance is too much of a disaster for me to invest in it!”

Morgan Stanley’s latest annual watch report shows that many of the Swatch Group’s brands continue lose market share year after year. These include Omega, Longines, Tissot and Breguet. In 2020, Omega slipped into third position behind Cartier Watches and never regained its No. 2 spot. In 2022, Tissot was 11th, down from 6th in 2019, and Longines fell to 7th from 4thduring the same period. And Breguet, which was 13th in 2018, is no longer in the top 20.

“Tissot and Longines are volume brands and have become very exposed to China over the years,” said Olivier Müller from LuxeConsult who co-authored the Morgan Stanley report. “The Swatch Group was one of the first to go to China in 1990s, so they have built a significant presence there.”

CEO Nick Hayek, commonly known as Nick Junior, has been heartened by the success of the MoonSwatch, a special edition inspired by Omega’s Speedmaster Moonwatch, of which it sold 1 million units, industry analysts say. Thanks to this popular new model, Swatch enjoyed a significant rebound last year. Analysts expect the group to see strong growth this year, powered in part by resurging demand in China. If sales are on the rise, Nick, Nayla and Marc will be under little pressure to change anything, industry analysts say. However, the Swatch Group’s manufacturing facilities still have too much excess capacity, they say. That is partly because its factories stopped supplying many rival brands which have now invested in their own production facilities.

The succession at Swatch Group remains a mystery. Marc has little desire to replace his uncle. “He will refuse to be CEO of the group, he’s not built for that,” the old friend of the Hayek family said. “He’s a hedonist who does not feel like talking to investors.” Marc is said to be shy and soft-spoken, and staff rarely see him when he is in the office.

Nick regularly tells the press that Swatch Group’s leadership will stay in the family. However, the next generation is not ripe yet. Nick’s son has started working for the group but he is still in his early 20s, and Marc’s children are teenagers. So, none of them will be ready to assume the mantle in the near future. One telling detail about the fact that the family is closer than many believe is that each has a house on the Mediterranean, in Cap d’Antibes in France, and had all the fences between them removed. “At the Hayeks, they want things to remain in the family,” said one industry source who has spent a lot of time with family. “Blood first.”

Things are never simple when business is a family affair.

It pays to be an warm hunter in the cold ocean depths, so the animals shut down oxygen intake to conserve heat.

Hammerhead shark illuminated by blue light near the ocean surface.

A juvenile scalloped hammerhead shark (Sphyrna lewini), with its mouth and gills open, near the ocean surface off Hawaii.Credit: Biosphoto/Alamy

Because it makes them better hunters, scalloped hammerhead sharks (Sphyrna lewini) have evolved a unique method to avoid losing body heat when they dive for prey in deep, cold waters: they close their gills.

Numerous fish and marine-mammal species are known to dive from the warm surface to deeper waters to hunt. However, ectothermic, or ‘cold-blooded’, animals face the challenge of how to conserve their body temperature to keep their metabolism active enough for hunting when the surrounding water can be just a few degrees above freezing.

“The most rapid point of heat loss for any fish, even a high-performance fish, is always at the gills,” says Mark Royer, a postdoctoral researcher in shark physiology and behaviour at the Hawaiʻi Institute of Marine Biology in Kaneohe, part of the University of Hawaiʻi. Because of the high volume of warm blood flowing through the gills, they are “essentially just giant radiators strapped to your head”, he says.

Some fish, such as the whale shark (Rhincodon typus), are able to conserve their body heat when diving through sheer size. Others, such as tuna, marlin and the family that includes great white (Carcharodon carcharias) and mako sharks (Isurus oxyrinchus), have evolved specialized heat-exchange systems at the gills that avoid too much body heat being lost.

The scalloped hammerhead has neither of these advantages or adaptations, yet has been tracked doing rapid, repeated dives to depths of around 800 metres.

To understand how sharks were coping with the temperature changes, Royer and his colleagues developed a device consisting of instruments that measured depth, water temperature, location and movement, as well as a probe embedded into muscles near the dorsal fin that recorded the shark’s core temperature. The device was designed to break off after several weeks, float to the surface and send out a signal to enable its recovery.

Three scalloped hammerhead sharks captured off the Hawaiian coast were tagged with the device.

In a paper published in Science1, the team reported that the sharks would dive several times — six in an evening, for one shark — into deep water at temperatures of 5–11 °C, around 20 °C colder than at the surface, and remain there for 5–7 minutes at a time before surfacing.

Body temperature remained constant for most of the dive until the final stage of their ascent back to warmer waters, when it would decline rapidly.

Keeping warm

Royer suggests that the sharks are keeping their core temperature stable by simply not opening their gills or mouth during the dive; effectively ‘holding their breath’. “If you don’t have water going over your gills, then you won’t be dumping your body heat into the environment,” he says.

The drop in body temperature near the surface coincides with the sharks’ steep ascent flattening out slightly, which Royer suggests is the moment they start to allow water to flow over the gills. “They can slow themselves down, open their gills and start breathing again [because] the water that they’re in, it’s not as cold as it is at the bottom,” he says.

To shut down oxygen intake in this way suggests that the scalloped hammerhead must be able to deal with plummeting blood-oxygen levels during dives, says Mark Meekan, a fish ecologist at the University of Western Australia Oceans Institute in Perth, although the mechanism is yet to be discovered. “What they could be doing is slowing the heart muscle, slowing the pumping of blood around the body,” Meekan says. The shark’s tissues and blood could have evolved to hold more oxygen per unit of volume — akin to the adaptation seen in people who live at altitude — or might be able to deal with the molecular by-products of anaerobic respiration, which can be toxic at high levels.

Marine biologist Colin Simpfendorfer at James Cook University in Townsville, Australia, says the study shows how sharks are well adapted to the limits of their environment. “Diving to over 1,000 metres from tropical temperatures at the surface down to just a couple of degrees centigrade to feed is a fairly extreme movement to do on a regular basis,” Simpfendorfer says.

So far, scalloped hammerheads are the first fish found to do this, but Simpfendorfer says other sharks and fish might have the same adaptation. “There is a big advantage in being able to hunt when you’re warm and everything else is cold.”

Martin Scorsese Debuts First Trailer for Twisty Mystery ‘Killers of the Flower Moon,’ Starring Leonardo DiCaprio and Robert De Niro

Martin Scorsese hit Vegas on Thursday. No, he wasn’t there to revisit the Sin City locale of “Casino,” one of his mob masterpieces. He traveled to the gambling Mecca bearing his latest opus, “Killers of the Flower Moon,” a labyrinthine story of murder and greed that, if he plays his cards right, might be one of this year’s major awards contenders.

The “greatest living director” shared the first trailer for the film at CinemaCon, the annual conference of theater owners that’s been taking place this week. Based on David Grann’s bestselling book, “Killers of the Flower Moon” is a true story, one that pulls back the curtain on a series of murders of wealthy Osage people that took place in the early 1920s after major oil deposits were discovered on their land. It also looks at how the newly formed FBI investigated the killings.

The film reunites Scorsese with two of his most frequent collaborators, Leonardo DiCaprio and Robert De Niro, as well as Jesse Plemons, Brendan Fraser, John Lithgow and Lily Gladstone.

“I’d like to thank the entire Osage Nation,” Scorsese said, praising them for “working tirelessly” to bring the story to life.

And the movie sees DiCaprio and De Niro playing two schemers who would like to get their hands on the Osage wealth, even if it means blowing up, shooting or otherwise violently disposing of people.

“I do love that money sir,” DiCaprio tells De Niro, who portrays an immoral cable baron, in the trailer. “This wealth should come to us,” De Niro later advises. The trailer also depicts DiCaprio trying to seduce Gladstone, who he later marries.

But Plemons, playing an upright lawman, may have other ideas. He warns DiCaprio’s shadowy operator that he wants to find out who is responsible for all the carnage. “I was sent down from Washington D.C. to see about these murders,” Plemons tells DiCaprio’ “See what about it,” DiCaprio replies. “See who’s doing it.”

Paramount teased the footage during its presentation. It is distributing the film, which was produced by Apple Original Films. With a $200 million budget and a runtime that tops out at more than 3 hours and 20 minutes, the film is vast in every sense of the word (moviegoers with weak bladders be warned!). It will debut at this year’s Cannes Film Festival before opening in theaters on Oct. 6. Scorsese wrote the screenplay with Eric Roth.

Paramount also offered up footage from the latest “Transformers” and “Mission: Impossible” movies, as well as from “Marley,” its look at music legend Bob Marley.

The city of Cannes has banned protests along the Croisette and its surroundings during the Cannes Film Festival.

The labor union CGT, which is represented by Denis Gravouil on the administration board of the Cannes Film Festival, is still preparing a large demonstration on May 21 but it will take place along Boulevard Carnot, far away from the Croisette and from the festival’s headquarters. There will also be a rally of hospitality workers, including staff from hotels, cafes and restaurants, in front of the Carlton hotel – whose famous guests this year include Martin Scorsese — on May 19, from 1 p.m. to 3 p.m. The rally, which will likely involve protesters banging saucepans to express their anger, is technically allowed because the front of the Carlton is a private area.

The City of Cannes and regional authorities went ahead with this ban across most of Cannes to prevent civic unrest. The country has been torn by massive protests over the French government’s unpopular pension reform raising the country’s retirement age since the beginning of March. The last time France was shaken by protests of that scale was in 2004 when hundreds of thousands of people turned up in the streets of Cannes, angered by changes to unemployment benefits rules brought by then president Jacques Chirac’s government.

Reacting to the ban, Gravouil told Variety “it illustrates the way this government works whether in Cannes or elsewhere.” “This government didn’t block Neo-Nazis protesting in the heart of Paris on May 6, but there’s been so many decrees to ban the ‘casserolades’ (the concert of saucepans that’s been used to protest against the pension reform).”

Cannes has been restricting demonstrations along the Croisette since the terrorist attacks in 2016, but Celine Petit, a high-ranking CGT official based in Nice, said she “had been negotiating with local and regional authorities for nearly two weeks to reach a compromise over a demonstration path that would be close enough to the Croisette, as it was done in 2013, to give some visibility to (their) actions.”

“It’s always been possible to find a middle ground, but this time around they say they’re afraid it will degenerate, but frankly I don’t know if it’s really fear or a will to not give any visibility to our claims about pension reform or what’s going on in the film world,” said Petit, alluding that the org was also planning to protest against the inclusion of certain movies in competition.

“Aside from the pension reform, we’re also denouncing the way women are treated in the film world, but they don’t want us to stain the glittery image and standards of the Cannes Film Festival,” said Petit.

Both Petit and Gravouil, said the power cut inside the Palais des Festivals – most likely inside the Lumiere Theater — hasn’t been ruled out.

“We want some space to speak out and be heard, we want to host a press conference and walk up the stairs of the Palais, and the Festival should understand this if they want to avoid things like (a power cut),” said Gravouil, who referred to the biblical story of David and Goliath to describe the face off. “Things will go much smoother if the festival plays ball with us.”

Despite the tensions, the CGT, which happens to be a founding member of the Cannes Film Festival, will be on the ground inside the Palais at 10 p.m. on May 21 to host a screening of “Amor, Mujeres y Flores,” a documentary by Marta Rodríguez and Jorge Silva, about the harsh conditions of female workers at flowers plantation at Bogotá. The screening will be followed by a debate attended by the French feminist orgs 50:50 and Femmes à la Camera.

Privatisation has not delivered on its promises, but it is not clear that the state would be a more reliable custodian

The sale of the UK water industry in 1989 is the most controversial of all Margaret Thatcher’s privatisations. Critics argue that it has been little more than a rip off: the privatised companies have failed to eliminate leaks, been permitted to dump vast quantities of untreated sewage into our waterways and used clever financial engineering to boost rewards to shareholders. Indeed, a study published in 2018 argued that the cash flow from customers could have funded all investment undertaken, while borrowings merely went to rewarding shareholders.

Was it all a terrible mistake? Whether or not it was, what should be done now?

It is easy to argue that the answer to the first question has to be “yes”. Water is not just a local monopoly, it is also a vital necessity. This means the providers have enormous market power and are subject to no competition. That in turn makes tough regulation essential. But regulators are always likely to be outwitted, if not captured, by the profit-driven businesses they are trying to curb. Furthermore, given the nature of the business, the relevant risks are mainly borne by the customers rather than shareholders. If the companies fail to deliver, the former cannot go elsewhere. They can only complain and, if the answer is more investment, pay up. Beyond all this, water is an industry with profound externalities, notably those for the environment and health.

For all these reasons, it has long been assumed that profit-seeking enterprises are bound to be problematic in this sector: conflicts of interest are too great to be managed. Yet there is a counterargument that, in the UK case, seemed decisive. It is that Her Majesty’s Treasury in particular, and the government more broadly, is a hopeless trustee of such vital assets. It is obsessed with the liability side of its balance sheet and consistently ignores the assets. So, the water industry was chronically starved of investment. In this highly second-best world, privatisation would, it was argued, lead to higher investment and better performance in the industry.

Michael Roberts, former chief executive of Water UK, argued a few years back that “since privatisation, investment of nearly £160bn has seen strong, steady improvement, giving customers world-class drinking water. Leakage is down a third since the mid-1990s, two-thirds of beaches are classed as excellent, compared with less than a third 25 years ago.” This is not entirely wrong.

Yet over time improvements in performance tailed off and the scandals we see emerged. There was a failure to monitor what water utilities were doing, especially their dumping of sewage, and a corresponding failure to be demanding enough on needed investments. Moreover, Ofwat’s powers were inadequate: it could not impose changes on licences, block dividends or control salaries in any way. Now at least it can.

So, what is to be done? It would be possible to renationalise the businesses. I remain, however, sceptical over the government’s ability to run the sector any better (though Scottish Water is a public company accountable to the Scottish parliament). A second option is to keep independent companies, but change the structure of ownership from shareholder-owned companies. One such alternative is Welsh Water, which is funded solely by debt and charges. This model was controversial when created in 2001. Yet it has been a successful business with a good record on changes in charges to customers. But its superiority on other dimensions is less clear.

If the businesses remain independent, the key action must come from the remit and actions of regulators. It is clear that the current situation is unsustainable. There will have to be a great deal more investment. That in turn must ultimately be funded by charges (with tough controls on diversions to salaries and dividends). Crucial here will be the closest possible co-operation between environmental and financial regulators. Higher standards must be set, monitored and imposed, with fierce penalties on those who fail to meet them. Licences must be lost if necessary.

Last but not least, there is a discussion to be had over whether the framework needs to be transformed. Oxford’s Dieter Helm is particularly radical. He argues for “a water system that places fewer demands on drinking water supplies, where sewerage systems are used to handle sewage only, where sewage is not discharged into rivers, and where farming and flood defences take account of the wider natural capital”. The answer, he insists, is integrated regulation of river catchments.

Sometimes the best thing to do is to step back and ask how radically something needs to change. That is now the case for the water industry. Let us do so.

Billionaire investor says higher interest rates and slower growth are about to put $1.5tn market to the test

Howard Marks, the co-founder of $172bn investment group Oaktree Capital Management, has warned that the boom in private credit will soon be tested as higher interest rates and slower economic growth heap pressure on corporate America.

The 77-year-old billionaire told the Financial Times that big asset managers had competed aggressively to lend to the largest private equity groups as money poured into their coffers in 2020 and 2021, raising questions over the due diligence the funds conducted when they agreed to provide multibillion-dollar loans.

“[Warren] Buffett says it’s only when the tide goes out that you discover who has been swimming naked,” he said. “The tide has not gone out yet on private lending, meaning the portfolios haven’t been tested.”

He added: “Did the managers make good credit decisions, ensuring an adequate margin of safety, or did they invest fast because they could accumulate more capital? We’ll see.”

Private credit has ballooned since the 2008 financial crisis prompted regulatory reform that pushed banks away from speculative lending and new lenders stepped in to fill the void, including many backed by private equity titans such as Blackstone, Apollo and KKR.

Data provider Preqin estimates the private credit market, which includes loans for corporate takeovers, has grown to about $1.5tn from roughly $440bn a decade ago. Fundraising has been brisk, eclipsing $150bn every year since 2019.

But part of that influx of capital was lent when markets were on a seemingly unstoppable march higher — before the US Federal Reserve began aggressively raising interest rates. Competition among private lenders pushed borrowing costs down at the time.

Investors have raised questions over a number of loan deals signed in that period, including some that were based on a company’s revenue growth as opposed to its profitability. Higher interest rates are also beginning to put pressure on companies, eating into profits, with some businesses asking their lenders to forgo cash interest payments.

Analysts with Moody’s, who are calling for an uptick in corporate defaults as economic growth cools, have separately warned that the lack of insight into the private credit market suggests “that the sector could harbour risks that are not currently visible”.

Marks set up Oaktree in 1995 with chief investment officer Bruce Karsh and three others. Known for his popular investment memos, he is an unequivocal contrarian, bargain hunter and follower of market psychology who tries to live by Buffett’s investing maxim: be fearful when others are greedy and greedy when others are fearful.

Right now he sees a fertile environment for lenders such as Oaktree to step in and provide financing where banks are further retrenching following the collapse of Signature Bank and two other US regional lenders. The Fed said this month that banks were tightening lending standards for businesses and warned of a potential credit crunch.

“Now you have some meaningful interest rates and some scarcity of capital as banks are restrained,” Marks said. “This is a good climate . . . you can get equity returns from debt now, and when you invest in debt you have a much higher level of certainty of return relative to equity ownership.”

Marks said that this contrasted with the investment landscape from 2009 to 2021, when interest rates were low and “everyone was eager to invest”.

“If everyone is eager to invest, you’re not going to get a bargain,” he said. “It’s simple supply and demand. For more than a decade it wasn’t a great time to be a lender. Now it’s a much better time.”

Oaktree has expanded beyond its roots in distressed debt and now invests across credit, private equity, real assets and publicly listed equities. The firm is in the midst of a fundraising push as it looks to raise $10bn to finance large private-equity backed takeovers.

Start-up plans to create global identification system through iris scans to enable access to free global currency

OpenAI boss Sam Altman is close to securing around $100mn in funding for his plan to use iris-scanning technology to create a secure global cryptocurrency called Worldcoin, in what would be a rare bright spot for a sector which has endured a bleak year.

According to three people with knowledge of the deal, Worldcoin is in advanced talks to raise the fresh cash as it prepares to launch in the next few weeks.

The group includes existing and new investors, said one of the people. Previous investors in the company include Khosla Ventures and Andreessen Horowitz’s crypto fund, as well as FTX founder Sam Bankman-Fried and internet entrepreneur Reid Hoffman.

Worldcoin was founded by Altman and Alex Blania in 2019. The company has kept a low profile relative to OpenAI, the ChatGPT-creator which struck a multibillion-dollar deal with Microsoft earlier this year.

But it nonetheless has grand ambitions, with plans to use eyeball-scanning technology to create a global identification system which could be used to gain free access to its own global currency, Worldcoin.

A $100mn token sale early last year valued the total supply of the company’s tokens at $3bn, according to the Information, a tech-focused publication.

But crypto tokens and projects have since had a bruising 12 months. The collapse of Bankman-Fried’s cryptocurrency exchange FTX in November last year accelerated the sharp decline in token prices and precipitated a wave of crypto company failures.

FTX was backed by venture capital fund Sequoia Capital, Chase Coleman’s Tiger Global Management and Thoma Bravo. Its implosion, and the scandal around Bankman-Fried, encouraged many blue-chip funds to curtail investment in the sector.

“It’s a bear market, a crypto winter. It’s remarkable for a project in this space to get this amount of investment,” said one of the people with direct knowledge of the fundraising.

Worldcoin executives said their approach tackles two problems raised by the increasing sophistication of artificial intelligence: distinguishing between humans and bots, and providing a form of universal basic income which might offset job losses caused by AI.

Key to the company’s plans is an orb which “uses iris biometrics to establish an individual’s unique personhood, then creates a digital World ID that can be used pseudonymously in a wide variety of everyday applications without revealing the user’s identity,” according to the company.

Once users have established their identity, they can receive free Worldcoin tokens, the company said.

Worldcoin has received criticism on a variety of issues, most notably that the biometric scanning poses privacy risks. A section of its website dedicated to addressing concerns about the orb asserts that the company will not store iris scans and that the device will not hurt users’ eyes.

Having been operating in beta, the company is now gearing up to roll out its blockchain protocol and begin recording transactions in the next six weeks.

Worldcoin declined to comment on the fundraising.