Danone/Carlsberg: expropriation escalates Russia’s war on business
The companies could take legal action but neither has much chance of a payout
Lawyers joke that a country can only break the law once. A second infringement makes law instead, by confirming a precedent. Russia has gone for that double hit by expropriating Russian businesses of France’s Danone and Carlsberg of Denmark. The beneficiaries are cronies of Vladimir Putin. Danone’s Russian assets will go to the nephew of Chechen warlord Ramzan Kadyrov.
Official expropriation represents an escalation of Russia’s retaliation against western sanctions and military aid to Ukraine. Forced sales were its previous wheeze. Meanwhile, the west has fastidiously — and correctly — ignored calls to expropriate frozen Russian state assets as war reparations. The contrast is striking.
Western businesses have been pulling out of Russia since it invaded Ukraine last year. Many have incurred steep losses: French bank Société Générale took a €3.3bn hit. Danone was expected to make a €1bn loss on selling the assets Russia has snatched instead.
Danone, whose yoghurt making was once designated a “strategic industry” by French president Jacques Chirac, could in theory seek compensation. France has an investment agreement with Russia, allowing the company to take action through international courts, notes Stuart Dutson of Simmons & Simmons.
But frosty international relations means neither company has much chance of a payout. Past disputes do not inspire confidence in the process anyway. Exxon-Mobil has received little of the $1.4bn granted after Venezuelan expropriation in 2007.
Western companies still active in Russia will wonder how safe their own assets are from covetous allies of Putin. PepsiCo, Mars, Philip Morris, Nestlé all have businesses ripe for the plucking.
Banks like Italy’s UniCredit, Intesa Sanpaolo and Austria’s Raiffeisen Bank remain too. But their genuine strategic importance provides some protection: Russia still needs financial links to the west to sell gas and process currency.
Putin, however, is happy to go it alone in the demanding technocratic field of yoghurt production.
UK rents reach record high as mortgage rate rises hit housing market
Post-pandemic bounce back in demand combines with soaring interest rates to squeeze tenants
UK rental prices rose to the highest on record while house price growth declined as higher mortgage rates hit the property market, according to official statistics published on Wednesday.
Private rental payments paid by tenants increased by 5.1 per cent in the 12 months to June, the largest annual percentage change since the data series began in January 2016, figures published by the Office for National Statistics showed.
London’s annual percentage change in private rental prices was 5.3 per cent in the 12 months to June, above the England average and its highest annual rate since September 2012.
Neal Hudson, a housing market analyst, said the surge in rental prices was not unique to the UK. A post-pandemic bounce back in demand, combined with rising interest rates that push up landlords’ mortgage costs, have led to similar price rises in US, Canada and Ireland.
But in the UK, Hudson said, the situation had been exacerbated by a shift to longer tenancies, which had reduced turnover, and by landlords selling or shifting to temporary lettings, squeezing an already scanty supply of rental properties. “I had wondered if it was a temporary issue but it’s going on for longer,” he said.
Recent surveys have shown rental demand strengthening as higher mortgage rates leave fewer people able to buy a property.
The ONS data showed that average UK house prices fell by 0.4 per cent, on a seasonally adjusted basis, between April and May. This took the annual rate of increase down to 1.9 per cent, from a revised 3.2 per cent in the previous month.
The weakest growth over the past year has been in London, where prices are highest and buyers more indebted.
“House prices already were falling before the renewed jump in mortgage rates,” said Gabriella Dickens, economist at the consultancy Pantheon Macroeconomics, adding that more timely surveys suggested the price falls would become steeper in the coming months.
House prices have so far proved more resilient than many economists had expected in the face of rising interest rates, although the number of transactions has fallen sharply.
Dickens noted that the fall in May still left average prices a “whopping” 24.6 per cent above their average level in 2019.
Hudson said many people appeared to be settling for smaller properties, while taking on mortgages with longer terms and payments that would absorb a bigger share of their income.
This resulted in “an even worse version of the already failing housing market we had last year” — with new buyers straining themselves for “a home that is probably smaller, further away and less appropriate”.
Surging prices hit a sticky wicket in St John’s Wood
From catching the cricket to securing a school place, the north London area remains popular despite rising mortgage rates — for those who can afford it
Having Lord’s on the doorstep wasn’t the only reason company adviser Surath Chatterjee was bowled over by St John’s Wood, but it helped.
“We have lots of friends here and like the fact it’s very leafy yet well-connected,” says Chatterjee, 62. He and his wife Rashmy, a tech business chief executive, recently bought a six-bedroom house with a large garden in the north-west London neighbourhood. “I’m a big cricket fan and love being so close to the ground,” says Chatterjee, who watched the second Ashes Test at Lord’s several weeks ago.
While England may have faltered in that match, the popularity of the area — and its house prices — have been driven skyward in recent years.
Between 2015 and 2019, about one in 15 houses sold in the NW8 postcode went for more than £2,000 per sq ft, according to LonRes, which tracks the UK capital’s prime property market. In 2022 and this year, it has risen to one in four. “This is the largest increase in London by far and means prices in St John’s Wood are now in the ranks of Kensington and Notting Hill,” says Nick Gregori, of LonRes.
But the market has been caught out by rising interest rates. In the first five months of this year, the number of home sales was 37 per cent down on the same period in 2022; prices dropped 4.5 per cent to about £1,260 per sq ft, LonRes says. Separate data from Coutts bank reveals that 39 per cent of properties priced between £1mn and £10mn that sold in the first quarter of this year had been reduced.
“The market between £1mn and £15mn has been affected quite considerably,” says Stephen Lindsay, of Savills estate agency. “There is not a lot of stock and there are serious buyers but they don’t want to overpay given what’s happened to mortgage rates. Sellers’ expectations are also way too high,” he adds.
St John’s Wood benefited from the Covid-era race for space and big-ticket buyers flocked there to get significantly more home and garden for their money than in more central areas, says Jo Eccles, of buying agency Eccord. “Families are also attracted here by the schools — particularly Americans, who come for the American School,” she says.
Schooling helped prompt American interior designer Priscilla Kandasamy to buy in St John’s Wood. “Our elder daughter is about to embark on the 11-plus so we wanted to live somewhere with access to great schools,” says Kandasamy, 38, principal at PTK Interiors.
She and her financier husband bought a four-bedroom house a short walk from St John’s Wood High Street for about £4mn — the property was part way through being redeveloped and they have since finished it. “We moved from Greenwich [Connecticut], so we are used to quite large homes and I liked the feeling of space in St John’s Wood,” Kandasamy adds.
St John’s Wood has long been popular with international buyers. Neir Gigi, of Knight Frank estate agency, estimates that 60 per cent of homes priced between £4.5mn and £10mn go to international purchasers. “Above that, it’s about 80 per cent.”
St John’s Wood is known for its Regency white stucco villas and red-brick Victorian and Edwardian mansion buildings. In 1968, a significant proportion of the district became one of London’s first conservation areas and its character is keenly protected by the St John’s Wood Society.
The east side of St John’s Wood, near the High Street, Regent’s Park and Primrose Hill, is the most prestigious. According to Marc Schneiderman, of Arlington Residential, the premier streets are Norfolk Road, Acacia Road, Queen’s Grove, Woronzow Road and Ordnance Hill — values here are generally 20 per cent higher than other parts of NW8 and family houses typically range from £3mn to more than £20mn.
Avenue Road, a busier arterial road, is a magnet for very wealthy international buyers. “This street is almost exclusively mansions, with asking prices regularly between £50mn and £100mn,” Schneiderman says.
The few new-build apartment schemes include One St John’s Wood, 4-6 St Edmunds Terrace and 1A St John’s Wood Park — the last is a newly launched boutique collection of nine apartments with prices starting at £1.65mn. The £400mn regeneration of St John’s Wood Barracks, master-planned by the architects Squire & Partners, will create a new community with 179 homes.
Detractors say St John’s Wood feels too suburban and in recent years has been stuck in the shadow of Marylebone, its trendy southern neighbour.
But retired tennis club manager Peta Churchman, 69, who has lived in the area since 1979, says she can’t imagine living anywhere else. Churchman and her husband live close to Abbey Road Studios in a Victorian house with a large garden, which they have recently extended and “future-proofed”. St John’s Wood “suits all ages and has a vibrant community, with lots of people working hard to keep the place beautiful and green”, she says.
You just need to be very wealthy to live there.
PETA Calls on Hermès to Retire Crocodile in Honor of Jane Birkin
Birkin had previously asked the group to remove her name from crocodile bags after seeing a video of cruel practices, though the brand and the fashion icon later reached an agreement.
PARIS — PETA is putting the pressure on Hermès International once again to retire the crocodile-skin Birkin bag and commit to a corporate policy against the use of exotic skins.
Following the death of actress and singer Jane Birkin on Sunday, the animal rights group is asking the French luxury house to retire the crocodile skin versions of her namesake handbags “so that no more wildlife is killed in her name.”
The group is also asking that Hermès commit to wider company agreement against using exotic skins.
“Will Hermès continue to hark back to the past, treating these magnificent and highly intelligent exotic animals as nothing more than living, breathing ‘fabric,’ or will you embrace positive change and make a commitment to continue Ms. Birkin’s legacy in a manner that respects the natural world and all who live in it by using the finest cruelty-free materials to create a modern Birkin and other accessories? We hope you will choose the latter,” said PETA founder Ingrid Newkirk.
PETA added that the move would be to “honor her legacy,” it said in a statement.
In July 2015, Birkin herself had asked the luxury house to remove her name from the crocodile skin handbags after watching an expose film of a crocodile farm that showed animals being skinned and sawed open while alive, and other methods used to harvest the skins.
“Alerted to the cruel practices reserved for crocodiles during their killing for the production of Hermès bags carrying my name, as a signatory of Joaquin Phoenix’s ‘Mercy for Animals’ petitions protesting all the bad treatment of animals, I have asked the Maison Hermès to rename the Birkin Croco until best practices responding to international norms can be put in place for the bag’s fabrication,” she said at the time.
The following September, Hermès said it had reached an agreement with Birkin to continue to use her name on all versions of the bag, including crocodile, and said the practices shown in the video were an isolated incident. It vowed to investigate the farm in question.
“Jane Birkin has expressed her concerns regarding practices for slaughtering crocodiles,” Hermès said at the time. “Her comments do not in any way influence the friendship and confidence that we have shared for many years. Hermès respects and shares her emotions and was also shocked by the images recently broadcast.”
In calling for a corporate commitment to discontinue the use of crocodile-skin, the organization noted that other luxury houses — including Burberry, Chanel, Mulberry, Victoria Beckham, Karl Lagerfeld, Paul Smith and Stella McCartney — have banned exotic skins from their collections. Few of those brands use exotic skins in any significant way, however.
Hermès is said to have paid about $40,000 in royalties to Birkin annually in exchange for the use of her name. She consistently donated this money to various charities.
Representatives for Hermès did not respond to a request for comment.
Sequoia Shakes Up Senior Ranks as Vernal, Moritz Exit Roles
Sequoia Capital has shaken up its senior ranks, the latest indication of how its leader, Roelof Botha, is reshaping the storied venture capital firm during a period of tumult.
The firm on Wednesday told its limited partners that longtime partner Michael Moritz would leave the firm and focus on the firm’s independent wealth management business, Sequoia Heritage, a spokesperson confirmed. Meanwhile Mike Vernal, a partner who focuses on early-stage startups and has worked at the firm since 2016, is also leaving the firm, according to a person with direct knowledge of the matter.
Vernal’s exit follows the departure of a newer partner, Daniel Chen, who also left the firm in recent months. The departures of Vernal and Chen haven’t previously been reported.
Blackstone’s march to $1tn marred by trouble at flagship property fund
Executives forced to reassure investors as buyout giant approaches significant milestone
Blackstone is on the cusp of surpassing $1tn in assets under management, a milestone that analysts predict will arrive as soon as Thursday when the private equity giant reports second-quarter earnings.
It should be a moment of unabashed celebration for the 38-year-old buyout giant, but it is one that risks being undermined by mounting pressures associated with amassing hundreds of billions of dollars in assets during an era of rock-bottom interest rates.
Those pressures burst into the open late last year in an episode that caught co-founder Stephen Schwarzman and his heir apparent Jonathan Gray off guard after investors started to yank money from the New York investment group’s flagship $70bn property fund.
What seemed at first like a minor issue affecting Asian investors feeling the pain of tighter monetary policy soon turned into a much bigger problem. The fund, Blackstone Real Estate Income Trust, or Breit, was forced to limit investor withdrawals to avoid a painful fire sale of assets to meet the flurry redemption requests.
It was a rare instance of vulnerability for a firm that had seemed all but invincible after growing its assets more than tenfold since the 2008 financial crisis, a breakneck expansion that turned it into a dominant fixture on Wall Street.
“It has been a really challenging situation for Blackstone,” said KBW analyst Michael Brown. “We are operating in uncharted territory in terms of the tremendous growth that Breit delivered since inception and running into a wall.”
After imposing the limit on withdrawals in November, known as a “gate” in the industry, Blackstone shares started to tumble and lost almost 20 per cent of their value before the year was out.
Schwarzman, chief executive, and Gray, who holds the titles of president and chief operating officer, launched a furious PR blitz to restore confidence. “It was a major narrative shift for Blackstone given how integral Breit had been to the story and their growth,” said Brown.
Schwarzman tried to project a sense of calm, telling staff that Blackstone had navigated many bouts of market turmoil over the years and always came out ahead. “I’ve seen all this all before and we are staying the course,” he told employees at a town hall late last year. Gray, meanwhile, attempted to reassure staff by repeating his favourite maxim: “Stay calm, stay positive and never give up.”
But they could not hide their frustration at what they saw as an outsized focus on Breit, which they argued had generated strong returns of about 12 per cent annually after sidestepping the distress in commercial real estate and investing in high-quality properties.
“The media has created a different narrative, but the customers are fundamentally happy,” Gray said on the company’s fourth-quarter earnings call in January. He started to feel that his judgment was being questioned, according to two people close to him.
Hurt feelings aside, the people that Schwarzman and Gray needed to reassure first and foremost were not necessarily employees, but rather investors in Breit and Bcred, a sister corporate lending fund. And these were not the sophisticated financiers that Schwarzman and Gray were used to hobnobbing with: they were in large part retail investors who had been attracted to the funds’ returns when interest rates were low.
Over the past five years, it has been these retail investors that have fuelled growth at Breit and Bcred, which were launched in 2017 and 2021, respectively. Since 2020, the vehicles have together attracted more than $100bn of new money and last year they accounted for nearly a quarter of the firm’s overall fee-based earnings.
All of that cash came with risks. The funds were structured as perpetual in nature, meaning Blackstone was under no obligation to sell assets and return cash to investors. But they did offer limited liquidity rights. In practice, this meant investors in aggregate were allowed to pull up to 5 per cent of the fund’s assets in any given quarter before limits kicked in.
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In 2022, the US Federal Reserve’s aggressive interest rate rises resulted in a sea change in investor behaviour. Some people with money in the Blackstone funds were feeling the pain of tighter monetary policy and needed cash. Others were tempted by the rising yields on products that had come nowhere near to matching Breit when rates were at rock bottom. Investors started trying to cash out of the funds in droves, forcing Blackstone to put up the “gate”.
Nor was Breit immune from the monetary tightening, given that it has $38bn of variable rate debt, according to securities filings.
“Retail capital behaves differently,” said one banker who has worked with the firm. “Blackstone is learning or discovering that, to a degree, it can also be more volatile. It has implications on the investing side and on the perception side.”
The different audience has required Schwarzman and Gray to adopt a new playbook, with regular appearances on CNBC, the financial cable TV channel beloved by retail investors and traders alike. Gray even set up a LinkedIn profile that is now followed by almost 25,000 people and read by considerably more.
“There was a real PR blitz . . . I don’t remember Stephen Schwarzman going on such a broad media tour ever before, but the universe of clients is now far more broad and it involves a different approach,” said the banker.
The results have been mixed. In June, investors tried to pull out $3.8bn from Breit, and Blackstone fulfilled just 17 per cent of those redemption requests. But the requests have fallen from the January highs. Blackstone has paid more than $8bn to redeeming investors since November, more than 10 per cent of its net asset value at that time.
The sense of crisis has since abated if not disappeared. Blackstone’s stock has recovered from last year’s sell-off, gaining nearly 40 per cent since the start of 2023, and now trades at a market valuation of $129bn — higher than Goldman Sachs.
“When Blackstone went public in 2007, I can’t imagine anyone would think just over 15 years later they would be crossing the $1tn in assets mark. It is a huge number to comprehend,” said Brown.
Other victories loom on the horizon. It remains on track to meet its goal of raising $150bn across 18 new vehicles in its current fundraising push. And KBW said last week that the firm may soon be added to the S&P 500 if Activision disappears from the index should Microsoft acquire the video game maker following a lengthy regulatory review.
Schwarzman has long encouraged comparisons to blue-chip companies in the indices such as Microsoft and Visa, once telling analysts Blackstone shared their “significant brand equity”.
While real estate and private equity investments comprise the bulk of Blackstone’s overall assets, it has built enormous operations spanning credit, insurance, hedge fund-oriented investments and other private investment strategies.
“They’re diversified across asset classes and a key differentiator versus peers is that they actually have scale and a track record,” said Karim Laib, an equity analyst at T Rowe Price, a Blackstone shareholder.
Patrick Dwyer, a managing director at Newedge Wealth Management, said: “Walk into any private bank in the world and ask if they have Blackstone products and they will. Banks are comfortable with the brand. All of the other shops are playing catch-up.”
He added: “It’s been a tougher period, but they have gotten through it . . . Where would you have rather been on Wall Street?”