WSJ : Walt Disney Names Robert Iger CEO, Replacing Bob Chapek

Walt Disney Names Robert Iger CEO, Replacing Bob Chapek
Iger returns to the entertainment company he left only late last year

Walt Disney Co. DIS 0.38% ’s board of directors on Sunday night replaced Chief Executive Bob Chapek with Robert Iger, the company’s former chairman and CEO who left the company at the end of last year, according to a company announcement.

“The board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the company through this pivotal period,” said Susan Arnold, chairman of Disney’s board, in a statement.

“We thank Bob Chapek for his service to Disney over his long career, including navigating the company through the unprecedented challenges of the pandemic,” she added.

The change comes at a tumultuous time for Disney.

This month, the company reported weaker-than-expected fourth quarter financial results, killing the momentum built up over a strong year that saw record revenue and profits in multiple divisions, especially the one that includes theme parks. Disney’s theme park business has recovered strongly since the coronavirus pandemic shut down its venues across the world, but the division continues to subsidize widening losses in the streaming video business.

Mr. Chapek has said repeatedly that he expects the streaming business to be profitable by September 2024. In the most recent quarter, though, it lost $1.47 billion, more than twice the year-earlier loss.

The company also cautioned that its profitability target would only be met if there wasn’t a significant economic downturn, the first time it has added such a caveat. Disney shares fell 13% the day after the earnings report and are down more than 41% so far this year.

Disney has also faced pressure from multiple activist hedge-fund investors this year. Trian Fund Management LP earlier this month bought more than $800 million worth of Disney stock in the days following the company’s lackluster fiscal fourth-quarter earnings report, according to people familiar with the matter. The stake—under the 5% disclosure threshold—isn’t as large as Trian would like it to be and will likely grow, subject to market conditions, they said.

The activist fund, which was founded by Nelson Peltz, Ed Garden and Peter May, is seeking a seat on Disney’s board as it pushes the entertainment giant to make operational improvements and cut costs, according to the people. Trian has studied the business for a long time, they added.

Trian’s view is that Mr. Iger shouldn’t be back in control of the company, the people said.

Trian’s interest comes after activist investor Dan Loeb’s Third Point LLC said in August that it had taken a stake in Disney stock after having liquidated its position earlier this year. Mr. Loeb sent a letter to Mr. Chapek asking for major changes to the business. He called for Disney to spin off ESPN, refresh its board and cut spending, though a month later he backed off on the demand to change control of the sports channel.

In response to Mr. Loeb’s suggestions, the company appointed Carolyn Everson, a veteran digital advertising executive, to its board, and agreed to a standstill with Third Point.

In an email to employees Sunday night, Mr. Iger said he was returning to the company.

“It is with an incredible sense of gratitude and humility—and, I must admit, a bit of amazement—that I write to you this evening with the news that I am returning to the Walt Disney Company as chief executive officer,” he wrote in the email, which was viewed by The Wall Street Journal.

Several top Disney executives first learned the news that Mr. Iger was returning after they read his Sunday email, while some of them were together attending an Elton John concert at Dodger Stadium in Los Angeles that was streamed live on Disney’s flagship streaming service Disney+, according to people familiar with the matter.

Some of the people who were expected to attend the concert included Dana Walden, head of general entertainment content, Craig Erwich, head of content for the Hulu streaming service, Ayo Davis, head of Disney Branded Television and newly-appointed Disney+ President Alisa Bowen, the people said.

Mr. Chapek was also expected to attend the event and the company had planned for him to introduce Mr. John from the stage before the concert, according to two people with knowledge of the plans, though it isn’t clear if Mr. Chapek attended, they said. Other Disney employees said they were baffled by Mr. Iger’s Sunday email and immediately began asking if the message to employees was real or if it came from a hacked email account.

Negotiations between Mr. Iger and the board to return as CEO were initiated only in recent days, according to a person familiar with the talks. Mr. Iger has said publicly on at least two occasions over the last year that he isn’t interested in returning to Disney. In recent months, he has focused on investing in and advising startups, particularly in the technology industry.

Adding to the surprise, Mr. Chapek, who has served as CEO only since February, 2020, over the summer saw his contract renewed through the end of 2024. At the time, Ms. Arnold, the board chair, said that while the company was “dealt a tough hand by the pandemic,” Mr. Chapek “not only weathered the storm but emerged in a position of strength.”

FT : Carmignac shows faith in family business mindset as key to growth

Carmignac shows faith in family business mindset as key to growth
Asset manager’s Portfolio Family Governed fund seeks to exploit potential of thinking that looks beyond short term

Hermès International and Cintas Corporation operate at either end of the sartorial spectrum. The French luxury group is globally renowned for the silk scarves, high-end jewellery and €10,000-plus Birkin bags it sells to well-heeled customers. Cincinnati-headquartered Cintas, meanwhile, makes functional products, such as uniforms, mats and mops, that it supplies to businesses.

But despite these contrasts, the companies also have much in common. Both were set up by entrepreneurial founders whose descendants retain sizeable ownership stakes. And they are the two best-performing investments this year in the Carmignac Portfolio Family Governed fund.

The fund was launched just over three years ago by French asset manager Carmignac, itself a family business that was set up by investor Edouard Carmignac in 1989. It is run by Mark Denham, head of European equities, and portfolio manager Obe Ejikeme.

“Carmignac is a family-governed business and we’re aware that, sometimes, in order to make the best long-term strategic decision, you have to go against [consensus] thinking on a short-term basis,” says Denham. “You have to be prepared to make those long-term decisions.”

Long-term thinking, an entrepreneurial mindset and shared culture are three qualitative reasons that make investing in family businesses appealing, the fund’s managers believe. When they explored launching a strategy around this philosophy, they sought empirical evidence to support their thesis. Their analysis of the returns of about 500 companies between 2004 and 2019 revealed that family businesses outperformed the MSCI World index by an average of 1.7 per cent a year. These companies were typically more profitable, both in terms of return on equity and return on invested capital and, with owner families’ skin in the game, they used less debt.

“Family businesses were more profitable than non-family businesses almost every year,” says Ejikeme. Their tendency not to use debt to finance their growth is another draw in a world of rising interest rates, he adds.

This echoes findings in other research and it has led financial services companies such as Pictet of Switzerland and the Franco-German Oddo BHF to offer funds that invest in family businesses.

A 2018 report by Credit Suisse also found that family companies — where founders or descendants hold at least 20 per cent in direct shares, or their voting rights are at least 20 per cent — tend to outperform their non-family peers with stronger top-line growth, better profitability and more conservative balance sheets. Their longer-term investment focus helps them to look beyond quarterly earnings announcements and invest for the long term, the report said.

The Carmignac team constructs its portfolio using criteria that whittle down the universe of 700 or so family businesses to 35-40 positions, primarily in mid- to large-cap stocks. As a first port of call, they look for the governing influence of a family, founder or foundation with at least 10 per cent of the shareholder voting rights. “Voting rights are more important than size of ownership,” says Ejikeme.

Liquidity is another important consideration: the fund managers look for stocks that have an average daily trading volume of at least $25mn. Other criteria include profitability, earnings reinvestment and the quality of a company’s governance. While 62 per cent of the universe of 700 family companies are based in emerging markets, many of these don’t meet the criteria for profitability or governance. The managers end up with a choice of about 150 companies globally that satisfy all the criteria.

Governance matters where families are involved, argues Denham. “It’s all very well investing in family-controlled companies, but there’s a risk as a minority shareholder that you get taken in a different direction against your wishes,” he says. “It’s very important that we make sure there are proper controls and structures in place to protect minority shareholders and that, in practice, the family or foundation control is used in a benevolent way for the benefit of all shareholders.”

Carmignac has its own experience of how having a family shareholder does not leave a company immune to trouble. Its overall assets have fallen from €57bn at its peak in 2017 to €33.2bn today, and its flagship Patrimoine fund has underperformed its benchmark over the past five years. Founder Edouard Carmignac stepped back from day-to-day management of Patrimoine in 2019 but remains chairman and chief investment officer.

While corporate governance risks, such as a lack of succession planning or overly long-serving board members, are a key consideration, even more important are “corporate behaviours”, adds Denham. “One clear red flag would be if there were so-called related party transactions between the founder or the family and the company.”

This year, to November 15, the Carmignac Portfolio Family Governed fund is down 15.1 per cent, underperforming its benchmark, MSCI’s flagship equities ACWI index, which has lost 8.3 per cent in the same period. Since launch, the fund has underperformed the index by about five percentage points.

However, the managers say this underperformance in 2022 is partly because quality stocks (which are highly profitable, have stable cash flows and low debt-to-equity ratio) have underperformed value stocks (those with low price/book and price/earnings ratios) this year, and the universe of family companies is weighted more to the former.

“In years like 2022, when quality companies have lagged the general market returns, that can create a short-term headwind to performance,” says Denham. This year, the energy, materials, industrial and banking sectors have outperformed, and they count fewer family companies among them.

Half of the portfolio’s top-10 shareholdings are in healthcare. These include US group Eli Lilly, of which Lilly Endowment, a private foundation, owns just over 10 per cent, and Denmark’s Novo Nordisk, just over 30 per cent of whose shares are owned by the Novo Holding foundation.

The Carmignac portfolio has a low turnover and will typically change five investments over the course of 12 months. When the voting rights of Pieter van der Does, founder of payments company Adyen, fell below 10 per cent, the fund sold its position. Similarly, when a general review highlighted “inadequate oversight of the accounting process” at a US industrial company, they divested.

The Carmignac Portfolio Family Governed fund runs €30mn and has just passed its three-year track record, an important criterion for fundraising. “Until you have a three-year track record, no one wants to consider the concept,” says Denham.

FT : Why Visa and Mastercard have yet to face their Kodak moment

Why Visa and Mastercard have yet to face their Kodak moment
The fintech disrupters of the payments sector are no such thing

There are now 332 fintech unicorns in the world, according to a new ranking by small business portal Fintech Labs.

Equally striking is the dominance within the financial technology realm of billion-dollar companies that deal in some way with payments. They account for eight of Fintech Labs’ top 10 — PayPal, Ant, Stripe, Shopify, Adyen, Block (formerly Square), Checkout.com and Afterpay.

The big driver of this boom has been the steady decline of cash in all major economies of the world and the concomitant acceleration of digital payments. According to data provider Merchant Machine, the most digitalised economies, including Sweden, Singapore, the UK and Denmark, now conduct only 1 per cent of payments in cash.

It’s not just fintechs: big tech companies and established banks alike have crowded into payments with new services. But there is a striking oddity in this tale of market disruption. Unlike the killing off of Kodak by digital camera makers or the demise of Blockbuster when movie streaming supplanted video rentals, the legacy operators in the payments world are thriving.

Visa last month reported annual net income of $15bn, up 21 per cent year on year. Both it and Mastercard are trading close to record highs. They have a combined market cap of $765bn, unchanged over the past year, even as the broader market has declined sharply. Ironically, it is the challengers, big and small, that are suffering more.

The core explanation is simple: even the smartest fintechs are not fundamentally disrupting the market; they are merely slotting themselves into the existing payments architecture. Yes, they may make life easier for the consumer or the merchant with faster back-end processing or slicker point of sale interfaces. But this is not at the expense of Visa and Mastercard, whose electronic “rails” they nearly all rely on.

The big old card companies might look ripe for disruption, facilitating as they do high “interchange” fees levied on merchants (averaging 2 per cent in the US). But thanks to the spread of their operations into every corner of the world, it has been either impossible or economically unappealing for potential competitors to build new kinds of networks.

The big question, amid such a frenzy of fintech innovation, is will that change? There are five reasons to think it might.

First, Twitter. Right now it might seem as if Elon Musk is blowing up the business he just bought for $44bn. But from electric cars to rockets, Musk is the sceptic-defying disrupter-in-chief. As one of the original PayPal founders, he has long sought to shake up the world of payments, and recently outlined plans to turn Twitter into a payments engine.

Second, crypto. The idea of using crypto coins to facilitate mainstream payments might sound zany, given the tumult in the sector triggered by the failure of exchange-cum-hedge fund FTX. But some core services already rely on crypto. Ripple, which uses its own coin and blockchain structure to process quick, cheap, cross-border payments for bank clients, is convinced that this technology is the key to disrupting high-cost established mechanisms.

Third, Alipay. China is one of the few places unconquered by Visa and Mastercard — and the country’s own state-owned credit card network, UnionPay, is far less developed. That gave private sector fintech Alipay, as well as its rival WeChat, the opportunity to develop its own digital payment rails. With China tensions high internationally, though, Alipay’s ambitions to expand abroad are likely to be thwarted.

Fourth, Apple. Of all the big tech companies Apple seems to have toyed the most ambitiously with payments and finance. In addition to its Apple Pay wallet, it offers a credit card in conjunction with Goldman Sachs and recently ventured into buy now, pay later, using its own balance sheet. Apple will not comment on future plans, but some believe it could aspire to a service that replicates Alipay.

Last, JPMorgan. Big banks have never seemed likely to be the ones to disrupt the big card companies. They make billions of dollars every year from interchange fees. But JPMorgan has sparked an internal stand-off by pursuing a plan to develop a rival pay-by-bank facility allowing easy bank transfers. A second phase would facilitate micropayments in the metaverse.

Some or none of the above may come to pass. But with digital payments on such a tear in recent years, the chances of a Kodak moment will only increase.

FT : Tesla supplier warns of graphite supply risk in ‘opaque’ market

Tesla supplier warns of graphite supply risk in ‘opaque’ market
Syrah Resources says lack of transparency over pricing in China-dominated market poses challenge for financing

Western supply of graphite will be constrained in the coming decade by the “opaque” market for the key battery material, the world’s largest natural graphite producer outside China has warned.

Shaun Verner, chief executive of Australia’s Syrah Resources, a Tesla supplier that operates a huge mine in Mozambique, said that the graphite market’s lack of transparency over pricing was making bankers hesitant to fund new projects.

“The single biggest impediment to new investment is the opaque nature of the market because to get the commercial debt in place is really challenging,” he added.

A battery’s anode, which is made of graphite plus increasingly a silicon additive, is more dependent on China than other materials as the country mines 65 per cent of graphite, processes 85 per cent and is home to the world’s six largest anode material producers, according to the International Energy Agency. China dominates the refining of other battery materials such as lithium, nickel and cobalt but the raw minerals that feed those refineries are mined from all over the world.

The centralised nature of the graphite market means that supply agreements are done bilaterally through long-term deals between producers and consumers. That leaves small volumes traded on exchanges, providing limited pricing transparency.

Few analysts follow the industry and there is a lack of visibility on future projects, making forecasting on long-term prices difficult.

Natural graphite demand is set to treble in the next four years as sales of electrical vehicles soar. The material can also be created synthetically from pet coke but this process is carbon-intensive and struggles to combine with silicon, which improves the anode’s performance.

Reflecting the hot demand for the mineral, Syrah’s market capitalisation is A$1.7bn (US$1.13bn), despite a pre-tax loss of $9.7mn on revenues of $50mn in the first half of the year.

The passing of the US Inflation Reduction Act this year has boosted further interest in graphite producers. The legislation says EVs entering the market after 2024 will not be eligible for tax credits — which can go up to $7,500 — if any of the critical minerals are extracted, processed or recycled by a “foreign entity of concern”, which includes China.


Eric Desaulniers, chief executive of Nouveau Monde Graphite, which is developing a graphite mine and battery-grade anode material plant in Canada, said that discussions with cell manufacturers over supply deals had accelerated because of the IRA.

However, he agreed that challenges remained in securing project financing because the “cellmakers are cash-constrained” and had their hands full trying to scale up battery manufacturing sites.

Syrah has been fortunate in bridging the funding gap. It received a grant of up to $220mn from the US government last month to expand its anode material facility in Louisiana, which is under construction.

Prices of graphite have risen a third compared with a year ago to Rmb5,300 ($740) per tonne, according to Argus. This represents a reversal from price falls in 2019 that forced Syrah to cut output at its Balama mine, a facility that can produce 350,000 tonnes per year into a global market consuming 1.3mn to 1.4mn tonnes today.

Its production out of Mozambique was disrupted at the end of September by a workers’ strike that was eventually resolved.

Nico Cuevas, chief executive of Urbix, which aims to build a graphite processing hub in the US, said that Korean battery manufacturers had also been prompted into action by the IRA but they were still some way from being prepared to sign deals to buy upcoming raw materials.

“We pushed for the past year and a half and they would take a long time to respond,” he said. “[Now] within two weeks, I’m getting emails from three of the five largest battery makers on what we can do together.”

(ZH) FTX Hacker Starts Dumping Massive Haul Of Ether Tokens

FTX Hacker Starts Dumping Massive Haul Of Ether Tokens

Last weekend, we reported on the mysterious $662 million outflow of tokens that suddenly hit FTX.
At the time, Nansen's Alex Svanevik said, "It's unclear exactly who's making the transactions, but you wouldn't expect to see these on-chain trades at this time."
He said FTX's main wallet was entirely drained of FTT.
Additionally, Reuters reported that SBF had a "backdoor" in FTX's book-keeping system, which allowed him to move customer money around without triggering internal compliance or accounting red flags.
During the week, more details came out that suggested at least some of this outflow was in fact an apparently sanctioned transfer from FTX to Bahamian regulators - who rejected the exchange's US bankruptcy filing and took possession of some of the assets.
"[There is] credible evidence that the Bahamian government is responsible for directing unauthorized access to the Debtors' systems for the purpose of obtaining digital assets of the Debtors—that took place after the commencement of these cases," read the filing, signed by new FTX CEO John Ray, famous for handling the liquidation of Enron.
The company went on to say that its co-founders Sam Bankman-Fried and Gary Wang were recorded saying that Bahamanian regulators instructed the pair to make "certain post-petition transfers" and that such assets were "custodied on FireBlocks under control of [the] Bahamian government."
However, although initial reports suggested that all of the funds in question might be in the custody of securities regulators in the Bahamas, Chainalysis poured cold water on this theory however, stating:
“Reports that the funds stolen from FTX were actually sent to the Securities Commission of The Bahamas are incorrect. Some funds were stolen, and other funds were sent to the regulators.”
And as Bloomberg reported earlier in the week, the hackers who stole the funds have become one of the world's largest holders of the Ether token.
According to security specialists PeckShield, a wallet linked with the exploit swapped about another $49 million of stablecoins - mainly Dai - for Ether on Tuesday. That lifted the attacker’s Ether haul to 228,523 or about $288 million - the 35th largest stash of the coin, according to data from analytics platform Etherscan.
The hacker reportedly transferred some funds using the crypto exchange operated by Kraken, which said it had been in touch with law enforcement about the matter.
But now, as Coinpedia.org reports, the FTX hacker has begun to liquidate those holdings creating significant downward pressure on Ethereum's price.
As PeckShield further detailed earlier today, the FTX hacker is swapping ETH for BTC via renBTC bridge protocol...
You can monitor the FTX Hacker's moves here...
Notably, renBTC liquidity is not deep enough for the FTX Hacker to dump all his ETH. If renBTC minting is disabled, the liquidity can’t be refilled, so the hacker may speed up.
Which is perhaps why, as @kamikaz_ETH notes, the FTX Hacker is now steadily dumping ETH on-chain - which is why we are seeing the sudden purges in Ethereum's price.
This could be a problem for ETH as if 50k ETH drove the drop from $1220 to $1160, the remaining 200k ETH could do some more serious damage to price.
FTX itself has tweeted to urge exchanges to block these transfers from the FTX Hacker...
Finally, one source suggested that perhaps the FTX Hacker realized that The Office of Foreign Assets Control (OFAC) can sanction the address where they are holding the hacked ETH and thereby make the ETH worthless...
As 76% of validators (and rising) enforce OFAC sanctions - accordingly they wouldn't include ETH transactions from sanctioned addresses...
Hence the sudden urgency to discard the ETH for bitcoin via RenBTC bridge ...
Probably they had a tip off that OFAC is planning to do this tomorrow...
Now who would have the political connections with the administration to know that info in advance?

WSJ : FTX Says Top 50 Creditors Are Owed $3.1 Billion

FTX Says Top 50 Creditors Are Owed $3.1 Billion
The company warns other cryptocurrency exchanges to be vigilant for stolen funds from its platform that might cross their paths

FTX’s new management hired an investment bank to help the failed cryptocurrency exchange sell viable parts of its business and discovered there were more than 200 accounts containing positive cash balances.

A statement released Saturday from John J. Ray, the company’s new chief executive, struck a slightly more optimistic tone about the possibility of recovering assets compared with his previous dour assessment. On Thursday, the veteran bankruptcy executive said he had never seen anything as bad as FTX in 40 years in the restructuring business.

“We are pleased to learn that many regulated or licensed subsidiaries of FTX, within and outside of the United States, have solvent balance sheets, responsible management and valuable franchises,” said Mr. Ray, who was hired to oversee the company during its bankruptcy process, on Saturday.

A Saturday filing to federal bankruptcy court identified 216 bank accounts with positive balances, offering the possibility that there was some value left in FTX’s wreckage for creditors to recover. It verified account balances worth about $564 million, according to the Saturday filing. Much of that money, however, is either held in outside entities that directly filed for bankruptcy protection or is considered restricted cash, meaning others may lay claim to it.

The cryptocurrency exchange imploded this month after its chaotic finances spilled into public view. Prosecutors are now investigating its collapse. The company’s founder Sam Bankman-Fried resigned as CEO on Nov. 11, when FTX filed for bankruptcy.

FTX said it would look in coming weeks to preserve or sell what businesses it can as part of strategic review of the company’s global assets to “maximize recoverable value for stakeholders,” the statement said. The company hired investment bank Perella Weinberg Partners LP to spearhead the sale of different business units and subsidiaries.

FTX owes its 50 largest creditors about $3.1 billion, according to a separate filing Saturday to federal bankruptcy court. The filing didn’t include names of the biggest creditors but listed them as customers. Two creditors are each owed more than $200 million.

FTX said it doesn’t yet know the total amount of cash that the crypto exchange or its related entities hold because of “historical cash management failures and the deficiency of documentation controls,” one of the Saturday filings to bankruptcy court said. As of Nov. 16, the filing said, the company had been able to verify the balances in only some of the bank accounts held at 36 banks worldwide.

FTX said the company was in the process of locating additional bank accounts by “reviewing the available books and records, speaking with bank personnel and interviews with employees.”

The filing said that entities including FTX EU Ltd. and West Realm Shires Services Inc.—which includes the business known as FTX US—have some of the largest verified account balances so far. To date, FTX’s new management team has verified $49.3 million of total cash for FTX EU and $48.1 million for West Realm Shires Services.

The efforts by FTX’s new management to track down assets has been further complicated in recent days by a dispute with securities regulators in the Bahamas for control of FTX’s insolvency proceedings.

Last week, FTX said in court papers, citing purported texts by Mr. Bankman-Fried, that it appears regulators in the Bahamas instructed him to transfer assets from the exchange to a digital platform controlled by local government officials. The Securities Commission of the Bahamas, the lead local authority investigating FTX’s collapse, said last week that it directed the transfer of all digital assets of FTX’s Bahamas subsidiary, FTX Digital Markets Ltd., “to a digital wallet controlled by the Commission, for safekeeping.”

The movement of hundreds of millions of dollars from FTX accounts in the early hours after the exchange filed for bankruptcy sparked fears of a hack. It remains unclear if and how much of the funds moved went to Bahamian custody or were taken by an unauthorized actor.

Crypto analytics firm Elliptic said some of the funds taken without authorization are ultimately being converted into bitcoin. Tom Robinson, co-founder of Elliptic, said in an email that the bitcoins may have been in the process of being cashed out or laundered further.

FTX’s new management team on Sunday warned other cryptocurrency exchanges to be vigilant for stolen funds from its platform that might cross their paths. Exchanges are often the place where hackers attempt to swap cryptocurrencies for government-issued cash.

“Exchanges should take all measures to secure these funds to be returned to the bankruptcy estate,” FTX said in a tweet.

In other court filings over the weekend, FTX also sought approval from the court for a new cash-management system to manage FTX’s remaining money and to allow payment of critical vendors and vendors at foreign subsidiaries. FTX said that without the authority to pay critical vendors, FTX could face “irreparable security risks, potential data loss or other disruptions and ultimately loss of value to their estates.”

FT : Cost of UK plan to break Big Four stranglehold rises to £1bn

Cost of UK plan to break Big Four stranglehold rises to £1bn
Financial impact of proposals to make large companies hire two sets of auditors has risen fivefold

The cost of plans to break the dominance of the Big Four accounting firms by forcing the largest UK companies to hire two sets of auditors has risen fivefold to about £1bn over 10 years, according to the latest government estimates.

The impact of the “managed shared audit” proposal was put at £210mn last year as part of a public consultation on a long-awaited package of audit and corporate governance reforms but has increased sharply after further work by officials, according to four people briefed on the matter.

Under the proposal, FTSE 350 companies audited by one of the Big Four — Deloitte, EY, KPMG and PwC — would be required to hire a smaller firm to carry out up to 30 per cent of the work.

The policy is aimed at increasing the number of players at the top end of the audit market and minimising disruption if one of the Big Four were to collapse. The quartet currently check the accounts of 99 of the FTSE 100 and about 87 per cent of the mid-cap FTSE 250.

The increased costs of about £100mn a year would equate to about 8 per cent of the aggregate audit fees paid by the FTSE 350 last year, based on analysis by data provider Audit Analytics.

The bulk of those would be borne by roughly 150 companies in the FTSE 350 that use a Big Four auditor and have subsidiaries deemed suitable for inspection by a smaller firm. Many accountants expect shared audits would lead to duplication of work and higher fees.

The rising cost projections, which officials have yet to finalise, are likely to be seized on by opponents of the reform.

Deloitte, EY and PwC have come out against the proposal while KPMG has questioned whether the system would work in practice. BDO and Grant Thornton, the two largest challengers to the Big Four, have signalled they may prefer to win more FTSE 250 audits on a solo basis than to participate in a large number of shared audits.

“The challenge will be: how do you justify this amount of cost if you’re not going to get a radically different-looking auditor landscape?” said a senior Big Four partner.

The £1bn figure has alarmed supporters of shared audits, which include the Financial Reporting Council, the UK’s accounting regulator, which worked with the government on last year’s cost projections. The watchdog was expected to challenge the updated figures “quite strongly” once it was provided details of the underpinning assumptions, said one person with knowledge of the process.

The government has already watered down key elements of its proposed overhaul of boardroom rules, developed in response to corporate failures such as those at retailer BHS in 2016, outsourcer Carillion in 2018 and café chain Patisserie Valerie in 2019.

In May, ministers dropped plans to introduce a UK version of the US Sarbanes-Oxley Act requiring directors to sign off on companies’ internal financial controls and scaled back plans to sweep more companies into a tighter regulatory system for so-called public interest entities. The move followed pressure to avoid imposing additional regulatory costs on businesses.

The government said managed shared audits were “the best approach to reforming the market” but would not comment on the projected costs of the policy until it published a revised impact assessment alongside the draft legislation “in due course”.

It added that the wider reforms would include a new, strengthened regulator and would significantly improve audits and corporate governance in the UK. The FRC said it was working closely with the government “on progressing much needed reforms”.