TheChek News Flow

A set of Soyuz spacecraft coolant leaks hints that Roscosmos is struggling as the space agency loses international partnerships and funding.

CRIPPLED BY WAR and sanctions, Russia now faces evidence that its already-struggling space program is falling apart. In the past three months alone, Roscosmos has scrambled to resolve two alarming incidents. First, one of its formerly dependable Soyuz spacecraft sprang a coolant leak. Then the same thing happened on one of its Progress cargo ships. The civil space program’s Soviet predecessor launched the first person into orbit, but with the International Space Station (ISS) nearing the end of its life, Russia’s space agency is staring into the abyss.

“What we’re seeing is the continuing demise of the Russian civil space program,” says Bruce McClintock, a former defense attaché at the US embassy in Moscow and current head of the Space Enterprise Initiative of the Rand Corporation, a nonprofit research organization. Around 10 years ago, Russian leaders chose to prioritize the country’s military space program—which focuses on satellite and anti-satellite technologies—over its civilian one, McClintock says, and it shows.

Russia’s space fleet is largely designed to be expendable. The history of its series of Soyuz rockets and crew capsules (they both have the same name) dates back to the Soviet era, though they’ve gone through upgrades since. Its Progress cargo vessels also launch atop Soyuz rockets. The cargo ships, crewed ships, and rockets are all single-use spacecraft. Anatoly Zak, creator and publisher of the independent publication RussianSpaceWeb, estimates that Roscosmos launches about two Soyuz vehicles per year, takes about 1.5 to 2 years to build each one, and doesn’t keep a substantial standing fleet.

While Roscosmos officials did not respond to interview requests, the agency has been public about its recent technical issues: The Soyuz MS-22 docked at the ISS suffered a coolant leak on December 14, 2022, and astronauts inspected it with the space station’s robotic arm, Canadarm2. The incident canceled a planned spacewalk by Russian cosmonauts, and the agency later blamed the leak on a micrometeoroid impact.

On February 11, the agency reported another coolant leak, this time on a Progress MS-21 cargo ship, that caused it to depressurize. Roscosmos also attributed the leak to an “external impact.” That spacecraft cast off from the ISS in late February, and Roscosmos disposed of the ship, allowing it to burn up over the Pacific Ocean.

Micrometeoroid strikes can be a danger to any spacecraft, no matter who operates them or what shape they’re in. But experts remain unconvinced by Russia’s explanation for the incidents—and worry that Roscosmos is hiding deeper problems. McClintock calls the agency’s explanation plausible but points out that it hasn’t been confirmed. And these are not Russia’s only malfunctions: In 2018, a Soyuz crew spacecraft sprang a tiny hole, which astronauts patched up. Two months later, a Soyuz rocket suffered a booster failure in an unrelated incident. The three leaks within a few years, says McClintock, “point to an overall decline of the Russian civil space program.”

Zak points out that micrometeoroid impacts in Earth orbit have been exceedingly rare. He thinks the odds of meteors damaging two spacecraft cooling systems—but nothing else on the ISS—in such a short period of time are “very close to zero.”

For nine years after the final space shuttle flight, NASA depended on Russia to carry astronauts to the ISS—Soyuz offered the only ride to space. But in 2020, NASA began using SpaceX Crew Dragon spacecraft. Soon, Boeing will start providing rides too. NASA still relies on Russia for some cargo deliveries and a few astronaut flights, but that may soon change, McClintock says. “I think it’s likely—and it would be prudent—for NASA to be conducting a similar analysis to see if they can maintain resupply and astronaut transfers to the station without depending on the Russians,” he says.

NASA could already be moving in that direction; on March 2 the agency extended cargo contracts with SpaceX, Northrop Grumman, and Sierra Space. This development will add to Russia’s economic woes by reducing its already limited space revenue. Roscosmos has no commercial space program to support or fall back on.

For crewed launches, Russia has long depended on its Baikonur spaceport in neighboring Kazakhstan. But the nation has charged costly annual fees, and in March Kazakhstan seized Russian spaceport assets, reportedly due to Roscosmos’ debt. Russia has sought to reduce its dependence on Baikonur by building a new spaceport, the Vostochny Cosmodrome in eastern Russia near the Chinese border, but the project has been bogged down by construction problems, delays, and corruption scandals.

Beyond launch problems and coolant leaks, Russia’s civil space program faces another problem: the ISS. For the past quarter of a century, the station has provided a critical tie between the US and Russian space programs, but that’s winding down, along with plans to retire the giant structure altogether. NASA is investing in next-generation commercial space stations, with modules scheduled to arrive in orbit as early as 2030. Russia has no role in those commercial concepts, nor in China’s new Tiangong station.

Last July, Yuri Borisov, the head of Roscosmos, claimed that Russia would withdraw from the ISS—effectively ending the station’s lifetime—in 2028, when Russia would launch its own space station. And this February, the state-owned TASS news agency confirmed that Russia plans on supporting the ISS through 2028, timing that depends on the deployment of a “new Russian Orbital Station.”

Pavel Luzin, senior fellow at the Jamestown Foundation, a think tank focused on China, Russia, and Eurasia, is skeptical; he’s not aware of new space station models, crewed spacecraft, or launch vehicles in the works. It would be optimistic for Russia to even launch a new station in the 2030s, he adds. “Russia is not the Soviet Union,” says Luzin, who is also a visiting scholar at the Tufts University’s Fletcher School of Law and Diplomacy. “Russia will be able to make some large vehicles and Soyuz spacecraft. Russia will be able to launch some satellites. But it will not be an advanced space power. It will not be making steps beyond low Earth orbit.”

Yet through the support of an emerging space superpower, Russia still has plans for the moon. In 2021, Chinese and Russian officials announced that they would partner to set up a research station on the lunar south pole in the 2030s. Lots of work will precede that base, though. First, China has embarked on a series of robotic missions to collect data and scope out potential landing spots. The next of those, Chang’e 6, includes a lander and sample return mission and is planned for 2025. Russia’s first robotic mission for the program, Luna 25, has been delayed for years but could finally launch in July. That lander will prove a crucial test for Roscosmos, whose handful of missions beyond Earth orbit since the late 1980s have fared poorly. Those mostly Mars-focused probes either failed to leave Earth orbit or didn’t reach their destinations.

That track record, compared to the successes of China’s ramped-up space program, is a reason for skepticism about the Chinese-Russian collaboration, says Zak. “Why would China cooperate with Russia when the Russian space program is in a weaker state?” he says. “The mismatch in technical capabilities is so huge that I don’t see what China can get from this.” While China may have political reasons for collaborating with Russia, Zak says, its space program has little to gain from working with its Russian counterpart.

As its civil space program collapses, Russia has been heavily investing in its military one. The country has highly developed anti-satellite weapons, including a missile system tested in November 2021 that generated thousands of bits of debris in orbit. (So have previous tests by the US, China, and India, leading to an international call for a moratorium on them.) Russia has also used electronic weapons against space systems and has been testing laser weapons that could be used against satellites. Russia appears to have tested a potential weapon prototype in 2019 and 2020, with a “nesting doll”-like spacecraft, Cosmos 2543, which released a sub-satellite in orbit, says Victoria Samson, the Washington office director for the Secure World Foundation, a nonpartisan think tank.

Like McClintock, Samson says Russia’s back-to-back technical issues are a worrisome sign for its civil space program, and so is the likelihood that it may soon be without a space station. “There is a national prestige factor for countries with space programs,” she says. The Soviet Union may have put the first human into space—but now, 60 years later, Russia faces a near-future in which it is no longer able to do that. “That’s a slide,” says Samson.

Review of the Metropolitan Police was carried out after the murder of Sarah Everard by an on-duty cop in 2021

LONDON—An independent report concluded that London’s Metropolitan Police force—Britain’s largest—is institutionally racist, antigay and sexist, and should be broken up if it can’t change.

The review into the Met’s cultures and standards, which was released on Tuesday, was written by Baroness Louise Casey, who has held a number of top government posts working in social welfare, in the wake of the rape and murder of Sarah Everard by a serving Met police officer in 2021. It details failings about which it says the force has been in denial for years. A previous independent report in 1999 called the Met institutionally racist.

“We have found widespread bullying, discrimination, institutional homophobia, misogyny and racism, and other unacceptable behaviors which are a far cry from the high ethical standards the public rightly expects of its police officers,” the report said. The report concluded that independent progress reviews should be conducted in two years and if matters aren’t being resolved the force should be broken up into smaller entities.

Mark Rowley, the recently appointed Met commissioner, accepted the report’s findings and said he would take immediate action to fix the issues it raised. “We’ve got hundreds of toxic individuals that need sorting out,” he said. “We’re removing officers at a faster rate than ever before.” But he cautioned that change wouldn’t come overnight.

British Prime Minister Rishi Sunak said trust in the force had been “hugely damaged.”

The U.K. hasn’t seen the same kind of backlash to heavy-handed policing that led to calls from some social activists in the U.S. to defund police forces. That is partly because London pioneered the model of “policing by consent,” whereby officers are unarmed and rely on the trust and respect of the population at large to keep order.

Incidents of lethal force by police in the U.K. are rare. There were just two fatal shootings by police in the year up to March 2022, and 11 deaths in or following police custody in England and Wales, according to government statistics. In the U.S., roughly 1,000 people are killed by police in an average year, according to independent estimates using police data.

The report’s findings illustrate some of the real-life pitfalls of what happens when a police force is defunded, or if funding is sharply curtailed.

The report emphasized how the Met had suffered a significant squeeze in government spending, with a budget that is now 18% smaller in real terms than at the start of the past decade. A fifth of its civilian workforce has gone, and 126 police stations have closed. This, combined with a toxic work culture, has had a deeply detrimental impact on the Met’s ability to serve London’s population, the report said. “Local policing has been fractured,” the report said.

A number of high-profile scandals, meanwhile, have eroded Londoners’ trust in the force. Mr. Rowley recently said there are 1,000 sexual and domestic-abuse claims against 800 other police officers out of a force of about 35,000 officers.

Former Met police officer David Carrick was in February sentenced to at least 30 years in jail after he was found guilty of committing a series of rapes over the past two decades as an active police officer.

Another former officer, Wayne Couzens, arrested and then kidnapped, raped and killed Ms. Everard, sparking the inquiry published on Tuesday. Mr. Couzens pleaded guilty and was sentenced to life in prison. Both men had been flagged to the Met in the past over their conduct, but no action was taken. Both men were also members of the Met’s armed diplomatic security unit, which the report recommended be disbanded.

In March 2022, just 45% of Londoners had trust in the police force to do a good job, the report said. That raises questions about whether “policing by consent” can remain an effective model. The review said the Met “has become unanchored” from the principles of policing by consent as the public no longer have faith in it.

The 363-page report paints a bleak picture of a disjointed police force starved of funding and struggling to deal with an internal culture of bullying. While overall crimes such as burglary have fallen since 2010, domestic abuse-related crimes have doubled over the past decade and the number of reported rape cases have increased fourfold. These are harder to investigate and require more resources, which haven’t been provided.

Rape cases often went uninvestigated with evidence kept in “overstuffed, dilapidated or broken fridges and freezers,” the report said. It also highlighted what it called over-brutalized policing methods. For instance, between 2018 and 2020, 650 children were strip-searched, a quarter of whom were between 10 and 15 years old, the report said.

A culture of hazing also existed among officers. These included food-eating challenges and people being urinated on in the shower. A Sikh policeman had his beard cut with scissors by another officer because they thought it would be funny, and a Muslim officer had bacon put in his boots in his locker as a prank. One female police officer described women colleagues being forced to eat whole cheesecakes until they vomited. Several anonymous case studies alleged male police officers sexually assaulted colleagues.

“The Met preferred to pretend that their own perpetrators of unconscionable crimes were just ‘bad apples,’ or not police officers at all. So throughout this review, I have asked myself time and again, if these crimes cannot prompt that self-reflection and reform, then what will it take?” Ms. Casey concluded.

Holders of riskier bonds got nothing while shareholders will receive a payout in UBS shares

Switzerland’s move to wipe out $17 billion of Credit Suisse Group AG bonds has prompted investors to reassess a market integral to the safety and resilience of Europe’s banking system.

The Credit Suisse bonds that were written down as part of its takeover by UBS Group AG UBS +11.97% were known as AT1s, or Additional Tier 1 bonds. These instruments exploded in popularity in Europe over the past decade and were seen as a way to build buffers that could protect banks in times of trouble without having to tap taxpayer funds.

The total write-off by Swiss regulators has divided opinion, with some market-watchers saying that it was justified under the terms of the bonds, while others hotly dispute that analysis.

Whatever the legal basis, investors and analysts say the deal undermined confidence in the roughly $250 billion AT1 market, threatening to drive up funding costs for European and Asian banks.

Some bondholders are thinking about challenging the wipeout. “What investors look at when they are investing is certainty of process and rule of law. That has just been swiped away in one fell swoop by Switzerland, ” said Natasha Harrison, managing partner at law firm Pallas, which is assembling an investor group for potential litigation.

The write-down “could lead to contagion for wholesale funding costs across the sector,” JPMorgan analysts said in a research note Tuesday. “We expect that credit investors are now likely to demand a higher risk premium across the spectrum, with cost of AT1 issuance potentially rising into double digits,” they wrote.

Over the past year, banks have typically issued such bonds paying annual percentage interest rates of mid-to-high single digits.

Market pricing initially appeared to back that position. The value of most AT1 bonds inched back up Tuesday along with global bank stocks, but most prices remained substantially below levels from before Credit Suisse’s CS +3.51% implosion.

Some fund managers said they aren’t likely to invest in Swiss bank AT1s because of how bondholders were treated.

“We wouldn’t be too willing to bet on those terms, there is too much uncertainty,” said Artaud Caloni, a credit portfolio manager at Meeschaert Asset Management.

Banks hold capital to protect against losses. European regulators, stung by taxpayer bailouts in 2008-2009 and concerned about financial stability during the region’s sovereign-debt woes in the early 2010s, encouraged banks to issue AT1s as part of their capital mix, which also includes common stock and other bonds.

“Regulators wanted better-capitalized banks” after the financial crisis, said Francesco Franzoni, professor of finance at the University of Lugano and senior chair of the Swiss Finance Institute. “AT1s were created as a new avenue to increase banks’ capital.”

Sometimes called contingent convertible bonds, or CoCos, such securities can be written down or converted to equity in an emergency, depending on the terms of bonds issued by individual banks. They were attractive to investors because, while relatively risky, they carried high yields during a decade of low, and sometimes negative, rates.

“Whenever they pay you a high return, you have to be careful about what’s behind it,” said Prof. Franzoni. “Investors were not discerning enough—or they trusted their bankers.”

For their part, European banks liked this form of capital because their depressed share prices made issuing common shares punishing on existing investors.

U.S. regulators considered promoting them as well, but decided against it, preferring banks to hold more common equity, or shares, as well as other instruments such as preferred stock.

AT1 bonds differ from country to country and bank to bank. Some can get converted into common shares or written down partially or completely. They get triggered when a bank’s overall capital ratios fall below a certain level or when a regulator determines a bank isn’t viable.

The complete write-down of Credit Suisse’s securities had been pushed for by UBS executives to reduce the burden the firm inherited by taking over its rival.

Some investors were caught off-guard because Credit Suisse common shares were spared, with UBS paying $3.2 billion for them via its own stock, even as the AT1s were written down.

While that upends the common order in an insolvency, there was a fierce debate over whether Credit Suisse AT1s in fact allowed such a move in their documentation.

Finma, the Swiss financial regulator, said Sunday that Credit Suisse was experiencing a crisis of confidence and risked becoming illiquid, even if it remained solvent, and required the state-engineered deal to stay alive. The government provided a more than $9 billion backstop to UBS on potential losses.

Sowing consternation among AT1 investors: Swiss authorities hastily passed a law last week that expedited the regulators’ ability to write down the riskier bonds to zero.

“It’s all about credibility, and if you have laws and regulations in place you should follow them,” said Patrik Kauffmann, a portfolio manager at Aquila Asset Management AG, which holds some AT1 bonds issued by Credit Suisse.

Mr. Kauffmann said these bondholders absorbing more losses than shareholders went against the letter and spirit of the law before the last-minute law change. “I don’t say you need to pay 100% to AT1 holders, but they perhaps should recover a substantial amount of their investment,” he said.

U.K. and European Union regulators tried to reassure AT1 bondholders, saying that in their jurisdictions, shareholders would suffer losses before bondholders in any future bank failures.

The possibility to write off Credit Suisse’s riskier securities was in the bond contracts, but it required government support, said Rashid Bahar, a partner at Advestra AG, a Zurich-based law firm with a focus on capital markets and financial services.

The law change made last week effectively granted Swiss regulators “the right to make this decision and do it quickly. It is not just a matter of contract law, it is Finma’s authority,” Mr. Bahar said.

The prospectus of one AT1 said any write-down could happen even if ordinary Credit Suisse shares remained outstanding. A bank presentation also showed the debt ranking lower in priority than common equity.

Another test looms for the market in the coming months.

AT1s are perpetual bonds, meaning banks don’t need to redeem them. But they are issued with call dates when the interest rate steps up. By tradition, banks have almost always redeemed the bonds by the call date, paying back bondholders their principal and issuing new securities to replace them.

But they can theoretically decide to leave bonds outstanding—something that has unnerved investors before, and which could be a risk, especially if the entire market has repriced.

The next important date for a European AT1 is in May, when there is a call date for a bond issued by UniCredit SpA. The Italian bank didn’t immediately respond to a request for comment.

Holders of riskier bonds got nothing while shareholders will receive a payout in UBS shares

Switzerland’s move to wipe out $17 billion of Credit Suisse Group AG bonds has prompted investors to reassess a market integral to the safety and resilience of Europe’s banking system.

The Credit Suisse bonds that were written down as part of its takeover by UBS Group AG UBS +11.97% were known as AT1s, or Additional Tier 1 bonds. These instruments exploded in popularity in Europe over the past decade and were seen as a way to build buffers that could protect banks in times of trouble without having to tap taxpayer funds.

The total write-off by Swiss regulators has divided opinion, with some market-watchers saying that it was justified under the terms of the bonds, while others hotly dispute that analysis.

Whatever the legal basis, investors and analysts say the deal undermined confidence in the roughly $250 billion AT1 market, threatening to drive up funding costs for European and Asian banks.

Some bondholders are thinking about challenging the wipeout. “What investors look at when they are investing is certainty of process and rule of law. That has just been swiped away in one fell swoop by Switzerland, ” said Natasha Harrison, managing partner at law firm Pallas, which is assembling an investor group for potential litigation.

The write-down “could lead to contagion for wholesale funding costs across the sector,” JPMorgan analysts said in a research note Tuesday. “We expect that credit investors are now likely to demand a higher risk premium across the spectrum, with cost of AT1 issuance potentially rising into double digits,” they wrote.

Over the past year, banks have typically issued such bonds paying annual percentage interest rates of mid-to-high single digits.

Market pricing initially appeared to back that position. The value of most AT1 bonds inched back up Tuesday along with global bank stocks, but most prices remained substantially below levels from before Credit Suisse’s CS +3.51% implosion.

Some fund managers said they aren’t likely to invest in Swiss bank AT1s because of how bondholders were treated.

“We wouldn’t be too willing to bet on those terms, there is too much uncertainty,” said Artaud Caloni, a credit portfolio manager at Meeschaert Asset Management.

Banks hold capital to protect against losses. European regulators, stung by taxpayer bailouts in 2008-2009 and concerned about financial stability during the region’s sovereign-debt woes in the early 2010s, encouraged banks to issue AT1s as part of their capital mix, which also includes common stock and other bonds.

“Regulators wanted better-capitalized banks” after the financial crisis, said Francesco Franzoni, professor of finance at the University of Lugano and senior chair of the Swiss Finance Institute. “AT1s were created as a new avenue to increase banks’ capital.”

Sometimes called contingent convertible bonds, or CoCos, such securities can be written down or converted to equity in an emergency, depending on the terms of bonds issued by individual banks. They were attractive to investors because, while relatively risky, they carried high yields during a decade of low, and sometimes negative, rates.

“Whenever they pay you a high return, you have to be careful about what’s behind it,” said Prof. Franzoni. “Investors were not discerning enough—or they trusted their bankers.”

For their part, European banks liked this form of capital because their depressed share prices made issuing common shares punishing on existing investors.

U.S. regulators considered promoting them as well, but decided against it, preferring banks to hold more common equity, or shares, as well as other instruments such as preferred stock.

AT1 bonds differ from country to country and bank to bank. Some can get converted into common shares or written down partially or completely. They get triggered when a bank’s overall capital ratios fall below a certain level or when a regulator determines a bank isn’t viable.

The complete write-down of Credit Suisse’s securities had been pushed for by UBS executives to reduce the burden the firm inherited by taking over its rival.

Some investors were caught off-guard because Credit Suisse common shares were spared, with UBS paying $3.2 billion for them via its own stock, even as the AT1s were written down.

While that upends the common order in an insolvency, there was a fierce debate over whether Credit Suisse AT1s in fact allowed such a move in their documentation.

Finma, the Swiss financial regulator, said Sunday that Credit Suisse was experiencing a crisis of confidence and risked becoming illiquid, even if it remained solvent, and required the state-engineered deal to stay alive. The government provided a more than $9 billion backstop to UBS on potential losses.

Sowing consternation among AT1 investors: Swiss authorities hastily passed a law last week that expedited the regulators’ ability to write down the riskier bonds to zero.

“It’s all about credibility, and if you have laws and regulations in place you should follow them,” said Patrik Kauffmann, a portfolio manager at Aquila Asset Management AG, which holds some AT1 bonds issued by Credit Suisse.

Mr. Kauffmann said these bondholders absorbing more losses than shareholders went against the letter and spirit of the law before the last-minute law change. “I don’t say you need to pay 100% to AT1 holders, but they perhaps should recover a substantial amount of their investment,” he said.

U.K. and European Union regulators tried to reassure AT1 bondholders, saying that in their jurisdictions, shareholders would suffer losses before bondholders in any future bank failures.

The possibility to write off Credit Suisse’s riskier securities was in the bond contracts, but it required government support, said Rashid Bahar, a partner at Advestra AG, a Zurich-based law firm with a focus on capital markets and financial services.

The law change made last week effectively granted Swiss regulators “the right to make this decision and do it quickly. It is not just a matter of contract law, it is Finma’s authority,” Mr. Bahar said.

The prospectus of one AT1 said any write-down could happen even if ordinary Credit Suisse shares remained outstanding. A bank presentation also showed the debt ranking lower in priority than common equity.

Another test looms for the market in the coming months.

AT1s are perpetual bonds, meaning banks don’t need to redeem them. But they are issued with call dates when the interest rate steps up. By tradition, banks have almost always redeemed the bonds by the call date, paying back bondholders their principal and issuing new securities to replace them.

But they can theoretically decide to leave bonds outstanding—something that has unnerved investors before, and which could be a risk, especially if the entire market has repriced.

The next important date for a European AT1 is in May, when there is a call date for a bond issued by UniCredit SpA. The Italian bank didn’t immediately respond to a request for comment.

Executives at Swiss bank believe Wall St veteran secured terms from Credit Suisse that were too generous

UBS is set to enter talks with Michael Klein to unwind a deal that would have seen the Wall Street dealmaker take control of much of Credit Suisse’s investment bank, according to people with direct knowledge of the matter.

The negotiations, coming days after UBS was forced to buy its Swiss rival for $3.25bn, underline the view among UBS executives that Klein secured terms that were too favourable. UBS also sees some value in keeping parts of the now defunct Credit Suisse’s investment banking unit.

“We assume he [Klein] is cherry picking. The deal was done when the selling bank had a gun held to its head and we are no longer in that position,” a person close to UBS said. “We are not here to enrich Michael Klein at the expense of our shareholders.”

Last October, Klein, a former Credit Suisse board member, negotiated a merger of his boutique advisory firm with the advisory and capital markets unit of Credit Suisse, planning to spin off and list the combination under the historic First Boston brand. Klein would have owned a minority stake and the Swiss lender a majority position.

Credit Suisse had agreed to buy M Klein & Company for $175mn and separately paid Klein personally another $10mn for advising on the restructuring of its investment bank.

UBS has now assigned a legal team to examine how to void the contract Credit Suisse signed with Klein in the cheapest way possible, the people said. In particular it is reviewing whether it can scrap or negotiate down a break-up fee owed to Klein. However, if it cannot, one person said, the costs to activate the break clause would not be material.

One person close to Klein said they “seriously doubt” the transaction can go ahead on the same terms because “First Boston can’t be what it was meant to be” with its parent company set to disappear.

A key part of First Boston’s strategy was a close partnership with Credit Suisse’s wealth management and trading operations, which is unlikely to continue under UBS’s ownership, the people said.

Once Credit Suisse is subsumed, First Boston would no longer be able to receive capital from its parent or be able to distribute equity to staff that transferred over, they added.

UBS and Credit Suisse declined to comment, as did a spokesperson for Klein.

For Klein, the deal would have fulfilled an ambition of running a high-profile Wall Street business after his 2008 departure from Citigroup. A protégé of former Citigroup leader Sandy Weill, the 59-year-old investment banker was once considered a candidate to take the helm of the Wall Street giant.

After founding M Klein & Co, which employs about 20 staff, Klein has continued acting as an adviser to CEOs, corporations and governments on major transactions. He has become a close adviser to Saudi Arabia, including on the initial public offering of its state oil company Saudi Aramco.

Credit Suisse shareholder Harris Associates had raised questions over the terms of the deal with Klein and his possible conflict of interest given the banker had been on the board for four years.

UBS has assessed that parts of Credit Suisse’s advisory and capital markets operations are complementary to its own, while it is planning to accelerate a rundown of its trading operations.

“Credit Suisse’s strength, particularly in the US and the technology sector, makes a very good fit to our strategy, where we know that technology entrepreneurs are the wealth creators of the future,” chief executive Ralph Hamers said on a call with analysts Sunday night.

Hamers also wants to retain bankers specialising in pharmaceuticals, media and telecoms, which UBS believes will provide a pipeline of wealthy customers for its private bank.

Sale of vehicles running solely on such fuels would be permitted after EU combustion engine ban

The European Commission is seeking to resolve its spat with Germany over a proposed EU ban on vehicles with combustion engines by suggesting new models running on carbon-neutral e-fuels could be sold in the bloc after 2035.

Under the draft proposal, a new category of vehicle would be created for cars that could only run on such fuels — so-called “e-fuels only”. They would be fitted with technology to prevent them using traditional fossil fuels such as petrol and diesel.

However, it was still unclear on Tuesday whether Germany, whose car industry accounts for around a fifth of the country’s industrial revenues, had accepted the proposal. The German transport ministry said only that it was continuing to consult with the commission on a possible solution to the dispute.

E-fuels are produced using electricity from renewable hydrogen and other gases and are often considered “carbon neutral”. But the technology is at an early stage of development.

EU member states and the European Parliament passed a law last year that would ban the sale of new petrol and diesel engines in the bloc from 2035. The ban was a key part of the EU’s effort to cut emissions by 55 per cent by 2030 compared to 1990 levels.

A final rubber-stamp vote by member states was scheduled for earlier this month, paving the way for the law to enter force. But Germany raised last-minute objections, effectively scuppering the vote.

Talks have been held since then to try to bring Germany back on board and there were hopes that a deal might be reached ahead of this week’s EU summit in Brussels.

Anna Lührmann, the German state minister for Europe, fuelled those hopes on Tuesday, saying before a ministerial meeting in Brussels: “I assume that talks [on a solution] will be wrapped up before the summit.”

But a German transport ministry spokesman was more ambivalent. The ministry was “liaising closely with the commission to find a solution that offers a reliable path to allowing cars with internal combustion engines to be sold after 2035, as long as they run exclusively on e-fuels”, he said.

“We are interested in a swift clarification, which must be durable and binding,” the spokesman said, adding that the ministry was “carefully examining” the options.

The commission said on Tuesday it was confident a solution could be found that would “clarify the issue . . . about the role of e-fuels in the future”.

Germany’s transport ministry wrote to the commission last week setting out some of its demands. It said there should be “legally binding steps” to implement the resolution on e-fuels that was part of the legislation on the combustion engine phase-out.

It also said cars running on e-fuels should count towards existing targets for emissions reductions.

An EU official close to the talks said the ministry’s request in the letter for a supplementary act laying out provisions for e-fuels was “problematic”. 

A senior EU diplomat said it was “very much up to the German transport minister and the commission how they can solve this . . . if they cannot conclude it will cast some sort of vibe [over other climate-related regulations].”

Large number of office defaults could force banks to mark down value of these and other loans

A record amount of commercial mortgages expiring in 2023 is set to test the financial health of small and regional banks already under pressure following the recent failures of Silicon Valley Bank and Signature Bank.

Smaller banks hold around $2.3 trillion in commercial real estate debt, including rental-apartment mortgages, according to an analysis from data firm Trepp Inc. That is almost 80% of commercial mortgages held by all banks.

With the banking industry in turmoil, regulators and analysts are growing increasingly concerned about commercial real estate debt, particularly loans backed by office buildings, according to industry participants. Many skyscrapers, business parks and other office properties have lost value during the pandemic era as their business tenants have adopted new remote and hybrid workplace strategies.

High interest rates also have wreaked havoc with commercial property valuations. Many owners with floating-rate mortgages have to pay much more monthly debt service, cutting into their cash flows. Owners with fixed-rate mortgages will feel the pain of higher rates when they have to refinance.

This year will be critical because about $270 billion in commercial mortgages held by banks are set to expire, according to Trepp—the highest figure on record. Most of these loans are held by banks with less than $250 billion in assets.

If those loans pay off, it would reassure markets. But a large number of defaults could force banks to mark down the value of these and other loans, analysts say, reinforcing fears over the financial health of the U.S. banking system.

Many of these borrowers will have a hard time paying off their loans, said Tomasz Piskorski, the Edward S. Gordon professor of real estate at Columbia Business School. “The destruction of value is quite big,” he said.

While a number of banks have seen drops in the value of their bondholdings—a key factor in Silicon Valley Bank’s collapse—figuring out by how much the value of their mortgages has dropped is trickier because they aren’t publicly traded and every building is different.

In a recent paper, a group of economists including Mr. Piskorski estimated that the value of loans and securities held by banks is around $2.2 trillion lower than the book value on their balance sheets.

The woodblock print inspired artists across the East and West, including Monet and Van Gogh

Who knew it was still possible to collect an iconic work of art for under $3 million? Case in point: On Tuesday, Christie’s in New York sold Katsushika Hokusai’s “Under the Well of the Great Wave off Kanagawa” for $2.8 million—a new record high for the 1830-32 woodblock print.

Christie’s only expected the work to sell for between $500,000 and $700,000, but six bidders pushed it higher in a battle that lasted 13 minutes. The telephone bidder, fielded by Christie’s deputy chairman Tash Perrin, remains anonymous. Dealers said they might start looking among a younger generation of contemporary-art collectors who have lately started pivoting to prints, particularly well-known works that look like bargains.

“To contemporary guys, it’s nothing to spend over $1 million to own an absolute icon,” said Sebastian Izzard, a longtime Japanese prints dealer in New York. “Hokusai has become a big deal.”

One of the most famous images in Asian art, the “Great Wave” poised to crest claw-like onto a trio of tiny boats with Mount Fuji in the distance has proven wildly popular since the artist created it at the age of 70 during the waning years of isolationist Edo, now Tokyo. Although intended to appeal to everyday audiences in Japan who bought and swapped such prints for small sums, Hokusai’s “Great Wave” influenced rivals like Utagawa Hiroshige and Utagawa Kuniyoshi, who soon attempted their own tsunami scenes, including the latter’s circa-1835 “Monk Nichiren Calming the Stormy Sea,” now owned by the Metropolitan Museum of Art.

Hokusai’s “Great Wave” eventually made its way out of cloistered Japan—likely as a sailor’s souvenir—and made an equally big splash among artists in Europe. Curators credit the “Great Wave” with helping inspire Claude Monet’s roiling coastal seascapes as well as Vincent Van Gogh’s “Starry Night,” who substituted the wave itself in his composition for roiling, moonlit clouds. Claude Debussy’s three symphonic sketches from 1905, “The Sea,” also took Hokusai’s work as their muse.

The “Great Wave” remains a paragon of popular culture today, reproduced on everything from calendars to carpets to the cover of Gabrielle Zevin’s current bestselling novel, “Tomorrow, and Tomorrow, and Tomorrow.” On Tuesday, Google listed around 125 million search results for Leonardo da Vinci’s “Mona Lisa”; the search engine logged nearly 1.4 billion hits for the “Great Wave.”

Despite this ubiquity, versions of Hokusai’s masterpiece still tend to sell for a fraction of anything painted by Monet—and that price gap largely explains why the “Great Wave” appeals to younger, international collectors, said Takaaki Murakami, head of Japanese and Korean art at Christie’s New York.

“With the ‘Great Wave,’ new buyers come out of the blue,” Mr. Murakami said.

Wading into the Hokusai market requires navigating the vagaries of the prints market. Whereas paintings are prized as being one of a kind, the “Great Wave” was printed in untold multiples over several decades, with print runs extending long after Hokusai died in 1849. Hokusai, hailed as a celebrity in Edo during his lifetime for his detailed depictions of Japanese landscapes, was commissioned by publisher Nishimuraya Yohachi to create the “Great Wave.” But once the artist signed off on its woodblock design, the publisher had free rein to issue as many copies as possible. It’s unclear how many “Waves” exist in the world, so collectors must be wary of potential fakes.

Mr. Izzard said he’s probably sold 40 versions of the “Great Wave” over the course of his career, with prices easily tripling over the past decade for worthy versions, he said. The most recent version surpassed a “Great Wave” sold at Christie’s in 2021 for $1.5 million, over its $250,000 high estimate.

He said collectors tend to pay more for “Great Wave” prints whose lines remain crisply sharp because it means they were printed on the woodblock early on—as opposed to later, fuzzier versions created once the block itself had worn down from use. Another way to tell: Early versions, like the one Christie’s sold, show the subtle outline of a cloud against a pale pink sky.

Collectors also rank Hokusai’s works higher if the prints aren’t torn or creased, and Christie’s “Great Wave” was never folded, Mr. Murakami said. The anonymous family selling the work bought it in the early 1900s, he added, and it helped that they hadn’t moved it much since.

Mr. Murakami said Tuesday’s “Wave” was also spared attempts to touch up its quivering black outlines or fill in its Prussian blue ink—a deep indigo hue that defined Hokusai’s series of “Thirty-six views of Mount Fuji,” a paean to the mountain that the artist saw as sacred.

Savvy collectors know the artist actually created 46 distinct views, with Japanese collectors long preferring a different scene from the series known as “Red Fuji,” Mr. Izzard said. “Red Fuji” prints have sold at auction for as much as $1.4 million, according to auction database Artnet.

But Mr. Izzard said for whatever reason, curators and collectors in the West—and now, China—tend to gravitate to the Hokusai they know best, the “Great Wave.”

“Hokusai is the Japanese equivalent of Rembrandt,” he said, “and this is his icon.”

Trafigura and Vitol bosses say they would increase activity if governments and banks give approval

Commodity traders Trafigura and Vitol have said they would consider trading more Russian oil this year if they received clear guidance that governments and banks would accept them doing so.

The world’s two largest independent energy traders both wound down their large oil businesses with Russia following President Vladimir Putin’s invasion of Ukraine last year.

Trafigura chief executive Jeremy Weir said his company’s position was “under review” but would only change if there was broad-based agreement from banks, insurance companies and western governments that major traders needed to re-engage to facilitate the smooth and safe movement of Russian oil.

“You have to have all stakeholders involved to do this thing properly and professionally, and have buy-in,” Weir told the Financial Times’ commodities global summit in Lausanne.

Trafigura currently lifted only a “limited” number of cargoes of refined products, permitted under exemptions in the west’s sanctions, having completely stopped trading Russian crude last year, he added.

Russell Hardy, Vitol chief executive, said the company was in full compliance with the west’s restrictions and currently traded less than 100,000 barrels a day of Russian oil.

“Is that number going to move up marginally in the event of some slightly stronger guidance towards what’s expected? Yes, maybe,” he said. “Is it going to dramatically change? I don’t think so.”

The chief executives’ comments come as the US government has begun to privately urge some large trading companies to restart activity with Russia if they can do it under the G7’s $60 a barrel cap. Russia’s Urals blend, its main benchmark, is currently trading at $49.95, according to Refinitiv data.

Western officials are increasingly concerned that the sanctions have inadvertently moved the Russian oil trade from better-known companies to lesser-known operators, often using ageing vessels.

“The larger, more experienced companies have removed themselves [and], generally speaking, the newer more skilled shipowners removed themselves,” said Ben Luckock, Trafigura’s co-head of oil trading.

Companies that were “arguably less experienced, certainly less transparent” had filled the gap and were now taking Russian oil on old boats through difficult shipping channels such as the Danish straits, all the way to Asia, he added.

“I hope there isn’t a problem because it is going to very quickly focus people’s minds.”

Torbjörn Törnqvist, chief executive of energy trader Gunvor, said that many of the vessels carrying Russian oil had previously been “heading towards the scrap yard” and cautioned that the quality of the non-western insurance many of the shipments were probably using may not prove effective in the event of an accident.

He said Gunvor would not “exclude” the possibility of trading more Russian oil “but you obviously have to be 100 per cent sure about the compliance questions around this and it’s very complicated”.

Traders at the FT conference said they broadly expected oil prices to rise in the second half of this year, with many predicting the recent sell-off triggered by the issues in the banking sector would only make the oil market more bullish after the summer should drillers lower investment.

Brent crude, the global benchmark, was trading at $74.40 per barrel on Tuesday while West Texas Intermediate, the US equivalent, was at $68.38.

Luckock said he expected oil prices to get into the “high $80s” by the end of the summer while Gunvor co-head of trading, Stephane Degenne, said he expected prices to be in the $90s towards the end of the year.

The most bullish forecast was from hedge fund manager Pierre Andurand, who reiterated his prediction that oil prices would soar as high as $140 a barrel later this year, driven by rising demand in China as its economy reopens.

Leaders of China and Russia hold centrepiece talks in Moscow

Xi Jinping has backed Vladimir Putin’s stance on his war in Ukraine but refrained from endorsing his statements about a planned pipeline that would reroute Russia’s gas exports from Europe to Asia.

The Chinese and Russian leaders signed a joint statement on Tuesday after holding centrepiece talks in Moscow in which they extolled Beijing’s “positive role” and “objective, unbiased position” on Putin’s invasion. But their talks did not yield decisive agreements on economic issues key to helping Moscow weather western sanctions.

The lack of substance in Putin’s rhetoric about the talks, which he described as “warm, comradely and constructive”, underscored Russia’s diminishing influence as its reliance on China’s political and economic backing deepens.

Beijing has offered Moscow a crucial economic lifeline during the war by increasing purchases of its energy exports and replacing western goods and components restricted by the sanctions. The Tuesday talks, however, showed that the further deepening of economic ties were still subject to negotiations. Xi will stay in Moscow for a third day on Wednesday.

Putin’s main goal during the Chinese leader’s stay was to get him to agree to his planned Power of Siberia-2 gas pipeline set to supply China via Mongolia. Earlier on Tuesday, Putin spoke about it as if it were a done deal, saying “practically all the parameters of that agreement have been finalised”.

In joint remarks with Xi after the talks, Russia’s president promised to supply China with at least 98bn cubic metres of natural gas by 2023 — a figure attainable only if the new pipeline comes online — and noted Mongolia had already signed off on the deal.

But Xi remained conspicuously silent on the topic. A lengthy joint said only that Russia and China would “make efforts to advance work on studying and agreeing” plans to build the pipeline.

Alexander Novak, Russia’s top energy official, said the Kremlin hoped to sign the Power of Siberia-2 agreement later this year. “The companies have been given orders to work out the details of the project in detail and get to signing it in the shortest possible time. Orders have been given to ensure the conditions are agreed,” he told reporters, according to state newswire Ria Novosti. “We hope it’ll be this year.”

China’s leader was more forthcoming on Ukraine, however. The joint remarks mostly rehashed the Kremlin’s talking points, warning against “the practice by any country or group of countries to seek advantages in the military, political and other areas to the detriment of the legitimate security interests of other countries” — a frequent Russian complaint against Nato — and appeared to accuse western countries of escalating the war.

Putin, who has repeatedly mused about using nuclear weapons against the west if it continues to help thwart Russia’s faltering invasion, warned UK supplies to Kyiv of armour-piercing rounds which contain depleted uranium could escalate the conflict.

“Russia will be forced to react accordingly, taking into account that the collective west has begun using weapons with a nuclear component,” Putin said, without specifying what Russia’s response would be.

In a further show of support for Putin, who last week became the subject of an international arrest warrant for alleged war crimes in Ukraine, Xi said he invited him to come to China “at a convenient time” this year. Putin’s foreign policy adviser Yuri Ushakov said Russia’s leader could make the trip this year.

Ushakov said Putin and Xi’s meeting was enough to strike fear into the hearts of Russia’s adversaries. “They are very nervous, you can tell, and with good reason,” he said, according to Interfax. “Two great powers and neighbours are solving the most important issues of world politics and bilateral relations [ . . .] it’s entirely natural.”

The US has said China’s peace plan would legitimise Russia’s territorial conquests in Ukraine while giving Moscow time to replenish its armed forces for a fresh offensive.

“The world should not be fooled by any tactical move by Russia — supported by China or any other country — to freeze the war on its own terms,” US secretary of state Antony Blinken said on Monday.

Ukraine is also sceptical of the plan, but has refrained from criticising China ahead of an expected call between Xi and president Volodymyr Zelenskyy following his three-day visit to Moscow.

Contrasting with Xi’s visit to Moscow was the unexpected trip by Japan’s prime minister Fumio Kishida to Kyiv and Bucha, the site of alleged Russian war crimes where he expressed “great anger at the atrocity” committed there.