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Speech by Mike Pompeo set to complicate Biden’s efforts to restart nuclear talks with Tehran

US secretary of state Mike Pompeo will accuse Iran of having secret ties to al-Qaeda in a speech that relies on newly declassified intelligence on Tuesday, according to several people briefed on the plans.

The state department has spent weeks negotiating with US intelligence agencies to declassify some of the information. The disclosures are expected to make negotiating conditions with Iran harder for the incoming Biden administration, according to the people.

“It’s been on the books for a long time,” said one person briefed on the effort, adding that Mr Pompeo was making the move now as part of a “truth-telling” exercise. “It is significant enough to be in the public interest. There are some erroneous narratives that al-Qaeda and Iran hate each other.”

Al-Qaeda’s jihadis and Iran’s theocratic leadership are on the extremes of Muslims’ Sunni-Shia religious divide and the two are on opposing sides in some locations.

But the US has regularly accused the two of teaming up. President Donald Trump said in 2017 that Iran had provided assistance to al-Qaeda and harboured key figures. Mr Pompeo said, when he was CIA director, it was “an open secret” there had been relationships and connections between Iran and al-Qaeda. The newly declassified information is expected to add detail to such allegations.

Experts have long thought that some of the Islamist group’s leadership fled to Iran in the wake of the US invasion of Afghanistan that followed the September 11 attacks in 2001, but differ over the extent of subsequent ties.

Iran has long denied allegations it hosts al-Qaeda, but the latest US assessment promises more insight into the alleged relationship.

The New York Times reported in November that Israeli agents shot dead al-Qaeda’s number two Abu Muhammad al-Masri in Tehran at the behest of the US over the summer. Al-Qaeda did not announce his death and Iran denied the report. The US has not commented.

Egyptian-born Masri, who was a founding member of al-Qaeda and whose real name was Abdullah Ahmed Abdullah, had been on the FBI’s list of most wanted terrorists, indicted for his alleged role in the 1998 US embassy bombings in Kenya and Tanzania that killed hundreds of people, including a dozen Americans. 

Mr Pompeo, who colleagues say is preparing the ground for a possible run for the presidency in 2024, supported Mr Trump’s decision to withdraw from the 2015 Iran nuclear deal that Mr Biden plans to re-enter.

In his last days in office, Mr Pompeo has embarked on a flurry of last-minute policy shifts, ranging from dropping guidelines that limit US contact with Taiwanese officials to designating Yemen’s Houthi rebels as a terrorist organisation and Cuba as a state sponsor of terror.

Colin Clarke, terrorism expert at The Soufan Center, a global security research institution, said scholars disagreed on the extent of al-Qaeda’s freedom of movement in Iran.

The US had little operational capability in Iran so hiding there had helped preserve the leadership of the group “in some survivable form”, he said, adding that he did not think Iran was working “hand-in-glove” with al-Qaeda. 

The Trump administration has pursued the remnants of al-Qaeda in Pakistan, Yemen, Mali, Somalia and Afghanistan. Mr Pompeo has previously said there are fewer than 200 al-Qaeda members left in Afghanistan.

Mr Clarke described the move by Mr Pompeo as a “parting shot” to make it harder for the incoming Biden administration to undertake a thaw with Iran. “It’s true that Iran has harboured [some of] the al-Qaeda remaining leadership, but on balance what’s a bigger threat? A couple of old al-Qaeda guys hanging out in Iran or a nuclear weapon? Clearly, it’s the latter.”

Since 2017, an armed insurgency has been targeting the central government in Maputo in the Cabo Delgado province, where most of the major gas discoveries have been made in recent years. The insurgency is led by al-Shabab, a group that pledged allegiance to the Islamic state in 2019 and who is increasing attacks in this predominantly Muslim region.

On 12 August, the coastal town of Mocimboa da Praia temporarily fell into their hands following intense fighting against the regular army. This port, used by the oil companies and their subcontractors, is located 80 km south of the Afungi Peninsula. It houses the facilities of the liquefied natural gas project – Mozambique LNG – led by Total, which took over from Anadarko in September 2019.

READ MORE Mozambique’s Islamic insurgency poses risks to Total’s LNG project

Despite the budget cuts linked to the pandemic, Patrick Pouyanné, the CEO of the oil giant, has made this major project a priority and closed a $14.9bn financing deal in July 2020 to carry it out. With reserves estimated at 65 TCF (trillion cubic feet), the site should produce 13.1m tonnes of liquefied natural gas (LNG) each year for at least twenty-five years thanks to the exploitation of two offshore fields and the construction of two onshore liquefaction trains.

Mozambique LNG will enable Total to considerably increase the gas proportion of its hydrocarbon production on the continent, which is currently rather low – around 25% – and allow it to also take advantage of a dynamic Asian LNG market, accessible from the east of the continent.

“Security issues are being discussed with the authorities, notably the Ministries of Defence, Interior and Energy. Total does not use private armed security companies,” says Nicolas Terraz, the head of the exploration-production branch in sub-Saharan Africa, who follows the situation in Cabo Delgado daily and says the facility is currently safe.

Despite the threat from armed groups, but also from COVID-19, which imposes drastic health measures, no less than 5,000 people, 80% of them Mozambicans, were working at the Afungi facility in December 2020. Once the project hits its peak in 2022, nearly 15,000 people will be working there.

Security staff increased

After the attack on Mocimboa da Praia, Total and Maputo announced on 25 August that they had strengthened their agreement to protect gas installations in this politically sensitive region, which also includes the Rovuma LNG project, led by Eni and Exxon. A first version of this agreement was signed on 1 March 2019 by Anadarko.

The new version provides for an increase in Total’s financial contribution to the authorities in exchange for better protection of its project infrastructures by the Cabo Delgado Joint Task Force, whose numbers were increased after the 12 August attack from 500 to some 3,000 men according to several sources.

“Mozambique LNG is providing logistical support to the public security forces assigned to protect project activities in the form of vehicles, accommodation and food. Under this agreement, the operators pay the Ministry of Defence compensation for the protection missions carried out at the Afungi facility,” said Total at the time the agreement was signed.

Several contracts with private companies

“Each Mozambican military or police officer assigned to the protection of the facility receives VPSHR (Voluntary Principles on Security and Human Rights) training. Total is particularly vigilant about the proper application of these principles, and this subject is regularly raised with the authorities,” says Terraz.

Total also works with several private security companies whose personnel are unarmed. In August, the group had contracts in Mozambique with the British security consultancy firms Blue Mountain and Control Risks, as well as with the global security giants GardaWorld (Canadian), G4S (British), and the Mozambican Arkhe Risk Solutions.

A decade ago, Europe’s recovery from the global financial crisis was held back by the lingering bad-debt problems of its banks. History risks repeating itself.

The region’s generous lockdown-support programs and patchwork of insolvency laws could create so-called zombie firms—inefficient companies kept alive by cheap debt. Last month, the European Central Bank said this remains a risk.

Meanwhile, bank shares have been buoyed by optimism that Covid-19 vaccines will revive the economy and shareholder payouts will resume. The Stoxx Europe 600 banks index is up nearly 30% in the past three months, triple the main index performance and roughly on a par with the U.S. bank benchmark.

Following both the global financial crisis and the eurozone crisis, nonviable companies in Europe were kept alive by politicians worried about job losses and lenders hesitant to acknowledge bad debts. The zombies lowered markups, net investment and productivity in their markets as well as inflation in the wider economy, according to a recent report from the Federal Bank of New York—problems that have come back to bite their lenders too.

Pandemic support programs, such as loans and bankruptcy moratoria, aspire to give businesses the time needed to secure their finances and pivot operations to better serve pandemic and post-pandemic customers. Sometimes, though, the support simply provides cheap funds that help unsustainable companies limp on. It is very hard for policy makers to get the timing right on these programs: Rolling back too early could hurt viable businesses, but too late can create zombies.

Corporate and household debt levels have been rising, though that isn’t necessarily a problem as cash levels are up too. New accounting rules aim to recognize loan losses earlier, but these estimates are art as well as science. Payment holidays make it particularly difficult to know who might be in genuine trouble, and much of the pandemic’s permanent damage will remain hidden until programs roll back.

Zombie firms aren’t exclusively a European concern. Chinese steelmakers and U.S. shale oil producers were two other problem markets identified in the New York Fed’s report. But U.S. bankruptcy rules are seen as good practice, having enabled banks to quickly clear up their balance sheets and get back to business after the 2008 crisis. U.S. shale investors are currently facing a reckoning.

European Union officials have tried to harmonize national bankruptcy rules and create bad banks to take failing loans off lenders’ books. Unfortunately, progress has stalled. An acute loans crisis might compel Europe’s national leaders to act more quickly, as it has in prior ones.

On less than 0.6 times forward book value, the average European bank share is still cheap by historic and U.S. standards. Yet valuations now have a bit of hope built in. Some are even raising the prospect that lenders could reduce last year’s loan-loss allowances, boosting profits.

The short-term risk for investors may be that lenders move aggressively to sweep away zombies as conditions normalize this year. For the long-term health of Europe’s economy and banks, though, this clear out shouldn’t be delayed.

Remote-Work Boom During Covid-19 Pandemic Draws Real-Estate Startups

Many young professionals who left major cities plan to return eventually, fueling demand for furnished short-term housing

A group of real-estate startups is aiming to cash in on the remote-work phenomenon.

With many corporate offices closed because of the pandemic, many young professionals have left cities like New York and San Francisco for warmer, cheaper places. A number still plan to return after their offices reopen, leaving them reluctant to buy homes or sign long-term apartment leases.

That situation is creating fresh demand for furnished housing on a short-term basis, a fast-growing niche that many property startups and their venture-capital backers are rushing to fill.

One of them is Landing, which runs a network of furnished apartments across the U.S. When it launched in 2019, the Birmingham, Ala., and San Francisco-based company initially planned to operate in about 30 cities last year. Instead, it expanded to 75, largely because demand grew much faster than expected, said Landing Chief Executive Bill Smith.

Legions of remote workers also offer these firms a chance to make up for reduced tourist and corporate business. San Francisco-based Sonder, which rents out furnished apartments by the night, ramped up its marketing of extended stays during the pandemic, according to Chief Executive Francis Davidson. Stays of longer than 14 days now account for about 60% of the company’s business, up from less than a quarter before the pandemic, he said.

Kulveer Taggar, CEO of corporate-housing operator Zeus Living, said his firm experienced a steep drop in demand as companies hit the pause button on employee travel and relocations. But he was able to make up some ground by renting apartments to individuals. People working from home now account for about a quarter of the company’s business, Mr. Taggar said, up from virtually nothing before the pandemic.

Unlike Sonder and Zeus, remote workers were a key part of Landing’s business before the pandemic. Its customers pay an annual membership fee, which gives them the right to rent furnished apartments in any city. The minimum length of stay varies from 30 to 60 days, and the company asks for a month’s notice before a customer moves out.

The company is popular with college-educated young professionals who don’t want to be tied to a single location. Since the start of the pandemic, it has seen a growing number of customers leave New York and San Francisco and move to cities like St. Petersburg, Fla., and Denver, Mr. Smith said.

That growth carries risk if demand from remote workers were to disappear again after the pandemic is over. Still, Chris Moody, a partner at Foundry Group, said the number of furnished apartments available under flexible terms is still so small that he doesn’t worry about a lack of customers.

“Even at the end of 2021, we won’t really have scratched the surface,” he said.

TV1.0 (90s to 2019) was dominated by bundled linear monopolies with high ROIC. The

evolution of TV is likely to follow two phases: (i) TV2.0 (2019-2024) – a streaming land

grab phase dominated by unbundling; and; (ii) TV3.0 (2025-2030) – a consolidation

phase - dominated by re-bundling and/or aggregation of services. This report examines

how this transition will significantly impact Global media companies.

UBS's Global media team has built a global SVOD model. It forecasts streaming

customers using an "S" curve penetration function, a stacking rate (subscriptions per

household) based on UBS Evidence Lab surveys and ARPUs based on in-country pricing.

Our base case forecasts a total market of $167bn by 2030 with global penetration of

~55% and ~3 subscriptions per household. US and China account for ~50% of global

subscribers, with Netflix share forecast to remain relatively stable at ~17%. Upside

scenario assumes $300bn market with 75% penetration and limited subscription

fatigue, while downside is $110bn with 47.5% penetration.

The economics of streaming are challenging with large upfront investments required in

marketing, streaming technology and original content to gain scale. This, combined

with lower ARPUs, higher churn (or subscription switching) and more competition

means profitability could be challenging for sub-scale players. Based on UBSe Monte

Carlo analysis there is an 85% probability of a reasonable ROIC for large-scale SVOD

operators. Netflix or Roku revenue multiples of 5-10x are possible if operators can

achieve in country or global scale. Base-case economics are likely to improve in TV3.0.

UBS has built a qualitative model that ranks media companies in each phase of the TV

evolution based on competitive intensity, discovery, adoption, distribution platform and

ROIC (refer Figure 1). Our most favoured SVOD exposed stocks are Netflix and Disney

given premium content and global scale. In Europe we prefer exposure to ITV and

ProSieben given greater earnings diversity despite secular headwinds. Asian stocks such

as Sun TV are least preferred but expected to improve in TV3.0