FT : Scholz defends handling of Wirecard debacle at Bundestag grilling

Scholz defends handling of Wirecard debacle at Bundestag grilling
Members call for full inquiry despite finance minister’s insistence that authorities had done all in their power

Olaf Scholz, Germany’s finance minister, defended his handling of the Wirecard scandal in closed-door hearings in the Bundestag on Wednesday, insisting the authorities had done all in their power to uncover irregularities at the disgraced payments company.

Mr Scholz insisted that sweeping reform of German financial regulation, unveiled by his ministry last week, would fix deficiencies in the system and ensure there would be no repetition of the Wirecard affair, according to participants of the session.

The minister said his main concern was that “once the present outrage has dissipated, when this is no longer the big issue of the day, that we will no longer have the strength and courage needed to enact these reforms”, he told reporters after the hearing.

However, some opposition MPs said they were unimpressed with his performance, and continued to insist on a full parliamentary inquiry into the scandal. That could prove politically damaging for Mr Scholz and undermine his chances of running as the Social Democrats’ candidate for chancellor in next year’s Bundestag elections.

“The really interesting questions [regarding Wirecard] remain unanswered,” said Fabio De Masi, an MP from the leftwing party Die Linke and a member of the Bundestag finance committee.

Olaf Scholz, Germany’s finance minister, defended his handling of the Wirecard scandal in closed-door hearings in the Bundestag on Wednesday, insisting the authorities had done all in their power to uncover irregularities at the disgraced payments company.

Mr Scholz insisted that sweeping reform of German financial regulation, unveiled by his ministry last week, would fix deficiencies in the system and ensure there would be no repetition of the Wirecard affair, according to participants of the session.

The minister said his main concern was that “once the present outrage has dissipated, when this is no longer the big issue of the day, that we will no longer have the strength and courage needed to enact these reforms”, he told reporters after the hearing.

However, some opposition MPs said they were unimpressed with his performance, and continued to insist on a full parliamentary inquiry into the scandal. That could prove politically damaging for Mr Scholz and undermine his chances of running as the Social Democrats’ candidate for chancellor in next year’s Bundestag elections.

“The really interesting questions [regarding Wirecard] remain unanswered,” said Fabio De Masi, an MP from the leftwing party Die Linke and a member of the Bundestag finance committee.

Questions have been asked, in particular of BaFin’s handling of the affair. When the Financial Times published stories on an internal investigation in Wirecard’s Singapore headquarters, the regulator opened a probe into the FT itself, alleging an attempt to manipulate the market. Then in February 2019 it announced a two-month ban on the short selling of Wirecard shares, citing the company’s “importance for the economy” and the “serious threat to market confidence”.

Despite the steady drumbeat of negative news on Wirecard, the German government has revealed in the past few weeks that Angela Merkel, the chancellor, lobbied for the company’s interests in talks with Chinese officials during an official trip to Beijing last September. Meanwhile one of Mr Scholz’s closest aides, Wolfgang Schmidt, a state secretary at the finance ministry, also lobbied for Wirecard in China in mid-June, months after Mr Scholz had been informed that the company was being investigated for suspected market abuse.

Economy minister Peter Altmaier was also grilled because his department oversees APAS, the watchdog for Germany’s auditors. MPs wanted to know why APAS had not expressed any doubts about the work of Wirecard’s auditor EY, which provided unqualified audits of the company for years. 

He said after the meeting that the APAS had acted very early on in the scandal and had taken the necessary and correct measures at every juncture.

Mr Altmaier said none of the MPs’ questions had been left unanswered. “I don’t think there are any ambiguities there in any shape or form,” he told reporters.

>>> Closing Stock Market Summary

Closing Stock Market Summary

The S&P 500 rallied 1.2% on Wednesday, as investors were pleased with the Fed's latest policy directive and were unconcerned by the House Judiciary Committee's antitrust hearing. The Nasdaq Composite rose 1.4%, and the Russell 2000 rose 2.1%. The Dow Jones Industrial Average underperformed with a 0.6% gain. 

It was a steady and broad-based advance that lifted all 11 S&P 500 sectors into positive territory, including seven that rose at least 1.0%. The energy (+2.1%) and financials (+2.0%) sectors advanced the most with 2% gains, while the consumer staples sector lagged with a 0.2% gain. 

A bulk of today's gains came prior to the start of the antitrust hearing and the Fed's unanimous decision to leave rates unchanged. The market pushed higher as soon as Fed Chair Powell began his press conference at 2:30 p.m. ET, liking his comment that the Fed is "not even thinking about thinking about thinking about raising rates." (Yes, Mr. Powell said "thinking" three times). 

Note, the CEOs of Apple (AAPL 380.16, +7.15, +1.9%), Amazon (AMZN 3033.53, +33.20, +1.1%), Alphabet (GOOG 1522.02, +21.68, +1.5%), and Facebook (FB 233.29, +3.17, +1.4%) were still testifying before the House Judiciary Committee when the market closed for trading. While many lawmakers expressed serious concern about their business practices, shareholders kept their composure. 

Earnings remained mixed, but notable standouts included Advanced Micro Devices (AMD 76.09, +8.48, +12.5%), Shopify (SHOP 1053.59, +68.59, +7.0%), and Starbucks (SBUX 77.42, +2.78, +3.7%). Dow component Visa (V 198.58, +1.84, +0.9%) overcame a negative start following its positive report.  

On the downside, Boeing (BA 166.00, -4.84, -2.8%) and General Electric (GE 6.59, -0.30, -4.4%) closed sharply lower following their earnings reports. Boeing also said it expects to cut 19,000 jobs and estimated it will take around three years for travel to return to 2019 levels, which weighed on the airline stocks. 

U.S. Treasuries edged higher after the release of the July FOMC statement, but the moves were minuscule. The 2-yr yield declined one basis point to 0.13%, and the 10-yr yield was flat at 0.58%. The U.S. Dollar Index fell another 0.4% to 93.35. WTI crude futures gained 0.6%, or $0.23, to $41.27/bbl.

Reviewing Wednesday's economic data:

  • Pending home sales increased 16.6% in June (consensus +17.0%) after surging an unrevised 44.3% in May.
  • The advance international trade in goods deficit totaled $70.6 bln in June following a $75.3 bln deficit in May. Advance retail inventories declined 2.6% in June after decreasing 6.2% in May. Advance wholesale inventories declined 2.0% in June after decreasing 1.2% in May.
  • The weekly MBA Mortgage Applications Index declined 0.8% following a 4.1% increase in the prior week.

Looking ahead, investors will receive the advance estimate for Q2 GDP and the weekly Initial and Continuing Claims report on Thursday.

  • Nasdaq Composite +17.5% YTD
  • S&P 500 +0.9% YTD
  • Dow Jones Industrial Average -7.0% YTD
  • Russell 2000 -10.1% YTD

>>> US After Hours Summary: SANM +15.1%, APA +14.3%, QCOM +12.4%, ORLY +7.3%, QRVO +6.2% up big on earnings; CAKE -7.4%, PI -6.8%, YUMC -5.1%, NOW -4% lower on earnings


After Hours Summary: SANM +15.1%, APA +14.3%, QCOM +12.4%, ORLY +7.3%, QRVO +6.2% up big on earnings; CAKE -7.4%, PI -6.8%, YUMC -5.1%, NOW -4% lower on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: HOME +43.7% (guides JulQ revs well ahead of consensus), MOBL +22.6%, SANM +15.1%, APA +14.3% (also announces major discovery at Kwaskwasi), Suriname), QCOM +12.4% (also announces settlement agreement with Huawei), UCTT +9.6% (also announces expansion into Malaysia), MTSI +8.9%, CMPR +8.7%, HOLX +8%, ORLY +7.3%, QRVO +6.2%, BLKB +6.1%, FTI +5.7%, MKSI +5.7%, PYPL +5.4%, RIG +5.3%, CTSH +5% (also names new CFO), SCI +4.6%, AVTR +4%, ACGL +3.7%, SFM +3.7%, CHDN +3.5%, EGOV +3.5%, MANT +3.5%, PTC +2.6%, PS +2.5%, CDE +2.4%, AM +2.2%, NLY +2.2%, MEOH +2.1%, AEM +1.8%, LRCX +1.7%, AGI +1.4%, EQIX +1.3%, ADM +1.2%, KGC +1%, SRI +1%, MGRC +0.9%, ISBC +0.7%, WERN +0.5%, CGNX +0.2%, EQC +0.2%, MAA +0.2%, CXO +0.1%, FBHS +0.1%, KN +0.1%, PDM +0.1%, PGRE +0.1%, RJF +0.1%, TYL +0.1%, VICI +0.1%

Companies trading higher in after hours in reaction to news: BLNK +19.9% (extends momentum following +33% move during Wed trading session), APA +14.3% (APA and TOT announce major oil discovery at Kwaskwasi-1 offshore Suriname), PTC +2.6% (selected to support U.S. Navy digital transformation), DGX +1.8% (receives FDA authorization for new diagnostics lab model to increase COVID-19 molecular diagnostics capacity), TOT +1.2% (APA and TOT announce major oil discovery at Kwaskwasi-1 offshore Suriname), BLUE +1.1% (BMY and BLUE announce submission of BLA for ide-cel for multiple myeloma), FLR +0.5% (receives full notice to proceed by GFI for project in Chile), AIN +0.3% (reaches deal with BA for addl composite airframe content and contract extension on Boeing 787), CXO +0.1% (expands joint venture with Solaris Water Midstream), PRK +0.1% (to join S&P SmallCap 600)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: TSE -10.3%, CAKE -7.4%, PI -6.8%, QEP -5.3%, YUMC -5.1%, AR -5%, CCI -4.4%, GNW -4.2%, NOW -4%, OII -3.9%, PPC -3.9%, URI -2.1%, RGR -2% (also announces $5.00/sh special dividend), WPX -2%, SIMO -1%, TDOC -0.7%, NOVA -0.6%, OIS -0.4%, AX -0.2%, CHE -0.2%, FCPT -0.2%, MSA -0.2%, TTMI -0.2%, AMP -0.1%, ASGN -0.1%, AVB -0.1%, BHE -0.1%, CERN -0.1%, WHD -0.1%, WRI -0.1%

Companies trading lower in after hours in reaction to news: SPPI -14.4% (stock offering), TENB -2.7% (launches 8 mln share offering by selling stockholders), FSLR -0.7% (COO to retire in April 2021), MGM -0.3% (names new CEO), BMY -0.2% (BMY and BLUE announce submission of BLA for ide-cel for multiple myeloma)

>>> US Gapping down

Gapping down

In reaction to disappointing earnings/guidance:

  • STX -9.2%, TSEM -8.5%, BCS -6.4%, RDWR -5%, ADP -4.5%, DB -3.9%, SPOT -3.4%, MASI -3.1%, ATRC -3.1%, EBAY -2.8%, ENVA -2.8% (also announces deal to acquire ONDK), OKE -2.7%, DENN -2.3%, IPG -2.2%, PKG -2%, V -1.8%, AKAM -1.8%, SHOO -1.8%, GSK -1.5%, MTDR -1.4%, AMGN -1.3%

Other news:

  • ALEC -13.7% (presents clinical data)
  • ARCT -4.1% (prices offering of 3,264,151 shares of its common stock at $53.00 per share)
  • BTAI -3.7% (prices offering of 4,000,000 shares of common stock at $50.00 per share)
  • GLDD -3.1% (signs subcontract with Bechtel)
  • AMC -2.8% (AMC and Universal Filmed Ent announce a multi-yr agreement)
  • RUN -2.7% (to join S&P MidCap 400)
  • ADPT -1.2% (launches research study for Lyme disease)

Analyst comments:

  • ASML -3% (downgraded to Neutral from Buy at UBS)
  • PRT -0.9% (downgraded to Equal Weight from Overweight at Wells Fargo)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • BCO +19.6%, TUP +16.8%, AAN +12.8%, FEYE +12.1%, AMD +11.2%, CYH +10.7%, SMG +10.4%, CAR +9.8%, AGYS +9.3%, UMC +9%, ACCO +8.8%, TENB +8.8%, FLOW +7.9%, SHOP +6.8%, VIV +5.9%, BYD +5.6%, BG +5.6%, SBUX +5.5%, BXP +4.9%, GRMN +4.7%, IMAX +4.4%, GM +4.1%, CHRW +3.5%, BE +3.4%, AXS +3.3%, CSGP +3.2%, OC +3.2%, SF +3.2%, DT +3.1%, EQR +3%, ROL +2.9%, WING +2.8%, UNM +2.6%, ALKS +2.5%, OVV +2.4%, HA +2.3%, SYX +2.3%, JNPR +2.2%, MPWR +2.2%, RDY +2.2%, AMED +2%, WH +2%, RXN +2%, RIO +2%, BXMT +2%, ETN +1.9%, SNY +1.6%, ETR +1.6%, ARCB +1.5%, AER +1.5%, BA +1.5%, LSCC +1.4%, SLAB +1.4%, FTV +1.3%, GE +1.3%, ENB +1.2%, DXCM +1%, SSNC +1%

Other news:

  • LB +19.7% (announces $400 mln in annualized cost reductions; has reopened most Bath & Body Works and Victoria's Secret stores in North America), SSL +12.7% (sells sixteen air separation units located in Secunda to Air Liquide)
  • BANF +7.5% (to join S&P SmallCap 600)
  • FBIO +7% (announces publication of study on targeted next generation sequencing for newborn screening and Menkes disease)
  • CCC +5.5% (signs definitive agreement to combine with CPA Global)
  • IAA +4.4% (to join S&P MidCap 400)
  • CRTX +4.3% (presents data linking P. gingivalis infection to cardiovascular disease severity and Alzheimer's disease)
  • REXR +4.1% (to join S&P MidCap 400)
  • CRS +3.8% (to join S&P SmallCap 600)
  • DLX +3.7% (to join S&P SmallCap 600)
  • INO +3.4% (granted FDA orphan drug designation for INO-3107 for treatment of recurrent respiratory papillomatosis)
  • HRZN +3.3% (declares dividends of $0.10/sh for Oct, Nov and Dec)
  • ATUS +3.1% (to sell 49.99% of Lightpath fiber enterprise business)
  • HRB +3.1% (releases preliminary results for the recent US tax season)
  • HA +2.3% (launches offering of Enhanced Equipment Trust Certificates)
  • TSLA +1.7% (S&P upgrades to 'B+' on strengthening business position)
  • GILT +1.6% (receives cellular backhaul project award for Kcell)
  • AGI +1% (announces construction decision on La Yaqui Grande Project)

Analyst comments:

  • EGLE +4.2% (upgraded to Buy from Hold at DNB Markets)
  • CSGP +3.3% (upgraded to Overweight from Underweight at JP Morgan)
  • SBLK +2.5% (upgraded to Buy from Hold at DNB Markets)
  • HSBC +2.1% (upgraded to Buy from Hold at Investec)
  • ROK +2.1% (upgraded to Neutral from Sell at Rosenblatt)
  • MIST +1.1% (upgraded to Outperform from Perform at Oppenheimer)

FT : Tensions sky high in Airbus-Boeing spat


Hello from Washington, where we’re in the midst of a week of relatively juicy congressional hearings.

Yesterday saw US attorney-general William Barr aggressively defend his record at the helm of an increasingly politicised Department of Justice before the Democrat-controlled House judiciary committee.

Today sees the heads of Amazon, Apple, Alphabet and Facebook appear together before Congress to receive a grilling on the market power of Big Tech. Trade lovers will not be left out, though — the senate finance committee, headed by Republican senator Chuck Grassley, also plans to convene today to discuss reforming the World Trade Organization.

Our main piece looks at the latest episode in the Airbus-Boeing dispute, in which Europe has moved to try to avert a full-blown trade war before a seemingly unimpressed US trade representative. Our person in the news is Michel Barnier, the EU’s chief Brexit negotiator, while our chart of the day highlights how Poland’s huge coal industry is regarded as one of the biggest obstacles to Brussels’ climate change plans.


Washington silent over European olive branch
“It’s tricky”, said US trade representative Robert Lighthizer recently when talking about the mammoth Boeing-Airbus dispute that lies at the heart of much transatlantic trade tension at the moment.

Washington was last year awarded the right to impose punitive levies of up to 100 per cent on $7.5bn of European goods — the result of a WTO ruling that the EU and four of its member states (France, Germany, Spain and the UK) had failed to get rid of illegal state support for Airbus aircraft. The US has pushed up those levies in stages, targeting all sorts of European goods, with the next deadline falling in August. The WTO has ruled that US company Boeing has also collected billions in unlawful assistance, and a note outlining the retaliatory action the EU can take is expected in September.

The latest instalment in the 16-year multi-episode epic came last Friday. In vague terms, Airbus claimed that it no longer took the government handouts at the heart of the state-aid dispute. Specifically, it said it had agreed with the governments of France and Spain to “amend” repayable launch aid loans — which help manufacturers develop new models — on the A350 wide-bodied jet. Airbus did not disclose further details, but people close to the company said the amendment was that it would pay higher rates of interest. It had already done this with Germany, the people said, and the UK loan had been paid back.

The EU made much of this move. Trade commissioner Phil Hogan, whose long US-EU to-do list includes fixing this dispute, called for de-escalation of tensions with Washington. Others were less impressed. The EU’s former ambassador to the US David O’Sullivan brutally subtweeted Airbus’s European public affairs official to dub the move “WTO compliance for slow learners”.


“It’s not like we haven’t been telling them to do this for many, many years!,” he tweeted elsewhere. So far there has been stony silence from USTR in response to the Airbus olive branch. A spokesperson told Trade Secrets on Monday that USTR has read the press reports concerning Airbus’s announcement, but hasn’t been contacted directly by any of the countries concerned.

EU officials and diplomats have long said that Washington has rebuffed attempts to reach an agreement on how each country can support its aerospace champions. For its part, the US claims that its state aid problem with Boeing has been fixed. In May, the US said it had notified the WTO that it was now fully in compliance with its rules after repealing tax breaks for Boeing in Washington State.

Moreover, Lighthizer said as recently as last month that not only would the EU have to promise to stop subsidising Airbus, but appeared to suggest that Airbus should pay back some of the subsidy. Speaking at a Chatham House event online, he described the “massive subsidy” as giving “a very significant unfair advantage for Airbus and against a US company,” adding: “It’s going to require commitments not to do it again but also paying back some element of the subsidy.”

Bill Reinsch of Washington think-tank the Center for Strategic and International Studies said that ending the subsidies “is not, in the US view, big enough, as it does nothing to compensate for years of subsidies that created Airbus and kept it afloat”. He added that the US also expected the Boeing ruling to authorise a much smaller retaliatory action, something the EU disagrees will be the case.

“Until that comes out, I don’t think the US has any incentive to negotiate, aside from political pressure from US importers of items subject to the retaliatory tariffs, which so far has not moved them,” said Reinsch. 

It looks like more waiting might be in order.

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • LB +18.5%, FEYE +11.7%, AMD +11.2%, CAR +10.5%, AGYS +9.3%, CYH +7%, UMC +6.6%, SBUX +5.3%, BXP +4.9%, PLT +4.6%, IAA +4.4%, IMAX +4.4%, BYD +4.4%, CRTX +4.3%, JNPR +4.3%, BANF +3.9%, CRS +3.8%, DLX +3.7%, HRZN +3.3%, AXS +3.3%, DT +3.2%, SF +3.2%, ATUS +3.1%, EQR +3%, CSGP +2.9%, HRB +2.8%, SSNC +2.8%, CHRW +2.8%, UNM +2.6%, OC +2.5%, BG +2.5%, RIO +2.4%, REXR +2.3%, SYX +2.3%, MPWR +2.2%, SHOP +2.1%, TENB +2.1%, AMED +2%, WH +2%, HP +1.9%, MRNA +1.7%, SNY +1.7%, ACCO +1.5%, ARCB +1.5%, TSLA +1.4%, XPER +1.4%, LSCC +1.4%, BE +1.4%, STAG +1.1%
  • Gapping down:
    • STX -9.4%, ALEC -8.6%, BCS -4.5%, DENN -3.5%, DB -3.4%, SNN -3.2%, GLDD -3.1%, MASI -3.1%, ATRC -3.1%, AMC -3%, SPOT -2.8%, EPD -2.5%, RUN -2.4%, ARCT -2.3%, EBAY -2%, PKG -2%, ENVA -1.8%, V -1.6%, AMGN -1.6%, MTDR -1.4%, HA -1.3%, OKE -1.3%, HA -1.3%, ADPT -1.2%, CB -0.7%, EEFT -0.6%

FT : This surge in Chinese stocks is not like the last one

This surge in Chinese stocks is not like the last one
Recent market rally has a different set of drivers from the 2015 boom and bust

The history of China’s stock markets is one of successive booms that ended in tears, most recently in 2015, when the benchmark dropped 47 per cent in a matter of months. But evidence is mounting that there is something new about this latest rally, which means it could have much further to run. It is worth considering whether this time really could be different.

To be sure, the upswing has echoes of the surge and subsequent collapse in share prices five years ago, which spooked not only the ruling Communist party but also global markets. Much like in 2015, cheerleading by state media has encouraged investors to pile into equities, sending a clear signal to a market already primed for gains on the back of a surprisingly robust performance during the Covid-19 lockdown.

Yet the differences are also significant. First, although margin financing has risen fast this year, it remains well below 2015 levels and as a share of overall trading in the A-share market it is at one of its lowest levels. By the middle of 2015, regulators had grown so concerned by the explosion in trading with borrowed money that they curbed the practice, pulling the rug from under the stock market.

Of course, the authorities, for whom reducing risk in the financial system remains a top priority, need to be careful. Nothing attracts money like a rising stock market. But as long as the influx reflects increased risk appetite and not a surge in borrowing, Beijing has little reason to cut it short, especially at a time when debt-for-equity swaps have emerged as the preferred method to clean up bad loans and reduce leverage in the economy.

The second big change is President Xi Jinping’s determination to halt property inflation. For more than three years the Communist party chief has been intoning the mantra that homes are for living in, not for betting on.

Mr Xi views sky-high house prices as widening the divide between rich and poor. He is committed to addressing the massive increase in inequality over the past 20 years that has made China one of the most unbalanced countries in the world, according to IMF data. That is hardly a record to boast about in the same breath as proclaiming your pursuit of “socialism with Chinese characteristics for a new era”.

The Chinese people are finally getting the message that Mr Xi means business: neither the trade war with the US nor the economic havoc wrought by Covid-19 has produced the dramatic easing of housing policy that has typically been part of China’s stimulus efforts.

The significance for the stock market is that Chinese households might start to think twice about automatically pouring their savings into property on the assumption that house prices will keep rising. It is premature to conclude that China is on the brink of a Great Rotation from property into equities. But it would be unwise to rule out the possibility.

The third big difference between 2015 and 2020 is the opening up of China’s financial markets to foreign competition — and the improved governance and risk assessment this will gradually bring with it.

If foreign asset managers professionalise China’s stock market and help its investor base mature, this can only strengthen the case for a diversification strategy away from housing into equities.

China’s stock market has long been disparaged as a casino, but the image needs to be reconsidered. True, retail investors still dominate the market and underlying fundamentals such as profits have a marginal influence at best on prices. Regulators retain a tight grip on the initial public offering process.

But change is afoot. The advance in equities so far this year owes little to visible support from China’s “national team” of state-backed investment institutions. Regulators have learnt the lesson from five years ago that interfering with the market can backfire.

And unlike in 2015, the authorities resisted the temptation in the first quarter to suspend the market, despite the gravity of the coronavirus crisis. Clearly, China is at pains not to deter badly needed flows of foreign capital.

Importantly, too, China is now included in MSCI’s widely followed emerging markets index. Whatever your views on the country, it is a market that can no longer be ignored.

Could the rally since the end of March — in which stocks have risen by more than one quarter — be the start of a long-term bull market in China? This is not currently our medium-term forecast. Even so, investors need to recognise and act on the fundamental changes that have taken place over the past few years.

The writer is chief economist at Enodo Economics in London