17 August/18 August 2019 ★ FT Weekend 9broadened. Telecoms companies, for
example, want to be allowed to work in
standards bodies beyond the area of 5G.
One lobbyist said they had heard “cer-
tain pieces” of the temporary licence
would be extended, and that there
might be additional guidance issued on
working with standards bodies.
Industry representatives will meet
commerce officials on Tuesday to dis-
cuss their requests, but this will be too
late to influence whatever decision Mr
Ross makes.
One industry lobbyist said: “We are
working on the assumption that the
licence will be extended, and we are ask-
ing for changes. But so far we have been
told nothing about what the commerce
department is planning — it is a bit odd.”Huawei poses a risk to US national secu-
rity, since its equipment could be used
by Beijing to spy on American citizens.
Washington’s move was met with pro-
tests by some in the industry. Google
warned it would no longer be able to
update its Android software on Huawei
smartphones, even in the US.
In response, the department issued a
90-day general licence for supplies that
helped maintain networks, including
software patches, allowing Google and
others to continue to sell some products.
The licence also permits companies to
work in international organisations
alongside Huawei to draw up standards
for 5G superfast broadband.
Some companies are lobbying for the
licence not only to be extended but alsothe company said, “and the good thing
for our consumers is that nothing will
change after August 19th.”
“All Huawei smartphones, tablets and
PCs which are sold and are selling in the
market will continue to receive security
patches, Android updates and Microsoft
support,” it added. “Anyone who has
already bought, or is about to buy a
Huawei smartphone, can continue to
access the world of apps as they have
always done.”
The Trump administration surprised
many tech companies in May when it
said they would not be able to sell US-
made products to Huawei, as part of a
package of measures designed to ramp
up the pressure on the Chinese com-
pany. US officials have warned thatKIRAN STACEY AND JAMES POLITI
WASHINGTONUS technology and telecoms groups
still do not know if they will be able to
sell to Huawei after Monday, when a
temporary export licence runs out.Companies such as Google, Qualcomm
and Broadcom have not been told
whether the licence allowing exports to
the Chinese telecoms equipment maker
in certain circumstances will be
renewed.
The Trump administration granted
the licenceas a stopgap this year after its
move to ban all US exports to Huawei
was met with opposition from some of
the biggest US technology companies.
Wilbur Ross, the commerce secretary,
said this weekhe expected to provide an
update on Monday, but industry repre-
sentatives say the late notice has led to
problems with managing supply chains.
The commerce department would not
comment further on whether Mr Ross
planned to announce an extension, as
most in the industry assume, or to
change the administration’s policy.
Uncertainty about the licences comes
amid a flare-up in trade tensions, with
the US planning new tariffs on more
than $300bn of Chinese products,
beginning in September.
This week, Donald Trump offered to
delay the levieson $160bn of goods until
mid-December, but China has still
vowed to retaliate.
One industry executive called the
delay “baffling”, while an industry lob-
byist said the department’s approach
was “extraordinarily secretive”.
Huawei sought to reassure customers
on Thursday. “As we have been saying
for some time now, nothing’s changed,”COMPANIES. WEEK IN REVIEW
Back in 2014, JPMorgan’s Jamie Dimon
warned that Silicon Valley was coming
to eat the banks’ lunch. The technology
companies are now starting to chow
down.
The clearest example is the just-
launched Apple Card, a virtual
interface on the iPhone to help keep
track of spending and a physical
titanium card for fashion victims.
The damning thing for traditional
banks is not that they can be
outgunned by Apple but that — despite
all their resources and expertise — they
can still be outclassed by a few kids
with a nicely designed app.
N26, a Berlin-based digital bank
founded in 2015, has signed up 3.5m
clients in 24 countries, launched in the
US last month and has attracted a
$3.5bn valuation.
Revolut, a UK-based fintech founded
the same year, has amassed 6m
customers and a $1.7bn valuation. InRevolut’s case, the main attraction is
cheap foreign exchange rates, as well as
the obligatory shiny app.
Not only are the digital banks
proliferating and expanding but their
services are mushrooming too. Monzo,
a UK fintech that started by offering a
pre-paid debit card, then a current
account, this week moved into short-
term loans. Revolut two weeks ago
launched commission-free share
tradingin the UK.
Square’s Cash app has overtaken
PayPal’s Venmo as the trendy way for
Americans to transfer money to each
other. According to research company
eMarketer, the two apps combined are
used in more peer-to-peer transfers in
the US than Zelle, the big banks’ own
money transfer platform.
Banks are well aware that they are
falling behind. At a recent breakfast
of executives from traditional lenders
in London, someone asked howmany had a Revolut card: more than
half of those in the room raised a guilty
hand.
There is little particularly
revolutionary in most of the
challengers’ technology. But like the
analogue film manufacturers who had
the ability to switch to digital but failed
to invest, the banks seem to be having
their Kodak moment.
Last week JPMorgan Chase did come
up with something that was genuinely
compelling. The largest US bank, which
is closing a credit card business in
Canada, simply wiped the balances of
remaining customers.
“It’s kind of like I’m being rewarded
for my irresponsibility,” a 24-year-old
university student cheerfully told
the Canadian Broadcasting
Corporation, as Mr Dimon relieved her
of a C$1,300 ($977) debt.
But it is hardly a sustainable perk —
and it shows the largest US bank on theretreat. It also offers another
opportunity for the insurgents, fuelled
with billions in venture capital
funding, to take on the lumbering
incumbents.
The battle is far from over. The
embarrassing fact for the entire fintech
industry is that it has failed to take
significant share of core banking
activities despite a decade of a benign
credit environment with banks
hampered by their recovery efforts
after the 2008 crisis.
Many of the newcomers are plagued
by poor customer service and attract
the attention of regulators for weak
controls. As the cycle finally turns,
there will be more serious casualties
and perhaps an opportunity for
traditional banks to eat up some of the
new companies at more appetising
prices.[email protected]Banks face Kodak
moment as digital
rivals proliferate
The
damningthing for
banks isthat they
can still beoutclassed
byafewkids with a
nicely
designedapp
The Top Line
Tom
Braithwaite
Harry Markopolos says he told four
hedge funds that General Electric was
“a bigger fraud than Enron” before
one of them agreed to bet on the
analysis, and cut him in on the
profits. “I do have a reputation,”
observes the 62-year-old accountant.
“People take my calls.”
They do not always listen. For
yearsMr Markopolos tried to claim
Bernard Madoff’s scalp, pleading
with regulators to probe the Wall
Street kingpinwhose fund seemed
to earn preternaturally steady
returns.
Mr Markopolos once emailed the
Securities and Exchange Commission
promising “to assist... at any hour
of the day or night”. They did not
take him up on the offer.
But in 2008, when Madoff
admitted to running a Ponzi scheme
just as Mr Markopolos had long
maintained, the Boston-based
options analyst won his hour of fame
and became someone Wall Street
could no longer ignore.
This week he alleged financial
crime on an epic scale, claiming GE
had concealed a $38bn accounting
fraudin its insurance and oilfield
services businesses that would leave
it “headed toward bankruptcy”.
His 170-page report, scattered with
skull-and-crossbone motifs,
prompted the conglomerate’s shares
to fall more than 11 per cent.
Larry Culp, chief executive of GE,
called it “market manipulationpure
and simple”, pointing to “false
statements of fact” and complaining
that Mr Markopolos had given thecompany no opportunity to set him
straight.
Several well-known hedge funds
approached by the Financial Times
denied collaborating with the Puerto
Rico-registered company that issued
his report. A number acknowledged
being aware that he was pitching
money managers on a trade.
John Hempton, the founder and
chief investment officer at Australia-
based fund Bronte Capital, took issue
with Mr Markopolos’s analysis of GE’s
insurance contracts and called the
report “flat-out silly”.
Others pointed out that shares in
the group had been pounded for years
before Mr Markopolos’s explosive
intervention on Thursday.
But Mr Markopolos’s most
distinctive attribute may be his
willingness to say out loud what
others might silently believe. “He’s
famous for one thing only,” said JohnCoffee, a professor at Columbia Law
School. “He was right about Madoff,
and he was for some time
a hero. About 20 per cent of Wall
Street anticipated he was right. There
was a feeling that no one dared
articulate that there was something
phoney here.”
When he walked into the SEC office
in Boston 20 years ago clutching an 11-
page handout, Mr Markopolos had a
self-interest. Then working for a small
investment manager named Rampart,
he was running a portfolio of options
contracts, which meant he had to
compete with Madoff, whose
performance was unmatchable.
“In 25 minutes or less, I will prove
one of three scenario [sic] regarding
Madoff’s hedge fund operation,” Mr
Markopolos wrote on the handout.
Fortunately for the culprit, it seems
the SEC lawyers picked Mr
Markopolos’s first scenario: “They areincredibly talented... and I’m an
idiot.”
With a tousled comb-over, baggy
shirts and eyes that often fix on the
middle distance, Mr Markopolos
speaks with an air of detachment and
certainty. Critics say he is also prone to
melodrama. In a 2010 book about the
Madoff saga, the financial sleuth said
that he began carrying a gun —
preferring a “lightweight” model to
“something with massive stopping
power” — and that he once resolved to
kill Madoff if the financier found out
about his investigations.
Having mastered the art of
persuasion, Mr Markopolos is still
trying to find a more reliable way of
getting paid. He has recruited
whistleblowers and contributed
research to several probes, including
one in which federal investigators
reportedly sent an accountant into the
offices of the audit firm where he
worked with a microphone concealed
as a Starbucks gift card.
Yet even Mr Markopolos’s most
successful post-Madoff probes have yet
to trigger the payday he was expecting.
Nearly four years after the SEC settled
with two major custody banks over
allegations they added secret mark-ups
to foreign exchange trades, the
whistleblowers are still waiting for SEC
payouts that could reach $300m.
However, Mr Markopolos, who
helped recruit the tipsters, said his
group had received some money from
state governments, adding: “We did
OK. We did well.”
Mark Vandevelde; additional reporting by
Lindsay Fortado, Ortenca Aliaj, Patrick
Temple-West, Robert Smith, Mamta
Badkar and Laurence Fletcher
See LexSleuth who rumbled Madoff turns attention to GE
‘Critics say
he is prone tomelodrama.
In a 2010book about
the Madoffsaga, he said
he begancarrying
a gun’
Harry Markopolos: allegations of
financial crime at GE prompted the
conglomerate’s shares to slide this
week— Jay Mallin/Bloomberg CBS-Viacom plan3 CBSandViacomagreed to combine in an all-stock
merger, reuniting the two halves of a historic media
empire looking to compete in an entertainment
industry that has been upended by Netflix.
The companies agreed to convert each Viacom
share into 0.59625 shares of CBS, valuing Viacom at
about $28.80 a share, or about $12bn. CBS sharehold-
ers will control about 61 per cent of the combined
group, which will be renamed ViacomCBS.
The reunion of the
companies, both con-
trolled by the Red-
stone family, has been
years in the making,
fraught by family
feuds and the fall of
Les Moonves, CBS’s
longtime leader.3 Saudi Aramco
agreed to take a 20 per cent stake in Reliance Indus-
tries’ refining and petrochemicals business, as the
world’s largest crude oil exporter deepens its ties
with India, the fastest-growing energy consumer.
The deal, which values the business at $75bn
including debt, would be one of the largest foreign
investments in India, according to Mukesh Ambani,
Reliance chairman, who disclosed the sale at a com-
pany shareholder meeting in Mumbai.3 JPMorgan Chaseis set to collect the largest indi-
vidual fee to a bank for selling a company, earning
$123m for advising Allergan, the Botox-maker, on a
planned $63bn sale to AbbVie, the US drugsgroup.
The fee would be the largest disclosed, surpassing
the $120m paid to Morgan Stanley for advising Mon-Reunion of the two halves of a
media empire has been years inthe making, fraught by family
feuds and the fall of Les Moonvessanto, the US agribusiness, on its $66bn sale to Bayer
of Germany in 2016, according toDealogic.3 Joseph Tsai, co-founder of Alibaba, the Chinese
ecommerce giant, is nearing a deal to take control of
the Brooklyn Nets basketball team, as the sport
grows in popularity in China.
Mr Tsai, who already owns a 49 per cent stake in
the Nets, is close to buying the controlling stake from
Mikhail Prokhorov, the Russian billionaire.3 Digital challenger banksare stockpiling cash at
record rates in their efforts to unseat traditional
deposit-taking institutions.Challenger banks raised
$2.5bn in 55 deals this year through the end of July,
according to a report by CB Insights, the start-up
research company.3 Deliveroo, the UK food delivery company, quit
Germany in a move that eases the pressure on rivals
such as Takeaway.com. The decisionby Amazon-backed Deliveroo comes at a time of intense compe-
tition and frantic M&A activity in the food delivery
sector, as companies push for greater scale and — in
some cases — a narrower geographical focus.3 Hedge funds have taken record short positions in
the debt and equity ofAston Martin, betting that the
luxury carmaker will continue to struggle.
Shares in the 105-year-old carmaker have fallen 73
per cent since it floated last October, wiping more
than £3bn from its market capitalisation. Hedge
funds have turned to short selling its debt, even
thoughsterling-denominated bonds that back the
group have become the most expensive among any
UK corporate debt for new borrowers, according to
data from IHS Markit, with an annualised borrowing
fee of up to 550 basis points. It costs hedge fund
investors about 50bp for an average sterling issue.Harry Markopolos
Financial investigatorBEST OF
BUSINESS
20 %
Stake taken by
Saudi Aramco in
oil refining unit of
India’s Reliance$123m
Record fee paid to
JPMorgan Chase
on Allergan sale
to AbbVieCorporate
person in
the newsTechnology
US groups in dark about sales to Huawei days before licence expires
Keeping tabs:
technicians
from Huawei
demonstrate a
tracking device
at a developers’
conference in
Guangdong
this month
Fred Dufour/AFP/Getty
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