Financial Times Europe - 19.09.2019

(Jacob Rumans) #1

14 ★ FINANCIAL TIMES Thursday19 September 2019



aleria Gontareva is unsure whether the car
that ploughed into her at a pedestrian cross-
ing in London’s Knightsbridge last month did
so accidentally or deliberately. “Maybe it is
nothing suspicious,” she says. “Maybe it is
normal. Who knows?”
Ms Gontareva has every reason to be suspicious. The
former governor of Ukraine’s central bank has been
threatened repeatedly since sheled a clean-up of the coun-
try’s financial sector four years ago. She applied basic
banking standards, wound up scores of corrupt or zombie
lenders and earned powerful enemies in the process.
Following the election in April of Volodymyr Zelensky, a
television comedian and entrepreneur, as president on a
promise to cleanse his country of corruption, the cam-
paign of intimidation against Ms Gontareva has exploded.
Online abuse went into overdrive. Criminal proceedings
were brought against her for alleged abuse of office during
her time at the central bank. Ms Gontareva, now a fellow at
the London School of Economics, was summoned back to
Ukraine for questioning. When she did not return, her
Kiev flat was raided by the police. A car belonging to her
daughter-in-law, also called Valeria Gontareva, was
torched. In the early hours of Tuesday, her house outside
the Ukrainian capital was set ablaze and destroyed. “It is a
campaign of real terror,” she says.
The biggest loser from Ms Gontareva’s banking clean-up
wasIgor Kolomoisky, the Ukrainian oligarchand former
owner ofPrivatBank, Ukraine’s biggest lender. Regulators
found a $5.5bn hole in its balance sheet, much of it stem-
ming from related-party lending. When Mr Kolomoisky
failed to honour a plan to shore it up, PrivatBank was
nationalised and recapitalised with Ukrainian taxpayers’
money. The lender’s new management, with the full back-
ing of the central bank and the IMF, are trying to recover
assets they say were stolen by Mr Kolomoisky, a charge
that he denies. The oligarch, meanwhile, is seeking to over-
turn the nationalisation or at least tocut a deal with
Ukraine’s new government. Oleksiy Honcharuk, the prime
minister, told the Financial Times that he was “counting
on” President Zelensky and Andriy Bogdan, his chief of
staff, to find a solution.
Talk of a compromise with
Mr Kolomoisky is precisely
what alarms the IMF and
international investors oth-
erwise impressed with the
new president’s pledge to
reform the economy.
The oligarch, whose
sprawling business empire
includes the 1+1 TV channel, helped turn Mr Zelensky into
a star and gave him abundant coverage during the presi-
dential campaign. Mr Bogdan acted as Mr Kolomoisky’s
lawyer in the PrivatBank case.
Mr Kolomoisky is flaunting his new influence and the
president seems to be going along with it.It was the talk of
the Yalta European Strategy forum, an annual gathering of
Ukraine’s political elite and western experts last week,
where Mr Kolomoisky himself made a rare appearance.
He held court with the media for three hours at the
forum, making his case for a “settlement” over the nation-
alised bank.
Mr Kolomoisky denies he is behind any threats against
Ms Gontareva. When asked about her last week, he
referred to the summons for her return to Ukraine and to
the road traffic incident in London. “I promised to send a
plane, not a car,” he said.
It is ridiculous to imagine that a settlement is now possi-
ble, Ms Gontareva argues. She in effect proposed one in
2016, calling on Mr Kolomoisky to inject assets into the
bank under a phased recapitalisation. He did not comply,
which is why the bank, too big to fail, was takeninto tates
Ms Gontareva says the intimidation against her is just
the beginning. Prosecutors have also launched criminal
proceedings against the current management of Privat-
Bank, whose offices were searched this month. Ms Gon-
tareva’s successors at Ukraine’s central bank could be
next. They issued a strong condemnation on Tuesday of
the attacks on their former colleague.
Mr Zelensky’s pledge to finally rid Ukraine of a corrupt
judicial system that has sustained an oligarchic and
monopolistic economy had raised hopes among interna-
tional institutions and investors. Instead, powerful
tycoons seem to be using their allies in government and
law enforcement agencies to pursue their private interests.
Any backtracking on PrivatBank could put Ukraine’s IMF
loans at risk, scuppering its economic revival and possibly
Mr Zelensky’s presidency. “Without the IMF, we won’t be
able to survive,” Ms Gontareva says.





PrivatBank tests Kiev’s

resolve to curb the

influence of oligarchs

Talk of a deal

is precisely what

alarms the IMF
and investors


Deutsche Bank s paying €50m for ai
4.9 per cent stake in open-banking
start-upDeposit Solutions n a transac-i
tion that values the Hamburg-based

The deal turns Deposit Solutions into
Germany’s most highly valued fintech
after Berlin-based lenderN26, which in
July was valued at $3.5bn whenit raised
$170m from its investors.
The start-up operates software that
links connects retail clients and lenders,
allowing banks to collect deposits from
retail clients across Europe who are not
their direct customers. It is a rival to

Berlin-basedRaisin, which, among
other investors, is backed by PayPal.
Deposit Solution’s valuation more
than doubled since itslast financing
round n August 2018, when it raisedi
$100m from Munich-based private
equity group Vitruvian Partners and
other investors.
For Deutsche Bank, which also owns
stakes in financial analytics start-up
Finanzguru, the transaction is the larg-
est fintech investment in its history. The
lender will pay roughly half of the €50m
in cash.
It has also committedto provide
Deposit Solutions with in-kind services
that both partners value at €25m,

according to a person familiar with the
Since 2017, the German lender has
been one of the first and biggest clients
of Deposit Solutions. Its software is at
the core of Deutsche Bank’s “Zinspilot”,
a tool that Deutsche’s 7m retail custom-
ers in Germany can use to funnel sav-
ings to third-partiessuch as real estate
lender Deutsche Pfandbriefbank and
Cerberus-owned My Money Bank.
Germany’s largest lender is planning
to roll out the Deposit Solutions soft-
ware to the 13m clients of its Postbank
brand, its 4m retail clients outside Ger-
many, as well as its small business and
wealth management customers.


Deutsche Bank bets on German tech start-up


terday it would not for the moment
need to close nuclear reactors because

“At this stage of the technical investiga-
tions being carried out on these compo-
nents, EDF believes that the observed
deviations do not adversely affect the
components’ fitness for service and do
not require immediate action,” said the
group, which is majority-owned by the
French state.
EDF shares rose 2.3 per cent on the
news as markets opened in Paris.

The group said it had identified issues
with “16 steam generators installed on
six operating reactor units: reactors no.
3 and 4 at Blayais, reactor no. 3 at Bugey,
reactor no. 2 at Fessenheim, reactor no.
4 at Dampierre-en-Burly and reactor
no. 2 at Paluel”.
Some components “that are not yet in
service are the four steam generators
and the pressuriser at the Flamanville-
EPR, as well asthree new steam genera-
tors that have not yet been installed
and that were manufactured for
the purpose of replacing the steam gen-
erators on reactor units no. 5 and 6 at
The componentsare made byFram-

atome, EDF’s majority-owned nuclear
reactor construction unit.
EDF is in talks withParis aimed agree-
ing a restructuring plan to help it fund
investment in both nuclear and renewa-
ble energy, as well as allowing it to push
for a new regulated price for nuclear
energy that needs to be approved by
As it stands, the plan, which must eb
signed off by the government, is to cre-
ate EDF Bleu, astate-owned group that
contains the nuclear as well as the
hydroelectric assets. EDF Vert, its main
subsidiary, will house renewable energy,
the networks and the services busi-
nesses and will be listed.


Reactor closure not needed for now, says EDF


FedEx hares plunged 14 per cents yes-
terday after the logistics group reported
its weakest sales growth in a decade and
alarmed investors with a gloomy assess-
ment of the global economy.
The S&P 500 company, often
regarded as an economic bellwether
given its exposure to world trade, lost
$6.2bn of its market value as it slashed
its profits outlook for the rest of the year.
In the latest warning from corporate
America of a deteriorating outlook,
Fred Smith, FedExexecutive chairman,
said the world economy “continues to
soften” even though the US consumer

remained a “remarkable driver”. Point-
ing to contagion risks of the US-China
trade war, he said Europe and Germany
in particular would feel the pinch unless
the dispute was soon resolved.
“There is a lot of whistling past the
graveyard about the US consumer and
the US economy, versus what’s going on
globally,” the FedEx founder told ana-
lysts on a conference call.
“G e r m a n y ’s c o n t r a c t i o n i s
because... they’re not selling as much
to China, which is a huge customer of
Europe,” he added. “Most people don’t
think about [that].”
FedEx, which handles more than 15m
shipments each day, predicted annual
world trade volumes would contract
this year for the first time since 2009.
All big exporting economies had been
hit by a slowdowvn, especially those in
Asia with high exposure to China, said

Brie Carere, executive vice-president.
Brexit uncertainty, she said, was weigh-
ing on several countries in Europe and
the UK, where “no sector has been
immune to the negative impact”.
Wall Street analysts, however, ques-
tioned whether the results from FedEx,
where quarterly revenues were
unchanged from a year ago at $17.05bn,
said more about its own difficulties.
The Memphis-based company, which
previously anticipated a low single-digit
percentage point increase in adjusted
earnings per share this financial year,
now expects a decline from $13.25 last
year to between $10.00 and $12.00.
“This is, I think, the fifth straight
quarter of either missing... numbers
or cutting guidance,” said Scott Group,
analyst at Wolfe Research, on the call,
questioning whether further reductions
could be in the pipeline.

Among other setbacks, executives
cited costs in the ground shipping busi-
ness and theend of a tie-up ith Ama-w
zon to deliver packages in the US. FedEx
called time last month on its contract
with the ecommerce group, which is
taking more control of its shipping.
While the tie-up represented only a
small proportion of revenues, Mr Smith
said near-term profits would be hit
given “flow-through to the bottom line”.
FedEx said it was trying to deal with
its challenges in part by reducing capac-
ity. The companysaid it planned to
retire at least 20 aircraft.
Other initiatives include ground han-
dling of large packagesand deepening
ties with US retailers that have been
expanding their ecommerce options,
and delivery deals with companies such
as Chewy and Dick’s Sporting Goods.
See Lex

Support services

FedEx shares drop 14% on sales gloom

Bellwether delivery group

rattles investors with

dismal global outlook


Big Tech is facing the prospect of broad
sectoral regulation that goes well
beyond the narrow antitrust focus that
has defined government interest in the
industry in recent decades, according to
Brad Smith,Microsoft’s president and
top lawyer. However, a break-up of
today’s dominant online platforms
seems unlikely, he suggested.
In an interview this week, Mr Smith,
who joined Microsoft in 1993, predicted
a return to a period when government
set broad rulesfor how particular indus-
try sectors operate, rather than focusing
on individual cases of economic harm
caused by monopolists.
The shift reflects the wide range of
concerns stirred up by today’s leading
consumer tech companies, including
privacy and the mass collection of data.
Also, the fact that a number of different
companies are involved, rather than a
single dominant monopolist, makes
broader action likely, he suggested.
“It won’t surprise me if we see more
focus in Brussels, and perhaps even in

Washington, on that set of issues and not
one thing alone,” Mr Smith said.
Changes in the way regulators think
about competition are also reshaping
the response to tech’s market power, he
added, with “new schools of antitrust
thinking” taking hold.
That is leading to broader theories of
potential harm, not just those to do with
limiting competition or pushing up
prices for consumers.
“You can’t help but note that the year
2019 is significant in that Berlin and
Washington have both embraced a simi-
lar approach to some degree, arguing
that it is appropriate to consider more of
these so-called non-economic, non-
price issues — and that’s unusual,” he
The widening interest of the regula-
tors was on display in Washington on
Tuesday, when top US competition reg-
ulators answered questions before the
Senate judiciary committee. Makan
Delrahim, head of the Department of
Justice antitrust division, said that alle-
gations of political bias against compa-
nies such as Google and Facebook were
likely to be taken into account in assess-

ments of companies’ market power.
Mr Smith took over as Microsoft’s top
lawyer at the height of its battle with the
justice department and European Com-
mission nearly two decades ago and was
instrumental in shaping a response with
which it eventually escaped close regu-
latory scrutiny. The software company
rebounded to overtakeApple and
become the world’s most valuable again
this year, after repositioning its business
away from its old PC monopoly.
In contrast to Microsoft’s dominance
during the PC era, Mr Smith pointed to
new features of today’s tech landscape
that had drawn more pointed questions.
These include the rise of online market-
places run by the dominant platforms,
and the dependence of some companies
on digital advertising.
The tech landscape is “somewhat dif-
ferent today, in that some of the plat-
forms are both platforms and aggrega-
tors,” he said. That includes Apple’s App
store and Amazon’s marketplace for
other online sellers. “Windows, for all
its market share and economic position,
never had an app store,” Mr Smith said.
Acting as both open platform and

marketplace had “strengthened” their
position, making other providers of dig-
ital content — and even companies sell-
ing physical goods — dependent on
“two-sided markets” run by the biggest
tech companies, he said.
Concerns about the conflicts of inter-
est generated by this dual role have
led prominent politicianssuch as Eliza-
beth Warren, the Massachusetts
senator, to call for a break-up of the Big
Tech companies.
However, Mr Smith suggested that
the worries were lessened by the fact
that there are a number of rival online
venues. “There are more platforms
today... That means no single plat-
form has the role in technology that per-
haps the Windows platform played two
decades ago,” he said.
In a new book addressing the biggest
tech policy issues,ToolsandWeapons, Mr
Smith and co-author Carol Ann Browne
also highlighted the impact of online
advertising, comparing concerns about
today’s advertising-dependent internet
groups to the backlash against radio in
the 1940s. Back then, a move into adver-
tising was blamed for changing the

nature of the medium and “dumbing
down” programming.
“The issues today are less about that
and more about whether it’s engender-
ing sort of algorithmically based cyber-
tribes,” Mr Smith said. “These issues do
have real precedents — I don’t think it’s
surprising people are looking around
and asking these questions.”
Microsoft itself faced a court-ordered
break-up during its battle with the jus-
tice department nearly two decades ago,
before the order was overturned on
appeal. Based on the software com-
pany’s protracted run-in with regula-
tors, Mr Smith said, “they certainly
don’t require that the companies be bro-
ken up or even that their products be
divided up.”
“Ultimately, it was less about break-
ing things apart and more about putting
rules in place to ensure that the creator
of the platform couldn’t obtain inappro-
priate benefit in a market or for a prod-
uct that was considered adjacent,” he
“It shows that the process is slow but
the tools are plentiful in terms of what
competition regulators have.”

Interview. rad SmithB

Big Tech veteran scents change in game rules

Microsoft president expects

governments to start setting

broad codes for the industry

Brad Smith says
the rise of
platforms and
aggregators is
among recent
changes to the
tech landscape
David Paul Morris/Bloomberg

This year ‘is significant in

that Berlin and Washington

have both embraced a

similar approach’

‘This is, I
think, the


quarter of

numbers or

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