FirstFT: Recession fears cloud Davos

Some of the world’s biggest companies are facing multibillion-dollar writedowns on recent acquisitions as a wave of dealmaking gives way to a new era of economic uncertainty and higher interest rates.

With a third of the global economy forecast to be in recession this year, world leaders will this week gather in Davos, Switzerland, to discuss what the World Economic Forum has called a “polycrisis” as business leaders engage in a painful reckoning over their empire building.

US media and healthcare companies are among those to have slashed the value of business units in the past few months and accountants are warning that more cuts could be imminent as the annual reporting season gets under way.

Global dealmaking hit a record $5.7tn in 2021 but slowed sharply as 2022 progressed. According to Refinitiv, $1.4tn of transactions were agreed in the second half of last year compared with $2.2tn in the first, marking the biggest swing from one six-month period to the next since records began in 1980.

  • What’s at stake: World Economic Forum delegates fear that a long period of peace and economic integration is coming to an end, writes Gideon Rachman.

  • Capital markets: US companies are turning to convertible bonds as fundraising in Wall Street’s main equities market is at its lowest level for three decades.

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1. UK to tighten anti-protest measures Prime Minister Rishi Sunak will today propose broadening the definition of “serious disruption” in a new public order bill to help police stop what he calls a “disruptive minority” from using tactics such as blocking roads and slow marching. The anti-protest efforts have drawn heavy criticism from civil rights groups.

2. US cracks down on private equity securitisation vehicles Insurance regulators plan to scrutinise an investment product that parcels up stakes in private equity-owned companies over fears that rating agencies are downplaying its dangers and exposing insurers to under-appreciated risks. The vehicle, known as “collateralised fund obligations”, echo the “collateralised debt obligations” that played a central role in the 2008 financial crisis.

3. Bayer shuns ‘innovation unfriendly’ Europe The German pharmaceutical company says it is shifting the focus of its drugs business to the US and away from Europe, where governments are making “big mistakes” in how they manage health budgets. Stefan Oelrich, head of Bayer’s drugs business, told the Financial Times that policies such as a medicines levy in the UK and similar schemes in Germany were dissuading investment.

4. Ford to rely less on Volkswagen The US automaker is poised to cut its dependence on Volkswagen technology for its next generation of electric cars in Europe, unravelling a core part of the alliance the rivals formed two years ago. Ford is preparing to launch vehicles this year and next using VW-sourced batteries but expects to use an in-house system from 2025.

5. Britain’s BNPL boom Demand for buy now, pay later deals has surged among all age groups in the UK, including older people, who find themselves squeezed by the cost of living crisis. Popularity in the product, which allows users to defer or divide payments into instalments, has grown — as have late fees, raising concerns about the rate of consumer borrowing.

Bar chart of Respondents who expect to use BNPL in the next 12 months (%) showing demand for buy now, pay later has increased across all age groups

The day ahead

World Economic Forum The annual meeting of world and business leaders opens in Davos. The FT Live team will also be hosting several in-person and digital events at the Swiss resort town. View the events and register for free here.

N Ireland trade talks UK foreign secretary James Cleverly holds talks with European Commission vice-president Maroš Šefčovič on the Northern Ireland protocol after a tentative breakthrough last week.

Military drills in Belarus Belarus and Russia begin joint aviation drills of air divisions as part of the two countries’ regional grouping of troops.

Martin Luther King Day The US observes a national holiday to honour civil rights activist Martin Luther King Jr.

Corporate earnings Ashmore has a second-quarter trading update, while Taiwanese chipmaker UMC and miner Rio Tinto release fourth-quarter results.

What else we’re reading

The FT View: China’s reopening The end of a zero-Covid policy in the world’s second-largest economy will have implications for growth and inflation globally. While a Covid-19 outbreak has dented Chinese economic activity, there are signs that the disruption is fading fast.

  • China’s GDP: Here are five things to watch as China releases its fourth-quarter and full-year gross domestic product figures tomorrow.

America’s shale drought Fracking has catapulted the US to the top of the energy hierarchy, especially after Russia cut natural gas shipments to Europe and western sanctions targeted Moscow’s oil. But higher costs, labour shortages, low yields and a lack of reinvestment are threatening that position.

The lure of Singapore, ‘Asia’s Switzerland’ Chinese wealth is moving into Singapore as individuals and companies view it as an attractive vessel to navigate through US-China tensions, skittish financial markets and a possible global recession. But can the city-state maintain its neutrality?

Column chart of Net AUM inflows (S$bn) showing Singapore as a wealth management destination

Opinion: Hong Kong at crossroads With Covid restrictions now finally lifted and travel links with the mainland reopened, Hong Kong is feeling upbeat again. But Beijing’s growing influence has raised existential questions about the territory’s role as Asia’s unparalleled bridgehead to global finance, writes FT deputy editor Patrick Jenkins.

Enron, Madoff and FTX: New York’s Belfer family The wealthy American oil dynasty was a client of fraudster Bernard Madoff and lost billions in the demise of Enron. Now, it has been embroiled in the collapse of FTX, according to court documents, showing just how far the crypto exchange founder Sam Bankman-Fried penetrated the US elite in his drive to attract investment.

Take a break from the news

In response to an FT Weekend piece on artificial intelligence art and the future of human creativity, readers created their own AI works of art. You can see them here.

© Yan White