New York’s ‘zombie’ office towers teeter as interest rates rise

During a prolonged bull market fuelled by historically low interest rates and nearly free money Doug Harmon and his team presided over record-breaking sales for many of Manhattan’s trophy office buildings.

No longer. These days, Harmon, the chair of capital markets at Cushman & Wakefield, the real estate services firm, spends much of his time performing “triage”, as he puts it.

The world’s largest office market has of late endured the departure of big-spending Chinese investors, the rise of Covid-era remote working and the economic fallout from the Ukraine war. Now there is mounting concern that the dramatic rise in interest rates will be too much for many owners to sustain and that a long-awaited reckoning is drawing near.

“There’s a consensus feeling that capitulation is coming,” said Harmon, who likened rising rates to petrol igniting an office firestorm. “Everywhere I go, anywhere around the world now, anyone who owns office says: ‘I’d like to lighten my load.’”

The industry is rife with talk of partnerships breaking up under duress, office buildings being converted for other uses and speculation about which developers may not make it to the other side. Meanwhile, opportunists are preparing for what they believe will be a bevy of distressed sales at knockdown prices, perhaps in the first quarter of the next year.

“We’re going to see distress,” said Adelaide Polsinelli, a veteran broker at Compass. “We’re seeing it already.”

Since January, shares of SL Green and Vornado, two publicly traded REITs that are among New York’s biggest office owners, have fallen by half.

Fresh signs of strain came this week. Blackstone, the private equity firm, told investors it would restrict redemptions in a $125bn commercial real estate fund.

It also emerged that Meta, the parent company of Facebook, would be vacating about 250,000 square feet of space at the new Hudson Yards development to cut costs. It and other tech companies had been among the last sources of expansion in Manhattan’s pandemic-era office market.

The small collection of offices like Hudson Yards — with new construction and the finest amenities and locations — are still in high demand, according to Ruth Colp-Haber, who, as head of Wharton Properties, consults companies on leasing.

Meta has announced it will vacate about 250,000 square feet of space at the new Hudson Yards development as it cuts costs. © AFP via Getty Images

But, she warned, the real “danger lurks downstairs in the class B and C buildings that are losing tenants at an alarming rate without replacements.” All told, Colp-Haber estimated that roughly 40 per cent of the city’s office buildings “are now facing a big decision” about their future.

Prognosticators have been forecasting doom for the office sector since the onset of the Covid pandemic, which has accelerated a trend toward remote working and so decreased demand for space. According to Kastle Systems, the office security company, average weekday occupancy in New York City offices remains below 50 per cent. A particularly dire and oft-cited analysis by professors at Columbia and New York University estimated that the collective value of US office buildings could shrink by some $500bn — more than a quarter — by 2029.

The sector has so far defied such predictions. Leases generally run for seven to 10 years and so tenants have still been paying rent even if few of their workers were coming to the office. In the depths of the pandemic, lenders were also willing to show leniency or, as some put it, to “extend and pretend.”

But the sharp rise in interest rates may, at last, force the issue. Financing has suddenly become more expensive for owners and developers — if it is available at all. “If you have debt coming due, all of a sudden your rates are doubled and the bank is going to make you put money into the asset,” one developer said.

Lower quality buildings may be the most vulnerable. As leases expire, many tenants are bolting or demanding rent reductions. Even as their revenues dwindle, owners must still pay taxes and operating expenses.

Bob Knakal, chair of investment sales at JLL, sees a growing horde of “zombie” office buildings in Manhattan that are still alive but have no obvious future. The typical zombie may have been purchased generations ago and supplied monthly cheques to an ever-expanding roster of beneficiaries.

“Now the building is not competitive from a leasing perspective because it needs a new lobby, and new elevators and windows and bathrooms. And if you went to those 37 people and said: ‘You know what? You have to write a cheque for $750,000 so we can fix the building up.’ These people would have a heart attack,’” said Knakal.

If there is debt to roll over, lenders will require the owners to contribute more equity to make up for the building’s declining value. “There’s a reckoning that’s going to come,” said Knakal, “and I think it’s going to be challenging for a lot of these folks to refinance.”

That appears to be spurring a flurry of backroom discussions between borrowers, banks, private lenders and others.

Manus Clancy, an analyst at Trepp, which monitors commercial mortgage-backed securities, likened the situation to that facing brick-and-mortar shopping malls five years ago as their prospects deteriorated. Many ultimately fell into foreclosure. Whether an office loan could be refinanced, he predicted, would depend on the newness of the building, its occupancy levels and the length of the leases. “There isn’t a lot of distress, per se, there’s a lot of concern,” he said.

Some obsolete office buildings may be converted to residential, which, in theory, would help to ease New York City’s chronic shortage of housing. But that is easier said than done, say many experts. It would require zoning changes. Even then, many office buildings may not be suitable candidates for residential conversions — either because their floor plates are too large, their elevators are wrongly situated, their windows do not open or their neighbourhoods are unappealing. To make such projects worthwhile, owners would have to sell at deep discounts.

That has not happened — at least not publicly. “Nobody wants to be the first one to dip their toe in this because nobody wants to set a new low unnecessarily,” David Stern, founder of Townhouse Partners, a consultancy that performs due diligence for commercial real estate underwriters, said. “That’s what everyone is waiting for: this incredible revaluation.” In more colloquial terms, a developer quipped that some owners, accustomed to holding properties for years, had not yet “seen Jesus” — but they would.

In the meantime, some recent transactions have hinted at the market’s shift. In July, RXR and Blackstone sold 1330 Sixth Avenue for $325mn, down from the $400mn RXR paid in 2010. In 2014, Oxford Properties, a Canadian investment firm, paid $575mn to win a bidding war for 450 Park Avenue, a 33-story tower. It was sold by a subsequent owner in April for $440mn.

“What is it worth today?” one broker asked. “Less than $440mn.”

Ramaphosa set to launch fightback in bid to hang on to presidency

Cyril Ramaphosa is preparing to challenge a damning report to the South African parliament that accuses the president of abuse of office, in the clearest sign yet that he aims to fight a scandal that has brought him to the brink of resigning.

“Our legal team is working on the review papers so they can be filed as speedily as possible,” the president’s spokesman told the Financial Times on Saturday.

Ramaphosa is under pressure to step down after a panel led by a former chief justice told lawmakers this week that he may have been guilty of serious misconduct in the case of a 2020 theft of at least $580,000 that was hidden inside a sofa at his Phala Phala game farm.

The panel’s findings have seriously damaged Ramaphosa’s reputation as a reformer who came to power in 2018 on a pledge to restore clean government after years of looting of the state under his predecessor Jacob Zuma.

Senior members of the African National Congress are due to convene on Sunday to discuss the report and Ramaphosa’s political future — just weeks before the party holds a leadership vote. Ramaphosa had been widely tipped to win another five-year term.

The parliamentary report says that more cash appeared to have been stored unbanked at Ramaphosa’s Phala Phala game reserve than the $580,000 that was stolen, and that he may have failed to report the theft through the proper police channels.

Ramaphosa’s supporters have been pushing him not to resign and to launch a court challenge over what they see as serious flaws in the report. They complain that it overstepped its remit and relied on limited evidence.

South African lawmakers are due to vote on Tuesday on whether to accept the report and launch full-scale impeachment proceedings. A court challenge to the report by the president would freeze or complicate this process, legal experts said.

Ramaphosa has always denied wrongdoing over the Phala Phala robbery, saying that he reported the crime to his presidential protection unit as soon as he became aware of it, and that the cash was the legitimate proceeds from the sale of buffalo to a Sudanese businessman.

The panel said that these explanations were inadequate there was substantial doubt as to the legitimacy of the source of the cash, leaving the president with a case to answer.

A court battle over the Phala Phala report could overshadow Ramaphosa’s presidency even if he is reappointed to the ANC’s leadership. Africa’s most industrialised economy is plagued by rolling blackouts and stagnant growth.

Arthur Fraser, a former chief of South Africa’s spy agency under Zuma and prisons commissioner under Ramaphosa, revealed the robbery earlier this year that, and accused the president of covering it up.

UK crime agency arrests wealthy Russian businessman at London home

A wealthy Russian businessman has been arrested at his multimillion-pound London home by officers from the National Crime Agency on suspicion of money laundering.

The 58-year-old man was arrested on Thursday by officers from the NCA’s anti-kleptocracy unit and is also suspected of conspiracy to defraud the Home Office and conspiracy to commit perjury, the NCA said in a statement.

A 35-year-old man who works at the premises was arrested nearby on suspicion of money laundering and obstruction of an NCA officer after he was seen leaving the premises with a bag containing thousands of pounds in cash, according to the agency.

A third man, aged 39, was arrested at his home in Pimlico, London, for offences including money laundering and conspiracy to defraud. The NCA said he is the former boyfriend of the businessman’s current partner.

Investigators interviewed all three and released them on bail. Some 50 officers were involved in the operation at the businessman’s London property, and searches revealed a significant sum of cash as well as a number of digital devices, the NCA said.

The operation is one of a number of probes by the agency’s new combating kleptocracy cell, set up in July to tackle corrupt elites and Kremlin-linked individuals laundering their assets in the UK.

In a statement on Saturday the NCA said it had secured nearly 100 “disruptions” — actions that remove or reduce a criminal threat — against Putin-linked elites and enablers. Those included account freezing orders on bank accounts held by individuals close to sanctioned Russians.

The NCA has also targeted high-value asset sales used to disguise the movement of wealth via auction houses, it said.

Graeme Biggar, director-general of the NCA, said: “The NCA’s combating kleptocracy cell, only established this year, is having significant success investigating potential criminal activity by oligarchs, the professional service providers that support and enable them and those linked to the Russian regime.”

He added: “We will continue to use all the powers and tactics available to us to disrupt this threat.”

The NCA said it had assisted in freezing numerous properties, eight yachts and four aircraft, and was working with the sanctions regulator, the Office of Financial Sanctions Implementation, to ensure that other assets in the UK are frozen, as well as with global partners to target illicit wealth held abroad.

The update came after government figures last month revealed that Britain had frozen more than £18bn in Russian assets in response to the war in Ukraine.

Since Russia’s full-scale invasion in February, the UK government has frozen the assets of 120 Russian entities and more than 1,200 individuals linked to the Kremlin, including Roman Abramovich, former owner of Chelsea Football Club, and Alexei Miller, chief executive of energy company Gazprom.

DeepMind spin-off steps up effort to use AI to create new drugs

Alphabet-owned Isomorphic Labs is ramping up its operations by poaching pharmaceutical talent and opening a new office, as the artificial intelligence drug discovery start-up moves closer to securing its first commercial deal.

The UK-registered group was spun out of its sister company DeepMind, Google’s AI unit, in November last year, to focus on using AI technology to create new drugs to treat and prevent diseases.

Isomorphic is currently in talks with major pharmaceutical companies and is expected to announce a deal in the next few months, according to two people familiar with the plans.

Its work capitalises on DeepMind’s scientific breakthrough of its AlphaFold2 technology, which can be used to predict the shape of every protein in the human body with almost perfect accuracy.

Colin Murdoch, chief business officer at DeepMind, has been put in charge of setting up Isomorphic Labs, working closely with Demis Hassabis, who is chief executive of both DeepMind and Isomorphic Labs.

“It takes about 10 years to take a drug [to market], and often most of them fail sadly, and so inspired by the work we did with AlphaFold, we took a deeper look . . . and basically built conviction that there was a real opportunity here to apply AI to reimagine drugs discovery,” said Murdoch in one of the company’s first interviews on Isomorphic.

Isomorphic’s expansion comes amid a surge in interest in start-ups promising to use AI to transform drug discovery, with funding in the UK and US in this area jumping to more than $1.6bn this year, up from $668.5mn in 2017, according to data from PitchBook.

When the AlphaFold breakthrough was announced in November 2020, DeepMind said it would try to use the technology to find treatments for Chagas disease and Leishmaniasis, two of the most deadly diseases in the world.

Murdoch said Isomorphic had not focused on a specific drug or disease. “The goal is actually to build an underlying platform which is . . . agnostic to those therapeutic areas,” he said.

There are a number of “almost AlphaFold-scale” AI advancements that the team are working on that would provide the underlying engine for the platform, he added.

To lead its work in drug discovery, Isomorphic has hired several executives and staff from both scientific and pharmaceutical backgrounds, as well as in machine learning, developing computer systems that can learn through data.

The company is also expanding beyond its headquarters in London to a second office in Lausanne, Switzerland, home to a host of leading pharma companies including Roche, Novartis and Bayer, and Isomorphic’s chief technology officer Sergei Yakneen.

Yakneen has previously worked at Amazon and Sophia Genetics, a company that uses machine learning to identify tumours and other health conditions.

Other executives at Isomorphic include Miles Congreve, chief scientific officer, who previously worked at Astex Pharmaceuticals and GSK. Several staff have joined from DeepMind, as well as from BenevolentAI, Google and AstraZeneca.

“The goal of Isomorphic is to produce drugs which we can then partner with pharma to get them out into the clinic and to people with clinical need,” Murdoch said.

He added that Isomorphic was “beginning to think about what the right commercial path is. We have an amazing leadership team up and running and making fantastic progress”.

The company said it is in discussions with “many of the world’s leading pharmaceutical companies” without providing further details. It expects to embark upon a number of partnerships as it scales.

Murdoch said Isomorphic would hire more staff next year. Its talent acquisition lead James Girling recently aimed a post on LinkedIn at tech workers fired by Twitter.

While the AI drug discovery market has experienced growing interest in recent years, investment in the sector is not immune to this year’s tech rout. Venture capitalist funding has fallen 15 per cent from $2bn last year, according to data from PitchBook.

Some in the medical sector are sceptical that AI drug discovery will fulfil its hype, pointing to the need to navigate strict regulations and integrate into dated healthcare systems.

A recent Morgan Stanley report noted that investors would need to see “solid evidence for real-world use cases for AI-enabled drug discovery”.

However, it added that this method of drug discovery could lead to an additional 50 novel therapies over the next 10 years, presenting a potential $50bn opportunity.

Isomorphic reported a £2.4mn loss for the 11 months to December 2021, according to filings from the UK’s Companies House. This includes £470,455 in receiving contract research and development services from DeepMind as the company was launching.

Additional reporting by Madhumita Murgia and Hannah Kuchler in London

Politics and Brexit: Fear of the ‘B’ word

This is the final part in the FT series Brexit: the next phase

Brexit is the hot topic of the moment, debated in the media, in business circles and by economists as they try to unpick why Britain’s economy is struggling compared with its competitors.

But as public support for Brexit declines, business becomes more agitated and the trade and investment impacts of EU exit become clearer, there is one group reluctant to discuss the “B word”: Britain’s political elite.

Rishi Sunak, the Brexiter prime minister, has shut down a discussion started by anonymous senior figures in his government about whether Britain should build closer “Swiss-style” links with the EU over time.

Meanwhile Sir Keir Starmer, the Labour leader who once campaigned for a second EU referendum, delivered a speech to the CBI in November in which he only mentioned Brexit once in passing.

Sir Ed Davey, the leader of the pro-European Liberal Democrats, did not mention “Brexit” at all in his biggest speech of the autumn, making only a reference to the need to remove red tape “strangling trade” with Europe.

On the face of this it seems as if Britain’s political classes have not caught up with the public. “The truth is Brexit is now probably less popular than it has been since June 2016,” the pollster Sir John Curtice said in November.

YouGov reported in November that 56 per cent of voters thought it was a bad idea to leave the EU and only 32 per cent still thought it was a good one.

But that does not mean the British public has a huge appetite for reopening the divisive Brexit debate, nor do they think there is much prospect of Britain rejoining the EU.

A Redfield & Wilton survey found that only 27 per cent thought it was likely that Britain would apply to rejoin the EU within the next 10 years; only about one-third thought the EU would welcome the UK back.

Starmer and Davey instead talk of making Boris Johnson’s “hard” Brexit trade deal work better without challenging its core tenets: no alignment of rules, no free movement, no European Court of Justice jurisdiction and no big cash transfers to Brussels.

For Starmer, reopening the Brexit debate is seen by his aides as a political disaster waiting to happen, a reminder to Leave voters of how he had once tried to overturn their vote with a second referendum.

Asked after his speech at the CBI conference to explain his thinking on Brexit, the Labour leader said: “We are not going back to the EU. That means not going back into the single market or customs union.”

“He is thinking about Brexit but he doesn’t want to have the whole thing getting out of control, so you’re plunged into a new speculation about whether [the UK] is going to rejoin the single market or customs union,” said one senior adviser.

The issue is particularly problematic in the seats Labour needs to win back from the Tories at the next election. The heaviest concentration of Leave voters coincide with key “red wall” target seats in areas such as north-east England, Lancashire towns and the midlands.

Kevan Jones, Labour MP for North Durham, was a Remainer, but said the issue should be left well alone: “It’s a done deal. We’ve left the EU. We let people have a choice — you can’t keep revisiting it.”

Talking about reversing Brexit is also seen as a doomed electoral strategy by the Lib Dems; the party’s old south-west heartland seats were among the most pro-Brexit constituencies in the country.

As for Sunak, Tory Eurosceptic MPs are an ever-present threat if he deviates from the true path of Brexit. Lord David Frost, the former Brexit minister, has claimed that pro-Europeans are trying to “soften up” the UK for a potential return to the EU, while Nigel Farage, the former UK Independence party leader, is threatening to return to frontline politics if the Tories go “soft” on the subject of Europe.

Both Labour and the Lib Dems, who could find themselves working together in a hung parliament after the next election, talk about improving — not ripping up — the Johnson Brexit deal. Or as Starmer puts it: “Make Brexit work”.

Labour hopes that with improved relations, including resolving the vexed issue of the Northern Ireland protocol, it might be able to renegotiate side deals, such as a veterinary agreement to reduce border checks on foodstuffs, or a deal to make it easier for musicians to tour Europe.

Sunak also believes that if the Northern Ireland row is settled — still a big “if” — he can leverage his initially warm personal relations with French president Emmanuel Macron and European Commission president Ursula von der Leyen and gradually reduce trade friction over time.

Whichever party wins an expected 2024 election, relations with the EU might be expected to warm as the bitterness of Brexit fades and both sides confront common challenges like energy, migration and the strategic threat posed by Russia and China.

But if Britain’s economy continues to lag other EU competitors, will there be a new push sometime in the next parliament for a more fundamental redrawing of the relationship, or even rejoining?

Dominic Grieve, former Tory attorney-general, said that Britain’s entry into the EU in 1973 came as a result of the UK being “a declining country with less global reach and influence” deciding it was better off in the club.

Some politicians say it will take a generation for the issue of whether to rejoin to come back. “I think it will come back faster,” Grieve said. “This debate has never gone away and will continue.”

Sir David Lidington, deputy prime minister in Theresa May’s government and longtime Europe minister, said that if Sunak wins the next election he could use his own mandate to improve relations with the EU.

“If it’s Starmer, I think he would want the reset to go further,” he said, adding that Labour might seek closer institutional relationships. But he warned that anyone who thinks single market access or customs union membership would be an option for Britain without free movement would be “disappointed”.

But David Jones, deputy chair of the pro-Brexit Tory European Research Group, pointed out that reversing Brexit was “not that easy”. “It’s not something that could happen overnight. It would take the best part of a decade,” he said.

“You’d have to have a national conversation, probably another referendum and then you’d have to negotiate with the EU, which would probably want us to join the single currency,” he added

“I’m not sure if either of the two big political parties would have the energy or inclination to go through that process.”

Behind the scenes: who are the FT’s crossword compilers?

Your setter/compiler handle/pseudonym/alter ego Zamorca.

Why? I am mad about guinea pigs and thought it would be interesting to see what the word for guinea pig is in other languages. Often the results were quite boring or wordy. Zamorca is guinea pig in Bosnian.

Real name: Wendy Law

Where are you? Willingham — a village just outside Cambridge.

Years compiling I was first published in 1999 as Hectence, setting for the Guardian Quiptic. I was making crosswords for my mum and dad for many years before that, though. I was first published in the FT in 2019. And measured in number of crosswords: 211.

Full time or part-time with another job? Until May 2019, I worked as a library manager for Cambridgeshire Libraries as a job-share overseeing five village libraries.

Did your school mention crossword compiling in career discussions? Ha ha, certainly not! After my degree (English and Italian at Leeds University) I did many jobs, mostly administrative, including Ministry of Agriculture, Official Receiver, Education Finance before finally ending up where I should have started, in libraries.

Who/what got you into cryptic crosswords? My parents, especially my mum, who loved doing them. My dad and I would join in to help her finish them when she got stuck. In a big group of friends at university, I had a friend who set for the Leeds Student magazine — they were really hard puzzles. Also, my husband-to-be and I would get together and do a cryptic over lunch — usually the Daily Mail in those days.

Walk us through your compiling strategy I usually sit down with my laptop after breakfast and work through until lunchtime. Having filled the grid, I work through, thinking up clues. First run-through is just putting in some ideas, then I just keep going over them. A sign that I have finished is when I change something and then change it back on the next run-through. When I think I have finished, I check how many anagrams, contained works, charades etc there are, making sure there is a good variety. At the same time, I check that I have not used the same indicators or link words more than once. Sometimes, most often in the summer, I work in my shed. Other times I sit in the spare room, or just on the sofa.

So you think you’re hard My crosswords are at the easiest end of the cryptic crossword difficulty scale. I was recommended to the FT as a setter who could set easier puzzles for the beginning of the week.

The clue you wished you’d written There are far too many to choose from.

And the clue you’re glad you did Again, too many to go through! I like to think my clues are always fair and hope they are enjoyable to do. My puzzles are nearly always pangrams (a sentence using every letter of a given alphabet at least once) so that helps with variety. Personally I like to get to the end of doing a puzzle and feel satisfied that not only have I filled in all the words, but I understand how all the clues work.

What’s the topic of conversation when you come across other compilers? I have not really talked to others about ways of working — it is such a solitary and personal thing, I think, for most. We have talked about different editors and solvers.

Any advice for solvers? You cannot learn to do it by someone just telling you. Practice is the key — just keep doing them and have a look at websites like Fifteensquared or Big Dave’s Crossword Blog — they are great for explaining how the clues work. Do not worry about completing a puzzle — just do as much as you like. Remember, it is supposed to be fun — not an exam or a chore. Solving can be a fun and sociable group activity, too.

And for wannabe compilers? Practice and keep sending puzzles in to editors. I also set for my village magazine and it is worth seeking out local publications that do not have a crossword. They often feel that having a crossword gives them a bit of class. You might have to do it for free at first though!

Your favourite/least favourite other word game I play the Words with Friends app, Wordle and Quordle. There is also a Scrabble Club at my local library. I am up for any word game really (or any other board game), but sometimes find that when people find out I am a setter, they don’t want to play with me!

Zamorca’s latest cryptic crossword, published this weekend, can be found here.

Opec+ tipped to hold oil output levels steady

Opec and its allies are expected to keep the group’s oil output targets unchanged when it meets this weekend, with one eye on the impact of European sanctions targeting Russia’s oil that come into force next week.

The Opec+ group, which includes Saudi Arabia and Russia as its two largest producers, could still decide to make a small production cut, according to people familiar with the group’s discussions, but are leaning towards rolling over production targets.

The group was due to meet at Opec’s headquarters on Sunday but this week changed course to hold the meeting online, in a sign many have interpreted as the group not planning any dramatic shifts in policy.

“It means that they’ve already taken a decision,” said Jorge León, a former Opec official now at energy consultants Rystad.

“Normally, if there’s no agreement ahead of the meeting then it makes sense to bring 23 ministers to the table.”

At Opec+’s last meeting in October, the first held face to face since the start of the coronavirus pandemic, the group agreed a cut to production quotas of 2mn barrels a day, but faced fierce pushback from the US and other consumer countries.

While Saudi Arabia argued Opec+ was reducing output because of concerns about a slowing world economy, the White House accused its longtime ally of effectively siding with Russia.

Russia has slashed gas supplies to Europe since its invasion of Ukraine, sparking off an energy-led cost of living crisis that has left many countries grappling with inflation.

The oil price reaction since the Opec+ cuts has been limited, however, with Brent crude, the international benchmark, trading at $87 a barrel on Friday — near where it was when it became clear in October Saudi Arabia was leading a push to lower production.

Oil prices had jumped immediately after Russia’s invasion of Ukraine and were trading at $120 a barrel as recently as June.

But they have cooled to roughly where they were trading at the beginning of the year, with Russian oil exports having only slipped slightly since the invasion and China’s zero-Covid policy crimping demand.

That may change in the coming weeks, however, as European sanctions barring seaborne imports of Russian crude come into effect on Monday, with restrictions on refined fuels to follow in February.

The G7 is also launching a so-called price cap that aims to keep Russian oil flowing to other countries like India and China — by granting waivers to sanctions targeting shipping Russian crude — but at a price point set by western powers. The EU agreed on Friday to set the price at $60 a barrel.

Russia has repeatedly said it will not deal with any country utilising the price cap, stoking concerns it could retaliate by severing oil pipeline flows to Europe that were exempt from sanctions.

Amrita Sen, at consultancy Energy Aspects said there were “huge unknowns”.

“It is prudent for Opec+ to hold steady rather than adding to the volatility.”

Officially the next Opec+ meeting after Sunday is not scheduled until June. But Sen said the cartel could take action later in December or early next year to boost or cut supply if required.

“We believe that if the market warrants it, they would meet at a short notice,” she said.

Sam Bankman-Fried’s trading shop was given special treatment on FTX for years

Alameda Research was allowed to exceed normal borrowing limits on the FTX exchange since its early days, Sam Bankman-Fried has said, in a concession that illustrates how the former billionaire’s trading shop enjoyed preferential treatment over clients years before the 2022 crypto crisis.

In an interview with the Financial Times, the 30-year-old described the outsized role Alameda played in launching the exchange in 2019 and how it had access to exceptionally high levels of borrowing from FTX from the beginning.

Bankman-Fried said that “when FTX was first started” Alameda “had fairly large limits” on its borrowing from the exchange but he “absolutely” wished he had subjected the trading firm to the same standards as other clients.

Asked if Alameda had continued to have larger limits than other clients, he said: “I think that may be true.” He did not specify how much larger Alameda’s limits were than those of other clients.

FTX and Alameda portrayed themselves publicly as distinct entities to avoid the perception of conflicts of interest between the exchange, which processed billions of dollars’ worth of client deals a month before its collapse, and Bankman-Fried’s proprietary trading firm.

Bankman-Fried’s comments shed light on longstanding special treatment for Alameda. The close links between the firms and the large amount of borrowing by Alameda from FTX played a key role in the spectacular collapse of the exchange, once one of the largest crypto venues and valued at $32bn by investors including Sequoia and BlackRock. 

Previously one of the most respected figures in the digital assets industry, Bankman-Fried has apologised for mistakes that left up 1mn creditors facing large losses on funds they entrusted to FTX, but has denied intentionally misusing clients’ assets.

Bankman-Fried said the origins of the large borrowing limits for Alameda came as a result of the trading shop’s early role as the main provider of liquidity on FTX before it attracted other financial groups.

FTX, like other big offshore trading venues, handled large volumes of derivatives that allowed traders to magnify their bets using borrowed funds — but professional firms are typically needed to make the market function smoothly.

“If you scroll back to 2019 when FTX was first started, at that point Alameda was 45 per cent of volume or something on the platform,” Bankman-Fried said. “It was basically a situation where if Alameda’s account ran out of capacity to take on new positions that would lead to risk issues for the platform because we didn’t have enough liquidity providers. I think it had fairly large limits because of that.”

By this year, he said, Alameda accounted for around 2 per cent of trading volume and was no longer the key liquidity provider on the exchange. Bankman-Fried said he regrets not revisiting the trading firm’s treatment to ensure that it was subject to the same limits on borrowing as other similar firms operating on the exchange. 

FTX lent to traders so they could make big bets on crypto with just a small initial outlay, known as trading on margin. FTX’s large exposure to Alameda was a key reason that weakness in the trading firm’s balance sheet caused a financial crisis that engulfed both companies.

Bankman-Fried has estimated Alameda’s liabilities to FTX at roughly $10bn by the time both companies filed for bankruptcy in November.

“From a volume, from a revenue, from a liquidity point of view, the exchange was effectively independent from Alameda. Obviously that did not turn out to be true in terms of positions or balances on the venue,” Bankman-Fried said.

John Ray, the veteran insolvency practitioner running FTX in bankruptcy, has criticised its former leadership for failing to keep Alameda and FTX separate. In court filings, he pointed to a “secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol”. 

Automatic liquidation, or closing, of souring positions was a key tenet of FTX’s risk management procedures and a core part of its proposals to change parts of US financial regulation. When a typical client’s trade started to go underwater, FTX’s liquidation mechanism was meant to start draining the account’s margin to protect the venue from a single trade causing a loss for the exchange.

However, Bankman-Fried said there “may have been a liquidation delay” for Alameda and possibly other large traders. He said was “not confident” as to whether Alameda was subject to the same liquidation protocol as other traders on the exchange, and that the treatment of the trading firm’s account was “in flux”.

Crypto broker Genesis owes Winklevoss exchange’s customers $900mn

Digital asset trading group Genesis and its parent company Digital Currency Group owe customers of the Winklevoss twins’ crypto exchange $900mn as the collapse of FTX reverberates across the market.

New York crypto exchange Gemini, run by Tyler and Cameron Winklevoss, is trying to recover the funds after Genesis was wrongfooted by last month’s failure of Sam Bankman-Fried’s FTX crypto group, according to people familiar with the matter.

Gemini’s bid to recover the funds underscores how the crypto lending market, where investors lend out their coins in exchange for high rates of return, sits at the centre of the industry’s credit crunch.

Genesis is the main partner in Gemini’s “earn” programme, where retail investors lend out their coins in exchange for a fixed stream of returns. Gemini halted withdrawals from the scheme last month after Genesis said “unprecedented market turmoil” meant it did not have sufficient liquidity to make good on all of its redemption requests.

Gemini has now formed a creditors’ committee to recoup the funds from Genesis and its parent DCG, the people said. Gemini and Genesis declined to comment.

Genesis has been scrambling to raise funding and has hired investment banking boutique Moelis & Co to help it explore all possible options, according to the people familiar with the situation.

The creditor committee is in negotiations with both Genesis and DCG, the parent group of Genesis which is run by billionaire Barry Silbert, the people said. DCG was founded in 2015 and is one of the biggest investors in the crypto industry. It was valued at $10bn last year by investors including Singapore’s sovereign wealth fund GIC, Google’s venture arm CapitalG and SoftBank, and its subsidiaries include Genesis and investment manager Grayscale.

DCG itself owes money to its subsidiary Genesis; these intercompany loans have complicated the picture for creditors.

DCG has $2bn worth of outstanding debt, $1.7bn of which is owed to its own subsidiary Genesis through two loans. Over the summer, Genesis lost $1.1bn on a loan to collapsed hedge fund Three Arrows Capital. DCG took on Genesis’s liabilities in the process, subsequently owing $1.1bn to Genesis. Silbert told investors last week that DCG had separately borrowed $575mn from Genesis “on an arm’s length basis” to fund undisclosed investments and share buybacks from non-employee shareholders.

“Because of the way the liabilities are, they’re negotiating together,” said one person familiar with the matter about Genesis and DCG’s approach to creditors.

DCG declined to comment. The Financial Times revealed last week that some of DCG’s borrowing was used to fund its investments into another of its subsidiaries, Grayscale.

Russia’s deportations of Ukrainian children stir accusations of genocide

Welcome back. The Bundestag, Germany’s lower house of parliament, on Wednesday recognised the Holodomor — the deaths of millions of Ukrainians in a 1932-1933 famine induced by the Soviet collectivisation of farms — as an act of genocide. Now Russia’s abductions and deportations of Ukrainian civilians, including thousands of children, raise the question of whether a new form of genocide is unfolding in Europe. I’m at [email protected].

For many Ukrainians, the Holodomor is the most horrific national tragedy of a 20th century scarred by war, state violence and mass repressions. Most of this happened after the 1917 Bolshevik revolution and, in particular, under Joseph Stalin’s dictatorship.

Since Russia’s full-scale invasion of Ukraine in February, the authorities in Kyiv, along with western governments, human rights groups and the UN, have drawn attention to another ugly phenomenon: the “disappearance” of numerous Ukrainians in Russian-occupied areas and their transfer to Russia proper. I will focus on Ukrainian children who have suffered this fate. Is it a war crime? Is it genocide?

The Ukrainian government has a website, Children of War, on which it regularly updates the number of children killed, wounded, missing and deported to Russia. As of yesterday, it estimated those deported at 12,572.

To judge from some Russian reports, the number of child evacuees — a different measure, covering those supposedly moved for their own safety from war zones — may be far higher, at about 200,000.

Investigative news organisations have done some fine work on this topic. One of the best pieces, in my view, is this in-depth report by the Associated Press.

As the AP points out, officials in Moscow defend the transfer of children to Russia on the grounds that they don’t have parents or guardians. Some were moved from orphanages in the Russian-backed separatist area of Donbas, and others from war-ruined, captured cities such as Mariupol.

However, the AP’s reporters also discovered that “officials have deported Ukrainian children to Russia or Russian-held territories without consent, lied to them that they weren’t wanted by their parents, used them for propaganda and given them Russian families and citizenship”.

The UN Office of the High Commissioner for Human Rights has reached much the same conclusion. In September it reported: “There have been credible allegations of forced transfers of unaccompanied children to Russian occupied territory, or to the Russian Federation itself.

“We are concerned that the Russian authorities have adopted a simplified procedure to grant Russian citizenship to children without parental care, and that these children would be eligible for adoption by Russian families.”

Indeed, President Vladimir Putin signed a decree in May that simplified the procedure for turning Ukrainian orphans into Russian citizens. Among those who have adopted a Ukrainian teenager is none other than Maria Lvova-Belova, Putin’s commissioner for children’s rights.

In September the US Treasury placed sanctions on Lvova-Belova, saying her efforts “specifically include the forced adoption of Ukrainian children into Russian families, the so-called ‘patriotic education’ of Ukrainian children, legislative changes to expedite the provision of Russian Federation citizenship to Ukrainian children, and the deliberate removal of Ukrainian children by Russia’s forces”.

Does all this amount to genocide under international law? Timothy Snyder, an eminent American historian of eastern Europe, thinks so. He and others cite the 1948 Convention on the Prevention and Punishment of the Crime of Genocide.

Article II of this convention is unambiguous on the subject. Section (e) defines one type of genocide against a national, racial, ethnic, racial or religious group as “forcibly transferring children of the group to another group”.

But what precisely is the purpose of the Russian authorities in moving children from Ukraine and, in some cases, giving them Russian citizenship? A recent New York Times article made the point that the authorities are hardly concealing their actions. On the contrary, their actions are broadcast on state television “with patriotic fanfare”.

The aim, it appears to me, is partly to demoralise and intimidate the people of Ukraine, and partly to put on a propaganda show to the people of Russia. The message to Russians is: see, our “special military operation” is not a war at all, it’s bursting with humanitarian goodness.

All that said, it’s necessary to keep in mind that mass deportations have a long history in Russia, both in Soviet and in tsarist times.

In 2007 Sciences Po, the Paris-based university, compiled a chronology of deportations under Stalin from the mid-1930s onwards. Finns, Poles, Koreans, Balts, the peoples of the north Caucasus, Crimean Tatars, Germans, Greeks, Armenians, Moldovans — on and on the list goes.

In the tsarist era, one of the largest deportations occurred in 1864: the ethnic cleansing of Circassians in the north Caucasus.

On several occasions in the 18th and 19th centuries, Poles were deported en masse to Siberia. They suffered a similar fate, in even larger numbers, after Stalin’s invasion of Poland in 1939. The definitive study is the late British historian Keith Sword’s Deportation and Exile: Poles in the Soviet Union 1939-1948.

In our times, Russia’s 1999-2000 war in Chechnya led to the “enforced disappearance” of thousands of Chechens, according to Human Rights Watch. Similar actions against Crimean Tatars followed Putin’s annexation of Crimea in 2014.

In other words, Russia’s deportations of Ukrainians, including children, fit a well-established historical pattern of behaviour. It is another question whether the Russian authorities will ever be held to account.

What do you think? Does Russia’s treatment of Ukrainian children qualify as genocide? Vote here.

More on this topic

Vladimir Putin’s Telegram hawks — Andrey Pertsev explains on the Riddle website how a messenger app became a platform for pro-war Russian nationalists.

Notable, quotable

“This case reaffirms the strength of our democracy and the institutions that protect and preserve it, including our criminal justice system” — Matthew Graves, US attorney for the District of Columbia, speaks after Stewart Rhodes, founder of the Oath Keepers, a rightwing militia, was convicted of seditious conspiracy in connection with the January 2021 assault on the US Capitol

Tony’s picks of the week

  • Youth unemployment in China is stoking student protests against the Communist party’s zero-Covid policies, the FT’s Thomas Hale in Shanghai and Arjun Neil Alim in London report.

  • Ten years after the EU embarked on the project of a banking union to complement its single currency, the task remains unfulfilled in important respects, but there are opportunities for progress. The Brussels-based Bruegel think-tank analyses what needs to be done.

In case you missed it, for the FT’s Best Books of the Year series, I selected 10 history books which stand out from 2022 — you can read my list here, and see the rest of the annual round-up here.