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‘Cultural background’ of Wirecard sellers noted by German regulator

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Germany’s financial regulator discussed the “cultural background” of Wirecard short-sellers and told the country’s finance ministry that it was “striking” that most of those betting against the now-defunct payments group were British and Israeli, documents seen by the Financial Times show.

The BaFin watchdog submitted a memo to Germany’s finance ministry in May 2016, two and a half months after anonymous short-sellers published the highly critical “Zatarra report” accusing Wirecard of criminal misconduct, which sent its shares down more than 20 per cent in a day.

The six-page document highlighted a “plethora of suspicious market participants” that were trading Wirecard shares in a “strikingly profitable way”.

It continued: “It is striking that the suspect individuals (which besides natural persons also include Anglo-American ‘hedge funds’), all appear to share a rather homogeneous cultural background — mainly Israeli and British citizens.”

The financial regulator appears to have seen this as an indication that these investors may have acted in concert in an attempt to conspire against Wirecard. “It cannot be ruled out that this is a matter of a network-like structure (‘insider ring’),” the memo said.

BaFin’s focus on the cultural background and nationality of Wirecard sceptics raises new questions over its handling of allegations against the company. “BaFin’s statement is evidence of a deeply rooted siege mentality and a repulsion of Anglo American capital market structures,” said Danyal Bayaz, a member of parliament of the Greens.

Confirming the memo was genuine, BaFin insisted that neither cultural background nor nationality was relevant to its Wirecard investigations. “The wording chosen [in the memo to the finance ministry] was certainly unfortunate and can easily be misread,” it said in a statement to the FT.

Wirecard, which at its peak was worth €24bn, collapsed last summer in one of Europe’s biggest postwar accounting frauds, causing billions of losses to investors and creditors. The scandal continues to send shockwaves through Germany’s political and financial establishment, with a parliamentary commission investigating regulatory and political failures in the run-up to the collapse.

The company was for more than a decade seen as one of Germany’s rare technology success stories. But it began to unravel in 2019 after the FT reported on internal documents pointing to far-reaching accounting fraud that triggered a special audit by KPMG, the professional services company.

The same year, BaFin filed a criminal complaint against two Financial Times journalists who reported whistleblower allegations against Wirecard. The watchdog also imposed a two-months ban on shorting Wirecard stocks, brushing aside concerns by the Germany central bank against such a move.

Critics have long accused German regulators, including BaFin, of trying to defend Wirecard against foreign criticism in an attempt to nurture a homegrown success story.

Felix Hufeld, BaFin president, last year described as “utter nonsense” the suggestion that the watchdog’s actions were part of “Frankfurt versus London” battle or an attempt to protect “a youngish German company against foreign intruders”.

Mr Bayaz, the Green MP, said the fact that BaFin in an official document sought to explain market manipulation by highlighting cultural backgrounds suggested it was willing to use “any possible argument” to back its view.

“This language gives a deep insight and is unworthy of a German regulatory agency,” said Mr Bayaz, adding that BaFin failed to properly investigate the allegations made in the Zatarra report.

BaFin in its memo asserted that the authors of the Zatarra report did not properly disclose their own short positions and hence potentially conducted market manipulation, a criminal offence that can be punished with up to five years in jail.

The regulator added that evidence gathered from suspicious activity reports filed by banks to a different European supervisory authority pointed to similarities that suggested the suspects may have worked in common. These included the fact that they were based near each other and used similar email addresses as well as identical IT infrastructure.



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French Greens given a grilling over meat-free school lunches

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Grégory Doucet, mayor of Lyon, said he had no inkling that the school lunches served up in the French city this week would put him at the centre of a political storm. 

But the decision by the environmentalist mayor that children should be offered just a single lunch option — one without meat — prompted immediate denunciations from French government ministers, and protests by farmers who responded by releasing herds of cows outside city hall. 

The ruling — which Doucet said he took for a limited period to avoid long queues for multiple menus that would bunch pupils close together during the Covid-19 pandemic — has set carnivores against vegetarians, town against country, and right against left. 

“It touches a lot of topics deeply rooted in French political culture,” said Vincent Martigny, politics professor at the University of Nice. “Everybody knows we should be eating less meat, but we’re still a very traditional food culture in France, quite conservative. If you don’t eat meat and drink wine, you’re not very French.” 

Doucet and his Europe Ecologie-Les Verts (EELV) , which took Lyon from the centre-right in local elections last year, say the row has more to do with June’s regional elections and the presidential and legislative polls due in 2021. 

“They’re targeting the ecologists because we’re the biggest threat,” Doucet told the Financial Times. 

Farmers released herds of cows outside Lyon city hall to protest against the removal of meat from school lunches
Farmers released herds of cows outside Lyon city hall to protest against the removal of meat from school lunches © Olivier Chassignole/AFP via Getty Images

Even so, a mini-campaign by some ministers in President Emmanuel Macron’s government to curry favour with conservative voters and paint the Greens as crazed ideologues quickly spun out of control and exposed divisions in the cabinet.

Gérald Darmanin, the hardline interior minister, denounced the Lyon Greens for what he called a “moralistic, elitist policy” to deprive working-class students of meat. Julien Denormandie, who holds the agriculture portfolio, leapt to the defence of farmers, calling the decision “shameful” and saying: “Let’s stop putting ideology on our children’s plates!”

Environment minister Barbara Pompili, however, said she was sorry to hear a “prehistoric debate” full of clichés about the supposed nutritional inadequacies of vegetarian food. Macron eventually had to tell them to stop disagreeing in public as he called for an end to the “idiotic” argument. 

The school meals controversy is the latest manifestation of a long-running debate in France and abroad over the environmental sustainability of meat consumption by an increasingly wealthy and numerous world population, given the land taken up by cattle and their greenhouse gas emissions. 

Doucet, a “flexitarian” who said he tried to limit his intake of meat and fish, has campaigned to reduce consumption of animal protein and provide more vegetarian meals in schools, but he said his immediate priority was to ensure the meat served comes from local farmers.

He also pointed out that Gérard Collomb, his centre-right predecessor as mayor, had made exactly the same decision for a single, no-meat menu acceptable to the largest number of school pupils during an early phase of the pandemic — and there had been no political backlash. 

“When we took the decision, we didn’t think for one minute it would lead to a political polemic,” Doucet said. 

Somewhat later than neighbouring countries such as the UK, France is in any case gradually coming to accept vegetarianism. The Michelin Guide this year for the first time awarded one of its prized stars of approval to a French vegan restaurant called ONA — for Origine Non Animale

“People used to be treated as the village idiot if they were vegetarian,” said Jean-Pierre Poulain, a sociologist specialising in food at the University of Toulouse. “That’s no longer the case.” 

The change was slow in coming, said Poulain, but as in other urbanised societies, French city dwellers anthropomorphised pets, idealised wild animals and no longer automatically accepted the legitimacy of killing animals to eat them.

As mayor of Lyon, Doucet has also found himself at the heart of another contemporary debate — this time a particularly French one — about the role of schools and other state institutions in shaping the values and ideals of the nation’s youngest citizens.

Macron and his ministers, who are currently promoting legislation designed to curb Islamist “separatist” ideology and lifestyles, are demanding strict adherence to French secular values. As such they are reluctant to see the state’s prerogatives usurped by local governments with their own priorities.

Conservatives have already fulminated about the Green mayor of Bordeaux rejecting a public Christmas fir because he did not want to celebrate around a “dead tree”. Other Green civic leaders have refused to host the Tour de France cycle race in their towns because of the carbon footprint of all the accompanying motor vehicles.

On the right, the loss of meat as a choice for school meals is sometimes portrayed as another step towards the forced dismantling of the French way of life, but politicians wary of pointless conflicts are more phlegmatic about the affair.

“I don’t think the children of Lyon are going to die of anaemia in the days ahead, but I also don’t think this will do much to reduce greenhouse gases,” Roland Lescure, an MP with Macron’s governing La République en Marche! party, was quoted as saying in Le Parisien.

“Everyone is playing politics,” he added, “including the mayor of Lyon.” 



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ECB signals rising concern about eurozone bond market sell-off

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The European Central Bank has indicated it will increase the pace of its emergency bond purchases to counter the recent sell-off in eurozone sovereign debt markets if borrowing costs for governments, companies and households continue to rise.

Philip Lane, chief economist of the ECB, said on Thursday that the central bank was “closely monitoring the evolution of longer-term nominal bond yields” and its asset purchases “will be conducted to preserve favourable financing conditions over the pandemic period”.

The ECB has pledged to ensure financial conditions encourage investment and spending, helping the eurozone economy to make a swift recovery and lifting inflation towards the central bank objective of just below 2 per cent.

To achieve this, Lane signalled that it would rely on its pandemic emergency purchase programme, under which it plans to spend up to €1.85tn on buying bonds by March 2022. There is just under €1tn of that amount left to spend.

“We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation,” he said.

Eurozone government bonds fell to their lowest levels for almost six months this week, and while Lane’s comments caused a brief rally on Thursday afternoon, prices then resumed their downward path.

Bond yields move inversely to prices, so the sell-off is pushing up the cost of borrowing for governments, which must sell vast amounts of extra debt this year to cover the cost of the coronavirus pandemic and its consequences.

Germany’s 10-year bond yield has risen to its highest level since last March, while the French equivalent returned to a positive yield for the first time since June and Italian sovereign yields hit their highest level since November.

ECB president Christine Lagarde said in a speech on Monday that policymakers were “closely monitoring” the rises. 

Isabel Schnabel, another ECB executive board member, said in an interview with Latvian news agency Leta published on Thursday: “A too-abrupt increase in real interest rates on the back of improving global growth prospects could jeopardise the economic recovery.”

Lane gave more detail of how the ECB defines “favourable” financing conditions, saying it would track the availability and cost of bank lending and market-based funding — in particular, the risk-free overnight index swap curve and the GDP-weighted eurozone sovereign bond yield curve, which have both risen in recent days.

He warned of the need to avoid “a mutually-reinforcing adverse loop” in which banks interpret lower borrowing demand as a negative signal about the economy and companies interpret a tightening of bank lending conditions as a worrying sign about the outlook. 

Eurozone bank lending to the private sector grew by just under €12bn in January, down 75 per cent from the average monthly loan growth last year according to data published on Thursday.

Much of the slowdown was because of a sharp fall in net lending to insurers and pension funds. Lending to non-financial companies also retreated slightly, while lending to households still grew but at its slowest rate since last April.

Krishna Guha, vice-president at Evercore ISI, said “ECB jawboning” was “having little effect” and “the next step — in our view presaged by Lane — is for the ECB to dial up the pace of its [bond] purchases”.

Last week the ECB spent a net €17.3bn on its emergency bond purchase programme, up slightly from the previous week but still well below the levels of last April, during the previous sell-off in government bond markets.

Frederik Ducrozet, strategist at Pictet Wealth Management, said the ECB was likely to wait until it was clear the bond market sell-off was a lasting shift before increasing its emergency bond buying above €20bn per week. But he said that “will bring the risk of disappointment [for investors] — because you have to walk the walk as well as talk the talk as a central bank”.



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Armenia’s prime minister claims military is plotting a coup

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Armenia’s prime minister has claimed the country’s military is plotting a “coup,” and taken to the streets with his supporters after senior army figures in the former Soviet republic called on him to resign.

Nikol Pashinyan has faced months of protests demanding he step down after the defeat of Armenian forces in a six-week war with neighbouring Azerbaijan that ended in November.

The army weighed in on Thursday, calling on the prime minister to quit after he fired the first deputy chief of staff for criticising him.

A letter to the prime minister signed by 40 senior officers warned Pashinyan not to use force against demonstrators, but did not say whether the army would act to remove him from power.

“The current government’s ineffective management and serious mistakes in foreign policy have put the country on the brink of collapse,” the officers wrote on Facebook.

Pashinyan later fired the chief of the general staff, Onik Gasparyan, ordered police to secure government buildings in Yerevan and told his supporters in the capital’s Republic Square to avoid violent clashes.

Demonstrators at an opposition rally in Yerevan demand the resignation of Nikol Pashinyan. They cheered as a fighter jet flew overhead © Artem Mikryukov/Reuters

Describing the situation as “manageable” the prime minister denied he was planning to flee the country and said the army’s statement was an “emotional reaction” to a dispute over the defeat in the Nagorno-Karabakh conflict.

“We have no enemies in Armenia. I am calling for calm,” Pashinyan said, according to Russian news agency Interfax. “Of course, the situation is tense, but we need dialogue, not confrontation.”

He later took to the streets with several thousand supporters and a megaphone — an echo of the 2018 “velvet revolution” that swept him to power following a march across the country that galvanised popular support. A few thousand opposition supporters gathered at a different square and cheered as a fighter jet flew overhead.

Pashinyan has fought off calls for his resignation since signing a Moscow-brokered peace deal in November that cemented territorial gains for Azerbaijan in Nagorno-Karabakh. The mountainous enclave in the South Caucasus is internationally recognised as part of Azerbaijan, but is populated by ethnic Armenians who seized control after a war that broke out in the dying days of the Soviet Union.

Azerbaijan, a mostly Muslim country and a close ally of Turkey, launched an offensive in September with the aim of retaking the entire enclave. Armenia’s army was ill prepared for oil-rich Azerbaijan’s modern drone fleet and significant backing from Ankara.

More than 3,300 Armenian soldiers died in the conflict, with a further 9,000 wounded. Thousands of civilians were displaced, including some who set their own homes on fire as they fled land now under control of Azerbaijan.

Russia, the traditional regional power broker and Armenia’s most important ally, remained neutral even as several previous ceasefires failed and has deployed 2,000 peacekeepers to secure the region.

Pashinyan admitted the terms were “unbelievably painful for me and my people” but argued the concessions were necessary to prevent further losses.

The devastating defeat sparked fury among Armenians who stormed the country’s parliament and attacked its speaker, demanding the prime minister’s resignation.

Pashinyan backtracked on a pledge to step down after snap elections earlier this month and remained in office in the face of opposition from Armenia’s ceremonial president, three parliamentary opposition parties, and key church leaders.

The Kremlin said on Thursday it was “following events in Armenia with caution” but considered them “exclusively Armenia’s internal matter”.

Dmitry Peskov, President Vladimir Putin’s spokesman, told reporters Russia was “calling on everyone to be calm” and said “the situation should remain within constitutional limits,” according to Interfax.



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