Liz Truss sacked her chancellor Kwasi Kwarteng and shredded her economic strategy on Friday, but her effort to salvage her premiership failed to win over financial markets and left Conservative MPs in a state of mutiny.
In a Downing Street press conference lasting less than 10 minutes, Truss named Jeremy Hunt, former foreign secretary, as her new chancellor and backtracked on her promise to avoid an £18bn corporation tax rise.
“We need to act now to reassure the markets of our fiscal discipline,” she said. She admitted last month’s “mini” Budget, which contained £45bn of unfunded tax cuts, “went further and faster than markets were expecting”.
But on the day that a Bank of England emergency bond-buying programme ended, Truss’s comments were followed by a big sell-off in the gilt market, with investors concerned that the scrapping of the £18bn tax cut was not enough to put the UK back on a sustainable fiscal path.
“We do not expect financial concerns to abate as a result of today’s action,” Citigroup said in a note as it criticised the government for not making a broader change to policy. “Instead, we believe further market instability likely lies ahead.”
Yields on long-term UK government bonds, the focus of the central bank’s scheme to shore up gilt-exposed pension funds, rose sharply as prices fell, raising fears that further turmoil could follow on Monday.
The 30-year yield ended the day at 4.81 per cent, up 0.27 percentage points, having earlier sunk as low as 4.24 per cent amid expectations of a more comprehensive U-turn.
Truss’s allies insisted that Hunt backed what remained of the government’s “plan for growth” and had agreed to take on the job on an understanding there would be no more U-turns. “It’s not a blank sheet of paper,” said one.
But market participants have warned Number 10 this week that the government has to go much further in unwinding its planned tax cuts to prove that the UK is serious about balancing the books. “They don’t believe that spending cuts will be enough,” said one person briefed on the discussions.
If Truss and Hunt are forced by the markets into further U-turns on tax, it would further weaken the prime minister’s precarious grip on power, as Tory MPs plot different ways in which she might be removed from office.
“She’ll be gone within two weeks,” predicted one senior Tory who backed Truss for the leadership.
Lord Philip Hammond, former Tory chancellor, said: “I’m afraid we’ve thrown away years and years of painstaking work to build and maintain a reputation as a party of fiscal discipline and competence in government.”
Truss told the Number 10 press conference: “I want to be honest — this is difficult but we will get through this storm.” She left after eight minutes, with one journalist shouting: “Are you out of your depth, prime minister?”
Kwasi Kwarteng was said to be in a ‘state of shock’ © REUTERS
Many Tory MPs maintain that Truss cannot survive Friday’s reverse, in which she conceded that corporation tax would rise from 19 per cent to 25 per cent next April — as planned by ex-chancellor Rishi Sunak, her former rival for the party leadership.
While Truss said the move would raise £18bn, helping to fill the £45bn fiscal gap created by the “mini” Budget, the corporation tax cut had featured prominently in her Tory leadership campaign.
The government had already been pushed by MPs into a £2bn U-turn on its plan to axe the 45p top rate of tax.
“The problem is she’s only got around 25 per cent of the parliamentary party backing her — if that,” one veteran Tory told the Financial Times. “She’s got a lot of disgruntled MPs to manage.”
The government’s record-low standing in polls — in one survey the Conservatives have fallen to 19 per cent, with Labour enjoying a 34-point lead — has increased the pressure on Truss from within her own party.
The prime minister said the corporation tax U-turn was a “downpayment”, suggesting that other tax cuts could be reversed before Hunt is due to present a new medium-term plan to cut debt on October 31, although Number 10 said no new changes were planned.
Truss insisted that Hunt, who is socially liberal but fiscally conservative, shared her vision of a “low-tax, high-growth economy”.
The prime minister also suggested that she would cut public spending plans in an attempt to reassure markets that debt was under control, announcing that “spending will grow less quickly than previously planned”.
Her retreat signals an apparent return of Treasury “orthodoxy”. In August, the prime minister told the FT that the finance ministry was obsessed with the “abacus economics of making sure that tax and spend add up”.
Truss said she was “incredibly sorry” to lose Kwarteng, whom she sacked as chancellor soon after he arrived back in London on an overnight flight from Washington, where he had been attending IMF meetings.
One Tory MP who spoke to the former chancellor said Kwarteng, in post for only 38 days, was in a “state of shock”.
Truss continued her clearout of Treasury ministers by moving Chris Philp, the chief secretary, to become paymaster general.
Additional reporting by Philip Stafford and Tommy Stubbington
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Bankman-Fried Empire Includes Billions of Dollars of Illiquid Investments
Sam Bankman-Fried’s business empire includes billions of dollars of illiquid venture capital investments, according to internal records seen by the Financial Times, underscoring the uncertain recovery facing customers of his collapsed FTX exchange.
The 30-year-old entrepreneur, once a star of the crypto industry, on Friday placed FTX international, its independent US arm, and his proprietary trading firm Alameda Research into a joint bankruptcy process in Delaware federal court.
Initial filings listed both assets and liabilities of the group at between $10bn and $50bn. FTX’s new chief executive John Ray, who was brought in to chair Enron during its liquidation, said the companies had “valuable assets” and that the bankruptcy would maximise recoveries.
The sprawling venture capital portfolio will add to the complexity of the insolvency proceedings, which itself includes more than 130 companies controlled by Bankman-Fried. FTX’s collapse is among the most dramatic failures in the crypto industry not just this year, but since the creation of bitcoin more than a decade ago.
FTX and its affiliates have not yet disclosed the exact size of their liabilities and assets, and the shortfall that likely exists. FTX’s recently departed head of institutional sales, Zane Tackett, said on Twitter on Friday that the shortfall ran into billions of dollars. FTX did not immediately respond to a request for comment.
Any gap between assets and liabilities will be influenced by the value that can be recovered from almost $5.4bn that FTX and Alameda invested in almost 500 crypto companies and venture capital funds, according to the records seen by the FT.
The largest of those investments is $1.15bn that Alameda ploughed into crypto mining group Genesis Digital Assets between August 2021 and April 2022, the records show.
Publicly traded mining companies have sold off sharply over the past year as the crypto market has declined. The HashRate crypto mining index, which tracks such stocks, is down 75 per cent since August 2021. Genesis did not immediately respond to a request for comment.
The records also list more than $1bn invested across about 40 funds run by venture capital firms, including some that were investors in FTX such as Sequoia Capital. Those holdings include a $300mn investment by Alameda in K5 Global, the firm run by Michael Kives. The investment amounts to 30 per cent of K5’s general partnership, and $225mn of the total sits in Elon Musk’s SpaceX and Boring Company, and other unidentified businesses, according to the records.
Earlier this year, texts released during Musk’s litigation with Twitter showed Kives suggesting Bankman-Fried as a co-investor in the social media company. Musk was dismissive of the FTX founder and ultimately took money from the head of rival exchange Binance, Changpeng Zhao.
Other big bets detailed in the records include a $500mn investment in Anthropic, an artificial intelligence “safety and research company”, made by Bankman-Fried through Alameda earlier this year. Anthropic did not immediately respond to a request for comment.
Source Here: ft.com
Sam Bankman-Fried’s $32bn FTX Crypto Empire Files for Bankruptcy
FTX, the once high-flying crypto currency group, has filed for bankruptcy protection in the US, marking a stunning collapse of the $32bn empire built by the colourful 30-year-old entrepreneur Sam Bankman-Fried.
The filing in Delaware federal court on Friday included the main FTX international exchange, a US crypto marketplace, Bankman-Fried’s proprietary trading group Alameda Research and about 130 affiliated companies.
FTX’s failure came after Bankman-Fried desperately sought billions of dollars to save the exchange this week after it was unable to meet a torrent of customer withdrawals in a run prompted by concerns over its financial health and links to Alameda.
The collapse of such a prominent group, which advertised during the US Superbowl and whose shorts-wearing, charismatic founder was a leading donor to the Democratic party, has rocked the notoriously volatile crypto industry.
Bitcoin dropped 5 per cent to a fresh two-year low of $16,492 after the FTX bankruptcy was announced. Changpeng Zhao, chief executive of Binance, earlier on Friday said the fall of FTX left crypto facing a financial crisis akin to 2008 and that more businesses could fail in its wake.
Bankman-Fried, who one week ago was among the most respected figures in the sector with a $24bn personal fortune and close links with Wall Street and celebrities, resigned as FTX’s chief executive on Friday. John R Ray, a restructuring specialist who oversaw the Enron and Nortel Networks bankruptcy cases, will take the reins.
“The FTX Group has valuable assets that can only be effectively administered in an organised, joint process,” Ray said.
In just over three years, FTX had secured a $32bn valuation and had wooed a roster of blue-chip investors, including Paradigm, SoftBank, Sequoia Capital and Singapore’s Temasek. Venture capital firms Sequoia and Paradigm have in recent days marked their investment down to zero.
The sprawling business empire run by a tight-knit group of longtime associates around Bankman-Fried, many of whom lived together in a Nassau penthouse in the Bahamas, has around 100,000 creditors and $10-50bn of assets and liabilities, according to the filing.
The US Securities and Exchange Commission is investigating FTX, which includes examining the platform’s cryptocurrency lending products and the management of customer funds, according to a person familiar with the matter.
The bankruptcy filing follows a frantic week in digital asset markets. Rumours about the financial health of FTX and its trading affiliate Alameda Research culminated on Monday in a run on the exchange with insufficient readily accessible assets to meet $5bn in customer withdrawals.
After appeals to its investors and rival exchanges, FTX halted the demands on Tuesday and agreed a rescue by the world’s largest crypto bourse, Binance, led by Zhao, a one-time partner turned arch-rival of Bankman-Fried.
That deal fell through a day later after Binance said due diligence revealed insurmountable financial problems at FTX. Last-ditch efforts to find another investor to supply up to $8bn failed in recent days.
FTX Digital Markets Ltd, the group’s subsidiary in the Bahamas, where it is headquartered, is not included in the bankruptcy proceedings. The Securities Commission of The Bahamas froze the subsidiary’s assets on Thursday and appointed a provisional liquidator.
LedgerX, a regulated US futures exchange, and a subsidiary in Australia are among other units not included in the filing. The group’s Australian business has already been placed into administration while Japanese watchdogs suspended operations of FTX’s affiliate in the country.
Bankman-Fried has blamed mistaken accounting of the exchange’s liquidity and leverage for the collapse.
“I’m really sorry, again, that we ended up here,” he said following Friday’s filing. “I’m piecing together all of the details, but I was shocked to see things unravel the way they did earlier this week.”
Additional reporting by Stefania Palma in Washington
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