BusinessDay 17 Apr 2018

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Tuesday 17 April 2018 FT FINANCIAL TIMES C002D5556 BUSINESS DAY A3 World Business Newspaper WPP shares tumble after Martin Sorrell’s departure Putin support for Assad paints Russia into a dangerous corner Insouciance after allied strikes fails to mask vulnerable position KATHRIN HILLE Four months ago, Vladimir Putin appeared in firm control of the agenda in Syria: Moscow’s military intervention, the Russian president confidently declared, had accomplished its aim of crushing Isis and all parties needed to move on to a political resolution. But the US-led missile strikes on Syria have underlined the risks Moscow’s staunch support for Syrian president Bashar al-Assad carries, as it pushes Russia into an increasingly dangerous corner and is damaging Moscow’s broader interests, diplomats say. “They cast themselves as the protector of Syria’s sovereignty, the fighters against western schemes to push for regime change and partition that country, but they risk becoming partners with Assad in being international outlaws,” said a diplomat from a European country whose government is usually seen as Russia-friendly. “They are beginning to look like a pariah state, and more and more they are behaving like one.” In aftermath of the suspected gas attack in Douma that killed dozens of people, US president Donald Trump made a point of criticising Mr Putin, saying Russia, along with Iran, was responsible for backing Mr Assad, while warning there would be a “big price to pay”. Moscow has fiercely rejected accusations that the Syrian military was responsible for the attack and even denied that chemical weapons were used at all. Those denials were the latest in a series of Russian steps to block the extension of a 2013 inspection regime for Syrian chemical weapons and shield Mr Assad from international pressure. Now, this position appears set to create new risks for Russia both economic and political. Nikki Haley, the US ambassador to the UN, said on Sunday that Washington planned to impose new sanctions against Russia over its support for Syria, little more than a week after Washington triggered a sell-off in Russian markets with punitive measures against seven oligarchs, including Oleg Deripaska, that pushed Rusal, the country’s largest aluminium producer, to the brink UK and US move on Chinese group citing national security Telecoms company ZTE hit by sanctions amid growing backlash in west NIC FILDES, SHAWN DONNAN AND PAN KWAN YUK Page A5 of collapse. Meanwhile, the US has pledged not to pull its estimated 2,000 troops from north-eastern Syria where they have been fighting Isis, until its goals are accomplished, while Mr Putin has warned against further strikes. Diplomats in Moscow believe the Russian leader may well keep up his support for Mr Assad. Mr Putin deployed troops and fighter jets to Syria in 2015, turning the civil war in Damascus’s favour. “He has waded in so deep now that he has become Assad’s hostage,” said a European diplomat. Indeed, even as Mr Assad stands accused of having used chemical weapons against his own people again, Russian Middle East experts believe that Moscow does not have the option of dropping him. “We recognise that the divide between Assad and large parts of the opposition looks almost insurmountable,” a Russian diplomat with experience in three Middle Eastern countries said. “But we do not see an alternative figure that could guarantee stability and territorial integrity.” This stubborn backing for Mr Assad is not so much a reflection of trust or a personal preference for the Syrian leader than of the underlying rationale for Russia’s engagement in the conflict: containing the US in the Middle East and on the international stage more broadly. A political transition brokered by Russia, Iran and Turkey, in which Syrian opposition groups would be forced to accept elections that Mr Assad would be virtually assured of winning, remained “the only reasonable option because the US is bent on dismembering the country”, said a Russian former ambassador involved in Moscow’s talks with Syrian opposition groups. Moscow’s approach to Syria has been driven by a mixture of policy goals: protecting economic interests in the region that eroded after Soviet times; countering Islamist threats to Russia’s neighbours and its own Muslim areas; taking advantage of a distracted US to resurrect Moscow’s influence in the Middle East; and preventing regime change, which Mr Putin has long viewed as a source of global instability. Britain and the US have moved against one of China’s largest telecoms equipment makers, adding to a growing list of restrictions imposed by western governments on Chinese companies on national security grounds. The measures taken against ZTE Corp, which cuts it off from US suppliers and bars it entirely from doing business in the UK, comes amid a particularly aggressive move by the Trump administration, which has already used the Committee on Foreign Investment in the US, a secretive national security body, to block or force changes to several Chinese-linked deals. It also is likely to add to mounting Continues on page A4 James Comey claims Donald Trump may be compromised by Russians Russian president Vladimir Putin, left, and Syrian president Bashar al-Assad in Russia in November 2017 © AP China’s Xi Jinping says he is opposed to life-long rule President insists term extension is necessary to align government and party posts TOM MITCHELL Chinese President Xi Jinping has said that he is “personally opposed” to life-long rule, adding that foreign observers have “misinterpreted” a recent constitutional amendment that revoked the two-term limit on the presidency. Mr Xi expressed his views at three recent meetings with foreign dignitaries and Chinese officials, according to people who either attended the meetings or were briefed on the discussions. They added that Mr Xi justified the decision in terms of needing to align the country’s three top government and Communist party jobs. Mr Xi’s two more powerful posts — party general secretary and chairmanship of the party’s Central Military Commission — are not subject to term limits. Merck lung cancer trial boosts immunotherapy hopes Company says test results show ‘unambiguous’ improvement in survival rates DAVID CROW Immunotherapy is set to become the default treatment for the vast majority of lung cancer patients after a clinical trial from drugmaker Merck & Co showed that adding its novel medicine to chemotherapy boosted survival. Unlike traditional cancer drugs, immunotherapies work by encouraging the body’s immune system to attack tumours. They have been hailed by oncologists as one of the biggest advances in decades. Some recently diagnosed lung cancer patients already receive a type of immunotherapy known as a checkpoint inhibitor if their tumours have high levels of a protein, PDL1. But the standard treatment for most is still chemotherapy. That looks set to change after the publication of a large, late-stage clinical trial on Monday in Chicago at the annual meeting of the American Association of Cancer Research. The study showed that combining chemotherapy with Merck’s check- Page A6 Two people said Mr Xi had surprised his guests by raising the issue himself. “President Xi said he was ‘personally opposed’ to [lifetime rule] and the outside world had ‘misinterpreted’ the amendment,” one of the people said. Mr Xi did not say at the meetings whether he intended to serve as president, party general secretary and CMC chairman for three or more terms. On February 25, the official Xinhua news agency announced that the Communist party’s Central Committee had recommended scrapping the two-term limit on China’s presidency, paving the way for Mr Xi to remain president for life if he wishes. The Central Committee’s “recommendation” to revoke the presidential term limit was taken at a closed-door meeting in mid-January but kept secret for more than a month. point inhibitor significantly increased survival rates in patients with the most common type of the illness, known as non-squamous, non-small cell lung cancer (NSCLC). Patients who received Keytruda, the checkpoint inhibitor, in addition to chemotherapy were 51 per cent less likely to die during the trial than those taking chemo on its own, according to the study of 616 participants. “These clinical data now suggest this combination as a new standard of care for the first-line treatment of these . . . patients,” said Dr Leena Gandhi, an oncologist at the NYU Langone Medical Center, who led the study. Dr Roger Perlmutter, Merck’s chief scientist, said the “unambiguous” results had exceeded the company’s expectations. “As a first-line treatment this is better than anything we know about.” However, the combination still burdened patients with the debilitating and sometimes life-threatening side effects associated with chemo- The amendment has stirred unease among many urban elites, including college graduates, intellectuals and civil servants, who worry about a return to the excesses of one-man rule that tarnished Mao Zedong’s 27-year reign. Mao’s successor, Deng Xiaoping, had term limits written into China’s constitution in an effort to bring more predictability to leadership transitions in the world’s most populous country. “The amendment sends a terrible signal about institutional rule,” said one former Chinese government official. A senior executive at a large listed Chinese state-owned enterprise added that he had been forced to answer awkward questions from investors ever since the amendment was announced. “Investors have been asking lots of questions about it,” the executive said. “It doesn’t look good.” therapy. The findings mean that from now on most untreated lung cancer patients will be given an immunotherapy by default. The question would then be whether they should also receive chemotherapy as a second treatment — or whether they can be spared the punishing drug altogether. Patients with higher levels of the PDL1 protein — who tend to respond very well to immunotherapy on its own — might be able to forgo chemotherapy, especially if they are frail or elderly, said Dr Perlmutter. “A lot of it has to do with state of health of individual,” he added. “It’s a very personalised decision, but the fact you see such a dramatic difference with the combination is, I think, going to make people eager to use it.” The recent trial cements Merck’s position as the leader in the race to bring immunotherapy to lung cancer patients, which is seen as the most lucrative market given the large number of sufferers: more than 200,000 people in the US are diagnosed with NSCLC each year out of 1.8m worldwide.
A4 BUSINESS DAY C002D5556 Tuesday 17 April 2018 FT NATIONAL Deutsche Bank and VW pay price for shambolic governance Shortcomings of two-tier board structure evident at teetering German titans PATRICK JENKINS Germany’s biggest bank and its biggest carmaker are not obviously comparable. But look under the bonnet and they have a surprising amount in common. And not in a good way. Consider three obvious parallels. Both Deutsche Bank and Volkswagen have been through scandal and existential crisis in the past few years. Both have Qatari investors as leading shareholders. Then, last week, both ditched their chief executives two years earlier than expected. The circumstances of the defenestrations of John Cryan at Deutsche and Matthias Müller at VW were quite different of course. Mr Cryan had spent nearly three years successfully raising fresh capital, resolving significant legacy litigation and launching a big cost-cutting effort but he was ousted after failing to turn around performance or lift the share price. Mr Müller did a better job of reviving the stock price following the emissions rigging scandal, but an ambitious successor was standing by to push through a big restructuring of the group. Investors welcomed both new brooms. Deutsche’s stock price rose 3 per cent last week after Christian Sewing was revealed as the bank’s new CEO; VW’s was up 9 per cent on the appointment of Herbert Diess. Whether that optimism is justified remains to be seen. Deutsche’s strategy — de-emphasising investment banking without a strong alternative to replace it — is unconvincing. VW’s inefficiencies have thus far proved tough to crack. The different challenges these companies face are horribly complex. But underlying their ills are flawed corporate governance systems — an important fourth parallel. UK and US move on Chinese group citing national... Continued from page A3 economic tension between Washington and Beijing, which are locked in a rhetorical trade war that threatens to impose tariffs on $150bn in bilateral trade. US commerce department officials insisted the move was not related to other actions taken in recent weeks by the White House, noting ZTE’s violations were first investigated by the Obama administration. But experts said the sanctions were part of a growing anti-China backlash not only in London and Washington, but also Germany, Australia and Canada. “Things are pretty rocky right now,” said Matthew Goodman, an expert on US-Asian economic ties at the Centre for Strategic and International Studies in Washington. “The timing of this is somewhat unfortunate because it could make it seem like they are connected,” acknowledged a senior commerce department official. It also came just hours after Donald Trump resurrected an accusation Beijing was manipulating its currency. The double blow could prove devastating to ZTE, a Shenzhen-based group that was founded in 1985 as an offshoot of the aerospace ministry. It came to prominence in the 1990s as a mobile networks supplier and has grown rapidly to become one of the world’s largest equipment makers both in China and the US. The UK’s cyber security watchdog warned British telecoms operators in a forcefully written letter on Monday not to use ZTE equipment because its state ownership raises security concerns. That effectively shuts it out of billions of pounds in contracts to upgrade the UK’s telecoms infrastructure to 5G and full fibre networks. The US commerce department banned American companies from doing any business with ZTE for seven years after it charged the company with violating a 2017 settlement over allegations it illegally sold equipment, including US parts on a list restricted from export, to Iran and North Korea. The move would prohibit any US company from doing business with ZTE anywhere in the world. ZTE did not respond to requests for comment. “This is literally cutting them off from any activity involving the US and any US items whether it’s a pencil or whether it’s a router,” said one former US official familiar with the case. ZTE pleaded guilty to criminal charges and paid $1.2bn to the US as part of the 2017 settlement, but US officials said the company lied to the commerce department about carrying out disciplinary actions against employees involved in the scheme — in some cases even rewarding those staff with bonuses. Investigators also found ZTE lied to US authorities as part of the settlement talks going back to 2016. US president Donald Trump and Chinese president Xi Jinping in Beijing in November © AFP China caught off guard by unpredictable Trump Chinese leaders are confident they can withstand a Sino-US trade war TOM MITCHELL When Donald Trump escalated trade tension with China this month, President Xi Jinping cited a Chinese saying in vowing to defend global trade rules. “When the sky falls, big men must hold it up,” he said in private meetings, according to four people briefed on his remarks. The Chinese president and his top advisers, including vice-president Wang Qishan and vice-premier Liu He, were initially confident the US and China could bridge their differences through talks, according to people who have recently met them. “China and the US are like an old married couple, we fight a lot but we still need each other,” Lou Jiwei, a former finance minister, said in a closeddoor exchange with an international delegation in late March, according to two people briefed on the meeting. But China’s view of the US presi- A prominent Australian start-up backed by News Corp co-chairman Lachlan Murdoch has applied for a UK court injunction to prevent it being banned from Google’s app store and mobile advertising inventory. Unlockd, which develops technology that enables mobile phone users to opt in to advertisements in exchange for rewards, said on Monday that Google’s plan to ban its service was an abuse of its dominant position and a breach of competition rules. The case marks the latest challenge to Google, which has faced an intensifying backlash from app developers, shopping comparison websites, media publishers and other businesses as its influence over internet and mobile users grows. dent began to shift after Mr Trump threatened to put tariffs on another $100bn of Chinese imports. Mr Trump had already enraged Chinese officials in March by signing the Taiwan Travel Act, which urges more US exchanges with the self-ruled island that Beijing regards as Chinese territory. Beijing’s previously sanguine view of Mr Trump was partly due to the fact the US president did not use his first year in office to follow through on some of the pledges he made during the campaign about getting tough with China. While Chinese officials now realise Mr Trump meant what he said in Beijing in November — that the Sino-US trade relationship was not “fair and reciprocal” and had to be solved — they also believe they can emerge from a trade war relatively unscathed. “Trump has certainly got [China’s] attention,” said Peter Mandelson, the former EU trade commissioner who this week led a British delegation to China Unlockd seeks injunction to halt ban from app store and advertising inventory Unlockd relies heavily on the Google Play app store for downloads of its technology, which is deployed under other brand names including Tesco Mobile in the UK and Sprint in the US. Users who agree to watch ads in exchange for discounts or other rewards from Tesco Mobile or Sprint see content that the start-up has sourced from Google’s AdMob inventory. A decision to ban Unlockd from the app store and AdMob would upend the business, which said it had been forced to pull an initial public offering on the Australian Securities Exchange because of the uncertainty created by Google’s change of policy. “It is particularly striking that Google’s warnings emerged at a time of speculation around an Unlockd IPO in mid-April 2018,” Unlockd said. “Google’s anti-competitive conduct is that met Mr Wang. “Chinese officials are confident and sure of their direction. They don’t want a fight [with the US], but if they get one they’re going to give as good as they get.” China was surprised again on Friday after Mr Trump said he would consider re-joining the Trans-Pacific Partnership trade deal. Chinese officials had seen his move to leave the TPP, which did not include China, on day one in office as a “grand gift”. “We have our problems with Trump,” said one western diplomat in Beijing. “But he has taught us that when you push back hard against the Chinese, it knocks them off-balance.” Two senior Chinese officials told the Financial Times that the Taiwan Travel Act and Mr Trump’s additional trade threats limited Mr Xi’s room for manoeuvre in a major speech last week that had been previously billed as a blueprint for aggressive economic reforms. China’s president did not want to give the impression he was yielding to US pressure. Australian start-up accuses Google of breaching competition rules JAMIE SMYTH AND ALIYA RAM preventing Unlockd from raising capital to continue its rapid expansion and innovation, and therefore protecting Google from a growing and potential competitor.” Google’s advertising policies prohibit publishers from paying users to view ads. The company said it had engaged with Unlockd about its policies, which it argues are designed to protect the interests of advertisers, publishers and phone users. Google said: “We explained our concerns to Unlockd, outlined how they could fix the problems or use alternatives and gave them time to make changes. And despite having agreed at the outset to comply with our product policies, their app remains in infringement.” However, Unlockd has argued that Google is threatened by the idea of returning advertising revenues to users. Guggenheim under SEC investigation over mansion purchases Investment management division says it is co-operating with US regulator SUJEET INDAP AND JAMES FONTANELLA-KHAN The Securities and Exchange Commission is investigating the purchases of three California mansions as well as loans to a now-bankrupt retailer involving Guggenheim Partners, the sprawling US financial services firm. Guggenheim Partners Investment Management, the asset management division that looks over more than $300bn, is regulated by the SEC and is the subject of the inquiry by the agency’s enforcement arm. In a statement, Guggenheim Partners said: “We are cooperating fully with the SEC’s investigation of our subsidiary, Guggenheim Partners Investment Management (GPIM), and we cannot comment further.” The Wall Street Journal first reported the SEC inquiry on Sunday. The investigation is looking into the role played in the transactions by ABS Capital, a Miami-based firm with close ties to Guggenheim founder Mark Walter. As the Financial Times first reported in 2017, Mr Walter and Scott Minerd, Guggenheim’s chief investment officer and leader of GPIM, had been at odds over the management and direction of the firm. The SEC investigation could become another source of tension between the two; while the investigation focuses on Mr Minerd’s GPIM unit, the transactions targeted involve ABS Capital, the firm with ties to Mr Walter. Mr Walter and ABS had together purchased a Malibu mansion from Hollywood mogul David Geffen in 2017 for $85m. Separately, ABS had bought two homes in nearby Pacific Palisades, in one of which Guggenheim’s global head of institutional distribution, Alexandra Court, lived for a period. Ms Court’s dramatic restructuring of the sales team had rankled Mr Minerd and was a source of broader tension at the firm. Multiple sources told the FT that Mr Walter and Ms Court had a close personal relationship. Guggenheim has said that no non-business relationship existed between them, but if it had it would have been properly disclosed to the Guggenheim board. A person close to Guggenheim Partners said Ms Court no longer resides in the Palisades home. This person also said that GPIM had no involvement in the purchase of any of the three homes nor any relationship with ABS Capital. The SEC investigation is also interested in Guggenheim Partners’ involvement in BCBG Max Azria, the women’s retailer. When BCBG filed for bankruptcy protection in early 2017, GPIM lost hundreds of millions of dollars in debt and equity investments it had made in the years before the Chapter 11 filing.
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