BusinessDay 23 Aug 2018

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BUSINESS DAY Thursday 23 August 2018 FT FINANCIAL TIMES C002D5556 A3 World Business Newspaper Facebook removes fake accounts linked to Iran and Russia Social network finds first evidence of Tehran-backed campaigns targeting users in the US and UK Hannah Kuchler Facebook has for the first time discovered disinformation campaigns linked to Iran aimed at targeting misleading political content in the US and UK, as well as more fake Russian accounts. The world’s largest social network said on Tuesday that it had deleted 652 pages, linked to three Iranian and one Russian campaign, Nicaragua: Daniel Ortega’s last stand? Page A6 Michael Cohen pleads guilty and implicates Donald Trump Ex-lawyer admits violating campaign finance laws as former aide Manafort found guilty of fraud Demetri Sevastopulo, Courtney Weaver and Lindsay ForTADo Donald Trump is facing the most serious legal crisis of his presidency after his long-time lawyer pleaded guilty to arranging payments “at the direction” of his former boss during the 2016 campaign to silence two women who alleged they had affairs with Mr Trump. Michael Cohen, a lawyer who once said he would “take a bullet” for the president, pleaded guilty to violating campaign finance laws by arranging payments on behalf of Mr Trump to Stormy Daniels, a porn star, and Karen McDougal, a former Playboy model who sold her story to the National Enquirer, a tabloid newspaper. The development in federal court in New York came on the same afternoon as a Virginia jury convicted Paul Manafort, Mr Trump’s former campaign manager, of tax evasion and bank fraud. Mr Manafort was convicted on eight counts, the same number of charges to which Mr Cohen pleaded guilty, but the judge declared a mistrial on 10 other counts after the jury was unable to reach a unanimous verdict. While there has been intense focus on the Manafort trial because the charges were brought by Robert Mueller, the special counsel investigating Russian meddling in the 2016 presidential campaign, the Cohen plea was the first time that Mr Trump had been accused of wrongdoing by a member of his inner circle. Lanny Davis, a lawyer representing Mr Cohen, said his client had opted “to put his family and country first and tell the truth about Donald Trump”. “Today, he stood up and testified under oath that Donald Trump directed him to commit a crime by making payments to two women for the principal purpose of influencing an election,” Mr Davis said. “If those payments were a crime for Michael Cohen, then why wouldn’t they be a crime for Donald Trump?” As Mr Cohen left the Manhattan court where his plea was entered, he was met with shouts of “Lock him up” — an ironic play on the “Lock her ing and the strengthening dollar, with thin liquidity exacerbating the price moves. “We had suspected that net foreign selling of Italian debt securities had continued into June, but the June figure was still significantly more than we had expected,” said David Owen, chief European economist at Jefferies. Italian banks were, to a large extent, on the other side of the deal: in the second quarter of 2018, domestic financial institutions increased their net holdings of the government’s debt by more than €40bn, the largest amount since the height of the eurozone debt crisis. Investors are sharply focused on the economic and fiscal outlook for the eurozone’s third-largest economy, and the coalition’s debut budget, a draft of which is expected to be published by mid- October. The new government’s inclination to step up public spending could threaten to bust through Italy’s fiscal targets. “Italy’s [economic] fundaup” chants Trump supporters levelled at Hillary Clinton in 2016. It was a surreal moment for the former Trump confidante, who has described himself as a “pit bull” and was known to some friends as “Fido” because of his aggressive defence of the president. His sentencing has been set for December 12 under a plea agreement with prosecutors, which calls for a sentence of between 46 and 63 months in prison. Bail was set at $500,000. On Wednesday morning, Mr Trump wrote on Twitter: “If anyone is looking for a good lawyer, I would strongly suggest that you don’t retain the services of Michael Cohen!” He also said he felt “very badly” for Manfort and his family, adding: “‘Justice’ took a 12 year old tax case, among other things, applied tremendous pressure on him and, unlike Michael Cohen, he refused to ‘break’ — make up stories in order to get a ‘deal.’ Such respect for a brave man!” Mr Trump has denied that he had affairs with the women. He has also denied knowing about the $130,000 payment Mr Cohen made to Ms Daniels, which was the basis for one of the eight charges. His claim has been undermined by Rudy Giuliani, the former New York mayor serving as a lawyer for the president, who has said Mr Trump reimbursed Mr Cohen for the payment to Ms Daniels, whose legal name is Stephanie Clifford. Former Trump lawyer Michael Cohen pleads guilty David Gergen, a former adviser to four presidents, said the Cohen plea was “more dangerous” for Mr Trump because “it brings him into the net more fully”. Mr Gergen said the day reminded him of the time when John Dean — the Nixon administration White House counsel who secretly cooperated with Watergate investigators — told Richard Nixon there was a “cancer” on his presidency. “With this double blow, it looks much like a cancer on this presidency,” Mr Gergen said. “Trump can still manage it, but if it metastasises, he is in deep trouble.” He added that the Cohen plea would increase pressure on the president to agree to sit down for an interview with Mr Mueller and his investigators. that had been followed by hundreds of thousands of accounts. The owners of some pages linked to Iranian organisations had also bought advertising, despite US sanctions on Tehran that prevented Facebook from selling to accounts held in the country. Some accounts were five to seven years old. This is the first announcement Continues on page A4 Angola asks IMF for talks on bailout in return for reform Sub-Saharan Africa’s third-biggest economy plagued by forex shortages and bad loans Joseph CoTTerill Angola has asked the IMF for talks on a bailout in return for more structural reform in Africa’s second-biggest crude exporter. The IMF confirmed on Tuesday that Angola’s government under President João Lourenço asked “to initiate discussions on an economic programme” supported by bailout loans. The fund “stands ready to help the authorities address Angola’s economic challenges by supporting their economic policies and reforms”, it added. Mr Lourenço’s ruling MPLA has launched a turnround plan for the economy, which was badly hit by the fall in oil prices after 2014. It has included devaluing the currency by over half against the US dollar and promises by Mr Lourenço to root out Mortgage bond investors thaw on retail sector Page A5 Michael Cohen leaves court in New York on Tuesday. His sentencing has been set for December 12 © AP Foreign investors step up efforts to shed Italian bonds Overseas holdings of government debt fall further in June as political concerns mount KATe Allen The exodus of foreign investors from Italy’s bond market is gathering pace, with net sales of the country’s sovereign debt climbing to a record level for the second month in a row. Holdings of Italian debt by foreign investors declined by a net €38bn in June, according to recently released figures from the European Central Bank, eclipsing the previous month’s net fall of €34bn, which was itself a record. Italian bond yields remain elevated, with 10-year debt lingering near the peak it hit in May when the country’s two populist Eurosceptic political parties formed a coalition government. Investors view the Italian debt market as a key barometer of risk aversion; with the government currently negotiating its debut budget, Italian bonds are expected to remain volatile. They are one of the more sensitive asset classes to the US Federal Reserve’s monetary policy tighten- state corruption. Angola’s economy, the third biggest in sub-Saharan Africa, remains plagued by foreign currency shortages and rising bad loans in banks. Mr Lourenço became president in elections last year after replacing José Eduardo dos Santos, who ruled Angola with an iron grip for nearly four decades after independence in 1975 and through a long civil war that only ended in 2002. His family was accused of using state posts for private benefit, which claims they denied. Soon after taking power Mr Lourenço fired Isabel dos Santos, the former president’s daughter, as head of the state oil group. He also removed Mr dos Santos’s son as the sovereign wealth fund’s chief. The central bank’s governor and holders of other top posts were mentals are actually OK,” said Nick Gartside, international fixed income chief investment officer at JPMorgan Asset Management. “The budget flashpoint is what markets will focus on and when we are through that things should settle down a bit. A fair bit of volatility is now priced in.” Mauro Vittorangeli, chief investment officer for conviction fixed income at Allianz Global Investors, said Italian yields had “settled into” a “new range”. If the volatility of Italian yields steadies once the budget discussions are completed, then Italian retail investors and the nation’s banks will buy back into the market, which could help prices to bounce back somewhat, he said. Beyond that, he picked out two key factors that markets would be watching: the eurozone’s growth outlook — because “Italian debt needs positive nominal growth” to be sustainable — and the continued presence in government of Giovanni Tria as finance minister. replaced at the same time. Mr dos Santos is expected to relinquish the MPLA’s leadership to Mr Lourenço during a ruling party meeting next month. Angola first approached the IMF last year, seeking technical assistance with reform. It last borrowed from the fund in 2009-12. The country is also grappling with a decline in production from its ageing offshore oilfields. Last month, output in the Opec member state dropped to its lowest level since 2007. Sonangol, the state oil group, has pledged to invest in new fields while rebuilding relations with oil majors to which it built up arrears. The IMF said that the loans could come from its extended fund facility. This offers longer repayments linked to deeper structural reform than the norm for bailouts.
Thursday 23 August 2018 A4 BUSINESS DAY C002D5556 FT Facebook removes fake accounts... Continued from page A3 of what Facebook calls “inauthentic behaviour” traced to Iran. The news comes a day after Microsoft said it had uncovered an effort by hackers with links to the Kremlin to target Republicanleaning political groups, triggering alarm on Capitol Hill. Mark Zuckerberg, Facebook’s founder and chief executive, said the social network was facing “sophisticated” and “well funded” adversaries. He added that the company’s investment in fighting such manipulation was beginning to pay off. “The shift we’ve made from reactive to proactive detection will make Facebook safer for everyone over time,” he said. Mr Zuckerberg added that several similar investigations were under way. Facebook also said on Tuesday that it would now rate users on their trustworthiness, in a bid to halt the spread of misinformation by enlisting the help of members of the network. The announcement came three weeks after Facebook said it had removed the first co-ordinated disinformation campaign targeting the US midterm congressional elections in November, which some American politicians identified as originating in Russia. The company did not specify there were any link with the latest fake accounts and the November vote. In the first evidence of interference backed by Iran, Facebook said one campaign, which had created pages in 2013 primarily to propagate posts about the Middle East, had switched their focus to US and UK politics last year. Facebook said it was still investigating the content, but had discovered no “significant” advertising by the pages ahead of the Brexit referendum in 2016. Senator Mark Warner, vicechairman of the Senate intelligence committee, said he had been stating for months that social media manipulation was not restricted to a single troll farm in St Petersburg, referring to campaigns by the Internet Research Agency. “We also learned today that the Iranians are now following the Kremlin’s playbook from 2016,” he said. “While I’m encouraged to see Facebook taking steps to rid their platforms of these bad actors, there’s clearly more work to be done.” Facebook said it had briefed the US Treasury and the state department because the Iranian accounts had been able to buy advertising. US sanctions allow companies to provide internet services to users in Iran for personal communications, but they are required to screen advertisers to ensure they are not in the country. Twitter also said on Tuesday that it had removed 284 accounts that it believed had originated in Iran for engaging in “co-ordinated manipulation”. Facebook was alerted to suspicious activity by a set of pages under the name of Liberty Front Press by FireEye, a cyber security company, and then identified additional accounts and pages. NATIONAL NEWS Malawi’s President Peter Mutharika (centre) says politics is at the root of his deputy’s allegations of corruption against him © AFP Malawi president dismisses graft allegations Mutharika’s dispute with deputy threatens resumption of aid donations Joseph CoTTerill Malawi’s President Peter Mutharika has described allegations of corruption levelled against him by his own deputy as “complete nonsense”, fuelling a stand-off that threatens to further delay the return of foreign aid to the southern African nation. Saulos Chilima, the vice-president, has accused his rival of high-level graft, including over a $4m contract to provide rations to Malawi’s police force. Mr Chilima, who left the president’s ruling party in June, has called the scandal over the police contract “the tip of the iceberg”. The acrimonious split at the top of the government — with Mr Chilima planning to run against Mr Mutharika in next year’s elections — comes as Malawi tries to recover EU vows to get tough on UK’s market access after Brexit Plan to step up oversight of ‘equivalence’ rules that finance sector will rely on Jim Brunsden The EU’s financial services chief has warned that Brussels will be strict in policing the Britain’s rights of access to the bloc’s market after Brexit. Valdis Dombrovskis said he welcomed UK proposals to build market access for the City of London around EU rules, known as “equivalence”. But he said market access could never be taken for granted, with Brussels determined to toughen its assessments of whether countries meet the conditions. The equivalence rules make it easier for non-EU financial institutions to operate in the single market if the European Commission decides that their home country’s financial regulations are as tough as the EU’s own. Mr Dombrovskis said Brussels was not offering any kind of “super equivalence” to the UK, and that assessments of whether Britain qualified would require individual assessments “sector by sector and legislation by legislation”. He also said Brussels was pressing ahead with measures to reinforce oversight of equivalence access, with stronger requirements for countries’ financial supervisors to share information with the EU and more monitoring of whether from the systemic looting of state coffers under former president Joyce Banda. The $50m Cashgate scandal in 2013-14, when a third of the government’s budget was stolen, led international donors who funded nearly half of Malawi’s budget to withdraw funding, leaving the economy foundering. Speaking to the Financial Times from his presidential palace in the capital Lilongwe, Mr Mutharika said politics was at the root of Mr Chilima’s claims. “He has simply decided he wants to be president,” said the 79-year-old former law professor. “It is complete nonsense — it is all perception. Corruption is not greater now than it was before [the Cashgate revelations].” He continued: “We are doing more development than at any time in the country’s history. If there was so much corruption there would be no money to do jurisdictions continued to meet the criteria. “We see that there is a need to strengthen systemic monitoring of continued compliance,” said Mr Dombrovskis. “So this is one area where we will come with a more systematic approach.” Many EU officials privately assume that the UK — barring a sea change in its regulatory and supervisory approach — would have little difficulty in securing equivalence rights after Brexit, given that it already applies EU rules. But Mr Dombrovskis’ remarks are a sign of Brussels’ determination to prevent regulatory undercutting that could hand City firms an advantage over EU competitors. The British government, in a white paper on Brexit published in July, said it should benefit from a full set of equivalence rights after the end of its post-Brexit transition period in 2020. Britain also called for equivalence to be expanded to “encompass a broader range of cross-border activities”. Mr Dombrovskis said Brussels was open to discussion of adding more equivalence possibilities into EU law, noting that national governments were negotiating draft legislation that would clarify access rights for non-EU brokerages and other investment firms. what we are doing.” However, Mr Chilima, a 45-year-old former telecoms chief executive, says corruption has worsened since Cashgate, echoing US President Donald Trump with calls to “drain the swamp”. Civil society groups have also accused Mr Mutharika of corruption after money linked to the $4m police contacts found its way into bank accounts of the ruling party. Malawi’s main opposition party has called for the president to resign over a scandal that has provoked popular anger. “Corruption is still going . . . They are taking from our pockets,” said Niziya Nyasula, 43, a trader in Lilongwe. Mr Mutharika insisted that about $200,000 received as a political donation from the contractor was returned as soon as the party discovered possible links to corruption. “We are, if you want, at a relatively early stage, because the UK white paper is actually the first time the UK clearly acknowledges that it is willing to build on this system of enhanced equivalence,” he said. “We can now get into more detail and discuss what exactly that means, what areas are covered, are there some important areas missing and so on.” The UK government, in slides published this week, said its proposals would allow each side to “retain autonomous judgment about access to their market” while also providing certainty and stability to businesses. The plans include a “bilateral agreement” that would require each side to consult the other before withdrawing access and provide a safeguard to make sure that “existing contracts can be fulfilled even if access is withdrawn”. Mr Dombrovskis said it was positive that Britain had embraced a “more realistic way forward” compared with earlier plans to bypass equivalence by securing broader, permanent access rights — an idea Brussels has comprehensively rejected. He also said that while equivalence was in the EU’s gift, Britain should not underestimate its stability. The EU has never reversed an access decision. Mortgage bond investors thaw on retail sector More retail properties are being securitised and a ‘big short’ trade has reversed Joe Rennison Commercial mortgages on US retail properties are making up an increasing percentage of the loans that are bundled together in bonds for sale to investors, reflecting a thawing of sentiment towards the sector. The percentage of retail mortgages in new “conduit” commercial mortgage-backed securities (CMBS), where multiple loans are combined for sale, has risen to 32 per cent since the start of July, after almost two years of weak interest among investors. The figure so far this quarter compares with 24 per cent in the second quarter and a low of 22 per cent in the first, and with 24 per cent for 2017 as a whole, according to data from S&P Global. Investors have worried about the ability of shopping mall owners to make mortgage payments and repay loans in an age where ecommerce is taking a toll on traditional retailers. Many brick-andmortar retail chains have pulled out of second-tier malls as they cut store numbers and lay off staff. But 2018 has brought improved results for some companies that have been able to adapt. In the equity market, the S&P 500 department stores sector has risen more than 40 per cent in 2018, and the large chains Macy’s and Kohl’s are both up over 45 per cent. The better performance has helped eased concerns among CMBS investors about exposure to retail loans, said Tracy Chen, head of structured credit at Brandywine Global Investment Management. “I think it shows investors have changed their view on the retail sector,” she said. “Last year, there was total panic and everyone tried to avoid retail, but this year things are different.” The CMBS market has been an area of intense trading for investors placing bets on the future of retail. The so-called CMBX 6, a derivatives index that tracks CMBS and was originated in 2012, which has a particularly large exposure to retail properties, was a particular favourite of short-sellers. After falling sharply in 2017, it is up 3 per cent this year. The newly issued CMBS appear to include a narrower range of loans from the retail sector, excluding many of the regional malls most reliant on big-name “anchor” tenants to draw shoppers and focusing instead on top-tier properties. “Not all retail is bad,” said Ms Chen. Chris Acito, chief executive of Gapstow Capital Partners, said: “We went though a period where all retail was bad, but people have spent time studying the sector and developed a more nuanced view about which properties to be worried about. I think a more considered view of retail has really developed.” Other investors agree but also point out that the rise in retail loans being securitised comes at a time when interest rates remain at historic lows, meaning investors are willing to take on more risk for the sake of a higher yield.
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BusinessDay 23 Aug 2018

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