FirstFT: How one man drove Capital’s €8bn European bank stock sell-off

A single portfolio manager at Capital Group drove an €8bn sell-off of European bank stocks this year after the war in Ukraine and the threat of a global recession caused the investment giant to sour on the sector.

Capital, one of the world’s biggest fund managers with $2.7tn of assets, until recently had been one of the few active investors backing European bank stocks, which had become pariahs after a decade of depressed profitability, misconduct scandals and market share losses as they restructured after the financial crisis.

Over the past few years, led by respected portfolio manager Nick Grace, Capital had built up large, often top-five stakes in lenders including Barclays, Deutsche Bank, Commerzbank, Société Générale, UniCredit, Santander, BNP Paribas and UBS.

But fears over rising inflation and falling growth sparked by Russia’s invasion of Ukraine pushed Grace and some of his fellow Capital managers to sell €8.1bn of those banks’ shares this year, according to people familiar with the matter and Financial Times calculations.

Grace — a London-based New Zealander who co-manages Capital’s $160bn EuroPacific Growth fund — accepted losses to shield Capital Group from what he believed would be deeper damage.

Thanks for reading FirstFT Europe/Africa. Here’s the rest of today’s news

The latest on the war in Ukraine

• Bonds: Russia’s invasion of Ukraine has sent jitters through bond markets in the Baltics and Finland and deterred international investment, as fund managers seek to avoid geopolitical risks.

• Germany: Three days after Russia invaded Ukraine, the German government said it would spend €100bn on modernising its army. Some officers are asking: what took it so long?

• Energy: Vagit Alekperov, former head of Lukoil, Russia’s second-biggest oil group, warned the EU that the country’s crude was “impossible to replace”. Gazprom Energy is examining a rebrand in the UK.

• Food security: The finance minister of Egypt, the world’s biggest wheat importer, said “millions” could die as the war cuts off vital grain supplies.

Five more stories in the news

1. EU states braced for extra cash demands from Brussels EU member states are preparing for demands for extra money from Brussels as the bloc’s budget comes under strain from the war in Ukraine, the refugee crisis and rising inflation. The European Commission has used most of its budgetary room for manoeuvre after a series of unexpected demands.

2. HSBC suspends banker over climate change comments HSBC has suspended Stuart Kirk, global head of responsible investing at the bank’s asset management division, pending an internal investigation into a presentation he made at the FT Moral Money Summit last week in which he said financial risks of climate change were overstated.

3. Era of globalisation is ending, warn business leaders in Davos The three-decade era of globalisation risks going into reverse, according to executives and investors meeting at the World Economic Forum. Onshoring, renationalisation and regionalisation are the latest trends for companies, said José Manuel Barroso, chair of Goldman Sachs International.

4. ABB and Siemens back Norwegian battery start-up ABB and Siemens are leading a €100mn fundraising round by Morrow Batteries, a start-up that aims to start producing in its home country of Norway by the end of next year. Boosting investment in battery production has become an urgent strategic goal for Europe to address the energy crisis.

5. Anthony Albanese sworn in as Australia’s prime minister Anthony Albanese has been sworn in as Australia’s 31st prime minister as his Labor party closes in on forming a government after an election fought over the economy and national security in which voters rejected Scott Morrison government’s climate and social policies.

The day ahead

EU meetings The EU General Affairs Council and the eurogroup of 19 finance ministers from the single currency region meet in Brussels today. The European Central Bank publishes eurozone investment fund statistics, while Germany releases the monthly IfA business confidence index

Biden in Asia US president Joe Biden will present his Indo-Pacific Economic Framework in Tokyo, which was watered-down to attract more countries to join the deal.

Corporate earnings Zoom Video Communications releases first-quarter results and Kingfisher gives a trading update.

What else we’re reading

Italy’s economic prospects sour as inflation bites Italy began 2022 poised for buoyant growth and structural reforms underpinned by Prime Minister Mario Draghi’s leadership and the infusion of EU funds. But the economic outlook has turned so bleak that the country faces the possibility of a recession.

A ‘bonfire of the decencies’: Peter Hennessy on Boris Johnson Peter Hennessy has tracked Westminster like no one else since the 1970s. He has written definitive books on the UK’s prime ministers, constitution, civil service and intelligence agencies. Now, like almost everyone else, he is asking where it all went wrong, and how it might go right.

Vive la différence between work and play France’s attempt in 2017 to allow employees a “right to disconnect” from work has had limited impact. But Italy and Spain are taking similar steps and Portugal forbids companies from contacting employees outside working hours. Meanwhile, the EU is drafting a directive aimed against work-related digital overload.

• More on work: Employers believe the impression of productivity is just as important, if not more so, than actual productivity. But leadership consultant Nels Abbey urges an end to the curse of presenteeism.

FT Executive Education Ranking 2022: demand bounces back France’s HEC Paris has topped the FT’s twin annual executive education rankings for open-enrolment programmes and custom courses for corporate clients for the first time, as leading academic institutions reported a surge in demand for non-degree courses. Read the full rankings and profiles of the top schools.

Overdue reality check for the Fed The US central bank and financial markets are experiencing a long-overdue reality check on inflation and interest rates, writes Sonal Desai, chief investment officer at Franklin Templeton Fixed Income. Markets have barely begun to take into account how far the world has changed.

Technology

Not a day goes by without reports of an achievement, investment or national plan powered by artificial intelligence, writes Esteve Almirall, a data professor at Esade Business & Law School in Barcelona. Yet the adoption of AI is largely absent from most organisations with which we directly interact or work.