FirstFT: EY boss targets $10bn boost from Silicon Valley tie-ups

EY’s global boss said a break-up of the Big Four firm would win its consulting division up to $10bn in extra fees by liberating it from conflicts of interest that block partnerships with the world’s largest tech groups.

Pressure is building on the accounting firm to decide whether to pursue a historic split as its global leaders meet in New York this week and its competitors continue to stand by their model of combining audit and consulting.

EY dominates the auditing of large US tech companies, checking the accounts of Amazon, Google, Oracle, Salesforce and Workday.

In an interview with the Financial Times, EY’s global chair and chief executive Carmine Di Sibio said the firm’s position in the tech audit market was “both a blessing and a curse”.

While its strength was positive for the audit business, Di Sibio said this was also a “negative” because it meant EY was prevented by conflict of interest rules from entering alliances to work alongside some of the world’s biggest technology companies on projects for their other clients.

Over time, the standalone advisory business would win between $5bn and $10bn a year in consulting fees that are currently “off the table” because conflicts rules restrict it from working alongside the likes of Amazon or Salesforce, he added.

EY global leaders meet this week, with the firm yet to make a final decision on whether to go ahead with a split, which would be the biggest shake-up of the accounting industry in two decades. “It would reshape the industry,” Di Sibio said.

He said that he expected a decision “in the next couple of weeks or so”. Any split would then be voted on by the partners in each of EY’s national member firms, most likely in October or November, he added.

Five more stories in the news

1. Judge fast-tracks Twitter-Musk trial Chancellor Kathaleen McCormick set a timetable for a fast-track trial to start in October, siding with Twitter in its legal battle against Elon Musk. It was an early victory for Bill Savitt, the rock-star litigator who hopes to bring Musk to heel. Would a long wait have threatened Twitter’s business? Have your say in our latest poll.

• Go deeper: Images emerged on Monday of the Tesla chief partying on a yacht in Greece. Just 24 hours later, the judge put a crimp in his holiday, Sujeet Indap writes.

2. Netflix loses 1mn subscribers The streaming leader continued to lose subscribers in the second quarter but tried to assuage investor fears about its business prospects. The loss was smaller than the 2mn users Netflix had forecast would cancel their accounts as the company was helped in part by the release of a new season of the hit show Stranger Things.

3. BoE and ECB discuss half-point rate raises Bank of England governor Andrew Bailey has raised the possibility of increasing interest rates by half a percentage point at the central bank’s next meeting in early August. UK inflation rose to a fresh 40-year high of 9.4 per cent in June, it was confirmed earlier today. Bailey’s comments come as the European Central Bank this week plans to broach raising interest rates by the same amount.

4. JPMorgan takes on direct lenders with leveraged loans unit JPMorgan Chase’s investment bank is committing a “significant chunk of capital” to hold leveraged loans on its balance sheet. The bank began making the loans in 2021 and has completed about 20 deals, with the size ranging from $50mn to about $500mn, Kevin Foley, JPMorgan’s head of global debt capital markets, told the Financial Times.

5. Ukraine and Russia near deal on grain blockade The sides are close to agreeing a deal to secure safe passage for millions of tonnes of grain through the Black Sea, but they remain at odds over security for ports and ships along the crucial food export route, according to people familiar with the UN-led negotiations.

The day ahead

Company earnings Electric carmaker Tesla is due to report quarterly results after the closing bell. Earlier this month the company reported parts shortages and production shutdowns at its Shanghai plant causing a drop in vehicle deliveries. United Airlines, Abbott Laboratories, Nasdaq, CSX and Harley-Davidson also report.

Economic data Canada’s consumer price index is expected to rise to 8.4 per cent during June after hitting 7.7 per cent the previous month, the quickest pace in almost four decades. In the US, existing home sales are expected to have dropped for the fifth straight month to a rate of 5.38mn in June from 5.41mn the previous month, against a backdrop of rising mortgage rates and record prices weakening demand from potential buyers.

Market outlook US stock markets are expected to extend a rally when they open later after recording their strongest performance in a month on Tuesday. In Europe equity markets were flat as investors balanced worries about the economic outlook with stronger than expected earnings from Netflix.

Tory leadership race The battle to succeed Boris Johnson will be cut to two candidates today. Trade minister Penny Mordaunt and foreign secretary Liz Truss will battle it out over who will compete in a head-to-head fight with former chancellor Rishi Sunak. The new leader will be named on September 5.

Live Q&A: What’s next after the crypto market crash? FT markets news editor Adam Samson and digital assets correspondent Scott Chipolina will be answering readers’ questions throughout the day on FT.com. Submit your question at the bottom of this story.

What else we’re reading and listening to

US consumers are bending but not breaking as prices soar. Can it last? Hopes have risen in recent days that the Federal Reserve could engineer a soft landing for the US economy. Jamie Dimon said this week the consumer was in “great shape”. Executives from Burberry to Kroger have hailed the continued appetite for costlier items. But at the other end of the income scale signs of strain are evident. “The trouble ahead lies somewhere in the middle of next year, not any time in the next six months,” said one banker.

Why young investors are not ready to give up on risk After struggling over the past decade to accumulate wealth through traditional means, many DIY traders are speculating in riskier corners of financial markets despite the meltdown in cryptocurrencies. Having come of age after the financial crisis, they no longer want to play by old rules.

Western democracies have a talent problem Rishi Sunak does politics as though he is just back from a residential course called How to Do Politics. In the US, the two most senior Democrats are a pensioner and his maladroit vice-president. Germany’s last election was a pageant of nondescriptness and none of the last six Australian premiers have impressed enough to log four years in office. Able people of a liberal or moderate bent don’t go into politics, argues Janan Ganesh.

Hot Money: Inside porn’s star chamber In the season finale of the FT’s Hot Money podcast, Alex Barker and Patricia Nilsson discover how Visa and Mastercard became the reluctant rulers of porn, and explore what the influence of credit card companies means for the industry today.

Hong Kong’s animal shelters at capacity Charities in Hong Kong are conducting an online campaigning blitz, as they struggle to offload the animals they have received after an exodus of residents from the city. The tightening of already severe Covid-19 restrictions has meant people are packing up for good ⁠ — and leaving their furry companions behind.

Property

Dan Shannon, managing partner at New York City architecture firm MdeAS, has gained a reputation as one of the city’s foremost practitioners of what architects and developers refer to as “repositioning” or breathing new life into old buildings. He talked to Josh Chaffin about redeveloping some of New York’s landmark buildings.