Good morning from the Financial Times.
Today is Thursday, February 26th, and this is your FT News Briefing.
NVIDIA is seeing the benefits of the AI boom, and HSBC's overhaul is starting to pay off.
Plus, we'll dig into how Deutsche Bank pulled out all the stops for Jeffrey Epstein.
I'm Mark Filippino, and here's the news you need to start your day.
Nvidia continues to benefit from the massive investment in AI infrastructure.
The world's most valuable chipmaker reported earnings yesterday and it brought in a little bit more than 68 billion last quarter.
What's more, the company said it expects revenue of $78 billion for the current quarter.
Both of those numbers are way higher than estimates.
NVIDIA is continuing to pour hundreds of billions of dollars into AI chips and data centers and yesterday said revenues from its AI chip technology was well ahead of schedule.
And this blockbuster earnings report is good news for the AI sector and maybe worse news for everyone else.
We're coming off weeks of stock market volatility triggered by anxieties over how AI could upend traditional industries.
NVIDIA's share price rose in after-hours trading.
HSBC got a pat on the back from markets yesterday.
The bank announced that it was on track to deliver cost savings six months early.
This follows a decision last October to privatize Hong Kong's Hang Seng Bank, which is now entirely owned by HSBC.
I'm joined by the FT's Arjun Neel Alam to discuss.
Hi, Arjun.
Hi there.
So Arjun, what are the key points from these latest results?
Well, HSBC had a pretty solid set of results in the fourth quarter of last year.
They made about $7 billion in pre-tax profits on about $16 billion of revenue.
There weren't the kind of habitual one-off hits to their income like we've become accustomed to.
So I think the market was pretty pleased with that.
The other thing that they were very pleased with was the announcement that HSBC is on track to make its 15 billion of annual cost savings, about six months earlier than previously predicted, which is a victory for the cost-cutting plans of the Lebanese-French CEO, George El-Henry.
The market responded very well to this.
It set their share price up to an all-time high.
It was up about 5% in London in the morning.
And it was broadly a good set of results for HSBC.
And actually, it closed up close to 7% at the end of the London day.
Arjun, can you recap some of the big moves of the past year?
What's behind some of the bank's improved outlook?
Sure.
So the most significant move they made last year was was on the offensive in Hong Kong, in which they announced a roughly 14 billion privatization of the Hang Seng Bank in Hong Kong.
This is a local lender that they've had a controlling stake in since 1965.
So one of the reasons that people said this was a good time to take control of Hang Seng is that it was hit pretty hard by the Hong Kong and China property issues over the last few years.
So a lot of the commercial real estate pain within HSBC actually stems from loans that Hang Seng made to small and medium-sized property developers in Hong Kong.
So by taking control of Hang Seng, HSBC has a much better view and much more power to really get a handle on that issue.
George L Hattery has made some pretty big restructuring moves since he took over as chief executive of HSBC.
How are they going?
Well, HSBC is kind of undergoing this rolling identity crisis.
And El-Hedery's solution to that coming in two years ago is to reform the bank pretty radically.
He calls it a kind of simpler, more dynamic organization.
And El-Hedery had an interesting turn of phrase on a call with journalists immediately following the results, in which he referred to HSBC as an Asian and Middle Eastern powerhouse.
I thought that was interesting because part of the reforms that El Hedery has unveiled over the last couple of years have been HSBC pulling out of markets where it doesn't feel like it can be in the top five and pulling out of a lot of retail markets, including France and Germany Canada, etc.
So this was El Hedery kind of signaling that the bank is going to double down on areas in which it feels like it can be top or has a lot of growth potential.
So is the bank in a strong position now or are there more hurdles to come?
One of the biggest criticisms of the reforms and cutbacks that El Hedery has launched is the decimation of the investment bank.
So there is now no ECM and MA advisory in Europe or North America.
He has limited the traditional investment banking equity capital markets functions to Asia.
And one area in which we've seen that is in Hong Kong, where there's been an IPO boom over the last year.
And HSBC has not been a huge beneficiary of that.
It's sort of missed the boat.
And so I think one area that HSBC really needs to try and catch up is to restaff its investment bank in Hong Kong and try and get on more of these big deals that have come out.
Arjun Neel Alam is the FT's Asia Financial Correspondent.
Thanks so much, Arjun.
Thanks for having me.
Iran is hoping a so-called major economic bonanza could be crucial to avoiding war with the United States.
A person briefed on talks between the two countries told the FT that Tehran is trying to appeal to US.
President Donald Trump's pechant for dealmaking.
Iran is looking to tempt the president with incentives, including investments in the nation's vast oil and gas reserves, mining rights and critical minerals.
That could all be part of an ongoing effort to convince Trump to agree to a deal on Iran's nuclear program and stave off war.
But a senior US official said, quote President Trump has been clear that Iran cannot have a nuclear weapon or the capacity to build one.
Iran's foreign minister is due to hold another round of indirect talks with US envoys Steve Witkoff and Jared Kushner in Geneva today.
Last week Trump warned Tehran it had a maximum of 15 days to reach a deal, or quote bad things will happen.
We're going to take a dive into the financial world of the late convicted sex offender, Jeffrey Epstein.
He parked hundreds of millions of dollars at Deutsche Bank after JP Morgan cut him loose in 2013.
Internal documents recently released by the U.S.
Department of Justice showed just how much the bank rolled out the red carpet for Epstein and ignored potential compliance issues.
I'm joined now by the FT's Robert Smith, who's been looking into this.
Hey, Rob.
Hey, thanks for having me on.
Good to have you.
So, Rob, how did Deutsche Bank roll out the red carpet for Epstein?
Deutsche Bank was wooing Jeffrey Epstein as a potential client in 2013.
This was years after he was convicted for sexual offenses involving a minor.
So, you know, Jeffrey Epstein's crimes were not unknown.
Deutsche Bank essentially poached one of his key bankers at J.P.
Morgan and then in their telling won the client over.
But what had really happened perhaps you know Deutsche was oblivious to this was JP Morgan had actually cut Epstein off in the middle of 2013.
You know, they decided that the reputational risk to use a sort of horrible euphemism that banks use had grown too high.
And who was there knocking at his door?
Deutsche Bank.
Now, once Deutsche Bank took over Epstein's accounts, were there any compliance concerns that were raised?
There were a lot of compliance concerns that were raised.
I think you know.
Rewinding to his onboarding, as banks call it, you know he's a convicted sex offender.
So he was labeled a high risk account.
And usually those sorts of people would need sign off from something called the Reputational Risk Committee.
They decided that wasn't necessary in this case. which seems a little odd.
And then essentially, through the life of Jeffrey Epstein's relationship with Deutsche.
He had hundreds of millions of dollars at the bank.
He was doing lots of trading.
He was also doing lots of cash management.
Compliance were regularly flagging things.
They were flagging payments to women in Eastern Europe and Russia.
They'd asked for explanations.
They'd been told, oh, this is a friend and Jeffrey is covering their tuition.
It's quite amazing that the account carried on in this fashion for as long as it did.
So what did the bank have to say about your reporting, Rob?
I think for Deutsche, they've responded to this publicly many times.
They've been fined over this previously.
I think Christian Saving, the CEO, sort of personally apologized over this.
So, you know, their response was essentially, look, we made a big error here.
There are weaknesses in our controls.
And they essentially say that they've since systematically tackled these weaknesses.
Yeah.
How did Epstein's relationship with Deutsche Bank ultimately end?
So, as I said, there were these compliance alerts throughout the life of Epstein's account at Deutsche.
But I think the key moment is towards the end of 2018, the Miami Herald, they did a sort of groundbreaking, deep investigative report into Epstein. the extent of his alleged sex trafficking operation.
And someone in Deutsche reads that, and I think they then really wake up.
So this was a sort of senior risk manager.
And on the back of that, you know, she looks at some of the beneficiaries of the trusts that Deutsche Bank's And she sees that they're models which have been sort of photographed by paparazzi going in and out of Epstein's mansion.
And, you know, she asks the very obvious question, like, what do these women do for Jeffrey Epstein?
And it's this moment when they finally decide to debunk Jeffrey Epstein.
Rob, you look at a lot of the world of finance.
What does this story reveal about compliance and risky clients in the banking industry?
I think this story is a case study in everything going wrong, essentially.
So banks are highly regulated.
They have AML departments that's anti-money laundering and KYC departments.
Know your client departments.
And I think it just shows that major banks, even if they're normally investing a lot in compliance, they've got the right structures in place.
If the bankers just really want to do business with this guy, they think this guy's important, he's opening lots of doors.
Compliance can get railroaded or just sort of ignored quite easily.
That's the FT's corporate finance editor, Rob Smith.
Thanks, Rob.
Thanks, Mark.
You can read more on all these stories for free when you click the links in our show notes.
This has been your daily FT News briefing.
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