Good morning from the Financial Times.
Today is Monday February 17th, and this is your FT News Briefing.
Ukraine's allies gather for an emergency meeting in Paris.
And Europe's banking sector is on a hot streak.
Plus, a new BP investor is making a big splash in the oil industry.
They have become mythical, legendary, and when they call on a company, everybody pays attention.
I'm Lulu Smith and here's the news you need to start your day.
European leaders will gather in Paris today to craft a response to the situation in Ukraine.
The meeting comes as the US and Russia have begun discussing ways to end the war, but without input from either Ukraine or Europe.
French President Emmanuel Macron will host officials from countries like the UK, Germany and Poland.
They'll talk about defence spending and how best to support Ukraine going forward.
As for the US and Russia, they'll begin formal peace negotiations in Saudi Arabia in the coming days.
the darling of markets over the last few years has been the magnificent seven it's a group of seven tech stocks that has basically propped up the s &p 500 but what if i told you that the mag 7 isn't the only magnificent game around say hello to the magnificent 47 in europe the ft's nicholas mcgore is here
to explain what you've been missing hey nick hiya okay so first what is the magnificent 47 so the actual group we're talking about is the stock 600 banks index the stock 600 is like a europe -wide equivalent of the s &p 500 and then there's a sub -index of that which is just the banks who are in that group
47 is not a specific choice it is just how many banks happen to be in there.
You've got kind of the big British ones like HSBC, and then also kind of BNP Parabas in France, Deutsche Bank in Germany.
And after having a very rough decade and a half after the financial crisis, they've actually been doing really well in the last three years.
If you count dividends, the total returns since the start of 2022 have been around 100%, which is even more than the Mag7 has managed.
But then walk me through this.
If the Stock 600 Banks Index is doing so well, then why hasn't it got more attention?
So this stat has been kind of doing the rounds amongst bank analysts and bank investors over the past few weeks.
I think the person on the street is less likely to have noticed because we're starting from such a terribly low base.
You know, one of the reasons the Mag7 got so famous is that they're so big, it was moving the entire global stock market.
European banks are just much smaller than that, so they have less of a wider knock -on impact.
There is also a timing factor.
It's a really cute chart to compare them since the start of 2022, but it kind of only works if you do it since the start of 2022, because that was the year when interest rates started going up and that hit tech stocks, so they dropped for a while.
If you move the starting point forward to 2023, it doesn't work so well.
If you go further back in time, it really doesn't work.
So if you looked since 2015, the bank's return is still around 100%, whereas tech stocks go up to 2 ,600%.
Right. So depending on when you track performance matters.
But do you think this current rally starting from 2022 will continue?
It is a good question.
I mean, I would be really shocked if it managed to keep up this kind of blistering pace because, as we said, it was starting from a really low base and it's done a good chunk of the catching up now.
But if you take a really long term view or compare the European banks with American banks or companies in the rest of the world, it's still not at crazy high levels.
So there could still be some scope for it to continue for a while.
And what sort of lessons does the performance of the stock 600 banks index leave for investors who have obviously loved the mag 7 returns so i think it's an interesting reminder that there are other opportunities around outside of the real mega cap companies the issue is it is easier for me to point
this out now after kind of three years of this rally the challenge for any investors is noticing it ideally at the beginning i don't think banks will ever be quite as exciting as the big tech groups, but it is still a reminder that like there is more than one game in town.
Nicholas Magall writes about financial markets for the FT's Lex column.
Thanks, Nick. Thanks.
The hedge fund Elliott Management has been making some splashy moves lately.
It's built stakes in BP and Phillips 66 and is playing the role of activist investor.
So what do these investments tell us about Elliott's strategy?
Here to explain is the FT's Wall Street editor, Sajit Indap.
Hi, Sajit. Hi, good to be here.
Tell me a little bit about Elliott's involvement in BP and Philips.
How much of a stake has the hedge fund built, and what is it looking to change?
Sure. So Philips, 66, and BP are obviously energy companies, although in different parts of the energy ecosystem, Elliott's taken roughly a 5 % stake in each.
in BP it's about four billion pounds in Phillips it's about two and a half billion dollars and in both instances they are seeking the management board to make operational changes which they think will boost the stock price in the case of BP it's obviously the national champion oil company in the UK
it has sprawling operations across the world a few years ago with the advent of ESG investing firms like BP tried to expand into green energy that's been relatively expensive it's hurt at least short -term investment returns.
And Elliot simply wants BP to be much more disciplined about that.
Philips on a high level, it's very similar.
They want more streamlined operations.
So that is the conceit of activist investors like Elliot.
They take a smallish stake, but try to enact big change by being loud and public and rallying support from other investors.
Right. So what does this tell us about Elliott's investment strategy?
Elliott is a very big firm now.
And what that means is for it to actually generate returns for its own investors, it is going after large targets like BP, like Philips, like Starbucks, like Southwest Airlines, where they can take relatively large stakes and make in dollar amounts relatively high returns that ultimately move the needle
for their investors.
And they have such a fearsome, if not respected, image now that when they take a stake at a company, the company has to take them seriously.
Other investors have to take them seriously.
They seem to be able to affect change in a way most other activist investors cannot.
So they are the giant of this industry.
They have become mythical, legendary.
And when they call on a company, everybody pays attention.
Okay, but hedge funds do this sort of thing all the time, right?
So what's Elliott doing differently?
Elliott is increasingly going after blue chips and all the companies we've heard of.
And what that means is those big companies, typically, which could repel or even ignore an activist investor who could only get a one or two percent stake and were not particularly influential.
Elliott can go after any company in the world.
And when they put out a paper or a press release or a website, it forces all other investors to take them seriously.
And they are, through sheer will, able to affect change.
So there is no company that is safe from an Elliott campaign, no matter how big you may think they are.
And that is relatively unprecedented and one of the biggest stories in capital markets today.
How are companies handling this idea that they could be subject to an activist move from Elliott, no matter how big they are?
So because of Elliott and some other firms like it, there are corporate lawyers and investment bankers who have a whole practice around activist defense and shareholder engagement.
And what they do is they go to companies and CEOs and boards of directors and say, hey, on these five dimensions or 10 dimensions, you could be subject to an attack from Elliott.
And by the way, if you are not prepared for that, and the first time you start to do any work on this is after you get their letter or their phone call, then you're already dead.
So there's a whole set of work that advisors do with companies to be prepared for when Elliot shows up.
Certainly any firm that has CEO transition or has underperformed its peers or has done a bad acquisition or has wasted money in capital expenditures, they are absolutely ripe for an Elliot engagement and Elliot is constantly screening for targets.
Sajid Indap is the FT's Wall Street editor?
Thanks, Sajid. Thank you for having me.
Before we go, now's your chance to snag a deal on a subscription from the Financial Times.
You can save 40 % on an annual digital subscription by going to ft .com slash briefing sale.
Again, that's ft .com slash briefing sale.
You can read more on all of these stories for free when you click the links in our show notes.
This has been your Daily FT News Briefing.
Check back tomorrow for the latest business news.
Monday .com is different.
No lengthy onboarding.
Beautiful reports in minutes.
Custom workflows you can build on your own.
Easy to use, prompt free AI.
Huh. Turns out you can love a work management platform.
Monday .com, the first work platform you'll love to use.
Hi, I'm Sonia Hudson, co -host of the FT News Briefing podcast.
In a politically divided world of hidden agendas and conflicts, it's crucial to have news you can trust.
Each day, the Financial Times Global Journalists deliver expert, impartial insight so you can form opinions and make decisions with confidence.
This week is your last chance to save 40 percent on an annual digital subscription.
Visit ft .com slash ftlistener to sign up now.
