Liechtenstein's zombie-trust apocalypse

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0:32Good morning from the Financial Times. Today is Tuesday, July 8th, and this is your FT News Briefing. Xi 'an has filed for an IPO in Hong Kong, and the U.S. is delaying the start of any new tariffs. Plus, Liechtenstein is overrun by zombies. Sorry, zombie trusts, I probably should have clarified. I'm Mark Filippino, and here's the news you need to start your day.

1:06The Trump administration is pushing its trade deadline again. The White House said yesterday that countries will now have until August 1st to negotiate a deal with the U.S. It also unveiled some of the new individual tariffs countries could face if they don't play ball. For instance, South Korea and Japan could both face 25 percent tariffs. South Africa would get slapped with a 30 % levy. President Donald Trump originally paused the so-called reciprocal tariffs back in April. The original deadline to make a deal or get hit with those tariffs was slated for tomorrow. Investors were unmoved by the new date, though.

1:45The S &P 500 fell a little less than 1 % yesterday.

1:54the feud between elon musk and donald trump is escalating and tesla investors are not at all happy about it the electric car company stock fell nearly seven percent yesterday this came after its ceo musk said he would form a new political party here to talk more about the hit tesla is taking is steven morris he's the ft san francisco bureau chief hey steven hello all right so get us up to speed, where do things stand between Musk and Trump? Because it seems like things have come a long way since Musk stepped down from Doge, the so-called Department of Government Efficiency. Yeah, the bromance is well and truly over at this point.

2:31They fell out as a result of Trump's big, beautiful bill because Musk hates the amount it's going to add to the deficit. But if you actually look at the detail, a lot of the policies included in the big, beautiful bill will actually hit the renewable energy that Tesla is really built around. Now, Musk, in response, has decided he's going to start a new political party to challenge Trump and his supporters in the upcoming midterms in the US. And I don't think there's any way back for their relationship. So, Stephen, why are investors so worried about this feud between Trump and Musk? I mean, a roughly 7 % drop in the stock price yesterday is nothing at all to sneeze at.

3:13Well, when Trump was first elected, Tesla shares surged to about one and a half trillion, by far the most valuable carmaker in the world, but also one of the most valuable companies, period. Investors figured that him being close to the president would benefit Tesla. Is that right? Yeah. They thought that Musk was going to be able to secure a whole raft of favorable policies. things have obviously not turned out like that at all. As I mentioned before, the big, beautiful bill really scythes through meaningful amounts of Tesla's revenue and profit and sets the US on a path far friendlier to oil and gas.

3:48And the fear now is, in addition to all the damage already done to Tesla, there could be more vindictive policies coming out of the Trump administration. I'm thinking here about the future of Tesla is based around self-driving cars, autonomy. there could be some negative decisions from that penalizing the company there. And even to the rest of Musk's wider empire, you know, Steve Bannon, one of Trump's long-term advisors, is actually calling for SpaceX to be nationalized. These are the kind of high stakes that you get into when you start bickering with the U.S. president. So you've mentioned some of the damage already done to Tesla through Trump's tax and spending law.

4:26What exactly does that look like? Well, Tesla makes almost$3 billion a year at the moment from trading regulatory credits. It gets credit because it makes electric vehicles, and it can sell these credits or trade these credits with more polluting petrol or gas vehicle manufacturers. Other things in the bill designed to hurt electric vehicle makers are the loss of a $7 ,500 federal tax credit for purchases of certain EVs and leasing all of them, so it's going to make EVs more expensive. So I'm actually struggling to think of sort of a piece of legislation that would have hurt Tesla more. And then you add the personal feud between the world's richest man and the world's most powerful man.

5:07That adds up to a pretty toxic cocktail if you're a Tesla shareholder. Stephen, do you think investors are going to get to a point where they just say, okay, this is just how Musk is. He's going to be involved in politics. Or do you think they become less tolerant and the board tries to oust him at some point? Well, if you're the board or if you're investors, you're just getting whiplash from Musk's increasingly erratic behavior and political activism. Just a few weeks ago when he left Doge, he said that he was going to go back to Tesla. He was going to work 24-7 to get the company on the right footing.

5:40And then just a few weeks after that, he's right back in politics again. So I don't envy the position of Robin Denholm, the Australian chair of Tesla, because the The entire value of Tesla is based on optimism that Musk is a genius and he will be able to do things that other executives can't do. So what's worse, having an erratic yet iconic chief executive that's going to cause you a lot of hassle or perhaps crashing the entire market value of the company by taking away the one thing that makes it really, really special in the eyes of many investors around the world. Stephen Morris is the FT's San Francisco Bureau Chief.

6:18Thanks, Stephen. Thank you very much.

6:48and Chinese regulators are dragging their feet to get that listing approved. Losing the Shein IPO would be a huge blow for London. There's a lot of anxiety over the UK's fading position as a financial center. Shein, meanwhile, would be a huge boost. It was last value at$66 billion in a funding round two years ago.

7:15Lichtenstein's trust industry is facing a crisis. The small European country is home to thousands of these entities. It's famous for its tax and legal benefits. And because of that, it's been especially attractive to a lot of wealthy Russians. Now, there has been a wave of resignations by the people who oversee those entities, and the industry is left with a ton of what are known as zombie trusts. Here to talk more about this is the FT Switzerland and Austria correspondent, Mercedes Ruhl. Hey, Mercedes. Hello. So what exactly is a zombie trust anyway, and why is it such a big deal? Well, a zombie trust is kind of like, as Lichtenstein calls some of these, an orphaned entity.

7:56It's like a legal structure. It can be a trust. It can be a foundation or a company. It formally exists, but it's not operational because it doesn't have appointed directors or trustees or a governing body to manage it. And in practical terms, this means no one's authorized to make decisions like transferring assets, dissolving it. Things are frozen. you're just stuck. So they're kind of these like dead trusts walking. Okay. So it sounds like a pretty big problem. How did we get here in the first place? What happened was last year, the US sanctioned several Liechtenstein-based entities linked to Russia, and then it warned about possible secondary sanctions.

8:33Now, Liechtenstein's financial regulator responded by urging firms to treat US sanctions as effectively binding. So the Financial Market Authority basically said, let's just take risk completely off the table. And it advised all these fiduciaries to immediately cut ties with any potentially exposed Russian clients. This then prompted directors to resign en masse. And the reason for this is all these directors and managers got spooked. they thought it is difficult to understand exactly what the U.S. could or might do in terms of actions. And they said no. And they walked away. Now, how much money are we talking about here?

9:16Do we actually know? It's really difficult to say because there's a certain level of wealth if you're going to set one of these things up in Liechtenstein, right? I think let's maybe assume like 5 million. But this could be a family office. It could be a jet plane. It could be a yacht. It could be luxury property in Europe or in Asia somewhere. Some of these could be like billions. Billions. So is the future of Liechtenstein as a financial hub at risk? And if it is, what is the country doing to address it? The problem for Liechtenstein now is that wealthy people around the world who do have trust in Liechtenstein think, okay, maybe I should be diversifying a bit here.

9:55I mean, is this really where if they can't handle this crisis and they can't prove that as a financial center, they are able to handle huge geopolitical risks like this, should I be considering somewhere else? The government obviously thinks this is a big problem and that there is serious reputational risk that could come. So they've launched an emergency task force to tackle this crisis. And we have to kind of hope that they find a way to resolve this because at the moment, it's really not clear they can. The longer this drags on, the longer you're going to have very unhappy, wealthy people, potentially Russian oligarchs.

10:34Lawyers tell me there is also a risk that Russia starts to put pressure on Liechtenstein. So not only do you have this from the U.S., you potentially also have it from Russia. This starts to get very uncomfortable for the government. What are the larger implications here. What does it say about how the relationship between Russia and America is affecting the entire world? For small but wealthy countries like Liechtenstein, this just shows how they can really get squeezed by great power rivalries going on at the moment. It poses dilemmas for their financial systems, for the diplomatic position, but also their just entire economic model.

11:12So a lot of countries like Liechtenstein, they don't want to feel forced to choose sides, but eventually this might be where it's headed. Mercedes Ruhle is the FT Switzerland and Austria correspondent. Thanks so much, Mercedes. Thank you.

11:30You could 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. Check back tomorrow for the latest business news.

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