The Big Four’s problems Down Under

0:02Good morning from the Financial Times. Today is Tuesday, July 7th and this is your FT News Briefing. Greek shipping companies are cashing in on Russian oil. And Turkey's trying to get closer with Europe during this week's NATO summit. Plus, the big four are struggling down under. There's a lot of debate about what needs to be done to basically bring crust back to this sector because it's really shot through. I'm Sonia Hudson, and here's the news you need to start your day.

0:43Greek shipping companies have made at least$3.8 billion transporting Russian oil in the past three years. That's according to an FT analysis. The tankers did so despite the U.S. and European Union's attempts to curb Moscow's oil revenues. Now, the oil trade is permitted as long as it falls within the rules of the G7 price cap. But the pressure to tighten sanctions has gotten more intense recently. The U.S. and the EU are trying to weaken Moscow's hand ahead of a potential peace deal with Ukraine.

1:24U.S. President Donald Trump's shift away from NATO is driving Europe into the arms of its second closest ally. Turkey is hosting the NATO summit that starts today, and its role as the master of ceremonies is symbolic of the country's bigger ambitions to sell more military equipment to Europe. But is Europe ready to embrace its neighbor? John Paul Rathbone is the FT's Turkey correspondent. He joins me now. Hi, JP. Hi, good to be here. Good to have you. So set the scene for me. Why is this NATO summit so important for Turkey? Turkey has got the second biggest army in NATO after the United States.

2:06It's a naval power in the Black Sea, which is relevant for the Russia-Ukraine conflict. And it's viewed in Brussels at NATO headquarters as a rock that guards NATO's southeastern flank. The bigger headline issue in this summit is the US view towards NATO and the extent to which it will remain committed under the administration of Donald Trump. and it's needing to reconfigure itself, become, as it were, NATO 3.0. And Turkey hopes to leverage its military heft, its increasing geopolitical importance and its defence industry into a tighter relationship with Europe. The problem with this is lack of trust between both Turkey and Europe, which goes back a long way, but has accelerated in recent years under the growing authoritarianism of President Erdogan.

3:04So what is the case that Turkey's making to Europe? To kind of boil down the case into a slightly cartoonish form, it's sort of, Dear Europe, we guard your southeastern border. We have the defense industry that you need to rearm. We also have a large standing army, which has expeditionary capabilities. And yes, we may be a little bit authoritarian, but hey, you have to look towards the big picture. And our defense industry is exactly the kind of thing that could plug into your systems. So essentially, Erdogan is putting his chips on the table and saying, what have you got for me? And what's Europe's take on that offer?

3:47The European response to that is, well, that's all very well. Yes, we recognize your military importance and we recognize the industrial base that you have that enables your defense industry to prosper. But your defense industry isn't quite as good as you crack it up to be. And there's also, by the way, certain requirements that you fail to meet that are in the preamble to the NATO treaty, which is based on democracy and the rule of law. So, JP, you've mentioned a couple times now issues with authoritarianism in Turkey. And just yesterday, the government there arrested a journalist and a comedian, critical of the government.

4:24But we've also seen a lot of other similar cases over the past couple of years. What are some of the big ones that people should know? During the NATO summit, a court case is proceeding, which was initiated a year and a half ago, against former Istanbul Mayor Ekrem Imamoglu, who is widely regarded as the most popular opposition politician. At the same time, the country's largest opposition party, the CHP, is basically being eviscerated by a series of legal measures that critics of the government question their validity. So you've got democratic backsliding, and then you've also got problems with the rule of law, which the way that this prosecution of the opposition is being handled shows that those are some of the problems, but they also limit investment.

5:12So it's a kind of a circular problem. Turkey wants foreign investment, it wants European investment. It needs technology as well in Western finance to fully develop its defense industry. But at the same time, some of the things that it does shoots that effort in the foot. John Paul Rathbone is the FT's Turkey correspondent. Thanks, JP. Thanks so much.

5:42Institutional investors are pumping money into the private credit sector, even as many retail clients are stepping away from it. Smaller private credit investors are worried about low returns and overexposure to the software sector, which AI could damage. One large investor told the FT that even though returns are dropping, they're still, quote, respectable. And the exodus of retail investors has left a gap in the market that institutional capital is filling. Plus, big institutions are optimistic about interest rates, in part because of growing inflation. If the Federal Reserve raises borrowing costs in order to tame rising prices, these investors could make even greater returns from private credit.

6:35big four consulting firms are having a tough go of it in australia the country's police are charging a former employee of ey with accessing the personal banking details of the australian prime minister anthony albanese another former ey worker was also allegedly involved the data was held by the Commonwealth Bank of Australia. In addition to this latest scandal at EY, two of its rivals have also landed in hot water over the past couple of years. The FT's Nick Files has been covering all this, and he joins me now. Nick, what do we know about the investigation involving Prime Minister Albanese's account so far?

7:18This story was very explosive. It slightly came out of nowhere. It turned out that two EY graduates had been moved over to Commonwealth Bank on contract to work on a technology upgrade of some sort. And they allegedly used that access that they had been given to look up the Prime Minister's banking details, possibly some other people. Both of them were obviously dismissed. When this came to light, Commonwealth Bank noticed immediately that something had happened. and one of them is now being charged and appeared in court on those charges of illegally accessing data, personal data. These two graduates that have been dismissed did conduct the necessary training, we're told, both from EY and from CBA, the bank.

8:08So it's quite a shocker given the identity of the person that was breached and sent a ripple through an already bruised sector. And we should also say that EY and the Commonwealth Bank of Australia both declined to comment on the matter. But Nick, this isn't the first data scandal that we've seen. Can you remind us of what else has happened? Absolutely. The big four are having a proper nightmare down under. The two main ones are the PwC scandal, which is slightly historic now, where a partner allegedly took confidential government information and shared that with some of his colleagues about tax legislation or tax laws that were coming in and that was used to try and win new business.

8:55That played out a couple of years ago now and led to some parts of PwC being broken off. While PwC were struggling and being banned from bidding for certain work and some of their clients moved on. KPMG moved in to try and win some of those contracts and did so when some of their partners allegedly accessed confidential client information and used that to try to win and to win some other contracts. How seriously would you say the Australian government is taking these incidents? Very seriously. We've heard in the past week that the Treasury Department is making some recommendations which could include a forced breakup of these businesses and then possibly other measures related to strengthening governance, possibly strengthening regulation as well.

9:45And there's a lot of debate about what needs to be done to basically bring trust back to this sector because it's really shot through. Nick Files covers Australia for the FT.

10:01you 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 check back tomorrow for the latest business news

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