Trump ups the trade war ante

0:00Hey there, it's Josh. Before we start, be sure to stick around after the show for a trailer for our new season of Untold. This season is called Toxic Legacy, and it follows FT reporter Laura Hughes as she uncovers a lead poisoning epidemic across the UK. You can find a link to it in our show notes. Thanks.

0:21Good morning from the Financial Times. Today is Monday, October 13th, and this is your FT News Briefing. U.S. President Donald Trump is threatening new 100 % tariffs on China, and Wall Street's investment banks are raking in revenue. Plus, OpenAI's ownership structure just keeps getting more complicated. There has been no absence of private capital for AI companies, but it's approaching a scale where it's hard to see where the next checks come from. I'm Josh Gabor-Doyant, and here's the news you need to start your day.

1:07On Friday, U.S. markets suffered their largest single-day drop since April, after Donald Trump upped the ante on the trade war. The U.S. president said he'd impose an additional 100 % tariff rate on China, as well as new large-scale export controls. Earlier in the week, Beijing had unveiled sweeping export controls of its own on rare earth minerals and magnets. China plays a central role in supply chains for lots of the most important rare earths. The export controls and tariff threats are part of a long-running trade dispute between Washington and Beijing. Tensions calmed in May after the two sides agreed to unwind sky-high levies against each other, and Trump was expected to meet with Chinese President Xi Jinping at the end of this month.

1:53But Trump warned on Friday he might skip the meeting. The president said the new tariffs could come into effect on November 1st. or even sooner.

2:08After a bit of a downturn, U.S. investment banks are having a very, very good financial run. Investment banking revenues at the biggest Wall Street banks are expected to top$9 billion in the last quarter. We're talking JP Morgan, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley. That would be the first time they've reached that number since 2021. We get the actual figures later this week when they release earning reports. But here to tell me about what we can expect is the FT's U.S. banking editor, Josh Franklin. Hi, Josh. Hi. Okay. I mentioned that revenues are going to be hitting this$9 billion figure.

2:45That would be the first time since 2021. So obviously a few years, but can you tell us a little bit about how big of a jump we're actually seeing here? So it's looking like, according to analysts' best guess, about a 13 % jump from the fourth quarter in 2024. And this really would be the best quarter potentially for investment banking in over three years. So it's been a slow road back, a slow recovery on Wall Street, but they hope this is going to be the start of better things to come. Why have banking revenues not been so great over the last couple of years? And why are things changing now? So I think the real sea change in investment banking started back in the first quarter of 2022 when the Federal Reserve started lifting interest rates.

3:28And we kind of went into slightly more uncertain times when it came to the economy and also just borrowing costs to fund these deals went up. And there's been optimism that on Wall Street, there's been this pent up demand for deal making. But it has yet to really materialize in a meaningful way, at least until we got to 2025. There was hopes that with the arrival of the Trump administration that was going to be maybe taking a more lax approach to antitrust and approving deals. Interest rates have also come down a little bit. But it's been a slower road back this year just with the uncertainty around the trade policy in the U.S.

4:04and as well with things like Doge and government cuts. But now we're really starting to see dealmaking pick up in a meaningful way. that's both on the M &A side and also on equity capital markets, so new companies listing on stock markets. And beyond that big M &A stuff, what about the other revenues that Wall Street banks rely on? So it's looking like it's going to be another good quarter for trading equities and fixed income trading. And this is a pretty unloved business back in the 2010s. Low volatility, low interest rates just wasn't conducive to the sort of business that banks like to do.

4:35But since the COVID-19 pandemic, there's just been a run of things that have caused markets to just kind of behave in crazy and less predictable ways that banks benefit from, from the sense that they facilitate a lot of this trading activity. There's still ongoing concerns about the loan portfolios of the banking industry, especially as savings get drawn down that were built up during the pandemic. We've had a few issues with certain companies, like the subprime auto lender, Tricolor. There's been a situation with First Brands, which is an auto parts maker. So banks will give us an update in terms of the potential loan losses they're expecting.

5:15Okay. And just stepping back, though, the Trump administration has also talked about loosening capital requirements on banks. What kind of impact is that having on earnings? So, so far, I think we're still waiting to see what the new direction is going to be for bank regulation policy in the U.S. in terms of the details. But certainly the mood music is very supportive for the industry. I think there's going to be more announcements going forward about it. But I think what we can tell at this point is that there is going to be a real divergence between the U.S. and other parts of the world. And there's an estimate from one consultancy, Alvarez and Marshall, that estimates that an easing of capital rules under the Trump administration could unlock more than$2 trillion in lending capacity for these banks.

5:58So it could be pretty significant. And what are analysts saying just about the financial performance of these banks over the next couple of quarters? Is this trend going to continue, this upward trend? I think for investment banking, the hope is that this Trump bump that everyone was really excited for at the start of 2025, that the Glashow full view on Wall Street right now is that was never canceled because of what happened with Liberation Day and tariffs and everything. it was just delayed. And so backstretch of 2025 and going into 2026, there's a lot of optimism that eventually this pipeline of deals that banks have been talking about for a couple of years now will eventually start manifesting themselves in deals.

6:42Things rarely run how people expect them to. So I'm sure there'll be more things that will complicate matters. But certainly the optimism is pretty strong right now. Josh Franklin is the FT's US banking editor. Thanks, Josh. Thanks very much.

7:25on electric vehicle equipment and battery rules, and an MEP from Romania's ultra-nationalist opposition who practices bankruptcy law, but is also leading negotiations for his party on EU insolvency policy. Both MEPs told the FT they did not see a potential conflict of interest. Parliamentarians in the EU are required to declare their outside financial interests if working on specific related laws.

7:59OpenAI became the world's most valuable private company this month, but it's still not entirely clear how its owners will get paid out. As more investors have flocked to the company over the past few years, the ownership structure has become more and more complicated. And there are still ongoing negotiations with Microsoft about whether the company will move to a more conventional for-profit corporate structure. Here to talk with me about it is the FT's George Hammond. Hi, George. Hey. Okay, George, just to start, can you help us understand OpenAI's somewhat complicated ownership structure? I can try.

8:34I think first it's worth just saying what OpenAI are trying to do here. So they want to become the AI superpower company. And that means spreading out from the 800 million or so users they have today to billions and basically becoming, for AI, what Google has been for search. that requires massive amounts of computing power, which costs a huge amount of money. And in order to raise that cash, OpenAI has persuaded its investors of a couple of things. One is that it will be worth trillions of dollars one day. But the second is that investors will get a piece of the action by owning equity. There's a major wrinkle to that, which is that to date, investors haven't been able to own equity.

9:13And that's because OpenAI was founded as a non-profit and it has a very convoluted corporate structure. They are now trying to convert as you say, into something a little more conventional, which would allow investors to own equity in that underlying for profit. And the company is in the middle of negotiations with Microsoft, which will allow it to convert. So it's a hugely complex process that it has to undergo just to get to the point where investors hold equity. Yeah. And who are those other investors, apart from Microsoft, who have a financial interest in OpenAI? So Microsoft is OpenAI's most important backer.

9:50They put a billion into the company in 2019 and have now put more than 13 billion into the company. They've been a key technical partner and funder. There are also a series of very high profile venture capital firms. And increasingly, there are other groups who are investing into OpenAI. So there was recently a deal between NVIDIA, the most valuable company in the world, and OpenAI. There is also the non-profit, which currently controls the company and in the future structure will own around 30 % of the company, according to the negotiations as they are now. Okay. And if you're an investor right now who's been fortunate enough to be able to invest in OpenAI, are you going to be worried about the stake being diluted with all of this?

10:35So I think there will inevitably be some dilution of investors' stakes in OpenAI. The company has committed to spend about a trillion dollars on computing power over the next few years, and that will mean raising a lot more money, that will dilute investors. But opening eyes promise to investors is we are spending a trillion as we grow to become a multi-trillion dollar company. So you will get a smaller slice of a bigger pie, and it hopes that pitch to investors will be compelling. Presumably the best way for investors to get a smaller slice of this bigger pie would be for the company to list itself on the public markets.

11:13What are some of the hurdles to that? Can you break it down? So in its current structure, OpenAI cannot go public. Once it has converted, that should be an easier run. There has been no absence of private capital for AI companies, but it's approaching a scale where it's hard to see where the next checks come from. So public markets will at some point appeal. At the moment, the company has focused really squarely on growth at the expense of profitability. And Sam Altman, the chief executive, told reporters last week that the company's profitability was not in his top 10 priorities. so for public markets investors that may be an issue and we've seen private companies which have been feted by silicon valley investors try to go public and public investors walk at the fact that they are loss making so that could happen here but opening eye will not be in a huge rush to go public given the demand for the company on the private market so this may be a question that they can resolve between now and then george hammond is the ft's venture capital correspondent Thanks, George.

12:20Thank you. 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.

12:43The symptoms are small at first. You feel a little more tired than usual. perhaps a bit forgetful. You shrug it off as stress. After a while, you feel a little more than tired. You feel unwell. It's hard to tell what could be making you feel this way. Your diet? A long-running cold? It doesn't happen all at once. Basic tasks are making you feel like you're lost. Before you know it, it's all-consuming.

13:22But the doctor's standard tests don't show anything. No one knows what's happening. Inside your body, something has been accumulating.

13:37There is toxic lead inside you. And it's poisoning you. My name is Laura Hughes. and for the past two years I've been uncovering the United Kingdom's perplexing relationship with lead. What I've found has shocked me. I think the most terrifying thing is is that once it's happened there's not really an easy route out of it the damage is done. Ticking along incrementing a little bit a little bit more a little bit more a little more damage a little more damage. And you feel like a conspiracy theorist if you talk to people like neighbours who are interested, kind of. And they're like, oh, you're going on about that.

14:18OK. Every American child is tested for this, so why isn't every British child tested for it too? And they're failing at one of the most basic functions of government, which is to protect its citizens. If I report this, people are going to hate me. I won't move on with my life. And I was so petrified of being dragged across the coals for reporting them. And I still am. From the Financial Times, this is Untold. Toxic Legacy. Coming soon.