Bolsonaro supporters storm Brazil’s capital

This is an audio transcript of the FT News Briefing podcast episode: ‘Bolsonaro supporters storm Brazil’s capital’

Marc Filippino
Good morning from the Financial Times. Today is Monday, January 9th, and this is your FT News Briefing.

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Supporters of Brazil’s former president stormed the country’s capital yesterday. And top US banks report earnings this week. The rosy picture might be fading from view. Plus, Gulf nations are sitting on piles of cash and their sovereign wealth funds want to invest differently than the way that they did in past oil booms. I’m Marc Filipino and here’s the news you need to start your day.

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That’s the sound of thousands of protesters swarming Brazil’s capital, Brasilia, yesterday. They were supporters of former President Jair Bolsonaro who lost re-election last October. It’s an early crisis for Brazil’s new president, Luiz Inacio Lula da Silva, who was just sworn in last week. I’m joined now by the FT’s Brazil correspondent, Michael Pooler. Hi, Michael.

Michael Pooler
Hi, Marc.

Marc Filippino
So what exactly happened in Brazil yesterday, Michael?

Michael Pooler
So thousands of supporters of the former right wing president Jair Bolsonaro descended onto the capital, Brasilia, for a protest. Now, these hard line supporters of the populist basically don’t accept his defeat and the fact that Lula, the left-winger, won. And so they were to protest about that. And what happened was they ended up invading the three institutions of power in Brazil: the congress, the Supreme Court and the presidential palace, which ended up ransacked.

Marc Filippino
But Michael, did Bolsonaro have anything to do with these protests?

Michael Pooler
So Bolsonaro isn’t even in the country right now. He went to Florida in the US rather than attend the inauguration of Lula, who is his bitter rival. And the backdrop to this is that the election, which took place at the end of October, was the most polarised in Brazil’s history. And Lula defeated Bolsonaro with the narrowest of margins, 50.9 per cent of votes in a second round runoff. Bolsonaro, for months in the run up to the election, refused to say that he would unconditionally accept the results. Bolsonaro had also for a very long time cast doubts on the integrity of Brazil’s electronic voting system, saying that the machines were vulnerable to fraud, although he never actually offered any reputable evidence for that. And so what we’ve seen now is that he has this hardcore base of supporters who refuse to accept the result. They say that the election was rigged while providing no evidence for it. And they want the armed forces to intervene.

Marc Filippino
So this sounds a lot like the insurrection that we saw in Washington, D.C.. Two years ago, almost to the day which came after then US President Donald Trump’s failed re-election bid to now President Joe Biden. And Trump refused to accept the results in that election. Is it fair to compare that situation to this one?

Michael Pooler
There were similarities between these two incidents. However, in Brazil, I would say that this was much more of a symbolic attack on the institutions of power. Unlike in the US, where the protesters were actually trying to block President Biden’s certification, there wasn’t actually anything taking place in Brasilia yesterday. The congress was not in session. The Supreme Court was not operating and Lula wasn’t even in Brasilia. There was nobody in the presidential palace. Fortunately, nobody was in the buildings. So, again, there weren’t the clashes, people being injured and the way that there was in the US.

Marc Filippino
So where do things stand now and what happens next, Michael?

Michael Pooler
So it seems that the police have basically cleared the demonstrators out of the buildings and as of Sunday evening they were retaking the main avenue of the capital and moving people out. But local media was reporting that about 170 people had been arrested outside at around 9 pm local time on the Sunday evening. But what’s interesting here is that there’s not only condemnation of the perpetrators behind these incidents, but also criticism of some of the authorities. People knew that all these Bolsonaro protesters were coming to the capital by the busload, and yet it appears that there was inadequate security arrangements put on. Already members of the government have come out and said they’re going to take a very hard line on it. And I think for Lula, the big challenge will be how he deals with this politically. He was already facing a politically divided nation, quite a weakening economic outlook, and now he has to deal with all of the aftermath of this.

Marc Filippino
Michael Pooler is the FT’s Brazil correspondent. Thanks, Michael.

Michael Pooler
Thanks, Marc.

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Marc Filippino
Top US retail banks are set to post quarterly earnings this week. That includes JPMorgan Chase, Bank of America and Wells Fargo. The FT’s Josh Franklin says investors have a lot to look forward to and also some stuff to worry about.

Joshua Franklin
Over the course of 2022, as banks have been charging more for loans, they haven’t really been reciprocating to the same degree when it comes to rewarding deposit holders. So banks are charging more for loans. But their costs of deposits, which is the main form through which banks fund themselves, has stayed largely unchanged or are not nearly changed to the same degree as the price of loans. So that means their profit margins have been very, very healthy from banks. The worry for investors, for bank investors, is that over the course of 2023, especially as the Federal Reserve starts to slow down its rate hikes and banks will be under more pressure to reward deposit holders with higher rates, otherwise they’ll lose those deposits.

Marc Filippino
Is there concern about defaults, people not being able to pay their loans back?

Joshua Franklin
That is probably the number one worry that bank investors have is what are we going to see from bank defaults for all these loans that you’ve been doing over the last few years, especially as the risk of a recessionary economic downturn is increasing? So far, the line from the banks is the US consumer is still sitting on excess deposits that were accumulated during the pandemic, and they don’t expect those deposits to be depleted until probably the middle of 2023. So that’s when they’re expecting to see defaults creep up. But they have been provisioning several billion dollars over the last few quarters to try to guard against potential defaults to cover them when they happen. We’ll see if that’ll be enough over the course of 2023.

Marc Filippino
So another bright spot that’s dimming for banks is the revenue that they see from equity trading. What does this mean for banks?

Joshua Franklin
Equity capital markets have really ground to a halt. So bank profits have really suffered from that. So this was kind of one of the bright spots for for Wall Street banks. That’s risks kind of plateauing in 2023. And I think the repercussions of that is just going to be felt in in terms of costs and headcount for for these big banks. And so I think a lot of people in the industry are braced for layoffs in 2023.

Marc Filippino
Joshua Franklin is the FT’s US banking editor. And it looks like some of those layoffs could be coming within days at Goldman Sachs. That’s according to a person familiar with the matter that spoke with the FT. According to that source, it could be 3,200 jobs lost.

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High oil prices have been a boon for Gulf nations, and their governments are eager to invest all that cash. But the FTs Middle East editor Andrew England, says their sovereign wealth funds are taking a different approach than the one they took after the 2008 oil boom. He joins me now to talk more about this. Hey, Andrew.

Andrew England
Hi, Marc. How are you?

Marc Filippino
So Andrew, it sounds like Gulf investors plan to do something differently with all their petrol dollars this time around.

Andrew England
Yeah, I mean, that’s what they’re saying. So I think if you go back to 2008, which was the last big oil boom, oil reached about $147 a barrel. You saw a big spending spree. Then you saw sovereign wealth funds investing in western banks, in automakers, buying trophy assets. And it seemed to be a little bit haphazard, not always a lot of strategy behind it. Some of the things they did invest in didn’t seem to succeed. And they’re saying, look, we’re older, we’re bigger, we’re more experienced, we’re maturer, and so we are going to be more selective, more disciplined.

Marc Filippino
Okay. So what are they planning to invest in and what kind of companies and industries or, you know, give an example of what one government is looking at, say, the Saudi Public Investment Fund or the PIF?

Andrew England
Yeah, If we talk about Saudi Arabia, I mean, there’s an obvious one, which is electric vehicles. And so the PIF is the majority shareholder in Lucid, the electric vehicle maker. And because the PIF is a shareholder, then Lucid says, okay, we’re going to open our manufacturing plant in Saudi Arabia and use that as a base to both produce electric vehicles and to export. The UAEhas tried to do similar stuff in the past. They talked about doing it in semiconductor manufacturing, but they were never able to put semiconductor manufacturing plants in the desert. It was too dusty. It wasm’t going to work. So that’s never actually paid off. Now, the UAE is kind of looking at different areas, different industries. It’s talking more about technology, life sciences and finance.

Marc Filippino
Okay. So not much having to do with oil. Is it fair to say that Gulf sovereign wealth funds want to diversify away from oil?

Andrew England
Absolutely. I mean, governments in the region have been saying that for 15, 20 years now. And of course, the other key thing about Saudi Arabia is it has a much bigger population than other Gulf countries. It’s a young population and it’s about trying to find young Saudis jobs in the private sector. Traditionally, most Saudis have gone to the public sector, the state, and that’s been a burden on the treasury. And it’s you know, it’s not sustainable. If you’re going to diversify away from oil, you want to try and create new private sector industries where you’ll be providing jobs for future Saudis. That’s part of the plan. And that’s why now this boom comes at an opportune moment for Saudi Arabia, because Prince Mohammed and his government is driving this very ambitious diversification program to overhaul the economy, create new industries and modernise the kingdom.

Marc Filippino
Andrew England is the FT’s Middle East editor. Thank you, Andrew.

Andrew England
Thank you very much.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.