US threatens Iran’s economic partners

Good morning from the Financial Times. Today is Tuesday, August 25th, and this is your FT News Briefing. The U.S. threatened to pile more economic pressure on Iran and private equity growth funds are having a moment. Plus, JP Morgan is loosening its lending approach to court wealthy AI clients. It's quite emblematic of this kind of slight feeding frenzy that we're in on Wall Street where there's just so much money being made and money to be made off of that money. I'm Sonya Hudson in for Mark Filipino, and here's the news you need to start your day. U.S. Treasury Secretary Scott Besent wants to inflict a lot more economic pain on Iran and countries with financial ties to it. America is no longer managing the Iranian threat. We are ending it. Besent announced a number of news sanctions yesterday. He also threatened to cut off anyone doing business with Iran from the U.S. financial system. The actions of Treasury and other agencies will tighten the news and block every potential source of revenue that funds the evil Iranian regime. The idea is to put pressure on Iran as the two countries haven't been able to reach a deal to end the war. I'm joined now by the FT's Abigail Houseowner to learn more. Hi, Abby. Hi. So give us the details. What exactly did the Treasury announce? So the Treasury did announce this raft of news sanctions, but really the news here was what he didn't announce. You know, Scott Besent said we were going to see an economic D-Day launched against Iran at dawn, but actually this was more of a threat of a so-called economic D-Day, meaning the U.S. already sanctions Iran pretty expansively. What Scott Besent was saying on Monday was, you know, we are now ready to expand that and take stronger action against other countries and entities in other countries that are doing business with Iran despite these sanctions, but he couched this as more of a warning and a, you know, an opportunity for other countries to sort of get their act in order. Did Besent say how much time that he's giving these entities and countries to cut ties with Iran? No, he didn't provide any timeline, you know, he just said we're giving everyone the opportunity to remedy bad behavior. I thought really notably he actually acknowledged how massive implementing an actual sort of economic D-Day would be. He said, "Why would I want to blow up the global financial system?" And so that obviously raises a lot of questions about how far the U.S. is even willing to go to implement these threats. And Abit, who could actually get hit hardest by these expanded sanctions? Well, Iran trades largely with China, the United Arab Emirates, Turkey, Iraq, Russia among other countries, those were its largest trading partners before the Iran War. You know, the UAE said just last week that it was cutting off trade with Iran, but these are major countries. China is the United States' third largest trading partner, UAE and Turkey are U.S. allies. So I think there are a lot of questions as to how far the U.S. is willing to go. What about the timing of all this? You know, why is Donald Trump's administration making this threat now? Well, if they don't have a lot of options, we are six months into this war. Trump has said dozens of times now that, you know, he has destroyed Iran's military capabilities. And yet he hasn't gotten Iran to make any major concessions. You know, relaunching military strikes is unlikely to be very popular here at home, especially heading into midterm elections this fall. And so, you know, what else is there? Do we have a sense of how much of a difference these economic measures could really make? And also how long it would take to see that impact? Well, Iran is already seeing the impact of, you know, these really sweeping sanctions that are already in place, which is, you know, to say that the Iranian economy is in dire straits. People are really struggling. The question is, and this is what the administration is banking on, how much does it take to get the Iranian regime to collapse or to buckle to President Trump's demands? And that really remains to be seen because this is a regime that is very focused on its survival. And, you know, just about every Iran expert I talk to say, you know, they're not particularly bothered by how bad the general population may be hurting financially. Abigail Houseliner covers US Foreign Affairs for the FT. Thanks, Abby. Thank you, Sonia. Private equity growth funds raised a record amount of capital in the first half of this year. These are funds that invest in fast growing companies without taking a controlling stake. Their fund raising increased by 36%. For comparison, other private equity strategies only saw a 20% jump. Growth funds slumped in 2023, and there's two reasons why they're rebounding now. Then, private company valuations have come down substantially over the past several years, which means that investors can enter at, quote, "more attractive multiples." That's what a private equity firm partner told the FT. And two, the huge success of AI startups. Investors say pension plans and endowments want to get in on what they think could be the next technology winner. JP Morgan Chase is relaxing how it approaches loans in order to win over clients from tech giants. Sources tell the FT that the bank is softening its approach to lending again shares and companies that have recently gone public. Josh Franklin leads the FT's US banking coverage, and he joins me now to discuss, hey, Josh. Hi there. So what exactly is JP Morgan changing when it comes to its lending practices? So how to think about this is JP Morgan, typically when a company has just gone public, completed an IPO, they won't accept as collateral for a new loan shares that haven't been public for at least 135 days. But what they're doing here is you have some of these huge IPOs that are coming to market and a lot of wealth is being created from that. And so with some of them, they are telling their bankers, actually we can relax this approach a little bit as we tried to bank some of this like emerging wealthy clientele that's being created by these mega IPOs. So they could use their shares in fewer than 135 days after the company goes public. Exactly. And important to say JP Morgan has said that their overall policy remains unchanged. They still have this 135 day rule and their practices as they say exceed regulatory requirements, which is typically waiting at least 30 days. And that they look at this on a case by case basis. Yeah, tell me a little bit more about who exactly the bank is trying to win over with this change. So when you think about these mega companies that are going public. So in this case, it's largely SpaceX. But then you've also got these other big AI companies like Anthropic and Open AI. You have employees that are paid in stock that after an IPO becomes hugely valuable on paper. So you have people who have accumulated tens of millions of dollars, sometimes hundreds of millions of dollars in stock in these companies. So it's overnight after an IPO, people become incredibly wealthy and banks want a piece of that. Yeah. And in this rush to make money, I assume risks involved as well. What are those for JP Morgan? Well, there's a reason why banks like JP Morgan tend to wait at least, you know, four and a half, sometimes six months of a stock trading before they'll accept it as collateral for a loan because, you know, after an IPO share prices can be very volatile. And you know, what happens here at the end of the day is if the value of collateral fools by a lot, then banks will go to their clients. Like you need to give us more collateral, more shares, more of whatever it is for us to make us still comfortable with the loan that we've underwritten for you. So it can be more complicated from a risk perspective, but obviously JP Morgan's making the calculation right now that it's going to be worth it for this wealth that's being created. Yeah. I was just thinking about after SpaceX, wet public, just the huge fluctuation in the share price that we saw there. What does this tell you more broadly about how the AI boom is changing wealth management strategies at big banks like JP Morgan? I think it's just the biggest theme for all of these banks right now. It's quite emblematic of this kind of slight feeding frenzy, animal spirits, whichever kind of term you want to use to describe it that we're in on Wall Street where there's just so much money being made and money to be made off of that money. They talk to private bankers at these big institutions and they'll tell me just this strange experience of speaking to people in their late 20s that are worth, you know, upwards 50 million. dollars on paper through their stock options. So it's just a really unusual moment in time. Josh Franklin is the FT's US banking editor. Thanks, Josh, for making sense of this unusual moment in time and banking. Do my best. Thanks very much. Pakistan wants to secure financing from the US as it plots a return to global capital markets. It's a huge shift for the country that for years has relied on state loans from China. Pakistan requested a $10 billion swap line from Washington last month. The country's Finance Minister Muhammad Aurangzeb told the FT that the move was meant to serve as a "confident signal" to private investors. The cash drop nation has reduced fiscal deficits, brought down inflation and rebuilt reserves under an IMF program over the past several years. But it still faces a lot of economic challenges. GDP growth is not high enough for the country's population and rising poverty levels. Aurangzeb insisted that the choice between financing from the US in China was not an "and" or "discussion." But he did say that Pakistan is not seeking additional financing from China right now. You 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.