Muddy Waters CEO Carson Block has set his sights on American giant Blackstone. Photo: Jordan Vonderhaar/Bloomberg
The London Stock Exchange should avoid a “race to the bottom” with New York, says one of America's most feared short sellers.
Carson Block, chief executive of investment house Muddy Waters Research , urged politicians not to weaken competition rules in London. to make it more attractive to list.
He said London should instead maintain its reputation as the world's “cleanest” stock market.
Mr Block told The Telegraph: “The US has the highest valuations for listed companies, but in many ways the US leads the race to the bottom in terms of corporate governance practices.”
“The moral choice for the UK is that, okay, we will remain a bit of a niche market and not a technology-focused market, but we will have one of the cleanest and largest liquid markets in the world.
“That's somewhat counterintuitive to attract listing, but it may tell you everything you need to know about a company that is avoiding a market that demands accountability and transparency.”
There are growing concerns about the fading relevance of London shares. The exchange follows a sharp fall in the number of new listings, a growing number of companies leaving the market and companies such as Arm neglecting London in favor of New York.
Last week, travel agent Tui became the latest company to go ahead with plans to leave London, urging investors to support the company's plans to list exclusively in Frankfurt.
Prime Minister Rishi Sunak and Chancellor Jeremy Hunt have made reviving the London market a key priority, and the city's watchdog recently announced rule changes designed to attract companies by emulating New York.
However, Mr Block has little good words. what about the US stock market.
He said: “At some point, after the financial crisis, investors stopped seeing themselves as being rewarded for being risk averse, and it really became a buying narrative. Especially, you know, really exciting stories.”
This has given rise to what he calls a “fool me” culture, where company leaders try to fake it until they make it. A series of corporate scandals involving founders promising more than their companies can deliver—from Theranos blood-testing devices to Nikola's electric trucks—support his point.
“Part and parcel of being the center of the galaxy in investing in technology [in the US] they're actually buying what I call a “fool me” culture.
“The culture of lying to me is not as deep-rooted among British investors.”
Mr Sunak and Mr Hunt have made boosting the stock market a key part of their strategy to revive moribund UK growth.
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However, Mr. Block said a buoyant stock market would do little to help the real economy.
He said: “When you have stock bubbles, they are redistributed to people who are mostly lucky rather than good. He takes from the many and gives to the few, but those few are not usually the more capable men.”
Mention the name Carson Block to American business leaders, and a look of horror will flash across their faces.
46 The year-old New Yorker has built a fearsome reputation for laying siege to boardrooms around the world. His foundation says it is “doing the work Wall Street isn't doing” by uncovering balance sheet frauds and other corporate fraud.
“A typical thesis for us is one in which we expose wrongdoing through a small group of people,” Block said.
In companies where terrible secrets are exposed, Muddy Waters closes out shares by borrowing them and selling them, hoping profit from falling stock prices.
Muddy Waters made a name for himself by investigating publicly traded Chinese companies. in North American stock markets in the early 2010s. His career paths typically involve overseas businesses or small companies.
His fire-and-brimstone approach makes Block's latest short-selling target even more attractive.
Last month, he turned his guns on a real estate fund run by Wall Street financial giant Blackstone and headed by billionaire Steve Schwarzman.
In a blue-chip business like this, Muddy Waters usually finds plenty of ammunition. However, unlike past targets, the Block does not claim any wrongdoing or misdirection.
“We haven’t charged anyone with wrongdoing because we don’t see wrongdoing,” Block said. “They just got caught in what we think is the perfect storm. They were in the wrong place at the wrong time.”
Blackstone Mortgage Investment Trust, known as BXMT, is a $22 billion (£17.3 billion) book of IOUs. The trust lent money to landlords to purchase commercial properties.
Muddy Waters believes BXMT is extremely exposed to higher rates and argues it will be difficult for landlords to pay back into the fund.
Post-Covid More people are working from home, and this has prompted tenants to reduce the amount of space they rent from landlords.
At the same time, landlords are also having to refinance the loans they took out to buy the offices in the first place, at much higher rates.
$117 billion in office loans are due to be repaid this year, according to the data. or refinanced. US Mortgage Bankers Association, and rates were significantly higher than when the loans were first taken out.
BXMT could face up to $4.5 billion in loan losses and its shares are at risk of being wiped out, Block said.
Block sees some overlap with the debt-fueled days of the financial crisis. He likes to quote former Citigroup chairman Chuck Prince's joke that “as long as the music's on, you gotta get up and dance” to describe the wall of loan sharks that have been thrown at commercial real estate in recent years.
< p>Block said: “In hindsight , 20/20, this turns out to be imprudent.”
While most of BXMT's funds are focused on the US, the same trend appears to be happening in the UK.
Block said: p>
Block said: “It is fair to assume that demand for offices in the UK is structurally lower than it was pre-pandemic.”
“Clearly rates are also higher, which has a negative impact on collateral values. You're left in a situation where real estate is paying lower returns, but the market is demanding higher returns.”
BXMT shares fell the day he revealed his short position at an event in London.
p>BXMT shares fell on the day he revealed his short position at an event in London.
BXMT shares fell in price.
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BXMT disputes Muddy Waters' claims, saying more than $8 billion in loans were repaid or rolled over last year, with the fund receiving $3.8 billion in repayments.
BXMT has released figures downplaying its influence on offices, saying its back office lending accounts for only 36 percent.
The spokesperson said: “The facts are that while the vast majority of the portfolio is performing… BXMT continues to demonstrate resilience. in a difficult environment.”
Block was born in New York, worked with his father as an equity analyst, then went to law school and then moved to China, where he began researching overvalued stocks.
He made a name for himself through critical reporting on Sino- Forest, an $8 billion Chinese logging company that was later declared fraudulent by Chinese authorities.
The block followed a series of other direct hits that earned him a rock star reputation in financial circles. A remark he once made on television about short selling an unnamed Hong Kong company caused the entire Hang Seng Index to plummet.
His crusades produced horrific war stories. He once claimed that a corporate spy was posing as a Wall Street Journal reporter to meet him and request information. Block knew, filmed the entire episode and published the footage.
Block has in the past targeted UK-registered companies, notably NMC Health, a Middle Eastern hospital operator that went bust in 2020.
Government will soon scrap EU rules on short selling disclosure, meaning funds like Muddy Waters will be able to remain hidden for longer.
Block said: “The UK is becoming much more attractive, you know, to short selling.”
Even if London rules are relaxed, crusaders like Block will keep companies honest.
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