How will Egypt handle Gaza?

This is an audio transcript of the FT News Briefing podcast episode: ‘How will Egypt handle Gaza?’

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Marc Filippino
Good morning from the Financial Times. Today is Wednesday, October 18th, and this is your FT News Briefing.

Egypt has to make some tough decisions on how to handle Gaza. Scotland is gonna start issuing government debt. And what’s going on with bank earnings? 

Robert Armstrong
You’re seeing a story play out that is kind of a miniature version of a story we have seen in the wider economy. And I think of this story as the dog that didn’t bite . . . yet. 

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Egypt is the only country other than Israel to share a border with Gaza. Now Cairo is under pressure to help the people in Gaza that are stuck between Hamas and an impending Israeli ground invasion. Egypt’s Rafah crossing is a potential way to get aid into Gaza and for people to get out, but this route has so far stayed closed. Heba Saleh is the FT’s Cairo correspondent and she joins me now to discuss Egypt’s dilemma. Hi, Heba.

Heba Saleh
Hello. 

Marc Filippino
So what’s the situation at the Rafah crossing right now? I mean, what are you hearing about what’s happening on the ground? 

Heba Saleh
What’s happening on the ground is that from the Egyptian side, trucks loaded with aid have arrived near the border crossing. So there’s plenty of aid waiting to get into Gaza. On the Palestinian side, every day, hundreds of people with dual nationalities have been waiting for the crossing to open so that they can cross in the direction of Egypt. But right now, nothing is moving through. 

Marc Filippino
So Heba, the way I understand it is that Israel is not letting aid come into Gaza from Egypt. 

Heba Saleh
Yes, Israel doesn’t want aid to get into Gaza. It has already threatened to hit truckloads of aid that drive into the Gaza Strip. Egypt is concerned that without humanitarian aid and given the worsening situation in Gaza, the Gazans might flood across the border. They fear that Israel might want to facilitate this. It might want to evict them. So its position is we deliver aid into Gaza. The Palestinians stay there. The border crossing remains closed until there is an agreement. 

Marc Filippino
And what is Egypt most afraid of when it comes to taking in refugees from Gaza? 

Heba Saleh
Egypt doesn’t want to open the border to refugees for really a range of reasons. I think everyone is haunted by the Nakba, the so-called catastrophe, in 1948 when after an Arab-Israeli war, Palestinians had to leave, they were displaced and most of them could not come back. Egypt doesn’t want a similar situation, also for practical reasons. There are 2.3mn people in Gaza. How many can move or how many can Egypt support? Again, on practical levels, Egypt does not want to have to police this large community of Palestinians that very likely will include people who want to go on fighting Israel from its territory. So all of this is a nightmare scenario for Egypt. 

Marc Filippino
Heba Saleh is the FT’s Cairo correspondent. Thanks Heba. 

Heba Saleh
Thank you. 

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Marc Filippino
Scotland is going to the international bond market. 

Humza Yousaf voice clip
We will issue Scotland’s first ever bond. (Cheers and applause)

Marc Filippino
Scottish National Party leader Humza Yousaf made the announcement yesterday at the party’s annual conference. 

Humza Yousaf voice clip
This will bring Scotland to the attention of investors right across the world. It will raise our profile as a place where investment returns can be made. 

Marc Filippino
Yousaf said the money raised from the bonds will help finance infrastructure. The move is also meant to build up credibility with investors as the SNP makes another run at independence. 

Humza Yousaf voice clip
Brick by brick, institution by institution, we are laying the foundations for what will be a newly independent state. We are truly living in the early days of a better nation. (Applause)

Marc Filippino
Scotland has had the right to issue bonds since 2015. That came out of a deal with the UK Treasury after 2014’s failed independence referendum.

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All right. So yesterday, Bank of America reported third-quarter earnings. It said that it increased profits and that traders delivered their best performance in a decade. Now, this good news was a bit of a shock. Bank of America beat Wall Street expectations, but it wasn’t the only US bank to beat forecasts. JPMorgan Chase reported a 35 per cent jump in profits. Wells Fargo and Citigroup, they both had stellar third quarters that nobody saw coming. Here to unpack all this is the FT’s US financial commentator Rob Armstrong. Hey, Rob. 

Robert Armstrong
Hey, how are you doing? 

Marc Filippino
I’m doing well, but I’ll admit I’m a little confused because last week we ran this preview of US bank earnings season. Things were supposed to be real, real bad. And so far, things have been real, real good for US banks. And I’m curious as to why we have this kind of disparity between the believed and the actual. 

Robert Armstrong
You’re seeing a story play out in the bank earnings that is kind of a miniature version of a story we have seen in the wider economy. And I think of this story as the dog that didn’t bite . . . yet.

So for some months now, we’ve been talking about how the economy is going to weaken and companies are gonna start to struggle after a couple of good years. And that shoe, to switch metaphors on you, just refuses to drop. The economy continues to do well. And what we’ve seen in bank earnings is that the problems we’ve been worried about just haven’t happened yet. That doesn’t mean they won’t happen. But we’re still waiting. 

Marc Filippino
So I guess my question then is, Rob, how do we adapt to this kind of weird point where, you know, things seem worse than they actually are, at least for now? 

Robert Armstrong
Well, banks are doing what they call putting aside reserves, meaning they are planning for an economic slowdown by putting money aside in case their loans should go bad. 

Marc Filippino
In case people can’t pay back their loans . . .  

Robert Armstrong
And people can’t pay back their loans.

Marc Filippino
Yeah.

Robert Armstrong
But what we were expecting to see is more of that happening already. We expected, with interest rates up so much over the last year or two, businesses would start to show the strain. So far, knock on wood, is that a third metaphor I just used? 

Marc Filippino
Yeah, I think so. 

Robert Armstrong
Yeah. So far there has not been any outright disasters where any of the big banks have had huge writedowns or unexpected explosions among their borrowers. 

Marc Filippino
So, Robert, considering that — and I’m gonna add a fourth metaphor in here because why the hell not — if we’re acting as though the sky is gonna fall or the banks are acting as though the sky is falling . . .  

Robert Armstrong
The shoe-wearing dog is gonna fall from the sky. (Laughter)

Marc Filippino
If that is the case, does that mean when the shoe does actually drop that banks will be able to absorb the blow of a recession, assuming that a soft landing doesn’t happen? 

Robert Armstrong
I think the banks are well capitalised. I think they’re pretty well reserved. I think we’re all conditioned since 2008 to think when things go wrong for banks, they go sort of explosively wrong. I think the bigger risk for banks in this cycle is a slow squeeze. As the economy slows, rates rise, defaults and bankruptcies slowly increase and bank profits fall. I don’t see anything that indicates that the recession we have all been waiting for suddenly leaps out from around the corner and shocks the banks into crisis mode. 

Marc Filippino
Rob Armstrong is the FT’s US financial commentator. Thank you, Rob. 

Robert Armstrong
Cheers. 

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Marc Filippino
So now, as we mentioned, most banks had a pretty good third quarter. But there was a notable exception. Goldman Sachs reported a 36 per cent drop in profits year on year. It’s the bank’s eighth consecutive quarter where earnings fell. It is a tough break for Goldman. And to make matters worse, their star DJ is hanging up his headphones. Chief executive David Solomon is going to stop playing high-profile events. Quick sidebar here: by high-profile, we actually mean high-profile. If you were at Lollapalooza in Chicago last summer, you might have caught a glimpse of DJ-D Sol. The retirement comes after some criticism that Solomon’s side hustle was a bit of a distraction from his day job.

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Before we go, we have a deal for you. Right now, you can get 50 per cent off an FT digital subscription. Go to FT.com/briefingsale to take advantage of this discount. We have that link in the show notes.

This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news. 

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