This is an audio transcript of the FT News Briefing podcast episode: ‘The story behind the money going to Mexico’
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Marc Filippino
Good morning from the Financial Times. Today is Wednesday, February 7th, and this is your FT News Briefing.
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Some big names in UK politics are up for a top banking job. And oil companies continue to bring home the bacon. Plus, Mexicans living in the US sent home an astonishing amount of money last year. But not all of it is exactly what you would call clean.
Michael Stott
Some of the numbers look rather strange when you start to dig into them. So at the same time those remittances have been shooting up, the number of Mexican-born migrants in the US has actually been falling slightly.
Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.
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Sources told the FT that Standard Chartered is shortlisting Sajid Javid to be its next chair. It’s one of the most senior jobs in the British banking sector. Javid is a Conservative MP who was briefly chancellor and health minister. Javid spent some time at JPMorgan, too. Standard Chartered is also considering another political heavyweight for the job — Charles Roxburgh who was the government’s second permanent secretary in charge of financial services from 2016 to 2022. Whoever Standard Chartered chooses for the position has their work cut out for them. The bank’s share price has been cut in half since 2015.
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Black gold is so hot right now. Many of the world’s major oil companies reported some pretty strong earnings. The most recent was BP, which reported annual profits of just under $14bn yesterday, the second-highest in over a decade, which is good news for investors who have been worried about BP’s strategy of cutting oil and gas production. I’m joined now by Tom Wilson who covers energy for the FT. Hi, Tom.
Tom Wilson
Hi, Marc.
Marc Filippino
All right, so what does yesterday’s earnings results from BP tell us about the company’s overall strategy?
Tom Wilson
What BP is committed to do is to transform its business over time from an oil and gas producer to an integrated energy provider by investing in green technologies. What it does do, however, is it buys the new CEO Murray Auchincloss some time to a number of questions out there about whether it’s the right strategy, about whether he should stick to it. And if he can stick to the strategy but at the same time deliver high enough profits that he can continue to increase returns to shareholders, then hopefully that’ll satisfy the shareholder base’s appetite for returns today and then give him the headroom to continue with his strategy to overhaul the business. But those investments in green technologies like biofuels and hydrogen are still very, very early-stage. So if we look back to last quarter, well over 90 per cent of their earnings would have come from the traditional oil and gas business.
Marc Filippino
All right. So that was BP. Can you tell us a little bit more about how other oil majors have done this earnings season?
Tom Wilson
So all of the oil majors had a great 2023. Annual profits came down significantly from 2022. But 2022 was really an exceptional year. That was the height of the energy crisis in the months after Russia had invaded Ukraine and sent oil and gas prices soaring. So Exxon, Chevron and Shell make their best-ever profits that year. Earnings came down last year, but they were still the highest in over a decade. So incredibly strong performance across the peers.
Marc Filippino
Tom, given what we’ve learned out of fourth-quarter earnings from these oil majors, what does it tell you generally about the direction of the oil and gas industry?
Tom Wilson
What this earnings season has demonstrated is the long-term effects of the energy crisis over the past two years and the disruption to energy markets, which has kind of resurfaced a focus on energy security over energy transition. And over the last two years, those companies that had focused more heavily on increasing oil and gas production and less heavily on investing in green technologies, like Exxon and Chevron, performed the best over that period. And what we can now see following this earnings season is the likes of Shell and BP looking at that performance and thinking that maybe they need to moderate their messaging so they sound a little bit more like Exxon and Chevron and a little bit less like a company trying to go headfirst into the energy transition as quickly as possible.
Marc Filippino
Tom Wilson covers energy for the FT. Thanks, Tom.
Tom Wilson
Thanks very much.
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Marc Filippino
Last year, Mexicans living in the United States sent home a staggering amount of money, $63bn. But the math behind those remittances isn’t really adding up. And now more people are wondering whether drug traffickers are also sending money home. Here to talk to me about this is the FT’s Latin America editor Michael Scott. Hey, Michael.
Michael Stott
Hey, Marc.
Marc Filippino
So unpack that number for me, Michael, $63bn in 2023. How does it compare to previous years and other places besides Mexico?
Michael Stott
Well, Marc, it shot up. I mean, obviously, Mexicans have been sending money home from the US for a long time, but the amount was fairly steady for a long time until about 2018. In the last six years, the amount sent back has almost doubled. And it’s now equal to about a fifth of the entire federal government’s annual budget. And Mexicans, to put it into international context, are now sending more money home each year than any other country in the world except India, whose population is more than 10 times bigger.
Marc Filippino
Michael, that’s a crazy stat to wrap your mind around. But what is fishy about these remittances?
Michael Stott
Well, some of the numbers look rather strange, Marc, when you start to dig into them. So at the same time those remittances have been shooting up, the number of Mexican-born migrants in the US has actually been falling slightly — so fewer people sending more money. And then when you look at where they’re sending it from in the US, there are more strange things. So one of the states that suddenly shot on to the radar as a big source of remittances to Mexico was the state of Minnesota, not one of the biggest states in the US and one with a tiny Mexican-born population, only just a little over 200,000 Mexican-born people living there. And yet they were sending home something like $1.3bn in remittances just in one quarter. And if you do the math, that means that those 200,000 people would have had to be sending home more than $2,000 a month for every single one of them for those numbers to add up. And then making it even stranger, when that was made public in a report, suddenly the flows of remittances from Minnesota dropped by half. And that’s why people are worried that mixed in with the legitimate money coming home from Mexicans in the US is money from the cartels being laundered.
Marc Filippino
Michael, I’m curious why we’re seeing this sudden dump into remittances by these cartels. I mean, what’s changed to have Mexican drug traffickers switch up the way that they’re getting money into the country?
Michael Stott
Well, that’s a very interesting question, Marc. So, of course, you think if this is such a great way to send drug money, hey, why wasn’t that happening before? Well, drug cartels were, shall we say, quite traditional in the way they sent money. It was quite popular to send money back in cash hidden inside vehicles. But what happened was during the pandemic, that wasn’t possible anymore because the border closures stopped people from getting cars and trucks across the border easily. So the traffickers switched to a new method of sending money home disguised as remittances. That’s the theory. And they found it a convenient, secure and easy method. So when the borders started reopening after the pandemic, they carried on with it.
Marc Filippino
What’s all this money doing to Mexico’s economy and the peso? I mean, $63bn has to be making some sort of effect.
Michael Stott
Yeah, well, President Andrés Manuel López Obrador is thrilled. I mean, he’s trumpeting this as a fantastic sign of economic health. Investors love it, too, because the flood of remittances has made the peso one of the developing world’s strongest currencies in recent years. And it’s also generated great returns for people parking their money in pesos and getting the extra benefit, not only of a rising exchange rate but a big interest rate differential with the US.
Marc Filippino
All right, so that sounds well and good right now, Michael. But looking ahead longer-term, just how risky is it for Mexico’s economy to rely on these remittances?
Michael Stott
Well, part of the risk, Marc, of course, is that this money is not guaranteed in future. So if there’s a change in the cartel’s operating method or a crackdown on the drug trade, that money could suddenly disappear. So the peso is more vulnerable to a sudden shock. And of course, the other thing is, as all this flood of illegal money comes over, the cartels are getting stronger and stronger financially. So there are risks on the law enforcement side and on the financial side to this sort of flow.
Marc Filippino
Michael Stott is the FT’s Latin America editor. Thanks, Michael.
Michael Stott
Thank you, Marc.
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Marc Filippino
Before we go, WeWork filed for bankruptcy last year, but its former CEO is still under its spell. Adam Neumann is trying to buy the company, and he says he’s partnering with the hedge fund Third Point to make it happen. But Third Point says those talks are just preliminary, and they haven’t committed to anything. Neumann was ousted from WeWork in 2019 after it racked up billions of dollars in losses. Getting this deal done will involve winning over the company’s senior creditors, including SoftBank, which lost most of its $16bn investment when WeWork declared bankruptcy.
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You can read more on all of these stories at FT.com for free when you click the links in our 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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