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One thing to start: Wall Street analysts are betting Citigroup will miss a crucial long-term target, heaping pressure on chief executive Jane Fraser to prove her sweeping overhaul will succeed in turning around one of America’s biggest banks.

And an M&A approach we hadn’t envisioned: Denmark’s prime minister said Greenland was “not for sale” after Donald Trump expressed a renewed interest in buying the Arctic island as he prepares for his second term as US president.

In today’s newsletter:

• Troubled companies’ options narrow

• Europe’s shot at AI dominance

• Blackstone invests in the accounting sector

US appeals court says no dice to aggressive debt move

Creditor-on-creditor violence has come to define corporate debt markets in recent years.

Kirkland & Ellis and other white-shoe law firms have championed using loopholes in documents to help certain groups of creditors get ahead of others. When things turned litigious, they often looked to a Texas bankruptcy court to freeze lawsuits.

But an appeals court decision last week may put those transactions on ice, threatening the controversial mechanism that has become a go-to tool for private equity-backed portfolio companies in need of cash.

The ruling comes as corporate bankruptcies in the US skyrocket, with filings hitting their highest level since the aftermath of the global financial crisis.

At least 686 US companies filed for bankruptcy in 2024, up about 8 per cent from a year prior, according to data from S&P Global Market Intelligence.

The US Fifth Circuit Court of Appeals decision sided with funds including Angelo Gordon and Apollo Global Management, which were left out of a 2020 restructuring of mattress maker Serta Simmons that favoured other lenders.

The ruling could squash those kinds of restructurings, known as “uptier exchanges”, which had largely been blessed by the Texas bankruptcy court.

In an uptier, a slim majority of lenders exchange their debts for new bonds or loans, leapfrogging creditors left behind, who ultimately recover little.

Top lawyers and corporate chieftains understood that (then) judge David Jones would move quickly and largely sign off on loopholes — including those that allowed for uptier exchanges — if the contracts were sufficiently flexible.

But Jones resigned last year as chief judge of the bankruptcy court in Houston after he was accused of concealing a long-standing romantic relationship with a lawyer who frequently worked on matters assigned to his court.

The ruling last week may blunt these kinds of transactions. The judges wrote that Serta “must respect the sacred right of pro-rata sharing and engage with its lenders on equal footing”.

Meanwhile, a separate legal decision from a New York court has also muddied the waters. That court allows uptiers, writing that the existing loan contract didn’t expressly prevent debt exchanges that excluded some creditors.

The rise in bankruptcies last year is just the tip of the iceberg for companies in trouble. The number of out-of-court manoeuvres that are typical of PE-backed groups outnumbered bankruptcies by about two to one in 2024, Fitch Ratings estimates.

Together, the rulings make a nebulous legal landscape for companies short on cash.

How Europe could still win the AI race

When Ian Hogarth, the London-based tech investor and UK government artificial intelligence tsar, penned an FT Weekend essay in November decrying European tech’s dearth of trillion-dollar companies, he certainly touched a nerve.

Morale is generally low among many of Europe’s tech investors, many of whom got a brief taste of Silicon Valley-style valuations in 2021 and 2022 only for seemingly bright prospects such as Hopin and Getir to come crashing back to earth when interest rates rose.

Now, European venture capital firms are watching a number of US companies run away with the AI revolution, just like Silicon Valley did with search, social media, mobile and cloud computing in the decades before.

But Niklas Zennström, one of Europe’s best-known founders and investors, believes the gloom is overdone.

The co-founder of Skype and VC firm Atomico told the FT that Europe has a crisis of confidence, not capability. “It’s a European problem to [just] talk about the problem,” he said.

It doesn’t matter where the new tech platforms are being built, he argues.

Even if US investment in generative AI was five times as much as in Europe last year, European start-ups can still win by building apps on top of OpenAI, without battling it head-on in the ever-more-costly race to build AI models.

“It’s not like everyone needs to be a large language model ,” Zennström said. “You can create value as an application provider.”

Not as much value as OpenAI itself perhaps, whose valuation more than doubled over the course of last year to $157bn. But while Zennström is optimistic about European tech, he’s also a realist: “The reality is the rich get richer.”

Accounting firm bounces around private equity

Barely three years into the wave of private equity deals in the US accounting sector, and we have our first flip.

New Mountain Capital, which acquired a majority stake in New York’s Citrin Cooperman in October 2021, has agreed to sell it on to a group of investors led by Blackstone, DD’s Antoine Gara and the FT’s Stephen Foley report.

This will be Blackstone’s first foray into the US accounting sector and it looks as if the price of entry has risen sharply since 2021. Now, more than a third of the top firms in the country have taken private capital, so opportunities are getting scarcer.

New Mountain acquired Citrin Cooperman for a multiple of 11 times ebitda, sources told the FT, and is selling it at a multiple of about 15. The enterprise value has swelled from $500mn to more than $2bn.

People familiar with Blackstone’s thinking say the business is less risky now than three years ago, since New Mountain and Citrin Cooperman’s ambitious management have done the hard work of converting it from the old partnership culture.

There have been big investments made in technology already, and Blackstone is promising more.

Citrin Cooperman partners will roll over most of their equity, but they will also get cash windfalls from selling some stock.

The Blackstone-led investor group will end up with more than two-thirds of the equity, which is more than the 60 per cent New Mountain initially owned. Blackstone itself will be limited to less than 50 per cent.

In the intervening years regulators have become more vocal about risks to the independence of accounting firms’ audit practices under private equity ownership, and keeping the stake below 50 per cent should help assuage those concerns.

Job moves

• Latham & Watkins has hired Hugh O’Sullivan as a partner in the London office’s leveraged finance practice after the law firm added four partners last year. He joins from Goodwin.

• Bridger Insurance has hired Colin Savage from Atlas Merchant Capital as chief financial officer. He previously covered the insurance sector as an investment banker at Citigroup, UBS and Rothschild.

• TPG has hired Alex Albert as a healthcare-focused partner, based in San Francisco. He joins from healthcare investor Patient Square, where he was a founding partner.

Smart reads

Quick pivot Law firms are repositioning themselves to capitalise on upheavals in policy and a new political landscape in advance of Trump’s return to the White House, The Wall Street Journal reports.

Right price Private equity made strong returns from investing in alternative assets over the past 30 years, Lex writes. Now regular pension savers might be able to benefit from private markets, too.

Bubble territory Many investors these days are on heightened alert for asset price bubbles, concerned about a repeat of past booms and busts, Howard Marks writes for the FT. While valuations are high, they don’t seem nutty.

News round-up

AI start-up Anthropic closes in on $60bn valuation (FT)

Meta ends third-party fact-checking scheme as it prepares for return of Trump (FT)

Thames Water junior creditors accuse rivals of ‘predatory’ loan conditions (FT)

Vaccine makers’ shares jump after bird flu death in US (FT)

Bitcoin miners stockpile coins to ride out profit squeeze (FT)

Tencent and CATL consider legal action over inclusion on Pentagon blacklist (FT)

Giorgia Meloni in hot water over government talks with Elon Musk’s SpaceX (FT)

JPMorgan plans to bring staff back to office five days a week (Bloomberg)