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This is the Bloomberg Daybreak Europe

podcast. Good morning. It's Friday, the

31st of July. I'm Steven Carroll in

Brussels. Coming up today, a dramatic 24

hours for a leading AI hedge fund as Ken

Griffin's Citadel snaps up billions of

dollars of Leopold Ashen Brener's

leveraged bets that went sour. Europe's

football governing body UEFA says it

will boycott the World Cup if FIFA sells

a stake in the tournament. Plus, feeling

the heat. Why Europe's unstoppable

wildfires are now a terrifying new

normal. Let's start with a roundup of

our top stories. Assets at the hedge

fund situational awareness have plunged

from $45 billion to about 10 billion

after margin calls forced it to unwind

heavily leveraged bets on artificial

intelligence. The fund led by former

OpenAI researcher Leopold Dashen Brener

sold billions of dollars of stock before

Ken Griffin Citadel stepped in to buy

most of the portfolio. With more, here's

Bloomberg's Chris Pit. He was hailed as

the Nostradamus of AI, a young oracle

with a bold prophecy for the future.

Before launching his hedge fund just two

years ago, Liupold Ashen Brener had

never managed money professionally. Even

so, Wall Street banks were willing to

lend him up to five times his capital as

he built giant bets on the AI boom. But

when technology shares tumbled, those

same lenders demanded more collateral,

triggering a wave of forced selling.

Calls went out across Wall Street before

Ken Griffin Citadel struck an overnight

deal to buy most of the portfolio at a

discount, ending the scramble to rescue

the fund's positions. Yet, as the dust

settles on Ashen Brena's chaotic week,

the 20some appears set to emerge only

bruised from the saka. He still runs one

of the world's biggest equity hedge

funds in London. Chris Pit, Bloomberg

Radio. Well, after several bruising days

for one of Leopold Ashen Brener's

biggest holdings, SKH is helping to lead

a record rebound in South Korea's stock

market today. The Cosby surging as much

as 17%, its biggest gain on record,

while SKH Highix climbed almost 30% as

investors piled back into AI stocks. The

rally was helped by Citadel's purchase

of situational awareness's AI portfolio

alongside strong global tech earnings

and fresh government support for South

Korea's AI industry.

Well, big tech earnings are delivering

sharply differing verdicts on the race

to profit from artificial intelligence.

Amazon shares jumped after cloud revenue

grew by 37% while Microsoft added a

record $450 billion in market value

following its fastest cloud growth in

about 4 years. But Apple fell in after

hours, trading by around 6% after

warning that chip shortages and rising

memory costs will weigh on sales in the

current quarter. Here's Bloomberg Tech's

Ed Lello. shares really fell in after

hours as Apple explained that the

September quarter things are going to

get more tough not just because of

higher memory prices but tighter supply.

They underestimated demand which means

that there is a shortage of leading edge

processors. It is multifaceted and that

outlook where they see revenue growth of

9% to 11% in the September quarter below

the streets estimate of above 12% um it

really overshadowed what was a strong

June quarter.

Ed Lllo there dissecting Apple's results

in what's proven to be a mixed bag for

big tech earnings. Meta shares fell

almost 8% in yesterday's session after

outlining plans to commit nearly $700

billion to future AI spending. The diver

diverging share moves underscore that

investors now want evidence those

investments are generating returns.

Anthropic says its artificial

intelligence models breached three

separate organizations during cyber

security tests that accidentally escaped

into the real world. The company says

its review found three instances in

which its clawed AI tool gained access

to the internet and hacked what it

described as the real world

infrastructure of external

organizations. Sharing Gafari is our AI

reporter. It found in coordination with

one of its partners that yes, its models

had actually been able to reach the

internet in three different cases

involving third party organizations and

improperly look for ways to sort of do

better on internal evaluations or

achieve internal evaluations. Sharing

Gafari points out that the disclosure

comes just over a week after open AI

revealed one of its own AI models

accidentally hacked another during

company another company's systems during

similar testing.

The Bank of Japan has kept interest

rates unchanged at 1% while maintaining

a hawkish stance on inflation. The

decision came after Japanese authorities

intervened overnight to support the yen

whose weakness has been adding to price

pressures. BOJ's more optimistic

assessment of the economy reinforced

expectations it could raise interest

rates again as soon as October.

The Spanish government has ordered an

emergency military deployment to one of

its African enclaves after an illegal

immigrant surged. Spanish media have

reported that thousands crossed in to

the city known as Thuta yesterday,

mainly by sea. The crisis has drawn

scrutiny from across Europe, including a

threat by Italian Prime Minister George

Maloney to suspend the European Union's

freedom of movement agreement with

Spain. The Spanish defense minister said

in a statement yesterday evening that

soldiers will be sent to reinforce the

security forces in the

Europe's football governing body is set

to boycott FIFA international

tournaments if the group goes ahead with

controversial plans to sell stakes to

private investors. The decision by

Yorb's powerful member association was

finalized during a virtual crisis

meeting to address the sell-off

proposal. Former FA chairman David

Bernstein feels the collaborative

approach will get the right outcome.

>> England on its own, you know, we're a

big nation in football, but we can't do

very much on our own. If we try to do

something against FIFA, frankly, they

would tell us where to go. But with

UEFA, we're very, very powerful. So, I

think it's absolutely right that we work

with UEFA. We're part of that.

David Bernstein speaking there, former

FA chairman. The news follows

significant backlash to FIFA President

Giani Infantino's plans to transfer

major commercial and tournament

operations into a new entity called FIFA

Forward Enterprise and raise up to $4.2

billion from external investors. UEFA

said in a statement, "No UEFA national

teams will participate in any FIFA

competition for so long as these

proposals remain alive." And those are

our top stories on the program on the

markets this morning. That jump in South

Korea's Cosby up almost 17% at the

moment lifting the broader MCI Pacific

index by 4.3%. Euro stocks 50 futures

positive2 by 810 and NASDAQ futures on

Wall Street up by 1.2% too. Oil prices

are lower this morning 1.6% $8764

as we are watching the Japanese yen

after the bank of Japan held interest

rates at 16063. are holding on to much

of yesterday's strength after the

intervention by Japanese authorities in

the markets.

Well, in a moment, we'll bring you more

on the incredible story of the AI bets

that went sour for one hedge fund. Plus,

why climate change is making Europe's

wildfires more extreme and more

difficult to control. But first, a word

on another story that I've been reading

this morning on what to do with grand

government buildings the state no longer

needs. Sarah Rapaort from Bloomberg

Pursuits has been writing about the

latest conversions in London. So we had

the old war rooms becoming a raffles

hotel, the former US embassy becoming

the chancery rosewood. Next up in terms

of high-profile conversions are is the

Admiral T Arch between Trafaler Square

and the MAL which will reopen later this

year as a Waldorf Histori. Now it closed

as an office building back in 2011. It

was sold by the UK government for some

60 million pounds in 2012. It's going to

reopen as a hotel this year. Sarah has

been speaking to some of the developers

and architects who've been working on

these designs and it does seem like

hotels are a good fit for these

buildings. Companies don't want them as

offices because they're technically

complex. They're often not very

energyefficient. The government doesn't

want to pay for the upkeep. Renovating

them is complex and expensive. So, you

need deep pockets. Just one example

cited in the pieces from the renovation

of the old war rooms that cutting a new

doorway in the building needed planning

permission from local authorities.

selling them of course does raise

revenue for the government as well.

They're not entirely uncontroversial

though as sales. Of course, questions

about whether or not they're selling off

part of the country's heritage. Although

the heritage body, Historic England, who

Sarah spoke to for this piece, said that

the compromises are often preferable to

watching landmark buildings fall apart

or fall vacant, I should say, as well.

Really interesting piece on the

transformation of our city centers and

and what exactly they're being turned

into. Uh I've been in the old war rooms.

It's it's pretty fancy. So, at least

there is a chance that you can go in

there uh as a regular person, which

perhaps you might not have been able to

do when it was a government building.

So, an interesting piece and we'll put a

link to it in our podcast show notes.

Let's bring you more now though on the

dramatic 24 hours for the hedge fund

situational awareness forced to sell

billions of its technology investments

this week to Citadel at a massive

discount. Our market supporter Anthony

Stevens joins us now for more. Anthony,

first of all, can you give us a bit more

background on situational aware a

awareness and its founder Leopold

Dashenbrer?

>> Yeah, Leopold is actually a really

closely followed member of the hedge

fund community, especially by retail. Uh

he has some very deep thoughts on AI

that are very famous because he authored

a paper in 2024 highlighting how we

would get to artificial general

intelligence which is the holy grail of

AI. He has a deep technology background

and is just generally a really bright

guy. um he grew a $225 million hedge

fund up to $10 billion. So that is his

track record until this latest wipeout

and he's done it through very

concentrated bets across the AI supply

chain whether you're talking about

energy or chips or um or just plain LLMs

in the case of anthropic in the private

market. So he's invested across the

supply chain and done really quite well.

It appears though that he's been caught

off guard with the the big change in

direction over the last couple of months

when he was at his maximum size and

that's what's caused the problem here.

>> So I suppose talk us through exactly

what happened when things started to go

wrong and and how did Citadel and Ken

Griffin get involved?

>> So what happens uh when a large fund

like this is on leverage is that they

get that money from a prime broker. Now,

when those holdings are worth less, the

prime broker needs their money back cuz

they've lent you the money in the first

place. Uh, and they're getting uh, you

know, 30 40% markdown in the value of

the holdings. So, these prime brokers

came to the came to situational

awareness for money. Uh, and to raise

that money, you would need to sell in

the market and there's been some of that

pressure on the holdings recently. Uh,

but in the end, you want to kind of get

the money quicker instead of selling it

in market and that's where Citadel comes

in. Citadel is a block player. they

would have charged a discount for the

liquidity that they are providing for uh

Ashen Brener and situational awareness

to get out of these positions. Once

that's done, you can see the selling

pressure alleviate in the portfolio of

names that they own and most of those

names were up 15 to 20%. That includes

the SKH ADR where situational awareness

was a cornerstone player in the ADR

launch. So that's one of the reasons

Korea is on fire today.

So what does the future look like then

for situational awareness and I suppose

what's the lesson from this story and

the volatility of these investments?

Well, to start with the lesson first,

it's just a combination of leverage and

volatility never goes well. And you're

seeing that even in Korea with the

retail investors and their leverage

ETFs. That combination has not worked

out in the last couple of months. And

there's some steep losses there because

the risk management quite frankly, you

know, is a bit stretched in terms of the

future. He is sitting on very large

positions in private markets in most

notably in anthropic and other names in

the AI space. So how he monetizes that

or whether he gets to hang on to that is

a is a point of conjecture reporting

suggests that he looked to sell those

stakes as well before changing his mind

after he got the public markets

liquidity. The next step is he's looking

to raise new money. Now it'll be very

interesting how whether his early LPs

limited partners who did really well

with him at the beginning choose to

reload and if they do what does he

choose to reload in will he stick with

his original bets or has his investment

thesis changed so when he comes back

with new money his 13F filings of what

he's bought will be super interesting

>> certainly will Anthony thank you very

much for bringing us the background to

this fascinating story and also where it

may go next that's our markets reporter

Anthony Stevens stay with Plus more from

Bloomberg Daybreak Europe coming up

after this.

Now, wildfires are continuing to burn in

many parts of Europe with hundreds of

thousands of people forced from their

homes in France and in Spain. Scientists

say that climate change is making fire

weather more common and more extreme.

Our reporter Nyla Razuk joins us now

from Paris for more. Nyla, first of all,

you were in Bordeaux this week reporting

for this story. what is the situation

like there now?

>> Uh thank you for having me. Um it was

actually a sad site to tour the Bordeaux

area which is normally full of uh happy

tourists who come to the area to visit

the beautiful old town. You know there

are camping sites normally upscale

resorts like Caperee where people come

to enjoy oysters. You know at the end of

the day my throat was scratching. You

know even areas where there are no fires

it's kind of hard to breathe and walk

around. I saw people wearing masks. Um,

basically the firefighters are still

battling the flames on all fronts in,

you know, in the Bodau area, in other

places in France and also in Spain. Um,

they are truly unprecedented wildfires,

you know, across France and Spain. We've

had more than 320,000

people evacuated, which is like the

largest wildfire evacuation operation in

Europe, uh, possibly ever. Um now

thousands have started to return to

areas where the flames are now under

control. But you know the largest fire

in the Bordeaux uh region continues to

um um you know continues on and we've

had more than 42,000 hectars roughly if

you want four times the size of Paris uh

burnt already. Um since January we've

had more than 100,000 hectares burnt in

the country which is very significant.

You know we have fires also on hills

overlooking the Mediterranean

uh and also in the island of Corsa. So

basically 2026 is already the worst

wildfire season on record in France.

>> And why are these fires proving so

difficult then to control?

Um it's really a combination of

different factors. Um firstly, you know,

we've seen repeated heat waves. We are

at the fourth heat wave this year and

we're not even in August yet. Uh so

that's one thing. The temperatures are

exceeding 40° C in many parts of France,

but also in southern Europe where you

are seeing all these fires. Um we there

is also another factor where we are

having very wet winters which allow

shrubs to grow and then you have weeks

of heat waves and hot dry weather which

make all these very combustible in

forests and vegetation. And the third

factor is really strong winds which uh

you know allow fires to spread very

rapidly and change direction with very

little warning. Um these can create

something which is uh called uh in

firefighting uh uh slang pyroucumulon

limbbusbus clouds which are fire clouds

that you know generate their own

weather. Uh they can have like uh

powerful updrafts and unpredictable

winds can make these uh firefighting uh

operations very difficult. Uh

firefighters also speak about something

called zombie fires which is basically

that the fire continue to burn

underground without being visible and

then they can flare up several days or

even weeks later. This happened in 2022.

You know, there were big fires and it

took months in some areas years to put

them out completely because they

continued to burn underground.

>> Yeah, it's they're frightening scenes

that we've seen beamed around the world

from from France and Spain and elsewhere

as well. Um, in a moment like this, it's

very difficult, of course, to talk about

the economic consequences because this

is a live situation for those both

fighting it and those who are worried

about the future of their homes. But

what do we know about what all of this

will mean for the economy given that,

you know, climate change seems to be

indicating this could be a recurring

event.

>> So, the economic impact will almost

certainly amount to billions of euros.

There are no um accurate uh figures for

now, but it's surely in the billions of

euros. You know, the in France is Jon,

there are more than 13,000 businesses

that have been disrupted by evacuation

orders affecting more than 150,000

workers. uh you know you've had major

industrial and defense sites including

from companies like Tales and Airbus and

Das Aviation which have temporarily

reduced or suspended operations. They

evacuated some sites. You know tourism

has been taking a very significant hit

during the peak holiday season. You know

this we are in July and August. You know

we have beaches, campsites, roads closed

in the Bordeaux area. I saw empty

restaurants on piazas normally full of

tourists. Hotels are at 30% occupancy

when they are normally at above 90 uh%.

You have agriculture which is suffering

from burned forests and livestock

losses. Uh smoke affecting vineyards and

crops.

You know this is like um uh the top

whining region in France with centime

and other areas. Uh and that's not

counting the huge cost of emergency

response. you know, helping people

return home, rebuilding the homes, uh

the roads, the infrastructure, and

insurance claims. You know, only maybe

10% of climate related economic losses

in Europe are typically insured. So, the

rest will fall on governments and

businesses and, you know, local

communities.

>> Thanks for listening to Bloomberg

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