tv On the Move Bloomberg April 26, 2016 2:30am-4:01am EDT
♪ good morning and welcome. .ou are watching "on the move" the weather in london is absolutely beautiful this many. the weather in berlin is terrible. we can draw reasons for this. this is the reason. this is hans nichols. we will be having a great show. we need to talk about what we will be focusing on. bp feeling the pain. only a matter of time before the
dividend goes. we will talk about that throughout the show. the earning season begins. standard chartered kicks it all off this morning. tells lenders will stronger if they leave europe. the brave new world of banking. he is really hitting the nail on the head. with europe so dependent on the banking sector what will happen? hans: this is the argument that frankfurt would benefit. he is a german. he wants to see the german economy stronger and yet he is warning the u.k. that it will limit -- lose a lot of business. that was some strong business from him. they are very concerned in frankfurt. ecb must be badly.
the u.k. of authorities are worried about u.k. clearinghouses. hans: when they try to be more supervisory and expand their mandate that might give them a little bit of heft. guy: we're going to kick this all around. we are half an hour away from the european open. let me get the futures working come up and running. looking through the process. click the futures box here. a are probably heading for moderately positive start here in europe. that is what we will be looking at. probably .6% up for the euro sex. -- euro stocks. hans: when you look at what has happened, over the last few days, it has been a downward story.
dollar-yen, we are seeing a much a stronger yen this point. down to 110. dollar-euro, 112. let us move out to the first of bloomberg news. david: good morning. start things off with the ringgit. it has weakened after 1mdb confirmed it is in limited default on a note. it is withholding a $50 million payment over a dispute with the abu dhabi international petroleum investment which is the guarantor. 1mdb says it has the money but it is international petroleum's obligation to pay. japan'somic advisor to prime minister wants to see action at the meeting this week. reflecting rising pressure on the central bank as recent data shows a risk of reaching the 2% inflation target.
additionalproject easing by the boj this week. china's state act companies no longer -- states back to companies no longer -- state backed companies no longer have the ironclad support of the government. cautioned that the end of implicit government support will drive funding costs and undermine foreign investment. global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. you can find more stories on the bloomberg at top . of things i want to draw your attention to. got some numbers coming out and we are talking to the
ceo later in the program. keep an eye on the industrial group this morning out of the u.k. promising numbers to be sharply lower. hans: we have both consumed a lot of coffee but we are going to talk about cashing in on coffee. whitbread operates costa coffee. it's as it is confident of progress this year. costa coffee in the u.k. has had a good start this year. joins us now.n thank you for joining us. we look at the share price and we see some struggles. almost down a third this year. what is your message to investors? how will you instill confidence in your leadership? being as you described a good set of
financial results, 12% growth in revenue and underlying profit. which is great. and some really good progress in non-financial measures in terms of new stores and hotels opened and the great job we have done in building the brands. what i am telling investors is --t having been here in much five months, i have kicked the tire a bit in terms of growth potential. 2020ll be considering milestones. $2.5 billion in seals -- in sales and cost of. -- in costa coffee. we want to convey to investors that those milestones are tested and checked against the rise of new competitors as well as the disruptive competitors and they are pretty secure and we rely on both the u.k. growth and also
the potential for international expansion. peak coffee reached in the u.k.? someone talk about saturation on your program. looking at our network, we are not at saturation. we have a long runway. some statistics -- our consumption of coffee in the u.k. is significantly lower. in finland, they drink five times as much coffee as we do. there is a structural growth there. when i look at where we would shops, our new growth is not necessarily on high streets. our new growth is in new channels through drive-through's and leisure parks as well as through express which is our machine programs. guy: you talked about the fact
that you kicked the tire. have you explored and at what level of detail have you explored the possibility of spinning off the business? reviews that on an annual basis. whitbread has been the owner of costa coffee and it will continue to be a fantastic owner. having looked at what could be a very great long-term opportunity in our international business, it is clear we can extract significant shareholder value over the course of the next few years. our board sees no reason to change the ownership structure. hans: you have ambitious targets. whenwe see price increases i send guy out to get my cup of coffee at the end of the show? we pride ourselves on having
great value for the money. it is based on a fantastic product and a great value for money. maybe it wasn't something that we said, i am going to blame hans. thank ouro want to guests. i didn't hear an answer on coffee increases. but guy coming you can -- but guy, you can keep the change. well played. the conversation and we will talk about the u.k. consumer in more detail. if the tide turning for tesco? he is the cfo for tesco. what does he make of life at tesco? we will talk about that when we come back. ♪
and he says the company has made significant process. -- progress. >> when we came in 18 months ago, we took stock of where we were and set out our priorities. trust andrestoring transparency in tesco as a brand and a business. we have made good progress in all of those. we were equally clear regarding the issue of how we were rated and over time, we would want to be an investment grade issuer. it was something we did not have control over and we felt it would take significant time. we had a minor upgrade from one of the agencies. it is the first step but we are committed overtime to becoming an investment grade issuer. guy: how far through the journey argue of rebuilding investor confidence? investors andk to
what they say to us is they understand what we are doing. that the focus on the customer, focus on the business transformation and at the same time, focus on cash generation is the right thing to do. they recognize it may take some time. in termsyear into it of recently reported results and we have delivered what we set out to do. guy: is there any reason why you would not go back to the market? significantlyst what our activities will be. we have a lot of liquidity. we have over a billion of maturity's in the next 12 months in the bond market. we may or we may not. there is no reason why we could not issue but we will wait and see as the year unfolds. it will be depending on our position, and what the
shareholders say to us. and thethe flexibility range of options open to us. guy: my conversation with the tesco cfo. let us get more conversation surrounding this story. we have a senior european food retail analyst with us. is tesco out of the doghouse? >> it is a good start and a long journey. recovery,about retail you need to grow volume and traffic. if you look at results from tesco so far, they have grown in volume and traffic. the lead time is there but the margins are still low. getting better but still at historic lows. the real story is how easy or how long will it be before they go back to a region -- reasonable margin. guy: how long will that take?
the message you get is clear -- we will continue to drive prices down. he is talking about deflation being around for quite some time. hard to open up the middle of the plm. >> deflation hurts everyone. i commonly shared thing. it is easy to deal with. -- are others still losing market share? we know they will respond. for every chip to fall, who will be hurting them? what are the margins for a grocery store? where are there big margins? >> in the heyday, tesco used to
make about 6% margin. now, about 4%-5%. you can make a reasonable margin but a lot comes down to scale and location. tesco is still by far the biggest. it has begged -- better locations. i was hoping you would tell me that avocados are a steal. i know guy is a big avocado fan. produce really varies. they get a lot of produce from the u.k. in the autumn, you may see some price inflation because that is when you need to start importing and that is where the pound comes in. there are exceptions. -- ise bulk of it surprisingly large amount from the u.k. hans: are you qualified to talk about scurvy?
when we look at the turnaround that has happened, what chapter are we in? are still waiting for a few years for the end. it should become easier because you talk about the scale issue. it is this thing cost to run a website if you are tesco or more since. there are many costs -- morrison's. >> remember, you have to go back to the competition commission. everyone's buying terms. eat is underf we buying terms. there is a lot of scale advantage they have over everyone else. u.k. -- thing is the
people want to go to the best store for something. tesco really struggled in that it was neither the best price or the best holiday. it is now really reconnecting with the customers. they are saying, come back to us. that is by far the hardest challenge. hans: the way you are describing this is that tesco is poised -- they are it least in a competitive position. threats, atnline what point does tesco see a threat? they have an advantage with distribution and purchasing power. >> the thing with online foods is that 30 tons of all the food that we each is frozen. you need a cold supply chain network. has a lot of those materials. tesco is the world's biggest
online food retailer. guy: it makes you wonder what threat amazon will eventually poised. . the 12 month price target. there was a sharp right. lewis put a stop on that and said you guys are getting ahead of yourself. where are we now? what is the right price trajectory? we are not far away from the 192. >> tesco depends on what you think the u.k. trading margin will be. 2% margin long-term. muchse he talks so regarding the expectations, why should i bother hoping for 3% if he thinks it will flatlined. -- it will flatlined.
e. hans: they have refrigerator storage. that is an advantage. they are missing some capacity. at myhould take a look freezer. i am using my freezer as proper storage. scurvy guy has. i am not a scurvy expert. guy: we are minutes away from the european open. if potential corporate move in today's trading. bp is a stock we are keeping an eye on. new york is just waking up. it is very early over there. jonathan, i am sure is awake getting ready for his radio hour coming up at 9:00 and in time. new york, resting peacefully.
the stock down in the hong kong listing. we are also watching on this industrial group out of the u.k. it makes stuff worthy space industry. it looks like it will be hit pretty hard. linealretty clear correlation. eon ceo coming up. first in terms of splitting up the company. the forces pushing downward on their business. a huge challenge. consumers are also being hit. the big industrials have not been hit because they get subsidies passed through the state. we talk about refugees in germany. if we weren't, there would be much more focused on the radical transformation in the energy area. what about the futures? guy: they have firmed up a
guy: good morning. in're watching "on the move" london. hans nichols is not in berlin this morning. pain kerry is the it only a matter of time before the dividend? does bank opening -- bank earnings season opens in europe. the bundesbank tells bloomberg that lenders will struggle to make money. we speak to the head of the stability division about the brave new world of banking. guy: i think we will open in positive territory. a surpriseting
profit in refining. still waiting to see what is happening with the market open. futures in europe were pointing higher after we saw losses in asia and after global shares dropped yesterday. today, we were saying -- seeing a four-day -- care about risk aversion in the markets. will we see risk appetite in europe? the ftse 100 up .3%. -- we are still waiting for the dax to open. this was pretty much read yesterday. a majority of green on the industry roots on the stoxx 600 today. perhaps we will see that stronger open carry on through
the day. it looks like it is being led by energy shares. we have seen wti, crude, and brent move higher today. the dollar-yen trade will be key this week with the rate decision from the fed and the bank of japan. we are seeing the yen hold its gains against the dollar today. suggesting that the expectations for yen weakness are high today. -- thete line favors spread has widened to a three month high. leaving expectations for yen weakness this week. er is reporting first-quarter profits. for them to waiting open up. a slight increase in
first-quarter sales. bp up 2.7%. surprise first-quarter profit. hans: i do think bp could be the story of the morning. and 80% profit declined but there adjusted income is coming in at 532 million. better than expected. no one knows bp better. ryan: this is an extraordinary surprise. no one saw this coming. we spoke with 12 analysts and never saw them -- saw this. eking out a bp profit. we had the mild winter. on the refining side, everyone said that what will happen is that ep will get whacked on the will get whacked on
the lower oil price but they will also lose their safety net. all of the oil companies are looking at weaker refining margins. did a little bit better on the refining margins. they generally do better than most of the refiners out there because of their exposure to the u.s. market where we are getting better margins. also, they got help from other parts of the business that we talk less about. for example, if you look at the downstream side of the business, profit rose. quarter on quarter from the fourth quarter of last year to the first quarter of this year, we went from $1.2 million to $1.8 million. downstream includes more than refining. it includes trading. what most of us don't know is that they have big trading arms and that helps them out a lot especially when you have volatility.
guy: they don't always get it right. ity got that bit wrong and has played out aggressively in the numbers. volatility, bit of i won't say i will execute well on that. they did execute poorly when it came to trading. they don't disclose much but when they say something about their trade, we pay attention. first quarter last year, the cfo said they had a profit of about $350 million more than they usually get from the trading business. gain onan see from that the downside from 1.2 two 1.8, clearly they had a good quarter. --got the call on a lot of they got a call on a lot of them right. -- it is still an oil business. jason joins us now.
he is a senior research analyst at jefferies. i come back and i look at the dividend and i wonder, despite what is happening with trading and everything else, how sustainable is that dividend? >> the company is making strides in terms of cost reductions. company has ahe stated goal of 50-50 548 outlets cash cycle including being able to pay their dividends. if they can get there, we feel oil prices can be of above $50 next year. given the fundamentals. hans: you don't see the dividend in threat at all. bp wille above $50, continue to pay that dividend. >> the market does see some potential problems with the dividend. i am not that sanguine about it. but i do think the company has
made some big strides to get to a balance cash cycle. we expect oil prices to be of above 50 year. the market is worried about the dividend and that is why the stock is underperforming. why do i want to own bp when i can own shell? >> we do have a preference for shell over bp. the dividend yield differential is not that great and we do see more scope for shell to be able to pay the dividend out of the free cash flow. the reason you would buy bp though is that it is trading at a discounted multiple. times ebit cash flow. that is a to turn discount. -- two turn discount.
you are buying it on valuation. hans: you are thinking long-term. further out than a lot of our solid estimates go. what is bp saying about its long-term future? >> the company is trying to maintain a capital spending program of $17 million to ensure they have some longer-term growth. when you look at the 2020 timeframe, it does have a lot of new projects, mostly gas that will be coming online around that time. we do see a future for bp in the upstream through these gas businesses that they are growing internationally. i think things get better for them when you get into an oil environment greater than 55 but they do still have some work to do on the cash cycle before the market is convinced on the dividend. guy: is russia a handicap or an advantage? exposure to russia over time
is a good thing in that it is a massive oil producer and having exposure to the largest company -- they are strategically desirable. they are not taking a lot of cash out of it right now. the dividend did increase markedly but we are still dealing with $500 million. that is not that huge. hans: did they get lucky with their trading positions this quarter or does -- or is bp known --? >> bp is a good trading company. i do think there is an underlying strength that it has in that particular business. traders get poached all the time come it is the system that bp has instilled that allows them to do things profitably.
they have a lot of capabilities in the physical market. that is why they have such a good trading business. it is not just the intellectual capacity of the traders but it is the underlying business fundamentals. guy: when i look at what saudi arabia said yesterday and when i look at what they are saying regarding the long-term story of oil. how should i analyze that? the saudi's have a lot of influence over the oil markets. i think though that as we get through more and more time of low oil prices, there are other fx that can come into play. thatere are other effects come into play. rebalance the market towards the end of the year. we are not in runoff. we get back into a more bullish oil price environment over 2017
and 2018 because of the declines. terms of that kind of story, how does that sit side-by-side with the capex? bp is cutting capex? it is cutting all of those areas. in the environment we are income is that something you can carry on doing ever. oil will become cheaper and harder to find. see there going to integrated oil companies need to increase capital spending as prices rise. what is important to remember with the integrated oil companies is they have a lot of legacy assets that don't have much underlying decline associated with them. when we are looking at non-opec u.s. shale is down. the integrated companies are not exposed. provide themsets with a more stable production base than what we see with other companies. guy: it was a pleasure.
your rating on bp? >> we have a hold on bp. i want to take you to the aerospace sector. guy: to one of their big suppliers. itck is down sharply because has issued a profit warning because it is planning to squeeze. very pronounced at the moment. trading atham 172.2. hans: talking about how banks make a profit. european earnings kicks off in earnest. results from standard chartered are due out. what we should expect is coming up next. ♪
the currency is weaker after 1mdb confirmed it is in limited default on notes. it is withholding a $50 million payment over a dispute with abu dhabi's international petroleum which is the guarantor. money butit has the it is the obligation of international petroleum to pay. the economic adviser to the japanese prime minister wants to see action from the doj when it needs this week. this week.needs reflecting pressure on central-bank. -- of economists served additional easing by the boj this week. companiesate backed no longer have the ironclad support of the government. bad news for the equity bull market in hong kong so says ubs.
three of the seven chinese companies that defaulted this year are partly owned by this date. the endcautioned that of implicit government support will undermine foreign investor confidence. written leaving the european union what hit the pound and investment in the u.k. according to a bundesbank board member. he spoke with bloomberg's mark barton. there will be a consequence on the foreign exchange rate and there will be a consequence of economic development and investment in the united kingdom. challenge for the ,nited kingdom should it happen i am expecting to be rather considerable. both in the short, medium, and long run. david: global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world.
you can find more stories on the bloomberg at top . guy: running through what the market is doing. a little positive but not a lot positive. energy is doing pretty well right now. utilities are trading high. is having a fairly good morning. the financials are trading strongly as well. materials are not in the industrials are showing some signs of weakness. today is a real market move raised on stock stories. we generally talk about the macro environment. regarding the yen seeing stronger or weaker and where equities are flowing. in-depthve into more review. mortgagebiggest lender. standard chartered is due to support. -- is due to report.
theing us now for more is senior bank analyst, jonathan. negative lot about rates and dollar yen and scurvy. we will ask you about that. has been about reinvestment yields and pressure on the deposit side of the revenue story for banks. job have done a good cutting costs and loan growth. but it is from here that the issues really kick in because a lot of the measures that have been taken and a lot of competition has heated up for insurance sales and non-deposit funding. that has been the story for the last 12-18 months. the sector has been remarkably resilient. the question is from here. guy: it is tough european banks to make money. is that good or bad? takingfully, he is not
that view, he should be thinking about supply of liquidity. the question is, do we need -- guy: do we need strong banks? from a regulatory point of view in a negative rate point of view. relies on the banking channel. you need both, strong banks which make money and are strong and you want the negative rate stuff to work as well. can you have both? >> a strong bank has plenty of capital but it doesn't mean it will want to lend. it is still about the appetite to lend. are swedbank, mortgages keeping them a float.
interest rates have still fallen because of the pressure. had an overinflated property bubble. some banks are trying to stand still and other banks like a er.se and air -- like santand sometimes, we have a forked tongue. the banks are under pressure. take a giant step back. european are at an unfair disadvantage compared to their american counterparts? -- true or false? >> false. portugal -- says we will try what italy tries. and india has the same problem. you are seeing the push there
for the banks to take their medicine. everyone takes their medicine, they can compete in this regulatory environment. going up against the goldman's, the cities. is that investors recognize that banks are over capitalized. to want to support the right issues, the banks need to do something appropriate for these nonperforming loans. take a standard sport a deutsche disposing of assets. the majority of the funding costs have come through now so it is from here that the winners and losers will get more interesting. guy: what has standard chartered delivered today that will convince investors to put money into that institution. it is hard to understand.
a load of different businesses. it has china exposure which is making people nervous. do we treat it as an isolated case? to some extent but it is a barometer for other things. what is its revenue stream? it fell 15% last year. some of it has reversed. there is no consensus on whether it will fall quarter on quarter. is the 3 billion set aside for restructuring and off -- restructuring enough? they are doing a lot of investment. they have to deliver on the costs and demonstrate it is not a one-way street in terms of currencies. guy: great to see you.
as we analyze what happens with standard charters. keep it here on bloomberg. we will be speaking to the ceo of swedbank at 9:20 a.m. london time. at 9:15ers will be out a.m. this morning. hans: time for our chart of the hour and the golden cross. revising hopes for a continued rally on the s&p. we will give you the details on that. the golden cross is not predictive. ♪
hans: welcome back to on the move. here is the chart of the hour. nejra: this is about the golden cross for the s&p 500. it has been struggling to hold 2100. you can see at the end of the line. that happened in november. then we saw it faltered the 50 day moving average, the pink line has climbed above the 200 day moving average. forming a pattern. the golden cross is a bullish bulls beold be -- but warned. the last time this happened, it tumbled. thes doing better than both asia-pacific index but the question is can it hold? it works, maybe it doesn't. we are going to talk about the
guy: you are watching "on the move," and it is 30 minutes into the trading day. we are an positive territory ahead of the fed. it's a big day for corporate earnings which is having a bigger effect on these markets. number of stock stories that we need to focus on, one of which is eon. hans: for more, we go to canary wharf where caroline hyde is joined by the company's ceo. caroline: i'm joined by the chief executive of e on.
you area sense of, having to explain your strategy as you split the company in two. the conventional side of producing energy and the focus on renewables. you're looking at continuing a dividend policy of 42% of your profit. have you had to downgrade that? yourestingly, or are scrapping it entirely? >> we are here today to tell our investors what we create, what we are running at four, and what our ambitions will be. we say that we need to be focused, focusing on the core business. we need to be disciplined in the way we invest, but also how we pay dividend. and the ambition for the long-term. is part of dividend a disciplined attitude. just not addressing investor
interest did not feel right for us. isoline: the cfo says there a reality check from that market environment that will affect the dividend policy. is the investment having to be curtailed more than the dividend? >> i think everybody has to pitch in. there is a very bad commodity environment that left its mark. our ability to invest will not be as strong as we would hope for when we started our journey. reflect dividend will the new realities. we believe that we strike the right balance of being disciplined by our self, doing everything we can do, ensuring profits with our investors is the right thing to do. caroline: the 10 billion euros, where will you focus that money? which parts of the renewable spectrum. is it mainly wind?
>> we have three business lines -- the centerpiece will be our regulated, regional network. we also have customer solutions. the biggest share of our investments will go into the networks. the regulated networks that bring regulated fair and stable dividend. growth will go to the renewable, and some smaller growth will go to the customer. the biggest biz goes to the networks where investors are expected? caroline: you are not only having to keep investors happy, but you have to play the balancing act with the rating agencies. there is some controversy about where the debt level will be and the new company spinning off for the conventional asset. >> it is fundamentally long-term provisions. the financial
position. juniper will start with a net financial position of 4 billion. so again there we have the capacity -- the debt bearing capacity of union firm. >> even though debt levels are going to increase? >> it is a transitional year. and cost areoff related to this year. we will see some increase on that in 2016. from then on we will see a continuous decline. we will repay our loans over the years to come. caroline: will you sell assets to pay down debt? >> no. , we will fromwth time to time rotate capital as we call it. partners. you are very bearish.
would you see any sort of a pickup in your commodity prices? whoever you are, there is an uplift coming. the question is, how long will it take? eon will hardly be exposed to any commodities in the future. i am probably the wrong guy to speculate. not thethe commodity is priority. caroline: what about the nuclear area. you said much of the debt will be financing liabilities. when will you have a deal with the german government? >> it is expected that an independent commission being set up will deliver its report tomorrow. i am as eager as anybody to learn what will be.
we have our regulatory hearings. we do not know the outcome yet. us, nuclear is a liability of a past that we have to take a long for us it is all about risk reduction and contentment. we are not in the business of .rowing nuclear >> that was forced upon you by the german government. was it the right decision to extricate yourself? >> if it is right or wrong, it is a necessity. for us, there are three stations last josh -- three stations left. investors just want to be certain that our stable in growth businesses are not limited or reduced or are not being seen by the investor base
through this nuclear equation. so we do everything we can to limit and contain it, to focus on the business we are really in which is the networks and the customer solutions. caroline: you're confident that you set aside enough for whatever comes out? >> live set enough for that political ambition. that is something else to speculate on. everybody expects a premium. the government might take over some of these liabilities for good. there is speculation that we expect some kind of a premium. there is some savings that need to be reflected so let's see how things come together. caroline: do you think that you are the future in terms of every company? that nuclear and renewables will have to become a primary source? everybody hashat to decide what side you are on. there will be a business model
on both sides. and won't go away for decades to come, not even in europe. it's a different business if you are on the side of the system, playing on the commodities or the infrastructures, or if you side with the customer. i think the integrated utilities for us are dead. you just need to be certain. argue here, or are you there? we will be here with the consumers radically. and they will be on the side of the system. dateine: do you have a when you will sell shares in unifer? >> we are now spinning off the majority. 53%. and the remaining minority we will sell in the medium-term. we have tax limitations until the end of 2017. with then, we are free and a look at market circumstances and decide when the time is right.
you should expect that we believe in proper time. caroline: good to have you on the show. thank you very much. back to you in the studio. we have some breaking news that relates to what is happening right on the screen in front of you. they date back to 1991. hans nichols is obviously here. >> the real big headline here is that mitsubishi is saying this morning at this press conference these irregular tests, what the government is calling cheating goes all the way back to 1991 which is a quarter-century.
the context of this is that earlier today, the cabinet met in japan. the transport minister told reporters that i give mitsubishi until tomorrow to tell me the results of the probe. i bet he will not be pleased by the fact that they say they need another three months. hans: the interesting thing here is to look at how the rest of the auto sector reacts. some of this has been priced in just -- doesis it it just apply to small cars? big stretch -- i know that you are a big stretch limo guy. guy: do you feel we should look at france? hans: the market has been suggesting that. there is fuel mileage versus what is happening on volkswagen. one thing that is interesting about 1999, that was before digitization.
no one was talking about software in cars at 1991. it gives you a sense they are different sets. we ask you about your high school glory days, i know that you are going to lie. didn't we know the car companies were always inflating their scores? guy: you have to get in the car to drive it. i know exactly what my vw does in terms of its mileage. it's not the number i get on my paper. perspective,ader the reason we care about what is going on in mitsubishi, the car industry is under a lot more uncertainty. in the case of mitsubishi, we are talking about fuel economy. but there are pros with daimler in france. it is an issue of emissions. this is an industry facing a lot more regulation and at a minimum, attention. hans: we have that story from china as well.
an interview with some and close to berlin. the bloomberg business bank board member says so far european members are coping with negative rates. principle, they are coping reasonably well. clearly, we have challenges. because we had a crisis in the eurozone and we are still working principle, on solving sf those. hans: let's talk to the person who knows a thing or two about the banking sector. thank you for joining us, sir. when you look at the risks being posed, what really concerns you at the imf? >> we are concerned about a variety of issues including issues in advance
economies, concerns in emerging markets related to corporate leverage and debt, and we are concerned about market liquidity, and fragility around the world. guy: has europe got its arms around the idea that it needs to fix its npl problem? how long is it going to take to get rid of? >> it remains a major problem. and a major obstacle. recovery,or a strong but it also impairs the ability of monetary policy to be as effective as it could be. banks are still struggling with these -- they are not likely to transmit impulses for monetary policy? guy: draghi has a bit of a pr oblem as he has to fix both. can i ask you about atlas?
the new structure being put into place by the italians to find a way out of the banking problem. is it big enough? does atlas have enough strength to keep carrying the load? will the italians fall short? studied -- we are currently studying this issue, but i am not in a position at this point to give you a full evaluation. guy: just to combine the two issues, you have the italians to something. give me a sense of how big the problem is in italy. you talk much of monetary problem not working correctly and you on have to look to italy to see examples of that. how big a problem do they face? report, we do not discuss country by country in specific detail, but the important issue is that in italy, but also other countries,
it is sizable. it is really impeding the recovery and the traction of monetary policy. i'm sorry i cannot give you further details on italy at this point. hans: also affecting the performance of the bank is this negative interest rate environment they are living in. walk us through the scope of that challenge. acer anything that the european central bank and you to make it easier for the european banking sector even if they stay in negative territory. >> let me first say that negative interest rates have both ogood and bad effects for banks. people talk about the adverse effects for bank profitability. it does put some pressure. on the other hand, banks also benefit. tse valuation of their asse
improve. the low interest rates are intended to stimulate economic activity. so interest rates contribute to increase demand. so, for us to see the whole effect from the macroeconomic perspective and also there are not necessarily only negatives for banks. guy: there are negatives and maybe some positives. when you stack up the issues faced right now, it was interesting to listen to the bundesbank saying it is hard for european banks to make money now. we have this problem that we are regularly and the banks to the point at which they are being stretched. we have a negative interest rate environment, and yet europe relies on the bank channel to transmit monetary policy. have we got one side of the ledger wrong? >> let me be clear that we
support these policies and we think that negative interest rates are an instrument that can help boost economic activity at this point. there are limits to it. these limits remain to be explored. at the same time, we fully support the need to do more in monetary policy, but at the same time, we also feel that monetary policy has been carrying too much of the burden. we also stressed the importance of other measures. we talked about npl problems. there are other things that need to be done, for example, structural reforms. the imf has recently, with a study that looks at the effectiveness of different types of structural reforms. -- monetary policy is
important. negative interest rates are an instrument that can help. can only alter to a certain point, but at the same time we stress that monetary policy cannot carry all the burden to speed the recovery. guy: one final question from me. clearly, one of the biggest concerns is we take ourselves back to the credit story in china, the banking story in china. how concerned should we be? the market struggles to make up its mind about how serious issue we are facing? that ahina, we estimate firmse share of the -- some of them are highly
indebted. assets areof the about 14% of -- those debts are not in a position at this moment to service those debts. this is a big number, but we think it is manageable givent he -- given the buffers that china has. at the same time, it requires something that needs to be addressed. particularly in the transition that china is undergoing from a more investment oriented to consumption-based economy. we are concerned, but we think it is manageable. guy: thank you for bringing us the results of the report. the chief of the global financial stability analysis division. up next, we will talk about the boj, the fed, stirling, all of
benefit of this. my question is, is this sustainable? >> it has had a pretty good week. your cnet filter into the pound. -- you are seeing that filter into the pound. the thing i would be concerned about is, are they peaking too soon. like a sports team that peaks before the playoffs. you want to have all the momentum atht e -- at the end and translate that to a victory. hans: is there a ceiling on the brexit? i have nothing a credible poll above 45%. >> the undecided number has been so high. guy: that is starting to come down. >> it has, but it could go either way. t inas been the cap, bu eight weeks, a lot of things