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tv   The Pulse  Bloomberg  September 16, 2016 4:00am-5:01am EDT

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francine: deutsche bank shares slump on concerns as the u.s. justice department tables on a $14 billion claim. against thes back world's top banking regulator. and, eu leaders gather to discover -- to discuss europe's future without the u.k. we bring you our weekly show, "brexit: what's next." welcome to the show. live from bloomberg's european headquarters in london, i'm francine lacqua.
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today we bring you our weekly show, "brexit: what's next," bringing all the news and conversations around the u.k.'s vote to leave the eu. today we speak to -- [indiscernible] we are live also at the first eu summit in four decades without the u.k. >> francine, i'm here in bratislava. the meeting is commencing behind me. tokel said they are critical show unity. we have tsipras saying we must stop sleepwalking in the wrong direction. we will bring you all the signs of whether they are singing on the same sheet. is it more integration or less integration in a post-brexit world? francine: thank you so much. we will have prompting more from caroline throughout the program. deutsche bank, this is the share price at the moment, down significantly.
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opened 7% lower. first let's get to the bloomberg first word news with nejra cehic. nejra: donald trump has dropped a major tax-cut for business organizers from his tax overhaul proposals. the change will make the nominee's plan much less favorable for private equity partners, hedge fund managers, and others who receive income from partnerships and limited liability companies. such entities pass their earnings through to their owners, who are taxed at individual rights. japan's biggest bank has urged the boj to consider the side effects of interest rate. japanese banks have struggled to make money from lending. the boj will reveal the results of its latest review wednesday. the leader of the u.k. opposition labor party says norway offers britain lessons as it prepares to leave the european union.
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said he's sending his foreign affairs spokeswoman to oslo to examine how officials there managed relations with the eu. always in the european economic area, giving it access to the single market, but it is not in the eu itself. >> maybe we can learn a great deal from norway. it does have a successful expanding economy, albeit based largely on oil, and it is a smaller society, but they have a strong social democratic tradition. they have a huge and effective welfare state and health service. the model of their economy is not that different from what we in the labor party talk about. nejra: global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. francine: thank you so much. let's head to the bloomberg with mark barton for a look at the
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banks. earlier we fell as much as 8.2%. we know what happened. that equates to 1.2 4 billion claimafter a $14 billion from the u.s. department of justice to settle this investigation. the figures as the german lender won't pay. let's put that in perspective. that is equivalent to a majority of its market cap. its market cap is 16.85 billion euros. these are the banks today. the stoxx 600 bank index is down. it has fallen four out of five days this week. the gauge is down for a second week. the worst stretch since july 8. this is the index over the last 12 months. there ongreen circle july 6, interestingly, we've seen the gauge rebound. it has rebounded 20% since
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reaching that five-year low in july. let's not forget how banks have been slaughtered this year. this is the bank index this year. this is the worst-performing gauge on the stoxx 600 this year, down 23%. look at deutsche. it lost half of its value. you will see most of the other leading decliners on this stage are italian banks. 282lower, that equates to billion euros of value. francine: thank you so much, mark barton. we will have plenty more on the rest of the markets. deutsche bank takes the spotlight after it says it won't pay the $14 billion the u.s. department of justice is seeking to settle the investigation into its mortgage business. we have news that european regulators have threatened a revolt against the basel
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committee on banking supervision over suggested changes the industry says could change capital requirements. joining us for more, michael moore. also with us for the hour, john wraith. thank you so much. michael, deutsche bank is down 7% today. this is because i guess the markets fear they will have to raise capital. michael: if the settlement ends up anywhere close to the $14 billion, that is not great for deutsche bank. jpmorgan had a note that anything over $4 billion would need additional litigation reserves, additional capital, so this is a big delta between what people thought might be dojonable, versus the coming out at $14 billion. francine: the doj also settled with other banks, american
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banks, and the amount was much lower. michael: tank of america was higher, but they had a larger amount at issue here. but you are right. with morgan stanley, goldman sachs, which were comparably sized in the mortgage is this, they were much lower. you have to keep in mind that this is open negotiating. this is their opening settlement amount. they tend to start far away and work their way toward the middle. i do think this is higher than the market was expecting. francine: michael, you used to cover wall street for many years. does the amount go down from here? taking a hardche stance on, we will not pay anything close to $14 billion -- the other banks have not had to do this in public. they have had these negotiations
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but they haven't had to put out public statements. it will be interesting to see how that changes the dynamics. i think you will definitely see it lower, but anything above $4 billion being an issue, that is a big gap. francine: john, we have another story that german and italian officials told regulators they've had enough. from where you are sitting, how urgent is it that we fix the banking problem? john: it is very urgent that we get some sort of resolution to all these issues. i'm sure the rationale is seen in different ways from different sides of the fence, but only when you have stability in the banking system and in the markets, so the markets know what they are dealing with, can they become a strong supporter of the recovery. any of the stories just add concerns. francine: michael, this is on
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the back of bloomberg news reporting very heated arguments or meetings in basel. is there a chance that regulators will scale down or back down? or cool off a little bit? this is about tweaking the capital rules once again. for a long time, banks have said, we need set rules at this level so we can move forward. i think in the last year or so, they've convinced some of the politicians on their side of things. now some of the politicians are coming to bat for the banks, saying, we've done eight years of bank regulation. we need to be done with it. we need to let the banks start lending again. i think you are seeing that tied turn a little bit. that may impact how basel tweaks the rules. francine: can eu officials say, we just won't comply by the rules?
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or they can say, this is killing my bank. michael: basel sets the rules. the individual countries enforce it. they could break off from the pack. that would be an extreme move, given that so many of the countries have agreed to follow these standards and work together on them. you've seen minor differences in the way they've been implemented. the u.s. has done it differently than europe. francine: this is the anniversary of the lehman brothers collapse. how amazing is it that we haven't -- it seems that we may have overregulated at this point and the european banks are so far behind the u.s. ones. francine: there was -- john: there was always a risk of that. the instinct is to overreact. perhaps we are getting to that point now. understandably, the regulators are determined to make sure nothing like that happens again. on the sideerring
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of safety, that is understandable. we just need to get to the point where we are done and we can start moving forward. it seems we are not there yet. francine: john wraith, thank you so much, and michael moore. we will continue the conversation on europe's banks. christopher wheeler. we have plenty coming up. we will talk about brexit. deutsche bank is one of the main stocks we are watching. it says it won't pay a $14 billion claim from the u.s. government. plus, with policy decisions from the fed and the boj next wednesday, we look ahead to a big week for the central banks. we also speak to the founder of the u.k. based brewer who exports to eu countries. he is karan bilimoria. he will join us for our special brexit show. this is bloomberg. ♪
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francine: let's get straight to the bloomberg business flash with nejra cehic. nejra: u.s. regulators have a recall of around one million samsung note 7 smartphones after more than 90 reports of batteries overheating. the move gives the government the option to formally ban the phones on airline flights and makes it illegal to continue to
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sell them. black rock is joining a growing list of investors. the largest money manager said withction is in connection failure to disclose to users. said it always complied with capital market rules. the move comes a year after the german carmaker admitted to dupi ng emissions tests. spg capital says an unsolicited offer of 650 pence a share undervalued the company and its assets. the investor says it has otherches from credible parties which may lead to a competing offer. it has urged shareholders to take no action. francine? francine: thank you so much. let's return to today's top
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corporate stories. deutsche bank is plunging after it said it won't pay the $14 billion the u.s. department of justice is seeking to settle the investigation into its mortgage business. for more, we are joined by christopher weaver. he's a banking analyst. always great to speak to you on the phone. unfortunately every time we have you on, it is either italian banks going badly or deutsche bank going badly. when is deutsche going to have more stable news? christopher: it is difficult to know. i've said before that what john cryan now needs are some small victories to show he's making progress. unfortunately the market seems to be conspiring against him. this is a major distraction. while the number seems very large indeed, it is going to have to have a lot of management to get to an it
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sensible number. francine: why did they slap on $14 billion? is this the u.s. out to get a european bank? do they really want $14 billion? does deutsche bank have the money? christopher: i think it is really confusing. there's been a lot of people linking it to the apple tax case. i can't comment on whether that is true or not. it is odd that this is played out in public, whereas most settlements were counted out behind closed doors. if it is $14 billion, then absolutely their capital position is going to be tested. again, i've said many times on the show that the one thing we can be sure of is that berlin is watching this very closely and is standing behind deutsche bank to make sure it provides all the support it can. francine: meaning what, chris? can they put pressure on the u.s.?
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does it mean that whatever happens, that there's no question the bank won't go down? christopher: first of all, they will clearly be having words with the u.s., with the doj. they will be wanting to calm the credit markets to make sure people realize that berlin will be there to support deutsche. in terms of raising capital, i think it is too early. this is a first stab the doj has thrown in. deutsche will be looking at what other options it has. maybe selling some assets or trying to work out how it can find further investors to support it if the need does occur. francine: i'm looking at a chart , cocoa bonds for deutsche bank. are they going to be back at the forefront? christopher: i think by nature they are the sort of thing that people like to apply as an
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alternative to equities. they do convert into equity under certain circumstances. looking atwe may be some tactics being played by various investors as to how to play this disturbing piece of news. francine: as we speak, monte dei paschi has been halted after it fell from 7.3%. , which looksew ceo a lot like the old cfo. is this going to be dealt with in an appropriate way? christopher: i'm absolutely sure. i don't think it is in anybody's interest to see anything other than some kind of stabilization of monday to pesky. i know we keep saying this, but i think it is fair to say that rome, just as berlin is standing deutsche bank, rome is going to make sure that anything at monte dei paschi is going to avoid any
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instability in the banking market. francine: chris wheeler, thank you for coming on the program. analyst at atlantic equities. up next, policy decisions from the fed and the bank of japan next wednesday. this is bloomberg. ♪
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markets lower this morning.
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let's head to the bloomberg with mark barton. mark: down for the fourth day in five. this is the worst week since june. i made this chart showing you how asset markets have fared in/thursdays ecb decision. look at the jpmorgan volatility index. up 4.8%. that is the bloomberg developed sovereign bond index. in return, it is down by 1.5%. bottom of the table is the msci world index. look at that performance, down 2.6%. look at deutsche bank shares. were as low as 8.2%. no only 6% lower. $14 billion claim from the u.s. doj to settle this investigation into mortgage backed securities. the market cap of the company is
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16.85 billion euros. this is going to be the story of next week. the dollar spot index, the gauge of the dollar against 10 major peers, it is creeping down. why is it creeping lower? very clearly, the white line. this is the odds of a fed rate hike in 2016. we have fallen below 50%. we are below 50% probability of a rate hike this year. well below 20% now in september. the fed, the boj, what a big week. francine: we have certainly a big week for central banks with the fed and the boj making announcements on wednesday. but just when markets are craving clarity, currency markets show that they are harder to predict. take a look at my chart of the hour. the options on premium contracts to buy the yen disappeared for the first time before reversing
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course this week. let's get the thoughts of john wraith. he is with us for the hour. when you look at boj, have we lost faith in what the boj can do or are we just not understanding the communication from the governor? john: may be a combination. the communication has been quite plentiful. it seems there's going to be significant changes. i suppose the nature of those changes is what is uncertain. people are taking a very neutral stance going into the meeting. it does seem as if the bank of japan understand they need to change their approach. the one they've been pursuing isn't bearing fruit. francine: changes for the better or is this kind of an inflection point where they can take decisions that will hurt them more longer-term? john: the aim is to get inflation back up again. we do think they will cut rates
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into even more negative territory and try to weaken the currency to help areas like residential investment, which has been responding positively to negative interest rates. the problem is that they are increasingly squeezing the financial institutions. it seems as if they are going to try to stephen the yield curve as well which will help the banks and offset the impacts of negative rates. their aim is to get inflation up. this might help. francine: are you nervous wednesday? you have the boj and the fan. the boj could miscalculate what the fed is doing. john: absolutely. who knows how much they talk behind the scenes? clearly there's a lot of moving parts on wednesday. dollar-yen is likely to be the key battleground. francine: john wraith, thank you. up next, we bring you our weekly show, "brexit: what's next," with all the news, analysis, and
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conversations around the u.k.'s vote to leave the eu. we are live from bratislava. we also have an entrepreneur benefiting from weaker pound. this is bloomberg. ♪
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francine: welcome to our weekly brexit show from london. i'm francine lacqua. every friday, we round up the news, analysis, and conversations that will make you smarter about what is next for britain and europe. let's get you some of the brexit news with nejra cehic. nejra: the bank of england kept its key interest rate at a record low of 0.25%. policymakers indicated there's still a chance of another rate cut this year as they assess the potential longer-term fallout from britain's decision to leave the union. the u.k. unemployment rate stayed at an 11-year low as the economy added jobs.
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that is according to figures in the office for national statistics. unemployment fell to 1.6 3 million, leaving the jobless rate at 4.9%. the leader of the u.k. opposition labor party says norway offers britain lessons as it prepares to leave the union. jeremy corbyn said he's sending his foreign affairs spokeswoman to oslo to examine how officials there manage relations with the eu. norway is in the area, giving it access to the single market, but is not in the eu itself. >> it does have a successful expanding economy, although largely based on oil, and it is a much smaller society, but they have a very strong social democratic tradition. they have a huge and very effective welfare state and health service. the model of their socially -based economy is not different
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from what we talk about. nejra: global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. francine: thank you so much. europe's leaders are gathering for a meeting in bratislava, the first in more than four decades without the u.k. caroline hyde is there for us. can eu leaders achieve a lot this weekend? are they going to talk about brexit? caroline: that is the key question. might not be any treaty overalls. there's unlikely to be any concrete determined policies, but there will be a foraging for unity. we've heard angela merkel as she arrived at this meeting saying, we need to show determination to fight this crisis. saying we canece
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no longer sleepwalk in the wrong direction. a moment of truth is what the belgium leader said on their arrival. clearly we are going to hear a lot about security. that has been the main focus after the terrorist attacks in france and germany. we've got concerns about the refugee crisis and the wave of immigration. poland, hungary, not wanting to line up to any particular quotas. the focus will be security, growth, opportunities in terms of jobs within the 27 remaining members of the eu, and the fight against terror. they are going to try to find some sort of agreement. we are seeing the eu tearing itself apart from the middle. one side calling for more integration. jean-claude yunker, draghi, calling for more union. on the other side, poland, hungary talking about more need for self-determination, for more
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powers within their own parliaments. confused because i was in strasburg on tuesday and everyone there including members of the commission were saying, we're just going to act like if the u.k. were still part of the union because they have not trickled article 50. -- triggered article 50. why were they not invited to the meeting in bratislava caroline:? caroline: they've got to set some sort of agenda. it is notable that this meeting isn't happening in brussels. clearly, they want to separate themselves. this is an informal meeting, or so it is called. seems pretty formal to me when you have helicopters circling and more than 1000 journalists descending on this meeting. it is a roadmap forward. it is bringing together the eu 27 members. they can't legitimately talk
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about how to negotiate with the u.k. until they trigger article 50, but they can decide where they agree and where the future of the eu 27 is. francine: thank you so much. caroline hyde in bratislava. today's meeting is a taste of things to come. 27 countries meeting without the u.k. lord introduce our guest, bilimoria. also with us, john wraith. gentlemen, thank you so much for joining us. first of all, you must have benefited from the weaker pound. your position is what, you are concerned if you have trades being put in place when article 50 gets triggered, but for the moment, are you in a sweet spot? the biggestia:
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concern is the uncertainty. i was outspoken about the fact that if we voted to leave, the world wouldn't fall apart, but it would be a better option to remain because of the uncertainty caused by a leave vote. frankly, nobody had a plan. francine: that is clear now. lord bilimoria: david davis, boris johnson, they are not coordinated. they don't have a plan. when we debate this in parliament, extricating ourselves from the union is a complicated issue. the earliest it will be his 2.5 years. we've cut 2.5 years of's uncertainty what ever happens. business doesn't like uncertainty. temporarily, the weak pound helps us with exports. but i also manufacture in belgium, which is more expensive now. it works both ways. products, our
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manufacturing, is locally produced, locally sourced. the weak pound in that sense doesn't help us. francine: do you have a plan b? lord bilimoria: what business has to be his adaptable. you either adapt or die. british business is good at being adaptable. as our country, our open the economy, this is when it really helps. francine: he didn't tell me his plan b, did he, john? it is a secret. the problem is that you have businesses that don't really know what to do the cause they can't really plan i had because they don't know what the plan is. are you concerned that all the data we've had so far may suddenly turn? john: we are. part of the reason the data has held up after the initial shock is the weakening of the pound and the general benevolent impact that has on the economy. but there's a lot more trouble down the road.
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that week pound will probably stimulate inflation in the u.k. at one point we look at the triggering of article 50 and the clock will start ticking. businesses, while they may be carrying on and benefiting today, our concerned about their outlook. francine: when i was in strasburg, no one would give me a sense whether you would put some kind of agreement in place before you renegotiate trade for the banks, which is one of the big concerns. how do you look at your models? do you assume the u.k. loses access to the market and the banks lose passporting rights? john: we don't make any assumptions that specifically. the u.k. is trying to settle on a negotiating position, but so are 27 other countries who have areas they want to protect and set a hard bargain with the u.k. , which is why it is going to be
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a protracted period. the process of triggering article 52 leaving the eu is only part of it. these conversations are going to carry on indefinitely. bilimoria, you the backbone of the u.k. economy, businesses like yours. what would you be asking from the chancellor or prime minister at this moment? lord bilimoria: the worst-case scenario is this uncertainty just carrying on forever. even the two years, by the way, two years can be extended. to get 27 countries to agree, then the european commission and the parliament itself, they are three different bodies and 27 different countries negotiating with one country. the whole world told us, don't do it. you've got investors who are also uncertain. one or two have said, we are going to carry on building here. japan said, this is really not
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good news at all. when the prime minister says brexit means brexit, she is talking absolute nonsense. nobody, not even she, knows what brexit means. says, i have a mandate from the people. what is the mandate? is it stopping movement of people? is it stopping paying money into the european union? is it stopping european laws having control over british loss? inis it somebody believed saving the nhs? there is no clear mandate at all , let alone between the three ministers. francine: we understand they are still recruiting for people to negotiate. they don't have a football team that can go out there. lord karan bilimoria stays with us. john wraith, thank you for joining us. stay with bloomberg. we will hear from the u.k. labor
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party leader. he told bloomberg why norway is a model for britain to follow post-brexit. "surveillance," where we will be talking about deutsche bank's negotiations with the department of justice. this is bloomberg. ♪
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francine: my guest this morning set out to grew the finest beer
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and make it into a global brand. when he embarked on this mission, he was 27 years old. that was 1989. now, cobra beer sells to 22 countries and has turnover of over 170 million pounds. lord bilimoria, thank you for joining us this morning. we were talking about brexit, about the impact on your business. you have plants in the u.k. you also had one in belgium. we talking about the worst-case an area. what is the best case scenario? what do you think the u.k. could negotiate with the 27 member countries and safeguard your interest? lord bilimoria: the best case scenario, and i think businesses in britain in generally, would be if we have unlimited access to the european market the way we do now, no duties, no tariffs, free movement of goods, and people. so many topoyed
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people from the european union to this day. the brewer we consult every time is a brewer based in poland. francine: that would mean opening the floodgates to immigration. lord bilimoria: the balance is, the european union is already saying, if you want to carry on having an open market, you have to agree to complete free movement of people. the free movement of people actually needs to be controlled in some way. i still believe that we need to have the people that we need. the whole country depends on european union labor, whether it is skilled in the city of london or whether it is laborers on farms for the harvest time, which the farmers cannot do without, let alone the hospitality industry, the restaurants. the restaurants in britain employ european workforce as well. francine: isn't it very unlikely
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, because angela merkel has said this is a redline, and as soon as you ask someone to have a work permit, it is not free movement of people? lord bilimoria: there can be ways of doing this. we can start implementing exit checks. to this day, we have no control over our borders. we check peoples passports when they come in, but we should be scanning every passport in and out. the government keeps saying they are going to reintroduce this. that would give more control of our borders. really helpould people, businesses or british people, if you suddenly have to start getting visas, getting permission to go, something you've taken for granted before, this free movement of people, students able to go study, that will -- francine: but what you are asking for is not to have
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brexit. i don't see how the two are compatible. lord bilimoria: the silver lining is, if we can carry on with financial services in the city of london having passporting rights in europe, british businesses like ours being able to participate freely in europe, free movement of people in a controlled manner, then the reform in europe will take place. i think that cutting down on absolute free movement of people from a security point of view will help. francine: have you modeled the worst-case scenario? let's say there are tariffs or you don't have access to the single market or you need visas for your workers here. how much would that cost you? lord bilimoria: it is going to be an inconvenience. if you look at what is happening in the country, the resource being put behind the civil service, the foreign office being split up, people being recruited in, extra cost, all
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the time that is being taken worrying about how we're going to leave the european union when we could be getting on with growing our economy -- we were doing really well. we've got so much doing for us. we've got this amazing distraction now for years to come which is so unnecessary. the sooner we can get rid of this distraction, that is what business really wants. on the other hand, we are adaptable as a country and a business. inconveniences an which may be this country didn't need. karan bilimoria, thank you so much. up next, more with lord bilimoria. we will also hear from jeremy corbyn. we will get tips on brexit from norway. our exclusive interview with the leader of the labour party. ♪
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francine: u.k. labor party jeremy corbyn is looking to norway. take a listen to anna edwards' exclusive interview. mr. corbyn: we need to set out what the negotiating position is first. the government hasn't done last. we've had various conflicting statements between the secretary and the prime minister. is,position we set out there must be access to european markets for this country. we have a great deal of industry investment.
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rightsy, the workers' that have been enshrined in the social chapter such as working leave,rective, four paid maternity leave, maternity leave, antidiscrimination legislation, all those must be absolutely enshrined. anna: you sent out a lot of red lines. mr. corbyn: there's more. anna: first quarter of next year? mr. corbyn: i would have thought the government would probably set out a clear position now, i hope, in this autumn, and have those talks with the european union and other governments. we are doing the same with governments and opposition across europe. emily thornberry is going to norway to look at their model. anna: you've talked about wanting to be fully informed, no backroom deals. can you see a situation where you would be against triggering
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article 50? mr. corbyn: we would preserve our position, our right to oppose, not that we don't respect the result of the referendum. obviously we do. we want to set out those lines that we maintain market access to rights, and membership the european investment bank. we think that is important. these things are all quite possible. we are looking closely at the norwegian model as well as talks with other countries. there are many want to have a relationship with the european union who may be are not members. there is a big possibility. anna: theresa may says there won't be an off-the-shelf solution. you are talking about using somebody else's model like norway. mr. corbyn: it is merely learning lessons from norway. it does have a successful
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expanding economy, although largely based on oil, and it is a much smaller society than ours, but nevertheless they have a strong social democratic tradition. they have a huge and very effective welfare state and health service. the model of their socially-based economy is not that different from what we in the labour party talk about. what do you want to do with regards to freedom of movement? would you be able to give any ground on freedom of movement? mr. corbyn: at the moment, there is freedom of movement. not for people outside the european union, but within the european union. my concern was never so much the right of people to move as the exploitation that went with it. sport director shire brooke is an example. you've got low-paid european people in some cases even denied
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the living wage. therefore i made a big feature in the referendum campaign of amendments which would stop this undercutting. undercutting is the real issue. harmonizing economies is more important. anna: do you think that still has a place within britain's relationship? mr. corbyn: yes. i think that british people will also want to have the right to travel to europe and they won't want to get something like what you have with the united states, or paying your visa to go to paris or brussels. but also, there are 2 million british people who made their homes in other parts of europe, mainly spain and france, but other parts of europe as well. t for tatn't want a ti between governments. ok, british people in
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spain can go. we don't want that. it is a question of having a degree of economic and social harmony between countries. bilimoria, he is probably one of the most unpopular labor leaders, but does jeremy corbyn need to resign? lord bilimoria: if jeremy corbyn had been more visible, if he had been saying half of what he just said now during the buildup to the referendum, we wouldn't be leaving the european union. he was virtually invisible. as as totally ineffective leader of the opposition. i think it is very dangerous and damaging to a country when you have a weak leader of the opposition is not respected, does not have credibility. we would not have had a leave vote if we had a strong labor leader and a strong leader of the opposition. there is no question about it.
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i don't think that is healthy for a country or an economy. francine: thank you so much for coming on today. coming up next, "surveillance." i will be joined by tom keene from new york. this is bloomberg. ♪ . .
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francine: this is bloomberg "surveillance". deutsche bank slumps on concerns that the u.s. justice department tabled a $14 billion claim. europe pushes back against top banking regulator. and in bratislava without britain, e.u. leaders gather to discuss europe's future without the u.k.. this is bloomberg "surveillance". i'm francine lacqua in london


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