tv Bloomberg Markets European Open Bloomberg October 26, 2016 2:30am-4:01am EDT
guy: welcome. we have your first trade of the day right here. i am alongside caroline hyde was over in berlin. what are we watching this wednesday morning? bonus mashing -- bonus bashing. the lender considers its office a offers to boost. catching falling pound, sterling bounces after visiting flash crash was. mark carney says there is a limit to how much inflation he
will tolerate but where is the line on that one? apple stalls, the world's biggest company reports its first annual sales decline in 15 years. shares fell 3%. inc. change, strategy? expert says no. and conversations with the ceo of bayer. at 8 interview starting a.m. dragging apple just from that optimism after the market when it comes to the third quarter set of results. we are totally flat on the euro stoxx 50 futures. they were lower and the dax eating into the green. we were digging into what was draghi was saying. guy: equities are flat. let me take you to the gmm.
there are some great stories loading around. in australia.ssue a similar story in new zealand. the aussie dollar bouncing on that as expectations for cuts begin to fade out of the market. keep an eye on that one. i want to walk you up here and show you what is happening with crude. crude is down, this is the russians, maybe they will want to take some cuts. we are seeing metals price out in asia really bouncing. go and check out what is happening with the aluminum price. check that out and get the charts up and take a look on back talking about big price bounces, the metals once again a big focus but oil and inflation continue to be two of the dominant themes to these markets. let's get a news update. >> thank you. apples shares fell in extended trading after the world's most unable company reported its first annual sales declined since 2001. sales thatorecast
were barely higher than analyst estimates. investors had expected the iphone maker to take advantage of samsung's galaxy note 7 problems and issue a more robust holiday sales forecast. lloyds banking group has posted a 15% decline in third-quarter profits. pretax profit fell to 811 million pounds as britain's largest mortgage lender took a one billion pound charge to compensate customers who were wrongly sold loan insurance. the cape prime minister is calling for mark carney to state the bank of england and has sought to smooth over misunderstandings according to officials area they say within hours of may criticizing loose monetary policy and her conference each, her office moved to limit the damage by --ssuring than the world's the words were closely expressed. the boe spokesman declined
comment. the overwhelming majority of economists surveyed by bloomberg expect the bank of japan to kick stimulus -- keep stimulus unchanged when it meets next week. two out of 43 analysts expect any action. think theone third governor is done with adding stimulus. most do not see any tapering until next year or later. global news join for hours at a, 2600ed by more than analysts and journalists in more than 120 countries. this is bloomberg. caroline: erickson remember, a torrid third quarter. they have ousted their chief executive back in july. they announced a new ceo, taking to the charge in january twice 17. he has been on the board for a decade and understands this business. that is what the chair of the board is telling us today. very pleased to announce the
important appointment and that is steps out from his current role. moving and shaking at the top of erickson. let's look across to german banks. deutsche bank said to be considering not paying bonuses boostsh in a bid to investor confidence according to people familiar. they say executives have informally discussed handing out shares in the non-core units instead of cash rewards are replacing money with stock. for more now we are joined by that comfort. a day ahead of earnings, we are talking about bonuses. just how efficient would be giving shares or parts in business to these -- the investment bankers? scoop,s an intriguing because you could remove a bunch of coughs this way, you can temporarily pay a lot of the
bonuses like that, you can also help the capitaratio by getting rid of some of the nub of that non-core unit which is wound down by the end of this year. it is intriguing, yes but will it work and with regulators along it to happen. backhing a couple years that her not to be profitable for employees, but the rules changed later on and it became less attractive for the company to do. with this be positive for the company? there is also the morale issue and this version didn't do well for staffed with maybe some staff may not be so keen on being paid what has been seen generally as in soured assets of the non-core unit. we'll have to see how it is attractive to staff and to keep that motivation up because motivation is behind the revenues at such a bank and to
lose that, to lose more motivation would hurt them. caroline: we will see how motivation is buoyed or not. could there be anything else on the agenda that they are looking at? doj still looms. but moreill looms importantly for the meeting today is as we hear that the possible reintegration of postbank, that is one of the german cancer banking units. it could be that they are discussing whether they can move it back into the company after failing to find any willing buyers and seeing the evaluation of european bank stocks tumble which makes the ipo less attractive. it may be something they are weighing now. there will be a major about-face, it is a large part to raise capital levels. it would be pretty painful to take.
, yes, that is the elephant in the room for many people, that is one of the factors as to whether deutsche bank needs more capital or not. the banks will be very tightlipped unless they reach a settlement today which is possible but we will see what happens. hearcerely think we will little from the doj on tomorrow's earnings call and by extension, within the supervising board meeting today. you very much indeed. that comfort in frankfurt. next, prices creep higher as rates remain. one investor warns inflation could hit 2% in the u.s. within six months area the market has not price that in. how big is the risk question mark don't miss conversations with the ceo of bayer. this is bloomberg. ♪
third quarter profit tumbled 21% at jetliner manufacturer airbus -- it spent money addressing production delays to its latest widebody models which fell behind on single delivers and suffered a drop in helicopter sales. third-quarter revenue has topped analyst estimates. strengthening demand for gucci handbags and if santa run fashion led to the fastest growth. surpassing estimates for a 7% gain. that is your bloomberg business flash. guy: thank you very much. let's talk about what is happening with the pound. it is bouncing as we speak. it is trending a little low. that is what the governor of the bank of england, mark carney did yesterday in laying out his limits before the house of lords
. >> that judgment is a judgment about the optimal trade-off, it is a judgment we have to make on the basis of the agreement limits to there are look ats willingness to the inflation issue. --: we saw that dropped the we saw that drop, taking us back down to levels similar to ones we so we had the flash crash. it started to recover because of the emphasis on inflation. we saw a little bit of a pick up this morning. we are rising this morning. we tend to get liquidity, this is the moment in which the liquidity starts to come in to the sterling trades as a result, asian traders are heaping trade. we will start to get some of the europeans hitting the bit as well. that is what is happening right now. meanwhile, staying with the
inflation theme, bad times lie ahead for bondholders. the ceo says "we are in the eye of a hurricane for the next three to four years." this is he warns of her surging deficits can drive up interest rates and citing data from the economic research. the inflation rate could exceed 3% within six months. this under a trump white house which, by the way you he foresees. assess australia becomes the latest nation to show signs of inflation overnight, the aussie dollar climbed on news that investors. back on interest rate cut coming from the rba. the equity strategist from goldman sachs joins us. inflation is coming and i will be interested to know your view on that. is going to hurt. so do you see inflation coming and if you do, how do i get ready for it? iest: do not see it at 3% but
do think inflation rises mechanically almost because commodity prices have come up on their lows so the detraction from the lower level of rice is increased his tutoring to disappear and you are starting to see inflation come through. bass effects are beginning to work in favor of inflation which central banks have been looking at inflation so they will not mine that coming through. a little bit of wage inflation in the u.s. may help it count during that in the u.s., we have had quite a strong dollar recently. you have been talking about the pound weakening, it has weakened against the dollar and a stronger dollar means they are importing less inflation into the u.s. so a bit of inflation but not a lot. you are right in terms of portfolios, how do you insulate yourself against this, it is extremely tough. bonds will suffer and equities may be less so but some of the equities have done so well in recent years have been the ones which are more [indiscernible]
guy: when you look at your portfolio, you think about the kind of desired inflation rate you want. inflation is coming up. thathink some return but is 2%, the most kind of mandate and we are well below that. where's the sweet spot where companies have enough weight growth to drive demand? we have been low on the inflation story getting up to around 2% would be nice. guest: in some ways, yes and if it is driven by better incomes for households, better wages, etc. that hits in the margins of the consumer companies. better income for households, most banks are targeting inflation around 2%. i do not think the bond market is pricing that. i think you would suffer as a bond investor if inflation does move up to those levels.
the market has got used to much lower inflation. yields are a compared of asset class. i think equities may see better earnings but slightly lower valuations and that will be difficult. caroline: i hear all this talk of inflation and i am listening to the german press, your hearing the call, the fear coming from savers and saying mario draghi who was here say you are causing an inflation, they are terrified. would stillmans rather lose, they are not going to change their saving habits despite inflation coming back to my despite the low interest rates, they say safety is most important when investing. how on earth can mario draghi square the circle, is it all about forcing the eurozone governments to start spending now if we are going to see a pickup in yields, if you're --
we are going to see a pickup in growth? have complained about incredibly low interest rates. are -- ought to start giving slightly higher rates over time. in nominal terms at least. that may ultimately somewhere down the line be helpful. in the meantime the two things that you could see help push up inflation would be a falling euro and we have had a little bit of weakness in the euro lately. that would be -- giving inflation to the eurozone area. and another thing you mentioned was fiscal policy. perhaps fiscal easing, germany could do some, france may spend more in the next years and also italy and spain could do a little bit of fiscal easing particularly if they have got room that draghi is buying their bonds and printing spreads going out with germany. a little bit of fiscal easing
would be helpful and a slightly weaker euro. you get the effects of commodity prices going up and that will generate a little bit of inflation but with very high unemployment you are not going to get a lot of inflation. guy: give me some of my somewhat i am going to do because as you point out, valuations are packed in the middle. outliers.a few outliers we know about financials and we know what is going on in the auto sector but given that kind of correlation, that tight distribution in the center, how do i make money by rotating? guest: investors are finding it extremely difficult. there are few sectors we could say this is an effect that we will keep a multiple's. the only sectors are banks and insurance which are suffering from other problems as well, very low loan growth and structural issues. sheets, etc.
some of the retail banks are dividend very good yields. if you believe they will pay the dividend and you get inflation over the next two years than the yield of or percent or 5% looks attractive relative to what you get on bonds which is close to zero. insurance is also very cheap. another sector benefiting from inflation coming through, it is easier to sell savings products if you have some yield in order to attract customers create autos as you mentioned, incredibly low valuations but big structural problems with that industry particularly in europe. those are the three sectors that are on low multiples. they would be helped by fiscal policy, inflation, and a fall in the euro. that is helping the auto sector. on the other end of the spectrum you have some sectors that are expensive like food and beverages, trading on 20 plus times p multiple. when underlying businesses are not that strong.
caroline: it is foggy across both sides of the channel. overall we are looking ahead to the market open. let's look at bayer. the numbers look pretty growthy. third quarter up 6%. it is the pharmaceutical unit that outperforms. in terms of the monsanto deal, is that splashing the cash in terms of m&a? we will be speaking with the chief executive and just a few minutes' time. guy: i saw plenty of three 50's but they do not [indiscernible] cost overruns on the 350 turning out to be something of a problem right now. that is knocking the profit down
, third quarter profit missing estimates. exactly doingot very well. helicopters one of the big issues. in terms of the banking sector, lloyds. domestically focused here as a result of which they have exposure. one of the biggest things that is hanging around it is what is happening with the api, it is taking another charge, this is a mis-selling scandal. havinghe story that is to be watched very carefully. we get deutsche tomorrow, rbs friday. and another step we need to be -- stock we need to pay attention to. l get the ceo's take on brexit. caroline: one to watch is the niche effec -- chief executive
guy: this is the european open, i'm guy johnson in london. caroline hyde is over in berlin. we are moments away from the start of european trading. caroline has the morning brief. caroline: bonus bashing. cash may become stock for deutsche bankers, as the lender considers options to boost capital. how critical is it to john cryan? catching a falling pound. sterling bounces after reaching flash crash lows. mark carney says there is a limit to how much he will tolerate. where is the line?
stalls,e reporting its first annual sales declined in 15 years. can iphone, inc. change strategy? we speak to an expert to says no. plus, do not miss conversations in coming ua few moments. guy. guy: markets open. let's take a look. this is the picture right now. we are seeing the london market fading a little bit. we've picked it up in the auction process, a mild move to the downside. markets are called down by .2%, pretty much in line with that. cac also giving back a little bit of ground, but it's flat here in europe. elsewhere, in other aspects, there are other moves. ftse at the 7000 level. let's see what manus cranny is interested in. manus: thank you. i think it's more a focus on the commodities side that will drive
the market. having a look at the imap, you can see it's down. what does john cryan need to do in terms of capital preservation? half inlion in bonuses, cash, we will see what happens next. unchanged.aples are euro is down, which brings me nicely to gmm. have a look at this, because it is on the far left. brenda down by .9% -- the russians are possibly not that keen on a cut, according to interfax. oil falling for its third day in a row, sub $50. brent lower by 1%, copper doing a bit of a u-turn. you can see that the euro is up by the ruble, the pound slipping ever so slightly from yesterda'' moment of reprieves. market, december
futures, a lovely night if you dig into the report. they have 20 million pounds worth of gilt at lloyds, originally to be held until maturity. they are now up for sale. it is percent of the auction went to domestic investors. speaking of lloyds, let's check in on the stocks i am watching. lloyds is absolutely banged again. net interestounds, income drops. that's a bit of a shocker on payment protection insurance payouts for the uk's largest mortgage lender. kering, i haven't been to louis vuitton, haven't been to gucci, but many have been. they're bolstering third-quarter numbers, double-digit growth for
gucci. .5%, the fastest pace in five years. who says luxury is having a hard time? kering roaring ahead. buyers, holding back from pulling the record and going for a new car sales, down at 11.4 billion, 4.14%. i'm off to do a little bit of radio for the next hour. guy: thank you very much, mr. manus cranny. digital radio from bloomberg, check that out, worth listening to first thing in the morning. nintendo is out with an announcement, cutting its profits outlook, operating profit to ¥30 billion to y45 billion. a significant drop. we will see how the shares opened tomorrow. the stock and want to focus on
right now is bayer. their third-quarter profit unexpectedly grew, powered by a prescription drug unit expected to do pretty well. this remains a little skeptical. monsanto closed last night at 101.4. let me show you the share price, well below the offer price of 128. let's show you what's happening on my bloomberg. regulatory clearances the main concern. these lines here were the offers that came through, top at 128. you can see where we are trading right now. what's going on here -- this is a big acquisition. the other thing is the chemical sector is very much in the state of flux. we have other megadeal going on. 's agenda, cam china, deposit -- syngenta, chem china, to ponte. we're joined by the ceo who joins us. great to see you.
bit -- we a little will get into the monsanto transaction in a moment, but give me the top down on what's happening over the last quarter. the pharma business did well. walk us through where you are happy, ere you are not, what's going on, what are you seeing? >> ok, good morning. first of all, we mentioned a very good third-quarter. we are very pleased, particularly with pharma performance. we are seeing strong growth, roughly 7.6%, and that was mainly driven by our major brands, first and foremost peralta. that has another growth of almost 35%, followed by a very strong in sequential performance. overall, the top products have grown by roughly 28%, to 1.4 billion at top line level.
we have also seen a pleasing probation and earnings, despite significant increasesii in r&d funding. consumer growth has gone up as well compared to market growth, which is more than what people expected. resilient in a difficult market environment. flat topline overall, but if you look at it in more detail, growth is needed single digits in north america,n europe, asia. see is ourwnside we competitors like latin america and brazil. but still, a slightly improved bottom line. overall we are very pleased. guy: right.
that's what's happening right now is in the company. let's talk about what's happening in the future. the monsanto share price' has quite a lot of regulatory risk. are you surprised by that, and when are you going to start talking to regulators? where are we in the process? inwell, we have been preliminary discussions prior to us signing the transaction. we also have costs with monsanto assessing the overall regulatory risk. we think that this is a very manageable risk, particularly looking at the high complementarity of both businesses. that's very true for the entire product portfolio on a global basis, and if you look at it from a regional perspective, monsanto is a relatively small outside of america. in europe, it's a combination
that will of course undergo regulatory scrutiny, but we are very confident that we can resolve any issues that may come up there in product overlaps. and in the u.s. and latin america, we're a very strong protection business. we're as confident as we were. guy: right. regulatory will take that off the table for now, or can we? if you look at what else is happening within the sector, there are some massive transactions going on. the whole story seems to be in flux right now, and it was interesting to hear from's agenda, talking about -- from syngenta, talking about piles of extra information. you aren't anticipating that, by the sounds of things. >> well, i think most people expected what you are referring to, a second crisis in europe
after the transaction. that's actually very normal. the regulatory authorities ask a part a part of large transactions. no surprise to us. while there's a lot going on in the industry, you also have to look at why this is going on. everybody is trying to combine with other companies to solve for two issues. one is to bring better solutions to customers, and so that in a more environmentally sustainable manner. that's particularly true for companies whose business model is written by science and innovation like us and monsanto. caroline: give us a sense of whether you would selloff any other assets. we know you are always active within your portfolio management. when you slam the business --
slim the business elsewhere? >> well, as already mentioned, we see as part of the merger agreement that we agreed to sell up to 1.6 billion in revenue. this is a number that we negotiated. the underlying assessment is quite a bit lower. withand ready to discuss regulatory authorities. i cannot preempt these discussions, and i hope you understand. caroline: give us a sense of, if i am an investor, i am seeing you doing very well in pharmaceuticals. is it not a distraction to be throwing so much money into monsanto, emerging with such large companies? how do you ensure you remain big and large at the same time easing up -- beefing up? a well, if it had been distraction we would not have been able to grow double digits
for the first nine months in pharmaceuticals. the great thing is that we have, of course, dedicated management teams that run our businesses, they are doing a phenomenal job in pharmaceuticals, also looking at growth rate relative to markets. it's the same in consumer health. that is, i think, the most striking reference point. we have a very strong performance despite everything 'sing on, and that, i think, testimony enough to us being focused on operational business while at the same time being able to manage very large projects. that's true for the face behind us telling us to sign and the face ahead of us in completing the transaction. guy: one final quick question. do you think the best time for raising money is now behind us? there was a period at the end of
the summer where it seemed incredible cheap to raise capital. it's still pretty cheap, but i am wondering if you have a relative idea of what's going on. all, the wayt of we calculated value retention i s using long-term average cost of capital. the current environment in terms of financing remains a very favorable. it's similar to trying to pick the stocks at the lowest level, only to then enjoy the ride up. well we do have a very benign interest rate environment, we believe that to continuing to 2017, we'll be able to take advantage of. caroline: a good time to be refinancing that syndicated loan. the chief executive of bayer. wonderful to have you for so much time. thank you for this first interview after the numbers came out. up next, we speak first to the
cfo of santander after the spanish bank said quarter earnings beat estimates. we will ask a not so happy holiday for apple. shares fall as christmas sales forecast comes in barely higher than analyst estimates. and later, we talk oil, as both russia and iraq talkback output cuts. this is bloomberg. ♪ christmas sales forecast comes in barely higher than analyst estimates. and
caroline: welcome back to the european open. 15 minutes since we saw equity start trading in europe and let's check on how they are performing. oil is tracking lower, tugging at some of the energy companies. on the upside, retail and telecoms are trading completely flat, the ftse the key laggard it today as the british pound inches higher versus the dollar. lower, airbusso feeling the pain after profit fell more than 20%. key market movers and there is much talk of deutsche bank as we see earnings out tomorrow and ork of bonuses into shares even taking stakes in the business itself. we will be looking into the key movers and i know you will be keeping an eye on them. guy: let's take a look at what's
happening -- let me refresh my mrr. it hasn't changed very much but this is the picture we see. logitech doing very well, up 11%, others also flying, up by 7.6%. in some parts of the luxury sector the story is starting to improve. there is a mess on the line being reflected in share prices, and some of the miners are off, trading down by 6.75%. but the banks are front and center. caroline: they certainly are. let's talk about one volatile stock -- the ceo of of monte dei paschi says they have already invested interest in their 5 billion euro capital raising plan. he spoke exclusively to bloomberg a day after the struggling bank was trading down 11%, unveiling the details of
its turnaround strategy. beenvestors is so far have very proactive in approaching either the bank or investment banks working for us. at this stage, we couldn't engage in formal talks, for obvious reasons, so this is what we are going to do. monte deieo of months t paschi. we talked about the banks earlier on. they are a high beat on europe. they will pop if europe's stock shows signs of life. in terms of their effect on equity markets, though, when you talk to u.s. investors, they talk a lot about european banks, and they seem to have a psychological impact. weird to see the psychological effect seat through. what are they saying right now?
>> i agree, they are focused on banks . they have become a smaller sector. weird to see the psychological effect seat through. but they can move the markets. they can move the markets for two reasons. there's general indicators about the eurozone economy. the banks are crucial in terms of lending, so that is one crucial thing. goti think the banks have bigger amplitude of moves. even though they may not be the biggest sector anymore, the volatility is still going to drive the market. many years ago, the dax was always about the weather in europe, and at this moment it is the banks. they are the ones the suffering the most, and it is there recovery which is seen as crucial. but it's not the only thing. another thing u.s. investors are confident about is -- will european companies do the right thing with cash on their balance sheets? -- number one question that's the number one question
we get, in the last four or five years, u.s. companies have done that successfully, boosting their earnings per share by buying back shares, boosting their return on equity, giving the money back to shareholders. that has produced better profits. it has led to higher leverage for the whole u.s. corporate sector, but maybe that is part of the design of low interest rates, that central banks have been booting. the corporate sector in europe seems reluctant. they have tentatively increase the duration of borrowing, taking out longer-term debt, which makes sense, but they haven't been compared, and i think it is related to the uncertainty in europe to do things like buying back shares are increasing investment. caroline: to talk about uncertainty. volatility is still so low on my screen. volatility worldwide, in japan, in the indices in europe and the u.s., they are all at far lower averages than we have seen in
recent years. are we in the calm before a rather large st >> i think in some ways that volatility at the index level highs is underneath the market. quite huge moves in certain sectors, the miners, the banks. some of that is hidden by the lower volatility. i also think there's a lot of uncertainty at the moment. with interest rates close to zero everywhere in the world, with inflation low but potentially picking up, with a a lot of uncertainty about what central banks do over the next few months -- will extend qe, for example, have they got the ability to do so, the fed interest rate -- and clinical uncertainty, too, is extremely high. you have presidential elections in germany and the u.s. a plot of uncertainty regarding the u.k. and brexit. guy: all of that political stuff needs to be thrown into the next. it continues to be hard to do
so. one of the things we dealt with during the financial crisis is a link between the financial sector and governance. we go into this next cycle in europe -- that link still seems to be there, and that is why we come back to the banks as critically important. it is that relationship with the political cycle in the populism element beginning to manifest in a big way. and that link, it hasn't been settled. >> maybe that's true. you've started to see lending growth pick up a little bit from low levels, so previously the banks were accused of not lending and i think that is not the case now. it's more that they don't see huge demand for loan growth, and it's the same thing with respect to companies on where they want to issue debt. it's no surprise that smaller and mid-cap stocks are also quite nervous. banks certainly are key to
eurozone growth and draghi is fully aware of that. the idea of making sure they are secure, well-regulated, better tier one capital ratios, can help the eurozone economy grow but they can't be the only way. guy: it has been a great pleasure, thank you very much for coming in. sharon bell, goldman sachs senior european equity strategist. up next, we will speak to the santander chief financial officer. this is the open. ♪
strassburg, where the european council president is addressing european parliament, talking about -- as a result of the way the story is developing. he is saying that the eu is still not ready to sign a trade deal of canada. belgium talks continue this morning. keep asking the same question and hopeful you might get the answer you want. they are still hoping they might be able to finalize a deal soon. thursday is still possible. keep asking the same question. caroline? caroline: it's the saying about madness, do the same thing expecting a different result. we will be talking about the movers today. group, outperforming on the back of gucci.
guy: half an hour into trading -- welcome back. see,is the picture we london underperforming because basic resources in oil and gas are not doing well today. yesterday one down russia, 6980 is where we are trading. europe is generally down. retail is up by russia .6%. space,er than the retail there's a more interesting story. caroline: vonnie: let's talk shares, after
they reported a less optimistic holiday forecast than expected. some thought san samsung's troubles would boost them in a vital period. they also posted their annual first decline since 2001, 15 years. sold less than 5% from year ago. up next, the next days of growth for apple are over. joining us to dissect last night's earnings release is richard kramer, senior analyst. richard, fascinating. we have seen apple stock rising 22% in the last three months/ is this a story of outperforming? well, i'm not sure it is that simplistic in the sense of clearly investors around the world have been looking at
large-cap tech stocks and what to own. the difficulty is that the market is relatively narrow and the perception was even if apple doesn't perform that well investors can look forward to another iphone coming with pent-up demand next september. it's a matter of extending the discount horizon. i wouldn't looking just at the quarter but it was disappointing by apple standards but a success by a lot of other standards. operating profit down, eps down 10%, and it would have been down 15% without the buyback. caroline: we just saw what the average selling price was. have they been misjudged, the idea of going for a cheaper phone, or is that the way they need to go? >> well, apple really hasn't gone aggressively for cheaper phones. when you like at a price umbrella with their competitors
in the android space, they are still two to three times more expensive than the average phone. it's one reason why apple has a relatively low market share in markets like india, if not also relatively low market share in china, because they simply can't address consumers without the wherewithal to spend $600 for a phone. affordability is a big issue for all the apple products, ipads or downboth of which were year on year in sales, and the iphone which still stands out as a huge problem. this is the new mantra for apple, they realize that having reached a point of $212 billion in revenue as a hardware company they need to find a way to get reoccurring revenue from customers. that said, and services are not natural to the apple dna. the entire organization is
around keynotes and hardware and single your product cycles. the idea of becoming a services company where they iterate is not common. and generally you can't get apple services except on apple products. when you look at big internet services company you can use amazon, facebook, google services on a mac, on a pc, on an android or iphone. there is a horizontal services, not vertical, narrowed to the apple hardware only. guy: i am always curious when warren buffett starts buying stocks -- it tells me a lot about their future trajectory. what is the trajectory? they have a huge amount of cash -- what do they do it? is this an income stock? what is going on? to increase started dividends and now they are just under 2% yield. that said apple has $150 billion
clearly 90% of their gross cash is offshore so i would assume it's a tax liability. but i think there's an important point about liability which they have not made. they have never bought a large-scale public company the formany others have and apple's very unique culture, it would be extremely difficult for them to integrate other services ies' cultures. caroline: there is always handwringing over iphone exposure. -- is itscaling back still all about finding the next killer product? >> i think this is a great thision as to why apple last fiscal year spent $10 million in r&d. obviously when you have a
company that generates $60 billion of operating profit, that's relatively affordable. but the real il question is in the years before that, where are the new products from those previous investments? with all the attention that the car has received, and looking at their new product, it is difficult to see where the andts of that r&d have come it is certainly almost impossible to imagine that they came up with the product it with $150 billion of sales. caroline: much handwringing over china, and the slow down. is this an area that is just going to be a slower growth area for them, or is it about finding more areas to target powerful competitors? aboutre are couple things the china market -- apple sales in the past two quarters were
down 30% year on year in china and down 17% for the year. there are two questions need to ask -- one is will any western company over the very long-term be allowed to make tremendous profits in china? there you see that the shift to another local company and huawei doing well in the chinese market. is that a question lot of the value in china is accruing with companies like 10 sent, and alibaba. the internet services company not the hardware manufacturers. there seems to be a limit to how much revenue you can extract from hardware. guy: when you get to the anniversary the iphone, will we see something new? >> i think apple is a fantastic marketing company and of course many other companies would love to have their problems of only
$60 billion in operating profit in what was a difficult or disappointing year. part of the problem that apple has is that every time he launches a new product, it is filled with superlatives about how fantastic and life-changing and tremendous and also the product will be, and i think after a while that grates on users. when was the last time you bought something because it was new and improved? every new product has a better camera, longer battery life, additional features, with those features are reaching the point of marginal utilities for most consumers. if you went back and look at the photos you took with your phone three years ago you would probably still say they are good photos. guy: we will leave it there. thank you. richard kramer. let's send it back to the banking sector. earnings out from santander this morning. the stock has been hit, but
santander quarterly profit beat and fees increased. the chief financial officer is intended joins us on the phone from the dread. a couple quick questions that i want to get there on the political front. i am curious to know what the background story is. how big an effect have you felt from brexit? what effect do you expect to feel? >> good morning. very little so far. i think it's very early to estimate what the impact will be but so far in the last two or three months the impact in our activities have been very limited. guy: what about the effect of a lack of government in spain? was there any business effect on that? >> well, the economy is doing very well, still above 3% this year. obviously if we hadn't had a government for longer, it could have effected investment and
consumption. obviously the important thing here is the stability at the new government will bring to the table. the sooner the better, but still the economy is very resilient and has demonstrated that in the last 12 months. guy: was there any effect on credit demand? i'd be curious to know what your expectations are for credit growth in spain because it has disappointed a few people. >> new mortgage production, for instance, year-over-year is, up to nearly 5%. consumer loans, new production is bubbling year on year. we have not seen that in the balance sheet because in the it has mortgages
outweighed new production and we have also had significant flops in the corporate sector. clearly there is a substantial and new demand happening as we speak. caroline:outweighed new productn berlin. i sit in germany where there is much frustration aimed at mario draghi and ecb. r that interest is driving profit. how are the ecb's low interest rates affecting your banking? >> we are growing in latin america, more than 55% of our earnings come from countries where interest rates are high or higher and also from santander consumer europe. it enjoys high margins. more than half of our profits come from higher rate countries. in europe obviously, low interest rates are close to zero and that put significant pressure on margins. against that, we are deepening our relationship with customers, adjusting our cost base, and
trying to benefit as much as we can from the benign credit cycle in which we are in right now. caroline: talk to us about latin america, there has been a lot of foreign currency issues in that particular area of the world. how much do you find this a problem, a headwind? >> i think the worst in brazil is clearly over. the prospect for brazil look -3% gdp growth this year, growth will be between 1.5% to 2%. mexico is also growing well, as well as chile. i think the worst is probably over and i think we will see better productivity and better economic activity in the next few years. guy: can i take you back to the u.k.? do you take banking assets cheap right now? we are a retail bank in
the u.k.. retail takes place in local currency terms, so obviously when one looks up pound valuations they shouldn't have been affected. case, the way we look at the retail business is in local currency and local currency business still performing very well. guy: so does that change in any way your view of the m&a story in the u.k.? i am curious to know whether you will balk up. you do have the opportunity to see yourself as a pan-european company, and therefore can't take advantage of what's happening with the currency. >> well, in the u.k., we want to complete bank. a
we are now growing faster than the market in small and medium-size businesses. we already have a substantial market share in mortgages. we want to continue deepening our presence in the corporate sector and we will look at opportunities that make strategic sense in that strategic direction, which is again building a complete bank, starting from what we bought. a few years back it was mostly a mortgage bank. guy: so is your view accelerating? are you accelerating that view because of what is happening surrounding brexit? sometimes there are opportunities that don't come off very often, and i am wondering if you think this is one of them. >> well, we will look at all opportunities that come up in the u.k. and obviously we will analyze in detail those that make strategic sense, as i said. but clearly the u.k. is the
market we want to grow, organically first, and if there are inorganic opportunities that make strategic sense we will definitely look at them. caroline: we have deutsche bank numbers coming out tomorrow, systemic risk within the banking sector. is that something that worries you? >> no, i think that is clearly not the case. the banks today are much sounder than they were five or 10 years ago. we will have much more capital, better management, better systems. clearly the systemic risk in the banking system where some people are worried about is clearly much lower than it was. guy: thank you so much for your time. i know you have a very busy day. great to spend some time with you. cfo, joining us from the dread. gears.witch wti crude has fallen more than 3% from yesterday, breaking
below $50 per barrel, after russia said it prefers freezing output to cutting production. out of interest, u.s. stockpiles expanded. our energy commodity executive editor joins us now. it was going to take a while for the cracks to appear. it is starting. the russians -- was this inevitable? >> yes. is the one the crack that is more unexpected in the sense that we saw the documents in algiers, iraqi had a cut, and that is what we were discussing. our assumption was that it would be part of the formula. but they came out and said explicitly we are not going to cut, we need the additional revenue. that seems like a reasonable argument. but it leaves them in a pickle. what exactly do they do to find additional barrels? how do they maintain their credibility going into next
month? where exactly are those cuts going to come from? we put a story out this morning showing, this is what the math looks like. they have to carry the burden of those cuts. in terms of russia, they have been flip-flopping for the last month, and arguably for the last couple decades. not wholly surprising. i don't think anyone was really holding onto the idea that russia would make a cut. we are just getting news out of riaa, a russian publication. russia may weigh oil output costs in talks. what does it mean for the oil price going forward? are we range bound for the for siebel -- it seems to be the way analysts are seeing it. they have all said it may be a cut but our preference is for
a freeze. i think it is baked in at this stage. if russia came out and said we will do a cut and then implement it, than i think you would see the oil price higher. but to say it should be moving on the back of this -- i'd say probably not. guy: this is aluminum and shanghai. what's going on? >> we have a commodity frenzy going on in china, and i think today or yesterday have record volumes and commodity futures. it is something we have seen on andoff most of this year, what's interesting apart from it being a trading opportunity is that finally china is starting to make a move to be a price setter. if you think in the context of how much china consumes, it is kind of crazy that we are talking about that now. surprising, but in the long-term it just seemed obvious. caroline: commodity frenzy. haven't heard that.
process which will probably take slightly longer than expected. as far as european consolidation on the retail, commercial banking environment, i think this is going to be more difficult. caroline: where do you see opportunities to consolidate in italy? which are the types of businesses that should belong together? >> i think within the financial services, it's going to be more on the asset management side. commercialon the pr business -- the pure commercial business, it's going to be the headline. manus: one of the lines from mario draghi to you and your peers, put things in order and stop completing but negative interest rates. what would you say to him if you could have coffee with him? business, it's going to be the headline. manus:>> i think my advice to hm would be, you know, let's make sure that everything each of us is doing in his own --
manus: you couldn't get more negative rates. >> this is not good for the banking business, but on the other hand, you need to look after the macro environment, and therefore some of the decisions which have been taken i think goes in that direction. anna: do you anticipate further easing from the central bank? is that a something your factoring into the plans? >> no. we're factoring conservative macro interest environments, which is negative interest rates throughout the three year plan. guy: that was the ceo of monte dei paschi speaking to the daybreak team earlier on in an exclusive conversation. this stock gets bounced around a fair bit. what did we learn? he seemed really guarded. we're joined now from our finance team -- not a lot of detail still. >> yes. quite a lot of moving parts, all
interlinked. what needs to happen by the end of the year, not an awful lot of time. markets are busy with large share offerings. guy: but he is going to be fairly protective. he will be on the move constantly. >> that's right. he's going to be doing that day and night, pretty much through the next five or six weeks. caroline: sticking on the banking scene, a busy man over at monte dei paschi, and a busy set of board members at deutsche bank, talking about alternatives to cash bonuses. how much do you think is factored in this report? it's a great scoop from bloomberg. >> yes. we understand that there are quite a few options on the table at the moment as they go into the approval of earnings. of course the business environment has gotten that much tougher. quite athere's been
significant overhaul, and of course they have large fines looming, also being factored into what the bank needs to do with the model, generating profit ability. -- profitability. guy: ok. let's talk a little bit about what's going on in terms of tension. do i need to worry about that if i am john cryan? around the water cooler at deutsche bank i'm getting pretty nervous. there aren't actually that many options at other banks for me to take up. >> that's quite right, and that will definitely feature in the conversation with how easy is it to retain staff, should there be the need to rein in bonuses. i think it's obviously a difficult market environment right now, and that will be part of the gamble in how much they can keep it. is there a market to go to?
it's not exactly a growing market right now. pendulum still, the swings above whether we will get the doj -- at the moment, reports are we could see the department of justice not give out its fines to deutsche, credit suisse, barclays, until after the election. is that something we should brace ourselves for? >> the timing has been very speculative. i don't think anyone has committed to any specific timing. but clearly for many of these key to take over decisions needed for the business. so while the bank will want to have this to happen sooner rather than later, there does seem to be some flexibility in timing. yes, we have to be open to the fact that it may not be resolved overnight. guy: thank you very much. busy in the banking sector right now. we have deutsche tomorrow, barclays, scotland on friday.