tv Bloomberg Markets European Close Bloomberg January 17, 2017 11:00am-12:01pm EST
mark: we will take you from washington to switzerland and cover stories out of london, wall street, and china today. here is what we are looking at. let's take you to erik schatzker with today's top headline. feeling theis spotlight. the president is using his first address ever to defend the global economic order. and taking a backhanded swipe at donald trump. he said no one is a winner and a trade war. the president-elect makes news s the president-elect will likely do away with the tpp trade deal. john cryan addressed one of the
largest topics, automation. how it is transforming the economy and the banking industry. >> we need to replace a lot of people who are filling the function of a computer. people should stop using their hands and eyes and use their brains. value when much more we get computers to automate what we hope will be much more standardized business. erik: i continued that conversation. some jobs will disappear, but more jobs will replace them. back to you. mark: we will see you in a minute. we will look at where european equities are trading. it is all about theresa may today. the ftse down by 1.2%. there is a reason why. theling 2.7% up against dollar. the biggest gain since 2008. theresa may said that
parliamentarians will get to vote on the final brexit deal. she is pulling britain out of the single market. she wants some part of the customs unity. up u.k. two-year yield is today. gold is gaining. it is all about theresa may today. there are big corporate stores. british american tobacco shares down 3.4%. they have reached an agreement dealy rebel america with a bringing an end to the almost three months of bartering with the maker of camel cigarettes. element.ased the cash they will value reynolds shares at $59. rolls-royce the
engine maker has agreed to pay 617 million pounds to resolve long-running investigations into allegations it's representatives bribed foreign officials. it is the biggest ever sanction issued against a company by the u.k. stumbling block for the ceo. said cashy also today performance better expected that four-year results. investor confidence was released a little earlier, improved in january. strong data at the end of 2016, bolstering get look for europe's biggest economy. 90 minutes into the trading day in the u.s., let's it over to the markets desk. abigail doolittle has the latest. >> we are still looking at the
clients for the major averages in the u.s. the dow, s&p, and nasdaq are all lower. these are off of lows. this follows weekly declines for the s&p 500 and out last week. these are being dragged down by the banks. we take a look at the big banks. huge declines for morgan stanley, jpmorgan, and citigroup. jpmorgan is having their worst day since july. this is falling strong reports from all three groups, except for citigroup which reports tomorrow. some of what could be happening here is these banks made a big move last corner, up about 30%. you could be seeing some sell the news action. there is a headwind for the banking index, and that is the 10 year yield. the 10 yearave
yield. it is on pace for its fifth weekly decline in a row. that is off of a high of about early basis points. we have the s&p banking index. the correlation last quarter that the 10 year yield rising, having its biggest move up ever on a quarter, about 35 basis points. likeith the drop, it looks this could be a headwind for the banks ahead. there is good reason to think these moves for the 10 year yield could move it lower. julie: we have had banks saying they expect an increase in net interest rates in the next quarter. let's check in on first word news. theresa may has been given her outline for brexit. of the eue u.k. out single market. parliament will get to weigh in. >> i can confirm today that the
government will put the final deal between the u.k. and the eu to a vote in both houses of parliament before it comes into force. she also said that she wants transitional arrangements for financial services. the hunt for missing malaysian airlines flight 370 is over with few answers. deep water ineir remote areas of the indian ocean. people on with 239 board disappeared almost three years ago. a setback for the big banks at the u.s. supreme court. the justices have turned away an appeal by bank of america, citigroup, and j.p. morgan chase refusing to stop antitrust the big accused of banks trying to rig -- the banks could be forced to pay
billions of dollars in damages. vladimir putin says he does not believe that donald trump met with prostitutes in moscow. he called the accusations part of a campaign to undermine the election results. he says the people behind the allegations are worse than prostitutes. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. mark: thank you very much. let's get more reaction for brexit. theresa may said she will give parliament votes on the final deal. reporter, it is how she ended it that intrigued me the most. almost threatening. you have to listen to what i am planning. is that a way to go into negotiations? >> no deal is better than a bad deal. that is a pretty punchy statement. it is telling the eu that it is
in their best interest to make friends with the u.k. whether in practice this will be the case is open to question. so far the reaction has been ignoring that part of the speech. i think that promises some punchy negotiations. mark: the part of the speech that probably was not leaked is the fact that mps will get about. how important is this really? is it political maneuvering? >> it is. it is a nod to parliamentary sovereignty. a legally binding vote on triggering article 50. it is saying we know you matter, you get a vote on it. in reality, it is unlikely that at the end of negotiations parliament will choose to reject the deal that is on the table. if they do, it would create this state of limbo for british
businesses that no one wants. julie: we have been getting various reactions, the latest from the european parliament's brexit negotiator. he said this speech gives clarity, which is something we have heard from others. he says the u.k. cannot enjoy full eu benefits outside of the block. that is something we have heard before. when we view these negotiations, do we expect the eu to continue to take this hard-line stance? >> i think that is the big question actually. the brits are betting that this is an opening gambit from the point of the european union. who people i have spoken to have been close to negotiations, particularly with germany in the we might beid that over optimistic in looking at this as an opening stance. they might be literal statements.
these may be red lines that remain throughout negotiations. of course, i don't think it is an anyone's interest to have massive confrontations and no deal at the end of things. the idea that we are going to get an easy ride i think is overly optimistic. julie: at this point, what is the timetable of negotiations? presumably they will not be complete by the time article 50 is triggered. negotiations could go on for months, years. properlyation start once article 50 is triggered. that will be at the end of march. what we have in the meantime is overtures, we're not really supposed to have official talks. the eu has made that clear. once article 50 is triggered, the hard work starts. a lot of it will be done at civil service levels. thrashing out the fine print. until that happens, everyone is
schatzker. farley,m here with tom president of the nyse group. always good to see you. tom: good to see you. erik: let's talk about donald trump. he looms large in conversations even though he is not here. will he be a positive for your business? tom: there seems to be a sense that we need to help corporate america and provide for a better tax regime. we have the highest tax rates in oecd nations. there is a sense that working together, working properly, we can make it more advantageous to be a public company. the number of public companies is down by half over the last 20 years. it is time, perhaps overdue, to redo regulations. erik: i am glad you cited the
decline in public companies. why are there so many fewer public companies that 1995? devilst me give you the advocate position. cap is upate market about three times. the companies are much larger. it says something about what is the entry cost to be a public company. erik: the jobs act was supposed to fix that. tom: it was helpful. dodd-frank, the entirety of it, title vii, some of the specific regulations companies are wrestling with, conflict minerals, proxy access, all of these things, including the increasing role of activist investors is increasing fixed costs. it is harder for smaller companies. figure companies can hire an army of auditors.
in the shadow has grown an enormous private financing industry. what can be done to make it attractive enough to go public that staying private for longer does not seem like a better idea? tom: i'm glad you mentioned that. that is a contributing factor. there is a more mature financing market. uber you would love it if listed on the new york stock exchange. they don't appear to want to anytime soon. there ande just pause uber' in are very few the world. swe can rattle them off on one hand. private companies with nearly unlimited access to capital. even those companies have employees that join them a decade ago. they were 26 years old with no husband, no children, no
mortgage on their has. now they do. they need some liquidity. even those big technology companies that people thought were the exception to the rule, they are ginning up ipos. take snapchat for interest, they have been in the press as a prospective idea. we are seeing these companies come forward. erik: what are you doing to win the war with the snap ipo? tom: we do best with large ipos. i mean these are raising a good deal of money. 500 million or a billion dollars or more. venue totify the best give me confidence that on the first day of my life as a public company, everything will go smoothly. over the last 2.5 years, you take the top 25 deals, all 25 have chosen the new york stock exchange. for those types of companies, i
will not refer to a specific company, what we do every day is make sure that model will work for them. erik: what would you say your chances of getting that snap ipo today? tom: i will not comment in particular. i am hopeful we get all the exciting, i'm hopeful we get all the ipos on the new york stock exchange. i feel good about those larger ones that feel deeply about execution on that first day. erik: there is the primary market we are talking about, and there is the secondary market. how will you describe the state our health of the equity capital market in general and secondary trading? tom: pardon me. erik: the health of the u.s. equity capital market. tom: i feel good about it. there is a lot of talk about the number of ideas. last year was tough for us. erik: very tough.
tom: buy some metrics it was the worst year in 20 years, adding the financial crisis. if you go back to 2014, there were 120 ipos. this year we have a robust pipeline, that includes companies that delayed their ipo and new companies. next week and the following, i believe we will have seven ipos raising a couple billion dollars. last year, the entire first quarter we had zero companies raising no money. we have turned. i feel good about the state of the equity capital market. interest rates are still low and relatively stable. volatility is low and stable. i feel good about that. i start with the positive. the united states equity capital market, the deepest, most liquid, richest market in the world. ipo waswhy our largest chinese companies, alibaba, the
great global companies that come to the u.s. because of our liquid secondary markets. persistent is criticism of the secondary market. the way it is structured does not benefit, does not result in a true transfer of risk. people are playing in the secondary market for reasons other than just, mi buying a stock or selling a stock? they are trying to get to the front of the line. what is the future of equity market structure in the trunk barr -- trump era. tom: there is opportunity to reform. the first issue i focus on is transparency. customer,sy for your your viewer at home who is trading to understand what is going on. it should not be so competent.
we are matching a buyer and seller. that is our focus. we have reduced the number of order types we have overtime. erik: i have a quick question. is it time to reduce -- the big problem, rebates, is it time to reduce the access fee cap that was mandated? what do take it down to? see respect like to the public vote. people who are doing this out there for the world to see, they are doing a service. if somebody puts their get out bid getsat it executed against. regulation could maybe bring it on. that would be helpful. but those things together, and i think that would greatly improve the equity capital markets. erik: thank you for spending time with me.
julie: live from london and new york, i'm julie hyman. mark: this is the european close on "bloomberg markets." six minutes before the end of the tuesday session. today, big week at the world economic forum in davos. francine lacqua took the temperature of several executives in attendance. >> if you don't already have a european subsidiary bank, you really have to work out whether you're going to dublin or paris or frankfurt.
you have to plan for the worst and hope for the best. >> it is clear i think that the european u.k. relationship will be status quo minus. it will not be as good as it was. it is important for britain to step aside and renegotiate with the rest of the world their relationships and trade and financial services. the europeans are in an election campaign almost until the end of the year. it would be devastating for london. we would come off a fetch literally. -- cliff edge literally. this is information based on the bank of england and very clear economic forecasts. ubs chairman, some of the voices from the world economic forum in davos switzerland.
take a look at the european markets as we are heading towards close of this tuesday session. theresa may, big takeaways for the parliamentarians getting about on the single market. some relationship with the customs union. the big movement is in currencies. look at sterling against the dollar. it is rising against its major peers today. look at that move against the dollar, biggest gain since 2008. you heard it correctly. this is bloomberg. ♪
i love this chart. poundtage daily move for against dollar. they move today. the biggest move since 2008. 2.9% move for sterling against the dollar. takeaways, goodbye single market. parliamentarians will get a final say on the brexit deal. some sort of relationship with the customs union. what a change it makes. 1.1% lowerterling is against the dollar. today we have seen a monster may'sd because of announcement. deal is what a big that, we will have to see if they voted down anyway. is it political posturing? investors love it.
biggest gain since 2008 after all and to the lowest level since the mid-1980's. this is to show you how other assets fared today. interesting to see the ftse down, obviously pound rises, stocks fall. in worst -- inverse correlation. the ftse is down. the small cap index is lower as well. focus, not too long ago it was at a record high. this is the entirety of the gilt market, the bloomberg british bond index is what it is. it is off a high post-brexit because of rising inflation expectations. finishing off with the subject of inflation because we have cti data today. for thehe cpi number
month of december, stronger-than-expected, 1.2%. economists were expecting 1.4%. import costs are increasing. core inflation rising. the fastest pace since august 2014. the cost of import by 16.9%. that is a five-year high. we are seeing real inflation pressures on the import side. , inflation highest level since 2014. in the u.s., we are seeing a pullback in stocks. this reflects the risk off environment, trepidation about the global economy and potentially about donald trumps leadership. i want to highlight one stock in particular. the headline coming out a few months ago, caterpillar. the letter to greenlight capital investors reiterating his short
against the company. it is still off about three quarters of a percent. he has been short caterpillar for quite some time. we are seeing money continue to flow into the risk aversion assets. the 10 year yield is down today as people are buying. it is down six basis points. the move in the british pound, there has been a move in the japanese yen as well. this is the seventh straight session that the dollar is down against the yen. about 3.5% move. people looking for safety. gold touching on the same phenomenon as gold rises again today. mark: great stuff. let's get over to demos as our coverage of the world economic forum continues. we will bring you amin nasser later.
a roster of guests we have for you. let's get over to erik schatzker. over to you. erik: thank you very much. i'm what ryan moynahan, chairman and chief executive officer at bank of america. good to see you. >> good to see you. erik: we always seem to do this interview after the sun has gone down. >> you have to get better timing. erik: let's get the blood flowing. you have been here about 24 hours. what have you learned so far? do you feel more optimistic or not, perhaps more pessimistic about the outlook for your businesses based on the global economy and where it is headed? >> the global economy is still solid. people are still worrying about politics. that is the big discussion. the clients i have met from around the world so far feel good about the prospects in the country. they are all still trying to figure out what is going on with
the election cycles. they ask a lot of questions about what is going on in our country as the administration changes this week. still very solid. that is what we see in the u.s. people spending money, employment level is strong. we feel good. erik: theresa may will be here on thursday. she made it clear today that it will be a hard brexit for britain provided she gets parliamentary approval. what will bank of america do in england if that is the case? you have 5000 people there. >> it is still premature. from best i can tell, there is still a lot of water to go over the dam in terms of timing and transitions. we have to be prepared as if it is going to be hard and fast. erik: so what are you doing? >> you have to get your legal structure going so you can operate in two different environments. one inside the u.k. and one outside. we have that set up generally.
you have to think about your locations. i think it is immature on the second. we are ready to operate as fast as possible. erik: i'm sure you have narrowed it down to a short list. what is on the short list on locations? i presume you have to look at frankfurt, dublin, harris. -- paris. >> we have people in all those locations. the question is what do you move, what does it look like. it is a complex thing. everybody think it is like you pick up a mobile home and move it across. these are real people's lives. locations, we are already looking into. erik: if the hardest brexit scenario comes the past, of the 5000 people you have in london today, how many will be left? >> i don't know. some of those people won't move. that will play out over time
here. erik: let's talk what is happening in the states. donald trump will be president for the week is done. have you had any signals yet from the incoming administration of what the regulatory environment will be for your bank in 2017 and the years the arts? -- beyond? >> i think you're hearing a lot of discussion in the near term from appointees that thoughts will be taken about the small banks, the choice act. you have heard a lot of that. let's make sure we don't lose the key parts of capital liquidity. bylawk it is more of a that will emerge for the best dialogue that will emerge -- i think it is more of a dialogue
that will emerge. erik: donald trump says he wants to roll back dodd-frank. some say the legislation that will replace it is not so exciting. what do you think will happen? will we see a change in regulation? will it be more the implementation? >> i think it will be the implementation. fixe are things we had to in the industry after the crisis . the way you do principal investing and things like that, that will not change dramatically. focusk there is a lot of on this word for that word. the reality is this is a new dialogue with a new group of people about the right answers. erik: what i'm trying to get out isuppose is the assumption that president trump who talks about the regulation is going to be good for financial services
and wall street. maybe not. is it possible the trump presidency will not be so good for wall street and the biggest banks in the country? >> let's back up to what you hear from clients and customers and the confidence levels of consumers. there is a feeling that they that people view are in it for growing businesses. that is good for banking and good for the economy. grows,ne the economy everybody benefits. i got that part. more on the regulatory side. >> if the construct around the economy changes, businesses we went to our more aggressive, that helps us. there will be a regulatory debate about the right regulations and how they are mitigated overtime. there will be a debate about that across all industry.
erik: do you think 2017 will be the first year and a long while that your bank and others might be able to focus on real strategic priorities instead of reacting to the regulatory environment and forced to cut costs because there has been so much pressure on the top line? >> let's go back to this. we have been focused on that every day. think about what we did in the consumer business. when i became ceo, we had 7500 consumer branches. we now have 4500. there has been a massive transformation. we did not know you could deposit checks, and did not think about it. now it is 90% of all the checks deposited. -- 19% of all the checks deposited. this transformation is goi to go on no matter what the report environment is because it is driven by the customers.
mobile technology has changed how customers interface with the institution. 21.6 million mobile banking customers. those are numbers that will not change. erik: what can you do if the regulatory overhand goes away? >> it is more about capital liquidity. we will not change the way we operate the company in terms of doing the right things for commercial clients. it may come easier at times, but the reality is what we do has not changed in its basic thing for the last six or seven years. we have focused on driving it. erik: it is tough to drive revenues. you said last week you could see 600 million additional dollars in interest income in the next quarter. can we straight line that out to the end of the year? >> get interest rates don't go
down, it will be $600 million every quarter. you can generally straight line that out. erik: that has more to do with the 10 year at 2.25 or the overnight rate? >> it is both of those. at the end of the third quarter areere $5 billion, now we $3 billion. is difference between that the p&l. he was have to look back and say this sounds like a science project. what drives that is the deposits we grew from 2014 two 2015. that is what drives the piano. that makes the accounts. it takes both to make it work. it is not just the rates rising. it is bounces and other things to make it work. erik: after the interest income,
next-- what will be the driving force? >> the fees and the wealth management business, the consumer business card fees, and trading businesses. those are the big drivers. if those go well, we do well. erik: thanks to not go quite as well for management in the fourth quarter. >> we hold ourselves to a standard no one else is close to. we made $700 million after taxes. better. we can do we outperform anybody. this has the lowest marginal efficiency and lowest marginal return, but that does not mean it is not a great business. you thought around the middle of the quarter you would end up at 15%. you ended up at 12%. did something happened between the time you made that statement
in the end of the year? >> the rest of the quarter occurred. erik: what happened? >> you make an instrument is some activity. the end of the year, people got quiet. it is fine. we run our trading business to produce an interesting dynamic. we had a balance sheet of about $550 billion. we give them $30 billion equity and say that is what you get, go out and make it. fame almost -- they almost doubled their earnings. we are perfectly happy. it was the second-best fourth quarter we affect trade in six or seven years -- we have had in trading in six or seven years. erik: are you getting out of macro investors what you want? >> if you look at the equity business, we are getting what we want. we are positioned. we have driven the cost structure down.
erik: that is the one thing you can control. >> we continue to do that. profits went up. costs went down, revenue was up a little bit. erik: that will happen again in 2017? another 5% of staff? >> i don't -- we don't get into the forward projections. their job is to continue to bring down expenses. erik: you have probably cut worn expenses than anybody in the business since you have been ceo. among the things you are working on, was still needs to be done when it comes to cutting costs? what moves the dial in a big way? >> it is a bunch of little things. we have a program we called semper fi and improve. last year we did a thousand ideas for $400 million in annual savings. if there was an easy idea worth
half $1 billion, we would have done it. this is working hard. you are taking artificial intelligence applications into the sales process to make it more efficient. we are continuing to upgrade systems. we're consolidating data centers. we have worked together there. -- to go there. it is a bunch of small things to continue to leverage the c ompany. billion in3 technology every year. we have more salespeople at the end of 2017 2016. we keep driving client coverage capabilities and client product capabilities while taking out expenses. we spent $5 billion moving cash, currency, and checks around our company. distributed around $200
million a day in cash. as you drive usage to cards instead of cash, you are starting to drive out that cost. that is not going to happen overnight. customers will change at their own pace. erik: good to see you. that is brian moynihan, chief executive officer of bank of america. we will need to find a pool of molten lava to jump into after sitting here 15 minutes. mark: erik schatzker in dallas. ahead. be back in davos this is bloomberg. ♪
mark: live from london, i am mark barton. julie: and from new york, i am julie hyman. mark: it was a day of decline. the clients were not to the extent that they were earlier in the day after theresa may's brexit speech. strong pound, weak ftse, it has been the opposite in recent days. record winning stretch came to an end yesterday. the second day of declines. 0.7%toxx 600 was down by ahead of brexit. a quick look at the pound. look at that game. against thegain dollar since 2008. julie: let's go back to the world economic forum in davos, switzerland. erik schatzker fresh from his dip in malta model, hopefully. of the aechairman
systems, roger martyn carr. you are the chairman of europe's , bae.t defense contractor tell me what you heard from theresa may today? >> i think we had a good message. i think the tone was right, friendly but firm. we are out of the single market. we may not be out of the union. i think that is to be negotiated. the signposts were important. based on what you heard, how does that affect your company? roger: very little. our customer base is not europe. although i believe in a close working relationship with europe, from the company point
of view, our relationship is long-term security which she clearly underpinned in her statement today and the fact that we build aircraft together in partnership. as a customer, pretty small. erik: let's talk about an aircraft. the f-35. bae is a supplier to the f-35. it has come under fire from donald trump. significantly. i was that going to affect you? make thethink we all effort to be -- the longer you pursue this, the more you make the aircraft and the more you seek to reduce costs. the principle of reducing costs and making it more competitive is something we do as a matter of course. erik: what does that mean in percentage terms?
roger: i think over a period. i think the president has an ambition to reduce the cost of that aircraft by a material amount of money, many percent. erik: double digits? roger: double digits, and we respect that. we will make our contribution towards that. erik: you don't make that willingly. lucky is forcing its -- lockheed martin is forcing its suppliers to meet that burden? roger: we are a partner. we are a very real player. we feel the responsibility and are happy to commit to that. erik: what do you do on your end? do you have room to cut costs in the program. is it inevitable that your margins will suffer? we improve performance and learn by doing. that is what we hope to see come
through the program over time. erik: in the short run, supply pressure on your business, in the long run as donald trump takes office, is that a net positive? roger: that is something we are all going to watch and see. i agree with his stance on the whole business of nato in the sense of people spending 2% of gdp. if you are a participant, you should be a contributor. the u.k. is a contributor on that level. i think our partners should do to. well-funded is something we support. we would support the president in his mission. erik: do you know james mattis? roger: i don't know him personally. i'm sure it will be different. erik: how about saudi arabia. there is a lot of pressure on the saudi arabian legit. -- budget.
how much of the decline are you expecting in saudi defense spending? roger: they are part of a very important segment of the western support network where what happens in saudi is vital to us all. they had issues on all of their borders. they are fighting to defend themselves. they're doing it with vigor and commitment. the network they offer a security point of view is vital to all of us. i think they will keep on doing the right thing for their country and in turn doing it for the rest of the world. erik: let's talk about your country. there is concern in the british parliament about saudi's role in yemen. what is that turns into restrictions on arms sales to saudi arabia? important to see the
saudi position, which is this is not a war of their making. it was supported by the u.n. it is seeking to restore an appropriate government in power. it is fighting in the defensive war rather than an aggressive way. clearly, anybody out war has challenges in the public community. that will remain the case. i think we are hopeful that their position will be understood, and as a result of that, we will continue to supply without interruption. erik: thank you so much. , chairman of carr bae systems. mark: the world economic forum continues. this is bloomberg. ♪
we are covering stories from davos, switzerland and tokyo this hour. president elected donald trump says the currency is too strong, the pound rallies as theresa may outlines her plan for brexit. bloomberg white banks need options to deal with brexit. that's why banks need options to deal with brexit. we are halfway into the trading day. abigail: we are looking at declines for the u.s. averages. have the dow, s&p 500 and nasdaq all off of their lows. nevertheless, there is a sense of uncertainty here as the nasdaq is off of its record highs. the dow and s&p 500 lower. the big drag todafr