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tv   Bloomberg Markets European Open  Bloomberg  June 7, 2017 2:30am-4:01am EDT

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guy: good morning and welcome to bloomberg markets. your first trade of the cash session coming up. it is going to be an interesting day. i am gone to -- i am guy johnson alongside matt miller. it's talk about the u.k.. will the young vote? it looks to be a key factor in the election. the pound could go to 120 is the -- if the result is a hung parliament. one euro, that is the price that santander will pay for banco
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popular. that is more than that it was anticipating. that is getting close to the true price. how will shareholders react? washington watch. just session -- jeff sessions has suggested he may resign with a widening rift with the president. this is as james comey testifies in front of the senate tomorrow. huge breakinga story, it is as if someone splashed the news with the bucket of ice water. santander is buying popular for one euro. they will raise 7 billion euros of capital. we will continue to pay -- keep on top of the story. futures are down across the board although the ftse futures are little changed. if you look at the miss price calculation by bloomberg, it is not look nearly that bad. take a look also at the bund t
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rade. investors selling off bunds, driving up the euro, the bund trade still at a very low although the yield rising still at a very low level. it will be fascinating to see how santander trades today. i am trying to figure out, get to the bottom of what is happening in terms of how they are classified in the deal. what the value is there. the popular shares are suspended as we have been talking about. i am suspecting they will trade but we will see. off fromequities are yesterday. the u.s. dollar is trading fairly flat. the aussie dollar which is trading up by .4 of 1%. byis the story dominated what is happening in the u.k. and also what is happening in
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european banking. the ecb, thursday will be an important day for the ecb. let's get a bloomberg first word news update. here's juliette saly. juliette: u.k. premised or theresa may said she would be willing to tear up human rights legislation and the battle against terrorists. germany corbyn set the correct response was to invest in the police and security services while protecting democratic values including the human rights act, security continues to dominate the general election with one day to go before polling day. --. attorney general seth jeff sessions it does -- has suggested he might resign because of a widening rift with donald trump. hisas come under fire for recusal of an investigation of russian meddling. spicer would not say
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whether trump still has confidence in sessions. fbi -- fired fbi director james comey will describe conversations with donald trump stop short of saying the president sought to obstruct a probe into russia's role in that election. he has coordinated his testimony to the senate intelligence committee with robert mueller, another fbi chief who is special counsel in charge of the rush investigation. in the middle east the biggest oil and container ports have banned all vessels sailing to and from qatar. a different crisis gripping the main energy exporting region. saudi arabia and bahraini officials have closed their ports coming to or from the persian gulf state. terminals also banter traffic to any ships touching qatar. the austrian dollar, first-quarter gdp came in above
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expectations. the economy expanded from a year earlier and .3 of a percent on the quarter. the rba signal yesterday it would look through slower first quarter growth when it left the bench mate -- benchmark rate on hold saying it expects the pace to accelerate in the next couple of years. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. bloomberg. guy: thank you very much indeed. the story still unfolding and we are getting details emerging of how different assets will be treated. santander is to raise capital as it acquires struggling popular. it was failing or likely to fail due to significant deterioration of its liquidity situation in recent days. let's get details from spain on this. we are joined by our bloomberg spent reporter. let's deal with what is
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happening to popular. everything is being written down to zero. so shares and tear when assets are being written down to zero. to assets are being written down to one euro. chunk, is a big presumably santander does not have to absorb. roderigo: that is correct. that seems to be the case. we're not sure how this works up at what we know so far is that there was a lot of concern i the government and the eu to find a solution for this and there was some kind of auction according to what santander said at the firm which takes care of bad banks. they decided that this was the best resolution for someone to take over the bank which was santander. are: is this good news, we getting word that she expects santander to achieve a 25%
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market share in spain. says, the press release says this will make santander the biggest bank in spain and portugal. by several metrics. the biggest retail bank in spain isn you look at only spain [inaudible] whether the markets perceive it that way we will see in a few minutes. santander is having a call with investors and i'm sure that will be one of the questions it has to be answered, how people see this area did there is a lot of questions. there is no fixed answer. guy: let's address what we are acquiring here. you're picking up the deposit base which should be a fairly straightforward exercise but you are also picking up a portfolio of property. the legacy story surrounding this property portfolio will be where the questions lie. how concerning will that be for
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shareholders? roderigo: that is the biggest concern. in general, the spanish banking sector did a good job of cleaning up their game, cleaning up their real estate portfolio over the last two years following the crisis. the one big exception has been popular. maybe because it came in later or how the bank was handled. it has a very strong sme business and retail business which is what santander wants. question is one that they were not able to solve. everybody will have to wonder if santander can solve it. they probably have a plan. how is the retail business been affected by this. --ould assume even in informed customers do not feel so comfortable having a lot of
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their money in that bank. roderigo. they do not and there has been a drop, a consistent drop over the last few months in the number of deposits and the chairman has been going out of his way to push his staff to convince people that the bank is doing well, that the bank can handle their money and he has been trying to convince his people to stay at the bank and to go on with business as normal. informedy, even account holders are concerned about the bank get it has been affecting them, obviously. guy: one final quick question. how did this happen? i am curious as to the politics surrounding this. was this something that you think has been imposed upon santander, did santander do it willingly or was it something and the -- came from madrid the politics and saying we need this done? at theo: if you look
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spanish banking sector traditionally and santander there has been always a strong relationship between politics and the banking sector and has always been open to these kinds of pressures you are pointing out. the relationship changed event. it is not exactly the same as it was 10 years ago when the answer would have been a straightforward yes, this is political pressure. that said, the government was extreme and concerned about the situation and the eu showed some concern. there has been a lot of talk in the government with the entities to try to find a solution. obviously, they got into this money and thees bank. has the been political question pressure?al yes. has she bought it because of political pressure? i doubt it. guy: thank you for joining us.
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we will see what happens with santander and popular. the shares are suspended. fors an interesting toy hours, 48 hours. we have a lot still coming up. the spanish banking story and there is a italian banking story surrounding some of the phoenician banks. just keep an eye on what is happening there. there is a reluctance to add to risk positions, i would argue the ecb, you have the election, the yen trading near its highest level in months while gold is holding on to a gain. i want to prevent from the banks more broadly into the risk story. trade this year, the surprise trade has been to be positive on europe. do you think the fact that europe is having banking problems may slightly take away from that trade question market
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may reintroduce a little bit of caution into some of those positions. mark: definitely it will remind people that europe has a major banking issue and as you mentioned it is more iffy than in spain. if you want to look at more positively it is great this deal has gone through in a time of exuberance. this has been sorted out to the private sector, not through the government sector. there has been a private sector solution with no state aid and that is important. this deal has been at a good time for europe and it has been in a good way and that is a positive message. it reminds people that the italian situation has not been sorted at -- and that remains in the background and it will rear its head again. guy: does this change the attitude toward what mario draghi says tomorrow question market does reinforce the issue that banks are a problem. you wonder whether or not given the fact that we have an election before may next year in italy, whether or not mario
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draghi is prepared to change about or giving hints changing course. isk: i do not think draghi forgetting about the italian banking system. he is italian, he is aware of that facet he needs to deal with. he sounded quite dovish and there is speculation there might be a hawkish twist or a less dovish twist. clear line give a for tapering. he will say it is a dissent -- a issue to discuss. overall i think he is pretty dovish because he knows that italy is not sorted. it is an immense problem, not just the banking issue but the election as well. guy: always a pressure -- pleasure. at mliv .
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around key events. for instance, the u.k. election. forget projections putting labor within spitting distance of conservatives. fearing the loss of dozens of seats. britain coast to the polls tomorrow. youth turnout looks like it will be key. anna edwards is in westminster. anna: thank you. we will get to some of those great themes in our conversations this morning. we will have a conversation about financial services and what it wants to see for the next government. us greatic has joined to have you on the program. let me start from asking you what you want to see from the
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election. on the face we have jeremy corbyn who likes to talk about greedy bankers, theresa may who wants to say that brexit means brexit and is talking tough on immigration. you thing any -- do you see anything the banking sector gets excited about? miles: it is clear that whoever gets into power, we will make sure that the economy continues to work. if you look at trade surplus we generate more trade surplus than trade surplus generating parts of the economy. we generate sound at one billion pounds worth of tax revenue from the financial services element of that ecosystem. article issue is making sure that is understood i whoever comes into parliament. the role of the industry plays understood and incentivized and we get the right result from the brexit talks. , getting much of that
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brexit right, how much is there a clearing business? ites: there is no desire for , from amongst our members, from the people that use clearing and it is illogical. if you take it away from london why aren't you taking it away from new york? it starts to look like a punishment agenda. anna: the risk is bigger, having such a large [inaudible] that londonreflects is successful. anna: you are expecting that logic is the only factor or suggesting it should be. miles: if there are moves to take it away that will be a political issue rather than a commercial issue or anything else.
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what we need to make sure is anything that happens in london has a risk application or applications in other parts of the world including europe is reflected the way we regulate and supervise. there is no commercial or economic logic in moving it away from london. anna: you talked to the government and lobbied on behalf of the industry. have you been talking to other political leaders, other than the other parties you talk to regularly? miles: yes we do. we had a meeting with the labor shadow treasury team led by john mcdonald. it is the leaders in scotland, wales who we meet regularly and northern ireland and the other side of the channel. , i was inbrussels berlin yesterday. there is an ongoing positive dialogue. sectorsat with the response be if we did see what still seems to be not what is indicated by most of the polls,
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what with the reaction be? >> the decision of who will be elected is down to the british people. we have a track record of working with governments of whatever stripe and contribute in the uk's success and we look forward continuing to do that. anna: a lot of the cities around europe want to eat the city's lunch. are you impressed by any of the teams you have seen trying to lobby against you, trying to win your business like frankford, dublin? miles: i have not seen anybody who impresses me. anna: do you sense that? miles: there are attempts of people coming in and selling their wares but london is one of two genuinely international financial services. -- of see a rise in the the third center in asia. if any jobs move from london that will depend on the nature
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of the final brexit deal. the first place they go is to the next international financial center, new york area there is a trench where stocks are happening. the final tranche fractures and splinters across europe. there is no single obvious other international financial sector. anna: thank you for your time this morning, good to have you here. matt: anna edwards there with the ceo of the city u.k.. we're building up to the u.k. election all day on tv go ahead and check it out. london dab digital radio will be building up to it here. everything you need on boomer television and bloomberg radio concerning the u.k. election. tune in for our one-hour special on thursday at 10:00 p.m. after the voting is finished. we will get instant analysis of the markets as exit polls are
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published. i believe we are putting the band back together for that one. santander, the rescue, the spanish lender will pay one euro banco popular. what is the price here for the ceo? we'll give you the stocks to watch next. the european open just nine minutes away.
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guy: welcome, 52 minutes past the hour. where counting down to the european open. santander am a they will raise 7 billion, that is a little high. we are talking about sentiment santanderover -- a taking over banco popular. one shares and tear to assets are being downgraded. it will be interesting to see what happens to trade. this is one of a number of this,, i will assume these are converted. these are trading, the shares in popular are not trading.
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will see exactly what happens. this would -- could be one of our better indicators in terms of what is going on here. matt: i will tell the viewing public that you are jeh johnson 87 at the burke and case they want to i am you. and at that it is interesting that the chairman of santander saying the capital increases fully underwritten. that is a very interesting headline we have got across the bloomberg terminal. a build some confidence, i would guess and she says santander the spanish% of market. it is spain but that is still a good thing. there are some good news headlines coming across that you may not have expected 15 minutes ago. in thethis unfolding
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last 54 minutes. absolutely fascinating hour for financial news, for banking history as the single resolution board comes. yesterday we were getting reports from the chairman of popular they did not need ecb help and in the last hour we find out the ecb has looked at the box and think the bank is going to fail. the single resolution board has brought in, they made the decision the shares are zero. really fascinating string of events and the way it unfolded like a waterfall. guy: it will be amazing to see how this works way through. we have seen this work, we have seen this not work. the biggest take away is some of the mechanisms we put in place post financial crisis may be starting to come to light and working. the focus will shift to what is happening in italy which represents a significant thorn in the side of europe right now. a , use it, there is
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bunch of functions that are fantastic. you can watch what is going on on the telly. and i urge you to use this loop button down here. ask the guess the question. the market open is next. ♪
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guy: welcome back. one minute to go until cash opens in europe. cocos arehe open. effectively, it has been written down to zero, so you are seeing a big drop this morning. you are getting some trade surrounding that. i will with through and show you the fair values. it looks like london will open flat and europe will be opening a little down, but spain is the one that is going to open softer than most, down by .6%.
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santander could be under a little bit of pressure this morning. matt: it could be. to highlight, as we really see this european story picking up, investors that were disappointed with the trump trade in the u.s., getting into european stocks. on the two of 29 groups have not shared in this year's rally, mining and energy stocks. guy: let us show you what is going on, the picture as you can see, flat. so many risk events coming up. i think people are not going to be taking positions. they have probably locked in where they need to be. 7525 is where they are this morning. as soon as we get santander, we you it.w you're up marking time. yesterday, a bit of a selloff. we are not recovering from that, as you can see. the london market down by .1% pure manus cranny. what way youter
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cut it up over the next 48 hours, you have a trifecta of risk. comey goes in front of the committee. he will not talk about obstruction of justice. you have the u.k. election risk. gap, and it is wider than the watford gap. quo attus grow at -- s&p. financials are off or down. if you do get the santander price, flash it up. there it is, bottom of your screen. it will take over bank of popular -- banco popular. 35 billion euros worth. german factory orders dropped by the markethan what
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had expected. business confidence, the highest since 1991. manufacturing and services, the fastest into tears. this is btv 9196. matt miller got into the machine before i did. theresa may does have an increased majority in the house of commons, what might that mean in terms of equities? the bomb story is a wall other story in terms of outcomes. we just put them together and this is one of the charts we have been using this morning. order, there are corbyn's losers, but may's winners could potentially be within the likes of elders, haze hayes, and domestic retailers. was down 2% to 2.5%. this is the chinese equity market. up on the day, 1.2%.
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interesting take from hermes this morning. the chinese are set to buy more u.s. treasury bonds. that is a direct message to donald trump in the white house to sue or call -- to sooth or salm protectionist measures. therefore, they are ready to potentially buy more bonds. wasfixing on the currency up again in terms of controlling that currency. i am off to digital radio with carolyn hav. guy: thank you. let us talk about the markets in terms of the details of what is going on. some percentage idea what is happening around in cash trade. in focus today. santander down by 2.5. we just work out some of the details of what is happening find out in spain and exactly what the broader picture
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is around europe. santander down by two point 45. all things considered, the bigger than expected chair placing, not a bad performance. that is the upside. some interesting moves. i want to come back to that story later. up 3.51 this morning. surrounds screen. and what is really interesting is this will only be a further concentration of risk when it comes to spanish investors at santander. matt: interesting as well how big santander now plays into the ibex. wpt to see the members this morning on any index, and we see now santander moving up. it is a bigger waiting of the ibex, the spanish benchmark index, with 35 stocks on its, 14
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point 7% now compared to the 12.1% of the company which owns zara or h&m. is one of thet biggest success stories in retail history. it made a massive billionaire out of the owner, so some then there -- so santander leapfrogging in the ibex index. guy: francesca is the cohead of garzarellirancesco is the cohead of market research. this is a reminder europe still has an issue with its banks. spin is a more positive you can put on this story, and that is that the mechanisms that have been put in place are working. the ecb has been involved, the srm has been involved, and it
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has taken a view on the bank and said it needs to be roundup or find a private acquirer. it has written down the bulk of the assets, including the cocs and was -- the cocos and what should be written down. francesco: i agree with you. this is being seen as an idiosyncratic event. spain is a market where people have worked a lot on the banks. there has been an yes m injection of capital years ago. so the numbers are well known. there is growth. guy: the backdrop as well. francesco: exactly. the backdrop for spain with growth, lower rates, banks being removed out of their systemic that spain and a different line to italy. an idiosyncratic event, not treated with macro systemic consequences.
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you see this across the credit spectrum. european francisco, banks have big problems and fun of them, aside from italy. the fact that they do not make any money is a big problem, right? francesco: i agree to that. it is a global problem. it pertains to how people value regulations,ighter capital needs, and with a low interest rate environment, but camino, i think if the outlook to steepen aurves bit, a reversal of monetary policy in 2018 across u.s. in europe, it remains a positive outlook. we see growth in europe sustaining. matt: so, is now the time, francesco, to invest in banks, or is that time already passed?
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have we bottom tick the banks here? the positioning in european banks has gone up a lot since the start of the year. i think people are square or slightly overweight. i see upside. i think opportunities like this where you have an idiosyncratic event taking the more index down should be seen as a buying opportunity. i would be my view. guy: let us talk more about draghi's view. you talk about this kind of gradual change we are going to see emerging from the ecb. tomorrow, it may start towards the back end of this year. your sense is that we are pointing towards the exit right now. do you think that can be started before the italian elections? francesco: yes, i think the ecb
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will be careful not to get with political events. obviously, they will be looking at them. remain, localy events, they will conduct monetary policy looking at macro indicators. i think the macro indicators currently tell us that growth is strong. we are obviously coming from a large output gap. it takes a while. credit has surpassed, i think i a vast margin, their own forecasts at the ecb, so they are happy about credit origination. banks are flush with liquidity. all of that is positive. where the problem lies is with the inflation outlook. it is a global phenomenon. guy: is it a metric for the ecb to be looking at? it is meant to be a metric, but is it the wrong one? francesco: i need on the compass. needle on the-- a
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compass. it is notent of that, compatible with all things. if they had a dual mandate, perhaps they would be talking a slightly differently which. i think that qe is -- the net purchases from qe will be gradually faded. that is the market view. very widespread market view. i think, were the market is getting the message wrong, is on the front end of the curve. we have seen taper tantrum in the u.s. being a problem of a misunderstanding about the reduction in net purchases being associated with rate hikes are coming. i think the ecb will be very careful not to let go of the front end of the curve. they want full control of that front end of the yield curve, and i think they have plenty of scope to achieve that. matt: all right, francesco garzarelli, head of global macro research at goldman
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sachs will stick with us. if you are a bloomberg customer, you can watch this show on your terminal as well using the function tv . the video stream, you get on the right-hand column, and all of our charts and functions. you can follow along. use it, our work, as your own. we recommend your functions to your friends. you can communicate directly at the bottom of the screen, a blue link "ask the just a question. " and all so any complaints. special tomorrow night at 10:00 p.m., when the polls close. instant analysis and market reaction. of thatbe at the helm show. make sure to tune into that and all the other coverage. this is bloomberg. ♪
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matt: welcome back to the european market open. i am matt miller in berlin. taking a quick look at santander after the semi-surprise purchase of banco popular. 7 billion euro capital raise and one year of purchase price for banco popular. your trade of santander trades. they were initially down, but
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now up 2%. the interesting thing is if you look at the year-to-date chart, you see a massive gain, april 40% -- a 40% gain. boutine,en -- anna although she has not kept up with the index, she has gotten a pretty decent gain considering the situation the european banks have been in and still are in with regards to interest rates in the e.u.. let us cross over to nejra cehic, and get some mid-caps movers on the day. nejra: starting with a design and engineering company gaining one of the best performers on xx 600. it beat estimates. the company said the new financial year has started in line with forecasts, so that was on the upside. aoking at rereading fear,
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group cut to neutral from outperform at may 1. we are seeing it lower on that lyle3.5%, and tate and also moving lower, down 2.5%. theresa may said she would be willing to tear up human rights legislation in the battle against terrorists. speaking to supporters at eight campaign event outside london, -- at a campaign event outside london, she says she wants to make it easier to limit the freedoms of individuals who pose a threat but cannot be prosecuted in court. the legislation changed during the conservative liv government. last day of campaigning, what ?an w anna
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humanshe would rip up the rights clause to defeat terrorists. much arity is very dominant theme. brexit increasingly also a theme. we have seen the two leading parties trying to get back to other conversations and talk about things other than security, although that has proven difficult for them. we had an interesting opinion paul out overnight, which showed no change in the level of support for the conservative party at 43%. ahead of labour in this poll, and no change since the previous polls for the conservatives. that is interesting given the terror than three have seen. this field work was done after the terror attacks, so that is interesting. of the falls as we discussed, but if you look at where the conservative party have been campaigning, they are very much campaigning in these
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constituencies. labor constituencies where there was a strong lead vote -- leave a vote during the brexit referendum. a man who agreed that perhaps it suggests the door to door feedback they are getting, private polling, that the gap is not quite as close. also, we understand, according to one party speaking to bloomberg news, the labour party has drawn up a list of 30 districts that they do not have a prospect of holding onto, according to that party a id. guy: thank you. and on the green. we are expecting plenty of coverage when it comes to u.k. politics. still with us, francesco garzarelli. your colleague, andrew veneto, put out a note on the 21st of may. how are you guys positioned right now when it comes to the gilt market? how do you see the gilt market?
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francesco: what we are telling clients is that the gilt market filters in the fixed income spectrum as a very expensive market. it has been the case now for .onths, and a bit arcane i think we put it down to the fact that when global rates started retracing from the march, people in the -- thell have a problem u.k. still have a problem around the pension spectrum. tryingtes go up, people to lock in rates. when they go down, there is an attempt to chase the market lower. created aetry has technical dynamic for the gilt market which has made prices depart from fundamentals.
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down the line, there will be a hike by the bank of england, particularly if we get more redistributive policies here. inflation will remain a problem, and growth has not slowed enough , so the gilt market, 1% on the 10 year, looks extremely expensive to us. n't it look like you get more redistributive parties? francesco: i agree with that. i think across the aisles, you have this narrative of redistribution, which obviously is the legacy of what we have been through the previous cycle. it is not unique to the u.k. it is a problem we see in many of the advanced economies. i think it will dictate the ,rofile for wages going forward
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and taxation, for that matter. guy: how quickly do we get back to talking about brexit? brexit seems to be the overriding factor. moves sterling and everything off. when he think about the gilt markets, you kind of segment some ofits technical -- what is down to the global macro theme and what is happening in the treasury market. some of it is down to the idiosyncratic -- of the u.k. market. francesco: while, i would say, i 50% tout it, probably at 60% technical. guy: that is the majority of it? francesco: the majority of it, and then, there is a global component. you have bunds at 20 basis points and treasuries at 2 points. i think that is the remaining, i
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would say, 30%. what is left is tiny. this brexit idea. the brexit situation gets revisited. it is just a matter of how long the transition or softness to the exit -- guy: it is a small part? francesco: i think it is a small part. guy: fascinating. matt: absolutely. francesco garzarelli will stay with us, cohead of global macro and markets research at goldman sachs. we will get into the bloomberg business flash. you do not want to miss that either. we go to suppressants are at -- we go to sebastian salek. sebastian: the bank was likely to fail. santander plans to raise about 7 billion euros of capital as part of the transaction. banca popular will operate under "normal business conditions"
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after all the shares and capital instruments were transferred to santander. has fired more than 20 people after a company-wide investigation into harassment claims. two also hired at least high-profile senior executives, whose job will be to rethink branding. a law firm led the probe, reviewing 215 human resources claims. there is another investigation being led by eric holder. the u.s. to mind its own business over the detention of three labor activists who were investigating a factory. the threer watch says were working undercover to investigate the plant operated by the group. the state department called for a release, but beijing's has no country has the right to interfere. that is your bloomberg business flash. matt. sebastian, thanks very much.
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jeff sessions has suggested in the past several weeks that he might resign amid a widening rift with president trump. according to a person familiar with the matter, sessions have come under fire from the president over his recusal from an investigation of russian meddling in the 2016 election. meanwhile, james comey will testify to a senate intelligence panel tomorrow, according to a person familiar with comey's thinking. he will publicly described conversations with trump, but stopped short of saying if he .hinks the president sought a probe. still with us, french escobar the rally, cohead of market research at goldman sachs. in europe, we are focused on the ecb, banco popular, the u.k. election, but it looks like the situation in the u.s. is genuinely escalating. james klapper overnight giving a speech in australia saying what is going on in the white house is far worse than watergate. what do you think this means for the dollar? francesco: look, i think the
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politics in the u.s. have played into the dollar primarily by influencing people's expectations around the fiscal regulatoryiscal response by the new administration. there were high hopes that this response, this easing of fiscal policy would have come already in the summer or before the summer, and i think, given the noise around the administration, with all these, you know, issues you alluded to, that policy toft is now being pushed out 2018, and so, we live in the context of lower rates, growth being ok, no fiscal shock, and people just retreat. by the way, inflation has been lower than expected, so it all kind of came together, leading
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to a flattening of the yield curve and a big appetite for receiving yield. guy: let us talk about that flattening of the yield curve. we are trading at 84. how wrong is that number? beenesco: look, i have not a big advocate of curve steepeners in my predicament about where rates would go. what is happening here is at a global level, people think that deflation is nowhere to be seen. there is technology, there is, you know, plenty of labor, a bunch of factors, and the realization of inflation has proven them right so far. ones are more mixed, but cpi, surely that has been the case. at the same time, there is a conviction that the fed is uncomfortable with keeping policy rates in the real terms, so low. two forces are at play. the fed is pushing up the front
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end and the market is pulling down the long end. easy as that. guy: francesco, great to see you this morning. francesco garzarelli. we will talk more about santander. this is bloomberg. ♪
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it all adds up to our most reliable network ever. one that keeps you connected to what matters most. matt: one euro. that is the price santander will pay for banco popular. it will also raise 7 billion maybe a capital, so bigger price tag. shares in the spanish lender trade lower. out?the young vote turn it looks like it is going to be a key factor in tomorrow's u.k. election. bloomberg polls suggest the pound could plummet to $1.20 in the result of a home parliament. hung parliament. jeff sessions suggested he may resign over a widening rift with
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president trump. this as james comey testified in front of the senate tomorrow. good morning and welcome to "bloomberg markets: european open." i am matt miller in berlin alongside guy johnson at bloomberg's european headquarters in london. guy: 30 minutes into the trading day when it comes to cash equities. let us take a look at where we stand at the moment. .ot a great deal of movement unsurprising given the economic events over the next 24-48 hours. we are not going anywhere hard. we did sell yesterday. the individual stock stories, i would argue, probably more interesting in terms of the sense this morning. you kind of need to break it down. santander kind of comes to the top of the list. a struggling rival. that struggling rival of course is banco popular. it is a stop we have been watching for some time. the move comes as the european central bank was likely to fail due to a significant
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deterioration in its liquidity situation over the last few days. joining us now, the european finance team. edward, let's talk about what exactly santander is picking up. it gets a deposit base, which but it isightforward, getting this real estate portfolio. how big a concern do you think that will be to shareholders? onard: i think it will weigh shareholders because it is 37 billion euros, a sizable sum. as of the close yesterday, it was at 1.2 billion euros. it is a portfolio that has to be managed. it just ended moments ago. they said they are looking at a 65-60 7% coverage ratio on that -- 65% to 67% coverage ratio. on the other side of the ledger, which must have been
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interesting, is a 34 billion euro performing portfolio of loans to small and medium-sized businesses. this has long been a business segment that annable teen has anna boutin has priced. prized. matt: does this result banco popular's problems? a bank run is the biggest concern for the frb and the spanish government. does this result is issues for retail customers? retail customers of the bank, i think they are going to probably be relieved that santander is taking over, but for those customers that actually hold equity in the bank, or any kind of bond or so
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forth, there could be problems, and one of the big fronts to look for going forward is going to be litigation. in spain, shareholders have the any company, any issuer, that may have misled them or defraud them in any way. there is anticipation that there could be a lot of legal battles to come. banco popular has had three equity raising since 2012 through the last one was just thatyear, and you can bet a lot of the stockholders that bought into that equity raising right now are calling their lawyers and thinking about "we need some kind of recourse here." legal exposure is a big risk going forward. matt: i assume equity holders -- and correct me if i am wrong here -- are wiped out. the single resolution board passed all of the equity to santander for the price of one
3:35 am well as the all of those assets are now rendered worthless, no? edward: on the equity piece, i am not so sure. they may be swapped in for some kind of santander shares. i know that here one and the tier two levels, the srm said there's going to be bitcoins on this. bail-inss going to be on this. a major bank action, so i think the banco popular equity holders -- i am not sure they are wiped out here. they may get some santander shares in exchange. guy: yeah. i think, as far as i understand, been popular shares have written down. it looks like we are seeing the banco popular shares being written down to zero.
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it is being written down to one euro and then transferred as a share into santander. you can see the cocos have come extremely unstuck. just to clarify what is happening, that is one of the effectively being wiped out down to zero. edward, thank you very much indeed. german utilities are rising pretty fast. why? matt: actually, very fascinating story here. a court has ruled that a nuclear attack -- a lot of german utilities had been paying a serious amount of money for -- is illegal, and those companies will effectively get paid back, germanourt rules in this tax is illegal, and not only will these companies get paid back, it looks like they will
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get paid back plus interest. you will bene watching, up 6.2%. it had a good run yesterday. people were maybe expecting a positive scenario, but this tax is the him to illegal, so the utilities will get compensated. it looks like, for the taxes plus interest at 6% -- it looks like, the tax is plus interest at 6%. so, a lot of money. we are talking about millions of dollars going into this tax. billiond two point between 11 and 16. -- 2.8 billion. guy. guy: that is an amazing story. it just shows, in terms of the sort of timeline, they are
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attached to these holdings. you want to use tv . you get to watch what we the bit downd here. this is where the real kind of stuff happens. you have all the breaking news, the data purity can access chart we are using, all the breaking news, all the santander news. there is the imap function. there is a chart you can pop out. you can ask the guest question down there. effectively, this is interactive television. if you want to get involved in the conversation, tv is the best way. if you want to get in contact with me on that directly, -- or us. directly, ib this is bloomberg. ♪
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matt: welcome back to "bloomberg markets: european open." i am matt miller in berlin alongside guy johnson in london. bloomberg's first word news with sebastian salek. sebastian: thanks. in iran, two attacks have reportedly taken place in tehran this morning. a gunman targeted the parliament and a religious shrine. at least one guard was said to have been wounded during the attack inside the country's national legislature. reportedly entered the
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shrine of the founder and opened fire. jeff sessions suggested that he might resign amid a widening rift with president trump. according to a person familiar with the matter, sessions has come under fire from the president over his reach you though from an investigation of russian meddling in the 2016 election. yesterday, secretary sean spicer would not say whether trump still has confidence in sessions. james comey will publicly describe conversations with donald trump, but stops short of saying whether he thinks the president sought restrict -- already -- in the middle east, the biggest oil and container ports have banned all vessels sailing to and from qatar. n authorities
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have close off all of their ports. container and oil terminals in the uae also bar traffic to any ship touching qatar. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. guy: thank you very much. in the past week or so, we have seen the gap between the conservatives and labor narrowing in the u k's election race. 43% to may still leads jeremy corbyn 36% in the bloomberg compass it of polls. the -- composite of polls. there is the tightening. the upward blue line has been the real story. let us get to anna edwards, outside the houses of parliament. anna, how will the candidates position themselves on the last a of campaigning and will they be pushing on the issue of
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he was saying it is all about the crucial vote. how many of them decide to turn out or participate in politics? you need to get to the polls, which is obviously to have your vote count. talking about what they are doing today, the leaders are trying to steer the conversation away from security, although security clearly dominates symmetrically. jeremy corbyn will be crisscrossing the united kingdom. he will be in england and scotland. just 24 hours to save the nhs. theresa may, the prime minister, will be in england, trying to talk about frexit more. she has been trying to turn the conversation back to that. that is one of the key things. of course, all of this with the ongoing conversations about the security dominating things. matt: anna, each of the possible winners would deal with economic
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issues differently, but what are the main points that they have to focus on? face a host ofy challenges to the good news, on employment would be the good side of the lowest rate in 40 years. there are concerns about whether to many of those jobs are low-paying, less secure, oft-time, less desirous type work. elsewhere, we have worst news on the economy. slower growth. we have dropped to the bottom of the g7 in the first quarter. inis the weakest quarter four years. cap and wage growth made worse by inflation being higher. d wage growth made worse by inflation being higher. investment being cautious because of brexit. both of those were concerns for him. productivity, clearly a risk for him as well. , and itw the g7 average
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is in both the labor and conservative party manifestoes. they both want to do something about productivity. s, matter which party win they do face a series of challenges. the recession risks are growing. things to think about once we get through tomorrow. anna edwards, ahead of the u.k. vote. 20 of coverage coming up. we will have special coverage at the end of voting, i.e., when the polls close. now, the pound could plunge to as low as 120 on the cable rate friday, a level last seen in january. should this lead to a hung parliament? such an outcome seems unlikely. it will be marginally more negative. joining us now, themos fiotakis.
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good morning. at the moment, the polls seem to suggest the conservatives are likely to generate some kind of majority. walk me through the central scenario in the distribution of outcomes. walk me through what details look like. wiung parliament or labor n? themos: you described the range of outcomes, basically. when you think of the pound, per se, the message from the last two political events, the u.s. election and brexit, is trying to trade it on the back of the outcomes, detail outcomes that you think of, and trying to guess how the market will read that is tricky. it may prove to be the case of the market reaction may be much more linked to the market action prior to the event, rather than to the -- guy: to the positioning going into it. themos: more or less.
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i think there is one big factor that the market is missing with respect to sterling, and may be behind the price action in the week following the election result. that is the fact that sterling has received a very big boost by the profitability of global firms based in the u k, which ,ave had a very -- in the u.k. which have had a very good reflationary cycle. that leaves the pound vulnerable to an external shock. we are also forecasting a slow economy. and from any kind of brexit noise, that leaves us more vulnerable to the downside. to give a short answer to your question, i think that we will have noise. some unpredictability in the short term after the elections. the main outcome we are describing as well is one where you have a little bit of a
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shift, but not a huge change to what the status quo at the moment is. barring any kind of immediate reaction, the risks are steeper downside for the pound. matt: what you are saying is you expect the conservatives still to win. the activity in the pound may be uncertain, but is not likely to big move. you could later see some risk to the pound in the form of, what? big firms leaving the u.k.? or firms the longer getting the advantage of higher sales because of weaker pound? etc.? themos: so, i think you are touching on the main issue here. has a very big external deficit, and that deficit has narrowed over the last six owing to the fact that
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the profits of u.k.-based companies have basically done really well, even beyond what the pound can explain. you know, it is more linked to the global reflationary trade. what this means is that as long as the global cycle is ok, this will reduce the downside for the pound. it also means that if the exit happens at the same time as the global cyclical downturn, the risks to the pound are quite dramatic. there is a little bit more of a steady path for now, and potentially heading towards the end of the year, beginning of next year, risks being quite skewed to the downside for global and local factors. guy: short and sweet. thank you very much indeed. fema field hockey's joining -- themos joining us. a bloomberg are customer and you want to hear that again, no problem. on your terminal and hit tv . and this, you can rewind
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catch what previous guests like themos said or what sebastian was telling us about the top news stories. more importantly, he can go here and check out the functions and the charts that we use, including, for example, the u.k. elected composite poles. you can also click into the blue link at the bottom of the screen and right feedback for the program and ask questions to the guests. give us some fashion advice. whatever you like. you can talk to the show that way. function.b. this is bloomberg. ♪
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guy: welcome back. you are watching the open. let us have a quick conversation about what is happening with reddish politics right now. let us talk about what is going on. jeremy corbyn, this is what we are getting from the bbc, he apparently is replacing diane abbott's with lynn brown due to ill health. interesting to see how may be the secretary is being replaced at this late date and how it could impact pulling outcomes. that big report by the bbc. we will come back to that story and maybe deliver a little bit more detail surrounding it. let us get back to our main story of the story. santander to raise capital.
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joining us now, tom. i want to talk about what is happening with the cocos. they are being written down effectively to zero, right? this is what is meant to happen? this is the process unfolding as we anticipated that it would. this is a wind down or resolution of a bank in europe, and how it should take place. >> i think that this is exactly right. this is an interesting case to see whether the rules that were introduced after the financial crisis actually work in practice, so this is working as it is meant to. the investors will be very nervous this morning. guy: any kind of ripple across into other cocos this morning? so far, butot huge could get bigger. there are other banks which -- particularly in italy and portugal -- which look like
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banco popular are and those investors might be nervous today. matt: is there concern we could see others wiped out 20 since this is kind of the first big case of it that i have heard? there are no obvious candidates at the moment. last year, deutsche bank and t-1's are inose a there arerouble, -- weak banks in portugal, including one that has issued a bond recently. and there are also weak banks in italy, which have junior bonds, which are likely to be wiped out in coming weeks. guy: great stuff. coco space. litigation cover
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risk. up next, "surveillance." to bloomberge off dab digital radio. this is bloomberg. ♪
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francine: santander shares are mixed. long-termweigh the impact. we speak to the santander chair ana botin shortly. to possiblys is set resign. the election that will determine future on the global stage. will the prime minister received the mandate to do brexit her way. this is "bloomberg surveillance ."


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