Transcripts For BLOOMBERG Countdown 20141112

Hello and welcome to countdown. I am mark barton. I am anna edwards. And i am manus cranny. 20 of news on the banking sector. The regulator in the u. S. The first to break its cover on this given the details of who they are going to be finding. They have ordered five banks to pay more than 1. 4 billion in an fx probe. Citibank, hsbc, jpmorgan, rbs, and ubs will pay a fine. Not said anything about any conversation they may or may not have had with barclays on this. The banks have said they will cease and desist for further violations, according to the cftc. Some fx traders and banks court knitted coordinated their trading with others. Banks failed to assess risk with cftc is goingthe into detail and word from the u. K. As well. We have got to figure the figure is 1. 1 billion pounds. Before the release a few minutes ago, analysts said that the six , barclays, citigroup, hsbc, royal bank of scotland, ubs, barclays has not been mentioned today. That the fines would total 1. 5 billion. If it is the six, it is less than the figure. Ust to put it in Perspective Agency ins the first 2003 to say it was looking at whether the 5 trillion a day currency market was being manipulated. And then investigations on three allegationsproving that dealers at the worlds biggest banks traded ahead of clients and colluded to reach benchmarks used by pension funds, Money Managers to determine what they pay. Fca got the ball rolling. Thesehave had conversations on a number of occasions, how much you are provisioning for the Foreign Exchange manipulation. Interesting that they cannot actually find the bank, but they can charge a portion of profit they may have earned. They levied ubs. Have fullying they provisioned for these charges. Both of those figures have come ma. On cftc and fin the overall number is 3. 2 billion. Add to that the amounts we are hearing from finma, which cannot because fines because of a slightly differently the regulations work. For the sector as a whole, it looks like the banks set aside provisions to cover it. The fines vary per bank. , we have got to wait and see of course. The original estimate was around 5 billion. This is where you begin to get into the idea citigroup are the number one. Followed by deutsche bank, barclays, in terms of priority of fines. The other dynamic is this ubs, we understand, has extended their immunity with the department of justice through 2015. They were the first to go forward to the European Commission to actually give information. They have reached this settlement. 134 million swiss francs and 290 million to the cftc. File u. S. Prosecutors charges against individuals . That is the big question Going Forward. That could happen. The Justice Department could , according toeas one person familiar with the matter. It is interesting to compare how regulators dealt with this. An article out of bloomberg says these are bigger penalties and are coming more quickly in a more coordinated fashion than we have seen. Some of them have spoken about how they wanted to do things differently over these fx probes. We will continue to update everyone on this story. Ubs come up for today, they had the single biggest fine on record, 160 Million Pounds back in 2012. Enough of Foreign Exchange for the moment. I am sure we will talk about it right throughout the morning. The apec summit ended yesterday but the deals are still being done. The u. S. And china agreed on carbon cuts for climate change. Months of quiet negotiations between the countries. Stephen engle is our man in beijing. Give us more on this deal. Just how historic is it . I mean, it is fairly historic as well. Any kind of global possible pact that we may get impacts the eurozone years from now. These are the worlds two largest polluters coming together with a deal. When we get this kind of country heads of deal, that is what is interesting. Obama and xi wrapping of their summit by announcing this both sideseal with pledging deeper cuts in carbon emissions. For the first time, as is what is in store this is what is targetc china set a at capping emissions. The u. S. Also setting a new, lower target to cut Greenhouse Gases emissions below 2005 levels by 2005. Their current target is 17 2020. 2005 levels by so they have increased that. A deal that has been nine months in the making. The two biggest polluters in the accounting for more than one third of Greenhouse Gas emissions. President obama says it is ambitious but a major milestone in time for china. Xi said the joint press conference, chinau. S. Relations have reached a new, historic point. He used the word historic. Give us a sense of where else are obama and xi being portrayed as being eytoeye. There are still fundamental agreements in the backdrop of putting them together. Absolutely. They do not have a great track record of having warm relations. They had that california retreat that was not received that well, according to those who witnessed it. The last time obama was here in china was 2009. His first year in office. It was not seen like a lot of victories from that one. There was some uncertainty among the gentleman. Has been in office less than two years. This was an opportunity to get this trust or mistrust, however you want to call it, out of the way. Both sides trying to say a number of things on the issues, including human rights. They had a candid discussion on human rights and described it as a work in progress and said china has made enormous progress. Of course, the United States would like to see more progress. They also talked about the protests in hong kong. Obama encouraging elections to be transparent and fair. Said, mr. Isingly obama, this is an affair that is exclusively chinas. A polite way of saying buttout. They talked about a lot of issues. Tradekorea, tibet, rival deals, chinas proposed Infrastructure Investment bank, militarytomilitary cooperation or lack thereof. They talked about a lot of issues. It shows that they have a lot of territory to still overcome. Thank you very much for that. Tuned to bloomberg later today. Pimco chiefd former executive will join us. Vomit elerian will join us. Elarian will join us. Let us know what you think of the show and what you want to see more or less of it more or less of. What else do we have to talk about this morning . Today, big day for mark carney. He will deliver the bank of england Inflation Report. He is celebrating an anniversary of sorts. He has been governor of the bank of england for 500 days now. What has he done now in that time . Stay tuned to countdown. We are back after the break to tell you. It is a day of reckoning. Foreign exchange fines for regulators have arrived. We are getting the details. Five banks have been fined and one bank is still in discussion. It is barclays. Barclays has not been fined as of yet. Five banks have been fined. Are jpmorgan, hsbc, citigroup, ubs, and rbs. Estimated fines of between 225 Million Pounds and 250 Million Pounds. Citi, 235, jpmorgan, 222. 1. 1total not of fines is billion dollars. Analysts expected it to be in the range of 1. 3 and 1. 5. That would have included barclays. So five out of six have been fined. Is in ongoing discussions with the fca. Cftc has also not included barclays in these announcements this morning. Theillion worth of fines to banks that you mentioned and that was an estimate of about 1. 5 billion. Just a shade below that. And for ubs, we have levies here for them from their own regulator, which is finma, the american regulator, which is cftc, and from the fca. 100 34 million swiss francs. The americans, 290 million sorry, 200 280 million swiss francs. 234 million u. K. , pounds. So total swiss franc levies on ubs, 770 3 million swiss francs. That is well within what ubs had already provisioned for. My estimates for provisioning was somewhere around 1. 74 billion. We do have other american institutions. We have the office of currency control which may come out later in the day. Ubs also being told to automate 95 of their Currency Exchange trading. Ubs displayed cooperation. These of the messages coming from the swiss regulators in terms of ubs. George osborne said the u. K. Took tough action to clean up corruption. Those are his words. Also saying he will ensure the bank fines are being used for the wider public good. The fca saying that the bank settled at an early stage in exchange for a 30 discount. That is the other thing. Certain institutions went early and negotiated with the institutions like the European Commission, which is what ubs and barclays did originally over the libor investigations. Stay tuned. It is going to be the theme of the day. It was a day of reckoning edit has arrived. Results throughout the morning. Not a card a. M. In london, we will bring you the conduct Authority News conference at live on bloomberg, right here. Mark carney has been governor of the bank of england for 500 days. He has made a number of changes. Tom mckenzie reports. Mark carney became governor of the bank of england in july, 2013. He replaced mervyn king, who reigned for 10 years. Carney has overseen and improving u. K. Economy. He introduced Forward Guidance, giving consumers and businesses confidence to borrow. He has held Interest Rates for five years. Saying they may rise next spring. Carney initiated bank stress , making the sector more transparent. He is current chair of the International Financial Stability Forum and has proposed that if a bank suffers losses, its shareholders should bear the brunt, not taxpayers. On theput jane austen note, showing his love for british literature. The boeicket match at summer party. Maybe he would prefer ice hockey. He was a goalie in college, after all. The head of the bank of quarterly report. Where do we stand . 500 days in, how do we grade him . Rank mark carney 500 days into his 10 years as governor of the bank of a win. He certainly has not been easy to read for the markets. He seems to be shifting back and forth. He is not the only one among central bankers. It is a tough time to be a central banker. Communication is hard. Us reading it and then giving it. What do we expect from the Inflation Report later today . Is that going to be a lot of the focus for today . The expectation is that it will be quite dovish. That would be in line with the market. The market has pushed out the first rate hike well into late summer. I would say the risk is that it is not quite as dovish because the u. K. Economy in itself is doing quite well. Materialized yet, but there are risks. Do you think the market is too far ahead. When you look at carneys language in paris at the end of last week, saying get on with it. See through the volatility. Get to normalization. That is not a man who seems to be waiting until next summer. Is the market ahead of itself . It is certainly possible. The interdependent bits like the fed. If we have a stronger piece of data, the market will change again. You are starting to sound like a central bank are now. You really are. You are in the analytical side of this business. Is the market too far ahead . We will are bullish we are early we are bullish on sterling, so we would say yes. Yes. I am sorry. I am reading too many centralbank pieces. [laughter] finally got him down on one side. That is good. The sevenyear low against dollar. The talk of the town seems to be that the election could cause a sales tax hike next year that binned, anylved, word you wish. Good for the yen . Is it going to head lower . Not to be on the fence, but we think this will continue. Be tax hike would probably negative for the yen. Then again, it depends on what the bank of japan would do in the sense is that they would do more in this case. They will do more animals any case. That is where in almost any case. Is where we are now. That has been our target. When you meet your target, you have to decide if you will go further or not. I think we will push further towards 120 or so. The chief cabinet secretary in japan said this morning that they are not preparing elections. Thank you. Currency strategist at ubs stays with us. More conversations when we come back. Stay with us. Welcome back to countdown. I am mark barton. I am an edwards and i am manus cranny. We still have beat with us from ubs. Lets go to home base. The swiss franc, the Swiss National bank on the tape this really, ig suppose it is defense. The capital for the foreseeable future. We have a referendum coming up at the end of the month on whether they will force the Swiss National bank to hold 20 of the National Reserves in gold. What do you reckon . Problem from the point of view is that it would be a big problem. It is amazing how much interest the swiss franc has had over the last few weeks on the investor side. It has been a massive issue around the globe because we are very close to this 1. 20 floor. This initiative is coming up which, if it was accepted, would make it more difficult so people are really thinking about it. I suspect, in the end, the initiative will not be accepted by quite a large margin and it will go away. But we will still be close to the floor. We are close to the floor right now. You say 1. 2010 is where you would start to see this was National Bank buying euros the Swiss National bank buying euros. Where are we now . 1. 2037. We are basically 20 pips, a bit more than that. Almost nothing. It could happen. Experience has shown that they will come in a little bit above the 1. 20 two not run the risk of technical breaks below. But there is no reason to doubt that they would not do that. It is pretty clear that they will hold on and defend the floor. The question is, why isnt everybody long . Thank you very much. Up on the back of this mornings earnings, Deutsche Post dhls ceo joins us after the break. Stay with bloomberg. Welcome back to countdown. Lets check in on the Foreign Exchange market. Dollaryen coming back off of its sevenyear high. You are seeing the yen rise. There is a whole variety of voices in japan at the moment. Will shinzo abe go for an election before christmas or not . That is the question that is out there. The chief cabinet the chief of the cabinet said he is not preparing for an early election. Really, what you are seeing here is a variety of voices. Keep in mind, november 19, that is when the next bank of japan policy meeting is as they say, the yen is strengthening this morning and the dollar is down. Keep an eye on them. Won,e look at the korean the first timeor in almost a year. We have just come off that level. More orrading at 1096, less, on the nose. The bank of korea meet tomorrow. They will probably keep their rates on hold. It is about the reverberations. Conversations with ubs, they say 120 is available. Ubs say 120. Willllaryen moves, so too the near exporter and that is the korean won. I am anna edwards. Jinpingbama has told xi that they did not have a hand in the prodemocracy protests in hong kong. President obama said the leaders had a Healthy Exchange on the issues of human rights. Both men held a deal that will see china raised targets for cutting carbon emissions. This is a major milestone in the u. S. China relationship and chose what is possible when we Work Together on a global challenge. In addition, we are making this announcement today together. We hope to encourage all Major Economies to be ambitious, all countries, developing and developed, to work across old divides. It is a big day for mark carney in more ways than one. He is marking 500 days as governor of the bank of england. In that time, he has introduced Forward Guidance on Interest Rates. Later this morning, he will be presenting the banks Inflation Report and could cut the growth forecast for 2015. You can watch live coverage of that live on bloomberg from 10 30 you take time u. K. Time. In the next few hours, and unmanned european spacecraft will become the first to land a probe on a comet. It will send a probe to the isface of the comic, which currently in between the orbits of mars and jupiter. 500 million kilometers from the earth. Scientists say they do not expect to find life. It is the day of reckoning. It has arrived for some of the worlds biggest banks. Facing their first penalties for Foreign Exchange manipulation. We have the americans, the brits, and the swiss. Who wants to go first . The americans started first. Citigroup, that hsbc, jpmorgan, rbs, and ubs are all being find between 290 million and 310 million each. They have agreed to cease and desist. Some fx traders and banks coordinated their trading with others and used private chats to plan fx manipulation. Our clays has not been mentioned yet although the cftc does say that barclays engaged constructively with the cftc and the fca. The total from the u. S. Side comes to 1. 4 billion and role get in with the fca, you 3. 2 billion. 1. 1 Million Pounds that comes from the u. K. From the financial conduct authority, its biggestever fines imposed by the fca. Barclays still being investigated. The fxe looking at trading and its wider fx business. Interestingly, before it was expected, analysts million forand 250 the six banks, which included barclays. They are roughly in that perimeter. Parameter. Was the fcat, it that got the ball rolling on this in june of 2013. It was the first agency, regulatory body, to start looking into this market. This 5 trillion a day market, to see whether the currency market is being manipulated. Havehe other two agencies followed suit. Rbs has said this morning that their provisions cover it. That is exactly the line from ubs. Threeline , i suppose a threeline slap. They have been asked to hand. Ver 134 million swiss francs actually, if you wrap up the fines,inds the three fca,llars, the u. K. , the it takes you to about three quarters of one billion swiss francs. The fca, ubs was fined the most. Obliged to separate their client and proprietary trading. Ubs are feeling covered. That is what they said, they are fully covered in terms of fines thus far from their provisions in the quarter. Finma has said that they severely violated proper business conduct. Celebrating 500 days at the bank of england. The bank of england should say this morning that no official was aware of any improper behavior in the Foreign Exchange market. Stay with us. We will keep you updated on the fx, bringing you results throughout the day. We will bring in the fca News Conference live here in london at 9 00. Do not miss that. Has justhe post dhl released thirdquarter earnings this morning. Revenue came in lower than analysts estimated. We are joined by the deutsche live from frankfurt. Great to have you with me this morning. Lets talk about the Third Quarter. You missed on the headline numbers. I know you are investing in technology and infrastructure. Are we going to see this pattern of investment eat into your earnings in 2015 again . We were pretty happy with our thirdquarter results. We came in with about 5 growth and earning income of about 4 . Topside growth. Overall, we were satisfied with thecore business for q3 and nine months. Indeed, we are investing a significant amount in the strategy that we Just Announced earlier this year. We call it strategy 2020. That will have some nearterm 2015 earnings. We talked about that and still expect that to be significantly better in 2015 compared to 2014. And then we expect the benefits from those investments to be a parent in 2016. Overall, we think we are on a great track. How much are you spending on Freight Forwarding . You have been very shy on telling the market what you are spending. Try and give me some context that we can assume you are going to make Capital Expenditure for next year. You have got to have investors have a frame of reference with you. Weoverall, for the company, have said that we are going to thisthis year capex year about 1. 9 billion euros and it would stay along those lines for the next several years. It is not really a big increase in capital investment. Forwardinge in our business is mostly in i. T. And that comes out a lot in our investments. Ense for competitive reasons, we have not quantify the amounts, but clearly, there will be some impact in 2015 as well as the impact we have seen already for this year. Talked to me about the german market. You have more than 50 of the cars there. How are Investments Holding up in the domestic market for you . I think you have to letterntiate between the business or the postal business and the parcel business. In q3, we had a bit of net revenue growth. Our margins were flat. Given the increase in what we factor costs, transportation costs, and labor costs, we have been able to convert the volume and revenue increases into real margin improvement. That is certainly our goal. Next couple of years, overall, for that business segment, we are forecasting around 3 growth over all through 2020. Since we have you here, the lando was a big news feature all around europe. One of the biggest ipos, as you know. Are they one of your best customers . You must be just laughing all the way to the commission bank. Are they your biggest customer . Are they going to change the face of german shopping . I think the face of german in all countries around the world is changing. We are in the midst of the megatrend, he structural trend , Retail Shopping going towards online shopping. This is showing up in significant roles per capita. Parcel consumption and the growth rate, we had a. 5 growth in our german parcel business in the Third Quarter and we are consistently above gdp growth rates in countries all around the world. This is the shift towards online commerce and we think it is unstoppable. We are investing heavily in it. We are one of the leaders. Lawrence, we are going to have to leave it there. Lets see what 2015 brings for you. I did not get to the helicopter question. I am sure we could go to your website. The cho the cfo of Deutsche Post dhl. Delivering all of those letters. Helicopters and santa. J sainsbury is set to release earnings a couple hours from now. P became ceo inoo july. Joining us now is charles allen. How much excitement . What can we expect from the results . 351he consensus number is billion pounds for pretax profit. I think the important thing is we see how the estimates merge as you get further out. That is what the direction at itrgin Going Forward may not be answered, but we may get some ideas from this set of results. It is all about the strategic review. What can we expect . If you are expecting a lower level of profit Going Forward, which almost everyone is, certainly, there are estimates. S low as 408 for the full year people expecting profits to fall to almost what they made in the first half of this year. You have to say, what is our return on capital going to be if we are going to be making less money . That means you have to cut Capital Expenditure. That is almost certainly one thing. We have to look at other things in terms of what the Pricing Strategy will be and how many categories, what range will sainsbury continue to carry in the future . Tesco had their accounting anomaly. Set that aside. Stack up onainsbury the u. K. High street in terms of being ahead of the curve . Is this ahead of the curve or are they trimming back on capex and the dividends . This is an example of copycat. Extent, one of the things behind the scenes that you do not necessarily notice is the commercial director. There has been a lot of progress in terms of narrowing the range a little bit, cutting promotions. To get into this simple find pricing thing, we have been a bit ahead of that. Ok. I think that is important. We talk about the rivalry from the discounters. Saying that they plan to Double Stores and create 35,000 jobs. Thank you, charles. Well done. Bloomberg will be speaking first with the cfo of sainsbury. That is john rogers. He will be joining us after those results. The numbers we will talk about in about 15 minutes time. Coming up, our next guest talks about how to navigating risk can make or break a business. She was named one of the top 30 most influential women in europe. Of course, she is chief executive of Ariadne Capital. Julie meyer joins us after the break. This week, we are taking a nest and thein his markets. Lets turn our attention to startups. There is inherent risk, but how can venture capitalists mitigate that risk . Joining us now is Ariadne Capital chief executive julie meyer. How do you assess risk in startups . There are different kinds of risks. He Technology Risks does the contraption work mathematically and scientifically . At this point in the cycle, a lot of that has become standardized and fundamental. There is not a lot of disruptive technology, at least in the space we operate. There is a huge issue on market execution. , the peace that we do is about taking the minimum viable product to market. The first year is about setting down the assumptions. The role that the venture capitalists play to make sure the entrepreneur understands the entrepreneur is there baby, right . It in a clean, clinical way. Assumptions and i have evidence to prove and i am going to market that these things are clear. We take that dispassionate, detached view that we really do not know. We are not going to put 15 million to scale it globally across europe unless we are really sure that we understood those risks and that we have the right path to the risking go to market. N we that can create risks for the incumbent, cant it . Tesco and some of the risks around not changing your Business Model quickly enough to adapt to that level of competition. Indeed. I feel that the work that we do looking at start up businesses i do not mean baby businesses. I mean fastgrowing, technologyenabled businesses. Fundamentally, these Technology Startups give you an indication on where every industry is going. So the micro, the Business Model is changing. Tesco had board of been really paying attention to what is happening in the retail, micro Business Model sector, they would understand that morgans are going to decrease. They would have, hopefully, a smaller piece of an expanding five. Why . Consumer data is the new engine to every Business Model. Ondamentally, to keep selling in the city, it is the same thing. Margins are great and growth is strong. Business as usual. Tescos winning model has continued to churn out. They were not paying attention to change. That fundamentally comes down to what darwin said, his definition was the ability to adapt read it is not just strong or coming up with the winning Business Model or models. It is the ability to adapt to the conditions at hand. Fundamentally, i think tesco was not doing that. There was a group of people that, we got it. On tesco. Ched i was just thinking burberry and the digitization. She came and sat down with us and said, the french and italian Luxury Industries are not embracing digital. They are not changing. They are not embracing those issues. Is that a big risk . Who is the biggest industry at risk of not changing . Is it luxury . In 10 years time, we will be able to look back and say, who was smart . Fundamentally, it is a Business Model issue. That is why tesco got caught. It is about your margins and understanding where your Business Model is going. What we have done, we have looked at the winners. We have analyzed the apple, amazon, facebook brigade. If you look at them, uber, the next generation of digital disruptors, this gives you an indication of how the rest of the world is going to look. They are going to look like what apple did to music. There is a multistakeholder right there. If you are paying attention, there are a lot of indications of what Business Models are going to look like. Is it oil and gas, is it luxury, is it whatever . People are trying to figure it out. I think it is pretty clear. Five years ago, we could wonder what was going on, the ipad, the iphone was out there. Now it is clear what is happening to Business Models. Thank you. Julie buyer julie meyer from Ariadne Capital. It is the day of reckoning. The fx fines are out. Five institutions have received their headlines. , three quarters of a billion swiss francs from finma, the cftc, and the fca. Wrap it all up, anna. 3. 2 billion dollars is the total of the fines from the cftc and the fca. They have taken action on root causes. Continues after a very short break. We are expecting numbers from sainsbury at the top of the hour. We will be speaking to john rogers. He will be joining us very shortly. Fx fines, regulators in the u. K. And u. S. Impose 3. 2 billion in penalties on five banks for manipulating markets. Barack obama and xi jinping look beyond tensions on trade and human rights to reach a deal. His first 500 days. Bank of England Governor Mark carney with a downbeat assessment of growth in the year ahead. Hello and welcome to countdown. Well, it is the day of reckoning. Five of the worlds biggest banks are facing penalties over manipulation of benchmark foreignexchange rates. Authorities have been investigating claims that dealers colluded with counterparts at other banks to rig the benchmarks. In the u. S. , citigroup and jpmorgan have been ordered to pay 310 million each. In the u. K. , the fines totaled 1. 1 billion pounds, a record penalty. Our clays has not been fined but will continue working with regulators to resolve allegations. Am who joined by li broke the fx investigation for bloomberg last year. Great to have you on the program. In terms of the overall number, 3. 2 billion worth of fines, 5. 3 billionet aside dollars. Are we within the expectations . This is just the first wave of fines. You have further regulators expected to settle today and ongoing investigations in the department of justice in the u. S. Which is undertaking a thorough review of these markets expected to follow next year. Released a report last month that the total figure could be, what was it . 40 billion. Apparently so. Things is where the whole comes up. Live or, one of the big stories here as well, people are using that as a reference point. That is where the american regulators may come in harder and heavier. Did the cftc. Could it be the department of justice that punches a hole in the numbers . The issue is that it becomes a criminal investigation. Then you Start Talking about criminal punishments, potentially prison time for the individuals. The department of justice can impose serious sanctions, preventing people from doing business in certain jurisdictions. That will start to hit the banks much more than these fines. If you look at the total revenues of these large banks, they are absorb of all. In june of last year, myself and a colleague wrote a series of articles drawing attention to this benchmark rate used in foreignexchange. It was based on our sources in the market and continues to hit that drum. In october of that year, there was an announcement that they were indeed investigating this market. You talk about rigging of benchmark rates. Remind us why this matters and what the traders were doing. , a smallas happening group of traders representing large firms would get together on chat rooms that they perhaps unwisely gave names like the would share details about their positions on currency benchmarks. That would allow them to trade for their own firm, insider trading, but it would also allow positionsline their so that they could Work Together to move the rates. The impact of that is that foreignexchange rates used throughout the world were not what they should have been. The boeyou have has its reputation tarnished because the fx dealer has been dismissed. , he was unaware that bank traders were sharing information about client orders to match them and escalate the matter. This is a very interesting side plot to the whole thing. These chief dealers of these institutions, the most senior people at the banks, would meet up with representatives from the bank of england at restaurants around london or at individual firms. According to the traders and this report published today, they openly discussed how they communicated with each other ahead of these benchmark fixings. Chief dealerwas a at bank of england was aware of that since november of 2012. He was aware that could lead to collusion but he didnt escalate it. My understanding now, he has lost his job. He has been dismissed. One thing to remember is this was not a regulated market. There were no written down rules. Say whatays, one would was happening, there werent any definite rules in place except ethics. That is the line that the banks and the traders have taken. Principleshighlevel that apply to all people, all regulated institutions and individuals. They include things like doing overnd not your client. In this instance, that is what people were doing. Liam, thank you. Sainsburys. We have breaking news, they are halfng us their first underlying pretax profit is better than the estimate which was 351 Million Pounds. Retail sales are flat year on year. They say first half comparison down bycluding fuel 2. 1 . A lot of focus on the dividend. They are saying their fullyear dividend is likely to be lower than in 2013 but have lots to say about their dividend cover in the years to come. Lets speak to somebody who knows a lot about this, the cfo sainsburys. A pleasure to have you on the program. Tell us how things have shaped up in the first half. And how things will go in the second. You have seen lower profitability in the second half of the year. As you rightly say, we reported todays underlying profitability of 375 million, which is a beat. We are proud of our Strong Performance in the market. A new announcing today strategy for our business Going Forward. We have a fantastic business with Great Success over the last five years. We have a Good Opportunity to grow our nonfood business. We are announcing today that we are investing in 3000 of our products Going Forward, and also investment in 550 million over the next 12 months. Will that number that bring down our profitability for the second half. We are getting Something Back to our customers. I think we have a fantastic business Going Forward. Strategy we are announcing today will put us in a good position. What is your latest thinking on industry pricing . Are really in a evolutionary climate . Ists im not sure if it permanent. We are in a deflationary environment. Aro to negative, which is great thing for our customers. I expect we will see that for the next 12 to 18 months or so at least. Great thing for our customers. Our customers will benefit from that. Hopefully this will make our customers feel a lot more confident. With the price investment announced today, that will make them even more confident to shop in our stores. You are reducing your fullyear dividend. Tell us about the dividends in the future. You said something about 2014 and 2015. Are we going to see further cuts . What we are announcing today is that we are going to pay out half of our earnings to our shareholders. Is a sensible balance in terms of rewarding shareholders for owning our shares. Time, making sure we can serve the strength of our balance sheet. Can you foresee a situation where things get so challenging that you have to contemplate Something Like a rights issue . We have done a huge strategic review. We have tried to cast forward different scenarios for the industry, both downside and upside. With the strategy we are , whiching today comprises almost a housing of our capital, and the announcement on our dividend, at this point in time, we do not foresee the need to raise equity even in those negative downside industry scenarios. The mosto you think is important change you need to make for the sainsburys ofiness to stop the flow customers away from the middle ground and toward discount retailers . We have seen increasing customer numbers across our different portfolios. We own a substantial number of convenience stores. We own a number of supermarkets. We are seeing increasing frequency in customer visits across our entire estate. Ourave launched with neto own discount operation. We opened our first store a few days ago and we are opening more tomorrow. Still very early days but so far, so good. We hope to grow in that channel as well. I think we have a great track record of spotting opportunities in the market. You have a number of challengers on your plate. Just to add another one into the mix, we are facing a u. K. Of election next year. That could mean conversation over whether the u. K. Stays within the european union. You are a u. K. Business but you have links with all parts of the world. Is sainsburys going to get involved in this debate . That is a political debate, not one for sainsburys to comment on. The we would like government to look at is anything that helps consumers out. That would be great for our business. One issue we want to tackle is the issue of Business Rates. We have seen a significant increase in our Business Rates over the last five years. That doesnt only impact the large retailers but that also our highn the shops on street. We would like to see government doing something about cutting that burden across the u. K. Thank you very much for joining us, john rogers, cfo of sainsburys. Coming up, with inflation pressure on Central Banks and volatility across markets, where are the opportunities in fixed income . We will put that question to our next guest, global head of research at hsbc. Another company that has reported today is burberry. Caroline hyde here with the numbers. Looks like beauty is on the up. What do you make of this . The maker of the 6000 pound tear skin trenchcoat. I have one in the cupboard. Know where your money is going. We were expecting to have Foreign Exchange, we are talking about it all morning, it has been hurting the likes of burberry. Any International Brand that has seen the strength of the pound and appreciation of the yen, that is hurting their profit. There was a negative impact from Foreign Exchange, which reduced to their sales by 75 Million Pounds and hit their profit by 35 Million Pounds. , youu look at the report saw sales climb 7 but profit down 12 . They say the second half of the year should improve. They see no Material Impact for the second half. The pound is now weakening against some of these currencies. They continue to warn us about difficult external environments. They continue to invest. Profit was hit by the launch of their fragrances last year. We have seen them fly off the shelves. About gettingally to grips with what was going on in the country. And also launching my too. Rry, that cost there is investment in that is well. This is a drive to make the company grow. What is interesting is, overall, yes they are going to because she is. Yes, asia has heard luxury brands. Affecttests in Hong Kong Chinese spending during the golden week holiday. Clearly, they are saying external issues are still a problem. Internally, they are focused on driving the business. Beauty is going to be a real growth area, 25 in the next four years. It is a company that keeps on exploring, breaking new boundaries. They have been having more erry,nalization, myburb click and collect, and interactive christmas window. The new creative officer and ceo does keep pushing it. All that spending, we would have done it much cheaper. The phone never rang. It is Romeo Beckham that has cleaned up. One of thoseafford trenchcoat with that money. Lets look at the debt markets. Steven majorw is of hsbc. 500 days of carney. We asked our guest earlier to rate him. The essential critique was he has flipflopped a bit. That was the polite way of putting it. What is your critique of carney . Rates havent moved expectations have been moving up and down. We have markets discounting, tightening. How the you judge what he has done . Tohas had a very similar job other central bankers. Hes had to manage a period of zero rates. This constant speculation that rates are going to rise. At the same time, the economy has been picking up in the u. K. He cant take all the credit for that. 600 and youen here have been here for more than 7000 days, mark. What more can i say . Out today. N is are we going to see what is happening in the eurozone . The Inflation Report is a lengthy document. This really breathes life into the policy. It explains what they are thinking and why they are doing what they are doing. The fact is, in the last few months, things have changed. Weve had slowing of the housing market. Forward indicators that things are cooling off. Externally, there have been developments. Think about japan, the eurozone, the growth forecast in big eurozone countries in the last few months. Inflation falling everywhere. There is a question of what kind of response we are going to get from the bank of england, what it means for policy here. There are some domestic indicators. They are going to focus on the key variables. It is what is happening outside that matters. You like the u. K. , the line that you used, the cycle of hikes that never happened. You are locked into that conviction play for 2015 . In the last six years, we we have seen three cycles implied that never happened. It looks like the rate hike will be later rather than soon. We will chat about the u. S. You made that call at the beginning of the year to buy u. S. Treasuries. We will be back in a second. Welcome back. Stephen major, global head of fixed in scum research at hsbc. Fixed Income Research at hsbc. He did call it right at the beginning of the year. Call,ou made such a big being so right against the consensus, howd you beat that . It doesnt give us any right it doesnt make us any better. At least we are not encumbered by the burden of the past. What i think happens is, there is this term called anchoring. I get it wrong this year, but i will get it right next year. Four andre forecasting you didnt hit that target, you just push it to the next year. You see that in economics quite a lot. Evil are anchored. I think, is how it is possible to increase rates at all in this environment. Do they get the rates there are lots of technical questions about this. With liquidity. Until this is managed, i dont see how they can start a normal rate cycle. That is the problem for the bank of england and the fed. They sit on huge piles of reserves. That has to be managed first. Nobody really got it right. Those that were forecasting higher inflation were way off the mark. Those that thought there would be a normal recovery didnt get it right either. We had something in the middle, no inflation, no growth. I cant quite remember the name, but there was a piece of research about the possibility of getting it all wrong in the u. S. Next year, 60 possibility of another recession. Is the biggest risk policy misstep year . What is the biggest risk in a bond market . You are talking about getting it so wrong, it is quite shocking. The ecb increased rates in 2000 eight and 2011 and had to reverse. Sweden did the same thing recently. Movedlance of opinion has to a view that says it is better to be late. You heard this from the bank of england. Theyd sooner be on the back foot, get behind the uptick in inflation and growth. Thank you. Stephen, thank you very much. Stephen major from hsbc joining us. 7 26 here in london. A report out today says china will be the worlds biggest consumer of oil within 20 years. We are going to talk oil next. Foreignexchange traders looking at the world of risk. Dollaryen coming back from a sevenyear high. Dollar is down, down by 0. 4 . Our conversation with ubs this morning, they still say the net trade is, yen will go lower. The stories that are moving markets this morning are all to do with issues of abe. Will he or wont he go for election . Allteam saying it is hyperbole and he is not going to go down that road. Four more years of shinzo abe, what would that mean for policy . That is dollaryen. Where the yen goes, everybody else has to either suffer or reward. The suffering is in dollarwon. They are probably going to leave rates unchanged. The risk is this, it broke 1100 for the first time this year. We are splitting hairs here. It is below 1100 again. This, more pressure on this exporting currency will be brought to bear. With that in mind, you are looking at the korean won, and i leave you with volatility in yen up by 20 in three trading days alone. These are the Bloomberg Top headlines. The barack obama has told xi jinping that the u. S. Did not have a hand in prodemocracy protests in hong kong. The twot obama says leaders have a Healthy Exchange on the issue of human rights. Both men harold a deal that will see china cut carbon emissions. This is a major milestone. It shows what is possible when we Work Together on global challenges. By making this announcement today, together, we hope to encourage all Major Economies to be ambitious. All countries, developing and developed. Work across old divides so we can conclude a strong Global Climate agreement next year. A big day for mark carney. He is marking 500 days as governor of the bank of england. He has revamped operations and introduced Forward Guidance on Interest Rates. s will be presenting the Bank Quarterly Inflation Report and could cut the growth forecast for 2015. You can watch coverage of that Inflation Report right here on bloomberg. Anthe next few hours, unmanned european spacecraft will become the first to land a probe on a comment. Rosetta will send a probe to the service of the comment which is between the orbits of mars and jupiter. It will be the culmination of a 10 year mission. Scientists say they dont expect to find life. The day of reckoning has arrived. The biggest banks are facing penalties over the manipulation of foreignexchange rates. Total, 3. 3 billion. Authorities investigating claims that dealers colluded with counterparts at other banks to rig the markets. This was a story broken by liam and colleagues here at bloomberg. This time last year. Im looking at ubs. Three quarters of a billion swiss francs from their home regulator which can take a alongn of their profits with the cftc, the american regulator, along with the u. K. Have said, we are covered. We took enough provisions in the Third Quarter. They are also being told to move clients and proprietary fx trading apart and they have to do 95 of their business, not on exchange, but through Technology Transactions as opposed to individuals. Rbs saying provisions are 400 Million Pounds to cover their exposure. Citi,tc then listing jpmorgan and ubs, all fined between 290 million and 310 million. The grand total from the u. K. , 3. 3 billion. As citigroup said, the fine could amount to 40 billion. That is the worstcase scenario. Authority has tabled fines of 1. 1 billion, the most ever. Ross mcewan, rbs ceo, just speaking at a conference. Rbs was fined 270 Million Pounds. He says it would be an understatement to say he is angry. Hes talking to reporters. He says he has zerotolerance for such failures. The fda said banks failed to take adequate action on root causes. It doesnt tolerate conduct which imperils market integrity. The boe has got rid of its chief dealer. Mark mallett dismissed for his failure on policies. Had lunchld us he with some of the head dealers during the crisis and they openly discussed what they were doing at the close. Whathole fx probe is about happens at the close of business in london and new york and whether you try to move the market. That is what affect investigation is about. Lets move on. The u. S. And china sign a deal on climate change. The International Energy agency says china is on course to overtake the u. S. As the biggest consumer of oil. Thats in its latest outlook a says thee ie World Energy System is under stress. Conflict between russia and the has reignited concerns. Electricity is still an accessible to many people. In the central scenario, Global Energy demand grows by 37 by the year 2040 with Rising Energy consumption concentrated in asia. China becomes the Largest Consumer of oil. Joining us for moore is the chief economist at the iea. Thanks for joining us today. Would it be right to say the u. S. Shale boom is masking threats to Global Oil Supply . When we look at the oil markets today, there is a calm. Lots of supply coming from United States. The shouldnt disguise challenges lying ahead. Three or four parts of the world which are strategically important for Global Energy. , other middle east countries, lydia, russia, ukraine. They are all important. That tells me that Energy Security will move higher in the agenda very soon. How much tension do we have to see for that to have an impact on production . Despite those geopolitical conflict,all the those parts of the world are still pumping oil. They are pumping oil strongly. In a few years, we will see comfortable markets. The main problem is beyond that. , the mainhale oil provider of oil today, is going to lose steam around 2020. Deposits are rather limited. Cant bel oil demand met by only one resource holder. Iraq is the crucial factor here. Many observers expect about half of the growth in Global Oil Production to come from iraq. Coming,hat production you have to invest every year about 15 billion. No appetite to invest in iraq. Around 2020, we may be seeing very difficult times. Report, you doubt the ability of the world to invest in extracting oil. You say that is one of the biggest challenges. You also say sanctions implemented against russia could have some longterm effect. These are all supplyside issues. Which of these are the most important . Expenditure or the sanctions on russia . Today, when i look at the oil markets, my main worry is the lack of investment in middle east production. In the oil business, if you want to see oil flow in five years, you have to invest today if not yesterday. You push thee button and electricity comes. The investment is very, very low in middle east countries. When the u. S. Oil production how will asian demand be met . Can we replicate the u. S. Shale boom outside of northern america . There are some resources in argentina, in russia, but the contribution will be limited. We need to say big growth in the production. ,he oil demand is growing mainly from china, india and east asia. There are many fields that are in decline. We have to be growth in demand. Is one rich region, which is middle east. We dont see the appetite for investment in middle east today, which is a signal for the future. Should opec focus on cutting back production to raise the price with the hope of increasing investment . Would that be part of their thinking when they meet on november 27 . The current price levels, about 80, will have an impact mainly on the higher cost areas , especiallymakers in the United States. They have short investment cycles. They are like bicycles. If we dont invest money, if we dont turn the pedal, we fall down. The investments have to be made very frequently. Certainty, i no may well see that the appetite in the United States for shale oil it will hurt the u. S. Before it hurts iran and russia . In the u. S. , followed by canada, are the forefront. Our estimate is, we may see in in theout 10 decline investments in the United States shale oil. Thank you for joining us. Stay tuned to bloomberg this morning. A bloomberg view, missed and former pimco chief executive will be joining. His name is mohammed al arian. Us. O join it is mark barton tv. He is climbing the polls. Stay with us. U. K. s thirdbiggest supermarket, sainsburys, just reported earnings. It is trading profitability to retain customers. We will look at the companys performance. In light of sainsburys announcement today and amidst the demise of tesco, i want to compare sainsbury with tesco and these ftse 100 benchmark index. A lot of attention has been focused on tesco. Today, sainsbury says it is cutting its dividend and Capital Expenditure. Look how tesco and sainsbury have fared. As you can see, the orange line is tesco. , 14es have fallen by 47 billion pounds wiped off its market capitalization. Sainsbury,ine, shares are down by 33 . Not as much as tesco but still 2. 4 billion wiped off its market cap. Tesco is three times the size of sainsbury. To the fall inwo the ftse 100, the yellow line. The ftse is down just 1. 5 in the last 12 months. Tesco is the second worst performer over a year. Sainsbury is the fifth worst. William morrison is the third worst. In the last 12 months, the sector you didnt want to be invested in is the u. K. Supermarket sector. On the plus side, look down here. These are the lows of week or two ago. Have rebounded 16 since october 24. Sainsbury shares have rebounded since october 2. Im going to finish with a negative. The 12 month price target for tesco is 189. That is 2. 6 below yesterdays close. The target for sainsbury is 2. 62, that is 2. 3 below yesterdays close. Shares have bounced but the analysts think in a year, both shares will be trading lower than they finished yesterday. Not good for everybody out there. Alibaba, they might have been the biggest ipo this year, but there is another huge initial Public Offering which you want to know about. It is the National Commercial bank of saudi arabia. Elliott gotkine has a little more. This might be even more impressive than alibaba. There is a lot of contention about whether it was complainant in the region. It is not without its news flow. Is not. It is a big deal in this region. Alibaba popped up 40 on its first day of trading. We could see and even better performance by National Commercial bank of saudi arabia because saudi authorities tend to privatize companies below the market rate in a bid to spread some of the wealth among the hoi polloi. Although the ipo price was 45 reel, some analysts reckon they could go to 80, 85, once they begin trading. Fromestingly enough, apart the saudi pension fund, it is just Retail Investors who could subscribe to the ipo before they start trading. Goingstitutions, they are to have to wait until trading begins to get into the action on saudi arabia. Do we have a flurry of middle east ipos . Is there a roadblock in terms of what is coming . We have got a bit of a flurry. Several at once. We just got wind this week that an Emirati Company that distributes bentleys and other highend motor vehicles, they are set to raise 2. 5 billion with a sale of about 30 of their shares. Next up, dubai parks and resorts, they are looking to build a legoland in the middle east. A Health Care Startup in dubai. About the same amount of money looking to raise. Finally, here in israel, they are looking to raise more than 400 million. That will probably be in new york sometime next year. Ok, elliott. We will leave it there. I cant believe you didnt mention, we are only at the start of november and elliott is sporting a fine mustache. He is trying very hard. Credit to you. For just theort 12. Who knows where he will be by the 30th . You are looking at a live shot of london. Things are looking a bit gloomy out there. We are expecting to see a little bit of a dip at the start of trading. Barberie has reported profits as Foreign Exchange rates eight into sales. Here with more is caroline hyde. Did the warnings come through . Profits down 12 . If you are looking at exchange rates. If you strip out exchange rates, profit actually grew. A Significant Impact is what they called it. Cut reported sales by 75 Million Pounds. It hit profitability by 31 Million Pounds. Silver lining here is, the second half of the year, they say there is no Significant Impact. The problem of the pound being so strong and asian currencies being weaker is starting to alleviate. Tell us more about these headwinds in Foreign Exchange. What is the outlook . , even though they are saying the foreign currency problem is going to start to reduce, still, the downward pressure is there if you look at margins. If you look at profitability for the full year, they say downward pressure is going to be there. External environment, that is the key. Is in russia, hong kong . Spending isxury going to be the slowest since 2009. This is the perfect storm that they have been talking about, the problems with geopolitical risk in russia suppressing demand, the problems in hong kong, protests during golden week, a big holiday in hong kong. Beingerfect storm isnt outlined quite so much by burberry. What they are talking about is the lack of willingness to spend by the asian traveler. You are Chinese Tourists they say. U. K. , the weakness up next, Mohammed El Erian joins jon. Welcome to on the move. I am here in the city of london, Just Moments Away from the start of european trading. Lets get straight to the morning notes. U. S. , britainthe and switzerland have ordered five banks to pay 5. 3 billion for the manipulation of benchmark foreignexchange rates. We will bring you the stock movers as the stocks open. Inflation at a fiveyear low and wage growth failing to it celebrate. Should we call at the lowflation report . We will put those questions to work. Pretax profit comes in at 375 Million Pounds but it is not all good news for the u. K. Retailer as they warn profitability in the second half will be lower and the dividend will be reduced. What does it mean for the open . Let me show you. Down by six points. Down by a third of 1 . We could get a little bit of a lower open. It is fascinating to see the movement and markets because itween june and october, regained more than 50 of the loss in market. What does that mean . Traders are paying more to protect their equity positions in europe than they are in the s p. They are prepared to pay a 20 premium for the honor of that protection. Bank of