Transcripts For BLOOMBERG Countdown 20150924

Anna welcome to countdown. It is just now 6 00. , letsgen is a big story think about what is happening in the markets. That hasr index, but been doing since the Federal Reserve met, you can see it bounces up since the post fed fall from the dollar. We see it heading steadily upwards since last week. We have seen a number of hawkish comments coming through from the fmo say. Fmo see. Still on the table at the time when the Federal Reserve could increase Interest Rates . Janet yellen will be speaking later today, 10 00 london time. Anna lets talk about volkswagen. They are looking for a new chief executive after Martin Winterkorn step down. Stepped down. They will meet tomorrow to select his successor. Hans nichols is live on location at volkswagens headquarters. Said he did not know about the cheating, why did he leave . Transport the pressure the pressure was mounting. Among statements we had last night, most interesting is that volkswagen has pledged and referred this matter for criminal prosecution to the state of lower saxony. That is a company that wants to put that behind them. They also went out of their way to say that dr. Winterkorn didnt know that he was not culpable in any way. Here is what dr. Winterkorn said. Except forpect responsibility for the irregular terrys andrregular Supervisory Board to agree on determining my function as ceo of the volkswagen group. That was 24 hours after he said he wanted a technical fix. This was an injury an engineer who apparently thought he could find a solution. He obviously had a political and Public Relations problem. Now they are trying to figure out who will replace him. Candidates are herbertof porsche and deese. 40 billion could be the total price tag for volkswagen. That they might downgrade credit of wolfsburg volkswagen. They noted the damage to the brand is significant. We have seen workers come in all morning, it looks like a shift is still just starting. Has a denies, volkswagen difficult road ahead. Anna can we begin to quantify just how big a problem this is for volkswagen as it tries to turn the corner . Chancellor hans in some ways we dont know because we dont know all of the legal costs. We dont know if they will be facing something in korea, germany, france. The u. S. Is really the only place that has given us a hint. That is just on the government rules. We do not know about civil litigation. All of these suits that could be filed could be a huge headache for volkswagen. That is what the jpmorgan report focused on. They sold those cars as premium vehicles. You sell something as a premium vehicle, you make it a premium fine. Anna thank you very much. That brings us on to our twitter question of the day. Which corporate scandal do you think volkswagen looks like . Do you see parallels between that and any other scandals, toyota, bp . Tbmad someone talk about lc yesterday. At anna edwards news is where you will find be on twitter. From this scandal is beginning to engulf other jurisdiction. Lets bring Ryan Chilcote and in. He is focusing on the broadening out. Ryan it is now a global story affecting all call carmakers. You look at the japan market, mazda is down 7. 7 this morning. They just had a threeday Public Holiday in japan. This is the first reaction to what happened with volkswagen after the friday close in japan. Getting hit, honda getting hit, even toyota, which has been moving away from diesel is getting hit. It was down 1. 7 . Investors are looking at these carmakers and saying, what is the risk factor . The more they have invested into diesel engines, the more they are concerned. Generally some people in the market think, the more they move towards hybrid cars and electric , for example, toyota, the more they are likely to recover, maybe in the future be beneficiaries. Right now the japanese are getting punished because they have in trying to keep up with a european counterparts trying to keep up here. Nearly half of the car market in europe is diesel. In the United States it is 1 . Japanese want to compete with european carmakers in europe. Example five suv for comes with a diesel, they are suffering as a result. Anna the extensions are manyfold. You could go geographically, you could look at different jurisdictions to see what volkswagen has been doing elsewhere. You can talk about other carmakers in relation to rules, no doubt we will continue to hear about that. The probes are being launched. It depends on how this will affect the trading environment. There is also a currency impact. They say this is already undermining dragging down the euro. Some people would say that is far for oner too company to drag down an entire currency, particularly one as much as the euro. 21 countries are in the eurozone, but volkswagen is no ordinary company. 600,000 employees, 18 of germanys exports come from overseas car sales. Volkswagen makes up the lions share. The idea is simple, if confident carmakers, in german ismakers, in volkswagen undermined, if we see a slowdown as a result in volkswagen sales, then are all its ifs, that could drag down the euro in the future. Yesterday you wouldnt see it, yesterday we had mario draghi eking speaking. Expected mario draghi would be more dovish, there could be a second thing. You look atat volkswagen shares, they got killed on monday and tuesday, maybe some of it euro recovery yesterday was actually because people thought that the punishment to the euro had already been done. The fact that the euro has taken on this carry trade properties all of that weighing in. It is an interesting angle. We talked to an equity strategist recently who said it is not extreme to think that this will Dent International investors appetite to pick up european stocks. Ryan, thank you ray much. Thank you very much. Website about how the asian markets are playing out this morning. David is standing by in hong kong. More broadly we have the japanese market play catchup. David yes, out of the gates this morning, we did see an immediate drop in japanese equity markets, we were down 2 at one point. Staying in japan, lets talk about shares of sharp, down 4. 3 . Thattually broke the news sharks, according to people familiar with the matter, is poised to report first half earnings that would miss their abstinence miss their estimates. It could push the company to cut and reduce their 2016 target shares. We are down 4. 3 . That is the debt in the last few minutes. Japan, it is in not only be japanese carmakers, the suppliers are also getting sold off in japan. We are talking losses of about 8 11 across the suppliers to volkswagen. Hear some of those names a scenario like this when it happens, japan is getting the first chance to react, it is selling off. At some point when the dust settles, value emerges. A lot of the suppliers do have business with volkswagen, perhaps 5 10 of revenue. I think if we see anything remotely related, it is getting sold off. I will leave it there for now. Anna thank you. 12 minutes past 6 00 here in london. Here are some of the events and data releases that will be watching. At 9 00 u. K. Time we get that iphone number, the key gauge around the german economy. The Central Bank Rates decision is due later on. The japanese Prime Minister will be speaking at 10 00 london time. He will be laying out his goals for the rest of his term after being reappointed as leader of his party for another three years. We will have analysis of that coming up. With the debt, later today, he will be saying what we reconfirmed as japans Prime Minister. We will look at the economic challenges he faces. Anna welcome back, you are watching countdown. Here are the stories that you need to know. Volkswagen is looking for a new chief executive after Martin Winterkorn steps down after the deepening scandal ofemissions cheating. Possible ceos include portions ceo and herbert deese. In a new report, the Janus Capital funds manager argues that if a zero rate coming norm, the economy will soon run on empty. President is out to push ahead with reforms to expand trade ties. Comments came after a meeting in seattle attended by a group of u. S. And Chinese Business leaders, representing three jillion dollars in market value 3 trillion in market i am. Tv caught, bloomberg up with the former chairman of Morgan Stanley asia, Stephen Roach on that subject. He told us that strengthening trade ties between me two biggest economies is a step in the right direction. Steven Market Access is key as china simulates domestic demand, especially consumption demand and grows the largest middle class in the world. U. S. Companies certainly want a piece of that. A bilateral investment treaty is a very important device to enable that to incur occur. ,nna Stephen Roach there warning that china and the u. S. Have a long way to go to build trust. He continues xi jinping continues his u. S. Tour today. David joins us from hong kong with analysis. Seemsorning, xi jinping to be on a charm offensive, yesterday he was citing, house of cards and hemingway. David i think what Stephen Roach said is important, Market Access is key for u. S. Companies looking to china. They have restricted access, here is an example, they are king at ciscos market ss access into china. China started their Company Campaign to Purchase Network year from local providers after the Edward Snowden espionage allegations. During the 20122014. 20122014 time, the shares fell. The thing is, this is absolutely real. It is a real issue for u. S. Buddies wanting to get access into the chinese market. It works both ways, which is why Stephen Roach was talking about why the bilateral investment treaty is so important. That is something we will be looking at at the end of the summer summit. We will be a lessee progress be able to see progress. Anna he keeps talking on this trip about this new model of great country relations. Foreign policy a concept, it is the idea that a rising power will always clash up against an existing power. That is something that the chinese have a vote because they say they want to avoid that as to lets say super power status, they do not want to come up against the United States. So xi jinping talks about a new model of great power relations, that has been toned down a bit in the past few years. It is the idea that the u. S. Has to give grounds to china in certain areas. That area actually boils down in the asiapacific to be military primacy of the u. S. Led level order global order has to make way for china. That is what he means by that , new model of great country relations. Youll hear that over and over again in his speeches. And a girl david, thank you anna david, thank you. Will formally abe start his reign as Prime Minister in a ceremony today. From tokyo ise the chief economist at japan macro advisers. Shinzo abe. Bout is the only measure of success growth or inflation . What is your measure of success . Growth and inflation are certainly major point, another thing i would point out is the rising,rket, wages unemployment is low enough for japan, and on those measures, they are making success. It is a longterm future where he is making no progress. Anna does this ring in the third arrow, the structural reform that the japanese government wanted to put in place. We heard a great deal on the fiscal and monetary front, do you remain unimpressed by the third arrow . You wait to see it be released . Third arrow, i would give a two. There are some tiny reforms that he has been putting out, but i would say none of the reforms merit the structure. Even worse, looking in the next 10 months, i think it is quite unlikely that he will be able to produce any progress. With the election coming up, it is for the ruling party to lose, i do not think the prime redard boe be to come up with reform. Our politicians not quite as sure about shinzo abe as they were to start . Yes indeed. There were three arrows, the first was monetary easing, that seems to be working so far. If you look at japanese exporters, they are making so much money. That part is ok. Is thesaid that, longterm prospects of japanese exporters assured . I dont think so. I think they are still unsure if they should keep building factories in japan so they can produce more. I think any longterm aspects of think shinzoomy, i abe is still failing to deliver. Anna is it worth the cost . You have given us data on a percentage we have seen data on the percentage of japanese debt that the boj owns. It is quite substantial. Now it is threatening to push up to 50 by 2018. Why does that matter in itself . Boj is not alone in being a central bank that has a great deal of its countries owing debt. Yes, indeed. Quantum easing has been fashionable among central banks. Ecb is doing it, u. S. Has done it. Japan is doing more. However, i would say the fed made quite successful ends to that. Now they are about to raise rates. However, in japans case we had some success pardon . Anna carry on, i apologize. No worries. Positive aspect was that yen but the costeak, is a rising percentage. Owns moreank of japan than half of its debt with Rating Companies continuously cutting down its credit rating, i think the longterm credit ability of japanese yen and Government Debt will be increasingly in question. That will gradually and eventually undermine the ability of the japanese public policies. Anna do you think more quantitative easing is coming . That seems to be the only way. In an ideal world, there would be more structural reform, extending retirement, there would be more opposition competition, perhaps immigration into japan. Then, unless japanese government becames becomes bold enough to tackle these issues, i think they will keep using Monetary Policy, raising the market for the bank of japan, buying more jgbs. Anna thank you for joining us. We look ahead to what shinzo abe will say later today. We are getting comments from lower saxony Prime Minister commenting on volkswagen. He says you cannot punish all of the staff with the same brush. He wants to see a swift results coming through from the pro. More on volkswagen when we return. Anna welcome back, you are watching countdown. Here of the stories you need to know. Volkswagen is looking for a new chief executive after Martin Winterkorn stepped down after the deepening scandal over emis sions cheating. Potential successors include the porsche chief and volkswagen new brand chief. Get off zero, get off now, that is the advice that bill gross is giving to Federal Reserve officials. In a new report he argues that if zero rates become the norm, the economy will soon run on empty. Chinas president is pushing ahead with pushing ahead with trade ties. Xi jinping, came at a meeting in seattle attended by a group of u. S. And Chinese Business leaders representing 3 trillion in market value. U. K. Chancellor will use his trip to china to open the bidding process for the first stage of britains highspeed rail link to. Companies will be able to bid on at least seven new contracts valued at almost 12 billion pounds. Construction of the first part is scheduled to start in 2000 2017. At 6 00 u. K. Time on monday we will bring you a special debate on the u. K. And europe. That is in partnership with the city of london corporation. We will be bringing that to you on monday. That is part of some programming i will be doing from the labor party conference. That takes place in the early part of next week. Lets get an update on what is moving in the markets. We have been talking a lot about volkswagen all of the pain they are dealing with. I want to talk about a particular commodity that could be affected eye this. It is platinum. Bank,ts from deutsche mitsubishi, have been saying it is at less demand for diesel cars because of this scandal. People start turning more towards gasoline, that could impact platinum. You might think that most platinum demand accounts for jewelry, but that is only 34 . 44 of platinum demand is that curveom devices harmful gases for cars, particularly the diesel types. That is why you did the platinum demand affected. This comes after platinum has had a bad year. Slow Economic Growth has been curbing demand. Supply increases after South African mine strikes last year is also impacting it. If you look at the price graph here for you, you can see the price of platinum has slumped in the past year. It is down almost 30 . Guess what . You can see this drop here through tuesday, of course we know that these handle with volkswagen wes sent off last friday was set off last friday. That was the biggest drop in two years for platinum. Analysts are saying this might increase demand for palladium. That is used more in gasoline vehicles. Anna 6 33 here in london, mario draghi address lawmakers in brussels yesterday. He said the European Central bank needs time to consider whether the risk and Economic Outlook were not a step up its stimulus. Grants for the recovery to transform itself from being cyclical to being structural, when countries one, countries need to take on structural reform. We are closely monitoring greece towards financial stability. We do not see that materializing at the moment. , macrothis be the case policy, not Monetary Policy would be the tool of choice to address these risks. Wordd some of the down risks weaken the inflation outlook over the mediumterm immediate term more fun of italy then we project, we will not hesitate to act. That was mario draghi on needing more time to make a decision about boosting ellis. Stimulus. Lets get to james foley. Thank you for coming in. Did he found that a man in a hurry . He did not. Surely that is right. Have, wesider what we do not know how long the volkswagen news will take to work through. He need not be in a hurry. E needs to digest everything as he said in his policy meeting at the start of the month, it will take time to digest the news coming from emerging know that itina we is bad. I think it is right he takes his time. This is why i think the market is focusing on december for the ecb meeting. The possibility that we might see a step up in qa. Qe. Moves, thatsee that would make for a busy december. Diametrically two opposed moves. The fed meeting comes after the ecb meeting. Tohink it will be easier know what the fed will do and then the ecb can make their decision. The ecb gets to move first. There is a significant risk that we will get these posts policy moves. Just to make the point that during all of the gyrations of the story in august in this part of the chart, we saw strengthening of the euro. It is the move towards looking at the euro as a safe haven, i have seen fascinating analysis trendsmberg around the the cure correlation between the euro and the yen. It is flattering because of what it says about trade data that is strong, it is also bringing challenges though with the japanization of the euro. It has been used as a funding currency. That is because of low Interest Rate. Popular, we had a lot of Risk Appetite. The market was using the carry trade and moving into highyield currencies. This has changed, if we look at emerging markets, this is not just about china, this is about many of the commodity producers. At brazil, russia, south africa, nigeria, many of the aging asian currencies. Markets will not want to move back into the currencies. For will the euro bp used euro be used for . It will be a funding currency. Maybe you could move back into dollars, or sterling, maybe it could move back into Eastern European countries. They are not commodity producers. Currencies might do well, in this environment it will be difficult for the euro to get that momentum, even if there is a lot of qe. Anna we have been talking about parity for a long time between the euro and the dollar. We never had parity on the table, we never thought that the fed would wait to hike until december. We still have the same forecast. Differentials could still drive the dollar lower. The set exchange rate, that will be different. That will hold up for the carry trade. Anna thank you. Lets return to an exclusive sound for you. We have been speaking to the spanish bank. My colleague Francine Lacqua set down with the chair. It is say two of the investor meeting taking place this week. Francine lacqua spoke exclusively to her in her First Television interview since becoming chairwoman. She started by asking her about Global Growth. I think that Global Growth will be slower. It will slow down, china is a big economy. I think the important thing about santander is that we are balanced. The withny were the biggest Consumer Bank in germany. We have a very big business in the u. S. With good returns. We could do better, it is doing well though. That provides very strong buffers against the emerging markets. I would say santander does better when things are consultative, because we are stable. When things are doing well, we usually underperform. If you look at any point in time, from januaryapril, we did well. I am quite confident on what we can do for the next two years, in spite of emerging markets. They are a bit volatile. Francine your share price has come under pressure, how much do you think that is out of your control . Think itd like i would be measured since we increased capital in january. April, the until mid share price was up 17 . It was in line or better than most of her peers. Since then there have been a number of issues. Brazilian banks are down i think 35 . Spanish banks are down. Polish banks are now. It is the market. I think what is important is we have shown strong results. The latest result, the profits were up 25 . We have increased the capital ratio to close to 10 . Cost income is at 47. Equity is 11. 5 . We have to have a increase in profits for the year. We are doing well. Unfortunately, Global Growth is slowing down. Emerging markets are now out of favor. That is not helping us. Santanders chair speaking to Francine Lacqua. You can watch the full interview at 7 00 in the evening on friday. 6 42, it looks like a break. Reports earnings later. We could get some insight on how currencies are impacting the business. We will take a look after the break. Anna welcome back, youre watching countdown. Here are the stories that you need to know this morning. Volkswagen is looking for a new chief executive after Martin Winterkorn step down after the deepening scandal about emissions cheating. Potential successors are set to include the porsche executive and volkswagen new chief. Now,ff of zero, get off that is the advice from bill gross to the Federal Reserve. Says if zero rates become the norm, the economy will run on anti empty. China will push ahead with reforms for trade ties. Xi jinping comments came at a meeting in seattle attended by u. S. And Chinese Business leaders. H m earnings are due at the top of our. The company is expected to report its weakest quarter and 11 years in 11 years. It is not looking promising. Analysts are expecting a weaker thirdquarter growth margin. 56 is what they are expecting. In terms of net, 5. 4 7 billion krone corner. It will be the weakest in two years. H m said they wanted to open 400 new stores globally this year. Ubs sees it lowering that news for guidance new store guidance. Slowest Monthly Sales growth in more than two years. Unseasonably hot weather. It is not always great for retailers. Ins was particularly germany, h ms biggest market. Halfmparison, the first ales accelerated, and they saw an improvement and growth margins. If these earnings dont come into strong, it can whiten the gap between europes biggest retailer and the secondbiggest, h m. Another thing may have talked about is the stronger dollar. It warned in june of very negative dollar affect. This is because h m actually gets about 80 of its products from asia. Those close are often priced in dollars. Really and a, the share price says it all. Eally and a if you look at the stoxx 600 index, it is up by percent. Anna thank you very much. Lets return to the volkswagen story. Resignednterkorn has after the deepening scandal cheating. Sion test we are joined by with jonathan. You have experience in managing reputations of businesses. This is a company that traded on its reputation. Just how damaging will this be . Jonathan that is the critical question. The question is, is this a shortterm hit, or will it change volkswagens fortunes forever. What we see in a crisis situation, it is not the crisis of health the damage an organization, it is the way in which they respond. What volkswagen does now and what it continues to do over the next few days and months will determine whether it is an organization like toyota, that rebound from a major crisis, or later isbp, five years still suffering. Feeling wonderful which one does it feel like to you . Which of the other corporate scandals does it look like . What is your benchmark . What are the comparisons you make . Jonathan i think it depends on what happens now. In a crisisys see situation is a value of the organization dropping in the immediate aftermath of a big crisis event like this. It is interesting to see how quickly that value recovers, that is a good indication of how the outside world views the organizations response. In terms of parallels, one of the things that makes this crisis particularly challenging is it is internally created. It was not hit by a natural , that gets a degree of sympathy if they respond well. Situation has been caused by the organization, that is harder. Likeink of organizations the phone hacking scandal, we chasing everesco higher financial returns, those situations are particularly hard to grapple with. Anna if you are looking to replace the top management in the shape of a new ceo, will it be enough from a Communications Perspective to find someone internally . Do they have to look outside . Is in a the key issue crisis, leadership is so important. Volkswagen has to act fast. If they do not have a leader, they have another crisis. Right, one of the critical things that needs to change in order for the organization to move forward is actually culture. Getting the right person in quickly is a critical factor in the organization recovering. Anna thank you for joining us. At story from another angle, tim coulter from our website joins us. You. Great to see you have a collection of volkswagen related stories on the website. One traces the origins of the unraveling of volkswagen and winterkorns career back to a science lab in california. Tim it chases where the investigation came from and how it unfolded. The interesting thing is it started with european regulars who hired a u. S. Lab. They had this theory that the european testing really faulted. If you looked at america, you would see the real world results are very close to those that you get from the lab. In europe, there is a discrepancy because of the way the tests are conducted. When they did the tests, low and behold, they found the opposite. They spent months and months, dozens of people working on the fulltime to try and figure out where exactly came from. Anna i say the unraveling of winterkorns career, but not his pension. That is another angle. Tim there is a question about whether or not he will get to keep it. It seems like if he resigns like this he would be allowed to keep it. Ae report shows that he chelated almost one in 9 Million Euros in pension, he also gets a company car. Anna is a diesel . Is it a diesel . T talking to ryan earlier about how this crisis has or could weigh on the euro. Analyst is an equity that it is not farfetched in the eyes of International Investors this could dampen stocks on a big bracket level. If youre looking at exposure to european exporters you might think twice. Do you think that holds water . I think it depends on how far this news goes. Affect other manufacturers . What degree know is that business output will be affected. We know that a fair amount of people i hesitate to use i think maybet one out of six people could be construed as working in auto related type industries. A very significant amount of exports will this scandal grow . Will it affect the made in germany brand . We know that europe is the largest market for diesel cars. From that point of view, it has the potential to spread. It does, it could affect european growth. You have to wonder about the metal markets. Some people say maybe one metals loss is another ones gain. I suppose people are talking about how quickly this brings electric to the floor in europe. Relators look to jump over this crisis and move on to something more positive. Some research that came out of the u. S. Yesterday that said this will accelerate the death of diesel in europe. Obviously, it was struggling in the u. S. , and never gained traction. Cars,nly for the smaller that was their view. The death of diesel in europe is a big deal. And a girl and pollution cut anna pollution has been a big deal in europe. Now we have this crisis. In the u. S. As well. Tim they were marketing it as clean diesel. Emissions, fewer co2 but anna exactly. Thank you for joining us. Countdown,t on we will cover the volkswagen crisis. Anna volkswagen seeks to replace the ceo after his resignation. Breaking now, europes secondbiggest clothing retailer drops threaten their bottom line. Really hear from santanders chair and a wideranging interview. Beenrrencies have positive, they will probably be negative effects next year. Anna welcome back, it is just 7 00 here in london, lets talk about the sector. Nejra . Nejra we have some of the details through h m thirdquarter earnings. I want to draw your attention to the net income number, 5. 31 billion krone. It is a mess for net income it is a miss for net income, quarterly Profit Growth less than 6 . That is the average for quarterly profit. There are 400 Net New Stores this year. Some analysts are expecting you to be lower but it seems it is keeping that the same, pretax profit. Third quarter, 6. 9 4 billion krone, a slight mess. A slight miss. I and still waiting. I am still waiting for the growth margin number. They were expecting 66 , which would be the weakest thirdquarter growth margin in 11 years. We are still waiting for that number. Overall, the challenges h m has faced is largely from a stronger dollar, which they said would be a bit of a problem in the second half. It buys most of its products in asia, where clothes are priced in dollars. They get 80 of its product from their, wow its biggest rival gets most of its products produced in southern europe. I will get back to you when i have that number, but for now, we can see a number of these, particularly net income, is a miss. Anna volkswagen is looking for a new chief executive after Martin Winterkorn stepped down over cheating scandal. They will meet tomorrow to select his successor. Our International Correspondent is live on location, vws headquarters. Hans, good morning. Winterkorn said he didnt know about the cheating. Is stillthat there quite a lot we dont know about this story, a lot of facts still to be unearthed. Why did he leave, then . I guess the pressure was building. Hans well, i think winterkorn s line is that he is responsible but not liable, by which i mean criminally liable, because they have pledged to cooperate with local authorities on a Terminal Program in the state of lower saxony. They are opening up an investigation. Vw wants to cooperate and put this behind them. What dr. Winterkorn said yesterday is he is responsible, for he was damaging the company, that is why he wanted to leave. As ceo, i respectfully except for responsibility for the irregularities that have been found in diesel engines and have therefore resigned the Supervisory Board to agree terminated my functions as ceo. Finding and new ceo, find out with a new problem is. He is a technical guy, he is an engineer, and he could find a technical fix. To a technical problem the challenge is more than a technical problem. This is a line that is becoming so clear from investors, on the other investors across the globe. We saw a report from jpmorgan 40 billion could be the total price tag. They have a challenge ahead of them. What we know about the next potential ceo we have heard meuller is the front runner, the ceo of porsche. The outside candidate, herbert geiss, came up through bmw. He is now head of the volkswagen brand. Behind me is the largest on the factory in europe, some would say in the world. All morning, we have been seeing shift workers come in. Just now we saw a few more suits coming. Come in. They want to have business as usual and start regaining the trust of consumers, and put all these legal issues and legal costs behind them. Anna hans, think you very much. The folksng us from like in headquarters. That brings us to our twitter question of the day which corporate scandal does vw look like to you . You can find me on twitter. You may want to use the hashtag vwgate. We have had a number mentioned so far. Is it like bp, like toyota . We spoke to a guest to talk to about tesco. I guess to talked about tesco. Or more on the scandal, lets bring in Ryan Chilcote, who has been covering the broader indications of the story. It is almost mindboggling to think how far this story could reach. Ryan yeah. Now the story is really playing out in japan. The japanese are getting a rude awakening. They had a threeday Public Holiday. The first day they said was all about celebrating elderly and theyour ancestors, lock it down at close to 8 , honda down 4. 5 . They came down a little bit, the index closing down 2. 4 . The reason for this is pretty simple. Well they dont use many diesel cars in japan, they have begun increasingly to export cars with a diesel engines, because they want to compete with european carmakers here in europe. You have the mazda cx5 suv, can get that with a diesel engine. This is where they are getting bought out. The more on automaker appears to be invested in diesel technology, the more they are getting punished. Some of this might just be a kneejerk reaction, but that is how the market works. Are seeingy, what we is that those companies who are more focused on hybrid, cleaner technologies, electric cars, potentially emerging as beneficiaries, but even toyota was down. Not only has toyota led in this least exposedgy, to diesel, but it is a pretty easy trade because vw is competing with toyota for the top spot. Today the story really played out in japan in terms of the fallout from the vw scandal. Anna interesting that toyota is down. It has been weaker. Thank you very much. Lets talk about the broader picture across the asian market. As ryan was pointing out, we had a holiday in japan and they are playing catchup. David ingles is standing by in hong kong. David . David ryan mentioned the perfect way to describe this a rude awakening. Started out very shaky, futures pointing to the falloff at the open. Toward the close we had a selloff here. Roughly speaking we are down 500 points, this is for the nikkei 225. We have a lot of japanese order automakers selling off. The parts makers more so. And breaking news ian hour back. Based on sources we talked to, we are ready to report that it will be missing its firsthalf target and may be to cut a 2016 guidance. Down 5. 5 . Broadly speaking, asia looks like this. Japan is actually falling. It is pulling down the overall index. You strip the japan effects, things are falling much faster. Australia is doing the heavy lifting at this point. It is fairly mixed across the region. Wednesday,are it to we are doing much better, but in no way or by any measure are we seeing a Risk Appetite come back into the market. There is some value, especially in australia, when it fell below 5000. That means there is still a lot of risk aversion out there in the market. I will be back with this later on. Back to you. Anna david, thank you very much. David ingles in hong kong. Nine minutes past 7 00 here in london, time for a bloomberg exclusive. A spanish lender raise its capital ratio targets for third time this year as investors seek assurance that the company is packing on weakness that is weight on the share price. Anna botton spoke to Francine Lacqua about Global Growth and business. Global growth will be slower. It will obviously slow down china is a big economy. But the important thing is that we are very balanced. 50 of our earnings are coming from developed markets, but there are huge beneficiaries. Germany, the biggest Consumer Bank in germany with 14 market share. Very Good Business in the u. S. , with good return. We could do much better but it is doing well. That provides a very strong buffer against all the emerging markets. We will have more from that exclusive interview throughout the day. You can see the conversation over the weekend, the entire conversation. Dont miss it. Dave foley is still with us. Jane, lets talk a little bit about the dollar and janet yellen and the fed. We have a warning from bill gross, Janus Capital. Get off zero and get off now. Ast do you make of the fed we wait to hear janet yellen . Jane i think the arguments are compelling, but we lose our momentum if the u. S. Were to fall into deflation. I and not saying they will but the bigger argument is that if they were to hike Interest Rates, do they risk deflation . Probably not, and from that point of view, yes, maybe he has a point. Others may say they have missed the window of opportunity. Now to we have these concerns about china and emerging markets, maybe it is going to be too late. Think, is likely to come today, and that should restate what she said last week, which is that the majority of the committee do expect an Interest Rate hike in 2015. Anna the market study really listen to that, did they . They listened more about the warnings. Jane and that is why i think it is likely she will come back. We had a number of fed officials speaking over the last few days, most of them talking about communication, trying to get the message across that the majority were in favor of an Interest Rate hike. Is why itly, that think it is likely she will put the emphasis on that message if she puts emphasis on china, on market volatility, than it appears we will get that Interest Rate hike. Anna which way is she going to go . They could be one and hold, or not at all. Jane i think it could be either. If they do go, it will be a fairly dovish viewpoint. Not too much. We really dont have wage inflation, we dont have that much inflation. Anna jane, thank you very much. Jane foley stays with us. Coming up on countdown, more from our exclusive interview with the fed chair. She has been speaking to Francine Lacqua. We will bring you further coverage of the conversation, coming up. Anna welcome back, you are watching countdown. ; 16 in london. Here are the stories you need to know this morning. It is looking for in your chief exec volkswagen is looking for a new chief executive amid a deepening scandal. The worlds biggest carmaker is set to look for a replacement tomorrow. Potential successors include porsches chief executive, and their new brain chief. Brand chief. Now,ff zero and get off that if the advice bill gross is getting to the Federal Reserve. If zero rates become the norm, the economy will soon run on empty. Germanys chancellor says eu leaders have pledged an additional one billion euros to International Agencies helping syrian war refugees in lebanon, jordan, and turkey. A great to set up several Processing Centers they agreed to set up several Processing Centers. Talk about wideranging exclusive interviews. Asked about the banks strategy with regard to synthetic. I think banks are already transforming, becoming more digital. It would not be possible for us income without the investment we have already made integers. Made in digital. Are opening accounts in spain and many other countries online. This of course means that it costs us a fraction of what it would if you opened in a branch. We can always go to a bridge. A branch. That is what i call business as usual, bau. Our goal is very simple we want you to be able to see, manage, and buy all our products through all our channels. You can do that on mobile, on the internet, on the phone, in the bridge. We are almost there not quite, but almost. That is a very important target. Francine how much do you look at the competition . You were talking about apple pay. Apple pay is not a Good Business for them, but it is a Good Business for our customers. We launched apple pay in the u. K. , and our customers love it. We did it because a significant proportions of our a significant proportion of our customers had an iphone. We had to offer it as soon as we could. What is interesting is that we now develop a great app around apple pay, which is making customers more loyal, because you can see where you spend money. It is a great tool and it is very popular. I think we need to continue to innovate, and that is the key thing. Francine having said this having said this, the important thing and i said this recently in frankfurt at the meeting we need a fair p lay market for all. The rules have to be the same for banks. I think this is incredibly important. We are sharing information. If i share my customers information with new groups otherwise, it is very difficult to run a business. I think that is the key thing. Francine do you think they will . Do you think regulators are understanding . The problem is that they move so fast, that regulators have to really understand the market. Yeah, i think they are. One of the things they are doing also there are many new collaborating are we are working with apple, we are the first bank to team up with them. A customerno to because lending criteria dont accept their credit rating, we send them to another. I believe in collaboration. But not all of them. Some of them are not ready to do that. But i think we are trying very hard to work with the new entrants and to do our own disruptive strategies. Botinthat was ana speaking to Francine Lacqua,. You can catch the full interview at 7 00 london time on friday. That get more on our top story today. Vw is set to choose a new chief executive as soon as friday. My next guest says there may be less damage than we think. Now. Tian standler joins us jane foley is still with us. Professor, great to see you. As they are looking for their new chief executive, will it be enough of a change, do you think, in consumers minds, for an insider to be chosen . Christian an interesting question. I would say the outside would prefer someone not from the company, but that is not so easy. Wasmight recall there bribery corruption not too long ago in siemens, and he brought in a new ceo everyone agreed to the good job cleaning up the scandal. But she wasnt doing quite so good when it came to running the organization, which is a complex one, and vw is arguably even more complex. Im not sure if an outsider in the long run can really manage the organization. Anna we were talking about the parallels between this story and other crises. You specialize in management. What does it look like to you . Does it look like toyota . Christian to some extent. The number of recalls is similar. There have also been some withholding of information in toyota. Here it seems to be more deliberate. On the other hand, for like then, it looks consumers are slightly less concerned because there is no direct link two fatalities. Fatalities. You said in a car, you drive the car, the brakes might not work, you might die. That come in a sense, makes it slightly less traumatic. Anna i suppose it depends. There is a difference if you are talking about an effect on the consumer or if there is an effect on the broader public. You were talking in the last hour about how this could weigh on currency markets, your area of expertise. We have been talking about how this could weigh on the euro. Depends onry much how this develops and how it affects vw. It affects other car manufacturers. We have to make sure that other manufacturers we need to see how this goes. There may be other countries, too. I have read that the demise of diesel was always slated anyway. It is from that point of view that it pushes things forward, something which was going to happen anyway. Will will ait completely turned against vw . I doubt that. Vw is still for most people and reliable bland. They are getting a decent product. Anna you have a lot Living Corporation you did a study on them. What is your study of these longtime businesses tell you about how to cope with this kind of crisis . Christian there was one chapter where i looked specifically about what to do in the case of a big mistake, a big challenge. The best thing you can do is while it happens be as open as you can. Share everything as quick as you can, otherwise things stay in the news. The other thing that is no longer important is to remember. It is maybe a little bit painful. No one wants to recall when things go terribly wrong, but it helps you to avoid the same mistake again. Now it is fresh in your mind. 10 years down the line, people might have forgotten, also internally. Anna one place that is gaining momentum is quarterly capitalism. Investorsthat perhaps put too much emphasis on the shortterm, dont allow businesses to think in the long term. Clearly this is a business that does a lot of r d. Do you think that some of these attempts to, in this case, to fold the regulator to fool the regular, they want to impress shareholders . Christian maybe less so with volkswagen because they have a very specific shareholder strategy. You have 20 owned by one of the states, lower saxony. You have another big institution investor, qatar. They have daily up and downs. I dont think that is necessarily the pressure that they have. Anna from what you have heard, how far down the Management Structure should our concern rest in terms of the w . Is this in terms of vw . Is it just Martin Winterkorn . Christian we can probably expect a few more people to go. Obviously it is not the ceo who programs cars. Their will be other people involved down the line who were doing this. Anna thank you very much for joining us. Professor christian stadler. And jane foley. Coming up, europes secondbiggest retailer, h m, has seen the weakest quarterly Profit Growth in two years. We will bring you everything you need to know on that story, coming up after a very short break. 7 26 in london. Stay with us. Anna welcome back, you are watching countdown. Here are the stories you need to know this morning. Folks like an is looking for volkswagen is looking for a new chief executive after winterkorn steps down. The Supervisory Board of the worlds biggest carmaker is set to discuss replacement tomorrow. To include are set vws new brand chief. Get off the and get off now that is the advice to the u. S. Federal reserve. The januseport, Capital Fund Manager argues that if zero becomes the norm the economy will soon run on empty. Germanys chancellor says that eu leaders have set an additional one billion euros for International Agencies hoping syrian war refugees in lebanon, jordan, and turkey. They also agreed to set up several protesting centers within the eu i the end of november to register and identify syrian refugees. The longest running insurgency in the americas maybe over. Colombian president juan santos has shaken hands with the leader of the Rebel Movement. I agreed to sign a peace deal within six months. Negotiations in cuba have been deadlocked for more than a year over whether the president would serve jail time for conflict that left 200,000 people dead. 7 31, lets get back to the markets. We have been reporting what is happening in the asian session, lets have a look at the european market. You can see under the heading where we think the markets will open. It seems that we could be 1 10 of a percent higher on the euro stocks. One might be a bit of a laggard. I could have summoned to do with mining businesses. They are one of the sectors that are under pressure. We expect to see a little bit of movement in the other markets, but really not moving anywhere very quickly. Janet yellen speaks later. We are waiting to hear what she has to say. A strong u. S. Dollar is heading h ms bottom line. The second biggest clothing retail reported its weakest quarterly Profit Growth in two years. Nejra is standing by with the details. Were the numbers as bad as people expected . Nejra they were, and they were ever so slightly worse. Gross margin is what a lot of analysts were looking for 56 . It was actually 55. 9 , in line with estimates, but that is the weakest Third Quarter gross margin in 11 years. That look at pretax profits 6. 9 4 billion krone. That missed estimates, net income coming in at 5. 31 billion krone. You can see it is a little bit worse than expected. We are looking at the weakest orderly Profit Growth in two years. Sales we have sales up to the date. They rose 12 . So why is it that these margins not having a strong growth as h m might like . A lot of it is to do with cost. H m warns back in june that a stronger dollar could have an impact on earnings, and that is indeed what it says has happened. This is because h m get 80 of its product from asia. Their clothes are usually priced in dollars. Their biggest rival makes most of its products in southern europe. Having a bigllar, impact, they continue to do so going forward. As we know, the share prices often say the year today is down about 5 . Retail index up about 5 . If were talking about into tech, that is up about 23 . Anna thank you. Is looking toer achieve a fully loaded common equity tier one ratio of more than 11 by 2018. The companys chair says that she is counting on the loyalty strategy to boost profits. Francine lacqua asked her about her strategy in an exclusive interview. We know where we want to go. We now need to execute. Again, we are a bank it wont be as exciting as the last 12 months. It will be about new people and raising capital. Is now about executing for customers and delivering for shareholders. That is a big task. I always think about our people and our team. We could not attract the best team i want to attract the best team in the u. K. And in brazil, and we have that today and we could do a bit more in terms of strengthening, but i think we are in a difficult place. Macro is the biggest challenge. But as i said, the balance between developing and developed those markets are in europe and the americas. It is a split between developing and developed and that will give us more stability. Things get quite bad but we should do better than others. We will be affected, but less than others. Francine no asset sales, no further Capital Raising . We have huge potential with our existing customers. We dont need to buy. We have and we will continue to look at other opportunities in gold markets but it is not something we need to do. Francine had you make a customer loyal . Is service, is in marketing, is it Something Else . Today, you need to do everything right. Customers have high expectations. You need to deliver excellent service, you need to deliver great product, you need to deliver them in a very cost efficient way, i. E. The price has to be right. The best example is our one to three strategy. We are rolling it out in spain. It is a strategy, it is about loyal customers, it is about lasting relationships with our customers. Francine so loyalty is the most important thing . You can grow years from now. We want to be the best bank, the best retail commercial bank, for our people and our communities. I. E. , the strategy has to make sense for our customers, but also for shareholders. The reason we can square the circle is that we have been investing class income. We reported in june a cost income ratio of 47 . That is the best among large banks in the world and that is what allows us to deliver great products with great crisis. Rices. At p we arent there yet and that is what we will work on how we will do that in the large markets. Clearly, the u. K. Is an example and a reference for what we want to do in the group. Lets get an investors perspective now. Nik anderson joins us. Great to see you. Ands talk about ana botin her strategy. We have heard various thoughts from her this morning. What do you make of this bank, post financial crisis . Is whate real question is the role of a Multinational Bank post financial crisis. Clearly it is much more difficult to move capital around it is no longer truly fungible from one entity to another. Anna more difficult geographically . Nick absolutely. You want to see that each unit has the appropriate capsule. You have to work out what is the strategy. What do they bring, as a group, to the collection . One thing they may bring is diversification. Anna is that another strength, the fact that it can be if you are facing tough times in one market your profits will be bolstered by performance in another, providing you can move the money . Nick it is a tradeoff. Clearly they are facing tough times. Regulators will see that there are some benefits to diversification, but it is a tradeoff between the overall Capital Requirements and your ability to manage the shape of the group. Anna does thats in question applied to all Global Retail banks . Nick that applies to all multinational, i would say. What is the purpose of this business . What can you bring as a group to make the business more than the sum of the parts . Anna what are you excited about, in investing . How intensive is your portfolio . Nick we are not particularly defensive at the moment. Defensive sectors alcohol, food, health care. These sectors have done well. It seems the market is too pessimistic. Underlying Economic Growth is still reasonably robust. We had flash pmi data yesterday for most countries. Again, pmi is holding. The benefits come through, lower oil prices, and that would benefit european economies and even china. We has taken the pain that we see anna earnings downgrades in some cases. Nick absolutely. Cannot see through to capital goods companies, but we havent see the benefit of the lower oil. I think that takes time to come through. Consumers need to be confident that it is a permanent phenomenon before they start spending the money. Anna it could be quite significant in europe as well . In the u. S. It seems to drop down to the bottom line, easier than a dozen europe. Nick it is a mixed picture in the u. S. , partly because of the capacity. In some areas it hasnt dropped. In europe, it could add. 1 to gdp. Anna whether people are too gloomy depends a lot on how big a challenge they think the chinese economy faces, and how material that will be for the rest of the world. The u. S. Has a strongish growth story, so it can withstand those headwinds. Nick it is certainly trying. It is facing some structural issues, the property boom. There are more positive signs shorterterm. Real money supply in chinas expanding quite fast. Property prices over the last six months are in positive territory. In the shortterm, there may be better news coming out of china, although there are still structural issues. Anna nick, thank you very much. Nick anderson stays with us. The time in london 7 41. Coming up, we will be live for the latest on the vw scandal. Here in london, we will get an investors the of the crisis engulfing the worlds biggest carmaker. Anna welcome back to countdown. 7 44 here in london. Here are the stories you need to know this morning. Volkswagen is looking for a new chief executive after Martin Winterkorn stepped down amid the deepening scandal. Supervisory board of the worlds biggest carmaker is set to discuss his replacement tomorrow. Potential successors include porsches unit chief and vws new brand chief. Germanys chancellor says leaders have placed an additional one billion euros for International Agencies helping. War refugees in lebanon, jordan, and turkey. At a summit in brussels they agreed to set up several Processing Centers within the eu by the end of november to register and identify genuine refugees. The longestrunning insurgency in the americas may be over. The colombian president has shaken hands with the leader of the farc Rebel Movement as they agreed to sign a peace deal. Negotiations in cuba had been deadlocked for more than a year over whether they would serve jail time over a conflict that has left more than 200,000 people dead. Folks lagans super volkswagens Supervisory Board will meet tomorrow as they seek and you see you after winterkorn s resignation. Hans nichols of life in location. Hans, what is next for vw . Hans they have to figure out who the new ceo is. We have been here all morning watching cars come in and i have breaking news earlier, i thought of bmw. I have been watching all day for nonvolkswagen. Just of a few minutes ago we had a mercedes . A mercedes pull in. It all has to do with mercedess general response how will they change their Public Perception . We heard from the minister of lower saxony. This morning he said almost two contradictory things one, he says he saw a swift resolution to the problem. They are proceeding with the criminal probe. Two, he said it was the first step in a long process. Anna, those seem to be the intentions. In some ways, volkswagen is to get cleared, whether it is in germany or france or the United States. Then they need to repair their relationships with their customers. Task. An and enormous we will be trying to figure out who the new ceo is. The executive committee has a meeting often on. Dr. Winterkorns dismissal, the full board meeting, and that will likely make it official who is the new ceo. Anna hans, thank you very much. Ons nichols keeping and i am things down there at the volkswagen. Headquarters at the volkswagen headquarters. Nick anderson is still with us. We spoke to one investor who said they dont go into cars because the margins are so small. Therefore, the competition is so tough. You could even draw a line between that and what we see happening at oak volkswagen. Maybe that is where the pressure comes from is this something you are interested in . Christian it is, but now i think they are starting to focus on commercial consequence. Nd they are quite serious if you look back historically, if you look at toyota, gm, it tends to be a 3 to 4 loss in market share, and the loss of pricing power. This is the premier of logical vehicle. To get rightng with admission standards in their vehicles. What does it mean for their leasing . What is the residual value of cars they have least . There are serious commercial consequences. I also think that there are bigger issues. If you look at their accounts and see what they say about strategy, winterkorn himself talked about a suit of withation and perfection, responsible actions. Both ecologically and economically. That strategy is in pieces now. Anna this does raise Big Questions about corporate governance, not just in vw but the car sector as a whole. It didnt seem to be the norm. Lobby groups, regulators in europe and north america, these show these cars underwent very little about how they performed on the road. That is not to say that it is a reason to cheat, but it seems that the corporate government are far detached from where the public would like it to be. Nick the testing regime is very different. There are spotchecks in the u. S. That is an instance where the vw software kicked in. It was performing in a different way. The tests in europe are astringent. Carmakers need to prepare themselves for those tests now. I think at the heart of it is governments. There have always been governance concerns at vw, given Family Interest and so on. I thought some of the language yesterday was interesting. Resigned, hern talked about not having any knowledge of this, almost saying he wasnt taking personal responsibility. The language from the Supervisory Board members said they were sad to see him go, but he had resigned. Im not sure there is real acceptance at the top, and that is a problem. Situation the legal in the United States complicate our ability to get to the bottom of what happened . I was remembering with bp. It became quite clear there was a period when people talk freely, and then things shut down, and he didnt feel you were getting the full picture because senior people were talking about other businesses under pressure. They fear it could come back to halt them to haunt them. Nick equally, there is an issue of consumer trust. When we had the deepwater rising, none of us stopped buying petrol at bp. Do i think twice about buying vw . Yes. I think these issues do need to about thelets think culture of the company, where they really have to succeed. There was a culture that costs were being controlled. And that is coming frog right from the top. Every chief executive in europe must be thinking about the culture of their business. Anna and asking questions about parts of the business that are doing better than they thought, in the same way you would ask about parts that are underperforming. Nick absolutely. Checks and balances. We need confidence. The employees neede the shareholders needed. The employees need it, the shareholders need it. Anna where are the winners . Does it bring forward the electric revolution . Nick i think there is the big question of diesel diesel has had to reduce emissions there is a lot of transformational, destructive technology. Tesla is talking about a significant reduction. Within the next three to four years. Anna thank you very much for joining us. ; 53 in london 7 53 in london. Lets get to jonathan ferro, up next with on the move. Jonathan we will be reflecting on a week in the life of vw. The ceos departed and we ask the question is the worst really over . We put that question to one of the most bullish analyst in vw. We will do that straight after the break. Then we will talk to pan japan. The question i would ask his as he lays out his plans, will he even last, given his popularity . That is a question worth asking. Mario draghi and the ecb president says he needs more time to decide whether he will do more. Janet yellen says she needs more time to do last. Bill gross says just get on with it. Break, a look ahead to that allimportant janet yellen speech. Anna we had a conversation earlier with jane foley, who brought up the prospect that you could see Big Decisions in december. That would make for a busy runup to christmas. Jonathan ferro, after a very short break. That will do it for countdown. Just time for some data jon alluded to some of them. At 9 00, we will get the german iphone data, the key gauge of Business Sentiment in germany. How much was that shaken by what was happening in china . That could be something. Norways Rate Decision comes later on. And we are also going to hear from the japanese Prime Minister, speaking at 10 00 london time, laying out his goals for the rest of the term after being reappointed leader of his party for another three years. Abenomics very much in focus. Jonathan welcome to on the move, lets get straight to your morning brief. Martingens ceo winterkorn resigns. The electorate seen enough from the chinese Prime Minister . Get off the road now, that is the message the Federal Reserve janet yellen. She is scheduled to speak later on tonight. 20 seconds away, this is what futures markets are indicating. Caroline i will get to stocks and a second, first i want to show you the euro dollar trade. We saw at of course rise yesterday after we heard from mario draghi saying we need to give time before thinking about whether to increased him in this. That came after your interview. He said they needed a steady hand. Is not about rushing to increased him in this. The correlation with the yen is at its highest since 2007. Lets take a look at the stock market and see how