Transcripts For BLOOMBERG Countdown 20160217

It is countdown. Anna lets get to caroline hyde. She has the details for the creditagricole numbers. Caroline this company has desperately been trying to restructure itself. O in place. New ce in large part, a majority is owned by regional banks. It does own stakes in regional banks itself. They have agreed to sell back these stakes and regional banks. They will finance at themselves and lend money to those regional banks to the tune of 11 billion euros. They are trying to give all caps dividends back to their investor base. The take away here is they are threeg back stakes for regional banks. They will be boosting their capital and your one ratio to ratio and their teir one to 11 . They are coming in 800 Million Euros better than what was expected. Their profit is at 1 5 of where it was last year. They are promising all Cash Dividends as soon as 2016 and they are raising their own dividends this year to . 60 per share. They are boosting their capital strength and also managing to give money back to the investor base. Thank you very much, caroline hyde. Do you have some headlines, manus . 44us; they will have a dividend. They sold a part of the company. They reported a fourthquarter profit of 272 Million Euros. They were looking for fourthquarter profit numbers in the region of 320 Million Euros. Fourthquarter profits were 272 Million Euros. There is a final dividend of . 44 a share. Of course, we are going to be focused on the commodity market and the oil market. Anna we speak with management about this. The government sold part of it back to the market but the government does still own a large portion of this. To abngoing to speak amro ceo right here on countdown. It was a poster child for the economic crisis. That was right at the height of the crisis. It was just before bed. Last that was freds triumphant moment. Or in his mind, it was a triumphant moment for the taxpayer. Time for a little bit foin the chinese market. Anna we have heard quite a lot about china. They are trying to boost their economy. Just yesterday we were talking about how they are changing the amount of money banks need to satisfy to cover loans. There is not a lot of talk about increasing local infrastructure. Some Global Voices are raising doubts of the sustainability of the lending surge we have seen. S p is raising concerns about the level of indebtedness, saying this could weigh on the countrys debt rating. Are they being booked in the right place . Us that is all about the obesitpacity of it. Of in 2015 in terms corporate household that. Household debt. It is about this, it is about the currency. We have had the biggest repricing in the yuan. We willn towards g20, try to get a little bit of stability into the currency. There is concern about the capital outflows. There is concern about depreciation expectations. They could accelerate because of the outflow. All eyes are on the yuan currency. Anna lets get to the Bloomberg Business flash. Nejra brent crude has risen before a meeting between iraq and iran. It comes after saudi arabia and russia agree to freeze production yesterday. It is called the beginning of a process. The Iraq Oil Minister will me his venezuelan counterpart. Cause for greater regulation of u. S. Banks. The man who led the 2008 bank will a program also proposed the idea of breaking them up to protect the economy from another financial crisis. Like significant progress has been made to strengthen the financial system, but i dont think it went far enough. The biggest banks continue to post an ongoing large risk to our economy. Anna David Cameron has edged closer to securing an overhaul of the terms of britains membership to the European Union. He is due in brussels tomorrow for the second time in 48 hours. He won the backing of angela merkel. Eus rotatingthe presidency also agreed that was a good basis for a deal. Donald trump will not be elected president. They expect the u. S. To lead the world. I continue to believe mr. Trump will not be president. The reason is because i have a lot of faith in the american people. And i think they recognize that being president is a serious job. Hosting a talk show for a reality show. Its not promotion. Its not marketing. Its hard. News, 24 hours a day, powered by our 2400 journalists in over 150 news bureaus around the world. 30 much. Ank you take us through some of these moves. There seems to be a push and pull in terms of the chinese story. Nejra good morning to you, manus. We have seen generally asian markets today is nothing that two day rally. We have been seeing quite a bit of fluctuations on the china market in late trade. The shanghai market is up by 3 4 of 1 . The yuan has weakened by the most in a month. The yen is surging in emerging markets. Outindex had been in and of the balclack today. We are snapping that really strong rally that we have seen. The index had its best two day gains since 2008. Ging and export companies are coming under pressure. Australia and korea are also closing lower. I will show you some of the main stocks we have been watching, similar to what you will see in europe. We have seen quite a bit of focus on the energy sector. The Oil Producers are coming under pressure. Not as much pressure as petroleum, though. They are posting a 99 drop in four year profits. Softbanks closing higher by 6 . Its market value has risen as much as 16 billion earlier this week. Dominos pizza in australia is coming through with a record firsthalf profits, sending its share price is higher as well. It has been once again, about this yen resurgence. We have seen the yen move higher come up by 1 2 of 1 against the dollar. Back to you. Anna thank you very much. Downside risks mount for the chinese economy. Aging is looking to show it is up for the challenge. Chinas largest economic planning bodies are considering fresh stimulus measures. Manus malcom scott has more on this. Talk this through some of the new measures. Are we channeling 2009 . That is the question in terms of the next big stimulus package. Lcom they are doing it in slightly different ways. This infrastructure bond package , they are looking to free up 400 billion yuan. If you translate that to 400 billion for the full year, that would come out at 1. 6 trillion yuan. That is double the 800 billion made last year. Of course, that is in china, where a lot of the investing spending demand comes from. Local governments that led the response to the 20082009 global recession. That is where the money was spent and that is where the debt climbed. This time they are doing it through bonds, rather than through banks. Speaking of banks. We had the huge surge with saw yesterday. We saw some of that stimulus coming to the banking channel as well. Speaking of banks, there have been discussions around freeing up the ratio, or the amount of funds, they need to set aside against their loans. They should be setting aside about 150 . That could become back to 120 so that banks can lend ore. There are increasing efforts to get the economy humming again. Anna we talked about some of those over the last 24 hours and indeed, we have seen some international reaction. What about the timing of these steps . There has been interesting. We have a new fiveyear plan coming. Is it next month . They want to be more transparent, ahead of that though, there could be criticism. Malcom exactly right. They have come back from the Chinese New Year holiday with this renewed vigor that they must get the word out. We had a long interview in local media, speaking about the local currency. The premier came through with some comments in local media yesterday. All of this is coming to ahead of the g 20 meeting at the end of this month. At the start of next month, we have the National Peoples congress, where they have plans for 2016. But also, the next five years are unveiled. Manus think you very much, malcom scott. All of this comes as the troubled that passes the u. S. As a class, trickling u. S. Asset financialggering a crisis. The debt problem in china has already reached for portions of the u. S. Debacle. Dont worry. Chinese authorities are on the case. Lets see if we have a man in the studio who believes that or not. Bill, good to see you this morning. When you hear lines like dont worry, the chinese authorities are on the case, does this will be with confidence . Bill everyone is talking about the next crisis in china and they are absolutely right. But your guys are right. The chinese authorities will cope with it. It will be another problem and they will largely, i believe, internalize it. There are risks that will cause contagion concerns. We will get more and more of oh, no. China is terrible. However, there is a longterm implication. What we have seen with all of the chinese spending over the last 10 years, and especially still going on as we see in these numbers, is china has basically built everything for the next 50 years. Which means, if people are thinking that china is suddenly going to turn around and Start Building on the scale it was and generate the kind of commodity growth we were expecting, that is simply not going to happen. That is a negative aspect. China is never going to be the driver of growth it once was, but i would not panic so much about the shortterm when angela and monetary implications of the looming bank crisis. Manus why are you not concerned about that . Bill relatively concerned, manus. It will trigger contagion and the obvious fears, that i believe it will be internalized. Manus lets take it to markets, then. Where will that manifestation most impact . In terms of where we are with the loan level. The default level rose by 50 . Where will it manifest itself . Bmoney going into bonds . Give me your perspective in terms of where the markets will react . Bill as i have said already, it will be an internalized problem and it will create difficulties for chinese growth. End this concept that china is the driver of global growth. We will focus global expectations away from china. We will be looking at other global economies, as always happens in situations like this. Everybody is talking about india again. It is an up and down the economy. The effects of this looming financial crisis will be felt primarily on the drivers of chinese growth. That is what will panic some people in the Global Markets and yes, it will result in a weaker yuan. Once we get past this, people will put it into the bucket of china in transition. Story ish of that going to be a china that is not growing as fast as we all expect. It will not be driving global economies. It will become something more of an economic backwater longterm. Anna you said in your notes that china has been around for a long time. Bill it has been around for an awfully long time. Anna when you hear this zbanks when commer they say they are not sure where and therefore,re they dont have to provision them. We dont have the transparency we want around the Banking Sector. Bill i absolutely agree with analysis like that. I am quite sure there has been massive fraud. I am quite sure that has been a massive amount of money squandered on building bridges to nowhere and all of the classic kind of stuff that goes into economies where they are desperately trying to show that they are growing. Yes, it is all happening, but how big an issue will it be for the rest of the Global Economy . Long term, it is a chinese problem. Anna thank you very much. Bill blain stays with us. We will get the Industrial Production numbers out of the u. S. Will release minutes from its january meeting. Nejra coming up next, turning to tehran. The focus shifts to iran. The oil minister talks to iraq and venezuela. Anna welcome back. This is countdown. Date with what is happening in the oil markets. Manus brent crude has risen as iraq and iran get together in tehran later today. This comes after saudi arabia and russia agree to freeze reduction. Anna moves that the Saudi Oil Minister described as the beginning of a process. Lets get the rest from our reporter elliott. Certainly, you would not think that the iranians would be too keen. They still want their market back. Elliott i think you have hit the nail on the head. Iraq is already pumping 4. 3 billion barrels a day. You would think they are the more likely to be persuaded of the virtues of this accord reached yesterday to freeze out but at current levels. The iranians are much more tricky. Intoare trying to get back the market and boost production by one Million Barrels a day. They just had sanctions lifted. Why would they want to sell sanction themselves right after they had International Sanctions lifted . Manus the debate is this. Russia and saudi arabia are capping production, possibly. With this boost oil prices, though . ,lliott Goldman Sachs says no. Reached,n accord is that is not a guarantee, given what has happened in the past with these kind of agreements. Even if an agreement is honored, it is unlikely to help with oil production. You still have to supply glut. That is not going to help inventories come down. And until they do come down, that is not going to help prices. Even if prices were to rise, you are going to have fra ckers in the United States hurting right now boosting production. That will drive the prices back down again. I dont think this will work out as the venezuelans hope that it does. Anna thank you very much, elliott. Bill blain is still with us. Bill, to what extent is oiled the tail wagging the entire market . Bill you to me why Higher Oil Prices are good for stocks. Higher oil prices means higher cost reduction. The entire market thinks Oil Prices Going higher is a good thing. Manus do you not think it is a good thing . It reduces the potential for the flood and reinforces some dividends. It reduces banksdefaults. You can pay off a little bit of that debt. Bill these are my skeptical eyebrows, there. Very skeptical. Anna they are very raised. Bill if we had a Global Economy with lower Interest Rates and lower cost production, like costs,lemenwer employment that should be increasing growth, but it is not. Growth. Ot all oil stops this is new growth. Norm. S ththis is the new bill the issue with the Global Economy rate is zero Interest Rates, negative Interest Rates, and qe. That is why the market is reacting in such a particular way to Higher Oil Prices. This oil price agreement, again the skeptical eyebrows manus there is a lot of skepticism around this morning. Bill i think saudi arabia desperately needs dollars. Lets just up that production level a little bit. Russia desperately needs dollars. Because it is winter, russia cant actually slow down the pipelines. If it does, they would freeze. And venezuela is sitting there saying, please, give me a little before i go bust. Anna you dont sound convinced by the phrasing. By the freezing. Bnill as i said, skeptical eyebrows. Manus you will see in 10 seconds. Ofl he rejoined pictures abn amro earlier, the stock foo tage. That was actually from 2006. Anna we will have a few words. The plane stays with us, whether we want him to or not. Bill blain stays with us, whether we want him to or not. In london. Here lets get to bloomberg first were news. Nejra china is ramping up spending and considering new measures to extend bank lending. There is concern regarding the sustainability of the country. There is a meeting in tehran later. They comes after saudi arabia and russia agreed to freeze production yesterday. The Saudi Oil Minister described this as the beginning of the process. President Neel Kashkari has called for greater regulations of u. S. Banks. He also floated the idea of breaking that up to protect the economy from another financial crisis. Significant progress has been made to strengthen the financial system, that i believe it did not go far enough. I believe the biggest thanks are still too big to fail and continue to impose an ongoing risk to our economy. Is due inid cameron brussels tomorrow for the second time in 48 hours. He won the backing of german chancellor, angela merkel. Rotatingr of the eus currency says this was a good basis for a deal. President Barack Obama Says donald trump wont be elected president. He says the Republican Primary Campaign has alarmed foreign audiences who expect the u. S. To lead the world. President obama trump will not be president. I have a lot of faith in the american people. I think they recognize that being president is a serious job. Hosting a talk show, or a reality show. Its not promotion. Its not marketing. Its hard. Nejra global news, 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. Anna lets get an update on what is happening in the markets with caroline hyde. Caroline we have seen risk aversion creep back into asian trading. The energy is faring the brunt of the selloff. This shows where the Industry Groups are hit the worst. Off by 2. 6 . Nergy healthcare materials are also faring pretty poorly. This is a downside because of concerns when it comes to oil. Lets focus on oil. Will the freeze work when we have it near record levels . This really shows what has been happening because this is opec output. Look, it is near record highs at the moment. Opec is producing record highs, as well as russia. To u. S. Is bringing in shale the equation. And then they are going to freeze at this level . A key concernis that this agreement does not go far enough. This is what Goldman Sachs has been saying. They said, this will have little impact. A great way to really focus in at the moment regarding what is happening with oil and how much it it takes what is happening with the rest of the market. Manus this is quite a dramatic move in china in terms of the yuan caroline a correlation between what is happening in the fx market and what is happening in the other asset classes. This shows you what is happening between asian currencies and the oil market. This is crude oil in the yellow. This is the jpmorgan overall oil index. This is the jpmorgan overall asian oil index. We have seen a selloff to a tune of 6 . Nt factor in japan. The rest of the currencies continue to weaken. That will be very concerning when you are looking at the pboc. This is a small pickup here on the charts. It is the biggest two day move we have seen in a month. There is a sudden drop off into the yuan, versus the dollar. Abn amro reported a 40 drop. Now onpany cfo joins us the line from amsterdam in his first interview of the day. Thank you for joining us. Tell us a little bit about the regulatory costs you have had to book this time. Any end in sight . Aidgood morning, no im afr not. We have had to pay a banking tax in several years in the netherlands. A now will also have to pay resolution fund. It is the european resolution fund. From this year on we will also pay european deposit guarantee levy. This is serious money for a bank like ours. Manus that is the weight most banks carry. I am looking at the Net Interest Margin. It has declined to 1. 47 . Net income also declined. These are the challenges for every bank. Living in a world of negative rates is obviously having a major impact. How is it changing your business . What are you doing to combat that challenge . Do you think regarding your next interest margin decline . S it also has to do as we mentioned in our reports that we ok. The the underlying is a bit better than you can see. We had 1. 5 billion extra each quarter. Margins are still improving in the field of mortgages and corporate loans. However, volumes have declined a bit. That has to do with people paying back mortgages in the netherlands. Manus people want to know how bankers live in a negative Interest Rate world. What is a mean for your business . Kees that is more challenging, that is true. To give an example, the liquidity costs. We have to keep a large pile of the quiddity these days large pile of liquidity these days. People often think banks take money from the ecb. They dont. We actually give money to the ecb. That has a negative effect. This year with expect a further decline of rates from central banks. Operate. Ifficult. To anna with that in mind, in a negative rate environment, does it squeeze down on your margins and make you less likely to lend to customers, or does it make you take money away from the ecb . I have heard both arguments . Kees no, no. We are completely open for business with our clients and we see the economy improving in the netherlands, as with the Housing Markets. We accept more loans from clients now. That is not the issue. We do not take money from the ecb. Almost no bank, at least here in the netherlands, takes money from the ecb we book money at the ecb and get negative rates there. Manus that is a paradigm very hard to square away. Lets talk to you again about the markets. Your exposure to the oil and gas sector that is 60 of your comment equities. Are you concerned . Should we expect more and higher provisions from abn . Commodities isy a portfolio of around 25 billion on our balance sheet. That is about 9 of our corporate loan portfolio. 128year we had charges of million, which was twice the level of 2014. We had a risk of 1 2 a percentage point. We are able because we have collateralized most of the business. Most of the business is commodity trade. We do not trade ourselves and commodities. I think that is important. We do that for clients. Anna can i ask you about the general environment, macro environment, for at least the market environment right now . Are inthis year aryou good company as most of the Banking Sector is down this year. Is the Banking Sector in europe overdone . Kees that is very difficult to predict, of course. I would say there was uncertainty, especially around china of course. And oil. Hopefully, when there will be a bit more clarity with what we have seen this weekend in china, but also with respect to oil. That would improve a bit further and stabilize us oa bit. For the banking world and a Stock Exchange in general, the situation could be better going forward. The dutch economy is good and the dutch Housing Market is good. So, we are not negative about the forecast for the economy here in the netherlands. Anna thank you for joining us. Dijkhuizen, the cfo of abn amro. Manus it has been abl bleak bankingor the sector we have jonathan ties with us. Jonathan, let me come to you. Istening to the conversation a personification for the challenge of banks. Is there any good news in bakin nking . Bill it is getting worse, to be honest. Of oilrom the question nxposures, that is where ab was taking a 50 basis points hit. We know that reverse based lending is 10 . We know the reverse based lending in the u. S. Marched down the reserves because of the way canceled this. There is certainly more bad news. Clearly, sweden is cutting rates. The ecb is almost certainly march 10. Tes on that puts more pressure on banks. That is offsetting the Net Interest Margin pressures. The interest expense has fallen as much as the Interest Income has fallen. From here, it is very hard to see and is which into alternative savings and higher margins, that has become very competitive. Is really from here i dont disagree. I dont paint a rosy picture. Billiona loss of 200 in the sector in the first six weeks. The markets are aware of this. Arguably, capital is still a question as well. Anna things could get worse, but a lot is already reflected in the share prices. Factored of it is a lot of the reality of banks is known. We still have contagion risks. We have a ridiculous situation where banks are having to pay to deposit money with the ecb. The result of that is they have to charge more to lend it to their customers. That reduces the amount of customers that are borrowing. I think you are going to see and than theyh higher should be. We have the potential shock coming in from market events. I keep going on about these ridiculous weapons of financial mass destruction. We are going to see something occur there in italy. There is a good chance that we will see other bonds kick in. Net will generate worth negativity. Will see that these are no longer prizeced at par, and they have to sell them. That will impact the bank process further. Can i just touch on the point you made there. It was all about distance to trigger. There is a very little danger that any of these will be triggered. Bank hasdeutsche proven the other day that their access to liquidity covers ratios. Short term, we are nowhere near the triggers. You said they have the access to liquidity, but you would also say that the trigger will not go through the levels. Separatean entirely point. Anotherk could trigger wave of contagion. Deutsche bank is very tough to trigger. The fact is, the prices are still going to fall because you will see a wave of contagion from what has got to happen. There is a massive liquidity in the market. You can only buy an issue. We move the markets so materially. We know the prices dont necessarily reflect fundamentals. Back tohat takes me collateralized debt obligations in which pricing was much issmatched. Is this overstating the case in terms of cocos . You can understand the option elegy embedded in jcoccocos. It is very much more complex and a most impossible to hedge. That is why it is a real concern that the people who hold these are what they have. Gents. Hank you, i think this conversation will continue. Countdown. Manus we will look at the World Economics latest report on china. What is really going on with the data . Anna welcome back. You are watching countdown. Lets get to the Bloomberg Business flash. Nejra apple has sold 4 billion of bonds to return capital to shareholders the move accounted for half of 43 billion raised yesterday, the secondbiggest day for debt sales this year. Ms. Concerns about the health of the Global Economy. Meanwhile, apple has been iphone to lock up the used by the San Bernardino gunman. They are recovering information from the device. There is mounting tension between governments and Tech Companies regarding access to the information. Killed manyis wife people in the San Bernardino attack. Continuation from a country set to become the Worlds Largest Aerospace Market in the next two decades. The confederation of british industry has joined with 21 counterpart and other European Union nations in urging the u. K. To remain in the block. That if your Bloomberg Business flash. Manus fairly growing, that is the latest on china from World Economics. Report shows that sales are still growing at a reasonable rate. Anna they are still short of the levels seen one year ago. For more, lets welcome ed jones. He is still with us. Lets talk a little bit about this. You produced a Sales Manager index, a different way of looking at the chinese growth story. The doom and gloom we saw last was your index telling us and what is a telling us now . The World Economics index is the first private index of the health of the chinese economy. For the past year, there has been a big slowdown. For the last three months we have seen stable growth. We have not seen many changes at all. Anna why did we believe Sales Managers more than purchasing managers . A purchasing manager is an outdated concept. Her to sing managers used to work in a manufacturing company. Used toasing managers work in a manufacturing company. He would be speaking to a Sales Manager. You have Sales Managers and service companies, anything from a hotel to car dealership. In the business as a Sales Manager. Salespeople talk to you can get a good, consistent set of answers for the same questions, regardless of the industry they work in. Manus you have been looking at a lot of data for a considerable amount of time. That sounds sensible to me. Data you must have some sweeps that you watch out for in terms of china. Is it the electricity usage index . We have always been very skeptical. Eyebrows. Skeptical we are skeptical of chinese data because it could be manipulated. The hong kong data as well because these numbers dont add up. These Sales Managers are actually selling stuff. It sounds like a number which should be brought to your attention. Every morning, the first thing i. Ook up is the baltic dry index just to look at how miserable global trade is. Anna that all still ties in with the old china, doesnt it . Exactly. Anna they are trying to tap into the new china. That is a very important point because the entire thesis is, how did they change from being a export driven economy to being a higher volume internal consumption model. We have seen this Seismic Shift from manufacturing or topdown Infrastructure Investment to a consumer driven culture. The manufacturing sectors we look at our slowing and have slowed considerably. Indicators, like the index which measures bank loans. It is growing at 4. 5 . Then you look at consumer spending. You have retail sales at 10. 7 . You have car sales at 20 . This consumer part of the economy it really is the driving force. That is the transition that is going on. You were trying to terrify me. About the chinese banking crisis that is coming. I think numbers like this show underneath the mistakes that were clearly made and the excesses of the banking industry, the economy is probably heading in the right direction. That is something we should all worry less about. Lampooningare just me because he wanted to get one back. Lets talk about the deflation data. I feel assuaged in terms of everything you said to me. Talk to me about the deflation. Than my work here is done. What we have seen his 14 consecutive months of what we call below 50 growth. Negative growth in crisis that Sales Managers are charging. That could be for domestic markets or ford markets. They are also telling us their profit margins. Up in one sentence where this deflation is coming from. It is become a nation of a strength of currency and demand. Anna it sounds like they are not going to stop. These are exactly the issues that any other Sales Manager phases anywhere else on the planet, which demonstrates to me that transitioning is successful. Anna thank you very much. Bill is glad he came. We will be back. Manus ramping up the rhetoric. China steps up support for the economy as a Global Voices raise concerns about the ability of the countrys creditors. Anna brent crude rises ahead of an oil meeting between iraq and iran. Will approve more fruitful than yesterdays saudirussia talks . Manus credit agricultural profit jumps as it works to free up capital. Costs. Drops unregulated welcome to countdown. Anna a warm welcome to the program. 7 00 here in london. Lets talk about china. Manus never far from the headlines. Anna we spent quite a lot of the last hour talking about china. This week we have heard a lot from the government there about local government funding, infrastructure being improved. The government talking up the prospects of the economy a little bit, talking about the but someilable, skeptical voices are being raised about the sustainability of the boom in lending. Manus it is about where these loans are in the rising value in terms of the chinese population. Our guest said enough of the naysayers china can deal with the issues. To give you the story we are talking about, the ratio corporate debt in china is 209 at the end of 2015. That is the highest since we began compiling data in 2003. But of course the chinese have got it all under control. Anna the lending surge cannot continue, and we have commerce thanks raising questions about where the chinese banks are booking the loans. They are booking them somewhere else on the balance sheets, which means they dont have to provision it the same way. It raises questions about transparency. Manus lets talk about the currency. Weve got a little bit of a shift. This chart puts it in perspective yuan headed for drop. Ggest twoday as we get toward the g20 meeting next week, we want to what they really want to do is add stability. I find it fascinating that the state Information Center said the yuan depreciation expectations will accelerate as outflows continue, and that is the issue whether you believe that china is going to manage its slowdown. We area suggest that moving away from the primary indices. Anna lets get to the first word with caroline hyde. Caroline thank you. The hedge funds that predicted an age of credit meltdown to rival 1997 says more warning signs are emerging. They first expressed concern that a credit crisis was looming, was reiterated this year. They pointed to plunging oil and Commodity Prices and weakening of the yuan. Brent crude has risen ahead of the meeting in tehran later. It comes after saudi arabia and russia agreed to these production. It is described as the beginning of a process. They will also meet the venezuelan counterpart later. Minneapolis fed president has called for greater regulation of u. S. Banks. He led the 2008 Bailout Program for the largest lenders. Once significant progress has been made to strengthen the financial system, i believe the act did not go far enough. I believe the biggest banks are still too big to fail and continue to pose an ongoing, large risk to the economy. Caroline David Cameron has edged closer to securing a britishover the membership of the eu. Thedutch prime minister, holder of the eu rotating presidency, also agreed that they were in good space for a deal. President Barack Obama Says donald trump wont be elected president. He also said that the Republican Primary Campaign has alarmed foreign audiences who expect the u. S. To lead the world. I continue to believe that mr. Turnbull not be president. Mr. Trump will not be president. The reason is because i have a lot of faith in the american people. I think they recognize that being president is a serious job. Ors not hosting a talk show a reality show. Its not promotion. Its not marketing. Its hard. Caroline global news, 24 hours a day, powered by 2400 journalists in 150 news bureaus around the world. Manus thank you. As the Downside Risks on the chinese economy, beijing is looking to show its up to the challenge. We have learned that chinas largest economic planning bodies are considering fresh measures. Anna our chinese economy reporter has more. Talk us through some of the new measures we heard about this week, whether that is the amount of money they have to set aside to cover loans or what local authorities were able to do. There has been this range of measures that have come out of beijing this week. We justm confirm got our own reporting, suggesting they are being discussed. Around the bond financing for infrastructure, we are hearing that 400 billion is being set aside for local government to spend this quarter. Translate that through to the full year, that would be 1. 6 trillion, double what was allocated through that channel last year. An escalation and financing. Then we are hearing that the policymakers are discussing they havent decided but they are discussing whether or not to actually lower the amount of reserves that banks have to set aside against bad loans, are estimated bad loans. Currently they need 150 put away, and the talking is it may be cut to 120 . The idea is that banks will therefore be able to juice up their spending, and banks are still pivotal to that economy, still a major financing vehicle. The bright side of the story in china this week, which was somewhat overlooked by this huge lending spike, was real strengthen the bonds financing numbers. Thatd january data show 3. 4 trillion yuan was extended in january, a record spike. When of the healthier elements there is that a strong channel emerge through the bond markets, so companies had this alternative financing vehicle, not their banks, not through the stock market. Welcome, thank you for malcolm, thank you very much. The ambers new clothes, same the emperors new clothes. Anna our next guest is from ubs. It sees we have been talking about this good to see you. We have been talking a lot about china, about the oil story this morning, and im interested in your research. You talk about oil driving a value gap to the year 2000 tech bubble type extremes. To us with a similar now to the tech bubble. Absolutely. What you have is the gap between cheap and expensive. This isnt about banks and pharmaceuticals, this is, within each sector group, crowding around one or two top dogs, and Everything Else is in good enough. That stretches so far before it snaps into reversal. The elastic stretch we have today in tech, it was all growth, growth, growth. And we are almost back to that level. Growth is expensive but values cheap, so some of the stuff you dont trust might have exposure to emerging markets would be linked to oil, becoming so cheap. Back, and it has disaster hit that same red zone. It is higher today than the last one. When it starts to snap, value outperforms, ended it in every case, by 20 in the next 612 months. Quality and growth underperformed by a similar amount. This is dangerous territory if you are into a defensive quality. Many of those huge names that drove the s p 500 to records last year the amazon, the netflix. This is where the consideration i hear what youre saying. We are stretched and you will get a snapback. My question is this some of those moves have been quite colossal. It takes a heck of a long time to take up a 25 drop in value, for amazon apropos netflix. How quickly and what kind of momentum can snapback look like . Justice they also it is not necessarily just to say also, it is not necessarily the growth sector. This is a stretch in every sector, whether it is old or fanglike. Ke or a pessimism is so extreme look at cyclical defense evaluation, bonds versus equities, cash levels. To 2001 levels are back ofvels, on a global basis. Highest level since 2001. You have extremes throughout the marketplace. People say europe is crowded it is crowded and a few small pockets, but you have got one of the secondbest opportunities in six years for a stock pick, because of this divergence. Anna what you are saying it sounds as if it is nothing to do with what we are seeing in oil, and yet there is a link somewhere. Absolutely. Link. A confidence we look at the correlation between oil and value, and that shot up this year, double, triple the average. Correlation between banks to performance in europe left up. Leapt up. It is higher than it has ever been. Correlations of. 5,. 6. Oil seems to be driving the concern about the u. S. , emerging markets. I think this is the last leg of a three like it crisis. Now we know it is th e commodity meltdownm the em commodity meltdown. It feels awful, but that is good, because you are getting back to base. The growth between emerging market in the developed world gdp growth is back to 2000 levels now. We have come back to base station. Going forward, the ability to hurt has subsided dramatically. It. S i get i can buy into it. I am loading up my pension as we speak. [laughter] manus the world has changed. Irrevocably. I challenge everything you have said in terms of society, in technology,ustry, oil, and i would challenge you from the huge points you have seen in terms of what is going on. Its not 2000, karen. We are not going back to those old paradigms. There are dynamics that are shifting anna showing the big crash and i presented that no to the sales floor at ubs. Youre not taking into account the fact that the world is different. Weyour member in march 2003, thought we were going to war and it looks pretty bad, and we didnt, and all of a sudden there was a value rally. In march 2009, the world was broken, the had lehmans, and the same value snacpback. Draghi spoke, 20 up. Manus there in lies the problem. We need to think much broader. World growth is the new normal. It is not what you had there is no value for that. Manus what do we value . Defenses are cheaper today than they were in march 2009, when it was a heart attack feel. I was working at merrill lynch, i had a job the next day. That was the cyclical defense evaluation. We are priced for im not saying it is great. I think the downside at this point is very much limited because things look pretty bad. It could be different dont listen to this individual . Manus [laughter] anna [laughter] thank you very much. Karen only. Manus coming up next, turning to tehran. As the oils on iran minister prepares production talks with venezuela. Will they have an agreement . The latest, next. Anna welcome back. 7 17 in london. Lets get the Bloomberg Business flash. Caroline thank you. A 30 drop in fourthquarter profits as delivery costs rose. Net income declined compared to 400 million a year ago. It is a statecontrolled dutch lender. Selling back stakes in three dozen regional banks to free up capital. The move would ensure that the french lender can offer an all Cash Dividend as soon as 2016. They eat estimates and posted a 28 increase in fourthquarter profits. Apple has sold 12 million of bonds to return capital to shareholders. The move accounted for more than half of 23 billion raised by the company yesterday. It is the second biggest day for sales this year. Debt issuance was frozen amid the concern for Global Economy. Apple has been ordered to help unlock an iphone. Pushingrnment is also for apple to provide reasonable Technical Assistance in recovering information. It highlights mounting tension between the government and Tech Companies. They killed 14 people in december tax before being shot. That is your Bloomberg Business flash. Manus thank you. Brent crude has risen ahead of an oil meeting in iraq and iran, getting together int tehran. Saudi arabia and russia agreed to freeze yesterday. Anna a move the Saudi Oil Minister describes at the beginning of a process. Lets get to elliott gotkine. Talk us through the likelihood q is going to get on board to this production freeze, and less likely iran. Elliott thats right. Iran is the more likely of the eze agreeree to the fre to yesterday. Iraq is really pumping at record levels. It does have ambitions to boost by around 50 by the end of the decade, but it will be the more likely of the two candidates to come on board. Only lets not forget, just came out a month ago from International Sanctions on their oil industry, and will boost production by one Million Barrels. We heard from the oil minister yesterday that they will enough or go market share. It is entirely unlikely that they will sell sanction itself just a month after it has come out from International Sanctions related to its new your program. Manus elliott, even if a deal is done in iran, will it really boost oil prices . There has been a bit of a flurry but we are upset. 5 yesterday, and then we gave all that back. Where are we with prices . Ott it depends on if you see the oil barrel as halffull or halfempty. Investors say they got a bit carried away and realized it was an output phrase rather than a cut. Analysts like Goldman Sachs say you need to get this deal done, but even if it is done it still needs to be honored, and that is no guarantee. You that if they do under the deal, we are just talking about a production freeze. We are still having a supply glut on the market. You will still get a glut until down, and come it will not if you are producing more than there is demand. Besides, goldman also noticed that as soon as prices begin to rise, then you are just going to get those in the United States who are hurting and being squeezed out of the market coming back on, boost production, and offset any price rises that may or may not come about. They are meeting in tehran. Theres optimism about them at least talking and thinking. Whether that will have the desired effect of boosting Oil Prices Remains to be seen. Anna thanks so much, elliott. Lets bring in another voice into the conversation, a professor at king saud university, and also on the saudi economy and many other things. Great to have you on the program, professor. Re heard elliott drawing ou attention to voices who have been skeptical about whether the production commitments are going to be stuck to. With your knowledge, what happens . Do you think whatever is committed to hear will be the actual amount of oil that is pumped . I think the market nervousness is justified in the sense that we are expecting Production Cuts. See a veryi significant element that has taken place saudi arabia and russia are building trust. There was a trust deficiency. The fact that they come in and said, we will freeze, that is enough by itself to stop any further barrels coming into the market. Kuwait signed onto this. I think the United Arab Emirates will come also onboard. The ones who are adding production in the last few months since the november meeting of last year are signing to it. The freeze is significant. As you build the trust, and they can verify it, than other steps can be taken down the road, which we can discuss. Manus we are writing a piece this morning about trust, the backdoor channels. Of course it is iraq and iran. My question, professor, is do you need a 1999style deal with mexico and sweden, all coalescing around a significant reduction . And what would that production need to be . To be, i think, the Production Cut will be coming in stages, and they will do it through the technical maintenance cycle. The russians have already said that we cannot do that now. They will probably start doing that in march and april from the siberian city. The siberian sea. The most significant event to start this process with iraq coming in a couple weeks ago saying we are willing to cut production i think that was the signal that iraq, which is pumping oil because of its circumstances, said we are willing to cut. I think with the venezuelan minister, and before that the mexicans, everybody started coming in talking, because they are financially stressed. There are internal issues in all these countries which have forced them to the table. Having a freeze and building up that trust where there was a deficiency, we can then go into actual production maintenance. But coming back to your question, i think probably in the next few months we could see through all these combinations of 900,000 barrels to one Million Barrels. Anna what is the saudi motivation here . You think it is the fiscal motivation . Is at the possibility of ipoing parts of th . What is the motivation . That is a good question, anna. By having the freeze, it still gives everyone time to put a squeeze on to the u. S. Shale. In status signaling a specific amount and people there speculating against it, they say we will stop there and the pains going on in the United States. A lot of shale producers will be repaying back their debt. Youve talked about the chart cash there is only a certain amount the chart. This is a dramatic decline. You cant stop the wildcat in texas. As soon as oil rallies, 4000 wells were drilled. The world has changed in oil, sir. The world has changed. The u. S. Could take out 700,000 barrels at these prices this year. That is also critical, isnt it . Well, i wrote a book about world, and i think they have to justify the longterm is also an issue. What has been happening is the destruction of investment capacity and the high cost for producers. The u. S. Will have a multitude think thers, but i world does needed balancing in the supply and demand, and having this first initial freeze and coming into Production Cuts will rally. Anna thank you so much for joining us. 30 minutes to go before the start of the european trading day. Oil is just into negative territory. Futures in london are a little mixed. 40 higher. Guy welcome to on the move. 7 30 in london. We are counting you down to the european open. Here is what we are watching. Now for the hard part the oil story is fascinating today. You have the deal between saudi and russia, but now we move on aq, the two ir countries that want to raise output this year. This is the tricky negotiation. Than me to talk about chinas credit crisis. What is happening inside the credit story . Npls are searching, people are paying attention. To what we now know is that the chinese are saying we will make it easier, not harder, for banks to lend. Then me get to the restructure of that business, trying to