We are live from bloomberg headquarters in london. I am all on my own today. I am guy johnson. Good morning. Guiltyplanning to plead to and a criminal investigation into u. S. Sanctions violations read it is also expected to unveil details of an 8. 9 billion fine. The french bank will be able to handle the penalty. Caroline is in paris with the details. Walk us through the rest of the day. Good morning. Weyou were mentioning, expect frances largest bank to plead guilty to u. S. Criminal charges today. The u. S. Department of justice should announce the details later in the afternoon in washington. According to the financial times, the board of bnp paribas met over the weekend to approve nearly 9 billion fine. According to the french news channel, the ceo of bnp paribas the employeesto of bnp paribas, warning them that mistakes were made and that they will be sanctioned heavily. One of the reasons for the size of the fine, according to bloomberg sources, is that bnp paribas did not fully cooperate during the investigation. As you were saying, the eu saying commissioner was this morning that bnp will be able to handle this fine. That brings us to the next bit of the conversation, which is how are they going to be able to handle the fine . What are the consequences of this and potentially losing access to the dollar system . Actually one of the biggest concerns for the future of bnp paribas, how many clients they could lose over this ban on clearing transactions in dollars. A small victory this morning. They managed to negotiate, according to bloomberg sources, six months, ban by meaning it would not come into play until 2015. They could prepare for this ban in order to be able to clear their transactions in dollars. Of course, the shareholders will end up paying much of the cost of this. The shares of bnp paribas have already lost more than 16 since they first introduced provisions back in february and investors could also see the dividend suspended for up to two years. That is according to the wall street journal on friday. Thank you very much indeed. Caroline joining us from paris. She will be back later as this story develops. Lets stay with the banking theme. Bulgarias banks are getting a boost from the eu. Despite its worst bank run in 17 years. The eu approved 2. 3 billion dollars of liquidity for the country. For more, we are joined by live from france. Walk us through the context of this and then we will talk about whether or not it is going to stabilize the situation. Morning, the eu approved this credit line. It follows the arrests last week of seven people who will vary in banking Authorities Say have triggered a run on the countrys thirdlargest bank, First Investment bank, using emails and sms texts and social media. Reverberation in the country after they suffered a very significant banking 1997, crisis in 1996 and which 30 banks went under. So now it is creating a very concern andl of attention in the country, especially as the government also looks unstable. Lets talk about the politics. The liquidity situation is likely to be a little easier. That takes the possibility of serious runs off the table. Ink us through what happened the politics arena. Are we going to see this having a meaningful impact . At the moment, it is important to note that there are authority saysng that the sector has enough liquidity and the banks have enough assets to handle the pressure. Socialist the government is under pressure to resign. They had a poor showing in the main European Union parliamentary elections. , the president called an early election for october 6 and he will dissolve parliament next month. In the runup to this, we have had some politicians, including the Main Opposition Party run by the former prime minister, accusing the current government about being forthright what has been happening at the banks. They are saying that the Banking Sector is in much worse shape than authorities are letting on. This has prompted the finance ministry to deny these allegations and to call for calm. Interesting situation and one i am sure you will keep us up to speed with. Thank you very much indeed, michael. Covering that situation in bulgaria. We will watch that situation developed through the morning. Staying with Central Banks, lets talk about what the b. I. S. Had to say this weekend. The bank of International Settlements said that we should not delay exiting from Monetary Policy measures. Manus cranny is here with more. Quite Strong Language being used here. Strong language, nothing terribly shocking. They have a reputation for being slightly concerned about Monetary Policy. Lets put the context in create in. We are say that suffering from a false sense of security and cheap money is something we have begun to depend upon and that can lose its effect. The issue for them is central bankers, crack on with getting back to normal. Mark carney stands out from the crowd. It is not throwing a miniature bomb into the pool and seeing how it reacts. B. I. S. Thethe is centralhe b. I. S. Bankers can be behind the curve. There is a search for yield. Three markets have settled. Greece, portugal, and spain. 30 return in greece. Is that the correct way . And the s p 500, lets not forget, we are one day shy of the longest stretch of gains in 16 years. The world have gotten carried away at the moment and that is an example of it. The emerging markets. Any sense that we could get some crunch in the emerging markets . I want to bring your mind back to january, where there was a little bit of a ruffle in the air. Debated when china whether they would have a hard or soft landing. Saying that the emerging markets have gorged themselves on issuing debt. 2 trillion from 2009. Everyone has to pay the piper eventually. You issue debt and you take a currency risk. If you issue that two elephants, i. E. Western money going into emerging markets, so emerging markets could be at risk in terms of bubbles. Are we measuring risk drop early . Emerging market bonds were priced at around 8 back in 2005. You have just done a story in argentina. In your headlines, you have just told a story about the potential for default again in argentina. I am not calling a default, i am merely saying to you that that personifies the Corporate Credit market is beginning to raise concerns for people in the emerging markets. Turn, the exit is quite small and it will cause a lot of people a lot of problems. The ability to get out of some of those possessions. Positions. Would as well. Thank you very much indeed. Up next, we will bring our focus back to bnp. The bank is set to plead guilty today in the United States. How bad is this for the rest of european banking . That is the next conversation we will have. See you in a moment. Welcome back. Good morning, everybody. 13 minutes past the hour, you are watching the pulse. Years of investigations will come to an end as bnp pleads guilty to violating u. S. Sanctions. Fallout. K about the not only for bnp paribas, but for the european Banking Sector as a whole. Guy, good morning. It is a big fine. We have known it would be a big fine for quite some time. There seems to be a sense that the commissioner was reflecting that bnp paribas will be able to weather this. It has enough in retained earnings and will be able to take the dip down a bit. Is is ok. It is painful but survivable. They have to satisfy the income investors. I think a nominal dividend could be announced. It is true that the fullyear profits will probably be wiped out. But the Investment Case remains. Rewarding those who stay in the stock. But what is required by the regulator will be reached by the end of the year. Think it is that big of an issue for bnp at this stage. The problem is, this is not the end of it. This is a nearly 10 million fine. You are looking around the european landscape and thinking there will be more. When will we get to the end of all of this and toss up how much money is going to be paid in fines . How big is the number going to be . It is a question of i am being quite careful here because the main risk to banks the last few years, clearly regulation issues. We did not know how far the regulator would go and which country would be tougher than others. Now most of that is behind us. We are skipping into a new way of risk, litigation risk. We have seen that not only has litigation risk grown, but the size of the fines. There is litigation inflation as well. So i think wholesale banks, investment banks will still be difficult to analyze and most investors will probably stay away for some time. Thehat is the discount to Banking Sector as a result of this . If you look at the Banking Sector today, investment banks are probably trading at a 20 discount to book. Clearly commanding a discount at this stage we that at this stage. Investors are Rewarding Companies that are more visible in the business that they do. Committed to distribute more than 50 of their earnings back to shareholders with a dividend policy that investors can rely on. Storyn you look at the moving forward, when you look at how this sector is going to , everybody has been saying for quite some time that europe has too many banks. There is the need for consolidation. A lot of that is in countries like italy. Nevertheless, the Banking Sector is a standout in an era of six months of a huge amount of m a. Is this sector just kind of in stasis, standstill mode at the moment . The Monetary Policy mechanism thatansmission mechanism mario draghi is hoping to finetune, we may see some m a especiallyn europe, the south and regional banks. At the higher level, we might see some regional banks in the u. S. , but the bigger banks are or to even to merge acquire. They are too big. The too big to fail issue is very much up there in priority, keeping them from anymore acquisitions. So it is not completely gone. The m a story is still there. It could bring better environments for regulators. Forward, as i say, the south of europe is the main area where we could see some m a. At the you look different models that are endging, we have ubs at one of the spectrum, barclays kind of in the middle and they cannot figure out what to do. Jenkins keeps getting hit from every side. But he is basically traveling in that direction. Deutsche at the other end of the spectrum. Do we know yet what the future of European Investment banking is going to be . The risks seem enormous and the prophets seem incredibly low. Income is being regulated out of existence. Does Investment Banking have a future on this side of the pond . I think it has. Here may be 20 players investorsthink that will reward companies with the right business model. If we talk about barclays today, for example, it seems that the current management is struggling to find what barclays should look like within the next five perhaps, that is why, the shares are trading at a discount. Also, the current management, even though it is mostly new internally, but still new to some of the someesses, we think that businesses are probably going to carry some legacy issues for longer. Unkne talking about known owns slipping into unknown unknowns. At the end of the day, it becomes almost on investable. Uninvestable. It is difficult to say what the future is for Investment Banking. Rarely, we need to understand how big the issues our first whererst before we see the business will go. I am looking for reasons why you would be interested. It is becoming very difficult to get your head around those reasons, to invest in a sector that seems to have so many kind of rumsfeld problems. The biggest news on barclays and the dark pools is very much outunknown unknown coming and hitting the shares. That is why it becomes very tricky for anyone to analyze these types of banks. When you try to understand what the regulators are doing here, clearly there are many things that are broken with the Financial Services sector. Do you think part of it is retribution . You kind of get a certain sense of that in the states. You took our money. You survived the financial crisis as a result of that. Now we are going to extract our pound of flesh. At that point, you can start to think that he goes on for another few years and it is politics and we can try to understand the political fighting in the states. Are you think it goes beyond that . That there is a definitive push to reshape Financial Markets and make them safer . How do we think about the Regulatory Environment . What is it trying to achieve and who is in the firing line . It is trying to achieve a fairly simple thing here. , its increased visibility is to try to avoid abuse or to ensure an acceptable culture within an institution. At the end of the day, banks have to do the most, which is lending, supporting economic growth. We are not there yet, i think the regulation requirements will push for more. The litigation issues are just punishments that are there to remind management that the culture has to be reviewed within the institution. As long as we do not get an , fines will get more and more. It is for better visibility, better culture, and to achieve a certain countrys economic growth. Just back to the cultural thing. Is culture moving along . B p did not go with u. S. Regulators. Bnp did not go with u. S. Regulators. On the french rule, they did not reach anything. They clearly breached to their u. S. Exposure. But barclays, for example, with this latest dark pool issue, you can suggest that the culture has not yet, or fast enough, roved, as Society General generale is suggesting. We are going to take a break and we will be back in a couple of minutes. Welcome back to the pulse. Quick check on equity markets now. European equity markets going for the fourth straight quarter of gains. Overall, the stoxx 600 is up on the quarter, the longest winning streak since 2010. Later on, you will get indications from the u. S. In terms of new home sales. That is going to drive the market. Retail sales in germany were a little bit lower. We are waiting for the mortgage numbers. Guy will bring you those very shortly. In terms of inflection on the currency site, dollaryen, yen coming off its highs in the session. We will wrap up the quarter tomorrow. Looks like a fairly strong one. Act in a couple of minutes. Welcome back. You are watching the pulse. We are live from bloombergs European Headquarters in london. Let me get you up to speed. Bnp paribas said to be planning a guilty plea today to end a criminal investigation into u. S. Sanctions violations. The bank is said to have won a reprieve which gives it six months to prepare for a ban on dollar transactions. The yearlong ban could affect oil and gas transactions. Set to miss a bond payment today, putting the country on the brink of its second default in 13 years. A u. S. Court has blocked the payment from being distributed until the government settles its creditors from a previous debt debacle. Iraq, Government Forces are continuing their offensive to retake the Northern City of tikrit as the sunni rebels declared an islamic not sure how to pronounce that. Areas of iraq and syria they control. Basically means an Islamic State that has a leader that is a religious leader that carries on from the teachings of the hominid. Says. K. Foreign secretary written is not planning to militarily intervene. We have been the quickest country in the world to get humanitarian aid to the people. We can help in many ways but we are not planning or contemplating a British Military intervention. Elliott gotkine is here now. He is going to fix my pronunciation. Over to you. Thanks, guy. Certainly that was one of the developments we saw over the weekend. The Islamic State in iraq and isil rebranding itself to just plain old Islamic State. Leader thering their leader of all the jihad he groups out there. Groups that all jihadi fall under his leadership. Certainly his insurgents seem to be on the back foot in the Northern City of tikrit, the birthplace of saddam hussein. According to reports, the Iraqi Security forces have been making headway, pushing the islamist insurgents out of the university area, out of the center of town as well. They are being impeded somewhat by the improvised explosive devices that the militants have put around the city to slow down the forces. Certainly a victory in tikrit would be a massive boost to the morale of Iraqi Security forces and could serve as a staging post to retake most of iraqs secondbiggest city which fell into insurgent hands this month. In terms of the outside influences that we are seeing in the country now, we are seeing pictures of russians working on iraqi jets. Walk us through what the russians are doing. Very interesting here, the russians longstanding allies of Bashar Alassad in syria. They seem to be muscling in on the u. S. s turf. We saw five secondhand russian fighter jets being delivered to the iraqis over the weekend. Iraq saying the u. S. Was dragging its heels. The u. S. Saying these were going to be delivered in the autumn. The iraqis have taken these russian fighter jets and russian advisers are now on the ground as well. They say these planes will be able to pressed into action in three or four days. Pilots will need to be trained as well. Just about a week or so after the first of the u. S. Special forces put in place to provide intelligence and perhaps help with the retaking of places like tikrit, the russians have also managed to send advisers and military hardware. Interesting side proxy battle going on between the americans and russians as well. I suppose also the russians want to have contracts for military use in the future. Elliott, thank you very much. Elliott gotkine covering the situation in iraq. 100 and hasturning no intention of retiring. The italian car maker has set huge targets for the next two years. Mgus bennett now reports. A century ago, italian brothers set out to build cars both beautiful and fast, cars designed for motor racing as well as the road to rig it 100 years later, maseratis plans are even more ambitious. They are aiming to lift sales nearly fivefold by 2018, a tough task but they are all intact to do so. Maserati doubled sales last year and is set to do the same again. Good news for their owners who need to counter poor sales figures out of europe. Eyeing the growing asian and u. S. Markets, introducing six new models including this one named after one of the founding brothers. The United States is still our biggest market. Toxpect the United States account at the end of the year for a third of our global sales. China and the Asian Pacific region is the second strongest center of gravity for our business. Back a couple of years, we sold 800 cars in these markets in a year. Right now we are selling this amount of cars in a month. Winning american and asian hearts wont be easy or cheap. This year, the country paid company paid top dollar for an advert during the super bowl. Maseratis ceo is confident. We are competing with outstanding products. With fiats acquisition of chrysler complete, italians see this as a perfect opportunity to seduce new markets. Angus bennett, bloomberg. Sergio marchionne is the ceo of maseratis parent company, fiat. Italian carng an plant today. For more on this, our italian bureau chief joins us. Why the factory visit today . What is the symbolism surrounding it . It is actually the second time that marchionne has visited this factory near turin in the last two weeks. He has put this on the map, on center stage for his strategy right now. It also involves some complicated labor moves that he is trying to do. As you saw in the package that we just showed, the strategy essentially is to go upscale, produce more luxury models such as maserati, and also alfa romeo. At the same time, he is shifting production around from lance which have lower capacity, which are producing models that arent selling well, and moving them to these. Good, but obviously there is some labor tension. What he is doing is, he has two saturdaytional shifts at this plant. Some unions dont like that particularly. He is fighting this strategy on the one hand, trying to convince labor to get on board. It is not an easy sell so far. The strategy is to get out for a mayo on board and alfa romeo onboard. The question is, does he have the money to do it . How close is renzi to marchionne . The twonk we have seen really sharing a basic philosophy. Renzi has campaigned on making italys labor market more flexible, trying to give incentives to employers, reducing taxes. This is music to marchionnes years, who is losing money in europe, has overcapacity, particularly the plants that are producing nonluxury models. The relationship is good, much better than it is with italys biggest labor unions. Mr. Renzi was going to attend this event today but had to cancel at the last minute to oversee a cabinet meeting. Ok, that is interesting. Dan, lovely to see you. Still to come, columbia is heading to the world cup quarterfinals thanks to a man that could be footballs next big super star. Find out who he is when the pulse returns. Welcome back. You are watching the pulse. Last day of the quarter, last day of the half area lets get some analysis and perspective on what last quarter tells us about what the future holds. It is going to be interesting to say the least. David joins us now from zurich. Good morning to you, david. Curious place right now and has been for quite some time. Central banks control the pitch. Everything steady just a giant carry trade. Is that going to change in the second half of the year . For the time being, we dont have any indications. It is to all of us in the Investment Business obvious that things are stretched. The question is whether we have any kind of reaction of the Interest Rate markets to what the Central Banks have been trying to tell markets, i. E. , that Interest Rates will be starting to go up. We will have to see whether this will create volatility and higher rates. The second question is, if rates start to go up, whether they are will be a meaning full impact on equity markets. At the moment, if you look at the relationship from a pure yield point of view, equities dont look expensive. I guess the problem is that if yields in the credit markets are being had artificially low, that doesnt give us much of a guide to tell us whether equities are reasonably priced. That is exactly the conundrum that equity strategists have at the moment. On a relative basis, equities are more attractive as a class. On a historical basis, it looks less so. On average, valuations are not really stretched. The real test will be whether the fundamentals can follow through. We will have to have a decent earnings season in q2 to reassure people, investors, that a fair andill are valid investment. If i back out, buybacks and Everything Else that boosts eps, do you think the earnings season has done anything to justify the valuations we are seeing right now . From the first inning season from the s p 500, the u. S. Economy did dreadfully in the First Quarter and still earnings yearoveryear expanded by more than 5 . Oft is quite a ways ahead the yearoveryear nominal gdp expansion. If equities have been able to do reasonably well in such an environment, even accounting for share buybacks and other corporate actions, i think there is still some room for decent earnings in this Current Quarter and the quarters ahead. Your expectation would be back off when volatility starts to pick up. That is atnking least one asset class that has a potential upside. Volatility isk one of the big issues which was puzzling everyone through the second quarter. It has been so low. If volatility starts to pick up, that is not necessarily going to be a bad thing for equities. As i said before, from a relative perspective, equities compared to fixed income and real estate, looks in many markets the place to be. Lets not do it from a relative point of view. Lets do it from an absolute point of view. What looks reasonable right now . Absolute point of view, there is very little reasonable value. Emerging market sovereign debt. We have pockets of some emerging Market Equities and also some pockets of developed Market Equities. , as you said at the beginning of our discussion, the fact is that Central Banks one such an influence Financial Markets over the last few years, everything is distorted. Interest rates are the most important thing we have in an economy. They have been kept artificially low for long, maybe too long. I see a lot of headlines telling me that the animal spirits have returned, that we are back to where we were. Is that really true . If i look at what ceos and cfos are doing, they are not spending money on fixed equipment. They are not investing heavily in their businesses. They may be spending tax money to prop up the m a story but they are not investing heavily in their businesses. How bad a story is that for the equity markets . I definitely agree with you. Corporate activity doesnt pick up in terms of investment going forward, this will be very bad. It will reflect a negative outlook of the corporate world on the medium and longer term. We have to see in the coming quarters and this year, an increase of corporate activity in terms of investment rather than corporate actions, in terms of buybacks and m a. We are going to wrap it up there. Ok, coming up. Tui travel merging with its german parent company. We hear from the ceo when the pulse returns. See you in a moment. Welcome back. In todays new energy, tui travel is merging with its german parent company. They will create the Worlds Largest tourist company. Earlier this morning, the ceo sat down with anna edwards to discuss the deal as well as the environmental trends in the travel sector. People looking for more sustainable types of holidays . A lot of emphasis on your footprint, your sustainability footprint. People coming and asking for a more sustainable holiday. This is something we focus on very much. We have one of the most modern aircraft fleets in the world. We work with our Hotel Partners in terms of ensuring sustainability. Customers do expect us to do that. Peter long speaking to anna edwards. Lets talk about Office Design. We dont talk about Office Design very often. The cubicle was designed to make us happy, the little thing you sit in in some offices. That is according to the author of cube. He tells us how a space meant to liberate Office Workers became the symbol of everything we hate about work. The cubicle is one of the more ironic creations in the american office. They wanted to save people from the anonymous spaces they were confined to. Everyone knows the images of what offices were like in the early 20th century. Orple who have seen madmen the movie the apartments it is just rose after row. Robert, the inventor of the Office Cubicle said the office is a wasteland. The solution he came up with was called the action office. Of wood. Alled space the idea was to give workers a space of their own, something they could personalize. You could paint on the walls, you could shake it the way you needed. It was meant to be autonomous, independent. People thought this would totally change the way people work. It did, just not quite in the way they intended. Toolarted to become this for companies to cram in as many people as they could into as little space as possible. The cubicle occupies a strange place in contemporary culture. It is one of the most reviled objects in the workplace. In office space, the cubicle is the symbol of this uncaring stupid company. So the fact that people tend to hate the cubicle so much led to various designs that got rid of cubicles. This was seen as a kind of liberation. I think open office plans have a lot to offer in the sense that they do give him direction. Studies show that people prefer to work in closeddoor offices. People who move into more open spaces actually miss their cubicles. It is another kind of twist. Stuff. Resting i think i have worked in all of them. Not sure which one i favor. Fascinating package. Lets talk about what is happening in the world. Interesting weekend to say the least. The netherlands beating mexico 21. It was two late goals. First one absolutely sensational. The second one this is the first one. Coming up, watch this. Second one was a penalty. It all happened right towards the end. In the nick of time for the netherlands. Second half was pretty fascinating. Here comes the penalty. That was it. Rodriguez,s james the world cup leading scorer. Rodriguez began the tournament as an outsider to win the golden boot. Now looking pretty strong. Germany has a new world cup oracle. This time it is now lady elephant. The track record not bad. Keep an eye on this one. What is she saying this time . We will find out. For those listening on bloomberg radio, the first word is up next. For our viewers, a second hour of the pulse. We are going to talk about the markets. We have a lot going on. Nick nelson is going to join us to give us his take on what is going to happen in the second half of the year. Then we are going to talk about argentina. A technical default possible later today. We are going to be talking about maserati turning 100 as well. See you in a moment. Guilty as charged. Bnp is expected to enter that plea today and pay a record fine. Argentina is expected to miss a debt payment. It could default. It is going to be the second time in 13 years. Maserati. Wethe carmaker turns 100, see if it has achieved its huge ambitions. Good morning. Good evening to those in asia. A warm welcome ho