Transcripts For BLOOMBERG Bloomberg Surveillance 20160524

Surveillance. I am Francine Lacqua. Tom, i know you were in new york and it is going to be a great day. Bank newsthe deutsche , it gets your attention. I would focus as well on the italian banks. It is benny the headlines, but watching unicredit beneath the headlines but watching unicredit. Francine especially if the nonperforming loans keep putting an damper a damper on the italian stocks and the european stocks. Nejra we start with some news breaking in just the past two minutes in turkey, markets are giving a vote of confidence to the latest move by the Prime Minister elect. He has decided to keep the last man standing of a market Friendly Team credited with turkeys economic boom. It is a boost for british Prime Minister David Cameron and his campaign to stay in the european union. Older voters are switching to his side according to the or be survey. 55 plan tors over vote to stay in eu, up from 34 in march. The referendum is june 23. Euro area finance mise ministers meet to discuss the next step on greek debt relief. Will alsonisters debate the largest problem, how to restructure 360 billion of debt by postponing payments and lowering prices. Greece has started to gradually evacuate their largest refugee camp that sprung up on the border with macedonia. It held or than 8000 people. Macedonia macedonia is not letting any more refugees cross. Chuing analyst charlene warning of the risk from chinas credit inch. She says china needs a bailout in the 20 in the trillions of dollars. She was a partner at Autonomous Research and warns the biggest immediate threat is the offBalance Sheets of Wealth Management products. Global news 24 hours day powered by 2400 journalists in more than 150 news bureaus throughout the world. Churn, yields migrate higher with the curve flattening higher, eurodollar, weaker with u. S. Dollar strength 1. 118. Handle,ude with a 47 and gold 8. Francine in terms of the european equities, they are gaining a touch. The asian stocks are falling. They are closed to the lowest level in at least seven weeks. Exporters in japan being weighed down by this mounting talk about a fed rate rise. You can see brent a similar picture to what you see in wti. Lorenzoased to welcome bini smaghi. Insight ofe know the Monetary Policy like this man. When you look around the world, there is risks. Monetary policy is doing its best to counter the risks. Are we expecting too much from Central Banks . Lorenzo it is not the right question in the sense that they are doing their job. It would be much better if other policies were going in the same direction in terms of fiscal support, in terms of structural reforms, but they are not. The ecb cannot ask itself, i am doing too much. That is my clearly defined objectives. Francine why is the private sector and politicians not doing enough, is that the right question . Lorenzo if you look around the world, there are elections next year in france and germany, in the u. S. , very close. Out may have an easy way for low Interest Rates generated by the ecb or the fed or others that may say, why do we need to do the political effort . Why do we need to invest in Political Capital at the time when the Central Banks are taking care . That does not mean the ecb or any other central bank should raise Interest Rates to push the other politicians to the task. I think they should find their own way to push their government to be more proactive. Francine we are in brussels to talk about financial services. What needs to happen for investors to rewrite european banks . How do you change the psyche . Lorenzo i think the main thing is that we have final end of the regulatory process. We need to know when it stops. The uncertainty about what is , and this creates uncertainty about capital, about risk rates. I think regulators now need to say, this is it. Now we give time for the bankers for that and to start optimizing their business model. Stop to the uncertainty. I think investors would realize the Banking System has changed over the last years. It is safer, they can come back to it. They can see the return of capital when capital is needed and can be generated. This requires less uncertainty. At when i look at your work your phd in chicago i would suggest negative Interest Rates were not in the textbook. It is something new you weaker dealing with. Can eu bankers correct their challenged banking Business Plans in a mail you of negative eu ofest rates a milli negative Interest Rates . Lorenzo it is not easy because you have negative Interest Rates in an environment of low growth so margins are coming down. We have in front of us clients which are in a much better position so the cost of risk is also coming down. The solidity of the Banking System is improved. These lower margins cannot last forever and ever. You need to regain profits margin somewhere else so you need to think about crossselling different products , they be looking more at fees rather than margins. It requires some innovation on behalf of the bankers and also looking at the optimal composition between Retail Business and Investment Banking. A basic cardinal role is currency depreciation and another is to simply go out and raise more cash. I do not want to ask about Societe Generale where your were but do you have a confidence that eu banks could raise new capital if they had to . I think you can raise new capital today if you have a good story to sell to investors. If you have a good project, a good vision about the Business Plan you have in front of you. You are askingnk to invest in, how is it going to generate income . That is the key challenge for. Ny manager that has to go out he has to have a vision and he has to be convincing that the interventions he will make in the bank wont be able to make a turnaround will be able to make a turnaround. Francine what will be the domino effect of a possible brexit . Lorenzo for our own bank, i think we are quite hedged. There can be domino effects within the u. K. And within europe. One of the problems is the fashion of referenda. Politicians tend to follow each others mistakes and the idea that you want to give the last word to the people is very fashionable to adjust populace. Referendums are never a good answer. You are not always answering to. He question i see that the polls now are suggesting the british people are focusing on the right question. Uncertainty versus certainty. Francine for the italian Banking System, what is your take on what will happen . Will he see a more positive effect . Lorenzo there are two issues, capital and ntl. Detachedssues are not from each other. The italian together with the german Banking System is to pragmatic. We need concentration and that is the only way to start regaining some market power, and to be able to diversify products and so on. That is a process which is slow, it is too slow. We need to accelerate this. Francine thank you so much for joining us today on surveillance. That was the Societe Generale chairman. Coming up on the program in anut 20 minutes, we have exclusive interview with jes staley, the barclays ceo. He is downsizing the bank and i will be asking him what that means for his restructuring plans, hiring freeze, and how he sees the european banking landscape. Tom good morning, everyone. Francine lacqua in brussels. She will have an important interview with jes staley of barclays coming up. A busy banking morning across the european union. Taken by the moodys downgraded of Deutsche Bank. With that, lets get to our Bloomberg Business flash. Moodys has cut Deutsche Banks credit rating. The unsecured debt rating was lowered to two levels above junk. Says Deutsche Bank faces mounting challenges in carrying out at turnaround. John cryan says the bank is very disappointed by the cut and the bank could easily repay its debt many times over. Hackers may have targeted more banks than were previously reported according to the ceo of swift. Hackers exploited weaknesses and how banks connect to swift to still 81 million from the bangladesh centralbank. They are boosting security members measures. Costs toeing hurt by prepare repair a chip factory damaged by an earthquake and they are facing a drop in demand for smartphone components. That is the Bloomberg Business flash. Tom madura, thank you so much nejra, thank you so much. We need to bring in simon theedy, who has darkened doors for the intrigue that the governor faces, particularly given the referendum, eu referendum. Does it color and shade everything now . Simon pretty much. Mark carney is likely to find that again today. They are more likely to quiz him on brexit and the banks role. Tom what you have done for years is linked in financial and banks into our broader economics. Fold in the eu banking tension and what the british banks are facing as well into a Slower Economy and the austerity that is out there, link the two together when we see a Deutsche Bank ground downgrade but see government Governor Carney speaking about some optimism. U. K. Andnks in the obviously in the may 9 of europe remain under pressure from their shareholders, regulators, and those in the u. K. Are having to think about brexit. Hsbc is pretty much alone saying it would move on thousand people to paris straightaway on a vote to leave the eu. Other banks talking about it in quite vague terms. They are pulling back on research and the like so the banks probably are trying to look through it but at the same time know what they would have a huge manifestation in how they do their business. Tom what are the pressures on Governor Carney now . I understand the whole thing is to maintain control. The to do list for Governor Carney in the next four weeks . Simon to do nothing. He and the bank will probably be quite grateful, they are not allowed to speak about brexit and they will go very quiet. When ibout a month or so have, under a great deal of pressure, some lawmakers calling on mark carney to be fired for getting too involved in the Brexit Debate and providing too much analysis of what it could mean when he talks about the risks of recession. His point is he is just assessing the outlook and that white that is what he has to set Monetary Policy against. Analyzing the risks to the economy. Tom Simon Kennedy, our chief economic correspondent from london. Francine lacqua is in brussels with her important and timely interview with jes staley of barclays. In our next hour on bloomberg onrveillance, Richard Haass the International Relations of his council on Foreign Relations, and on our domestic politics. From brussels, from new york, surveillance. Francine welcome back to surveillance. We travel the world to bring you the best interviews. Francine lacqua in brussels, tom keene in new york. James an interview with gorman of Morgan Stanley and we spoke with him about business. He believes his business is doing better. James the returns were modest, they were not where we want, but i was not troubled. On this,as on my own but i felt pretty good about the First Quarter because this was a very challenging environment and we produced a 6 . Stay tuned. Gorman, like many bankers saying this is a tough environment and he is feeling good about trading in the First Quarter. Lets get to Michael Moore who follows the u. K. Banks. When you look around the world, there are so many risks and that means risk to trading and Capital Markets. Michael it does, and it does not seem like that is going away. You had some analysts come out and say the Second Quarter is likely to be down again after we saw significant drops in Investment Banking revenue in the First Quarter. While gorman sees upside once things get better, the question is when is that going to happen . I just mentioned this, i refuse to believe that things are normal in a millieu of negative Interest Rates. What are you seeing in terms of the development of the corner in returning reporting of revenues and earnings that is affected by negative rates . Michael you are certainly seeing that on the retail side in europe. Some banks have started to move to try to address that, to pass that along to customers but there is not a ton of room there. Have some competitors and when people think that this is a temporary thing, they are willing to take on some pain to kind of keep those customers and not risk driving them out. I guess it comes down to each individual companys view on how long the situation can last. . Om what is the immediacy here what is the level of desperation . Andand i know in september october they are planning for the next year. What are they planning for now . They are planning for the desk are they planning the fourth of july or labor day . What is the urgency . Banksl a lot of the big in europe have somewhat written this year off. So many of them are in a restructuring year have kind of take a lote going to of pain this year so a little more pain perhaps is not the worst thing for this year and it sets them up better for 2017. I think they have a shortterm view in terms of taking some pain, doing some of the dirty work in terms of restructuring, cutting jobs with a view of 2017 being a little bit cleaner and helping the economy helps with that. Tom what are we going to see out of unicredit . A changing of the guard . Michael not quite clear. They have not been too clear on that so i guess we will see. Tom that is a fair answer. Michael moore, thrilled he is leaving our coverage in london. Francine lacqua is in brussels with the chief executive officer of barclays, jes staley trying to pick up the pieces and move forward into 2017. Next. Okay, ready . Whoa [ explosion ] nothing should get in the way of the things you love. Get americas fastest internet. Only from xfinity. Francine welcome back. I am Francine Lacqua in brussels, tom keene in new york. The reason i am in brussels is for one man and one man only, jes staley of barclays. Winky so much for giving us the time thank you so much for giving us the time to catch up on you. You have been in the job for six months. How is it going . Jes our core franchise of being a transatlantic consumer Corporate Investment bank did quite well in the First Quarter. Our return on tangible equity and now wele digits, have the exercise during 2017 of closing our noncore businesses. We have closed or assigned sale eements for every banking we have a signed Sale Agreement over our asian wealth business. A signed agreement to sell our is this to bloomberg and we need to execute it in the course of this year, and i think we feel good. The hiring freeze, we are reducing our headcount. We are down about 10,600 people and have made significant progress in a major strategic move with respect to africa. Francine will there be any more downsizing . The perimeter of what barclays will be is set. We set that on march 1 and that is immutable. Things outside of barclays perimeter we need to work on. We will always be making ourselves more efficient at the core franchise, we want to ride into the future with it. Francine they are looking at getting a big stake in Barclays Africa. The Large Pension Fund for the state of south africa i think it is great for them and we look forward to their working with us as we move from a controlled position in Barclays Africa to a noncontrolled position. Thisine by the end of year or will it take a little bit longer . Once the capital gets unlocked, what do do with it . Jes we gave ourselves to 23 years to do it but we were enthused two to three years to do it. A lot of institutional interest in the u. S. , europe, and south africa, so we are encouraged. We will make sure we have time to do this in an effective way for our shareholders and the shareholders of Barclays Africa. Francine what do you reinvest in . Analysts haveof picked up on this, we have the ability to ray managed our balance sheet. Because we haves been so because we have been so constrained with capital we have not been able to do that. Essentially, redeploying the capital to end up in a very a better position in terms of earnings per share. We do have opportunities to deploy the capital. It gives us more flexibility as we go forward. Francine how tough is it being a european banker in this environment jes . Jes the financial crisis created economic calamity globally, and the banks did a fair amount to lead to that economic calamity so we have a lot to do. We have got to work on conduct issues, the value propositions. The Bank Balance Sheets pretty financial crisis where the cheapest. Now they are perhaps the most expensive real estate in finance and banks have to learn to live with the expensive real estate on their Balance Sheets they have got and that is a challenge for all of us. There is still a lot of evolution in banking the needs to occur post financial crisis. Francine you also need to move with negative Interest Rates what seems like a pretty crazy world. Jes we are encouraged with what we are seeing in the u. S. Economy, the Unemployment Rate leading to some degree to wage pressure, and the market is beginning to price in war rate increases. That will get to a much price in more rate increases. We get to some normalized Monetary Policy down the road. Francine what is trading like in the First Quarter . Jes the Capital Markets are muted, but barclays had a great First Quarter. We were one of the Top Performing Investment Banks and we have done very well in the credit space. Euro zoneg issue of sovereign debt issuance in the quarter so we like how we operated in that environment, but all of us would like to see a more robust capital market. Francine well you continue on that trend . Will you continue to do better than others . Obviously the Investment Bank is a key strategic part of our franchise. In the great people Investment Banking space and we will continue to operate and deal with the market as it gets to us. To peopleking internally and externally and we have a great management team. Ahead of retail, our credit card business, one of the fastestgrowing Credit Card Companies and the business. We have a great group of friends that have worked with at other institutions so we feel pretty good about where we are. We have to fill that one key role during the course of this year. Francine by the end of the summer . Jes by the end of the year for sure. Francine we talked about Interest Rates and negative Interest Rates. You are hoping for a fed increase. What about china . Jes in the Global Economy we clearly have to adjust to a drop in commodity prices, but i have got a lot of confidence in chinas ability to manage the transition in the chinese economy. I think we all may be a little bit too pessimistic on the outlook for the Global Economy. I do not quite see the risk. I believe that the banking isked froms so der where it was, if there is a risk it is amount around the amount of trading by institutions with very little capital, and the Operational Risk of those institutions trading through primary dealers into the market. Francine but that would not be systemic. Jes it could. Francine with that be something if people do not keep an eye on it could bring the system down again . Focus onink we need to the most liquid markets and the players that are leading the liquidity, and how much capital they have behind their positions , and how will the market adjust if one of them gets into trouble. Francine what will it take for european investors to rewrite european banking stocks . Jes i think a view that we now have predictability and regulators going forward, that is the most important thing. We need to believe that we are at least at the beginning of the end of the Regulatory Environment for european banks going forward. We need to believe we are at the beginning of the end of the conduct issues, whether it is rmbs in the United States, ppi in the u. K. , there has to be a sense that we have a vision to some predictability on the bottom line results. On regulation, you feel it is a level Playing Field . Jes i think the regulators have an enormously difficult task of ray regulating the banking thestry reregulating Banking Industry. They have a goal to make it a level Playing Field between home countries and host countries. It is not going to be perfect. It is not perfect today, that i have confidence that the regulators want this to be a level Playing Field and they will make the course corrections as we go to allow that to happen. Francine we are a month away from brexit. Do you feel there is a discount on barclays because you are in the whirlwind of possible brexit concerns . The markets are being impacted by the uncertainty of this vote, and it is a historic vote for sure. As our chairman John Mcfarland has said, our view is it is the best thing for our customers and clients in the u. K. To stay. As we get to that date, the uncertainty is going to impact the Financial Markets. Francine do you have a contingency plan in case brexit happens . Jes we manage the bank to deal with all contingencies and we are very comfortable with our ability to deal with any stress that will come our way, but we clearly hope the u. K. Stays. Francine is there a plan b to move bankers . Jes we plan for everything. Francine is there a concern that somewhere else becomes number one in the Financial Center in europe if brexit were to happen . The history of london is very important for the u. K. And for barclays. We look forward to our presence in the two Financial Centers of the world being new york and london. Job,ine six months on the it is the question investors ask you the most . Gets n we when we back to the book value . When we get focused on our core franchise, that is when i will have a smile on my face. To pute is it difficult a timeline on it because of the uncertainty we are talking about . Jes what we have said is we will get our noncore risk rated below 20 billion pounds by the end of 2017 to allow us to close noncore by that date. Are we going to see more consolidation in the european Banking Industry . Jes i think that is a long way off. One of the outcomes of the financial crisis i think is the days of inorganic consolidation between the Banking Industry may be gone for decades. It used to be that the worldly engineered itself every couple of years the world reengineered itself every couple of years. Francine these are because of regulatory concerns . Jes i do not think anyone wants to allow for organic growth. Francine what will the Banking Sector look like in europe for the next two years . Jes that is a difficult question. Barclays is committed to the Investment Banking space. We like the hand we have between new york and london. We are a citadel bank in the gdp, 30 of the countrys goes through our services. We have more credit card users. N the u. S. Today than we have we have a great core bank and a very large Investment Bank. Francine if you are a little bit long on the Investment Bank, is it better for you if you are stronger on your own or do you need better rivals in europe . Jes the Investment Banking industry everywhere is having a difficult time. You could argue that almost no Investment Bank, the american, german, or british, is covering its cost of capital. That is not healthy so it is not just an issue in germany. If you look at the return on equities of the u. S. Investment banks you have to say this industry is still structurally impaired. Francine when do we get that repricing . Structure impairment is not healthy. Does something need to happen so that we get unlocked from this . Jes clearly i believe the answer is yes. We are not going to wait for that at barclays. We are going to run our Investment Bank in a way that delivers shares sooner rather than later. You worry about deflation in europe and what it means for Monetary Policy and the Financial Market . Jes i think everyone has got to keep an eye on this noble experiment. It is an experiment running from zero to negative Interest Rates. The impact it has on the economys longterm just do not know. I think we all need to keep an eye on this. I am encouraged by what is going on in the United States right now. I am encouraged by the economic the we are focusing on, united kingdom. Lets hope the Global Economy begins to grow and we can leave zero to negative Interest Rates behind us. Francine jes staley, thank you very much. It was an extremely interesting conversation because we touched. N everything we went around the world in 13 minutes. That phrase, im going to put it on twitter, this noble experiment that everybody is facing. We speak restructuring and renewal of barclays when we have the headlines about Deutsche Bank and unicredit. Talking about unicredit with an important meeting tomorrow of their board. Unicredit is something we have to keep an eye on. This is not the first ceo they got ousted. I would suggest it also has to do with italian politics and we spoke to the italian finance minister just 10 days ago. The italian banks different from these european banks. Tom Francine Lacqua in brussels with jes staley of barclays. Coming up, we will get perspective and comments not only on American Banking but the noble experiment known as european banking. Brad hintz on the future of mr. Staleys strategic plan. Tom we welcome all of you worldwide. Francine lacqua in brussels cruising the financial ministers meetings. I am tom keene in new york. Governor carney speaking for the bank of england, tiptoeing brexit and brough emain, saying all of the expected things to take early on sterling and rate dynamics if we get a remain vote. Governor carney in testimony today, very careful, and we heard that from our Simon Kennedy earlier. Right now with the Bloomberg Business flash in london here is marriage a hitch. Narrative hitch. Is recalling almost 1. 6 million vehicles to repair faulty airbag inflators made by takata corporation. Federal regulators said up to 14 million more cars could be recalled. 29 million have been recalled before that. A sign of the growing backlash over lackluster hedge fund cuttingnce, they are fees. Clients will still have to cut pay 2 of assets. Tudor suffered declines last year. Cashed in when housing collapsed a few years ago but he bet the wrong way on falling oil prices. Snapped up shares of Oil Producers and his main fund is down 7 , his Third Straight year of losses. That is the Bloomberg Business flash. Tom thank you so much. Francine lacqua in brussels, tom keene in new york. In arizona we give a shout out to brad hintz for getting up very early for an important interview. What i found fascinating was the word not said. Booktaley is talking his and he wants to maintain delicate control of the conversation. He did not mention the word diamond. He is basically constructing the bank. Dimon it is a new banking. What is the new banking mr. Staley aspires to . Bobbyif you remember what dimon left us is he left us a very powerful fixed income strategy. Big equity business north america trying to build it internationally. What have we found out since the crisis . Fixed income and the trading businesses simply have to shrink, there is no question about that. We are seeing this lackluster return around the world. This unfortunately leaves barclays with a very narrow trajectory that they have to go through. They are trying to keep the powerful businesses within the u. K. Businesses, and shrank the others. A do not want to go in the direction they do not want to go in the direction of the royal bank of scotland where you get too small and your Investment Banking franchise falls apart. Operations in europe and the United States, and smaller ones around the world, there is no rulebook or directions how to do this. We know how to grow an Investment Bank but he faces the issue of can he get to a size that is going to be profitable and generate the are a we . . The roes i thought he was wonderful in explaining this is a tough process to go through. Fascinating, or has got to be a strategy. Thehere a strategy to being number four or number six player anymore, or are we going to a near canadian model of almost eight duopoly of Global Banking . The duopoly that youre talking about, goldman and jpm are not generating great returns in their Investment Bank either. We could look at barclays and say that they are generating 6 Investment Banking return on tangible equity. That is not great. Jes made his comment that no one is feeding their cost of capital. That is true. Goldman and jpm are doing best, but the model may not be there may not be room for to many global Investment Banks. Your comment of a canadian model, think of the canadian model. The royal bank of canada, probably the best of the lot, is generating very good returns but by constraining the size of their Investment Bank, which is so different than what it has been if we look back 10, 15 years ago. Tom lets bring in Francine Lacqua in brussels. Youre saying is that maybe we have too many Investment Banks and when you look at the struggle of european Investment Banks, what needs to happen, consolidation seems unlikely. Do you believe some banks will just go under . Difficult forry someone to say that, i am going to pull out of Investment Banking. Think of deutsche are credit suisse. It is such a major part of the strategy of the firms. What you are seeing is cutting and cutting, and repricing going on in the business. Be thenately, that may process we are going to have going forward, which is repricing. Your question of what will lead to the higher returns was a key question because what you need is repricing and the marketplace, the recognition that the days of proprietary trading are over, and clients are going to have to pay for liquidity. We have not gotten there yet. That means repricing in the trading markets. Solve the that will problem but we are a long way away. Francine it is difficult for a ceo to say that maybe we need a cathartic moment. What do you think needs to happen for investors to change their heart on european banks . s need to turn around. You can see it in terms of the books, says there remains uncertainty about litigation. There remains uncertainty about regulation. I thought the only comment that he made in the interview which i was a little bit skeptical about the end of are at the regulatory change. It really does not look like were at the end of the regulatory change. Tom brad, we have to leave it there. We need a longer conversation when he returned to new york. Brad hintz. In our next hour, unimportant hour with Richard Haass on the council of Foreign Relations. This is bloomberg surveillance. Tom this morning, Global Commodities continue to search for a bid. The Dollar Strengthens. Can janet yellen make actual progress through a june 15 fed meeting . The politics of a lameduck american foreignpolicy. Richard haass of the council on Foreign Relations. Edge ofsche bank on the junk. E. U. Banks must consider operating headwinds. Morning, everyone. His is bloomberg surveillance live from new york. Francine, a most interesting conversation with jes staley, and the backdrop is the tumult of e. U. Banking. Francine e. U. Banking and the fact that they, like the rest of the banks of the world, have to deal with an uncertain china, brexit, and negative rates. Jes staley was most interesting when he said that this noble experiment, talking about qe and negative rates, may come to an end. He hopes the fed will normalize sooner rather than later. Tom the headlines on Deutsche Bank this morning, as well, on their noble experiment. Here is never championship in london here is nejra cehic in london. Nejra a new report out this one on the egyptair flight. An examination of human remains from the flight points to an explosion on the plane, according to the associated press. We have no other details for now. Investigators have been pummeled about what brought the plane down. Messages received from the plane moments before it crashed suggested a fire, a bomb, or an electrical malfunction. It is a boost for David Cameron and his campaign to stay in the european union. A new poll shows older voters are switching to his side. According to the survey, 52 of voters over 65 plan to vote for staying in the you. That is up from 34 in march. The referendum is june 23. Euro area finance ministers meet in brussels today to discuss the greek relief. Finance ministers will debate the larger problem, how to restructure 360 billion of debt by lowering Interest Rates and postponing payments. We are getting a preview of what the u. S. President ial campaign may be like in the fall. Donald trump is escalating personal attacks on former president bill clinton. Trump has released an Instagram Video that includes the voices of two women who accused clinton of sexual assault. Meanwhile, Hillary Clinton attacked trump on his business record. She said trump could bankrupt america like he has bankrupted his companies. Obama pushed back against vietnam today on its human rights record. Saidnoi, the president has he has concerns over the way vietnam treats its own citizens. the rights ia speak of, i believe are not american values, i think they are universal values, written into the universal declaration of human rights. They are written into the vietnamese constitution, which states that the citizens have the right to freedom of speech and freedom of the press and the right to access of information, the right to assembly, the right to association, and the right to demonstrate. Nejra the president noted that vietnam barred some of the people the u. S. Had invited to the meeting. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i am nejra cehic. Tom . Jaitehts get to our check very quickly before we speak with ambassador haass. Lets get to our data check or quickly before we speak with ambassador haass. The idea here, the vix churning. The curve flattening. Gold is weaker this morning, at 1243, down nine dollars. Francine, your data check. Francine the markets are trying the euro down, dollar up. That means european stocks are getting a boost by the exporters. Investors are really weighing what a june a possible june fed increase means, and brent crude declining for a fifth day as canadian Oil Producers apparently are getting ready to restart operations. Tom the images are extraordinary of the president s trip to vietnam, to move from the north down to the south, in ho chi minh city. Richard haass has studied this, as some of us of a certain vintage have for years. I go back to the history of your institution. Am i right that the Marshall Plan basically came out of a lot of study in the 1930s and 1940s of cfr . Richard there were people at the council who forwarded the postworld war ii effort. Tom we go to friday and the extraordinary moment of the president visiting hiroshima. Bring up the quote here from mr. Dower with the president. Tom that is a quote from another time and place. What will you look for in this moment friday at hiroshima . Richard this is an interesting trip for president obama. You mentioned vietnam, dealing with one legacy of the past. Trying to offer something of a strategic relationship to china. He says he is not going to apologize for there is a preponderance of american historians who believe the use of the atomic bomb at hiroshima was a necessary step. On the other hand, given the loss of life and the destruction and the continuing concern about Nuclear Weapons i think with the president will do is acknowledge, not apologize, for what happened in the past, and put the focus on the need to do something about Nuclear Weapons going ahead. Thathe is obviously a make he is obviously making a final tour in the coming months. Can any of this pivot to the next president . Richard the biggest problem for the president is that he has talked about the president as the intellectual cornerstone of his foreignpolicy. Instead of having the United States so sucked into the middle east, rebalance the calories, if you will, with foreignpolicy. The other piece is the transpacific partnership. It is languishing in congress. You have all the leading candidates against it. If this will be the president s legacy, it will certainly not be completed on his watch. You cannot have an american pivot to asia. The big story in the New York Times today by david sanger is that you cannot have a pivot to asia without an economic component to complement the military and tom that is right where i want to go with the core theme. Do you have an optimism that we can get back to a decent run rate of Economic Growth to sustain some form of new Foreign Policy . Richard my biggest concern is that no matter who wins the election you will continue to have divided government and washington, d. C. , you will have an absence of political consensus about everything from what to do about infrastructure and immigration to what to do about tax and spending, entitlements, you name it. We cannot putthat our house in order to grow at the level we could and should be growing at, which will have domestic repercussions, Foreign Policy repercussions, and it will continue to poison the american body politic, this populism we are seeing, this anger that we are seeing, is because people are not experiencing the upward mobility that has been so central to life in this country. Francine richard, when president obama was in vietnam, a he listed the arms embargo. China was not impressed by that. You need to make sure that china is an ally for the u. S. Richard i would not call it an ally. It is another tight rope. We want to integrate china as best we can in regional and global arrangements. On the other hand, we have to push back and say there is no place for chinese unilateralism. They are building up islands in the south china sea. What we are basically saying is we are not interested in containment, but you cannot bully your way militarily and diplomatically into diplomatic and regional primacy into global and regional primacy. This will be incredibly complicated, but that is where the vietnam piece fits in. It is another kind of push back against china, but it is push back without closing any doors. Francine what is the region that the next president has to focus on for give a rubber stamp on Foreign Policy that has been largely nonexistent for the last three or four years. Is it the middle east or asia . Richard manages both, and you cannot forget europe. You have the three most important parts of the euro three most important parts of the world going through economic and regional turbulence that we have not seen. How do you deal with the rise of china . In europe you have not only low growth and refugees but also the problem of russia. The next president does not have the luxury of the kind of obsession the United States has had strategically with the middle east, so you have to figure out not to walk away from the middle east, but what is the least we can do without making a bad situation worse, and how do we begin to get more involved in europe, and particularly more involved in asia . Asia is where 20 history is going to happen. Tom to get to our next block, are we investing are we inventing a new rm of isolationism . There is intervention fatigue. What worries me more is the economic nationalism. There is a myth that american Foreign Policy is costing us a great deal, and somehow that is undermining the foundations of our economy. It is simply not so. We benefit a great deal from our involvement in the world, plus the spending rate on american foreignpolicy and defense policy is probably roughly half the cold war average, and rumor has it we did just fine, even though we were spending twice that amount. This idea that we have to cut back on Foreign Policy and if only we do that we will do better at home, it is simply not true. Tom we will continue this discussion, and the important discussion over the last number nationalism and what that means for International Relations. Darrell meyer will join us, from hsbc. Is the idea for him of very low Interest Rates. With Richard Haass, this is bloomberg surveillance. Tom good morning, everyone. Bloomberg surveillance. Francie labonte is in brussels today after a conversation with jes staley. Francine likewise in brussels today after a conversation with jes staley. There is nejra cehic. Nejra the bank by seeming unsecured debt rating was two levels from junk. Moodys says scioscia bank faces mounting challenges in carrying out its turnaround. Theeo tells Bloomberg News bank is disappointed by the cut and the bank could easily repay its debt many times over. Banks may have been targeted by hackers than previously reported. Hackers exploited weaknesses in how banks connect to swift to steal 81 million from bangladeshs central bank in february. Swift is boosting security members for security measures from member banks. Facebook is fighting allegations of bias when it comes to selecting news stories for trending topics. The social network will no longer require stories to appear on sites considered news leaders like the New York Times. Facebook is responding to a report that its editors lean toward liberal sources in selecting stories. Discourseialogue and is stunning. The reality over the weekend, of the negative ratings for our two president ial candidates is standing is stunning. Then there is what smart people are doing. Richard haass is with us on the council on Foreign Relations. Without question, the essay of last week was robert kagan of brookings writing in the washington post. Tom ambassador haass, everybody is talking about this essay, and you just mentioned our nationalism. , somee many nationalisms good but some bad ones as well. Richard nationalism can be collective but also tear at the factor but also tear at the fabric of the nation. I worry about economic nationalism. It feeds into this we have got to turn inward, and obviously we have to keep the balance between what we do here and what we do in the world of globalization. We cannot prosper at home unless we are heavily involved in the world. Tom can there be a constructive republican policy . There is a huge debate about people over here and over there. Can mr. Trump be dragged toward a more moderate stance, or is that unproven at this point . Richard i think the question can be asked about both parties. In both parties you have powerful tendencies or forces arguing against globalization. You see it in the democratic party, manifested by senator sanders. In the Republican Party with large elements of donald trump. One of these people is going to win, most likely Hillary Clinton or donald trump. The question is, they will have to work with congress and people like paul ryan. What is the Common Ground there . What the audience is concerned with is a better economy. Do you see, in your meetings at rogoff, and improving, unique america that can assist the rest of the world . Richard i see america more than likely underachieving. All the ingredients are there. We have all these advantages from worldclass universities to venture Capital Markets, the law and the stability. You name it, we have got it. We continue to underachieve. What it comes down to is political dysfunction stands in the way of economic success, so we are growing at 1. 5 , give or take 2 . I am one of those who think we should be growing significantly more than that, but it is a political question, not an economic question. Francine richard, political dysfunction, as you call it, nothing that we can see on the shortterm horizon will change that. Will the u. S. Be better at dealing with it . Richard the answer is a question of you hope so, i hope so, and tom does, but i do not see the pieces. It is hard for me to see how, coming out of this election, given the divisions, where anyone will necessarily have anything like a mandate, and will inherit a situation of divided government we will have the republicans almost certainly in charge of the house, no one will have a 60seat advantage in the senate, no matter which party runs it. How you go from a Divisive Campaign and a country that is unhappy in principle with status quo but does not want to give up entitlements, to making the compromises that are necessary for governing . What do you do about infrastructure, immigration . You can go down an awfully long list. I do not see that the conversation in the campaign is somehow i do not see the political investment of going into it that would mean that whoever wins is going to have the stage set for forging compromises that will let this country deal with this domestic problem with its domestic problems. It is hard for me to be as optimistic as i would like. Francine at the same time, does it not save us from certain eccentricities if someone were to become president that is a little bit different to what we have been used to in the last decades . Richard the mood of the country wants difference in principle, which is why donald trump and Bernie Sanders are doing so well. But what is interesting to me is the contradictions. People want to manage change, but they do not necessarily want change the Social Security or medicare, and you go down the list. There is always a difference between political rhetoric and political reality. Tom you worked with george bush senior. State did modern diplomacy. Can you envision that within the new republican administration, or are we going back to some isolationism of another time and place . Richard isolationism is too strong of a word, and i do not think the United States has that choice. We are obviously going to avoid big footprints in the middle east. We are not going to do a new iraq or afghanistan, we will probably be involved with several special forces and drone strikes. Continue. Ing to we will have an increased military presence in asia. I hope we have an increased economic and diplomatic presence there. We are building up around russia and europe, so i am hoping that those things i think those things are likely to continue. Tom Richard Haass with us. You wonder what this conversation will be like the third week of october next year. Someone also speaking about that is Mark Halperin and john heilemann, with all due respect tonight. This is bloomberg surveillance. Francine welcome back. This is bloomberg surveillance. Tom keene is in new york. I am Francine Lacqua in london. Telling me that he was worried about the impact of negative rates. Have a listen. Jes i think everyone has got to keep an eye on this noble experiment, but it is an experiment, running with zero to negative Interest Rates. The impact that it has on the economy longterm, we just do not know. Mostine it was a interesting conversation because we also caught up on his restructuring plan, whether he thought things were going well. He said the market remains volatile, but he continues to. Ope to outperform negative rates will hurt them. A very good day to speak with jes staley also because of Deutsche Bank. Tom the elephant in the room is negative Interest Rates. You have to explain to me how the banks can adapt and adjust. It if they can carry over the costs to the customers i do not see it anyway shape in any way, shape, or form. Will drive the conversation forward on Bloomberg Radio today. Boy, has he been conversation boy, house he been controversial. Really controversial work over the last number of weeks. Look for that on Bloomberg Radio this morning. From brussels in new york, bloomberg surveillance. Okay, ready . Whoa [ explosion ] nothing should get in the way of the things you love. Get americas fastest internet. Only from xfinity. Tom good morning, everyone. Tom keene in new york, Francine Lacqua in brussels today. Right now to london, and our bloomberg first word news. Here is nejra cehic. Nejra in turkey, markets are giving a vote of confidence to the latest move by Prime Minister elect. He has decided to keep the last man standing of a market Friendly Team credited with turkeys economic boom. Thatnited nations warns 50,000 civilians could be at risk as iraqi forces are ready to battle to retake falluja. Is important it that civilians have safe corridors so they can flee from the fighting. Meanwhile, greeks have started to gradually evacuate the countrys largest refugee camp. People. More than 8000 macedonia is not letting any more refugees cross. The refugees will be taken to a new camp. Refinery, every oil has either been shut down in a labor dispute or is suffering severe disruption. That led to fuel shortages across the country. French workers are protesting president hole on thes plans to reduce overtime pay and to make it easier to fire employees. The long security lines at u. S. Airports have led to a shakeup of the tsa. The head of the Security Operations has been replaced with a new security chief has run operations at los angeles, international, and new york jfk airport. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i am nejra cehic. Tom thanks so much. It may be lower for longer, but maybe it is stronger forever. We are talking about the u. S. And the dollar. Time for our single best chart. Is joining us now from hsbc. He is price adjusted broad dollar against all of our churning partners, including china. There is the trend of when the dollar gets strong, the blue circles, things happen for an abrupt reversal. Time around, this given the hsbc low Interest Rate call, that things will happen and we will see a managed dollar weakness . Daragh i think we are still on track for dollar weakness. We are figuring this selfdefeating we are forgetting this self defeating logic in the market, that because we are recalibrating u. S. Expectations. If the dollar goes roaring higher, what does that mean for the pace of fed hikes . It is selfdefeating. If you rush out there, the fed will raise rates lots of times. Tom bring the chart up again. Is sometimes the movement in will great analysis, sometimes it is political analysis, the blue circles. Are we there where Richard Haass as world clicks into your world , to where it is a stable or weaker dollar . Daragh they are absolutely intertwined. I would say at the moment, who globally politically wants a stronger dollar . Is wortheen with it between japan and the u. S. Over the course of the weekend, the u. S. Clearly does not want a much stronger dollar against the yen in the political cycle. Politics,parts economics, capital flows absolutely intertwined. Tom and ken rogoff says it is a good thing. We are in need of a Mandarin Hotel accord in the central city of hong kong. Form ofn need of some coordinated agreement to pull back Dollar Strength . Have a you have to degree of monetary coordination, but you put your finger on the biggest single variable. It is not a single thing happening out of washington, d. C. , it is what is happening out of china. Is, how muchte worse are the chinese doing then they say they are doing, and what is likely going to happen over the next few months. That could drive Dollar Strength simply because in the world of great uncertainty, it can push up the dollar. Tom five steps away from the Mandarin Hotel across the trolley tracks is hsbc in hong kong. Do you pick the depreciation or devaluation of the renminbi . Daragh very different things. We predicted depreciation. It would be a helpful thing for china. They want to recalibrate the basket, i suspect. I think what they would want is a weaker dollar, because in a way that helps you weaken the renminbi by cover of darkness, if you like, because you are weaker against the stronger euro and the stronger yen. If the dollar is rallying, that makes life more open for the chinese authorities. If anything, they would want the small rally that we have seen, 2. 25 . They would like it to end rather soon, i suspect. You are absolutely right, the interconnectedness between the renminbi and the dollar. So strong that if the dollar rallies by too much, it will be value the yuan. What is a dollar rally that looks like too much . How much can a dollar rally be stomached by the fed . To whatif we listen Stanley Fischer said a while ago, he said a 15 rally is about 100 basis point of timing. It does not take much of a the fedse to rethink appropriate pace of timing. They look at what is happening on the cross rates and will make a judgment of what is happening in terms of capital flows in and out of china, what has happened with the cycle of china. The fed, i would imagine, is not very distant. There is a heightened sense, even now talking about a june, july hike, which is what they want to do. Every point of conversation they come back to talking about the dollar being weak or than it was before. If that changes, it changes the reaction of the said again. That it do you think is more likely now that the chinese will have to devalue the yuan if we look at a diversion added the verging market policy if the fed raises rates in june or july . Daragh i do not think it makes sense for them to do it. I do not think they want to do it. They recognize everyone else in the region would follow lockstep, so what would be the point . They would lose a lot of Political Capital for modest economic gain. But would it increase the pace of depreciation and increase the , i would say yes. Tom the backstory of the slow new cycle is commodity erosion. Play the Commodity Currencies here, or is there so much systemic noise you cannot participate . Struggled to get above 50, hasnt it . Tom it is subtle, but toagh the rally from 43 49, canada did not capitalize on it, norway did not capitalize on it in the way you would expect. Im not sure why. Is, allind myself doing of this being oversold, lets play it against the key. That shows i have a lack of conviction in that correlation between what is going on in the commodity world and sterling,dea of the you saw governor kearney today tiptoeing on the discourse of brexit. Can hsbc make a sterling call, nbritish to do that . Daragh it is very british. But i am irish, so say is, what is interesting is we are beginning to talk about the u. K. Cycle again, about u. K. Data. That is refreshing because all these opinion polls and everything is getting a little bit dull. Opinion pollthe that you are embracing right now . Sleeper i worry about a populist probe leaving. Treasury put up his negative set of predictions about the implications of the pound sterling for employment and so forth. Whether it slightly bolsters the remaining side. Tom somehow it will keep us entertained through the month of june. Star tomorrow dara mayor daragh maher. We will come back on greece and New Hampshire as well. Futures up seven, with Dollar Strength this morning. With Richard Haass of cfr, bloomberg surveillance. Tom good morning, everyone. Bloomberg surveillance, from new york and brussels this morning. Thrilled that you are with us. Right now in london to the Bloomberg Business flash, here is nejra cehic. Nejra sony is forecasting annual profits that missed estimates. The Japanese Electronics maker is being hurt by costs to repair a chip factory damaged by an earthquake. Sony is facing a drop in demand for smartphone components. Earlier the company had forecast that this would be its most profitable year in almost two decades. Chinese billionaire wang jianlin is taking on disney. He says the Largest Entertainment Company should not have come to china, also that it is no his company is launching a chain of theme parks. Roadblockrun into a to boosting its presence in india. Regulators have ruled apple must comply with local sourcing rules to sell products in india through its own stores per that leaves apple having to buy 30 of components locally. That is the Bloomberg Business flash. Tom he was a Rhodes Scholar out of oxford working with mr. Pavitt the most. We are honored to bring you from athens university, our guest on this important moment for greece. Wonderful to have you with us today. Debt restructuring and extension 22040 for your greece . Can you repeat the question . I missed the last part of it. Tom can madame lagarde get her plan through the eu and through germany of a debt restructuring for greece that takes the debt restructuring out to 2040 . Right. It seems to me that what todays euro group will decide will be positive regarding the disbursement, the release, which is important for the Greek Economy to function as it services debt, but it is likely that the debt relief discussion onl be the first further toward the first or second review, which is programmed for a run of talks in november. It seems that we will not be having a definite answer to your question today, but it is likely that we will be having progress on that over the next months. This remains the positive scenario because there is a negative scenario as well that, given the large distance in terms of the projections of the imf and the european side, that the two sides may actually decide to call it a split. I do not consider this as the most likely scenario, but it is something that is a possibility. Tom nicely framed. I am very curious about the recovery in greece. Our bloomberg data clearly shows there is some form of stability. Would you frame for us right now the real economy of your nation . Well, greece has been in a constant recession since 2008, with the exception of a weak recovery in 2014. Then we lapsed back to a rate in negative growth 2015, 2016, and we will probably end up flat or slightly negative. Eight ost 25 of our we have lost 25 of our gdp. The employment rate is close to 50 , and Huge Investment has occurred. On the other hand, there is a positive prospect of at least a cyclical recovery, and that is what this looks forward to and that is why the conclusion of sos process is so important, that the economy is able to stand on a more stable footing after over a yearandahalf of constant negotiation and instability. Tom if we assume the International Monetary fund is a proxy for america and other nations, watching the debate between athens and, for that matter, germany, what do you need from the German Government now . What do you need from chancellor merkel to drive a better greece forward . I think the problem is largely political. It is clear that greece needs debt relief, and it must be combined with the continuation of reforms and more realistic primary surplus of 3. 5 that has been put forward. However, decisions also are subjective to the total cycles in the eurozone. Germany has an election in 2017, and it is quite likely that the government is not willing to make or even discuss the plenary major debt relief decisions or discussions until that time. I think that is the political impediment toward reaching what thatpragmatic agreement debt relief by way of net present value reduction and length of maturities, grace periods, etc. , will have to be decided so that the economy can get back to a recovery path that can be sustainable. I am here in brussels, and this is where the euro group meets in a couple of hours. I understand you are quite cautious and that you talked about the leaders being pragmatic, but we see a lot of emotion. How important of the signal is it to the market that the debt burden that greece has is made more sustainable by debt relief . Ask i cannot hear you very well the debt is not sustainable . Francine i am asked me about the markets. How important is it for the greek market, for greek debt and yield to have that signal . Afraid im sorry, i am the sound has tom lets leave it there bank or it there bank. We have some technical challenges lost in translation between new york, brussels, and athens. From athenslatos university. It is a problem that will not go away. Why cannot why cant we get this solved . Richard you have a structural problem in europe. Greece is one of the manifestations of it. To set the precedent of massive , it relief, the question is forces the eu to confront the structural problem it has on the gap between fiscal and Monetary Policy. Tom it is such an artificial construct. What is your best outcome for greece . Richard you keep kicking the can down the road, you get economic reform, and you avoid a massive crisis. The last thing europe needs is another crisis. Tom it is a painfree crisis of 2016. 2017 i think that is the 10th anniversary of the crisis. Richard haass is going to stay with us. We have interesting conversation coming up. Bloomberg radio he has been controversial. Lakota karcher now rihanna coach lakota on where are the dots. We will do that later this morning on Bloomberg Radio. Bloomberg surveillance. In order to get around that issue francine tom keene is in new york. I am Francine Lacqua, in brussels. We are watching the testimony of mark carney and colleagues of his in london. I am trying to follow it from brussels, but there is quite a lot of commentators saying that for the first time we are seeing flashes of anger at the programs treasurytor as the select committee, mark carney, two weeks ago said that they risk big in terms of a possible recession. Word ifthe r brexit were to happen. Tom as the dialogue heats up, the Foreign Exchange report shows that let me bring it up right here looking at the forex, i did not put sterling up because i made the panel before mark carney began to speak. Now, 1. 4607. T the sterling strengthening off the mark carney comments. Right now we go to david westin. What you have on bloomberg this morning . David we will hear more from Morgan Stanley past chairman and ceo, james gorman. We will speak with the Vice President of the ecb. By the ceo be joined of aflac, a business that has a lot of business in japan. We will talk about how he is handling those negative Interest Rates. That is coming up on bloomberg. Tom it is a joy to speak with Richard Haass on the council of Foreign Relations on the council on Foreign Relations. Was the black fry the black fly at the commencement speech . Richard fortunately not. Tom there is ambassador haass, robed for the students. There was no passion, right . You did not go to passionate. What did you say . Theard that this was beginning of their education, not the end. And a piece of that education going forward, how to be about the world. Simply the world of globalization will be so fundamental to their lives, that they had to understand it. Tom what is different here, it the excitement of digital and speed and logistics making for a new globalization. Richard there is opportunity, risk, but either way it is reality. Whether as a citizen or a worker, you have to know about the world in order to succeed in it and protect yourself against the downside. My argument is, again, you cannot think that four years of college is going to see you through. Maybe 10 times in your life you will be switching jobs. Each one of those will require some education and retraining. We have a front load image of education. We had to change it now. A great school, one that my wife went to, so i was glad a be there and to get through commencement talk and not have any streakers, protesters. It does not get much better than this. Tom for those of you younger, this is from another place. Oberlin college 40 years ago, owned streaking. , for an Richard Haass important discussion on the president s trip to asia. Look for the full jes staley interview, out on bloomberg digital. Onng up, bloomberg television. We continue on radio. Good morning. Barclays daley says people are too optimistic on the economy. Morgan stanley still sees rapid growth in china. David Deutsche Bank is downgraded, the ceo says he has enough capital to pay its debt many times over. Carney testifies u. S. Lawmakers after weighing in on the risks of leaving the european union. David welcome to bloomberg. Along with Jonathan Ferro and vonnie quinn, where joining the biggest names in finance throughout all of. Jonathan we hear from gormanss ceo and james joining bloomberg in exclusive interview you will only see here. Find out where he stands on china and much, much more. L