Transcripts For BLOOMBERG The Pulse 20140425

Board plans to meet to discuss a sale of the bulk of the french builder of power plants and trains to ge. Matt campbell joins us now with the very latest. We heard about the deal yesterday. It was a great bloomberg exclusive which you helped to break. Give us a sense of where the different parties are standing. What seems to be taking shape is a significant transaction that would leave a small part of alstom behind. The transport business which makes Rolling Stock would actually be separated from Everything Else alstom does. Transport is about 20 to 25 of sales. Alstom ismajority of being taken over by General Electric according to people familiar with the situation. But of this is official yet we expect an announcement could come soon. Even in the next few hours. The fact that the unit is being left to one side may allow a political way out for the french government. This is a trophy asset for the french government. They are not tacking over the trains. There was some hint the french government was concerned. This is an interesting bit of a lyrical kung fu. I suspect ge would love to take over all of alstom. They are making this concession because the french government says they can now go to the voters and say, we didnt give it to the americans because that would be a daft thing to do. Rest of what alstom does is, it is hard to get the voters excited about gas turbines and electrical distribution infrastructure. Trains are something everyone can identify with. This is a clever bit of structure. This is a thing that the french really like. Are therese of likely to be any counter bids . That is an excellent question. Alstom is clearly in play. This is something every Big Industrial company is going to have to think about. Alstom is not all that valuable at this point. The whole market cap is about 10 billion euros which for a really enormous french industrial player is not very much money. While that is not something we are aware of yet, it is a possibility. More broadly, at siemens in munich and abb in zurich, they have to be thinking about how they are going to respond to this dramatic move by ge on their own turf. Do you have any idea about what sparked this . What generated the initial idea . I read something about how organs was quite keen bouygues was quite keen on the concept. Immelt was talking about smaller numbers. T being the chief executive officer, said that ge will spend between 1 billion and 4 billion on acquisition. This is obviously much larger. He said in exceptional circumstances they would spend more. Ge has 57 billion in cash held outside the u. S. That is not money that can be repatriated due to tax penalties. It has to use that money productively. Yesterday we were talking about french protectionism. We were expecting the government to make a little bit of noise. The minister of industry says that france is working on other alstom solutions. Is this rhetoric . Do we think that we could have a white night coming in from france . Is there anyone big enough to take over the assets . It is hard to see who could do Something Like this. Industry minister is well known for speaking a little bit out of turn on the sus ex on ubjects. What he says does matter. It doesnt always mean that we have to listen to every single syllable of it. There is certainly something to that and i think we can expect there will be a bit of pushback and france. Certainly very colorful politician. Matt, thanks very much indeed. Now, lets get you to what else we are watching today. A conflict in ukraine escalates. Ryan chilcote joins us with the very latest. You are on sanctions watch. Are we getting any closer . We understand that gazprom is preparing for possible sanctions. Quite possibly. President obama is in asia at the moment on his asian tour. We have just learned he is going to have a Conference Call with european leaders today. To encourage them to go forward with sanctions. One senior obama official telling us the United States is quite frankly frustrated with several european countries, particularly germany and italy which the u. S. Sees as reluctant to impose more sanctions against russia. This official telling us if the u. S. Is unable to convince the europeans to go further, it may go it alone and impose these sanctions unilaterally. That news comes following secretary kerrys comments yesterday where he said if russia fails to deescalate the situation in the east of ukraine, then it will be a very expensive mistake. Have a listen. The window to change course is closing. President putin and russia face a choice. If russia chooses the path to deescalation, the International Community will welcome it. If russia does not, the world will make sure that the cost for russia will only grow. As president obama reiterated today, we are ready to act. We have just heard from the Russian Foreign minister. He said russia is prepared to but it to deescalate has to be synchronized with ukrainians. He wants to see the ukrainians take more measures before russia does its part. Perhaps some conciliatory comments there. It would be ideal from the u. S. Point of view to have the europeans on board with further sanctions. Do we have any idea about what these sanctions could be . Francine was hinting at that earlier. Gazprom bank, we have been told by treasury officials, is one bank that might be targeted. We have spoken with gazprom bank and understand that gazprom bank, russias thirdlargest lender, that they are preparing themselves for possible sanctions. It is mostly a Corporate Lending ,ank that works with gazprom the Worlds Largest gas producer. That is one possible target. Another is russias Development Bank. During the financial crisis it was the bailout and that the government used to help some of russias big businesses when they got in trouble. Neither of these banks have real cachet with the russian population. They are not really involved in butumer lending or deposit they are systemically important to the russian Banking System and very important to the kremlin. Watch that space. Those would be possible targets we are told by u. S. Officials. Ryan, thank you so much. Ryan chilcote with the latest on these possible sanctions between russia, ukraine and the eu. U. S. Communications regulator has circulated draft rules for Net Neutrality. We are going to talk about that right now. It could create a two Speed Internet or a business class. This is going to affect every company that uses the web. Caroline hyde has more. Talk to us about what is happening in the states. The u. S. It all goes back to january. The u. S. Court of appeals said the regulations for open internet arent good enough. It still meant that service , those you use to access the internet, could legally slow down certain websites, block certain websites. If they felt they were too much of a competitive threat, netflix springs to mind. They werent saying they were doing it, they were saying they were able to do that. With comcast also buying time warner, the fact that you had fewer internet providers became a concern. The fcc looked to tackle this. The draft regulations they are circulating arguably dont go far enough. That is what many are feeling. They say netflix has been very vocal about this, saying that you are still allowing content betterrs to pay for access to the internet, to speed up their services so that when you are downloading a video you dont get it all jumbled, you get a pure signal. Netflix already has paid millions of dollars to comcast for this access. They have said, this isnt fair. Consumers are already playing paying a lot for their services to be good. What about Smaller Companies that dont have these financial ammunitions to give that sort of money to comcast for Better Internet . This starts from the premise that everyone should have the same access, whether you are that Small Company or a big company. But the internet has changed so significantly. That is why these rules are being rethought or rewritten. Two things spring to mind. Comcastir, at t and feel that they are having to do all the investment in the infrastructure of the internet. Shouldnt it be shared . Shouldnt it be the likes of facebook that help them speed up . We are using more and more data. Shouldnt it be shared . Secondly, what about the eu, what about asia . If the u. S. Is having these watereddown regulations, what does it mean for us . Pushed for aally more flat and open market three weeks ago, the eu voted for Net Neutrality. We now have Net Neutrality in europe. What if those u. S. Regulations start to filter through into europe . This is the key concern. Many are wondering, what does it mean for asia, europe . Thank you so much, Caroline Hyde with the latest on Net Neutrality. Now a bloomberg exclusive. Bank of america could be ready to pay out over 13 billion to resolve investigations into the sale of Mortgage Bank bonds. Jonathan ferro has all the details. This is a settlement for the ages. The scale is enormous. That is how much the prosecutors might be looking for. The numbers keep getting bigger. Bank of america is just one of eight banks under investigation by the justice department. This was in the runup to the financial crisis surrounding the sale of bonds. We know what happens to a lot of those mortgages and bonds. Bank of america, the costs are piling up. If they do settle for 13 billion, that would be on top of the 9. 5 billion they paid last month. This would eclipse jpmorgans fine. It is a massive amount of money. The ceo has spent more than 50 billion since the financial crisis to resolve these claims. Are we close to the end . What we are seeing is increasing momentum. These issues have been going on for six years. Not just for bank of america, but Credit Suisse as well. 50 billion. This is a huge amount of money. It is the equivalent of Societe Generales market capitalization. It is the equivalent of annual sales at cocacola. I think about banking in its entirety. Is it Financial Markets, geopolitical . Many people say the Biggest Issue has been litigation. The whole just keeps getting bigger and bigger. Thank you so much, Jonathan Ferro with the latest. All banks will be watching to see. Up, will europes economy remain unscathed by harsher sanctions against russia . That is the subject we are going to discuss next. Welcome back. German chancellor Angela Merkel has promised the Prime Minister to meet today to discuss the crisis in ukraine. Russia has been downgraded by standard poors. Joined by theent head of emerging markets research at standard bank. Lets start off talking about the russian economy. Sanctions look like they are becoming a rolling story. We are going to likely get more of them. We have got a downgrade this morning. Walk us through the next six months, 12 months for the russian, me. It was already very challenging. What shaw had russia had weak growth anyway. There is just no growth. Russians are not investing in their own economy. This story, the ukraine story, the imposition of sanctions means that less russians will invest in their own economy. Fewer foreigners will want to invest. Overall, it is bad for the longterm growth story in russia. And yet it seems that president putin is brushing it off. If you look at the conversations we were having two or three weeks ago, the eu, the u. S. Will come hard, the russian economy cant sustain any more sanctions , and it is getting penalized but not enough to care about it. You have to understand putins rationale for going into ukraine. That is legacy issues. Longtermabout his place in russias history. It is about recreating a greater russia. That is what i think this is all about. You could also argue that it is about distracting from the problems in the russian economy. It is a classic foreign adventure. He really doesnt care that much. I think in the longterm it will be very damaging. Lets talk about the ukrainian economy. Imf money coming in, that is just a stopgap, isnt it . The problem with the imf money and the assumptions that it only this program, holds together if ukraine holds together. Separatists succeed, russia succeeds, the numbers dont stand up. Ukraine is theth industrial heartland of ukraine. Ukraine, the administration is not sustainable. They will be able to maintain. Bottom line, the imf would have to put a lot more on the table. How much more . Is it double the 17 billion . In the end, you end up with restructuring scenarios. To what magnitude are we talking about . How should we think about this . If you are going to do a restructuring, you may as well resolve the problem at its core. Eastern and south ukraine is a substantial part of the ukrainian economy. You shrink the rest of the economy which would have to sustain a very High Debt Service burden. It would make sense to clear the decks pretty aggressively. Are you expecting more sanctions . We know that two russian banks are preparing for sanctions. Is there an elegant way for this to go or for tensions to be downgraded . I dont see an easy way out. It is difficult to see a resolution in ukraine. The two sides one very different things. Opinion polls show a great majority of ukrainians want european integration. Russia wants to stop that. If russia can stop that he wants eastern and south ukraine. He wants to divide the country. More autonomy. Ukrainians dont want that. Opinion polls dont show a great deal of support for federalism. You could ask whether the russians have really been genuine. Do they really want federalism . Or do they just want to break up ukraine . What is the other side to breaking up ukraine . I get the nationbuilding stuff. If you look at the opportunity versus the cost, the something you can play at home politically and maybe have a little more of a buffer and create different arguments. The cost would be enormous. Is there a way that putin can get what he wants without breaking up ukraine . The vision was the Eurasian Union but that is not realistic. If putin has decided that is not going to happen, then plan b may be taking bits of ukraine that can make a great russia look interesting and sustainable. This is the big vision. You talk about the problems with the russian economy, i argue that putin should be focusing on those. Instead, what he has done is this distraction. This is the focus for him. The easy way out. Tim, thank you so much for all of that. We are back in a couple of minutes. Lets give you a quick market check. Takenle bit of risk being off the trading table at the end of this week as we go into what could be a volatile weekend politically. Russia, ukraine and what will the americans try to get the europeans to do . Stocks are still overall, about 0. 7 . Deals have been the driver of the week. Glaxonovartis, possibly gehouston. Politics is the real capture. What is that doing to the currency markets . Begin a Slight Movement into yen. It is not a dramatic move but youre looking at a oneweek high in terms of dollar yen. 102. 25. A couple of companies that are working that are worth focusing on. We will broke into these. America coming back from a rebound. Energy under pressure. Back to you. Still to come, suite success. The ceo of the bakery of dreams about expanding his bakery empire. Francine is not excited at all. Also coming up, how the cupcake craze pays. You will hear from the founder of the Hummingbird Bakery about how he got britain hoped on red velvet. Francine is going to be tweeting cakes, cakes, cakes. Hopefully i will be eating cakes but you can follow us on twitter. Welcome back to the pulse live from bloombergs European Headquarters in london. I am Francine Lacqua. U. S. Prosecutors are seeking a record 13 billion fine against bank of america. The case involves the banks sale of bonds backed by home loans in the lead up to the 2008 financial crisis. S p has cut russias Sovereign Rating. It is now at the lowest investment level. The country could face further downgrades if the west pursues further sanctions. John kerry is warning russia that time is running out to comply with deal to ease tensions in ukraine. That is as Russian Forces begin new exercises near the ukrainian border. Ukraine is overshadowing president obamas tour of asia. He is holding a Conference Call today with european leaders to discuss the crisis. Our White House Correspondent is also traveling with the president. Margaret, thanks for joining us. What can we expect from this call . At this point, the white house is in the position of trying to nudge european leaders along to attach more names to these sanctions. You heard the president yesterday saying, we have got new sanctions teed up but i recognize that putin may not respond to those either. He is starting from a pessimistic position with europe. Very well said. Talks on obama containing north korea. What you are seeing is a real test of the president s suggestion that a diplomatic multilateral approach is the way to go. The white house was really hoping a couple years ago that kim jongun would be the potential for a reset with north korea. Instead what they are seeing is north korea firing 90 rockets in the last month, ramping up activity at its nuclear test site. They aret that preparing for a Fourth Nuclear test. None of this is what the president wants to be doing here. Thank you so much, margaret for the update. Guy, over to you. Thanks very much indeed, francine. Amazon and microsoft out with results overnight. Lets find out what is going on. Caroline hyde, Jonathan Ferro joining me to discuss this. Caroline, lets talk about amazon first of all. This is a company that invests heavily. They dont give a lot of money back to shareholders but they do invest in the business. Investors have to believe there will be growth. That is when they read their dividends. Amazon is valued the market believes it will be very big. At the moment it is valued at 548 times earnings. There is a belief that this investment, close to 20 billion, they have only got just under 20 billion in terms of sales. He is piling into innovation for the future. He eked out 100 million in profit. Is a seller of goods. They want to become a grocer as well. They have got tesco terrified in the United Kingdom. There is elements of blue sky thinking here. This is a Company Getting into hardware. It is not just fire katie and tablets. They are potentially going into smartphones. Dash, a new device that you just say Chocolate Chip Cookie into it and it adds it to your shopping list. That hee innovations can only make if he invests. You have the dash being used in front of you now. This is a company that has a huge amount in cloud computing. Almost one of the biggest in the world now. This is a man piling into drones as well. Sayse moment, the market shares did rise. Lets talk more about the cloud. A guy who knows an awful lot about it is satya nadella. I read about this is morning. I felt that he is beginning to deliver a vision. About microsoft not being tied to one platform. That isecome something android. What they have done recently with the ipad and the office system. There is finally some sort of admittance at the company, this is where we lost, this is where we are still good. Where we lost, we can be competitive there in another sense. That is progress from where they have been. If there is a surprise, it is how quickly things have started to turn around already. Satya nadella has been there two months. We have seen improvement in them going towards the cloud. Everybody is doing what they said they would do. Facebook is going more into mobile advertising. Apple is doing well, selling more iphones. Microsoft doing exactly what they were doing. They are pushing into the cloud more. The surprise going into this week is the absolute pessimism we have had. Look at the nasdaq, 71 of the Tech Companies are beat. 85 on the s p have beat. It is the numbers and the pessimism around the tech sector going into the season was so big. These guys have come out and said, we are doing what we told you we would do and we are doing it well. You have the market ramping these stocks up to quite elevated levels and the Tech Companies saying we are going to do what we do. You need to close that amazon,we talk about and a company that is valued at over 500 times earnings, they have to deliver big at some point. You cant keep telling the market there might be a loss next quarter. You need to take your multiple when you are looking at different companies. Some Companies Invest heavily and so the multiple at the bottom line is not the right one to value the business at. It could become allencompassing. There is already so much speculation. It is a land grab. He is investing in a land grab. That is reflecting on the bottom line. I know. I spoke to my boss, i said, how do you price a company like this . This is ridiculous, 500 times earnings. He said, how do you price global domination . If this company is going to dominate the world, how do you price that . When at some point you get the market correction, as an investor, you have got to look beyond five to 10 years to invest in this company . That is a difficult thing to do. Let me tell you what happens, it dropped by over 19 . Can you absorb those kind of losses. I am not educated in terms of being a successful investor but what i am here to say is, there is a risk. There is a big risk. Earlierd an investor on that said his problem is it is always tomorrow, never today. If you are an investor who wants your reward immediately, amazon probably isnt for you. But if you are betting on growth jeff bezos perhaps talking his book a little too much but it takes guts to put money into this. Guys, thank you very much indeed. Jon ferro, Caroline Hyde. Francine, back over to you. Lets talk a bit of luxury. Kering is home to brands like gucci and yves saint laurent. It has reported results that Beat Estimates as well as management shakeups. Manus cranny joins us with the details. The key take away is that they are not doing so badly. Gucci is not doing great either. It is not. It is the beast occurring. 55 . If i give it to you picked a , how, 3 10 of one percent did they do . It begins to really blow the mind. 15 . Up in the First Quarter. Send the wrong, 20 . Rent, 20 . They are trying to compete with gucci. It is still not complete. Small is beautiful in this story and control is key. Where they have control of the , thatt between you and me gucci experience, it is working. A lot of these Small Companies dont have logos and that is what telling. What is selling. Talk to us about the management restructure. The management restructuring they said, lets go for silos and control. Luxury to tour and leather, that is the family of Alexander Mcqueen and mccartney. Those other brands that are going to sit in that stable. Of Bottega Veneta did such a cracking job, he is out of that post. He is going to lead the overall group. Then you have your body, marco who is going to run the gucci brand. He has a lot of pressure on his back. ,atches and jewelry, albert french, 55, 16 years at Louis Vuitton and 16 years of watches and jewelry. That is the key. Ther this strategy works and you have talked to one analyst this morning. Sense, as long as the brands can deliver. It is tough. The strength of being part of a group is you get that support. When you get autonomous, how do you reconciliation the two . What must not happen here is landgrab. That is exactly some of the concerns. Not that i am a control freak. Or may. [laughter] thank you so much, manus cranny. Up next, the bakery of dreams. We speak with the ceo about expanding the pastry empire. Welcome back. The moment that Francine Lacqua has been waiting for has finally arrived. It is time for the latest part in our series on desert. We are looking at the company that kicked off a cupcake craze in the u. K. Hummingbird bakery started 10 years ago. Now a household name. Anna edwards went to meet the founder. From 1950s american baking to modernday london, he set up cupcake house hummingbird to revive his love of usbacked goods just like mother used to make. Or maybe not. There was virtually no baking at all in my own home. It was not something my mother did. Maybees and cupcakes with some of her friends. He set up his first shop on portobello road in 2004. 10 years later he had six in london and two in dubai. Not the most rapid expansion but did he want to go faster . We could have expanded faster but i feel that it would have affected the quality of our product. We baked on site every day. That doesnt take well to a very rapid expansion. One way that hummingbird has branched out has been with cookery books. Sold has offered three and thousands of copies worldwide. Is encouraging home baking good for business . I love it that people bake at home. Some people who have never been to our shops may have our book, made our stuff, might make a special detour when they come to london . What worries a businessman like yourself . Do you worry about anything to do with the business . Where do i begin . Inlways was employed before a completely different sector. I dont know what is normal for my sector. If we havent taken tens of thousands that we usually do, i panicked. Then i will hear from someone else, that famous restaurant that everyone goes to takes this much per week and i am thinking, we take more than that. Everyone worries. Make sure the staff are happy, the customers are happy. Is that what running your own business is about, worrying . Yes, for me. I am sure there are some people who never worry about things. I am glad i worry because i make sure that i can solve any issue that happens. This is a tough job. What are the magic ingredients . Lets ask the ceo of a boutique bakery. I am a big fan. She has been talking about it all morning. Good morning to you. Stuffing e was stuck in traffic, there was nearly a crisis. Give us a sense they are fabulous pastries but this is a business. So you have boutiques in tokyo. You are famous in paris. When you come to london, what is the one thing you have to make sure you got right . Pricing, location, advertising . It is location. Retailer, the foremost thing you need to take care of when you get to a new country, new city, is the right location. We spend weeks traveling in people,alking to investigating places to find the us. T location tfor we went to meet the landlord and present our concept. We get huge support from the landlord. Wordofmouth has got to be important. Putting it in your mouth is probably important and that generates wordofmouth. How do you generate buzz around the cakes that you make . Is it social media, is it by being in the right spot . How does it work . How do you get the ball rolling . I think we have two great ambassadors. The first is the cakes themselves. Seeing people try the cakes is very important. Is the chefs that create the cakes. Listening to philippe talk about his creations how do you get that word out . Is it just the people that come and visit . Do you actively go out there and promote social media . How do you get people to talk about it . We have been working with a pr agency to help us with wordofmouth, with the press. It helps us also on social media. Social media today is a must have. Probably even more in paris. We have tweaked representatives, facebook representatives, trying to be active on all these social medias. Another thing that is interesting, we have invited british chefs to the store for them to try our product. Related their comments on the product on social media as well. All famous threestar chefs. There are so many french living in london. That is how i found out about it. Some of the local population knew you from paris. Give me a sense of, when you look at this, it is very high and. It is a very difficult market. How do you differentiate yourself . Is this a conscious effort . Say, i want my boutique to look completely different. I only want it pink and white because i need to be recognized. Food selling is tough. This there isind the friendship of two great geniuses. One created the cakes and i think the cakes speak for themselves. One of the main reason for the success is tasting the cakes. The second is the visionary that sets up the store and that broke all the classic codes of a deluxe that history deluxe pa tisserie. It was a very classic retail business. We really tried to bring something fresh, something modern. I think then it is all about the products. Tasting them, having them look good and having them taste good. You are now present in a number of locations. The genesis is in paris, france. Tell us what it is like to operate a business in these different countries. Tokyo, london, paris to london more importantly . How does it feel different operating in these different regions . The two factors are the and theof the products quality of service of our staff in the store. We are still learning how to adapt our concepts to london. When we open in london, we had no coffee, no tea and no tables. It was very normal from france. You wont find these things in france. People thought you were alien when we opened in london. Everyone kept asking we are fixing it now. Now you get coffee there as well. British style, right . Glutenfree cakes, tons of things we have been learning from the u. K. And we are taking it back to paris. That is the fantastic thing of going to different countries. Some of the ideas you have got here come from japan. It is one of our classic recipes adapted. We will try it. Thank you so much for joining us. We are going to take a short break. Eat the cakes now . See what they look like in a couple minutes. Welcome back. You are looking at live pictures from seoul where president obama will soon speak alongside the south korean president. It is his second stop on his four nation asian tour. We have reporters on the ground. We will bring you the very latest. For those listening on bloomberg radio, the first word is up next to reagan for our viewers, a second number of the pulse is coming up. We are talking about russias downgrade from s p. We will carry on the conversation about ukraine as well. We will be joined by ihs Global Insight and Net Neutrality. It will be a great show. We will see you for the next hour of the pulse. That is coming up right after this break. Please follow us on twitter. It is a great morning. We have had cakes and patisseries. Have great news across the board. Alstom possibly meeting today. That is one of our top stories. We had luxury, ukraine and small entrepreneurs including bakeries. President obama meets his south korean counterpart. They are set to begin speaking shortly. You are looking at live pictures from the south korean capital. Russia pays a price for its actions in ukraine as the u. S. Tells president putin that time is running out. Good morning to our viewers in europe. A warm welcome to those waking up in the United States. Happy friday. This is the pulse. Live from london. Lets start with russia. The Credit Rating has been cut by the s p as the conflict in the ukraine escalates. Story. Ns are the big we are waiting for the president to speak in south korea. We sense that they are getting closer. Be getting closer. President obama will hold a Conference Call with european leaders today. That is according to a Senior Obama Administration official. Frustrated with europe not backing sanctions thus far. R more sanctions in particular germany and italy are the most reluctant to introduce additional sanctions. The u. S. Could unilaterally introduce more sanctions. We also heard from secretary kerry yesterday. It has been seven days since the geneva talks. The United States has not seen any action from russia in terms of actually implementing the measures that were called for by the geneva accord. Secretary kerry suggesting that russia perhaps about to make a very expensive mistake by not the escalating the situation in the east of the country. We understand that if there are going to be sanctions from the United States, that they are unlikely to come before tuesday. When president obama gets back to washington dc after his trip to asia. What do we know about the actual nature of any sanctions to come . Two banks are preparing for them. One bank has already been sanctioned. It is the 17th largest bank in russia. These banks are much bigger and more important. 36 owned by the Worlds Largest gas producer. Lender inge corporate russia. The other bank is a Development Bank in russia. It was the bailout bank during the financial crisis in russia. Both of these banks are very important. They very much do not have huge ties to the russian population. They are not big and deposits or consumer lending. They are very important to the kremlin. Both of those banks are preparing for possible sanctions. Thank u so much. Thesery latest on sanctions. We are monitoring that live event that is about to start at any moment. President obama speaking in seoul. The potential sale for the bulk of the french builder and engineering company. Matt campbell joins us now. You guys broke the story yesterday. We are looking like we will have some sort of a Board Meeting today. Clearly these guys cannot hang around. Give us a sense of where the process is right now. We are getting into the final stages. We do expect an announcement on this deal as soon as today, failing that, probably before the market opens on monday. Now what this is looking like its an acquisition of ge of virtually all of alstom. Whichl part of alstom makes trains will be cleaved off from the energy business, which is financially the core of the company and would be acquired by ge. This is being done principally for political reasons. For obvious reasons, selling such an iconic french manufacturer to an American Company would be very complicated in france. Ge has come up with this structure where they get divided into two, with ge taking on the less sexy but more financially powerful arm. What is the french reaction . Way of this is a nifty keeping outrage out. This structure will perhaps restrained some of the government pushed back to ge, which does have a very good reputation in france. We are already seeing headlines out of paris. The industry minister is an outspoken presence on any large m a transaction in france. He said the government is concerned and looking for alternative solutions. He will be meeting with ge officials to discuss this. Whether this is a real substantive pushback or whether the government is going through the motions of concern to try to get the best possible deal for france that they can, which would be tech entirely understandable, we have to wait and see. Withat a transaction lehmans be more allocable . I think palatable . Is athink that possibility. Counter bids are always a possibility. There is always been a wing of the socialist party that is very enamored of this idea of these paneuropean projects, particular with particularly with germany. We have heard this mentioned in france in the area of telecoms. See a deal with siemens being somewhat more politically palatable because it as could be billed treating a european champion. Largest company in germany by most measures. Alstom has a market cap of 10 billion euros. There is no way you could bill that is a merger. That would be a takeover. Im not sure the difference would be enormous. Thank you for that. Matt campbell there, our bloomberg deals reporter. Another, bloomberg exclusive. Bank of america could be ready to pay out 13 billion to resolve investigations into the sale of its mortgagebacked bonds. Jonathan ferro has the details and the scale is enormous. It is absolutely enormous. An enormous amount of money. 13 billion would be on top of the mind . 5 billion they pay last month. Paid lastllion they month. The total would eclipse jpmorgans total. This all goes back to the financial crisis. The bonds that were sold backed by mortgages, the mortgages went sour, we know what happened to the bonds, it was not a pretty story. Regulators are still chasing a lot of these banks. What we will see now is a couple of these settlements getting a little bit closer, a little bit closer. Bank of america has already spent 50 billion to try to resolve these claims. 50 billion, lets think about that. That is the market cap. Huge. S absolutely i think we are getting closer. If they do settle, it could happen over the next two months. What we are starting to see is settlements getting closer and closer. More moneytting aside and hopefully they are getting closer to settling with the department of justice. This has been going on for 67 years. We are finally getting for the endgame. The big concern for banks and banks in general as an industry has not been geopolitics or Financial Markets, it has been in europe, not just or the u. S. , but here in the u k. I much money will this industry keep on putting aside to settle these investigations . Answerne really has the to that question. Jonathan ferro with the latest on bank of america. Talk about a subject that affects every business using the internet. Net neutrality. What they will potentially do is Speed Internet. If you want based faster speed and Better Service, you pay little bit more. That is in the states, not so over here. Lets talk about the debate in the United States. The aims are all the same. A newto try to create system of the internet. If you want speedy access to all and wetent you desire should have access to it, companies such as at t, comcast, virgin media they should not decide that some one site should be slower are run at a certain speed. In america, what they are saying classt Business Executive you could have. If you are the likes of a netflix or amazon you could say, look, i need to get my content to my viewers quickly. Pay to get Better Service so that videos run without jitters. Is what about smaller businesses that cannot afford that . Should at t and comcast really be having to pay for these huge amounts of data that we all desire nowadays . This is going to take massive investment, massive amounts of infrastructure. We are changing the world that we live in. Who is going to be paying for this . Saying that you pay for bigger data when you want bigger mobile service. They say the netflix should pay up. There is a concern that it is going to drown out Smaller Companies that cannot afford it. Internet providers are saying this is absolutely essential. Saying and comcast are that they need the money to invest. Netflix is saying, why should we have to be the ones to provide the money . The European Union is going a different way. It is the likes of the internet providers who are going to have to pay for it. Back in july, the likes of virgin and vodafone and Everything Everywhere said that these full and open access is not doable. They did not sign up to a code of conduct. How they are financing this, how they are putting it into the numbers. Lawyers are going to be getting some big fees in europe. My understanding is that they will fight this one pretty hard. Thank you. We are back in a couple of minutes. What comeback. You are watching welcome back. You are watching the pulse. Talkingt obama will be about the u. S. Relationship with south korea. Nevertheless, the anticipation is that the queue when they will q a will the issue touch on the issue of what is happening in ukraine. That is on the minds of the Foreign Exchange market. We are starting to see a slightly better bet on the yen. It is to a certain extent a safe haven currency. Maybe a little bit of safety being sought right now. The overriding influence is what is happening and the elongated approach that is being generated by janet yellen. We will be paying attention to what the president says over the next few minutes. He and President Parker giving a press conference. The questionandanswer will deliver the part on the ukraine. We will bring you the latest news. Maybe we will also actually listen to what he has to say. It was more evidence that the standoff on the ukraine is weighing on the russian economy. By thee, were joined senior director of s ps Sovereign Ratings department. They give for joining us. Will this have any impact on the russian economy . Do we have to downgrade further . Reason why we downgrade russias Sovereign Rating reflects the deterioration in the acquisition of russia. We have seen significant capital outflows of more than 50 billion in the First Quarter this year. By comparison, the average outflow over the past five years was an annual 57 billion. That is a significant increase of outflows. Which in turn may have an impact on russias glow sticks Growth Expectation this year. Russia could grow by less than 1 this year. Last year, it was 1. 3 . Since 1999, lowest with the exception of the 2009 contraction. Continue attflows that pace that they are at the moment, can we expect further downgrades to follow from the one we have seen today . We maintain a negative outlook on russias Sovereign Rating. The outlook reflects our view that the rating could go down over the next two years, with a likelihood of about 30 . The reason why we maintain the negative outlook is the risk that the external position might continue to deteriorate. One reason might be l flows. Capital outflows. Also, the weakening currentaccount. We expect a surplus of 14 billion. Two compares to 70 billion years ago. If you put it in relation with they havel outflows, been substantially higher than the entire currentaccount surplus this year. Another possible rate trigger is monetary flexibility. We expect that the Russian Central Bank moves to fully Floating Exchange rates by 2015. We see a risk that this could be stalled if volatility in Financial Markets continue to be high in the context of the crisis. We, ift not least, if sanctions are imposed, stricter inctions, and it outflows russias economy continues, that could have negative impact on growth. I wanted to ask you about the sanctions specifically. What kind of sanctions would have direct impact on outflows . We are dancing around the issue at the moment. We do not know what the u. S. Wants to impose. Do you have a model that says, if sanctions are this much, then that will trigger much more of the outflows that we see in the past couple of weeks . I think that a lot of the outflows are driven by investor sentiment, by Growth Expectations. The stricter sanctions are, the more negative the effect is on growth rates. That would have an impact on capital flows out of russias economy. We can talk about financial outflows, portfolio flows, foreign investment. I do not think there is a model where you can really predict or calculate how much that would be. I think stricter sanctions would have an impact on the external position of russias economy and on growth rates. Great to have you on the program. Thank you so much for coming in. Of course, on the back of the ratings cut, the ruble has been buying bonds. We back in a couple of minutes. Welcome back. These are live pictures from seoul. We are waiting for president obama to speak very shortly. They will talk about relations between south korea and the United States. Countrypart of a four trip for president obama. It may be overshadowed by ukraine and the top of ramped up sanctions tensions and sanctions. President parks speaking now. President obama to her left. They will talk about ukraine in the questionandanswer. We will find out more where the president sits on this issue this morning. We have heard some very fiery comments coming from secretary kerry over the last 24 hours. Ihs joins analyst at us now. The leg which is being ramped up by the americans. How close are we to further actions by the west . We have to see what is happening on the ground. The russian side has indicated that if ukraine continues with military action in the east and south, they will react. We have to see whether they will react. The ukrainians have continued today. How do you see this panning out . We have secretary kerry warning putin on ukraine. Russia is carrying out troop drills. This is very difficult to predict. This is geopolitics. A lot of the markets do not know where they stand on this. It is very difficult. Some could argue that if russia intended to invade, to stage a military invasion, it has already done it. At the same time, we have to see how the escalation on the ground proceeds. If there are a high number of casualties, this is really increasing the risk of Russian Military intervention and the talk of sanctions that the west has been thinking that could deter russia from these actions could be brushed aside by moscow because, at stake, is spoons isutation at the stake putins reputation. If there is blood on the streets, he has to react, to put it dramatically. Despite the downgrades we are seeing today, i think the president would be concerned more about his image and his countrys image. The russians usually wait for the weekend. The europeans are usually chilling out on the weekend. Do we have to wait until sunday afternoon before this happens . [laughter] im not sure about the calendar divisions. See whate will have to is happening on the ground. T beck talks about the fact that the russian economy can be isolated putin talks about the fact that the russian economy can be isolated and that it can take a step back. Is that a viable course of action . They mentioned that they can weather the sanctions, even if they are harsher, and they will focus on a substitution economy and building and modernizing their economy. I do not think this is a viable option. You need capital and knowhow. So far, russia has been bringing this from the west, particularly the knowhow. I do not think this is necessarily a viable option. They could try. I do not think that the Economic Growth will go through. Thank you so much. Welcome back to the pulse. Live from london. These are the Bloomberg Top headlines. First of all, youre looking at live pictures of president obama speaking and south korea. In south korea. These are not live pictures. Those are live pictures. I stand corrected. We have moved to the questionandanswer. They are talks aimed at containing north korea. We will get more news on ukraine has we have switched to the questionandanswer. We will watch this very closely. Arrival of president as tensions rise between south and north korea. We will watch the very closely. Secretary of state john kerry is warning russia that time is running out to comply with sanctions. Russian forces begin new exercises that the ukrainian border. Kerry says it will be an expensive mistake if russia continues its course. Exclusive,bloomberg alstom will talk about a deal with ge. French builder of power plants and transmission gear. Our the markets dealing with all of this . How is it being digested . Manus cranny, of course, has it all covered. I think ukraine does trump Everything Else, despite the 15 billion worth of deals being done. The United Kingdom is basically coming off its sixweek high. Europe still has an up week so far. Lets see how the rest of the day comes out. We have seen the m a action. Ge is getting ready to do a deal. Haduple of stocks that quite a run. Mario draghi is building toward qe. Why leave risk on the table . Why leave risk at the close of play today when there is so much at play between obama, ukraine, and europe . Will obama get europe on board in terms of sanctions . Momentum in terms of moving the debate forward . U. S. Equity futures indicated lower. As we wait for the u. S. Services data. Michigan Consumer Sentiment also expected to come in. That is the real feel for the markets. Equity markets are coming lower. Retail Sales Numbers in the u. K. Were quite nice, thank you. 1. 6822. Tom, i know you will be focusing on the story. The ruble is up. The ruble is seeing a lot of movement on the back of the s p rating cut. We have some real changes in ukraine. It is a very fluid situation. We will go to seoul, korea and speak with margaret taleb. The ruble is moving. The russian equity markets are down. We will continue that story into a very busy weekend in washington. We will also look at the equity markets. The earnings season is in full. Gealstom. It is huge news and france. In france. We have the resounding story from apple. We will talk about the equity markets and this whole new idea of use of cash. Like the gealstom story. The french have a reputation of being protective. Ge has a great reputation in france. This may be the biggest deal ever for ge. I think it is an interesting deal in the United States. I dont think it has captured the imagination of the American Business public like it has in france and europe. What mattbergasted at campbell said yesterday, the idea of General Electric, schenectady, and new york having more employees in france at alstom. I had no idea that was true. Something we have to keep a very close eye on. Tom keene with the latest on what is coming up on surveillance. We are getting breaking news out of seoul. President obama is currently speaking in seoul, next to his counterpart, President Park. He is talking about ukraine now. Lets have a quick listen in. The destabilizing activities that are taking place to the south and east. Both the europeans and the United States have been consistent in calibrating sanctions that could provide a deterrent to the russians, providing support to the ukrainians, leaving open a path for resolving this problem diplomatically. Now, as i said yesterday, what we have seen since the geneva agreement is the Ukrainian Government has been carrying out the terms of that agreement. It has introduced legislation providing amnesty to those that would lay down arms and exit from these government buildings that have been occupied. Foras put forward a process constitutional reform that ensures the rights of all ukrainians. It is a credible document. It is one that has been presented to the council of input and is getting throughout ukraine, as well as from experts outside of ukraine on constitutional reform. What you have seen is the government in kiev doing what it said it would do. What we have not seen his russia isng out clearly russia speaking out clearly condemning the prorussian militias that have taken over the buildings and using its influence to deescalate the crisis. I will be talking to the europeans, not all of them, but some key european leaders, again this evening, making sure that they share my assessment, in terms of what is happening since the geneva talks took place. As i said yesterday, we already have a series of additional targeted sanctions that are re ady to go. We want to make sure that we are consulting with them, assuming that we do not see any drastic changes in behavior on the part of the russians. We would like to see that. We have not assumed that. What is also important is laying the groundwork so that if and when we see even greater escalation, perhaps even military incursion by rush into ukraine, that we are prepared for the sort of sectoral sanctions that would have even larger consequences. Say abouti should european leadership, they have been unequivocal in condemning russia. They have actually moved steadily when it comes to applying sanctions and consequences toward russia. But there are a lot of countries incentive europe. They have a whole process that they have got to go through to deal with any actions that have Significant Impact on their own economies. There is some variation inside europe. That is as much of an issue as it is any differences between our assessments and theres. Theirs. We want to work with them to make sure we are coordinating as much as possible because that is going to maximize our efforts. Last point, i think it is important for us not to anticipate that the targeted sanctions we are applying now necessarily solve the problem. What we have been trying to do is to continually raise the costs for russia of their actions, while still leaving the possibility of them moving in a different direction. Keep somentinue to arrows in our quiver in the ev ent that we see a further deterioration of the situation over the next several days or weeks. As far as the middle east is concerned, this problem has been going on for 6070 years. We did not anticipate we were going to solve it during the course of a six or nine months negotiation. It is fair to say that one of my jobs as president that was president obama talking about the sanctions. Imposel wants to sanctions, but giving the russians the option to pull out. We have a Conference Call that will take place later with key europeans come in all the europeans. We are back in a couple of minutes. Welcome back to the pulse. Live from london on bloomberg tv. Will the u. S. Follow europe on Net Neutrality . It certainly does not look like it right now. It is an issue pending content providers against network are fighters providers. For more on the battle, we are joined by james cronin. Caroline hyde is also with us this morning. Carolyn, lay the groundwork for us. Oline, lay the groundwork for us. It is a huge deal. It is about having a fair internet. It is about everyone having access to netflix content at the same speed and same quality. In europe, they have laid down the law. They have said we will have Net Neutrality. It will be on the shoulders to bear the burden on the likes of the internet providers. They have to upgrade their systems, allow the amount of data that we want to run through them, and allow netflix to provide their content. In the United States, it is a bit of a businessclass being set up. If netflix really wants Great Service to its customers, they will have to pay millions of dollars to comcast and at t. So the draft proposals go at the moment. At the moment, the sec said that baseline level of service as necessary. Entere then allowed to into individual deals and pay for a better subscription, for better access to the internet, for better quality. And comcast are saying, why do we have to deal with the investment . Netflix is saying, why do we have to pay . Their arguments on both sides. Net neutrality was a fair way to have access for everyone. Now things are changing. We are overburdened. You need to channel it in some way. It is indisputable that we a new system. Breaking Net Neutrality is not a way to do that. Customers have a right to be able to get to any site on the internet. Some sites being faster than other sites, we must make sure that isps are properly funded. Ironically, and some of the markets outside the u. K. And the u. S. , theyre making a lot of fuss about this. Southeast asia, indonesia, korea. The internet economies have been growing faster than ours over the last couple of years. Home speeds are faster than anyone could imagine here. Breaking that neutrality is not the way to solve this problem. Thise make this work is critical infrastructure. Set ofave a complicated relationships between incumbent telecommunications operators. We have got to introduce comp competition in the last mile of reaching consumers and getting them access to the internet. If im a customer and i pay 10 pounds a month to access this website only . That could be a proposal that is introduced if Net Neutrality breaks down. Fortunately, in europe, we are talking about creating this type of mess. Works anday ist allows innovation in the market is to continue with the principle of Net Neutrality. When we think about what were talking about here, i think about amazon. Massive company. It is in the cloud. It is delivering stuff. Netflix. Another company that is coming into. In. Deal aroundy the world, with two different Business Models . European customers could be affected by changes in the u. S. It is a global network. It is the same both ways round. I really hope the fcc reverses its earlier ruling on this. The best way to support innovation and the best way to deliver a Consumer Experience that is valuable to the economy, so that people can buy things and conduct their lives online, is to maintain this neutral playing field. Talking about amazon, it is amazing to see the amount it invests. 23 increase in expenses. You build websites and help the functionality. Tesco must be terrified that amazon is going into groceries. Amazon is going into lots of markets. Their strategy has been to invest in innovation. Some people say it may be too many areas. I do not think that is a bad approach on the internet. You do not necessarily know where the next diamonds are buried. Upsetting some of the amazon stockholders over the last couple of months. They think that amazon may be investing too much, too many irons in the fire. We need to talk about predictive shopping. Guy johnson is very concerned about that. [laughter] we all see the algorithm at the bottom. Maybe if you like this, you should think about buying this. The idea is that maybe amazon will not ask us if we wanted. Is this something that is viable . Legal . Amazon has been a key innovator in the delivery option space because it has had to catch up to other retailers that have been able to offer things through their physical stores. Amazon has not had access to those things. They have seen real consumer takeup with sunday delivery, etc. Predictive shipping, we have done some research. That is possibly on the wrong side of concerning the consumer and maybe frightening them. That might be too much information at play here. You dont innovate unless you try some of those slightly unusual ideas. As long as you do not anger too many customers. Thank you so much. Up next, the bloomberg exclusive. Alstom is set to meet today to talk about selling the company to ge. Good morning. Welcome back. You are watching bloomberg. Alstoms board is set to meet. Matt campbell is with us with the latest. Do we have any indications about why the shares are suspended . We think the board is meeting today. The shares have been suspended at the request of the French Market regulator. We suspect that there was an announcement on the way from alstom. We reported this morning citing people familiar with the matter that the board is meeting today to give its final signoff to this transaction with ge. That means we could see a formal announcement either this afternoon or on monday. That means the political battle in france is probably going to be just kicking off. We have already seen statements from french politicians saying that they are very concerned about this deal. We will have to see if that concern translates into concrete action by the government to make it more difficult for ge to do. Any word from any of the major shareholders . They are not saying anything in public. They have been very active in dealmaking in the Telecom Space lately. They made an abortive attempt to buy frances secondlargest mobilephone operator. Is taken over as sellse or whether it assets to ge, a lot of money is going to be coming back to shareholders. What they do with that, we do not know. Are we expecting counter bids . Not yet. But it is a good point. Europe is the turf of siemens and others. We could see something from one of those companies. So far, no indication. This is very late stage. This has been going on do we know how long the talks have been going on . Has this had a long gestation . Who called whom . That is a very good question. The details have not all come out yet. One thing that i think may be worth looking into is what is the relationship of this bid for sfr. They were looking for money to increase the bid for the carrier which is owned by vivendi. An option would be looking to sell the alstom stake, 20 . Ge would be one of the obvious acquirers. That could be the genesis of these discussions that morphed into a broader bid for most or all of alstom. Are looking go, you at live pictures of President Park speaking in seoul. The questionandanswer session is going on now. President obama did talk about sanctions. He said he will be on a call with some of the biggest european leaders to talk about further sanctions on russia. Have a great weekend. We will see you monday morning. This is bloomberg surveillance. Astensions mount in ukraine kerry and lavrov are less then diplomatic. Amazon takes their retail share at the expense of amazon profits. And the value of viral. American business goes in search of the virals secret sauce. Good morning, everyone. This is bloomberg surveillance. Were live from our World Headquarters in new york. It is friday, friday, friday april 25. Im tom keene. Joining me, scarlet fu. And adam johnson joins us as well. Adamn a very brief brief, with news out of ukraine. Lets get right to the briefs. I want to tell you about u. K. Retail sales, unexpectedly rise march. Weve got the market u. S. And then at 9 35 come at university of Michigan Confidence numbers. We have colgate, a mullet, ford, and burger king. Let me do a data checking. We have news out of ukraine