Transcripts For BLOOMBERG The Pulse 20140729

We are live from bloombergs European Headquarters. We have a great show coming up. Lots of news breaking and some great business stories as well. We will be talking about shoemakers to the stars. And clients like rafa nadal big bucks for his brand. And we will sit down with jamie oliver as he expand his empire to hong kong. We begin with one of our big stories of the day. Bp, profit rose by a third during the second quarter. The british oil giant is warning that new sanctions against russia, which are expected today, could hurt its relationship and investment in rosneft. Ryan chilcote is tracking all of the action. We have learned what is at stake today. Another one of these stories, we start at the beginning. Bp had a joint venture with russia. A got a fistful of cash and 20 stake in rosneft, which looked like a smart move. Is in theosneft doghouse. Their ceo has been sanctioned by the United States and the u. S. Has restricted rose not ros neft, access to Capital Markets. Now they might do the same kinds of things, maybe even more. In terms of what is going on is hugelyeft important. Today, we saw that in the numbers. Sanctions, how do they affect the relationship . What does it eventually due to their relationship . When dudley made the decision to go ahead with this idea of getting 20 and rose not in rosneft, i think he was thinking about the promise of russias vast oil resources. He got access to the reserves, one third of bps reserves. It is a quarter of their production. Wayerms of sanctions, one that the sanctions would affect bp negatively is by driving rosnefts share price down. When bp got a 20 stake in , every day, it gets a little less. The share price, that means a little bit less value for bps financial investment. I think it goes beyond that obviously. We could see other things. For example, if the europeans nefts access to their Capital Markets like the u. S. Has done, that is going to further raise the cost of funding for bp for rosneft. That muchmake rosneft less profitable and useful for bp. Another part of the big promise of russia for dudley has been some of these special projects. It is a statebacked oil company. This is the ticket. It is the key to the treasure. Two importantd deals. One to target cheryl oil shale oil. Another thing that u. S. Is going to look at is restricting russias access to the kind of technology you need to explore and exploit shale assets. Another whammy, if you will, for bp. Another prize out there would be the arctic. If they do restrict these technologies for exploring for arctic oil, again, bp loses out. Why . That is a deal right now. Shell and bp are supposed to drill what many are calling the most important well of the year in the arctic. It is supposed to begin now. We are waiting for an update as to whether it will be done. A deal between rose not exxon, because bp is an investor and shall will pay for the expensive costs of the arctic up front, bp gets to enjoy in the profits and the revenue. Of course, if shell and rosneft cannot go for the oil because the eu restricts the export of the technology needed to do the drilling, another whammy for bp. Whammies coming on multiple fronts. George osborne talked about that yesterday when we spoke with him. Basically, he said that we cannot sue bp. But he did say that rosneft cannot be 100 sure that they will emerge unscathed from their efforts to recover the 50 billion that the Arbitration Court has rewarded them for the loss of their assets, which ended up in the possession of rosneft. One way bp will suffer, of course, we will pursue rosneft and that will put the pressure on their share price and bp will pay as a result of that. You are going to be reporting in force. Absolutely. It is going to be riveting. We will find out a lot more about this story then. We have a couple of guests in the meantime who will be analyzing the events or us as well. A lot going on in russia. The Banking Sector this morning as well. Ryan is going to be back. Is also weighing in on the standoff between russia and the west. To see whether the situation is affecting the banking business. Are clear guidelines coming from authorities about againsttaken institutions. For us, it is business as usual. We are committed to russian markets. Ubs ceo speaking to our markets editor, who is in zurich. What else did we get, manus . I have been thinking about these numbers through the morning. The top line works. Profit is up. Science answer not trading as much as they need to be. Gross margin is not living up to expectations. Rmotti said to me, we are moving away from advisory models to people giving us discretion, what to do with their money. It is not an alarm bell, but it is an issue to keep an eye on. Germanve settled their woes for 300 million euros. Of course, there is the french. It haslready mentioned no relationship whatsoever with the discussions. We had been in advanced discussions and negotiations about settlements. You can see why 1. 1 billion if youakes no sense relate it to our settlement with germany, which is a much eager business. Also, when you make it to the relationship with finance. I think we will appeal this decision, which we do not think is fair. We have a real inflation in terms of fines. The americans, 9 billion from bnp paribas. The size of these fines are rising. Can you see the europeans going the same road . I would say that, to some extent, we are already there. The first toone of recognize the challenge, at times, for banks. We have not been in denial. We have been addressing proactively where we can address issues of the past. Rights ofotect the our shareholders if we feel it necessary. First . T settled is that a matter for the board . It is settled when it is fair and equitable. We have to recognize when it is fair to settle. Going toot think i am ask another question of Foreign Exchange until we get the news in terms of what feel they are doing. Almost 11 billion swiss francs. It is not a bad report. Look, ilike the new wonder . The beard look . A little bit of food today, fashion, and finance. We were just talking about that listening to that clip. Comment. Going to pass they will when you get back. A bit like you with no tie. A very nice look. That is the way we go these days. Very relaxed. And that in the last couple of minutes, the german yields have fallen to a record low. Take us to germany now. Take us to Deutsche Bank. Fixed income held up. It did. Say he isir to betting the house on Investment Banking . Maybe not betting house, but he is putting his stamp down. Commodities and currencies are the drivers. Deutsche bank, Investment Banking is where they are committed. That beat. Better news than their cohorts in the United States of america. Your tax bill, that is what lumped them on the net income. If you look at, in principle, this is a bank that has raised capital. It is moving towards a better finance, a Better Capital , and thebank Investment Banking is doing slightly better than the market had anticipated. You have got to say that that is not bad news all around. I want to tie this together as i look back at Sergio Armani investment ubs banking numbers and they beat. You look at Deutsche Bank and again, a slight improvement on the Investment Banking. I just wonder we did not have time, but the next question is, are we at the trough of Investment Banking . Have we hit the cyclical low . Or am i being too optimistic saying that one quarter does not make a spring. I leave you with that thought wet, awful,p, miserable zurich. I love zurich. One of my favorite cities. It is wet. It is wet. Go and have some cheese or a nice coffee around the corner. Very nice. Manus cranny, we are going to leave you there. Enjoy yourself. Manus cranny on the banking story this morning. Back within a little bit later. What else have we got . Insight on how conversations could impact that relationship. It is coming up next here on the pulse. Welcome back. Bp has reported strong secondquarter results that it reported earlier. As russias trouble mounts, few businesses have as big a stake there as the energy giants. Lets try to quantify that risk. What does it actually mean . An analyst at barclays covering this business. Our armse to get around exactly how this relationship is going to work or not work going forward. , it always rosneft had the potential to go very right or very wrong. Good morning. Bp me, the main impact for is whether rosneft can keep its dividend. Ultimately, the sanctions are designed to limit access from the u. S. Side to financial markets. Ofneft has a large number debt payments they need to make over the next 12 months. Essentially, what we have to look at from bp is if they can keep the dividend. That is the main benefit that bp gets right now from the rosneft investment. Rosneft hasat traditional sources of finance, whether it be from the chinese or other sources within the market. We are not worried about the potential cash flow. In the short term, what will be reticle is how that relationship develops. , it might slow down in terms of progress. For me, a limited impact on the financials of bp shortterm which is good for the Investment Case for the company. What do you mean by short term here . If sanctions are on for a year, does it start to become a problem . What is the duration . If you are looking at the rosneft cash flow profiles, one in four months. The kind ofstart timeframe you start to see, can they access lines of credit . Chinese, itfrom the may be something where they can get Additional Capital from the chinese to bridge that gap. For me, the shortterm impact right now is very limited. That will start the impact from the dividend side. Track top is well on keep its business on target for 2014 and into next year as well. Is it possible to get our arms around the currency risk as well . In terms of the currency risk, what we saw this morning was a very strong contribution of rosneft and that translated through. From the rosneft standpoint and how that affects them going through, you will see the volatility in bps earnings. It is a flow that they get from rosneft. But that is priced in rubles, yeah . Yes. The technology story, if there are significant sanctions imposed on the current technologies, tell us what that is going to me. To mean. From the rosneft side, when they did the deal with tnk, what they wanted was access to a lot of the original technology from bp. Bp has spent a lot of time putting money into the tnk business and getting that back up to western standards. That is the possible technology that rosneft wanted. Rosneft is trying to improve the underlying form of their existing assets. Three or four years, youre going to be looking at the arctic, the shell side. That is something where bp has ofple within the business rosneft that will be able to help them. Getn, will they be able to the finances . This is a longerterm issue for me rather than a short term. Yesterday, do i need to assume that 20 of that 50 effectively going to bp . The number could end up being extracted from rosneft as part and parcel of the russian government and bp has a 20 stake in that. How do i work that out . It is not something i would want to do from a bp perspective. There are lots of meetings about how the econ side will play out. At the moment, we just have no clarity. He has defected from the rosneft side, but there are other things within bp that can drive cash flow for now. It is not something i would want to take out of the price target for now. Just one final western or a quick one. Quickinal question or a one. We have went through a long list of mediumterm risks, all of which are hard to price in. Are there other shares that are better to own . Is the Market Pricing bp correctly right now . Every single day it seems that there has been a fresh risk in relation to this business. On the valuation side, we do at a 10 discount to shell and total. See within the bp business, there is a lot of progress being made. They have a startup in the u. S. On the refining side. You are seeing real cash flow and material Free Cash Flow basis. That is a good thing on an absolute basis. We are seeing the same cash flow growth from both shell and total and what you do not have is the same degree of certainty and risk here. , i would much rather have shell or total for the 12 month time range. Thank you for your analysis and thank you for your time. Come, israel is intensifying attacks on gaza. We will be live with their finance minister for an exclusive interview. Before you hear that interview, you will hear an interview with the leader of hamas as well. A lot going on there. We will talk about it when we come back. Good morning, everybody. You are watching the pulse. We are live on bloomberg tv, on the radio, streaming on your tablet, your phone, and bloomberg. Com. How are the markets doing this morning . Lets find out what is going on with jon ferro. Equitiesstart out with first. We started on a high note. Equities higher off the bat of some good earnings. Ubs beat, bp beat. Bp, 34 increase in profit. Not much higher if you look at the stock today. On the other side, they have rosneft. Stake in b. P. Themselves say if new sanctions are imposed on russia, his could have an adverse Material Impact on the relationship with rosneft and the investment itself. What are the sanctions that are going to drive that . Will we get them today . That is the big unknown and that is the other opposing force. Equities lower across the eurozone. The dax down by. 25 . B alsoex, the ftse mi trading lower. Yields in germany, record lows on the german 10year bund. Lower than it was in the crisis era. Here is the key point. Lows in italy and spain as well. Near record lows in those two countries. About 70 billion of redemptions this week and a cpi number that is going to come this thursday. It is risk off, yes, but this is not the European Crisis because you see money going into italy and spain as well. I will tell you about what is going on about inflation rather than risk aversion. I think the risk of deflation is what is being priced in here. I think it is sort of risk off in certain ways. Coming up, we are going to talk about sanctions and renault. The car sector and its relation to russia when we come back. Welcome back. Youre watching the pulse. Live from bloombergs European Headquarters here in london. Im guy johnson. Mark carney has called lloyds manipulation republic henceable. Carney said it may amount to criminal conduct on the part of individuals involved. Yesterday lloyds agreed to pay 323 Million Pounds for libor rigging. Profit has fallen 29 and net income declined missing the average analyst estimates of 470 million. The bank cited concerns about sanctions in russia and conflict in the middle east that could impact projections. U. B. S. Posted a boost in profit for the second quarter. There was a discussion whether relations are russia are affecting the business. Actions taken against individuals, for us, it is business as usual. We are committed to the russian markets. Plenty of expost pose your to russia. Renault is in exception. Even as they rev up european sales. Hans nichols has more on the headwinds on the political standoff over ukraine. How does the russian standoff get factored in . You look at the first half of in russia, down 8 . June, 10 . This morning 10 were the numbers sales will be down this russia and now they are saying it may be an optimistic number. If you think the rest of the year is going to be bad as june, the important russia is their Growth Market where they are expanding. They clearly have a lot of brands and a big footprint there. Volkswagen also has a big footprint. These numbers potentially worse than 10 is pretty devastating and you could finally see some economic and financial impacts for all the geopolitical risks for a european company. I know were big fans of the brand. Take a look at the 2013 and 2014 sales. Obviously they have seen thousands decline in the thousands range there. Other companies that havent really been affected in russia yet, mercedes still up. 19 to be precise. Audi, b. M. W. The luxury automakers dont appear to be affected by sanctions but renault, were starting to see steep declines. Thanks. Rans nichols running us through the risks and the numbers. Lets bring in an analyst at International Strategy and investment. Hans was detailing some of the facts and figures there. They indicated maybe the market is beginning to bottom out in russia. It is down year to date. We are clearly seeing a decline. Lets talk about russia specifically. How big of a risk is there . How big of a risk is there to Companies Like renault, volings en that have significant exposure and would like to expand their footprint . There is no denying it. Volkswagen. Having said that, as you pointed out previously, altima is giving us some indication that we might be diverse. It is very difficult for any car company to make money in this market. I think in the case of renault, though, we need to be a bit careful. Renault has starteded a large scale Restructuring Program of the unit. They brought in a new Management Team and the experience that. O. E. Has had in beau has had in russia, roonl recently he has updated his financial targets. Clearly their specific points, there might be some light at the end of the tunnel. Consumer buying a car point of view, the nuts and bolts level of making the markets the if we restrict technology, does visit a direct meaningful impact. For the time being, lets the biggest driver for the decline, a flies Interest Rates. It makes it much more difficult for people to find or to acquire the car. Really ions really would be the german premium names that have so far done much better than volume guys but if the cap at that time tal restrictions come into force, you might see a restriction there, those who have been able to insulate themselveses from sanctions so far will be impacted. A bigger risk is that a deterioration in the relationship with russia has a meaningful impact on the function of european economies and the story gets worse and worse and worse and that affects consumer sentiment. If you were looking at the balance of risk here in terms of where you would highlight, is that where you would see it . You hit the nail on the head here. We have seen strong volume growth in the first half. Then you look at the volume development, and the selling rate, how many cars have been sold each day. This daily selling rate hasnt really picked up. In the first half of the year, it was easy to show a 8 improvement. The second half of the year, it is much more challenging. The German Market expects the u. K. Market is above levels. We really need to see the French Economy starting to pick up. The Italian Economy starting to pick up. There is not much evidence of that. Unfortunately not. There is a big risk going into the second half of 2014 and 2015. If europe is just oscillating around 13. 3 Million Units sold every year, there is not going to be growth in 2015 and you have risks from russia. It might be in a tight position going into 2015. We will leave it. Thank you. Joining fwruss International Strategy and investment. Stay tuned for an exclusive interview. Were going to be speaking to the c. F. O. Of the french autoparts maker. Well get his take on his exposure to business in russia. Lets move on, though. From italy to israel and the companys intensifying attacks. Fighting is now into its fourth week with more than 1,000 palestinians and 50 israelis killed so far. Lets go to tel aviv and elliott gotkine. Charlie rose sat down with the leader of hamas. What did he have to say . Well, unsurprisingly, he was not giving any ground. He was not accepting the responsibility for what happened. Ing the blame on israel. He is based in gaza while the leadership in gaza sitz presumably underground if not metaphorically then literally. In terms of the interview himself, when he spoke with charlie rose, it is going to broadcast in full later this evening on bloomberg television, he said for there to be any talk of a truce, a ceasefire, israel in his words, needs to free gaza. There are key for the solution, we are actually enemies. E are enemies. The solution starts with International Communities to say to the israeli stop, enough is enough. They ought to compel israel to withdraw. How can i trust my enemy . We had a number of negotiations and the negotiations were and at the same time, the negotiations failed and he pretty much means all of israel because hamas doesnt recognize israels right to exist in any shape or form and said the blame with the current conflict lies with israel. We do not want to target people ill give you an example. If you look at the martyrs, the palestinian martyrs, most of them are however on the other side, they are militants, they are combatants. This is to have morality and the resistance and the immorality of the israeli aggression. Of course israel would say the reason this conflict is happening is because hamas was firing rockets into israel. The latest incident last night were raeli soldiers killed. Elliott, everyone i talk to this tel aviv tells anyway the israeli economy is resilient. That there will be littlefect of for the conflict that is going on in gaza yet the central bank is cutting rates. Read between the lines for me. There are economy is resilient and well hear later on from the finance minister. 4 at the same time, there is no getting away from the fact that there is a war going on in the south of the country and an economy cannot help but be impacted to a degree. They cut Interest Rates and they cited the impact on the conflict of the israeli economy. She pointed at previous conflicts. This is a sird such outbreak of violence in less than six years. It has cut off about half a percentage point off g. D. P. Thats what the suggests we can expect this time around. Also the fact that the israeli shekel remains incredibly strong, more than a 10year high against the euro and around threeyear high against the dollar and Goldman Sachs talking about the next move being unconventional measures such as floor for the shekel. Elliott, thank you very much indeed. We have an interview with the ster coming up. Look forward to that later on in the morning in surveillance. What else have we got coming up in the pulse . Second time lucky. Jamie oliver, were going to ask him what is different this time around. Good morning, everybody. Welcome back. So if at first you dont succeed, try again. That is definitely Jamie Olivers attitude. He ars ago, the unsuccessfully opened a restaurant in hong kong. Today his latest restaurant officially opens there today. Ahead of the launch, manus cranny sits down with the celebrity chef. For hong kong and china, they certainly are a history of very cheap and very, very good. Yes. And that bit in the middle is wide open and i just think also if you look at the general population and kind of how they are earning and working, i think this is a logical realistic relevant thing to do. You know, is the target market indigenous . Is it the tourist . Is it the businessman . What do you think is going to work . It is a great brand. Youre global. I think youll get a bit of expats. Extra love. Tourism always works. Main focus will be on the locals. I think the culture that we have and we have obviously multiple sites. The culture is the only thing that you have. There is only one of me. Tapping into neighborhoods. Making it a reliable neighborhood place to eat and also with the way we structure it per head is very affordable. When you walk in, there is fresh pasta and bread getting made every day. You get those values. I think that challenge will always be the locals, always. Where do we go, if i say ok, this is hong kong. Ive always had this very individual hallmark. Is this the first footprint on a bigger china venture or another step in the expansion of jamie . It is just growing, it is not the sexiest thing in the world. It is a headache. Choosing the right partners and growing at the right space very important. Certainly for myself, there aint no points for rolling out 10 crappy restaurants, you know . We do one, we get it right. I think with our partners of course, they have their mind on it r cities in china and is totally their decision. Ill get to sort of see location restaurants and get to approve it from the u. K. Point of view. Really i think it is about theting them and also is biggest appetite here. Jamie oliver on china. Lets go from food to fashion to feet. It is time for todays the pulse number. 10,000. That is how much a pair of shoe consist sell for. At a time when lvmh are struggling, they are more and exclusive. It is the sort of trading at a shoe store, just a stones throw from the in paris. Inside, the latest pair of mens shoes are being made all by hand. He creme dell creme. It started by making bespoke shoes for high profile customers. O en, cate live blanchett, tennis player ralpha adal wear this extravagant footwear. Three people to and 50 hours to create the specially designed pair. But the brand has also launched readytowear shoes in a large range of colors. Today men accept it more and more. Prices start at 1,500 and up to 10,000 for the best crocodile leather. Piano they would not tell us how many they sell. He wants the brand to remain exclusive. It is a small baby were trying to develop in a healthy way and not force feed him. They sell in london, hong kong, dubai. They are planning more selective extensions. The shoes can really help an ugly suit. Nice pairs of shoes. Ok. Coming up, taking on Energy Storage. Were going to take it to the next level. Were going to take look at the technologies that could soon be repowering the he newables industry. Details coming up next on the pulse. Good morning, everybody. Welcome back. 1. 2 billion have been invested in Energy Storage companies in the last two years. Crease for n the in longer lasting battery power. What is the best way to go . How big will this market get . An Energy Storage analyst says it has been a market that has been incredibly slow to grow but is beginning to grow moment pulmoreform exactly. What is really important now is linking them together. When we talk of batteries, there are so many synergies between two markets. 2. 5 million was invested in those markets. Were talking about lithium batteries that power a lot of electric vehicles and increasingly as the production of electricity goes offgrid well be needing it to store that electricity. Exactly. Essentially these investors are 200,000 g it to go from car sales last year to 1. 4 illion in 2020 and go by ninefold. Is there enough capacity going to be available to generate that level of lit yum iron batteries . Lon musk was talking about megafactories. Well meet the megafactories to make it work. Yes. Elon musk in his proposal, a 30 watt gig power per year factory. This is a huge step up from current levels. Let me ask you, i know you have been asked this before. Is there a risk with lithium iron with russia . When we looked at this, we really dont see a risk from that perspective. Many of the production facilities for lithium are geographically diverse, latin america and we dont see a block there. Ok. Just finally, youre talking about you expect a ninefold increase in this market by 2020. Exactly. Are we talking about what does the growth chart look like . I think were at the low end of an s curve. Coming from a very small beyond that, we see more and more Energy Storage systems. Greater outtake for vehicles. Beyond 2020, the market increases significantly. Thanks for your time. Let me tell you what else we have coming up. For our viewers, it is the second hour of the pulse. Were going to be talking b. P. , r. B. S. Capital markets. Well nals what has been happening with b. P. We have a 10 30 press conference. Were going to be talking about the car sector as well. ll talk with the c. F. O. Well have an exclusive interview later on. This is not going to be on pulse. It is going to be on surveillance. Well have the finance minister wholl be talking to us as well. Yesterday we surprise got a surprise rate cut from the israeli central bank. All of that is coming up here on bloomberg television. It is a very busy morning. Let me remind you as well we have a 10 30 press conference from b. P. Well cover that story for you as well. If you want to join that conversation, im at guy johnson tv. That is where you will find me. Over the next hour or so, a lot of news to tweet out. Well be talking about all of those subjects. We hope you will join us for the next hour. See you in if a moment. B. P. Gets a boost from rosneft. But the british oil giant warns that sanctions could put that relationship at risk. Deutsche bank also says the standoff with moscow could lead to a spiral of sanctions. U. B. S. Tells us it remains committed to russia and the fighting in gaza intensifies. The leader of hamas said the conflict wont end until the world stands up to israel. Hear from him this hour. And israels finance minister speaks to bloomberg tv this morning as well. Good morning to our viewers in europe. Good evening to those in asia. A warm welcome to those just waking up in the United States. m guy johnson this is the pulse. Were in jamie oliver dishes about whats cooking in his hong kong kitchen. Hear from him this hour. Boosts its 2014 target as profits jump by 21 . Our interview with its c. F. O. Coming up. We nguyen the energy sector. B. P. A big story this morning. Profits rose in the second quarter. Ryan chilcote joins us with details. Rosneft is a big part of the company now. You remember when b. P. Had its part and sold its stake and got 12. 5 billion which investors appreciated and got a 20 stake which was great because it was part of the whole plan to access russias oil wealth but the problem is rosneft has been in a problematic spot recently. The company has been restricted from accessing american Capital Markets. This puts b. P. Not directly affected by the crisis but affected. Rectly this is a big deal . Yeah. It is wird of b. P. s reserves, this 20 stake. 25 of production, 10 of profit. But as a financial investment, if you think they got this in b. P. , just that alone is disappointing for the company because now it is already a 64 billion company of which they have 1 5 in. We heard osborne yesterday talking on your show saying were not going sue b. P. Rosneft, however, 50 billion the former investor, a significant part of the it was rosneft that ended up with assets. 50 billion from the russian government. Tim osborne told us he could not exclude they would not go after rosneft because as far as he is concerned, they are part of the government. So that he was point out it could further depress rosnefts share price and then we got the threat of more sanctions today. Lets talk to about the threat of more sanctions. The sanctions are significant or real. Concerned about the financing and the gap that rosneft could have. Concerned about the Technology Transfer which is a big part of wanting to get into bed with b. P. B. P. Has the technology. Rosneft needs it. You put all of that together and the medium term risk is not insignificant. It does look like sanctions are coming. They all were on a Video Conference yesterday. Saying they have to do something. Exactly what. We should expect sanctions from the European Union today. We heard that the United States is likely to announce sanctions after that. In terms of blow back, i think b. P. Is a perfect example of the blowback you can get. First off there is the issue of dudleys master plan is getting to russias resources. One of the ideas is to exploit shale deposits in russia. If they restrict the technology needed to access shale in russia, that is something they are seriously looking at doing today, obviously that hurts rosneft and b. P. The second thing and this is another serious discussion underway today. If the e. U. Moves to restrict rosnefts access to the european Capital Markets as the United States has already done that, raises the cost of borrowing for rosneft. Then it could get much, much messier. Well deal with that now and tomorrow later. Ryan, thank you very much indeed. Ryan chilcote on the b. P. Story and the sanctions story and how they all tie together. The russian story is also a banking story. U. B. S. Has been weighing in on the west. Unless there is a clear guideline coming from her tos, actions taken against individuals or institutions, for us, it is business as usual. We are committed to the russian markets. That is sergio ermotti. Manus cranny joins us now from zurich. What else did he have to say, ma us in . That they are taking in a large amount of money from rich people. That is the good news. The bad news is they are not trading as much as they would like. That is a critical point here. Growth underwhemmed. Good news, they have settled their tax issues with germany. Settling seems to be something that ermotti likes to do to get it off the books. There is that issue with the french and they are not happy about how it is all going. No, we already mentioned it is not a fair know relationship whatsoever with not only the matter in discussion, we have been in discussion, advance discussions about double digit settle identicals. You can see why settledments. It makes no sense if youre related to our settlement with germany which is a much bigger business and also when you make ingslationship with the find so far. I think we will appeal this decision. Which we dont think is fair. We have real inflation in terms of fines and penalties. The americans 2. 6 billion for brady. 9 billion for b. N. P. Paribas. The size of these fines are rising. Can you see the europeans going same road . Well, i would say that to some extent, we are already there. And i think that we, you know, we have been one of the first to recognize the challenge at times for banks. We have not been we are address wrg we can address issues of the past but also on the other end, we will protect the rights of our shareholders when we feel it is necessary. If it is settled first, is that your mantra . It is settled when it is fair and eck equitable and we have to recognize in some cases things went wrong and it is fair to settle. Expenses are dropping at u. B. S. Down by nearly 7 . That is the news. The Investment Bank, even though it is not main driver, actually the Investment Bank beat. Debt and equity Capital Markets doing quite nicely. It is interesting. The authorities are collecting information on u. B. S. And Deutsche Bank. Lets talk about Deutsche Bank this morning. Fixed income has been a big bet. This time around, this quarter, actually, it paid off. Yes. Look, everybody is having a slightly better quarter, when you look at the Investment Bank. Whether he has bet the house or not, he has really laid his marker in the sand as this is a business were going to expand in. This is a business were going to stay in. You ultimately become of Human Capital and of the ability to do the business. To that end, right. Stock costs are falling. Legal costs are falling. Yes, they paid a little bit more tax. Tax is good, they say. Im being ironic. The point about it is year on year, debt within the Investment Bank is flat. Five of the biggest u. S. Players saw their fixed income and commodities drop by 9 . Flat is pretty darn good in this environment. The fundamental question you to ask yourself is this. Are we at or near a trough in Investment Banking . Back to you. Look for other stories follow up. New lines to be cord. That darfur story certainly twoin watch. Ma us in, thank you very much indeed. Lets move to the east. Fighting into its fourth week in gaza. More than 1,000 palestinians and israelis have been killed so far. Charlie rose sat down with the leader of hamas. What did he have to say . Guy, unsurprisingly, he was not giving any ground, not accepting responsibility for starting the current round of fighting between israel and the militant group hamas in the gaza strip. He said until such time as gaza is freed from israeli shackles to paraphrase him, then there cant really be any talk of a truce. We are actually enemies. We are enemies. The solution doesnt start with the solution starts with the communities to say to the israeli enough is enough. How can i trust my enemy . We have v a number of negotiations. The negotiations were of course we can see those negotiations are have come to nothing on a number of occasions just by hopes these lulls in fighting would translate into more prolonged ceasefires. He says all the fighting that is going on is israels fault. We do not want to target people. Ill give you an example. If you look at the martyrs, the palestinian martyrs, most of them are however on the other side they are militant. They are combat apts. Combatants. This is the immorality of the israeli adwregs. Of course israelis would say it started when they started launch rockets in their population centers. A lot of guys im talking to tell me that the israeli economy is very robust. That well see limited affects from this conflict yet today we say a rate cut from the central bank. Join the dots for me. Certainly you cant ignore hat is going on there. Carney said look, in previous conflict, it is it has lost about. 5 of g. D. P. That could be a similar impact now. It depends on how long it goes. The israeli shekel, no matter what they do, reducing Interest Rates to record lows, nothing seems to work to weaken the shekel. 12year high against the euro. Threeyear high against the dollar. Goldman sachs talking about more unconventional measures to come from the bank of israel. Thank you very much indeed. Elliott gotkine joining us from tel aviv. Youll be hearing more from the leader of hamas on charlie rose tonight. Also stay tuned for more on this story. A little later in the morning here on bloomberg television, were going to speak exclusively with israeli finance minister lapid. More coming up on bloomberg tv. Well see you in a moment. Good morning, everybody. Welcome back. Youre watching the pulse. Lets get to our top b. P. Story. Russias troubles mount few businesses have as much at stake as b. P. Were joined by the director of research at oil and gas at r. B. S. Good morning to you. There was a statement this morning highlighting the risk, the potential further sanctions on russia could pose to b. P. How worried do you think mr. Dudley is . I suspect he is extremely worried. He has a right to be worried. I think they are annoyed that were having this morning an overreaction. Lets put this in context. The it is important but it is a couple of paragraphs in a couple of pages of a Shopping List of risks to which b. P. Draws investors attention every quarter. It is right to highlight that. It is a risk but not every risk comes through. On a daytoday basis were not seeing anything in numbers that that suggests an impact on the number of rosneft. The results have been better than expected. Oil companies are uses to dealing with political risks at a very high level. Will he be unworried about this snop no. Absolutely not. The to us is is pretty intense in this business. B. P. Intends its production has big exposure to russia. Russian volumes are around 25 of total prauks but actually what really counts in our view is the cash and the cash is only 3 of b. P. s operating cash. They have just received 690 million which is last years dividends out of rosneft. That was received i think this month. It would be a year before we get the next lot. That is 690 billion out of their total operating cash. So 3 . I think it is one of these things, onor these areas where e numbers are less sensitive than the headlines themselves. The reason why we Beat Estimates this morning, though, was that dividend, peter. And you just wonder whether or not if rosneft were to have a , whether or not that divered would still be there. Whether or not the cash flow story at rosneft would justify a dividend if they couldnt bridge the financing gap. If that were to happen, would you be less inclined to invest . No. At these levels we would be buying for the simple reasons that actually it wasnt it wasnt it wasnt due to rosnefts profitability really. They were 2010 better overall. There was a shortfall in rm. Rm. What drove the result was a 10 drop in the e. P. Business. B. P. Business. What we think is positive is that the volumes in the rust up yearonyear. We highlighted last quarter. That was the First Quarter where we have had yearonyear growth in u. S. Liquids. That was important. That is a positive. The second positive is the costs are actually quite stable. It may be specifics relating to the quarter but also could be something that b. P. Points to as potential early signs of soft some of the benefits of simplifying the benefits. Yes, it is an issue. I think what we have in the market today is a between those people looking at the underlying numbers and like them and are buying and those where the exposure to russia leaves them uncomfortable but their understanding is a little bit exaggerated because they are looking at the production volumes rather than underlying cash. Ok. The stock trade for this discount, why is that justified . Should it be there . What do you think it is based on . You highlighted some of the yause risk. T is a 10 discount. We have it slightly less. Were not renowned for being verly positive in b. P. We think it does of a discount to those companies. Because of the element of risk in a number of different areas and as yet, we dont have quite the same level of beyond 2014 but i think realistly, it is an area where it is still offering upsides to our price torkt which i think is pretty target which i think is pretty unchallenging. But you would rather own it depends on your risk potential, doesnt it . Major risk of the situation here . I have russia. A whole list of things on the table for b. P. The list is significantly shorter for other companies. Total has risks in north africa. Shell has risks in russia. There are it is more of a binary story for b. P. It is more of an obvious story absolutely for b. P. I think the risks are always well known. There will be a number of people who feel that im uncomfortable with these levels. It is not something i really need to own. They are missing some value. I dont think it is something hat has to be a core part of everybodys portfolio but i think there is some opportunity there. There are other companies who are exposed to russia as well. B. P. Is the most obvious. Total is not without exposure to russia. A future project when normally for example they would expect to generate some of the cap exto that from project finance. They will find it difficult to lend to russia. That is an area exposed to risk. Total for example. That is not quite as ok and should also be taken into account. Thanks for your analysis. Great to have you on the program. Peter hutton joining us from r. B. S. Well be back in a couple of minutes. Welcome back. Time for todays new energy top headlines. First solar has agreed to supply 100 megawatts of modules per ear for japan. And Recycled Cooking Oil going to be collected interest restaurants is increasingly. Coming a source of biofuel and italys biggest Clean Energy Company has started building a 50 megawatt plant. It will cost 98 million. Were going to take break asm that have, were going to speak th faurnsias father aurencias c. F. O. You want to join us at 2013 . Be happy to have you along. At guyjohnsontv. Good morning, everybody. Half past the hour. Youre watching the pulse. Were in london. Im guy johnson. Were going to go to paris now because it is time for bloombergs exclusive. Faurecia, the countrys largest maker of car interiors and 52 owned by peugeot. Were speaking with their c. F. O. Good morning to you. Can i talk about whats happening in the western european car mabt market . Your backyard, as it were. We have seen a recovery. Things have started to improve. It had been fairly bleak for quite sometime. Now the situation in russia could slow the situation back down again. Are you worried about that . It is much better as you now. There is a concern that we have a Small Business in russia that anyway, we cannot anticipate that markets would be down by 10 . 10 . Were starting to see some of the Russian Companies pointing to the fact that it is bottoming out. Do you thinks the bottoming out in russia or do you think it could get worse . Talking about 10 . Is the risk to the downside on that number . Aassumptioning are production could be worse. As you know, we are always thinking on the full year but it is a time of. Limited exposure to russia. Ok. Just out of curiosity, from a treasury point of view, how do you manage a situation like this . Do you sweep money back more often . Do you kind of bring money back home a little bit more frequently . How do you work it . Money back, that means today our first to priority to reduce level of ebt. To speak about m a. No, i was really talking about russia and how you run an operation. Difficult to the money. But we avoid to consume cash. That was kind of where i was going with that. You talk about m a. Lets go in that direction. The sector has seen a bit of m a recently with the deal. Do you see opportunities for yourself . Joust talked about kind of next year. That wereebt sector going to see more consolidation from . It was a good we have tove seen have been this we clarify as a business. Us to be in the business. Ok. Just to clarify that so i heard you correctly. Clearly there are a lot of moving parts here. When you look at what opportunities are out there to do m a, where do they come from, if there were to be deals on acquisitions you would make, clearly you have a strong relationship with p. S. A. How do you see your relationships changing . There are too many players and probably players with some financial difficulties. Some close to bankruptcy. The strategy of our customers. It is a flag ship supply. A good example with the Instrument Panel of the s class, this is everywhere. It is why well see what we can do. You let the Companies Going bankrupt go bankrupt and take the business rather than buying them. What is the strategy . No. Usually when you are in bankruptcy, you have already it is not your yet the time for we have first to continue ok. Can i talk a little bit about china . Margins in china have been very, very strong. There is now a champdown by the authorities there in terms of the story relating to important vehicles and pricing. Do you think the Margin Development is going to be a little harder . It is going to be harder to keep margins where they are. Yes, very probably. There will be probably more regulation. So margins will be a little under pressure. Still at a very high level. It is why we are always a little with this we are targeting 7 . We are actively more than 8 . This will be i would say this with the fact that we continue to post ok. So the margins are going to stay elevated. Do you think it is going to be a longterm story or something that is going to be something for the next year, maybe two years and then the situation ill alleviate . The longterm story. That is clear advantage for all the probably one day, it will slow down. But if we take the official figures, we are speaking with respect to Something Like that today,s it is the next few years. It is a very how far through the reorganization of the north American Business are you at this stage . We have said this morning we re closing two plants. We are upgrading the efficiency of the other ones which were iving us problems. Clearly is very good. We continue to ok. Im just going to take you back to western europe. Were not seeing a huge volume increase in terms of sales. On a daytoday basis. Were not selling significantly more cars in western europe than we were a year ago. It remains very moribund. We have a disinflation reenvironment. We have economies that are still not firing on all cylinders, france, italy, to name but a couple. Do you see a situation where western car producers, are going to have to take out even more capacity than were seeing at the moment . How much overcapacity is there in western europe . Clearly ok, we can always omplain but it was up by 6 . Production up by 5 . All the car makers are happier today than two years ago. We see figures 15 to 20 below the time before the risis, 2007, 2008. A lot of car makers are speaking of 75 , 80 . So ok. On that note, that positive note, we will leave it. The c. F. O. Of faurecia. Thank you very much indeed for your time. We are going to take a break. Time for bloombergs top headlines. Bank of englands governor mark carney has called lloyds Interest Rate manipulation reprehensible. Carney said the banks actions may am to criminal conduct on the part of individuals involved. 226 day lloyds agreed to Million Pounds for the u. K. And u. S. s investigation into libor rigging. Tougher sanctions against russia. The latest round aimed at finance, defense and energy. Vladimir putin is doubling down on his support for separatists n Eastern Ukraine. Unless there is a clear guideline coming from authorities about actions taken against individuals or institution, for us, it is business as usual. We are committed to the russian markets. U. B. S. Posted a 15 boost in profit for the second quarter. How is that all playing out in the markets . Lets find out. Jonathan fero. Thanks. Were off session lows. Pretty much dead flat on the dax over in germany. The ftse 100 bucking the trend up by. 2 . Describing it as two opposing force. One force pushing one way. The other force pulling the other. One of those forces is earnings. We have strong earnings. B. P. A 40 increase this profit. The problem is nobody is talking about the increase in profit. Talking about a 20 holding in rosneft and the comments in that report if, new sanctions are enforced, it could have an adversefect on rosneft. What kind of sanctions would impact that relationship and that investment and will we get those sanctions today . The interesting thing tr me, though, is not equities. It is whats happening in the bond market. German bond yields, record lows. That we didnt see at the height of the financial crisis two careers ago. Youre seeing record flows italian. Spanish debt as well. This is a low inflation voorment. 0. 5 expected to be confirmed on thursday. Large redemmingtses in spain and italy. This week alone, 17 billion. 72 billion. That is a lot of money that is going to go back into these boppeds giving them some support. The Federal Reserve meets today. That meeting finishes tomorrow. There is pressure on them to deliver an exit plan. An exit plan in the midst of some pretty serious geopolitical tension. That is pretty difficult, guy. Yes, the fed has an awful lot to think about. There is an awful lot going on. Maybe it will start to make the case for a rate hike a little less hard to define. Talking about the 10year. The bund trading down at a record level. Still to come, the naked chef bares all about his new hong kong restaurant. Our conversation with jamie oliver is coming up in just a moment. Good morning, everybody. Welcome back. Youre watching the pulse live on bloomberg television. Now if at first you doned succeed, try again. That is Jamie Olivers attitude. A few years ago, he unsuccessfully opened a restaurant in hong kong. Today his latest restaurant officially opens there today. Ahead of the launch, manus cranny sits down with the celebrity chef. For hong kong and china, they certainly are a history of very cheap and very, very good. Yes. And that bit in the middle is wide open and i just think also if you look at the general population and kind of how they are earning and working, i think this is a logical realistic elevant thing to do. You know, is the target market indigenous . Is it the tourist . Is it the businessman . What do you think is going to work . It is a great brand. Youre global. People know who you are. I think youll get a bit of expats. Extra love. Ourism always works. Our main focus will be on the locals. I think the culture that we have and we have obviously multiple sites. The culture is the only thing that you have. It is not me. There is only one of me. Tapping into neighborhoods. Making it a reliable neighborhood place to eat and also with the way we structure it per head is very affordable. When you walk in, there is fresh pasta and bread getting made every day. You get those values. I think that challenge will always be the locals, always. Where do we go, if i say ok, this is hong kong. Ive always had this very individual hallmark. Is this the first footprint on a igger china venture or another step in the expansion of jamie . It is just growing, it is not the sexiest thing in the world. It is a massive headache. Choosing the right partners and growing organically and at the right pace is certainly important. Certainly for myself, there aint no points for rolling out 10 crappy restaurants, you know . We do one, we get it right. I think with our partners of course, they have their mind on other cities in china and it is totally their decision. Ill get to sort of see location restaurants and get to approve it from the u. K. Point of view. Really i think it is about trusting them and also speed is not the biggest appetite here. Jamie oliver talking food with manus cranny. Airbus has agreed to drop an order for super jumbos in japan. According to people familiar with the decision, skymark captain afford the aircraft. Malaysian air is facing a slight impact after its sekt second disaster in four months. They said on july 19, they would refund fares to commerce postponing travel or canceling tickets. U. K. s second biggest clothing retailer beat sales growth as much as 10 for the year up from 5. 5 . 9. 5 . They beat marks and spencers in earnings market value. As we head into todays break, let me show you todays hot shots. Extreme divers putting their kills to the test. You wouldnt want to get that one wrong, would you . Well leave you with these pictures. Welcome back. Youre watchings the pulse live on bloomberg tv, streaming on your tablets or bloomberg. Com. Lets talk about whats happening with the russian currency this morning. The dollar has continued to climb. There is the picture as we find ourselves this morning. Rading at 35. 7086. Were looking at sanctions a little bit later on. How will that affect the f. X. Markets . Watch very carefully to see what the story is. The russian story has many tentacles and is reaching into a number of different areas. Ryan has been covering them. Ryan chilcote joins us now. The boss of b. P. , bob dudley is probably expanding on some of the earlier statements that were made. The earnings were mostly good. Investors welcomed that. There was a little bit of a pintsized warning in there for investors. We have a relationship with rosneft. Rosneft, russias largest oil company. We own 20 . If sanctions increase, that could be bad things for our business and relationship with rosneft. Obviously the journalist if that room at that press conference is going to want to know a lot more from bob dudley. Lets talk about what investors are in bruss wilson going to want to find out. Their farrest reaching sanctions yet. Were expecting this an announcement of some kind of sanctions for the European Union later today in addition to another round of sanctions that were expected to get from the United States. President obama spent the evening in a Video Conference with the german chancellor, the british prime minister, the french president and the italian prime minister. In addition to that, we have to see how the russians will act. They said they could ban american poultry shipments and fruit from europe. On the s actually ground . The fighting is raging today. The ukrainians said they have lost 10 soldiers over the past 24 hours. At least 50 injured. The crash site, still an active crash site. There are still remains on the ground in Eastern Ukraine that australian and butch police want to recover and dutch police want to recover and they cant get to the site because of the fighting. One of the things that is going to profell e. U. Into action today because they told president putin he must use his influence. They believe he has the influence necessary to give them access to that site. They dont have the access. They will probably react as a result of that. The u. S. Early this morning or late last night saying u. S. Time saying that the russians have violate the strategic arms treaty from the cold war era basically calling them out on that. Things are really spinning out of control. Well leave it there. Thank you very much indeed. We have a lot more to tell you here on bloomberg television. We have some great guests coming up. In surveillance were going to be talking to israels finance minister. That is an exclusive interview. Yair lapid will be joining us. Yesterday we saw a surprise rate cut from the israeli bank. We are in the process of a twoday fed meeting. That will conclude at 7 00 tomorrow night. See you tomorrow. Have a good afternoon. Quakes israel increases the tax on gaza. Benjamin netanyahu speaks of an extended military campaign. Europe and the United States compare for tough sanctions. Biotechle is upon us in and internet software. This is surveillance paying. We are live from new york. Joining me, adam johnson and olivia sterns. Lets get to our morning brief. Quakes bond yields have fallen to their lowest ever. We will get some sort of press release tomorrow. No one expects any significant change. Economic data, the home price index. Consumer confidence at 10 00. Im giving it the big ones. Twitter