Transcripts For BLOOMBERG The Pulse 20141112

Welcome to the pulse. We are live in london. Im guy johnson. I am francine lacqua. Lets get to our top stories. 3. 3 billion. Regular dinners regulators banks 3. 3 five billion dollars to settle a probe into Exchange Rate rigging. Great to have you on the program. Give us a sense of how much this was actually expected. We published of 2013 that outlined problems with the benchmark, the focus of the fines today, and suggested that traders were regularly communicating ahead of these fixes. They were aligning their positions and attempting to manipulate the fixes. Here is more detail if anything is more egregious than anticipated, interested banks to work would Work Together to rig benchmarks to maximize their profits. It is the same old story in that respect. One name that really stuck , that was being there barclays. What is going on with barclays . It is a bit of a moving feast. We were under the impression that barclays was going to settle. Something changed recently. An interesting point of comparison to libor. Barclays was the first to settle over libor. Bogged down as a result. It is an interesting dynamic. We are not clear why barclays wasnt part of that settlement. We expect barclays will be fined. So this is basically just a first wave. We are going to see a second wave of fines. Do we have any idea when they may come . We are expecting further finds today when the u. S. Markets open. Perhaps more worrying for the banks, criminal investigations going on by the department of justice. They have taken a deep look into the problems in the Foreign Exchange market. They go beyond fixes to bad practices in the market. Not over for these banks. Pains tonks are at point out the dismissing of the chief fx guy. This, but clearly there must be some relationship. I think they are being slightly cute. The reason he was suspended seems to be related to his failure to escalate up the chain his concerns about what was happening in the Foreign Exchange market. He wasnt directly involved in manipulation. He wasnt aware of any conversations but he knew there were these conversations that went on. Apparently he knew that they could lead to collusion. He did nothing about that. Liam, thank you so much. Liam vaughan continuing to watch that story. Lets take you to the fda. They manipulated the market or attempted to manipulate the ofket and abused the trust the public and us as regulators. The banks failures to establish systems of control are what allowed traders to manipulate fixed rates across currencies and failings like this undermine confidence in the market, and undermine attempts to genuinely reform banking culture. I dont want to sit here in two years or three years with another press conference with another major failing in the market. The Industry Needs to get it right quickly. The fines announcing and settlements today, we are mounting a Remediation Program for the other banks who trade in the fx market. That will run right across their systems. Crucially, we are asking the management of these firms to a test that action is being taken. Because it isant important that there is individual accountability. Senior management must focus on these specific issues and see the need for change. Leads to several reviews in terms of managing risks associated with benchmark manipulation, how they handle information, how they manage interest, and the reviews are integralinternal to the work of our remediation. The fca will play a leading role in the global reform of benchmarks. That is something we have led through europe and the fsb. I will continue to play a major role in the markets review, which is a forwardlooking review, trying to get ahead of problems within a range of wholesale markets. Conductt firms to put and their consumers at the heart of their business. To taketo stake responsibility for the cultural weaknesses that make the problems. We are playing our role in trying to increase financial services. Responsibility for conduct lies with each individual firm and its staff. The industry must prove it has changed if it is to regain the trust it has lost. We will hold it accountable if it fails to. Thank you very much. Thank you. My team have brought some microphones to make sure we could catch you. Hello. Two questions. The banks that havent settled in this round, can we expect to see greater punishment for them . To aere any advantage first settlement brown . Secondly, does this represent the worst offenders or are there worse to come . The settlement we have reached today with these five , we have said in our press release, these are the firms where we found the worst misconduct. Other firms will put their systems in order. It is not speculate possible to speculate what the outcome will be from any settlement that might happen. Is there a way of estimating how much profit banks made from this . Found is that the systems controlled failing gave rights to control markets on various dates. Sometimes that would have been up or down. That isity to quantify not really practicable and is not something which is necessary to the purposes of our case, which is around the way in which those trades were controlled. Whether theto know fca will continue to work on criminal and destinations against individuals. And whether you have also uncovered evidence of criminal activity among traders. They are conducting a criminal investigation. We dont think it would be appropriate to speculate on where that will conclude. In terms of the fcas fx trading is not a regulated activity. Our jurisdiction comes through our principles. We will be looking at individuals to extend they are within our jurisdiction. They will be subject to ongoing investigations by the authorities. Thank you. What do you make of that bank shares rose this morning . Secondly, barclays, will they be eligible . Markets dont like uncertainty. We see that constantly. Whenever there is an issue that is unresolved, markets tend to mark that down. Once that issue is resolved, people take a judgment. Much of the information about this was already in the market. Of the the confirmation stories that have been out there is why the market responded the way it has. Discount, we have a very formal discount fee which is set out in hamburg. If you settle in stage one, the earliest stage, you get a 30 discount. Discount 20 or 10 depending on which stage. We will be on stage one now. We are going to leave the fca press conference there in london and switzerland. Also holdingulator a press conference answering questions on its involvement with the five institutions, a story that continues. Bloomberg will be at the forefront of reporting on it. Now from forex fines to the bank of england to the british economy. John bolton joins us now with his perspective on the news driving todays agenda. Great to have you on the program. We have a lot to talk about with what you see in the private equity business. Talk to us about the banking industry. This is a crisis in confidence. Is it going to her trust . The oddhave been fined billion or two now and again. Seems to have very little impact on confidence. The massive levels of corruption we keep seeing time after time, we see the same names in the banks and yet we are not seeing the victims of the humans who did these things. We have an announcement that one guy at the bank of england has been shot for apparently knowing something about it. The people who did it, i havent seen any announcement that they have been rendered not fit and proper or anything. The lead up to this event has seen a number of i dont know of any others. Barclays have obviously multiple investigations. The banks play a pivotal role in the european economy. What do you make of the Regulatory Framework in which they now operate and whether or not that is positive or negative to the economy . Does it him pete credit flow . We rely so much on these institutions. We need them to deliver funding to the real economy. We absolutely would need more effective regulations. Nevermind the events we have been talking about. This is not ancient history. It is postcrisis. We saw that earlier with some stuff in barclays a few weeks back. It is needed that the institutions become simpler to manage. They are so complex that Senior Management cannot effectively manage. Setting up risk and Compliance Systems of great complexity is to aely they should very large extent. We want simple banks. We dont want complex banks. We is who . The person down the street or regulators . We, being human beings, would like simpler banks. We would also like simpler banks from the viewpoint of the economy. They are more efficient. With thenothing wrong split between high street and casino as an idea. The entities that could be allowed to fail, where you could hammer people for doing things youeally very hard cant put barclays are hsbc out of business for doing things which are terrible. This opens up opportunities in terms of Internet Banking, in terms of offering a new way of doing finance. Suchm investing in several things in that area. Internet banking, Funding Circle, crowdfunding, these are absolutely tiny compared to what the banks do and the role the banks have in the economy. We do need more models but we still need this simplification of the banks so that they become manageable and regulate a. Regulatable. understand what goes on in these banks. If we have competition for these banks, we would be in a situation where it would be easy to hammer them. Do you think that regulators and the overall the treasury and other such institutions are giving the kind of models that you are proposing enough regulatory freedom, enough opportunity . In the u. K. , the only one i know a great deal about, the regulators are much more open to new models. There is positive encouragement to getting these things going. Five years ago, they said it might take three years to consider it. Now, such things are happening in a matter of weeks. There is progress. But this wont go away. Until you end up with the split being very aspect of effective the between high street banks and casinos. It absolutely should be done. It keeps going bloody well wrong. At least you know that our deposits, the money you have in the bank, is safe. It does appear to be the case. Disruptors,rn with dont havenks, you enough regulation to ensure that is the case . I dont think there is any reason to believe the Internet Bank would have any less security than any other bank. Most regulators have determined that depositors dont lose but funders can lose. That is a sensible thing. The problem is there hasnt been much loss inflicted on the funders of banks. A lot of them have lost value but there hasnt been real pain. If you have numerous banks and you allow failure to occur, regulation would be less necessary. Do we need a marketbased approach to funding small and mediumsize companies . We rely on bank capital excessively. Is the focus on the banks the wrong one . Should we be beginning to move the banks out of the occasion equation . The opportunities that are out there for Equity Funding with small companies, very good idea. A bank cant economically lend 200,000 pounds, whatever it tells you. The total margin over a year might be 10,000 including all the fees. This is them being looked after by people who are well off. It doesnt make sense. They are not economically interested in small companies. You need different sort of entities. Lower cost, simpler entities. You are involved in crowdfunding, Internet Banking. What do you see as the big moneymaker for you . I think the crowdfunding will the Funding Circle is a spectacular success already and continues to grow. How big can it become . Of a few billion. It cant be hundreds of billions. Howdy you feel about you need simpler banks. We still come back to the banks. It is not going to be more broad. Readve you ever tried to the Bank Accounts . Most of the directors of the banks havent. It is impossible to understand. There are footnotes written in what might as well be ancient aramaic. Nobody can control them. Simplicity is desperately needed. The opposition to it is high because there are so many vested interests. But the damage keeps coming. What we have just seen this morning would be 10 years ago inconceivable. The ceos of all those banks would have been gone this morning. Now, nothing. You are talking about riskbased reviews and similar stuff. How much of this is impeding the economy . There is money being lost. That is extra cost being inflicted on the economy. That cant be good. Does it result in more money available to the economy . No idea. But we dont need to operate a corrupt system just because it generates more credit. An honest estimate that generates adequate credit. You are quite harsh in your words. Is there a model or a bank or a country that is doing it better . Canada would be a very good example. They are actually simpler, betterregulated, you can follow their accounts more easily than you can one of the monsters in the u. K. We will leave it there. With us. Ton staying what else is on our radar . England governor mark carney will hold a News Conference at 10 30 a. M. U. K. Time. He will answer questions on the central bank and inflation. We will bring you those comments right here on bloomberg television. Reported a 12 drop in earnings as currency fluctuations weigh on margins. Shares are currently down about 2 . Sainsbury is forecasting a drop in profitability. They are trying to improve the quality of brand items to combat mounting competition. Coming, cops on camera. A picture of whoever uses your smartphone once it goes missing. Expecting guy johnson on there. He sometimes thieves my phone. We will speak to the companys cofounder. There he is. Right, lets take a break. See you in a couple of minutes. Good morning. You are watching the pulse. We are live on bloomberg television. Now, as governor mark carney gets set to prevent present the Inflation Report, he is also marking 500 days at the helm of the bank of england. He has made a number of changes. Tom mckenzie takes a look back. Mark carney became governor of the bank of england in july 2013. He replaced mervyn king who reigned for 10 years. Improving overseen an u. K. Economy. He introduced forward guidance, giving consumers and businesses confidence to borrow. He has held Interest Rates. Saying they may rise next spring. Carney initiated Bank Stress Tests to see if lenders could withstand losses, making the second or more transparent. He is current chair of the International Financial Stability Forum and has proposed that if a bank suffers losses, its shareholders should bear the brunt, not taxpayers. Carney put jane austen on the 10 pound note, showing his love for british literature. And he canceled an annual cricket match at the boe summer party. Maybe hed prefer ice hockey. He was a goalie in college after all. Are going to bring you mark carneys Inflation Report in full in just over an hour here on bloomberg. Make sure you tune into bloomberg tv. Packs dont want to miss that. Lets check in on the markets. Of course, let bank of england Inflation Report, one of two stories dominating the news. The other is the thinking process. Five banks ordered to pay 3. 3 billion to settle a probe into the manipulation of benchmark an exchange. Wish industry is living is . Thanks. Which industry is the biggest loss. It is banks. Im going to switch over to fx and show you how sterling is trading in the u. K. Session lows, 1. 5897. We are looking for 5. 9 on the Unemployment Rate. Everybody will be looking for wage growth with cpi at a five year low. Of course, growth. Will we downgrade growth forecasts for next year . I will leave you with that. Thank you so much. Jonathan ferro with the latest on currencies. Are going to talk to one of the cofounders of a Software Company that promises to make your money go further, no matter how much you make. Jon moulton will also be joining that conversation as well. He will be up in a moment too. Welcome back to the pulse live from bloombergs European Headquarters here in london. We just had data coming through from the u. K. Average earnings better than expected. 1. 8 was the expected rate. The jobless rate, pretty much exactly as the market anticipated it would be. The pound has a little bit of a pickup. We will see whether that has momentum. We have the Inflation Report at 10 30 right here on bloomberg tv. Now it is time for bloombergs top headlines. American, british and swiss regulators have ordered five banks to pay 3. 3 billion to settle a probe into manipulation of benchmark foreignExchange Rates. Ubs was hit hardest. Citigroup was ordered to pay 668 million. Rbsfinal banks, hsbc and and 534 618 million million respectively. That is real money being paid out by these banks. Welcome to 2014. There is still more to come. Saying, if we was were finding anyone millions even six years ago, it was considered real money. The u. S. Shale boom creating multiple challenges according to the International Energy agency. It says that conflict in the ukraine could threaten this supply to oil markets. A barack obama and xi jinping announce a joint arrangement to fight Climate Change. The u. S. Agreed to cut l below 2005ases levels by 2025. For the first time, china agreed to a target. Obama called the deal a major milestone. Lets talk the future of fin tech. We are looking at a Software Tool that promises to manage cash flow. Ofning us is the cofounder the Company Behind this financial concierge and jon moulton is also back with us. Thank you so much. Welcome. Ise me a sense of this for me, for guy, to keep an eye on your finances. It doesnt actually save you from bad decisions. We have realized that financial distress is a large problem. We have seen that come through with the proliferation of payday loan markets as well as unauthorized overdrafts. What we are doing is saying, the solutions are out there. Financial education, teaching somebody to budget, is more like a new years resolution. It is exciting for a couple weeks but then it dies off. It doesnt stick. We started to come up with a solution that taps rectally into somebodys payroll to provide them with simple and intuitive saving and budgeting tools that are sustainable. Employers trying to push a solution that they have a vested interest in seeing the success of, because it costs those employers as well. We will talk about your trip coming up next year in a moment. You talked about needing to get more companies, needing to get embedded into the big institutions. How much progress are you making in embedding yourself into these companies . What do you need to take it further . Progress has been positive especially on the back of the event and winning a wired 2014 event. A lot of what we are doing is making sure that employers know they can take a more responsible stance with regards to addressing this financial distress. We are having some highprofile conversations with employers that has come through from the duke of york and we are really grateful for that type of opportunity. We are grateful to capitalize on what we are seeing as a game changer. Any opportunity to get the message out has helped. Getting inf vodafone touch and saying, we would like to look into the potential for a limited trial that might be expanded. That is great for us. Jon, we were talking about fin tech, the need for a lot of banks to be more simple. This goes back to financial literacy, speaking in plain english. Would you invest in Something Like this . Who pays you and how much . First thing is employee benefits. Subscriptionloyers fee per employee on annual basis. 10 pounds. Around one pound a month. Second, we are looking to save people money on their bills by negotiating the best deals. A lot of people out there especially within the 15,000 to 25,000 salary bracket dont know that they have a choice. They take it for granted that the providers are doing right eye them. There is also the ability to switch them to better providers and take the acquisition cost. A few things before i feel an urge to get the wallet out. Principle, you would like to see more and more. It is basically just giving you the possibility not to be concerned with it goes back to fx regulations, things that people just dont understand. Linking budgeting with direct payment, that is not exactly a novel concept. Angst offer those kinds of services themselves. Not very successfully on the whole. Some employers offer similar things. Like you it sounds might be able to make some money. Essentially, switching the payments from one Utility Company to another and charging an introduction fee. It is also a third party. What people trust it more because it doesnt come from the employer or the bank . I think that is the most important challenge. If people see that he has the ability to switch their money from one lot to another lot, they have to believe they are Getting Better value. What do you think you could save for the average person . Between 500 to 1000 pounds on an annual basis. For some people, especially on the lower end of the income tax from income spectrum, we are talking about a 10 rise off the bat. We are saving you money that is going to change your life. We are also going to nudge you toward better savings. We are suggesting that once those savings are made, they are put towards a savings goal. It not be people that would already be budgeting that would be attracted to your offer . Lets say im quite good at budgeting or i want to save up because im concerned about my future, my kids. I go to a squirrel because i already do that and just one a better way. It is a combination for both. People who are already budgeting and interested in a more effective solution to budget or manage their finances, and the other side is people who havent had the capacity or the ability to budget. Say, the bill management tool, we are taking we are sending the bills directly and negotiating on behalf of the people who are part of the system. That will start with the negotiations on an individual basis. Could you get them a better savings . It is Group Buying Power that comes into play as well. Being able to say, i have 1000 to 5000 people. Give me the best deal for them. There are companies that do similar things. If your target is 15,000 to 25,000 a year people, if you save them 200 quit, you would be hearing remarkably well. Think about the people who have been with the same mortgage provider for five to 10 years. They dont have access to certain benefits. I think switching mortgages is beyond simple fin tech. Require a large comparison site with large costs involved. There are huge considerations over what is appropriate. You are competing with banks, mortgage providers, in the most fiercely competitive market there is. I wish you well but that is hard work. Would it be in the execution . One of the things we talk about is that we have inventors or people with great ideas which may not seem like an amazing ideas but it is all about execution. Look at airbnb. They are just perfectly executed. They capture market share. What youve got here is something which is complex and there are going to be fairness issues about switching between suppliers. There are going to be discussions about what is the best price. Just take Something Like your mobile phone. There is probably 6000 packages on the market for you to pick and choose between. You can certainly guide people towards that but there are companies that do that for a fulltime living. People,issue is for the they might not know they have that choice. The people we have done user testing with dont even know they have access. That is why a partnership with those entities is going to come into play. The point you made with regards to mortgages, we are not going to do that ourselves. We are going to refer them to a better provider. Check withus in regards to the providers we can put in front of our and user. But it is notnse going to be at all easy. We are running out of time. They will carry on talking. You go to silicon valley. Is that timeout . That is going to be extremely useful time. We are building connections, getting to know the right people in the fin tech sphere as well as the technology sphere in general. We are talking to investors who might have insight. For us, there is an agenda already coming together. It is a game changer for squirrel. Luck. D very quickly, do you budget . No, i just spend a lot less than people do. [laughter] my wife is in charge of spending. Spending, not budgeting. Thank you so much. Now, if you worry about your mobile phone being stolen, stay tuned. Our next guest has an interesting solution, an app that tracks down mobile phone thieves and lets you take a look at them. Stay with us. Welcome back to the pulse we are spending more and more time on our smartphones. Phones themselves are getting more valuable as a result. We areerce grows, storing personal data, financial data, things you dont want to lose or have stolen. Attractive target for thieves. A new app will help you track down your stolen phone by taking secret selfies of the person involved. Lets go to Caroline Hyde for more. Lets first bring in the cofounder of lookout, kevin. Thefty as about the you have dubbed it. Say a rogue such as guy johnson decided to steal my phone. What does your app do . Thing that happens is, somebody steals your phone and they want your data, the thief will probably enter, and pass codes. First, hopefully you dont have those as your actual passcode. If you have lookout installed, we try to predict if your phone is stolen even before you know it. The phone will take a picture of the thief and email it to you. So here it is, guy johnson stole my phone. This is what it might look like. Guy took my phone and tried to remove the sim card. The phone takes a picture of whoever is looking at it. What do you do with that photo . I could get guy johnson in trouble . Two cases, one it is a coworker trying to sneak into your phone and you might have an awkward conversation. A number of people have turned those photos into the police. Times, people who steal phones are known to the police in the local area. It is a tremendous tool for police. It has gone wild on social media. One thefty being sent around facebook 100,000 times. Now i can track the potential thief a little better. Talk to me about privacy. , doesnt seem to go by where we have another hack , another malware affecting apple users last week. How are these trends changing . Now we can make transactions on our phone. Your phone is a computer. Host people dont realize that. It can do everything your computer can but it goes everywhere with you. Both cyber criminals are taking advantage of this too. As well as seemingly legitimate applications that might take more data than you are comfortable with. People, it is confusing to understand what data is being taken. At lookout, we have done several things. Badave protection to stop applications from stealing your data. We also have tools to help you identify if there are Advertising Networks on your phone that might he taking data. Our job is to make it so you can use your phone for business or pleasure comfortably and not worry about this. Talk to me about the business. We are all bringing our phones to work. I want to be able to access bloomberg. Match that . What are you offering businesses . Look at facebook at the same time im accessing business emails. Is there a problem . Businesses want you to do anything anywhere. The advent of mobile devices is important for businesses. It wasnt long ago that everyone was carrying their blackberry. Of access to email everywhere is necessary. The problem is that people also want to use that same phone for personal use. That creates a big security problem. Apps, past, we disabled even turned off the camera on your business phone. Now you have to allow personal apps on the same phone as your sensitive corporate data. Many enterprises were asking lookout to bring our protection into the enterprise. Enterprise product that can allow people to use their phone with freedom but also make sure the enterprise is protected from attacks from common cyber criminals and state security terraces services. Thank you very much. Kevin, it has been great having you on. Cto and cofounder of lookout. From air miles to major milestones, the Worlds Largest leaders pledging new carbon cuts to fight climate canes Climate Change. Details coming up after the break. See you in a moment. Welcome back. You are watching the pulse. We are on new energy today. Biggest polluters, the u. S. And china have agreed on new carbon cuts to fight Climate Change after months of quiet negotiations the between president xi jinping. Lets bring in new Energy Financial analyst nathaniel. But could have been more the fact that these two have agreed something is hugely significant. What is covered here . It is quite significant. You are talking about two 40 ofes that produce the worlds Carbon Emissions agreeing in principle to cut emissions. In the United States case, down to about 28 below where it used to be. In chinas case, to reach an absolute cap, to hit a peak and decline from there. Also to guaranteed 20 of its primary energy to come from renewable energy. This,ou make moves like even on a percentage basis, it is really quite something. How did this deal, about . We have been talking about it for a long time. What was the clincher . It is a good question. What strikes us in looking at it is that it seems to have taken place directly with initiation between the two leaders. With a letter from president obama to president xi jinping and then nine months of quite quiet discussion back and forth. Xi jinping did not make it to the last u. N. Climate summit. Obama did make it there. There was speculation that maybe there wasnt an agreement happening. I think what we see is alignment between two countries that seek benefits, economically, socially, certainly environmentally, in making some kind of cut to Carbon Emissions. Very different economies in some ways. Policys of an acting the that is going to lead to these targets being achieved, probably a very different problem for each of these countries. If we look at the United States, it is starting this transition away from fossil fuel intensity already. This is happening because of retirements and coal plants, the introduction of modestly priced natural gas, renewable energy, and also because of efficiency in an economy that is not nearly as industrial as china. To a large extent, the United States has sent most of its heavy manufacturing overseas. A lot of that goes to china. China is the Worlds Largest. Roducer of output items aluminum, cement, manufactured goods. It is the Largest Consumer of coal and it is still growing. It is on a growth path of 7 plus. Industrial economy plus that growth rate means when you make changes, you have to change what you have now and grow at the same time. We are looking at Something Like 1000 gigawatts worth of new clean energy capacity. In addition to all the changes that have to happen within these heavy industries and transportation as well. Nathaniel, thank you so much. For those listening on bloomberg radio, the first word is up next. For our viewers, a second hour of the pulse. The bank of england quarterly Inflation Report. The press Conference Live here on bloomberg television. We will bring you that live and in full. For a preview, we will speak to rob wood. In the meantime, you can follow both of us on twitter. Whats u. S. , u. K. , and so with andlators left, u. K. Swiss regulators look into eight probe a probe. A deal on Climate Change. New carbon cuts. Good morning to our viewers in europe. A warm welcome to those waking up in the United States. This is the pulse. Live from london. Ne ise 3. 3 billion fx fi the story we are talking about. Regulators have find banks a banks a totalned rigging. Illion for fx a lot of what we knew today had come out. What did we get today that we did not already have . There are lots of juicy details and hard evidence of what we had always suspected. Up ahead ofed he bench key benchmarks to place bets and reach estimates ahead of those benchmarks. The casual way in which they manipulated and a benchmark was used for trillions of dollars of Pension Funds and others around the world. You originally broke the story. Talk about the high fives. There are references to lets whack the clothes. They talk about tag teaming. They refer to themselves as the cartel, the mafia. They have nicknames for each other. It was a very kind of cozy world. A lot of these guys have known each other for many years. They switch firms, but maintain relationships. A cozy world comes out in the transcripts. The bank of england has also made changes and its personnel as a result of this. Draw a line between what we have seen with the banks and the bank. How did these two pieces of news fit together . Years, thereer of would be regulatory things between officials at the bank of england, including the chief dealer, and senior traders at the various banks. They would meet at various restaurants are various banks and talk about developments in the markets. Various banks and talk about developments in the markets. Hey told him how they operated they were aware that there were benchmarks. That was put to martin mallette. He was seemingly aware that this move tolematic or could collusion, but he did not do anything about it. In terms of the actual banks is that therence fines are quite a narrowband. Narrow bend. These are breaches of controls and failure to scrutinize behavior and therefore they are all equally guilty of failing to scrutinize behavior. When the department of justice comes out, i think the fines will be more graded based on who has done the worst. Is that why barclays is not on this list . Because the fines are fairly uniform . And they see themselves as having pursued something of a lesser degree and they should be paying the fine in that narrow band . I understand that that is not the case. Barclays was ready to settle. It seems like something changed very suddenly that forced them to pull out. There are reports that it relates to regulators in the u. S. It was made a virtue that they came out in front of all their competitors. If i was barclays, youd want to be part of the pack. You dont want to be the one bank that is going to be the focus of the news stories when this emerges again. So we are expecting a second wave . Four regulators are expected to settle today. There are a number of others around the world. The criminal authorities are looking into this. They can impose real sanctions or force people to go to jail, the real serious stuff is still to come. One of the reporters that originally broke the story in july. June. Last june. What else is on our radar . A forecast in secondhalf profitability at sainsbury. They are trying to improve the quality of their own brand items. Obama. President barack and the chinese president have announced a joint agreement to make new efforts to fight Climate Change. The u. S. Pledge to pledged to gas emissions and for the first time, china agreed to set targets for capping its emissions. The u. K. Unemployment rate stayed at 6 in the Third Quarter and that is a sixyear low. The labor market continues to improve. The u. K. Inflation report will be out in less than half an hour. Welcome to the program. Focused of this will be with the fx probe . Not very much. You are absolutely right, there is a lot to talk about in the economy and with Interest Rates. A lot has changed in the past six months. That is pretty important. The data we have had this morning are interesting. The tell us that the Unemployment Rate is down, well below 7 . We are seeing wage growth beginning to pick up a little bit. The u. K. Is ticking along quite nicely at around 3 . What are we going to hear today . They are very likely to lower the nearterm inflation forecast. Inflation is running well below where they previously saw it. There has been plenty of slightly softer news over the past few months. There is no pressure for rate hikes right now. Im looking for june. I think the bank will probably say, next summer for rates. All of this nearterm stuff about inflation is not really where the focus should be for rates. Sterling is down. , lot of the downside effects falling prices as to consumer stimulus. Adds to consumer stimulus. I think we could quite quickly talk to return to talking about rate hikes. It does nothing like anything is going away in geopolitics. It had seemed that the conflict in ukraine was frozen. Reports say it is stepping up again. Im not going to predict what happens, but if it escalates downsideat is a big risk. If it remains frozen or freezes again, we can return to more normal service. That is a key to what is happening in germany. There is nothing fundamentally weak there. It is mainly to do with geopolitical tensions and what happens there is key. We are going to take a very short break and come back. , you are looking at i live shot coming from the bank of england right now. Mark carney will present the Inflation Report. We will bring you that live and in fall on bloomberg. Welcome to the pulse. Lets get some company news. Costello needs to focus his message on how the company has built its Digital Advertising business. He is under fire after investors question the slowing advertising growth. Ninemonth sales of nearly 500 Million Euros for moncler. They are looking to expand their brand and retail channel. Ferrari is being spun off to raise capital for an innovation business plan. The ceo is not planning how much it will raise. Anytime i tell you about value today, it is going to change. The conversation with most of the bankers who are talking to us, the one thing i know for sure is that we are going to get a lot. The best thing for sure is just going to wait is to wait until we go public. Lets see where the pound is racing ahead today. Sterling is very much in business in advance of the quarterly Inflation Report from the bank of england. We had data a little while ago. We are starting to see a pickup and wages. In wages. That is something we had talked about, some wage pressure beginning to come through in the system. Unemployment at 6 , pretty much as anticipated. Lets continue the conversation in advance of the report. , this seems to be the pivotal factor for the bank of england. You talked about a summer 2015 first rate hike. Impact ofs that the the eurozone story will have going from there. It is really important. Particularly the slowdown in germany as a key in growth risk for the u. K. It is one of the things delayed rate hikes. Factor there. The longer the eurozone remains weak, the slower rate hikes are going to be in the u. K. Take up sexier as the federal stimulus from the artwork we think it starts to pick the gradualr with stimulus from the ecb. I dont think of sterling as the biggest deal for u. K. Exports. What happens to foreign demand, particularly eurozone, is a bit more important than the currency on its own, but clearly it matters too. U. K. Elections coming on. The big one. [laughter] it is going to be a big deal. If you look at plans they areives have, talking about a fairly aggressive path toward deficit reduction. What impact do you think the election process will have on the rate story next year . It is just another big event risk right now. Are hard right now. It is hard to choose who will be leading. The bank of england decision in may is shortly after that decision. You get a close result clear result, it will not affect that. If you dont get a clear result, it may. It is a key event risk. Forward, you have some slightly different austerity plans. That will margin matter to the margin of the bank of england. Do you have models of what happens if the u. K. Were to leave the eu . People say it is a little bit too soon. Personally, i think it would be a significant downside. Regardless about what you think about the longterm impact, which i think it would be negative, the disruption leading up to any vote and after it, would be significant. As they run through 2017, i think it will matter a lot. That is one of the big event risks not one that i expect to happen, but a big one in the outlook for the next couple of years. Here really on a nice edge , 1 around december. I think it will remain roughly around that level for a few months. What kind of metrics are you using . Prices. Ve weekly petrol that helps. Food prices is a big uncertainty. That is dragging down at the moment. There is plenty of uncertainty about where it goes. The key thing for the bank of , we can flesh and for 12 months weak inflation for 12 months. But the key question is, how much drops out . Youhat is the one thing will be watching out for in this Inflation Report . The one thing i am looking out for is any indication of how they look at falling unemployment against wage growth. Wages are showing signs of life. Wage growth remains pretty weak. If unemployment goes to five and wage growth does not move, what are they going to do . A lot of settlements happened toward the end of the year. We get a big pickup in january of next year. If you get a big pickup and wages, how could that change the model youve got . I think the bank of england would react fairly quickly. We have to approach this cautiously because wages are not likely to pick up dramatically. See slightly stronger settlement data. As long as inflation remains low and growth risk downside, i think it remains for the time being. ,f unemployment goes to 5. 5 are they going to be comfortable with rates at a record low . Are they literally waiting for wage growth to pick up . Moment, how mario draghi is coming under increasing pressure to be clear on the message, mark carney seems to have this under control. Are the markets pleased with the fact that he is understandable and he communicates in a clear way . I think possibly the opposite. Im curious. [laughter] i think the flipflopping that is a harsh way of describing it. [laughter] unreliable boyfriend. I think that has hurt confidence in where he has said where rates are heading. Can reallynk you doubt his desire to hit the inflation target or to see the u. K. Growing. Can he tell us where rates are going to go . No. Thank you so much. Unreliable boyfriend. That is harsh. Not my words. Harsh. [laughter] weve been going out for mark carney with 500 days. Today is his 500th day at the bank of england. We will break down some of the key changes he has made and he is set to release his quarterly Inflation Report. We will see you in a moment. That was mohammed al a erian. We have been looking at the theme of risk in our economy. Risks. The carney will present inflationgland report. He is marking his 500th day at the bank of england. Mark carney became governor of the bank of england. He replaced mervyn king who reigned for 10 years. Mark carney has overseen and improving u. K. Economy. Businessonsumers confidence. Rates. Raised interest teststiated bank stress to see if lenders could withstand losses, making the sector more transparent. He is chair of the International Finance Stability Forum. Banks proposed if a suffers losses, it shareholders should bear the brunt. He put jane austen on the 10 pound note. He canceled an annual cricket match. Hebe he prefers ice hockey, was a goalie in college after all. Canceling a cricket match. Up in arms about that. And we are not even invited. We will bring you his Inflation Report and a couple of minutes. Watch out for all the talk about wage growth, unemployment, we had that figure earlier on. We will see you in a moment. We will take you live. Welcome back. You are watching the pulse. Lets take you to the bank of england. We are waiting for mark carney to walk through that door on the right hand side and take his seat. He will then be introduced. Statementt a short and then we will get into the q a. There he is. Than is much more Inflation Report. He will go through growth, Interest Rates, give a flavor of how he sees it playing out. We are looking for clues on what is happening with employment and the relationship to wage growth. Introducingwill be the various panelists on your screen. We basically have what he is going to say. The bank of england setting inflation rate is likely to fall around percent of the target in the forecast. Lets go straight to the confidencemself following baccalaureate hed come as u. S. Hispanic amongst our Major Trading partners and economic momentum. The u. S. Has become unique amongst our trading partners in maintaining economic momentum. It is important to keep developments in perspective when assessing prospects for the united kingdom. Economic conditions continue to normalize. Outlook ise world undoubtedly softer than it was in august, the growth forecast for the u. K. Is only slightly weaker. That is because expectations have eased significantly. Markets still expect bank rates to increase but to a more limited extent than they did in august. With an increasingly well , Marketing Bank expectations are being passed through Interest Rates as just one example, fixed Mortgage Rates have fallen to record lows. Projectseport, the npc growth of 3. 5 . Are three factors that can explain why the u. K. Can continue to grow at above trend rates in the face of subdued world demand. First, real takehome pay growth. 700,000 new jobs have been created in the last year. Confidence is returning to the labor market. We are seeing the first tentative signs in the longawaited wage growth pickup. Real incomes will be further supported by lower energy, food, and other import prices. Oil prices are 20 lower on the year. Food Price Inflation is at a 12 year low. Annual real pay growth will pick up to about 2 by the end of next year. The second reason is that despite developments abroad and a larger than anticipated slowdown in the housing market, Consumer Confidence is being supported by lower effective Interest Rates, a strong labor market, and improve pay prospects. Higherthat transition to incomes, we expect the Household Savings rate to continue to drift to relatively low levels, supporting the growth of demand. Investment growth is strong. Although the committee expects the support to the expansion from investment to be a little less pronounced than in august, Business Investment is expected to continue growing and well above historical average rates. That reflects expanding demand and the clarity that Interest Rate increases are likely to be gradual and limited. Above trend growth through the forecast period means that the economy will continue on its path toward normalization. We expect unemployment to fall to precrisis levels and the gap to continue to close. There is a wide range of views about the degree of Spare Capacity and the economy, but overall our best collective judgment remains the case that slack is currently broadly in the region of 1 of gdp. The main change to the projections is that the nearterm outlook for inflation is materially lower than we had expected in august. The nearterm weakness means it is more likely than not that i will have to read a chancellor write a letter to the chancellor in the next six months on inflation falling below 1 . We see weaker inflationary pressures. The past depreciation of sterling. , inflation has 0. 75 . Ted we domestic inflationary margines reflecting the of Spare Capacity that has been present in the economy for some time. Unit labor cost growth has been flat despite subdued productivity growth. The best collective judgment is that inflation is likely to remain close to 1 over the next year before returning slowly pastd the 2 target as the from sterling eases, Commodity Prices stabilize, wages and unit labor price growth pickup. Inflation expectations remain well anchored at 2 . We do not expect a rapid return of inflation to target. Are not permanent, the forces subduing inflation are likely to persist for some time. 2 only byeturns to the very end of the forecast period. The risk to the outlook are judged to be broadly balanced. Developments in the World Economy mean that some of the Downside Risks to growth have crystallized. The risks to inflation are judged to be broadly balanced because the Midi Committee has taken a more conservative view of productivity. Nevertheless, clear risks remain in the path of bank rates will depend on how those risks evolve. Markets understand that setting a bank rate is data dependent. It is appropriate that while tightening in Monetary Policy markets nowrospect expect somewhat easier monetary conditions over the forecast period then was the case three months ago. That should not be taken as validating any particular date for the first rate increase. We have highlighted repeatedly that what really matters is the broad shape of the monetary tightening over the mediumterm, rather than estimates of precisely when the process of normalization would begin. The latter will continue to move around as the outlook evolves. In that light, the central message of the committees guidance remains relevant. When bank rate does begin to rise, it is expected to do so only gradually and remain below average historical levels for some time to come. While that is an expectation and not a promise, its clarity is helping businesses to climb higher despite a challenging Global Environment and it is helping businesses and households to focus on their days work, building economic expansion, without being overly travel troubled by foreign concerns. That, i would be happy to take questions. You spoke about the spectrum of economic stagnation in europe. How much of a particular threat is that to the u. K. Economy . To see yourke counterparts at the European Central bank broadening out there stimulus . In terms of developments in europe, they are troubling. I think stagnation is the right term to characterize growth that will bounce around below 1 for some time to come and has some Downside Risk described to it. What we are seeing for the u. K. Are two effects. We are seeing lower demand for our exports. We are getting some disinflation from european exports imports from europe. What we are not seeing our confidence effects, material confidence effects on our businesses in terms of Business Investment. We marginally reduced our Business Investment profile. We are not seeing Financial Market confidence effects. We are not seeing any challenges from that. Overall financial conditions in the u. K. Are easier now than they were in august because of the adjustment in rates. It has to be kept in perspective. With respect to measures by the , wepean central bank complement our colleagues for the range of measures that they are putting in place. I would emphasize that facilities have been announced, but the implementation of those facilities is still to come. Assets are still to be purchased. The december term will be important. The measures my taken as has been discussed might be taken as has been discussed. Have, thate, as they this is not just about Monetary Policy. On a terry policy alone is not going to turn around the challenges in europe. Monetary policy alone is not going to turn around the challenges in europe. There is an immense role for considerable Structural Reforms that will be required to change the trajectory of the eurozone. If youll indulge me, i have two short questions. Is it for the reputation of the bank of england that you have had to sack your chief dealer . , is the longest recorded squeeze on Living Standards for the british people now over . In terms of the first , we hold ourselves at the bank of england to the highest standards, as you would expect. With respect to that specific , when holding yourself to the highest standards, the first thing you do is that if you have any indication of any improper behavior or potential knowledge of improper behavior and that is where this started, you immediately investigate. The governors launched the investigation late last year. We found cause for a deeper investigation. The Oversight Committee launched an independent inquiry. I would like to thank the team for their comprehensive work. It is absolutely comprehensive. On the results. Im going to make an important point and then i will return. Wasdismissal of an employee for reasons that were unrelated to the fx investigation itself. It was information that was uncovered during the course of that investigation and it was information that indicated, in the judgment of an independent employment review, represented serious misconduct and acting inconsistent with the banks internal policies. I dont know that we necessarily would have discovered it had we not had the review, but there it is. To go back to the report and what he found in terms of the bank of england, i would say withwe are disappointed what he identified as the behavior of one of our employees. Disappointed because we hold ourselves to the highest standards. I have to say and i want to say that we have an outstanding markets division, with Exceptional Individuals who serve the British Public in a remarkable way day in and day out. Under number of them exceptionally difficult circumstances over the last decade. What Lloyd Gravatar found and we accept his criticism is that our ofef dealer was aware thatmstances in the market could facilitate or lead to improper behavior by market participants. And he did not raise those concerns in the institution and did not take any steps to address them. That is the error of judgment. Aware nor was anyone else at the bank of any improper actual unlawful behavior. Nobody at the bank and there is no evidence and no recent to think that anybody was involved in any improper behavior. Those are low bars. We have high standards. We are disappointed, but if you have high standards, you have to act accordingly. From the court at the bank of england through to the Senior Executives and to our colleagues, the colleagues in the market area and the front of the bank that follow the recommendations, which we accept in full, which revolve around documentation. We have a new documentation management process. We have to make sure it is consistent in terms of education and making sure people understand codes and standards. In terms of how we Market Information and heart intelligence. That is my answer to your first question. The second question is over somewhere else. Declaring the end of something . Underscore fiscal year seeing what i would underscore is what we are seeing, encouraging signs in the labor market. We are starting to see real growth in pay. This is consistent with their forecast in august. We expected this to accelerate. The underlying assumption is average Weekly Earnings growing a little over 3 . That is real wage growth. We do expect to see it. It is both an development and a welcome development. Persist for the recovery to be durable. The last point i will make to bring it back to inflation, what is crucial for inflation is where our unit labor costs going . Today, you look back over the course of the last year and we are still in a situation where unit labor cost growth is flat, if not slipping negative. I wanted to come back to those encouraging signs that you refer to. Wages are exceeding inflation. Could you explain what that means for Interest Rates in the years to come . Wages, arst thing, well functioning economy, normalized economy, will exceed inflation, wages will exceed inflation because productivity growth will be above zero. The unit labor cost growth will be consistent with the inflation equilibrium to which we always aspire, but never actually achieve, you will see nominal wage growth around 4 , productivity growth around 2 , unit labor cost growth around 2 , margins at a normal level, inflation bang on 2 . I will repeat elements of my answer to robert. We have expected this pickup. We are starting to see it in the hard data. We have a sense of it as we go around the country and talk to businesses. We needed to get inflation back to target. Are some pretty big diss Inflationary Forces that are largely coming from abroad at this time. [indiscernible] is consistentt with some increase in Interest Rates over the course of the next four years. We expect those increases to be done at a gradual pace and to a limited extent. The extent to which a necessary precondition is to see real wage growth, but it has never been a threshold, it has never been a trigger. The guidance on Interest Rates remains at a level where does. One Commodity Prices were pushing up, inflation is 5 , the bank decided it would not adjust Monetary Policy as a result. Is the same approach being taken now that Commodity Prices are pushing down inflation . I put it in this context. I broadened it a bit from Commodity Prices. Level shifts and potentially it level shifts that might persist for a while. We get some imported disinflation. To what extent do you look through those . They are material to the inflation outlook. In terms of our approach, but it is not blind symmetry. Let me explain that. When the mpc did the right thing and look through those increases on the right side, their expectation was that inflation would come back to target pretty quickly, within the normal Monetary Policy timeline of 1824 months. They were also looking for something when the domestic pressures on inflation could be expected to go the other way. There was a lot of slack in the labor market. You could see the types of diss Inflationary Forces we are experiencing. We made those calls. There was a series of one offs. That was not the expectation at the time. Today and this is my not blindly metric, our expectation is that this disinflation, largely from abroad, will persist for some time. We dont expect to get back to target in 1824 months, we expect three years, at the end of three years. The second point which bears remembering is we are at the zero lower bound. Post crisis inflation above target, the question was to use conventional policy. Youou make a mistake, do start using unconventional policies again . There is an asymmetry in terms and conduct at the zero lower bound. We are any circumstance where we think once these forces come off , this is our projection and expectation, once they come off and you can have a different opinion about exact timing, but somewhere about one or two years the domestic drivers of inflation will reassert the issues around wages and labor cost and we expect that there would be some tightening of monetary conditions, that we would have some interestrate increases in order to achieve the inflation target of the economy normalization. You said more likely than not is the mpc not taking action because you are happy for them to do the work for you . , i willu dont mind decide what i say in the letter. I have to write the letter. Our central expectation is that inflation dips around 1 , but does not actually dip below. I do not expect to write the letter. In terms of the markets doing some of the work, the markets have done some of the work. Weve taken out some of the tightening. That gets passed on. Ive used one example of Mortgage Rates. That provides additional stimulus. I would reiterate that the mpcs view is consistent with tightening of Monetary Policy over the forecast arise in. It is a question of degree. Report hasst geneva been released since your last press conference. One of the thing in notes is the very slow process of deleveraging households, especially households in the u. K. Who remain most indebted in the advanced world. What i was looking for an answer was how the bank pays attention to the effects on disposable incomes when households are so indebted at a time when you are thinking about how to tighten policy . A word on that. It is a very important question. I might not fully except the most indebted in the advanced world point. Some scandinavian countries would surveillance is coming up for our viewers in the United States. For the rest of our viewers, we will take you back to the bank of england. It is governor mark carney currently addressing questions from the press. The u. S. And china agree to cap Carbon Emissions. Tothe nations will be forced the table next year in paris. Fierce fighting continues in eastern ukraine. The financial conditions to thierry arrayed. Reagancans invoking 1982 in search of budget discipline 2016 style. Good morning, everyone. This is bloomberg surveillance. Keene. Scarlet fy has chosen to be with us. For the first time, china agrees to set a target for capping Carbon Emissions. It is part of a Climate Change agreement that president obama and the chinese president announced in beijing today. The two nations account for more than one third of Greenhouse Gas emissions. President obama called the agreement a major milestone. We hope to encourage all Major Economies to be ambitious, all countries developing and de