Transcripts For BLOOMBERG Bloomberg Markets European Open 20170117

Focus, warning that the central bank has limited tolerance for rising prices. Cpi data due at 9 30 gmc. Francine and live from the World Economic forum in davos, switzerland the future of finance. John cryan joins our debate about the transformation of the industry, do any moment. And in european banking, we will be speaking to the Credit Suisse ceo. Dont miss that exclusive interview at 9 15 u. K. Time. Stealssident xi jingping the spotlight, with his first speech ever at the forum. Lets get back to the World Economic forum in davos, with bloombergs tom keene and his panel on the future of finance. Tom if you dont make it every 90 days, the world falls apart. We have a panelist to provides us with a terrific historical committedwho has been to acquiring for the United States of america different pieces of our heritage and history and possibly understands the 1930s like no one in the room, and certainly a political moment we are in worldwide. Finally, we have a panelist to full disclosure has written my book of the year, with a great hat tip to sebastian alawite. Who hasessor rogoff, the worst ratings on amazon i have ever seen. His book is flatout courageous, and the international response. The future of finance is about the how of the future, the what is the future, the strategies, and we too often forget, particularly in this valley, the tactics that will be required shortterm to get to the strategic longterm. Anne richards, you understand the great distortion. You understand how the bond market is a measure of this crisis, and this distortion has distorted all the finance. Do we begin this seminar, saying we are through the negative rates, through the great distortion of the last eight years . I think we have passed the inflection point. Clearly there is still a lot of distortion, but i think the thing that was critically clear in 2016 was the shift in the way that Central Banks, bankers themselves, were looking at what Monetary Policy could do. The interesting chart if you look at Janet Yellens statement at the start of the year, she never mentioned the word fiscal. By the time you get to the end of the year, her last press conference mentioned it 20 times. That is symptomatic of the facts that Central Banks realize that prying away from government was insufficient. You need to have fiscal and Monetary Policy working together, and that is what on markets began to react to through 2016, the realization that we need a new framework for thinking about how we transmit Monetary Policy through to the real economy, and that is how we will adapt. Fyi, we are at the end of this 30 year period of direction for bond markets. , we govid reubens from thought to thought, no real structure before we get to your question. Ill be starting with you, so get ready. But david rubenstein, we had a fiscal debate ian bremmer had the best photo on social yesterday, of the one left standing, chancellor merkel. Is it fiscal policy to the rescue in 2017, that sets the template fo ra more normal finance . For me talk about the United States for a moment. In the United States for the last six years or so, it has been difficult to get fiscal policy because the congress and president were not in sync, and no major legislation dealing with taxes was really going to be passed. Now we have a Republican Congress and public and president , and the theory is that there should be some legislation that would deal with fiscal policy, significant tax cuts, and major changes in the way we tax our corporations and individuals in the United States. Is backing get implemented, then yes, there will be a significant fiscal stimulus in the United States. Monetary policy will not be as significant as it was. On the other hand, Monetary Policy is going to be a factor, because it is likely that the fed will continue to increase Interest Rates a bit. You will have an interesting anomaly a fiscal policy controlled by republicans, and a Monetary Policy being made by democrats, who would largely compose the fed. We will see how it works. Right now the congress is likely to pay significant legislation in the fiscal area, but if you go by the george w. Bush administration or the Ronald Reagan a ministration, when they were trying to get significant legislation through, it takes nine to 10 months. Nothing is going to happen overnight. And as you probably know, the president s of the United States dont have as much impact on tax legislation is the congress does. So while the president would say, here is what i would like to do, the devil is in the details. It will take a long time before we know the fiscal changes are going to be. Tom the devil might be in the tweet. We will have to wait for what he says. Mario greco, to get back to the finance part and what mr. Rubenstein was speaking on, this idea of a changed template of regulation. Do you look for the finance of 2017 that will be a difference in regulation for zurich . But will that difference be . The big issue we are facing is integration of capital rules. Capital rules are very different in europe, u. S. , and asia. We favor a standard decision of capital rules across the continent, and i think this will be very unlikely and very difficult to achieve. Capital arbitrage, looking for the best capital rules, we will emain tom which institution do you look for, which Government Institution do you look for to be most commonsensical . That the difficult question. [laughter] tom to early in the morning for difficult questions. Is there one institution in particular you are focused on . I mean, not really. The issue we have is Insurance Companies regulators tend to rule, or have a memory for ruling, banks. Insurance companies tend to be considered as banks, which we are not. The extension of banking rules, to understand the riskiness of leaving a, were world where we except liabilities from customers, we match assets to liabilities, and we run a good match over a longer period of time. Banks dont do that, and this is something we are still struggling to have to regulate. Is explains the issues that we had in europe, which is being completely countercyclical. Helpal regulation did not getting europe outside of the economic crisis. It explains the struggle we are an alliancetting worldwide. Tom john cryan, you have had an eventful set of years at Deutsche Bank. You begin a new year with a vision for the future of finance, and how large banks fold into that. Not where you will be this year where is the future of big banks in five years . Well, we are placing our battle technology. Were not sure that the fundamental we are not sure the fundamental nature of products will change much, we dont think that the demands of our clients and counterparts have changed too much, since the delivery mechanism. That will help us protect ourselves, to improve our own controls. We can use technology to improve our efficiency, and we can use technology to improve the customer service. Investment that you have to make is the idea of a new banking. Is it banking as it has been, or a new future of finance banking, that will be radically different . It will be different, but we think the narrow definition of banking, regulating to take deposits, and that provides a subform for tech should of the status quo. Doesnt defend us against newcomers, but it does help the status quo. Soulations not generally against regulation, we try in Financial Services this has been frowned upon for a decade or so, for justifiable reasons we havent been innovative, other than in delivery channels. Since technology is the key. Tom in the last halfhour of this panel, we will really dive into technology. Ken, we talked about strategies, but that we talked about the tactical surprises and their adjustments to cash regime. Aboutave you learned innovation . When you look at the curse of cash, you look at experimental modes, what have you learned in the last six months that sets us up for the future of finance . Not specifically in india, but just on the different experiments out there. A phenomenal amount of innovation at the moment, it is hard to know what direction it will take. A lot of it is being developed in the private sector. If you look at the long history of money, the private sector is often the innovator from the standardized coin Paper Currency to whatever we have in the future. But certainly, Central Banks are looking hard at these ideas. I think it is pretty likely we will start to have centralbank Digital Currencies in the next 20 years if not the next five. They have Digital Currencies already. Deutsche bank holds its reserves electronically. But this will get extended to a much broader group. That might sound technical, but it has profound implications for the system, people being to go directly to the central bank instead of through the government to fund itself. More broadly in the private sector, these invasions provide ways to do legal contracts, ways for banks to transact with each other without going through a thirdparty. Its a very exciting time in innovation, but i have a feeling the regulators are probably way behind whats going on. Tom david, comment on the parallels here from the 1930s, this idea of combination. Does the end result of this future of finance, that there are simply fewer players involved, and we assume it will occur soon rather than later . Actually, what has happened is the number of banks in the United States has consolidated after the great recession. We have relatively fewer major banks and we used to have, and that occurred in the 1930s. What you are finding is that banks are important, that you have Financial Service companies that are not banks playing an increasingly Important Role in the Financial Service industry. What you are finding issocalln has really revolutionized banks, as well as other providers of Financial Services. For example, today many people are paying their bills through mobile payments on their phones and are not necessarily extending checks to banks. In china and india, they are leading the way. While the United States considers itself a Financial Center and the center of technology, the revolution that is really occurring in Financial Services is occurring in emerging markets, china and india, where they are bypassing some of the things that we have in the United States, because they are really going from emerging market to financial Tech Revolution. You find many more people comfortable with using mobile payments in china and india than the United States, a much higher percentage. You are also going to see enormous amounts of ways people are going around the traditional Banking System by doing things that banks do for them historically, but now nonregulated institutions can do it. All financial Tech Revolution has seen in normas amounts of money coming to the space. Right now, you are seeing five times as much money going into Financial Tech Companies as five years ago. And it is projected that it will increase by 50 per annum over the next 10 years because theres so much opportunity to make money for investors, and it has revolutionized the way people deal with banks. Does one do for a major bank . How do you pull in that technological innovation . Here two or three ago, more so now, how do you pull on that innovation to slower, stodgy, developed economy banking and finance . Ago, more so now, how do you pull on that well, we have r of approaches. One is to work with it. But at a slight distance. We are a multinational corporation, perhaps not an institution at which all people aspire to work these days, so we find new are ways of working with younger people. They wanted different employment contract. A simple employeremployee relationship. They are much more fluid. They want some equity, so we work with them as a thirdparty, but with some degree of exclusivity. We can capture the intellectual property without formally employing individuals. We have three or four different approaches. Various from country to country it varies from country to country, but in germany we have three different approaches to how we deal with entrepreneurs and innovators. Tom do you just assume a consolidation, moment to moment in the future of finance . Everyone is working on the expense side and the income statement . That can only go so far, and then do we see consolidation, whether it is your banking or in marios portfoliobased products . I do, and i agree with you that there is pressure on improving controls. Innovation, there have been plenty of other innovations and Digital Currency is one of them. The products havent fundamentally changed. They are more and more regulated. It is regulation that becomes more granular. Traditional institutions tended to be less innovative. Tom are you optimistic on that, ken . Are you optimistic about what david talks about a third world lead in these innovations, that could come over to the more developed economy of banking . Well, certainly they are great in india and china, portions of the United States. But there is a question of how to tame the whole thing. Factors it provides an opportunity for disruptors. For example, internetlantic is huge in china, because there is so much regulation. Theres a reason it is so popular in china tom is that a point of currency . It provides an opportunity for disruptors. I think its more a substitute for credit cards and debit cards, to make a long story short, but they circumvent regulation. Theres a big di demand. Tom mario, how do you adapt to this . How do you adapt and adjust innovation . First of all, the issue for us is a revolution with the customers. Through technology, through innovation, we can get in touch with the customer at every moment. Is what really changes the relationship between consumers and Insurance Companies. Revolution, and it changes completely with the services we can offer to customers. Veryder to do that, we do similar things. We partially invest directly in technologies, and partially we outsource it to partners who will work with us. Tom we have a microphone trouble what you amplify . Thats better. No, go ahead. [laughter] on outsourcing, technology to providers, and we Work Together with partners who have incentive to stay with us. Is conductivity with the customers, which allows us to redefine the products and services that we offer to customers and makes insurance immediately available. Tom david. To make it simple for everybody to understand, you have the banks, the Insurance Companies existing, they are innovating, and a lot of the thin Tech Revolution is making it possible for them to provide their services more efficiently, and more cheaply. Then you have another revolution trying to disrupt the banks and Insurance Companies and say we have a new way of doing things. It is unclear which is going to prevail. Will the banks be revolutionized and changed but still be banks, but there will be much more userfriendly and cheaper, or will new organizations like the one in china that provides enormous opportunity for people to pay their bills through a system which is not regulated, will that system prevail over existing Financial Institutions . We dont know, but both are moving forward at exponential rates, because theres a lot of demand by customers, younger people particularly, for new technology. And i dont know today whether the banks and Insurance Companies or existing regulations will prevail, or whether these new organizations we havent heard of will prevail five or 10 years from now. But clearly theres a revolution in both direction. Its helpful to break down the suie the situation in this way. Theres the plumbing that, the stuff that connects. Whichheres the data bit, is a think of plumbing as the pipes and the data as the water, we have increasingly a global set of pipes in which a lot of both traditional, conventional companies and new starters are working at different bits. Onre is stuff thats going dealing with the quality of the water, which seems like the stuff that google does, or facebook, to find out how you and i interact with the plumbing. There are differentwater, whiche bits goinggoogle on. One of the big challenges is not so much he was involved in improving which bit, whether its the plumbing or the water, its that regulators break down the System International chunks. To the consumer, to the people in this bits going on. Room, to our clients and customers, they see it as just one ubiquitous set. We have a really interesting contentionoing on, between what regulators are trying to do at a micro level and what the system and what the individuals who interact with that system want, which is a much more global and fluid system. That is the tension we will see gradually over the next five years. Are consumers better off with the revolution presumably they will be eventually is Society Better off probably, with these changes and the two other questions are, will regulators be able to keep up changes, and will security be able to keep up . In other words, with all these changes,technologies, will we e things secure, and will the regulators be able to keep up with all these changes . Know that he knows the answers, and we are struggling with them. Tom help us lets pretend we are in the Incoming Freshman class at harvard. Does this drive us toward perfect competition within the future of finance, where margins are taken away . Through the margins of operate . A a lot of it revolves around regulation, and of course always in finance, the private sector innovates, the regulators take time to catch up, the market develops that way, the private sector looks for where it is not regulated. I do think the regulators are going to come everywhere. Its what i mentioned earlier in lendingith the internet thats an extreme version. But its mentally like the chinese authorities dont know that its going on. They are trying to see how it works. I think that is true also if you look at the United States and europe. They are nervous, but still, as long as these alternative mechanisms are small, they let it go. But eventually they need to come in and regulate it. Yeah, of course just as we saw shiftkselling, theres a in where the centers are that could happen over the future. I dont think it will unfold that quickly, because i think if this unregulated factor got very big, lets face it, some problem would happen. There would be a cry for regulation. I think its a balance between innovation and regulation. Tom does the Digital World compete away profits, if you go down any income statement do you assume margins are competed away . Very often, yes. Tom do you have you have to give longer answers than that. [laughter] that can be the result. We, for example we need a lot of syntax. Tom they will lecture you. [laughter] in trade finance, they will say there is in efficiency and we can take it out. You look at what they propose, and what you do is you take out all the profit as well. You could do what they suggest, but it wouldnt remunerate them, wouldnt address the fact that it takes a long time to ship something from a to b, physically. There is time value, and they strip out a lot of that friction, and sometimes it is artificially crazy. Thats an improvement in the service. But when it is somebody actually delivering credit over a period of time, theres no substitute for what we do. There are different ways of delivering it. If we get a cryan universe, mario greco, how do regulators adapt . To they become the bastion of profit protection for old banking and old finance . I think what they are doing today is looking more and more toward customers protection, which is fair in its right. But i want to stress what anne said before. The issue is that consumers and companies are becoming more and more i multinational, and consumers move around the world, and regulators tend to look at borders. They tend to regulate on a national basis. S creatingsistency i is following the pace of innovation. This is something that should be more and more considered in the future. Tom david, do you see a new regime of regulation with the populism have today . You are very u. S. Centric, that i go back to the bremmer photograph. Regulators are not famous for saying we should just go home. Its not likely that they wont find something to regulate. Whether they can keep up with the changes, im not sure. Im just curious of the people here, how many are still writing checks . Tom very few. How many people bank online . Tom very many. How many people have been in a bank in the last year . How many people havent . Ok. Generally, i find the divide between younger people and people who are older than 30 the younger people havent been any bank. They dont know i have three children in their 20s and 30s who have never written a check. They go online. Im the last a doctor so i am always writing checks. But the Younger Generation just doesnt understand what some of us are doing by writing checks, visiting banks, and things like that. This revolution i think is best understood by younger people. When you talk to the younger people, what they want out of Financial Services is different than what my generation wanted. Generational . Is it to generational . A number of senior bankers say they completely missed how fossils would pick up on digital banking. Well, facebooks fastest trying cohorts. Fast destroying. Cohorts. Theres a correlation with age, but it is broader than that. People who have an 86yearold father use an ipad its my testing in that sense. But i think what we are inching toward that any regulators got their head around this year is the fact that data regulation and Financial Regulation are converging more and more. We has no set up as yet which really brings the two of those together. But if you take about the repository of information, the more we touch the customer, the more information we collate and hold about buying preferences, risk appetite, what you did yesterday, what you do tomorrow, internetsearch on the the more that gets held within the financial world, the more that touches decent protection and data regulation. In my view, ultimately, they overlap strongly and are converging. Can you be overweight is it a sector of opportunity for investment . The answer to that is clearly yes, but one of the sectors that we look at most closely because missilestial for the are hedged in. Whether that comes from consumer regulation or you know, as alibaba mentioned. Somebody with a big cash rich Balance Sheet has the potential for disruption. Anywhere, butfrom that does not mean it is not investable. A cumbersome amount of money is entering the sector. It is a large part of the Global Economy and therefore, there is a lot of opportunity there. You can see enormous amounts of Venture Capital money and private equity money entering the sector. It is probably the fastest area of growing technology right now. In terms of alipay, last year they had 437 million customers. They had more clients than any other financial institution, bank, in china. You will see this more in the emerging markets. People providing Payment Services are becoming more important than the banks. More and more, you will see people moving away from the commercial Banking Services and regulated services because they are more expensive and the banks must adapt. Do need cash for all of this . Or does chasash go away . Short answer, i think cash will be around forever, but we would be wise to have a lot less of it. Fintech, but the entire data management. We can see what information people are allowed to have and share. Economists sometimes say it is fantastic. We will have this ability to write complex contracts we could not previously write. Nobel prize won the this year for showing how hard it was to deal with situations where you cannot have complete contracts. An example is when i had my house built. How could i possibly think of everything that would go wrong and put into a contract . But, this new world, where we can see everything you do and say, there is the potential to do that, and give you Better Services more cheaply. And anything, including Financial Services. There are profound privacy issues. Issueeven bigger than the of the next couple decades. Have what we are calling daily, somewhat incorrectly, the trump inflation. I put up a chart. We have come up off the election and have ebbed down to a point in tension where we will see if this breaks. How important is it for Strategic Finance in the future to have a normal market . Can all this talk happen within the low Interest Rate environment we are in right now . Or by definition, with or even before to have normalcy within the Interest Rate market . I think there are two aspects to normalcy. One is Interest Rates. There has never been a right Interest Rate. It has been tough and the Banking Sector has been very vocal about low Interest Rates because they have consequences that were not thought through. Low Interest Rates effectively transfer value from savers to b orrowers, and that is the intent, to stoke economic development. We in the Banking Sector, and i am looking more at our securities and derivatives brokerage, where we find more distortion would be in Government Intervention in bond buying. That deprives us of clean market price discovery. Once the pricing basis, the u. S. Treasury, which is the fundamental pricing basis for most securities, is distorted by government buying, then we distort all asset prices. Then, we do not have proper Capital Allocation. Normalcy,tions and that the markets i think would benefit from being returned. There are a number of ways to look at this. Do we need to clear those Balance Sheets of the financial crisis to get back to rate normalcy . Or, can we have both . Can we get back to normalcy so slowlybanks ever ownership . Ind that there has been this overwhelming drive to safe assets that has been going on for a long time that Central Banks have very little to do with. Many people think Central Banks are causing this. U. S. This in the will change over the next couple of years. If donald trump brings back nothing else it will be risk into the bond market. [laughter] but i do think there are better ways to deal with things. I talk about this in my book. Cautious. Becaus we need to have an effective Interest Rate policy in a crisis. And then we have priced discovery, but that is not a normal thing. You would want to see positive levels of Interest Rates across the board. Rogoffsck half of book is on negative rates. Maybe now we have more negative rates to spur a rebound on relfation. Future ofve a finance, where someday we might implement draconian negative rates . As it insurance company, we have survived these negative rates, which we never thought we would. Now, we need to have normal rates back into the market and we look forward to having some risks coming back into the play, and to have less distortion into the bond prices. The negative rates take us away from choices and make the life of the consumers incredibly difficult, as it is also fo rr banks. Add, if thented to ecb were to unwind the quantitative easing right now, we would have a collapse of the euro . Do you agree . A collapse of the ecb . A collapse of the euro. Thehat would be the case if spanish bonds unwound. I dont think there would be enough immediate support to purchase what the ecb has bought. I think it means the eurozone will collapse. Prices will collapse. This shows the tension point the way from the talk about technology. We will do questions. Please identify who you are here at the World Economic forum. We must have and begin with an observation and question. I believe you are head. Or, can we get a mic over here . Thank you, tom. Just one observation. You have spoken a lot about banking and innovation. What was missing was the Capital Market peace. I do think we see that increasingly, Capital Markets will play a much bigger role. Willng, this mediation, happen. We heard the u. S. Was still writing checks. That has bypassed 50 years of innovation on how we deliver money. It shows you the speed of financial innovation is less driven by these the priors of that innovation, but by the acceptance of consumers to adapt it. I am with john. We do not see a lot of changes within corporate credit. One ofthe capital side, the problems of the last crisis was excessive innovation and complexity. That part of the Capital Markets has been really pulled back. It will reemerge. I think Capital Market innovation is going to be the key driver in emerging markets. I dont think china will go the same way as europe or the u. S. If you get the same market capitalization in china that you have in the u. S. , it tells you how big bond markets, good markets, and property markets will grow in china. My hope is not that the banking side will grow, but the Capital Market side. One a lookr to this, to the shock of the Capital Markets, is transactions that lead to combinations. Are nations ready for their banks to combine across borders, or within a nation . Nations regarde it as important to have a major bank. I think it is unlikely that Deutsche Bank will be allowed by the german regulators to be purchased by somebody who is not german. I think it is probably true that most countries want to have at least one major bank. I dont think he will be the french regulators allowing some of the major french banks to be bought by non french entities. That nationalistic feeling will be around for a while. We should recognize that the large banks, although we say we do not want them to be too big, and therefore, too dangerous, they are getting bigger and more powerful than they were before the financial crisis as we have consolidated banks. I dont know whether the banks are too big to fail, but they are much more significant because we have given them much bigger Balance Sheet. John, with Great Respect with the challenges that you face, big to you define too fail in the future of finance . Think too big to fail, i a better formulation was too complicated to manage. If all we did was take deposits and buy u. S. Treasuries we could be really very big. We have had a lot of concentration on one asset, but we could be very big and relatively simply. We proliferated the markets in which we operated, the products we offered within those markets and the types of customers we tried to serve, and we did not always control ourselves as well as we should have done. There was a lot of focus on growth, market share, on cross boarder acquisitions. I use this word a lot, zeitgeist. What will be the zeitgeist of modern banking . Deposits,ator takes and to give a technical answer to that and therefore, it is more fun for people who do not take deposits to play where they are less tightly regulated. That is partly whity banks extended their net. One of our most valuable businesses would be our Asset Management business. Nobody ever called into question. It is not as fun. It is a very stable source of earnings. We like it. There are parts of our business that did take sizable, concentrated risks, and we missed out on concentrations and correlations. Writing insurance policies. Those three cs went wrong, and we did not have the common things to look for before hand. We look for credit risk, but not securities that were highyielding. They should have been a red flag. We then thought about applying credit risk standards. We did not apply common sense and what banks, i think i would today, webetter at apply a lot of common sense. We ask ourselves what could go wrong. Im a big fan of regulating banks by testing them for stress, by using a variety of scenarios. It is much better than the arithmetic approach to backward looking liquidity measures. Much better to stress the institution in all manners, including general operational risk. Richards, please help us here. The second derivative, can the future of finance be as david as mentioned, and avoid those shocks . Lets put this complicated word to one side. I think, going back to the comments about complexity, i dont believe innovation has to mean increased complexity. I think right now, the zeitgeist is about innovation that brings more simplicity and more transparency. Transparency is really important to our customers and regulators. I think the challenge we have when it comes to responding to shop is on the capital side, the Financial System is regulated towards the maximum capital to withstand the worst shock. Whereas only profit side, the regulation points us to the least possible profit that is acceptable to earn at the best possible point in the market cycle. Therein lies the tension. We need to bring those back together so we truly get some packaging it in, transparency and complicity. I think we are still searching for that. That is what regulation and our customers are pushing us towards. It is just really difficult to do that across a large, complex, legacybound industry. A question, please. Back, please. Could we get a microphone, please . Is carlyle investing more and more in fintech . We are. We do it from growth companies, companies that have some revenue and earnings and those tend to be higher risk investments, but not as risky as pure Venture Capital. I think this is probably one of the fastestgrowing areas of the private equity world, Financial Technology related investments. It worked out pretty well for us and others as well. I suspect you will continue to see that. A lot of that money is being invested in the emerging markets, china and india in particular, a place or we see a lot of fintech investment. Are those investments that capture market share and can take greater revenues . Or are they now at five years out to 10 years out, providing financial margins . Helping banks and Insurance Companies make them more efficient and services, providing them are quickly. And then, things that are completely disrupting is market. I dont know which one was going to be more profitable in the end, but we are investing in both. I do think one of the nationalist points i wanted to pick up on, i dont think countries like to have no major bank in their country. So, i think Deutsche Bank is going to be prominent in germany for a long time. If it needs support, the government will provide it. Going tohink france is get rid of having some of its major banks and england will have some of theirs. Now as we get new Financial Service companies, companies that are not based in germany or france or england or the United States, will the regulators allow and will be politicians allow all the Payment Systems to be done out of india or china, companies that are not based in the Major Company where the services are thing provided . I dont know the answer to that, but it is an issue people will have to address. Will american politicians be happy to have all the Payment Systems be run by companies that are based in china . I dont know. Maybe they will, maybe they wont. Something on the disruptive industry forin our example, we are testing extra systems to handle claims. This is completely changing the speed and quality of the claims processes and services to the customers. Not adapt towill this, this will be disruptive. There will be no other choice than going that direction and investing and transforming. Otherwise, in a couple of years, the company would be pushed out of the market. I think it is much more pervasive what we have heard so far. Technology is changing the way we work and the services we give to customers. The companies that will adapt to these changes will be out. Do you just assume within Capital Allocation and labor allocation, total productivity, that there will be fewer bodies in zurich . I do not mean to pin you down on a technical question, but do you assume fewer employees is the first solution when you use technology . In the last 10 years, the total number of employees in the Financial Sector has been flat. Despite the growth of the middle class and despite the emergence of new players and no opportunities to work. Says thatcaster roughly 50 of jobs will be replaced by computers over the next 10 years. Yes, there will be fewer jobs. I call this the deal jorgenson mystery of productivity. It is front and center within every single conversation. I think there is a measurement issue we do not know because gdp was designed to measure things, and now 75 of gdp is services. There is also the financial crisis. I wanted to mention the national boundaries. So, a big problem in the financial crisis that it was not easy to unwind the Multinational Banks. The u. S. Did not want to pay for banks in mexico, etc. Many regulators arrived at the solution that you had to have each Bank Incorporated separately in each country. But modern finances want multiple players. Naturale monopolies investing. I do not know how we will resolve this. There was a lot of trouble and bailing out their banks and theoretically, the eurozone had everything in place to allow this to work seamlessly. There is a big political problem Going Forward, how we do this. Finance wants to be financial. The political system does not come close to being able to deal with it. Deutsche bank has facilities in london and in the u. S. What is your optimal regulation, given being a Multinational Bank . What is your best outcome, given the nationalism we have been talking about . We are in the eye of the storm because the are fundamentally an international bank. We are rooted in germany. That is our core market, but the markets we serve our international markets. Ken is right. There has been an organization a regulation, particularly in relation to the putting. Though we do not have to physically incorporate, we run branches that were incorporated effectively. We look at the combined corporations within our and incorporations. With thousands and thousands of institutions from the larger bank and they deal with the Deutsche Bank london branch. It is a huge convenience. It allows us to net effectively, but it is not really comfortable with current regulations. We have seven minutes to go in our panel and let me ask a dumb question. Withinneed people there, the technology and innovation of the future of finance . Do you still need somebody on the watch . I was talking the other day to Michael Lewis, who is now working on sustainable energy. Do you need a Michael Lewis on the watch in tokyo . We absolutely do need people. We need that common sense that comes with people. The more complex our algorithms , the harder they are to monitor. We have a mantra internally, exactly as mario said, we need to replace a lot of people that are performing the function of a computer. Our mantra is to get people to start using their brains. People add much more value and we get computers to automate what we hope will be much more standardized business. That does not mean we do not provide solutions to clients. To provide them in a modular way where we can identify individual blocks. This makes us much simpler and it helps us be regulated because we have made ourselves simpler. World will remain the place where trade takes place. This leads to Prime Minister may, we have quotes released on her speech today. This is from Prime Minister may and her speech we will hear this morning. We want to buy your goods, so you are as common trait if you as freely as possible. Buy your goods, so you hours, and trade with you as freely as possible. It is desirable that all those wonderful things would happen, but the reality is more complex. One of the wonderful things about Financial Technology is that it will give everybody access to Payment Systems and Financial Services and credit. This will unfold over the next five or 10 years. Now you will not need to carry your credit card or your wallet. You wont even need to carry your cell phone because everything will probably be through your fingerprint e or or your eye. But we do have greater cyber crime that is likely to occur as well. In you can now invest preventing these crimes. As you get more Financial Technology and it becomes more important, you will find more people trying to get around the system. I encourage people who have some kind of financial tech device to make sure they are protected and make sure they have taken the steps to protect themselves against money being stolen or their identities being stolen, because this will be an increasing problem with the finTech Revolution. Minutes, wenal have moved to the United States inauguration and the other key elections in europe. Are we moving towards, with the tensions and anger of the day, are we moving towards a zero sum world, moving back to a world of mercantilism . Harold james at princeton has a great book you wrote around the financial crisis about the way globalization is has affected history. He predicted i think it was the 25 year downtrend starting from that point. There are clearly a lot of very strong populist reactions. Them run the world. No, it is not a zero sum. You listen to somebody like donald trump, you would think it was, but it is not. Globalization and trade can work for everyone, but we are in a period where we are going the other way. I dont think it will just slow growth. People with lower income or middle income will suffer from higher prices. Help us here with the actual assumption. If we have a trump reflation with fiscal stimulus etc, can you lift up the return expected from investing and through finance . Tom, i think if you look at the capacity for intelligent investment, there is a scope for the business sector to put in a lot of productive growth. I am an optimist about the fact that technology, clearly there are advances, but at the end of the day, every great technological leap forward has been for the benefit of the aggregate economy. What we have not been good at, and this is always the case, is we look at averages and essay on average, everyone is better off. But we do not think enough about the extremes and that is what i think this conversation this week will be about. We need to get better at that. But i think if we look forward 50 years and look back, i think we will see this is a marvelous period of innovation. People who are not doing stuff today, ultimately that time was freed up humans are very good at finding other useful stuff to do, useful, innovative stuff. As an optimist, i think actually, equities might do ok, to go back to your very simple question. Anne richards, david rubenstein, mario greco, kenneth rogoff, thank you. That was tom keene and his panel on the future of finance. I am matt miller in berlin, alongside guy johnson in london laqua. Sinfrancine how long will this take . Speaks thiser may morning. Consumer crunch, mark carney puts inflation and focus, warning the central bank has limited tolerance for rising prices. Cpi data is due at 9 30 a. M. Rollsroyce rises after settling and and u. K. Bribery probes updating the 2016 profit outlook. The president steals the spotlight at davos at his first speech. The future of finance. Deutsche bank Ceo John Cryan tells us banks have not been too big, just to come look at it. We will be speaking with the Credit Suisse ceo, an exclusive interview. Do not miss that at 9 15 u. K. Time. Guy lets take a look at how equity markets are performing this morning. The big event is what is happening in london, theresa may delivering her speech. The london markets finishing a long run of records. Yesterday we were down and today we are delivering that again, 72898 on the ftse 100. The risk off trade is gathering a little bit of momentum, matt. Matt im looking at some of the movers here this morning on the mob function. See thelick in to details. The losers are concerned, i am looking at the Online Fashion outlet. They are down after missing fourthquarter sales estimates. Not selling enough of those retro fashion items. Mediaset is down on a republica report. They say they are still reviewing that combination. As far as the gainers are concerned, Standard Chartered is an upgrade with bank of america. And rollsroyce, we spoke about briefly, getting over or settling those bribery charges in multiple jurisdictions. So, rollsroyce, not the carmaker, this is the engine maker, putting up a gain of almost 5 . Now lets get to the bloomberg first word news. Reporter thank you. The u. K. Will overhaul its link to the customs union, looking to build a new trading relationship. That is the message from Prime Minister theresa may. She is expected to deliver that at 11 45 u. K. Time. It will come as a blow to business groups hoping for the closest possible link to the euro. The consumers say fresh headwinds since 207. Mark carney said that while he expects consumption to slow, it will not seeize up completely. Consumption tends to slow. It runs faster than income. That is one of the reasons, that is a very high level reason, but that is one of the reasons why we do see some slowing at the pace of the spending over the course of this year, the slowing of the pace of the economy. That is slowing, not stopping. Reporter Deutsche Bank might withhold 90 of its bankers and traders. That is according to the new york post. The paper said the top 10 are expected to receive a bonus in 2016, but they could be spread out over the next five years. A Deutsche Bank spokesman declined to comment. His nationhas urged to join the Transpacific Partnership as quickly as possible. His comments run counter to trumps position on the plane. Tpp should be the Foundation Going forward. I should like to move to ambitious agreement, such as our set. Japan would like to be the standard bearer for the free trade regime at all times. Reporter global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. This is bloomberg. Guy thank you very much. Day one, davos. Lets get back to the swiss alps. Ncine we are here with the Group Founder and ceo. Great to have you on the program. We have seen a lot of risk in 2016. There is a lot of hope in the relfating of the u. S. Economy. How do you look at the world, a t the risks, and making your Investment Strategy work in 201 7 . The world is much broader i think the world is much broader and we have to look much longerterm. Global markets are continuing to develop at a fast clip. We tend to look at these markets being driven by china, commodity countries, Community Companies and conception. Reporter as long as there are no trade wars. Is there a concern that is if experiment, reductionism, works than the rest of the world will suffer . I dont think it is quite that simple. Mercenk that the ecom world will continue to evolve and develop. Yes, there will be an impact. Defining is the opportunity facing these markets Going Forward and it will increase. Reporter will you exit from the companies, or will you ipo them . We are always buying companies and selling companies. I think every year we have about 20 companies that go through ipos and another 20 to 25 that we buy. We do see a fantastic opportunity in the markets of consolidating and trading platforms in sectors that are of crucial importance, such as industrial materials. There is a lot of opportunity. Reporter what companies do you want to exit . We talked a little bit about the ride hailing business. There is a voucher business. Right now, there is a lot of conjecture about the voucher service. I think we are in the process of selling it. We have only the second or third that has gained this status. R markets, reporter do you want to ipo that company . That is what is going to happen. There willnq need to ingmar more capital to grow into these markets. Reporter re fundraising this year . We are always fundraising, but we have a global fund we are looking to develop. That is exciting because the longer do we look at the world as regional markets. Reporter who will subscribe to that . You are going to get into trouble talking about this on television. [laughter] which means that you do not want to tell me, but you know. Reporter i think we do because we have a group of investors that has been supportive of us through the last few years. The hypothesis around our markets continues to be a strong and evolving one and investors see that with clarity. Reporter where do you see the biggest opportunity in terms of industry . Are you looking at industries or countries . For us, health care and education continue to be extremely good opportunities. You have to remember that these sectors will naturally impact the world, and they are getting more traction around the world. Beenr, abroad we have impacting the investment the last four or five years. Is aur Health Care Fund fantastic example of bringing impact into markets were health care did not exist. Having profitability, but having an enormous impact. Reporter is this in spite of, ofthanks to, the wave populism . Think there continues to be a need of goods and services. So, today, if you think of the basic commodities, food, housing, education, and health care, they consume 80 of the households income. If that comes down to 50 or 40 , imagine the wave of Consumer Spending that is released as a result. Reporter are you still interested in purchasing Barclays Africa . That was happening last year. It is a big that barclays wants to divest from. They are looking for solutions. It is a very fine bank with a very fine management team. If the opportunity presented itself, we would be at the table but i dont think barclays has clarified its intent. Would you be concerned about overpaying for it. Reporter we never overpay. Never . We have to be a disciplined investor. If you find an opportunity is not priced in conjunction with what should be a fair price, we will walk away. Reporter arif naqvi, great to speak with you. I will hand it back to you. We will have more great interviews here from the World Economic forum. You will be talking to Credit Suisse tand to bp. Banking and oil are our focus today. Then, we go on to theresa may and brexit and then china. Francine, i will take it from here. We will go right back over to london where Sebastian Salek is standing by. Reporter American Tobacco has raised a cash portion of its business. It is offering to pay 49. 4 billion in a deal that would bring about the Worlds Largest traded Tobacco Company and unify brands such as lucky strike and camel. World was holdings has agreed to pay about Rollsroyce Holdings has agreed to pay to the claimsarges for that the representatives bribed foreign officials. The british penalty of almost 500 Million Pounds is the biggest ever sanction issued against a company by the u. K. Motors said they will spend 3. 1 billion in the u. S. Over the next five years. Higher thant 50 they spent in the previous fiveyear period. Threats from president elect donald trump. General motors plans to invest 100 million in the u. S. To attain jobs. They say the investment is related to Building Products in the works and approved before donald trump won the election in november. Global energy has agreed to purchase Williams Energy for 2. 7 million to expand americas hottest shale play. Has been a hot spot for deals can is one of the few areas in the world where producers have managed to make a profit. That is your business flash. Guy lets get back to davos. Francine, over to you. Francine we are joined by the dana gas ceo. Dana gas operates in the middle east. Mean for e opec cuts dana gas . Do you think oil prices will increase . We can see the Immediate Response of that already. Last year here it was 28 a barrel. Now we are back in the mid 50. We have gone up at least eight dollars from the high 40 area. So, i think we are already seeing the results of that opec agreement the oil price. Uncertaintynificant that is still yet to come. So, and the oil shale is coming back in a big way. We will see price volatility Going Forward. Oil minister saudi says he does not see these cuts extending beyond six months. What do you see for the price of oil, given what you have said for the producers of shale gas . I think with the balancing that has already taken place, from the Third Quarter of last year, that there will not be a necessity for the continued cuts. We still have a very significant global storage of oil, close to one billion barrels. We need to work that storage away before we can really say we are in a firm supply and demand balance. Reporter you have had to cut costs in general. Is this the end of that . It. T is never the end of we still have to make sure that we continue to operate. We collect managing for the margin, focusing the business on operating in the most efficient possible way, and that means keeping a close watch on the margins and costs as a result. Il price of their duty means we must do this Going Forward. Reporter how many cost cuts can you do this year . We have had three years of continuous costcutting. We have squeezed the lemon. We are coming to the and of what that doesieve, but not mean we cannot come up with better and more intelligent ways. Reporter are you getting paid for the fuel that you are selling to iraq and other entities . Our clients within the Egyptian Government and the inrdistan region or iraq, both cases they are significant sums of money. In the case of the Kurdistan Regional government, 721 million. Clearly, we are constantly in discussion and negotiations with them to see how we can reduce those areas. Helpful. Ways the economict, as position improves, we are more hopeful. We are in close discussions with the government on how we can move forward. Like all businesses, if you do not get paid, you cannot invest. We need to be paid to reinvest. We are in close discussions about that. I am optimistic about a positive outcome there. And the kurdistan macroeconomic challenges are even more significant. We are getting paid large amounts and we hope that will continue and that we can recover. Reporter can you talk to me about the exploration in egypt . We are very excited about our potential in egypt. We have three expiration blocks. Bp is the operator in one offshore block. We are currently in the reservoir section and so, we have got some very exciting news , i hope, to be able to talk about in the very near future. Reporter what kind of news . Is that the amount that you found . The amount that we found. We have established the presence of the reservoir. Reporter how big is it . If it is successful, it could be in the trillions of cubic feet. For offshore egypt, that is a significant discovery. But it is very early days. We still need to actually drill the remainder of this section. The first lines are encouraging. Reporter what kind of profit are you looking for this year . Given the uncertainties goign ng ahead, we would be very happy to be in profit. We have managed to maintain our profit over the last two years in that is our ambition. Exactly how much is difficult to say. Reporter re meeting with potential joint venture are you meeting with potential joinet ventures . It is always a pleasure to meet with new people. Reporter up next, we continue our coverage of the World Economic forum. This is bloomberg. Matt this is the European Market open. I want to get back to davos and francine lacqua. Francine we are joined by tony fernandes. It is always a pleasure to speak with you. 12 months ago you were talking about selling the leasing unit. W where are we at . The data room has been opened. We are happy. We will wait and see for the final numbers. It is not right to talk about it now. March wepe that by will have binding bids. Francine but it would be from the same people that put in the permit . Some people have come in at t he last minute. Francine how long did you give yourself for that timeline . We are right on the money. Francine can you give us any hints of where the bids are coming from . I would be told off by one billion people. Francine but by march you have a binding bid and the selloff would be by summer of this year . Yes. Francine are you expecting volatility . Is there anything that could hurt those bids . The market right now seems to be quite stable in our part of the world. The Leasing Company is very much dollarbased and our business has been very strong. Should have a nice easy run. Francine what will you do with the proceeds, if you cannot tell me who the bidders are . That is up to the board. There could be a dividend and a some of it could be used to reduce debt. I would like to have more cash than less. Francine but you would be pushing for a dividend . Is that what shareholders have demanded . I think at least part of it will go to dividends. Francine give us a sense of the mood out there. It has been a little bit of a dampener, but i think the numbers are on asias side. Obviously, there is a lot of wait and see with donald trump and brexit, but i believe in the internal market. Airasia has focused on creating a market within southeast asia. Our business remains as strong. Our First Quarter looks very strong. We are still optimistic about the future. There is always some problem around the corner, if there is one thing i know. We are a strange airline in that when things ar slowing down we are a beneficiary. Francine are you on time for the asset based in hong kong . E guys working very hard. Northeast asia is a big part of the business and there is a lot of demand for the stock. The second part of that operation is to persuade the leaders to create acian brands. We are one of those brands, one of those companies that have have a friend because of ownership regulations. It is a little bit of a frankenstein. Ryanair ande like easyjet. Francine why are you not listed in hong kong . We could. It is open. Francine how do you make that decision . The first step is to get the buy in from the leaders. Seemately, i would like to an assian stock market. Francine how does that directly help , it takes a lot of confusion it makes our accounts simpler and makes us simple, as opposed to five different units. We are pushing towards integration. You have wanted to expand in china for a very long time . Are you closer . I think we have done very well in china. Continued our expansion into china. But also, i want to say that india has become a very interesting market for us. We are now growing very rapidly. India andina and assian. That is why i remain optimistic. There is a little bit of a dampener in asia, but the fact that i am a big believer in globalization, i believe we are moving the right direction. Francine tony fernandes, thank you very much. He will bring his hat guy. Guy thank you, francine lacqua. Plenty coming up, theresa may and xi jinping. Francine theresa may prefers to present her brexit blueprints. She says she wants a new and equal partnership. Werll talk if britain will lose access to the single market. As long as we have Market Access for the next two years, i think the pressure is not that high. The pressure is to create the option alley. Ity. Ptional francine