Transcripts For BLOOMBERG On The Move 20140924

Little bit higher,. 1 . German Business Confidence comes at 9 00 u. K. Time. Monthly fifth straight drop. Mario draghi promising to do whatever it takes. German businesses are not listening. Frenchainly not, but our businesses listening to their government . Well be digging in on air france, but one minute in, the tse trading flat. European stocks have fallen the most in 11 weeks. Why the panic, why the concern . Health care felt the heat, perhaps the u. S. Getting tough on the inversions, seeking out lower tax rates by companies in europe. Healthcare stocks were hurt and manufacturing yesterday was particularly weak. Growth with the initial pmi numbers. The sentiment starting to yesterday. S asia look stronger, but we have worthlmost 1 trillion wiped off Global Equity values since september 18 since the previous peak. Worry about the economies and geopolitics, the u. S. Acting with some arab allies to make airstrikes in syria. Ftse in the red, spain trading flat. We will get an opening on germany later, but we will look at the euro today. We have more signals of how europe is doing, we have the Business Sentiment in germany. Will it fall for a fifth straight month in terms of growth . Will we see growth to terry a ration will we see growth deterioration . Flat. Ro trading what is moving in terms of currencies is the yen and the kiwi, the new Zealand Dollar trading higher against the u. S. Dollar. The u. S. Dollar appears to be slightly overbought. Many feelings about what to do with the u. S. In terms of exports. The kiwi trading up. 4 , moves in the yen also against the dollar. A little bit of movement in the fx markets in terms of stocks. Lets dig in deeper, what stocks are on the move. Tnt express down almost 9 . Profit warnings cut. Tnt wanted to Purchase Express deliveries, ups did, and they gave us a profit warning. Competitive pressures are building. Deterioration, a provision for the third quarter, off almost 9 . Rbs off by half a percent. Initial share sales set to be the biggest since Goldman Sachs in 1999. I cannot get it for the price they marketed it at. 23. 50. To accept. Hey are selling a stake air france rising amid all this confusion, john. The government saying one thing, the company saying the other. The company is saying, no, its premature to say we are backing away from that discount unit, trend savior, while the transport commissioner has said we can put it into that project and we will have to dig deeper to find out what is happening in air france. The stock is rising on the back of it. What is going on with air france . 1. 6 , pretty much flat across europe, so lets get to the perspective on these. Arkets with james bevan james, look at a air france story. Lets talk about corporate france. The transport minister revealing Corporate Strategy that air france does not even know about. Who runs france . That is a worrying question. The french political agenda has essentially put a material break on inward investment. The French Economy is softening as a result. If one thinks about the way about the eurozone problems, we need governments and moneys just as in 2000. Realistically, france is the only government that could do that. The fundamental problem remains that europe has a partial fiscal union, partial banking union, no political union. It seems politics continues to get in the way of everything. They sits, and tell down and get on the agenda and have the same storyboard, we will never see a resolution of the problems in the euro zone. What does it mean for markets . The bottom markets are not pricing into this . Good Quality Companies in contrast, offering higher yields and lower credit spreads. For me, equities are the right place to be. What underpins that for you, james . Corporate earnings remain robust, Balance Sheets are healthy in many instances, Free Cash Flow a dividend yields are high and likely to get higher, and a climate with uncertainty about Companies Falling with falling prices. I think there are a good number of Companies Like novartis, like art newsgroup, like exxon mobil, all companies that have demonstrated they can make profits irrespective of the environments they are operating in. Draghi, the ecb president , said he would do whatever it takes. Cut through the noise, what does that mean . He is trying very hard. Companies have tried hard themselves. We have seen falling prices reported in the surveys. A half yearsn without any material acceleration of demand, and we are still facing a Consumer Sector troubled by debt and also will most and also almost no wage inflation. Stays with us. Stocks on the move, air france gets its signals crossed. The french transport minister says they have scrapped their plans for the lowcost carrier. The comments go against what air france says. They say that is premature and the stock goes higher. Were also watching rbs. The ipo less than what they wanted, their stock down. 4 . Welcome back to on the move. Im jonathan ferro. Ipos, rocket internet has almost doubled the amount they are seeking in Public Offering. They are now targeting 1. 4 billion euros. They could become germanys largest Public Offering this year. Hans nichols has more on the story from berlin. What is behind the increase, more appetite . Rocket oncetite or more cash to go on a shopping spree, which i mean investment, which is international shopping. This is a company that eventually other companies will compete with, also the amazons of the world. Theyillion euros is what initially wanted. Now they are bringing that up to 1. 4 billion euros. Billion. 1. 8 for the share price, we are euros. At 35 to 42 october 7 is the listing in frankfurt. This is a company that is a portfolio company. They have a lot of different companies. They help start, incubate. The criticism, and im not sure its fair, but criticism is that rocket just does clones. They take a popular model in the states, a successful model, and replicated either in germany or other markets. A little bit of a counter argument on that is its difficult to do. Yes, you can make the clone argument, but understanding local markets is very difficult. They have taken these companies beyond. They have grown and they understand the local markets, and that is very hard to do. Lets talk a little about how alibaba plays into this. And monster ipo. How does that affect the german ones . One of two ways. One, they will be able to blow them out of the water. World arebas of the so big and powerful that the small Companies Like rocket will not be able to compete. The other argument is we are at the beginning of a massive splurge, a massive spending spree and investors who were so hungry to get a piece of alibaba what have a similar type of appetite on the frankfurt exchange. That could be an indicator of how well rocket will do. John, i know you like frankfurt for the ecb. I think you should come to the exchange. We can talk about the stock in person and see how big the appetite is. John . Hans, i just dont like the airport. Love the city, love the people, hate the airport. They have done their ipo, raised 3 billion. A range of 23 to 25, and a prices at 21. 50. What are we getting good news for rbs . I think it will be a long recovery story. It doesnt mean i have a Real Advantage if you want to contrast it with barclays. Barclays has Human Digital advantage. They have the high street players in the u. K. , which has to be the key. Lets talk about barclays. Im amazed the share price went down 1 on a day when they said this is a company with billiong revenues of 27 , three point 5 billion stashed in their back pocket against mitigation, and they trade only. 7 tangible net asset value. Morenk the market has a optimistic view. Is it really about the number or the behavior of the bank . The stock is down 15 year to date. Doesnt speak to some competency within that bank . There is a backlog of problems. Fine wasesterday, the a 30 discount on what the fine would have been because barclays recognize the problem, sought it out, told the regulator, and the regular said, thats fine, you have to pay this, but it was a big problem. 2012,oes back to 2007 to so that is prehistory in terms of the current management strategy. I think their digital competency means they have a head and shoulders head start in building a longterm profit growth. Optimistic about barclays. What a week for supermarkets. They have been absolutely crushed. Tesco deliver their third profit warning, and the numbers are not pretty. Eaten away atly market share when the market itself is verily barely growing. Tesco down 50 this year, morrison down 30 . When are you a buyer . Lets talk about the real challenge is tesco faces. One is revenue. We know last year they made about 63 billion in revenues. Is 61ear the expectation billion. That is a big hit to the revenue line, but its not just a revenue problem, it is also a margin problem. The margin will fall from 5 t o 3. 5 , and the expectation is that trend is continuing down. They will have to lower prices, hoping the influx of revenue compensates for the hit to the margin. They just have to come to the table and admit they have 2 billion less and they have to shore up their Balance Sheets to make sure they are reasonably credit worthy. The price at which it is a Bargain Basement is 170, still a lot lower than current share prices, but they could get to that price quite easily because of discounting cash flow based on conservative assumptions about revenues and margins. Talking about a rights issue on the back of this financial mess. I dont think its a rights issue, and because he would want to buy the shares . Have we seen anything like this before . Absolutely, three years ago, problems in brazil, their domestic market. They have slimmeddown. Tesco has a reasonably successful asian business, margin about 6 , much more successful in terms of margin than the u. K. The Eastern European business appears to be underperforming. Those are candidates they could realize. Market positioning within this market, they are not little. They have a huge real estate portfolio, about as nimble as a tank. When people Start Talking about tesco repositioning, be realistic, how likely is it that tesco can reposition . Real estate is a huge issue. They have about 20 billion of real estate in terms of value. They cannot simply just get up and leave. What do they do . They have to focus on lowering prices. They have to compete more aggressively. Also, they have to revive the proposition to the customer who will say, i want to shop there. People are not choosing to drive to tesco. Not only are they lured by by the prospect of lower pricing, but a better quality proposition. You are a buyer at 175 . 170. James benton will be back when Tesco James Benton will be back when tesco gets down to 170. I dont think they will have time to do anything other than put together a quick statement to say he is working on it. I think well have to wait until next april, at which time i think you will kitchen sink it. James bevan says there will be no kitchen sink. As we head to the break, a quick check on european equities. We opened flat. Right now, the ftse 100 barely flat. Talk aboutce we will airlines, air france, the transportation minister says air isnces lowcost carrier grounded for good, but airline says they are not so sure. Details next. Welcome back to on the move. Move thisnies on the morning, shares of citizens financial begin trading in the u. S. After pricing below the market range. The rbs subsidiary priced at 21 50 cents per share. The range on offer was 23 to 25. Fined 77as been million by u. S. And u. K. Regulators. Their wealthms management business charge commissions without client approval. Paying 62 million to the u. K. After failing to properly protect client assets. Amazon workers in germany have extended a strike to a fit Warehouse Distribution center. Theyre protesting over wages and work conditions since monday. The strike is scheduled to end later today. For one strike to another, air france will scrap its lowcost carrier plans, says the french transport minister. Meanwhile, the airline says the comments were premature. It has to do with the pilots strike that has been going on since lets monday. For more, were are joined by kerry lindgren. What on earth is going on . Back and forth. The transport ministry on the one side sing the whole plan to develop a discount unit beyond france in the netherlands, they have scrapped it. Then from the airline we are hearing, no, this is a premature statement. They offered monday to delay an expansion of this unit. You have to wonder if the government is losing confidence a little bit in the ceo and are trying to put pressure on him to speed things along. Who runs this company . Is it the government, the pilots, or the ceo . I think the ceo is frustrated at this point, in this issue of the discount unit, it is a tough situation for him. On the one hand, if he climbs down from this and says scrapped the plan, he is climbing down from what the pilots want. Also, the other thing thats going on as he cannot really compete against easyjet, ryanair, all the other airlines if they do not develop a discount division. He is caught between a rock and a hard place. Hear this noise from the government, from the pilots, they are not going to be able to expand this unit, are they . It sounds its premature to say. Cap the sea with the Airline Comes up with. Its very tough situation, playing right into the hands of airlines like easyjet and ryanair. Easyjet has been focusing on paris. If youre a business traveler, looking to fly on air france or hectored passionately flown on air france, are you booking on easyjet . Theyre not too bad, they are on time, they are not striking, maybe we will do it again. It looks like easyjet and ryanair are the winners. What does this mean for air france Going Forward . If they cannot compete with the likes of ryanair and easyjet, which both want to target the business traveler, what is left for them . You have different models. British airways has focused on hub,oping the unit for the and then they have the Discount Airline they bought. Actually bought a hold Lowcost Airline to make this work. You have air france sorry, german wings and left gonzo trying to develop and moved luftehansa trying to develop this, which is what air france has been trying to do, ufthanza has had better luck with it. Markets,ng on the bond the italian tenure is up, the banishedces this tenure is up. We will talk Economic Policy and risk with morris cramer. Meantime, follow me on twitter. We will be back in two. Stay tuned. Welcome back to on the move. Im jonathan ferro. Dirty minutes into the trading open. E have a low woer flat, the dax lower, german confidence dropping. German businesses are not listening, are they, mark barton . 9. 2 , theress is down biggest decline or on the stox x 600, they will not reach their 2016 guidance. They have made a provision of 50 billion euros. They are speeding up its investment program, overall trading conditions in europe, the biggest fall or, the biggest decline for the dutch logistics january. Ince what is happening with air france . Shares are out. 8 . The transport minister of france suggested they would scrap their decision to expand the discount unit to quell the worst pilots strike since 1998. Air france says the comments were premature and negotiations have not changed to suggest the plan has been dropped. Shares are up. 9 percent, confusion reigns in france. Citizens financial group, which sold shares yesterday for the first time, the subsidiary of royal bank of scotland, they raised 3 billion in their ipo. Pricing the shares below the range. D rbs shares down 1 , falling three consecutive days. They have lost 2. 5 in that time. The ipo allows rbs to boost capital as they adjust to rules and recoup from the biggest bank bailout during the financial crisis. 75 of citizens. That offering was the secondbiggest u. S. Ipo. Rbs down, air france up, confusion and france. No confusion with tnt express, is there. Stocks lower across the board. The top headlines the pentagon says u. S. Led airstrikes attacked a militant group that was planning an imminent attack on the west. The group is described as being made up of al qaeda veterans, separate from the islamic state. The u. S. Is more bombing raids in syria can be expected. Nato says that russia is beginning a significant withdrawal of forces from the ukraine. The latest sign that tensions between kiev and moscow may be lasting. No shots have been fired since september 22. Just two days. As of amounts of supplies are till needed in liberia, sierra leone, and new guinea. They are fighting ebola. They spoke about the virus. With the issue commitment of the World Population and the government of ebola. , we will contain economists are forecasting the german Business Confidence index will fall. That is after manufacturing expanded at the slowest rate in over a year, leaving it at the lowest level since june 2013. The report is due at the top of the hour. Over the last year we have talked about the rise of socalled antieuropean parties, whether greece or france. Owning the, headlines. The surge of a german equivalent could complicate policies for much of the eurozone, according to the head of sovereign ratings at standard poors. Talk to me about this. You have not heard this because its a new phenomenon. The party was formed in the spring of last year. It very narrowly did not make it into the general elections, into the lower house. There has been a stream of victories of Regional Elections in germany, which is really propelled it into the attention outside of germany. The fact you have not talked much about it so far probably has to do with the relatively recent birth of this movement, this party. For some people, they are worried about how quickly this party has gained momentum. The biggest question, something youre been looking at, what this means for euros on policy, particularly from germany. The Political Landscape in germany seems to be shifting. Ifd, wee surge of the had not seen a party to the soht of Angela Merkels cdu, this gave her a lot of room for maneuvers to find compromises at the european level, which is something that we believe has been very critical for stabilizing the eurozone the way we have. So with this opposition now popping up, on the eurosceptics do notisgruntled voters feel really this is the right path for german policy to take, and this makes potentially the room for maneuver for the government much smaller because now they will be criticized much more vociferous in a than before. Happy talk across the eurozone about a soft germany, a away from the eurozone on budgets. Are we going back to the server and policy of 2012, 2011 . The think if you look at results, germanys position has been quite constructive. We have the establishment of the various safety nets, rescue hombre less. We have seen more rescue umbrellas. Germany played ball. We are looking at is signed this dance may be hardening. Among other factors. What matters at this point in time maybe more, and you mentioned it when you reference the expectations of the ifo index, the european economy is slowing down, so the relatively relaxed and harmonious 18 months after the announcement of omt, almost three years now, is potentially coming to an end as growth falters and questions arise anew about the appropriateness of the current strategy. Still questions about omt, still an active, challenged by the top german court, now going to be heard at a Top European Union court. Speak to investors, it is not even on the radar. Is that something we should be concerned with . It is an issue that investors may want to watch. What has happened is the German Constitutional Court has referred the case to the European Court of justice. It will go back to what the court sits in germany after the European Court has deli berated, which will probably take us well into next year. Of what thent german court said at the time when they heard the case is they had serious doubts about the constitutionality, the unlimited nature of the program. Is this asaying monetary operation or fiscal funding through monetary means. Everybody talks about the potential of stock and quantitative easing from the ecb in the First Quarter of next year. Surely if we cannot get through an emergency bond buying program, how on earth will ecb stop conducting qe . I think this is one of the areas of discussion where we see certain fissures between germany on the one hand and omt. It seems to me the bundesbank and the government, where is the government was still on board for omt. It seems to be much more of a split now between germany and some of its european partners. Qe were to be enacted, i think one thing we can be sure of is another case would be brought to the constitutional court. While this is ongoing, i think this will be sort of further afdping up the argument the has been making, which brings us back to the beginning. We are not saying this is going to happen, but we think we should as investors and credit analyst be watching the risks of the German Government may be losing some of the room to maneuver it has enjoyed, which has been constructive in the eurozone crisis management. We see the potential former goals four Angela Merkels party having to play politics. It was the biggest loser . A lot of people talk about france. The fact you have all these external problems within the eurozone, and in france they are struggling to generate growth, theyre pushing their budget deficit targets out. Is france a big concern for you now . We have lowered the rating on the republic of france twice. Ublea. Ow do we expected there would be some linkage on the fiscal side because the economy would be leaker than forecast. Would be weaker than forecast. We will have to look at the measures the government is going to put into place to rectify the situation on a sustainable basis. Its not about finding stopgap savings from one year to the other. I think they need a longterm plan to make sure the public s are appropriate for the underlying economy. Right now, you could argue the size of the government and the way it operates is sort of designed on an economy that no longer seems to exist. Are they at risk of another downgrade from s p . We still have a couple of negative outlooks in the eurozone. Starting with the biggest one, which is italy, which has a tripled right now. Italy is one of those countries where we recently downgraded expectations to the extent we think there will be no growth. That of course when you have deflation, when you have negative inflation, when you have negative real growth, this makes the efforts of the government to contain and eventually reverse the private asked the public debt ratio challenging. The government seems to be energetic, but its all about delivery. In november 20 13 when you downgraded france come you talk about the Growth Prospects come you say the lack of growth is constraining their ability to consolidate public finances. You say that same statement against italy and hardly anybody would disagree. I cannot speculate what the next rating on italy or france or anyone else will be. Clearly what we are about watching is watching the impact of the slowdown on the economy, in particular on the policy debate. One of the solution what are the solutions that have been contemplated at the european level, what is the room for compromise among the National Governments in different agendas, which weaves together the various arguments we been exchanging. In europe andy some capitals paris, rome, elsewhere maybe calling for more of a fiscal stimulus, i think the possible conflict of the german position would be exacerbated. That might be one of those areas where we would see more of a troversy all discussion controversy all discussion. That is exacerbated by the afd rise in the polls. Thatnal question with and the afd partys rise, with the uncertainty over the ecb, bond yields keep going lower. A lot of criticism was aimed at the Credit Ratings agencies for not being proactive. Now it seems youre being very corrective. Proactive before we started downgrading european sovereigns. People are happy to forget that sometimes. Rates are extraordinarily low. I think the National Governments think they are as short and very low because of their achievements, while in fact most of it is due because of the Monetary Policy stance. The risk of complacency a something we have been pointing out for well over a year now. We think this is more pertinent than ever. Sovereign ratings at standard poors, we have to leave it there. Thank you for joining us. Stay with on the move. Welcome back. Im jonathan ferro. This is on the move. Etf is total return being investigated over whether they artificially inflated asset prices to boost returns. Pimco says they have been cooperating with the sec and they believe there procedures were appropriate. A dataplans to build center in the netherlands for their operations, located northeast of amsterdam, employing about 150 permanent workers. They may continue to invest in the area after the facility is completed. Thus Delivery Company tnt is tumbling after scrapping its 2015 forecast. Opposition increased after the first half and overall trading conditions in europe after thierry are rated. Conditions in europe have deteriorated. Pfizer is said to have approached activists to approach a deal. Matt campbell joins us now with more on the story. I thought jack glue was stopping this. I thought jack lew was stopping this. The u. S. Is trying to close the loopholes that make these deals attractive, but without congressional rules, theres only so much they can do. They said they would nibble around the edges of the benefits of immersion of Great American companies, but the core benefits are largely untouched, so Companies Like pfizer are still trying to take advantage of moving offshore if they can. Can this deal go through . There is a very obvious strategic fit. Actavis is a company that a lot people have said would be a good second choice for pfizer after astrazeneca which did not work out for them. The logic is there. Needed a willing seller, of course. We are not aware if that is the case. As a buyer, it is not outlandish to suggest they would become a target. We saw some big moves in the equity markets over a particular Company Either part of a deal for an inversion or a prospective takeover target. Are those deals under threat now, seriously . I dont think they are seriously under threat, but questions. Companies will still work out the impact on their specific transaction of the rules that were announced. The rules will mostly affect how offshore cash is treated, not so much about future profits. It is how easy is it to access your foreign cash stockpiles if youre in or deferred it company. Some questions from analysts this morning about does the deal still make sense of the price they paid. There are still a question about this. All of the companies are stressing this is a strategic deal, taxes just an added benefit. This is a test of how strategic they are. Earlier this year they were talking about were corrective measures. I dont see that thing which anywhere. We have had nothing about retroactive measures. The rules announced this week would only apply to deals closing this weekend on. The companies that have already closed the requisition are out of the woods, basically. There are a long list of deals that have not close burger kingtim hortons is one. Pfizeractavis is well in the future. Until we have really strong action from the u. S. Congress, these rules will always be halfway there. Theyre not going to be quite as aggressive as some people might have wanted, but they still represent a major complication. Strong roles from the u. S. Congress come you can cross your fingers and hope, cant you. Ceo john chen is counting on Business Users. Is this a longawaited turnaround . We will discuss that next. Welcome back to on the move. Im jonathan ferro. Like barry blackberry unveiled their first new device since last november, but it think its fair to say the company has a steep road ahead of them. They have to compete with apple and samsung, and iphone unit that sold 10 million units. What are they unveiling . London, dubai, toronto, you will be a biggie your hands on the new phone. Be 4. 5rstand it will inches in size, it will be square. It will look entirely different from some competitors. It will have a keyboard, of course. That is with the Business User wants. In the also cost 599 u. S. Without a mobile plan, 50 cheaper than the iphone. This company outsourced a lot of the manufacturing to foxconn. John chen wants to focus on the software, services, the messaging system because they are deemed safer and far more secure, as Angela Merkel has vouched in germany. We understand she uses a blackberry. Its time to make a song and dance that they do hardware, too. It feels a little too late when companies are ditching the blackberry and using samsung instead. Who cares if they are targeting the Business Customer anymore. Hardly any company in the way they used to. You have all the bells and whistles and they are focusing on the Business User, look, it is so much easier to read your documents on the square screen, to read xrays. They seem to be honing in on doctors, which seems niche to me. Consumers are not buying the blackberry. The Business User has now gone to the iphone and samsung. Not only are they getting them by their business, they want to bring their phone in to work. On onent all things device. Citigroup has numbers, and it seems four years ago we had about 3. 5 million phones per quarter given by a business to you and i. Now it is halfback, only about a million distributed. A device ofnts their own. Apple cozied up with ibm, going heart and soul for the Business User. I think it is a key concern in general. They missed the boat, go for the software. Apple, 10 million phones in a week and, more than blackberry sales and a quarter. Dont miss our conversation with Ceo John Chen at 4 45 london time. If youre looking at park is, we opened lower, we are still lower, the ftse 100 flat. The pulse is next. Stay with us. Up in the air, conflicting reports cause confusion over the future of air frances discount unit and the pilot strike. Pfizer approaches in a move to lower its u. S. Taxes. This after its failed bid for astrazeneca. Blackberries passport goes global. The ceo will be speaking to bloomberg later today in his first interview. People are definitely asking