Transcripts For BLOOMBERG On The Move 20150129

The a and b shares. 15 billion worth of cuts over the next three years. In an interview, he said the dividend was safe. It was about longterm investment. In terms of the overall headline numbers 4. 2 billion was the headline. They missed the core number by over 1 billion. At shell, that transfers through with the hhe told us its natural that suppliers will see the most and youve got a supplier. Vallourec is the supplier. They said because of the oil pressure, that is literally what they said, they said this is where they had to take 1. 2 billion euros worth of a breakdown in the european and brazilian business because of the hammering in the price of oil. The word they used is not battered. Brutal is the word. Deutsche bank. There is one ceo sitting in smiling. Why . Because we are looking for over 400 Million Euros loss. That came in with the fourth quarter. That was a shock. Legal costs are down. This is a bank that, up 2. 47 . The rest of the markets are lower. Its trading at 60 of its value. Ccla was here this morning and he talked about these numbers and he says he likes deutsche bank. Maybe a shortterm reprieve. Great work. The ftse 100 down. The greek equity market will open in 30 minutes time. It has been an ugly week so far. Greek banks are taking and hammering, down 27 just yesterday. As investors get more nervous about the direction of greek policy. Despite the huge slide in bank stocks, the chair of the European Central Bank Supervisory board told bloomberg they are Strong Enough to survive. We are joined by Hunter Nichols in frankfurt by hans nichols. Pretty strong, she called greek banks. I supposed to cannot say anything else. Well she does have certain fiduciary duties to oversee the banks. She cannot be down talking them. We talked about quantitative easing and what effect that would have on the banks. Yes, they macys and stronger results from corporate but they may also see weaker results because they are going to be competing with the ecb trying to buy up sovereign debt. Have a listen to how she put it. It may have different effects, positive producing more growth and improving the the quality of the corporate, for example. It is a matter of concern for the job index. So, this is something we have been following. And will go on following the probability of the banks. The profitability of the banks. The profitability is not the immediate concern of the greek banks. Image of their stocks were down 27 yesterday. While we were speaking with nouy 11 billion and capital outflows have left greek b anks. At the same time, she said she was not overly concerned. She said they are facing a difficult appear she stressed the banks have done a lot to restore their Balance Sheet, add capital since the crisis. The greek banks are facing a difficult situation right now because of the recent elections but they are pretty strong. They have a lot of good work has been done to fix their Balance Sheet. I think they got through this crisis like they went to the previous one. Jon, im curious to see how the greek banks response when they open up in 25 minutes. They will get a abounce or is the market going to perceive it as trying to shore up the markets . Great work. I am not going to ask what they think of greek banks. I will ask the chief Investment Officer of state street Global Advisors where he oversees trillion assets. You look at2 greek banks. I am looking at withdrawals in january of 11 billion euros. Deposits in greek banks stood at 164 billion. Thats big. Do they look strong . The supervisor has indicated they have done a lot before the crisis to prepare. I think the precautionary principle will comply with will apply with those banks. Liquidity is you have a radical government that is taking power. There are reasons why there may be outflows from greek banks that do not have anything to do with the banks themselves. I think you have to look at, and to put these prices in th context of a precautionary principlee that people are taking, but also the response to general volatility. Our market regime indicator is indicating crisis. We are braced for volatility. This is one example of it. Talk about the market regime indicator later. For greek banks specifically would you be touching greek ba nks . We have the option of an active strategy where we have the best across europe, the best opportunities. We have volatility against value. At the moment we are seeing that greed is triumphing sorry, fear is triumphing over greed. For that reason, portfolios are a little bit cautiously positioned. I think that is what you do. When you look at the greek bond market, and so much as held by the official sector, how much can you read on the daytoday moves . Is that a big signal to you or something that maybe you should treat a little bit carefully. We have noted that. I spent the last few weeks close to our trading desk. There is no liquidity. You have to be careful interpreting these prices. Be cautious about assuming those crisis those prices are telling you something. The entire menu may not get delivered to the customer. I think we need to bear that in mind. Their of a lot of things that the president would like to do. They may do a percentage of them to satisfy the voters. As soon as this guy would win, the Prime Minister would come out and fix that. This stuff is going to take a long time to play out. It would be early to take a step back before he had engagement with the trokika or anybody else. Stepping back the day after assuming responsibility as a Prime Minister is premature. Is this a question of nixon going to china . The things that only could have it from the left. We will talk more about markets. He stays with us. After the break, we turn to russia as eu ministers meet in brussels. The ruble flinches and what could be french 00 fresh sanctions. Welcome back to on the move. Another round of sanctions for russia. That is the question before eu Foreign Ministers. They will debate widening measures against the nation that has felt the pain of a falling currency. 69 rubles on the dollar. That is a stronger dollar, a weaker ruble. Lets get over to brussels. Ryan, what are we expecting today . What is on the agenda . Clearly a majority of the Foreign Ministers would like to see new sanctions imposed against russia economic sanctions, sections focused on the energy industry, on the Defense Sector and on the banking industry. Kind of like what we have already seen but taking it a step further. Theyd like to see an expansion of the black list of individual subject to asset freezes and travel bans and companies as well. However there is another step they could take before they do that and that is to roll over some of the existing sanctions. The way the sanctions work, they have to be renewed every six months. They have to be renewed by everyone an agreement, decisions made by the unanimity of all 28 states. The sanctions introduced last year were sanctions light. The travel ban and the blacklist. Those are up for renewal this march. One of the things that might have been today is we could see a renewal an extension of those specific sanctions. Eu ambassadors met yesterday to discuss that, however, and they failed not only to introduce on introducing new sanctions but they failed to agree on rolling over the existing ones. The foreign minister sit down at 3 00 p. M. Brussels time and of those guys fail to come to consensus, then they will take it up to the heads of state and gather on the 12th of february. Lets talk about obstacles. In the last few days, it seems greeces voice has gotten louder. Greece is the word. How significant is their voice in all of this . Its one to tango. All you need is one of the 28 countries to not agree with sanctions. They cannot go forward. So far greece has said they do not consent to some of the language that the European Union has been using to describe russias actions in ukraine. They felt disgruntled that they were that will definitely raise heads here. So greece is an issue. We will have to see if it is rhetoric or if the greeks are opposed to new sanctions. It is not just that greeks. The germans as well. We heard from the economy minister, the leader of the Junior Coalition partner with angela merkel. Hes said it is premature for new sanctions. So we are going to have to see. A couple of days ago before the greek election and looked like they were going to impose new sanctions. Now not so certain. Great work. Dollarruble on the move. A stronger dollar, weaker ruble. We are back to the record those. Back through 69. Rick, crisis mode. For portfolio management. Talk to me about that. Russia, greece. What does it mean about how you build your portfolio . We look at a number of measures over the last two years to look at euphoria and crisis. We had him in usual year. The beginning of 2014 we are in euphoria for a long time. We need to be careful. We have scaled down bets where we have active positions and portfolios. Ironically, crisis gives rise to opportunity. This is where the measure becomes a little nuanced because crisis is associated in its later stages with value immersion. High yield. We are in crisis mode. You want to buy hihgh yield . Not worried about the oil factor . The oil factor is a big ingredient in the spread increase. All the oil and Energy Sector is not created equal. There has benen an interesting opportunity to pick apart. You hear about light and private equity is becoming externally competitive in terms of billing for deals overpricing. Nevertheless, the u. S. Economy is becoming increasingly solid, secure in terms of its recovery. That volatility is a worry. The reward is Getting Better and highyield. What have you been buying . Weve been raining back that. Reining back debt. Where overweight equities and credit and bonds. And we are underweight in emerging markets and commodities. Those are areas where you would think, there is some value. But in commodities, there are some challenges ahead because of supply in certain areas which takes a long time to work its way through. And emerging markets is a mixed bag. You have got russia on single digit p. E. In crisis mode. Potentially challenges from the dollar continuing to be strong. Youre going to be very discriminating in emerging markets. Small cap stocks are interesting in emerging markets because of their ability to be a little bit more nimble and to tap into some of the themes that are continuing themes, whether it is the middleclass consumption. One has to be careful about overpaying because emerging markets you have got this incredible disparity of valuations. Outside of emerging markets and back to develop markets, outside of greece, a bigger bond market like italy, france, spain. There is a little bit of a pullback yesterday because contagion is a very big word. There was a little bit of a pullback. Do you expect the selloff in greece to remain contained . Unless there is evidence that people in spain, italy somehow see a way out and begin to adopt a much more radical policy. We have seen sa seeping out of the center to the periphery. If that becomes centered around one particular political movement, then i think investors are going to be a little nervous about contagion. The economic contagion is a little bit less likely. Greece is at the bottom of the cycle. Spain had a couple of periods of solid performance. Unemployment is a lagging indicator. That is the troubling thing. How difficult has your job become when i say yield on the french 10year of 0. 57 . It has become very challenging for asset owners in the insurance sector and pension sector whose liabilities are marked to markets with those sort of yields. The rebalancing that many might expect as a result of q. E. , that will force money into highrisk assets. The risk budget may not be there. A lot of clients may not have the budget to take more risk. The opportunities either. Fascinating stuff this morning. Thank you very much for joining us. A quick check in on shares of shell. A big miss on profit. Even bigger cuts to capital spending. There is the share price, down 3. 6 . We will bring you our interview with the companys ceo after the break. Welcome back to on the move. The bigger corporate story shell. The oil giant posted a miss on profit. We spoke to the ceo. He joins us now. The top line from that interview. I loved what he had to say. The correction. He was in good spirits. Thehe in the last year, before the decline in the oil price, he has taken measures to prepare shell. Not that they knew this is going to happen but they made some har d choices on new projects on asset sales and on slowing investment growth. The elephant in the room the oil price. How low is it going to go . I asked. The fundamentals of supply and demand will reassert themselves. Demand keep on growing parts supply will drop even from existing fields and existing investment levels. A few percent. We have to expect as an injuries industry, new investments. In the long run oil prices will reverse back to much higher levels. The opec secretarygeneral referred to it as it could result in lower production which will boost the oil price. I jumped it is said, will we see a 200 oil price . He was not going there on the price. He said we have all made. Cells guessing the price. A lot of people sitting at home holding the stock. Personal sure plan. And they will be thinking about the dividend. Itiinteresting. Solid dividends. That is why you go for oil companies. Too thick and thin, you invest in them because he always maintain the dividend, even when cash flow is declining. Shell shares in the last year down by 2. 5 . Brent crude down by 55 . They whether the decline. The question is, though, is the oil price sacrosanct . Here is what he said. We have said we would not change the dividend, not this quarter. We made an outlook statement for the First Quarter as well. As you know we have a very conservative very predictable, very longterm dividend policy. Im not minded to change that. Very quickly i asked him about cost cuts. Bp cutting 300 jobs in london. 30,000 jobs being cut in the industry. Nothing in the headlights. Will you cut jobs . Of course, we have announced job cuts as well but that is all part of the normal program ever improved efficiency, of cost containment, of taking advantage of opportunities. One comment on job cuts. The guys keeping things close to his chest. Earnings did miss that they are up on last year. That is a rep with shell. Welcome back to on the move. Im Jonathan Ferro in london. 30 minutes into the trading day this is down things are shaping up. The ftse 100 a little bit lower following a session over in the u. S. That was also lower. The dax also off by about 0. 3 . The trading session just starting over in greece. There we are, up 0. 2 after some big losses. Lets forget greece for 10 minutes. Lets talk about booze. Diageos firsthalf profit Beat Estimates after the distiller cut costs and took measures to improve profitability. Lets get more from the man in charge. The ceo joins me now from london. Ivan, always good to have you here. All anybody has ask you about is china, china, china. Cutting down on extravagant spending. When can we expect this issue to bottom out . First, let me put it in context. Mainland china is only 1 of our business. That trend i do see it bottom out but the Consumer Market in china is still strong. Gdp growth of 6 , 7 , china is good. Overall, i think diageos performance in the past shows our resilience. The momentum is Getting Better in two thirds of emerging markets. The developed world is strong. In china, by do business, where we took a big correction, is back in growth. We are introducing a single grain whiskey, which is off to a very good start. We talk about antiextravagance rules and the rising middle class. How much success are you having with lowerpriced spirits . Is that an area that can grow for you . One of the strengths of diageo is, we have this wide portfolio of products, from entrylevel price points to 3000 bottles of Johnny Walker that we sell in china. We have the ability to flex as Economic Conditions and the emerging middle class comes through. In china, we have introduced a brand, a new product at a lower price point which is off to a very good start. The consumer shifts and dynamics with Economic Growth and ups and downs, we have the resilience in our portfolio and innovation capability to take advantage of these opportunities. Mexico is another good example. Traditionally a very highend scotch market. As the economy slowed, weve had tremendous success with brands like black and white and Johnny Walker red label. Lets pull it away from emerging markets and talk about a drink closer to home. Guinness. The turnaround in the guinness business how is that going . Can we explore the possibility that you do eventually sell this business . Beer business is 20 of diageo. It is core to diageo. In the results weve announced, we are pleased to see improving momentum in our beer business. It grew about to provide about 2. 5 in the half. One of the great opportunities for diageo in the next decade is our position in africa and what that represents. Youve got six or seven of the fastestgrowing economies there. Youve got under penetration of beer and spirits. The beer business, for diageo, we have a strong position in africa. This is a real strength for the company. It is strategically very important and is a big lever of growth and Value Creation over the next decade. I love having you on because we get to do a tour of the world and the various drinks. Lets do u. S. Vodka. You used to run that business. What is happening with the vodka business in the u. S. . Is there a struggle and do you expect a turnaround . The overall u. S. Spirits market is very healthy. The demographics are good. Spirits is growing faster than beer. People are trading up, drinking better. Within that, we have a very wellbalanced portfolio across vodka, whiskey scotch, north american whiskey tequila, gin, rum. Vodka has become more competitive in the last couple years. However, weve got a good portfolio from ciroc vodka at the high end, to smirnov, which has been in the middle of the market, where we struggled more in the last 18 months. Im pleased to see the efforts are beginning to show green. In the last few months, we are improving market share. Theres no doubt vodka has gotten much more competitive. There have been too many brands too many flavors. It is still very important. That sector is not going away. Also, these trends work through cycles. I think the strength of our company and our portfolio is right. We got a very strong leadership position in vodka with ciroc, ketel one and smirnoff. We had good growth across the board. As that becomes more competitive, is that a space we could see some consolidation . Certainly, from our standpoint, we will always look for opportunities to add brands that we believe will be a creative and offer good margin and growth potential. By and large, i say we feel confident about our u. S. Spirits position. We are always on the lookout. We do a lot of innovation and i think you can expect us to continue to do that. We have the Balance Sheet to be acquisitive for the right opportunities but we have got the strength today where organic growth of the existing portfolio is what i feel confident we can deliver. Ive got a follow up on that. The vodka business, is that somewhere that diageo could be looking at acquisition . Id say unlikely. We feel very good about our vodka participation. Today ciroc is one of the leading global ultra premium vodka brands. Right here in the u k, business has doubled in the last year. You look at all the leading nightclubs around the world, you find ciroc. We are very good at the high end. Ketel one is a great craft vodka. Its got a phenomenal following with bartenders and vodka advocates. It is strong in the u. S. Early days around the world. Smirnoff is a global leader. Smirnoff is growing double digits in brazil, in south africa, in india, weve got a lot of emergingmarket potential to grow. Vodka, in many markets, is still very early in the penetration curve. The total diageo portfolio is complete and i would not anticipate more acquisitions in vodka. My final question for you, we cannot let you come on bloomberg without talking about Johnny Walker blue. I was in davos last week and my whiskey got more expensive in switzerland. As you look at the currency swings, is there something youve got to do on pricing . That Johnny Walker blue was worth every swiss franc or euro you paid for it, even if it was 20 or 30 more. The great thing about scotch whiskey and Johnny Walker in particular is, these are rare liquids. These are brands that are highly desired. In many cases, we are constrained in supply on some of our scotch whiskeys. I expect in times of currency volatility we will retain our pricing discipline. When you look at volatile countries, the currencies are depreciating. Johnny walker is often the best reservoir where people put their money. We will price in dollars and hard currency in the emerging markets as we go through volatility. Weve done this before. This is really a adjustment to the strength of the brand and the category. Johnny walker blue label in particular i believe is in very good shape around the world. Weve got a lot more consumers around the world not just in davos aspiring to enjoy the fantastic brand. The best reservoir to put your money. Always a pleasure to have you on the show. Diageo ceo ivan menezes thank you very much for joining us. Lets stick with earnings. This time, germany. Deutsche bank posted a surprise profit in the fourth quarter. Analysts were expecting a 300 million euro loss. Hans nichols is in europe with more. I would like to Say Something about whether they are spending more or less on now call based on these numbers. Perhaps more, but in a celebratory mood. They only set aside 207 Million Euros for litigation. You look at their numbers last year, it was 1. 1 billion. Mainly, it is lack of spending on litigation. They do see some strength in their Investment Bank, up 20 . Debt trading up 13 . That has led to an overall profit. Crucially, weve just heard from the cfo. They will be continuing their . 75 dividend per share. No changes there. Basically, we have better than expected litigation costs. They havent been quite as high. Weve seen the Investment Bank pick up on some debt trading. Good news all around. Thank you, hans. Deutsche bank stock up 1. 4 . Coming up, we will talk more about earnings. We will talk tech after a huge week of result in the u. S. Apple becoming the worlds Biggest Smartphone vendor and facebook hits 1. 4 billion users. We will talk opportunities after the break. Welcome back. Im Jonathan Ferro. This is on the move. Facebooks fourthquarter profit rose to 701 million, a 34 increase on the previous year. 1. 3 9 billion people are active users on the service. The social network now says 85 of its users access it via a mobile device. Joining us here on set is hu ssein kanji. Help me out here. I remember questioning whether facebook could make this shift to mobile. Here we are, a success. We all had that question at ipo time. Almost all engagement today is on the mobile phone. I think 64 access it via mobile phone on a regular basis. Almost all the revenue comes from mobile. This is a mobile company. What is the biggest us google the biggest obstacle for facebook now . Investing in the next big thing, which is what Mark Zuckerberg has been outlining to shareholders. Double down on r d. They want to have a bunch of other properties, not just facebook. Com. We saw myspace come and go. We question facebooks longevity. Did the same with apple. No new product category. The iphone performance, and here we are again talking about whether this is the final chapter. Do we need to recalibrate expectations . Historically, apples quarter two is always a little lower. The reason being, almost everybody buys these things for the holidays. You come off that. When does this whole decade end . We are in this major transition for the mobile industry. These are 10year phenomenon. When you look at what has gone before, is pc a good example . I think the pc industry, the mainframe industry, the minicomputer industry, all of these produced winners for a solid decade, and then those atrophy as the next big thing comes around. We are maybe year five or six in the mobile industry. It is still a way to go. When you look at the apple earnings, that is a blowout in terms of corporate news. What was the Biggest Surprise . Iphone sales in china. I would have said you need a cheaper device. They built the 5c. What people didnt want was cheaper, they wanted bigger. They built a more expensive device, and all of a sudden, sales are up significantly. The average selling price was remarkable. Can we expect them to maintain that pricing . It started off at a premium price point. Components come down in price but they lower a little bit. They figured out how to raise that. I think over time, these margins compress. It is a slow deterioration, not overnight. Facebook said growth would be 53 . A similar complaint with apple. They dont seem to care anyway. It doesnt seem to matter to u. S. Central banks. Is it an issue for these guys or is it just something that doesnt flatter their bottom line so much . I dont think the Tech Industry worries about the stuff. How many times have we seen this over the last few weeks . This has been a known thing. It should be something that you are counseling shareholders about. I think the Tech Industry was caught by surprise on how quickly the euro deteriorated. I think the Tech Industry is its own little world. The rest of the world is in much more of a mess than the Tech Industry. Weve got to finish by talking about the iwatch. Is this going to make a big difference to the bottom line . It is unknown. I dont think anyone has played around with the product enough to have a view on how it will drive sales. The ipad was surprising out of the gate. It was a great product and it has deteriorated. The surface is doing pretty well nowadays. People want to combine the device. It is too early to tell. Until you and i are wearing one, you wont really know the answer. As i look at the ipad if you really wanted to have a go at apple, you would be on the ipad. Quite a significantly large company. Is it a worry, something anyone should care about . I look back at their earnings a couple years back, and they were convinced that the ipad would cut into pc sales. It is mostly staying in the windows camp. People want a combined device. Apple really hasnt built a product that is perfect for that yet. The rhetoric seems to have changed on the ipad. Thank you very much hussein kanijji. Next, from apple to mcdonalds. The man on top steps down. Investors are loving it. You get upon . We have more into zoo. We are back in two. Welcome back. Im Jonathan Ferro live in london. Time to talk about mcdonalds. The shakeup after a slump in profit and sales. The ceo is out. A britt takes the helm of the american fast food giant. Caroline hyde, don thompson is off. Welcome, Steve Easterbrook. Don thompson, less than three years as ceo. He managed to push the shares up 1 . The rest of the market was up some 33 . People have run out of patience. Sales falling. In they bring a fresh change. Cool brittania, in a quintessentially american brand. Taking the helm is Steve Easterbrook. He is the first ceo of mcdonalds who hasnt completely institutionalized mcdonalds. Really successful u. K. Brands. Now, maybe he can sprinkle a little bit of je ne sais quoi over the brand. The background to all of this is, rather like tesco, mcdonalds apparently, you can start as the guy at the drivethrough and make it to the top of the company. Don thompson started as an electrician. He worked his way up over 25 years. He did try to change things. We are seeing the problems mcdonalds is facing. Youve got sushi, youve got mexican, youve got so many other types of fast food that seems healthier. You also got other burger brands to dominate. Youve got shake shack, five guys. All of them have a far better marketing stance. It is homemade, fresh healthier. You dig into the numbers, five guys is far more fattening. Is this the big challenge, to convince the public that these guys arent healthy . Hes got to lower over the millenials, 2030yearolds who want to be shopping elsewhere. Hes got to prove that this is still a cool brand. He has bitten off a bit of this. When he was heading the european brand he ruffled some feathers. He took some hits on the chin. He actually had a tv interview with the guy who wrote fast food nation. He said look, i want to prove you wrong. He had a website, make up your own mind, where he answered questions about mcdonalds. They are desperately trying to tell you, it is 100 beef. They are trying to also perhaps become more nimble. This is a man, Steve Easterbrook, who pushed digital when he was over here. Be able to order from your mobile, be able to order online. Also make a more localized menu, build your own burger. His predecessor tried to do that. He had a create your taste push. They tried it in australia and california. Howd you get a juggernaut that has 36,000 restaurants, slightly tongueincheek how do you get that to be nimble . That is the question we are asking the guy who ran 1200 in the u. K. He wants to change the menu bring it digital. How do you make it cool . How do i transition from mcdonalds the german unemployment . German unemployment unchanged on the month. Expecting it to come lower by 10,000. You look at the top line number 6. 5 . That stays at a record low. Pitch that against what is happening in greece, you have two very different worlds. The Athens Stock Exchange taking an absolute beating over the last three days. We opened a little bit higher today. A rest bite for greeces markets after an ugly week. You want to continue the conversation, im on twitter. Shellshocked. As crude continues to slide, the oil giant says it will cut spending by 15 billion. Greek banks will survive. That is the view from the ecb as the market takes its cue. Stocks stabilize in athens. And, a break on the menu. Mcdonalds promotes u. K. Native Steve Easterbrook to be its next ceo. Good morning, everybody. Welcome