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Speaker 1: Good morning. It's Wednesday, the fifth of July in London.

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Speaker 1: This is the Bluemberg Daybreak You Up podcast. I'm Caroline

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Speaker 1: Hepke and.

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Speaker 2: I'm Stephen Carroll. Coming up today, we look at just

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Speaker 2: why European bank shares are still struggling to recover from

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Speaker 2: the hit they took over the regional banking crisis in

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Speaker 2: the US.

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Speaker 1: The UK's financial watchdog is setting out plans for a

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Speaker 1: single UK price feed for bond trade. And yes, it's

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Speaker 1: more interesting than it sounds.

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Speaker 2: And some really dark numbers around climate change. Global temperatures

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Speaker 2: hit a record high earlier this week. We'll start though,

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Speaker 2: with a roundup of our top stories. A new reports

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Speaker 2: from Bloomberg Intelligence says the outlook for European banks is

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Speaker 2: being clouded by uncertainty your end interest rates, the economic situation,

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Speaker 2: and commercial real estate concerns. Bloomberg's UW and Parts reports.

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Speaker 3: European bank shares plunged around twenty percent during the US

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Speaker 3: regional banking crisis and they still haven't fully recovered. And

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Speaker 3: although fears of deposit flight in the wake of the

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Speaker 3: collapse of credit suees haven't materialized, Bloomberg Intelligence says that

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Speaker 3: the earnings outlook for European banks remains shaky. BI analysts

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Speaker 3: see higher risks from housing and commercial real estate weighing

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Speaker 3: on net income. Another key question facing the sector whether

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Speaker 3: regulators will impose higher capital and liquidity requirements that could

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Speaker 3: end up hitting dividends and buybacks. In London, Immune Pot's

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Speaker 3: Bimbog day break.

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Speaker 1: Europe, Chinese President Shijingping has called on nations to turn

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Speaker 1: away from decoupling and the cutting of supply chains. The

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Speaker 1: comments came a day after China itself imposed limits on

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Speaker 1: exports of two key metals used to make advanced semiconductors.

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Speaker 1: But President she says that he wants to work with

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Speaker 1: nations to bring down trade barriers.

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Speaker 4: China stands ready to work with all sides to keep

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Speaker 4: to the right direction of economic globalization, oppose protectionism, unilateral

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Speaker 4: sanctions and the overstretching of national security, and reject the

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Speaker 4: moves of setting up barriers, decoupling and severing supply chains.

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Speaker 1: The words of Shijiping that are spoken by a translator.

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Speaker 1: The Chinese president's comments also come a day after Beijing

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Speaker 1: postponed a trip to the country by Europe's top diplomat,

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Speaker 1: Josip Burrell. No reason was given for that postponement.

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Speaker 2: Here in the UK, the Financial Conduct Authority is outlining

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Speaker 2: plans for a single price feed for bonds. The consolidated

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Speaker 2: tape will collate the price, size and timing of trades

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Speaker 2: across the country. The FCA believes the move will help

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Speaker 2: to make trading more efficient and improve the competitiveness of

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Speaker 2: the UK's capital markets. European Union last week struck a

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Speaker 2: provisional deal to create its own consolidated tape for equities,

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Speaker 2: fixed income and other assets.

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Speaker 1: The Prime Minister has been questioned by MP's on the

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Speaker 1: Liaison Committee six months since he unveiled his five priorities

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Speaker 1: for the country. Mishisunak has admitted that the economy is

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Speaker 1: proving difficult to tame, but he is committed to harving inflation.

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Speaker 5: It's clearly inflation proving more persistent than people anticipated, but

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Speaker 5: that doesn't mean that the plans and the policy options

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Speaker 5: that have been deployed are the wrong ones. Indeed, they're

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Speaker 5: the right ones. You know, that's the right toolkit that

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Speaker 5: you need to deploy and bringing inflation down.

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Speaker 1: Meanwhile, soon A told the committee he is doing everything

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Speaker 1: he can to support the NHS on its seventy fifth

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Speaker 1: anniversary to make sure that it celebrates more milestones in

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Speaker 1: the future. He also spent the afternoon denying claims that

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Speaker 1: he's been missing from important sessions in the House of Commons.

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Speaker 2: HSBC will become the first British bank to test and

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Speaker 2: advanced data security system being run by BT, Amazon and Toshiba.

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Speaker 2: So called quantum key distribution, is a type of cyber

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Speaker 2: defense financial institutions think could help protect trillions of dollars

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Speaker 2: of transactions from increasingly sophisticated hackers. HSBC says the trial

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Speaker 2: will help it better analyze threats and work out how

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Speaker 2: to protect data.

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Speaker 1: And finally, another grim milestone has been reached in the

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Speaker 1: continuing battle against climate change. Bloomberg's Edax has the story.

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Speaker 6: Global temperatures hit a record high on Monday. The average

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Speaker 6: worldwide temperature was sixty three degrees fahrenheit, topping the past

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Speaker 6: high set in August of twenty sixteen. The National Centers

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Speaker 6: from Environmental Predictions say the new high underscores the extremity

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Speaker 6: of the twenty twenty three summer in the northern Hemisphere

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Speaker 6: and brings into focus the slow pace of global progress

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Speaker 6: and curbing emissions and their estimates. At the current El

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Speaker 6: Nino phenomenon is set to push global temperatures still higher.

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Speaker 6: In San Francisco. I'm at Baxter Bloomberg, Gay Break Europe.

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Speaker 5: Well.

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Speaker 1: The news comes as McKinsey joined the growing chorus of

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Speaker 1: business voices warning that metals, which are key to clean energy,

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Speaker 1: face shortages in the coming years. A report by the

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Speaker 1: management consultancy firm says that the rising cost of nickel

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Speaker 1: and rare earth elements will likely suppress the wider adoption

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Speaker 1: of electric cars, wind turbines and solar panels.

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Speaker 2: Our top stories this morning. I mean it's worth reflecting

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Speaker 2: on the scale I suppose of that milestone being reached,

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Speaker 2: hitting the highest temperature on Monday. Frederica Otto of the

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Speaker 2: Grantham Industry for Climate Change and the Environmental Imperial College

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Speaker 2: here in London, describing as a death sentence for people

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Speaker 2: and ecosystems.

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Speaker 1: I know, it's really pretty grim. It's also grim because

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Speaker 1: El Nino is back. So this is the weather phenomenon

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Speaker 1: that in twenty sixteen saw the hottest ever year on record.

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Speaker 1: It is back and it's expected to trigger a surge

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Speaker 1: in temperatures. The weather pattern usually lasts sort of nine

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Speaker 1: to twelve months, but actually the UN's World Meteorological organizations

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Speaker 1: say that it probably won't hit fully the world until

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Speaker 1: next year, so actually twenty twenty four could be kind

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Speaker 1: of the worst impact when it comes to El Nina,

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Speaker 1: I think specifically for the UK, though June was the

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Speaker 1: hottest month on record in Britain ever. But the thing

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Speaker 1: that is less with it is that sea temperatures between

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Speaker 1: the UK and Ireland have also been unusually hot, several

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Speaker 1: degrees above the normal temperatures. So there are real worries

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Speaker 1: about marine temperatures as well as you.

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Speaker 2: Know the air temperature, yeah, of course, and the implications

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Speaker 2: that for the broader ecosystem as well. A little bit

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Speaker 2: perhaps closer to home in London, a story from our

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Speaker 2: colleague Olivia conte Hula looking at rents in London and

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Speaker 2: particularly how the massive increase that's been seen in rent

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Speaker 2: in London, so thirteen percent, the increase from May to

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Speaker 2: in the twelve months to May of this year, particularly

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Speaker 2: hitting women hard. And that's because that a woman now

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Speaker 2: needs an average salary to double in London to be

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Speaker 2: able to afford to pay rent. And that is figures

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Speaker 2: from our analysis rather by the estate ad in Shampton's

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Speaker 2: International for Bloomberg really s dark figures and we think

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Speaker 2: about how expensive it's now be come to live in

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Speaker 2: the capitol.

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Speaker 1: Yeah, it is staggeringly expensive. It basically takes more than

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Speaker 1: sixty percent of earnings to be able to rent a

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Speaker 1: property in London. But then I think that's the issue

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Speaker 1: around affordability. You know, affordability is paying thirty percent of

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Speaker 1: your income to rent. So yeah, a major issue given

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Speaker 1: the run up in rental prices that we've seen in

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Speaker 1: the UK.

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Speaker 2: Well, let's get more now on that Bloomberg Intelligence report

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Speaker 2: looking at European banks, higher interest rates, the economic slowdown

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Speaker 2: and concerns about the commercial real estate sectoral clouding the

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Speaker 2: outlook for the sector, which still hasn't seen share prices

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Speaker 2: recoverage level seen before the US regional banking crisis. Strugg Filibrators,

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Speaker 2: whose senior bank analyst at Bloomberg Intelligence, joins us now

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Speaker 2: with the details. Good morning to you, Phil. Let's start

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Speaker 2: with this idea of where shares are trading at the moment.

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Speaker 2: Are fears about liquidity and deplosit flight still present in

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Speaker 2: this sector?

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Speaker 5: Yeah, good morning, Not really, actually, I mean the deposit

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Speaker 5: balances of the European banks have actually been remarkably stable,

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Speaker 5: and we saw that in the first quarter results back

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Speaker 5: in May, and we very much expect that that happen

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Speaker 5: again when they start reporting in a couple of weeks time.

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Speaker 5: You know, the balance sheets of the banks are very

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Speaker 5: different to what we saw for the US regionals, much

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Speaker 5: bigger liquidity buffers, less concentrated deposits, and far few of

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Speaker 5: those really large deposits which it had to deposit of

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Speaker 5: flights when we saw on back in the US. So

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Speaker 5: the bottom line is no, actually most of the bands

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Speaker 5: are fall below the government guarantee and actually saying they've

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Speaker 5: been quite stable. But what what you do is about

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Speaker 5: is the earning.

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Speaker 4: Side of it.

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Speaker 1: Yeah, absolutely, so the kind of issues with SVB and

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Speaker 1: what happened in March, perhaps that is fading or fewer

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Speaker 1: worries around that. But European banks, of course still like

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Speaker 1: US lenders in terms of valuation, they trade at much

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Speaker 1: lower multiples.

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Speaker 5: Yes, indeed, and there's a whole host of reasons why

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Speaker 5: that is the case. I mean, economic outlookers. It's seen

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Speaker 5: as much stronger in the US versus what we have

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Speaker 5: across Europe. The regulatory environment is more supportive. But also

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Speaker 5: the similarly, look at a possibility JP Morgan to be

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Speaker 5: on fifteen percent and the other big banks I'm well

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Speaker 5: into the double digits, whereas the European Bank for trading

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Speaker 5: seven eight nine percent, and that's the big driver.

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Speaker 2: Higher interest rates, of course have led to earnings estimates

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Speaker 2: being raised for European banks. But why hasn't that helped

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Speaker 2: to lift share prices.

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Speaker 5: Yeah, it's a very fair point, and say, if you

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Speaker 5: look back at over three years, the net balance of

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Speaker 5: our EPs was brasy. Earnings for the European banks have

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Speaker 5: been upgraded every single month. I would say over a

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Speaker 5: three month period, the revenues up about sixteen percent on average.

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Speaker 5: If you look at this year's earnings driven by those

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Speaker 5: indust rate hikes, however, that's not really so the earnings

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Speaker 5: have been boosted, that's really not flowing through the share prices,

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Speaker 5: and partly because of the army, investors are looking ahead

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Speaker 5: what's coming, and what we do see is those revenue

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Speaker 5: upgrades very much coming to an end, you know, intust

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Speaker 5: rate hikes. Maybe another twenty five or fifty basis points left,

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Speaker 5: but that's coming to the end of that cycle, but

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Speaker 5: also the pass through to depositors has been very low,

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Speaker 5: so you're savings balances, it's all quite low, but we

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Speaker 5: expect that to be ramped up quite aggressively in the

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Speaker 5: coming months, and therefore the margins the banks we've continued

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Speaker 5: to fall.

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Speaker 1: Okay, So then what is the outlook for European investment banks?

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Speaker 1: Of course, also after the takeover of a credit suitee

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Speaker 1: by UBS.

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Speaker 5: Yeah, you think taking out one of the largest players

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Speaker 5: will be positive for the sector, but that's is probably

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Speaker 5: not the case. It is much more likely that is

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Speaker 5: the major US players, which you could say you've got

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Speaker 5: the much stronger balance sheets and a stronger profitability, which

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Speaker 5: will come in and steal some of our share. So

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Speaker 5: the Upan banks and you know, as you mentioned it

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Speaker 5: and none of them are trading, are what you're normally

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Speaker 5: consider crisis valuations zero point three zero point four times

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Speaker 5: pot value. That's basically implying, you know that it's the

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Speaker 5: structure of destruction of value. So yeah, the outlook is

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Speaker 5: quite rim. And if you're going into an earning cycle

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Speaker 5: now turning and getting more difficult, it's hard to see

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Speaker 5: why that will recover any times.

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Speaker 2: What is the key thing to watch in this bank

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Speaker 2: earning season.

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Speaker 5: I will say it is that top line. I mean,

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Speaker 5: we know costs there is about eight percent on average

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Speaker 5: over the last year in a bit and they're probably

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Speaker 5: going to maybe a bit less now because inflation is

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Speaker 5: beginning to be under control. It's still going to be

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Speaker 5: growing at five six seven percent. And if you haven't

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Speaker 5: got the big revenue upgrades which had before then actually

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Speaker 5: Ugans are seeing costs growing faster than revenues, therefore costing

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Speaker 5: can ratio ad rising, efficiency getting worse and therefore hitting

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Speaker 5: the bottom line. So that's a much weaker out look

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Speaker 5: for the banks. And so yeah, I think what happens

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Speaker 5: the revenues from here? Will they start turning in the best?

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Speaker 1: The key issue, Okay, Philip, thank you so much for

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Speaker 1: being with us. Bloomberg Intelligence is Senior bank Alice Philip

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Speaker 1: Richards there joining us with the details the look ahead

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Speaker 1: to the bank earning season.

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Speaker 2: Up next, the Bank of England consider is forcing foreign

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Speaker 2: banks to replace branches with subsidiaries and the CEOs who

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Speaker 2: pull in more than one hundred million dollars a year.

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Speaker 5: Now the paper review on blue Bird Daybreak Europe.

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Speaker 4: The news you need to know from today's papers.

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Speaker 1: Joining us this morning, Bloomberg's leanne gerriins the headline in

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Speaker 1: the Financial Times, the Bank of England considers forcing foreign

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Speaker 1: banks to replace branches with subsidiaries.

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Speaker 7: Good morning, yes, Caroline, good morning to you. So we're

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Speaker 7: going to just break this story down slightly. So this

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Speaker 7: is on the front of the FTFS. You said, the

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Speaker 7: BOE is looking at plans to force more international banks

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Speaker 7: to set up subsidiaries here.

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Speaker 3: In the UK.

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Speaker 5: Now.

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Speaker 7: The move is part of a review of the recent

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Speaker 7: collapse of Silicon Valley Bank. May lower the thresholds requiring

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Speaker 7: foreign banks with corporate businesses in the country to set

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Speaker 7: up subsidiaries with their own capital and liquidity. So the

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Speaker 7: new rules are hoped to ease the handling of failed

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Speaker 7: international lenders. So we do remember the subsidiary of SVB

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Speaker 7: did collapse here in the UK and that was something

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Speaker 7: that was dealt with. But encouraging more banks to basically

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Speaker 7: set up these daughter companies or subsidiaries whatever you want

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Speaker 7: to call them, are likely to be super unpopular with

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Speaker 7: the industry. And this is all according to the Financial Times.

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Speaker 7: It's because they are more expensive than maintaining branches here

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Speaker 7: in the UK, but they have said this is a

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Speaker 7: very contentious issue if you read the piece in the newspaper,

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Speaker 7: and there is also very thin sourcing, so it's an

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Speaker 7: interesting piece, something to definitely read. But more about you know,

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Speaker 7: international bank setting up subsidiaries here.

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Speaker 3: In the UK.

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Speaker 2: Yeah, the Bank of England's regulatory arm chief Sam Woods

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Speaker 2: telling the paper saying back in March that the UK

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Speaker 2: hosted around one hundred and fifty branches with some six

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Speaker 2: trillion pounds in assets as well, So there are a

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Speaker 2: number of companies to be affected if this rule change

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Speaker 2: comes through. Let's go to the Times next Leanne, which

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Speaker 2: says Jim Ratcliffe when speaking to them, says the Competitions

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Speaker 2: and Markets Authority is hostile to business.

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Speaker 7: Yeah, he's pretty annoyed actually, so the billion boss or

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Speaker 7: the chemicals firm Ineos. He's basically called the competition watchdog

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Speaker 7: here in the UK. Hostile and overly aggressive to British business.

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Speaker 7: And this is all over a company he was trying

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Speaker 7: to buy. So the Competition and Markets Authority has blocked

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Speaker 7: a Jim Radcliffe's move to buy a concrete business from

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Speaker 7: a Swiss group for around a seven hundred and ninety

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Speaker 7: million pounds this year, so huge sums of money. Now,

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Speaker 7: what happened is Seeker, the Swiss company in Ineos, did

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Speaker 7: strike a deal for Ineos to acquire the business, but

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Speaker 7: agreed to terminate the contract in March after the CMA

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Speaker 7: raised competition concerns. So Radcliffe claimed that this is yet

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Speaker 7: another example of a deal being stop that would benefit

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Speaker 7: the UK and handed over to America who are absolutely delighted.

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Speaker 7: And clearly he's absolutely furious. Now the CMAS also faced

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Speaker 7: so much criticism and being in the spotlight, and that's

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Speaker 7: after blocking Microsoft's takeover of Activision Blizzard last year that

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Speaker 7: we did cover extensively. We also Jim Radcliffe in the

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Speaker 7: running for Manchester United football club, but he's really hit

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Speaker 7: out here at the competition concerns and he's saying it's

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Speaker 7: just far too difficult and hostile for British businesses to

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Speaker 7: acquire companies.

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Speaker 1: Okay, and lastly, the Wall Street Journal has the headline

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Speaker 1: meet the CEOs who pull in more than one hundred

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Speaker 1: million dollars a year.

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Speaker 7: Yeah, and they not who you expect, actually Caroline and Steven.

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Speaker 7: But nonetheless, let's go in to it. The highest paid

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Speaker 7: CEOs aren't always the ones running the biggest companies who

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Speaker 7: would have guessed the CEO of Hurts, Peloton and Pinterest

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Speaker 7: actually all earned over more than one hundred million dollars

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Speaker 7: last year. Now, this exceeds almost every single CEO in

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Speaker 7: the s and P five hundred, including Tim Cook, he

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Speaker 7: apparently made ninety nine million dollars last year, not far

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Speaker 7: off one hundred million, but not quite one hundred million.

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Speaker 7: But the man who runs a company called cs Disco.

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Speaker 7: This is a cloud services provider that caters to attorneys

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Speaker 7: and has a market capitalization of about five hundred million dollars,

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Speaker 7: so he's absolutely crushing it. But obviously we would think

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Speaker 7: the biggest companies made the biggest money because as we

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Speaker 7: know the SMP five hundred, they are seen as the

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Speaker 7: largest companies. But it's actually not true, and all of

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Speaker 7: this comes from the c suite comp and executive pay,

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Speaker 7: data and analytics companies.

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Speaker 2: This is Bloomberg Daybreak Europe, your morning brief on the

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Speaker 2: stories making news from London to Wall Street and beyond.

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Speaker 1: I'm Caroline Hepka.

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Speaker 2: And I'm Stephen Carroll. Join us again tomorrow morning for

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Speaker 2: all the news you need to start your day right

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Speaker 2: here on Bloomberg day Break Europe

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Speaker 1: M