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Speaker 1: This is Bloomberg Daybreak you up for this Thursday, the

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Speaker 1: fourth of May in London.

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Speaker 2: Coming up today, PacWest plunges. Shares in the US lender

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Speaker 2: hit a new low as the bank reveals it's in

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Speaker 2: discussions with investors.

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Speaker 1: Pause for thought. Powell hints that rates have peaked as

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Speaker 1: the FED hikes by a quarter.

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Speaker 2: Points twenty five or fifty, That is the question. The

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Speaker 2: ECB gets ready to reveal its latest rates decision.

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Speaker 3: Vodafone dials up a fifteen billion pounds UK mega merger.

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Speaker 3: Pay to Play and spending without Limits both are the

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Speaker 3: stories we're looking at in today's papers.

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Speaker 1: I'm James Wilcock, Pluss pulling more points. The world's largest brewer, ABMBV,

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Speaker 1: tops estimates as volumes rebound.

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Speaker 4: That's all straight ahead on Bloomberg Daybreak Europe. The business

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Speaker 4: news you need to start your day in just one

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Speaker 4: fifteen minute podcast on Apple, Spotify, the Bloomberg Business app

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Speaker 4: and everywhere you get your podcasts.

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Speaker 2: Good morning. I'm Stephen Carroll and.

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Speaker 1: I'm Caroline Hepger. Here are the stories that we're following today.

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Speaker 1: Only days after JP Morgan's CEO Jamie Diamond said that

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Speaker 1: he believed the regional banking crisis was over. Another US

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Speaker 1: lenders future is in question. PacWest has now confirmed Bloomberg's

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Speaker 1: reporting that it's discussing options, including a possible sale, with investors,

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Speaker 1: but the bank says that it has not experienced out

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Speaker 1: of the ordinary deposit flows. The initial report drove the

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Speaker 1: lenders share price down as much as sixty percent in

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Speaker 1: after hours trading. Bloomberg's Kenny Lyons says that a sale

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Speaker 1: presents its own challenges for the bank.

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Speaker 5: What our reporting indicates, according to sources familiar with the matter,

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Speaker 5: is that a sale has been hindered because not a

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Speaker 5: lot of potential buyers are interested in the whole bank.

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Speaker 5: We have seen this pattern emerging with the other bank failures,

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Speaker 5: that the banks who would be buyers know that their

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Speaker 5: in theory, would be a better deal from the FDIC

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Speaker 5: if ultimately receivership was how things ended. So it seems

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Speaker 5: at this time that a sale maybe difficult well to find.

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Speaker 5: So the bank is also, according to our reporting, looking

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Speaker 5: at potentially a breakup or a capital race.

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Speaker 1: Bloomberg's Kadie Lyons, highlighting that the news is really ignited

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Speaker 1: market fears about the stability of the sector, and led

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Speaker 1: to shares plunging at a number of regional banks.

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Speaker 2: Meanwhile, the Chair of the Federal reserved your own poals

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Speaker 2: as the issues in the banking sector are not systemic.

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Speaker 6: Conditions in that sector have broadly improved since early March,

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Speaker 6: and the US banking system is sound and resilient. We

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Speaker 6: will continue to monitor conditions in the sector. We're committed

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Speaker 6: to learning the right lessons from this episode and will

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Speaker 6: work to prevent events like these from happening again.

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Speaker 2: There are those who don't share your own pals view, though,

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Speaker 2: Pershing squares Blackmann, tweeting that he believes the regional banking

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Speaker 2: system is at risk, adding that regulator's failure to update

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Speaker 2: and expand the insurance regime has quote hammered more nails

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Speaker 2: in the coffin well.

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Speaker 1: The growing concern over regional US lenders set the backdrop

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Speaker 1: to the Fed's latest policy meeting. The Central Bank matched

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Speaker 1: expectations with a quarter point hike, while the FED Chair

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Speaker 1: Jero Powell hinted that it could be their last. He

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Speaker 1: stopped short, though, of committing one way or the other.

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Speaker 6: That's going to be an ongoing assessment. We're going to

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Speaker 6: need data to accumulate on that, not an assessment that

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Speaker 6: we've made that would mean we think we've reached that point,

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Speaker 6: and I just think it's not possible to say that

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Speaker 6: with confidence now.

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Speaker 1: Paul also said that he believes a soft landing is

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Speaker 1: still possible, but conceded that the US may now enter

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Speaker 1: a mild recession.

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Speaker 2: We've got a policy decision from the European Central Bank

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Speaker 2: later today. Bloomberg's Max Ramsey has details on what to expect.

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Speaker 7: A hike has been well telegraphed by members of the

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Speaker 7: ECB's governing council. What's still to be seen is the

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Speaker 7: size of that hike. The ECB has repeatedly said it

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Speaker 7: is data dependent. In the past week, we've seen core

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Speaker 7: inflation easing slightly, while a recent bank lending survey pointed

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Speaker 7: to credit standards tightening more than expected. I'm leading economists

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Speaker 7: and investors to predict a twenty five basis point move

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Speaker 7: down in pace from the fifty we've seen in recent meetings,

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Speaker 7: as the ECB has gone on an aggressive hiking cycle

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Speaker 7: to try to get inflation back down to its two

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Speaker 7: percent target in Frankfurt, Max Ramsey, Bloomberg Daybreak Europe.

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Speaker 1: Meanwhile, we will get a policy decision from the ECB

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Speaker 1: that will come at one fifteen London time today. The

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Speaker 1: world's biggest brewer, ab Imbev, has seen that its earnings

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Speaker 1: grew by much more than had been expected in the

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Speaker 1: first quarter. It's adjusted ebit DAR gru by thirteen point

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Speaker 1: six percent versus estimates of just under five percent, but

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Speaker 1: its organic volume growth was slower than analysts had expected

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Speaker 1: at zero point nine percent. It still does expect full

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Speaker 1: year ebit DAR to grow between four and eight percent,

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Speaker 1: So those results in this morning from ab Imbev.

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Speaker 2: Goldbyn Sachs is racing to settle one of Wall Street's

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Speaker 2: biggest gender discrimination cases, sources tel Bloomberg. The company has

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Speaker 2: discussed settlements as high as two hundred million dollars with

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Speaker 2: the lawyers representing Christina chen Aster and other plaintiffs in

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Speaker 2: class action lawsuits began back in two thousand and five.

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Speaker 2: A deal would allow Goldman executives to avoid testifying against

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Speaker 2: allegations of discrimination against women in pay and promotions. Those

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Speaker 2: are some of our top stories this morning.

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Speaker 1: Okay, thinking about recession fears, I think that's one of

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Speaker 1: the key issues, along with the kind of US banking

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Speaker 1: term or that has returned today the Milken Institute Global

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Speaker 1: Conference that's been taking place in Beverly Hills. I mean

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Speaker 1: it's a great kind of place to take the temperature

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Speaker 1: really of global investors. Idlieu, head of Cities at Global

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Speaker 1: Private Banking, talking about recession at the end of this year.

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Speaker 1: Jane Fraser that interview we had with her a bit

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Speaker 1: earlier this week, but she's the CEO of City of Course,

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Speaker 1: recession at the back end of this year. I mean,

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Speaker 1: there's just a lot of consensus now on the difficulties

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Speaker 1: that the US is going to face. And Walsh at Gougenheim,

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Speaker 1: the CIO there, says Midsummer, eighteen months after the start

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Speaker 1: of the Fed's hiking cycle, that is when the recession

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Speaker 1: is going to his Yeah.

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Speaker 2: Look, this is the conversation that we have quite regularly

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Speaker 2: with guests on this program as well. And there isn't

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Speaker 2: a consensus about, I suppose how bad a recession would be,

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Speaker 2: but the opinion it definitely has shifted in recent weeks

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Speaker 2: to more and more of those market participants that we

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Speaker 2: speak to saying that they are expecting recession in the US.

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Speaker 7: Course.

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Speaker 2: Drone Power says his forecast is from modest growth and

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Speaker 2: not recession.

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Speaker 1: Okay, let's turn our attention then to results that we've

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Speaker 1: had out from Alenda Here in the UK. Virgin Money

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Speaker 1: has reported quarterly results. Adjusted pre tax profit for the

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Speaker 1: first half of the year beat average analyst estimates, coming

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Speaker 1: in at three hundred and twelve million pounds versus estimates

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Speaker 1: of three hundred and three Also very interesting, the first

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Speaker 1: half net interest margin was a beat one point nine

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Speaker 1: one percent. The estimate was for one point eight nine percent.

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Speaker 1: We've had out earlier this week results from Barclays and

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Speaker 1: nat West. They both reported a jump in their net

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Speaker 1: interest incomes in the first quarter, although Lloyd's talked about

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Speaker 1: loan impairments increasing and added that the benefits from rate

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Speaker 1: hikes may have peaked. Well, I'm delighted to say that

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Speaker 1: Virgin Money CFO Clifford Abrams joins us this morning. Clifford,

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Speaker 1: good morning, good morning, Thank you so much for your time.

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Speaker 1: Is this quarter the peak of net interest margins for you?

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Speaker 8: Well, as you said, we're pleased with our net interest

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Speaker 8: margin and we've actually upgraded our net interest margin outlook

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Speaker 8: for this year to around one ninety so we do

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Speaker 8: expect our net interest margin to be broadly stable for here,

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Speaker 8: but we're feeling good about the drivers of the net

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Speaker 8: interest Margin's what's maintaining it is demand for our attractive

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Speaker 8: savings products, and we've also hedged our balance sheet over

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Speaker 8: the last couple of years and as that on wines

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Speaker 8: that supports our net interest margin. So while mortgage market

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Speaker 8: conditions are increasingly competitive, we feel we can maintain our

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Speaker 8: net interest margin from here for the next at least

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Speaker 8: for the next few quarters.

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Speaker 2: The Bank of England's reporting rising numbers of defaults and

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Speaker 2: mortgages and unsecured lending in the UK in the first

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Speaker 2: three months of twenty twenty three. How are you seeing

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Speaker 2: default rates on your loans given the broader economic pressure.

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Speaker 8: Look, we're happy with the resilience of our balance sheet,

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Speaker 8: so in general our loans credit quality is broadly stable.

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Speaker 8: But we're also seeing some ticking up in early stage rears,

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Speaker 8: particularly in our unsecured our credit card book, but it's

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Speaker 8: really from quite low levels which we've saw during the pandemic.

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Speaker 8: So some of these early signs we think is call

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Speaker 8: it normalization and broadly expected at this part of what

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Speaker 8: you know, what is an economic cycle. You know, it's

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Speaker 8: possible the economy will miss recession this year. It is possible,

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Speaker 8: but clearly conditions are a bit tougher, particularly for some

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Speaker 8: of our retail borrowers, given the cost of living issues

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Speaker 8: we've seen.

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Speaker 1: We've spent you know, the last couple of days really

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Speaker 1: focus on regional US lenders banking turmoil. There is big

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Speaker 1: concern around deposit flows. Only this morning we reported pac

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Speaker 1: West statement about that, you know, emphasizing the stability of deposits.

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Speaker 1: It's the focus in the industry. Now, tell us about

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Speaker 1: deposit flows for you that this is such an important issue.

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Speaker 7: Now, yeah, we've.

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Speaker 8: All followed those developments in the US. It tends to

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Speaker 8: happen at weekends, that uncertainty. But it's really clear that

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Speaker 8: in the US the regular vironment is a bit different

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Speaker 8: to hear in the UK. So a number of those

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Speaker 8: US lenders didn't mark to market some of their portfolios,

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Speaker 8: they didn't need to mark to market, and that caused

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Speaker 8: some of the some of the deposits to get nervous.

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Speaker 8: And so those banks, particularly with larger deposits, you know,

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Speaker 8: those customers sort of spread out their deposits. Now Here

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Speaker 8: in the UK we operate in a different environment and

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Speaker 8: In fact, deposits are pretty stable generally in the UK

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Speaker 8: and for us in particular, we've seen growth in our

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Speaker 8: deposits of around three percent during this period. So some

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Speaker 8: of our larger players have talked about, you know, their

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Speaker 8: customers paying down taxes or increasingly drawing on their current accounts.

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Speaker 8: What we've seen is customers shopping around for decent rates

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Speaker 8: because we've all seen you know, rates ticking up. You

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Speaker 8: can get four percent plus on your savings these days,

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Speaker 8: so why leave it in a current account, you know,

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Speaker 8: earning nothing. For us, even our current at customers do

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Speaker 8: earn interest and we have really attractive savings accounts, especially

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Speaker 8: for current account customers, but also fixed rate bonds and

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Speaker 8: we've seen good demand for that and that's why we've

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Speaker 8: perhaps broken the trend by growing deposits during this period.

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Speaker 2: How high do you see those saving of rates going.

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Speaker 2: We know that there has been criticism from politicians that

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Speaker 2: banks aren't passing on and off of the higher interest

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Speaker 2: rates in the Bank of England to say, is there

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Speaker 2: further growth there?

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Speaker 4: Do you think?

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Speaker 8: Look, we do expect deposit rates to move further. What

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Speaker 8: you see is for customers prepared to lock in their

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Speaker 8: money for a little time. There's some really good rates available,

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Speaker 8: so we offer four percent plus if you're prepared to

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Speaker 8: give us your funds for one or two years, and

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Speaker 8: customers increasingly doing that, and that means other banks are

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Speaker 8: responding by putting up their rates. So it's the natural

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Speaker 8: act of you know, competition. We live in competitive markets,

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Speaker 8: which means we need to offer our customers good products.

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Speaker 8: Now for Virgin Money, we've done that right the way

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Speaker 8: through the period when rates are quite low. So we're

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Speaker 8: keen to offer our customers good propositions because we want

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Speaker 8: to grow our customer base. And I'm pleased to say

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Speaker 8: that's what we've seen in the last six months.

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Speaker 1: Talk to me about the mortgage business. Approvals are falling.

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Speaker 1: How much pressure is that part of the business. And

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Speaker 1: I know that you're focused on trying to expand the

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Speaker 1: credit card business as opposed to mortgagees. You know the

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Speaker 1: talk of a ten or even twenty percent real term

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Speaker 1: drop in home values in the UK. Have mortgage approvals

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Speaker 1: ground to a hold? How would you characterize them?

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Speaker 8: Yeah, we've seen across the industry mortgage approvals down by

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Speaker 8: nearly a half sob around forty percent, So it's clear

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Speaker 8: that the housing market slowed, particularly from last September around

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Speaker 8: the time in the mini budget when rates spiked. It

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Speaker 8: obviously caused concerns across the market. So we're seeing that

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Speaker 8: in our business and you can see our mortgage book

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Speaker 8: is down a little bit over the last six months,

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Speaker 8: down around one percent, reflecting that. Now, what we saw

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Speaker 8: at the end of last year was really a sharp

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Speaker 8: decline reflecting that shop pick up in rates and nervousness

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Speaker 8: around the housing market. It's really encouraging to see some

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Speaker 8: return to stability in the last month or two, I

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Speaker 8: would say since jan this year what we've seen as

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Speaker 8: rates have stabilized. You know, the government is clearly keen

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Speaker 8: to ensure things are sort of strong and stable here

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Speaker 8: in the UK. Rates have stabilized, we've seen some confidence returning,

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Speaker 8: so a pick up perhaps from some of those lows

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Speaker 8: last year. But we still expect the mortgage market to

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Speaker 8: be down year on year and certainly down from the

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Speaker 8: peak times during COVID. And what we've seen is margins,

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Speaker 8: so as banks compete for a smaller pool of customers,

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Speaker 8: we've seen margins continuing under pressure and in the same way,

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Speaker 8: the mortgage market is picked up a little bit. We've

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Speaker 8: seen actually spreads returning a little bit over the last

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Speaker 8: month or two, and we factored all those developments in

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Speaker 8: the guidance we've given today.

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Speaker 2: What are you doing to control costs in a situation

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Speaker 2: where you're having to pay higher rates to savers and also,

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Speaker 2: as you say, starting to see early stage arrears tacking

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Speaker 2: up for your credit cards.

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Speaker 8: Well, we have long term cost targets. So little over

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Speaker 8: a year ago we set out our cost target. We

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Speaker 8: wanted to be below fifty percent cost income ratio, so

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Speaker 8: that costs around half of our total income. We're a

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Speaker 8: little above that this period at fifty one percent, and

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Speaker 8: our costs are absolutely costs have actually gone up over

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Speaker 8: the last year, so they've gone up around five percent.

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Speaker 8: We've clearly seen inflation, and we've awarded you know, wage

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Speaker 8: riders to our to our staff, which is important to

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Speaker 8: retain and attract the best staff. We've also invested in it.

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Speaker 8: We've put more staff into our contact centers because we've

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Speaker 8: seen customers in volatile times increasingly want to speak to

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Speaker 8: someone and and that's you know, we've been pleased to

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Speaker 8: do that, and that's cost money, and that's behind the

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Speaker 8: rise in our expenses of five percent, and what we've

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Speaker 8: seen because income has gone up, our cost income ratios

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Speaker 8: have gone down. Now going forward we do expect to

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Speaker 8: deliver on that cost income ratio below fifty and that's

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Speaker 8: likely to be because costs are actually coming down in

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Speaker 8: normal terms, and that reflects a few things. Really. One,

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Speaker 8: we do expect to inflation to be sustained at least

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Speaker 8: for a little while. But what we're seeing all that

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Speaker 8: investment in digitization enables us to be more efficient and

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Speaker 8: those cost savings will earn through and in particular as

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Speaker 8: our as the volume through our contact center starts to stabilize,

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Speaker 8: which we've seen already, then we can we can wind

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Speaker 8: down some of the investment that we put in over

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Speaker 8: the last six nine months or so. So we've reconfirmed

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Speaker 8: our outlook and our for this year and in particular,

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Speaker 8: you know our commitment for our targets next year. You

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Speaker 8: know we're on track.

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Speaker 1: Clifford, thank you so much for your time this morning.

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Speaker 1: That is Virgin Money is Chief financial Officer Clifford Abram

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Speaker 1: speaking to us after the bank reported their results this morning.

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Speaker 2: Up next, Votaphone dials up a fifteen billion pounds UK

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Speaker 2: mega merger, pay to play and spending without limits.

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Speaker 4: Now The Paper review on blue Bird Daybreak Europe. The

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

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Speaker 1: I'm joining us this morning to discuss this Bllloonbag's James Wilcock.

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Speaker 1: The Times has a story about the London Stock Exchange

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Speaker 1: chief Julia Hoggart commenting on executive pay. I mean, this

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Speaker 1: is a hornet's nest, isn't it.

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Speaker 3: Well, it is Carolina and this is kind of the

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Speaker 3: problem for the UK, and that it is a hornet's nest.

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Speaker 3: Cost of living crisis is up and people are very

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Speaker 3: worried about sort of how they're going to get paid.

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Speaker 3: They don't really mind what executives are paid, but they

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Speaker 3: don't want it going up. But on the other hand,

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Speaker 3: the NC chief Julia Hogget is saying, if we don't

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Speaker 3: try and have a competitive pay for CEOs, we're going

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Speaker 3: to lose out. I went and pulled the numbers. The

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Speaker 3: average FOOTZY one hundred chief executive is paid three point

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Speaker 3: nine million pounds at least in the years twenty twenty

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Speaker 3: one to twenty two. So comparison the average S and

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Speaker 3: P five hundred CEO, that was fourteen point ninety four

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Speaker 3: million pounds in the same year. And if you look

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Speaker 3: at say that number compared to the median employee, the

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Speaker 3: TUC figures and the high PA figures, say that is

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Speaker 3: about one hundred and nine times the medium full time

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Speaker 3: worker versus the SMP, where that's one hundred and ninety

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Speaker 3: three times greater. So there is a big mismatch there

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Speaker 3: in terms of if you want sort of the larger

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Speaker 3: capital inflows, you may need to put up with higher

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Speaker 3: inequality or high exec pay.

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Speaker 2: Okay, I mean, it's a really interesting conversation and to

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Speaker 2: draw those comparisons there as well. Let's go to Finatal

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Speaker 2: Times next though, James reporting on a potential big murderer

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Speaker 2: in the mobile sector.

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Speaker 3: Yes, so, Vodafone and Seeker Hutchinson are reportedly close to

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Speaker 3: agreeing a combination of their UK telecoms businesses. It would

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Speaker 3: create the country's largest mobile operator, Steven, with twenty eight

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Speaker 3: million customers. According to the FT, the deal is set

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Speaker 3: to value the equity of the combined group at roughly

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Speaker 3: nine billion pounds. And a big problem here is that,

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Speaker 3: obviously we've been talking about the Microsoft Activision deal getting

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Speaker 3: blocked in the UK earlier this week. There is absolutely

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Speaker 3: no guarantee that the deal would be allowed to go

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Speaker 3: ahead for these two The UK Competition and Regulation Authority

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Speaker 3: has already intervened previously when it felt like there would

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Speaker 3: only be three telecoms companies in the UK, and there

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Speaker 3: are also big national security concerns. This deal is by

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Speaker 3: no means completed, but the FET's reporting is saying it

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Speaker 3: may be close.

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Speaker 1: Yeah, I mean twenty eight million customers. That would be

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Speaker 1: the biggest provider in the country that will be closely watched.

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Speaker 1: Wente the Guardian, who also writing about UK government spending

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Speaker 1: and the Treasury in particular. This is so interesting, it.

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Speaker 3: Really is, Caroline. So since the David CAMERONIRA, there's been

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Speaker 3: a big focus on government spending and government departments are

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Speaker 3: required to tell the public and they're closed any cost

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Speaker 3: that was more than twenty five k and anything that

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Speaker 3: officials put on the government credit card that has more

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Speaker 3: than five hundred pounds for a single spend. They are

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Speaker 3: supposed to do that every month. The Treasury's last release

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Speaker 3: is for December twenty twenty one, which they put out

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Speaker 3: in March twenty twenty two, so it has been over

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Speaker 3: a year and since they have updated those figures. They

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Speaker 3: are by far the worse for doing this in terms

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Speaker 3: of transparency of departments. And it goes without saying, but

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Speaker 3: the Treasury are the ones who are holding all the

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Speaker 3: other departments to account and spending when there is big

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Speaker 3: pressure on some of these governments spending targets, be they

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Speaker 3: sort of on strikes, on business investing, on all these

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Speaker 3: kind of big pushies for the government perth. It is

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Speaker 3: fascinating that they have fallen behind in this way and

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Speaker 3: something that I imagine this guard your report will kick

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Speaker 3: up a lot of stir about and as a journalist

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Speaker 3: it stops me from having a look into them. I

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Speaker 3: went to look at the December figures and I found

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Speaker 3: quite fascinatingly one of the big headline numbers is the

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Speaker 3: Telegraph subscription that the Treasury we're putting on the credit

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Speaker 3: card for about one hundred pounds at the time, so

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Speaker 3: it is interesting. Now the Treasury, for its worth, have

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Speaker 3: said internal staffing changes have led to a delay in publication,

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Speaker 3: but says they will publish all required data in due course.

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Speaker 2: This is Bloomberg Daybreak Europe. You're a morning brief on

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

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Speaker 1: Look for us on your podcast feed every morning, on Apple, Spotify,

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Speaker 2: You can also listen live each morning on London DA Radio,

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Speaker 2: the Bloomberg Business app, and Bloomberg dot Com.

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Speaker 1: Amazon Alexa devices. Just say Alexa Play Bloomberg eleven thirty.

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Speaker 1: I'm Caroline Hepka and.

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Speaker 2: I'm Stephen Carol. Join us again tomorrow morning for all

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

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Speaker 2: on Bloomberg Daybreak Europe