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Speaker 1: Good morning. It's Thursday, the thirty first of August here

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Speaker 1: in London. This is the Bloomberg Daybreak You podcast. I'm

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Speaker 1: Caroline HITKICKT.

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Speaker 2: And I'm Stephen Carroll. Coming up today. Swiss lander UBS

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Speaker 2: post record profits as its Credit Sweez takeover looks to

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Speaker 2: be paying off.

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Speaker 1: The Chinese mega developer Country Garden posts a record loss

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Speaker 1: and warns of default.

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Speaker 2: Plus we take a closer look at the fallout from

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Speaker 2: Europe's biggest tax scandal and why the investigation just keeps growing.

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Speaker 1: Let's start with a roundup of our top stories.

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Speaker 2: UBS has reported record profits in the wake of its

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Speaker 2: emergency takeover of Credit Swiese. The bank made just under

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Speaker 2: twenty nine billion dollars in profits in the second quarter,

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Speaker 2: but pre tax profits would be more modest one point

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Speaker 2: one billion dollars after stripping out the acquisition cast a

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Speaker 2: negative goodwill from the Credit Sweet deal. The combined bank

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Speaker 2: says it saw twenty three billion dollars worth of deposit

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Speaker 2: inflows in the second quarter, of which eighteen billion worth

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Speaker 2: of Credit Sweet Wealth Management and Swiss Bank units.

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Speaker 1: The Chinese developer Country Garden has warned that it made

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Speaker 1: default on its debt and raised concerns about staying in business.

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Speaker 1: The warning came as the Profty Giant posted a record

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Speaker 1: first half a loss of almost seven billion dollars. Shazad Quasi,

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Speaker 1: who is Managing director of the China Beige Book, says

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Speaker 1: that investors should strap in for more negative news.

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Speaker 3: I think we get bad property news, more problems with

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Speaker 3: developers at least for the next couple of years. And

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Speaker 3: we really still haven't found the floor and property prices either,

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Speaker 3: so I think investors should braze for more bad news

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Speaker 3: ahead over here.

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Speaker 1: The deepening real estate slump in China mentioned thereby Shazad

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Speaker 1: Kasim also was among a host of negative factors that

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Speaker 1: helped to push down the country's latest economic survey data

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Speaker 1: China serves as PMI dipped to fifty one in August

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Speaker 1: and the reading above fifty, indicating only a slight expansion

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Speaker 1: in the set.

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Speaker 2: A hedge fund founded by two former Citadel traders, so

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Speaker 2: its portfolio dropped by a quarter this year. Fifth Delta

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Speaker 2: was the fifth with the biggest startup of its kind

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Speaker 2: in twenty twenty one, but has struggled since then to

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Speaker 2: meet expectations. Data and Bloomberg shows its peers are up

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Speaker 2: by an average of over six percent this year.

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Speaker 1: The year long slump in the UK's private sector is

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Speaker 1: expected to continue for least three months. That is according

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Speaker 1: to new figures from the Confederation of British Industry. Bloomberg's

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Speaker 1: Jack Ran.

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Speaker 4: Reports this is the latest indicator of a gloomy outlook

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Speaker 4: for the UK economy. Businesses surveyed by the CBI say

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Speaker 4: they're cutting back on investment as they suffer from lower demand,

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Speaker 4: cost pressures and higher debt repayments. The report shows manufacturing

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Speaker 4: output falling at the sharpest rate in almost three years,

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Speaker 4: or services continue to slide. The findings suggest that the

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Speaker 4: trend is likely to continue in the coming months, but

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Speaker 4: a separate survey from Lloyd's is more optimistic, with business

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Speaker 4: confidence surging to an eighteen month high. In August in London,

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Speaker 4: I'm Jack Ryan, Bloomberg Day Break.

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Speaker 2: Europe Senator Republican leader Mitch McConnell froze in public for

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Speaker 2: the second time in as many months. The eighty one

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Speaker 2: year old political veteran struggled to answer reporters question about

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Speaker 2: his re election plans.

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Speaker 5: I'm sorry, I had a hard time here here.

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Speaker 4: That's okay.

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Speaker 5: What are your thoughts on running for reelection.

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Speaker 6: In twenty twenty six?

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Speaker 2: Thoughts about what running for reelection in twenty says.

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Speaker 1: As did you hear the question senator running for reelection

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Speaker 1: in twenty twenty six?

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Speaker 2: All right, I'm sorry you are were going to need

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Speaker 2: a minute. The episode raises further health concerns for Mitch McConnell,

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Speaker 2: who is a major fundraiser and force within the Republican Party.

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Speaker 2: His spokesman said the Senator felt momentarily light headed and

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Speaker 2: paused during his press conference and planned to consult a doctor.

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Speaker 1: Sources tell Bloomberg that Apple is testing the use of

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Speaker 1: three D printers to produce the steel cases with some

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Speaker 1: of its upcome smart watches. That story now from Bluebig's

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Speaker 1: Charlie paletts.

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Speaker 5: It would herald a major change to how the company

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Speaker 5: manufacturers products. The technique would do away with the need

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Speaker 5: to cut large slabs of metal into the product shape.

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Speaker 5: Sources say that would reduce the time it takes to

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Speaker 5: build devices, while also helping the environment by using less material.

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Speaker 5: The new approach has the potential to streamline Apple's supply

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Speaker 5: chain and kick off a broader shift in New York.

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Speaker 5: Charlie Paddock Bloomberg Daybreak Europe.

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Speaker 2: Elon Musk's social media network X is planning to gather

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Speaker 2: more data from users than ever before. The network, formerly

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Speaker 2: known as Twitter, says it will collect biometric data, which

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Speaker 2: can include account holder's retin a pattern and thumbprint. X

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Speaker 2: also updated its privacy policy to collect information on account

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Speaker 2: holder's employment and education history. Well, let's turned one of

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Speaker 2: those stories that caught our eye this morning, and a

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Speaker 2: piece about the blockchain and handbags that I wasn't expect

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Speaker 2: a link to when I started reading this, but our

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Speaker 2: colleagu an Area has been looking at unexpectedly discovered in

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Speaker 2: her new Mimia handbook a handbag rather a white card

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Speaker 2: showing that it has been registered on the blockchain to

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Speaker 2: prove it authenticity.

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Speaker 1: Yeah, I thought this is really interesting. Luxury houses using

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Speaker 1: blockchain basically to prove the origin. Why because I think

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Speaker 1: fakes are such an enormous part of global trade, you know, watches, handbags,

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Speaker 1: even coats and jackets. So these big names, of course

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Speaker 1: Mewaz owned by Prada, they want to try to protect

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Speaker 1: these and sort of give a seal of authenticity. And

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Speaker 1: so this does seem to be a kind of practical

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Speaker 1: usage of blockchain perhaps in a way that a lot

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Speaker 1: of shoppers people might not have seen before.

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Speaker 2: Well, as Anna points out, we've been all told for

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Speaker 2: such a long time that the blockchain is going to

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Speaker 2: revolutionize so many areas of the world, and while getting

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Speaker 2: it involved in having to lug transactions in the financial sector,

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Speaker 2: for example, it's quite complex because of the systems exist

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Speaker 2: already in regulation, et cetera. This is perhaps a more

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Speaker 2: visible use of what the blockchain technology can offer potentially

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Speaker 2: change business.

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Speaker 1: Yes, it could, although it seems to be only for

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Speaker 1: the most expensive items. Let's put it that way, only

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Speaker 1: for you know, well is going to do jewelry or

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Speaker 1: very expensive handbags. But you can get it because, of course,

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Speaker 1: you know the resale market, as we were talking yesterday

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Speaker 1: about watches and resale values. You know, it's a big,

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Speaker 1: big business. So yeah, then a very nice piece by

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Speaker 1: Anna Imrera. Okay, so on this top story. Then in

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Speaker 1: finance this morning, Bloomberg's EMEA finance ed is a Tom

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Speaker 1: Metcalf Joints this this morning, Tom, great to have you

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Speaker 1: with us. We've only had a few minutes to digest

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Speaker 1: the results. But what do you make then of the

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Speaker 1: UBS record profits and the integration of Credit Suite.

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Speaker 7: Yeah, I think, you know, as largely as expected. There's

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Speaker 7: this absolutely enormous figure, you know, their net profit of

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Speaker 7: twenty nine billion, and that's obviously coming from negative goodwill

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Speaker 7: from the Credit Swiss acquisition. For me, the things that

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Speaker 7: stood out, you know, once you dig below that number,

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Speaker 7: is you know, at the UBS's underlying business. Certainly, the

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Speaker 7: messaging seems it's going well. You know, they managed to

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Speaker 7: get in client inflows, the Credit Swiss outflows we knew

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Speaker 7: about wealth have sort of stabilized from the heavy bits

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Speaker 7: in the first quarter.

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Speaker 1: Okay, I'm going to put you to the test, Tom,

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Speaker 1: explain negative goodwill. Why does that profit number look so strong?

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Speaker 7: Basically because they effectively bought Credit Swiss for under its

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Speaker 7: book value. So they bought it obviously a fire sale.

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Speaker 7: You know, someone needs to step in and rescue a

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Speaker 7: lot of risks associated with that, so it paid about

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Speaker 7: three billion, and effectively, the way I think about it

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Speaker 7: is that twenty nine billion of goodwill is effectively Credit

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Speaker 7: Swiss was really worth thirty three billion in normal times,

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Speaker 7: and that's been the uplift. I mean, look, if you're

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Speaker 7: a UBS, you've still taking on a huge amount of risk,

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Speaker 7: and that is the figure right now. And you know,

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Speaker 7: let's say there's lots of hidden losses at Credit Swiss

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Speaker 7: or something like that, that figure will naturally come down. So

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Speaker 7: right now, it's kind of this big margin of error

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Speaker 7: they have almost in terms of making sure this acquisition

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Speaker 7: it's a success.

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Speaker 2: Quite about the inflow as figures we were just talking

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Speaker 2: about there a moment ago, how significant are they?

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Speaker 5: I think they're really closely watched.

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Speaker 7: So you know that is basically indication of sort of

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Speaker 7: how investors view, you know, these core franchises. Right So

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Speaker 7: for UBS, it's all about the wealth business and you

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Speaker 7: know that's what they want to be seeing. You know,

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Speaker 7: with Credit Swiss sort of seen as sort of travel

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Speaker 7: eyes and stuff. It was interesting probably a lot of

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Speaker 7: those outflows might have come from Credit Swiss, right, so

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Speaker 7: one pocket to the other. But you know, that's certainly

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Speaker 7: something investors be looking out for in terms of they

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Speaker 7: want to see Oo's assets inflow. They want to see

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Speaker 7: the outflows at Credit Swiss stabilize and ideally reverse at

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Speaker 7: some point. So yeah, no, one of those underlying things

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Speaker 7: that probably will be more closely watched than this twenty

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Speaker 7: nine billion dollar figure is amazing it maybe.

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Speaker 1: Yeah, absolutely, and well, of course UBS CEO serge and

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Speaker 1: what he is going to be speaking to Bloomberg this

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Speaker 1: morning is we'll have that interview for you just after

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Speaker 1: seven am London time. What do you think he might say?

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Speaker 1: What do you think are going to be the question

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Speaker 1: marks I mean around you know, going forwards after this

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Speaker 1: very strong figure, more on the integri maybe share buybacks.

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Speaker 1: What do you think shareholders will want to understand about

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Speaker 1: this set of results.

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Speaker 7: Yeah, well he's got to talk to a lot of stakeholders, right,

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Speaker 7: it's you'd be a shareholders, also the Swiss government, you know,

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Speaker 7: regulators around the world. The deal's been approved, but still

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Speaker 7: there's obviously a lot of focus on it. So yeah, no,

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Speaker 7: I think I think it's probably a message of reassurance.

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Speaker 7: I suspect he would be pretty carefully phrased. And you know,

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Speaker 7: if you look at what he's saying in the statement,

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Speaker 7: he's saying, you know, we know we have a big

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Speaker 7: task ahead. It's all about the integration. It's all I

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Speaker 7: get in these economies of scale, determined to make this

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Speaker 7: a success. And you know, it's clearly one of those

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Speaker 7: tasks where you know, right now, it all seems to

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Speaker 7: be going kind of to plan. But it's as we

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Speaker 7: saw a credits fist for example, right Like, it's very

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Speaker 7: easy for these things to change on a dime. So

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Speaker 7: I think that's going to be the messages. We're you know,

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Speaker 7: laser focused on this, not taking an eye off the ball,

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Speaker 7: and you know, bring on many years hence when we'll

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Speaker 7: be fully integrated. And that's where the sort of suddenly

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Speaker 7: uplands are almost okay.

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Speaker 2: Tom macaf our amea finance editor, thank you so much

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Speaker 2: for joining us this morning.

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Speaker 1: Now, a decade long criminal investigation looking into a trading

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Speaker 1: strategy known as Comex is targeting now one eight hundred

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Speaker 1: people and there seems to be no end in sight.

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Speaker 1: Karen Matussek is Bloomberg's legal affairs correspondent in Germany. She

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Speaker 1: has the story for us this morning and joins us

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Speaker 1: on Bloomberg Radio. Good morning, Karen, Thank you so much

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Speaker 1: for your time. So just go back over. I mean

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Speaker 1: some people may be familiar with these COMEX cases, but

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Speaker 1: just explain exactly what the cases are all about that

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Speaker 1: you're covering.

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Speaker 6: Yeah, Hi, good morning. Yes, comics. Comics was a derivative

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Speaker 6: sort of say of dividend stripping and dividend stripping was

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Speaker 6: a tactic to transfer text breaks that were reserved to

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Speaker 6: locals to foreign investors. This has been done for many decades,

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Speaker 6: but Comedics pushed it to an extreme. It was done

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Speaker 6: mainly through short sales, and it not only transferred one

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Speaker 6: text break to another person, it doubled that text break

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Speaker 6: sort of say, it doubled the refunds you could get

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Speaker 6: on a text that was paid only once. Traders slang

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Speaker 6: it was double dipping, and Germany was one of the

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Speaker 6: main targets of this. It was done in Germany hit

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Speaker 6: until the end of twenty eleven, and it's estimated that

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Speaker 6: it cost the textpayer he about ten billion euros and

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Speaker 6: illicit tax refunds. So no wonder that at some points

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Speaker 6: prosecutor stepped in and proved the matter. And that's rolling

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Speaker 6: the financial industry for quite a while now, and.

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Speaker 2: The number of people being targeted by this investigation is growing.

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Speaker 2: Why are so many bankers being targeted by prosecutors.

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Speaker 6: Well, Comics was a strategy that was devised and set

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Speaker 6: up by investment banks, by big investment banks, mainly in London.

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Speaker 6: Many people think since it's a German tax scandel, that

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Speaker 6: this must have been happening in Germany and their German perpetrators.

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Speaker 6: But that's only part of the picture. I mean the

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Speaker 6: trading was orchestra in London and banks they are also

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Speaker 6: finance these deals. So when we are talking about one

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Speaker 6: hundreds of millions of euros needed to trade these shares,

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Speaker 6: and banks also took more roads that were necessary in

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Speaker 6: the trades. Many people were involved. You needed a lender

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Speaker 6: of share, you needed a short seller. This was done

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Speaker 6: by banks and Cologne prosecutors who are running the biggest

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Speaker 6: propeia in Germany. They've put each and every person that

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Speaker 6: only came close to any of these functions that banks

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Speaker 6: performed on the suspect list. So that's why we are

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Speaker 6: now having one and eight hundred people who are being

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Speaker 6: investigated and they are mainly from the financial industry.

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Speaker 5: Yeah.

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Speaker 1: Absolutely, I mean it was only a few weeks ago

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Speaker 1: that we were talking about France and it's similar investigations

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Speaker 1: and probe. So this is sort of a pan European issue.

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Speaker 1: Why is it taken so long? What's next? Just briefly

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Speaker 1: in terms of the trial and the next dates that

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Speaker 1: we should think about Karen.

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Speaker 6: It took so long mainly because German authorities, at least

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Speaker 6: they failed to act quickly and properly. They were reflects

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Speaker 6: before and there were a lot of red trecks, but

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Speaker 6: they failed to act. And once they started to act,

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Speaker 6: it turned out of very complicated things. So they needed,

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Speaker 6: you know, their difficulties to get the information, partly because

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Speaker 6: it was in the UK. And the breakthrough only came

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Speaker 6: in twenty seventeen when Colinn prosecutors convinced people to cooperate

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Speaker 6: with them, so that helped that turned That was a

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Speaker 6: breakthrough and turns the cases. So we got a lot

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Speaker 6: of a lot of tribes and convictions and we all

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Speaker 6: have three new tribes. On September, this.

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Speaker 2: Is Bloomberg Daybreak Europe, your morning brief on the stories

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

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

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

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Speaker 1: Amazon and Lexa devices. Just Say Alexa played Bloomberg eleven thirty.

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Speaker 1: I'm Caroline Hatcare.

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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 1: Europe, mm hmm