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Speaker 2: This is Bloomberg day Break Weekend, our global look at
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Speaker 2: corporate earnings and Focus. We'll look ahead to results from
Speaker 2: the jetmaker Boeing and shipping giant ups. I'm Tom Busby
Speaker 2: in New York.
Speaker 3: Him Carolyn Hetge here in London, where we're charting the
Speaker 3: potential rise of British banking ahead of some key earnings reports.
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Speaker 2: A good day to you. I'm Tom Busby. We begin
Speaker 2: today's program with the troubled aerospace giant Boeing, the company
Speaker 2: making headlines for all the wrong reasons of late a
Speaker 2: crippling month long strike, mounting losses, layoffs, investigation since the
Speaker 2: safety of its aircraft and more. And amid all that,
Speaker 2: Boeing officially reporting its third quarter earnings this Wednesday, although
Speaker 2: some of those numbers were released last week. For more
Speaker 2: and what we can expect, we're joined by George Ferguson,
Speaker 2: Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst. George, thanks
Speaker 2: for joining us well before we talk about what's wrong
Speaker 2: at Boeing and maybe how to fix it, what do
Speaker 2: you expect to see from the Q three earnings this Wednesday?
Speaker 5: Yeah, I think we've already seen I think the most
Speaker 5: important part of Q three earnings, and that was when
Speaker 5: Boeing disclosed their cash balances and they and cash use
Speaker 5: for the quarter. Right, So during the quarter we saw
Speaker 5: a use of it's about a billion three So that
Speaker 5: was from operations I think a little bit better than
Speaker 5: what we had expected for usage. There's going to be
Speaker 5: some capex that piles on top of that, which will
Speaker 5: you know, give us our free cash flow for the
Speaker 5: quarter again, probably something close to two billion ish in use.
Speaker 5: They were down to about ten billion dollars in balances.
Speaker 5: I think ten and a half, and so this is
Speaker 5: a company that needs about ten billion dollars around the business.
Speaker 5: So the big indicator here was that, you know, they're
Speaker 5: they're at the point where they need to raise some money.
Speaker 2: Speaking of raising money now, they're now working on raising
Speaker 2: upwards of twenty five billion with new shares convertible bonds.
Speaker 2: I mean, is this going to go ahead? It's credit
Speaker 2: rating just above junk status? Is this what's next for Boeing?
Speaker 5: Yeah, So I think you know, the company's calculus here
Speaker 5: is that if they're right up against the edge of
Speaker 5: what they need to run the company and they've got
Speaker 5: a strike going on, you know, obviously there's going to
Speaker 5: be well probably cast usage during the fourth quarter, so
Speaker 5: they need to go into the markets and shore up
Speaker 5: that liquidity position just to give them more leverage with
Speaker 5: the union. And so I do think it's going to occur.
Speaker 5: Right We've heard rumblings of them coming to the equity
Speaker 5: market for up to twenty five billion. They filed the
Speaker 5: shelf offering for twenty five billion. I don't think they
Speaker 5: want to use all twenty five billion right now. I
Speaker 5: don't think they want to be I don't think they
Speaker 5: want to skimp either on what they get from the marketplace, right.
Speaker 5: I think they want a couple quarters worth of liquidity
Speaker 5: so they can get the union back to the table
Speaker 5: and say, look, we've got a lot of staying power here,
Speaker 5: so you better be ready to go, you know, a
Speaker 5: quarter or more, you know, on this strike, which I
Speaker 5: think is going to be very hard right for the
Speaker 5: typical union rank and file. So you know, we kind
Speaker 5: of see ten to fifteen billion worth of cash raise
Speaker 5: again equity. The challenge will be that there'll be a
Speaker 5: fair amount of dilution for current shareholders. There's about ninety
Speaker 5: billion dollars in market cap right now in the company.
Speaker 5: Ten billion dollar raise is something like eleven percent dilution,
Speaker 5: so it's pretty significant. And that's why I think they
Speaker 5: don't want to go all the way to the twenty
Speaker 5: five billion dollar mark. I think equity sort of protects
Speaker 5: their credit rating or helps them, you know, with their
Speaker 5: credit rating, doesn't doesn't deteriorate their credit metrics. I'm sure
Speaker 5: the agencies are also concerned about the strike, so I'm
Speaker 5: not sure it gets them totally out of the woods
Speaker 5: on pressure for their credit rating, but it's definitely a
Speaker 5: lot better than them raising debt where I think the
Speaker 5: credit rating agencies we just have to downgrade them as
Speaker 5: soon as they did that.
Speaker 2: Yeah, yeah, but and it could happen right.
Speaker 5: Good again, I think there's still under pressure for credit ratings.
Speaker 5: The agencies have clearly been looking past current problems, right
Speaker 5: because you couldn't do a net debt to EBITDA analysis
Speaker 5: on them right now right, ebitdas quite low and their
Speaker 5: debts quite high. So the metrics are way out of whack.
Speaker 5: And you know, the credit acies are looking through this period.
Speaker 5: But the longer it goes on, the more they have
Speaker 5: to worry about the financial challenges of Boeing. And I
Speaker 5: think the less they can look through the period and
Speaker 5: have to take some action.
Speaker 2: Well, let's talk a little bit more about that strike.
Speaker 2: And I just want to be clear, this is just
Speaker 2: their Pacific Northwest manufacturing, right. There is manufacturing going on elsewhere.
Speaker 5: Yeah, So this is the machinist out of the Pacific
Speaker 5: Northwest they're responsible for. They build most of the commercial
Speaker 5: programs for Boeing, Right, so they would build the seven
Speaker 5: sixty seven, they'd build the Triple seven, they'd build the
Speaker 5: seven thirty seven of those airplanes, the seven thirty seven
Speaker 5: is the most important airplane to Boeing commercial that's the
Speaker 5: highest volume. It's where they generate their cash, make their
Speaker 5: profits out of. So that's why this strike is so
Speaker 5: debilitating to the company. They do manufacture seven eight sevens,
Speaker 5: I think their second most important commercial platform. They make
Speaker 5: them in the Carrollton in South Carolina near Charleston. That's
Speaker 5: a non union plant, so it's not affected there is
Speaker 5: you know what I've heard in the marketplaces, some of
Speaker 5: those seven eight sevens come back up to Everett, Washington
Speaker 5: and get worked a bit before they go to customers.
Speaker 5: So we're not going to say that they're not impacted
Speaker 5: at all by the strike, but I think they have
Speaker 5: the capability to continue to deliver in decent numbers close
Speaker 5: to their targets. That's seven eighty seven during the strike,
Speaker 5: and then the defense network really isn't affected except for
Speaker 5: KC forty six tanker. KC forty six tanker is the
Speaker 5: US aerial tanker program, another program Boeing has had a
Speaker 5: lot of problems on. Taking a lot of charges on
Speaker 5: the airframe goes down a line in the Northwest in
Speaker 5: the Seattle area up in Everett, and I think that's
Speaker 5: largely machinist in union labor, and so that's probably impacted
Speaker 5: as well by the strike, but a large portion of
Speaker 5: defense is not affected by the strike.
Speaker 2: Affected. Wow, well Boeing's latest earnings this Wednesday ahead of
Speaker 2: Wall Street's opening bell our Thanks to George Ferguson, Bloomberg
Speaker 2: Intelligence Senior Aerospace, Defense and Airlines analyst. We move next
Speaker 2: to the shipping and logistics company United Parcel Service UPS,
Speaker 2: reporting its third quarter earnings on Thursday. Now, UPS coming
Speaker 2: off a pretty rough second quarter after a drop in volume,
Speaker 2: will the third quarter be any different?
Speaker 6: For more?
Speaker 2: We're joined by Lee Clasgal, Bloomberg Intelligence Senior Transport, Logistics
Speaker 2: and Shipping Analysts. So, Lee, thank you for being here.
Speaker 2: What do you expect to see in UPS's third quarter
Speaker 2: earnings this week?
Speaker 7: Well, I think this print's going to be a much
Speaker 7: better print that we've seen in the first half.
Speaker 8: Of the year.
Speaker 7: In the third quarter, revenues are supposed to be up
Speaker 7: about mid single digits, same with earnings per share. That's
Speaker 7: good news, you know, because we're seeing earnings growth again
Speaker 7: and we expect that to really accelerate into twenty twenty
Speaker 7: five and a lot of that has to do with
Speaker 7: what the company has been doing through its pricing initiatives.
Speaker 7: The company has set a number of different search charges.
Speaker 7: It's a volume specific surcharge, whether it's you know, charging
Speaker 7: more for weird shape or heavy freight that's not really conveyable,
Speaker 7: so it adds costs for UPS. And then they're also
Speaker 7: you know, they're constantly doing you know, not constantly, but
Speaker 7: once a year they do a general rate increase or
Speaker 7: a GRI and there's one on December twenty third, that's
Speaker 7: around five point nine percent. And we expect Historically UPS
Speaker 7: FedEx DHL, you know, they tend to heavily discount their
Speaker 7: GRIS and we expect those discounts to be a lot
Speaker 7: less this time around, just given all the labor inflation,
Speaker 7: equipment inflation that they need to mitigate through pricing initiatives.
Speaker 2: Now that labor inflation you spoke about, they had settled
Speaker 2: avoided to strike, yes, and but it really cost them,
Speaker 2: didn't it.
Speaker 7: It did, and you know it was front loaded, and
Speaker 7: that's something else that will benefit and in the second half,
Speaker 7: the comparables will become a lot easier for them. On
Speaker 7: that longer term contract with the team serves, So that
Speaker 7: is good news, and you know, now they know kind
Speaker 7: of what their costs are going to be as it
Speaker 7: relates to labor and they can work through that. And
Speaker 7: the company has been doing a lot of different things
Speaker 7: in terms of increasing the overall productivity. They've also focusing
Speaker 7: more on some of what they would i esteem their
Speaker 7: core business. They recently sold their freight brokerage business, which
Speaker 7: is called Coyote. They sold that to RXO and that
Speaker 7: should be a huge win for RXO because they can
Speaker 7: really take that business maybe a lot further than YOUWPS
Speaker 7: did because it really wasn't a focus for UPS management
Speaker 7: over the years. It was more of a complimentary business
Speaker 7: that probably works better outside of the UPS.
Speaker 6: Well.
Speaker 2: They also made some acquisitions correct Mexico.
Speaker 7: They do a lot of tucket acquisitions, and a lot
Speaker 7: of the acquisitions that they're doing they're trying to get
Speaker 7: kind of longer into the supply chain, if you will,
Speaker 7: So you know some of the acquisitions they've done a
Speaker 7: lot in healthcare industry. Healthcare is a is a very
Speaker 7: interesting industry from a logistics standpoint because it comes with
Speaker 7: higher margins. There's a lot of specialties that go on
Speaker 7: and I'm sure everyone remembers during the pandemic, you know,
Speaker 7: when we had the vaccines distributed. They had to be
Speaker 7: super super cold, and you know, those kind of services
Speaker 7: cost a lot more money than sending an envelope overseas,
Speaker 7: and therefore it usually comes with higher margins, so it's
Speaker 7: usually it's a very good business. And UPS and FedEx
Speaker 7: are also looking at, you know, a step down from
Speaker 7: the enterprise market, so the small to medium sized shipper,
Speaker 7: which tend to have better margins as well. So UPS,
Speaker 7: while they're divesting some businesses, they're leaning into other businesses
Speaker 7: through these bolt on acquisitions.
Speaker 2: Now, I want to talk go back to something you
Speaker 2: said about the search charges. Consumers are definitely pulling back
Speaker 2: on their money. Fed X has said, UPS maybe had
Speaker 2: said the same thing, that people are choosing a cheaper
Speaker 2: option ground transportation instead of air freight to save money.
Speaker 2: I mean, is that being offset by these higher search charges?
Speaker 2: And what does that mean as we head into the
Speaker 2: most important season for them, you know, the holiday season?
Speaker 7: Yeah, so I mean we're definitely seeing a trade down
Speaker 7: effect to your point, So it maybe instead of having
Speaker 7: expedited freight or freight that or a package that has
Speaker 7: to go overnight. Maybe people are willing to take three
Speaker 7: or five days. I know personally anecdotally. You know, when
Speaker 7: I when I'm doing online shopping, there's a lot more
Speaker 7: options there, like of not having it overnight, and usually
Speaker 7: when it's not overnight, then it's usually free, and I'm
Speaker 7: always going to pick the free.
Speaker 2: Option, always only always always.
Speaker 7: I mean, I don't need a pair of pants that bad.
Speaker 7: I can wait a week. And so you know, you
Speaker 7: are seeing that, you're also seeing an interesting shift. So
Speaker 7: you know, we talked earlier that volumes are expected to
Speaker 7: increase mid single ditch for their domestic market and slightly
Speaker 7: up for their international market. Some of the volume growth
Speaker 7: is coming out of China with these relatively new e
Speaker 7: commerce providers like Sheen and Timu, And that's interesting because
Speaker 7: they're kind of going under the radar with some duties
Speaker 7: where there's a deminimus rule. I know this again a
Speaker 7: little wonky now, where if the value of the products
Speaker 7: under eight hundred dollars, they don't face an extra duty.
Speaker 7: And so a lot of freight is coming in from
Speaker 7: China because you know, without a duty, and it's a
Speaker 7: lot cheaper and kind of undercutting maybe things that people
Speaker 7: could buy here in the United States. So the Biden
Speaker 7: administration is looking at that and that that could change
Speaker 7: some volumes on a negative aspect, because it's been a
Speaker 7: good area of growth for the fedexes and eps's of
Speaker 7: the world.
Speaker 2: Well ups third quarter earnings out this Thursday. That's ahead
Speaker 2: of Wall Street's opening bell are thanks to Lee Glasgow,
Speaker 2: Bloomberg Intelligence Senior Transport, Logistics and Shipping analyst. Coming up
Speaker 2: on Bloomberg day Break, we again we'll chart the potential
Speaker 2: rise of British banking with some prominent UK banks reporting
Speaker 2: their latest earnings. I'm Tom Busby and this is Bloomberg.
Speaker 2: This is Bloomberg day Break weekend, our global look ahead
Speaker 2: at the top stories for investors in the coming week.
Speaker 2: I'm Tom Busby in New York. Up later in our
Speaker 2: program we'll look ahead to the sixteenth annual Brick Summit
Speaker 2: in Russia. But first, ahead of upcoming earnings from some
Speaker 2: of the UK's largest banks like Lloyd's and Barclay's, analysts
Speaker 2: are turning more positive on the sector. Jeffries, Ubs and
Speaker 2: Goldman all bullish on British banking shares. Can the results
Speaker 2: live up to the expectations for more. Let's go to
Speaker 2: London and bring in Bloomberg Daybreak europe banker Caroline Hepger.
Speaker 3: Tom the boost to British banking brought about by high
Speaker 3: interest rates could linger longer than thought, and Lissa turning
Speaker 3: positive on the likes of nat West and Lloyd's, citing
Speaker 3: the rewards of what they call the structural hedge, hundreds
Speaker 3: of billions of pounds invested in the swaps market to
Speaker 3: reduce sensitivity to interest rate movements. There's also a new
Speaker 3: government in town if you haven't noticed, one determined to
Speaker 3: bolster growth and bring in investment. That's something that UK
Speaker 3: banks should be poised to profit from. Blueberg has been
Speaker 3: speaking to Lloyd's CEO Charlie Nunn at the UK Investments
Speaker 3: Summit recently. None told Bloomberg's Farsi Laqua that he is
Speaker 3: optimistic about Britain's future.
Speaker 6: I think the really.
Speaker 9: Important thing to get more investment in the UK is
Speaker 9: first the clarity and a clear direction of the country.
Speaker 9: And so the stability in the clarity this government's trying
Speaker 9: to give, I think is really important.
Speaker 6: Investors want to invest.
Speaker 4: In the UK.
Speaker 9: They're looking at the UK relative to Europe and the
Speaker 9: US and Asia, and at the moment the UK looks
Speaker 9: like a good destination. But the first thing is clarity instability.
Speaker 9: The second thing is tell me where you're going to
Speaker 9: invest alongside us, and do it in a way that
Speaker 9: they us to bring private capital to work. We estimate
Speaker 9: that there's about forty to fifty billion pounds worth of
Speaker 9: investment per year for the next twenty years, so the
Speaker 9: government can't afford that, but the private sector.
Speaker 6: Really can make a difference. And then the third thing
Speaker 6: is really enable the financial.
Speaker 9: Services sector to unlock its potential to support that investment.
Speaker 10: But Charlie, so you're one of the key components actually
Speaker 10: try and get this foreign direct investment into the country.
Speaker 6: Where would you deploy it?
Speaker 4: Where will it be deployed?
Speaker 6: Well, I know the government's going to come out with
Speaker 6: their kind of industrial plan.
Speaker 9: They're talking about eight sectors. Two examples that I think
Speaker 9: there's huge opportunity. One is around the energy transition, and
Speaker 9: the UK's already a leader around offshore wind, but floating wind,
Speaker 9: onshore wind, the growth in solar, and then some of
Speaker 9: the new technologies like carbon capture and hydrogen. There's huge
Speaker 9: opportunities to invest and that also needs a clear plan
Speaker 9: for the national grid and the electrical infrastructure. That's one
Speaker 9: example of a huge opportunity for investment. Another's housing. So
Speaker 9: the government's made a commitment to build a one point
Speaker 9: five million new homes. We need more social and affordable
Speaker 9: homes specifically, that's something we have called for as Lloyd's
Speaker 9: Banking Group, and we really need to get the money invested,
Speaker 9: start going behind breaking down the planning laws and building
Speaker 9: more homes and that'll be good for jobs and productivity
Speaker 9: and create an environment that we can get the skills
Speaker 9: for the investment in business.
Speaker 10: Charlie, So, I guess a lot of people are concerned
Speaker 10: by the fact that, of course this government needs banks,
Speaker 10: as you say, to bring in private capital, to deploy
Speaker 10: some of the money to help them actually also help
Speaker 10: with the National Wealth Fund. At the same time they're
Speaker 10: trying about taxing the banks.
Speaker 6: So how do you square the two.
Speaker 9: Well, see taxations a matter for the government to talk about,
Speaker 9: but irrespective of whatever kind of political decision they take
Speaker 9: on that. As Lloyd's Banking Group, as an example, we've
Speaker 9: got a nine hundred billion pound balance sheet.
Speaker 6: We do eighty to one hundred billion pounds worth of
Speaker 6: lending per year. We have two hundred.
Speaker 9: Billion pounds worth of pension assets we manage on behalf
Speaker 9: of Britain pensioners. We need to put that money to
Speaker 9: work and then we partner with some of the biggest
Speaker 9: world's pension funds, private credit funds, and our job is
Speaker 9: to bring our expertise to channel out into the UK.
Speaker 9: So there's huge opportunity for us to continue to deploy
Speaker 9: that capital in smarter ways that derives productivity, growth and
Speaker 9: jobs to get the UK economy to being the fastest
Speaker 9: growth economy in the G seven, which is a really
Speaker 9: bold ambition.
Speaker 10: A number of your competitors now Western Guard players have
Speaker 10: done recent acquisitions showing basically that they really support this economy.
Speaker 10: Are you looking to do something likely as well?
Speaker 9: So you know, we are now three years into the
Speaker 9: five year strategy I laid out and the great uses
Speaker 9: it's very much a growth strategy and we're delivering well
Speaker 9: against that. We're going to do an update in February
Speaker 9: next year on the first checkpoint in that strategy and
Speaker 9: I'm really pleased with the progress we've made. We've done
Speaker 9: some Bolton acquisitions, but the core of our strategy is
Speaker 9: an organic growth strategy and the great thing for Lloyd's
Speaker 9: Banking Group is we are typically the number one or
Speaker 9: number two player in every segment and product we participate in,
Speaker 9: including in fact an investment in the UK project finance,
Speaker 9: infrastructure finance, housing finance, where we lead in the UK. No,
Speaker 9: we'll look at acquisitions opportunistically. Our core strategy is organic
Speaker 9: and we're.
Speaker 6: Feeling good about where we're going.
Speaker 10: What do you want on pensions?
Speaker 6: Pensions?
Speaker 10: But also there's a lot of talk on actually risk
Speaker 10: taking and this takes years not months that the government has.
Speaker 9: Yeah, so pensions are such an important part of the puzzle.
Speaker 9: As I said, we are a leading pensions provider in
Speaker 9: the UK two hundred billion pounds worth of pension money
Speaker 9: and I think there's a few things that really matter.
Speaker 9: The first is we need to get more of our
Speaker 9: customers money into pensions.
Speaker 6: About forty percent.
Speaker 9: Of the UK households aren't on track for even a
Speaker 9: basic living standard, and obviously giving them financial resilience is
Speaker 9: good for the economy, so we need to increase enrollment
Speaker 9: around pensions. The second thing is how can we invest
Speaker 9: it safely and appropriately for them in high risk assets?
Speaker 9: And actually that's more about conduct risk and fiduciary risk
Speaker 9: than it is around changing or asking the investment managers
Speaker 9: to invest more in those kinds of projects. We need
Speaker 9: to look at how do you support customers to make.
Speaker 6: Those choices in this country.
Speaker 9: And that's something we're talking closely with the government and
Speaker 9: the regulators about.
Speaker 10: You know, the new Investment Minister, how many questions do
Speaker 10: you think she'll feel from international investors about the budget?
Speaker 10: Is this investment summit a little bit too soon as
Speaker 10: we don't really know what happens to non darms, what
Speaker 10: happens aster carried interest and other questions?
Speaker 9: Well, no, And if the first thing to say is
Speaker 9: you can hear the buzz in the room today, it's
Speaker 9: great to see the excitement about investing in the UK
Speaker 9: and have the international investors here. It's very very early
Speaker 9: days for the new Investment ministrating four or five days in.
Speaker 9: I know her ambition is to increase overseas investment into
Speaker 9: the UK. And the kind of investors we're talking about
Speaker 9: are the big international pension funds, the big international sovereign
Speaker 9: wealth funds, the private credit funds, and they're going to
Speaker 9: be looking for good projects with a good return with
Speaker 9: a government and a country that's getting behind making those
Speaker 9: investments successful, that's what will matter. It won't be some
Speaker 9: of the things you're talking about, and so I hope
Speaker 9: that she's really focused on engaging those kinds of organizations
Speaker 9: and then working with our financial services sector which has
Speaker 9: the expertise to put that money to work, and we're
Speaker 9: d and financial service sector in the world.
Speaker 6: Let me say that.
Speaker 3: That was Lloyd's Bank CEO Charlie Nunn, perhaps Keir Starman
Speaker 3: managing to calm the city's jitters with that investment summit
Speaker 3: ahead of the autumn budget. So what is driving the
Speaker 3: positive trajectory of the UK banking sector. It's something that
Speaker 3: I've been talking to our finance reporter about, Harry Wilson.
Speaker 11: I think there's a few things. Obviously, we're now heading
Speaker 11: into a interest rate cutting cycle and people are looking
Speaker 11: at what impact that's going to have on credit demand.
Speaker 11: So obviously, on the one hand, falling interest rates aren't
Speaker 11: that great for banks as they cut their margins. But
Speaker 11: on the other hand, you could see a increase in
Speaker 11: demand among customers for loans and that can be positive
Speaker 11: in its own sense for the banks. So it's really
Speaker 11: kind of a trade off there between those things. And
Speaker 11: then I think we also obviously we're looking out at
Speaker 11: what the new government is going to mean for the
Speaker 11: banking sector. So far it's being broadly positive, but obviously
Speaker 11: we're waiting for the budget in the coming weeks.
Speaker 12: Yeah.
Speaker 3: Absolutely, how's the sector performed to date? So we've just
Speaker 3: come off Wall Street Bank earnings which have been very strong.
Speaker 3: How is the sector in the UK performing well?
Speaker 11: The share price has been very strong this year. So
Speaker 11: among the number of the banks, we've got double digit increases,
Speaker 11: you know, just to take one, but something like Bark
Speaker 11: Pieces up around about fifty five percent at the moment,
Speaker 11: Lloyd's up nearly thirty percent, that West over sixty percent.
Speaker 11: One of the laggards relative laggards is HSBC that they're
Speaker 11: less than about eight percent of the moment. But generally
Speaker 11: the sector has been having a very good year.
Speaker 3: And so then in terms of what we're expecting to
Speaker 3: come obviously, rate sensitive stocks light banks are in focus
Speaker 3: when it comes to interest rates. The Bank of England
Speaker 3: has seen inflation four below the two percent target for
Speaker 3: the first time since what twenty twenty one. April twenty
Speaker 3: twenty one, how do you think that will affect banks,
Speaker 3: the loosening of central bank policy, the Bank of England
Speaker 3: cutting interest rates.
Speaker 11: I think one of the things we'll probably have to
Speaker 11: be looking out for is particularly what banks they're around
Speaker 11: cost cuts. So as as I mentioned, the cuts to
Speaker 11: interest rates are actually you know, not seen that positively
Speaker 11: for banks, particularly because it cuts into their margins. So
Speaker 11: what we'll be then looking for is how banks adapt
Speaker 11: to that. So you know, take one example, but we've
Speaker 11: certainly seen at HSBT a lot of talk and speculation
Speaker 11: around potential cost cuts as the bank looks to you know,
Speaker 11: they're coming off a period in which they've had outsize earnings.
Speaker 11: You know, this year or sorry last year was a
Speaker 11: record year for their annual profits and so now that
Speaker 11: we're that's likely to dampen. I think the focus among
Speaker 11: the banks is probably going to be on how do
Speaker 11: we cut our expenses given that we're probably going to
Speaker 11: be expecting some kind of margin compression now in the
Speaker 11: coming years.
Speaker 3: Also, as you say, ahead of the budget on the
Speaker 3: thirtieth of October, we did hear from some British leading bankers,
Speaker 3: including the CEO of Barclays. Are the UK Investments summited
Speaker 3: only a few days ago. Has the new government done
Speaker 3: something to bolster this sector? I mean, Barclay's was really
Speaker 3: quite positive on the UK on investing in the UK.
Speaker 3: What's the interplay between this new government and bankers in Britain.
Speaker 11: It's very early days, so it's hard to say exactly
Speaker 11: what we're going to guess. I mean, I think everything
Speaker 11: kind of rests on the budget. Obviously, if there's some
Speaker 11: particularly harsh tax writers for banks, and that could definitely
Speaker 11: weigh under sector. I think at the moment, both sides
Speaker 11: are feeling themselves out, basically trying to get a sense
Speaker 11: of what the other's about. And I don't think as
Speaker 11: yet that there's any particular sign that they was going
Speaker 11: to be that's harsh in banks. But on the other hand,
Speaker 11: you know, if we were to see some kind of
Speaker 11: new bank tax in the budget, that could probably quite
Speaker 11: rapidly change sentiment.
Speaker 3: Yeah, indeed, what are you on the lookout for in
Speaker 3: terms of which of the banks might be of most
Speaker 3: interest to you?
Speaker 11: HSBC is the obvious, I think the probably the most
Speaker 11: interesting one. At the moment, we've got a new CEO.
Speaker 11: This is going to be his first set of results.
Speaker 11: And there's an expectation now of some kind of at
Speaker 11: least minor restructuring of the business, probably some major divisions
Speaker 11: being combined, but also what they say about expenses and
Speaker 11: the future strategy of the bank. For me HSBC is
Speaker 11: going to be the one to watch this quarter. That said,
Speaker 11: I think Barkleys could be an interesting one. We've seen
Speaker 11: in the last few days. We've seen some very strong
Speaker 11: results out of Wall Street. We've seen some very strong
Speaker 11: trading results. Barclays is the UK bank of the highest
Speaker 11: exposure to Wall Street, so this is clearly going to
Speaker 11: be good news for Barklays and you get the sense
Speaker 11: that they could have quite a good set of numbers.
Speaker 3: Co Q threes ces ben Kata Krishnan talked about the
Speaker 3: US election posing risks globally, geopolitics posing risks globally. How
Speaker 3: do you think banks are thinking about the election outcome
Speaker 3: in the US? Is that a risk fact?
Speaker 11: I think banks are relatively sanguine about it. You know,
Speaker 11: they tend to take the views that whoever wins these elections,
Speaker 11: that they'll adapt to whatever comes from it. Certainly, as
Speaker 11: a sector, banks have proved pretty adaptable way over the years.
Speaker 11: Whatever it's been thrown at them, whether it's market crashes
Speaker 11: or whether it's changes in governments. I think they'll probably,
Speaker 11: as they've always done, go with the flow. So it's
Speaker 11: hard to say if one outcome is particularly negative for them.
Speaker 11: I mean, you know, as a general rule, particularly if
Speaker 11: you've got strong trading operations, a period of volatility actually
Speaker 11: turns out to be pretty good for business. If a
Speaker 11: Trump election led to a lot of market volatility, I
Speaker 11: think that could be something that the banks would obviously
Speaker 11: can well profit from.
Speaker 3: Many thanks to my Bloomberg colleague Carrie Wilson there for
Speaker 3: talking us through the outlook for the banking sector in
Speaker 3: the UK. I'm Karine Hecger here in London, and you
Speaker 3: can catch us every weekday morning for Bloomberg Daybreak you
Speaker 3: at beginning at six am in London. That's one am
Speaker 3: on Wall Street.
Speaker 2: Tom, Thanks Caroline, and coming up on Bloomberg day Break weekend,
Speaker 2: the Bricks Group of Nations hold their sixteenth annual summit
Speaker 2: in Russia next week. We'll have more on what to expect.
Speaker 2: I'm Tom Busby and this is Bloomberg. This is Bloomberg
Speaker 2: day Break Weekend, our global look ahead at the top
Speaker 2: stories for investors in the coming week. I'm Tom Busby
Speaker 2: in New York. The Bricks Group of Nations will hold
Speaker 2: their sixteenth annual summit in Russia next week. Let's turn
Speaker 2: out a Bloomberg Daybreak Asia podcast host Doug Chrisner for
Speaker 2: a closer look Tom.
Speaker 1: In the coming week, Russian President Vladimir Putin will be
Speaker 1: hosting the Bricks Summit. This year's summit is especially important
Speaker 1: because new members will be added. The founders that would
Speaker 1: be Brazil, Russia, India, China and South Africa will formally
Speaker 1: welcome four new countries. They are Egypt, Ethiopia, Iran, and
Speaker 1: the United Arab Emirates. Now Saudi Arabia has been invited
Speaker 1: to join. It will be represented by its foreign minister.
Speaker 1: It seems like Russia in particular is intent on expanding
Speaker 1: this alliance to counter the influence of the West, both
Speaker 1: economically and politically. So for a closer look, let's bring
Speaker 1: in Bloomberg Salaia Mosen, senior Washington correspondent on the US
Speaker 1: ECOGOV team, joining us from the nation's capital. So, Leah,
Speaker 1: thank you for making time to chat with us. Can
Speaker 1: we start by taking a step back and looking broadly
Speaker 1: at bricks, is it helpful to look at this alliance
Speaker 1: as basically a countervailing force to the G seven.
Speaker 13: That is a really interesting way to look at it. Absolutely,
Speaker 13: the G seven is knitted around Western countries. It is
Speaker 13: US led and it's been a force of power for
Speaker 13: quite a while. And these are countries that work together.
Speaker 13: They work together through the global financial crisis, through COVID
Speaker 13: and most recently through the Russia invasion on Ukraine and
Speaker 13: falling in line with US led economic sanctions on Russia.
Speaker 13: And that's the very thing that triggered a stronger bond
Speaker 13: across the bricks and now bricks plus nations. And so
Speaker 13: there is a reactive force there. It's the US led
Speaker 13: coalition and the China led coalition. The relationship between the
Speaker 13: bricks countries, though, is interesting because they don't always all
Speaker 13: get along, but when it comes to finding a way
Speaker 13: around the dollar, they found some common ground.
Speaker 1: We can talk about the dollar in a moment. Let's
Speaker 1: talk a little bit about the internal dynamics as we
Speaker 1: know them, or as we understand them. You mentioned kind
Speaker 1: of maybe not seeing eye to eye. On one hand,
Speaker 1: we have Brazil and India democracies, I think we can
Speaker 1: agree on that Russia China autocracies. I'm imagining that that
Speaker 1: creates a bit of internal rivalry, does it not?
Speaker 13: Absolutely? Russia and China are running their countries very differently.
Speaker 13: There's always question about what would happen when there is
Speaker 13: an eventual power transfer at hand. Brazil and India, they
Speaker 13: have very different interests at hand. And then the countries
Speaker 13: that you name that are now joining include a lot
Speaker 13: of oil producing nations, and so those stakes are different
Speaker 13: than what the other countries have.
Speaker 1: Yeah, both Saudi Arabia, although it's only been invited to
Speaker 1: join the UAE, which has been given membership, and then Iran,
Speaker 1: So you're absolutely right not to leave out Russia in
Speaker 1: terms of oil producers. We've got two major military conflicts happening.
Speaker 1: We've got Israel conducting war in Gaza and on the
Speaker 1: northern border with Lebanon, Israel is fighting has be Lah.
Speaker 1: How are these conflicts likely to enter the conversation.
Speaker 13: The two sets of conflicts. On the one hand, it's
Speaker 13: kinetic war, you know, bombs and blasts going on in
Speaker 13: those two major conflicts. And then on the other hand,
Speaker 13: between the China led coalition in the US coalition. It's
Speaker 13: a proxy war through economic and diplomatic channels, and both
Speaker 13: ways are damaging. Both types of wars are just proof
Speaker 13: that the decades old global order established when World War
Speaker 13: Two came to a close has started to come apart.
Speaker 13: And so you'll hear a lot more about global or
Speaker 13: geoeconomic fragmentation, which is coming against the backdrop of economic
Speaker 13: populism and protectionism popping up in a lot of across
Speaker 13: the globe, including the United States. We have two presidential candidates,
Speaker 13: two parties, both of them have become protectionist parties, and
Speaker 13: so we have overlapping and coinciding forces pulling apart of
Speaker 13: the global order.
Speaker 1: The other military conflict that we have to address is
Speaker 1: the Russian occupation of your I mentioned at the top
Speaker 1: of the conversation that the summit will be hosted by
Speaker 1: Russian President Vladimir Putin. To what extent is he going
Speaker 1: to try to gather more support for what is happening
Speaker 1: Russia's intentions in Ukraine?
Speaker 13: Oh yeah, I mean, I think having allies, particularly with Russia,
Speaker 13: the Russia's relationship with India and China is important for
Speaker 13: Vladimir Putin. Right now, China has come out a little
Speaker 13: bit more strongly in support of Russia. India is still
Speaker 13: trying to toe the line a little bit. But those
Speaker 13: relationships have limits to them, right If you just take
Speaker 13: one example, that is that Russia was able to sell
Speaker 13: a lot of its oil to India when the US
Speaker 13: led coalition put a lot of caps on the amount
Speaker 13: of oil Russian oil that could reach markets, and Vladimir
Speaker 13: Putin after that ended up with a lot of Indian
Speaker 13: rupees and he did not know what to do with
Speaker 13: them because he cannot take that and buy the things
Speaker 13: he needs, and so it didn't have the same exchange
Speaker 13: ability value. And we're seeing similar data come through on
Speaker 13: the Russia China relationship. But that being said, that's the technical,
Speaker 13: sort of weedy stuff. Diplomatically, it's been hugely beneficial for
Speaker 13: Russia to have a block of nations that is supporting
Speaker 13: it in various levels of strength across the spectrum.
Speaker 1: Sole I'd like to pivot to how the dollar plays
Speaker 1: into all of this. We've talked in the past, you
Speaker 1: and I about de dollarization, Whether the dollar is really
Speaker 1: under threat right now, is the world's reserve currency. We
Speaker 1: can talk about the challenges that you may see in
Speaker 1: a minute. First, I want to listen to a segment
Speaker 1: of a recent Bloomberg News interview with former President Donald
Speaker 1: Trump where the dollar was discussed. Here is Bloomberg editor
Speaker 1: in chief John Micklethwaite.
Speaker 12: Can I ask you a particular thing about the dollar?
Speaker 12: You've actually you've talked about wars at the New York
Speaker 12: Economic Club. You said that if you lost the dollar
Speaker 12: as a reserve currency, it would be like America losing
Speaker 12: a wall. Yeah, you look at what you're going to
Speaker 12: do in terms of protectionism arrive country is to use
Speaker 12: the other currencies and all that death is also going
Speaker 12: to lessen the dollars status as of the world's reserve currency.
Speaker 8: If you worry about the dollar is so secure, your
Speaker 8: reserve currency is the strongest it'll ever be. The reserve
Speaker 8: currency is under threat because you have Iran, you have Russia,
Speaker 8: you have China. Once China is the one that you
Speaker 8: have to worry about because.
Speaker 13: They want it.
Speaker 8: They want to have the wand be the thing of power.
Speaker 8: So here's what I'm doing again. I hate to go
Speaker 8: back to it. If somebody says, and I know countries
Speaker 8: want to get out because they don't respect our leadership.
Speaker 8: They look at this guy. They say, you've got to
Speaker 8: be kidding. And she's worse than him, by the way
Speaker 8: she's I never thought i'd say this. She is not
Speaker 8: as smart as Biden. If you can believe, this is
Speaker 8: not what we had four years of this, this lunacy,
Speaker 8: and we can't have anymore. We're not going to have
Speaker 8: a country left. Okay. Currency very important, yes, and if
Speaker 8: you want to go to third world if you want
Speaker 8: to go to third world status, lose your reserve currency.
Speaker 8: We have to have that. We cannot lose it if
Speaker 8: you'll go to third world status in this country, because
Speaker 8: you take a look at the way things are running.
Speaker 8: If a country tells me, Sarah, we like you very much,
Speaker 8: but we're going to no longer adhere to being in
Speaker 8: the reserve currency. We're not going to salute the dollar anymore,
Speaker 8: I'll say that's okay. And you're going to pay a
Speaker 8: one hundred percent tariff on everything you sell into the
Speaker 8: United States. And we love your product. I help you
Speaker 8: sell a lot of it into the United States, but
Speaker 8: you're going to pay one hundred percent tariff. He will
Speaker 8: then follow it up by saying, sir, it would be
Speaker 8: an honor to stay with the reserve currency. I will
Speaker 8: be that will be like just playing that's not even chess,
Speaker 8: that's checkers.
Speaker 1: Former President Trump there in conversation with Bloomberg editor in
Speaker 1: chief John Micklethwaite. Let's bring in Bloomberg Solea Mosen, who
Speaker 1: has been talking with me about the upcoming Brick summit
Speaker 1: in Russia. Sole, you've written a lot about dedollarization. Was
Speaker 1: there anything in that conversation that you want to push
Speaker 1: back again?
Speaker 13: Well, one thing is that Trump is I mean, yeah,
Speaker 13: he's right that countries are talking about moving away from
Speaker 13: the dollar, but he's wrong that any country has actually
Speaker 13: actively abandoned the dollar. No one has. If you just
Speaker 13: I'll just give you two data points. Eighty eight percent
Speaker 13: of the world's foreign exchange transactions take place in the dollar.
Speaker 13: The biggest rival that people talk about is China, and
Speaker 13: that's who Trump by name has said, is gunning to
Speaker 13: drop the dollar and make its own yuan the reserve asset.
Speaker 13: Their figure, their equivalent figure is seven percent of global
Speaker 13: foreign exchange transactions. So it's a very big disparity. So
Speaker 13: no one has abandoned the dollar, and it's actually hard
Speaker 13: to abandon the dollar. There's no clear alternative. The US
Speaker 13: is so large and so deeply entrenched in the global
Speaker 13: system with its currency that dropping the dollar would be
Speaker 13: like the lingua franca not no longer being English. English
Speaker 13: is no longer the universal language. Dollar is no longer
Speaker 13: the universal currency.
Speaker 6: Right.
Speaker 13: That's how difficult it is.
Speaker 1: So maybe we can call it aspirational to replace the
Speaker 1: dollar as the global reserve currency. That said, could the
Speaker 1: dollars dominance be challenged, even in a small way that
Speaker 1: could maybe provide a little bit of disruption.
Speaker 6: You know.
Speaker 13: One thing that's important to state is that the and
Speaker 13: US officials should not be complacent, and Trump is assuring
Speaker 13: that he would not be complacent with any discussion about
Speaker 13: countries wanting to come together and move away from the dollar,
Speaker 13: because it is such a privileged status for the US
Speaker 13: and everyone who lives in the US. Every consumer benefits
Speaker 13: from that status, and then companies and countries around the
Speaker 13: world benefit from that too. The biggest threat to the
Speaker 13: dollar's dominance is not externally that any other country could
Speaker 13: take over or ditch the dollar. Really, the threats come
Speaker 13: from internal problems are massive debt and deficits. Some of
Speaker 13: the playing chicken with our public financing issues, making sure
Speaker 13: that no one is abusing the privileged position that the
Speaker 13: dollar gives us in the world, which is basically saying,
Speaker 13: let's not overuse sanctions, let's not overuse the dollar as
Speaker 13: a tool. Those are a couple of the key components
Speaker 13: to remember there.
Speaker 1: Now, Former President Trump, in the conversation with John Micklethwaite,
Speaker 1: was mentioning the Chinese currency, the ywan. Right now, given
Speaker 1: everything that's going on in China, the challenges that the
Speaker 1: economy has been confronted with, that seems like a long shot,
Speaker 1: doesn't it.
Speaker 13: It is a long shot. China is, yes, the second
Speaker 13: largest economy in the world, but it's number two by
Speaker 13: a large, large gap. It would take numbers two, three,
Speaker 13: and four, so China, Japan, and Germany to come together
Speaker 13: and then you can be bigger than the US in
Speaker 13: terms of economic size. The other piece to add there
Speaker 13: is that China does not have the transparency and democratic
Speaker 13: values that investors have been accustomed to for eighty years
Speaker 13: now in the world reserve asset. The reason that investors
Speaker 13: flee to the dollar and US assets in times of
Speaker 13: trouble or turmoil is because they know that it is
Speaker 13: underpinned by a strong democracy. We have independent institutions, green
Speaker 13: and fair elections, rule of law. Unless and because investors
Speaker 13: are not conditioned to expect this, it will take a
Speaker 13: lot for investors to change that. And I don't see
Speaker 13: that happening overnight.
Speaker 1: And on top of that, the Chinese currency is not
Speaker 1: free floating. It's managed, very managed by the PBOC exactly.
Speaker 13: That comes down to the transparency angle. It's not market
Speaker 13: forces that determine where the currency is at and what
Speaker 13: is going on in the economy. It's also still largely
Speaker 13: a managed economy.
Speaker 1: So Leia, thank you so much for making time to
Speaker 1: help us preview the Brick Summit. In the week Ahead,
Speaker 1: Bloomberg Saliya Mosen, Senior Washington correspondent. She's also the author
Speaker 1: of Paper Soldiers, How the weaponization of the Dollar change
Speaker 1: the World Order. I'm Doug. You can join us weekdays
Speaker 1: for the Bloomberg Daybreak Asia podcast, where we dive into
Speaker 1: the stories moving markets in the APAC region. It's available
Speaker 1: wherever you get your podcast.
Speaker 2: Tom and that does it for this edition of Bloomberg
Speaker 2: day Break Weekend. Join us again Monday morning at five
Speaker 2: am Wall Street Time for the latest on markets overseas
Speaker 2: and the news you need to start your day. I'm
Speaker 2: Tom Buzby. Stay with US. Top stories and global business
Speaker 2: headlines are coming up right now.