The chairman goes to capitol hill with share prices near records and interest rates in flux.
Politicians do not the new normal economy.
Yahoo is buying everything in sight, but it is not ads.
Marissa mayer, she needs revenue.
Britain's bad boy banking to the new face.
Who needs to know question mark -- who needs to know?
This is "bloomberg surveillance." i am tom keene from new york, it is wednesday from a july 17. joining me is sara eisen and scarlet fu.
This is a big deal.
Ben bernanke speaking to congress.
We are pre-gaming.
Q&a. bernie sanders.
They are releasing the testimony early this time, so hopefully, the questions will be a little deeper, a little more well thought out.
Let's get started with a morning briefing.
Overnight news, the brand-new canadian at the top of the bank of england held his first meeting.
We got minutes from it and it showed esther carney united officials were previously split on whether to add -- mr.
Carney united officials who were previously split.
Ben bernanke will be testifying in congress at 10:00 a.m. and we will have that live for you on bloomberg television.
Keep an eye out for a: 30 a.m. when the testimony will be released and michael mckee is all over that one.
It is earnings season.
Bank of america.
After the bell, a bevy of technology names.
We need a data check.
Street smart will have all of those earnings for you after the 4:00 hour.
Here is the data check.
I am bored.
We are down 4 in the futures.
Euro-dollar is churning.
Let's do some -- onto the next next screen.
I have my data here.
The dow up 18% year to date read the japanese market, the nikkei is up 22% in u.s. dollar return.
China is negative eight percent for the year.
I was stunned by this.
Brazil is -30% in u.s. dollar currency.
There is a real variance among these markets.
Emerging markets are getting hit so much harder than the developed world.
A lot of this has to do -- they have their own weaknesses and problems, but much has to do with the federal reserve policy tapering back.
Mike mckee just did a great piece.
He will join us later on this interdependency of those markets into what the chairman says today.
We have some other stories, we scour the front pages of the papers and the web to figure out what is most important.
It really comes down to ben bernanke.
He will be addressing the house financial services committee beginning at 10:00 a.m., his twice a year speech.
It is his chance to make a speech between dialing down asset purchases and raising interest rates from the current near zero levels.
Tapering could happen as soon as later this year, but higher rates not likely to happen before 2015. it is a bifurcated message he is sending to lawmakers and by extension to the market.
Rocker now said, is it too much of a message?
I really wonder, does he pull back and stop with the dialogue and just say, this is my statement.
He needs to make his message very pure -- very clear.
He will probably repeated again, that tapering is not tightening.
The stimulus will still be flowing, it just won't be quite at the same pace.
The release of this testimony is very different.
Michael mckee just sent me the explanation from the committee of the fomc.
They are doing this to try to get more conversation and try to get the committee members and congress to be able to read it before hand so they can ask the questions.
I am curious about his take on the markets.
He watches the bond market, i am wondering if you watch as the stock market the u.s. dollar as closely as well.
I want him to talk to these politicians about the effect of sequestration.
It will be live coverage of the chairman's testimony this morning on bloomberg television that begins at 10:00 a.m.. another front-page news, looking at the financial times, you have yahoo disappointing on its earnings yesterday after the bell.
Both for this quarter and a quarter that ended.
Not great for investors who had pushed the stock up 75%. marissa mayer has been at the helm for over a year and says the company still in the early stages of a turnaround.
Her goal is to lure away customers and advertisers from google.
She spoke about this yesterday.
The pace of our product launches has dramatically picked up.
Q2 was one of the most productive and the history of yahoo.
We reached the pace of logic and new product every week.
We have made real progress over the last year and have positive momentum heading into q3. and we will talk to paul sweeney about that in a bit.
The other story we're watching, google tv thing back on the burner.
Google reportedly holding discussions with media companies to introduce its own online tv service.
This is great for the young people who like to consume their media on tablets, giving them an alternative.
I think you're dead on about the phrase of young people.
I don't even watch regular tv, but this is seismic shift going on.
And part of the reason we're seeing all of these media deals deals and why the space is heating up so fast.
Changes in technology are swept.
Streaming tv anywhere, set-top boxes -- it is about securing the rights of the content.
Cbs on google.
To put that content on google and delivered to the customers out there.
You wonder how that will happen with u2. many said that is why apple tv has been held up.
Looking at -- how many analysts this week?
140. it has been a successful project for bloomberg industries.
We cover industries but we do not do buy, hold, sell.
I was blown away yesterday by the analysis of the sports industry.
I think of yahoo sports is one thing for a semi or is talking about -- marissa mayer is talking about.
Where is the content this summer?
Arguably, content is king, that has waxed and waned over time.
Is it content or distribution?
We are clearly in an era where content is king.
The big content producers, time warner's, disney, news corporation, grading this content and have more and more places to sell it read a great example would be netflix and hulu.
A new window to monetize your content that didn't exist several years ago.
They are integrate position.
And a chairman of the media want to build up their content.
Many are doing a lot on their own . a it is about original programming.
Is not so much the value of a rerun or syndication, but everyone wants to create original programming for their distribution and that is drawing subscribers and subscriber fees and advertisers.
We saw this with sports.
The all-star game last night was magnificent.
The home run derby was outstanding.
Are those expensive properties or do you envision there will be even more expensive two years and five years from now?
Rocks even more expensive.
The inflation rate for sports programming shows no signs of slowing whatsoever.
It is not just the nfl, it is nascar, any kind of sport you talk about, even globally sports programming is the ratings driver and therefore the advertising driver.
Our guest host, chairman at sonnenschein partners, going back to cap cities in a number of other huge deals of a number of years ago.
Is this a new media or is it the same business as it was 20 years ago?
It is both.
All new media technologies initiate a process of new wine bottles.
The discussion of new content, that is nothing new.
I think what we will see is a fair amount of licensing deals.
On the sports side you will see companies in europe that are under pressure.
You will see licensing deals coming to get some some of that content more places.
I think google, maybe yahoo if they get their act together and it will look to bring content.
I don't think they want to own the content.
We will talk about m&a and what else will be in the pipeline, why it has been pretty slow.
Paul sweeney, yahoo, is there a place for yahoo in this discussion?
I love to the bloomberg headline yesterday.
Is debatable whether there is a a place in the marketplace for yahoo.
The stock is done great.
They have done a good job monetizing asian assets.
Alibaba has been a great asset for them.
When and it because public admin at six to 12 months, that will be a huge gain for yahoo -- when and if it goes public in six to 12 months, that will be a huge gain for yahoo.
The report last night says it is not going to be for the remainder of this year, either.
Yahoo certainly in the news, but there are other stories to watch today.
Take a look at our place getting ready to battle u.s. regulators.
The bank will fight almost $500 million in fines and penalties for a legend in the relation of energy markets -- for allegedly relation of markets.
Our place as it legitimate and vows to defend itself.
Metlife is a step closer to needing more government.
Regulators in the last stages of evaluation that could result in the company being labeled important.
If it receives -- it will get tougher scrutiny from the federal reserve.
Michael dell stands his ground.
The dell founder and its partner silverlake sang the buyout bid is their best and final offer.
This is according to people familiar with the situation.
Pressure has been building to increase is $13.65 a share offer.
The company is even consider delaying thursday shareholder vote on fears investors may reject that did.
How about the all-star game and the all-star moment at the game?
A storybook performance for relief pitcher mariano rivera who already announced his retirement.
A 43-year-old new york yankees star took the mound in the eighth inning with the american league holding a 3-0 lead.
Here is something you never see.
His teammates stayed in the dugout, allowing him to soak up the applause.
Take a listen.
[applause] the players join in the cheering as well.
He got the national league out 1, 2, 3. the american league one and rivera was named the most valuable layer.
He is from panama all.
He was not good at the beginning.
He was a fringe prospect for the new york yankees.
And now he is the best closer ever.
In a single pitch, reported from years ago, june 1997, he stumbled on the pitch plane catch.
What is next for him?
What a lot of charity work read charity is very important to mr.
And we will never hear mr.
Sandman quite the same way again.
I love the last two days, i'm sorry.
Are the red sox doing well?
Looks oh, god, it is just -- august.
Sarah, remember this, august, red sox.
But there is a game on friday with the yankees against the red sox.
Is tom wrong?
Almost at the great shortstop.
A good night for watching baseball.
Coming up, here's a number, 47%. that is the number of car owners who use a map cap while driving.
We will tell you how technology is teaming up with autos and whether it is safe or not.
That is our twitter question of the day -- ? good morning.
In the 8:00 hour, we get the testimony, the monetary policy report from ben bernanke.
9:00 a.m., after the release of the monetary report to congress ,mohamed el-rian.
Sara eisen will watch every question, every word.
This is "bloomberg surveillance." streaming internet music through the car radio not anymore.
Drivers want access to their full suite of apps from behind the wheel, but what about safety?
We take a look at the high-tech solution to today's distractions on the road.
There are two trends happening in the automotive world at the same time, and i have a term for both of them read -- for them.
On the one hand, many drivers want as many apps and services as a fine on this to be available behind the wheel.
And the auto industry is happy to oblige.
You can stream pandora to your ford, look up yelp in your lexus, use google earth in your audi.
But doing a lot of this , means you're not doing a lot of this.
For this the auto industry has a solution.
Advanced safety systems that take over certain driving tasks.
For example, the modern mercedes-benz, it's active once but assist will keep you out of the way of a car coming up beside you and active lane assist will nudge you back in a place if you find yourself drifting.
We do have more things to distract us while driving, but we also have new technology to keep a safe while we are being distracted.
Since the genie is out of the bottle, perhaps the only solution is what is to come.
Once cars actually drive themselves, we can do whatever we want behind the steering will because we won't be steering it.
The safety point he brought up is a good one, but this is a trend, tech teaming up with what absolutely.
This is what everyone highlights, the voice activation system, the wireless connectivity and the car itself.
Gm was so far as to offer a $50 iphone map app that works with the dashboard.
Sirius xm has gotten a new lease of life.
I thought that was great was sam did was great.
Quick a lot of people point to the google driverless car that is not hit the roads yet.
Quick as a way to bypass the safety concerns.
I think it is all baloney.
It is all going to backfire.
That is what a lot of people are saying.
Sam absolutely nailed it.
I am skeptic.
It is the direction everything is moving in, tom.
Wait until the cops get involved.
I am a skeptic.
Sam nailed it.
Coming up at 7:00, bank of america to release earnings report.
And also the head of financials of goldman joining us on "bloomberg surveillance." ? this is i am sara eisen with tom keene and scarlet fu.
It is time for the morning must- read.
We are in the bank earning season.
The banks leverage ratio, the amount of capital they need to set aside against their assets.
This is new because regulators in the u.s. proposed some numbers they're working with and there is a lot of debate, a lot of trying to pin down these executives.
My morning must-read -- so far we have heard citigroup reached five percent in terms of its average ratio in june.
Jpmorgan falling short of that.
Everyone tried to pin down on goldberg -- goldman, he just said we are pretty comfortable with where we are right now.
To your point, we are making money, why are you complaining?
And the money is not being used necessarily to extend to loans.
Why not just ramp it up over time?
Rented, a higher ratio may be painful, but just get there slowly.
I think the fear is someone will dial it back before we get to the maximum.
And competitive problems.
Jamie dimon brought it up, on a global basis and bank to bank, it is not a level playing field.
My morning must-read right now, ben bernanke this morning -- of course we will be watching the bond market going into the all-important federal reserve ben bernanke's testimony today before the house financial services committee.
We will have it covered for you life, including the question- and-answer session.
Always fun to watch the question and answer session.
A be better questions this time.
The difference is, release of the statement will come out early this time.
We will have the release of the statement, better questions expected.
We will have the coverage for you of the chairman's testimony live.
Coming up, deals and dell added of a critical shareholders vote.
Her team billion dollars in acquisition, next.
? this is "bloomberg surveillance." tom, we need a data check.
We are going to make popcorn and watch the meeting together.
We have the marshmallows out, the for bocce thing going up in the food court.
-- hibachi thing going on in the food court.
It will be interesting to see with a 10-year yield does off the q&a when ben bernanke waxes philosophical on the taper.
Chimachanga, whatever it is called.
A couple of energy companies were a big loser yesterday.
Phillips 66 and marathon petroleum.
Marathon last report up second- quarter earnings per share miss.
In fact, bloomberg industries expects market earnings to drop 20% from the same time a year ago.
Inning a five- baseline, rising more than 4%. michael dell and silverlake center latest offer is their best and final offer.
The company considering postponing a vote by about a week.
A major question is the value of dell's non-pc business.
We have marshall shulman time -- sunshine here.
Dynamic duo to talk about the fate of dell.
If you were advising the shareholders on this vote this week, would you tell them to take it?
Personally, i think this is in the range of what we call there but not adequate and i probably would be in the 20% camp.
I think about 20%. in all likelihood, this deal will go through.
I think the truth of the matter is, it is not easy to be the $20 million deal and have equities isn't always well suited to be able to -- 1.70 5 billion shares of dell, that will cost a lot of money.
What is silverlake thinking right now?
If it works, we have our work cut out for us.
Talk about yahoo, it turned on $25 billion from microsoft a few years ago.
Boy, do they regret it.
I think silverlake is saying, you know what?
20% of the shareholders don't like it -- you have this dynamic about who has a better plan.
Carl icahn is not a private equity guy.
He has put up some money.
He is talking about using some leverage.
Their are a lot of gimmicks and here.
He is not buying the company.
He is just trying to get michael dell and severally to increase their bid.
I have said that all along.
He is appraising the market about appraisal rights.
Save a little face and maybe begged for support.
I think you will lose and dell will win.
I think people will walk away annoyed with the situation.
What price point?
13 point 65, he said best and final, how much more could he say?
The point of yahoo at 25 billion dollars, so much investment banking is saying, no.
Silverlake says no or michael dell says no, what was going through the famous by steinhaus says no, we don't like this this deal, what were they thinking?
I think for the dell deal, silverlake absolutely some of the smartest people in the tech private equity space.
I think they're simply making a bet on michael dell.
He has probably articulated a turnaround strategy and it looks like silverlake has bought into it, but at a price.
Clearly there is a price beyond which they won't go and assume that risk with their clients money.
I'm glad you brought up the turnaround strategy because that is what it comes down to.
We get lost in the headlines about the vote.
I have a great chart for you to show they against bending billions and billions on acquisitions to get out of pc and mobility as its core business.
When you see the flip in 2012, 2013 from mobility and pc revenue going down, look what is happening to the blue, the alternative revenue streams have been building up quite nicely.
It has to leverage that part of the business.
Can it do that as a private company?
It will probably be easy to do as private than public company were yet to show earnings growth in the target growth for the shareholders.
For a private company, he will have more leeway to make the decisions to invest in the long- term growers he feels.
Who is representing the shareholders of dell inc.? that is an interesting question.
The company hired evercore to be advisor to the independent directors.
The directors themselves are spokes -- people supposed to be looking after the shareholders.
Evercore scoured for more business and did not find any.
What is an investment baker to do when he sits across this table and they say, we have no more money, put it to a vote.
Interesting they're saying, we don't have anymore money, don't put it to a vote.
I i think they are nervous.
There are a lot of numbers in this deal, but they don't really create a clear, coherent picture.
They don't. i think there is a little ambiguity in the situation.
When we look at m&a deals announce a far this year, real estate companies, media, news, food companies, everyone thought oil and gas would be a lot higher and yet we have not seen them at any deals.
Oil and gas is a huge component of m&a in the last several years.
It had to slow down because oil prices have slowed down and u.s. has added to capacity, so do now are different headwinds on what you do about m&a. does that lead to more dealmaking later on?
Energy and oil and gas are always part of the economic scenario.
It will come back, but i think we are in a bit of a lull.
I want to look at chairman bernanke.
Does all of the work he is doing in the financial repression of retirees, does that devolve down to a lower internal rate of return for dealmaking?
Is there a new normal for the m&a world?
It has already happened.
I think the new normal is lower expected returns on invested capital, even private equity is looking for 15%, 70% or 18% if they could get it they would be thrilled.
-- 17% or 18% if they could get it amid they would be thrilled.
I think ben bernanke may say something that affects equity markets.
What is the state of m&a and the animal spirit question mark we got about $2 trillion in deals, have a 20 and in -- have between half between dollars.
What does that mean to you, paul sweeney, translate that into your research world.
In the media businesses, the media sector has been a third most active in him in a. we have seen lots of deal activity in the cable space and lots of deals and the broadcasting space.
As marshall was saying, most of the deals of not all of them were really strategically driven.
This is not private equity, this is strategic investors like john malone and tribune making deals.
What does john malone buy next?
If he wants to go big, the expectation is time warner.
They have been in discussions.
If he wants to go big and cable, time warner.
If he was to go small, there is cablevision that he could start he's nailing together.
A is media in a bubble right now?
I don't think so.
This is not the late 1990s when the bubble is being driven by internet advertising.
This is driven by strategic alliances and very low cost of capital.
A this is phenomenal.
We have got to do this again, marshall and paul.
We have to make a note to our team.
We did not even get to groceries with a multibillion- dollar deal from kroger.
Lots of deals.
Coming up, we are going talk about part plays.
They need to do damage control, barclays, especially in the united states.
There've hired a new u.s. ceo to do the job.
It might not be the kind of person you think it is.
We'll introduce you to him.
? this is "bloomberg surveillance." i am sara eisen here with tom keene and scarlet fu.
As many as 20 children in india died after eating a free lunch at the state-run elementary school in the eastern state.
The deaths may have been caused by chemical substance in the food.
It was part of a program to improve nutrition and increased attendance.
In russia, vladimir putin has been warning the united states the russian president says his country will not hit into the pressure to hand edward snowden over, saying russia is an independent country with an independent foreign-policy and that he hopes his "heart nurse" understand -- "partners" understand.
The nfl green bay packers posting profit of $54.4 million for the fiscal year.
The deals will not be on the books until next year.
Football franchise north of cincinnati that wins games.
The green bay packers have the most diehard fans.
I was trapped in a milwaukee airport once during a snowstorm during a game and it was like craziness.
And you're watching bernanke.
And they are a publicly traded sports team.
The fans are crazy.
I don't want to be playing the packers in early january when it is freezing and snowing.
And you don't want to be trapped in an airport with the fans.
Ceos are getting more confident about the economy as ben bernanke is talking about perhaps slowing down the bond buying program before the end of the year because unemployment is falling, the housing market is recovering read -- recovering.
Ceo confidence could be the indicator, the white line, confidence and tech companies sales, the yellow line, basically moving in tandem until the end of 2012. you can see where we have circled, it starts to divert a little bit.
Ceo, they're starting to recover, so does that mean we will see stronger sales from the likes of microsoft, apple or ibm?
Will it lead to more spending ? ceo and small business confidence, without picking up, there is pent-up demand for capital expenditures.
We will see.
There is this pent-up demand story around for two years and it has been distorted by the low interest rates.
And in terms of the big companies by profits.
A huge distortion.
We can't bring the money back re-at -- back.
Features, negative three.
Talking about the all-star, see this shot of hedge fund manager billionaire?
It turns out he was almost hit by a foul ball -- a flying bat.
The moment was caught on tv.
That same bat, won the triple crown last year, one of the best hitters i'm told of our time.
Jim is battling in china, his view of china versus others.
Maybe steve roach lubricated his bat so it would fly out.
I doubt that.
You don't think so?
It was a funny moment.
Hedge fund activist sitting in the stands, you're going to get hit by something as some point.
Coming up, in the next hour, a conversation for you with mark dixon.
He will be joining us to talk about the future of work for people who don't work at headquarters.
Tipperary office space is a big trend.
? this is "bloomberg surveillance." let's start with today's company news from the files of bloomberg west.
Alibaba tripling profit.
China's largest e-commerce company.
It has been preparing for possible initial public offering.
Analyst forecast evaluation could reach $62 billion.
In the meantime, one of its owners, yahoo sales forecast falling short of analysts estimate.
Revenue as much as $1.1 billion, slightly below analyst projection.
The ceo says her turnaround efforts of and focus on creating new product to attract consumers and advertisers from rivals google and facebook.
Speaking of google, the company is discussing its own web-based television service.
The internet search engine has held discussions with media executives on the topic.
The service could offer tv packages that bypass table subscriptions.
That is today's company news.
Google is the latest in the race to join other big tech firms to get a tv online.
We are going to talk about banks because news that barclays traders were fined $488 million amid u.s. energy probe, the wild, wild west as parkway selects a texan oil baker nicknamed skip to had its u.s. operations.
His main path is to improve relationships after barclays is blamed for rigging global interest rates and the whole libor scandal.
It has been rocky.
Wonderful human interest stories on the nonhuman industry a banking.
What is the distinction of skip miggy?
Our place has pledged to become an institution to be conservative, even return to its quaker roots to pay less and take less risk.
Skip miggy a sort of the bankers banker.
He not only has been associated with landmark blockbuster deals like to, exxon mobil, but a guy who bankers think bankers think of as someone who understands the risk you need to take.
You and i know and our guest host marshall sonnenschein knows, the mantra is, we are number five and into quarters of we're not number two, everyone in this room is out the door.
You have heard this discussion.
Skip mcgee sent where number for today, if you're not number two by labor day, we are gone.
He is no longer going to be the investment banking head.
It is going to be -- how do you do that if you are a banker?
You give them half a billion dollars.
They're going to just hand over the money.
But it is the reputation.
In a way, it is trivial, even though it is so large.
Capital, leverage -- is there room for a barclays?
Marshall, you have been doing this for decades.
Great premier soccer sponsorship and all that, do we need a number five in banking?
Barclays is number one in the uk, but they want to be a top player in the u.s. and we have a lot of banks in the u.s. i went to get back to skip mcgee because you have talked a lot of people that he has worked with and they say he is this old-school banker who knows knows how to retain talent.
In other words, he knows how to pay them a lot of money.
What skip would say if he heard tom's question, absolutely there's room for barclays because all they've done have done in the last years grow and grow.
He is the kind of guy who understands how to do that.
Bankers need to big things.
A want to be paid because they feel like there've have not gotten paid properly and last two years, and balance sheets.
At lehman brothers, they were kind of an underdog.
They did not have a huge balance sheet and now they do.
They once balance sheet?
Huge jargon alert.
As i've gotten older and become more wall streetier -- you are ancient.
But it is not a small issue.
When he was running investment banks for lehman brothers, he pushed to take risks that other banks could more easily take.
For example, leverage loans.
Rather than advising a client on a deal, they would actually use some of lehman's money to help find your client.
A barclays, that a lot more capital to do that.
What i think of this repairing relationship with regulators and how the big bankers do with them, i think of jamie dimon and his approach to dealing with the regulators.
How is this going to be different?
This is i got from mcgee to me he is not a backpacking independent banker, he is diligent, precise, controlled.
If i had to imagine what he would be like in a room with some of the firkin people that just find his company or maybe the sec, i could imagine him i now clearly exactly what he wants barclays to be.
The banking 2014, remotely close to the banking of 2005, 2006, what has changed?
The new ceo of barclays would say, everything.
Barclays has pledged over the last six months to transform nothing short of its culture.
He has been pretty clear about it.
But the bankers have to get paid.
The problem is, you use the important word, culture.
It used to be if you went back 20 years, the culture of banks was much more distinctive against each other.
I think today very large financial institutions have collapsed toward the median.
I am not there is a recognizable culture that is different.
Goldman and jpmorgan still have some legacy culture, particularly goldman, but all of these firms in 2014, 2015, all of these firms have to make a lot of scale money on a lot more capital that is going to yield lower comp and lower returns on shareholders.
I still go back to we're number five, if we're not number two in and three quarters, everyone is gone.
I still say that is the whole motivation.
Max, thank you so much.
Let's take a look, photos making the rounds today.
We're going to start with the head of north and south korea's delegation because they are talking during a meeting.
This is in the industrial district today in north korea.
That jointly run industrial complex that was previously abandoned.
Talks are continuing after three previous meetings failed.
Their expressions say at all.
We move on because it has been busy for russian president vladimir putin, negotiating a tense political situation as edward snowden remains in moscow.
Actually, we will skip that one.
36th annual badwater, 135 start.
The run begins in death valley, billed as the hardest race in the entire world.
And it is 120 degrees.
And now we go to russia.
Apparently, he found time to take a break to visit a deep-sea summering dive to visit a ship that sank over 100 years ago.
Do you think this will solve the edward stone issue?
Thank you so much, marshall coming up, any minute bank of america set to release earnings.
Don't miss our coverage.
Scarlet will take you inside the numbers.
? . . this is bloomberg "surveillance." ben bernanke on the hill with share prices near records and interest-rate in flux.
Politicians are nervous.
The economy may new, but it is not normal.
Europeans prefer the bus lane of their ancient cars to being in a new car driver's seat while the united states.
The roads are clogged with trophies to detroit's renewal -- american autos are decidedly muscular again.
Look at that mustang.
This morning, do you work at a swank headquarters or one of the temporary spaces?
Popping up all over the world.
Good morning, everyone.
This is bloomberg "surveillance." i'm tom keene, live from our world headquarters in new york this wednesday, july 17. joining me as always, sara eisen it scarlet fu, our guest host, chief strategist at sandler o'neill.
We will talk about bank of america's earnings.
Bank of america earnings are just out at this hour.
We have net interest margins of 2.44% higher than what analysts had been anticipated, and higher than the first quarter.
A little bit of a pleasant surprise on that end.
Overall, earnings per share, it looks like the number that we got is $.32, which is higher than what analysts were looking for.
The consensus was for earnings of her share of $.26. we also have a headline on the basel three-tier one common capital ratio -- 9.6% as of the end of the second quarter.
Some other headlines -- mortgage production is up 40%. not interest expenses below $2 billion by fourth quarter.
That has been a big scene for all these banks is quarter.
How much they're cutting expenses.
Their efficiency ratios, the expenses as a percentage of overall revenue.
It has been a big concern because the volatility we see in the second quarter has brought down six income earned it, commodities, trading revenue, certainly for the first quarter.
The distinction of bank of america and their chief financial officer, brooms -- bruce thompson, goes right to it.
Robert elder son with us -- robert l person with us.
-- robert is with us.
Think of america is different from jpmorgan.
You get to the top eight, they are all very different from each other.
Bank of america is more of a traditional, broad-based, u.s. domestic bank.
It is not have a large international compound.
It is also does not have the same level of investment making and capital markets, although it is important there.
Finally, does have a significant mortgage business, which for the moment is a little effort for all of them.
All in all, they are well.
Is managing costs changing american banking system for bank of america -- 260,000 employees -- where will that number be five years from now you go?
I remember cost reductions.
I have often wondered where ali siebel finally went.
It keeps going down.
Noninterest expenses coming in at about $15 billion, excuse me, $16 billion, down $1 billion from the same time a year ago.
What it comes to bank of america, $71 million for litigation expenses, the in dash the issue seemed to be auto legacy problems that brian moynihan inherited.
I did not follow the sox, but just listen to you, one of the reasons the expenses aren't started to come down if the litigation side, which is a legacy issue, not just people living -- leaving.
They certainly have their fair share that -- it is an overhang.
Overhang but getting better.
Especially for brian moynihan.
Clearly the earnings will get better over time because those numbers are coming down.
We will have much more with robert alverson.
I want to do you caught up with the morning briefing.
The new canadian at the top of the bank of england, mark carney, held its first meeting in england.
Today would at the meeting from it.
-- today we got the minutes from it.
Here in the u.s., we're going to get mortgage applications this hour.
That weekly number, 8:30 a.m., housing starts.
The main event -- 10:00 a.m., fed chairman ben bernanke testifies in congress, the house financial services committee.
Keep an eye out, 8:30 a.m., his transcript of his speech will be released.
They get the straight to michael mckay -- michael mckee, who has been seeking with that president over this issue of what bernanke needs to communicate today.
What is its?
As a manner of managing expectations.
We have seen the markets really reacts negatively to his appearances.
To the idea that maybe they will start raising interest rates.
I brought along a chart.
If you are listening to -- en route bloomberg radio, imagine three lines curving upon each other.
Problem is you have, the bible mind shows -- the bottom line shows that before the april payroll reports came out, we had the markets expecting that they would raise rates in the middle of 2016. you are all the way back up to very early 2015. that is not what he wanted to see.
What does it say today about the distinction between the balance sheet and the interest rate strategy?
I still think a lot of viewers and listeners are confused about the two.
There is the balance sheet dynamics and then there is the interest-rate dynamic.
What are we we going to learn today?
He wants to keep them separate, the same thing he has been saying all along -- tapering is not tightening.
We're going to start buying fewer bonds, but that is not mean we will raise interest rates.
The markets will raise interest rates.
They have already done that.
He may actually warned today that that may slow the idea of tapering.
How does he communicate that if it is really up to the markets to determine whether tapering is indeed tightening because it can lead to tighter conditions, higher interest rates, higher mortgage rates -- the tricky thing he has got to do, he's got to talk about the economy a little bit, probably point out that since qe began, we're seeing a rising job creation, but we've we have seen gdp lower than it was before.
So you have got a really mixed economy.
Maybe it is not a the insurance policy that qe was supposed to be when we thought congress was going to have a problem with the fiscal cliff at the beginning of the year.
But we still need accommodation because it is still not growing quickly.
If you look at this short and long and, the short end, the fed controls that rates by controlling a dial.
On the long end, they have to deal with the marketplace, and the marketplace is going to drive long raintes up before short rates.
There is nothing wrong with that.
Do you envision is going through a 2.70 10 year?
I hear a real indecisiveness about how high high yields can go.
There is a big argument on that.
The standard response has to be history tells us that the 10 year follows nominal gdp, which is over four right now , headed for five.
Will he there and three-month?
No, but i will be neutral for the 10 year.
Ben bernanke might use this kind of forum to talk about fiscal policy.
In the past, we've heard him scold or warned that this could be affecting the u.s. economy.
Certainly the economy.
Stable on the fiscal cliff.
Any other fiscal issues?
The same sort of message is given as before, the fed is doing what it can, congress should do what it can, but may be softening little bit because he is talking to deaf ears at this point.
We will see.
A: 30 is when you and i will focus on this.
Eight: 30th when he -- 8:30 is when it is released.
They save any more time to study.
Are you writing writing any congress asked questions for congress people?
They would probably ignore michael mckee.
He is our chief economic correspondent.
Let's start off with bank of america in today's company new segment.
Shares are up by more than 1%, trading to $14.07. this comes after earnings per share beat analysts' estimates.
The headline number is $.32 for the second quarter.
Down the same time a year ago . higher than what was anticipated.
In terms of one-time items, there is a lot of issues with bank of america and its legacy issues, particularly with bad mortgages, litigation expenses, $471 million was put aside for the quarter.
It did release some reserves as well.
That slows rates down to the bottom line.
We will keep an eye on that company going forward.
Also, michael dell is standing his ground.
The dell founder and partner of silver lake says their buyout bid at their best and final offer according to people familiar with the situation.
Pressure has been building on delta increase its air t dollar $.55 per share offer.
-- it's $13.55 per share offer.
Meantime, barclays is ready to battle u.s. regulators.
It will fight almost $5 million in fines and penalties for allegedly mitigation of energy markets.
Barclays and other traders were ordered to pay about the regulators say they manipulate electricity prices and some western states.
Barclays said the trading with legitimate and has vowed to defend itself.
And yahoo!'s sales forecast falling short.
Revenue estimated at $1.1 billion, slightly below analysts' projections.
Marissa mayer says her focus has been new products to attract consumer and advertisers.
Garlic, thank you so much.
Let's do a data check right now.
I will raise three.
Futures up three, hydrocarbons, euro, 2.55%, really a non-data check.
18,000 bodies out at bank of america.
And we're watching the shares in the premarket trading higher.
We will follow bank of america just that with earnings.
Talk about cars -- european autos and u.s. auto sales going completely opposite directions.
Every this to our twitter question -- what are you looking for in your next car?
Is it technology.
Tweet us at @bsurveillance.
This is bloomberg "surveillance." i'm tom keene.
Bank of america earnings out front and center.
James simon and brian monahan, other bankers need to consider -- jamie dimon , brian moynihan, and other bankers need to consider higher mortgage rates.
Robert albertson is our guest toes.
We know there is always ambiguity.
When rates go up or for that matter when rates go down.
Rates resume to go up -- good or bad for brian moynihan?
It is good for every bank and when rates are a certainly low or high, anything returning in the opposite direction is very good for margins.
Every bank is saying that.
That is not mean everything works the cousin rates go up.
But it is vastly a positive for the sector as we see this.
Even though short rates are not moving yet, the mere fact that the long rates are going up is a positive.
So to look at the long rates here, they are going up, these are not.
What happens when the two year yield finally begins to move up?
As long as it is not move up faster than a long and, you are in good shape.
Except two cylinders.
Two thirds of its powers come from a cylinder that is lending where rising rates is clearly positive for spreads.
Than one third of it is in the securities portfolio, which is yield curve is sensitive, which means of one of the yield curve is positive or getting more so, that cylinder has more power while the other one is catching appeared the smaller banks -- catching up.
The smaller banks reporting this morning, the giants that we spend too much time on.
Are the giants going to become more like the regionals, or are the regionals going to become more like the giants?
I would not call pmc nc smaller.
I look at them as domestic or international.
They have a significant international business as well as capital markets pretty good onto the next tier, the super regionals we used to call them, they reflect more the domestic economy.
They're going through the same positive spirit -- same positives.
We had to get down to the small banks to see the differences.
Quickly, do we need big banks to compete internationally?
This is getting to be a desperately idiotic issue.
Our banks, our largest banks, relative to our gdp, are a fraction of the size of all the banks and the rest of the world.
We definitely need them.
We only have one that is truly mobile on a retail basis, and that is citi, and then we have only one commercial banks, jpmorgan, and to investment banks.
We are fighting the world with both arms behind our back if we want to dismantle that's or restrain it.
Robert alderson, our guest host this morning, on this matters.
This is bloomberg "surveillance ." this is bloomberg "surveillance." i'm sara eisen here with tom keene and scarlet fu.
Our guest host for the hour, chief strategist at sandler o'neill, robert albertson.
Said story in india.
As many as 20 children died after eating a free lunch at a elementary school in the eastern state of bihar.
The deaths may have been caused by chemical substances in the food.
Art of a program for nutrition.
In russia, vladimir putin rushing -- warning the united states the country will not given to the pressure to hand edward snowden over.
Russia is is an independent country with an independent on policy, and he hopes his "partners understand." their american league the the national league 3-0. new york yankees ready for marty rivero.
His final all-star appearance.
He was awarded the most soluble player award.
Those are your top news headlines.
One inning earlier than usual.
At the drum of him walking alone.
It is great because it means something.
The other games are sort of fake.
And this one, whoever wins gets the game seven advantage.
Home field advantage.
Designated hitter, how does that work echo?
Our director did tell us there was.
None of stayed up late enough to watch it.
I think it should be on at 7:00 p.m., it is just too much.
You write in for that.
Meantime, we will talk about car sales.
When it comes to car sales, the u.s. and europe are going in completely opposite directions.
In fact, just he was week, we learned that european car registration is are their lowest level in 17 years.
In the u.s., totally different.
June's numbers were the best since 2007. it is a tale of two different consumer markets, two different economies, and presenting all sorts of challenges and a rewrite and a strategy for detroit.
Ford, gm, scarlet, have huge exposures to the u.s. and europe.
Europe has been a big headache for gm and ford.
Everyone is losing money.
They're all hoping to break even by 2015. they have that excess capacity.
Ford is cutting annual production by 18%. the losses will reach about $2 billion this year.
General motors in europe -- if you go back to 1999, it has lost more than $18 billion in europe.
Market share has gone up from 11% to 7%. this is not just opal.
It also sells the chevy in europe.
Chrysler, which is owned by fiat, the italian car company, is now focusing on making higher-margin models in the small suv spatesces under the jeep rant and fiat brand.
Is unlike an industry that is dynamic to say the least.
-- it sounds like an industry that is dynamic.
Art of its revenues actually come from europe -- this is a headache every quarter when alan mulally get on a conference call.
Everyone is asking about the update to the european market.
Let's bring in jason harper.
He does not own a car under $300,000. great to have you here.
Let's talk about the companies that make the fancy cars.
Who is winning right now?
Fiat is finally -- their alliance with weissler is looking like a good thing.
-- with chrysler is looking like a good thing.
Chrysler needed cf, now fiat needs chrysler.
We'll see fiat models because they have excess capacity.
Some of the alpha romeo, some of these models.
What about the germans?
Mercedes, bmw, audi, who is winning at that game?
B&w, audi , and mercedes are all doing so well here.
What happens is they are no longer so concerned with europe, they are looking at china.
I think what we will really see is further emphasis on asia where lamborghini, these companies which have small -- they don't make them any production models anyway, are going to send those models to china.
They're looking at developing models that they don't care about europe -- what about this divergence between he u.s. and europe.
What we saw is ford sales in europe are on the mend, while gm's are doing worse than the overall market.
To scarlet point, how are the different strategies paying off in different ways for these guys?
If you look at cadillac, some of the higher end models from gm, you look at ford, ford has got a bunch of great, small cars that are selling in the real market here.
They have done a really good job at the focus and fiesta that are really nice cars.
Gm's lower end cards are not that interesting.
A lot of the cars are rooted in opal, it is no longer a brand people want to be associated.
They suck a lot of estimates of of opal.
It is not quite happened.
And a second-guessed themselves, so they do not really have a plan.
I have the aspirational urge, robert albertson, help me out, i thought a white maserati turn from 60th onto fifth avenue, and this kid is just like damn, that is a good looking car.
That is still out there.
In france, there's not that much interest in car ownership thisese days.
For some reason, the french are not into cars anymore.
We are having the same problem in the u.s. to a certain extent where teens are not so into cars as we were.
It is more of like a we want the latest technology, and that it -- and it is not about the car.
Asians are very into cars.
Very much so.
The bentleys, the rolls- royce is, cars to be driven in, not cars to drive.
Whited out he do so well in china?
They got -- why does audi do so well in china?
They got an early.
Bmw is not.
I didn't see a bloomberg "surveillance" maserati.
Jason harper, thank you so much.
If you are buying a car, or just stopping by the showroom, what are you looking for in your next car?
Embedded electronic dashboard?
Tweet us at @bsurveillance.
Coming up, 1.7 million, that is how may job can be created in the economy from shale energy development.
It is a game changer.
This is bloomberg "surveillance." i'm sara eisen here with tom keene and scarlet fu.
Tom, the big question here and be trend is how do you work, do you work at an office, the headquarters, or somewhere?
Orissa meyer put limits on people working from home, that had quite the controversy.
Many companies are doing the opposite.
More and more people telecommute, working working by phone, coffee shop, and temporary and flexible offices.
It is a global business.
It is a huge, huge business.
We don't have a shot, what do we do, how are we going to set it up?
That is what we will talk about.
Regus work for companies that want new, flexible locations.
It is really simple.
Mark dixon can fix that for you.
He is chief executive officer of regus of london.
He joins us at our world headquarters in new york.
Bloomberg uses your services.
I need to go to a brazilian city, not even rio or sa o paulo, and other one.
How did you settle into this business?
I had another business in brussels, belgium, had difficulty getting an office.
It is very hostile, customer service environment, didn't like the landlord, i thought they were be an easier way, started up the business, 23 years later, we are in a 100 countries.
Devolution right now?
-- what is the evolution right now?
What is the new new in the demand for temporary space?
It is absolutely different today.
We saw the demand, but what we see for the past few years is the impact of technology.
Ipad, blackberry, iphone, people working in a flexible, mobile way that do not need an office anymore, but they want something better than a starbucks.
So we started up three years ago dropping locations, opening up on highways, air of boards, office buildings, so that you can literally work anywhere for short amounts of times.
We've seen rising rent across u.s. city -- new york city and everywhere.
Have you guys had to raise your prices?
Our rates are related to whatever the rent is in the market.
We are seeing small rent rises in places like new york, but generally speaking, the global rent market is pretty flat at the moment.
Rent is quite a small proportion of what we do.
We are into flex ability.
You are renting space for exactly the time that you need it.
It is much cheaper than having a properly in any case.
When i was running a little hedge funds, there are other hedge funds on the same floor, what kind of flavor do you get in the sir -- in terms of demand?
Where is the momentum in terms of people who want these that are not to print off but single locations?
-- are not branch offices but single locations?
People are quite surprised, we double the size of their business and greece, we are in the process of doubling it in spain.
What happens is at this point in the economy when things are distressed, people try new things.
Companies change the way they work.
It has been happening in the united states.
It is a worldwide phenomenon.
I am in athens, i decidedly don't want to start up my own office, my own operation, i go to you -- how big in your square footage be?
Are you limited by its bank of america with earnings out today, they want to go into athens, do you guys go you guys are too big for us?
Companies are a mix between very large corporations and startups.
These guys that are starting up with one person startup, using maybe a day at week, to corporations that outsource their entire sales operations to us.
If you are an attendant one location, you have the privilege and opportunity to be anywhere in the world and easily have an office.
That is right.
The base product is $30 a month.
That gives you access to new york city or anywhere in the world.
You mentioned greece and some of the hard-hit areas in europe, i know your business also took took off during 2009 during some of the troubles here.
You do well when the economy turns?
We try to do well in all types.
We do well in times of stress . it is more difficult for us to grow when the economies are very hot.
We tend to slow down our growth, -- can i rent from you the tape machine so some recalls up it sounds busy in the background?
Everything you have in your own office, we provide that -- doors slamming and all that.
Would you hold line floorour, please?
Mark dixon, you will stick around, we will talk a little bit more.
Meantime, we have company news.
We will focus on bank of america because the company just reported earnings, and shares are moving now.
At last check, they were moving higher after rough it beat analysts' -- after profit beat analysts' estimates.
Big america set aside for potential bad loans, 1.2 billion dollars, up about $500 million less than the first quarter.
Investment banking fees also topped estimates.
Greg good morning, everyone.
This is bloomberg "surveillance." on bloomberg television, streaming on your tablet, your phone, and bloomberg.com.
All of our interviews on bloomberg tv plus and bloomberg radio plus.
I'm tom keene, as always with sara eisen and scarlet fu.
Our guest host this hour is chief strategist at sandler o'neill, robert albers and joining us -- robert albertson joining us.
Just how competitive is the united states in his age of globalization?
More american companies re-their production to the u.s., it is worth taking a look at what sectors can lead to better job growth and billions of dollars to annual gdp.
I'm thinking energy, manufacturing good we hear a lot about the senate fund -- one of the guys that is really led the franchise is one who put out 200 page report centered on the american jobber economy.
-- merrick and job economy.
-- the american job economy.
He got engineering at oxford.
He is a rhodes scholar and hold down the fort on job research at mckinsey.
Dr., good morning.
Good morning, tom, thank you for having me.
You have a new report that i find extraordinarily on the manufactured renaissance of america, on our hydrocarbons in the middle of america, do you believe in manufacturing renaissance?
What we focus on in this study was on what might be the five game changers that could transform the u.s. economy and give us a buzz trend productivity and gdp and top growth.
That was the focus of the study.
In that study, we identify five specific game changers because we felt it was important to change the conversation and start to think about how do you read growth in the u.s. economy, and those -- go ahead.
I want to point out the great conundrum, all of our listeners and viewers feel, which is this growth, as mckinsey identified, but not growth with jobs.
The you presume that the jobs will come along with our new growth?
We think they do.
Let me be specific -- and each of the game changers that we identify, and there are five of them, each one, take shelled gas for example -- we estimate that by 2020, we should get as many as 1.8 million new jobs as a result of what is happening in shale energy.
. if you look at knowledge intensive manufacturing, we expect we should have as much as 1.7 million jobs.
As you go through each of the five game changers that we identified, we have some very direct and real impacts on gdp, productivity, and jobs.
I'm curious about ou