Citi to Pay $7B Settlement: Surveillance (07/14)

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July 14 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Cornell University President David Skorton; Sonenshine Partners Chairman and Managing Partner Marshall Sonenshine; RBC Capital Markets Chief U.S. Market Strategist Jonathan Golub; Kroll Bond Rating Agency Head of Research Chris Whalen; Bombardier Aerospace President and COO Guy Hachey and Brookings Institution Fellow Beth Akers. (Source: Bloomberg)

The air offensive continues on high mass as israel considers the use of ground forces.

This has ukraine deteriorates.

Reports one dies on russian soil.

Citigroup reports at 8:00 a.m., we consider earnings acceleration.

French publisher says they just say no to amazon.

Good morning, this is "bloomberg surveillance." it is monday, july 14. i am tom keene with scarlet fu and adam johnson.

Ecb president mario draghi will be addressing european parliament were he will likely announce another trillion dollars in support for european banks.

Just last week he said the european balance sheet likely to go up another 50%. there is plenty of sugar over there.

The portuguese news continues to devolve.

Plenty of hope right now.

Here in u.s., no economic data but we should mention janet yellen will be addressing congress tomorrow.

Earnings today, 8:00, citigroup.

Scarlet will be all over that.

We know second quarter trading revenue will probably be around 20% to 25% down.

Potential settlement with doj.

$7 billion?

That is the number circulating.

Two separate events.

Items of note, watch out midwest, there's a polar cortex coming your way.

40 degree temperatures at night, 60's in the day.

70 here, maybe.

Tom, you're looking very serious.

Trying to figure out which scarf to wear with your bow tie?

There goes the gdp numbers.

Sorry.

That is how stupid this game is.

We should point out, bastille day in france.

Their equivalent of july 4. let's get a data check.

Let's get started.

Bring crude under 107. gold really pulls back.

Where are we on the up with the markets?

We will address it in this hour of "bloomberg surveillance." here's the 200-day moving average.

I usually don't show this.

That distance is really something between a steady moving up -- i think you're showing this, you get far above the trendline, overextended.

That is the emotion and sweat out there, which creates opportunity.

Let's get to the front page stories.

Our first story is that it is a big day for citigroup.

Second quarter earnings out in just under two hours.

Along with the fact citigroup is expected to announce $7 billion settlement into the government investigation into mortgage-backed bonds.

The deal was reportedly signed over the weekend and we should note that jpmorgan agreed in november to settle similar charges for $13 billion.

Pretty good set of data -- but not a great indication of what the money can do.

According to people familiar with the matter, that $7 billion will break down into $4 billion to the justice department, $3 million to the state attorney general, 2 million to the ft idc -- fdic.

We're thrilled to have scarlet fu with us.

You're going to do at 8:00 a.m.? i will be on the radio.

The second story, "the wall street journal," they call it an arc of instability unseen since the 1970's. uncertainty in gaza and israel, ukraine and also iraq.

About 17,000 residents of gaza you in shelters after israel warned it was going to attack.

The back story is, ukraine overnight, some real instability there as ukrainian forces go into the hot scoop -- luhansk.

Report of one dead civilian in russia.

A lot of unconfirmed, so we have to be careful.

Not to mention, afghanistan.

People are still dying in afghanistan and syria.

This arc instability you talk about, it is amazing when you think about how many countries are involved and how many hundreds and thousands of people are at risk.

I will have that in my morning must-read.

And also launching attacks nearby bad.

A touch of sea salt.

You are referring to m&a monday.

Chocolate maker -- adam johnson has one of these every morning.

I'm trying to turn over a new leaf.

Chocolate was sea salt is really good.

The chocolate maker lindt will be buying russell stover.

With this purchase, becomes a third-biggest chocolate producer in north america.

Another deal, looks like the making of fifth offer for shyer, based in ireland.

Another inversion deal where they would move corporate headquarters to the u.k. busy five-day week for you, earnings season is truly upon us.

We have two people from two different worlds, jonathan golub and marshall sean &. marshall, these deals we are seeing, the idea of lindt chocolate and russell stover, are these deals from 20 years ago?

In some ways, yes.

The tremendous run-up in m&a, at a run rate is that continues at 3.5 $20. comments from the same industry getting together to say, let's have more market share, take some cost out of the more prominent stock.

Why are we seeing almost 1930's combinations versus financial transactions?

You're talking about these of equity and deal, mergers, strategic corporate mergers.

This is the latest stages of a five-year bowl.

The latest or late?

Both.

You have companies with very, very solid equities and everybody knows it.

They're using the equity as a currency.

Do you believe this rally integra girl is of interest rates increase?

The big issue here is, i don't think we're year five and a seven-year cycle, but your five and 10 or 12. you don't agree about the phrase "late stages"? i don't. they separate it from what is actually making this happen.

What is making it happen is the weakness in the recovery is going to be the reason why this thing continues to go on.

Why is that?

It will take us longer to get for the next recession and bull markets don't and when they get tired or expensive, but when the next recession arrives and we are way far away from that.

In other words, you're saying companies can't grow organically so they have to grow by going out and buying other companies?

The fact we've only had about 3% or 4% revenue growth of the majority of this and yet you're saying 6% to 8% eps growth means companies are doing whatever they need to to deliver the bottom line, even if they don't have a topline.

That folds into the core issue with mergers and acquisitions, something we saw in davos, because of limited revenue growth or the perception of limited revenue growth, we have to combine.

Is that fair?

You have zero gdp growth and lots of parts of europe right now.

We have a very difficult to interpret gdp growth pattern in this country.

They may be revising about second-quarter growth.

First quarter was -2.9. we're in a low visibility environment.

Without that growth and that headwind or the tailwind behind companies right now, m&a will be propped up equities from cheap money, m&a is now researching on the stock side.

Is a sustainable not to the rest of this year but the next year and the year after that?

Out of the trillion dollar deals, a big portion is the drug sector.

There is some of that.

I agree with jonathan on that point but i don't think anything this good lasts forever.

Some distinctions we can have as we go to citigroup earnings at 8:00 a.m. the markets are terrible.

Thank god there's company news to save the day.

A major takeover this morning in the construction sector.

Acquiring the company for about 4 billion dollars.

They provide support of planning for major engineering projects.

There are to work together here in new york.

The combined company will have more than 95,000 workers.

There's a report japan's softbank agreed to buy wireless carrier t-mobile u.s. this is according to japanese new service.

An analyst says the biggest obstacle to the transaction likely to be u.s. government approval.

Apple is denying new charges by the chinese government.

China state media says iphones poses security risk.

Reports of location tracking software could lead to a leak of state secrets.

Apple says the software can be used to identify the activities of individuals in china.

A month of top-flight soccer.

Germany, best team in the world.

Germany celebrating its 1-0 victory over argentina.

Still pretty amazing what happened yesterday.

Germany scoring in extra time, winning their fourth title.

Disappointing loss for argentina.

The star, lionel messi, you had argentina winning it.

I thought they did better against germany, but germany -- that looked really good in the first half.

Did you watch this john golub ? a little bit.

Come on, come on.

I went right back to baseball, yankees and orioles.

Nobody flopped.

Marshall, help me here.

They can't succeed in america until they stop flopping around.

Late in the game, the german guys falls down.

He is delaying time.

They run around a lot.

It is an outrage.

Los angeles angels, my trout.

All-star game.

Within for five weeks, we start talking football.

Home run derby.

Would've a lot to talk about this morning.

Coming up, our weeklong coverage of the millennial market with their single best chart.

That brings us to our twitter question of the day -- tweet us.

We want to hear from you.

Can you define what a millennial is when you do this?

Young and hungry.

? good morning, "bloomberg surveillance." coming up, really looking forward to this, david marshall sonenshine, -- david skorton.

Thrilled to have medical doctor skorton with us.

Good morning, i'm scarlet fu here with tom keene and adam johnson.

When he did talk about what is going on with germany.

Of course, your celebrating committee dancing in the streets because they beat argentina in the world cup.

There is a lot of discussion about this u.s. spy scandal as well.

Concerns overall about some distrust between the u.s. and germany.

I morning must-read has a lot to do with that as well.

First, we want to bring up how the distrust between u.s. and germany have started to affect the business world as well.

Here is what the towing ceo said about the business implications of this u.s. spying scandal.

American companies and companies from other countries have gotten caught in the crossfire, either wretched regional kinds of actions -- either retribution all caps of actions or others.

I'm hoping that won't happen.

We're working with our government as we always do.

We will keep plugging away and try not to get caught in the crossfire.

We all thought it was symbolic and perhaps angela merkel was playing to a domestic audience, but at is a lot of fortune 500 ceos worried.

It's a new definition of transnational company.

They're all transnational.

In all playing the tax arbitrage game as best they can.

Will he continue?

I think it will.

What you said a moment ago about germany, it is a blip in the scheme of things geopolitically, but i agree with the ceo of boeing, it is a cause for some instability in some parts.

I think there a lot of hotspots in the world today, particularly in the middle east, where markets are getting jittery.

When you define an inversion merger?

An attempt by u.s. company to reincorporate in, typically, europe, in order to get the benefit of lower tax rates in a foreign jurisdiction.

We are this more and more.

This abbvie shire deal you're talking about.

Do you consider that theft?

If you wanted to call it that, it would be legal theft.

It is legal, but how long will congress leave that legality?

Congress try to close a loophole back in 2006 and was effective, yet corporations figured out how to get around it.

When congress acts, the game will and.

I want to bring in hans nichols from london.

Before we get to the spy scandal, i need ask you quickly about the big reaction to germany's winning the world cup.

Dancing in the streets, right?

It was crazy in berlin.

They like to shoot off fireworks for every goal they score.

You did not want to be in a landing zone because so many fireworks were coming down.

Check that out.

Amazing.

Germany winning, there was writing in the streets of brazil.

There were warnings that that would happen if argentina won.

I want to know what is just tom got into with bottle rockets as a kid.

Tom, were you in him 80 guy or cherry bomb?

Cherry bomb.

This finger was numb for seven years because i was an idiot as a kid.

That part of believe.

I can't believe it was allowed.

I am big on fireworks safety.

Speaking of fireworks, talk about chancellor merkel.

We saw her loving up the world cup.

How is her week going?

How livid is she a president obama?

They are upset.

The chancellor has made no secret about how upset she is with obama.

John kerry tried to smooth things over with his counterpart . the question going forward is, will it lead to a nose high agreement between the two countries and -- lead to aagreement between the two countries and what has this done to the u.s.-eu free-trade deal?

It could mean great growth for both economies.

It could mean that or a lot of other things.

There are reports that perhaps angela merkel my step down early?

Dear spiegel is usually exceeds exceedingly well-versed.

According to cap net minister, -- cap net minister, i read it with a fair amount of skepticism.

In part because this could come from someone that very much once angela merkel's job.

The analogy is if i started telling everyone that tom keene is on his way out of "surveillance" because clearly i am going after his job.

For crying out loud.

Make you so much.

Coming up, a slew of economic data starting with citibank at 8:00 a.m. retail sales tomorrow.

Janet yellen also testifies before congress.

We will discuss how to play the market sectors, how long the bull market will continue with our guest host jonathan golub.

? this is "bloomberg surveillance." we do a morning must-read right now.

Mortimer zuckerman writing in "the wall street journal" -- jonathan golub, your bullish on the markets, the wire we not talking more about this?

What can stocks keep going up when it is just part-time workers with low income behind it?

There's a difference between the economy and the markets.

I think we're stuck in a 2.5% to 3% gdp environment, which doesn't feel good, but it needs the economic cycle gets drawn out.

The number of people getting high-paying jobs has been very disappointing.

And it doesn't give you cause for paws on being long for stocks?

No, it doesn't, and part of the reason is the fed cannot exit if you have a really punk housing market.

And we have seen that with the fed committing to that low rate policy for longer.

Jonathan golub our guest host.

Israel to choice -- israel deploys troops on the ground.

We go to tel aviv, next.

? 30 months is how long it has been, the boat that was tilting sideways you're a tuscan island.

32 people lost their lives.

The costa concordia.

A huge eyesore.

Tragic.

You wonder how much has rested after 30 months.

They're spending a gazillion dollars.

It is nice to see it upright, finally.

They're worried about it breaking.

There are still a lot of fluids that could be catastrophe.

This is "bloomberg surveillance." i am tom keene with scarlet fu and adam johnson.

Busy monday morning.

Finding accelerating in the mideast overnight, hamas fires 20 rockets, israel targets 40 terror sites.

We go to tel aviv.

Elliott, what is the risk this air war, ultimately becomes a ground war in the near future?

Israel is keeping all its options open according to the prime minister and other ministers in his.

The closest to a ground invasion was just before the weekend, and assault by israeli commandos on the militants off the coast of gaza, engaged in fighting there.

The deployment of tanks for the border with gaza, 33,000 researchers have been called up.

They have not made a decision if and when they might storm the ground invasion.

Describe the north of gaza.

To me, it is a place on the map.

What does it really look like?

There are towns to the north of gaza must some of them are development towns.

Escalon has a development -- not the most aesthetically pleasing.

Power stations, nuclear plants not far from there as well.

These are big cities, big towns, which have large populations.

I have an app on my phone that goes off every time there's a siren sounding.

Oftentimes, it is many, many times a day.

It is really ground troops going to gaza, what do they go in to?

Abandoned property?

Street to street fighting?

What do you presume will occur?

I suppose everyone hopes if that happens, we would not see a repeat of 2009 were more than 1000 palestinians were killed and a number of israeli casualties.

You're talking about a very small coastal enclave with 2 million people cramped into it.

You will clearly have gunbattles and presumably, in areas where there are civilians.

And also the militants as well.

Hamas would relish the opportunity to inflict some casualties, i suppose.

And also the ability to kidnap a soldier or two.

How much does this change the whole thing and make compared to what israel and gazans faced several years ago when we had similar events?

Since this operation started some seven days ago, there have been more than 1000 rockets fired at israel.

There have been two serious injuries.

The only debt that is happened so far was an older person in jerusalem who died of a heart attack when the air raid sirens went off.

More than 1000 rockets, not a single casualty cost as a result of that.

In large part, that is due to the iron dome missile defense system and also a well drilled population who has been through this before people following procedures and going to shelters when these rockets are in the air.

You hear the show -- sirens, and you go to the shelters.

The health ministry in gaza said at least 165 civilian casualties have occurred.

What is a statement from israel on this collateral damage?

If i may, i think it is about 170 casualties.

The majority of whom appeared to be civilians.

That is according to the united nations, one fit our children.

Been to netanyahu said in an interview, they're always going to be civilian casualties and they regret when they happen, but they are defending the people of israel from this barrage of rockets from the gaza strip and will continue the operation until they have severely weakened the infrastructure.

We are watching.

Thank you for bringing us up to date.

Breaking news, more m&a news on this monday morning.

Abbott laboratories will be selling its development markets excluding u.s. ran a generic pharmaceuticals.

This is valued at about $5.3 billion.

Abbott will keep its business in emerging markets, but selling off generic.

On both the generic and non-generic side, we're seeing consistent, nations and they're all about taking cost out on the r&d side or improving or distribution chain on the generic side.

Are they about capturing revenues as well because we can grow our own revenues?

I don't think there's anything evil about that.

Is this about, in some ways, not death but the demise of conglomerates?

In other words, companies whether they are in oil or pharmaceutical, they focus on one specific niche?

You could argue that is a new kind of conglomerate because when you get to larger and larger blocks of publicly traded private equity vehicles just buying more more companies within a defined space, but you're right,. we have seen a really weak m&a environment for most of this economic recovery.

For some reason, the last six to nine months, the environment has gone just vertical with activity picking up.

What is changing?

I think you to start with, jonathan, why were these markets to coupled -- de coupled?

We did not have a strong been m&a market.

Cheap money is what was propping up the equity markets, not confidence.

There is not fundamental confidence in the last several years of economic growth, without which, it is hard because it it about buying large companies.

Today, however, there's a mixed picture.

Some is about greater confidence another is the equities have been so propped up, the people want to use them.

And acceleration of margins of earnings, a better things to come.

So many people, including push back against that.

Stay first why we will see a positive second and acceleration in earnings.

My starting point is with the expectations among economists for the broad economy which is that we will see something in the neighborhood of 3% gdp growth on a going forward basis.

Last year, we had 1.9% gdp.

This year, with such a lousy first quarter, again we will be under 2%. we should see a pretty big pickup.

But this lack of revenue drives companies to focus on taxes, interest expense, focus on all these other things.

Therefore, you get this weird disconnect, which is a weak economy and better earnings.

You see the s&p 500 folks, talk about the correction-free moment, down all of 0.9%. jonathan, this goes back to, did you participate?

When you speak institutional long only mutual fund investors like the big foldout in "the new york times" this weekend, are we participating in all this good news?

Increasingly, you haven't investors getting into neutral fund flows now been much more positive.

The big jump you got off the bottom, people miss that really first big leg.

Yes, increasingly, the public is getting in.

In the extended cycle, they will be able to get some fruit out of that.

There have been a lot of questions about capacity utilization.

I like to call it the fat man and the hamburger argument.

Easy the 300 pound man for me you think, how much bigger can he get?

Margins are added all-time high, tenneco higher?

I say, look at the hamburgers.

What does that mean?

Factories have a lot of excess capacity.

You can sell more units without putting more equipment in their profit margins go up.

I think you'll see a number of -- we were talking before, lack of confidence.

Companies that are not confident about the future, squeeze more and more out of what they have and that drives profits higher.

Talking about the manufacturing side, but if you look at the consumer, retail sales are incredibly -- this is a very discount promotional oriented retail market.

That tells you the consumer has pulled in her wallet.

This is not bullishness.

You even talked about a lot of the m&a activity is not necessarily animal spirits.

I think we're in agreement.

The question -- i look at it as an equity strategist.

Can you have de coupling between a good market and weakness with the consumer?

Maybe there is decoupling within private sectors.

Financials are sure going.

-- struggling.

Which are leading?

The biggest area in terms of adjust is the energy sector with oil prices up, probably the area you see the biggest change from the last quarter.

Two groups that did well last year, california utilities -- utilities are great.

What about banks?

Banks are going to have a hard time on trading operations for the big banks and on mortgage activity for the regional banks, but the important thing, if interest rates go up, banks will do well this year.

If they stay soft, banks will have a harder time.

We will see how that shakes out.

Coming up, focusing on millenials.

What companies are paying a lot of attention to this potentially powerful group of people.

That brings us to our twitter question of the day -- tweet us.

? good morning, "bloomberg surveillance." i am tom keene with scarlet fu and adam johnson.

The single best chart, a plethora of charts.

We're kicking off a weeklong coverage of the millennial market.

Lost generation, future baby boomers, they have been called both.

The reason why you want to focus on this group of late teens and twentysomethings, is because it is going to be the biggest generation in history.

They already outnumber your baby boomers.

Let's show you the chart.

Part one shows the peak first rate of tom's baby boomers.

4.3 million births per year.

That was back in 1957. fast-forward to 1990, millenials peak birth rate matches.

All this week, we will focus on issues facing the millenials.

What they're buying power means for business as well.

In the next hour, someone who is first-hand experience in dealing with millenials and their parents come at david skorton will join us.

If we had 3.5% gdp, that was awful lot of challenges.

-- that would solve a lot of challenges.

We have three millenials.

I think that a bit of a challenge in their generation.

Are they going to come home and live with you?

No.

one of them is in law school, one is out in l.a., and the other is in left field.

Really?

The hope generation.

When you look at those charts with the peaks, the differences, we went to the 1960's and hugely expanded our social programs.

I think the big issues with these young folks is they will be paying for all of us for a long time.

I would go back to something jeffrey immelt said, these kids in their 20's, like my three millenials, they haven't seen a normal economy.

They have never seen that run rate.

It hasn't been the same.

One thing they've seen, just like a generation grew up in the depression and it never left him, my kids grew up with 9/11 in the background and the 2008 crisis.

They learn something about geopolitical risk and economic risk as children.

I don't know how that will play out, but i think it has made him more focused about real life.

Yes, thank you.

And mike it, without sending trite, lead to more initiative?

-- and might it, without sounding trite, lead to more initiative?

We will talk to skorton about this, there are thousands of kids that from what i can tell really did not go to college.

They need skills and education.

Fair.

Both matter.

He is selling fancy books again.

But you're competing with millenials around the world.

Do your kids have too much homework?

No.

i'm like a tiger dad.

We push our kids because i think they will have a really hard time if they are not -- if we're not pushing.

We're pushing them on math and science.

How did they read, online or with an old-fashioned book?

Online.

They read books on telephones.

Then you're going to love what we're going to talk about when we come back.

When marshall is not advising clients on m&a, use chairman of the company called rosetta books.

We will be right back here on "surveillance." ? this is "bloomberg surveillance." let's get you some company news from the files of bloomberg west.

The partnership that runs alibaba getting a stronger grip on the chinese company.

They no longer need ok from shareholders dad director's. that statement coming in in its filing with u.s. regular letters.

They're governed by founder with about two dozen partners.

Getting ready for the ipo that could be the biggest in u.s. history.

Bit torrent planning to raise cash according to "the new york times." filesharing technology is widely used to get movies and music for free.

The crowd funding is for a science fiction series.

The pay wall will be inserted for some book and music downloads.

Something different among the power tools and hardware at home depot.

3-d printer makers are now going on sale today at 12 of their locations.

Home depot started selling them on my months ago but will begin selling them on store shelves today.

That is today's company news.

Amazon pays authors more even as it sells books for less.

How?

They are squeezing publishers out of the equation.

Marshall sonenshine is chairman of rosetta books.

Amazon, friend or foe?

In terms of our business, they're very much our friend and everybody's friend.

You will notice that even the authors guild was very tepid in their critique of amazon and all of this.

Secondly, one has to be very careful.

We don't know the terms of the negotiations going on between amazon and the publisher.

Everyone wants to be an armchair -- they are not a small company.

It is a little bit like if you turn on your tv last year and saw you could not get your sports game on, tom, because the cable company and the sports network do not agree on terms.

They could each vie for your opinion in that matter.

We don't know what the terms are.

Thirdly, what this is really about, is not bullying by amazon but the market power that came from being an innovator in an industry that badly needed it.

Disruption seems to be the theme of the day.

That the crushing sunny here in the book industry is creating disruption.

This is an industry that needed it.

The big publishers are owned the wrong side of the history most of the debates that have happened in the last decade.

You reached a claim with recapitulating and strengthening their brand of ancient authors winston churchill among others.

When you look at this and say, what is good for authors, how can the authors avoid the pitfalls we've seen in music copyright?

I'm not entirely sure anyone can endure the pitfalls that digitization and digital technology brings, which is more content and greater volume at lower cost.

It did hurt musicians.

I care about musicians, but there's nothing we can do about the fact a song costs only $.99. there's not a lot we can do about the fact musicians galore shares of those revenues than they used to.

It is upsetting, but we have to play the game the civilization plays.

So is the distinction music is streaming whereas books are still per unit?

There is some of that.

If you look at the transition to digital music, it almost seems transitional and books is like giving birth to an elephant.

It is the internet, physical distribution and digitization, the ability to read on screen as these millenials do.

That change has upset the apple cart of a very, very quiet, happy, comfortable industry that no longer can play the game the way they used to.

If i decide to write a book this summer, what would be the best way to distribute said book?

E-books or self-publishing or the traditional -- you will find it difficult because everybody has to get the mind share an opportunity to publish in the big five.

It won't be so easy.

If you're a big name like james patterson, he gets a lot of that.

You won't necessarily.

You might turn to the digital model.

Be careful what you ask for, you may get it.

If nobody knows your book is there, it will just sit in a server.

What rosetta books does, it represents authors to make sure they get seen and purchased.

We are now doing that for harvard medical school and mayo clinic in the market association of retired persons, all of whom have a lot of content.

Adding the content in front of consumers, even at lower cost, is an art and exciting if you stop whining about nostalgia and start talking about how the world networks.

Some important issues.

Thank you, marshall.

My book of the summer, when the booker prize -- won the booker prize.

Do you have a book?

The new freakonomics.

Let's do a freakonomics report.

Much more on "bloomberg surveillance." ? good morning.

The air offensive continues on hamas as israel considers use of ground forces.

One dies, reported, on russian soil.

Immigration crisis touches all of america.

Back to college.

The races on.

I will take any student loan i can get.

Good morning.

This is "bloomberg surveillance." i am tom keene.

Our guest host of the hour, david skorton.

Let's get to our morning brief.

Mario draghi will address the european parliament where he will likely announce another 1 trillion and support for the european banks.

In the u.s., no economic data.

Draghi's counterpart, janet yellen, will be addressing congress tomorrow.

We will get earnings out of citigroup and a few items we need to point out.

If you live in the midwest, a polar vortex is coming up.

Citigroup has settled with the justice department for $7 billion.

The department of justice says the settlement includes a civil penalty of $4 billion.

The charge will be 3.8 billion dollars on a pretax basis.

They will be reporting earnings in just under an hour.

We now have a number to work with.

This is a $7 billion settlement to end a u.s. mortgage bond examination.

The charge was that citigroup miss led investors -- misled investors.

Operating income down -- it was $20 billion -- $20 million.

The chat -- the cash charges 3.8 billion.

Rounded up to four and divide by 20, should we do the math?

Four divided by 20, i think that is one over five.

1/5 of profits over the course of the year, as opposed to the year's worth of profits.

Jpmorgan resolved a similar probe.

Bank of america is still outstanding.

Numbers we keep hearing is 17. the challenges that citigroup are unique.

It is the anti--wells fargo.

It was at 10 41, reverse split.

Very misleading.

The chart tells the whole story.

City trades at a discount above value.

As opposed to wells fargo, which is a two handle.

There are a lot of bad assets.

City one with the bad bank, good bank.

-- citi went with the bad bank, good bank.

You will continue with our morning brief.

I want to take us overseas.

Fighting accelerating in the mideast.

Hamas firing 20 rockets and israel targeting 40 terrorists sites.

Elliott gotten his joining us from tel aviv -- elliot gotkine is joining us from tel aviv.

There was a raid on militants in militant positions.

No sign of that abating.

The rockets are still being fired from the gaza strip towards the civilian population centers.

Israel has said until there is quiet until they have weakened hamas and the capacity to firework its -- to fire rockets, this mission will continue.

I saw a map.

Describe how scared you are that you're going to get nailed by a rocket.

What is it like being in tel aviv?

It is not the same as being in the other cities within easy range of some of the more primitive rockets.

In the past few days, once or twice a day, the sirens go off.

You head for the shelter.

One of my colleagues was on the highway.

You lie down by side of the road.

It is as simple as that.

It is worrying, but i have not lost sleep about it.

No casualties.

A very different story if israel goes into gaza, which is a possibility.

Can you tell us the latest on the possible groundwork?

Net and yahoo!

-- netanyahu --. it is certainly something that would not go well with the international community.

They're calling for a cease-fire.

John kerry says he is available in the egyptian president is behind the scene.

So many horrific injured -- images as both sides fire at one another.

In the united states, the politics on immigration, no other issues.

It is all the same -- one big, hugely fractured crisis.

A united -- a unique perspective.

It is great to be with you.

My dad came from belarus.

He told me a couple of things.

One was to pursue education, and option he did not have.

The second, anything you can do for the country, do it.

The third, never let me hear you failing to have a chance to vote.

How do you respond to a genuine part of america that says wait a minute, this is out of control.

At the minimum, we have to get borders back in control.

You cannot trivialize it.

It is important.

: powell said we need -- colin powell said we need secure borders.

We need to find a way.

There was a piece by bill gates and warren buffett.

It argued -- these are people with varying political points of view.

We have to find a way to come together.

We have to find a way to have borders secure enough that we feel good about it, but make sure we're doing the right thing.

We are all immigrants in this country except native americans.

I want to bring in what rick perry said.

We have a track record of him disregarding what is going on on the borders.

Here is his opportunity to lead.

To not blame this on anyone.

Be a leader -- do not blame this on anyone.

Be a leader.

He can direct them to have the troops on the border.

You have written a letter to congress, to the government about immigration.

Are you disappointed with the way the government has responded?

I am disappointed with the way all of us have responded.

It is very important we find a way to get around our fears about the borders and our need to keep the graduates who want to stand united states here and the international community needs to find a way to move more easily between countries.

There are three issues.

Amnesty, borders, and the visa issue.

Of those three, what is the one where we might find middle ground?

The third wouone you mentioned is the only one i am qualified to talk about.

Somehow, we cannot seem to get there, even though the people want us to do it.

Most of our representatives want us to get there.

Much to talk about.

Maybe we will get in about his new venture.

Citigroup, front and center.

Citigroup will be reporting earnings of less than an hour, but it has announced it settled a mortgage program the justice department or $7 billion in fines.

It includes a $4 billion civil penalty.

It will result in a 3.8 billion dollar charge as well.

They are trading higher in the premarket right now.

? this is "bloomberg surveillance." for soon-to-be high school seniors, mid-july means visiting college campuses.

With college acceptance rates at all-time lows, how do students distinguish themselves?

David skorton is president of cornell university.

What are the three things people most misunderstand about the college application process?

Three things.

In this country, only about one third of adults have a college education.

What we're seeing is an enormous change in which we expect our kids to go to college.

That was not the case a couple of generations ago.

I think it is a new normal people are pushing for.

One size does not fit all.

Different pathways through life in different aspirations may require a different type of vince touche and.

-- may require a different type of institution.

Let's think about education for the long run.

Throughout our lives, we change careers multiple times.

It is the middle of july.

My sats are my hurdle to whatever group of schools i am looking at.

What is the one attribute to stick out with?

Persistence.

The idea that i want to go to college is what is important.

You have got to want to want it.

You have to come into the interview and light it up.

What was the third?

You want to stick with that, even if you do not get exactly what you dreamed of.

What about legacy?

Does that matter?

Will donating help my kids get in?

It gives a tiny bit of a leg up.

Our schools depend on philanthropy.

It is a small factor, compared to these things.

Is it important to live somewhere correct if you are a certain category or certain minority?

If you are of a certain minority, is it better to live in oklahoma then new york city?

There are a little bit of geographic things, but most of all, it is all the things you have talked about.

The idea of persistence, being well-rounded, thinking broadly about how you are preparing yourself.

All the things you know you need to make it in this world.

I am moving to tennessee.

That is how i'm going to get my kids into cornell.

David skorton, our guest host for the hour.

We will keep it right here.

? good morning.

I am tom keene.

Our guest host, david skorton.

He is cornell university president.

Congressional republicans want quake action to resolve the immigration crisis.

They do not like president obama's plan to deal with the surge of children.

Gop leaders want to lower that amount.

They want the children to return home quickly.

Current laws caused -- call for the children to have court hearings.

Citigroup paid fines in claims that it misled investors.

The bank, scheduled to report earnings in about 40 minutes, says it will take a 3.8 billion dollar pretax charge.

It covers securities issues structured and underwritten between 2003 in 2008. germany, -- the king of soccer.

They got a goal in extra time to beat argentina, winning the world cup of the tournament.

A disaster for host brazil.

The team was outscored 10-1 in its final games.

It finished fourth.

A washington think tank mentioned it will take years to recoup the $12 billion lost on this event.

They are dominant.

That is all you need to know.

Bloomberg television is in the u.k.. good morning.

Gathered to the west of london.

As you say, i am joined by -- from -- aerospace.

Many orders coming through from various airlines.

You have managed to land a few orders.

How important is china going to be?

China is important.

This is our second customer in china.

We have been able to announce several orders so far.

Saturday night, we announced an order with a company called --. a regional aircraft.

This morning, 20 aircraft with -- airlines.

For aircraft with tetra airlines.

We also have two undisclosed customers as well as a falcon aviation service for two.

You had some problems with the series.

Some difficulties with the engine, which means it will not be showing here.

Is that a disappointment?

Does that limit your ability?

If you look at -- making, it has been a long time.

We are able to continue discussions with our customers.

I am not only here to sell the c-series.

We are talking to all of these customers.

You are using an engine that seems to be having a problem.

Are you wishing you had chosen another engine supplier or not been so ambitious?

Absolutely not.

We are very pleased with our partnership.

They're working closely with us.

We have had some issues.

That is normal.

We found the root cause of the problem.

We should be back in the air shortly.

Tell me about the series.

It is bigger than regional jets, but smaller than the work forces of the low-cost arena.

Is there really that big a market?

We are convinced.

We have done a lot of analysis.

There is a segment of -- underserved.

Our market forecast says there's going to be about 7000 planes sold in the segment over the next 20 years.

We expect to get the lions share of that.

Do you see it entering service by 2015? we are targeting the second half.

We are going to get over the short-term problems.

Talk about the geopolitics playing out globally ahead of this event.

The attention to russia and the west.

A russia is an important market for us.

We will continue to discuss with our partners and sales have continued.

We will hopefully end with a solution that will put this to bed.

The largest planes are the best selling planes.

We have a very large share of the market and is doing very well.

Thank you for joining us.

Guy hachay.

A gloriously warm air show.

Back to you.

Anna edwards joining us.

Always a big hit.

The f-35 -- the strikeforce fighter was supposed to fly today, but it is not because of the groundings that happened last week because of the engine fire.

Coming up, college tuitions skyrocket.

The brookings institution says rising student debt is $1 trillion outstanding.

We will discuss that.

Will millenial's end up better off than baby boomers?

May cannot find jobs, graduated into a recession.

Tweet us.

? this is "bloomberg surveillance." let's get you company news.

Japan has reportedly agreed to by t-mobile u.s. and analyst says the biggest obstacle is likely to be u.s. government approval.

The federal lawmaker is important to boeing.

Some congressional republicans are balking about reauthorizing the bank.

Boeing says killing the bank would kill u.s. jobs.

A swiss company shops for candy in the u.s.. lynch is buying russell -- lint is buying -- lindt is buying russell stover.

That is this morning's company news.

Loads of news this morning.

Citigroup just agreed to pay fines to resolve government claims it misled investors about the quality of mortgage-backed bonds.

We go to phil mattingly.

Let me ask the question a lot of people on wall street will ask.

Is this extortion?

It is a tough one.

The justice department, you have seen it in the last eight months, it feels like they hold the high ground.

They are pressing banks for high-level dollar settlements.

The higher the level, the more the justice department feels they're pushing that.

Extortion is a strong term.

They are aware they are in a good position and they will force that is much as they possibly can.

When does this end?

When that brazil gets their soccer in together?

Here's the key point.

The fine they are paying is double what jpmorgan paid.

Jpmorgan's total fine was between 12 and $13 billion.

City is paying four.

Their market share was a lot less than jpmorgan.

A justice department thought they were in a better position and pushed harder.

In next one up as bank of america.

Settlement negotiations on these crisis loans are not in a good place.

That could mean they are moving closer to a court battle.

I know that is the next bank in line and i know that is the next major settlement they think they can get.

Quicksand looks like $2.5 billion of this money will go back to consumers.

The other four looks like it is going to the department of justice.

What did they do with the money?

Most of it goes back to the treasury general fund.

One of the surprises, based on where the negotiations were a couple of months ago, the fact they got it up to four, this is -- these are civil charges.

This is where the justice department thinks they are pulling out their pound of flesh.

The higher the fine, the more they feel like they can take this to members of congress, take it to the american people and say we have done something here.

No one going to jail, but they feel the higher the fine, wherever the money goes, the better the results are for public officials.

Thank you.

This is a "surveillance" exclusive.

Our guest host for this morning, david skorton.

As we talk about millenial's and how they are recovering from the scene of the financial crisis and the recession, do you find that a lot of graduates are talking about working for citigroup and bank of america.

Are they still enamored with the financial industry?

Which they are.

Following on your theme, i think millenials are looking at a much more uncertain future.

That is what gets people -- the uncertainty.

Not knowing if they can make plans for the next 10, 20, 30 years, have a family.

It is then uncertainty students tell me bothersome the most.

You have background as a medical doctor and a great academic achievement.

What do you say to a sophomore student at cornell that says i am bored stiff and they are not taking rigorous courses.

Do you push them into more rigor?

Cornell is one of the schools were almost everything is rigorous.

I do tell kids to think about the long view and not just about what is happening this semester.

That is easy for me to say.

Let's get a data check.

No economic data on the calendar.

Futures up slightly.

Good morning, everyone.

We are on bloomberg television and radio.

Look for our interviews across bloomberg digital media.

I am tom keene.

Our guest host, david skorton.

He is president at cornell university.

We need to talk about student debt.

It totals more than $1 trillion outstanding, leading many to call it a bubble at risk of bursting.

Best acres -- beth akers joins us from washington.

Take us through the single most important reason why.

The borrowers that we keep hearing about that have piles of student debt are actually uncommon.

We find that 7% of borrowers have over $50,000. incomes for people taking out student debt have tipped -- have kept pace with the debt they have taken on.

Lastly, if you look at monthly burdens for borrowers, it remained flat over the past 20 years.

The payments may be the same, but the retained men time has almost -- the retained ment time has almost doubled.

The default for these loans is that students pay them back in 10 years after graduation.

It is not such a bad thing that we are stretching out these repayment terms.

We are matching it with the life of the asset.

Stay with us.

David, let me ask you, my senior year, princeton was $18,000 in 1988. it is roughly three times that.

Inflation has --. why is tuition so much?

This is the fastest growing index, even more than health care.

It is going up too fast.

It is important to know that the data do not support a panic about student debt.

Nonetheless, the price of education is going up too quickly.

I want to take a moment to split the country into three categories.

Those people in the lower half of the socioeconomic spectrum who can get student aid from a lot of sources are going to be able to see that not as an obstacle.

Those at the other end, can and should pay cash, unless they have multiple children.

Those in the middle are being squeezed.

It is the uncertainty that is causing this to be an issue.

It is wonderful to see the data that beth and her colleagues bring forward.

The little slice of humanity in the middle, those who are between qualifying for need and those that can pay it, that is an issue.

I do not know all of the details of economics, but i will say the thing i think is pushing it the most is we want our kids to go to college.

Only one in three american adults has a college education.

This is a huge change.

Too much demand, limited supply.

Where's the relief for students?

I think it is in the incomes they are facing in the labor market, which fortunately, are enough to offset the increases they have seen.

Final question, cornell has a huge endowment.

A lot of people ask why can't that be used more to subsidize tuition?

Since the crisis in 2008, 2009, we have used the endowment.

We have raised our financial aid over 200%. we are doing that.

It is important to remember that out of the 4300 or so colleges in the u.s., fewer than a hundred have an endowment of a billion or more.

This is a good general solution.

At cornell, we need to see the endowment and the deep pockets of the people who care about cornell to help the next generation.

Full coverage of the millenial market.

Our twitter question of the day -- will millenials and off better than baby boomers?

Tweet us.

? good morning, everyone.

Let's get to our monday.

Top headlines.

Israeli airstrikes targeted more than 40 suspected hamas sites.

At least 20 rockets were fired into israel today.

Funerals are beginning for the roughly 170 palestinians who have been killed since fighting escalated.

Israel says its attacks will not end until hamas stops launching rockets.

Russia says a ukrainian shell hit a town on its side of the border, killing one person.

Ukraine denies it.

Putin called it a provocation.

Congress wants more answers from general motors.

Mary barra will be back facing a senate subcommittee.

This is her fourth trip to capitol hill, trying to address the crisis.

The switches are blamed for at least 13 deaths.

Joining us now is betty liu.

I know earnings are going to kick off, but what else you have.

It you are breaking numbers for us.

We have two big exclusives.

We are kicking off with that and we have two big property players on our program this morning.

Morton zuckerman will be joining us.

He says the jobs market is even more dismal, forget the hundreds of thousands.

Most of the jobs being created are part-time jobs.

That was my morning must read.

I just want to repeat it.

Full-time jobs plunge by 523,000. part-time jobs up by 800,000. there you go.

Mort says this is a sickening trend that the obama administration is ignoring.

Jeff blau is creating a project on the westside of manhattan.

It is expected to redefine living in new york city and the mixed-use private development project and how it will look across the country.

He is joining us.

Coach and time warner will be tenants, right?

Which they are moving out of the time warner center.

It almost guarantees i will have to make a stopover.

You might live, work, eat, and play, who knows?

We got the news at the top of the hour that citigroup has reached a settlement with the federal government for $7 million.

Only 2.5 goes to consumers.

We will be back with more coverage.

? good morning, everyone.

We continue the bank festivities tomorrow.

Tomorrow, christopher g rissanti.

That is in our 7:00 hour.

Our guest host is david skorton, president of cornell university.

Apple, denying charges by the chinese government.

They say iphones pose a security risk.

Location trafficking -- tracking software could expose state secrets.

The partnership that runs alibaba is getting a stronger grip on the company.

They do not need the ok of shareholders to add directors.

The giant is governed by about two dozen partners.

They're getting ready for an ipo that could be the biggest in u.s. history.

Home depot -- 3-d printers are going on sale.

The device is from maker-bougt.

That is today's company news.

Futures up.

They have improved through the morning.

Dow futures up 65. a good risk on -- as we going to bank earnings season.

After the financial crisis and after the great distortion, fewer mbas.

At citigroup, they reached a $7 billion settlement.

A critic of less than transparent banking industry.

David skorton with us as well.

On $7 billion, is that a fine to the bank?

It is an expense.

It comes out of shareholder pockets rather than the pockets of the officers and directors.

City has a higher default rate.

We were talking about the big number that they have to pay to the justice department.

It is not just the justices pushing harder.

The poor full or -- the portfolio was more romantic.

Are they wringing their hands this morning.

What is the mood?

May have put this behind them.

It is just like bank of america.

They want to get it done as fast as they can.

Is his extortion?

The approach has been heavy-handed and not on target.

What did we not do coming out of the crisis?

We did not prosecutors securities fraud.

We did not hold officers and directors accountable.

We make shareholders pay for it.

Why have we not gone after individuals?

Because they said the world would and if you went after individuals.

You could not prosecute them for acts of fraud.

The mistake is to go after the corporation.

Corporation has not done anything wrong.

The shareholder should hold officers and directors accountable.

When you make them write a check, you missed the link.

-- you miss the point.

Corvette is a great operator.

-- corbat is a great operator.

Citibank and bank of america,, every quarter we have something.

It seems to continue.

In talking to a couple of fund managers, they point out city is a good, long term investment.

What is the bullish case for citigroup?

If they decide to get subprime business.

That is what they do well.

If they can go back and fix that and to do it right in housing and consumer finance rate that is their strength.

They have capital markets, subprime, a couple of other pieces.

Big business offshore.

Those are the areas where i think they should focus.

One idea i have had, take citi financial and spin it out as a non-bank.

It is one place we need in the market.

In the bank's role that that business over the last 20 years.

We need to rebuild it.

Look at how well -- is done.

It is good underwriting.

It is a short duration asset.

You are lecturing at the johnson school mba program at cornell.

What is the first thing you say to skorton's troops?

Learn as much as you can.

Have good communication skills.

Realize where you start your career is probably not were you're going to end it.

You get a lot of e-mails from the university community.

What is the number one lesson you have learned?

From a student and the student said you do not know too much about what my life is li ke.

Why don't you give students your e-mail and let us write to you.

I am a little slow on getting back to those e-mails.

I get a lot of good -- don't you think that is important, so you get a sense of what their concerns are.

Absolutely.

I cannot always answer them.

I cannot pass this moment by noticing that jules is a cornell alum.

Is a senior says do i go to wall street, what do you tell them?

I cannot answer that question for you, but i can tell you to think about what you want to do for the long run and there's a lot of interest in the financial sector.

It is a very important sector for our country, but the thing you said about the breath of education, if you said that 10 times, it would not be enough for me.

Let's take a look at the agenda.

We have a huge correction of 0.9%. the bank in portugal and all of that.

It is earnings season.

Bulls and bears, i am not putting myself in one or other -- in one or the other can't. talk about use of cash, mario draghi going before the european parliament to talk about a potential mother trillion dollars going into the banking center.

About a week ago, he said the ecb balance sheet could go up by another 50%. the europeans are undercapitalized.

We had a d rating for quarters.

Many banks in europe are in a similar situation.

They do not have any capital because the economy has been so weak.

They have had to restructure repeatedly.

My agenda -- the millennial market.

All week long, we will have full coverage of this potentially powerful generation and we kick things off this week with our twitter question of the day.

We asked if millennials will and up better than baby boomers.

Let's get to some of the answers.

No.

the bills the baby boomers racked up will come on the backs of the millennials.

Finally, if they fail to scale back the advent of socialism disguised under the concept of social state -- no.

What do you think?

What should be our question tomorrow?

Help us out.

You ought to ask what a millennial thinks about the people who

This text has been automatically generated. It may not be 100% accurate.

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