Transcripts For BLOOMBERG Countdown 20141216

Welcome to countdown. Show asn the shoe oil extends its losses, Jack Osbourne says the move is welcome. The fall and oil prices is very basically a good thing for the u. K. , u. S. And europe. Up itsia is ramping economic defenses in the biggest hike since 1998, after the lostl lost 10 ruble 10 of its value in one day alone. Give us the scale here. There are rate hikes and there are rate hikes. The benchmark was 10. 5 and it is now 17 . Thursday we heard the governor of the central bank said it would raise rates from nine point i percent to 10 . Many said that wasnt enough. Itmany when im expecting and looks like she change strategy and nelly got 600 and 50 basis point and now we got a 650 basis point rate hike. You to go back to october of 1998 to find that kind of oneday slide in the ruvell. Ruble. In two dozen 15 the joke was circulating hooton will turn 63, oil will hit 63 and the ruble will be 63 to the dollar. It looks like oil and the ruble got ahead of themselves. 62, and the ruble at 64. The joke is not so funny anymore. What you know about this meeting . It was a midnight meeting and a surprise meeting. This this is the sixth time this year. They dont like surprises and shejust last week she said didnt think raising rates dramatically was the way to curb the rubles depreciation and then she did that last night but they put out the statement at 1 00 in the morning when i dont know is if they had somebody sitting at their desk and waiting. To what extent is this to do with the fall in the oil price . The oil price has helped, weve seen the ruble have in terms of its value against the dollar and a lot of that is the oil price. Yesterday oil was down 1. 5 and the ruble close to 10 there is a lot more going on. Geopolitics and sanctions, that is something the chancellor of this country was gloating about yesterday. We dont have the sound. There he goes. I think it puts global ,ressure on Vladimir Putin people saying a few weeks ago our western sanctions working . Pugin ride this out putin ride this out . Canty rong oil price cant he . I dont think that is so clear now. They are heavily dependent on a High Oil Price and the russian economy is not has not made the investment in supplyside reforms we would have liked to see. Perhaps too early to count the russian president out yet, he has a historic high rating but people have talked about the euphoria of the annexation of crimea which was popular in russia and supported by the vast majority is now going to have to give way to a bit of economic pain. The questions we were posing on friday is the ruble shot versus the oil price, did the central bank go for a big tight and rakes which was damning to the economy or do not height rates hike rates and risk the ruvell spiraling out of control. Spiraling out of control. The damage to the economy that will already fall into recession. Over the last two weeks we heard the economy minister say the predictable fall 1. 8 and before we got into this we are the central bank say oil at 60 a barrel with expected this wall somewhere between 4. 5 and 6 and now with this rate hike we can only guess but we are looking at a deep recession. 1998 mustparison with be slightly worrying. Theyre worried about a run on the banks. August 17, 1998, lack thursday that was the day that russia defaulted on its debt and what you got was people lining up outside the bank to pull their rubles out. I dont know if you member the fight in the queue to go to the bank and i was with a cameraman and that is exactly what flight amir putin wants to of avoid. To avoid. Vladimir putin wants to avoid. Is worth sparing the economy to do and they made that decision to save the Banking System. We will turn to the story many times during the program. British banks are the focus us morning due to the british stress test and look at some of the criteria eight banks are being stress tested. Barclays, hsbc, rbs, coop bank and nationwide. They are being expected to withstand a house price crash, rising unemployment and higher Interest Rates. If you dont think this is tough enough, it tests them for an economic catastrophe so severe it has only happened once in the last 150 years. Fall in house prices is modeled that has not happened since we modeled prices in the u. K. In the 1950s. In interestrate hike to 4 by the end of next year. Mark carney says rate rises will be slow and they will peak below the historical levels 4 is way above the intimation of Interest Rates and finally it factors in unemployment rising to 12 . U. K. Guilty of hitting 6 lenders must maintain a core Tier One Capital and that is blowing your head off. Bankimply, that measures a s holding at the highest quality measures of capital. You make it sound stressful but i know some of the guests we have dont think it is stressful enough some people say that 4 Interest Rate by the end of 2015 might not be the projected path. Talking about which banks will do well and badly, the bank has already said it will come as no surprise if they do not meet the desired capital ratio. As we saw a failure of the coop that perhaps will not come as a big surprise. It has a recapitalization plan in discussion and so certainly that will not be an enormous surprise. Lloyd Banking Group says they are confident the bank will pass the stress test. What will it do to the dividend paying prospects of the bank . That will be a key thing investors are looking more. We get the results of the stress test and will also get the Financial Stability from the bank of england. Manus will be there, our countdown anchor. As soon as they break. We will also hear from someone trying to do challenge the britain big bank. Sayill see what he has to about the health of the Banking Industry in the u. K. 10 past 6 00 in london, ec has picked the proposed suitor and has agreed to enter exclusive talks of by the mobile Company Rather than buying 02. For more on the return to the market, airline height is here. What is the price look like. 12. 5 billion pounds that is about eight times the projected earnings. Quite a nice price tag and getting a lot for it, ee is the biggest mobile network and it will be getting 20 weight 28 million customers. Vu, they sold off their mobile unit in 2007 and here they are buying it all back. Ee is the four year venture of Deutsche Telekom and orange. This is the biggest quad layer out there, quote play is mobile isng with quad play mobile along with tv and internet. We want to make it easier for ourselves, easy interesting to see if thats the way we do go but they feel they will have less turnover and more ofalty if they do a combined all our bills into one. How are they structuring the deal . They have about 7 billion pounds of debt, more than half of what it is pumping out and it is notably if youre thinking what does 7 billion mean, it is triple b rated. That is the Second Lowest Investment Grade rating of a company so it is not exactly flush with cash relative to debt. Relatively risky when it comes to the debt rating but bp says this structure is aimed at preserving a conservative financial profile. There is a reason that this is coming in cash in stock they will be trying to minimize their ramp up in debt by stockng Deutsche Telekom in the combined happening sewed which telecom will hold so Deutsche Telekom will hold 12 . It is interesting that Deutsche Telekom is giving the company a vote of confidence they are saying, so secure are we that revenue will be driven higher that you have all four mobile, tv and broadband in one go that we would be willing to take on our orange share in the future according to people familiar. Telekom giving a vote of confidence. What could this mean for the sector . This is what we have been talking about what will vodafone do and the other players we understand vodafone has been eyeing a deal with malone the billionaire or a merger of media in the u. K. At so far we have had wholesale deals struck but it would come as no surprise if they have got into bed with ee. Theyre sending some of their parts to each other, ee was offering tv and certain wireless connections but bt was offering ee mobile to business providers. They were already sharing from their deals and were in cahoots, vodafone is potentially going to be starting to sell bt as well vodafone was looking at reselling bt internet will they want to do that Going Forward . They want to sell their own wireless and tv packages i teaming up with him unlimited mobile. Network here. By 02. Uld potentially there are all sorts of permutations. What is really interesting is vodafone is slightly worried about the deal and are already going to people familiar and the regulator to make sure that bt plays fair because remember bt was the former monopoly it is the one that plugs in all your transmissions with companies and vodafone relies on bt. Bt says we are ready have open reach units we are separate from the Parent Company and we are playing there. Follow the conversation on twitter. Are you a quad fan . Do three. O four, i you are near four. Coming up, we will go live to siege for a 16 hour cafe left two hostages and the gunman dead. Lets get back to a top story, russia ramping up the ruble defense the biggest rate stemsince 1998, an attempt the route in its currency. The economy hurting from sub oil prices and western sanctions, lets bring the guest into the conversation, patrick armstrong. Got there in the end. Thank you for joining us, will this substantial hike in russian straits put a line in the sand for the ruble . Thats what they are trying to do. It is a very high cost of carry at 17 Interest Rates and they still have a lot of things working against the russian economy with oil prices and and you willows obviously be in a steep recession with the oil prices where they are now and the sanctions. So when they talk about currency regulators . This is the attempt to do that, it may be short but at a 17 cost is not something you can do unendingly. Im doing a chart later and i will show various emerging markets and bonds and equities they are all pointing in the same direction and people like in this the 1998 should be like in the two areas or not . It is the capital outflows that are the currency side of things we are not there right now it is much more isolated in russia and it was in 1998 with the reserves are quite strong. When we look ahead to 2015 where does that leave you positioning your investment . Emerging markets depends on the market, i like raising market currencies against the euro but i dont know if i like them against the u. S. Dollar. Two dozen 15 we will see the euro weakened substantially. Because the ecb will do Something Big . Toour view is they just want get the Balance Sheet back to 2012 and larger and it needs to. You need a very weak euro to facilitate the recovery and get away from the deflationary risk. Once upon a time you will greek Government Debt didnt you . There was a time. 8. 81 is the 10 year yield and we are entering a critical week which starts tomorrow and could go three rounds it could lead to an election which could lead to the antiausterity party taking over what scenario are you painting . I think you could make a case for either way but i think there will be moderation whichever once ats in here party comes in the power you move towards a center so i think even the most scary scenarios for greece it probably will not be as bad as people worry. You do like some eurozone assets dont you, you have zero Interest Rate will see an quantitative easing very proactive Central Banks in the German Economy is not in this dire situation as the broader eurozone as a whole. Yet interestrate policy that is going to disconnect. In a nice staff on the Banking Sector compared to apple we on apple as well but 200 billion more the market cap of apple than all the list of the eurozone banks right now, it shows how Little People are evaluating european banks and the customers in these price increases. Read this question a while ago that apple is worth more than the russian stock market would you sell apple if you owned it to all those eurozone banks and the russian stock arc it if you had to choose one . I would rather have the eurozone banks i dont want to own russian assets. I would rather own apple. What about stress tests . Theyre coming up in the u. K. We talked about the eurozone and you like that i remember talking to you before the eurozone stress test and you like them because you are expecting things to recover do you have a similar outlook for the u. K. Banks . Are cheap but not quite as cheap as the eurozone banks the stress test will be very good and the banks will eventually give investors confidence and i think the stress test is credible and you are talking about a big selloff. More credible than the ecb stress test . The scenarios are more adverse youre looking at a 20 drop in house prices and the u. K. Looking at 30 so i think the banks will pass with the cooperatives a different case but the four banks participating in the euro zone i think they will all pass this one in you should have a significant buffer above the minimum threshold. Internationals will do better in this test . The stress test is on the u. K. Theres International Pressure it is a cushion. Its not saying that more capital but are on the secure side. Think for joining us. We are learning more about the hostage standoff in sydney, two hostages and the gunmen were killed, earlier tony abbott made a statement. Juliet, what has been the mood like today . Certainly very somber as you would expect, it has been a tough day at the Prime Minister said it was probably the most attesting 36 hours the people of sydney have ever had and has been really emotional. It is past 5 00 so workers have clocked off and there certainly getting a lot more people coming through to pay their respects, there is a can olans condolence board a lot of people have been signing, a lot of sydney flower sellers have run out of flowers and people were queuing for a long time to try to buy flowers to pay respects to those, the names of which we did not know until today but now sydney feels really horrified for what they went through and how their families are feeling in the sector and will have christmas without their loved ones. What we know about the victims what do we know about the victims . We know that the gunman was killed and also two victims of a son of an Australian Artist in the cafe manager who was 34 years old, unconfirmed reports that he was potentially a hero in the siege by trying to wrestle the gun from the gunmen and allowing others held up in the cafe to escape. He died upon going to hospital in the early hours of the morning as it sydney barrister katrina who is a 38yearold mother of three and came from a sydney lawyers family had a greek background and a welltodo family. Herwas respected in profession, two young lives cut very short. You can see some of the tributes andnd for them and Sydney Australia as a whole feeling healing hearts for those who lost their lives innocently when they went to get a cup of coffee. How long will the city remain in lockdown . Lockdownnot so much in anymore but we certainly do still have that cafe as a police crime. Program, we on the will take a look at the Hotel Industry facing tough competition. Watchinge back, youre countdown. Lets look at the turkish lira, yesterday we saw substantial move in the currency, and hit a new record low. Theres been speculation more broadly affecting emergingmarket currency. Rates and fears about contagious in the russian situation and all that weighing on sentiment. The internal politics within turkey taking its toll on the currency. 20 people ated various media groups and the government says a link to a usbased cleric who president erred one has accused of plotting against the government. He says it is not a matter of press freedom and tells the eu to mind its own business but certainly it has put that sort of political conflict and internal political struggle to the floor again. That has been weighing on turkish currency. Consider that the Lower Oil Prices helped the country and the last time we saw it hitting a record against the dollar in january a record low was the emergency centralbank meeting. We will see where this one develops. These are the Bloomberg Top headlines a surprise move in the early hour as russia centralbank raised key benchmark rakes from 10. 5 to 17 . Singlee is the largest increase since 1998 and the biggest step taken by russia. Chancellor suggest Falling Oil Prices are heaping rusher on the russian president. Flat amir putin speaking in new york that the declining crude prices are a good thing for the u. S. , u. K. And europe and also had words of support for the European Central bank president. I fully support Mario Draghis efforts to make sure the ecb does whatever it can to meet the mandate. I agree with him that the eurozone needs to do more to. Trengthen institutions more evidence of a slowdown and the chinese economy. The purchasing manager index fell to 42. 5, a number below 50 the latest data shows that chinas downturn deepens this month even after a tough rates lasto interest month, measures factory output, orders and employment declines. Primeney this trillion minister has laid flowers in tribute to the two hostages who died at the end of yesterdays siege. Says the siege shows that australia is not immune to terrorism attacks. Tens if not hundreds of haveons around the world been touched the city of sydney which has been touched by terrorism for the first time in 35 years. Paul allen looks back to the day when the worlds attention was focused on sydney. The siege and the heart of sydneys financial district came to an end in dramatic style. After a single gunshot split the areas, all hell broke loose. 38 laytages age 34 and dead as did a standoff which lasted more than 16 hours was over in 30 seconds. The siege began at nine or i5 on monday morning when he entered the cafe armed with a gun. He was known to police and was on bail for violence and sexual offenses including being accessory to the murder of his wife. The selfproclaimed character cleric had a predilection for sending hate mail to the family skilled. Thesese with my gun and are my bullets. 17 hostages, some of whom were seen pressing their hands against a window. The inscription reading that there is no god but all of. Within 30 Minutes Police had locked down the area and try to make contact. After 3 30, three men escaped running into the arms of waiting police. At 5 00 p. M. Two women escaped. Just after 9 00 p. M. , the lights tired m and at 2 00, a onis began to fall asleep and they seized their chance, one man ran out and two groups is gay. He was alerted to the escape and opened fire escaped. He was alerted to the escape and opened fire. Thats when the Police Rushed in and monis rushed in. Monis lay dead. The last few years, a few players and the Hospitality Industry is trying to change the way millions of people find and Book Hotel Rooms but what are companies doing to compete. One offering is a digital checkin and election system available at more than 4000 hotels around the globe. Here to tell us more is the global head of digital. How does it work this digital check in . Thank you very much for having me today, our digital checkin is in the Hotel Industry and it allows you kind of like when you think about going on an airline you would check in the day before. Travelers will now choose their seat, window, ill etc. Sle, etc. Now you can use the app on your phone or the website and you can check in and choose the floor your to stay on the location on the floor and all the way down to the room number if you want to hear the lift or only from the lift,floor. It sound like a great Marketing Tool but do i need to name the room i will stay in . We have done some extensive fast 70 of the guests weve reviewed said they wanted to use it in the me looked at the airlines, the travelers who go on an airline and and stay in hotel we know from the airlines the vast majority of travelers use it when they are traveling. It, cashhave watched ,aunched it launched it weve seen over half a Million People visit already. A hotely mother goes to she always complains that the room and finance change this will solve so many problems whenever my mother goes to a hotel, she always complains about the room and demands a change. This. Also many problems. Will solve so many problems. Will have it without across all of our brands across the u. S. Early next year. It is interesting with the emerging airbnb and other new rivals moving into the Hotel Industry what the industry has over those models is service and people at your disposal while youre staying there. A lot of the technology seems to take those people away from the Hotel Experience how does that keep the book coming to hotels if theyre not able to call on the facilities . They are but youre not directing people initially to a human being. Thisll strategy is not giving customers the choice. If they choose to go to the front desk to find about local restaurants or the best place or the new place in town we can still do that. We are in the Hospitality Industry so services what we are about. What Technology Allows us to do is get more control and allow them if they want to be talked to or for had a long flight and want to get to the room we can talk in the morning. Technology is about enabling our guests to have a better stay rather than cut out the hospitality. Are the a airbnb are air bnbs a threat how do you view them . We have a Different Service years of s in this industry, the likes of airbnb because again it is about what the customers want. Whether it is a different type of customer or a different type of stay there are lots of things for all of us. Join40 and london, you can the conversation on twitter. You like to choose your hotels. Like my mother. Manus will be outside the bank of england and roughly 20 minutes time. Tell him and us what you think of the results of the u. K. Stress test we are less than half an hour away from the results of the test and we will speak to a man who is trying to challenge the big banks while they are under pressure. Time for the company news, dt in exclusive talks to fly wireless carrier ee from Deutsche Telecom for 12 15 alien pounds. Btments would be in cash and shares and we be split equally. The period of exclusivity will last for several weeks and any deal will need approval by shareholders. Ees rival vodafone looking to set conditions if the deal goes ahead. Guaranteesll ask that wireless carriers are treated fairly when bt sets prices for access to the network. Rose after the company boosted its Quarterly Dividend by 25 and expanded a Share Buyback plan for 12 billion. Investorsward boeing which means shares sunk this year. 6 44 in london, the u. K. s eight biggest banks await results for the bank of england stress test. We are joined by the founder and ceo of one of those challenged banks, alex. Thank you for joining us. Challenge banks tell us about your model . We have been very careful because were not actually a bank we offer a current account in which challenges the status quote of the existing model. Our current account is built in a different way which allows us to be profitable and fair and offer a Great Service all things tanks struggle with when they are serving customers who dont have lots of money. Even though youre not a bank the figures are quite astounding when you look at areas to entry. Four biggestare banks when it comes to current accounts at 77 and more than 80 of Small Business lending how do the likes of your cells eat into that market share . The strength of the major banks is a phenomenal obstacle for entrance and the government. There has been lots of encouragement for new entrants like ourselves. Each new share is a cookiecutter process i liked it takingken it to puranas a nibble and it will be a feeding frenzy during the 2016. As retail customers look at these other options and decide i can get a much better experience at a terror price from people who seem to care and are interested and not struggling to exist. Is that just Wishful Thinking from companies such as yourselves who are challenging the Banking Sector how small can the sector actually get . How small can it get . The traditional Banking Sector currently has a 35 million current accounts we target the 24 million who are average to below average income and we believe that a significant proportion i will not be too bold, a significant portion can and up in hands of the challengers and i would anticipate that in 10 years time, you look at an industry where a banks still exist and they grow powerful but at the consumer end of the market come a they may be far less relevant event today. Makehard for customers to comparisons between lenders, white are going to have this shift in 2015 and 16 you have my favorite topic, shifting is very low because people are being offered a chance to shift from one thing that is not great to another thing that is no less not great, with the new digital rivals, Companies Like ourselves offering a fully online experience helping people save up and offering tools and services or digital, people look at this and say, i might shift where is before they were reluctant to shift just from one to another, which had very like products. Tell us about your jam jars. Its a term i like very much but it is a term the defect oh expression for ring fencing de facto expression for ring fencing money. You might say i want to ring fence 500 pounds a month and locks a different pots to pay various bills and to pop it into a jam jar and that happens automatically and it is attached to a payment mechanism to pay out to that or you can use it for saving up, you can pay her account for a pound a pound day we do for customers as they join they can put one pound a day into a jar at the end of the year they have three heard 65 pounds and for many of your listeners that wont sound like lifechanging amounts of money but to people with lower than average income is is the sort of barrier that helps them not fall into the arms of the payday lenders. Are we in a savings culture upon us what impression are you getting from your early days . U. K. Dont have a single penny in savings and that is what we are trying to address , to encourage them to save in and is aess model savings culture upon us . No because the bank model is driven by low to nonexistent fees which is propped up by charges that are for selling thele that properties culture is not upon us there is a culture of borrowing and what we are trying to encourage is a culture of saving. Would you think about the state of the tank sector today, any sign of weakness . Im a big supporter of the banks because we put our money ultimately into a single bank account and i want the banks to be strong for the u. K. Economy and i liken the Bank Situation to tom hanks in apollo 13 just when he thought it could knock it worse it does and it is not the heat shield burning up its the oxygen running out for the power dropping every time you open the banks the papers there seems to be another thing being thrown at the banks. Thank you very much for joining us, the ceo. Breaking news in the oil industry a story we told you about last week. The Spanish Oil Company has confirmed its bid for talisman which is a Canadian Oil Company this has a bit of history was looking at talisman earlier this year and we told you it had been stiffing around again after the plunge in crude prices drove the canadian stock below five Canadian Dollars for the first time in 14 years. Suitors could offer eight Canadian Dollars per share that is the price mentioned last week that is the price we got. Manyteresting, we have had conversations of many Energy Experts whether the fall and the oil price makes things more or less likely. Well continue to watch the m a as it transpires in the oil sector. Welcome back to countdown. Has believedpuma to set into waters for the possible sale of the iconic sportswear maker. The details on the story hans, whyh hans might they be interested . Gucci. Wns both puma and it is difficult to own a sports brand or the margins are so thin and a luxury line like gucci when the market margins are bigger. There will be a pop quiz at the end of this segment. What we have is according to people familiar with the matter that he sounded out potential buyers for whom a and they are a come puma, they are a company with a 2. 5 billion market cap who has been struggling as they had big sponsorship deals their profits for 2014 are expected to be half of 10 years ago in some ways it is similar to the reebok story, they have sponsored people like hussein bolt but cannot compete with the big boys like nike and adidas who can spend and have sponsorships and recoup it in sales. What do they do next . Here is the pop quiz for you and mark over the weekend, are you more comfortable and gucci loafers or puma track shoes . Mark, you go first. Track shoes means marquess to run somewhere. Uncomfortable wearing no shoes at all. I am so casual, less is more. Hans, thank you very much. In london, countdown and 10 years in the next hour and we will hear soon from the bank of england that will release the results of the stress test on the u. K. s eight biggest banks. Manus cranny will be live outside bringing the details as they emerge. We will have the results of the stress test and the Financial Stability report at the top of the next hour. Stay with us. Russia ranks up its key Interest Rate to guarantee the ruble, the moscow currency crisis. Makes its move, starting exclusive talks on a 12. 5 billion pound deal for ee. Forr, vodafone calling regulators to guarantee in against the rival. Will be live at the banks with the details. Welcome to countdown. We are just getting the results of the stress test the bank of england telling its five out of eight u. K. Banks that have been stressed that hit stress tested i the bank of england will not need more capital. In three banks need to strengthen their capital. Big news for the bank of england eight banks were stress tested and they were tested under adverse economic Interest Ratesas up to 4 by the end of next year a unemployment rising 12 and 35 fall in house prizes house prices. Coopcifically on the said it would not be a surprise if they failed and the bank of england says they have expected the smaller Balance Sheet and lower risk plan and clearly they had already come under pressure to come up with a different capital structure and that was in trade before these tests got underway. Current capital stress plans have been accepted and they do need more capital but the current strengthening plans have been accepted. The bank of england going on to say the resilience of the u. K. Banking system having proved since 2013 and also saying the Banking Systems Core Functions work in this stress scenario. Lloyds, anlk about interesting case study, it was and is planning to pay a dividend to shareholders sometime in 2015 and the government took over a proportion of lloyd during the financial crisis lloyds has exceeded the stress test threshold the pra stress test. This is from lloyds itself does that mean that lloyds will be able to pay its dividend to restore its dividend in 2015. It wasnt allowed to pay a dividend after the government took a stake in 2008, there was a fear that lloyds would need to cut the dividend or not reapply the dividend and not actually raise capital but it seems as if lloyd might be on to restating the dividend for the First Time Since 2008. Rbs and lloyds remain susceptible to a severe economic downturn just a reminder that the bank of england is giving the result of the stress test and has been giving out a Financial Stability report. Last time we heard from them in this format was in june and they gave us the assessment of the Global Economy and they are doing something similar here saying the bank of england says geopolitical risks have increased. They also say there is no systemwide macro credential actions that are needed. There sing the Financial System resilience improved significantly. Ofy are based on the and 2013 capital levels. Lets go to manus, he is at the bank of england. News, rbs, lloyds past a stress test barely and coop has failed. That is correct, if you look at the eight tanks that were monitored or put under stress test scenarios, can you say is it pass or fail . Lloyds the biggest exposure to the Mortgage Market for lloyds under a stress test scenario they would have a buffer capital of 5. 3 that is after they take some action and those actions can be anything from if they go into costcutting mode and rbs past i the skin of its teeth but there are no requirements in the u. K. To raise capital why . Because these banks have run the stress test they have delivered lands to raise capital and both lloyds and rbs have added almost 2 in terms of capital over the period of 2014. Heart of thee stress tests it is about the United Kingdom and the soul assets. That is the essence of this stress test one of the major Branch Institutions in this country could withstand Interest Rates of over 4 by the end of next year whether the banks in this country could continue on if house prices dropped i over 30 if the stock arc it stop market dropped 30 these are the extreme scenarios that could be envisaged. Exhaustedces would be in the stress test scenario. What i can see from the report is at the cooperative would have a negative capital buffer of 2. 6 . How do they prepare themselves . They have already delivered a Capital Raising plan and they have a plan in place but one of the lines in the report says they should reduce what is called riskweighted assets by 2018 by some 5. 5 billion pounds. I want to go back to rbs and lloyds they are susceptible to severe economic downturn. What you can take away from here is the debate. The u. K. Financial system under extreme scenarios there is only one bank that needs to raise or change or reduce risk, the other two big mortgage lenders are there. Will lloyds the able to resume a Dividend Payment in 2016 . Thats not what the report eels with today but i can actually absolutely tell you that will be at the heart of the debate of the markets when we see them open. Will come back to you a little later we will come back to you a little bit later. Foundingguson is here, partner of the Macro Strategy Partnership. Manus is perfectly summing up a situation. Lloyds and rbs told to strengthen their position but they have taken action where does that leave us when it comes to lloyds paying a dividend . Lloyds is still probably on track this is a stress test scenario, its interesting that it is being referred to as a stress test, Interest Rates at 4 the banks would love Interest Rates at 4 what the bank of england once a know is as we normalize rates and bring them back to something closer to trend as we do that, what will happen to the remaining assets the banks have . All are on the world and every economy the had a Consumer Credit bubble like we have, house prices have fallen Something Like 35 percent. We havent done that because they lowered Interest Rates to around 0 but our mortgages are priced for short rates. What the bank of england once a know is when it does the next step and raises Interest Rate to normal what will happen . Happenng it thinks might is house prices will come under intense pressure. On the other hand the banks would benefit from Interest Rates being higher at torture percent. At 4 . How comfortable are you with those kinds of numbers is that stressful enough . It is probably quite accurate in terms of a headline the devil is in the detail especially in the stress test in america the fed says to the banks that i will imagine the scenario where house prices fall 35 but they dont express it that way i will take 10 across the board on all of your loans so banks cannot wriggle out of that. Bindrope the weather this a stress test is to imagine something bad and ask the banks how bad it would be on their loans and the banks go oh fine. They are not incentivized to say anything otherwise. What is interesting about a test like this is how the bank deployed it. Individually allowed much wriggle room or are they not . The fall somewhere between ecb which is to benign and the fed which is too aggressive. This, the u. K. Would be solvent and every bank bust if any of the major banks divide without intervention it would be miraculous. Fair thet of banks are very leveraged institutions and they would make a lot of money they make about 2 on their assets, year in and year out. We get complacent during the good times and let them run their capital down to low levels. Under the risk weighted scheme it is 2 . The banks technically go insolvent but if you give them long enough, five years, they come out of it again. The real issue is whether you want to hobble the Financial System so they held huge amounts of capital or you accept that they periodically have a down cycle and let them trade their way out of it. Are we supposed to have a mechanism called the account of fiscal buffer Financial Stability being important and they can insist they have a buffer put in place. Be some way of taking out those peaks and troughs shouldnt there . There should, there are two problems, who will set the cyclical offer . Did gordon brown make the country run at surplus no . He spent the my. When it came to the downturn we had a massive aphis it deficit. The human error means no one will ever deem it is a Strong Enough scenario. You dont think the bank of england will ever put that measure in place. Its hard to imagine and the other thing to keep in mind is if they suffer any downturn they can never touch that buffer which means were always back to square one. Tests are the stress stringent enough that is a twitter question. Welcome back to countdown. Lets bring you back up today with what is happening in russia, they raise the key Interest Rate overnight. The ruble is up out of the blocks more than 9 against the u. S. Dollar but remember how far it has fallen. The ruble down 49 against the u. S. Dollar before the move but last night we saw a 1 00 a. M. Moscow time the central bank announced the largest single increase in Interest Rate since the 1998 russia crisis. Interest rates in russia taken from tenant have sent up to 17 are set you seem to turn the corner for the moment. We will see how long that lastss, we spoke to a guest early on who said it certainly got more expensive to short it overnight. James ferguson is here, the Founding Partner of the Macro Strategy Partnership to talk about the stress tests, lloyds barely passed the stress test saw their capital at the end of last year. Of requirements and theyve taken measures to address that. Thingsge ratio must hold against the assets, if banks were measured under this measurender a strict would have a very different result. The thing about the leverage ratio is that is how banks used to be measured until relatively recently when jpmorgan says we should risk greater assets because we have much less risky assets than the banks over there which have Mortgage Loans or whatever. Wes how it started thought we could get more sophisticated and instead we blew the Banking System up the leverage ratio is the ratio we should be looking at it for anything else because it tells you what we want to know how much of a loss would a bank and that is nice for the public to know, but we dont want the public to know things like this so that is why we at this necessity. Coop is a are that bank that is in trouble and the others past but they wouldve failed back then. Wekind of a pr mess still have our eye on you. They wouldve failed based on the end of 2000 to their 2013 but theyve taken steps. They continue to take steps for the next five years into the future until they are fully robust and we can talk about things like the leverage ratios. What would the ratio be i read Bloomberg News editorial pieces which say 22 would be sufficient. What are the figures . Usually is agure risk weighted ratio. But for a nice pure plainvanilla leverage ratio we look at history and say what do banks normally lose. They normally lose 10 of their load book and that is normally three fourths of their total assets banks lose about 7. 5 of their total assets. Soy 7. 5 leverage ratio would make you totally so a 7. 5 leverage ratio would make you totally safe. Time it should keep you very robust from anything except the most extreme blowup. It gets a bit subjective most people want to argue about the more complex stuff because that hides the true stark reality in europe most banks cant handle a 3 leverage ratio. Lets talk about the ecb stress test you are critical of those who suggested it was a missed opportunity to give the banks and excuse to raise capital should that be done here . Asking them to raise more capital and giving them the umbrella under which to do it . They said the banks and the current Capital Raising plan to take in your above the bar but everyone knows that means there is pressure still on to raise more capital. The point about a bank if you go to the shareholders and say i need more capital and they say why is it for growth and you say its because i dont have enough they dont give you any at all. Its difficult for banks to have an excuse to raise capital. If the regulator phrases it just right you say youre a it to borderline for me you are a bit too borderline for me it gives an excuse. What is the take away . Tore are we when it comes the health of the european Banking System . You want to know what the health of the system is right, like, look at the true nature of the central bank supply. What we never talk about today is the bank of america banks of america. The fed is really strict and when a bank passes they say we will call that a qualitative fail and you cant even pass when you pass but we have the ecb looking at the bank the same way and saying everyone fails lets lower the hurdle until everyone can clear it and it is overly the nine. The pra is somewhere in the middle overly be nine benign. That pra is somewhere in the middle. Yourank you for giving us insights this morning, James Ferguson founding harder at the Macro Strategy Partnership. Sydney on thee in day that the Prime Minister tony abbott lays flowers where the siege at the cafe was. We are learning more about the hostage standoff in sydney, lets get to juliet who has been monitoring this story for us. Bring us uptodate. We have seen the end to the siege early this morning. Today has been a day of reflection. Three people did not make it out of that 16 hour siege the gunman was shot we believe by police when they entered the just after 2 00 a. M. This morning and sadly two other people lost their lives, they were 34yearold tory johnson it is believed he died a hero trying to wrestle the gun from the gunman as he started to doze off. , katrinaney barrister dawson she was shield killed as she tried to shield her pregnant friend. Really sad news, Katrina Dawson and mother of three and a lawyer aged 38 and the cafe owner aged 34 who has been the owner for two years. Both of them losing their lives so tragically before christmas. Today sydneys martin place was a place to sign the condolence books and be some people laying flowers including tony abbott the Opposition Leader a number of religious leaders who joined together. Juliet, thank you very much for joining us. The latest on those developments in sydney. U. K. Rk carney says the stress test shows the Banking System is more resilient. The royal bank of scotland and lloyds barely passed stress tests set by the bank of england. Both have taken measures since then. Stay with us. You are watching countdown. Russia is the emerging market currency over the past few hours with that high Interest Rate hike but lets talk about the turkish lira yesterday hitting a 2. 39ecord in trading at against the dollar. A little bit of a strengthening since yesterday. The move yesterday driven by a couple of factors one is the thought about where growth in the u. S. Goes against the emerging market at the other is about contagion from russia and the concerns about the emerging market space overall. Added into that, the internal political that battles that seem to be raging in that country. People,rresting some 20 the president has a courage accused them of plotting against the government are you he is theessing eu criticism of arrest saying the eu should mind its own business but another reminder of the political tensions that exist within the country and that is something we has spoken to on the program perhaps not a surprise to seasoned turkey watchers. , the changes side in the Oil Price Since this bring of this year the spring of this year the previous time we had seen a new record low with january and that caused the central bank to introduce an emergency meeting and increase Interest Rates substantially. Is the state of play on the emerging market currencies. The surprise move in the early hours, Russias Central Bank says it will raise the key benchmark rate from 10. 5 to 17 . The move is the largest single increase since 1998 and the biggest move russia has taken to shore up the ruble. Speaking in new york, George Osborne said the declining crude prices are a good thing for the u. S. , u. K. And europe. And amid all that words of support for the resident of mario draghi for the president of the ecb, mario draghi. We want to ensure the ecb does what ever it takes to meet its inflation mandate i agree with this that the eurozone needs to do more to strengthen the institution and do more to meet its commitments for structural reform. Rbs and lloyds barely passed where the while the coop bank failed. Lets stick with that story because manus cranny is at the manus, wegland have the report and you have been looking at the details walk us through how they have fared. Ways it defines really the bank of england report, no Additional Capital or macro prudential moves are 30 ed here, anything from a drop in sterling to a 35 drop in house prices. Eight banks were stress tested and one had a negative offer of capital the cooperative. The others came through by the n,in of their chinny chin chi rbs and lloyds. They have the most exposure to the u. K. Housing market and are therefore the most at risk. Is like aor saying it doomsday scenario with interest christmas,. 2 next that housing prices would drop 35 and equity markets wouldve dropped aggressively. If they took a little bit of action to help themselves at all, they needed 4. 5 of the offer capital and lloyds as they have 5. 3 and rbs at 5. 2 but the banner headline is that rbs and lloyds have already added to their capital banks rbs is lloyds, ae rbs and very clear line in the reports. The heart of it it is this whether you think this is the banks in the u. K. That you feel they have scenarios in extreme that is the essence of the report. The debate will be about dividends in 2015. A festive seasonal pass for seven out of eight of them but how robust were the bank of england at a guess earlier who said they seem to walk a middle line between what the fed had done and what the ecb had done during done. Interestle look at 4 rates and say that is not very high house confident is your source . Prices drop in house and Interest Rates at 4 next year if you were an average upson and i took a mortgage over the past five years that would mean ive already paid to 2 over where base rates are. Averagend that is your man and woman in the street paying 7 on the mortgage that is quite extreme. In america they failed the banks and they had to race every 5 billion in capital and in europe they questioned the validity of the stress test. Irish banks will need bailouts and this is about credibility and is the regime resilient . That is the question the markets need to ask themselves. When you look at some of the criteria it is about credibility. This institution behind me was that they the sense assessed things over a period of time, they assessed Interest Rates rising. 30 andency is down by are that in mind these stress tests does anything ever go down . If the jumping off point is 4. 5 of capital, we expect tougher stress tests in 2015. Emerging market currency and theyre taking a bit of a tumble you see movement on the roof this morning. Should emerging markets play a greater portion of the stress test this in essence is about the u. K. Housing market. Some of it has got me feeling stressed this morning. Lets bring the guest into the conversation. Britishoined by the chambers of commerce director. Outside the houses of parliament on the day of the statement what is the impression from business of the Banking System . Statein a much healthier than it was at the height of the financial crisis with banks its all about lending. Are they lending enough . Business manager say they are still having trouble getting access to financing it is important for a conley and exports. Tech businesses or business is less than five years old have not got a history and cannot get capital still a big problem. We cosponsor with treasuries and Small Businesses. It is a comparison website which allows is this is to look at what other businesses like me say about the banks. I recommend that businesses look on that site interestingly having a stress test the bank often comes quite higher in regards to banks. Talking about where businesses get their funding from we spent a lot of time talking about the Banking Sector and the challenge banks in the peertopeer lenders are they peripheral from the perspective of people you talk to or are they increasingly at the center of the debate . Their increasing but not at the center they are relatively peripheral. There are a variety of sources for lending and capital and some , wants oneequity equity, we have asked in our manifesto for equity to be treated the same as banks or loans for tax purposes. Angel trying to encourage investing of small amounts of money so owners dont lose control. One of the reasons the u. K. Has a small midsized business sector is owners have to lose control because the only source of capital is equity and the Equity Investor always wants the majority share and then it is sold to the corporates corpo rates. Outlook orased your 2015 and downgraded your growth forecast how close are we to sustainableanced recovery. Are we neither balanced or sustainable . What we have is a manifesto to get there. We will have longterm sustainable growth. It is very important to be balanced tort experts exports and investments. Economyelying on an ying on cheap spending. Focusing on the export story it must be a considerable drag on the economy at this time. Some of the people youve spoken to must be very frustrated. What we have is situation with the amount of exports is considerably over the past few years. Shows a sharper change. More as this is are exporting to the rest of the world and in the eurozone this is a big problem at sony. Eurozone, they export far more than we export to them and in fact we are having trade balance surplus with the rest of the world and a massive deficit with europe. The more we are able to develop the rest of the world the better. What stresses are showing up when it comes to the rest of the world stress is showing in other markets, venezuela, china is that happening yet . The issue is the more we talk about these things the more it reduces is this confidence. Businesses should look at the fundamentals as always, be interested in what the underlying possibilities are when making decisions. During the depth of the receptions, i spoke to is this is all the time and they told me we are doing ok and it is tough but were worried about the guy up the road. The truth is everybody was doing ok and everybody in action we havent had a lot of reduces for test anditis. We actually believes the economy was doing very well confidence wouldve gone up and the investment would have gone up faster. Right now we have businesses that are actually confident and speeding ahead. The fact that all these things happened in the world u. S. Budget deficits, etc. , it should not be a sense that we can do mark isabout it about to tell us something that ties in nicely with our next question. Brent crude has fallen below another psychological level, it is below 60 a barrel for the First Time Since july 2000 9 i was going to ask whether this will provide a positive impact to the u. K. The bank of england says today that the path of oil prices could be a bit of a risk to the economy the oil price trop entails some risk to stability but plenty of people including George Osborne talk about how this should be a net positive to the economy is a fear that things move too quickly . In any part of economics, rapid and sharp moves are problematic because it is difficult to adjust. Lower oil prices over a period of time are beneficial for economies. I think actually it will be good for the u. K. Economy to have Lower Oil Prices are fighting there is not too sharp a drop in adjustment. One of the biggest things is there Interest Rates and all of the work pretty predicting and Interest Rate rise to about 7. 5 and a Third Quarter of next year we think the bank of should leavenor any Interest Rate writers for as long as we possibly can. It is important for you kate businesses and consumption that Business Rates are low. Want certainly would not Interest Rates to go to 4 . You can join the conversation on twitter let us know what , u. K. Ink of the show banks finally strong after the stress test results. Coming up, mark will bring up his bar chart. Are emerging markets in freefall . Bart chart. Todays indicesok at three starting with the mx cia, a , a benchmarkmxci gauge. Falling for eight consecutive days, it is down 9 since the end of november. See that white circle . Since peaking then which was a threeyear high the index has slumped from their to their almost 20 . The Standard Poors 500 is up 8 and the msci world which measures developed markets is unchanged for the year. Look at the middle chart this asemergingmarket currencies measured by the jpmorgan emerging market index, it measures 10 currencies. Since peaking see the orange circle . That was may 22 and it has fallen through today 12 since the end of october alone or in it has fallen by 7 equity is down, emerging market currency is down. The bottom chart is the emerging market sovereign debt, the green line by the bloomberg emerging market sovereign bond index it peaked at an alltime height recently. Fallen or tripas percent over the same period, the bloomberg developed sovereign bond index is unchanged barely changed on the year. Bondshe year, emerging have outperformed developed bonds. Many investors are pointing to similarities of 1998 and just like now, back then oil was mbling, driving through crude exporters like russia and venezuela into financial crisis but the positive thing is lots has changed in emerging markets since then most importantly countries have higher foreign reserves and more Flexible Exchange rates. Whatever you say, these three charts show very clearly the signs of contagion. Lets move on the conversation with a few minutes to go until the start of equity trade. There,ting charts emerging market contagion Lower Oil Prices again, brent below 60 a barrel. It is underperformed europe this year, partly because of the explosion of marching emerging market trends. Issue in thebig ftse when you look at the ftse 100 with so many of these Huge Companies the Oil Companies and whatever their Main Business is not necessarily in the u. K. It is all around the world. What we are likely to see continue because this oil price just this morning brent crude dropping below 60 huge with a lot of these Oil Companies especially with exposure to the emerging markets youre looking at that continuing in that looks quite a while away. Talk to me about the bank stocks a takeaways . One,all passed barring what is it do for shares . Weve seen a couple of Early Morning calls and these are only estimates theyre pretty mixed to be honest, not a wide range of banks, a couple of up and a couple down. That shows a little of what we saw with the ecb stress test as well. Becausee banks this is 2013, we are talking at the end of 2013 how stressful the tests were, a lot of times shareholders and chairs dont front it off but they take stock a lot of times we look at the markets panicking as say someone has failed and someone hasnt the stress test doesnt necessarily have that reaction. Measuredly got a reaction which is something we dont compensate and it looks like first thing this morning and these things can change quickly it looks like we are not looking at a huge reaction. We after member they did not pass but they still past they did not pass by a long way but they still past. Looking at what implications there might be for the Balance Sheet in the future maybe Dividend Payments, lets talk about telecom, we got announcement from vt now trying therethe deal bt that are now trying to deal, how will this play out . Ee feel thathe bt we are looking at the interesting reaction will leave from02 and telefonica. What is the reaction there . You can see how to becoming a bit of a sitting duck and looking to come in and roundup the industry. They are all try to do the same thing trying to offer tv, broadband and mobile indications and they want to be a jack of all trades and ee seems to have been the chosen one that what happens to 02 . That will be the interesting thing this morning. 15 seconds the fed will announce rate decisions will that keep rates low for a considerable time after the bond dying program and . Think now it could be the case with a remove a little bit of language and will you get excited we talk about removing language but it does look like they will remove that language i think we will get a reaction out of that. Suddenly good news is good news. We will leave it there. Market analyst thank you. We will talk to the bba first here for reactions to the stress test read stay tuned. Ut welcome to on the move moments away from the start of european trading. Lets get straight to the morning brief. Battered. It drops below 60 a barrel. Crisis mode at 1 a. M. , the bank cuts Interest Rates, the biggest increase since 1998. The move that may suffocate Economic Growth even more. Past the bank of england stress test but only just. The two lenders remain susceptible to the severe economic downturn. I am looking at futures, higher by 16 points. Up by 26 points. The pmi and focus. Gauge, manufacturing hsbc below 50. Contraction at a sevenmonth low. France coming down. Germany and 30 minutes time. Lets get the market open with caroline hyde. We had the worst sixday drop. N european stocks since 2011 we are down about 8 in the last six days. Any kind of rebound . Were already trading up in france. The hope is amid all this bad data, will we start to see stimulus come through