Transcripts For BLOOMBERG The Pulse 20140527

Also coming up on the program, the ipos are continuing thick and fast as lloyds announced it will sell shares in its state of tsb. Will the deals be snapped up . Here with more is caroline hyde. Lets start with tsb. How much is the offer . 25 . It has been estimated that it is worth about 1. 5 billion pounds. 370 5 Million Pounds could be up for grabs as quickly as next month. So far, it will be going to institutional buyers. They will also be depending on Retail Investors in a big way as well. People sitting at home, 2000 pounds they might want to put to work. And a bit of a bonus as well. If you are that retail investor, freeu buy 20, you get one if you hold onto it for more than a year. There have been a few concerns about flotation recently. Because of the bailout of lloyds back in 2009. Bailout back in 2009, they agreed that they would eventually have to do this and now they are making good the making good. Also, investors can buy into your next euronext again. They can. Listings, manage your those shares will go to trade, but also trading of derivatives, trading of shares. All of this is done on the likes of euronext. They control trading in europe, amsterdam, paris. U. S. Company bought them up in 2013, but the plan was always to spin off euronext. They are selling about one third of the business to institutional buyers, the likes of bnp paribas , santander. They are already set up with a private place. Later in the year, shares will go on sale for the regular investor. This is a bet on growth. Nott that this open he will only be cashing in on the new share sale coming to market, but derivatives as well is something they want to see grow and scale. What about the timing . Saga prices low in the range. Timing must be a big concern here, although they are offering that bonus share. They are trying to make sure that the appetite is still wet for these deals. August, everyone shuts up shop and goes on holiday. They want to get ahead of that. Lloyds is on a bit of a deadline. They have got to start pushing out these chairs. At the moment, they feel that , 600 31imism with tsb branches, this is a bet on the european economy. This is a bet that Interest Rates might go higher. This is a bet on the growth of u. K. They think demand will remain for that. , theyge growth, euro next are being cautious with the exact timing. It will all happen by june. Companies that have listed in 2014 in london have seen their shares fall by an average of 1 . That is the concern. Pets at home saw shares still below where initially offered. There is concern that you are not getting the winwin that you used to greet you cannot bet that by buying into the initial stock offering, shares will continue to rise. Strengthng a bit more in the new york ipo market. The Chinese Government is ibming the countrys banks servers. Does this mark a clear escalation of the dispute with the u. S. Over spying claims . It will if it is a clear directive from the Chinese Government to commercial banks to stop using u. S. Servers. Right now, they are asking them to review it. We can read into that what we want. This is according to four people familiar with the matter, some great reporting from our chinese colleagues. This is a response by the Chinese Government to what happened four or five days ago in the u. S. , when the department of justice indicted five individuals working for the Chinese Military or spying on Companies Like westinghouse, u. S. Steel, alcoa. The back drop to all of this is, of course, edward snowden. Which is big news whenever anything happens in berlin. That is Cyber Espionage for business purposes, not just wanting to know what governments are doing, but listening in on businesses. There is a report out maybe five or six months ago that it would cost u. S. Tech companies some 35 billion. Initially, that report was somewhat dismissed. It looks like you could be getting towards those numbers, especially when you look at ibms profile. Revenues close to 100 billion. You look at their portfolio and where they get their revenue from, marca, 43 . Asiapacific, 23 . Is not all china, but clearly, this will affect them. According to the Financial Times, Consulting Management Companies Might also be under pressure. The Chinese Government might be urging companies not to use u. S. Consultants. Shockedhould not be too because governments, arent they spying on each other all the time . This is part of the Obama Administration response. That is why you have an intelligence service, so they can listen in on other governments. What the u. S. Would say in response is when you spy on companies, it crosses a line. What various ministers are talking about, but trying to extract industrial as a not industrial espionage marks an escalation, which is why the indictment of five people by washington. Hans nichols using cricket. You are turning into a european. I just wanted to throw you a spanner, mark. Keep dropping those cricket analogies in. I like it. Just one week until the next ecb policy meeting. Meanwhile, officials are in the firstuese town for the ever ecb for him. Jonathan ferro has the details. The final day of the firstever european jackson hole. Any more clues on what druggie is going to do . The clues were in a comprehensive speech yesterday. If you get a chance to read it, do. It is about, what is the problem in the eurozone . The problem is low inflation rate commodities, food, energy. The euro putting down the price of that. Since late 2011, it has been down to falling commodity prices. Conventional talks, we are talking about rate cuts. What about the nonconventional tools . He talked about common factors, the strength of the euro. He also talked about local factors. When he talked about local factors, he was talking about credit and the availability of credit in some of these enterprises not in germany, but the likes of portugal and spain. These acts are striking. The percentage varies from 1 in germany to 25 in spain and one are financially constrained in portugal. That is huge. How do they get credit to these companies . Fear over the next year is that when demand for credit picks up in these countries and the recovery accelerates, as banks raise capital and clean up their Balance Sheet, they will not be able to meet the demand with supply or credit. How do you do that . That is the big debate. Also a big debate about whether or not it is the agreement of the ecb to be doing this or whether it should be fiscal policy the transmission mechanism is broken, that is certainly their mandate. They have got to do something and get the prices back up to their target, which is close to, but just below 2 . Right now, it is nowhere near 2 . To meet with french president Francois Hollande tomorrow. He is seeking approval for a bid to snap up alstoms energy unit. Ge said it would keep their energy unit in france. The Worlds Largest hotel chain has hit an 11year high. Intercontinental rejected a takeover offer from a u. S. Company. The identity of the bitter is unclear, but some say it was Starwood Hotels resorts. Really s saakashvili said it was a blow to putin. That has never happened before in eastern ukraine. That is a new reality. , but a big blow for putin the west has to capitalize on that the on that. Now they voted for freedom. That was georges former president that was georgias former president. Ryan joins us with a preview of what he will be talking about in kiev. We will have more from my interview with the former president of georgia and i will take a look at Petro Poroshenko and his tough talk on russia. He is upping the ante in the countrys conflict with the kremlin as fighting rages in the east. Welcome back to the pulse. Economic heavyweights are gathered in portugal for an ecb forum on central banking. One key question on everybodys ond, is draghi ready to step the stimulus battle . We are joined by a senior economist at bern byrnes. Berenberg bank. What do you think is coming . A rate cut, 90 probability is what we see. We should know how it is going to work as well. Probably Something Else as well. Thats Something Else should be of ahing along the lines small asset Purchase Program. Professor of International Economics at the Brandeis International Business School said, i would like to see an example, somewhere in the world, someone who is successfully securitized for mediumenterprise bonds. What is your reply . I totally agree with this. Thatay argue, in the u. S. , some of this works. In germany in 2004, there was a Big Initiative where they tried to do this and they ended up with a Securitization Program where car loans were tied. Buys these car loans, that is not going to help the euro zone economy as much as an smeabs Purchase Program would. How big is the risk . We have heard warnings from paul tucker, the former bank of england deputy governor. I do not think it is going to backfire. The risk of doing a Purchase Program is relatively low. The impact is going to be very low as well. Thefurther the ecb goes in direction of buying risky assets, the bigger the debate will be about these risks on the Balance Sheet of the ecb, which is ultimately backed by taxpayers. Is that not a conflict of interest . When you associate yourself with a central bank to closely with one type of financial instrument . Last year, mario draghi said he would like to buy something, but tell me what to buy. Government bonds, there are all of these restrictions. The abs market is somewhat toxic politically and economically as well. We need to do something to prepare the eurozone for the future. I think that is what the ecb is working on. The next crisis, hopefully a long time from now, we might have the abs market available. That would be for the next crisis, not the current one. Doesnt the government guarantee a government backstop distorts the market . Function,et the abs some European Investment bank or National Development banks have guaranteed half of the charges half of the tranches. If we get Something Like that, then the taxpayer would have a direct say in who gets credit or who does not. Also, a direct say into what the ecb could ultimately buy into or not. You are saying there is a chance. There is a chance that this will be done, but not on the scale that we would need to get an americanstyle qe program of hundreds of billions of euros. Lets talk about the parliamentary election. What is the take away from this . Do you think that it will result in an easing of the fiscal policy throughout the eurozone or not . Have already seen that easing on fiscal policy. We have seen many changes in the approach of the Eu Commission on how to calculate deficits and look at structural deficits rather than the headline deficits. We have seen easing on the fiscal side. I think there will be more focus on structural reform than there has been. In italythat rienzi got such a strong mandate, because that is what he is proposing, promarket reforms, is very encouraging. I hope that focus will shift away towards structural reforms. There have been some positive signs in greece. Election results threaten the euu. S. Trade pact . They do, clearly. Only two major parties in parliament, are in favor of the trade agreement. These parties do not have a majority. They will need the centerleft to join them. The centerleft will have all sorts of conditions. We have lots of conditions on the trade talks and on the other side of the atlantic. I think it will be difficult and take a lot of time and compromises. In the end, it will not be as sweeping as we thought. The european elections or not . They will probably get somewhat easier conditions. They are trying to signal to greet voters that this is not a response in order to prevent negative incentives for future elections. Rather, the reward for the exits of the current government, it is a reward. Not something for a future threat. France isyou say that the country to watch . , france, the Election Results france is the one country which has not had structural reforms. They have made progress on the fiscal side, but not the structural side. It is the man of europe, at the moment, unfortunately. Lets get some company news now. Expecting the ecb to cut rates and switching to a negative Interest Rate he spoke to bloomberg from the ecb forum in portugal. Most likely, it could be a reduction in the Interest Rate and a negative deposit on the ecb. What could be important, in my view, is to work with attention to the euro devaluation. , we need too grow have internal demand. Pfizer has abandoned its 69 billion pound bid for astrazeneca. Pfizer said the offer represented its full value. Pfizer is now required to wait at least three months before restarting talks with astrazeneca. Rio tinto reached an investment deal that involves a potential 20 billion iron ore mine. The area agreed upon is the Worlds Largest untapped iron ore reserve. Come, the call of duty. We are not talking about the videogame. America is recruiting unconventional players in its fight against cyber terrorism. Meet the class of 2014. That is coming on later on the pulse. Time for todays hotshot. A champion crosscountry mountain biker showed off his skills on the challenging trails of southern utah. He is currently top of the leaderboard for the 2014 crosscountry world cup. Rex from the mountains of utah to the streets of naples. The weather is motivating extremes ports fans from across the world. Here are some of the worlds best skateboarders conquering the urban obstacles. And how about walking a tightrope in between two air balloons . Attempted tol balance at perilous heights without a safety rope. What would persuade you . Although it did look like he had a parachute on his back as we are watching his go pro video. This is the Investment Case for go pro. Lets see how the markets are trading. Jonathan ferro joins us with his asset check. Lets look at the equity markets. Sixyear high across europe. The excitement was yesterday, big gains in italy. The ftse 100, welcome back to work, city of london. Well you were away, the volume on the stoxx 600 was 55 below the 30day average. A big chunk out of volume. , one basis bond point higher. Yesterday, down 17 basis points. A big stamp of approval for his mandate. And elsewhere, what are we looking at . Euro now buys me 1. 3646. A big speech from mario draghi yesterday. He speaks again today. Next, defending america online. Find out how the u. S. Army is turning hackers and taking up the fight for alstom with president hollandee. You can follow me on twitter. Welcome back to the pulse. Im mark barton. And im olivia sterns. Here are the Bloomberg Top headlines. China is pushing domestic banks to remove highend servers made by ibm. American prosecutors recently indicted five Chinese Military officers for allegedly hacking into u. S. Company computers and stealing secrets. Vietnam says a chinese vessel sold sank one of its fishing boats. Says 40 chinese ships circled the group of vietnamese boats in an Economic Zone exclusive to vietnam. Wishes chinas claims and disputes in the south china sea. Ukraines state Energy Company would pay gas prom 2 billion by friday. A bloomberg excuse if exclusive. It is normally a regular unit. They said they were volunteers. They didnt say they were partisans. Armed chechens were sent by Russian Special services to fight proxy war. Certainly, we are talking about largescale intervention. The border has been diluted in lugansk. Every night i heard from our friend in the ukraine government that large numbers of what i think are Russian Troops and look like Russian Troops, but russia says they are not. They have moved in. Were talking about a military invasion here, lets not fool ourselves. So you say this is a military invasion by russia . It is not bombing by jets, but they are behaving like professionals and killing lots of people. Tohink they are preparing expel ukrainian troops from those two areas. It looks like it. That will be a tough challenge and a tough fight. You have met president putin youre at times when country was at odds with mocks with moscow. Would you recommend to poroshenko going into that meeting . Moderate and a reasonable guy. In the together university. He cannot do it without western help. The problem is that rush is pretty weak. President putin has a strong will. The west is stronger but does not seem to have a strong will. Theyre looking for all kinds of excuses. Of course, many western companies do want want to do not want to endure pain. They were really have to switch up the cash machine with russian. Il and gas it will happen sooner or later. Later happens, the higher price europe will have to pay. T is a deja vu it is the same story all over again. That was georgias former president. Ryan joins us now from kiev. Some tough talk from ukraines new president as well, Petro Poroshenko. Tough talk and tough fighting on the ground, as well. Central authorities here in ukraine are deploying not just Ground Forces but also helicopter gunships, aircraft, mortar fire, and a hardening of wills on the separatist site as well. Rogue russian of fighters entering from russia itself within the last 24 hours. Fighters that described themselves as chechen volunteers. The Ukrainian Government will , that theyre part of the regular russian army. They themselves say they are just volunteers that have come from chechnya. We are seeing escalation on both sides, without a doubt. Clearly, there is some very heavy fighting going on at the airport itself, where the Central Government says it has , buten the donetsk airport in the city as well where there is fighting underway at the train station. The rebels claim that as many as 30 of their insurgents have been killed. If yesterday look like wraps there was room for diplomatic solution, i think today the window is closing. The kremlin warned president elect poroshenko that any exit any escalation of the military operation in the at of the country would be colossal mistake. Now. Is what we have right on the one hand we clearly see these images of escalating violence. We just heard from your exclusive interview that russia is directly involved militarily. The conflict is getting worse on the ground. At the same time we are also hearing a bit of rapprochement. The can you say about potential gas deals . The russians and ukrainians sat down with eu mediation in drafted anerday and agreement whereby ukrainians will pay russians 2 billion by the end of this week and half 1 billion by the end of next week. 2. 5 billion dollars out of the 3. 5 billion debt. The russians said june 3 is a deadline for getting money from ukraine to cover its debt. The Draft Agreement is there. It has to be approved by both governments. That is expected to happen, perhaps by tomorrow. In the russians have to get the money by friday. Another batch of money the following week. The Sticking Point appears to be the order in which things are happening. Up thesians say pony money and then we will talk about the price you pay Going Forward and whether you have to prepay or not. The ukrainians are saying, no, we want to agree on a price Going Forward first, then we will pony up to two point 5 billion. The fact that the two sides are sitting together and discussing this in the summertime is definitely encouraging. Thanks so much, ryan chilcote, live for us in kiev. Ges ceo will meet with frances president Francois Hollande. Our correspondent, hans nichols, joins us. Takeover rules are different in france than in the u. K. There are different quiet periods after a failed offer. Here is what ge is trying to convince the french government and alstom shareholders. That is, the core Nuclear Component of the Energy Business will stay in france. Here was a radio interview from the head of ges french operation, making these assurances over the weekend. We will answer the governments legitimate demand for the nuclear unit to remain french. Exports will be protected. You really see ges tone in all of this. Immelts promise to bend over backwards. He had his meeting a month ago. Went that are than expected heading into it. The official line out of that was that the french state is officially neutral. We will see how close they get to signing the deal and getting close to it after this next meeting. The deadline is june 23. Then we will know which alstom will go. Meanwhile, siemens is biding its time. Will they launch a counter offer . They have had time to look at the books. There will be no counter offer today. They are, apparently, preparing their own offer, a formal offer. Is according to reuters. Will be a 7 it billion cash offer. Greater basically to diversified companies that are really core and the focus. We simply dont know a lot of this. The 7 billion number is considerably less than the 17 billion that ge has offered. This deal seems like it is marching towards general electric, but i wouldnt be a betting man when it comes to m a and government intervention, especially after pfizer and zeneca. Is graduation time for College Seniors all over the u. S. Hundreds of thousands of young people opened to join the is no different at west point, the u. S. Military school, who will be short of taking up jobs as u. S. Army officers. Some of them will be taking up jobs as hackers. In wargames, a movie made 30 years ago, a young computer from seattle comes close to starting a nuclear war. These days, america is looking to hire techs every teenagers to work for the u. S. Military rather than against it. Some these young cadets at west point are potential players. Hackers and what they bring can bring a great strength. Some of the most orthodox the approach were taking is more focused on education and longterm underlying principles that will teach them how to think and solve problems. Cyber attacks on u. S. Infrastructure soared 1700 between 2011. Blitz, thet of that pentagon established a special group to defend america online. General keith alexander, then head of the nsa, was placed in charge of this new Cyber Command , initially coaching personnel from other companies. About to change. Year, west point seniors will be allowed to join Cyber Command as newly appointed officers. I want to apply my expertise. Means these cadets can compete with the brightest computer scientists of the generation. I would say i am more tech savvy than the average person my age. These skills may one day be applied on an active battlefield. I see a future where it will be cyberspace only operations, as well as physical world and Cyberspace Operations that intersected very point in time. Americas next generation of Army Officers will still fight wars with machine guns, but some will also use mouse clicks. Bloomberg, west point. For the duration of the was in ferris bueller, he was in the producers, matthew broderick. You havent seen wargames . No, because youre much older than me. It is a really interesting opportunity for new military officers. Now it is a lot more sophisticated than code breaking from world war ii. Will be back with the chief of digitalfficer shadows. No deal for pfizer and astrazeneca. The biggest proposed takeover is dead. What happens next . We will explain. No deal for now. The largest u. S. Drug maker pfizer has abandoned its 70 billion pound bid for astrazeneca with at least a threemonth cooling off. Period. How likely do think it is that pfizer will come back in three months if they are invited or in six months to try to buy astrazeneca again . Think it is going to depend very much on the progress that astrazeneca is able to present on its pipeline. We have the annual Council Meeting coming up this weekend. The companies will present their latest data. Meeting will take place also in the u. S. Where astra will share its latest findings. Outcome and the interpretation of those will determine the future of this saga. Build onnk astra can the momentum it has demonstrated . Can it deliver on the promises within its pipeline . I think mostly for the industry it feels if they have been able to people truly buy into that. When and if they can meet future production is still depends on the outcome. There is a sense that there is a culture change here. Foro think it was a mistake astrazeneca not to sell . A lot of people were seeing this was a very good price. It was a 40 five percent premium versus the price of astra zeneca shares when the news broke. You think astra zeneca mistake here . Down to thet boils investment. Obviously, the board is making the case that the future of astrazeneca as an independent game as an independent company outweighs the shortterm gain of profit. Certain shareholders support the board and others are more frustrated. That is basically how things the, depending on investment. What would you do if you are a pfizer ceo if you were the might you start spinning off one or another Division Within pfizer . He look for another target . Obviously, they have shown their hand. They had an interest and they can launch an acquisition again. People know,y, as they were very keen to embrace astrazeneca into their group. A lot of questions Going Forward, but there is a someegy, maybe, to Court Executives at Esther Zeneca and have discussions along the way. Next for theat is company . They made the case that they are Strong Enough to go it alone. Do think they could potentially be looking at an acquisition in the future to try to bolster the given the activity they have had over the last couple of years, they have a lot on their plate. Saying we will get some very Interesting Data points coming up. I think internal focus and making sure that they deliver on what they have in the pipeline, rather than external focus and look for something to add, at least in the short term. The gap between the last was 55. Ce astra has said, my ts, it will probably enter in discussions it 58 at 58. 85. It is a small bridge, is it realistic to assume that pfizer could come back with 58. 85 on the table . That made very clear that they would like a recommendation from astrazenecas board. Otherwise the risk would increase. It is also worth highlighting that astrazenecas board said that more than 10 seems to be media and certain commentators have taken that as a confirmation that 10 would be enough. We dont know exactly what it means when they say other things need to be fulfilled. Mark, i put that question to the chairman of astrazeneca in the luhansk when i spoke to him last week. If they went up, would you be for sale . He said, really, i said that number because it didnt one shareholders to think we work for sale at any price. That is precisely the criticism did getting from some shareholders. Look like a were just not looking to talk. Youre wondering, the blackrock is the biggest share loader and dust shareholder and theyre interested in some sorts of talks. Were going to hear from the founder of a makeup start up using technology to trump loreal. That is later on the pulse. Courts here are todays new energy top headlines. Australia could use lose thousands of jobs. This comes after the ozzy government aussie government announced plans that will scrap renewable targets. It is seen a drop in investment within australias Renewable Energy sector. The world bank has approved 350 million worth of loans for turkeys Renewable Energy projects. With demand for the best for electricity growing rapidly, the turkish government has approved new schemes. They hope to encourage further Energy Investment in the country. Isa japanese Vegetable Farm reaping the rewards of the governments campaign to boost Renewable Energy supplies. Installing solar panels above their crops is allowing farmers to harvest dual incomes from sunlight after china, japan is projected to be the largest market for new solar installation this year. For those listing on bloomberg radio, the first word is coming up next very for our viewers, a second hour of the pulse is up next. First up, our exclusive interview with the former in tf. N president we will be talking about the situation in ukraine with an analyst. Interestingly, he said russia was weak but it has strong will, europe has weak will, but it is strong. I thought that was a very telling quote within the interview. You saying they are responsible for deaths within the ukraine. The spying saga between china and the u. S. Will be speaking to the founder of Digital Shadows about that story and the whole spyware sector. That is in the second hour. The ipo frenzy continues. Ibm caught in the crossfire. China pushes back to remove servers made by the company as the u. S. Spying dispute excellent escalates. President Georgian Mikhail Saakashvili says the ukraine vote is a big blow to vladimir putin. Hello, good morning to our viewers in europe, to giving to those in asia and welcome to those just waking up in the u. S. I mark barton. This is the pulse live. Continuing thick and fast as you like to say in this come in this country. Next shares will also be going through. Will the shares be snapped up . First, lets start with tsb. This is the first requirement to begin that bailout. How much is the offer . 25 of the entirety of tsb. 375 Million Pounds is up for grabs. It is the uks seventh biggest lender already. Are you are are are are are. Therefore. 5 million customers they have 4. 5 million customers. Initially, theyre going to sell the branches to coops. That deal fell through. Now, it is all about getting into the hands of shareholders. It is a smaller bank. Next . Now ituro seems we will be able to own shares. Is very business. Sales, and their trading of equities and commodities derivatives. That is what this company is all about. Initially, they were going to do a private placement. They were going to sell about a third of the company to a number of banks. They have agreed to hold the shares for several years. They want some stability there. After that, they will be reselling some shares at some point, perhaps later in the summer. They will be selling shares fire the public that will be traded in paris, amsterdam and brussels. Tricky timing here for both of these ipos. Yes, good times for the equity market. The european benchmark at his highest since 2008. The are beginning to get a bit soggy. A fat face, the Retail Company shelved its plans to go public. Hereyou make of the timing for these two companies . Obviously, there are two different industries. It is in district it is indigestion here am to put it mildly. The financials have performed best this year. Overall, ipos, initial share sales, up 81 , year to date. There has been a lot to digest. The big Asset Managers and Pension Funds are just going to be more picky. Largely, we are starting to see companies lure in the retail investor. Saga is a company that sells holidays insurance for those over 50 in the u. K. There shares didnt do that well last week. He had to bring down the price point a bit. They pitch themselves as a consumer company, but really what they are is an insurer. They very dependent on the retail investor. Great guns for the saga share sale. Interestingly, tsb will be offering shares and learning in Retail Investors saying, look, if you buy 20 shares from us, we will give you a free one. There are ways of keeping appetite there. Largely, these are bets on growth in the u. K. Economy. We should see tsb going relatively strongly. Maybe it is lack of return on equity money. Also, this is a bet on a company that can expand into derivatives. It is slightly different ideas from what retail it is that at least two hours since we the bankioned tsb, that likes to mention i refuse to say it. Was the 80s or the 90s . This is bringing a brand back from the dead. It disappeared 18 years ago. To be fair, maybe olivia and i werent as hip to that as you were. Why dont you tell the viewers what the slogan is . The wargames slogan . Likes the bank that to say yes. That was their slogan. Caroline hyde, thank you so much. Just over a week to go until the next european policy. The meantime, the portuguese intra. Cent if you find an economist that doesnt think were getting a rate cut next week, i will give you a penny. Then they give you a clue, you will not be a rich man off the back of that. Himself, mario draghi, speaks at 2 30. Inflation ass low a common factor against the euro zone. That is being german by lower commodity prices. Factor in that strong euro. Hello can you go, deposit rate would have to go negative. At the very minimum, that is what people expect next week. On the is expected nonconventional tools side . You have to look at the local factors impacting inflation and look at Mario Draghis speech and what he says about that. When he talks about credit, you can see how financially constrained some of these companies are. The percentage of financially constrained but viable as an e smes. These constraints will slow down the recovery, have an impact on lower inflation in those particular countries. A lot of people think that we could get some targeted measure towards credit easing. Debate that is happening in portugal right now and will carry on all the way through to next week is how ges Credit Conditions in the eurozone. That is going to be a big one. The president elect Petro Poroshenko has allowed operations to rain and separatists in east of the country. That sets ukraine on a collision course with russia which is warned against the move. Ryan chilcote is in kiev with the details. Use local with former georgian president saakashvili and he says the Russian Military is directly responsible for the violence. What is your understanding . Is their sense of the russian armies to rectally responsible for stoking violence . That is definitely the ukrainian line. We have seen a step up in the violence and military operations , both the Ukrainian Government side and the sec and the separatist side. Ground troops but thick swing aircraft and helicopter gunships since this morning. In their efforts to retake the donetsk airport, but also in the center of donetsk and in other places. Really upping their game when it comes to the military commitment to the fighting. A heartening of wills as well on the separatist side. Pro russian fighters joining the separatist in east of ukraine from russia itself. Some of those fighters describing themselves as chechen volunteers. Important point there is, theyre describing themselves as irregulars, not part of the Russian Military and not part of a russian intervention, as you are the former president of georgia alleged earlier in the day. Clearly, were seeing casualties as a result of the fighting. However, flights in and out of the airport have not begun yet. Rebels have said that they have faced dozens of casualties. Killedt 30 rebels were today. Fighting definitely raging in the east of the country. Raging, youing is can see, but we were showing pictures of separatist troop formations that are walking through some very verdant, almost suburban landscapes. The situation is getting much worse on the ground. A differentin it is story. Ukraine and russia seem to be inching towards a deal on gas. What more can you tell us about that . Is very promising. The russians that together with berlinans yesterday in for talks mediated by the european union. They drafted a tentative deal that still has to be approved by their respective governments by tomorrow evening. It ukrainians would agree to give the russians 2 billion by the end of this week and another half billion dollars by the end of next week. 2. 5 billion dollars in all of the 3. 5 billion debt for russian gas. If they do that, the russians have said they there would not be any supply cut. Of course, june the third is the deadline of ukraines pay up, otherwise russians said they will turn up the supply. The Sticking Point, and there still is a Sticking Point, is that ukrainians are saying we want to negotiate the future price that we will buy gas from russia before we pay up to 2. 5 billion. The russians are saying no no no, give us our money and then we will talk about future prices. Were not there yet, but promising negotiations and what you might describe as another battleground, maybe an even more important battleground strategically speaking between russia and ukraine. Ryan chilcote live for us in kiev. Alyssa lockwood is Senior Management at the consultancy ihs country risk. Also coming up, the call of duty. Of 2014. Class that is coming up later on in the pulse. Lets have a look at the euro against the dollar today. Goods orders in the United States may show a drop in april. The euro up by a fraction, 1. 3648. Nextone looking forward to weeks ecb meeting. The president of the ecb said yesterday that policymakers are ready to expand business. Lets get back to our conversation on your crane president e countries says he is ready for talks with russia and two and the growing violence in east. We are joined by Alyssa Lockwood who is Senior Management at the consultancy ihs country risk. We are hearing two different things. Were hearing directly from ukraine and the former president of georgia, telling us that the russian army is directly responsible for the violence going on in ukraine. Russia denies this. Was your understanding of this. Are the Russian Troops on the ground and russian jets in the air . Is impossible to ascertain at this point. Near ukrainesen border is that russias claim to be withdrawing seems to be correct. There have been some reductions in the numbers of troops there. It does not look like russia is preparing for imminent invasion. Whether there are still any involvement with the actual separatist groups is another question. The votes were hardly counted when poroshenko said that he its use of the military in reining in the separatists and ease of the alisa, does that mean he is on a collision course with utin . Given russias currently ambiguous position, he seems to be taking the opportunity to forge ahead and take it better to the fact that russia was initially saying they would respect the results of the ukrainian election. Thats what we are so far about the opposition is delimited. We heard a lot of disparate reports that it is a ragtag group of volunteer armies, almost varied any signs of a leader brewing among the rebels or unified message coming here . Oppositeems like the is happening. We are seeing signs of fragmentation among the especiallygroups, the two main strongholds. There were reportedly statements by the leader of the gods of the lugansk separatist saying ae leader of the donetsk is traitor. We cannot expect court native action from them. In berlin talks between the eu, ukraine and russia, have brought forth agreements that ukraine would take 2 billion to russia and a further 500 million if both governments agree. Are you encouraged by that . Does that mean we are inching toward some sort of deal . Does it all come down to price and how they will achieve this repayment agreement . There has to be a deal, basically, before russia comes table. This is certainly a key requisite. We are very likely to see toaine making overtures russia in this regard, and certainly looking to implement a payment as soon as possible. What are the prospects for Ukraine Economy at this point . As i understand, donetsk and luhansk represent a significant portion of ukraines output. What are poroshenkos prospects for reforming the economy . Is going to be a big challenge. He is not just president , he finding uphill battle support for himself in the parliament. Ukraine is going to face economic challenges in the coming year, quite severe ones, potentially. Buttressed only by the imf money that is coming. With they reach terms that it is anas said open question. It would require a very strong government. We will still have to wait for the parliamentary elections to face later in the year. To that year, there will be a great deal of uncertainty. Do you expect further sanctions from the eu or u. S. . Or are they holding off . They look to be holding off. As long as russia seems amenable phase of the third sanctions is unlikely. Alisa lockwood. There will be more from the ulse in 2. Here is a problem that make up wires often encounter. How to tell if a product is the right fit . You can open the packet and tried on the store or take it home only to find it doesnt match your complexion become a problem i have every day. An israeli startup may have found the solution. Elliott is smiling. He is the man in the middle east to tell us about it. Good morning, elliott. Joined by the founder of ezface. What exactly does it do . It enables customers to virtually try on Makeup Products on their own image and see what is the best color for them while shopping in a very easy way. Actually, we took the annoying process of choosing the product toa very fun and easy way do. What is the Technology Behind this . Complicated . How does it work . It is much more complicated. Analyzes the customers photo. The makeup areas and the pigmentation. Thectually blend pigmentation together with the actual product attributes, like the color value, the coverage, and also the sex. Cloth, metal, shiny. From our point of view, it is really very important to bring a photorealism simulation to the customer. A have loreal presented his color applet week that i did a piece on. Is that similar . They try to go to video. We dont believe that this is the right approach because seeomers on video cant very accurate all the makeup seeucts, because they cant it when we are doing a zoom in. See all the details. We want to know exactly how this works. Theave a few photos to show audience how it works. We have a photo of roof before and then we have her after with the ezface application. We managed to get a photo of and mark after he is had to make up virtually applied. We have done the same times, despite his wearing glasses in the picture. Theres also a hans after with makeup from easy face. We have done it to david tweed as well. We have after for david tweed. I had to do and for me as well. Probablye looking about 10 years younger when i first joined bloomberg, before, and after as well. Im sure, elliott, you look much better with pink lipstick and a blush than you do just normal. Frankiott, you look like inferred or in the rocky horror picture show. Thank you very much. Grants. Were those my colors . Gotkine, our middle east editor. Would you use this apple or not . I would. But i would also say this segment confirms my belief that british man take every chance they can to dress up like women. Right. Coming up, cyber spying concerns. How chinese banks are ibm banks ditching their servers . Welcome back to the pulse. I am olivia sterns. Time in london is 10 30. President obama is expected to announce regulations that would cut Carbon Emissions from the of 600 coalfired power plants. The rule to be the cornerstone of obamas Climate Change initiative. Australia could lose thousands of jobs and billions of dollars after the aussie government announced plans to energy initiatives. Lets take a look at how european markets are trading after they reopened from that bank holiday. Session highs here in europe. Lets check it out. Europe futures pointing higher. Dax heading that way again, up one half of one percent. A record high for the dax. If you were off yesterday, welcome back to this week. The italian bond rally, 70 basis points lower. You see is just below three percent right now. Big stamp of approval from matteo renzi. He got over 40 of the vote, his party did come in those european elections. Forget all those other headlines, matteo renzi really strengthened his mandate. Were looking at the euro dollar , 1. 36 43. The big man spoke yesterday. He. You did not exactly temper expectations for a rate cut next week. Expect this one to continue weakening. Look, the ecb has a track record of under delivering. The risk is going into next weeks meeting. Back to you. It has been two months since the disappearance of Malaysia Airlines flight 370. Despite struggling with losses and rising competition, the company says bankruptcy is not an option. I am very confident we can do that. Malaysia airlines has been around for over 40 years. We have a worldclass reputation. We are one of the only seven airlines of the world to have a fivestar rating. Our cabin crew have, in the last 10 or 12 years, have probably one world best cabin crews. The Safety Standards of Malaysia Airlines are on par with any airline in the world. How realistic is a turnaround . Recently. Dropped 18 investors are not buying in to the turnaround story. It makes 370 so you didnt encourage that. That certainly has been a major hiccup in the road. Now, we have to go back and fix that. If you look at the past 12 months, shares have dropped over 60 . That the team will want to make sure that regardless of 2014, we need to make a turnaround for 2015. It would be unreasonable to expect, with a level of 370,ption caused by mh that any plan we had from last september will survive into 2014. Now, our process will be, lets recover as much business as we can. Is bankruptcy an option . I dont see it as an option at this stage, what you ments of people may com that bankruptcy is one way to allow you to restructure . It depends on the rules. He various jurisdictions such as north america, theres chapter 11 bankruptcy, which will allow a company to reorganize itself while being protected from creditors during that reorganization phase. The finance guy at Malaysia Airlines, im mature with the rules are in malaysia for such structured reorganizations. Shares in malaysia air rose most in several days after the interview. Is joining us today. What the data is and why it is being released today and what has been recovered. Cracks me up in some following the story. You must have been following the story. Our scientists enabled us to give a suggestion with the aircraft has gone. The requirements of transparency that increase in our digital age. Would change the course of the investigation in any way . Roughly where the search area for the plane should now be . The great debate was had the plane flown north or south. The issue seems to have been settled. This might sound silly, but how can it be such a great challenge to tell whether time when a thousand, or south or thousand kilometers north. I understand if you cant locate gps, but surely 1000 feet away, you can have a bit more reliable signal. Youre absolutely right, if commercial airlines did have a builtin tracking as ships do, then this would never have been a debate. But the industry is still debating as to how to approach it. Putting that to one side, the issue was that we could only go on the handshakes between the network, like a mobile phone asking for service on a network. Initially, he knew there were seven handshakes over x hours, but you didnt know north or south. You had to map its he was the best fit was. The best fit was south. You said you have offered free tracking for all comers injured does commercial passenger jets. How soon before this is taken up by the Airline Industry . Is on another 5000 and more advanced form. The industry has got to make its own mind up about what it wants and how it wants it. Ive had one meeting already in montreal to discuss tracking. In june it is inviting a number of potential suppliers to come forward. While theyre doing all this, were saying we can fixes for 90 or more of the worlds jets now. We can offer you enhanced data based now. If you want the crowd solution thea black box strained off plane in an extreme situation, we could probably do that by the end of this year. But, it is multiple countries, multiple decisionmakers, and that most difficult element that we cant influence. Ahead of the curve here and has already put in place the satellite detection machine equipment across their fleet . A very good point as well. Air france is probably posted child for this. Aircraft five years ago. Sure, and the atlantic ocean. They have gone down to one. Inute handshakes tracking the issue in malaysia, to be fair to them, was at someone or something turned off the tracking device and turned off the communications device. We still dont know what or who cost of that. And the case of malaysia, nothing couldve been done once they were switched off. What were proposing to do is bury the location data into the network so they cant be turned off. It is a sad fact is if you sent an aircraft in Southern India ocean over the winter months weather can be five10 minute waves and if an aircraft and crashing violently into the sea, it may well have shattered into thousands of pieces. Is any new data that can be gleaned are you think should be released . We should be absolutely honest, no. Everyone is working very hard. Thinkides the lessons you shouldve been learned, what are the lessons that have been learned from this whole episode . I think seeing the coronation between china, australia and other neighboring countries hold out hope. With all the tensions in the area, they will have a wider issue of cooperation. Perhaps this will lead to breaking down of some of the barriers. Hasow has populace how publicity of this event helped you . Were well known, but not well known. Were better known now because of this. That is why we decided the answer was to offer free service that we did earlier. What is the cost . The equipment is arty there. It runs into the tens of millions of dollars in terms of foregone revenue, but we think it is the right thing to do. Thank you for joining us. Senior vp. Ibm caught in the crossfire. Is find out why after the break. Welcome back to the pulse. The Chinese Government is said to be pushing the countrys banks to replace ibm servers with a local brand. Hans nichols has the story from berlin. This a clear escalation of the dispute with the u. S. Over spying claims, would you say . Like a clear escalation, mark. What we have is the u. S. Telling the bank of china and the finance ministry to tell the banks to review their use of ibm servers. It is quite remarkable. We will see what the Business Impact is on this. It is giving us a sense of what the overall espionage this is a little bit different from snowden. The overall fallout will hurt the businesses bottom line. Back in january, the overall wden impact to be 35 alien 35 billion in lost revenue. In revenue0 million overall globally, when you break that down country by country, you have about 23 in asia. Not all of that is china, but it is clearly an important market for them. At the same time, theres a report out over the weekend from the Financial Times that similar pressure is being put onto companies for not hiring and not to hire consulting companies. Look, this escalation, we will see how the u. S. Response. It is on response to the five chinese Army Officers being indicted by the department of justice for spying on Companies Like alcoa and westinghouse. It is hard to see a way out of this one if it keeps going titfortat. Dont government spy on each other all the time . President point that barack obama makes, especially here in germany when he is criticized for the nsa revelations. The u. S. Is saying there is a distinction here. That is that the chinese were spying on companies. Spying on companies isnt kosher. That shouldnt be allowed heard should only be spying on it is part of spy craft. Countries, not companies. Use cricket anytime, hans. Still worried. He looks better with lipstick on, doesnt he . So do you. There is hans nichols with a little bit of plush and mascara and gloss. He looks good. The ceo cyber intelligence. Thank you for coming in today. When you just start by explaining what is your company does . We secure the Digital Footprints for our clients. Anything that could undermine security reputation in some way. How do companies regain control of their Digital Shadows . At the monitor what is going on outside the boundary. Deficit would it look like from hackers point of view. Over the hacker see when he is casing the joint and looking at the outset of the company. Suddenly, the boundaries are going down outside companies. Was going on outside the boundary is more important than ever. One thing that has a lot of people infuriated over these is the time it took for target to release information. How long does it actually take to spot the data breach . Good question. We know in the ebay case it took about three months. Ive seen services putting it up to a year when theyre unaware of the data breach. We should be thinking and worrying about the ones that havent actually surfaced. How did you spot the ebay situation . You spotted the attempt to sell stolen ebay data. How did you achieve that . We were monitoring millions of sources in 26 languages, looking for data breaches. While the pickup here was a fraudulent attempt by criminal group trying to sell the information that they didnt actually have. Theyre trying to mislead other criminals in japan the money. How often does this happen . For a often. It is hard to tell what is real in cyberspace. How is there enough information to be able to tell that this information is for sale from a source, but you cant tell anything further about where is coming from or where the attack was . There are often telltale signs. Just enough to try to say it was genuine. Breach for about the ebay did . No. You asbay had been using a theft protection service, they would have been alerted sooner. Possibly. Sometimes it think would pick things up sooner. They couldve been monitoring more proactively to try to pick things up in advance. Like with administrative privileges up atre, thereve got to look how these credentials are being secured. Doing a how valuable the market is for stolen data . Is there possible way to put a figure on it . Is hugely lucrative. It changes all the time, but a single record from this ebay reach could the worth as much as 10. If you the full details of somebody, it is more than double that. If you multiply that by the number of records that have been stolen, you can quickly see how valuable that data can be. Goingmber of breaches is up and up, isnt it . This is the worst year in memory. Theres a lot of criticism in the u. S. Because of ebay and target. The Financial System in the u. S. Is much weaker than it is in europe, particularly because we use the Swipe Technology that dates back to 1980s cassette players, frankly. What are your thoughts on it . Is the american infrastructure inherently weaker and more vulnerable than europes . I wouldnt say necessarily. I think there are challenges on both sides. The bridge like this, it is not so much about fraud at the pointer still, it is more about the backoffice systems and processes that they have in place. Actually the American Market is more mature in the Financial Sector and security measures that companies are putting in place, particularly banks. In some places more vulnerable than others to cyberattacks . Yes. Theres a lot to be gained from hacking Financial Institutions compared to other sectors. Anyone with something they could lose that would damage to business. Is always a catchup game in a defense against cyber. We are playing catchup and it is difficult. Long way to go a before safety is secured. Thank you very much, alastair. Details are coming up after the break. Lets check on the currency market. The economy in south africa contracted in the first quarter. Or the First Time Since 2009 the longestrunning strike in the nations history cutting out to gdp. Versus the Fourth Quarter when it rose by 3. 8 . Economists were forecasting a contraction up point two percent. The strikers lasted 18 weeks. It is a strike over pay. More than 70,000 workers part of that strike. It is a massive part of the South African economy and accounts for two thirds of export, and is of course the Worlds Largest platinum producer. The dollar up against the rams today. What were at watching for the rest of the day. We are joined by our reporter ryan chilcote. What are you watching today . Im watching the fighting in the east of the country. Says theygovernment have retaken that airport in the east. The ap reporting that 30 rebels have been killed. Im also watching the gas stocks. Both sides have until wednesday to agree to a tentative deal that they reached yesterday whereby the Ukrainian Government would pay russia 2. 5 billion by the end of next week to avert a supply cut. Those battlefronts, if you will, on the gas side, and here on the ground in ukraine, we are paying attention. And escalation of tension on the ground. On the other hand, a bit of rapprochement going on with those gas talks in berlin. Heinz is watching the betwee. What we know now, hans . What were going to look for is whether ge strengthens their bid to the french government for alstom and lets them know that the nuclear unit will stay in france. T meets withl Francois Hollande areas will see what he can offer him in terms of National Security and jobs. We will see if he can learn from that mistake. Arel press reports indicating that today is not the day for a formal bid from siemens. I can change pretty quickly. Thats it, hans. That is it for us. Marie le pen coming in first place. There which really like to keep alstom in domestic hands. Surveillance is up next. Tom will be holding that with his team. We will see you tomorrow, nice and early. Have a good day. An electionne holds and afterwards, the new president attacks separatist positions in each unit in eastern ukraine. Wiser gives up on astrazeneca. America is in a state of change, english and spanish less spoken here. Good morning, everyone, this is bloomberg surveillance. It is tuesday, may 27. Tom keene and joining me is scarlet and adam johnson. The only problem with starting in the tuesday is somehow you feel like that week lasts longer because its a fourday week where work week. Service Company Confidence in the u. K. Rose which indicates continued expansion. Economic data in the u. S. Starting at 8 30 a. M. , global goods orders and then 9 00, the case schiller home price index, and then Richmond Fed Manufacturing at 930. Its a sy