Transcripts For BLOOMBERG The Pulse 20140626

Good morning, folks. You are watching the pulse. Androidcoming up, everywhere. The latest software into all corners of your life. We speak exclusively to the ceo. The watches can sell for more than 100,000. Better keep good time for that kind of money. Shares under pressure this morning, very much taking a hit after the attorney generals decision to begin a lawsuit against the institution. They allege the bank lied to its customers. Jesse westbrook joins us. Before we get into the lawsuit, talk to us about where the focus of this is. This is an Exchange Trading platform that is used to mask intent. It is a little ok. It is a little ok. Paque. DidInstitutional Investors not want to trade on public exchanges and tip the rest of the market off on what they were doing. Affecting their ability to get shares at the best price in the market. They moved to these venues. Thanks market these venues banks market these venues to them. They are captured in places where highfrequency trading firms can prey on them. They are being accused of bilking their customers. To get a peek of the other of their orders, who knows what. Give me a sense of the timeline. One thing investors hate is a lack of clarity on what we will be seeing further down the road. Me as badys strikes won a case comes out and it is not a settled case. Banks like to have a press release announcing a case. Put this behind us, we are glad to put this behind us. We do not admit or deny any wrongdoing. Here it is just an allegation. Investors have no window into how big of a fine they will pay. Ever. Are not good things this was the concern we were worried about with bnp, the access to u. S. Dollar clearing. It looks like it could be one year. How bad is that . Case,they will settle the they must have an idea that it will not affect your business too much. Claritytalking about and having resolved cases, this has dragged on for weeks and weeks. Every day, there is an article in the press about the fine growing bigger. You get the sense that bnp is agreeing to things because they are tired of seeing the name of the bank in the paper every day. You will be back as we learn more on this story. Evere largest acquisition in its it is buying Frank Russell for 2. 7 billion. It will finance half of that in september. Matt campbell is here. Lets start with the basics. A couple of trends at work. There is a geographic one. This is a big fourway into north america for lse. It tried to buy the tmx group in canada a few years ago. This is another way to get into the north American Market where the u. S. Accounts for half of all the assets under management in the world. Getting access to a broader range of these indices means lse can offer more derivatives products. This is diversification and trying to become a bigger player to compete with the big exchanges. Why are they financing it the way they are financing it . I was very interested in the decision to do this. That will hit in september. What we have seen today, shares are up. Normally, when you say youre about to dilute your existing shareholders, your shares go down. The equity markets are in a happy place right now. Investors are feeling good about the world. Aere is support for m financed with equity. Matt campbell is our deals reporter. Mark carney presents the Financial Stability report in just over an hour. Us now with joins what we can expect. We have the Mortgage Market review in place. That is having an impact on borrowing. What more does carney need to do today . Show and tell. Showing the market that the Mortgage Market review, i think what this is, this is referring what has just gone before. Rbs and lloyds to reduce the amount of mortgages. Bigger moles of bills bigger multiples. We are concerned and were trying to not throw the baby out with the bathwater. Confidence. R how do you quell the postcodes of london . Withat end, we caught up Danny Alexander and he said, you are getting a bit carried away. I would say that you do see particular pressures in the Housing Market. That is one part of a much wider u. K. Economy. Prices are well below where they were in 2007. Even by 2018, they will have reached the levels of back then. Risks. Is about reducing it is about making sure we have answered more questions about affordability. Through thiseen process. I had to turn up with a lot of customer. A lot of evidence about my ability. Hat end, it was not hard that is not what is coming through here. What were looking here what we are looking at here they went with some of them in new zealand. The new zealand Housing Market was roaring. We will not lend you any more than 80 . Income this is the most aggressive one if you think about it because your average firsttime buyer in london has four timesell more their salary. Loan to income seems to be where we will go. It will be incremental. Hsbc saideconomist at you might know the map, but you dont know which way makes decisions. Think, mr. Might carney might drive the bus in a different direction. This goes back to the unreliable boyfriend point. You hise going to bring report a little bit later on. It is coming out shortly, 10 30 a. M. U. K. Time. We will have plenty of analysis. Exclusive, we speak with the ceo of a watchmaker whose timepieces can sell for more than 100,000. Theark carney unveils Financial Stability port in just over an hour. We will bring you that live. He is expected to unveil new measures to cool property prices. Lets ask the commercial director. Good morning. We were just talking to manus about these potential tools, the potential caps on lending. Why do you think that is a bad move . The deadline was april 26. There are signs that people previously getting mortgages and now not getting those mortgages. By five percent as well. Is that because they have not trained their staff. Hard to say. Even the minutes were difficult to assess. , there are natural factors slowing the Housing Market as well as the clumsy and limitation. Do you do a preemptive strike . Rates are going to rise sooner than you expected. Confidence is an important thing. Have you and your business noticed a difference. Talk to stage agents, one of them had a sense to bury in the midlands. He said half of the sales fell through in june because of the implementation. What tools will be appropriate . Tothey could cap Loan Interest ratios. Could tighten the stress testing. The less visible than other measures. It would force lenders to look at their affordability test and tighten them. Those that risk should the Interest Rates go up. When you look at some of the enormous sums these properties are going for, often, it is catch cash and foreign buyers. Is the difficulty for mark carney. A lot of the market is cash incentive sectors. A lot of ordinary buyers. They can borrow more money. Is that increases promises. Market, that does control prices. Is aat we need in the u. K. Liquid affordable market that does not generate the booms and busts we have seen in the past year. Suggesting to you that weekend they are starting to use some of the tools. We can reduce some of it. S about sensible longterm planning. The mortgage freeforall that we had in the runup to 2007. It is a good idea to tighten up on things, but we do need to build more houses and having sensible criteria for lending money. He said his chief concern is over debt. 140 is what he last said. That is far above germany and the u. S. Are you concerned about that right now . It is the highest level it has been. We do need to turn things around. You have northern markets standing still and are benefiting from this boost. If we could start to tackle london, it takes a sentiment out of the market. That is a longterm issue. Thank you, miles. It it hasd charter, issued a trading update. Down by midsingle digits. Let me see if i can give you a share price. Likely to be higher than a year ago. That is the impact. It is confident in its strong underlying potential. Up next, you may have fictional tales of the bionic man. We will speak with the man behind the development of the reallife bionic mind. We will bring you videos shot with a wearable camera. We start with this winning video. It was a tasmanian to ride tube ride. This is the origin of the brand. These are amazing pictures. That went on for ages. Watch this wake boarding. Session. Wake boarding you would not want to wipe out on this urban jungle. Finally, watch these two atv riders try to break in new trails in the mountains of peru. That looks very painful. Are you ok . Is the roaming . Right. The bionic man remains largely in the realm of Science Fiction and my childhood. Soon you should be able to get yourself a bionic retina. You will be able to get a new one soon. A number of companies created by rainbow of medical. Elliott gotkine has more. I thought the bionic man was the same one for a fortnight. He is the ceo and cofounder of rayburn medical. You recently closed a 13 million funding ground. It and when we see it hitting the markets . We have developed an incredible miniature implant that restores vision for blinded people. By thewho are blinded breakout of the retina, there are millions and the people millions of people suffering with this condition. Implant. N incredible it can restore vision to blind people. Which should find people when is it available for them . In 2016, we will have the device already tested. 2017, it would be widespread use. You signed a deal with metro. About yourcial device . Injectableoped an wireless neurostimulator and moderator. The hottest area in the medical believe we we have multiple indications, one product. It will be at first for in continents or chronic in continents or chronic pain. From that we can take it too many other him medical conditions. That was the interest that medtronic. We would love to talk longer about this. We wish you the best of luck with these interesting devices. The ceo and cofounder of rainbow medical. Back to you and your bionic man fantasies. These things are going to be happening. Coming up next, the fight heard round the world that is left a bad taste in some sponsors mouse. Ths. Ou we will bring you the latest from the world cup. Welcome back. Youre watching the pulse. I am guy johnson. I am olivia sterns. Here are the Bloomberg Top headlines. Air france is struggling to fix its business. It is set to review options that may include closing regional bases that were created two years ago. The ceo spoke with pimm fox about how he is competing with lowcost carriers. Intend to develop a paneuropean lowcost carrier. Will be able to [indiscernible] you work to earn miles and you enjoy it with your family. We also provide all recovery services. When there is a cancellation and it happens in the airline business, you are not left alone in the middle of the desert with nobody on the phone. Reassuring. The new York Attorney general has sued barclays. Eric schneiderman accuses the british bank of misrepresenting the safety of its anonymous trading platform. Cooperating with the investigation. Mark carney unveils the Financial Stability report in just under an hour. Economists forecast that he will unveil new measures to cool the Housing Market. Carney said that rising mortgage that could threaten britains recovery. We are going to bring you full coverage starting at 10 30. But before that, what is happening in the markets . There is one man to ask. He is of course manus cranny. Thank you for that. Equity markets have had a reprieve. The u. S. Bounced into the close last night. Trying to look through that change in firstquarter gdp this morning. Four Straight Days of declines. Financial services have been led higher by lse going after Frank Russell index. You broke the news earlier. Lets look at it again. This is a bank which is asia focused. Stock down over 2. 4 . They are saying they had a fairly tough first half of the year. And the watching india commodity countries for their exposure. They are also keeping an eye on what is going on in the management. 1220 is where we are at. Babnks are one of the key focuses of the market today. Barclays has this lawsuit coming from the attorney general. What does that mean for their banking license . Could the attorney general look backwards towards their nonprosecution agreement over paribas . Banned from dollar transactions in limited offices like geneva. Lse roaring ahead. Index. With the russell back to you. Thank you very much indeed. Time for todays world cup news. Switzerland is through to the last 16. They put honduras out of the competition. Switzerland will take on argentina for a place in the quarterfinal. 18 is 3 million richer after the president chartered a flight full of cash. This happened about 24 hours ago. They have got the money now. Set for the is black stars appearance fees. They demanded cash delivery because many of them dont have bank accounts. They wanted hard money in their hands. I thought argentina had pretty strict capital control. Anyway, they will respond accordingly depending on the outcome. Investigating the biting incident. I mean, only fair and off. The thing that blows my mind is this there were many people who bet that suarez would bite somebody. U. S. Faces brazil, there is more than Just National pride at stake. There is the bottom line as well. Hans nichols takes a look at the froth and foam of the world cup beer sales. World cup fans are passionate and thirsty. Need to bang assists. They need good summer weather and they need the National Team to go deep into the tournament so that beer gardens like this one stay open late and everyone drinks when germany scores. Sales have been declining since 1976. Back then the average german a pint off 150 brew. They have an economic incentive to root for the home team. Some of germanys biggest may need to work their brewmasters overtime. If germany does well, we have breweries who report they have sold one million liters more beer than on a normal day. Another way to measure beer intake. The berlin waterworks has its own technical analysis. Halftime flushing. When germany plays ghana, water almost tripled during the break. Latenight parties. The game was a draw. Hans joins us now with more. Terrific story. Letting your bravery in yourself be filmed in the bathroom. What are people drinking . Are they drinking glass . Are they drinking schnapps or Something Else . They are drinking more nonalcoholic beer. And have seen sales decline there has been a steady decline since 1976. You are seeing a pickup in nonalcoholic beer. A lot of the big breweries have big nonalcoholic beer programs to promote safe drinking. We keep things relatively clean here. The moste that i enjoy about this is that on a good win for germany, that means another million liters for some breweries. That could mean about a 1 increase for sales if germany goes deep into the tournament. This is what they want. They need germany to go far. Than how important germany performs in the world cup is whether. It is all about the weather. What, i have never ,een the beer story done by what comes in must come out. That is the best angle i have ever seen. That the company see a spike is brilliant. It is so logical. Here is what i want to look for if germany wins tonight and the waterworks puts out this same graphic. We will see whether or not the drinking continues through the night. When we saw the draw, no one celebrated that. We see that it returns to normal. Will we see a spike after the game when people keep drinking . Is water output higher . This is the data we like. We are not going to trade on it. The first one always takes a while but after that the flow seems to come more evenly. I wonder whether the curve is going to be more balanced further down the road. Wonder if you are celebrating that germany won or you are nursing your pain. You are going to celebrate. You set it up perfectly for me. Now we just need the london waterworks numbers so we can see if londoners are drinking in their sorrow. We dont have a counterfactual from london because never really one. I will go off on a limb and guess that they are drinking more in london. The Weather Forecast sunday looked pretty good. What can i tell you . It is going to be a nice weekend. I want to see that chart tomorrow. How long does it take to publish . They put the last one out 24 hours after. We will call them up. That is a real commitment. We are a datadriven company and a chart always works for us. That is what i am talking about. Thank you very much indeed. Ons nichols covering all the angles in berlin. Lets go to todays pulse number. It is 94,000 euros, the price tag of the hmos are perpetual one. We will talk about what is happening with the timepieces. What the story is with digital and what the story is out of china. It is going to be fascinating. Do they keep good time . We will talk about that as well. See you in a moment. Welcome back to the pulse. Google is on a mission to put its Android Software into every corner of your life. At its latest conference, the tech giant unveiled a new version of the software, the latest in smart watches. Jon erlichman was there. You might call this the android attack. Google has had huge success in the smart phone and tablet world through its Android Software, staying relevant and competitive with apple. What we learned through this event is there is a hunger at google to continue to rollout android on different platforms. Whether it is smart watches, android wear for wearable devices, they have key partners like motorola and lg. Whether it is in the car, connected cars with android auto, whether it is television with android tv. Updatedsically an version of the interactive Google Television software. You take all that together and there is this effort at google to bring android to that next veneration of hardware product. There are still questions about how this is going to integrate with other products like google glass. There wasnt a lot of discussion about google glass or how it will integrate with the Wearable Software from android. This is a company that is hungry to continue things like , pie in the sky ideas that turn into revolutionary products, and also keep pushing Android Software around the globe. Back to you. You just heard jon talking about google putting Android Software into smart watches. What does it all mean for the watch industry as a whole . From the top to the bottom. Is wearable tech a threat to traditional watchmakers . Lets ask edward. He is ceo of h. Moser. He joins us now for an exclusive interview. You were telling us, i would wear one of these. I guess it just complements a collection that many of your clients already have. Beyond that, it fills a different need. It tot watch, you use record your pulse, to measure certain things. If i go running, i am not going to wear my moser mechanical watch. It is a different segment. So it is not a threat. Definitely not. We produce 1000 a year. Maybe for entrylevel lot 100 watches a year. Maybe for entrylevel watchmakers. The price tag, 50,000, how do you set your brand apart . We want to differentiate ourselves. We are independent. We produce a very limited number of watches. Only 1000 a year. Quite rare. To differentiate us from many of those big brands, it is all about creating an image. It is about the product. That is what our clients appreciate. The story in china right now, the authorities are clamping down on spending. They are clamping down on corruption, on everything that affects your market. What is going on . Is it going to be sustained . When i talk to my partners in asia, some say six months, some say 24 months. Every time you have new government, that happens. From our perspective, it doesnt have a big impact. People buy our product because they like it. The brands that are impacted our people who buy the product as a gift. We dont buy a moser watch because it says moser on it. It is because it is the most beautiful watch. You said you are not that well known but you are in russia. The brand has a great history in russia. Moser used to fix the watches of the cszars. Russia is interesting because of the history. Russians by our watches everywhere. Again, we produce 1000 a year. We sell pretty much to everybody. It is not about the National Identity of our clients. It is somebody very selfconfident, somebody who want something special. They care about the value and having a beautiful product. Your biggest Growth Market . Europe. Europe . You are selling them in europe or they are staying here . Both. I would say maybe 30 go elsewhere. Germany and switzerland are big markets for us. That is where we are well known. Do you sell them online . We dont. Themuld you ever sell online . Maybe. Would you buy something online that cost this much money . It changes the nature of the retail experience. Is the shopfront just a kind of, go in and try it on . Isthe best experience for us when the customers come to our office. We have amazing watchmakers who stop and explain. One watch, one watchmaker. It doesnt actually show a picture of the watch. It is so rare that you cant even get one to take a photo of. We brought this out here in london. They help us develop a concept that is different. We dont have the budget of the others. We had to do a statement. In a campaign it sends the message, the scarcity factor. Who do you compete with . Am i making a decision between one watch and another watch or am i making a decision about wanting one of your watches or a new ferrari . Buys the watch is usually somebody who is looking for a great watch. It is a question about, what am i really looking for . Where do you see the competition . [indiscernible] those kind of products. Fine mechanics, hand finishing. You are making 1000 now. Tell us about the growth plans. , based on our Business Plan Business Plans can always change but i think next year is about 1300 watches will be profitable. My goal is to reach around 3000. We want to keep it rare. We want this to be special. Big brands are about marketing. We want true value. I want to have one watchmaker for every single watch. The luxury industry is at the moment driven by aggregation. Hooveringe lvmh are up sucking in small brands. What is your view of that . Ability to spend money on marketing . They have great channels, great experience. Is there an advantage in that . Think in every problem there is an opportunity. By them being very big, they put pressure on others. Retailersstomers and tend to realize that. They are looking for a true partner. We are familybased and most of our partners are also families. They want to work with us on a longterm basis. That is a great opportunity for us because we grow together. I think consumers start to realize that brands spend more money on marketing than sometimes developing products. Do you want to pay for the campaign you see everywhere or for the product that you see on your wrist . , think when you buy a moser you have value there. Customers start to understand that. Nice to see you. Thanks for standing by. The ceo of h. Moser. Coming up, we are going to talk about housing and putting the brakes on britains Housing Market. What does mark carney have in his arsenal . We will tell you that next. Welcome back. You are watching the pulse. Despite staggering developments in the field of renewables, the market for Efficient Energy storage is critical. Very much underdeveloped. Lets talk about why this is and what happens next. Have lots of money spent on route noble energy which tends to be quite on Renewable Energy which tends to be not connected in the most efficient way. You need Energy Storage to take advantage of that. As we see Renewable Energy penetration, the great is becoming more decentralized, harder to manage. Here is where Energy Storage can be good. In terms of what we are looking at at the moment, it seems that batteries remain the mode of choice in terms of storage. Are there problems with that . Is there a capacity problem or are we comfortable . Moment, in the stationary Energy Storage market, batteries are being made by large manufacturers. They really dominate the space. 1. 2 billion has been invested in other technologies. Moment, they are remarkably small but it is growing. What are we expecting this to look like 10 years down the road . You talked about the fact that the grid is becoming more decentralized. Is that becoming a logarithmic story . Is that going to expand or can we get an idea of the fact that the grade is going to remain as it is at the moment but we are going to be bolting on auxiliary bits . At the moment, the stationary market is around 1. 2 gigawatts. We expect that to grow to 11. 3 gigawatts by 2020. Under tenfold but significant. There are two major stories. One is on the utility scale. Larger assets with grid management. ,he other is the endusers typical consumers in their homes. Amazing. Thanks for coming to see us. Olivia, over to you. For those of us listening on bloomberg radio, the first word is up next area up next. For our viewers, a second hour of the pulse is coming. We are talking about the bank of england stability report. Stay tuned. Mark carneys housecall. Protecting britains recovery. We will bring in his News Conference and his thoughts live this hour. The new York Attorney general sues barclays for lying to its investors. Good morning to our viewers in europe, good evening to those in asia, a very warm welcome to those waking up in the united states. This is the pulse live from london. Presentcarney is set to the bank of england Financial Stability report in half an hours time. Manus cranny joins us now with what we can expect. The hint is in the title stability. I, asity for you and buyers of mortgages. This challenge is that the Housing Market has been roaring, but if you look behind the numbers fourth consecutive decline in mortgage approvals. The people who need money to buy houses, it is beginning to slow down. What he has no ability to control our altra hi, ultrarich people coming in with cash. To invest. Ng in Mortgage Market review has come and been. We have had that. Mortgage approvals are dipping. Prices are on the up, but the objective here for mark carney in terms of stability is to make sure that these prices drop or come off, that there is no material risk for the lenders, no Systemic Risk to the lenders. We have got a good thing, and improvement in the economy, but make sure you do not throw it out. We have been hearing a lot about these lending caps, these macro prudential tools. What do you think they might announce to curb indebtedness . We have already had the Mortgage Market review, getting the lenders to put a cap on what they are doing, making affordability actually questioning your ability to withstand mortgage rates. I used to pay a mortgage at a run 6 . Around 10 . Ges at do you have the ability to pay when rates rise toward normality . At on your extra premium. Add on your extra premium. The bank will only lend you 3. 5 times that one pound, that is the cap, that is the level. Back to you. Thank you very much indeed. 26 minutes to go before the report and the pound is on the move. The pound is on the move over the last few minutes. That is the spike you can see. We will bring you governor carneys News Conference when it happens. Barclays shares are taking a hit. The new York Attorney general has begun a lawsuit saying that the bank has lied to customers. Obviously, dark pools of been around for a while. I only heard about them thanks to Michael Lewis book flash boys. What are the start. What are these dark pools . It is the purpose of giving Institutional Investors a place where they can hide their orders in a way, so that they are not tipping the market off to big block trades to move shares. They like that because they do not want to be front run by other investors. They do not want to have price moves that affects their ability to move their entire order in a way that is unfavorable to them. The allegation is when you move it off exchanges, you dont know who is on there, who is utilizing your orders to their own benefit in potentially ways that are hurting you as an institutional investor. Clearly the ada in new york wants to get involved the ad in new york wants to get involved. Do we have an understanding of his motivations . How far this could go . How deep he is going to go and how big the fines could be . Suisse actually put on an estimate for barclays potential liability from highfrequency trading investigations at the beginning of the month before the schneiderman sued. At 163 million. That seems low to me. Variables. Lot of schneiderman has alleged a lot of wrongdoing. We dont know how much clients were hurt and to what dollar figure they were hurt. It could be that the amount of money involved you wouldnt execute them off exchange. I have nothing to base it on, but the number seems low to me. Bnp is set to face a potential oneyear ban. A oneyear ban on u. S. Dollar clearing. They had been restored resistant to a ban on dollar clearing. The new york regulators have made that a sticking point. Bnp justthe sense that wants to go this away. This is drawnout. 9 billion. Theyre probably feeling more comfortable about taking a ban of one year than they were two youths ago weeks ago. Thank you. Lets move on. Announced. Xchanged it is up. Here with more is matt campbell. Why do they want Frank Russell . There are two elements you have to Pay Attention to. Geographic diversification. Frank russell is a big player in the united states. Has beeneen lse trying to crack north america for some time. This is the new plan. It is all about derivatives at auction. If you own more of these indexes, you can be the provider of more of these options and derivatives and more etfs. They are an increasingly popular tool for retail investors. That is the broad russia now we are seeing. What is interesting is how this is being financed. Speaking of that, it is interesting. Borrowing is cheap. What do you think about the fact that they decided to do a rights issue . There is a lot of support in the equity markets for m a right now. In an environment where confidence is lacking or investors are feeling skittish about Companies Making big moves , you see the opposite. But time after time after time in the last few weeks, a deal is announced or leaked and the acquirers shares rise. Says, we can go to our shareholders and ask for more money, so why not . Credit is cheap. Most of the deals have been credit financed. What is the outlook for the rest of the year . Is this a trend . Are we going to see more equity being used . We havent actually seen much of this. Debt is cheap. It remains cheap. You do have to remember that Interest Rates are going to go up at some point. There is a window that has been open for a while. Anyone who wants to borrow money in large amounts is able to do so. As that window begins to draw to a close or moves toward being closed over the next six months, you may see more of these equity backed deals, especially if the markets remain as buoyant as they have been. Matt campbell, our deals reporter. Here is what is also on our radar. Willsays the crude exports accelerate next month. Is still notsouth being affected by the violence in the north. Oil exports from iraq will be close to a record high next month. Air france has expected a shortfall business. Optionsw set to review that may include closing some of the regional bases. That were open only a couple of years ago. Theyre competing with local carriers. We intend to develop a lowcost carrier. It would be a quality lowcost. We also provide all of our recovery services. It happens in the airline business. So you are not left alone in the middle of the desert with no one to contact. Standard charter is the biggest loser on the stock this morning. The bank says it expects its firsthalf profit to drop by about 20 as bad loans increas. D still ahead, the housing threat. What measures can mark carney unveil . Guest say hisxt Mansion House . Good morning. Welcome back. Lets take a look at the pound. That people are frontrunning this a little bit, trying to get their trades in. 1. 70 aspects or pushing us back through 1. 70. I dont know how you play this one. It is a chicken and egg scenario that you are running on this. People are moving it up. It is a bad day for british banks, as well. For more on the bank of england stability report, we are expecting that press conference to begin in 15 minutes, lets uthng in rudely r ith rith lee. I think it is very interesting. It was only set up last year. Been sot that there has much ramping up ahead of this particular report, that they have to do something. The could be talking about affordability criteria, the stress test, more Capital Requirements for mortgages, tighten up on the lenders, or they could start recommending caps on the low income ratio. You could talk about all of those things. When you talk about low to income or low to value, these are only recommendations. They dont yet have statutory power. They have to push the legislation through. The bank is hungry to try and they may the may perceive as a boom in the Housing Market. What is the lag in metro macro prudential policies . We dont know. We are almost in uncharted territories. If thereerribly sure is such a terrible housing boom. So excitedyve got about this, they were bound to do something. Prices are moving fast in london. They are up 19 . Notnd the country, that is the case. If we are talking about macro prudential policies, they are just targeting the highvalue mortgages. Those are probably the ones that affect capital the most. You asked about lag. I think we are into unknown territory here. Whats be honest about economics lets be honest about economics. You pull the trigger, you dont know what is going to happen. Economists like to pretend they know what is going to happen. The central bankers like to pretend. Everybody likes to. You said you are not so sure the market is actually in a bubble right now. Youabout the healthy do think the Housing Market is . Approvals are still way below. Approvals are slowing down a bit. The bank of england figures that april we are down. Was a suggestion that approvals may be even lower in the next quarter and the last quarter. It does seem to me that a lot of the restrictions that have been theght into the market, market review for, they suspect this is already beginning to put the brakes on the market. What are the politics of this . The politics . I think both are extremely interesting. King said, i dont want to be in charge of the Housing Market. If these decisions are going to be made, let the politicians make them. But mr. Carney seems more than happy to accumulate all sorts of power. The bank of england has never had these powers before. King created some of this opportunity. He was an aggregator of power. He was. Particularly what you saw when he first came in. Meantime, they are coming up with more and more controls of the banks. They certainly are tightening up on the banks bigtime. The other thing is what is going to happen to Interest Rates . Ratest is the interest connection . Carney has said that when it comes to Interest Rates and macro prudential policy, the really important one is Monetary Policy. Macro credentials policy is a service. Macro prudential policy is a service. Deal there specifically to with the Housing Market. Heavy lifting of controlling the economy is to be done for Monetary Policy. That is still the last line of defense for dealing with housing. I think it is most important by a mile. Mark carney has been switching like an unreliable boyfriend. I thought that was so funny. Everybody loved that. It seems to me that Monetary Policy is aimed at the gap and aimed at what is happening in the Housing Market. His mark carney more concerned about the gap then he is about the Housing Market . He certainly wants to use up more slack, he has said that many times. Market, he did say it was the biggest problem. Ruth, nice to see you. Thank you so much. Ruth lea, joining us. We have nine minutes to go. We will bring you the report in full. That is a live shot coming from the room. You know it well. A different roster of people on the desk, but the man in the middle, mark carney, will remain the same. Welcome back to the pulse. This time for todays energy. Climate change poses its greatest threat. Rubin says the world means to act now to combat global warming. The greatest threat to life on earth as we know it it could be a catastrophic threat is climate change. I personally think the risk is vastly greater than anybody has said. You have a vicious cycle of a kind that can create hugely consequential effects that could be and are likely to be catastrophic for life on earth as we know it. I think there is almost no internalized sense of that anywhere in our system. That was robert rubin, the former u. S. Treasury secretary speaking at the Clinton Global Initiative in new york. Lets turn our initiative back to barclays and the bank of england. Lets stop barclays first talk barclays first. The big loser this morning. We just simply dont know. Markets dont like not knowing. They dont. I want to give you a number. Over the past 10 years, 40 of u. S. Equities have been traded. That is a heck of a number. Value. If you think that barclays progressed to number two bank in terms of market share, there are values and arpels. In dark pools. There is validity and merit. You have financial liability. It is a lawsuit, nothing was proven, nobody has proven anything thus far. It is important that we say that. The integrity of markets is critically important. Barclays will defend themselves on this quite vigorously. You have traded in this. Yes. They do afford you that opportunity to scale into the position without the market knowing what you are doing. Institutione a big and you have to move a lot of volume, you dont want to be from run, so you go to the dark pools. In,pools that you swim traded and, did you know they were being exposed to High Frequency traders . Were they being . My word is my bond. , it is a major distraction this investigation into barclays. The bank of england presents its Financial Stability report in a few minutes. We will bring you that life. Welcome back to the pulse. Live from london. Im olivia sterns. Im guy johnson. That is the press conference for the fpc. That is the governor of the bank of england and the boss of the fpc, dr. Carney. Are we getting headlines . England is no focused on turning that recovery into a durable expansion. , our tools do so must be used in concert. The legacy of high indebtedness means that there are Financial Stability risks that if left unchecked could undermine the durability of that expansion. The biggest risks relate to the Housing Market. Furtheris taking graduated and proportionate actions to mitigate these risks. Can allowo, the fpc the npc to focus on its primary objective of achieving price stability. It is not the fpcs role to control house prizes nor can it stress underlying related to homes. Risks tois to manage Financial Stability, including the buildup of unsustainable levels of leverage, debt, or credit growth. The prospects for Household Indebtedness concern us. Although u. K. Households have made prospects progress in repairing their Balance Sheets, they start from a vulnerable position. To share of mortgage lending high loan to income ratios has increased markedly over the past years to a record high. Given the momentum in the Housing Market and the underlying shortage of housing supply, it is likely that this trend will continue. The fpc does not believe that Household Indebtedness poses an imminent threats to stability. However, as we have seen time and again how quickly responsible can turn to reckless, creating risks that ultimately derail the uks economy. The fpc is concerned that a marked loosening in underwriting standards and an associated significant increase in the number of highly indebted households could pose major risks in the future, so we are taking action today to prevent this from happening tomorrow. The direct risk rises because mortgage lending is the single largest asset class held by u. K. Banks and building societies. This risk is mitigated by the progress to strengthen the Balance Sheets to ensure that banks are sufficiently resilient to withstand a severe housing shock the fpc and the pra are conducting major stress test and will recommend further capital actions that might be necessary later this year. The indirect risk to financial and economic stability arises because mortgages are the single largest liability of u. K. Households representing 80 of household that. Debt. The british people do everything they can to pay their mortgages. But that means cutting back expenditures when the unexpected happens, potentially slowing the economy sharply. That is why recessions that follow periods of rapid credit growth, like the record recession but the uks just emerging from, those recessions tend to be deeper and longer lasting. It is prudent to ensure against those risks. The fpc is making recommendations to limit the risk of Financial Stability in the economy from the number of highly indebted households. We are introducing a new affordability test. Mortgage lenders should assess whether borrowers can still afford mortgages if the bankrate were to be three Percentage Points higher than at the point of origination of the one. Second, we are introducing a cap. No more than 15 of any lenders total number of new Residential Mortgages should be at or greater than 4. 5 the times a borrowers income. These actions should not constrain current Housing Market activity. The recommendation on the affordability test is in line of Current Practice of prudent lenders. The current chair of new mortgage lending with loan to income ratios of 4. 5 times is around 10 . These actions will have a minimal impact in the future if, that is an important if, if the Housing Market evolves in line with the banks central view. Specifically, the npcs later included art moderation in house Price Inflation over the next year or so. The share of new mortgages at high loan income ratios is expected to increase to around 15 to the level of the cap within the next year. The 15 cap could quickly become growant if house prices more than we expect, if incomes grow less rapidly than we expect , or if underwriting standards slip. The fpc should not present households who can afford a mortgage from attaining should not impose limits on the availability of lending to support the expansion. The measures are proportionate. They do not prohibit all high loan to income mortgage lending. In some cases, such as for firsttime buyers, these mortgages can be appropriate. Currently around 5 of all new mortgages are to firsttime buyers who borrow at more than 4. 5 times their income. Such lending can continue and even increase under the measures that were announced today. To extend those loans is for the lenders themselves. Bite ifse actions will there is sustained momentum in the Housing Market over the coming years and that is accompanied by further sharp increases in high loan to Income Lending. It will prevent lending from getting too far ahead of Income Growth and they will prevent a slide into riskier lending and higher indebtedness that could undermine the economic expansion over the mediumterm. Earlybecause it is acting that the fpc can take graduated and proportionate steps to reduce the risk of more drastic actions that might be required later on. We also recognize that while these tools have proven effective in other countries, they are still relatively novel in the united kingdom. I acting, assessing, and recalibrating, we can strike the right balance to support durable growth. Todays actions demonstrate nation between authorities. The pra and the fca to oversee the implementation. The pra will implement new rules as soon as practicable. In the interim, they will expect firms to act in accordance. This means these measures are effective from today. The fpc welcomes the announcement that no new loans income can 4. 5 times be included in the help to buy mortgage guarantee scheme. On the final point of coordination, let me conclude by briefly explaining how would courtney our monetary and macro coordinate our monetary and macro prudential tools. Prudential tools allow Monetary Policy to focus on its primary responsibility of price stability. Monetary policy does not need to be diverted to address a sector specific risk in the Housing Market. Npc has indicated, Monetary Policy is the last line of defense against risk to Financial Stability. Actions of the fpc can, in principle, affect the path of Monetary Policy that is necessary to achieve price stability. But whether or not those actions of the fpc do have that effect depend on the calibration. That calibration depends on the nature of the risk that they are designed to address. In that regard, there are two broad classes. When the fpc judges there to be a clear and present danger, we will take actions that immediately curtail credit expansion. Because such actions will affect the level of Economic Activity and the outlook for inflation, Monetary Policy can be expected to follow a different path. Belong recommendations to a second class of macro prudential actions. Measures to ensure against tail the probability of future financial instability. These actions dont affect the central outlook for the economy. In fact, they make it more likely to happen. They are less likely to have implications for the path of Monetary Policy which currently anticipates limited and gradual rate rises over the forecast rise in. Horizon. The impactl assess of todays actions when it next meets on the ninth and 10th of july. Regardless of the type of action, there is a need for the npc, the fpc, and the pra to work closely together. In the runup to todays announcements, they have done so by sharing announcements, holding a series of joint discussions to assess the Housing Market, and the interaction of their responsibilities. We will continue that approach in the future because we recognize that it is only by using our policy tools in concert that we can best contribute to the durability of the economic expansion. With that, we will be happy to take your questions. Thank you. I would be very grateful if you could identify yourself before you ask a question. In the interest of letting as many people ask a question, please give it to one question and then pass back the microphone. Governor, many people waiting for this announcement would have been very worried about the impact on their ability to buy a house. As i understand it, the measures you have announced today will not have any impact at all at the moment . Status quo . They will have an impact on the durability of the expansion. They make the likelihood of the durability much greater. Lets go to the individual. Went into a, you bank or Building Society and you are approved for a mortgage. You would be approved for the mortgage again today under these terms. There is room under the cap for institutions to continue to land at high load to income mortgages and the most prudent institutions were testing affordability using an assumption of bank rates 3 higher than origination. What these mean is that the shift from that responsible lending that we are seeing today , a potential shift of that into record less reckless, widespread, high loan to value, riskier lending tomorrow, a shift that we have seen in this country countless times in past thatcycles, then cant happen because there is a cap on the amount of high load to income alone to income mortgages they can be extended. We have adjusted the interest rate, the recommended Interest Rates that they use for those affordability tests. And because we are conducting stress tests of those lenders to ensure that they have adequate capital to guard against a severe housing shock. What that means for the individual who is buying a house today, if they could have got the mortgage yesterday, they can get it today. But they can also more confidence in the durability of the expansion because we are acting today in a proportion in an fashion to reduce risk in the future. About what the impact of these measures will be on the loan and Property Market . Given the incredible increase in london property, what this basically completely shut out all but the most wealthy buyers from the london market . If you look at a couple things on london property, maybe with i will talk about london and southeast. Thirds of the ish loan to Income Lending in london and the southeast. There is room for some additional lending. But there is this cap that comes into place. Under reasonable scenarios, Reasonable Risk scenarios, it can become effective within a year. That would limit the amount of high loan to Income Lending that can take place across the country. And by extension, in london. To make a broader point outside, if i may, you can look at this cap is a cap on lending but you can also look at it as an encouragement on lending at lower rates. For everyone loan above 4. 5 times, the lender has to extend than 4. 5 timesss to keep the ratios in line. But for the dynamics of the london Property Market, there is room, but there is not infinite room because there is risk with extending very high loan to income ratios to a very broad set of borrowers. The market will have to adjust to that. Last point if i may, on cash purchasers. The most recent data has moved a bit. The volume transactions on cash purchasers is about 3 , the value was about 8 in london. It is important. Postal codes should be kept in perspective. Governor, there has been some concern recently and you addressed it at your treasury hearing about miscommunication or misinterpretation of what the banks message is on Interest Rates. Are you concerned that with the message you are giving today on Financial Stability, that you are saying that the Housing Market is the biggest risk to the economy and yet in terms of these actions, they are not going to make a difference when it comes to mortgage lending right now . Are you concerned that people will look at this and say, it is all talk from the bank of england and no action . No. This is action and this is the right type of action. This is acting early. Because we are acting early, we dont have to reverse mistakes that have been made. We are acting to prevent those from happening. We are taking out insurance to say at a different way, we are putting in place a tire ake on high loan to Income Lending, riskier lending. The reason were not shutting it off entirely is because some of it is appropriate. I used the example of firsttime buyers. 54 of firsttime buyer mortgages are at this 4. 5 times or above level. It makes sense. Future earning prospects of firsttime buyers are greater and they grow into their mortgage. That is a judgment the institution has to make. We are not shutting it off entirely, but what we are putting in place today is preventing a slide in underwriting standards that extends this more broadly across the market, across a broader range of borrowers. Fed in the past by expectations the future house price increases will protect everybody from the risks of the loans. In acting today, we can do it in a manner that does not reverse not slow thedoes economy. It allows prudent lending. , banks anderwriters building societies, not just on inice, but puts a tire brake place to prevent the activity that is in none of our interest. It is not an interest of anybody in this economy because it ultimately leads to an expansion that is ephemeral, that is followed by a sharp contraction. I will make it last point. We have to recognize, whether in calibrating Monetary Policy or calibrating Financial Stability policy, that we are still starting from quite a vulnerable position in this economy. To disposable income. That is one factor which influences limiting a gradual path of Interest Rates to achieve the inflation target. That is one factor, there are others. This is also an implication why the sbc look said indebtedness in the u. K. , sees it as the biggest risk, centered on the Housing Market. That is 80 plus of Household Indebtedness and will be for the future. Your forecast show 20 rise in house prices over the next few years. You say that that is perfectly acceptable and you are tolerating it. Doesnt that send a message to the country that youre perfectly happy with the debt fueled housing boom and how does that square with the rebalancing away from consumption that is needed to balance and economy . Several things about the forecast. Just so we are on the same page in terms of the house price forecast, what we see based on werent indicators is that expect momentum in the Housing Market to continue for the next year or so. Then our expectation, the expectation of the mpc come on which the fpc relies, is that that rate of growth will slow to something consistent with income. That is an expectation. That is not a certainty. But putting in place this cap, ensure,e, we help to ,hat if we are wrong about that if price growth is faster or ,ncome growth is not as rapid that the slide into riskier lending is limited. That is the first two points around it. The third point i would make in terms of the increase in indebtedness, you have to recognize that as the Housing Stock turns over, as older households downsize, sell their householdsnger purchase them, there is a natural increase in debt for a given level of house prices. The people who lived in them for 25 years bought them at a different level than the people who are buying them now. That drives up debt. The last point i will make. You rightly use the word tolerate. I would not use the word happy. This is the limits of our tolerance. That is why there is a cap in place. If we needluate and to recalibrate, we will. You are saying 15 of income, was. 5 times tolerable. The treasury is saying no more help to buy mortgages at 4. 5 times income in its help to buy scheme. As you are well aware, in the , in effect,scheme all of those mortgages are also high loantovalue mortgages, as well as being high loan to income mortgages. That is not the case for the broader set of mortgages. There is double risk there, if you will. The chancellors announcement fulfills his pledge made at Mansion House and we welcome it. Just wanted to ask, given your move on loan to income ios and acting up 4. 5 , why is he wrong for saying 3. 5 . There are a couple of things. We have looked closely at historic performance of not just loan to income, bital timidly getting to what determines one of the big determinants of whether or not a mortgage performs over time which is the debt service ratio. The total amount of debt service that i household has to pay relative to their disposable income. At different times, at different ,oints in the rate cycle different loan to income ratios correspond to different Debt Service Ratios. In the u. K. And canada and northern europe, a variety of thatdictions, we have seen Debt Service Ratios of around 35 or 40 and you get to those levels when there is a shock, there tends to be a jump up and nonsupported mortgages. With the average mortgage in the u. K. Today moving out towards about 2730 years, with the expected path of Interest Rates, including that stressed 3 incomet rate, a loan to ratio of about 4. 75 corresponds to that 35 . Theestricting down into total proportion of loans and letting the bank select the creditworthy borrowers, their judgments have to be made were consistent with prudent lending practices. The 3. 5 time level wouldve been more consistent the period of much higher Interest Rates and shorter amortization. You said you have the tolerance of your limits on advanced mortgage lending. But youre clearly not at the tolerance of your limit. Why are you so relatively tolerant than firsttime buyers . A very important question. Let me start. I will ask Andrew Bailey to supplement because this goes to parlay the different nature of the by to lend market. It is a different underwriting cycle than the individual. It also goes to another tool that we are deploying, which is the stress test. We are looking at the buy let market and the risks they are taking through the stress test. If you will indulge us for a second, i might ask to say andrew to say a word about the buy to let. In the context of other measures that have been taking, are the measures we are taking today. The mmr comes into play. Which the fpct and the pra are overseeing. Andrew . I think the first thing i would say just to reinforce the lett is that the buy to mortgages the rental market. The income dynamics is therefore different. That is the first point. If youre thinking about it, it is natural to not think about it is just a number. Andrew bailey speaking at the press conference led by the bank of england governor report. Putting some caps on the ratio of lending to income. 4. 5 . For our viewers, surveillance is up next. It is quiet out there the wall street summer of discontent. Asereo goes down in flames. Scarlett has a dentist appointment. What is your excuse . Good morning, everyone. We are live from our World Headquarters in new york and this is open to bloomberg surveillance. Scarlet fu and adam johnson are joining me so lets go to the morning brief. We are preparing for the big game. I did not think i was into it but i am totally into it. Bank of England Governor Mark carney is speaking right now talking about stability within the u. K. Financial system. It has moved the sterling . Yes, a stronger sterling. There he is again speaking to u. K. Lawmakers about stability as well as housing in the u. K. In the u. S. , we got several Economic Indicators coming out at 8 30 a. M. , initial jobless claims, personal income