Discount. Wall street is facing bank stress tests. Lenders including citigroup failed to pass the scrutiny. I am joined by Erik Schatzker for more on the results. The highlights were citigroup, unexpected. What went wrong for them . We can only tell you what the fed told us they scrutinized citigroups balance sheet, and the methods in which they conducted their own stress tests. The fed found qualitative in the way, for example, citigroup anticipated losses and projected revenue across its business. Citigroup operates in 100 companies. Countries. It is complicated. Michael corbat was brought in to straighten the ship after the vikram handed era vikram handed area. Still had a lot of capital, but the fed is not allowing citigroup to return more of it to shareholders aboute they have concerns the way citigroup is not so much managing its business, but its capital. And perhaps its risk what that means Going Forward . No question. Subject toapital is the ability to make or lose money in those countries, and the fed says we are not satisfied that you know those operations, or you can forecast the extent of potential losses in those countries that we feel comfortable enough to give you the green light to give capital back to shareholders. Centroup only pays a one per dividend. What does Michael Corbat do now . Citigroup failed the test in 2012, a black eye for vikram pandit. Says we arerbat deeply disappointed by the decision, it will work closely with the fed to better understand the concerns. That tells you citigroup was blindsided by the decision ane and that is in enormous problem. They should know better. Are we back to the old citigroup were they do not have a Good Relationship with regulators, theyre not as quick to change, back to the old school . Not so much back to the old school, but we need to be reminded of the fact that citigroup has had such a long way to go to put itself back together after the chuck prince, eras, as it is not enough to say i want the bank better run, or it will be more efficient and we are careful about expenses and raise our return on equity and efficiency ratio. It is not enough. The fed is saying citigroup, if you want to do what shareholders demand of the bank, get back excess capital, you had better understand the nature of your business across the world, and your ability, more important, to recognize the risks you face in those multiple jurisdictions. We have to consider the 400 citigroup uncovered to realize this is a big, sprawling operation, and it is difficult for Michael Corbat to get a handle on all of it in 15 months. While i have you here, we have news on Ally Financial and its ipo journey. The singleancial is biggest hangover from the financial crisis on the books of the federal government. They own 35 of what was once known as gmac. It is now an auto lender and one line online bank. It trades privately. Private investors owned 63 . The government has 37 . In order to get out of the shadow of tarp, they will take Ally Financial public, selling shares at a price they hope is between 25 and 28, which would leave the government with 17 that they can sell on the secondary market. It is not like the government has not already sold off chunks of ally. It is ultimately so that the u. S. Taxpayer does not own a single share. Erik schatzker, thank you for the bank breakdown. Anchor erikrs schatzker. Hour, and shaking this billionaire investor warren buffett. Is that on Financial Firms could 123 company 100 million more each year after thes like wells fargo pass stress tests. Financial firms make up the largest allocation of Equity Investments at berkshire hathaway. He welcomes payouts from the companies he invests in. President obama has been using his european trip to display unity with european allies, imposing sanctions after action in the ukraine. Me. Mattingly joins has there been a single overarching goal for the president when it comes to russia during this european trip, and has he achieved it . It. Ou said it sounds simplistic, but he is looking for unity on two fronts. First, the sanctions. No shortage of officials are on the sect oral sanctions. The other is on nato. The u. S. Has argued europe has not carried its weight on the financial side of nato. The proposed investment is 2 of gdp for defense. Only three allies have done that, something the president hit on yesterday during one of his speeches. Going forward, every nato carry its step up and share of the burden by showing the will to invest in our collective defense and developing the capabilities to serve as a source of International Peace and security. It is important to point out the u. S. Put about 4. 1 gdp into defense spending, compared to the folks that are not reaching 2 . It is a concern. What is president obamas relationship like with europe . There has been the nsa surveillance scandal, leaders are not happy about that. Did he has not paid enough attention . To your point about paying attention, the u. S. Foreignpolicy has been heavily focused on the middle east, then the arab spring. They are trying to impose a china or asia pivot, leaving european nations to wonder if the u. S. Actually cares about them. U. S. Officials are always clear that they are the number one look at the you numbers, since 1989, the fall of the soviet union two years later, u. S. Troop peasants in europe is down more than 80 , so europen presents in is down more than 80 , so european leaders are leery. How is the loan package going for the ukraine . From the u. S. Side of things, it looks we have a path forward. The imf announced a twoyear loan deal. The u. S. Had a breakthrough yesterday. There was some haggling between democrats and republicans over how the package would look. Senate democrats have agreed to accept what House Republicans were working with. What that means is the senate will vote to approve a 1 billion Loan Guarantee for the country and 150 million in direct aid. The how should pass that quickly, so we are moving forward on the imf front. You, phil mattingly. We will stay in washington. Lawmakers are calling on the president to release information on the movement of Russian Troops along the ukraine border. One republican punishment has sent a letter directly to defense secretary chuck hagel, and he joins me now. Mike turner of ohio serves as chairman of the u. S. Delegation to nato. He also sits on the House Armed Services oversight and government reform committees. Thank you for joining me. What is your biggest fear right now . Russiaggest fear is as is continuing operations that could put ukraine and our allies at risk, we have radio silence coming out of the administration and the pentagon during if you think about the unit pentagon. If you think about the u. S. Going to war, the pentagon and the administrations have been detailed in what assets we have, what troop movements are occurring as we prepare. Here, obviously, we know what russia is doing. What we do not see is the generals, the department of defense quickly explain to our allies what russia is doing right now, and this puts us at a critical this event page. Disadvantage. Would you favor a military action . We need to at least tell them what is going on. If you think of your news channels right now, you do not have the pentagon explaining where are Russian Troops, what aggressive actions they might be taking. We have a wait and see. As we discuss sanctions, russia is taking actions that the allies need to know about and the American Public needs to know about and the International Community needs to know about. Congressman, i wonder what difference the u. S. Response would be if we had concrete information. Allowinge are doing is russia to build the momentum of surprise. Youre not having an International Debate about what russia is doing today in its own troop movements. We are discussing what they did last week, the week before, what they might do, not what they are doing right now. In todays technology, even google earth could tell you what is happening. The pentagon, the administration is radio silent as to what the emerging threat is. So, we are looking for the sense of urgency. You also introduced legislation to expedite natural gas exports to nato countries as well as japan. Energyrt can u. S. Playing in determining russian involvement . Role. Could play a huge the russian economy is largely an export economy based on energy resources. Pricehas volatility, the affects the russian economy directly. When the United States became a better producer, we began to import less. If we export more, we impact the price and give greater independence to areas where russia has almost a virtual monopoly. We have seven tournaments and terminals in the u. S. We have seen president obama at the vatican. Would you think the president and the pope might be able to teach each other today . Thatis certainly is a pope has reached out and look for a broader message. As the president goes to europe and tries to reengage his foreignpolicy and look to the abandonment of a false narrative of russia as a partner and now an adversary, he is the ability to show that the net state cares about europe the united seess cares about europe, russia as a threat, and we need to say stay unified. Mike turner of ohio, thank you. Theident Obama Meeting with pope in vatican city. They are both grappling with repairing their organizations, looking to bring big change here at what lessons change. What lessons can they teach each other . I want to know what you think. Steel. N tweet me ad aruba aims to be the first nation relying on wind, solar energy. I will talk to the Prime Minister to see how he is doing it. Plus, taco bell introduces the waffle tocco. I will sample it later. The crew is already dreaming of it. That is ahead on in the loop. [laughter] welcome back. We will turn our focus to housing. The latest monthly report shows Residential Real Estate prices climbed in january at the slowest pace since august, indicating momentum in the Housing Market might the cooling. We are joined by the chairman, president and ceo of the largest homebuilder in new jersey and the sixth largest in the u. S. Drake have you here. If you had one word to categorize great to have you here. If you had one word to address the Housing Market, what would it be . One word would be recovery. Even though home prices have been weak for a while and are flatlining . Yearoveryear. A somewhat choppy recovery is not unprecedented. If you go back to 1981, 1982, we had similar recoveries that hit a few bumps, choppiness, especially in this case with terrible weather and then continued on to a great recovery. What are the most stable areas growing quickly . The most exciting, solid growth is in texas. Oil prices help. You mean the oil boom, a lot of workers, sort of what we saw 30 th dakota absolutely, but on a larger scale. Dakota, we of north have seen Luxury Developers go develop boom states to lower end housing for the workers. Are you considering anything along these lines . We do a little housing in the ohio, West Virginia area that benefits from the fracking activity, but generally we are focused on 19 markets. You have a small presence in california. What are your plans . We operate in both Southern California and northern california, and we are about to community inome palm springs. I am very bullish on northern and Southern California. What keeps you up at night what are the concerns that you do have . Homebuilders always have concerns. We are in a cyclical business, but the good news is we have passed the bottom of the cycle, were on the way up. Housing demographics are better than they have ever been. But we have week wages weak week wages. Mortgageg prices and rates are at historic lows. Combined, there is something called an affordability index. Housing has not been this affordable for decades. Prices have gone up, wages are a little low, but when you put the factors together, it is more affordable in terms of Monthly Payments than it ever has been. Is there a breaking point for rates . I think it is psychological. I started in the 1970s. In 1981, Mortgage Rates hit 18 . That is crazy. We buildy crazy, but more housing than than we did last year. Everything is relative. As long as it is not so fast that it shocks people, everything is fine. Stick with me. Thank you for being here, ara hovnanian. Stay with us through the brick. A senior competition from walmart, gamestop is ready to release earnings. They came to office with signals of hope and change what could president obama learn from pope francis, or the other way around. Steel. Me at ad first. Bloomberg. You are watching in the loop , live on Bloomberg Television and streaming on your phone, tablet, and on bloomberg. Com. I am alix steel, unit four betty liu in four betty liu. Overall, mixed stocks around the world, but u. S. Futures are trying to end higher, awaiting the latest read on initialuarter gdp and jobless claims. Traders are a little concerned looking at choppy markets. We are on the market again in 30 minutes. Top is a look at the bloomberg stories citigroup fell in the Federal Reserve stress test for the second time in three years. To fed rejected the plan manage capital citing concerns about the overall reliability of the planning process. Citibank was the only one of the nation top five banks to fail the stress test. Foreignexchange traders in the u. S. And switzerland as its investigation of the rigging of currency markets widens. Switzerlands largest bank opened a review of its currency operations last year after Bloomberg News reported traders had colluded to rig key benchmarks used around the world. Satyacrosoft new ceo nadella will make his public debut. He will hold a News Conference at 1 00 p. M. Where he is expected to unveil plans for Microsoft Office on your ipad. Home deliveries were hurt by whether in the First Quarter and material shortages. Ceo ara hovnanian is with us. What type of payback do you expect to see in the next quarter due to the weather . We do not project per quarter. We are expecting another fine year. Most of the big activity will and fourthhe third quarters. It looks like the labor and material issues do not seem to be solved. How will you manage those issues . This happens with every recovery. As one is so severe that it is perhaps more pronounced, but as long as the market recovers at a stable pace, and i think that is what will happen, the labor market will catch up. Home prices are better than one year ago, so that helps. The minimum wage debate rages in washington with president obama supporting 10. 10. What would that do to your business . I do not think we have a lot of minimum wage workers. It might affect fast food more than the construction business. May be wages are more reserved, but in terms of lumber, those prices have been on a tear. What you do about that . Unfortunately, we are as exposed as every homebuilder is because you cannot properly hedge lumber on any large scale in terms of a national homebuilder. We just hope the home prices will keep pace, and over the long term, it usually does. It seems you are relatively optimistic over the medium and longer term with shortterm hiccups. When i look at analysts come a day keep revising down next quarter, this quarter. What is the market not saying that you are saying . We are talking about a couple of Different Things the next quarter, and the more mediumterm. Mediumterm, everybody sees demographics. The United States population is growing. We are not italy, we are not france. We are underproducing housing as the market is slowly getting back to a recovery in we are not only under recovery. You not only under producing current demand, but we have a dearth of demand from the last five years. Is are thoseon people moving out of their parents house. Household formation is declining, and it seems to be structural, not cyclical. I think it is cyclical. This was a great recession. Unemployment hit difficult levels. As the economy slowly crawls out, roommates will unbundle, children will move out of their parents houses, divorces will accelerate, unfortunately. I believe that. Launched Big Deal Days to speed up the selling season. What is your early read on that . It has been great. Thankfully, it was great timing. The winter was difficult. The spring selling season has been great. Our promotion help to accelerate that. Going back to washington, we keep hearing new proposals to overhaul fannie mae and freddie mac. All of them seem to have the private sector taking some of the front. What you think that was due to the affordability of the Housing Market . All of the proposals i have heard about are calling for a change andl transition. I do not fear it in the intermediate time period, what he may do, but longterm i think we need a government backstop, a failsafe, if you will, when the market slows down and there is no accessibility. The proposals we have heard have that. I will not comment on the specifics. There are costs associated with that, but over the long term, i think it will work that out. I am not overly concerned. It is not one of the things that keeps me up at night. Care. Fair. Hank you, ara hovnanian we have breaking economic data. Economics editor Michael Mckee is at the breaking news desk. Gdp comes in we will call it a disappointment, 2. 6 , a little better than it was in the second revision of the numbers. We were expecting 2. 7 . The hope was a big increase in personal consumption, and we didnt get that, mostly b