We are live from bloombergs European Headquarters. We have a great show coming up. Lots of news breaking and some great business stories as well. We will be talking about shoemakers to the stars. And clients like rafa nadal big bucks for his brand. And we will sit down with jamie oliver as he expand his empire to hong kong. We begin with one of our big stories of the day. Bp, profit rose by a third during the second quarter. The british oil giant is warning that new sanctions against russia, which are expected today, could hurt its relationship and investment in rosneft. Ryan chilcote is tracking all of the action. We have learned what is at stake today. Another one of these stories, we start at the beginning. Bp had a joint venture with russia. A got a fistful of cash and 20 stake in rosneft, which looked like a smart move. Is in theosneft doghouse. Their ceo has been sanctioned by the United States and the u. S. Has restricted rose not ros neft, access to Capital Markets. Now they might do the same kinds of things, maybe even more. In terms of what is going on is hugelyeft important. Today, we saw that in the numbers. Sanctions, how do they affect the relationship . What does it eventually due to their relationship . When dudley made the decision to go ahead with this idea of getting 20 and rose not in rosneft, i think he was thinking about the promise of russias vast oil resources. He got access to the reserves, one third of bps reserves. It is a quarter of their production. Wayerms of sanctions, one that the sanctions would affect bp negatively is by driving rosnefts share price down. When bp got a 20 stake in , every day, it gets a little less. The share price, that means a little bit less value for bps financial investment. I think it goes beyond that obviously. We could see other things. For example, if the europeans nefts access to their Capital Markets like the u. S. Has done, that is going to further raise the cost of funding for bp for rosneft. That muchmake rosneft less profitable and useful for bp. Another part of the big promise of russia for dudley has been some of these special projects. It is a statebacked oil company. This is the ticket. It is the key to the treasure. Two importantd deals. One to target cheryl oil shale oil. Another thing that u. S. Is going to look at is restricting russias access to the kind of technology you need to explore and exploit shale assets. Another whammy, if you will, for bp. Another prize out there would be the arctic. If they do restrict these technologies for exploring for arctic oil, again, bp loses out. Why . That is a deal right now. Shell and bp are supposed to drill what many are calling the most important well of the year in the arctic. It is supposed to begin now. We are waiting for an update as to whether it will be done. A deal between rose not exxon, because bp is an investor and shall will pay for the expensive costs of the arctic up front, bp gets to enjoy in the profits and the revenue. Of course, if shell and rosneft cannot go for the oil because the eu restricts the export of the technology needed to do the drilling, another whammy for bp. Whammies coming on multiple fronts. George osborne talked about that yesterday when we spoke with him. Basically, he said that we cannot sue bp. But he did say that rosneft cannot be 100 sure that they will emerge unscathed from their efforts to recover the 50 billion that the Arbitration Court has rewarded them for the loss of their assets, which ended up in the possession of rosneft. One way bp will suffer, of course, we will pursue rosneft and that will put the pressure on their share price and bp will pay as a result of that. You are going to be reporting in force. Absolutely. It is going to be riveting. We will find out a lot more about this story then. We have a couple of guests in the meantime who will be analyzing the events or us as well. A lot going on in russia. The Banking Sector this morning as well. Ryan is going to be back. Is also weighing in on the standoff between russia and the west. To see whether the situation is affecting the banking business. Are clear guidelines coming from authorities about againsttaken institutions. For us, it is business as usual. We are committed to russian markets. Ubs ceo speaking to our markets editor, who is in zurich. What else did we get, manus . I have been thinking about these numbers through the morning. The top line works. Profit is up. Science answer not trading as much as they need to be. Gross margin is not living up to expectations. Rmotti said to me, we are moving away from advisory models to people giving us discretion, what to do with their money. It is not an alarm bell, but it is an issue to keep an eye on. Germanve settled their woes for 300 million euros. Of course, there is the french. It haslready mentioned no relationship whatsoever with the discussions. We had been in advanced discussions and negotiations about settlements. You can see why 1. 1 billion if youakes no sense relate it to our settlement with germany, which is a much eager business. Also, when you make it to the relationship with finance. I think we will appeal this decision, which we do not think is fair. We have a real inflation in terms of fines. The americans, 9 billion from bnp paribas. The size of these fines are rising. Can you see the europeans going the same road . I would say that, to some extent, we are already there. The first toone of recognize the challenge, at times, for banks. We have not been in denial. We have been addressing proactively where we can address issues of the past. Rights ofotect the our shareholders if we feel it necessary. First . T settled is that a matter for the board . It is settled when it is fair and equitable. We have to recognize when it is fair to settle. Going toot think i am ask another question of Foreign Exchange until we get the news in terms of what feel they are doing. Almost 11 billion swiss francs. It is not a bad report. Look, ilike the new wonder . The beard look . A little bit of food today, fashion, and finance. We were just talking about that listening to that clip. Comment. Going to pass they will when you get back. A bit like you with no tie. A very nice look. That is the way we go these days. Very relaxed. And that in the last couple of minutes, the german yields have fallen to a record low. Take us to germany now. Take us to Deutsche Bank. Fixed income held up. It did. Say he isir to betting the house on Investment Banking . Maybe not betting house, but he is putting his stamp down. Commodities and currencies are the drivers. Deutsche bank, Investment Banking is where they are committed. That beat. Better news than their cohorts in the United States of america. Your tax bill, that is what lumped them on the net income. If you look at, in principle, this is a bank that has raised capital. It is moving towards a better finance, a Better Capital , and thebank Investment Banking is doing slightly better than the market had anticipated. You have got to say that that is not bad news all around. I want to tie this together as i look back at Sergio Armani investment ubs banking numbers and they beat. You look at Deutsche Bank and again, a slight improvement on the Investment Banking. I just wonder we did not have time, but the next question is, are we at the trough of Investment Banking . Have we hit the cyclical low . Or am i being too optimistic saying that one quarter does not make a spring. I leave you with that thought wet, awful,p, miserable zurich. I love zurich. One of my favorite cities. It is wet. It is wet. Go and have some cheese or a nice coffee around the corner. Very nice. Manus cranny, we are going to leave you there. Enjoy yourself. Manus cranny on the banking story this morning. Back within a little bit later. What else have we got . Insight on how conversations could impact that relationship. It is coming up next here on the pulse. Welcome back. Bp has reported strong secondquarter results that it reported earlier. As russias trouble mounts, few businesses have as big a stake there as the energy giants. Lets try to quantify that risk. What does it actually mean . An analyst at barclays covering this business. Our armse to get around exactly how this relationship is going to work or not work going forward. , it always rosneft had the potential to go very right or very wrong. Good morning. Bp me, the main impact for is whether rosneft can keep its dividend. Ultimately, the sanctions are designed to limit access from the u. S. Side to financial markets. Ofneft has a large number debt payments they need to make over the next 12 months. Essentially, what we have to look at from bp is if they can keep the dividend. That is the main benefit that bp gets right now from the rosneft investment. Rosneft hasat traditional sources of finance, whether it be from the chinese or other sources within the market. We are not worried about the potential cash flow. In the short term, what will be reticle is how that relationship develops. , it might slow down in terms of progress. For me, a limited impact on the financials of bp shortterm which is good for the Investment Case for the company. What do you mean by short term here . If sanctions are on for a year, does it start to become a problem . What is the duration . If you are looking at the rosneft cash flow profiles, one in four months. The kind ofstart timeframe you start to see, can they access lines of credit . Chinese, itfrom the may be something where they can get Additional Capital from the chinese to bridge that gap. For me, the shortterm impact right now is very limited. That will start the impact from the dividend side. Track top is well on keep its business on target for 2014 and into next year as well. Is it possible to get our arms around the currency risk as well . In terms of the currency risk, what we saw this morning was a very strong contribution of rosneft and that translated through. From the rosneft standpoint and how that affects them going through, you will see the volatility in bps earnings. It is a flow that they get from rosneft. But that is priced in rubles, yeah . Yes. The technology story, if there are significant sanctions imposed on the current technologies, tell us what that is going to me. To mean. From the rosneft side, when they did the deal with tnk, what they wanted was access to a lot of the original technology from bp. Bp has spent a lot of time putting money into the tnk business and getting that back up to western standards. That is the possible technology that rosneft wanted. Rosneft is trying to improve the underlying form of their existing assets. Three or four years, youre going to be looking at the arctic, the shell side. That is something where bp has ofple within the business rosneft that will be able to help them. Getn, will they be able to the finances . This is a longerterm issue for me rather than a short term. Yesterday, do i need to assume that 20 of that 50 effectively going to bp . The number could end up being extracted from rosneft as part and parcel of the russian government and bp has a 20 stake in that. How do i work that out . It is not something i would want to do from a bp perspective. There are lots of meetings about how the econ side will play out. At the moment, we just have no clarity. He has defected from the rosneft side, but there are other things within bp that can drive cash flow for now. It is not something i would want to take out of the price target for now. Just one final western or a quick one. Quickinal question or a one. We have went through a long list of mediumterm risks, all of which are hard to price in. Are there other shares that are better to own . Is the Market Pricing bp correctly right now . Every single day it seems that there has been a fresh risk in relation to this business. On the valuation side, we do at a 10 discount to shell and total. See within the bp business, there is a lot of progress being made. They have a startup in the u. S. On the refining side. You are seeing real cash flow and material Free Cash Flow basis. That is a good thing on an absolute basis. We are seeing the same cash flow growth from both shell and total and what you do not have is the same degree of certainty and risk here. , i would much rather have shell or total for the 12 month time range. Thank you for your analysis and thank you for your time. Come, israel is intensifying attacks on gaza. We will be live with their finance minister for an exclusive interview. Before you hear that interview, you will hear an interview with the leader of hamas as well. A lot going on there. We will talk about it when we come back. Good morning, everybody. You are watching the pulse. We are live on bloomberg tv, on the radio, streaming on your tablet, your phone, and bloomberg. Com. How are the markets doing this morning . Lets find out what is going on with jon ferro. Equitiesstart out with first. We started on a high note. Equities higher off the bat of some good earnings. Ubs beat, bp beat. Bp, 34 increase in profit. Not much higher if you look at the stock today. On the other side, they have rosneft. Stake in b. P. Themselves say if new sanctions are imposed on russia, his could have an adverse Material Impact on the relationship with rosneft and the investment itself. What are the sanctions that are going to drive that . Will we get them today . That is the big unknown and that is the other opposing force. Equities lower across the eurozone. The dax down by. 25 . B alsoex, the ftse mi trading lower. Yields in germany, record lows on the german 10year bund. Lower than it was in the crisis era. Here is the key point. Lows in italy and spain as well. Near record lows in those two countries. About 70 billion of redemptions this week and a cpi number that is going to come this thursday. It is risk off, yes, but this is not the European Crisis because you see money going into italy and spain as well. I will tell you about what is going on about inflation rather than risk aversion. I think the risk of deflation is what is being priced in here. I think it is sort of risk off in certain ways. Coming up, we are going to talk about sanctions and renault. The car sector and its relation to russia when we come back. Welcome back. Youre watching the pulse. Live from bloombergs European Headquarters here in london. Im guy johnson. Mark carney has called lloyds manipulation republic henceable. Carney said it may amount to criminal conduct on the part of individuals involved. Yesterday lloyds agreed to pay 323 Million Pounds for libor rigging. Profit has fallen 29 and net income declined missing the average analyst estimates of 470 million. The bank cited concerns about sanctions in russia and conflict in the middle east that could impact projections. U. B. S. Posted a boost in profit for the second quarter. There was a discussion whether relations are russia are affecting the business. Actions taken against individuals, for us, it is business as usual. We are committed to the russian markets. Plenty of expost pose your to russia. Renault is in exception. Even as they rev up european sales. Hans nichols has more on the headwinds on the political standoff over ukraine. How does the russian standoff get factored in . You look at the first half of in russia, down 8 . June, 10 . This morning 10 were the numbers sales will be down this russia and now they are saying it may be an optimistic number. If you think the rest of the year is going to be bad as june, the important russia is their Growth Market where they are expanding. They clearly have a lot of brands and a big footprint there. Volkswagen also has a big footprint. These numbers potentially worse than 10 is pretty devastating and you could finally see some economic and financial impacts for all the geopolitical risks for a european company. I know were big fans of the brand. Take a look at the 2013 and 2014 sales. Obviously they have seen thousands decline in the thousands range there. Other companies that havent really been affected in russia yet, mercedes still up. 19 to be precise. Audi, b. M. W. The luxury automakers dont appear to be affected by sanctions but renault, were starting to see steep declines. Thanks. Rans nichols running us through the risks and the numbers. Lets bring in an analyst at International Strategy and investment. Hans was detailing some of the facts and figures there. They indicated maybe the market is beginning to bottom out in russia. It is down year to date. We are clearly seeing a decline. Lets talk about russia specifically. How big of a risk is there . How big of a risk is there to Companies Like renault, volings en that have significant exposure and would like to expand their footprint . There is no denying it. Volkswagen. Having said that, as you pointed out previously, altima is giving us some indication that we might be diverse. It is very difficult for any car company to make money in this market. I think in the case of renault, though, we need to be a bit careful. Renault has starteded a large scale Restructuring Program of the unit. They brought in a new Management Team and the experience that. O. E. Has had in beau has had in russia, roonl recently he has updated his financial targets. Clearly their specific points, there might be some light at the end of the tunnel. Consumer buying a car point of view, the nuts and bolts level of making the markets the if we restrict technology, does visit a direct meaningful impact. For the time being, lets the biggest driver for the decline, a flies Interest Rates. It makes it much more difficult for people to find or to acquire the car. Really ions really would be the german premium names that have so far done much better than volume guys but if the cap at that time tal restrictions come into force, you might see a restriction there, those who have been able to insulate themselveses from sanctions so far will be impacted. A bigger risk is that a deterioration in the relationship with russia has a meaningful impact on the function of european econ