Swiss Bank UBS Shares Rocket on Earnings Beat | The Pulse with Francine Lacqua 05/07/24
Newsmakers and Market movers. This is the pulse with friends in like. Well, good morning, everyone, and welcome to the pulse of Francine Lacqua here in Zurich with what’s coming up in today’s program. UBS soars after outperforming expectations in the first quarter as wealth and investment banking beat. Actually, it’s a good momentum. I may remember in the fourth quarter, we also had a very strong performance in banking. As we integrate the new colleagues from Credit Suisse on our platform. We start to see the pipeline developing. We are able to execute more from our interview. The chief executive said Germany coming up shortly. Now the world’s biggest oil exporter, Aramco, keeps its $31 billion dividend payout despite lower profit. BP maintains the pace of share buybacks despite missing estimates. And Israel rejects a ceasefire proposal backed by Hamas hours after the militant group agreed to the plan, Israel vowing to push ahead with military operations in Rafah. Well, let’s take a look at the European markets map. Again, it’s Tuesday and there is a lot going on. We do have a couple of Fed speakers a little bit later on. But if you look at European stocks in general, actually advancing on a pretty busy day for a company earnings. Optimism also growing that the Fed will start cutting interest rates this year. Now, UBS, I think gain gaining more than 6% after a return to profit. UniCredit also up on better than expected forecast it look at if you look at the ten year treasuries extending some of their advances the yield actually dipping two basis points to 4.46%. So let’s look at cross assets. We are looking in particular to a lot of these treasuries because of auctions coming up. And then we have the Minneapolis Fed president Neel Kashkari, also among some of the officials scheduled to speak a little bit later on on Tuesday. I’m looking at oil actually advancing for a second day again on tensions in the Middle East with Israel rejecting that cease fire proposal for the Gaza Strip. And then you can also see, again, 154.12. So the Japanese yen actually slipping. We did hear from the top currency official in Japan, masatoshi Honda saying there was no need for the government to intervene if the market is functioning properly. I’m really looking forward to our conversation with George Soros on all things currencies. Now back to corporates and UBS shares gaining their most since March of last year after the Swiss lender beat earnings estimates and returned to profit after two loss making quarters. Now, strong performances in both wealth management and investment banking are helping UBS to really make sustained progress with the integration of Credit Suisse after its emergency rescue last year. Well, the chief executive says Germany spoke to us about the company’s performance, inflationary outlook and of course, the impact of capital requirements. Just depending on on the outlook for four four rates and the economy. I would say if inflation comes down to the 2% targets and the central banks are able really to to cut rates, this may give a little bit of positive momentum. But on the other end, we need to also expect some uncertainties around major elections globally and how they play out in in more so in economic terms, in in terms of trade wars or potential escalations of that matter. And and even on the geopolitical front. Sir, do you worry that proposals put in place by Swiss authorities on capital raising really for systemic banks overshadows some of the work that you’re doing at UBS? Look, I think that we agree on the vast majority of what has been proposed. We already commented and highlighted the necessity of creating clarity. I think that’s at this stage what we stay focus on is on execution, executing on our strategy. We were not really consulted in this process. So it is also very difficult for us to comment. Certain aspects of those proposals. What we know is that we need indeed to to absorb a lot of of of the capital requirements that are necessary to capitalize the new bank as of as a consequence of the acquisition of Credit Suisse. We’ve heard figures from 15 to 25 billion. Do you have a ballpark or actually is there a very wide range of scenarios? Well, there are two elements which we know. If I look at by absorbing and Credit Suisse, we have to basically bring their methodology for calculation of capital to our standards. And that means that we going to have to basically increase the requirements by nine billions. If I look at also the progressive element of that is driven by market share and balance sheet size. We are also spending another 10 billion, so we are talking around 20 billions of additional capital that we already factor in our financial planning and targets for 2026. So we know that, you know, indeed acquiring Credit Suisse will cost UBS around 20 billion tons more capital. So that’s the only comment I can make. Other figures I can be I can’t really comment on them because I don’t know exactly what they mean. And it would be not appropriate for me to to speculate or respond to speculations. But so is your working assumption that actually, even in a worst case scenario, it won’t actually hurt the dividend? It’s not going to hurt some of your financial targets? Well, that remains to be seen, because as these rules are developed and and clarified, we will need to then assess exactly how they play into our capital return plans for 2024. We still we are accruing for a double digit increase of our cash dividend as we previously communicated. So in the first quarter we did that and after the parent bank merger in at the end of of of May, we will be prepared if everything goes as smooth as we expect to execute on our 1 billion capital return plans, i.e. through share buybacks. So when do you think you’ll get clarity from from Swiss authorities? I mean, a timeline, I guess. I think this is still so for me is very important. And I do expect that no final decision will be taken before the investigating commissions of the parliaments clarifies all what’s happening around the failures of of Credit Suisse. I think it’s very important not to jump into conclusions too quickly about this matter. So if you look at that matter, it’s very difficult to expect clarity before year end or probably even the first part of 2025. Well, we’ll bring you more from that interview with Germany, the UBS chief executive, a little bit later on in the show. Now, markets have been buoyed by optimism that the Fed will start cutting rates this year. Investors are revising their bets due to soft U.S. jobs data. Well, I’m glad to be joined by someone, Dunn Gore, head of fixed income macro strategies at Goldman Sachs Asset Management. Simon, great to see you. I can’t believe you’re in London and I’m in Zurich, but it goes that way when you have big earnings out of Zurich. When you look at the global macro environment. SIMON Is there a misunderstanding from parts of the markets of what the Fed does? Thanks very much for having me this morning, Francine. Q One inflation in the US was clearly disappointing, but when we look at the broad drivers of inflation, we’re in a totally different place to where we were in 2022. In 2023, inflation expectations are well-behaved. The labour market continues to show signs of easing. We got more information favourable to that on Friday and so we believe that we’re going to see more of this inflation pattern over the course of this year and therefore pals wait and see strategy is the right one and that the risks of new hikes from the Fed remain quite low and we are likely to see cuts in in September. So we think the Fed is guiding to something which does look like an appropriate strategy. We think investors have broadly got it. In many respects, the most interesting tactical opportunities in fixed income markets right now maybe are in this time zone. And we’ll get some more information from the Bank of England And the Riksbank this week should be interesting to follow. But the broad picture is that the bond friendly environment has been delayed rather than derailed. And we’ve got a friendly central bank behind that. So something we’re expecting, of course, a lot of European central banks, I’m feeling I mean, I’m thinking of the Bank of England and the ECB are actually cutting rates far quicker than the Fed. It does the gravitational pull towards the Fed actually complicate things for European economies. I think ultimately the Fed does matter. The Fed sets the price of global capital to a large extent, but I think it’s important to remember the starting point of rates at in in in Europe and the fact that we are very clearly at levels that are above neutral. I think you can see a picture that things are much clearly tight in Europe and particularly if you look at a place like Sweden, probably a place where you can make the strongest case that things are tight. And so certainly the first 100 or so basis points of cuts we think can be done quite independently of the Fed. And that leaves us constructive on parts of fixed income out in Europe. So what does that mean for, for example, places that you like in Europe? I’ll put that first cut in June coming from the ECB. What happens next? And do you does it impact, you know, to to a point a lot of the Italian bonds or German bonds to where you want to come in and swap some of them up? Well, I think in many respects, Europe is seems better priced than some of the other markets. So the ECB, we expect they’re going to cut in June. That’s well priced by the market here. Something like three or four cuts over the balance of the year would be where our expectations are. So upside in European fixed income, we like steepness. Ultimately, that will be a positive backdrop for European credit, including including sovereign bonds. I think where the real opportunities are are some of the satellite markets in Europe, UK, the markets priced for only two cuts from the Bank of England this year. We expect the Bank of England will probably start cutting in June. That debate in the market has really been about where the inflation risks in the UK are different or similar to elsewhere. All of our analysis suggests that they’re more similar. We’re seeing signs of things easing up in the labour market. We’re starting to see members of the Bank of England that had previously been more hawkish starts to talk in a more open minded case towards a dove ish dovish outlook. I think Shapiro’s is going to be a key person to watch if he makes the transition over sort of coming communications. So expecting the Bank of England to starts to lean more dovish when we get communication from them on Thursday, cut in in June and cut much more than what’s priced into the forecast. So too that in this timezone is where we sort of lean more constructive to European fixed income itself looks somewhat better priced. So I mean what about the Bank of Japan and actually what that means for Japanese assets? I don’t know whether again, the schism or actually when we really start this divergence play what that means for opportunities in the markets. Well, this is one of the fascinating things about 2024. In many respects, the opportunities are not necessarily just in the overall level of rates, but in how different parts of view of the G10 are going to be heading in different directions, which is obviously quite a different set up from what we’ve seen over the course of 2022 and 2023. You know, we’ve talked a little bit about sort of Europe decoupling somewhat from the U.S., but the big decoupling we think is in in Japan, the inflation process in Japan is in a different place to what we’ve been used to in Japan for such a long period of time. And you see that in wages. You see that very obviously in inflation expectations. And whilst there’s not runaway inflation by any means in Japan, the starting point of real policy rates in Japan is just so far away from what we see in the rest of the world. That real yield gap is really as large as it’s ever been. And with that, we’re seeing this this sort of very significant depreciation of the yen. We might get periodic interventions like we saw last week, but ultimately, until that real yield gap closes, there’s going to be upward pressure on the on the Japanese inflation process. So we’re surprised at the market, particularly in the intermediate part of the curve, doesn’t put more risk premium around the idea that the Bank of Japan is going to have to go faster than than what’s currently priced. And this is going to be an interesting World Bank of Japan hiking rates, us potentially cutting rates later this year and Europe going in the middle of the year. So divergence and with that, quite a lot of active opportunities we think is going to be the story from here. Yeah. And so Simon when does that change? When does the market realize what you were talking about? Is there like an opportune window to get in there? Well for Japan, we think. We think that ultimately one of the things that has been holding things back is just the lack of supply of Japanese bonds for the markets to buy. The Bank of Japan is likely to start to pull back on their on their inbound purchases. That’s going to create some more duration supply to the market. And we think that that can start to allow more risk premium to build up in Japan. But we think that the risk reward right now is very attractive, both outright to be underweight Japanese bonds, but also to be underweight Japanese bonds versus some of the markets in Europe, which we could see for to lower yields. So I’m very quickly, any worries about some of the auctions in the US? I mean, obviously, this has been a fascinating subject and the market has has struggled over the last six months or so to really calibrate how to price the fact that we’ve got an enormous amount of duration to buy. When you look out over over the medium term, and it’s one of the reasons that in our duration positions be tends to favor steepness, but I wouldn’t overstate the risk that comes from from the bond supply. I think that the Treasury have made a lot of progress in giving the market a lot of transparency and visibility about what we’re going to get in terms of duration supply. I think what investors sometimes under focus on as well is that private sector duration supply is likely to be quite low. This is one of the reasons that leaves us constructive credit markets. And we think that we can stay in this sort of tighter for longer environment because the incentives to issue debt are much, much lower than has been the case over the last ten years or so. And that’s ultimately going to be something of an offset to the very heavy, heavy duration supply out of the Treasury. But for sure, we’re probably going to be living in a materially higher turn premium environment than we’ve been used to for some time. Simon, thank you so much. SIMON Anger there from a Goldman Sachs asset management. Much more to come. And this is Bloomberg. Now energy giant BP is maintaining the pace of share buybacks as even as first quarter profit fell by more than expected amid lower natural gas prices. Meanwhile, the world’s biggest oil exporter, Aramco, is to pay $31 billion in dividends to the Saudi government and other investors. Let’s get more from Bloomberg’s Middle East energy editor, Andre de Paola, who’s in Dubai. Anthony, thank you for joining us. Dividends, of course, one of the biggest focuses for the big oil companies as quarters. What’s BP doing? Yeah, good morning, our friends. Yeah, that’s true. Getting cash back to shareholders was a big theme across the the majors and the big oil complex for this quarter. So BP largely missing on a lot of those estimates. But kind of heartening investors with that pledge to give back three and a half billion dollars in the first half. And they’ve also made some promises of some cost cuts as well, too. So trying to improve some of those metrics by taking some costs out and then and then looking at that, that all important stock price issue for them with this with this buyback issue. So that’s really following a theme, even as the oil companies are suffering largely lower profit because of some of the slump in oil prices. Of course, from those highs of 2022 and we saw all those companies posting bumper profits. So, Anthony, how’s Aramco’s dividend policy developing and why is that so important? You know, Aramco’s got a pretty clear dividend policy set up for this year. They’ve got a base dividend which they want to keep growing and increase and they want to they want to have that being progressive. And then they’ve got this special dividend which is based on, again, that 2022 bumper year and 2023. So that should be largely set out for this year. They’ve had a roughly 20% increase, so about $120 billion in dividends, which is going to be the plan for this year. But that’s so important because that’s necessary really to go into those Saudi government coffers. Saudi’s got a lot of spending coming up. They’re having to tweak some of the project plans and cut back on some of the issues. So they really need that income from Aramco coming in. And so and so that’s why it’s very important. But we’re also watching cash flow and we’re watching investment from Aramco because, of course, those things can be impacted by that dividend that’s going over to the government. Francine Anthony, thanks so much as always. Bloomberg’s Middle East energy editor, Anthony de Paola. Now coming up, Israeli troops seize the Rafah border crossing in Gaza as hopes for a cease fire deal dim. We’ll have the latest on the Middle East conflict, next. This is Bloomberg. Israeli troops have taken control of the Rafah border crossing in Gaza this morning, with Hamas saying all aid flowing through there from Egypt has now stopped. Now, this comes after Israel’s war cabinet rejected a cease fire plan backed by the militant group. I’m joined by Roslyn Madison, Bloomberg’s EMEA news director, who’s been, of course, keeping on top of all these developments. So. Ross, how much is this a purchase, a precursor to a proper ground offensive in Rafah? Well, certainly it’s an important signaling exercise. The fact Israeli troops have moved into the Rafah border area, the crossing area for the first time since the conflict broke out. And as Hamas and Arab media are saying, that’s cutting off the flow of aid and people into that crossing between Egypt and Gaza and really following the airstrikes also that we saw on parts of Rafah last night. It is that signaling moment, which is despite the fact that Israel has said we will still go on with talks on a cease fire, we won’t agree to the current times, We’re willing to keep talking. At the same time, they’re making their preparations for an offensive inside Gaza. They’re moving to get a lot of people out of the way that to relocate an awful lot of civilians out of harm’s way. And it’s really saying no matter what happens with those talks for a truce, our intent is still to go into Rafah because our overall goal is to try and eradicate Hamas. So what do we know about the current status of the cease fire talks? Well, Israel says it’s willing to sit down and keep talking, although it rejects the current agreement, the one that Hamas said it would, it would sign up to. And there’s a lot of disagreement over small amounts of wording in those talks, but it’s really about what the language language would be in that agreement for a ceasefire that would be the prelude to a proper end to the war. How does this ceasefire pave the way for that war to end? That’s what Hamas wants. Israel says it wants to be more open ended because obviously, again, it wants to have the option to keep fighting against Hamas inside Gaza. So we’re going to see the talks continue, but there’s not a lot of prospects for an agreement. And time is obviously running out to use that cease fire to stop an offensive inside Rafah. Roz, thank you so much. Rosalind Matheson there, Bloomberg’s MTA news director. Now coming up, comments by the US Treasury secretary are piling also more pressure on currencies such as the yen. We discussed the strong dollar and of course, what it all means for affects. This is Bloomberg. Well. Uber soars after outperforming expectations in the first quarter as wealth and investment banking beat. Actually, it’s a good momentum. May remember in the fourth quarter, we also had a very strong performance in banking as we integrate the new colleagues from Credit Suisse on our platform, we started to see the pipeline developing. We are able to execute. Aramco, the world’s biggest oil exporter, keeps a $31 billion dividend payout despite little profit, while BP maintains a pace of share buybacks despite missing estimates. And Israel rejects a cease fire proposal backed by Hamas. Hours after the militant group agreed to the plan, well, Israel vowing to push ahead with military operations in Rafah. Well, good morning, everyone, and welcome to the Pulse and Francine Lacqua here in Zurich. Now, Chinese President Xi Jinping has called on France to help fend off what he called a new Cold War. She is on his first visit to Europe in five years with the aim of resetting ties with the European Union. So let’s get more from Bloomberg’s Carolyn Conant in Paris. Catherine, thank you for joining us. Has there been any progress made between the two leaders? On the geopolitical front, we can’t say there has been any progress, really, even though the President Xi called for a cease fire in the Middle East shortly after you had these airstrikes on Rafah in Gaza. But Michael did try to use China’s support in order to weigh in on the war in Ukraine. You know, the relationship with President Xi and the Russian president, Vladimir Putin, has been quite close. And in fact, Vladimir Putin will travel to China shortly after she returns from Europe. On the trade front, it was also quite frictional because you had the EU Commission president, Ursula von der Leyen, who participated in the first trilateral meeting with President Xi, and she had very tough words criticizing China’s production surplus, saying the world cannot absorb it all. And the EU was ready to use all the available tools to protect itself. President Xi rebuffed all of these calls, saying that China does not have an overcapacity issue. And in fact, President Macron had a much more pragmatic approach of saying that the trade policy of the EU should remain independent, meaning independent from the US, who trying to distance himself from this position of von der Leyen. There wasn’t any major business deals announced, only a few cooperation agreements in the aviation sector, for example, or the cosmetics sector. But President did have a small victory when it comes to cognac, saying he was hopeful that China would abandon their measures against the French cognac makers. In fact, Merkel gave a President Xi as gifts two bottles of cognac, one from NBC and one from Rémy Cointreau. And today, as we speak, they are landing in the arena in the southwest of France for a little bit of an appeasement and a little bit of a fun side of the trip. Merkel will take President Xi to the PM and in montaigne’s perhaps to appease the frictions from yesterday. Yeah, quite, quite amazing, actually. Extraordinary curling. I think he’s taking him to where his grandmother lived and grew up. So I guess it’s quite unusual. It’s as a sign of friendship to bring him there. Accounting Council there in Paris that will follow, of course, President Xi’s visit to the mountains. We also look at the Bank of Japan, the yen remaining under pressure and some in the market think it could slide back 260 per dollar. Now, that’s in the wake of comments by the Treasury Secretary, Janet Yellen, who said the US expects interventions to be rare and consultations to take place while our next guest says affects intervention is not credible. And Japan is following a path of benign neglect for the yen. Let’s discuss all of this with George Avalos, global head of effects research at Deutsche Bank. George, first of all, thank you so much for coming in. I’ve been waiting and pacing to actually have your your take on yen and what happens next. There was an interesting actually line from the top currency official in Japan Masato Kanda saying there was no need for the government to intervene if the market is functioning properly. But we also understand that the BOJ governor is currently possibly meeting with the prime minister of Japan. What do you think they’re telling each other? Thank you, Francine. It’s great to be back on your show. So it’s interesting because you’re starting to see some divergence between the rhetoric coming out of the DOJ and the actions of the Ministry of Finance government. You actually gave an interview to the Peterson Institute just a few days ago where he talked about inflation not really being a major problem, as in they’re still trying to get it to 2% in the at the BOJ meeting itself, he was talking about the yen not being a huge driver of the economy, not being hugely relevant for inflation. And then we got mof intervening. I think the ministry of finance intervened because price action did start becoming disorderly. You did see very large moves that were unusual as we went up and broke key levels. But at the end of the day, the fundamental driver of yen weakness is the fact that real rates in Japan are extremely negative. They’re below -2%. And as long as that’s the case, we think the bank of the bank and as long as the Bank of Japan doesn’t hike rates expeditiously, we think the yen will stay weak unless you’ve got a view of a US recession, which we don’t have. We’re just getting actually some breaking news from the DOJ governor saying that he discussed the effects with the prime minister. He also says they’re closely monitoring the recent Essex situation. I mean, that was probably expected. I’m sure they are monitoring. So you’re you’re not expecting any meaningful intervention because of what you’re saying on real rates. I mean, is there if they wanted to intervene, would that actually not make a difference? I think it’s very likely we did see intervention. If you look at the Bank of Japan current account data, we’ll see confirmation of that in a few weeks. But actually the intervention we saw was very much in line with history. It was we saw a two week move in dollar yen of more than 4%. So the price moves were extreme. And I think the MOF Ministry of Finance is becoming quite open, that they don’t want very large disorderly moves. We have to remember that dollar yen moves by 10% higher over the course of this year, more than 10%. And they didn’t do anything. So they intervened when the move became disorderly, as they said they would. And I think that’s fair enough. But in terms of managing to get the yen structurally stronger, it’s all about the Bank of Japan. And as long as the Bank of Japan doesn’t have urgency, you’ll see this very negative real rates which are prompting these continuous outflows from the Japanese. So at the start of the year, for example, you saw record outflows from Japanese investors into US equities, into foreign assets, and they’re doing very well out of those investments. So you need the real rate to change out of Japan. Do we sometimes forget? I just came back from a family trip to Japan, and actually, it felt like everyone was there from all over the world to try and catch a glimpse of these cherry blossoms. I mean, even weakness could have its advantages. Absolutely. And in a piece in a piece we wrote a few a few days ago, we said, if you look at the Japanese economy, as you mentioned, tourism is doing very well because it’s it’s very cheap. But I think at the core of the issue is when Japanese real rates are so low, it actually creates fiscal space for the government. It allows for asset price reflation. And if you look at the level of inflation in Japan, it’s very different from two or three years ago in the US and Europe, where we were at levels of six, seven, 8% inflation. In Japan, it’s a 2%. So yes, the yen is contributing to some inflation, but the level of inflation discomfort is much lower and that’s why you have consumer confidence, which is actually at cycle highs. In contrast to the US and Europe. I’ll mention one thing on the. Sorry, go ahead. No, go ahead, George. One last thing on the tourism. As you said, you’ve been there. It was very cheap. I have a number of colleagues have been there and they observe the same thing. But if you look at the trade balance, yes, it’s moving in a more positive direction. So Japanese exports are becoming cheaper. So the Japanese are able to export more, but it’s not into a huge surplus. The trade balance is not at extremes. So that’s telling you while dollar yen valuations, when you look at them on a chart, they look very extreme. It’s not yet translating into massive export outperformance and to a huge current account surplus. So perhaps these valuations are not as extreme as history may imply. George, what’s your take on Janet Yellen and actually her appetite to let intervention? She was at a press conference a couple of weeks back with the finance minister of Japan and Korea and seemed to suggest that, yes, dollar strength is a problem for a lot of people. But then she seemed to also be walking back on some of those comments in the last couple of days. So I thought that was a fascinating comment because as you alluded to, we did have a joint statement from Korea, the US and Japan, about currency moves, and the market interpreted that as potentially the U.S. Treasury validating an intervention from the authorities. And it was a bit of a walk back in terms of expectations of intervention being that it’s rare when it happens. I think it’s also interesting if you contrast that with some of the comments coming out potentially from President Trump in terms of the levels of volume being too high and stories around changing dollar policy. So there is a bit of a difference emerging between the current administration where despite a strong dollar, which is creating pain in manufacturing, this insistence on maintaining the G7 commitments and also the separation between Treasury and Fed, that is coming up as a divide between the potentially the approach of a potential second Trump administration. So as far as the dollar direction goes, we are very attentive to rhetoric on the dollar, especially potentially from Trump administration officials. And does that rhetoric eventually translate into a weak dollar policy? So we are dollar bulls, but we’re watching this issue of weak dollar policy as a potential issue for the dollar over the next few months. I know Fed expectations are moving all over the place, but what’s the percentage chance of a rate hike at this point from the Fed? I think it’s still quite low because even though you have headline inflation, core inflation, which looks stuck around around high levels, if you look at everything else the Fed is looking at. So, for example, the labor market, all the key indicators of slack in the labor market, they are building this onus equivalent and rent issue, which is keeping inflation again elevated. All the forward looking indicators are coming down. So I think the bar, as communicated by Powell, is very high for a hike. This being said, if inflation does stay very sticky at these levels for the next few months, I don’t think we can rule anything out. And as you mentioned, the market was pricing 50 basis points of rate cuts this last March. And we saw how uncertain and how things can change. I think the key issue when you look at the US economy and the key reason that’s driving this structural outperformance versus the rest of the world is number one, fiscal policy. You just have this continuously expansive fiscal policy which you’ve never seen before, much larger than the rest of the world. Now, if that was to persist after the election, if fiscal policy was to be even more expansionary, that would be a major inflationary driver. And at the same time, you have an economy that’s extremely deleveraged. So if you compare private sector leverage in the US versus the rest of the world, it’s extremely low. And that’s what’s providing the robustness. And I think the consistent US outperformance over the last year or so. George. Finally, we have the Bank of England on Thursday. Some of the hawks have turned less hawks or less hawkish. I mean, what are you expecting for the Bank of England and what does that mean for Sterling? So our house view is that the Bank of England does start cutting in June. I would say the risks to that are definitely skewed towards later. When you compare inflation in the UK versus the rest of the world, it looks a lot more similar to the US in terms of it looks stickier. When you look at fiscal policy, again, the rest of the world, Europe in particular is tightening policy. In the U.K. it’s it’s thawing easier. So I think that combination does justify to some extent the market not pricing that many Bank of England cuts. And in terms of the pound, as long as the market is in this soft landing scenario, which I think is a very reasonable scenario to have, the pound’s a high yield. The UK has avoided a recession despite 5% rates and again here the UK looks a bit more similar to the US because of low levels of private sector leverage since Brexit. So if I put all these together, I think even if you get a Bank of England rate cutting cycle, it will be gradual. Pound stays a high yield, so we expect it to stay strong unless you get recession. George, Brilliant, as always. Thank you so much for coming on. George. Marvellous there. A global head of ethics research at Deutsche Bank on some of the effects moves that we’re watching very closely now. Coming up, more from our interview with the UBS chief executive Sergio Moti as a Swiss lender Tops estimates. This is Bloomberg. So let’s return to our top story this morning. Uber shares are gaining the most since March last year after the Swiss lender beat earnings estimates and returned to profit after two loss making quarters. Now the chief executive said Germany spoke to us about the company’s performance and the outlook for the year ahead. Actually, it’s a good momentum. You may remember in the fourth quarter, we also had a very strong performance in banking. As we integrate the new colleagues from Credit Suisse on our platform. We start to see the pipeline developing. We are able to execute. And so it’s very much aligned with our expectations of of improving the mix between our markets business and our banking business in the investment bank. So in the investment bank, where do you see the biggest strength? I know we also heard about possible job losses in Asia. Is Asia at the moment weaker than, for example, parts of the US and investment bank? No, I think that we reinforced our franchises globally. I think that’s of course we are still going through across the entire bank. We are still a lot of work to be done to restructure the businesses and to bring them back into even stronger profitability. So I think that is a good momentum. We achieved almost a 10% return on Citi one, which is still a third or 50% away from our final target. So still work to be done. We always say that 2024 is an important year and as we now approach the end of May, we’re going to execute on our legal entity mergers which allow us to unlock in the future further cost savings in important year 2024, because it’s also a more difficult year to to 2023 now because it is a more first of all, we have two huge milestones, the merger of our legal entities. And the second one, and we start to do the migration of clients from the credit suites platforms into the UBS platforms. So this is a very technical still requires a lot of support and people to do to do that. And but as we start to do that, we can unlock some cost savings, but also unlock capital savings, funding savings and therefore, you know, achieving our final targets to achieve 13 billions of savings by by the end of 2026 for this year, we do expect half of that being achieved. So six and a half billions, several. When you look at global wealth, I mean, the outlook talks about interest rate cuts again, how do you worry about things that are outside your control? Well, things that are outside our control, you know, you always need to wonder what’s what can happen on the geopolitical front, what can happen on on on any sudden change in the macroeconomic picture. So I think that’s we do indeed factor in our outlook for NII. For example, the three rate cuts in the US Cup, the two rate cuts in Switzerland, this can change and if it changes, may be beneficiary to our NII, but maybe the underlying macroeconomic events is not so positive. So, you know, we need to always assess well, we are prepared for any scenario this. Well, that was the UBS chief executive, Sergio Ramos. Let’s bring in our Swiss bureau chief, Alessandra, spiritual Alessandra. I mean, look, he was on fine form today. He said, look, everything is in place. But then, of course, this was capital requirements. It’s beyond his control. I’m surprised the share price is gaining something like seven or even 8% as we speak. I’m surprised there’s not more worries about that, given how much capital requirements they could need. Yeah, I mean, investors are really liking the three times his estimated profits and that UBS reported this quarter. So these were strong results. And clearly investors think that this is a solid condition going forward no matter what the Swiss government does. This is a big cloud. This is a big uncertainty. And in Switzerland, if you want, there is a bit of uncertainty. There has been so far a big honeymoon also with the Swiss public. UBS swooped in and saved Switzerland. They’ve saved Credit Suisse from a big embarrassment also for the whole of Switzerland. Now, of course, there was a bit of noise around or multi-speed most paid banker in Europe. But these results show that UBS is delivering on what it had promised when it took over Credit Suisse. But I mean, this is a problem left at home. And usually you have your first fight as a couple. I mean, is this a fight he was trying to minimise, actually the impact? And at some point he also said, look, we need more capital requirements to make sure that the system is safe. But again, it’s a overhang when you’re trying to build profit and revenue to compete with the Americans. Yeah, I mean, Switzerland went very much in the direction of UBS to make it easier for it to take Credit Suisse. It was very complicated. But now that he’s shown that he can deliver it, it is delivering it is delivering profits, even if it continues this enormously complex integration. I guess there is a sort of big of a backlash from the Swiss side and also the finance minister, Kelly Suter, which was the one who orchestrated the takeover, has also said that she was a bit concerned about the level of her market pay. This is a bit of sort of a swing of the pendulum, but everybody has shown that so far it can deliver what it has promised. Alessandra, as always, thanks so much for joining us. That was Alessandra speciale in Zurich. More to come. And this is Bloomberg. Well, Disney is expected to register an increase in subscribers to its streaming service when the company reports earnings later today. Now for more on all of this, we’re joined by Bloomberg’s Charlie Wells. Hi, Charlie. So what will investors be looking out for in the numbers from Disney? Yeah, for instance, so it’s all about Disney Plus and Parks. So we heard CEO Bob Iger talk a pretty big talk earlier this year about the potential for streaming growth on Disney Plus. This is something that a lot of entertainment companies have really been focused on trying to grow. Now, analysts are expecting some growth there, but perhaps not as big as Iger was talking about during that important battle with an activist investor earlier this year. But also, we need a focus on parks. So in 2023, theme parks were actually made up 70% of Disney’s operating income. So there’s going to be a lot of focus on how many people they can drive to parks, particularly in Orlando. So, Charlie, Boeing also disclosed part. I love Orlando, by the way. Boeing disclosed possible missteps involving the 787 Dreamliner yesterday. That’s prompted investigation. What more do we know? Yeah, for instance, so this is the last thing that Boeing really needs. They have been under scrutiny since January 5th when a door plug blew out on a 737 max. Now, this investigation involves a different airline, a seven, eight, seven Dreamliner. And what we know is that Boeing has alerted authorities that were that there were potentially missteps in inspections on some of those planes. We know that this is not an immediate flight issue, but it will disrupt production at Boeing factories. Charlie, thank you so much. Charlie, while there was a very latest on Disney and Boeing. Well, that’s it from Zurich. Bloomberg brief is up ahead. And this is Bloomberg.
UBS share gained the most in more than a year on Tuesday after reporting upbeat 1Q results. Driven by wealth and IB units, the Zurich-based bank returned to profit after two loss-making quarters. CEO Sergio Ermotti tells Bloomberg the ‘debate is still premature’ on Swiss government plans to increase the capital requirements for UBS. In the energy sector, Saudi Aramco shares rose after reporting results that largely met estimates. BP shares slid as its 1Q adjusted net income missed estimates.
Today’s guests: Simon Dangoor, Goldman Sachs Asset Management; George Saravelos, Deutsche Bank
– Video Chapters –
00:10 Intro
02:49 UBS rallies on 1Q net income beat
03:46 Sergio Ermotti, UBS CEO
07:55 Simon Dangoor, Goldman Sachs Asset Management
16:05 Aramco earnings meet street forecast; BP slides on net income miss
18:38 Israel raid closes Rafah border crossing in Gaza, Hamas says
22:20 Xi urges Macron to help China avoid ‘new cold war’
25:48 George Saravelos, Deutsche Bank
35:42 Sergio Ermotti, UBS CEO
39:22 UBS surges on 1Q results driven by wealth, IB units
41:30 Disney results preview, Boeing’s latest probe
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“The Pulse With Francine Lacqua” is all about conversations with high profile guests in the beating heart of global business, economics, finance and politics. Based in London, we go wherever the story is, bringing you exclusive interviews and market-moving scoops.
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