tv Worldwide Exchange CNBC July 30, 2013 4:00am-6:01am EDT
welcome to "worldwide exchange." i'm karen tso. these are your headlines from around the world. barclays trading sharply lower as it reveals plans to raise bigger than expected 5.8 billion pounds in capital to meet fresh demands from the uk's banking regulator. deutsche bank shares also weaker as a 630 million euro provision for litigation cost weighs on second quarter numbers. but there is better news from ubs, the swiss lender posting strong results, though the group remains cautious. >> clients are still very cautious across the board, so
overall i would say it was not as good as the first quarter, but still very, very strong quarter. and bp under pressure. the oil giant admitting it must raise provisions for its gulf of mexico compensation fund while underlying earnings also come in below expectations. record quarterly profits, though, for sprint to acquire softbank in japan, that's thanks to big returns from mobile games developer gung ho online. a very busy day on the earnings front. let's delve in. ubs, solid performance in the second quarter, pretax profit of 1 billion swiss franks. earlier, the bank's ceo said the time is right to buy back the toxic assets that it offloaded on to the snb back in 2008. take a listen. >> i guess the positive
developments in the last few months allowed us to take this important decision for us, which we allow our capital base points the option, exercise to increase our -- improve our capital ratio by 70 to 90 basis points. >> to me, it seems like a huge success for the government, the smb and you too, would you agree? >> we are pleased with the outcome, yes. >> a tickup on the share price opt market today, one of the best performers on the banking space and the banks reporting today. deutsche bank reported a miss on the second quarter pretax profit, bringing in 792 million euros. analysts were expecting a number in the region of 1.3 billion. results were hit by a 630 million euro hike in litigation provisions, and you can see the share price taking a knock as a result. we have a bigger slide in barclays and right at the bottom of the ftse today, barclays posted a 17% dip in its second quarter pretax profit from a
year ago. the bank also announced a leverage plan. it aims to raid 5.8 billion pounds by a rights issue, more expected. there was enormous speculation yesterday, down 4.6% on the stock. elsewhere in spain, santander posted a it t29% rise in profit compared to a year earlier th. bp's second quarter results missed expectations, but it adjusted net profit coming in at $2.7 billion compared to forecasts of $3.4 billion. the oil giant increased its 2010 oil spill net provisions to $42.2 billion, and the share price is down 2.7%. this is the overall tone on european markets today. there is a fair amount of green on the boards today.
this means that the overall benchmark index remains in positive territory with a modest rise of .4%. let me show you the individual indices. the call has been performing fairly strongly today, starting at the ftse where we're ahead just over .5%. closing to the 6,600 point handle. xetra dax, solid day for the german market, above 8,300 points. ibex in spain solid, ahead almost .4%. we had the news out from santander and also from the actual macro economic viewpoint, second quarter gdp numbers, the headline numbers shrinking just .1% in the quarter. that's down 1.7% on year. the market, though, still holding on to the green. the french market firm, you can see just off the 4,000 point handle. elsewhere across on bond rates today, we're coming up for a key bond auction in italy. this is 2 billion euros to 3 billion euros in june, 2018,
bonds that come up for auction. also, longer term paper, 3.75 billion, this is ten-year paper on office. the market looking out for that. this is how it placed on the rest of the markets. bonds, yield of 1.66%. portugal yields tracking close to the 6.5% mark, still treasuries a fraction of 2.6 own & own and on gilts, 2.31. investor watching debt markets and on we can its and forex. let's just dive in and see what some of the trades look like. we have a little dollar strength now on some of the baskets. euro dollar the exception, still seeing strength on the euro, 132.73 currently on the charts. the dollar/yen rates, 98, inching back to the 100 level. australian dollar, very much on the back foot today. we have seen steep fall, 1.5% here. this was after the central bank governor said there was more
room for the currency to fall and also the interest rate cuts. and this comes up to a key central bank meeting next week. some of the market anticipating this as a sign that interest rates will mark lower. sterling/dollar trade, 1.5345 is what we're looking at. on to the asia equity market action to li sixuan in singapore. looks like you have some green across the region today. >> you're right, karen. asian markets in fact shrugged off mixed japanese data advancing cautiously ahead of this week's fed decision. a weakening yen helped the nikkei 225 rebound 1.5% after yesterday's 3% tumble. and china shares also snapped a four-day losing streak. shanghai composite added .7%, still about ten points shy of the key 2000 mark. we're also watching indian shares. the sensex down by .7%, this despite the rbi left rates
unchanged as expected and also sounded a dovish tone for future support. as for individual movers, japanese exporters chalked up nice gains. sony gained by 3% today and olympus jumped over 6%. automakers also got into gear with toyota causing higher by almost 3%. earnings news also very much in play. kawasaki heavy industry surged nearly 9% in today's trade after raising its q-2 profit forecast. and daywa securities surged, but hitachi construction tumbled 3% on weak operating profit. in china, the pboc injected funds through open market operations for the first time in five months, only a modest 17 billion in fund, but it is helping to ease fears of another cash crunch on the markets, especially toward the month end. i remember that. the tight liquidity conditions
jacked up short-term money rates and caused severe market manic. banking shares as you can see, they made a rebound today. property developers and also some brokerage stocks also among the top gainers. back to you, karen. >> thank you very much, sixuan. we have an earnings deluge out today, particularly from the banking sector as well. we are not seeing a huge move forward. it is as though investors are waiting to see what the central bank is going to tell us. not healthy to see that sentiment, is it? >> i'm not sure it is unhealthy. i call it idiosyncratic rather than thematic. the earnings in aggregate won't tell us a great deal. there is no fresh story that appears to be emerging from the slew of individual company data. you can point to barclays, point to individual stocks, we can, you know, we can see individual stories. does anything inform the overall investor sentiment out of sneeze
these? i'm not so sure it does. you're right in saying we're waiting for the central bank. >> the earnings would give us a look at how individual countries are performing, where the sources of tension was, where the growth was. >> we're following the central banks. the central banks, read mr. bernanke's testimony, he didn't once refer to corporate earnings anywhere in his speeches or his testimonies as something that would guide fed policy. inflation, jobless rates, we know all that. not once did he mention corporate earnings. corporate earnings at this moment, in the macro picture, very relevant. >> you look at the tone coming through from some of the ceos in the bank reporting season and corporate reporting season, most are cautious. this is interesting because initially as we were starting out 2012, many people were hoping 2014 would start to look better. we have that in our eyesight now. on our horizon, yet confidence
is not starting to return. >> confidence isn't quite returning yet. i think it is also very important, karen, for business investment. if firms are not finding any capacity constraints, if they're not finding any big increase or sustainable increase in consumer demand, then where is the incentive for business investment? i think that's one of the real concerns we have. even if the united states, capacity is running 80, 80.1, that sort of level. there is plenty of idle plants and machinery, plenty of idle labor. where is the impetus for business investment? we don't see it. >> factories and labor in china too. we'll discuss the picture across the asian region as well. nick staying with us. want to dive into the macro economic news. spain's economic contraction eased in the second quarter to 0.1%, in line with expectations. it is the smallest decline in gdp growth since the country's recession in 2011.
does that sound like a silver lining? let's get out to stephane and see. are we starting to see a turn in the curve for spain now? >> that's the big question. exports and tourism, to main drivers for the economy in the second quarter. investment was stable. but consumer spending was extremely weak on the quarter. spending gdp contracted by 0.1% on this quarter. it is a relative improvement if you compare with the 0.5% contraction of the first quarter. is it the early signal for gradual recovery? the spanish prime minister still believes that the spanish economy would grow out of recession toward the end of the year. recently the finance minister said there was some early signs of improvement, especially after the jobless data that we had last weekend, that showed a small decline of the unemployment rate in spain. but on the ground, unfortunately plenty of economies believed that the country is actually really far from sustainable recovery for a couple of reasons.
first of all, because the improvement that we have seen in the second quarter was due partly to some seasonal effects including the -- sector. we knew the effects unlikely to last until the end of the year. secondly, because the consumer spending in spain is still very weak and unlikely to improve significantly as long as the unemployment rate remains close to 27%. and thirdly because the country remains very far from its budget consideration target. everyone here knows there is more austerity on the cards and everyone knows also that austerity measures will not have a positive impact on the gdp in spain. >> stephane, thank you very much for that. nick, dive in here. we have been looking at the numbers across on spain. feels as though many were worried about spain being pushed to try to get this bailout at some point. is there any chance of that now? we start seeing improving numbers in. >> the best we can see about spain is things appear to be getting worse more slowly. i don't see bunting being put
out on the streets in this kind of news. there are some seasonal signs of an upturn, whether they last into the fall certainly remains to be seen. grave doubts about the sustainability of spanish public finances. the debt to gdp ratio will go up, not down. we have a problem of the denominator. if gdp continues to shrink, ever euro added to the deficit will increase the debt to gdp ratio. we have some serious, serious problems still in spain. i don't think we should be taken in or fooled by the fact that things are getting worse more slowly. >> good point. let's come back to some of the stories we have been tracking to you on the corporate side again. k plus s is trading at the bottom. shares sank to a six-year low. one trader told reuters the news is a catastrophe.
ali alcatel lucent soared a second quarter earnings beat forecasts. alcatel eeked out a narrow operating profit in the second quarter. its first of the new ceo who said the company has also announced a research profit with qualcomm. this will see the u.s. firm take a stake of just over 5% in the group. the share price soar iing 1.6% today. >> most are facing an explosion of data and proliferation of smartphones, tablets and all those types of new equipments driven by video usage and that requires more and more equipment in their networks. so i think that we have the right product set in order to embrace the transition. on today's show, earnings central heads to tokyo where
softbank has just reported record quarterly profits. we'll have live market analysis in 30 minutes time. and could the party finally be over for silvio berlusconi? live from rome, ahead of a trial that could end the disgraced politician's career, that's coming up at 10:45 cet. president obama takes the pulse of the real economy from an amazon center in tennessee. we discuss as we preview the u.s. gdp report that comes out tomorrow. u.s. pharmaceutical giant pfizer reports solid earnings after announcing plans to split its generic and paid and protected business. we'll hear from one analyst who is bullish on the drug sector. that's all ahead. stay tuned. ♪
china's central bank injected funds into the market today for the first time since february. traders involved said the pboc offered $2.8 billion in reverse repos, that could mean policymakers want to stem interest rates from rising, given the interbank cash crunch in june. china's state council reportedly given the green light to the pboc's plan to liberalize interest rates.
also a new benchmark lending rate is in the works based on what banks charge their top customers. nick parson staying with us. we have seen big swings and round abouts when it comes to liquidity crunch in china. this different tone to inject money into the system. what is this telling us? >> it is six weeks ago that the chinese authorities said they're aiming to teach a lesson to the tier two and three banks. now, that absolutely put the skids on the equity market, shanghai composite plunged. now, the pboc blinked first. and they then did inject funds, they didn't teach the lesson to tier two and three banks. fast-forward a month and here we are now with another month end approaching and they're injecting liquidity. i think they're very mindful of the need not to see a collapse in domestic equity markets. >> we do know, maybe the chinese are just quick learners.
>> that's absolutely possible. maybe it did teach them a lesson, yes. that's absolutely quite possible. but if it did teach them a lesson, what it therefore does expose is the lack of liquidity in the system. we wouldn't be having the spikes as we approach each month end. and it is that very fragility which has been undermining confidence. there was a point around the turn of the year and into the first quarter when chinese equities were doing rather well. that's all been given up and more. we're now one of the worst performers globally in the shanghai composite. there is some real justified jiters. when we go back to the gdp figures we had, second quarter gdp that were okay, they're only okay because they appeared to be a roguishly low gdp deflator. if the gdp deflator was anything like it's been over the last five or six quarters, that gdp figure wouldn't have come near 7.5%. it would have been near 6. so real concerns there among international investors. >> trying to match up balance
sheets between hong kong and china and seeing what the trade was like. you see the discrepancies that have been there, this tells us the story about chinese gdp, that's how people look at it. what do you think is playing out? how slow is the china growth story? >> well, many ways of measuring the china growth story. one, you can look at the factor inputs, energy and railroad and all these sorts of things. the other way of looking at it is to see australian exports. unless the chinese are stockpiling vast amounts of iron ore and coal, you can check google earth to see if they are or not, you can't hide half a billion tons of coal. if you look at exports, they're holding up quite well. it does suggest we have not seen a collapse in output and growth in china, but certainly i think very, very valid doubts about that 7.5% figure. >> good point. thanks very much for that, nick. you're staying with us. we'll discuss the situation across an emerging markets and here in europe as well with nick in a moment. let's return to the earnings.
bp's second quarter results missed expectations with its adjusted net profit coming in at $2.7 billion compared with forecasts for $3.4 billion. the oil giant increased its 2010 oil spill net provisions to $42.2 billion this is what investors are focusing on today. let's get out to our uk business editor helia brahimi. >> thank you for joining us this morning. can you tell me, first of all, why have earnings come in so far below analyst expectations? >> well, helia, good morning. pretax earnings come right in line with what we expected in the upstream and downstream. it has been an unusual quarter with a 45% effective tax rate, 10% more than a year ago this quarter. and we also have been subject to something called the russian duty lag effects which happen all the time. it is not well understood by many analysts, though in russia,
it came in above expectations. when the tax is high, in the quarter, the price is high in the quarter before, that's what when your taxes and prices come down, you tax on what is effectively low revenue. happens cyclical. that will reverse itself out, i'm sure, next quarter. >> what has been the bright spots? upstream came in line with analysts expectations. >> for me, the bright spots are operationally in the upstream and downstream. in the upstream, we have been divesting things. we're getting more streamlined, a little smaller. you see that in our numbers. underlying production year on year is up 4%, which is a good strong healthy growth. and we had 95% utilization on our refineries. so pretax operationally the business is performing very well. >> still we have u.s. liquids at the lowest level for 14 years, i think. is that going to turn around soon, do you think? >> the u.s. production, liquids have been down. we divested ourselves in
december $5 billion worth of properties in the gulf of mexico. we moved our portfolio to four major hubs in the gulf. that's why that's down year on year. >> and you increased provisions for the gulf of mexico again. very little head room left in your fund. are you confident that your appeal that is going on will stem the flow of -- >> we said we have $300 million of head room in one category in the front, but more than $6.5 billion in that fund. we're not in danger of that fund being exceeded for some time, if ever. confident of the appeal, i believe very, very strongly in the merits of our argument. we have appealed what we think is a real misinterpretation of an agreement we made last year to compensate legitimate victims of the spill. we are vigorously opposing that
and will continue -- >> do you think that's being abused at the moment? >> we made a request last week, which i think was actually a modest request, former director of the fbi has come in to investigate what looks like some malfeasance of payment claims there. we think it was a modest request, take a time-out after three years and the judge said no to that but we'll continue to contest that. >> in the legal case, when are you expecting to hear the ruling on whether bp has been found to be negligent or grossly negligent, which is a huge difference. >> there is a three-part trial. phase one was completed -- started in february, ended in april. the judge has time to rule at anytime. there is also a phase two coming up that starts on september 30th. we think that will take a month or more. i think it could be at any point after phase two and there is even a phase three. so it could be sometime and
that's up for the judge to decide. >> in hindsight, do you think that the deal you struck in the u.s. was the right deal? lots of shareholders are raising questions now, basically 2020 everyone has a great opinion. did you get bad legal advice? do you think you made the right decision personally? >> we had some of the best -- we have some of the best american law firms advised us on that deal. we gave them a guiding principle was we don't want this to go on for years and years and years. we do want to pay legitimate claims. we don't want people to wait. we want to move forward with this. what we didn't expect was the interpretation once it was put in place. i think it was a good deal. i think some of the basic concepts of accounting matching revenue and expenses for example is not right. the biggest beneficiaries that i can see broadly, broadly are plaintiffs attorneys themselves, not just collecting fees on behalf of claims submitted, but also their own firms are submitting large claims. and this is not right. not good for american business.
it is a subject all around the world and that's why we're vigorously protesting it. it happens all the time in the u.s. with the class action plaintiff system, which is an industry and a business model. and i think in our case, we're large -- >> bob dudley from bp talking about compensation claims. speaking to our uk business editor helia. we'll have more on this throughout the day. bp share price down 3.1%, one of the worst performers on the ftse today, a third from the bottom of the index. some of the stockbroker reaction, one stock breaker saying the legal sentiments in relation to the accident casts a long shadow. this is what investors are still trying to digest how much money is left in the pot and what the company will do with the business. still to come on the show, barclays shares slump after a larger than expected rights issue. is there hope going forward? david henry joins us right after
banking regulator. deutsche bank shares weaker as a 630 million euro provision for litigation cost weighs on second quarter earnings. barclay was better news from ubs. the swiss lender posting strong results, though the group does remain cautious. >> volatility, clients are still very cautious across the board, so overall i would say was not as good as the first quarter, but still very, very strong quarter. bp under pressure, the oil giant admitting it must raise provisions for gulf of mexico compensation fund while underlying earnings come in below expectations. >> it has been an unusual quarter with a 45% effective tax rate, 10% more than a year ago this quarter. and we also have been subject to something called the russian duty lag effects which happens all the time. and record quarterly profits for sprint acquirer softbank in japan thanks to big returns from mobile games developer gung ho online.
all about earnings this week in japan. and companies such as softbank, mitsubishi motors and gsus reported their numbers today. the story live now from tokyo. >> japanese's softbank's net profit rose for the april/june quarter, more than doubling from a year earlier setting a quarterly record. they own a stake in gung ho online entertainment. its market cap has risen to more than $10 billion and thanks to hits like puzzles and dragons, game sales helped boost softbank's bottom line. strong sales of apple's iphones also chimed in too. looking ahead, softbank forecasts a record earnings for the fiscal year ending in march 2014, which will be useful as it invests 78% stake in sprint.
meanwhile, mitsubishi motors posted 7% gain in operating profit for the last quarter, helped mostly by the weaker yen. but its revenue dropped 2% as new car sales decline in the european and asian market. the recall of outlander suvs was not a major source of spending for meitsubishi, but this recal did hit the batterymaker of the car. gsus. the japanese batterymaker posted a $1.2 million net profit for first quarter, down 88% from a previous year. back to you, karen. >> thank you very much for that. on to some earnings over this side of the world again. ubs, look at how the share price has been performing today. green on the charts. the stock, 2% plus on the boards. it will purchase the snb's stability funds equity in the fourth quarter.
to carolyn who joins us from zurich. you've been tracking the results today. seems the reaction is positive. you look at the results from investment banking and also wealth management. >> yes, absolutely. it was a very good set of numbers. keep in mind that ubs had released a large chunk of the numbers last week, but, again, those are better than expected and even the additional details that we got this morning in terms of capital -- capitalization or wealth management margins. they were also very, very strong. ubs buying back the snb staff fund equity. that was to be expected at some point. the timing today, that came as a little bit of a surprise, but here's what it will do to its capitalization. it will boost it by even more, expected to boost it by some 70 to 90 basis points in the fourth quarter. so ubs with a ratio of almost 12% by the end of the year. with that, ubs clearly among best in class. and if you compare that to the
likes of barclays, which is suffering greatly today, or even deutsche bank, for example, ubs has also removed a large part of its litigation risk. ubs looks to be in a very, very strong position. now, let's move on to the earnings picture as i said. numbers were better than expected, driven by the wealth management unit, and also by the investment bank and clearly the ceo of the business was very happy with the overall result. >> i think that when we look at our clients during the quarter was pretty much in line with what we saw in the last few quarters, a lot of volatility, clients are still very cautious across the board. so overall i would say was not as good as the first quarter, but still very, very strong quarter. a quarter in which our wealth management business achieved at its best results in the last four years. >> what about the outlook for the rest of the year. how much visibility do you have? >> i think that, you know, the quarter will be fairly boring
and repeating the same story. i think that it is still very low. client risk appetite, if anything, has deteriorated. i think that the level of cash and -- cash alike is still very high, as increased during the quarter. so i do think that the ongoing geopolitical issues, the macro economic issues are still the issue that need to be resolved. >> that was ubs' ceo speaking to me earlier. as you hear, karen, outlook is still pretty much subdued and the company doesn't have a whole lot of visibility. that probably applies to the rest of the industry as well. back over to you. >> indeed that is the concerning part of the numbers today and the commentary, thank you very much for that, carolyn. let's look at deutsche bank. it posted a big miss on the second quarter pretax profit, bringing in 792 million euros against a forecast of more than 1.2 billion and it has been tracking the numbers today.
annette, looks like a mess. talk us through the detail. >> the details are that on the first glance it is a mess by deutsche bank and what they're guiding asset in terms of litigation costs doesn't really look very promising because in the next quarter, the bank expects more legal settlements and more legal costs. they up their litigation provision by more than 600 million euros to now 3 billion euros. of course, they have a lot of legal risk there out in the -- out in the field. and they still have to settle libor. there is loads of insecurity surrounding that. on the other side, one has to say they have to hold their capital ratio. surprisingly they reach tier one capital ratio of 10%. of course compared to ubs' 12%
that is still at the lower end, but for deutsche, that's actually very satisfying result. and as well, they reach 3% on an adjusted basis, already at the end of the last quarter, and talking about leverage ratio as well, have to say they're planning on shedding 250 billion euros in assets from the balance sheet, in order to meet regulate requirements. that, of course, will have 600 million euros. >> thank you very much, there, annette. let's look at uk bank reporting today. barclays, the good news it is off the lows of the session. bad news, it is just down over 4%. investors taking negative response today, barclays wants share holders to plug in 6 billion pound hole in its finances. its cash call, it announced a 1.7 billion pound profit for the first half of the year. let's get some analysis on this. david henrich, european banking editor at the wall street
journal. give us your takeaway message for the numbers and the capital raising today. >> the big news is the capital raising. we have known this was coming but larger than expected. i didn't think anybody thought it would be this big. it is a sign of how the regulators in the uk are really turning the screws on barclays. barclays has been insisted year after year it has plenty of capital, doesn't need to do anything. now here we are in the middle of 2013 and they're raising nearly 6 billion pounds. it is a huge -- it is a huge miss for them in terms of what they have been telling the market and it is a real sign of how regulators -- >> it tells us something about the strategy too. it didn't necessarily go down the path, it opted to raise more funds on market. >> in some ways they are still actually reducing the balance sheet as well. they're issuing some contingent convertible bonds as well. they're doing everything. it is on the other hand, they're maintaining their dividend. they're trying to take advantage
of a big surge in their stock price over the past 12 months. the stock has basically doubled. and they clearly are one of the survivors in the european bank. they've big investment bank that will survive the shake-up going on. they have very diverse franchise and not going anywhere. and they're one of the banks that really can get investors to buy into their story right now. >> one of the things that has come out on the show so far and across industries, whether we look at bp there or individual banking names in the uk, litigation and it is regulation. to the extent that banks across europe are on the naughty step, no one likes banks and especially not governments, politicians, the general public, do you see more regulation, more fines, more essentially more cash raising using the banking sector as a cash cow across europe? >> certainly -- i'm not sure i would agree with the characterization of using it as a cash cow. but certainly we're seeing across the sector right now,
banks are bracing for getting in more trouble and deutsche bank today, one of the big things that hurt there and they set aside 650 million euros for future litigation expenses, which my understanding is that includes everything from future libor settlements to getting in trouble in the u.s. for various things to, i'm sure, something will happen in europe. barclays is part of the reason the results were so bad today is because they set aside a lot of money to recover payment protection insurance and swaps and things like that. that's certainly the story that is affecting the entire european bank industry. same thing on the u.s., actually. the u.s. banks are getting whacked pretty hard by american regulators as well right now. >> want to talk about the new financial targets for barclays. it said it would see a return on equity that would exceed its cost of equity in 2016 rather than 2015. investors have to wait it out for a little bit longer. >> investors have already been waiting quite a long time. as long as i've been covering the bank, they have been saying we need to get our return of equity above our cost of equity. the targets -- they used to be
in the midteens percentage wise for return on equity. slowly creeping down and the cost is slowly creeping higher. one day i'm sure that barclays and other banks will achieve that target. it is going to be put further into the future. >> want to delve into the santander numbers as well before we analyze them. spain's biggest lender reported a 29% jump in profits. came in at 2.25 billion euros in the first half. the share price is now just a fraction weaker. down a third of 1%. stephane has been pouring through the results. give us the key themes in numbers in the results today, stephane. >> that was a mixed bag, really. i think the market reaction shows very well what has been announced this morning by santander. if you look at a net profit, yes, it was up 29% on the first half of the year, but the main reason for that is that there were less provisions on the first half of this year than a year ago. so that was the main driver for the results of santander. if you look into the details, in
latin america, where the bank makes most of its earnings, 51%, the net profit declined by 16% so that was not really positive for santander. if you look at the bad loan ratio, something important for spanish banks, 5.18% at the end of the second quarter, a significant rise if you compare to the 4.76% at the end of the first quarter. it remains, of course, below the levels of other spanish banks like banca. but the trend is the same because of the economic recession in spain there are more and more people unable to repay their loans. therefore, nonperforming fund ratio has been declining for all the spanish banks. santander did not indicate what would be the dividend policy. there is a problem. the bank of spain would like to limit the dividend pay ratio. >> a good point you raise about the dividends. why pack cash when you may have more exposure on balance sheet
that you have to cover. we have a wall here i want to bring up, npls has been rising across the board since first quarter in 2012 had when they started at 4.8%. the company has more exposure elsewhere in growing regions. spanish numbers pushed yoefrt all np-- overall npls higher. the rally is they still have exposures we don't know about. >> one interesting thing about the npl number, the bank of spain, the spanish banks in general are trying to put it diplomatically, very liberal about how they define that number compared to some other countries. what constitutes -- their npl number is higher if they're more
conservative in how they calculate it. it is definitely santander's exposure is really a central problem. >> it is exactly the same problem the government has, a denominator effect, you don't get the growth, then any bad debt you get is going to push up your bad debt ratio, just the same with the government. if you don't get the growth, every cent on the deficit will put debt to gdp ratio. it is a denominator effect. in the absence of growth in the banking sector or whether it is in the spanish economy, things just will get worse. >> the nonperforming ratio of santander is close to 5.2%. you look at other spanish banks, banca, it is up 13.4%. do you believe it is the next big proob fblem for span irk ba? >> it is already a big problem for spanish banks, and we already have seen one bank after another topple over in the span. i think interesting for santander, the thing i take away a little concerning is the thing
that sets santander apart from the likes of banca or some other smaller banks is it has a great international exposure, huge in latin america, bigger in places like eastern europe, bigger in the uk, but the numbers in brazil this morning, that business is nonperforming as well as you might think it would. and if santander starts having problem in countries like brazil or poland or the uk, that -- that really exacerbates the problems in spain. it removes this key buffer they have, insulating themselves from just the domestic spanish problems. >> do you think that the spanish banks should be worried of the possible asset quality review from the european central bank? >> i think everyone in europe is worried about massive quality review. we had a story about the italian banks that are the bank of italy is clamping down on how they calculate bad loans and how much they set aside to cover the bad
loans. the problem is the ecb prepares to take over banking supervis n supervisions in the eurozone, something we'll see a lot more of central banks turning the screws on their jurisdictions. >> more likely to be on a country by country basis, rather than say another round of european stress tests, do you think? >> i think for now. i'm starting next year, the ecb is going to do a systemic asset quality review. >> what is the point of a stress test if you don't have an answer for system to fall back on where you can recapitalize the banks. this is the problem of europe versus the united states. >> yeah, that's the exact problem. i don't know the answer to your question, though. >> what's the point when you start and work backwards to find out what question you should ask. >> all completely reversed, isn't it? i want to get quickly to the language coming out from santander today. i heard it myself when i was in spain last year at the bank results. they were optimistic about the picture before them. today though saying provisions
showing stabilization or reduction in the main units. how much stock do we put in this? >> the family that runs santander is comprised of eternal optimists. but they're eternal optimists and very canny and savvy and tend to be right a lot. we're seeing very negative trends. unemployment is high, the economy is in the gutter in spain. that translates into more businesses and individuals. that's pretty simple. the question though is how much santander has really set aside already to cover that. their argument is they have done an excessive amount and they can start removing some of the provisions. only time will tell. >> thank you very much for that, to both of our guests today. david henry, european banking editor of the wall street journal and nick we enjoyed your company today as well, nick parsons. still to come, silvio berlusconi is facing a prison sentence that could see him
italy as supreme court will decide today whether silvio berlusconi will be banned from public office and go to jail. let's get out to julia chatterley live in rome for us. set the scene, what will happen for us today. >> well, actually, the court is just opened in the last few minutes, two hours late. we're also two hours behind on this. there is eight different cases to come before berlusconi, so although his lawyers said this morning that they wouldn't ask for a postponement of the judgment, which means that we are more likely to get a ruling over the next couple of days, got to remember the number of cases to come first, so we could be here for some time, at least a day or two to get to ruling out of this. three options are likely, though, we're either going to see him get acquitted of tax fraud. they may decide to shift the ruling to a lower court and be reviewed at a later date or he could be found guilty.
what does that mean? that could mean one year community service. it could also mean a five-year ban on mr. berlusconi holding public office. the important point there is that's not automatic. the senate would have to rule on whether to give him immunity or to enforce that ban on public office. now, mr. berlusconi's supporters in the pdl have said they may pull away from the coalition, or they may have a mass walkout as a result of him getting convicted here. mr. berlusconi himself said that we need to be cautious here and the government will continue. it is funny that the consensus really is actually that the biggest danger to this coalition comes from the democracy party, and the prime minister aleta concerned about how many concessions they have give tonight government, we have a leadership contest coming up in the next few months. the real quicker as a result of the case could be that the democratic party have to give berlusconi immunity to hold the coalition together. ultimately, though, you have to look at the polls to see how this coalition is going. very little change.
so ultimately a new election, would bring us back where we started. yes, there will be a lot of noise around this case, but ultimately i don't think the coalition is under any particular threat for now. karen, back to you. >> julia, may as well stay for the next conversation giving the waiting there on the court reporting duties. we have jonathan hopkin reader and comparetor of politics. is it judgment day for the coalition depending what the courts decide? >> maybe there won't be a decision that soon, so there could be a stay of execution for the government. a confirmation of the sentence of berlusconi and especially a vote in the senate on whether or not he's allowed to remain in parliament would have explosive effects on the ten-year in the government. the government relies on the votes of the party. and berlusconi almost certainly would use that leverage in his fight against the judges. >> is it better to get a decision straightaway? like ripping off a band-aid.
we know the outcome. >> well, it is hard to know, hard to know how to markets would react to the decision. certainly italy is coming up to the summer break where politics slows down a little. it could be good to get the decision out of the way at the moment when parliament is about to close for summer. but there is probably no good time for the decision like this. berlusconi needs to support this government if it is going to have any ability to legislate. and he will clearly use his power in parliament in an attempt to try and force the judge's hand. >> jonathan, berlusconi said leading up to this verdict that he will support the government even if he's convicted. do you believe him? do you think he was just playing games in order to appease the judges ahead of this? >> clearly for berlusconi, there is no easy option. if he puts his own personal
judicial travails ahead of the national interests, and very obvious way, this could play badly in public opinion. and, of course, berlusconi also has the possibility of bringing down the government, forcing new elections, but he'll have an eye on the opinion polls to see how the public would react to whatever he does in response to the sentence. it is a complex situation for him too. >> this all weaves into the political situation in terms of how far they are down the reform path. there has been enormous criticism that the reform process has been sluggish to this point. but on the other side of this is that's a positive for voters. voters have been negative on too much reform. >> yeah, i mean, this government actually, to be realistic, has very little chance pushing through any major reforms because it relies on the broad spectrum of the party system and of the electorate. anything very controversial to labor reform would have the veto of the left wing parliamentar n
parliamentarians and having to do with the licensing laws for small businesses or measures of tax evasion would have to veto berlusconi's party. it is difficult to see the government doing anything that radical. >> thank you for joining us today. jonathan hopkin. julia, we'll come back to you and see how you're doing outside the court there. coming up, italy faces a crucial test of bond markets with its ten-year an five-year bills up for auction. we'll bring you the breaking results at around 11:15 cet. still to come on the show, bp earnings post a big miss as costs tied to the gulf oil spill leak. the ceo tellss tells cnbc he's committed to paying the victims of the spill. [ male announcer ] i've seen incredible things.
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welcome to "worldwide exchange." i'm karen tso. bp under pressure, the oil giant admitting it must raise provisions for gulf of mexico compensation fund while underlying earnings come in below expectations. >> it has been an unusual quarter with a 45% effective tax rate, 10% more than a year ago this quarter. and we also have been subject to something called the russian duty lag effects, which happen all the time. barclays trading sharply lower as it reveals plans to raise bigger than expected 5.8 billion pounds in capital to
meet fresh demands from the uk banking regulators. deutsche shares tracking weaker as a provision for litigation costs weigh on second quarter earnings. but there was better news from ubs. the swiss lender posting strong results, though the group does remain cautious. >> volatility clients are still very cautious across the board, so overall i would say it was not as good as the first quarter, but still very, very strong quarter. and the investors will be looking to the fed and ben bernanke for more include klucl as the central bank kicks off a two-day meeting. shares in bp are trading sharply lower after the company's second quarter results have missed expectations with
adjusted net profit at $2.7 billion compared with forecasts for $3.4 billion. now, the oil giant increased its 2010 oil spill net provisions to $42.2 billion. earlier we spoke to ceo bob dudley and began by asking him about the earnings news. >> pretax earnings are coming in right in line with what we expected in the upstream and downstream. it has been an unusual quarter with 45% effective tax rate, 10% more than a year ago this quarter. and we also have been subject to something called the russian duty lag effects, which happen all the time. it is not well understood by many analysts, though in russia, it came in above expectations. how that works is when the tax is high in the quarter, the price is high in the quarter before, that's when your taxes come down, tax on what is effectively lower revenue. happens cyclical. that will reverse itself out, i'm sure, next quarter. >> so what do you think has been the bright spots, upstream came
in line with analyst expectations. >> for me, the bright spots are operationally both in the upstream and downstream. in the upstream, we have been divesting things, so we're getting streamlined, a little small, you see that in our numbers. but underlying production year on year is up 4%, which is a good, strong, healthy growth. and when he 95% utilization on refineries. so pretax operationally, the business is performing very well. >> pfizer has reported second quarter results a few hours ahead of schedule. the u.s. drugmaker's profit and revenue came in slightly ahead of forecasts. pfizer is standing by the four-year outlook. monday, the company announced it was realigning businesses into separate units, this potentially paves the way for a spin-off. richard perkus at atlantic equities joins us later in the show to break down the results and to talk about the new company structure. that's at 11:45 cet.
let's look at how markets are shaping up, you can see we have a little green on the charts. the dow, the nasdaq, the s&p 500 all open firmer. this comes after a little bit of weakness yesterday, despite all the activity out there. $40 billion worth of cross border deals this is a sign of confidence in the markets, yet investors stayed on the sidelines waiting it out for the fed's two-day meeting. what does it tell you about what investors have their eyes trained on? but so far this is just the early stages. let me show you european markets. we have been a little firmer across the board here today. this is because of a bunch of earnings out there. the tone has weakened a little bit now as we take a look a couple of hours into the session. ftse is holding up .2%. at last check, half a percent on the board. it has come back. the xetra dax was up about .75%. one strong performer on the european markets, but today as we take another look at it, you can see we're just up .1%.
we're peeling back as well there. the ibex and spain, a fraction under water. we had gdp numbers out today showing the country this richging. f the number were digested okay. you can see a softening up in the tone. also damaged the cac in france as well. foreign exchange markets, the latest too. we have some more u.s. dollar strength playing out here. some of the rates you can see, euro dollar holding 132.70. this is the exception. where we have seen the most movement again is on this commodity currency. the australian dollar down sharply, 1.5% as the central bank governor was talking about further interest rate reductions and also the moves lower in the currency. this is seen as perhaps a precursor to interest rate cuts next week. the market, you can see, selling off the australian dollar in anticipation. let's move on to bonds and government debt markets.
coming up to key auction in spain -- italy. that's what we're following today. on the boards you can see we're mostly firmer on these bond trades. so yields have been pushing a little lower, 1.65 on bonds. portugal, off 6.5. we're about 2.5 getting closer to 2.6 on treasuries and gilts 2.31%. but you got to be brave to be trading those in this environment given all the news we had out from ben bernanke last time and also from the boe and ecb with forward guidance. investors will be looking to see what the tone for the central bank will be this week. li sixuan now. >> thank you, karen. a pretty positive day for asian forces with the exception of the india sensex. and chinese stocks were up for first time in five days at the
shanghai composite gained .7%, ending just 10 points below the key 2,000 handle. chinese lenders were broadly higher after the pboc surprised the markets by injecting 17 billion. but chinese call stocks got hammered today on the hong kong board after they issued a second profit warning three months expecting to post a loss in the quarterly results due to weak coal prices. shares tumbled over 9% in today's trade. and another stock that suffered today, shangri-la asia after the company issued a profit warning blaming the weak performance of hotels in china. but wynn macau enjoyed a rally after steve wayne said they will open stores a year earlier than planned. in south korea, auto stocks outperformed the broader market thanks to robust demand in china.
hyundai motors extended a 12-day winning streak. kia motors also added more than 3%. back to you, karen. >> thank you very much, sixuan. we have been looking at the chrysler numbers that just crossed. i want to show you how features are reacting. this is the company that owns chrysler and you can see if we bring up the board that shares are under a little pressure today, down 4% as a result. that's as the earnings hit. second quarter net profit has risen 16% to $507 million. the net income for the second quarter at that level was, you know, up 16% a year ago. he h the headline number seems to be solid. increase of 7%. the group four-year 2013 guidance has been revised. worldwide vehicle shipments 660,000 for the quarter. that's up 5%. it sees 2013 worldwide vehicle
shipments of 2.6 million. this seems to be slightly down the margin from the previous numbers, which could have been up to 2.7 million. so slightly off on that. in terms of operating profit, $808 million from $755 million a year ago. that's slightly higher. in terms of what it sees as its 2013 net income and perhaps this is the line we should be focusing on, it is $1.7 billion, down to $2.2 billion, so the range seems to have widened and to the down side from the initial forecast of 2.2 billion, perhaps this explains why the share price is falling. just one other note in terms of the u.s. market share, if you're interested as to how many chrysler badges you're seeing across the states on the highways and the roads, the market shares are 11.4% for the second quarter compared with 11.2% a year ago. it is rising slightly. let's move on to the big event, the macro news and what central
banks will be doing this week. fed begins a two-day policy meeting today, not much action is expected, but fed watchers will be looking for more clarity on when the central bank may slow bond purchases. there will be a listing for any comment on what may trigger a future rate hike. fed chairman ben bernanke said rates could stay low, even if unemployment hit 6.5% as it may still mask a weak jobs market. a spokesperson says fed vice chair will moderate a panel at the annual jackson hall conference next month. yellen is one of the expected replacements. to matthew mccormick at ball and gainer. he joins us now from the states. mice to have you on board with us. give us a sense of what we get out of the fomc this time. >> good morning. i don't think we're going to get much change in news. i think everyone is going to be
looking for what bernanke may or may not say. expect to continue dovish language. and i think people will be looking for signs or clues of potential tapering. most people on wall street believe that that will occur sometime in september, possibly october. and i think it is going to be a little bit less of what he was talking with the 85 billion and i think it will be around 20 billion range. i think the market is addicted to liquidity, will not like it and i expect more volatility if that tapering does occur. >> just mentioned a two number there in terms of how much tapering should be taken off. others are saying less. some are saying 5 billion a month. the volatility around how much of a retraction we could see on the asset purchases, to what extent will that drive market action? >> i think -- i don't think the amount matters. i think the act matters. i think when you look at what has happened, qe-1 ended, qe-2 ended, every time that happens, the market had a temper tantrum.
i think this is something, you look at bernanke's legacy, i don't think he's going to leave yellen who will be the likely successor holding the bag and i think he wants to have a clean slate. i think he did not want his legacy to be one to be known that he is addicted to market liquidity, i think he'll make the decision regardless of what the data shows and i think the market needs to understand that. it is almost -- you look at the summer rally now and looking at anticipation, people know it is coming, but don't want to address t i thiit. >> we're just showing a curve and you can see after the rally we had, we stabilized a little bit, almost as though investors are trapped too nervous to make a move now. despite the fact that yesterday we had all this activity that should have moved the markets, we didn't see that. what are we going to see when ben bernanke speaks, or the statement comes out and what is the reaction this time? >> i think the market will trade sideways.
you're seeing a future flat, i think the market will trade up on anticipation of dovish results. and then people are going to start focusing to the friday job numbers and other signs of data. this is going to be a very volatile week. i think you're looking at gdp numbers that give cause for concern. macro events are having issues. i think the earnings environment has been better than expected, even though it is somewhat weak. revenue has been weak. i think really what the other cause for concern people will have is looking at data points and also concerns about potential political geopolitical events. i think the market is going to trade up in anticipation of the release and go again flat, waiting for friday's results, karen. >> thank you very much for that. we'll come back to you in a moment. in the meantime, i want to come up to what is ahead on today's agenda, just a flag post for our viewers out there. the case-shiller home price index is out at 9:00 eastern. prices in 20 major u.s. markets are forecast to have jumped 12.4% in may. an hour late, july consumer
confidence expected to be roughly unchanged from last month. merck reports earnings before the open. and we have aetna, coach and nyse euro next after the close. we here from amgen and aflac. those are the big ones to look at. we did promise you the results of the italian auction today. let's try and dive in and tell you what the latest has been. we have seen italy has issued 3 billion euros worth of 2015 btb bonds. so this is the five-year. the yield is at 3.22%. in terms of the recover ratio, 1.36. the change from the previous yield is minus .25%, down a quarter of 1%. the yield is going the right direction in terms of taking some of the pressure off on the five-year paper. let's move on to what we're seeing out of the longer term paper, the 2024, ten-year paper.
3.75 billion was auctioned off. the yield at 4.46%. that yield slightly down, not as much as what we have on the five-year, just off .09%. the bid to recover 1.32% as well. so that is the latest on those auctions for you. these are your headlines now. bp second quarter earnings miss sxe expectations. barclays misses as well. the bank announces a bigger than expects rights issue. the focus turns back to the fed as the two-day policy meeting gets under way. [ male announcer ] it's time. time to have new experiences with a familiar keyboard. to update our status without opening an app. to have all our messages in one place. to browse... and share...
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welcome back. we have been wading through earnings for you and the latest is the chrysler numbers, a big drop in shares. shares have dropped 4%. you can see that's where they're sitting currently on markets. the news that came out from chrysler was that it cut its net income forecasts for 2013 to $1.7 billion to $2.2 billion. previously it had advised the numbers would be around that the 2.2 billion mark. the revision lower caused this sharp reaction across on the markets. also, the vehicle shipments
worldwide have been trimmed 2.6 million from about 2.7 million. so about 100,000 less is the expectation. the biggest concern that the company has. in terms of theater, its own earnings have been crossing as well. it says it confirmed its 2013 financial targets, curious after having the chrysler numbers. second quarter net debt is at 6.7 billion euros. the overall profit has come in at 435 million euros. in terms of just the other points, the revenue still a whopping 22.33 billion euros. second quarter investments are at 3.47 billion euros, versus 1.75 billion euros in the first quarter of 2013. bigger investments is the tone that is coming through. in terms of some of the other numbers, just want to take a look at the debt by analysts.
industrial debt by analysts seen at 7.3 billion. so the numbers that came in at 6.7 billion on this mark are lower. there are actually some numbers through the theater numbers as a whole that are okay. if you look at headline numbers from chrysler, this the impact on the stock today. investors have been flocking to financials over the past month. can european banks keep up with u.s. rivals? we'll discuss that next. [ male announcer ] come to the lexus
ubs recorded a solid performance in the second quarter, reporting a pretax profit of 1 billion swiss franks. you can see the market today, up 2.7%. revisiting highs it hasn't had on the charts since 2011. let's get out to carolin roth in zurich. the response has been extremely solid today. >> yes, absolutely. this was a very good set of numbers. keep in mind the bank had prereleased last week, but what is really driving the shares today is the strong capital levels, coupled with the announcement of -- surprise announcement that ubs is going to be buying back the equity from the snb fund. this is the toxic asset fund said up at the height of the financial crisis five years ago. ubs closing very important chapter in its history. and i asked the ceo why now was
the right time to buy back the equity. >> i guess the positive developments in the last few months allowed us to take this important decision for us, which would allow our capital base points the option, exercise to increase our -- improve our capital tier one ratio by 70 to 90 basis points. >> to me, it seems look a huge success for the swiss government, for the snb and you too, would you agree? >> we are pleased with the outcome, yes. >> strong investment banking revenues especially on the equity side, and very profitable wealth management unit also drove the better than expected numbers. stock, as you say, nicely outperforming the rest of the banking sector today. karen, back over to you. >> thank you very much. sharply different reaction at deutsche bank. shares lower today and posting very little return to the -- choppy trading action. i'm looking at the kurcurve for this year.
let's get out to annette for more in frankfurt. we know the german market is meant to be one of the stronger economies across the board. but bank numbers and if you look at the share price reaction to the likes of ubs, deutsche bank has been under some pressure. >> yeah, that's very much true. deutsche bank earnings really disappointed on a net basis, pretax basis as well, on revenue basis. and as well the fact that they increased their litigation provisions by more than 600 million euros in the last quarter, not really a promising thing looking ahead to the future. they're planning on shedding 250 billion euros in assets from the balance sheet in order to comply with the new regulation, ie leverage ratio. that, according to the cfo, will cost 600 million euro and as well means 300 million euro less in revenues because, of course,
those assets produce some kind of revenues as well. so overall the picture is rather dull, but on the other side, the bank managed to increase its capital ratio to 10%, which is compared to ubs still low, but the bank always was judged to be the least capitalized among european banks, even one fed member was criticizing the bank for being a dangerous and really under capitalized. so apparently the management is now doing everything to counter that criticism. back to you with that. >> annette, thank you very much for that. barclays here in the uk has posted a 17% dip in second quarter pretax profit from a year ago. but the focus for the bank has been on its plans. its leverage plans and aims to raise 5.8 billion pounds by way of a rights issue that is more than expected. the share price has slumped
5.5%. staying with us, matthew mccormick at ball and gainer. let's dive into some comparisons on these numbers. we had a look at what exists on balance sheet. how do you think the two sides are tracking in the banking sector? >> i don't think they're necessarily linked. i think people on the banking side, those investors looking at banks need to be selective, eu banks, whether u.s. money center banks or regional banks. they're all not created equal as you're seeing with the results from deutsche bank are u.s. bank or ubs. i think people need to understand where the revenues are coming from. investment banking seems to be a very common theme that seems to help in some of the m&a activities. those results have been a credo. the concerns have been -- where i'm seeing some issues are the capital races. on the equity side, tier one capital, that's going to, i think, crimp further revenue streams. and a lot of these banks have been growing the earnings, especially on u.s. money center
banks from taking from loan loss reserves, but the revenues have been anemic. that trend is going to continue. you look at banks, there is going to be ones that will stand out. and i think when you look at ubs clearly ahead a stellar result today. you see them gain in share price. barclays, or deutsche bank or some other situations where they maybe move too far, too fast, i think there is going to be a distinct difference between banks worldwide whether it be eu or u.s. i think investors need to be very selective and i predict more volatility for the banks, especially as they deal with the capital requirements going forward. >> matthew, a little more on that, is it fair to say the european banks are more risk of needing to raise capital versus the u.s. counterparts? >> i think they do. i think if you look at barclays at 2.5, whether you look at almost any, in my opinion, any eu bank, they have continued capital races will be higher than most people expect. i think the u.s. is -- in
anticipation is maybe slightly better. but i don't think investors have been really focusing on it. they have been looking at the revenues coming from investment banking, coming from the equity trading. and i think they're also looking at the slight rise in interest rates, particularly in the u.s. has been helping on the lending side and not have as much margin compression. i think you look at european banks, the capital requirements are not the only answer. people forget that dexia passed the european stress test and had the best capital ratios around and still won out shortly after. so capital ratios do not equal safety. you need to look at balance sheet and be selective. i do not think europe is fixed. i think it is getting better, but be very selective and choosy. >> let's not bring up the stress test again. thank you very much for that. we'll discuss a few more metrics in a moment. still to come on the show, president obama lands in tennessee, taking the pulse of america's real economy. we'll discuss that ahead of the latest gdp report, which is due out tomorrow.
central rate hikes. chrysler warns on profits sending shares lower in the markets today. bp under pressure, it must raise provisions for its gulf of mexico compensation fund while underlying earnings also come in below expectations. >> it has been an unusual quarter, with a 45% effective tax rate, 10% more than a year ago this quarter, and we also have been subject to something called the russian duty lag effects which happen all the time. also in earnings reaction, barclays trading lower as it reveals plans to raise bigger than expected 5.8 billion pounds in capital to meet fresh demands from the uk's banking regulator. if you're waking up in the states and just joining us, thank you for switching over. this is how we're looking across
on our markets this morning. the early picture suggests a start in the green for the dow, the nasdaq and the s&p. this comes after a day of caution yesterday despite just a whole host of m&a deals across the markets. we saw investors still scared about what is going to happen from this week's fomc meeting, what ben bernanke will say about tapering. we have the jobs report at the end of the week as well. investors waiting for more central bank speak. also waiting for the data to see what the picture looks like and what that is going to mean for investments. european markets have been just a little bit cautious in the last bit. we have been tracking mostly firmer as earnings are digested across the board. the call has been the stronger markets across the region today, and so far we had .2%. the xetra dax recovering some territory in the last few minutes, a quarter of 1%. it was ahead .75% at one point. we're off the highs of the day. the ftse in italy is ahead .3%. and the cac now just pushing back into the green and had
dipped briefly into negative territory. how do you make money in these markets? this is what the experts have been telling us today. >> over the long-term, prices of oil are going to remain elevated but should come down after the recent highs. that should offer some support for bp and make deep water investments, a lost projects that they're pursuing which are hugely costly and expensive. should make them profitable. >> more interesting structures coming out nowadays and both barclays have committed this morning to a 2 billion additional tier one instrument and also deutsche bank are going to have to do that in order to meet their leverage ratio. so it will be interesting to see what the structures are. they'll be high trigger, so presumably they'll have to pay up a decent coupon. >> the fact that the fed is talking about tapering as the u.s. economy recovers increases the uncertainty of our outlook. that in itself should have an
impact on markets, especially on the interest rate market. we have seen that over the last few weeks. i think this is still going to continue. >> some strategy from matthew mccormick, vice president and portfolio manager staying with us. matthew, we have seen some gains on the s&p 500, but we are waiting for this tapering talk, some clarity here. what is going to happen by year end? still tracking higher? >> i think if you see tapering come forth as i and many others expect in september, i think you can expect to see some volatility and slight retraction. i don't think it will be something in the order of 2008, but enough to get investors' attention. if you look now, we're approximately up nearly 20% year to date, if you see us pull back and close around 15%, at 1231, most people would be accepting of that. when you look at the outlook for 2014, probably more than 5 to 6 camp, i don't see the growth that many other people feel.
i think when you look at the effect of rising interest rates on the effect of housing, i think that will impact more than people expect and i expect to see that somewhat slow housing and have the knock on effect and i think you can see more volatility. the areas that we like are companies with dividend growth we like the technology companies, we don't like big yields like the utilities and telecoms. but we think people that are growing in terms of companies like qualcomm or apple, intel, even though intel had had a recent miss, we still think there is a lot of opportunity there. technology as a whole has companies that have very strong free cash flow, very little debt. the ability to increase their dividends. qualcomm increased dividend 40% in march, a strong sign of current and future strength. i would look for companies that have the ability to price themselves better than their piers and increase the dividend. i want to own the stock and get paid to own it and avoid some more interest rate sensitive dividend plays like utilities
and telecoms. >> how upbeat are you about revenue? we had a bunch of companies reporting on the s&p 500. 56% of the companies are beating revenue expectations despite the challenges out there on the backdrop. >> that is a great question. look at earnings particularly with the u.s. s&p, without financials, earnings have been weak. but revenue growth has been trending down. i think the last thing i saw, you have to have revenues, earnings to pay the dividend. i'm focusing on management, they're paid to beat eps, not beat revenue. i think it is something that i get more and more concerned if companies are struggling to beat revenue expectations, and they're essentially gaining the earning side with banks and taking loan loss reserves, that gives me pause for concern. i like companies that can grow the earnings and the revenues organically and dividends and increase it year over year. these are higher quality companies and those should be sought out particularly if you see more volatility picking up. >> thank you very much for the
trading ideas there. matthew mccormick at ball and gainer. thank you for being on the show today. let's move on to president obama who heads to chattanooga, tennessee, today. he'll visit amazon.com and its fulfillment center there. he'll be speaking at 1:30 p.m. eastern, delivering the first of several policy addresses on his better bargain for the u.s. middle class. the white house says today's speech will focus on manufacturing and high wage jobs and plans to jump start private sector job growth and make the u.s. more competitive. the president's visit comes a day after amazon announced it will hire more than 7,000 full time warehouse and customer service workers. probably what is a well timed announcement for the markets. the u.s. government is laying the ground work for a potentially hefty fine against jpmorgan. let's go to hampton pearson for more in washington. >> this is a little complicated. follow me here, if you will. the federal energy regulatory
commission says jpmorgan manipulated power prices in california and the u.s. midwest, confirming months of media reports. the agency's notice of alleged violation is an intermediate step bringing details of the investigation to light. furc found eight instances of manipulative bidding strategies in 2010 and 2011. the regulator says the bank used improper trades to sell power at above market prices. in one case, they say jpmorgan duped california utilities into paying $999 per megawatt hour when the going rate was only $12. california's independent system operator, which runs the state's power grid, and blew the whistle on the bank, says it was overcharged by at least $63 million, a spokesman acknowledges the types of notices are typically issued as a precursor to some sort of resoluti resolution. now, it can sometimes be weeks or months between the time furc
issues a violation notice and formal order. reports say they are in talks to settle the case for about $400 million. now, the violation notice does not mention any jpmorgan power traders, or blithe masters who runs the commodities desk. on friday, jpmorgan abruptly announced it was quitting the fiscal commodities business, an operation that owns three power plants. furc has been busy this month. a fine against barclays for manipulating power prices in california. barclays says it will fight that fine in court. back over to to you. >> appreciate the explanation. thank you for that. all the workers at a florida propane plant have beening accounted for after a series of explosions. no one was killed despite the blast that ripped through the plant about 45 minutes north of orlando. seven people were injured.
officials believe the fire is contained and that it won't spread to the rest of the plant. to break, still to come, silvio berlusconi could find himself behind bars if convicted of tax fraud today. is this the end of an era in italian politics? we'll bring you the latest from rome. ♪ [ agent smith ] i've found software that intrigues me. it appears it's an agent of good. ♪ [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ]
these are your headlines today. bp's second quarter earnings miss expect takings as provisions for the gulf disaster rise. barclays misses as well. the bank also announces a bigger than expected rights issue. and the focus turns back on to the fed as the two-day policy meeting gets under way. italy's supreme court will decide today whether former premier silvio berlusconi will be banned from public office and face jail following his conviction for tax fraud in connection to his television empire media set. let's get to julia chatterley live in rome. you're following the court case today. what is the latest now? >> well, there is seven cases up before him, karen. we're expecting actually that a verdict on this could take at least two days to find. his lawyers haven't asked for a postponeme
postponement, it does raise the expectation we do get a result over the two days. three possible outcomes, he could be found no guilty of tax fraud, it could be postponed and shifted to another court or he could be found guilty as you mentioned, that is slightly to come with one year's community service. and possibly a five-year ban on holding public office, that doesn't guarantee the senate votes on that. as we have seen in the past, this could take up to ten months. it is an ongoing process. what does it mean for the coalition government? that's the crucial issue here, berlusconi supporters talked about walking away from the coalition government. berlusconi said we need to be cautious that the covenant will remain together. it is interesting that the consensus view is that the biggest risk is from the other party, the democratic party, prime minister aleta's party here. the big kicker could be if they're forced to give berlusconi immunity from the conviction in order to keep the coalition government together, but i point you to the polls. these are no different from what
we got during the election time. no reason for either of these parties now to call an early election. so, yes, expect lots of noise around this case, but ultimately plenty of reasons for this coalition to stick together at least for now. karen, waiting on this verdict, under the roman sun, tough job. >> might be time for a gelato. thank you, julia. today's other top stories, carl icahn is back at it, countering michael dell's recent comments about voter turnout and calling for his ouster. in an open letter to dell shareholders, icahn says the pc maker would be worth more if it replaced michael dell. in a event interview, dell said he would stay with the company even if shareholders don't vote for his buyout offer at a meeting this friday. icahn calls dell a major liability that can be easily removed. here is a look at how shares have been trading in frankfurt. currently off .4%, but tracking lower for the past three months, down almost 5%. twitter may be inching ever
closer to a possible ipo. usa today reports the popular microblogging service has posted a job opening for a financial reporting manager. that person's duties would include filing an s-1 document or preliminary perspectives when the company is ready to go public. twitter ceo dick costello has repeatedly said management isn't focused on an ipo. still to come on "worldwide exchange," pfizer surprises with an early release of its results. and reorganization plans. we're going to have analysis after the break.
for the second quarter. shares of fiat tumbled to the bottom after the warning. you can see the share price at 2.9%. they were temporarily suspended, but fiat released results for the period. those numbers topped expectations on trading and net profit and kept its 2013 financial targets in tact. shares in bp are trading sharply lower. currently off just over 4%. this is after the company's second quarter results missed expectations. the oil giant increased its 2010 oil spill net provisions to $42.2 billion. earlier we spoke to ceo bob dudley and began by asking him about costs relating to the spill. >> we said we got $300 million of head room in one category in the fund, but we still got more than $6.5 billion in the fund. we're not in danger of that fund being exceeded for some time, if
ever. confident of appeal i believe very, very strongly in the merits of our argument. we have appealed what we think is a real misinterpretation of an agreement we made last yar to compensate victims of the spill. we're committed to compensating victims of the spill, but not the way it is being interpreted and we are vigorously opposing that. >> you think that's being abused at the moment? >> well, we made a request last week, which i think was actually a modest request, former director of the fbi has come in to investigate what looks like some malfeasance of payment claims there and we think it was a modest request to take a time-out after three years and the judge said no to that, but we'll continue to contest that. >> when are you expecting to hear the ruling of whether bp has been found to be negligent or grossly negligent, which has a huge bearing on the fine. >> there is a three-part trial, phase one was completed, started in february and ended in april. and the judge has time to rule
at anytime. there is also a phase two coming up that starts on september 30th. we think that will likely take a month or more. i think it could be -- could be at any point after phase two and there is even a phase three. so it could be some time and that's up for the judge to decide. >> pfizer has reported second quarter results a few hours ahead of schedule. the u.s. drugmaker's profit and revenue came in slightly ahead of forecasts. pfizer is standing by its four-year outlook. on monday, the company announced it was realigning its businesses into separate units, potentially paving the way for spin-off. let's bring in richard perkus at atlantic equities. restructure by pfize, the company has basically come up with three different units. one for selling drugs, pain disorders and inflammatory disease, another for cancer and consumer products, the third for products that have pain protection. >> this unlooks value for
investors, the part of the problem you have with a megacap conglomerate like pfizer is also a conglomerate discount priced into the stock. what the intention behind this is genuinely to unlock by releasing higher growth, higher multiple units from the business, you actually begin to see investors can much more clearly see the growth that is being generated by the pipeline that we actually -- which has come through pretty well in the last two to three years of the company. >> so expect the premium to be priced into the stock as a result. the share price is up 17% so far this year. and investors haven't had an issue with the valuation around the stock, have they? >> i think relative to where it -- the sector has been historically and where the company is currently, i think there is still upside for this stock. i think fairer value should be
mid-30s rather than kind of current valuation, you know, current price that the stock -- >> your explanation for the reason behind this restructure is interesting because the company says the split isn't done with a sale or separation of businesses in mind. so when you look at the overall strategy, would there be a reason for pfizer to sell off the businesses down the track? >> i think it is to highlight over the next two to three years when the businesses are still essentially part of the larger group, is to highlight the growth potential that is inherent in the business, but currently being lost because some of the older products, which are still declining, you know, essentially are masking the growth that is coming out of the branded side of the business. >> we have got merck with pfizer. what is merck's numbers going to look like? >> my expectation is for merck to generate revenues of about $11.2 billion on the top line, and i've got 81 cents and i
think consensus is looking for very similar on top line and 11.24 i saw just before i came out. >> you compared pharma to biotech and a little negative on biotech as a result. the earnings phase now, you've charted it for us, what is the potential for the pharma sector? >> well, the sector is extremely long cycle. if you look at the average length of the last three cycles in the u.s., you know, growth, you know, in u.s. top line, what you see is, you know, the average length of these is 17 years. and the average trough to peak, so in other words, the upside portion of that cycle, is around five years. so given that 2012 was actually 12th year for this industry, the industry itself is likely to have a very strong next three, four years. >> thank you very much for outlining that. richard perkus with us. that's all for today's show.
i'm karen tso. thanks for watching "worldwide exchange." [ male announcer ] it's time. time to have new experiences with a familiar keyboard. to update our status without opening an app. to have all our messages in one place. to browse... and share... faster than ever. ♪ it's time to do everything better than before. the new blackberry q10. it's time.
good morning. the fed is beginning a two-day policy setting meeting in washington. in earnings news, pharmaceutical giants pfizer and merck are among the premarket headliners. it is tuesday, july 30th, 2013. and "squawk box" begins right now. ♪ it's time to begin i get a little bit ♪ good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick with joe kernen. andrew ross sorkin is on vacation today. let's start off with the fed
this morning. the central bank is widely expected to keep the policy unchanged. of course, the question for the market is will policymakers give any hint as to whether the fed will soon start reducing its $85 billion bond purchases. steve liesman will join us in the next hour with a preview courtesy of the exclusive cnbc fed survey. this is a big question, though. big, big question. we have other economic news as well coming up on today's calendar. the case-shiller home price index. and at 10:00, second quarter housing vacancies. but the fed and that they're going to do, will they taper? >> after looking more closely at the whole piece about who had the best forecast and yellen did because she was so dovish, fisher was third. he's been a total hawk and he goes, yeah, you can be right when you know that all the stuff you're suggesting isn't going to be work.