francine: who will inherit brexit? theresa may and boris johnson face-off. marketsney calling the in need of direction. bank of america, city -- lose payouts after getting green lights from majors. --abank flunk the feds test deutsche bank flunks the fed test. he wants worst on record and a little matter called brexit.

we wrap up the moves and unforgettable second quarter. this is bloomberg surveillance. i'm francine lacqua with tom keene in new york. i would suggest the markets want direction. politicians in this country just want direction. the european union is looking for a little bit of leadership. tom: i like what you did there with the end of the quarter. i do not realize that there is a republican convention in 18 days in cleveland. i do agree with you, we have almost lost track where we are in every institution. maybe we will have some clarity. francine: mario draghi has not lost direction. yes to look at inflation. -- he has to look at inflation. what central at banks need to deal with, maybe it is a little bit of the beginning that we are starting to see green. this is pre-brexit. first let's get the bloomberg

first word news with nejra cehic. nejra: in the u.k., conservative candidates are making their pitches today to succeed david cameron at the party's leader. the next prime minister, you're seeing live pix of theresa may, one of the candidates. according to a poll, theresa may is the favorite among party members. 55% tods boris johnson, 38%. may is speaking live now. you can see her there. johnson will try to build on his success as the leader of the leave campaign. he will argue that britain has a bright future outside of the eu. former defense secretary, liam fox, is also in the running. george soros says the uk's decision to leave the eu has unleashed a crisis in the financial market. he told the european parliament it is similar to the global financial crisis that began in

2007. he says at the time he was invited to speak to lawmakers, the refugee crisis was the biggest problem you're faced. he said that brexit maybe worse. the attack on the symbols airport has hit turkey's tourism industry. the suicide bombing killed 41 people and wounded more than 200 could turkey blames islamic state. the attacks are likely to hurt tourism, and industry that employs the turkish workforce. fed has cleared the way for dozens of u.s. banks to boost shareholder payouts come all but two of 33 banks passed the annual stress test. the two banks that slumped with the u.s. unit and deutsche bank. deutsche bank has failed to years in a row. global news, 24 hours a day, powered by 2600 journalists in more than 120 countries. i am nejra cehic. this is bloomberg.

tom: take you so much. let's get to the data check. later and sirh us howard to join us here in a minute. futures up one. the yield up 1.35%. it is a goofy risk on. recalibrate the dow, 18,000. gold futures, 1321 showing a good feeling, negative six. as a go to the bank stocks, it is interesting to see the new lows tested. francine: i really like how you put that. goofy risk on. they're looking for direction, change as investors -- i wanted to show the banks and their, down 1.2%. mark carney addresses the financial industry in london later. we'll have to look at pound. tom: over to this chart, which i

am breaking a lot of rules on. i do not like multiple line charts. this is an ugly four-line chart. it tells the story of different kind of banking. jpmorgan here normalized up from the beginning of the crisis does really well. it comes on. here is a stodgy french bank, bnp parabolic may be known for what they did not do way of performing the swiss bank. ubs in red. deutsche bank, john cryan running deutsche bank right now. it is not only u.s. banking versus european banking but a real theme today is the new wants of the european banking come all of them under great stress. francine: we will get to banking in a second p it it ties with inflation and it ties with yield. this is a nerdy. the blue line is the cost to protect against u.k. inflation.

it's exceeded 2% in one year at 100 for basis points, that is the highest point since 2014. brexit is stoking risks on u.k. inflation banks. we can talk politics, the need for stability. speakingay still saying she wants to be prime minister of this country. there she is, the home secretary laying out a plan. how she would renegotiate with the eu. joining us, we are pleased to , theme howard davies chairman of the royal bank of scotland. great to have you on this ominous day. overall, what are you looking for for for statue -- looking for for financial stability? howard: the bank of england was well prepared. in fact, markets have functioned effectively.

, ire not anything like 2008 don't buy that george soros lied about that because there has not been times there were no crisis for assets. technically, i think things that worked pretty well. there is obviously quite a bit of repressing going on. if you look at -- repricing going on. even look at the forecast for the u.k., it has fallen by half point. that may or may not turn out to be right, but clearly people are trying to factor that in and say who are the losers and the winners. the banks that play on the u.k. economy. i think you got to try and see through the typography's very short-term changes and say what has changed? probably it is true that the exchange rate has changed. it is hard to tell us of the story as to why sterling should bounce back to where it was the

four brexit. that is having a medium-term affect. that is an enduring change you to some of the others -- francine: does the falling of the pound suggest a new british power -- the fall of the british power? howard: i don't like to think of exchange rates as symbols. different tend to talk in that way. just the french tended to talking that way. talked innch have that way. for the moment, i think the u.k. looks like a higher piece of stock at the moment. you will see until we settled down, you are seeing that priced in. morning.howard, good do the politicians of the united

kingdom have to move faster echo does labor have time to wait for labor day? for october? or do they have to get things done quickly? -- howard: itable don't think it is possible to think that you could have a fully worked out negotiating strategy within a week or so, when the prime minister clearly was expecting to win the referendum. what you're hearing from the european side is they want us to get on with it but i also think you're hearing a couple of months to prepare what we are pitching for in renegotiating should ship with european union is reasonable. the conservative party was right to bring forward their election so it will be september 2, we will have a new leader. new work being done under the government to try and produce and negotiating brief will the

tail into that. there will have to be some quick decisions made. my sense from talking to others in continental europe as they are prepared to give us that much time. tom: we have had a strain of , dovetailed -- would everybody calmed down decoratively calm down, we can move forward whether the united kingdom or the rest of us. when we hear inflammatory comments like alan greenspan saying scotland will remove itself of the union, how should george sorosd to or alan greenspan and others looking for bigger drama? how should london respond? howard: if you are in a position of response ability, either in government or running or overseeing big institution, it is wise not to speculate on the bad things that could happen.

it is wise to focus on making sure your own institution is sound. of course that is what i tend to do. i think some of these noises are rather unhealthy. on the other hand, just to shout don't panic is not likely to be hopeful when the reality is some things have changed. what we have tried to distinguish is those things that are just noise and those things which are likely to produce a more enduring change which you have to adapt to, because if you say we don't believe anything is changed, people are going to say what kind of planet are you living on? it is about steering a course between the two things. it is quite delicate. i tried to focus on what do i think what is likely to be in during? and what do i think is noise i have to get my head down? francine: we love what you do so howard davis. -- sir howard davies.

the brexit has unleashed a financial market crisis. bloombergs eric shafter will introduce -- will interview barclays ceo. this is bloomberg. ♪

francine: this is bloomberg surveillance. tom keene in new york. let's get straight to the bloomberg business flash. nejra: the biggest deal ever and the beer industry is one step closer to being completed. regulators and south africa have approved ab inbev's 104 billion takeover of sabmiller.

there are some conditions. they still have to sell their stakes in a south african beer company. and big insurance deal will go through. the justice department has told anthem that it's takeover of cigna threatens competition. general motors market share in the u.s. has fallen to a more than three decade low. gm has a 17% share of the domestic sales. executives say because the company is selling fewer vehicles. francine: we have seen banks under pressure. brexit puts the spotlight on a weak spot. with us is sir howard davies. sir howard, thank you for sticking around. banks such expecting as rbs to operate in this uncertainty? saying if investors are

focusing on weak spots, i will contested that. i don't think the british banks are weak in the sense of being fully capitalized. there may be some other -- the fact that we have had a pretty tough regulator over the last few years insisting on higher capital ratios than typically the case elsewhere is probably something which is in good stead. when i look at the capital positions including my own, i am not so anxious about it. the key thing is we are heavily influence by the u.k. economy. if the u.k. economy goes down, then demand will go down and nonperforming loans will go up. it is not a lot you can do about it. to hunker down and help you make good decisions, manage your risks effectively through a turbulent period.

the downgrading of all u.k. banks -- i suppose i am paid to say that. [laughter] been.hink it has i'm not sure that the recession bad.kely to be that the rest of the stock market is not telling you that. maybe you are a part of the selloff and financial banks, shares in general. in terms of politicians, does that help you steer what rbs may become in the next couple of years? howard: the bank of england and predatory authorities have been helpful. they have stuck to their knitting. they have done it effectively. the bank is good at managing its way through markets. in the case of rbs, we have made the decision that we were going to be a u.k. focused retailing commercial bank.

some of the issues about the status of capital markets in art significantly less important to banks like us. that is a big thing for them. will they continue to be up to use the passport into the rest of the single market? a bigger risk for them than for us. tom: part of your lovely charm is your understanding of macro .conomics what is italy going to do about their banks? i look at the price action and deutsche bank, it is nothing compared to the italian banks. i know you're not going to badmouth the italian banks. what you foresee as the process for the italian government to bail out that industry? howard: it is clear they need more capital. the problem is now, the fact in europe we have compulsory bailey

and if you have a resolution -- compulsory bail in if you have a resolution. -- people think there is a possibility of a resolution. capital will have to be found almost certainly through some state entity. brussels will have to think hard evocations ofe that and whether they are going to allow that. eventually it will get done. tom: will you please explain to our audience the rationalization of banks and equity share price does not matter. -- you cannot tell me that are lower equity share price does not matter to solvency and liquidity. at some point, that >> into confidence, doesn't it? some point yet yet as

yourself what situation you are in and whether you on the edge of needing capital. you raise rightly is closer to the wire because if you're in a situation where it looks like you do that need more equity capital. that is different from situation where you do not have any plans to issue any equity capital anyway, see you can afford to wait a while and maybe the consequences will not be serious. once the market turmoil is over, so i think it depends on the eminence of your need for new equity capital. on the whole, there is talk in the market that u.k. banks need new equity capital. happen we dothis not like it but we do not have to panic. tom: well said.

we will continue this look at american and european banks with their own unique stresses. thrilled to bring you brad hintz at new york university. bloomberg surveillance. this is bloomberg. ♪

francine: we're putting the spotlight on banks today we're hearing from the chairman of hsbc, douglas flint saying -- he is also saying that if all passport and rights were lost,

jobs could shift. let's get back to our guest host. sir howard davies of rbs. what does that mean? howard: the city would be affected. among the banks there been some contingency work done and we have had discussions. it is clear what we will like to see -- what we would like to see. we will like to see as much of the past porting preserved. access to school staff all over europe is important. the banks have a clear view about what we would like to see happen. the question is can we get fed that into the british negotiating -- is it negotiable? we are able to say the financial markets in london are a european asset. the risk is if you dislodge all of that, the winners will not be

frankfurt, they will be new york and the asian markets. francine: thank you so much. sir howard davies, the chairman of rbs. jpmorgan, global head of fixed income will talk yields. we'll talk a little bit of currency and work its. this is the picture for the markets desk currency in markets. -- currency and markets. this is the picture for the markets. will mark carney do enough? the banks you can see down from 0.7%. sterling at 1.3484. this is bloomberg. ♪

tom: this is bloomberg "surveillance," tom keene in new york, francine lacqua in london. brexit, sterling, i get it.

brad hintz joining us in the next hour. stress here, stresses there. now with those first word news. nejra: turkey has made more than a dozen arrest and the airport suicide all main. detained,s have been three of them described as foreign nationals. the turkish government blamed islamic state for the bombing that killed 41 people. there has been a setback in the u.s. strategy against islamic state in syria. the washington post says the syrian rebel forces launched a pair -- of what it appears to be a poorly organized attack. comings more evidence out about the crash of the egypt airplane. wreckage shows heat damage and a flight indicator showed there

was smoke on board. it crashed in the mediterranean last month. the new president of the philippines will focus on fighting crime. he has pledged to curtail crime and corruption. he says the economy is best left to experts. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. this is bloomberg. francine: this is the picture from the banks. we have seen so much negative pressure on european banks worldwide but especially on italian banks so we know that they have been saddled with 360 billion euros in loans and it seems that what grexit has shed a light on is the fact that we need more decisive action. us.michele joins

we need to start with the italian banks. how frail are they? bob: i think the action by the italian regulators tells you they are somewhat frail and it is unclear whether they were just stepping in with the uncertainty over brexit and some of the volatility that would result, and say there is back stop funding in place in case investors got worried about reserves. we think it was a prudent step because after all, looking at investing in european debt, debt is about winnable so providing a backstop make sense. tom: give me an update on the tone on the jpmorgan desk. john morgan is over there and other people. we have a chronic reality of negative rate wrapped around a binding banking crisis -- buddi ng banking crisis. what is the effect of these ever

negative rates on the financial system? bob: it is concerning do earnings because as rates go lower and lower and there is more talk about the central bank stepping in and cutting rates again, whether it is the ecb doing 10 basis points, we will hear later for mark carney what the plans are for the mpc and bank of england. as they bring rates down that puts pressure on the interest margins so there is a realistic problem in the banking system in terms of trying to generate revenue from that interest margin. i think grexit in and of itself -- brexit in and of itself has created a lot of confusion and you heard it from your earlier guest who is essentially the rockstar of u.k. banking. we have just had moody's come out and downgrade u.k. banking -- tom: i have got to interrupt.

jamie dimon is the rockstar of u.k. banking. francine, go to bob. , weuld strongly recommend are at the end of the corner -- quarter and what is floating is qe4. francine: we have been so caught up in all the events and we need to take a pause and think of the quarter that we have just had. incall it unforgettable look terms of what we have seen in yen strength and oil. brexit, this is almost a new beginning. what happens to the markets from now? howard: there is a lot of uncertainty and we were talking about that this morning. it looks to us that you have about two and a half years minimum uncertainty ahead. you need a leader of the conservatives. it is unlikely that they will 50m a plan and trigger

before the end of the year, and then you have two years from that point to negotiate the two in the eu and u.k. the markets do not like the uncertainty. everything that you hear about the potentiality of rex it is disinflation -- of brexit is disinflation area -- disinflationary. tom: tell me about the short-term paper market. what have you observed in the last number of days, particularly about confidence in the short term paper market? bob: confidence is still very high. when we look at the curve and we ty of about the potentiali the mpc to step in and cut rate, it does not feel as though the

front and of the market is pricing that in. because of that we like the front and of the u.k. market quite a bit. what we are seeing certainly in there is ats is flattening of the curve going on which historically has been a good lead indicator of recession coming. francine: i'm trying to get some yields up because italy's selves five -- cells five year yield at a low. have helicopter money to try and do something about world growth? it is not crazy that yields are going lower because the central banks are proactively printing on a. -- money. francine: but we do not have it in the textbook. howard: i think the textbook is being written as we speak. i think we can try and guess how it ends but in the meantime you have to look at the weight of

cash that is coming into the market that is taking yields negative. you have to look at what is going on in japan where you pretty much have to go into the super long end of the market to find anything with a positive yield so consequently money is being exported into the u.s. and european markets from japan. until the money printing stops or we siege -- or we see a growth in inflationary pressure you are going to see the rates go lower. tom: there is the banner of italian debt at a record low yield. ,veryone in our audience whatever their sophistication is looking at the fiscal position of a given country and where yields are in saying this is the mother of great distortions. how does it unwind? there are two components of sovereign debt and everyone is

looking at the credit quality of italy. there is concern about the banking system and saying, how could somebody of that credit quality issue at these levels? then there's the interest rate component of government debt and the proactive policy of the ecb is to print money and bring they createlower so debt sustainability for a lot of these countries, specifically the peripheral european countries. create some able to stability in the economy so it could last for a very long time. hour, theus this rockstar of asset management of fixed income, robert michelle. john chambers will join us, and important time to speak to mr. chambers. cisco stock has really held up.

this is bloomberg "surveillance." ♪

francine: this is "surveillance," tom keene in new york, i am francine lacqua in london. here is what we are watching. later today we get the latest jobless claims in the u.k., and that is something that we need to watch out for. i think it is the u.k. -- i think it is the u.s. 8:30 a.m. eastern time. then we hear from james bullard speaking at the society of economists annual dinner and we hear from mark carney. that is probably the most important thing we have to watch out for today as markets are expecting to have an idea on whether they can trust this

rally. tomorrow, puerto rico faces default on about $2 billion in debt. tom: thank you so much. michael mckee here and we can go inween you, me, and michael the vicinity of three hours there is so much going on in banking. saidoward davies basically the government is going to come in and bailout italian banks. forget about malarkey stress tests, that is the ultimate stress. michael: it is a better stress test in europe. the stress tests in the united states show a few problems with the banks in europe. the first round of the test show they had adequate capital. round two was the qualitative tasks are they looked at the dutch tests were they looked at the -- deutsche bank trust did

not pass. tom: that is misleading because that is hsbc and a ntd group toronto dominion. that is not deutsche bank. that is a little tiny part. michael: deutsche bank is the clearing end of the wealth management. according to the deutsche bank people, it was about 5% of their balance sheet. santander knew they were going to fail and they are still working on their risk control systems. both of these are going to be folded into separate holding companies in the u.s. starting july 1. tested with stress other portions of those businesses in the u.s. starting next year. in 2018 if they do not pass they cannot send profits back to the home country because they will have to retain some to meet their capital requirements. francine: stress tests in terms

of the u.s. banks, we know there is no systemic risk? bob: the u.s. banks did do really well and after years of taking out cost and cutting capital, they can withstand some pretty severe stress tests so from a credit quality perspective, they look attractive to us. how the global economy plays out in the wake of brexit remains to be seen and what that does to loan demand and potential write-downs also remains to be seen. francine: in terms of what we are expectg from u.s. banks, it is just how much they are giving back to shareholders and we wait for earnings? michael: you probably do not listen to anything but bloomberg " but there is a radio show in the u.s.

citibank and bank of america have all announced their capital plan and they are raising their dividends significantly. they had been the laggards because they had not been able to pay and now i can pay more and do some stock buybacks. tom: i remember the weekend when cyprus lou up. you go -- blue up. italy?the attention on michael: the italian banks have been in the situation for quite a while and have been working on rescue plan after rescue plan. they want to do a massive plan at once and are using brexit as a timing opportunity. they can say we have a massive disruption, let's fix the banks while we can. angela merkel is not down with a plan. , we willael mckee

continue this discussion, brad hintz joining us later on television and radio. bob michele will stay with us with jpmorgan in london. next, we will move to paris in a conversation with john chambers on the interesting politics of the united kingdom. john chambers on the cloud. this is bloomberg. ♪

francine: i am francine lacqua with tom keene. this is bloomberg "surveillance or go let's head straight to paris to talk to a high profile executive of the impact of brexit on his visit just his business. he is john chambers. what does brexit mean for cisco in europe? first of all, our investments across europe stay in place and if i can transition, what you are saying and france is countries are all going to go digital. as they do that and do it effectively they can grow their

gdp faster than before. this is the second internet revolution if you will. all jobs will be created by startups small to medium are inses so whether you the u.k. or france or germany or italy, all of those countries are saying it is going to be a digital world. i need tosurvive, lead in this transition. years ago many of your viewers would have said do not invest in france, and the transition they have made in the last two years, i think they will become the startup nation and europe. if you look at the number of startups and look at where they were and the consumer electronic show, and having talked with them in france, israel, and india, they realize their future is about to come at a digital nation and that is how they are going to create jobs, and the

economic challenges, in a world that is changing rapidly. concretelyive me what a brexit means for cisco. all you u.k. jobs to france? , obviously we would preferred that the exit not take place but this is the new world. changes will take place all the time. i used to think agility was a marketing term and it is really what every company and country has to change. as everybody goes digital, the job creation will be in those countries that we make those changes rapidly. unfortunately the changes we are seeing geopolitically are the norm. we are deeply committed to the u.k., deeply committed to france. i said france would be the next big thing a year-and-a-half ago and it turned out to be accurate

because they control their own destiny. you have leaders that understand the digital economy is the future much like president clinton did in the u.s. in the 1990's. tom: wonderful to have you with us. congratulations on your share price. it is nice to see cisco's shares hold up. what is europe going to do about the cloud? do they have a jeff bezos in europe that can help them compete with a huge u.s. advantage in the cloud? john: i think you have hit a key question. if you think about the future of countries and a geopolitical area like europe, how well they theyize europe, how well digitize their countries will determine their future on job .reation, startups, etc. the cloud is an element of that digitization.

if you are to look and france, startups did not have much to or three years ago. -- two or three years ago. when i look at europe i think they are ahead of the u.s. with their government thinking about how do they leverage this next generation of the internet, similar to what president clinton did. 22 and a half million jobs, gdp growth 18% in income. tom: as you mentioned, you are from the other party. can you support mr. trump? could you go to the convention in cleveland? hank paulson says he is not going. , i have a tremendous amount of respect for and he is a very good friend. i am going to support the candidate who can outline the

future of our country. major economic growth, average american household getting 15% to 17% pay raises. we have not have -- had a raise for average americans in 15 years. the kurds to say, how do we redo our education system, -- the leader has the courage to say, how do we redo our education system? whoever does that the best get my vote. tom: john chambers, of cisco. -- bob michele to wrap up. there is nothing on hillary clinton or donald trump. how does the political mix in united., in francine's

kingdom, how does that fold into bond market lethargy? bob: number one, there is uncertainty about what leadership will look like going into 2017, whether you are in the u.k. which i think has a lot more problems than what you are saying out of the u.s. where you are going to have two candidates. very clearly that can go at the issues. i think the other issue that is more important coming out of the u.s. is what each candidate's fiscal policy will look like. if you think of the pre-brexit world, there was a feeling that central banks had reached terminal velocity on the things they could do to stimulate the economy. there seemed to be some second-guessing going on among central bankers on whether they should go further into negative territory, whether they should be printing more money and expanding qe. francine: is the biggest danger

a policy mistake from the fed that they raise to quickly? bob: very clearly that is the danger, that you get some sort of policy error. there is a feeling from the fed that they can normalize against a backdrop globally that is slowing down. brexitback said -- free you had the world gdp -- pre-brexit you had the world gdp up. tom: robert michael with jpmorgan -- robert michelle with jpmorgan. will give us perspective and the next hour, and brad hintz on the many stresses of global banking. ♪

francine: the stress continues -- tom: the stress continues for

deutsche bank and unicredit fall to lowe's. markets stabilize after brexit suddenly, a crowded field to replace the prime minister. some republicans had to cleveland.- head to "surveillance." francine lacqua, expert on italian banks, that is front and center and you just saw the headline on unicredit. francine: this is a press report. i would make two points. we knew there was only two or three people in contention for the job and we thought it would maybe go to a former economy minister but i'm telling banks that is very clear they need a measures toprevious

shore up a timeline have failed so we need a resolution sooner rather than later. tom: they rebound and now they fractionally rollover. it's get to our first word news on brexit. the u.k., conservative candidates are making their pitches to succeed david cameron as the next prime minister. according to a poll, home secretary theresa may is the favorite, leaving boris johnson 55% to 38%. may was speaking earlier this morning. johnson will try to build on his success as a leader of the leave campaign. justice minister michael go is joining the rain as -- race as well, as is liam fox. george soros says the decision to leave the yu-gi-oh -- to leave the eu has caused a global

crisis. >> it is the height of irresponsibility to allow the eu to disintegrate without utilizing all these resources. throughout history, government have issued bonds in response to national emergencies. when should the aaa credit of the eu be put to use if not at the moment when the european union is in mortal danger? at the time heys was invited to speed to lawmakers the refugee crisis was the biggest crisis. arkey has made more than dozen arrests and the airport suicide bombing attack. 13 have been detained and three are described as foreign nationals.

blameskish government islamic state for the bombings that killed 41 people at the airport in istanbul. the fed has cleared the way for dozens of u.s. banks to boost shareholder payouts. thetwo banks that flunked stress tests were santander and deutsche bank. global news 24 is a day powered by more than 2600 journalists and analysts and more than 120 countries, this is bloomberg. tom: i want to get to the data check with an important chart. up five.ield, futures right on to the next screen. we are going to reset where we are in equities which is good, 15.97 on the vix. dowst down to 18,000 at the

. no one expected that a few days ago. we are looking at central banks and the most important person we will hear from today is mark carney who will try and strike preemptively ith his boe blitz at 4:00 p.m. a little bit of the market looking for direction, banks pretty much flat. i have a snapshot of banks across the atlantic. screen, thenes on a beginning of the financial crisis. jpmorgan with a better than good return over the years. in parisnp paribas acclaimed for what they do not do. down here ubs in red and deutsche bank is the laggard of laggards. i would suggest the italian

banks are frankly off the chart. banks have hadan the problems that european banks have had for while, they just not have -- they have not dealt with the problems so the bigger the problem, the more npl's and the more money you need to pay into it. lower, japan, germany, and u.k. 10 year. both germany and japan well below zero. tom: we have two wonderful guests today. us ride while her is with and bradley hints -- the rag maher and brad hintz. we are thrilled to have you on after sir howard davies earlier as well. i want to bring up the european bank chart and i want to go nyu theory.

both nobel laureates in different years tell me equity and debt does not matter. there is the european stocks index, heading down to new lows. -- explain explained why equity share declines should avoided. deutsche bank is going down and share price as is unicredit. what does that signal to governments and regulators? brad: they do not meet their cost of capital. when we think back in 2009, what ?id we expect regulatory change and back to normal then we realized regulatory change was going to continue in the meantime. then we had an economy that has been very slow recovering on the banks have not been able to come to grips with that.

none of these banks have been able to beat their costs of capital. even when you look at goldman or jpm it is only intermittently. the market keeps discounting further and further. ken lay through mergers and acquisitions in combination become more anglo-saxon like? what you are asking me, other european banks doomed. they are not. deutsche bank is not going away, ubs is not going away but we do not have repricing going on and the marketplace. if you get to risk taking and trading, how do you provide liquidity? pricing has to increase so we have this war of attrition. tom: the solution is always weaker currency. that is the gross economic solution to the challenges of

industry.s do you just assume an ever weaker euro? doesn'ti think you're a europe accepts there is only so much you can get from a weaker currency. it has been demonstrated like a race to the bottom and mario draghi said we need a new tactic. a weaker euro from this level is going to be the savior and i think the ecb accepts that, draghi accepts that. but then you go back to the banks, do they want to lend and is the demand for credit there? francine: one quick question on george soros. he spoke to the european parliament in brussels and basically said brexit has unleashed a financial markets crisis. true or false? daragh: this is the difficulty

because it is the very early stages. , we had theehman news and a bit of a pause and then the trauma followed. it is certainly a big hit for sterling. we have gotten another 10% before the end of the year so we are definitely not out of the woods, and that is the danger about what we are seeing, dangers of the ftse 100 thing back to the pre-brexit economic levels. i think he is right to flag it and time will tell. francine: we just had confirmation of the earlier press report that unicredit is planning to appoint mustier as the new ceo. when you look at these banks, if we are in a financial style crisis do we not need more decisive action, consolidation

amongst the banks or letting some of them go? brad: we need action in the sense of management teams making some changes in acquisition. i am not sure the central banks will allow the larger banks to do more acquisitions but let's recognize that banks have been hanging onto businesses that are not performing well. the capital markets business has not been performing well and they are trying to do some, they want high return investment banking businesses to do well and stay, and low return trading businesses to shrink. that is fine except all these businesses are tied together. , which i guess makes sense on a chalkboard has not worked out well and that led to where we are today with all these banks hanging onto businesses performing badly, hoping it will get better. from the point of view of an

academic it is easy to say they should spin it off or shrink it, but many of these do not have any choice. think of barclays. it really cannot get out of capital markets. tom: i want to come back with brad hintz and talk about the quadratic nation -- nature of book value. if you come into that valuation, it is not linear. brad is shaking his head. we are going to come back and go quadratic. it is quadratic thursday. isncine: when i want to know mark carney and whether he can preempt a strike of the turmoil we might see on the markets. brad hintz stays with us. later today, erik schatzker will interview barclays ceo jes ,taley at 11:30 in new york

4:30 p.m. in london. ♪

francine: i am francine lacqua in london, tom keene in new york. we are looking at all things quadratic, markets or politics. let's get to the bloomberg business flash. nejra: in spain there may be plenty of hurdles before the prime minister locks down his second term but some think he is a shoo-in. since then, money ministers have been dying 10 -- buying 10 year spanish bonds. exxon mobil is shifting its approach to the issue of climate change, ramping up its lobbying of other energy firms to support a carbon tax.

the biggest deal ever in the beer industry is one step closer to being completed. haveators in south africa -- that is theof bloomberg business flash. ourcine: nejra cehic with news. politicians are battling to succeed david cameron. favorite,y is the leading former london mayor 55% to 38%. johnson is expected to speak later this hour. us. edwards is now with this feels like italian politics, it is a mess, everyone

trying to wrangle in and become number one on downing street. theresa may pitching herself as perhaps the unity , trying to bridge the border into scotland. what she said and she is the bookies favorite, she said there will be no second vote, there is no say -- stay in by the back door. take a look at what she has been saying because if she is going to be leader of this party, she is going to be the one calling the shots. goalso heard from michael campaigning alongside boris johnson and has now decided to stand against him. we hear from him a little later this hour. he said that boris johnson cannot provide the leadership or build the team for the job

ahead. tom: issue the second coming of margaret thatcher? great cv comes with a and she has held an office in state for a long time, one of the great offices of state. she has been home secretary so she has that credibility behind her. she even confessed, i do not want the lobbies and spend time in bars and drink with people but she gets the job done. she comes with a great deal of pedigree. francine: tom is just thinking strong woman, margaret thatcher. this is the great thing about is quirks of the british that out of the last three and for prime minister's they were never the favorite to win. i do not know if it is a polling problem or a sentiment shifts quickly. tom: does this debate affect

sterling? 1.20 call for a sharply weaker sterling. does the domestic politics full into it or is it about finance? daragh: it is part of the mix because whoever ends up leaving up leading thend negotiations with eu, and that is the big thing for sterling. how is this divorce going to play out? if you get somebody who is considered to be confident -- confrontational, that will be problems for sterling. the feeling seems to be if theresa may gets it that will make the negotiations smoother that we just do not know. she is not as known as boris johnson. everybody has an idea of who he is and what we might expect of that. boris johnson we

understand is due to speak shortly, but give me a sense, what we heard from jean claude ifcker, is it a difference this country to say prime minister that is pro-brexit or gopro remain? how much of a difference does it make accessing the single market? daragh: it should not make that great deal of a just difference. -- of a difference. maybe in terms of making it beatable to europe, it might conceivable if you had some were more along the middle ground that might make the negotiation process easier. close to 48% of the u.k. wanted to stay in the eu and the negotiations should take that link.

i am exhausted by opinion polls and bookmakers. i thought we left that all behind last week. tom: thank you, anna edwards. it was great coverage from parliament the last week or so. we are going to continue with our esteemed guests. i want to tariq with brad hintz -- talk with brad hintz on a moving bank. six, dow futures up 61. this is bloomberg. ♪

"surveillance," it is a washington focus on philadelphia but first, cleveland snaking up. , the republican convention. this is an op-ed from the new york times. nicole wallace, let's look at what she said in the times. this is a blistering op ed about mr. trump. the terrible press that follows -- they persuade him to finally stick to a script and become a normal candidate for the presidency who delivers a speech like the one on trade in pennsylvania on tuesday. this is really extraordinary.

i have no idea what america is going to see in cleveland in a few weeks. talk about uncertain, this is uncertain. francine: it is but you know what brexit did for may is here in the u.k. and across europe, people are trying to see whether the vote means anything for the u.s. it is very clear that because of your checks and balances, even if it were a more colorful presidency from donald trump it seems that there are enough checks and balances that the damage he could do would be fairly limited. tom: here is the gop website for the convention. it is generic. the back story is esther trump wants to get celebrities and -- mr. trump wants to get celebrities and make this jazzier. i guess mr. ryan will show up. mike ditka said no, he is not

going. we have come down to the idea of a presidential candidate trying to drag ask football players in to give speeches and endorse. remarkable. francine: i would point our viewers and listeners to in article saying, think a brexit will not happen? a trump white house is just as what -- likely. debate, listen to ." ih all due respect believe they will be going to cleveland. this is bloomberg. stay with us. ♪

?c+sv francine: these are live pictures over the city of london. you can see some of the financial institutions that could be hit by a possible

brexit. it is all about passport inc. -- passporting and access to the single market. candidateservative are making their pitches to succeed david cameron as the next prime minister. home secretary theresa may is the favorite among party members , leaving boris johnson at 55% to 38%. >> whether you supported leave or remain or whether you predicted the sky would fall in or whether you did not, the result means we face a period of uncertainty that needs to be addressed head on. nejra: other candidates include michael gove, andrea leadsom, stephen crabb, and liam fox. markof england governor carney as launching an unusual

public-relations offenses. he will try to reassure investors after all the market turmoil. he is meeting with reporters and the finance industry. his predecessor mervyn king was criticized for not speaking out at the start of the global financial crisis. a setback for u.s. strategy in syria, islamic state forces launched -- the syrian rebels launched what appeared to be a poorly conceived raid in syria. wreckage from the east -- egypt airplane showed heat damage and a flight indicator indicated there was smoke on board. the plane crashed into the mediterranean last month. france's president is backing hillary clinton, saying that puts amrump's rhetoric

on the same level as the extreme right and his election would hurt u.s. ties with the u.s.. news 24 hours a day powered by 2600 journalists and analysts in more than 120 countries, i'm nejra cehic. francine: banks have been taking a beating since the brexit vote. michael moore joins us in london. thank you for joining us. every day there is a new banking story. we spoke to the rbf chairman and douglas flint and they are saying if we lose all passporting rights than 1000 jobs will have to be moved. could that be more? .ichael: that is just hsbc you are starting to see the banks coalesce alarmist -- around the strategy and that is and suchor passporting

a political vacuum the banks filled a need to speak out about what they want. they are saying they need the passporting. some of: if you look at the main focuses on the italian the man inoke to charge with the italian sovereign wealth fund and he said we need patients and a timetable and it will be resolved. why have we gone to this point in italian banks? have we failed in trying to find a solution? thosel: it is one of issues that you never feel the trigger until it comes. it has been an issue for a number of years but it seemed like they could work through it but then you get this outside volatility, and that speeds up the timetable for having to address it. tom: i have no idea what passporting means.

are you looking for a speed check at customs for fancy bankers in fancy suits? is what passporting allows the banks in london to sell and clear products across the eu, and allows them to basically serve all of europe out of london. if that is taken away they may have to move more people, more operations to the continent or two and eu-based country. tom, i am sending you to finance dictionary camp. you sent me to chart cap. this is -- chart cap. mp.can michael: it is politically negotiated and there is a lot of wiggle room. tom: brad hintz as well.

mr. moore, why would europe agree to that? forget about juncker. why would. paired off -- bnp paribas? michael: they have people in london as well but it is a fair question that has been asked many times on why with the eu politicians allow the u.k., some have said in the past if you want passporting you are going to have to have flea -- free movement of labor. certainly they are at odds that the bankers did not want brexit to begin with. now that it looks like it is going to happen they want some form of passporting preserved. heard from howard

davies earlier and he said he would go to the eu and say this is something the u.k. needs to keep. it is benefiting the whole region. to new york and singapore and that is something the eu probably does not want. tom: how do you think the responsiveness will be? why should they play nice to the british banks? brad: it is simple. or you want to sell your bmws in the united kingdom? from the point of view from the british economy, the financial sector is very important. tom: bring up the export chart. exports to the's united kingdom and germany imports. that is not it, that is a different one. there it is.

moveny really needs to bmws to the u.k. so that makes ting something that could happen. brad: frankfurt and zurich are too small to take the place of london. tom: we are going to come back and have a clinic on quadratic book value. talk about a nerd fast. i thought exporting was at heathrow. francine is shaking her head going, are you kidding me? mayor johnson will save us. he is supposed to come up at some point. erik schatzker, he has been a little busy speaking to mr. staley. he will beat him to death later

today. this is bloomberg. ♪

tom: tom keene in new york, francine lacqua in london. this week, all of bloomberg worldwide with a focus on the pharmaceutical industry. this is the most interesting story. he has been a path breaker in baltimore, maryland, evergreen is suing the government over the affordable care act. the chief executive was way out front saying, we are in the

trenches, we are doing this, and we are getting it wrong. beilenson, give us an update on your biggest headaches applying obamacare. peter: risk adjustment. ofis one of the three r's the affordable care act. adjustment -- go ahead. tom: we are going to have you back on soonest as we go to london, in central london here is the former mayor of london. [applause] : last week the people of this country voted to take a new and a new direction for britain in a decision that i

passionately support. it is vital now to see this moment for what it is. quayle, it a time to is not a crisis, nor should we see it as an excuse for while the wing or self-doubt, -- four wobbling or self-doubt. a time not to fight against the tide of history or to take that tied at the flood and sale on to fortune. this is our chance. this is our chance to build a britain, not just with a dynamic free market economy but an economy where everyone benefits asm that success because someone who has campaigned across the country and the last few months and spoken to thousands of people, i can tell

you there are too many who have not seen their wages rise for years. in many cases, seen them fall. you cannot understand how it is that the pay packets of the ftse 100 chief executives are 150 times the average pay of the workforce in their companies when it was perhaps 50 times 20 1980.ago, 25 times in i am no communist. as my time in city hall will testify, i make taxcutting conservative but i want a capitalism that is fairer to those forgotten people, where we invest in the potential of every young person so they have the skills and confidence to take advantage of what this country has to offer. this is our chance to learn the lessons of that referendum campaign. , tone nation conservatives

speak up for those forgotten people, to give them the latter dert they can climb -- lad they can climb and draw them back into the conservative coalition they once belonged. restorea chance to britain's standing as a sovereign and self-governing nation, striking deals with the great economies around the world. in just the last few days i have australia,erages in india, malaysia, and singapore. the good news for our friends in america is that they will be at the front of the queue. [applause] chancenson: this is our to relaunch our commitment to europe, to peace and stability on the continent by giving

leadership on defense counterterrorism and all of the things that make our continent safer. this is our chance to assert our values, to tell the world again what kind of a country britain is. equally value everyone no matter when you were born or when you came to this country or what religion you practice, you are part of our great british family. [applause] celebrate.: we we celebrate the contribution made by people who have come to this country to make it that are and richer, -- better and richer. a country where every person regardless of their sexuality can get married and find fulfillment.

theeedom of right is one of finest of david cameron's many achievements. this is our chance to unite our party around those values and at the same time, unite our country and our society. thes vital now in conservative party that we bring together everybody who campaigned so hard both for the remain and the leave sides. i would like to see the most talented and capable men and women in our party uniting to take the country forward. when i think of the progress that i want this country to make and hope it will make, i cannot has but think of how london been transformed over the last few decades, from relative stagnation to the most dynamic urban economy in europe. i am

proud of what my team achieved in city hall over the past eight years in which we did everything to break down the barriers into fuel the engines of social mobility. we brought down crime by almost 20%, murder is down by half. buses ismitted on down. we cut deaths by fire by 50% and brought down road traffic accidents to the lowest ever level. and when you see how crime and disproportionately fall on the poorest sectors, i think you can see those reductions as a victory for social justice. [applause] mr. johnson: we championed

transport, the great equalizer and literally the great mobilizer for individuals to take advantage of them best wealth creating zone and europe. liberty, we were able to build a record number of affordable homes and to regenerate huge part of east london. i am proud to say that when i left office last month there were 44,000 sites in the city under construction, more than any time in the history of london. [applause] : you will see the astonishing physical legacy, unlike a legacy that has been produced by any other olympic city. we did our best to invest in our human capital by helping london's superb schools and

teaching with our excellence than, creating more 200,000 apprenticeships and putting tens of millions of pounds into the pockets of our poorest cities -- poorest residents. years, notof eight only is everyone living longer, 18 months longer both women and men. the biggest gains in life expectancy have been made by those on the lowest income. london,ecame mayor of for out of the six poorest boroughs and the u.k. were in london and now london has none of the 20th -- 20 poorest boroughs. it is time for government to invest in the infrastructure and devolution ofscal

agenda, to make sure that london's success is replicated across the u.k. i will not pretend that everything has always been rosy. things are sometimes tough even in the greatest city on earth. i have led the capital through riots and strikes and terrorist attack, and every time we have bounced back and gone from strength to strength. i treasure a cover of time magazine from eight years ago which had a picture of various famous london buildings being engulfed by the waves. "london sinking" was the headline. the greatest tech hub in this hemisphere, the number one tourist visit -- destination on earth. more people go to the british museum then go to the whole of belgium. not that i have anything against brussels.

s of doom were wrong then and are wrong now. london and the whole u.k. will flourish mightily outside the eu. manifestly in the economic interest of our friends and partners to agree a deal that involves mutual and universal access to our markets with no tariffs or quotas, while we remove ourselves from the eu legal order and the supremacy of the european court, and take back control of our immigration policy with a points-based theem that is fairer to all talented and hard-working people who want to come here whether they are from the 7% of the world in the european union or the 93% that are not.

[applause] mr. johnson: this is our chance to think globally again, to lift our eyes to the horizon, to bring our unique british voice and values, powerful, humane, and bring them to the european forums without being governed by a body. this is our moment to stand tall in the world. that is the agenda for the next prime minister of this country. well i must tell you, i friends, you who have waited faithfully for the punchline of the speech, that having consulted colleagues and in view of the circumstances in parliament, i have concluded that person cannot be me. my role will be to give every

possible support to the next conservative administration to make sure that we properly fulfill the mandate of the people that was delivered at the referendum, and to champion the agenda i believe in. to stick up for the forgotten people of this country. so, if we invest in our children and improve their life chances, if we continue to fuel the engines of social mobility, if we build on the great reforming legacy of david we invest in our infrastructure and if we follow a sensible, moderate, one nation, conservative result that is tax cutting and pro enterprise, i believe -- francine: that is the former mayor of london announcing that

he will not try and run for the tory leadership and will not try to become u.k. prime minister. it was a very boris johnson type speech, talking about the good he has done for london. he was talking about the place he sees the u.k. as having but he will now focus on giving support to the team that he believes should be in charge when renegotiating with brussels. tom: mr. johnson ending his speech. ve li as a child gb speechspeech -- l -- lbj speech. how will this be interpreted by miss may? francine: if you look at boris johnson, there was a lot of divisive nests.

he is something what we call a marmite. you either love it or you hate it and boris johnson had the potential of never becoming prime minister. maybe he thought he would never be elected so this is a better chance to support who he thinks could win a better negotiation. he has yet to announce who he supports to become prime minister. , sterling be direct spikes on this and goes back today's highs. people like this announcement but a fold into the shock of all global wall street. i saw you when he announced it, you were shocked. now we have anly conservative party that will not be splitting at the seams, that we are all behind the leader whoever they elect. theresa may is so far above any

other candidates. makeup tohe have the replace mr. osborne? daragh: i think he will be going for one of the high profile positions. in, maybe taking a view having gone in, the conservative bbling, maybe he things this is -- thinks this is the thing -- thinks this is the thing to do for the party. tom: tomorrow, a conversation with james bullard, that bombshell paper 10 days ago. this is bloomberg. ♪

e >> another shock exit as

conservative mps bottle it out. boris johnson rims himself out of the race. thinkers pass the federal

reserve test. >> it is the end of the second quarter. best quarter since 2008 and oil the strongest since 2009 at the spillover from a political shock. ♪ >> worldwide, the focus on london. i am jealous of pharaoh alongside -- i am jonathan ferro alongside david westin and alix steel. boris johnson announcing he will not run in the leadership race to be the next prime minister. there is a little bit of a bounce on sterling, which and is rather engaging for people looking at the race. another political shock. david: